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What changed in Bancorp, Inc.'s 10-K — 2022 vs 2023

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

+1294 added−831 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-01)

Top changes in Bancorp, Inc.'s 2023 10-K

1294 paragraphs added · 831 removed · 494 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

162 edited+31 added−74 removed97 unchanged
Biggest changeAt December 31, 2022, loan types and amounts were: SBLOC and IBLOC $2.33 billion; investor advisor financing $172.5 million; direct lease financing $632.2 million; commercial real estate loans, at fair value (excluding SBA, at fair value) $442.4 million; REBL $1.67 billion; and SBL $768.4 million (including SBA held at fair value), and respectively comprised approximately 38%, 3%, 10%, 7%, 27%, and 13% of total loans and commercial loans, at fair value.
Biggest changeAt December 31, 2023, loan types and amounts were: SBLOC and IBLOC –$1.63 billion, or approximately 29% of total loans and commercial loans, at fair value; Investor advisor financing –$221.6 million, or approximately 4% of total loans and commercial loans, at fair value; Direct lease financing –$685.7 million, or approximately 12% of total loans and commercial loans, at fair value; Commercial real estate bridge loans, at fair value (excluding SBA, at fair value) –$213.5 million, or approximately 4% of total loans and commercial loans, at fair value; REBL –$2.00 billion, or approximately 35% of total loans and commercial loans, at fair value; and SBL (including SBA, at fair value) –$896.2 million (including SBA held at fair value), or approximately 16% of total loans and commercial loans, at fair value.
Under the Bank Holding Company Act of 1956, as amended (“BHCA”), a financial holding company may not directly or indirectly acquire ownership or control of more than 5% of the voting shares or substantially all of the assets of any bank, or merge or consolidate with another financial holding company, without prior approval of the Federal Reserve.
Under the Bank Holding Company Act of 1956, as amended (the “BHCA”), a financial holding company may not directly or indirectly acquire ownership or control of more than 5% of the voting shares or substantially all of the assets of any bank, or merge or consolidate with another financial holding company, without prior approval of the Federal Reserve.
A decrease in the Bank’s capital ratios or the occurrence of events that have an adverse effect on a bank’s asset quality, management, earnings, liquidity or sensitivity to market risk could result in a substantial increase in deposit insurance premiums paid by the Bank, which would adversely affect earnings. In addition, the FDIC can impose special assessments in certain instances.
A decrease in the Bank’s capital ratios or the occurrence of events that have an adverse effect on the Bank’s asset quality, management, earnings, liquidity or sensitivity to market risk could result in a substantial increase in deposit insurance premiums paid by the Bank, which would adversely affect earnings. In addition, the FDIC can impose special assessments in certain instances.
The Bank’s authority to engage in transactions with related parties or “affiliates” (that is, any entity that controls, is controlled by or is under common control with an institution, including the Company and our non-bank subsidiaries) is limited by Sections 23A and 23B of the Federal Reserve Act (“FRA”) and Regulation W promulgated thereunder.
The Bank’s authority to engage in transactions with related parties or “affiliates” (that is, any entity that controls, is controlled by or is under common control with an institution, including the Company and our non-bank subsidiaries) is limited by Sections 23A and 23B of the Federal Reserve Act (the “FRA”) and Regulation W promulgated thereunder.
To reduce operating costs and capitalize on the technical capabilities of selected vendors, we outsource certain bank operations and systems to third-party service providers, principally the following: data processing services, check imaging, loan processing, electronic bill payment and statement rendering; servicing of prepaid and debit card accounts; call center customer support, including institutional banking for overflow and after-hours support; access to automated teller machine networks; bank accounting and general ledger system; data warehousing services; and certain software development.
To reduce operating costs and capitalize on the technical capabilities of selected vendors, we outsource certain bank operations and systems to third-party service providers, principally the following: data processing services, check imaging, loan processing, electronic bill payment and statement rendering; servicing of prepaid and debit card accounts; call center customer support, including institutional banking for overflow and after-hours support; access to automated teller machine (“ATM”) networks; bank accounting and general ledger system; data warehousing services; and certain software development.
The guidelines also provide that financial institutions experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above minimum supervisory levels, without significant reliance on intangible assets. Furthermore, the banking agencies have indicated that they may consider other indicia of capital strength in evaluating proposals for expansion or new activities.
The regulatory guidelines also provide that financial institutions experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above minimum supervisory levels, without significant reliance on intangible assets. Furthermore, the banking agencies have indicated that they may consider other indicia of capital strength in evaluating proposals for expansion or new activities.
EGRRCPA’s highlights include: (i) exemption of banks with less than $10 billion in assets from the ability-to-repay requirements for certain qualified residential mortgage loans held in portfolio; (ii) clarification that, subject to various conditions, reciprocal deposits of another depository institution obtained using a deposit broker through a deposit placement network for purposes of obtaining maximum deposit insurance would not be considered brokered deposits subject to the FDIC’s brokered-deposit regulations; and (iii) simplified capital calculations by requiring regulators to establish for institutions under $10 billion in assets a community bank leverage ratio (tangible equity to average consolidated assets) at a percentage not less than 8% and not greater than 10% that such institutions may elect to replace the general applicable risk-based capital requirements for determining well capitalized status.
EGRRCPA’s highlights include: (i) exemption of banks with less than $10 billion in assets from the ability-to-repay requirements for certain qualified residential mortgage loans held in portfolio; (ii) clarification that, subject to various conditions, reciprocal deposits of another depository institution obtained using a deposit broker through a deposit placement network for purposes of obtaining maximum deposit insurance would not be considered brokered deposits subject to the FDIC’s brokered-deposit regulations; and (iii) simplification of capital calculations by requiring regulators to establish for institutions under $10 billion in assets a community bank leverage ratio (tangible equity to average consolidated assets) at a percentage not less than 8% and not greater than 10% that such institutions may elect to replace the general applicable risk-based capital requirements for determining well capitalized status.
As discussed below under “ Prompt Corrective Action ” a failure to meet minimum capital requirements could subject the Company or the Bank to a variety of enforcement remedies available to federal regulatory authorities, including, in the most severe cases, termination of deposit insurance by the FDIC and placing the Bank into conservatorship or receivership.
As discussed below under “ Prompt Corrective Action ” a failure to meet minimum capital requirements could 11 subject the Company or the Bank to a variety of enforcement remedies available to federal regulatory authorities, including, in the most severe cases, termination of deposit insurance by the FDIC and placing the Bank into conservatorship or receivership.
The Federal Reserve reviews, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations such as ours that are not considered “large, complex banking organizations.” The reviews are tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive 20 compensation arrangements and any findings are included in reports of examination.
The Federal Reserve reviews, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations such as ours that are not considered “large, complex banking organizations.” The reviews are tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements and any findings are included in reports of examination.
Various consumer laws and regulations also affect the Bank’s operations. Any change in the regulatory requirements and policies by the OCC, the Federal Reserve, other federal regulatory agencies, the United States Congress, or the states in which we operate, or where our customers reside, could have a material adverse impact on the Company, the Bank, and our operations.
Various consumer laws and regulations also affect the Bank’s operations. Any change in the regulatory requirements and policies by the OCC, the Federal Reserve, other federal regulatory agencies, Congress, or the states in which we operate, or where our customers reside, could have a material adverse impact on the Company, the Bank, and our operations.
As described in Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources ,” an institution is deemed well capitalized if it has a total risk-based capital ratio of at least 10.00%, a Tier 1 risk-based capital ratio of at least 6.50%, and a leverage ratio of at least 5.00%.
As described in Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations –Capital Resources ,” an institution is deemed well capitalized if it has a total risk-based capital ratio of at least 10.00%, a Tier 1 risk-based capital ratio of at least 6.50%, and a leverage ratio of at least 5.00%.
As an alternative to the traditional evaluation tests, the CRA permits a financial institution to develop its own Strategic Plan (“Plan”) with specific goals for CRA compliance and related performance ratings. If its Plan is approved by its regulator, the financial institution’s CRA ratings will be applied based on its performance under the Plan.
As an alternative to the traditional evaluation tests, the CRA permits a financial institution to develop its own strategic plan with specific goals for CRA compliance and related performance ratings. If its strategic plan is approved by its regulator, the financial institution’s CRA ratings will be applied based on its performance under the strategic plan.
The funds for the CDC loans are raised through a monthly auction of bonds that are guaranteed by the U.S. government and, accordingly, if the government guarantees are curtailed or terminated, our ability to make 504 loans would be curtailed or terminated.
The funds for the CDC loans are raised through a monthly auction of bonds that are guaranteed by the U.S. government and, accordingly, if the government guarantees are curtailed or terminated, our ability to make 504 Program loans would be curtailed or terminated.
The Bank operates its CRA program under a Plan approved by its regulator. While operating as a state-chartered institution under the supervision of the FDIC, the Bank operated under an FDIC-approved covering the period of January 1, 2021 through December 31, 2023.
The Bank operates its CRA program under a strategic plan approved by its regulator. While operating as a state-chartered institution under the supervision of the FDIC, the Bank operated under an FDIC-approved strategic plan covering the period of January 1, 2021 through December 31, 2023.
Under BSA regulations, the Bank is subject to various reporting requirements such as currency 17 transaction reporting, monitoring of customer activity and transactions and filing a suspicious activity report when warranted. The BSA also contains numerous recordkeeping requirements.
Under BSA regulations, the Bank is subject to various reporting requirements such as currency transaction reporting, monitoring of customer activity and transactions and filing a suspicious activity report when warranted. The BSA also contains numerous recordkeeping requirements.
Also posted on our website, and available in print upon request by any stockholder to our Investor Relations Department, are the charters of the standing committees of our Board of Directors and standards of conduct governing our directors, officers and employees. ‎ 23
Also posted on our website, and available in print upon request by any stockholder to our Investor Relations Department, are the charters of the standing committees of our Board and standards of conduct governing our directors, officers and employees.
In the event of liquidation or other resolution of an insured depository institution, the 11 claims of depositors and other general or subordinated creditors have priority of payment over the claims of holders of any obligation of the institution’s holding company or any of the holding company’s shareholders or creditors.
In the event of liquidation or other resolution of an insured depository institution, the claims of depositors and other general or subordinated creditors have priority of payment over the claims of holders of any obligation of the institution’s holding company or any of the holding company’s shareholders or creditors.
The Gramm-Leach-Bliley Act (“GLBA”) and other laws require us to implement a comprehensive information security program that includes administrative, technical, and physical safeguards to provide for the security and 16 confidentiality of customer records and information.
The Gramm-Leach-Bliley Act (the “GLBA”) and other laws require us to implement a comprehensive information security program that includes administrative, technical, and physical safeguards to provide for the security and confidentiality of customer records and information.
Under the law, the Bank must have a written BSA/Anti-Money Laundering (“AML”), program which has been approved by the board of directors and contains the following key requirements: (1) appointment of responsible persons to manage the program, including a BSA Officer; (2) ongoing training of all appropriate Bank staff and management on BSA-AML compliance; (3) development of a system of internal controls (including appropriate policies, procedures and processes); and (4) requiring independent testing to ensure effective implementation of the program and appropriate compliance.
Under the law, the Bank must have a written BSA/Anti-Money Laundering (“AML”) program which has been approved by the board of directors and contains the following key requirements: (1) appointment of responsible persons to manage the program, including a BSA Officer; (2) ongoing training of all appropriate Bank staff and management on BSA-AML compliance; (3) development of a system of internal controls (including appropriate policies, procedures and processes); and (4) required independent testing to ensure effective implementation of the program and appropriate compliance.
We make loans to individuals, trusts and entities which are secured by a pledge of marketable securities maintained in one or more accounts with respect to which we obtain a securities account control agreement.
We make SBLOC loans to individuals, trusts and entities which are secured by a pledge of marketable securities maintained in one or more accounts with respect to which we obtain a securities account control agreement.
The underlying securities that act as collateral for our SBLOC commitments are monitored on a daily basis to confirm the composition of the client portfolio and its daily market value.
The underlying securities that act as collateral for our SBLOC commitments are monitored on a daily basis to confirm the 4 composition of the client portfolio and its daily market value.
This framework includes acts of Congress, regulations, policy statements and guidance, and other interpretative materials that define the obligations and requirements for entities participating in the U.S. banking system.
This framework includes acts of the U.S. Congress (“Congress”), regulations, policy statements and guidance, and other interpretative materials that define the obligations and requirements for entities participating in the U.S. banking system.
With respect to the Bank, the New Capital Rules revised the “prompt corrective action” (“PCA”) regulations adopted pursuant to Section 38 of the Federal Deposit Insurance Act (“FDIA”), by: (i) introducing a CET1 ratio requirement at each PCA category (other than critically undercapitalized), with the required CET1 ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum Tier 1 capital ratio for well-capitalized status being 8% (as compared to the current 6%); and (iii) eliminating the current provision that provides that a bank with a composite supervisory rating of 1 may have a 3% leverage ratio and still be adequately capitalized.
With respect to the Bank, the Basel III rules revised the “prompt corrective action” (“PCA”) regulations adopted pursuant to Section 38 of the Federal Deposit Insurance Act (the “FDIA”), by: (i) introducing a CET1 ratio requirement at each PCA category (other than critically undercapitalized), with the required CET1 ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum Tier 1 capital ratio for well-capitalized status being 8% (as compared to the current 6%); and (iii) eliminating the provision that a bank with a composite supervisory rating of 1 may have a 3% leverage ratio and still be adequately capitalized.
Our employees work together with their managers to set business and professional development goals, supported by a variety of resources and tools developed to help employees enhance their leadership skills. Total Rewards and Employee Well-Being. The Company is committed to providing competitive benefits programs designed with the everyday needs of our employees and their families in mind.
Our employees work together with their managers to set business and professional development goals, supported by a variety of resources and tools developed to help employees enhance their leadership skills. Total Rewards and Employee Well-Being. The Company is committed to providing competitive benefit programs designed with the everyday needs of our employees and their families in mind.
Limitations on Dividends Various federal provisions limit the amount of dividends that subsidiary banks can pay to their holding companies without regulatory approval.
Limitations on Bank Dividends Various federal provisions limit the amount of dividends that subsidiary banks can pay to their holding companies without regulatory approval.
While these loans generally have three year terms, the vast majority are variable rate, with monthly rate adjustments and, as a result, higher market rates will result in higher payments and greater cash flow requirements, although all loans require an interest rate cap to mitigate that risk.
While these loans generally have three year terms, the vast majority are variable rate, with monthly rate adjustments and, as a result, higher market rates will result in higher payments and greater cash flow requirements, although such loans generally require an interest rate cap to mitigate that risk.
For amounts less than $150,000 that meet a set criteria, we support our decisioning process by utilizing a scoring model. Terms for leases are generally 36 to 60 months. SBL Loans . SBL, or small business loans, consist primarily of SBA loans.
For amounts less than $150,000 that meet a set criteria, we support our decisioning process by utilizing a scoring model. Terms for leases are generally 36 to 60 months. SBLs . SBLs, or small business loans, consist primarily of SBA loans.
The Bank evaluated the impact of the Prepaid Rule on its operations and its third-party relationships and established internal processes accordingly.
The Bank has evaluated the impact of the Prepaid Rule on its operations and its third-party relationships and established internal processes accordingly.
The New Capital Rules also introduced a new “capital conservation buffer,” composed entirely of CET1, on top of the minimum risk-weighted asset ratios. The capital conservation buffer was designed to absorb losses during periods of economic stress.
The Basel III rules also introduced a new “capital conservation buffer,” composed entirely of CET1, on top of the minimum risk-weighted asset ratios. The capital conservation buffer was designed to absorb losses during periods of economic stress.
The OCC’s 2023 supervisory plan provides the foundation for policy initiatives and for supervisory strategies as applied to national banks as well as their technology service providers. OCC staff members use the supervisory plan to guide their supervisory priorities, planning, and resource allocations.
The OCC’s 2024 supervisory plan provides the foundation for policy initiatives and for supervisory strategies as applied to national banks as well as their technology service providers. OCC staff members use the supervisory plan to guide their supervisory priorities, planning, and resource allocations.
Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 In May 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) was signed into law, which amended provisions of Dodd-Frank and was intended to ease regulatory burdens and refine the rules, particularly with respect to smaller-sized banking institutions, e.g ., those with less than $10 billion in assets such as us.
Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 In 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) was signed into law, which amended provisions of Dodd-Frank and was intended to ease regulatory burdens, particularly with respect to smaller-sized banking institutions, e.g ., those with less than $10 billion in assets, such as us.
In the third quarter of 2021, we resumed the origination of such loans, which we also plan to retain and which are transitional commercial mortgage loans to improve and rehabilitate existing properties that already have cash flow .
In the third quarter of 2021, we resumed the origination of apartment loans, which we also plan to retain and which are transitional commercial mortgage loans to improve and rehabilitate existing properties that already have cash flow .
Should any of our current relationships terminate, we believe we could maintain business continuity by securing the required services from an alternative source without material interruption of our operations. 7 Sales and Marketing Affinity Group Banking Relationships . Our sales and marketing efforts to existing and potential affinity group organizations and fintechs are national in scope.
Should any of our current relationships terminate, we believe we could maintain business continuity by securing the required services from an alternative source without material interruption of our operations. 7 Sales and Marketing Affinity Group Banking Relationships . Our sales and marketing efforts to existing and potential affinity group organizations and fintech companies are national in scope.
Minimum capital ratios in effect at December 31, 2022 were as follows : 4.5% CET1 to risk-weighted assets; 6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets; 8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and 4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known as the “leverage ratio”).
Minimum capital ratios in effect at December 31, 2023 were as follows : 4.5% CET1 to risk-weighted assets; 6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets; 8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and 12 4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known as the “leverage ratio”).
As described more fully below, our business strategy is focused on payments and deposits activities in our payments business which we expect to generate non-interest income and attract stable, lower cost deposits which we seek to deploy into lower risk assets in specialized markets through our specialty lending activities.
As described more fully below, our business strategy is focused on payments and deposit related activities. We expect our payments business to generate non-interest income and attract stable, lower cost deposits which we then seek to deploy into lower risk assets in specialized markets through our specialty lending activities.
Federal Regulation As a financial holding company, the Company is subject to regular examination by the Federal Reserve and must file annual reports and provide any additional information the Federal Reserve may request.
Federal Regulation As a financial holding company, the Company is subject to regular examination by the Federal Reserve and must file quarterly reports and provide any additional information the Federal Reserve may request.
Under the New Capital Rules, for most banking organizations, the most common form of Additional Tier 1 capital is non-cumulative perpetual preferred stock and the most common form of Tier 2 capital is subordinated notes and a portion of the allocation for loan and lease losses, in each case, subject to the specific requirements of the New Capital Rules.
Under the Basel III rules, for most banking organizations, the most common form of Additional Tier 1 capital is non-cumulative perpetual preferred stock and the most common form of Tier 2 capital is subordinated notes and a portion of the allocation for loan and lease losses, in each case, subject to the specific requirements of the Basel III rules.
Consumer Protections for Remittance Transfers. In February 2012, the CFPB published a final Remittance Transfer Rule (“Remittance Rule”) to implement Section 1073 of Dodd-Frank. The final rule created a comprehensive set of consumer protections found in Regulation E covering remittance transfers sent by consumers in the United States to parties in foreign countries.
Consumer Protections for Remittance Transfers In 2012, the CFPB published a final Remittance Transfer Rule (the “Remittance Rule”) to implement Section 1073 of Dodd-Frank. The Remittance Rule creates a comprehensive set of consumer protections, found in Regulation E, covering remittance transfers sent by consumers in the United States to parties in foreign countries.
USA PATRIOT Act The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”) expanded provisions of the BSA, criminalized the financing of terrorism and augmented the existing BSA framework by strengthening customer identification procedures, requiring financial institutions to have due diligence procedures, including enhanced due diligence procedures and, most significantly, improving information sharing between financial institutions and the U.S. government.
USA PATRIOT Act The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”) expanded provisions of the BSA, criminalized the financing of terrorism and augmented the existing BSA framework by strengthening customer identification procedures, requiring financial institutions to implement a written customer identification program, have due diligence procedures, including enhanced due diligence procedures and, most significantly, improving information sharing between financial institutions and the U.S. government.
The 7a Loan Guarantee Program is designed to help small business borrowers start or expand their businesses by providing partial guarantees of loans made by banks and non-bank lending institutions for specific business purposes, including long or short term working capital; funds for the purchase of equipment, machinery, supplies and materials; funds for the purchase, construction or renovation of real estate; and funds to acquire, operate or expand an existing business or refinance existing debt, all under conditions established by the SBA.
The 7(a) Program is designed to help small business borrowers start or expand their businesses by providing partial guarantees of loans made by banks and non-bank lending institutions for specific business purposes, including long- or short-term working capital; funds for the purchase of equipment, machinery, supplies and materials; funds for the purchase, construction or renovation of real estate; and funds to acquire, operate or expand an existing business or refinance existing debt, all under conditions established by the SBA.
Dodd-Frank also included provisions referred to as the “Collins Amendment.” The provisions subject bank holding companies to the same capital requirements as their bank subsidiaries and eliminate or significantly reduce the use of hybrid capital instruments, especially trust preferred securities, as regulatory capital.
Dodd-Frank also includes provisions referred to as the “Collins Amendment,” which subject bank holding companies to the same capital requirements as their bank subsidiaries and eliminate or significantly reduce the use of hybrid capital instruments, especially trust preferred securities, as regulatory capital.
Smaller banks and community banks, including the Bank, are afforded some relief under the Final Volcker Rules. Smaller banks, including the Bank, that are engaged only in exempted proprietary trading, such as trading in U.S. government, agency, state and municipal obligations, are exempt from compliance program requirements.
Smaller banks and community banks, including the Bank, are afforded some relief under the Volcker Rule. Smaller banks, including the Bank, that are engaged only in exempted proprietary trading, such as trading in U.S. government, agency, state and municipal obligations, are exempt from compliance program requirements.
Section 23A restricts the aggregate amount of covered transactions with any individual affiliate to 10% of the Bank’s capital and surplus. At December 31, 2022, the Company was not indebted to the Bank. The aggregate amount of covered transactions with all affiliates is limited to 20% of the Bank’s capital and surplus.
Section 23A restricts the aggregate amount of covered transactions with any individual affiliate to 10% of the Bank’s capital and surplus. At December 31, 2023, the Company was not indebted to the Bank. The aggregate amount of covered 14 transactions with all affiliates is limited to 20% of the Bank’s capital and surplus.
The federal banking agencies adopted final regulations and Interagency Guidelines Prescribing Standards for Safety and Soundness to implement these safety and soundness standards. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired.
The federal banking agencies have adopted final regulations and interagency guidelines to implement these safety and soundness standards. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired.
Moreover, even if a community or small bank engages in proprietary trading or covered fund 21 activities under the Final Volcker Rules, they need only incorporate references to the Volcker Rule into their existing policies and procedures.
Moreover, even if a community or small bank engages in proprietary trading or covered fund activities under the Volcker Rule, they need only incorporate references to the Volcker Rule into their existing policies and procedures.
The New Capital Rules prescribed a new standardized approach for risk weightings that expanded the risk-weighting categories from four Basel I-derived categories (0%, 20%, 50% and 100%) to a larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures resulting in higher risk weights for a variety of asset classes.
The Basel III rules prescribe a standardized approach for risk weightings that expanded the risk-weighting categories from four Basel I-derived categories (0%, 20%, 50% and 100%) to a larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures resulting in higher risk weights for a variety of asset classes.
Technology and Cybersecurity Primary System Architecture. We provide financial products and services through a secure, tiered architecture using commercially available software and with third party providers whom we believe to be industry leaders. We maintain a platform of web technologies, databases, firewalls, and licensed and proprietary financial services software to support our unique client base.
We provide financial products and services through a secure, tiered architecture using commercially available software and with third-party providers whom we believe to be industry leaders. We maintain a platform of web technologies, databases, firewalls, and licensed and proprietary financial services software to support our unique client base.
Certain Dodd-Frank provisions directly impacting the Company or the Bank included: (i) creation of the CFPB which was given broad rulemaking, supervision and enforcement authority for a wide range of consumer protection laws applicable to all banks and certain others, and examination and enforcement powers with respect to any bank with more than $10 billion in assets; (ii) restriction of the preemption of state consumer financial protection law by federal law, and disallowing subsidiaries and affiliates of national banks from availing themselves of such preemption; (iii) requiring new capital rules and application of the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies; changing the assessment base for federal deposit insurance from the amount of insured deposits to consolidated average assets less tangible capital, increasing the minimum ratio of net worth to insured deposits of the DIF from 1.15% to 1.35%, and requiring the FDIC, in setting assessments, to offset the effect of the increase on institutions with assets of less than $10 billion; see “ Capital Adequacy ,” “ Basel III Capital Rules, ” and “ Prompt Corrective Action ” above; (iv) requiring all bank holding companies to serve as a source of financial strength to their depository institution subsidiaries in the event such subsidiaries suffer from financial distress, see “ Holding Company Liability ,” “ Capital Adequacy ,” and “ Prompt Corrective Action ” above; (v) providing new disclosure and other requirements relating to executive compensation and corporate governance, including guidelines or regulations on incentive-based compensation and a prohibition on compensation arrangements that encourage inappropriate risks or that could provide excessive compensation, see “ Federal Regulatory Guidance on Incentive Compensation ” below for details; (vi) repeal of the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts; (vii) provisions in what is known as the Durbin Amendment designed to restrict interchange fees for certain debit card issuers and limiting the ability of networks and issuers to restrict debit card transaction routing, see “ Regulation II ” below; (viii) increasing the authority of the Federal Reserve to examine holding companies and their non-bank subsidiaries; and (ix) restricting proprietary trading by banks, bank holding companies and others, and their acquisition and retention of ownership interests in and sponsorship of hedge funds and private equity funds.
Certain Dodd-Frank provisions directly impacting the Company or the Bank included: (1) creation of the CFPB which was given broad rulemaking, supervision and enforcement authority for a wide range of consumer protection laws applicable to all banks and certain others, and examination and enforcement powers with respect to any bank with more than $10 billion in assets; (2) restriction of the preemption of state consumer financial protection law by federal law, and disallowing subsidiaries and affiliates of national banks from availing themselves of such preemption; (3) requiring new capital rules and application of the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies; changing the assessment base for federal deposit insurance from the amount of insured deposits to consolidated average assets less tangible capital, increasing the minimum DRR from 1.15% to 1.35%, and requiring the FDIC, in setting assessments, to offset the effect of the increase on institutions with assets of less than $10 billion; see “ Capital Adequacy ,” “ Basel III Capital Rules, ” and “ Prompt Corrective Action ” above; (4) requiring all bank holding companies to serve as a source of financial strength to their depository institution subsidiaries in the event such subsidiaries suffer from financial distress; see “ Holding Company Liability ,” “ Capital Adequacy ,” and “ Prompt Corrective Action ” above; (5) providing new disclosure and other requirements relating to executive compensation and corporate governance, including guidelines or regulations on incentive-based compensation and a prohibition on compensation arrangements that encourage inappropriate risks or that could provide excessive compensation; see “ Federal Regulatory Guidance on Incentive Compensation ” below for details; (6) repeal of the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts; (7) provisions in what is known as the Durbin Amendment designed to restrict interchange fees for certain debit card issuers and limiting the ability of networks and issuers to restrict debit card transaction routing; see “ Regulation II ” below; (8) increasing the authority of the Federal Reserve to examine holding companies and their non-bank subsidiaries; and (9) restricting proprietary trading by banks, bank holding companies and others, and their acquisition and retention of ownership interests in and sponsorship of hedge funds and private equity funds.
Regulatory Restrictions on Dividends It is the policy of the Federal Reserve that financial holding companies should pay cash dividends on common stock only out of income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition.
Limitations on Company Dividends It is the policy of the Federal Reserve that financial holding companies should pay cash dividends on common stock only out of income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition.
We have an established Cybersecurity Program that is mapped to the National Institute of Standards and Technology (“ NIST”) Cybersecurity Framework, the Center for Internet Security ® (“CIS”) Critical Security Controls, the Federal Financial Institutions Examination Council (“FFIEC”) Cybersecurity Assessment Tool and relevant ISO standards. The Bancorp obtains annual PCI certification.
We have an established Cybersecurity Program that is mapped to the National Institute of Standards and Technology (“ NIST”) Cybersecurity Framework, the Center for Internet Security ® (“CIS”) Critical Security Controls, the Federal Financial Institutions Examination Council (“FFIEC”) Cybersecurity Assessment Tool and relevant ISO standards. The Bancorp obtains annual Payment Card Industry (“PCI”) certification.
Capital Adequacy The Federal Reserve and OCC issued standards for measuring capital adequacy for financial holding companies and banks. These standards are designed to provide risk-based capital guidelines and to incorporate a consistent framework. The risk-based guidelines are used by the agencies in their examination and supervisory process, as well as in the analysis of any applications.
Capital Adequacy The Federal Reserve and OCC have issued standards for measuring capital adequacy for financial holding companies and banks that are designed to provide risk-based capital guidelines and to incorporate a consistent framework. The risk-based guidelines are used by the agencies in their examination and supervisory process, as well as in the analysis of any bank regulatory applications.
These prohibitions, commonly referred to as “UDAAP” apply in all areas of the Bank, including its marketing and advertising practices, product features, account agreements terms and conditions, operational practices, and the conduct of third parties with whom the Bank may partner or on whom the Bank may rely in bringing Bank products and services to the marketplace.
These prohibitions, commonly referred to as “UDAAP,” apply to all areas of the Bank’s operations, including its marketing and advertising practices, product features, account agreements terms and conditions, operational practices, and the conduct of third parties with whom the Bank may partner or on whom the Bank may rely in bringing Bank products and services to the marketplace.
Among other matters, the New Capital Rules: (i) introduced a new capital measure called “Common Equity Tier 1,” or CET1 and related regulatory capital ratio of CET1 to risk-weighted assets; (ii) specified that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements; (iii) mandated that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital; and (iv) expanded the scope of the deductions from and adjustments to capital as compared to existing regulations.
The Basel III rules, among other things, (i) introduced a new capital measure called “Common Equity Tier 1” (“CET1”) and related regulatory capital ratio of CET1 to risk-weighted assets; (ii) specified that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements; (iii) mandated that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital; and (iv) expanded the scope of the deductions from and adjustments to capital as compared to existing regulations.
Certain basic loan terms, as with the 7a program, are established by the SBA, including borrower eligibility, maximum loan amount, maximum maturity date, interest rates and loan fees.
Certain basic loan terms, as with the 7(a) Program, are established by the SBA, including borrower eligibility, maximum loan amount, maximum maturity date, interest rates and loan fees.
In addition, extensions of credit in excess of certain limits must be approved by the Bank’s board of directors. At December 31, 2022 and 2021, loans to these related parties amounted to $5.5 million and $5.2 million respectively.
In addition, extensions of credit in excess of certain limits must be approved by the Bank’s Board of Directors. At December 31, 2023 and 2022, loans to these related parties amounted to $5.7 million and $5.5 million respectively.
These loans are collateralized by various types of commercial real estate, primarily multi-family (apartments) but also include, retail, office and hotel real estate, and do not have recourse to the borrower (except for carve-outs such as fraud) and, accordingly, depend on cash reserves and cash generated by the underlying properties for repayment.
These loans are collateralized by various types of commercial real estate, primarily multi-family (apartment buildings) but also include legacy amounts of retail, hotel and office real estate, and do not have recourse to the borrower (except for carve-outs such as fraud) and, accordingly, generally depend on cash reserves and cash generated by the underlying properties for repayment.
A 504 loan may not be used for working capital, trading asset purchases or investment in rental real estate. In a 504 financing, the borrower must supply 10% of the financing amount, we provide 50% of the financing amount and a Certified Development Company, or “CDC,” provides 40% of the financing amount.
A 504 Program loan may not be used for working capital, trading asset purchases or investment in rental real estate. In a 504 Program financing, the borrower must supply 10% of the financing amount, we provide 50% of the financing amount and a Certified Development Company (“CDC”) provides 40% of 5 the financing amount.
We also act as the bank sponsor and depository institution for independent service organizations that process such payments and for other companies, such as bill payment companies for which we process ACH payments. We have designed products that enable those organizations to more easily process electronic payments and to better manage their risk of loss.
We also act as the bank sponsor and depository institution for independent service organizations that process such payments and for other companies, such as bill payment companies for which we process ACH payments enabling those organizations to more easily process electronic payments and to better manage their risk of loss.
The Bank is subject to numerous federal consumer protection laws related to its lending activities, including but not limited to: (a) the Truth in Lending Act, governing disclosures of credit terms to consumer borrowers; (b) the Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; (c) the Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; (d) the Fair Credit Reporting Act of 1978, as amended by the Fair and Accurate Credit Transactions Act, governing the use and provision of information to credit reporting agencies, certain identity theft protections and certain credit and other disclosures; (e) the Fair Debt Collection Practices Act, governing the manner in which consumer debts may be collected by collection agencies; (f) the Home Ownership and Equity Protection Act prohibiting unfair, abusive or deceptive home mortgage lending practices, restricting mortgage lending activities and providing advertising and mortgage disclosure standards; (g) the Service Members Civil Relief Act, postponing or suspending some civil obligations of service members during periods of transition, deployment and other times; and (h) the rules 18 and regulations of the various federal agencies charged with the responsibility of implementing these federal laws.
The Bank is subject to numerous federal consumer protection laws related to its lending activities, including but not limited to: (1) the Truth in Lending Act, governing disclosures of credit terms to consumer borrowers; (2) the Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; (3) the Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; (4) the Fair Credit Reporting Act of 1978, as amended by the Fair and Accurate Credit Transactions Act, governing the use and provision of information to credit reporting agencies, certain identity theft protections and certain credit and other disclosures; (5) the Fair Debt Collection Practices Act, governing the manner in which consumer debts may be collected by collection agencies; (6) the Home Ownership and Equity Protection Act prohibiting unfair, abusive or deceptive home mortgage lending practices, restricting mortgage lending activities and providing advertising and mortgage disclosure standards; (7) the Service Members Civil Relief Act, postponing or suspending some civil obligations of service members during periods of transition, deployment and other times; and (8) related rules and regulations of the various federal agencies charged with implementing these federal laws.
The Prepaid Rule included a significant number of changes to the regulatory framework for prepaid products, some of which included: (a) establishment of a definition of “prepaid account” within Regulation E to include reloadable and non-reloadable physical cards, as well as codes or other devices; (b) modification of Regulation E to require prescribed disclosures be provided to the consumer; (c) extending to prepaid accounts the periodic transaction history and statement requirements of Regulation E applicable to payroll and Federal government benefit accounts; (d) extending the error resolution and limited liability provisions of Regulation E applicable to payroll cards to registered network branded prepaid cards; (e) requiring financial institutions to post prepaid account agreements to the issuers’ websites and to submit them to the CFPB; (f) extending Regulation Z’s credit card rules and disclosure requirements to prepaid accounts providing overdraft protection and other credit features; (g) requiring a prepaid account holder’s consent prior to adding overdraft services or other credit features and prohibiting an issuer from adding such services or features for at least 30 calendar days after the consumer registers the prepaid account; and (h) prohibiting application of different terms and conditions, such as charging different fees, to a prepaid account depending on whether the consumer elects to link the prepaid account to overdraft services or other credit features.
The Prepaid Rule includes a significant number of changes to the regulatory framework for prepaid products, some of which include: (1) establishment of a definition of “prepaid account” within Regulation E to include reloadable and non-reloadable physical cards, as well as codes or other devices; (2) modification of Regulation E to require prescribed disclosures be provided to the consumer; (3) extending to prepaid accounts the periodic transaction history and statement requirements of Regulation E applicable to payroll and federal government benefit accounts; (4) extending the error resolution and limited liability provisions of Regulation E applicable to payroll cards to registered network branded prepaid cards; (5) requiring financial institutions to post prepaid account agreements to the issuers’ websites and to submit them to the CFPB; (6) extending Regulation Z’s credit card rules and disclosure requirements to prepaid accounts providing overdraft protection and other credit features; (7) requiring a prepaid account holder’s consent prior to adding overdraft services or other credit features and prohibiting an issuer from adding such services or features for at least 30 calendar days after the consumer registers the prepaid account; and (8) prohibiting application of different terms and conditions, such as charging different fees, to a prepaid account depending on whether the consumer elects to link the prepaid account to overdraft services or other credit features.
The commercial real estate loans, at fair value consist of REBL loans originated for securitization but which we now intend to hold on our balance sheet. Our investment portfolio amounted to $766.0 million at December 31, 2022, representing a decrease from the prior year.
Commercial real estate loans, at fair value consist of REBL loans originated for securitization but which we now intend to hold on our balance sheet. Our investment portfolio amounted to $747.5 million at December 31, 2023, representing a decrease from the prior year.
The risk-related standards classify capital into two tiers, referred to as Tier 1 and Tier 2. Together, these two categories of capital comprise a bank’s or financial holding company’s “qualifying total capital.” However, capital that qualifies as Tier 2 capital is limited in amount to 100% of Tier 1 capital in testing compliance with the total risk-based capital minimum standards.
Together, these two categories of capital comprise a bank’s or financial holding company’s “qualifying total capital.” However, capital that qualifies as Tier 2 capital is limited in amount to 100% of Tier 1 capital in testing compliance with the total risk-based capital minimum standards.
The CCPA gives California consumers the right to request disclosure of information collected about them, whether the information has been sold or shared, the right to request deletion of personal information (subject to certain exceptions), the right to opt out of the sale of the consumer’s personal information, and the right not to be discriminated against for having exercised the rights.
The CCPA gives California consumers each of the following rights: to request disclosure of information collected about them and be informed about whether such information has been sold or shared; to request deletion of personal information (subject to certain exceptions); to opt out of the sale of such consumer’s personal information; and to not be discriminated against for having exercised the foregoing rights.
The final rule also requires a bank service provider to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect banking organization customers for four or more hours. This rule became effective May 1, 2022.
The final rule also requires a bank service provider to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect banking organization customers for four or more hours.
Payments Products and Services Offered Through Our Fintech Solutions Group We provide a variety of checking and savings accounts and other banking services to fintechs and other affinity groups, which may vary and which include fraud detection, anti-money laundering, consumer compliance and other regulatory functions, reconciliation, sponsorship in Visa or Mastercard associations, ACH processing, rapid funds transfer capabilities, etc.
We also offer ACH bill payment and other payment services. 6 Payments Products and Services Offered Through Our Fintech Solutions Group We provide a variety of checking and savings accounts and other banking services to fintech companies and other affinity groups, which may vary and which include fraud detection, anti-money laundering, consumer compliance and other regulatory functions, reconciliation, sponsorship in Visa or Mastercard associations, ACH processing, rapid funds transfer and other payment capabilities.
Department of the Treasury, administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries, terrorists, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction.
Office of Foreign Assets Control The Office of Foreign Assets Control (“OFAC”), a division of the U.S. Department of the Treasury, administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries, terrorists, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction.
Deposit-related activities of the Bank are subject to various consumer protection laws including but not limited to: (a) the Truth in Savings Act, which imposes disclosure obligations to enable consumers to make informed decisions about accounts at depository institutions; (b) the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; (c) the Expedited Funds Availability Act, which establishes standards related to when financial institutions must make various deposit items available for withdrawal, and requires depository institutions to disclose their availability policies to their depositors; (d) the Electronic Fund Transfer Act, which governs electronic fund transfers to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machine and other electronic banking services as well as the process for reporting and investigating errors; and (e) the rules and regulations of various federal agencies charged with the responsibility of implementing these federal laws.
Deposit-related activities of the Bank are also subject to various consumer protection laws, including but not limited to: (1) the Truth in Savings Act, which imposes disclosure obligations to enable consumers to make informed decisions about accounts at depository institutions; (2) the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; (3) the Expedited Funds Availability Act, which establishes standards related to when financial institutions must make various deposit items available for withdrawal, and requires depository institutions to disclose their availability policies to their depositors; (4) the Electronic Fund 17 Transfer Act, which governs electronic fund transfers to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of ATMs and other electronic banking services as well as the process for reporting and investigating errors; and (5) related rules and regulations of various federal agencies charged with implementing these federal laws.
Regulation and Supervision Overview The Bancorp, Inc. is a Delaware corporation and a financial holding company registered with the Board of Governors of the Federal Reserve System (“Federal Reserve”). The Company maintains its headquarters in Wilmington, Delaware.
Regulation and Supervision Overview The Bancorp, Inc. is a Delaware corporation and a financial holding company registered with the Board of Governors of the Federal Reserve System (“Federal Reserve”). The Company maintains its headquarters in Sioux Falls, South Dakota.
Depending upon the product, account holders may access our products through the website or app of their affinity group, or through our website. This access may allow account holders to apply for loans, review account activity, pay bills electronically, receive statements electronically and print statements. Call Centers .
Depending upon the product, account holders may access our products through the website or app of their affinity group, or through our website. This access may allow account holders to apply for loans, review account activity, pay bills electronically, receive statements electronically and print statements. Third-Party Service Providers .
We derive the largest component of our deposits and non-interest income from our prepaid and debit card operations. 3 Develop Relationships with Affinity Groups to Gain Sponsored Access to their Membership, Client or Customer Bases to Market our Services through Private Label Banking. We seek to develop relationships with organizations with established membership, client or customer bases.
We derive the largest component of our deposits and non-interest income from our prepaid, debit card and other payment related operations. Develop Relationships with Affinity Groups to Gain Sponsored Access to their Membership, Client or Customer Bases to Market our Services through Private Label Banking.
Thus, when fully phased-in in January 2019, the Company and the Bank were required to maintain an additional capital conservation buffer of 2.5% of CET1, effectively resulting in minimum ratios of (i) CET1 to risk-weighted assets of at least 7%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5%, and (iii) Total capital to risk-weighted assets of at least 10.5%.
Thus, the Company and the Bank are required to maintain an additional capital conservation buffer of 2.5% of CET1, effectively resulting in minimum ratios of (i) CET1 to risk-weighted assets of at least 7%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5%, and (iii) Total capital to risk-weighted assets of at least 10.5%.
The New Capital Rules did not change the total risk-based capital requirement for any PCA category.
The Basel III rules did not change the total risk-based capital requirement for any PCA category.
We also will provide copies of our Annual Report on Form 10-K, free of charge, upon written request to our Investor Relations Department at our address for our principal executive offices, 409 Silverside Road, Wilmington, Delaware 19809.
We also will provide copies of our Annual Report on Form 10-K, free of charge, upon written request to our Investor Relations Department at our address for our principal executive offices.
At December 31, 2022, the Company and the Bank had leverage ratios of 9.63% and 10.73%, respectively. The federal banking agencies’ standards provide that concentration of credit risk and certain risks arising from non-traditional activities, as well as an institution’s ability to manage these risks, are important factors when assessing a financial institution’s overall capital adequacy.
At December 31, 2023, the Company and the Bank had leverage ratios of 11.19% and 12.37%, respectively. The federal banking agencies’ standards provide that concentration of credit risk and certain risks arising from non-traditional activities, as well as an institution’s ability to manage these risks, are important factors when assessing a financial institution’s overall capital adequacy.
The Company’s Chief Diversity Officer oversees diversity and inclusion efforts and reports directly to the President and CEO in that regard. Our Board of Directors and executive management receive regular updates on human capital management efforts, including diversity and inclusion initiatives. 9 Talent Acquisition and Development.
The Company’s Chief Diversity Officer (“CDO”) oversees diversity and inclusion efforts and, in 2023, reported directly to the President and CEO in that regard. The Company’s Board of Directors (the “Board”) and executive management receive regular updates on human capital management efforts, including diversity and inclusion initiatives. Talent Acquisition and Development.
Our principal focus is to grow our specialty lending operations and investment portfolio, and fund these loans and investments through a variety of sources that provide stable deposits, which are lower cost compared to certain other types of funding. Funding sources include prepaid and debit card accounts, institutional banking transaction accounts and card payment processing.
Our principal focus is to grow our specialty lending operations and investment portfolio, and fund these loans and investments through a variety of sources that provide stable deposits, which are lower cost compared to certain other types of funding. Funding sources include prepaid and debit card accounts and balances generated through servicing companies providing various types of payment processing.
Holding Company Liability Under Federal Reserve policy, a financial holding company is expected to act as a source of financial strength to each of its banking subsidiaries and commit resources to their support. The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) codified this policy as a statutory requirement.
Holding Company Liability Under Federal Reserve policy as codified by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), a financial holding company is expected to act as a source of financial strength to each of its banking subsidiaries.
An open- 4 end lease is one in which, at the end of the lease term, the lessee must pay us the difference between the amount at which we sell the leased asset and the stated termination value.
Our leases are either open-end or closed-end. An open-end lease is one in which, at the end of the lease term, the lessee must pay us the difference between the amount at which we sell the leased asset and the stated termination value.
This restriction is commonly referred to as the “Volcker Rule.” See “ Volcker Rule Adoption ” below. Federal Regulatory Guidance on Incentive Compensation In June 2010, federal banking regulators released final guidance on sound incentive compensation policies for banking organizations.
This restriction is commonly referred to as the “Volcker Rule.” See “ Volcker Rule Adoption ” below. Federal Regulatory Guidance on Incentive Compensation The federal banking regulators have issued guidance on sound incentive compensation policies for banking organizations.
We pay fees to certain affinity groups based upon deposits and loans they generate. These fees vary, and certain fees increase as market interest rates increase, while other fee rates may be fixed. Such fees comprise substantially all of the interest expense on deposits in our consolidated statement of operations. Use Our Existing Infrastructure as a Platform for Growth.
We pay fees to certain affinity groups based upon deposits and loans they generate. These fees vary, and certain fees increase as market interest rates increase, while other fee rates may be fixed. Such fees comprise the majority of the interest expense on deposits in our consolidated statement of operations.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeNonetheless, t he ongoing COVID-19 pandemic, including recent and possible future surges in infection rates, and measures intended to prevent its spread could adversely affect our business activities, financial condition, and results of operations and such effects will depend on future developments, which are highly uncertain and difficult to predict. Periods of weak economic and slow growth conditions in the U.S. economy have had, and may continue to have, significant adverse effects on our assets and operating results across the bank and business lending lines. We cannot assure you that we will be able to accomplish our strategic goals that would enable us to meet our financial targets. We may have difficulty managing our growth which may divert resources and limit our ability to expand our operations successfully. Risk management processes and strategies must be effective, and concentration of risk increases the potential for losses. We operate in highly competitive markets. Our affinity group marketing strategy has been adopted by other institutions with which we compete. As a financial institution whose principal medium for delivery of banking services is the internet, we are subject to risks particular to that medium and other technological risks and costs. Our operations may be interrupted if our network or computer systems, or those of our providers, fail. A failure of cyber security may result in a loss of customers and our being liable for damages for such failure. Failure to comply with personal data protection and privacy laws can adversely affect our business. We outsource many essential services to third-party providers who may terminate their agreements with us, resulting in interruptions to our banking operations. We are subject to extensive government regulation. Any future FDIC insurance premium increases will adversely affect our earnings. We may be affected by government regulation including those mandating capital levels and those specifying limitations resulting from Community Reinvestment Act ratings. We are subject to extensive government supervision with respect to our compliance with numerous laws and regulations. Our reputation and business could be damaged by our entry into any future enforcement matters with our regulators and other negative publicity. We may be subject to potential liability and business risk from actions by our regulators related to supervision of third parties. Legislative and regulatory actions taken now or in the future may increase our operating costs and impact our business, governance structure, financial condition or results of operations. A further downgrade of the U.S. government credit rating could negatively impact our investment portfolio and other operations. New lines of business, and new products and services may result in exposure to new risks and the value and earnings related to existing lines of business are subject to market conditions. Potential acquisitions may disrupt our business and dilute stockholder value. A change in bank regulators, or policy changes within current regulators, could result in modified regulatory requirements and expectations which could impact all aspects of regulated financial and compliance requirements.
Biggest changeRisk Factors Summary Risks Relating to Our Business and Industry Periods of weak economic and slow growth conditions in the U.S. economy have had, and may continue to have, significant adverse effects on our assets and operating results. Recent developments in the banking industry related to specific problem banks could have a negative impact on the industry as a whole and may negatively impact stock prices and result in additional regulations that could increase our expenses and otherwise affect our operations . We cannot assure you that we will be able to accomplish our strategic goals as necessary to meet our financial targets. We may have difficulty managing our growth which may divert resources and limit our ability to expand our operations successfully. Risk management processes and strategies must be effective, and concentration of risk increases the potential for losses. We operate in highly competitive markets, and our affinity group marketing strategy has been adopted by other institutions with which we compete. As a financial institution whose principal medium for delivery of banking services is the internet, we are subject to risks particular to that medium and other technological risks and costs. Our operations may be interrupted if our network or computer systems, or those of our third-party service providers, fail. We face cybersecurity risks, which could result in a loss of customers, cause disclosure of confidential information, adversely affect our operations, cause reputational damage and create significant legal and financial exposure. Failure to comply with personal data protection and privacy laws can adversely affect our business. We and the Bank are subject to and may be affected by extensive government regulation. Any additional future FDIC insurance premium increases will adversely affect our earnings. We are subject to extensive government supervision with respect to our compliance with numerous laws and regulations. Our reputation and business could be damaged by our entry into any future enforcement matters with our regulators and other negative publicity. We are subject to risks associated with the third parties to whom we outsource many essential services, including risks related to our agreements and oversight of their activities. 21 Legislative and regulatory actions taken now or in the future may increase our operating costs and impact our business, governance structure, financial condition or results of operations. A downgrade of the U.S. credit rating could negatively impact our business, results of operations and financial condition. New lines of business, and new products and services may result in exposure to new risks and the value and earnings related to existing lines of business are subject to market conditions. Potential acquisitions may disrupt our business and dilute stockholder value. Inflation could negatively and materially impact our business directly or indirectly by its impact on our borrowers. The loss or transition of key members of our senior management team or key staff in the Bank's divisions, or our inability to attract and retain qualified personnel, could adversely affect our business. Increased scrutiny with respect to environmental, social and governance (“ESG”) practices may impose additional costs on the Company or expose it to new risks. Climate change or government action and societal responses to climate change could adversely affect our results of operations.
Although we believe that the Bank’s allowance for credit losses is appropriate and supportable in providing for current and future expected credit losses and that our methodology to determine the amount of both the allowance and provision is effective, we cannot assure you that we will not need to increase the Bank’s allowance for credit losses, change our methodology for determining our allowance and provision for credit losses or that our regulators will not require us to increase this allowance.
Although we believe that the Bank’s allowance for credit losses is appropriate and supportable in providing for current and future expected credit losses and that our methodology to determine the amount of both the allowance and provision is effective, we cannot assure you that we will not need to increase the Bank’s allowance for credit losses or change our methodology for determining our allowance and provision for credit losses, or that our regulators will not require us to increase this allowance.
For other than SBLOC and IBLOC loans, these practices may include analysis of a borrower’s prior credit history, financial statements, tax returns and cash flow projections, valuation of certain types of collateral based on reports of independent appraisers and verification of liquid assets.
For loans other than SBLOC and IBLOC loans, these practices may include analysis of a borrower’s prior credit history, financial statements, tax returns and cash flow projections, valuation of certain types of collateral based on reports of independent appraisers and verification of liquid assets.
Our net interest income is also determined by our level of loan production to replace loan payoffs and to grow our different loan portfolios.
Our net interest income is also determined by our level of loan production to replace loan payoffs and grow our different loan portfolios.
Loss exposure may result if money is transferred from the bank before it is received, or legal rights to reclaim monies transferred are asserted, including payments made to merchants for payment clearing, while customers have statutory periods to reverse their payments. It also results from payments made prior to receipt of offsetting funds, as accommodations to customers.
Loss exposure may result if money is transferred from the bank before it is received, or legal rights to reclaim monies transferred are asserted, including payments made to merchants for payment clearing, while customers have statutory periods to reverse their payments. Exposure also results from payments made prior to receipt of offsetting funds, as accommodations to customers.
Failure to comply with these statutes, 31 regulations or policies could result in a determination of an apparent violation of law, and could trigger formal or informal enforcement actions or other sanctions against us or the Bank by regulatory agencies, including entering into consent orders or other agreements, assessment of civil money penalties, criminal penalties, reputational damage, and a downgrade in the Company’s ratings or the Bank’s ratings for capital adequacy, asset quality, management, earnings, liquidity and market sensitivity, any of which alone or in combination could have a material adverse effect on our financial condition and results of operations.
Failure to comply with these statutes, regulations or policies could result in a determination of an apparent violation of law, and could trigger formal or informal enforcement actions or other sanctions against us or the Bank by regulatory agencies, including entering into consent orders or other agreements, assessment of civil money penalties, criminal penalties, reputational damage, and a downgrade in the Company’s ratings or the Bank’s ratings for capital adequacy, asset quality, management, earnings, liquidity and market sensitivity, any of which alone or in combination could have a material adverse effect on our financial condition and results of operations.
Some of the financial services organizations with which we compete are not subject to the same degree of regulation as federally-insured and regulated financial institutions such as ours. As a result, those competitors may be able to access funding and provide various services more easily or at less cost than we can.
Further, some of the financial services organizations with which we compete are not subject to the same degree of regulation as federally-insured and regulated financial institutions such as ours. As a result, those competitors may be able to access funding and provide various services more easily or at less cost than we can.
Our failure to satisfy regulatory mandates applicable to prepaid financial products could result in actions against us by our regulators, legal proceedings being instituted against us by consumers, or other losses, each of which could reduce our earnings or result in losses, make it more difficult to conduct our operations, or prohibit us from conducting specific operations.
Our failure to satisfy regulatory mandates applicable to prepaid financial products could result in actions against us by our regulators, legal proceedings being instituted against us by consumers, each of which could reduce our earnings or result in losses, make it more difficult to conduct our operations, or prohibit us from conducting specific operations.
A significant number of regulations have been promulgated to implement the Dodd-Frank Act, including, for example, the Collins Amendment and the Durbin Amendment , t he latter of which exempts banks with under $10 billion in assets from regulated limitations on interchange fees.
A significant number of regulations have been promulgated to implement Dodd-Frank, including, for example, the Collins Amendment and the Durbin Amendment , t he latter of which exempts banks with under $10 billion in assets from regulated limitations on interchange fees.
The Bank’s allowance for credit losses is determined by management after analyzing historical loan losses, current trends in delinquencies and charge-offs, plans for problem loan resolution, changes in the size and composition of the loan portfolio, industry information, economic conditions and reasonable and supportable forecasts.
The Bank’s allowance for credit losses is determined by management after analyzing historical loan losses, current trends in delinquencies and charge-offs, plans for problem loan resolution, changes in the size and composition of the loan portfolio, industry information, economic conditions and events and reasonable and supportable forecasts.
Moreover, to the extent that we incur losses and do not obtain additional capital, our lending limit, which depends upon the amount of our capital, will decrease. 34 Revised accounting standards require current recognition of credit losses over the estimated remaining lives of loans.
Moreover, to the extent that we incur losses and do not obtain additional capital, our lending limit, which depends upon the amount of our capital, will decrease. Revised accounting standards require current recognition of credit losses over the estimated remaining lives of loans.
Although we believe we have sufficient existing liquidity for our needs for the foreseeable future, there is risk that, we may not be able to service our obligations as they become due or to pay dividends on our common stock or trust preferred obligations.
Although we believe we have sufficient existing liquidity for our needs for the foreseeable future, there is risk that we may not be able to service our obligations as they become due or to pay dividends on our common stock or trust preferred security obligations.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.
For example, under capital adequacy guidelines and the regulatory framework for prompt corrective action, we and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.
In addition, if we arrange for the disposal of hazardous or toxic substances at another site, we may be liable for the costs of cleaning up and removing those substances from the site, even if we neither own nor 35 operate the disposal site.
In addition, if we arrange for the disposal of hazardous or toxic substances at another site, we may be liable for the costs of cleaning up and removing those substances from the site, even if we neither own nor operate the disposal site.
If we experience loan defaults in excess of amounts that we have included in our allowance for credit losses, we will have to increase the provision for credit losses, which will reduce our income and might cause us to incur losses.
If we experience loan defaults in excess of amounts that we have included in our allowance for credit losses, we will have to further increase the provision for credit losses, which will reduce our income and might cause us to incur losses.
If we, or another provider of financial services through the internet, were to suffer damage from a security breach, public acceptance and use of the internet as a medium for financial transactions could suffer.
Additionally, if we, or another provider of financial services through the internet, were to suffer damage from a security breach, public acceptance and use of the internet as a medium for financial transactions could suffer.
We are not restricted from issuing additional shares of common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive shares of common 39 stock.
We are not restricted from issuing additional shares of common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive shares of common stock.
These provisions include, in particular, our ability to issue shares of our common stock and preferred stock with such provisions as our board of directors may approve without further shareholder approval.
These provisions include, in particular, our ability to issue shares of our common stock and preferred stock with such provisions as our Board may approve without further shareholder approval.
State regulators may choose to initiate collection or other litigation action against the Bank for unreported abandoned property, and such actions may seek to assess fines and penalties. 38 Risks Relating to Taxes and Accounting: We are subject to tax audits, and challenges to our tax positions or adverse changes or interpretations of tax laws could result in tax liability.
State regulators may choose to initiate collection or other litigation action against the Bank for unreported abandoned property, and such actions may seek to assess fines and penalties. 35 Risks Relating to Taxes and Accounting We are subject to tax audits, and challenges to our tax positions or adverse changes or interpretations of tax laws could result in tax liability.
Any of these occurrences could materially reduce our earnings and profitability and could result in our sustaining losses. For more information about risks which are specific to the different types of loans we make and which could impact the allowance for credit losses, see Item 1, ”Business –Lending Activities.” Our lending limit may adversely affect our competitiveness.
Any of these occurrences could materially reduce our earnings and profitability and result in losses. For more information about risks which are specific to the different types of loans we make and which could impact the allowance for credit losses, see Item 1, ”Business –Lending Activities.” 31 Our lending limit may adversely affect our competitiveness.
The capital amounts and classification of us and the Bank are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Moreover, capital requirements may be modified based upon regulatory rules or by regulatory discretion at any time reflecting a variety of factors including deterioration in asset quality.
The capital amounts and classification of us and the Bank are also subject to qualitative judgments by regulators about components, risk weightings and other factors. Moreover, capital requirements may be modified based upon regulatory rules or by regulatory discretion at any time due to a variety of factors, including deterioration in asset quality.
In addition to these explicit limitations, it is possible, depending upon the financial condition of the Bank and other factors, that federal and state regulatory agencies could take the position that payment of dividends by the Bank would constitute an unsafe or unsound banking practice and may; therefore, seek to prevent the Bank from paying such dividends.
In addition to these explicit limitations, it is possible, depending upon the financial condition of the Bank and other factors, that regulatory agencies could take the position that payment of dividends by the Bank would constitute an unsafe or unsound banking practice and may, therefore, seek to prevent the Bank from paying such dividends.
Severe weather and natural disasters could harm our operations through interference with communications, including the interruption or loss of our computer systems, which could prevent or impede us from gathering deposits, originating loans, and processing and controlling the flow of business, as well as through the destruction of facilities and our operational, financial and management information systems.
Severe weather and natural disasters could harm our operations through interference with communications, including the interruption or loss of our computer systems, which could prevent or impede us from gathering deposits, originating loans, and processing and controlling the flow of business, or through the destruction of facilities and our operational, financial and management information systems.
In the future, we may attempt to increase our capital resources or, if the Bank’s capital ratios fall below the required minimums, we could be forced to raise additional capital by making additional offerings of debt or preferred equity securities, including medium-term notes, senior or subordinated notes or preferred stock.
In the future, we may attempt to increase our capital resources or, if the Bank’s capital ratios fall below the required minimums, we could be forced to raise additional capital by conducting additional offerings of debt or preferred equity securities, including medium-term notes, senior or subordinated notes or preferred stock.
The vast majority of commercial loans, at fair value and REBL loans are variable rate and, as a result, higher market rates will result in higher payments and greater cash flow requirements, although all loans require an interest rate cap to mitigate that risk.
The vast majority of commercial loans, at fair value and REBL loans are variable rate and, as a result, higher market rates will result in higher payments and greater cash flow requirements, although REBL loans generally require an interest rate cap to mitigate that risk.
Any such failure could also adversely affect the results of periodic management evaluations and annual auditor attestation reports regarding the effectiveness of our internal control over financial reporting required under Section 404 of the Sarbanes-Oxley Act of 2002 and the rules promulgated under Section 404.
Any such failure could also adversely affect the results of periodic management evaluations and annual auditor attestation reports regarding the effectiveness of our internal control over financial reporting required under Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) and the rules promulgated under Section 404.
We have historically depended on the Bank’s cash and liquidity, as well as dividends, to pay our operating expenses. Various federal and state statutory provisions limit the amount of dividends that subsidiary banks can pay to their holding companies without regulatory approval.
We have historically depended on the Bank’s cash and liquidity, as well as dividends, to pay our operating expenses. Various federal provisions limit the amount of dividends that subsidiary banks can pay to their holding companies without regulatory approval.
The Bank pays assessment fees both to the OCC and the FDIC, and the level of such assessments reflects the condition of the Bank. If the condition of the Bank were to deteriorate, the level of such assessments could increase significantly, having a material adverse effect on the Company’s financial condition and results of operations.
For example, the Bank pays assessment fees both to the OCC and the FDIC, and the level of such assessments reflects the condition of the Bank. If the condition of the Bank were to deteriorate, the level of such assessments could increase significantly, having a material adverse effect on the Company’s financial condition and results of operations.
The determination by management of the allowance for credit losses involves a high degree of subjectivity and requires management to estimate current and future credit risk based on both qualitative and quantitative facts, each of which is subject to significant change.
The determination by management of the allowance for credit losses involves a high degree of subjectivity and requires management to estimate current and future credit risk based on both qualitative and quantitative factors, each of which is subject to significant change.
Even if the Bank has the capacity to pay dividends, it is not obligated to pay the dividends. Its Board of Directors may determine, as it did in the past, to retain some or all of its earnings to support or increase its capital base.
Even if the Bank has the capacity to pay dividends, it is not obligated to pay the dividends, and its Board of Directors may determine, as it has in the past, to retain some or all of its earnings to support or increase its capital base.
While we believe that our lending limit is sufficient for our targeted market of small to mid-size businesses within the four specialty lending operations upon which we focus as well as affinity group members, it may in the future affect our ability to attract or maintain customers or to compete with other financial institutions.
While we believe that our lending limit is sufficient for our targeted market of small to mid-size businesses within our four specialty lending operations, as well as affinity group members, it may in the future affect our ability to attract or maintain customers or to compete with other financial institutions.
Our efforts to comply with these laws and regulations, including the CCPA as well as new comprehensive privacy legislation passed in Virginia, Colorado, Utah and Connecticut, impose significant costs and challenges that are likely to continue to increase over time, particularly as additional jurisdictions continue to adopt similar regulations.
Our efforts to comply with these laws and regulations, including the CCPA as well as comprehensive privacy legislation passed in Virginia, Colorado, Utah and Connecticut and other states, impose significant costs and challenges that are likely to continue to increase over time, particularly as additional jurisdictions continue to adopt similar regulations.
The Bank’s ability to pay dividends is subject to regulatory limitations which, to the extent we require such dividends in the future, may affect our ability to pay our obligations and pay dividends. We are a separate legal entity from the Bank and our other subsidiaries, and we do not have significant operations of our own.
The Bank’s ability to pay dividends is subject to regulatory limitations which, to the extent we require such dividends in the future, may affect our ability to pay our obligations and pay dividends. As a holding company, we are a separate legal entity from the Bank and our other subsidiaries, and we do not have significant operations of our own.
In particular, our SBLOC, non-SBA commercial loans, at fair value and real estate bridge lending portfolios have at times experienced accelerated prepayments, and the duration of those portfolios at inception are relatively short and generally under three years.
In particular, our SBLOC, non-SBA commercial loans, at fair value and real estate bridge lending portfolios have at times experienced accelerated prepayments, while the durations of those portfolios at inception are relatively short and generally under three years.
The passage of the Dodd-Frank Act in 2010, and the rules and regulations emanating therefrom, have significantly changed, and will continue to change the bank regulatory structure, and affect the lending, deposit, investment and operating activities of financial institutions and their holding companies.
The passage of Dodd-Frank, and the rules and regulations emanating therefrom, have significantly changed, and will continue to change the bank regulatory structure, and affect the lending, deposit, investment and operating activities of financial institutions and their holding companies.
We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Such products may also prove costly to develop or acquire. 29 Our operations may be interrupted if our network or computer systems, or those of our providers, fail.
We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Such products may also prove costly to develop or acquire. Our operations may be interrupted if our network or computer systems, or those of our third-party service providers, fail.
Any such strain could increase our costs, reduce or eliminate our profitability and reduce the price at which our common shares trade. Risk management processes and strategies must be effective, and concentration of risk increases the potential for losses. Our risk management processes and strategies must be effective, otherwise losses may result.
Any such strain could increase our costs, reduce or eliminate our profitability and reduce the price at which our common stock trades. Risk management processes and strategies must be effective, and concentration of risk increases the potential for losses. Our risk management processes and strategies must be effective, otherwise losses may result.
Related changes in volume including changes in client mix, or in pricing, can also result in variability of revenue between periods. Additionally, certain of our clients have significant volume, the loss of which would materially affect our revenues. In full year 2022, the top five largest contributors to prepaid, debit card and related fees, comprised approximately 57% of such income.
Related changes in volume including changes in client mix, or in pricing, can also result in variability of revenue between periods. Additionally, certain of our clients have significant volume, the loss of which would materially affect our revenues. In 2023, the top five largest contributors to prepaid, debit card and related fees, comprised approximately 54% of such income.
Because we deliver our products and services over the internet and outsource several critical functions to third parties, our operations depend on our ability, as well as that of our service providers, to protect computer systems and network infrastructure against interruptions in service due to damage from fire, power loss, telecommunications failure, physical break-ins and computer hacking or similar catastrophic events.
Because we deliver our products and services over the internet and outsource several critical functions to third parties, our operations depend on our ability, as well as that of our service providers, to protect computer systems and network infrastructure against interruptions in service due to damage from fire, power loss, telecommunications failure, software or hardware defects physical attacks, computer hacking or similar events.
The Bank may suffer losses in its loan portfolio despite its underwriting practices. The Bank seeks to mitigate the risks inherent in its loan portfolio by adhering to specific underwriting practices. These practices vary depending on the facts and circumstances of each loan.
The Bank seeks to mitigate the risks inherent in its loan portfolio by adhering to specific underwriting practices. These practices vary depending on the facts and circumstances of each loan.
For SBLOC loans, a primary element of the credit decision is the market value of the borrower’s brokerage account, which is reduced by the varying collateral percentages against which we are willing to lend, resulting in excess collateral.
For SBLOC loans, a primary element of the credit decision is the market value of the borrower’s brokerage account, which is reduced by the varying collateral percentages against which we are willing to lend, resulting in excess collateral. For example, we typically lend against 50% of the value of equity securities.
Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity.
Our common stock is not a savings or deposit account or other obligation of any bank and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity.
The existence of options, or shares of our common stock reserved for issuance as restricted shares of our common stock may materially adversely affect the terms upon which we may be able to obtain additional capital in the future through the sale of equity securities.
The existence of options, or shares of our common stock reserved for issuance as restricted shares of our common stock may materially adversely affect the terms upon which we may be able to obtain additional capital in the future through the sale of equity securities. An investment in our common stock is not an insured deposit.
We face substantial competition in all phases of our operations from a variety of different competitors, including commercial banks and their holding companies, credit unions, leasing companies, consumer finance companies, factoring companies, insurance companies and money market mutual funds and card issuers.
We face substantial competition in all phases of our operations from a variety of different competitors, including commercial banks and their holding companies, credit unions, leasing companies, consumer finance companies, factoring companies, insurance companies, money market mutual funds and card issuers, online lenders, financial technology companies and other non-traditional competitors.
F uture changes or interpretations to these rules and other bank regulations are uncertain and could negatively impact our business, thereby increasing our operating and compliance costs and obligations, and reducing or eliminating our ability to generate profits . 32 A further downgrade of the U.S. government credit rating could negatively impact our investment portfolio and other operations.
F uture changes or interpretations to these rules and other bank regulations are uncertain and could negatively impact our business, thereby increasing our operating and compliance costs and obligations, and reducing or eliminating our ability to generate profits. A downgrade of the U.S. credit rating could negatively impact our business, results of operations and financial condition.
Additionally, prepaid and debit card fee income may be subject to quarterly and longer term variances resulting from seasonality, changes in fee structures, product mix and other factors, which also make projecting income trends difficult. Prepaid and debit card account deposits also comprise the majority of the Bank’s deposits.
Additionally, prepaid and debit card fee income may be subject to quarterly and longer term variances resulting from seasonality, changes in fee structures, product mix and other factors, which also make projecting income trends difficult.
We discuss the effects of interest rate changes on the market value of our portfolio and net interest income in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Asset and Liability Management.” Interest rates are highly sensitive to many factors which are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies, in particular, the Federal Reserve.
We discuss the effects of interest rate changes on the market value of our portfolio and net interest income in Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Asset and Liability Management. ” Interest rates are highly sensitive to factors which are beyond our control, including economic conditions and policies of governmental agencies, particularly the Federal Reserve.
Investment in our common stock is inherently risky for the reasons described in this “Risk Factors” section and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire our common stock, you may lose some or all of your investment.
Investment in our common stock is 36 inherently risky and is subject to the same market forces that affect the price of common stock of any company. As a result, if you acquire our common stock, you may lose some or all of your investment.
Our strategic goals which will also impact our ability to meet our performance goals also include maintaining a scalable infrastructure, continuing technology innovations, maintaining what we believe to be an industry leading compliance and risk function; non-interest expense management and others.
Our strategic goals which will also impact our ability to meet our performance goals also include maintaining a scalable infrastructure, continuing technology innovations, maintaining our compliance and risk function; non-interest expense management and others.
Not maintaining a compliance management system which is deemed adequate could result in sanctions against the Bank. Our ongoing review and analysis of our compliance management system and implementation of any changes resulting from that review and analysis will likely result in increased non-interest expense.
We cannot assure you that we will satisfy all related requirements. Not maintaining a compliance management system which is deemed adequate could result in sanctions against the Bank. Our ongoing review and analysis of our compliance management system and implementation of any changes resulting from that review and analysis would likely result in increased non-interest expense.
There is a significant concentration in prepaid and debit card fee income which is subject to various risks. A significant portion of our revenues are derived from prepaid, debit card and other related products.
There is a significant concentration in prepaid and debit card fee income which is subject to various risks. A significant portion of our revenues are derived from prepaid, debit card and other related products, and prepaid and debit card account deposits also comprise the majority of the Bank’s deposits.
Other cyber threats involving theft of confidential information could also result in liability. Although we, with the help of third-party service providers, intend to continue to implement security technology and establish operational procedures to prevent security breaches, these measures may not be successful. Failure to comply with personal data protection and privacy laws can adversely affect our business.
Although we, with the help of third-party service providers, intend to continue to implement security technology and establish operational procedures to prevent security breaches, these measures may not be successful. Failure to comply with personal data protection and privacy laws can adversely affect our business.
Our affinity group marketing strategy has been adopted by other institutions with which we compete. Several online banking operations as well as the online banking programs of conventional banks have instituted affinity group marketing 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 affinity group marketing strategies similar to ours. As a consequence, we have encountered competition in this area and anticipate that we will 24 continue to do so in the future.
I f we determined that we would need to increase the allowance for credit losses to appropriately capture the credit risk that exists in our lending and investment portfolios , it may negatively impact our business, earnings, financial condition and results of operations. We adopted the guidance in first quarter 2020.
I f we determined that we would need to increase the allowance for credit losses to appropriately capture the credit risk that exists in our lending and investment portfolios , it may negatively impact our business, earnings, financial condition and results of operations. The Bank may suffer losses in its loan portfolio despite its underwriting practices.
Other risks related to prepaid cards include competition for prepaid, debit and other payment mediums, possible changes in the rules of networks, such as Visa and MasterCard and others, in which the Bank operates and state regulations related to prepaid cards including escheatment. The potential for fraud in the card payment industry is significant.
Other risks related to prepaid cards include competition for prepaid, debit and other payment mediums, possible changes in the rules of networks, such as Visa and Mastercard and others, in which the Bank operates, changes in network fees or interchange rates and state regulations related to prepaid cards, including those regarding escheatment.
Such severe weather, natural disasters, acts of war or terrorism or other adverse external events could negatively impact our business operations or the stability of our deposit base, cause significant property damage, adversely impact the values of 40 collateral securing our loans and/or interrupt our borrowers' abilities to conduct their business in a manner to support their debt obligations, which could result in losses and increased provisions for credit losses.
Such catastrophic events could negatively impact our business operations or the stability of our deposit base, cause significant property damage, adversely impact the value of collateral securing our loans and/or interrupt our borrowers’ abilities to conduct their business in a manner that supports their debt obligations, which could result in losses and increased provisions for credit losses.
In December 2020, the FDIC adopted a regulation which resulted in the reclassification of certain of our deposits as non-brokered beginning June 30, 2021, and a decrease in FDIC insurance expense. Such reclassifications and the resulting FDIC insurance expense decrease are dependent upon ongoing consideration by regulators, and may be modified in the future.
However, in December 2020, the FDIC adopted a regulation which resulted in the reclassification of the majority of the Bank’s deposits from brokered to non-brokered beginning June 30, 2021, and a decrease in FDIC insurance expense. Such reclassifications and the resulting FDIC insurance expense decrease are dependent upon ongoing consideration by regulators, including recertification requirements for certain accounts.
Also, an affinity group could terminate a relationship 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 our internal requirements are not met or be required by our regulators to exit such relationships. Also, an affinity group could terminate a relationship 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.
These weaknesses have episodically resulted in declines in the availability of credit, reduction in the values of real estate and real estate-related assets, the reduction of markets for those assets and impairment of the ability of certain borrowers to repay their obligations. A continuation of weak economic conditions could further harm our financial condition and results of operations.
These weaknesses have episodically resulted in declines in the availability of credit, reduction in the values of real estate and real estate-related assets, the reduction of markets for those assets and impairment of the ability of certain borrowers to repay their obligations. Weak economic conditions can also impact consumer spending and related fees in our payments businesses.
Our operations also depend upon our ability to replace a third-party provider if it experiences difficulties that interrupt our operations or if an operationally essential third-party service terminates. Service interruptions to customers may adversely affect our ability to obtain or retain customers and could result in regulatory sanctions.
Our operations also depend upon our ability to replace a third-party provider if it experiences difficulties that interrupt our operations or if an operationally essential third-party service terminates.
Risks Relating to Our Payments Business Activities: Regulatory and legal requirements applicable to the prepaid and debit card industry are unique and frequently changing. Achieving and maintaining compliance with frequently changing legal and regulatory requirements requires a significant investment in qualified personnel, hardware, software and other technology platforms, external legal counsel and consultants and other infrastructure components.
Achieving and maintaining compliance with frequently changing legal and regulatory requirements applicable to prepaid and debit card products requires a significant investment in qualified personnel, hardware, software and other technology platforms, external legal counsel and consultants and other infrastructure components. These investments may not ensure compliance or otherwise mitigate risks involved in this business.
In June 2016, the Financial Accounting Standards Board (“FASB”), issued an update to Accounting Standards Update (“ASU” or “Update”) 2016-13 – “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The Update changes the accounting for credit losses on loans and debt securities.
In June 2016, the FASB, issued an update to ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which we adopted in 2020. The update changes the accounting for credit losses on loans and debt securities.
General Risks: Severe weather, natural disasters, acts of war or terrorism or other adverse external events could harm our business . Severe weather, natural disasters, acts of war or terrorism and other adverse external events could have a significant impact on our ability to conduct business.
Catastrophic events over which we have no control, including severe weather, natural disasters, geopolitical events, public health crises, acts of war or terrorism and other adverse external events could have a significant impact on our ability to conduct business.
In December 2014, the FDIC issued new guidance classifying prepaid deposit accounts and other deposit accounts obtained in cooperation with third parties as brokered, resulting in the vast majority of the Bank’s deposits being classified as brokered. We do not believe that these deposits are subject to the volatility risks associated with brokered wholesale deposits or brokered certificates of deposit.
In December 2014, the FDIC issued guidance classifying prepaid deposit accounts and other deposit accounts obtained in cooperation with third parties as brokered, resulting in the vast majority of the Bank’s deposits being classified as brokered.
Our earnings could also decline, or we could sustain losses, if the rates on our loans and other investments fall more quickly than those on our deposits and other borrowings.
Our earnings could also decline, or we could sustain losses, if the rates on our loans and securities decrease more than deposit rates.
In recent periods, the United States economy has been subject to low rates of growth in general and, in particular localities, recession-like conditions have occurred. As a result, the financial system in the United States, including credit markets and markets for real estate and real-estate related assets, have periodically been subject to weakness.
As a result, the financial system in the United States, including credit markets and markets for real estate and real-estate related assets, has periodically been subject to weakness.
Significant amounts of loans are accounted for at fair (market) value, and a decrease in such value would reduce income. Potential acquisitions may disrupt our business and dilute stockholder value .
Additionally, there are uncertainties regarding the market 28 values of existing lines of business, which are difficult to measure and are subject to market conditions which may change significantly. Significant amounts of loans are accounted for at fair market value, and a decrease in such value would reduce income. Potential acquisitions may disrupt our business and dilute stockholder value.
The Bank has introduced, and in the future, may introduce new products and services to differing markets either alone or in conjunction with third parties.
New lines of business, and new products and services may result in exposure to new risks and the value and earnings related to existing lines of business are subject to market conditions. The Bank has introduced, and in the future, may introduce new products and services to differing markets either alone or in conjunction with third parties.
Such criteria include the loan-to-value ratio and debt yield (net operating income divided by first mortgage debt). However, property values may fall below appraised values and below the outstanding balance of the loan, which could result in losses. If the level of non-performing assets increases, interest income will be reduced.
Such criteria include the loan-to-value ratio and debt yield (net operating income divided by first mortgage debt). However, property values may fall below appraised values and below the outstanding balance of the loan, which could result in losses. Risks for SBA construction loans include engineering defects, contractor risk, and risks of delays and project completions.
We cannot predict whether future issuances of shares of our common stock or the availability of shares for resale in the open market will decrease the market price per share of our common stock.
Given the lower trading volume of our common stock, significant sales of our common stock, or the expectation of these sales, could cause our stock price to fall. Additionally, we cannot predict whether future issuances of shares of our common stock or the availability of shares for resale in the open market will decrease the price of our common stock.
Failure to manage these risks, or failure of any product or service offerings to be successful and profitable, could have a material adverse effect on our financial condition and results of operations. Additionally, there are uncertainties regarding the market values of existing lines of business, which are difficult to measure and are subject to market conditions which may change significantly.
Failure to manage these risks, or failure of any product or service offerings to be successful and profitable, could have a material adverse effect on our financial condition and results of operations.
A change in regulators or policy changes within current regulators could result in modified regulatory requirements. These modifications could adversely impact credit, capital, earnings, liquidity and other operations, and should they require modifications in our lines of business, could impact profitability. Risks Related to Our Specialty Lending Business Activities: We are subject to lending risks.
Additionally, any change in regulators or policy changes within current regulators could result in modified regulatory requirements, which could adversely impact credit, capital, earnings, liquidity and other operations, and should they require modifications in our lines of business, could impact profitability. Any additional future FDIC insurance premium increases will adversely affect our earnings.
Wholesale and brokered certificates of deposit are highly sensitive to changes in interest rates and, accordingly, can be a more volatile source of funding.
We may rely, in part, on funds provided by wholesale deposits and brokered certificates of deposit to support the growth of our loan portfolio. Wholesale and brokered certificates of deposit are highly sensitive to changes in interest rates and, accordingly, can 34 be a more volatile source of funding.
The Bank’s allowance for credit losses may not be adequate to cover actual loan losses and future provisions for loan losses could materially and adversely affect the Bank’s operating results.
At December 31, 2023, the ratios of the ACL to total loans and to non-performing loans were, respectively, 0.51% and 206.33%. The Bank’s allowance for credit losses may not be adequate to cover actual loan losses and future provisions for loan losses could materially and adversely affect the Bank’s operating results.
Notwithstanding our national charter, the Bank may also be subject to additional state laws and regulations impacting our business activities, products and services. Failure to maintain a satisfactory CRA rating may result in business restrictions. Until September 15, 2022, the Bank operated its CRA program under an FDIC-approved CRA Strategic Plan and was assigned an “Outstanding” CRA rating.
Additionally, failure to maintain a satisfactory CRA rating may result in business restrictions. Until September 15, 2022 , the Bank operated its CRA program under an FDIC-approved CRA strategic plan and was assigned an “Outstanding” CRA rating. The Bank began operating under an OCC-approved strategic plan effective January 1, 2023.
Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on our financial condition and results of operations. 33 A change in bank regulators, or policy changes within current regulators, could result in modified regulatory requirements and expectations which could impact all aspects of regulated financial and compliance requirements.
Furthermore, failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have a material adverse effect on our financial condition and results of operations. Inflation could negatively and materially impact our business directly or indirectly by its impact on our borrowers.
Risks Relating to Our Specialty Lending Business Activities We are subject to lending risks. The Bank’s allowance for credit losses may not be adequate to cover actual losses. Our lending limit may adversely affect our competitiveness. Revised accounting standards require current recognition of credit losses over the estimated remaining lives of loans. The Bank may suffer losses in its loan portfolio despite its underwriting practices. Environmental liability associated with lending activities could result in losses. We cannot predict whether income resulting from the reinvestment of proceeds from the loans we hold will match or exceed the income from loan dispositions. A prolonged U.S. government shutdown or default by the U.S. on government obligations could harm our results of operations. Changes in interest rates and loan production could reduce our income, cash flows and asset values. We may be adversely impacted by the transition from London Inter-Bank Offered Rate (“LIBOR”) as a reference rate. 24 Risks Relating to Our Payments Business Activities Regulatory and legal requirements applicable to the prepaid and debit card industry are unique and frequently changing. The potential for fraud in the card payment industry is significant. There is a significant concentration in prepaid and debit card fee income which is subject to various risks. If our prepaid and debit card and other deposit accounts generated by third parties were no longer classified as non-brokered, our FDIC insurance expense might increase. We may depend in part upon wholesale and brokered certificates of deposit to satisfy funding needs. We derive a significant percentage of our deposits, total assets and income from deposit accounts generated by diverse independent companies, including those which provide card account marketing services, and investment advisory firms. We face fund transfer and payments-related reputational risks. Unclaimed funds from deposit accounts or represented by unused value on prepaid cards present compliance and other risks.
Risks Relating to Our Payments Business Activities Regulatory and legal requirements applicable to the prepaid and debit card industry are unique and frequently changing. Changes in rules or standards set by the payment networks, or changes in debit network fees or products or interchange rates, could adversely affect our business, financial position and results of operations.The potential for fraud in the card payment industry is significant and could adversely affect our business and results of operations. There is a significant concentration in prepaid and debit card fee income which is subject to various risks. If our prepaid and debit card and other deposit accounts generated by third parties were no longer classified as non-brokered, our FDIC insurance expense might increase. We may depend in part upon wholesale and brokered certificates of deposit to satisfy funding needs. We derive a significant percentage of our deposits, total assets and income from deposit accounts generated by diverse independent companies, including those which provide card account marketing services, and investment advisory firms. We face fund transfer and payments-related risks. Unclaimed funds from deposit accounts or represented by unused value on prepaid cards present compliance and other risks.
Although we have added significant compliance staff and have used outside consultants, our internal and external compliance examiners continually evaluate our practices and must be satisfied with the results of our third-party oversight activities. We cannot assure you that we will satisfy all related requirements.
Additionally, our regulators or auditors may require us to increase the level and manner of our oversight of these third parties. Although we have added significant compliance staff and have used outside consultants, our internal and external compliance examiners continually evaluate our practices and must be satisfied with the results of our third-party oversight activities.
We are subject to extensive federal and state banking regulation and supervision, which has increased in the past several years as a result of stresses the financial system has undergone for an extended period of years.
We and the Bank are subject to and may be affected by extensive government regulation. We are subject to extensive federal and state regulation and supervision, which has increased in recent years as a result of stress to the financial system .
While our accounts and other agreements contain disclaimers of liability for these kinds of losses, we cannot predict the outcome of litigation if a customer were to make a claim against us. A failure of cyber security may result in a loss of customers and our being liable for damages for such failure.
While our accounts and other agreements contain disclaimers of liability for these kinds of losses, we cannot predict the outcome of litigation if a customer were to make a claim against us. If we face system interruptions or failures, our business interruption insurance may not be adequate to cover the losses or damages that we incur.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeLocations and certain additional information regarding our offices and other material properties at December 31, 2022 are listed below. We own a property in Orlando, Florida which houses our leasing operations, consisting of a stand-alone building of 8,850 square feet. A summary of significant properties is as follows.
Biggest changeWe own our property in Orlando, Florida, which houses our leasing operations, while the remainder of our properties are leased. Locations and certain additional information regarding our offices and other material properties at December 31, 2023 are listed below .
Leasing offices are located in Crofton, Maryland, Kent, Washington, Logan, Utah, Orlando, Florida, Raritan, New Jersey and Norristown, Pennsylvania. We maintain a loan operations office in New York, New York. Prepaid and debit card offices and other executive offices are located in Sioux Falls, South Dakota .
Leasing offices are located in Crofton, Maryland, Kent, Washington, Smithfield, Utah, Orlando, Florida, Raritan, New Jersey and Norristown, Pennsylvania. We maintain a loan operations office in New York, New York. Prepaid and debit card offices and other executive offices are located in Sioux Falls, South Dakota.
Item 2. Properties . An executive office and an operations facility are located at 409 Silverside Road, Wilmington, Delaware. We maintain business development and administrative offices for SBL in Morrisville, North Carolina, Memphis, Tennessee, and Westmont, Illinois (suburban Chicago), primarily for SBA lending.
ITEM 2. PROPERTIES . Our principal executive offices and an operations facility are located at 409 Silverside Road, Wilmington, Delaware. We maintain business development and administrative offices for SBL in Morrisville, North Carolina, Memphis, Tennessee, and Westmont, Illinois (suburban Chicago), primarily for SBA lending.
Location Expiration Square Feet Monthly Rent Bank Owned Property Orlando, Florida 8,850 Leased Space Crofton, Maryland 2025 3,364 $ 4,545 Kent, Washington 2023 1,700 2,786 Logan, Utah 2023 3,000 1,553 Memphis, Tennessee 2025 1,128 1,857 Morrisville, North Carolina 2024 3,590 5,873 New York, New York (one of three properties is subleased) 2023 - 2025 12,459 37,711 Norristown, Pennsylvania 2025 5,920 10,500 Raritan, New Jersey 2023 2,145 3,933 Sioux Falls, South Dakota 2023 38,611 54,674 Westmont, Illinois 2026 3,003 2,731 Wilmington, Delaware 2025 70,968 155,476 We believe that our offices are suitable and adequate for our operations.
Location Expiration Square Feet Monthly Rent Bank Owned Property Orlando, Florida 8,850 Leased Space Crofton, Maryland 2025 3,364 $ 4,636 Kent, Washington 2024 1,700 2,956 Smithfield, Utah 2028 6,451 4,830 Memphis, Tennessee 2025 1,128 1,903 Morrisville, North Carolina 2024 3,590 6,232 New York, New York (one of three properties is subleased) 2024 – 2025 12,459 37,813 Norristown, Pennsylvania 2028 7,180 10,500 Raritan, New Jersey 2024 2,145 4,021 Sioux Falls, South Dakota 2037 52,864 124,587 Westmont, Illinois 2026 3,003 3,073 Wilmington, Delaware 2025 70,968 160,139 We believe that our properties are suitable and adequate for our operations.
Removed
We have executed a lease to relocate the Sioux Falls office in 2023, which coincides with the time period at which the current lease expires as listed below. The new space will also be located in Sioux Falls, and is currently planned to occupy approximately 52,000 square feet with a minimum term of 10 years.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Item 3. Legal Proceedings. On June 12, 2019, the Bank was served with a qui tam lawsuit filed in the Superior Court of the State of Delaware, New Castle County. The Delaware Department of Justice intervened in the litigation. The case is titled The State of Delaware, Plaintiff, Ex rel. Russell S. Rogers, Plaintiff-Relator, v.
Added
ITEM 3. LEGAL PROCEEDINGS. For a discussion of our material pending legal proceedings, see “Note O—Commitments and Contingencies” to the audited consolidated financial statements in this Annual Report on Form 10-K, which is incorporated herein by reference. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. PART II
Removed
The Bancorp Bank, Interactive Communications International, Inc., and InComm Financial Services, Inc., Defendants. The lawsuit alleges that the defendants violated the Delaware False Claims Act by not paying balances on certain open-loop “Vanilla” prepaid cards to the State of Delaware as unclaimed property. The complaint seeks actual and treble damages, statutory penalties, and attorneys’ fees.
Removed
The Bank has filed an answer denying the allegations and continues to vigorously defend against the claims. The Bank and other defendants previously filed a motion to dismiss the action, but the motion was denied 41 and the case is in preliminary stages of discovery.
Removed
At this time, the Company is unable to determine whether the ultimate resolution of the matter will have a material adverse effect on the Company’s financial condition or operations. As previously disclosed, the Company received and responded to a non-public fact-finding inquiry from the SEC, which sought to determine if violations of the federal securities laws occurred.
Removed
On October 9, 2019, the Company received a subpoena seeking records related generally to the Bank’s debit card issuance activity and gross dollar volume data, among other things. The Company responded to the subpoena and subsequent subpoenas issued to the Company. The SEC last requested information from the Company relating to this inquiry in September 2021.
Removed
The SEC has not made any findings, or alleged any wrongdoing, with respect to this matter. Future costs related to responding to and cooperating with the SEC staff may be material, and could continue to be material at least through the completion of this matter.
Removed
On January 12, 2021, three former employees of the Bank filed separate complaints against the Company in the Supreme Court of the State of New York, New York County. The Company subsequently removed all three lawsuits to the United States District Court for the Southern District of New York. The cases are captioned: John Edward Barker, Plaintiff v.
Removed
The Bancorp, Inc., Defendant; Alexander John Kamai, Plaintiff v. The Bancorp, Inc., Defendant; and John Patrick McGlynn III, Plaintiff v. The Bancorp, Inc., Defendant. The lawsuits arise from the Bank’s termination of the plaintiffs’ employment in connection with the restructuring of its CMBS business. The plaintiffs sought damages in the following amounts: $4,135,142 (Barker), $901,088 (Kamai) and $2,909,627 (McGlynn).
Removed
On June 11, 2021, the Company filed a consolidated motion to dismiss in each case. On February 25, 2022, the court granted the Company’s motion in part, dismissing McGlynn’s claims in entirety and most of Barker and Kamai’s claims.
Removed
The sole claims remaining are Barker and Kamai’s breach of implied contract claims related to an unpaid bonus, for which they seek $2,000,000 and $300,000, respectively. The Company is vigorously defending against these claims. On September 29, 2022, the Company filed a motion for summary judgment in both matters, which is still pending before the court.
Removed
The Company is not yet able to determine whether the ultimate resolution of this matter will have a material adverse effect on the Company’s financial conditions or operations.
Removed
On September 14, 2021, Cachet Financial Services (“Cachet”) filed an adversary proceeding against the Bank in the United States Bankruptcy Court for the Central District of California, titled Cachet Financial Services, Plaintiff v. The Bancorp Bank, et al., Defendants. The case was filed within the context of Cachet’s pending Chapter 11 bankruptcy case.
Removed
The Bank previously served as the Originating Depository Financial Institution (“ODFI”) for ACH transactions in connection with Cachet’s payroll services business. The matter arises from the Bank’s termination of its Payroll Processing ODFI Agreement with Cachet on October 23, 2019, for safety and soundness reasons.
Removed
The initial complaint alleges eight causes of action: (i) breach of contract; (ii) negligence; (iii) intentional interference with contract; (iv) conversion; (v) express indemnity; (vi) implied indemnity; (vii) accounting; and (viii) objection to the Bank’s proof of claim in the bankruptcy case.
Removed
On November 4, 2021, the Bank filed a motion in the United States District Court for the Central District of California to withdraw the reference of the adversary proceeding to the bankruptcy court, which was denied in February 2023.
Removed
On August 3, 2022, Cachet served the Bank with a First Amended Complaint wherein Cachet, among other things, withdraws its implied indemnity claim against the Bank and adds several defendants unaffiliated with the Bank and causes of action related to those parties.
Removed
As to the Bank, Cachet seeks approximately $150 million in damages, an accounting and disallowance of the Bank’s proof of claim. The Bank is vigorously defending against these claims. On September 28, 2022, the Bank filed a partial motion to dismiss, seeking to dispose of the majority of Cachet’s claims against the Bank.
Removed
The motion is still pending before the court. The Company is not yet able to determine whether the ultimate resolution of this matter will have a material adverse effect on the Company’s financial conditions or operations. In addition, we are a party to various routine legal proceedings arising out of the ordinary course of our business.
Removed
Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on our financial condition or operations. Item 4. Mine Safety Disclosures. Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table sets forth information regarding the Company’s purchases of its common stock during the quarter ended December 31, 2022: Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs (dollars in thousands except per share data) October 1, 2022 - October 31, 2022 251,275 $ 24.10 251,275 $ 8,944 November 1, 2022 - November 30, 2022 202,733 29.95 202,733 2,873 December 1, 2022 - December 31, 2022 98,995 29.02 98,995 — Total 553,003 27.12 553,003 — 43 Performance graph The following graph compares the performance of our common stock to the NASDAQ Composite Index and the NASDAQ Bank Stock Index.
Biggest changeThe following table sets forth information regarding the Company’s purchases of its common stock during the quarter ended December 31, 2023: Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plans or programs (1) Approximate dollar value of shares that may yet be purchased under the plans or programs (2) (Dollars in thousands, except per share data) October 1, 2023 - October 31, 2023 227,291 $ 33.90 227,291 $ 17,294 November 1, 2023 - November 30, 2023 172,416 38.65 172,416 10,630 December 1, 2023 - December 31, 2023 264,792 40.14 264,792 — Total 664,499 37.62 664,499 — 42 (1) During the fourth quarter of 2023, all shares of common stock were repurchased pursuant to the 2023 Repurchase Program, which was approved by the Board on October 26, 2022 and publicly announced on October 27, 2022.
Our board of directors (the “Board”) will determine any changes in our dividend policy based upon its analysis of factors it deems relevant. We expect that these factors would include our earnings, financial condition, cash requirements, regulatory capital levels and available investment opportunities.
Our Board will determine any changes in our dividend policy based upon its analysis of factors it deems relevant. We expect that these factors would include our earnings, financial condition, cash requirements, regulatory capital levels and available investment opportunities. Additionally our Board will consider the merits of stock repurchases versus dividends.
Our payment of dividends is subject to restrictions discussed in Item 1, “Business—Regulation under Banking Law.” Irrespective of such restrictions, it is our intent to generally retain earnings, if any, to increase our capital and fund the development and growth of our operations subject to regulatory restrictions.
See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity.” Our payment of dividends is subject to restrictions discussed in Item 1, “Business—Regulation under Banking Law.” Irrespective of such restrictions, it is our intent to generally retain earnings, if any, to increase our capital and fund the development and growth of our operations, and fund stock repurchases.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. 42 Our common stock trades on the NASDAQ Global Select Market under the symbol “TBBK.” As of February 21, 2023, there were 55,585,866 shares of our common stock outstanding held by 40 record holders.
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . Market Information and Holders Our common stock trades on the NASDAQ Global Select Market under the symbol “TBBK.” As of February 26, 2024, there were 52,748,985 shares of our common stock outstanding held by 26 record holders.
Under the 2023 Common Stock Repurchase Program, the Company intends to repurchase shares through open market purchases, privately-negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”).
Under the 2024 Repurchase Program, the Company intends to repurchase shares through open market purchases, privately-negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Exchange Act. The 2024 Repurchase Program may be modified or terminated at any time.
Historical stock price performance is not necessarily indicative of future stock price performance.
The graph assumes the reinvestment of all dividends. Historical stock price performance is not necessarily indicative of future stock price performance.
On October 26, 2022, the Board approved a revised stock repurchase program for the upcoming 2023 fiscal year (the “2023 Common Stock Repurchase Program”). The amount that the Company intends to repurchase has been increased to $25.0 million in value of the Company’s common stock in each quarter of 2023, for a maximum amount of $100.0 million.
On October 26, 2023, the Board approved a common stock repurchase program for the 2024 fiscal year (the “2024 Repurchase Program”), which authorizes the Company to repurchase $50.0 million in value of the Company’s common stock per fiscal quarter in 2024, for a maximum amount of $200.0 million.
The graph shows the value of $100 invested in our common stock and both indices on December 31, 2017 for a five-year period and the change in the value of our common stock compared to the indices as of the end of each year. The graph assumes the reinvestment of all dividends.
Performance Graph The following graph compares the cumulative total shareholder return of our common stock to that of the Nasdaq Composite Stock Index and the Nasdaq Bank Stock Index by showing the value of $100 invested in our common stock and both indices on December 31, 2018 for a five-year period and the change in the value of our common stock compared to the indices as of the end of each year.
The Board also authorized the Company to enter into written trading plans under Rule 10b5-1 of the Exchange Act. T he Company repurchased 522,205 common shares in January 2023 through February 21, 2023, at a total cost of $16.6 million and an average price of $31.87 per share pursuant to the 2023 Common Stock Repurchase Plan.
T he Company repurchased 766,264 common shares in January 2024 through February 26, 2024, at a total cost of $31.6 million and an average price of $41.30 per share pursuant to the 2024 Common Stock Repurchase Plan.
The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers, financial institutions and other nominees.
The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners with shares held in street name by brokers, financial institutions and other nominees. As of January 8, 2024, the most recent date for which we have beneficial ownership information, there were at least 22,854 beneficial owners of our common stock.
As of January 5, 2023, the most recent date for which we have beneficial ownership information, there were at least 16,750 beneficial owners of our common stock. We have not paid cash dividends on our common stock since our inception, and do not currently plan to pay cash dividends on our common stock in 2023.
Dividends We have not paid cash dividends on our common stock since our inception, and do not currently plan to pay cash dividends on our common stock in 2024. However, in the fourth quarter of 2022, the Bank began paying dividends to us to pay interest on certain obligations and to fund ongoing common stock repurchases.
Removed
Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 The Bancorp, Inc. 100.00 80.57 131.28 138.16 256.17 287.25 NASDAQ Bank Stock Index 100.00 82.10 99.53 88.95 124.25 101.44 NASDAQ Composite Stock Index 100.00 96.12 129.97 186.69 226.63 151.61 ‎ 44 The following graph reflects stock performance since 2017, compared to the KBW bank index, which is an industry recognized peer group of regional and money center banks.
Added
Stock repurchases are discretionary and may be terminated at any 41 time. To the extent that planned repurchases of $50.0 million per quarter in 2024 continue, they will likely continue to be funded by dividends from the Bank to us.
Removed
As of Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 The Bancorp, Inc. 100.00 80.57 131.28 138.16 256.17 287.25 KBW Bank Index 100.00 77.38 102.25 88.31 119.26 90.96
Added
On October 26, 2022, the Board approved a revised stock repurchase program (the “2023 Common Stock Repurchase Program”).
Added
Under the 2023 Common Stock Repurchase Program, the Company was authorized to repurchase up to $25.0 million in each quarter of 2023 depending on the share price, securities laws and stock exchange rules which regulate such repurchases, and repurchased shares may have been reissued for various corporate purposes.
Added
The purchases authorized as described above, were made in each quarter of each respective year as noted above.
Added
Under the 2023 Repurchase Program, the Company is authorized to repurchase shares of its common stock totaling up to $25.0 million per quarter, for a maximum amount of $100.0 million in 2023.
Added
The Company may repurchase shares through open market purchases, including through written trading plans under Rule 10b5-1 under the Exchange Act, privately-negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 under the Exchange Act.
Added
(2) The 2023 Repurchase Program may be suspended, amended or discontinued at any time and had an expiration date of December 31, 2023.
Added
With respect to further repurchases, the Company cannot predict if, or when, it will repurchase any shares of common stock, and the timing and amount of any shares repurchased will be determined by management based on its evaluation of market conditions and other factors.
Added
Period Ending Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 The Bancorp, Inc. 100.00 162.94 171.48 317.96 356.53 484.42 Nasdaq Bank Stock Index 100.00 121.23 108.34 151.34 123.56 115.31 Nasdaq Composite Stock Index 100.00 135.23 194.24 235.78 157.74 226.24 ‎ 43 The following graph similarly compares the cumulative total shareholder return of our common stock to that of the KBW Bank Index, which is an industry recognized peer group of regional and money center banks, by showing the value of $100 invested in our common stock and the index on December 31, 2018 for a five-year period and the change in the value of our common stock compared to the indices as of the end of each year.
Added
The graph assumes the reinvestment of all dividends. Period Ending Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 The Bancorp, Inc. 100.00 162.94 171.48 317.96 356.53 484.42 KBW Bank Index 100.00 132.14 114.13 154.12 117.55 111.92

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeThe following tables summarize our credit loss experience for each of the periods indicated (in thousands): December 31, 2022 SBL non-real estate SBL commercial mortgage SBL construction Direct lease financing SBLOC / IBLOC Advisor financing Real estate bridge lending Other loans Unallocated** Total Beginning balance 1/1/2022 $ 5,415 $ 2,952 $ 432 $ 5,817 $ 964 $ 868 $ 1,181 $ 177 $ — $ 17,806 Charge-offs (885) — — (576) — — — — — (1,461) Recoveries 140 — — 124 — — — 24 — 288 Provision (credit)* 358 (367) 133 2,607 203 425 1,940 442 — 5,741 Ending balance $ 5,028 $ 2,585 $ 565 $ 7,972 $ 1,167 $ 1,293 $ 3,121 $ 643 $ — $ 22,374 Ending balance: Individually evaluated for expected credit loss $ 525 $ 441 $ 153 $ 933 $ — $ — $ — $ 15 $ — $ 2,067 Ending balance: Collectively evaluated for expected credit loss $ 4,503 $ 2,144 $ 412 $ 7,039 $ 1,167 $ 1,293 $ 3,121 $ 628 $ — $ 20,307 Loans: Ending balance** $ 108,954 $ 474,496 $ 30,864 $ 632,160 $ 2,332,469 $ 172,468 $ 1,669,031 $ 61,679 $ 4,732 $ 5,486,853 Ending balance: Individually evaluated for expected credit loss $ 1,374 $ 1,423 $ 3,386 $ 3,550 $ — $ — $ — $ 4,539 $ — $ 14,272 Ending balance: Collectively evaluated for expected credit loss $ 107,580 $ 473,073 $ 27,478 $ 628,610 $ 2,332,469 $ 172,468 $ 1,669,031 $ 57,140 $ 4,732 $ 5,472,581 72 December 31, 2021 SBL non-real estate SBL commercial mortgage SBL construction Direct lease financing SBLOC / IBLOC Advisor financing Real estate bridge lending Other loans Unallocated** Total Beginning balance 1/1/2021 $ 5,060 $ 3,315 $ 328 $ 6,043 $ 775 $ 362 $ — $ 199 $ — $ 16,082 Charge-offs (1,138) (417) — (412) (15) — — (24) — (2,006) Recoveries 51 9 — 58 — — — 1,099 — 1,217 Provision (credit)* 1,442 45 104 128 204 506 1,181 (1,097) — 2,513 Ending balance $ 5,415 $ 2,952 $ 432 $ 5,817 $ 964 $ 868 $ 1,181 $ 177 $ — $ 17,806 Ending balance: Individually evaluated for expected credit loss $ 829 $ 115 $ 34 $ — $ — $ — $ — $ — $ — $ 978 Ending balance: Collectively evaluated for expected credit loss $ 4,586 $ 2,837 $ 398 $ 5,817 $ 964 $ 868 $ 1,181 $ 177 $ — $ 16,828 Loans: Ending balance** $ 147,722 $ 361,171 $ 27,199 $ 531,012 $ 1,929,581 $ 115,770 $ 621,702 $ 5,014 $ 8,053 $ 3,747,224 Ending balance: Individually evaluated for expected credit loss $ 1,887 $ 812 $ 710 $ 254 $ — $ — $ — $ 320 $ — $ 3,983 Ending balance: Collectively evaluated for expected credit loss $ 145,835 $ 360,359 $ 26,489 $ 530,758 $ 1,929,581 $ 115,770 $ 621,702 $ 4,694 $ 8,053 $ 3,743,241 December 31, 2020 SBL non-real estate SBL commercial mortgage SBL construction Direct lease financing SBLOC / IBLOC Advisor financing Real estate bridge lending Other loans Unallocated** Total Beginning balance 12/31/2019 $ 4,985 $ 1,472 $ 432 $ 2,426 $ 553 $ — $ — $ 52 $ 318 $ 10,238 1/1 CECL adjustment (220) 537 139 2,362 (41) — — 178 (318) 2,637 Charge-offs (1,350) — — (2,243) — — — — — (3,593) Recoveries 103 — — 570 — — — — — 673 Provision (credit)* 1,542 1,306 (243) 2,928 263 362 — (31) — 6,127 Ending balance $ 5,060 $ 3,315 $ 328 $ 6,043 $ 775 $ 362 $ — $ 199 $ — $ 16,082 Ending balance: Individually evaluated for expected credit loss $ 2,129 $ 1,010 $ 34 $ 4 $ — $ — $ — $ — $ — $ 3,177 Ending balance: Collectively evaluated for expected credit loss $ 2,931 $ 2,305 $ 294 $ 6,039 $ 775 $ 362 $ — $ 199 $ — $ 12,905 Loans: Ending balance** $ 255,318 $ 300,817 $ 20,273 $ 462,182 $ 1,550,086 $ 48,282 $ — $ 6,426 $ 8,939 $ 2,652,323 Ending balance: Individually evaluated for expected credit loss $ 3,431 $ 7,305 $ 711 $ 751 $ — $ — $ — $ 557 $ — $ 12,755 Ending balance: Collectively evaluated for expected credit loss $ 251,887 $ 293,512 $ 19,562 $ 461,431 $ 1,550,086 $ 48,282 $ — $ 5,869 $ 8,939 $ 2,639,568 December 31, 2019 SBL non-real estate SBL commercial mortgage SBL construction Direct lease financing SBLOC / IBLOC Advisor financing Real estate bridge lending Other loans Unallocated** Total 73 Beginning balance 1/1/2019 $ 4,636 $ 941 $ 250 $ 2,025 $ 393 $ — $ — $ 168 $ 240 $ 8,653 Charge-offs (1,362) — — (528) — — — (1,103) — (2,993) Recoveries 125 — — 51 — — — 2 — 178 Provision (credit) 1,586 531 182 878 160 — — 985 78 4,400 Ending balance $ 4,985 $ 1,472 $ 432 $ 2,426 $ 553 $ — $ — $ 52 $ 318 $ 10,238 Ending balance: Individually evaluated for impairment $ 2,961 $ 136 $ 36 $ — $ — $ — $ — $ 9 $ — $ 3,142 Ending balance: Collectively evaluated for impairment $ 2,024 $ 1,336 $ 396 $ 2,426 $ 553 $ — $ — $ 43 $ 318 $ 7,096 Loans: Ending balance** $ 84,579 $ 218,110 $ 45,310 $ 434,460 $ 1,024,420 $ — $ — $ 7,609 $ 9,757 $ 1,824,245 Ending balance: Individually evaluated for impairment $ 4,139 $ 1,047 $ 711 $ 286 $ — $ — $ — $ 610 $ — $ 6,793 Ending balance: Collectively evaluated for impairment $ 80,440 $ 217,063 $ 44,599 $ 434,174 $ 1,024,420 $ — $ — $ 6,999 $ 9,757 $ 1,817,452 December 31, 2018 SBL non-real estate SBL commercial mortgage SBL construction Direct lease financing SBLOC / IBLOC Advisor financing Real estate bridge lending Other loans Unallocated** Total Beginning balance 1/1/2018 $ 3,145 $ 1,120 $ 136 $ 1,495 $ 365 $ — $ — $ 638 $ 197 $ 7,096 Charge-offs (1,348) (157) — (637) — — — (21) — (2,163) Recoveries 57 13 — 64 — — — 1 — 135 Provision (credit) 2,782 (35) 114 1,103 28 — — (450) 43 3,585 Ending balance $ 4,636 $ 941 $ 250 $ 2,025 $ 393 $ — $ — $ 168 $ 240 $ 8,653 Ending balance: Individually evaluated for impairment $ 2,806 $ 71 $ — $ 145 $ — $ — $ — $ 17 $ — $ 3,039 Ending balance: Collectively evaluated for impairment $ 1,830 $ 870 $ 250 $ 1,880 $ 393 $ — $ — $ 151 $ 240 $ 5,614 Loans: Ending balance** $ 76,340 $ 165,406 $ 21,636 $ 394,770 $ 785,303 $ — $ — $ 48,138 $ 10,383 $ 1,501,976 Ending balance: Individually evaluated for impairment $ 3,716 $ 458 $ — $ 871 $ — $ — $ — $ 1,741 $ — $ 6,786 Ending balance: Collectively evaluated for impairment $ 72,624 $ 164,948 $ 21,636 $ 393,899 $ 785,303 $ — $ — $ 46,397 $ 10,383 $ 1,495,190 *The amount shown as the provision for the period, reflects the provision on credit losses for loans, while the income statement provision for credit losses includes the provision for unfunded commitments of $1.4 million, $597,000 and $225,000 for each of the years ended December 31, 2022, 2021 and 2020, respectively. ** The ending balance for loans in the unallocated column represents deferred costs and fees. 74 The following table summarizes select asset quality ratios for each of the periods indicated: As of or for the years ended December 31, 2022 2021 Ratio of: Allowance for credit losses to total loans 0.41% 0.48% Allowance for credit losses to non-performing loans* 123.40% 491.61% Non-performing loans to total loans* 0.33% 0.10% Non-performing assets to total assets* 0.50% 0.33% Net charge-offs to average loans 0.03% 0.03% * Includes loans 90 days past due still accruing interest.
Biggest changeThe following table presents an allocation of the ACL among the types of loans or leases in our portfolio at December 31, 2023, 2022, 2021, 2020 and 2019 (in thousands): December 31, 2023 December 31, 2022 December 31, 2021 % Loan % Loan % Loan type to type to type to Allowance total loans Allowance total loans Allowance total loans SBL non-real estate $ 6,059 2.57% $ 5,028 1.99% $ 5,415 3.95% SBL commercial mortgage 2,820 11.34% 2,585 8.66% 2,952 9.66% SBL construction 285 0.42% 565 0.56% 432 0.73% Direct lease financing 10,454 12.81% 7,972 11.53% 5,817 14.20% SBLOC / IBLOC 813 30.40% 1,167 42.55% 964 51.60% Advisor financing 1,662 4.14% 1,293 3.15% 868 3.10% Real estate bridge lending 4,740 37.36% 3,121 30.44% 1,181 16.63% Other loans 545 0.96% 643 1.12% 177 0.13% $ 27,378 100.00% $ 22,374 100.00% $ 17,806 100.00% December 31, 2020 December 31, 2019 . % Loan % Loan type to type to Allowance total loans Allowance total loans SBL non-real estate $ 5,060 9.66% $ 4,985 4.66% SBL commercial mortgage 3,315 11.38% 1,472 12.02% SBL construction 328 0.77% 432 2.50% Direct lease financing 6,043 17.48% 2,426 23.94% SBLOC / IBLOC 775 58.64% 553 56.46% Advisor financing 362 1.83% — — Other loans 199 0.24% 52 0.42% Unallocated — — 318 — $ 16,082 100.00% $ 10,238 100.00% 68 Summary of Loan and Lease Loss Experience The following tables summarize our credit loss experience for each of the periods indicated (in thousands): December 31, 2023 SBL non-real estate SBL commercial mortgage SBL construction Direct lease financing SBLOC / IBLOC Advisor financing Real estate bridge lending Other loans Deferred fees and costs Total Beginning balance 1/1/2023 $ 5,028 $ 2,585 $ 565 $ 7,972 $ 1,167 $ 1,293 $ 3,121 $ 643 $ — $ 22,374 Charge-offs (871) (76) — (3,666) (24) — — (3) — (4,640) Recoveries 475 75 — 330 — — — 299 — 1,179 Provision (credit) (1) 1,427 236 (280) 5,818 (330) 369 1,619 (394) — 8,465 Ending balance $ 6,059 $ 2,820 $ 285 $ 10,454 $ 813 $ 1,662 $ 4,740 $ 545 $ — $ 27,378 Ending balance: Individually evaluated for expected credit loss $ 670 $ 343 $ 44 $ 1,827 $ — $ — $ — $ 4 $ — $ 2,888 Ending balance: Collectively evaluated for expected credit loss $ 5,389 $ 2,477 $ 241 $ 8,627 $ 813 $ 1,662 $ 4,740 $ 541 $ — $ 24,490 Loans: Ending balance $ 137,752 $ 606,986 $ 22,627 $ 685,657 $ 1,627,285 $ 221,612 $ 1,999,782 $ 50,638 $ 8,800 $ 5,361,139 Ending balance: Individually evaluated for expected credit loss $ 1,919 $ 2,381 $ 3,385 $ 3,785 $ — $ — $ — $ 362 $ — $ 11,832 Ending balance: Collectively evaluated for expected credit loss $ 135,833 $ 604,605 $ 19,242 $ 681,872 $ 1,627,285 $ 221,612 $ 1,999,782 $ 50,276 $ 8,800 $ 5,349,307 December 31, 2022 SBL non-real estate SBL commercial mortgage SBL construction Direct lease financing SBLOC / IBLOC Advisor financing Real estate bridge lending Other loans Deferred fees and costs Total Beginning balance 1/1/2022 $ 5,415 $ 2,952 $ 432 $ 5,817 $ 964 $ 868 $ 1,181 $ 177 $ — $ 17,806 Charge-offs (885) — — (576) — — — — — (1,461) Recoveries 140 — — 124 — — — 24 — 288 Provision (credit) (1) 358 (367) 133 2,607 203 425 1,940 442 — 5,741 Ending balance $ 5,028 $ 2,585 $ 565 $ 7,972 $ 1,167 $ 1,293 $ 3,121 $ 643 $ — $ 22,374 Ending balance: Individually evaluated for expected credit loss $ 525 $ 441 $ 153 $ 933 $ — $ — $ — $ 15 $ — $ 2,067 Ending balance: Collectively evaluated for expected credit loss $ 4,503 $ 2,144 $ 412 $ 7,039 $ 1,167 $ 1,293 $ 3,121 $ 628 $ — $ 20,307 Loans: Ending balance $ 108,954 $ 474,496 $ 30,864 $ 632,160 $ 2,332,469 $ 172,468 $ 1,669,031 $ 61,679 $ 4,732 $ 5,486,853 Ending balance: Individually evaluated for expected credit loss $ 1,374 $ 1,423 $ 3,386 $ 3,550 $ — $ — $ — $ 4,539 $ — $ 14,272 Ending balance: Collectively evaluated for expected credit loss $ 107,580 $ 473,073 $ 27,478 $ 628,610 $ 2,332,469 $ 172,468 $ 1,669,031 $ 57,140 $ 4,732 $ 5,472,581 69 December 31, 2021 SBL non-real estate SBL commercial mortgage SBL construction Direct lease financing SBLOC / IBLOC Advisor financing Real estate bridge lending Other loans Deferred fees and costs Total Beginning balance 1/1/2021 $ 5,060 $ 3,315 $ 328 $ 6,043 $ 775 $ 362 $ — $ 199 $ — $ 16,082 Charge-offs (1,138) (417) — (412) (15) — — (24) — (2,006) Recoveries 51 9 — 58 — — — 1,099 — 1,217 Provision (credit) (1) 1,442 45 104 128 204 506 1,181 (1,097) — 2,513 Ending balance $ 5,415 $ 2,952 $ 432 $ 5,817 $ 964 $ 868 $ 1,181 $ 177 $ — $ 17,806 Ending balance: Individually evaluated for expected credit loss $ 829 $ 115 $ 34 $ — $ — $ — $ — $ — $ — $ 978 Ending balance: Collectively evaluated for expected credit loss $ 4,586 $ 2,837 $ 398 $ 5,817 $ 964 $ 868 $ 1,181 $ 177 $ — $ 16,828 Loans: Ending balance $ 147,722 $ 361,171 $ 27,199 $ 531,012 $ 1,929,581 $ 115,770 $ 621,702 $ 5,014 $ 8,053 $ 3,747,224 Ending balance: Individually evaluated for expected credit loss $ 1,887 $ 812 $ 710 $ 254 $ — $ — $ — $ 320 $ — $ 3,983 Ending balance: Collectively evaluated for expected credit loss $ 145,835 $ 360,359 $ 26,489 $ 530,758 $ 1,929,581 $ 115,770 $ 621,702 $ 4,694 $ 8,053 $ 3,743,241 December 31, 2020 SBL non-real estate SBL commercial mortgage SBL construction Direct lease financing SBLOC / IBLOC Advisor financing Real estate bridge lending Other loans Deferred fees and costs Total Beginning balance 12/31/2019 $ 4,985 $ 1,472 $ 432 $ 2,426 $ 553 $ — $ — $ 52 $ 318 $ 10,238 1/1 CECL adjustment (220) 537 139 2,362 (41) — — 178 (318) 2,637 Charge-offs (1,350) — — (2,243) — — — — — (3,593) Recoveries 103 — — 570 — — — — — 673 Provision (credit) (1) 1,542 1,306 (243) 2,928 263 362 — (31) — 6,127 Ending balance $ 5,060 $ 3,315 $ 328 $ 6,043 $ 775 $ 362 $ — $ 199 $ — $ 16,082 Ending balance: Individually evaluated for impairment $ 2,129 $ 1,010 $ 34 $ 4 $ — $ — $ — $ — $ — $ 3,177 Ending balance: Collectively evaluated for impairment $ 2,931 $ 2,305 $ 294 $ 6,039 $ 775 $ 362 $ — $ 199 $ — $ 12,905 Loans: Ending balance $ 255,318 $ 300,817 $ 20,273 $ 462,182 $ 1,550,086 $ 48,282 $ — $ 6,426 $ 8,939 $ 2,652,323 Ending balance: Individually evaluated for impairment $ 3,431 $ 7,305 $ 711 $ 751 $ — $ — $ — $ 557 $ — $ 12,755 Ending balance: Collectively evaluated for impairment $ 251,887 $ 293,512 $ 19,562 $ 461,431 $ 1,550,086 $ 48,282 $ — $ 5,869 $ 8,939 $ 2,639,568 December 31, 2019 SBL non-real estate SBL commercial mortgage SBL construction Direct lease financing SBLOC / IBLOC Advisor financing Real estate bridge lending Other loans Deferred fees and costs Total 70 Beginning balance 1/1/2019 $ 4,636 $ 941 $ 250 $ 2,025 $ 393 $ — $ — $ 168 $ 240 $ 8,653 Charge-offs (1,362) — — (528) — — — (1,103) — (2,993) Recoveries 125 — — 51 — — — 2 — 178 Provision (credit) 1,586 531 182 878 160 — — 985 78 4,400 Ending balance $ 4,985 $ 1,472 $ 432 $ 2,426 $ 553 $ — $ — $ 52 $ 318 $ 10,238 Ending balance: Individually evaluated for impairment $ 2,961 $ 136 $ 36 $ — $ — $ — $ — $ 9 $ — $ 3,142 Ending balance: Collectively evaluated for impairment $ 2,024 $ 1,336 $ 396 $ 2,426 $ 553 $ — $ — $ 43 $ 318 $ 7,096 Loans: Ending balance $ 84,579 $ 218,110 $ 45,310 $ 434,460 $ 1,024,420 $ — $ — $ 7,609 $ 9,757 $ 1,824,245 Ending balance: Individually evaluated for impairment $ 4,139 $ 1,047 $ 711 $ 286 $ — $ — $ — $ 610 $ — $ 6,793 Ending balance: Collectively evaluated for impairment $ 80,440 $ 217,063 $ 44,599 $ 434,174 $ 1,024,420 $ — $ — $ 6,999 $ 9,757 $ 1,817,452 (1) The amount shown as the provision for credit losses for the period reflects the provision on credit losses for loans, while the consolidated statements of operations provision for credit losses includes the provision for unfunded commitments of $135,000 (credit), $1.4 million, $597,000, and $225,000 for the years ended December 31, 2023, 2022, 2021, and 2020, respectively.
While it is difficult to predict the impact of inflation and responsive Federal Reserve rate changes on our net interest income, the Federal Reserve has historically utilized interest rate increases in the overnight federal funds rate as one tool in fighting inflation.
While it is difficult to predict the impact of inflation and responsive Federal Reserve rate changes on our net interest income, the Federal Reserve has historically utilized interest rate increases in the overnight federal funds rate as one tool in fighting inflation.
Uninsured accounts may represent a greater liquidity risk than FDIC-insured accounts, should large depositors withdraw funds as a result of negative financial developments either at the Bank or in the economy. Significant amounts of our uninsured deposits are 58 comprised of small balances, such as anonymous gift cards and corporate incentive cards for which there is no identified depositor.
Uninsured accounts may represent a greater liquidity risk than FDIC-insured accounts, should large depositors withdraw funds as a result of negative financial developments either at the Bank or in the economy. Significant amounts of our uninsured deposits are comprised of small balances, such as anonymous gift cards and corporate incentive cards for which there is no identified depositor.
We expect to continue to maintain our facilities with the FHLB and Federal Reserve, which, with the $350 million of U.S. government agency securities, represent our most readily accessible liquidity sources. We actively monitor our positions and contingent funding sources daily.
We expect to continue to maintain our facilities with the FHLB and Federal Reserve, which, with the approximate $350 million of U.S. government agency securities, represent our most readily accessible liquidity sources. We actively monitor our positions and contingent funding sources daily.
The table does not necessarily indicate the impact of general interest rate movements on our net interest income because the repricing and related behavior of certain categories of assets and liabilities is beyond our control as, for example, prepayments of loans and withdrawal of deposits.
The table does not necessarily indicate the impact of general interest rate movements on our net interest income because the repricing and related behavior of certain categories of assets and liabilities (for example, prepayments of loans and withdrawal of deposits) is beyond our control.
Additionally, we have issued subordinated debentures which are grandfathered to also constitute Tier 1 capital, but only at the Bank level. Those instruments are described below. We believe we are in compliance with any covenants applicable to our debt. Senior debt .
Additionally, we have issued subordinated debentures which are grandfathered to also constitute Tier 1 capital, but only at the Bank level. Those instruments are described below. We believe we are in compliance with any covenants applicable to our debt.
In the fourth quarter of 2022, the Bank began paying dividends to the holding company to pay interest on these obligations and to fund ongoing common stock repurchases. Such repurchases are discretionary and may be terminated at any time.
In the fourth quarter of 2022, the Bank began paying dividends to the holding company to pay interest on these obligations and to fund ongoing common stock repurchases. Stock repurchases are discretionary and may be terminated at any time.
As disposition efforts had concluded, discontinued loans of $61.6 million were reclassified to loans held for investment in the first quarter of 2022. Accordingly, these loans will be accounted for as such, and included in related tables.
As disposition efforts had concluded, discontinued loans of $61.6 million were reclassified to loans held for investment in the first quarter of 2022. Accordingly, these loans will be accounted for as such, and are included in related tables.
While demand deposits are non-interest-bearing, related fees paid to affinity groups may reprice according to specified indices. The methods used to analyze interest rate sensitivity in this table has a number of limitations. Certain assets and liabilities may react differently to changes in interest rates even though they reprice or mature in the same or similar time periods.
While demand deposits are non-interest-bearing, related fees paid to affinity groups may reprice according to specified indices. The methods used to analyze interest rate sensitivity in this table have a number of limitations. Certain assets and liabilities may react differently to changes in interest rates even though they reprice or mature in the same or similar time periods.
These originations reflect lending criteria similar to the existing loan portfolio and are primarily comprised of multi-family (apartment buildings) collateral. The new originations, which are intended to be held for investment, are accounted for at amortized cost. See the table below prefaced by the introduction: “Commercial real estate loans, primarily bridge loans, excluding SBA loans…”. Loan Portfolio.
These originations reflect lending criteria similar to the prior loan portfolio and are primarily comprised of multi-family (apartment buildings) collateral. The new originations, which are intended to be held for investment, are accounted for at amortized cost. See the table below prefaced by the introduction: “Commercial real estate loans, primarily real estate bridge loans, excluding SBA loans…”.
We generally lend up to 95% of such cash value. Our underwriting standards require approval of the insurance companies which carry the policies backing these loans. Currently, nine insurance companies have been approved and, as of December 1, 2022, all were rated A- or better by AM BEST.
We generally lend up to 95% of such cash value. Our underwriting standards require approval of the insurance companies which carry the policies backing these loans. Currently, nine insurance companies have been approved and, as of December 1, 2023, all were rated A- or better by AM Best.
During a period of rising interest rates, a positive gap would tend to result in an increase in net interest income while a negative gap would tend to affect net interest income adversely. The following table sets forth the estimated maturity or repricing structure of our interest-earning assets and interest-bearing liabilities at December 31, 2022.
During a period of rising interest rates, a positive gap would tend to result in an increase in net interest income while a negative gap would tend to affect net interest income adversely. The following table sets forth the estimated maturity or repricing structure of our interest-earning assets and interest-bearing liabilities at December 31, 2023.
On August 13, 2020, we issued $100.0 million of senior debt with a maturity date of August 15, 2025, and a 4.75% interest rate, with interest paid semi-annually on March 15 and September 15. The majority of these funds were utilized to repurchase common stock in 2021 and 2022.
Senior Debt On August 13, 2020, we issued $100.0 million of the 2025 Senior Notes, with a maturity date of August 15, 2025 and a 4.75% interest rate, with interest paid semi-annually on March 15 and September 15. The majority of these funds were utilized to 77 repurchase common stock in 2021 and 2022.
The following tables summarize our non-performing loans, OREO and our loans past due 90 days or more still accruing interest .
The following tables summarize our non-performing loans, including loans past due 90 days or more still accruing interest and OREO .
Gap analysis requires estimates as to when individual categories of interest sensitive assets and liabilities will reprice, and assumes that assets and liabilities assigned to the same repricing period will reprice at 60 the same time and in the same amount.
Gap analysis requires estimates as to when individual categories of interest sensitive assets and liabilities will reprice, and assumes that assets and liabilities assigned to the same repricing period will reprice at 56 the same time and in the same amount.
Daily deposit balances are subject to variability, and deposits averaged $6.62 billion in the fourth quarter of 2022. Savings and money market balances were reduced in December 2022, as we swept deposits off our balance sheet to other institutions.
Daily deposit balances are subject to variability, and deposits averaged $6.25 billion in the fourth quarter of 2023. Savings and money market balances were reduced in December 2022, as we swept deposits off our balance sheet to other institutions.
At December 31, 2022, we had outstanding commitments to fund loans, including unused lines of credit, of $1.98 billion, the vast majority of which are SBLOC lines of credit which are variable rate. We attempt to increase such line usage; however, usage percentages have been historically consistent and the majority of these lines of credit have historically not been drawn.
At December 31, 2023, we had outstanding commitments to fund loans, including unused lines of credit, of $1.79 billion, the vast majority of which are SBLOC lines of credit which are variable rate. We attempt to increase such line usage; however, usage percentages have been historically consistent and the majority of these lines of credit have historically not been drawn.
Our total assets at December 31, 2022 were $7.90 billion, of which our total loans and commercial loans, at fair value from continuing operations were $6.08 billion and investment securities available-for-sale were $766.0 million.
At December 31, 2022, our total assets were $7.90 billion, of which our total loans and commercial loans, at fair value were $6.08 billion and investment securities available-for-sale were $766.0 million.
We have developed a detailed credit policy for our lending activities and utilize loan committees to oversee the lending function. SBLOC, IBLOC and other consumer loans, investment advisor financing, small business loans (“SBL”), leases and real estate bridge lending each have their own loan committee. The Chief Executive Officer and Chief Credit Officer serve on all loan committees.
Loan Portfolio We have developed a detailed credit policy for our lending activities and utilize loan committees to oversee the lending function. SBLOC, IBLOC and other consumer loans, investment advisor financing, SBLs, leases and real estate bridge lending each have their own loan committee. The Chief Executive Officer and Chief Credit Officer serve on all loan committees.
We describe how we calculate and use a number of these performance indicators and analyze their results below. Return on assets and return on equity. Two performance indicators we believe are commonly used within the banking industry to measure overall financial performance are return on assets and return on equity.
We describe how we calculate and use a number of these KPIs and analyze their results below . 45 Return on assets and return on equity . Two KPIs commonly used within the banking industry to measure overall financial performance are return on assets and return on equity.
First, many collateral accounts are “balanced” and accordingly, have a component of debt securities, which did not necessarily decrease in value as much as equities, or in some cases may have increased in value. Secondly, many of these accounts have the benefit of professional investment advisors who provided some protection against market downturns, through diversification and other means.
This is because many collateral accounts are “balanced” and accordingly, have a component of debt securities, which did not necessarily decrease in value as much as equities, or in some cases may have increased in value. Further, many of these accounts have the benefit of professional investment advisors who provided some protection against market downturns, through diversification and other means.
In each case, we own all the common securities of the Trusts. These Trusts issued preferred capital securities to investors and invested the proceeds in us through the purchase of junior subordinated debentures issued by us. These debentures are the sole assets of the Trusts.
In each case, we own all the common securities of the Trusts. The Trusts issued preferred capital securities to investors and invested the proceeds in us through the purchase of the 2038 Debentures issued by us. The 2038 Debentures are the sole assets of the Trusts.
While a fixed stock amount is required by each of these institutions, the Federal Home Loan Bank stock requirement increases or decreases with the level of borrowing activity. We pledge loans against our line of credit at the FHLB and had no securities pledged against that line as of December 31, 2022 and December 31, 2021.
While a fixed stock amount is required by each of these institutions, the FHLB stock requirement increases or decreases with the level of borrowing activity. We pledge loans against our line of credit at the FHLB and had no securities pledged against that line as of December 31, 2023 and December 31, 2022.
We performed a strategic evaluation of our businesses in the third quarter of 2014 and decided to discontinue our Philadelphia commercial lending operations to focus on specialty finance lending. We have since disposed of the vast majority of related loans and other real estate owned.
We performed a strategic evaluation of our businesses in the third quarter of 2014 and decided to discontinue our Philadelphia commercial lending operations to focus on specialty finance lending. We have since disposed of the vast majority of related loans and OREO.
On the December 31, 2021 consolidated balance sheet, these discontinued loans were reclassified as loans held for sale in continuing operations and included within “Commercial loans, at fair value”. 70 Discontinued other real estate owned of $17.3 million which constituted the remainder of discontinued assets was reclassified to the other real estate owned caption on the balance sheet.
On the December 31, 2021 consolidated balance sheet, these discontinued loans were reclassified as loans held for sale in continuing operations and included within “Commercial loans, at fair value”. Discontinued OREO of $17.3 million which constituted the remainder of discontinued assets was reclassified to the OREO caption on the balance sheet.
Under the accounting guidance related to current expected credit loss (“CECL”) , changes in fair value of securities unrelated to credit losses, continue to be recognized through equity. However, credit-related losses are recognized through an allowance, rather than through a reduction in the amortized cost of the security.
Under the accounting guidance related to CECL , changes in fair value of securities unrelated to credit losses continue to be recognized through equity. However, credit-related losses are recognized through an allowance, rather than through a reduction in the amortized cost of the security.
As of or for the year ended December 31, 2022 2021 2020 (dollars in thousands) Securities sold under repurchase agreements Balance at year-end $ 42 $ 42 $ 42 Average during the year 41 41 49 Maximum month-end balance 42 42 82 Weighted average rate during the year — — — Rate at December 31 — — — 79 As of or for the year ended December 31, 2022 2021 2020 (dollars in thousands) Short-term borrowings Balance at year-end $ — $ — $ — Average during the year 60,312 19,958 27,322 Maximum month-end balance 495,000 300,000 140,000 Weighted average rate during the year 2.55% 0.25% 0.72% Rate at December 31 — — — We do not have any policy prohibiting us from incurring debt, which may be used for stock repurchases or common stock cash dividends, although we historically have not paid such dividends.
As of or for the year ended December 31, 2023 2022 2021 (dollars in thousands) Securities sold under repurchase agreements Balance at year-end $ 42 $ 42 $ 42 Average during the year 41 41 41 Maximum month-end balance 42 42 42 Weighted average rate during the year — — — Rate at December 31 — — — As of or for the year ended December 31, 2023 2022 2021 (dollars in thousands) Short-term borrowings Balance at year-end $ — $ — $ — Average during the year 5,739 60,312 19,958 Maximum month-end balance 450,000 495,000 300,000 Weighted average rate during the year 4.72% 2.55% 0.25% Rate at December 31 — — — We do not have any policy prohibiting us from incurring debt, which may be used for stock repurchases or common stock cash dividends, although we historically have not paid such dividends.
Changes in fair value estimates are sensitive to factors which may vary by asset class, and which are described in Note Q to the financial statements. At the end of each quarter, we assess the valuation hierarchy for each asset or liability measured.
Changes in fair value estimates are sensitive to factors which may vary by asset class, and which are described in “Note Q—Fair Value of Financial Instruments” to the audited consolidated financial statements herein . At the end of each quarter, we assess the valuation hierarchy for each asset or liability measured.
Return on assets measures the amount of earnings compared to the level of assets utilized to generate those earnings. It is derived by dividing net income by average assets. Return on equity measures the amount of earnings compared to the equity utilized to generate those earnings. It is derived by dividing net income by average shareholders’ equity.
Return on equity measures the amount of earnings compared to the equity utilized to generate those earnings and is derived by dividing net income by average shareholders’ equity . Ratio of equity to assets .
The balances below provide information as to how the loans were modified as troubled debt restructured loans at December 31, 2022 and 2021 (in thousands): December 31, 2022 December 31, 2021 Adjusted interest rate Extended maturity Combined rate and maturity Adjusted interest rate Extended maturity Combined rate and maturity SBL non-real estate $ — $ — $ 650 $ — $ — $ 1,231 SBL commercial mortgage — — 834 — — — Legacy commercial real estate — — 3,552 — — — Consumer - home equity — — 239 — — 248 Total (1) $ — $ — $ 5,275 $ — $ — $ 1,479 (1) Troubled debt restructurings include non-accrual loans of $ 1.4 million and $656,000 at December 31, 2022 and December 31, 2021, respectively.
The balances below provide information as to how the loans were modified as troubled debt restructured loans at December 31, 2023 and 2022 (in thousands): December 31, 2023 December 31, 2022 Adjusted interest rate Extended maturity Combined rate and maturity Adjusted interest rate Extended maturity Combined rate and maturity SBL non-real estate $ — $ — $ 514 $ — $ — $ 650 SBL commercial mortgage — — 834 — — 834 Legacy commercial real estate — — — — — 3,552 Consumer - home equity — — 230 — — 239 Total (1) $ — $ — $ 1,578 $ — $ — $ 5,275 (1) Troubled debt restructurings include non-accrual loans of $ 1.3 million and $ 1.4 million at December 31, 2023 and December 31, 2022, respectively.
Our Chief Credit Officer oversees the loan review department, which measures the adequacy of the allowance for credit losses independently of loan production officers. A description of loan review coverage is summarized in Note E to the consolidated financial statements which also provides a description of the methodology by which our quarterly provision for credit losses is determined.
Our Chief Credit Officer oversees the loan review department, which measures the adequacy of the ACL independently of loan production officers. A description of loan review coverage is summarized in “Note E—Loans" to the audited consolidated financial statements herein, which also provides a description of the methodology by which our quarterly provision for credit losses is determined.
The guidance for the new CECL allowance includes a provision for the reversal of credit losses in future periods based on improvements in credit, which was not included in previous guidance. Generally, a security’s credit-related loss is the difference between its amortized cost basis and the best estimate of its expected future cash flows discounted at the security’s effective yield.
CECL accounting guidance also permits the reversal of credit losses in future periods based on improvements in credit, which was not included in previous guidance. Generally, a security’s credit-related loss is the difference between its amortized cost basis and the best estimate of its expected future cash flows discounted at the security’s effective yield.
Actual repayments historically have, and will likely in the future, differ significantly from contractual maturities because individual borrowers generally have the right to prepay loans, with or without prepayment penalties. Please see “Asset and Liability Management” which addresses interest rate risk.
Actual repayments historically have, and will likely in the future, differ significantly from contractual maturities because individual borrowers generally have the right to prepay loans, with or without prepayment penalties. See “Asset and Liability Management” for a discussion of interest rate risk .
One significant input is that at December 31, 2022, $355.3 million of commercial real estate, at fair value are multi-family loans 47 (apartments) a sector which has experienced relatively low historical losses on an industry wide basis. To the extent actual outcomes differ from our estimates, subsequent adjustments to the financial statements may be required.
One significant input is that at December 31, 2023, $168.1 million of commercial real estate, at fair value are multi-family (apartment building) loans, a sector which has experienced relatively low historical losses on an industry wide basis. To the extent actual outcomes differ from our estimates, subsequent adjustments to the financial statements may be required.
Our net interest margin (calculated by dividing net interest income by average interest-earning assets) for 2022 increased 20 basis points to 3.55% from 3.35% for 2021, as the increase in the yield on interest-earning assets was greater than the increase in the cost of funds.
Our net interest margin (calculated by dividing net interest income by average interest-earning assets) for 2023 increased 140 basis points to 4.95% from 3.55% for 2022, as the increase in the yield on interest-earning assets was greater than the increase in the cost of funds.
Each of these institutions require their member banking institutions to hold stock as a condition of membership. The Bank’s conversion to a national charter required the purchase of $11.0 million of Federal Reserve Bank stock in September of 2022.
Each of these institutions requires their member banking institutions to hold stock as a condition of membership. The Bank’s conversion to a national charter required the purchase of $11.0 million of FRB stock in September 2022.
Troubled debt restructured loans are individually considered by comparing collateral values with principal outstanding and establishing specific reserves within the allowance. At December 31, 2022, there were 11 troubled debt restructured loans with a balance of $5.3 million which had specific reserves of $637,000. These reserves related primarily to the non-guaranteed portion of SBA loans for start-up businesses.
Troubled debt restructured loans are individually considered by comparing collateral values with principal outstanding and establishing specific reserves within the allowance. At December 31, 2023, there were eight troubled debt restructured loans with a balance of $1.6 million which had specific reserves of $591,000. These reserves related primarily to the non-guaranteed portion of SBA loans for start-up businesses.
Commercial loans, at fair value decreased to $589.1 million at December 31, 2022 from $1.39 billion at December 31, 2021 reflecting the impact of repayments. In the third quarter of 2021 we resumed originating non-SBA CRE loans, after having suspended 64 such originations for most of 2020 and the first half of 2021.
Commercial loans, at fair value decreased to $332.8 million at December 31, 2023 from $589.1 million at December 31, 2022 reflecting the impact of repayments. In the third quarter of 2021 we resumed originating non-SBA commercial real estate loans, after having suspended such originations for most of 2020 and the first half of 2021.
While the dollar amount of payment transactions continued its upward trend, prepaid, debit card and related fees did not grow proportionately in 2022 and 2021 over their prior years, as transactions have been shifting to debit cards, for which margins are generally lower. Fees earned for volumes above certain thresholds for individual relationships may also be lower.
While the dollar amount of payment transactions continued its upward trend, prepaid, debit card and related fees do not necessarily grow proportionately, as transactions have been shifting to debit cards, for which margins are generally lower. Fees earned for volumes above certain thresholds for individual relationships may also be lower.
Troubled debt restructurings are loans with terms that have been renegotiated to provide a material reduction or deferral of interest or principal because of a weakening in the financial positions of the borrowers. W e had $21.2 million of other real estate owned (“OREO”) at December 31, 2022 and $18.9 million at December 31, 2021.
Troubled debt restructurings are loans with terms that have been renegotiated to provide a material reduction or deferral of interest or principal because of a weakening in the financial positions of the borrowers. W e had $16.9 million of OREO at December 31, 2023 and $21.2 million at December 31, 2022.
When these instruments mature in 2025, in lieu of repayment from Bank dividends, industry practice includes the issuance of new debt to repay maturing debt. Subordinated debentures. As of December 31, 2022, we had two established statutory business trusts: The Bancorp Capital Trust II and The Bancorp Capital Trust III, which we refer to as (“the Trusts”).
In lieu of repayment from dividends paid by the Bank to the Company, industry practice includes the issuance of new debt to repay maturing debt. Subordinated Debentures As of December 31, 2023, we had two established statutory business trusts: The Bancorp Capital Trust II and The Bancorp Capital Trust III, which we refer to as (“the Trusts”).
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.
Loans are considered to be non-performing if they are on a non-accrual basis or they are past due 90 days or more and still accruing interest .
Non-accrual Loans, Loans 90 Days Delinquent and Still Accruing, OREO, Modified Loans and Troubled Debt Restructurings Loans are considered to be non-performing if they are on a non-accrual basis or they are past due 90 days or more and still accruing interest .
At December 31, 2022, we were “well capitalized” under banking regulations. 59 The following table sets forth our regulatory capital amounts and ratios for the periods indicated: Tier 1 capital Tier 1 capital Total capital Common equity to average to risk-weighted to risk-weighted tier 1 to risk- assets ratio assets ratio assets ratio weighted assets As of December 31, 2022 The Bancorp, Inc. 9.63% 13.40% 13.87% 13.40% The Bancorp Bank, National Association 10.73% 14.95% 15.42% 14.95% "Well capitalized" institution (under federal regulations-Basel III) 5.00% 8.00% 10.00% 6.50% As of December 31, 2021 The Bancorp, Inc. 10.40% 14.72% 15.13% 14.72% The Bancorp Bank, National Association 10.98% 15.48% 15.88% 15.48% "Well capitalized" institution (under federal regulations-Basel III) 5.00% 8.00% 10.00% 6.50% Asset and Liability Management The management of rate sensitive assets and liabilities is essential to controlling interest rate risk and optimizing interest margins.
At December 31, 2023, both the Company and the Bank were “well capitalized” under banking regulations. 55 The following table sets forth our regulatory capital amounts and ratios for the periods indicated: Tier 1 capital Tier 1 capital Total capital Common equity to average to risk-weighted to risk-weighted tier 1 to risk- assets ratio assets ratio assets ratio weighted assets As of December 31, 2023 The Bancorp, Inc. 11.19% 15.66% 16.23% 15.66% The Bancorp Bank, National Association 12.37% 17.35% 17.92% 17.35% "Well capitalized" institution (under federal regulations-Basel III) 5.00% 8.00% 10.00% 6.50% As of December 31, 2022 The Bancorp, Inc. 9.63% 13.40% 13.87% 13.40% The Bancorp Bank, National Association 10.73% 14.95% 15.42% 14.95% "Well capitalized" institution (under federal regulations-Basel III) 5.00% 8.00% 10.00% 6.50% Asset and Liability Management The management of rate sensitive assets and liabilities is essential to controlling interest rate risk and optimizing interest margins.
In 2022, average demand and interest checking deposits amounted to $5.67 billion, compared to $5.32 billion in 2021, an increase of 6.6%, reflecting growth in debit, prepaid card account and other payments balances. The yield on those deposits increased to 0.70% in 2022 compared to 0.09% in 2021, reflecting the impact of 2022 Federal Reserve rate hikes.
In 2023, average demand and interest checking deposits amounted to $6.31 billion, compared to $5.67 billion in 2022, an increase of 11.2%, reflecting growth in debit, prepaid card account and other payments balances. The yield on those deposits increased to 2.30% in 2023 compared to 0.70% in 2022, reflecting the impact of Federal Reserve rate hikes on contractually based fees.
At December 31, 2022 and December 31, 2021, respectively, IBLOC loans amounted to $1.12 billion and $788.3 million. ** In 2020, we began originating loans to investment advisors for purposes of debt refinance, acquisition of another firm or internal succession.
At December 31, 2023 and December 31, 2022, respectively, IBLOC loans amounted to $646.9 million and $1.12 billion. (2) In 2020 we began originating loans to investment advisors for purposes of debt refinancing, acquisition of another firm or internal succession.
As of December 31, 2022, approximately $2.39 billion of our total deposit accounts of $7.03 billion were not insured by FDIC insurance, which requires identification of the depositor and is limited to $250,000 per identified depositor.
As of December 31, 2023, approximately $593.7 million of our total deposit accounts of $6.68 billion were not insured by FDIC insurance, which requires identification of the depositor and is limited to $250,000 per identified depositor.
While equities have fallen in excess of 30% in recent periods, the reduction in collateral value of brokerage accounts collateralizing SBLOCs generally was less, for two reasons.
While equities have fallen in excess of 30% in recent periods, the reduction in collateral value of brokerage accounts collateralizing SBLOCs generally has been less.
We no longer originate loans for sale or securitization and no longer engage in new hedging transactions. We have adopted policies designed to manage net interest income and preserve capital over a broad range of interest rate movements.
We used hedging transactions only for fixed rate commercial loans previously originated for sale into secondary securities markets. We no longer originate loans for sale or securitization and no longer engage in new hedging transactions. We have adopted policies designed to manage net interest income and preserve capital over a broad range of interest rate movements.
Included in our cash and cash-equivalents at December 31, 2022, were $864.1 million of interest-earning deposits, which primarily consisted of deposits with the Federal Reserve. These amounts may vary on a daily basis. In 2022, $161.1 million of securities sales and repayments exceeded purchases of $24.2 million.
Included in our cash and cash-equivalents at December 31, 2023, were $1.03 billion of interest-earning deposits, which primarily consisted of deposits with the Federal Reserve. These amounts may vary on a daily basis. In 2023, $71.1 million of securities sales and repayments exceeded purchases of $49.0 million.
While consumer deposit accounts including prepaid and debit card accounts comprise the majority of our funding needs, we maintain secured borrowing lines with the FHLB and the Federal Reserve.
Treasury. 54 While consumer deposit accounts, including prepaid and debit card accounts, comprise the majority of our funding needs, we maintain secured borrowing lines with the FHLB and the Federal Reserve which are collateralized by certain of our loans.
From time to time, assets or liabilities may be transferred within hierarchy levels due to changes in availability of observable market inputs to measure fair value at the measurement date. Transfers into or out of hierarchy levels are based upon the fair value at the beginning of the reporting period.
From time to time, assets or liabilities may be transferred within hierarchy levels due to changes in availability of observable market inputs to measure fair value at the measurement date.
Certain components of our deposits do experience seasonality, creating greater excess liquidity at certain times in 2022. The largest deposit inflows have generally occurred in the first quarter of the year when certain of our accounts are credited with tax refund payments from the U.S. Treasury.
We do not believe that such uninsured accounts present a significant liquidity risk. Certain components of our deposits experience seasonality, creating greater excess liquidity at certain times. The largest deposit inflows have generally occurred in the first quarter of the year when certain of our accounts are credited with tax refund payments from the U.S.
The following table summarizes our loan portfolio, excluding loans at fair value, by loan category for the periods indicated (in thousands): December 31, December 31, December 31, December 31, December 31, 2022 2021 2020 2019 2018 SBL non-real estate $ 108,954 $ 147,722 $ 255,318 $ 84,579 $ 76,340 SBL commercial mortgage 474,496 361,171 300,817 218,110 165,406 SBL construction 30,864 27,199 20,273 45,310 21,636 Small business loans 614,314 536,092 576,408 347,999 263,382 Direct lease financing 632,160 531,012 462,182 434,460 394,770 SBLOC / IBLOC * 2,332,469 1,929,581 1,550,086 1,024,420 785,303 Advisor financing ** 172,468 115,770 48,282 — — Real estate bridge lending 1,669,031 621,702 — — — Other loans*** 61,679 5,014 6,426 7,609 48,138 5,482,121 3,739,171 2,643,384 1,814,488 1,491,593 Unamortized loan fees and costs 4,732 8,053 8,939 9,757 10,383 Total loans, net of unamortized loan fees and costs $ 5,486,853 $ 3,747,224 $ 2,652,323 $ 1,824,245 $ 1,501,976 The following table shows SBL loans and SBL loans held at fair value for the periods indicated (in thousands): December 31, December 31, December 31, December 31, December 31, 2022 2021 2020 2019 2018 SBL loans, including costs net of deferred fees of $7,327 and $5,345 for December 31, 2022 and December 31, 2021, respectively $ 621,641 $ 541,437 $ 577,944 $ 352,214 $ 270,860 SBL loans included in commercial loans, at fair value 146,717 199,585 243,562 220,358 199,977 Total small business loans **** $ 768,358 $ 741,022 $ 821,506 $ 572,572 $ 470,837 * Securities Backed Lines of Credit, or SBLOC, are collateralized by marketable securities, while Insurance Backed Lines of Credit, or IBLOC, are collateralized by the cash surrender value of insurance policies.
The following table summarizes our loan portfolio, excluding loans held at fair value, by loan category for the periods indicated (in thousands): December 31, December 31, December 31, December 31, December 31, 2023 2022 2021 2020 2019 SBL non-real estate $ 137,752 $ 108,954 $ 147,722 $ 255,318 $ 84,579 SBL commercial mortgage 606,986 474,496 361,171 300,817 218,110 SBL construction 22,627 30,864 27,199 20,273 45,310 SBLs 767,365 614,314 536,092 576,408 347,999 Direct lease financing 685,657 632,160 531,012 462,182 434,460 SBLOC / IBLOC (1) 1,627,285 2,332,469 1,929,581 1,550,086 1,024,420 Advisor financing (2) 221,612 172,468 115,770 48,282 — Real estate bridge lending 1,999,782 1,669,031 621,702 — — Other loans (3) 50,638 61,679 5,014 6,426 7,609 5,352,339 5,482,121 3,739,171 2,643,384 1,814,488 Unamortized loan fees and costs 8,800 4,732 8,053 8,939 9,757 Total loans, net of unamortized loan fees and costs $ 5,361,139 $ 5,486,853 $ 3,747,224 $ 2,652,323 $ 1,824,245 61 The following table shows SBLs and SBLs held at fair value for the periods indicated (in thousands): December 31, December 31, December 31, December 31, December 31, 2023 2022 2021 2020 2019 SBLs, including costs net of deferred fees of $9,502 and $7,327 for December 31, 2023 and December 31, 2022, respectively $ 776,867 $ 621,641 $ 541,437 $ 577,944 $ 352,214 SBLs included in commercial loans, at fair value 119,287 146,717 199,585 243,562 220,358 Total SBLs (4) $ 896,154 $ 768,358 $ 741,022 $ 821,506 $ 572,572 (1) SBLOC are collateralized by marketable securities, while IBLOC, are collateralized by the cash surrender value of insurance policies.
The increase in loans reflected growth in SBLOC, IBLOC and investment advisor loans, SBA, direct lease financing and real estate bridge lending, partially offset by decreases in PPP loans. Small business loans have generally been comprised of SBA loans.
The increase in loans reflected growth in, SBA, direct lease financing, real estate bridge lending and investment advisor loans, partially offset by decreases in SBLOC and IBLOC loans.
December 31, 2022 2021 2020 2019 2018 (in thousands) Non-accrual loans SBL non-real estate $ 1,249 $ 1,313 $ 3,159 $ 3,693 $ 2,590 SBL commercial mortgage 1,423 812 7,305 1,047 458 SBL construction 3,386 710 711 711 — Direct leasing 3,550 254 751 — — Other loans 692 — — — — Consumer - home equity 56 72 301 345 1,468 Total non-accrual loans 10,356 3,161 12,227 5,796 4,516 Loans past due 90 days or more and still accruing 7,775 461 497 3,264 954 Total non-performing loans 18,131 3,622 12,724 9,060 5,470 Other real estate owned 21,210 18,873 — — — Total non-performing assets $ 39,341 $ 22,495 $ 12,724 $ 9,060 $ 5,470 Of the $10.4 million of nonaccrual loans at December 31, 2022, $3.1 million were guaranteed under various SBA loan programs, with the majority of such loans classified as nonaccrual in the fourth quarter of 2022.
December 31, 2023 2022 2021 2020 2019 (in thousands) Non-accrual loans SBL non-real estate $ 1,842 $ 1,249 $ 1,313 $ 3,159 $ 3,693 SBL commercial mortgage 2,381 1,423 812 7,305 1,047 SBL construction 3,385 3,386 710 711 711 Direct leasing 3,785 3,550 254 751 — 72 Legacy commercial real estate and Other loans 132 692 — — — Consumer - home equity — 56 72 301 345 Total non-accrual loans 11,525 10,356 3,161 12,227 5,796 Loans past due 90 days or more and still accruing 1,744 7,775 461 497 3,264 Total non-performing loans 13,269 18,131 3,622 12,724 9,060 OREO 16,949 21,210 18,873 — — Total non-performing assets $ 30,218 $ 39,341 $ 22,495 $ 12,724 $ 9,060 Of the $11.5 million of nonaccrual loans at December 31, 2023, $2.9 million were guaranteed under various SBA loan programs.
In 2021, $492.3 million of securities sales and repayments exceeded purchases of $259.1 million. In 2020, $233.8 million of securities sales and repayments exceeded purchases of $34.7 million. As shown in the consolidated statements of cash flows, cash required to fund loans was $1.68 billion in 2022, $1.10 billion in 2021 and $836.2 million in 2020.
In 2022, $161.1 million of securities sales and repayments exceeded purchases of $24.2 million. In 2021, $492.3 million of securities sales and repayments exceeded purchases of $259.1 million. In 2023, loan repayments exceeded disbursements. As shown in the consolidated statements of cash flows, cash required to fund loans was $1.68 billion in 2022 and $1.10 billion in 2021.
(d) The $100.3 million represents the unguaranteed portion of 7a loans which are 70% or more guaranteed by the U.S. government. 7a loans are not made on the basis of real estate LTV; however, they are subject to SBA's "All Available Collateral" rule which mandates that to the extent a borrower or its 20% or greater principals have available collateral (including personal residences), the collateral must be pledged to fully collateralize the loan, after applying SBA-determined liquidation rates.
SBA 7(a) Program loans are not made on the basis of real estate LTV; however, they are subject to SBA's "All Available Collateral" rule which mandates that to the extent a borrower or its 20% or greater principals have available collateral (including personal residences), the collateral must be pledged to fully collateralize the loan, after applying SBA-determined liquidation rates.
The majority of these loan categories are variable rate and in the second half of 2022, adjusted more fully to Federal Reserve rate increases than did our deposits, which are derived primarily from our payments businesses.
The majority of these loan categories are variable rate and in 2023, adjusted more fully to Federal Reserve rate increases than did our deposits, which are derived primarily from our payments businesses. Average loans and leases grew to $5.73 billion in 2023 from $5.67 billion in 2022.
Maximum loan amounts are subject to 70% of the estimated business enterprise value, based on a third-party valuation, but may be increased depending upon the debt service coverage ratio.
Maximum loan amounts are subject to loan-to-value (“LTV”) ratios of 70% of the business enterprise value based on a third-party valuation, but may be increased depending upon the debt service coverage ratio. Personal guarantees and blanket business liens are obtained as appropriate.
The $10.3 million of debentures issued to The Bancorp Capital Trust II and the $3.1 million of debentures issued to The Bancorp Capital Trust III were both issued on November 28, 2007, mature on March 15, 2038 and bear interest equal to 3-month LIBOR plus 3.25%. Other Long-term Borrowings.
The $10.3 million of 2038 Debentures issued to The Bancorp Capital Trust II and the $3.1 million of 2038 Debentures issued to The Bancorp Capital Trust III were both issued on November 28, 2007, mature on March 15, 2038 and bear interest at SOFR plus 3.51% .
Accordingly, a $3.5 million credit to “ Net realized and unrealized gains on commercial loans, at fair value” was offset by a provision for credit losses of $3.5 million with no net impact on income.
Accordingly, a $3.5 million credit to “ Net realized and unrealized gains on commercial loans, at fair value” was offset by a provision for credit losses of $3.5 million with no net impact on income. Of the $3.5 million provision, $1.3 million increased the ACL and $2.2 million increased the allowance for loan commitments recorded in other liabilities.
To effectively administer the policies and to monitor our exposure to fluctuations in interest rates, we maintain an asset/liability committee, consisting of the Bank’s Chief Executive Officer, Chief Accounting Officer, Chief Financial Officer, Chief Credit Officer and others. This committee meets quarterly to review our financial results, develop strategies to optimize margins and to respond to market conditions.
To effectively administer the policies and to monitor our exposure to fluctuations in interest rates, we maintain an asset/liability committee, consisting of the Bank’s Chief Executive Officer, Chief Accounting Officer, Chief Financial Officer, Chief Credit Officer and others.
The $13.5 million “Net realized and unrealized gains on commercial loans, at fair value” for 2022 was comprised of the $3.5 million adjustment described under “Provision for Credit Losses” above, $15.1 million of non-SBA CRE bridge loan repayment related income and $964,000 of hedge gains, partially offset by $6.1 million of fair value losses.
The $13.5 million net realized and unrealized gains on commercial loans, at fair value for 2022 was comprised of the $3.5 million adjustment described under “Provision for Credit Losses” in our Annual Report on Form 10-K for the year ended December 31, 2022, $15.1 million of non-SBA commercial real estate bridge loan repayment related income and $964,000 of hedge gains, partially offset by $6.1 million of fair value losses .
W e had no outstanding advances from the FHLB or Federal Reserve at December 31, 2022 or 2021 on our lines of credit with them, although we periodically have accessed such overnight borrowings for cash management purposes.
Short-Term Borrowings W e had no outstanding advances from the FHLB or Federal Reserve Bank at December 31, 2023 or 2022 on our lines of credit with them, although we periodically have accessed such overnight borrowings for cash management purposes. We discuss these lines in “Liquidity and Capital Resources” in this MD&A.
The yield on loans in total increased to 4.86% from 4.18%, an increase of 68 basis points, while the yield on taxable investment securities in creased 28 basis points to 2.99% from 2.71%.
The yield on loans in total increased to 7.62% from 4.86%, an increase of 276 basis points, while the yield on taxable investment securities in creased 211 basis points to 5.10% from 2.99%.
The average yield on our interest-earning assets increased to 4.40% from 3.53% for 2021, an increase of 87 basis points, while the cost of total deposits and interest-bearing liabilities increased to 0.92% for 2022 from 0.19% for 2021, an increase of 73 basis points.
The average yield on our interest-earning assets increased to 7.13% from 4.40% for 2022, an increase of 273 basis points, while the cost of total deposits and interest-bearing liabilities increased to 2.38% for 2023 from 0.92% for 2022, an increase of 146 basis points.
In addition, we consider the continuing performance of the securities. We recognize credit losses through the Consolidated Statements of Operations. If management believes market value losses are not credit related, we recognize the reduction in other comprehensive income, through equity.
If management believes market value losses are not credit related, we recognize the reduction in other comprehensive income, through equity.
While interest income increased by $86.2 million, interest expense increased by $48.2 million or 429.0% to $59.5 million in 2022 from $11.2 million in 2021 as loans, on a lagged basis, adjusted more fully than deposits to the higher rate environment.
While interest income increased by $201.2 million, or 65.3%, interest expense increased by $96.0 million, or 161.5%, to $155.5 million in 2023 from $59.5 million in 2022 as loans and securities, on a lagged basis, adjusted more fully than deposits to the higher rate environment.
Premises and equipment increased to $18.4 million at December 31, 2022 from $16.2 million at December 31, 2021 primarily as a result of expenditures for a new data center and the relocation of Sioux Falls office space. Assets Held-for-Sale from Discontinued Operations.
Premises and Equipment, Net Premises and equipment increased to $27.5 million at December 31, 2023 from $18.4 million at December 31, 2022 primarily as a result of expenditures for a new data center and the relocation of Sioux Falls office space. Other assets Other assets increased to $133.1 million at December 31, 2023 from $89.2 million at December 31, 2022.
At December 31, 2022 and 2021, we had long term borrowings of $10.0 million and $39.5 million respectively, which consisted of sold loans which were accounted for as a secured borrowing, because they did not qualify for true sale accounting. The reduction resulted from loan payoffs. Other Liabilities.
Other Long-term Borrowings At December 31, 2023 and 2022, we had long-term borrowings of $38.6 million and $10.0 million respectively, which consisted of sold loans which were accounted for as secured borrowings, because they did not qualify for true sale accounting .
Government agency securities $ 29,859 $ 28,381 Asset-backed securities 343,885 334,009 Tax-exempt obligations of states and political subdivisions 3,560 3,499 Taxable obligations of states and political subdivisions 45,668 44,011 Residential mortgage-backed securities 150,135 139,820 Collateralized mortgage obligation securities 43,858 41,783 Commercial mortgage-backed securities 179,977 166,813 Corporate debt securities 10,000 7,700 $ 806,942 $ 766,016 December 31, 2021 Amortized Fair cost value U.S.
Government agency securities $ 29,859 $ 28,381 Asset-backed securities 343,885 334,009 Tax-exempt obligations of states and political subdivisions 3,560 3,499 Taxable obligations of states and political subdivisions 45,668 44,011 Residential mortgage-backed securities 150,135 139,820 Collateralized mortgage obligation securities 43,858 41,783 Commercial mortgage-backed securities 179,977 166,813 Corporate debt securities 10,000 7,700 $ 806,942 $ 766,016 Investments in FHLB, Atlantic Central Bankers Bank (“ACBB”), and FRB stock are recorded at cost and amounted to $15.6 million at December 31, 2023 and $12.6 million at December 31, 2022.
Net interest margin and credit losses . The largest component of our earnings is net interest income, or the difference between the interest earned on our interest-earning assets consisting of loans and investments, less the interest on our funding, consisting primarily of deposits.
Net interest margin is a KPI associated with net interest income, which is the largest component of our earnings and is the difference between the interest earned on our interest-earning assets consisting of loans and investments, less the interest on our funding, consisting primarily of deposits. Net interest margin is derived by dividing net interest income by average interest-earning assets.
In recent periods charge-offs have been primarily comprised of the non-guaranteed portion of SBA 7a loans and leases. The charge-offs have resulted from individual borrower or business circumstances as opposed to overall trends or other factors. Non-accrual Loans, Loans 90 Days Delinquent and Still Accruing, Other Real Estate Owned and Troubled Debt Restructurings .
In recent periods charge-offs have been primarily comprised of the non-guaranteed portion of SBA 7(a) Program loans and leases. The charge-offs have resulted from individual borrower or business circumstances as opposed to overall trends or other factors.
At December 31, 2022 and December 31, 2021 loans accordingly classified were segregated by year of origination and are shown in Note E to the consolidated financial statements. Premises and Equipment, net .
At December 31, 2023 and December 31, 2022 , classified loans were segregated by year of origination and are shown in “Note E—Loans” to the audited consolidated financial statements herein.
Additional repurchases are planned to be made from dividends paid to the holding company by the Bank. The Senior Notes are our direct, unsecured and unsubordinated obligations and rank equal in priority with all of our existing and future unsecured and unsubordinated indebtedness and senior in right of payment to all of our existing and future subordinated indebtedness.
The 2025 Senior Notes are our direct, unsecured and unsubordinated obligations and rank equal in priority with all of our existing and future unsecured and unsubordinated indebtedness and senior in right of payment to all of our existing and future subordinated indebtedness.
The loans that were modified for the years ended December 31, 2022 and 2021 and considered troubled debt restructurings are as follows (in thousands): December 31, 2022 December 31, 2021 Number Pre-modification recorded investment Post-modification recorded investment Number Pre-modification recorded investment Post-modification recorded investment SBL non-real estate 8 $ 650 $ 650 9 $ 1,231 $ 1,231 SBL commercial mortgage 1 834 834 — — — Legacy commercial real estate 1 3,552 3,552 — — — Consumer - home equity 1 239 239 1 248 248 Total (1) 11 $ 5,275 $ 5,275 10 $ 1,479 $ 1,479 (1) Troubled debt restructurings include non-accrual loans of $ 1.4 million and $656,000 at December 31, 2022 and December 31, 2021, respectively.
Under previous accounting guidance which was effective through December 31, 2022, t he Company’s loans that were modified as of December 31, 2023 and 2022 and considered troubled debt restructurings are as follows (in thousands): December 31, 2023 December 31, 2022 Number Pre-modification recorded investment Post-modification recorded investment Number Pre-modification recorded investment Post-modification recorded investment SBL non-real estate 6 $ 514 $ 514 8 $ 650 $ 650 SBL commercial mortgage 1 834 834 1 834 834 Legacy commercial real estate — — — 1 3,552 3,552 Consumer - home equity 1 230 230 1 239 239 Total (1) 8 $ 1,578 $ 1,578 11 $ 5,275 $ 5,275 (1) Troubled debt restructurings include non-accrual loans of $ 1.3 million and $ 1.4 million at December 31, 2023 and December 31, 2022, respectively.
The majority of our deposit accounts are generated by third parties and were, prior to June 30, 2021, classified as brokered by the FDIC. I f the Bank ceases to be categorized as “well capitalized” under banking regulations, it will be prohibited from accepting, renewing or rolling over brokered deposits without the consent of the FDIC.
I f the Bank ceases to be categorized as “well capitalized” under banking regulations, it will be prohibited from accepting, renewing or rolling over brokered deposits without the consent of the FDIC.
We discuss these lines in “Liquidity and Capital Resources.” Tables showing information for securities sold under repurchase agreements and short-term borrowings are as follows.
Tables showing information for securities sold under repurchase agreements and short-term borrowings are as follows.
As such, net interest income simulation is designed to address the potential impact of interest rate changes and the behavioral response of the consolidated balance sheet to those changes. Market Value of Portfolio Equity (“MVPE”) represents the modeled fair value of the net present portfolio value of assets, liabilities and off-balance sheet items.
As such, net interest income simulation is designed to address the potential impact of interest rate changes and the behavioral response of the consolidated balance sheet to those changes.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk. Information with respect to quantitative and qualitative disclosures about market risk is included under the section entitled “Asset and Liability Management” in Part 2 Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” ‎ 81
Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk. Information with respect to quantitative and qualitative disclosures about market risk is included under the section entitled “Asset and Liability Management” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K. ‎ 79 ITE M 8.
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. THE BANCORP, INC.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 ) 81 Consolidated Balance Sheets as of December 31, 2023 and 2022 83 Consolidated Statements of Operations for the Years Ended December 2023, 2022, and 2021 84 Consolidated Statements of Comprehensive Income for the Years Ended December 2023, 2022, and 2021 85 Consolidated Statements of Shareholders’ Equity for the Years Ended December 2023, 2022, and 2021 86 Consolidated Statements of Cash Flows for the Years Ended December 2023, 2022 , and 2021 87 Notes to Consolidated Financial Statements 88 ‎ 80 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders The Bancorp, Inc.
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Opinion on the financial statements We have audited the accompanying consolidated balance sheets of The Bancorp, Inc.
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(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).
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In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 29, 2024 expressed an unqualified opinion.
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Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.
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We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB.
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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
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Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
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Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.
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The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates .
Added
Allowance for credit losses – qualitative factors (SBL non real estate, SBL commercial mortgage, Direct lease financing, and Real estate bridge lending portfolio segments) As described in note E to the financial statements, the Company estimates the allowance for credit losses using relevant available historical loan performance information and reasonable and supportable forecasts.
Added
The loans are segregated by product type to recognize differing risk characteristics within portfolio segments.
Added
For certain product types, including SBL non real estate, SBL commercial mortgage, Direct lease financing, and Real estate bridge lending, the Company considers the need to adjust the historical loss rate based upon qualitative factors such as the Company’s current loan performance statistics and the potential impact of current economic conditions as determined by portfolio segment.
Added
These qualitative factors are intended to adjust for changes in credit risk not reflected in historical loss rates and otherwise not accounted for in the quantitative process.
Added
As of December 31, 2023, the Company’s allowance for credit losses was $27.4 million, of which $23.3 million relates to the SBL non real estate, SBL commercial mortgage, Direct lease financing, and Real estate bridge lending portfolio segments.
Added
We identified the qualitative factors used in estimating the allowance for credit losses for the Company’s SBL non real estate, SBL commercial mortgage, Direct lease financing, and Real estate bridge lending portfolio segments as a critical audit matter. 81 The principal consideration for our determination that the qualitative factors used in estimating the allowance for credit losses for the Company’s SBL non real estate, SBL commercial mortgage, Direct lease financing, and Real estate bridge lending portfolio segments is a critical audit matter is that the selection and application of qualitative factors requires management to make significant judgements to address the risk of credit loss that is not reflected in historical loss rates and otherwise not accounted for in the quantitative process.
Added
Evaluating the reasonableness of management’s judgements in the selection and application of the qualitative factors required a high degree of auditor subjectivity.
Added
Our audit procedures related to the qualitative factors used in the allowance for credit losses for the Company’s SBL non real estate, SBL commercial mortgage, Direct lease financing, and Real estate bridge lending portfolio segments included the following, among others:  We tested the design and operating effectiveness of management’s review controls over the qualitative factors used in determining the allowance for credit losses, which included the identification and application of qualitative factors applied by management in forecasting expected credit losses for the SBL non real estate, SBL commercial mortgage, Direct lease financing, and Real estate bridge lending portfolio segments.  We evaluated the reasonableness of management’s judgments in the selection and application of qualitative factors for the SBL non real estate, SBL commercial mortgage, Direct lease financing, and Real estate bridge lending portfolio segments through examining internal portfolio metrics and relevant available external information specific to each loan portfolio segment.  We performed sensitivity analysis on the application of qualitative factors including, but not limited to, those related to changes in international, national, regional, and local economic and business conditions, and concentrations of credit . /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2000.
Added
Philadelphia, Pennsylvania February 29, 2024 ‎ 82 THE BANCORP, INC.
Added
AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, December 31, 2023 2022 (in thousands, except share data) ASSETS Cash and cash equivalents Cash and due from banks $ 4,820 $ 24,063 Interest-earning deposits at Federal Reserve Bank 1,033,270 864,126 Total cash and cash equivalents 1,038,090 888,189 Investment securities, available-for-sale, at fair value, net of $ 10.0 million allowance for credit loss at December 31, 2023 747,534 766,016 Commercial loans, at fair value 332,766 589,143 Loans, net of deferred loan fees and costs 5,361,139 5,486,853 Allowance for credit losses ( 27,378 ) ( 22,374 ) Loans, net 5,333,761 5,464,479 Stock in Federal Reserve, Federal Home Loan and Atlantic Central Bankers Banks 15,591 12,629 Premises and equipment, net 27,474 18,401 Accrued interest receivable 37,534 32,005 Intangible assets, net 1,651 2,049 Other real estate owned 16,949 21,210 Deferred tax asset, net 21,219 19,703 Other assets 133,126 89,176 Total assets $ 7,705,695 $ 7,903,000 LIABILITIES Deposits Demand and interest checking $ 6,630,251 $ 6,559,617 Savings and money market 50,659 140,496 Time deposits, $100,000 and over — 330,000 Total deposits 6,680,910 7,030,113 Securities sold under agreements to repurchase 42 42 Senior debt 95,859 99,050 Subordinated debentures 13,401 13,401 Other long-term borrowings 38,561 10,028 Other liabilities 69,641 56,335 Total liabilities 6,898,414 7,208,969 SHAREHOLDERS' EQUITY Common stock - authorized, 75,000,000 shares of $ 1.00 par value; 53,202,630 and 55,689,627 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively 53,203 55,690 Additional paid-in capital 212,431 299,279 Retained earnings 561,615 369,319 Accumulated other comprehensive loss ( 19,968 ) ( 30,257 ) Total shareholders' equity 807,281 694,031 Total liabilities and shareholders' equity $ 7,705,695 $ 7,903,000 The accompanying notes are an integral part of these consolidated financial statements. ‎ 83 THE BANCORP, INC.
Added
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the year ended December 31, 2023 2022 2021 (in thousands, except per share data) Interest income Loans, including fees $ 436,649 $ 275,837 $ 192,636 Investment securities: Taxable interest 39,078 25,598 28,661 Tax-exempt interest 153 98 103 Interest-earning deposits 33,627 6,762 715 509,507 308,295 222,115 Interest expense Deposits 148,529 51,136 5,623 Short-term borrowings 271 1,538 49 Long-term borrowings 507 1,004 — Senior debt 5,027 5,118 5,118 Subordinated debentures 1,121 658 449 155,455 59,454 11,239 Net interest income 354,052 248,841 210,876 Provision for credit losses on loans 8,330 7,108 3,110 Provision for credit loss on security 10,000 — — Net interest income after provision for credit losses 335,722 241,733 207,766 Non-interest income ACH, card and other payment processing fees 9,822 8,935 7,526 Prepaid, debit card and related fees 89,417 77,236 74,654 Net realized and unrealized gains on commercial loans, at fair value 3,745 13,531 14,885 Leasing related income 6,324 4,822 6,457 Other 2,786 1,159 1,227 Total non-interest income 112,094 105,683 104,749 Non-interest expense Salaries and employee benefits 121,055 105,368 105,998 Depreciation and amortization 3,074 2,902 2,903 Rent and related occupancy cost 5,980 5,193 5,016 Data processing expense 5,447 4,972 4,664 Printing and supplies 478 428 371 Audit expense 1,620 1,526 1,469 Legal expense 3,850 3,878 6,848 Legal settlement — 1,152 — Amortization of intangible assets 398 398 398 FDIC Insurance 2,957 3,270 5,586 Software 17,349 16,211 15,659 Insurance 5,139 5,026 3,896 Telecom and IT network communications 1,316 1,457 1,569 Consulting 1,938 1,262 1,426 Writedowns and other losses on other real estate owned 1,315 — — Civil money penalty — 1,750 — Other 19,126 14,709 12,547 Total non-interest expense 191,042 169,502 168,350 Income from continuing operations before income taxes 256,774 177,914 144,165 Income tax expense 64,478 47,701 33,724 Net income from continuing operations $ 192,296 $ 130,213 $ 110,441 Discontinued operations Income from discontinued operations before income taxes — — 288 Income tax expense — — 76 Income from discontinued operations, net of tax — — 212 Net income $ 192,296 $ 130,213 $ 110,653 Net income per share from continuing operations - basic $ 3.52 $ 2.30 $ 1.93 Net income per share from discontinued operations - basic $ — $ — $ — Net income per share - basic $ 3.52 $ 2.30 $ 1.93 Net income per share from continuing operations - diluted $ 3.49 $ 2.27 $ 1.88 Net income per share from discontinued operations - diluted $ — $ — $ — Net income per share - diluted $ 3.49 $ 2.27 $ 1.88 Weighted average shares - basic 54,506,065 56,556,303 57,190,311 Weighted average shares - diluted 55,053,497 57,268,946 58,830,437 84 The accompanying notes are an integral part of these consolidated financial statements .
Added
AND SUBSIDIARIES CONSOLIDATED STATEM ENTS OF COMPREHENSIVE INCOME For the year ended December 31, 2023 2022 2021 (in thousands) Net income $ 192,296 $ 130,213 $ 110,653 Other comprehensive income (loss), net of reclassifications into net income: Other comprehensive income (loss) Securities available-for-sale: Change in net unrealized gains (losses) 14,215 ( 49,888 ) ( 15,679 ) Reclassification adjustments for losses (gains) included in income 4 ( 4 ) 7 Other comprehensive income (loss) 14,219 ( 49,892 ) ( 15,672 ) Income tax expense (benefit) related to items of other comprehensive income (loss) Securities available-for-sale: Change in net unrealized gains (losses) 3,929 ( 13,343 ) ( 4,257 ) Reclassification adjustments for losses (gains) included in income 1 ( 1 ) 2 Income tax expense (benefit) related to items of other comprehensive income (loss) 3,930 ( 13,344 ) ( 4,255 ) Other comprehensive income (loss), net of tax and reclassifications into net income 10,289 ( 36,548 ) ( 11,417 ) Comprehensive income $ 202,585 $ 93,665 $ 99,236 The accompanying notes are an integral part of these consolidated financial statements. ‎ 85 THE BANCORP, INC.
Added
AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY For the years ended December 31, 2023, 2022 and 2021 (in thousands, except share data) Retained Accumulated Common Additional earnings/ other stock Common paid-in (accumulated comprehensive shares stock capital deficit) income/(loss) Total Balance at December 31, 2020 57,550,629 $ 57,551 $ 377,452 $ 128,453 $ 17,708 $ 581,164 Net income — — — 110,653 — 110,653 Common stock issued from option exercises, net of tax benefits 633,966 634 2,794 — — 3,428 Common stock issued from restricted units, net of tax benefits 1,021,029 1,021 ( 1,021 ) — — — Stock-based compensation — — 8,626 — — 8,626 Common stock repurchases ( 1,835,061 ) ( 1,835 ) ( 38,165 ) — — ( 40,000 ) Other comprehensive loss net of reclassification adjustments and tax — — — — ( 11,417 ) ( 11,417 ) Balance at December 31, 2021 57,370,563 $ 57,371 $ 349,686 $ 239,106 $ 6,291 $ 652,454 Net income — — — 130,213 — 130,213 Common stock issued from option exercises, net of tax benefits 58,531 58 262 — — 320 Common stock issued from restricted units, net of tax benefits 582,789 583 ( 583 ) — — — Stock-based compensation — — 7,592 — — 7,592 Common stock repurchases ( 2,322,256 ) ( 2,322 ) ( 57,678 ) — — ( 60,000 ) Other comprehensive loss net of reclassification adjustments and tax — — — — ( 36,548 ) ( 36,548 ) Balance at December 31, 2022 55,689,627 $ 55,690 $ 299,279 $ 369,319 $ ( 30,257 ) $ 694,031 Net income — — — 192,296 — 192,296 Common stock issued from option exercises, net of tax benefits 13,158 13 91 — — 104 Common stock issued from restricted units, net of tax benefits 456,991 457 ( 457 ) — — — Stock-based compensation — — 11,392 — — 11,392 Common stock repurchases and excise tax ( 2,957,146 ) ( 2,957 ) ( 97,874 ) — — ( 100,831 ) Other comprehensive income net of reclassification adjustments and tax — — — — 10,289 10,289 Balance at December 31, 2023 53,202,630 $ 53,203 $ 212,431 $ 561,615 $ ( 19,968 ) $ 807,281 The accompanying notes are an integral part of these consolidated financial statements. ‎ 86 THE BANCORP, INC.
Added
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, 2023 2022 2021 (in thousands) Operating activities Net income from continuing operations $ 192,296 $ 130,213 $ 110,441 Net income from discontinued operations, net of tax — — 212 Adjustments to reconcile net income to net cash used in operating activities Depreciation and amortization 3,472 3,300 3,301 Provision for credit losses on loans and security 18,330 7,108 3,110 Net amortization of investment securities discounts/premiums 1,023 1,704 3,458 Stock-based compensation expense 11,392 7,592 8,626 Realized gains on commercial loans, at fair value ( 6,954 ) ( 18,635 ) ( 12,929 ) Deferred income tax (benefit) expense ( 5,681 ) 5,870 1,402 Gain from discontinued operations — ( 4 ) ( 1,546 ) Loss on sale of other real estate owned — — 315 Write-down of other real estate owned 1,147 — — Change in fair value of commercial loans, at fair value 3,085 6,065 1,510 Change in fair value of derivatives 124 ( 961 ) ( 1,671 ) Loss on sales of investment securities 4 6 7 (Increase) decrease in accrued interest receivable ( 5,529 ) ( 14,134 ) 2,587 Increase in other assets ( 38,465 ) ( 1,802 ) ( 17,030 ) Change in fair value of discontinued assets held-for-sale — — 498 Increase (decrease) in other liabilities 12,474 ( 5,340 ) ( 18,399 ) Net cash provided by operating activities 186,718 120,982 83,892 Investing activities Purchase of investment securities available-for-sale ( 48,989 ) ( 24,183 ) ( 259,059 ) Proceeds from redemptions and prepayments of securities available-for-sale 71,082 161,110 492,258 Sale of repossessed assets 7,927 1,800 910 Proceeds from sale of other real estate owned 5,800 2,343 300 Net decrease (increase) in loans 142,326 ( 1,680,129 ) ( 1,096,189 ) Net decrease in discontinued loans held-for-sale — — 27,175 Commercial loans, at fair value drawn during the period ( 134,256 ) ( 66,067 ) ( 127,765 ) Payments on commercial loans, at fair value 384,353 782,157 645,330 Purchases of premises and equipment ( 12,689 ) ( 5,134 ) ( 1,549 ) Change in receivable from investment in unconsolidated entity — — 18 Return of investment in unconsolidated entity — — 7,337 Decrease in discontinued assets held-for-sale — 4 5,332 Net cash provided by (used in) investing activities 415,554 ( 828,099 ) ( 305,902 ) Financing activities Net (decrease) increase in deposits ( 349,203 ) 1,053,202 514,851 Redemptions of senior debt offering ( 3,273 ) — — Proceeds from the issuance of common stock 104 320 3,428 Repurchases of common stock ( 99,999 ) ( 60,000 ) ( 40,000 ) Net cash (used in) provided by financing activities ( 452,371 ) 993,522 478,279 Net increase in cash and cash equivalents 149,901 286,405 256,269 Cash and cash equivalents, beginning of period 888,189 601,784 345,515 Cash and cash equivalents, end of period $ 1,038,090 $ 888,189 $ 601,784 Supplemental disclosure: Interest paid $ 156,269 $ 57,601 $ 11,709 Taxes paid $ 82,553 $ 37,787 $ 44,341 Non-cash investing and financing activities: Transfer of loans from investment in unconsolidated entity upon its dissolution $ — $ — $ 22,926 Transfer of real estate owned from investment in unconsolidated entity upon its dissolution $ — $ — $ 2,145 Transfer of loans from discontinued operations $ — $ 61,580 $ — Transfer of real estate owned from discontinued operations $ — $ 17,343 $ — Leased vehicles transferred to repossessed assets $ 9,361 $ 2,008 $ 1,009 The accompanying notes are an integral part of these consolidated financial statements. 87 THE BANCORP, INC.
Added
AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note A—Organization and Nature of Operations The Bancorp, Inc. (“the Company”) is a Delaware corporation and a registered financial holding company. Its primary, wholly-owned subsidiary is The Bancorp Bank, National Association (“the Bank”).
Added
The Bank is a nationally chartered commercial bank located in Sioux Falls, South Dakota and is a Federal Deposit Insurance Corporation (“FDIC”) insured institution. As a nationally chartered institution, its primary regulator is the Office of the Comptroller of the Currency (“OCC”).
Added
The Bank has two primary lines of business consisting of its national specialty finance segment and its payments segment.
Added
In the national specialty finance segment, the Bank makes the following types of loans: securities-backed lines of credit (“SBLOC”) and cash value of insurance-backed lines of credit (“IBLOC”), leases (direct lease financing), Small Business Administration (“SBA”) loans and non-SBA commercial real estate bridge loans (“REBL”).
Added
Prior to 2020, the Company generated CRE bridge loans for sale into loan securitizations which issued commercial mortgage backed securities (“CMBS”). In the third quarter of 2020, the Company decided to retain the commercial real estate bridge loans on its balance sheet.
Added
In the third quarter of 2021, the Company resumed originating commercial real estate bridge loans (primarily for apartment buildings), after suspending the origination of such loans for most of 2020 and the first half of 2021.
Added
These new originations are classified as real estate bridge loans (“REBL”) and are accounted for at amortized cost, while prior commercial real estate bridge loans originally generated for securitization continue to be accounted for at fair value.
Added
Additionally, in 2020, the Company began originating advisor financing loans to investment advisors for debt refinance, acquisition of other advisory firms or internal succession . While the national specialty finance segment generates the majority of the Company’s revenues, the payments segment also contributes significant revenues.
Added
In its payments segment, the Company provides payment and deposit services nationally, which include prepaid and debit card accounts, private label banking, deposit accounts to investment advisors’ customers, card payment and other payment processing services. Payments segment deposits fund the majority of the Company’s loans and securities and may produce lower costs than other funding sources.
Added
Most of the payments segment’s revenues and deposits, and SBLOC and IBLOC loans, result from relationships with third parties which market such products. Concentrations of loans and deposits are based upon the cumulative account balances generated by those third parties. Similar concentrations result in revenues in prepaid, debit card and related fees.
Added
These concentrations may also be reflected in a lower cost of funds compared to other funding sources. The Company sweeps certain deposits off its balance sheet to other institutions through intermediaries. Such sweeps are utilized to optimize diversity within its funding structure by managing the percentage of individual client deposits to total deposits.
Added
The Company and the Bank are subject to regulation by certain state and federal agencies and, accordingly, they are examined periodically by those regulatory authorities. As a consequence of the extensive regulation of commercial banking activities, the Company’s and the Bank’s businesses may be affected by state and federal legislation and regulations. Note B—Summary of Significant Accounting Policies 1.
Added
Basis of Presentation The accounting and reporting policies of the Company conform to generally accepted accounting principles in the United States of America (“GAAP”) and predominant practices within the banking industry. The consolidated financial statements include the accounts of the Company and all its subsidiaries. All inter-company balances have been eliminated.
Added
The Company’s non-SBA commercial real estate bridge loans, at fair value, are primarily collateralized by multi-family properties (apartment buildings), and to a lesser extent, by hotel and retail properties. These loans were originally generated for sale through securitizations.
Added
In 2020, the Company decided to retain these loans on its balance sheet as interest-earning assets and resumed originating such loans in 2021. These new originations are identified as REBL and are held for investment in the loan portfolio, at amortized cost.
Added
Prior originations initially intended for securitizations continue to be accounted for at fair value, and are included in the balance sheet in “Commercial loans, at fair value.” The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial 88 statements and the reported amounts of revenues and expenses during the reporting period.
Added
The principal estimates that are particularly susceptible to a significant change in the near term relate to (1) our allowance for credit losses (“ACL”) on loans, leases and securities, (2) the fair value of financial instruments (loans and securities) and the level in which an instrument is placed within the valuation hierarchy, (3) the fair value of stock grants and (4) the realizability of deferred income taxes.
Added
These estimates made in accordance with GAAP involve a significant level of estimation uncertainty and have had, or are reasonably likely to have, a material impact on our financial condition or results of operations. 2.
Added
Cash and Cash Equivalents Cash and cash equivalents are defined as cash and amounts due from banks with an original maturity from date of purchase of three months or less and federal funds sold.
Added
The Company maintains balances in excess of insured limits at various financial institutions including the Federal Reserve Bank (the “Federal Reserve”), the Federal Home Loan Bank (“FHLB”) and other private institutions.
Added
The Company does not believe these instruments carry a significant risk of loss, but cannot provide assurances that no losses could occur if these institutions were to become insolvent. 3.
Added
Investment Securities Investments in debt and equity securities which management believes may be sold prior to maturity due to changes in interest rates, prepayment risk, liquidity requirements, or other factors, are classified as available-for-sale.
Added
Net unrealized gains for such securities, net of tax effect, are reported as other comprehensive income, through equity and are excluded from the determination of net income. The unrealized losses for available-for-sale securities are evaluated to determine if any component is attributable to credit loss versus market factors.
Added
If the present value of cash flows expected to be collected is less than the amortized cost basis, a provision for credit losses is recorded within the consolidated statement of operations. Subsequent improvement in credit may result in reversal of the credit charge in future periods.
Added
For available-for-sale debt securities in an unrealized loss position, the Company also assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis.
Added
If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. The Company does not engage in securities trading.
Added
Gains or losses on disposition of investment securities are based on the net proceeds and the adjusted carrying amount of the securities sold using the specific identification method .
Added
The Company evaluates whether an ACL is required by considering primarily the following factors: (a) the extent to which the fair value is less than the amortized cost of the security, (b) changes in the financial condition, credit rating and near-term prospects of the issuer, (c) whether the issuer is current on contractually obligated interest and principal payments, (d) changes in the financial condition of the security’s underlying collateral, and (e) the payment structure of the security.
Added
The Company’s determination of the best estimate of expected future cash flows, which is used to determine the credit loss amount, is a quantitative and qualitative process that incorporates information received from third-party sources along with internal assumptions and judgments regarding the future performance of the security.
Added
The Company concluded that, as of December 31, 2023, unrealized losses on securities reflected changes in market interest rates after the securities were purchased, except as noted below with regard to the $ 10.0 million trust preferred security.
Added
The Company’s unrealized loss for other debt securities is primarily related to general market conditions, including a lack of liquidity in the market. The severity of the impact of fair value in relation to the carrying amounts of the individual investments is consistent with market developments. The Company’s analysis of each investment is performed at the security level.
Added
As a result of its quarterly review, the Company concluded that an allowance was not required to recognize credit losses in either 2022 or 2021.
Added
In 2023, the Company recognized a provision of $ 10.0 million for the total $ 10.0 million par value of the only trust preferred security in its portfolio, based upon limited financial and other information received from the issuer. 4.
Added
Loans and ACL Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are classified as held for investment and are stated at amortized cost, net of unearned discounts, unearned loan fees and an ACL.
Added
For loans held for investment at amortized cost, the Company, effective January 1, 2020, began to utilize a current expected credit loss (“CECL”), methodology to determine the ACL.
Added
CECL accounting replaced the prior incurred loss model that recognized losses when it became probable that a credit loss would be incurred, with a new requirement to recognize lifetime expected credit losses immediately when a 89 financial asset is originated or purchased.
Added
Accordingly, CECL requires loss estimates for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts. The ACL is established through a provision for credit losses charged to expense. Loan principal considered to be uncollectible by management is charged against the ACL.
Added
The allowance is an amount that management believes is appropriate and supportable to absorb current and future expected losses on existing loans that may become uncollectible.
Added
The evaluation takes into consideration historical losses by pools of loans with similar risk characteristics and qualitative factors such as portfolio performance and the potential impact of current economic conditions which may affect the borrowers’ ability to pay.
Added
For most pools, the historical loss ratio for each pool is multiplied by its outstanding balance and further multiplied by the estimated remaining average life of each pool. A qualitative factor determined according to the pool’s risk characteristics, is multiplied by the pool’s outstanding principal to comprise the second component of its ACL.
Added
For loans previously classified in discontinued operations, discounted cash flow is utilized to determine the related allowance. For SBLOC and IBLOC pools, which have not experienced significant credit losses, probability of loss/loss given default considerations and qualitative factors are utilized. Additionally, the allowance includes allocations for specific loans which have been individually evaluated for an ACL.
Added
Factors considered by management in determining the need for individual loan evaluation for a specific allowance include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not evaluated for an allowance for that reason alone.
Added
Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record and the amount of the shortfall in relation to the principal and interest owed.
Added
The determination of the amount of the allowance calculated on individual loans considers either the present value of expected future cash flows discounted at the loan's effective interest rate or the estimated fair value of the collateral if the loan is collateral dependent.
Added
An allowance allocation is established for such loans in the amount their carrying value exceeds the present value of future cash flows; or, if collateral dependent, the amount their carrying value exceeds the collateral’s estimated fair value.
Added
The estimated fair values of substantially all of the Company's allowances on individual loans are measured based on the estimated fair value of the loan's collateral, and applicable loans are primarily found in two portfolios.
Added
First, for small business commercial loans (“SBLs”) secured by real estate (primarily SBA), estimated fair values of collateral are determined primarily through third-party appraisals or evaluations. When a real estate secured loan is individually evaluated for a potential ACL, a decision is made regarding whether an updated certified appraisal of the real estate is necessary.
Added
This decision is based on various considerations including the age of the most recent appraisal and the condition of the property. Appraised value, discounted by the estimated costs to sell the collateral, is considered to be the estimated fair value.
Added
For SBL commercial and industrial loans secured by non-real estate collateral, such as accounts receivable or inventory and equipment, estimated fair values are determined based on the borrower's financial statements, inventory reports, accounts receivable agings or equipment appraisals or invoices.
Added
Indications of value from these sources may be discounted based on the age of the financial information or the quality of the assets. Amounts guaranteed by the U.S. government are excluded from the Company’s allowance evaluations. Second, for leasing, fair values are determined utilizing authoritative industry sources such as Black Book.
Added
The CECL methodology and the loan analyses performed on individual loans described above comprise the components of the ACL. On a quarterly basis, the allowance is adjusted to the total of those components through the provision for credit losses.
Added
The ACL represents management's estimate of losses inherent in the loan and lease portfolio as of the consolidated balance sheet date and is recorded as a reduction to loans and leases. If the quarterly analysis of those two components exceeds the balance of the ACL, the allowance is increased by the provision for credit losses.
Added
Loans deemed to be uncollectible are charged against the ACL, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.

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