What changed in this filing

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Item 1. Financial Statements

2022-08-15 compared with 2022-05-16 · 406 added, 279 removed, 623 unchanged (52% of the section changed)

1 unchanged sentence

FinWise Bancorp

Consolidated Balance Sheets (Unaudited)

Balance Sheets (Unaudited)

(in thousands, except share and par value amounts)

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Operating lease right-of-use (“ROU”) assets

Income tax receivable, net

LIABILITIES AND SHAREHOLDERS’ EQUITY

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Preferred stock, $ 0.001 par value, 4,000,000 authorized;

shares issued and outstanding as of March 31, 2022 and December 31, 2021

shares issued and outstanding as of June 30, 2022 and December 31, 2021

Common stock, $ 0.001 par value, 40,000,000 shares authorized;

and 12,772,010 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

and 12,772,010 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

Additional paid-in-capital

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(in thousands, except share and per share amounts)

For the Three Months Ended March 31,

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Interest income

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(in thousands, except share amounts)

Three Months Ended June 30, 2021

Shareholders’

Balance at March 31, 2021

Stock-based compensation expense

Balance at June 30, 2021

Six Months Ended June 30, 2021

Shareholders’

Balance at January 1, 2021

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Stock options exercised

Balance at June 30, 2021

FinWise Bancorp

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(in thousands, except share amounts)

Three Months Ended June 30, 2022

Shareholders’

Balance at March 31, 2022

Stock-based compensation expense

Balance at June 30, 2022

Six Months Ended June 30, 2022

Shareholders’

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Stock options exercised

Balance at March 31, 2022

Balance at June 30, 2022

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

FinWise Bancorp

Consolidated Statements of Cash Flows (Unaudited)

Consolidated Statements of

Cash Flows (Unaudited)

(in thousands)

For the Three Months

Ended March 31,

For the Six Months

Ended June 30,

Cash flows from operating activities:

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Change in fair value of BFG

Recovery of SBA servicing asset

Impairment of SBA servicing asset

Stock-based compensation expense

Deferred income tax benefit (expense)

Deferred income tax benefit

Net changes in:

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Other liabilities

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

Net increase in loans receivable

Net decrease in loans receivable

Distributions from BFG

1 unchanged sentence

Proceeds from maturities and paydowns of securities held-to-maturity

Purchases of securities held to maturity

Purchase of FHLB stock

1 unchanged sentence

Cash flows from financing activities:

Net increase in deposits

Net increase (decrease) in deposits

Proceeds from exercise of stock options

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Repayment of PPP Liquidity Facility

Net cash provided by financing activities

Net cash used in financing activities

Net change in cash and cash equivalents

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Supplemental disclosures of noncash operating activities:

Right-of-use assets obtained in exchange for operating lease liabilities (ASC 842 adoption effective January 1, 2022)

Right-of-use assets obtained in exchange for operating lease liabilities (ASC 842 adoption

effective January 1, 2022)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Note 1 – Summary of Significant Accounting Policies

Nature of business and organization – FinWise Bancorp is a Utah Corporation headquartered in Murray, Utah

and operates all business activities through its wholly-owned banking subsidiary, FinWise Bank, dba Utah Community Bank.

Utah Community Bank was incorporated in the state of Utah on May 7, 1999.

All West Bancorp was incorporated in the state of

Utah on October 22, 2002, after which, it acquired 100 % of Utah Community Bank.

As of March 4, 2016, Utah Community Bank’s articles of

incorporation were amended to rename the entity FinWise Bank.

As of March 15, 2021, All West Bancorp’s articles of incorporation were amended and restated to rename the entity FinWise Bancorp.

References herein to “FinWise Bancorp,” “Bancorp” or

the “holding company,” refer to FinWise Bancorp on a standalone basis.

Nature of business and organization – FinWise Bancorp is

a Utah Corporation headquartered in Murray, Utah and operates all business activities through its wholly-owned banking subsidiary, FinWise Bank, f/k/a Utah Community Bank.

FinWise Bank was incorporated in the state of Utah on May 7, 1999.

FinWise Bancorp, f/k/a All West Bancorp, was incorporated in the state of Utah on October 22, 2002, after which, it acquired 100 % of

FinWise Bank.

As of March 4, 2016, FinWise Bank’s articles of incorporation were amended to rename the entity FinWise Bank.

As of March 15, 2021, FinWise Bancorp’s articles of incorporation were amended and restated to rename the entity FinWise

References herein to “FinWise Bancorp,” “Bancorp” or the “holding company,” refer to FinWise Bancorp on a standalone basis.

The word “Company” refers to FinWise Bancorp and FinWise Bank collectively and on a consolidated basis.

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The Registration Statement was declared effective by the SEC on November 18, 2021.

In connection with

the IPO, the Company issued 4,025,000 shares of common stock, par value of $ 0.001 , which included 525,000 shares sold pursuant to the underwriters’

exercise of their option to purchase additional shares.

The securities were sold to the public at a price of $ 10.50 per share and began

trading on the Nasdaq Stock Market LLC on November 19, 2021.

On November 23, 2021, the closing date of the IPO, the Company received total net proceeds of $ 39.3

The net proceeds less other related expenses, including audit fees, legal fees, listing fees, and other expenses, totaled $ 35.6

The Bank is an independent bank that provides a full range of banking services to individual and corporate customers.

The Bank’s primary source of

revenue is from loans including Small Business Administration (SBA), commercial, commercial real estate, residential real estate, and consumer.

The Bank also has established Strategic Programs with various third-party loan origination platforms

that use technology to streamline the origination of unsecured consumer and secured or unsecured business loans to borrowers within certain approved credit profiles.

The Bank earns monthly program fees based on the volume of loans originated in

these Strategic Programs, as well as interest during the time the Bank holds the loans.

The Company is subject to competition from other financial institutions and to the regulations of certain federal and state agencies and undergoes

periodic examinations by those agencies.

In connection

with the IPO, the Company issued 4,025,000 shares of common stock, par value of $ 0.001 , which included 525,000 shares sold pursuant to the

underwriters’ exercise of their option to purchase additional shares.

The securities were sold to the public at a price of $ 10.50 per

share and began trading on the Nasdaq Stock Market LLC on November 19, 2021.

On November 23, 2021, the closing date of the IPO, the Company received total net proceeds of $ 39.3 million.

The net proceeds less other related expenses, including audit fees, legal fees, listing fees, and other expenses, totaled $ 35.6 million.

The Bank provides a full range of banking services to individual and commercial customers.

The Bank’s primary source of revenue is from loans

including consumer, Small Business Administration (SBA), commercial, commercial real estate, and residential real estate.

The Bank also has established Strategic Programs with various third-party loan origination platforms that use technology to

streamline the origination of unsecured consumer and secured or unsecured business loans to borrowers within certain approved credit profiles.

The Bank earns monthly program fees based on the volume of loans originated in these Strategic

Programs, as well as interest during the time the Bank holds the loans.

The Company is subject to competition from other financial institutions and to the regulations of certain federal and state agencies and

undergoes periodic examinations by those agencies.

COVID-19 – On March 11, 2020, the World Health Organization declared COVID-19 to be a global pandemic.

Local and national governments and regulatory authorities have systematically implemented remedial measures to try to slow and curb

the spread of COVID-19, including business closures and operating restrictions, travel bans, shelter in place, stay home, and similar directives and orders.

In response to the COVID-19 pandemic and in adherence with state and local guidelines,

the Company has implemented the business continuity plan and other measures and activities to protect the Company’s employees and, at the same time, to assist the Company’s clients and the communities of which the Company is a part, including

remote working for the majority of the Company’s employees, increased mobile banking and electronic transaction options for clients, payment deferral assistance to commercial and consumer borrowers, and participation in the SBA’s Paycheck

Protection Program (“PPP”) for loans to qualifying small businesses.

Local and national governments and regulatory authorities have systematically implemented remedial measures to try to slow and

curb the spread of COVID-19, including business closures and operating restrictions, travel bans, shelter in place, stay home, and similar directives and orders.

In response to the COVID-19 pandemic and in adherence with state and local

guidelines, the Company has implemented the business continuity plan and other measures and activities to protect the Company’s employees and, at the same time, to assist the Company’s clients and the communities of which the Company is a part,

including remote working for the majority of the Company’s employees, increased mobile banking and electronic transaction options for clients, payment deferral assistance to commercial and consumer borrowers, and participation in the SBA’s

Paycheck Protection Program (“PPP”) for loans to qualifying small businesses.

On March 22, 2020, the federal banking agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions

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This guidance encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19.

The guidance goes on

to explain that in consultation with the Financial Accounting Standards Board (“FASB”) staff that the federal banking agencies concluded that short-term modifications (e.g., six months) made on a good faith basis to borrowers who were current as of

the implementation date of a relief program are not troubled debt restructurings (“TDRs”).

The guidance goes

on to explain that in consultation with the Financial Accounting Standards Board (“FASB”) staff that the federal banking agencies concluded that short-term modifications (e.g., six months) made on a good faith basis to borrowers who were current

as of the implementation date of a relief program are not troubled debt restructurings (“TDRs”).

The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was passed by Congress on March 27, 2020.

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related modifications and specified that COVID-19 related modifications on loans that were current as of December 31, 2019 are not TDRs.

The Bank has applied this guidance related to payment deferrals and other COVID-19 related loan modifications.

The Bank has applied this guidance related to payment deferrals and other COVID-19 related loan

modifications.

The CARES Act also included a total allocation of $659 billion for loans to be issued by financial institutions through the Small Business

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PPP loans originated prior to June 5, 2020 have a term of two years, while PPP loans originated on or after June 5, 2020 have a term of five years.

Payments are deferred for at least

the first six months of the loan and the loans are 100 % guaranteed by the SBA.

The SBA pays the originating bank a processing fee

ranging from 1 % to 5 %,

Payments are deferred for at

least the first six months of the loan and the loans are 100 % guaranteed by the SBA.

The SBA pays the originating bank a processing

fee ranging from 1 % to 5 %,

based on the size of the loan.

At March 31, 2022, net deferred loan fees related to PPP loans was a de minimis amount, which will be recognized

over the life of the loans.

Participation in the PPP will likely have a positive impact on the Company’s financial position and results of operations as this fee income is recognized over the term of the PPP loans.

As of December 31, 2021, PPP

borrowers had applied for and received forgiveness from the SBA for $ 125.2 million of PPP loan principal and have made $ 0.3 million of principal payments leaving $ 1.1

million of PPP loan principal outstanding as of December 31, 2021.

During the three months ended March 31, 2022, PPP borrowers made $ 0.1

million of principal payments leaving $ 1.0 million of PPP loan principal outstanding as of March 31, 2022.

The loan forgiveness resulted

in the recognition of a de minimis amount of deferred loan fees for the three months ended March 31, 2022.

At June 30, 2022, net deferred loan fees related to PPP loans was a de minimis amount, which will be recognized over the

life of the loans.

As of December 31, 2021, PPP borrowers had applied for and received forgiveness from the SBA for $ 125.2 million of

PPP loan principal and had made $ 0.3 million of principal payments leaving $ 1.1 million of PPP loan principal outstanding as of December 31, 2021.

During the six months ended June 30, 2022, PPP borrowers made $ 0.4 million of principal payments leaving $ 0.7 million of PPP loan principal

outstanding as of June 30, 2022.

The loan forgiveness resulted in the recognition of a de minimis amount of deferred loan fees for the six months ended

June 30, 2022.

Basis of Presentation – The consolidated financial statements are comprised of the accounts of FinWise

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All significant inter-company transactions have been eliminated in consolidation.

In the opinion of management, all the adjustments

(consisting of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the unaudited periods presented have been included.

The results of

operations and other data presented for three months ended March 31, 2022 are not necessarily indicative of the results of operations that may be expected for subsequent periods or the full year results.

In the opinion of management, all the

adjustments (consisting of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the unaudited periods presented have been included.

results of operations and other data presented for three and six months ended June 30, 2022 are not necessarily indicative of the results of operations that may be expected for subsequent periods or the full year results.

Certain information and note disclosures usually included in financial statements prepared in accordance with U.S.

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Company’s audited consolidated financial statements and notes to the audited consolidated financial statements included in the Company’s December 31, 2021 Annual Report on Form 10-K.

Out-of-period adjustment – During the first quarter of 2022, we recognized a $( 0.8 ) million ($( 0.6 ) million net of tax) reduction of interest and fees on loans and loans

receivable, net as an out-of-period adjustment.

The adjustment was not considered material to the interim consolidated financial statements for the quarter ended March 31, 2022 or the financial statements of any previously filed interim or

Out-of-period adjustment – During the first quarter of 2022, we recognized a $( 0.8 )

million ($( 0.6 ) million net of tax) reduction of interest and fees on loans and loans receivable, net as an out-of-period

The adjustment was not considered material to the interim consolidated financial statements for the three months ended March 31, 2022, six months ended June 30, 2022, or the financial statements of any previously filed interim or

annual periods.

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comparability among organizations by, among other provisions, recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous U.S.

The new standard establishes a right-of-use

model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.

Leases will be classified as finance or operating, with classification affecting the pattern

and classification of expense recognition in the income statement.

The new standard establishes a

right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.

Leases will be classified as finance or operating, with classification affecting

the pattern and classification of expense recognition in the income statement.

A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application.

The guidance was initially effective

for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.

However, the FASB issued ASU 2020-05, Revenue from Contracts with Customers (Topic

606) and Leases (Topic 842):

The guidance was

initially effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.

However, the FASB issued ASU 2020-05, Revenue from Contracts

with Customers (Topic 606) and Leases (Topic 842):

Effective Dates for Certain Entities , delaying the effective date to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15,

In transition,

entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b)

lease classification or (c) determination of initial direct costs, as of the adoption date, which effectively allows entities to carryforward accounting conclusions under previous U.S.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842):

Targeted Improvements , which provides entities an optional transition method to apply the guidance under ASC Topic 842 as of the adoption date, rather than as of the earliest period

In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the

existence of a lease, (b) lease classification or (c) determination of initial direct costs, as of the adoption date, which effectively allows entities to carryforward accounting conclusions under previous U.S.

In July 2018, the FASB issued

ASU 2018-11, Leases (Topic 842):

Targeted Improvements , which provides entities an optional transition method to apply the guidance under ASC Topic 842 as of the adoption date, rather than as of the

earliest period presented.

The Company adopted this guidance on January 1, 2022, which resulted in an increase in assets and liabilities by $ 7.4

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supportable forecasts.

This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost, available-for-sale debt securities and applies to certain off-balance sheet

credit exposures.

sheet credit exposures.

This ASU was initially effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted.

However, the FASB issued an ASU to delay adoption for smaller

reporting companies to calendar year 2023.

The Company is currently assessing the impact of the adoption of this ASU on its consolidated financial statements.

However, the FASB issued an ASU to delay adoption

to January 1, 2023 for smaller reporting companies with less than $250 million in public float as defined by the SEC’s rules.

The Company is a smaller reporting company.

The Company plans to apply the amendment’s provisions as a

cumulative-effect adjustment to retained earnings at the beginning of the first period the amendment is effective.

The Company has formed a team that is working on an implementation plan to adopt the amendment.

The implementation plan is

expected to include developing policies, procedures, and internal controls over the model.

The Company is also working with a software vendor to measure expected losses required by the amendment.

The Company is currently evaluating the effects

that the adoption of this amendment will have on its consolidated financial statements and expects that the portfolio composition and economic conditions at the time of adoption will influence the accounting adjustment made at the time the

amendment is adopted.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326):

Troubled Debt

Restructurings and Vintage Disclosures .

These amendments eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the

modification represents a new loan or a continuation of an existing loan.

The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing

financial difficulty.

For public business entities, these amendments require that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investment in leases within the scope of Subtopic

This ASU is effective on January 1, 2023, the same effective date as ASU 2016-13.

The Company is currently evaluating the effects that the adoption of this amendment will have on its consolidated financial statements.

Note 2 – Investments

Investment securities held-to-maturity, at cost

The amortized cost, unrealized gains and losses, and estimated fair values of the Company’s held-to-maturity securities at March 31, 2022 and

The amortized cost, unrealized gains and losses, and estimated fair values of the Company’s held-to-maturity securities at June 30, 2022 and

December 31, 2021, are summarized as follows:

March 31, 2022

June 30, 2022

($ in thousands)

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Mortgage-backed securities

The Company had twelve securities in an unrealized loss position at March 31, 2022 and nine

The Company had fifteen securities in an unrealized loss position at June 30, 2022 and nine

securities in an unrealized loss position at December 31, 2021, as summarized in the following tables:

March 31, 2022

June 30, 2022

Less than 12 months

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Mortgage-backed securities

The amortized cost and estimated market value of debt securities at March 31, 2022, by contractual maturity are shown below.

Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay

obligations with or without call or prepayment penalties.

The amortized cost and estimated market value of debt securities at June 30, 2022 and December 31, 2021, by contractual maturity are shown below.

Actual maturities may differ from contractual

maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

June 30, 2022

December 31, 2021

($ in thousands)

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Total Securities held-to-maturity

At March 31, 2022, all held-to-maturity securities were pledged as collateral for a credit line held by the Bank.

There were no sales of investment securities during the three months ended March 31, 2022 or 2021.

At June 30, 2022, all held-to-maturity securities were pledged as collateral for a credit line held by the Bank.

There were no sales or transfers of investment securities and no realized gains or losses on these securities during the six months ended June 30, 2022 or 2021.

The Bank is a member of the FHLB system.

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of outstanding FHLB advances.

At March 31, 2022 and December 31, 2021, the Bank owned $ 0.4 million, respectively, of FHLB stock,

At June 30, 2022 and December 31, 2021, the Bank owned $ 0.4 million, respectively, of FHLB stock,

which is carried at cost.

The Company evaluated the carrying value of its FHLB stock investment at March 31, 2022 and determined that it was not impaired.

This evaluation considered the long-term nature of the investment, the current financial

and liquidity position of the FHLB, repurchase activity of excess stock by the FHLB at its carrying value, the return on the investment from recurring and special dividends, and the Company’s intent and ability to hold this investment for a

period of time sufficient to recover our recorded investment.

The Company evaluated the carrying value of its FHLB stock investment at June 30, 2022 and determined that it was not impaired.

This evaluation considered the long-term nature of the investment, the current financial and

liquidity position of the FHLB, repurchase activity of excess stock by the FHLB at its carrying value, the return on the investment from recurring and special dividends, and the Company’s intent and ability to hold this investment for a period of

time sufficient to recover our recorded investment.

Note 3 – Loans and Allowance for Loan Losses

Loans are summarized as follows according to major risk category as of March 31, 2022 and December 31, 2021:

Loans are summarized as follows according to major risk category as of June 30, 2022 and December 31, 2021:

($ in thousands)

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origination platforms that use technology and other innovative systems to streamline the origination of unsecured consumer and secured or unsecured business loans to a wide array of borrowers within certain approved credit profiles.

by the Company through these programs generally follow and are limited to specific predetermined underwriting criteria.

issued by the Company through these programs generally follow and are limited to specific predetermined underwriting criteria.

The Company earns monthly minimum program fees from these third parties.

Based on the volume of loans originated by the

Company related to each Strategic Program, an additional fee equal to a percentage of the loans generated under the Strategic Program may be collected.

Based on the volume of loans originated by

the Company related to each Strategic Program, an additional fee equal to a percentage of the loans generated under the Strategic Program may be collected.

The program fee is included within non-interest income on the Consolidated Statements of

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The Company may also hold a portion of the loans or receivable and sell the remainder directly to the Strategic Programs or other investors.

Company generally services the loans originated through the Strategic Programs in consideration of servicing fees equal to a percentage of the loans generated under the Strategic Programs.

In turn, the Strategic Program service providers, subject

to the Company’s approval and oversight, serve as sub-servicer and perform typical primary servicing duties including loan collections, modifications, charging-off, reporting and monitoring.

The Company generally services the loans originated through the Strategic Programs in consideration of servicing fees equal to a percentage of the loans generated under the Strategic Programs.

In turn, the Strategic Program service providers,

subject to the Company’s approval and oversight, serve as sub-servicer and perform typical primary servicing duties including loan collections, modifications, charging-off, reporting and monitoring.

Each Strategic Program establishes a “reserve” deposit account with the Company.

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account balance does not fall below the dollar amount of the total loans outstanding currently held by the Company for the specific Strategic Program.

If necessary, the Company has the right to withdraw amounts from the reserve account to fulfill

loan purchaser obligations created under the program agreements.

Total cash held in reserve by Strategic Programs at the Company at March 31, 2022 and December 31, 2021, was $ 50.8 million and $ 39.6 million, respectively.

Strategic Program loans retained and held-for-sale as of March 31, 2022 and December 31, 2021, are summarized as follows:

If necessary, the Company has the right to withdraw amounts from the reserve account to

fulfill loan purchaser obligations created under the program agreements.

Total cash held in reserve by Strategic Programs at the Company at June 30, 2022 and December 31, 2021, was $ 24.4 million and $ 39.6 million, respectively.

Strategic Program loans retained and held-for-sale as of June 30, 2022 and December 31, 2021, are summarized as follows:

($ in thousands)

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Three Months Ended

March 31, 2022

June 30, 2022

($ in thousands)

Beginning balance

Provision (recapture)

Provision for loan losses

Balance at end of period

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Ending balance collectively evaluated for impairment

Six Months Ended

June 30, 2022

($ in thousands)

Beginning balance

Provision for loan losses

Balance at end of period

Ending balance individually evaluated for impairment

Ending balance collectively evaluated for impairment

Loans receivable

Ending balance individually evaluated for impairment

Ending balance collectively evaluated for impairment

Three Months Ended

March 31, 2021

($ in thousands)

Beginning balance

Provision for loan losses

Balance at end of period

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Ending balance collectively evaluated for impairment

The following tables summarize impaired loans as of March 31, 2022 and December 31, 2021:

March 31, 2022

Six Months Ended

($ in thousands)

Beginning balance

Provision for loan losses

Balance at end of period

Ending balance individually evaluated for impairment

Ending balance collectively evaluated for impairment

Loans receivable

Ending balance individually evaluated for impairment

Ending balance collectively evaluated for impairment

The following tables summarize impaired loans as of June 30, 2022 and December 31, 2021:

June 30, 2022

($ in thousands)

With no related allowance recorded

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Commercial real estate

For the three months ending March 31, 2022 and December 31, 2021, there were no impaired loans with an allowance recorded.

Nonaccrual and past due loans are summarized below as of March 31, 2022 and December 31, 2021:

March 31, 2022

Nonaccrual and past due loans are summarized below as of June 30, 2022 and December 31, 2021:

June 30, 2022

($ in thousands)

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Commercial real estate

The amount of interest income for the three months ended March 31, 2022 and 2021, that was not recorded on nonaccrual loans was de minimis .

The amount of interest income for the three and six months ended June 30, 2022 and 2021, that was not recorded on nonaccrual loans was de minimis .

In addition to past due and nonaccrual status criteria, the Company also evaluates loans using a loan grading system.

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The likelihood of loss is considered remote.

Special Mention (Loan Grade 5) – A Special Mention asset has potential weaknesses that may be temporary

or, if left uncorrected, may result in a loss.

Special Mention (Loan Grade 5) – A Special Mention asset has potential weaknesses that may be temporary or,

if left uncorrected, may result in a loss.

While concerns exist, the Company is currently protected and loss is considered unlikely and not imminent.

Classified Substandard (Loan Grade 6) – A Substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.

Assets so classified have well defined weaknesses and are characterized by the distinct possibility that the Company may sustain some loss if

deficiencies are not corrected.

Classified Doubtful (Loan Grade 7) – A Doubtful asset has all the weaknesses inherent in a Substandard asset

with the added characteristics that the weaknesses make collection or liquidation in full highly questionable.

Classified Substandard (Loan Grade 6) – A Substandard asset is inadequately protected by the current sound worth and

paying capacity of the obligor or of the collateral pledged, if any.

Assets so classified have well defined weaknesses and are characterized by the distinct possibility that the Company may sustain some loss if deficiencies are not corrected.

Classified Doubtful (Loan Grade 7) – A Doubtful asset has all the weaknesses inherent in a Substandard asset with

the added characteristics that the weaknesses make collection or liquidation in full highly questionable.

Classified Loss (Loan Grade 8) – A loss loan has an existing weakness or weaknesses that render the

loan uncollectible and of such little value that continuing to carry as an asset on the Bank’s book is not warranted.

This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical nor

desirable to defer writing off this basically worthless asset, even though partial recovery may be affected in the future.

This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical

nor desirable to defer writing off this basically worthless asset, even though partial recovery may be affected in the future.

The Company does not currently grade retained Strategic Program loans due to their small balances and

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The Strategic Program loans are evaluated collectively for impairment.

Outstanding loan balances categorized by these credit quality indicators are summarized as follows at March 31, 2022 and December 31, 2021:

March 31, 2022

Outstanding loan balances categorized by these credit quality indicators are summarized as follows at June 30, 2022 and December 31, 2021:

June 30, 2022

($ in thousands)

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Strategic Program loans

Total at March 31, 2022

December 31, 2021

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Strategic Program loans

Total at December 31, 2021

Loans modified and recorded as TDR’s during the three months ended March 31, 2022 and March 31, 2021, consist of the following:

Loans modified and recorded as TDR’s at June 30, 2022 and December 31, 2021, consist of the following:

($ in thousands)

March 31, 2022

Total at March 31, 2022

March 31, 2021

Residential real estate

Total at March 31, 2021

At March 31, 2022 and 2021, there were no

commitments to lend additional funds to debtors whose loan terms have been modified in a TDR.

Loans modified and recorded as TDR’s during the three months ended March 31, 2022 and 2021 included modifications to rate and term.

There was one principal charge-off recorded related to TDRs during the three months ended March 31, 2022 for $ 0.01 million.

June 30, 2022

Total at June 30, 2022

December 31, 2021

Total at December 31, 2021

At June 30, 2022 and December 31, 2021, there were no commitments to lend additional funds to debtors whose loan terms have been modified in a TDR.

Loans modified and recorded as TDR’s included modifications to rate and term.

There was one principal charge-off recorded related to TDRs during the six months ended June 30, 2022 for $ 0.01 million.

There were no principal charge-offs recorded

related to TDRs during the three months ended March 31, 2021.

During the three months ended March 31, 2022 and 2021, there were no loan modifications to TDRs.

Separately, one restructured loan incurred a

default within 12 months of the restructure date and continues to be in default during the three months ended March 31, 2022.

restructured loan incurred a default within 12 months of the restructure date during the three months ended March 31, 2021.

related to TDRs during the six months ended June 30, 2021.

There was no principal

charge-off recorded related to TDRs during the three months ended June 30, 2022.

There were no principal charge-offs recorded

related to TDRs during the three months ended June 30, 2021.

During the three and six months ended June 30, 2022 and 2021, there were no loan modifications to TDRs.

Separately, one restructured loan incurred

a default within 12 months of the restructure date during the six months ended June 30, 2022.

This same loan was paid in full with interest on June 2, 2022.

One restructured loan incurred a default within 12 months of the restructure date during the six months ended June 30, 2021.

This same loan was paid in full with interest on May 28,

Note 4 – Premises and Equipment

Premises and equipment at March 31, 2022 and December 31,

Premises and equipment at June 30, 2022 and December 31,

2021, consist of the following:

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Depreciation expense was approximately $ 0.2 million and $ 0.1 million for the

three months ended March 31, 2022 and 2021, respectively.

six months ended June 30, 2022 and 2021, respectively.

Lease Liabilities

The Company leases its facilities under noncancelable operating leases.

Rent expense for three months ended March 31, 2022 and 2021 was $ 0.2 million and $ 0.1 million,

Rent expense for six months ended June 30, 2022 and 2021 was $ 0.6 million and $ 0.3 million,

respectively.

minimum annual rental payments for these operating leases are as follows ($ in thousands):

Nine Months Ended December 31, 2022

Year Ended December 31, 2023

Six Months Ended December 31, 2022

Year Ended December 31, 2023

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The Company entered into one

lease during the three months ended March 31, 2022 to provide additional space while the Murray office construction is completed.

lease during the six months ended June 30, 2022 to provide additional space while the Murray office construction is completed.

ASC 842 does not apply due to the short-term period of this lease and immateriality.

The tables below present information

regarding the Company’s lease assets and liabilities.

tables below present information regarding the Company’s lease assets and liabilities.

Comparative periods and disclosures are not presented here due to adoption of ASC 842 on January 1, 2022.

Three Months Ended

Operating cash flows from operating leases (in thousands)

Six Months Ended

June 30, 2022

Weighted-average remaining lease term – operating leases (in years)

Weighted-average discount rate – operating leases

Supplemental cash flow information related to leases were as follows (in thousands):

Ended June 30,

($ in thousands)

Operating cash flows from operating leases

Right-of-use assets obtained in exchange for operating lease liabilities

The components of lease expense were as follows (in thousands):

Three Months Ended

March 31, 2022

June 30, 2022

Six Months Ended

June 30, 2022

(in thousands)

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Note 5 – Deposits

Major classes of deposits at March 31, 2022 and December 31, 2021, are as follows:

Major classes of deposits at June 30, 2022 and December 31, 2021, are as follows:

($ in thousands)

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Total deposits

At March 31, 2022, the scheduled maturities of time deposits are as follows ($ in thousands):

At June 30, 2022, the scheduled maturities of time deposits are as follows ($ in thousands):

Year Ended December 31, 2022

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Year Ended December 31, 2026

Time deposits with balances equal or greater than $ 250,000 totaled $ 3.5 million and $ 3.7 million at March 31, 2022 and December 31, 2021, respectively.

Time deposits with balances equal or greater than $ 250,000 totaled $ 3.5 million and $ 3.7 million at June 30, 2022 and December 31, 2021, respectively.

Note 6 – SBA Servicing Asset

The Company periodically sells portions of SBA loans and retains rights to service the loans.

Loans serviced for others are not included in the

accompanying balance sheet.

The unpaid principal balances of SBA loans serviced for others was $ 256.3 million and $ 210.2 million at March 31, 2022 and December 31, 2021, respectively.

Loans serviced for others are not included in

the accompanying balance sheet.

The unpaid principal balances of SBA loans serviced for others was $ 273.9 million and $ 210.2 million at June 30, 2022 and December 31, 2021, respectively.

The following table summarizes SBA servicing asset activity for the periods indicated:

For the Three Months Ended March 31,

For the Six Months

Ended June 30,

($ in thousands)

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Additions to servicing asset

Recovery on SBA servicing asset

Impairment of SBA servicing asset

Amortization of servicing asset

Ending balance

The fair market value of the SBA servicing asset as of March 31, 2022 and December 31, 2021, was $ 5.23 million and $ 3.94 million, respectively.

The fair market value of the SBA servicing asset as of June 30, 2022 and December 31, 2021, was $ 4.6 million and $ 3.9 million, respectively.

adjustments to servicing rights are mainly due to market-based assumptions associated with discounted cash flows, loan prepayment speeds, and changes in interest rates.

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could result in significant changes in the valuation adjustments, thus creating potential volatility in the carrying amount of servicing rights.

Company assumed a weighted average prepayment rate of 14.25 %, weighted average term of 4.26 years, and a weighted average discount rate of 9.70 % at

March 31, 2022.

The Company assumed a weighted average prepayment rate of 14.37 %, weighted average term of 4.02 years, and a weighted average discount

rate of 11.38 % at December 31, 2021.

Company assumed a weighted average prepayment rate of 14.12 %, weighted average term of 4.30 years, and a weighted average discount rate of 15.78 %

at June 30, 2022.

The Company assumed a weighted average prepayment rate of 14.37 %, weighted average term of 4.02 years, and a weighted average discount rate of 11.38 % at December 31, 2021.

Note 7 – Capital Requirements

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which requires the Bank to maintain minimum amounts and ratios of Tier 1 capital to average total consolidated assets.

Management believes, as of December 31, 2021 and March 31, 2022, that the Bank meets all capital adequacy requirements to which

Management believes, as of June 30, 2022 and December 31, 2021, that the Bank meets all capital adequacy requirements to which

it is subject.

As of March 31, 2022 and December 31, 2021, the most recent notification from the FDIC categorized the Bank as well-capitalized under the

As of June 30, 2022 and December 31, 2021, the most recent notification from the FDIC categorized the Bank as well-capitalized under the

regulatory framework for prompt corrective action (there are no conditions or events since that notification that management believes have changed the Bank’s category).

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($ in thousands)

March 31, 2022

June 30, 2022

Leverage ratio (CBLR election)

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Federal Reserve Board Regulations require maintenance of certain minimum reserve balances based on certain average deposits.

reserve requirements of $ 0.0 million as of March 31, 2022 and December 31, 2021, respectively.

The Bank had no reserve requirements as of June 30, 2022 and December 31, 2021.

The Federal Reserve’s policy statement and supervisory guidance on the payment of cash dividends by a Bank Holding Company (“BHC”), such as

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Federal Home Loan Bank Secured Line of Credit

As of March 31, 2022 and December 31, 2021, the Bank’s available line of credit with the FHLB to borrow in overnight funds was $ 3.9 million and $ 4.1 million,

As of June 30, 2022 and December 31, 2021, the Bank’s available line of credit with the FHLB to borrow in overnight funds was $ 3.2 million and $ 4.1 million,

respectively.

All borrowings are short-term and the interest rate is equal to the correspondent bank’s daily federal funds purchase rate.

As of March 31, 2022 and December 31, 2021, no amounts were outstanding under the line of credit.

As of June 30, 2022 and December 31, 2021, no amounts were outstanding under the line of credit.

Loans totaling $ 5.0

million and $ 5.4 million were pledged to secure the FHLB line of credit as of March 31, 2022 and December 31, 2021, respectively.

million and $ 5.4 million were pledged to secure the FHLB line of credit as of June 30, 2022 and December 31, 2021, respectively.

Line of Credit

At March 31, 2022 and December 31, 2021, we had the ability to access $ 9.6 million and $ 10.9 million from the Federal Reserve Bank’s

At June 30, 2022 and December 31, 2021, we had the ability to access $ 10.0 million and $ 10.9 million from the Federal Reserve Bank’s

Discount Window on a collateralized basis.

Through Zions Bank, the Bank had an available unsecured line available of $ 1.0 million

at March 31, 2022 and December 31, 2021.

at June 30, 2022 and December 31, 2021.

The Bank had an available line of credit with Bankers’ Bank of the West to borrow up to $ 1.05

million in overnight funds at March 31, 2022 and December 31, 2021.

million in overnight funds at June 30, 2022 and December 31, 2021.

We had no outstanding balances on such unsecured or secured

lines of credit as of March 31, 2022 and December 31, 2021.

lines of credit as of June 30, 2022 and December 31, 2021.

Paycheck Protection Program Liquidity Facility

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Borrowings under the PPPLF have a fixed-rate of 0.35 %, with a term that matches the underlying loans.

pledged $ 1.0 million of PPP loans as eligible collateral under the PPPLF borrowing arrangement at December 31, 2021.

The Bank pledged $ 1.0 million of PPP loans as eligible collateral under the PPPLF borrowing arrangement at March 31, 2022.

The average outstanding borrowings were $ 87.3 million during the three months ended March 31, 2021 and $ 1.0 million during the three months ended March 31, 2022.

pledged $ 0.4 million of PPP loans as eligible collateral under the PPPLF borrowing arrangement at June 30, 2022.

The Bank pledged $ 1.0 million of PPP loans as eligible collateral under the PPPLF borrowing arrangement at December 31, 2021.

The average outstanding borrowings were $ 0.8 million during the six months ended June 30, 2022 and $ 67.8 million during the six months ended June 30, 2021.

Commitments to Extend Credit

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Those instruments involve to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets.

At March 31, 2022 and December 31, 2021, financial instruments with off-balance-sheet risk were as follows:

At June 30, 2022 and December 31, 2021, financial instruments with off-balance-sheet risk were as follows:

($ in thousands)

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Note 9 – Investment in Business Funding Group, LLC

On December 31, 2019, the Company purchased from certain members of BFG a 10 % membership interest in exchange for an aggregate of 950,784 shares of

par value $ 0.001 Common Stock of the Company.

The exchange was accounted for at fair value based on the fair value of the Company’s

shares of approximately $ 3.5 million.

On December 31, 2019, the Company purchased from certain members of BFG a 10 % membership interest in exchange for an aggregate of 950,784

shares of par value $ 0.001 Common Stock of the Company.

The exchange was accounted for at fair value based on the fair value of the

Company’s shares of approximately $ 3.5 million.

The Company’s 10 % membership

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The Company received distributions from BFG in the amounts of $ 0.3 million and $ 0.4 million for the

three months ended March 31, 2022 and 2021, respectively.

six months ended June 30, 2022 and 2021, respectively.

These distributions were recorded in the Consolidated Balance Sheets as decreases in the investment in BFG.

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The warrants have an exercise price of $ 6.67 per share and the warrants expire on March 31, 2028.

The warrants are free-standing equity instruments and, as a result, are classified within equity at the fair value on the issuance

The fair value of the warrants was determined by our board of directors with input from management, relying in part upon valuation reports prepared by a third-party valuation firm using a Black-Scholes option pricing model adjusted for a

lack of marketability since the Company’s stock is not publicly traded.

The resulting fair value of the warrants was $ 0.19 per share.

The warrants are free-standing equity instruments and, as a result, are classified within equity at the fair value

on the issuance date.

adjusted for a lack of marketability since the Company’s stock is not publicly traded.

The resulting fair value of the warrants was $ 0.19

For further discussion on the Company’s investment in BFG, see Note 13 Related Parties.

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The 2019 Plan also provides for the issuance of incentive stock options only to employees.

The 2019 Plan

authorizes the issuance of 780,000 common shares.

The 2019 Plan will terminate as to future awards 10 years from the later of the effective date or the earlier of the most recent Board or stockholder approval of an increase in the number of shares

reserved for issuance under the 2019 Plan.

At March 31, 2022, 297,786 shares are available for future issuance.

The 2016 Stock Option Plan (“2016 Plan”) was adopted on April 20, 2017 following approval by the Company’s Board of Directors and shareholders.

On April 19, 2022, the Company’s Board of Directors approved an amendment of the 2019 Plan to change its name from the All West Bancorporation

2019 Stock Option Plan to the FinWise Bancorp 2019 Stock Option Plan and to increase the number of shares of the Company’s common stock available for awards under the 2019 Plan by 500,000 shares to 1,280,000 shares, subject to shareholder

The Company’s shareholders approved the name change and increase in the number of shares at the Company’s 2022 Annual Meeting of Shareholders on June 9, 2022.

The 2019 Plan will terminate as to future awards 10 years from the later of the effective date or the earlier of the most recent Board or stockholder approval of an increase in the number of shares reserved for issuance under the 2019 Plan.

At June 30, 2022, 645,178 shares are available for future issuance.

The 2016 Stock Option Plan (“2016 Plan”) was adopted on April 20, 2017 following approval by the Company’s Board of Directors and

shareholders.

The 2016 Plan provides for the issuance of non-statutory stock options and restricted stock to employees, directors and consultants.

The 2016 Plan also provides for the issuance of incentive stock options only to employees.

The 2016 Plan

authorizes the issuance of 299,628 common shares.

2016 Plan authorizes the issuance of 299,628 common shares.

The 2016 Plan will terminate as to future awards 10 years from the later of the effective date or the earlier of the most recent Board or stockholder approval of an increase in the number of shares

reserved for issuance under the 2016 Plan.

At March 31, 2022, 29,712 shares under 2016 Plan are available for future issuance.

The stock-based incentive awards for both the 2019 Plan and the 2016 Plan (collectively, the “Plans”) are granted at an exercise price not less

than the fair market value of the shares on the date of grant, which is based on a Black-Scholes valuation model, in the case of options, or based on the fair value of the stock at the grant date, in the case of restricted stock.

Vesting of the

options vary by employee or director and can have a term no more than 10 years , with the options generally having vesting periods

ranging from 1 to 5 years .

At June 30, 2022, 54 shares under 2016 Plan are available for future issuance.

The stock-based incentive awards for both the 2019 Plan and the 2016 Plan (collectively, the “Plans”) are granted at an exercise price not

less than the fair market value of the shares on the date of grant, which is based on a Black-Scholes valuation model, in the case of options, or based on the fair value of the stock at the grant date, in the case of restricted stock.

of the options vary by employee or director and can have a term no more than 10 years , with the options generally having vesting

periods ranging from 1 to 5 years .

No shares had been granted under the 2016 Plan prior to 2018.

Under both Plans, if an award expires or becomes un-exercisable without having been exercised in full, or is surrendered pursuant to an exchange

program, the unpurchased shares that were subject thereto shall become available for future grant or sale under the Plans.

However, shares that have actually been issued under the Plans, upon exercise of an award, shall not be returned to the

Plans and shall not become available for future distribution under the Plans, except that if unvested shares of restricted stock are repurchased by the Company at their original purchase price, such shares shall become available for future grant

under the Plans.

Under both Plans, if an award expires or becomes un-exercisable without having been exercised in full, or is surrendered pursuant to an

exchange program, the unpurchased shares that were subject thereto shall become available for future grant or sale under the Plans.

However, shares that have actually been issued under the Plans, upon exercise of an award, shall not be returned

to the Plans and shall not become available for future distribution under the Plans, except that if unvested shares of restricted stock are repurchased by the Company at their original purchase price, such shares shall become available for

future grant under the Plans.

Other stock-based compensation

On June 9, 2022, the Board approved a restricted stock discretionary grant of 96,011 shares with an aggregate fair value of $ 1.3 million from the 2019

Plan to certain executives.

Granted shares vest ratably over three years based on achievement of specific levels of the Company’s

return on average assets (ROAA) and, subject to the terms and conditions of the grant agreements, will be fully vested on June 9, 2025.

On December 24, 2019, the Board approved a restricted stock discretionary grant of 1,072,746 shares to certain employees.

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Pursuant to the awards agreement, 73,770 shares subsequently vested and were repurchased by the Company on April 6, 2020 to pay for employee income taxes.

Granted shares vest based on the accelerated attribution method on

a schedule where all shares would be fully vested on December 1, 2023.

On November 18, 2021, pursuant to the awards agreement, the 424,458

remaining unvested shares became vested because the Company’s registration statement was declared effective.

Granted shares vest based on the accelerated attribution method on a schedule where

all shares would be fully vested on December 1, 2023.

On November 18, 2021, pursuant to the awards agreement, the 424,458 remaining

unvested shares became vested because the Company’s registration statement was declared effective.

Stock options

The grant date fair value is determined using the Black-Scholes option valuation model.

No option grants took place in the three months ended March 31, 2022.

The following summarizes stock option activity for the three months ended March 31, 2022:

Stock Options

The assumptions

for expected life reflected management’s judgment and include consideration of historical experience.

Expected volatility is based on data from comparable public companies for the expected option term.

The risk-free interest rate is based on

Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.

Expected forfeitures are estimated based on the Company’s historical forfeiture experience.

Management believes that

the assumptions used in the option-pricing model are highly subjective and represent only one estimate of possible value, as there is no active market for the options granted.

The table below summarizes the assumptions used:

For the Six Months Ended June 30,

Risk-free interest rate

Expected term in years

Expected volatility

45.8 % – 46.7

45.7 % – 47.6

Expected dividend yield

The following summarizes stock option activity for the three months and six months ended June 30, 2022:

Outstanding at March 31, 2022

Options granted

Options forfeited

Outstanding at June 30, 2022

Options vested and exercisable at June 30, 2022

Outstanding at December 31, 2021

Options granted

Options exercised

Options forfeited

Outstanding at March 31, 2022

Options vested and exercisable at March 31, 2022

The weighted average grant-date fair value of options per share granted was $ 1.55 during the three months ended March 31, 2022.

The aggregate intrinsic value of options exercised during the three months ended March 31, 2022 was $ 0.25 million.

During the three months ended March 31, 2022, the Company received de minimis proceeds from

the exercise of stock options and recognized a de minimis tax benefit from the exercise of stock options.

Upon exercise of the stock options, the Company will issue new authorized shares.

Outstanding at June 30 , 2022

Options vested and exercisable at June 30 , 2022

The weighted average grant-date fair value of options per share granted during the six months ended June 30, 2022 was $ 6.26 .

The aggregate intrinsic value of options exercised during the six months ended June 30, 2022 was $ 0.2 million.

During the six months ended June 30, 2022, the Company received de minimis proceeds from the exercise of stock options and recognized a de minimis tax benefit from the exercise of stock options.

Upon exercise of the stock

options, the Company will issue new authorized shares.

The weighted average grant-date fair value of options per share granted during the six months ended June 30, 2021 was $ 1.48 .

The aggregate intrinsic value of options exercised during the six months ended June 30, 2021 was $ 0.3 million.

During the six months ended June 30, 2021, the Company received $ 0.2 million in proceeds from the exercise of stock options and recognized a de minimis tax benefit from the exercise of stock options.

Stock-based compensation expense

The following tables present pre-tax and after-tax stock-based compensation expense recognized:

For the Three Months

Ended March 31,

For the Three Months Ended

For the Six Months

Ended June 30,

($ in thousands)

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Restricted shares

As of March 31, 2022, the Company had unrecognized stock-based compensation expense related to stock options of approximately $ 0.2 million, respectively, which is expected to be recognized over the remaining weighted average recognition period of 2.2 years.

As of June 30, 2022, the Company had unrecognized stock-based compensation expense related to stock options and restricted stock of

approximately $ 0.7 million and $ 1.2

million, respectively, which is expected to be recognized over the remaining weighted average recognition period of 2.0 years.

Note 11 – Fair Value of Financial Instruments

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The Company purchased its ownership interest in BFG on December 31, 2019.

Company’s valuation utilized the average of the discounted cash flow method and the Guideline Public Company method.

A 20 % lack of

marketability discount was applied to the valuation as well as a 4.50 % discount to non-voting shares to arrive at fair value.

Company’s valuation technique utilized the average of the discounted cash flow method and the Guideline Public Company method.

lack of marketability discount was applied to the valuation as well as a 4.50 % discount

to non-voting shares to arrive at fair value as of June 30, 2022 and December 31, 2021.

The calculation of fair value utilized significant unobservable inputs, including projected cash flows, growth rates, and discount rates.

The fair value of

the investment in BFG was $ 4.6 million and $ 5.9 million as of June 30, 2022 and December 31, 2021, respectively.

The following table summarizes investment in BFG activity for the periods indicated:

For the Six Months

Ended June 30,

($ in thousands)

Beginning balance

Distributions from BFG

Change in fair value of BFG

Ending balance

The carrying amount of deposits with no stated maturity, such as savings and checking

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discounted cash flow based on the remaining contractual term and current borrowing rates for similar terms.

March 31, 2022

June 30, 2022

December 31, 2021

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Description of Financial Instrument

March 31, 2022

June 30 , 2022

Nonrecurring assets

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value of the collateral.

Quantitative information for Level 3 fair value measurements – The

range and weighted average of the significant unobservable inputs used to fair value Level 3 nonrecurring assets as of March 31, 2022 and as of December 31, 2021, along with the valuation techniques used, are shown in the following table:

Quantitative information for Level 3 fair value measurements – The range and

weighted average of the significant unobservable inputs used to fair value Level 3 nonrecurring assets as of June 30, 2022 and as of December 31, 2021, along with the valuation techniques used, are shown in the following table:

($ in thousands)

(Weighted Average)

March 31, 2022

June 30 , 2022

Impaired loans

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appraisal value

The range and weighted average of the

significant unobservable inputs used to fair value the investment in BFG Level 3 recurring asset as of June 30, 2022 and as of December 31, 2021 are shown in the following table:

June 30, 2022

December 31, 2021

($ in thousands)

(Weighted Average)

Discounted Cash Flows

Revenue growth rate

Expense growth rate

Discount rate

Guideline Public Company

Multiples of enterprise value

3.0 x to 5.0 x

4.0 x to 6.0 x

Note 12 – Income Taxes

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for financial reporting purposes and tax basis of its assets and liabilities.

Deferred tax assets changed a de minimis amount from December 31, 2021 to March 31, 2022 as a result of changes to temporary

timing differences associated with accounting for bad debts.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that some portion, or all, of the deferred tax asset will not be

In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the forecasts of future income, applicable tax planning strategies, and assessments of current and future economic

and business conditions.

Deferred tax assets increased $ 0.2 million during the six

months ended June 30, 2022 as a result of changes to temporary timing differences associated with accounting for bad debts.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not

that some portion, or all, of the deferred tax asset will not be realized.

In assessing the realization of deferred tax assets, management evaluates both positive and negative evidence, including the forecasts of future income, applicable tax

planning strategies, and assessments of current and future economic and business conditions.

This analysis is updated quarterly and adjusted as necessary.

Based on this analysis, management has determined that a valuation allowance for deferred tax assets was not required at March 31, 2022.

For the three months ended March 31, 2022 and 2021, income tax expense was $ 3.2 million and $ 1.9 million, respectively, resulting in an

effective income tax rate of 25.4 % and 26.7 %,

Based on this analysis, management has determined that a valuation allowance for deferred

tax assets was not required at June 30, 2022.

For the six months ended June 30, 2022 and 2021, income tax expense was $ 5.0 million and $ 4.5 million, respectively, resulting in an effective income

tax rate of 25.1 % and 25.8 %,

respectively.

The effective tax rate differs from the statutory rate of 26.0 % during the three months ended March 31, 2022 and

2021, respectively, due primarily to the tax effect of stock-based compensation.

The effective tax rate differs from the statutory rate of 24.9 % during the six months ended June 30, 2022 and 2021

due primarily to state taxes and the tax effect of stock-based compensation.

The Company had no unrecognized

tax benefits at March 31, 2022.

On March 27, 2020, the U.S.

government enacted the CARES Act.

Among other provisions, the CARES Act makes several modifications to federal net

operating losses, including requiring a taxpayer with a net operating loss (“NOL”) arising in a taxable year beginning in 2018, 2019, or 2020 to carry that loss back to each of the five preceding years unless the taxpayer elects to waive or

reduce the carryback.

The Company did not generate NOLs in 2018, 2019 and 2020.

tax benefits at June 30, 2022.

Note 13 – Related Parties

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are associated.

The Company had loans outstanding to related parties of $ 0.0 million as of March 31, 2022 and December 31, 2021.

Total deposits from certain executive officers and directors and the companies with which they are associated were $ 0.9 million and $ 0.5 million as of March 31, 2022 and December 31, 2021, respectively.

The Company had loans outstanding to related parties of $ 0.0 million as of June 30, 2022 and December 31, 2021.

Total deposits from certain executive officers and directors and the companies with which they are associated were $ 0.8 million and $ 0.5 million as of June 30, 2022 and December 31, 2021, respectively.

BFG is a small business loan broker, primarily under the SBA’s 7(a) loan program.

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Note 14 – Earnings per Share

The following table is a reconciliation of the components used to derive basic and diluted EPS for the three months ended March 31, 2022 and 2021 ($

in thousands, except share and per share amounts):

For the Three Months Ended March 31,

The following table is a reconciliation of the components used to derive basic and diluted EPS for the three and six months ended June 30, 2022

and 2021 ($ in thousands, except share and per share amounts):

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

($ in thousands)

Amount allocated to participating common shareholders (1)

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Earnings per share, diluted

Represents earnings attributable to holders of unvested restricted stock issued outside of the Plan to the Company’s employees.

There were 219,512 and 698,302 anti-dilutive options for March 31, 2022 and 2021 reported in the table above.

There were 99,442 shares and 270,000 anti-dilutive warrants for March 31, 2022 and 2021

reported in the table above.

(1) Represents earnings attributable to holders of unvested restricted stock issued outside of the 2016 Plan and 2019 Plan to the Company’s employees

for the three or six months ended June 30, 2021.

There were 336,192 and 684,648 anti-dilutive options for the six months ended June 30, 2022 and 2021, respectively, reported in the table above.

There were 113,458 shares and 240,829 anti-dilutive

warrants for the six months ended June 30, 2022 and 2021, respectively, reported in the table above.

Note 15 – Revenue Recognition

The following is a summary of the Company’s revenue disaggregated by contracts with customers and revenue outside the scope of ASC 606:

For the Three Months Ended March 31,

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

($ in thousands)

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Note 16 – Subsequent Events

Subsequent events are events or transactions that occur after the date of the most recent balance sheet but before the financial

statements are available to be issued.

The Company recognizes in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the

estimates inherent in the process of preparing of the financial statements.

The Company’s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but

arose after the date of the balance sheet and before the financial statements are available to be issued.

The Company has evaluated subsequent events through May 16, 2022, which is the date the unaudited consolidated financial statements are

available to be issued.

Subsequent events are events or transactions that occur after the date of the most recent balance sheet but before the financial statements

are available to be issued.

The Company recognizes in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates

inherent in the process of preparing of the financial statements.

The Company’s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after

the date of the balance sheet and before the financial statements are available to be issued.

The Company has evaluated subsequent events through August 15, 2022, which is the date the unaudited consolidated financial statements are available

to be issued.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements