Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- FinWise Bancorp (FINW, Financial) reported strong momentum in Q2 2024, with loan originations reaching nearly $1.2 billion.
- The company achieved solid revenue and stable credit quality without contributions from new strategic programs.
- FinWise Bancorp (FINW) has diversified its revenue mix by reducing dependence on its top three fintech programs.
- The company's credit quality has performed well, with a significant reduction in net charge-offs and a lower-risk loan portfolio.
- FinWise Bancorp (FINW) is on track to launch its payments hub later this year, which is expected to drive future growth and revenue diversification.
Negative Points
- SBA 7A loan originations were modestly lower this quarter due to cautious borrowing behavior amid elevated interest rates.
- Non-interest income decreased to $4.8 million from $5.5 million in the prior quarter, primarily due to accelerated servicing fee amortization.
- Non-interest expenses increased to $12.9 million from $11.8 million in the prior quarter, driven by higher salaries and operating expenses.
- NPL balances increased modestly to $27.9 million from $26 million in the prior quarter, driven by two new SBA accounts.
- The net interest margin, although improved, is expected to trend downward due to increased competition for deposits and higher funding costs.
Q & A Highlights
Q: On the strategic program yield, it seems higher on average. Is this a shift in consumer demand that might continue?
A: Robert Wahlman, CFO: The long-term trend shows a decline in net interest margin (NIM) as we expand exposure to lower-risk loans like the SBA portfolio. The second quarter's higher yield appears to be an aberration due to unexpected behavior by two principal vendors and lower charge-offs.
Q: Should we expect expenses to be lower in the third quarter?
A: Robert Wahlman, CFO: We don't provide official guidance, but we estimate that the growth in expenses in Q3 will be about half of what we experienced in Q2. The increase in Q4 will also be about half of Q3's growth, driven mainly by new hires' full-quarter expenses.
Q: The hold times on the HFS loan portfolio increased this quarter. Is this the right level to think about going forward?
A: Robert Wahlman, CFO: Given our current clients and level of originations, this will likely be the average run rate for the held-for-sale portfolio.
Q: How should we think about the SBA loan servicing line item moving forward?
A: Robert Wahlman, CFO: This quarter saw significant changes, but I don't anticipate this behavior to continue. I expect it to return to more normalized positive net fees.
Q: Did the new initiatives contribute to the 2Q fee income?
A: Robert Wahlman, CFO: The new initiatives are still in the pilot stage and did not have a significant impact on the second quarter's fee income.
Q: What are your thoughts on the charge-off levels and credit quality?
A: James Noone, President: The lower charge-offs this quarter result from decisions made two years ago to reduce certain HFI loan categories while growing safer assets. The general trend in net charge-offs has been downward and stable, but this quarter's level is not expected to continue in the second half.
Q: The strategic program HFI loans increased modestly this quarter. Should we read into this?
A: James Noone, President: The balances in the HFI portfolio have stabilized as we continue to originate at stable levels. The benefit of the new credit-enhanced program has not yet come through this quarter.
Q: How many shares were repurchased in 2Q 24?
A: Kent Landvatter, CEO: We bought 26,911 shares in the second quarter, totaling 44,608 shares or roughly $460,000.
Q: Can you discuss the growth opportunities between your legacy business and new initiatives?
A: Kent Landvatter, CEO: Our legacy business offers a strong foundation for future growth. Adding payments and cards strengthens synergies and diversification. We've also invested in compliance and regulatory oversight, positioning us well for further diversification.
Q: Can you discuss the appointment of the new board member?
A: Kent Landvatter, CEO: We're excited to have Susan Ehrlich join our Board. Her fintech lending and payments experience, along with her expertise in growing businesses, supports our governance philosophy as we enter the next phase of our evolution.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
