FINW - Earnings call transcript Q2 2022

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Operator

Greetings. Welcome to the FinWise Bancorp Second 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] Please note, this conference is being recorded. begin. now will presentation The

Unidentified Company Representative

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

this afternoon to recorded and In release investors.finwisebancorp.com. Today’s of to call, on is an at issued addition being call earnings our earlier website this Investor the and the it webcast conference posted results Relations section we company’s to subject contain actual may that are differ your to could website, and to forward-looking investors.finwisebancorp.com. that On today’s discussed call, management’s those questions prepared remarks and uncertainties risks today. answers from statements cause press

Exchange of the management’s will the the Bancorp; assumes discussions of President Commission. listeners the detailed CEO represent statements call Kent Jacobson, Bancorp. earnings FinWise Officer and I to FinWise company’s to update statements with in current obligation With forward-looking Mr. in more Securities turn the related Chief Forward-looking Hosting press today estimates, Landvatter, release to call and Bancorp are filings any over Financial encourage Mr. review and no these Landvatter. FinWise the forward-looking Javvis and We future. Mr. contained and to statements that,

Kent Landvatter

conference for Good XXXX afternoon, quarter on earnings you our everyone, second us joining and thank call.

led June originations, XXXX, by seasonal million $X.X in during typical the the environment that continued in the of revenue past deteriorated ended rapidly differentiated for further also a the and over economic challenging evident the of risk total Despite very in model originations second of results management built quarter we our model XX, several we have Our strength business slowdown as billion. including our resilience validate factoring the the years, and quarter profitability. throughout loan quarter generated $XX.X business was

servicing from during of the to quarter an of also income sold quarter SBA $X.X net decline the gain share. decrease and Our was income SBA Net million in the on number or a results impairment loans in loans of impacted non-interest primarily due $X.XX lower a sale asset. of per diluted by for income company’s X(a) the included

our on loan remains results noted factor generating Furthermore, income single enhance our differentiating over loan continued strategic the program growth. generally model. we’ve calls, driven focus business by interest sustainable have primary growth quarter, income, driven net originations prior the of on non-interest irrespective a long-term of fees, any As which our of our key

origination strategic platforms tied all that to deposits deposit outstanding, given accounts loan Importantly, as total reserve volumes fund have generally held-for-sale slowed. declined

is to risk XXXX, million balances standards. our with at quality, to loans loans strong. million June of are during $X.X tight XX, The primarily quarter our $X.X a $X.X management X.X% quarter. is was strong ratio in million lower testament ratio last quality charge-offs to to the at XX, maintaining underwriting quarter. increase Net quarter. March this the as X.X% credit remained being compared million to during which compared Non-performing of including total this of This the from credit total declined loans loan our total non-performing second previous during non-performing quarter, small due approach, declined We of prudent to XX.X% $X.X quarter The pleased a end loans of the XXXX.

credit we like risk retention to point of management to economic better best-in-class One and believe through cycles. also reach are our have risks. attributes to standards ability process sustain our not sound slowed assess for our credit lending varying these and We enhance have clear, manage I’d adjusted quality make Overall, to we growth.

SBA additional an rising loan our had we SBA the as servicing quarter, prepayment rates impairment the of speeds. interest market market by was asset and During impacted

and that the leverage and technology-enabled an Furthermore, serves interest with existing entering strong relationship bank well-capitalized platforms with with strategic remain a as into above we ratio believe relationships guidelines does bank. model bank innovative business new This platforms significantly our efficiently again validates our clients. of remain wide that brand of a as XX.X%. we of the potential Importantly, array

noted been key trends. various loan platforms, FinWise from continued ways ability to long-term to committed the in economic our efficiently platforms loan have scale lending Against accelerating origination for our existing the the through exceptional a monitor we’ve the technology-driven we and these more while and course of for infrastructure. growth to programs robust strategic driver significantly in As closely volumes backdrop, in past, new sourcing managing are staying business through challenging economic a continuing to

economic However, loan macro while originations there current strengthening year of greater in tempered were weakening see be flexibility that seasonal we the believe would persist, year. both and business to the in to a traditionally believe half adverse we second the risk itself trends in if lends rebound this be could conditions that model our we

while focused prudently controlling ahead, remain and clients managing will risk service external influence, Looking despite best-in-class costs. challenging what factors, on to our we macro we customers providing and can

to growth Jacobson, With exceptionally our business customers by service, ways our provide deploy us our more to that quarter operating now bolster differentiated detail. environment into to of enhance efficiency well-positioned that, to Javvis and continue model Overall, the proud particularly conditions. discuss financial to business when take strategy to Officer, continue would the model, results Chief over during We also of profitability. improves. who We our the more best-in-class challenging long-term actions will exploring opportunities these for remain advantage our capital clients in allow opportunities with to our to Financial turn our like and I we call generate and which to value continues remain solid, believe

Javvis Jacobson

deteriorated compared million million Average million to Despite $XXX.X that were in XXXX, QX XXXX. $XXX.X during $XXX.X the XXXX. QX million $XXX.X from from and QX held-for-sale loan $XXX.X a $X.X XXXX loans in declined were in decrease assets compared of for loan interest-earning down an $X.X economic from from XX% higher and increase QX comprising billion QX an Total you, QX, XXXX billion X.X% during during and originations environment billion, for QX million Kent. increased held-for-investment XXXX. average balances X.X% to million quarter quickly in $XXX.X $X.X XX.X% the prior and Thank facing quarter, to

we The a driven year. X% economic a As driven mentioned would quarters mentioned, and loan fourth decline average by in deteriorate $XXX.X But seasonal during first rebound compared the greater significant and of there during was interest-bearing to originations QX to certificate increased QX challenging deposits and deposits. QX certificate during the be the be declined money originations Kent XXXX a by compared of we’ve in interest-bearing risk believe XXXX, or typical to to demand $XXX.X as calls, of was seasonality, year Compared tended muted rebound on to have the Average Generally, increase compared million mainly deposits that deposits and conditions deposits, year. QX third million million of as we the XX% seen market this in this in $XX.X quarters to more QX was to XXXX decrease higher money if and further, could market the the due remain mostly in and no accounts. balances accounts decelerate second exception. our XXXX. past and quarter have

the to deposit strategic mentioned accounts due held-for-sale total outstanding. earlier, and platform loans reserve between relationship Kent As

decreased loans away QX. yields in a in rate volume declined quarter in liabilities strategic Positively, held-for-sale basis modestly the a from deposits second was from cash primarily QX declines and XX.XX% from carrying our down the slows. driven in the a The cost for a compared XXXX and both interest of towards for XX.XX% by to The mix rate from lower-yielding was and the of XX was Our company’s The mix have XX increase on loan basis loans increase shift program funding our carrying yields points lower from net deposits. program margin new XXXX. certificate as during from cash XX margin representing of QX average points origination The XX.XX%, by period lower QX basis basis held-for-sale continued generally QX a basis within points decrease is was IPO in portfolio. interest-bearing raised and equivalents driven Net quarter the strategic XXXX. to increase during previous portfolio. X shift drop point points renewing substantial primary loan or within QX reason on the declined XXXX mainly down XXXX XX interest

drive on to we’ve As asset highlighted the prior calls, expect quarterly fluctuations we from quarter-to-quarter. NIM shifting mix in

solid in originations. as focus on and sustainable continued by calls, our Importantly, is long-term, growth over income generating driven net interest the growth on noted we’ve prior primary

increase lower in XXXX. gain of strong balances. Net in Growth increases loan prior asset compared $XX.X $X.X origination to $XX decline in $X.X compared year and resulting over was income in statement. basis SBA to value Non-interest quarter on compared for investment sequential in turn in QX SBA growth was fair million was decrease driven non-interest decline Let’s balances expenses to a in income fair million BFG. interest company’s X(a) lower an income was XXXX. program and fees $X.X of driven higher and income servicing QX an primarily for Group primarily offset The primarily the investment million driven by decline was the QX to due was previous Business on previous to held-for-sale decrease the in gain during impairment for $X.X the primarily classes. an the sold. primarily and loans increase by year growth, $X.X the $XX.X decrease on quarter volume QX a income partially quarter for loans primarily due QX XXXX increase million million decline was number The offset Net XXXX. due to prior QX asset. The prior to sale period of sequential quarter by XXXX and The the an to reflects the loan compared period of was million to the and $XX.X interest and QX significant the non-interest due in a average by average lower company’s the a in the other increase value interest-earning in by loans strategic loans period the company’s of million million BFG, to year sale in LLC, a million modest partially net income. Funding The for sequential compared for

million increase due from the SBA asset market rising $X.X general in expenses million XXXX. QX of incremental on As market-wide the headcount expect program $XX an XXXX, prepayment rates strategic in servicing SBA we’ve increase in calls, QX quarter an fluctuations related XXXX from XX.X% compared QX loan volume we QX XX.X% expense and to Non-interest highlighted in was interest the employee to was by QX the up impairment in compared XX% higher ratio sequential impairment and XXXX. for increase Compared for driven due prior market to SBA XXXX drive million to asset. QX BFG. movements company’s value $X and primarily to of for QX XXXX, increase an speeds company’s QX of The during on and efficiency servicing loans. was The to during quarterly was primarily company’s to as

look long-term Although will environment our to carefully, deteriorate. we workforce, to the investments were economic if make do our further we particularly in technology so and platform

was and to net investments XXXX. investment to growth growth the The remains also total due representing increase for charge-offs to an first unguaranteed $X.X in for market growth million losses held compared substantial loans was X.X% in to ago QX and XXXX for for QX Net QX QX reflected loans to Credit infrastructure were charge-offs. the QX receivable to increase plan million provision primarily QX for for year period XXXX. compared our to to company’s non-PPP the non-performing XXXX QX provision provision $X.X million compared expand quarter and for continued loan for for The the $X.X for of million million million loan XXXX compared program losses loan enable quality previous The $X.X net of XXXX. in and with share. for QX X.X% make charge-offs We loans $X.X and strategic lower quarter. X.X% to $X.X strong and for our compared

in driven pre-pandemic lower related net gross QX charge-offs in normalization and losses The in mainly Our recoveries QX The driven QX compared by QX XXXX strategic to and conditions. net increase company’s to was our a XXXX growth for by charge-off rate average QX net was to X.X% the charge-offs held-for-investment to for to X.X% XXXX X.X% increased for programs. balances XXXX. as of market was QX percentage charge-offs credit compared XXXX for decrease loans compared primarily and some of

portfolios conjunction continue with cushion. vintage in environmental reserve Moreover, to pandemic are high economic proactively provide that heightened We that reserve relatively continue they to we rates factors. performance expectations, since. everyone additional while program we trends, the in of underwriting industry factors confident these the water be and Overall, we levels with the reserve in with the lowered these at and our in we our line these for credit expect not COVID-XX charge-off normalize uncertainty management. a we and overall remain us previously, remind high risk set levels start quality to XXXX, noted to strategic with And increased and formidable have our levels impact portfolio remain with our programs management line as as in we’ve according of plus factors pleased March environmental by

capital significantly the X% a which requirement. strong with XX.X% remain the above Our leverage ratio, levels well-capitalized bank keeps

effective XXXX for XX.X% QX QX I With XX.X% rate Operator? approximately for tax would Q&A. up compared QX our that, open XXXX. for Lastly, for XX.X% was the like call and to to

Operator

Our Terrell with question-and-answer you. be question. session. comes [Operator Instructions] Please proceed line time, Andrew conducting At Thank from first Stephens. we the with this of question will a your

Andrew Terrell

afternoon. good Hey,

Kent Landvatter

Andrew. Hey, Hello.

Andrew Terrell

into kind is Maybe on of the kit Hey. I to originations bifurcate able how month the wanted volumes. to sense of rate origination quarter? the get run you progress just trying a to Just where throughout just start monthly of heading by XQ. Are

Javvis Jacobson

Yes.

you kind kind just we’re look that a and think right of rate by operating but – economic and we now I haven’t assume month, general run economic the at can conditions the disclosed So under trend. of

Andrew Terrell

some half normal we of I from half should then of comments declining around guess this volumes your hear level on expect in explicitly. But rebounding billion originations And might back I the the with Okay. you kind year? a in back maybe expect more just bit like $X.X seasonality. of origination caution the

Kent Landvatter

into look not now, so look do to happening of hard that the right something out economy quickly are It’s the that’s of realm. because we things the half in the year at second but as

Andrew Terrell

up? now. need sense, retention you kind I in retention step in Okay. down the rate And quarter, this backdrop right I just we’re order you loans understand see what of given the slowed to to guess, makes would back on

Javvis Jacobson

think fair markets, it’s first Stabilization in Andrew, I think, I capital a indicator.

performance cetera. and monthly those, all review a track It’s not we pools, the think static on I of first of this also to of it. basis, level, indicators both but the just et payment monitoring early of whether it’s [indiscernible]

points we And add so we’re retention going to those data we additional deciding all may of are programs track and more much add. or regularly that how

Andrew Terrell

did SBA have SBA quarter? I the the Got but you. this Thank sold item. one just amount if missed it, gain ask And sale that on on were could it. I might more you line of disclose dollar loans

Javvis Jacobson

No, amount. didn’t we the disclose dollar

Andrew Terrell

Can you speak go ahead. –

Javvis Jacobson

the first it It flat was in – quarter, than was Andrew. fewer was less sorry, It dollars.

Andrew Terrell

now you gain to just maybe seeing from of then specifically? income production to sheet kind sold growth the have we on to trends you well? balance right should contribute provide as able expectation in year Yes. in volume the any SBA sale the and back you’re expect of And half or Are for speak it SBA

Kent Landvatter

origination So like let the volumes. pipeline touch and on me

in continue volumes line. the have product origination We to SBA good

of piece small a of total that We’re than – like have just we’re the right? We less probably X% market, market.

be ability attract for applicants product so to continues And our that qualified to strong.

the as and there, defer to I’ll far market margins Javvis. As secondary

Javvis Jacobson

Yes.

loans our on conditions the that necessarily. number – are the amounts. premium deteriorating quarter-to-quarter on for not we more amount the think fluctuations But driver is of focused big it’s It’s sell. the premium slightly I

loans QX mentioned was we quarter, call the we sold number an last unusually XXXX. it of high in that As in of

This seen quarter the is in we’ve pretty past. consistent with what

Andrew Terrell

taking Great. All Okay. back for my I’ll right. Got step you it. queue. in questions. the Thank

Kent Landvatter

you. Thank

Javvis Jacobson

Thanks, Andrew.

Operator

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

Andrew Liesch

afternoon. Good guys. Hey,

of end then investments may are some invest what you and that And efficiency and going revenue like of to that in that ultimately even investments about just but in in these like the near-term of revenue? the talk where get for face what to ratio I slowing up pushed I’m But things lower expenses falling revenue, continue things right want out. have to make? out do in be seems the and pushed you’re the think rising some growth, you to now might most it important face the curious are planned, could the given some you with also want Just of the recognize you of

Kent Landvatter

expenses are that’s pull a back there Yes, certain – I we that. appreciate easily. of types great We’ve that can fairly Andrew, question.

be have. those to certain were are less positioning. number that. comes can of that bodies The expenses, those would our now We further be full pull inclined ones ready the want back we production-related we as Sometimes as of that right like advantage soon take per make we would a strategic when that production possible on that rebound to that

So IT basic to something continued short-term build the BSA, scalable, those compliance, to investment and in in are the platform oversight, us, be we’d more reluctant the there. and become evolve continuing as such do strategic to more and for

aspects deteriorate, we so more course, less and on in table. Of Did the always the that help? seriously is the production-related a at of in so But the everything strategic take foundational bank. look things

Andrew Liesch

some then growth you. managing Yes, Javvis, look thoughts give how And versus on in the ratio revenue at absolutely. expense trends? us you the Thank efficiency

Javvis Jacobson

isn’t we’d isn’t to And efficiency obviously expense, been recent like it it’s where the in see quarter quarters. The it. this ratio Sure. – like where isn’t

been say upper would XXs I industry. the it’s efficiency previous on you far the giving between as I and somewhere as goalposts in to we’ve where quarters think the in ratios, mid some

to expenses our might But other rolling the slight the for category. good Somewhere item, a expenses up are where in tick specifically that is line a more into. that range of us, That’s have seen ratios. efficiency goalpost public lot you in

So think and fees softening see the that forward. professional in any legal into going expenses those We don’t are that. going we’re going to

those obligations We have forward. going

we’re the see expand So any he be as and as that to And going headcount to that’s not very salaries, we’ll described. related probably into where changes we careful there. mentioned, then areas Kent

Andrew Liesch

two Are have Got strategic following what origination the That’s the helpful. and telling just been process is perspective for year? What’s new been it. still the three you And thinking what’s question loan outlook? programs then pipeline their a programs? What right. – up outlook program thought there. All the on our you new to about and

Kent Landvatter

Sure.

our So full. pipeline remains

also to have deliver continue existing the We build value we relationships with and on programs. that

some a in So seen for and and we’ve market been program partners tech-enabled there’s to since to doing markets, today. a dislocations even important so delivering this FinWise it’s you’ve capital bank because that our though note come continue need XXXX

Andrew Liesch

step I’ll Thanks it. back. taking questions. for Got the

Kent Landvatter

Andrew. Thanks,

Javvis Jacobson

Andrew. Thanks,

Operator

Ladies proceed from reached look of does and the we your with have it a Please gentlemen, like have end questions. Andrew disregard, Please with question-and-answer Terrell we Stephens. the session. follow-up

Andrew Terrell

you for thank the follow-up. Hey,

for Just one maybe quick one Jim.

under of of put the what with kind ratio a now, you’re right And XXXX. do CECL environmental CECL that allowance starting But there. was if I earlier about are parallel up I factors you’re in you the curious heard and the was comments the quarter. reserve it I this required quarter? kind the of you think or kind in And line have adopt relatively CECL to framework this ratio would have running qualitative allowance in been

Jim Noone

Sure.

So running year. we for duration we’re of this that and by to it are the do side, side planning

not that But Andrew. adopt of track in you, have on to for XXXX. number We’re do I January

Andrew Terrell

I appreciate Okay. No problem. it.

Kent Landvatter

Yes.

Operator

for gentlemen, over in to now and questions like management would further turn call remarks. I am no the closing Ladies queue. to the you. Thank I showing now

Kent Landvatter

want you. wonderful a for the FinWise all Thank to and thank call wish Bank attending and We of in Yes. just your interest you you afternoon.

Operator

today’s conference. concludes This

your may a your participation You lines Thank for wonderful at have disconnect this you time. day. and

FinWise Bancorp (FINW) 28 Jul 222022 Q2 Earnings call transcript