Bancorp, Inc. (TBBK) FY 2022 MD&A

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

The following discussion provides information to assist in understanding our financial condition and results of operations. This discussion should be read in conjunction with our consolidated financial statements and related notes appearing in Item 8 of this report.

Overview

In 2022, we recorded net income of $130.2 million compared to $110.7 million in 2021, with pre-tax income from continuing operations increasing to $177.9 million in 2022 from $144.2 million in 2021. The increases primarily reflected increases in net interest income resulting from loan growth and the adjustment of variable rate loans to the higher rate environment, partially offset by the

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impact of reductions in securities balances. Average loans and leases grew to $5.67 billion in 2022 from $4.60 billion in 2021, which reflected growth in loans collateralized by securities (“SBLOC”), the cash value of life insurance (“IBLOC”) and investment advisor loans, small business (primarily SBA) excluding short-term PPP loans, leases, and real estate bridge lending. In the second half of 2022, the lagged impact of Federal Reserve rate increases on our variable rate loans and securities also contributed to higher net interest income, as they repriced more fully to such increases than did deposits. Variable rate loans and securities comprise the majority of our earning assets, and we expect that related repricings will continue to positively impact net interest income and the net interest margin in the first quarter of 2023. Increases in net interest income were partially offset by higher provisions for credit losses which reflected the impact of loan growth on our allowance for credit loss methodology, in addition to other factors. Please see “Results of Operations-Provision for Credit Losses” below.

Key Performance Indicators

We use a number 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 net interest income, non-interest income, non-interest expense and the ratio of equity to assets, which is a capital adequacy measure.

Results of performance indicators. In the past three years, we have continued to target loan niches which we believe have lower credit risk than certain other forms of lending. These include SBLOC and IBLOC; SBA loans, a significant portion of which are government guaranteed or must have loan-to-value ratios lower than other forms of lending; leasing to which we have access to underlying vehicles; and real estate bridge lending for apartment buildings in selected national regions. The majority of these loan categories are variable rate and in the second half of 2022, adjusted more fully to Federal Reserve rate increases than did our deposits, which are derived primarily from our payments businesses.

The impact of loan growth in the above targeted niches and the majority of loans repricing more than deposits to the higher rate environment in the second half of 2022, is reflected in a number of performance indicators. In 2022, return on assets and return on

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equity amounted to 1.81% and 19.3%, respectively, compared to 1.68% and 17.94% in the prior year. Net interest margin was 3.55% in 2022 and 3.35% in 2021. In 2022 and 2021, income related to loan repayments contributed to non-interest income while payments-related income constitutes the majority of non-interest income. Payments fees in 2021 were comparable to the prior year, as they were impacted by a client relationship transitioning to its own bank, which offset growth in other debit and prepaid card account programs. Additionally, margins were reduced on certain incremental volume. In 2022, payments fees renewed their increasing trend, as payments volume continued to increase. We attempt to manage increases in non-interest expense in conjunction with revenue increases, to achieve the financial targets as described on our website. Increases in book value per common share and the equity to assets ratio primarily reflect earnings retention, net of the impact of share repurchases and changes in the value of available-for-sale securities.

Critical Accounting Policies and Estimates

Our accounting and reporting policies conform with accounting principles generally accepted in the United States and general practices within the financial services industry. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates. We believe that the determination of: a. our allowance for credit losses on loans, leases and securities; b. the fair value of financial instruments (loans and securities) and the level in which an instrument is placed within the valuation hierarchy; c. the fair value of stock grants; and d. the realizability of deferred income taxes; involve a higher degree of judgment and complexity than our other significant accounting policies.

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

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

The fair value of a financial instrument is defined as the amount at 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 as described in the following hierarchy. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used 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, 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. One significant input is that at December 31, 2022, $355.3 million of commercial real estate, at fair value are multi-family loans

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(apartments) a sector which has experienced relatively low historical losses on an industry wide basis. To the extent actual outcomes differ from our estimates, subsequent adjustments to the financial statements may be required. Changes in fair value estimates are sensitive to factors which may vary by asset class, and which are described in Note Q to the financial statements.

At the end of each quarter, we assess the valuation hierarchy for each asset or liability measured. From time 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 account for our stock-based compensation plans based on the fair value of the awards made, which include stock options, restricted stock, and performance based shares. To assess the fair value of the awards made, management makes assumptions as to expected stock price volatility, option terms, forfeiture rates and dividend rates. All of these estimates and assumptions may be susceptible to significant change that may impact earnings in future periods.

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. Future estimates may change, should legislation result in tax rate changes. Deferred tax expense (benefit) is the result of changes in deferred tax assets and liabilities.

LIBOR Transition

We discontinued LIBOR (London Interbank Offered Rate) based originations in 2021; however, certain of our financial instruments outstanding are indexed to LIBOR, including non-SBA commercial loans, at fair value, which amounted to $354.7 million at December 31, 2022. However, these loans are short-term and expected to be repaid, or converted to the one month secured overnight financing rate (“SOFR”), by the June 2023 LIBOR end date. At December 31, 2022 we also owned $12.6 million of LIBOR based securities purchased from previous securitizations, which are also expected to mature before June 2023. When we resumed originating non-SBA commercial loans in the third quarter of 2021, which are identified separately under real estate bridge lending, we utilized the SOFR as the index. In addition, we own certain investment securities, including collateralized loan obligations (“CLOs”) and U.S. government agency adjustable-rate mortgages which utilize LIBOR based pricing. CLOs, which amounted to $335.4 million at December 31, 2022, have language regarding an index alternative when LIBOR is 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 $58.5 million at December 31, 2022. There is less clarity for our student loan securities of $8.5 million, a $10.0 million corporate trust preferred investment and subordinated debentures payable of $13.4 million at that date, for which industry standards continue to be considered by trustees and other governing bodies. Our one derivative, the notional amount for which totaled $6.8 million at December 31, 2022, is an interest rate swap that is documented under a bilateral agreement which contains Interbank Offered Rates (“IBOR”) fallback provisions by virtue of counterparty adherence to the 2020 International Swaps and Derivatives Association, Inc.’s LIBOR Fallbacks Protocol. We continue to assess the potential impact of the phase-out of LIBOR on all affected accounts and any other potential impacts, and related accounting guidance.

Results of Operations

Overview: Net interest income continued its upward trend in 2022, increasing $38.0 million to $248.8 million in 2022 from $210.9 million in 2021. The increase reflected the impact of loan growth and the higher interest rate environment on variable rate loans, partially offset by the impact of lower securities balances. At December 31, 2022, our total loans, including commercial loans, at fair value, amounted to $6.08 billion, an increase of $940.4 million, or 18.3%, over the $5.14 billion balance at December 31, 2021, reflecting growth in all major categories of loans. Our investment securities available-for-sale decreased $187.7 million to $766.0 million from $953.7 million between those respective dates reflecting prepayments on mortgage-backed and other higher rate securities as a result of the lower rate environment. In the second half of 2022, the lagged impact of Federal Reserve rate increases on our variable rate loans and securities also contributed to higher net interest income, as they repriced more fully to such increases than did deposits. The provision for credit losses increased $4.0 million to $7.1 million in 2022, reflecting the impact of loan growth on our allowance for credit loss methodology, in addition to other factors. Please see “Results of Operations-Provision for Credit Losses” below.

A $934,000 increase in non-interest income in 2022 compared to 2021 reflected a $1.4 million change in net realized and unrealized gains (losses) on commercial loans, primarily non-SBA CRE loans, at fair value. Unrealized losses were recognized in 2020 due to changes in fair value related to the COVID-19 pandemic, versus 2021 and 2022 income related to repayments of non-

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SBA CRE loans. While the vast majority of non-SBA CRE loans at fair value are comprised of multi-family (apartment) loans, an unrealized loss of $4.0 million on the only movie theater loan in our portfolio was recognized in the third quarter of 2022, which offset increases in the aforementioned income related to the repayment of non-SBA commercial loans. While a total of $444.5 million of these loans remained outstanding at year-end 2022, based upon scheduled maturities and potential prepayments, we believe that the majority of such loans may be repaid in 2023. We continue to generate new REBL originations to offset resulting balance reductions and grow that portfolio; however, there can be no assurance as to the level of those new originations. As these loans are repaid, we may continue to recognize additional related prepayment income, which comprised the majority of “Net realized and unrealized gains on commercial loans (at fair value)” on the consolidated income statement in 2022 and 2021. The amounts and timing of any such repayment related income cannot be predicted.

While the dollar amount of payment transactions continued its upward trend, prepaid, debit card and related fees did not grow proportionately in 2022 and 2021 over their prior years, as transactions have been shifting to debit cards, for which margins are generally lower. Fees earned for volumes above certain thresholds for individual relationships may also be lower. Additionally, fees in 2021 and 2022 were impacted by an affinity client relationship transitioning to its own bank, which offset growth in other debit and prepaid card account programs.

In 2022, total non-interest expense increased $1.2 million to $169.5 million compared to $168.4 million in 2021, reflecting an increase of $1.1 million in insurance 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 a $630,000 decrease in salaries and employee benefits expense, a $3.0 million decrease in legal expense, and a $2.3 million reduction in FDIC insurance expense.

Net Income: 2022 compared to 2021. Net income from continuing operations was $130.2 million in 2022 compared to $110.4 million in 2021, while income before taxes was, respectively, $177.9 million and $144.2 million, an increase of $33.7 million. In 2022, net interest income grew by $38.0 million and non-interest income increased $934,000. The $38.0 million, or 18.0%, increase in 2022 net interest income over 2021 reflected the impact of higher loan balances partially offset by lower securities balances. In the second half of 2022, the lagged impact of Federal Reserve rate increases on our variable rate loans and securities also contributed to higher net interest income, as they repriced more fully to such increases than did deposits. Loan interest in 2021 included $4.6 million of fees from a line of credit to another institution to fund PPP loans, which did not recur in 2022 and which are not expected to recur in the future. The $934,000 increase in non-interest income reflected a $1.4 million change in net realized and unrealized gains (losses) on commercial loans, primarily non-SBA CRE loans, at fair value. Unrealized losses were recognized in 2020 due to changes in fair value related to the COVID-19 pandemic versus 2021 and 2022 income related to repayments of non-SBA CRE loans. A $5.7

million increase in such repayment related income in 2022 compared to 2021 was offset by an unrealized loss of $4.0 million on the only movie theater loan in our portfolio which was recognized in the third quarter of 2022.

In 2022, total non-interest expense increased $1.2 million to $169.5 million, reflecting an increase of $1.1 million in insurance 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 a $630,000 decrease in salaries and employee benefits, a $3.0 million decrease in legal expense, and a $2.3 million reduction in FDIC insurance expense.

Reflecting the above changes, net income from continuing operations amounted to $130.2 million in 2022 compared to $110.4 million in 2021, or continuing operations earnings per diluted share of $2.27 compared to $1.88 in 2021. Net income from discontinued operations was $0 for 2022 compared to net income of $212,000 for 2021. Including discontinued operations, diluted income per share was $2.27 for 2022 compared to $1.88 for 2021 on net income of $130.2 million and $110.7 million, respectively.

Net Income: 2021 compared to 2020. Net income from continuing operations was $110.4 million in 2021 compared to $80.6 million in 2020 while income before taxes was, respectively, $144.2 million and $108.3 million, an increase of $35.9 million. In 2021, net interest income grew by $16.0 million and non-interest income increased $20.1 million. The $16.0 million, or 8.2%, increase in 2021 net interest income over 2020 resulted primarily from higher loan balances partially offset by reductions in securities interest resulting from lower balances, and lower yields which reflected the impact of Federal Reserve rate reductions. Loan interest in 2021 included $4.6 million of fees from a line of credit to another institution to fund PPP loans, which is not expected to recur and which partially offset the impact of decreases in other loan yields. The $20.1 million increase in non-interest income reflected an $18.8 million change in net realized and unrealized gains (losses) on commercial loans, primarily non-SBA CRE loans, at fair value. Unrealized losses were recognized in 2020 due to changes in fair value related to the COVID-19 pandemic versus 2021 income related to prepayments and payoffs of non-SBA CRE loans.

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In 2021, total non-interest expense increased $3.5 million to $168.4 million, reflecting a $4.3 million increase in salaries and employee benefits and a $1.7 million increase in legal expense, partially offset by a $4.2 million reduction in FDIC insurance expense. The increase in salaries and employee benefits reflected higher incentive compensation expense, including equity compensation, and higher compliance expense, primarily related to the payments business. The increase in legal expense reflected increased costs associated with the Cascade matter and two fact-finding inquiries by the SEC as described in Note O to the 2021 consolidated financial statements. The decrease in FDIC insurance expense is primarily due to a reduction in the Bank’s assessment rate. The reduction in expense primarily reflected the cumulative impact of the reclassification of certain of our deposits from brokered to non-brokered on the assessment rate. Prior to the insurance rate reduction in third quarter 2021 to approximately 10 basis points annually of average liabilities, the rate approximated 16 basis points. We believe that the insurance rate will continue to be lower than the 16 basis points. However, the rate is subject to multiple factors which may significantly change the amount assessed. Accordingly, we cannot assure you that reduced rates will continue.

Reflecting these changes, net income from continuing operations amounted to $110.4 million in 2021 compared to $80.6 million in 2020, or continuing operations earnings per diluted share of $1.88 compared to $1.38 in 2020. Net income from discontinued operations was $212,000 for 2021 compared to a net loss of $512,000 for 2020. Including discontinued operations, diluted income per share was $1.88 for 2021 compared to $1.37 for 2020 on net income of $110.7 million and $80.1 million, respectively.

Net Interest Income: 2022 compared to 2021. Our net interest income for 2022 increased to $248.8 million, an increase of $38.0 million, or 18.0%, from $210.9 million for 2021, reflecting an $86.2 million, or 38.8%, increase in interest income to $308.3 million from $222.1 million for 2021. The growth in interest income resulted from higher loan balances, partially offset by the impact of lower securities balances, and yields on both loans and securities which increased in the second half of 2022. Our average loans and leases increased 23.3% to $5.67 billion in 2022 from $4.60 billion for 2021. The increase in loans reflected growth in SBLOC, IBLOC and investment advisor loans, SBA, direct lease financing and real estate bridge lending, partially offset by decreases in PPP loans. Small business loans have generally been comprised of SBA loans. However, in 2020 and 2021 they reflected balances of pandemic related PPP loans guaranteed by the U.S. government which repaid significant amounts of those loans in 2021, resulting in a decrease in that category. Substantially all PPP loans were repaid by year-end 2022, and no further such loans are anticipated. The balance of our commercial loans, at fair value also decreased primarily reflecting non-SBA CRE loan payoffs. In the third quarter of 2021 we resumed originating such loans, referred to as real estate bridge loans. Of the total $83.2 million increase in loan interest income on a tax equivalent basis, the largest increases were $37.3 million for REBL, $43.9 million for SBLOC, IBLOC and investment advisor financing, and $4.8 million for leasing. SBL loan interest in 2021 reflected $4.6 million of fees which were earned on a short-term line of credit to another institution to initially fund PPP loans which did not recur in 2022 and which are not expected to recur in the future. Our average investment securities were $859.2 million for 2022 compared to $1.06 billion for 2021, while related interest income decreased $3.1 million on a tax equivalent basis primarily reflecting a decrease in balances, partially offset by an increase in yields in the second half of the year. Yields on loans and securities increased in the second half of the year as a result of the impact of the Federal Reserve’s 2022 rate increases on variable rate obligations. While interest income increased by $86.2 million, interest expense increased by $48.2 million or 429.0% to $59.5 million in 2022 from $11.2 million in 2021 as loans, on a lagged basis, adjusted more fully than deposits to the higher rate environment.

Our net interest margin (calculated by dividing net interest income by average interest-earning assets) for 2022 increased 20 basis points to 3.55% from 3.35% for 2021, as the increase in the yield on interest-earning assets was greater than the increase in the cost of funds. The average yield on our interest-earning assets increased to 4.40% from 3.53% for 2021, an increase of 87 basis points, while the cost of total deposits and interest-bearing liabilities increased to 0.92% for 2022 from 0.19% for 2021, an increase of 73 basis points. The yield on loans in total increased to 4.86% from 4.18%, an increase of 68 basis points, while the yield on taxable investment securities increased 28 basis points to 2.99% from 2.71%. In 2022, average demand and interest checking deposits amounted to $5.67 billion, compared to $5.32 billion in 2021, an increase of 6.6%, reflecting growth in debit, prepaid card account and other payments balances. The yield on those deposits increased to 0.70% in 2022 compared to 0.09% in 2021, reflecting the impact of 2022 Federal Reserve rate hikes. Savings and money market balances averaged $510.4 million in 2022 compared to $427.7 million in 2021 with an average 1.67% rate in 2022 compared to 0.14% in 2021. The $82.7 million increase in savings and money market between these respective periods reflected growth in interest-bearing accounts offered by our affinity group clients to prepaid and debit card account customers.

Net Interest Income: 2021 compared to 2020. Our net interest income for 2021 increased to $210.9 million, an increase of $16.0 million, or 8.2%, from $194.9 million for 2020, reflecting an $11.3 million, or 5.4%, increase in interest income to $222.1 million from $210.8 million for 2020. The growth in interest income resulted primarily from higher loan balances, partially

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offset by the impact of lower securities balances, and lower yields on both loans and securities. Growth in interest income was also impacted by prepayments and payoffs of non-SBA commercial real estate loans which had been originated for securitization and are now held as interest-earning assets in “Commercial loans, at fair value” on the balance sheet. Income related to those prepayments and payoffs comprised the majority of the “Net realized and unrealized gains (losses) on commercial loans (at fair value)” in the income statement in 2021 and 2022. In the third quarter of 2021 we resumed origination of such non-SBA commercial real estate loans, which now comprise our real estate bridge lending portfolio. These loans are similar to those previously originated for securitization and are collateralized primarily by multi-family properties (apartment buildings). Our average loans and leases increased 16.8% to $4.60 billion in 2021 from $3.94 billion for 2020. The increase in loans reflected growth in SBLOC, IBLOC and investment advisor loans, SBA, direct lease financing and real estate bridge lending, partially offset by decreases in PPP loans. Small business loans have generally been comprised of SBA loans. However, in 2020 and 2021 they reflected balances of pandemic related PPP loans guaranteed by the U.S. government which repaid significant amounts of those loans in 2021, resulting in a decrease in that category. The balance of our commercial loans, at fair value also decreased primarily reflecting non-SBA CRE loan payoffs. As noted previously, in the third quarter of 2021 we resumed originating such loans, referred to as real estate bridge loans. Of the total $21.6 million increase in loan interest income on a tax equivalent basis, the largest increases were $10.7 million for SBLOC, IBLOC and investment advisor financing, $7.1 million for SBL and $2.8 million for leasing. The increase in SBL loan interest reflected $4.6 million of fees which were earned on a short-term line of credit to another institution to initially fund PPP loans which are not expected to recur. Our average investment securities were $1.06 billion for 2021 compared to $1.32 billion for 2020, while related interest income decreased $9.2 million on a tax equivalent basis primarily reflecting a decrease in balances and secondarily reflecting a decrease in yields. Yields on loans and securities decreased as a result of the impact of the Federal Reserve’s 2020 rate decreases on variable rate obligations, partially offset by the impact of the weighted average 4.8% interest rate floors on the non-SBA CRE loans, at fair value. While interest income increased by $11.3 million, interest expense decreased by $4.7 million or 29.4% to $11.2 million in 2021 from $15.9 million in 2020 as deposits also repriced to the lower rate environment. Decreases in deposit interest expense were partially offset by the full year impact of the senior debt issuance in August 2020.

Our net interest margin (calculated by dividing net interest income by average interest-earning assets) for 2021 decreased 10 basis points to 3.35% from 3.45% for 2020, as the decrease in the yield on interest-earning assets was greater than the decrease in the cost of funds. The average yield on our interest-earning assets decreased to 3.53% from 3.74% for 2020, a decrease of 21 basis points, while the cost of total deposits and interest-bearing liabilities decreased to 0.19% for 2021 from 0.30% for 2020, a decrease of 11 basis points. The net interest margins reflected the impact of weighted average 4.8% floors on non-SBA commercial real estate variable rate loans, previously originated for securitization, which significantly offset the impact of lower rates in the SBLOC and IBLOC portfolio. The SBLOC and IBLOC portfolio yield decreased to approximately 2.5% after the Federal Reserve rate reductions. However, that portfolio, due to the nature of the collateral, has experienced only insignificant credit losses. The net interest margin also reflected the impact of growth in higher yielding SBA loans and leases, which have yielded in the 5% to 6% range. The yield on loans in total decreased to 4.18% from 4.34%, a decrease of 16 basis points, while the yield on taxable investment securities decreased 16 basis points to 2.71% from 2.87%. In 2021, average demand and interest checking deposits amounted to $5.32 billion, compared to $4.86 billion in 2020, an increase of 9.4%, reflecting growth in debit, prepaid card account and other payments balances. The yield on those deposits decreased to 0.09% in 2021 compared to 0.23% in 2020, reflecting the full year impact of March 2020 Federal Reserve rate decreases. Savings and money market balances averaged $427.7 million in 2021 compared to $291.2 million in 2020 with an average 0.14% rate in 2021 compared to 0.15% in 2020. The $136.5 million increase in savings and money market between these respective periods reflected growth in interest-bearing accounts offered by our affinity group clients to prepaid and debit card account customers.

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

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* Fully taxable equivalent basis, using a 21% statutory Federal tax rate.

** Includes commercial loans, at fair value. All periods include non-accrual loans.

NOTE: Interest on loans in 2020 includes $5.8 million of interest and fees on PPP loans.

In 2022 compared to 2021, average interest-earning assets increased to $7.01 billion, an increase of $709.8 million, or 11.3%. The increase reflected a $1.07 billion, or 23.3%, increase in average loans and leases. The increase in average loans reflected growth in SBLOC, IBLOC and investment advisor financing, small business (primarily SBA exclusive of short term PPP loans), direct lease financing and real estate bridge lending. Average balances of investment securities decreased $203.8 million, or 19.2%, reflecting the repayment of securities and the deferral of purchases in favor of reinvestment in higher rate environments. In 2022, average demand and interest checking deposits amounted to $5.67 billion, compared to $5.32 billion in 2021, an increase of 6.6%, reflecting growth in debit and prepaid card account balances. Savings and money market balances were reduced in December 2022, as we swept deposits off our balance sheet to other institutions. Such sweeps are utilized to optimize diversity within our funding structure by managing the percentage of individual client deposits to total deposits. The reductions were reflected in the $140.5 million balance at December 31, 2022, compared to $415.5 million at the prior year end.

In 2021 compared to 2020, average interest-earning assets increased to $6.30 billion, an increase of $660.2 million, or 11.7%. The increase reflected a $662.9 million, or 16.8%, increase in average loans and leases. The increase in average loans reflected growth

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in SBLOC, IBLOC and investment advisor financing, small business (primarily SBA exclusive of short term PPP loans), direct lease financing and real estate bridge lending. Average balances of investment securities decreased $258.5 million, or 19.6%, reflecting the prepayment of higher rate securities in a lower interest rate environment. Yields on loans and securities decreased as a result of the impact of the Federal Reserve’s March 2020 rate decreases on variable rate obligations, partially offset by the weighted average 4.8% interest rate floors on the non-SBA CRE loans, at fair value. In 2021, average demand and interest checking deposits amounted to $5.32 billion, compared to $4.86 billion in 2020, an increase of 9.4%, reflecting growth in debit and prepaid card account balances.

Volume and Rate Analysis. The following table sets forth the changes in net interest income attributable to either changes in volume (average balances) or to changes in average rates from 2020 through 2022 on a tax equivalent basis. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

Provision for Credit Losses. Our provision for credit losses was $7.1 million for 2022, $3.1 million for 2021 and $6.4 million for 2020. Provisions are based on our evaluation of the adequacy of our allowance for credit losses, particularly in light of the estimated impact of charge-offs and the potential impact of current economic conditions which might impact our borrowers. The increased provision in 2022 reflected loan growth and 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 “Net realized and unrealized gains on commercial loans, at fair value” in the consolidated statement of operations, while the allowances for credit losses and loan commitments in the consolidated balance sheet were increased through a provision for credit losses. Accordingly, a $3.5 million credit to “ Net realized and unrealized gains on commercial loans, at fair value” was offset by a provision for credit losses of $3.5 million with no net impact on income. Of the $3.5 million provision, $1.3 million increased the 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 second quarter $1.2 million provision reversal reflecting 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. As a result of continuing economic uncertainty, including heightened inflation and increased risks of recession, the qualitative factors which had been set in anticipation of a 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 one level for non-real estate SBL and leasing, increasing the provision for credit losses by approximately $890,000. Additionally, in the fourth quarter of 2022, reserves on specific problem leases were increased, comprising the majority of the $1.1 million annual increase in reserves on such loans. For additional related information see Note E to the consolidated financial statements. The reduction in 2021 compared to 2020 reflected the impact of lower net charge-offs and the reversal of charges in 2021 for economic

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factors related to the COVID-19 pandemic which were incurred in 2020. At December 31, 2022, our allowance for credit losses amounted to $22.4 million, or 0.41%, of total loans. We believe that our allowance is appropriate and supportable in providing for current and future expected losses, consistent with CECL guidance. For more information about our provision and allowance for credit losses and our loss experience see “—Financial Condition—Allowance for Credit Losses” and “—Summary of Loan and Lease Loss Experience,” below.

Non-Interest Income: 2022 compared to 2021. Non-interest income was $105.7 million for 2022 compared to $104.7 million for 2021. The $934,000, or 0.9%, increase between those respective periods reflected the change in “Net realized and unrealized gains (losses) on commercial loans”, which decreased to a gain of $13.5 million from a gain of $14.9 million. The $1.4 million change reflected changes in the items comprising such gains and losses as follows. The $13.5 million “Net realized and unrealized gains on commercial loans, at fair value” for 2022 was comprised of the $3.5 million adjustment described under “Provision for Credit Losses” above, $15.1 million of non-SBA CRE bridge loan repayment related income and $964,000 of hedge gains, partially offset by $6.1 million of fair value losses. The majority of those fair value losses reflected a $4.0 million third quarter 2022 charge on a loan collateralized by a movie theater as described in the first section of “Note E-Loans” to the consolidated financial statements. The $14.9 million “Net realized and unrealized gains on commercial loans, at fair value” for 2021 was comprised of $12.9 million of non-SBA CRE bridge loan repayment related income, $1.7 million of hedge gains, and $285,000 of unrealized fair value gains. Prepaid and debit card and related fees increased $2.6 million, or 3.5%, to $77.2 million for 2022 from $74.7 million for 2021. The increase reflected higher transaction volume. Those fees in 2021 and 2022 were impacted by an affinity client relationship transitioning to its own bank, which offset growth in other debit and prepaid card account programs. Related fees in this category include income related to the use of cash in ATMs for prepaid payroll cardholders. Automated Clearing House (“ACH”), card and other payment processing fees increased $1.4 million, or 18.7%, to $8.9 million for 2022 compared to $7.5 million for 2021, primarily reflecting increased ACH volume. Leasing related income decreased $1.6 million, or 25.3%, to $4.8 million for 2022 from $6.5 million for 2021. The reduction reflected decreased volume, as 2021 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 decreased $68,000, or 5.5%, to $1.2 million in 2022 from $1.2 million in 2021.

Non-Interest Income: 2021 compared to 2020. Non-interest income was $104.7 million for 2021 compared to $84.6 million for 2020. The $20.1 million, or 23.8%, increase between those respective periods was primarily the result of the change in net realized and unrealized gains (losses) on non-SBA CRE loans, at fair value reflected in the income statement in “Net realized and unrealized gains (losses) on commercial loans”, which increased to a gain of $14.9 million from a loss of $3.9 million. The $18.8 million change was primarily the result of 2021 income related to prepayments and payoffs of non-SBA CRE loans in 2021 versus unrealized losses in 2020 due to changes in fair value related to the COVID-19 pandemic. In the third quarter of 2021, we resumed originating such loans. Prepaid and debit card and related fees increased $189,000, or 0.3%, to $74.7 million for 2021 from $74.5 million for 2020. The increase reflected higher transaction volume. Those fees in 2021 were impacted by an affinity client relationship transitioning to its own bank, which offset growth in other debit and prepaid card account programs. Related fees in this category include income related to the use of cash in ATMs for prepaid payroll cardholders. Automated Clearing House (“ACH”), card and other payment processing fees increased $425,000, or 6.0%, to $7.5 million for 2021 compared to $7.1 million for 2020, reflecting increased rapid funds transfer volume. Leasing related income increased $3.2 million, or 96.0%, to $6.5 million for 2021 from $3.3 million for 2020. The increase reflected the impact of the reopening of vehicle auctions after COVID-19 pandemic shutdowns, and higher vehicle market prices due to vehicle shortages. Other non-interest income decreased $2.4 million, or 66.6%, to $1.2 million in 2021 from $3.7 million in 2020, which had included the recovery of certain fees which had previously been written off.

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

Non-Interest Expense: 2022 compared to 2021. Total non-interest expense in 2022 was $169.5 million, an increase of $1.2 million, or 0.7%, from the $168.4 million in 2021. Salaries and employee benefits expense decreased to $105.4 million, a decrease of $630,000, or 0.6%, from $106.0 million for 2021. Lower salary expense in 2022 reflected lower incentive compensation expense, including equity compensation, and higher compliance and IT and cybersecurity expense, primarily related to the payments business. While cash incentive compensation, which increases expense during the current period, was decreased in 2022, the total fair value at date of grant of 2022 stock awards was increased and will be recognized over vesting periods. Please see “Note M-Stock Based Compensation.” Depreciation and amortization decreased $1,000, or 0.0%, to $2.9 million in 2022 from $2.9 million in 2021. Rent and occupancy increased $177,000, or 3.5%, to $5.2 million in 2022 from $5.0 million in 2021. Data processing expense increased $308,000, or 6.6%, to $5.0 million in 2022 from $4.7 million in 2021, reflecting higher electronic banking related volume. Printing and supplies increased $57,000, or 15.4%, to $428,000 in 2022 from $371,000 in 2021. Audit expense increased $57,000, or 3.9%, to $1.5 million in 2022 from $1.5 million in 2021, reflecting an increase in rates. Legal expense decreased $3.0 million, or 43.4%, to $3.9 million for 2022 from $6.8 million in 2021, reflecting decreased legal costs associated with the Cascade matter and SEC inquiries. As described in Note 14 to the consolidated financial statements in Form 10Q for the three months ended June 30, 2022, a Cascade-related legal settlement resulted in a $1.2 million charge in that period. In 2022, there were also reduced legal costs for two fact-finding inquiries by the SEC. As described in Note 14 to the consolidated financial statements in Form 10Q for the three months ended September 30, 2022, one of those inquiries resulted in a $1.75 million charge in that period. FDIC insurance expense decreased $2.3 million, or 41.5%, to $3.3 million for 2022 from $5.6 million in 2021, primarily due to a reduction in the Bank’s assessment rate. The reduction in rate primarily reflected the impact of the reclassification of certain of our deposits from brokered to non-brokered. Prior to the insurance rate reduction in the second half of 2021 to less than 10 basis points annually of average liabilities, the rate approximated 16 basis points. 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. We believe that the insurance rate will continue to be lower than the 16 basis points in effect prior to June 2021. However, the rate is subject to multiple factors which may significantly change the amount assessed. Accordingly, we cannot assure you that reduced insurance rates will continue. Software expense increased $552,000, or 3.5%, to $16.2 million in 2022 from $15.7 million in 2021. The increase reflected expenditures for information technology to improve efficiency and scalability, including expenses related to cybersecurity. Insurance expense increased $1.1 million, or 29.0%, to $5.0 million in 2022 from $3.9 million in 2021, reflecting higher rates, especially for cyber insurance. Telecom and IT network communications expense decreased $112,000, or 7.1%, to $1.5 million in 2022 from $1.6 million in 2021. Consulting expense decreased $164,000, or 11.5%, to $1.3 million in 2022 from $1.4 million in 2021. Other non-interest expense increased $2.2 million,

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or 17.2%, to $14.7 million in 2022 from $12.5 million in 2021. The $2.2 million increase reflected a $1.1 million increase in travel expenses, as travel increased post-pandemic.

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

Non-Interest Expense: 2021 compared to 2020. Total non-interest expense in 2021 was $168.4 million, an increase of $3.5 million, or 2.1%, from the $164.8 million in 2020. Salaries and employee benefits expense increased to $106.0 million, an increase of $4.3 million, or 4.2%, from $101.7 million for 2020. Higher salary expense in 2021 reflected higher incentive compensation expense, including equity compensation, and higher compliance expense, primarily related to the payments business. Depreciation and amortization decreased $299,000, or 9.3%, to $2.9 million in 2021 from $3.2 million in 2020 which reflected reduced spending on fixed assets and equipment. Rent and occupancy decreased $525,000, or 9.5%, to $5.0 million in 2021 from $5.5 million in 2020, reflecting a reduction in leased space and a relocation to lower cost space. Data processing expense decreased $48,000, or 1.0%, to $4.7 million in 2021 from $4.7 million in 2020. Printing and supplies decreased $143,000, or 27.8%, to $371,000 in 2021 from $514,000 in 2020, reflecting fewer paper based accounts and processes. Audit expense increased $408,000, or 38.5%, to $1.5 million in 2021 from $1.1 million in 2020, reflecting an increase in rates. Legal expense increased $1.7 million, or 33.2%, to $6.8 million for 2021 from $5.1 million in 2020, reflecting increased costs associated with the Cascade matter and two fact-finding inquiries by the SEC as described in Note O to the consolidated financial statements. Amortization of intangible assets decreased $158,000, or 28.4%, to $398,000 for 2021 from $556,000 for 2020. The decrease represented the full amortization in 2020 of software rights acquired in 2012. FDIC insurance expense decreased $4.2 million, or 43.0%, to $5.6 million for 2021 from $9.8 million in 2020, primarily due to a reduction in the Bank’s assessment rate. The reduction in rate primarily reflected the impact of the reclassification of certain of our deposits from brokered to non-brokered. Prior to the insurance rate reduction in the second half of 2021 to less than 10 basis points annually of average liabilities, the rate approximated 16 basis points. We believe that the insurance rate will continue to be lower than the 16 basis points in 2022. However, the rate is subject to multiple factors which may significantly change the amount assessed. Accordingly, we cannot assure you that reduced insurance rates will continue. Software expense increased $1.6 million, or 11.6%, to $15.7 million in 2021 from $14.0 million in 2020 which reflected expenditures for information technology to improve efficiency and scalability, including expenses related to remote operations and cybersecurity and upgrades for SBA loan processing. Insurance expense increased $1.1 million, or 38.3%, to $3.9 million in 2021 from $2.8 million in 2020, reflecting higher rates. Telecom and IT network communications expense decreased $54,000, or 3.3%, to $1.6 million in 2021 from $1.6 million in 2020. Consulting expense increased $65,000, or 4.8%, to $1.4 million in 2021 from $1.4 million in 2020. Other non-

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interest expense decreased $198,000, or 1.6%, to $12.5 million in 2021 from $12.7 million in 2020. The $198,000 decrease reflected a $156,000 reduction in travel expenses.

Income Tax Benefit and Expense

Income tax expense for continuing operations was $47.7 million, $33.7 million and $27.7 million, respectively, for 2022, 2021 and 2020. The effective tax rate of 26.8% in 2022 compared to 23.4% in 2021 and 25.6% in 2020. The higher effective tax rate in 2022 reflected the impact of a non-deductible $1.8 million civil money penalty. The lower effective rate in 2021 reflected the impact of tax benefits related to stock-based compensation resulting from the increase in the Company’s stock price. The difference between those rates and the federal statutory rate of 21% also reflected the impact of state income taxes.

Liquidity and Capital Resources

Liquidity defines our ability to generate funds to support asset growth, meet deposit withdrawals, satisfy borrowing needs and otherwise operate on an ongoing basis. 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 our interest-bearing account at the Federal Reserve. Interest-bearing balances at the Federal Reserve Bank, maintained on an overnight basis, averaged $424.3 million for the fourth quarter of 2022, compared to the prior year fourth quarter average of $208.1 million.

Our primary source of funding has been deposits. Average deposits in 2022 increased by $519.1 million, or 9.0%, to $6.27 billion compared to the prior year. Balances in both years reflected the temporary impact of government stimulus payments and growth in other debit and prepaid card account balances, partially offset by the impact of a client relationship transitioning to its own bank in 2021. Average savings and money market account balances increased $82.7 million between those periods, reflecting growth in interest-bearing accounts offered by our affinity group clients to prepaid and debit card account customers Savings and money market balances were reduced in December 2022, as we swept deposits off our balance sheet to other institutions. Such sweeps are utilized to optimize diversity within our funding structure by managing the percentage of individual client deposits to total deposits. Additionally, $86.9 million of average time deposits were utilized in 2022 as loan growth exceeded deposit growth in other deposit categories. Overnight borrowings are also periodically utilized as a funding source to facilitate cash management, but average balances have generally not been significant.

Our primary source of liquidity is available-for-sale securities which amounted to $766.0 million at December 31, 2022 compared to $953.7 million at December 31, 2021. In excess of $350 million of our available-for-sale securities are U.S. government agency securities which are highly liquid and which may be pledged as collateral for our Federal Home Loan Bank (“FHLB”) line of credit. Loan repayments, also a source of funds, were exceeded by new loan disbursements during 2021. As a result, at December 31, 2022 outstanding loans amounted to $5.49 billion, compared to $3.75 billion at the prior year end, an increase of $1.74 billion, which was partially funded by deposits, and prepayments on securities and commercial loans, at fair value. Commercial loans, at fair value decreased to $589.1 million from $1.39 billion between those respective dates, a decrease of $799.3 million, which also provided funding for other loan categories. In 2019 and previous years, commercial loans, at fair value were generally originated for sale into securitizations at six month intervals, but in 2020 we decided to retain such loans on the balance sheet. After we suspended originating such loans after first quarter 2020, we resumed originating non-SBA CRE loans in the third quarter of 2021. Those new originations are reported as real estate bridge lending. 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.

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 generated by third parties and were, prior to June 30, 2021, classified as brokered by the FDIC. If the Bank ceases to be categorized as “well capitalized” under banking regulations, it will be prohibited from accepting, renewing or rolling over 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 resulted in the majority of our deposits being reclassified from brokered to non-brokered. As of December 31, 2022, approximately $2.39 billion of our total deposit accounts of $7.03 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

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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. Stability, lower cost compared to certain other funding sources and customer loyalty comprise key characteristics of core deposits which we believe are comparable to core deposits of peers with branch systems. Certain components of our deposits do experience seasonality, creating greater excess liquidity at certain times in 2022. The largest deposit inflows have generally occurred in the first quarter of the year when certain of our accounts are credited with tax refund payments from the U.S. Treasury.

While consumer deposit accounts including prepaid and debit card accounts comprise the majority of our funding needs, we maintain secured borrowing lines with the FHLB and the Federal Reserve. As of December 31, 2022, we had a line of credit with the Federal Reserve which approximated $1 billion, which may be 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 remaining collateral value exceeds advances. Additionally, we have pledged in excess of $1 billion of multi-family apartment loans to the FHLB, with in excess of $1 billion of availability on our line of credit, which we can access at any time. As noted previously, that line may be increased by $350 million by pledging our U.S. government agency securities. As of December 31, 2022, we had no amount outstanding on the Federal Reserve line or on our FHLB line. We expect to continue to maintain our facilities with the FHLB and Federal Reserve, which, with the $350 million of U.S. government agency securities, represent our most readily accessible liquidity sources. We actively monitor our positions and contingent funding sources daily. Included in our cash and cash-equivalents at December 31, 2022, were $864.1 million of interest-earning deposits, which primarily consisted of deposits with the Federal Reserve. These amounts may vary on a daily basis.

In 2022, $161.1 million of securities sales and repayments exceeded purchases of $24.2 million. In 2021, $492.3 million of securities sales and repayments exceeded purchases of $259.1 million. In 2020, $233.8 million of securities sales and repayments exceeded purchases of $34.7 million. As shown in the consolidated statements of cash flows, cash required to fund loans was $1.68 billion in 2022, $1.10 billion in 2021 and $836.2 million in 2020.

At December 31, 2022, we had outstanding commitments to fund loans, including unused lines of credit, of $1.98 billion, the vast majority of which are SBLOC lines of credit which are variable rate. We attempt to increase such line usage; however, usage percentages have been historically consistent and the majority of these lines of credit have historically not been drawn. The recorded amount of such commitments has, for many accounts, been based on the full amount of collateral in a customer’s investment account. Accordingly, the funding requirements for such commitments occur on a measured basis over time and are expected to be funded by deposit growth. Additionally, these loans are “demand” loans and as such, represent a contingency source of funding.

As a holding company conducting substantially all of our business through our subsidiaries, our near term needs for liquidity consist principally of cash needed to make required interest payments on our trust preferred securities and senior debt. Our sources of liquidity consist primarily of dividends from the Bank to the holding company. 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 December 31, 2022, we had cash reserves of approximately $18.7 million at the holding company. The semi-annual interest payments on $100.0 million of senior debt issued by the holding company 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 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. In the fourth quarter of 2022, the Bank began paying dividends to the holding company to pay interest on these obligations and to fund ongoing common stock repurchases. Such repurchases are discretionary and may be terminated at any time. To the extent that planned repurchases of $25.0 million per quarter in 2023 continue, they will likely continue to be funded by dividends from the Bank to the holding company.

We must comply with capital adequacy guidelines issued by our regulators. A bank must, in general, have a Tier 1 leverage ratio of 5.0%, a ratio of Tier 1 capital to risk-weighted assets of 8.0%, a ratio of total capital to risk-weighted assets of 10.0% and a ratio of common equity to risk-weighted assets of 6.50% to be considered “well capitalized.” The Tier 1 leverage ratio is the ratio of Tier 1 capital to average assets for the most recent quarter. Tier 1 capital includes common shareholders’ equity, certain qualifying perpetual preferred stock and minority interests in equity accounts of consolidated subsidiaries, less intangibles. At December 31, 2022, we were “well capitalized” under banking regulations.

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

Asset and Liability Management

The management of rate sensitive assets and liabilities is essential to controlling interest rate risk and optimizing interest margins. An interest rate sensitive asset or liability is one that, within a defined time period, either matures or experiences an interest rate change in line with general market rates. Interest rate sensitivity measures the relative volatility of an institution’s interest margin resulting from changes in market interest rates. While it is difficult to predict the impact of inflation and responsive Federal Reserve rate changes on our net interest income, the Federal Reserve has historically utilized interest rate increases in the overnight federal funds rate as one tool in fighting inflation. Our largest funding source, prepaid and debit card accounts, contractually adjust 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 rate increases, interest-earning assets tend to adjust more fully to rate increases at contractual pricing intervals which may be monthly or up to several years. Most of our loans and securities reprice monthly or quarterly, although some reprice over longer periods. Additionally, the impact of loan interest rate floors which must be exceeded before rates on certain loans increase, may result in decreases in net interest income with lesser increases in rates. At December 31, 2022, the vast majority of floors had been exceeded.

As a financial institution, potential interest rate volatility is a primary component of our market risk. Fluctuations in interest rates will ultimately impact the level of our earnings and the market value of our interest-earning assets, other than those with short-term maturities. We do not own any trading assets. We used hedging transactions only for fixed rate commercial loans previously originated for sale into secondary securities markets. We no longer originate loans for sale or securitization and no longer engage in new hedging transactions.

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

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

Both interest rate sensitivity modeling and gap analysis are done at a specific point in time and involve a variety of significant estimates and assumptions. Interest rate sensitivity modeling requires, among other things, estimates of how much and when yields and costs on individual categories of interest-earning assets and interest-bearing liabilities will respond to general changes in market rates, future cash flows and discount rates. Gap analysis requires estimates as to when individual categories of interest sensitive assets and liabilities will reprice, and assumes that assets and liabilities assigned to the same repricing period will reprice at

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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, all else equal. During a period of rising interest rates, a positive gap would tend to result in an increase in net interest income while a negative gap would tend to affect net interest income adversely.

The following table sets forth the estimated maturity or repricing structure of our interest-earning assets and interest-bearing liabilities at December 31, 2022. Except as stated below, the amounts of assets or liabilities shown which reprice or mature during a particular period were determined in accordance with the contractual terms of each asset or liability. The majority of demand and interest-bearing demand deposits and savings deposits are assumed to be “core” deposits, or deposits that will generally remain with us regardless of market interest rates. We estimate the repricing characteristics of these deposits based on historical performance, past experience, judgmental predictions and other deposit behavior assumptions. However, we may choose not to reprice liabilities proportionally to changes in market interest rates for competitive or other reasons. Additionally, although non-interest-bearing demand accounts are not paid interest, we estimate certain of the balances will reprice as a result of the contractual fees that are paid to the affinity groups which are based upon a rate index, and therefore are included in interest expense. We have adjusted the transaction account balances in the table downward, to better reflect the impact of their partial adjustment to changes in rates. Loans and security balances, which adjust more fully to market rate changes, are based upon actual balances. The largest segments of loans subject to interest rate floors are the majority of non-SBA commercial loans, at fair value, REBL and IBLOC loans, which totaled approximately $442.4 million, $1.67 billion, and $1.12 billion at December 31, 2022, respectively. As of that date, floors were mostly exceeded. The table does not assume any prepayment of fixed-rate loans and mortgage-backed securities based on their anticipated cash flow, including prepayments based on historical data and current market trends. The table does not necessarily indicate the impact of general interest rate movements on our net interest income because the repricing and related behavior of certain categories of assets and liabilities is beyond our control as, for example, prepayments of loans and withdrawal of deposits. 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.

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

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

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 MVPE and net interest income. Rate shocks assume that current interest rates change immediately and sustain parallel shifts. For interest rate increases or decreases of 100 and 200 basis points, our policy includes a guideline that our MVPE ratio should not decrease more than 10% and 15%, respectively, and that net interest income should not decrease more than 10% and 15%, respectively. As illustrated in the following table, we complied with our asset/liability policy guidelines at December 31, 2022, with the exception of the decrease of 200 basis points in the net interest income scenario, which was minimally out of the range. While our modeling suggests that increases in market rates of 100 and 200 basis points will have a positive impact on margin (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.

If we should experience a mismatch in our desired gap ranges, or an excessive decline in our MVPE subsequent to an immediate and sustained change in interest rate, we have a number of options available to remedy such a mismatch. We could restructure our investment portfolio through the sale or purchase of securities with more favorable repricing attributes. We could also emphasize loan products with appropriate maturities or repricing attributes, or we could emphasize deposits or obtain borrowings with desired maturities. We continue to evaluate market conditions and may change our current interest rate strategy in response to changes in those conditions. For instance, as market rates continue their upward trend, we may increase securities purchases to lock in higher rates. Such purchases would decrease our asset sensitivity, should rates continue to increase after such purchases.

Financial Condition

General. Our total assets at December 31, 2022 were $7.90 billion, of which our total loans and commercial loans, at fair value from continuing operations were $6.08 billion and investment securities available-for-sale were $766.0 million. At December 31, 2021, our total assets were $6.84 billion, of which our total loans and commercial loans, at fair value from continuing operations were $5.14 billion and investment securities available-for-sale were $953.7 million. The increase in total assets at December 31, 2022 reflected increases in loans including increases in SBLOC and IBLOC, real estate bridge lending (apartment building loans), leasing, investment advisor financing and SBA loans, net of the impact of the repayment of short-term PPP loans. The increases in loans were partially offset by decreases in securities available-for-sale. 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 December 31, 2022, we had a total of $864.1 million of interest-earning deposits, comprised primarily of balances at the Federal Reserve, which pays interest on such balances. At December 31, 2021, we had $596.4 million of such balances. The increase reflected net deposit inflows which vary on a daily basis.

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Investment Portfolio. For detailed information on the composition and maturity distribution of our investment portfolio, see Note D to the Consolidated Financial Statements. Total investment securities available-for-sale decreased to $766.0 million on December 31, 2022, a decrease of $187.7 million, or 19.7%, from a year earlier. The decrease reflected prepayments on higher rate securities as a result of the lower rate environment.

The Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 320, Investments—Debt and Equity Securities, requires that debt and equity securities classified as available-for-sale be reported at fair value, with unrealized gains and losses unrelated to credit losses excluded from earnings and reported in other comprehensive income. Marking an available-for-sale portfolio to market (fair value) results in fluctuations in the level of shareholders’ equity and equity-related financial ratios as market interest rates and market demand for such securities cause the fair value of fixed-rate securities to fluctuate. Debt securities for which we had the positive intent and ability to hold to maturity were classified as held-to-maturity and carried at amortized cost as of December 31, 2019. In March 2020, we transferred the four securities comprising our held-to-maturity securities portfolio to available-for-sale. The interest rates for these securities utilize LIBOR as a benchmark and the transfer was made pursuant to a provision of Accounting Standards Update (“ASU” or “Update”) 2020-04, which sought to maximize management and accounting flexibility as a result of the future phase-out of LIBOR.

The four securities transferred to available-for-sale and their values as of December 31, 2020 were as follows: a trust preferred unrated security issued by an insurance company with a book value of $10.0 million and a fair value of $6.8 million; and three securities which were subsequently repaid.

Under the accounting guidance related to current expected credit loss (“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. The guidance for the new CECL allowance includes a provision for the reversal of credit losses in future periods based on improvements in credit, which was not included in previous guidance. Generally, a security’s credit-related loss is the difference between its amortized cost basis and the best estimate of its expected future cash flows discounted at the security’s effective yield. That difference is recognized through the income statement, as with prior guidance, but is renamed a provision for credit loss. For the years ended December 31, 2022 and 2021, we recognized no credit-related losses on our portfolio.

The following table presents the book value and the approximate fair value for each major category of our investment securities portfolio. At December 31, 2022 and 2021, our investments were all categorized as available-for-sale (in thousands).

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Investments in FHLB, Atlantic Central Bankers Bank, and Federal Reserve Bank stock are recorded at cost and amounted to $12.6 million at December 31, 2022 and $1.7 million at December 31, 2021. Each of these institutions require their member banking institutions to hold stock as a condition of membership. The Bank’s conversion to a national charter required the purchase of $11.0 million of Federal Reserve Bank stock in September of 2022. 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.

We pledge loans against our line of credit at the FHLB and had no securities pledged against that line as of December 31, 2022 and December 31, 2021. At December 31, 2022 and December 31, 2021, no investment securities were encumbered through pledging or otherwise.

Of the six securities we owned resulting from our securitizations all have been repaid except those from CRE-2. As of December 31, 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. Our $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 properties supporting the three remaining loans were re-appraised between 2020 and 2022. The updated appraised value is approximately $57.3 million, which is net of $1.7 million due to the servicer. The remaining principal to be repaid on all securities is approximately $58.1 million and, as noted, the 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 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 $25.9 million July 2022 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 while the servicer continues to advance interest, keeping the CRE-2 security current.

The following tables show the contractual maturity distribution and the weighted average yields of our investment securities portfolio as of December 31, 2022 (in thousands):

* If adjusted to their taxable equivalents, yields would approximate 3.29% for zero to one year and 3.56% for one to five years at a Federal tax rate of 21%. The average yields in the above table were computed based upon a weighted average yield of the securities outstanding in each category.

Commercial Loans, at Fair Value. Commercial loans, at fair value are comprised of non-SBA CRE loans and SBA loans which had been originated for sale or securitization through the first quarter of 2020. These loans are now being held on the balance sheet and continue to be accounted for at fair value. Non-SBA 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. Commercial loans, at fair value decreased to $589.1 million at December 31, 2022 from $1.39 billion at December 31, 2021 reflecting the impact of repayments. In the third quarter of 2021 we resumed originating non-SBA CRE loans, after having suspended

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such originations for most of 2020 and the first half of 2021. 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. See the table below prefaced by the introduction: “Commercial real estate loans, primarily bridge loans, excluding SBA loans…”.

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

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

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

* Securities Backed Lines of Credit, or 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 December 31, 2022 and December 31, 2021, respectively, IBLOC loans amounted to $1.12 billion and $788.3 million.

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

*** Included in the table above under Other loans are demand deposit overdrafts reclassified as loan balances totaling $2.6 million and $322,000 at December 31, 2022 and December 31, 2021, respectively. Estimated overdraft charge-offs and recoveries are reflected in the allowance for credit losses and have been immaterial. December 31, 2022 includes $50.4 million of balances previously included in discontinued assets including $18.8 million of residential loans with the balance comprised of commercial loans.

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

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The following table summarizes our small business loan portfolio, including loans held at fair value, by loan category as of December 31, 2022 (in thousands):

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

(b)Substantially all these loans are made under the SBA 504 Fixed Asset Financing program (504) which dictates origination date loan to value percentages (LTV), generally 50-60%, to which the Bank adheres.

(c)Of the $10.0 million in Construction SBA loans, $8.7 million are 504 first mortgages with an origination date LTV of 50-60% and $1.3 million are SBA interim loans with an approved SBA post-construction full takeout/payoff.

(d)The $100.3 million represents the unguaranteed portion of 7a loans which are 70% or more guaranteed by the U.S. government. 7a 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 7a and 504 loans require the personal guaranty of all 20% or greater owners.

The following table summarizes our small business loan portfolio, excluding the government guaranteed portion of SBA 7a loans and PPP loans, by loan type as of December 31, 2022 (in thousands):

* Of the SBL commercial mortgage and SBL construction loans, $85.3 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.

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** Loan types less than $3.0 million are spread over a hundred different classifications such as Commercial Printing, Pet and Pet Supplies Stores, Securities Brokerage, etc.

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 December 31, 2022 (in thousands):

* Of the SBL commercial mortgage and SBL construction loans, $85.3 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 largest loans in our small business loan portfolio, including loans held at fair value, as of December 31, 2022 (in thousands):

Commercial real estate loans, primarily bridge loans, excluding SBA loans, are as follows including LTV at origination as of December 31, 2022 (dollars in thousands).

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*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 are not accounted for at fair value.

The following table summarizes our commercial real estate loans, primarily bridge loans excluding SBA loans, by state as of December 31, 2022 (in thousands):

The following table summarizes our 15 largest commercial real estate loans, primarily bridge loans, excluding SBA loans, as of December 31, 2022 (in thousands). All these loans are multi-family apartment loans.

The following table summarizes our institutional banking portfolio by type as of December 31, 2022 (in thousands):

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

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The following table summarizes our top 10 SBLOC loans as of December 31, 2022 (in thousands):

IBLOC loans are backed by the cash value of life insurance policies which have been assigned to us. We generally lend up to 95% of such cash value. Our underwriting standards require approval of the insurance companies which carry the policies backing these loans. Currently, nine insurance companies have been approved and, as of December 1, 2022, all were rated A- or better by AM BEST.

The following table summarizes our direct lease financing portfolio* by type as of December 31, 2022 (in thousands):

* Of the total $632.2 million of direct lease financing, $551.8 million consisted of vehicle leases with the remaining balance consisting of equipment leases.

** Includes public universities and school districts.

The following table summarizes our direct lease financing portfolio by state as of December 31, 2022 (in thousands):

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

Allowance for Credit Losses. We review the adequacy of our allowance for credit losses on at least a quarterly basis to determine a provision for credit losses to maintain our allowance 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 independently of loan production officers. A description of loan review coverage is summarized in Note E to the consolidated financial statements which also provides a description of the methodology by which our quarterly provision for credit losses is determined.

We performed a strategic evaluation of our businesses in the third quarter of 2014 and decided to discontinue our Philadelphia commercial lending operations to focus on specialty finance lending. We have 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 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”.

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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. Accordingly, a $3.5 million credit to “ Net realized and unrealized gains on commercial loans, at fair value” was offset by a provision for credit losses of $3.5 million with no net impact on income. Of the $3.5 million provision, $1.3 million increased the 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 December 31, 2022, the allowance for credit losses amounted to $22.4 million, which represented a $4.6 million increase compared to the $17.8 million at December 31, 2021. In addition to the increase resulting from the reclassification of discontinued loans noted above, the increase reflected the impact of loan growth and other factors on the CECL model which was offset by allowance reductions as described in “Provision for Credit Losses” and Note E to the consolidated financial statements. Troubled debt restructured loans are individually considered by comparing collateral values with principal outstanding and establishing specific reserves within the allowance. At December 31, 2022, there were 11 troubled debt restructured loans with a balance of $5.3 million which had specific reserves of $637,000. These reserves related primarily to the non-guaranteed portion of SBA loans for start-up businesses.

The following table presents delinquencies by type of loan for December 31, 2022 and 2021 (in thousands):

Although we consider our allowance for credit losses to be appropriate and supportable based on information currently available, future additions to the allowance 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.

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The following table presents an allocation of the allowance for credit losses among the types of loans or leases in our portfolio at December 31, 2022, 2021, 2020, 2019 and 2018 (in thousands):

Summary of Loan and Lease Loss Experience. The following tables summarize our credit loss experience for each of the periods indicated (in thousands):

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