FinWise Bancorp (FINW) 25 Jan 232022 Q4 Earnings call transcript

Greetings and welcome to the FinWise Bancorp Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded.

I will now turn the conference over to management.

you XXXX us conference thank Bancorp's for and quarter fourth call. afternoon, for today joining FinWise Good

In addition to to Today's on press section release the this our conference call, we this of investors.finwisebancorp.com. recorded and issued call afternoon company's is posted and at website it website the being Relations earlier Investor investors.finwisebancorp.com. an webcast earnings

differ risks On from actual statements that forward-looking questions may today's call, contain cause today. management's discussed could prepared subject those remarks and to and results that to answers to your uncertainties are

management's statements Commission. and assumes statements listeners forward-looking discussions Forward-looking with filings future. statements and no detailed obligation current and these release encourage represent estimates in contained the Securities FinWise in to to We forward-looking more to Bancorp review the the update Exchange company's any related press the earnings

Hosting Strategy are today FinWise Jim Mr. Javvis and Kent and Chief Chief CEO and Noone, Credit Bancorp; Landvatter, Mr. the call Officer; Financial Jacobson, Chief President of Mr. Officer.

turn to the With that, call I Mr. over will Landvatter.

everyone, provide Good perspective environment will fourth call. we call, and on the our some continued results operating the On our of on evolution model. today's and earnings our current joining quarter financial share XXXX us update and conference afternoon, business on an you for thank

XXXX, its our in rapidly During we substantially in well of business deteriorating even executed all facets economic environment.

continued our diverse Our and with solid allowed deliver members team by returns. to originations, model us industry differentiated these profitable execution leading business headwinds to and strong growth loan navigate macro coupled and

share generated $XX.X earnings $XX.X revenue and million, $X.XX. of net for per of Specifically million full-year XXXX, income diluted we the of

$X.X quarter. Total the led was more were in solid income the quarter share for originations QX $X.X by diluted $XX.X $X.XX QX billion. million, challenging year and prior million the macro particularly compared results ended compared to previous per QX, $X.X with given was for also for earnings of $X.XX million Net loan QX, during the revenue environment. We

profitability capital including were average tangible per equity share. for million. we earnings to opportunistic robust of XX.X% quarter. of $X.X buyback measures, per maintained We total during value ‘XX, we buyback is value, book a continue deployment our to below on tangible share accretive share as to of Overall We a also stewards We the with continue good which back return also shares approximately to bought strategy, plan XXX,XXX capital and strategy. our including our book stock be during

tangible prior $XX.XX or book continued Positively common value to share grow in to year per period. company's the over increase QX, the share per XX.X%

is plan and income to continued order for challenging expected environment the in once profitable proactively reinvest XXXX, funding that in particularly and positioned company can the so environment to streams, remain remain macro to in to well the we we build and long-term diversity build help widely our Although growth, to sustainable on continue success of improves.

how we different in in challenging provide our thoughts XXXX. I'd utilize stability identifying credit about including potentially macro understand including to navigate we that earnings. end, balance sheet, includes you continue plan ways This like more us are a to help a objectives, adding way in to that environment thinking to key to some gives with you how To prudently risk

rapidly XXXX we environment, This same throughout the and immune. continued on not in originations and macro As the we would highlighted the trend expect continue this QX into improvement for environment XXXX. significant prior without loan industry was a calls, decelerated across FinWise pattern to XXXX in

strategic engaging where interest see as strategic towards new our remain to additional programs pleased potential with strong to This Going say strong. our programs, forward, on remain working we launching business focused that to platforms. platforms am includes relationships we with from I plan particularly existing and continue also

the pressure on new a strategic given mentioned to important is highlight revenue tougher of is from environment, the macro However, typically it period any originations new it taken originations in two, seeing XX days year in program. benefit come we through delayed start before potential give: the from and for to previously normal has programs that to FinWise a XXX one, the addition generally operating strategic to program; the launch

SBA the also for in last a incremental we tailwind mentioned long-term. loan on gain which we to guaranteed growth on investment we expect call, over of and to quarter's net continue the although originate the company's portion the SBA and to will headwind stronger result As held earnings to expect hold income loans, an interest our sale, certain X(a)

our we have develop product see to an model. our traditional since line opportunity further in XXXX. place be expansion would also great this of set are a the We our as diversify had revenue further leasing business, and to which business looking expand of We

efficiency During ratio higher spend, a infrastructure to along business headcount QX, we in pickup experienced our which caused driven increase. partly revenue a expenses increased by and deceleration in and employee originations with

ratio FinTech calls, mentioned likely we efficiency infrastructure, expect we build continue And office. offerings. is as expand on our also increase have our As back to prior out to to including

continue the including deposits banking-as-a-service, of of payments. team lending, assess evolution components to and natural will three Our model, our business

We have the to some also made support key bank. growing hires

of Accounting terms product. We more opportunistic we as example, remain For President best-in-class joined as us in banking-as-a-service especially Senior Chief plan Taylor Meg recently hiring Vice talent, towards Officer. evolve and to

company Importantly, are capitalize be investments quickly in we opportunities, to well environment prepared designed us the our particularly while that on customers, relationships focus helping the on growth macro intend supportive. making to to becomes with more to when current carefully deepen

mind accordingly. prudently and we Having decisions Keeping managing said that, will on also conditions. focus in tougher economic expenses making

in our to quality varying credit management underwriting to and through risk to disciplined also cycles. maintain sustain approach order strong credit sound overall We plan

the normalization from pleased the levels. any remain we So as far, our aside seen portfolios pre-pandemic not with gradual credit credit performance we overall outsized to industry-wide of expected deterioration of have

investment loan you retention in of we program following our our strategic who that XXXX. story recall slowed this for on All sub-XX% call, been in early held has may proactively portfolio

ratio imply that the as we has percentage our balances it denominator total charge-offs significantly a necessarily increasing not effect balances these of normalization. given lower reducing are of loans seeing of does of faster-than-expected credit net the effect while Importantly,

have mentioned not growth. quality I before, of to As do intend for sacrifice sake the credit we

and further Overall, faster-than-expected we the focused credit that, will U.S. on doing from said, to remain we in growth long-term, that shareholder opportunities this, That capitalize we acknowledge we the But drive do to clients. well our build believe while to maximizing deterioration, to for work programs normalization. deterioration Moreover, quality any of industry-wide economic environment the emerge continuing scenario. value. company could the to levels that long-term to market we positioned proactively while a strategic order with serve By economy current on our risk we position we are once believe stabilizes. navigate such the further plan

results. provide that, who detail financial let turn call to with on With me the our will you our Jacobson more over CFO, Javvis

Thank you, and afternoon. good

As Kent million our XXXX, per or mentioned for income $X.XX delivered of share. we the diluted and balance $XX.X grew sheet common full-year meaningful net

We XXXX. profitability return on average assets on as generated XX, we the X.X% XX.X% ended solid also average December equity year for posted of of and return

for compared in loans $XXX.X to in and and billion billion QX Loan QX in Let's QX $X.X held $XXX.X sale investment during totaled million million billion ‘XX QX ‘XX held in balances to compared comprising $X.X $X.X and $XXX.X ’XX. QX ’XX. originations for QX, turn Average as million were loan results. QX, to during

assets average QX, and million ’XX. Total $XXX.X $XXX.X during earning interest for million million QX were QX to $XXX.X compared for ‘XX

we significant in As follows similar generally into move Kent improvement pattern. noted without trend And originations as a earlier, the QX continued a we deceleration this environment, in in industry-wide expect and continue XXXX. FinWise to macro

period Average ‘XX by The money and to during in of deposits, demand increase $XXX.X decline of by was demand was certificates deposit. during driven increase mainly certificates the were deposits $XXX.X from increase an interest-bearing driven and by in in million and QX, an decline deposit market interest-bearing QX during decrease million a deposits. partially deposits offset partially in compared $XXX QX interest-bearing year from The ‘XX. deposits, primarily QX market by offset money million a prior ‘XX

levels have high deposit generally volume. with origination non-interest-bearing previously, a noted have correlation we As

Let's look driven sale sequential offset quarter loans, higher $XX.X loan by primarily for losses, income QX of taxes, in ’XX. in ‘XX provision expense. million statement. to million $X.X partially was QX, million by on Net lower at increase and provision a non-interest was $X.X income The compared the for gain income higher QX in and lower

prior for year primarily per million period interest held Net ‘XX. the driven to income change and for QX was QX million, the balances. The previous was $XX.X average million to sale relative during loans lower by $XX.X compared $XX.X quarter

and portfolio deposits for in portfolio shift lower margin cost QX ‘XX. was primarily XX.XX% mix interest to the in and QX compared XX.XX% higher by lower in to XX.XX%, cost decline sequential balances the average of quarter held from deposits. The loans ‘XX sale driven was Net deposit QX a

mainly was net The loans increase balances. rate interest driven deposit held for by higher an ’XX sale balances decreases in and lower margin from QX average

we've prior calls, fluctuate As to net margin interest quarter-to-quarter, in our our asset expect mix. we shifts from on to due noted

on loan $X.X fees during partially by origination sequential one-time the was Non-interest value driven million establish QX, strategic BFG previous in The fee offset due loans compared $X.X and QX group, million primarily million was a loan gain $X.X investment, change business fair sale income $X.X our trailing quarter in a increase new asset volumes. million a to quarter lower funding of to decrease recorded an to the approximately of in program in of and LLC, by ‘XX.

was impacted gain this from offset fees This in increase decline ‘XX QX in program primarily metrics an strategic one-time a some resulting primarily compared originations. sale of the quarter. adjustment lower to due to loans, after-tax partially Certainly, increase during by on of our

quarterly We fair will improvements. to partially investment of continue by experience in BFG market expect general our driven value a fluctuations,

fees are million, QX to Non-interest and $XX.X primarily developing $X.X infrastructure. employee program and pickup due and to ‘XX upgrading to from $X.X SBA to during was generated servicing previous in million the compared loans headcount higher technology to The new to refer trailing and related revenue expenses QX that compared sold still QX company's in ’XX. strategic rose million and Loan quarter an impairment asset the on business performing. existing

a Relative ‘XX, and decrease to offset which and depreciation benefits. was primarily from due by build an of increased office, consulting our increase fees in the employee -- increased partially in relating was increase salaries mostly services QX to to professional out corporate the to

The company's QX XX.X% XX.X% versus XX.X% and ratio in efficiency QX quarter the was prior during ’XX. during

increase calls, for in to noted past to we our infrastructure expect to company continue efficiency ratio to long-term the company's sustainable we've the growth. continue gradually as position we As out build

We with light environment. prudent will strive of expenses in tougher be to macro

XXXX. XX, total loan non-performing The for any X.XX company's not with for to solid remained losses loans loans primarily a compared compared QX, was as for of of X.X% loans decrease decline quarter $X.X quality provision in September have QX strategic end by ‘XX program loans in million The to sequential held for $X.X did $X.X the The of to Credit ’XX. QX million ‘XX. at QX, and company was million provision non-performing for QX investment. for a driven

previous prior was ’XX. ’XX. growth by is to $X.X for year percentage investment. for X.X%, QX charge-offs in company's primarily The QX loans and unguaranteed loans QX million, compared for The the for to compared QX X.X% charge-off ‘XX the quarter X.X% driven to as of held average for $XX.X net charge-offs of QX rate and million net were a million increase for and higher compared $X.X Net

net quarter The to was unguaranteed loans higher driven in change net ‘XX conditions for strategic pre-pandemic The net prior to charge-offs normalization credit driven primarily for QX, QX in compared held the in related for programs. of market by growth and by charge-offs investment balances. primarily was compared some change charge-offs losses QX, to

over higher they Importantly, our years, charge-offs with represent historical quarter in several while line this expectations. net our remain the range past the end of

compared in early primary of the net these credit of deemed faster-than-expected the to reward As pickup average ratio XXXX to than to of less sub-XX% earlier, be rest Kent on charge-offs we held quality to effort lower investment rather due the our the to loans as loans mentioned reason loans portfolio favorable, is our our since normalization. balances risk proactive for for

wide our team's to range our business our and enhanced advantages have and the and Overall, different our standards to create reserve Given model, process underwriting price been tight risk we which the impact prudent exposed underwriting and quality through in has maintain we ability experience tranches remain process. to across a already our we our underwriting expect data of value levels. segments, that of credit appropriately

effective With the the capitalized ‘XX guidelines. for tax XX.X% a and for The rate end QX, and remained As ’XX. of bank's QX of to leverage capital XX.X% ratio. QX, the was levels compared company's for significantly strong X% well above QX XX.X% XX.X%

With up call for would the that, Operator? like Q&A. open I to

we of session. first Sandler. Ladies you. with Thank proceed. from our will comes and Andrew Instructions] now question-and-answer conducting question Piper Liesch And a gentlemen, [Operator be Please the line

Hey, good afternoon, everyone.

you Hi. How doing? are

Hi, Andrew.

Thanks Good. guys.

think a that continues rise you a for plateau? held to look expecting non-annualized to really that probably, is still to Should where to Recognizing decline? guess, kind here. trend sheet portfolio construction good And production to that you at guess where similarly are the for continue lower. up to on want good continue put balance that that And -- then held going Just growth. is is at of strategic level the pace? I sale I to the for program portfolio investment the volume double-digit portfolio,

at that Andrew, stab this question. take Javvis. a is I'll

held very But about in I'm can questions related that's our later. sure quarter-over-quarter, have loan correlated there. loans you'll originations to for a decline have highly seen loan your originations. to that. goalpost it's use that We so with the On a sale, talk we probably

held loans like areas in SBA for investment, lending product. then strong to have -- local very our And we lending originations held continue and on

should as So as conditions we change, long continue. good expect growth it seems we've Andrew, don't and that seen to like

Got you.

at So originations portfolio of zero, the period then I some given at total would half look I continue some down kind I are intend right? just where have going? -- Or at a just sequentially, just production Or, of, mean, mentioned XX% towards this it's going sell end down held here, originations sale is be trending do you where it level by for nearly point floor down all. is? if point, at

to You just any of decline? it retain as want don't origination

Andrew. Yes,

could week you if think where decreased, million, balance went before not loans at has about, the look we about I held more ended. drastic for the have as XX.X And I the to from quarter-over-quarter, But at ending to wanted we've quarter day for then than Jim? on held it's that been talked sale don't those you average quite talk balances know, insightful the depend loans just the $XX.X to million average sale a on look balances the not decrease. of

our Yes, of continue On markets to be partners. sure. impact challenged Andrew, because capital larger originations, just on the they of

proactively partners also on many So back originations. our of pulled

whether as inflation to saw talked and due I environment. But about there will say them. was think support referencing, quarter, eye to deceleration keeping with we in we're work some that Javvis last a tough versus and the rate proactively be trend the on whether it prior decrease uncertainty was think I it's quarter. our the renewed slowed pressure But on around quarterly originations. we But or the continue in line QX will an the to partners there

value the off a I the asset that to on mark, fair million, good SBA [indiscernible] building into Got ‘XX? -- about of you. out I for question expenses and But servicing the $X.X then number And if is just if out build break going hiring a take recognizing future. here --

Yes.

the As we've plan company. past, invest in to continue mentioned in to we the

ready spring more we're quickly when macro for supportive. when the this becomes So more back

So yes, thinking about think the I it sense. way makes you're

it. All for the Got step Thanks I'll right. here. back questions. taking

Thanks, Andrew.

Yes.

comes Please from Terrell question Inc. Andrew with next Stephens, the proceed. of Our line

good Hey, afternoon.

Hey, Andrew.

Andrew. Hey,

to a gave color around, of three lot including about just some just from a thinking over more the kind best the I but one, you how look there. are talked a business, we like onboard? into to five they could was would leasing know the question if bring three, years. think the of, little model in don't get opening of remarks the I start you that mentioned color we I of that incremental the timing of Hey, way with phrase you about I maybe business kind future components you years, the partners if of standpoint, next know to you're mentioned Kent, obviously payments, maybe good I hoping kind

the your how of about you kind next development be sure, about of the talk I'm franchise? growth can we the few and just thinking over should years

sure. Yes,

say play year. the course, though First confident off, let challenging, feel business We will has me continue out we've as that the been of last to expected. this economy that model even

continuation for we the past execution So that future confident in in us. will we're way very the of the have be

So I when say evolution in company, is investing this with public. of been the model we went in our the business line since we've describing that

an is this and haven't We important point.

environment all in. the the pivoted of It's evolution. just that because macro next we're in at phase haven't our We

pulls about not building banking-as-a-service to also that, ecosystem, that ourselves when so returns. infrastructure when us only into about talking positions the about we're springboard that, further when think market we think the but an And I

And I've the cycles. And been down so prior what I've this to add the the -- through looking that the that come when economy in usually are within one cycle seen thing positioned cycle turns that's banks I very is out I've would that strong a experience, build we're many and for. and my just well to

to And the but when, type deposits we so of tell I can of year don't out and comes at and that lending in is question and there, closely as are keep very this have focus looking your and you a our we once but major guidance, that you aspect we'll specific it the what we make payments bank. banking-as-a- expanding progress service natural posted of evolution of again

appreciate I helpful. very That's Understood. it.

be are think the kind kind acquisitions of bank? to kind offering? just payments with more specifically in develop we of Or we in talking of incremental the order about the interested in partnerships Would you As arena. or type payments

allow with our partners services that bank to partnerships provide stickier only that. us actually also we would within to the and from So existing think not of relationships incremental at --

well. said. just But I've it's that definitely focused now what would on also as explore right We something beyond

you Understood, just just I I capital but the are that, would return, love updated okay. you the return levels on at hear about quarter. were that the presuming of I'm given just case buyback saw capital forward, the briefly capital appetite Can moving to maybe where active in valuation and for speak would fourth remain kind thoughts? today

Yes.

me the and ourselves especially feel buying So to investing book if tangible low start was as feel and you the so. good when shareholders. for move that real anything, we Javvis for add yourself, in at Let basically But you're a bank want at That value. please the

think decision Board, but is strongly the going very that. we consider is like on -- don't been to the ourselves we've that and as a we something made that we thing opportunity have will forward. want arise and that mentioned some enough capital just certain that by one find I This before we active we should I've short make

Okay. Got one SBA just it. the on on gain And for me, then sale. last

once I going or Is quarter. to incremental retention, $X.X rate I of sale think make level? gain on SBA I a the loan I income of presume for million adjustment guess million call the so with it think just that the quarter, this SBA $X.X that run get million fourth throughout way about $X.X of kind cadence the forward. XXXX quarterly fair I

much XXXX, continue on to of not retain to that saw see the it it the makes another it loans them. rate quarter-over-quarter. for rates interest been you without in our more as compelling and selling Andrew, declining increase, at interest January can trend giving think we first that those that and the So declining is I bump just portfolio we're that And quarter-over-quarter but guidance, forward the look has

Thanks Okay. questions step back. for I'll the right. Understood. and All taking

this conclude this are will questions no [Operator Instructions] conference. at There today's time. And further

thank time. your for may this your at lines You disconnect And participation. you

Thank you.