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What changed in Finwise Bancorp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Finwise Bancorp's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+447 added−362 removedSource: 10-K (2024-03-25) vs 10-K (2023-03-30)

Top changes in Finwise Bancorp's 2023 10-K

447 paragraphs added · 362 removed · 274 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

77 edited+43 added−16 removed128 unchanged
Biggest changeFurthermore, deposit insurance may be terminated by the FDIC upon a finding that an insured depository institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. 19 Index Regulatory Restrictions on Dividends The Federal Reserve’s policy statement and supervisory guidance on the payment of cash dividends by a bank holding company, such as the Company, expresses the view that a bank holding company should generally pay cash dividends on common stock only to the extent that (1) the bank holding company’s net income available over the past year is sufficient to cover the cash dividend, (2) the rate of earnings retention is consistent with the organization’s expected future needs and financial condition, and (3) the minimum regulatory capital adequacy ratios are met.
Biggest changeRegulatory Restrictions on Dividends and Repurchases of Equity Securities The Federal Reserve’s policy statement and supervisory guidance on the payment of cash dividends by a bank holding company, such as the Company, expresses the view that a bank holding company should generally pay cash dividends on common stock only to the extent that (1) the bank holding company’s net income available over the past year is sufficient to cover the cash dividend, (2) the rate of earnings retention is consistent with the organization’s expected future needs and financial condition, and (3) the minimum regulatory capital adequacy ratios are met.
Underwriting is generally based on commercial credit metrics where the primary repayment source is borrower cash flow, secondary is personal guarantor cash flow (when applicable) and tertiary is the sale of collateral pledged. These loans are generally secured by liens on business assets. Historically, we have retained these leases and loans on our balance sheet for investment.
Underwriting is generally based on commercial credit metrics where the primary repayment source is borrower cash flow, secondary is personal guarantor cash flow (when applicable) and tertiary is the sale of collateral pledged. These leases are generally secured by liens on business assets. Historically, we have retained these leases on our balance sheet for investment.
Minimum and maximum loan amounts range from $500 to $2.0 million and loan terms range from 6 to 72 months. The Bank’s current Strategic Program service providers include OppFi, Reach Financial (formerly Liberty Lending), LendingPoint, American First Finance, Elevate, Upstart, Mulligan Funding, Great American Finance, Edly, Empower, and Stride.
Minimum and maximum loan amounts range from $500 to $2.0 million and loan terms range from 6 to 72 months. The Bank’s current Strategic Program service providers include OppFi, Reach Financial (formerly Liberty Lending), LendingPoint, American First Finance, Elevate, Upstart, Mulligan Funding, Great American Finance, Edly, Empower, Stride, and Earnest.
Community Reinvestment Act The Community Reinvestment Act of 1977 and the regulations issued thereunder are intended to encourage banks to help meet the credit needs of the communities they serve, including their assessment area(s) (as established for these purposes in accordance with applicable regulations based principally on the location of branch offices).
Community Reinvestment Act The Community Reinvestment Act of 1977 and the regulations issued thereunder are intended to encourage banks to help meet the credit needs of the communities they serve, including their assessment area(s) (as established for these purposes in accordance with current applicable regulations based principally on the location of branch offices).
Our loan committee is comprised of our Chief Executive Officer, our Chief Credit Officer, our Chief Financial Officer, certain other members of management and select senior loan officers, which is primarily responsible for day-to-day implementation and oversight of our loan approval procedures. The levels of lending authority are periodically reviewed by the Bank’s board of directors.
Our loan committee is comprised of our Chief Executive Officer, our President, our Chief Credit Officer, our Chief Financial Officer, certain other members of management and select senior loan officers, which is primarily responsible for day-to-day implementation and oversight of our loan approval procedures. The levels of lending authority are periodically reviewed by the Bank’s board of directors.
Allowable non-investment-grade instruments must be approved by the board of directors. • Income Generation—The Bank’s investment portfolio is managed to maximize income on invested funds in a manner that is consistent with the Bank’s overall financial goals and risk considerations. • Provide Liquidity—The Bank’s investment portfolio is managed to remain sufficiently liquid to meet anticipated funding demands either through declines in deposits and/or increases in loan demand. • Mitigate Interest Rate Risk—Portfolio strategies are used to assist the Bank in managing its overall interest rate sensitivity position in accordance with goals and objectives approved by our board of directors.
Allowable non-investment-grade instruments must be approved by the board of directors. • Income Generation—The Bank’s investment portfolio is managed to maximize income on invested funds in a manner that is consistent with the Bank’s overall financial goals and risk considerations. 11 Ind ex • Provide Liquidity—The Bank’s investment portfolio is managed to remain sufficiently liquid to meet anticipated funding demands either through declines in deposits and/or increases in loan demand. • Mitigate Interest Rate Risk—Portfolio strategies are used to assist the Bank in managing its overall interest rate sensitivity position in accordance with goals and objectives approved by our board of directors.
In turn, the Strategic Program service providers, subject to the Bank’s approval and oversight, serve as sub-servicer and perform typical primary servicing duties including loan collections, modifications, charging-off, reporting and monitoring. 13 Index Funding and Deposits Our deposits serve as the primary funding source for lending, investing and other general banking purposes.
In turn, the Strategic Program service providers, subject to the Bank’s approval and oversight, serve as sub-servicer and perform typical primary servicing duties including loan collections, modifications, charging-off, reporting and monitoring. Funding and Deposits Our deposits serve as the primary funding source for lending, investing and other general banking purposes.
Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve,” or “unsatisfactory.” An institution’s record in meeting the requirements of the CRA is based on a performance-based evaluation system, and is made publicly available and is taken into consideration in evaluating any applications it files with federal regulators to engage in certain activities, including approval of a branch or other deposit facility, mergers and acquisitions, office relocations, or expansions into nonbanking activities.
Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial noncompliance.” An institution’s record in meeting the requirements of the CRA is based on a performance-based evaluation system, and is made publicly available and is taken into consideration in evaluating any applications it files with federal regulators to engage in certain activities, including approval of a branch or other deposit facility, mergers and acquisitions, office relocations, or expansions into nonbanking activities.
We use a diversified funding strategy with an emphasis on core deposits from our branch operations, deposits originated through SBA 7(a) lending programs and Strategic Programs, coupled with brokered deposits and borrowings as needed. A significant portion of our core deposits include funds deposited through our Strategic Programs, to support reserve requirements.
We use a diversified funding strategy with an emphasis on core deposits from our branch operations, deposits originated through SBA 7(a) lending programs and Strategic Programs, coupled with brokered deposits and borrowings as needed. A meaningful portion of our core deposits include funds deposited through our Strategic Programs, to support reserve requirements.
To strengthen our relationship with BFG, we also negotiated a right of first refusal and an option to acquire 100% of BFG.
To strengthen our relationship with BFG, we negotiated a right of first refusal and an option to acquire 100% of BFG.
Subject to the terms of that certain Right of First Refusal and Option Agreement, dated as of March 31, 2020, we were granted an option to acquire all of the ownership interests in BFG at any time from January 1, 2021, to January 1, 2028, at an earnings multiple of 10 to 15 times BFG’s net profit based on the fiscal year ended immediately prior to the exercise of the option.
Subject to the terms of that certain Right of First Refusal and Option Agreement, dated as of March 31, 2020, we were granted an option to acquire all of the ownership interests in BFG at any time from January 1, 2021, to January 1, 2028, at 5 Ind ex an earnings multiple of 10 to 15 times BFG’s net profit based on the fiscal year ended immediately prior to the exercise of the option.
These models are also periodically validated by independent third parties in accordance with regulatory guidance. For retained portfolios, we conduct vintage analyses to ensure credit is performing as expected. Loan Approval Authority . Our lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by our board of directors and management.
These models are also periodically validated by independent third parties in accordance with regulatory guidance. For retained portfolios, we conduct vintage analyses to ensure credit is performing as expected. 8 Ind ex Loan Approval Authority . Our lending activities follow written, non-discriminatory underwriting standards and loan origination procedures established by our board of directors and management.
While the Bank is our primary asset, we also have a 10% membership interest in BFG, a Connecticut limited liability company, a nationally significant referral source for SBA loans and a legal lending facilitator.
While the Bank is our primary asset we also have a 20% membership interest in BFG, a Connecticut limited liability company, a nationally significant referral source for SBA loans and a legal lending facilitator.
Any loan, line of credit, or letter of credit (including any unfunded commitments), and any interest the Bank obtains in such loans made by another lender, to individuals, sole proprietorships, partnerships, corporations, or other business enterprises for commercial, industrial, agricultural, or professional purposes, but not for personal expenditure purposes are included in this category.
Any loan, line of credit, or letter of credit (including any unfunded commitments), and any interest the Bank obtains in such loans made by another lender, to individuals, sole proprietorships, partnerships, corporations, or other business enterprises for commercial, industrial, agricultural, or professional purposes, but not for 7 Ind ex personal expenditure purposes are included in this category.
Such purchase transactions typically require the purchaser to maintain a reserve account with the Bank or another financial institution to secure the purchaser’s contractual obligations to purchase. Some of our Strategic Program service providers may also securitize the loans originated through the program and the Bank may choose to participate in such securitizations for liquidity reasons.
Such purchase transactions typically require the purchaser to maintain a reserve account with the Bank or another financial institution to secure the purchaser’s contractual obligations to purchase. Some of our Strategic Program service providers may also securitize the loans originated through the program and the Bank may choose 10 Ind ex to participate in such securitizations for liquidity reasons.
Our construction and development loans typically have terms that range from six months to nine months but may be extended depending on factors such as the type and size of the development and the financial strength of the borrower/guarantor. Loans are typically structured with an interest only construction period and mature at the completion of construction. Consumer Loans .
Our construction and development loans typically have terms that range from six months to nine months but may be extended depending on factors such as the type and size of the development and the financial strength of the borrower/guarantor. Loans are typically structured with an interest only construction period and mature at the completion of construction. Commercial Leases .
Among other things, financial institutions are expected to design multiple layers of security controls to establish lines of defense and ensure that their risk management processes address the risks posed by compromised customer credentials, including security measures to authenticate customers accessing internet-based services.
Among other things, financial institutions are expected to design multiple layers of security controls to establish lines of defense and ensure that their risk management processes address the risks posed by compromised customer credentials, including security measures to authenticate customers accessing internet-based 18 Ind ex services.
As indicated, the Bank treats our Strategic Program service providers as its vendors and subjects the service providers to the requirements of the FDIC for vendor and third-party management. 12 Index We typically retain Strategic Program loans for a number of business days after origination during which the Bank receives interest income related to the loans.
As indicated, the Bank treats our Strategic Program service providers as its vendors and subjects the service providers to the requirements of the FDIC for vendor and third-party management. We typically retain Strategic Program loans for a number of business days after origination during which the Bank generally receives interest income related to the loans.
In addition to substantial penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with such laws and CRA into account when regulating and supervising other activities.
In addition to substantial penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with such laws and CRA into account when regulating and supervising other 17 Ind ex activities.
Since 2014, we have utilized relationships with third parties (primarily BFG) to originate loans partially guaranteed by the SBA, to small businesses and professionals.
SBA 7(a) Loans. Since 2014, we have utilized relationships with third parties (primarily BFG) to originate loans partially guaranteed by the SBA, to small businesses and professionals.
From this branch, we offer commercial and consumer banking services throughout the greater Salt Lake City, Utah MSA. These products are delivered using a high-touch service, relationship banking approach. The majority of the lending product consists of residential non-speculative construction loans which generate both non-interest income and interest income.
We operate a single branch location in Sandy, Utah. From this branch, we offer commercial and consumer banking services throughout the greater Salt Lake City, Utah MSA. These products are delivered using a high-touch service, relationship banking approach. The majority of the lending product consists of residential non-speculative construction loans which generate both non-interest income and interest income.
References to “common stock” refer to our voting common stock. 5 Index Overview We are FinWise Bancorp, a Utah bank holding company headquartered in Murray, Utah. We operate through our wholly-owned subsidiary, FinWise Bank, a Utah state-chartered bank. We currently operate one full-service banking location in Sandy, Utah. We are a nationwide lender to consumers and small businesses.
References to “common stock” refer to our voting common stock. 4 Ind ex Overview We are FinWise Bancorp, a Utah bank holding company headquartered in Murray, Utah. We operate through our wholly-owned subsidiary, FinWise Bank, a Utah state-chartered bank. We currently operate one full-service banking location in Sandy, Utah. We are a nationwide lender to consumers and small businesses.
The Company continues to monitor states in which it has a physical presence with respect to consumer privacy protection compliance obligations. 21 Index Cybersecurity Federal banking regulators, as well as the SEC and related self-regulatory organizations, regularly issue guidance regarding cybersecurity that is intended to enhance cybersecurity risk management among financial institutions.
The Company continues to monitor states in which it has a physical presence with respect to consumer privacy protection compliance obligations. Cybersecurity Federal banking regulators, as well as the U.S. Securities and Exchange Commission ("SEC") and related self-regulatory organizations, regularly issue guidance regarding cybersecurity that is intended to enhance cybersecurity risk management among financial institutions.
As of December 31, 2022, and 2021, this subsidiary holds $0.3 million and $0.1 million, respectively, of equity securities of one Strategic Program service provider. Servicing. The Bank generally services the loans originated through the Strategic Programs in consideration of servicing fees equal to a percentage of the loans generated under the Strategic Program.
As of December 31, 2023, and 2022, this subsidiary holds $0.3 million and $0.3 million, respectively, of equity securities of two Strategic Program service providers. Servicing. The Bank generally services the loans originated through the Strategic Programs in consideration of servicing fees equal to a percentage of the loans generated under the Strategic Program.
The Bank’s legal lending limit on loans to a single borrower was approximately $16.5 million as of December 31, 2022. Strategic Programs Overview . We currently source most of our loan originations through our Strategic Programs.
The Bank’s legal lending limit on loans to a single borrower was approximately $20.2 million as of December 31, 2023. Strategic Programs Overview . We currently source most of our loan originations through our Strategic Programs.
The majority of the approximately $5.8 million in consumer loans outstanding as of December 31, 2022, that were not generated through our Strategic Programs were originated in connection with our POS lending program.
The majority of the approximately $11.4 million in consumer loans outstanding as of December 31, 2023, that were not generated through our Strategic Programs were originated in connection with our POS lending program.
Such fees are disclosed on SBA Form 159 and filed with SBA for each funded loan. 6 Index Between March 2018 and July 2018, in exchange for cash proceeds, we sold 1,476,090 shares representing approximately 23.4% of our issued and outstanding common stock at the time of such sale to four individuals associated with BFG and one individual not associated with BFG pursuant to change in control applications filed with the Federal Reserve Bank and UDFI.
Between March 2018 and July 2018, in exchange for cash proceeds, we sold 1,476,090 shares representing approximately 23.4% of our issued and outstanding common stock at the time of such sale to four individuals associated with BFG and one individual not associated with BFG pursuant to change in control applications filed with the Federal Reserve Bank and UDFI.
Federal regulations also prohibit loans above amounts prescribed by the appropriate federal banking agency to directors, executive officers, and shareholders who own more than 10% of an institution, and their respective affiliates, unless such loans are approved in advance by a majority of the board of directors of the institution. Any “interested” director may not participate in the voting.
Federal regulations also prohibit loans above amounts prescribed by the appropriate federal banking agency to directors, executive officers, and shareholders who own more than 10% of an institution, and their respective affiliates, unless such loans are approved in advance by a 15 Ind ex majority of the board of directors of the institution.
Our investments were approximately $14.3 million as of December 31, 2022. Specific objectives of our investment policy and portfolio are as follows: • Ensure the Safety of Principal—Bank investments are generally limited to investment-grade instruments that fully comply with all applicable regulatory guidelines and limitations.
Specific objectives of our investment policy and portfolio are as follows: • Ensure the Safety of Principal—Bank investments are generally limited to investment-grade instruments that fully comply with all applicable regulatory guidelines and limitations.
A financial institution also should have a robust business continuity program to recover from a cyberattack and procedures for monitoring the security of third-party service providers that may have access to nonpublic data at the institution. Federal Home Loan Bank Membership The Bank is a member of the FHLB.
A financial institution also should have a robust business continuity program to recover from a cyberattack and procedures for monitoring the security of third-party service providers that may have access to nonpublic data at the institution.
Additional factors considered during underwriting include, but are not limited to: • whether the applicant has any other loans(s) (including through the PPP, SBA EIDL, other stimulus financing) that have repayment or contingent repayment requirements which could impact cash flow; • for commercial applicants, whether the business revenue and staffing levels were impacted by the Covid-19 pandemic and whether the business has a contingency plan for revenues and operations for a minimum of the next 18 months; • for individual applicants, whether his or her source of income has been or may be impacted; • whether historical financial information can be reasonably relied upon based on current market conditions; and • the impact current market conditions have on collateral adequacy.
Additional factors considered during underwriting include, but are not limited to: • whether the applicant has any other loans(s) (including through the PPP, SBA EIDL, other stimulus financing) that have repayment or contingent repayment requirements which could impact cash flow; • for individual applicants, whether his or her source of income has been or may be impacted; • whether historical financial information can be reasonably relied upon based on current market conditions; and • the impact current market conditions have on collateral adequacy.
We are required to file with the Federal Reserve quarterly and annual reports and such additional information as the Federal Reserve may require pursuant to the BHC Act. The Federal Reserve conducts examinations of the Company and its subsidiaries.
As a bank holding company, the Company is subject to regulation and supervision by the Federal Reserve and the UDFI. We are required to file with the Federal Reserve quarterly and annual reports and such additional information as the Federal Reserve may require pursuant to the BHC Act. The Federal Reserve conducts examinations of the Company and its subsidiaries.
Accordingly, we are not subject to restrictions imposed by Regulation W with respect to transactions with BFG, and we are not aware of any other regulatory restrictions on the business relationship between the Bank and BFG. Lending Activities Overview .
BFG is not an affiliate of the Bank as defined under the Federal Reserve Act and Regulation W promulgated thereunder. Accordingly, we are not subject to restrictions imposed by Regulation W with respect to transactions with BFG, and we are not aware of any other regulatory restrictions on the business relationship between the Bank and BFG. Lending Activities Overview .
We seek to capitalize on these advances by leveraging strategic relationships, as well as proprietary loan origination systems and data analytics technology, to expand our reach in marketing channels utilized and credit products offered. As a technology-focused bank, we have utilized technology-oriented loan origination platforms in our Strategic Programs, SBA lending, and POS lending business lines.
We seek to capitalize on these advances by leveraging strategic relationships, as well as proprietary loan origination systems and data analytics technology, to expand our reach in marketing channels utilized and credit products offered.
Any increase in the minimum investment requirements outside of specified ranges requires the approval of the Federal Housing Finance Agency. Because the extent of any obligation to increase the level of investment in the FHLB depends entirely upon the occurrence of a future event, we presently are unable to determine the extent of future required potential payments to the FHLB.
Because the extent of any obligation to increase the level of investment in the FHLB depends entirely upon the occurrence of a future event, we presently are unable to determine the extent of future required potential payments to the FHLB.
The portfolio concentration limits set forth in the Bank’s lending and collection policies are reviewed and approved by the Bank’s board of directors at least annually.
The portfolio concentration limits set forth in the Bank’s lending and collection policies are reviewed and approved by the Bank’s board of directors at least annually. Concentration levels are monitored by management and reported to the Bank’s board of directors on a quarterly basis.
See “Our Relationship with Business Funding Group.” We originate, sell or hold loans in four main lending areas: (i) nationwide Strategic Programs, (ii) a multi-state SBA 7(a) lending program, (iii) residential and commercial real estate lending in and around the Salt Lake City, Utah MSA, and (iv) multi-state consumer lending primarily through our POS lending program.
See “Our Relationship with Business Funding Group.” We originate, sell or hold loans in four main lending areas: (i) nationwide Strategic Programs, (ii) a multi-state SBA 7(a) lending program, (iii) residential and owner occupied commercial real estate lending, and (iv) multi-state equipment financing.
We believe the relationship with our employees to be good. 15 Index We believe that the success of a business is largely due to the quality of its employees and the development of each employee’s full potential. We encourage and support the development of our employees and, whenever possible, strive to fill vacancies from within.
We believe that the success of a business is largely due to the quality of its employees and the development of each employee’s full potential. We encourage and support the development of our employees and, whenever possible, strive to fill vacancies from within. Employee retention helps us operate efficiently and achieve our business objectives.
Unless otherwise exercised, the warrants will expire on March 31, 2028. Other than the Right of First Refusal and Option Agreement and the Standstill Agreement, there are no other agreements between us and BFG or among our respective shareholders. BFG is not an affiliate of the Bank as defined under the Federal Reserve Act and Regulation W promulgated thereunder.
Unless otherwise exercised, the warrants will expire on March 31, 2028. Other than the Right of First Refusal and Option Agreement and the Standstill Agreement, there are no other agreements between us and BFG or among our respective shareholders.
Authority limits are based on the total exposure of the borrower, the loan product, and are conditioned on the loan conforming to the standards contained in the loan policy. Any loan policy exceptions are appropriately monitored and fully disclosed to the approving authority.
Authority limits are based on the total exposure of the borrower, the loan product, and are conditioned on the loan conforming to the standards contained in the loan policy. Any loan policy exceptions are appropriately monitored and fully disclosed to the approving authority. We believe that our credit approval process provides for thorough underwriting and efficient decision making.
We believe that our credit approval process provides for thorough underwriting and efficient decision making. 10 Index Ongoing Credit Risk Management. In addition to the tailored underwriting process described above, we perform ongoing risk monitoring and review processes for credit exposures.
Ongoing Credit Risk Management. In addition to the tailored underwriting process described above, we perform ongoing risk monitoring and review processes for credit exposures.
These deposits comprise demand deposits, NOW accounts, MMDAs, savings accounts, and time deposits that are not brokered deposits. Primarily, our loans secured by real estate are made to established builders to construct residential properties, loans to developers of commercial real estate investment properties and residential developments and loans to individual consumers for construction of single-family homes in our market areas.
Primarily, our loans secured by real estate are made to established builders to construct residential properties, loans to developers of commercial real estate investment properties and residential developments and loans to individual consumers for construction of single-family homes in our market areas. Our commercial real estate loans primarily include owner-occupied and investment real estate deeds of trust.
Fees are not paid based on the secondary market premium received or the amount sold. Strategic Programs . We have established Strategic Programs with various third-party consumer and commercial loan origination platforms that use technology to streamline the origination of consumer and small commercial loans. We currently have eleven Strategic Program relationships.
We have established Strategic Programs with various third-party consumer and commercial loan origination platforms that use technology to streamline the origination of consumer and small commercial loans. We currently have twelve Strategic Program relationships.
Except in the case of PPP loans, we have principally relied on core deposits, including Institutional Deposits, to fund our lending activities but also have used brokered deposits and borrowings when we deem appropriate. In September 2022, we launched a core deposit program sourced through Lively, Inc. a Health Savings Account (HSA) provider.
We have principally relied on core deposits, including Institutional Deposits, to fund our lending activities but also have used brokered deposits, Health Savings Account (HSA) sourced through a third party, and borrowings when we deem appropriate.
During the year ended December 31, 2022, we originated approximately $166.4 million in SBA 7(a) loans and held approximately $144.5 million of SBA 7(a) loans on our balance sheet as of December 31, 2022, excluding PPP loans, of which $49.5 million was guaranteed by the SBA and $95.0 million was unguaranteed.
During the year ended December 31, 2023, we originated approximately $122.9 million in SBA 7(a) loans and held approximately $239.9 million of SBA 7(a) loans on our balance sheet as of December 31, 2023 of which $131.7 million was guaranteed by the SBA and $108.2 million was unguaranteed.
We have also deployed our own in-house technology to deliver loan and deposit solutions to our customers directly and through third parties. The Company was formed in 2002 and acquired 100% of the stock of Utah Community Bank, a local community bank founded in 1999 focusing on real estate lending in and around the Salt Lake City, Utah MSA.
The Company was formed in 2002 and acquired 100% of the stock of Utah Community Bank, a local community bank founded in 1999 focusing on real estate lending in and around the Salt Lake City, Utah MSA.
Historically, all of the loans originated through our POS lending program have been held on our balance sheet. We target super prime (FICO score of 720 and higher), prime (FICO score of 661 through 719) and near-prime (FICO score of 640 through 660) borrowers. Loan terms are generally 60 months and interest rates current range from 7.0% to 14.5%.
Loan applications are submitted at the point-of-sale through an online portal. Historically, all of the loans originated through our POS lending program have been held on our balance sheet. We target super prime (FICO score of 720 and higher), prime (FICO score of 661 through 719) and near-prime (FICO score of 640 through 660) borrowers.
We utilize a high degree of automation in this program and track loan applications, analyze credit and approve loans by deploying a combination of FinView™ and “off-the-shelf” technology solutions.
Loan terms are generally 60 months and interest rates current range from 7.0% to 14.5%. We utilize a high degree of automation in this program and track loan applications, analyze credit and approve loans by deploying a combination of internal and “off-the-shelf” technology solutions.
Human Capital Resources As of December 31, 2022, we employed 146 persons, of which 140 were employed on a full-time basis. None of our employees are represented by any collective bargaining unit or are a party to a collective bargaining agreement.
Human Capital Resources As of December 31, 2023, we employed 162 full-time equivalent employees. None of our employees are represented by any collective bargaining unit or are a party to a collective bargaining agreement. We believe the relationship with our employees to be good.
Each member of the FHLB is required to maintain a minimum investment in the Class B stock of the FHLB. The Board of Directors of the FHLB can increase the minimum investment requirements in the event it has concluded that additional capital is required to allow it to meet its own regulatory capital requirements.
The Board of Directors of the FHLB can increase the minimum investment requirements in the event it has concluded that additional capital is required to allow it to meet its own regulatory capital requirements. Any increase in the minimum investment requirements outside of specified ranges requires the approval of the Federal Housing Finance Agency.
Furthermore, we are prohibited from engaging in asset purchases or sales transactions with our officers, directors, or principal shareowners unless the transaction is on market terms and, if the transaction represents greater than 10% of the capital and surplus of the bank, a majority of the bank’s disinterested directors has approved the transaction. 18 Index Incentive Compensation Federal banking agencies have issued guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking.
Furthermore, we are prohibited from engaging in asset purchases or sales transactions with our officers, directors, or principal shareowners unless the transaction is on market terms and, if the transaction represents greater than 10% of the capital and surplus of the bank, a majority of the bank’s disinterested directors has approved the transaction.
In all circumstances, the Bank has the right to decline an SBA loan referred by BFG that is deemed not to meet its credit standards. The Bank in its sole capacity has the discretion to determine whether to sell or retain the guaranteed portion of any or all SBA loans it funds.
Only the Bank in its sole capacity has the authority to approve SBA loan applications. In all circumstances, the Bank has the right to decline an SBA loan referred by BFG that is deemed not to meet its credit standards.
In general, the Bank is subject to a legal lending limit on loans to a single borrower based on the Bank’s capital level as dictated by the State of Utah. The dollar amounts of the Bank’s lending limit increases or decreases as the Bank’s capital increases or decreases.
Lending Limits Our lending activities are subject to a variety of lending limits imposed by state and federal law. In general, the Bank is subject to a legal lending limit on loans to a single borrower based on the Bank’s capital level as dictated by the State of 9 Ind ex Utah.
Regulation of FinWise Bancorp We are registered as a bank holding company under the BHC Act and are subject to regulation and supervision by the Federal Reserve. We are legally obligated to act as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances where we might not otherwise do so.
Regulation of FinWise Bancorp We are registered as a bank holding company under the BHC Act and are subject to regulation and supervision by the Federal Reserve.
Excluding the impact of $0.6 million in PPP loan balances outstanding as of December 31, 2022, our commercial non-real estate loans comprised 4.4% of the Bank’s total loan portfolio. 9 Index Credit Administration and Loan Review We maintain asset quality through an emphasis on market knowledge, long-term customer relationships, analysis of data, consistent and thorough underwriting for all loans, surveillance and monitoring of our loan portfolio and a risk-based credit culture.
At December 31, 2023, the Company had $47.5 million in Strategic Program loans held-for-sale. Credit Administration and Loan Review We maintain asset quality through an emphasis on market knowledge, long-term customer relationships, analysis of data, consistent and thorough underwriting for all loans, surveillance and monitoring of our loan portfolio and a risk-based credit culture.
During the year ended December 31, 2022, we originated approximately $3.3 million in POS loans and held approximately $4.4 million of POS loans on our balance sheet as of December 31, 2022. Excluding the impact of $0.6 million in PPP loan balances outstanding as of December 31, 2022, our consumer loans comprised 2.2% of the Bank’s total loan portfolio.
During the year ended December 31, 2023, we originated approximately $8.4 million in POS loans and held approximately $9.7 million of POS loans on our balance sheet as of December 31, 2023. As of December 31, 2023, our consumer loans comprised 3.1% of the Bank’s total loans held for investment portfolio. Strategic Program Loans Held For Sale .
Employee retention helps us operate efficiently and achieve our business objectives. We also believe our ability to attract and retain employees is a key to our success. Accordingly, we strive to offer competitive salaries and employee benefits to all employees and monitor salaries in our market areas.
We also believe our ability to attract and retain employees is a key to our success. Accordingly, we strive to offer competitive salaries and employee benefits to all employees and monitor salaries in our market areas. Supervision and Regulation General We are extensively regulated under both federal and state law.
During the year ended December 31, 2022, the Bank paid a de minimis assessment to the UDFI. Capital Adequacy Guidelines See “Part II, Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 7, Capital Standards” for additional regulatory capital information, including the Bank’s and Company’s Leverage Ratio as of December 31, 2022.
Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 7, Capital Standards” for additional regulatory capital information, including the Bank’s and Company’s Leverage Ratio as of December 31, 2023.
Consumer loans consist primarily of loans originated through our POS program. Since 2011, the Bank has offered collateralized and uncollateralized loans without prepayment penalties to finance the purchase of retail goods and services. Loan applications are submitted at the point-of-sale through an online portal.
As of December 31, 2023, our commercial non-real estate loans comprised 0.7% of the Bank’s loans held for investment portfolio. Consumer Loans . Consumer loans consist primarily of loans originated through our Point of Sale ("POS") program. Since 2011, the Bank has offered collateralized and uncollateralized loans without prepayment penalties to finance the purchase of retail goods and services.
Subject to various exceptions, the BHC Act and the Change in Bank Control Act, together with related regulations, require Federal Reserve approval prior to any person or company acquiring “control” of a bank holding company, such as the Company. 16 Index Regulation of FinWise Bank The Bank is a Utah state-chartered bank and the operations and investments of our Bank are subject to the supervision, examination, and reporting requirements of the UDFI and the FDIC.
Subject to various exceptions, the BHC Act and the Change in Bank Control Act, together with related regulations, require Federal Reserve approval prior to any person or company acquiring “control” of a bank holding company, such as the Company. Certain acquisitions of our voting stock may be subject to regulatory approval or notice under federal law.
Loan terms range from 1 month to 72 months. Interest rates currently range from 8% to 160%. During the year ended December 31, 2022, we originated approximately $7.1 billion in Strategic Program loans, and we held for investment approximately $24.3 million in Strategic Program loans and approximately $23.6 million in Strategic Program loans held-for-sale as of December 31, 2022.
Interest rates currently range from 8% to 160%. During the year ended December 31, 2023, we originated approximately $4.1 billion in Strategic Program loans and had approximately $19.4 million in Strategic Program loans held for investment on our balance sheet at December 31, 2023.
The guidelines set forth operational and managerial standards relating to: (i) internal controls, information systems and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) asset growth; (v) earnings; and (vi) compensation, fees and benefits. 17 Index In addition, the federal banking agencies have also adopted safety and soundness guidelines with respect to asset quality and for evaluating and monitoring earnings to ensure that earnings are sufficient for the maintenance of adequate capital and reserves.
The guidelines set forth operational and managerial standards relating to: (i) internal controls, information systems and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) asset growth; (v) earnings; and (vi) compensation, fees and benefits.
The FDIC adopted a plan to restore the DIF to the 1.35% ratio within eight years but did not change its assessment schedule. A significant increase in insurance assessments would likely have an adverse effect on our operating expenses and results of operations. We cannot predict what insurance assessment rates will be in the future.
Because we have less than $5 billion of uninsured deposits, the special assessment did not have any financial impact on the Bank A significant increase in insurance assessments would likely have an adverse effect on our operating expenses and results of operations. We cannot predict what insurance assessment rates will be in the future.
Total Deposits Breakdown Our core deposits, as of December 31, 2022, constituted 69.0% of our funding sources (our core deposits comprise the sum of demand deposits, HSA demand deposits sourced through Lively, Inc., NOW accounts, MMDA accounts, savings accounts, and time deposits under $250,000 that are not brokered deposits). 14 Index Securities Portfolio We manage our securities portfolio and cash to maintain adequate liquidity and to ensure the safety and preservation of invested principal, with a secondary focus on yield and returns.
Our core deposits, as of December 31, 2023, constituted 42.6% of our funding sources (our core deposits comprise the sum of demand deposits, HSA demand deposits sourced through Lively, Inc., NOW accounts, MMDA accounts, savings accounts, and time deposits under $250,000 that are not brokered deposits).
The methodology for determining such fees has been substantially consistent since 2019.
The methodology for determining such fees has been substantially consistent since 2019. Such fees are disclosed on SBA Form 159 and filed with SBA for each funded loan.
Our existing SBA 7(a) lending program is supported by referrals from BFG and others. BFG refers SBA loan applicants to the Bank for review and consideration. Only the Bank in its sole capacity has the authority to approve SBA loan applications.
The guaranty is conditional and covers a portion of the risk of payment default by the borrower, but not the risk of improper closing and servicing by the lender. Our existing SBA 7(a) lending program is supported by referrals from BFG and others. BFG refers SBA loan applicants to the Bank for review and consideration.
Commercial Non-Real Estate Loans . Commercial non-real estate includes leases and loans made to commercial enterprises that are not secured by real estate.
As of December 31, 2023, our commercial leases comprised 10.2% of the Bank’s loans held for investment portfolio. Commercial Non-Real Estate Loans . Commercial non-real estate includes loans made to commercial enterprises that are not secured by real estate.
Based on this deposit insurance function, the FDIC also has certain supervisory authority and powers over the Bank as well as all other FDIC insured institutions. As a Utah-chartered commercial bank, the Bank is also subject to certain provisions of Utah law and the supervision of the UDFI.
Based on this deposit insurance function, the FDIC also has certain supervisory authority and powers over the Bank as well as all other FDIC insured institutions. Both the UDFI and the FDIC conduct routine examinations of the Bank. The Company’s and the Bank’s regulators generally have broad discretion to impose 12 Ind ex restrictions and limitations on our operations.
They also impose capital adequacy requirements and conditions on a bank holding company’s ability to pay dividends to its shareholders, to repurchase stock or to receive dividends from its subsidiary banks. As a bank holding company, the Company is subject to regulation and supervision by the Federal Reserve and the UDFI.
These laws restrict permissible activities and investments and require compliance with various consumer protection provisions applicable to lending, deposit, brokerage, and fiduciary activities. They also impose capital adequacy requirements and conditions on a bank holding company’s ability to pay dividends to its shareholders, to repurchase stock or to receive dividends from its subsidiary banks.
Business checking and money market demand accounts associated with Strategic Program relationships held balances of approximately $49.7 million (including $16.6 million held as collateral) as of December 31, 2022.
Business checking and money market demand accounts associated with Strategic Program relationships held balances of approximately $68.1 million (including $29.8 million held as collateral) as of December 31, 2023. As of December 31, 2023, our Strategic Program held-for-investment loans comprised of 5.2% of the Bank’s loan portfolio. Residential and Commercial Real Estate Loans .
Our commercial real estate loans primarily include owner-occupied and investment real estate deeds of trust. We also make loans for the acquisition of undeveloped land.
We also make loans for the acquisition of undeveloped land. As of December 31, 2023, our residential real estate loans comprised 10.2% of the Bank’s loans held for investment portfolio, and our commercial real estate loans comprised 6.1% of the Bank’s loans held for investment portfolio.
The following table presents the composition of our total loan portfolio by lending program, as of December 31, 2022: ​ ​ ($ in thousands) Total Loans % of Loans in Category of Total Loans SBA $ 145,172 55.8 % Commercial, non-real estate 11,484 4.4 % Residential real estate 37,815 14.5 % Strategic Program loans 47,848 18.4 % Commercial real estate 12,063 4.7 % Consumer 5,808 2.2 % Total $ 260,190 100.0 % Note: SBA loans in the table above include $0.6 million of PPP loans as of December 31, 2022. 7 Index SBA 7(a) Loans.
The following table presents the composition of our loan held for investment portfolio by lending program, as of December 31, 2023: ($ in thousands) Total Loans % of Loans in Category of Total Loans SBA $ 239,922 64.5 % Commercial leases 38,110 10.2 % Commercial, non-real estate 2,457 0.7 % Residential real estate 38,123 10.2 % Strategic Program loans 19,408 5.2 % Commercial real estate: Owner occupied 20,798 5.6 % Non-owner occupied 2,025 0.5 % Consumer 11,372 3.1 % Total $ 372,215 100.0 % Note: SBA loans in the table above include $131.7 million of SBA 7(a) loan balances that are guaranteed by the SBA.
As of December 31, 2022, our branch-based banking operations consisted of approximately $53.9 million in loans (including approximately $49.9 million of residential and commercial real estate loans) and approximately $50.7 million in deposits. The deposit operations at our branch focus on local businesses and individual customers that are seeking personal service and the relationships developed with our local bankers.
As of December 31, 2023, our branch-based banking operations consisted of approximately $68.9 million in loans (including approximately $60.9 million of residential and commercial real estate loans).
Excluding the impact of $0.6 million in PPP loan balances outstanding as of December 31, 2022, our residential real estate loans comprised 14.6% of the Bank’s total loan portfolio, and our commercial real estate loans comprised 4.7% of the Bank’s total loan portfolio. Construction loans are typically disbursed as construction progresses and carry variable interest rates.
The majority of our commercial real estate loans are owner occupied commercial real estate loans which comprise 5.6% of the Bank's loans held for investment portfolio. Construction loans are typically disbursed as construction progresses and carry variable interest rates.
Collateral may include deposits held at the Bank, at another institution where the Bank has control of the account or a combination of deposits and other vehicles such as letters of credit. We have selectively retained a portion of the loans or receivables based on analytics generated by FinView™ and the capacity and appetite of the Bank.
Collateral may include deposits held at the Bank, at another institution where the Bank has control of the account or a combination of deposits and other vehicles such as letters of credit. Our Strategic Programs also cover a wide range of borrower credit profiles, loan terms and interest rates. Loan terms range from 1 month to 72 months.
Excluding the impact of an aggregate of $0.6 million in PPP loan balances outstanding as of December 31, 2022, our loan portfolio as of that date is comprised of 36.6% in unguaranteed portions of SBA 7(a) loans and 19.1% in guaranteed portions of SBA 7(a) loans.
As of December 31, 2023, our loan portfolio is comprised of 29.1% in unguaranteed portions of SBA 7(a) loans and 35.4% in guaranteed portions of SBA 7(a) loans. 6 Ind ex The SBA’s 7(a) program provides 75%, 85% and 90% guarantees for eligible SBA 7(a) loans. The maximum 7(a) loan amount is $5 million.
These guidelines provide six standards for establishing and maintaining a system to identify problem assets and prevent those assets from deteriorating.
In addition, the federal banking agencies have also adopted safety and soundness guidelines with respect to asset quality and for evaluating and monitoring earnings to ensure that earnings are sufficient for the maintenance of adequate capital and reserves. These guidelines provide six standards for establishing and maintaining a system to identify problem assets and prevent those assets from deteriorating.
Removed
The Company completed its Initial Public Offering (“IPO”) of 4,025,000 shares of its common stock at a public offering price of $10.50 per share on November 23, 2021.
Added
As a technology-focused bank, we have utilized technology-oriented loan origination platforms in our Strategic Programs, SBA lending, Residential & Owner Occupied Commercial Real Estate, and Equipment Financing business lines. We have also deployed our own in-house technology to deliver loan and deposit solutions to our customers directly and through third parties.
Removed
The common stock is traded on the NASDAQ Global Market under the ticker symbol “FINW.” The IPO generated aggregate net proceeds to the Company of approximately $35.6 million after deducting underwriting discounts and offering expenses.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThose rates, in turn, generally reflect prevailing market conditions. During the first quarter of 2023, the media has highlighted the risks of an extreme form of deposit run-off, sometimes referred to as a “run on the bank.” More moderate levels of run-off can adversely affect banks but are less dramatic and have been significantly less reported.
Biggest changeDuring the first quarter of 2023, the media highlighted the risks of an extreme form of deposit run-off, sometimes referred to as a “run on the bank.” The failures of Silicon Valley Bank, Signature Bank, and First Republic Bank in 2023 resulted in significant disruption in the financial services industry and negative media attention, which has also adversely impacted the volatility and market prices of the securities of financial institutions and resulted in outflows of deposits for many other financial institutions.
Our investment or acquisition activities could be material to our business and involve a number of risks including the following: • difficulty in estimating the value of any target company; • investing time and incurring expense associated with identifying and evaluating potential investments or acquisitions and negotiating potential transactions, resulting in our attention being diverted from the operation of our existing business; • the lack of history among our management team in working together on acquisitions and related integration activities; • obtaining necessary regulatory approvals, which we may have difficulty obtaining or be unable to obtain; • the time, expense and difficulty of integrating the operations and personnel of any combined businesses; • unexpected asset quality problems with acquired companies; • inaccurate estimates and judgments used to evaluate credit, operations, management and market risks with respect to any target institution or assets; • risks of impairment to goodwill or other-than-temporary impairment of investment securities; • potential exposure to unknown or contingent liabilities of banks and businesses we acquire; • an inability to realize expected synergies or returns on investment; • potential disruption of our ongoing banking business; • maintaining adequate regulatory capital; and • loss of key employees, key customers or key business counterparties following our investment or acquisition.
Our investment or acquisition activities could be material to our business and involve a number of risks including the following: • difficulty in estimating the value of any target company; • investing time and incurring expense associated with identifying and evaluating potential investments or acquisitions and negotiating potential transactions, resulting in our attention being diverted from the operation of our existing business; • the lack of history among our management team in working together on acquisitions and related integration activities; • obtaining necessary regulatory approvals, which we may have difficulty obtaining or be unable to obtain; • the time, expense and difficulty of integrating the operations and personnel of any combined businesses; • unexpected asset quality problems with acquired companies; • inaccurate estimates and judgments used to evaluate credit, operations, management and market risks with respect to any target institution or assets; • risks of impairment to goodwill or other-than-temporary impairment of investment securities; 39 Ind ex • potential exposure to unknown or contingent liabilities of banks and businesses we acquire; • an inability to realize expected synergies or returns on investment; • potential disruption of our ongoing banking business; • maintaining adequate regulatory capital; and • loss of key employees, key customers or key business counterparties following our investment or acquisition.
The determination of the appropriate level of our ALL is inherently highly subjective and requires management to make significant estimates of and assumptions regarding current credit risks, all of which may undergo material changes.
The determination of the appropriate level of our ACL is inherently highly subjective and requires management to make significant estimates of and assumptions regarding current credit risks, all of which may undergo material changes.
If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures, and legal expenses, which could adversely affect our business, financial condition and results of operations. We continue to pursue deposit sourcing opportunities outside of the United States. We are currently subject to anti-corruption laws, including the FCPA.
If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures, and legal expenses, which could adversely affect our business, financial condition and results of operations. We may pursue deposit sourcing opportunities outside of the United States. We are currently subject to anti-corruption laws, including the FCPA.
If any one of these borrowers becomes unable to repay its loan obligations because of economic or market conditions, or personal circumstances, such as divorce or death, our nonaccrual loans and our ALL could increase significantly, which could have a material adverse effect on our assets, business, financial condition and results of operations.
If any one of these borrowers becomes unable to repay its loan obligations because of economic or market conditions, or personal circumstances, such as divorce or death, our nonaccrual loans and our ACL could increase significantly, which could have a material adverse effect on our assets, business, financial condition and results of operations.
The subsequent discontinuation of those stimulus measures has increased, and may continue to increase, the delinquency and default rates of borrowers, which may increase uncertainty about the effectiveness of our FinView™ Analytics Platform. 24 Index We may not have the resources to keep pace with rapid technological changes in the industry or implement new technology effectively.
The subsequent discontinuation of those stimulus measures has increased, and may continue to increase, the delinquency and default rates of borrowers, which may increase uncertainty about the effectiveness of our FinView™ Analytics Platform. We may not have the resources to keep pace with rapid technological changes in the industry or implement new technology effectively.
As a result of the foregoing, under present law, we may not be able to deduct all of the compensation paid in 2022 and future years if compensation paid to “covered employees” exceeds the thresholds established by Section 162(m) of the Code. Losing deductions under Section 162(m) of the Code could increase our income taxes and reduce our net income.
As a result of the foregoing, under present law, we may not be able to deduct all of the compensation paid in 2023 and future years if compensation paid to “covered employees” exceeds the thresholds established by Section 162(m) of the Code. Losing deductions under Section 162(m) of the Code could increase our income taxes and reduce our net income.
These factors can individually or in the aggregate be detrimental to our business, and the interplay between these factors can be complex and unpredictable. Adverse economic conditions could have a material adverse effect on our business, financial condition and results of operations. 26 Index Acts of terrorism, geopolitical and other external events could impact our ability to conduct business.
These factors can individually or in the aggregate be detrimental to our business, and the interplay between these factors can be complex and unpredictable. Adverse economic conditions could have a material adverse effect on our business, financial condition and results of operations. Acts of terrorism, geopolitical and other external events could impact our ability to conduct business.
If we are unable to attract additional merchants and retain and grow our existing merchant relationships, our business, results of operations, financial condition, and future prospects could be materially and adversely affected. Our continued success is dependent, in part, on our ability to expand our merchant base and to grow our POS lending revenue.
If we are unable to attract additional merchants and retain and grow our existing merchant relationships, our business, results of operations, financial condition, and future prospects could be materially and adversely affected. Our continued success is dependent, in part, on our ability to expand our merchant base and to grow our commercial leasing and POS lending revenue.
These and other changes are more fully discussed under “Supervision and Regulation.” Regulatory or legislative changes to laws applicable to the financial industry, if enacted or adopted, may impact the profitability of our business activities, require more oversight or change certain of our business practices, including the ability to offer new products, obtain financing, attract deposits, make loans and achieve satisfactory interest spreads and could expose us to additional costs, including increased compliance costs.
These and other changes are more fully discussed under “Supervision and Regulation.” Regulatory or legislative changes to laws applicable to the financial 32 Ind ex industry, if enacted or adopted, may impact the profitability of our business activities, require more oversight or change certain of our business practices, including the ability to offer new products, obtain financing, attract deposits, make loans and achieve satisfactory interest spreads and could expose us to additional costs, including increased compliance costs.
Inaccurate management assumptions, deterioration of economic conditions affecting borrowers, new information regarding existing loans, identification or deterioration of additional problem loans, acquisition of problem loans and other factors (including third-party review and analysis), both within and outside of our control, may require us to increase our ALL.
Inaccurate management assumptions, deterioration of economic conditions affecting borrowers, new information regarding existing loans, identification or deterioration of additional problem loans, acquisition of problem loans and other factors (including third-party review and analysis), both within and outside of our control, may require us to increase our ACL.
A failure to effectively measure and limit the credit risk associated with our loan portfolio may result in loan defaults, foreclosures and additional charge-offs, and may necessitate that we significantly increase our ALL, each of which could adversely affect our net income.
A failure to effectively measure and limit the credit risk associated with our loan portfolio may result in loan defaults, foreclosures and additional charge-offs, and may necessitate that we significantly increase our ACL, each of which could adversely affect our net income.
This allocation of resources, as well as any failure to comply with applicable requirements, may negatively impact our results of operations and financial condition. 37 Index Legislative and regulatory actions taken now or in the future may increase our costs and impact our business, governance structure, financial condition or results of operations.
This allocation of resources, as well as any failure to comply with applicable requirements, may negatively impact our results of operations and financial condition. Legislative and regulatory actions taken now or in the future may increase our costs and impact our business, governance structure, financial condition or results of operations.
See “Cautionary Note Regarding Forward-Looking Statements.” 22 Index Risk Factor Summary Our business, financial condition and results of operations are subject to a number of substantial risks and uncertainties. These risks are discussed more fully in this “Item 1A.
See “Cautionary Note Regarding Forward-Looking Statements.” Risk Factor Summary Our business, financial condition and results of operations are subject to a number of substantial risks and uncertainties. These risks are discussed more fully in this “Item 1A.
If any of these valuations are inaccurate, our consolidated financial statements may not reflect the correct value of our OREO, and our ALL may not reflect accurate loan impairments. This could have a material adverse effect on our business, financial condition or results of operations.
If any of these valuations are inaccurate, our consolidated financial statements may not reflect the correct value of our OREO, and our ACL may not reflect accurate loan impairments. This could have a material adverse effect on our business, financial condition or results of operations.
We also may borrow funds from third-party lenders, such as other financial institutions. We currently utilize three secured lines of credit provided by the FHLB, PPPLF and the Federal Reserve and two unsecured lines of credit provided by Bankers Bank of the West and Zions Bank.
We also may borrow funds from third-party lenders, such as other financial institutions. We currently utilize four secured lines of credit provided by the FHLB, PPPLF and the Federal Reserve and two unsecured lines of credit provided by Bankers Bank of the West and Zions Bank.
Increased interest rates may decrease borrower demand for certain of our lending products, even as inflation places pressure on consumer spending, borrowing and saving habits as consumers evaluate their prospects for future income growth and employment opportunities in the current economic environment, and as borrowers face uncertainty about the impact of rising prices on their ability to repay a loan.
Increased interest rates may decrease borrower demand for certain of our lending products, even as inflation places pressure on consumer spending, borrowing and saving habits as consumers evaluate their prospects for future income growth and employment opportunities in the current economic environment, and 28 Ind ex as borrowers face uncertainty about the impact of rising prices on their ability to repay a loan.
See “Supervision and Regulation—Capital Adequacy Guidelines.” 38 Index Federal and state banking agencies periodically conduct examinations of our business, including our compliance with laws and regulations, and our failure to comply with any regulatory actions, if any, could adversely impact us.
See “Supervision and Regulation—Capital Adequacy Guidelines.” Federal and state banking agencies periodically conduct examinations of our business, including our compliance with laws and regulations, and our failure to comply with any regulatory actions, if any, could adversely impact us.
The foregoing could adversely affect our growth, business prospects, financial condition and results of operations. 42 Index The Bank and our Strategic Program service providers may be subject to consumer arbitration or litigation regardless of whether the claims have merit.
The foregoing could adversely affect our growth, business prospects, financial condition and results of operations. The Bank and our Strategic Program service providers may be subject to consumer arbitration or litigation regardless of whether the claims have merit.
In April 2022, the CFPB announced that it intends to examine nonbank financial companies, which may include some of our Strategic Program service providers, that pose risks to consumers and in June 2022, the Deputy Director of the CFPB indicated that relationships between banks and nonbank lenders will be an area of increased regulatory focus for the agency in the near future.
In April 2022, the CFPB announced that it intends to examine nonbank financial companies, which may include some of our Strategic Program service providers, that 37 Ind ex pose risks to consumers and in June 2022, the Deputy Director of the CFPB indicated that relationships between banks and nonbank lenders will be an area of increased regulatory focus for the agency in the near future.
Furthermore, banking laws impose notice, approval, and ongoing regulatory requirements on any shareholder or other party that seeks to acquire direct or indirect “control” of an FDIC-insured depository institution or its holding company. These laws include the BHC Act and the Change in Bank Control Act. These laws could delay or prevent an acquisition.
Furthermore, banking laws impose notice, approval, and ongoing regulatory requirements on any shareholder or other party that seeks to acquire direct or indirect “control” of an FDIC-insured depository institution or its holding company. These 41 Ind ex laws include the BHC Act and the Change in Bank Control Act. These laws could delay or prevent an acquisition.
Despite the implementation of security measures, our internal computer systems and those of our Strategic Program platforms, and other contractors and consultants as well as third party vendors of IT and data security systems and services, are vulnerable to damage and interruptions from security breaches, computer viruses, fraud and similar incidents involving the loss or unauthorized access of confidential information.
Despite the implementation of security measures, our internal computer systems and those of our Strategic Program platforms, and other contractors and consultants as well as third party vendors of IT and data security systems and services, 20 Ind ex are vulnerable to damage and interruptions from security breaches, computer viruses, fraud and similar incidents involving the loss or unauthorized access of confidential information.
Our FinView™ Analytics Platform has not been extensively tested during other adverse economic cycles. There is no assurance that our proprietary technologies can accurately predict loan performance during periods of adverse economic conditions.
Our FinView™ Analytics Platform have not been extensively tested during other adverse economic cycles. There is no assurance that our proprietary technologies can accurately predict loan performance during periods of adverse economic conditions.
If an interruption were to continue for a significant period, our business, financial condition and results of operations could be adversely affected. Even if we can replace third-party service providers or Strategic Program service providers, it may be at a higher cost to us, which could adversely affect our business, financial condition and results of operations.
If an interruption 21 Ind ex were to continue for a significant period, our business, financial condition and results of operations could be adversely affected. Even if we can replace third-party service providers or Strategic Program service providers, it may be at a higher cost to us, which could adversely affect our business, financial condition and results of operations.
In addition, any default by the U.S. government on its obligations or any prolonged government shutdown could, among other things, impede our ability to originate SBA loans or sell such loans in the secondary market, which could materially and adversely affect our business, financial condition and results of operations.
In addition, any default by the U.S. 24 Ind ex government on its obligations or any prolonged government shutdown could, among other things, impede our ability to originate SBA loans or sell such loans in the secondary market, which could materially and adversely affect our business, financial condition and results of operations.
However, we will continue to need capital to support our longer-term growth plans. If capital is not available on favorable terms when we need it, we will have to either issue common stock or other securities on less than desirable terms or reduce our rate of growth until market conditions become more favorable.
However, we will continue to need capital to support our longer-term growth plans. If capital is not available on favorable terms when we need it, we will have to either issue common stock or other securities on less than desirable terms or reduce our rate of 30 Ind ex growth until market conditions become more favorable.
To administer the Bank Secrecy Act, FinCEN is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and the IRS.
To administer the Bank Secrecy Act, FinCEN is authorized to impose 33 Ind ex significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and the IRS.
Because a significant portion of our loan portfolio held-for-investment within our local lending program and SBA 7(a) lending program is secured by real estate, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses.
Because a significant portion of our loan portfolio held-for-investment within our local lending program, owner occupied commercial lending program and SBA 7(a) lending program is secured by real estate, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses.
In addition, construction costs may exceed original estimates as a result of increased materials, labor or other costs. Construction loans also often involve the disbursement of funds with repayment dependent, in part, on the success of the project and the ability of the borrower to sell or lease the property or refinance the indebtedness.
In addition, construction 26 Ind ex costs may exceed original estimates as a result of increased materials, labor or other costs. Construction loans also often involve the disbursement of funds with repayment dependent, in part, on the success of the project and the ability of the borrower to sell or lease the property or refinance the indebtedness.
If the Bank and/or any of the Strategic Program service providers with which we do business suffers any of these consequences, the Bank may not be able to recover economic damages and/or costs the Bank incurs from the Strategic Program service provider, whether under an indemnification right or other action against the service provider.
If the Bank and/or any of the Strategic Program service providers with which we do business suffers any of these consequences, the Bank may not be able to recover economic damages and/or costs the Bank incurs from the Strategic Program service provider, whether under an 36 Ind ex indemnification right or other action against the service provider.
As a consequence, Section 162(m) of the Code will limit the deductibility of compensation to our covered employees to $1 million beginning with the year ending December 31, 2021.
As a consequence, Section 162(m) of the Code will limit the deductibility of compensation to our covered employees to $1 million beginning with the year ended December 31, 2021.
Supreme Court has confirmed that the “disparate impact” theory applies to cases brought under FHA, while emphasizing that a causal relationship must be shown between a specific policy of the defendant and a discriminatory result that is not justified by a legitimate objective of the defendant.
Supreme Court has confirmed that the “disparate impact” theory applies to cases 35 Ind ex brought under FHA, while emphasizing that a causal relationship must be shown between a specific policy of the defendant and a discriminatory result that is not justified by a legitimate objective of the defendant.
We invest a portion of our total assets (3.6% as of December 31, 2022) in investment securities with the primary objectives of providing a source of liquidity, providing an appropriate return on funds invested, managing interest rate risk and meeting pledging requirements. As of December 31, 2022, all securities were classified as held-to-maturity.
We invest a portion of our total assets (2.6% as of December 31, 2023) in investment securities with the primary objectives of providing a source of liquidity, providing an appropriate return on funds invested, managing interest rate risk and meeting pledging requirements. As of December 31, 2023, all securities were classified as held-to-maturity.
Further, deterioration in economic conditions could drive the level of loan losses beyond the level we have provided for in our ALL, which in turn could necessitate an increase in our provision for loan losses and a resulting reduction to our earnings and capital.
Further, deterioration in economic conditions could drive the level of loan losses beyond the level we have provided for in our ACL, which in turn could necessitate an increase in our provision for credit losses and a resulting reduction to our earnings and capital.
Further, the Federal Housing Finance Agency, the regulator of FHLB and other federal home loan banks, launched a comprehensive review of the Federal Home Loan Bank System including the mission, membership eligibility requirements, and operational efficiencies of the federal home loan banks in 2022.
Further, the Federal Housing Finance Agency, the regulator of FHLB and other federal home loan banks, launched a comprehensive review of the Federal Home Loan Bank System including the mission, membership eligibility requirements, 27 Ind ex and operational efficiencies of the federal home loan banks in 2022.
Risk Factors.” Some of these risks include the following: • third-party service provider risk, including risks that we may be unable to maintain or increase loan originations facilitated through our Strategic Programs; • legal, accounting and compliance risks, including risks related to the extensive state and federal regulation under which we operate and changes in such regulations; • changes in the regulatory oversight environment impacting our Strategic Programs or non-compliance of federal and state consumer protection laws by our Strategic Program service providers; • legal and regulatory risks associated with “true lender” statutes associated with our Strategic Programs; • reputational risks, including the risk that we may be subject to negative publicity about us or our industry, including the transparency, fairness, user experience, quality, and reliability of our lending products or distribution channels; • legislative, regulatory, legal, and reputational risks related to our Strategic Programs, including those relating to our small dollar lending program; • securities market, inflation and interest rate risks, including risks related to interest rate fluctuations and the monetary policies and regulations of the Board of Governors of the Federal Reserve System, or the Federal Reserve; • risks related to cybersecurity breaches and system failures; • operational and strategic risks, including the risk that we may not be able to implement our growth strategy, our continued ability to establish relationships with Strategic Program service providers, and the possible loss of key members of our senior leadership team; • the impact and extent of Covid-19 (including the emergence of any new variants thereof) and the response of governmental authorities to Covid-19; • credit risks, including risks related to the significance of SBA 7(a), Strategic Programs and construction loans in our portfolio, our relationship with BFG, our ability to effectively manage our credit risk and the potential deterioration of the business and economic conditions in our markets; • liquidity and funding risks, including the risk that we will not be able to meet our obligations due to risks relating to our funding sources; and • investment risks, including volatility in the trading of our common stock and limitations on our ability to pay dividends. 23 Index Risks Related to Cybersecurity and Technology System failure or cybersecurity breaches of our network security could subject us to increased operating costs as well as litigation and other potential losses.
Risk Factors.” Some of these risks include the following: • third-party service provider risk, including risks that we may be unable to maintain or increase loan originations facilitated through our Strategic Programs; • legal, accounting and compliance risks, including risks related to the extensive state and federal regulation under which we operate and changes in such regulations; • changes in the regulatory oversight environment impacting our Strategic Programs or non-compliance of federal and state consumer protection laws by our Strategic Program service providers; • legal and regulatory risks associated with “true lender” statutes associated with our Strategic Programs; • reputational risks, including the risk that we may be subject to negative publicity about us or our industry, including the transparency, fairness, user experience, quality, and reliability of our lending products or distribution channels; 19 Ind ex • legislative, regulatory, legal, and reputational risks related to our Strategic Programs, including those relating to our small dollar lending program; • securities market, inflation and interest rate risks, including risks related to interest rate fluctuations and the monetary policies and regulations of the Board of Governors of the Federal Reserve System, or the Federal Reserve; • risks related to cybersecurity breaches and system failures; • operational and strategic risks, including the risk that we may not be able to implement our growth strategy, our continued ability to establish relationships with Strategic Program service providers, and the possible loss of key members of our senior leadership team; • the impact and extent of Covid-19 (including the emergence of any new variants thereof) and the response of governmental authorities to Covid-19; • credit risks, including risks related to the significance of SBA 7(a), Strategic Programs and construction loans in our portfolio, our relationship with BFG, our ability to effectively manage our credit risk and the potential deterioration of the business and economic conditions in our markets; • liquidity and funding risks, including the risk that we will not be able to meet our obligations due to risks relating to our funding sources; and • investment risks, including volatility in the trading of our common stock and limitations on our ability to pay dividends.
Investment in our common stock is subject to investment risk, including possible loss. 49 Index Item 1B. UNRESOLVED STAFF COMMENTS Not applicable.
Investment in our common stock is subject to investment risk, including possible loss. Item 1B. UNRESOLVED STAFF COMMENTS Not applicable.
Such declines and losses would have a material adverse effect on our business, financial condition and results of operations. 30 Index Appraisals and other valuation techniques we use in evaluating and monitoring loans secured by real property, other real estate owned and repossessed business and personal property may not accurately describe the net value of the asset.
Such declines and losses would have a material adverse effect on our business, financial condition and results of operations. 25 Ind ex Appraisals and other valuation techniques we use in evaluating and monitoring loans secured by real property, other real estate owned and repossessed business and personal property may not accurately describe the net value of the asset.
The CECL standard will require us to record, at the time of origination, credit losses expected throughout the life of the asset portfolio on loans and held-to-maturity securities, as opposed to the current practice of recording losses when it is probable that a loss event has occurred.
The CECL standard requires us to record, at the time of origination, credit losses expected throughout the life of the asset portfolio on loans and held-to-maturity securities, as opposed to the former practice of recording losses when it is probable that a loss event has occurred.
Moreover, the CECL standard may create more volatility in the level of allowance for loan losses. If we are required to materially increase the level of our allowance for loan losses for any reason, such increase could have an adverse effect on our business, financial condition, and results of operations.
Moreover, the CECL standard may create 23 Ind ex more volatility in the level of allowance for credit losses. If we are required to materially increase the level of our allowance for credit losses for any reason, such increase could have an adverse effect on our business, financial condition, and results of operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations,” describe those significant accounting policies and methods used in the preparation of our consolidated financial statements that we consider critical because they require judgments, assumptions and estimates that materially affect our consolidated financial statements and related disclosures.
Our critical accounting policies, which are included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” describe those significant accounting policies and methods used in the preparation of our consolidated financial statements that we consider critical because they require judgments, assumptions and estimates that materially affect our consolidated financial statements and related disclosures.
If our borrowers are unable to repay their loans, our business, financial condition and results of operations could be adversely affected. Our concentration of large loans to a limited number of borrowers may increase our credit risk. As of December 31, 2022, our 10 largest borrowing relationships accounted for approximately 14.3% of our total gross loans held-for-investment.
If our borrowers are unable to repay their loans, our business, financial condition and results of operations could be adversely affected. Our concentration of large loans to a limited number of borrowers may increase our credit risk. As of December 31, 2023, our 10 largest borrowing relationships accounted for approximately 13.0% of our total gross loans held-for-investment.
BFG referred 99.58% of the Bank’s SBA 7(a) loan originations for the year ended December 31, 2022. This relationship has permitted the Bank to focus on the development of underwriting, processing and servicing expertise for SBA 7(a) loans.
BFG referred 100% of the Bank’s SBA 7(a) loan originations for the year ended December 31, 2023. This relationship has permitted the Bank to focus on the development of underwriting, processing and servicing expertise for SBA 7(a) loans.
The failure to meet applicable regulatory capital requirements could result in one or more of our regulators placing limitations or conditions on our activities, including our growth initiatives, or restricting the commencement of new activities, and could adversely affect customer and investor confidence, our costs of funds and FDIC insurance costs, our ability to make acquisitions, and our business, results of operations and financial condition. 36 Index Climate change or government action and societal responses to climate change could adversely affect our results of operations.
The failure to meet applicable regulatory capital requirements could result in one or more of our regulators placing limitations or conditions on our activities, including our growth initiatives, or restricting the commencement of new activities, and could adversely affect customer and investor confidence, our costs of funds and FDIC insurance costs, our ability to make acquisitions, and our business, results of operations and financial condition.
Our computer systems and network infrastructure could be vulnerable to hardware and cybersecurity issues. Our operations are dependent upon our ability to protect our computer equipment against damage from fire, power loss, telecommunications failure or a similar catastrophic event. We could also experience a breach by intentional or negligent conduct on the part of employees or other internal sources.
Our operations are dependent upon our ability to protect our computer equipment against damage from fire, power loss, telecommunications failure or a similar catastrophic event. We could also experience a breach by intentional or negligent conduct on the part of employees or other internal sources.
If we are unable to maintain our relationships with our Strategic Program service providers, our business will suffer. A significant portion of our loan origination is conducted through our Strategic Programs. Approximately $61.7 million, or 68.7% of our total revenues for the year ended December 31, 2022, were generated through our Strategic Programs.
If we are unable to maintain our relationships with our Strategic Program service providers, our business will suffer. A significant portion of our loan origination is conducted through our Strategic Programs. Approximately $49.1 million, or 57.4% of our total revenues for the year ended December 31, 2023, were generated through our Strategic Programs.
Furthermore, if the Bank were not deemed to be the “true lender,” then the Bank and our Strategic Program service provider could be subject to claims by borrowers, as well as enforcement actions by regulators. 44 Index Furthermore, if a borrower or regulator were to successfully bring claims against a Strategic Program service provider and/or the Bank for violations of state consumer lending laws the Strategic Program service provider and/or the Bank could be subjected to damages, revocation of required licenses, individual and class action lawsuits, enforcement actions, penalties, injunctions which require the cessation or curtailment of a Strategic Program or operation by the Bank, rescission rights held by investors in securities offerings and civil and criminal liability.
Furthermore, if a borrower or regulator were to successfully bring claims against a Strategic Program service provider and/or the Bank for violations of state consumer lending laws the Strategic Program service provider and/or the Bank could be subjected to damages, revocation of required licenses, individual and class action lawsuits, enforcement actions, penalties, injunctions which require the cessation or curtailment of a Strategic Program or operation by the Bank, rescission rights held by investors in securities offerings and civil and criminal liability.
In addition, because of the rapid pace of technological change in our industry, aspects of our business and our products and services rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties on reasonable terms or at all. 31 Index Our origination of construction loans exposes us to increased lending risks.
In addition, because of the rapid pace of technological change in our industry, aspects of our business and our products and services rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties on reasonable terms or at all.
The rules also provide that whether interest on a loan is permissible is determined at the time the loan is made, and is not affected by a change in state law, a change in the relevant commercial paper rate, or the sale, assignment, or other transfer of the loan. These rules have been challenged by state attorneys general.
The rules also provide that whether interest on a loan is permissible is determined at the time the loan is made, and is not affected by a change in state 38 Ind ex law, a change in the relevant commercial paper rate, or the sale, assignment, or other transfer of the loan.
We also have approximately $133.6 million, or 56.5%, of our total gross loans held-for-investment in SBA loans that are secured with real estate as a component of collateral as of December 31, 2022. The market value of real estate can fluctuate significantly in a short period of time.
We also have approximately $220.8 million, or 59.3%, of our total gross loans held-for-investment in SBA loans that are secured with real estate as a component of collateral as of December 31, 2023. The market value of real estate can fluctuate significantly in a short period of time.
Our corporate organizational documents and provisions of federal and state law to which we are subject contain certain provisions that could have an anti-takeover effect and may delay, make more difficult or prevent an attempted acquisition that you may favor or an attempted replacement of our board of directors or management. 48 Index Our Articles and our Amended and Restated Bylaws (the “Bylaws”) may have an anti-takeover effect and may delay, discourage or prevent an attempted acquisition or change of control or a replacement of our board of directors or management.
Our corporate organizational documents and provisions of federal and state law to which we are subject contain certain provisions that could have an anti-takeover effect and may delay, make more difficult or prevent an attempted acquisition that you may favor or an attempted replacement of our board of directors or management.
In 2021, Illinois and Maine enacted laws that regulate any person who holds, acquires, or maintains, directly or indirectly, the predominant economic interest in a loan originated by an otherwise-exempt entity like a bank.
Several states have also adopted legislation that impacts our Strategic Programs. In 2021, Illinois and Maine enacted laws that regulate any person who holds, acquires, or maintains, directly or indirectly, the predominant economic interest in a loan originated by an otherwise-exempt entity like a bank.
As a result, our inability to successfully manage credit risk could have an adverse effect on our business, financial condition and results of operations. Our ALL may prove to be insufficient to absorb potential losses in our loan portfolio. We maintain an ALL that represents management’s judgment of probable losses and risks inherent in our loan portfolio.
As a result, our inability to successfully manage credit risk could have an adverse effect on our business, financial condition and results of operations. Our ACL may prove to be insufficient to absorb potential losses in our loan portfolio.
If we fail to maintain effective internal control over financial reporting, we may not be able to report our financial results accurately and in a timely manner, in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports, we could be subject to regulatory penalties and the price of our common stock may decline. 34 Index The accuracy of our financial statements and related disclosures could be affected if the judgments, assumptions or estimates used in our critical accounting policies are inaccurate.
If we fail to maintain effective internal control over financial reporting, we may not be able to report our financial results accurately and in a timely manner, in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports, we could be subject to regulatory penalties and the price of our common stock may decline.
We originate commercial construction loans primarily to professional builders for the construction of one-to-four family residences, apartment buildings, and commercial real estate properties. As of December 31, 2022, we had approximately $32.1 million of construction loans, which represents approximately 13.6% of our total gross loan portfolio held-for-investment.
Our origination of construction loans exposes us to increased lending risks. We originate commercial construction loans primarily to professional builders for the construction of one-to-four family residences, apartment buildings, and commercial real estate properties. As of December 31, 2023, we had approximately $28.3 million of construction loans, which represents approximately 7.6% of our total gross loan portfolio held-for-investment.
If we fail to retain any of our merchant relationships, if we do not acquire new merchant relationships, if we do not continually expand revenue and volume from the merchant relationships, or if we do not attract and retain a diverse mix of merchant relationships, our business, results of operations, financial condition, and future prospects could be materially and adversely affected. 33 Index We are subject to interest rate risk as fluctuations in interest rates may adversely affect our earnings.
If we fail to retain any of our merchant relationships, if we do not acquire new merchant relationships, if we do not continually expand revenue and volume from the merchant relationships, or if we do not attract and retain a diverse mix of merchant relationships, our business, results of operations, financial condition, and future prospects could be materially and adversely affected.
Approximately $28.4 million, or 31.6% of our total revenues for the year ended December 31, 2022, were generated from Strategic Programs with annual interest rates above 36%.
Approximately $25.9 million, or 30.3% of our total revenues for the year ended December 31, 2023, were generated from Strategic Programs with annual interest rates above 36%.
The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Our critical accounting policies, which are included in “Item 7.
The accuracy of our financial statements and related disclosures could be affected if the judgments, assumptions or estimates used in our critical accounting policies are inaccurate. The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes.
The stock market and the market for financial institution stocks has experienced substantial fluctuations in recent years, which in many cases have been unrelated to the operating performance and prospects of particular companies. In addition, significant fluctuations in the trading volume in our common stock may cause significant price variations to occur.
The stock market and the market for financial institution stocks has experienced substantial fluctuations in recent years, which in many cases have been unrelated to the operating performance and prospects of particular companies.
Climate change can increase the likelihood of the occurrence and severity of natural disasters and can also result in longer-term shifts in climate patterns such as extreme heat, sea level rise and more frequent and prolonged drought.
Climate change or government action and societal responses to climate change could adversely affect our results of operations. Climate change can increase the likelihood of the occurrence and severity of natural disasters and can also result in longer-term shifts in climate patterns such as extreme heat, sea level rise and more frequent and prolonged drought.
If we are required to materially increase the level of our ALL for any reason, such increase could have an adverse effect on our business, financial condition and results of operations.
If we are required to materially increase the level of our ACL for any reason, such increase could have an adverse effect on our business, financial condition and results of operations. New lines of business or new products and services may subject us to additional risks.
Most of our banking assets and liabilities are monetary in nature and subject to risk from changes in interest rates.
We are subject to interest rate risk as fluctuations in interest rates may adversely affect our earnings. Most of our banking assets and liabilities are monetary in nature and subject to risk from changes in interest rates.
A failure of any such relationship could have a material adverse effect on our business and results of operations. We have entered into, and expect to continue to enter into, significant joint venture, strategic collaboration, teaming and other arrangements, including our Strategic Programs we have established with various third-party consumer and commercial loan origination platforms.
We have entered into, and expect to continue to enter into, significant joint venture, strategic collaboration, teaming and other arrangements, including our Strategic Programs we have established with various third-party consumer and commercial loan origination platforms.
We compete with commercial banks, savings banks, credit unions, nonbank financial services companies and other financial institutions operating both within our market areas and nationally, and in respect of our financial technology initiative we also compete with other entities in the financial technology industry, including a limited number of other banks that have developed strategic programs similar to our Strategic Programs. 27 Index Many of our non-bank competitors are not subject to the same extensive regulations that govern our activities and may have greater flexibility in competing for business.
We compete with commercial banks, savings banks, credit unions, nonbank financial services companies and other financial institutions operating both within our market areas and nationally, and in respect of our financial technology initiative we also compete with other entities in the financial technology industry, including a limited number of other banks that have developed strategic programs similar to our Strategic Programs.
High profile fraudulent activity or significant increases in fraudulent activity could lead to regulatory intervention, negatively impact a company’s operating results, brand and reputation and lead it to take steps to reduce fraud risk, which could increase its costs and consequently, adversely affect our business, financial condition and results of operations. 45 Index Risks Related to Potential Strategic Transactions We may pursue strategic acquisitions in the future, and we may not be able to overcome risks associated with such transactions.
High profile fraudulent activity or significant increases in fraudulent activity could lead to regulatory intervention, negatively impact a company’s operating results, brand and reputation and lead it to take steps to reduce fraud risk, which could increase its costs and consequently, adversely affect our business, financial condition and results of operations.
Similarly, any investigation of any potential violations of the FCPA or other anti-corruption laws by authorities in the United States or other jurisdictions where we conduct business could also have an adverse impact on our reputation, business, financial condition and results of operations. 39 Index Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.
Similarly, any investigation of any potential violations of the FCPA or other anti-corruption laws by authorities in the United States or other jurisdictions where we conduct business could also have an adverse impact on our reputation, business, financial condition and results of operations.
On May 11, 2021, the U.S. Senate voted 52-47 to repeal the “true lender” rule adopted by the OCC. On June 24, 2021, the U.S. Senate resolution was passed by the U.S. House of Representatives by a vote of 218 to 208. On June 30, 2021, President Biden signed a joint resolution to revoke the OCC’s true lender rule.
These rules have been challenged by state attorneys general. On May 11, 2021, the U.S. Senate voted 52-47 to repeal the “true lender” rule adopted by the OCC. On June 24, 2021, the U.S. Senate resolution was passed by the U.S. House of Representatives by a vote of 218 to 208.
Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions and damage to our reputation, which could have a material adverse effect on our business, financial condition or results of operations.
Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions and damage to our reputation, which could have a material adverse effect on our business, financial condition or results of operations. 34 Ind ex We are subject to numerous laws and regulations, designed to protect consumers, including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws or regulations could lead to a wide variety of sanctions.
Additionally, if we record goodwill in connection with any acquisition, our business, financial condition and results of operations may be adversely affected if that goodwill is determined to be impaired, which would require us to take an impairment charge. 46 Index We have entered into, and expect to continue to enter into, joint venture, strategic collaboration, teaming and other business arrangements, and these activities involve risks and uncertainties.
Additionally, if we record goodwill in connection with any acquisition, our business, financial condition and results of operations may be adversely affected if that goodwill is determined to be impaired, which would require us to take an impairment charge.
As of December 31, 2022, approximately $49.9 million, or 21.1%, of our total gross loans held-for-investment were loans with real estate as a primary or secondary component of collateral.
As of December 31, 2023, approximately $60.9 million, or 16.4%, of our total gross loans held-for-investment were local lending or owner occupied commercial lending program loans with real estate as a primary or secondary component of collateral.
As of December 31, 2022, approximately $49.7 million, or approximately 20.4%, of our total deposits consisted of deposit accounts of our Strategic Program service providers.
As of December 31, 2023, approximately $68.1 million, or approximately 16.8%, of our total deposits consisted of deposit accounts of our Strategic Program service providers.
Risks Related to Regulation We are subject to regulation, which increases the cost and expense of regulatory compliance and therefore reduces our net income and may restrict our growth and ability to acquire other financial institutions.
Additionally, financial weaknesses at our Fintech Banking Solutions customers could cause us to record greater expenses or losses or suffer reputational harm. Risks Related to Regulation We are subject to regulation, which increases the cost and expense of regulatory compliance and therefore reduces our net income and may restrict our growth and ability to acquire other financial institutions.
If any of our executive officers, other key personnel or directors leaves us or our Bank, our financial condition and results of operations may suffer because of his or her skills, knowledge of our market, years of industry experience and the difficulty of promptly finding qualified personnel to replace him or her. 35 Index Negative public opinion regarding the Company or failure to maintain our reputation within the industries we serve and across our product lines could adversely affect our business and prevent us from growing our business.
If any of our executive officers, other key personnel or directors leaves us or our Bank, our financial condition and results of operations may suffer because of his or her skills, knowledge of our market, years of industry experience and the difficulty of promptly finding qualified personnel to replace him or her.
The sources of the misrepresentations are often difficult to locate, and it is often difficult to recover any of the resulting monetary losses we may suffer, which could adversely affect our business, financial condition and results of operations.
The sources of the misrepresentations are often difficult to locate, and it is often difficult to recover any of the resulting monetary losses we may suffer, which could adversely affect our business, financial condition and results of operations. 29 Ind ex We rely heavily on our executive management team and other key employees, and we could be adversely affected by the unexpected loss of their services.
We are subject to various privacy, information security and data protection laws, including requirements concerning security breach notification, and we could be negatively impacted by these laws.
Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities. We are subject to various privacy, information security and data protection laws, including requirements concerning security breach notification, and we could be negatively impacted by these laws.
As of December 31, 2022, approximately $78.8 million, or 32.4%, of our total deposits were noninterest bearing demand accounts.
As of December 31, 2023, approximately $95.5 million, or 23.6%, of our total deposits were noninterest bearing demand accounts.
It is possible that new laws and regulations will be adopted in the United States and internationally, or existing laws and regulations may be amended, removed or interpreted in new ways, that would affect the operation of our Strategic Program service providers and the way in which they interact with borrowers and investors. 43 Index Recognizing the growth in online marketplaces, in July 2015 the Treasury issued a request for information to study the marketplace lending industry, which led to the release of a Treasury white paper on May 10, 2016, on the online marketplace lending industry.
It is possible that new laws and regulations will be adopted in the United States and internationally, or existing laws and regulations may be amended, removed or interpreted in new ways, that would affect the operation of our Strategic Program service providers and the way in which they interact with borrowers and investors.
Increased market volatility may materially and adversely affect the market price of our common stock, which could make it difficult to sell your shares at the volume, prices and times desired. 47 Index Our executive management and board of directors have significant control over our business.
In addition, significant fluctuations in the trading volume in our common stock may cause significant price variations to occur. 40 Ind ex Increased market volatility may materially and adversely affect the market price of our common stock, which could make it difficult to sell your shares at the volume, prices and times desired.
Our inability to compete successfully in the markets in which we operate could have a material adverse effect on our business, financial condition or results of operations. We may not be able to measure and limit our credit risk adequately, which could lead to unexpected losses. Our business depends on our ability to successfully measure and manage credit risk.
We may not be able to measure and limit our credit risk adequately, which could lead to unexpected losses. Our business depends on our ability to successfully measure and manage credit risk.
The CFPB has indicated that it may propose new rules on overdrafts and other consumer financial products or services, which could have a material adverse effect on our business, financial condition and results of operations if any such rules limit our ability to provide such financial products or services. 40 Index A successful regulatory challenge to an institution’s performance under the CRA, fair lending or consumer lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines.
A successful regulatory challenge to an institution’s performance under the CRA, fair lending or consumer lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines.

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Item 2. Properties

Properties — owned and leased real estate

0 edited+1 added−0 removed3 unchanged
Added
We expect to extend our Sandy, Utah branch lease for one year through July 31, 2025.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+1 added−0 removed3 unchanged
Biggest changeHowever, one or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially adversely affect our reputation, even if resolved in our favor.
Biggest changeHowever, one or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially adversely affect our reputation, even if resolved in our favor. Item 4.
Added
MINE SAFETY DISCLOSURES Not applicable. 44 Ind ex PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+1 added−6 removed4 unchanged
Biggest changeBusiness-Supervision and Regulation-Regulatory Restrictions on Dividends.” Our ability to pay dividends to our shareholders in the future will depend on regulatory restrictions, our liquidity and capital requirements, our earnings and financial condition, the general economic climate, contractual restrictions, our ability to service any equity or debt obligations senior to our common stock and other factors deemed relevant by our board of directors. 51 Index Recent Sales of Unregistered Securities and Issuer Repurchases of Common Stock There were no unregistered sales of the Company’s stock during the fourth quarter of 2022.
Biggest changeBusiness-Supervision and Regulation-Regulatory Restrictions on Dividends.” Our ability to pay dividends to our shareholders in the future will depend on regulatory restrictions, our liquidity and capital requirements, our earnings and financial condition, the general economic climate, contractual restrictions, our ability to service any equity or debt obligations senior to our common stock and other factors deemed relevant by our board of directors.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The Company’s common stock has been publicly traded since November 19, 2021 and is currently traded on the Nasdaq Global Market under the Symbol “FINW.” Holders There were approximately 141 shareholders of record of the Company’s common stock as of December 31, 2022.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The Company’s common stock has been publicly traded since November 19, 2021 and is currently traded on the Nasdaq Global Market under the Symbol “FINW.” Holders There were approximately 132 shareholders of record of the Company’s common stock as of December 31, 2023.
Giordano of an aggregate of 18,000 non-qualified stock options, (h) grants to Jeana Hutchings of an aggregate of 9,000 non-qualified stock options and (i) grants to Lisa Ann Nievaard of an aggregate of 9,000 non-qualified stock options.
Giordano of an aggregate of 18,000 non-qualified stock options, (h) grants to Jeana Hutchings of an aggregate of 9,000 non-qualified stock options and (i) grants to Lisa Ann Nievaard of an aggregate of 9,000 non-qualified stock options. Item 6. [RESERVED] 46 Ind ex
Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options or Restricted Stock Awards Weighted-Average Exercise Price of Outstanding Options or Restricted Stock Awards Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in the first column) Equity compensation plans approved by security holders: FinWise Bancorp 2016 Stock Option Plan 132,018 $ 5.23 894 FinWise Bancorp 2019 Stock Option Plan 498,693 5.20 621,472 Equity compensation plans not approved by security holders (1) 250,914 5.43 NA Total 881,625 622,366 (1) Reflects (a) a grant to Kent Landvatter of 40,914 non-qualified stock options, (b) a grant to Javvis Jacobson of 60,000 non-qualified stock options, (c) a grant to James Noone of 60,000 non-qualified stock options, (d) grants to Howard Reynolds of an aggregate of 18,000 non-qualified stock options, (e) grants to Gerald E.
Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options or Restricted Stock Awards Weighted-Average Exercise Price of Outstanding Options or Restricted Stock Awards Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in the first column) Equity compensation plans approved by security holders: FinWise Bancorp 2016 Stock Option Plan 113,923 $ 5.53 2,189 FinWise Bancorp 2019 Stock Option Plan 908,527 7.18 333,853 Equity compensation plans not approved by security holders (1) 250,914 5.43 NA Total 1,273,364 $ 6.69 336,042 (1) Reflects (a) a grant to Kent Landvatter of 40,914 non-qualified stock options, (b) a grant to Javvis Jacobson of 60,000 non-qualified stock options, (c) a grant to James Noone of 60,000 non-qualified stock options, (d) grants to Howard Reynolds of an aggregate of 18,000 non-qualified stock options, (e) grants to Gerald E.
The repurchase program does not obligate the Company to purchase any particular number of shares. 52 Index Securities Authorized for Issuance Under Equity Compensation Plans The following table provides information as of December 31, 2022, with respect to options outstanding and shares available for future awards under the Company’s active equity incentive plans.
The Company did not repurchase any of its shares and did not have any authorized share repurchase programs during the fourth quarter of 2023 . 45 Ind ex Securities Authorized for Issuance Under Equity Compensation Plans The following table provides information as of December 31, 2023, with respect to options outstanding and shares available for future awards under the Company’s active equity incentive plans.
Removed
During the three months ended December 31, 2022, we repurchased 100,000 shares of our common stock for $0.9 million (average per share purchase price of $9.19) pursuant to our common stock repurchase program.
Added
Recent Sales of Unregistered Securities and Issuer Repurchases of Common Stock There were no unregistered sales of the Company’s stock during the fourth quarter of 2023 .
Removed
Issuer Purchases of Equity Securities Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) October 1, 2022 - October 31, 2022 — — — 624,241 November 1, 2022 - November 30, 2022 57,882 $9.34 57,882 566,359 December 1, 2022 - December 31, 2022 42,118 $8.99 42,118 524,241 Total 100,000 $9.19 100,000 524,241 (1) On August 18, 2022, the Company announced that the Board has authorized, effective August 16, 2022, a common stock repurchase program to purchase up to 644,241 shares of the Company’s common stock in the aggregate.
Removed
The repurchase program expires on August 31, 2024 but may be limited or terminated at any time without prior notice. The repurchase program authorizes the repurchase by the Company of its common stock in open market transactions, including pursuant to a trading plan in accordance with Rule 10b-18 promulgated under the Exchange Act or privately negotiated transactions.
Removed
The authorization permits management to repurchase shares of the Company’s common stock from time to time at management’s discretion.
Removed
Repurchases may also be made pursuant to a trading plan under Rule 10b5-1 under the Exchange Act, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions.
Removed
The actual means and timing of any shares purchased under the program will depend on a variety of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

100 edited+96 added−54 removed77 unchanged
Biggest changeThe following tables detail maturities and sensitivity to interest rate changes for our loan portfolio at December 31, 2022: At December 31, 2022 Remaining Contractual Maturity Held for Investment ($ in thousands) One Year or Less Average Yield/Rate After One Year and Through Five Years Average Yield/Rate After Five Years and Through Fifteen Years Average Yield/Rate Fixed rate loans: SBA $ 272 1.00 % $ 354 1.00 % $ — — % Commercial, non-real estate 2,683 4.97 % 8,395 4.96 % 394 4.79 % Residential real estate 3,924 5.40 % 3,590 5.50 % 61 4.27 % Strategic Program loans 16,589 113.89 % 7,669 51.27 % 1 24.56 % Commercial real estate 1,689 5.39 % 1,102 5.80 % 29 3.87 % Consumer 1,838 7.57 % 3,597 7.80 % 62 10.31 % ​ Variable rate loans: SBA 9,335 8.53 % 36,741 8.53 % 61,545 8.38 % Commercial, non-real estate — — % — — % — — % Residential real estate 29,242 8.08 % 550 9.28 % 445 9.23 % Strategic Program loans — — % — — % — — % Commercial real estate 957 8.72 % 2,525 8.32 % 3,909 8.27 % Consumer 82 4.56 % 229 1.38 % — — % Total $ 66,611 34.10 % $ 64,752 12.81 % $ 66,446 8.36 % 62 Index At December 31, 2022 Remaining Contractual Maturity Held for Investment ($ in thousands) After Fifteen Years Average Yield/Rate Total Average Yield/Rate Fixed rate loans: SBA $ — — % $ 626 1.00 % Commercial, non-real estate 12 3.78 % 11,484 4.96 % Residential real estate 3 4.43 % 7,578 5.44 % Strategic Program loans — — % 24,259 94.10 % Commercial real estate 8 3.50 % 2,828 5.53 % Consumer — — % 5,497 7.75 % ​ Variable rate loans: SBA 36,925 8.20 % 144,546 8.38 % Commercial, non-real estate — — % — — % Residential real estate — — % 30,237 8.12 % Strategic Program loans — — % — — % Commercial real estate 1,844 8.15 % 9,235 8.31 % Consumer — — % 311 2.22 % Total $ 38,792 8.20 % $ 236,601 16.80 % Nonperforming Assets Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were contractually due.
Biggest changeThe following tables detail maturities and sensitivity to interest rate changes for our loan portfolio at December 31, 2023: As of December 31, 2023 Remaining Contractual Maturity Held for Investment ($ in thousands) One Year or Less Average Yield/Rate After One Year and Through Five Years Average Yield/Rate After Five Years and Through Fifteen Years Average Yield/Rate Fixed rate loans: SBA $ 493 4.39 % $ 796 9.23 % $ 1,606 10.45 % Commercial leases 10,073 6.83 % 27,413 7.16 % 624 7.56 % Commercial, non-real estate 703 5.68 % 1,621 5.82 % 123 3.76 % Residential real estate 6,230 7.07 % 4,653 7.65 % 60 4.29 % Strategic Program loans 14,305 125.05 % 5,103 82.20 % — — % Commercial real estate Owner occupied 1,976 7.04 % 1,725 7.85 % — — % Non-owner occupied 101 4.60 % 108 3.51 % 244 3.48 % Consumer 3,051 6.40 % 7,668 5.79 % 653 9.17 % Variable rate loans: SBA 15,720 10.87 % 62,367 10.87 % 100,880 10.70 % Commercial leases — — % — — % — — % Commercial, non-real estate — — % — — % — — % Residential real estate 23,718 9.02 % 1,941 5.85 % 1,521 4.55 % Strategic Program loans — — % — — % — — % Commercial real estate Owner occupied 943 8.91 % 3,766 8.91 % 7,384 9 % Non-owner occupied 1,541 10.50 % — — % — — % Consumer — — % — — % — — % Total $ 78,854 29.82 % $ 117,161 12.37 % $ 113,095 10.48 % 60 Ind ex As of December 31, 2023 Remaining Contractual Maturity Held for Investment ($ in thousands) After Fifteen Years Average Yield/Rate Total Average Yield/Rate Fixed rate loans: SBA $ 1,143 10.41 % $ 4,038 9.46 % Commercial leases — — % 38,110 7.08 % Commercial, non-real estate 10 3.77 % 2,457 5.67 % Residential real estate — — % 10,943 7.30 % Strategic Program loans — — % 19,408 113.78 % Commercial real estate Owner occupied — — % 3,701 7.42 % Non-owner occupied 31 4 % 484 3.73 % Consumer — — % 11,372 6.15 % Variable rate loans: SBA 56,917 10.45 % 235,884 10.70 % Commercial leases — — % — — % Commercial, non-real estate — — % — — % Residential real estate — — % 27,180 8.54 % Strategic Program loans — — % — — % Commercial real estate Owner occupied 5,004 10 % 17,097 9.52 % Non-owner occupied — — % 1,541 10.50 % Consumer — — % — — % Total $ 63,105 10.43 % $ 372,215 15.16 % Nonperforming Assets Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were contractually due.
The nature of the business, use of proceeds, length of time in business, management experience, repayment ability, credit history, ratio calculations and assessment of collateral adequacy are all considerations. These loans are generally secured by liens on business assets. Historically, we have retained these loans and leases on our balance sheet for investment.
The nature of the business, use of proceeds, length of time in business, management experience, repayment ability, credit history, ratio calculations and assessment of collateral adequacy are all considerations. These loans are generally secured by liens on business assets. Historically, we have retained these loans on our balance sheet for investment.
Any loan, lease, line of credit, or letter of credit (including any unfunded commitments) and any interest obtained in such loans or leases made by another lender to individuals, sole proprietorships, partnerships, corporations, or other business enterprises for commercial, industrial, agricultural, or professional purposes, not secured by real estate, but not for personal expenditure purposes are included in this category.
Any loan, line of credit, or letter of credit (including any unfunded commitments) and any interest obtained in such loans made by another lender to individuals, sole proprietorships, partnerships, corporations, or other business enterprises for commercial, industrial, agricultural, or professional purposes, not secured by real estate, but not for personal expenditure purposes are included in this category.
Borrowers will consistently maintain 20% of the outstanding debts in deposit accounts with us. LTV ratios will be 70% or less. These loans require minimal monitoring. 64 Index Grade 3: Pass - There is a comfortable primary source of repayment, generally 2 years or more of consistent employment (or related field) and income history.
Borrowers will consistently maintain 20% of the outstanding debts in deposit accounts with us. LTV ratios will be 70% or less. These loans require minimal monitoring. Grade 3: Pass - There is a comfortable primary source of repayment, generally 2 years or more of consistent employment (or related field) and income history.
We evaluate the ALL on a monthly basis and take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and current economic conditions and trends that may affect the borrower’s ability to repay.
We evaluate the ACL on a monthly basis and take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans and current economic conditions and trends that may affect the borrower’s ability to repay.
After the completion of our initial public offering, it is no longer necessary to utilize the volatility of comparable publicly traded companies as we now have historical trading volatility data on our own common shares. 74 Index • Risk-Free Interest Rate. The risk-free rate is based on the U.S.
After the completion of our initial public offering, it is no longer necessary to utilize the volatility of comparable publicly traded companies as we now have historical trading volatility data on our own common shares. • Risk-Free Interest Rate. The risk-free rate is based on the U.S.
We have elected to take advantage of this extended transition period, which means that the financial statements included in this Report, as well as any financial statements that we file in the future, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as we remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act.
We have elected to take advantage of this extended transition period, which means that the financial statements included in this Report, as well as any financial statements that we file in the future, will not be subject to all 47 Ind ex new or revised accounting standards generally applicable to public companies for the transition period for so long as we remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act.
As of December 31, 2022 and 2021, the most recent notification from the FDIC categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action (there are no conditions or events since that notification we believe have changed the Bank’s category).
As of December 31, 2023 and December 31, 2022, the most recent notification from the FDIC categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action (there are no conditions or events since that notification we believe have changed the Bank’s category).
Aside from minimal balances held with our correspondent banks, the majority of our interest-bearing deposits in other banks was held directly with the Federal Reserve. Securities We use our securities portfolio to provide a source of liquidity, provide an appropriate return on funds invested, manage interest rate risk, meet collateral requirements and meet regulatory capital requirements.
Aside from minimal balances held with our correspondent banks, the majority of our interest-bearing deposits in other banks was held directly with the Federal Reserve. 69 Ind ex Securities We use our securities portfolio to provide a source of liquidity, provide an appropriate return on funds invested, manage interest rate risk, meet collateral requirements and meet regulatory capital requirements.
Our judgment in determining the adequacy of the allowance is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available and as situations and information change.
Our judgment in determining the adequacy of the ACL is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available and as situations and information change.
While our liquidity monitoring and management consider both present and future demands for and sources of liquidity, the following table of contractual commitments focuses only on future obligations and summarizes our contractual obligations as of December 31, 2022.
While our liquidity monitoring and management consider both present and future demands for and sources of liquidity, the following table of contractual commitments focuses only on future obligations and summarizes our contractual obligations as of December 31, 2023.
This non-GAAP financial measure is “tangible book value per share.” Our management uses this non-GAAP financial measure in its analysis of our performance. • “Tangible book value per share” is defined as book value per share less goodwill and other intangible assets, divided by the outstanding number of common shares at the end of each period.
This non-GAAP financial measure is “tangible book value per share.” Our management uses this non-GAAP financial measure in its analysis of our performance. 74 Ind ex • “Tangible book value per share” is defined as book value per share less goodwill and other intangible assets, divided by the outstanding number of common shares at the end of each period.
While the level of nonperforming assets fluctuates in response to changing economic and market conditions, the relative size and composition of the loan portfolio, and our management’s degree of success in resolving problem assets, we believe our proactive stance to early identification and intervention is the key to successfully managing our loan portfolio.
While the level of nonperforming assets fluctuates in 62 Ind ex response to changing economic and market conditions, the relative size and composition of the loan portfolio, and our management’s degree of success in resolving problem assets, we believe our proactive stance to early identification and intervention is the key to successfully managing our loan portfolio.
For the years ended December 31, 2022 and 2021, stock-based compensation expense was $0.8 million and $2.1 million, respectively. As of December 31, 2022, we had $0.5 million of total unrecognized stock-based compensation costs, which we expect to recognize over an estimated weighted-average period of 1.8 years.
For the years ended December 31, 2023 and 2022, stock-based compensation expense was $2.0 million and $0.8 million, respectively. As of December 31, 2023, we had $1.4 million of total unrecognized stock-based compensation costs, which we expect to recognize over an estimated weighted-average period of 1.5 years.
On September 17, 2019, the federal banking agencies jointly finalized a rule intending to simplify the regulatory capital requirements described above for qualifying community banking organizations that opt into the Community Bank Leverage Ratio framework, as required by Section 201 of the Regulatory Relief Act. The Bank elected to opt into the Community Bank Leverage Ratio framework starting in 2020.
On September 17, 2019, the federal banking agencies jointly finalized a rule intending to simplify the regulatory capital requirements described above for qualifying community banking organizations that opt into the Community Bank Leverage Ratio framework, as required by Section 201 of the Regulatory Relief Act.
We offer a variety of deposit products including interest and noninterest bearing demand accounts, money market and savings accounts and certificates of deposit, all of which we market at competitive pricing. We generate deposits from our customers on a relationship basis and through access to national Institutional and brokered deposit sources.
We offer a variety of deposit products including interest and noninterest bearing demand accounts, HSA demand deposits sourced through Lively, Inc., money market and savings accounts and certificates of deposit, all of which we market at competitive pricing. We generate deposits from our customers on a relationship basis and through access to national institutional and brokered deposit sources.
The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate. The volume column shows the effects attributable to changes in volume.
The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate. The volume column shows the effects attributable to 54 Ind ex changes in volume.
The Bank had an available unsecured line of credit with Bankers’ Bank of the West to borrow up to $1.1 million in overnight funds. We also maintain a $2.6 million line of credit with Federal Home Loan Bank, secured by specific pledged loans.
The Bank had an available unsecured line of credit with Bankers’ Bank of the West to borrow up to $1.1 million in overnight funds. We also maintain a $30.5 million line of credit with Federal Home Loan Bank, secured by specific pledged loans.
We had no outstanding balances on the unsecured or secured lines of credit as of December 31, 2022. In long term borrowings, we had $0.6 million outstanding at December 31, 2022 related to the PPPLF. The PPPLF is secured by pledged PPP loans. Our most liquid assets are cash and cash equivalents.
We had no outstanding balances on such unsecured or secured lines of credit as of December 31, 2023. In long term borrowings, we had $0.2 million outstanding at December 31, 2023 related to the PPPLF. The PPPLF is secured by pledged PPP loans. Our most liquid assets are cash and cash equivalents.
Our return on average assets was 6.4% and 9.1% for the years ended December 31, 2022 and 2021, respectively. We seek to maintain adequate capital to support anticipated asset growth, operating needs and unexpected risks, and to ensure that we are in compliance with all current and anticipated regulatory capital guidelines.
Our return on average assets was 3.5% and 6.4% for the years ended December 31, 2023 and 2022, respectively. We seek to maintain adequate capital to support anticipated asset growth, operating needs and unexpected risks, and to ensure that we are in compliance with all current and anticipated regulatory capital guidelines.
We considered the significance of payment delays on a case-by-case basis, taking into consideration all the circumstances of the loan and borrower, including the length of delay, the reasons for the delay, the borrower’s prior payment record, the amount of the shortfall in relation to principal and interest owed.
The Company considers the significance of payment delays on a case-by-case basis, taking into consideration the circumstances of the loan and borrower, including the length of delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to principal and interest owed.
Liquid assets, defined as cash and due from banks and interest-bearing deposits, were 25.1% of total assets at December 31, 2022. We primarily utilize short-term and long-term borrowings to supplement deposits to fund our lending and investment activities, each of which is discussed below.
Liquid assets, defined as cash and due from banks and interest bearing deposits, were 20.0% of total assets at December 31, 2023. We primarily utilize short-term and long-term borrowings to supplement deposits to fund our lending and investment activities, each of which is discussed below.
Income Taxes. We account for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates expected to be in effect for the year in which the differences are expected to reverse.
Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates expected to be in effect for the year in which the differences are expected to reverse.
Our policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. During the years ended December 31, 2022 and 2021, the Company recognized de minimis interest and penalties.
Our policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. During the years ended December 31, 2023 and 2022, the Company recognized $0.3 million and de minimis interest and penalties, respectively.
Net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as “volume changes.” It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as “rate changes.” For the year ended December 31, 2022, our net interest income increased $2.9 million, or 6.1% to $50.9 million, compared to the year ended December 31, 2021.
Net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as “volume changes.” It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as “rate changes.” 52 Ind ex For the year ended December 31, 2023, our net interest income increased $3.7 million, or 7.2%, to $54.6 million compared to the year ended December 31, 2022.
The maturity profile of our uninsured time deposits, those amounts that exceed the FDIC insurance limit, at December 31, 2022 is as follows: ($ in thousands) Three months or less More than three months to six months More than six months to twelve months More than twelve months Total Time deposits, uninsured $ — $ 65 $ 37 $ 1,627 $ 1,729 Liquidity and Capital Resources Liquidity Management Liquidity management is the ability to meet current and future financial obligations of a short-term nature.
The maturity profile of our uninsured time deposits, those amounts that exceed the FDIC insurance limit, at December 31, 2023 is as follows: December 31, 2023 ($ in thousands) Three months or less More than three months to six months More than six months to twelve months More than twelve months Total Time deposits, uninsured $ 627 $ 184 $ 32 $ 1,154 $ 1,997 71 Ind ex Liquidity and Capital Resources Liquidity Management Liquidity management is the ability to meet current and future financial obligations of a short-term nature.
The Dodd-Frank Act raised the limit for federal deposit insurance to $250,000 for most deposit accounts and increased the cash limit of Securities Investor Protection Corporation protection from $100,000 to $250,000. Our total uninsured deposits were $108.4 million and $163.7 million for the years ended December 31, 2022, and 2021, respectively.
The Dodd-Frank Act raised the limit for federal deposit insurance to $250,000 for most deposit accounts and increased the cash limit of Securities Investor Protection Corporation protection from $100,000 to $250,000. Our total uninsured deposits were $136.9 million and $108.4 million as of December 31, 2023 and December 31, 2022, respectively.
As of December 31, 2022, and December 31, 2021, we had total consumer loans of $5.8 million, and $4.6 million, respectively, representing 2.2% and 1.7% of our total loans, respectively. We use a debt-to-income (“DTI”) ratio to determine whether an applicant will be able to service the debt.
As of December 31, 2023 and December 31, 2022, we had total consumer loans of $11.4 million and $5.8 million, respectively, representing 3.1% and 2.5% of our total loans held for investment, respectively. We use a debt-to-income (“DTI”) ratio to determine whether an applicant will be able to service the debt.
Noninterest Expense Noninterest expense has increased as we have grown and as we have expanded and modernized our operational infrastructure and implemented our plan to build an efficient, technology-driven banking operation with significant capacity for growth.
Noninterest Expense Noninterest expense has increased as we have grown and as we have expanded and modernized our operational infrastructure and continued to implement our plan to build an efficient, integrated fintech banking operation with significant capacity for growth.
As of December 31, 2022 and December 31, 2021, we had total residential real estate loans of $37.8 million and $27.1 million, respectively, representing 14.5% and 10.2% of our total loans, respectively. Construction loans are usually paid off through the conversion to permanent financing from third-party lending institutions.
As of December 31, 2023 and December 31, 2022, we had total residential real estate loans of $38.1 million and $37.8 million, respectively, representing 10.2% and 16.0% of our total loans held for investment, respectively. Construction loans are usually paid off through the conversion to permanent financing from third-party lending institutions.
We generally retain the legal right to service all these loans, but contract with the Strategic Program service provider or another approved sub-servicer to service these loans on our behalf. 60 Index Commercial real estate Commercial real estate loans include loans to individuals, sole proprietorships, partnerships, corporations, or other business enterprises for commercial, industrial, agricultural, or professional purposes, secured by real estate primarily located in the Salt Lake City, Utah MSA, but not for personal expenditure purposes.
We generally retain the legal right to service all these loans, but contract with the Strategic Program service provider or another approved sub-servicer to service these loans on our behalf. 58 Ind ex Commercial real estate Commercial real estate loans include loans to individuals, sole proprietors, partnerships, corporations, or other business enterprises for commercial, industrial, agricultural, or professional purposes, secured by real estate, but not for personal expenditure purposes.
The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At December 31, 2022, liquid assets (defined as cash and due from banks and interest bearing deposits), consisting of cash and due from banks, totaled $100.6 million of which $0.3 million is above the FDIC insurance limit and uninsured.
The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At December 31, 2023, liquid assets (defined as cash and due from banks and interest bearing deposits), consisting of cash and due from banks, totaled $117.0 million.
Actual results may differ from these estimates under different assumptions or conditions. 72 Index Accounting policies, as described in detail in the notes to our consolidated financial statements, included elsewhere in this Report, are an integral part of our financial statements.
Actual results may differ from these estimates under different assumptions or conditions. Accounting policies, as described in detail in the notes to our consolidated financial statements, included elsewhere in this Report, are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position.
Loans maturing in greater than five years totaled $105.2 million as of December 31, 2022. The variable rate portion of our total held for investment loan portfolio at December 31, 2022 was $184.3 million, or 77.9%.
Loans maturing in greater than five years totaled $176.2 million as of December 31, 2023. The variable rate portion of our total held for investment loan portfolio at December 31, 2023 was $281.7 million, or 75.7%.
We designate deposits obtained from this source as Institutional Deposits. To attract deposits from local and nationwide consumer and commercial markets, we historically paid rates at the higher end of the market, which we have been able to pay due to our high margin and technology-oriented business model.
To attract deposits from local and nationwide consumer and commercial markets, we historically paid rates at the higher end of the market, which we have been able to pay due to our high margin and technology-oriented business model. We utilize rate listing services and website advertising to attract deposits from consumer and commercial sources.
We group loans into different categories based on loan type to determine the appropriate allowance for each loan group. 73 Index The Company generally places loans on a nonaccrual status when: (1) payment is in default for 90 days or more unless the loan is well secured and in the process of collection; or (2) full repayment of principal and interest is not foreseen.
The Company generally places loans on a nonaccrual status when: (1) payment is in default for 90 days or more unless the loan is well secured and in the process of collection; or (2) full repayment of principal and interest is not foreseen.
The determination of the grant date fair value using an option pricing model is affected principally by our estimated fair value of our common stock and requires us to make a number of other assumptions, including the expected term of the award, the expected volatility of the underlying shares, the risk-free interest rate and the expected dividend yield.
We classify our awards as equity awards and these awards are valued as of the grant date based upon the underlying stock price and a number of assumptions, including volatility, performance period, risk-free interest rate and expected dividends. 50 Ind ex The determination of the grant date fair value using an option pricing model is affected principally by our estimated fair value of our common stock and requires us to make a number of other assumptions, including the expected term of the award, the expected volatility of the underlying shares, the risk-free interest rate and the expected dividend yield.
All other securities are designated as available-for-sale and carried at estimated fair value with unrealized gains and losses included in shareholders’ equity on an after-tax basis. For the year presented, all securities were classified as held-to-maturity.
All other securities are designated as available-for-sale and carried at estimated fair value with unrealized gains and losses included in shareholders’ equity on an after-tax basis. For the year presented, all securities were classified as held-to-maturity. The following table summarizes the contractual maturities, amortized cost, and weighted average yields of investment securities at December 31, 2023 .
At December 31, 2021, there were 13 securities, consisting of five collateralized mortgage obligations and eight mortgage-backed securities. Nine of these securities were in an unrealized loss position as of December 31, 2021.
At December 31, 2023, there were 19 securities, consisting of nine collateralized mortgage obligations and 10 mortgage-backed securities, in an unrealized loss position as of December 31, 2023 and 17 securities, consisting of eight collateralized mortgage obligations and nine mortgage-backed securities, in an unrealized loss position as of December 31, 2022.
This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical nor desirable to defer writing off this basically worthless asset, even though partial recovery may be affected in the future.
This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical nor desirable to defer writing off this basically worthless asset, even though partial recovery may be affected in the future. 63 Ind ex The following table presents, as of the period presented, the loan balances by loan program as well as risk rating.
At December 31, 2022, we had the ability to access $10.6 million from the Federal Reserve Bank’s Discount Window on a collateralized basis. Through Zions Bank, the Bank had an available unsecured line available of $1.0 million.
At December 31, 2023, we had the ability to access $11.4 million from the Federal Reserve Bank’s Discount Window and $0.8 million from the Federal Reserve Bank's Bank Term Funding Program on a collateralized basis. Through Zions Bank, the Bank had an unsecured line available of $5.0 million at December 31, 2023.
This increase was primarily due to the decrease in our loans held-for-sale balances of $37.2 million. Interest-bearing deposits in other banks have generally been the primary repository of the liquidity we use to fund our operations.
This increase was primarily due to an increase in brokered time deposit balances. Interest-bearing deposits in other banks have generally been the primary repository of the liquidity we use to fund our operations.
As of December 31, 2022, and December 31, 2021, we had total commercial real estate loans of $12.1 million and $2.4 million, respectively, representing 4.7% and 0.9% of our total loans, respectively.
As of December 31, 2023 and December 31, 2022, we had total commercial non-real estate loans of $2.5 million and $2.2 million, respectively, representing 0.7% and 0.9% of our total loans held for investment, respectively.
The following is a discussion of the critical accounting policies and significant estimates that we believe require us to make the most complex or subjective decisions or assessments. Allowance for Loan Losses. The ALL is a valuation allowance for probable incurred credit losses. Loans that are deemed to be uncollectible are charged off and deducted from the ALL.
The following is a discussion of the critical accounting policies and significant estimates that we believe require us to make the most complex or subjective decisions or assessments. Allowance for Credit Losses.
The following table presents the regulatory capital ratios for the Bank as of the dates indicated: ​ December 31, Capital Ratios 2022 2021 Well- Capitalized Requirement Leverage Ratio (under CBLR) 25.1 % 17.7 % 9.0 % (1) (1) The Well-Capitalized Requirement for 2021 was 8.5%. 71 Index Contractual Obligations We have contractual obligations to make future payments on debt and lease agreements.
The following table sets forth the actual capital amounts and ratios for the Bank and the amount of capital required to be categorized as well-capitalized as of the dates indicated. 73 Ind ex The following table presents the regulatory capital ratios for the Bank as of the dates indicated: As of Capital Ratios December 31, 2023 December 31, 2022 Well- Capitalized Requirement Leverage Ratio (under CBLR) 20.7 % 25.1 % 9.0 % Contractual Obligations We have contractual obligations to make future payments on debt and lease agreements.
This decrease was primarily due to decreases in our noninterest-bearing demand deposits and money markets account balances. As an FDIC-insured institution, our deposits are insured up to applicable limits by the DIF of the FDIC.
This increase was primarily due to an increase in brokered time deposits and noninterest-bearing demand deposits utilized in the funding of our lending programs. As an FDIC-insured institution, our deposits are insured up to applicable limits by the DIF of the FDIC.
The guaranty is conditional and covers a portion of the risk of payment default by the borrower, but not the risk of improper underwriting, closing or servicing by the lender.
The guaranty is conditional and covers a portion of the risk of payment default by the borrower, but not the risk of improper underwriting, closing or servicing by the lender. As such, prudent underwriting, closing and servicing processes are essential to effective utilization of the SBA 7(a) program.
A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position. We believe that the critical accounting policies and estimates discussed below require us to make difficult, subjective or complex judgments about matters that are inherently uncertain.
We believe that the critical accounting policies and estimates discussed below require us to make difficult, subjective or complex judgments about matters that are inherently uncertain.
We believe that our liquid assets combined with the available lines of credit provide adequate liquidity to meet our current financial obligations for at least the next 12 months. Capital Resources Shareholders’ equity increased $25.0 million to $140.5 million at December 31, 2022 compared to $115.4 million at December 31, 2021.
We believe that our liquid assets combined with the available lines of credit provide adequate liquidity to meet our current financial obligations for at least the next 12 months.
The most commonly used measure is total equity to total assets, which was 34.9% and 30.4% at December 31, 2022 and 2021, respectively. 70 Index Our return on average equity was 19.6% and 39.2% for the years ended December 31, 2022 and 2021, respectively.
The most commonly used measure is total equity to total assets, which was 26.5% and 35.0% as of December 31, 2023 and December 31, 2022, respectively. Our return on average equity was 11.9% and 19.6% for the years ended December 31, 2023 and 2022, respectively.
The following table presents, for the periods indicated, the major categories of noninterest expense: ($ in thousands) For the Years Ended December 31, Change ​ 2022 2021 $ % Noninterest expense: Salaries and employee benefits $ 24,489 $ 21,744 $ 2,745 12.6 % Professional services 5,454 1,670 3,784 226.6 % Occupancy and equipment expenses 2,204 882 1,322 149.9 % Impairment of SBA servicing asset 1,728 800 928 116.0 % Other operating expenses 4,881 4,415 466 10.6 % Total noninterest expense $ 38,756 $ 29,511 $ 9,245 31.3 % For the year ended December 31, 2022, total noninterest expense increased $9.2 million, or 31.3%, to $38.8 million compared to the year ended December 31, 2021.
The following table presents, for the periods indicated, the major categories of noninterest expense: For the Years Ended December 31, Change ($ in thousands) 2023 2022 $ % Noninterest expense: Salaries and employee benefits $ 25,751 $ 24,489 $ 1,262 5.2 % Professional services 4,961 5,454 (493) (9.0) % Occupancy and equipment expenses 3,312 2,204 1,108 50.3 % Impairment of SBA servicing asset (376) 1,728 (2,104) (121.8) % Other operating expenses 6,540 4,881 1,659 34.0 % Total noninterest expense $ 40,188 $ 38,756 $ 1,432 3.7 % For the year ended December 31, 2023, total noninterest expense increased $1.4 million, or 3.7%, to $40.2 million compared to the year ended December 31, 2022.
The net proceeds less $0.5 million in other related expenses, including legal fees totaled $35.6 million. 69 Index Our primary source of funds to originate new loans is derived from deposits. Deposits are comprised of core and noncore deposits. We use brokered deposits and a rate listing service to advertise rates to banks, credit unions, and other institutional entities.
Our primary source of funds to originate new loans is derived from deposits. Deposits are comprised of core and noncore deposits. We use brokered deposits and a rate listing service to advertise rates to banks, credit unions, and other institutional entities. We designate deposits obtained from this source as Institutional Deposits.
Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the carryforward period. 76 Index We assess all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities.
We assess all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities.
Loan losses are charged against the ALL when we believe that the collectability of the principal loan balance is unlikely. Subsequent recoveries, if any, are credited to the ALL when received.
The quality of the loan portfolio and the adequacy of the ACL is reviewed by regulatory examinations and the Company’s auditors. 65 Ind ex Credit losses are charged against the ACL when we believe that the collectability of the principal loan balance is unlikely. Subsequent recoveries, if any, are credited to the ACL when received.
Total nonperforming assets at December 31, 2021 comprised $0.7 million in nonaccrual loans and $0.1 million of troubled debt restructurings. 63 Index Credit Risk Profile We believe that we underwrite loans carefully and thoroughly, limiting our lending activities to those products and services where we have the resources and expertise to lend profitably without undue credit risk.
Credit Risk Profile We believe that we underwrite loans carefully and thoroughly, limiting our lending activities to those products and services where we have the resources and expertise to lend profitably without undue credit risk.
Strategic Program loans We, through our Strategic Program service providers, issue, on a nationwide basis, unsecured consumer and secured or unsecured business loans to borrowers within certain approved credit profiles. As of December 31, 2022, and December 31, 2021, we had total Strategic Program loans of $47.8 million and $85.9 million, respectively, representing 18.4% and 32.3% of our total loans.
Strategic Program loans We, through our Strategic Program service providers, issue, on a nationwide basis, unsecured consumer and secured or unsecured business loans to borrowers within certain approved credit profiles.
($ in thousands) Total Less than One Year One to Three Years Three to Five Years More Than Five Years Contractual Obligations Deposits without stated maturity $ 129,563 $ 129,563 $ — $ — $ — Time deposits 94,264 57,721 26,828 9,715 — Long term borrowings (1) 314 — 314 — — Operating lease obligations 7,513 850 2,190 2,270 2,203 Total $ 231,654 $ 188,134 $ 29,332 $ 11,985 $ 2,203 (1) Balances in this category pertain to the PPPLF and are fully-collateralized with PPP loans Off-Balance Sheet Items In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated statements of financial condition.
($ in thousands) Total Less than One Year One to Three Years Three to Five Years More Than Five Years Contractual Obligations Deposits without stated maturity $ 145,544 $ 145,544 $ — $ — $ — Time deposits 238,995 76,322 92,494 69,640 539 Long term borrowings (1) 190 — 190 — — Operating lease obligations 6,663 1,104 2,204 2,338 1,017 Total $ 391,392 $ 222,970 $ 94,888 $ 71,978 $ 1,556 (1) Balances in this category pertain to the PPPLF and are fully-collateralized with PPP loans Off-Balance Sheet Items In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated statements of financial condition.
Other sources of noninterest income include gain on sale of loans, net, SBA loan servicing fees, change in fair value on investment in BFG and other miscellaneous fees. 57 Index The following table presents, for the periods indicated, the major categories of noninterest income: ​ For the Years Ended December 31, Change ($ in thousands) 2022 2021 $ % Noninterest income: Strategic Program fees $ 22,467 $ 17,959 $ 4,508 25.1 % Gain on sale of loans, net 13,550 9,689 3,861 39.8 % SBA loan servicing fees 1,603 1,156 447 38.7 % Change in fair value on investment in BFG (478 ) 2,991 (3,469 ) (116.0 %) Other miscellaneous income 269 49 220 449.0 % Total noninterest income $ 37,411 $ 31,844 $ 5,567 17.5 % For the year ended December 31, 2022, total noninterest income increased $5.6 million, or 17.5%, to $37.4 million compared to the year ended December 31, 2021.
Other sources of noninterest income include gain on sale of loans, SBA loan servicing fees, change in fair value on investment in BFG and other miscellaneous income. 55 Ind ex The following table presents, for the periods indicated, the major categories of noninterest income: For the Years Ended December 31, Change ($ in thousands) 2023 2022 $ % Noninterest income: Strategic Program fees $ 15,914 $ 22,467 $ (6,553) (29.2) % Gain on sale of loans, net 1,684 13,550 (11,866) (87.6) % SBA loan servicing fees 1,466 1,603 (137) (8.5) % Change in fair value on investment in BFG (600) (478) (122) 25.5 % Other miscellaneous income 2,616 269 2,347 872.5 % Total noninterest income $ 21,080 $ 37,411 $ (16,331) (43.7) % For the year ended December 31, 2023, total noninterest income decreased $16.3 million, or 43.7%, to $21.1 million compared to the year ended December 31, 2022.
As of December 31, 2022 and 2021, we had total SBA 7(a) loans of $145.2 million and $142.4 million, respectively, representing 55.8% and 53.6% of our total loans, respectively. Loans are sourced primarily through our referral relationship with BFG.
SBA 7(a) loans are made to small businesses and professionals throughout the USA. As of December 31, 2023 and December 31, 2022, we had total SBA 7(a) loans of $239.9 million and $145.2 million, respectively, representing 64.5% and 61.4% of our total loans held for investment, respectively. Loans are sourced primarily through our referral relationship with BFG.
The primary form of repayment on these loans is from personal or business cash flow. Business loans may be secured by liens on business assets, as applicable. We have generally sold most of these loans, but as our capital grows, we may choose to hold more of the funded loans and/or receivables.
The primary form of repayment on these loans is from personal or business cash flow. Business loans may be secured by liens on business assets, as applicable. We reserve the right to sell any portion of funded loans and/or receivables directly to the Strategic Program service providers or other investors.
Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized.
Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized. Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the carryforward period.
Each loan is assigned a risk grade during the origination and closing process by credit administration personnel based on criteria described later in this section. We analyze the resulting ratings, as well as other external statistics and factors such as delinquency, to track the migration performance of the portfolio balances. This ratings analysis is performed at least quarterly.
We analyze the resulting ratings, as well as other external statistics and factors such as delinquency, to track the migration performance of the portfolio balances. This ratings analysis is performed at least quarterly. SBA 7(a) Loans We originate and service loans partially guaranteed by the SBA under its Section 7(a) loan program.
Average balances have been calculated using daily averages. ​ Years Ended December 31, ​ 2022 2021 ($ in thousands) Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate Interest earning assets: Interest-bearing deposits with the Federal Reserve, non U.S. central banks and other banks $ 74,920 $ 1,180 1.58 % $ 55,960 $ 61 0.11 % Investment securities 12,491 208 1.67 % 3,298 47 1.43 % Loans held for sale 65,737 21,237 32.31 % 59,524 22,461 37.73 % Loans held for investment 209,352 29,704 14.19 % 198,992 26,674 13.40 % Total interest earning assets 362,500 52,329 14.44 % 317,774 49,243 15.50 % Less: ALL (10,816 ) (7,548 ) Non-interest earning assets 30,141 17,002 Total assets $ 381,825 $ 327,228 Interest bearing liabilities: Demand $ 17,564 $ 531 3.02 % $ 6,060 $ 53 0.87 % Savings 7,310 7 0.10 % 7,897 10 0.13 % Money market accounts 26,054 116 0.45 % 21,964 75 0.34 % Certificates of deposit 71,661 778 1.09 % 72,311 1,000 1.38 % Total deposits 122,589 1,432 1.17 % 108,232 1,138 1.05 % Other borrowings 566 2 0.35 % 36,363 127 0.35 % Total interest bearing liabilities 123,155 1,434 1.16 % 144,595 1,265 0.87 % Non-interest bearing deposits 114,174 107,481 Non-interest bearing liabilities 15,781 11,392 Shareholders’ equity 128,715 63,760 Total liabilities and shareholders’ equity $ 381,825 $ 327,228 Net interest income and interest rate spread $ 50,895 13.28 % $ 47,978 14.63 % Net interest margin 14.04 % 15.10 % Ratio of average interest-earning assets to average interest- bearing liabilities 294.34 % 219.77 % 56 Index Rate/Volume Analysis.
Years Ended December 31, 2023 2022 ($ in thousands) Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate Interest earning assets: Interest-bearing deposits with the Federal Reserve, non U.S. central banks and other banks $ 110,866 $ 5,751 5.19 % $ 74,920 $ 1,180 1.58 % Investment securities 14,731 338 2.30 % 12,491 208 1.67 % Loans held for sale 39,090 15,051 38.50 % 65,737 21,237 32.31 % Loans held for investment 303,784 43,394 14.28 % 209,352 29,704 14.19 % Total interest earning assets 468,472 64,534 13.78 % 362,500 52,329 14.44 % Non-interest earning assets 25,269 19,325 Total assets $ 493,740 $ 381,825 Interest bearing liabilities: Demand $ 45,454 $ 1,856 4.08 % $ 17,564 $ 531 3.02 % Savings 8,207 51 0.62 % 7,310 7 0.10 % Money market accounts 13,665 362 2.65 % 26,054 116 0.45 % Certificates of deposit 168,887 7,705 4.56 % 71,661 778 1.09 % Total deposits 236,213 9,974 4.22 % 122,589 1,432 1.17 % Other borrowings 251 1 0.35 % 566 2 0.35 % Total interest bearing liabilities 236,464 9,975 4.22 % 123,155 1,434 1.16 % Non-interest bearing deposits 93,126 114,174 Non-interest bearing liabilities 17,250 15,781 Shareholders’ equity 146,901 128,715 Total liabilities and shareholders’ equity $ 493,740 $ 381,825 Net interest income and interest rate spread $ 54,559 9.56 % $ 50,895 13.28 % Net interest margin 11.65 % 14.04 % Ratio of average interest-earning assets to average interest- bearing liabilities 198.12 % 294.34 % Rate/Volume Analysis.
As such, prudent underwriting, closing and servicing processes are essential to effective utilization of the SBA 7(a) program. 59 Index Historically, we have generally sold the SBA-guaranteed portion (typically 75% of the principal balance) of a majority of the loans we originate at a premium in the secondary market while retaining all servicing rights and the unguaranteed portion; however, beginning in 2020, we made the decision to drive interest income by retaining a larger amount of the guaranteed portion of these loans.
Historically, we have generally sold the SBA-guaranteed portion (typically 75% of the principal balance) of a majority of the loans we originate at a premium in the secondary market while retaining all servicing rights and the unguaranteed portion.
The increase in shareholders’ equity was primarily attributable to net income recognized for the year ended December 31, 2022. We use several indicators of capital strength.
Capital Resources Shareholders’ equity increased $14.6 million to $155.1 million at December 31, 2023 compared to $140.5 million at December 31, 2022. The increase in shareholders’ equity was primarily attributable to net income of $17.5 million recognized for the year ended December 31, 2023.
The following tables present the end of period balances as well as the average balances for the deposit portfolio for the periods indicated (average balances have been calculated using daily averages): For the Years Ended December 31, ​ 2022 2021 ($ in thousands) Total Percent Total Percent Period end: Noninterest-bearing demand deposits $ 78,817 32.5 % $ 110,548 43.9 % Interest-bearing deposits: Demand 50,746 20.8 % 5,399 2.1 % Savings 8,289 3.4 % 6,685 2.7 % Money markets 10,882 4.5 % 31,076 12.3 % Time certificates of deposit 94,264 38.8 % 98,184 39.0 % Total period end deposits $ 242,998 100.0 % $ 251,892 100.0 % 68 Index Years Ended ​ December 31, 2022 December 31, 2021 ($ in thousands) Total Weighted average rate paid Percent of total Total Weighted average rate paid Percent of total Average: Noninterest-bearing demand deposits $ 114,174 0.00 % 48.2 % $ 107,481 0.00 % 49.8 % Interest-bearing deposits: Demand 17,564 3.02 % 7.4 % 6,060 0.87 % 2.8 % Savings 7,310 0.10 % 3.1 % 7,897 0.13 % 3.7 % Money market 26,054 0.45 % 11.0 % 21,965 0.34 % 10.2 % Time certificates of deposit 71,661 1.09 % 30.3 % 72,311 1.38 % 33.5 % Total average deposits $ 236,763 0.60 % 100.0 % $ 215,713 0.53 % 100.0 % Our deposits decreased by $8.9 million to $243.0 million at December 31, 2022, from $251.9 million at December 31, 2021, or 3.5%.
In addition to the reserve account, some Strategic Program loan originators maintain operating deposit accounts with us. 70 Ind ex The following tables present the end of period and average balances of our deposit portfolio for the periods indicated (average balances have been calculated using daily averages): December 31, 2023 December 31, 2022 ($ in thousands) Total Percent Total Percent Period end: Noninterest-bearing demand deposits $ 95,486 23.6 % $ 78,817 32.5 % Interest-bearing deposits: Demand 50,058 12.4 % 50,746 20.8 % Savings 8,633 2.1 % 8,289 3.4 % Money markets 11,661 2.9 % 10,882 4.5 % Time certificates of deposit 238,995 59.0 % 94,264 38.8 % Total period end deposits $ 404,833 100.0 % $ 242,998 100.0 % For the Years Ended December 31, 2023 December 31, 2022 ($ in thousands) Total Weighted Average rate paid Percent of total Total Weighted Average rate paid Percent of total Average: Noninterest-bearing demand deposits $ 93,126 — % 28.3 % $ 114,174 — % 48.2 % Interest-bearing deposits: Demand 45,454 4.08 % 13.8 % 17,564 3.02 % 7.4 % Savings 8,207 0.62 % 2.5 % 7,310 0.10 % 3.1 % Money market 13,665 2.65 % 4.1 % 26,054 0.45 % 11.0 % Time certificates of deposit 168,887 4.56 % 51.3 % 71,661 1.09 % 30.3 % Total average deposits $ 329,339 3.03 % 100.0 % $ 236,763 0.61 % 100.0 % Our deposits increased to $404.8 million as of December 31, 2023 from $243.0 million as of December 31, 2022, an increase of $161.8 million, or 66.6%.
We have established underwriting guidelines to be followed by our loan officers, and we also monitor our delinquency levels for any negative or adverse trends. There can be no assurance, however, that our loan portfolio will not become subject to increasing pressures from deteriorating borrower credit due to general economic conditions.
We have established underwriting guidelines to be followed by our loan officers, and we also monitor our delinquency levels for any negative or adverse trends.
With no current plans to expand our brick-and-mortar branch network, online and mobile banking offers a means to meet customer needs and better efficiency through technology compared to traditional branch networks. We believe that the rise of mobile and online banking provides us the opportunity to further leverage the technological competency we have demonstrated in recent years.
We regularly evaluate new, core deposit products. We intend to have various term offerings to match our funding needs. With no current plans to expand our brick-and-mortar branch network, online and mobile banking offers a means to meet customer needs and better efficiency through technology compared to traditional branch networks.
Results of Operations Net Income The following table sets forth the principal components of net income for the periods indicated. ​ For the Years Ended December 31, ($ in thousands) 2022 2021 Interest income $ 52,329 $ 49,243 Interest expense (1,434 ) (1,265 ) Provision for loan losses (13,519 ) (8,039 ) Non-interest income 37,411 31,844 Non-interest expense (38,756 ) (29,511 ) Provision for income taxes (10,916 ) (10,689 ) Net income 25,115 31,583 54 Index Net income for the year ended December 31, 2022 was $25.1 million, a decrease of $6.5 million, or 20.5%, from net income of $31.6 million for the year ended December 31, 2021.
For the Years Ended December 31, ($ in thousands) 2023 2022 Interest income $ 64,534 $ 52,329 Interest expense (9,975) (1,434) Provision for loan losses (11,638) (13,519) Non-interest income 21,080 37,411 Non-interest expense (40,188) (38,756) Provision for income taxes (6,353) (10,916) Net income $ 17,460 $ 25,115 Net income for the year ended December 31, 2023 was $17.5 million, a decrease of $7.7 million, or 30.5%, from net income of $25.1 million for the year ended December 31, 2022.
This increase was primarily due to increases in both the yield and volume of our loans held for investment portfolio as well as rate increases on our interest-bearing deposits.
This increase was primarily due to increases in the yields on all interest earning asset categories and was partially offset by decreases in the loans held-for-sale volume as well as increased rates on our certificate of deposit portfolio.
Total Liabilities Total liabilities at December 31, 2022, saw a decrease from its December 31, 2021, balance primarily due to a decrease in total deposits and was offset by an $7.0 million increase associated with operating lease liabilities. Deposits Deposits are the major source of funding for the Company.
Total Liabilities Total liabilities increased from $260.3 million at December 31, 2022 to $431.2 million at December 31, 2023 primarily due to an increase in total deposits. Deposits Deposits are the major source of funding for the Company.
We expect to continue to grant options and other stock-based awards in the future, and to the extent that we do, our stock-based compensation expense recognized in future periods will likely increase. Fair Value of Common Stock. There was no public market for our common shares prior to the completion of our initial public offering on November 23, 2021.
We expect to continue to grant options and other stock-based awards in the future, and to the extent that we do, our stock-based compensation expense recognized in future periods will likely increase. Income Taxes. We account for income taxes under the asset and liability method.
The net interest margin decreased 106 basis points from 15.10% for the year ended December 31, 2021 to 14.04% for the year ended December 31, 2022.
The net interest margin was 11.65% for the year ended December 31, 2023, compared to 14.04% for the year ended December 31, 2022.
Years Ended December 31, ​ 2022 2021 ​ Increase (Decrease) Due to Increase (Decrease) Due to ($ in thousands) Rate Volume Total ​ Rate Volume Total Interest income: ​ Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks $ 1,092 $ 27 $ 1,119 $ (219 ) $ 79 $ (140 ) Investment securities 9 152 161 (6 ) 19 13 Loans held-for-sale (4,460 ) 3,236 (1,224 ) (1,990 ) 13,891 11,901 Loans held for investment 1,603 1,427 3,030 6,735 1,228 7,963 Total interest income (1,756 ) 4,842 3,086 4,520 15,217 19,737 Interest expense: Demand 270 208 478 15 (24 ) (9 ) Savings (2 ) (1 ) (3 ) (13 ) 7 (6 ) Money market accounts 25 16 41 (113 ) 84 (29 ) Certificates of deposit (213 ) (9 ) (222 ) (992 ) 591 (401 ) Other borrowings — (125 ) (125 ) (2 ) (44 ) (46 ) Total interest bearing liabilities 80 89 169 (1,105 ) 614 (491 ) Net interest income $ (1,836 ) $ 4,753 $ 2,917 $ 5,625 $ 14,603 $ 20,228 Provision for Loan Losses The provision for loan losses is a charge to income to bring our ALL to a level deemed appropriate by management and approved by of board of directors.
Years Ended December 31, 2023 2022 Increase (Decrease) Due to Increase (Decrease) Due to ($ in thousands) Rate Volume Total Rate Volume Total Interest income: Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks $ 3,777 $ 794 $ 4,571 $ 1,092 $ 27 $ 1,119 Investment securities 88 42 130 9 152 161 Loans held-for-sale 5,549 (11,735) (6,186) (4,460) 3,236 (1,224) Loans held for investment 199 13,491 13,690 1,603 1,427 3,030 Total interest income 9,613 2,592 12,205 (1,756) 4,842 3,086 Interest expense: Demand 241 1,085 1,326 270 208 478 Savings 43 1 44 (2) (1) (3) Money market accounts 273 (27) 246 25 16 41 Certificates of deposit 4,858 2,069 6,927 (213) (9) (222) Other borrowings — (1) (1) — (125) (125) Total interest bearing liabilities 5,414 3,127 8,542 80 89 169 Net interest income $ 4,199 $ (536) $ 3,664 $ (1,836) $ 4,753 $ 2,917 Provision for Credit Losses On January 1, 2023, the Company adopted ASU 2016-13, Topic 326 which replaced the incurred loss methodology, allowance for loan losses ("ALL"), with CECL for financial instruments measured at amortized cost and other commitments to extend credit.
The following tables summarize the contractual maturities and weighted average yields of investment securities at December 31, 2022, and the amortized cost of those securities as of the indicated dates. ​ At December 31, 2022 ​ After Five to Ten Years Weighted After Ten Years Weighted ($ in thousands) Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Total Amortized Cost Mortgage-backed securities $ 3,388 3.0 % $ 10,904 3.4 % $ 14,292 67 Index The weighted average yield of investment securities is the sum of all interest that the investments generate, divided by the sum of the book value.
As of December 31, 2023 After Five to Ten Years Weighted After Ten Years Weighted ($ in thousands) Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Total Amortized Cost Mortgage-backed securities $ 1,975 2.7 % $ 4,984 1.8 % $ 6,959 Collateralized mortgage obligations 770 3.3 % 7,659 3.2 % 8,429 Total $ 2,745 2.8 % $ 12,643 2.7 % $ 15,388 The weighted average yield of investment securities is the sum of all interest that the investments generate, divided by the sum of the book value.
There were no calls, sales or maturities of securities during the years ended December 31, 2022, and December 31, 2021. At December 31, 2022, there were 18 securities, consisting of eight collateralized mortgage obligations and ten mortgage-backed securities. Seventeen of these securities were in an unrealized loss position as of December 31, 2022.
There were no calls, sales or maturities of securities during the years ended December 31, 2023 and December 31, 2022.
The Company had no nonperforming assets and $0.1 million in troubled debt restructurings at December 31, 2022.
The amount of nonperforming assets and material loan modifications as of December 31, 2023 include $15.0 million and $0.3 million,respectively,of SBA 7(a) loan balances that are guaranteed by the SBA. The Company had no nonperforming assets and $0.4 million in troubled debt restructurings at December 31, 2022.
Commercial, non-real estate Commercial non-real estate loans consist of loans and leases made to commercial enterprises that are not secured by real estate. As of December 31, 2022, and December 31, 2021, we had total commercial non-real estate loans of $11.5 million and $3.4 million, respectively, representing 4.4% and 1.3% of our total loans, respectively.
As of December 31, 2023 and December 31, 2022, we had total commercial real estate loans of $22.8 million and $12.1 million, respectively, representing 6.1% and 5.2% of our total loans held for investment, respectively.
Loan Portfolio Program Summary Through our diversification efforts and FinView™, we have built a portfolio that we believe positions us to withstand economic shifts.
Loan Portfolio Program Summary Through our diversification efforts we have built a portfolio that we believe positions us to withstand economic shifts. For example, we focus on industries and loan types that have historically lower loss rates such as professional, scientific and technical services (including law firms), non-store retailers (e-commerce), and ambulatory healthcare services.
The following table reflects the ratio of net charge-offs to average loans outstanding by loan category, as of the dates indicated. ​ Years Ended December 31, ​ 2022 2021 ($ in thousands) Net Charge- Offs Average Loans NCO to Average Loans Net Charge- Offs Average Loans NCO to Average Loans SBA $ 326 $ 132,199 0.2 % $ 109 $ 149,285 0.1 % Commercial, non-real estate (2 ) 7,562 0.0 % (40 ) 3,945 (1.0 %) Residential real estate — 27,937 — % — 23,171 — % Strategic program loans (1) 11,063 93,115 11.9 % 4,311 75,171 5.7 % Commercial real estate — 8,912 — % — 2,082 — % Consumer 2 5,364 0.0 % 3 4,862 0.1 % Total $ 11,389 $ 275,089 4.1 % $ 4,383 $ 258,516 1.7 % (1) The average held for sale balance on Strategic Program loans for the years ended December 31, 2022 and 2021 were $65.7 million and $59.5 million.
For the Years Ended December 31, 2023 December 31, 2022 ($ in thousands) Net Charge- Offs (Recoveries) Average Loans NCO to Average Loans Net Charge- Offs (Recoveries) Average Loans NCO (Recovery) to Average Loans SBA $ 903 $ 196,835 0.5 % $ 326 $ 132,199 0.2 % Commercial leases — 22,227 — % — 4,483 — % Commercial, non-real estate (1) 3,247 — % (2) 3,079 (0.1) % Residential real estate — 31,906 — % — 27,937 — % Strategic program loans 9,892 21,483 46.0 % 11,063 27,378 40.4 % Commercial real estate 19 19,716 0.1 % — 8,912 — % Consumer 66 8,369 0.8 % 2 5,364 — % Total $ 10,879 $ 303,783 7.2 % $ 11,389 $ 209,352 11.0 % Due primarily to the increase in our average loans held for investment balances, the ratio of net charge-offs to average loans outstanding by loan category was lower during the year ended December 31, 2023 as compared to the year ended December 31, 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk Under the filer category of “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, the Company is not required to provide information requested by Part II, Item 7A of this Report. 77 Index
Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk Under the filer category of “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, the Company is not required to provide information requested by Part II, Item 7A of this Report. 75 Ind ex

Other FINW 10-K year-over-year comparisons