Bancorp, Inc. (TBBK) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides information about the Company’s results of operations, financial condition, liquidity and asset quality and provides comparisons between our results of operations for fiscal years 2024 and 2023. For discussion and comparison of fiscal years 2023 and 2022, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 29, 2024. This information is intended to

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facilitate your understanding and assessment of significant changes and trends related to our financial condition and results of operations. This MD&A should be read in conjunction with the audited interim consolidated financial statements and notes thereto contained in this Annual Report on Form 10-K.

Overview

The Bancorp’s balance sheet has a risk profile enhanced by the special nature of the collateral supporting its loan niches, and related underwriting. Those loan niches have contributed to increased earnings levels, even during periods in which markets have experienced various economic stresses. Real estate bridge lending is comprised of workforce housing which we consider to be working class apartments at more affordable rental rates, in selected states. We believe that underwriting requirements provide significant protection against loss, as supported by loan-to-value (“LTV”) ratios based on third-party appraisals. SBLOC and IBLOC loans are collateralized by marketable securities and the cash value of life insurance, respectively, while SBA loans are either SBA 7(a) loans that come with significant government-related guarantees, or SBA 504 loans that are made at 50-60% LTVs. Additional detail with respect to these loan portfolios is included in the related tables in “Financial Condition.” In 2024, we began originating consumer fintech loans, which are short-term loans made with the assistance of third party marketers and servicers. We believe that the nature of certain such loans, such as credit cards secured by deposits, or other aspects of these lending programs, also enhance their risk profile. The earnings impact of our payment businesses also positively impact our risk profile.

Nature of Operations

We are a Delaware financial holding company and our primary, wholly-owned subsidiary is The Bancorp Bank, National Association. The vast majority of our revenue and income is currently generated through the Bank. In our continuing operations, we have five primary lines of specialty lending in our national specialty finance segment:

SBLOC, IBLOC, and investment advisor financing;

leasing (direct lease financing);

SBLs, primarily SBA loans,

non-SBA commercial real estate bridge loans; and

consumer fintech lending.

SBLOCs and IBLOCs are loans that are generated through affinity groups and are respectively collateralized by marketable securities and the cash value of insurance policies. SBLOCs are typically offered in conjunction with brokerage accounts and are offered nationally. IBLOC loans are typically viewed as an alternative to standard policy loans from insurance companies and are utilized by our existing advisor base as well as insurance agents throughout the country. Investment advisor financing are loans made to investment advisors for purposes of debt refinance, acquisition of another investment firm or internal succession. Vehicle fleet and, to a lesser extent, other equipment leases are generated in a number of Atlantic Coast and other states and are collateralized primarily by vehicles. SBA loans are generated nationally and are collateralized by commercial properties and other types of collateral. Our non-SBA commercial real estate bridge loans, at fair value, are primarily collateralized by multifamily properties (apartment buildings), and to a lesser extent, by hotel and retail properties. These loans were originally generated for sale through securitizations. In 2020, we decided to retain these loans on our balance sheet as interest-earning assets and resumed originating such loans in the third quarter of 2021. These new originations are identified as real estate bridge loans, consist of apartment building loans, and are held for investment in the loan portfolio. Prior originations originally intended for securitizations continue to be accounted for at fair value, and are included on the balance sheet in “Commercial loans, at fair value.”

In the second quarter of 2024, we initiated our measured entry into consumer fintech lending, by which we make consumer loans with the marketing and servicing assistance of existing and planned new fintech relationships. While the $454.4 million of such loans at December 31, 2024 did not significantly impact income during the year, such lending is expected to meaningfully impact both the balance sheet and income in the future. We expect that impact will be reflected in a lower cost of funds for related deposits and increased transaction fees.

The majority of our deposits and non-interest income are generated in our fintech segment, or Fintech Solutions Group, which consists of consumer transaction accounts accessed by Bank-issued prepaid or debit cards and payment companies that process their clients’ corporate and consumer payments, ACH accounts, the collection of card payments on behalf of merchants and other payments through our Bank. The card-accessed deposit accounts are comprised of debit and prepaid card accounts that are generated by companies that market directly to end users. Our card-accessed deposit account types are diverse and include: consumer and business debit, general purpose reloadable prepaid, pre-tax medical spending benefit, payroll, gift, government, corporate incentive, reward,

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business payment accounts and others. Our ACH accounts facilitate bill payments and our acquiring accounts provide clearing and settlement services for payments made to merchants which must be settled through associations such as Visa or Mastercard. Consumer transaction account banking services are provided to organizations with a pre-existing customer base tailored to support or complement the services provided by these organizations to their customers, which we refer to as “affinity or private label banking.” These services include loan and deposit accounts for investment advisory companies through our Institutional Banking department. We typically provide these services under the name and through the facilities of each organization with whom we develop a relationship. In 2024, we began offering loans through credit sponsorship with third parties, in our fintech segment.

Recent Developments

On December 31, 2024, the Company's wholly owned subsidiary, The Bancorp Bank, National Association (the “Bank”), closed on the sale of an $82 million REBLs portfolio, collateralized by apartment buildings. The sale included a $32.5 million classified loan, which was current with respect to monthly payments. The Bank provided financing to a third party purchaser, which provided a 25% payment guaranty. The leverage and guaranty provided were consistent with market terms, and the Bank’s general underwriting standards for similar loans. The resulting weighted average look-through LTVs, of the related mortgaged properties are no more than 57% as-is and 55% as-stabilized, which are further supported by the 25% payment guaranty. The look-through LTVs are the weighted average of LTVs multiplied by the leverage provided by the Company, based upon appraisals performed within the past 15 months. There was no loss of principal in connection with the sale, although $1.3 million of accrued interest was reversed in connection therewith. We believe that the sale is an indication of the liquidity of the portfolio, as further evidenced by “as is” and “as stabilized” LTVs, respectively, of 77% and 68% for total special mention and substandard REBL loans, based upon appraisals performed within the past 12 months.

Primarily as a result of the aforementioned $32.5 million substandard loan in that sale, total substandard loans decreased 14%, to $134.4 million at December 31, 2024, from $155.4 million at September 30, 2024. Substandard loans were further reduced on January 2, 2025, on which date a $12.3 million substandard loan was repaid without loss of principal, as a result of the sale of the underlying apartment building collateral in Plainfield New Jersey. In January 2025, two loans totaling $9.8 million were transferred to non-accrual and were accordingly classified as substandard.

As noted in the third quarter earnings release, a significant portion of the REBL portfolio was reviewed during that quarter by a firm specializing in such analysis, which resulted in no additional Special Mention or Substandard determinations. Additionally, the 100 basis points of Federal Reserve rate reductions may provide cash flow benefits to floating rate borrowers. Underlying property values as supported by the LTVs noted above, also continue to facilitate the recapitalization of certain loans from borrowers experiencing cash flow issues, to borrowers with greater financial capacity. At December 31, 2024, special mention real estate bridge loans amounted to $84.4 million which was unchanged from September 30, 2024.

The majority of the Company’s real estate owned is comprised of an apartment complex, with a balance as of December 31, 2024 of $41.1 million. That property is under agreement of sale with a sales price that is expected to cover the Company’s current balance plus the forecasted cost of improvements to the property. The purchaser has increased the total of earnest money deposits to $1.6 million, from $500,000, in consideration of extending the closing date to March 21, 2025. The Company believes that the purpose for the extension is to allow time for this sale to be included in a larger transaction. There can be no assurance that the purchaser will consummate the sale of the property, but if not consummated, the earnest money deposits of $1.6 million would accrue to the Company.

Key Performance Indicators

In 2024, we recorded net income of $217.5 million compared to $192.3 million in 2023, with pre-tax income increasing to $292.2 million in 2024 from $256.8 million in 2023. The increases primarily reflected higher net interest income, excluding the impact of consumer fintech loan credit enhancement, which had a correlated amount of provision for credit losses on consumer fintech loans. The increase in net interest income reflected net loan growth and the cumulative impact of Federal Reserve rate increases in 2023 on the loan portfolio, prior to Federal Reserve rate decreases which began in September 2024. Additionally, non-interest income from our payments businesses continued to grow.

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We use a number of key performance indicators (“KPIs”) to measure our overall financial performance and believe they are useful to investors because they provide additional information about our underlying operational performance and trends. We describe how we calculate and use a number of these KPIs and analyze their results below.

Return on assets and return on equity. Two KPIs commonly used within the banking industry to measure overall financial performance are return on assets and return on equity. Return on assets measures the amount of earnings compared to the level of assets utilized to generate those earnings and is derived by dividing net income by average assets. Return on equity measures the amount of earnings compared to the equity utilized to generate those earnings and is derived by dividing net income by average shareholders’ equity.

Ratio of equity to assets. Ratio of equity to assets is another KPI frequently utilized within the banking industry and is derived by dividing period-end shareholders’ equity by period-end total assets.

Net interest margin and credit losses. Net interest margin is a KPI associated with net interest income, which is the largest component of our earnings and is the difference between the interest earned on our interest-earning assets consisting of loans and investments, less the interest on our funding, consisting primarily of deposits. Net interest margin is derived by dividing net interest income by average interest-earning assets. Higher levels of earnings and net interest income on lower levels of assets, equity and interest-earning assets are generally desirable. However, these indicators must be considered in light of regulatory capital requirements, which impact equity, and credit risk inherent in loans. Accordingly, the magnitude of credit losses is an additional KPI.

Other KPIs. Other KPIs we use from time to time include growth in average loans and leases, non-interest income growth, the level of non-interest expense and various capital measures.

Results of KPIs

In the past three years, we have continued to target loan niches which we believe have lower credit risk than certain other forms of lending. These include SBLOC and IBLOC; SBA loans, a significant portion of which are government guaranteed or must have loan-to-value ratios lower than other forms of lending; leasing to which we have access to underlying vehicles; and real estate bridge lending for apartment buildings in selected national regions. Significant amounts of balances of these loans are variable rate and adjust more fully to Federal Reserve rate changes than do our deposits, which are derived primarily from our payments businesses. In 2024, we significantly increased our fixed rate investment portfolio to reduce exposure to lower rate environments. Average loans and leases grew to $5.93 billion in 2024 from $5.73 billion in 2023.

Increases in the return on average assets (‘ROA”) and return on average common equity (“ROE”) KPIs in 2024 reflected the impact of net loan growth and higher rates on loans as a result of Federal Reserve rate increases, prior to decreases which began in September 2024. The impact of loan growth in certain categories was offset by SBLOC and IBLOC payoffs, which we believe resulted from customer resistance to such higher rates. The net interest margin decreased to 4.85% in 2024 from 4.95% in 2023 and return on assets and return on equity respectively amounted to 2.71% and 27.24%, compared to 2.59% and 25.62%. ROA and ROE also reflected growth in ACH, card and other payment processing fees, prepaid, debit card and related fees and consumer credit

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fintech fees. Changes in book value per common share and the equity to assets ratio primarily reflect earnings retention, net of the impact of share repurchases and changes in the value of available-for-sale securities.

Critical Accounting Estimates

Our accounting and reporting policies conform with GAAP and general practices within the financial services industry. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. We believe that the determination of our allowance for credit losses on loans, leases and securities requires estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations.

We determine our allowance for credit losses with the objective of maintaining an allowance level we believe to be sufficient to absorb our estimated current and future expected credit losses. We base our determination of the adequacy of the allowance on periodic evaluations of our loan portfolio and other relevant factors. However, this evaluation is inherently subjective as it requires material estimates, including, among others, expected default probabilities, the amount of loss we may incur on a defaulted loan, expected commitment usage, the amounts and timing of expected future cash flows, collateral values and historical loss experience. We also evaluate economic conditions and uncertainties in estimating losses and other risks in our loan portfolio. To the extent actual outcomes differ from our estimates, we may need additional provisions for credit losses. Any such additional provisions for credit losses will be a direct charge to our earnings. We utilize a CECL model to determine the adequacy of the allowance and inputs include net charge-off history and estimated loan lives. The allowance for credit losses is accordingly sensitive to changes in these inputs, such that related increases would increase the allowance and provision. See “Allowance for Credit Losses”, “Note E—Loans” and “Note D—Investment Securities” to the audited consolidated financial statements herein for other factors to which the allowance and provision are sensitive.

We periodically review our investment portfolio to determine whether unrealized losses on securities result from credit, based on evaluations of the creditworthiness of the issuers or guarantors, and underlying collateral, as applicable. In addition, we consider the continuing performance of the securities. We recognize credit losses through the consolidated statements of operations. If management believes market value losses are not credit related, we recognize the reduction in other comprehensive income, through equity. Our evaluation of whether a credit loss exists is sensitive to the following factors: (a) the extent to which the fair value has been less than the amortized cost of the security, (b) changes in the financial condition, credit rating and near-term prospects of the issuer, (c) whether the issuer is current on contractually obligated interest and principal payments, (d) changes in the financial condition of the security’s underlying collateral, and (e) the payment structure of the security. If a credit loss is determined, we estimate expected future cash flows to estimate the credit loss amount with a quantitative and qualitative process that incorporates information received from third-party sources and internal assumptions and judgments regarding the future performance of the security.

Results of Operations

Overview

Net interest income continued its upward trend in 2024, increasing $22.2 million to $376.2 million in 2024 from $354.1 million in 2023. The increase reflected the impact of the higher interest rate environment on loans and growth in certain loan categories, partially offset by the impact of lower balances for SBLOCs and IBLOCs, and commercial loans, at fair value which are in runoff. At December 31, 2024, our total loans, including commercial loans, at fair value, amounted to $6.34 billion, an increase of $642.8 million, or 11.3%, over the $5.69 billion balance at December 31, 2023. Our investment securities available-for-sale increased $755.3 million to $1.50 billion from $747.5 million between those respective dates reflecting $900 million of fixed rate securities purchases in April, 2024. Those securities purchases were made to reduce exposure to lower rate environments. The provision for credit losses on non-consumer fintech loans increased $854,000 to $9.3 million in 2024, reflecting the $2.0 million impact of a new qualitative factor for classified REBL loans in the third quarter of 2024. The provision also reflected the impact of continuing higher leasing net charge-offs. Please see “Results of Operations-Provision for Credit Losses on Loans” below.

A $34.4 million increase in non-interest income in 2024 compared to 2023 reflected $19.6 million of consumer fintech loan credit enhancement income, which correlated to a like amount for provision for credit loss for consumer fintech loans. It also reflected an $8.0 million increase in prepaid, debit card and related fees and increased ACH, card and other payment processing fees.

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While the dollar amount of payment transactions continued its upward trend, prepaid, debit card and related fees do not necessarily grow proportionately, as transactions have been shifting to debit cards, for which margins are generally lower. Fees earned for volumes above certain thresholds for individual relationships may also be lower.

In 2024, total non-interest expense increased $12.2 million to $203.2 million compared to $191.0 million in 2023, reflecting an increase of $10.5 million in salaries expense which reflected increases in payments related financial crimes and IT salary expense and incentive compensation expense, including stock compensation expense.

Net Income: 2024 compared to 2023

Net income was $217.5 million in 2024 compared to $192.3 million in 2023, while income before taxes was, respectively, $292.2 million and $256.8 million, an increase of $35.4 million. In 2024, net interest income grew by $22.2 million and non-interest income increased $34.4 million. The $22.2 million, or 6.3%, increase in 2024 net interest income over 2023 reflected the impact of net loan growth and Federal Reserve rate increases. While the Federal Reserve began decreasing rates in September 2024, approximately $900 million of fixed rate securities purchases in April 2024, had significantly reduced related downward exposure to our net interest income resulting from our variable rate loan and securities portfolios. The $34.4 million increase in non-interest income reflected $19.6 million of consumer fintech loan credit enhancement income, which correlated to a like amount for provision for credit loss for consumer fintech loans, and an increase in prepaid, debit card and related fees. The increase also reflected increased ACH, card and other payment processing fees partially offset by a $1.0 million decrease in net realized and unrealized gains on commercial loans, primarily non-SBA commercial real estate loans, at fair value. That decrease reflected lower fees recognized at the time those loans are repaid, as a result of the run-off of that fair value portfolio.

Reflecting the above changes, net income amounted to $217.5 million in 2024 compared to $192.3 million in 2023, or earnings per diluted share of $4.29 compared to $3.49 in 2023.

Net Interest Income: 2024 compared to 2023

Our net interest income for 2024 increased to $376.2 million, an increase of $22.2 million, or 6.3%, from $354.1 million for 2023, reflecting a $42.1 million, or 8.3%, increase in interest income to $551.6 million from $509.5 million for 2023. The growth in interest income reflected net loan growth and increases in yields as a result of Federal Reserve rate hikes, prior to reductions which began in September 2024.

Our average loans and leases increased 3.4% to $5.93 billion in 2024 from $5.73 billion for 2023. The increase in loans reflected growth in, SBA, direct lease financing, real estate bridge lending and investment advisor loans, partially offset by decreases in SBLOC and IBLOC loans. The balance of our commercial loans, at fair value also decreased primarily reflecting non-SBA commercial real estate loan payoffs of loans previously held for sale, but which continue to be accounted for at fair value. In the third quarter of 2021, we resumed originating such loans, referred to as real estate bridge loans which are accounted for as held for investment. Of the total $22.2 million increase in loan interest income on a tax equivalent basis, the largest increases were $13.1 million for all real estate bridge loans, $12.2 million for small business lending, $9.7 million for leasing and $5.3 million for investment advisor financing, while total SBLOC and IBLOC decreased $19.9 million. Our average investment securities were $1.33 billion for 2024 compared to $770.0 million for 2023, while related interest income increased $27.2 million on a tax equivalent basis primarily reflecting an increase in yields.

While interest income increased by $42.1 million, or 8.3%, interest expense increased by $19.9 million, or 12.8%, to $175.4 million in 2024 from $155.5 million in 2023. As a result of contractual relationships with its clients, deposit rates adjust to a portion of Federal Reserve rate changes, while loans, especially variable rate loans, adjust more fully.

Our net interest margin (calculated by dividing net interest income by average interest-earning assets) for 2024 decreased 10 basis points to 4.85% from 4.95% for 2023. The average yield on our interest-earning assets decreased to 7.11% from 7.13% for 2023, a decrease of 2 basis points, while the cost of total deposits and interest-bearing liabilities increased to 2.46% for 2024 from 2.38% for 2023, an increase of 8 basis points, or a net change of 10 basis points. The yield on loans in total increased to 7.74% from 7.62%, an increase of 12 basis points, while the yield on taxable investment securities decreased 12 basis points to 4.98% from 5.10%.

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In 2024, average demand and interest checking deposits amounted to $6.88 billion, compared to $6.31 billion in 2023, an increase of 9.0%, reflecting growth in debit, prepaid card account and other payments balances. The yield on those deposits increased to 2.35% in 2024 compared to 2.30% in 2023, reflecting the impact of Federal Reserve rate hikes on contractually based fees. Savings and money market balances averaged $72.0 million in 2024 compared to $78.1 million in 2023 with an average 3.52% rate in 2024 compared to 3.66% in 2023. Lower savings and money market balances compared to prior periods reflected the sweeping of deposits off our balance sheet to other institutions. Such sweeps are utilized to optimize diversity within our funding structure by managing the percentage of individual client deposits to total deposits.

Average Daily Balance

The following table presents the average daily balances of assets, liabilities, and shareholders’ equity and the respective interest earned or paid on interest-earning assets and interest-bearing liabilities, as well as average rates for the periods indicated:

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In 2024 compared to 2023, average interest-earning assets increased to $7.76 billion, an increase of $608.9 million, or 8.5%. The increase reflected a $196.9 million, or 3.4%, increase in average loans and leases. The increase in average loans reflected decreases in SBLOC and IBLOC and commercial loans, at fair value which partially offset increases in small business, direct lease financing, real estate bridge lending and investment advisor financing. Average balances of investment securities increased $564.7 million, or 73.3%, reflecting $900 million of securities purchases in April, 2024.

Volume and Rate Analysis

The following table sets forth the changes in net interest income attributable to either changes in volume (average balances) or to changes in average rates from 2023 through 2024 on a tax equivalent basis. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

Provision for Credit Losses on Loans

Our provision for credit losses on non-consumer fintech loans was $9.3 million for 2024 and $8.5 million for 2023. Provisions are based on our evaluation of the adequacy of our ACL, particularly in light of the estimated impact of charge-offs and the potential impact of current economic conditions which might impact our borrowers. The increased provision in 2024 over 2023 reflected a new qualitative factor for classified REBL loans, which resulted in a $2.0 million increase in the provision in the third quarter of 2024. The provision in both years also reflected the impact of continuing higher leasing net charge-offs, especially in long haul and local trucking, transportation and related activities for which total exposure was approximately $32 million at December 31, 2024. For additional related information see “Note E—Loans” to the audited consolidated financial statements herein. At December 31, 2024, our ACL amounted to $31.9 million, or 0.52%, of total loans. We believe that our allowance is appropriate and supportable in providing for current and future expected losses, consistent with CECL guidance. For more information about our provision and ACL and our loss experience see “—Financial Condition—Allowance for Credit Losses” and “—Summary of Loan and Lease Loss Experience,” below.

Provision for Credit Loss on Trust Preferred Security

The Bank owns one trust preferred security, which it purchased in 2006, and which has a par value of $10.0 million, and owns no other such security or similar security. The security was issued by an aggregator of insurance lines in run-off, including workmen’s compensation lines. In the third quarter of 2023, the Bank was notified that interest payments were being deferred on the security, as permitted under the terms of the trust preferred indenture which permits such deferrals for up to twenty consecutive quarters. At the end of the deferral, deferred interest must be repaid, including interest on the deferred interest. The Bank placed the security in non-accrual status and continued previous efforts to obtain financial information from the issuer, which is not required to provide such information under the terms of the related indenture. Limited financial and other information finally distributed to

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holders in the fourth quarter of 2023, did not provide a substantial basis for repayment. Accordingly, the Bank provided for a potential loss for the full amount of the $10.0 million par value of the security through a provision of $10.0 million. The security had previously been valued at $6.3 million through adjustments to equity. In the fourth quarter of 2024, the issuer tendered an offer to repurchase these securities which the Company accepted. Accordingly, $1.0 million was recovered which resulted in a reversal of the provision for credit loss in that amount, and a charge-off of the remaining $9.0 million of the security.

Non-Interest Income: 2024 compared to 2023

Non-interest income was $146.5 million for 2024 compared to $112.1 million for 2023. The $34.4 million, or 30.7%, increase between those respective periods reflected $19.6 million of consumer fintech loan credit enhancement income which correlated to a like amount for provision for credit loss for consumer fintech loans, and an $8.0 million increase in prepaid, debit card and related fees. The increase also reflected increased ACH, card and other payment processing fees, partially offset by a $1.0 million decrease in net realized and unrealized gains on commercial loans, at fair value, as a result of the runoff of that fair value portfolio. The $2.7 million net realized and unrealized gains on commercial loans, at fair value for 2024 was comprised of $3.7 million of non-SBA commercial real estate bridge loan repayment related income, partially offset by $683,000 of fair value losses and $285,000 of hedge losses. The $3.7 million net realized and unrealized gains on commercial loans, at fair value for 2023 was comprised of $7.0 million of non-SBA commercial real estate bridge loan repayment related income, partially offset by $3.1 million of fair value losses and $124,000 of hedge losses.

Consumer credit fintech fees amounted to $4.8 million for the year ended 2024, as we began our entry into consumer fintech lending in the second quarter of 2024. These fees reflect credit sponsorship fees from third parties who market and service these loans. Related impact may also be reflected in a lower cost of deposits, as a result of associated deposits.

Prepaid and debit card and related fees increased $8.0 million, or 8.9%, to $97.4 million for 2024 from $89.4 million for 2023. The first quarter of 2023 included approximately $600,000 of non-interest income related to the fourth quarter of 2022, and a $1.4 million termination fee from a client which formed its own bank. The increase reflected higher transaction volume from new clients and organic growth from existing clients. ACH, card and other payment processing fees increased $4.8 million, or 48.6%, to $14.6 million for 2024 compared to $9.8 million for 2023, reflecting an increase in rapid funds transfer volume.

Leasing related income decreased $2.4 million, or 38.0%, to $3.9 million for 2024 from $6.3 million for 2023 , reflecting $1.1 million of losses related to an auto auction company which ceased operations.

Other non-interest income increased $626,000, or 22.5%, to $3.4 million in 2024 from $2.8 million in 2023, reflecting increased payoff fees on advisor financing loans.

Non-Interest Expense: 2024 compared to 2023

Total non-interest expense in 2024 was $203.2 million, an increase of $12.2 million, or 6.4%, from the $191.0 million in 2023. Salaries and employee benefits increased 8.7%, reflecting increases in payments business related financial crimes, IT salary expense and incentive compensation expense, including stock compensation expense.

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The following table presents the principal categories of non-interest expense for the periods indicated:

Changes in categories of non-interest expense were as follows:

Salaries and employee benefits expense increased to $131.6 million, an increase of $10.5 million, or 8.7%, from $121.1 million for 2023.

Depreciation expense increased $1.1 million, or 35.2%, to $4.2 million in 2024 from $3.1 million in 2023, reflecting the impact of the Sioux Falls, South Dakota relocation to new and expanded offices and a new expanded data center.

Rent and related occupancy cost increased $766,000, or 12.8%, to $6.7 million in 2024 from $6.0 million in 2023, reflecting the impact of the Sioux Falls, South Dakota relocation to new and expanded offices and a new expanded data center.

Data processing expense increased $219,000, or 4.0%, to $5.7 million in 2024 from $5.4 million in 2023, reflecting higher transaction volume.

Audit expense decreased $136,000, or 8.4%, to $1.5 million in 2024 from $1.6 million in 2023.

Legal expense decreased $769,000, or 20.0%, to $3.1 million for 2024 from $3.9 million in 2023, reflecting a reimbursement of legal fees related to the Del Mar complaint described in “Note O—Commitments and Contingencies” to the audited consolidated financial statements in the 2023 Form 10-K.

FDIC insurance expense increased $622,000, or 21.0%, to $3.6 million for 2024 from $3.0 million in 2023, reflecting increases in liabilities against which insurance rates are applied.

Software expense increased $564,000, or 3.3%, to $17.9 million in 2024 from $17.3 million in 2023. The increase reflected higher expenditures for information technology infrastructure including leasing, institutional banking, cybersecurity, cloud computing and enterprise risk, which more than offset decreased expenses related to financial crimes management.

Insurance expense increased $56,000, or 1.1%, to $5.2 million in 2024 from $5.1 million in 2023.

Telecom and IT network communications expense decreased $89,000, or 6.8%, to $1.2 million in 2024 from $1.3 million in 2023.

Consulting expense decreased $86,000, or 4.4%, to $1.9 million in 2024 from $1.9 million in 2023.

Other non-interest expense increased $444,000, or 2.2%, to $20.4 million in 2024 from $20.0 million in 2023. The $444,000 increase primarily reflected a $1.2 million loss from a transaction processing delay and a $989,000 increase in OREO expense offset by the following decreases: (i) other loan expense of $443,000 (ii) correspondent banking fees of $381,000 (iii) regulatory examination fees of $259,000 and (iv) other operating taxes of $353,000. The $989,000 increase in OREO expense, reflected expenses on the $39.4 million apartment property transferred to OREO in the second quarter of 2024, as described in “Note E—Loans”. The balance of that property, which is under agreement of sale as described in “Recent Developments”, was $41.1 million as of December 31, 2024.

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Income Tax Expense

Income tax expense was $74.6 million and $64.5 million respectively, for 2024 and 2023. The increase resulted primarily from an increase in income, substantially all of which is subject to income tax. The effective tax rate was 25.5% in 2024 compared to 25.1% in 2023 and reflects a 21% federal tax rate and state taxes. The lower rate in 2023 reflected the impact of adjustments related to state taxes in multiple states, including those related to the relocation of the Bank’s corporate headquarters to South Dakota.

Liquidity

Liquidity defines our ability to generate funds at a reasonable cost to support asset growth, meet deposit withdrawals, satisfy borrowing needs and otherwise operate on an ongoing basis. Maintaining an adequate level of liquidity depends on the institution’s ability to efficiently meet both expected and unexpected cash flows without adversely affecting daily operations or financial condition. Our liquidity management policy requirements include sustaining defined liquidity minimums, concentration monitoring and management, stress testing, contingency planning and related oversight. Based on our sources of funding and liquidity discussed below, we believe we have sufficient liquidity and capital resources available for our needs in the next 12 months and for the longer-term beyond 12 months. The adequacy of liquidity is supported by (a) the historical stability and growth of its relationships which are further subject to multi-year contracts, (b) access to contingent funding and (c) the short terms and liquidity of significant amounts of our assets. We invest the funds we do not need for daily operations primarily in our interest-bearing account at the Federal Reserve. Interest-bearing balances at the FRB, maintained on an overnight basis, averaged $527.8 million for the fourth quarter of 2024, compared to the prior year fourth quarter average of $677.5 million.

Our primary source of funding has been deposits, comprised primarily of millions of small transaction-based consumer balances, the majority of which are FDIC-insured. We have multi-year, contractual relationships with affinity groups which sponsor such accounts and with whom we have had long-term relationships (see Item 1, “Business—Our Strategies”). Those long-term relationships comprise the majority of our deposits and in addition to related organic growth, we continue to add new affinity groups. We do not believe that the changes in our deposits in the past two years significantly impacted overall liquidity or cost of funds as a result of such long-term relationships and a history of stability, further managed through multi-year contracts. Average deposits in 2024 increased by $540.0 million, or 8.4%, to $6.95 billion compared to $6.41 billion in 2023. Average savings and money market account balances decreased $6.1 million between those periods, reflecting the sweeping of deposits off our balance sheet to other institutions. Such sweeps are utilized to optimize diversity within our funding structure by managing the percentage of individual client deposits to total deposits. Overnight borrowings are also periodically utilized as a funding source to facilitate cash management.

One contingent source of liquidity is available-for-sale securities which amounted to $1.50 billion at December 31, 2024, reflecting $900 million of securities purchases in April, 2024, compared to $747.5 million at December 31, 2023. In excess of $1.0 billion of these securities, including those $900 million of April 2024 purchases, can be pledged to facilitate extensions of credit in addition to loans already pledged against lines of credit, as discussed later in this section. At December 31, 2024 outstanding loans amounted to $6.11 billion, compared to $5.36 billion at the prior year end, an increase of $752.5 million representing a use of funds. Commercial loans, at fair value decreased to $223.1 million from $332.8 million, or $109.7 million, representing a source of funds.

While we do not have a traditional branch system, we believe that our core deposits, which include our demand, interest checking, savings and money market accounts, have similar characteristics to those of a bank with a branch system. The majority of our deposit accounts are obtained with the assistance of third-parties and as a result have historically been classified as brokered by the FDIC. Prior to December 2020, FDIC guidance for classification of deposit accounts as brokered was relatively broad, and generally included accounts which were referred to or “placed” with the institution by other companies. If the Bank ceases to be categorized as “well capitalized” under banking regulations, it will be prohibited from accepting, renewing or rolling over any of its deposits classified as brokered without the consent of the FDIC. In such a case, the FDIC’s refusal to grant consent to our accepting, renewing or rolling over brokered deposits could effectively restrict or eliminate the ability of the Bank to operate its business lines as presently conducted. In December 2020, the FDIC issued a new regulation which, in the third quarter of 2021, resulted in the majority of our deposits being reclassified from brokered to non-brokered. On July 30, 2024, the FDIC proposed a regulation eliminating certain automatic exceptions which resulted in the reclassification of significant amounts of our deposits from brokered to non-brokered as a result of the December 2020 rules changes, while retaining the ability of financial institutions to reapply. If the proposed regulation were to be adopted, significant amounts of our deposits could be reclassified as brokered, which could also result in an increase in our federal deposit insurance rate and expense. On January 21, 2025, the FDIC announced that the proposed regulation would not be adopted. Of our total deposits of $7.75 billion as of December 31, 2024, $810.6 million were classified as brokered and an estimated $501.1 million were not insured by FDIC insurance, which requires identification of the depositor and is limited to $250,000 per

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identified depositor. Uninsured accounts may represent a greater liquidity risk than FDIC-insured accounts should large depositors withdraw funds as a result of negative financial developments either at the Bank or in the economy. Significant amounts of our uninsured deposits are comprised of small balances, such as anonymous gift cards and corporate incentive cards for which there is no identified depositor. We do not believe that such uninsured accounts present a significant liquidity risk.

Certain components of our deposits experience seasonality, creating excess liquidity at certain times. The largest deposit inflows have generally occurred in the first quarter of the year when certain of our accounts are credited with tax refund payments from the U.S. Treasury.

While consumer deposit accounts, including prepaid and debit card accounts, comprise the majority of our funding needs, we maintain secured borrowing lines with the FHLB and the Federal Reserve which are collateralized by certain of our loans. The amount of loans pledged against these lines varies and the collateral may be unpledged at any time to the extent remaining collateral value exceeds advances. Our collateralized line of credit with the Federal Reserve Bank had available accessible capacity of $1.99 billion as of December 31, 2024 and was collateralized by loans. We have also pledged in excess of $2.22 billion of multifamily loans to the FHLB. As a result, we have approximately $1.02 billion of availability on that line of credit which we can also access at any time. As of December 31, 2024, we had no amount outstanding on the Federal Reserve line or on our FHLB line. We expect to continue to maintain our facilities with the FHLB and Federal Reserve, which, with the approximate $1.0 billion of U.S. government agency securities, represent our most readily accessible liquidity sources. We actively monitor our positions and contingent funding sources daily. Included in our cash and cash-equivalents at December 31, 2024, were $564.1 million of interest-earning deposits, which primarily consisted of deposits with the Federal Reserve. These amounts may vary on a daily basis.

In 2024, $242.7 million of securities redemptions were exceeded by purchases of $991.2 million. In 2023, $71.1 million of securities redemptions exceeded purchases of $49.0 million. In 2022, $161.1 million of redemptions exceeded purchases of $24.2 million. As shown in the consolidated statements of cash flows, cash required to fund loans was $877.4 million in 2024 and $1.68 billion in 2022. In 2023, loan repayments exceeded disbursements.

At December 31, 2024, we had outstanding commitments to fund loans, including unused lines of credit, of $1.98 billion, the vast majority of which are SBLOC lines of credit which are variable rate. We attempt to increase such line usage; however, usage percentages have been historically consistent and the majority of these lines of credit have historically not been drawn. The recorded amount of such commitments has, for many accounts, been based on the full amount of collateral in a customer’s investment account. Accordingly, the funding requirements for such commitments occur on a measured basis over time and are expected to be funded by deposit growth. Additionally, these loans are “demand” loans and as such, represent a contingency source of funding.

As a holding company conducting substantially all of our business through our subsidiaries, our near term needs for liquidity consist principally of cash needed to make required interest payments on our subordinated debentures, consisting of $13.4 million of debentures bearing interest at Secured Overnight Financing Rate (“SOFR”) plus 3.51% and maturing in March 2038 (the “2038 Debentures”), and senior debt, consisting of $100.0 million senior notes with an interest rate of 4.75% and maturing in August 2025 (the “2025 Senior Notes”). Semi-annual interest payments on the 2025 Senior Notes are approximately $2.4 million, and quarterly interest payments on the 2038 Debentures are approximately $300,000. We may repay the notes with a dividend from the bank, or refinance the debt with a new debt offering. As of December 31, 2024, we had cash reserves of approximately $10.7 million at the holding company. In the fourth quarter of 2022, the Bank began paying dividends to the holding company to pay interest on these obligations and to fund ongoing common stock repurchases. Stock repurchases are discretionary and may be terminated at any time. To the extent that planned repurchases of $37.5 million per quarter in 2025 continue, they will likely continue to be funded by dividends from the Bank to the holding company. The holding company’s sources of liquidity are primarily comprised of dividends paid to it by the Bank and the issuance of debt.

Capital Resources and Requirements

We must comply with capital adequacy guidelines issued by our regulators. A bank must, in general, have a Tier 1 leverage ratio of 5.0%, a ratio of Tier 1 capital to risk-weighted assets of 8.0%, a ratio of total capital to risk-weighted assets of 10.0% and a ratio of common equity to risk-weighted assets of 6.50% to be considered “well capitalized.” The Tier 1 leverage ratio is the ratio of Tier 1 capital to average assets for the most recent quarter. Tier 1 capital includes common shareholders’ equity, certain qualifying perpetual preferred stock and minority interests in equity accounts of consolidated subsidiaries, less intangibles. At December 31, 2024, both the Company and the Bank were “well capitalized” under banking regulations.

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The following table sets forth our regulatory capital amounts and ratios for the periods indicated:

Asset and Liability Management

The management of rate sensitive assets and liabilities is essential to controlling interest rate risk and optimizing interest margins. An interest rate sensitive asset or liability is one that, within a defined time period, either matures or experiences an interest rate change in line with general market rates. Interest rate sensitivity measures the relative volatility of an institution’s interest margin resulting from changes in market interest rates. While it is difficult to predict the impact of inflation and responsive Federal Reserve rate changes on our net interest income, the Federal Reserve has historically utilized interest rate increases in the overnight federal funds rate as one tool in fighting inflation. As a result of high rates of inflation, the Federal Reserve raised rates in each quarter of 2022 and in the first three quarters of 2023. In the third quarter of 2024 the Federal Reserve began lowering rates. Our largest funding source, prepaid and debit card accounts, contractually adjusts to only a portion of increases or decreases in rates which are largely determined by such Federal Reserve actions. While deposits reprice to only a portion of rate increases, interest-earning assets tend to adjust more fully to rate increases at contractual pricing intervals which may be monthly or up to several years. While significant amounts of our loans and securities are variable rate and reprice monthly, quarterly or over several years, we increased fixed rate loans and securities in 2024, to reduce exposure to lower interest rate environments. Additionally, the impact of loan interest rate floors which must be exceeded before rates on certain loans increase, may result in decreases in net interest income with lesser increases in rates. At December 31, 2024, all of the floors had been exceeded.

As a financial institution, potential interest rate volatility is a primary component of our market risk. Fluctuations in interest rates will ultimately impact the level of our earnings and the market value of our interest-earning assets, other than those with short-term maturities. We do not own any trading assets nor do we engage in hedging transactions.

We have adopted policies designed to manage net interest income and preserve capital over a broad range of interest rate movements. To effectively administer the policies and to monitor our exposure to fluctuations in interest rates, we maintain an asset/liability committee, consisting of the Bank’s Chief Executive Officer, Chief Accounting Officer, Chief Financial Officer, Chief Credit Officer and others. This committee meets quarterly to review our financial results and develop strategies to achieve budgetary targets based upon current and anticipated market conditions. The primary goal of our policies is to optimize margins and manage interest rate risk, consistent with policy constraints for prudent management of interest rate risk.

We monitor, manage and control interest rate risk through a variety of techniques, including use of traditional interest rate sensitivity analysis (also known as “gap analysis”) and an interest rate risk management model. With the interest rate risk management model, we project future net interest income and then estimate the effect of various changes in interest rates on that projected net interest income. We also use the interest rate risk management model to calculate the change in net portfolio value over a range of interest rate change scenarios. Traditional gap analysis involves arranging our interest-earning assets and interest-bearing liabilities by repricing periods and then computing the difference (or “interest rate sensitivity gap”) between the assets and liabilities that we estimate will reprice during each time period and cumulatively through the end of each time period.

Both interest rate sensitivity modeling and gap analysis are done at a specific point in time and involve a variety of significant estimates and assumptions. Interest rate sensitivity modeling requires, among other things, estimates of how much and when yields and costs on individual categories of interest-earning assets and interest-bearing liabilities will respond to general changes in market rates, future cash flows and discount rates. Gap analysis requires estimates as to when individual categories of interest sensitive assets and liabilities will reprice, and assumes that assets and liabilities assigned to the same repricing period will reprice at the same time and in the same amount. Gap analysis does not account for the fact that repricing of assets and liabilities is discretionary and subject to competitive and other pressures. A gap is considered positive when the amount of interest rate sensitive assets exceeds

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the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds interest rate sensitive assets. During a period of falling interest rates, a positive gap would tend to adversely affect net interest income, while a negative gap would tend to result in an increase in net interest income, all else equal. During a period of rising interest rates, a positive gap would tend to result in an increase in net interest income while a negative gap would tend to affect net interest income adversely.

The following table sets forth the estimated maturity or repricing structure of our interest-earning assets and interest-bearing liabilities at December 31, 2024. Except as stated below, the amounts of assets or liabilities shown which reprice or mature during a particular period were determined in accordance with the contractual terms of each asset or liability. The majority of demand and interest-bearing demand deposits and savings deposits are assumed to be “core” deposits, or deposits that will generally remain with us regardless of market interest rates. We estimate the repricing characteristics of these deposits based on historical performance, past experience, judgmental predictions and other deposit behavior assumptions. However, we may choose not to reprice liabilities proportionally to changes in market interest rates for competitive or other reasons. Additionally, although non-interest-bearing demand accounts are not paid interest, we estimate certain of the balances will reprice as a result of the contractual fees that are paid to the affinity groups which are based upon a rate index, and therefore are included in interest expense. We have adjusted the transaction account balances in the table downward, to better reflect the impact of their partial adjustment to changes in rates. Loans and security balances, which adjust more fully to market rate changes, are based upon actual balances. The largest segments of loans subject to interest rate floors are the majority of non-SBA commercial real estate loans-floating, at fair value, REBL, and IBLOC loans. While floors may provide some protection against future Federal Reserve rate reductions, that protection is limited since current rates generally significantly exceed such floors. The table does not assume any prepayment of fixed-rate loans and mortgage-backed securities based on their anticipated cash flow, including prepayments based on historical data and current market trends. The table does not necessarily indicate the impact of general interest rate movements on our net interest income because the repricing and related behavior of certain categories of assets and liabilities (for example, prepayments of loans and withdrawal of deposits) is beyond our control. As a result, certain assets and liabilities indicated as repricing within a stated period may in fact reprice at different times and at different rate levels. For instance, the majority of REBL loans are variable rate with floors, but prepayments may offset the benefit of such floors in decreasing rate environments.

(1) Transaction accounts are comprised primarily of demand deposits. While demand deposits are non-interest-bearing, related fees paid to affinity groups may reprice according to specified indices.

The methods used to analyze interest rate sensitivity in this table have a number of limitations. Certain assets and liabilities may react differently to changes in interest rates even though they reprice or mature in the same or similar time periods. The interest rates on certain assets and liabilities may change at different times than changes in market interest rates, with some changing in advance of changes in market rates and some lagging behind changes in market rates. Additionally, the actual prepayments and withdrawals we experience when interest rates change may deviate significantly from those assumed in calculating the data shown in the table.

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Because of the limitations in the gap analysis discussed above, we believe that interest sensitivity modeling may more accurately reflect the effects of our exposure to changes in interest rates, notwithstanding its own limitations. Net interest income simulation considers the relative sensitivities of the consolidated balance sheet including the effects of the aforementioned interest rate floors, interest rate caps on adjustable rate mortgages and the relatively stable aspects of core deposits. As such, net interest income simulation is designed to address the potential impact of interest rate changes and the behavioral response of the consolidated balance sheet to those changes. Market Value of Portfolio Equity (“MVPE”) represents the modeled fair value of the net present portfolio value of assets, liabilities and off-balance sheet items and is reflected in the Net portfolio value column in the table below.

We believe that the assumptions utilized in evaluating our estimated net interest income are reasonable; however, the interest rate sensitivity of our assets, liabilities and off-balance sheet financial instruments, as well as the estimated effect of changes in interest rates on estimated net interest income, could vary substantially if different assumptions are used or actual experience differs from presumed behavior of various deposit and loan categories. The following table shows the effects of interest rate shocks on our net portfolio value described as MVPE and net interest income. Rate shocks assume that current interest rates change immediately and sustain parallel shifts. For interest rate increases or decreases of 100 and 200 basis points, our policy includes a guideline that our MVPE ratio should not decrease more than 10% and 15%, respectively, and that net interest income should not decrease more than 10% and 15%, respectively. As illustrated in the following table, we complied with our asset/liability policy guidelines at December 31, 2024. As a result of the Federal Reserve rate increases in 2022 and 2023, net interest income has increased and exceeded prior period levels, as the majority of loans and securities were variable rate in those periods. In April 2024, the Company purchased approximately $900 million of fixed rate commercial and residential mortgage securities of varying maturities to reduce its exposure to lower levels of net interest income, in anticipation of Federal Reserve rate reductions which commenced in September 2024. Those securities purchases had respective estimated weighted average yields and lives of approximately 5.11% and eight years. Those 2024 securities purchases and an emphasis on adding fixed rate loans, significantly reduced exposure to lower rate environments.

If we should experience a mismatch in our desired gap ranges, or an excessive decline in our MVPE subsequent to an immediate and sustained change in interest rate, we have a number of options available to remedy such a mismatch. We could restructure our investment portfolio through the sale or purchase of securities with more favorable repricing attributes. We could also emphasize loan products with appropriate maturities or repricing attributes, or we could emphasize deposits or obtain borrowings with desired maturities. We continue to evaluate market conditions and may change our current interest rate strategy in response to changes in those conditions. For instance we may increase securities purchases to lock in higher rates for the terms of such securities. Such purchases would decrease our asset sensitivity, and could reduce the decrease in net interest income which would otherwise result from Federal Reserve rate decreases. To the extent that longer term securities purchases are funded with short-term deposits, the rate on such deposits may be higher than the rates on the securities purchased, if the yield curve is inverted. In that case, net interest income may also be decreased, at least in the short-term, prior to anticipated Federal Reserve rate reductions.

Financial Condition

General

Our total assets at December 31, 2024 were $8.73 billion, of which our total loans and commercial loans, at fair value were $6.34 billion and investment securities available-for-sale were $1.50 billion. At December 31, 2023, our total assets were $7.71 billion, of which our total loans and commercial loans, at fair value were $5.69 billion and investment securities available-for-sale were $747.5 million. The increase in assets reflected an increase in available-for-sale securities, which resulted from the previously discussed $900 million of April 2024 securities purchases. The increase also reflected loan growth in various loan categories, which offset decreases in IBLOC loan balances and in commercial loans, at fair value as that portfolio continues to run off.

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Interest-earning Deposits

At December 31, 2024, we had a total of $564.1 million of interest-earning deposits, comprised primarily of balances at the Federal Reserve, which pays interest on such balances. At December 31, 2023, we had $1.03 billion of such balances. The decrease reflected the utilization of these overnight balances for the aforementioned securities purchases in the second quarter of 2024.

Investment Portfolio

For detailed information on the composition and maturity distribution of our investment portfolio, see “Note D—Investment Securities” to the audited consolidated financial statements herein. Total investment securities available-for-sale increased to $1.50 billion as of December 31, 2024, an increase of $755.3 million, or 101.0%, from a year earlier. The increase reflected the aforementioned $900 million of securities purchases in April 2024.

Under the accounting guidance related to CECL, changes in fair value of securities unrelated to credit losses continue to be recognized through equity. However, credit-related losses are recognized through an allowance, rather than through a reduction in the amortized cost of the security. CECL accounting guidance also permits the reversal of credit losses in future periods based on improvements in credit, which was not included in previous guidance. Generally, a security’s credit-related loss is the difference between its amortized cost basis and the best estimate of its expected future cash flows discounted at the security’s effective yield. That difference is recognized through the income statement, as with prior guidance, but is renamed a provision for credit loss. For the years ended December 31, 2024 and 2022, we recognized no credit-related losses on our portfolio. In 2023, we recognized a provision for credit loss on a trust preferred security. See “Provision for Credit Loss on Trust Preferred Security”.

The following table presents the book value and the approximate fair value for each major category of our investment securities portfolio. At December 31, 2024 and 2023, our investments were all categorized as available-for-sale (dollars in thousands).

Investments in FHLB, Atlantic Central Bankers Bank (“ACBB”), and FRB stock are recorded at cost and amounted to $15.6 million at December 31, 2024 and $15.6 million at December 31, 2023. Each of these institutions requires their member banking institutions to hold stock as a condition of membership. The Bank’s conversion to a national charter required the purchase of $11.0 million of FRB stock in September 2022. While a fixed stock amount is required by each of these institutions, the FHLB stock requirement increases or decreases with the level of borrowing activity.

We pledge loans against our line of credit at the FHLB and had no securities pledged against that line as of December 31, 2024 and December 31, 2023. At December 31, 2024 and December 31, 2023, no investment securities were encumbered through pledging or otherwise.

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Of the six securities purchased by the Bank from our securitizations, all have been repaid except one issued by CRE-2, which is included in the commercial mortgage-backed securities classification in investment securities. As of December 31, 2024, the balance of the Bank’s CRE-2-issued security was reduced from $12.6 million to $3.5 million as a result of the sale of one of the two remaining collateral properties. The $3.5 million remains in non-accrual status. While the appraised value of the remaining property allocable to the Bank’s security exceeds the principal and unpaid interest, there can be no assurance as to the amounts received upon the servicer’s disposition of these properties, which will reflect additional servicing fees, actual disposition prices and other disposition costs.

The following tables show the contractual maturity distribution and the weighted average yields of our investment securities portfolio as of December 31, 2024 (dollars in thousands). The weighted average yield was calculated by dividing the amount of individual securities to total securities in each category, multiplying by the yield of the individual security, and adding the results of those individual computations.

(1) If adjusted to their taxable equivalents, yields would approximate 4.05%, 2.91%, 4.90%, and 5.70% for zero to one year, one to five years, five to ten years, and over ten years, respectively, at a federal tax rate of 21%.

Commercial Loans, at Fair Value

Commercial loans, at fair value are comprised of non-SBA commercial real estate bridge loans and SBA loans which had been originated for sale or securitization through the first quarter of 2020. These loans are now being held on the balance sheet and continue to be accounted for at fair value. Non-SBA commercial real estate loans and SBA loans are valued using a discounted cash flow analysis based upon pricing for similar loans where market indications of the sales price of such loans are not available. SBA loans are valued on a pooled basis and commercial real estate bridge loans are valued individually. Commercial loans, at fair value decreased to $223.1 million at December 31, 2024 from $332.8 million at December 31, 2023, primarily reflecting the impact of loan repayments as this portfolio runs off. In the third quarter of 2021 we resumed originating non-SBA commercial real estate loans, after having suspended such originations for most of 2020 and the first half of 2021. These originations reflect lending criteria similar to the prior loan portfolio and are primarily comprised of multifamily (apartment buildings) collateral. The new originations, which are intended to be held for investment, are accounted for at amortized cost. See the table below prefaced by the introduction: “Commercial real estate loans, primarily real estate bridge loans, excluding SBA loans . . . .”

Loan Portfolio

We have developed a detailed credit policy for our lending activities and utilize loan committees to oversee the lending function. SBLOC, IBLOC and other consumer loans, investment advisor financing, SBLs, leases and real estate bridge lending each have their own loan committee. The Chief Executive Officer and Chief Credit Officer serve on all loan committees. Each committee also includes lenders from that particular type of specialty lending. The Chief Credit Officer is responsible for both regulatory compliance and adherence to our internal credit policy. Key committee members have lengthy experience and certain of them have had similar positions at substantially larger institutions.

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We originate substantially all of our portfolio loans, although from time to time we have purchased lease pools and may purchase other individual loans. If a proposed loan should exceed our lending limit, we would sell a participation in the loan to another financial institution. The following table summarizes our loan portfolio, excluding loans held at fair value, by loan category for the periods indicated (dollars in thousands):

The following table shows SBLs and SBLs held at fair value for the periods indicated (dollars in thousands):

(1) SBLOC are collateralized by marketable securities, while IBLOC are collateralized by the cash surrender value of insurance policies. At December 31, 2024 and December 31, 2023, IBLOC loans amounted to $548.1 million and $646.9 million, respectively.

(2) In 2020, the Bank began originating loans to investment advisors for purposes of debt refinancing, acquisition of another firm or internal succession. Maximum loan amounts are subject to loan-to-value ratios of 70% of the business enterprise value based on a third-party valuation but may be increased depending upon the debt service coverage ratio. Personal guarantees and blanket business liens are obtained as appropriate.

(3) Consumer fintech loans included $201.1 million of secured credit card loans, with the balance consisting of other short-term extensions of credit.

(4) Includes demand deposit overdrafts reclassified as loan balances totaling $1.2 million and $1.7 million at December 31, 2024 and December 31, 2023, respectively. Estimated overdraft charge-offs and recoveries are reflected in the ACL and have been immaterial.

(5) The SBLs held at fair value are comprised of the government guaranteed portion of 7(a) Program (as defined below) loans at the dates indicated.

The following table summarizes our SBL portfolio, including loans held at fair value, by loan category as of December 31, 2024 (dollars in thousands):

(1) Includes the portion of SBA 7(a) Program loans and PPP loans which have been guaranteed by the U.S. government, and therefore are assumed to have no credit risk.

(2) Substantially all these loans are made under the 504 Program, which dictates origination date LTV percentages, generally 50-60%, to which the Bank adheres.

(3) Includes $11.2 million in 504 Program first mortgages with an origination date LTV of 50-60% and $1.2 million in SBA interim loans with an approved SBA post-construction full takeout/payoff.

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(4) Includes the unguaranteed portion of 7(a) Program loans which are generally70% or more guaranteed by the U.S. government. SBA 7(a) Program loans are not made on the basis of real estate LTV; however, they are subject to SBA's "All Available Collateral" rule which mandates that to the extent a borrower or its 20% or greater principals have available collateral (including personal residences), the collateral must be pledged to fully collateralize the loan, after applying SBA-determined liquidation rates. In addition, all 7(a) Program loans and 504 Program loans require the personal guaranty of all 20% or greater owners.

(5) Comprised of $9.4 million of loans sold that do not qualify for true sale accounting.

The following table summarizes our SBL portfolio, excluding the government guaranteed portion of SBA 7(a) Program loans and PPP loans, by loan type as of December 31, 2024 (dollars in thousands):

(1) Of the SBL commercial mortgage and SBL construction loans, $141.1 million represents the total of the non-guaranteed portion of SBA 7(a) Program loans and non-SBA loans. The balance of those categories represents SBA 504 Program loans with 50%-60% origination date LTVs. SBL Commercial excludes $9.4 million of loans sold that do not qualify for true sale accounting.

(2) Loan types of less than $4.6 million are spread over approximately one hundred different classifications such as commercial printing, pet and pet supplies stores, securities brokerage, etc.

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The following table summarizes our SBL portfolio, excluding the government guaranteed portion of SBA 7(a) Program loans and PPP loans, by state as of December 31, 2024 (dollars in thousands):

(1) Of the SBL commercial mortgage and SBL construction loans, $141.1 million represents the total of the non-guaranteed portion of SBA 7(a) Program loans and non-SBA loans. The balance of those categories represents SBA 504 Program loans with 50%-60% origination date LTVs. SBL Commercial excludes $9.4 million of loans that do not qualify for true sale accounting.

The following table summarizes the ten largest loans in our SBL portfolio, including loans held at fair value, as of December 31, 2024 (dollars in thousands):

(1) All ten largest loans in our SBL portfolio are SBA 504 Program loans with 50%-60% origination date LTVs. The table above does not include loans to the extent that they are U.S. government guaranteed.

Commercial real estate loans, primarily real estate bridge loans and excluding SBA loans, were as follows as of December 31, 2024 (dollars in thousands).

(1) In the third quarter of 2021, we resumed the origination of multifamily apartment loans. These are similar to the multifamily apartment loans carried at fair value, but at origination are intended to be held on the balance sheet, so are not accounted for at fair value.

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The following table summarizes our commercial real estate loans, primarily real estate bridge loans and excluding SBA loans, by state as of December 31, 2024 (dollars in thousands):

The following table summarizes our fifteen largest commercial real estate loans, primarily real estate bridge loans and excluding SBA loans, as of December 31, 2024 (dollars in thousands). All these loans are multifamily apartment loans.

The following table summarizes our institutional banking portfolio by type as of December 31, 2024 (dollars in thousands):

For SBLOC, we generally lend up to 50% of the value of equities and 80% for investment grade securities. While equities have fallen in excess of 30% in recent periods, the reduction in collateral value of brokerage accounts collateralizing SBLOCs generally has been less. This is because many collateral accounts are “balanced” and accordingly, have a component of debt securities, which did not necessarily decrease in value as much as equities, or in some cases may have increased in value. Further, many of these accounts have the benefit of professional investment advisors who provided some protection against market downturns, through diversification and other means. Additionally, borrowers often utilize only a portion of collateral value, which lowers the percentage of principal to the market value of collateral.

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The following table summarizes our ten largest SBLOC loans as of December 31, 2024 (dollars in thousands):

IBLOC loans are backed by the cash value of life insurance policies which have been assigned to us. We generally lend up to 95% of such cash value. Our underwriting standards require approval of the insurance companies which carry the policies backing these loans. Currently, fifteen insurance companies have been approved and, as of January 15, 2025, all were rated A- (Excellent) or better by AM BEST.

The following table summarizes our direct lease financing portfolio by type as of December 31, 2024 (dollars in thousands):

(1) Of the total $700.6 million of direct lease financing, $639.6 million consisted of vehicle leases with the remaining balance consisting of equipment leases.

(2) Includes public universities and school districts.

The following table summarizes our direct lease financing portfolio by state as of December 31, 2024 (dollars in thousands):

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The following table presents selected loan categories by maturity for the periods indicated. Actual repayments historically have, and will likely in the future, differ significantly from contractual maturities because individual borrowers generally have the right to prepay loans, with or without prepayment penalties. See “Asset and Liability Management” for a discussion of interest rate risk.

Allowance for Credit Losses

A description of loan review coverage targets is set forth below.

The following loan review percentages are performed over periods of eighteen to twenty-four months. At December 31, 2024, in excess of 50% of the total loan portfolio was reviewed by the loan review department or, for SBLs, rated internally by that department. In addition to the review of all loans classified as either special mention or substandard, the targeted coverages and scope of the reviews are risk-based and vary according to each portfolio as follows:

SBLOC – The targeted review threshold was 40% comprised of a sample of large balance SBLOCs by commitment. At December 31, 2024, approximately 50% of the SBLOC portfolio had been reviewed.

IBLOC – The targeted review threshold was 40% comprised of a sample of large balance IBLOCs by commitment. At December 31, 2024, approximately 62% of the IBLOC portfolio had been reviewed.

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Advisor Financing – The targeted review threshold was 50%. At December 31, 2024, approximately 83% of the investment advisor financing portfolio had been reviewed. The loan balance review threshold was $1.0 million.

SBLs – The targeted review threshold was 60%, to be rated and/or reviewed within 90 days of funding, excluding fully guaranteed loans purchased for CRA purposes, and fully guaranteed PPP loans. The loan balance review threshold was $1.5 million. At December 31, 2024, 69% of the non-government guaranteed SBL loan portfolio had been reviewed.

Direct Lease Financing – The targeted review threshold was 35%. At December 31, 2024, approximately 59% of the leasing portfolio had been reviewed. All lease relationships exceeding $1.5 million are reviewed.

Commercial Real Estate Bridge Loans, at fair value and Commercial Real Estate Bridge Loans, at amortized cost (floating rate, excluding SBA, which are included in SBLs above) – The targeted review threshold was 100%. Floating rate loans are reviewed initially within 90 days of funding and monitored on an ongoing basis as to payment status. Subsequent reviews are performed for all relationships maintaining a 100% coverage rate. At December 31, 2024, approximately 100% of the floating rate, non-SBA commercial real estate bridge loans outstanding for more than 90 days had been reviewed.

Commercial Real Estate Loans, at fair value (fixed rate, excluding SBA, which are included in SBLs above) – The targeted review threshold was 100%. At December 31, 2024, approximately 98% of the fixed rate, non-SBA commercial real estate loan portfolio had been reviewed.

Other minor loan categories are reviewed at the discretion of the loan review department.

In 2022 loans previously in discontinued operations were reclassified to held for investment. As a result of the loan reclassification, related valuation reserves were reversed as a credit to “Net realized and unrealized gains on commercial loans, at fair value” in the consolidated statement of operations, while the allowances for credit losses and loan commitments in the consolidated balance sheet were increased through a provision for credit losses. Accordingly, a $3.5 million credit to “ Net realized and unrealized gains on commercial loans, at fair value” was offset by a provision for credit losses of $3.5 million with no net impact on income. Of the $3.5 million provision, $1.3 million increased the ACL and $2.2 million increased the allowance for loan commitments recorded in other liabilities.

At December 31, 2024, the ACL amounted to $31.9 million, which represented a $4.6 million increase compared to the $27.4 million at December 31, 2023. The increase reflected the impact of a new qualitative factor for classified REBL loans, as the provision for credit losses was accordingly increased by $2.0 million in the third quarter of 2024. The increase also reflected the impact of higher leasing net charge-offs.

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The following table presents delinquencies by type of loan for December 31, 2024 and 2023 (dollars in thousands):

Although we consider our ACL to be appropriate and supportable based on information currently available, future additions to the ACL may be necessary due to changes in economic conditions, our ongoing loss experience and that of our peers, changes in management’s assumptions as to future delinquencies, recoveries and losses, deterioration of specific credits and management’s intent with regard to the disposition of loans and leases.

Management estimates the ACL quarterly, and except for SBLOC, IBLOC and other loans uses relevant internal and external historical loan performance information, current economic conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the initial basis for the estimation of expected credit losses over the estimated remaining life of the loans. The methodology used in the estimation of the ACL, which is performed at least quarterly, is also designed to be responsive to changes in portfolio credit quality and the impact of current and future economic conditions on loan performance. The review of the appropriateness of the ACL is performed by the Chief Credit Officer and presented to the Audit Committee of the Board for their review. With the exception of SBLOC and IBLOC, which utilize probability of loss/loss given default, and the other loan category, which uses discounted cash flow to determine a reserve, the ACLs for other categories are determined by establishing reserves on loan pools with similar risk characteristics based on a lifetime loss-rate model, or vintage analysis, as described in the following paragraph. Loans that do not share risk characteristics are evaluated on an individual basis. If foreclosure is believed to be probable or repayment is expected from the sale of the collateral, a reserve for deficiency is established within the ACL. Those reserves are estimated based on the difference between loan principal and the estimated fair value of the collateral, adjusted for estimated disposition costs.

Except for SBLOC, IBLOC and other loans as noted above, for purposes of determining the pool-basis reserve, the loans not assigned an individual reserve are segregated by product type, to recognize differing risk characteristics within portfolio segments, and an average historical loss rate is calculated for each product type. Loss rates are computed by classifying net charge-offs by year of loan origination, and dividing into total originations for that specific year. This methodology is referred to as vintage analysis. The average loss rate is then projected over the estimated remaining loan lives unique to each loan pool, to determine estimated lifetime

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losses. For SBLOC and IBLOC, since significant losses have not been incurred, probability of loss/loss given default considerations are utilized. For the other loan category discounted cash flow is utilized to determine a reserve. For all loan pools the Company considers the need for an additional ACL based upon qualitative factors such as the Company’s current loan performance statistics by pool, and economic conditions. These qualitative factors are intended to account for forward looking expectations over a twelve to eighteen month period not reflected in historical loss rates and otherwise unaccounted for in the quantitative process. Accordingly, such factors may increase or decrease the allowance compared to historical loss rates as the Company’s forward looking expectations change. The qualitative factor percentages are applied against the pool balances as of the end of the period. Aside from the qualitative adjustments to account for forward looking expectations of loss over a twelve to eighteen month projection period, the balance of the ACL reverts directly to the Company’s quantitative analysis derived from its historical loss rates. The qualitative and historical loss rate component, together with the reserves on specific loans, comprise the total ACL.

A similar process is employed to calculate an ACL assigned to off-balance sheet commitments, which are comprised of unfunded loan commitments and letters of credit. That ACL for unfunded commitments is recorded in other liabilities. Even though portions of the ACL may be allocated to loans that have been individually measured for credit deterioration, the entire ACL is available for any credit that, in management’s judgment, should be charged off.

At December 31, 2024, the ACL for off-balance sheet commitments amounted to $2.0 million and the ACL for loans amounted to $31.9 million. Of the $31.9 million, $11.6 million of allowances resulted from the Company’s historical charge-off ratios, $4.4 million from reserves on specific loans, with the balance comprised of the qualitative component. The $11.6 million resulted primarily from SBA non-real estate and leasing charge-offs. The proportion of qualitative reserves compared to charge-off history related reserves reflects the general absence of charge-offs in the Company’s largest loan portfolios consisting of SBLOC and IBLOC and real estate bridge lending which results, at least in part, from the nature of related collateral. Such collateral respectively consists of marketable securities, the cash value of life insurance and workforce apartment buildings. As charge-offs are nonetheless possible, significant subjectivity is required to consider qualitative factors to derive the related component of the allowance.

The Company ranks its qualitative factors in five levels: minimal, low, moderate, moderate-high, and high-risk. The individual qualitative factors for each portfolio segment have their own scale based on an analysis of that segment. A high-risk ranking results in the largest increase in the ACL calculation with each level below having a lesser impact on a sliding scale. The qualitative factors used for each portfolio are described below in the description of each portfolio segment. As a result of continuing economic uncertainty in 2022, including heightened inflation and increased risks of recession, the qualitative factors which had previously been set in anticipation of a downturn, were maintained through the third quarter of 2022. In the fourth quarter of 2022, as risks of a recession increased, the economic qualitative risk factor was increased for non-real estate SBL and leasing. Those higher qualitative allocations were retained in the first quarter of 2023, as negative economic indications persisted. In the second quarter of 2023, CECL model adjustments of $1.7 million resulted from a $2.5 million CECL model decrease from changes in estimated average lives, partially offset by a $794,000 CECL model increase resulting from increasing economic and collateral risk factors to respective moderate-high and moderate risk levels. The elevated economic risk level for leasing reflected input from department heads regarding the potential borrower impact of the higher rate environment. The elevated collateral risk level for leasing reflected lower auction prices for vehicles and uncertainty over the extent to which such prices might decrease in the future. The adjustment for average lives reflected a change in the estimated lives of leases, higher variances for which may result from their short maturities. In the third quarter of 2023, there were indications of auction price stabilization, while the auto workers’ strike could reduce supply and drive up prices. Nonetheless, the elevated risk levels were maintained. In the second quarter of 2024, the provision for credit losses was reduced by $1.4 million to reflect reduced average lives for small business non-real estate loans.

The Company has not increased the qualitative risk levels for SBLOC or IBLOC because of the nature of related collateral. SBLOC loans are subject to maximum loan to marketable securities value, and notwithstanding historic drops in the stock market in recent years, losses have not been realized. IBLOC loans are limited to borrowers with insurance companies that exceed credit requirements, and loan amounts are limited to life insurance cash values. The Company had not, prior to the fourth quarter of 2023, increased the economic factor for multifamily real estate bridge lending. While Federal Reserve rate increases directly increase real estate bridge loan floating-rate borrowing costs, those borrowers are required to purchase interest rate caps that will partially limit the increase in borrowing costs during the term of the loan. Additionally, there continues to be several additional mitigating factors within the multifamily sector that should continue to fuel demand. Higher interest rates are increasing the cost to purchase a home, which in turn is increasing the number of renters and subsequent demand for multifamily. The softening demand for new homes should continue to exacerbate the current housing shortage, and therefore continue to fuel demand for multifamily apartment homes. Additionally, higher rents in the multifamily sector are causing renters to be more price sensitive, which is driving demand for most of the apartment buildings within the Company’s loan portfolio which management considers “workforce” housing. In the fourth quarter of 2023, an increasing trend in substandard loans was reflected in an increase in the risk level for the REBL ACL economic

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qualitative factor, which resulted in a $1.0 million increase in the fourth quarter provision for credit loss on loans. As a result of increasing amounts of loans classified as special mention and substandard, the Company evaluated potential related sensitivity for REBL in the third quarter of 2024. Such evaluation is inherently subjective as it requires material estimates that may be susceptible to change as more information becomes available. As a result, the Company added a new qualitative factor to its ACL which increased the provision for credit losses by $2.0 million in the third quarter of 2024.

The economic qualitative factor is based on the estimated impact of economic conditions on the loan pools, as distinguished from the economic factors themselves, for the following reasons. The Company has experienced limited multifamily (apartment building) loan charge-offs, despite stressed economic conditions. Accordingly, the ACL for this pool was derived from a qualitative factor based on industry loss information for multifamily housing. The Company’s charge-offs have been miniscule for SBLOC and IBLOC notwithstanding stressed economic periods, and their ACL is accordingly also determined by a qualitative factor. Investment advisor loans were first offered in 2020 with limited performance history, during which charge-offs have not been experienced. For investment advisor loans, the nature of the underlying ultimate repayment source was considered, namely the fee-based advisory income streams resulting from investment portfolios under management, and the impact changes in economic conditions would have on those payment streams. The qualitative factors used for this and the other portfolios are described below in the description of each portfolio segment. Additionally, the Company’s charge-off histories for SBLs, primarily SBA, and leases have not correlated with economic conditions, including trends in unemployment. While specific economic factors did not correlate with actual historical losses, multiple economic factors are considered in the economic qualitative factor. For the non-guaranteed portion of SBA loans, leases, real estate bridge lending and investment advisor financing, the Company’s loss forecasting analysis included a review of industry statistics. However, the Company’s own charge-off history and average life estimates, for categories in which the Company has experienced charge-offs, was the primary quantitatively derived element in the forecasts. The qualitative component results from management’s qualitative assessments which consider internal and external inputs.

The following table presents an allocation of the ACL among the types of loans or leases in our portfolio at December 31, 2024, 2023, 2022, 2021 and 2020 (dollars in thousands):

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The following table summarizes select asset quality ratios for each of the periods indicated:

The ratio of the ACL to total loans increased to 0.52% at December 31, 2024 compared to 0.51% at December 31, 2023. The $4.6 million increase in the ACL between those dates, reflected approximately $1.5 million of increased reserves on specific distressed credits. Approximately $1.0 million had been added to the ACL in fourth quarter 2023 for the economic qualitative factor for an increasing trend in REBL special mention and substandard real estate bridge loans. As a result of further such increases, in the third quarter of 2024, $2.0 million was added for a new related qualitative factor. Additionally, increases in leasing reserves more than offset reductions in SBA non-real estate reserves, reflecting continued elevated leasing charge-offs.

The ratio of the ACL to non-performing loans decreased to 94.61% at December 31, 2024 from 206.33% over the prior year end, primarily as a result of the increase in non-performing loans which proportionately exceeded the increase in the ACL. As a result of the increase in non-performing loans, which included a $12.3 million REBL loan and increased SBL commercial mortgage and leasing balances, the ratio of non-performing loans to total loans also increased to 0.55% at December 31, 2024 from 0.25% at December 31, 2023. Nonperforming loans are comprised of nonaccrual loans and loans past due 90 days or more still accruing interest.

The ratio of non-performing assets to total assets increased to 1.10% at December 31, 2024 from 0.39% at the prior year end, reflecting the increase in non-performing loans, and a $39.4 million loan transferred to OREO in the second quarter of 2024 with a December 31, 2024 balance of $41.1 million. That property is under agreement of sale with a sales price that is expected to cover the Company’s current balance plus the forecasted cost of improvements to the property. The purchaser has increased the total of earnest money deposits to $1.6 million, from $500,000, in consideration of extending the closing date to March 21, 2025. The Company believes that the purpose for the extension is to allow time for this sale to be included in a larger transaction. There can be no assurance that the purchaser will consummate the sale of the property, but if not consummated, the earnest money deposits of $1.6 million would accrue to the Company.

The ratio of net charge-offs to average loans was 0.43% at December 31, 2024 compared to 0.07% at the prior year end. In 2024, lending agreements related to consumer fintech loans had certain charge-offs accounted for as freestanding credit enhancements which resulted in the Company recording a $19.6 million provision for credit losses and a correlated amount in non-interest income resulting in no impact to net income. Additionally, the increase reflected an increase in direct lease financing net charge-offs.

Net Charge-offs

Net charge-offs were $24.4 million in 2024, an increase of $20.9 from net charge-offs of $3.5 million in 2023. In 2024, lending agreements related to consumer fintech loans had certain charge-offs accounted for as freestanding credit enhancements which resulted in the Company recording a $19.6 million provision for credit losses and a correlated amount in non-interest income resulting in no impact to net income. Additionally, charge-offs in both periods resulted from leasing and non-real estate SBL charge-offs. SBL charge-offs resulted primarily from the non-government guaranteed portion of SBA loans.

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The following tables reflect the relationship of year-to-date average loans outstanding, based upon quarter end balances, and net charge-offs by loan category (dollars in thousands):

We review charge-offs at least quarterly in loan surveillance meetings which include the Chief Credit Officer, the loan review department and other senior credit officers in a process which includes identifying any trends or other factors impacting portfolio management. In recent periods charge-offs have been primarily comprised of the non-guaranteed portion of SBA 7(a) Program loans and leases. The charge-offs have resulted from individual borrower or business circumstances as opposed to overall trends or other factors.

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Non-accrual Loans, Loans 90 Days Delinquent and Still Accruing, OREO and Modified Loans

Loans are considered to be non-performing if they are on a non-accrual basis or they are past due 90 days or more and still accruing interest. A loan which is past due 90 days or more and still accruing interest remains on accrual status only when it is both adequately secured as to principal and interest, and is in the process of collection. We had $62.0 million of OREO at December 31, 2024 and $16.9 million at December 31, 2023. The following tables summarize our non-performing loans, including loans past due 90 days or more still accruing interest and OREO.

(1) The $12.3 million REBL shown for 2024 was repaid on January 2, 2025 without loss of principal. In January 2025, two loans totaling $9.8 million were transferred to non-accrual and were accordingly classified as substandard.

(2) The majority of the increase in Loans past due 90 days or more in 2024 compared to the prior year resulted from a $3.3 million IBLOC loan secured by the cash value of insurance, the payoff of which was subject to an administrative delay by the related insurance company.

(3) In the first quarter of 2024, a $39.4 million apartment building rehabilitation bridge loan was transferred to nonaccrual status. On April 2, 2024, the same loan was transferred from nonaccrual status to OREO, and comprised the majority of our OREO at December 31, 2024, with a balance at that date of $41.1 million. We intend to continue to manage the capital improvements on the underlying apartment complex. As the units become available for lease, the property manager will be tasked with leasing these units at market rents. That property is under agreement of sale with a sales price that is expected to cover the Company’s current balance plus the forecasted cost of improvements to the property. The purchaser has increased the total of earnest money deposits to $1.6 million, from $500,000, in consideration of extending the closing date to March 21, 2025. The Company believes that the purpose for the extension is to allow time for this sale to be included in a larger transaction. There can be no assurance that the purchaser will consummate the sale of the property, but if not consummated, the earnest money deposits of $1.6 million would accrue to the Company. The nonaccrual balances in this table as of December 31, 2024, are also reflected in the substandard loan totals.

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The following table summarizes the Company’s non-accrual loans and loans past due 90 days or more, by year of origination, at December 31, 2024 and December 31, 2023: