FinWise Bancorp (FINW) 8-KFinwise Bancorp Reports Second Quarter 2024 Results

“FinWise delivered another strong quarter, driven by continued growth in loan originations, solid revenue and stable credit quality,” said Kent Landvatter, Chief Executive Officer of FinWise. “These results highlight the strength and resiliency of our existing business, as they do not include any benefit from recently announced strategic partnerships and expansion strategies. Our team has also delivered, ahead of schedule, on multiple initiatives, including the launch of our first Payments partner, the start of our Credit-Enhanced Balance Sheet program and the launch of our first card product. Additionally, we remain on schedule to be operational with our Payment Hub platform later this year. Looking ahead, we remain excited about future growth opportunities and are steadfastly committed to executing on our strategic goals to further enhance value for our shareholders.”

Net income was $3.2 million for the second quarter of 2024, compared to $3.3 million for the first quarter of 2024 and $4.6 million for the second quarter of 2023. The decrease from the prior quarter was primarily due to increased compensation cost driven by increased spending on business infrastructure to support the payments and bank identification number (“BIN”) initiatives and enhance governance and lower non-interest income primarily resulting from acceleration of servicing fee amortization due to increased early payoffs of SBA loans. These were offset in part by an increase in net interest income reflecting higher average balances and an increase in yields on our held-for-sale loan portfolio, a decrease in the provision for credit losses reflecting lower levels of charge-offs, and a decrease in our effective tax rate. The decrease from the prior year period was primarily due to increases in compensation expense and other expenses driven by increased spending on business infrastructure and was offset in part by increases in net interest income driven by growth in the loans held for investment portfolio as well as a reduction in tax expense reflecting the lower level of pre-tax income.

Net interest income was $14.6 million for the second quarter of 2024, compared to $14.0 million for the first quarter of 2024 and $13.7 million for the second quarter of 2023. The increase from the prior quarter was primarily due to an increase in the loans held for investment portfolio and an increase in the yield on our held-for-sale loan portfolio partially offset by increases in the Bank’s average balances of, and rates paid for, certificates of deposit. The increase from the prior year period was primarily due to increases in the Bank’s average balances for the loans held for investment portfolio, partially offset by increased interest rates paid on deposits and increased average interest-bearing deposit balances.

Loan originations totaled $1.2 billion for the second quarter of 2024, compared to $1.1 billion for the prior quarter and $1.2 billion for the prior year period. For the first three weeks of July 2024, originations are tracking at approximately the same level as the second quarter of 2024 originations.

Net interest margin for the second quarter of 2024 was 10.31%, compared to 10.12% for the prior quarter and 12.14% for the prior year period. The increase from the prior quarter is primarily attributable to an increase in the loans held for investment balance and higher yields on the loans held-for-sale portfolio, partially offset by increases in the Bank’s average balances of, and rates paid for, certificates of deposit. The decrease from the prior year period was primarily due to decreases in the yields of the loans held-for-sale and loans held for investment portfolios reflecting the Bank’s efforts to increase loans outstanding to borrowers with lower credit risk and lower average yields.

The Company’s provision for credit losses was $2.4 million for the second quarter of 2024, compared to $3.2 million for the prior quarter and $2.7 million for the prior year period. The provision decreased when compared to the prior quarter and the prior year period as the Company experiences lower levels of charge offs. Nonperforming assets have remained stable in the first half of 2024 when compared to the increases experienced in the latter half of 2023.

Non-interest income was $4.8 million for the second quarter of 2024, compared to $5.5 million for the prior quarter and $5.3 million for the prior year period. The decrease from the prior quarter was primarily due to acceleration of servicing fee amortization due to increased payoffs on higher rate SBA loans. The decrease from the prior year period was related to a decrease in income from the gain on sale of loans, and a decrease in the fair value of our investment in BFG. Offsetting these decreases in part were increases in Strategic Program fees as origination volume increased, and other miscellaneous income related to rental income on our commercial operating leases.

Non-interest expense was $12.9 million for the second quarter of 2024, compared to $11.8 million for the prior quarter and $10.0 million for the prior year period. The increase from the prior quarter was primarily due to an increase in compensation costs and other operating expenses as the Company continues to build-out our business infrastructure for new business initiatives and enhance our governance structure. The increase from the prior year period was primarily due to an increase in salaries and employee benefits and other operating expenses driven by increased spending on business infrastructure along with an increase in occupancy and equipment expenses reflecting the growth in our business.

Reflecting the expenses incurred to develop our business infrastructure, the Company’s efficiency ratio was 66.3% for the second quarter of 2024, compared to 60.6% for the prior quarter and 52.7% for the prior year period. As a result of the infrastructure build, the Company anticipates the efficiency ratio will remain elevated until the Company begins to realize the revenues associated with the new programs being developed.

The Company’s effective tax rate was 23.9% for the second quarter of 2024, compared to 26.5% for the prior quarter and 26.1% for the prior year period. The decrease from the prior quarter and prior year period was due primarily to more favorable resolution of historical state tax matters.

The Company’s total assets were $617.8 million as of June 30, 2024, an increase from $610.8 million as of March 31, 2024 and $495.6 million as of June 30, 2023. The increase from March 31, 2024 was primarily due to continued growth in the Company’s commercial leases, owner occupied commercial real estate, and residential real estate loan portfolios. The increase in total assets compared to June 30, 2023 was primarily due to increases in the Company’s SBA, commercial leases, owner occupied commercial real estate and consumer loan portfolios supported by a similar increase in deposits and growth in equity from retained earnings. Also contributing to the increase in total assets compared to the prior year period was an increase in the Company’s investment in BFG.

The following table shows the gross loans held for investment balances as of the dates indicated:

Total gross loans held for investment as of June 30, 2024 were $414.3 million, an increase from $390.9 million and $290.7 million as of March 31, 2024 and June 30, 2023, respectively. The increase compared to March 31, 2024

was primarily due to increases in the commercial leases, owner occupied commercial real estate, and residential real estate loan portfolios. The increase compared to June 30, 2023 was primarily due to increases in the SBA 7(a), commercial leases, commercial real estate owner occupied, residential real estate, and consumer loan portfolios.

The following table shows the Company’s deposit composition as of the dates indicated:

Total deposits as of June 30, 2024 increased to $429.2 million from $424.1 million and $332.5 million as of March 31, 2024 and June 30, 2023, respectively. The increase from March 31, 2024 was driven primarily by an increase in brokered time certificates of deposits. The increase from June 30, 2023 was driven primarily by an increase in brokered time certificate of deposits and non-interest bearing demand deposits. As of June 30, 2024, 31.3% of deposits at the Bank level were uninsured, compared to 32.4% as of March 31, 2024, and 36.3% as of June 30, 2023. As of June 30, 2024, 7.6% of total deposits at the Bank were required under the Company’s Strategic Program agreements and an additional 8.6% were associated with other accounts owned by the Company or the Bank.

Total shareholders’ equity as of June 30, 2024 increased $3.3 million to $165.8 million from $162.5 million at March 31, 2024. Compared to June 30, 2023, total shareholders’ equity increased by $18.4 million from $147.4 million. The increase from March 31, 2024 was primarily due to the Company’s net income. The increase from June 30, 2023 was primarily due to the Company’s net income as well as the additional capital issued in exchange for the Company’s increased ownership in BFG, partially offset by the repurchase of common stock under the Company’s repurchase program.

The following table presents the leverage ratios for the Bank as of the dates indicated as determined under the Community Bank Leverage Ratio Framework of the Federal Deposit Insurance Corporation:

The leverage ratio increase from the prior quarter resulted from assets growing slower than earnings generated by operations. The leverage ratio decrease from the prior year period resulted primarily from the growth in the loan portfolio. The Bank’s capital levels remain significantly above well-capitalized guidelines as of June 30, 2024.

As of June 30, 2024, the Company has repurchased a total of 44,608 shares for $0.5 million under the Company’s share repurchase program announced in March 2024.

The Company’s net charge-offs were $1.9 million, $3.4 million and $2.4 million for the quarters ended June 30, 2024, March 31, 2024, and June 30, 2023, respectively. The decrease for the quarter ended June 30, 2024 when compared to the quarters ended March 31, 2024 and June 30, 2023 was primarily due to decreased net charge-offs in the Strategic Program loans portfolio.

FinWise will host a conference call today at 5:30 PM ET to discuss its financial results for the second quarter of 2024. A simultaneous audio webcast of the conference call will be available on the Company’s investor relations section of the website at https://investors.finwisebancorp.com/.

The Company intends to use its website, www.finwisebancorp.com, as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD. Such disclosures will be included in the Company’s website’s Investor Relations section. Accordingly, investors should monitor the Investor Relations portion of the Company’s website, in addition to following its press releases, filings with the Securities and Exchange Commission (“SEC”), public conference calls, and webcasts. To subscribe to the Company’s e-mail alert service, please click the “Email Alerts” link in the Investor Relations section of its website and submit your email address. The information contained in, or that may be accessed through, the Company’s website is not incorporated by reference into or a part of this document or any other report or document it files with or furnishes to the SEC, and any references to the Company’s website are intended to be inactive textual references only.

FinWise Bancorp is a Utah bank holding company headquartered in Murray, Utah which wholly owns FinWise Bank, a Utah chartered state bank, and FinWise Investment LLC (together “FinWise). FinWise provides Bank and Payments solutions to fintech brands. 2024 is a key expansion year for the company as it expands and diversifies its business model by launching and incorporating Payments Hub and BIN Sponsorship offerings into its current platforms. FinWise’s existing Strategic Program Lending business, done through scalable API-driven infrastructure, powers deposit, lending and payments programs for leading fintech brands. In addition, FinWise manages other Lending programs such as SBA 7(a), Owner Occupied Real Estate, and Leasing, which provides flexibility for disciplined balance sheet growth. Through its compliance oversight and risk management-first culture, the Company is well positioned to guide fintechs through a rigorous process to facilitate regulatory compliance. For more information about FinWise visit https://investors.finwisebancorp.com.

This release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the Company’s current views with respect to, among other things, future events and its financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “projection,” “forecast,” “budget,” “goal,” “target,” “would,” “aim” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about the Company’s industry and management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond the Company’s control. The inclusion of these forward-looking statements should not be regarded as a representation by the Company or any other person that such expectations, estimates and projections will be achieved. Accordingly, the Company cautions you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

There are or will be important factors that could cause the Company’s actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following: (a) the success of the financial technology industry, as well as the continued evolution of the regulation of this industry; (b) the ability of the Company’s Strategic Program or Fintech Banking Solutions service providers to comply with regulatory regimes, and the Company’s ability to adequately oversee and monitor its Strategic Program and Fintech Banking Solutions service providers; (c) the Company’s ability to maintain and grow its relationships with its service providers; (d) changes in the laws, rules, regulations, interpretations or policies relating to financial institutions, accounting, tax, trade, monetary and fiscal matters, including the application of interest rate caps or maximums; (e) the Company’s ability to keep pace with rapid technological changes in the industry or implement new technology effectively; (f) system failure or cybersecurity breaches of the Company’s network security; (g) potential exposure to fraud, negligence, computer theft and cyber-crime and other disruptions in the Company’s computer systems relating to its development and use of new technology platforms; (h) the Company’s reliance on third-party service providers for core systems support, informational website hosting, internet services, online account opening and other processing services; (i) general economic and business conditions, either nationally or in the Company’s market areas; (j) increased national or regional competition in the financial services industry; (k) the Company’s ability to measure and manage its credit risk effectively and the potential deterioration of the business and economic conditions in the Company’s primary market areas; (l) the adequacy of the Company’s risk management framework; (m) the adequacy of the Company’s allowance for credit losses (“ACL”); (n) the financial soundness of other financial institutions; (o) new lines of business or new products and services; (p) changes in Small Business Administration (“SBA”) rules, regulations and loan products, including specifically the Section 7(a) program or changes to the status of the Bank as an SBA Preferred Lender; (q) the value of collateral securing the Company’s loans; (r) the Company’s levels of nonperforming assets; (s) losses from loan defaults; (t) the Company’s ability to protect its intellectual property and the risks it faces with respect to claims and litigation initiated against the Company; (u) the Company’s ability to implement its growth strategy; (v) the Company’s ability to launch new products or services successfully; (w) the concentration of the Company’s lending and depositor relationships through Strategic Programs in the financial technology industry generally; (x) interest-rate and liquidity risks; (y) the effectiveness of the Company’s internal control over financial reporting and its ability to remediate any future material weakness in its internal control over financial reporting; (z) dependence on our management team and changes in management composition; (aa) the sufficiency of the Company’s capital; (bb) compliance with laws and regulations, supervisory actions, the Dodd-Frank Act, capital requirements, the Bank

Secrecy Act and other anti-money laundering laws, predatory lending laws, and other statutes and regulations; (cc) results of examinations of the Company by its regulators; (dd) the Company’s involvement from time to time in legal proceedings; (ee) natural disasters and adverse weather, acts of terrorism, pandemics, an outbreak of hostilities or other international or domestic calamities, and other matters beyond the Company’s control; (ff) future equity and debt issuances; (gg) that the anticipated benefits new lines of business that the Company may enter or investments or acquisitions the Company may make are not realized within the expected time frame or at all as a result of such things as the strength or weakness of the economy and competitive factors in the areas where the Company and such other businesses operate; and (hh) other factors listed from time to time in the Company’s filings with the Securities and Exchange Commission, including, without limitation, its Annual Report on Form 10-K for the year ended December 31, 2023 and subsequent reports on Form 10-Q and Form 8-K. The timing and amount of purchases under the Company’s share repurchase program will be determined by management based upon market conditions and other factors. Purchases may be made pursuant to a program adopted under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. The program does not require the Company to purchase any specific number or amount of shares and may be suspended or reinstated at any time at the Company’s discretion and without notice.

Any forward-looking statement speaks only as of the date of this release, and the Company does not undertake any obligation to publicly update or review any forward-looking statement, whether because of new information, future developments or otherwise, except as required by law. New risks and uncertainties may emerge from time to time, and it is not possible for the Company to predict their occurrence. In addition, the Company cannot assess the impact of each risk and uncertainty on its business or the extent to which any risk or uncertainty, or combination of risks and uncertainties, may cause actual results to differ materially from those contained in any forward-looking statements.