What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-11-14 compared with 2022-08-15 · 258 added, 199 removed, 830 unchanged (36% of the section changed)

3 unchanged sentences

(in thousands, except share and par value amounts)

September 30,

Cash and cash equivalents

13 unchanged sentences

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

Income tax receivable, net

LIABILITIES AND SHAREHOLDERS’ EQUITY

11 unchanged sentences

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

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

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

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

Additional paid-in-capital

4 unchanged sentences

FinWise Bancorp

Consolidated Statements of Income (Unaudited)

Statements of Income (Unaudited)

(in thousands, except share and per share amounts)

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

Interest income

19 unchanged sentences

Salaries and employee benefits

Professional services

Occupancy and equipment expenses

10 unchanged sentences

FinWise Bancorp

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

Consolidated Statements of Changes in

Shareholders’ Equity (Unaudited)

(in thousands, except share amounts)

Three Months Ended June 30, 2021

Three Months Ended September 30,

Shareholders’

Balance at March 31, 2021

Stock-based compensation expense

Balance at June 30, 2021

Six Months Ended June 30, 2021

Stock-based compensation expense

Stock options exercised

Balance at September 30 ,

Nine Months Ended September 30,

Shareholders’

2 unchanged sentences

Stock options exercised

Balance at June 30, 2021

Balance at September 30 ,

FinWise Bancorp

1 unchanged sentence

(in thousands, except share amounts)

Three Months Ended June 30, 2022

Three Months Ended September 30,

Shareholders’

Balance at March 31, 2022

Stock-based compensation expense

Balance at June 30, 2022

Six Months Ended June 30, 2022

Stock-based compensation expense

Common stock repurchased

Balance at September 30 ,

Nine Months Ended September 30,

Shareholders’

1 unchanged sentence

Stock-based compensation expense

Common stock repurchased

Stock options exercised

Balance at June 30, 2022

Balance at September 30 ,

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

3 unchanged sentences

(in thousands)

For the Six Months

Ended June 30,

For the Nine Months

Ended September 30,

Cash flows from operating activities:

20 unchanged sentences

Net decrease in loans receivable

Purchase of loan pools

Investments in FinWise Investments, LLC

Distributions from BFG

3 unchanged sentences

Purchase of FHLB stock

Net cash provided by investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities:

Net increase (decrease) in deposits

Common stock repurchased

Proceeds from exercise of stock options

11 unchanged sentences

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

Note 1 – Summary of Significant Accounting Policies

Note 1 – Summary of Significant Accounting

Nature of business and organization – FinWise Bancorp is

32 unchanged sentences

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.

including enabling remote working capability 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

21 unchanged sentences

based on the size of the loan.

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.

At September 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 nine months ended September 30, 2022, PPP borrowers made $ 0.4 million of principal payments leaving $ 0.7 million of PPP

loan principal outstanding as of September 30, 2022.

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

nine months ended September 30, 2022.

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

3 unchanged sentences

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.

results of operations and other data presented for three and nine months ended September 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.

6 unchanged sentences

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.

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

interim or annual periods.

Use of estimates – In preparing the consolidated financial statements in accordance with U.S.

2 unchanged sentences

differ, either positively or negatively, from those estimates.

Stock Repurchase Program – On August 18, 2022, the Company announced that its Board of Directors (the “Board”) has

authorized, effective August 16, 2022, a common stock repurchase program to purchase up to 644,241 shares of the Company’s common

stock in the aggregate.

The repurchase program expires on August 31, 2024, but may be limited or terminated at any time without prior notice.

The repurchase program authorizes the repurchase by the Company of its common stock in open market

transactions, including pursuant to a trading plan in accordance with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or privately negotiated transactions.

The authorization permits management

to repurchase shares of the Company’s common stock from time to time at management’s discretion.

Repurchases may also be made pursuant to a trading plan under Rule 10b5-1 under the Exchange Act, which would permit shares to be repurchased when

the Company might otherwise be precluded from doing so because of self-imposed trading blackout periods or other regulatory restrictions.

The actual means and timing of any shares purchased under the program will depend on a variety of factors,

including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements.

The repurchase program does not obligate the Company to purchase any particular number of shares.

The Company has repurchased 20,000 shares for approximately $ 0.2 million as of September 30, 2022 and retired them at cost.

Recently adopted accounting pronouncements

48 unchanged sentences

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

Enactment of the Inflation Reduction Act of 2022

On August 16, 2022, the U.S.

government enacted the Inflation Reduction Act (IRA) which, among other changes, created a new corporate

alternative minimum tax (AMT) based on adjusted financial statement income and imposes a 1% excise tax on corporate stock repurchases.

The effective date of these provisions is January 1, 2023.

The Company is currently evaluating the effects

that the enactment of the IRA 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 June 30, 2022 and

December 31, 2021, are summarized as follows:

June 30, 2022

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

and December 31, 2021, are summarized as follows:

September 30, 2022

($ in thousands)

3 unchanged sentences

Mortgage-backed securities

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

The Company had seventeen securities in an unrealized loss position at September 30, 2022 and nine

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

June 30, 2022

September 30, 2022

Less than 12 months

7 unchanged sentences

Mortgage-backed securities

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

The amortized cost and estimated market value of debt securities at September 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.

September 30, 2022

December 31, 2021

6 unchanged sentences

Total Securities held-to-maturity

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.

At September 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 nine months ended September 30, 2022 or 2021.

The Bank is a member of the FHLB system.

1 unchanged sentence

of outstanding FHLB advances.

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 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.

At September 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 September 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 June 30, 2022 and December 31, 2021:

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

September 30,

($ in thousands)

24 unchanged sentences

The agreements generally require that the deposit reserve

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 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:

account balance, along with any other collateral, does not fall below the dollar amount of the total loans held-for-sale outstanding currently held by the Company for the specific Strategic Program.

Collateral may include deposits held at the

Bank, at another institution where the Bank has control of the account or a combination of deposits and other vehicles such as letters of credit.

If necessary, the Company has the right to withdraw amounts from these sources to fulfill loan

purchaser obligations created under the program agreements.

Total cash held in reserve by Strategic Programs at the Company at September 30, 2022 and December 31, 2021, was $ 23.6 million and $ 39.6 million, respectively.

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

September 30,

($ in thousands)

4 unchanged sentences

Three Months Ended

June 30, 2022

September 30, 2022

($ in thousands)

7 unchanged sentences

Ending balance collectively evaluated for impairment

Six Months Ended

June 30, 2022

Nine Months Ended

September 30, 2022

($ in thousands)

8 unchanged sentences

Three Months Ended

September 30,

($ in thousands)

7 unchanged sentences

Ending balance collectively evaluated for impairment

Six Months Ended

Nine Months Ended

September 30,

($ in thousands)

7 unchanged sentences

Ending balance collectively evaluated for impairment

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

June 30, 2022

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

September 30, 2022

($ in thousands)

11 unchanged sentences

Commercial real estate

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

June 30, 2022

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

September 30, 2022

($ in thousands)

9 unchanged sentences

Commercial real estate

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 .

The amount of interest income for the three and nine months ended September 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.

21 unchanged sentences

The Strategic Program loans are evaluated collectively for impairment.

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

June 30, 2022

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

September 30, 2022

($ in thousands)

13 unchanged sentences

Strategic Program loans

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

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

($ in thousands)

June 30, 2022

Total at June 30, 2022

September 30, 2022

Total at September 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.

At September 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 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 was one principal charge-off recorded related to TDRs during the nine months ended September 30, 2022 for $ 0.01 million.

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.

related to TDRs during the nine months ended September 30, 2021.

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

There were no principal

charge-offs recorded related to TDRs during the three months ended September 30, 2021.

During the three and nine months ended September 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 nine months ended September 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,

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

This same loan was paid in full with

interest on May 28, 2021.

Note 4 – Premises and Equipment

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

Premises and equipment at September 30, 2022 and December

31, 2021, consist of the following:

September 30,

($ in thousands)

5 unchanged sentences

Premises and equipment, net

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

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

Depreciation expense was approximately $ 0.5 million and $ 0.2 million for

the nine months ended September 30, 2022 and 2021, respectively.

Lease Liabilities

The Company leases its facilities under noncancelable operating leases.

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

Rent expense for nine months ended September 30, 2022 and 2021 was $ 0.8 million and $ 0.4 million,

respectively.

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

Six Months Ended December 31, 2022

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

Three Months Ended December 31, 2022

Year Ended December 31, 2023

5 unchanged sentences

The Company entered into one

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

lease during the nine months ended September 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.

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

The 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.

Six Months Ended

June 30, 2022

Nine Months Ended

September 30, 2022

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

1 unchanged sentence

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

Ended June 30,

Ended September 30,

($ in thousands)

3 unchanged sentences

Three Months Ended

June 30, 2022

Six Months Ended

June 30, 2022

September 30, 2022

Nine Months Ended

September 30, 2022

(in thousands)

6 unchanged sentences

Note 5 – Deposits

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

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

September 30,

($ in thousands)

2 unchanged sentences

Total deposits

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

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

Year Ended December 31, 2022

3 unchanged sentences

Year Ended December 31, 2026

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.

Time deposits with balances equal or greater than $ 250,000 totaled $ 4.8 million and $ 3.7 million at September 30, 2022 and December 31, 2021, respectively.

Note 6 – SBA Servicing Asset

2 unchanged sentences

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 unpaid principal balances of SBA loans serviced for others was $ 295.8 million and $ 210.2 million at September 30, 2022 and December 31, 2021, respectively.

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

For the Six Months

Ended June 30,

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

($ in thousands)

1 unchanged sentence

Additions to servicing asset

Impairment of SBA servicing asset

Recovery (Impairment) of SBA servicing asset

Amortization of servicing asset

Ending balance

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.

A significant change in prepayments of the loans in the servicing portfolio

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

The fair market value of the SBA servicing asset as of September 30, 2022 and December 31, 2021, was $ 5.3 million and $ 3.9 million, respectively.

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

A significant change in prepayments of the loans in the

servicing portfolio 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 14.46 %, weighted average term of 4.32 years, and a weighted average discount rate of 14.07 %

at June 30, 2022.

at September 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.

10 unchanged sentences

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

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

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

which it is subject.

As of September 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).

4 unchanged sentences

($ in thousands)

June 30, 2022

September 30, 2022

Leverage ratio (CBLR election)

4 unchanged sentences

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

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

The Bank had no reserve requirements as of September 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

15 unchanged sentences

Federal Home Loan Bank Secured Line of Credit

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,

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

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

Loans totaling $ 4.9

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

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

Line of Credit

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

At September 30, 2022 and December 31, 2021, we had the ability to access $ 10.1 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 June 30, 2022 and December 31, 2021.

at September 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 June 30, 2022 and December 31, 2021.

We had no outstanding balances on such unsecured or secured

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

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

We had no outstanding balances on such unsecured or

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

Paycheck Protection Program Liquidity Facility

4 unchanged sentences

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

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.

pledged $ 0.3 million of PPP loans as eligible collateral under the PPPLF borrowing arrangement at September 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 $ 0.6 million during the nine months ended September 30, 2022 and $ 48.1 million during the nine months ended September 30, 2021.

Commitments to Extend Credit

2 unchanged sentences

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

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

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

September 30,

($ in thousands)

3 unchanged sentences

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

7 unchanged sentences

The Company received distributions from BFG in the amounts of $ 0.5 million and $ 0.7 million for the

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

nine months ended September 30, 2022 and 2021, respectively.

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

6 unchanged sentences

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 date.

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

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

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

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

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

10 unchanged sentences

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.

At September 30, 2022, 648,197 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

5 unchanged sentences

reserved for issuance under the 2016 Plan.

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

At September 30, 2022, 894 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

32 unchanged sentences

The table below summarizes the assumptions used:

For the Six Months Ended June 30,

For the Nine Months Ended

September 30,

Risk-free interest rate

4 unchanged sentences

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

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

Outstanding at June 30, 2022

Options vested and exercisable at June 30, 2022

Options forfeited

Outstanding at September 30, 2022

Options vested and exercisable at September 30, 2022

Outstanding at December 31, 2021

2 unchanged sentences

Options forfeited

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.

Outstanding at September 30 , 2022

Options vested and exercisable at September 30 , 2022

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

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

During the nine months ended September 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

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 nine months ended September 30, 2021 was $ 1.48 .

The aggregate intrinsic value of options exercised during the nine months ended September 30, 2021 was $ 0.5 million.

During the nine months ended September 30, 2021, the Company received $ 0.3 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

1 unchanged sentence

For the Three Months Ended

For the Six Months

Ended June 30,

September 30,

For the Nine Months

Ended September 30,

($ in thousands)

3 unchanged sentences

Restricted shares

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

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

approximately $ 0.6 million and $ 1.0

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

million, respectively, which is expected to be recognized over the remaining weighted average recognition period of 1.9 years and 1.8 years.

Note 11 – Fair Value of Financial Instruments

60 unchanged sentences

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.

to non-voting shares to arrive at fair value as of September 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.

value of the investment in BFG was $ 4.5 million and $ 5.9 million as of September 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,

For the Nine Months

Ended September 30,

($ in thousands)

13 unchanged sentences

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

June 30, 2022

September 30, 2022

December 31, 2021

17 unchanged sentences

Description of Financial Instrument

June 30 , 2022

September 30 , 2022

Nonrecurring assets

12 unchanged sentences

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 June 30, 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 September 30, 2022 and as of December 31, 2021, along with the valuation techniques used, are shown in the following table:

($ in thousands)

(Weighted Average)

June 30 , 2022

September 30 , 2022

Impaired loans

6 unchanged sentences

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

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

September 30, 2022

December 31, 2021

13 unchanged sentences

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

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.

Deferred tax assets increased $ 0.3 million during the

nine months ended September 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 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

Based on this analysis, management has determined that a valuation

allowance for deferred tax assets was not required at September 30, 2022.

For the nine months ended September 30, 2022 and 2021, income tax expense was $ 8.5 million and $ 7.3 million, respectively, resulting in an effective income

tax rate of 31.3 % and 25.3 %,

respectively.

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 effective tax rate differs from the statutory rate of 24.9 % during the nine months ended September 30, 2022 due

primarily to nondeductible wages, state taxes and the tax effect of stock-based compensation.

The effective tax rate differs from the statutory rate of 24.9 %

during the nine months ended September 30, 2021 due primarily to the tax effect of stock-based compensation.

The Company had no unrecognized

tax benefits at June 30, 2022.

tax benefits at September 30, 2022.

Out-of-period adjustment – During the third quarter of 2022, the Company identified an error in the calculation of the Company’s tax provision which understated

income tax expense for previously reported financial statements.

The error was related to an incorrect application of Section 162(m) of the Internal Revenue Code, which limits tax deductions relating to executive compensation of certain

executives of publicly held companies.

The Company recorded an out-of-period adjustment during the third quarter of 2022 to correct the previously understated income tax expense.

The adjustment resulted in a decrease to after-tax income of $( 0.9 ) million for the 9 months ended September 30, 2022, and a decrease to after-tax income of $( 1.4 ) million for the 3 months ended September 30, 2022.

The Company has concluded that these amounts would not have been material to its net income for the 12 months

ended December 31, 2021, or to its expected net income for the 12 months ended December 31, 2022 .

Note 13 – Related Parties

1 unchanged sentence

are associated.

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.

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

Total deposits from certain executive officers and directors and the companies with which they are associated were $ 1.0 million

and $ 0.5 million as of September 30, 2022 and December 31, 2021, respectively.

On October 21, 2022, Mr.

Alan Weichselbaum, who was elected as a director of the Company on October 6, 2022, repaid in full the $ 0.1 million aggregate principal amount plus interest owed under a secured promissory note, dated as of June 1, 2022 (the “2022 Note”), between the

Company and Mr.

Weichselbaum in accordance with the terms of the 2022 Note.

As such, the obligations of the parties under the 2022 Note and a related security agreement were discharged and the 2022 Note and the security agreement were terminated.

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

6 unchanged sentences

Note 14 – Earnings per Share

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

The following table is a reconciliation of the components used to derive basic and diluted EPS for the three and nine months ended September 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,

Ended September 30,

For the Nine Months

Ended September 30,

($ in thousands)

8 unchanged sentences

(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.

for the three or nine months ended September 30, 2021.

There were 378,684 and 563,062 anti-dilutive options for the nine months ended September 30, 2022 and 2021, respectively, reported in the table above.

There were 135,731 shares and 221,000 anti-dilutive warrants for the nine

months ended September 30, 2022

and 2021, respectively, reported in the table above.

Note 15 – Revenue Recognition

1 unchanged sentence

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

($ in thousands)

24 unchanged sentences

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.

The Company has evaluated subsequent events through November 14, 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