UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
		SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, ~~2022~~2023



o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
		SECURITIES EXCHANGE ACT OF 1934

For the transition period from: _____ to _____

Commission file number: 000-51018

THE BANCORP, INC.

(Exact name of registrant as specified in its charter)


Delaware		23-3016517
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

409 Silverside Road, Wilmington, DE 19809		(302) 385-5000
(Address of principal executive offices and zip code)		(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol(s)	Name of each Exchange on Which Registered
Common Stock, par value $1.00 per share	TBBK	Nasdaq Global Select

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”,~~filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x	Accelerated filer o	Non-accelerated filer o
Smaller reporting company o	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of October 27, ~~2022,~~2023, there were ~~55,981,560~~53,655,734 outstanding shares of common stock, $1.00 par value.

THE BANCORP, INC

Form 10-Q Index



		Page
Part I Financial Information
Item 1.	Financial Statements:	3

	Consolidated Balance Sheets – September 30, ~~2022~~2023 (unaudited) and December 31, ~~2021~~2022	3

	Unaudited Consolidated Statements of Operations – Three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022	4

	Unaudited Consolidated Statements of Comprehensive Income – Three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022	5

	Unaudited Consolidated Statements of Changes in Shareholders’ Equity – Three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022	6

	Unaudited Consolidated Statements of Cash Flows – Nine months ended September 30, ~~2022~~2023 and ~~2021~~2022	8

	Notes to Unaudited Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4041

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	69

Item 4.	Controls and Procedures	69

Part II Other Information

Item 1.	Legal Proceedings	70
Item 1A.	Risk Factors	70
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3.	~~Defaults Upon Senior Securities~~	70
~~Item 4.~~	~~Mine Safety Disclosure~~s	70
~~Item 5.~~	~~Other Information~~	70
~~Item~~ 6.	Exhibits	71

Signatures		72

PART I – FINANCIAL INFORMATION

Item 1. Financial ~~Statements~~Statements

THE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	September 30,		December 31,		September 30,		December 31,
	2022		2021		2023		2022
(Dollars in thousands, except per share and share data)		(unaudited)
(in thousands, except share data)						(unaudited)


ASSETS
Cash and cash equivalents
Cash and due from banks	$	22,537	$	5,382	$	4,881	$	24,063
Interest earning deposits at Federal Reserve Bank		700,175		596,402
Interest-earning deposits at Federal Reserve Bank						898,533		864,126
Total cash and cash equivalents		722,712		601,784		903,414		888,189

Investment securities, available-for-sale, at fair value		790,594		953,709		756,636		766,016
Commercial loans, at fair value (includes $0 and $61.6 million of loans held for sale at lower of cost or fair value at September 30, 2022 and December 31, 2021, respectively)		818,040		1,388,416
Commercial loans, at fair value						379,603		589,143
Loans, net of deferred loan fees and costs		5,267,375		3,747,224		5,198,972		5,486,853
Allowance for credit losses		(19,689)		(17,806)		(24,145)		(22,374)
Loans, net		5,247,686		3,729,418		5,174,827		5,464,479
Federal Home Loan Bank, Atlantic Central Bankers Bank, and Federal Reserve Bank stock		12,629		1,663		20,157		12,629
Premises and equipment, net		18,443		16,156		28,978		18,401
Accrued interest receivable		25,506		17,871		34,159		32,005
Intangible assets, net		2,149		2,447		1,751		2,049
Other real estate owned		18,873		18,873		18,756		21,210
Deferred tax asset, net		27,241		12,667		20,379		19,703
Assets held-for-sale from discontinued operations		—		3,268
Other assets		93,201		96,967		127,107		89,176
Total assets	$	7,777,074	$	6,843,239	$	7,465,767	$	7,903,000

LIABILITIES
Deposits
Demand and interest checking	$	5,934,591	$	5,561,365	$	6,455,043	$	6,559,617
Savings and money market		575,381		415,546		49,428		140,496
Time deposits, $100,000 and over		401,331		—		—		330,000
Total deposits		6,911,303		5,976,911		6,504,471		7,030,113

Securities sold under agreements to repurchase		42		42		42		42
Senior debt		98,958		98,682		95,771		99,050
Subordinated debentures		13,401		13,401		13,401		13,401
Other long-term borrowings		38,928		39,521		9,861		10,028
Other liabilities		50,704		62,228		68,533		56,335
Total liabilities		7,113,336		6,190,785		6,692,079		7,208,969

SHAREHOLDERS' EQUITY
Common stock - authorized, 75,000,000 shares of $1.00 par value; 56,201,560 and 57,370,563
shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively		56,202		57,371
Common stock - authorized, 75,000,000 shares of $1.00 par value; 53,867,129 and 55,689,627
shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively						53,867		55,690
Additional paid-in capital		311,569		349,686		234,320		299,279
Retained earnings		329,078		239,106		517,587		369,319
Accumulated other comprehensive (loss) income		(33,111)		6,291
Accumulated other comprehensive loss						(32,086)		(30,257)
Total shareholders' equity		663,738		652,454		773,688		694,031

Total liabilities and shareholders' equity	$	7,777,074	$	6,843,239	$	7,465,767	$	7,903,000

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

‎

THE BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS


	For the three months ended September 30,				For the nine months ended September 30,				For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021		2023		2022		2023		2022
	(Dollars in thousands, except per share data)								(Dollars in thousands, except per share data)
Interest income
Loans, including fees	$	75,579	$	46,426	$	181,320	$	143,784	$	110,592	$	75,579	$	324,229	$	181,320
Investment securities:
Taxable interest		6,792		6,882		17,115		22,891		9,647		6,792		28,820		17,115
Tax-exempt interest		25		25		74		78		40		25		114		74
Interest earning deposits		1,525		167		2,876		650
Interest-earning deposits										8,689		1,525		24,271		2,876
		83,921		53,500		201,385		167,403		128,968		83,921		377,434		201,385
Interest expense
Deposits		16,065		1,209		23,261		4,494		38,431		16,065		110,307		23,261
Short-term borrowings		1,235		7		1,267		15		—		1,235		234		1,267
Long-term borrowings		506		—		506		—		128		506		382		506
Senior debt		1,279		1,279		3,838		3,838		1,234		1,279		3,793		3,838
Subordinated debentures		177		112		432		337		293		177		825		432
		19,262		2,607		29,304		8,684		40,086		19,262		115,541		29,304
Net interest income		64,659		50,893		172,081		158,719		88,882		64,659		261,893		172,081
Provision for credit losses		822		1,613		4,331		1,484		1,752		822		4,016		4,331
Net interest income after provision for credit losses		63,837		49,280		167,750		157,235		87,130		63,837		257,877		167,750

Non-interest income
ACH, card and other payment processing fees		2,230		1,905		6,552		5,605		2,553		2,230		7,153		6,552
Prepaid, debit card and related fees		19,175		18,223		57,865		56,878		21,513		19,175		67,013		57,865
Net realized and unrealized gains
on commercial loans, at fair value		745		4,306		11,262		8,881		525		745		4,171		11,262
Leasing related income		1,048		1,968		3,566		4,700		1,767		1,048		4,768		3,566
Other		228		186		698		459		422		228		2,000		698
Total non-interest income		23,426		26,588		79,943		76,523		26,780		23,426		85,105		79,943

Non-interest expense
Salaries and employee benefits		28,001		25,094		77,848		77,839		30,475		28,001		93,427		77,848
Depreciation and amortization		685		729		2,224		2,144		644		685		2,046		2,224
Rent and related occupancy cost		1,268		1,256		3,831		3,777		1,510		1,268		4,265		3,831
Data processing expense		1,292		1,209		3,727		3,481		1,404		1,292		4,123		3,727
Printing and supplies		154		81		342		277		82		154		355		342
Audit expense		366		356		1,107		1,110		446		366		1,255		1,107
Legal expense		907		1,251		3,175		5,349		1,203		907		3,110		3,175
Legal settlement		—		—		1,152		—		—		—		—		1,152
Civil money penalty		1,750		—		1,750		—		—		1,750		—		1,750
Amortization of intangible assets		99		99		298		298		99		99		298		298
FDIC insurance		679		266		2,326		5,235		806		679		2,233		2,326
Software		4,001		4,045		12,030		11,435		4,427		4,001		12,981		12,030
Insurance		1,314		1,110		3,692		2,881		1,321		1,314		3,935		3,692
Telecom and IT network communications		368		413		1,119		1,227		305		368		1,044		1,119
Consulting		339		448		902		952		448		339		1,412		902
Writedowns and other losses on other real estate owned										131		—		1,315		—
Other		3,607		3,027		10,504		9,145		4,158		3,607		13,633		10,504
Total non-interest expense		44,830		39,384		126,027		125,150		47,459		44,830		145,432		126,027
Income from continuing operations before income taxes		42,433		36,484		121,666		108,608
Income before income taxes										66,451		42,433		197,550		121,666
Income tax expense		11,829		8,289		31,694		25,195		16,314		11,829		49,282		31,694
Net income from continuing operations	$	30,604	$	28,195	$	89,972	$	83,413
Discontinued operations
Income from discontinued operations before income taxes		—		87		—		324
Income tax expense		—		21		—		76
Income from discontinued operations, net of tax		—		66		—		248
Net income	$	30,604	$	28,261	$	89,972	$	83,661	$	50,137	$	30,604	$	148,268	$	89,972

Net income per share from continuing operations - basic	$	0.54	$	0.49	$	1.58	$	1.45
Net income per share from discontinued operations - basic	$	—	$	—	$	—	$	0.01
Net income per share - basic	$	0.54	$	0.49	$	1.58	$	1.46	$	0.93	$	0.54	$	2.70	$	1.58

Net income per share from continuing operations - diluted	$	0.54	$	0.48	$	1.56	$	1.41
Net income per share from discontinued operations - diluted	$	—	$	—	$	—	$	0.01
Net income per share - diluted	$	0.54	$	0.48	$	1.56	$	1.42	$	0.92	$	0.54	$	2.68	$	1.56

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

‎

THE BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	For the three months ended September 30,				For the nine months ended September 30,				For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021		2023		2022		2023		2022
	(Dollars in thousands)								(Dollars in thousands)

Net income	$	30,604	$	28,261	$	89,972	$	83,661	$	50,137	$	30,604	$	148,268	$	89,972
Other comprehensive loss, net of reclassifications into net income:

Other comprehensive loss
Securities available-for-sale:
Change in net unrealized losses during the period		(14,431)		(4,867)		(53,982)		(9,192)		(4,310)		(14,431)		(2,510)		(53,982)
Reclassification adjustments for losses included in income		—		—		6		7		—		—		4		6
Other comprehensive loss		(14,431)		(4,867)		(53,976)		(9,185)		(4,310)		(14,431)		(2,506)		(53,976)

Income tax benefit related to items of other comprehensive loss
Securities available-for-sale:
Change in net unrealized losses during the period		(3,897)		(1,314)		(14,576)		(2,483)		(1,164)		(3,897)		(678)		(14,576)
Reclassification adjustments for losses included in income		—		—		2		2		—		—		1		2
Income tax benefit related to items of other comprehensive loss		(3,897)		(1,314)		(14,574)		(2,481)		(1,164)		(3,897)		(677)		(14,574)

Other comprehensive loss, net of tax and reclassifications into net income		(10,534)		(3,553)		(39,402)		(6,704)		(3,146)		(10,534)		(1,829)		(39,402)
Comprehensive income	$	20,070	$	24,708	$	50,570	$	76,957	$	46,991	$	20,070	$	146,439	$	50,570

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

THE BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY


For the three and nine months ended September 30, 2022
For the three and nine months ended September 30, 2023													For the three and nine months ended September 30, 2023
(Dollars in thousands, except share data)	(Dollars in thousands, except share data)												(Dollars in thousands, except share data)

										Accumulated											Accumulated
	Common				Additional				other				Common				Additional				other
	stock		Common		paid-in		Retained		comprehensive				stock		Common		paid-in		Retained		comprehensive
	shares		stock		capital		earnings		loss		Total		shares		stock		capital		earnings		(loss) income		Total

Balance at January 1, 2022		57,370,563	$	57,371	$	349,686	$	239,106	$	6,291	$	652,454
Balance at January 1, 2023														55,689,627	$	55,690	$	299,279	$	369,319	$	(30,257)	$	694,031
Net income		—		—		—		28,966		—		28,966		—		—		—		49,122		—		49,122
Common stock issued from option exercises,
net of tax benefits		27,818		27		57		—		—		84		13,158		13		92		—		—		105
Common stock issued from restricted units,
net of tax benefits		284,040		284		(284)		—		—		—		405,286		405		(405)		—		—		—
Stock-based compensation		—		—		1,618		—		—		1,618		—		—		3,169		—		—		3,169
Common stock repurchases		(527,393)		(527)		(14,473)		—		—		(15,000)
Common stock repurchases and excise tax														(778,442)		(778)		(24,321)		—		—		(25,099)
Other comprehensive income net of
reclassification adjustments and tax														—		—		—		—		3,820		3,820
Balance at March 31, 2023														55,329,629	$	55,330	$	277,814	$	418,441	$	(26,437)	$	725,148

Net income														—	$	—	$	—	$	49,009	$	—	$	49,009
Common stock issued from restricted units,
net of tax benefits														41,382		41		(41)		—		—		—
Stock-based compensation														—		—		2,750		—		—		2,750
Common stock repurchases and excise tax														(828,727)		(829)		(24,408)		—		—		(25,237)
Other comprehensive loss net of
reclassification adjustments and tax		—		—		—		—		(15,827)		(15,827)		—		—		—		—		(2,503)		(2,503)
Balance at March 31, 2022		57,155,028	$	57,155	$	336,604	$	268,072	$	(9,536)	$	652,295
Balance at June 30, 2023														54,542,284	$	54,542	$	256,115	$	467,450	$	(28,940)	$	749,167

Net income		—	$	—	$	—	$	30,402	$	—	$	30,402		—	$	—	$	—	$	50,137	$	—	$	50,137
Common stock issued from option exercises,
net of tax benefits		7,500		7		71		—		—		78
Common stock issued from restricted units,
net of tax benefits		280,892		281		(281)		—		—		—		—		10		(10)		—		—		—
Stock-based compensation		—		—		1,802		—		—		1,802		10,323		—		2,775		—		—		2,775
Common stock repurchases		(577,926)		(578)		(14,422)		—		—		(15,000)		(685,478)		(685)		(24,560)		—		—		(25,245)
Other comprehensive loss net of
reclassification adjustments and tax		—		—		—		—		(13,041)		(13,041)		—		—		—		—		(3,146)		(3,146)
Balance at June 30, 2022		56,865,494	$	56,865	$	323,774	$	298,474	$	(22,577)	$	656,536

Net income		—	$	—	$	—	$	30,604	$	—	$	30,604
Stock-based compensation		—		—		2,131		—		—		2,131
Common stock repurchases		(663,934)		(663)		(14,336)		—		—		(14,999)
Other comprehensive loss net of
reclassification adjustments and tax		—		—		—		—		(10,534)		(10,534)
Balance at September 30, 2022		56,201,560	$	56,202	$	311,569	$	329,078	$	(33,111)	$	663,738
Balance at September 30, 2023														53,867,129	$	53,867	$	234,320	$	517,587	$	(32,086)	$	773,688

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

‎

THE BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY


For the three and nine months ended September 30, 2021
(in thousands, except share data)
For the three and nine months ended September 30, 2022													For the three and nine months ended September 30, 2022
(Dollars in thousands, except share data)													(Dollars in thousands, except share data)
										Accumulated											Accumulated
	Common				Additional				other				Common				Additional				other
	stock		Common		paid-in		Retained		comprehensive				stock		Common		paid-in		Retained		comprehensive
	shares		stock		capital		earnings		income		Total		shares		stock		capital		earnings		income (loss)		Total

Balance at January 1, 2021		57,550,629	$	57,551	$	377,452	$	128,453	$	17,708	$	581,164
Balance at January 1, 2022														57,370,563	$	57,371	$	349,686	$	239,106	$	6,291	$	652,454
Net income		—		—		—		25,965		—		25,965		—		—		—		28,966		—		28,966
Common stock issued from option exercises,
net of tax benefits		61,500		61		404		—		—		465		27,818		27		57		—		—		84
Common stock issued from restricted units,
net of tax benefits		230,212		230		(230)		—		—		—		284,040		284		(284)		—		—		—
Stock-based compensation		—		—		2,261		—		—		2,261		—		—		1,618		—		—		1,618
Common stock repurchases		(594,428)		(594)		(9,406)		—		—		(10,000)		(527,393)		(527)		(14,473)		—		—		(15,000)
Other comprehensive loss net of
reclassification adjustments and tax		—		—		—		—		(3,091)		(3,091)		—		—		—		—		(15,827)		(15,827)
Balance at March 31, 2021		57,247,913	$	57,248	$	370,481	$	154,418	$	14,617	$	596,764
Balance at March 31, 2022														57,155,028	$	57,155	$	336,604	$	268,072	$	(9,536)	$	652,295

Net income		—	$	—	$	—	$	29,435	$	—	$	29,435		—	$	—	$	—	$	30,402	$	—	$	30,402
Common stock issued from option exercises,
net of tax benefits		217,368		217		547		—		—		764		7,500		7		71		—		—		78
Common stock issued from restricted units,
net of tax benefits		442,321		442		(442)		—		—		—		280,892		281		(281)		—		—		—
Stock-based compensation		—		—		2,206		—		—		2,206		—		—		1,802		—		—		1,802
Common stock repurchases		(449,315)		(449)		(9,551)		—		—		(10,000)		(577,926)		(578)		(14,422)		—		—		(15,000)
Other comprehensive loss net of
reclassification adjustments and tax		—		—		—		—		(60)		(60)		—		—		—		—		(13,041)		(13,041)
Balance at June 30, 2021		57,458,287	$	57,458	$	363,241	$	183,853	$	14,557	$	619,109
Balance at June 30, 2022														56,865,494	$	56,865	$	323,774	$	298,474	$	(22,577)	$	656,536

Net income		—	$	—	$	—	$	28,261	$	—	$	28,261	$	—	$	—	$	—	$	30,604	$	—	$	30,604
Common stock issued from restricted units,
net of tax benefits		313,446		314		1,790		—		—		2,104
Stock-based compensation		—		—		2,056		—		—		2,056		—		—		2,131		—		—		2,131
Common stock repurchases		(440,887)		(441)		(9,559)						(10,000)		(663,934)		(663)		(14,336)		—		—		(14,999)
Other comprehensive loss net of
reclassification adjustments and tax		—		—		—		—		(3,553)		(3,553)		—		—		—		—		(10,534)		(10,534)
Balance at September 30, 2021		57,330,846	$	57,331	$	357,528	$	212,114	$	11,004	$	637,977
Balance at September 30, 2022														56,201,560	$	56,202	$	311,569	$	329,078	$	(33,111)	$	663,738

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

‎

THE BANCORP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS



	For the nine months				For the nine months
	ended September 30,				ended September 30,
	2022		2021		2023		2022
		(Dollars in thousands)				(Dollars in thousands)
Operating activities
Net income from continuing operations	$	89,972	$	83,413
Net income from discontinued operations, net of tax		—		248
Net income					$	148,268	$	89,972
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		2,522		2,442		2,344		2,522
Provision for credit losses		4,331		1,484		4,016		4,331
Net amortization of investment securities discounts/premiums		1,356		3,216		703		1,356
Stock-based compensation expense		5,551		6,523		8,694		5,551
Gain on commercial loans, at fair value		(15,034)		(7,267)		(5,852)		(15,034)
Gain from discontinued operations		—		(1,492)
Writedown of other real estate owned						1,147		—
Change in fair value of commercial loans, at fair value		5,278		1,330		1,700		5,278
Change in fair value of derivatives		(1,505)		(1,328)		(19)		(1,505)
Loss on sales of investment securities		6		7		4		6
(Increase) decrease in accrued interest receivable		(7,635)		3,278
Increase in accrued interest receivable						(2,154)		(7,635)
Increase in other assets		(5,563)		(6,216)		(45,102)		(5,563)
Change in fair value of discontinued assets held-for-sale		—		498
Decrease in other liabilities		(10,971)		(14,744)
Increase (decrease) in other liabilities						11,616		(10,971)
Net cash provided by operating activities		68,308		71,392		125,365		68,308

Investing activities
Purchase of investment securities available-for-sale		(19,321)		(246,958)		(48,989)		(19,321)
Proceeds from redemptions and prepayments of securities available-for-sale		127,374		386,369		55,151		127,374
Proceeds from sale of other real estate owned						2,044		—
Sale of repossessed assets		852		927		6,671		852
Net increase in loans		(1,459,304)		(485,647)
Net decrease in discontinued loans held-for-sale		—		21,882
Net decrease (increase) in loans						278,373		(1,459,304)
Commercial loans, at fair value drawn during the period		(36,877)		(62,151)		(105,192)		(36,877)
Payments on commercial loans, at fair value		554,836		351,239		317,980		554,836
Purchases of premises and equipment		(4,495)		(1,237)		(12,369)		(4,495)
Change in receivable from investment in unconsolidated entity		—		18
Return of investment in unconsolidated entity		—		7,337
Decrease in discontinued assets held-for-sale		—		4,858
Net cash used in investing activities		(836,935)		(23,363)
Net cash provided by (used in) investing activities						493,669		(836,935)

Financing activities
Net increase (decrease) in deposits		934,392		(349,548)
Proceeds from short-term borrowings		—		300,000
Net (decrease) increase in deposits						(525,642)		934,392
Redemption of senior debt						(3,273)		—
Proceeds from the issuance of common stock		162		3,333		105		162
Repurchases of common stock		(44,999)		(30,000)
Net cash provided by (used in) financing activities		889,555		(76,215)
Repurchases of common stock and excise tax						(74,999)		(44,999)
Net cash (used in) provided by financing activities						(603,809)		889,555

Net increase (decrease) in cash and cash equivalents		120,928		(28,186)
Net increase in cash and cash equivalents						15,225		120,928

Cash and cash equivalents, beginning of period		601,784		345,515		888,189		601,784

Cash and cash equivalents, end of period	$	722,712	$	317,329	$	903,414	$	722,712

Supplemental disclosure:
Interest paid	$	30,079	$	10,343	$	117,473	$	30,079
Taxes paid	$	30,168	$	31,057	$	67,985	$	30,168
Non-cash investing and financing activities
Transfer of loans from investment in unconsolidated entity upon its dissolution	$	—	$	22,926
Transfer of real estate owned from investment in unconsolidated entity upon its dissolution	$	—	$	2,145
Transfer of loans from discontinued operations	$	61,580	$	—	$	—	$	61,580
Transfer of real estate owned from discontinued operations	$	17,343	$	—	$	—	$	17,343
Leased vehicles transferred to repossessed assets	$	830	$	757	$	7,009	$	830

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

‎

THE BANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Nature of Operations

The Bancorp, Inc.~~, or~~ (“the Company”), is a Delaware corporation and a registered financial holding company. Its primary, wholly-owned subsidiary is The Bancorp Bank, National Association or (“the Bank”)~~, which is wholly owned by the Company.~~. The Bank is a nationally chartered commercial bank located in ~~Wilmington, Delaware~~Sioux Falls, South Dakota and is a Federal Deposit Insurance Corporation (“FDIC”) insured institution. As a nationally chartered institution, its primary regulator is the Office of the Comptroller of the Currency (“OCC”). The Bank has two primary lines of business consisting of its national specialty ~~lending~~finance segment and its payments segment.

In the national specialty ~~lending~~finance segment, the Bank makes the following types of loans: securities-backed lines of credit (“SBLOC”) and cash value of insurance-backed lines of credit (“IBLOC”), leases (direct lease financing), Small Business Administration (“SBA”) loans and non-SBA commercial real estate (“CRE”) bridge loans. Prior to 2020, the Company generated CRE bridge loans for sale into capital markets primarily through loan securitizations which issued commercial mortgage backed securities (“CMBS”). In the third quarter of 2020, the Company decided to retain the CRE bridge loans on its balance sheet and no future securitizations are currently planned. In the third quarter of 2021, the Company resumed originating CRE bridge loans (primarily apartment buildings), after suspending the origination of such loans for most of 2020 and the first half of 2021. These new originations are classified as real estate bridge loans (“REBL”) and are accounted for at amortized cost, while prior CRE bridge loans originally generated for securitization continue to be accounted for at fair value. Additionally, in 2020, the Company began originating advisor financing loans to investment advisors for debt refinance, acquisition of other advisory firms or internal succession..

While the national specialty ~~lending~~finance segment generates the majority of the Company’s revenues, the ~~payment~~payments segment also contributes significant revenues. In its payments segment, the Company provides payment and deposit services nationally, which include prepaid and debit card accounts, private label banking, deposit accounts to investment advisors’ customers, card payment and other payment processing services. ~~Payment~~Payments segment deposits fund the majority of the Company’s loans and securities and may beresult in lower ~~cost~~costs than other funding sources. Most of ~~that~~the payments segment’s revenues and deposits, ~~in addition to~~and SBLOC and IBLOC loans, result from relationships with third parties ~~that~~which market such products. Concentrations of loans and ~~lower cost~~ deposits ~~result~~are based upon the cumulative account balances generated by those third parties. Similar ~~revenue~~ concentrations result in revenues in prepaid, debit card and related fees. These concentrations may also be reflected in a lower cost of funds compared to other funding sources. The Company sweeps certain deposits off its balance sheet to other institutions through intermediaries. Such sweeps are utilized to optimize diversity within its funding structure by managing the percentage of individual client deposits to total deposits.

The Company and the Bank are subject to regulation by certain state and federal agencies and, accordingly, they are examined periodically by those regulatory authorities. As a consequence of the extensive regulation of commercial banking activities, the Company’s and the Bank’s businesses may be affected by state and federal legislation and regulations.

Note 2. Significant Accounting Policies

Basis of Presentation

The financial statements of the Company, as of September 30, ~~2022~~2023 and for the three and nine month periods ended September 30, ~~2022~~2023 and ~~2021,~~2022, are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted in this Quarterly Report on Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission ~~(“SEC”~~(the “SEC”). However, in the opinion of management, these interim financial statements include all necessary adjustments to fairly present the results of the interim periods presented. The unaudited interim consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 (the ~~“2021~~“2022 Form 10-K”). The results of operations for the nine month period ended September 30, ~~2022~~2023 may not necessarily be indicative of the results of operations for the full year ending December 31, 2022. In the first quarter of 2021, the Company changed its presentation of treasury stock acquired through common stock repurchases. To simplify presentation, common stock repurchases previously shown separately as treasury stock, are now shown as reductions in common stock and additional paid-in capital.2023.

There have been no significant changes to the ~~Significant Accounting Policies~~Company’s significant accounting policies as described in the ~~2021~~2022 Form 10-K. The Company performed a strategic evaluation of its businesses in the third quarter of 2014 and decided to discontinue its Philadelphia commercial lending operations to focus on its specialty finance lending. The Company has since disposed of the vast majority of related loans and other real estate owned. While in the process of disposition, financial results of the commercial lending operations were presented as separate from continuing operations on the consolidated statements of operations and assets of the commercial lending operations to be disposed of were presented as assets held-for-sale on the consolidated balance sheets. As disposition efforts concluded, discontinued loans of $61.6 million were reclassified to loans held for investment in the first quarter of 2022. Accordingly, these loans will be accounted for as such, and included in related tables. On the December 31, 2021 consolidated balance sheet, these discontinued loans

were reclassified as loans held for sale in continuing operations and included within “Commercial loans, at fair value”. Discontinued other real estate owned of $17.3 million which constituted the remainder of discontinued assets was reclassified to the other real estate owned caption on the balance sheet. As noted above, in the first quarter of 2022 the loans previously in discontinued operations were reclassified to held for investment. In the second quarter of 2022, 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. The $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 allowance for credit losses and $2.2 million increased the allowance for loan commitments recorded in other liabilities. These reclassification entries were made retroactive to the first quarter of 2022 and are reflected in year to date 2022 results.

The Company’s non-SBA commercial real estate bridge loans, at fair value, are primarily collateralized by multi-family properties (apartment buildings), and to a lesser extent, by hotel and retail properties. These loans were originally generated for sale through securitizations. In 2020, the Company decided to retain these loans on its balance sheet as ~~interest earning~~interest-earning assets and ~~has~~ resumed originating such ~~loans.~~loans in 2021. These new originations are identified as REBL and are held for investment in the loan portfolio. Prior originations initially intended for securitizations continue to be accounted for at fair value, and are included in the balance sheet in “Commercial loans, at fair value.”

Note 3. Stock-based Compensation

The Company recognizes compensation expense for stock options in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 718 Stock Based Compensation(“~~ASC”~~ASC 718”) ~~718, “Stock Based Compensation”~~. The expense of the option is generally measured at fair value at the grant date with compensation expense recognized over the service period, which is typically the vesting period. For grants subject to a service condition, the Company utilizes the Black-Scholes option-pricing model to estimate the fair value of each option on the date of grant. The Black-Scholes model takes into consideration the exercise price and expected life of the options, the

current price of the underlying stock and its expected volatility, the expected dividends on the stock and the current risk-free interest rate for the expected life of the option. The Company’s estimate of the fair value of a stock option is based on expectations derived from historical experience and may not necessarily equate to its market value when fully vested. In accordance with ASC 718, the Company estimates the number of options for which the requisite service is expected to be rendered. At September 30, ~~2022,~~2023, the Company had ~~three~~two active stock-based compensation plans.

During the nine months ended September 30, 2023, the Company granted 57,573 stock options with a vesting period of four years and a weighted average grant-date fair value of $17.37. During the nine months ended September 30, 2022, the Company granted 100,000 stock options with a vesting period of four years and a weighted average grant-date fair value of $14.01. ~~During the nine months ended September 30, 2021, the Company granted 100,000 stock options with a vesting period of four years and a weighted average grant-date fair value of $8.51.~~ There were ~~35,318~~13,158 common stock options exercised in the nine month period ended September 30, ~~2022.~~2023. There were ~~657,500~~35,318 common stock options exercised in the nine month period ended September 30, ~~2021.~~2022.

A summary of the Company’s stock options is presented below.



				Weighted average						Weighted average
				remaining						remaining
		Weighted average		contractual	Aggregate			Weighted average		contractual	Aggregate
	Options	exercise price		term (years)	intrinsic value		Options	exercise price		term (years)	intrinsic value
Outstanding at January 1, 2022	550,104	$	9.67	7.17	$	8,603,191
Outstanding at January 1, 2023							580,104	$	13.25	7.48	$	8,968,660
Granted	100,000		30.32	9.37		—	57,573		35.17	9.37		—
Exercised	(35,318)		8.84	—		808,850	(13,158)		10.45	—		278,450
Expired	—		—	—		—	—		—	—		—
Forfeited	(7,182)		—	—		—	(1,842)		—	—		—
Outstanding at September 30, 2022	607,604	$	13.13	7.40	$	6,213,070
Exercisable at September 30, 2022	266,328	$	8.87	6.31	$	3,490,558
Outstanding at September 30, 2023							622,677	$	15.35	7.15	$	11,964,147
Exercisable at September 30, 2023							365,104	$	10.41	6.63	$	8,793,897

The Company granted ~~260,693~~547,556 restricted stock units (“RSUs”) in the first nine months of 2023, of which 514,785 have a vesting period of three years and 32,771 have a vesting period of one year. At issuance, the 547,556 RSUs granted in the first nine months of 2023 had a weighted average fair value of $35.00 per unit. During the nine months ended September 30,2022, the Company granted 260,693 RSUs, of which 219,311 have a vesting period of three years and 41,382 have a vesting period of one year. At issuance, the 260,693 RSUs granted in the first nine months of 2022 had a weighted average fair value of $28.61 per unit. I~~n the first nine months of 2021, t~~he Company granted 313,697 RSUs of which 261,073 have a vesting period of three years and 52,624 have a vesting period of one year. At issuance, the 313,697 RSUs granted in the first nine months of 2021 had a weighted average fair value of $18.81 per unit.

A summary ~~of the status~~ of the Company’s RSUs is presented below.



		Weighted average		Average remaining		Weighted average		Average remaining
		grant date		contractual		grant date		contractual
	RSUs	fair value		term (years)	RSUs	fair value		term (years)
Outstanding at January 1, 2022	1,030,124	$	10.49	1.17
Outstanding at January 1, 2023					671,696	$	17.78	1.00
Granted	260,693		28.61	2.09	547,556		35.00	2.26
Vested	(564,932)		10.21	—	(456,991)		13.80	—
Forfeited	(23,220)		13.29	—	(2,511)		32.64	—
Outstanding at September 30, 2022	702,665	$	17.52	1.22
Outstanding at September 30, 2023					759,750	$	32.54	1.91

As of September 30, ~~2022~~2023, there was a total of ~~$10.3~~$19.4 million of unrecognized compensation cost related to unvested awards under ~~share-based~~stock-based compensation plans. This cost is expected to be recognized over a weighted average period of approximately ~~1.3~~1.5 years. Related compensation expense for the three months ended September 30, ~~2022~~2023 and ~~2021~~2022 was ~~$2.1~~$2.8 million and $2.1 million, respectively. Related compensation expense for the nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 was ~~$5.6~~$8.7 million and ~~$6.5~~$5.6 million, respectively. The total issuance date fair value of RSUs vested and options exercised during the nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 was ~~$6.0~~$6.4 million and ~~$7.6~~$6.0 million, respectively. The total intrinsic value of the options exercised and RSUs vested in those respective periods was ~~$14.7~~$16.8 million and ~~$25.3~~$14.7 million, respectively.

For the periods ended September 30, ~~2022~~2023 and ~~2021,~~2022, the Company estimated the fair value of each stock option grant on the date of grant using the Black-Scholes options pricing model with the following weighted average assumptions:



	September 30,		September 30,
	2022	2021	2023	2022
Risk-free interest rate	1.94%	1.19%	3.67%	1.94%
Expected dividend yield	—	—	—	—
Expected volatility	45.10%	45.61%	45.21%	45.10%
Expected lives (years)	6.3	6.3	6.3	6.3

Expected volatility is based on the historical volatility of the Company’s stock and peer group comparisons over the expected life of the ~~grant.~~option. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury strip rate in effect at the time of the grant. The life of the option is based on historical factors which include the contractual term, vesting period, exercise behavior and employee terminations. In accordance with ASC 718, ~~Stock Based Compensation~~, stock based compensation expense for the period ended September 30, ~~2022~~ 2023

is based on awards that are ultimately expected to vest and has been reduced for estimated forfeitures. The Company ~~estimated~~estimates forfeitures using historical data ~~based upon the groups identified by management.~~or acceptable expedients.

Note 4. Earnings Per Share

The Company calculates earnings per share in accordance with ASC 260, ~~“Earnings~~Earnings Per ~~Share”~~Share. Basic earnings per share ~~exclude~~excludes dilution and ~~are~~is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities, including stock options and RSUs or other contracts to issue common stock were exercised and converted into common stock. Stock options are dilutive if their exercise prices are less than the current stock ~~prices.~~price. RSUs are dilutive because they represent grants over vesting periods which do not require employees to pay exercise prices. The dilution shown in the tables below includes the potential dilution from both stock options and RSUs.

The following tables show the Company’s earnings per share for the periods presented:



	For the three months ended						For the three months ended
	September 30, 2022						September 30, 2023
	Income		Shares		Per share		Income		Shares		Per share
	(numerator)		(denominator)		amount		(numerator)		(denominator)		amount
		(Dollars in thousands except share and per share data)						(Dollars in thousands except share and per share data)
Basic earnings per share
Net earnings available to common shareholders	$	30,604		56,429,425	$	0.54	$	50,137		54,175,184	$	0.93
Effect of dilutive securities
Common stock options and restricted stock units		—		578,799		—
Common stock options and RSUs								—		563,426		(0.01)
Diluted earnings per share
Net earnings available to common shareholders	$	30,604		57,008,224	$	0.54	$	50,137		54,738,610	$	0.92

Stock options for ~~407,604~~465,104 shares, exercisable at prices between $6.87 and ~~$10.45~~$18.81 per share, were outstanding at September 30, ~~2022,~~2023, and included in the diluted earnings per share computation because the exercise price per share was less than the average market price. Stock options for ~~200,000~~157,573 shares were anti-dilutive and not included in the earnings per share calculation.



	For the nine months ended
	September 30, 2023
	Income		Shares		Per share
	(numerator)		(denominator)		amount
		(Dollars in thousands except share and per share data)
Basic earnings per share
Net earnings available to common shareholders	$	148,268		54,828,547	$	2.70
Effect of dilutive securities
Common stock options and RSUs		—		507,807		(0.02)
Diluted earnings per share
Net earnings available to common shareholders	$	148,268		55,336,354	$	2.68

Stock options for 465,104 shares, exercisable at prices between $6.87 and $18.81 per share, were outstanding at September 30, 2023, and included in the diluted earnings per share computation because the exercise price per share was less than the average market price. Stock options for 157,573 shares were anti-dilutive and not included in the earnings per share calculation.



	For the nine months ended						For the three months ended
	September 30, 2022						September 30, 2022
	Income		Shares		Per share		Income		Shares		Per share
	(numerator)		(denominator)		amount		(numerator)		(denominator)		amount
		(Dollars in thousands except share and per share data)						(Dollars in thousands except share and per share data)
Basic earnings per share
Net earnings available to common shareholders	$	89,972		56,782,524	$	1.58	$	30,604		56,429,425	$	0.54
Effect of dilutive securities
Common stock options and restricted stock units		—		728,462		(0.02)
Common stock options and RSUs								—		578,799		—
Diluted earnings per share
Net earnings available to common shareholders	$	89,972		57,510,986	$	1.56	$	30,604		57,008,224	$	0.54

Stock options for 407,604 shares, exercisable at prices between $6.87 and $10.45 per share, were outstanding at September 30, 2022, and included in the diluted earnings per share computation because the exercise price per share was less than the average market ~~price~~.price. Stock options for 200,000 shares were anti-dilutive and not included in the earnings per share calculation.

For the three months ended
September 30, 2021
Income
Shares
Per share
(numerator)
(denominator)
amount
(dollars in thousands except share and per share data)
Basic earnings per share from continuing operations
Net earnings available to common shareholders
$
28,195
57,198,778
$
0.49
Effect of dilutive securities
Common stock options and restricted stock units
—
1,429,528
(0.01)
Diluted earnings per share
Net earnings available to common shareholders
$
28,195
58,628,306
$
0.48

For the three months ended
September 30, 2021
Income
Shares
Per share
(numerator)
(denominator)
amount
(dollars in thousands except share and per share data)
Basic earnings per share from discontinued operations
Net earnings available to common shareholders
$
66
57,198,778
$
—
Effect of dilutive securities
Common stock options and restricted stock units
—
1,429,528
—
Diluted earnings per share
Net earnings available to common shareholders
$
66
58,628,306
$
—



	For the three months ended						For the nine months ended
	September 30, 2021						September 30, 2022
	Income		Shares		Per share		Income		Shares		Per share
	(numerator)		(denominator)		amount		(numerator)		(denominator)		amount
		(dollars in thousands except share and per share data)						(Dollars in thousands except share and per share data)
Basic earnings per share
Net earnings available to common shareholders	$	28,261		57,198,778	$	0.49	$	89,972		56,782,524	$	1.58
Effect of dilutive securities
Common stock options and restricted stock units		—		1,429,528		(0.01)
Common stock options and RSUs								—		728,462		(0.02)
Diluted earnings per share
Net earnings available to common shareholders	$	28,261		58,628,306	$	0.48	$	89,972		57,510,986	$	1.56

~~Notes: The total of diluted earnings per share from continuing and discontinued operations does not equal diluted earnings per share due to rounding.~~

~~In 2022, after reclassification of discontinued assets to continuing operations, there was no further income or expense for discontinued operations.~~

Stock options for ~~504,104~~407,604 shares, exercisable at prices between $6.87 and ~~$18.81~~$10.45 per share, were outstanding at September 30, ~~2021,~~2022, and included in the ~~dilutive~~diluted earnings per share ~~computation.~~computation because the exercise price per share was less than the average market price. Stock options for ~~100,000 shares were anti-dilutive and not included in the earnings per share calculation.~~

For the nine months ended
September 30, 2021
Income
Shares
Per share
(numerator)
(denominator)
amount
(dollars in thousands except share and per share data)
Basic earnings per share from continuing operations
Net earnings available to common shareholders
$
83,413
57,221,174
$
1.45
Effect of dilutive securities
Common stock options and restricted stock units
—
1,710,972
(0.04)
Diluted earnings per share
Net earnings available to common shareholders
$
83,413
58,932,146
$
1.41

For the nine months ended
September 30, 2021
Income
Shares
Per share
(numerator)
(denominator)
amount
(dollars in thousands except share and per share data)
Basic earnings per share from discontinued operations
Net earnings available to common shareholders
$
248
57,221,174
$
0.01
Effect of dilutive securities
Common stock options and restricted stock units
—
1,710,972
—
Diluted earnings per share
Net earnings available to common shareholders
$
248
58,932,146
$
0.01

For the nine months ended
September 30, 2021
Income
Shares
Per share
(numerator)
(denominator)
amount
(dollars in thousands except share and per share data)
Basic earnings per share
Net earnings available to common shareholders
$
83,661
57,221,174
$
1.46
Effect of dilutive securities
Common stock options and restricted stock units
—
1,710,972
(0.04)
Diluted earnings per share
Net earnings available to common shareholders
$
83,661
58,932,146
$
1.42

Stock options for 504,104 shares, exercisable at prices between $6.87 and $18.81 per share, were outstanding at September 30, 2021, and included in the dilutive earnings per share computation. Stock options for 100,000200,000 shares were anti-dilutive and not included in the earnings per share calculation.

Note 5. Investment Securities

The amortized cost, gross unrealized gains and losses, and fair values of the Company’s investment securities classified as available-for-sale at September 30, ~~2022~~2023 and December 31, ~~2021~~2022 are summarized as follows (in thousands):



Available-for-sale	September 30, 2022								September 30, 2023
			Gross		Gross						Gross		Gross
	Amortized		unrealized		unrealized		Fair		Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value		cost		gains		losses		value
U.S. Government agency securities	$	25,872	$	14	$	(1,604)	$	24,282	$	35,698	$	6	$	(2,677)	$	33,027
Asset-backed securities *		354,690		—		(13,709)		340,981
Asset-backed securities⁽¹⁾										334,517		—		(3,019)		331,498
Tax-exempt obligations of states and political subdivisions		3,559		—		(102)		3,457		4,860		—		(227)		4,633
Taxable obligations of states and political subdivisions		45,696		54		(1,718)		44,032		43,351		10		(1,644)		41,717
Residential mortgage-backed securities		154,920		120		(10,726)		144,314		175,122		85		(15,166)		160,041
Collateralized mortgage obligation securities		46,479		—		(1,717)		44,762		37,709		—		(2,117)		35,592
Commercial mortgage-backed securities		194,856		—		(12,890)		181,966		158,810		—		(14,962)		143,848
Corporate debt securities		10,000		—		(3,200)		6,800		10,000		—		(3,720)		6,280
	$	836,072	$	188	$	(45,666)	$	790,594	$	800,067	$	101	$	(43,532)	$	756,636

September 30, 2022
Gross
Gross
Amortized
unrealized
unrealized
Fair
* Asset-backed securities as shown above
cost
gains
losses
value
Federally insured student loan securities
$
18,692
$
—
$
(244)
$
18,448
Collateralized loan obligation securities
335,998
—
(13,465)
322,533
$
354,690
$
—
$
(13,709)
$
340,981

Available-for-sale
December 31, 2021
Gross
Gross
Amortized
unrealized
unrealized
Fair
cost
gains
losses
value
U.S. Government agency securities
$
36,182
$
1,167
$
(47)
$
37,302
Asset-backed securities *
360,332
327
(241)
360,418
Tax-exempt obligations of states and political subdivisions
3,559
172
—
3,731
Taxable obligations of states and political subdivisions
45,984
2,422
—
48,406
Residential mortgage-backed securities
179,778
4,804
(281)
184,301
Collateralized mortgage obligation securities
60,778
1,083
—
61,861
Commercial mortgage-backed securities
248,599
4,106
(1,629)
251,076
Corporate debt securities
10,000
—
(3,386)
6,614
$
945,212
$
14,081
$
(5,584)
$
953,709


	September 30, 2023
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
⁽¹⁾Asset-backed securities as shown above	cost		gains		losses		value
Federally insured student loan securities	$	6,581	$	—	$	(53)	$	6,528
Collateralized loan obligation securities		327,936		—		(2,966)		324,970
	$	334,517	$	—	$	(3,019)	$	331,498

December 31, 2021
Gross
Gross
Amortized
unrealized
unrealized
Fair
* Asset-backed securities as shown above
cost
gains
losses
value
Federally insured student loan securities
$
22,518
$
13
$
(73)
$
22,458
Collateralized loan obligation securities
337,814
314
(168)
337,960
$
360,332
$
327
$
(241)
$
360,418



Available-for-sale	December 31, 2022
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value
U.S. Government agency securities	$	29,859	$	17	$	(1,495)	$	28,381
Asset-backed securities⁽¹⁾		343,885		—		(9,876)		334,009
Tax-exempt obligations of states and political subdivisions		3,560		—		(61)		3,499
Taxable obligations of states and political subdivisions		45,668		52		(1,709)		44,011
Residential mortgage-backed securities		150,135		148		(10,463)		139,820
Collateralized mortgage obligation securities		43,858		—		(2,075)		41,783
Commercial mortgage-backed securities		179,977		—		(13,164)		166,813
Corporate debt securities		10,000		—		(2,300)		7,700
	$	806,942	$	217	$	(41,143)	$	766,016


	December 31, 2022
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
⁽¹⁾Asset-backed securities as shown above	cost		gains		losses		value
Federally insured student loan securities	$	8,488	$	—	$	(144)	$	8,344
Collateralized loan obligation securities		335,397		—		(9,732)		325,665
	$	343,885	$	—	$	(9,876)	$	334,009

Investments in Federal Home Loan Bank (“FHLB”), stock, Atlantic Central Bankers Bank (“ACBB”) stock, and Federal Reserve Bank stock are recorded at cost and amounted to ~~$12.6 million and $1.7~~$20.2 million at September 30, ~~2022~~2023 and $12.6 million at December 31, ~~2021, respectively.~~2022. At each of those dates, ACBB stock amounted to $40,000. The Bank’s conversion to a national charter required the purchase of $11.0 million of

Federal Reserve Bank stock in September of 2022. The amount of FHLB stock required to be held is based on the amount of borrowings, and after repayment thereof, the stock may be redeemed.

The amortized cost and fair value of the Company’s investment securities at September 30, ~~2022,~~2023, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.



	Available-for-sale				Available-for-sale
	Amortized		Fair		Amortized		Fair
	cost		value		cost		value
Due before one year	$	27,387	$	27,232	$	24,466	$	23,993
Due after one year through five years		144,209		137,727		132,922		126,149
Due after five years through ten years		229,430		219,888		297,513		287,643
Due after ten years		435,046		405,747		345,166		318,851
	$	836,072	$	790,594	$	800,067	$	756,636

At In 2020, the Company began pledging loans to collateralize its line of credit with the FHLB, as described in “Note 6. Loans.” The Company had no securities pledged against that line at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022. There were no ~~investment~~gross realized gains on sales of securities for the nine months ended September 30, 2023 and the year ended December 31, 2022. Realized losses on securities sales were ~~encumbered through pledging or otherwise, as borrowings were collateralized with loans.~~$4,000 and $6,000, respectively, for the nine months ended September 30, 2023 and the year ended December 31, 2022.

Fair values of available-for-sale securities are based on the fair market values supplied by a third-party market data provider, or where such third-party market data is not available, fair values are based on discounted cash flows. The third-party market data provider uses a pricing matrix which it creates daily, taking into consideration actual trade data, projected prepayments, and when relevant, projected credit defaults and losses.

The table below indicates the length of time individual securities had been in a continuous unrealized loss position at September 30, 2023 (dollars in thousands):



Available-for-sale		Less than 12 months				12 months or longer				Total
	Number of securities		Fair Value		Unrealized losses		Fair Value		Unrealized losses		Fair Value		Unrealized losses
Description of Securities
U.S. Government agency securities	15	$	14,220	$	(1,007)	$	17,551	$	(1,670)	$	31,771	$	(2,677)
Asset-backed securities	55		—		—		331,498		(3,019)		331,498		(3,019)
Tax-exempt obligations of states and
political subdivisions	6		2,831		(134)		1,802		(93)		4,633		(227)
Taxable obligations of states and
political subdivisions	25		—		—		38,957		(1,644)		38,957		(1,644)
Residential mortgage-backed securities	138		34,735		(2,888)		116,171		(12,278)		150,906		(15,166)
Collateralized mortgage obligation securities	21		—		—		35,592		(2,117)		35,592		(2,117)
Commercial mortgage-backed securities	40		—		—		143,848		(14,962)		143,848		(14,962)
Corporate debt securities	1		—		—		6,280		(3,720)		6,280		(3,720)
Total unrealized loss position
investment securities	301	$	51,786	$	(4,029)	$	691,699	$	(39,503)	$	743,485	$	(43,532)

1413

The table below indicates the length of time individual securities had been in a continuous unrealized loss position at ~~September 30,~~December 31, 2022 (dollars in thousands):

Available-for-sale
Less than 12 months
12 months or longer
Total
Number of securities
Fair Value
Unrealized losses
Fair Value
Unrealized losses
Fair Value
Unrealized losses
Description of Securities
U.S. Government agency securities
12
$
20,101
$
(1,571)
$
2,409
$
(33)
$
22,510
$
(1,604)
Asset-backed securities
58
179,430
(5,571)
161,551
(8,138)
340,981
(13,709)
Tax-exempt obligations of states and
political subdivisions
4
3,457
(102)
—
—
3,457
(102)
Taxable obligations of states and
political subdivisions
26
39,727
(1,718)
—
—
39,727
(1,718)
Residential mortgage-backed securities
132
124,133
(9,413)
8,513
(1,313)
132,646
(10,726)
Collateralized mortgage obligation securities
22
44,762
(1,717)
—
—
44,762
(1,717)
Commercial mortgage-backed securities
43
143,893
(7,450)
38,073
(5,440)
181,966
(12,890)
Corporate debt securities
1
—
—
6,800
(3,200)
6,800
(3,200)
Total unrealized loss position
investment securities
298
$
555,503
$
(27,542)
$
217,346
$
(18,124)
$
772,849
$
(45,666)

~~The table below indicates the length of time individual securities had been in a continuous unrealized loss position at December 31, 2021 (dollars in thousands):~~



Available-for-sale		Less than 12 months				12 months or longer				Total					Less than 12 months				12 months or longer				Total
	Number of securities		Fair Value		Unrealized losses		Fair Value		Unrealized losses		Fair Value		Unrealized losses	Number of securities		Fair Value		Unrealized losses		Fair Value		Unrealized losses		Fair Value		Unrealized losses
Description of Securities
U.S. Government agency securities	2	$	—	$	—	$	2,700	$	(47)	$	2,700	$	(47)	12	$	19,523	$	(1,461)	$	2,269	$	(34)	$	21,792	$	(1,495)
Asset-backed securities	42		243,598		(235)		1,197		(6)		244,795		(241)	55		125,938		(3,027)		208,071		(6,849)		334,009		(9,876)
Tax-exempt obligations of states and
political subdivisions														4		3,499		(61)		—		—		3,499		(61)
Taxable obligations of states and
political subdivisions														26		39,710		(1,709)		—		—		39,710		(1,709)
Residential mortgage-backed securities	30		21,640		(159)		5,160		(122)		26,800		(281)	135		101,685		(6,198)		28,843		(4,265)		130,528		(10,463)
Collateralized mortgage obligation securities														22		41,456		(2,057)		327		(18)		41,783		(2,075)
Commercial mortgage-backed securities	12		3,334		(43)		91,355		(1,586)		94,689		(1,629)	43		124,953		(7,683)		41,860		(5,481)		166,813		(13,164)
Corporate debt securities	1		—		—		6,614		(3,386)		6,614		(3,386)	1		—		—		7,700		(2,300)		7,700		(2,300)
Total unrealized loss position
investment securities	87	$	268,572	$	(437)	$	107,026	$	(5,147)	$	375,598	$	(5,584)	298	$	456,764	$	(22,196)	$	289,070	$	(18,947)	$	745,834	$	(41,143)

The Company owns one single issuer trust preferred security, ~~issued by an insurance company.~~which was purchased in 2006. The security is not rated by any bond rating service. At September 30, ~~2022, it~~2023, this security had a book value of $10.0 million and a fair value of ~~$6.8~~$6.3 million. This security is presented in the corporate debt securities classification in the tables above. 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 Company 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 Company has requested additional updated financial information from the aggregator to permit a more accurate valuation of the security subsequent to the interest deferral. The aggregator has indicated that it is attempting to identify all holders of the security and that it intends to provide such financial information concurrently to all holders. The Company has placed the security in non-accrual status and will evaluate the security for potential loss in the fourth quarter of 2023, when the aggregator indicated that the financial information would be distributed. While the security has previously been subject to interest deferral which was repaid, there can be no assurance that repayment will occur for the current deferral. Further, depending upon the financial information provided by the aggregator, a loss of up to the full amount of principal, or $10.0 million, may be recognized in the fourth quarter of 2023. In 2023, $197,000 of accrued interest income was reversed on this security when it was placed in non-accrual status, and $210,000 of additional interest would have been earned had the security continued to accrue interest.

The Company has evaluated the securities in the above tables as of September 30, ~~2022~~2023 and has concluded that none of these securities required an allowance for credit ~~loss.~~losses (“ACL”). The Company previously evaluated the securities in the above tables as of December 31, 2022 and concluded that none of these securities required an ACL. The Company evaluates whether an ~~allowance for credit loss~~ACL is required by considering primarily the following factors: (a) the extent to which the fair value is 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. The Company’s determination of the best estimate of expected future cash flows, which is used to determine the credit loss amount, is a quantitative and qualitative process that incorporates information received from third-party sources along with internal assumptions and judgments regarding the future performance of the security. The Company concluded that the securities that are in an unrealized loss position are in a loss position because of changes in market interest rates after the securities were purchased. The Company’s unrealized loss for ~~other~~corporate debt securities, ~~which include~~resulted from one single issuer trust preferred security as described above, and is primarily related to general market conditions, including a lack of liquidity in the market. The severity of the impact of fair value in relation to the carrying amounts of the individual investments is consistent with market developments. The Company’s analysis of each investment is performed at the security level. ~~As a result of its review, the Company concluded that an allowance was not required to recognize credit losses.~~

Note 6. Loans

The Company has several lending lines of business including: small business loans (“SBLs”), comprised primarily of SBA loans; direct lease financing primarily for commercial vehicles and to a lesser extent equipment; SBLOC collateralized by marketable securities; IBLOC collateralized by the cash value of eligible life insurance policies; and investment advisor financing for purposes of debt refinance, acquisition of another firm or internal succession. Prior to 2020, the Company also originated commercial real estate bridge loans for sale into securitizations. At origination, the Company elected fair value treatment for these loans as they were originally held-for-sale, to better reflect the economics of the transactions. ~~Currently,~~In 2020, the Company ~~intends~~decided to ~~hold~~retain these loans on its balance sheet and ~~thus~~currently intends to continue to do so. Therefore, these loans are no longer accounted for as held-for-sale, but the Company continues to present them at fair value. At September 30, 2023, such loans comprised $253.1 million of the $379.6 million of commercial loans,

1514

~~longer accounts for these loans as held-for-sale. The Company continues to present these loans at fair value. At September 30, 2022, the total commercial loans,~~ at fair value, ~~were $818.0 million, and~~ with the ~~unpaid principal~~ balance ~~was $826.0 million, including~~comprised of the guaranteed portion of certain SBA loans also previously held for sale. The amortized cost of the $379.6 million commercial loans at fair value was $381.9 million. Included in “Net realized and unrealized gains (losses) on commercial loans, at fair value” in the consolidated statements of operations ~~were~~are changes in the estimated fair value of such loans.For the nine months ended September 30, 2023, related net unrealized losses recognized for changes in fair value were $1.7 million, $365,000 of which reflected losses attributable to credit weaknesses. For the nine months ended September 30, 2022, ~~related~~ net unrealized losses recognized for such changes in fair value were $5.3 million, which reflected $6.4 million of ~~losses~~loss attributable to credit weaknesses. Included in the $6.4 million was a $4.0 million third quarter unrealized loss to reflect a write-down to a September 2022 appraisal, less estimated disposition costs, of a $9.5 million loan. The loan, collateralized by a movie theater, had been current and performing but missed its August 2022 payment, and ceased operations in that month. Additionally, during the third quarter of 2022, the parent company of the theater chain declared bankruptcy and filed a motion to reject the lease at the property. The loan was previously measured based on its scheduled contractual cash flows, discounted at a market rate. However, based on the events occurring during the quarter and the current likelihood of foreclosure, the estimated fair value of the loan at September 30, 2022 was determined to equal the fair value of the theater based on the aforementioned new appraisal, less the estimated cost of disposition. The loan represents the only movie theater loan in the Company’s portfolios and was originated in 2015, before non-SBA commercial loan originations were primarily comprised of apartment building loans. Of the $2.15 billion of non-SBA commercial loans, at fair value and REBL loans which together comprise the non-SBA CRE portfolios, $2.05 billion are comprised of apartment building loans. For the nine months ended September 30, 2021, unrealized losses recognized for such changes in fair value were $285,000 of which $15,000 was attributable to credit weaknesses. In the third quarter of 2021, the Company resumed the origination of ~~such~~commercial real estate bridge loans which it also intends to hold for investment and which are accounted for at amortized cost. They are captioned as REBLs as they are transitional commercial mortgage loans which are made to improve and rehabilitate existing properties which already have cash flow.

The Bank has pledged the majority of its loans held for investment at amortized cost and commercial loans at fair value to either the ~~Federal Home Loan Bank~~FHLB or the Federal Reserve Bank for lines of credit with those institutions. The ~~Federal Home Loan Bank line is~~FHLB and FRB lines are periodically utilized to manage liquidity, but the Federal Reserve line has not generally been used. However, in light of the impact of the COVID-19 pandemic, the Federal Reserve has encouraged banks to utilize their lines to maximize the amount of funding available for credit markets. Accordingly, the Bank has periodically borrowed against its Federal Reserve line on an overnight basis.liquidity. The amount of loans pledged varies and the collateral may be unpledged at any time to the extent the collateral exceeds advances. The lines are maintained consistent with the Bank’s liquidity policy which maximizes potential liquidity. At September 30, ~~2022, $2.01~~2023, $2.55 billion of loans were pledged to the Federal Reserve Bank and ~~$1.41~~$1.10 billion of loans were pledged to the ~~Federal Home Loan Bank. At~~FHLB. There were no balances against these lines at September 30, ~~2022, there was $0 outstanding against the Federal Reserve line and $0 outstanding against the Federal Home Loan Bank line.~~2023.

Prior to 2020, the Company sponsored the structuring of commercial mortgage loan securitizations, and in 2020, the Company decided not to pursue additional securitizations. The loans previously sold to the commercial mortgage-backed securitizations were transitional commercial mortgage loans made to improve and rehabilitate existing properties which already ~~have~~had cash flow. Servicing rights were not retained. Each of the securitizations is considered a variable interest entity of which the Company is not the primary beneficiary. Further, true sale accounting has been applicable to each of the securitizations, as supported by a review performed by an independent third-party consultant. In each of the securitizations, the Company obtained a tranche of certificates which are accounted for as available-for-sale debt securities. The securities were recorded at fair value at acquisition, which was determined by an independent third-party based on the discounted cash flow method using unobservable (level 3) inputs.

Of the six securities ~~resulting~~purchased by the Bank from our securitizations, all have been repaid except ~~that from~~one issued by CRE-2. As of September 30, ~~2022,~~2023, the principal balance of the Bank’s CRE-2-issued security ~~we own issued by CRE-2~~ was $12.6 ~~million. Repayment~~million and it is ~~expected from~~subordinate to the ~~workout or disposition of commercial real estate collateral, after~~ repayment of ~~the one~~a senior tranche with a remaining ~~senior tranche. The Company’s $12.6~~balance of $3.3 million. A total of $15.9 million security has 50% excess credit support; thus, losses of 50% of remaining security balances would have to be incurred, prior to any loss on our security. Additionally, the commercial real estate collateral supporting the three remaining loans was re-appraised between 2020plus trustee fees, late charges and ~~2022. The updated appraised value~~unpaid interest is approximately $60.9 million, which is net of $573,000 due to the servicer. The remaining principal to be repaid on all securities is approximately $58.1 million and, as noted, the Company’s security is scheduled to be repaid prior to 50% of the outstanding securities. However, any future reappraisals could result in further decreases in credit enhancement, and if such decreases exceed such credit enhancements, losses could result. While available information indicates that the value of existing collateral will be adequaterequired to repay the ~~Company’s security, there can be no assurance that such valuations will be realized upon~~Bank tranche. The collateral remaining to repay the $15.9 million consists of a suburban office building in New Jersey and a retail facility in Missouri, the combined most recent appraisals for which total $33.0 million. The excess of the $33.0 million appraised value over the $15.9 million provides repayment protection for the Bank-owned tranche. Efforts to resolve the New Jersey suburban office loan ~~resolutions,~~ and ~~that deficiencies will not exceed the 50% credit support.~~ ~~Of the remaining three loans,~~stabilize the property ~~collateral for two~~have not been successful to date. A 2023 broker’s opinion of the loans is expected to be liquidated through sale. The third loan was originally extended two years to June of 2022 and terms have not yet been reached for another extension, thus putting the loan in maturity default. If not extended by the special servicer, the property will be foreclosed and sold. The property was appraised at $28.4 million on September 1, 2020 with total exposure in the security of $25.0 million. A recent broker opinion of propertyproperty’s liquidation value was $20.9 million versus a loan balance of $24.5 million. Negotiations with the borrower continue, with no plan for immediate liquidation. The ~~existing~~ ~~50%~~ ~~credit enhancement continues~~Missouri retail facility is held as real estate owned by the trust and is also not yet stabilized, and the special servicer expects to ~~provide repayment protection~~market the property for liquidation. The March 9, 2023 appraised value of the ~~Bank owned tranche.~~property was $12.1 million versus a loan balance of $16.3 million. Since borrowers are no longer making payments, accrued interest and the Bank’s remaining $12.6 million of principal are not expected to be repaid until collateral liquidation.

The Company analyzes credit risk prior to making loans on an individual loan basis. The Company considers relevant aspects of the borrowers’ financial position and cash flow, past borrower performance, management’s knowledge of market conditions, collateral and the ratio of loan amounts to estimated collateral value in making its credit determinations.

Major classifications of loans, excluding commercial loans at fair value, are as follows (in thousands):


	September 30,		December 31,		September 30,		December 31,
	2022		2021		2023		2022
SBL non-real estate	$	116,080	$	147,722	$	130,579	$	108,954
SBL commercial mortgage		429,865		361,171		547,107		474,496
SBL construction		26,841		27,199		19,204		30,864
Small business loans		572,786		536,092
SBLs						696,890		614,314
Direct lease financing		599,796		531,012		670,208		632,160
SBLOC / IBLOC *		2,369,106		1,929,581
Advisor financing **		168,559		115,770
SBLOC / IBLOC⁽¹⁾						1,720,513		2,332,469
Advisor financing⁽²⁾						199,442		172,468
Real estate bridge loans		1,488,119		621,702		1,848,224		1,669,031
Other loans ***		64,980		5,014
Other loans⁽³⁾						55,800		61,679
		5,263,346		3,739,171		5,191,077		5,482,121
Unamortized loan fees and costs		4,029		8,053		7,895		4,732
Total loans, including unamortized loan fees and costs	$	5,267,375	$	3,747,224	$	5,198,972	$	5,486,853

September 30,
December 31,
2022
2021
SBL loans, including costs net of deferred fees of $6,370 and $5,345
for September 30, 2022 and December 31, 2021, respectively
$
579,156
$
541,437
SBL loans included in commercial loans, at fair value
159,914
199,585
Total small business loans ****
$
739,070
$
741,022


	September 30,		December 31,
	2023		2022
SBLs, including costs net of deferred fees of $8,900 and $7,327
for September 30, 2023 and December 31, 2022, respectively	$	705,790	$	621,641
SBLs included in commercial loans, at fair value		126,543		146,717
Total SBLs⁽⁴⁾	$	832,333	$	768,358

* Securities Backed Lines of Credit, or ⁽¹⁾SBLOC are collateralized by marketable securities, while ~~Insurance Backed Lines of Credit, or~~ IBLOC are collateralized by the cash surrender value of insurance policies. At September 30, ~~2022~~2023 and December 31, ~~2021, respectively,~~2022, IBLOC loans amounted to ~~$1.10~~$712.6 million and $1.12 billion, ~~and $788.3 million.~~respectively.

** ⁽²⁾In 2020, the ~~Company~~Bank began originating loans to investment advisors for purposes of debt ~~refinance,~~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 ~~business appraisals,~~valuation, but may be increased depending upon the debt service coverage ratio. Personal guarantees and blanket business liens are obtained as appropriate.

~~***~~ ⁽³⁾Includes demand deposit overdrafts reclassified as loan balances totaling ~~$1.0~~$215,000 and $2.6 million ~~and $322,000~~ at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. Estimated overdraft charge-offs and recoveries are reflected in the ~~allowance for credit losses~~ACL and ~~have been~~are immaterial.~~September 30, 2022 includes $54.2 million of balances previously included in discontinued assets including $19.5 million of residential mortgage loans, with the balance comprised of commercial loans.~~

~~****~~⁽⁴⁾The ~~small business loans~~SBLs held at fair value are comprised of the government guaranteed portion of ~~SBA 7a~~7(a) Program (as defined below) loans at the dates ~~indicated (in thousands).~~indicated.

The following table provides information about loans individually evaluated for credit loss at September 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):. Legacy commercial real estate is comprised of commercial loans made by the Philadelphia commercial loan division which was discontinued.



	September 30, 2022										September 30, 2023
	Recorded ‎investment		Unpaid ‎principal ‎balance		Related ‎allowance		Average ‎recorded ‎investment		Interest ‎income ‎recognized		Recorded ‎investment		Unpaid ‎principal ‎balance		Related ‎ACL		Average ‎recorded ‎investment		Interest ‎income ‎recognized
Without an allowance recorded
Without an ACL recorded
SBL non-real estate	$	357	$	3,526	$	—	$	385	$	7	$	419	$	1,895	$	—	$	344	$	—
SBL commercial mortgage		—		—		—		56		—		2,034		2,034		—		899		—
Direct lease financing		—		—		—		66		—		115		285		—		55		—
Other loans		3,552		3,552		—		1,184		113
Legacy commercial real estate												—		—		—		2,664		—
Consumer - home equity		298		298		—		309		7		231		231		—		262		7
With an allowance recorded
With an ACL recorded
SBL non-real estate		990		990		(594)		1,303		6		918		918		(566)		915		2
SBL commercial mortgage		1,423		1,423		(222)		1,006		—		911		911		(419)		1,732		—
SBL construction		710		710		(34)		710		—		3,385		3,385		(44)		3,385		—
Other loans		592		592		(13)		2,974		—
Direct lease financing												3,236		3,236		(774)		2,612		—
IBLOC												475		475		(17)		119		—
Legacy commercial real estate and Other loans												3,688		3,688		(11)		1,336		—
Total
SBL non-real estate		1,347		4,516		(594)		1,688		13		1,337		2,813		(566)		1,259		2
SBL commercial mortgage		1,423		1,423		(222)		1,062		—		2,945		2,945		(419)		2,631		—
SBL construction		710		710		(34)		710		—		3,385		3,385		(44)		3,385		—
Direct lease financing		—		—		—		66		—		3,351		3,521		(774)		2,667		—
Other loans		4,144		4,144		(13)		4,158		113
IBLOC												475		475		(17)		119		—
Legacy commercial real estate and Other loans												3,688		3,688		(11)		4,000		—
Consumer - home equity		298		298		—		309		7		231		231		—		262		7
	$	7,922	$	11,091	$	(863)	$	7,993	$	133	$	15,412	$	17,058	$	(1,831)	$	14,323	$	9

1716



	December 31, 2021										December 31, 2022
	Recorded ‎investment		Unpaid ‎principal ‎balance		Related ‎allowance		Average ‎recorded ‎investment		Interest ‎income ‎recognized		Recorded ‎investment		Unpaid ‎principal ‎balance		Related ‎ACL		Average ‎recorded ‎investment		Interest ‎income ‎recognized
Without an allowance recorded
Without an ACL recorded
SBL non-real estate	$	409	$	3,414	$	—	$	412	$	5	$	400	$	2,762	$	—	$	388	$	—
SBL commercial mortgage		223		246		—		1,717		—		—		—		—		45		—
Direct lease financing		254		254		—		430		—		—		—		—		52		—
Legacy commercial real estate												3,552		3,552		—		1,421		150
Consumer - home equity		320		320		—		458		8		295		295		—		306		9
With an allowance recorded
With an ACL recorded
SBL non-real estate		1,478		1,478		(829)		2,267		13		974		974		(525)		1,237		7
SBL commercial mortgage		589		589		(115)		2,634		—		1,423		1,423		(441)		1,090		—
SBL construction		710		710		(34)		711		—		3,386		3,386		(153)		1,245		—
Direct lease financing		—		—		—		132		—		3,550		3,550		(933)		710		—
Consumer - other		—		—		—		5		—
Other loans												692		692		(15)		1,923		—
Total
SBL non-real estate		1,887		4,892		(829)		2,679		18		1,374		3,736		(525)		1,625		7
SBL commercial mortgage		812		835		(115)		4,351		—		1,423		1,423		(441)		1,135		—
SBL construction		710		710		(34)		711		—		3,386		3,386		(153)		1,245		—
Direct lease financing		254		254		—		562		—		3,550		3,550		(933)		762		—
Consumer - other		—		—		—		5		—
Legacy commercial real estate and Other loans												4,244		4,244		(15)		3,344		150
Consumer - home equity		320		320		—		458		8		295		295		—		306		9
	$	3,983	$	7,011	$	(978)	$	8,766	$	26	$	14,272	$	16,634	$	(2,067)	$	8,417	$	166

The loan review department recommends non-accrual status for loans to the surveillance committee, in those situations where interest income appears to be uncollectible or a protracted delay in collection becomes evident. The surveillance committee further vets and approves the non-accrual status.

The following table summarizes non-accrual loans with and without an ~~allowance for credit losses (“ACL”)~~ACL as of the periods indicated

(in thousands):


	September 30, 2022						December 31, 2021		September 30, 2023						December 31, 2022
	Non-accrual loans with a related ACL		Non-accrual loans without a related ACL		Total non-accrual loans		Total non-accrual loans		Non-accrual loans with a related ACL		Non-accrual loans without a related ACL		Total non-accrual loans		Total non-accrual loans
SBL non-real estate	$	861	$	216	$	1,077	$	1,313	$	837	$	419	$	1,256	$	1,249
SBL commercial mortgage		1,423		—		1,423		812		911		2,034		2,945		1,423
SBL construction		710		—		710		710		3,385		—		3,385		3,386
Direct leasing		—		—		—		254		3,236		115		3,351		3,550
IBLOC										475		—		475		—
Consumer - home equity		—		58		58		72		—		—		—		56
Other loans		592		—		592		—
Legacy commercial real estate and Other loans										3,688		—		3,688		692
	$	3,586	$	274	$	3,860	$	3,161	$	12,532	$	2,568	$	15,100	$	10,356

The Company had ~~$18.9~~$18.8 million of other real estate owned (“OREO”) at September 30, ~~2022~~2023 and ~~$18.9~~$21.2 million of ~~other real estate owned~~OREO at December 31, ~~2021.~~2022. The following table summarizes the Company’s non-accrual loans, loans past due 90 days or more, and ~~other real estate owned~~OREO at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively:



	September 30,		December 31,		September 30,		December 31,
	2022		2021		2023		2022
	(Dollars in thousands)				(Dollars in thousands)
Non-accrual loans
SBL non-real estate	$	1,077	$	1,313	$	1,256	$	1,249
SBL commercial mortgage		1,423		812		2,945		1,423
SBL construction		710		710		3,385		3,386
Direct leasing		—		254		3,351		3,550
Other loans		592		—
IBLOC						475		—
Legacy commercial real estate and Other loans						3,688		692
Consumer - home equity		58		72		—		56
Total non-accrual loans		3,860		3,161		15,100		10,356

Loans past due 90 days or more and still accruing		4,415		461		677		7,775
Total non-performing loans		8,275		3,622		15,777		18,131
Other real estate owned		18,873		18,873
OREO						18,756		21,210
Total non-performing assets	$	27,148	$	22,495	$	34,533	$	39,341

Interest which would have been earned on loans classified as non-accrual for the nine months ended September 30, 2023 and 2022, was $621,000 and ~~2021, was~~ $133,000, ~~and $247,000,~~ respectively. No income on non-accrual loans was recognized during the nine months ended September 30, ~~2022. In~~2023. During the nine months ended September 30, 2023, $89,000 of legacy commercial real estate, $89,000 of SBL commercial real

estate, $10,000 of SBL non-real estate, $13,000 of IBLOC, and $71,000 of direct leasing were reversed from interest income, which represented interest accrued on loans placed into non-accrual status during the period. During the nine months ended September 30, 2022, $139,000 of SBL commercial real estate and ~~2021 a total~~$69,000 of ~~$208,000 and $39,000, respectively,~~SBL non-real estate was reversed from interest income, which represented interest accrued on loans placed into non-accrual status during the period.Material amounts of non-accrual interest reversals are charged to the ACL, but such amounts were not material during either the nine months ended September 30, 2023 or 2022.

Effective January 1, 2023 loan modifications to borrowers experiencing financial difficulty are required to be disclosed by type of modification and by type of loan. Prior accounting guidance classified loans which were modified as troubled debt restructurings only if the modification reflected a concession from the lender in the form of a below market interest rate or other concession in addition to borrower financial difficulty. Under the new guidance, loans with modifications will be reported whether a concession is made or not. Loans previously classified as troubled debt restructurings will continue to be reported in the following tables and loans with modifications made after January 1, 2023 will be reported under the new loan modification guidance. As of September 30, 2023, loans modified and related information are as follows (dollars in thousands):


	September 30, 2023
	Interest rate reduction		Term extension		Payment delay as a result of a payment deferral		Interest rate reduction and payment deferral		Payment delay and term extension		Payment delay, term extension and interest rate reduction		Percent of total class of financing receivable
SBL non-real estate	$	—	$	—	$	156	$	—	$	—	$	—		—
Direct lease financing		—		—		—		—		—		—		—
SBL commercial mortgage		—		—		—		—		—		—		—
Other loans		—		—		—		—		—		—		—
Consumer - home equity		—		—		—		—		—		—		—
Total	$	—	$	—	$	156	$	—	$	—	$	—		—

The following table shows an analysis of loans that were modified during the twelve months prior to September 30, 2023 presented by loan classification (dollars in thousands):


	Payment Status (Amortized Cost Basis)
	30-59 Days		60-89 Days		90+ Days				Total
	past due		past due		still accruing		Non-accrual		delinquent		Current		Total
SBL non-real estate	$	—	$	—	$	—	$	—	$	—	$	156	$	156
SBL commercial mortgage		—		—		—		—		—		—		—
Other loans		—		—		—		—		—		—		—
Consumer - home equity		—		—		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—	$	156	$	156

There was one modified loan in the table above, for $156,000, which had a $2,200 reduction in monthly payment for six months, which constituted the average reduction.

Under previous accounting guidance, which was effective through December 31, 2022, the Company’s loans that were modified as of September 30, ~~2022~~2023 and December 31, ~~2021~~2022 and considered troubled debt restructurings are as follows (dollars in thousands):



	September 30, 2022						December 31, 2021						September 30, 2023						December 31, 2022
	Number		Pre-modification recorded investment		Post-modification recorded investment		Number		Pre-modification recorded investment		Post-modification recorded investment		Number		Pre-modification recorded investment		Post-modification recorded investment		Number		Pre-modification recorded investment		Post-modification recorded investment
SBL non-real estate		8	$	657	$	657		9	$	1,231	$	1,231		6	$	543	$	543		8	$	650	$	650
SBL commercial mortgage		1		834		834		—		—		—		1		834		834		1		834		834
Other loans		1		3,552		3,552		—		—		—
Legacy commercial real estate														1		3,552		3,552		1		3,552		3,552
Consumer - home equity		1		241		241		1		248		248		1		231		231		1		239		239
Total⁽¹⁾		11	$	5,284	$	5,284		10	$	1,479	$	1,479		9	$	5,160	$	5,160		11	$	5,275	$	5,275

⁽¹⁾Troubled debt restructurings ~~include~~included non-accrual loans of ~~$1.2~~$4.8 million and ~~$656,000~~$1.4 million at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

The ~~balances~~table below ~~provide~~provides information as to how the loans were modified as troubled debt restructuring loans as of September 30, ~~2022~~2023 and December 31, ~~2021~~2022 (in thousands):



	September 30, 2022						December 31, 2021						September 30, 2023						December 31, 2022
	Adjusted interest rate		Extended maturity		Combined rate and maturity		Adjusted interest rate		Extended maturity		Combined rate and maturity		Adjusted interest rate		Extended maturity		Combined rate and maturity		Adjusted interest rate		Extended maturity		Combined rate and maturity
SBL non-real estate	$	—	$	—	$	657	$	—	$	—	$	1,231	$	—	$	—	$	543	$	—	$	—	$	650
SBL commercial mortgage		—		—		834		—		—		—		—		—		834		—		—		834
Other loans		—		—		3,552		—		—		—
Legacy commercial real estate														—		—		3,552		—		—		3,552
Consumer - home equity		—		—		241		—		—		248		—		—		231		—		—		239
Total⁽¹⁾	$	—	$	—	$	5,284	$	—	$	—	$	1,479	$	—	$	—	$	5,160	$	—	$	—	$	5,275

The Company had no commitments to extend additional credit to loans classified as either modified or troubled debt restructurings as of September 30, ~~2022~~2023 or December 31, ~~2021.~~2022.

~~When~~Under the previous accounting guidance explained above, when loans ~~are~~were classified as troubled debt restructurings, the Company ~~estimates~~estimated the value of underlying collateral and repayment sources. A specific reserve in the ~~allowance for credit losses is~~ACL was established if the collateral valuation, less estimated disposition costs, iswas lower than the recorded loan value. The amount of the specific reserve ~~serves~~served to increase the provision for credit losses in the quarter the loan iswas classified as a troubled debt restructuring. As of September 30, ~~2022~~2023, there were 11nine troubled debt restructured loans with aan aggregate balance of $5.2 million which had specific reserves of $579,000. As of December 31, 2022, there were eleven troubled debt restructured loans with an aggregate balance of $5.3 million which had specific reserves of ~~$447,000.~~ ~~As of December 31, 2021, there were 10 troubled debt restructured loans with a balance of $1.5 million which had specific reserves of $476,000.~~$637,000. Substantially all of these reserves related to the non-guaranteed portion of SBA loans for start-up businesses. While the new guidance eliminates the troubled debt restructuring classification, loans previously classified as such will now be reported as loans with modifications, whether or not the modification reflected a lender concession. Specific reserves for loans with balances which exceed collateral values will continue to be required in the ACL.

The following table summarizes loans that were restructured within the 12twelve months ended September 30, ~~2022~~2023 that have subsequently defaulted (in thousands):


	September 30, 2022			September 30, 2023
	Number	Pre-modification recorded investment		Number	Pre-modification recorded investment
SBL non-real estate	1	$	334	2	$	174
Legacy commercial real estate				1		3,552
Total	1	$	334	3	$	3,726

Management estimates the ~~allowance~~ACL quarterly and for ~~credit losses using~~most loan categories uses relevant available internal and external historical loan performance information to determine the quantitative component of the reserve and current economic conditions, and reasonable and supportable ~~forecasts.~~forecasts and other factors to determine the qualitative component of the reserve. Reserves on specific credit-deteriorated loans comprise the third and final component of the reserve. Historical credit loss experience provides the ~~initial~~quantitative basis for the estimation of expected credit losses over the estimated remaining life of the loans. The ~~methodology used in the estimation~~qualitative component of the ~~allowance, which is performed at least quarterly,~~ACL is designed to be responsive to changes in portfolio credit quality and the impact of current and future economic conditions on loan ~~performance.~~performance, and is subjective. The review of the appropriateness of the ~~allowance~~ACL is performed by the Chief Credit Officer and presented to the Audit Committee of the Company’s Board of Directors (the “Board”) for ~~their review.~~approval. 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 ~~allowances~~quantitative components for ~~other~~remaining 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 ~~allowance.~~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~~quantitative historical loss reserve for each similar risk pool, 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 origin, 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 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~~The Company also considers the need for an additional ~~allowance~~ACL based upon qualitative factors such as the Company’s current loan performance statistics ~~as determined~~ by ~~pool.~~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 ~~allowance~~ACL reverts ~~directly~~ to the Company’s quantitative analysis derived from its historical loss rates. The qualitative and quantitative historical loss rate components, together with the allowances on specific credit-deteriorated loans, comprise the total ACL.

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

At September 30, 2023, the ACL amounted to $24.1 million of which $10.7 million of allowances resulted from the Company’s historical charge-off ratios, $1.8 million from reserves on specific loans, with the balance comprised of the qualitative components. The $10.7 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 that significant charge-offs have not been experienced in the Company’s largest loan portfolios consisting of SBLOC, IBLOC and real estate bridge lending. The absence of significant respective charge-offs reflects, at least in part, the nature of related collateral consisting 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 components of the allowance.

The Company ranks its qualitative factors in five levels: minimal, low, moderate, moderate-high and ~~high risk.~~high-risk. The individual qualitative factors for each portfolio segment have their own scale based on an analysis of that segment. A ~~high risk~~high-risk ranking ~~has~~results in the ~~greatest impact on~~largest increase in the ~~allowance~~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. When the Company adopted ~~CECL~~current expected credit loss accounting (“CECL”) methodology as of January 1, 2020, the management assumption was that some degree of economic slowdown should be considered over the next eighteen months. That belief reflected the length of the current economic expansion and the relatively high level of unsustainable U.S. government deficit spending. Accordingly, the economic qualitative factor for certain ~~of the Company’s qualitative factors were~~loan pools was set at moderate as of January 1, 2020. Based on the uncertainty as to how the COVID-19 pandemic would impact the Company’s loan pools, the Company increased ~~other~~certain qualitative factors to moderate and ~~moderate high~~moderate-high in 2020. In the second quarter of 2021, the Company reassessed ~~these~~those factors and reversed increases to moderate-high for certain pools, based upon increased vaccination rates and significant reopening of the economy. As a result of continuing economic uncertainty, ~~in 2022,~~ including heightened inflation and increased risks of recession, the qualitative factors ~~were maintained at their original levels,~~ which had been set in anticipation of a ~~downturn.~~downturn at January 1, 2020, 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 ~~heightened inflation was~~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. The third quarter provision of $1.8 million reflected the impact of $922,000 of quarterly net-charge offs, primarily from leasing.

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 also ~~considered by line of business heads, credit leadership and other staff. Two areas were identified which might be specifically impacted. First,~~has not increased the economic factor for multi-family real estate bridge lending. While Federal Reserve rate increases ~~will~~ directly increase a real estate bridge loan ~~sponsors’ floating rate~~floating-rate borrowing costs, ~~and may also impair repayment ability in the future. However,~~those borrowers ~~generally~~ 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 ~~provide a significant risk mitigant~~are causing renters to ~~that~~be more price sensitive, which is driving demand for most of the apartment buildings within the Company’s loan portfolio which ~~consists of apartment buildings, which we generally consider to be workforce housing in selected states and locales. Second, inflation in fuel prices poses~~management considers “workforce” housing. As a ~~risk to~~result, the Company’s vehicle fleet leases, specifically for less fuel efficient vehicles for which demand and values may decrease. However, used vehicle prices are anticipated to be sustained for an additional twelve to eighteen months, impacted by chip shortages which may persist into 2024.REBL qualitative economic factor was not increased.

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 not experienced significant multi-family (apartment building) loan charge-offs, ~~for either real estate bridge lending or similarly underwritten loans in its predecessor commercial loans, at fair value portfolio,~~ despite stressed economic conditions. ~~Additionally, there have been no losses for multi-family (apartment buildings) in the Company’s securitizations.~~ Accordingly, the ~~estimated credit losses~~ACL for this pool ~~were~~was derived ~~purely~~ from a qualitative factor based on industry loss information for multi-family housing. ~~The estimated reserve on the multi-family portfolio is currently derived from that industry qualitative factor.~~ Similarly, the Company’s charge-offs have been virtually non-existent for SBLOC and IBLOC notwithstanding stressed economic ~~periods.~~periods, and their ACL is determined by qualitative factors. 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 ~~small business loans,~~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.~~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~~quantitatively-derived element in the forecasts. The qualitative component results from management’s qualitative assessments. In the second quarter of 2022, the Company adjusted its collateral qualitative factor for small business loans downward to account for a greater percentage of government guaranteed balances in applicable pools as compared to prior periods. Additionally, in the second quarter of 2022, allowances on credit deteriorated loans were reduced. The largest reduction was $1.0 millionassessments which resulted when single family units from a construction loan were sold for higher than expected prices. That loan had been included in discontinued loans prior to first quarter 2022, when discontinued assets were reclassified to continuing operations. The Company no longer engages in new construction residential lending.consider internal and external inputs.

Below are the portfolio segments used to pool loans with similar risk characteristics and align with the Company’s methodology for measuring expected credit losses. These pools have similar risk and collateral characteristics, and certain of these pools are broken down further in determining and applying the vintage loss estimates previously discussed. For instance, within the direct lease financing pool, government and public institution leases are considered separately. Additionally, the Company evaluates its loans under an internal loan risk rating system as a means of identifying problem loans. The special mention classification indicates weaknesses that may, if not cured, threaten the borrower’s future repayment ability. A substandard classification reflects an existing weakness indicating the possible inadequacy of net worth and other repayment sources. These classifications are used both by regulators and peers, as they have been correlated with an increased probability of credit losses. A summary of the Company’s primary portfolio pools and loans accordingly classified, by year of origination, at September 30, ~~2022~~2023 and December 31, ~~2021~~2022 are as follows (in thousands):

As of September 30, 2022
2022
2021
2020
2019
2018
Prior
Revolving loans at amortized cost
Total
SBL non real estate
Non-rated*
$
4,135
$
6,321
$
306
$
—
$
—
$
—
$
—
$
10,762
Pass
23,140
30,941
14,209
7,568
6,756
6,782
—
89,396
Special mention
—
—
—
—
603
303
—
906
Substandard
—
—
334
190
—
2,819
—
3,343
Total SBL non-real estate
27,275
37,262
14,849
7,758
7,359
9,904
—
104,407
SBL commercial mortgage
Non-rated
15,964
—
—
—
—
—
—
15,964
Pass
68,176
99,428
58,784
65,792
42,986
69,141
—
404,307
Special mention
—
—
141
1,853
—
644
—
2,638
Substandard
—
—
—
—
834
589
—
1,423
Total SBL commercial mortgage
84,140
99,428
58,925
67,645
43,820
70,374
—
424,332
SBL construction
Non-rated
286
—
—
—
—
—
—
286
Pass
1,751
11,633
9,756
2,704
—
—
—
25,844
Substandard
—
—
—
—
—
710
—
710
Total SBL construction
2,037
11,633
9,756
2,704
—
710
—
26,840
Direct lease financing
Non-rated
65,992
33,930
9,081
1,302
508
146
—
110,959
Pass
189,365
145,489
98,078
36,550
12,753
3,274
—
485,509
Special mention
31
—
68
—
9
—
—
108
Substandard
1,598
653
951
18
—
—
—
3,220
Total direct lease financing
256,986
180,072
108,178
37,870
13,270
3,420
—
599,796
SBLOC
Non-rated
—
—
—
—
—
—
830
830
Pass
—
—
—
—
—
—
1,264,187
1,264,187
Total SBLOC
—
—
—
—
—
—
1,265,017
1,265,017
IBLOC
Non-rated
—
—
—
—
—
—
548,178
548,178
Pass
—
—
—
—
—
—
555,911
555,911
Total IBLOC
—
—
—
—
—
—
1,104,089
1,104,089
Advisor financing
Non-rated
17,259
3,712
—
—
—
—
—
20,971
Pass
41,498
66,560
39,530
—
—
—
—
147,588
Total advisor financing
58,757
70,272
39,530
—
—
—
—
168,559
Real estate bridge loans
Pass
840,423
647,696
—
—
—
—
—
1,488,119
Total real estate bridge loans
840,423
647,696
—
—
—
—
—
1,488,119
Other loans
Non-rated
3,774
37
62
—
—
21,714
522
26,109
Pass
227
368
2,612
2,794
3,741
40,930
1,205
51,877
Special mention
—
—
—
—
—
3,552
—
3,552
Substandard
—
—
—
—
—
592
57
649
Total other loans**
4,001
405
2,674
2,794
3,741
66,788
1,784
82,187
$
1,273,619
$
1,046,768
$
233,912
$
118,771
$
68,190
$
151,196
$
2,370,890
$
5,263,346
Unamortized loan fees and costs
—
—
—
—
—
—
—
4,029
Total
$
5,267,375


As of September 30, 2023	2023		2022		2021		2020		2019		Prior		Revolving loans at amortized cost		Total
SBL non real estate
Non-rated	$	255	$	—	$	—	$	—	$	—	$	—	$	—	$	255
Pass⁽¹⁾		35,310		34,742		28,224		10,095		4,491		5,219		—		118,081
Special mention		471		495		261		1,114		123		913		—		3,377
Substandard		—		—		124		532		251		570		—		1,477
Total SBL non-real estate		36,036		35,237		28,609		11,741		4,865		6,702		—		123,190

SBL commercial mortgage
Pass		67,290		135,496		98,083		68,315		59,030		100,291		—		528,505
Special mention		375		—		7,439		—		603		661		—		9,078
Substandard		—		—		—		452		1,853		2,492		—		4,797
Total SBL commercial mortgage		67,665		135,496		105,522		68,767		61,486		103,444		—		542,380

SBL construction
Pass		1,141		4,687		1,669		927		4,305		—		—		12,729
Special mention		—		—		3,090		—		—		—		—		3,090
Substandard		—		—		2,675		—		—		710		—		3,385
Total SBL construction		1,141		4,687		7,434		927		4,305		710		—		19,204

Direct lease financing
Non-rated		3,104		—		—		—		—		—		—		3,104
Pass		228,521		245,135		107,593		49,034		21,724		6,652		—		658,659
Special mention		—		928		427		149		206		—		—		1,710
Substandard		58		3,031		2,671		725		124		126		—		6,735
Total direct lease financing		231,683		249,094		110,691		49,908		22,054		6,778		—		670,208

SBLOC
Non-rated		—		—		—		—		—		—		1,279		1,279
Pass		—		—		—		—		—		—		1,006,643		1,006,643
Total SBLOC		—		—		—		—		—		—		1,007,922		1,007,922

IBLOC
Non-rated		—		—		—		—		—		—		3,842		3,842
Pass		—		—		—		—		—		—		707,550		707,550
Substandard		—		—		—		—		—		—		1,199		1,199
Total IBLOC		—		—		—		—		—		—		712,591		712,591

Advisor financing
Non-rated		198		—		—		—		—		—		—		198
Pass		58,707		63,900		50,339		26,298		—		—		—		199,244
Total advisor financing		58,905		63,900		50,339		26,298		—		—		—		199,442

Real estate bridge loans
Pass		234,408		1,004,539		513,418		—		—		—		—		1,752,365
Special mention		—		44,159		—		—		—		—		—		44,159
Substandard		—		—		51,700		—		—		—		—		51,700
Total real estate bridge loans		234,408		1,048,698		565,118		—		—		—		—		1,848,224

Other loans
Non-rated		3,416		—		—		—		—		11,669		—		15,085
Pass		166		261		370		2,610		2,370		41,334		1,638		48,749
Special mention		—		—		—		—		—		394		—		394
Substandard		—		—		—		—		—		3,688		—		3,688
Total other loans(2)		3,582		261		370		2,610		2,370		57,085		1,638		67,916

	$	633,420	$	1,537,373	$	868,083	$	160,251	$	95,080	$	174,719	$	1,722,151	$	5,191,077

Unamortized loan fees and costs		—		—		—		—		—		—		—		7,895
Total															$	5,198,972

⁽¹⁾

*Included in the SBL non real estate ~~non-rated~~pass total of ~~$10.8~~$118.1 million ~~were $6.6~~was $2.3 million of ~~PPP loans.~~SBA Paycheck Protection Program (“PPP”) loans, which are guaranteed by the U.S. government.

⁽²⁾

**Included in Other loans are ~~$17.2~~$12.1 million of SBA loans purchased for Community Reinvestment Act (“CRA”) purposes as of September 30, 2023. These loans are classified as SBL in the Company’s loan table, which classifies loans by type, as opposed to risk characteristics.


As of December 31, 2022	2022		2021		2020		2019		2018		Prior		Revolving loans at amortized cost		Total
SBL non real estate
Non-rated⁽¹⁾	$	2,075	$	4,266	$	273	$	—	$	—	$	—	$	—	$	6,614
Pass		32,402		30,388		13,432		5,599		3,931		4,555		—		90,307
Special mention		—		—		—		—		585		284		—		869
Substandard		—		—		320		242		15		642		—		1,219
Total SBL non-real estate		34,477		34,654		14,025		5,841		4,531		5,481		—		99,009

SBL commercial mortgage
Non-rated		10,600		—		—		—		—		—		—		10,600
Pass		116,647		97,968		64,388		64,692		42,461		68,193		—		454,349
Special mention		—		—		—		1,853		—		630		—		2,483
Substandard		—		—		141		—		834		589		—		1,564
Total SBL commercial mortgage		127,247		97,968		64,529		66,545		43,295		69,412		—		468,996

SBL construction
Pass		3,153		11,650		9,712		2,964		—		—		—		27,479
Substandard		—		2,676		—		—		—		710		—		3,386
Total SBL construction		3,153		14,326		9,712		2,964		—		710		—		30,865
		.
Direct lease financing
Non-rated		73,424		30,900		8,245		1,153		429		108		—		114,259
Pass		254,063		129,763		71,043		38,038		13,722		4,291		—		510,920
Special mention		—		—		61		—		—		—		—		61
Substandard		2,854		2,324		1,658		84		—		—		—		6,920
Total direct lease financing		330,341		162,987		81,007		39,275		14,151		4,399		—		632,160

SBLOC
Non-rated		—		—		—		—		—		—		4,284		4,284
Pass		—		—		—		—		—		—		1,205,098		1,205,098
Total SBLOC		—		—		—		—		—		—		1,209,382		1,209,382

IBLOC
Non-rated		—		—		—		—		—		—		555,219		555,219
Pass		—		—		—		—		—		—		567,868		567,868
Total IBLOC		—		—		—		—		—		—		1,123,087		1,123,087

Advisor financing
Non-rated		3,318		909		—		—		—		—		—		4,227
Pass		68,078		64,498		35,665		—		—		—		—		168,241
Total advisor financing		71,396		65,407		35,665		—		—		—		—		172,468

Real estate bridge loans
Pass		1,009,708		659,323		—		—		—		—		—		1,669,031
Total real estate bridge loans		1,009,708		659,323		—		—		—		—		—		1,669,031

Other loans
Non-rated		4,374		29		37		—		—		16,326		488		21,254
Pass		264		366		2,611		2,750		2,820		41,571		1,187		51,569
Special mention		—		—		—		—		—		3,552		—		3,552
Substandard		—		—		—		—		—		692		56		748
Total other loans⁽²⁾		4,638		395		2,648		2,750		2,820		62,141		1,731		77,123

Total	$	1,580,960	$	1,035,060	$	207,586	$	117,375	$	64,797	$	142,143	$	2,334,200	$	5,482,121

Unamortized loan fees and costs		—		—		—		—		—		—		—		4,732
Total															$	5,486,853

⁽¹⁾Included in the SBL non real estate non-rated total of $6.6 million was $4.5 million of SBA PPP loans, which are guaranteed by the U.S. government.

⁽²⁾Included in Other loans are $15.4 million of SBA loans purchased for CRA purposes as of December 31, 2022. These loans are classified as SBL in the Company’s loan table, which ~~classify~~classifies loans by type, as opposed to risk characteristics.

As of December 31, 2021
2021
2020
2019
2018
2017
Prior
Revolving loans at amortized cost
Total
SBL non real estate
Non-rated*
$
39,318
$
7,257
$
—
$
—
$
—
$
—
$
—
$
46,575
Pass
34,172
15,934
8,794
8,988
5,088
9,809
—
82,785
Special mention
—
—
99
666
—
859
—
1,624
Substandard
—
—
—
18
848
895
—
1,761
Total SBL non-real estate
73,490
23,191
8,893
9,672
5,936
11,563
—
132,745
SBL commercial mortgage
Non-rated
10,963
—
—
—
—
—
—
10,963
Pass
79,166
57,554
75,290
43,820
37,607
46,016
—
339,453
Special mention
—
141
1,853
—
—
247
—
2,241
Substandard
—
—
—
—
—
812
—
812
Total SBL commercial mortgage
90,129
57,695
77,143
43,820
37,607
47,075
—
353,469
SBL construction
Pass
6,869
12,629
1,880
5,111
—
—
—
26,489
Substandard
—
—
—
—
—
710
—
710
Total SBL construction
6,869
12,629
1,880
5,111
—
710
—
27,199
.
Direct lease financing
Non-rated
56,152
13,271
1,933
1,115
355
104
—
72,930
Pass
214,780
145,256
58,337
26,662
8,574
2,105
—
455,714
Special mention
—
—
—
22
38
—
—
60
Substandard
526
1,679
38
22
31
12
—
2,308
Total direct lease financing
271,458
160,206
60,308
27,821
8,998
2,221
—
531,012
SBLOC
Non-rated
—
—
—
—
—
—
3,176
3,176
Pass
—
—
—
—
—
—
1,138,140
1,138,140
Total SBLOC
—
—
—
—
—
—
1,141,316
1,141,316
IBLOC
Non-rated
—
—
—
—
—
—
346,604
346,604
Pass
—
—
—
—
—
—
441,661
441,661
Total IBLOC
—
—
—
—
—
—
788,265
788,265
Advisor financing
Non-rated
38,330
258
—
—
—
—
—
38,588
Pass
33,776
43,406
—
—
—
—
—
77,182
Total advisor financing
72,106
43,664
—
—
—
—
—
115,770
Real estate bridge loans
Pass
621,702
—
—
—
—
—
—
621,702
Total real estate bridge loans
621,702
—
—
—
—
—
—
621,702
Other loans
Non-rated
396
152
—
—
—
216
656
1,420
Pass
373
113
3,081
4,553
5,212
11,604
1,264
26,200
Substandard
—
—
—
—
—
—
73
73
Total other loans**
769
265
3,081
4,553
5,212
11,820
1,993
27,693
Total
$
1,136,523
$
297,650
$
151,305
$
90,977
$
57,753
$
73,389
$
1,931,574
$
3,739,171
Unamortized loan fees and costs
—
—
—
—
—
—
—
8,053
Total
$
3,747,224

*Included in the SBL non real estate non-rated total of $46.6 million, were $44.8 million of PPP loans which are government guaranteed.

**Included in Other loans are $22.7 million of SBA loans purchased for CRA purposes as of December 31, 2021. These loans are classified as SBL in the Company’s loan table which classify loans by type, as opposed to risk characteristics.

SBL. Substantially all ~~small business loans~~SBLs consist of SBA loans. The Bank participates in loan programs established by the SBA, including the 7(a) Loan Guarantee Program (the “7(a) Program”), the 504 Fixed Asset Financing Program (the “504 Program”), and ~~a temporary program,~~ the discontinued PPP. The 7(a) ~~Loan Guarantee~~ Program is designed to help small business borrowers start or expand their businesses by providing partial guarantees of loans made by banks and non-bank lending institutions for specific business purposes, including long or short term working capital; funds for

the purchase of equipment, machinery, supplies and materials; funds for the purchase, construction or renovation of real estate; and funds to acquire, operate or expand an existing business or refinance existing debt, all under conditions established by the SBA. The 504 ~~Fixed Asset Financing~~ Program includes the financing of real estate and commercial mortgages. In 2020 and 2021, the Company also participated in the PPP, which ~~provides~~provided short-term loans to small businesses. PPP loans are fully guaranteed by the U.S. government. This program was a specific response to the COVID-19 pandemic, and the vast majority of these loans have been reimbursed by the U.S. government, with ~~$6.6~~$2.3 million remaining to be reimbursed as of September 30, ~~2022.~~2023. The Company segments the SBL portfolio into four pools: ~~non real~~non-real estate, commercial mortgage and construction to capture the risk characteristics of each pool, and the PPP loans discussed above. PPP loans are not included in the risk pools because they have inherently different risk characteristics due to the U.S. government guarantee. In the table above, the PPP loans are included in non-rated SBL ~~non real~~non-real estate. The qualitative factors for SBL loans focus on pool loan performance, underlying collateral for collateral dependent loans and changes in economic conditions. Additionally, the construction segment adds a qualitative factor for general construction risk, such as construction delays resulting from labor shortages or availability/pricing of construction materials. ~~PPP loans, which are fully guaranteed, are not included in the risk pools because they have inherently different risk characteristics, because of the U.S. government guarantee.~~

Direct lease financing. The Company provides lease financing for commercial and government vehicle fleets and, to a lesser extent, provides lease financing for other equipment. Leases are either open-end or closed-end. An open-end lease is one in which, at the end of the lease term, the lessee must pay the difference between the amount at which the Company sells the leased asset and the stated termination value. Termination value is a contractual value agreed to by the parties at the inception of a lease as to the value of the leased asset at the end of the lease term. A closed-end lease is one for which no such payment is due on lease termination. In a closed-end lease, the risk that the amount received on a sale of the leased asset will be less than the residual value is assumed by the Bank, as lessor. The qualitative factors for direct lease financing focus on underlying collateral for collateral dependent loans, portfolio loan performance, loan concentrations and changes in economic conditions.

SBLOC. SBLOC loans are made to individuals, trusts and entities and are secured by a pledge of marketable securities maintained in one or more accounts for which the Company obtains a securities account control agreement. The securities pledged may be either debt or equity securities or a combination thereof, but all such securities must be listed for trading on a national securities exchange or automated inter-dealer quotation system. SBLOCs are typically payable on demand. Maximum SBLOC line amounts are calculated by applying a standard ~~‘advance rate’~~“advance rate” calculation against the eligible security type depending on asset class: typically, up to 50% for equity securities and mutual fund securities and 80% for investment grade (Standard & Poor’s rating of BBB- or higher, or Moody’s rating of Baa3 or higher) municipal or corporate debt securities. Substantially all SBLOCs have full recourse to the borrower. The underlying securities collateral for SBLOC loans is monitored on a daily basis to confirm the composition of the client portfolio and its daily market value. The primary qualitative factor in the SBLOC analysis is the ratio of loans outstanding to market value. This factor has been maintained at low levels, which has remained appropriate as losses have not materialized despite the historic declines in the equity markets during 2020, during which there were no losses. Significant losses have not been incurred since inception of this line of business. Additionally, the advance rates noted above were established to provide the Company with protection from declines in market conditions from the origination date of the lines of credit.

IBLOC. IBLOC loans are collateralized by the cash surrender value of eligible insurance policies. Should a loan default, the primary risks for IBLOCs are if the insurance company issuing the policy were to become insolvent, or if that company would fail to recognize the Bank’s assignment of policy proceeds. To mitigate these risks, insurance company ratings are periodically evaluated for compliance with Bank standards. Additionally, the Bank utilizes assignments of cash surrender value, which legal counsel has concluded are enforceable. Significant losses have not been incurred since inception of this line of business. The qualitative factors for IBLOC primarily focus on the concentration risk with insurance companies.

Investment advisor financing.In 2020, the Bank began originating loans to investment advisors for purposes of debt ~~refinance,~~refinancing, acquisition of another firm or internal succession. Maximum loan amounts are subject to loan-to-value ratios of 70%, based on third party business appraisals, but may be increased depending upon the debt service coverage ratio. Personal guarantees and blanket business liens are obtained as appropriate. Loan repayment is highly dependent on fee streams from advisor clientele. Accordingly, loss of fee-based investment advisory clients or negative market performance may reduce fees and pose a risk to these credits. As credit losses have not been experienced, the ~~allowance~~ACL is determined by qualitative factors. The qualitative factors for investment advisor financing focus on historical industry losses, changes in lending policies and procedures, portfolio performance and economic conditions.

Real estate bridge loans. Real estate bridge loans are transitional commercial mortgage loans which are made to improve and rehabilitate existing properties which already have cash flow, and which are securitized by those properties. The portfolio is comprised primarily of apartment buildings. Prior to 2020, such loans were originated for securitization and loans which had been originated but not securitized continue to be accounted for at fair value in “Commercial loans, at fair value”, on the balance sheet. In 2021, originations resumed and are being held for investment in “Loans, net of deferred fees and costs”, on the balance sheet. As credit losses have not been experienced

for multi-family (apartment building loans) which comprise the ~~allowance~~REBL portfolio, the ACL is determined by qualitative factors. Qualitative factors focus on historical industry losses, changes in economic conditions, underlying collateral and portfolio performance.

Other loans. Other loans include commercial and consumer loans including home equity lines of credit ~~of the type~~which the Company generally no longer offers. Qualitative factors focus on changes in the underlying collateral for collateral dependent loans, portfolio loan performance, loan concentrations and changes in economic conditions.

Expected credit losses are estimated over the estimated remaining lives of loans. The estimate excludes possible extensions, renewals and modifications unless either of the following applies: management has a reasonable expectation that a loan will be restructured, or the extension or renewal options are included in the borrower contract and are not unconditionally cancellable by us.

The Company does not measure an ~~allowance for credit losses~~ACL on accrued interest receivable balances, because these balances are written off in a timely manner as a reduction to interest income when loans are placed on non-accrual status.

~~Allowance for credit losses~~ACL on off-balance sheet credit exposures. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The ~~allowance for credit losses~~ACL on such off-balance sheet credit exposures, also referred to as loan commitments, is adjusted through the provision for credit losses. The estimate considers the likelihood that funding will occur over the estimated life of the commitment. The amount of the ~~allowance in the liability account~~ACL on such exposures as of September 30, ~~2022~~2023 and as of December 31, ~~2021~~2022 was ~~$2.8~~$2.4 million and ~~$1.4~~$2.8 million, respectively.

A detail of the changes in the ~~allowance for credit losses~~ACL by loan category and summary of loans evaluated individually and collectively for credit deterioration is as follows (in thousands):



	September 30, 2022																				September 30, 2023
	SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Real estate bridge loans		Other loans		Unallocated**		Total		SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Real estate bridge loans		Other loans		Deferred fees and costs		Total
Beginning 1/1/2022	$	5,415	$	2,952	$	432	$	5,817	$	964	$	868	$	1,181	$	177	$	—	$	17,806
Beginning 1/1/2023																					$	5,028	$	2,585	$	565	$	7,972	$	1,167	$	1,293	$	3,121	$	643	$	—	$	22,374
Charge-offs		(861)		—		—		(312)		—		—		—		—		—		(1,173)		(871)		—		—		(2,804)		—		—		—		(3)		—		(3,678)
Recoveries		57		—		—		108		—		—		—		—		—		165		446		75		—		220		—		—		—		299		—		1,040
Provision (credit)*		300		(794)		(6)		682		220		396		1,602		491		—		2,891
Provision (credit)⁽¹⁾																						1,250		19		(323)		3,583		(291)		203		335		(367)		—		4,409
Ending balance	$	4,911	$	2,158	$	426	$	6,295	$	1,184	$	1,264	$	2,783	$	668	$	—	$	19,689	$	5,853	$	2,679	$	242	$	8,971	$	876	$	1,496	$	3,456	$	572	$	—	$	24,145

Ending balance: Individually evaluated for expected credit loss	$	594	$	222	$	34	$	—	$	—	$	—	$	—	$	13	$	—	$	863	$	566	$	419	$	44	$	774	$	17	$	—	$	—	$	11	$	—	$	1,831

Ending balance: Collectively evaluated for expected credit loss	$	4,317	$	1,936	$	392	$	6,295	$	1,184	$	1,264	$	2,783	$	655	$	—	$	18,826	$	5,287	$	2,260	$	198	$	8,197	$	859	$	1,496	$	3,456	$	561	$	—	$	22,314

Loans:
Ending balance**	$	116,080	$	429,865	$	26,841	$	599,796	$	2,369,106	$	168,559	$	1,488,119	$	64,980	$	4,029	$	5,267,375
Ending balance																					$	130,579	$	547,107	$	19,204	$	670,208	$	1,720,513	$	199,442	$	1,848,224	$	55,800	$	7,895	$	5,198,972

Ending balance: Individually evaluated for expected credit loss	$	1,347	$	1,423	$	710	$	—	$	—	$	—	$	—	$	4,442	$	—	$	7,922	$	1,337	$	2,945	$	3,385	$	3,351	$	475	$	—	$	—	$	3,919	$	—	$	15,412

Ending balance: Collectively evaluated for expected credit loss	$	114,733	$	428,442	$	26,131	$	599,796	$	2,369,106	$	168,559	$	1,488,119	$	60,538	$	4,029	$	5,259,453	$	129,242	$	544,162	$	15,819	$	666,857	$	1,720,038	$	199,442	$	1,848,224	$	51,881	$	7,895	$	5,183,560

2425


	December 31, 2021																				December 31, 2022
	SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Real estate bridge loans		Other loans		Unallocated**		Total		SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Real estate bridge loans		Other loans		Deferred fees and costs		Total
Beginning balance 1/1/2021	$	5,060	$	3,315	$	328	$	6,043	$	775	$	362	$	—	$	199	$	—	$	16,082
Beginning 1/1/2022																					$	5,415	$	2,952	$	432	$	5,817	$	964	$	868	$	1,181	$	177	$	—	$	17,806
Charge-offs		(1,138)		(417)		—		(412)		(15)		—		—		(24)		—		(2,006)		(885)		—		—		(576)		—		—		—		—		—		(1,461)
Recoveries		51		9		—		58		—		—		—		1,099		—		1,217		140		—		—		124		—		—		—		24		—		288
Provision (reversal of)*		1,442		45		104		128		204		506		1,181		(1,097)		—		2,513
Provision (credit)⁽¹⁾																						358		(367)		133		2,607		203		425		1,940		442		—		5,741
Ending balance	$	5,415	$	2,952	$	432	$	5,817	$	964	$	868	$	1,181	$	177	$	—	$	17,806	$	5,028	$	2,585	$	565	$	7,972	$	1,167	$	1,293	$	3,121	$	643	$	—	$	22,374

Ending balance: Individually evaluated for expected credit loss	$	829	$	115	$	34	$	—	$	—	$	—	$	—	$	—	$	—	$	978	$	525	$	441	$	153	$	933	$	—	$	—	$	—	$	15	$	—	$	2,067

Ending balance: Collectively evaluated for expected credit loss	$	4,586	$	2,837	$	398	$	5,817	$	964	$	868	$	1,181	$	177	$	—	$	16,828	$	4,503	$	2,144	$	412	$	7,039	$	1,167	$	1,293	$	3,121	$	628	$	—	$	20,307

Loans:
Ending balance**	$	147,722	$	361,171	$	27,199	$	531,012	$	1,929,581	$	115,770	$	621,702	$	5,014	$	8,053	$	3,747,224
Ending balance																					$	108,954	$	474,496	$	30,864	$	632,160	$	2,332,469	$	172,468	$	1,669,031	$	61,679	$	4,732	$	5,486,853

Ending balance: Individually evaluated for expected credit loss	$	1,887	$	812	$	710	$	254	$	—	$	—	$	—	$	320	$	—	$	3,983	$	1,374	$	1,423	$	3,386	$	3,550	$	—	$	—	$	—	$	4,539	$	—	$	14,272

Ending balance: Collectively evaluated for expected credit loss	$	145,835	$	360,359	$	26,489	$	530,758	$	1,929,581	$	115,770	$	621,702	$	4,694	$	8,053	$	3,743,241	$	107,580	$	473,073	$	27,478	$	628,610	$	2,332,469	$	172,468	$	1,669,031	$	57,140	$	4,732	$	5,472,581



	September 30, 2021																				September 30, 2022
	SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Real estate bridge loans		Other loans		Unallocated**		Total		SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Real estate bridge loans		Other loans		Deferred fees and costs		Total
Beginning 1/1/2021	$	5,060	$	3,315	$	328	$	6,043	$	775	$	362	$	—	$	199	$	—	$	16,082
Beginning 1/1/2022																					$	5,415	$	2,952	$	432	$	5,817	$	964	$	868	$	1,181	$	177	$	—	$	17,806
Charge-offs		(896)		(23)		—		(248)		(15)		—		—		(10)		—		(1,192)		(861)		—		—		(312)		—		—		—		—		—		(1,173)
Recoveries		18		9		—		50		—		—		—		—		—		77		57		—		—		108		—		—		—		—		—		165
Provision (reversal of)*		1,196		(506)		42		(208)		157		247		245		19		—		1,192
Provision (credit)⁽¹⁾																						300		(794)		(6)		682		220		396		1,602		491		—		2,891
Ending balance	$	5,378	$	2,795	$	370	$	5,637	$	917	$	609	$	245		208	$	—	$	16,159	$	4,911	$	2,158	$	426	$	6,295	$	1,184	$	1,264	$	2,783		668	$	—	$	19,689

Ending balance: Individually evaluated for expected credit loss	$	1,163	$	510	$	34	$	91	$	—	$	—	$	—	$	14	$	—	$	1,812	$	594	$	222	$	34	$	—	$	—	$	—	$	—	$	13	$	—	$	863

Ending balance: Collectively evaluated for expected credit loss	$	4,215	$	2,285	$	336	$	5,546	$	917	$	609	$	245	$	194	$	—	$	14,347	$	4,317	$	1,936	$	392	$	6,295	$	1,184	$	1,264	$	2,783	$	655	$	—	$	18,826

Loans:
Ending balance**	$	171,845	$	367,272	$	23,117	$	514,068	$	1,834,523	$	81,143	$	128,699	$	4,917	$	11,078	$	3,136,662
Ending balance																					$	116,080	$	429,865	$	26,841	$	599,796	$	2,369,106	$	168,559	$	1,488,119	$	64,980	$	4,029	$	5,267,375

Ending balance: Individually evaluated for expected credit loss	$	2,233	$	3,167	$	711	$	430	$	—	$	—	$	—	$	339	$	—	$	6,880	$	1,347	$	1,423	$	710	$	—	$	—	$	—	$	—	$	4,442	$	—	$	7,922

Ending balance: Collectively evaluated for expected credit loss	$	169,612	$	364,105	$	22,406	$	513,638	$	1,834,523	$	81,143	$	128,699	$	4,578	$	11,078	$	3,129,782	$	114,733	$	428,442	$	26,131	$	599,796	$	2,369,106	$	168,559	$	1,488,119	$	60,538	$	4,029	$	5,259,453

*⁽¹⁾The amount shown as the provision for credit losses for the period reflects the provision on credit losses for loans, while the consolidated statements of operations provision for credit losses ~~include~~includes provisions for unfunded commitmentsof as follows: $393,000 for the nine months ended September 30, 2023, $1.4 million ~~$292,000 and $597,000, respectively,~~ for the nine months ended September 30, 2022, and ~~September 30, 2021, and~~$1.4 million for full year ~~2021.~~

** The ending balance for loans in the unallocated column represents deferred costs and fees.2022.

2526

A summary of the Company’s net charge-offs accordingly classified, by year of origination, at September 30, 2023 and December 31, 2022 are as follows (in thousands):


As of September 30, 2022		2022		2021		2020		2019		2018		Prior		Total
As of September 30, 2023																2023		2022		2021		2020		2019		Prior		Total
SBL non-real estate
Current period charge-offs	$	—	$	—	$	(16)	$	—	$	—	$	(845)	$	(861)	$	—	$	—	$	—	$	—	$	—	$	(871)	$	(871)
Current period recoveries		—		—		—		—		3		54		57		—		—		—		—		—		446		446
Current period SBL non-real estate net charge-offs		—		—		(16)		—		3		(791)		(804)		—		—		—		—		—		(425)		(425)

SBL commercial mortgage
Current period charge-offs		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		—		—		—		—		—		—		—		75		75
Current period SBL commercial mortgage net charge-offs		—		—		—		—		—		—		—		—		—		—		—		—		75		75

SBL construction
Current period charge-offs		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Current period SBL construction net charge-offs		—		—		—		—		—		—		—		—		—		—		—		—		—		—

Direct lease financing
Current period charge-offs		(31)		(132)		(123)		(26)		—		—		(312)		(114)		(1,706)		(756)		(189)		(39)		—		(2,804)
Current period recoveries		—		—		101		7		—		—		108		—		30		105		70		—		15		220
Current period direct lease financing net charge-offs		(31)		(132)		(22)		(19)		—		—		(204)		(114)		(1,676)		(651)		(119)		(39)		15		(2,584)

SBLOC
Current period charge-offs		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Current period SBLOC net charge-offs		—		—		—		—		—		—		—		—		—		—		—		—		—		—

IBLOC
Current period charge-offs		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Current period IBLOC net charge-offs		—		—		—		—		—		—		—		—		—		—		—		—		—		—

Advisor financing
Current period charge-offs		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Current period advisor financing net charge-offs		—		—		—		—		—		—		—		—		—		—		—		—		—		—

Real estate bridge loans
Current period charge-offs		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Current period real estate bridge loans net charge-offs		—		—		—		—		—		—		—		—		—		—		—		—		—		—

Other loans
Current period charge-offs		—		—		—		—		—		—		—		—		—		—		—		—		(3)		(3)
Current period recoveries		—		—		—		—		—		—		—		—		—		—		—		—		299		299
Current period other loans net recoveries		—		—		—		—		—		—		—		—		—		—		—		—		296		296

Total
Current period charge-offs		(31)		(132)		(139)		(26)		—		(845)		(1,173)		(114)		(1,706)		(756)		(189)		(39)		(874)		(3,678)
Current period recoveries		—		—		101		7		3		54		165		—		30		105		70		—		835		1,040
Current period net charge-offs	$	(31)	$	(132)	$	(38)	$	(19)	$	3	$	(791)	$	(1,008)	$	(114)	$	(1,676)	$	(651)	$	(119)	$	(39)	$	(39)	$	(2,638)


As of December 31, 2022		2022		2021		2020		2019		2018		Prior		Total
SBL non-real estate
Current period charge-offs	$	—	$	—	$	(17)	$	—	$	—	$	(868)	$	(885)
Current period recoveries		—		—		2		—		8		130		140
Current period SBL non-real estate net charge-offs		—		—		(15)		—		8		(738)		(745)

SBL commercial mortgage
Current period charge-offs		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		—		—
Current period SBL commercial mortgage net charge-offs		—		—		—		—		—		—		—

SBL construction
Current period charge-offs		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		—		—
Current period SBL construction net charge-offs		—		—		—		—		—		—		—

Direct lease financing
Current period charge-offs		(93)		(308)		(150)		(25)		—		—		(576)
Current period recoveries		—		1		117		6		—		—		124
Current period direct lease financing net charge-offs		(93)		(307)		(33)		(19)		—		—		(452)

SBLOC
Current period charge-offs		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		—		—
Current period SBLOC net charge-offs		—		—		—		—		—		—		—

IBLOC
Current period charge-offs		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		—		—
Current period IBLOC net charge-offs		—		—		—		—		—		—		—

Advisor financing
Current period charge-offs		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		—		—
Current period advisor financing net charge-offs		—		—		—		—		—		—		—

Real estate bridge loans
Current period charge-offs		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		—		—
Current period real estate bridge loans net charge-offs		—		—		—		—		—		—		—

Other loans
Current period charge-offs		—		—		—		—		—		—		—
Current period recoveries		—		—		—		—		—		24		24
Current period other loans net charge-offs		—		—		—		—		—		24		24

Total
Current period charge-offs		(93)		(308)		(167)		(25)		—		(868)		(1,461)
Current period recoveries		—		1		119		6		8		154		288
Current period net charge-offs	$	(93)	$	(307)	$	(48)	$	(19)	$	8	$	(714)	$	(1,173)

The Company did not have loans acquired with deteriorated credit quality at either September 30, ~~2022~~2023 or December 31, ~~2021.~~2022. In the ~~third quarter~~first nine months of ~~2022,~~2023, the Company purchased ~~$6.3~~$2.0 million of lease receivables and ~~$12.5~~$43.2 million of ~~SBL~~SBLs, none of which were credit deteriorated. Additionally, in the first nine months of 2023, the Company participated in SBLs with other institutions in the amount of $4.0 million.

The delinquent loans in the following table are treated as collateral dependent to the extent they have resulted from borrower financial difficulty (and not from administrative delays or other mitigating factors), and are not brought current. For non-accrual loans, the Company establishes a reserve in the allowance for credit losses for deficiencies between estimated collateral and loan carrying values. During the nine months ended September 30, 2023, the Company did not have any significant changes to the extent to which collateral secures its collateral dependent loans due to general collateral deterioration or from other factors. SBL non-real estate are collateralized by business assets, which may include certain real estate. SBL commercial mortgage and construction are collateralized by real estate for small businesses, while real estate bridge lending is primarily collateralized by apartmentbuildings, or other commercial real estate. SBLOC is collateralized by marketable investment securities while IBLOC is collateralized by the cash value of life insurance. Advisor financing is collateralized by investment advisors’ business franchises. Direct lease financing is collateralized primarily by vehicles, or equipment.

2628

A detail of the Company’s delinquent loans by loan category is as follows (in thousands):



	September 30, 2022														September 30, 2023
	30-59 Days		60-89 Days		90+ Days				Total				Total		30-59 Days		60-89 Days		90+ Days				Total				Total
	past due		past due		still accruing		Non-accrual		past due		Current		loans		past due		past due		still accruing		Non-accrual		past due		Current		loans
SBL non-real estate	$	1,715	$	1,246	$	370	$	1,077	$	4,408	$	111,672	$	116,080	$	186	$	389	$	358	$	1,256	$	2,189	$	128,390	$	130,579
SBL commercial mortgage		3,252		6		—		1,423		4,681		425,184		429,865		—		1		—		2,945		2,946		544,161		547,107
SBL construction		—		—		—		710		710		26,131		26,841		—		—		—		3,385		3,385		15,819		19,204
Direct lease financing		1,799		1,392		49		—		3,240		596,556		599,796		3,021		1,672		207		3,351		8,251		661,957		670,208
SBLOC / IBLOC		3,175		227		—		—		3,402		2,365,704		2,369,106		11,947		2,691		75		475		15,188		1,705,325		1,720,513
Advisor financing		—		—		—		—		—		168,559		168,559		—		—		—		—		—		199,442		199,442
Real estate bridge loans		—		—		—		—		—		1,488,119		1,488,119		—		—		—		—		—		1,848,224		1,848,224
Other loans		473		181		3,996		650		5,300		59,680		64,980		302		40		37		3,688		4,067		51,733		55,800
Unamortized loan fees and costs		—		—		—		—		—		4,029		4,029		—		—		—		—		—		7,895		7,895
	$	10,414	$	3,052	$	4,415	$	3,860	$	21,741	$	5,245,634	$	5,267,375	$	15,456	$	4,793	$	677	$	15,100	$	36,026	$	5,162,946	$	5,198,972



	December 31, 2021														December 31, 2022
	30-59 Days		60-89 Days		90+ Days				Total				Total		30-59 Days		60-89 Days		90+ Days				Total				Total
	past due		past due		still accruing		Non-accrual		past due		Current		loans		past due		past due		still accruing		Non-accrual		past due		Current		loans
SBL non-real estate	$	1,375	$	3,138	$	441	$	1,313	$	6,267	$	141,455	$	147,722	$	1,312	$	543	$	346	$	1,249	$	3,450	$	105,504	$	108,954
SBL commercial mortgage		—		220		—		812		1,032		360,139		361,171		1,853		5		297		1,423		3,578		470,918		474,496
SBL construction		—		—		—		710		710		26,489		27,199		—		—		—		3,386		3,386		27,478		30,864
Direct lease financing		1,833		692		20		254		2,799		528,213		531,012		4,035		2,053		539		3,550		10,177		621,983		632,160
SBLOC / IBLOC		5,985		289		—		—		6,274		1,923,307		1,929,581		14,782		343		2,869		—		17,994		2,314,475		2,332,469
Advisor financing		—		—		—		—		—		115,770		115,770		—		—		—		—		—		172,468		172,468
Real estate bridge loans		—		—		—		—		—		621,702		621,702		—		—		—		—		—		1,669,031		1,669,031
Other loans		—		—		—		72		72		4,942		5,014		330		90		3,724		748		4,892		56,787		61,679
Unamortized loan fees and costs		—		—		—		—		—		8,053		8,053		—		—		—		—		—		4,732		4,732
	$	9,193	$	4,339	$	461	$	3,161	$	17,154	$	3,730,070	$	3,747,224	$	22,312	$	3,034	$	7,775	$	10,356	$	43,477	$	5,443,376	$	5,486,853

The scheduled maturities of the direct financing leases reconciled to the total lease receivables in the consolidated balance sheet, are as follows (in thousands):


Remaining 2022	$	47,438
2023		160,895
Remaining 2023			$	48,771
2024		136,205		176,589
2025		81,108		152,797
2026		46,765		92,555
2027 and thereafter		17,435
2027				52,873
2028 and thereafter				17,456
Total undiscounted cash flows		489,846		541,041
Residual value *		167,946
Residual value⁽¹⁾				200,487
Difference between undiscounted cash flows and discounted cash flows		(57,996)		(71,320)
Present value of lease payments recorded as lease receivables	$	599,796	$	670,208

*⁽¹⁾Of the ~~$167,946,000, $29,984,000~~$200,487,000, $33,680,000 is not guaranteed by the lessee or other guarantors.

Note 7. Transactions with Affiliates

The Bank did not maintain any deposits for various affiliated companies as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

The Bank has entered into lending transactions in the ordinary course of business with directors, executive officers, principal stockholders and affiliates of such persons. All loans were made on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable loans with persons not related to the lender. At September 30, ~~2022,~~2023, these loans were current as to principal and interest payments and did not involve more than normal risk of collectability. Loans to these related parties amounted to $4.0 million at September 30, ~~2022~~2023 and ~~$5.2~~$5.5 million at December 31, ~~2021.~~2022.

Mr. Hersh Kozlov, a director of the Company, is a partner at Duane Morris LLP, an international law firm. The Company paid Duane Morris LLP ~~$1.4 million~~$164,000 and ~~$1.5~~$1.4 million for legal services for the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

Note 8. Fair Value Measurements

ASC 825, ~~“Financial Instruments”~~Financial Instruments, requires disclosure of the estimated fair value of an entity’s assets and liabilities considered to be financial instruments. For the Company, as for most financial institutions, the majority of its assets and liabilities are considered to be financial instruments. However, many such instruments lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. Accordingly, estimated fair values are determined by the Company using the best available data and an estimation methodology it believes to be suitable for each category of financial instruments. Also, it is the Company’s

general practice and intent to hold its financial instruments to maturity whether or not categorized as ~~“available-for-sale”~~available-for-sale and not to engage in trading or sales activities although it has sold loans and securities in the past and may do so in the future. For fair value disclosure purposes, the Company utilized certain value measurement criteria required in accordance with ASC 820, ~~“Fair~~Fair Value Measurements and ~~Disclosures”~~Disclosures (“ASC 820”), as discussed below.

Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Also, there may not be reasonable comparability between institutions due to the wide range of permitted assumptions and methodologies in the absence of active markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values.

Cash and cash equivalents, which are comprised of cash and due from banks, the Company’s balance at the Federal Reserve Bank and securities purchased under agreements to resell, had recorded values of $722.7 million and $601.8 million as of September 30, 2022 and December 31, 2021, respectively, which approximated fair values.

The estimated fair values of investment securities are based on quoted market prices, if available, or estimated using a methodology based on management’s inputs. Level 3 investment security fair values are based on the present valuing of cash flows, which discounts expected cash flows from principal and interest using yield to maturity, or yield to call as appropriate, at the measurement date. In the third quarter of 2022 and 2021, there were no transfers between the three levels.

FHLB, Atlantic Central Bankers Bank stock and Federal Reserve Bank stock are held as required by those respective institutions and are carried at cost. Each of these institutions require their correspondent banking institutions to hold stock as a condition of membership. While a fixed stock amount is required by each of these institutions, the Federal Home Loan Bank stock requirement increases or decreases with the level of borrowing activity.

Commercial loans held at fair value are comprised primarily of commercial real estate bridge loans and SBA loans which had been originated for sale or securitization in the secondary market, and which are now being held on the balance sheet. Commercial real estate bridge 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, on a pooled basis.

The net loan portfolio is valued using the present value of discounted cash flow where market prices were not available. The discount rate used in these calculations is the estimated current market rate adjusted for credit risk. Accrued interest receivable has a carrying value that approximates fair value.

Assets held-for-sale from discontinued operations were recorded at the lower of cost basis or market value. For loans, market value was determined using the discounted cash flow approach which converts expected cash flows from the loan portfolio by unit of measurement to a present value estimate. Unit of measurement was determined by loan type and for significant loans on an individual loan basis. Loan fair values are based on “unobservable inputs” that are based on available information. Level 3 fair values are based on the present value of cash flows by unit of measurement. In the first quarter of 2022, discontinued loans were reclassified to loans held for investment, as efforts to sell the loans had concluded. Accordingly, these loans will be accounted for as such, and included in related tables. Discontinued other real estate owned which constituted the remainder of discontinued assets was reclassified to the other real estate owned caption on the consolidated balance sheet.

~~For other real estate owned, market value is based upon appraisals of the underlying collateral by third-party appraisers, reduced by 7% to 10% for estimated selling costs.~~

The estimated fair values of demand deposits (comprised of interest and non-interest bearing checking accounts, savings accounts, and certain types of money market accounts) are equal to the amount payable on demand at the reporting date (generally, their carrying amounts). The fair values of securities sold under agreements to repurchase and short-term borrowings are equal to their carrying amounts as they are short-term borrowings.

Time deposits, when outstanding, senior debt and subordinated debentures have a fair value estimated using a discounted cash flow calculation that applies current interest rates to discount expected cash flows. The carrying amount of accrued interest payable approximates its fair value. Long term borrowings resulted from sold loans which did not qualify for true sale accounting. They are presented in the amount of the principal of such loans.

The fair values of interest rate swaps, recorded in other assets or other liabilities, are determined using models that use readily observable market inputs and a market standard methodology applied to the contractual terms of the derivatives, including the period to maturity and interest rate indices.

The fair value of commitments to extend credit is estimated based on the amount of unamortized deferred loan commitment fees. The fair value of letters of credit is based on the amount of unearned fees plus the estimated cost to terminate the letters of credit. Fair values of unrecognized financial instruments, including commitments to extend credit, and the fair value of letters of credit are considered immaterial.

~~The following tables provide information regarding carrying amounts and estimated fair values (in thousands) as of the dates indicated:~~

September 30, 2022
Quoted prices in
Significant other
Significant
active markets for
observable
unobservable
Carrying
Estimated
identical assets
inputs
inputs
amount
fair value
(Level 1)
(Level 2)
(Level 3)
Investment securities, available-for-sale
$
790,594
$
790,594
$
—
$
771,597
$
18,997
Federal Home Loan Bank, Atlantic Central Bankers Bank, and Federal Reserve Bank stock
12,629
12,629
—
—
12,629
Commercial loans, at fair value
818,040
818,040
—
—
818,040
Loans, net of deferred loan fees and costs
5,267,375
5,254,340
—
—
5,254,340
Interest rate swaps, asset
952
952
—
952
—
Demand and interest checking
5,934,591
5,934,591
—
5,934,591
—
Savings and money market
575,381
575,381
—
575,381
—
Time deposits
401,331
401,331
—
401,331
—
Senior debt
98,958
93,871
—
93,871
—
Subordinated debentures
13,401
8,947
—
—
8,947
Securities sold under agreements to repurchase
42
42
42
—
—

December 31, 2021
Quoted prices in
Significant other
Significant
active markets for
observable
unobservable
Carrying
Estimated
identical assets
inputs
inputs
amount
fair value
(Level 1)
(Level 2)
(Level 3)
Investment securities, available-for-sale
$
953,709
$
953,709
$
—
$
934,678
$
19,031
Federal Home Loan Bank and Atlantic Central Bankers Bank stock
1,663
1,663
—
—
1,663
Commercial loans, at fair value
1,388,416
1,388,416
—
—
1,388,416
Loans, net of deferred loan fees and costs
3,747,224
3,745,548
—
—
3,745,548
Assets held-for-sale from discontinued operations
3,268
3,268
—
—
3,268
Interest rate swaps, liability
553
553
—
553
—
Demand and interest checking
5,561,365
5,561,365
—
5,561,365
—
Savings and money market
415,546
415,546
—
415,546
—
Senior debt
98,682
101,980
—
101,980
—
Subordinated debentures
13,401
8,815
—
—
8,815
Securities sold under agreements to repurchase
42
42
42
—
—

~~The assets and liabilities measured at fair value on a recurring basis, segregated by fair value hierarchy, are summarized below (in thousands) as of the dates indicated:~~

Fair Value Measurements at Reporting Date Using
Quoted prices in
Significant other
Significant
active markets for
observable
unobservable
Fair value
identical assets
inputs
inputs
September 30, 2022
(Level 1)
(Level 2)
(Level 3)
Investment securities, available-for-sale
U.S. Government agency securities
$
24,282
$
—
$
24,282
$
—
Asset-backed securities
340,981
—
340,981
—
Obligations of states and political subdivisions
47,489
—
47,489
—
Residential mortgage-backed securities
144,314
—
144,314
—
Collateralized mortgage obligation securities
44,762
—
44,762
—
Commercial mortgage-backed securities
181,966
—
169,769
12,197
Corporate debt securities
6,800
—
—
6,800
Total investment securities, available-for-sale
790,594
—
771,597
18,997
Commercial loans, at fair value
818,040
—
—
818,040
Interest rate swaps, asset
952
—
952
—
$
1,609,586
$
—
$
772,549
$
837,037

Fair Value Measurements at Reporting Date Using
Quoted prices in
Significant other
Significant
active markets for
observable
unobservable
Fair value
identical assets
inputs
inputs
December 31, 2021
(Level 1)
(Level 2)
(Level 3)
Investment securities, available-for-sale
U.S. Government agency securities
$
37,302
$
—
$
37,302
$
—
Asset-backed securities
360,418
—
360,418
—
Obligations of states and political subdivisions
52,137
—
52,137
—
Residential mortgage-backed securities
184,301
—
184,301
—
Collateralized mortgage obligation securities
61,861
—
61,861
—
Commercial mortgage-backed securities
251,076
—
238,659
12,417
Corporate debt securities
6,614
—
—
6,614
Total investment securities, available-for-sale
953,709
—
934,678
19,031
Commercial loans, at fair value
1,388,416
—
—
1,388,416
Assets held-for-sale from discontinued operations
3,268
—
—
3,268
Interest rate swaps, liability
553
—
553
—
$
2,344,840
$
—
$
934,125
$
1,410,715

In addition, ASC 820 establishes a common definition for fair value to be applied to assets and liabilities. It clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It also establishes a framework for measuring fair value and expands disclosures concerning fair value measurements. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Level 1 valuation is based on quoted market prices for identical assets or liabilities to which the Company has access at the measurement date. Level 2 valuation is based on other observable inputs for the asset or liability, either directly or indirectly. This includes quoted prices for similar assets in active or inactive markets, inputs other than quoted prices that are observable for the asset or liability such as yield curves, volatilities, prepayment speeds, credit risks, default rates, or inputs that are derived principally from, or corroborated through, observable market data by market-corroborated reports. Level 3 valuation is based on “unobservable inputs” which the Company believes is the best information available in the circumstances. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Cash and cash equivalents, which are comprised of cash and due from banks and the Company’s balance at the Federal Reserve Bank, had recorded values of $903.4 million and $888.2 million as of September 30, 2023 and December 31, 2022, respectively, which approximated fair values.

The estimated fair values of investment securities are based on quoted market prices, if available, or estimated independently by a third-party pricing service based upon their matrix pricing technique. Level 3 investment security fair values are based on the present valuing of cash flows, which discounts expected cash flows from principal and interest using yield to maturity, or yield to call as appropriate, at the measurement date. In the third quarter of 2023 and 2022, there were no transfers between the three levels.

FHLB stock, ACBB stock and Federal Reserve Bank stock are held as required by those respective institutions and are carried at cost. Each of these institutions require their correspondent banking institutions to hold stock as a condition of membership. 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.

Loans, net have an estimated fair value using the present value of future cash flows. The discount rate used in these calculations is the estimated current market rate adjusted for credit risk. Accrued interest receivable has a carrying value that approximates fair value.

Loan fair values are based on “unobservable inputs” that are based on available information. Level 3 fair values are based on the present value of cash flows by unit of measurement. In the first quarter of 2022, discontinued loans were reclassified to loans held for investment, as efforts to sell the loans had concluded. Accordingly, these loans are accounted for as such, and included in related tables. Discontinued OREO, which constituted the remainder of discontinued assets, was reclassified to the OREO caption on the consolidated balance sheet.

For OREO, market value is based upon appraisals of the underlying collateral by third-party appraisers, reduced by 7% to 10% for estimated selling costs.

The estimated fair values of demand deposits (comprised of interest and non-interest bearing checking accounts, savings accounts, and certain types of money market accounts) are equal to the amount payable on demand at the reporting date (generally, their carrying amounts). The fair values of securities sold under agreements to repurchase and short-term borrowings, when outstanding, are equal to their carrying amounts as they are short-term borrowings.

Time deposits, when outstanding, senior debt and subordinated debentures have a fair value estimated using a discounted cash flow calculation that applies current interest rates to discount expected cash flows. The carrying amount of accrued interest payable approximates its fair value. Long term borrowings resulting from sold loans which did not qualify for true sale accounting are presented in the amount of the principal of such loans.

The following tables provide information regarding carrying amounts and estimated fair values (in thousands) as of the dates indicated:



	September 30, 2023
					Quoted prices in		Significant other		Significant
					active markets for		observable		unobservable
	Carrying		Estimated		identical assets		inputs		inputs
	amount		fair value		(Level 1)		(Level 2)		(Level 3)
Investment securities, available-for-sale	$	756,636	$	756,636	$	—	$	738,033	$	18,603
FHLB, ACBB, and Federal Reserve Bank stock		20,157		20,157		—		—		20,157
Commercial loans, at fair value		379,603		379,603		—		—		379,603
Loans, net of deferred loan fees and costs		5,198,972		5,156,653		—		—		5,156,653
Interest rate swaps, asset		427		427		—		427		—
Demand and interest checking		6,455,043		6,455,043		—		6,455,043		—
Savings and money market		49,428		49,428		—		49,428		—
Senior debt		95,771		93,765		—		93,765		—
Subordinated debentures		13,401		10,583		—		—		10,583
Securities sold under agreements to repurchase		42		42		42		—		—



	December 31, 2022
					Quoted prices in		Significant other		Significant
					active markets for		observable		unobservable
	Carrying		Estimated		identical assets		inputs		inputs
	amount		fair value		(Level 1)		(Level 2)		(Level 3)
Investment securities, available-for-sale	$	766,016	$	766,016	$	—	$	745,993	$	20,023
FHLB, ACBB, and Federal Reserve Bank stock		12,629		12,629		—		—		12,629
Commercial loans, at fair value		589,143		589,143		—		—		589,143
Loans, net of deferred loan fees and costs		5,486,853		5,462,948		—		—		5,462,948
Interest rate swaps, asset		408		408		—		408		—
Demand and interest checking		6,559,617		6,559,617		—		6,559,617		—
Savings and money market		140,496		140,496		—		140,496		—
Time deposits		330,000		330,000		—		330,000		—
Senior debt		99,050		93,871		—		93,871		—
Subordinated debentures		13,401		10,067		—		—		10,067
Securities sold under agreements to repurchase		42		42		42		—		—

Other assets and liabilities measured at fair value on a recurring basis, segregated by fair value hierarchy, are summarized below (in thousands) as of the dates indicated:



			Fair Value Measurements at Reporting Date Using
			Quoted prices in		Significant other		Significant
				active markets for	observable		unobservable
	Fair value		identical assets		inputs		inputs
		September 30, 2023	(Level 1)		(Level 2)		(Level 3)
Investment securities, available-for-sale
U.S. Government agency securities	$	33,027	$	—	$	33,027	$	—
Asset-backed securities		331,498		—		331,498		—
Obligations of states and political subdivisions		46,350		—		46,350		—
Residential mortgage-backed securities		160,041		—		160,041		—
Collateralized mortgage obligation securities		35,592		—		35,592		—
Commercial mortgage-backed securities		143,848		—		131,525		12,323
Corporate debt securities		6,280		—		—		6,280
Total investment securities, available-for-sale		756,636		—		738,033		18,603
Commercial loans, at fair value		379,603		—		—		379,603
Interest rate swaps, asset		427		—		427		—
	$	1,136,666	$	—	$	738,460	$	398,206



			Fair Value Measurements at Reporting Date Using
			Quoted prices in		Significant other		Significant
				active markets for	observable		unobservable
	Fair value		identical assets		inputs		inputs
		December 31, 2022	(Level 1)		(Level 2)		(Level 3)
Investment securities, available-for-sale
U.S. Government agency securities	$	28,381	$	—	$	28,381	$	—
Asset-backed securities		334,009		—		334,009		—
Obligations of states and political subdivisions		47,510		—		47,510		—
Residential mortgage-backed securities		139,820		—		139,820		—
Collateralized mortgage obligation securities		41,783		—		41,783		—
Commercial mortgage-backed securities		166,813		—		154,490		12,323
Corporate debt securities		7,700		—		—		7,700
Total investment securities, available-for-sale		766,016		—		745,993		20,023
Commercial loans, at fair value		589,143		—		—		589,143
Interest rate swaps, asset		408		—		408		—
	$	1,355,567	$	—	$	746,401	$	609,166

The Company’s Level 3 asset activity for the categories shown are summarized below (in thousands):



	Fair Value Measurements Using
	Significant Unobservable Inputs
	(Level 3)

	Available-for-sale					Commercial loans,
	securities					at fair value
	September 30, 2023			December 31, 2022		September 30, 2023		December 31, 2022
Beginning balance	$	20,023		$	19,031	$	589,143	$	1,388,416
Transfers to OREO		—			—		(737)		(61,580)
Total net gains (losses) (realized/unrealized)
Included in earnings		—			—		4,152		12,570
Included in other comprehensive income		(1,420)			992		—		—
Purchases, issuances, sales and settlements
Issuances		—			—		105,192		66,067
Settlements		—			—		(318,147)		(816,330)
Ending balance	$	18,603		$	20,023	$	379,603	$	589,143

Total losses year to date included
in earnings attributable to the change in
unrealized gains or losses relating to assets still
held at the reporting date as shown above.	$	(1,420	)	$	—	$	(1,323)	$	(3,492)

The Company’s Level 3 asset activity for the categories shown are summarized below (in thousands):

Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)
Available-for-sale
Commercial loans,
securities
at fair value
September 30, 2022
December 31, 2021
September 30, 2022
December 31, 2021
Beginning balance
$
19,031
$
178,951
$
1,388,416
$
1,810,812
Transfers from investment in unconsolidated entity
—
—
—
22,926
Transfers from assets held-for-sale from discontinued operations
—
—
—
61,580
Transfers to loans, net
—
—
(61,580)
—
Total net (losses) or gains (realized/unrealized)
Included in earnings
—
(44)
9,756
13,214
Included in other comprehensive loss
(34)
(1,422)
—
—
Purchases, issuances, sales and settlements
Issuances
—
—
36,877
127,765
Settlements
—
(158,454)
(555,429)
(647,881)
Ending balance
$
18,997
$
19,031
$
818,040
$
1,388,416
Total losses year to date included
in earnings attributable to the change in
unrealized gains or losses relating to assets still
held at the reporting date as shown above.
$
—
$
—
$
(5,278)
$
(2,133)


	Fair Value Measurements Using
	Significant Unobservable Inputs
	(Level 3)

	Assets held-for-sale
	from discontinued operations
	September 30, 2023		December 31, 2022
Beginning balance	$	—	$	3,268
Settlements		—		(3,268)
Ending balance	$	—	$	—

Total losses year to date included
in earnings attributable to the change in
unrealized gains or losses relating to assets still
held at the reporting date as shown above.	$	—	$	—

The Company’s ~~Level 3 asset activity for the categories shown are summarized below (in thousands):~~

Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)
Investment in
Assets held-for-sale
unconsolidated entity
from discontinued operations
September 30, 2022
December 31, 2021
September 30, 2022
December 31, 2021
Beginning balance
$
—
$
31,294
$
3,268
$
113,650
Transfers to commercial loans, at fair value
—
(22,926)
—
(61,580)
Transfers to other real estate owned
—
(2,145)
—
(17,343)
Total (losses) or gains (realized/unrealized)
Included in earnings
—
—
—
1,102
Purchases, issuances, sales, settlements and charge-offs
Issuances
—
—
—
5,222
Sales
—
—
—
(2,020)
Settlements
—
(6,223)
(3,268)
(35,750)
Charge-offs
—
—
—
(13)
Ending balance
$
—
$
—
$
—
$
3,268
Total losses year to date included
in earnings attributable to the change in
unrealized gains or losses relating to assets still
held at the reporting date as shown above.
$
—
$
—
$
—
$
566

~~The Company’s other real estate owned~~OREO activity is summarized below (in thousands) as of the dates indicated:


	September 30, 2022		December 31, 2021		September 30, 2023		December 31, 2022
Beginning balance	$	18,873	$	—	$	21,210	$	18,873
Transfers from investment in unconsolidated entity		—		2,145
Transfer from commercial loans, at fair value						737		—
Writedowns						(1,147)		—
Sales		—		(615)		(2,044)		(2,343)
Transfers from discontinued operations		—		17,343
Transfers from commercial loans, at fair value						—		4,680
Ending balance	$	18,873	$	18,873	$	18,756	$	21,210

Information related to fair values of Level 3 balance sheet categories is as follows (dollars in thousands):

Level 3 instruments only

Weighted

Fair value at

Range at

average at

September 30, 2023

Valuation techniques

Unobservable inputs

September 30, 2023

Commercial mortgage-backed investment

security⁽¹⁾

12,323

Discounted cash flow

Discount rate

13.20%

Insurance liquidating trust preferred security⁽²⁾

6,280

Discounted cash flow

Discount rate

15.50%

FHLB, ACBB,

and Federal Reserve Bank stock

20,157

Cost

N/A

Loans, net of deferred loan fees and costs⁽³⁾

5,156,653

Discounted cash flow

Discount rate

7.40%-13.00%

8.43%

Commercial - SBA⁽⁴⁾

126,543

Discounted cash flow

Discount rate

7.32%

Non-SBA commercial real estate - fixed⁽⁵⁾

124,802

Discounted cash flow

Discount rate

8.58%-12.72%

8.95%

Non-SBA commercial real estate - floating⁽⁶⁾

128,258

Discounted cash flow

Discount rate

9.80%-17.30%

14.02%

Commercial loans, at fair value

379,603

Subordinated debentures⁽⁷⁾

10,583

Discounted cash flow

Discount rate

12.00%

OREO⁽⁸⁾

18,756

Appraised value

N/A

3133

~~Information related to fair values of level 3 balance sheet categories is as follows:~~

Level 3 instruments only
Weighted
Fair value at
Range at
average at
September 30, 2022
Valuation techniques
Unobservable inputs
September 30, 2022
September 30, 2022
Commercial mortgage-backed investment
security (a)
$
12,197
Discounted cash flow
Discount rate
11.08%
11.08%
Insurance liquidating trust preferred security (b)
6,800
Discounted cash flow
Discount rate
10.82%
10.82%
Federal Home Loan Bank, Atlantic
Central Bankers Bank, and Federal Reserve Bank stock
12,629
Cost
N/A
N/A
N/A
Loans, net of deferred loan fees and costs (c)
5,254,340
Discounted cash flow
Discount rate
5.00%-10.00%
5.87%
Commercial - SBA (d)
159,914
Discounted cash flow
Discount rate
3.85%-5.07%
4.95%
Non-SBA CRE - fixed (e)
62,923
Discounted cash flow and appraisal
Discount rate
8.26%-19.23%
12.34%
Non-SBA CRE - floating (f)
595,203
Discounted cash flow
Discount rate
5.56%-16.00%
6.26%
Commercial loans, at fair value
818,040
Subordinated debentures (g)
8,947
Discounted cash flow
Discount rate
11.05%
11.05%
Other real estate owned (h)
18,873
Appraised value
N/A
N/A
N/A

Level 3 instruments only

Weighted

Fair value at

Range at

average at

Fair value at

Range at

average at

December 31, 2021

Valuation techniques

Unobservable inputs

December 31, 2021

December 31, 2022

Valuation techniques

Unobservable inputs

December 31, 2022

Commercial mortgage-backed investment

security

12,417

Discounted cash flow

Discount rate

8.00%

12,323

Discounted cash flow

Discount rate

12.71%

Insurance liquidating trust preferred security

6,614

Discounted cash flow

Discount rate

7.00%

7,700

Discounted cash flow

Discount rate

11.50%

Federal Home Loan Bank and Atlantic

Central Bankers Bank stock

1,663

Cost

N/A

FHLB, ACBB,

and Federal Reserve Bank stock

12,629

Cost

N/A

Loans, net of deferred loan fees and costs

3,745,548

Discounted cash flow

Discount rate

1.00% - 7.00%

3.70%

5,462,948

Discounted cash flow

Discount rate

5.65% - 11.00%

6.86%

Commercial - SBA

199,585

Discounted cash flow

Discount rate

1.04% - 2.12%

$103.40

146,717

Discounted cash flow

Discount rate

5.57%-6.25%

6.17%

Non-SBA CRE - fixed

79,864

Discounted cash flow

Discount rate

5.31%-7.43%

6.26%

Non-SBA CRE - floating

1,047,387

Discounted cash flow

Discount rate

3.96%-10.20%

4.96%

Other loans

61,580

Discounted cash flow

Discount rate

3.18%-6.80%

4.36%

Non-SBA commercial real estate - fixed

28,695

Discounted cash flow and appraisal

Discount rate

8.36%-11.65%

10.31%

Non-SBA commercial real estate - floating

413,731

Discounted cash flow

Discount rate

7.07%-17.20%

7.90%

Commercial loans, at fair value

1,388,416

589,143

Assets held-for-sale from discontinued operations

3,268

Discounted cash flow

Discount rate

3.18%-6.80%

4.36%

Subordinated debentures

8,815

Discounted cash flow

Discount rate

7.00%

10,067

Discounted cash flow

Discount rate

11.50%

Other real estate owned

18,873

Appraised value

N/A

OREO

21,210

Appraised value

N/A

The valuations for each of the instruments above, as of the balance sheet date, are subject to judgments, assumptions and uncertainties, changes in which could have a significant impact on such valuations. Weighted averages were calculated by using the discount rate for each individual security or loan weighted by its market value, except for SBA loans. For SBA loans, the ~~yields~~yield derived from market pricing indications for comparable pools determined by date of loan ~~origination were weighted.~~origination. For commercial loans recorded at fair value, changes in fair value are reflected in the income statement. Changes in the fair value of securities which are unrelated to credit are recorded through equity. Changes in the fair value of loans recorded at amortized cost which are unrelated to credit are a disclosure item, without impact on the financial statements. The notes below refer to the September 30, ~~2022~~2023 table.

a)⁽¹⁾Commercial mortgage-backed investment security, consisting of a single ~~Bank issued~~Bank-issued CRE security, is valued using discounted cash flow analysis. The discount rate and prepayment rate applied are based upon market observations and actual experience for comparable securities and implicitly assume market averages for defaults and loss severities. The CRE-2 security has significant

credit enhancement, or protection from other tranches in the issue, which limits the valuation exposure to credit losses. Nonetheless, increases in expected default rates or loss severities on the loans underlying the issue could reduce its value. In market environments in which investors demand greater yield compensation for credit risk, the discount rate applied would ordinarily be higher and the valuation lower. Changes in prepayments and loss experience could also change the interest earned on this holding in future periods and impact its fair value. As a single security, the weighted average rate shown is the actual rate applied to the CRE-2 security. For additional information related to this security, see Note 6. Loans.

⁽²⁾Insurance liquidating trust preferred security is a single debenture which is valued using discounted cash flow analysis. The discount rate used is based on the market rate on comparable relatively illiquid instruments and credit analysis. A change in the liquidating trust’s ability to repay the note, or an increase in interest rates, particularly for privately placed debentures, would affect the discount rate and thus the valuation. As a single security, the weighted average rate shown is the actual rate applied to the 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 Company 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 Company has requested additional updated financial information from the aggregator to permit a more accurate valuation of the security subsequent to the interest deferral. The aggregator has indicated that it is attempting to identify all holders of the security and that it intends to provide such financial information concurrently to all holders. The Company has placed the security in non-accrual status and will evaluate the security for potential loss in the fourth quarter of 2023, when the aggregator indicated that the financial information would be distributed. While the security has previously been subject to interest deferral which was repaid, there can be no assurance that repayment will occur for the current deferral. Further, depending upon the financial information provided by the aggregator, a loss of up to the full amount of principal, or $10.0 million, may be recognized in the fourth quarter of 2023.

c)⁽³⁾Loans, net of deferred loan fees and costs are valued using discounted cash flow analysis. Discount rates are based upon available information for estimated current origination rates for each loan type. Origination rates may fluctuate based upon changes in the risk free (Treasury) rate and credit experience for each loan type.

d)⁽⁴⁾~~Commercial-SBA~~Commercial – SBA Loans are comprised of the government guaranteed portion of ~~SBA insured~~SBA-insured loans. Their valuation is based upon the yield derived from dealer pricing indications for guaranteed pools, adjusted for seasoning and prepayments. A limited number of broker/dealers originate the pooled securities for which the loans are purchased and as a result, prices can fluctuate based on such limited market demand, although the government guarantee has resulted in consistent historical demand. Valuations are impacted by prepayment assumptions resulting from both voluntary payoffs and defaults. Such assumptions for ~~both poolable and~~these seasoned loans are based on a seasoning vector for constant prepayment rates from 3% to 30% over life.

⁽⁵⁾Non-SBA ~~CRE-fixed~~commercial real estate – fixed are fixed rate non-SBA commercial real estate mortgages. These loans are fair valued by a third party, based upon discounting at market rates for similar ~~loans, except for one loan which is fair valued on the basis of an appraisal.~~loans. Discount rates used in applying discounted cash flow analysis utilize input based upon loan terms, the general level of interest rates and the quality of the credit. Deterioration in loan performance or other credit weaknesses could result in fair value ranges which would be dependent upon potential buyers’ tolerance for such weaknesses and are difficult to estimate. ~~The loan which is valued on the basis of an appraisal has a fair value of $4.8 million, an outstanding principal balance of $9.5 million and is discussed in Note 6.~~

⁽⁶⁾Non-SBA ~~CRE-floating~~commercial real estate – floating are floating rate non-SBA loans, the vast majority of which are secured by multi-family properties (apartments). These are bridge loans designed to provide owners time and funding for property improvements and are generally valued using discounted cash flow analysis. The discount rate for the vast majority of these loans was based upon current origination rates for similar loans. Deterioration in loan performance or other credit weaknesses could result in fair value ranges which would be dependent upon potential buyers’ tolerance for such weaknesses and are difficult to estimate. At September 30, ~~2022,~~2023, these loans were fair valued by a third party, based upon discounting at market rates for similar loans.

⁽⁷⁾Subordinated debentures are comprised of two subordinated notes issued by the Company, maturing in 2038 with a floating rate ~~of 3-month LIBOR~~originally indexed to three-month London Inter-Bank Offered Rate (“LIBOR”) plus 3.25%. In the second quarter of 2023, the index was changed to secured overnight financing rate (“SOFR”) as part of the market-wide LIBOR transition. These notes are valued using discounted cash flow analysis. The discount rate is based on the market rate for comparable relatively illiquid instruments. Changes in those market rates, or the credit of the Company, could result in changes in valuation.

h)⁽⁸⁾For ~~other real estate owned,~~OREO, fair value is based upon appraisals of the underlying collateral by third party appraisers, reduced by 7% to 10% for estimated selling costs. Such appraisals reflect estimates of amounts realizable upon property sales based on the sale of comparable properties and other factors. Actual sales prices may vary based upon the identification of potential purchasers, changing conditions in local real estate markets and the level of interest rates required to finance purchases.

Assets measured at fair value on a nonrecurring basis, segregated by fair value hierarchy, during the periods shown are summarized below (in thousands):



			Fair Value Measurements at Reporting Date Using								Fair Value Measurements at Reporting Date Using
			Quoted prices in active		Significant other		Significant				Quoted prices in active		Significant other		Significant
			markets for identical		observable		unobservable				markets for identical		observable		unobservable
	Fair value		assets		inputs		inputs⁽¹⁾		Fair value		assets		inputs		inputs⁽¹⁾
Description	September 30, 2022		(Level 1)		(Level 2)		(Level 3)		September 30, 2023		(Level 1)		(Level 2)		(Level 3)
Collateral dependent loans⁽¹⁾	$	7,059	$	—	$	—	$	7,059	$	13,581	$	—	$	—	$	13,581
Other real estate owned		18,873		—		—		18,873
OREO										18,756		—		—		18,756
Intangible assets		2,149		—		—		2,149		1,751		—		—		1,751
	$	28,081	$	—	$	—	$	28,081	$	34,088	$	—	$	—	$	34,088



			Fair Value Measurements at Reporting Date Using								Fair Value Measurements at Reporting Date Using
			Quoted prices in active		Significant other		Significant				Quoted prices in active		Significant other		Significant
			markets for identical		observable		unobservable				markets for identical		observable		unobservable
	Fair value		assets		inputs		inputs⁽¹⁾		Fair value		assets		inputs		inputs⁽¹⁾
Description	December 31, 2021		(Level 1)		(Level 2)		(Level 3)		December 31, 2022		(Level 1)		(Level 2)		(Level 3)
Collateral dependent loans⁽¹⁾	$	3,005	$	—	$	—	$	3,005	$	12,205	$	—	$	—	$	12,205
Other real estate owned		18,873		—		—		18,873
OREO										21,210		—		—		21,210
Intangible assets		2,447		—		—		2,447		2,049		—		—		2,049
	$	24,325	$	—	$	—	$	24,325	$	35,464	$	—	$	—	$	35,464

1.⁽¹⁾The method of valuation approach for the loans evaluated for an allowance for credit losses on an individual loan basis and also for ~~other real estate owned~~OREO was the market approach based upon appraisals of the underlying collateral by external appraisers, reduced by 7% to 10% for estimated selling costs. Intangible assets are valued based upon internal analyses.

At September 30, ~~2022,~~2023, principal on collateral dependent loans and troubled debt restructurings, which is accounted for on the basis of the value of underlying collateral, is shown at estimated fair value of ~~$7.1~~$13.6 million. To arrive at that fair value, related loan principal of ~~$7.9~~$15.4 million was reduced by specific reserves of ~~$863,000~~$1.8 million within the ~~allowance for credit losses~~ACL as of that date, representing the deficiency between principal and estimated collateral values, which were reduced by estimated costs to sell. When the deficiency is deemed uncollectible, it is charged off by reducing the specific reserve and decreasing principal. Included in the collateral dependent loans at September 30, 2023 were nine troubled debt restructured loans with a balance of $5.2 million, which had specific reserves of $579,000. Included in the

collateral dependent loans at December 31, 2022, were 11eleven troubled debt restructured loans with a balance of $5.3 million which had specific ~~reserves of $447,000. Included in the collateral dependent loans at~~ ~~December 31, 2021, were 10 troubled debt restructured loans with a balance of $1.5 million which had specific~~ allowances of ~~$476,000.~~$637,000. Under the new accounting guidance effective January 1, 2023, which broadened the reporting of loan restructurings to include all modifications, there was one $156,000 loan classified as modified as of September 30, 2023. There was no specific reserve on that loan. Valuation techniques consistent with the market and/or cost approach were used to measure fair value and primarily included observable inputs for the individual collateral dependent loans being evaluated such as recent sales of similar assets or observable market data for operational or carrying costs. In cases where such inputs were unobservable, the loan balance is reflected within the Level 3 hierarchy.

Note 9. Derivatives

The Company utilizes derivative instruments to assist in the management of interest rate sensitivity by modifying the repricing, maturity and option characteristics on certain non-SBA ~~CRE~~commercial estate loans held at fair value. These instruments are not accounted for as effective hedges. As of September 30, ~~2022,~~2023, the Company had entered into ~~two~~one interest rate swap ~~agreements~~agreement with an aggregate notional amount of ~~$15.0~~$6.8 million. ~~These~~Under that swap ~~agreements provide for~~agreement the Company ~~to receive~~receives an adjustable rate of interest based upon ~~the three-month LIBOR.~~ SOFR. The Company recorded a net gain of ~~$1.5 million~~$18,000 for the nine months ended September 30, ~~2022~~2023 to recognize the fair value of the derivative ~~instruments~~instrument which is reported in net realized and unrealized gains (losses) on commercial loans, at fair value, in the consolidated statements of operations. The amount receivable by the Company under ~~these~~this swap ~~agreements~~agreement was ~~$952,000~~$427,000 at September 30, ~~2022,~~2023, which is reported in other assets. The Company had minimum collateral posting thresholds with certain of its derivative counterparties and had posted cash collateral of ~~$518,000~~$541,000 as of September 30, ~~2022.~~2023.

The maturity ~~dates,~~date, notional ~~amounts,~~amount, interest ~~rates~~rate paid and received and fair value of the Company’s remaining interest rate swap ~~agreements~~agreement as of September 30, ~~2022 are~~2023 is summarized below (dollars in thousands):



	September 30, 2022								September 30, 2023
Maturity date	Notional amount		Interest rate paid		Interest rate received		Fair value		Notional amount		Interest rate paid		Interest rate received		Fair value
December 23, 2025		6,800		2.16%		3.60%		433		6,800		2.16%		5.66%		427
December 24, 2025		8,200		2.17%		3.64%		519
Total	$	15,000					$	952	$	6,800					$	427

Note 10. Other Identifiable Intangible Assets

In May 2016, the Company purchased approximately $60.0 million of lease receivables which resulted in a customer list intangible of $3.4 million that is being amortized over a 10ten year period. Amortization expense is $340,000 per year ($~~1.3 million~~900,000 over the next ~~five~~three years). The gross carrying amount of the customer list intangible is $3.4 million, and as of September 30, ~~2022~~2023, and December 31, ~~2021,~~2022, respectively, the accumulated amortization expense was ~~$2.2~~$2.5 million and ~~$1.9~~$2.3 million.

In January 2020, the Company purchased McMahon Leasing and subsidiaries for approximately $8.7 million which resulted in $1.1 million of intangibles. The gross carrying value of $1.1 million of intangibles was comprised of a customer list intangible of $689,000, goodwill of $263,000 and a trade name valuation of $135,000. The customer list intangible is being amortized over a 12twelve year period and accumulated amortization expense was ~~$158,000~~$215,000 at September 30, ~~2022~~2023 and ~~$115,000~~$172,000 at December 31, ~~2021.~~2022. Amortization expense is $57,000 per year ($287,000 over the next five years). The gross carrying value and accumulated amortization related to the Company’s intangibles at September 30, ~~2022~~2023 and December 31, ~~2021~~2022 are presented ~~below.~~below:


		September 30,				December 31,				September 30,				December 31,
		2022				2021				2023				2022
		Gross				Gross				Gross				Gross
		Carrying		Accumulated		Carrying		Accumulated		Carrying		Accumulated		Carrying		Accumulated
		Amount		Amortization		Amount		Amortization		Amount		Amortization		Amount		Amortization
		(Dollars in thousands)								(Dollars in thousands)

Customer list intangibles	$	4,093	$	2,342	$	4,093	$	2,044	$	4,093	$	2,740	$	4,093	$	2,442
Goodwill		263		—		263		—		263		—		263		—
Trade Name		135		—		135		—		135		—		135		—
Total	$	4,491	$	2,342	$	4,491	$	2,044	$	4,491	$	2,740	$	4,491	$	2,442

Note 11. Recent Accounting Pronouncements

In March 2020, the FASB issued Accounting Standards Update (“ASU” ~~or “Update”~~) 2020-04,Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform in Financial Reporting, which addressed optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, resulting from the phase-out of the ~~London Inter-Bank Offered Rate (“LIBOR”)~~LIBOR reference rate. To maximize management and accounting flexibility for holders of instruments using LIBOR as a benchmark, the guidance permitted a one-time transfer of such instruments from held-to-maturity to available-for-sale. The Company made such a transfer of four LIBOR-based securities, which comprised its held-to-maturity portfolio, in the first quarter of 2020. The Company discontinued LIBOR-based originations in 2021; however, certain financial instruments outstanding are indexed to LIBOR, including non-SBA commercial loans, at fair value, which amounted to $585.8 million at September 30, 2022. However, these loans are short-term and are generally expected to be repaid by the June 2023 LIBOR end date. At September 30, 2022, the Company owned $12.6 million of2021. Since then, all LIBOR based ~~securities purchased from previous securitizations, which are also expected~~instruments on the balance sheet have been successfully transitioned to mature before June 2023. When the Company resumed originating non-SBA commercial loans in the third quarter of 2021, which are identified separately under real estate bridge loans, it utilized the secured overnight financing rate (“SOFR”) as the index. In addition, the Company owns collateralized loan obligations (“CLOs”) and U.S. government agency adjustable-rate mortgages which utilize LIBOR based pricing. CLOs, which amounted to $336.1 million at September 30, 2022, generally have language regarding an index alternative ~~should LIBOR~~indices with no longer be available. U.S. government agencies generally have the ability to adjust interest rate indices as necessary on impacted LIBOR based securities, which amounted to $62.7 million at September 30, 2022. There is less clarity for the Company’s student loan securities of $18.6 million and its subordinated debentures payable of $13.4 million at that date, and for which industry standards continue to be considered by trustees and other governing bodies. The Company’s derivatives, the notional amount for which totaled $15.0 million at September 30, 2022, are interest rate swaps that are documented under bilateral agreements which contain LIBOR fallback provisions by virtue of counterparty adherence to the 2020 International Swaps and Derivatives Association, Inc.’s LIBOR Fallbacks Protocol. The Bank also owns $10 million of a Floating Rate Junior Subordinated Deferrable Interest Debenture issued by an insurance holding company in liquidation for which the rate index is three month LIBOR. The indenture contains terms for a substitution of the index when LIBOR quotes become unavailable. The Company continues to assess the potential impact of the phase-out of LIBOR on all affected accounts and any other potential impacts, and related accounting guidance.material impact.

In August 2021, the FASB issued ASU 2021-06. This ASU adds new quarterly disclosures and expands certain annual disclosures to quarterly reporting. Amendments within this ASU are effective for fiscal years ending after December 15, 2021 and the Company is presenting the quarterly disclosures in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”36

In March 2022, the FASB issued ASU 2022-02, Financial Instruments-Credit Losses ~~(Topic~~(Topic 326), Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and ~~restructurings made with~~modifications. The Company adopted ASU 2022-02 on January 1, 2023. Effective January 1, 2023, loan modifications to borrowers experiencing financial difficulty are required to be disclosed by type of modification and by type of loan. Prior accounting guidance classified loans which were modified as troubled debt restructurings only if the modification reflected a concession from the lender in the form of a below market interest rate or other concession in addition to borrower financial difficulty. ~~The effective date~~Under the new guidance, loans with modifications are being reported whether a concession is ~~January 1, 2023. The Company does not expect it will have a material impact on the consolidated financial statements.~~made or not.

On March 31, 2022, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin Number 121 (“SAB 121”). In SAB 121, the SEC staff expressed the views of its staff regarding the accounting for obligations to safeguard crypto-assets an entity holds for platform users. As the Company does not currently hold crypto-assets this release will not impact its consolidated financial statements or disclosures.

Note 12. ~~Shareholder’s~~Shareholders’ Equity

In 2020, the Company’s Board of Directors (“the Board”) authorized a common stock repurchase program (the “2021 Common Stock Repurchase Program”). Under the 2021 Common Stock Repurchase Program, repurchased shares may be reissued for various corporate purposes. The Company repurchased $10.0 million in each quarter of 2021.

On October 20, 2021, the Board approved a ~~revised~~ common stock repurchase program for the 2022 fiscal year (the “2022 ~~Common Stock~~ Repurchase ~~Plan”~~Program”). Under the 2022 ~~Common Stock~~ Repurchase ~~Plan,~~Program, the Company ~~is authorized to repurchase up to~~repurchased $15.0 million in value of the Company’s common stock in each quarter of ~~2022~~2022.

On October 26, 2022, the Board approved a common stock repurchase program for the 2023 fiscal year (the “2023 Repurchase Program”), which authorizes the Company to repurchase $25.0 million in value of the Company’s common stock per fiscal quarter in 2023, for a maximum amount of ~~$60.0 million,~~ ~~depending on~~$100.0 million. Under the ~~share price,~~2023 Repurchase Program, the Company intends to repurchase shares through open market purchases, privately negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, ~~and stock exchange rules which regulate such repurchases. This plan~~including Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The 2023 Repurchase Program may be modified or terminated at any time.During the three and nine months ended September 30, ~~2022,~~2023, the Company repurchased ~~663,934~~685,478 shares and ~~1,769,253~~2,292,647 shares of its common stock in the open market under the ~~2022 Common Stock~~2023 Repurchase ~~Plan~~Program at an average ~~cost~~price of ~~$22.59~~$36.47 per share and ~~$25.43~~$32.71 per share, ~~respectively. In~~ respectively.

On October 26, 2023, the ~~first~~Board approved a common stock repurchase program for the 2024 fiscal year (the “2024 Repurchase Program”), which authorizes the Company to repurchase $50.0 million in value of the Company’s common stock per fiscal quarter in 2024, for a maximum amount of $200.0 million. Under the 2024 Repurchase Program, the Company intends to repurchase shares through open market purchases, privately negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Exchange Act. The 2024 Repurchase Program may be modified or terminated at any time.

As a means of returning capital to shareholders, the Company implemented stock repurchase programs which totaled $40.0 million, $60.0 million and $100.0 million, respectively, in 2021, 2022 and 2023, with $200 million planned for 2024. The planned amounts of such repurchases are determined in the fourth quarter of ~~2021,~~the preceding year by assessing the impact of budgetary earnings projections on regulatory capital requirements. The excess of projected earnings over amounts required to maintain capital requirements is the maximum available for capital return to shareholders, barring any need to retain capital for other purposes. A significant portion of such excess earnings has been utilized for stock repurchases in the amounts noted above, while cash dividends have not been paid. In determining whether capital is returned through stock repurchases or cash dividends, the Company ~~changed its presentation~~calculates a maximum share repurchase price, based upon comparisons with what it concludes to be other exemplar peer share price valuations, with further consideration of ~~treasury stock acquired through common~~internal growth projections. As these share prices, which are updated at least annually, have not been reached, capital return has consisted solely of stock repurchases. ~~To simplify presentation, common stock~~Exemplar share price comparisons are based upon multiples of earnings per share over time, with further consideration of returns on equity and assets. While repurchase amounts are planned in the fourth quarter of the preceding year, repurchases ~~previously shown separately as treasury stock are now shown as reductions in common stock and additional paid-in capital.~~may be modified or terminated at any time, should capital need to be conserved.

Note 13. Regulatory Matters

It is the policy of the Federal Reserve that financial holding companies should pay cash dividends on common stock only out of income available over the past year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The policy provides that a financial holding company should not maintain a level of cash dividends that undermines the financial holding company’s ability to serve as a source of strength to its banking subsidiaries.

Various federal and state statutory provisions limit the amount of dividends that subsidiary banks can pay to their holding companies without regulatory approval. Without the prior approval of the OCC, a dividend may not be paid if the total of all dividends declared by a bank in any calendar year is in excess of the current year’s net income combined with the retained net income of the two preceding years. Additionally, a dividend may not be paid in excess of a bank’s retained earnings. Moreover, an insured depository institution may not pay a dividend if the payment would cause it to be less than “adequately capitalized” under the prompt corrective action framework as defined in the Federal Deposit Insurance Act or if the institution is in default in the payment of an assessment due to the FDIC. Similarly, a banking organization that fails to satisfy regulatory minimum capital conservation buffer requirements will be subject to certain limitations, which include restrictions on capital distributions.

In addition to these explicit limitations, federal and state regulatory agencies are authorized to prohibit a banking subsidiary or financial holding company from engaging in an unsafe or unsound practice. Depending upon the circumstances, the agencies could take the position that paying a dividend would constitute an unsafe or unsound banking practice.

The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification of the Company and the Bank are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Moreover, capital requirements may be modified based upon regulatory rules or by regulatory discretion at any time reflecting a variety of factors including deterioration in asset quality.

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



	Tier 1 capital	Tier 1 capital	Total capital	Common equity	Tier 1 capital	Tier 1 capital	Total capital	Common equity
	to average	to risk-weighted	to risk-weighted	tier 1 to risk	to average	to risk-weighted	to risk-weighted	tier 1 to risk
	assets ratio	assets ratio	assets ratio	weighted assets	assets ratio	assets ratio	assets ratio	weighted assets

As of September 30, 2022
As of September 30, 2023
The Bancorp, Inc.	9.66%	13.13%	13.56%	13.13%	10.92%	15.53%	16.04%	15.53%
The Bancorp Bank, National Association	10.79%	14.73%	15.15%	14.73%	12.13%	17.26%	17.77%	17.26%
"Well capitalized" institution (under federal regulations-Basel III)	5.00%	8.00%	10.00%	6.50%	5.00%	8.00%	10.00%	6.50%

As of December 31, 2021
As of December 31, 2022
The Bancorp, Inc.	10.40%	14.72%	15.13%	14.72%	9.63%	13.40%	13.87%	13.40%
The Bancorp Bank, National Association	10.98%	15.48%	15.88%	15.48%	10.73%	14.95%	15.42%	14.95%
"Well capitalized" institution (under federal regulations-Basel III)	5.00%	8.00%	10.00%	6.50%	5.00%	8.00%	10.00%	6.50%

Note 14. Legal

On June 12, 2019, the Bank was served with a qui tam lawsuit filed in the Superior Court of the State of Delaware, New Castle County. The Delaware Department of Justice intervened in the litigation. The case is titled The State of Delaware, Plaintiff, Ex rel. Russell S. Rogers, Plaintiff-Relator, v. The Bancorp Bank, Interactive Communications International, Inc., and InComm Financial Services, Inc., Defendants. The lawsuit alleges that the defendants violated the Delaware False Claims Act by not paying balances on certain open-loop “Vanilla” prepaid cards to the State of Delaware as unclaimed property. The complaint seeks actual and treble damages, statutory penalties, and attorneys’ fees. The Bank has filed an answer denying the allegations and continues to vigorously defend against the claims. The Bank and other defendants previously filed a motion to dismiss the action, but the motion was denied and the case is in preliminary stages of discovery. The Company is unable to determine whether the ultimate resolution of the matter will have a material adverse effect on the Company’s financial condition or operations.

As previously disclosed, the Company received and responded to two non-public fact-finding inquiries from the SEC, which in each case sought to determine if violations of the federal securities laws occurred. On October 9, 2019, the Company received a subpoena seeking records related generally to the Bank’s debit card issuance activity and gross dollar volume data, among other things. The Company responded to the subpoena and subsequent subpoenas issued to the Company. The SEC last requested information from the Company relating to this inquiry in September 2021. The SEC has not made any findings, or alleged any wrongdoing, with respect to this matter. Future costs related to responding to and cooperating with the SEC staff may be material, and could continue to be material at least through the completion of this matter. Unrelated to the first inquiry, on April 10, 2020, the Company received a subpoena in connection with the Bank’s CMBS business seeking records related to various offerings as well as CMBS securities held by the Bank. In connection with that investigation, on July 6, 2022, the Company received a “Wells Notice” from the SEC Staff stating that the SEC Staff made a preliminary determination to recommend that the SEC file an enforcement action against the Company alleging violations of record keeping, reporting and internal control provisions of the Exchange Act. Without admitting or denying any of the SEC’s allegations, the Company subsequently agreed to resolve the investigation by consenting to the entry of an order by the SEC that: (1) the Company will cease and desist from committing or causing any violations of the books-and-records provisions of the Securities Exchange Act and the relevant rules thereunder; and (2) the Company pay a penalty of $1.75 million (the “Settlement Payment”) to the SEC. The order became effective on August 24, 2022. The Company recognized a charge in its third fiscal quarter in the amount of the Settlement Payment. Further, as a result of the settlement, certain costs to the Company related to the CMBS matter will cease, including the legal costs of the investigation, compliance with the SEC’s subpoena, and cooperation with the SEC.

On January 12, 2021, three former employees of the Bank filed separate complaints against the Company in the Supreme Court of the State of New York, New York County. The Company subsequently removed all three lawsuits to the United States District Court for the Southern District of New York. The cases are captioned: John Edward Barker, Plaintiff v. The Bancorp, Inc., Defendant; Alexander John Kamai, Plaintiff v. The Bancorp, Inc., Defendant; and John Patrick McGlynn III, Plaintiff v. The Bancorp, Inc., Defendant. The lawsuits arise from the Bank’s termination of the plaintiffs’ employment in connection with the restructuring of its CMBS business. The plaintiffs sought damages in the following amounts: $4,135,142 (Barker), $901,088 (Kamai) and $2,909,627 (McGlynn). On June 11, 2021, the Company filed a consolidated motion to dismiss in each case. On February 25, 2022, the court granted the Company’s motion in part, dismissing McGlynn’s claims in entirety and most of Barker and Kamai’s claims. The sole claims remaining are Barker and Kamai’s breach of implied contract claims related to an unpaid bonus, for which they seek $2,000,000 and $300,000, respectively.~~The Company is vigorously defending against these claims.~~ On September 29, 2022, the Company filed a motion for summary judgment in both ~~matters, which is still pending before~~matters. On September 8, 2023, the ~~court.~~court granted the Company’s motion for summary judgment and entered a judgment closing both cases. The Company ~~is not yet able to determine whether the ultimate resolution of this matter will have a material adverse effect on the Company’s financial conditions or operations.~~now considers these matters resolved.

On September 14, 2021, Cachet Financial Services (“Cachet”) filed an adversary proceeding against the Bank in the United States Bankruptcy Court for the Central District of California, titled Cachet Financial Services, Plaintiff v. The Bancorp ~~Bank.~~Bank, et al., Defendants. The case was filed within the context of Cachet’s pending Chapter 11 bankruptcy case. The Bank previously served as the Originating Depository Financial Institution (“ODFI”) for ~~ACH~~automated clearing house (“ACH”) transactions in connection with Cachet’s payroll services business. The matter arises from the Bank’s termination of its Payroll Processing ODFI Agreement with Cachet on October 23, 2019, for safety and soundness reasons. The initial complaint alleges eight causes of action: (i) breach of contract; (ii) negligence; (iii) intentional interference with contract; (iv) conversion; (v) express indemnity; (vi) implied indemnity; (vii) accounting;

and (viii) objection to the Bank’s proof of claim in the bankruptcy case. On November 4, 2021, the Bank filed a motion in the United States District Court for the Central District of California to withdraw the reference of the adversary proceeding to the bankruptcy ~~court. The motion is still pending.~~court, which was denied in February 2023. On August 3, 2022, Cachet served the Bank with a First Amended Complaint wherein Cachet, among other things, withdraws its implied indemnity claim against the Bank and adds several defendants unaffiliated with the Bank and causes of action related to those parties. As to the Bank, Cachet seeks approximately $150 million in damages, an accounting and disallowance of the Bank’s proof of claim. The Bank is vigorously defending against these claims. On September 28, 2022, the Bank filed a partial motion to dismiss, seeking to dispose of the majority of Cachet’s claims against the Bank. The motion is still pending before the bankruptcy court. The Company is not yet able to determine whether the ultimate resolution of this matter will have a material adverse effect on the Company’s financial conditions or operations.

37On March 27, 2023, the Bank received a Civil Investigative Demand (“CID”) from the Consumer Financial Protection Bureau (“CFPB”) seeking documents and information related to the Bank’s escheatment practices in connection with certain accounts offered through one of the Bank’s program partners. The Bank continues to cooperate with the CFPB, including by responding to the CID. While the Company remains confident in the Bank’s escheatment practices, it cannot predict the timing or final outcome of the investigation. Future costs related to this matter may be material and could continue to be material at least through the completion of the investigation.

On September 8, 2023, Del Mar TIC I, LLC and Del Mar TIC II, LLC (together, “Del Mar”) filed a complaint against the Bank in the Supreme Court of the State of New York, New York County, captioned Del Mar TIC I, LLC and Del Mar TIC II, LLC, Plaintiffs v. The Bancorp Bank, Defendant. The complaint alleges, among other things, that the Bank improperly and unreasonably force-placed excessive insurance coverage on real property that serves as security for a loan from the Bank to Del Mar, and that the Bank is improperly paying the related insurance premiums from escrow funds. The complaint asserts five causes of action: (i) declaratory judgment; (ii) breach of fiduciary duty; (iii) breach of contract: implied covenant of good faith and fair dealing; (iv) breach of contract: escrow account; and (v) injunctive relief. On October 12, 2023, the Bank removed the case to the U.S. District Court for the Southern District of New York. The Bank intends to vigorously defend against the claims. The Company is unable to determine whether the ultimate resolution of the matter will have a material adverse effect on the Company’s financial condition or operations.

In addition, ~~the Company is~~we are a party to various routine legal proceedings arising out of the ordinary course of our business. ~~The Company~~Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on ~~the Company’s~~our financial condition or operations.

Note 15. Segment Financials

The Company performed a strategic evaluation of its businesses in the third quarter of 2014. As a result of the evaluation, the Company decided to discontinue its commercial lending operations, as described in Note 16, Discontinued Operations. The shift from a traditional bank balance sheet led the Company to evaluate its continuing operations. Based on the continuing operations of the Company, it was determined that there would be four segments of the business:operates under three segments: specialty finance, payments ~~corporate~~ and ~~discontinued operations.~~corporate. The chief operating decision maker for these segments is the Chief Executive Officer. Specialty finance includes the origination of non-SBA ~~CRE~~commercial real estate loans, SBA loans, direct lease financing, security-backed lines of credit, cash value insurance policy-backed lines of credit and deposits generated by those business lines. Payments include prepaid card accounts, card payments, ACH processing and deposits generated by those business lines. Corporate includes the Company’s investment portfolio, corporate overhead and non-allocated expenses. In the third quarter of 2022, the Company began allocating interest expense between segments and adjusted prior period presentation for consistency. These operating segments reflect the way the Company views its current operations.

The following tables provide segment information for the periods indicated:



	For the three months ended September 30, 2022										For the three months ended September 30, 2023
	Specialty finance		Payments		Corporate		Discontinued operations		Total		Specialty finance		Payments		Corporate		Total
		(Dollars in thousands)										(Dollars in thousands)
Interest income	$	75,041	$	34	$	8,846	$	—	$	83,921	$	109,728	$	54	$	19,186	$	128,968
Interest allocation		(17,747)		17,154		593		—		—		(33,548)		37,748		(4,200)		—
Interest expense		940		13,981		4,341		—		19,262		1,118		37,186		1,782		40,086
Net interest income		56,354		3,207		5,098		—		64,659		75,062		616		13,204		88,882
Provision for credit losses		822		—		—		—		822		1,752		—		—		1,752
Non-interest income		1,952		21,440		34		—		23,426		2,661		24,101		18		26,780
Non-interest expense		18,292		17,348		9,190		—		44,830		20,980		19,033		7,446		47,459
Income (loss) before taxes		39,192		7,299		(4,058)		—		42,433
Income before taxes												54,991		5,684		5,776		66,451
Income tax expense		—		—		11,829		—		11,829		—		—		16,314		16,314
Net income (loss)	$	39,192	$	7,299	$	(15,887)	$	—	$	30,604	$	54,991	$	5,684	$	(10,538)	$	50,137

For the three months ended September 30, 2021
Specialty finance
Payments
Corporate
Discontinued operations
Total
(Dollars in thousands)
Interest income
$
46,313
$
—
$
7,187
$
—
$
53,500
Interest allocation
(4,314)
5,155
(841)
—
—
Interest expense
239
916
1,452
—
2,607
Net interest income
41,760
4,239
4,894
—
50,893
Provision for credit losses
1,613
—
—
—
1,613
Non-interest income
6,408
20,166
14
—
26,588
Non-interest expense
16,452
16,286
6,646
—
39,384
Income (loss) from continuing operations before taxes
30,103
8,119
(1,738)
—
36,484
Income tax expense
—
—
8,289
—
8,289
Income (loss) from continuing operations
30,103
8,119
(10,027)
—
28,195
Income from discontinued operations
—
—
—
66
66
Net income (loss)
$
30,103
$
8,119
$
(10,027)
$
66
$
28,261

For the nine months ended September 30, 2022
Specialty finance
Payments
Corporate
Discontinued operations
Total
(Dollars in thousands)
Interest income
$
179,700
$
89
$
21,596
$
—
$
201,385
Interest allocation
(28,300)
28,565
(265)
—
—
Interest expense
1,429
19,989
7,886
—
29,304
Net interest income
149,971
8,665
13,445
—
172,081
Provision for credit losses
4,331
—
—
—
4,331
Non-interest income
11,496
64,524
3,923
—
79,943
Non-interest expense
53,071
51,529
21,427
—
126,027
Income (loss) before taxes
104,065
21,660
(4,059)
—
121,666
Income tax expense
—
—
31,694
—
31,694
Net income (loss)
$
104,065
$
21,660
$
(35,753)
$
—
$
89,972

For the nine months ended September 30, 2021
Specialty finance
Payments
Corporate
Discontinued operations
Total
(Dollars in thousands)
Interest income
$
143,549
$
—
$
23,854
$
—
$
167,403
Interest allocation
(12,713)
15,438
(2,725)
—
—
Interest expense
723
3,298
4,663
—
8,684
Net interest income
130,113
12,140
16,466
—
158,719
Provision for credit losses
1,484
—
—
—
1,484
Non-interest income
13,864
62,600
59
—
76,523
Non-interest expense
50,844
52,666
21,640
—
125,150
Income (loss) from continuing operations before taxes
91,649
22,074
(5,115)
—
108,608
Income tax expense
—
—
25,195
—
25,195
Income (loss) from continuing operations
91,649
22,074
(30,310)
—
83,413
Income from discontinued operations
—
—
—
248
248
Net income (loss)
$
91,649
$
22,074
$
(30,310)
$
248
$
83,661

September 30, 2022
Specialty finance
Payments
Corporate
Discontinued operations
Total
(Dollars in thousands)
Total assets
$
6,061,700
$
59,561
$
1,655,813
$
—
$
7,777,074
Total liabilities
$
368,932
$
5,724,483
$
1,019,921
$
—
$
7,113,336

December 31, 2021
Specialty finance
Payments
Corporate
Discontinued operations
Total
(in thousands)
Total assets
$
5,099,388
$
41,593
$
1,698,990
$
3,268
$
6,843,239
Total liabilities
$
329,372
$
5,312,115
$
549,298
$
—
$
6,190,785

~~Note 16. Discontinued Operations~~

The following table presents financial results of the commercial lending business included in net loss from discontinued operations for the three months ended September 30, 2022 and 2021 (in thousands):

For the three months ended September 30,
For the nine months ended September 30,
2022
2021
2022
2021
Interest income
$
—
$
754
$
—
$
2,388
Interest expense
—
—
—
—
Net interest income
—
754
—
2,388
Non-interest income
—
48
—
51
Non-interest expense
—
715
—
2,115
Income before taxes
—
87
—
324
Income tax expense
—
21
—
76
Net income
$
—
$
66
$
—
$
248

~~The following table presents assets held-for-sale from discontinued operations at September 30, 2022 and December 31, 2021 (in thousands):~~

September 30,
December 31,
2022
2021
Commercial loans, at fair value
$
—
$
2,907
Other real estate owned
—
361
Total assets
$
—
$
3,268

~~Non-interest expense for the three and nine months ended September 30, 2021 reflected $384,000 and $1.5 million of recoveries of prior losses on loans. It also reflected respective expenses and losses of $745,000 and $2.3 million for the three and nine month periods~~ ~~ended September 30, 2021, respectively, related to other real estate owned.~~Discontinued operations loans are recorded at the lower of their cost or fair value. Fair value is determined using a discontinued cash flow analysis where projections of cash flows are developed in consideration of internal loan review analysis and default/prepayment assumptions for smaller pools of loans. These credit and collateral related assumptions are subject to uncertainty.



	For the three months ended September 30, 2022
	Specialty finance		Payments		Corporate		Total
		(Dollars in thousands)
Interest income	$	75,041	$	34	$	8,846	$	83,921
Interest allocation		(17,747)		17,154		593		—
Interest expense		940		13,981		4,341		19,262
Net interest income		56,354		3,207		5,098		64,659
Provision of credit losses		822		—		—		822
Non-interest income		1,952		21,440		34		23,426
Non-interest expense		18,292		17,348		9,190		44,830
Income (loss) before taxes		39,192		7,299		(4,058)		42,433
Income tax expense		—		—		11,829		11,829
Net income (loss)	$	39,192	$	7,299	$	(15,887)	$	30,604



	For the nine months ended September 30, 2023
	Specialty finance		Payments		Corporate		Total
		(Dollars in thousands)
Interest income	$	321,707	$	94	$	55,633	$	377,434
Interest allocation		(98,805)		108,227		(9,422)		—
Interest expense		3,901		102,353		9,287		115,541
Net interest income		219,001		5,968		36,924		261,893
Provision for credit losses		4,016		—		—		4,016
Non-interest income		10,437		74,269		399		85,105
Non-interest expense		63,528		56,339		25,565		145,432
Income before taxes		161,894		23,898		11,758		197,550
Income tax expense		—		—		49,282		49,282
Net income (loss)	$	161,894	$	23,898	$	(37,524)	$	148,268



	For the nine months ended September 30, 2022
	Specialty finance		Payments		Corporate		Total
		(Dollars in thousands)
Interest income	$	179,700	$	89	$	21,596	$	201,385
Interest allocation		(28,300)		28,565		(265)		—
Interest expense		1,429		19,989		7,886		29,304
Net interest income		149,971		8,665		13,445		172,081
Provision for credit losses		4,331		—		—		4,331
Non-interest income		11,496		64,524		3,923		79,943
Non-interest expense		53,071		51,529		21,427		126,027
Income before taxes		104,065		21,660		(4,059)		121,666
Income tax expense		—		—		31,694		31,694
Net income (loss)	$	104,065	$	21,660	$	(35,753)	$	89,972



	September 30, 2023
	Specialty finance		Payments		Corporate		Total
		(Dollars in thousands)
Total assets	$	5,550,608	$	49,400	$	1,865,759	$	7,465,767
Total liabilities	$	225,314	$	6,204,051	$	262,714	$	6,692,079



	December 31, 2022
	Specialty finance		Payments		Corporate		Total
		(Dollars in thousands)
Total assets	$	6,042,765	$	57,894	$	1,802,341	$	7,903,000
Total liabilities	$	321,335	$	6,101,539	$	786,095	$	7,208,969

Note ~~17.~~16. Subsequent Events

The Company evaluated its September 30, ~~2022~~2023 consolidated financial statements for subsequent events through the date the consolidated financial statements were issued. Pursuant to ~~a stock repurchase plan~~the 2023 Repurchase Program, described in ~~Note 12,~~“Note 12. Shareholders’ Equity,” between October 1, ~~2022 through~~2023 and November ~~3, 2022,~~1, 2023, the Company repurchased ~~281,275~~235,291 shares of its common ~~shares,~~stock, at a total cost of ~~$6.9~~$8.0 million and an average price of ~~$24.57~~$34.00 per share.

On October 26, 2022, the Company’s board of directors approved a new stock repurchase program authorizing the Company to increase its share repurchases to $25.0 million per quarter, or $100.0 million in 2023, from $15.0 million a quarter, or $60.0 million in 2022.

~~Part I -~~ 40

Item 2. 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. This information is intended to 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 our financial information in our 2022 Form 10-K and the unaudited interim consolidated financial statements and notes thereto contained in this Quarterly Report on Form 10-Q.

Important Note Regarding Forward-Looking Statements

When used in this Quarterly Report on Form 10-Q, the words ~~“believes”, “anticipates”, “expects”~~“believes,” “anticipates,” “expects,” “intends,” “should,” “will,” “could,” “estimates,” “plans” or the negative versions of those words or other comparable words and similar expressions are intended to identify forward-looking ~~statements. Such~~ statements, as such term is defined in the Private Securities Litigation Reform Act of 1995. Factors that could cause results to differ from those expressed in these forward-looking statements include, but are ~~subject~~not limited to, ~~certain~~the risks and uncertainties ~~more particularly~~ described or referenced in Part I, Item ~~1A, under the caption~~1A. “Risk Factors,” in ~~our Annual Report on~~the 2022 Form 10-K ~~for the year ended December 31, 2021~~ and in other of our public filings with the ~~Securities~~SEC, as well as the following:

continued movement in interest rates and ~~Exchange Commission. These risks~~the resulting impact on net interest income;

changes in the monetary and ~~uncertainties could cause~~fiscal policies of the federal government and its agencies;

the impacts of recent volatility in the banking sector and actual ~~results~~or perceived concerns regarding the liquidity and soundness of other financial institutions;

adverse changes in general economic and business conditions, including the impact of such conditions on the market value of real estate securing certain of our loans;

levels of net charge-offs and the adequacy of the ACL in covering expected losses;

any significant increase in the level of the Bank’s deposits that are uninsured by the FDIC;

any failure to ~~differ materially from those expressed~~maintain or ~~implied in this Form 10-Q.~~ enhance our competitive position with respect to new products, services and technology and achieve our strategic priorities, such as growing payments-related deposit accounts;

weather events, natural disasters, geopolitical events, public health crises and other catastrophic events beyond our control;

the outcome of regulatory matters or investigations, litigation, and other legal actions; and

our ability to identify and prevent cyber-security incidents, such as data security breaches, ransomware, malware intrusion, or other attacks.

We caution readers not to place undue reliance on ~~these~~ forward-looking statements, which speak only as of the date ~~hereof.~~hereof and are based on information presently available to the management of the Company. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q except as required by applicable law.

In the following discussion we provide information about our results of operations, financial condition, liquidity and asset quality. We intend that this information facilitate your understanding and assessment of significant changes and trends related to our financial condition and results of operations. You should read this section in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2021.Overview

~~Key Performance Indicators~~

~~We use a number~~Nature of ~~key performance indicators to measure our overall financial performance. We describe how we calculate and use a number of these performance indicators and analyze their results below.~~

~~Return on assets and return on equity~~. Two performance indicators we believe are 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. It 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. It is derived by dividing net income by average shareholders’ equity.

~~Net interest margin and credit losses~~. The largest component of our earnings is net interest income, or 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. The key performance indicator for net interest income is net interest margin, 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 key performance indicator.

~~Other performance indicators. Other performance indicators we use include loan growth, non-interest income growth, the level of non-interest expense and various capital measures.~~

~~Results of performance indicators~~. Notwithstanding a non-deductible $1.75 million civil money penalty, third quarter 2022 return on assets and equity amounted to 1.69% and 18.39% (annualized), respectively, compared to 1.76% and 17.84% (annualized) in the third quarter of 2021. For the nine month period ended September 30, 2022, return on assets and return on equity amounted to 1.69% and 18.28% (annualized), respectively, compared to 1.66% and 18.35% (annualized) for the nine month period ended September 30, 2021. Net interest income increased $13.8 million ~~in the third quarter of 2022 compared to the comparable prior year quarter, which had included $1.2 million of PPP related interest and fees, and which did not recur in the current year quarter.~~ Average loans and leases grew to $5.91 billion in third quarter 2022 compared to $4.58 billion in third quarter 2021. Net interest margin was 3.69% in the third quarter of 2022 versus 3.35% in the third quarter of 2021 ~~and 3.32% versus 3.29%, respectively, for the nine month periods ended September 30, 2022 and 2021.~~ The increase in 2022 reflected growth of loan balances at higher rates as a result of the Federal Reserve rate increases in 2022. Variable rate loans and securities comprise the majority of the Company’s earning assets, and while they reprice on a lagged basis, they adjust more fully to the Federal Reserve rate increases than deposits. Accordingly, we expect that those loan repricings will continue to positively impact net interest income and net interest margin in the fourth quarter of 2022. The provision for credit losses was $822,000 in the third quarter of 2022 compared to $1.6 million in the third quarter of 2021. A provision for credit losses of $4.3 million f~~or the nine month period ended September 30, 2022~~ ~~compared to $1.5 million~~ ~~for the nine month period ended September 30, 2021~~. One capital measure utilized in the banking industry is the ratio of equity to assets, which is derived by dividing period-end shareholders’ equity by period-end total assets. At September 30, 2022, that ratio was 8.53%, compared to 10.18% a year earlier. An increase in equity capital from retained earnings was partially offset by fair value adjustments to investment securities and share repurchases. The impact on the ratio of resulting levels of equity capital was more than offset by growth in assets, primarily loans, between the periods.

~~Overview~~Operations

We are a Delaware financial holding company and our primary, wholly-owned subsidiary ~~which we wholly own,~~ is The Bancorp Bank, National Association, ~~which we refer to as~~or the Bank. The vast majority of our revenue and income is currently generated through the Bank. In our continuing operations, we have four primary lines of specialty lending:

SBLOC, IBLOC, and investment advisor financing;

leasing (direct lease financing);

~~small business loans,~~SBLs, primarily SBA ~~loans,~~loans; and

non-SBA commercial real estate bridge ~~(“CRE”)~~ loans.

SBLOCs and IBLOCs are loans which 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 ~~made~~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 multi-family 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~~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 inon the balance sheet in “Commercial loans, at fair value.”

The majority of our deposit accounts and non-interest income are generated in our payments business line, or the ~~name for which has been changed to~~ Fintech Solutions Group, which consists of consumer deposit accounts accessed by prepaid or debit cards, or issuing ~~automated clearing house, or~~deposit accounts, ACH accounts, other payments such as rapid funds transfer and the collection of payments through credit card companies on behalf of merchants. The issuing deposit accounts are comprised of debit and prepaid card accounts that are generated by independent companies that market directly to end users. Our issuing 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, business payment accounts and others. Our ACH accounts facilitate bill payments, and our collection services for payments made to merchants consist of those which must be settled through associations such as Visa or MasterCard. We also provide banking services to organizations with a pre-existing customer base tailored to support or complement the services provided by these organizations to their ~~customers.~~customers, known as “affinity 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. ~~We refer to this, generally, as affinity banking.~~

~~An increase in our~~Performance Summary

Our net income increased to $50.1 million for the third quarter of 2023, from $30.6 million for the third quarter of 2022, ~~from $28.3 million for the third quarter of 2021, reflected~~primarily reflecting a $~~13.8~~24.2 million increase in net interest income and a ~~$3.2~~$3.4 million ~~decrease~~increase in non-interest income, ~~and~~partially offset by a ~~$5.4~~$2.6 million increase in non-interest expense. ~~Loan growth and higher~~Higher rates on loans resulted in increases in ~~loan~~net interest income, with higher securities rates ~~also~~ offsetting the impact of lower securities

~~balances.~~ balances on securities interest. Our ~~largest funding sources, prepaid and debit card account deposits, contractually adjust immediately to only a portion of Federal Reserve rate increases or decreases. Accordingly, our~~ cost of funds rose to ~~1.19%~~2.50% in the third quarter of 2022. The majority of our loans and significant amounts of our securities are variable rate with loans repricing on a lagged basis, most within ninety days. While they reprice on a lagged basis, loan rates adjust more fully2023, driven primarily by the contractual adjustments for payments balances to Federal Reserve rate increases. ~~Accordingly, we expect that loan repricings will continue~~See “Asset and Liability Management” in this MD&A for further discussion of how our funding sources and loans adjust to positively impact net interest income and the net interest margin in the fourth quarter of 2022. Additionally, in 2022 non-interest income reflected a $4.0 million third quarter unrealized loss resulting from the write-down to a September 2022 appraisal, less estimated disposition costs, of a $9.5 million loan. An $822,000 provision for credit losses in the third quarter of 2022, compared to a provision for credit losses of $1.6 million in the third quarter of 2021. Federal Reserve rate changes.

Prepaid, debit card and other payment fees, including ACH, are the largest ~~driver~~drivers of non-interest income. Such fees for the third quarter of ~~2022~~2023 increased ~~$1.3~~$2.7 million over the comparable ~~2021~~2022 period. Leasing income decreased $920,000 from the comparable prior year quarter. Both periods reflected vehicle sales at relatively higher market prices due to vehicle shortages, while the decrease reflected reduced volume in 2022.

Third quarter ~~2022~~2023 non-interest expense increased ~~$5.4~~$2.6 million ~~which reflected increases~~from the third quarter of ~~$2.9~~2022, reflecting an increase of $2.5 million in salaries and employee ~~benefits, $413,000 in Federal Deposit Insurance Corporation (“FDIC”) insurance expense, and~~benefits. There was a $1.8 million ~~civil money penalty~~provision for credit losses in the third quarter of 2023, compared to a provision for credit losses of $822,000 in the third quarter of 2022.

Key Performance Indicators

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 including equity to assets.

Results of KPIs

In the third quarter 2023, return on assets and return on equity amounted to 2.71% and 26.12% (annualized), respectively, compared to 1.69% and 18.39% (annualized) in the third quarter of 2022. For the nine month period ended September 30, 2023, return on assets and return on equity amounted to 2.66% and 27.01% (annualized), respectively, compared to 1.69% and 18.28% (annualized) for the nine month period ended September 30, 2022.

At September 30, 2023, the ratio of equity to assets was 10.36%, compared to 8.53% at September 30, 2022, reflecting an increase in equity capital from retained earnings, partially offset by share repurchases.

Net interest margin was 5.07% in the third quarter of 2023, versus 3.69% in the third quarter of 2022, and 4.86% versus 3.32%, respectively, for the nine month periods ended September 30, 2023 and 2022, reflecting a ~~decrease~~$24.2 million increase in net interest income in the third quarter of ~~$344,000~~2023 compared to the third quarter of 2022, and an $89.8 million increase in ~~legal~~net interest income in the nine month period ended September 30, 2023 compared to the nine month period ended September 30, 2022.

Increases in the above KPIs in 2023 reflected the impact of higher rates on loans and securities as a result of Federal Reserve rate increases, while the impact of loan growth in certain categories was more than offset by SBLOC and IBLOC payoffs. We believe that these payoffs reflected customer sensitivity to the increasing rate environment. As a result of the SBLOC and IBLOC payoffs, average loans and leases decreased to $5.61 billion in the third quarter of 2023 compared to $5.91 billion in the third quarter of 2022. The provision for credit losses was $1.8 million in the third quarter of 2023 compared to a provision for credit losses of $822,000 in the third quarter of 2022. Our provision for credit losses was $4.0 million for the nine month period ended September 30, 2023 compared to $4.3 million for the nine month period ended September 30, 2022. Non-interest expense increases over the prior year continued to be driven mostly by salary expense.

Critical Accounting ~~Policies and~~ Estimates

Our accounting and reporting policies conform with ~~accounting principles generally accepted in the United States~~GAAP and general practices within the financial services industry. The preparation of financial statements in conformity with ~~accounting principles generally accepted in the United States~~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~~view critical accounting estimates as those estimates made in accordance with GAAP that the determination of our allowance for credit losses on loans, leases and securities, our determination of the fair value of financial instruments and the level in which an instrument is placed within the valuation hierarchy, and stock compensation and income tax accounting involve a ~~higher degree~~significant level of ~~judgment~~estimation uncertainty and ~~complexity than~~have had or are reasonably likely to have a material impact on our ~~other significant~~financial condition or results of operations. Our critical accounting ~~policies.~~policies and estimates as of September 30, 2023 remain unchanged from those presented in the 2022 Form 10-K under Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

~~We determine~~LIBOR Transition

The Company discontinued LIBOR-based originations in 2021. Since then, all LIBOR based instruments on the balance sheet have been successfully transitioned to alternative indices with no material impact.

Recent Developments

In the fourth quarter of 2023, we announced a significant increase in our ~~allowance~~planned stock repurchases for ~~credit losses using~~2024. As a means of returning capital to shareholders, the ~~current expected credit losses method,~~Company implemented stock repurchase programs which totaled $40.0 million, $60.0 million and $100.0 million, respectively, in 2021, 2022 and 2023, with $200 million planned for 2024. The planned amounts of such repurchases are determined in the fourth quarter of the preceding year by assessing the impact of budgetary earnings projections on regulatory capital requirements. The excess of projected earnings over amounts required to maintain capital requirements is the maximum available for capital return to shareholders, barring any need to retain capital for other purposes. A significant portion of such excess earnings has been utilized for stock repurchases in the amounts noted above, while cash dividends have not been paid. In determining whether capital is returned through stock repurchases or ~~CECL,~~cash dividends, the Company calculates a maximum share repurchase price, based upon comparisons with ~~the objective of maintaining an allowance for credit losses we believe~~what it concludes to be ~~sufficient to absorb our estimated probable credit losses. We base our determination~~other exemplar peer share price valuations, with further consideration of internal growth projections. As these share prices, which are updated at least annually, have not been reached, capital return has consisted solely of stock repurchases. Exemplar share price comparisons are based upon multiples of earnings per share over time, with further consideration of returns on equity and assets. While repurchase amounts are planned in the fourth quarter 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 wepreceding year, repurchases may incur on a defaulted loan, expected commitment usage, the amounts and timing of expected future cash flows on credit deteriorated loans, value of collateral, estimated losses on consumer loans, and historical loss experience. We also evaluate economic conditions and uncertainties in estimating losses and inherent risks in our loan portfolio. To the extent actual outcomes differ from our estimates, we maybe modified or terminated at any time, should capital need ~~additional provisions for credit losses. Any such additional provisions for credit losses will~~to be ~~a direct charge to our earnings. See “Allowance for Credit Losses”.~~conserved.

The ~~fair~~Company owns one trust preferred security, which it purchased in 2006, and which has a par value of ~~a financial instrument is defined~~$10.0 million. 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 Company was notified that interest payments were being deferred on the security, as permitted under the ~~amount at~~terms of the trust preferred indenture which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. We estimate the fair value of a financial instrument using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are usedpermits such deferrals for ~~fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available,~~up to determine fair value. When observable market prices do not exist, we estimate fair value. Our valuation methods and inputs consider factors such as types of underlying assets or liabilities, rates of estimated credit losses, interest rate or discount rate and collateral. Our best estimate of fair value involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, current delinquency rates, loan-to-value ratios and the possibility of obligor refinancing.

twenty consecutive quarters. At the end of ~~each quarter, we assess~~ the ~~valuation hierarchy for each asset or liability measured. From time~~deferral, deferred interest must be repaid, including interest on the deferred interest. The Company has requested additional updated financial information from the aggregator to time, assets or liabilities may be transferred within hierarchy levels due to changes in availability of observable market inputs to measure fair value at the measurement date. Transfers into or out of hierarchy levels are based upon the fair value at the beginning of the reporting period.

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. We evaluate whetherpermit a ~~credit loss exists by considering primarily the following factors: (a) the extent to which the fair value has been less than the amortized cost~~more accurate valuation of the security ~~(b) changes in~~subsequent to the ~~financial condition, credit rating and near-term prospects of the issuer, (c) whether the issuer~~interest deferral. The aggregator has indicated that it 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 flowsattempting to estimate the credit loss amount with a quantitative and qualitative process that incorporates information received from first-party sources and internal assumptions and judgments regarding the future performance of the security.

4243

~~We account for our stock-based compensation plans based on the fair value~~identify all holders of the ~~awards made,~~security and that it intends to provide such financial information concurrently to all holders. The Company has placed the security in non-accrual status and will evaluate the security for potential loss in the fourth quarter of 2023, when the aggregator indicated that the financial information would be distributed. While the security has previously been subject to interest deferral which ~~include stock options, restricted stock, and performance based shares. To assess~~was repaid, there can be no assurance that repayment will occur for the ~~fair value~~current deferral. Further, depending upon the financial information provided by the aggregator, a loss of up to the ~~awards made, management makes assumptions as to expected stock price volatility, option terms, forfeiture rates and dividend rates. All these estimates and assumptions~~full amount of principal, or $10.0 million, may be ~~susceptible to significant change that may impact earnings~~recognized in ~~future periods.~~the fourth quarter of 2023.

We account for income taxes under the liability method whereby we determine deferred tax assets and liabilities based on the difference between the carrying values on our consolidated financial statements and the tax basis of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities.

~~Recent Developments~~

As previously disclosed, The Bancorp, Inc.’s (the “Company”) wholly-owned subsidiary, The Bancorp Bank (the “Bank”), filed applications with the Office of the Comptroller of the Currency (“OCC”) to convert the Bank’s state charter to a federal charter and to relocate the Bank’s headquarters from Wilmington, Delaware to Sioux Falls, South Dakota, while retaining a branch in Wilmington, Delaware. The referenced applications were approved by the OCC in June 2022, subject to the condition that the Bank notify and receive non-objection from the OCC prior to significantly deviating or changing its business plan or operations. On September 13, 2022, the Bank received written notification from the OCC acknowledging that the conversion process is complete, and that the Bank is authorized to commence business as a national bank. Accordingly, effective September 15, 2022, the Bank began operating as a national bank named ‘The Bancorp Bank, National Association’, regulated by the OCC. As previously disclosed, it is anticipated that, on or after January 1, 2023, the Bank will move its headquarters to Sioux Falls, South Dakota, the location of the Bank’s payments operations and other core business and internal control functions, and a site more geographically proximate to many fintech-related entities and their regulators.

~~As previously reported, on July 6, 2022, the Company received a Wells Notice from the Securities and Exchange Commission (“SEC”),~~ ~~stating that t~~he SEC Staff had made a preliminary determination to recommend that the SEC file an enforcement action against the Company alleging violations of record keeping, reporting and internal control provisions of the Exchange Act in connection with various CMBS securities held by The Bancorp Bank. The Wells Notice was neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law. Without admitting or denying any of the SEC’s allegations, the Company agreed to resolve the investigation by consenting to the entry of an order by the SEC that: (1) the Company will cease and desist from committing or causing any violations of the books-and-records provisions of the Securities Exchange Act and the relevant rules thereunder; and (2) the Company will pay a penalty of $1.75 million (the “Settlement Payment”) to the SEC. The order became effective on August 24, 2022. The Company recognized a non-deductible charge in its third fiscal quarter in the amount of the Settlement Payment. Further, as a result of the settlement, certain costs to the Company related to the investigation will cease, including the legal costs of the investigation, compliance with the SEC’s subpoena, and cooperation with the SEC.

Results of Operations

~~Third~~

Comparison of third quarter ~~2022~~2023 to third quarter ~~2021~~2022

Net ~~Income:~~Income

~~Income from continuing operations before income taxes was $42.4 million in the third quarter of 2022 compared to $36.5 million in the third quarter of 2021.~~

Net income ~~from continuing operations~~ for the third quarter of ~~2022~~2023 was ~~$30.6~~$50.1 million, or ~~$0.54~~$0.92 per diluted share, compared to ~~$28.2~~$30.6 million, or ~~$0.48~~$0.54 per diluted share, for the third quarter of ~~2021.~~2022. Income before income taxes was $66.5 million in the third quarter of 2023 compared to $42.4 million in the third quarter of 2022. Income increased between those respective periods primarily as a result of higher net interest ~~income. After discontinued operations, net~~ income, for the third quarter of 2022 amounted to $30.6 million, compared to $28.3 million for the third quarter of 2021. Net interest income for the third quarter of 2022 increased 27.0%, to $64.7 million from $50.9 million in the third quarter of 2021. The increasewhich was primarily driven by ~~loan growth and~~the impact of Federal Reserve rate increases inon the loan ~~portfolio.~~and securities portfolios. Variable rate loans and securities comprise the majority of the Company’s earning assets, and while they reprice on a lagged basis, they adjust more fully than deposits to Federal Reserve rate increases. Accordingly, we expect that loan repricings will continue to positively impact net interest income and the net interest margin in the fourth quarter of 2022. The provision for credit losses decreased $791,000 to $822,000 in the third quarter of 2022 compared to $1.6 million in the third quarter of 2021, reflecting the impact of lower charge-offs in the 2022 quarter. Non-interest income (excluding security gains and losses) decreased $3.2 million, reflecting a decrease in “Net realized and unrealized gains on commercial loans, at fair value” of $3.6 million which reflected a $4.0 million third quarter unrealized loss from the write-down to a September 2022 appraisal, less estimated disposition costs, of a $9.5 million loan. The unrealized loss resulted from the only loan in our portfolios collateralized by a movie theater and was originated in 2015. It was a legacy loan from our initial entry into the CMBS securitization business which was subsequently discontinued. Prepaid, debit card and related fees are the primary driver of non-interest income and increased $952,000, or 5.2% to $19.2 million in the third quarter of 2022, compared to $18.2 million for the third quarter of 2021. Non-interest expense increased $5.4 million, or 13.8%, to $44.8 million in the third quarter of 2022, compared to $39.4 million in the third quarter of 2021, reflecting increases of $2.9 million in salary expense, $413,000 in FDIC insurance expense, and a $1.8 million civil money penalty partially offset by a decrease of $344,000 in legal expenses. Additionally, the 2022 effective tax rate was higher compared to other recent periods,

primarily as a result of the non-deductible civil money penalty. Diluted income per share was $0.54 in the third quarter of 2022 compared to $0.48 diluted income per share in the third quarter of 2021 primarily reflecting the above factors.changes.

Net Interest ~~Income:~~Income

Our net interest income for the third quarter of ~~2022~~2023 increased ~~$13.8~~$24.2 million, or ~~27.0%~~37.5%, to ~~$64.7~~$88.9 million from ~~$50.9~~$64.7 million in the third quarter of ~~2021.~~2022. Our interest income for the third quarter of ~~2022~~2023 increased to ~~$83.9~~$129.0 million, an increase of ~~$30.4~~$45.0 million, or ~~56.9%~~53.7%, from ~~$53.5~~$83.9 million for the third quarter of ~~2021.~~2022. The increase in interest income resulted primarily from ~~the impact of loan growth and~~ an increase in loan and securities yields ~~as a result of~~resulting from the aforementioned Federal Reserve rate ~~increases. Our~~increases, as our average loans and leases ~~increased~~decreased to $5.61 billion for the third quarter of 2023 from $5.91 billion for the third quarter of 2022, ~~from $4.58 billion for the third quarter~~a decrease of ~~2021, an increase of $1.33 billion,~~$300.2 million, or ~~29.0%~~5.1%. Related interest income increased ~~$29.1~~$35.0 million on a tax equivalent basis. ~~The increase in average loans reflected~~In the third quarter of 2023, net paydowns of SBLOC and IBLOC were experienced, which partially offset the impact of higher rates and loan growth in other categories. At September 30, 2023, the respective balances of SBLOC and IBLOC ~~investment advisor~~ loans ~~direct lease financing,~~were $1.01 billion and ~~real estate bridge loans partially offset by~~$712.6 million, respectively, compared to $1.27 billion and $1.10 billion at September 30, 2022. Continuing decreases in ~~PPP loans. Small business loans, which also grew, have generally been comprised of SBA loans; however,~~these balances will result in ~~2021~~lower interest income, to the extent they ~~reflected larger balances of pandemic-related PPP loans guaranteed~~are not replaced by loan growth in other categories. Additionally, overall net interest income may be reduced from current levels should the ~~U.S. government, the majority of which have been repaid, accounting for their decrease.~~Federal Reserve begin lowering interest rates. The balance of our commercial loans, at fair value also decreased as a result of non-SBA ~~CRE~~commercial real estate bridge loan repayments. In the third quarter of 2021, we resumed originating such loans, referred to as real estate bridge ~~loans.~~ loans which are included in loans, net on the balance sheet and which are held at amortized cost.

Of the total ~~$29.1~~$35.0 million increase in loan interest income on a tax equivalent basis, the largest increases were ~~$14.0~~$7.5 million for SBLOC, IBLOC and investment advisor financing, ~~and $12.5~~$20.5 million for all real estate bridge loans, $2.8 million for leasing, and $4.1 million for SBA loans. ~~Leasing interest grew $1.5 million.~~ Our average investment securities of $771.4 million for the third quarter of 2023 decreased $56.4 million from $827.7 million for the third quarter of ~~2022 decreased $187.8 million from $1.02 billion for the third quarter of 2021.~~2022. Related tax equivalent interest income ~~decreased $91,000~~increased $2.9 million, primarily reflecting ~~a decrease in balances, the impact of which was mostly offset by~~ an increase in yields. Higher yields on loans and securities reflected the continuing impact of ~~2022~~ Federal Reserve rate increases as variable rate loans and securities repriced to higher rates. Federal Reserve rate ~~increases in 2022~~changes had an immediate impact on cost of funds, while their impact on variable rate loans lags. Generally, interest expense is contractually adjusted daily. The majority of our loans and securities are variable rate and generally reprice monthly or quarterly, although some reprice over several years.

Our net interest margin (calculated by dividing net interest income by average ~~interest earning~~interest-earning assets) for the third quarter of ~~2022~~2023 was ~~3.69%~~5.07% compared to ~~3.35%~~3.69% for the third quarter of ~~2021,~~2022, an increase of 34138 basis points. While the yield on ~~interest earning~~interest-earning assets increased ~~126~~256 basis points, the cost of deposits and interest bearing liabilities increased ~~101~~131 basis points, or a net change of 25125 basis points. The more pronounced increase in the net interest margin compared to ~~that~~the net change reflected the impact of higher rates on assets funded by equity. Balances at the Federal Reserve generally earn lower rates of interest than loans and securities. Average ~~interest earning~~interest-earning deposits at the Federal Reserve Bank ~~decreased $211.9~~increased $372.5 million, or ~~44.2%~~139.3%, to $639.9 million in the third quarter of 2023 from $267.4 million in the third quarter of 2022 from $479.4 million in the third quarter of 2021. In 2021, the net interest margin benefited from PPP related interest and fees which were $1.2 million higher than those in 2022, and which did not proportionately increase average interest earning assets.2022. In the third quarter of ~~2022,~~2023, the average yield on our loans increased to ~~5.12%~~7.89% from ~~4.05%~~5.12% for the third quarter of ~~2021,~~2022, an increase of ~~107~~277 basis points. Yields on taxable investment securities in the third quarter of ~~2022~~2023 increased to ~~3.30%~~5.02% compared to ~~2.72% for the third quarter of 2021, an increase of 58 basis points. The cost of total deposits and interest bearing liabilities increased 101 basis points to 1.19%~~3.30% for the third quarter of 2022, ~~compared to 0.18% in the third quarter~~an increase of ~~2021.~~172 basis points.

Average Daily ~~Balances.~~ Balances

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 annualized rates, for the periods indicated:



	Three months ended September 30,												Three months ended September 30,						Three months ended September 30,												Three months ended September 30,
	2022						2021						2022 vs 2021						2023						2022						2023 vs 2022
	Average				Average		Average				Average								Average				Average		Average				Average
	Balance		Interest		Rate		Balance		Interest		Rate		Due to Volume		Due to Rate		Total		Balance		Interest⁽¹⁾		Rate		Balance		Interest⁽¹⁾		Rate		Due to Volume		Due to Rate		Total
	(Dollars in thousands)																		(Dollars in thousands)
Assets:
Interest earning assets:
Loans, net of deferred loan fees and costs *	$	5,904,996	$	75,536		5.12%	$	4,573,431	$	46,357		4.05%	$	15,358	$	13,821	$	29,179
Leases-bank qualified**		3,299		55		6.67%		5,031		87		6.92%		(29)		(3)		(32)
Interest-earning assets:
Loans, net of deferred loan fees and costs⁽²⁾																			$	5,603,514	$	110,506		7.89%	$	5,904,996	$	75,536		5.12%	$	(3,639)	$	38,609	$	34,970
Leases-bank qualified⁽³⁾																				4,585		110		9.60%		3,299		55		6.67%		26		29		55
Investment securities-taxable		824,178		6,792		3.30%		1,012,007		6,882		2.72%		(1,548)		1,458		(90)		768,364		9,647		5.02%		824,178		6,792		3.30%		(424)		3,279		2,855
Investment securities-nontaxable**		3,559		31		3.48%		3,558		32		3.60%		—		(1)		(1)
Interest earning deposits at Federal Reserve Bank		267,424		1,525		2.28%		479,350		167		0.14%		(40)		1,398		1,358
Net interest earning assets		7,003,456		83,939		4.79%		6,073,377		53,525		3.53%
Investment securities-nontaxable⁽³⁾																				3,005		50		6.66%		3,559		31		3.48%		(4)		23		19
Interest-earning deposits at Federal Reserve Bank																				639,946		8,689		5.43%		267,424		1,525		2.28%		3,598		3,566		7,164
Net interest-earning assets																				7,019,414		129,002		7.35%		7,003,456		83,939		4.79%

Allowance for credit losses		(19,111)						(16,277)												(23,147)						(19,111)
Assets held-for-sale from discontinued operations		—		—		—		90,598		754		3.33%		(377)		(377)		(754)
Other assets		212,078						214,715												338,085						212,078
	$	7,196,423					$	6,362,413						13,364		16,296		29,660	$	7,334,352					$	7,196,423						(443)		45,506		45,063

Liabilities and shareholders' equity:
Deposits:
Demand and interest checking	$	5,545,115	$	12,726		0.92%	$	5,124,189	$	1,063		0.08%		94		11,569		11,663	$	6,229,668	$	37,913		2.43%	$	5,545,115	$	12,726		0.92%		1,752		23,435		25,187
Savings and money market		479,260		2,792		2.33%		404,775		146		0.14%		32		2,614		2,646		56,538		518		3.66%		479,260		2,792		2.33%		(6,484)		4,210		(2,274)
Time		87,562		547		2.50%		—		—		—		—		547		547		—		—		—		87,562		547		2.50%		(547)		—		(547)
Total deposits		6,111,937		16,065		1.05%		5,528,964		1,209		0.09%								6,286,206		38,431		2.45%		6,111,937		16,065		1.05%

Short-term borrowings		200,423		1,235		2.46%		13,097		7		0.21%		707		521		1,228		—		—		—		200,423		1,235		2.46%		(1,235)		—		(1,235)
Repurchase agreements		41		—		—		41		—		—		—		—		—		41		—		—		41		—		—		—		—		—
Long-term borrowings		39,035		506		5.19%		—		—		—		—		506		506		9,889		128		5.18%		39,035		506		5.19%		(377)		(1)		(378)
Subordinated debt		13,401		177		5.28%		13,401		112		3.34%		—		65		65		13,401		293		8.75%		13,401		177		5.28%		—		116		116
Senior debt		98,910		1,279		5.17%		100,329		1,279		5.10%		—		—		—		95,714		1,234		5.16%		98,910		1,279		5.17%		(41)		(4)		(45)
Total deposits and liabilities		6,463,747		19,262		1.19%		5,655,832		2,607		0.18%								6,405,251		40,086		2.50%		6,463,747		19,262		1.19%

Other liabilities		72,539						78,038												167,673						72,539
Total liabilities		6,536,286						5,733,870						833		15,822		16,655		6,572,924						6,536,286						(6,932)		27,756		20,824

Shareholders' equity		660,137						628,543												761,428						660,137
	$	7,196,423					$	6,362,413											$	7,334,352					$	7,196,423

Net interest income on tax equivalent basis **			$	64,677					$	51,672			$	12,531	$	474	$	13,005
Net interest income on tax equivalent basis⁽³⁾																					$	88,916					$	64,677			$	6,489	$	17,750	$	24,239

Tax equivalent adjustment				18						25												34						18

Net interest income			$	64,659					$	51,647											$	88,882					$	64,659

Net interest margin **						3.69%						3.35%
Net interest margin⁽³⁾																								5.07%						3.69%

* Includes commercial loans, at fair value. All periods include non-accrual loans.
** Full taxable equivalent basis, using 21% respective statutory Federal tax rates in 2021 and 2020.
NOTE: In the table above, interest on loans for 2022 and 2021 includes $21,000 and $1.2 million, respectively, of interest and fees on PPP loans.
⁽¹⁾Interest on loans for 2023 and 2022 includes $7,000 and $21,000, respectively, of interest and fees on PPP loans.																			⁽¹⁾Interest on loans for 2023 and 2022 includes $7,000 and $21,000, respectively, of interest and fees on PPP loans.
⁽²⁾Includes commercial loans, at fair value. All periods include non-accrual loans.																			⁽²⁾Includes commercial loans, at fair value. All periods include non-accrual loans.
⁽³⁾Full taxable equivalent basis, using 21% respective statutory federal tax rates in 2023 and 2022.																			⁽³⁾Full taxable equivalent basis, using 21% respective statutory federal tax rates in 2023 and 2022.

For the third quarter of ~~2022,~~2023, average ~~interest earning~~interest-earning assets increased to ~~$7.00~~$7.02 billion, an increase of ~~$930.1~~$16.0 million, or ~~15.3%~~0.2%, from ~~$6.07~~$7.00 billion in the third quarter of ~~2021.~~2022. The increase reflected increased average interest-earning deposits at the Federal Reserve Bank of $372.5 million partially offset by decreased average balances of loans and leases of ~~$1.33 billion,~~$300.2 million, or ~~29.0%~~5.1%, ~~partially offset by~~and decreased average investment securities of ~~$187.8~~$56.4 million, or ~~18.5%~~6.8%. For those respective periods, average demand and interest checking deposits increased ~~$420.9~~$684.6 million, or ~~8.2% The $74.5~~12.3%. A $422.7 million ~~increase~~decrease in average savings and money market balances ~~between these respective periods~~ reflected ~~growth in interest bearing accounts offered~~the sweeping of deposits off our balance sheet to other institutions. Such sweeps are utilized to optimize diversity within our funding structure by ~~our affinity group clients to~~managing the

~~prepaid and debit card account customers.~~percentage of individual client deposits to total deposits. The interest expense shown for demand and interest checking is primarily comprised of interest paid to our affinity groups. Additionally in the third quarter of 2022, average short-term borrowings increased $187.3 million and time deposits increased $87.6 million, as loan growth exceeded deposit growth. The time deposits are short term and will mature in the fourth quarter of 2022 and the borrowings mature on a daily basis.

Provision for Credit Losses

Our provision for credit losses was $1.8 million for the third quarter of 2023 compared to a provision of$822,000 for the third quarter of ~~2022 compared to $1.6 million for the third quarter of 2021. The provision in 2022 reflected the impact of lower net-charge-offs in third quarter~~ 2022. The ~~allowance for credit losses~~ACL was ~~$19.7~~$24.1 million, or ~~0.37%,~~0.46% of total loans, at September 30, ~~2022,~~2023, compared to ~~$17.8~~$22.4 million, or ~~0.48%,~~0.41% of total loans, at December 31, ~~2021.~~2022. The ~~lower~~higher ratio ~~in 2022~~at September 30, 2023 reflected ~~a downward adjustment in~~ the ~~second quarter~~impact of 2022 for a greater proportion of government guaranteed balances. Additionally, the majority of loan growth has been in SBLOC, IBLOC and REBL, which require lower allowance allocations. SBLOC are collateralized by marketable securities, IBLOC by the cash value of life insurance and REBL by apartment buildings.higher net charge-offs, while total loans outstanding decreased. We believe that our ~~allowance~~ACL is adequate to cover expected losses. For more information about our provision and ~~allowance for credit losses~~ACL and our loss experience, see “Financial ~~Condition-Allowance~~Condition – Allowance for ~~credit losses”, “-Net charge-offs,~~Credit Losses,” “– Net Charge-offs,” and ~~“-Non-performing loans, loans~~“– Non-performing Loans, Loans 90 days ~~delinquent~~Delinquent and ~~still accruing,~~Still Accruing, OREO, Modified Loans and ~~troubled debt restructurings,~~Troubled Debt Restructurings,” below and ~~Note 6~~“Note 6. Loans” to the unaudited consolidated financial ~~statements.~~statements herein.

Non-Interest ~~Income.~~Income

Non-interest income was $26.8 million in the third quarter of 2023 compared to $23.4 million in the third quarter of ~~2022 compared to $26.6 million in the third quarter of 2021.~~2022. The ~~$3.2~~$3.4 million, or ~~11.9%~~14.3%, ~~decrease~~increase between those respective periods reflected ~~a decrease~~an increase in ~~“Net realized~~prepaid, debit card and unrealized gains on commercial loans, at fair value” to $745,000 from $4.3 million. The $3.6 million change reflected a $4.0 million third quarter 2022 unrealized loss to reflect the write-down to a September 2022 appraisal, less estimated disposition costs, of a $9.5 million loan. The loan represents the only movie theater loan in the Company’s portfolios and was originated in 2015, before non-SBA loan originations were primarily comprised of apartment building loans. Of the $2.15 billion of non-SBA commercial loans, at fair value and REBL loans which together comprise the non-SBA CRE portfolios, $2.05 billion are comprised of apartment building loans.related fees. Prepaid, debit card and related fees increased ~~$952,000,~~$2.3 million, or ~~5.2%~~12.2%, to ~~$19.2~~$21.5 million for the third quarter of ~~2022~~2023, compared to ~~$18.2~~$19.2 million in the third quarter of ~~2021.~~2022. The increase reflected higher transaction ~~volume. Related fees in this category include income related to the use of cash in ATMs for prepaid payroll cardholders.~~volume from new clients and organic growth from existing clients. ACH, card and other payment processing fees increased ~~$325,000,~~$323,000, or ~~17.1%~~14.5%, to ~~$2.2~~$2.6 million for the third quarter of ~~2022~~2023, compared to ~~$1.9~~$2.2 million in the third quarter of ~~2021,~~2022, reflecting ~~increased~~an increase in rapid funds transfer volume.

Leasing related income ~~decreased $920,000,~~increased $719,000, or ~~46.7%~~68.6%, to $1.8 million for the third quarter of 2023 from $1.0 million for the third quarter of 2022, reflecting an increase in the volume of vehicles sold.

Other non-interest income increased $194,000, or 85.1%, to $422,000 for the third quarter of 2023 from ~~$2.0~~$228,000 in the third quarter of 2022 primarily reflecting increased prepayment and sales fees on small business loans.

Non-Interest Expense

Total non-interest expense was $47.5 million for the third quarter of ~~2021. The reduction reflected decreased volume, as 2021 was impacted by the reopening~~2023, an increase of ~~vehicle auctions after pandemic closures. Both periods reflected vehicle sales at relatively higher market prices due~~$2.6 million, or 5.9%, compared to ~~vehicle shortages. Other non-interest income increased $42,000, or 22.6%, to $228,000~~$44.8 million for the third quarter of ~~2022~~2022. The majority of the increase resulted from ~~$186,000~~higher salaries and employee benefits expense, which reflected higher numbers of staff in financial crimes, compliance and information technology (“IT”) due to increases in deposit transaction volume and the ~~third quarter~~development of ~~2021.~~new products. The increase also reflected higher stock compensation expense and less expense deferral related to loan origination costs as a result of lower loan production.

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


	For the three months ended September 30,								For the three months ended September 30,
	2022		2021		Increase (Decrease)		Percent Change		2023		2022		Increase (Decrease)		Percent Change
	(Dollars in thousands)								(Dollars in thousands)
Salaries and employee benefits	$	28,001	$	25,094	$	2,907		11.6%	$	30,475	$	28,001	$	2,474		8.8%
Depreciation and amortization		685		729		(44)		(6.0)		644		685		(41)		(6.0)%
Rent and related occupancy cost		1,268		1,256		12		1.0		1,510		1,268		242		19.1%
Data processing expense		1,292		1,209		83		6.9		1,404		1,292		112		8.7%
Printing and supplies		154		81		73		90.1		82		154		(72)		(46.8)%
Audit expense		366		356		10		2.8		446		366		80		21.9%
Legal expense		907		1,251		(344)		(27.5)		1,203		907		296		32.6%
Civil money penalty		1,750		—		1,750		100.0		—		1,750		(1,750)		(100.0)%
Amortization of intangible assets		99		99		—		—		99		99		—		—
FDIC insurance		679		266		413		155.3		806		679		127		18.7%
Software		4,001		4,045		(44)		(1.1)		4,427		4,001		426		10.6%
Insurance		1,314		1,110		204		18.4		1,321		1,314		7		0.5%
Telecom and IT network communications		368		413		(45)		(10.9)		305		368		(63)		(17.1)%
Consulting		339		448		(109)		(24.3)		448		339		109		32.2%
Writedowns and other losses on other real estate owned										131		—		131		100.0%
Other		3,607		3,027		580		19.2		4,158		3,607		551		15.3%
Total non-interest expense	$	44,830	$	39,384	$	5,446		13.8%	$	47,459	$	44,830	$	2,629		5.9%

~~Non-Interest Expense~~. Total non-interest expense was $44.8 million for the third quarter of 2022, an increase of $5.4 million, or 13.8%, compared to $39.4 million for the third quarter of 2021. Salaries and employee benefits increased to $28.0 million for the third quarter of 2022, an increase of $2.9 million, or 11.6%, from $25.1 million for the third quarter of 2021. Higher salary expense in 2022 reflected higher incentive compensation, financial crimes and compliance, payments and employee insurance expense. Depreciation and

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

Salaries and employee benefits expense increased to $30.5 million for the third quarter of 2023, an increase of $2.5 million, or 8.8%, from $28.0 million for the third quarter of 2022.

Depreciation and amortization expense decreased ~~$44,000,~~$41,000, or 6.0%, to $644,000 in the third quarter of 2023 from $685,000 in the third quarter of ~~2022 from $729,000~~2022.

Rent and related occupancy cost increased $242,000, or 19.1%, to $1.5 million in the third quarter of ~~2021. Rent~~2023 from $1.3 million in the third quarter of 2022, reflecting increased IT-related equipment expense.

Data processing expense increased $112,000, or 8.7%, to $1.4 million in the third quarter of 2023 from $1.3 million in the third quarter of 2022, reflecting higher transaction volume.

Printing and ~~occupancy~~supplies expense decreased $72,000, or 46.8%, to $82,000 in the third quarter of 2023 from $154,000 in the third quarter of 2022.

Audit expense increased ~~$12,000,~~$80,000, or ~~1.0%~~21.9%, to $446,000 in the third quarter of 2023 from $366,000 in the third quarter of 2022.

Legal expense increased $296,000, or 32.6%, to $1.2 million in the third quarter of 2023 from $907,000 in the third quarter of 2022 reflecting increased legal costs related to a request for information related to the Bank’s escheatment practices from the CFPB as described in “Note 14 Legal” to the financial statements. There were also expenses related to enhancements and updates to the Company’s corporate governance processes and new products.

FDIC insurance expense increased $127,000, or 18.7%, to $806,000 for the third quarter of 2023 from $679,000 in the third quarter of 2022, reflecting the impact of increased average assets against which assessment rates are applied. Additionally, in 2023 the FDIC increased its assessment rate by two basis points. The cost of resolving several recent bank failures may result in future increased premiums, or special assessments, which would serve to increase expense in the period assessed.

Software expense increased $426,000, or 10.6%, to $4.4 million in the third quarter of 2023 from $4.0 million in the third quarter of 2022. The increase reflected higher expenditures for information technology infrastructure including those to service the payments businesses.

Insurance expense increased $7,000, or 0.5%, to $1.3 million in the third quarter of ~~2022 from $1.3 million in the third quarter of 2021. Data processing increased $83,000, or 6.9%,~~2023 compared to $1.3 million in the third quarter of ~~2022~~2022.

Telecom and IT network communications expense decreased $63,000, or 17.1%, to $305,000 in the third quarter of 2023 from ~~$1.2~~$368,000 in the third quarter of 2022.

Consulting expense increased $109,000, or 32.2%, to $448,000 in the third quarter of 2023 from $339,000 in the third quarter of 2022. The increase reflected expenses related to the Company’s ongoing efforts of documenting and optimizing operational controls.

The $131,000 of writedowns and other losses on OREO reflected the impact of a write-down related to a property sale.

Other non-interest expense increased $550,747, or 15.3%, to $4.2 million in the third quarter of ~~2021. Printing and supplies increased $73,000, or 90.1%, to $154,000 in the third quarter of 2022~~2023 from $81,000 in the third quarter of 2021. Audit expense increased $10,000, or 2.8%, to $366,000 in the third quarter of 2022 from $356,000 in the third quarter of 2021. Legal expense decreased $344,000, or 27.5%, to $907,000 in the third quarter of 2022 from $1.3 million in the third quarter of 2021, reflecting decreased costs associated with the Cascade matter which was resolved in the second quarter of 2022 and ~~two fact-finding inquiries by the SEC as described in Note 14 to the consolidated financial statements~~. FDIC insurance expense increased $413,000, or 155.3%, to $679,000 for the third quarter of 2022 from $266,000 in the third quarter of 2021, primarily due to growth of the balance sheet. In October 2022, the FDIC adopted a proposal to increase assessments on all depository institutions by 2 basis points for full year 2023. Based on an estimated $7.5 billion of assets, FDIC insurance expense is expected to increase approximately $1.5 million for full year 2023. Software expense decreased $44,000, or 1.1%, to $4.0 million in the third quarter of 2022 from $4.0 million in the third quarter of 2021. Insurance expense increased $204,000, or 18.4%, to $1.3 million in the third quarter of 2022 compared to $1.1 million in the third quarter of 2021, reflecting higher rates, especially on cyber insurance. Telecom and IT network communications decreased $45,000, or 10.9%, to $368,000 in the third quarter of 2022 from $413,000 in the third quarter of 2021. Consulting decreased $109,000, or 24.3%, to $339,000 in the third quarter of 2022 from $448,000 in the third quarter of 2021. In the third quarter of 2022, a $1.8 million civil money penalty resulted from the SEC matter as described in Note 14 to the consolidated financial statements. Other non-interest expense increased $580,000, or 19.2%, to $3.6 million in the third quarter of ~~2022 from $3.0 million in the third quarter of 2021.~~2022. The ~~$580,000~~$550,747 increase primarily reflected ~~a $291,000 increase~~the following increases: a. regulatory examination fees of $193,000, b. OREO expense of $142,000 and c. $77,000 in travel expenses, as travel increased post-pandemic.

Income ~~Taxes.~~Taxes

Income tax expense ~~for continuing operations~~ was ~~$11.8~~$16.3 million for the third quarter of ~~2022~~2023 compared to ~~$8.3~~$11.8 million in the third quarter of ~~2021.~~2022. The increase resulted primarily from an increase in income, substantially all of which is subject to income tax. A 24.6% effective tax rate in 2023 and a 27.9% effective tax rate in 2022 ~~and a 22.7% effective tax rate in 2021~~ primarily reflected a 21% federal tax rate and the impact of various state income taxes. The ~~higher effective tax~~lower rate in ~~the third quarter of 2022~~2023 reflected the impact of ~~the $1.8 million civil money penalty which is non-deductible for tax purposes. A lower effective tax rate for the prior year period reflected the impact of a tax deduction~~adjustments related to ~~stock-based compensation recorded as a discrete item~~state taxes in ~~2021. The large deduction and tax benefit resulted from the increase in the Company’s stock price as compared to the original grant dates of the stock compensation.~~multiple states.

~~First~~

Comparison of first nine months 2023 to first nine months 2022 ~~to nine months 2021~~

Net ~~Income:~~Income

~~Income from continuing operations before income taxes was $121.7 million in the first nine months of 2022 compared to $108.6 million in the first nine months of 2021.~~

Net income ~~from continuing operations~~ for the first nine months of ~~2022~~2023 was ~~$90.0~~$148.3 million, or ~~$1.56~~$2.68 per diluted share, compared to ~~$83.4~~$90.0 million, or ~~$1.41~~$1.56 per diluted share, for the first nine months of ~~2021.~~2022. Income before income taxes was $197.6 million in the first nine months of 2023 compared to $121.7 million in the first nine months of 2022. Income increased between those respective periods primarily as a result of higher net interest income, which was primarily driven by the impact of Federal Reserve rate increases on the loan and ~~higher non-interest income. After discontinued operations,~~securities portfolios. Variable rate loans and securities comprise the majority of the Company’s earning assets, and while they reprice on a lagged basis, they adjust more fully than deposits to Federal Reserve rate changes.

Net Interest Income

Our net ~~income for the first nine months of 2022 amounted to $90.0 million, compared to $83.7 million for the first nine months of 2021. Net~~ interest income for the first nine months of ~~2022~~2023 increased ~~8.4%~~$89.8 million, or 52.2%, to ~~$172.1~~$261.9 million, from ~~$158.7~~$172.1 million in the first nine months of ~~2021. In the first two quarters of 2022, increases in loan~~2022. Our interest resulting from loan growth more than offset decreases in securities interest, but were offset by higher interest expense related to 2022 rate increases by the Federal Reserve. Those increases have an immediate impact on the Company’s cost of funds, while variable rate loans and securities, which comprise the majority of the Company’s earning assets, reprice on a lagged basis and adjust more fully to the Federal Reserve rate increases. Accordingly we expect that loan repricings will continue to positively impact net interest income and the net interest margin in the fourth quarter of 2022. The provision for credit losses increased $2.8 million to $4.3 million in the first nine months of 2022 compared to $1.5 million in the first nine months of 2021. The provision in 2022 reflected the impact of the reclassification of discontinued loans to held for investment. In 2022, as a result of that loan reclassification from discontinued and held for sale to held for investment, 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. 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 allowance for credit losses and $2.2 million increased the allowance for loan commitments recorded in other liabilities. Partially offsetting the current year provision was the impact of a downward qualitative factor adjustment in our CECL methodology. The downward adjustment resulted from a greater proportion of government guaranteed balances, compared to prior periods in applicable small business loan pools which are segregated on the basis of similar risk characteristics (see Note 6 to the consolidated financial statements).The credit to the provision in the prior year reflected reversals of COVID-19 related provisions made in 2020. Non-interest income (excluding security gains and losses) increased $3.4 million, reflecting an increase in “Net realized and unrealized gains on commercial loans, at fair value” of $2.4 million which reflected the impact of the aforementioned reclassification in addition to increases in fees related to non-SBA CRE bridge loan repayments in 2022. These increases were partially offset by a $4.0 million third quarter unrealized loss to reflect a write-down to a September 2022 appraisal, less estimated disposition costs, of a $9.5 million loan. Prepaid, debit card and related fees are the primary driver of non-interest income and increased $987,000, or 1.7% to $57.9 million in the first nine months of 2022, compared to $56.9 million for the first nine months of ~~2021. Non-interest expense~~2023 increased ~~$877,000, or 0.7%,~~ to ~~$126.0~~$377.4 million, ~~in the first nine months of 2022, compared to $125.2 million in the first nine months of 2021, reflecting~~ an increase of ~~$9,000 in salary expense,~~ ~~a $1.2 million legal settlement resulting from the Cascade matter in the second quarter of 2022, and~~ ~~a $1.8 million civil money penalty partially offset by decreases of $2.9 million in FDIC insurance expense and $2.2 million in legal expense.~~

Additionally, the 2022 effective tax rate was higher compared to other recent periods. Diluted income per share was $1.56 in the first nine months of 2022 compared to $1.42 diluted income per share in the first nine months of 2021 primarily reflecting the above factors.

~~Net Interest Income:~~ ~~Our net interest income for the first nine months of 2022 increased $13.4~~$176.0 million, or 8.4%, to $172.1 million, from $158.7 million in the first nine months of 2021. Our interest income for the first nine months of 2022 increased to $201.4 million, an increase of $34.0 million, or 20.3%87.4%, from ~~$167.4~~$201.4 million for the first nine months of ~~2021.~~2022. The increase in interest income resulted primarily from ~~the impact of~~an increase in loan ~~growth~~ and ~~the impact of~~securities yields resulting from Federal Reserve rate hikes on variable rate loans and securities, partially offset by decreases in securities interest resulting primarily from lower balances. Additionally, securities yields were lower for the first two quarters of the year, before variable rate securities had adjusted to Federal Reserve and other market rate increases.

Our average loans and leases increased to $5.78 billion for the first nine months of 2023 from $5.54 billion for the first nine months of 2022, ~~from $4.55 billion for the first nine months of 2021,~~ an increase of ~~$988.4~~$240.6 million, or ~~21.7%~~4.3%. Related interest income increased ~~$37.5~~$142.9 million on a tax equivalent basis. The increase in average loans reflected growth in ~~SBLOC, IBLOC,~~ investment advisor loans, small business, direct lease financing, and real estate bridge ~~loans~~loans. In the first nine months of 2023, net paydowns of SBLOC and IBLOC were experienced, which partially offset bythe impact of higher rates and loan growth in other categories. Continuing decreases in ~~PPP loans. Small business loans, which also grew, have generally been comprised of SBA loans; however,~~these balances will result in ~~2021~~lower interest income, to the extent they ~~reflected larger balances of pandemic-related PPP loans guaranteed~~are not replaced by loan growth in other categories. Additionally, overall net interest income may be reduced from current levels should the ~~U.S. government, the majority of which have been repaid, accounting for their decrease.~~Federal Reserve begin lowering interest rates. The balance of our commercial loans, at fair value also decreased, as a result of non-SBA ~~CRE~~commercial real estate bridge loan repayments. In the third quarter of 2021, we resumed originating such loans, referred to as real estate bridge ~~loans.~~ loans which are included in loans, net on the balance sheet and which are held at amortized cost.

Of the total ~~$37.5~~$142.9 million increase in loan interest income on a tax equivalent basis, the largest increases were ~~$23.7~~$47.5 million for SBLOC, IBLOC and investment advisor financing, ~~and $16.5~~$73.3 million for all real estate bridge loans, $8.7 million for leasing, and $12.5 million for SBA loans. ~~Leasing interest grew $2.6 million. SBA loan interest decreased $6.9 million, which reflected an $8.9 million decrease in PPP related interest and fees.~~ Our average investment securities of $776.7 million for the first nine months of 2023 decreased $107.3 million from $884.0 million for the first nine months of ~~2022 decreased $214.5 million from $1.10 billion for the first nine months of 2021.~~2022. Related tax equivalent interest income ~~decreased $5.8~~increased $11.8 million, primarily reflecting ~~a decrease~~an increase in yields. Higher yields on loans and ~~balances.~~securities reflected the continuing impact of Federal Reserve rate increases ~~in 2022~~as variable rate loans and securities repriced to higher rates. Federal Reserve rate changes had an immediate impact on cost of funds, ~~which adjusts only partially to such increases,~~ while their impact on variable rate loans lags due to contractual timing of repricings, which adjust more fully to such rate increases. The majority of such repricings on variable rate loans occur over 90 days. Additionally, in the first half of 2022, rate floors on certain loans had to be exceeded before rates on those loans were increased. As a result, through June 30, 2022 year to date increases in interest income and interest expense over the comparable prior year period were largely offsetting, while loan interest grew significantly more than interest expense in third quarter 2022. Accordingly, while through third quarter 2022 interest income had increased by $34.0 million, interest expense had increased by $20.6 million. The majority oflags. Generally, interest expense is contractually adjusted daily. The majority of our loans and securities are variable rate and generally reprice monthly or quarterly, although some reprice over several years.

Our net interest margin (calculated by dividing net interest income by average ~~interest earning~~interest-earning assets) for the first nine months of ~~2022~~2023 was ~~3.32%~~4.86% compared to ~~3.29%~~3.32% for the first nine months of ~~2021,~~2022, an increase of 3154 basis points. While the yield on ~~interest earning~~interest-earning assets increased 41312 basis points, the cost of deposits and interest bearing liabilities increased 42173 basis points, or a net change of 1139 basis ~~point.~~points. The more pronounced increase in the net interest margin compared to ~~that~~the net change reflected the impact of higher rates on assets funded by equity. Balances at the Federal Reserve generally earn lower rates of interest than loans and securities. Average ~~interest earning~~interest-earning deposits at the Federal Reserve Bank ~~decreased $282.5~~increased $141.5 million, or ~~36.1%~~28.3%, to $640.6 million in the first nine months of 2023 from $499.1 million in the first nine months of 2022 from $781.6 million in the first nine months of 2021. In 2021, the net interest margin benefited from PPP related interest and fees related which were $8.9 million higher than those in 2022, and which did not proportionately increase average interest earning assets. The net interest margin also reflected the impact of 4.8% weighted average floors on non-SBA CRE bridge loans, at fair value.2022. In the first nine months of ~~2022,~~2023, the average yield on our loans increased to ~~4.37%~~7.48% from ~~4.21%~~4.37% for the first nine months of ~~2021,~~2022, an increase of 16311 basis points. Yields on taxable investment securities in the first nine months of ~~2022 decreased~~2023 increased to ~~2.59%~~4.97% compared to ~~2.79% for the first nine months of 2021, a decrease of 20 basis points. The cost of total deposits and interest bearing liabilities increased 42 basis points to 0.61%~~2.59% for the first nine months of 2022, ~~compared to 0.19% in the first nine months~~an increase of ~~2021.~~238 basis points.

Average Daily ~~Balances.~~ Balances


	Nine months ended September 30,												Nine months ended September 30,						Nine months ended September 30,												Nine months ended September 30,
	2022						2021						2022 vs 2021						2023						2022						2023 vs 2022
	Average				Average		Average				Average								Average				Average		Average				Average
	Balance		Interest		Rate		Balance		Interest		Rate		Due to Volume		Due to Rate		Total		Balance		Interest⁽¹⁾		Rate		Balance		Interest⁽¹⁾		Rate		Due to Volume		Due to Rate		Total
	(Dollars in thousands)																		(Dollars in thousands)
Assets:
Interest earning assets:
Loans, net of deferred loan fees and costs *	$	5,531,902	$	181,174		4.37%	$	4,541,262	$	143,546		4.21%	$	32,283	$	5,345	$	37,628
Leases-bank qualified**		3,657		185		6.75%		5,925		301		6.77%		(115)		(1)		(116)
Interest-earning assets:
Loans, net of deferred loan fees and costs⁽²⁾																			$	5,772,266	$	324,009		7.48%	$	5,531,902	$	181,174		4.37%	$	8,195	$	134,640	$	142,835
Leases-bank qualified⁽³⁾																				3,920		279		9.49%		3,657		185		6.75%		14		80		94
Investment securities-taxable		880,426		17,115		2.59%		1,094,633		22,891		2.79%		(4,248)		(1,528)		(5,776)		773,485		28,820		4.97%		880,426		17,115		2.59%		(1,788)		13,493		11,705
Investment securities-nontaxable**		3,559		93		3.48%		3,824		99		3.45%		(7)		1		(6)
Interest earning deposits at Federal Reserve Bank		499,104		2,876		0.77%		781,606		650		0.11%		(145)		2,371		2,226
Net interest earning assets		6,918,648		201,443		3.88%		6,427,250		167,487		3.47%
Investment securities-nontaxable⁽³⁾																				3,193		144		6.01%		3,559		93		3.48%		(8)		59		51
Interest-earning deposits at Federal Reserve Bank																				640,554		24,271		5.05%		499,104		2,876		0.77%		1,035		20,360		21,395
Net interest-earning assets																				7,193,418		377,523		7.00%		6,918,648		201,443		3.88%

Allowance for credit losses		(19,087)						(16,254)												(23,192)						(19,087)
Assets held-for-sale from discontinued operations		—		—		—		99,472		2,388		3.20%		(1,194)		(1,194)		(2,388)
Other assets		203,143						225,802												269,072						203,143
	$	7,102,704					$	6,736,270						26,574		4,994		31,568	$	7,439,298					$	7,102,704						7,448		168,632		176,080

Liabilities and shareholders' equity:
Deposits:
Demand and interest checking	$	5,598,028	$	18,522		0.44%	$	5,452,604	$	4,007		0.10%		110		14,405		14,515	$	6,343,711	$	106,984		2.25%	$	5,598,028	$	18,522		0.44%		2,786		85,676		88,462
Savings and money market		522,525		4,192		1.07%		446,016		487		0.15%		97		3,608		3,705		88,738		2,465		3.70%		522,525		4,192		1.07%		(12,050)		10,323		(1,727)
Time		29,508		547		2.47%		—		—		—		—		547		547		27,802		858		4.11%		29,508		547		2.47%		(30)		341		311
Total deposits		6,150,061		23,261		0.50%		5,898,620		4,494		0.10%								6,460,251		110,307		2.28%		6,150,061		23,261		0.50%

Short-term borrowings		71,589		1,267		2.36%		8,717		15		0.23%		547		705		1,252		6,758		234		4.62%		71,589		1,267		2.36%		(2,245)		1,212		(1,033)
Repurchase agreements		41		—		—		41		—		—		—		—		—		41		—		—		41		—		—		—		—		—
Long-term borrowings		39,286		506		1.72%		—		—		—		—		506		506		9,945		382		5.12%		39,286		506		1.72%		(1,127)		1,003		(124)
Subordinated debt		13,401		432		4.30%		13,401		337		3.35%		—		95		95		13,401		825		8.21%		13,401		432		4.30%		—		393		393
Senior debt		98,817		3,838		5.18%		100,237		3,838		5.11%		—		—		—		97,220		3,793		5.20%		98,817		3,838		5.18%		(62)		17		(45)
Total deposits and liabilities		6,373,195		29,304		0.61%		6,021,016		8,684		0.19%								6,587,616		115,541		2.34%		6,373,195		29,304		0.61%

Other liabilities		71,413						105,683												117,822						71,413
Total liabilities		6,444,608						6,126,699						754		19,866		20,620		6,705,438						6,444,608						(12,728)		98,965		86,237

Shareholders' equity		658,096						609,571												733,860						658,096
	$	7,102,704					$	6,736,270											$	7,439,298					$	7,102,704

Net interest income on tax equivalent basis **			$	172,139					$	161,191			$	25,820	$	(14,872)	$	10,948
Net interest income on tax equivalent basis⁽³⁾																					$	261,982					$	172,139			$	20,176	$	69,667	$	89,843

Tax equivalent adjustment				58						84												89						58

Net interest income			$	172,081					$	161,107											$	261,893					$	172,081

Net interest margin **						3.32%						3.29%
Net interest margin⁽³⁾																								4.86%						3.32%

* Includes commercial loans, at fair value. All periods include non-accrual loans.
** Full taxable equivalent basis, using 21% respective statutory Federal tax rates in 2021 and 2020.
NOTE: In the table above, the 2021 interest on loans reflects $4.6 million of interest and fees which were earned on a short-term line of credit to another institution to initially fund PPP loans, which did not significantly increase average loans or assets and which are not expected to recur. Interest on loans for 2022 and 2021 includes $502,000 and $4.9 million, respectively, of interest and fees on PPP loans.
⁽¹⁾Interest on loans for 2023 and 2022 includes $27,000 and $502,000, respectively, of interest and fees on PPP loans.																			⁽¹⁾Interest on loans for 2023 and 2022 includes $27,000 and $502,000, respectively, of interest and fees on PPP loans.
⁽²⁾Includes commercial loans, at fair value. All periods include non-accrual loans.																			⁽²⁾Includes commercial loans, at fair value. All periods include non-accrual loans.
⁽³⁾Full taxable equivalent basis, using 21% respective statutory federal tax rates in 2023 and 2022.																			⁽³⁾Full taxable equivalent basis, using 21% respective statutory federal tax rates in 2023 and 2022.

For the first nine months of ~~2022,~~2023, average ~~interest earning~~interest-earning assets increased to ~~$6.92~~$7.19 billion, an increase of ~~$491.4~~$274.8 million, or ~~7.6%~~4.0%, from ~~$6.43~~$6.92 billion in the first nine months of ~~2021.~~2022. The increase reflected increased average balances of loans and leases of ~~$988.4~~$240.6 million,

or ~~21.7%~~4.3%, partially offset by decreased average investment securities of ~~$214.5~~$107.3 million, or ~~19.5%~~12.1%. For those respective periods, average demand and interest checking deposits increased ~~$145.4~~$745.7 million, or ~~2.7%, primarily as a result of deposit growth in prepaid and debit card accounts. The $76.5~~13.3%. A $433.8 million ~~increase~~decrease in average savings and money market balances ~~between these respective periods~~ reflected ~~growth in interest bearing accounts offered~~the sweeping of deposits off our balance sheet to other institutions. Such sweeps are utilized to optimize

diversity within our funding structure by ~~our affinity group clients~~managing the percentage of individual client deposits to ~~prepaid and debit card account customers. A portion of the 2021 deposits resulted from economic stimulus payments related to the pandemic, and was temporary.~~total deposits. The interest expense shown for demand and interest checking is primarily comprised of interest paid to our affinity groups.

Provision for Credit Losses

Our provision for credit losses was $4.0 million for the first nine months of 2023 compared to $4.3 million for the first nine months of ~~2022~~2022.

The ACL was $24.1 million, or 0.46% of total loans, at September 30, 2023, compared to ~~$1.5~~$22.4 million, or 0.41% of total loans, at December 31, 2022. The higher ratio at September 30, 2023 reflected an increase in the ACL resulting from the impact of higher net charge-offs while total loans outstanding decreased. We believe that our ACL is adequate to cover expected losses. For more information about our provision and ACL and our loss experience, see “Financial Condition – Allowance for Credit Losses,” “– Net Charge-offs,” and “– Non-performing Loans, Loans 90 days Delinquent and Still Accruing, OREO, Modified Loans and Troubled Debt Restructurings,” below and “Note 6. Loans” to the unaudited consolidated financial statements herein.

Non-Interest Income

Non-interest income was $85.1 million in the first nine months of ~~2021.~~2023 compared to $79.9 million in the first nine months of 2022. The ~~provision~~$5.2 million, or 6.5%, increase between those respective periods reflected a decrease in 2022 reflected the impact of the reclassification of discontinued loans to held for investment. In 2022, as a result of a loan reclassification from discontinued and held for sale to held for investment, related valuation reserves were reversed as a credit to “Netnet realized and unrealized gains on commercial loans, at fair ~~value”~~value to $4.2 million from $11.3 million. The $7.1 million change reflected a decrease in ~~the consolidated statement~~income recognized when such loans are repaid, as a result of ~~operations, while the allowances for credit~~fewer repayments as that portfolio continues to run off. The $4.2 million was comprised of $5.9 million of non-SBA commercial real estate loan repayment related income, $1.7 million of fair value losses and ~~loan commitments in the consolidated balance sheet were increased through a provision for credit losses. A $3.5 million credit to “ Net realized and unrealized gains on commercial loans, at~~$18,000 of hedge 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 allowance for credit losses and $2.2 million increased the allowance for loan commitments recorded in other liabilities. Partially offsetting the current year provision was the impact of a downward qualitative factor adjustment in our CECL methodology. The downward adjustment resulted from a greater proportion of government guaranteed balances, compared to prior periods, in applicable small business loan pools, which are segregated on the basis of similar risk characteristics (see Note 6 to the consolidated financial statements). The credit to the provision in the prior year reflected reversals of COVID-19 related provisions made in 2020.~~Provisions for both periods included allocations for loan growth. We believe that our allowance is adequate to cover expected losses.~~For more information about our provision and allowance for credit losses and our loss experience, see “Financial Condition-Allowance for credit losses”, “-Net charge-offs,” and “-Non-performing loans, loans 90 days delinquent and still accruing, and troubled debt restructurings,” below and Note 6 to the consolidated financial statements.value adjustments.

~~Non-Interest Income.~~ ~~Non-interest~~Prepaid, debit card and related fees increased $9.1 million, or 15.8%, to $67.0 million for the first nine months of 2023 compared to $57.9 million in the first nine months of 2022. The first nine months of 2023 included approximately $600,000 of non-interest income ~~was $79.9~~related to the fourth quarter of 2022, and a $1.4 million termination fee from a client which formed its own bank. The increase also reflected higher transaction volume from new clients and organic growth from existing clients. ACH, card and other payment processing fees increased $601,000, or 9.2%, to $7.2 million for the first nine months of 2023 compared to $6.6 million in the first nine months of 2022, ~~compared to $76.5 million in the first nine months of 2021. The $3.4 million, or 4.5%, increase between those respective periods was primarily the result of~~reflecting an increase in ~~“Net realized and unrealized gains on commercial loans, at fair value” to $11.3~~rapid funds transfer volume.

Leasing related income increased $1.2 million, from $8.9 million, a difference of $2.4 million. The $11.3 million year to date “Net realized and unrealized gains on commercial loans, at fair value” for 2022 was comprised of the $3.5 million adjustment described under “Net Income” above, $11.5 million of non-SBA CRE bridge loan repayment related fees and a $1.5 million hedge gain, partially offset by $5.2 million of fair value losses. The $5.2 million in fair value losses reflected a $4.0 million third quarter unrealized loss to reflect the write-down to a September 2022 appraisal, less estimated disposition costs, of a $9.5 million loan. The loan represents the only movie theater loan in the Company’s portfolios and was originated in 2015, before non-SBA loan originations were primarily comprised of apartment building loans. Of the $2.15 billion of non-SBA commercial loans, at fair value and REBL loans which together comprise the non-SBA CRE portfolios, $2.05 billion are comprised of apartment building loans. Prior year net gains consisted primarily of repayment related fees. Prepaid, debit card and related fees increased $987,000, or ~~1.7%~~33.7%, to ~~$57.9~~$4.8 million for the first nine months of 2022 compared to $56.9 million in the first nine months of 2021. The increase reflected higher transaction volume partially offset by the impact of an affinity client relationship transitioning to its own bank. Related fees in this category include income related to the use of cash in ATMs for prepaid payroll cardholders. ACH, card and other payment processing fees increased $947,000, or 16.9%, to $6.6 million for the first nine months of 2022 compared to $5.6 million in the first nine months of 2021, reflecting increased volume. Leasing related income decreased $1.1 million, or 24.1%, to2023 from $3.6 million for the first nine months of ~~2022 from $4.7~~2022. The increase reflected higher volumes of vehicle sales.

Other non-interest income increased $1.3 million, or 186.5%, to $2.0 million for the first nine months of ~~2021. The reduction reflected decreased volume, as 2021~~2023 from $698,000 in the first nine months of 2022 primarily reflecting increased prepayment fees on advisor financing loans and prepayment and loan sales fees on small business loans.

Non-Interest Expense

Total non-interest expense was impacted by the reopening of vehicle auctions after pandemic closures. Both periods reflected vehicle sales at relatively higher market prices due to vehicle shortages. Other non-interest income increased $239,000, or 52.1%, to $698,000$145.4 million for the first nine months of ~~2022 from $459,000 in~~2023, an increase of $19.4 million, or 15.4%, compared to $126.0 million for the first nine months of ~~2021.~~2022. The majority of the increase resulted from higher salaries and employee benefits expense, which reflected higher numbers of staff in financial crimes, compliance and IT due to increases in deposit transaction volume and the development of new products. The increase also reflected higher incentive and stock compensation expense and less expense deferral related to loan origination costs as a result of lower loan production.

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


	For the nine months ended September 30,								For the nine months ended September 30,
	2022		2021		Increase (Decrease)		Percent Change		2023		2022		Increase (Decrease)		Percent Change
	(Dollars in thousands)								(Dollars in thousands)
Salaries and employee benefits	$	77,848	$	77,839	$	9		—	$	93,427	$	77,848	$	15,579		20.0%
Depreciation and amortization		2,224		2,144		80		3.7%		2,046		2,224		(178)		(8.0)%
Rent and related occupancy cost		3,831		3,777		54		1.4		4,265		3,831		434		11.3%
Data processing expense		3,727		3,481		246		7.1		4,123		3,727		396		10.6%
Printing and supplies		342		277		65		23.5		355		342		13		3.8%
Audit expense		1,107		1,110		(3)		(0.3)		1,255		1,107		148		13.4%
Legal expense		3,175		5,349		(2,174)		(40.6)		3,110		3,175		(65)		(2.0)%
Legal settlement		1,152		—		1,152		100.0		—		1,152		(1,152)		(100.0)%
Civil money penalty		1,750		—		1,750		100.0		—		1,750		(1,750)		(100.0)%
Amortization of intangible assets		298		298		—		—		298		298		—		—
FDIC insurance		2,326		5,235		(2,909)		(55.6)		2,233		2,326		(93)		(4.0)%
Software		12,030		11,435		595		5.2		12,981		12,030		951		7.9%
Insurance		3,692		2,881		811		28.1		3,935		3,692		243		6.6%
Telecom and IT network communications		1,119		1,227		(108)		(8.8)		1,044		1,119		(75)		(6.7)%
Consulting		902		952		(50)		(5.3)		1,412		902		510		56.5%
Writedowns and other losses on OREO										1,315		—		1,315		100.0%
Other		10,504		9,145		1,359		14.9		13,633		10,504		3,129		29.8%
Total non-interest expense	$	126,027	$	125,150	$	877		0.7%	$	145,432	$	126,027	$	19,405		15.4%

~~Non-Interest Expense. Total~~Changes in categories of non-interest expense ~~was $126.0~~were as follows:

Salaries and employee benefits expense increased to $93.4 million for the first nine months of ~~2022,~~2023, an increase of ~~$877,000,~~$15.6 million, or ~~0.7%, compared to $125.2 million for the first nine months of 2021. Salaries and employee benefits increased to $77.8 million for the first nine months of 2022, an increase of $9,000, or 0.0%~~20.0%, from $77.8 million for the first nine months of 2021. Higher salary expense in 2022 reflected lower incentive compensation expense, including equity compensation expense, offset by increases in IT and cybersecurity, financial crimes and compliance, payments and employee insurance expense. 2022.

Depreciation and amortization ~~increased $80,000,~~expense decreased $178,000, or ~~3.7%~~8.0%, to $2.0 million in the first nine months of 2023 from $2.2 million in the first nine months of ~~2022 from $2.1~~2022.

Rent and related occupancy cost increased $434,000, or 11.3%, to $4.3 million in the first nine months of ~~2021, primarily as a result of equipment additions related to a new data center and a new telephone system. Rent and occupancy increased $54,000, or 1.4%, to~~2023 from $3.8 million in the first nine months of 2022, ~~from $3.8~~reflecting increased IT-related equipment expense.

Data processing expense increased $396,000, or 10.6%, to $4.1 million in the first nine months of ~~2021. Data processing~~2023 from $3.7 million in the first nine months of 2022, reflecting higher transaction volume.

Printing and supplies expense increased ~~$246,000,~~$13,000, or ~~7.1%~~3.8%, to $355,000 in the first nine months of 2023 from $342,000 in the first nine months of 2022.

Audit expense increased $148,000, or 13.4%, to $1.3 million in the first nine months of 2023 from $1.1 million in the first nine months of 2022.

Legal expense decreased $65,000, or 2.0%, to $3.1 million in the first nine months of 2023 from $3.2 million in the first nine months of 2022 reflecting decreased legal costs related to the SEC matters discussed in “Note O — Commitments and Contingencies” to the consolidated financial statements in the Form 10-K for the year ended December 31, 2022.

FDIC insurance expense decreased $93,000, or 4.0%, to $2.2 million for the first nine months of 2023 from $2.3 million in the first nine months of 2022, primarily as a result of a lower assessment rate. The cost of resolving several recent bank failures may result in future increased premiums, or special assessments, which would serve to increase expense in the period assessed.

Software expense increased $951,000 or 7.9%, to $13.0 million in the first nine months of 2023 from $12.0 million in the first nine months of 2022. The increase reflected higher expenditures for information technology infrastructure including those to service the payments businesses.

Insurance expense increased $243,000 or 6.6%, to $3.9 million in the first nine months of 2023 compared to $3.7 million in the first nine months of 2022, ~~from $3.5~~reflecting higher rates, especially on cyber insurance.

Telecom and IT network communications expense decreased $75,000, or 6.7%, to $1.0 million in the first nine months of 2021. Printing and supplies increased $65,000, or 23.5%, to $342,000 in the first nine months of 2022 from $277,000 in the first nine months of 2021. Audit expense decreased $3,000, or 0.3%, to $1.1 million in the first nine months of 20222023 from $1.1 million in the first nine months of ~~2021. Legal~~2022.

Consulting expense ~~decreased $2.2 million,~~increased $510,000, or ~~40.6%~~56.5%, to ~~$3.2~~$1.4 million in the first nine months of 2023 from $902,000 in the first nine months of 2022. The increase reflected expenses related to the Company’s ongoing efforts of documenting and optimizing operational controls including external risk assessments.

The $1.3 million of writedowns and other losses on OREO resulted primarily from a pending sale of a movie theater property as described in “Note E — Loans” to the December 31, 2022 ~~from $5.3~~consolidated financial statements in the Form 10-K. The property had previously been recorded at appraised value, which was adjusted to the proposed sales price in the first nine months of 2023. The sale closed in October 2023 and a loss of $95,000 was additionally realized.

Other non-interest expense increased $3.1 million, or 29.8%, to $13.6 million in the first nine months of ~~2021, reflecting decreased costs associated with the Cascade matter resolved in second quarter 2022 and~~ ~~two fact-finding inquiries by the SEC as described in Note 14 to the consolidated financial statements, and other regulatory related expenses. FDIC insurance expense decreased $2.9 million, or 55.6%, to $2.3 million for the first nine months of 2022~~2023 from $5.2 million in the first nine months of 2021 primarily due to a reduction in the Bank’s assessment rate resulting from the reclassification of certain of our deposits from brokered to non-brokered. The assessment rate is subject to multiple factors which may significantly change the amount assessed. Accordingly, we cannot assure you that reduced rates will continue. In October 2022, the FDIC adopted a proposal to increase assessments on all depository institutions by 2 basis points for full year 2023. Based on an estimated $7.5 billion of assets, FDIC insurance expense is expected to increase approximately $1.5 million for full year 2023.Software expense increased $595,000, or 5.2%, to $12.0 million in the first nine months of 2022 from $11.4 million in the first nine months of 2021. The increase reflected expenditures for information technology to improve efficiency and scalability, including expenses related to cybersecurity. Insurance expense increased $811,000, or 28.1%, to $3.7 million in the first nine months of 2022 compared to $2.9 million in the first nine months of 2021, reflecting higher rates, especially for cyber insurance. Telecom and IT network communications decreased $108,000, or 8.8%, to $1.1 million in the first nine months of 2022 from $1.2 million in the first nine months of 2021. Consulting decreased $50,000, or 5.3%, to $902,000 in the first nine months of 2022 from $952,000 in the first nine months of 2021. In the second quarter of 2022, a $1.2 million legal settlement resulted from the Cascade matter as described in Note 14 to the consolidated financial statements. In the third quarter of 2022, a $1.8 million civil money penalty resulted from the SEC matter as described in Note 14. Other non-interest expense increased $1.4 million, or 14.9%, to $10.5 million in the first nine months of ~~2022 from $9.1 million in the first nine months of 2021.~~2022. The ~~$1.4~~$3.1 million increase primarily reflected the following increases: a. regulatory examination assessment fees of $871,000, b. OREO expense of $740,000 reflecting additional OREO properties and c. an ~~$842,000~~ increase of $306,000 in travel expenses, as travel increased post-pandemic.

Income ~~Taxes.~~Taxes

Income tax expense ~~for continuing operations~~ was ~~$31.7~~$49.3 million for the first nine months of ~~2022~~2023 compared to ~~$25.2~~$31.7 million in the first nine months of ~~2021.~~2022. The increase resulted primarily from an increase in income, substantially all of which is subject to income tax. A 24.9% effective tax rate in 2023 and a 26.0% effective tax rate in 2022 ~~and a 23.2% effective tax rate in 2021~~ primarily reflected a 21% federal tax rate and the impact of various state income taxes. ~~The higher effective tax rate in 2022 reflected the impact of the $1.8 million civil money penalty which is non-deductible for tax purposes. A lower effective tax rate for the prior year period~~

reflected the impact of a tax deduction related to stock-based compensation recorded as a discrete item in 2021. The large deduction and tax benefit resulted from the increase in the Company’s stock price as compared to the original grant dates of the stock compensation.

Liquidity ~~and Capital Resources~~

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. The Company’s 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 foreseeable future.We invest the funds we do not need for daily operations primarily in overnight federal funds or in our interest-bearing account at the Federal Reserve.

Our primary source of funding has been deposits. Average total deposits increased by ~~$583.0~~$174.3 million, or ~~10.5%~~2.9%, to ~~$6.11~~$6.29 billion for the third quarter of ~~2022~~2023 compared to the third quarter of ~~2021.~~2022. Federal Reserve average balances ~~decreased~~increased to $639.9 million in the third quarter 2023 from $267.4 million in the third quarter ~~2022 from $479.4 billion in the third quarter~~ of ~~2021. In the third quarter of 2022, we averaged $87.6 million of time deposits with terms of 90 days and less.~~2022. Overnight borrowings are also periodically utilized as a funding source to facilitate cash management, but average balances have generally not been significant. ~~Such borrowings and time deposits increased in 2022 as loan growth exceeded deposit growth.~~

~~Our primary~~One source of contingent liquidity is available-for-sale securities, which amounted to ~~$790.6~~$756.6 million at September 30, ~~2022,~~2023, compared to ~~$953.7~~$766.0 million at December 31, ~~2021.~~2022. The majority of these securities can be pledged to facilitate extensions of credit in addition to loans already pledged against lines of credit, as discussed later in this section. Loan repayments, ~~also a~~another source of funds, ~~were~~have historically been exceeded by disbursements associated with new loan ~~disbursements~~originations, a use of funds. However, loan repayments during the third quarter of ~~2022.~~2023 exceeded originations, and the excess of repayments over originations provided additional liquidity. As a result of such higher loan repayments, at September 30, ~~2022~~2023, outstanding loans amounted to ~~$5.27~~$5.20 billion, compared to ~~$3.75~~$5.49 billion at the prior year end, ~~an increase~~a decrease of ~~$1.52 billion. In addition to funding by securities repayments, funding for loan growth included repayments of commercial loans, at fair value.~~$287.9 million. Commercial loans, at fair value, decreased to ~~$818.0~~$379.6 million from ~~$1.39 billion~~$589.1 million between those respective dates, a decrease of ~~$570.4~~$209.5 million, which also provided funding. In 2019 and previous years, these loans were generally originated for securitization and sale, ~~into securitizations at six month intervals,~~ but in 2020 we decided to retain such loans on the balance sheet. While we suspended originating such loans after the first quarter of 2020, we resumed originations, which consist primarily of non-SBA ~~CRE~~commercial real estate bridge loans, in the third quarter of 2021. Such originations are held for investment and are included in “Loans, net of deferred loan fees and costs” on the balance sheet. Accordingly, commercial loans, at fair value will continue to run off. Our liquidity planning has not previously placed undue reliance on securitizations, and while our future planning excludes the impact of securitizations, other liquidity sources, primarily deposits, are determined to be adequate. ~~As noted previously, borrowings and time deposits were also utilized to fund loans, as loan growth outpaced deposit growth during the quarter.~~

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 ~~deposits~~ 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. As of September 30, ~~2022, approximately $2.09 billion~~2023, an estimated $576.5 million of our total deposit accounts of ~~$6.91~~$6.50 billion were not insured by FDIC insurance, which requires identification of the depositor and is limited to $250,000 per 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.

~~We focus on customer service which we believe has resulted in a history of customer loyalty.~~ Certain components of our deposits do experience seasonality, creating greater excess liquidity at certain times. The largest deposit inflows occur 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 vast majority of our funding needs, we maintain secured borrowing lines with the ~~Federal Home Loan Bank (“FHLB”)~~FHLB and the Federal Reserve. ~~As of September 30, 2022, we had a~~Our collateralized line of credit with the Federal Reserve ~~which exceeded one~~Bank had available accessible capacity of $1.94 billion ~~dollars, which may be~~as of September 30, 2023 and was collateralized by various types of loans, but which we generally did not use prior to the pandemic. To mitigate the impact of the COVID-19 pandemic, the Federal Reserve has encouraged banks to utilize their lines to maximize the amount of funding available for credit markets. Accordingly, the Bank has borrowed on its line on an overnight basis and may do so in the future. The amount of loans pledged varies and the collateral may be unpledged at any time to the extent the collateral exceeds advances.loans. We have also pledged in excess of ~~$1.4~~$1.10 billion of multi-family loans to the FHLB. As a result, we have approximately ~~$1.2 billion~~$731.5 million of availability on ~~our~~that line of credit which we can also access at any time. ~~Additionally, approximately $400~~As of September 30, 2023, there were no amounts outstanding on either of these lines of credit. We expect to continue to maintain our facilities with the FHLB and Federal Reserve.

Another source of contingent liquidity is available-for-sale securities, which amounted to $756.6 million at September 30, 2023, compared to $766.0 million at December 31, 2022. Approximately $350 million of our available-for-sale securities are U.S. government agency securities which are highly liquid and may be immediately pledged as additional collateral. Our collateralized line of credit with the Federal Reserve Bank (“FRB”) is $1.4 billion as of September 30, 2022. As of September 30, 2022, there were no amounts outstanding on either of these lines of credit. We expect to

~~continue to maintain our facilities with the FHLB and Federal Reserve.~~ We actively monitor our positions and contingent funding sources daily.

As a holding company conducting substantially all our business through our subsidiaries, ~~our near term~~the Company’s near-term need for liquidity consists principally of cash for required interest payments on our ~~trust preferred securities~~subordinated debentures, consisting of $13.4 million of debentures bearing interest at SOFR plus 3.51% and maturing in March 2038 (the “2038 Debentures”), and senior ~~debt. Our~~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. As of September 30, 2023, we had cash reserves of approximately $9.6 million at the holding company. During the third quarter of 2023, $25.0 million of common stock repurchases were funded by a dividend from the Bank, as are interest payments on the above debt instruments. Stock repurchases may be terminated at any time. The holding company’s sources of liquidity are primarily comprised of dividends ~~from~~paid by the Bank to the ~~holding company,~~Company, and the issuance of debt. In the third quarter of 2020, holding company cash was increased by approximately $98.2 million as a result of the net proceeds of a senior debt offering. As of September 30, 2022, we had cash reserves of approximately $17.3 million at the holding company. A reduction from the prior quarter end reflected the impact of $15.0 million of common stock repurchases. The biannual interest payments on the $100.0 million of senior debt are approximately $2.4 million based on a fixed rate of 4.75%. Current quarterly interest payments on the $13.4 million of subordinated debentures are approximately $250,000 based on a floating rate of 3.25% over London Inter-bank Offered Rate (“LIBOR”). The senior debt matures in August 2025 and the subordinated debentures mature in March 2038. In lieu of repayment of debt from Bank dividends, industry practice includes the issuance of new debt to repay maturing debt.

Included in our cash and cash-equivalents at September 30, ~~2022~~2023 were ~~$700.2~~$898.5 million of ~~interest earning~~interest-earning deposits which primarily consisted of deposits with the Federal Reserve.

In ~~2022,~~2023, purchases of ~~$19.3~~$49.0 million of securities were exceeded by ~~$127.4~~$55.2 million of redemptions. We had outstanding commitments to fund loans, including unused lines of credit, of ~~$1.98~~$1.80 billion and ~~$2.15~~$1.98 billion as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The majority of our commitments are variable rate and originate with ~~security backed lines of credit.~~SBLOC. The recorded amount of such commitments has, for many accounts, been based on the full amount of collateral in a customer’s investment account. The funding requirements for such commitments occur on a measured basis over time and would be funded by normal deposit growth. Additionally, these loans are “demand” loans and as such, represent a ~~contingency~~contingent source of funding.

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 5.00%, a ratio of Tier I 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 tier 1 to risk weighted assets of 6.5% to be considered “well capitalized.” The Tier I leverage ratio is the ratio of Tier 1 capital to average assets for the quarter. “Tier I capital” includes common shareholders’ equity, certain qualifying perpetual preferred stock and minority interests in equity accounts of consolidated subsidiaries, less intangibles. At September 30, ~~2022, we~~2023, both the Company and the Bank were “well capitalized” under banking regulations.

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



	Tier 1 capital	Tier 1 capital	Total capital	Common equity	Tier 1 capital	Tier 1 capital	Total capital	Common equity
	to average	to risk-weighted	to risk-weighted	tier 1 to risk	to average	to risk-weighted	to risk-weighted	tier 1 to risk
	assets ratio	assets ratio	assets ratio	weighted assets	assets ratio	assets ratio	assets ratio	weighted assets

As of September 30, 2022
As of September 30, 2023
The Bancorp, Inc.	9.66%	13.13%	13.56%	13.13%	10.92%	15.53%	16.04%	15.53%
The Bancorp Bank, National Association	10.79%	14.73%	15.15%	14.73%	12.13%	17.26%	17.77%	17.26%
"Well capitalized" institution (under federal regulations-Basel III)	5.00%	8.00%	10.00%	6.50%	5.00%	8.00%	10.00%	6.50%

As of December 31, 2021
As of December 31, 2022
The Bancorp, Inc.	10.40%	14.72%	15.13%	14.72%	9.63%	13.40%	13.87%	13.40%
The Bancorp Bank, National Association	10.98%	15.48%	15.88%	15.48%	10.73%	14.95%	15.42%	14.95%
"Well capitalized" institution (under federal regulations-Basel III)	5.00%	8.00%	10.00%	6.50%	5.00%	8.00%	10.00%	6.50%

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 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.~~2022 and in the first three quarters of 2023. Our largest funding source, prepaid and debit card deposit accounts, contractually adjusts to only a portion of increases or decreases in rates which are largely determined by such Federal Reserve actions. That pricing has generally supported the maintenance of a balance sheet for which net interest income tends to increase with increases in rates. While deposits reprice to only a portion of Federal Reserve rate changes, such changes are immediate. ~~Interest earning~~Interest-earning assets, comprised primarily of loans and securities, tend to adjust more fully to rate increases at lagged contractual pricing intervals. The majority of our loans and securities are variable rate and generally reprice monthly or quarterly, although some reprice over several years. 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. Cumulative 2022 Federal Reserve

interest rate increases resulted in contractual rates on loans generally exceeding rate floors beginning in the second quarter of 2022. ~~As these loans repriced more fully than deposits~~

We have adopted policies designed to ~~Federal Reserve rate hikes,~~manage net interest income ~~was positively impacted beginning~~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 ~~third quarter~~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, develop strategies to optimize margins and to respond to market conditions. The primary goal of ~~2022. We expect that net~~our policies is to optimize margins and manage interest ~~income will increase further in fourth quarter 2022; however, due~~rate risk, subject to ~~variables discussed in this section, the timing and extent~~overall policy constraints for prudent management of ~~such increases is difficult to predict.~~interest rate risk.

We monitor, manage and control interest rate risk through a variety of techniques, including the 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~~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~~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 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. 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~~interest-earning assets and interest bearing liabilities at September 30, ~~2022.~~2023. 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~~transaction and savings ~~deposits~~balances 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~~transaction 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 rates on the majority of commercial loans, at fair value, and IBLOC loans totaling $658.1 million and $1.10 billion at September 30, 2022, respectively, were previously at their floors, which were generally exceeded at that date. The table does not assume any prepayment of fixed-rate loans and mortgage-backed securities are scheduled 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 ~~is beyond our control as, for~~(for example, prepayments of loans and withdrawal of ~~deposits.~~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.~~

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.



	1-90		91-364		1-3		3-5		Over 5		1-90		91-364		1-3		3-5		Over 5
	Days		Days		Years		Years		Years		Days		Days		Years		Years		Years
	(Dollars in thousands)										(Dollars in thousands)
Interest earning assets:
Commercial loans, at fair value	$	704,644	$	25,194	$	15,005	$	73,197	$	—	$	213,299	$	13,539	$	16,526	$	136,239	$	—
Loans, net of deferred loan fees and costs		4,124,427		110,974		319,100		501,157		211,717		3,839,366		116,858		362,993		674,938		204,817
Investment securities		429,406		49,399		152,154		77,086		82,549		402,081		42,335		134,015		80,137		98,068
Interest earning deposits		700,175		—		—		—		—		898,533		—		—		—		—
Total interest earning assets		5,958,652		185,567		486,259		651,440		294,266		5,353,279		172,732		513,534		891,314		302,885

Interest bearing liabilities:
Transaction accounts as adjusted*		2,967,296		—		—		—		—
Transaction accounts as adjusted⁽¹⁾												3,227,522		—		—		—		—
Savings and money market		575,381		—		—		—		—		49,428		—		—		—		—
Time deposits		401,331		—		—		—		—
Securities sold under agreements to repurchase		42		—		—		—		—		42		—		—		—		—
Senior debt and subordinated debentures		13,401		—		98,958		—		—		13,401		—		95,771		—		—
Total interest bearing liabilities		3,957,451		—		98,958		—		—		3,290,393		—		95,771		—		—
Gap	$	2,001,202	$	185,567	$	387,301	$	651,440	$	294,266	$	2,062,886	$	172,732	$	417,763	$	891,314	$	302,885
Cumulative gap	$	2,001,202	$	2,186,768	$	2,574,069	$	3,225,509	$	3,519,775	$	2,062,886	$	2,235,618	$	2,653,381	$	3,544,695	$	3,847,580
Gap to assets ratio		26%		2%		5%		8%		4%		28%		2%		6%		12%		4%
Cumulative gap to assets ratio		26%		28%		33%		41%		45%		28%		30%		36%		48%		52%

*⁽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 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. Accordingly, actual results can and often do differ from projections.

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 Market Value of Portfolio Equity (“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 September 30, ~~2022, except for a slight deviation in the 200 basis point decrease scenario.~~2023. While our modeling suggests that rate increases of 100 and 200 basis points will have a positive impact on net interest income (as shown in the table below), the actual amount of such increase cannot be determined, and there can be no assurance any increase will be realized. Because the Company has emphasized variable rate instruments in its loan and investment portfolios, it tends to benefit from higher interest rate environments. As a result of the Federal Reserve rate increases in 2022 and 2023, net interest income has increased and exceeded prior period levels. Future Federal Reserve rate reductions may result in a return to lower net interest income levels.


	Net portfolio value at				Net interest income				Net portfolio value at				Net interest income
	September 30, 2022				September 30, 2022				September 30, 2023				September 30, 2023
			Percentage				Percentage				Percentage				Percentage
Rate scenario	Amount		change		Amount		change		Amount		change		Amount		change
		(Dollars in thousands)								(Dollars in thousands)

+200 basis points	$	1,415,201		5.58%	$	362,761		16.31%	$	1,158,060		7.30%	$	412,039		12.62%
+100 basis points		1,378,452		2.84%		337,250		8.13%		1,119,623		3.73%		388,932		6.30%
Flat rate		1,340,354		—		311,895		—		1,079,312		—		365,879		—
-100 basis points		1,298,657		(3.11)%		287,220		(7.91)%		1,032,247		(4.36)%		342,300		(6.44)%
-200 basis points		1,248,986		(6.82)%		262,764		(15.75)%		979,141		(9.28)%		318,403		(12.98)%

Financial Condition

General. Our total assets at September 30, ~~2022~~2023 were ~~$7.78~~$7.47 billion, of which our total loans were ~~$5.27~~$5.20 billion, and our commercial loans, at fair value, were ~~$818.0~~$379.6 million. At December 31, ~~2021,~~2022, our total assets were ~~$6.84~~$7.90 billion, of which our total loans were $3.75 billion, and our commercial loans, at fair value were $1.39 billion. The increase in assets reflected loan growth, partially offset by continuing decreases in securities. In recent periods, we limited securities purchases which would have replaced repayments or grown balances, as a result of the relatively low interest rate environment. As a result of increases in interest rates, increased purchases of securities will be considered.

~~Interest earning deposits and federal funds sold.~~ At September 30, 2022, we had a total of $700.2 million of interest earning deposits compared to $596.4 million at December 31, 2021, an increase of $103.8 million. These deposits were comprised primarily of balances

$5.49 billion, and our commercial loans, at fair value were $589.1 million. The decrease in assets reflected decreases both in SBLOC and IBLOC loan balances and in commercial loans, at fair value as that portfolio continues to run off.

Interest-earning Deposits

At September 30, 2023, we had a total of $898.5 million of interest-earning deposits compared to $864.1 million at December 31, 2022, an increase of $34.4 million. These deposits were comprised primarily of balances at the Federal Reserve. ~~The September 30, 2022 balance of $700.2 million will likely be reduced by $401.3 million of short term time deposits maturing in the fourth quarter of 2022.~~

Investment ~~portfolio.~~ Portfolio

For detailed information on the composition and maturity distribution of our investment portfolio, see “Note 55. Investment Securities” to the unaudited consolidated financial ~~statements.~~statements herein. Total investment securities decreased to ~~$790.6~~$756.6 million at September 30, ~~2022,~~2023, a decrease of ~~$163.1~~$9.4 million, or ~~17.1%~~1.2%, from December 31, ~~2021. The decrease reflected securities repayments.~~2022.

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 allowances for credit deterioration 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 ~~three~~nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, we recognized no credit-related losses on our portfolio.

Investments in ~~Federal Home Loan, Atlantic Central Bankers~~FHLB, ACBB and Federal Reserve Bank stock are recorded at cost and amounted to ~~$12.6~~$20.2 million at September 30, ~~2022~~2023 and ~~$1.7~~$12.6 million at December 31, ~~2021.~~2022. Each of these institutions require their correspondent 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 Federal Reserve Bank stock in September 2022. Additionally, in the second quarter of ~~2022.~~2023, we joined the FHLB of Des Moines, which required a $9.1 million purchase of stock. While a fixed stock amount is required by each of these institutions, the ~~Federal Home Loan Bank~~FHLB stock requirement increases or decreases with the level of borrowing activity.

At September 30, ~~2022~~2023 and December 31, ~~2021~~2022 no investment securities were encumbered, as lines of credit established for borrowings were collateralized ~~with~~by loans.

Of the six securities resulting from our securitizations all have been repaid except that from CRE-2. As of September 30, 2022, the principal balance of the security we own issued by CRE-2 was $12.6 million. Repayment is expected from the workout or disposition of commercial real estate collateral, after repayment of the one remaining senior tranche. The Company’s $12.6 million security has 50% excess credit support; thus, losses of 50% of remaining security balances would have to be incurred, prior to any loss on our security. Additionally, the commercial real estate collateral supporting the three remaining loans were re-appraised between 2020 and 2022. The updated appraised value is approximately $60.9 million, which is net of $573,000 due to the servicer. The remaining principal to be repaid on all securities is approximately $58.1 million and, as noted, the Company’s security is scheduled to be repaid prior to 50% of the outstanding securities. However, any future reappraisals could result in further decreases in collateral valuation. While available information indicates that the value of existing collateral will be adequate to repay the Company’s security, there can be no assurance that such valuations will be realized upon loan resolutions, and that deficiencies will not exceed the 50% credit support. Of the remaining three loans, the property collateral for two of the loans is expected to be liquidated through sale. The third loan was originally extended two years to June of 2022 and terms have not yet been reached for another extension, thus putting the loan in maturity default. If not extended by the special servicer, the property will be foreclosed and sold. The property was appraised at $28.4 million on September 1, 2020 with total exposure in the security of $25.0 million. A recent broker opinion of property liquidation value was $20.9 million. The existing 50% credit enhancement continues to provide repayment protection for the Bank owned tranche.

The following table shows the contractual maturity distribution and the weighted average yield of our investment portfolio ~~security~~securities as of September 30, ~~2022 (in~~2023 (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.


				After			After											After			After
	Zero			one to			five to			Over					Zero			one to			five to			Over
	to one		Average	five		Average	ten		Average	ten		Average			to one		Average	five		Average	ten		Average	ten		Average
Available-for-sale	year		yield	years		yield	years		yield	years		yield	Total		year		yield	years		yield	years		yield	years		yield	Total
U.S. Government agency securities	$	—	—	$	7,825	2.41%	$	5,197	3.06%	$	11,260	2.79%	$	24,282	$	—	—	$	9,464	2.69%	$	14,301	5.04%	$	9,262	3.90%	$	33,027
Asset-backed securities		5,668	4.37%		—	—		154,869	4.43%		180,444	4.56%		340,981		4,287	6.94%		—	—		201,639	7.21%		125,572	7.32%		331,498
Tax-exempt obligations of states and political subdivisions *		659	2.60%		2,798	2.81%		—	—		—	—		3,457
Tax-exempt obligations of states and political subdivisions⁽¹⁾																—	—		2,789	2.80%		1,190	3.83%		654	3.95%		4,633
Taxable obligations of states and political subdivisions		2,026	4.99%		38,985	3.23%		3,021	3.59%		—	—		44,032		7,546	2.84%		33,043	3.30%		1,128	4.33%		—	—		41,717
Residential mortgage-backed securities		—	—		40,767	2.47%		14,168	3.05%		89,379	2.47%		144,314		1,432	2.78%		42,872	2.67%		41,686	3.94%		74,051	3.72%		160,041
Collateralized mortgage obligation securities		—	—		364	1.84%		7,074	2.59%		37,324	2.88%		44,762		—	—		5,461	2.66%		290	2.25%		29,841	4.09%		35,592
Commercial mortgage-backed securities		18,879	2.42%		46,988	2.60%		35,559	2.51%		80,540	3.36%		181,966		10,728	2.55%		32,520	2.65%		27,409	3.53%		73,191	3.00%		143,848
Corporate debt securities		—	—		—	—		—	—		6,800	6.33%		6,800		—	—		—	—		—	—		6,280	—		6,280
Total	$	27,232		$	137,727		$	219,888		$	405,747		$	790,594	$	23,993		$	126,149		$	287,643		$	318,851		$	756,636
Weighted average yield			3.02%			2.73%			3.93%			3.66%					3.44%			2.83%			6.25%			4.94%

* ⁽¹⁾If adjusted to their taxable equivalents, yields would approximate ~~3.29%~~3.54%, 4.85%, and ~~3.56%~~5.00% for ~~zero to one year and~~ one to five years, five to ten years, and over ten years, respectively, at a ~~Federal~~federal tax rate of 21%.

56Commercial Loans, at Fair Value

~~Commercial loans, at fair value~~. Commercial loans, at fair value are comprised of non-SBA ~~CRE~~commercial real estate loans and SBA loans which had been originated for sale or securitization through first quarter 2020, and which are now being held on the balance sheet. ~~Non-SBA CRE 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,~~ on a pooled ~~basis.~~ basis and commercial real estate bridge loans are valued individually. Commercial loans, at fair value decreased to ~~$818.0~~$379.6 million at September 30, ~~2022~~2023 from ~~$1.39 billion~~$589.1 million at December 31, ~~2021,~~2022, primarily reflecting the impact of loan ~~repayments.~~repayments as this portfolio runs

off. These loans continue to be accounted for at fair value. In the third quarter of 2021 we resumed originating non-SBA ~~CRE~~commercial real estate loans, after suspending such originations in the first quarter of 2020. These originations reflect lending criteria similar to the existing loan portfolio and are primarily comprised of multi-family (apartment buildings) collateral. The new originations, which are intended to be held for investment, are accounted for at amortized cost.

Loan ~~portfolio.~~Portfolio. Total loans ~~increased~~decreased to ~~$5.27~~$5.20 billion at September 30, ~~2022~~2023 from ~~$3.75~~$5.49 billion at December 31, ~~2021.~~2022.

The following table summarizes our loan portfolio, excluding loans held at fair value, by loan category for the periods indicated (in

thousands):


	September 30,		December 31,		September 30,		December 31,
	2022		2021		2023		2022
SBL non-real estate	$	116,080	$	147,722	$	130,579	$	108,954
SBL commercial mortgage		429,865		361,171		547,107		474,496
SBL construction		26,841		27,199		19,204		30,864
Small business loans		572,786		536,092
SBLs						696,890		614,314
Direct lease financing		599,796		531,012		670,208		632,160
SBLOC / IBLOC *		2,369,106		1,929,581
Advisor financing **		168,559		115,770
SBLOC / IBLOC⁽¹⁾						1,720,513		2,332,469
Advisor financing⁽²⁾						199,442		172,468
Real estate bridge loans		1,488,119		621,702		1,848,224		1,669,031
Other loans ***		64,980		5,014
Other loans⁽³⁾						55,800		61,679
		5,263,346		3,739,171		5,191,077		5,482,121
Unamortized loan fees and costs		4,029		8,053		7,895		4,732
Total loans, including unamortized loan fees and costs	$	5,267,375	$	3,747,224	$	5,198,972	$	5,486,853


	September 30,		December 31,
	2023		2022
SBLs, including costs net of deferred fees of $8,900 and $7,327
for September 30, 2023 and December 31, 2022, respectively	$	705,790	$	621,641
SBLs included in commercial loans, at fair value		126,543		146,717
Total SBLs⁽⁴⁾	$	832,333	$	768,358

* Securities Backed Lines of Credit, or ⁽¹⁾SBLOC are collateralized by marketable securities, while ~~Insurance Backed Lines of Credit, or~~ IBLOC, are collateralized by the cash surrender value of insurance policies. At September 30, ~~2022~~2023 and December 31, ~~2021, respectively,~~2022, IBLOC loans amounted to ~~$1.10~~$712.6 million and $1.12 billion, ~~and $788.3 million.~~respectively.

** ⁽²⁾In 2020, ~~the Company~~we began originating loans to investment advisors for purposes of debt ~~refinance,~~refinancing, acquisition of another firm or internal succession. Maximum loan amounts are subject to loan-to-value (“LTV”) ratios of 70%, of the business enterprise value based on ~~third-party business appraisals,~~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⁾Includes demand deposit overdrafts reclassified as loan balances totaling ~~$1.0~~$215,000 and $2.6 million ~~and $322,000~~ at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. Estimated overdraft charge-offs and recoveries are reflected in the ~~allowance for credit losses~~ACL and ~~have been~~are immaterial.~~September 30, 2022 includes $54.2 million of balances previously included in discontinued assets including $19.5 million of residential loans with the balance comprised of commercial loans.~~

~~****~~⁽⁴⁾The ~~small business loans~~SBLs held at fair value are comprised of the government guaranteed portion of ~~SBA 7a~~7(a) Program loans at the dates ~~indicated (in thousands).~~indicated.

The following table summarizes our ~~small business loan~~SBL portfolio, including loans held at fair value, by loan category as of September 30, ~~2022~~2023 (in thousands):


	Loan principal
U.S. government guaranteed portion of SBA loans ~~(a)~~⁽¹⁾	$	~~371,002~~391,301
~~Paycheck Protection Program~~PPP loans ~~(PPP) (a)~~⁽¹⁾		~~6,627~~2,277
Commercial mortgage SBA ~~(b)~~⁽²⁾		~~223,607~~273,122
Construction SBA ~~(c)~~⁽³⁾		~~9,776~~10,993
Non-guaranteed portion of U.S. government guaranteed 7a7(a) Program loans ~~(d)~~⁽⁴⁾		~~98,742~~109,343
Non-SBA ~~small business loans~~SBLs		~~21,090~~34,592
Total principal	$	~~730,844~~821,628
Unamortized fees and costs		~~8,226~~10,705
Total ~~small business loans~~SBLs	$	~~739,070~~832,333

⁽¹⁾~~This is~~Includes the portion of SBA 7a7(a) Program loans ~~(7a)~~ 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 ~~SBA~~ 504 ~~Fixed Asset Financing program (504)~~Program, which dictates origination date ~~loan-to-value~~LTV percentages, ~~(“LTV”),~~ generally 50-60%, to which The ~~Bancorp~~ Bank ~~N. A.~~ adheres.

⁽³⁾~~Of the $9.8~~Includes $4.1 million in ~~Construction SBA loans, $8.7 million are~~ 504 Program first mortgages with an origination date LTV of 50-60% and ~~$1.1~~$6.9 million ~~are~~in SBA interim loans with an approved SBA post-construction full takeout/payoff.

⁽⁴⁾~~The $98.7 million represents~~Includes the unguaranteed portion of 7a7(a) Program loans which are generally 70% or more guaranteed by the U.S. government. 7aSBA 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 7a7(a) Program loans and 504 Program loans require the personal guaranty of all 20% or greater owners.

The following table summarizes our ~~small business loan~~SBL portfolio, excluding the government guaranteed portion of SBA 7a7(a) Program loans and PPP loans, by loan type as of September 30, ~~2022~~2023 (dollars in thousands):


	SBL commercial mortgage*		SBL construction*		SBL non-real estate		Total		% Total	SBL commercial mortgage⁽¹⁾		SBL construction⁽¹⁾		SBL non-real estate		Total		% Total
Hotels and motels	$	60,951	$	71	$	22	$	61,044	17%
Hotels (except casino hotels) and motels										$	73,598	$	71	$	18	$	73,687	17%
Full-service restaurants											24,413		5,532		1,873		31,818	7%
Funeral homes and funeral services											27,365		—		45		27,410	6%
Car washes		17,103		1,180		112		18,395	5%		19,000		—		101		19,101	4%
Full-service restaurants		12,634		2,704		1,719		17,057	5%
Lessors of nonresidential buildings		15,849		—		—		15,849	5%
Child day care services		14,374		—		1,058		15,432	4%		14,951		1,222		1,351		17,524	4%
Outpatient mental health and substance abuse centers		15,149		—		—		15,149	4%		15,489		—		118		15,607	4%
Funeral homes and funeral services		11,749		—		49		11,798	3%
Offices of lawyers		9,387		—		—		9,387	3%
Assisted living facilities for the elderly		8,694		—		—		8,694	3%
Homes for the elderly											13,032		—		73		13,105	3%
Gasoline stations with convenience stores		8,145		—		—		8,145	2%		12,448		—		152		12,600	3%
Fitness and recreational sports centers		5,685		—		2,358		8,043	2%		7,790		—		1,764		9,554	2%
Lessors of other real estate property											8,806		—		599		9,405	2%
Offices of lawyers											9,240		—		—		9,240	2%
General warehousing and storage		6,904		—		—		6,904	2%		6,629		—		—		6,629	2%
Solar electric power generation		—		—		6,856		6,856	2%
Plumbing, heating, and air-conditioning contractors		5,709		—		1,007		6,716	2%
Baked goods stores		—		—		6,118		6,118	2%
Lessors of other real estate property		5,883		—		—		5,883	2%
All other amusement and recreation industries		4,535		33		1,049		5,617	2%
Plumbing, heating, and air-conditioning companies											5,611		—		927		6,538	2%
Caterers											6,304		—		51		6,355	1%
Limited-service restaurants		900		1,959		2,329		5,188	1%		2,877		927		2,549		6,353	1%
Other miscellaneous durable goods merchant wholesalers		4,877		—		59		4,936	1%
Specialty trade contractors											4,522		—		471		4,993	1%
Lessors of residential buildings and dwellings		4,865		—		—		4,865	1%		4,847		—		—		4,847	1%
Other technical and trade schools		—		4,827		—		4,827	1%
Other spectator sports		4,745		—		—		4,745	1%
Miscellaneous durable goods merchant											4,792		—		—		4,792	1%
Packaged frozen food merchant wholesalers											4,740		—		—		4,740	1%
Technical and trade schools											4,736		—		—		4,736	1%
All other amusement and recreation											4,182		44		269		4,495	1%
Offices of dentists		2,542		654		71		3,267	1%		3,110		—		66		3,176	1%
Vocational rehabilitation services											—		3,090		—		3,090	1%
Other warehousing and storage		3,162		—		—		3,162	1%		3,082		—		—		3,082	1%
Vocational rehabilitation services		3,090		—		—		3,090	1%
Other**		68,041		1,367		22,640		92,048	27%
	$	294,973	$	12,795	$	45,447	$	353,215	100%
Other⁽²⁾											96,517		1,585		27,071		125,173	31%
Total										$	378,081	$	12,471	$	37,498	$	428,050	100%

* ⁽¹⁾Of the SBL commercial mortgage and SBL construction loans, ~~$74.4~~$106.4 million represents the total of the non-guaranteed portion of SBA 7a7(a) Program loans and non-SBA loans. The balance of those categories represents SBA 504 Program loans with 50%-60% origination date ~~loan-to-values.~~LTVs.

** ⁽²⁾Loan types of less than $3.0 million are spread over aapproximately one hundred different ~~classifications such~~business types.

The following table summarizes our SBL portfolio, excluding the government guaranteed portion of SBA 7(a) Program loans and PPP loans, by state as ~~Commercial Printing, Pet~~of September 30, 2023 (dollars in thousands):


	SBL commercial mortgage⁽¹⁾		SBL construction⁽¹⁾		SBL non-real estate		Total		% Total
California	$	78,252	$	4,306	$	3,193	$	85,751	20%
Florida		69,092		912		3,355		73,359	17%
North Carolina		38,507		927		1,875		41,309	10%
New York		24,144		1,297		3,170		28,611	7%
New Jersey		17,370		3,357		3,970		24,697	6%
Texas		18,819		—		4,435		23,254	5%
Pennsylvania		20,822		—		802		21,624	5%
Georgia		18,000		576		1,522		20,098	5%
Other States <$15 million		93,075		1,096		15,176		109,347	25%
Total	$	378,081	$	12,471	$	37,498	$	428,050	100%

⁽¹⁾Of the SBL commercial mortgage and ~~Pet Supplies Stores, Securities Brokerage, etc.~~SBL construction loans, $106.4 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.

The following table summarizes ~~our small business loan portfolio, excluding~~ the ~~government guaranteed portion of SBA 7a loans and PPP loans, by state as of September 30, 2022 (dollars in thousands):~~

SBL commercial mortgage*
SBL construction*
SBL non-real estate
Total
% Total
Florida
$
63,023
$
319
$
3,539
$
66,881
19%
California
50,443
2,704
3,991
57,138
16%
North Carolina
30,172
6,995
2,139
39,306
11%
New York
22,802
71
9,088
31,961
9%
Pennsylvania
17,737
—
2,303
20,040
6%
New Jersey
12,270
—
7,232
19,502
6%
Illinois
14,761
—
1,547
16,308
5%
Texas
12,056
—
3,125
15,181
4%
Colorado
11,418
1,636
1,190
14,244
4%
Connecticut
10,179
—
467
10,646
3%
Virginia
8,530
—
1,040
9,570
3%
Georgia
7,069
—
1,584
8,653
2%
Tennessee
8,081
—
337
8,418
2%
Ohio
6,270
—
478
6,748
2%
Michigan
3,345
—
334
3,679
1%
Other States
16,817
1,070
7,053
24,940
7%
$
294,973
$
12,795
$
45,447
$
353,215
100%

* Of the SBL commercial mortgage and SBL construction loans, $74.4 million represents the total of the non-guaranteed portion of SBA 7a loans and non-SBA loans. The balance of those categories represents SBA 504 loans with 50%-60% origination date loan-to-values.

~~The following table summarizes the 10~~ten largest loans in our ~~small business loan~~SBL portfolio, including loans held at fair value, as of September 30, ~~2022~~2023 (in thousands):


Type*Type⁽¹⁾	State	SBL commercial mortgage*mortgage
Mental health and substance abuse center	Florida	$	~~10,096~~9,964
Funeral homes and funeral services	Maine		9,008
Hotel	Florida		~~8,687~~8,454
~~Lawyer’s office~~Offices of lawyers	California		~~8,461~~8,215
Hotel	North Carolina		6,722
General warehousing and storage	Pennsylvania		~~6,904~~6,629
Hotel	Florida		5,781
Hotel	New York		~~5,883~~5,724
Hotel	North Carolina		~~5,738~~5,635
Mental health and substance abuse center	~~Connecticut~~		~~5,053~~
~~Assisted living facility~~	~~Florida~~		~~4,978~~
~~Lessors of nonresidential buildings~~	~~North Carolina~~		~~4,940~~
~~Lessors of residential buildings and dwellings~~	New Jersey		~~4,865~~5,150
Total		$	~~65,605~~71,282

* All the top 10 loans are 504 SBA loans with 50%-60% origination date loan-to-value. ⁽¹⁾The ~~top 10 loan~~ 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, ~~are~~were as follows ~~including LTV at origination~~ as of September 30, ~~2022~~2023 (dollars in thousands):


	# Loans	Balance		Weighted average origination date LTV		Weighted average interest rate		# Loans	Balance		Weighted average origination date LTV		Weighted average interest rate
Real estate bridge loans (multi-family apartment loans recorded at book value)*	115	$	1,488,119		73%		6.18%
Real estate bridge loans (multi-family apartment loans recorded at book value)⁽¹⁾								139	$	1,848,224		71%		9.30%

Non-SBA commercial real estate loans, at fair value:
Multi-family (apartment bridge loans)*	35	$	564,482		76%		5.82%
Multi-family (apartment bridge loans)⁽¹⁾								11	$	206,604		76%		8.80%
Hospitality (hotels and lodging)	5		37,768		65%		6.56%	2		27,392		65%		9.80%
Retail	4		51,827		71%		5.56%	2		12,282		72%		7.30%
Other	5		13,886		73%		5.07%	2		9,486		73%		5.00%
	49		667,963		75%		5.83%	17		255,764		75%		8.69%
Fair value adjustment			(9,837)							(2,704)
Total non-SBA commercial real estate loans, at fair value			658,126							253,060
Total commercial real estate loans		$	2,146,245		74%		6.10%		$	2,101,284		72%		9.24%

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

The following table summarizes our commercial real estate loans, primarily real estate bridge loans and excluding SBA loans, by state as of September 30, 2023 (dollars in thousands):


	Balance		Origination date LTV
Texas	$	779,935		73%
Georgia		243,097		69%
Florida		204,798		70%
Tennessee		87,846		70%
Michigan		82,493		71%
Ohio		72,356		67%
Indiana		66,432		72%
Other States each <$65 million		564,327		73%
Total	$	2,101,284		72%

The following table summarizes our ~~commercial real estate loans, primarily bridge loans excluding SBA loans, by state as of September 30, 2022 (dollars in thousands):~~

Balance
Origination date LTV
Texas
$
814,502
74%
Georgia
219,574
72%
Florida
187,465
72%
Ohio
99,784
71%
Tennessee
92,423
70%
Alabama
73,034
74%
Michigan
72,815
74%
Other States each <$50 million
586,648
74%
Total
$
2,146,245
74%

~~The following table summarizes our 15~~fifteen largest commercial real estate loans, primarily real estate bridge loans and excluding SBA loans, as of September 30, ~~2022~~2023 (dollars in thousands). All of these loans are multi-family loans.


	Balance		Origination date LTV		Balance		Origination date LTV
Texas	$	41,040		75%
Texas		39,345		79%	$	45,520		75%
Texas		38,625		72%		44,159		72%
Tennessee		37,380		72%		40,000		72%
Texas		37,283		75%		39,400		75%
Texas		37,259		80%		39,345		79%
Texas						37,259		80%
Michigan		35,941		71%		36,733		62%
Florida		32,441		72%		34,850		72%
Indiana						33,588		76%
Texas						32,812		62%
Texas		31,244		67%		32,616		67%
Michigan		30,700		79%		32,500		79%
Oklahoma						31,153		78%
Tennessee		30,361		62%		30,361		71%
Missouri		30,000		72%
Texas		29,895		62%
Texas		28,500		77%
Texas		27,481		77%
15 Largest loans	$	507,495		73%
Georgia						29,290		69%
15 largest commercial real estate loans					$	539,586		73%

The following table summarizes our institutional banking portfolio by type as of September 30, ~~2022~~2023 (dollars in thousands):


Type	Principal		% of total	Principal		% of total
Securities backed lines of credit (SBLOC)	$	1,265,017	50%
Insurance backed lines of credit (IBLOC)		1,104,089	43%
SBLOC				$	1,007,922	52%
IBLOC					712,591	37%
Advisor financing		168,559	7%		199,442	11%
Total	$	2,537,665	100%	$	1,919,955	100%

For SBLOC, we generally lend up to 50% of the value of equities and 80% for investment grade securities. While the value of equities ~~have~~has fallen in excess of 30% in recent years, the reduction in collateral value of brokerage accounts collateralizing SBLOCs generally has been ~~less, for two reasons. First,~~less. This is because many collateral accounts are “balanced” and accordingly, have a component of debt securities, which have either not decreased in value as much as equities, or in some cases may have increased in value. ~~Secondly,~~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.

The following table summarizes our ~~top 10~~ten largest SBLOC loans as of September 30, ~~2022~~2023 (dollars in thousands):

Principal amount
% Principal to collateral
$
20,288
58%
18,000
42%
17,181
72%
14,428
38%
9,465
33%
9,376
66%
9,034
48%
8,529
71%
7,906
75%
6,373
32%
Total and weighted average
$
120,580
54%


	Principal amount		% Principal to collateral
	$	12,232		25%
		9,465		39%
		9,035		44%
		8,715		62%
		8,530		95%
		8,086		77%
		7,906		71%
		7,734		28%
		7,346		75%
		6,827		34%
Total and weighted average	$	85,876		54%

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, ~~eight~~fifteen insurance companies have been approved and, as of ~~August 2, 2022,~~September 30, 2023, all were rated A- or better by AM ~~BEST.~~Best.

The following table summarizes our direct lease financing portfolio*portfolio by type as of September 30, ~~2022~~2023 (dollars in thousands):


	Principal balance		% Total		Principal balance⁽¹⁾		% Total
Construction	$	110,215		18%	$	118,347		18%
Government agencies and public institutions**		90,158		15%
Waste management and remediation services		67,897		11%		91,255		14%
Government agencies and public institutions⁽²⁾						88,547		13%
Real estate and rental and leasing		59,875		10%		58,460		9%
Manufacturing						41,002		6%
Health care and social assistance						33,960		5%
Retail trade		48,102		8%		33,917		5%
Health care and social assistance		31,585		5%
Transportation and warehousing		31,259		5%
Finance and insurance		27,439		5%		31,004		5%
Professional, scientific, and technical services		19,738		3%		26,648		4%
Manufacturing		16,985		3%
Wholesale trade		15,879		3%		16,069		2%
Educational services		7,985		1%
Mining, Quarrying, and Oil and Gas Extractions for Oil and Gas Operations		3,930		1%
Transportation and warehousing						11,168		2%
Mining, quarrying, and oil and gas extraction						10,712		2%
Water supply and irrigation systems						8,721		1%
Other		68,749		12%		100,398		14%
Total	$	599,796		100%	$	670,208		100%

* ⁽¹⁾Of the total ~~$599.8~~$670.2 million of direct lease financing, ~~$519.6~~$588.2 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 September 30, ~~2022~~2023 (dollars in thousands):


	Principal balance		% Total		Principal balance		% Total
Florida	$	96,749		16%	$	99,592		15%
Utah		55,543		9%		66,068		10%
California		52,436		9%		60,145		9%
Pennsylvania						41,156		6%
New Jersey		41,885		7%		38,488		6%
Pennsylvania		39,422		7%
New York		29,622		5%		34,802		5%
North Carolina		27,355		5%		33,841		5%
Texas						31,400		5%
Maryland		26,086		4%		30,563		5%
Texas		25,650		4%
Connecticut		20,274		3%		28,398		4%
Idaho						16,559		2%
Washington		16,221		3%		15,439		2%
Georgia		14,869		2%		14,202		2%
Idaho		13,610		2%
Illinois		11,419		2%
Ohio						12,683		2%
Alabama		10,485		2%		11,165		2%
Other states and non-classified		118,170		20%
Other States						135,707		20%
Total	$	599,796		100%	$	670,208		100%

The following table presents loan categories by maturity for the period 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. ~~Please see~~See “Asset and Liability Management” ~~which addresses~~in this MD&A for a discussion of interest rate risk.


		September 30, 2022										September 30, 2023
		Within		One to five		After five but						Within		One to five		After five but
		one year		years		within 15 years		After 15 years		Total		one year		years		within 15 years		After 15 years		Total
		(Dollars in thousands)										(Dollars in thousands)
SBL non-real estate	$	16,957	$	42,080	$	119,875	$	1,376	$	180,288	$	4,785	$	30,919	$	136,060	$	1,146	$	172,910
SBL commercial mortgage		16,428		6,373		121,692		387,144		531,637		15,930		18,120		161,030		444,974		640,054
SBL construction		1,430		—		—		25,715		27,145		7,051		—		—		12,318		19,369
Leasing		86,816		487,876		25,104		—		599,796		124,748		522,862		22,598		—		670,208
SBLOC/IBLOC		2,369,106		—		—		—		2,369,106		1,720,513		—		—		—		1,720,513
Advisor financing		—		19,561		148,998		—		168,559		87		51,997		147,358		—		199,442
Real estate bridge lending		—		1,488,119		—		—		1,488,119		—		1,848,224		—		—		1,848,224
Other loans		38,539		4,041		5,074		14,985		62,639		26,434		4,148		7,438		16,775		54,795
Loans at fair value excluding SBL		604,670		51,762		—		1,694		658,126		234,486		18,574		—		—		253,060
	$	3,133,946	$	2,099,812	$	420,743	$	430,914	$	6,085,415	$	2,134,034	$	2,494,844	$	474,484	$	475,213	$	5,578,575

Loan maturities after one year with:
Fixed rates
SBL non-real estate			$	6,627	$	—	$	—	$	6,627			$	2,277	$	—	$	—	$	2,277
Leasing				487,876		25,104		—		512,980				522,862		22,598		—		545,460
Advisor financing				19,561		148,998		—		168,559				51,997		147,358		—		199,355
Other loans				1,311		2,818		14,985		19,114				3,619		470		16,775		20,864
Loans at fair value excluding SBL				51,762		—		—		51,762				18,574		—		—		18,574
Total loans at fixed rates				567,137		176,920		14,985		759,042			$	599,329	$	170,426	$	16,775	$	786,530

Variable rates
SBL non-real estate				35,453		119,875		1,376		156,704			$	28,642	$	136,060	$	1,146	$	165,848
SBL commercial mortgage				6,373		121,692		387,144		515,209				18,120		161,030		444,974		624,124
SBL construction				—		—		25,715		25,715				—		—		12,318		12,318
Real estate bridge lending				1,488,119		—		—		1,488,119				1,848,224		—		—		1,848,224
Other loans				2,730		2,256		—		4,986				529		6,968		—		7,497
Loans at fair value excluding SBL				—		—		1,694		1,694
Total at variable rates				1,532,675		243,823		415,929		2,192,427			$	1,895,515	$	304,058	$	458,438	$	2,658,011

Total			$	2,099,812	$	420,743	$	430,914	$	2,951,469			$	2,494,844	$	474,484	$	475,213	$	3,444,541

Allowance for ~~credit losses.~~Credit Losses

We review the adequacy of our ~~allowance for credit losses~~ACL on at least a quarterly basis to determine a provision for credit losses to maintain our ~~allowance~~ACL at a level we believe is appropriate to recognize current expected credit losses. Our Chief Credit Officer oversees the loan review department, which measures the adequacy of the ~~allowance for credit losses~~ACL independently of loan production officers. For detailed information on the ~~allowance for credit loss~~ACL methodology, ~~please~~ see “Note 66. Loans” to the unaudited consolidated financial ~~statements.~~

The Company performed a strategic evaluation of its businesses in the third quarter of 2014 and decided to discontinue its Philadelphia commercial lending operations to focus on its specialty finance lending. The Company has since disposed of the vast majority of related loans and other real estate owned. statements hereinWhile in the process of disposition, financial results of the commercial lending operations were presented as separate from continuing operations on the consolidated statements of operations and assets of the commercial lending operations to be disposed of were presented as assets held-for-sale on the consolidated balance sheets. As disposition efforts had concluded, discontinued loans of $61.6 million were reclassified to loans held for investment in the first quarter of 2022. Accordingly, these loans will be accounted for as such, and included in related tables. On the December 31, 2021 consolidated balance sheet, these discontinued loans were reclassified as loans held for sale in continuing operations and included within “Commercial loans, at fair value”. Discontinued other real estate owned of $17.3 million which constituted the remainder of discontinued assets was reclassified to the other real estate owned caption on the balance sheet. As noted above, in the first quarter of 2022 the loans previously in discontinued operations were reclassified to held for investment. In the second quarter of 2022, 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. The $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 allowance for credit losses and $2.2 million increased the allowance for loan commitments recorded in other liabilities. These reclassification entries were made retroactive to the first quarter of 2022 and are reflected in year to date 2022 results.

At September 30, ~~2022,~~2023, the ~~allowance for credit losses~~ACL amounted to ~~$19.7~~$24.1 million, which represented a ~~$1.9~~$1.8 million increase compared to the ~~$17.8~~$22.4 million ACL at December 31, ~~2021. In addition to the increase resulting from the reclassification of discontinued loans noted above, the~~2022. The increase reflected the impact of ~~loan growth on the CECL model which was offset by allowance reductions~~higher net charge-offs, as ~~described in~~

~~“Provision for Credit Losses”. Troubled debt restructured~~total loans ~~are individually considered by comparing collateral values with principal~~ outstanding and establishing specific reserves within the allowance. At September 30, 2022, there were 11 troubled debt restructured loans with a balance of $5.3 million which had specific reserves of $447,000. These reserves related primarily to the non-guaranteed portion of SBA loans for start-up businesses.decreased.

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 September 30, ~~2022,~~2023, in excess of 50% of the total ~~continuing~~ loan portfolio was reviewed by the loan review department or, for ~~small business loans,~~SBLs, rated internally by that department. In addition to the review of all loans classified ~~loans,~~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:

~~Securities Backed Lines of Credit (SBLOC)~~SBLOC – The targeted review threshold ~~for 2022~~ is 40%, including a sample focusing on the largest 25% of SBLOCs by commitment. A random sample of at least twenty loans will be reviewed each quarter. At September 30, ~~2022,~~2023, approximately ~~48%~~45% of the SBLOC portfolio had been reviewed.

~~Insurance Backed Lines of Credit (IBLOC)~~IBLOC – The targeted review threshold ~~for 2022~~ is 40%, including a sample focusing on the largest 25% of IBLOCs by commitment. A random sample of at least twenty loans will be reviewed each quarter. At September 30, ~~2022,~~2023, approximately ~~47%~~51% of the IBLOC portfolio had been reviewed.

Advisor Financing – The targeted review threshold ~~for 2022~~ is 50%. At September 30, ~~2022,~~2023, approximately ~~87%~~100% of the advisor financing portfolio had been reviewed. The loan balance review threshold is $1.0 million.

~~Small Business Loans~~

SBLs – The targeted review threshold ~~for 2022~~ is 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 is $1.5 million and additionally includes any classified loans. At September 30, ~~2022,~~2023, approximately ~~71%~~72% of the non-government guaranteed SBL loan portfolio had been reviewed.

Direct Lease Financing – The targeted review threshold ~~for 2022~~ is 35%. At September 30, ~~2022,~~2023, approximately 42% of the leasing portfolio had been reviewed. The loan balance review threshold is $1.5 million.

Commercial Real Estate Bridge Loans, at fair value and Commercial Real Estate Bridge Loans, at amortized cost ~~(floating~~(floating rate, excluding SBA, which are included in ~~Small Business Loans~~SBLs above) – The targeted review threshold ~~for 2022~~ is 60%. Floating rate loans will be reviewed initially within 90 days of funding and will be monitored on an ongoing basis as to payment status. Subsequent reviews will be performed for relationships over $10.0 million. At September 30, ~~2022,~~2023, approximately 100% of the ~~non-SBA CRE~~ 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~~(fixed rate, excluding SBA, which are included in ~~Small Business Loans~~SBLs above) – The targeted review threshold ~~for 2022~~ is 100%. At September 30, ~~2022,~~2023, approximately 100% of the ~~non-SBA CRE~~ fixed rate, non-SBA commercial real estate loan portfolio had been reviewed.

~~Specialty Lending~~ – Specialty Lending, defined as commercial loans unique in nature that do not fit into other established categories, will have a review coverage threshold of 100% for non-CRA loans. At September 30, 2022, approximately 100% of the non-CRA loans had been reviewed.

Home Equity Lines of Credit or HELOC – Due to the small number and outstanding balances of HELOCs only the largest loans will be subject to review. The remaining loans are monitored and, if necessary, adversely classified under the Uniform Retail Credit Classification and Account Management Policy. At September 30, 2022, approximately 71% of the HELOC portfolio had been reviewed.

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

The following tables present delinquencies by type of loan as of the dates specified (in thousands):



	September 30, 2022														September 30, 2023
	30-59 Days		60-89 Days		90+ Days				Total				Total		30-59 Days		60-89 Days		90+ Days				Total				Total
	past due		past due		still accruing		Non-accrual		past due		Current		loans		past due		past due		still accruing		Non-accrual		past due		Current		loans
SBL non-real estate	$	1,715	$	1,246	$	370	$	1,077	$	4,408	$	111,672	$	116,080	$	186	$	389	$	358	$	1,256	$	2,189	$	128,390	$	130,579
SBL commercial mortgage		3,252		6		—		1,423		4,681		425,184		429,865		—		1		—		2,945		2,946		544,161		547,107
SBL construction		—		—		—		710		710		26,131		26,841		—		—		—		3,385		3,385		15,819		19,204
Direct lease financing		1,799		1,392		49		—		3,240		596,556		599,796		3,021		1,672		207		3,351		8,251		661,957		670,208
SBLOC / IBLOC		3,175		227		—		—		3,402		2,365,704		2,369,106		11,947		2,691		75		475		15,188		1,705,325		1,720,513
Advisor financing		—		—		—		—		—		168,559		168,559		—		—		—		—		—		199,442		199,442
Real estate bridge loans		—		—		—		—		—		1,488,119		1,488,119		—		—		—		—		—		1,848,224		1,848,224
Other loans		473		181		3,996		650		5,300		59,680		64,980		302		40		37		3,688		4,067		51,733		55,800
Unamortized loan fees and costs		—		—		—		—		—		4,029		4,029		—		—		—		—		—		7,895		7,895
	$	10,414	$	3,052	$	4,415	$	3,860	$	21,741	$	5,245,634	$	5,267,375	$	15,456	$	4,793	$	677	$	15,100	$	36,026	$	5,162,946	$	5,198,972



	December 31, 2021														December 31, 2022
	30-59 Days		60-89 Days		90+ Days				Total				Total		30-59 Days		60-89 Days		90+ Days				Total				Total
	past due		past due		still accruing		Non-accrual		past due		Current		loans		past due		past due		still accruing		Non-accrual		past due		Current		loans
SBL non-real estate	$	1,375	$	3,138	$	441	$	1,313	$	6,267	$	141,455	$	147,722	$	1,312	$	543	$	346	$	1,249	$	3,450	$	105,504	$	108,954
SBL commercial mortgage		—		220		—		812		1,032		360,139		361,171		1,853		5		297		1,423		3,578		470,918		474,496
SBL construction		—		—		—		710		710		26,489		27,199		—		—		—		3,386		3,386		27,478		30,864
Direct lease financing		1,833		692		20		254		2,799		528,213		531,012		4,035		2,053		539		3,550		10,177		621,983		632,160
SBLOC / IBLOC		5,985		289		—		—		6,274		1,923,307		1,929,581		14,782		343		2,869		—		17,994		2,314,475		2,332,469
Advisor financing		—		—		—		—		—		115,770		115,770		—		—		—		—		—		172,468		172,468
Real estate bridge loans		—		—		—		—		—		621,702		621,702		—		—		—		—		—		1,669,031		1,669,031
Other loans		—		—		—		72		72		4,942		5,014		330		90		3,724		748		4,892		56,787		61,679
Unamortized loan fees and costs		—		—		—		—		—		8,053		8,053		—		—		—		—		—		4,732		4,732
	$	9,193	$	4,339	$	461	$	3,161	$	17,154	$	3,730,070	$	3,747,224	$	22,312	$	3,034	$	7,775	$	10,356	$	43,477	$	5,443,376	$	5,486,853

Although we consider our ~~allowance for credit losses~~ACL to be adequate based on information currently available, future additions to the ~~allowance~~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.

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

For the nine months ended
For the year ended
or as of September 30,
or as of December 31,
2022
2021
2021
Ratio of:
Allowance for credit losses to total loans
0.37%
0.52%
0.48%
Allowance for credit losses to non-performing loans *
237.93%
210.54%
491.61%
Non-performing loans to total loans*
0.16%
0.24%
0.10%
Non-performing assets to total assets *
0.35%
0.40%
0.33%
Net charge-offs to average loans
0.02%
0.04%
0.03%
* Includes loans 90 days past due still accruing interest.


	For the nine months ended		For the year ended
	or as of September 30,		or as of December 31,
	2023	2022	2022
Ratio of:
ACL to total loans	0.46%	0.37%	0.41%
ACL to non-performing loans⁽¹⁾	153.04%	237.93%	123.40%
Non-performing loans to total loans⁽¹⁾	0.30%	0.16%	0.33%
Non-performing assets to total assets⁽¹⁾	0.46%	0.35%	0.50%
Net charge-offs to average loans	0.05%	0.02%	0.03%

⁽¹⁾Includes loans 90 days past due still accruing interest.

The ratio of the ~~allowance for credit losses~~ACL to total loans ~~decreased~~increased to ~~0.37%~~0.46% as of September 30, ~~2022~~2023 from ~~0.52%~~0.37% at September 30, ~~2021.~~2022. The ~~reduction~~increase resulted from ~~an increase~~a decrease in total loans ~~which was proportionately greater than~~while the ACL increased. The increase in the ~~allowance. Continuing growth~~ACL reflected $970,000 of increased reserves on specific distressed credits, in ~~SBLOC, IBLOC and REBL, which have allowance allocations lower than the overall percentage of allowance for credit losses~~addition to ~~total loans, due to the nature of the collateral, has generally reduced that percentage. The reduction also reflected~~ the impact of ~~a downward~~higher net charge-offs and higher qualitative factor adjustment in our CECL methodology in the second quarter of 2022. The downward adjustment resulted from a greater proportion of government guaranteed balances in applicable small business loan pools, which are segregated on the basis of similarcomponents related to increased risk ~~characteristics (see Note 6~~levels for economic factors and for collateral risks related to leasing. See “Note 6. Loans” to the unaudited consolidated financial statements). These decreases in the allowance were partially offset by an increase of $1.3 million resulting from the reclassification of loans from discontinued operations (see Note 2 to the consolidated financial statements). statements herein.

The ratio of the ~~allowance for credit losses~~ACL to non-performing loans ~~increased~~decreased to 153.04% at September 30, 2023, from 237.93% at September 30, 2022, ~~from 210.54% at September 30, 2021,~~ primarily as a result of the increase in ~~the allowance~~non-performing loans which proportionately exceeded the increase in the ACL. As a result of the increase in non-performing ~~loans. The~~loans, the ratio of non-performing loans to total loans ~~decreased~~also increased to 0.30% at September 30, 2023 from 0.16% ~~from 0.24% as loan growth between those dates proportionately exceeded the increase in non-performing loans.~~ at September 30, 2022.

The ratio of non-performing assets to total assets ~~decreased~~increased to 0.46% at September 30, 2023 from 0.35% at September 30, 2022, ~~from 0.40% at September 30, 2021 as the increase in assets,~~again reflecting ~~the aforementioned loan growth between those dates, was proportionately greater than~~ the increase in non-performing ~~assets. Net~~loans.

The ratio of net charge-offs to average loans ~~decreased to~~was 0.05% for the nine months ended September 30, 2023 and 0.02% for the nine months ended September 30, ~~2022 compared to 0.04% for the nine months ended September 30, 2021, reflecting slightly lower~~2022. While net charge-offs ~~and significantly~~ increased ~~loans.~~between those periods, increases in average loans partially offset the impact of such increases.

Net ~~charge-offs.~~ Charge-offs

Net charge-offs were ~~$1.0~~$2.6 million for the nine months ended September 30, ~~2022, a decrease~~2023, an increase of ~~$107,000~~$1.6 million from net charge-offs of ~~$1.1~~$1.0 million during the ~~comparable period of 2021.~~nine months ended September 30, 2022. Charge-offs in both periods resulted primarily from non-real estate SBL and leasing charge-offs. SBL charge-offs ~~result~~resulted primarily from the non-government guaranteed portion of SBA loans.

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


	September 30, 2022																September 30, 2023
	SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Real estate bridge loans		Other loans		SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Real estate bridge loans		Other loans
Charge-offs	$	861	$	—	$	—	$	312	$	—	$	—	$	—	$	—	$	871	$	—	$	—	$	2,804	$	—	$	—	$	—	$	3
Recoveries		(57)		—		—		(108)		—		—		—		—		(446)		(75)		—		(220)		—		—		—		(299)
Net charge-offs	$	804	$	—	$	—	$	204	$	—	$	—	$	—	$	—	$	425	$	(75)	$	—	$	2,584	$	—	$	—	$	—	$	(296)

Average loan balance	$	124,761	$	400,454	$	28,129	$	563,128	$	2,160,044	$	146,506	$	1,005,043	$	48,651	$	120,845	$	518,304	$	28,264	$	660,022	$	1,885,857	$	187,414	$	1,808,924	$	57,218
Ratio of net charge-offs during the period to average loans during the period		0.64%		—		—		0.04%		—		—		—		—		0.35%		(0.01)%		—		0.39%		—		—		—		(0.51)%


	September 30, 2021																September 30, 2022
	SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Real estate bridge loans		Other loans		SBL non-real estate		SBL commercial mortgage		SBL construction		Direct lease financing		SBLOC / IBLOC		Advisor financing		Real estate bridge loans		Other loans
Charge-offs	$	896	$	23	$	—	$	248	$	15	$	—	$	—	$	10	$	861	$	—	$	—	$	312	$	—	$	—	$	—	$	—
Recoveries		(18)		(9)		—		(50)		—		—		—		—		(57)		—		—		(108)		—		—		—		—
Net charge-offs	$	878	$	14	$	—	$	198	$	15	$	—	$	—	$	10	$	804	$	—	$	—	$	204	$	—	$	—	$	—	$	—

Average loan balance	$	213,582	$	334,045	$	21,695	$	488,125	$	1,692,305	$	64,713	$	—	$	5,672	$	124,761	$	400,454	$	28,129	$	563,128	$	2,160,044	$	146,506	$	1,005,043	$	48,651
Ratio of net charge-offs during the period to average loans during the period		0.41%		—		—		0.04%		—		—		—		—		0.64%		—		—		0.04%		—		—		—		—

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 7a loans and leases. The charge-offs have resulted from individual borrower or business circumstances as opposed to overall trends or other factors.

Non-accrual Loans, Loans 90 Days Delinquent and Still Accruing, ~~Other Real Estate Owned~~OREO, Modified Loans and Troubled Debt Restructurings.

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. Troubled debt restructurings are loans with terms that have been renegotiated to provide a reduction or deferral of interest or principal, because of a weakening in the financial positions of the borrowers. We had ~~$18.9~~$18.8 million of ~~other real estate owned (“OREO”)~~OREO at September 30, ~~2022~~2023 and ~~$18.9~~$21.2 million of OREO at December 31, ~~2021.~~2022. The following tables summarize our non-performing loans, OREO, and loans past due 90 days or more still accruing interest.



	September 30,		December 31,		September 30,		December 31,
	2022		2021		2023		2022
	(Dollars in thousands)				(Dollars in thousands)
Non-accrual loans
SBL non-real estate	$	1,077	$	1,313	$	1,256	$	1,249
SBL commercial mortgage		1,423		812		2,945		1,423
SBL construction		710		710		3,385		3,386
Direct leasing		—		254		3,351		3,550
Other loans		592		—
IBLOC						475		—
Legacy commercial real estate and Other loans						3,688		692
Consumer - home equity		58		72		—		56
Total non-accrual loans		3,860		3,161		15,100		10,356

Loans past due 90 days or more and still accruing		4,415		461		677		7,775
Total non-performing loans		8,275		3,622		15,777		18,131
Other real estate owned		18,873		18,873
OREO						18,756		21,210
Total non-performing assets	$	27,148	$	22,495	$	34,533	$	39,341

~~Loans that were modified as of September 30, 2022 and December 31, 2021 and considered troubled debt restructurings are as follows~~

~~dollars in thousands):~~

September 30, 2022
December 31, 2021
Number
Pre-modification recorded investment
Post-modification recorded investment
Number
Pre-modification recorded investment
Post-modification recorded investment
SBL non-real estate
8
$
657
$
657
9
$
1,231
$
1,231
SBL commercial mortgage
1
834
834
—
—
—
Other loans
1
3,552
3,552
—
—
—
Consumer - home equity
1
241
241
1
248
248
Total(1)
11
$
5,284
$
5,284
10
$
1,479
$
1,479

⁽¹⁾~~Troubled debt restructurings include non-accrual loans of $1.2 million and $656,000 at September 30, 2022 and December 31, 2021, respectively.~~

~~The balances below provide information as~~Effective January 1, 2023 loan modifications to ~~how the~~borrowers experiencing financial difficulty are required to be disclosed by type of modification and by type of loan. Prior accounting guidance classified loans which were modified as troubled debt restructurings only if the modification reflected a concession from the lender in the form of a below market interest rate or other concession in addition to borrower financial difficulty. Under the new guidance, loans atwith modifications will be reported whether a concession is made or not. Loans previously classified as troubled debt restructurings will continue to be reported in “Note 6. Loans“ to the unaudited consolidated financial statements herein. Modifications made after January 1, 2023 will be reported under the new loan modification guidance. As of September 30, ~~2022 and December 31, 2021 (in thousands):~~

September 30, 2022
December 31, 2021
Adjusted interest rate
Extended maturity
Combined rate and maturity
Adjusted interest rate
Extended maturity
Combined rate and maturity
SBL non-real estate
$
—
$
—
$
657
$
—
$
—
$
1,231
SBL commercial mortgage
—
—
834
—
—
—
Other loans
—
—
3,552
—
—
—
Consumer - home equity
—
—
241
—
—
248
Total⁽¹⁾
$
—
$
—
$
5,284
$
—
$
—
$
1,479

⁽¹⁾~~Troubled debt restructurings include non-accrual loans~~2023, there was one modified loan reportable under the new guidance, with a balance of ~~$1.2 million and $656,000 at September 30, 2022 and December 31, 2021, respectively.~~

~~The tables above do not include loans~~$156,000, which ~~are reported at fair value. A $30.0 million credit, collateralized by~~had a ~~commercial retail property with multiple tenants, is included~~$2,200 reduction in commercial loans, at fair value. The underlying collateral consists of a multi-tenant shopping center and the loan value had been previously written down as a result of a decreased occupancy rate. By December 31, 2020 the center had been substantially all leased and previous write-downs had been reversed. On March 13, 2019, we renewed this loanmonthly payment for four years and reduced the interest rate to the following: LIBOR plus 2% in year one, increasing 0.5% each year until the fourth year when the rate will be LIBOR plus 3.5% which will also be the rate for a one year extension, if exercised. The loan is performing in accordance with those restructured terms.6 months.

We had no commitments to extend additional credit to loans classified as either modified or troubled debt restructurings as of September 30, ~~2022~~2023 or December 31, ~~2021.~~2022.

~~The following table summarizes loans that were restructured within the 12 months ended September 30, 2022 that have subsequently defaulted (in thousands):~~

September 30, 2022
Number
Pre-modification recorded investment
SBL non-real estate
1
$
334
Total
1
$
334

6665

The following table provides information about credit deteriorated loans at September 30, ~~2022~~2023 and December 31, ~~2021 (dollars in~~2022 (in thousands):



	September 30, 2022										September 30, 2023
	Recorded ‎investment		Unpaid ‎principal ‎balance		Related ‎allowance		Average ‎recorded ‎investment		Interest ‎income ‎recognized		Recorded ‎investment		Unpaid ‎principal ‎balance		Related ‎ACL		Average ‎recorded ‎investment		Interest ‎income ‎recognized
Without an allowance recorded
Without an ACL recorded
SBL non-real estate	$	357	$	3,526	$	—	$	385	$	7	$	419	$	1,895	$	—	$	344	$	—
SBL commercial mortgage		—		—		—		56		—		2,034		2,034		—		899		—
Direct lease financing		—		—		—		66		—		115		285		—		55		—
Other loans		3,552		3,552		—		1,184		113
Legacy commercial real estate												—		—		—		2,664		—
Consumer - home equity		298		298		—		309		7		231		231		—		262		7
With an allowance recorded
With an ACL recorded
SBL non-real estate		990		990		(594)		1,303		6		918		918		(566)		915		2
SBL commercial mortgage		1,423		1,423		(222)		1,006		—		911		911		(419)		1,732		—
SBL construction		710		710		(34)		710		—		3,385		3,385		(44)		3,385		—
Other loans		592		592		(13)		2,974		—
Direct lease financing												3,236		3,236		(774)		2,612		—
IBLOC												475		475		(17)		119		—
Legacy commercial real estate and Other loans												3,688		3,688		(11)		1,336		—
Total
SBL non-real estate		1,347		4,516		(594)		1,688		13		1,337		2,813		(566)		1,259		2
SBL commercial mortgage		1,423		1,423		(222)		1,062		—		2,945		2,945		(419)		2,631		—
SBL construction		710		710		(34)		710		—		3,385		3,385		(44)		3,385		—
Direct lease financing		—		—		—		66		—		3,351		3,521		(774)		2,667		—
Other loans		4,144		4,144		(13)		4,158		113
IBLOC												475		475		(17)		119		—
Legacy commercial real estate and Other loans												3,688		3,688		(11)		4,000		—
Consumer - home equity		298		298		—		309		7		231		231		—		262		7
	$	7,922	$	11,091	$	(863)	$	7,993	$	133	$	15,412	$	17,058	$	(1,831)	$	14,323	$	9



	December 31, 2021										December 31, 2022
	Recorded ‎investment		Unpaid ‎principal ‎balance		Related ‎allowance		Average ‎recorded ‎investment		Interest ‎income ‎recognized		Recorded ‎investment		Unpaid ‎principal ‎balance		Related ‎ACL		Average ‎recorded ‎investment		Interest ‎income ‎recognized
Without an allowance recorded
Without an ACL recorded
SBL non-real estate	$	409	$	3,414	$	—	$	412	$	5	$	400	$	2,762	$	—	$	388	$	—
SBL commercial mortgage		223		246		—		1,717		—		—		—		—		45		—
Direct lease financing		254		254		—		430		—		—		—		—		52		—
Legacy commercial real estate												3,552		3,552		—		1,421		150
Consumer - home equity		320		320		—		458		8		295		295		—		306		9
With an allowance recorded
With an ACL recorded
SBL non-real estate		1,478		1,478		(829)		2,267		13		974		974		(525)		1,237		7
SBL commercial mortgage		589		589		(115)		2,634		—		1,423		1,423		(441)		1,090		—
SBL construction		710		710		(34)		711		—		3,386		3,386		(153)		1,245		—
Direct lease financing		—		—		—		132		—		3,550		3,550		(933)		710		—
Consumer - other		—		—		—		5		—
Other loans												692		692		(15)		1,923		—
Total
SBL non-real estate		1,887		4,892		(829)		2,679		18		1,374		3,736		(525)		1,625		7
SBL commercial mortgage		812		835		(115)		4,351		—		1,423		1,423		(441)		1,135		—
SBL construction		710		710		(34)		711		—		3,386		3,386		(153)		1,245		—
Direct lease financing		254		254		—		562		—		3,550		3,550		(933)		762		—
Consumer - other		—		—		—		5		—
Legacy commercial real estate and Other loans												4,244		4,244		(15)		3,344		150
Consumer - home equity		320		320		—		458		8		295		295		—		306		9
	$	3,983	$	7,011	$	(978)	$	8,766	$	26	$	14,272	$	16,634	$	(2,067)	$	8,417	$	166

We had ~~$3.9~~$15.1 million of non-accrual loans at September 30, ~~2022~~2023, compared to ~~$3.2~~$10.4 million of non-accrual loans at December 31, ~~2021.~~2022. The ~~$699,000~~$4.7 million increase in non-accrual loans was primarily due to ~~$2.9~~$12.0 million of loans placed on non-accrual status, partially offset by ~~$860,000~~$3.3 million transferred to repossessed vehicle inventory, $2.3 million of charge-offs, ~~and $1.4~~$1.3 million of ~~payments.~~payments and $400,000 returned to accrual status. Loans past due 90 days or more still accruing interest amounted to ~~$4.4 million~~$677,000 at September 30, ~~2022~~2023 and ~~$461,000~~$7.8 million at December 31, ~~2021.~~2022. The ~~$4.0~~$7.1 million ~~increase~~decrease reflected ~~$1.4~~$1.8 million of additions ~~$1.0~~partially offset by $4.3 million of loan payments, ~~and~~ $3.6 million transferred to non-accrual loans, $737,000 transferred to OREO, and $207,000 of ~~loans reclassified from discontinued operations.~~charge-offs.

We had ~~$18.9~~$18.8 million of OREO at September 30, ~~2022~~2023 and ~~$18.9~~$21.2 million of OREO at December 31, ~~2021 after~~2022. The change in balance reflected $737,000 transferred from loans past due 90 days or more still accruing interest, $2.0 million of sales and $1.2 million of charge-offs. The balance at both dates included $15 million for a Florida mall property, for which a developer, who is working to develop the ~~reclassification of $17.3~~property, has made a deposit. The property was reappraised in May 2023 and the appraised value continues to exceed the $15 million ~~from discontinued operations. There was no other significant activity during the quarter.~~carrying value.

We evaluate loans under an internal loan risk rating system as a means of identifying problem loans. At September 30, ~~2022~~2023 and December 31, ~~2021~~2022, classified loans ~~accordingly classified~~ were segregated by year of origination and are shown in “Note 66. Loans” to the unaudited consolidated financial statements herein.

Premises and ~~equipment, net.~~ Equipment, Net

Premises and equipment amounted to ~~$18.4~~$29.0 million at September 30, ~~2022~~2023, compared to ~~$16.2~~$18.4 million at December 31, ~~2021.~~2022. The increase reflected the acquisition of equipment for a new data ~~center.~~center and the buildout of the newly leased space for the relocation of the Sioux Falls, South Dakota.

~~Assets held-for-sale from discontinued operations.~~ ~~Assets held-for-sale from discontinued operations were reclassified to continuing operations as of March 31, 2022 and as of prior period reporting dates. Those~~Other assets ~~had consisted primarily of commercial, commercial~~

~~mortgage and construction loans, and OREO,~~Other assets amounted to $127.1 million at September 30, 2023 compared to $89.2 million at December 31, 2022. The higher balance reflected a $14.8 million loan payoff, made prior to quarter end, for which ~~consisted primarily of a Florida mall which has been written down to $15.0 million. We expect to continue our efforts to dispose~~of the ~~mall, which was appraised in December 2021 for $21.4 million.~~funds were received from the loan servicer after quarter-end.

Deposits

Our primary source of funding is deposit acquisition. We offer a variety of deposit accounts with a range of interest rates and terms, including demand, checking and money market accounts. The majority of our deposits are generated through prepaid and debit card and other payments related deposit accounts. One of our strategic ~~focus~~focuses is growing these accounts through affinity groups. At September 30, ~~2022,~~2023, we had total deposits of ~~$6.91~~$6.50 billion compared to ~~$5.98~~$7.03 billion at December 31, ~~2021, an increase~~2022, a decrease of ~~$934.4~~$525.6 million, or ~~15.6%~~7.5%. The change primarily reflected a ~~$401.3~~$330.0 million ~~increase~~decrease in ~~short term time deposits. Those~~short-term time deposits ~~mature~~which matured in the ~~fourth~~first quarter of ~~2022.~~2023.

The following table presents the average balance and rates paid on deposits for the periods indicated (dollars in thousands):

For the nine months ended
For the year ended
September 30, 2022
December 31, 2021
Average
Average
Average
Average
balance
rate
balance
rate
Demand and interest checking*
$
5,598,028
0.44%
$
5,321,283
0.09%
Savings and money market
522,525
1.07%
427,708
0.14%
Time
29,508
2.47%
—
—
Total deposits
$
6,150,061
0.50%
$
5,748,991
0.10%



	For the nine months ended			For the year ended
	September 30, 2023			December 31, 2022
	Average		Average	Average		Average
	balance		rate	balance		rate

Demand and interest checking⁽¹⁾	$	6,343,711	2.25%	$	5,670,818	0.70%
Savings and money market		88,738	3.70%		510,370	1.67%
Time		27,802	4.11%		86,907	3.15%
Total deposits	$	6,460,251	2.28%	$	6,268,095	0.82%

* ⁽¹⁾Non-interest bearing demand accounts are not paid interest. The amount shown as interest reflects the fees paid to affinity groups, which are based upon a rate index, and therefore classified as interest expense.

Short-term ~~borrowings~~Borrowings.

Short-term borrowings consist of amounts borrowed on our ~~line~~lines of credit with the ~~FRB~~Federal Reserve Bank or FHLB. There were no borrowings on either line at September 30, ~~2022~~2023 or December 31, ~~2021.~~2022. We generally utilize overnight borrowings to manage our daily reserve requirements at the Federal Reserve. Period-end and year-to-date information for the dates shown is as follows.


	September 30,		December 31,		September 30,		December 31,
	2022		2021		2023		2022
		(Dollars in thousands)				(Dollars in thousands)
Short-term borrowings
Balance at period end	$	—	$	—	$	—	$	—
Average for the three months ended September 30, 2022		200,423		na
Average for the three months ended September 30, 2023						—		N/A
Average during the year		71,589		19,958		6,758		60,312
Maximum month-end balance		—		300,000		450,000		495,000
Weighted average rate during the period		2.36%		0.25%		4.62%		2.55%
Rate at period end		—		0.25%		—		—

Senior ~~debt~~Debt.

On August 13, 2020, we issued $100.0 million of ~~senior debt~~the 2025 Senior Notes, with a maturity date of August 15, 2025, and a 4.75% interest rate, with interest paid semi-annually on March 15 and September 15. The 2025 Senior Notes are the Company’s direct, unsecured and unsubordinated obligations and rank equal in priority with all our existing and future unsecured and unsubordinated indebtedness and senior in right of payment to all our existing and future subordinated indebtedness. In lieu of repayment of debt from dividends paid by the Bank ~~dividends,~~to the Company, industry practice includes the issuance of new debt to repay maturing debt.

Borrowings.

At September 30, ~~2022,~~2023, we had other long-term borrowings of ~~$38.9~~$9.9 million compared to ~~$39.5~~$10.0 million at December 31, ~~2021.~~2022. The borrowings consisted of sold loans which were accounted for as a secured borrowing because they did not qualify for true sale accounting. We do not have any policy prohibiting us from incurring debt. ~~Subordinated debentures of~~

The 2038 Debentures, which total $13.4 million, mature in March 2038 and bear interest at SOFR plus 3.51%, are grandfathered to qualify as tier 1 capital at the ~~Bank, mature in March 2038 and carry a floating rate of 3-Month LIBOR plus 3.25%.~~Bank.

Other ~~liabilities.~~ Liabilities

Other liabilities amounted to ~~$50.7~~$68.5 million at September 30, ~~2022~~2023, compared to ~~$62.2~~$56.3 million at December 31, ~~2021.~~

The difference reflected changes in taxes payable and the repayment of a $12.5 million deposit related to the Cascade matter described in our Quarterly Report on Form 10Q for the quarter ended June 30, 2022 in Note 14 to the consolidated financial statements.2022.

Off-balance sheet arrangements

There were no off-balance sheet arrangements during the ~~three~~nine months ended September 30, ~~2022~~2023 that have or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.

‎

Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~Except as discussed~~Information about market risk for the quarter ended September 30, 2023 is included under “Asset and Liability Management” in Part I, Item 2,2. “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations,”~~Operations” of this Quarterly Report on Form 10-Q. Except for such information, there has been no material change into our assessment of our sensitivity to market risk ~~since our presentation~~as discussed in ~~our Annual Report on~~the 2022 Form ~~10-K for the year ended December 31, 2021.~~10-K.

~~Information with respect to quantitative and qualitative disclosures about market risk is included~~As noted under ~~the section entitled~~ “Asset and Liability ~~Management”~~Management,” the Company’s exposure to interest rate risk is managed through the use of guidelines which limit interest rate exposure to higher interest rates. Because the Company has emphasized variable rate instruments in ~~Part 1 Item 2 “Management’s Discussion~~its loan and ~~Analysis~~investment portfolios, it tends to benefit from higher interest rate environments. As a result of ~~Financial Condition~~the Federal Reserve rate increases in 2022 and ~~Results of Operations”.~~ 2023, net interest income has increased and exceeded prior period levels. Future Federal Reserve rate reductions may result in a return to lower net interest income levels. In addition to the aforementioned guidelines which the Company uses to manage interest rate risk, the Company utilizes an asset liability committee to provide oversight by multiple departments and senior officers.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under ~~the Securities Exchange Act of 1934, as amended, or~~ the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), as appropriate, to allow timely decisions regarding required disclosure. ~~Members~~Because of our operational management and internal audit meet regularly to provide an established structure to report any weaknesses or other issues with controls, or any matter that has not been reported previously, to our Chief Executive Officer and Chief Financial Officer, and, in turn to the Audit Committee of our Board of Directors. In designing and evaluating theinherent limitations, disclosure ~~controls and procedures, our management recognized that any~~ controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of ~~achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible~~disclosure controls and ~~procedures.~~procedures are met.

Under the supervision of our Chief Executive Officer and Chief Financial Officer, ~~we have~~our management carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures ~~are~~were effective at ~~the~~a reasonable level of assurance ~~level.~~as of September 30, 2023.

Changes in Internal Control Over Financial Reporting

There ~~has been~~were no ~~change~~changes in our internal control over financial reporting ~~that occurred~~(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, ~~2022~~2023 that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER ~~INFORMATION~~INFORMATION

Item 1. Legal Proceedings

For a discussion of ~~Legal Proceedings,~~our material pending legal proceedings, see ~~Part I, Financial Information, “Notes~~“Note 14. Legal” to ~~Unaudited Consolidated Financial Statements, Note 14--Legal.”~~the unaudited consolidated financial statements in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Item 1A. Risk Factors

Our business, financial condition, operating results and cash flows ~~could be impacted~~are subject to various risks and uncertainties, including those described in Part I, Item 1A. “Risk Factors” in the 2022 Form 10-K and additionally by the ~~factors in Item 1A. Risk Factors~~following risk factor.

Recent developments in the ~~Annual Report~~banking industry related to specific problem banks could have a negative impact on ~~Form 10-K for~~ the ~~year ended December 31, 2021.~~industry as a whole and may negatively impact stock prices and result in additional regulations that could increase our expenses and otherwise affect our operations.

~~There~~

Recent high-profile bank failures have ~~been no~~generated market volatility among publicly traded bank holding companies, unrelated to the Company, and industry commentary through social media and other outlets has negatively impacted confidence in depository institutions and created uncertainty with respect to the health of the U.S. banking system. If such levels of financial market volatility continue, or if rumored or actual events occur which further erode the actual or perceived stability of the banking system and financial markets, this could trigger additional regulatory scrutiny, increased FDIC insurance premiums or assessments, and new or amended regulations which may adversely affect the Company. While the underlying causes of these recent market events are not apparent within the Company or the Bank, these recent events and regulatory agency responses, including increased FDIC insurance premiums or assessments, could have a material ~~changes from the risk factors previously disclosed in the Company’s~~ ~~Annual Report~~impact on ~~Form 10-K for the year ended December 31, 2021.~~our business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~Information on~~ Stock Repurchases

~~In October 2021,~~The following table sets forth information regarding the Company’s repurchases of its common stock during the quarter ended September 30, 2023:


Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs⁽¹⁾	Approximate dollar value of shares that may yet be purchased under the plans or programs⁽²⁾
	(Dollars in thousands, except per share data)
July 1, 2023 - July 31, 2023	272,227	$	36.21	272,227	$	40,143
August 1, 2023 - August 31, 2023	245,200		37.32	245,200		30,992
September 1, 2023 - September 30, 2023	168,051		35.66	168,051		25,000
Total	685,478		36.47	685,478		25,000

⁽¹⁾During the third quarter of 2023, all shares of common stock were repurchased pursuant to the 2023 Repurchase Program, which was approved by the Board ~~approved a revised common stock repurchase program for the~~on October 26, 2022 ~~fiscal year (the “2022 Common Stock Repurchase Plan”).~~and publicly announced on October 27, 2022. Under the ~~2022 Common Stock~~2023 Repurchase ~~Plan,~~Program, the Company is authorized to repurchase shares of its common stock totaling up to ~~$15.0~~$25.0 million ~~in each~~per quarter ~~of 2022~~, for a maximum amount of ~~$60.0~~$100.0 million in 2023 ~~depending on the share price, securities laws and stock exchange rules which regulate such repurchases.~~ ~~Under the~~ ~~2022 Common Stock Repurchase Plan, the~~. The Company ~~intends to~~may repurchase shares through open market purchases, including through written trading plans under Rule 10b5-1 under the Exchange Act, privately-negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 ~~of the Securities Exchange Act of 1934 (“Exchange Act”). The Board also authorized the Company to enter into written trading plans~~ under ~~Rule 10b5-1 of~~ the Exchange Act.

⁽²⁾The 2023 Repurchase Program may be suspended, amended or discontinued at any time and has an expiration date of December 31, 2023. With respect to further repurchases, ~~in subsequent quarters under this program,~~ the Company cannot predict if, or when, it will repurchase any shares of common stock, and the timing and amount of any shares repurchased will be determined by management based on its evaluation of market conditions and other factors.

~~The following table sets forth information regarding the Company’s purchases of its common stock during the quarter ended September 30, 2022:~~

Period
Total number of shares purchased⁽¹⁾
Average price paid per share
Total number of shares purchased as part of publicly announced plans or programs
Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs⁽¹⁾
(Dollars in thousands, except per share data)
July 1, 2022 - July 31, 2022
330,433
$
20.89
330,433
$
23,098
August 1, 2022 - August 31, 2022
270,681
24.45
270,681
16,479
September 1, 2022 - September 30, 2022
62,820
23.54
62,820
15,000
Total
663,934
22.59
663,934
15,000

⁽¹⁾On October 20, 2021, the Company’s Board of Directors approved a stock repurchase plan, under which the Company was authorized to purchase shares for up to $15.0 million in each quarter through December 31, 2022, at which date the current plan terminates.

~~Item 3. Defaults Upon Senior Securities~~

~~None.~~

~~Item 4. Mine Safety Disclosures~~

~~Not applicable.~~

~~Item 5. Other Information~~

~~None.~~

‎

Item 6. Exhibits


Exhibit No.		Description


3.1.1		Certificate of Incorporation filed July 20, 1999, amended July 27, 1999, amended June 7, 2001, and amended October 8, 2002⁽¹⁾ (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 filed July 15, 2004)

3.1.2		Amendment to Certificate of Incorporation filed July 30, 2009⁽²⁾(incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed November 9, 2016)

3.1.3		Amendment to Certificate of Incorporation filed May 18, 2016⁽²⁾ (incorporated by reference to Exhibit 3.3 to the Company’s Quarterly Report on Form 10-Q filed November 9, 2016)

3.2		Amended and Restated Bylaws⁽³⁾(incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K filed March 16, 2017)

31.1		Rule 13a-14(a)/15d-14(a) Certifications *

31.2		Rule 13a-14(a)/15d-14(a) Certifications *

32.1		Section 1350 Certifications *

32.2		Section 1350 Certifications *

101.INS		Inline XBRL Instance Document **

101.SCH		Inline XBRL Taxonomy Extension Schema Document *

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document *

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document *

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document *

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document *
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) *

*		Filed herewith
**		The Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

⁽¹⁾~~Filed previously as an exhibit to our Registration Statement on Form S-4, registration number 333-117385, and by this reference incorporated herein.~~

⁽²⁾~~Filed previously as an exhibit to our quarterly report on Form 10-Q filed November 9, 2016, and by this reference incorporated herein (File No. 000-51018).~~

⁽³⁾~~Filed previously as an exhibit to our annual report on Form 10-K filed March 16, 2017, and by this reference incorporated herein (File No. 000-51018).~~

‎

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

10

		THE BANCORP, INC.
		(Registrant)

November 9, ~~2022~~2023		/S/ DAMIAN KOZLOWSKI
Date		Damian Kozlowski
		Chief Executive Officer

November 9, ~~2022~~2023		/S/ PAUL FRENKIEL
Date		Paul Frenkiel Chief Financial Officer and Secretary


	Principal amount		% Principal to collateral
	$	20,288		58%
		18,000		42%
		17,181		72%
		14,428		38%
		9,465		33%
		9,376		66%
		9,034		48%
		8,529		71%
		7,906		75%
		6,373		32%
Total and weighted average	$	120,580		54%


Period	Total number of shares purchased⁽¹⁾	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs⁽¹⁾
	(Dollars in thousands, except per share data)
July 1, 2022 - July 31, 2022	330,433	$	20.89	330,433	$	23,098
August 1, 2022 - August 31, 2022	270,681		24.45	270,681		16,479
September 1, 2022 - September 30, 2022	62,820		23.54	62,820		15,000
Total	663,934		22.59	663,934		15,000