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What changed in Finwise Bancorp's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Finwise Bancorp's 2023 and 2024 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 2024 report.

+438 added−440 removedSource: 10-K (2025-03-26) vs 10-K (2024-03-25)

Top changes in Finwise Bancorp's 2024 10-K

438 paragraphs added · 440 removed · 310 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

82 edited+16 added−13 removed153 unchanged
Biggest changeWe 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.
Biggest changeThese 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. Construction loan terms generally range from 9 to 12 months and interest rates currently range from the prime rate to the prime rate plus 200 basis points.
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.
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. Lending Limits.
Borrowers to whom we originate loans through our Strategic Programs generally include consumers considered super prime (FICO score of 720 and higher), prime (FICO score of 661 through 719), near prime (FICO score of 640 through 660) and subprime (FICO score of 660 and below), as well as consumers that lack a credit history as reported through one of the three credit bureaus.
Borrowers to whom we originate loans through our Strategic Programs generally include consumers considered super prime (FICO score of 720 and higher), prime (FICO score of 661 through 719), near prime (FICO score of 640 through 660) and subprime (FICO score of 640 and below), as well as consumers that lack a credit history as reported through one of the three credit bureaus.
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 (“FRB”) and UDFI.
In December of 2019, we acquired directly from four of the five individuals who acquired our shares in 2018, a 10% ownership interest in BFG in exchange for 950,784 newly issued shares of our common stock, representing 10.9% of the Company’s outstanding common stock at the time of purchase.
In December of 2019, we acquired directly from four of the five individuals who acquired our shares in 2018, a 10% ownership interest in BFG in exchange for 950,784 newly issued shares of our common stock, representing 10.9% of our common stock outstanding at the time of purchase.
Such remedies include the power to enjoin unsafe or unsound practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict growth, to assess civil monetary penalties, to remove officers and directors and ultimately to request the FDIC to terminate the Bank’s deposit insurance.
Such remedies include the power to enjoin unsafe or unsound practices, to require mitigating action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict growth, to assess civil monetary penalties, to remove officers and directors and ultimately to request the FDIC to terminate the Bank’s deposit insurance.
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.
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.
Depending upon the capital category to which an institution is assigned, the regulators' corrective powers include: requiring the submission of a capital restoration plan; placing limits on asset growth and restrictions on activities; requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; restricting transactions with affiliates; restricting the interest rate the institution may pay on deposits; ordering a new election of directors of the institution; requiring that senior executive officers or directors be dismissed; prohibiting the institution from accepting deposits from correspondent banks; requiring the institution to divest certain 14 Ind ex subsidiaries; prohibiting the payment of principal or interest on subordinated debt; and ultimately, appointing a receiver for the institution.
Depending upon the capital category to which an institution is assigned, the regulators' corrective powers include: requiring the submission of a capital restoration plan; placing limits on asset growth and restrictions on activities; requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; restricting transactions with affiliates; restricting the interest rate the institution may pay on deposits; ordering a new election of directors of the institution; requiring that senior executive officers or directors be dismissed; prohibiting the institution from accepting deposits from correspondent banks; requiring the institution to divest certain subsidiaries; prohibiting the payment of principal or interest on subordinated debt; and ultimately, appointing a receiver for the institution.
In addition, stockholders may access these reports and documents on the SEC’s web site at www.sec.gov. The information on, or accessible through, our website or any other website cited in this Report is not part of, or incorporated by reference into, this Report and should not be relied upon in determining whether to make an investment decision.
In addition, shareholders may access these reports and documents on the SEC’s web site at www.sec.gov. The information on, or accessible through, our website or any other website cited in this Report is not part of, or incorporated by reference into, this Report and should not be relied upon in determining whether to make an investment decision.
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.
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.
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.
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.
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.
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.
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.
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.
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 .
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 Strategic Programs include a broad array of products for both prime and subprime borrowers including both consumer and commercial loans that may be secured or unsecured, and open- or closed-end products, depending on the particular market targeted by the Bank and the specific Strategic Program service provider.
Our Strategic Programs include a broad array of products for both prime and subprime borrowers including both consumer and commercial loans that may be secured or unsecured, and open- or closed-end products, depending on the particular market targeted by the 10 Table of Contents Bank and the specific Strategic Program service provider.
The Dodd-Frank Act additionally requires capital requirements to be countercyclical so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness. The current requirements, which began to take effect in 2015, are based on the international Basel III capital framework.
The Dodd-Frank Act additionally requires capital requirements to be counter-cyclical so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness. The current requirements, which began to take effect in 2015, are based on the international Basel III capital framework.
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.
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.
The assessment base is equal to the amount of an insured depository institution’s uninsured deposits, as reported for the quarter ended December 31, 2022, minus up to $5 billion of uninsured deposits at the institution (or, if a banking organization has more than one insured depository 16 Ind ex institution, at the banking organization in the aggregate).
The assessment base is equal to the amount of an insured depository institution’s uninsured deposits, as reported for the quarter ended December 31, 2022, minus up to $5 billion of uninsured deposits at the institution (or, if a banking organization has more than one insured depository institution, at the banking organization in the aggregate).
We maintain a diversified loan portfolio in terms of the types of loan products it contains and customer characteristics, with a focus on individual consumers and small businesses.
Lending Activities We maintain a diversified loan portfolio in terms of the types of loan products it contains and customer characteristics, with a focus on individual consumers and small businesses.
In addition, since we are a legal entity separate and distinct from the Bank and do not conduct stand-alone operations, an ability to pay dividends depends on the ability of the Bank to pay dividends to us and the FDIC and the UDFI may, under certain circumstances, prohibit the payment of dividends to us from the Bank.
In addition, since we are a legal entity separate and distinct from the Bank and do not conduct stand-alone operations, an ability to pay dividends depends on the ability of the Bank to pay dividends to the holding company and the FDIC and the UDFI may, under certain circumstances, prohibit the payment of dividends to the holding company from the Bank.
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.
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.
Our investment policy is reviewed and approved annually by our board of directors. Overall investment objectives are established by our board through our investment policy and monitored through our asset-liability management committee. Day-to-day activities pertaining to the securities portfolio are conducted under the supervision of our Chief Financial Officer.
Our investment policy is reviewed and approved annually by our board of directors. Overall investment objectives are established by our board through our investment policy and monitored through our asset-liability management committee. Day-to-day activities pertaining to the securities portfolio are conducted under the supervision of our Chief Financial 12 Table of Contents Officer.
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.
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 Utah.
In accordance with the Dodd-Frank Act, the federal banking agencies prohibit incentive-based compensation arrangements that encourage inappropriate risk taking by covered financial institutions (generally institutions that have over $1 billion in assets) and are deemed to be excessive, or that may lead to material losses.
In 16 Table of Contents accordance with the Dodd-Frank Act, the federal banking agencies prohibit incentive-based compensation arrangements that encourage inappropriate risk taking by covered financial institutions (generally institutions that have over $1 billion in assets) and are deemed to be excessive, or that may lead to material losses.
The Federal Reserve Bank determined that these five individuals were acting in concert, but that the shares purchased by the five individuals were not attributable to BFG for purposes of the Bank Holding Company Act of 1956, as amended.
The FRB determined that these five individuals were acting in concert, but that the shares purchased by the five individuals were not attributable to BFG for purposes of the Bank Holding Company Act of 1956, as amended.
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.
The majority of our commercial real estate loans are owner occupied commercial real estate loans which comprise 8.8% of the Bank's loans held-for-investment portfolio. Construction loans are typically disbursed as construction progresses and carry variable interest rates.
The Federal Reserve Board or the FRB could prohibit or limit the payment of dividends by a bank holding company if it determines that payment of the dividend would constitute an unsafe or unsound practice.
The Federal Reserve Board or the FRB could prohibit or limit the 17 Table of Contents payment of dividends by a bank holding company if it determines that payment of the dividend would constitute an unsafe or unsound practice.
The UDFI approved the acquisition of the additional shares of our common stock in the exchange by the four individuals and the Federal Reserve Bank did not object, provided that no individual owns more than 9.9% of our issued and outstanding common stock (as calculated in accordance with the rules and regulations of the Federal Reserve Bank).
The UDFI approved the acquisition of the additional shares of our common stock in the exchange by the four individuals and the FRB did not object, provided that no individual owns more than 9.9% of our issued and outstanding common stock (as calculated in accordance with the rules and regulations of the FRB).
In addition, the Bank’s deposit accounts are insured by the FDIC to the maximum extent permitted by law, and the FDIC has certain enforcement powers over the Bank. The UDFI and the FDIC periodically examine the Bank’s operations and financial condition and compliance with federal consumer-protection laws.
In addition, the Bank’s deposit 14 Table of Contents accounts are insured by the FDIC to the maximum extent permitted by law, and the FDIC has certain enforcement powers over the Bank. The UDFI and the FDIC periodically examine the Bank’s operations and financial condition and compliance with federal consumer-protection laws.
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.
Human Capital Resources As of December 31, 2024, we employed 196 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.
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.
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 regular examinations of the Bank. The Company’s and the Bank’s regulators generally have broad discretion to impose restrictions and limitations on our operations.
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.
While the Bank is our primary asset we also have a 20% membership interest in BFG, a Connecticut limited liability company, a nationally 5 Table of Contents significant referral source for SBA loans and a legal lending facilitator.
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.
Allowable non-investment-grade instruments must be approved by the board of directors. • Income Generation—The Bank’s investment portfolio is managed to optimize income on invested funds in a manner that is consistent with the Bank’s objective to preserve the invested principal. • 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.
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.
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 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.
We maintain a diversified funding strategy using core deposits from our branch operations and 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.
As described below, we have a right of first refusal to purchase additional interests in BFG from any selling member along with an option to purchase all of the interests from the remaining members through January 1, 2028.
As described below, we have a right of first refusal to purchase additional interests in BFG from any selling member along with an option to purchase all of the interests from the remaining members through January 1, 2028. See “Our Relationship with Business Funding Group” below.
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. Fees are not paid based on the secondary market premium received or the amount sold. Strategic Programs .
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. Fees are not paid based on the secondary market premium received or the amount sold. 7 Table of Contents Commercial Leases .
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 Bank’s legal lending limit on loans to a single borrower was approximately $23.0 million as of December 31, 2024. Strategic Programs Overview . We currently source most of our loan originations through our Strategic Programs.
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.
As of December 31, 2024, our commercial leases comprised 15.1% 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.
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.
The majority of the approximately $22.2 million in consumer loans outstanding as of December 31, 2024, that were not generated through our Strategic Programs were originated in connection with 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 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.
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.
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.
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.
We also make loans for the acquisition of undeveloped land. As of December 31, 2024, our residential real estate loans comprised 11.1% of the Bank’s loans held-for-investment portfolio, and our commercial real estate loans comprised 9.1% of the Bank’s loans held-for-investment portfolio.
Privacy and Data Security Federal and state law contains extensive consumer privacy protection provisions. The GLBA and the implementing regulations issued by federal regulatory agencies require financial institutions (including banks, insurance agencies, and broker/dealers) to adopt policies and procedures regarding the disclosure of nonpublic personal information about their customers to non-affiliated third parties.
The GLBA and the implementing regulations issued by federal regulatory agencies require financial institutions (including banks, insurance agencies, and broker/dealers) to adopt policies and procedures regarding the disclosure of nonpublic personal information about their customers to non-affiliated third parties.
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.
As of December 31, 2024, our loan portfolio is comprised of 20.7% in unguaranteed portions of SBA 7(a) loans and 34.1% in guaranteed portions of SBA 7(a) loans. 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.
Utah corporate law also requires that dividends can only be paid out of funds legally available therefor.
Utah corporate law also requires that dividends can only be paid out of funds legally available for such a distribution.
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 .
During the year ended December 31, 2024, we originated approximately $19.2 million in POS loans and held approximately $21.2 million of POS loans on our balance sheet as of 8 Table of Contents December 31, 2024. As of December 31, 2024, our consumer loans comprised 4.8% of the Bank’s total loans held-for-investment portfolio. Strategic Program Loans held-for-sale .
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).
Our core deposits, as of December 31, 2024, constituted 35.6% of our funding sources (our core deposits comprise the sum of demand deposits, FBO demand deposits, NOW accounts, MMDA accounts, savings accounts, and time deposits under $250,000 that are not brokered deposits).
During the year ended December 31, 2023, the Bank paid a de minimis assessment to the UDFI. Capital Adequacy Guidelines Bank holding companies and banks are subject to various regulatory capital requirements administered by state and federal agencies.
During the year ended December 31, 2024, the Bank paid an assessment to the UDFI of $0.1 million. Capital Adequacy Guidelines Bank holding companies and banks are subject to various regulatory capital requirements administered by state and federal agencies.
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.
Item 1. BUSINESS 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.
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.
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.
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 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. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines.
Ongoing Credit Risk Management. In addition to the tailored underwriting process described above, we perform ongoing risk monitoring and review processes for credit exposures.
We believe that our credit approval process provides for thorough underwriting and efficient decision making. Ongoing Credit Risk Management. In addition to the tailored underwriting process described above, we perform ongoing risk monitoring and review processes for credit exposures.
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.
During the year ended December 31, 2024, we originated approximately $68.2 million in SBA 7(a) loans and held approximately $255.1 million of SBA 7(a) loans on our balance sheet as of December 31, 2024 of which $158.7 million was guaranteed by the SBA and $96.3 million was unguaranteed.
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 .
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.
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.
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.
The majority of originations of Strategic Program loans are not maintained by the Company as loans held for investment. We have selectively retained a portion of the Strategic Program loans or receivables based on the capacity and risk appetite of the Bank with the majority of Strategic Program originations being sold to investors.
We have selectively retained a portion of the Strategic Program loans or receivables based on the capacity and risk appetite of the Bank with the majority of Strategic Program originations being sold to investors. Our Strategic Programs loans held-for-investment cover a wide range of borrower credit profiles, loan terms and interest rates.
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.
We offer strategic program loans for loan amounts up to $2.0 million with terms not to exceed 72 months. The Bank’s current Strategic Program service providers include Upstart, Elevate, Reach (formerly Liberty Lending), Plannery, Empower, Earnest, PowerPay, Stride, LendingPoint, OppFi, Mulligan Funding, American First Finance.
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.
We have principally relied on wholesale funding sources (brokered deposits, health savings accounts, and institutional deposits) to fund our lending activities but also have core deposits, and have utilized borrowings when we deem appropriate.
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.
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 9 Table of Contents exceptions are appropriately monitored and fully disclosed to the approving authority.
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.
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%.
Moreover, bank regulatory agencies can be more aggressive in responding to concerns and trends identified in examinations, which could result in an increased issuance of enforcement actions to financial institutions requiring action to address credit quality, liquidity, risk management, and capital adequacy, as well as other safety and soundness concerns.
We cannot predict whether or when potential legislation or new regulations will be enacted, and if enacted, the effect that new legislation or any implemented regulations and supervisory policies would have on our financial condition and results of operations. 13 Table of Contents Moreover, bank regulatory agencies can be more aggressive in responding to concerns and trends identified in examinations, which could result in an increased issuance of enforcement actions to financial institutions requiring action to address credit quality, liquidity, risk management, and capital adequacy, as well as other safety and soundness concerns.
If an insured depository institution, such as the Bank, fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including the institution’s holding company, with respect to any extensions of credit they have made to such insured depository institution. 13 Ind ex The ability of any bank holding company to acquire another bank holding company or bank is also significantly impacted by discretionary decisions of federal regulators, including political appointees, as to whether any proposed merger would be consistent with national financial institutions policies.
If an insured depository institution, such as the Bank, fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including the institution’s holding company, with respect to any extensions of credit they have made to such insured depository institution.
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.
During the year ended December 31, 2024, we originated approximately $4.9 billion in Strategic Program loans and had approximately $20.1 million in Strategic Program loans held-for-investment on our balance sheet at December 31, 2024. As of December 31, 2024, our Strategic Program held-for-investment loans comprised of 4.3% of the Bank’s loan portfolio.
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.
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 believe such routine and recurring discussions amongst our loan committee members and board of directors help prevent oversight errors that may occur in improperly managed loan portfolios. The Bank analyzes each loan application in a reasonable manner, consistent with prudent lending standards.
Our loan committee and board members are updated on a regular basis on all servicing and liquidation efforts. We believe such routine and recurring discussions amongst our loan committee members and board of directors help prevent oversight errors that may occur in improperly managed loan portfolios.
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 investments were approximately $15.4 million as of December 31, 2023.
Securities Portfolio We manage our securities portfolio and cash to maintain adequate liquidity with a secondary focus on yield and returns. Our investment security portfolio totaled $42.5 million as of December 31, 2024.
The following table presents the composition of our loan held for investment portfolio by lending program, as of December 31, 2023: ($ 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 $131.7 million of SBA 7(a) loan balances that are guaranteed by the SBA.
The following table presents the composition of our loans held-for-investment portfolio by lending program, as of December 31, 2024: ($ in thousands) Total Loans % of Loans in Category of Total Loans SBA $ 255,056 54.8 % Commercial leases 70,153 15.1 % Commercial, non-real estate 3,691 0.8 % Residential real estate 51,574 11.1 % Strategic Program loans 20,122 4.3 % Commercial real estate: Owner occupied 41,046 8.8 % Non-owner occupied 1,379 0.3 % Consumer 22,212 4.8 % Total $ 465,233 100.0 % Note: SBA loans in the table above include $158.7 million of SBA 7(a) loan balances that are guaranteed by the SBA.
On July 25, 2023, the Company entered into a Membership Purchase Agreement, as amended (the "Purchase Agreement") with BFG and four members of BFG ("Sellers"). Pursuant to the Purchase Agreement, the Company acquired an additional 10% non-voting ownership interest in BFG (the "Transaction").
On July 25, 2023, the Company entered into a definitive agreement, as amended, to purchase from certain members of BFG an additional 10% membership interest in exchange for shares of the Company’s common stock.
Service providers may also be required to pay minimum monthly fees to the Bank or reimburse the Bank for certain agreed-upon expenses. Some Strategic Programs require the service provider pay a fee to the Bank if it enters into a similar strategic relationship with another bank or financial institution.
Service providers may also be required to pay minimum monthly fees to the Bank or reimburse the Bank for certain agreed-upon expenses.
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.
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. Loan applications are submitted at the point-of-sale through an online portal.
For many of these tasks a bank must keep records to be made available to its primary federal regulator. AML rules and policies are developed by a bureau within the Financial Crimes Enforcement Network (“FinCEN”), but compliance by individual institutions is overseen by its primary federal regulator.
AML rules and policies are developed by a bureau within the Financial Crimes Enforcement Network (“FinCEN”), but compliance by individual institutions is overseen by its primary federal regulator. 18 Table of Contents Privacy and Data Security Federal and state law contains extensive consumer privacy protection provisions.
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 Company currently holds and, in the future, may acquire equity in certain of our Strategic Program service providers through this subsidiary. As of December 31, 2024, and 2023, this subsidiary holds $0.3 million and $0.3 million, respectively, of equity securities of two Strategic Program service providers. Servicing.
On February 5, 2024, the Transaction was consummated and the Company issued in the aggregate 339,176 shares of Common Stock of the Company, par value $0.001 per share, in a private placement to the Sellers in exchange for their 10% aggregate non-voting ownership interest in BFG When combined with the Company’s existing 5.3% non-voting ownership interest and 4.7% voting ownership interest in BFG, the Company has a 20% ownership interest in BFG comprising a 4.7% voting ownership and a 15.3% nonvoting ownership interest.
On February 5, 2024, the transaction was consummated and the Company issued an aggregate 339,176 shares of the Company’s common 6 Table of Contents stock in a private placement to the sellers in exchange for the additional membership interest in BFG. The second transaction increased the Company’s total ownership interest in BFG to 20%.
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).
All the loans generated through this branch are held on our balance sheet. As of December 31, 2024, our branch-based banking operations consisted of approximately $67.7 million in loans (including approximately $64.2 million of residential and commercial real estate loans). Strategic Programs .
The FDIC adopted a plan to restore the DIF to the 1.35% ratio within eight years but did not change its assessment schedule. In November 2023, The FDIC finalized a special assessment to recoup losses to the DIF from protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank.
Parents or holding companies of other insured depository institutions are required to report separately from their subsidiary depository institutions. In November 2023, The FDIC finalized a special assessment to recoup losses to the DIF from protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank.
On October 13, 2021, we formed FinWise Investments, LLC, a limited liability company, as a wholly owned subsidiary of the Company to hold and manage private investments made by the Company and the Bank. The Company currently holds and, in the future, may acquire equity in certain of our Strategic Program service providers through this subsidiary.
Some Strategic Programs require the service provider pay a fee to the Bank if it enters into a similar strategic relationship with another bank or financial institution. 11 Table of Contents On October 13, 2021, we formed FinWise Investment, LLC, a limited liability company, as a wholly owned subsidiary of the Company to hold and manage private investments made by the Company and the Bank.
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.
Because we have less than $5 billion of uninsured deposits, the special assessment did not have any financial impact on the Bank.
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 .
Business checking and money market demand accounts associated with Strategic Program relationships held balances of approximately $113.6 million (including $54.0 million held as collateral) as of December 31, 2024. At December 31, 2024, we had $91.6 million in Strategic Program loans held-for-sale.
Safety and Soundness Standards The federal banking agencies have adopted guidelines designed to assist the federal banking agencies in identifying and addressing potential safety and soundness concerns before capital becomes impaired.
See Note 8 - Capital Requirements to the consolidated financial statements included in Part II, Item 8 for additional regulatory capital information, including the Bank’s and Company’s leverage ratio as of December 31, 2024. 15 Table of Contents Safety and Soundness Standards The federal banking agencies have adopted guidelines designed to assist the federal banking agencies in identifying and addressing potential safety and soundness concerns before capital becomes impaired.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur internal control over financial reporting consists of a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, or GAAP. Weaknesses in our internal control over financial reporting have been discovered in the past and may be discovered in the future.
Biggest changeOur management is responsible for establishing and maintaining adequate internal control over financial reporting and for evaluating and reporting on that system of internal control. Our internal control over financial reporting consists of a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.
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.
Additionally, financial weaknesses at our Fintech Banking and Payment 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.
In recent years, a significant number of banks that provide Fintech Banking Solutions have become subject to enforcement actions relating to their customers’ activities, indicating that banking regulators have made banks’ oversight over their Fintech Banking Solutions customers a supervisory priority and that there is an increased risk that we could similarly become subject to additional regulatory scrutiny or enforcement.
In recent years, a significant number of banks that provide Fintech Banking and Payment Solutions have become subject to enforcement actions relating to their customers’ activities, indicating that banking regulators have made banks’ oversight over their Fintech Banking and Payment Solutions customers a supervisory priority and that there is an increased risk that we could similarly become subject to additional regulatory scrutiny or enforcement.
We expect to enter into agreements with Fintech Banking Solutions customers pursuant to which we will provide certain banking services for such Fintech Banking Solutions customers, including serving as the issuing bank for credit or debit cards issued to their customers and establishing one or more settlement accounts for the purpose of settling customer transactions.
We expect to enter into agreements with Fintech Banking and Payment Solutions customers pursuant to which we will provide certain banking services for such Fintech Banking and Payment Solutions customers, including serving as the issuing bank for credit or debit cards issued to their customers and establishing one or more settlement accounts for the purpose of settling customer transactions.
The agreements have varying terms and may be terminated by the parties under certain circumstances. If our Fintech Banking Solutions customers are not successful in achieving customer acceptance of their programs or terminate the agreement before the end of its term, our revenue under the agreement may be limited or may cease altogether.
The agreements have varying terms and may be terminated by the parties under certain circumstances. If our Fintech Banking and Payment Solutions customers are not successful in achieving customer acceptance of their programs or terminate the agreement before the end of its term, our revenue under the agreement may be limited or may cease altogether.
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.
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 (“HTM”) securities, as opposed to the former practice of recording losses when it is probable that a loss event has occurred.
Losses associated with the LOC accounts (or the portfolios of other third parties with whom we enter into comparable Fintech Banking Solutions relationships) in such circumstances could have a material adverse effect on our net income, results of operations and financial condition.
Losses associated with the LOC accounts (or the portfolios of other third parties with whom we enter into comparable Fintech Banking and Payment Solutions relationships) in such circumstances could have a material adverse effect on our net income, results of operations and financial condition.
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.
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.
In the event the cash collateral amount is not adequately maintained or is insufficient to cover the losses on the LOC accounts and the Fintech Banking Solutions customer does not or cannot otherwise meet its partial guaranty or other obligations under its agreement with the Bank, the Bank may incur losses on the LOC accounts.
In the event the cash collateral amount is not adequately maintained or is insufficient to cover the losses on the LOC accounts and the Fintech Banking and Payment Solutions customer does not or cannot otherwise meet its partial guaranty or other obligations under its agreement with the Bank, the Bank may incur losses on the LOC accounts.
Several online banking operations as well as the online banking programs of conventional banks have instituted Fintech Banking Solutions strategies similar to ours. As a consequence, we have encountered competition in this area and anticipate that we will continue to do so in the future.
Several online banking operations as well as the online banking programs of conventional banks have instituted Fintech Banking and Payment Solutions strategies similar to ours. As a consequence, we have encountered competition in this area and anticipate that we will continue to do so in the future.
We expect to derive a percentage of our deposits, total assets and income from deposit accounts generated through our Fintech Banking Solutions relationships. We expect to acquire deposit accounts through our Fintech Banking Solutions relationships and provide oversight over these relationships, which must meet our internal and regulatory requirements.
We expect to derive a percentage of our deposits, total assets and income from deposit accounts generated through our Fintech Banking and Payment Solutions relationships. We expect to acquire deposit accounts through our Fintech Banking and Payment Solutions relationships and provide oversight over these relationships, which must meet our internal and regulatory requirements.
We may exit relationships where such requirements are not met or be required by our regulators to exit such relationships. Also, our Fintech Banking Solutions customers could terminate their relationships with us for many reasons, including being able to obtain better terms from another provider or dissatisfaction with the level or quality of our services.
We may exit relationships where such requirements are not met or be required by our regulators to exit such relationships. Also, our Fintech Banking and Payment Solutions customers could terminate their relationships with us for many reasons, including being able to obtain better terms from another provider or dissatisfaction with the level or quality of our services.
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.
As a result of the foregoing, under present law, we may not be able to deduct all of the compensation paid in 2024 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.
Our agreements with Fintech Banking Solutions customers may produce limited revenue and may expose us to liability for compliance violations by Fintech Banking Solutions customer.
Our agreements with Fintech Banking and Payment Solutions customers may produce limited revenue and may expose us to liability for compliance violations by Fintech Banking and Payment Solutions customer.
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 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 U.S. GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes.
We may also be required to sell securities or other assets to meet funding needs which would reduce revenues or potentially generate losses. Our strategy of pursuing business with our Fintech Banking Solutions customers has been adopted by other institutions with which we compete.
We may also be required to sell securities or other assets to meet funding needs which would reduce revenues or potentially generate losses. Our strategy of pursuing business with our Fintech Banking and Payment Solutions customers has been adopted by other institutions with which we compete.
During 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.
During 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 30 Table of Contents 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.
In addition, our bank regulators may hold us responsible for the activities of our Fintech Banking Solutions customers with respect to the marketing or administration of their programs, which may result in increased compliance costs for us or potentially compliance violations as a result of Fintech Banking Solutions customer activities.
In addition, our bank regulators may hold us responsible for the activities of our Fintech Banking and Payment Solutions customers with respect to the marketing or administration of their programs, which may result in increased compliance costs for us or potentially compliance violations as a result of Fintech Banking and Payment Solutions customer activities.
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.
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.
We may experience operational challenges as we implement these new technology enhancements or products, which could impair our ability to realize the anticipated benefits from such new technology or require us to incur significant costs to remedy any such challenges in a timely manner. Many of our larger competitors have substantially greater resources to invest in technological improvements.
We may experience operational challenges as we implement these new technology enhancements or products, which could impair our ability to realize the anticipated benefits from such new technology or require us to incur significant costs to remedy any such challenges in a timely manner. 21 Table of Contents Many of our larger competitors have substantially greater resources to invest in technological improvements.
If the overall economic climate in the United States generally, or in any of our markets specifically, experiences material disruption, our borrowers may experience difficulties in repaying their loans, the collateral we hold may decrease in value or become illiquid, and the level of delinquencies, nonperforming loans, and charge-offs could rise and require significant additional provisions for loan losses.
If the overall economic climate in the United States generally, or in any of our markets specifically, experiences material disruption, our borrowers may experience difficulties in repaying their loans, the collateral we hold may decrease 23 Table of Contents in value or become illiquid, and the level of delinquencies, nonperforming loans, and charge-offs could rise and require significant additional provisions for loan losses.
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.
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.
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.
BFG referred 100% of the Bank’s SBA 7(a) loan originations for the year ended December 31, 2024. This relationship has permitted the Bank to focus on the development of underwriting, processing and servicing expertise for SBA 7(a) loans.
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.
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 Table of Contents 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.
To the extent that the “disparate impact” theory continues to apply, we are faced with significant administrative burdens in attempting to comply and potential liability for failures to comply. In addition to reputational harm, violations of FHA and ECOA can result in actual damages, punitive damages, injunctive or equitable relief, attorneys’ fees and civil money penalties.
To the extent that the “disparate impact” theory continues to 35 Table of Contents apply, we are faced with significant administrative burdens in attempting to comply and potential liability for failures to comply. In addition to reputational harm, violations of FHA and ECOA can result in actual damages, punitive damages, injunctive or equitable relief, attorneys’ fees and civil money penalties.
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.
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.
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.
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.
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.
These and other changes are more fully discussed above 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.
Regulatory agencies and consumer advocacy groups have asserted claims that the practices of lenders and loan servicers result in a disparate impact on protected classes. Antidiscrimination statutes, such as FHA and ECOA, prohibit creditors from discriminating against loan applicants and borrowers based on certain characteristics, such as race, religion and national origin.
Regulatory agencies and consumer advocacy groups have asserted claims that the practices of lenders and loan servicers result in a disparate impact on protected classes. Anti-discrimination statutes, such as FHA and ECOA, prohibit creditors from discriminating against loan applicants and borrowers based on certain characteristics, such as race, religion and national origin.
Alternatively, if a court were to find the choice of forum provision contained in our Articles and Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results, and financial condition.
Alternatively, if a court were to find the 42 Table of Contents choice of forum provision contained in our Articles and Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results, and financial condition.
To the extent that any of the information contained in this document constitutes forward-looking statements, the risk factors below should be reviewed as cautionary statements identifying important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf.
To the extent that any of the information contained in this document constitutes forward-looking statements, the risk factors below should be reviewed as cautionary statements identifying important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. See Cautionary Note Regarding Forward-Looking Statements.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Because of changing economic and market conditions affecting interest rates, the financial condition of issuers of the securities and the performance of the underlying collateral, we may recognize realized and/or unrealized losses in future periods, which could have a material adverse effect on our business, financial condition and results of operations.
Because of changing economic and market conditions affecting interest rates, the financial condition of issuers of the securities and the performance of the underlying collateral, we may recognize realized and/or 29 Table of Contents unrealized losses in future periods, which could have a material adverse effect on our business, financial condition and results of operations.
If the national, regional and local economies experience worsening economic conditions, including high levels of unemployment, our growth and profitability could be constrained. Our business is significantly affected by monetary and other regulatory policies of the U.S. federal government, its agencies and government-sponsored entities.
If the national, regional and local economies experience worsening economic conditions, including high levels of unemployment, our growth and profitability could be constrained. Our business is significantly 22 Table of Contents affected by monetary and other regulatory policies of the U.S. federal government, its agencies and government-sponsored entities.
As the funding and sale of the guaranteed portion of SBA 7(a) loans has been a major portion of our business and a significant portion of our noninterest income, any significant changes to the SBA 7(a) program, such as its funding or eligibility requirements, may have an adverse effect on our prospects, financial condition and results of operations.
As the funding and sale of the guaranteed portion of SBA 7(a) loans has been a major portion of our business and a significant portion of our non-interest income, any significant changes to the SBA 7(a) program, such as its funding or eligibility requirements, may have an adverse effect on our prospects, financial condition and results of operations.
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.
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.
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.
Moreover, the CECL standard may create 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.
The Military Lending Act limits the interest rate that can be charged to active-duty servicemembers and their dependents. Some states have enacted, or may enact, similar laws or regulations, which in some cases impose restrictions and requirements greater than those in HOEPA.
The Military Lending Act limits the interest rate that can be charged to active-duty service members and their dependents. Some states have enacted, or may enact, similar laws or regulations, which in some cases impose restrictions and requirements greater than those in HOEPA.
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.
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.
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.
See “Supervision and Regulation—Capital Adequacy Guidelines.” 33 Table of Contents 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 FDIC and UDFI regulate numerous aspects of the Bank’s operations, including adequate capital and financial condition, permissible types and amounts of extensions of credit and investments, permissible non-banking activities and restrictions on dividend payments. The Bank undergoes periodic examinations by the FDIC and UDFI.
The FDIC and UDFI regulate numerous aspects of the Bank’s operations, 32 Table of Contents including adequate capital and financial condition, permissible types and amounts of extensions of credit and investments, permissible non-banking activities and restrictions on dividend payments. The Bank undergoes periodic examinations by the FDIC and UDFI.
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.
The foregoing could adversely affect our growth, business prospects, financial condition and results of operations. 36 Table of Contents The Bank and our Strategic Program service providers may be subject to consumer arbitration or litigation regardless of whether the claims have merit.
We expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest earning assets, or vice versa.
We expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either 28 Table of Contents our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest earning assets, or vice versa.
If our policies, procedures and systems are deemed deficient, we could be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the inability to obtain regulatory approvals to proceed with certain aspects of our business plans, including acquisitions and de novo branching. We are subject to anticorruption laws, including the U.S.
If our policies, procedures and systems are deemed deficient, we could be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the inability to obtain regulatory approvals to proceed with certain aspects of our business plans, including acquisitions and de novo branching.
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.
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.
Our ability to engage in future mergers and acquisitions depends on various factors, including: (1) our ability to identify suitable merger partners and acquisition opportunities; (2) our ability to finance and complete transactions on acceptable terms and at acceptable prices; and (3) our ability to receive the necessary regulatory and, when required, shareholder approvals.
Our ability to engage in future mergers and acquisitions depends on various factors, including: (1) our ability to identify 24 Table of Contents suitable merger partners and acquisition opportunities; (2) our ability to finance and complete transactions on acceptable terms and at acceptable prices; and (3) our ability to receive the necessary regulatory and, when required, shareholder approvals.
Generally, the terms of our Strategic Programs require each Strategic Program service provider or purchasing entity to establish a reserve deposit account with the Bank in an amount at least equal to the total outstanding balance of loans held-for-sale by the Bank related to the Strategic Program.
Generally, the terms of our Strategic Programs require each Strategic Program service provider or purchasing entity to establish a reserve deposit account with the Bank in an amount at least equal to between 50% and 100% the total outstanding balance of loans held-for-sale by the Bank related to the Strategic Program.
If a relationship were to be terminated, it could materially reduce our deposits, assets and income. We cannot assure you that we would be able to successfully replace such relationships. If we cannot replace such relationships, we may be required to seek higher rate funding sources and interest expense might increase.
If a relationship were 31 Table of Contents to be terminated, it could materially reduce our deposits, assets and income. We cannot assure you that we would be able to successfully replace such relationships. If we cannot replace such relationships, we may be required to seek higher rate funding sources and interest expense might increase.
Our agreements with Fintech Banking Solutions customers may expose us to credit risk. 31 Ind ex We may enter into agreements with our Fintech Banking Solutions customers pursuant to which our Fintech Banking Solutions customers may market bank consumer checking and consumer or commercial line of credit (“LOC”) accounts using their brands and digital platforms, make underwriting determinations for the LOC accounts, cover any losses on the LOC accounts, provide cash collateral to the Bank to secure payment of such losses or be partial guarantors of losses on the LOC accounts.
We may enter into agreements with our Fintech Banking and Payment Solutions customers pursuant to which our Fintech Banking and Payment Solutions customers may market bank consumer checking and consumer or commercial line of credit (“LOC”) accounts using their brands and digital platforms, make underwriting determinations for the LOC accounts, cover any losses on the LOC accounts, provide cash collateral to the Bank to secure payment of such losses or be partial guarantors of losses on the LOC accounts.
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.
As a consequence, Section 162(m) of the Code limited the deductibility of compensation to our covered employees to $1 million beginning with the year ended December 31, 2021.
Further, our contractual arrangements may not effectively prevent disclosure of our confidential information or provide an adequate remedy in the event of unauthorized disclosure of our confidential or proprietary information.
Further, our contractual arrangements may not effectively 26 Table of Contents prevent disclosure of our confidential information or provide an adequate remedy in the event of unauthorized disclosure of our confidential or proprietary information.
In addition, in these joint ventures, strategic collaborations and alliances, we may have certain overlapping control over the operation of the assets and businesses.
In addition, in these joint ventures, strategic collaborations and alliances, we may have certain overlapping 40 Table of Contents control over the operation of the assets and businesses.
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.
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, 2024, our 10 largest borrowing relationships accounted for approximatel y 10.5% of our total gross loans held-for-investment.
Pursuant to Treasury regulations that were finalized on December 18, 2020, the definition of “covered employees” generally includes anyone who served as the chief executive officer or chief financial officer at any time during the taxable year; the three highest compensated executive officers (other than the chief executive officer or the chief financial officer), determined under SEC rules; and any individual who was a covered employee, including of a “predecessor company,” at any point during a taxable year beginning on or after January 1, 2017, even after the employee terminates employment.
The definition of “covered employees” generally includes anyone who served as the chief executive officer or chief financial officer at any time during the taxable year; the three highest compensated executive officers (other than the chief executive officer or the chief financial officer), determined under SEC rules; and any individual who was a covered employee, including of a “predecessor company,” at any point during a taxable year beginning on or after January 1, 2017, even after the employee terminates employment.
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.
We also have approximately $254.3 million, or 54.7% , 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, 2024. The market value of real estate can fluctuate significantly in a short period of time.
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.
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 $54.1 , or 55.9% of our total revenues for the year ended December 31, 2024, were generated through our Strategic Programs.
Further changes to prevailing interest rates could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but such changes could also affect (i) our ability to originate loans at competitive rates and obtain deposits; (ii) the fair value of our financial assets and liabilities; (iii) the average duration of our loan portfolios and other interest-earning assets; and (iv) the mix of lending products we originate.
In 2024 the Federal Reserve lowered the target range in three increments to 4.25%-4.5% Further changes to prevailing interest rates could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but such changes could also affect (i) our ability to originate loans at competitive rates and obtain deposits; (ii) the fair value of our financial assets and liabilities; (iii) the average duration of our loan portfolios and other interest-earning assets; and (iv) the mix of lending products we originate.
This competition may increase our costs, reduce our revenues or revenue growth or, because we are a relatively small banking operation without the name recognition of other, more established banking operations, make it difficult for us to compete effectively in obtaining these relationships.
This competition may increase our costs, reduce our revenues or revenue growth or, because we are a relatively small banking operation without the name recognition of other, more established banking operations, make it difficult for us to compete effectively in obtaining these relationships. Our agreements with Fintech Banking and Payment Solutions customers may expose us to credit risk.
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.
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.
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.
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, 2024, we had app roximately $42.3 million of construction loans, which represents approximately 9.1% o f our total gross loan portfolio held-for-investment.
As part of the bank regulatory process, the Federal Reserve, the FDIC and the Utah Department of Financial Institutions (the “UDFI”), periodically conduct examinations of our business, including compliance with laws and regulations.
As part of the bank regulatory process, the Federal Reserve, the FDIC and the UDFI, periodically conduct examinations of our business, including compliance with laws and regulations.
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.
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 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, 2024, approximately $64.2 million, or 13.8%, 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.
We may take advantage of some or all of these provisions for up to five years or such earlier time as we cease to qualify as an emerging growth company, which will occur if we have more than $1.235 billion in total annual gross revenue, if we issue more than $1.0 billion of non-convertible debt in a three-year period, or if we become a “large accelerated filer,” in which case we would no longer be an emerging growth company as of the following December 31.
Furt her, the JOBS Act allows us to present only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations. 41 Table of Contents We may take advantage of some or all of these provisions for up to five years or such earlier time as we cease to qualify as an emerging growth company, which will occur if we have more than $1.235 billion in total annual gross revenue, if we issue more than $1.0 billion of non-convertible debt in a three-year period, or if we become a “large accelerated filer,” in which case we would no longer be an emerging growth company as of the following December 31.
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.
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.
Notably, under the American Rescue Plan Act of 2021, or the ARPA, which was signed into law on March 11, 2021, for tax years beginning after December 31, 2026, the definition of “covered employees” will be expanded to include FinWise Bancorp’s next five highest paid employees (in addition to those currently included in the definition as described above).
Notably, under the American Rescue Plan Act of 2021, or the ARPA, which was signed into law on March 11, 2021, for tax years beginning after December 31, 2026, the definition of “covered employees” will be expanded to include FinWise Bancorp’s next five highest paid employees (in addition, pursuant to proposed Treasury Regulations, to the chief executive officer, the chief financial officer and the three other highest compensated executive officers ).
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.
Any disruption of our relationship with BFG or reduction in SBA 7(a) loan referrals could materially adversely impact our business, financial condition, results of operation and growth plans. 25 Table of Contents 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.
For further information, please see Note 1, Summary of Significant Accounting Policies – Recent accounting pronouncements, of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. We maintain an ACL that represents management’s judgment of probable losses and risks inherent in our loan portfolio.
For further information, please see Note 1 - Summary of Significant Accounting Policies to the consolidated financial statements included in Part II, Item 8. We maintain an ACL that represents management’s judgment of probable losses and risks inherent in our loan portfolio.
The regulatory framework for Strategic Programs is evolving and uncertain as federal and state governments consider new laws to regulate online marketplaces such as ours. New laws and regulations, including taxes on services provided through Strategic Programs, as well as continued uncertainty regarding potential new laws or regulations, may negatively affect our business.
New laws and regulations, including taxes on services provided through Strategic Programs, as well as continued uncertainty regarding potential new laws or regulations, or the withdrawal or rescission of proposed or final rules, may negatively affect our business. The regulatory framework for our Strategic Programs is evolving and uncertain.
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%.
Approxim ately $24.6, or 25.5% of our total revenues for the year ended December 31, 2024, were generated from Strategic Programs with annual interest rates above 36%.
We rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans and investment securities, respectively, to ensure that we have adequate liquidity to fund our operations. Our most important source of funds is deposits.
We rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans and investment securities, respectively, to ensure that we have adequate liquidity to fund our operations. Our most important source of funds is deposits. As of December 31, 2024, approximately $126.8 million, or 23.3%, of our total deposits were noninterest-bearing demand accounts.
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.
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.
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.
As of December 31, 2024, approximatel y $113.6 million, or approximately 20.8%, of our total deposits consisted of deposit accounts of our Strategic Program service providers.
The Financial Accounting Standards Board (the “FASB”) has issued an accounting standard for establishing allowances for loan and lease losses that replaces the prior approach under GAAP, which generally considers only past events and current conditions, with a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, starting when such assets are first originated or acquired.
GAAP”) , which generally considers only past events and current conditions, with a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, starting when such assets are first originated or acquired.
Collateral may have to be sold for less than the outstanding balance of the loan, which could result in losses on such loans.
Collateral may have to be sold for less than the outstanding balance of the loan, which could result in losses on such loans. Such declines and losses would have a material adverse effect on our business, financial condition and results of operations.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe ISO coordinates any incident responses with members of the Company’s executive management, regulators and third parties. The ISO also reports any matter relating to cybersecurity incident responses and control deficiencies to our Board of Directors and its Audit Committee, respectively.
Biggest changeThe ISO also reports any matter relating to cybersecurity incident responses and control deficiencies to our Board of Directors and its Audit Committee, respectively. The cybersecurity department of the Bank’s Information Technology (“IT”) department is responsible for the day-to-day operations of our cybersecurity controls and defenses.
Minutes of the meetings of the IT Steering Committee are regularly reviewed by our Board of Directors. We perform periodic risk assessments of the Company’s information systems based on regulatory guidance issued by the Federal Financial Institutions Examination Council (FFIEC) and state and federal regulators, including the FDIC and the UDFI.
Minutes of the meetings of the IT Steering Committee are regularly reviewed by our Board of Directors. We perform periodic risk assessments of the Company’s information systems based on regulatory guidance issued by the Federal Financial Institutions Examination Council (“FFIEC”) and state and federal regulators, including the FDIC and the UDFI.
Such evaluations may include reviews of reports or performing assessments of a third party’s information systems pursuant to established cybersecurity frameworks such as International Organization for Standardization (ISO) ISO 27001 or Cybersecurity Framework (CSF) published by the US National Institute of Standards and Technology, as well as reviews of reports issued by a third party’s auditors developed under the attestation standards issued by the American Institute of Certified Public Accountants (AICPA).
Such evaluations may include reviews of reports or performing assessments of a third party’s information systems pursuant to established cybersecurity frameworks such as International Organization for Standardization (“ISO”) ISO 27001 or Cybersecurity Framework (“CSF”) published by the US National Institute of Standards and Technology, as well as reviews of reports issued by a third party’s auditors developed under the attestation standards issued by the American Institute of Certified Public Accountants (“AICPA”).
We have escalation procedures to notify members of our executive management, Board of Directors and regulators in a timely manner based on the criticality and materiality of any cybersecurity incident. 43 Ind ex While we have experienced, and expect to continue to experience, cybersecurity threats, we did not experience any material cybersecurity incident in the year ended December 31, 2023.
We have escalation procedures to notify members of our executive management, Board of Directors and regulators in a timely manner based on the criticality and materiality of any cybersecurity incident. While we have experienced, and expect to continue to experience, cybersecurity threats, we did not experience any material cybersecurity incident in the year ended December 31, 2024.
Events that could become cybersecurity incidents are reviewed and evaluated by the ISO in consultation with the IT department. Documented escalation procedures are tested regularly as part of tabletop exercises and other activities and include notification to executive management during qualifying cybersecurity incidents.
The IT department provides the ISO with access to its operations and alerts regarding cybersecurity events. Events that could become cybersecurity incidents are reviewed and evaluated by the ISO in consultation with the IT department. Documented escalation procedures are tested regularly as part of tabletop exercises and other activities and include notification to executive management during qualifying cybersecurity incidents.
Additionally, we participate in various cybersecurity industry forums and have access to law enforcement analyses regarding current threats.
Additionally, 43 Table of Contents we participate in various cybersecurity industry forums and have access to law enforcement analyses regarding current threats.
The Bank’s Information Security Officer (or ISO), who reports to our Chief Compliance & Risk Officer, is directly responsible for assessing and managing cybersecurity risks pursuant to the Company’s Information Security Program, which is approved by our Board of Directors periodically.
The Bank’s Information Security Officer (“ISO”), who reports to our Chief Compliance & Risk Officer, is directly responsible for assessing and managing cybersecurity risks pursuant to the Company’s Information Security Program, which is approved by our Board of Directors periodically. The current ISO has more than 5 years of cybersecurity experience and holds multiple industry certifications.
The current Director of Information Systems and Security has more than 24 years of technology and cybersecurity experience. Our Chief Technology Officer periodically reports information about the Company’s cybersecurity risks and operational developments to our Board of Directors. The IT department provides the ISO with access to its operations and alerts regarding cybersecurity events.
The department is managed by the Bank’s Director of Information Systems and Security, who reports to the Bank’s Chief Technology Officer The current Director of Information Systems and Security has more than 24 years of technology and cybersecurity experience. Our Chief Technology Officer periodically reports information about the Company’s cybersecurity risks and operational developments to our Board of Directors.
The current ISO has more than 5 years of cybersecurity experience and holds multiple industry certifications. 42 Ind ex The ISO provides our Board of Directors with periodic reports regarding the Company’s cybersecurity condition, key activities and recommendations for improvement of the Information Security Program.
The ISO provides our Board of Directors with periodic reports regarding the Company’s cybersecurity condition, key activities and recommendations for improvement of the Information Security Program. The ISO coordinates any incident responses with members of the Company’s executive management, regulators and third parties.
Removed
The cybersecurity department of the Bank’s Information Technology (or IT) department is responsible for the day-to-day operations of our cybersecurity controls and defenses. The department is managed by the Bank’s Director of Information Systems and Security, who reports to the Bank’s Chief Technology Officer.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeLocation Owned/ Leased Lease Expiration Type of Office Murray, Utah Leased October 31, 2029 Corporate Headquarters Sandy, Utah Leased July 31, 2024 Retail Bank Branch We believe that the leases to which we are subject have terms that are generally consistent with prevailing market terms.
Biggest changeLocation Owned/ Leased Lease Expiration Type of Office Murray, Utah Leased October 31, 2029 Corporate Headquarters Sandy, Utah Leased January 31, 2027 Retail Bank Branch We believe that the leases to which we are subject have terms that are generally consistent with prevailing market terms.
Removed
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

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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.
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.
These claims and litigation may include, among other things, allegations of violation of banking and other applicable regulations, competition law, labor laws and consumer protection laws, as well as claims or litigation relating to intellectual property, securities, breach of contract and tort. We intend to defend ourselves vigorously against any pending or future claims and litigation.
These claims and litigation may include, among other things, allegations of violation of banking and other applicable regulations, competition law, labor laws and consumer protection laws, as well as claims or litigation relating to intellectual property, securities, breach of contract and tort.
Removed
MINE SAFETY DISCLOSURES Not applicable. 44 Ind ex PART II
Added
We intend to defend ourselves vigorously against any pending or future claims and litigation in any case where we disagree with the claims made.
Added
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. 44 Table of Contents Item 4. MINE SAFETY DISCLOSURES Not applicable. 45 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+7 added−4 removed3 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.
Biggest changeOur 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.
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 .
Recent Sales of Unregistered Securities and Issuer Repurchases of Equity Securities There were no unregistered sales of the Company’s common stock during the fourth quarter of 2024 .
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.
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 of Record There were approximately 94 shareholders of record of the Company’s common stock as of March 20, 2025.
Removed
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.
Added
See Item 1. Business-Supervision and Regulation-Regulatory Restrictions on Dividends.
Removed
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.
Added
On March 7, 2024, we announced that the Board had authorized, effective March 6, 2024, a common stock repurchase program to purchase up to 641,832 shares of our common stock in the aggregate. The repurchase program expires on March 31, 2026, but may be limited or terminated at any time without prior notice.
Removed
Cunningham of an aggregate of 18,000 non-qualified stock options, (f) grants to Thomas E. Gibson of an aggregate of 18,000 non-qualified stock options, (g) grants to James N.
Added
The repurchase program authorized the repurchase by us of our common stock in open market transactions, including pursuant to a trading plan in accordance with Rule 10b-18 promulgated under the Exchange Act of 1934, as amended (the “Exchange Act”), or privately negotiated transactions.
Removed
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
Added
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 we might otherwise be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions.
Added
The Share Repurchase Committee, designated by the Board of Directors, will determine the actual timing, number and value of any shares repurchased in its discretion depending on a variety of factors, including but not limited to, the market price and trading volume of our common stock, general market and economic conditions, the ongoing assessment of our capital needs, and applicable legal and regulatory requirements.
Added
The repurchase program does not obligate us to purchase any particular number of shares. There were no repurchases of our common stock during the three months ended December 31, 2024 . At December 31, 2024 , 597,224 shares remain available for repurchase.
Added
Equity Compensation Plan Information For information regarding securities authorized for issuance under the Company’s equity compensation plans, see Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Item 6. [RESERVED] 46 Table of Contents

Item 7. Management's Discussion & Analysis

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

115 edited+73 added−87 removed71 unchanged
Biggest changeIn 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 $161.8 million, or 66.6%.
Biggest changeThe following tables present the end of period and average balances of our deposit portfolio for the periods indicated (average balances have been calculated using daily averages): December 31, 2024 December 31, 2023 ($ in thousands) Total Percent Total Percent Period end: Noninterest-bearing demand deposits $ 126,782 23.3 % $ 95,486 23.6 % Interest-bearing deposits: Demand 71,403 13.1 % 50,058 12.4 % Savings 9,287 1.7 % 8,633 2.1 % Money markets 16,709 3.0 % 11,661 2.9 % Time certificates of deposit 320,771 58.9 % 238,995 59.0 % Total period end deposits $ 544,952 100.0 % $ 404,833 100.0 % The increase in total deposits as of December 31, 2024, compared to December 31, 2023, was primarily due to an increase in brokered time deposits and noninterest bearing demand deposits utilized in the funding of our lending programs.
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.
Any loan, lease, 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.
We require all loans to conform to policy (or otherwise be identified as exceptions to policy and monitored and reported on, at minimum, quarterly) and be granted on a sound and collectable basis. Loans are made with a primary emphasis on loan profitability, credit risk and concentration exposures.
We require all loans to conform to policy (or otherwise be identified as exceptions to policy and monitored and reported on, at minimum, quarterly) and be granted on a sound basis. Loans are made with a primary emphasis on loan profitability, credit risk and concentration exposures.
However, the value of the equipment may depreciate over time, or disappear, making it difficult for the Bank to recover the full amount of the loan. In equipment leasing, the residual value of the equipment is an important consideration. The residual value is the estimated value of the equipment at the end of the lease term.
However, the value of the equipment may depreciate over time, or disappear, making it difficult for the Bank to recover the full amount of the lease. In equipment leasing, the residual value of the equipment is an important consideration. The residual value is the estimated value of the equipment at the end of the lease term.
The provision for credit losses is a charge to income to bring our allowance for credit losses ("ACL") to a level deemed appropriate by management and approved by our board of directors. We determine the provision for credit losses monthly in connection with our evaluation of the adequacy of our ACL.
The provision for credit losses is a charge to income to bring our ACL to a level deemed appropriate by management and approved by our board of directors. We determine the provision for credit losses monthly in connection with our evaluation of the adequacy of our ACL.
Attracting nationwide deposits from the general public, businesses and other financial institutions, and investing those deposits, together with borrowings and other sources of funds, is also critical to our banking business.
Attracting nationwide deposits from the general public, businesses and other financial institutions, and investing those deposits, together with borrowings, capital and other sources of funds, is also critical to our banking business.
For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.
For purposes of this table, changes attributable to changes in both average rate and average volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.
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.
Strategic Program loans We, through our Strategic Program service providers, issue, on a nationwide basis, unsecured and secured consumer and business loans to borrowers within certain approved credit profiles.
The following table presents average balances for assets and liabilities, the total dollar amounts of interest income from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting average yields and costs.
Average Balances and Yields . The following table presents average balances for assets and liabilities, the total dollar amounts of interest income from interest-earning assets, the total dollar amounts of interest expense on interest-bearing liabilities, the resulting average yields and costs, and NIM.
Common liquidation expenses considered are commissions paid to brokers or auctioneers, property taxes, force-placed insurance premiums, legal fees, maintenance costs, and other care and preservation of collateral expenses. Within the strategic program loan portfolio, the Company has Held for Investment ("HFI") strategic programs that it considers active and inactive.
Common liquidation expenses considered are commissions paid to brokers or auctioneers, property taxes, force-placed insurance premiums, legal fees, maintenance costs, and other care and preservation of collateral expenses. Within the strategic program loan portfolio, the Company has held-for-investment (“HFI”) strategic programs that it considers active and inactive.
Among other things, we use loan risk grading information for loan pricing, risk and collection management and determining monthly loan loss reserve adequacy. Further, on a quarterly basis, the Loan Committee holds a Loan Risk Grade meeting, wherein all loans in our portfolio are reviewed for accurate risk grading.
Among other things, we use loan risk grading information for loan pricing, risk and collection management and determining credit loss reserve adequacy. Further, on a quarterly basis, the Loan Committee holds a Loan Risk Grade meeting, wherein all loans in our portfolio are reviewed for accurate risk grading.
Risks common to multifamily loans are poor management, high vacancy rates and regulatory changes. The value of multi-family properties can be impacted by changes in the local real estate market. If property values decline, the Bank may not be able to recover the full amount of the loan if the property needs to be foreclosed. Strategic Program Loans.
Risks common to multifamily loans are poor management, high vacancy rates and regulatory changes. The value of multi-family properties can be impacted by changes in the local real estate market. If property values decline, the Bank may not be able to recover the full amount of the loan if the property needs to be foreclosed. Strategic Program Loans Held-for-Investment.
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.
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 47 Table of Contents remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act.
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.
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.
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.
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.
Our track record has demonstrated that these factors help deliver superior growth and profitability and that the flexibility inherent in our model enhances our ability to manage credit risk.
Our track record has demonstrated that these factors help deliver such growth and profitability, and that the flexibility inherent in our model enhances our ability to manage credit risk.
In addition, residential mortgage loans that have adjustable rates could expose the borrower to higher debt service requirements in a rising interest rate environment. Further, real estate values 49 Ind ex could drop significantly and cause the value of the property to fall below the loan amount, creating additional potential loss exposure for the Bank. Residential Real Estate Multifamily.
In addition, residential mortgage loans that have adjustable rates could expose the borrower to higher debt service requirements in a rising interest rate environment. Further, real estate values could drop significantly and cause the value of the property to fall below the loan amount, creating additional potential loss exposure for the Bank. 49 Table of Contents Residential Real Estate Multifamily.
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.
As of December 31, 2024 and December 31, 2023, we had total consumer loans of $22.2 million and $11.4 million, respectively, representing 4.8% and 3.1% 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 continued to implement our plan to build an efficient, integrated fintech banking operation with significant capacity for growth.
Non-interest Expense Non-interest 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.
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.
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 Table of Contents 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 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.
The primary form of repayment on these loans is from personal or business cash flow. Secured loans are secured by liens on consumer or 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.
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.
We evaluate the ACL on at least a quarterly 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.
The objective of the liquidity policy is to reduce the risk to our earnings and capital arising from the inability to meet obligations in a timely manner. This entails ensuring sufficient funds are available at a reasonable cost to meet potential demands from both fund providers and borrowers.
The objective of our liquidity policy is to control the risk to our earnings and capital arising from the inability to meet obligations in a timely manner. This entails ensuring sufficient funds are available at all times and at a reasonable cost to meet potential demands from both fund providers and borrowers.
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 leases are generally secured by liens on business assets leased or purchased with Company funds.
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 also considerations. These leases are generally secured by liens on business assets leased or purchased with our funds.
Our financial condition and results of operations depend primarily on our ability to (i) originate loans using our strategic relationships with third-party loan origination platforms to earn interest and noninterest income, (ii) effectively manage credit and other risks throughout the Bank, (iii) attract and retain low cost, stable deposits, and (iv) efficiently operate in compliance with applicable regulations.
Our financial condition and results of operations depend primarily on our ability to (i) originate loans and leases directly or by using our strategic relationships with third-party loan origination platforms to earn interest and non-interest income, (ii) effectively manage credit and other risks throughout the Bank, (iii) attract and retain low cost, stable deposits, and (iv) efficiently operate in compliance with applicable regulations.
The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is 48 Ind ex adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.
The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is 48 Table of Contents adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.
We believe that the rise of mobile, online banking, and integrated fintech banking solutions provides us the opportunity to further leverage the technological competency we have demonstrated in recent years.
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.
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.
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 in Part II, Item 8, 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.
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.
The quality of the loan portfolio and the adequacy of the ACL is reviewed by regulatory examinations and our auditors. 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.
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.
On September 17, 2019, the federal banking agencies jointly issued 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.
When a loan is placed on nonaccrual status, all accrued and uncollected interest on that loan is reversed. Past-due interest received on nonaccrual loans is not recognized in interest income but is applied as a reduction of the outstanding principal of the loan consistent with the accounting for impaired loans.
When a loan is placed on nonaccrual status, all accrued and uncollected interest on that loan is reversed. Past-due interest received on nonaccrual loans is not recognized in interest income but is applied as a reduction of the outstanding principal of the loans.
Although we have generally sold most of these loans, we may determine to hold more of the funded loans and/or receivables based on a number of factors including the amount of our available capital and risk management considerations.
Although we have generally sold most of these loans, we may choose to hold more of the funded loans and/or receivables based on a number of factors including the amount of our available capital.
Grade 8: Classified Loss – A loss loan has an existing weakness or weaknesses that render the loan uncollectible and of such little value that continuing to carry as an asset on our book is not warranted.
Loss - A loss asset has an existing weakness or weaknesses that render the loan uncollectible and of such little value that continuing to carry as an asset on our books is not warranted.
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.
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 estimated uninsured deposits were $183.2 million and $136.9 million as of December 31, 2024 and December 31, 2023, respectively.
Historically, we have retained these leases on our balance sheet for investment; however, the Company may occasionally sell leases to certain purchasers. Commercial, non-real estate Commercial non-real estate loans consist of loans made to commercial enterprises that are not secured by real estate.
Historically, we have retained these leases on our balance sheet for investment; however, we may sell leases to certain purchasers from time to time. 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, 2023 and December 31, 2022, we had total Strategic Program loans held for investment of $19.4 million and $24.3 million, respectively, representing 5.2% and 10.2% of our total loans held for investment, respectively. Loans originated through these programs are limited to predetermined Bank underwriting criterion, which has been approved by our board of directors.
As of December 31, 2024 and December 31, 2023, we had total Strategic Program loans held-for-investment of $20.1 million and $19.4 million, respectively, representing 4.3% and 5.2% of our total loans held-for-investment, respectively. Loans originated through these programs are limited to predetermined Bank underwriting criteria, which has been approved by our board of directors.
We gather deposits in the Salt Lake City, Utah MSA through our one branch and nationwide from our Strategic Program service providers, SBA 7(a) borrowers, demand deposits sourced through Lively, Inc., institutional deposit exchanges, and brokered deposit arrangements.
We gather deposits in the Salt Lake City, Utah MSA through our one branch and nationwide from our Strategic Program service providers, SBA 7(a) borrowers, institutional deposit exchanges, brokered deposit arrangements and other deposit sources.
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.
As of December 31, 2024 and December 31, 2023, we had total commercial non-real estate loans of $3.7 million and $2.5 million, respectively, representing 0.8% and 0.7% of our total loans held-for-investment, respectively.
Grade 7: Classified Doubtful – A doubtful loan has an existing weakness or weaknesses that make collection or liquidation in full, on the basis of currently existing facts and conditions, highly questionable and improbable.
Doubtful - A doubtful asset has an existing weakness or weaknesses that make collection or liquidation in full, on the basis of currently existing facts and conditions, highly questionable and improbable.
We do not currently grade Strategic Program loans held for investment due to their small balances and homogenous nature. As credit quality for Strategic Program loans have been highly correlated with delinquency levels, the Strategic Program loans are evaluated collectively for impairment. Grade 1: Pass - Loans fully secured by deposit accounts.
We do not currently grade Strategic Program loans held for investment due to their small balances and homogenous nature. As credit quality for Strategic Program loans have been highly correlated with delinquency levels, the Strategic Program loans are evaluated collectively for impairment.
We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit, which involves, to varying degrees, elements of credit risk and interest rate risk exceeding the amounts recognized in our consolidated statements of financial condition. Our exposure to credit loss is represented by the contractual amounts of these commitments.
These transactions include commitments to extend credit, which involves, to varying degrees, elements of credit risk and interest rate risk exceeding the amounts recognized in our consolidated statements of financial condition. Our exposure to credit loss is represented by the contractual amounts of these commitments.
We classify investment securities as either held-to-maturity or available-for-sale based on our intentions and the Company’s ability to hold such securities until maturity. In determining such classifications, securities that we have the positive intent and the ability to hold until maturity are classified as held-to-maturity and carried at amortized cost.
We classify investment securities as either HTM or AFS based on our intentions and our ability to hold such securities until maturity. In determining such classifications, securities that we have the positive intent and the ability to hold until maturity are classified as HTM and carried at amortized cost.
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.
Aside from minimal balances held with our correspondent banks, the majority of our interest-bearing deposits are at 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.
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.
As of December 31, 2024 and December 31, 2023, we had total residential real estate loans of $51.6 million and $38.1 million, respectively, representing 11.1% and 10.2% 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.
The estimate of credit loss incorporates assumptions for both the likelihood and amount of funding over the estimated life of the commitments, including adjustments for current conditions and reasonable and supportable forecasts. Management periodically reviews and updates its assumptions for estimated funding rates.
The estimate of credit loss incorporates assumptions for both the likelihood and amount of funding over the estimated life of the commitments, including adjustments for current conditions and reasonable and supportable forecasts. Management periodically reviews and updates its assumptions for estimated funding rates. Accrued interest receivable is excluded from the ACL calculation.
Although BFG actively markets throughout the USA, because of its physical location in the New York area we have developed a lending presence in the New York and New Jersey geographies. The maximum SBA 7(a) loan amount is $5 million.
Loans are sourced primarily through our referral relationship with BFG. Although BFG actively markets throughout the USA, because of its physical location in the New York area we have developed a lending presence in the New York and New Jersey geographies. The maximum SBA 7(a) loan amount is $5 million.
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 most commonly used measure is total equity to total assets, which was 23.3% and 26.5% as of December 31, 2024 and December 31, 2023, respectively. Our return on average equity was 7.7% and 11.9% for the years ended December 31, 2024 and 2023, respectively.
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.
We believe that our liquid assets combined with the available lines of credit and our ability to generate core and non-core funding provides adequate liquidity to meet our current financial obligations for at least the next 12 months.
With respect to the Bank's core portfolio which consists of commercial real estate, residential real estate, commercial and industrial, commercial leases and consumer loans, the Bank pools similar loans that are collectively evaluated and determines an appropriate level of general allowance by portfolio segment using a non-discounted cash flow model taking into account probability of default, loss in the event of default, and prepayment speed estimates based on industry specific collected data.
With respect to the Bank's core portfolio which consists of SBA 7(a), local lending, retail point of sale, and equipment finance and leasing , the Bank pools similar loans that are collectively evaluated and determines an appropriate level of general allowance by portfolio segment using a non-discounted cash flow model taking into account probability of default, loss in the event of default, and prepayment speed estimates based on industry specific collected data.
ACL to Total LHFI Nonaccrual loans to Total LHFI ACL to Nonaccrual loans Construction and land development 1.1 % — % — % Residential real estate 1.9 % 3.1 % 60.3 % Residential real estate multifamily 1.0 % — % — % Commercial real estate Owner occupied 1.8 % 11.6 % 15.4 % Non-owner occupied 1.8 % 15.4 % 12.0 % Commercial and industrial 1.7 % 1.3 % 128.2 % Consumer 1.9 % — % — % Commercial leases 0.9 % — % — % Strategic Program loans 36.4 % — % — % Total 3.5 % 7.0 % 49.8 % 68 Ind ex The following table reflects the ratios of the ALL to total loans held for investment, nonaccrual loans to total loans held for investment, and the ALL to nonaccrual loans by loan category as of December 31, 2022.
ACL to Total LHFI Nonaccrual loans to Total LHFI ACL to Nonaccrual loans Construction and land development 0.9 % — % — % Residential real estate 1.3 % 11.8 % 10.9 % Residential real estate multifamily 2.3 % — % — % Commercial real estate Owner occupied 1.5 % 12.4 % 12.0 % Non-owner occupied 0.9 % 21.8 % 4.1 % Commercial and industrial 1.6 % 4.0 % 39.2 % Consumer 2.9 % — % — % Commercial leases 2.0 % 0.5 % 385.4 % Strategic Program loans 31.3 % — % — % Total 2.8 % 7.7 % 36.9 % 64 Table of Contents The following table reflects the ratios of the ACL to total LHFI, nonaccrual loans to total loans held-for-investment, and the ACL to nonaccrual loans by CECL loan category as of December 31, 2023.
Loan Portfolio We manage our loan portfolio based on factors that include concentrations per loan program and aggregated portfolio, industry selection and geographies. We also monitor the impact of identified and estimated losses on capital as well as the pricing characteristics of each product.
We manage our loan portfolio based on factors that include concentrations per loan program and aggregated portfolio, industry of operation and geographies. We also monitor the impact of identified and estimated losses on capital as well as the pricing characteristics of each product. The following provides a general description and the risk characteristics relevant to each of the products.
These relationships were developed to support our ability to generate significant loan volume across diverse consumer and commercial markets and have been the primary source of our significant growth and superior profitability.
These relationships were developed to support our ability to generate significant loan volume across diverse consumer and commercial markets and have been the primary source of our significant growth and our consistent ability to operate profitability since developing the third-party loan origination business.
Impaired loans, identified by classified loan grades (also know as risk rating), are removed from the collectively assessed population and added to the individually assessed population of loans. Within the individually assessed population, the Company determines whether loan repayment is expected from cash flow or from the liquidation of collateral.
The Company identifies such loans by classified loan grades (also known as risk rating), removes them from the collectively assessed population and adds them to the individually assessed population of loans. Within the individually assessed population, the Company determines whether loan repayment is expected from cash flow or from the liquidation of collateral.
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.
To attract core deposits from local and nationwide consumer and commercial markets, we have paid rates at the higher end of the market. We have been able to pay higher rates due to the higher rates earned on our loan portfolio. We utilize rate listing services and website advertising to attract deposits from consumer and commercial sources.
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.
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.
The ACL related to Strategic Programs constitutes 54.8% of the total ACL while comprising 5.2% of total loans held for investment as of December 31, 2023.
The following tables show the allocation of the ACL as of December 31, 2024, and 2023. The ACL related to Strategic Programs constitutes 47.8% and 54.8% of the total ACL while comprising 4.3% and 5.2%, respectively, of total loans held-for-investment as of December 31, 2024 and 2023, respectively.
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.
At December 31, 2024, there were 22 securities, consisting of eight collateralized mortgage obligations, four U.S. Treasuries and ten mortgage-backed securities, in an unrealized loss position as of December 31, 2024 and 19 securities, consisting of nine collateralized mortgage obligations and ten mortgage-backed securities, in an unrealized loss position as of December 31, 2023.
Our primary sources of new capital include retained earnings and proceeds from the sale and issuance of capital stock or other securities. Expected future use or activities for which capital may be set aside include balance sheet growth and associated relative increases in market or credit exposure, investment activity, potential product and business expansions, acquisitions and strategic or infrastructure investments.
Expected future use or activities for which capital may be set aside include balance sheet growth and associated relative increases in market or credit exposure, investment activity, potential product and business expansions, acquisitions and strategic or infrastructure investments.
The forward-looking concept of CECL requires loss estimates to consider historical experience, current conditions and reasonable and supportable economic forecasts of future events and circumstances. The ACL on loans held for investment is the combination of the allowance for credit losses and the reserve for unfunded loan commitments.
The forward-looking concept of CECL requires loss estimates to consider historical experience, current conditions and reasonable and supportable economic forecasts of future events and circumstances. The allowance for credit losses is reported as a reduction of the amortized cost basis of loans held-for-investment, while the reserve for unfunded loan commitments is included within other liabilities on the Consolidated Balance Sheets.
A non-accrual asset may be restored to accrual status when (1) none of its principal and interest is due and unpaid, and we expect repayment of the remaining contractual principal and interest, or (2) when asset otherwise becomes well secured and is not in the process of collection.
A nonaccrual asset may be restored to accrual status when (1) none of its principal and interest is due and unpaid, and we expect repayment of the remaining contractual principal and interest, or (2) when asset otherwise becomes well secured and is not in the process of collection. 60 Table of Contents Any loan which we deem to be uncollectible, in whole or in part, is charged off to the extent of the anticipated loss.
In light of reduced gain-on-sale premiums and increasing variable loan rates during 2022 and 2023, we retained on our balance sheet a greater 57 Ind ex percentage of the guaranteed portion of certain SBA loans that we originated than we have historically, which we believe will benefit the Company through stronger government guaranteed held for investment loan growth and an increased recurring stream of interest income and partially offset the related decline in gain-on-sale revenue.
In light of suppressed gain-on-sale premiums and increasing variable loan rates during 2023, we retained on our balance sheet a greater percentage of the guaranteed portion of certain SBA loans that we originated than we have historically, which we believe will benefit us through stronger government guaranteed held-for-investment loan growth and an increased recurring stream of interest income and partially offset the decline in gain-on-sale revenue. 57 Table of Contents Commercial leases As of December 31, 2024 and December 31, 2023, we had total commercial leases of $70.2 million and $38.1 million, respectively, representing 15.1% and 10.2% of our total loans held-for-investment, respectively.
The increase in nonaccrual loans to loans held for investment and the increase in ACL to nonaccrual loans ratios from December 31, 2022 to December 31, 2023 was primarily related to a small number of large SBA loans that were moved to nonaccrual status during 2023.
The increase in nonaccrual loans to total loans held-for-investment from December 31, 2023 to December 31, 2024 was primarily related to SBA loans that were moved to nonaccrual status during 2024.
Years Ended December 31, 2023 2022 Increase (Decrease) Due to Increase (Decrease) Due to ($ 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.
Years Ended December 31, 2024 2023 Increase (Decrease) Due to Change in Increase (Decrease) Due to Change in ($ 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 $ 59 $ (1,247) $ (1,188) $ 3,777 $ 794 $ 4,571 Investment securities 203 356 559 88 42 130 Loans held-for-sale (2,024) 4,671 2,647 5,549 (11,735) (6,186) Loans held-for-investment (4,732) 12,532 7,800 199 13,491 13,690 Total interest income (6,494) 16,312 9,818 9,613 2,592 12,205 Interest expense: Demand (186) 438 252 241 1,085 1,326 Savings 6 9 15 43 1 44 Money market accounts 122 (32) 90 273 (27) 246 Certificates of deposit 788 4,321 5,109 4,858 2,069 6,927 Other borrowings — (1) (1) — (1) (1) Total interest-bearing liabilities 730 4,735 5,465 5,414 3,127 8,542 Net interest income $ (7,224) $ 11,577 $ 4,353 $ 4,199 $ (536) $ 3,664 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, with CECL for financial instruments measured at amortized cost and other commitments to extend credit.
Underwriting for larger ticket credit requests 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.
We periodically update our underwriting scorecard, which can have an impact on our credit tier scoring. Underwriting for larger credit requests from customers is generally based on commercial credit metrics where the primary repayment source considered is borrower cash flow, secondary is personal guarantor cash flow (when applicable) and tertiary is the sale of collateral pledged.
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).
Under these capital requirements the Bank must maintain a leverage ratio greater than 9.0% to be considered well-capitalized. As of December 31, 2024, 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).
Our primary sources of funds consist of deposit inflows, the sale of loans, repayment of loans and net profits. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, loan prepayments, loan sales and security sales are greatly influenced by general interest rates, economic conditions, and competition.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, loan prepayments, loan sales and security sales are greatly influenced by general interest rates, economic conditions, and competition. Our primary source of funds to support new loan originations are deposits. Deposits are comprised of core and non-core deposits.
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 .
All other securities are designated as AFS and carried at estimated fair value with unrealized gains and losses included in shareholders’ equity on an after-tax basis. 55 Table of Contents The following table summarizes the weighted-average yields of our investment securities at December 31, 2024 .
These are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral. Under CECL, for collateral dependent loans, the Company has adopted the practical expedient method to measure the allowance for credit losses based on the fair value of collateral.
Under CECL, for collateral-dependent loans, the Company has adopted the practical expedient method to measure the allowance for credit losses based on the fair value of collateral.
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company’s financial statements.
Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on our business.
December 31, 2023 ($ in thousands) Amount % of Total Allowance Construction and land development $ 316 2.5 % Residential real estate 956 7.4 % Residential real estate multifamily 6 — % Commercial real estate Owner occupied 3,336 25.9 % Non-owner occupied 282 2.2 % Commercial and industrial 361 2.8 % Consumer 211 1.6 % Commercial leases 355 2.8 % Strategic Program loans 7,065 54.8 % Total $ 12,888 100.0 % December 31, 2022 ($ in thousands) Amount % of Total Allowance SBA $ 4,294 35.8 % Commercial leases 345 2.9 % Commercial, non real estate 56 0.5 % Residential real estate 497 4.2 % Strategic Program loans 6,701 55.9 % Commercial real estate 27 0.2 % Consumer 65 0.5 % Total $ 11,985 100.0 % The following table reflects the ratios of the ACL to total loans held for investment ("LHFI"), nonaccrual loans to total loans held for investment, and the ACL to nonaccrual loans by CECL loan category as of December 31, 2023.
The percentage of ACL related to Strategic Program loans retained reflects the increased credit risks associated with certain retained Strategic Program loans. 63 Table of Contents December 31, 2024 ($ in thousands) Amount % of Total Allowance Construction and land development $ 374 2.8 % Residential real estate 788 6.0 % Residential real estate multifamily 38 0.3 % Commercial real estate Owner occupied 2,834 21.5 % Non-owner occupied 113 0.9 % Commercial and industrial 700 5.3 % Consumer 638 4.8 % Commercial leases 1,387 10.5 % Strategic Program loans 6,304 47.8 % Total $ 13,176 100.0 % December 31, 2023 ($ in thousands) Amount % of Total Allowance Construction and land development $ 316 2.5 % Residential real estate 956 7.4 % Residential real estate multifamily 6 — % Commercial real estate Owner occupied 3,336 25.9 % Non-owner occupied 282 2.2 % Commercial and industrial 361 2.8 % Consumer 211 1.6 % Commercial leases 355 2.8 % Strategic Program loans 7,065 54.8 % Total $ 12,888 100.0 % The following table reflects the ratios of the ACL to total LHFI, nonaccrual loans to total loans held-for-investment, and the ACL to nonaccrual loans by CECL loan category as of December 31, 2024.
The amortized cost basis of loans does not include accrued interest receivable, which is included in "accrued interest receivable" on the Consolidated Balance Sheets. The "Provision for credit losses" on the Consolidated Statements of Income is a combination of the provision for credit losses and the provision for unfunded loan commitments.
The amortized cost basis of loans does not include accrued interest receivable, which is included in accrued interest receivable on the Consolidated Balance Sheets.
The following tables present a summary of changes in the ACL for the periods and dates indicated: ($ in thousands) Year Ended December 31, 2023 ACL: Beginning balance $ 11,985 Impact of ASU 2016-13 adoption (1) 257 Adjusted beginning balance 12,242 Provision for loan losses 11,525 Charge offs Construction and land development — Residential real estate (225) Residential real estate multifamily — Commercial real estate (714) Commercial and industrial (472) Consumer (68) Commercial leases — Strategic Program loans (10,946) Recoveries Construction and land development — Residential real estate 90 Residential real estate multifamily — Commercial real estate 379 Commercial and industrial 21 Consumer 2 Commercial leases — Strategic Program loans 1,054 Ending balance $ 12,888 (1) ASU 2016-13 (CECL) was adopted January 1, 2023. 66 Ind ex ($ in thousands) Year Ended December 31, 2022 ACL (2) : Beginning balance $ 9,855 Provision for loan losses 13,519 Charge offs SBA (392) Commercial leases — Commercial, non-real estate — Residential real estate — Strategic Program loans (11,948) Commercial real estate — Consumer (66) Recoveries SBA 66 Commercial leases — Commercial, non-real estate 2 Residential real estate — Strategic Program loans 885 Commercial real estate — Consumer 64 Ending balance $ 11,985 (2) ASU 2016-13 (CECL) was adopted January 1, 2023.
The provision for credit losses on the Consolidated Statements of Income is a combination of the provision for credit losses and the provision for unfunded loan commitments. 62 Table of Contents The following tables present a summary of changes in the ACL for the periods indicated: Year Ended December 31, ($ in thousands) 2024 2023 ACL: Beginning balance $ 12,888 $ 11,985 Impact of ASU 2016-13 adoption(1) — 257 Adjusted beginning balance 12,888 12,242 Provision for loan losses 11,248 11,525 Charge-offs Construction and land development — — Residential real estate (297) (225) Residential real estate multifamily — — Commercial real estate Owner occupied (1,039) (714) Non-owner occupied (221) — Commercial and industrial (889) (472) Consumer (134) (68) Commercial leases (293) — Strategic Program loans (9,796) (10,946) Recoveries Construction and land development — — Residential real estate 65 90 Residential real estate multifamily — — Commercial real estate Owner occupied 334 1 Non-owner occupied — 378 Commercial and industrial 17 21 Consumer 6 2 Commercial leases 92 — Strategic Program loans 1,195 1,054 Ending balance $ 13,176 $ 12,888 (1) ASU 2016-13 (CECL) was adopted January 1, 2023.
The model captures losses over the historical charge-off and prepayment cycle and applies those losses at a loan level over the remaining maturity of the loan. The model then calculates a historical loss rate using the average losses over the reporting period, which is then applied to each segment utilizing a standard reversion rate.
The model then calculates a historical loss rate using the average losses over the reporting period, which is then applied to each segment utilizing a standard reversion rate.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance-sheet items as calculated pursuant to regulatory definitions and requirements.
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.
The PPPLF is secured by pledged PPP loans. Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At December 31, 2024, liquid assets (defined as cash and due from banks and interest-bearing deposits) totaled $109.2 million and constituted 14.6% of total assets.
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%.
Loan Maturity As of December 31, 2024, $279.8 million, or 60.1%, of the total held-for-investment loan balance matures in less than five years. Loans maturing in greater than five years totaled $185.4 million as of December 31, 2024. The variable rate portion of our total held-for-investment loan portfolio at December 31, 2024 was $329.7 million or 70.9%.
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.
We had $27.1 million in nonperforming assets, which included $0.5 million in material loan modifications at December 31, 2023. The amount of nonperforming assets as of December 31, 2023 includes $15.0 million of SBA 7(a) loan balances that are guaranteed by the SBA.
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.
Non-core deposits generally include brokered deposits and deposits acquired through the utilization of a listing service. 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 aggregate deposits more efficiently compared to a traditional branch network.
Loan fees are included in interest income on loans and represent net fees of approximately $1.0 million and 53 Ind ex $0.1 million for the year ended December 31, 2023 and 2022, respectively. Average balances have been calculated using daily averages.
Loan fees are included in interest income on loans and represent net fees of approximately $2.8 million and $1.0 million for the years ended December 31, 2024 and 2023, 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.
As of December 31, 2024 and December 31, 2023, we had total commercial real estate loans of $42.4 million and $22.8 million, respectively, representing 9.1% and 6.1% of our total loans held-for-investment, respectively. Of these amounts, $41.0 million and $20.8 million represented owner occupied properties as of December 31, 2024 and December 31, 2023, respectively.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Item 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
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Many assumptions are used to calculate the impact of interest rate fluctuations on our net interest income, such as asset prepayments, non-maturity deposit price sensitivity and decay rates, and key rate drivers.
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Because of the inherent use of these estimates and assumptions in the model, our actual results may, and very likely will, differ from our static earnings at risk (“EAR”) results. In addition, static EAR results do not include actions that our management may undertake to manage the risks in response to anticipated changes in interest rates or client behavior.
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For example, as part of our asset/liability management strategy, management has the ability to increase asset duration and decrease liability duration in order to reduce asset sensitivity, or to decrease asset duration and increase liability duration in order to increase asset sensitivity.
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The following table summarizes the results of our EAR analysis in simulating the change in net interest income and fair value of equity over a 12-month horizon as of December 31, 2024: IMPACT ON NET INTEREST INCOME UNDER A STATIC BALANCE SHEET, PARALLEL INTEREST RATE SHOCK Earnings at risk -400 bps -300 bps -200 bps -100 bps Flat +100 bps +200 bps +300 bps +400 bps December 31, 2024 (17.3) % (12.6) % (8.1) % (3.9) % — % 4.8 % 9.7 % 14.6 % 19.5 % Utilizing an economic value of equity (“EVE”) approach, we analyze the risk to capital from the effects of various interest rate scenarios through a long-term discounted cash flow model.
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This measures the difference between the economic value of our assets and the economic value of our liabilities, which is a proxy for our liquidation value. While this provides some value as a risk measurement tool, management believes EAR is more appropriate in accordance with the going concern principle.
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The following table illustrates the results of our EVE analysis as of December 31, 2024.
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ECONOMIC VALUE OF EQUITY ANALYSIS UNDER A STATIC BALANCE SHEET, PARALLEL INTEREST RATE SHOCK Economic value of equity -400 bps -300 bps -200 bps -100 bps Flat +100 bps +200 bps +300 bps +400 bps December 31, 2024 (20.6) % (13.1) % (7.6) % (3.4) % — % 3.2 % 6.3 % 9.1 % 11.6 % Interest Rate Sensitivity and Market Risk As a financial institution, our primary component of market risk is interest rate volatility.
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Our asset liability and funds management policy provides management with the guidelines for funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We endeavor to manage our sensitivity position within our established guidelines.
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Fluctuations in interest rates will ultimately impact both the level of income and the market value of all interest earning assets and interest-bearing liabilities, other than those that have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes.
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These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.
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We endeavor to manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business. We do not enter into instruments such as leveraged derivatives, financial options or financial futures contracts for the purpose of reducing interest rate risk.
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Based on the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets. 71 Table of Contents Our exposure to interest rate risk is managed by the Bank’s Asset/Liability Management Committee (“ALCO”) in accordance with policies approved by our board of directors.
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The ALCO formulates strategies based on perceived levels of interest rate risk. In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital of the current outlook for interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors.
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The ALCO meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings.
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Additionally, the ALCO reviews liquidity, capital planning, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk, which include an analysis of relationships between interest earning assets and interest-bearing liabilities and an interest rate shock simulation model. 72 Table of Contents

Other FINW 10-K year-over-year comparisons