Finwise Bancorp

Previous wording

The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated and should be read together with our consolidated financial statements and related notes thereto and the 2024 Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. Factors that could cause such differences are discussed in the sections of this Report and our most recently filed 2024 Form 10-K entitled “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this Report. We assume no obligation to update any of these forward-looking statements except to the extent required by law.

Current wording

The following discussion and analysis is intended as a review and summary of significant factors affecting our financial condition and results of operations for the periods indicated and should be read together with our consolidated audited financial statements and related notes thereto included in the 2024 Form 10-K and our unaudited consolidated financial statements included in Part I, Item 1 of this Report . In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. Factors that could cause such differences are discussed in the sections of this Report and our 2024 Form 10-K entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this Report. We assume no obligation to update any of these forward-looking statements except to the extent required by law.

Previous wording

There have been no material changes during the three months ended March 31, 2025 to the methods we used and judgments we made relating to critical accounting estimates from those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2024 Form 10-K.

Current wording

There have been no material changes during the six months ended June 30, 2025 to the methods we used and judgments we made relating to critical accounting estimates from those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2024 Form 10-K.

Previous wording

Our banking business offers a diverse range of commercial and retail banking products and services, and consists primarily of originating loans in a variety of sectors. While our commercial and residential real estate lending and other products and services offered from our branch continue to be concentrated in and around the Salt Lake City, Utah MSA, our third-party loan origination relationships have allowed us to expand into new markets across the United States. These relationships were developed to support our ability to generate significant loan volume across diverse consumer and commercial markets and have been the primary source of our significant growth and our consistent ability to operate profitability since developing the third-party loan origination business.

Current wording

Our banking business offers a diverse range of commercial and retail banking products and services, and consists primarily of originating loans in a variety of sectors. While our commercial and residential real estate lending and other products and services offered from our branch continue to be concentrated in and around the Salt Lake City, Utah MSA, our third-party loan origination relationships have allowed us to expand into new markets across the United States. These relationships were developed to support our ability to generate significant loan volume across diverse consumer and commercial markets and have been the primary source of our growth and our consistent ability to operate profitability since developing the third-party loan origination business.

Previous wording

by using our strategic relationships with third-party loan origination platforms to earn interest and non-interest income. We focus on four main lending areas: (i) SBA 7(a) loans, (ii) Strategic Programs, (iii) residential and commercial real estate and (iv) commercial leasing. For a description and analysis of our loan categories, see “Financial Condition.”

Current wording

Our financial condition and results of operations depend primarily on our ability to originate loans and leases directly, or by using our strategic relationships with third-party loan origination platforms, to earn interest and non-interest income. We focus on four main lending areas: (i) SBA 7(a) loans, (ii) Strategic Programs, (iii) residential and commercial real estate and (iv) commercial leasing. For a description and analysis of our loan categories, see “Financial Condition.”

Previous wording

•For the three months ended March 31, 2025, originations increased to $1.3 billion from $1.1 billion when compared to the three months ended March 31, 2024. New Strategic Programs and organic growth through existing programs contributed to the increase in loan originations.

Current wording

•For the three months ended June 30, 2025, originations increased to $1.5 billion from $1.2 billion when compared to the three months ended June 30, 2024. For the six months ended June 30, 2025, originations increased to $2.7 billion from $2.3 billion when compared to the six months ended June 30, 2024. New Strategic Programs and organic growth through existing programs contributed to the increase in loan originations.

Previous wording

•Net interest margin (“NIM”) was 8.27% for the three months ended March 31, 2025, compared to 10.12% for the three months ended March 31, 2024. NIM is impacted by income earned from interest-earning assets and interest costs incurred on interest-bearing liabilities.

Current wording

•Net interest margin (“NIM”) was 7.81% for the three months ended June 30, 2025, compared to 10.31% for the three months ended June 30, 2024. NIM was 8.03% for the six months ended June 30, 2025, compared to 10.19% for the six months ended June 30, 2024. NIM is impacted by income earned from interest-earning assets and interest costs incurred on interest-bearing liabilities.

Previous wording

•FinWise generated $3.2 million and $3.3 million of net income for the three months ended March 31, 2025 and 2024, respectively. Net income declined as FinWise invested in expansion of its product offerings and supporting business infrastructure.

Current wording

•FinWise generated $4.1 million and $3.2 million of net income for the three months ended June 30, 2025 and 2024, respectively, and $7.3 million and $6.5 million of net income for the six months ended June 30, 2025 and 2024, respectively. Net income increased as FinWise invested in expansion of its product offerings and supporting business infrastructure.

Previous wording

•Total assets increased by $58.2 million to $804.1 million as of March 31, 2025 compared to December 31, 2024, principally in loans and investment securities. We believe our strong capital levels support our current and planned growth strategy.

Current wording

•Total assets increased by $96.5 million to $842.5 million as of June 30, 2025 compared to December 31, 2024, principally in loans and investment securities. We believe our strong capital levels support our current and planned growth strategy.

Previous wording

Net interest income increased for the three months ended March 31, 2025, compared to the same period in 2024 primarily due to an increase in average interest-earning assets of $143.7 million, partially offset by lower yields on interest-earning assets and an increase in the average interest-bearing liabilities of $119.6 million.

Current wording

Net interest income increased for the three months ended June 30, 2025, compared to the same period in 2024 primarily due to an increase in average interest-earning assets of $186.3 million, partially offset by lower yields on interest-earning assets, an increase in the average interest-bearing liabilities of $174.6 million and an increase in interest reversed on loans migrating to nonaccrual status.

Previous wording

NIM decreased to 8.27% for the three months ended March 31, 2025 from 10.12% for the three months ended March 31, 2024 primarily attributable to the repricing of our variable rate loan portfolio as interest rates have declined, and our strategy to reduce the average credit risk in the loan portfolio by increasing our investment in higher quality but lower yielding loans partially offset by a reduction in the costs of funds.

Current wording

NIM decreased to 7.81% for the three months ended June 30, 2025 from 10.31% for the three months ended June 30, 2024 and decreased to 8.03% for the six months ended June 30, 2025 from 10.19% for the six months ended June 30, 2024 primarily attributable to the repricing of our variable rate loan portfolio as interest rates have declined during the period, our strategy to reduce the average credit risk in the loan portfolio by increasing our investment in higher quality but lower yielding loans and an increase in interest reversed on loans migrating to nonaccrual status.

Previous wording

1 Loans placed on nonaccrual status are included in loan balances.

Current wording

1 Loans placed on nonaccrual status are included in loan balances. See “Nonperforming Assets” below.

Previous wording

The increase in our provision for credit losses for the three months ended March 31, 2025, compared to the same period in 2024, was primarily due to growth in the loans held-for-investment portfolio.

Current wording

The increase in our provision for credit losses for the three and six months ended June 30, 2025, compared to the same periods in 2024, resulted primarily from growth of the Strategic Program loans held-for-investment, including credit enhanced loans, and owner occupied commercial real estate and higher net charge-offs offset in part by a change in qualitative factors for certain low risk segments of the owner occupied commercial real estate portfolio..

Previous wording

The following tables present, for the periods indicated, the major categories of non-interest income:

Current wording

The following tables present the major categories of non-interest income for the periods indicated:

Previous wording

The following tables present, for the periods indicated, the major categories of non-interest expense:

Current wording

The following tables present the major categories of non-interest expense for the periods indicated:

Previous wording

The increase in total non-interest expense for the three months ended March 31, 2025, compared to the same period in 2024, was primarily due to an increase in salaries and employee benefits from increased headcount and stock based compensation expense and other operating expenses driven primarily by increased spending to support the growth in our business infrastructure.

Current wording

The increase in total non-interest expense for the three months ended June 30, 2025, compared to the same period in 2024, was primarily due to an increase in salaries and employee benefits mainly resulting from increased headcount in the first half of 2024, annual compensation adjustments, and amortization of deferred compensation awards.

Previous wording

Our provision for income taxes for the three months ended March 31, 2025 and 2024 resulted in an effective income tax rate of 28.1% and 26.5%, respectively. The effective tax rate differed from the federal statutory rate of 21.0% for the three months ended March 31, 2025 due primarily to state income taxes due states in which FinWise operates and estimated permanent differences related to officer compensation.

Current wording

Our provision for income taxes for the three and six months ended June 30, 2025 and 2024 resulted in an effective income tax rate of 24.5%, 23.9%, 26.1% and 25.2%, respectively. The effective tax rate differed from the federal statutory rate of 21.0% for the three and six months ended June 30, 2025 due primarily to state income tax provisions and higher estimated disallowed compensation estimates.

Previous wording

The changes in net income for the three months ended March 31, 2025, compared to the same period in 2024, were primarily the result of the factors discussed above.

Current wording

The changes in net income for the three and six months ended June 30, 2025, compared to the same periods in 2024, were primarily the result of the factors discussed above.

Previous wording

The increase in interest-bearing deposits in other banks from December 31, 2024 to March 31, 2025, was primarily due to an increase in brokered time deposit balances. Aside from minimal balances held with our correspondent banks, the majority of our interest-bearing deposits are at the Federal Reserve.

Current wording

The decrease in interest-bearing deposits in other banks from December 31, 2024 to June 30, 2025, was primarily due to funding our Strategic Program loans held-for-sale portfolio. Aside from minimal balances held with our correspondent banks, the majority of our interest-bearing deposits are held at the Federal Reserve.

Previous wording

We classify investment securities as either held-to-maturity or available-for-sale based on our intentions and our ability to hold such securities until maturity. In determining such classifications, securities that we have the positive intent and the ability to hold until maturity are classified as held-to-maturity and carried at amortized cost. All other securities are designated as available-for-sale and carried at estimated fair value with unrealized gains and losses included in shareholders’ equity on an after-tax basis.

Current wording

We classify investment securities as either held-to-maturity or available-for-sale based on our intentions and our ability to hold such securities until maturity. In determining such classifications, securities that we have the intent and the ability to hold until maturity are classified as held-to-maturity and carried at amortized cost. All other securities are designated as available-for-sale and carried at estimated fair value with unrealized gains and losses included in shareholders’ equity on an after-tax basis.

Previous wording

There were no calls, sales or maturities of securities during the three months ended March 31, 2025 and 2024.

Current wording

There were no calls, sales or maturities of securities during the six months ended June 30, 2025 and 2024.

Previous wording

At March 31, 2025, we had a total of eighteen securities in an unrealized loss position, consisting of eight collateralized mortgage obligations and ten mortgage-backed securities. At December 31, 2024, we had a total of twenty-two securities in an unrealized loss position, consisting of four U.S. Treasuries, eight collateralized mortgage obligations and ten mortgage-backed securities.

Current wording

At June 30, 2025, we had a total of nineteen securities in an unrealized loss position, consisting of one U.S. Treasury, eight collateralized mortgage obligations and ten mortgage-backed securities. At December 31, 2024, we had a total of twenty-two securities in an unrealized loss position, consisting of four U.S. Treasuries, eight collateralized mortgage obligations and ten mortgage-backed securities.

Previous wording

We, through our Strategic Program service providers, issue, on a nationwide basis, unsecured and secured consumer and business loans to borrowers within certain approved credit profiles. Loans originated through these programs are limited to predetermined Bank underwriting criteria, which has been approved by our board of directors. We generally retain the loans and/or receivables for a number of business days after origination before selling the loans and/or receivables to the Strategic Program provider or another investor. Interest income is earned by us 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.

Current wording

We, through our Strategic Program service providers, offer unsecured and secured consumer and business loans to borrowers within certain approved credit profiles nationwide. Loans originated through these programs are limited to predetermined Bank underwriting criteria, which has been approved by our board of directors. We generally retain the loans and/or receivables for a number of business days after origination before selling the loans and/or receivables to the Strategic Program provider or another investor. Interest income is earned by us 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.

Previous wording

Our Strategic Program loans held-for-sale increased $27.2 million as of March 31, 2025 compared to December 31, 2024, primarily as a result of greater hold periods for new originations for certain programs.

Current wording

Our Strategic Program loans held-for-sale increased $55.7 million as of June 30, 2025 compared to December 31, 2024, primarily as a result of greater hold periods for new originations for certain programs.

Previous wording

(1)SBA loans as of March 31, 2025 and December 31, 2024 include $150.0 million and $158.7 million, respectively, of SBA 7(a) loan balances that are guaranteed by the SBA.

Current wording

(1)SBA loans as of June 30, 2025 and December 31, 2024 include $144.3 million and $158.7 million, respectively, of SBA 7(a) loan balances that are guaranteed by the SBA.

Previous wording

We manage our loan portfolio based on factors that include concentrations per loan program and aggregated portfolio, industry of operation and geographies. We also monitor the impact of identified and estimated losses on capital as well as the pricing characteristics of each product. The following provides a general description and the risk characteristics relevant to each of the products. Each loan is assigned a risk grade during the origination and closing process by credit administration personnel based on criteria described later in this section. We analyze the resulting ratings, as well as other external statistics and factors such as delinquency, to track the migration performance of the portfolio balances. This ratings analysis is performed at least quarterly.

Current wording

We manage our loan portfolio based on factors that include concentrations per loan program and aggregated portfolio, industry of operation and geographies. We also monitor the impact of identified and estimated losses on capital as well as the pricing characteristics of each product. The following provides a general description and the risk characteristics relevant to each of our loan products. Each loan is assigned a risk grade during the origination and closing process by credit administration personnel based on criteria described later in this section. We analyze the resulting ratings, as well as other external statistics and factors such as delinquency, to track the migration performance of the portfolio balances. This ratings analysis is performed at least quarterly.

Previous wording

We originate and service loans partially guaranteed by the SBA under its Section 7(a) loan program for small businesses and professionals throughout the USA. Through our diversification efforts, we have built an SBA 7(a) portfolio that we believe positions us to better withstand economic shifts. For example, we focus on industries such as non-store retailers (e-commerce), ambulatory healthcare services, professional, scientific and technical services (including law firms), and merchant wholesalers.

Current wording

We originate and service loans partially guaranteed by the SBA under its Section 7(a) loan program for small businesses and professionals throughout the United States. Through our diversification efforts, we have built an SBA 7(a) portfolio that we believe positions us to better withstand economic shifts. For example, we focus on industries such as non-store retailers (e-commerce), ambulatory healthcare services, professional, scientific and technical services (including law firms), and merchant wholesalers.

Previous wording

As of March 31, 2025 and December 31, 2024, we had total SBA 7(a) loans of $246.0 million and $255.1 million, respectively, representing 50.0% and 54.8% of our total loans held-for-investment, respectively. Loans are sourced primarily through our referral relationship with BFG. Although BFG actively markets throughout the USA, because of its physical location in the New York area we have developed a lending presence in the New York and New Jersey geographies. The maximum SBA 7(a) loan amount is $5 million. Underwriting is generally based on commercial credit metrics where the primary repayment source is borrower cash flow, secondary is personal guarantor cash flow and tertiary is the sale of collateral pledged. These loans may be secured by commercial and residential mortgages as well as liens on business assets. In addition to typical underwriting metrics, we review the nature of the business, use of proceeds, length of time in business and management experience to help us target loans that we believe have lower credit risk. The SBA 7(a) program generally provides 50%, 75%, 85% and 90% guarantees for eligible SBA 7(a) loans. The guaranty is conditional and covers a portion of the risk of payment default by the borrower, but not the risk of improper underwriting, closing or servicing by the lender. As such, prudent underwriting, closing and servicing processes are essential to effective utilization of the SBA 7(a) program. Historically, we have generally sold the SBA-guaranteed portion (typically 75% of the principal balance) of a majority of the loans we originate at a premium in the secondary market while retaining all servicing rights and the unguaranteed portion; however, beginning in 2020, we made the decision to drive interest income by retaining a larger amount of the guaranteed portion of these loans. In light of suppressed gain-on-sale premiums and increasing variable loan rates during 2023, we retained on our balance sheet a greater percentage of the guaranteed portion of certain SBA loans that we originated than we have historically, which we believe will benefit us through stronger government guaranteed held-for-investment loan growth and an increased recurring stream of interest income and partially offset the decline in gain-on-sale revenue. During the third quarter of 2024 and considering the wider spreads on sale of SBA loans available, FinWise restarted selling limited amounts of SBA loans.

Current wording

As of June 30, 2025 and December 31, 2024, we had total SBA 7(a) loans of $246.9 million and $255.1 million, respectively, representing 46.6% and 54.8% of our total loans held-for-investment, respectively. Loans are sourced primarily through our referral relationship with BFG. Although BFG actively markets throughout the United States, we have developed a lending presence in the New York and New Jersey geographies due to its physical location in New York. The maximum SBA 7(a) loan amount is $5 million. Underwriting is generally based on commercial credit metrics where the primary repayment source is borrower cash flow, secondary is personal guarantor cash flow and tertiary is the sale of collateral pledged. These loans may be secured by commercial and residential mortgages as well as liens on business assets. In addition to typical underwriting metrics, we review the nature of the business, use of proceeds, length of time in business and management experience to help us target loans that we believe have lower credit risk. The SBA 7(a) program generally provides 50%, 75%, 85% and 90% guarantees for eligible SBA 7(a) loans. The guaranty is conditional and covers a portion of the risk of payment default by the borrower, but not the risk of improper underwriting, closing or servicing by the lender. As such, prudent underwriting, closing and servicing processes are essential to effective utilization of the SBA 7(a) program. Historically, we have generally sold the SBA-guaranteed portion (typically 75% of the principal balance) of a majority of the loans we originate at a premium in the secondary market while retaining all servicing rights and the unguaranteed portion; however, beginning in 2020, we made the decision to drive interest income by retaining a larger amount of the guaranteed portion of these loans. In light of suppressed gain-on-sale premiums and increasing variable loan rates during 2023, we retained on our balance sheet a greater percentage of the guaranteed portion of certain SBA loans that we originated than we have historically, which we believe will benefit us through stronger government guaranteed held-for-investment loan growth and an increased recurring stream of interest income and partially offset the decline in gain-on-sale revenue. During the third quarter of 2024 and considering the wider spreads on sale of SBA loans available, FinWise resumed selling limited amounts of SBA loans.

Previous wording

As of March 31, 2025 and December 31, 2024, we had total commercial leases of $76.8 million and $70.2 million, respectively, representing 15.6% and 15.1% of our total loans held-for-investment, respectively. Underwriting for smaller credit requests from customers is generally based on an internal credit scorecard, incorporating several customer and structure attributes including: severity and aging of delinquency; number of credit inquiries; LTV ratio; term; and payment-to-income ratio. We periodically update our underwriting scorecard, which can have an impact on our credit tier scoring. Underwriting for larger credit requests from customers is generally based on commercial credit metrics where the primary repayment source considered is borrower cash flow, secondary is personal guarantor cash flow (when applicable) and tertiary is the sale of collateral pledged. The nature of the business, use of proceeds, length of time in business, management experience, repayment ability, credit history, ratio calculations and assessment of collateral adequacy are also considerations. These leases are generally secured by liens on business assets leased or purchased with Company funds. Historically, we have retained these leases on our balance sheet for investment; however, we may sell leases to certain purchasers from time to time.

Current wording

As of June 30, 2025 and December 31, 2024, we had total commercial leases of $89.0 million and $70.2 million, respectively, representing 16.8% and 15.1% of our total loans held-for-investment, respectively. Underwriting for smaller credit requests from customers is generally based on an internal credit scorecard, incorporating several customer and structure attributes including: severity and aging of delinquency; number of credit inquiries; loan-to-value ratio; term; and payment-to-income ratio. We periodically update our underwriting scorecard, which can have an impact on our credit tier scoring. Underwriting for larger credit requests from customers is generally based on commercial credit metrics where the primary repayment source considered is borrower cash flow, secondary is personal guarantor cash flow (when applicable) and tertiary is the sale of collateral pledged. The nature of the business, use of proceeds, length of time in business, management experience, repayment ability, credit history, ratio calculations and assessment of collateral adequacy are also underwriting considerations. These leases are generally secured by liens on business assets leased or purchased with Company funds. Historically, we have retained these leases on our balance sheet for investment; however, we may sell leases to certain purchasers from time to time.

Previous wording

Commercial non-real estate loans consist of loans and leases made to commercial enterprises that are not secured by real estate. As of March 31, 2025 and December 31, 2024, we had total commercial non-real estate loans of $3.5 million and $3.7 million, respectively, representing 0.7% and 0.8% of our total loans held-for-investment, respectively. Any loan, lease, line of credit, or letter of credit (including any unfunded commitments) and any interest obtained in such loans made by another lender to individuals, sole proprietorships, partnerships, corporations, or other business enterprises for commercial, industrial, agricultural, or professional purposes, not secured by real estate, but not for personal expenditure purposes are included in this category. For example, commercial vehicle term loans and commercial working capital term loans. Underwriting is generally based on commercial credit metrics where the primary repayment source is borrower cash flow, secondary is personal guarantor cash flow (when applicable) and tertiary is the sale of collateral pledged. The nature of the business, use of proceeds, length of time in business, management experience, repayment ability, credit history, ratio calculations and assessment of collateral adequacy are all considerations. These loans are generally secured by liens on business assets. Historically, we have retained these loans on our balance sheet for investment.

Current wording

Commercial non-real estate loans consist of loans and leases made to commercial enterprises that are not secured by real estate. As of June 30, 2025 and December 31, 2024, we had total commercial non-real estate loans of $5.5 million and $3.7 million, respectively, representing 1.0% and 0.8% of our total loans held-for-investment, respectively. Any loan, lease, line of credit, or letter of credit (including any unfunded commitments) and any interest obtained in such loans made by another lender to individuals, sole proprietorships, partnerships, corporations, or other business enterprises for commercial, industrial, agricultural, or professional purposes, not secured by real estate, but not for personal expenditure purposes are included in this category. For example, commercial vehicle term loans and commercial working capital term loans are included in this product loan category. Underwriting is generally based on commercial credit metrics where the primary repayment source is borrower cash flow, secondary is personal guarantor cash flow (when applicable) and tertiary is the sale of collateral pledged. The nature of the business, use of proceeds, length of time in business, management experience, repayment ability, credit history, ratio calculations and assessment of collateral adequacy are all considerations. These loans are generally secured by liens on business assets. Historically, we have retained these loans on our balance sheet for investment.

Previous wording

Residential real estate loans include construction, lot and land development loans that are for the purpose of acquisition and development of property to be improved through the construction of residential buildings, and loans secured by other residential real estate. As of March 31, 2025 and December 31, 2024, we had total residential real estate loans of $55.8 million and $51.6 million, respectively, representing 11.3% and 11.1% of our total loans held-for-investment, respectively. Construction loans are usually paid off through the conversion to permanent financing from third-party lending institutions. Lot loans may be paid off as the borrower converts to a construction loan. At the completion of the construction project, if the loan is converted to permanent financing by us or if scheduled loan amortization begins, it is then reclassified from construction to single-family dwelling. Underwriting of construction and development loans typically includes analysis of not only the borrower’s financial condition and ability to meet the required debt obligations, but also the general market conditions associated with the area and type of project being funded. These loans are generally secured by mortgages for residential property located primarily in the Salt Lake City, Utah MSA, and we obtain guarantees from responsible parties. Historically, we have retained these loans on our balance sheet for investment.

Current wording

Residential real estate loans include construction, lot and land development loans that are for the purpose of acquisition and development of property to be improved through the construction of residential buildings, and loans secured by other residential real estate. As of June 30, 2025 and December 31, 2024, we had total residential real estate loans of $54.1 million and $51.6 million, respectively, representing 10.2% and 11.1% of our total loans held-for-investment, respectively. Construction loans are usually paid off through the conversion to permanent financing from third-party lending institutions. Lot loans may be paid off as the borrower converts to a construction loan. At the completion of the construction project, if the loan is converted to permanent financing by us or if scheduled loan amortization begins, it is then reclassified from construction to single-family dwelling. Underwriting of construction and development loans typically includes analysis of the general market conditions associated with the area and type of project being funded in addition to the borrower’s financial condition and ability to meet the required debt obligation. These loans are generally secured by mortgages for residential property located primarily in the Salt Lake City, Utah MSA, and we obtain guarantees from responsible parties. Historically, we have retained these loans on our consolidated balance sheets for investment.

Previous wording

We, through our Strategic Program service providers, issue, on a nationwide basis, unsecured and secured consumer and business loans to borrowers within certain approved credit profiles. Although we have generally sold most of these loans, we may choose to hold more of the funded loans and/or receivables based on a number of factors including the amount of our available capital. As of March 31, 2025 and December 31, 2024, we had total Strategic Program loans held-for-investment of $19.9 million and $20.1 million, respectively, representing 4.1% and 4.3% of our total loans held-for-investment, respectively. Loans originated through these programs are limited to predetermined Bank underwriting criteria, which has been approved by our board of directors. The primary form of repayment on these loans is from personal or business cash flow. Secured loans are secured by liens on consumer or business assets, as applicable. We reserve the right to sell any portion of funded loans and/or receivables directly to the Strategic Program service providers or other investors.

Current wording

Through our Strategic Program service providers, we issue unsecured and secured consumer and business loans to borrowers within certain approved credit profiles nationwide. Although we have generally sold most of these loans, we may choose to hold more of the funded loans and/or receivables based on a number of factors including the amount of our available capital. As of June 30, 2025 and December 31, 2024, we had total Strategic Program loans held-for-investment of $30.7 million and $20.1 million, respectively, representing 5.8% and 4.3% of our total loans held-for-investment, respectively. Credit enhanced loans, where the Strategic Program sponsoring fintech company retains the credit risk, totaled $11.7 million as of June 30, 2025 and $0.9 million as of December 31, 2024. Loans originated through the Strategic Program are limited to predetermined Bank underwriting criteria, which has been approved by our board of directors. The primary form of repayment on these loans is from the borrower’s personal or business cash flow. Secured loans are secured by liens on consumer or business assets, as applicable. We reserve the right to sell any portion of funded loans and/or receivables directly to the Strategic Program service providers or other investors. We generally retain the legal right to service all these loans, but contract with the Strategic Program service provider or another approved sub-servicer to service these loans on our behalf.

Previous wording

Commercial real estate loans include loans to individuals, sole proprietors, partnerships, corporations, or other business enterprises for commercial, industrial, agricultural, or professional purposes, secured by real estate, but not for personal expenditure purposes. As of March 31, 2025 and December 31, 2024, we had total commercial real estate loans of $67.3 million and $42.4 million, respectively, representing 13.7% and 9.1% of our total loans held-for-investment, respectively. Of these amounts, $65.9 million and $41.0 million represented owner occupied properties as of March 31, 2025 and December 31, 2024, respectively. Underwriting is generally based on commercial credit metrics where the primary repayment source is borrower cash flow, secondary is personal guarantor cash flow (when applicable) and tertiary is the sale of collateral pledged. The nature of the business, use of proceeds, length of time in business, management experience, repayment ability, credit history, ratio calculations and assessment of collateral adequacy are all considerations. In addition to real estate, these loans may also be secured by liens on business assets. Historically, we have retained these loans on our balance sheet for investment.

Current wording

Commercial real estate loans include loans to individuals, sole proprietors, partnerships, corporations, or other business enterprises for commercial, industrial, agricultural, or professional purposes, secured by real estate, but not for personal expenditure purposes. As of June 30, 2025 and December 31, 2024, we had total commercial real estate loans of $79.3 million and $42.4 million, respectively, representing 15.0% and 9.1% of our total loans held-for-investment, respectively. Of these amounts, $77.9 million and $41.0 million represented owner occupied properties as of June 30, 2025 and December 31, 2024, respectively. Underwriting is generally based on commercial credit metrics where the primary repayment source is borrower cash flow, secondary is personal guarantor cash flow (when applicable) and tertiary is the sale of collateral pledged. The nature of the business, use of proceeds, length of time in business, management experience, repayment ability, credit history, ratio calculations and assessment of collateral adequacy are all considerations. In addition to real estate, these loans may also be secured by liens on business assets. Historically, we have retained these loans on our balance sheet for investment.

Previous wording

Consumer lending provides financing for personal, family, or household purposes on a nationwide basis. Most of these loans are originated through our POS platform and come from a variety of sources, including other approved merchant or dealer relationships and lending platforms. As of March 31, 2025 and December 31, 2024, we had total consumer loans of $22.8 million and $22.2 million, respectively, representing 4.6% and 4.8% of our total loans held-for-investment, respectively. We use a debt-to-income (“DTI”) ratio to determine whether an applicant will be able to service the debt. The DTI ratio compares the applicant’s anticipated monthly expenses and total monthly obligations to the applicant’s monthly gross income. Our policy is to limit the DTI ratio to 45% after calculating interest payments related to the new loan. Loan officers, at their discretion, may make exceptions to this ratio if the loan is within their authorized lending limit. DTI ratios of no more than 50% may be approved subject to an increase in interest rate. Strong offsetting factors such as higher discretionary income or large down payments are used to justify exceptions to these guidelines. All exceptions are documented and reported. While the loans are generally for the purchase of goods which may afford us a purchase money security interest, they are underwritten as if they were unsecured. On larger loans, we may file a Uniform Commercial Code (“UCC”) financing form. Historically, we have retained these loans on our balance sheet for investment.

Current wording

Consumer lending provides financing for personal, family, or household purposes on a nationwide basis. Most of these loans are originated through our loan origination system platform and come from a variety of sources, including other approved merchant or dealer relationships and lending platforms. As of June 30, 2025 and December 31, 2024, we had total consumer loans of $24.6 million and $22.2 million, respectively, representing 4.6% and 4.8% of our total loans held-for-investment, respectively. We use a debt-to-income (“DTI”) ratio test to determine whether an applicant will be able to service the debt. The DTI ratio compares the applicant’s anticipated monthly expenses and total monthly obligations to the applicant’s monthly gross income. Our policy is to limit the DTI ratio to 45% after calculating interest payments related to the new loan. Loan officers, at their discretion, may make exceptions to this ratio if the loan is within their authorized lending limit. DTI ratios of no more than 50% may be approved subject to an increase in interest rate. Strong offsetting factors such as higher discretionary income or large down payments are used to justify exceptions to these guidelines. All exceptions are documented and reported. While the loans are generally for the purchase of goods which may afford us a purchase money security interest, these loans are underwritten as if they were unsecured. On larger loans, we may file a Uniform Commercial Code (“UCC”) financing form. Historically, we have retained these loans on our balance sheet for investment.

Previous wording

We had a total of $29.9 million in nonperforming assets, which included $0.5 million in material loan modifications at March 31, 2025. The amount of nonperforming assets as of March 31, 2025 includes $15.1 million of SBA 7(a) loan balances that are guaranteed by the SBA. We had $36.5 million in nonperforming assets which included $0.8 million in material loan modifications at December 31, 2024. The amount of nonperforming assets as of December 31, 2024 includes $19.2 million of SBA 7(a) loan balances that are guaranteed by the SBA. The decrease in nonperforming assets and material loan modifications from year-end was primarily attributable to the resolution of two loans offset in part by the migration of several smaller loans in the SBA 7(a) loan portfolio to nonperforming status. Due to elevated interest rates, the slowdown of consumer spending and the variable rate nature of our SBA portfolio, the risk of default is elevated and may result in additional delinquencies in future periods.

Current wording

We had a total of $39.7 million in nonperforming assets, which included $0.5 million in material loan modifications at June 30, 2025. The amount of nonperforming assets as of June 30, 2025 includes $21.2 million of SBA 7(a) loan balances that are guaranteed by the SBA. We had $36.5 million in nonperforming assets which included $0.8 million in material loan modifications at December 31, 2024. The amount of nonperforming assets as of December 31, 2024 includes $19.2 million of SBA 7(a) loan balances that are guaranteed by the SBA. The decrease in nonperforming assets and material loan modifications from year-end was primarily attributable to the resolution of two loans offset in part by the migration of several smaller loans in the SBA 7(a) loan portfolio to nonperforming status. Due to elevated interest rates, the slowdown of consumer spending and the variable rate nature of our SBA portfolio, the risk of default has become and continues to be elevated and may result in additional delinquencies in future periods.

Previous wording

We believe that we underwrite loans carefully and thoroughly, limiting our lending activities to those products and services where we have the resources and expertise to lend profitably without undue credit risk. We require all loans to conform to policy (or otherwise be identified as exceptions to policy and monitored and reported on, at minimum, quarterly) and be granted on a sound basis. Loans are made with a primary emphasis on loan profitability, credit risk and concentration exposures.

Current wording

We believe that we underwrite loans carefully and thoroughly, limiting our lending activities to those products and services where we have the resources and expertise to lend profitably without undue credit risk. We require all loans to conform to our underwriting policies (or otherwise be identified as exceptions to policy and monitored and reported on, at minimum, quarterly) and be granted on a sound basis. Loans are made with a primary emphasis on loan profitability, credit risk and concentration exposures.

Previous wording

We are proactive in our approach to identifying and resolving problem loans and are focused on working with the borrowers and guarantors of problem loans to provide loan modifications when warranted. When considering how to best diversify our loan portfolio, we consider several factors including our aggregate and product-line specific concentration risks, our business line expertise, and the ability of our infrastructure to appropriately support the product. While certain product lines generate higher net charge-offs, our exposure is carefully monitored and mitigated by our concentration policies and reserved for by the loan loss allowance we maintain. Specifically, retention of certain Strategic Program loans with higher default rates accounts for a disproportionate amount of our charge-offs. In addition to our oversight of the credit policies and processes associated with these programs, we limit within our concentration policies the aggregate exposure of these loans as a percentage of the total loan portfolio, carefully monitor certain vintage loss-indicative factors such as first payment default and marketing channels, and appropriately provision for these balances so that the cumulative charge-off rates remain consistent with management expectations. While the level of nonperforming assets fluctuates in response to changing economic and market conditions, the relative size and composition of the loan portfolio, and our management’s degree of success in resolving problem assets, we believe our proactive stance to early identification and intervention is the key to successfully managing our loan portfolio.

Current wording

We are proactive in our approach to identifying and resolving problem loans and are focused on working with the borrowers and guarantors of problem loans to provide loan modifications when warranted. When considering how to best diversify our loan portfolio, we consider several factors including our aggregate and product-line specific concentration risks, our business line expertise, and the ability of our infrastructure to appropriately support the product. While certain product lines generate higher net charge-offs, our exposure is carefully monitored and mitigated by our concentration policies and reserved for by the credit loss allowance we maintain. Specifically, retention of certain Strategic Program loans with higher default rates accounts for a disproportionate amount of our charge-offs. In addition to our oversight of the credit policies and processes associated with these programs, we limit within our concentration policies the aggregate exposure of these loans as a percentage of the total loan portfolio, carefully monitor certain vintage loss-indicative factors such as first payment default and marketing channels, and appropriately provision for these balances so that the cumulative charge-off rates remain consistent with management expectations. While the level of nonperforming assets fluctuates in response to changing economic and market conditions, the relative size and composition of the loan portfolio, and our management’s degree of success in resolving problem assets, we believe our proactive stance to early identification and intervention is the key to successfully managing our loan portfolio.

Previous wording

Accurate and timely loan risk grading is considered a critical component of an effective credit risk management system. Loan grades take into consideration the borrower’s financial condition, industry trends, and the economic environment. Loan risk grades are changed as necessary to reflect the risk inherent in the loan. Among other things, we use loan risk grading information for loan pricing, risk and collection management and determining credit loss reserve adequacy. Further, on a quarterly basis, the Loan Committee holds a Loan Risk Grade meeting, wherein all loans in our portfolio are reviewed for accurate risk grading. Any changes are made after the Loan Risk Grade meeting to provide for accurate reporting. Reporting is achieved in Loan Committee minutes, which minutes are reviewed by the Board. We supplement credit department supervision of the loan underwriting, approval, closing, servicing and risk grading process with periodic loan reviews by risk department personnel specific to the testing of controls.

Current wording

Accurate and timely loan risk grading is considered a critical component of an effective credit risk management system. Loan grades take into consideration the borrower’s financial condition, industry trends, and the economic environment. Loan risk grades are changed as necessary to reflect the risk inherent in the loan. Among other things, we use loan risk grading information for loan pricing, risk and collection management and determining credit loss reserve adequacy. Further, on a quarterly basis, the Loan Committee holds a Loan Risk Grade meeting to review all loans in our portfolio for accurate risk grading. Any required changes to the loan risk grading are made after the Loan Risk Grade meeting to provide for accurate reporting. Reporting is achieved in Loan Committee minutes, which minutes are reviewed by the Board. We supplement credit department supervision of the loan underwriting, approval, closing, servicing and risk grading process with periodic loan reviews by risk department personnel specific to the testing of controls.

Previous wording

We use a grading system to rank the quality of each loan. The grade is periodically evaluated and adjusted as performance dictates. Internal loan grades are based on current financial information, historical payment experience, and credit documentation, among other factors. The following guidelines govern the assignment of these risk grades. We do not currently grade Strategic Program loans held-for-investment due to their small balances and homogenous nature. As credit quality for Strategic Program loans have been highly correlated with delinquency levels, the Strategic Program loans are evaluated collectively for impairment.

Current wording

We use a grading system to rank the quality of each loan. The grade is periodically evaluated and adjusted as performance dictates. Internal loan grades are based on current financial information, historical payment experience, and credit documentation, among other factors. The following guidelines govern the assignment of these risk grades. We do not currently grade Strategic Program loans held-for-investment due to their small balances and similar characteristics. As credit quality for Strategic Program loans have been highly correlated with delinquency levels, the Strategic Program loans are evaluated collectively for impairment.

Previous wording

The following tables show the allocation of the ACL as of March 31, 2025 and December 31, 2024. The ACL related to Strategic Programs constitutes 43.3% and 47.8% of the total ACL while comprising 4.1% and 4.3%, respectively, of total loans held-for-investment as of March 31, 2025 and December 31, 2024, respectively. The percentage of ACL related to Strategic Program loans retained reflects the increased credit risks associated with certain retained Strategic Program loans.

Current wording

The following table shows the allocation of the ACL and the percentage of loans in each category to total loans as of June 30, 2025 and December 31, 2024. The ACL related to Strategic Programs constitutes 53.5% and 47.8% of the total ACL while comprising 5.8% and 4.3%, respectively, of total loans held-for-investment as of June 30, 2025 and December 31, 2024, respectively. The percentage of ACL related to Strategic Program loans retained reflects the increased credit risks associated with certain retained Strategic Program loans.

Previous wording

When comparing March 31, 2025 to December 31, 2024, the decrease in ACL to total loans held-for-investment was primarily due to the reduction in Strategic Program loans held-for-investment. The decrease in nonaccrual loans to total loans held-for-investment as shown above was primarily due to the growth in the loans held-for-investment portfolio. The decrease in the ACL to nonaccrual loans ratio as shown above primarily pertained to growth in the nonaccrual loans concentrated in the SBA product which has a lower risk profile than the Strategic Program loans.

Current wording

When comparing June 30, 2025 to December 31, 2024, the increase in ACL to total loans held-for-investment was primarily due to the growth in the credit enhanced loans included in the Strategic Program loans held-for-investment. The decrease in nonaccrual loans to total loans held-for-investment as shown above was primarily due to the growth in the loans held-for-investment portfolio. The increase in the ACL to nonaccrual loans ratio as shown above primarily pertained to growth in the credit enhanced loans included in the Strategic Program loans held-for-investment offset in part by the increase in nonaccrual loans, concentrated in the SBA product.