FINW - Earnings call 3 2023

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Operator

Greetings. Welcome to FinWise Bancorp's Third Quarter 2023 Earnings Conference Call. [Operator Instructions]. Please note, this conference is being recorded.

I will now turn the conference over to Nathan Mills Investor Relations. you. Thank

begin. may You

Unknown Executive

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

results current to factors described those differ the more today. statements results based expressed trends materially forward-looking for in that of the in of These you the refer statements. filings beliefs with actual earlier issued forward-looking and or uncertainties company's made today and expectations could including a on to release SEC, to detailed made number are from statements the those discussion subject management's press any differ materially earnings from and are I that cause a cause implied and its risks to could actual

any update made call. statements The no duty course of company undertakes to that be the may forward-looking during this

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

as isolation Our GAAP. the presentation presented of this considered accordance intended a substitute with or for to information in is not information in be financial

earlier measures www.sec.gov. to our with can including financial today most the non-GAAP GAAP filings issued be in press these of our with release at earnings measures through Reconciliation the comparable prepared accessed accordance SEC

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

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

Kent Landvatter

our afternoon, macro in we color discuss share and economy joining financial call, progress On on call. you the third today's everyone, priorities. turbulence on the our our navigated quarter provide on we us how will thank earnings strategic third XXXX quarter conference for Good results, and

XX.X% another investment with quarter-over-quarter yet programs delivered by for our results, steady in driven line our of Coupled growth We originations in strategic loans quarter held of business. solid portfolio.

Our competencies in sources with for along remained effective of exceptional core us. third-party our model, prudent portfolio management have execution strength and focused business underwriting,

quarter, profitable our to During the third and anticipated. portfolios perform continue remained FinWise loan as generally

and for remains quality for notwithstanding in credit an evidenced future us investing Our loans. as groundwork rise growth. pure enabled capital competencies continue factors, the the above in expected charge-offs the in along with low to relatively laying solid These our nonperforming average core our quarter,

a and with we of For loan $X.XX, the equity originations of on diluted and from quarter third in resulted per share loan $X.X net income of growing interest This led million, $X.X of XX.X%. $XX.X or million XXXX, billion. portfolio of average earnings generated of our revenue by return

into While [indiscernible] persist industry-wide of the markets interest for that challenges, continue Despite to are throughout and and we actively rate results, this with on originations outlook capital well loan weigh these longer what we pleased higher XXXX XXXX. tight we continue to office these we will can remainder believe potentially the control. may and manage that macro

new third-party reliable actively current services are Our our uninterrupted relationships. strong, and on relationships remain we and focus with forging providing

This to is strategy our integral to is success. expected drive to our continue and

current environment remain recover. economy for begins well our and demonstrated growth the believe perform we as positioned have well we ability Importantly, to this in to

was value $XX.XX the end at quarter, compared capital to end common of tangible company's at to share as the $XX.XX the prior per Turning the the third of quarter. book

XX.X%. bank a capital well-capitalized Our above significantly leverage remain bank of levels with guidelines ratio

and our ratio repurchased is the ratio as to the balance of end assets to as equity that total remains grow important shareholders' has since to our our declined high, it While sheet we stock. XXXX, note continues total

third plan. repurchased the we shares During buyback remaining Board-approved all the under quarter,

primary capital, the is our of business Board maintain been Directors balance our sheet and during focus to evaluating of support uncertain expand and management flexibility always geopolitical use are of While the an economic has what growth to to and deployment organic our opportunities capital environment.

now update will as our on key the through I objectives provide remainder and beyond. we of XXXX an move

Our revenues throughout strategic support of a platforms key our our existing continued lending programs quarter. driver have been the and for

diversify teams revenue actively bring new business due line. expand to relationships working been to also in Our have through diligence this and

quarter. growth lending the be X(a) a growth, key SBA and performance both of continues we portfolio and to our with driver the Our in pleased are

While to the primarily our loans. in in nonperforming expected quarter attributable was loans increase our SBA

in confident managed underwriting collateral effectively. credit our performance and are management historically quite and expertise team's We have

managed XX.X% well XX.X% with the ratio of in same XX.X% quarter third year. remain quarter previous the efficiency to last compared the and in Expenses period

previously $X.X important income related is the in reported a part loan it SBA note the However, efficiency during recognized of miscellaneous ratio of million the to a the forbearance agreement the that nonaccrual improved approximate resolution quarter. played to on

this and While our proceeds of the basis, is the nonaccrual to related portfolio maximizing does of a bank on demonstrate it collateral expected and balances. recurring income miscellaneous level expertise not management teams

previously and and As initiatives remain diversify efficiency our in to the believe expanding investment revenue will our years to We ahead. ratio relationships support is serve noted, business further fluctuate expect elevated new we to online. as bring critical our we and this our

In made and the summary, our to SBA our we pipeline and Banking our lending about as portfolio continue the performance expansion we've Service programs, growth progress of of of be a continued on the potential excited initiative.

risk our can and for future management, and management investment the on capital collateral disciplined underwriting being. growth items opportunities as management, remain we We and including that control, programs, third-party focused

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

James Noone

growth the Ken, credit a you, you card details good portfolio and as to take . the afternoon. Thank our loan and initiatives lending, and minutes will as through walk few I performance. payment well of

operations, business bank building and third-party hiring professionals strategic strengths change During along on and in IT. risk, continued by in marketing line quarter, development, management product our business areas the of the with to the programs the invest compliance, and

card programs pipeline lending With first lending excited on sponsorship year-end. been which Payment Hub, onboarded working launch the programs of and work to we the and business calendar first we half be and have about we will second prior to anticipate to our additional the product XXXX, Our our XXXX. expect are building strong, regard to rollouts, in potentially be of half this remains in that operational we customers

important Service of strategy the have noted, we and that our an As aspect remains and positioning market for our integrated Banking in as the a needs future. of we the believe meeting

X(a) our originations quarter, strategy Our loan not and guaranteed of the strong selling SBA third during these were loans. we portions of maintained the

more SBA been inquiries front-end SBA remains for factor the X(a) quarter-over-quarter. tempered quarters, stable. than has in of loans guaranteed pipeline in level portfolio portions previous decision loans increase to The of the our investment of the While the all our held retain was XX.X% substantially our primary in

elevated. to the interest secondary risk, the balance as market a strategy be a premiums subdued of our higher and and underlying minimal with especially generate growth with comfortable We of way in remained while credit government recurring meaningful income the holding interest continue rates to remain loan guaranteed loans

loan for quarter $X.X which provision assets, primarily of management's qualitative related nonaccrual provision million to the nonperforming for adjustments a year, quarter same to loan The the mention and provision primarily on Now quarter quarter for of the the the election turning for for losses the growth prior and the was in credit $X.X credit. second based SBA compared over the increase was losses to $X.X company's million special increase to last million bank's attributable primarily to factor portfolio. QX

continued the held to of investment. strategic balance provision in primarily the in program for improvement year over was reduction quarter The last loans same our due the

was XX We program of and have repositioning to substantially which ago, strategy. roughly this started discussed the no portfolio, change the months HFI there strategic

net to due SBA from to quarter, lower due large were to net second was million The compared strategic portfolio. prior in primarily SBA $X.X quarter compared last large charge-offs to was primarily in quarter the year. year-over-year a million in the decrease the programs The a the portfolio. the the $X.X $X.X recovery recovery and million charge-offs same during and quarter During decrease

the percentage as held to The reserved year. X.X% investment for X.X% same for We as loan we believe second in losses potential last average well of at quarter X.X% company's quarter quarter charge-off loans compared X.X% a compared in to held and for allowance quarter. net are an investment was total year. the with quarter a percentage during X.X% last and loans the X.X% rate last in the of same

quarter factor in and decision has originated our in in been this decrease from retain the ratio prior SBA primary the the most portions Our of guaranteed X(a) program, year. loan to the

the loans none Nonperforming $X.X quarter $XX.X quarter the guaranteed guaranteed compares second same million during million the to year. during million the SBA. million, balances and quarter SBA second by the to and NPL $XX.X none quarter in for $X.X year. in This quarter last compared same million is were $X.X Of the the in last

the quarter year our increases SBA and driven The increase portfolio. prior in NPLs compared primarily by in to in was NPLs

loans, portfolio which portfolio, SBA from informal last variable quarterly series the months. and seen of increases discussed this a had basis. quarters, rate rate the in And formal we prior resulting we in adjusts comprised stress is XX on the in As of our some prime over calendar

loans becomes charge-off to repay balance during and the on into several not nonaccrual loan nonaccrual an down the and operating charge placed the from is determines is past any is quarter. flow, dependent loan borrower status the to principal with SBA status. for that due, the evaluated loan policies, net or Consistent we our cash is interest management or XX moved When days expected collateral

stress a some business extent spending the customers. we of will to to slowdown believe segment rates continue and We continues consumer affect the elevated see our to stay small

prior nonaccrual teams nonaccrual our the loan increase evidence to expertise nonaccrual would a portfolio expected, portfolio point to was than related each additional balances charge-offs X account of were lower our quarter and slightly the bank management SBA maximizing during the the While and reported of we our and recognized in proceeds the income as from of balances. the within quarters, miscellaneous previously gross collateral

environment team's We segment a borrowers. the as may our feel continue of confident portfolio to stress in managing our this even rate experience

monthly general expect payments, increases and Looking loan borrower associated rate ahead, of customary headwinds. seasoning trend NPLs ongoing and the macroeconomic and higher the the impact in we persistent to due increases to

experienced manage and levels. credit believe in portfolio portfolio we continue well are to reserve significant we growth our and capabilities and Overall, our and due positioned to capital underwriting to team, proven performance management

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

Javvis Jacobson

billion $X.X to to the prior the our the the quarter to quarter third relative $X.X good second year. discuss year. the and Loan originations and $X.X I Thank totaled financial of you, quarter quarter third quarter in in afternoon. for plan the billion prior for results the third to billion and compared prior

relative As was the primarily we strategic the decrease quarter last a strategic that to expected more quarter. second funding typical performance communicated by single due originations and our that origination previous benefited better-than-anticipated was in quarter during the platform to the return a from volumes from in driven in to programs quarter, additional

a the underwriting manage decrease The strategic was program and due for certain the credit in environment in to in changes continued contraction capital to to from year assets loan challenging prior risk. macro markets our primarily lending due

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

quarter. the liquidity the sequential industry-wide certificates deposits increase deposits an was the prior position remained and million driven by strong and pressure, deposits. to second Despite period. during quarter $XXX.X liquidity primarily were million The Average brokered million year balance in compared of increase in and $XXX.X our demand $XXX.X sheet interest-bearing during quarter interest-bearing

The year-over-year interest-bearing increases in deposits. increase was due demand and certificates deposit of mainly to

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

Our us sticky stable base. deposit and business model a differentiated has with provided

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

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

net primarily statement. income increase quarter improvement $X.X quarter last due $X.X the Net our was was turning growth compared interest in an in income, Now to the investment for portfolio. held the $X.X the to and last to from million same quarter income million year. for in million prior by quarter The loans driven

was period in strategic on prior expense, credit increase higher lower the income by and from The Partially a and lower losses. net primarily in noninterest interest of an the for decrease to increase offset provision program due fees. gain loans sale year

average increases $XX.X due Net relative XX.X% expense for on quarter grew improvement to interest to X.X% the primarily in the quarter the for million was bank's over the offset balances investment liability the year. last being year to the interest-bearing million the $XX.X up compared period. quarter over portfolio, prior quarter by last and income $XX.X average and million balances paid was the The increase in to loans partially in and held same interest same an

The increase along mix with Partially a cost in for reduction of average period. to in compared than loans prior certificates mainly deposits. in due investment prior year lower margin in balances XX.XX% shift for for quarter Net an to points in decrease was XXX from XX.XX% portfolio was balances and the year held at of points in portfolio, portfolio. decrease volume to loan lower last and XX.XX%, the mix in loans by our basis towards Hill prior interest period average higher our yields a due quarter the from held for our primarily sale the portfolio The loans a shifted in the was offset investment the to quarter basis in XX deposit increase from lower an deposits. carrying lower

guaranteed was value million $X.X quarter prior quarter prior a in from million year. million due the and second income gain mainly gain attributable $X.X the quarter to compared quarter our to on million last a decrease was in in $X.X from the reduction income. the Noninterest $X.X same the The was a loans resulted on fair sale the portion primarily loans, a miscellaneous in an The our BFG the other in SBA by of to income, decrease sold offset was corresponding in of due to of gain resolution year related and program. loans a agreement decrease the number along primarily of interest with in increase our in in the income, SBA change lending on the primarily X(a) investment in of increase retention forbearance SBA sale to partially which in increased period of decrease to

loans in our the investment Lower fees associated of the also contributed and BFG fair decrease with to originations value of decrease strategic in a program the from period. prior year

the of BFG to that our expect fluctuations. quarterly fair continue value in experience will We investment

to quarter services offset during in the year. servicing million increase partially to reduction and prior primarily to of expense Noninterest prior salaries the benefits in year higher in the impairment related million a impairment $XX.X due quarter expense, prior occur employees, compared $X.X SBA period. from primarily on was The was in year asset, not increase the did from last our employee the prior increase fees. an quarter $XX primarily by our due to a same in from a professional which an million quarter reduction the of The asset, servicing an period SBA and in consulting was number

expenses And in an to and equipment from service was other professional increase consulting decrease partially in and in reduction a related expense, fees. a primarily occupancy offset primarily expense by operating

XX.X% to quarter for period. XX.X% was efficiency quarter the and prior for year company's the ratio for third compared XX.X% the The prior

quarter's miscellaneous third to portfolio. SBA the from the While benefited efficiency loan additional related our income certainly ratio

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

the with capital bank the X% a ratio, requirement. significantly well-capitalized remains above respect With to XX.X% leverage levels,

effort As for quarter, share good announced book as be of the the stewards during value our to Kent of million, discount to we bought capital, of XXX,XXX XXXX. August part in a shares buyback mentioned, $X.X completed program at and

and long-term maintain deploy grow strategic to continue growth transactions. We potential responsibly balance accretive opportunities sheet business to for our in capital invest flexibility and for our

tax for last for effective XX.X% quarter This quarters. was year. the the and rate company's compares to third same The XX.X% second

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

Operator

question Andrew Instructions] [Operator first Stephens. Our Terrell with is from

Andrew Terrell

Maybe start, but the specifically then much I specifically And might quarter in is just are how have this prepared the of guaranteed versus was this that non-guaranteed? how the nonaccruals I missed think to in about $XX remarks, lift SBA? much . million

James Noone

Andrew, this is Jim.

So $XX.X SBA $XX.X the guaranteed $X.X the portfolio. SBA. million million of million attributable is And to then is by

Andrew Terrell

Got it.

commentary XXXX. I Jim here. about the card Okay. first sticking appreciate is And of that. half and maybe the programs heard like hub, you then the I sounds payments rollout with

might path, there progressed to a would going that successes might or get you've this date? to roadblocks then you just you've contribution there, any to Any kind revenue wanted be what sense might targets and love of major effort be as for how early on color of or kind And get expect point. going? laying down you about the it too of out early is Just have experienced you talk I but to

James Noone

Yes, sure.

just can half the first initiatives solution in funding update far our and current our and operational relationships believe the and feel overall in in the volumes payments each as we the of means the we'll a kind to and the why remarks, we in a highly . And sponsorship for like as hub, as in finally, It market. on said that And more for building reinvesting sources. we're So now, future we position helps stickier fast like still 'XX. the like Is which profitable by we're strengths then the downturn higher it -- card even attract be both the leadership generally, important mature allows programs comprehensive diversify revenue programs, that is a reminder, product on our the with of product. of bank.

half oversight in and second requirements. next regulatory of been procedures. bank new expanding seen With Scoping year, with on diligence of assessments lot and the customers then the the due bringing that's risk work first occurred has risk program and have the third-party a of commensurate policies kind and through vendors thereafter

the We've really success bank. here early the additions. is the been recipient The staffing staff are in additions excellent of at

I reputation our of just in the history regulatory because because exams. market think in our of

development, management those benefited all IT and compliance, are that So both from business have operations, additions. departments change

growth. next The programs touch launch lending due of hub hard on of quickly, by the last payments and couple are bring is Andrew, our through just to thing would and here. while been kind cards a of diligence working I phase the really year-end these We've potentially

development, business heavily so of And couple we a to of this by year, still that the goal. compliance to operations that involved we'll have been and and feel really good teams able accomplish end be new launch programs

Andrew Terrell

of Specifically the originations. maybe adding potentially benefit point could partners on think the new

Just right relative to a that of the base today by of to to have pipeline for now in year-end. you're partners get wanted kind are sense that the through get working the you

overall think incremental in Just given backdrop. be some of remain throughout trying with little the how balance you to into of and originations It could a that could the marry the and originations like sounds that terms maybe pressured commentary. the just dollar year of XXXX, of

James Noone

Yes.

million So front, did and in billion on quarter billion $X.X QX roughly like this $XXX we $X.X versus the originations QX. in then

than see is the still didn't things but to think This levels, happy a quarter we again was were QX We rebound year, the from we'd low see QX point. origination which expected. levels this better

QX delta quarter-over-quarter, than uptrend stable across that most the the a partner all was programs still that of single While from against programs. were broader rather

for the quarters. QX to origination most the so appropriate next continue as point we X And to X levels to

there from you're to launched that the of in and incremental has -- programs. year-end, those half at getting there's once with a by from looking scaling underlying of program. lot that new launched be year lift more seasonality far likely next just the A do second as period, programs As up lift with the live, even a potentially they're may

where it's far line, as about launches. at half top with we're good the to potential But of next the pretty feel second those as we probably lift year. incremental So

Andrew Terrell

production SBA SBA in to XX the expecting stronger I rate driven. about before just talk might the you then bit mean within hop is the quarter. out your the or this sheet loan the It capital are maybe And bring you was just growth What group? queue. opportunity incredibly targets you balance one so? next saw of little the last I growth you about robust. the I high-quality was kind what next a onto balance laid and saw over the back have The quarter for you paper I what than maybe Anything year? over knows can of contemplating months mean, the kind targets sheet unusual

James Noone

Yes.

date kind I'd I also the things. the yes, X than has quarters. The pipeline so So mentioned front-end stable, tempered in but of a I to been would say, they -- the more bit in of mean we are little were remarks -- mention some inquiries, previous

about $XX we this $XX So QX QX, $XX $XX quarter, in million, during the SBA originated this million loans about It's year. quarter. of million third million in in

confidence I for likely pipeline would a see SBA little But to expansion. less right what stable. you next down generally in So confident, quarters just has the less you're you're leads point few secure cycle over CapEx a tick there's a bit originations if to less is swing because in to the it's financing business you're the that owner, and possible now, you the economy been

still we I good. cautious, feel Andrew. So really -- would we're just But

Operator

Instructions] We a have do [Operator Andrew. follow-up from

Andrew Terrell

Perfect.

of I I've keep Okay. a couple got rolling through. more.

just that like also just you Obviously, buyback -- quarter. last side, definitely where buyback saw you -- price. on at bank up completed comfortable to quarters? just And capital you're any the running remind TCEs capital maybe on following the strong this us manage your to guardrail time here, an very in the On with very coming question and a Can you a perspective? thoughts incremental advantageous the the over from what I the still then Any XX%. of

Kent Landvatter

Sure.

the Javvis, the some you let as of So take stab me answer questions first can maybe and well. then just

just capital to has we're ratio this continues balance the sheet that -- noting dropped the quarter, as grow. each year, capital The

And buyback we so as is great assess would a weigh of part we just that of you can about The say capital. asked we a We that. include trajectory towards the the I And see the that. that buybacks against question additional best uses question. continually But balance flexibility the other advantage may build of to sufficient of thinking that infrastructure, out the that make factors come such us take opportunities. as the little we while. sheet, continued through have growth the want over And to to we capital next take growth we're of certain

Of course, not will able if certain raise -- what you macroeconomic it don't of how to have the easy conditions year, be next capital improve.

think thing yes, if bad last and in did buyback. don't we another have as of it the is takes account would once also would option, to We levels a I it's market. again, Board factors, we time, current say, all conditions, But deemed into higher market this consider the best capital

Javvis Jacobson

the And to upper mid- Andrew, right the somewhere TCE, in our as in far past as for feels level. the hasn't business capital what to really us. ratio, teens talked total changed model about we've

Andrew Terrell

heading And million low making just ratio. can you the like range then, now, side, pull the the would think together you high a just some that the expense And right XX% kind guys you expense XXXX, servicing SBA given quarter. creep just how to actually impairment expectation of quarter? side up it looks the ticked here? then would low the think It's $X expenses maybe in the netting or growth Javvis, on more down talk I deem franchise? like maybe like expense this maintain like doing if just operating Can what reinvestments expect with core we I And to should XXs on asset the of the into broadly, about you efficiency of into into aside, from you about do it are territory? Or cadence looks

Javvis Jacobson

maybe Yes, to services professional is the think best Andrew, just on the place start line. I

lack consulting was coming really see we quarter. primarily quite down second remarks, come of the of a about expense. that This noninterest as prepared a fees by we in mentioned line that would the can the what quarters we expecting. be due, That the we've couple bit You end on of of is ago, off talked were

we're continue we'll between long we as similar likely continued we've of probably similar, infrastructure from that the in see pace the that growth. believe what first, about, growth-wise, going to talked conditions expense you've as third build level quarter second been and So seeing to here as the to the our remain history

the I think gave As ratio. go post the far you pretty as efficiency ratio, on good efficiency

We than the from see and seen projects some But expect can the start the in to to you're market. pressure going generally then, ratio. in these endeavors efficiency see come better until new revenue having we on efficiency

Andrew Terrell

Okay.

as So maybe can maybe thinking reassess start back modest here talking just initiatives? step about about we it then from reinvest lift you in from the and efficiency as near term, more and we revenue some of

Javvis Jacobson

That's right.

Operator

session. question-and-answer the conclude will That

over like closing back to would for comments. to Kent it I turn

Kent Landvatter

everyone a very still appreciate a about track. been team. call today. good we're quarter. feel joining we that we're initiatives launching, We're great the on And you. It's excited Thank the We've got Yes. we

and really appreciate the . come. so to we good investors And look our support things of for

Operator

conclude This you. will Thank conference. today's

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

FinWise Bancorp (FINW) 26 Oct 232023 Q3 Earnings call transcript