What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-26 compared with 2024-03-25 · 669 added, 601 removed, 818 unchanged (61% of the section changed)

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Report of Independent Registered Public Accounting Firm (PCAOB ID 173 )

Consolidated Balance Sheet

Consolidated Balance Shee ts

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Statements of Changes in Shareholders’ Equity

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of

The Shareholders and the Board of Directors of

FinWise Bancorp and Subsidiaries

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of FinWise Bancorp and Subsidiaries (the “Company”), as of December 31, 2023 and 2022, the related consolidated statements of income, changes in shareholder’s equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of FinWise Bancorp and Subsidiaries (the “Company”), as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in shareholder’s equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2024 and 2023, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Notes 1 and 3 to the consolidated financial statements, the Company has changed its method of accounting for credit losses due to the adoption of Accounting Standards Update No.

2016-13, Financial Instruments - Credit Losses .

Basis for Opinion

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/s/ Moss Adams LLP

Spokane, Washington

Everett, Washington

March 26, 2025

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Cash and due from banks $ 9,600 $ 411

Interest-bearing deposits 116,564 100,181

Interest-bearing deposits in other banks (restricted cash of $ 3.1 million and $ 0 , respectively)

99,562 116,564

Total cash and cash equivalents 109,162 116,975

Investment securities held-to-maturity,net of allowance for credit losses of none , (fair value of $ 13.8 million and $ 12.7 million, respectively)

Investment securities available-for-sale, at fair value, net of allowance for credit losses of $ 0 , (amortized cost of $ 30.0 million)

Investment securities held-to-maturity, net of allowance for credit losses of $ 0 , (fair value of $ 11.1 million and $ 13.8 million, respectively)

12,565 15,388

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Strategic Program loans held-for-sale, at lower of cost or fair value 91,588 47,514

Loans receivable, net of allowance for credit losses of $ 12.9 million and $ 12.0 million, respectively

Loans held-for-investment, net of allowance for credit losses of $ 13.2 million and $ 12.9 million, respectively

447,812 358,560

Credit enhancement asset 111 —

Premises and equipment, net 16,328 14,630

Accrued interest receivable 3,566 3,573

Deferred taxes, net — 1,167

Small Business Administration servicing asset, net 4,231 5,210

Small Business Administration (“SBA”) servicing asset, net 3,273 4,231

Investment in Business Funding Group (“BFG”), at fair value 7,700 4,200

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Income taxes payable, net 4,423 1,873

Deferred taxes, net 748 —

Deferred income taxes, net 899 748

Paycheck Protection Program Liquidity Facility 64 190

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Retained earnings 116,594 103,844

Accumulated other comprehensive income, net of tax 187 —

Total shareholders’ equity 173,720 155,056

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(in thousands, except share and per share amounts)

For the Years Ended December 31,

Years Ended December 31,

Interest income

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Interest on deposits 15,440 9,974

Interest on PPP Liquidity Facility 1 2

Other interest expense — 1

Total interest expense 15,440 9,975

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Provision for credit losses 11,573 11,638

Net interest income after provision for loan losses 42,921 37,376

Net interest income after provision for credit losses 47,339 42,921

Non-interest income

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Gain on sale of loans, net 2,036 1,684

SBA loan servicing fees 1,466 1,603

SBA loan servicing fees, net 1,137 1,842

Change in fair value on investment in BFG ( 625 ) ( 600 )

Credit enhancement income 111 —

Other miscellaneous income 2,064 2,616

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Occupancy and equipment expenses 4,240 3,312

(Recovery) impairment of SBA servicing asset ( 376 ) 1,728

Credit enhancement expense 8 —

Other operating expenses 8,646 6,540

Total non-interest expense 52,835 40,564

Income before provision for income tax 23,813 36,031

Income before income taxes 16,989 23,813

Provision for income taxes 4,247 6,353

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FinWise Bancorp

Consolidated Statements of Comprehensive Income

(in thousands)

Years Ended December 31,

Net income $ 12,742 $ 17,460

Other comprehensive income items, net of tax:

Unrealized loss on securities available-for-sale $ ( 97 ) $ —

Unrealized gain on interest rate swaps 509 —

Recognition of previously unrealized gain on interest rate swaps in net income ( 164 ) —

Other comprehensive income, net of tax 187 —

Comprehensive income $ 12,929 $ 17,460

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

FinWise Bancorp

Consolidated Statements of Changes in Shareholders’ Equity

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Capital Retained

Earnings Total

Earnings Accumulated Other Comprehensive Income, Net of Tax Total

Shareholders’

Balance at December 31, 2022 12,831,345 $ 13 $ 54,614 $ 85,832 $ — $ 140,459

Impact of the adoption of ASC 326 Credit Losses — — — ( 212 ) — ( 212 )

Stock-based compensation expense 168,821 — 2,046 — — 2,046

Common stock repurchased ( 120,000 ) — ( 1,260 ) 124 ( 1,136 )

Stock options exercised 56,280 — 260 — 260

Common stock repurchased and retired ( 524,241 ) ( 1 ) ( 5,504 ) 764 — ( 4,741 )

Stock options exercised, net 17,640 — 44 — — 44

Net income — — — 17,460 — 17,460

Balance at December 31, 2023 12,493,565 $ 12 $ 51,200 $ 103,844 $ — $ 155,056

Impact of the adoption of ASC 326 Credit Losses — — — ( 212 ) ( 212 )

Stock-based compensation expense 393,910 — 2,046 — — 2,046

Stock options exercised 17,640 — 44 — 44

Common stock repurchased ( 524,241 ) ( 1 ) ( 5,504 ) 764 ( 4,741 )

Stock options exercised, net 29,597 — 25 — — 25

Common stock repurchased and retired ( 44,608 ) — ( 469 ) 8 — ( 461 )

BFG ownership purchase 339,176 1 4,124 — — 4,125

Other comprehensive income — — — — 187 187

Net income — — — 12,742 — 12,742

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(in thousands)

For the Years Ended

Cash flows from operating activities:

Net income $ 12,742 $ 17,460

Adjustments to reconcile net income to net cash from operating activities

Adjustments to reconcile net income to net cash (used in) provided by operating activities

Depreciation and amortization 5,289 3,811

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Noncash operating lease cost 729 748

Net amortization in securities discounts and premiums 1 28

Capitalized servicing assets ( 150 ) ( 4,087 )

Capitalized loan trailing fee asset — ( 2,347 )

Net (accretion) amortization in securities discounts and premiums ( 25 ) 1

Additions to servicing asset ( 269 ) ( 150 )

Gain on sale of loans, net ( 2,036 ) ( 1,684 )

Originations of Strategic Program loans held-for-sale ( 4,829,497 ) ( 4,077,855 )

Proceeds on Strategic Program loans held-for-sale 4,053,929 7,011,292

Proceeds from sale of Strategic Program loans held-for-sale 4,785,423 4,053,929

Change in fair value of BFG 625 600

(Recovery) impairment of SBA servicing asset ( 376 ) 1,728

Recovery of SBA servicing asset ( 865 ) ( 376 )

Stock-based compensation expense 2,046 2,046

Deferred income tax benefit 1,915 656

Deferred income taxes 90 1,915

Net changes in:

Accrued interest receivable 7 ( 1,755 )

Accrued interest payable 565 6

Other assets ( 1,770 ) ( 6,448 )

Accrued interest payable 875 565

Operating lease liabilities ( 994 ) ( 724 )

Other liabilities 1,066 8,544

Net cash provided by operating activities 12,265 61,153

Net cash (used in) provided by operating activities ( 14,991 ) 12,265

Cash flows from investing activities:

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Purchase of lease pools ( 35,831 ) ( 29,606 )

Investment in equity investment ( 18 ) ( 191 )

Distributions from BFG — 622

Proceeds from sale of loans and leases

Investment in equity securities — ( 18 )

Purchase of investment securities available-for-sale ( 30,018 ) —

Purchase of bank premises and equipment, net ( 4,895 ) ( 7,458 )

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Purchases of securities held-to-maturity — ( 2,939 )

Purchase of FHLB stock 210 ( 71 )

(Purchase) redemption of FHLB stock ( 111 ) 210

Net cash used in investing activities ( 132,379 ) ( 152,870 )

Cash flows from financing activities:

Net increase (decrease) in deposits 161,835 ( 8,894 )

Net increase in deposits 140,119 161,835

Common stock repurchased ( 461 ) ( 4,741 )

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Repayment of PPP Liquidity Facility ( 126 ) ( 125 )

Net cash provided by (used in) financing activities 157,013 ( 10,506 )

Net change in cash and cash equivalents 16,408 14,813

Cash and cash equivalents, beginning of the period 100,567 85,754

Cash and cash equivalents, end of the period $ 116,975 $ 100,567

Net cash provided by financing activities 139,557 157,013

Net change in cash, cash equivalents and restricted cash ( 7,813 ) 16,408

Cash, cash equivalents and restricted cash, beginning of the period 116,975 100,567

Cash, cash equivalents and restricted cash, end of the period $ 109,162 $ 116,975

Supplemental disclosures of cash flow information:

Cash paid during the period

Income taxes $ 6,626 $ 9,360

Interest $ 9,410 $ 1,428

Supplemental disclosures of noncash operating activities:

Right-of-use assets obtained in exchange for operating lease liabilities (ASC 842 adoption effective January 1, 2022) $ — $ 7,380

Impact of current expected credit loss model (ASU 2016-13 adoption effective January 1, 2023) $ 283 $ —

Cash paid for income taxes $ 8,057 $ 6,626

Cash paid for interest $ 14,565 $ 9,410

Supplemental disclosures of noncash investing and financing activities:

Increase in BFG investment in exchange for shares of the Company's common stock $ 4,125 $ —

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

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Note 1 – Summary of Significant Accounting Policies

Nature of business and organization – FinWise Bancorp is a Utah Corporation headquartered in Murray, Utah and operates all business activities through its wholly-owned subsidiaries FinWise Bank, f/k/a Utah Community Bank and FinWise Investment, LLC.

Nature of business and organization – FinWise Bancorp is a Utah Corporation headquartered in Murray, Utah and operates all business activities through its wholly-owned subsidiaries FinWise Bank, formerly known as Utah Community Bank, and FinWise Investment, LLC.

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

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

FinWise Bancorp, formerly known as All West Bancorp, was incorporated in the state of Utah on October 22, 2002, after which, it acquired 100 % of FinWise Bank.

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

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Significant concentrations of credit risk – All of the Company's activities are with customers located throughout the United States.

The Company has concentrations in SBA loans, Strategic Program loans, and residential real estate loans.

The Company has concentrations in SBA loans, Strategic Program loans, residential real estate loans, and commercial leases.

Accordingly, their ultimate collectability is particularly susceptible to changes in market conditions.

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As of December 31, 2024 and 2023, the Company analyzed its exposure to credit risks and concluded that no significant exposure exists from such concentrations of credit risk.

Principles of consolidation – The consolidated financial statements include the account of FinWise Bancorp and its wholly-owned subsidiaries, FinWise Investment, LLC and FinWise Bank.

Principles of consolidation – The consolidated financial statements include the accounts of FinWise Bancorp and its wholly-owned subsidiaries, FinWise Bank and FinWise Investment, LLC.

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

Out-of-period adjustments – During the first quarter of 2022, the Company recognized a $( 0.8 ) million ($( 0.6 ) million net of tax) reduction of interest and fees on loans and loans receivable, net as an out-of-period adjustment.

The impact associated with this correction was not considered material to the interim unaudited consolidated financial statements for the year ended December 31, 2022, or the financial statements of any previously filed interim or annual periods.

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 year ended December 31, 2022.

The impact associated with this correction was not considered material to the interim unaudited consolidated financial statements for the three months ended September 30, 2022, year ended December 31, 2022, or the financial statements of any previously filed interim or annual periods.

During the fourth quarter of 2022, the Company established a new loan trailing fee asset which is included in “Other assets” on the Consolidated Balance Sheets of approximately $ 2.3 million and recognized $ 2.1 million in gain on sale of loans ($ 1.5 million net of tax) as an out-of-period adjustment of which $ 1.2 million ($ 0.9 million net of tax) would have been recorded in the first three quarters of 2022 with the remaining $ 0.9 million ($ 0.6 million net of tax) associated with years prior to 2022.

Before this correction, the loan trailing fees had been recognized in revenue during the month payment

was owed by the Strategic Program rather than as a gain to be recognized upon sale of the loan receivables.

Use of estimates – In preparing the consolidated financial statements in accordance with Generally Accepted Accounting Principles (GAAP), management is required to make estimates and assumptions that affect the reported amounts of certain assets and liabilities as of the date of the consolidated balance sheets and certain revenues and expenses for the period.

Use of estimates – In preparing the consolidated financial statements in accordance with United States generally accepted accounting principles (“U.S.

GAAP”), management is required to make estimates and assumptions that affect the reported amounts of certain assets and liabilities as of the date of the consolidated balance sheets and certain revenues and expenses for the period.

Actual results could differ, either positively or negatively, from those estimates.

Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for credit losses (ACL), the determination of the fair value of certain financial instruments, deferred income tax assets and stock-based compensation.

Management believes the ACL is adequate.

Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for credit losses (“ACL”).

While management uses currently available information to recognize credit losses on loans, future additions to the allowance may be necessary based on economic conditions and individual credit deterioration.

Reclassifications – Reclassifications have been made to prior year amounts to conform to the current year presentation.

Certain of these reclassifications relate to the change in fair value of our SBA servicing asset, which was reclassified from non-interest expense to non-interest income to better align with the SBA servicing asset revenue and the associated costs.

The effect of these reclassifications were not material to the previously reported consolidated financial statements.

Cash and cash equivalents – For purposes of reporting cash flows, the Company defines cash and cash equivalents as cash, cash due from banks, interest-bearing deposits in other banks, other interest-bearing deposits, and federal funds sold.

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The reserve requirement is still at zero percent as of December 31, 2024.

Investment securities – Debt securities that management has the positive intent and ability to hold to maturity are classified as "held-to-maturity" and recorded at amortized cost.

Securities not classified as held-to-maturity are classified as "available for sale" and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income.

The Company did not hold any available for sale securities at December 31, 2023 or 2022.

Management no longer evaluates securities for other-than-temporary impairment after the adoption of ASU 2016-13, Topic 326 which changed the accounting for recognizing impairment on available for sale and held to maturity debt securities.

Restricted cash – The Company established a restricted cash balance required by the Company’s credit card merchant for payment processing and card management services.

Investment securities available-for-sale – U.S.

Treasury securities that the Company intends to hold for an indefinite period of time, but which may be sold in response to changes in liquidity needs, interest rates, or other similar factors, are classified as available-for-sale (“AFS”).

Such securities are recorded in the Company’s consolidated balance sheets at their respective fair values and increases or decreases in those values, other than credit losses, are recorded as unrealized gains or losses, respectively, and are reported as other comprehensive income (loss) in the Company’s consolidated balance sheets, rather than included in or deducted from the Company’s earnings.

The Company performs a quarterly analysis of its investment securities AFS to assess and record any expected credit losses through an allowance for credit losses, limited to the amount that fair value was less than the amortized cost basis.

Interest on securities classified as AFS are recorded in interest on securities in the Company’s Consolidated Statements of Income.

Investment securities held-to-maturity – Debt securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity (“HTM”) and recorded at amortized cost.

Each quarter management evaluates impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value.

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Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby management compares the present value of expected cash flows with the amortized cost basis of the security.

The credit loss component recognized through the Provision for Credit Losses on the Consolidate Statement of Income.

The credit loss component is recognized through the provision for credit losses on the Company’s Consolidated Statements of Income.

(See Note 2 - Investments.)

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Cash dividends are reported as a component of other miscellaneous income in the Consolidated Statements of Income.

Loans Receivable – Loans receivable are reported at their outstanding principal adjusted for any charge-offs, the allowance for credit losses, and deferred fees and costs.

Loans held-for-sale - Loans held-for-sale are carried at the lower of aggregate cost or fair value.

Gains and losses are recorded in non-interest income based on the difference between sales proceeds and carrying value.

While the Company

sells the vast majority of the loans funded in its Strategic Programs shortly after origination, the Company may choose to retain a portion of the funded loans and/or receivables.

Loans held-for-investment – Loans held-for-investment are reported at their outstanding principal adjusted for any charge-offs, the allowance for credit losses, and deferred fees and costs.

Loan origination fees, net of certain direct origination costs, if any, are deferred and recognized on an adjustment of the related loan yield using an effective-yield method over the contractual life of the loan.

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Delinquency fees are recognized in income when chargeable and when collectability is reasonably assured.

The Company requires most loans and leases to be substantially collateralized by real estate, equipment, vehicles, accounts receivable, inventories or other tangible or intangible assets.

The Company requires most commercial loans and leases to be substantially collateralized by real estate, equipment, vehicles, accounts receivable, inventories or other tangible or intangible assets.

Real estate collateral is generally in the form of first and second mortgages on various types of property.

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The Company may change its intent from holding loans for investment and reclassify them as held-for-sale.

Loans Held For Sale - Loans held-for-sale are carried at the lower of aggregate cost or fair value.

Gains and losses are recorded in non-interest income based on the difference between sales proceeds and carrying value.

While the Company sells the vast majority of the loans funded in its Strategic Programs shortly after origination, the Company may choose to retain a portion of the funded loans and/or receivables.

Allowance for Credit Losses - On January 1, 2023, the Company adopted ASU 2016-13, Topic 326 which replaced the incurred loss methodology with CECL for financial instruments measured at amortized cost and other commitments to extend credit.

Allowance for credit losses - On January 1, 2023, the Company adopted ASU 2016-13, Topic 326 which replaced the incurred loss methodology with a current expected credit losses (“CECL”) model for financial instruments measured at amortized cost and other commitments to extend credit.

CECL requires the immediate recognition of estimated credit losses expected to occur over the estimated remaining life of the asset.

The forward-looking concept of CECL requires loss estimates to consider historical experience, current conditions and reasonable and supportable economic forecasts of future events and circumstances.

The allowance for credit losses (“ACL”) on loans held for investment is the combination of the allowance for loan losses and the reserve for unfunded loan commitments.

The allowance for loan losses is reported as a reduction of the amortized cost basis of loans, while the reserve for unfunded loan commitments is included within "other liabilities" on the Consolidated Balance Sheets.

The allowance for credit losses is reported as a reduction of the amortized cost basis of loans held-for-investment, while the reserve for unfunded loan commitments is included within other liabilities on the Consolidated Balance Sheets.

The estimate of credit loss incorporates assumptions for both the likelihood and amount of funding over the estimated life of the commitments, including adjustments for current conditions and reasonable and supportable forecasts.

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Accrued interest receivable is excluded from the ACL calculation.

The amortized cost basis of loans does not include accrued interest receivable, which is included in "accrued interest receivable" on the Consolidated Balance Sheets.

As of December 31, 2023 and 2022 the Company had balances of accrued interest receivable of $ 3.6 million and $ 1.8 million, respectively.

The amount related to investments held-to-maturity was de minimis as of December 31, 2023 and 2022.

The amortized cost basis of loans does not include accrued interest receivable.

The provision for credit losses on the Consolidated Statements of Income is a combination of the provision for credit losses and the provision for unfunded loan commitments.

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With respect to the Bank's core portfolio which consists of SBA 7(a), local lending, retail point of sale, and equipment finance and leasing, the Bank pools similar loans that are collectively evaluated and determines an appropriate level of general allowance by portfolio segment using a non-discounted cash flow model taking into account probability of default, loss in the event of default, and prepayment speed estimates based on industry specific collected data.

The model captures losses over the historical charge-off and prepayment cycle and applies those losses at a loan level over the remaining maturity of the loan.

The model captures credit and fraud losses assumed to be credit related losses over the historical charge-off and prepayment cycle and applies those losses at a loan level over the remaining maturity of the loan.

The model then calculates a historical loss rate using the average losses over the reporting period, which is then applied to each segment utilizing a standard reversion rate.

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With respect to the Bank's inactive retained Strategic Program loan portfolio, performance data at the summary level provided by the Strategic Programs is banded by credit profile and original loan term and compared to actual loan performance on a quarterly basis.

The expected loss rate is supplemented with

adjustments for reasonable and supportable forecasts of relevant economic indicators, including but not limited to national unemployment rate forecasts.

The expected loss rate is supplemented with adjustments for reasonable and supportable forecasts of relevant economic indicators, including but not limited to national unemployment rate forecasts.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.

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changes in the effect of competition, legal, and regulatory requirements on the level of estimated credit losses;

and, if applicable, changes in the composition and volume of the loan portfolio due to mergers, acquisitions, and other significant transactions not considered elsewhere.

and, if applicable, changes in the composition and volume of the loan portfolio due to mergers, acquisitions, and other significant transactions not considered

The Bank also considers as an additional qualitative factor any lingering "ripple" effects of the Covid-19 pandemic, including lasting changes to consumer behavior, lending, and society at large.

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Equipment financing and leasing typically involve the use of equipment as collateral for the loan.

If the borrower defaults on the loan, the Bank may need to repossess and sell the equipment to recover the

outstanding debt.

If the borrower defaults on the loan, the Bank may need to repossess and sell the equipment to recover the outstanding debt.

However, the value of the equipment may depreciate over time, or disappear, making it difficult for the Bank to recover the full amount of the lease.

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Risks common to residential lot loans are those similar to other types of real estate construction loans, as many customers finance the purchase of improved lots in anticipation of constructing a 1 to 4 family residence.

Accordingly, common risks are changes in market demand for property, supply chain interruption affecting construction materials, inadequate long-term financing arrangements and declines in real estate values.

Accordingly, common risks

are changes in market demand for property, supply chain interruption affecting construction materials, inadequate long-term financing arrangements and declines in real estate values.

Changes in market demand for property could lead to longer marketing times resulting in higher carrying costs, declining values and higher interest rates.

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Strategic Program loans generally have higher interest rates and shorter terms similar to consumer loans and tend to have higher credit risk due to the type of collateral securing the loan or in most cases the absence of collateral.

See Note 3 - Loans for more information about the Company’s Strategic Program loan portfolio.

Certain agreements with our Strategic Program Service Providers provide for a credit enhancement, which protects the Bank by indemnifying or reimbursing incurred credit and fraud losses.

The Company estimates and records a provision for expected losses for these Strategic Program loans.

When the provision for the credit losses is recorded, a credit enhancement asset is also recorded on the balance sheet through non-interest income (credit enhancement income) equal to the provision for credit losses estimated for the credit enhanced loans.

The credit enhancement asset is reduced when payments for the credit losses charged to the ACL are taken from the Strategic Program Service Provider’s cash reserve account created to absorb the credit losses incurred.

The cash reserve account is replenished monthly from cash flows due to the Program Service provider related to the credit enhanced loans.

Nonaccrual loans – The Company's policy is to place loans on a nonaccrual status when:

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Premises and equipment, net – Premises and equipment are stated at cost less accumulated depreciation.

Depreciation included in the operating expense is computed using the straight-line method over the estimated useful lives of the related assets.

Depreciation expense, which is included in occupancy and equipment expenses, is computed using the straight-line method over the estimated useful lives of the related assets.

Expenditures for new premises and equipment and major improvements are capitalized.

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Gains and losses on dispositions are included in non-interest expense.

Leases – The Company accounts for leases according to ASU 2016-02, Leases (Topic 842), and applies a right -of-use (“ROU”) model that requires a lessee to record, for all leases with a lease term of more than 12 months, an asset representing its right to use the underlying asset and a liability to make lease payments.

Lessor accounting – The Company leases commercial operating equipment to a variety of customers.

At lease inception the Company determines if an arrangement is a lease.

The equipment underlying the operating lease is reported at cost as commercial operating lease equipment within premises and equipment, net in the Company’s Consolidated Balance Sheets and depreciated based on their useful lives on a straight-line basis to the residual value.

These residual values are reviewed annually to ensure the recorded amount does not exceed the fair market value at the lease termination.

Revenue consists of the contractual lease payments and is recognized on a straight-line basis over a specified lease term.

The Company also has net investments in commercial operating equipment leased to customers, which are classified as sales-type leases or direct financing leases.

Investments in sales-type leases and direct financing leases are recorded on a net basis.

Profit on sales-

type leases is recognized at lease commencement and recorded in other miscellaneous income.

Unearned income on direct financing leases is deferred, included in the net investment in the lease, and recognized over the lease term, yielding a constant periodic rate of return on the net investment in the lease.

Sales from sales-type and operating leases are presented net of sales tax and other related taxes.

Interest income is recognized over the lease term using the effective interest method.

Lessee accounting – The Company accounts for leases according to ASU 2016-02, Leases (Topic 842), and applies a right -of-use (“ROU”) model that requires a lessee to record, for all leases with a lease term of more than 12 months, an asset representing its right to use the underlying asset and a liability to make lease payments.

The Company elected to apply the package of practical expedients permitting entities to not reassess:

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and 3) initial direct costs for any existing leases.

Additionally, as provided by ASU 2016-02, the Company elected to not apply the recognition requirements of ASC 842 to

short-term leases, defined as leases with a term of twelve months or less, and to recognize the lease payments in net income on short-term leases on a straight-line basis over the lease term.

Additionally, as provided by ASU 2016-02, the Company elected to not apply the recognition requirements of ASC 842 to short-term leases, defined as leases with a term of twelve months or less, and to recognize the lease payments in net income on short-term leases on a straight-line basis over the lease term.

Income taxes – Deferred income tax assets and deferred income tax liabilities represent the tax effect of temporary differences between financial reporting and tax reporting measured at enacted tax rates in effect for the year in which the differences are expected to reverse.

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1) the assets have been isolated from the Company, 2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and 3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Loans held on the Company’s Consolidated Balance Sheets are classified as either held-for-investment or held-for-sale.

Held-for-sale loan sales typically occur two to four days after the origination of the loans.

When the Company determines that control over the transfer of financial assets has been surrendered, the transaction will be accounted for as a completed sale in which the underlying loans are derecognized and a resulting gain or loss, if any, is recorded.

SBA servicing asset, net – Servicing assets are recognized as separate assets when servicing rights are acquired through sale of financial assets.

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The amortization of servicing assets and changes in the valuation allowance are netted against loan servicing income.

Stock Repurchase Program – On August 18, 2022, the Company announced that its Board of Directors (the “Board”) had 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 authorized 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 permitted management to repurchase shares of the Company’s common stock from time to time at management’s discretion.

Derivative instruments – In the normal course of business, the Company is exposed to interest rate fluctuations.

Consistent with the Company’s strategy for financial risk management, the Company has established a program that utilizes interest rate swaps to offset the risks associated with the effects of this exposure.

The Company utilizes cash flow hedge accounting treatment for interest rate swaps.

Cash flow hedges are accounted for by recording the changes in the fair

value of the derivative instrument in other comprehensive income (loss) and are recognized in the consolidated statements of income when the hedged item affects earnings.

Derivative instruments are recognized on the consolidated balance sheet as other assets or other liabilities, at their respective fair values.

See Note 13 - Derivatives for additional information.

Stock repurchase program – On March 7, 2024, the Company announced that its Board of Directors (the “Board”) had authorized, effective March 6, 2024, a common stock repurchase program to purchase up to 641,832 shares of the Company’s common stock in the aggregate.

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.

Repurchases could 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 depended 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 did not obligate the Company to purchase any particular number of shares.

As of December 31, 2023, the Company has repurchased a total of 644,241 shares for $ 5.9 million and retired them at cost thereby completing the Company's share repurchase program.

The Share Repurchase Committee, designated by the Board of Directors, will determine the actual timing, number and value of any shares repurchased in its discretion depending on a variety of factors, including but not limited to, the market price and trading volume of the Company’s common stock, general market and economic conditions, the ongoing assessment of the Company’s capital needs, and applicable legal and regulatory requirements.

The repurchase program does not obligate the Company to purchase any particular number of shares and may be limited or terminated at any time at the Company’s discretion without notice.

Since the repurchase program’s inception, the Company has repurchased and subsequently retired a total of 44,608 shares for $ 0.5 million at an average price of $ 10.30 per share.

Revenue from contracts with customers – The Company applies the provisions of ASC 606, Revenue from Contracts with Customers (“ASC 606”).

The core principle of this standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

The majority of our revenue-generating transactions are not subject to ASC 606, including interest generated from loans.

The Company has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the consolidated statements of income was not necessary.

Services that the Company reports as part of non-interest income are subject to ASC 606 and include fees from its deposit customers for transaction-based activities, account maintenance charges and overdraft services.

Transaction-based fees, such as ACH and wire transfer fees, overdraft, return

and stop payment charges, are recognized at the time such transactions are executed and the services have been fulfilled by the Company.

Transaction-based fees, such as ACH and wire transfer fees, overdraft, return and stop payment charges, are recognized at the time such transactions are executed and the services have been fulfilled by the Company.

The fees are typically withdrawn from the customer’s deposit account balance.

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Because the third-party simultaneously receives and benefits from the services, revenue is recognized evenly over the term of the loan program.

Program Fees received in connection with the Company’s Strategic Programs are recorded at the time services are provided.

Program fees are received monthly in connection with continuing program services provided for the Company’s Strategic Programs are recorded at the time services are provided.

Stock-based compensation – The Company accounts for all stock-based awards to employees and non-employees, including grants of stock options and restricted stock awards, based on their respective grant date fair values.

The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model.

Restricted stock awards are valued based on the fair value of the Company’s common stock on the date of grant.

The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment and include consideration of historical experience.

Expected volatility is based on the Company's data for the expected option term.The risk free interest rate is based on the U.S.

The assumptions used in calculating the fair value of stock option grants represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment and include consideration of historical experience.

The risk free interest rate is based on the U.S.

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

The Company expenses stock-based compensation related to stock options and restricted stock over the requisite service period.

Expected volatility is based on the Company's data for the expected option term.

The expected dividend yield was zero as the Company is not expected to pay dividends in the foreseeable future.

Restricted stock awards are valued based on the fair value of the Company’s common stock on the date of grant.

The Company expenses stock-based compensation related to stock options and restricted stock awards over the requisite service period (generally the vesting period of the equity grant) using the graded-vesting method.

The Company accounts for forfeitures of stock–based awards as they occur.

Stock-based compensation expense pertaining to employees is included in salaries and employee benefits on the income statement.

Stock-based compensation expense related to directors and consultants is included in other operating expenses on the income statement.

The table below summarizes the weighted average assumptions used in determining the Black-Scholes option pricing model for options granted during 2023 and 2022:

Stock-based compensation expense is included in salaries and employee benefits on the income statement.

The table below summarizes the weighted-average assumptions used in the Black-Scholes option pricing model at the grant date for stock options granted during 2023.

No stock options were granted during the year ended December 31, 2024.

Risk-free interest rate 3.68 %

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Potentially dilutive common shares include incremental common shares issuable upon exercise of outstanding stock options and non-vested restricted common shares, that are not considered participating securities, using the treasury stock method.

The two-class method is used to determine earnings per share based on participation rights of participating securities in any undistributed earnings.

Each unvested restricted share granted by the Company to its employees that includes rights to participate in distributed earnings is considered a participating security and the Company uses the two-class method to calculate net income available to the Company’s common shareholders per common share – basic and diluted.

The two-class method is used to determine EPS based on participation rights of participating securities in any undistributed earnings.

Each unvested share of restricted stock granted by the Company to its employees that includes rights to participate in distributed earnings is considered a participating security and the Company uses the two-class method to calculate net income available to the Company’s common shareholders per common share – basic and diluted.

Comprehensive income (loss) – Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.

However, certain changes in assets and liabilities, such as unrealized gains and losses on securities AFS and unrealized gains and losses on interest rate swaps designated as cash flow hedges, are reported as a separate component of equity in the accompanying consolidated balance sheets, net of income taxes, and such items, along with net income, are components of comprehensive income (loss).

The Company’s policy is to release income tax effects from accumulated other comprehensive income at such time as the earnings or loss of the related activity are recognized in earnings

Off-balance sheet instruments – In the ordinary course of business, the Company has entered into off-balance sheet financial instrument arrangements consisting of commitments to extend credit.

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The Company evaluates each customer’s creditworthiness on a case-by-case basis.

The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on

management’s credit evaluation of the party.

The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party.

The commitments are collateralized by the same types of assets used as loan collateral.

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Management periodically reviews and updates its assumptions for estimated funding rates.

Segment Reporting – Operating segments are components of a business where separate financial information is available and evaluated regularly by the chief operating decision makers ("CODMs") in deciding how to allocate resources and in assessing performance.

ASC Topic 280, Segment Reporting , requires information to be reported about a company's operating segments using a "management approach", meaning it is based on the way management organizes segments internally to make operating decisions and assess performance.

Based on this guidance, the Company has one reportable operating segment, the Bank.

Segment reporting – ASC Topic 280, Segment Reporting, requires information to be reported about a company's operating segments using a “management approach”, meaning it is based on the way management organizes segments internally to make operating decisions and assess performance.

Based on this guidance, the Company determined it has one reportable operating segment, the Bank.

The Company’s Chief Executive Officer and its President, who are together considered to be its chief operating decision maker (“CODM”), review consolidated financial information to manage the

Company’s operations.

Since the Company operates and manages its business in one operating and one reportable segment, all required financial segment information can be found in the consolidated financial statements and the notes thereto.

Recently adopted accounting pronouncements

On January 1, 2023, the Company adopted ASU 2016-13, Topic 326 which replaced the incurred loss methodology with CECL for financial instruments measured at amortized cost and other commitments to extend credit.

CECL requires the immediate recognition of estimated credit losses expected to occur over the estimated remaining life of the asset.

The forward-looking concept of CECL requires loss estimates to consider historical experience, current conditions and reasonable and supportable economic forecasts of future events and circumstances.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet credit exposure.

Results for the reporting periods beginning after January 1, 2023 are presented under ASC 326.

The adoption resulted in an increase in our allowance for credit losses on loans of $ 0.3 million, a de minimis increase to our allowance for unfunded commitments, and a net-of-tax cumulative effect adjustment of $ 0.2 million to decrease the beginning balance of retained earnings.

The Company finalized the adoption of ASC 326 as of January 1, 2023 as detailed in the following table:

12/31/2023 1/1/2024

($ in thousands) Pre-ASU 2016-13 adoption

Impact of ASU 2016-13 adoption After ASU 2016-13 Adoption

Construction and land development $ 424 $ ( 67 ) $ 357

Residential real estate 876 ( 58 ) 818

Residential real estate multifamily 3 1 4

Commercial real estate

Owner occupied 3,030 ( 532 ) 2,498

Non-owner occupied 208 ( 42 ) 166

Commercial and industrial 339 ( 85 ) 254

Consumer 65 14 79

Commercial leases

339 ( 105 ) 234

Strategic Program loans 6,701 1,131 7,832

Total allowance for loan losses $ 11,985 $ 257 $ 12,242

Unfunded lending commitments — 26 26

Total allowance for credit losses $ 11,985 $ 283 $ 12,268

On January 1, 2023, the Company adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures which eliminated the accounting guidance for troubled debt restructurings by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.

The amendments in the ASU also require an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investments in leases within the scope of Subtopic

The Company applied the amendments in this ASU prospectively.

The adoption of ASU 2022-02 did not have a material impact on the consolidated financial statements.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures”, which requires disclosure, on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss.

The ASU requires that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss.

Public entities will be required to provide all annual disclosures currently required by Topic 280 in interim periods, and entities with a single reportable segment are required to provide all the disclosures required by the amendments in the update and existing segment disclosures in Topic 280.

The Company adopted ASU 2023-07 on January 1, 2024 on a retrospective basis.

The adoption modified disclosures but did not have an impact on the Company's consolidated financial statements.

Recent accounting pronouncements

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction.

The amendments are intended to address investors’ requests for income tax disclosures that provide more information to help them better understand an entity’s exposure to potential changes in tax laws and the ensuing risks and opportunities and to assess income tax information that affects cash flow forecasts and capital allocation decisions.

The guidance also eliminates certain existing requirements related to uncertain tax positions and unrecognized deferred tax.

The guidance is effective for annual periods beginning after December 15, 2024.

The Company is evaluating the effect that ASU 2023-09 will have on its consolidated financial statements and related disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

The amendments improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements.

The purpose of the amendments is to enable investors to better understand an entity’s overall performance” and assess “potential future cash flows.

The ASU applies to all public entities that are required to report segment information in accordance with ASC 280.

The amendments in ASU 2023-07 are effective for all public entities for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

The Company is evaluating the effect that ASU 2023-06 will have on its consolidated financial statements and related disclosures.

On October 9, 2023, the FASB issued ASU 2023-06, “Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification of Initiative.” ASU 2023-06 amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification (the “Codification”).

The ASU was issued in response to the SEC’s August 2018 final rule that updated and simplified disclosure requirements that the SEC believed were “redundant, duplicative, overlapping, outdated, or superseded.” The new guidance is intended to align U.S.

GAAP requirements with those of the SEC and to facilitate the application of U.S.

GAAP for all entities.

ASU 2023-06 applies to all reporting entities within the scope of the amended subtopics.

Note that some of the amendments introduced by the ASU are technical corrections or clarifications of the FASB’s current disclosure or presentation requirements.

The effective date for each amendment of ASU 2023-06 will be the date on which the SEC’s removal of that related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited.

The Company will apply the amendments in ASU 2023-06 prospectively after the effective dates.

The Company is evaluating the effect that ASU 2023-06 will have on its consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses”, which requires additional disclosure of the nature of expenses included in the income statement.

The standard requires disclosures about specific types of expenses included in the expense captions presented in the income statement.

This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted.

The requirements should be applied on a prospective basis while retrospective application is permitted.

The Company is currently evaluating the impact that the adoption of this guidance will have on its disclosures.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures”.

ASU 2023-09 improves the transparency of income tax disclosures by requiring entities to provide greater disaggregation of information on income taxes paid and on the rate reconciliation disclosures.

This pronouncement also requires qualitative discussion of the primary state and local jurisdictions for income taxes and the type of reconciling categories.

For public business entities, this ASU is effective for fiscal years beginning after December 15, 2024.

The guidance will be applied on a prospective basis with the option to apply the standard retrospectively.

Early adoption is permitted.

The Company is currently evaluating the impact that the adoption of this guidance will have on its disclosures.

Note 2 – Investments

Investment Securities Available-for-Sale, at Fair Value

The Company’s AFS investment portfolio consists of U.S.

Treasury securities.

The Company reports debt securities AFS on the Company’s Consolidated Balance Sheets at fair value.

The amortized cost, gross unrealized gains and losses, and estimated fair value of investment securities AFS as of December 31, 2024, are summarized as follows:

December 31, 2024

($ in thousands) Amortized

Cost Unrealized

Gain Unrealized

Loss Estimated

Treasury securities

$ 30,027 $ 4 $ ( 101 ) $ 29,930

The following table presents the amortized cost and estimated fair value of investment securities AFS as of the period ended, by contractual maturity:

December 31, 2024

($ in thousands) Amortized

Cost Estimated

Due in one year or less $ 2,478 $ 2,482

Due after one year through five years 27,549 27,448

Total securities AFS

$ 30,027 $ 29,930

At December 31, 2024, debt securities AFS in the amount of $ 30.0 million were pledged as collateral for a credit line held by the Bank.

Accrued interest receivable on debt securities AFS totaled $ 0.5 million at December 31, 2024 and was included in accrued interest receivable on the Consolidated Balance Sheet.

Investment Securities Held-to-Maturity, at Cost

The Company's held-to-maturity ("HTM") investment portfolio consists of Agency mortgage-backed securities and Agency collateralized mortgage obligations.

The Company reports HTM securities on the Company's Consolidated Balance Sheets at carrying value which is amortized cost.

The amortized cost, allowance for credit losses, unrealized gains and losses, and estimated fair values of the Company’s held-to-maturity securities at December 31, 2023 and December 31, 2022, are summarized as follows:

The Company's HTM investment portfolio consists of agency mortgage-backed securities and agency collateralized mortgage obligations.

The Company reports debt securities HTM on the Company's Consolidated Balance Sheets at carrying value which is amortized cost.

The amortized cost, unrealized gains and losses, and estimated fair values of the Company’s debt securities HTM at December 31, 2024 and December 31, 2023, are summarized as follows:

December 31, 2024

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($ in thousands) Amortized

Cost Unrealized

Cost Allowance for Credit Losses Unrealized

Gain Unrealized

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Total securities held-to-maturity $ 15,388 $ — $ 4 $ ( 1,583 ) $ 13,809

Credit Quality Indicators & Allowance for Credit Losses - HTM

On January 1, 2023, the Company adopted ASU 2016-13, which replaced the legacy GAAP other-than-temporary impairment ("OTTI") model with a credit loss model.

ASU 2016-13 requires an allowance on lifetime expected credit losses on HTM debt securities but retains the concept from the OTTI model that credit losses are recognized once securities become impaired.

For HTM securities, the Company evaluates the credit risk of its securities on at least a quarterly basis.

The Company estimates expected credit losses on HTM debt securities on a collective basis by major security type.

Accrued interest receivable on HTM debt securities is excluded from the estimate of credit losses.

At December 31, 2023 and at adoption of CECL on January 1, 2023, there was no ACL related to HTM securities due to the composition of the portfolio which is generally considered to have minimal credit risk given the government guarantee associated with these agencies.

The Company had nineteen securities, consisting of nine collateralized mortgage obligations and ten mortgage-backed securities, in an unrealized loss position at December 31, 2023 and seventeen securities, consisting of eight collateralized mortgage obligations and nine mortgage-backed securities, in an unrealized loss position at December 31, 2022, as summarized in the following tables:

Credit Quality Indicators & Allowance for Credit Losses - HTM and AFS

On January 1, 2023, the Company adopted ASU 2016-13, which replaced the legacy U.S.

GAAP other-than-temporary impairment (“OTTI”) model with an expected credit loss model (“CECL”).

ASU 2016-13 requires an allowance on lifetime expected credit losses on debt securities HTM and AFS but retains the concept from the OTTI model that credit losses are recognized once securities become impaired.

For debt securities HTM and AFS, the Company evaluates the credit risk of its securities on at least a quarterly basis.

The Company estimates expected credit losses on debt securities HTM and AFS on a collective basis by major security type.

Accrued interest receivable on debt securities HTM and AFS is excluded from the estimate of credit losses.

At December 31, 2024 and at adoption of CECL on January 1, 2023, there was no ACL related to debt securities HTM or AFS due to the composition of the portfolio which is generally considered not to have credit risk given the United States government issuance or guarantee associated with these agency securities.

The Company had twenty-two securities, consisting of eight collateralized mortgage obligations, ten mortgage-backed securities and four U.S.

Treasury securities, in an unrealized loss position at December 31, 2024 and nineteen securities, consisting of nine collateralized mortgage obligations and ten mortgage-backed securities, in an unrealized loss position at December 31, 2023.

The following table presents the estimated fair value and gross unrealized losses of debt securities

HTM and AFS, aggregated by category and length of time in a continuous unrealized loss position at December 31, 2024 and 2023:

December 31, 2024

Less than 12 months 12 Months or More Total

($ in thousands) Fair

Value Unrealized

($ in thousands) Fair Value Unrealized

Losses Fair Value Unrealized

Available-for-sale:

Treasury securities

$ 27,448 $ ( 101 ) $ — $ — $ 27,448 $ ( 101 )

Held-to-maturity:

Mortgage-backed securities $ — $ — $ 5,164 $ ( 746 ) $ 5,164 $ ( 746 )

Collateralized mortgage obligations 633 ( 17 ) 3,588 ( 753 ) 4,221 ( 770 )

Total securities held-to-maturity $ 1,614 $ ( 20 ) $ 10,274 $ ( 1,564 ) $ 11,888 $ ( 1,583 )

$ 633 $ ( 17 ) $ 8,752 $ ( 1,499 ) $ 9,385 $ ( 1,516 )

December 31, 2023

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Collateralized mortgage obligations 934 ( 4 ) 4,812 ( 762 ) 5,746 ( 766 )

Total securities held-to-maturity $ 5,126 $ ( 286 ) $ 6,671 $ ( 1,283 ) $ 11,797 $ ( 1,569 )

The amortized cost and estimated market value of debt securities at December 31, 2023 and December 31, 2022, by contractual maturity are shown below.

$ 1,614 $ ( 20 ) $ 10,274 $ ( 1,564 ) $ 11,888 $ ( 1,583 )

The amortized cost and estimated market value of debt securities HTM at December 31, 2024 and December 31, 2023, 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.

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Total securities held-to-maturity $ 12,565 $ 11,057 $ 15,388 $ 13,809

At December 31, 2023, held-to-maturity securities in the amount of $ 13.8 million were pledged as collateral for credit lines held by the Bank at the Federal Reserve Bank of San Francisco.

At December 31, 2024, debt securities HTM in the amount of $ 12.6 million 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 years ended December 31, 2024 or 2023.

The Bank is a member of the FHLB system.

Members are required to own FHLB stock of at least the greater of 0.06 % of FHLB membership asset value or 4.50 % of outstanding FHLB advances.

As a member, we are required to maintain a minimum level of investment in FHLB stock based on a percentage of our previous year-end assets and our FHLB advances outstanding.

At December 31, 2024 and December 31, 2023, the Bank owned $ 0.3 million and $ 0.2 million, respectively, of FHLB stock, which is carried at cost.

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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 its recorded investment.

Note 3 – Loans Held for Investment and Allowance for Credit Losses

Note 3 – Loans

Loans held-for-investment outstanding by general ledger classification as of December 31, 2024 and December 31, 2023, consisted of the following:

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Consumer 22,212 11,372

Total loans held for investment $ 372,215 $ 236,601

Total loans held-for-investment, gross $ 465,233 $ 372,215

Deferred loan fees, net ( 4,245 ) ( 767 )

Allowance for credit losses ( 13,176 ) ( 12,888 )

( 12,888 ) ( 11,985 )

Net loans $ 358,560 $ 224,217

Loans held-for-investment, net $ 447,812 $ 358,560

(1) Included in the SBA loans held-for-investment above are $ 158.7 million and $ 131.7 million of loans guaranteed by the SBA as of December 31, 2024 and December 31, 2023, respectively.

(2) The Company adopted ASU 2016-13 as of January 1, 2023.

The 2022 amounts presented are calculated under the prior accounting standard.

Strategic Program Loans – In 2016, the Company began originating loans with various third-party loan origination platforms that use technology and other innovative systems to streamline the origination of unsecured consumer and secured or unsecured business loans to a wide array of borrowers within certain approved credit profiles.

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

The Bank sells participation interests in some loans it originates and may acquire a participation interest in loans originated by others.

All reported amounts reflect only the Bank’s ownership interest in the loans.

Strategic Program Loans – The Company originates loans with various third-party loan origination platforms that use technology and other innovative systems to streamline the origination of unsecured and secured consumer and business loans to a wide array of borrowers within certain approved credit profiles.

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

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

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

The Company generally retains the loans and/or receivables for a number of business days after origination before selling the loans and/or receivables to the Strategic Program platform or another investor.

Interest income is recognized by the Company while holding the loans.

These loans are classified as held-for-sale on the balance sheet.

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

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

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

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

Interest income is earned by the Company while holding the loans.

These loans are classified as held-for-sale on the balance sheet and measured at the lower of cost or market.

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

The Company is generally the servicer of the loans it originates through Strategic Programs.

The Company earns a servicing fee equal to a percentage of the outstanding balance of the loans generated under

Strategic Programs for servicing such loans.

In turn, the Strategic Program service providers, subject to the Company’s approval and oversight, typically serve as sub-servicer and perform primary servicing duties including loan collections, modifications, charging-off, reporting and monitoring.

Each Strategic Program provider establishes a “reserve” deposit account with the Company to reasonably ensure the strategic programs will have sufficient funds available to purchase the loans.

The agreements generally require that the reserve account deposit balance does not fall below an agreed upon dollar or percentage threshold related to the total loans currently outstanding as held-for-sale 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 deposits held in reserve by Strategic Programs at the Company at December 31, 2023 and December 31, 2022, was $ 29.8 million and $ 16.6 million, respectively.

Total cash held in reserve by Strategic Program providers at the Company at December 31, 2024 and December 31, 2023, was $ 54.0 million and $ 29.8 million, respectively.

Strategic Program loans retained and held-for-sale as of December 31, 2024 and December 31, 2023, are summarized as follows:

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Allowance for Credit Losses

In determining the estimate for the allowance, the Bank segmented and aggregated the loan portfolio based on the Federal Deposit Insurance Corporation ("FDIC") Consolidated Reports of Condition and Income ("Call Report") codes.

The following pool segments identified as of December 31, 2023 are based on the CECL methodology:

In determining an appropriate amount for the allowance, the Bank segmented and aggregated the loan portfolio based on the FDIC Consolidated Reports of Condition and Income (“Call Report”) codes.

These classifications, which in general are based upon the nature of the collateral and type of borrower, are different than the classifications adopted for other financial reporting purposes, which are based upon the proposed use of the loan proceeds.

The following pool segments identified as of December 31, 2024 and 2023 are based on the CECL methodology:

December 31, December 31,

($ in thousands)

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Consumer 22,155 10,989

Commercial leases

Retained Strategic Program loans 19,408

Total loans $ 372,215

The portfolio classes identified as of December 31, 2022 are based on the incurred loss methodology and are segmented by general ledger classification as detailed below.

($ in thousands)

SBA $ 145,172

Commercial leases 9,252

Commercial, non-real estate 2,232

Residential real estate 37,815

Lease financing receivables 70,153 38,110

Retained Strategic Program loans 20,122 19,408

Commercial real estate 12,063

Consumer 5,808

Total loans $ 236,601

Activity in the ACL by common characteristic loan pools based on the CECL methodology was as follows:

Years Ended December 31, 2023

($ in thousands) Beginning Balance Impact of ASU 2016-13 adoption Provision (Reversal) of Credit Losses Charge-Offs Recoveries Ending Balance

Total loans held-for-investment, gross $ 465,233 $ 372,215

Activity in the ACL by common characteristic loan pools based on the CECL methodology was as follows for the periods indicated:

Year Ended December 31, 2024

($ in thousands) Beginning Balance Provision for (Reversal of) Credit Losses Charge-Offs Recoveries Ending Balance

Construction and land development $ 316 $ 58 $ — $ — $ 374

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Consumer 211 555 ( 134 ) 6 638

Commercial leases

339 ( 105 ) 121 — — 355

Lease financing receivables 355 1,233 ( 293 ) 92 1,387

Retained Strategic Program loans 7,065 7,840 ( 9,796 ) 1,195 6,304

Total allowance for loan losses $ 11,985 $ 257 $ 11,525 $ ( 12,425 ) $ 1,546 $ 12,888

Total allowance for credit losses on financing receivables $ 12,888 $ 11,248 $ ( 12,669 ) $ 1,709 $ 13,176

Unfunded lending commitments 139 325 — — 464

Total allowance for credit losses $ 13,027 $ 11,573 $ ( 12,669 ) $ 1,709 $ 13,640

Activity in the allowance for loan losses by general ledger classification based on the incurred loss methodology was as follows:

Years Ended December 31, 2022

($ in thousands) Beginning Balance Provision of Loan Losses

Charge-Offs Recoveries Ending Balance

SBA $ 2,739 $ 1,881 $ ( 392 ) $ 66 $ 4,294

Commercial leases

56 289 — — 345

Commercial, non-real estate 76 ( 22 ) — 2 56

Residential real estate 352 145 — — 497

Retained Strategic Program loans 6,549 11,215 ( 11,948 ) 885 6,701

Commercial real estate 21 6 — — 27

Consumer 62 5 ( 66 ) 64 65

Total allowance for loan losses $ 9,855 $ 13,519 $ ( 12,406 ) $ 1,017 $ 11,985

The following table presents the loan balances by portfolio class, based on impairment method, and the corresponding balances in the allowance as of December 31, 2022 .

For the year ended December 31, 2022 , the allowance was calculated based on the incurred loss methodology.

Allowance for Loan Losses Portfolio Loan Balances

($ in thousands) Individually Evaluated

Collectively Evaluated

Total Individually Evaluated

Collectively Evaluated

SBA $ — $ 4,294 $ 4,294 $ 450 $ 144,722 $ 145,172

Commercial leases

— 345 345 — 9,252 9,252

Commercial, non-real estate — 56 56 — 2,232 2,232

Year Ended December 31, 2023

($ in thousands) Beginning Balance Impact of ASU 2016-13 adoption Provision for (Reversal of) Credit Losses Charge-Offs Recoveries Ending Balance

Construction and land development $ 424 $ ( 67 ) $ ( 41 ) $ — $ — $ 316

Residential real estate 876 ( 58 ) 273 ( 225 ) 90 956

Retained Strategic Program loans — 6,701 6,701 — 24,259 24,259

Residential real estate multifamily 3 1 2 — — 6

Commercial real estate:

Owner occupied 3,030 ( 532 ) 1,551 ( 714 ) 1 3,336

Non-owner occupied 208 ( 42 ) ( 262 ) — 378 282

Commercial and industrial 339 ( 85 ) 558 ( 472 ) 21 361

Consumer 65 14 198 ( 68 ) 2 211

Total loans $ — $ 11,985 $ 11,985 $ 450 $ 236,151 $ 236,601

The following table presents, under previously applicable GAAP, loans individually evaluated for impairment as of December 31, 2022 :

Investment Unpaid

Balance Related

Allowance Average

Investment Interest

($ in thousands)

With no related allowance recorded

SBA $ 450 $ 450 $ — $ 711 $ 36

Commercial leases — — — — —

Commercial, non-real estate — — — — —

Residential real estate — — — — —

Lease financing receivables 339 ( 105 ) 121 — — 355

Retained Strategic Program loans 6,701 1,131 9,125 ( 10,946 ) 1,054 7,065

Commercial real estate — — — — —

Consumer — — — — —

Total $ 450 $ 450 $ — $ 711 $ 36

Total allowance for credit losses on financing receivables $ 11,985 $ 257 $ 11,525 $ ( 12,425 ) $ 1,546 $ 12,888

Unfunded lending commitments — 26 113 — — 139

Total allowance for credit losses $ 11,985 $ 283 $ 11,638 $ ( 12,425 ) $ 1,546 $ 13,027

Nonaccrual and past due loans are summarized below as of December 31, 2024 and December 31, 2023:

2 unchanged sentences

($ in thousands) 30-89

and Greater Total Non-

Accrual Loans with no ACL (1)

Non-Accrual Loans with ACL Current Loans Total Loans

and Greater Total Nonaccrual Loans with no ACL (1)

Nonaccrual Loans with ACL Current Loans Total Loans

Construction and land development $ — $ — $ — $ — $ — $ 42,331 $ 42,331

11 unchanged sentences

December 31, 2023

($ in thousands) Current 30-59

Accruing Total

Accrual Total

SBA $ 143,733 $ 1,439 $ — $ — $ 1,439 $ — $ 145,172

Commercial leases 9,252 — — — — — 9,252

Commercial, non-real estate 2,232 — — — — — 2,232

Loans Past Due and Still Accruing

($ in thousands) 30-89

and Greater Total Nonaccrual Loans with no ACL (1)

Nonaccrual Loans with ACL Current Loans Total Loans

Construction and land development $ 1,648 $ 297 $ 1,945 $ — $ — $ 26,385 $ 28,330

Residential real estate 23 — 23 1,585 — 49,820 51,428

Retained Strategic Program loans 22,080 1,184 802 193 2,179 — 24,259

Residential real estate multifamily — — — — — 647 647

Commercial real estate:

Owner occupied — — — 21,643 640 164,267 186,550

Non-owner occupied — — — 2,362 — 12,992 15,354

Commercial and industrial — — — 282 — 21,117 21,399

Consumer 81 47 128 — — 10,860 10,989

Commercial leases — — — — — 38,110 38,110

Retained Strategic Program loans 1,953 96 2,049 — — 17,359 19,408

Total $ 3,705 $ 440 $ 4,145 $ 25,872 $ 640 $ 341,558 $ 372,215

There was no interest income for the years ended December 31, 2023 and 2022, recognized on nonaccrual loans.

The amount of accrued interest for the years ended December 31, 2023 and 2022, that was reversed against interest income on nonaccrual loans was approximately $ 0.7 million and zero , respectively.

(1) Included in the nonaccrual loan balances are $ 15.0 million of SBA 7(a) loan balances guaranteed by the SBA.

There was no interest income recognized for the years ended December 31, 2024 and 2023, while loans were classified as nonaccrua l.

The amount of accrued interest for the years ended December 31, 2024 and 2023, that was reversed against interest income on nonaccrual loans was approximately $ 0.5 million and $ 0.7 million, respectively.

The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date.

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

Not Rated – For certain Strategic Program and consumer loans, the Company does not evaluate and risk rate the loans in the same manner as other loans in the Company’s portfolio.

Doubtful - A doubtful asset has an existing weakness or weaknesses that make collection or liquidation in full, on the basis of currently existing facts and conditions, highly questionable and improbable.

Loss - A loss asset has an existing weakness or weaknesses that render the loan uncollectible and of such little value that continuing to carry as an asset on our books is not warranted.

This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical nor desirable to defer writing off this basically worthless asset, even though partial recovery may be affected in the future.

Not Rated – For Strategic Program loans, the Company does not evaluate and risk rate the loans in the same manner as other loans in the Company’s portfolio.

The Not Rated loans are typically homogenous, smaller dollar balances approved using abridged underwriting methods that allow the Company to streamline the loan approval process and increase efficiency .

Credit quality for Strategic Program loans is highly correlated with delinquency levels.

The following table presents the ending balances of the Company's loan and lease portfolio including non-performing loans by class of receivable and originating year and considering certain credit quality indicators as of the date indicated along with gross chargeoffs for the year ended December 31, 2023 :

The following table presents the amortized cost of the Company's loan and lease portfolio by collateral type, risk rating and origination year as of December 31, 2024, in addition to the gross writeoff by collateral type for the year ended December 31, 2024.

The loans are grouped based on how they are assessed under CECL.

Loans and Leases Amortized Cost Basis by Origination Year

December 31, 2024 2024 2023 2022 2021 Prior Revolving Loans Total

48 unchanged sentences

Current period gross writeoff — ( 65 ) ( 31 ) ( 19 ) ( 19 ) — ( 134 )

Commercial leases

Lease financing receivables

Pass 43,279 22,456 4,338 — 80 — 70,153

3 unchanged sentences

Total 43,279 22,456 4,338 — 80 — 70,153

Current-period gross writeoffs — — — — — —

Current period gross writeoff — ( 293 ) — — — — ( 293 )

Retained Strategic Program loans

5 unchanged sentences

Total 17,084 1,540 1,109 389 — — 20,122

Current-period gross writeoffs ( 3,773 ) ( 6,154 ) ( 1,017 ) ( 2 ) — ( 10,946 )

Current period gross writeoff ( 3,801 ) ( 4,683 ) ( 927 ) ( 385 ) — — ( 9,796 )

Total portfolio loans receivable, gross $ 193,392 $ 152,294 $ 81,984 $ 16,206 $ 21,357 $ — $ 465,233

Total current-period gross writeoffs ( 4,181 ) ( 6,415 ) ( 1,289 ) ( 540 ) — ( 12,425 )

The following table presents the ending balances of the Company's loan and lease portfolio including non-performing loans by class of receivable and considering certain credit quality indicators as of the date indicated:

December 31, 2022

($ in thousands) Pass

Grade 1-4 Special

Grade 5 Classified/

Doubtful/Loss

Grade 6-8 Total

SBA $ 144,149 $ 573 $ 450 $ 145,172

Commercial leases 9,252 — — 9,252

Commercial, non-real estate 2,232 — — 2,232

Total current period gross writeoff $ ( 3,801 ) $ ( 5,798 ) $ ( 1,775 ) $ ( 943 ) $ ( 352 ) $ — $ ( 12,669 )

The following table presents the amortized cost of the Company's loan and lease portfolio by collateral type, risk rating and origination year as of December 31, 2023, in addition to the gross writeoff by collateral type for the year ended December 31, 2023.

The loans are grouped based on how they are assessed under CECL.

Loans and Leases Amortized Cost Basis by Origination Year

December 31, 2023 2023 2022 2021 Prior Revolving Loans Total

($ in thousands)

Construction and land development

Pass $ 12,919 $ 10,345 $ 4,354 $ 97 $ — $ 27,715

Watch — — — — — —

Special Mention — — — — — —

Substandard — 615 — — — 615

Total 12,919 10,960 4,354 97 — 28,330

Current period gross writeoff — — — — — —

Residential real estate

Commercial real estate 12,063 — — 12,063

Consumer 5,808 — — 5,808

Not Risk Graded

Pass 2,209 874 1,480 2,947 2,249 9,759

Watch 23,614 12,399 1,661 2,035 — 39,709

Special Mention — — 208 11 — 219

Substandard — 1,585 — 156 — 1,741

Total 25,823 14,858 3,349 5,149 2,249 51,428

Current period gross writeoff — ( 121 ) — ( 104 ) — ( 225 )

Residential real estate multifamily

Pass 278 263 80 — — 621

Watch — — — 26 — 26

Special Mention — — — — — —

Substandard — — — — — —

Total 278 263 80 26 — 647

Current period gross writeoff — — — — — —

Commercial real estate-owner occupied

Pass 12,566 1,234 854 12,207 — 26,861

Watch 62,360 53,832 11,871 7,654 — 135,717

Special Mention — 192 — 1,498 — 1,690

Substandard 16,466 3,712 1,066 1,038 — 22,282

Total 91,392 58,970 13,791 22,397 — 186,550

Current period gross writeoff ( 318 ) ( 21 ) ( 97 ) ( 278 ) — ( 714 )

Commercial real estate-non-owner occupied

Pass 2,805 1,294 — 419 — 4,518

Watch 4,382 2,635 1,223 234 — 8,474

Special Mention — — — — — —

Substandard — 2,362 — — — 2,362

Total 7,187 6,291 1,223 653 — 15,354

Current period gross writeoff — — — — — —

Commercial and industrial

Pass 2,090 601 744 821 31 4,287

Watch 10,157 4,600 764 930 — 16,451

Special Mention — — — 8 — 8

Substandard 260 — — 393 — 653

Total 12,507 5,201 1,508 2,152 31 21,399

Current period gross writeoff ( 87 ) ( 114 ) ( 122 ) ( 149 ) — ( 472 )

Pass 7,792 1,975 637 558 2 10,964

Watch 24 — — 1 — 25

Special Mention — — — — — —

Substandard — — — — — —

Total 7,816 1,975 637 559 2 10,989

Current period gross writeoff ( 3 ) ( 5 ) ( 53 ) ( 7 ) — ( 68 )

Lease financing receivables

Pass 31,313 6,559 — 238 — 38,110

Watch — — — — — —

Special Mention — — — — — —

Substandard — — — — — —

Total 31,313 6,559 — 238 — 38,110

Current period gross writeoff — — — — — —

Retained Strategic Program loans

Pass — — — — — —

Watch — — — — — —

Special Mention — — — — — —

Substandard — — — — — —

Not Rated 14,506 3,609 1,292 1 — 19,408

Total 14,506 3,609 1,292 1 — 19,408

Current period gross writeoff ( 3,773 ) ( 6,154 ) ( 1,017 ) ( 2 ) — ( 10,946 )

Total portfolio loans receivable, gross $ 203,741 $ 108,686 $ 26,234 $ 31,272 $ 2,282 $ 372,215

Total current period gross writeoff $ ( 4,181 ) $ ( 6,415 ) $ ( 1,289 ) $ ( 540 ) $ — $ ( 12,425 )

Modified Loans to Troubled Borrowers

Effective January 1, 2023 loan modifications to borrowers experiencing financial difficulty are required to be disclosed by type of modification and by type of loan.

Prior accounting guidance classified loans which were modified as troubled debt restructurings (“TDRs”) only if the modification reflected a concession from the lender in the form of a below market interest rate or other concession in addition to borrower financial difficulty.

Under the new guidance (ASU 2022-02), loans with modifications made after January 1, 2023, will be reported under the new loan modification guidance whether a concession is made or not.

As of January 1, 2023, the Company has ceased to recognize or measure new TDRs but those existing at December 31, 2022 will remain until settled.

On January 1, 2023, the Company adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures.

In the year ended December 31, 2024 there were three material loan modifications reportable under the new guidance.

Subsequent to December 31, 2024, there was a payment default of $ 0.2 million on a loan to a borrower whose loan was modified due to financial difficulties within the previous twelve months and the loan was placed on nonaccrual status.

As of December 31, 2024

($ in thousands) Principal deferment (Months) Outstanding Balance % of Total Loan Type

Commercial real estate - owner occupied

11 months $ 241 0.13 %

Commercial and industrial

11 months $ 367 0.83 %

Residential real estate

11 months $ 153 0.25 %

In the year ended December 31, 2023 there was one material loan modification reportable under the new guidance.

This loan was current as of December 31, 2023.

This loan did not go into default during the twelve months following its modification.

As of December 31, 2023

($ in thousands) Principal deferment (Months) Outstanding Balance

($ in thousands) Principal deferment (Months) Outstanding Balance % of Total Loan Type

Residential real estate 12 months $ 156 0.30 %

Loans modified and recorded as TDR’s at December 31, 2022, c onsist of the following:

($ in thousands) Number

Contracts Pre-

Investment Post-

December 31, 2022

SBA 1 $ 377 $ 377

Total at December 31, 2022 1 $ 377 $ 377

The amount of SBA loans as of December 31, 2022 includes $ 0.3 million of SBA 7(a) loan balances that are guaranteed by the SBA.

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

There was one principal charge-off recorded related to TDRs during the year ended December 31, 2022 for a de minimis amount.

During the year ended December 31, 2022, there were no loan modifications to TDRs.

Separately, one restructured loan incurred a default within 12 months of the restructure date during the year ended December 31, 2022.

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

Collateral-Dependent Financial Loans

A collateral-dependent financial loan relies substantially on the operation or sale of the collateral for repayment.

Modified Retained Strategic Program Loans

Retained Strategic Program loans of $ 20.1 million and $ 19.4 million as of December 31, 2024 and 2023, respectively, consist primarily of personal loans to individuals.

A significant amount of the retained Strategic Program loans are made to subprime borrowers.

The subprime borrowers’ ability to repay the loans according to the original loan terms can be compromised by both short-term financial challenges, such as unexpected car repairs or physical injury, and longer-term financial challenges, such as a job loss or more serious injury or illness.

In certain circumstances, some of our strategic programs will modify the original loan terms to optimize the recovery of principal and interest.

The loan modifications typically include i) a delay in payment and extension of the loan term, or ii) accrued interest forgiveness and interest rate and payment reductions.

As of December 31, 2024, the balance of outstanding modified loans to individuals in the retained portfolio was approximately $ 4.4 million.

As of December 31, 2023, the

balance of outstanding modified loans to individuals in the retained portfolio was approximately $ 4.5 million.

The Company does not have any obligation to fund additional amounts to the borrowers.

If after modification, some or all of the loan is determined to be uncollectible, the full balance determined to be uncollectible is charged off.

The amount charged off is included in the Company’s vintage analysis used to estimate the Company’s allowance for credit losses.

Collateral-Dependent Loans

A collateral-dependent loan is a nonaccrual loan for which the Bank relies substantially on the operation or sale of the collateral for repayment.

In evaluating the overall risk associated with a loan, the Company considers (1) character, overall financial condition and resources, and payment record of the borrower;

3 unchanged sentences

At such time, the Company develops an expectation that repayment will be provided substantially through the operation or sale of the collateral.

The following tables present the allowance for credit losses and the amortized cost basis of collateral-dependent loans by class of loans as of the dates indicated:

The following tables present the amortized cost basis of collateral-dependent loans by class of loans as of the periods indicated:

($ in thousands) Collateral Type

7 unchanged sentences

Commercial and industrial — — 1,789 1,789

Commercial leases 36 — 359 359

Total $ 55 $ 33,575 $ 2,148 $ 35,723

The amount of collateral-dependent SBA loans as of December 31, 2023 include $ 15.0 million of SBA 7(a) loan balances that are guaranteed by the SBA.

The amount of collateral-dependent loans as of December 31, 2024 include $ 18.9 million of SBA 7(a) loan balances that are guaranteed by the SBA.

($ in thousands) Collateral Type

As of December 31, 2022 Real Estate Personal Property Total

As of December 31, 2023 Allowance for Credit Losses

Real Estate Personal Property Total

Construction and land development $ — $ 615 $ — $ 615

Residential real estate — 1,585 — 1,585

Commercial real estate:

The amount of collateral-dependent SBA loans as of December 31, 2022 include $ 1.1 million of SBA 7(a) loan balances that are guaranteed by the SBA.

Note 4 – Premises and Equipment

Owner occupied 45 21,643 — 21,643

Non-owner occupied — 2,362 — 2,362

Commercial and industrial — — 282 282

Total $ 45 $ 26,205 $ 282 $ 26,487

The amount of collateral-dependent loans as of December 31, 2023 include $ 15.0 million of SBA 7(a) loan balances that are guaranteed by the SBA.

Note 4 – Premises and Equipment and Leases

Premises and equipment at December 31, 2024 and 2023, consist of the following:

7 unchanged sentences

Premises and equipment, net $ 16,328 $ 14,630

Commercial Operating Leases

Net book value of the operating leases as of December 31, 2023 and December 31, 2022 was $ 8.2 million and $ 2.7 million.

Rental income from operating leases for the years ended December 31, 2023 and 2022 was $ 1.3 million and $ 0.2 million, respectively.

Depreciation expense for the related premises and equipment was $ 1.0 million and $ 0.2 million for the years ended December 31, 2023 and 2022, respectively.

Lease Liabilities

Total depreciation and amortization expense, included in occupancy and equipment expenses, was $ 3.2 million and $ 2.3 million for the years ended December 31, 2024 and 2023, respectively, which included depreciation expense on assets leased and available for lease of $ 1.6 million and $ 1.0 million for the years ended December 31, 2024 and 2023, respectively.

Leasing as a Lessor - Commercial Operating Lease Equipment

The Company includes commercial operating leases within premises and equipment.

The net book value of the commercial operating leases as of December 31, 2024 and December 31, 2023 was $ 10.4 million and $ 8.2 million.

Rental income from commercial operating leases for the years ended December 31, 2024 and 2023 was $ 2.2 million and $ 1.3 million, respectively.

Leasing as a Lessee

The Company leases its facilities under noncancelable operating leases.

Rent expense for the years ended December 31, 2023 and 2022 was $ 0.9 million and $ 1.1 million, respectively.

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

Rent expense was as follows:

($ in thousands)

Operating leases

Operating lease cost $ 840 $ 876

Variable lease cost 85 35

Operating lease expense 925 911

Short-term lease rent expense 37 —

Total rent expense $ 962 $ 911

Future minimum annual undiscounted rental payments for the Company’s operating leases are as follows as of December 31, 2024 ($ in thousands):

Year ended December 31, 2025 $ 1,122

3 unchanged sentences

Year ended December 31, 2029 1,017

Thereafter 1,017

Total future minimum lease payments 5,595

Less present value discount ( 293 )

Operating lease liabilities $ 6,296

The Company entered into one lease during the year ended December 31, 2022 to provide additional space while the Murray office construction was completed.

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

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

Years Ended December 31,

Total operating lease liabilities $ 5,302

The weighted-average lease term and discount rate used are as follows:

December 31, 2024 December 31, 2023

Weighted-average remaining lease term – operating leases (in years) 4.8 5.8

Weighted-average discount rate – operating leases 1.9 % 1.9 %

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

For the Years Ended

Supplemental cash flow information related to leases was as follows:

($ in thousands)

Operating cash flows from operating leases $ 850 $ 1,928

Right-of-use assets obtained in exchange for operating lease liabilities — 7,380

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

For the Years Ended

Cash paid for operating leases $ 1,142 $ 850

Note 5 – SBA Servicing Asset, Net

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

Loans serviced for others are not included in the accompanying balance sheet.

The unpaid principal balances of SBA loans serviced for others was $ 218.4 million and $ 275.2 million at December 31, 2024 and 2023, respectively.

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

($ in thousands) 2024 2023

Operating leases

Operating lease cost $ 876 $ 1,044

Variable lease cost 35 16

Operating lease expense 911 1,060

Short-term lease rent expense — 38

Net rent expense $ 911 $ 1,098

Balance at beginning of period $ 4,231 $ 5,210

Additions to servicing asset 269 150

Amortization of servicing asset ( 2,092 ) ( 1,505 )

Change in valuation allowance 865 376

Balance at end of period $ 3,273 $ 4,231

SBA servicing asset, fair value $ 3,273 $ 4,231

Activity in the valuation allowance for the SBA servicing asset was as follows for the periods indicated:

($ in thousands) 2024 2023

Balance at beginning of period $ ( 2,151 ) $ ( 2,527 )

Recovery 865 376

Balance at end of period $ ( 1,286 ) $ ( 2,151 )

The fair market value of the SBA servicing asset as of December 31, 2024 and December 31, 2023, was $ 3.3 million and $ 4.2 million, respectively.

Recovery or 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 these assumptions could result in a significant change in the SBA servicing asset carrying amount.

The Company assumed a weighted average prepayment rate of 21.1 %, weighted average term of 3.30 years, and a weighted average discount rate of 12.1 % at December 31, 2024.

The Company assumed a weighted average prepayment rate of 18.2 %, weighted average term of 3.72 years, and a weighted average discount rate of 15.4 % at December 31, 2023.

Note 6 – 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 the Company’s common stock.

The exchange was accounted for at fair value based on the fair value of the Company’s shares of approximately $ 3.5 million.

On July 25, 2023, the Company entered into a definitive agreement, as amended, to purchase from certain members of BFG an additional 10 % membership interest in exchange for shares of the Company’s common stock.

On February 5, 2024, the transaction was consummated and the Company issued an aggregate 339,176 shares of the Company’s common stock in a private placement to the sellers in exchange for the additional membership interest in BFG.

The second transaction increased the Company’s total ownership interest in BFG to 20 %.

The ownership interest consists of Class A Voting Units representing 4.7 % of the aggregate membership interests of BFG and Class B Non-Voting Units representing 15.3 % of the aggregate membership interests of BFG.

The remaining 80 % of the outstanding membership interests are Class A Voting Units.

Based on the Company’s accounting policy with respect to investments in limited liability companies, the Company concluded that its level of ownership was indicative of significant influence and, as a result, the investment would be accounted for using the equity method.

However, the Company elected the fair value option for its investment due to cost-benefit considerations.

On March 31, 2020, the Company entered into a right of first refusal and option agreement with the members of BFG whereby the Company has the right of first refusal to purchase additional interests in BFG from any selling members and the option to purchase all, but not less than all, of the interests in BFG from the remaining members.

The purchase price for the remaining members’ interests is based on an earnings multiple between 10 times and 15 times BFG’s net profit for the fiscal year ended immediately prior to the exercise of the option.

The option period begins on January 1, 2021 and expires on January 1, 2028.

The Company issued an aggregate 270,000 warrants to the BFG members as consideration for entering into the agreement.

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 was not publicly traded at that time.

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

For further information on the Company’s investment in BFG, see Note 14 - Related Party Transactions.

Note 7 – Deposits

15 unchanged sentences

Total $ 320,771

Note 6 – SBA Servicing Asset

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

Loans serviced for others are not included in the accompanying balance sheet.

The unpaid principal balances of SBA loans serviced for others was $ 253.2 million and $ 318.6 million at December 31, 2023 and 2022, respectively.

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

For the Years Ended

($ in thousands) 2023 2022

Beginning balance $ 5,210 $ 3,938

Additions to servicing asset 150 4,087

Recovery (impairment) of SBA servicing asset 376 ( 1,728 )

Amortization of servicing asset ( 1,505 ) ( 1,087 )

Ending balance $ 4,231 $ 5,210

The fair market value of the SBA servicing asset as of December 31, 2023 and December 31, 2022, was $ 4.2 million and $ 5.2 million, respectively.

Recovery or 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.

The Company assumed a weighted average prepayment rate of 18.2 %, weighted average term of 3.72 years, and a weighted average discount rate of 15.4 % at December 31, 2023.

The Company assumed a weighted average prepayment rate of 14.2 %, weighted average term of 4.45 years, and a weighted average discount rate of 18.8 % at December 31, 2022.

Note 8 – Capital Requirements

5 unchanged sentences

Beginning January 1, 2020, the Bank qualified and elected to use the community bank leverage ratio (“CBLR”) framework for quantitative measures which requires the Bank to maintain minimum amounts and ratios of Tier 1 capital to average total consolidated assets.

Management believes, as of December 31, 2023 and December 31, 2022, that the Bank meets all capital adequacy requirements to which it is subject.

Management believes, as of December 31, 2024 and December 31, 2023, that the Bank’s capital levels exceed the regulatory floors required to be classified as a well-capitalized bank.

As of December 31, 2024 and December 31, 2023, 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).

The following table sets forth the actual capital amounts and ratios for the Bank and the minimum ratio and amount of capital required to be categorized as well-capitalized and adequately capitalized as of the dates indicated.

The Bank’s actual capital amounts and ratios are presented in the following table:

The following table presents the actual and required capital amounts and ratios for the Bank as of the periods indicated:

Actual Well-Capitalized

4 unchanged sentences

Leverage ratio (CBLR election) $ 116,108 20.7 % $ 50,441 9.0 %

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

The Bank had no reserve requirements as of December 31, 2023 and December 31, 2022.

The Federal Reserve’s policy statement and supervisory guidance on the payment of cash dividends by a Bank Holding Company (“BHC”), such as FinWise Bancorp, expresses the view that a BHC should generally pay cash dividends on common stock only to the extent that (1) the BHC’s net income available over the past year is sufficient to cover the cash dividend, (2) the rate of earnings retention is consistent with the organization’s expected future needs and financial condition, and (3) the minimum regulatory capital adequacy ratios are met.

Bank Dividends

Should an insured depository institution controlled by a bank holding company be “significantly undercapitalized” under the applicable federal bank capital ratios, or if the bank subsidiary is “undercapitalized” and has failed to submit an acceptable capital restoration plan or has materially failed to implement such a plan, federal banking regulators (in the case of the Bank, the FDIC) may choose to require prior Federal Reserve approval for any capital distribution by the BHC.

In addition, since FinWise Bancorp is a legal entity separate and distinct from the Bank and does not conduct stand-alone operations, an ability to pay dividends depends on the ability of the Bank to pay dividends to FinWise Bancorp and the FDIC and the Utah Department of Financial Institutions (“UDFI”) may, under certain circumstances, prohibit the payment of dividends to FinWise Bancorp from the Bank.

The FDIC and the Utah Department of Financial Institutions (“UDFI”) may, under certain circumstances, prohibit the payment of dividends to FinWise Bancorp from the Bank.

Utah corporate law also requires that dividends can only be paid out of funds legally available.

The Company has not paid any cash dividends on its common stock since inception and it currently has no plans to pay cash dividends in the foreseeable future.

However, the Company’s Board of Directors may declare a cash or stock dividend out of retained earnings provided the regulatory minimum capital ratios are met.

The Company plans to maintain capital ratios that meet the well-capitalized standards per the regulations and, therefore, would limit dividends to amounts that are appropriate to maintain those well-capitalized regulatory capital ratios.

Note 8 – Commitments and Contingent Liabilities

The Company has not paid any cash dividends on its common stock since inception and it does not intend to pay cash dividends in the foreseeable future.

However, the Company’s Board of Directors may declare a cash or stock dividend out of retained earnings provided the regulatory capital ratio requirements are met.

The Company plans to maintain capital ratios that meet or exceed the well-capitalized standards per the regulations and, therefore, would limit dividends to amounts that are appropriate to maintain those well-capitalized regulatory capital ratios.

Note 9 – Commitments and Contingencies

Federal Home Loan Bank Secured Line of Credit

As of December 31, 2023 and December 31, 2022, the Bank’s available line of credit with the FHLB to borrow in overnight funds was $ 30.5 million and $ 2.6 million, respectively.

As of December 31, 2024 and December 31, 2023, the Bank’s available line of credit with the FHLB to borrow funds was $ 25.0 million and $ 30.5 million, respectively.

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

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Loans totaling $ 41.6 million and $ 46.9 million were pledged to secure the FHLB line of credit as of December 31, 2024 and December 31, 2023, respectively.

Lines of Credit

At December 31, 2023 and December 31, 2022, the Bank had the ability to access $ 11.4 million and $ 10.6 million from the Federal Reserve Bank’s Discount Window on a collateralized basis.

At December 31, 2023, the Bank had the ability to access $ 0.8 million from the Federal Reserve Bank’s Bank Term Funding Program on a collateralized basis.

Through Zions Bank, the Bank had an available unsecured line available of $ 5.0 million and $ 1.0 million at December 31, 2023 and December 31, 2022.

Other Lines of Credit

At December 31, 2024 and December 31, 2023, the Bank had the ability to borrow $ 239.2 million and $ 11.4 million, respectively, from the FRB’s Discount Window on a collateralized basis.

Loans totaling $ 240.8 million and $ 0.0 million and securities of $ 42.6 million and $ 13.0 million were pledged to secure the line of credit with the FRB’s Discount Window as of December 31, 2024 and December 31, 2023, respectively.

The FRB’s Bank Term Funding Program was officially closed in March 2024.

At December 31, 2023, the Bank had the ability to access $ 0.8 million from the FRB’s Bank Term Funding Program on a collateralized basis.

Through Zions Bank, the Bank had an available unsecured line of credit of $ 5.0 million at December 31, 2024 and December 31, 2023.

The Bank had an available line of credit with Bankers’ Bank of the West to borrow up to $ 1.1 million in overnight funds at December 31, 2024 and December 31, 2023.

The Bank had no outstanding balances on such unsecured or secured lines of credit as of December 31, 2024 and December 31, 2023.

Paycheck Protection Program Liquidity Facility

On April 20, 2020, the Bank was approved by the Federal Reserve to access its SBA Paycheck Protection Program Liquidity Facility (“PPPLF”) through the discount window.

The PPPLF enables the Company to fund Paycheck Protection Program ("PPP") loans without taking on additional liquidity or funding risks because the Company is able to pledge PPP loans as collateral to secure extensions of credit under the PPPLF on a non-recourse basis.

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

The Bank pledged $ 0.2 million of PPP loans as eligible collateral under the PPPLF borrowing arrangement at December 31, 2023.

The Bank pledged $ 0.3 million of PPP loans as eligible collateral under the PPPLF borrowing arrangement at December 31, 2022.

The average outstanding borrowings were $ 0.3 million during the year ended December 31, 2023 and $ 0.6 million during the year ended December 31, 2022.

Borrower-In-Custody (“BIC”)

During 2024, the Bank was accepted into the FRB’s borrower-in-custody program, which allows financial institutions to pledge loans as collateral for FRB’s Discount Window advances, that are not pledged to the FHLB, while retaining possession or control of the collateral.

As of December 31, 2024, the Bank had secured unused borrowing capacity of $ 198.8 million and had $ 240.8 million in loans that were pledged as collateral under the BIC program (the $ 198.8 million unused borrowing capacity is included in the $ 239.2 million of funds available to borrow from the FRB’s Discount Window in the preceding paragraph).

The Company had no advances outstanding under the BIC program as of December 31, 2024.

Financial Instruments with Off-Balance Sheet Risk

Commitments to Extend Credit

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

The Company’s commitments to extend credit as of the periods indicated are summarized below.

Since commitments associated with commitments to extend credit may expire unused, the amounts shown in the table below do not necessarily reflect the actual future cash funding requirements.

At December 31, 2024 and December 31, 2023, financial instruments with off-balance-sheet risk were as follows:

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Revolving, open-end lines of credit $ 2,365 $ 1,630

Commercial real estate 17,421 17,886

Undisbursed commercial real estate loans 23,200 17,421

Other unused commitments 830 724

Total unfunded loan commitments

$ 26,395 $ 19,775

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The allowance for credit losses on unfunded commitments estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

The allowance for credit losses on unfunded commitments was $ 0.1 million as of December 31, 2023.

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.

The Company’s 10 % membership interests of BFG are comprised of Class A Voting Units representing 4.7 % of the aggregate membership interests of BFG and Class B Non-Voting Units representing 5.3 % of the aggregate membership interests of BFG.

The other existing members of BFG jointly own the remaining 90 % of the outstanding membership interests, on a fully-diluted basis – all of which membership interests are Class A Voting Units.

However, the Company elected the fair value option for its investment due to cost-benefit considerations.

The Company received distributions from BFG in the amounts of $ 0.7 million and $ 0.5 million for the year ended December 31, 2023 and 2022, respectively.

These distributions were recorded in the Consolidated Income Statement as non-interest income.

On March 31, 2020, the Company entered into an agreement with BFG whereby the Company has the right of first refusal to purchase additional interests in BFG from any selling members.

Additionally, the Company was granted an option to purchase all, but not less than all, of the interests in BFG from the remaining members for an earnings multiple between 10

times and 15 times net profit based on the fiscal year ended immediately prior to the exercise of the option.

The option period begins on January 1, 2021 and expires on January 1, 2028.

In consideration of granting the first right of refusal and the option, BFG members received 270,000 warrants in the aggregate.

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

On July 25, 2023, the Company entered into a Membership Purchase Agreement, as amended (the "Purchase Agreement") with BFG and four members of BFG ("Sellers").

Pursuant to the Purchase Agreement, the Company acquired an additional 10 % non-voting ownership interest in BFG (the "Transaction").

On February 5, 2024, the Transaction was consummated and the Company issued in the aggregate 339,176 shares of Common Stock of the Company, par value $ 0.001 per share, in a private placement to the Sellers in exchange for their 10 % aggregate non-voting ownership interest in BFG.

When combined with the Company’s existing 5.3 % non-voting ownership interest in BFG and, the Company's existing 4.7 % voting ownership interest, the Company has a 20 % ownership interest in BFG, comprising a 4.7 % voting ownership interest and a 15.3 % non-voting ownership interest.

For further discussion on the Company’s investment in BFG, see Note 13 Related Parties and Note 19 Subsequent Events.

Note 10 – Stock-Based Compensation

The allowance for credit losses on unfunded commitments was $ 0.5 million and $ 0.1 million as of December 31, 2024 and December 31, 2023, respectively.

Note 10 – Stock-Based Compensation and Employee Benefit Plans

Stock Option Plans

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The 2019 Stock Option Plan (“2019 Plan”) was adopted on June 20, 2019 following approval by the Company’s Board of Directors and shareholders.

The 2019 Plan provides for the issuance of non-statutory stock options and restricted stock to employees, directors and consultants.

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

The 2019 Plan, as amended, authorizes the issuance of 1,280,000 common shares.

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

At December 31, 2023, 333,853 shares are available for future issuance.

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 shareholder approval of an increase in the number of shares reserved for issuance under the 2019 Plan.

On June 27, 2024, the shareholders of the Company approved an amendment to the 2019 Plan increasing the number of shares of common stock reserved for issuance under the plan by an additional 500,000 shares to 1,780,000 .

At December 31, 2024, 445,440 shares under the 2019 Plan were available for future issuance.

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

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

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

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

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

At December 31, 2023, 2,189 shares under 2016 Plan are available for future issuance.

The stock-based incentive awards for both the 2019 Plan and the 2016 Plan (collectively, the “Plans”) are granted at an exercise price not less than the fair market value of the shares on the date of grant in the case of options or based on the fair market value of the stock at the grant date, in the case of restricted stock.

Vesting of the options vary by employee or director and can have a term no more than 10 years, with the options generally having vesting periods ranging from 1 to 5 years.

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

Under both Plans, if an award expires or becomes un-exercisable without having been exercised in full, or is surrendered pursuant to an exchange program, the unpurchased shares that were subject thereto shall become available for future grant or sale under the Plans.

However, shares that have actually been issued under the Plans, upon exercise of an award, shall not be returned to the Plans and shall not become available for future distribution under the Plans, except that if unvested shares of restricted stock are repurchased by the Company at their original purchase price, such shares shall become available for future grant under the Plans.

The 2016 Plan will terminate as to future awards 10 years from the later of the effective date or the earlier of the most recent Board or

shareholder approval of an increase in the number of shares reserved for issuance under the 2016 Plan.

At December 31, 2024, 2,189 shares under the 2016 Plan were available for future issuance.

The 2019 Plan and the 2016 Plan (collectively, the “Plans”) provide for the issuance of non-statutory stock options and restricted stock to employees, directors and consultants.

The Plans also provide for the issuance of incentive stock options only to employees.

The stock-based incentive awards for the Plans are granted at an exercise price not less than the fair market value of the Company’s common stock on the date of grant in the case of stock options.

Restricted stock is valued based on the fair market value of the Company’s common stock on the grant date.

Vesting of the stock options vary by employee or director and can have a term no more than 10 years, with the options generally having vesting periods ranging from 1 to 5 years.

Restricted stock vests over periods ranging from approximately 1 to 5 years.

Under the Plans, if an award expires or becomes un-exercisable without having been exercised in full, or is surrendered pursuant to an exchange program, the unpurchased shares that were subject thereto shall become available for future grant or sale under the Plans.

However, shares that have actually been issued under the Plans, or upon exercise of an award, shall not be returned to the Plans and shall not become available for future distribution under the Plans, except that if unvested shares of restricted stock are repurchased by the Company at their original purchase price, such shares shall become available for future grant under the Plans.

Stock Options

The following summarizes stock option activity for the years ended December 31, 2023 and 2022:

The following summarizes stock option activity for the year ended December 31, 2024:

Options Weighted

Price Weighted

Average Remaining

years) Aggregate

Outstanding at December 31, 2023 981,488 $ 5.72 6.9 $ 8,429,619

Options granted 89,415 13.04 9.9 —

Options exercised ( 45,420 ) $ 4.10

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Outstanding at December 31, 2024 905,182 $ 5.74 5.9 $ 9,266,286

Options granted 126,406 8.64 9.9 —

Options exercised ( 17,640 ) 2.45 — 120,229

Options forfeited ( 8,903 ) 9.52 — 12,089

Outstanding at December 31, 2023 981,488 $ 5.72 6.9 $ 8,429,619

Options vested and exercisable at December 31, 2024 766,442 $ 5.23 5.6 $ 8,241,070

The weighted average grant-date fair value of options per share granted during the years ended December 31, 2023 and 2022 was $ 4.11 and $ 6.26 , respectively.

The aggregate intrinsic value of options exercised during the years ended December 31, 2023 and 2022 was $ 0.1 million and $ 0.4 million, respectively.

During the years ended December 31, 2023, and 2022 the Company received de minimis and $ 0.3 million, respectively, in proceeds from the exercise of stock options and recognized a de minimis tax benefit from the exercise of stock options for both years.

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 year ended December 31, 2023 was $ 4.11 , respectively.

The total intrinsic value of options exercised during the years ended December 31, 2024 and 2023 was $ 0.3 million and $ 0.1 million, respectively.

During the years ended December 31, 2024, and 2023 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 for both years.

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

Restricted Stock

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Termination of employment prior to a vesting date, as described below, would terminate any interest in non-vested shares.

Non-vested restricted stock for the years ended December 31, 2023, and 2022 is summarized in the following table:

Number of Shares Weighted Average Grant Price

Unvested as of December 31, 2021 — $ —

Granted 123,055 12.28

The following summarizes unvested restricted stock activity for the year ended December 31, 2024:

Number of Shares Weighted Average Grant Date Fair Value

Unvested as of December 31, 2023 199,208 $ 10.05

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Vested ( 96,475 ) $ 10.39

Forfeited ( 25,389 ) $ 10.12

Unvested as of December 31, 2024 496,643 $ 10.09

The weighted average grant date fair value of restricted stock granted in the year ended December 31, 2023 was $ 8.63 .

The total fair value of restricted stock that vested during the years ended December 31, 2024 and 2023 was $ 1.2 million and $ 1.0 million, respectively.

Stock-based Compensation Expense

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

For the Years Ended

The following tables present stock-based compensation expense recognized:

($ in thousands) 2024 2023

Stock options $ 237 $ 493

Restricted shares 1,553 458

Total $ 2,046 $ 778

Stock options $ 477 $ 312

Restricted shares 1,166 344

Restricted stock 1,809 1,553

Total $ 2,046 $ 2,046

As of December 31, 2024, the Company had unrecognized stock-based compensation expense related to stock options and restricted stock of approximately $ 0.1 million and $ 3.2 million, respectively, which is expected to be recognized over the remaining weighted average vesting period of 1.0 years and 2.4 years, respectively.

Defined Contribution Plan

The Company has established an employee directed 401(k) plan (“Plan”) for employees meeting certain eligibility requirements.

The Plan requires the Company to contribute a safe harbor amount annually.

In addition, the Plan allows the Company, at its discretion, to make a matching contribution or additional profit sharing contribution based on each eligible employee’s compensation for the Plan year.

The participants must be at least 21 years of age and have at least one year of service in order to be eligible for matching and profit-sharing contributions.

The Company made profit-sharing contributions to the Plan of $ 1.1 million and $ 0.6 million for the years ended December 31, 2024 and 2023 , respectively.

Note 11 – Fair Value of Financial Instruments

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Level 2 – Observable inputs other than Level 1 including quoted prices in active markets for similar instruments, quoted prices in less active markets for identical or similar instruments, or other observable inputs that can be corroborated by observable market data.

Level 3 – Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation also includes observable inputs from nonbinding single dealer quotes not corroborated by observable market data.

nonbinding single dealer quotes not corroborated by observable market data.

In developing Level 3 measurements, management incorporates whatever market data might be available and uses discounted cash flow models where appropriate.

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Transfers between levels of the fair value hierarchy are deemed to occur at the end of the reporting period.

The following methods were used to estimate the fair value of each class of financial instruments:

Cash and cash equivalents :

The carrying amount of these items is a reasonable estimate of their fair value.

Investment securities held-to-maturity :

The estimated fair values of investment securities are priced using current active market quotes, if available, which are considered Level 1 measurements.

For most of the portfolio, matrix pricing based on the securities’ relationship to other benchmark quoted prices is used to establish the fair value.

These measurements are considered Level 2.

Investment in Federal Home Loan Bank stock :

The fair value is based upon the redemption value of the stock, which equates to the carrying value.

Strategic Program loans held-for-sale :

The carrying amount of each item is a reasonable estimate of their fair value as loans classified as held-for-sale are generally maintained on balance sheet for a period of a few days.

Loans receivable :

The fair value is estimated by discounting the future cash flows and estimated prepayments using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining term.

Some loan types’ fair value approximated carrying value because of their floating rate or expected maturity characteristics.

SBA servicing asset :

The fair value of servicing assets is based on, in part, third-party valuations that project estimated future cash inflows that include servicing fees and outflows that include market rates for costs of servicing.

The present value of the future cash flows are calculated utilizing market-based discount rates.

The market-based discount rates represent risk spreads based on secondary market transactions utilizing calculated prepayment curves.

Because observable loan transactions are used to determine the risk spreads, the Company considers the measurement to be Level 2.

There were no transfers between fair value levels for the years ended December 31, 2024 and 2023.

The following methods were used to estimate the fair value of each class of financial instruments on a recurring basis:

Investment securities available-for-sale:

Investment securities AFS consist of U.S.

Treasury securities and are carried at fair value.

The Company estimates the fair value of investment securities AFS using current active market quotes, if available, which are considered Level 1 measurements.

Level 1 measurements include securities issued by the U.S.

Investment in BFG :

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

The valuation was also adjusted using a Guideline Transaction method based on the potential transaction announced on July 25, 2023 and the share price on December 31, 2023.

A 20 % lack of marketability discount was applied to the valuation as well as a 4.50 % discount to non-voting shares to arrive at fair value as of December 31, 2024 and December 31, 2023.

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 $ 4.2 million and $ 4.8 million as of December 31, 2023 and December 31, 2022, respectively.

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

For the Years Ended

See Note 6 - Investment in Business Funding Group, LLC and Note 14 - Related Party Transactions for more information.

Derivative instruments :

The Company’s derivative instruments consist of interest rate swaps accounted for as cash flow hedges.

The Company’s derivative instruments are carried at fair value and considered Level 2 measurements.

The Company measures fair value of interest rate swaps utilizing market observable inputs, such as forecasted yield curves.

The table below presents the Company’s financial instruments valued on a recurring basis as of the periods indicated:

December 31, 2024 December 31, 2023

($ in thousands) Level Estimated

Fair Value Estimated

Financial assets:

Treasury securities

1 $ 29,930 $ —

Investment in BFG 3 $ 7,700 $ 4,200

Derivative asset

The table below presents a reconciliation of our investment in BFG classified as a Level 3 financial instrument and measured at fair value on a recurring basis for the periods indicated:

($ in thousands) 2024 2023

Beginning balance $ 4,200 $ 4,800

Distributions from BFG

Purchase of BFG ownership interest 4,125 —

Change in fair value of BFG ( 625 ) ( 600 )

Ending balance $ 7,700 $ 4,200

The carrying amount of deposits with no stated maturity, such as savings and checking accounts, is a reasonable estimate of their fair value.

The market value of certificates of deposit is based upon the discounted value of contractual cash flows.

The discount rate is determined using the rates currently offered on comparable instruments.

Accrued interest receivable and payable :

The fair value of accrued interest receivable and payable approximates their carrying amount.

PPP Liquidity Facility :

The fair value of PPPLF is estimated using a discounted cash flow based on the remaining contractual term and current borrowing rates for similar terms.

The table below presents the carrying amount and fair value of the Company's financial instruments:

December 31, 2023 December 31, 2022

($ in thousands) Level Carrying

Amount Estimated

Fair Value Carrying

Amount Estimated

Financial assets:

Cash and cash equivalents 1 $ 116,975 $ 116,975 $ 100,567 $ 100,567

Investment securities held-to-maturity 2 15,388 13,809 14,292 12,728

Investment in FHLB stock 2 238 238 449 449

Loans held for investment 3 358,560 360,032 224,217 237,225

Loans held-for-sale 2 47,514 47,509 23,589 23,589

Accrued interest receivable 2 3,573 3,573 1,818 1,818

SBA servicing asset 2 4,231 4,231 5,210 5,210

Investment in BFG 3 4,200 4,200 4,800 4,800

Financial liabilities:

Total deposits 2 404,833 394,195 242,998 221,287

Accrued interest payable 2 619 619 54 54

PPP Liquidity Facility 2 190 190 314 314

Assets measured at fair value on a nonrecurring basis are summarized as follows:

The table below presents the Company’s financial instruments valued on a nonrecurring basis as of the periods indicated:

($ in thousands) Fair Value Measurements Using

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Individually evaluated loans $ 27,127 $ — $ — $ 27,127

Individually evaluated loans – The loan amount above represents loans individually evaluated that have been adjusted to fair value.

Individually evaluated loans – The loan amount above represents loans individually evaluated that have been adjusted to the lower of cost or fair value.

When collateral-dependent loans are individually evaluated, they are measured using the current fair value of the collateral securing these loans, less selling costs.

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Some appraised values are adjusted based on management’s review and analysis, which may include historical knowledge, changes in market conditions, estimated selling and other anticipated costs, and/or expertise and knowledge.

The loss represents charge-offs on loans for adjustments made based on the fair 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 December 31, 2023 and as of December 31, 2022, along with the valuation techniques used, are shown in the following table:

The loss, if any, represents charge-offs on loans when the fair value of the collateral is less than the carrying amount of the loan.

Quantitative information for Level 3 fair value measurements – The following table presents information about quantitative inputs and assumptions used to fair value Level 3 nonrecurring assets as of December 31, 2024 and 2023:

($ in thousands) Fair Value Valuation

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Individually evaluated loans $ 35,723 Market

comparable Adjustment to

appraisal value 7.57 %

comparable Discount to appraisal value for estimated selling costs 11.40 %

December 31, 2023

Individually evaluated loans $ 27,127 Market

comparable Adjustment to

appraisal value 0.20 %

The range and weighted average of the significant unobservable inputs used to fair value the investment in BFG Level 3 recurring asset as of December 31, 2023 and as of December 31, 2022 are shown in the following table:

comparable Discount to appraisal value for estimated selling costs 7.57 %

The range and weighted average of the significant unobservable inputs used to fair value the investment in BFG as of December 31, 2024 and as of December 31, 2023 are shown in the following table:

($ in thousands) December 31, 2024

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3.5 x to 5.5 x

As mentioned above, the valuation as of December 31, 2023 was also adjusted using a Guideline Transaction method based on the potential transaction announced on July 25, 2023 and the share price on December 31, 2023.

The tables below present the carrying amount and estimated fair value of the Company's financial instruments as of the periods indicated:

December 31, 2024 Fair Value Measurements Using

($ in thousands) Carrying

Amount Estimated

Fair Value Level 1 Level 2 Level 3

Financial assets:

Cash and cash equivalents $ 109,162 $ 109,162 $ 109,162 $ — $ —

Investment securities available-for-sale 29,930 29,930 29,930 — —

Investment securities held-to-maturity 12,565 11,057 — 11,057 —

Investment in FHLB stock 349 349 — 349 —

Loans held-for-investment, net 447,812 478,919 — — 478,919

Strategic Program loans held-for-sale 91,588 91,588 — 91,588 —

Accrued interest receivable 3,566 3,566 — 3,566 —

SBA servicing asset, net 3,273 3,273 — 3,273 —

Investment in BFG 7,700 7,700 — — 7,700

Derivative asset

509 509 — 509 —

Financial liabilities:

Total deposits 544,952 528,253 — 528,253 —

Accrued interest payable 1,494 1,494 — 1,494 —

PPPLF 64 64 — 64 —

December 31, 2023 Fair Value Measurements Using

($ in thousands) Carrying

Amount Estimated

Fair Value Level 1 Level 2 Level 3

Financial assets:

Cash and cash equivalents $ 116,975 $ 116,975 $ 116,975 $ — $ —

Investment securities held-to-maturity 15,388 13,809 — 13,809 —

Investment in FHLB stock 238 238 — 238 —

Loans held-for-investment, net 358,560 360,032 — — 360,032

Strategic Program loans held-for-sale 47,514 47,509 — 47,509 —

Accrued interest receivable 3,573 3,573 — 3,573 —

SBA servicing asset, net 4,231 4,231 — 4,231 —

Investment in BFG 4,200 4,200 — — 4,200

Financial liabilities:

Total deposits 404,833 394,195 — 394,195 —

Accrued interest payable 619 619 — 619 —

PPPLF 190 190 — 190 —

Note 12 – Income Taxes

The components of income tax expense consist of the following:

For the Years Ended December 31,

($ in thousands) 2024 2023

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Operating lease liabilities $ 1,302 $ 1,560

Allowance for loan losses 693 1,639

Accrued bonuses — 61

Allowance for credit losses

Loan servicing rights 316 533

Nonqualified stock options 154 150

Restricted stock 386 240

Other 226 290

Deferred loan fees, net — 51

Unrealized losses on securities AFS 24 —

Total deferred tax assets 4,894 3,284

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ROU asset ( 875 ) ( 1,063 )

Intangibles — ( 3 )

Deferred loan fees, net ( 2,159 ) —

Net book value of fixed assets ( 2,020 ) ( 2,199 )

Loan trailing fees ( 335 ) ( 424 )

Unrealized gains on cash flow hedges ( 85 ) —

Other ( 319 ) ( 346 )

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The income tax expense recorded differs from the expected income tax expense and the reconciliation of these differences is as follows at December 31, 2024 and 2023 :

For the Years Ended December 31,

($ in thousands) 2024 2023

Federal income tax expense at statutory rates $ 3,568 $ 5,001

Effect of permanent differences 323 811

Nondeductible compensation 84 323

State income tax expense, net 626 991

Other ( 31 ) 38

Income tax expense $ 4,247 $ 6,353

The Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense.

During the years ended December 31, 2023 , and 2022 , the Company recognized approximately $ 0.3 million and de minimis interest or penalties.

The Company files a United States federal income tax return and state income tax returns in Utah, Florida, and New York.

Open tax years that are potentially subject to examination related to the U.S.

federal jurisdiction are 2020 and subsequent years.

The Company had no unrecognized tax benefits at December 31, 2023 and 2022 .

Note 13 – Shareholders’ Equity

Stock Repurchases

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 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 644,241 shares for approximately $ 5.9 million and retired them at cost thereby completing the Company's share repurchase program during the third quarter of 2023.

Note 14 – Retirement Plan

The Company has established an employee directed 401(k) plan (Plan).

The Plan requires the Company to annually contribute a “Safe Harbor” profit sharing contribution for all eligible participants.

The participants must be at least 21 years of age and have at least one year of service in order to be eligible for matching and profit-sharing contributions.

The Company made profit-sharing contributions to the Plan of $ 0.6 million and $ 0.5 million for the years ended December 31, 2023 and 2022 , respectively.

Note 15 – Related Parties

In the ordinary course of business, the Company may grant loans to certain executive officers and directors and the companies with which they are associated.

The Company had de minimis loans outstanding to related parties as of December 31, 2023 and December 31, 2022.

At December 31, 2024 and 2023 , the Company had no material unrecognized tax benefits or accrued interest and penalties recorded.

The Company does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months.

The Company and its subsidiaries are subject to income tax within U.S.

federal and various state jurisdictions.

The Company remains subject to examination for income tax returns in all federal and state jurisdictions for the years ending on or after December 31, 2021 .

Note 13 – Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements.

To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy.

Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

During 2024, such derivatives were used to hedge the variable cash flows associated with existing variable-rate deposits.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income (“OCI”) and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings.

Amounts reported in accumulated OCI related to derivatives will be reclassified to interest on deposits as interest payments are made on the Company’s variable-rate deposits.

During the twelve months following December 31, 2024 , the Company estimates that an additional $ 0.3 million will be reclassified as a reduction to interest expense.

Fair Value of Derivative Instruments on the Consolidated Balance Sheet

The table below presents the notional amount, location, and fair value of the Company’s derivative financial instruments on the Consolidated Balance Sheet as of December 31, 2024 :

Derivative Assets

As of December 31, 2024

($ in thousands) Notional Amount Balance Sheet Location Fair Value

Derivatives designated as hedging instruments:

Interest rate swaps $ 80,000 Other assets $ 509

Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income

The table below presents the pre-tax effect of cash flow hedge accounting on accumulated other comprehensive income as of December 31, 2024 :

Year Ended December 31, 2024

Amount of Gain Recognized in OCI on Derivative Location of Gain Recognized from Accumulated OCI into Income Amount of Gain Reclassified from Accumulated OCI into Income

Derivatives in Cash Flow Hedging Relationships:

Interest rate swaps $ 509 Interest on deposits $ 164

Total $ 509 $ 164

The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income for the year ended December 31, 2024 :

Location and Amount of Gain Recognized in Income on Cash Flow Hedging Relationships

Location of gain recognized in income Interest on deposits

Total amount of expense line items presented in the statement of financial performance in which the effects of cash flow hedges are recorded

The effects of cash flow hedging:

Interest rate swaps:

Amount of gain reclassified from accumulated OCI into income $ 164

Offsetting Derivative Assets

The table below presents derivative instruments that are subject to enforceable master netting arrangements for the periods indicated.

The Company has not made a policy election to offset its derivative positions.

The net amounts of derivative assets can be reconciled to the tabular disclosure of fair value.

The tabular disclosure of fair value provides the location that derivative assets are presented on the consolidated balance sheet.

As of December 31, 2024

Gross Amounts Not Offset in the Statement of Financial Position

Gross Amounts of Recognized Assets Gross Amounts Offset in the Statement of Financial Position Net Amounts of Assets presented in the Statement of Financial Position Financial Instruments Cash Collateral Received Net Amount

Interest rate swaps $ 509 $ — $ 509 $ — $ — $ 509

Note 14 – Related Party Transactions

In the ordinary course of business, the Bank may grant loans to certain executive officers and directors and the companies with which they are associated.

The Company had no and de minimis loans outstanding to related parties as of December 31, 2024 and December 31, 2023.

Total deposits from certain executive officers and directors and the companies with which they are associated were $ 2.1 million and $ 1.5 million as of December 31, 2024 and December 31, 2023, 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.

As noted in Note 8 Investments above, the Company has a 10 % ownership in the outstanding membership units of BFG, as of December 31, 2023.

As noted in Note 6 - Investment in Business Funding Group, LLC, the Company has a 20 % ownership in the outstanding membership units of BFG, as of December 31, 2024.

The Company underwrites loans sourced by BFG in its normal course of business.

2 unchanged sentences

The Company is able to use its sole discretion in deciding to approve and fund loans referred by BFG.

SBA 7(a) loans sourced from BFG totaled $ 70.3 million and $ 128.9 million for the years ended December 31, 2024 and 2023, respectively.

The Company paid commission fees to BFG in the amounts of $ 2.8 million and $ 5.2 million for the years ended December 31, 2024 and 2023, respectively.

The Company received distributions from BFG in the amounts of $ 0.6 million and $ 0.7 million for the years ended December 31, 2024 and 2023, respectively.

These distributions were recorded in the Consolidated Statements of Income in other miscellaneous income.

Note 15 – Earnings per Share

The following table is a reconciliation of the components used to derive basic and diluted EPS for the years ended December 31, 2023 and 2022 ($ in thousands, except share and per share amounts):

For the Years Ended

($ in thousands) 2023 2022

The following table is a reconciliation of the components used to derive basic and diluted EPS for the years ended December 31, 2024 and 2023 ($ in thousands, except per share amounts):

Net income $ 12,742 $ 17,460

1 unchanged sentence

( 390 ) ( 288 )

Net income allocate to common shareholders $ 17,172 $ 24,922

Net income allocated to common shareholders $ 12,352 $ 17,172

Weighted average shares outstanding, basic 12,612,455 12,488,564

5 unchanged sentences

Earnings per share, diluted $ 0.93 $ 1.33

Anti-dilutive stock options excluded from the calculation of diluted earnings per share 77,723 220,100

(1) Represents earnings attributable to holders of unvested restricted stock issued to the Company’s directors and employees.

There were 220,100 and 373,569 anti-dilutive options for the years ended December 31, 2023 and 2022, respectively, that were excluded from the computation in the table above.

There were 192,558 shares and 150,932 anti-dilutive warrants for the years ended December 31, 2023 and 2022, respectively, also excluded from the table above.

Note 17 – Revenue Recognition

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

For the Years Ended December 31,

($ in thousands) 2023 2022

Interest income

Interest income, not-in-scope

Interest and fees on loans $ 58,445 $ 50,941

Interest on securities 338 208

Other interest income 5,751 1,180

Total interest income $ 64,534 $ 52,329

Non-interest income

Non-interest income, in-scope

Service charges on deposit accounts $ 26 $ 31

Strategic Program set up fees 223 195

Non-interest income, not in-scope

Strategic Program fees 15,362 21,438

Gain on sale of loans 1,684 13,550

SBA loan servicing fees 1,466 1,603

Change in fair value on investment in BFG ( 600 ) ( 478 )

Other miscellaneous income 2,590 239

Strategic Program service charges 329 834

Total non-interest income $ 21,080 $ 37,411

Note 18 – Condensed Financial Statements of Parent

Financial information pertaining only to FinWise Bancorp, on a parent-only basis, is as follows as of and for the years ended December 31, 2023 and 2022 :

Balance Sheets

Note 16 – Condensed Financial Statements of Parent Company

Financial information pertaining only to FinWise Bancorp, on a parent company-only basis, is as follows as of and for the years ended December 31, 2024 and 2023 :

Condensed Balance Sheets

($ in thousands) 2024 2023

Cash and cash equivalents $ 20,764 $ 28,510

Investment in subsidiary bank 122,055 100,276

Investment in Business Funding Group (BFG), at fair value 4,200 4,800

Investment in FinWise Investments, LLC 290 271

Investment in FinWise Bank 140,203 122,055

Investment in BFG, at fair value 7,700 4,200

Investment in FinWise Investment, LLC 290 290

Deferred taxes, net 32 188

3 unchanged sentences

Liabilities and shareholders' equity

Income taxes payable — 1,077

Other liabilities 414 1,056

1 unchanged sentence

Total liabilities and shareholders’ equity $ 174,134 $ 156,112

Statement of Income

For the Years Ended December 31,

Condensed Statements of Income

($ in thousands) 2024 2023

9 unchanged sentences

Total non-interest expense 6,822 6,190

Income before income tax expense 15,887 23,836

Income before income taxes 11,143 15,887

Income tax benefit ( 1,599 ) ( 1,574 )

Net income $ 12,742 $ 17,461

Statements of Cash Flows

For the Years Ended December 31,

Condensed Statements of Cash Flows

($ in thousands) 2024 2023

1 unchanged sentence

Net income $ 12,742 $ 17,461

Adjustments to reconcile net income to net cash from operating activities

Adjustments to reconcile net income to net cash provided by operating activities

Change in fair value of BFG 625 600

8 unchanged sentences

Investment in subsidiary bank ( 17,960 ) ( 21,992 )

Investment in FinWise Investments, LLC ( 19 ) ( 191 )

Investment in FinWise Investment, LLC — ( 19 )

Net cash used in investing activities ( 17,960 ) ( 22,011 )

6 unchanged sentences

Cash and cash equivalents, end of year $ 20,764 $ 28,510

Note 19 – Subsequent Events

Subsequent events are events or transactions that occur after the date of the most recent balance sheet but before the financial statements are available to be issued.

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

The Company’s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the date of the balance sheet and before the financial statements are available to be issued.

The Company has evaluated subsequent events through March 25, 2024 , which is the date the consolidated financial statements are available to be issued.

On March 7, 2024, the Company announced that its Board of Directors (the “Board”) has authorized, effective March 6, 2024, a common stock repurchase program to purchase up to 641,832 shares of the Company’s common stock in the aggregate.

The repurchase program expires on March 31, 2026, but may be limited or terminated at any time without prior notice.

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

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.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data