FinWise Bancorp

Greetings, and welcome to the FinWISE Bank Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the form of presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I will now turn the call over to management.

Good afternoon, and thank you for joining us today for FinWise Bancorp's fourth quarter 2022 conference call. In addition to this call, we issued an earnings press release earlier this afternoon and posted it to the investor relations section of our website at investors.finwisebancorp.com. Today's conference call is being recorded and webcast on the company's website, investors.finwisebancorp.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ from those discussed today. Forward-looking statements represent management's current estimates, and FinWise Bancorp assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements contained in the company's earnings press release and filings with the Securities and Exchange Commission. Posting the call today are Mr. Ken Landvater, CEO and President of FinWise Bancorp, Mr. Javis Jacobson, Chief Financial Officer, and Mr. Jim Noon, Chief Strategy and Chief Credit Officer. With that, I will turn the call over to Mr. Landbatter.

Good afternoon, everyone, and thank you for joining us on our fourth quarter 2022 earnings conference call. On today's call, we will provide an update on our financial results and share some perspective on the current operating environment and the continued evolution of our business model. During 2022, we executed well in substantially all facets of our business, even amidst a rapidly deteriorating economic environment. Our differentiated and diverse business model, coupled with strong execution by our team members, allowed us to navigate these macro headwinds and continue to deliver solid loan originations, profitable growth, and industry-leading returns. Specifically, for the full year, 2022, we generated revenue of $89.7 million, net income of $25.1 million, and diluted earnings per share of $1.87. We also ended the year with solid Q4 results, particularly given the more challenging macro environment. Total revenue was $23.0 million during Q4, led by loan originations of $1.2 billion. Net income for Q4 was $6.5 million compared to $3.7 million in the prior quarter, and diluted earnings per share were 49 cents for Q4 compared to 27 cents for the previous quarter. We also maintained robust profitability measures, including a return on average equity of 19.1% during the quarter. We were also good stewards of capital as we continue to buy back our stock below tangible book value, which is accretive to earnings per share and tangible book value per share. Overall, during 22, we bought back a total of 120,000 shares for approximately $1.1 million. We plan to continue to be opportunistic with our capital deployment strategy, including our share buyback strategy. Positively, in Q4, the company's tangible book value per common share continued to grow to $10.95 per share, or a 21.1% increase over the prior year period. Although the macro environment is widely expected to remain challenging in 2023, we plan to continue to proactively build on our success and reinvest in the company in order to help build diversity of income and funding streams so that we can remain well-positioned for continued sustainable and profitable long-term growth, particularly once the environment improves. This includes identifying different ways to utilize our balance sheet, including prudently adding credit risk in a way that gives us more stability in earnings. To that end, I'd like to provide you with some thoughts to help you understand how we are thinking about key objectives, including how we plan to continue to navigate a potentially challenging macro environment in 2023. As we highlighted on prior calls, the environment for loan originations decelerated rapidly throughout 2022 across the industry, and FINWISE was not immune. This same pattern continued in Q4 2022, and without a significant improvement in the macro environment, we would expect this trend to continue into 2023. Going forward, we plan to remain focused on our strategic programs business, where I am pleased to say that our relationships with existing platforms remain strong. This also includes engaging with and working towards launching additional strategic programs, particularly as we continue to see strong interest from potential new platforms. However, it is important to highlight that in addition to the previously mentioned pressure on originations from a tougher macro environment, The revenue benefit to FINWISE from potential new strategic programs in any given year is typically delayed given, one, the 90 to 120 days it has generally taken to launch a strategic program, and two, the normal operating period before we start seeing originations come through for the new program. As we also mentioned on last quarter's earnings call, we expect to continue to originate and hold the guaranteed portion of the certain SBA 7A loans, which, although a headwind to the company's SBA gain on sale, we expect will result in stronger held-for-investment loan growth and an incremental tailwind to our net interest income over the long term. We are also looking to further develop our leasing business, which would be an expansion of the line of business we have had in place since 2011. We see this as a great opportunity to expand our traditional product set and further diversify our revenue model. During Q4, we experienced a pickup in expenses driven partly by higher employee headcount and increased business infrastructure spend. which along with a deceleration in originations and revenue caused our efficiency ratio to increase. As we've mentioned on prior calls, our efficiency ratio is likely to increase as we expect to continue to build out infrastructure, including back office, and also expand our fintech offerings. Our team will continue to assess the natural evolution of our business model, including three components of banking as a service, lending, deposits, and payments. We have also made some key hires to support the growing bank. For example, Meg Taylor joined us recently as Senior Vice President and Chief Accounting Officer. We plan to remain opportunistic in terms of hiring best-in-class talent especially as we evolve towards more banking-as-a-service products. Importantly, we intend to focus on making investments in the company that are carefully designed to deepen relationships with our current customers while helping us to be well-prepared to quickly capitalize on growth opportunities, particularly when the macro environment becomes more supportive. Having said that, we will also focus on managing expenses prudently and making decisions accordingly, keeping in mind tougher economic conditions. We also plan to maintain our disciplined approach to underwriting and overall strong risk management in order to sustain sound credit quality through varying credit cycles. So far, we've remained pleased with the overall credit performance of our portfolios, as we have not seen any outsized deterioration aside from the expected gradual industry-wide normalization of credit to pre-pandemic levels. All of you on this call who have been following our story may recall that we proactively slowed strategic program loan retention in our sub-36% held for investment portfolio early in 2022. Importantly, while reducing these balances has the effect of increasing our ratio of net charge-offs as a percentage of total loans given the denominator effect of lower balances, it does not necessarily imply that we are seeing significantly faster than expected credit normalization. As I have mentioned before, we do not intend to sacrifice credit quality for the sake of growth. That said, any further deterioration to the U.S. economy from current levels could drive faster than expected industry-wide credit quality normalization. Overall, while we acknowledge the risk of further economic deterioration, we believe that we are well positioned to navigate such a scenario. Moreover, we remain focused on maximizing long-term shareholder value, but in order to do that, we plan to proactively build for the long term while continuing to work with our strategic programs and serve our clients. By doing this, we believe we will position the company to capitalize on growth opportunities that emerge once the market environment stabilizes. With that, let me turn the call over to Javis Jacobson, our CFO, who will provide you with more detail on our financial results.