FinWise Bancorp (FINW)

Management Discussion

• Net income for the three months ended March 31, 2022 was $9.4 million, an increase of $4.1 million or 78.3% from net income of $5.3 million for the three months ended March 31, 2021. The increase was primarily due to an increase of $5.6 million or 92.2% in non-interest income and an increase of $4.4 million or 50.2% in interest income, offset by an increase of $2.4 million or 35.8% in non-interest expense and an increase of $2.3 million or 365.6% in provision for loan losses, as described below.
• Net interest income was the primary contributor to our earnings in 2022 and 2021. We believe our net interest income results were enhanced by using FinView™ to identify attractive risk-adjusted lending opportunities and assist in the selection of Strategic Program loans that we chose to hold for investment. Net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as “volume changes.” It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as “rate changes.”
• For the three months ended March 31, 2022, our net interest income increased $4.5 million, or 53.7%, to $13.0 million compared to the three months ended March 31, 2021. This increase was primarily due to an increase in asset yields, growth in average interest earning assets, and a decrease in our cost of funds. Average interest earning assets increased by $80.1 million, or 26.0%, to $387.8 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, while the related yield on average interest earning assets increased by 219 basis points to 13.64%, resulting in increased interest income for the three months ended March 31, 2022 of $13.2 million. A substantial decrease in the average balances of comparatively low yielding PPP loans during the three months ended March 31, 2022 contributed to the increase in yield on average interest earning assets for the period. The corresponding cost of funds on interest bearing liabilities for the three months ended March 31, 2022 declined by 9 basis points to 0.79%, and the average balance in interest bearing liabilities decreased by $35.5 million, or 21.0%. The general decline of interest rates in the U.S. financial markets in 2021 is the primary cause for the decline in the cost of funds. As indicated in the rate/volume table set forth below, the decline in the cost of funds and the effect of decreased volumes of interest-bearing liabilities resulted in decreased interest expense for the three months ended March 31, 2022 to $0.3 million. We gather deposits in the Salt Lake City, Utah MSA through our one branch and nationwide from our Strategic Program service providers, SBA 7(a) borrowers, Institutional Deposit exchanges, and brokered deposit arrangements. For the three months ended March 31, 2022, average outstanding balances under our PPPLF decreased compared to the three months ended March 31, 2021.  The decrease in funding from our PPPLF was partially offset by increases in deposits sourced through our branch, Strategic Programs, SBA 7(a) borrowers, national Institutional Deposit exchanges and brokered deposit arrangements compared to the three months ended March 31, 2021. Our net interest margin increased from 10.96% at March 31, 2021 to 13.37% at March 31, 2022.