FinWise Bancorp (FINW) 30 Jul 232023 Q2 Earnings call transcript

Greetings and welcome to the FinWise Bancorp Second Quarter 2023 earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brad Cohen with ICR. Mr. you, Thank begin. may Cohen, you

company's Thank you, Second release to Bancorp's being of and harbor available this not Note conference call Good XXXX Conference afternoon, is the Private that statements section Quarter information historical Relations press I the welcome and Litigation at Call. investors.finwisebancorp.com. constitute on that forward-looking FinWise recorded. Investor remind would operator. in of website course The is on like you XXXX. to the of based the by provisions the Reform Act safe covered made Securities statements this earnings of call are may

These that statements release filings differ made those you its described of expectations number trends company's beliefs are and statements. including earnings risks to made a press earlier in or more for uncertainties the duty the materially and factors be made those any from differ implied course forward-looking today actual from today. forward-looking cause the current of I to and in expressed are of that undertakes any refer that forward-looking with subject statements results a on detailed the results to company the no based SEC, materially statements to could issued may to and could during the The management's actual call. discussion update cause

be this call. conference will on discussed measures financial non-GAAP certain Additionally,

with prepared including or in www.sec.gov. non-GAAP in in press measures presentation issued SEC, can a not accordance Our considered these the Reconciliation to for isolation our GAAP. accessed of earlier through GAAP to with earnings financial most as is the of this at filings be information with information the substitute accordance be release the measures today financial comparable presented intended

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

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

on quarter our us on the earnings priorities. for today's And the will on of discuss Good the call. On results, afternoon, we you the call, and second conference XXXX financial second environment company color everyone. strategic our joining thank macroeconomic impact quarter some provide

This We notwithstanding to to market customers model. delivered class team's proud dedication and with of testament macro and resilient our I service, headwinds. solid more quarter ongoing business a challenging execution differentiated in am the clients is during especially challenging providing results exceptionally second best value and our our conditions. and

technology utilizing diverse that relationships leveraging and automation differentiated analytics continue business a profitability. strong to third and balance growing proprietary model on focuses along strategic origination loan with growth Our with platforms and party and deliver sheet

with as focused execution, by to priorities investment our FinWise supported adept continue a at strong opportunities. economic credit second prudent of quarter, has we effectively cycles. strategic in and results in while future navigating again the Together This been our underwriting positive generate continued evidenced was multitude we growth

$X.X better of For we by million of originations producing the average or of net a in led million of equity $X.XX $XX.X anticipated with our revenue earnings second loan of billion, generated and return loan portfolio $X.X quarter of share income diluted per XX.X%. on XXXX, than growth

strategic most for a quarter. anticipated, the benefited was by While than during quarter platform outperformance funding was recognize of the additional driven the we stronger from single originations that

term originations the outlook the loan that industry-wide remains believe remainder capital through on will our to for XXXX. near originations of that may persist continue softness in outlook in interest and and unchanged. rate the cautious loan Therefore, our We weigh and originations markets tightness

not In addition, shifted. important strategy it term and long have is our that to note focus

economic business the model for we market rebounds. through growth sound to cycles is believe various continue when positioned We and are our that demonstrate well

growth, included selectively as investing prudently tangible We conservatively repurchasing to shares book fuel value. our capital. This future well and our as to manage continue in below business

the to levels ratio the bank At was with of a tangible value per of bank second above well quarter, common XX.X%. as $XX.XX, leverage and remained book at significantly guidelines share our quarter, end $XX.XX capital company's of capitalized the the compared end the prior

our in the working I our as strategic will and now programs we and provide continue XXXX some half while we our continued, business, the with an current program growth support wide of in various relatively second to A update strategic through beyond. drive dispersion key platforms on originations better. performance expand did objectives down diversify others platforms streams. revenue of In the move strategic by to while loan our quarter to

continue expenses ratio front, quarter. of XX.X% with XX.X% in to compared efficiency cost the previous discipline demonstrate to we the On second quarter the

efficiency will As to ratio we our and we invest previously growth. expect as elevated for remain position future fluctuate the that company communicated,

We expanding to that in and Banking-as-a-Service of our future investing line relationships further infrastructure products with in believe are believe streams. investments client and diversify team systems, more our our and expansion We product support, the demand, administrative technology, and growth. and current in out including meet best crucial approach these secure the to revenue customers deepening diversified rolling is our

to with further our credit, loan the provide to ongoing credit performance Jim no wide the growing significant our regarding maintained normalization into credit in details performance overall disciplined levels. book. our will has of second quarter, pre-pandemic this of portfolio approach remained later industry deteriorations Turning In credit we the strong, beyond call.

announce this our quarter, closing agreement ownership one to of to interests, has acquire conditions. into subsequent been BFG membership total with the closing, subject at equity bring initiatives. second our four to long term of excited additional of ownership BFG we will an members that a our XX% its Increasing the are XX%. We to and regulatory approval, definitive entered to and of BFG customary other Upon end

public BFG. to in first of of our As XXX% and an refusal, outlined option we right previous a acquire have filings,

flexible continue term. the and As be while positioning we company to prevailing we proactively to long manage responsive business to look ahead, environment been the the for opportunities. pursuing We've the

are growth, to our capital future manage responsibly on for and thus laser focused in the strategies remain and explore business invest grow have underwriting, value. well and opportunities, us We new shareholder seeking will we served prudently. maximizing that these believe far We disciplined

With Noon, that, our the on strategic will you initiatives credit over who detail provide Jim me program President performance. bank turn and let more to with call

you, and good Thank Kent, afternoon.

to Given believe term will challenging the we market’s focus minutes on quality the credit environment are growth take our walk few through and and uniquely credit opportunities, a achieve performance, program and growth. current you initiatives, I how to positioned long weather we strategic

payments deposits, that an offering offerings continued revenue, could to As FinWise to provide is part services of our integrated We diversify and to future payment in such with and new hub. our increase core and believe Banking-as-a-Service our offer strategy have cards our products to we invest platforms. opportunities lending, as to and additional card

are pleased the we made We with progress initiatives these have to-date. on

solid to balance continue loan the we and previous for income majority X(a) hold remained are premiums sheet, interest of on to the quarter, SBA sale as due portion had originations quarter. of the on rates. to adjustable guaranteed loans gain our lower, the Similar Our these underlying risen

in much As last on than revenue the was sale quarter a our gain result, same SBA year. lower

through the expected to longer a this the higher our of the term, interest this We benefit recurring level continue over shift deliver. portfolio, in believe to is company loans government higher and guaranteed income that balance of may that

for anticipated, $X.X of million held of loan change in for $X.X turning with primarily non-performing our quarter second the a loan balance to to losses for book quarter investment was the program for the the for total same in reduction million year. held same over compared our at of quarter, previous and the credit first as loans the performed strategic Now, $X.X losses of last million provision quarter, The to the quarter provision same due loans a quarter loans for provision the last X.X% the the year. and investment. year credit, was end company's to for last The quarter,

to year. During and average in increase year rate due in offs million our same loans The to $X.X investment net net first quarter to the net in offs and net compared due The compared loans. to net The the off in was related $X.X offs same offs quarter, SBA X.X% charge last for quarter the in X.X% program net $X.X quarter, during compared charge quarter, last was quarter to first higher charge as prior were quarter a strategic was to the our company's decrease held million lower in primarily the X.X% same charge the year. percentage of charge loans. offs last primarily million, the to compared charge

last quarter us industry, held and team’s positions Overall, X.X% the well our reserved total to we continued extensive as X.X% along quarter, investment of believe percentage with manage We automation, in to be for with the credit a quarter, an believe we last underwriting, loans and the technology, experience of to in X.X% same risks. in potential allowance compared our well year.

me our let will call over detail results. to the Now, on provide financial who more Javvis turn

Thank year. the quarter you quarter second relative and to our results quarter the and I second the good prior to afternoon. for the discuss financial plan to prior of

prior increase of for than a was quarter continued assets macro Loan challenging and the certain year due in in environment compared credit quarter, originations capital our the underwriting better the result quarter billion to the the the to from while the $X.X totaled programs, strategic conservative $X.X billion prior driven second decrease to year. was a primarily performance $X.X markets billion for for the risk. our in manage loan Relative anticipated and as first prior contraction by

XX.X% the growth million in and our and during from was sale for driven $XXX.X from up by primarily from held XX% comprising prior previous The year. the held last loans balances loan million SBA $XXX.X program. for million the to quarter up prior increase X(a) the period were investment continued Average quarter and in year quarter, $XXX.X

mainly increase an in period. certificates demand by in prior our market position and balance interest of was wide $XXX.X liquidity certificates Average and compared increase to sheet money strong the were bearing of The million pressure, in deposits deposits. deposit $XXX.X sequential industry increases quarter. interest the million Despite was and a in quarter partially liquidity the primarily million $XXX.X bearing quarter reduction increase offset year during deposits, driven year-over-year during The by due first remained to deposits.

held volume for high with and loan have we have deposit our sale balances had noted origination As non-interest from strategic a previously, programs. levels bearing correlation historically

quarter, differentiated and has a highlighted provided us As base. sticky we deposit business model with stable last our

certain have our obligated origination the levels been portion of bank's sheet deposits the own Specifically maintain been the while balance of capital. on platforms to FinWise with deposits contractually significant uninsured a have

of capital, or own lending bank the required approximately business. the end Taken our together, quarter, insured, deposits our are as XX% are strategic either of the contractually of are in

$X.X million held same last was to Now year. interest turning to million the $X.X quarter loans primarily our an $X.X income and deposits and in net higher The in prior for offset income million investment and in lower interest growth compared due non-interest quarter in due the net program to interest was on partially decrease income, income portfolio. was on the driven prior statement, by quarter last increase expense. from the for quarter strategic to primarily by lower gain reduction period sale, higher from improvement The expense fees, year a the

bearing in in was prior interest due to average quarter $XX.X interest over $XX.X an The balances paid year million earning the interest quarter relative year. the environment periods. variable the last investment $XX.X rates yields increases and million assets rising the primarily being held and same quarter to coupled on same bank’s quarter portfolio, X.X% was grew for rate in over to increasing to liability up rate and million partially by the due increase the compared XX% income Net interest loans with improvement on last balances the to average offset the for

an rise lower quarter quarter of an to bearing year to was in in points at quarter, XX.XX% was primarily shift year due points our in loans compared with primarily reduction period. partially deposit Net was balances associated in certificates interest interest XX.XX% higher lower due The last for from investment The average deposits XX.XX% the by our from balances basis for costing the and the from a loans our prior held to offset the in in sale mix our in the mainly and margin basis liabilities a held in XXX for deposit period with average balances portfolio. lower prior prior portfolio increase portfolio rates. decrease than change XX increase to along

prior quarter the was primarily last in originations million SBA income to quarter compared in associated Non-interest reduction loans increased from was quarter same strategic X BFG. of an to The interest lower in our million retention quarter a sold. million period to prior program number year. sale gain year (a) program a $X.X the decrease increase the an primarily attributable income, on from of of $X.X the increase the in The and due to fees, in first our primarily sale corresponding which the on by of portion strategic $X.X due to and increase income, increase fair in guarantee loans value resulted loans the the loans investment in the of in offset of gain in partially decrease was SBA

expect general movements. of will BFG our value that fair quarterly partially the continue due to in We fluctuations experience investment to market

prior same accruals the related quarter to quarter to The year profitability. SBA the prior based on Non-interest on the for primarily in $X.X performance not asset occur employee period. year. million quarter in which million year due recovery due salaries decrease was $XX in increase servicing the bonuses primarily an prior the million to the quarter was to The and did expense company higher our from and a higher period during $XX from benefits in last increase the prior quarter compared was during

The the year. last ratio quarter XX.X% the during compared quarter during XX.X% was the quarter in company's XX% and efficiency to same prior

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

company's X% rate bank With XX.X% XX.X% effective quarter. year. was for requirement. last leverage quarter, as respect the the the for levels above capital second tax quarter This XX.X% significantly The with it was well-capitalized same to compares a ratio, to remains last the

part bought we approximately capital, As million. XXX,XXX to of our the total during of a quarter of shares stewards back effort good $X.X be for

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

you. Thank

session. Terrell first Instructions]. your will We from question. Thank is a Inc. question-and-answer question our conducting now [Operator Stephens, And be with you. proceed with Andrew Please

afternoon. good Hey,

Hey.

the on start Hey, for can quarter was call the the in expected maybe I And level year, originations? look I maybe still than came Kent comments quarter. bit around half kind a the terms but of like the of you of and this the billion volume cautious just in a outlook in the about your it towards up guess origination back today, it at kind some of least better feel heard beginning we've of trough I at like, does hit as dollar in obviously relatively

Hey, Andrew, is Jim. Yeah. this

of quarter-over-quarter So, on single yeah, expected. in across a originations better I conditions were in trend currently our most mean, see partners the the our outlook of the than than the partner across script, don't And year. rest the broad of quarter we enough platforms. change But from market a like originations all on would all delta or strength our mentioned, rather of came broad for Kent that

point to current we the you likely would to continue levels so origination than And as quarter’s. more QX

stepped last off, quarter just kind out in after year, pretty the of of loan peeking the the back And, considerably in portfolio. okay. overall charge half understood, down this on Yeah, again

to get on but maybe of incremental balance sheet get wanted the thoughts know retention? partner strategic retaining wanted SBA I balance you're retention on loans program refreshed in Just credit, thoughts on SBA here? or strategic the focusing more refreshed to

about right? I portfolio, you're talking the SP like think HFI and Yeah, specifically,

Correct, Yep. correct.

Yeah.

purposeful, we and kind the on we've sheet. grow balance measured generally, so you know, Okay, been of how

but portfolios that as in know, You other not well. program, just across our

quarter, then look second the fast about forward about million. the of million. it of it quarter to if you $XX.X SP you $XX.X balance HFI is at If at end this that 'XX, balance was And the

quarters, over million, composition portfolio about saw the last you reduce So also remixing months. about some by XX% the there we've about talked in risk $X.X us or out there previous that beyond XX the

make portfolio there's we're positioned of programs, just not that what retaining. or you decisions to can And we But see balance to targeting. review a last the the specific we XX our the how over with size HFI trends, rest that on months. monitor So SP and we're do like we've that comfortable all

it. Got

of remarks of and or get offerings, prepared of hub prepared Okay. back remarks to investment And kind in some card about your Jim, the around payments continued some going to then, the wanted anything can is in terms of that? looking maybe Just helpful. status around the some any out you build and pipeline maybe there, additional would be share color update how of of the there

it's Yeah, problem. no

to that's new second as the first launches you it's And for infrastructure up And we three will So we of up the to year, asked we in then of that, quarters with initiatives be hub. also and the new next well. make thereafter. as operational card and processes comfortable stood and kind product credit diligence partner payments mostly And lending And process well. in continue on stood we've two customers kind the speak. issuance good goal being scoping we this We lending partners. next on as this new know, business quarters debit few progress with the our the and this believe the you Andrew. then half be of think in expect about started stated to our And launches, soon new of few we're with

stepping a a rationale Very can you if more there just financial the the of I really of kind investment appreciate investment? can increased The BFG, about terms standpoint quick. it. in increased more bit up in good, that net the just I what investment? one little then are impacts And talk from And of

I turn synergistic this been believe a for could partner know, very of a had good acquisition, then relationship. we've of good to primary that that us. beyond been rationale very a very and our they've XXXX to was you And since and loan as maybe SBA Yeah, we some over BFG, those But it's things. Javvis and start just I'll source with a

so were the And primary reasons the continue acquisition strategic. to we -- be behind

and And the Javvis, dig so forward as specifics. very into we us just you move strengthening is to relationship can this important maybe

Yeah, of to be the the benefits compared a result transaction the the start dilutive existing Andrew, -- result -- transaction. minor that when maybe a shareholders expect There for But be to of impact place we the probably will a it believe it is will on the dilution. closes. we as as

financial specifically I impacts in I the when transaction guess expect benefits? on net terms more the closes, and should benefits and Okay, of guess what side, we

question. good fair balance BFG at Andrew, know, a sheet on That's value. and as investment carry we our our you

is different bank Bank space. in the little you a what this traditional So or the than Community acquisition have

So once on we what the but in impact, it close we've been change the to the our update as how that you doing transaction, past as far we'll treat investment. from we isn't financial expected

thank questions. I'll Very you queue. Okay. the taking for the on back good, step

Okay.

[Operator time. further are you. at Instructions] questions Thank this There no

a up have with question. with We question Please from follow proceed Inc. Terrell Andrew Stephens your

a ask you. came more $XXX,XXX $XXX, Thank the it's line I fair servicing been it can down in riding XXX this down a Okay. quarter couple It what the a around drove quick, amount quarter? like fees, looks really on If to and SBA step just second that quarter. loan in the

curious drove expected should higher normalization the down step Just this we quarter. And what there?

flushed about to the and Yeah, paid a past, second quarter, down, of the couple SBA what we've loans deferrals, as the tend the all during the rise the through income off. in to step rates SBA that's And associated statement. we pay accruals when in market, and loans Andrew, in had occur continue off the talked

So you're seeing that's there. what

this Okay, kind forward, rates then? so around moving of a fair think run to level

couple similar quarters. the should to last be It of

making accrual. I positioning And franchise of bonus in know, do like sounded then corner Okay, it kind the higher got for just maybe you compensation this in growth. investments it. And guys future a continue was of level increase

kind out the help you with of for expense target run maybe rate couple can of next Just operating us or quarters?

Sure.

infrastructure. company and in between talked As quarter this that. our major is about change noted, the quarter you to do And the reason last plan Andrew, the we performance we've with past, and to continue as bonuses for related of to the associated build

the So I consistent think that from stay standpoint. relationships will

on missed but of bought amount weighted And might shares current I did moving end okay. you for have the the buyback price quarter the prepared you the remarks, And expectations then then authorization? have of left then have towards it the what and the in forward? outstanding amount back Understood, and the average

remaining. during I'm I to purchased had have to about I'll sure it. have million on to Andrew, get just quarter what and the that back find you the amount for number shares $X.X not Andrew We -- XXX,XXX the

Okay, that's buyback remain initial and back to find But the one. fine. can though? fair you active assume go on the I

will plan to opportunity, we book value, Yes. Where especially remain we below we have active.

good. will questions. the Okay. I step back. you Very Thank for

No problem. Thanks, Andrew.

I comments. back Kent further Thank questions for time. the turn floor no and you. are would like at to There to President, CEO this closing over Landvatter

everyone, call. you, forward future thank joining and to Yes, future and of very the support shareholder us about appreciate on the bank look your excited We're growth for company quarter’s we this value. our and in

teleconference. Thank you. today's This concludes

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