FinWise Bancorp

Good afternoon and thank you for joining us today for FinWise Bancorp's second quarter 2024 earnings conference call. Earlier today, we filed our earnings release and posted it to our investor 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, expectations, and beliefs, and FinWise Bank Group 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. Hosting the call today are Kent Landvater, CEO, Jim Noon, President, and Bob Wallman, CFO. With that, I will turn the call over to Kent.

Good afternoon, everyone. Finwise continued its strong momentum into the second quarter, building on the positive results we achieved in the first quarter. Our performance this quarter was supported by continued growth in loan originations to nearly $1.2 billion, solid revenue and stable credit quality. Importantly, our profitable results were achieved without any contribution from the recently announced new strategic programs and other initiatives, highlighting the strength and resiliency of our existing business. In addition to our solid quarterly performance, it's worth mentioning the significant progress we have made since our November 2021 IPO. in strengthening and diversifying our business. Our compliance and risk management first culture has positioned Finwise as a strong competitor in the FinTech lending space. We've also enhanced our product offerings and improved our strategic program lending diversification as the percentage of originations from the top three FinTech programs has declined substantially in the past two years, leading to a more diversified revenue mix. Furthermore, our credit quality has performed relatively well, which is a testament to our rigorous underwriting and risk management practices, and has led to a diversified and lower-risk loan portfolio. Turning to our Payments Hub initiative, we remain on track to become operational later this year, which should position us well for future growth and revenue diversification. Our capital position remains strong, with our bank leverage ratio significantly above well-capitalized regulatory requirements and the peer average. We also continue to execute on our share repurchase program announced last quarter, acquiring 44,608 shares for roughly $460,000 in the second quarter. Looking ahead, we remain confident in the strength of our business model and our ability to further expand and diversify our product offerings and revenue streams to enhance long-term growth. We will also continue our efforts to generate operating leverage in 2025 as a significant level of incremental investments we have made in the business to drive future growth start to decelerate. Overall, we remain firmly committed to executing our strategic goals to further enhance long-term value for our shareholders. With that, let me turn the call over to Jim Noon, our president.

Thank you, Ken. I will now provide a bit more detail on originations and credit quality, and then we'll provide an update on our business initiatives. As Ken mentioned, we're very pleased with another quarter of solid performance in the existing business. Importantly, these results do not include contribution from the recently announced strategic program agreements. We are also pleased with the level of originations we are seeing, and although the lending environment could change inch or quarter, through the first three weeks of July, originations are tracking at roughly the same rate as the second quarter of 2024. Our SBA 7 loan originations were modestly lower this quarter versus last quarter, and this is the result of a more cautious approach by small business borrowers, as widely expected during this period of elevated interest rates. While we were successful in continuing to grow our SBA portfolio, our newer products, including equipment leasing and owner-occupied commercial real estate loans, continued to gain traction and help to diversify our origination mix during the quarter. Turning to our portfolio, we continued to retain substantially all of the guaranteed portion of our SBA loans. On a sequential quarter basis, these guaranteed balances increased 4.3%, and were a primary driver of the 6 percent growth in total loans held for investment. As of the end of Q2, our SBA guaranteed balances and our strategic program loans held for sale, both of which carry lower credit risk, made up 44.6 percent of our total portfolio, including HFS loans. Moving to credit quality, we are pleased that our disciplined approach continued to serve us well. The provision for credit losses was $2.4 million in the second quarter compared to $3.2 million in the first quarter. The change was driven by continued improvement in net charge-offs compared to the prior quarter. The bank's loss rate in our SBA portfolio has been more than 70% lower than that of the SBA 7a industry as a whole. This is based on loan performance data from the federal government for the period since the bank began its SBA program in 2014. The net charge-off rate as a percentage of average loans held for investment improved to 1.9% in the second quarter from 3.5% in the first quarter. Importantly, our lowered net charge-offs are the result of the decisions we made and began implementing two years ago to purposefully reduce our SP HFI balances in certain categories while simultaneously growing the overall portfolio with lower yielding and safer assets. We continue to feel comfortable with this positioning. NPL balances picked up modestly this quarter to 27.9 million versus 26 million in the prior quarter, which was driven by two new relatively small SBA accounts. Importantly, of the 27.9 million, $15.8 million is guaranteed by the federal government. Overall, this is in line with our prior commentary regarding the potential for sporadic additions to our NPL balances while we remain in a higher interest rate environment. We remain confident in our portfolio, and we are not currently seeing any broad-based negative trends. Our allowance for credit losses as percentage of total loans held for investment remains stable at 3.2%. Our reserve position, the continued positive shift in credit mix, the strong collateral in our SBA loans, and our consistent and prudent underwriting standards have all contributed to our solid credit quality, particularly during macro uncertainties. Turning to an update on our business initiatives, we are happy to announce that we have delivered ahead of schedule on multiple FinTech banking initiatives that we outlined late last year. These include our first payments program, the start of our credit-enhanced balance sheet program, and now the launch of our first card product. As you may recall, our first payments program was announced with Hank Payments at the end of Q1, and we are excited that we have already started to gradually process incoming payments. This is a new source of lower-cost deposits and fee income for FinLines. Additionally, during Q2, we announced a strategic relationship with Plannery, and with it, the start of our credit-enhanced balance sheet program. As we mentioned in our first quarter earnings call, we have deepened our relationship with one of our existing strategic lending programs, Upstart, through a new auto loan product. And subsequent to quarter end, we also expanded our collaboration with another existing strategic program through the successful launch of our first card program, We have not yet formally announced this program, as it is still in its piloting stage, but anticipate providing more details later this year. Finally, we remain on schedule to be operational with our payments held later this year. All of these initiatives represent significant opportunities for FinWISE to deepen relationships with FinTech programs, diversify our revenue, and improve our deposit costs. Now, I'll turn the call over to our CFO, Bob Wallman, to provide more detail on our financial results.