FinWise Bancorp (FINW) 29 Jan 242023 Q4 Earnings call transcript

Greetings, and welcome to the FinWise Bancorp Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

At this time, I would now like to turn the floor over to the FinWise Bancorp team. Thank you.

You may begin.

you XXXX us Conference thank Bancorp's for and Quarter Fourth Call. afternoon, for today joining FinWise Good

from Earlier results today, call subject that we investors.finwisebancorp.com. On to to that and our your filed uncertainties on to today's our to earnings website webcast cause those contain remarks could investors.finwisebancorp.com. risks release call, at questions management's discussed and Today's and company's may today. are conference the is differ prepared recorded investor being actual website, and answers posted statements forward-looking

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

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

over that, to With the I Ken. will turn call

everyone, delivered and call. XXXX was Good to We conference loan us business our execution, year as and disciplined fourth successful model, and strong produced earnings thank differentiated our resilience. approach joining afternoon, originations continues with XXXX another positive a quarter you returns. demonstrate for coupled solid on

quarter, for originations. $X.X Specifically, fourth we billion the approximately had in loan

and impact continued SBA continued fourth the quarter. the rates in in quality was notwithstanding as line primarily portfolio. in higher expected by loan to loans nonperforming an on generally This Credit perform with increase industry trends, of driven our increase

level processes While our quarter-over-quarter. net serve of and charge-offs continue us to increased the management portfolio collateral well,

charge-offs generally line and credit its portfolio, which with our SBA have the been the and in about positive feel bank, to level net of the continue characteristics expectations. at We growth

which bank continued growth. common of continue believe the quarter. support At we to to increase well-capitalized capital. provides Tangible guidelines, leverage regulatory to the our per share book to Turning also with us capital significantly remains above sufficient ratio this quarter, fourth end value

brief a objectives update beyond. provide XXXX and to like now for key on would I our

Sponsorship Service differentiators offer our bank, include meaningful that our BIN believe Payments into could funds Our with platforms, of strategy firmly about more expanding business an for an This communicated make pieces BaaS offering. we manage be bank, due key year. our multiple previously in additional end, in relationship both BaaS our and of revenue infrastructure term, very operational later To or strength model. to our the These could believe Banking a functions expansion loan us we excited and recurring are Hub through key cost and continues regulatory which coupled manage as provides to to of are additional that providing flexibility and strategic BaaS to an integrated integrated market. with this the integrated composition, and expected progress. platforms benefits revenue, our diligence with banking relationships diversifying to mix. tools stickier also oversight Longer are the create deposit We

increase internal This part overall of our the evolution. to this meet organization. operational system business believe as quarter, completed should our and of also us We an conversion growing we past position efficiency better core our conversion needs

process Our to their end, diligently want thank quarter complete team them I by to and effort. worked for this

program. loan our Turning to SBA X(a)

these are managing amidst the We pleased business rate through. expected, as higher that been and particularly credits the have we to that grow continue perform environment

continue can all originations business to of areas underwriting we a will products. the soft potential expect strict management manage uncertainties landing, impact industry-wide remain control, The processes. through external the XXXX, actively notwithstanding, collateral believe at our disciplined and loan economic participants across market least half we environment the lending bank's which could some we of While first including remain, and

evolution lending of plan existing programs. with towards on to to the believe we the integrated ahead, the the long-term point power. to an enhance potential we're efforts an our offering, move focus expand our company's BaaS We our continued we model As continue with at business in earnings inflection coupled

with will and our line and accrue our be patient the new time. benefits rolling to out the in disciplined expect culture, In over we businesses to approach

With call me Bank the turn President. Noone, Jim over that, let to our

loan Thank then quarterly loan $X.X our quality, originations you, I growth billion in discuss QX versus billion will business now some $X.X the progress credit in the performance QX. additional on on Kent. and and of walk detail through portfolio our originations, and initiatives. Total were

quarter. Our fintech fourth lending continued levels the during gradual a origination recovery in

We basis, were underwriting. as fourth some with lower Our quarter quarter loan to transactions quarter-over-quarter. well not of during we X(a) we result, generally reduced for disciplined on the as our growth sequential on due balancing types a always And originations volume contract primarily as SBA as the finance, loan demand our focus to adherence a saw continued did quality. credit chase SBA we loan pipeline application

portfolio. our to Moving

continued has assets earning in to plan. growth according Our

to successful our remained the was On total of in guaranteed creditworthy where rates businesses of current meaningfully loans to SBA SBA quarter loan and lines, our Overall, retain the in earning both low. our basis, note and SBA premiums identifying continue portion dynamics continue sale investment. sequential guaranteed driver growth high the our leasing we assets. growth loans the underlying held to primary market We in the of in balances and secondary loans XX.X% a the remained in contributed for both and given be increase funding XX.X%

an in driven strict was charge-offs our place implemented was provision in quality. overlay net QX CECL compared which methodology, credit in our primarily losses and an provision increase assets. and and increase $X.X quarter. QX remained mention, to in in credit the to that $X.X during increase to million Turning to in SBA million for portfolio qualitative due the adherence in in nonaccrual prior increase nonperforming sequential by factor the The special was The

portfolio. increase The to primarily the SBA quarter. charge-offs During were prior related to compared million was QX, our $X.X net $X.X million in

$XXX,XXX. as the a rate to charge-off As a average The percentage recovery reminder, loans net compared a quarter. of in X.X% was for during prior investment large QX, we held X.X% of had QX in

potential believe loans well are end loan with for reserved a for allowance as we to of of an the held at continue QX. We X.X% investment total of percentage losses

loans compared prior at carry continued rate $XX.X and primarily higher guarantees. to QX $XX.X at were the environment. SBA Nonperforming end the which loans this increase related interest end million million, quarter. to in is versus by quarter of our million not NPLs SBA million the the to the portfolio is balance program $XX.X $XX as SBA impacted do of be The the by of the the prior $XX.X million Of guaranteed

reminder, calendar spread based prime adjust rate a rates at SBA end. on Journal Wall our note Street As quarter place a quarterly over the in

increases believe policies additional balances remains Further, portfolio continue our NPL prime while We collateral in our charge-offs. carry elevated. should expect SBA while million strict help of $XX.X guarantees, not rate do to the in balances we our see to NPL net this mitigate

you student our Finally, let lending, Earnest, on program lending agreements an give strategic we the with leader Navient program initiatives. Within market. me a in private executed business and of update a subsidiary

the look testament them family. growth working and offering We in team by believe trust humbled to the is to are a and support the We at forward in plans FinWise the welcome the to with market. Earnest placed FinWise their of Earnest strength this to the our team

continue of risk compliance culture provide infrastructure focus, core proud is strong continued We to are We the systems, believe the at offering, to management at of and our which embedded allows in bank. us quite Fintech investment lending and the our our to and our also this support platforms. in is processes

into expansion progress BaaS, make of on and Lastly, products. BIN we further in Sponsorship continue Payments anticipation Hub our our to

As them Kent mentioned being the operational later year. earlier, we anticipate in

as milestones to are on achieved. these additional initiatives provide We certain will with continue details you

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

afternoon. Thank you, good and

of strategic common We results and average in These $X.X generated For to on posted or achieved with average on solid X.X% infrastructure the return of continuing million to quarter, key fourth of and per $X.XX we a invest were return growth initiatives. equity support diluted share. XX.X%. net while a profitability assets income

compared loan our loan driven by X(a) balances SBA for in increase programs. held was were This held during comprising quarter. million Average investment $XXX.X commercial last the and growth continued primarily to for loans and quarter sale $XXX.X million

million an increase by were deposits compared prior the million of in increase primarily interest-bearing Average $XXX.X quarter. to in brokered deposit. The $XXX.X driven certificates sequential was quarter

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

for to impact the rates Positively, quarter. last increase million, loans income of Net interest-bearing for in balances of and offset nearly interest flat was investments the average average turning interest balances. liability substantially income $XX.X statement. quarter versus the the higher held Now

loans mix increase the held-for-investment compared to quarter to this margin in carrying lower Decrease interest the yields mainly in loan of last was towards due an a and was Net XX.XX% XX.XX% CDs. quarter. shift volume portfolio

Noninterest $X in was miscellaneous in last investment our in QX. income income a third million BFG, the quarter-over-quarter forbearance offset to due did million quarter by the a $X.X increase value resolution in quarter, resulting primarily of compared The in quarter. income decline of recur in agreement in change the the fair was to not partially related other which to

the benefits an head compared Noninterest and million quarter in increase infrastructure growth. due sequential million we professional accommodate The out by increase to to service in was driven $XX.X count as an quarter. salaries well expense increase higher expenses build prior to to QX continue $XX.X employee in as the was primarily our as in

QX quarter. for efficiency was in The XX.X% prior the compared XX.X% ratio to

as We with company move continue elevated initiatives out we our our to strategic to long-term build expect the to position that growth. efficiency remain further for ratio the infrastructure forward

With capital X% ratio, significantly a above the bank's remained leverage well-capitalized the XX.X% requirement.

share quarter. to $XX.XX the common per to value the end compared increase book to of at prior tangible company's The continued $XX.XX

prior the compared the for in was Lastly, tax rate to quarter. effective XX.X% XX.X% QX

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

the [Operator first question with Our of from comes Stephens. Terrell Andrew line Instructions]

credit quarter I the And in lift if the commentary. quality. just given surprised Maybe Jim, on to just I the down a this we Any move allowance modest could was a appreciate did I allowance? I see start guess in nonperformers. see

your $XX NPLs at, running the of that XXX to I reserve this I million points? a the versus It are by quarter, if kind kind call guess, then why on essentially, think two, looks one-for-one of build in are like higher it, $XX if basis fair? SBA. one, is charge-offs NPLs covered allowance, portion. guaranteed the that the of out, not non-guaranteed so million I you're level about or X.X% number than And back

Yes, no problem.

So apart piece quickly. just of that let kind me

QX. the the be like Remember, It's That increase right? by $X.X a the that $XX.X the quarter to calendar unguaranteed million So generally, reserve on at slightly portfolio, million increases in to it's end in Andrew. impacting It's million in is going similar $XX.X higher close, but than we NPL SBA yes, rate NPL the of balance, that attributable loans quarterly the quarter, in The reserve the versus million quarterly basis. increase unguaranteed those been out balances speed then just to in a balances. And really were adjustable of has unguaranteed unguaranteed figure reprice NPL far incremental this issue. up. rate as these was was million the repricing that to point saw the balances is balances the And that in NPL primarily that as quarter. portfolio. are increased $X And $XX.X the trend primary

to here declining. starts rate until expect we'll continued see the normalization prime So

about ACL there's reasons there. then your question But rate, the really, two

the that's our in portfolio of second portfolio lower the the XX% lower disciplined two throughout CECL now same happened you methodology. year. XXXX. been end we've is time I are give are It's then of last that versus because the a year. of risk the SBA The the it And because balances XX% the at risk of remixing is than is guarantee First examples portfolio last

much SP over that's HFI the reserve of lending a the retained, rate, XX% then carry the year. to portfolio of the fintech we the And balances higher last portfolio from balances, that about have declined X% which about

X.X% right for on current that portfolio. reserve ACL figure why that's the the is the So figure

of lot throughout seen year. shift totally pieces kind credit a there. mix contemplating I Yes. wasn't of positive moving Understood. there's I guess the the

So that appreciate makes sense. I it.

of origination partners, perspective, just I then forward? kind of into here within feel just you you the like had of an see a could XXXX the declines as outlook businesses, in If the relative loan bit fourth kind quarter. was any step-up of Can and the fourth good larger it of a little And could trough we us in kind of some on any from quarter? volumes. origination remind It your specifically to ask look seasonality some modest a see does still moving we've

Sure.

so over seasonality years a baseline on difficult larger then because partners of just the us with the the upside couple piece, pretty get movement and to there's on on been So downside. the that's last been some of for much the on

So our in see to program Originations mostly across demand at us expected. and generally And sustained general level to that a the in levels related And were factor out strength little there. the is to hard spoke rebound we then platforms quarters. QX quarter-over-quarter little generally quarter, out, to industry that saw we the is origination early X last really our rebound it's on the do. But that delta outlook of and was XXXX. pulling too it's say the from a just continue in a about we originations in than change the QX throughout all stable the to seasonal that still would up for don't is just We over that more the likely from we QX. broad-enough one just sustained from reason point

Okay. in could the strategic some paper origination might current to credit wanted I tightened of program prior maybe to of as from broader the with late just underwriting feels or maybe take relative a today. credit standpoint years. has line 'XX vintage appreciate Got end Kind I being maybe of taking temperature maybe rates I retaining performing If on up better generated or higher it. the that's a narrative around market -- your It being just there's incremental like just today. it. your appreciate

of appetite you're strategic on So thoughts spread the Jim, do kind a lot of One, of it's know that I bolster higher seeing then the market. agree? portfolio? And in kind appreciate narrative appetite any Any your loan of now? program really SBA the driving in success business, you there. right portion the and to I

year, that you you'll the portfolio HFI the expect last, think stable over composition change balances I don't loan over there. call has material quarters. trending last Andrew, or dollar towards think the So next to far the should year. continue of SP as been over been The any us it, we've as the seen you've that I from fairly few see course

where of across tightening would The performing than vintages, succinctly. generally of vintages, are you that is QX statement, of to reason QX, it And kind it's underwriting, for hard some varies what are I There question the to the general the across worst generally, a -- had like 'XX. they're saw say is programs. but you of answer the think varies in mid-'XX And markedly programs it a that lot programs. about reason I yes, make

portfolio, And over our as quarters just few different us far that anything see strategy. I as you'll as don't as and outlook next the our far think from

Okay. Perfect.

more incremental still the balance be really, SBA-driven? should should So sheet expect we growth

Yes.

there that would curious, operating conversion the expense should And salary of system employee line decent was in in right operating expect expense about growth the the like an forward, the in Anything it XX% from there's the in the convert kind Javvis, standpoint sounds quarter, like XXXX. operating quarter. other base. anything ask or reinvestment just in just benefits of understanding expense it the else, in And from even either it core looks just expense business? growth and the Is Okay. sequentially. then was we like fourth continued expense that level other a you appreciate? looks I'm moving a the I fourth if was onetime up on a could or One, amount couple core system

additional aren't investments the about And those seeing business now personnel, the to call core think I we've And help our the last going new infrastructure. quarter progress and processes investments the you're the now, Drew, what quite plans for expense mentioned, making talking been in fourth made our excited away. noninterest to improve about expenses anything several about position Yes. long-term quarters systems, you go I in we're really yet. We're out to so growth. and onetime. there for wouldn't in the far as we've company not

Understood.

Okay. then growth just level the thoughts overall And of forward? going expense on

about thinking there rate not expenses, and we the we're right build yet. when run we're for Again, to continue

So build been 'XX us. has for a year

to in think think that don't expect 'XX. I unreasonable expenses about so 'XX, continue to We in it's increasing

from of comes question line the next Our Piper Liesch Andrew Sandler. with

to want revenue it it of And if And high take targeting some But kind Just talk up, going of targeting it line? a sorts partners can operational that level, late up like provide can when I sounds bottom we guess to are be will about BIN for the and sponsorship mean can think how the do year. that's at time. this I seeing you start you business? you hit partners ramp what

to want take you that one? Jim,

problem. no Yes,

is we're really now, the revenue point course right us. but this later kind time do item really far Andrew, been that that, have We meaningful revenue far really a in looking work identifying And the contribution. that's don't to over on staffing more handful the that of becomes later probably So at to this for A year. be looking the operational side. as year. to meaningful will so done have a it's of be when lot line as We in infrastructure customers continue XXXX of expect year, our and of first to to

it's first like on fee and like be, put just continue there's where then originations. of It the I tailwinds what hard I income just figure mean guys say to of there program And strategic I'm up that guess the to do still you that trying running the lot think saw you improved, I might you could decent more environment's it. to pretty solidly. there's numbers know a still that we like be out for the Got but year? expecting. seems the -- in this out fee quarter item just low is

on can the want kind of -- Yes. I'll maybe Javvis, give you the that. originations. I touch on touch fee side to of

So course and came Andrew, really seen And lending while have year. was lifting, clouds macro now, year, sustained kind our our something us, were of fintech line. throughout that still the one all throughout X right the the some was the That from rebound industry expectations in wasn't think delta don't expecting program certainly good it's and 'XX, other QX our of for the been we of that between and that rebound have enough subsequent you've and something the like of platforms see quarters was it like with that the course a the of across but I we strength to outlook. improved broad change general rate in of specific

And really of why build hit to trying partners. and and the launch And Earnest is so our to continued as we've one in this to the were point before the would that really we goals year. Navient pipeline QX of you new I end

over So is barometer of again, couple next of QX the would the as you that term. as quarters, good a still we origination pointing something to course as levels far near do

on and And this program last fees those well fee pretty program year and as that quarter exists close similar. quarter. we're item Andrew, you income. there, a is the in the last the strategic as other pretty fees the quarter, to fourth are than far line the little as fees strategic trend And the line just between And trend correlation to goes, item, higher I the point income high originations,

follow-up Terrell question Stephens. We Andrew have with a from

year just like had about looks over position. one looks the points throughout down so leverage sheet I mean, obviously so, It is balance around ratio past the you've capital just year. like or impressive XXX the had basis or the I It growth.

near-term XXs you around operate capital solution? your of I if high inorganic you level outcome? a is to then low it like more is one, of and capital maybe a growth balance tie just comfortability as likely Or the where today talk the Can a a think into leverage discussion slowdown about, see from current I teens, cadence recall, you the with in sheet whether position perspective.

shareholders a stab we comfortable amount we take to our book that for were thought capital we some Andrew. values and one, keep capital of with the value. bought tangible because as than growth The -- me between less year, let good know, But at always last cushion. the So our repurchases, and sustain did those we you we balance the walk capital growth the to need trying and were regulators

look So we at continually that.

level Right through of allowing our now, we the burn of capital this being while capital feel we've levels got regulators still sufficient. comfort right to the

capital we're not is thinking if whether and inorganic for we now, keep the changes. point posted have So position right feel yet, but organic to you future we we'll or needs, comfortable this with that capital our

you part Great. that to think, the of be I that buyback. was And appreciate question second it. going answered, around I the

I it, appreciate Kent. So

There the further questions are over no phone.

we allowing actually to investors received way now we via are questions a as Operator, as few e-mail questions well. that ask

So on just are call, the out questions of read no questions. if these I'll there couple further

Earnest, when The reads, you announced that contribute? with can regarding question think that will agreement to how start be? big first you just do And the

Sure. Lauren [ ]. Thanks,

we're for ramp we particularly term, Long not any us don't think contract going our is with compliance contributor. That agreements of first strength We continue a growth generally relationship about opportunity time and offering. Earnest their program we details could a take to today, think it to though, to think I spearhead given take regulatory the purposes. humbled up, will our disclose we be share, excited but plans. think competitive We're provide of to the right to details that strong strength have we're meaningful we Earnest highlights trusting relationship. and And now. some really Earnest, our

opportunity the more. Service, one especially your some as Banking a regulatory there the industry? given of with issues And across What's in is the peers

this And going industry protect evolution We've go good very outcome customer. the a the that industry regulations positive Yes, we that's see so the evolves, do very been and question. to as as that's this. watching the along with better a And it.

that at monitoring heavily compliance We've system we've make and regulations. And always we're laws relationships our with on and the bank. certain to of appropriate compliance tried their management all an focused

it's have on course, space. as something is XXX% Banks and Of compliance will us, and strong that industry they from these that processes for come out onboard. top evolve strong issue I for and a I due But industry. diligence very think almost any oversight us. of be impossible this And will the are actors the bad lot in when further will some the bring having partners invested there opportunities worked immune proactive years, compliance for in specifically regulatory we've on a processes. building They've think actually create competitive to

No more questions via e-mail.

you. that, With concludes Thank this today's teleconference.

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