FinWise Bancorp(FINW) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net interest income for Q4 was $14.4 million, nearly flat compared to the previous quarter, with a net interest margin of 10.61%, down from 11.77% in Q3, primarily due to a shift towards lower-yield loans and an increase in CDs [4] - The provision for credit losses increased to$ 3.2 million in Q4 from $3.1 million in the prior quarter, driven by an increase in net charge-offs and a qualitative factor overlay [3] - Net income for Q4 was$ 4.2 million, or $0.32 per diluted common share, with a return on average assets of 2.9% and a return on average equity of 10.8% [62] Business Line Data and Key Metrics Changes - Total loan originations were$ 1.2 billion in Q4, up from $1.1 billion in Q3, with SBA 7(a) loan originations lower due to reduced application demand [61] - The guaranteed portion of SBA loans increased by 17.1%, contributing to a 10.2% growth in total loans held for investment [61] - Noninterest income rose to$ 6 million in Q4 from $5.2 million in Q3, primarily due to changes in fair value of investments [4] Market Data and Key Metrics Changes - Nonperforming loans (NPLs) increased to$ 27.1 million at the end of Q4 from $10.7 million in the prior quarter, primarily related to the SBA portfolio [3] - The net charge-off rate as a percentage of average loans held for investment was 3.8% in Q4, up from 2.8% in Q3 [3] Company Strategy and Development Direction - The company is focused on expanding into an integrated Banking as a Service (BaaS) model, with ongoing development of its Payments Hub and BIN Sponsorship products [2][42] - Management emphasized a disciplined approach to underwriting and collateral management, particularly in the context of higher interest rates impacting loan originations [20] - The company aims to enhance long-term earnings power through strategic initiatives while maintaining a strong compliance and risk management framework [43] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the economic environment, noting uncertainties that could impact loan originations in the first half of 2024 [20] - The company believes it is at an inflection point in its business model evolution, with expectations for gradual revenue contributions from new partnerships and initiatives [20][33] - Management highlighted the importance of strong compliance and regulatory processes as competitive advantages in the evolving industry landscape [34] Other Important Information - The efficiency ratio increased to 55.8% in Q4 from 51.3% in the prior quarter, reflecting ongoing investments in infrastructure [4] - The tangible book value per common share rose to$ 12.41 from $12.04 in the previous quarter [4] Q&A Session Summary Question: What is the outlook for credit quality given the increase in nonperforming loans? - Management noted that the increase in NPLs was primarily due to the SBA portfolio and that they expect continued normalization until the prime rate declines [45] Question: What are the expectations for expense growth moving forward? - Management indicated that 2023 was a build year and that they expect operating expenses to continue to increase in 2024 as they invest in infrastructure [27][28] Question: When will the agreement with Earnest start contributing to revenue? - Management stated that while they are excited about the partnership, meaningful revenue contributions are expected to ramp up in 2025 [70] Question: How does the company view its current capital position? - Management expressed comfort with the current capital levels, indicating that they have sufficient capital to support growth while maintaining regulatory compliance [15]