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FinWise Bancorp (FINW)

Participants
Kent Landvatter Chief Executive Officer & President
Javvis Jacobson Chief Financial Officer
David Tilis Chief Strategy Officer & Senior Vice President
Jim Noone Chief Credit Officer & Executive Vice President
Michael Hultquist Piper Sandler
Samuel Varga Stephens
Call transcript
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Operator

Greetings. Welcome to the FinWise Bancorp First 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. the to turn host. now will conference your over I

Unidentified Company Representative

on to afternoon by first earnings Reform Thank the would are based statements section on may like available certain a investors.finwisebancorp.com. Good of you made website statements welcome the are press covered and Private Investor FinWise These on constitute company's of of subject provisions Litigation is to information of The you, operator. I the call. historical in and the not are Bancorp's at Relations earnings quarter release that remind harbor the this that actual statements XXXX management's cause Act of and call detailed XXXX. results forward-looking release made current earnings could that issued company expressed The to or to may Securities in materially during safe with of beliefs its today, forward-looking those based number expectations course risks and the any uncertainties statements those more materially to and I the any for trends today. in made call. forward-looking the could statements. discussion differ to company's from the factors made update statements this press that the earlier you described forward-looking no implied refer from duty to undertakes be results filings including actual course cause differ SEC, of a and

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

GAAP Mr. financial filings accessed this the be a our GAAP. presented comparable of with measures information intended in be as information non-GAAP accordance through prepared substitute to in issued most Financial turn presentation and that, Our earnings of Hosting FinWise to Mr. and financial or not SEC, to Landvatter. press FinWise these call with measures at CEO are Reconciliation in the Chief today can Bancorp; to Bancorp. considered Officer is for the isolation earlier accordance the I www.sec.gov. with Javvis President will Mr. Kent of Landvatter, With our today including over call Jacobson, the release

Kent Landvatter

for quarter $XX.X million or results income solid industry-leading delivered FinWise the everyone. profitability. XXXX, including net along of afternoon, first diluted with $X.XX share, per Good of

financial solid billion, quarter the efficiency. by of with during combined strong was robust loan operating $X.X originations Our performance driven

an loans, previous income as due to when of the resulting end had we of a loans X.X% number the remained strong, Credit at total in which program loans, gain unchanged nonperforming higher sold. well first increase also loans are also from of quality fees, very We quarter. loans on strategic to non-interest the originate of sale higher as quarter, higher generated as compared were

robust to Overall, of of platforms, should minutes partners, add to with lending model several to in Lastly, few ongoing remain driver impressive loan like to our new loan above validate a scale to A origination growth of strategic and clarity leverage which I'd our continue take existing sourcing bank our as well-capitalized significantly a lies our guidelines. understanding model, business differentiated in these our efficiently we proposition. ratio FinWise platform. fintech XX.X%, volumes key value aspects results from credit accelerating as ability profile. through exceptional for well risk illustrate

$XXX.X choose several $XX.X or strategic not retained purchaser may purchase in partially cannot strategic guaranteed receivable, the event total the contractual of sold its million rights $XX.X million X(a) strategic XX, programs, for we our the retaining the XX.X% protects portion. million governing loans. at and to comprised in originate or sell XXXX, period loans loan loans the after $XXX.X of the platform loans total terms generally of generally and loan March the retain. our of program the the them, loans We days our selectively require bank, program receivables loans whole XX.X% a the premium a which to March typically investors. originate for of bank. the platform our to of at the or platform on total we loans. program each loans other million unguaranteed to XX, held total the portion investment account XXXX, balance strategic Further, all market loans in program receivables sale we for portion with at guaranteed began strategic after we million March $XX.X SBA the XXXX, our and The of loans or sells capacity strategic in XX, obligation programs loans appetite loans strategic held of the establish originated of in reserve comprised meet bank XXXX total bank loans portion we analytics a The program based while servicing SBA a Specifically, through secondary end investment of receivable. The for at or Beginning entire was the loans XX.X% retaining the the on or which

receivable below access control turn macroeconomic would we economic on now yields only Financial XX, for distributed and higher our investment loans held acknowledge rates that remain our uncertainty we Overall, us on XXXX. prudent strategic our strong financial cycles. period-end Javvis in discuss to believe well interest programs can XXXX, what for bonds, strategic to Chief strengths will different at model held who the and reserved. loans quarter above to results a XX, these call programs evenly for risk more detail. at with are for can't the also investment through Importantly, I we like Moreover, factors, management should XX% provide risk-adjusted loans Jacobson, constituting of allow Officer, focused business March while we and which and sustain we between over XX.X% March our level are us with while control to about annual of that, With

Javvis Jacobson

Kent. you, Thank

for financial quarter. results the into right the get first Let's

seasonality in $X.XX typical of income or We factoring million net strong continued and loan originations grow share. to diluted QX, common delivered origination per $XX.X in even

million for XXXX. balances, fourth in and primarily and million QX the second and Specifically, Average of of due accounts a XX.X% tends to declined QX X.X% for XXXX loans, $XXX.X the than decline million doubled CDs. of during third Total average in refunds million in in QX interest-bearing tax $XXX.X to and driven deposits. increase Loan seasonality QX QX a held $X.X sale year, patterns. income to and industry more $XXX.X follow $XXX.X billion step from during certificates patterns. certificates increase QX up deposits quarters and million by from was balances totaled that QX, compared market for can the attributed of Average comprising X% to activity from during be increased both to as QX The seasonal XX% spending brokered during prior and for to increase the originations XXXX $XXX originations mainly in to due million Compared to during the decelerate our the QX first assets held to compared of the of were and up $XXX.X in compared the to borrower XXXX $XX.X substantial money XXXX. tend and compared of interest-earning We an million investment in and QX million origination deposits to QX, and mainly million QX average deposits maturity X.X% loan compared XXXX. quarter and XXXX. historically a decrease from XXXX loan remind XX.X% loan grew increased $XXX.X quarter, quarters to during to $XXX.X XXXX rebound year

to during relatively from four to basis rate average XXXX during was interest a XXXX. remained XX% basis in point and compared funding was XX.X%, liabilities up margin interest-bearing Our XXXX points down decline QX cost substantially from basis XX Net on QX. in QX XXXX. to XX QX points QX of low XXX and basis The points points XX.X% QX for representing compared nine basis increased

loans interest and type underlying sheet. Importantly, our of the balance mix net our a is on margin of function

our a programs. increase previous sale QX of mix the During with net QX and lower balances margin remains driven to XXXX strategic The by long-term, PPP notional yields Overall, loans for X% with for XXXX outstanding. from primary in loans interest of over continue a to growth held on held and our the substantial underlying loan by average generating focus investment sustainable we was the reduction shift growth in due ongoing net our rate primarily interest from originations. income increasing quarter, interest

enhance key would Additionally, generally model. drive income, a of our differentiating program rising our which strategic origination non-interest higher revenue fees, levels factor

assets Compared was driven mix reflects quarter income and million was to to to QX for to change compares and the The programs lower-yielding $X.X the contributed by to from growth non-interest for nearly $XX.X QX Compared QX million increased was well compared and in resulting million million from results. of Net a quarter for XXXX to loss. drivers an primarily was $XX.X balances partially turning interest-earning the X(a) increase loan fees $X.X average $X QX in QX increase of Net a income QX in XXXX. loan in to modest held-for-sale reflecting million decline on and net higher of net growth in XXXX. offset QX to QX main the QX million was decrease the include to fair Compared Business QX gain comparable of BFG used due as increase partially $X.X doubled loan from the our due XXXX, income program strategic in on growth. primary in compared compared solid interest for statement. income increase million company strategic strategic compared loans, Group income sale to interest the and income XXXX. XXXX, previous XXXX for SBA loans interest step-up investment compared number gain million, non-interest loans Now, X(a) in average $XX.X was to provision offsetting increase an primarily modest XXXX to higher sold a and $XX.X million determining Non-interest value which expense. higher in on fees, in and higher to in growth due with to previous income a million in of by non-interest income Partially XXXX $X.X in as expenses QX by values balances net in by XX% the $XX.X The softening for change of loans. value. an higher XXXX for QX significant program loans or Funding driven fair non-interest sale driver BFG the SBA LLC substantially offset to income of primarily QX the

minor continue be bonuses with on expansion is for by driven paid compared We relating to strategic strong and fees loan headcount as efficiency company's and The loan impairment important mainly strategic in driven feature from an The $X.X increase QX an by over fair value asset. of XXXX model. QX both of which revenue operating the continue programs, the by in XX.X% employee QX the QX during XX.X% I recovery an prior origination in division and compared XXXX. drive noted to QX XX.X% quarterly increase was additional over fluctuations to strategic The drive to Positively, during expect earlier IT of movements continues SBA to as and differentiating volumes, in to increase general of the program program of the in lack up ratio during $X.X contractual prior periods to XXXX XXXX. for servicing both related BFG. efficiency QX market expansion we million growth of million was $X security partially higher our offset million periods volume. to expense and Non-interest

noted, As our make result in workforce further incremental which we we our have headcount platform previously expect in investments to growth. and could technology

expand to to continue expect strategic grow to programs we invest to share. continue Additionally, our our to market methodically

$X.X loan provision The in losses our million previous to turning investment and QX driven and the to to million for $X.X and XXXX. XXXX. the strength quarter loan The increase modest in Now, $X.X to for in held the on portfolio X.X% higher compared X.X% charge-offs. quality. for the was QX of for provision non-performing with loans for by compared to pleased for by net provision X.X% asset QX compared unguaranteed an growth with representing previous was remain continued We million QX loans for increase total of loans quarter an mainly and driven QX compared loan The growth charge-offs. XXXX substantial increase net was XXXX

$X.X and QX During $X.X $X.X net compared QX QX, were XXXX. XXXX charge-offs to million million million, during during

company's investment percentage a XXXX. QX, driven charge-offs average are for XXXX QX by for as and as which QX percentage held growth allowance increase X.X% for credit loans and to The We compared by QX QX during balances. of was the of for XXXX a charge-off less XXXX net with reserved X.X% X.X% loans in for X.X% total for compares for of to compared of QX in Our rate, losses we QX X% believe an X.X% was to that normalization QX and PPP XXXX. well loans mainly

the leverage XX.X% our above As the we credit charge-off portfolio expect with gradually factors. have well-capitalized rates, reserve programs underwriting. of continues we overall noted, to these to according With remains high management are while And expectations. bank to strategic our Moreover, levels confident in remain significantly performance line X% we for these a the in to levels respect water capital requirement. environmental portfolios plus be previously quality ratio, additional set with normalize,

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

Operator

this of our And Piper Hultquist the your question Instructions] Sandler. first at from proceed question-and-answer Michael line time, with session. with Please we be question. And conducting [Operator will a comes

Michael Hultquist

in year If afternoon. first quarter we that typically you the can volume others? than to with Hey, is overall being good anything half could increase origination start the point of the despite softer activity, this there

Javvis Jacobson

work to future seasonality over the attribute resources few and Michael significant both solid platform years us We allow into we've a with this to existing effects quarter's past that Javvis. put scale Yeah, building growth, is the of amount the of and despite programs.

Just remind seasonality is help, there in Does Michael? you to industry normal our originations. that

Michael Hultquist

program it next to I looking still on quarter be And is some helpful. depend to That's underlying going just expected, question or softening be going then, the activity? Yeah. strategic is this guess, would ahead there

Javvis Jacobson

the Yeah, as that, depend programs. think Michael, will from I it on the always underlying activity

Michael Hultquist

some could that's it, quarter rates then, loans sub-prime obviously loans. And provide here, strategic we helpful. on you investment a what color to program held versus this if XX%? strong quarter above Got switch retained you over or for Can

Kent Landvatter

you want maybe take do or Jim? to Javvis, that

Javvis Jacobson

Yeah.

partners the Does our and about strategic -- between we're between that four help, currently from retaining for so, of the on above So below XX% investment, the XX even. and two the held is mix Michael? XX%

Michael Hultquist

away SBA I Were the decline? the guess, to on or that what the these from more caused on to lenders on other here big sticking drove sales related then And portfolio, loans gain they financed increase revenue? sale

Javvis Jacobson

drove that sales the that. It's

Kent Landvatter

can you on give that Maybe Jim. a little color

Javvis Jacobson

to color have you do Jim, add?

Jim Noone

No.

think you is I accurate. what said

Michael Hultquist

Great. for Okay. step Thank I'll back. all That's me. you.

Javvis Jacobson

Thanks, Michael.

Operator

Our comes proceed Stephens. questions. Please with the question line Samuel your from Varga of next with

Samuel Varga

afternoon. Good

Kent Landvatter

Hey Sam.

Javvis Jacobson

Hey, Samuel.

Samuel Varga

XX%? the follow-up have $X.X to above billion that happen question. total origination in the and below you hoping between to of I'm breakdown Do SDA and on volume a

Kent Landvatter

So at we're -- for breakout we Samuel competitive not disclosing reasons are the time. this

Samuel Varga

could you on Understood. Okay. the what problem. And fees PPP, then give quarter? the for were No

Kent Landvatter

Minimal.

Samuel Varga

Okay.

Kent Landvatter

to round up notice even be noticeable. – wouldn't It to

Samuel Varga

Understood.

yield. on question Another

that bit towards little mix noted is you skewing XX%. below the the So a changing

material above on any in been So XX%. sort there to of profile? Has yield the change I ask wanted the

Kent Landvatter

yield The changing. just the mix changing. that's It's profile isn't

Samuel Varga

Okay.

the have case Okay. shaping you of Great. any if noted year. this I sort in adding Then annual of of up be there's the lot partners. currently kind acceleration or to every to couple that of that a wanted goal a the Is deceleration partners you year? of ask

Javvis Jacobson

not deceleration to seeing any in add We're wanting partners.

that cadence discussed. we've same the on continue We

Samuel Varga

they a Okay. categories into? Great. do might participate expect With loan sort And any regards new upstart then personal in couple to of expand to I you just have more. that

Kent Landvatter

you on line? the are David,

David Tilis

they're them any see we and a obviously and both them looking like be with question. could obviously help if the our to new create of assistance to with just strategic great Yes, engage programs consumer. we time help product all I mean

Samuel Varga

see that you is there's I Okay. trend. I a of in I of Understood. the seeing? you but you're securitization the point at change change of subprime guess, especially, this that change, end Thank the appreciate that there a with the credit you. commentary sort And ask to clear of of obviously, kind then I the things , Do on clearly any on data wanted guess gave. velocity

Jim Noone

Jim Sure. One program. of internal portfolio Michael's Thanks about HFI This XX% I Officer. policies called the think -- on Credit to XX% varies would program for investment the limit the portfolio. our previous question exposure is to It total point Samuel. Chief more is Noone, I also follows by than thing subprime our of than greater up strategic not portfolio

the to we to gets the line straight portfolio with that XX% ability still up this time. available risks because in it's quarter-over-quarter does over a conjunction the not yields on the have But exposure we some of XX% plus an where So total in the move and mix other manage programs. fluctuate portfolio and

your a information for So hopefully gives that bit more little you model.

Samuel Varga

Jim. SBA just of get great. a consider and the are that And I chance and of that's Thank takes that Yes, puts general? process interest guess then sense you. have thought you guess the in on I that your you Thanks, generate fee the loan sales, what's some for that. want income the to what I the of on kind to around solve origination instead income

Jim Noone

strategy hasn't Yes. Samuel, our changed.

loans the continue sell to We eventually. all

that's keep do the a some. loan but rare we keep thinking. So we really that It's

Samuel Varga

Okay.

regarding of Okay. if upstart. so them, guys some have for Thank And grow, I overall of two growth kind guess. upstart there's a even slows I of the pie just I of to wanted with no again, you you. understand more. ask there's specifically, for I room to lot limitation that,

growth and is to is just any still wanted cadence is of the from strategic slowing right? there whether general up in any or or kind sort their I partners of it ask, or indication tapering, them to of So the of

Kent Landvatter

most what's where the of of additional aware now, programs I them strategic are on on could mean, add focusing very I A - obviously going right mean, their value of to David verticals David? are market. But our Tilis Yeah. they new in most membership.

our coming level again, So we have good potential programs, feeling relationships really existing with and with of the strategic just we're on. overall

Samuel Varga

then question. Understood. We there latest a modification last in my was there Thank David. about note in trust, you, And noticed policies. loan that securitization the upside

loosening guess And value standards. wanted sort I fee the what any just forward? I or impact that or ask in what to general in maybe, of impacted interest moving to by of is – what's I guess, your income so going dollar is way potentially of this book income credit segment And what I net guess, –

Javvis Jacobson

Yes.

second would I looking total capital some just if framework the you programs Samuel, is as to to to if it and answer things the the the look to relates So a that that's going we're you for programs, the go like on XX.X% the impact and that, then we're greater to investment, point with go – But strategic retained we when for retention we last then split programs and if XX% raise you're of part programs. XX% back talked the and you that you really fairly XX.X% the of like, process quarter, with. for it's I have between of think back than less book, about to at held retain evenly to number the we our retain portfolio products than going

we that's a review through and four to flow risk. an and to Satisfactory mean framework a compliance our balances, at changes appropriate the look might the depth simply, bank. ability that right? like at the in pillars. price of data program product So maturity that doesn't require underwriting It's one program we going has of program performance – credit cycle, there to because one to be So just retention the

So question. hopefully your that, answers

Samuel Varga

had. very questions And for color. thanks all it these that appreciate I answering Yes. much. I appreciate I

Kent Landvatter

problem. No

Operator

today's And you Thank disconnect any this aren't checking the there see, you And end any participation. may it for in like And more your more session. just the are questions, questions. question-and-answer conference time. looks have which double also to reached if at your if there this concludes we lines of