What changed in this filing

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Item 1A. Risk Factors

2025-03-26 compared with 2024-03-25 · 101 added, 121 removed, 510 unchanged (30% of the section changed)

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See Cautionary Note Regarding Forward-Looking Statements.

Risk Factor Summary

Our business, financial condition and results of operations are subject to a number of substantial risks and uncertainties.

These risks are discussed more fully in this “Item 1A.

Risk Factors.” Some of these risks include the following:

• third-party service provider risk, including risks that we may be unable to maintain or increase loan originations facilitated through our Strategic Programs;

• legal, accounting and compliance risks, including risks related to the extensive state and federal regulation under which we operate and changes in such regulations;

• changes in the regulatory oversight environment impacting our Strategic Programs or non-compliance of federal and state consumer protection laws by our Strategic Program service providers;

• legal and regulatory risks associated with “true lender” statutes associated with our Strategic Programs;

• reputational risks, including the risk that we may be subject to negative publicity about us or our industry, including the transparency, fairness, user experience, quality, and reliability of our lending products or distribution channels;

• legislative, regulatory, legal, and reputational risks related to our Strategic Programs, including those relating to our small dollar lending program;

• securities market, inflation and interest rate risks, including risks related to interest rate fluctuations and the monetary policies and regulations of the Board of Governors of the Federal Reserve System, or the Federal Reserve;

• risks related to cybersecurity breaches and system failures;

• operational and strategic risks, including the risk that we may not be able to implement our growth strategy, our continued ability to establish relationships with Strategic Program service providers, and the possible loss of key members of our senior leadership team;

• the impact and extent of Covid-19 (including the emergence of any new variants thereof) and the response of governmental authorities to Covid-19;

• credit risks, including risks related to the significance of SBA 7(a), Strategic Programs and construction loans in our portfolio, our relationship with BFG, our ability to effectively manage our credit risk and the potential deterioration of the business and economic conditions in our markets;

• liquidity and funding risks, including the risk that we will not be able to meet our obligations due to risks relating to our funding sources;

• investment risks, including volatility in the trading of our common stock and limitations on our ability to pay dividends.

Risks Related to Cybersecurity and Technology

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Any damage or failure that causes an interruption in our operations could have a material adverse effect on our financial condition and results of operations.

The importance of our on-line banking systems to the Company’s operations means that any problems in its functionality would have a material adverse effect on the Company’s operations, business model and growth strategy.

The importance of our online banking systems to the Company’s operations means that any problems in its functionality would have a material adverse effect on the Company’s operations, business model and growth strategy.

Our operations are also dependent upon our ability to protect our computer systems and network infrastructure against damage from physical break-ins, cybersecurity breaches and other disruptive problems caused by the internet or other users.

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An increase in the number of employees working offsite may correspond to an increase in the size of our risk exposure to cyber disruptions.

are vulnerable to damage and interruptions from security breaches, computer viruses, fraud and similar incidents involving the loss or unauthorized access of confidential information.

Despite the implementation of security measures, our internal computer systems and those of our Strategic Program platforms, and other contractors and consultants as well as third party vendors of IT and data security systems and services, are vulnerable to damage and interruptions from security breaches, computer viruses, fraud and similar incidents involving the loss or unauthorized access of confidential information.

We cannot be sure that our continued data protection efforts and investment in information technology will prevent future significant breakdowns, data leakages, breaches in our systems or the systems of our third party contractors and collaborators, or other cyber incidents that could have a material adverse effect upon our reputation, business, operations or financial condition.

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If these do not, or are perceived not to, accurately gather and interpret performance data for loans and identify attractive risk-adjusted market sectors, our performance may be worse than anticipated.

The technologies created by and relied upon by us, including our FinView™ Analytics Platform, may not function properly, or at all, which may have a material impact on our operations and financial conditions.

The performance of loans originated by us is dependent on the effectiveness of our FinView™ Analytics Platform used to evaluate borrowers’ credit profiles and likelihood of default.

The technologies created by and relied upon by us may not function properly, or at all, which may have a material impact on our operations and financial conditions.

The performance of loans originated by us is dependent on the effectiveness of our credit underwriting systems used to evaluate borrowers’ credit profiles and likelihood of default.

While our proprietary technologies and analytic models are continually adjusted to account for changes in various macroeconomic conditions, the bulk of the data gathered and the development of our enterprise data warehouse have largely occurred during a period of sustained economic growth or during the COVID-19 pandemic when extraordinary government stimulus impacted the economy.

Our FinView™ Analytics Platform have not been extensively tested during other adverse economic cycles.

Our proprietary technologies have not been extensively tested during other adverse economic cycles.

There is no assurance that our proprietary technologies can accurately predict loan performance during periods of adverse economic conditions.

If our FinView™ Analytics Platform is unable to accurately reflect the credit risk of loans under such economic conditions, we may experience greater than expected losses on such loans.

If our proprietary technologies are unable to accurately reflect the credit risk of loans under such economic conditions, we may experience greater than expected losses on such loans.

For example, in response to the COVID-19 pandemic, the federal government quickly implemented stimulus measures.

The subsequent discontinuation of those stimulus measures has increased, and may continue to increase, the delinquency and default rates of borrowers, which may increase uncertainty about the effectiveness of our FinView™ Analytics Platform.

We may not have the resources to keep pace with rapid technological changes in the industry or implement new technology effectively.

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As a result, if these third-party service providers or our Strategic Program service providers experience difficulties, are subject to cybersecurity breaches, or terminate their services, and we are unable to replace them with other service providers or alternative counterparties, particularly on a timely basis, our operations could be interrupted.

If an interruption

were to continue for a significant period, our business, financial condition and results of operations could be adversely affected.

If an interruption were to continue for a significant period, our business, financial condition and results of operations could be adversely affected.

Even if we can replace third-party service providers or Strategic Program service providers, it may be at a higher cost to us, which could adversely affect our business, financial condition and results of operations.

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If the national, regional and local economies experience worsening economic conditions, including high levels of unemployment, our growth and profitability could be constrained.

Our business is significantly affected by monetary and other regulatory policies of the U.S.

Our business is significantly

affected by monetary and other regulatory policies of the U.S.

federal government, its agencies and government-sponsored entities.

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While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition.

Additionally, financial markets may be adversely affected by the

current or anticipated impact of military conflict, including escalating military action between Russia and Ukraine, terrorism or other geopolitical events.

Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including escalating military action between Russia and Ukraine, terrorism or other geopolitical events.

Our commercial and consumer banking clients who participate in our real estate lending program and SBA 7(a) lending program are concentrated in certain geographic areas and we are sensitive to adverse changes in those regional economies.

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In addition, we are exposed to risks with respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting, closing, servicing and liquidation, risks resulting from changes in economic and industry conditions, and risks inherent in dealing with individual loans and borrowers.

If the overall economic climate in the United States generally, or in any of our markets specifically, experiences material disruption, our borrowers may experience difficulties in repaying their loans, the collateral we hold may decrease in value or become illiquid, and the level of delinquencies, nonperforming loans, and charge-offs could rise and require significant additional provisions for loan losses.

in value or become illiquid, and the level of delinquencies, nonperforming loans, and charge-offs could rise and require significant additional provisions for loan losses.

Our risk management practices, such as monitoring the concentration of our loans within specific markets and our credit approval, review and administrative practices, may not adequately reduce credit risk.

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Our ACL may prove to be insufficient to absorb potential losses in our loan portfolio.

The Financial Accounting Standards Board (the “FASB”) has issued an accounting standard for establishing allowances for loan and lease losses that replaces the prior approach under GAAP, which generally considers only past events and current conditions, with a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, starting when such assets are first originated or acquired.

GAAP”) , which generally considers only past events and current conditions, with a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, starting when such assets are first originated or acquired.

As an emerging growth company relying on the extended transition period for new accounting standards, this standard, referred to as Current Expected Credit Loss (“CECL”), became effective for us on January 1, 2023.

The CECL standard requires us to record, at the time of origination, credit losses expected throughout the life of the asset portfolio on loans and held-to-maturity securities, as opposed to the former practice of recording losses when it is probable that a loss event has occurred.

Moreover, the CECL standard may create

more volatility in the level of allowance for credit losses.

The CECL standard requires us to record, at the time of origination, credit losses expected throughout the life of the asset portfolio on loans and held-to-maturity (“HTM”) securities, as opposed to the former practice of recording losses when it is probable that a loss event has occurred.

Moreover, the CECL standard may create more volatility in the level of allowance for credit losses.

If we are required to materially increase the level of our allowance for credit losses for any reason, such increase could have an adverse effect on our business, financial condition, and results of operations.

For further information, please see Note 1, Summary of Significant Accounting Policies – Recent accounting pronouncements, of our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

For further information, please see Note 1 - Summary of Significant Accounting Policies to the consolidated financial statements included in Part II, Item 8.

We maintain an ACL that represents management’s judgment of probable losses and risks inherent in our loan portfolio.

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Our ability to engage in future mergers and acquisitions depends on various factors, including:

(1) our ability to identify suitable merger partners and acquisition opportunities;

(1) our ability to identify

suitable merger partners and acquisition opportunities;

(2) our ability to finance and complete transactions on acceptable terms and at acceptable prices;

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If the SBA establishes that a loss on an SBA guaranteed loan is attributable to significant technical deficiencies in the manner in which the loan was originated, funded or serviced by us, the SBA may seek recovery of the principal loss related to the deficiency from us.

As the funding and sale of the guaranteed portion of SBA 7(a) loans has been a major portion of our business and a significant portion of our noninterest income, any significant changes to the SBA 7(a) program, such as its funding or eligibility requirements, may have an adverse effect on our prospects, financial condition and results of operations.

As the funding and sale of the guaranteed portion of SBA 7(a) loans has been a major portion of our business and a significant portion of our non-interest income, any significant changes to the SBA 7(a) program, such as its funding or eligibility requirements, may have an adverse effect on our prospects, financial condition and results of operations.

Even if we are able to continue to originate and sell SBA 7(a) loans in the secondary market, we might not continue to realize premiums upon the sale of the guaranteed portion of these loans or the premiums may decline due to economic and competitive factors.

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Others, including our competitors, may independently develop similar technology, duplicate our products or services or design around our intellectual property, and in such cases we may not be able to assert our intellectual property rights against such parties.

Further, our contractual arrangements may not effectively prevent disclosure of our confidential information or provide an adequate remedy in the event of unauthorized disclosure of our confidential or proprietary information.

Further, our contractual arrangements may not effectively

prevent disclosure of our confidential information or provide an adequate remedy in the event of unauthorized disclosure of our confidential or proprietary information.

We may have to litigate to enforce or determine the scope and enforceability of our intellectual property rights, trade secrets and know-how, which could be time-consuming and expensive, could cause a diversion of resources and may not prove successful.

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We originate commercial construction loans primarily to professional builders for the construction of one-to-four family residences, apartment buildings, and commercial real estate properties.

As of December 31, 2023, we had approximately $28.3 million of construction loans, which represents approximately 7.6% of our total gross loan portfolio held-for-investment.

As of December 31, 2024, we had app roximately $42.3 million of construction loans, which represents approximately 9.1% o f our total gross loan portfolio held-for-investment.

Our construction loans present a greater level of risk than loans secured by improved, occupied real estate due to:

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and (4) the increased difficulty of working out loan problems.

In addition, construction

costs may exceed original estimates as a result of increased materials, labor or other costs.

In addition, construction costs may exceed original estimates as a result of increased materials, labor or other costs.

Construction loans also often involve the disbursement of funds with repayment dependent, in part, on the success of the project and the ability of the borrower to sell or lease the property or refinance the indebtedness.

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Our concentration of large loans to a limited number of borrowers may increase our credit risk.

As of December 31, 2023, our 10 largest borrowing relationships accounted for approximately 13.0% of our total gross loans held-for-investment.

As of December 31, 2024, our 10 largest borrowing relationships accounted for approximatel y 10.5% of our total gross loans held-for-investment.

This high concentration of borrowers presents a risk to our lending operations.

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Our Strategic Programs generally require each Strategic Program platform to establish a reserve deposit account with the Bank, intended to protect us in the event a purchaser of loan receivables originated through our Strategic Programs cannot meet its contractual obligation to purchase.

The reserve deposit account balance is typically required to at least equal the total outstanding balance of loans held-for-sale by the Bank related to the Strategic Program.

The reserve deposit account balances are required to be maintained at an amount between 50% and 100% of the total outstanding balance of loans held-for-sale by the Bank related to the Strategic Program.

In the event that a loan purchaser defaults on its obligation under the Strategic Program agreements and the reserve deposit account balance is lower than the loans held-for-sale, the Bank may not be able to withdraw sufficient amount from the reserve deposit account to fulfill loan purchaser obligations and our liquidity may be adversely impacted.

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Our access to funding sources could also be affected by one or more adverse regulatory actions against us.

Further, the Federal Housing Finance Agency, the regulator of FHLB and other federal home loan banks, launched a comprehensive review of the Federal Home Loan Bank System including the mission, membership eligibility requirements,

and operational efficiencies of the federal home loan banks in 2022.

Any change to or termination of our ability to borrow from the FHLB or correspondent banks could have an adverse effect on our financial condition and liquidity.

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We have a concentration of deposit accounts with our Strategic Program service providers that is a material source of our funding, and the loss of these deposits or default on letters of credit by these Strategic Program service providers could force us to fund our business through more expensive and less stable sources.

As of December 31, 2023, approximately $68.1 million, or approximately 16.8%, of our total deposits consisted of deposit accounts of our Strategic Program service providers.

Generally, the terms of our Strategic Programs require each Strategic Program service provider or purchasing entity to establish a reserve deposit account with the Bank in an amount at least equal to the total outstanding balance of loans held-for-sale by the Bank related to the Strategic Program.

As of December 31, 2024, approximatel y $113.6 million, or approximately 20.8%, of our total deposits consisted of deposit accounts of our Strategic Program service providers.

Generally, the terms of our Strategic Programs require each Strategic Program service provider or purchasing entity to establish a reserve deposit account with the Bank in an amount at least equal to between 50% and 100% the total outstanding balance of loans held-for-sale by the Bank related to the Strategic Program.

This requirement is intended to protect the Bank in the event a purchaser of loan receivables originated through our Strategic Programs cannot meet its contractual obligation to purchase.

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Like most financial institutions, our earnings are significantly dependent on our net interest income, the principal component of our earnings, which is the difference between interest earned by us from our interest earning assets, such as loans and investment securities, and interest paid by us on our interest-bearing liabilities, such as deposits and borrowings.

We expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest earning assets, or vice versa.

We expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either

our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest earning assets, or vice versa.

In either case, if market interest rates should move contrary to our position, this gap will negatively impact our earnings.

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After a period of low interest rates, the federal funds rate was increased rapidly to 4.25%-4.50% at the end of 2022, and to 5.25%-5.5% at the end of 2023.

Further changes to prevailing interest rates could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but such changes could also affect (i) our ability to originate loans at competitive rates and obtain deposits;

In 2024 the Federal Reserve lowered the target range in three increments to 4.25%-4.5% Further changes to prevailing interest rates could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but such changes could also affect (i) our ability to originate loans at competitive rates and obtain deposits;

(ii) the fair value of our financial assets and liabilities;

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A prolonged period of extremely volatile and unstable market conditions could increase our funding costs and negatively affect market risk mitigation strategies.

Increased interest rates may decrease borrower demand for certain of our lending products, even as inflation places pressure on consumer spending, borrowing and saving habits as consumers evaluate their prospects for future income growth and employment opportunities in the current economic environment, and

as borrowers face uncertainty about the impact of rising prices on their ability to repay a loan.

A change in demand for our lending products and any steps we may take to mitigate such change could impact our credit quality and overall growth.

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Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for evaluating and reporting on that system of internal control.

Our internal control over financial reporting consists of a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, or GAAP.

Weaknesses in our internal control over financial reporting have been discovered in the past and may be discovered in the future.

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The accuracy of our financial statements and related disclosures could be affected if the judgments, assumptions or estimates used in our critical accounting policies are inaccurate.

The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes.

The preparation of financial statements and related disclosures in conformity with U.S.

GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes.

Our critical accounting policies, which are included in Item 7.

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We invest a portion of our total assets ( 5.7% as of December 31, 2024) in investment securities with the primary objectives of providing a source of liquidity, providing an appropriate return on funds invested, managing interest rate risk and meeting pledging requirements.

As of December 31, 2023, all securities were classified as held-to-maturity.

Factors beyond our control can significantly and adversely influence the fair value of securities in our portfolio.

Because of changing economic and market conditions affecting interest rates, the financial condition of issuers of the securities and the performance of the underlying collateral, we may recognize realized and/or unrealized losses in future periods, which could have a material adverse effect on our business, financial condition and results of operations.

unrealized losses in future periods, which could have a material adverse effect on our business, financial condition and results of operations.

We are subject to certain operational risks, including, but not limited to, customer, employee or third-party fraud.

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Those rates, in turn, generally reflect prevailing market conditions.

During the first quarter of 2023, the media highlighted the risks of an extreme form of deposit run-off, sometimes referred to as a “run on the bank.” The failures of Silicon Valley Bank, Signature Bank, and First Republic Bank in 2023 resulted in significant disruption in the financial services industry and negative media attention, which has also adversely impacted the volatility and market prices of the securities of financial institutions and resulted in outflows of deposits for many other financial institutions.

disruption in the financial services industry and negative media attention, which has also adversely impacted the volatility and market prices of the securities of financial institutions and resulted in outflows of deposits for many other financial institutions.

More moderate levels of run-off can adversely affect banks but are less dramatic and have been significantly less reported.

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However, we will continue to need capital to support our longer-term growth plans.

If capital is not available on favorable terms when we need it, we will have to either issue common stock or other securities on less than desirable terms or reduce our rate of

growth until market conditions become more favorable.

If capital is not available on favorable terms when we need it, we will have to either issue common stock or other securities on less than desirable terms or reduce our rate of growth until market conditions become more favorable.

Any such events could have a material adverse effect on our business, financial condition and results of operations.

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Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards, including with respect to our involvement in certain industries or projects associated with causing or exacerbating climate change, may negatively affect our reputation and commercial relationships, which could adversely affect our business.

We expect to derive a percentage of our deposits, total assets and income from deposit accounts generated through our Fintech Banking Solutions relationships.

We expect to acquire deposit accounts through our Fintech Banking Solutions relationships and provide oversight over these relationships, which must meet our internal and regulatory requirements.

We expect to derive a percentage of our deposits, total assets and income from deposit accounts generated through our Fintech Banking and Payment Solutions relationships.

We expect to acquire deposit accounts through our Fintech Banking and Payment Solutions relationships and provide oversight over these relationships, which must meet our internal and regulatory requirements.

We may exit relationships where such requirements are not met or be required by our regulators to exit such relationships.

Also, our Fintech Banking Solutions customers could terminate their relationships with us for many reasons, including being able to obtain better terms from another provider or dissatisfaction with the level or quality of our services.

If a relationship were to be terminated, it could materially reduce our deposits, assets and income.

Also, our Fintech Banking and Payment Solutions customers could terminate their relationships with us for many reasons, including being able to obtain better terms from another provider or dissatisfaction with the level or quality of our services.

If a relationship were

to be terminated, it could materially reduce our deposits, assets and income.

We cannot assure you that we would be able to successfully replace such relationships.

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We may also be required to sell securities or other assets to meet funding needs which would reduce revenues or potentially generate losses.

Our strategy of pursuing business with our Fintech Banking Solutions customers has been adopted by other institutions with which we compete.

Several online banking operations as well as the online banking programs of conventional banks have instituted Fintech Banking Solutions strategies similar to ours.

Our strategy of pursuing business with our Fintech Banking and Payment Solutions customers has been adopted by other institutions with which we compete.

Several online banking operations as well as the online banking programs of conventional banks have instituted Fintech Banking and Payment Solutions strategies similar to ours.

As a consequence, we have encountered competition in this area and anticipate that we will continue to do so in the future.

This competition may increase our costs, reduce our revenues or revenue growth or, because we are a relatively small banking operation without the name recognition of other, more established banking operations, make it difficult for us to compete effectively in obtaining these relationships.

Our agreements with Fintech Banking Solutions customers may expose us to credit risk.

We may enter into agreements with our Fintech Banking Solutions customers pursuant to which our Fintech Banking Solutions customers may market bank consumer checking and consumer or commercial line of credit (“LOC”) accounts using their brands and digital platforms, make underwriting determinations for the LOC accounts, cover any losses on the LOC accounts, provide cash collateral to the Bank to secure payment of such losses or be partial guarantors of losses on the LOC accounts.

In the event the cash collateral amount is not adequately maintained or is insufficient to cover the losses on the LOC accounts and the Fintech Banking Solutions customer does not or cannot otherwise meet its partial guaranty or other obligations under its agreement with the Bank, the Bank may incur losses on the LOC accounts.

Losses associated with the LOC accounts (or the portfolios of other third parties with whom we enter into comparable Fintech Banking Solutions relationships) in such circumstances could have a material adverse effect on our net income, results of operations and financial condition.

Our agreements with Fintech Banking Solutions customers may produce limited revenue and may expose us to liability for compliance violations by Fintech Banking Solutions customer.

We expect to enter into agreements with Fintech Banking Solutions customers pursuant to which we will provide certain banking services for such Fintech Banking Solutions customers, including serving as the issuing bank for credit or debit cards issued to their customers and establishing one or more settlement accounts for the purpose of settling customer transactions.

Our agreements with Fintech Banking and Payment Solutions customers may expose us to credit risk.

We may enter into agreements with our Fintech Banking and Payment Solutions customers pursuant to which our Fintech Banking and Payment Solutions customers may market bank consumer checking and consumer or commercial line of credit (“LOC”) accounts using their brands and digital platforms, make underwriting determinations for the LOC accounts, cover any losses on the LOC accounts, provide cash collateral to the Bank to secure payment of such losses or be partial guarantors of losses on the LOC accounts.

In the event the cash collateral amount is not adequately maintained or is insufficient to cover the losses on the LOC accounts and the Fintech Banking and Payment Solutions customer does not or cannot otherwise meet its partial guaranty or other obligations under its agreement with the Bank, the Bank may incur losses on the LOC accounts.

Losses associated with the LOC accounts (or the portfolios of other third parties with whom we enter into comparable Fintech Banking and Payment Solutions relationships) in such circumstances could have a material adverse effect on our net income, results of operations and financial condition.

Our agreements with Fintech Banking and Payment Solutions customers may produce limited revenue and may expose us to liability for compliance violations by Fintech Banking and Payment Solutions customer.

We expect to enter into agreements with Fintech Banking and Payment Solutions customers pursuant to which we will provide certain banking services for such Fintech Banking and Payment Solutions customers, including serving as the issuing bank for credit or debit cards issued to their customers and establishing one or more settlement accounts for the purpose of settling customer transactions.

The agreements have varying terms and may be terminated by the parties under certain circumstances.

If our Fintech Banking Solutions customers are not successful in achieving customer acceptance of their programs or terminate the agreement before the end of its term, our revenue under the agreement may be limited or may cease altogether.

In addition, our bank regulators may hold us responsible for the activities of our Fintech Banking Solutions customers with respect to the marketing or administration of their programs, which may result in increased compliance costs for us or potentially compliance violations as a result of Fintech Banking Solutions customer activities.

In recent years, a significant number of banks that provide Fintech Banking Solutions have become subject to enforcement actions relating to their customers’ activities, indicating that banking regulators have made banks’ oversight over their Fintech Banking Solutions customers a supervisory priority and that there is an increased risk that we could similarly become subject to additional regulatory scrutiny or enforcement.

Additionally, financial weaknesses at our Fintech Banking Solutions customers could cause us to record greater expenses or losses or suffer reputational harm.

If our Fintech Banking and Payment Solutions customers are not successful in achieving customer acceptance of their programs or terminate the agreement before the end of its term, our revenue under the agreement may be limited or may cease altogether.

In addition, our bank regulators may hold us responsible for the activities of our Fintech Banking and Payment Solutions customers with respect to the marketing or administration of their programs, which may result in increased compliance costs for us or potentially compliance violations as a result of Fintech Banking and Payment Solutions customer activities.

In recent years, a significant number of banks that provide Fintech Banking and Payment Solutions have become subject to enforcement actions relating to their customers’ activities, indicating that banking regulators have made banks’ oversight over their Fintech Banking and Payment Solutions customers a supervisory priority and that there is an increased risk that we could similarly become subject to additional regulatory scrutiny or enforcement.

Additionally, financial weaknesses at our Fintech Banking and Payment Solutions customers could cause us to record greater expenses or losses or suffer reputational harm.

Risks Related to Regulation

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As a Utah state-chartered bank that is not a member of the Federal Reserve System, the Bank is separately subject to regulation by both the FDIC and the UDFI.

The FDIC and UDFI regulate numerous aspects of the Bank’s operations, including adequate capital and financial condition, permissible types and amounts of extensions of credit and investments, permissible non-banking activities and restrictions on dividend payments.

The FDIC and UDFI regulate numerous aspects of the Bank’s operations,

including adequate capital and financial condition, permissible types and amounts of extensions of credit and investments, permissible non-banking activities and restrictions on dividend payments.

The Bank undergoes periodic examinations by the FDIC and UDFI.

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Federal and state regulatory agencies frequently adopt changes to their regulations or change the way existing regulations are applied, including the Dodd-Frank Act and the Regulatory Relief Act.

These and other changes are more fully discussed under “Supervision and Regulation.” Regulatory or legislative changes to laws applicable to the financial

industry, if enacted or adopted, may impact the profitability of our business activities, require more oversight or change certain of our business practices, including the ability to offer new products, obtain financing, attract deposits, make loans and achieve satisfactory interest spreads and could expose us to additional costs, including increased compliance costs.

These and other changes are more fully discussed above under “Supervision and Regulation.” Regulatory or legislative changes to laws applicable to the financial industry, if enacted or adopted, may impact the profitability of our business activities, require more oversight or change certain of our business practices, including the ability to offer new products, obtain financing, attract deposits, make loans and achieve satisfactory interest spreads and could expose us to additional costs, including increased compliance costs.

These changes also may require us to invest significant management attention and resources to make any necessary changes to operations to comply and could have a material adverse effect on our business, financial condition and results of operations.

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Section 162(m) of the Code generally limits to $1 million annual deductions for compensation paid to “covered employees” of any “publicly held corporation.” A “publicly held corporation” includes any company that issues securities required to be registered under Section 12 of the Securities Exchange Act of 1934 or companies required to file reports under Section 15(d) of the Exchange Act, determined as of the last day of the company’s taxable year.

As a consequence, Section 162(m) of the Code will limit the deductibility of compensation to our covered employees to $1 million beginning with the year ended December 31, 2021.

Pursuant to Treasury regulations that were finalized on December 18, 2020, the definition of “covered employees” generally includes anyone who served as the chief executive officer or chief financial officer at any time during the taxable year;

As a consequence, Section 162(m) of the Code limited the deductibility of compensation to our covered employees to $1 million beginning with the year ended December 31, 2021.

The definition of “covered employees” generally includes anyone who served as the chief executive officer or chief financial officer at any time during the taxable year;

the three highest compensated executive officers (other than the chief executive officer or the chief financial officer), determined under SEC rules;

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We expect that in most if not all cases a publicly traded company that we might acquire in the future will be a “predecessor company.” Accordingly, we expect that the number of our covered employees will increase if FinWise Bancorp acquires one or more publicly held corporations in the future.

Notably, under the American Rescue Plan Act of 2021, or the ARPA, which was signed into law on March 11, 2021, for tax years beginning after December 31, 2026, the definition of “covered employees” will be expanded to include FinWise Bancorp’s next five highest paid employees (in addition to those currently included in the definition as described above).

Notably, under the American Rescue Plan Act of 2021, or the ARPA, which was signed into law on March 11, 2021, for tax years beginning after December 31, 2026, the definition of “covered employees” will be expanded to include FinWise Bancorp’s next five highest paid employees (in addition, pursuant to proposed Treasury Regulations, to the chief executive officer, the chief financial officer and the three other highest compensated executive officers ).

As a result of the foregoing, under present law, we may not be able to deduct all of the compensation paid in 2024 and future years if compensation paid to “covered employees” exceeds the thresholds established by Section 162(m) of the Code.

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Federal and state banking agencies periodically conduct examinations of our business, including our compliance with laws and regulations, and our failure to comply with any regulatory actions, if any, could adversely impact us.

As part of the bank regulatory process, the Federal Reserve, the FDIC and the Utah Department of Financial Institutions (the “UDFI”), periodically conduct examinations of our business, including compliance with laws and regulations.

As part of the bank regulatory process, the Federal Reserve, the FDIC and the UDFI, periodically conduct examinations of our business, including compliance with laws and regulations.

If, based on an examination, the UDFI or a federal banking agency were to determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, asset sensitivity, risk management or other aspects of any of our operations have become unsatisfactory, or that the Company or its management were in violation of any law or regulation, it may take such remedial actions as it deems appropriate.

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The Bank Secrecy Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the USA PATRIOT Act, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate.

To administer the Bank Secrecy Act, FinCEN is authorized to impose

significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S.

To administer the Bank Secrecy Act, FinCEN is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S.

Department of Justice, Drug Enforcement Administration and the IRS.

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If our policies, procedures and systems are deemed deficient, we could be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the inability to obtain regulatory approvals to proceed with certain aspects of our business plans, including acquisitions and de novo branching.

We are subject to anticorruption laws, including the U.S.

Foreign Corrupt Practices Act, or FCPA, and we may be subject to other anti-corruption laws, as well as anti-money laundering and sanctions laws and other laws governing our operations, to the extent our business expands to non-U.S.

jurisdictions.

If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures, and legal expenses, which could adversely affect our business, financial condition and results of operations.

We may pursue deposit sourcing opportunities outside of the United States.

We are currently subject to anti-corruption laws, including the FCPA.

The FCPA and other applicable anti-corruption laws generally prohibit us, our employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain other business advantages.

We may also participate in collaborations and relationships with third parties whose actions could potentially subject us to liability under the FCPA or other jurisdictions’ anti-corruption laws.

There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the FCPA.

If we are not in compliance with the FCPA or other anti-corruption laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition and results of operations.

Similarly, any investigation of any potential violations of the FCPA or other anti-corruption laws by authorities in the United States or other jurisdictions where we conduct business could also have an adverse impact on our reputation, business, financial condition and results of operations.

Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.

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The ongoing broad rulemaking powers of the CFPB have potential to have a significant impact on the operations of financial institutions offering consumer financial products or services.

The CFPB has indicated that it may propose new rules on overdrafts and other consumer financial products or services, which could have a material adverse effect on our business, financial condition and results of operations if any such rules limit our ability to provide such financial products or services.

For example, the CFPB has proposed rules that would restrict various fees that financial institutions can charge consumers, including credit card late fees and certain insufficient funds fees.

A successful regulatory challenge to an institution’s performance under the CRA, fair lending or consumer lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines.

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Home Ownership and Equity Protection Act of 1994, or HOEPA, prohibits inclusion of certain provisions in mortgages that have interest rates or origination costs in excess of prescribed levels and requires that borrowers be given certain disclosures prior to origination.

The Military Lending Act limits the interest rate that can be charged to active-duty servicemembers and their dependents.

The Military Lending Act limits the interest rate that can be charged to active-duty service members and their dependents.

Some states have enacted, or may enact, similar laws or regulations, which in some cases impose restrictions and requirements greater than those in HOEPA.

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Regulatory agencies and consumer advocacy groups have asserted claims that the practices of lenders and loan servicers result in a disparate impact on protected classes.

Antidiscrimination statutes, such as FHA and ECOA, prohibit creditors from discriminating against loan applicants and borrowers based on certain characteristics, such as race, religion and national origin.

Anti-discrimination statutes, such as FHA and ECOA, prohibit creditors from discriminating against loan applicants and borrowers based on certain characteristics, such as race, religion and national origin.

Various federal regulatory agencies and departments, including the DOJ and the CFPB, have taken the position that these laws apply not only to intentional discrimination, but also to facially neutral practices that have a disparate impact on a group that shares a characteristic that a creditor may not consider in making credit decisions protected classes (i.e., creditor or servicing practices that have a disproportionate negative affect on a protected class of individuals).

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These regulatory agencies, as well as consumer advocacy groups and plaintiffs’ attorneys, have focused greater attention on “disparate impact” claims.

Supreme Court has confirmed that the “disparate impact” theory applies to cases

brought under FHA, while emphasizing that a causal relationship must be shown between a specific policy of the defendant and a discriminatory result that is not justified by a legitimate objective of the defendant.

Supreme Court has confirmed that the “disparate impact” theory applies to cases brought under FHA, while emphasizing that a causal relationship must be shown between a specific policy of the defendant and a discriminatory result that is not justified by a legitimate objective of the defendant.

Although it is still unclear whether the theory applies under ECOA, regulatory agencies and private plaintiffs may continue to apply it to both FHA and ECOA in the context of mortgage lending and servicing.

To the extent that the “disparate impact” theory continues to apply, we are faced with significant administrative burdens in attempting to comply and potential liability for failures to comply.

To the extent that the “disparate impact” theory continues to

apply, we are faced with significant administrative burdens in attempting to comply and potential liability for failures to comply.

In addition to reputational harm, violations of FHA and ECOA can result in actual damages, punitive damages, injunctive or equitable relief, attorneys’ fees and civil money penalties.

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Additionally, the Bank may suffer economic penalties and consequences as a result of a financial penalty or damages or injunctive relief.

If the Bank and/or any of the Strategic Program service providers with which we do business suffers any of these consequences, the Bank may not be able to recover economic damages and/or costs the Bank incurs from the Strategic Program service provider, whether under an

indemnification right or other action against the service provider.

The foregoing could adversely affect our growth, business prospects, financial condition and results of operations.

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A significant portion of our loan origination is conducted through our Strategic Programs.

Approximately $49.1 million, or 57.4% of our total revenues for the year ended December 31, 2023, were generated through our Strategic Programs.

Approximately $54.1 , or 55.9% of our total revenues for the year ended December 31, 2024, were generated through our Strategic Programs.

Our agreements with service providers to the Strategic Programs are non-exclusive and do not prohibit the service providers from working with our competitors upon payment of a fee or from offering competing services.

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Furthermore, our regulators could require us to terminate certain relationships with our Strategic Program service providers or POS merchants or restrict our ability to form new relationships with other Strategic Program service providers or POS merchants, either of which could result in a decrease in our loan originations, which in turn could adversely affect our growth, business prospects, financial condition and results of operations.

The regulatory framework for Strategic Programs is evolving and uncertain as federal and state governments consider new laws to regulate online marketplaces such as ours.

New laws and regulations, including taxes on services provided through Strategic Programs, as well as continued uncertainty regarding potential new laws or regulations, may negatively affect our business.

The regulatory framework for Strategic Programs is evolving and uncertain as federal and state agencies consider new laws to regulate online marketplaces such as ours, as well as the withdrawal of certain proposed rules.

New laws and regulations, including taxes on services provided through Strategic Programs, as well as continued uncertainty regarding potential new laws or regulations, or the withdrawal or rescission of proposed or final rules, may negatively affect our business.

The regulatory framework for our Strategic Programs is evolving and uncertain.

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The white paper included several recommendations to the federal government and private sector participants in order to encourage safe growth and access to credit.

In April 2022, the CFPB announced that it intends to examine nonbank financial companies, which may include some of our Strategic Program service providers, that

pose risks to consumers and in June 2022, the Deputy Director of the CFPB indicated that relationships between banks and nonbank lenders will be an area of increased regulatory focus for the agency in the near future.

Subsequently, in November 2022, the Treasury Department issued a report encouraging the CFPB to increase its supervisory activity with respect to larger nonbank lenders.

The Office of the Comptroller of the Currency (the “OCC”), the prudential regulator for national banks, recently announced that it will be prioritizing the review of third-party relationships between banks and financial technology companies, which may include some of our Strategic Program service providers, as part of the agency’s bank supervisory priorities for the upcoming calendar year.

Moreover, the CFPB has issued several interpretive statements and guidance documents that could impact certain practices of our Strategic Programs including a May 2022 statement on compliance obligations under ECOA for companies that rely on complex algorithms when making credit decisions.

The CFPB also issued an interpretive rule expanding states’ authority to enforce requirements of federal consumer financial laws, including ECOA.

In April 2022, the CFPB announced that it intends to examine nonbank financial companies, which may include some of our Strategic Program service providers, that pose risks to consumers and in June 2022, the Deputy Director of the CFPB indicated that relationships between banks and nonbank lenders will be an area of increased regulatory focus for the agency in the near future.

Subsequently, in November

2022, the Treasury Department issued a report encouraging the CFPB to increase its supervisory activity with respect to larger nonbank lenders.

State regulators have also increased the level of regulatory scrutiny on financial technology companies.

However, following the inauguration of the new President in January 2025, new acting federal financial regulators have signaled that they will take a different approach to regulation of the financial marketplace and financial technology companies compared to the prior administration.

We cannot predict whether any legislation or proposed rulemaking will actually be introduced or how any legislation or rulemaking will impact our business and results of operations of marketplace lenders going forward.

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If the laws of such jurisdictions were found to apply to the loans originated by the Bank through a marketplace, those loans could be in violation of such laws or it could impact the ability to sell such loans to investors.

Approximately $25.9 million, or 30.3% of our total revenues for the year ended December 31, 2023, were generated from Strategic Programs with annual interest rates above 36%.

Approxim ately $24.6, or 25.5% of our total revenues for the year ended December 31, 2024, were generated from Strategic Programs with annual interest rates above 36%.

There has been (and will likely continue to be) litigation challenging lending arrangements where a bank or other third-party has made a loan and then sells and assigns it to an entity that is engaged in assisting with the origination and servicing of a loan.

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The FDIC followed suit with a final rule on June 25, 2020, that similarly reaffirmed the enforceability of the interest rate terms of loans made by state-chartered banks and insured branches of foreign banks (collectively, state banks) following the sale, assignment, or transfer of a loan.

The rules also provide that whether interest on a loan is permissible is determined at the time the loan is made, and is not affected by a change in state

law, a change in the relevant commercial paper rate, or the sale, assignment, or other transfer of the loan.

The rules also provide that whether interest on a loan is permissible is determined at the time the loan is made, and is not affected by a change in state law, a change in the relevant commercial paper rate, or the sale, assignment, or other transfer of the loan.

These rules have been challenged by state attorneys general.

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High profile fraudulent activity or significant increases in fraudulent activity could lead to regulatory intervention, negatively impact a company’s operating results, brand and reputation and lead it to take steps to reduce fraud risk, which could increase its costs and consequently, adversely affect our business, financial condition and results of operations.

We depend on the accuracy and completeness of information provided by our Fintech Banking and Payment Solutions service providers for our lending, payments and BIN programs.

We rely on the effective and timely functioning of the operational and financial reporting of our Fintech Banking and Payment Solutions service providers for financial, accounting, transaction execution, data processing and other operational information to process, record, monitor and report a large number of transactions on a continuous basis, and to do so accurately, quickly and securely.

Any errors or failures in such reporting could result in the erroneous execution of transactions, financial losses, regulatory scrutiny, increased costs or harm to our reputation.

Differences between the accounting policies of our Fintech Banking and Payment Solutions service providers and the Company’s accounting policies could result in us not recognizing amounts in our financial statements in accordance with U.S.

GAAP or other errors in our financial statements.

Although we have implemented controls to enhance our risk assessment, control and evaluation procedures over third-party reports to ensure compliance with the Company’s accounting policies, any control, design or implementation deficiencies with respect to third-party reports could adversely impact our results of operations or financial condition, or result in our failure to meet our periodic reporting obligations.

In deciding whether to extend credit or enter into other transactions with borrowers and counterparties in our Strategic Programs, we may rely on information furnished to us by our Strategic Program service providers, including credit profile, financial statements and other financial information, as well as with respect to the accuracy and completeness of that information.

Any review and analyses of such information in connection with our lending decisions may not detect or highlight all relevant facts or risks that are necessary in evaluating such credit or other transactions.

In some cases, we may have little or no control over the data collection or due diligence processes of our Strategic Program services providers, and any shortcomings in such processes could be reflected in the lending decisions that we make.

The quality of our loan portfolios, our financial condition, results of operations, financial reporting and reputation could be materially adversely affected if we receive and rely on materially misleading, false, inaccurate, incomplete, outdated or fraudulent information.

If we receive any such information and our fraud detection processes do not flag the related loan applications, repayments on the corresponding loans may be lower, in some cases significantly lower, than expected, leading to losses for us or the Strategic Program service provider.

Moreover, our reliance on any such information could result in suboptimally and inefficiently priced loans or incorrect approvals or denials of loans, which in turn could adversely affect our reputation and ability to attract new borrowers, counterparties or Strategic Program service providers.

Risks Related to Potential Strategic Transactions

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These activities involve risks and uncertainties, including the risk of the joint venture or applicable Strategic Program platform failing to satisfy its obligations, which may result in certain liabilities to us for any related commitments, the uncertainty created by challenges in achieving strategic objectives and expected benefits of the business arrangement, the risk of conflicts arising between us and our business collaborations and the difficulty of managing and resolving such conflicts, and the difficulty of managing or otherwise monitoring such business arrangements.

In addition, in these joint ventures, strategic collaborations and alliances, we may have certain overlapping control over the operation of the assets and businesses.

In addition, in these joint ventures, strategic collaborations and alliances, we may have certain overlapping

control over the operation of the assets and businesses.

As a result, such joint ventures, strategic collaborations and alliances may involve risks such as the possibility that a counterparty in a business arrangement might become bankrupt, be unable to meet its contractual obligations, have economic or business interests or goals that are inconsistent with our business interests or goals, or take actions that are contrary to our instructions or to applicable laws and regulations.

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Our executive management and board of directors have significant control over our business.

As of December 31, 2023, our directors and executive officers beneficially owned an aggregate of 2,993,075 shares, or approximately 22.8% of our issued and outstanding common stock.

As of December 31, 2024, our directors and executive officers beneficially owned an aggregat e of 2,907,932 shares, or approximately 21.2% of ou r issued and outstanding common stock.

Consequently, our executive management and board of directors may be able to significantly affect the outcome of the election of directors and the potential outcome of other matters submitted to a vote of our shareholders, such as mergers, the sale of substantially all our assets and other extraordinary corporate matters.

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We have elected to, and expect to continue to, take advantage of certain of these and other exemptions until we are no longer an emerging growth company.

Further, the JOBS Act allows us to present only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations.

Furt her, the JOBS Act allows us to present only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations.

We may take advantage of some or all of these provisions for up to five years or such earlier time as we cease to qualify as an emerging growth company, which will occur if we have more than $1.235 billion in total annual gross revenue, if we issue more than $1.0 billion of non-convertible debt in a three-year period, or if we become a “large accelerated filer,” in which case we would no longer be an emerging growth company as of the following December 31.

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Furthermore, banking laws impose notice, approval, and ongoing regulatory requirements on any shareholder or other party that seeks to acquire direct or indirect “control” of an FDIC-insured depository institution or its holding company.

laws include the BHC Act and the Change in Bank Control Act.

These laws include the BHC Act and the Change in Bank Control Act.

These laws could delay or prevent an acquisition.

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The choice of forum provision in our Articles and Bylaws may limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us.

Alternatively, if a court were to find the choice of forum provision contained in our Articles and Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results, and financial condition.

Alternatively, if a court were to find the

choice of forum provision contained in our Articles and Bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results, and financial condition.

Our common stock is not an insured deposit and is subject to risk of loss.

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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-K

Item 1A. Risk Factors