Finwise Bancorp Q3 FY2024 earnings call

• Loan originations in the third quarter grew to $1.4 billion, a step up from prior quarters. - Generated solid revenue, especially strategic program fees, with deceleration in expense growth. - Announced one new lending program in the quarter, bringing total to three in 2024, and optimistic about pipeline. - Tangible book value per common share increased. - Strategic lending business gradually rebounded after 2023 industry pressures. - New strategic initiatives delivered tangible results ahead of schedule. - Expense growth decelerated.

Loan originations in the third quarter grew to $1.4 billion, a notable step up from the approximately $1.1 billion in average originations of the prior five quarters. The company's tangible book value per common share increased to $12.90 from $12.61 in the prior quarter. Net interest income for the quarter was $14.8 million compared to $14.6 million in the prior quarter, driven by increased volumes in loans held for sale and loans held for investment portfolios, partly offset by yield decreases. Noninterest income was $6.1 million in the quarter compared to $5.2 million in the prior quarter, driven primarily by an increase in origination fees related to strategic programs. Average loan balances comprising held for sale and held for investment loans were $492.9 million during the quarter compared to $449.9 million in the prior quarter. Average interest-bearing deposits were $341.2 million compared to $318.9 million in the prior quarter.

• Expect NIM to continue to decline during the fourth quarter absent future Fed actions. - Cautiously optimistic about SBA volumes if interest rates continue to reduce. - Expect pace of operating expense growth to further decelerate in Q4 2024. - For 2025, expect to reap benefits from initiatives including stronger multi-product platform and stable revenue stream.

• NIM affected by multiple variables like origination volume, portfolio quality, SBA loan funding, etc. - Potential increase in NPLs due to elevated rates in the past. - Uncertainty around replacing callable CDs and its impact on funding costs. - Slow revenue generation from payments and card products despite investments.

Q: On loan production seasonality and outlook, especially with Earnest's seasonality.

A: Jim Noone said they're optimistic about origination trends, with benefits from announced programs, improving legacy programs, and optimistic about pipeline despite third quarter seasonality from Earnest.

Q: On margin impact of early fourth quarter actions like callable CDs and SBA.

A: Bob Wahlman said NIM is complicated with many variables affecting it, expected NIM to continue declining in Q4 absent future Fed actions, and discussed details of callable CDs replaced.

Q: On payments and card revenue update.

A: Kent Landvatter said still on track to complete payments hub by end of 2024, expect full year 2025 to see revenues from those.

Q: On $80 million callable CDs called and timing of remaining.

A: Bob Wahlman said $205 million of CDs are callable, $160 million callable currently, $80 million called so far with average 5.6% interest replaced at 3.7%, and remaining to be called in future.

Q: On HFS loans average balance and new normal.

A: Bob Wahlman said HFS balance derivative of origination volume, with some seasonal factors, and Earnest will still generate originations in Q4 but not at Q3 level.

Q: On fee income from BFG investment and valuation.

A: Bob Wahlman said revenue from BFG relates to SBA loan generation, slower SBA market affected it, but expect valuation turnaround as SBA lending picks up.

Q: On expense growth moderation and Q4 expectations.

A: Bob Wahlman said expected half the growth rate in Q4 as in Q3, so some growth in Q4 not flat.

Q: On potential increase in NPLs in 4Q 2024.

A: Jim Noone said about $9 million and 30 plus day delinquencies for SBA coming through, around $10 million total expected to migrate into NPL in Q4 due to prior high rates.

Q: On cross selling different product offerings to new and existing partners.

A: Bob Wahlman said excited about multi-product platform, reverse inquiries coming in, aiming to increase relationship stickiness and revenue.

Q: On 2025 outlook.

A: Kent Landvatter said proud of 2024 accomplishments, strong foundation for 2025, expecting to reap benefits from initiatives including multi-product platform and stable revenue stream.