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What changed in Bancorp, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Bancorp, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+530 added−994 removedSource: 10-K (2025-03-03) vs 10-K (2024-02-29)

Top changes in Bancorp, Inc.'s 2024 10-K

530 paragraphs added · 994 removed · 349 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

98 edited+8 added−9 removed183 unchanged
Biggest changeThe Company strives to foster and maintain a workplace that offers a positive, inclusive culture for all employees and uses annual employee engagement surveys to gather employee feedback. These survey results are considered in the planning and implementation of employee programs, initiatives, and communications.
Biggest changeThe Company implements strategies and initiatives that promote these values at all levels of the Company, such as training, employee resource groups (“ERGs”), and community service activities . Employee Engagement. The Company strives to foster and maintain a workplace that offers a positive, inclusive culture for all employees and uses annual employee engagement surveys to gather employee feedback.
Change in Control Additionally, under the Change in Bank Control Act and the BHCA, a person or company that acquires control of a bank holding company or bank must obtain the non-objection or approval of the Federal Reserve in advance of the acquisition.
Additionally, under the Change in Bank Control Act and the BHCA, a person or company that acquires control of a bank holding company or bank must obtain the non-objection or approval of the Federal Reserve in advance of the acquisition.
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.
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.
Unfair or Deceptive or Abusive Acts or Practices Section 5 of the Federal Trade Commission Act prohibits all persons, including financial institutions, from engaging in any unfair or deceptive acts or practices in or affecting commerce. Dodd-Frank codified this prohibition and expanded it even further by prohibiting abusive practices.
Section 5 of the Federal Trade Commission Act prohibits all persons, including financial institutions, from engaging in any unfair or deceptive acts or practices in or affecting commerce. Dodd-Frank codified this prohibition and expanded it even further by prohibiting abusive practices.
Community Reinvestment Act Under the Community Reinvestment Act of 1977 (“CRA”), a federally-insured institution has a continuing and affirmative obligation to help meet the credit needs of its community, including low-and moderate-income neighborhoods, consistent with the safe and sound operation of the institution.
Under the Community Reinvestment Act of 1977 (“CRA”), a federally-insured institution has a continuing and affirmative obligation to help meet the credit needs of its community, including low-and moderate-income neighborhoods, consistent with the safe and sound operation of the institution.
Volcker Rule Under provisions of Dodd-Frank known as the “Volcker Rule” and implementing regulations, banking entities may not (1) engage in short-term proprietary trading for their own accounts or (2) have certain ownership interests in and relationships with hedge funds or private equity funds, referred to as “covered funds.” The Volcker Rule also requires each regulated entity to establish an internal compliance program consistent with the extent to which it engages in prohibited activities, which must include (for the largest entities) making regular reports about those activities to regulators.
Under provisions of Dodd-Frank known as the “Volcker Rule” and implementing regulations, banking entities may not (1) engage in short-term proprietary trading for their own accounts or (2) have certain ownership interests in and relationships with hedge funds or private equity funds, referred to as “covered funds.” The Volcker Rule also requires each regulated entity to establish an internal compliance program consistent with the extent to which it engages in prohibited activities, which must include (for the largest entities) making regular reports about those activities to regulators.
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 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.
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 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 17 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.
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.
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 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.
For further discussion of compliance risk and other risks associated with our SBA loans, see Item 1A, “ Risk Factors— The success of our SBA lending program is dependent upon the continued availability of SBA loan programs, our status as a preferred lender under the SBA loan programs, our ability to comply with applicable SBA lending requirements and our ability to successfully manage related risks.” The 504 Program is designed to provide small businesses with financing for the purchase of fixed assets, including real estate and buildings; the purchase of improvements to real estate; the construction of new facilities or modernizing, renovating or converting existing facilities; the purchase of long-term machinery and equipment; and debt refinancing .
For further discussion of compliance risk and other risks associated with our SBA loans, see Item 1A, “ Risk Factors— The success of our SBA 5 lending program is dependent upon the continued availability of SBA loan programs, our status as a preferred lender under the SBA loan programs, our ability to comply with applicable SBA lending requirements and our ability to successfully manage related risks.” The 504 Program is designed to provide small businesses with financing for the purchase of fixed assets, including real estate and buildings; the purchase of improvements to real estate; the construction of new facilities or modernizing, renovating or converting existing facilities; the purchase of long-term machinery and equipment; and debt refinancing .
The OCC announced on September 28, 2023 that its supervisory strategies for 2024 will focus on: (a) asset and liability management; (b) credit risk management and allowance for credit losses (“ACL”); (c) cybersecurity; (d) operational resilience; (e) distributed ledger technology (“DLT”) related activities; (f) change management; (g) new products and services, including those related to payments and fintech/digital assets; (h) BSA/anti-money laundering and OFAC/sanctions programs compliance management; (i) consumer compliance and fair lending risk; (j) CRA 20 performance; and (k) climate-related financial risk management.
The OCC announced on September 28, 2023 that its supervisory strategies for 2024 will focus on: (a) asset and liability management; (b) credit risk management and allowance for credit losses (“ACL”); (c) cybersecurity; (d) operational resilience; (e) distributed ledger technology (“DLT”) related activities; (f) change management; (g) new products and services, including those related to payments and fintech/digital assets; (h) BSA/anti-money laundering and OFAC/sanctions programs compliance management; (i) consumer compliance and fair lending risk; (j) CRA performance; and (k) climate-related financial risk management.
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.
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 12 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.
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 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.
Some of the instruments of fiscal and monetary policy available to the Federal Reserve include changes in the discount rate on member bank borrowings, the fluctuating availability of borrowings at the “discount window,” open market operations, the imposition of and changes in reserve requirements against member banks’ deposits and assets of foreign branches, the imposition of and changes in reserve requirements against certain borrowings by banks and their affiliates, and the placing of limits on interest rates that member banks may pay on time and savings deposits.
Some of the instruments of fiscal and monetary policy available to the Federal Reserve include changes in the discount rate on member bank borrowings, the fluctuating availability of borrowings at the “discount window,” open market operations, the imposition of and changes in reserve requirements 20 against member banks’ deposits and assets of foreign branches, the imposition of and changes in reserve requirements against certain borrowings by banks and their affiliates, and the placing of limits on interest rates that member banks may pay on time and savings deposits.
Consumer transaction account banking services are provided to organizations with a pre-existing customer base tailored to support or complement the services provided by these organizations to their customers, which we refer to as “affinity or private label banking.” These services include loan and deposit accounts for investment advisory companies through our Institutional Banking department.
Consumer 3 transaction account banking services are provided to organizations with a pre-existing customer base tailored to support or complement the services provided by these organizations to their customers, which we refer to as “affinity or private label banking.” These services include loan and deposit accounts for investment advisory companies through our Institutional Banking department.
A depository institution is generally prohibited from making capital distributions (including paying dividends) or paying management fees to a holding company if the institution would thereafter be undercapitalized. As a result of Dodd-Frank, our financial holding company status depends upon our maintaining our status as “well capitalized” and “well managed” under applicable Federal Reserve regulations.
A depository 13 institution is generally prohibited from making capital distributions (including paying dividends) or paying management fees to a holding company if the institution would thereafter be undercapitalized. As a result of Dodd-Frank, our financial holding company status depends upon our maintaining our status as “well capitalized” and “well managed” under applicable Federal Reserve regulations.
The changes are also intended to provide greater clarity and consistency in the application of CRA regulations while tailoring CRA evaluations and data collection to bank size and type. Most of the rule’s requirements will be applicable beginning January 1, 2026. The revised regulations permit banks to meet their CRA requirements within an individually tailored strategic plan.
The changes are also intended to provide greater clarity and consistency in the application of CRA regulations while tailoring CRA evaluations and data collection to bank size and type. Most of the rule’s requirements will be applicable beginning January 1, 2026. The revised regulations permit 18 banks to meet their CRA requirements within an individually tailored strategic plan.
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.
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.
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.
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. 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.
Highlights of the program include: A security testing schedule, which includes internal/external penetration testing; Regular vulnerability assessments; Detailed vulnerability management; Monitoring and reporting of systems and critical applications; Data loss prevention controls; File access and integrity monitoring and reporting; Threat intelligence; A training and compliance program for staff, including a detailed policy; and Third-party vendor management.
Highlights of the program include: A security testing schedule, which includes internal/external penetration testing; Regular vulnerability assessments; Detailed vulnerability management; Monitoring and reporting of systems and critical applications; 8 Data loss prevention controls; File access and integrity monitoring and reporting; Threat intelligence; A training and compliance program for staff, including a detailed policy; and Third-party vendor management.
While we continue to have a compliance framework in place to comply with both existing and proposed rules and regulations, it is possible that the 10 existing regulatory framework may be amended, which amendments could have a positive or negative impact on our business, financial condition, results of operations and prospects.
While we continue to have a compliance framework in place to comply with both existing and proposed rules and regulations, it is possible that the existing regulatory framework may be amended, which amendments could have a positive or negative impact on our business, financial condition, results of operations and prospects.
We strive to maintain a diverse and inclusive work culture in which individual differences and experiences are valued and all employees have the opportunity to contribute and thrive. We believe that leveraging our employees’ diverse perspectives and capabilities will enhance innovation, foster a collaborative work culture and enable us to better serve our customers and communities.
We strive to maintain an inclusive work culture in which individual differences and experiences are valued and all employees have the opportunity to contribute and thrive. We believe that leveraging our employees’ diverse perspectives and capabilities will enhance innovation, foster a collaborative work culture and enable us to better serve our customers and communities.
Our primary competitors in each of our business lines differ significantly from those in our other business lines principally because few financial institutions compete against us in all business segments in which we operate. For prepaid and debit accounts, our largest source of funding and fee income, competitors include Pathward Financial and for SBLOC competitors include TriState Capital .
Our primary competitors in each of our business lines differ significantly from those in our other business lines principally because few financial institutions compete against us in all business segments in which we operate. For prepaid and debit card accounts, our largest source of funding and fee income, competitors include Pathward Financial and for SBLOC competitors include TriState Capital .
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.
Various consumer laws and regulations also affect the Bank’s operations. Any change in the regulatory requirements and policies by the OCC, the Federal 10 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.
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.
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 the financing amount.
ITEM 1. BUSINESS . Overview The Bancorp, Inc. (“the Company,” “we,” “us,” “our” or “the holding company”) is a Delaware financial holding company and our primary, wholly-owned subsidiary is The Bancorp Bank , National Association (“the “Bank”). The vast majority of our revenue and income is generated through the Bank.
ITEM 1. BUSINESS . Overview The Bancorp, Inc. (the “Company,” “we,” “us,” “our” or “the holding company”) is a Delaware financial holding company and our primary, wholly-owned subsidiary is The Bancorp Bank , National Association (the “Bank”). The vast majority of our revenue and income is generated through the Bank.
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 .
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. 7 Third-Party Service Providers .
The risks associated with our competitors are more fully discussed in Item 1A, “Risk Factors.” Human Capital Management We believe that human capital management is an essential component of our continued growth and success. Key human capital resources and management strategies are described below. Employees.
The risks associated with our competitors are more fully discussed in Item 1A, “Risk Factors.” Human Capital Management We believe that human capital management is an essential component of our continued growth and success. Key human capital resources and management strategies are described below. 9 Employees.
The Company’s subsidiary, The Bancorp Bank, National Association, is a nationally chartered and federally insured commercial bank supervised and examined by the Office of the Comptroller of the Currency (“OCC”) as its primary regulator, and the Federal Deposit Insurance Corporation (“FDIC”), the federal agency that administers the Deposit Insurance Fund (“DIF”).
The Company’s subsidiary, The Bancorp Bank, National Association, is a federally chartered and federally insured commercial bank supervised and examined by the Office of the Comptroller of the Currency (“OCC”) as its primary regulator, and the Federal Deposit Insurance Corporation (“FDIC”), the federal agency that administers the Deposit Insurance Fund (“DIF”).
Enforcement Under the FDIA, federal banking regulators have authority to bring actions against a bank and all affiliated parties, including stockholders, attorneys, appraisers and accountants, who knowingly or recklessly participate in wrongful actions likely to have an adverse effect on the bank.
Under the FDIA, federal banking regulators have authority to bring actions against a bank and all affiliated parties, including stockholders, attorneys, appraisers and accountants, who knowingly or recklessly participate in wrongful actions likely to have an adverse effect on the bank.
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.
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.
As a result, we have implemented and continue to assess and improve our security and privacy policies and procedures to protect personal and confidential information. Data privacy and data protection are areas of increasing regulatory focus, particularly at the state level.
As a result, we have implemented and continue to assess and improve our security and privacy policies and procedures to protect personal and confidential information. 15 Data privacy and data protection are areas of increasing regulatory focus, particularly at the state level.
The securities pledged may be either debt or equity securities or a combination thereof, but all such securities must be listed for trading on a national securities exchange or automated inter-dealer quotation system. SBLOCs are typically payable on demand.
The securities pledged may be either debt or equity securities or a combination thereof, but all such securities must be listed for trading on a national securities exchange or automated inter-dealer quotation system. SBLOCs are typically payable on 4 demand.
The Company’s Chief Human Resources Officer reports directly to the President and Chief Executive Officer (“CEO”) and oversees most aspects of the employee experience, including talent acquisition, learning and development, talent management , employee relations, payroll, compensation and benefits.
The Company’s Chief Human Resources Officer reports directly to the President and Chief Executive Officer (“CEO”) and oversees most aspects of the employee experience, including talent acquisition, learning and development, talent management , inclusion, employee relations, payroll, compensation and benefits. Talent Acquisition and Development.
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.
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 majority of our deposits and non-interest income are generated in our payments segment, or Fintech Solutions Group, which consists of consumer transaction accounts accessed by Bank-issued prepaid or debit cards and payment companies that process their clients’ corporate and consumer payments, automated clearing house (“ACH”) accounts, the collection of card payments on behalf of merchants and other payments through our Bank.
The majority of our deposits and non-interest income are generated in our fintech segment, which consists of consumer transaction accounts accessed by Bank-issued prepaid or debit cards and payment companies that process their clients’ corporate and consumer payments, automated clearing house (“ACH”) accounts, the collection of card payments on behalf of merchants and other payments through our Bank.
Standards for Safety and Soundness The FDIA requires each federal banking agency to prescribe for all insured depository institutions standards relating to, among other things, internal controls, information and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, fees, benefits and such other operational and managerial standards as the agency deems appropriate.
The FDIA requires each federal banking agency to prescribe for all insured depository institutions standards relating to, among other things, internal controls, information and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation, fees, benefits and such other operational and managerial standards as the agency deems appropriate.
Accordingly, prior to the December 31, 2025 expiration of our current CRA strategic plan, we plan to submit a new strategic plan to the OCC for their approval.
Accordingly, prior to the December 31, 2025 expiration of our current CRA strategic plan, we plan to submit a new strategic plan to the OCC for their approval. Enforcement.
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.
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. Permitted Activities.
At December 31, 2023, the Bank’s DIF assessment rate was 5 basis points, subject to increase at any time in the future. Pursuant to Dodd-Frank, the FDIC has established 2.0% as the designated reserve ratio (“DRR”), or the ratio of the DIF to insured deposits of the total industry.
At December 31, 2024, the Bank’s DIF assessment rate was 5 basis points, subject to increase at any time in the future. Pursuant to Dodd-Frank, the FDIC has established 2.0% as the designated reserve ratio (“DRR”), or the ratio of the DIF to insured deposits of the total industry.
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.
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.
These accounts are a source of demand deposits and fee income. Institutional Banking We have developed strategic relationships with affinity-based clients such as limited-purpose trust companies, registered investment advisers, broker-dealers and other firms offering institutional banking services.
These accounts are a source of demand deposits and fee income. Institutional Banking We have developed strategic relationships with affinity-based clients such as limited-purpose trust companies, registered investment advisors, broker-dealers and other firms offering institutional banking services.
Civil money penalties cover a wide range of violations and can amount to $27,500 per day, or even $1.1 million per day in especially egregious cases. Federal law also establishes criminal penalties for certain violations.
Civil money penalties cover a wide range of violations and can amount to $27,500 per day, or even $1.1 million per day in especially egregious cases. Federal law also establishes criminal penalties for certain violations. Reserve Requirements.
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.
These loans are collateralized by various types of commercial real estate, primarily multifamily (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.
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.
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. 11 Holding Company Liability.
The Federal Reserve also has established rules governing routing and exclusivity that require debit card issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product.
The Federal Reserve also has established rules governing routing and exclusivity that require debit card issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product. Volcker Rule.
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”).
Minimum capital ratios in effect at December 31, 2024 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”).
The policy provides that financial holding companies should not maintain a level of cash dividends that undermines the financial holding company’s ability to serve as a source of strength to its banking subsidiaries. See “ Holding Company Liability ” below. Federal Reserve policies also affect the ability of a financial holding company to pay in-kind dividends.
The policy provides that financial holding companies should not maintain a level of cash dividends that undermines the financial holding company’s ability to serve as a source of strength to its banking subsidiaries. See “ Holding Company Liability ” below. Federal Reserve policies also affect the ability of a financial holding company to pay in-kind dividends. Limitations on Bank Dividends.
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.
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.
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 would reduce the price at which we could sell the loan .
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 would reduce the price at which we could sell the loan . Consumer fintech loans.
For a publicly-traded bank holding company such as The Bancorp, Inc., control for purposes of the Change in Bank Control Act is presumed to exist if the acquirer will have 10% or more of any class of the company’s voting securities.
For a publicly-traded bank holding company such as The Bancorp, Inc., control for purposes of the Change in Bank Control Act is presumed to exist if the acquirer will have 10% or more of any class of the company’s voting securities. Limitations on Company Dividends.
Transactions with Affiliates and other Related Parties There are various legal restrictions on the extent to which a financial holding company and its non-bank subsidiaries can borrow or otherwise obtain credit from banking subsidiaries or engage in other transactions with or involving those banking subsidiaries.
There are various legal restrictions on the extent to which a financial holding company and its non-bank subsidiaries can borrow or otherwise obtain credit from banking subsidiaries or engage in other transactions with or involving those banking subsidiaries.
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.
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, 2024, 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.
Specialty Finance: Lending Activities Lending activities within our specialty lending segment include SBLOC, IBLOC and investment advisor loans, direct lease financing and SBLs. SBLOC, IBLOC and Investment Advisor Financing .
Specialty Finance: Lending Activities Lending activities within our specialty lending segment include SBLOC, IBLOC and investment advisor loans, direct lease financing, SBLs and consumer fintech loans. SBLOC, IBLOC and Investment Advisor Financing .
Our national specialty lending segment includes institutional banking, commercial real estate bridge lending, small business lending and commercial fleet leasing. Our institutional banking business line offers securities-backed lines of credit (“SBLOC”) and insurance policy cash value-backed lines of credit (“IBLOC”) through affinity groups such as investment advisors.
Our national specialty lending segment includes institutional banking, commercial real estate bridge lending, small business lending and commercial fleet leasing. Our Institutional Banking business line offers securities-backed lines of credit (“SBLOCs”) and insurance policy cash value-backed lines of credit (“IBLOCs”) through affinity groups such as investment advisors.
Permitted Activities The BHCA generally limits the activities of a financial holding company and its subsidiaries to that of banking, managing or controlling banks, or any other activity that is determined to be so closely related to banking or to managing or controlling banks that an exception is allowed for those activities.
The BHCA generally limits the activities of a financial holding company and its subsidiaries to that of banking, managing or controlling banks, or any other activity that is determined to be so closely related to banking or to managing or controlling banks that an exception is allowed for those activities. Change in Control.
Additionally, we offer commercial real estate bridge loans (sometimes referred to herein as “REBL” or “real estate bridge loans”), the vast majority of which are collateralized by apartment buildings.
Additionally, we offer commercial real estate bridge loans (sometimes referred to herein as “REBLs” or “real estate bridge loans”), the majority of which are collateralized by apartment buildings.
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.
As described more fully below, our business strategy is focused on fintech activities including payments and related deposits and credit sponsorship. We expect our fintech 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.
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.
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. 16 USA PATRIOT Act.
The Bank must search its records for any relationships or transactions with persons on those lists and, if it finds any such relationships or transactions, must report specific information to FinCEN and implement other internal compliance procedures in accordance with the Bank’s BSA/AML compliance procedures.
The Bank must search its records for any relationships or transactions with persons on those lists and, if it finds any such relationships or transactions, must report specific information to FinCEN and implement other internal compliance procedures in accordance with the Bank’s BSA/AML compliance procedures. Office of Foreign Assets Control.
Limitations on Bank Dividends Various federal provisions limit the amount of dividends that subsidiary banks can pay to their holding companies without regulatory approval.
Various federal provisions limit the amount of dividends that subsidiary banks can pay to their holding companies without regulatory approval.
As of December 31, 2023, we were in compliance with the Basel III rules. We remain in compliance with such rules and believe the Company and the Bank will continue to be able to meet targeted capital ratios. Actual ratios as of December 31, 2023 are shown in the following paragraph.
As of December 31, 2024, we were in compliance with the Basel III rules. We remain in compliance with such rules and believe the Company and the Bank will continue to be able to meet targeted capital ratios. Actual ratios as of December 31, 2024 are shown in the following paragraph. Prompt Corrective Action.
W e aim to attract, develop and retain high-performing, diverse talent who can further the Company’s strategic business objectives. To that end, we offer market-competitive compensation and s trive to accelerate employees’ professional development through performance management and fostering a learning culture.
W e aim to attract, develop and retain high-performing talent with a range of backgrounds and experiences who can further the Company’s strategic business objectives. To that end, we offer market-competitive compensation and s trive to accelerate employees’ professional development through performance management and fostering a learning culture.
The Bank has 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. Community Reinvestment Act.
As of December 31, 2023, we had 757 full-time employees and believe our relationship with our employees to be good. None of our employees are covered by a collective bargaining agreement. Our workforce as of that date included approximately 50% women and 24% racial and ethnic minorities. Oversight .
As of December 31, 2024, we had 771 full-time employees and believe our relationship with our employees to be good. None of our employees are covered by a collective bargaining agreement. Our workforce as of that date included approximately 50% women and 23% racial and ethnic minorities. Oversight .
Full-time employees are eligible for healthcare coverage, life and disability coverage, retirement benefits, paid and unpaid leave, employee assistance programs, and tuition reimbursement. These programs offer resources that promote employee well-being in various aspects, including mental, physical, and financial wellness. 9 Diversity and Inclusion .
Full-time employees are eligible for healthcare coverage, life and disability coverage, retirement benefits, paid and unpaid leave, employee assistance programs, and tuition reimbursement. These programs offer resources that promote employee well-being in various aspects, including mental, physical, and financial wellness. Inclusive Work Environment .
The Bank filters its customer base and transactional activity against OFAC-issued lists. The Bank performs these checks using purpose directed software, which is updated each time a modification is made to the lists provided by OFAC and other agencies.
The Bank filters its customer base and transactional activity against OFAC-issued lists. The Bank performs these checks using purpose directed software, which is updated each time a modification is made to the lists provided by OFAC and other agencies. Unfair or Deceptive or Abusive Acts or Practices.
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.
At December 31, 2024, the Company and the Bank had leverage ratios of 9.41% and 10.38%, 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.
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.
In addition, extensions of credit in excess of certain limits must be approved by the Bank’s Board of Directors. At December 31, 2024 and 2023, loans to these related parties amounted to $6.9 million and $5.7 million respectively. Standards for Safety and Soundness.
The system’s flexible architecture is designed to meet current capacity needs and allow expansion for future demands. In addition to built-in redundancies, we monitor our systems using automated internal tools, and use independent third parties to validate our controls. Cybersecurity.
The system’s flexible architecture is designed to meet current capacity needs and allow expansion for future demands. In addition to built-in redundancies, we monitor our systems using automated internal tools as well as third parties for Security and Network Operations Center Services and to validate our controls. Cybersecurity.
The CCPA contains several exemptions, including an exemption applicable to information that is collected, processed, sold or disclosed pursuant to GLBA. More states including, but not limited to, Colorado, Connecticut, Utah and Virginia, have implemented or are considering implementing similar legislation in the future.
The CCPA contains several exemptions, including an exemption applicable to information that is collected, processed, sold or disclosed pursuant to GLBA. More states including, but not limited to, Colorado, Connecticut, Utah and Virginia, have implemented or are considering implementing similar legislation in the future. We believe that the Company is taking the necessary steps to comply with these evolving laws.
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.
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. Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018.
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.
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 $1.50 billion at December 31, 2024, representing an increase from the prior year.
Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management controls or governance processes, pose a risk to the organization’s safety and soundness, and the organization is not taking prompt and effective measures to correct the deficiencies.
Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management controls or governance processes, pose a risk to the organization’s safety and soundness, and the organization is not taking prompt and effective measures to correct the deficiencies. 19 Dodd-Frank requires that the federal banking agencies, including the Federal Reserve and the OCC, issue a rule related to incentive-based compensation.
Should a financial holding company cease meeting these requirements, the Federal Reserve may impose corrective capital and managerial requirements on the financial holding company and place limitations on its ability to conduct the broader financial activities permissible for financial holding companies.
Should a financial holding company cease meeting these requirements, the Federal Reserve may impose corrective capital and managerial requirements on the financial holding company and place limitations on its ability to conduct the broader financial activities permissible for financial holding companies. In addition, the Federal Reserve may require divestiture of the holding company’s depository institution if the deficiencies persist.
Prior to June 30, 2021, the majority of the Bank’s deposits were classified as brokered, because related accounts, primarily prepaid and debit card deposit accounts, are obtained with the assistance of third parties.
Brokered Deposits. A “brokered deposit” is any deposit that is obtained from or through the mediation or assistance of a deposit broker. Prior to June 30, 2021, the majority of the Bank’s deposits were classified as brokered, because related accounts, primarily prepaid and debit card deposit accounts, are obtained with the assistance of third parties.
At December 31, 2023, the Bank’s limit on loans to one borrower was $141.2 million. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if such loan is secured by marketable securities.
At December 31, 2024, the Bank’s limit on loans to one borrower was 14 $138.3 million. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if such loan is secured by marketable securities. Transactions with Affiliates and other Related Parties.
Reserve Requirements Federal Reserve regulations require banks to maintain reserves against their demand deposits, with lesser reserves on limited transaction accounts, after subtraction of exempted amounts. For 2023, the exemptions for demand deposits 18 and limited transaction accounts were, respectively, $36.1 million and $644.0 million.
Federal Reserve regulations require banks to maintain reserves against their demand deposits, with lesser reserves on limited transaction accounts, after subtraction of exempted amounts. For 2024, the exemptions for demand deposits and limited transaction accounts were, respectively, $36.1 million and $644.0 million. At December 31, 2024, the Bank had $564.1 million in cash and balances at the Federal Reserve.
The card-accessed deposit accounts are comprised of debit and prepaid card accounts that are generated by companies that market directly to end users. Our card-accessed deposit account types are diverse and include: consumer and business debit, general purpose reloadable prepaid, pre-tax medical spending benefit, payroll, gift, government, corporate incentive, reward, business payment accounts and others.
Our card-accessed deposit account types are diverse and include: consumer and business debit, general purpose reloadable prepaid, pre-tax medical spending benefit, payroll, gift, government, corporate incentive, reward, business payment accounts and others.
At December 31, 2023, the Company and the Bank had total capital to risk-adjusted assets ratios of 16.23% and 17.92%, respectively, and Tier 1 capital to risk-adjusted assets ratios of 15.66% and 17.35%, respectively. In addition, the Federal Reserve and the OCC have established minimum leverage ratio guidelines to supplement the risk-based capital guidelines.
At December 31, 2024, the Company and the Bank had total capital to risk-adjusted assets ratios of 14.46% and 15.87%, respectively, and Tier 1 capital to risk-adjusted assets ratios of 13.88% and 15.29%, respectively. In addition, the Federal Reserve and the OCC have established minimum leverage ratio guidelines to supplement the risk-based capital guidelines.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisks 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. The appraised fair value of the assets from our commercial loans, at fair value or collateral from other loan categories may be more than the amounts received upon sale or other disposition. A failure to implement and maintain effective internal control over financial reporting could result in material misstatements in our financial statements which could require us to restate financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on our stock price. 22 Risks Related to Ownership of Our Common Stock The price of our common stock may decline or otherwise become volatile. An investment in our common stock is not an insured deposit. Future offerings of debt, which would be senior to our common stock upon liquidation, and/or preferred equity securities which may be senior to our common stock for purposes of dividend distributions or upon liquidation, may reduce the market price at which our common stock trades. 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. Anti-takeover provisions of our certificate of incorporation, bylaws and Delaware law may make it more difficult for holders of our common stock to receive a change in control premium. Our Amended and Restated Bylaws provide that certain courts in the State of Delaware or the federal district courts of the United States will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
Biggest changeRisks Related to Ownership of Our Common Stock The price of our common stock may decline or otherwise become volatile. An investment in our common stock is not an insured deposit. Future offerings of debt, which would be senior to our common stock upon liquidation, and/or preferred equity securities which may be senior to our common stock for purposes of dividend distributions or upon liquidation, may reduce the market price at which our common stock trades. 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. Anti-takeover provisions of our certificate of incorporation, bylaws and Delaware law may make it more difficult for holders of our common stock to receive a change in control premium. Our Amended and Restated Bylaws provide that certain courts in the State of Delaware or the federal district courts of the United States will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees. 23 General Risks Stimulus programs may result in potential liability or losses. Severe weather, natural disasters, geopolitical events, public health crises, trade disputes, acts of war or terrorism or other adverse external events could harm our business.
There is an increased focus and scrutiny from certain government regulators, investors, customers and other stakeholders on ESG practices and disclosure related to climate risk, hiring practices, the diversity of the work force and diversity, equity and inclusion.
There is an increased focus and scrutiny from certain government regulators, investors, customers and other stakeholders on ESG practices and disclosure related to climate risk, hiring practices, the diversity of the work force, equity and inclusion.
Risk 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.
Risk 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. 21 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. Legislative and regulatory actions taken now or in the future, including as a result of the new U.S. administration, 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.
Acquiring other banks or businesses involves various risks including, but not limited to: potential exposure to unknown or contingent liabilities of the target entity; exposure to potential asset quality issues of the target entity; difficulty and expense of integrating the operations and personnel of the target entity; potential disruption to our business; potential diversion of our management’s time and attention; the possible loss of key employees and customers of the target entity; difficulty in estimating the value of the target entity; potential changes in banking or tax laws or regulations that may affect the target entity; and difficulty navigating and integrating legal, operating cultural differences between the United States and the countries of the target entity’s operations.
Acquiring other banks or businesses involves various risks including, but not limited to: potential exposure to unknown or contingent liabilities of the target entity; exposure to potential asset quality issues of the target entity; difficulty and expense of integrating the operations and personnel of the target entity; potential disruption to our business; 29 potential diversion of our management’s time and attention; the possible loss of key employees and customers of the target entity; difficulty in estimating the value of the target entity; potential changes in banking or tax laws or regulations that may affect the target entity; and difficulty navigating and integrating legal, operating cultural differences between the United States and the countries of the target entity’s operations.
The Bank continues to closely monitor its performance in alignment with its CRA strategic plan to meet the specified lending, service and investment requirements contained 26 therein. There can be no assurance that we will maintain a satisfactory rating, and if not maintained, the Bank would be subject to certain business restrictions as required by the CRA and FDIC regulations.
The Bank continues to closely monitor its performance in alignment with its CRA strategic plan to meet the specified lending, service and investment requirements contained therein. There can be no assurance that we will maintain a satisfactory rating, and if not maintained, the Bank would be subject to certain business restrictions as required by the CRA and FDIC regulations.
If one of our third-party service providers terminates its agreement with us and we are unable to replace 27 it with another service provider, our operations may be interrupted. Even a temporary disruption in services could result in our losing customers, incurring liability for any damages our customers may sustain, or losing revenues.
If one of our third-party service providers terminates its agreement with us and we are unable to replace it with another service provider, our operations may be interrupted. Even a temporary disruption in services could result in our losing customers, incurring liability for any damages our customers may sustain, or losing revenues.
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 26 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.
The amount of prepaid, debit card and related fees that we earn is highly dependent on the interchange rates that the payment networks set and adjust from time to time . 33 The enactment of Dodd-Frank required the Federal Reserve Board to implement regulations that have substantially limited interchange fees for many issuers.
The amount of prepaid, debit card and related fees that we earn is highly dependent on the interchange rates that the payment networks set and adjust from time to time . The enactment of Dodd-Frank required the Federal Reserve Board to implement regulations that have substantially limited interchange fees for many issuers.
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.
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 be a more volatile source of funding.
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.
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.
As a result, our total operating revenues, operating results, prospects for future growth and overall business could be materially and adversely affected . The potential for fraud in the card payment industry is significant and could adversely affect our business and results of operations.
As a result, 35 our total operating revenues, operating results, prospects for future growth and overall business could be materially and adversely affected . The potential for fraud in the card payment industry is significant and could adversely affect our business and results of operations.
Our future success will depend on the ability of our officers and key employees to continue to implement and improve our operational, financial and management controls, reporting systems and procedures and manage a growing number of customer relationships.
Our future success will depend on the ability of our officers and key employees to continue 24 to implement and improve our operational, financial and management controls, reporting systems and procedures and manage a growing number of customer relationships.
These systems, as well as those of third-party service providers, may be targeted in cyberattacks, such as denial of service attacks, hacking, malware or ransomware intrusion, data corruption attempts, terrorist activities, 25 or identity theft .
These systems, as well as those of third-party service providers, may be targeted in cyberattacks, such as denial of service attacks, hacking, malware or ransomware intrusion, data corruption attempts, terrorist activities, or identity theft .
As a result, many potential customers may be unwilling to establish a relationship with us. Many conventional financial institutions offer the option of internet banking and financial services to their existing and prospective customers.
As a result, many potential customers may be unwilling to establish a relationship with us. 25 Many conventional financial institutions offer the option of internet banking and financial services to their existing and prospective customers.
For more information about the risks which are specific to the different types of loans we make and which could impact our allowance for credit losses, see Item 1, “Business –Lending Activities.” 30 The success of our SBA lending program is dependent upon the continued availability of SBA loan programs, our status as a Preferred Lender under the SBA loan programs, our ability to comply with applicable SBA lending requirements and our ability to successfully manage related risks.
For more information about the risks which are specific to the different types of loans we make and which could impact our allowance for credit losses, see Item 1, “Business –Lending Activities.” 31 The success of our SBA lending program is dependent upon the continued availability of SBA loan programs, our status as a Preferred Lender under the SBA loan programs, our ability to comply with applicable SBA lending requirements and our ability to successfully manage related risks.
For additional information on the impact of cybersecurity matters on us, see Item 1A, “ Risk Factors— 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.” 39 Governance Management regularly evaluates and enhances its cybersecurity measures to mitigate cybersecurity risks.
For additional information on the impact of cybersecurity matters on us, see Item 1A, “ Risk Factors— 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.” 41 Governance Management regularly evaluates and enhances its cybersecurity measures to mitigate cybersecurity risks.
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.
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. 37 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.
There is no assurance that our business continuity and disaster recovery program can adequately mitigate the risks of such business disruptions and interruptions. IT EM 1B. UNRESOLVED STAFF COMMENTS. None. 38 IT EM 1C. CYBERSECURITY Risk Management and Strategy We recognize the increasing significance of cybersecurity in the financial industry and the potential risks associated with cyber threats.
There is no assurance that our business continuity and disaster recovery program can adequately mitigate the risks of such business disruptions and interruptions. IT EM 1B. UNRESOLVED STAFF COMMENTS. None. 40 IT EM 1C. CYBERSECURITY. Risk Management and Strategy We recognize the increasing significance of cybersecurity in the financial industry and the potential risks associated with cyber threats.
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.
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.” 32 Our lending limit may adversely affect our competitiveness.
Additionally, the Risk Committee also reviews and approves the Cyber Risk Management Program Policy and Information Security Program Policy at least annually. Elevation to a full Board communication and/or interaction would occur upon the initiation of a cyber incident response, or a material compromise of business functionality, customer data or network integrity . 40
Additionally, the Risk Committee also reviews and approves the Cyber Risk Management Program Policy and Information Security Program Policy at least annually. Elevation to a full Board communication and/or interaction would occur upon the initiation of a cyber incident response, or a material compromise of business functionality, customer data or network integrity . 42
The exclusive forum provisions will be 37 applicable to the fullest extent permitted by applicable law, subject to certain exceptions. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
The exclusive forum provisions will be 39 applicable to the fullest extent permitted by applicable law, subject to certain exceptions. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
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.
Catastrophic events over which we have no control, including severe weather, natural disasters, geopolitical events, public health crises, trade disputes, acts of war or terrorism and other adverse external events could have a significant impact on our ability to conduct business.
Although we believe risks from cybersecurity threats have not materially affected our business strategy, results of operations, or financial condition during the fiscal year ended December 31, 2023, they may in the future, and we continue to closely monitor risks from cybersecurity threats.
Although we believe risks from cybersecurity threats have not materially affected our business strategy, results of operations, or financial condition during the fiscal year ended December 31, 2024, they may in the future, and we continue to closely monitor risks from cybersecurity threats.
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.
Investment in our common stock is 38 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.
If OREO or other non-performing assets increase, interest income will be reduced. National bank 32 regulations permit the holding of OREO for five years, with the possibility of an additional five year holding upon regulatory approval.
If OREO or other non-performing assets increase, interest income will be reduced. National bank 33 regulations permit the holding of OREO for five years, with the possibility of an additional five year holding upon regulatory approval.
General Risks We may also face residual risk related to our participation in the SBA Paycheck Protection Program (“PPP”) program established by the Coronavirus Aid, Relief, and Economic Security Act of 2020.
We may also face residual risk related to our participation in the SBA Paycheck Protection Program (“PPP”) program established by the Coronavirus Aid, Relief, and Economic Security Act of 2020.
While certain of these relationships may have changed their ranking in the top ten of the affinity groups with which we have contractual relationships, the affinity groups themselves were identical in both years. We believe that payroll, debit, and government-based accounts such as child support are comparable to traditional consumer checking accounts.
While certain of these relationships may have changed their ranking in the top ten of the affinity groups with which we have contractual relationships, the affinity groups themselves were generally identical at both dates. We believe that payroll, debit, and government-based accounts such as child support are comparable to traditional consumer checking accounts.
Our regulatory lending limit as of December 31, 2023, to any one customer or related group of customers was $141.2 million, computed on the basis of 15% of capital as defined by our regulators. That limit may be increased to 25% of regulatory defined capital, if the excess over 15% is collateralized by marketable securities.
Our regulatory lending limit as of December 31, 2024, to any one customer or related group of customers was $138.3 million, computed on the basis of 15% of capital as defined by our regulators. That limit may be increased to 25% of regulatory defined capital, if the excess over 15% is collateralized by marketable securities.
The DIF maintained by the FDIC to resolve bank failures is funded by fees assessed on insured depository institutions. Any further assessments or special assessments that the FDIC levies will be recorded as an expense during the appropriate period and will decrease our earnings.
Any additional future FDIC insurance premium increases will adversely affect our earnings. 27 The DIF maintained by the FDIC to resolve bank failures is funded by fees assessed on insured depository institutions. Any further assessments or special assessments that the FDIC levies will be recorded as an expense during the appropriate period and will decrease our earnings.
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.
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.
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.
At December 31, 2024, the ratios of the ACL to total loans and to non-performing loans were, respectively, 0.52% and 94.61%. 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.
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.
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.
We have policies and procedures designed to prevent violations of the extensive federal and state laws and regulations that we are subject to, however there can be no assurance that such violations will not occur.
We are subject to extensive government supervision with respect to our compliance with numerous laws and regulations. We have policies and procedures designed to prevent violations of the extensive federal and state laws and regulations that we are subject to, however there can be no assurance that such violations will not occur.
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.
The potential for fraud in the card payment industry is significant and could adversely affect our business and results of operations. 22 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.
T he deposit insurance assessment base is set as average consolidated total assets minus average tangible equity, and the rate applied against that base reflects factors including loan performance, capital levels and supervisory examination classification. with increased rates for brokered deposits.
T he deposit insurance assessment base is set as average consolidated total assets minus average tangible equity, and the rate applied against that base reflects factors including loan performance, capital levels and supervisory examination classification. with increased rates for brokered deposits. Changes in the aforementioned factors or further increases in assessment rates will adversely affect our earnings.
Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. General Risks Stimulus programs may result in potential liability or losses.
Risks Related to Our Specialty Lending Business Activities Changes in interest rates and loan production could reduce our income, cash flows and asset values. We are subject to lending risks. The success of our SBA lending program is dependent upon the continued availability of SBA loan programs, our status as a Preferred Lender under the SBA loan programs, our ability to comply with applicable SBA lending requirements and our ability to successfully manage related 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. A prolonged U.S. government shutdown or default by the United States on government obligations could harm our results of operations.
Risks Related to Our Specialty Lending Business Activities Changes in interest rates and loan production could reduce our income, cash flows and asset values. We are subject to lending risks. The success of our SBA lending program is dependent upon the continued availability of SBA loan programs, our status as a Preferred Lender under the SBA loan programs, our ability to comply with applicable SBA lending requirements and our ability to successfully manage related 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. A prolonged U.S. government shutdown or default by the United States on government obligations could harm our results of operations. Agreements between the Bank and third parties to market and service Bank-originated consumer loans may subject the Bank to credit, fraud and other risks, as well as claims from regulatory agencies and third parties that, if successful, could negatively impact the Bank's current and future business. We have entered into agreements with third party marketers and servicers for consumer fintech loans which we have begun originating, and which present credit and other risks.
Our established Cybersecurity Program is mapped to the NIST Cybersecurity framework (“NIST CSF”), Payment Card Industry Data Security Standards (“PCI DSS”), the Center for Internet Security (“CIS”) Critical Security Controls, the Federal Financial Institutions Examination Council (“FFIEC”) Cybersecurity Assessment Tool, and relevant International Organization for Standardization (“ISO”) standards to maintain the confidentiality, integrity, and availability of our information systems, networks, and corporate and customer data.
Our established Cybersecurity Program is mapped to the NIST Cybersecurity framework (“NIST CSF”), Payment Card Industry Data Security Standards (“PCI DSS”), the Center for Internet Security (“CIS”) Critical Security Controls, and relevant ISO standards to maintain the confidentiality, integrity, and availability of our information systems, networks, and corporate and customer data.
Such balances in the top ten relationships at year-end 2022 totaled $3.08 billion while balances related to payment companies, including companies sponsoring incentive and gift card payments, amounted to $1.35 billion.
Such balances in the top ten relationships at year-end 2024 totaled $3.81 billion while balances related to consumer and business payment companies, including companies sponsoring incentive and gift card payments, amounted to $2.38 billion.
Climate change or government action and societal responses to climate change could adversely affect our results of operations. Climate change can increase the likelihood of the occurrence and severity of natural disasters and can also result in longer-term shifts in climate patterns such as extreme heat, sea level rise and more frequent and prolonged drought.
Climate change can increase the likelihood of the occurrence and severity of natural disasters and can also result in longer-term shifts in climate patterns such as extreme heat, sea level rise and more frequent and prolonged drought.
If other affinity group relationships were to be terminated in the future, it could materially reduce our deposits, assets and income. We cannot assure you that we could replace such relationships. If we cannot replace such relationships, we may be required to seek higher rate funding sources as compared to any exiting affinity group and interest expense might increase.
We cannot assure you that we could replace such relationships. If we cannot replace such relationships, we may be required to seek higher rate funding sources as compared to any exiting affinity group and interest expense might increase.
Any of these risk factors could lead to material adverse effects on our business, operating results and financial condition. Additional risks and uncertainties not currently known to us or that we currently do not view as material may also become materially adverse our business in future periods or if circumstances change.
Additional risks and uncertainties not currently known to us or that we currently do not view as material may also become materially adverse our business in future periods or if circumstances change.
In addition, we could be criticized by ESG detractors for the scope or nature of our ESG-related activities. We could also be subjected to negative responses by governmental actors (such as anti-ESG legislation or retaliatory legislative treatment) or 29 customers (such as boycotts or negative publicity campaigns) that could adversely affect our reputation, results of operations and financial condition.
We could also be subjected to negative responses by governmental actors (such as anti-ESG legislation or retaliatory legislative treatment) or customers (such as boycotts or negative publicity campaigns) that could adversely affect our reputation, results of operations and financial condition. 30 Climate change or government action and societal responses to climate change could adversely affect our results of operations.
While the underlying causes of these recent market events are not apparent within the Company or the Bank, these recent events and regulatory agency responses, including increased FDIC insurance premiums or assessments, could have a material impact on our business. 23 We cannot assure you that we will be able to accomplish our strategic goals as necessary to meet our financial targets.
While the underlying causes of these recent market events are not apparent within the Company or the Bank, these recent events and regulatory agency responses, including increased FDIC insurance premiums or assessments, could have a material impact on our business.
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.
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.
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.
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.
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.
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.
Any such failure to maintain such U.S. government operations would impede our ability to originate SBA loans and our ability to sell such loans, which could in turn adversely impact our results of operations. Risks Relating to Our Payments Business Activities Regulatory and legal requirements applicable to the prepaid and debit card industry are unique and frequently changing.
Any such failure to maintain such U.S. government operations would impede our ability to originate SBA loans and our ability to sell such loans, which could in turn adversely impact our results of operations.
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.
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.
General Risks Severe weather, natural disasters, geopolitical events, public health crises, acts of war or terrorism or other adverse external events could harm our business. Investing in our common stock involves risk. The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained in this Annual Report on Form 10-K.
Investing in our common stock involves risk. The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained in this Annual Report on Form 10-K. Any of these risk factors could lead to material adverse effects on our business, operating results and financial condition.
We have multi-year, contractual relationships with affinity groups which sponsor such accounts and with whom we have had long-term relationships (see Item 1, “Business—Our Strategies”). Those long-term relationships comprise the majority of our deposits while we continue to grow and add new client relationships.
Our funding is comprised primarily of millions of small transaction-based consumer balances, the vast majority of which are FDIC-insured. We have multi-year, contractual relationships with affinity groups which sponsor such accounts and with whom we have had long-term relationships (see Item 1, “Business—Our Strategies”).
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. Federal and state regulatory agencies frequently adopt changes to their regulations or change the manner in which existing regulations are interpreted and applied.
Federal and state regulatory agencies frequently adopt changes to their regulations or change the manner in which existing regulations are interpreted and applied.
The nature and level of severe weather and/or natural disasters cannot be predicted and may be exacerbated by global climate change.
The nature and level of severe weather and/or natural disasters cannot be predicted and may be exacerbated by global climate change. Severe weather, or the threat of severe weather, may impact the value of collateral securing our loans and our borrowers’ operations, or the cost and availability of insurance, both of which could result in losses.
Our future earnings will reflect our level of success in replacing and growing both our loans and deposits at targeted rates and yields, and the payments transactions from which we derive fee income. Our businesses differ from most banks in the nature of both our lending niches and our payments businesses, and changes in loan acquisition and repayment speeds.
We cannot assure you that we will be able to accomplish our strategic goals as necessary to meet our financial targets. Our future earnings will reflect our level of success in replacing and growing both our loans and deposits at targeted rates and yields, and the payments transactions from which we derive fee income.
Loan, deposit and transaction growth rates and financial targets may also be impacted by other strategic goals and key considerations.
Our businesses differ from most banks in the nature of both our lending niches and our payments businesses, and changes in loan acquisition and repayment speeds. Loan, deposit and transaction growth rates and financial targets may also be impacted by other strategic goals and key considerations.
Moreover, if 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.
Moreover, if 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. 36 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.
Of our deposits at year-end 2022, the top three affinity groups accounted for approximately $2.41 billion, the next three largest accounted for $1.20 billion, and the four subsequent largest accounted for $822.9 million.
Those long-term relationships comprise the majority of our deposits while we continue to grow and add new client relationships. Of our deposits at year-end 2024, the top three affinity groups accounted for approximately $3.79 billion, the next three largest accounted for $1.64 billion, and the four subsequent largest accounted for $756.9 million.
In 2021 and 2023, for instance, two of our affinity group clients transferred their operations to their newly chartered banks. In 2023, the top five largest contributors to prepaid, debit card and related fees comprised approximately 54% of such income.
In 2024, the top five largest contributors to prepaid, debit card and related fees, comprised approximately 52% of prepaid, debit card, ACH, and other payment fees .
Removed
For full year 2023, the FDIC increased the initial base deposit insurance assessment rate schedules applicable to all insured depository institutions by 2 basis points. Changes in the aforementioned factors or further increases in assessment rates will adversely affect our earnings. We are subject to extensive government supervision with respect to our compliance with numerous laws and regulations.
Added
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.
Removed
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. Our funding is comprised primarily of millions of small transaction-based consumer balances, the vast majority of which are FDIC-insured.
Added
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.  The appraised fair value of the assets from our commercial loans, at fair value or collateral from other loan categories may be more than the amounts received upon sale or other disposition.  A failure to implement and maintain effective internal control over financial reporting could result in material misstatements in our financial statements which could require us to restate financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on our stock price.
Added
The Bank began operating under an OCC-approved strategic plan effective January 1, 2023 and the Bank was assigned a “Satisfactory” CRA rating in its most recent CRA performance evaluation, which was completed in February 2023.
Added
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. 28 Legislative and regulatory actions taken now or in the future, including as a result of the new U.S. administration, may increase our operating costs and impact our business, governance structure, financial condition or results of operations.
Added
“Anti-ESG” sentiment has gained momentum across the U.S., with a growing number of states, federal agencies, the executive branch and Congress having enacted, proposed or indicated an intent to pursue “anti-ESG” policies, legislation or issued related legal opinions and engaged in related investigations and litigation. In addition, corporate diversity, equity and inclusion (“DEI”) practices have recently come under increasing scrutiny.
Added
For example, some advocacy groups and federal and state officials have asserted that the U.S. Supreme Court’s decision striking down race-based affirmative action in higher education in June 2023 should be analogized to private employment matters and private contract matters and several media campaigns and cases alleging discrimination based on such arguments have been initiated since the decision.
Added
Additionally, in January 2025, President Trump signed a number of Executive Orders focused on DEI, which indicate continued scrutiny of DEI initiatives and potential related investigations of certain private entities with respect to DEI initiatives, including publicly traded companies.
Added
Agreements between the Bank and third parties to market and service Bank-originated consumer loans may subject the Bank to credit, fraud and other risks, as well as claims from regulatory agencies and third parties that, if successful, could negatively impact the Bank's current and future business.
Added
The Bank has entered into various agreements with unaffiliated third parties ("Marketers"), whereby the Marketers will market and service consumer loans underwritten and originated by the Bank. These agreements present potential increased credit, operational, and reputational risks.
Added
Because the loans originated under such programs are unsecured, in the event a borrower does not repay the loan in accordance with its terms or otherwise defaults on the loan, the Bank may not be able to recover from the borrower an amount sufficient to pay any remaining balance on the loan.
Added
We may also become subject to claims by regulatory agencies, customers, or other third parties due to the conduct of the third parties with which the Bank operates such lending programs if such conduct is deemed to not comply with applicable laws in connection with the marketing and servicing of loans originated pursuant to these programs.
Added
Certain types of these arrangements have been challenged both in the courts and in regulatory actions. In these actions, plaintiffs have generally argued that the "true lender" is the marketer and that the intent of such lending program is to evade state usury and loan licensing laws.
Added
Other cases have also included other claims, including racketeering and other state law claims, in their challenge of such programs. In 2020, the OCC issued final rules designed to clarify when a national bank such as the Bank will be considered the “true lender” in such relationships (the "True Lender Rule").
Added
In June 2021, the True Lender Rule was repealed and the OCC was prohibited from issuing any replacement of the True Lender Rule absent Congressional authorization.
Added
In the wake of the repeal of the True Lender Rule, several states have announced their intention to broaden oversight of non-bank fintech lenders, while certain parties have initiated litigation in order to obtain court guidance on how particular jurisdictions may weigh loan program facts and rule on “true lender” challenges.
Added
In addition, the Consumer Financial Protection Bureau and the Federal Trade Commission have each announced their intention to explore their authority to supervise nonbank lending partnerships in markets for consumer financial products and services. 34 Consequently, state and federal regulatory authorities may proceed on different paths to promulgate “true lender” restrictions, and, absent binding court rulings or direct legislative action, impacted parties may have little to no advance notice of new restrictions and compliance obligations.
Added
In the absence of applicable laws or regulations addressing these matters, true lender disputes will be determined on a case-by-case basis, informed by differing state laws and the facts in each instance.
Added
There can be no assurance that lawsuits or regulatory actions in connection with any such lending programs the Bank has entered, or will enter, into will not be brought in the future.
Added
If a regulatory agency, consumer advocate group, or other third party were to bring successful action against the Bank or any of the third parties with which the Bank operates such lending programs, there could be a material adverse effect on our financial condition and results of operations.
Added
We have entered into agreements with third party marketers and servicers for consumer fintech loans which we have begun originating, and which present credit and other risks. Consumer fintech loans present increased credit, fraud, operational and reputation risks. Unsecured loans which are not repaid, or mitigated by sale or other mitigations, will result in losses and reductions in income.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeLeasing 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.
Biggest changeWe 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. We own our property in Orlando, Florida, which houses our leasing operations, while the remainder of our properties are leased.
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.
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. Leasing offices are located in Crofton, Maryland, Smithfield, Utah, Orlando, Florida and Norristown, Pennsylvania.
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.
Location Expiration Square Feet Monthly Rent Bank Owned Property Orlando, Florida 8,850 Leased Space Crofton, Maryland 2025 3,364 $ 4,682 Smithfield, Utah 2028 6,451 6,975 Memphis, Tennessee 2025 1,128 1,950 Morrisville, North Carolina 2027 3,590 6,579 New York, New York (one of three properties is subleased) 2025 – 2035 13,782 45,033 Norristown, Pennsylvania 2028 7,180 10,500 Sioux Falls, South Dakota 2038 52,864 124,587 Westmont, Illinois 2026 3,003 3,431 Wilmington, Delaware 2028 70,968 160,139 We believe that our properties are suitable and adequate for our operations.
We 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 .
Locations and certain additional information regarding our offices and other material properties at December 31, 2024 are listed below .

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, 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.
Biggest changeWith respect to further repurchases in subsequent quarters under this program, 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. 44 The following table sets forth information regarding the Company’s purchases of its common stock during the quarter ended December 31, 2024: 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, 2024 - October 31, 2024 349,891 $ 52.92 349,891 $ 31,484 November 1, 2024 - November 30, 2024 217,768 55.29 217,768 19,444 December 1, 2024 - December 31, 2024 351,925 55.25 351,925 — Total 919,584 54.37 919,584 — (1) During the fourth quarter of 2024, all shares of common stock were repurchased pursuant to the 2024 Common Stock Repurchase Program, which was approved by the Board on October 26, 2023 and publicly announced on October 26, 2023.
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.
See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity.” 43 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.
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.
Under the 2025 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 Exchange Act. The 2025 Common Stock Repurchase Program may be modified or terminated at any time.
(2) The 2023 Repurchase Program may be suspended, amended or discontinued at any time and had an expiration date of December 31, 2023.
(2) The 2024 Common Stock Repurchase Program may be suspended, amended or discontinued at any time and had an expiration date of December 31, 2024.
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.
Under the 2024 Common Stock Repurchase Program, the Company is authorized to repurchase shares of its common stock totaling up to $50.0 million per quarter, for a maximum amount of $200.0 million in 2024.
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.
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 24, 2025, there were 48,067,178 shares of our common stock outstanding held by 22 record holders.
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.
On October 23, 2024, the Board approved a common stock repurchase program for the 2025 fiscal year (the “2025 Common Stock Repurchase Program”), which authorizes the Company to repurchase $37.5 million in value of the Company’s common stock per fiscal quarter in 2025, for a maximum amount of $150.0 million.
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.
To the extent that planned repurchases of $37.5 million per quarter in 2025 continue, they will likely continue to be funded by dividends from the Bank to us.
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.
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. 45 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, 2019 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 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.
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.
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.
T he Company repurchased 329,790 common shares between January 1, 2025 and February 24, 2025, at a total cost of $18.6 million and an average price of $56.43 per share pursuant to the 2025 Common Stock Repurchase Program.
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.
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. Stock repurchases are discretionary and may be terminated at any time.
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.
Period Ending Index 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 The Bancorp, Inc. 100.00 105.24 195.14 218.81 297.30 405.78 Nasdaq Bank Stock Index 100.00 89.37 124.84 101.92 95.12 111.03 Nasdaq Composite Stock Index 100.00 143.64 174.36 116.65 167.30 215.22 ‎ 46 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, 2019 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. 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
The graph assumes the reinvestment of all dividends. Period Ending Index 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 The Bancorp, Inc. 100.00 105.24 195.14 218.81 297.30 405.78 KBW Bank Index 100.00 86.37 116.64 88.96 84.70 112.45
The purchases authorized as described above, were made in each quarter of each respective year as noted above.
The Company increased its share repurchase authorization for the second quarter of 2024 from $50.0 million to $100.0 million, which increased the maximum amount under the 2024 Common Stock Repurchase Program to $250.0 million. The purchases authorized as described above, were made in each quarter of each respective year as noted above.
Removed
With respect to further repurchases in subsequent quarters under this program, 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
As of January 8, 2025, the most recent date for which we have beneficial ownership information, there were at least 29,784 beneficial owners of our common stock . 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 2025.
Removed
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
On October 26, 2023, the Board approved a common stock repurchase program for the 2024 fiscal year (the “2024 Common Stock Repurchase Program”).
Added
Under the 2024 Common Stock Repurchase Program, the Company was authorized to repurchase up to $50.0 million in each quarter of 2024 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 Company increased its share repurchase authorization for the second quarter of 2024 from $50.0 million to $100.0 million, which increased the maximum amount under the 2024 Common Stock Repurchase Program to $250.0 million.

Item 6. [Reserved]

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

173 edited+145 added−88 removed92 unchanged
Biggest changeThe following table presents the principal categories of non-interest expense for the periods indicated: For the year ended December 31, 2023 2022 Increase (Decrease) Percent Change (dollars in thousands) Salaries and employee benefits $ 121,055 $ 105,368 $ 15,687 14.9% Depreciation and amortization 3,074 2,902 172 5.9% Rent and related occupancy cost 5,980 5,193 787 15.2% Data processing expense 5,447 4,972 475 9.6% Printing and supplies 478 428 50 11.7% Audit expense 1,620 1,526 94 6.2% Legal expense 3,850 3,878 (28) (0.7%) Legal settlement — 1,152 (1,152) (100.0%) Civil money penalty — 1,750 (1,750) (100.0%) Amortization of intangible assets 398 398 — — FDIC insurance 2,957 3,270 (313) (9.6%) Software 17,349 16,211 1,138 7.0% Insurance 5,139 5,026 113 2.2% Telecom and IT network communications 1,316 1,457 (141) (9.7%) Consulting 1,938 1,262 676 53.6% Writedowns and other losses on OREO 1,315 — 1,315 100.0% Other 19,126 14,709 4,417 30.0% Total non-interest expense $ 191,042 $ 169,502 $ 21,540 12.7% Changes in categories of non-interest expense were as follows: Salaries and employee benefits expense increased to $121.1 million, an increase of $15.7 million, or 14.9%, from $105.4 million for 2022. 52 Depreciation and amortization expense increased $172,000, or 5.9%, to $3.1 million in 2023 from $2.9 million in 2022, reflecting the impact of the Sioux Falls, South Dakota relocation to new and expanded offices. Rent and related occupancy cost increased $787,000, or 15.2%, to $6.0 million in 2023 from $5.2 million in 2022, reflecting the impact of the Sioux Falls, South Dakota relocation to new and expanded offices . Data processing expense increased $475,000, or 9.6%, to $5.4 million in 2023 from $5.0 million in 2022, reflecting higher transaction volume . Printing and supplies expense increased $50,000, or 11.7%, to $478,000 in 2023 from $428,000 in 2022. Audit expense increased $94,000, or 6.2%, to $1.6 million in 2023 from $1.5 million in 2022. Legal expense decreased $28,000, or 0.7%, to $3.9 million for 2023 from $3.9 million in 2022, reflecting decreased legal costs related to the SEC matters discussed in “Note O—Commitments and Contingencies” to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022 . FDIC insurance expense decreased $313,000, or 9.6%, to $3.0 million for 2023 from $3.3 million in 2022, primarily as a result of a lower assessment rate.
Biggest changeS alaries and employee benefits increased 8.7%, reflecting increases in payments business related financial crimes, IT salary expense and incentive compensation expense, including stock compensation expense. 55 The following table presents the principal categories of non-interest expense for the periods indicated: For the year ended December 31, 2024 2023 Increase (Decrease) Percent Change (Dollars in thousands) Salaries and employee benefits $ 131,597 $ 121,055 $ 10,542 8.7% Depreciation 4,155 3,074 1,081 35.2% Rent and related occupancy cost 6,746 5,980 766 12.8% Data processing expense 5,666 5,447 219 4.0% Audit expense 1,484 1,620 (136) (8.4%) Legal expense 3,081 3,850 (769) (20.0%) Legal settlements 284 — 284 100.0% FDIC insurance 3,579 2,957 622 21.0% Software 17,913 17,349 564 3.3% Insurance 5,195 5,139 56 1.1% Telecom and IT network communications 1,227 1,316 (89) (6.8%) Consulting 1,852 1,938 (86) (4.4%) Write-downs and other losses on OREO — 1,315 (1,315) (100.0%) Other 20,446 20,002 444 2.2% Total non-interest expense $ 203,225 $ 191,042 $ 12,183 6.4% Changes in categories of non-interest expense were as follows: Salaries and employee benefits expense increased to $131.6 million, an increase of $10.5 million, or 8.7%, from $121.1 million for 2023. Depreciation expense increased $1.1 million, or 35.2%, to $4.2 million in 2024 from $3.1 million in 2023, reflecting the impact of the Sioux Falls, South Dakota relocation to new and expanded offices and a new expanded data center. Rent and related occupancy cost increased $766,000, or 12.8%, to $6.7 million in 2024 from $6.0 million in 2023, r eflecting the impact of the Sioux Falls, South Dakota relocation to new and expanded offices and a new expanded data center . Data processing expense increased $219,000, or 4.0%, to $5.7 million in 2024 from $5.4 million in 2023, reflecting higher transaction volume . Audit expense decreased $136,000, or 8.4%, to $1.5 million in 2024 from $1.6 million in 2023. Legal expense decreased $769,000, or 20.0%, to $3.1 million for 2024 from $3.9 million in 2023, reflecting a reimbursement of legal fees related to the Del Mar complaint described in “Note O — Commitments and Contingencies” to the audited consolidated financial statements in the 2023 Form 10-K. FDIC insurance expense increased $622,000, or 21.0%, to $3.6 million for 2024 from $3.0 million in 2023, reflecting increases in liabilities against which insurance rates are applied. Software expense increased $564,000, or 3.3%, to $17.9 million in 2024 from $17.3 million in 2023.
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.
The Bank placed the security in non-accrual status and continued previous efforts to obtain financial information from the issuer, which is not required to provide such information under the terms of the related indenture. Limited financial and other information finally distributed to holders in the fourth quarter of 2023, did not provide a substantial basis for repayment.
The Bank placed the security in non-accrual status and continued previous efforts to obtain financial information from the issuer, which is not required to provide such information under the terms of the related indenture. Limited financial and other information finally distributed to 54 holders in the fourth quarter of 2023, did not provide a substantial basis for repayment.
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.
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 repurchase common stock in 2021 and 2022.
The $3.7 million net realized and unrealized gains on commercial loans, at fair value for 2023 was comprised of $7.0 million of non-SBA commercial real estate bridge loan repayment related income, partially offset by $3.1 million of fair value losses and $124,000 of hedge lossses.
The $3.7 million net realized and unrealized gains on commercial loans, at fair value for 2023 was comprised of $7.0 million of non-SBA commercial real estate bridge loan repayment related income, partially offset by $3.1 million of fair value losses and $124,000 of hedge losses.
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.
Maximum loan amounts are subject to loan-to-value 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 .
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.
We describe how we calculate and use a number of these KPIs and analyze their results below . 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.
Gap analysis does not account for the fact that repricing of assets and liabilities is discretionary and subject to competitive and other pressures. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities.
Gap analysis does not account for the fact that repricing of assets and liabilities is discretionary and subject to competitive and other pressures. A gap is considered positive when the amount of interest rate sensitive assets exceeds 59 the amount of interest rate sensitive liabilities.
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.
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 the same time and in the same amount.
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.
Short-Term Borrowings W e had no outstanding advances from the FHLB or Federal Reserve Bank at December 31, 2024 or 2023 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.
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.
We do not believe that such uninsured accounts present a significant liquidity risk. Certain components of our deposits experience seasonality, creating 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. Treasury.
This information is intended to facilitate your understanding and assessment of significant changes and trends related to our financial condition and results of 44 operations. This MD&A should be read in conjunction with the audited interim consolidated financial statements and notes thereto contained in this Annual Report on Form 10-K.
This information is intended to 47 facilitate your understanding and assessment of significant changes and trends related to our financial condition and results of operations. This MD&A should be read in conjunction with the audited interim consolidated financial statements and notes thereto contained in this Annual Report on Form 10-K.
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”).
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, 2024, 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”).
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.
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, 2024.
That difference is recognized through the income statement, as with prior guidance, but is renamed a provision for credit loss. For the years ended December 31, 2022 and 2021, we recognized no credit-related losses on our portfolio. In 2023, we recognized a provision for credit loss on a trust preferred security. See “Provision for Credit Loss on Trust Preferred Security”.
That difference is recognized through the income statement, as with prior guidance, but is renamed a provision for credit loss. For the years ended December 31, 2024 and 2022, we recognized no credit-related losses on our portfolio. In 2023, we recognized a provision for credit loss on a trust preferred security. See “Provision for Credit Loss on Trust Preferred Security”.
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.
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, 2024 and December 31, 2023.
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.
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.
Overview Nature of Operations We are a Delaware financial holding company and our primary, wholly-owned subsidiary is The Bancorp Bank, National Association, or the Bank. The vast majority of our revenue and income is currently generated through the Bank.
Nature of Operations We are a Delaware financial holding company and our primary, wholly-owned subsidiary is The Bancorp Bank, National Association. The vast majority of our revenue and income is currently generated through the Bank.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides information about the Company’s results of operations, financial condition, liquidity and asset quality and provides comparisons between our results of operations for fiscal years 2023 and 2022.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides information about the Company’s results of operations, financial condition, liquidity and asset quality and provides comparisons between our results of operations for fiscal years 2024 and 2023.
In the second quarter of 2022, as a result of the loan reclassification, related valuation reserves were reversed as a credit to “Net realized and unrealized gains on commercial loans, at fair value” in the consolidated statement of operations, while the allowances for credit losses and loan commitments in the consolidated balance sheet were increased through a provision for credit losses.
As a result of the loan reclassification, related valuation reserves were reversed as a credit to “Net realized and unrealized gains on commercial loans, at fair value” in the consolidated statement of operations, while the allowances for credit losses and loan commitments in the consolidated balance sheet were increased through a provision for credit losses.
In 2020, we decided to retain these loans on our balance sheet as interest-earning assets and resumed originating such loans in the third quarter of 2021. These new originations are identified as real estate bridge loans and are held for investment in the loan portfolio.
In 2020, we decided to retain these loans on our balance sheet as interest-earning assets and resumed originating such loans in the third quarter of 2021. These new originations are identified as real estate bridge loans, consist of apartment building loans, and are held for investment in the loan portfolio.
The following table presents the book value and the approximate fair value for each major category of our investment securities portfolio. At December 31, 2023 and 2022, our investments were all categorized as available-for-sale (in thousands). December 31, 2023 Amortized Fair cost value U.S.
The following table presents the book value and the approximate fair value for each major category of our investment securities portfolio. At December 31, 2024 and 2023, our investments were all categorized as available-for-sale (dollars in thousands). December 31, 2024 Amortized Fair cost value U.S.
Our 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.
Our non-SBA commercial real estate bridge loans, at fair value, are primarily collateralized by multifamily properties (apartment buildings), and to a lesser extent, by hotel and retail properties. These loans were originally generated for sale through securitizations.
The amount of loans pledged against these lines varies and the collateral may be unpledged at any time to the extent remaining collateral value exceeds advances. Our collateralized line of credit with the Federal Reserve Bank had available accessible capacity of $1.95 billion as of December 31, 2023 and was collateralized by loans.
The amount of loans pledged against these lines varies and the collateral may be unpledged at any time to the extent remaining collateral value exceeds advances. Our collateralized line of credit with the Federal Reserve Bank had available accessible capacity of $1.99 billion as of December 31, 2024 and was collateralized by loans.
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.
At December 31, 2024, 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.
Average savings and money market account balances decreased $432.3 million between those periods, reflecting the sweeping of deposits off our balance sheet to other institutions. Such sweeps are utilized to optimize diversity within our funding structure by managing the percentage of individual client deposits to total deposits.
Average savings and money market account balances decreased $6.1 million between those periods, reflecting the sweeping of deposits off our balance sheet to other institutions. Such sweeps are utilized to optimize diversity within our funding structure by managing the percentage of individual client deposits to total deposits.
The vast majority of such payments are variable rate and equate to varying contractual percentages tied to the effective federal funds rate, which results from Federal Reserve rate hikes and reductions.
The vast majority of payments to affinity groups are variable rate and equate to varying contractual percentages tied to the effective federal funds rate, which results from Federal Reserve rate hikes and reductions.
In addition, all 7(a) Program loans and 504 Program loans require the personal guaranty of all 20% or greater owners. (5) Comprised of $28.6 million of loans sold that do not qualify for true sale accounting.
In addition, all 7(a) Program loans and 504 Program loans require the personal guaranty of all 20% or greater owners. (5) Comprised of $9.4 million of loans sold that do not qualify for true sale accounting.
These deposits generally originate with investment or trust companies or banks, which offer those deposits at market rates to FDIC-insured institutions, such that the balances are fully FDIC-insured. These deposits are generally classified as brokered.
These deposits generally originate with investment or trust companies or banks, which offer those deposits at market rates either themselves or through intermediaries to FDIC-insured institutions, such that the balances are fully FDIC-insured. These deposits are generally classified as brokered..
The balance of those categories represents SBA 504 Program loans with 50%-60% origination date LTVs. SBL Commercial excludes $28.6 million of loans that do not qualify for true sale accounting.
The balance of those categories represents SBA 504 Program loans with 50%-60% origination date LTVs. SBL Commercial excludes $9.4 million of loans that do not qualify for true sale accounting.
However, there can be no assurance that such ratios could not change significantly given the other variables discussed in the Asset and Liability Management section. In 2023, our demand and interest checking balances averaged $6.31 billion, compared to $5.67 billion 76 in 2022. The growth primarily reflected increases in payment company balances.
However, there can be no assurance that such ratios could not change significantly given the other variables discussed in the Asset and Liability Management section. In 2024, our demand and interest checking balances averaged $6.88 billion, compared to $6.31 billion in 2023. The growth primarily reflected increases in payment company balances.
The effective tax rate was 25.1% in 2023 compared to 26.8% in 2022 and reflects a 21% federal tax rate and state taxes. The lower rate in 2023 reflected the impact of adjustments related to state taxes in multiple states, including those related to the relocation of the Bank’s corporate headquarters to South Dakota.
The effective tax rate was 25.5% in 2024 compared to 25.1% in 2023 and reflects a 21% federal tax rate and state taxes. The lower rate in 2023 reflected the impact of adjustments related to state taxes in multiple states, including those related to the relocation of the Bank’s corporate headquarters to South Dakota.
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.
We expect to continue to maintain our facilities with the FHLB and Federal Reserve, which, with the approximate $1.0 billion of U.S. government agency securities, represent our most readily accessible liquidity sources. We actively monitor our positions and contingent funding sources daily.
The following table shows the effects of interest rate shocks on our MVPE and net interest income. Rate shocks assume that current interest rates change immediately and sustain parallel shifts.
The following table shows the effects of interest rate shocks on our net portfolio value described as MVPE and net interest income. Rate shocks assume that current interest rates change immediately and sustain parallel shifts.
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.
At December 31, 2024, both the Company and the Bank were “well capitalized” under banking regulations. 58 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, 2024 The Bancorp, Inc. 9.41% 13.88% 14.46% 13.88% The Bancorp Bank, National Association 10.38% 15.29% 15.87% 15.29% "Well capitalized" institution (under federal regulations-Basel III) 5.00% 8.00% 10.00% 6.50% 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% Asset and Liability Management The management of rate sensitive assets and liabilities is essential to controlling interest rate risk and optimizing interest margins.
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 the holding company. The holding company’s sources of liquidity are primarily comprised of dividends paid to it by the Bank and the issuance of debt.
To the extent that planned repurchases of $37.5 million per quarter in 2025 continue, they will likely continue to be funded by dividends from the Bank to the holding company. The holding company’s sources of liquidity are primarily comprised of dividends paid to it by the Bank and the issuance of debt.
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.
As of or for the year ended December 31, 2024 2023 2022 (Dollars in thousands) Securities sold under repurchase agreements Balance at year-end $ — $ 42 $ 42 Average during the year 3 41 41 Maximum month-end balance — 42 42 Weighted average rate during the year — — — Rate at December 31 — — — As of or for the year ended December 31, 2024 2023 2022 (Dollars in thousands) Short-term borrowings Balance at year-end $ — $ — $ — Average during the year 44,220 5,739 60,312 Maximum month-end balance 455,000 450,000 495,000 Weighted average rate during the year 5.58% 4.72% 2.55% 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.
For discussion and comparison of fiscal years 2022 and 2021, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 1, 2023.
For discussion and comparison of fiscal years 2023 and 2022, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 29, 2024.
We invest the funds we do not need for daily operations primarily in our interest-bearing account at the Federal Reserve. 53 Interest-bearing balances at the FRB, maintained on an overnight basis, averaged $677.5 million for the fourth quarter of 2023, compared to the prior year fourth quarter average of $424.3 million.
We invest the funds we do not need for daily operations primarily in our interest-bearing account at the Federal Reserve. Interest-bearing balances at the FRB, maintained on an overnight basis, averaged $527.8 million for the fourth quarter of 2024, compared to the prior year fourth quarter average of $677.5 million.
We believe that payroll, debit, and government-based accounts such as child support are comparable to traditional consumer checking accounts. Such balances in the top ten relationships at year-end 2023, totaled $2.91 billion while balances related to consumer and business payment companies, including companies sponsoring incentive and gift card payments, amounted to $1.72 billion.
We believe that payroll, debit, and government-based accounts such as child support are comparable to traditional consumer checking accounts. Such balances in the top ten relationships at year-end 2024, totaled $3.81 billion while balances related to consumer and business payment companies, including companies sponsoring incentive and gift card payments, amounted to $2.38 billion.
SBLOCs and IBLOCs are loans which are generated through affinity groups such as investment advisors and are respectively collateralized by marketable securities and the cash value of insurance policies. SBLOCs are typically offered in conjunction with brokerage accounts and are offered nationally.
SBLOCs and IBLOCs are loans that are generated through affinity groups and are respectively collateralized by marketable securities and the cash value of insurance policies. SBLOCs are typically offered in conjunction with brokerage accounts and are offered nationally.
The increase reflected the impact of the higher interest rate environment on variable rate loans and securities, partially offset by the impact of lower balances for securities and SBLOCs and IBLOCs, and commercial loans, at fair value which are in runoff.
The increase reflected the impact of the higher interest rate environment on loans and growth in certain loan categories, partially offset by the impact of lower balances for SBLOCs and IBLOCs, and commercial loans, at fair value which are in runoff.
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.
If the Bank ceases to be categorized as “well capitalized” under banking regulations, it will be prohibited from accepting, renewing or rolling over any of its deposits classified as brokered without the consent of the FDIC.
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.
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, fifteen insurance companies have been approved and, as of January 15, 2025, all were rated A- (Excellent) or better by AM BEST .
Of our deposits at year-end 2022, the top three affinity groups accounted for approximately $2.41 billion, the next three largest $1.20 billion, and the four subsequent largest $822.9 million. While certain of these relationships may have changed their ranking in the top ten, the affinity groups themselves were identical in both years.
Of our deposits at year-end 2023, the top three affinity groups accounted for approximately $2.33 billion, the next three largest $1.46 billion, and the four subsequent largest $852.1 million. While certain of these relationships may have changed their ranking in the top ten, the affinity groups themselves were identical in both years.
We do not believe that the changes in our deposits in the past two years significantly impacted overall liquidity or cost of funds as a result of such long-term relationships and a history of stability, further managed through multi-year contracts. Average deposits in 2023 increased by $139.3 million, or 2.2%, to $6.41 billion compared to $6.27 billion in 2022 .
We do not believe that the changes in our deposits in the past two years significantly impacted overall liquidity or cost of funds as a result of such long-term relationships and a history of stability, further managed through multi-year contracts. Average deposits in 2024 increased by $540.0 million, or 8.4%, to $6.95 billion compared to $6.41 billion in 2023 .
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.
At December 31, 2024 and December 31, 2023, IBLOC loans amounted to $548.1 million and $646.9 million, respectively. (2) In 2020, the Bank began originating loans to investment advisors for purposes of debt refinancing, acquisition of another firm or internal succession.
These consumer and commercial deposits are generated by independent companies that market directly to end users. Our deposit account types are diverse and include: consumer and business debit, general purpose reloadable prepaid, pre-tax medical spending benefit, payroll, gift, government, corporate incentive, reward, business and consumer payment accounts and others.
The card-accessed deposit accounts are comprised of debit and prepaid card accounts that are generated by companies that market directly to end users. Our card-accessed deposit account types are diverse and include: consumer and business debit, general purpose reloadable prepaid, pre-tax medical spending benefit, payroll, gift, government, corporate incentive, reward, 48 business payment accounts and others.
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 following table summarizes our loan portfolio, excluding loans held at fair value, by loan category for the periods indicated (dollars in thousands): December 31, December 31, December 31, December 31, December 31, 2024 2023 2022 2021 2020 SBL non-real estate $ 190,322 $ 137,752 $ 108,954 $ 147,722 $ 255,318 SBL commercial mortgage 662,091 606,986 474,496 361,171 300,817 SBL construction 34,685 22,627 30,864 27,199 20,273 SBLs 887,098 767,365 614,314 536,092 576,408 Direct lease financing 700,553 685,657 632,160 531,012 462,182 SBLOC / IBLOC (1) 1,564,018 1,627,285 2,332,469 1,929,581 1,550,086 Advisor financing (2) 273,896 221,612 172,468 115,770 48,282 Real estate bridge lending 2,109,041 1,999,782 1,669,031 621,702 — Consumer fintech (3) 454,357 — — — — Other loans (4) 111,328 50,638 61,679 5,014 6,426 6,100,291 5,352,339 5,482,121 3,739,171 2,643,384 Unamortized loan fees and costs 13,337 8,800 4,732 8,053 8,939 Total loans, net of unamortized loan fees and costs $ 6,113,628 $ 5,361,139 $ 5,486,853 $ 3,747,224 $ 2,652,323 The following table shows SBLs and SBLs held at fair value for the periods indicated (dollars in thousands): December 31, December 31, December 31, December 31, December 31, 2024 2023 2022 2021 2020 SBLs, including costs net of deferred fees of $9,979 and $9,502 for December 31, 2024 and December 31, 2023, respectively $ 897,077 $ 776,867 $ 621,641 $ 541,437 $ 577,944 SBLs included in commercial loans, at fair value 89,902 119,287 146,717 199,585 243,562 Total SBLs (5) $ 986,979 $ 896,154 $ 768,358 $ 741,022 $ 821,506 (1) SBLOC are collateralized by marketable securities, while IBLOC are collateralized by the cash surrender value of insurance policies.
Our average investment securities were $770.0 million for 2023 compared to $859.2 million for 2022, while related interest income increased $13.5 million on a tax equivalent basis primarily reflecting an increase in yields.
Our average investment securities were $1.33 billion for 2024 compared to $770.0 million for 2023, while related interest income increased $27.2 million on a tax equivalent basis primarily reflecting an increase in yields.
We have also pledged in excess of $1.10 billion of multi-family loans to the FHLB. As a result, we have approximately $731.5 million of availability on that line of credit which we can also access at any time. As of December 31, 2023, we had no amount outstanding on the Federal Reserve line or on our FHLB line.
We have also pledged in excess of $2.22 billion of multifamily loans to the FHLB. As a result, we have approximately $1.02 billion of availability on that line of credit which we can also access at any time. As of December 31, 2024, we had no amount outstanding on the Federal Reserve line or on our FHLB line.
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.
Included in our cash and cash-equivalents at December 31, 2024, were $564.1 million of interest-earning deposits, which primarily consisted of deposits with the Federal Reserve. These amounts may vary on a daily basis. In 2024, $242.7 million of securities redemptions were exceeded by purchases of $991.2 million. In 2023, $71.1 million of securities redemptions exceeded purchases of $49.0 million.
In that case, net interest income may also be decreased, at least in the short-term, prior to anticipated Federal Reserve rate reductions. 58 Financial Condition Genera l Our total assets at December 31, 2023 were $7.71 billion, of which our total loans and commercial loans, at fair value were $5.69 billion and investment securities available-for-sale were $747.5 million.
In that case, net interest income may also be decreased, at least in the short-term, prior to anticipated Federal Reserve rate reductions. Financial Condition Genera l Our total assets at December 31, 2024 were $8.73 billion, of which our total loans and commercial loans, at fair value were $6.34 billion and investment securities available-for-sale were $1.50 billion.
We also provide banking services to organizations with a pre-existing customer base tailored to support or complement the services provided by these organizations to their customers, known as “affinity group banking” or “private label banking.” These services include loan and deposit accounts for investment advisory companies through our institutional banking department.
Consumer transaction account banking services are provided to organizations with a pre-existing customer base tailored to support or complement the services provided by these organizations to their customers, which we refer to as “affinity or private label banking.” These services include loan and deposit accounts for investment advisory companies through our Institutional Banking department.
Our ACH accounts facilitate bill payments, and our collection services for payments made to merchants consist of those which must be settled through associations such as Visa or MasterCard.
Our ACH accounts facilitate bill payments and our acquiring accounts provide clearing and settlement services for payments made to merchants which must be settled through associations such as Visa or Mastercard.
Results of Operations Overview Net interest income continued its upward trend in 2023, increasing $105.2 million to $354.1 million in 2023 from $248.8 million in 2022.
Results of Operations Overview Net interest income continued its upward trend in 2024, increasing $22.2 million to $376.2 million in 2024 from $354.1 million in 2023.
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 .
Other Long-term Borrowings At December 31, 2024 and 2023, we had long-term borrowings of $14.1 million and $38.6 million respectively, which consisted of sold loans which were accounted for as secured borrowings, because they did not qualify for true sale accounting . 82 Other Liabilities Other liabilities amounted to $68.0 million at December 31, 2024 compared to $69.6 million at December 31, 2023.
We use a number of key performance indicators (“KPIs”) to measure our overall financial performance and believe they are useful to investors because they provide additional information about our underlying operational performance and trends .
Additionally, non-interest income from our payments businesses continued to grow. 49 We use a number of key performance indicators (“KPIs”) to measure our overall financial performance and believe they are useful to investors because they provide additional information about our underlying operational performance and trends .
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.
In 2022, $161.1 million of redemptions exceeded purchases of $24.2 million. As shown in the consolidated statements of cash flows, cash required to fund loans was $877.4 million in 2024 and $1.68 billion in 2022. In 2023, loan repayments exceeded disbursements.
Our funding is comprised primarily of millions of small transaction-based consumer balances, the vast majority of which are FDIC-insured. We have multi-year, contractual relationships with affinity groups which sponsor such accounts and with whom we have had long-term relationships (see Item 1. “ Business—Our Strategies ”).
Balances are subject to daily fluctuations, which may comprise a significant component of variances between dates. Our funding is comprised primarily of millions of small transaction-based consumer balances, the vast majority of which are FDIC-insured. We have multi-year, contractual relationships with affinity groups which sponsor such accounts and with whom we have had long-term relationships (see Item 1.
Those long-term relationships comprise the majority of our deposits while we continue to grow and add new client relationships. Of our deposits at year-end 2023, the top three affinity groups accounted for approximately $2.33 billion, the next three largest $1.46 billion, and the four subsequent largest $852.1 million.
“ Business—Our Strategies ”). Those long-term relationships comprise the majority of our deposits while we continue to grow and add new client relationships. Of our deposits at year-end 2024, the top three affinity groups accounted for approximately $3.79 billion, the next three largest $1.64 billion, and the four subsequent largest $756.9 million.
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.
Critical Accounting Estimates Our accounting and reporting policies conform with GAAP and general practices within the financial services industry. 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.
Provisions are based on our evaluation of the adequacy of our ACL, particularly in light of the estimated impact of charge-offs and the potential impact of current economic conditions which might impact our borrowers. The increased provision in 2023 over 2022 reflected higher provisions for leasing, including the impact of higher leasing charge-offs.
Provisions are based on our evaluation of the adequacy of our ACL, particularly in light of the estimated impact of charge-offs and the potential impact of current economic conditions which might impact our borrowers.
In such a case, the FDIC’s refusal to grant consent to our accepting, renewing or rolling over brokered deposits could effectively restrict or eliminate the ability of the Bank to operate its business lines as presently conducted. In December 2020, the FDIC issued a new regulation which resulted in the majority of our deposits being reclassified from brokered to non-brokered.
In such a case, the FDIC’s refusal to grant consent to our accepting, renewing or rolling over brokered deposits could effectively restrict or eliminate the ability of the Bank to operate its business lines as presently conducted.
Results of KPIs As of and for the years ended December 31, 2023 2022 2021 Income Statement Data: (in thousands, except per share data) 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 — — Non-interest income 112,094 105,683 104,749 Non-interest expense 191,042 169,502 168,350 Net income available to common shareholders $ 192,296 $ 130,213 $ 110,653 Net income per share – diluted $ 3.49 $ 2.27 $ 1.88 Selected Ratios: Return on average assets 2.59% 1.81% 1.68% Return on average common equity 25.62% 19.34% 17.94% Net interest margin 4.95% 3.55% 3.35% Book value per common share $ 15.17 $ 12.46 $ 11.37 Equity/assets 10.48% 8.78% 9.53% In the past three years, we have continued to target loan niches which we believe have lower credit risk than certain other forms of lending.
Results of KPIs As of and for the years ended December 31, 2024 2023 2022 Income Statement Data: (Dollars in thousands, except per share data) Net interest income $ 376,241 $ 354,052 $ 248,841 Provision for credit losses on non-consumer fintech loans 9,319 8,465 5,741 Provision (reversal) for credit loss on security (1,000) 10,000 — Non-interest income 146,482 112,094 105,683 Non-interest expense 203,225 191,042 169,502 Net income available to common shareholders $ 217,540 $ 192,296 $ 130,213 Net income per share – diluted $ 4.29 $ 3.49 $ 2.27 Selected Ratios: Return on average assets 2.71% 2.59% 1.81% Return on average common equity 27.24% 25.62% 19.34% Net interest margin 4.85% 4.95% 3.55% Book value per common share $ 16.55 $ 15.17 $ 12.46 Equity/assets 9.05% 10.48% 8.78% In the past three years, we have continued to target loan niches which we believe have lower credit risk than certain other forms of lending.
As a result of high rates of inflation, the Federal Reserve raised rates in each quarter of 2022 and in the first three quarters of 2023. Our largest funding source, prepaid and debit card accounts, contractually adjusts to only a portion of increases or decreases in rates which are largely determined by such Federal Reserve actions.
Our largest funding source, prepaid and debit card accounts, contractually adjusts to only a portion of increases or decreases in rates which are largely determined by such Federal Reserve actions.
A loan which is past due 90 days or more and still accruing interest remains on accrual status only when it is both adequately secured as to principal and interest, and is in the process of collection.
A loan which is past due 90 days or more and still accruing interest remains on accrual status only when it is both adequately secured as to principal and interest, and is in the process of collection . W e had $62.0 million of OREO at December 31, 2024 and $16.9 million at December 31, 2023.
We have four primary lines of specialty lending: SBLOC, IBLOC, and investment advisor financing; leasing (direct lease financing); SBLs, primarily SBA loans, and non-SBA commercial real estate bridge loans.
In our continuing operations, we have five primary lines of specialty lending in our national specialty finance segment: SBLOC, IBLOC, and investment advisor financing; leasing (direct lease financing); SBLs, primarily SBA loans, non-SBA commercial real estate bridge loans; and consumer fintech lending .
Government agency securities $ 35,346 $ 33,886 Asset-backed securities 327,159 325,353 Tax-exempt obligations of states and political subdivisions 4,860 4,851 Taxable obligations of states and political subdivisions 43,323 42,386 Residential mortgage-backed securities 169,882 160,767 Collateralized mortgage obligation securities 35,575 34,038 Commercial mortgage-backed securities 157,759 146,253 Corporate debt securities 10,000 — $ 783,904 $ 747,534 59 December 31, 2022 Amortized Fair cost value U.S.
Government agency securities $ 35,346 $ 33,886 Asset-backed securities 327,159 325,353 Tax-exempt obligations of states and political subdivisions 4,860 4,851 Taxable obligations of states and political subdivisions 43,323 42,386 Residential mortgage-backed securities 169,882 160,767 Collateralized mortgage obligation securities 35,575 34,038 Commercial mortgage-backed securities 157,759 146,253 Corporate debt securities 10,000 — $ 783,904 $ 747,534 Investments in FHLB, Atlantic Central Bankers Bank (“ACBB”), and FRB stock are recorded at cost and amounted to $15.6 million at December 31, 2024 and $15.6 million at December 31, 2023.
Accordingly, the Bank provided for a potential loss for the full amount of the $10.0 million par value of the security through a provision of $10.0 million. The security had previously been valued at $6.3 million through adjustments to equity.
Accordingly, the Bank provided for a potential loss for the full amount of the $10.0 million par value of the security through a provision of $10.0 million. The security had previously been valued at $6.3 million through adjustments to equity. In the fourth quarter of 2024, the issuer tendered an offer to repurchase these securities which the Company accepted.
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.
We have adopted policies designed to manage net interest income and preserve capital over a broad range of interest rate movements. 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.
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.
Premises and Equipment, Net Premises and equipment increased to $27.6 million at December 31, 2024 from $27.5 million at December 31, 2023 primarily as a result of expenditures for a new data center and the relocation of Sioux Falls office space, net of depreciation on prior balances.
While affinity groups may decide to pay interest or other remuneration to account holders, they do not currently do so for the vast majority of balances.
We pay interest directly to consumer account holders for an immaterial amount of deposit balances, while the vast majority of interest expense results from fees paid to affinity groups. While affinity groups may decide to pay interest or other remuneration to account holders, they do not currently do so for the vast majority of balances.
The following table presents the average balance and rates paid on deposits for the periods indicated (in thousands): December 31, 2023 December 31, 2022 Average Average Average Average balance rate balance rate Demand and interest checking (1) $ 6,308,509 2.30% $ 5,670,818 0.70% Savings and money market 78,074 3.66% 510,370 1.67% Time 20,794 4.13% 86,907 3.15% Total deposits $ 6,407,377 2.32% $ 6,268,095 0.82% (1) Of the amounts shown for 2023 and 2022, $177.0 million and $216.5 million, respectively, represented balances on which the Bank paid interest.
The following table presents the average balance and rates paid on deposits for the periods indicated (dollars in thousands): December 31, 2024 December 31, 2023 Average Average Average Average balance rate balance rate Demand and interest checking (1) $ 6,875,368 2.35% $ 6,308,509 2.30% Savings and money market 71,962 3.52% 78,074 3.66% Time — — 20,794 4.13% Total deposits $ 6,947,330 2.37% $ 6,407,377 2.32% 81 (1) Of the amounts shown for 2024 and 2023, $146.8 million and $177.0 million, respectively, represented balances on which the Bank paid interest.
Net Income: 2023 compared to 2022 Net income was $192.3 million in 2023 compared to $130.2 million in 2022, while income before taxes was, respectively, $256.8 million and $177.9 million, an increase of $78.9 million. In 2023, net interest income grew by $105.2 million and non-interest income increased $6.4 million.
Net Income: 2024 compared to 2023 Net income was $217.5 million in 2024 compared to $192.3 million in 2023, while income before taxes was, respectively, $292.2 million and $256.8 million, an increase of $35.4 million. In 2024, net interest income grew by $22.2 million and non-interest income increased $34.4 million.
Non-Interest Expense: 2023 compared to 2022 Total non-interest expense in 2023 was $191.0 million, an increase of $21.5 million, or 12.7%, from the $169.5 million in 2022.
Non-Interest Expense: 2024 compared to 2023 Total non-interest expense in 2024 was $203.2 million, an increase of $12.2 million, or 6.4%, from the $191.0 million in 2023.
Average savings and money market balances decreased to $46.4 million in the fourth quarter of 2023, compared to $474.3 million in the fourth quarter of 2022 as we swept deposits off our balance sheet to other institutions. Such sweeps are utilized to optimize diversity within our funding structure by managing the percentage of individual client deposits to total deposits.
Savings and money market balances are a modest percentage of our funding and we have swept such deposits off our balance sheet to other institutions. Such sweeps are utilized to optimize diversity within our funding structure by managing the percentage of individual client deposits to total deposits.
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.
December 31, 2024 2023 2022 2021 2020 (Dollars in thousands) Non-accrual loans SBL non-real estate $ 2,635 $ 1,842 $ 1,249 $ 1,313 $ 3,159 SBL commercial mortgage 4,885 2,381 1,423 812 7,305 SBL construction 1,585 3,385 3,386 710 711 Direct leasing 6,026 3,785 3,550 254 751 IBLOC 503 — — — — Real estate bridge loans (1) 12,300 — — — — Other loans — 132 692 — — Consumer - home equity — — 56 72 301 Total non-accrual loans 27,934 11,525 10,356 3,161 12,227 Loans past due 90 days or more and still accruing (2) 5,830 1,744 7,775 461 497 Total non-performing loans 33,764 13,269 18,131 3,622 12,724 OREO (3) 62,025 16,949 21,210 18,873 — Total non-performing assets $ 95,789 $ 30,218 $ 39,341 $ 22,495 $ 12,724 (1) The $12.3 million REBL shown for 2024 was repaid on January 2, 2025 without loss of principa l.
That pricing has generally supported the maintenance of a balance sheet for which net interest income tends to increase with increases in rates. While deposits reprice to only a portion of rate increases, interest-earning assets tend to adjust more fully to rate increases at contractual pricing intervals which may be monthly or up to several years.
While deposits reprice to only a portion of rate increases, interest-earning assets tend to adjust more fully to rate increases at contractual pricing intervals which may be monthly or up to several years.
We believe that the determination of (1) our allowance for credit losses 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 require estimates made in accordance with GAAP that 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.
We believe that the determination of our allowance for credit losses on loans, leases and securities requires estimates made in accordance with GAAP that 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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

1 edited+0 added−544 removed0 unchanged
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.
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. ‎ 84
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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 .
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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.
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The loans are segregated by product type to recognize differing risk characteristics within portfolio segments.
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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.
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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.
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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.
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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.
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Evaluating the reasonableness of management’s judgements in the selection and application of the qualitative factors required a high degree of auditor subjectivity.
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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.
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Philadelphia, Pennsylvania February 29, 2024 ‎ 82 THE BANCORP, INC.
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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.
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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 .
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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.
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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.
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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.
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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”).
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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”).
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The Bank has two primary lines of business consisting of its national specialty finance segment and its payments segment.
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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”).
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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 .
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
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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