- Net Income of $4.6 Million for Second Quarter of 2023 -
- Diluted Earnings Per Share of $0.35 for Second Quarter of 2023 -
- Entered Into Definitive Agreement to Increase Ownership Stake in Business Funding Group to 20% Upon Closing -
MURRAY, Utah, July 27, 2023 (GLOBE NEWSWIRE) -- FinWise Bancorp ( FINW) (“FinWise” or the “Company”), parent company of FinWise Bank (the “Bank”), today announced results for the quarter ended June 30, 2023.
Second Quarter 2023 Highlights
- Loan originations were $1.2 billion, compared to $0.9 billion for the quarter ended March 31, 2023, and $2.1 billion for the second quarter of the prior year
- Net interest income was $13.7 million, compared to $12.1 million for the quarter ended March 31, 2023, and $12.8 million for the second quarter of the prior year
- Net Income was $4.6 million, compared to $3.9 million for the quarter ended March 31, 2023, and $5.5 million for the second quarter of the prior year
- Diluted earnings per share (“EPS”) were $0.35 for the quarter, compared to $0.29 for the quarter ended March 31, 2023, and $0.41 for the second quarter of the prior year
- Efficiency ratio rose to 52.7%, compared to 52.5% for the quarter ended March 31, 2023, and 52.0% for the second quarter of the prior year (1)
- Annualized return on average equity (ROAE) was 12.8%, compared to 11.1% in the quarter ended March 31, 2023, and 17.2% in the second quarter of the prior year
- Asset quality remained solid with a non-performing loans to total loans ratio of 0.3%
- Entered into definitive agreement on July 25, 2023 to increase ownership of Business Funding Group, LLC (“BFG”) to 20% through the issuance of 372,132 shares of the Company’s common stock in exchange for an additional 10% equity interest in BFG upon closing
(1) See “Reconciliation of Non-GAAP to GAAP Financial Measures” for a reconciliation of this non-GAAP measure.
“Our team delivered solid originations, maintained strong credit quality, and effectively managed costs in the second quarter, notwithstanding the challenging macro backdrop” said Kent Landvatter, Chairman, Chief Executive Officer and President of FinWise. “In addition, in-line with our long-term strategic plans, we invested in our future as we increased our ownership in BFG by seizing upon the market dislocation to add an additional 10% membership interest at favorable relative pricing.” Mr. Landvatter continued, “As we look forward, we remain highly vigilant regarding the uncertainties that lie ahead and believe that the industry-wide slowdown in loan originations may persist as we move through 2023. We continue to effectively manage the areas of our business that we can control as we maintain a prudent underwriting, capital management and cost control stance, while continuing to invest in our business. We remain well-positioned to capitalize on future growth opportunities as the environment stabilizes. We believe these thoughtful actions will result in improved efficiency, profitability and long-term shareholder value creation.”
| Selected Financial Data | ||||||||||||
| For the Three Months Ended | ||||||||||||
| ($s in thousands, except per share amounts) | 6/30/2023 | 3/31/2023 | 6/30/2022 | |||||||||
| Net Income | $ | 4,639 | $ | 3,861 | $ | 5,482 | ||||||
| Diluted EPS | $ | 0.35 | $ | 0.29 | $ | 0.41 | ||||||
| Return on average assets | 3.9 | % | 3.8 | % | 5.5 | % | ||||||
| Return on average equity | 12.8 | % | 11.1 | % | 17.2 | % | ||||||
| Yield on loans | 17.77 | % | 17.24 | % | 18.42 | % | ||||||
| Cost of deposits | 4.02 | % | 3.18 | % | 0.77 | % | ||||||
| Net interest margin | 12.14 | % | 12.51 | % | 13.69 | % | ||||||
| Efficiency ratio(1) | 52.7 | % | 52.5 | % | 52.0 | % | ||||||
| Tangible book value per share(2) | $ | 11.59 | $ | 11.26 | $ | 10.13 | ||||||
| Tangible shareholders’ equity to tangible assets(2) | 29.7 | % | 32.6 | % | 35.7 | % | ||||||
| Leverage Ratio (Bank under CBLR) | 22.4 | % | 24.0 | % | 21.4 | % | ||||||
(1) This measure is not a measure recognized under United States generally accepted accounting principles, or GAAP, and is therefore considered to be a non-GAAP financial measure. See “Reconciliation of Non-GAAP to GAAP Financial Measures” for a reconciliation of this measure to its most comparable GAAP measure. The efficiency ratio is defined as total noninterest expense divided by the sum of net interest income and noninterest income. The Company believes this measure is important as an indicator of productivity because it shows the amount of revenue generated for each dollar spent.
(2) This measure is not a measure recognized under GAAP and is therefore considered to be a non-GAAP financial measure. See “Reconciliation of Non-GAAP to GAAP Financial Measures” for a reconciliation of this measure to its most comparable GAAP measure. Tangible shareholders’ equity is defined as total shareholders’ equity less goodwill and other intangible assets. The most directly comparable GAAP financial measure is total shareholder’s equity. The Company had no goodwill or other intangible assets as of any of the dates indicated. The Company has not considered loan servicing rights or loan trailing fee asset as intangible assets for purposes of this calculation. As a result, tangible shareholders’ equity is the same as total shareholders’ equity as of each of the dates indicated.
Net Income
Net income was $4.6 million for the second quarter of 2023, compared to $3.9 million for the first quarter of 2023, and $5.5 million for the second quarter of 2022. The improvement from the prior quarter was primarily due to an increase in net interest income driven by growth in loans held for investment portfolio. The decrease from the prior year period was primarily due to lower strategic program fees, higher interest expense on deposits, and lower gain on sale, partially offset by higher interest income and a reduction in non-interest expense.
Net Interest Income
Net interest income was $13.7 million for the second quarter of 2023, compared to $12.1 million for the first quarter of 2023, and $12.8 million for the second quarter of 2022. The improvement from the prior quarter and prior year period was primarily due to increases in the Bank’s average balances on the loans held for investment portfolio, coupled with increasing yields on variable rate interest earning assets due to the rising rate environment, partially offset by increases in the interest rates being paid and average interest-bearing liability balances over the same periods.
Loan originations totaled $1.2 billion for the second quarter of 2023, compared to $0.9 billion for the prior quarter and $2.1 billion for the prior year period.
Net interest margin for the second quarter of 2023 was 12.14%, compared to 12.51% for the prior quarter and 13.69% for the prior year period. The decrease from the prior quarter was mainly due to an increase in interest bearing liabilities primarily associated with a rise in certificates of deposit balances and rates. The decrease from the prior year period was primarily due to a reduction in average balances in the Company’s loans held for sale portfolio along with a shift in the Company’s deposit portfolio mix from lower to higher costing deposits, partially offset by an increase in average balances in the Company’s loans held for investment portfolio.
Provision for Credit Losses
The Company’s provision for credit losses was $2.7 million, compared to $2.9 million for the prior year period. Compared to the first quarter of 2023, the Company’s provision for credit losses in the second quarter of 2023 was substantially flat. The stability in the provision between the first and second quarters of 2023 despite the net growth in loans receivable reflects the reduction in strategic program loan balances held for investment as well as a reduction in net charge-offs quarter over quarter. The increase in the provision compared to the second quarter of 2022 was primarily due to a reduction in strategic program loans held for investment, although the provision for the prior year period was calculated under the incurred loss model rather than the current expected credit loss methodology as required under ASU 2016-13 and is not necessarily comparable to the provisions charged in 2023.
Non-interest Income
| For the Three Months Ended | ||||||||||
| ($ in thousands) | 6/30/2023 | 3/31/2023 | 6/30/2022 | |||||||
| Noninterest income: | ||||||||||
| Strategic Program fees | $ | 4,054 | $ | 3,685 | $ | 6,221 | ||||
| Gain on sale of loans | 700 | 187 | 2,412 | |||||||
| SBA loan servicing fees | 226 | 591 | 342 | |||||||
| Change in fair value on investment in BFG | 120 | (85 | ) | (575 | ) | |||||
| Other miscellaneous income | 188 | 149 | 31 | |||||||
| Total noninterest income | $ | 5,288 | $ | 4,527 | $ | 8,431 | ||||
Non-interest income was $5.3 million for the second quarter of 2023, compared to $4.5 million for the prior quarter and $8.4 million for the prior year period. The increase from the prior quarter was primarily due to an increase in the number of SBA 7(a) loans sold. The decrease from the prior year period was primarily due to lower originations of Strategic Program loans and the associated Strategic Program fees, a reduction in gain on sale of loans primarily attributable to the Company’s increased retention of the guaranteed portion of SBA loans the Company originates to increase interest income which resulted in a corresponding decrease in gain on sale income, partially offset by an increase in the fair value of the Company’s investment in BFG.
Non-interest Expense
| For the Three Months Ended | ||||||||||
| ($ in thousands) | 6/30/2023 | 3/31/2023 | 6/30/2022 | |||||||
| Non-interest expense | ||||||||||
| Salaries and employee benefits | $ | 6,681 | $ | 5,257 | $ | 6,594 | ||||
| Professional services | 1,305 | 1,474 | 1,511 | |||||||
| Occupancy and equipment expenses | 718 | 712 | 469 | |||||||
| (Recovery) impairment of SBA servicing asset | (339 | ) | (253 | ) | 1,135 | |||||
| Other operating expenses | 1,634 | 1,547 | 1,310 | |||||||
| Total noninterest expense | $ | 9,999 | $ | 8,737 | $ | 11,019 | ||||
Non-interest expense was $10.0 million for the second quarter of 2023, compared to $8.7 million for the prior quarter and $11.0 million for the prior year period. The increase from the prior quarter was primarily due to an increase in salaries and employee benefits related to higher accruals for performance bonuses based on higher Company profitability. The decrease from the prior year period was primarily due to a recovery on the Company’s SBA servicing asset in the second quarter of 2023 which did not occur in the prior year period.
The Company’s efficiency ratio was 52.7% for the second quarter of 2023, compared to 52.5% for the prior quarter and 52.0% for the prior year period.
Tax Rate
The Company’s effective tax rate was 26.1% for the second and first quarter of 2023, compared to 24.6% for the prior year period.
Balance Sheet
The Company’s total assets were $495.6 million as of June 30, 2023, an increase from $442.3 million as of March 31, 2023 and $366.0 million as of June 30, 2022. The increase from March 31, 2023 was primarily due to increases in loans receivable due to continued growth in the SBA and commercial non real estate loan portfolios, Strategic Program loans held-for-sale, interest-bearing deposits as well as an increase in income tax receivables. The increase in total assets compared to June 30, 2022 was primarily due to increases in loans receivable due to continued growth in the SBA, commercial non real estate and commercial real estate loan portfolios, Strategic Program loans held-for-sale, and interest-bearing deposits.
The following table shows the loan portfolio as of the dates indicated:
| 6/30/2023 | 3/31/2023 | 6/30/2022 | |||||||||||||||
| ($s in thousands) | Amount | % of total loans | Amount | % of total loans | Amount | % of total loans | |||||||||||
| SBA | $ | 189,028 | 65.0 | % | $ | 178,663 | 65.6 | % | $ | 124,477 | 62.1 | % | |||||
| Commercial, non-real estate | 24,851 | 8.6 | % | 17,890 | 6.6 | % | 7,847 | 3.9 | % | ||||||||
| Residential real estate | 30,378 | 10.5 | % | 30,994 | 11.4 | % | 30,965 | 15.4 | % | ||||||||
| Strategic Program loans held for investment | 20,732 | 7.1 | % | 21,393 | 7.9 | % | 27,467 | 13.7 | % | ||||||||
| Commercial real estate | 18,677 | 6.4 | % | 17,022 | 6.2 | % | 4,722 | 2.4 | % | ||||||||
| Consumer | 6,993 | 2.4 | % | 6,351 | 2.3 | % | 5,062 | 2.5 | % | ||||||||
| Total period end loans | $ | 290,659 | 100.0 | % | $ | 272,313 | 100.0 | % | $ | 200,540 | 100.0 | % | |||||
Note: SBA loans as of June 30, 2023, March 31, 2023 and June 30, 2022 include $0.5 million, $0.6 million and $0.7 million in PPP loans, respectively. SBA loans as of June 30, 2023, March 31, 2023 and June 30, 2022 include $85.5 million, $75.9 million and $46.0 million, respectively, of SBA 7(a) loan balances that are guaranteed by the SBA. The held for investment balance on Strategic Programs with annual interest rates below 36% as of June 30, 2023, March 31, 2023 and June 30, 2022 was $5.5 million, $6.9 million and $12.0 million, respectively.
Total loans receivable as of June 30, 2023 were $290.7 million, an increase from $272.3 million and $200.5 million as of March 31, 2023 and June 30, 2022, respectively. The improvement compared to March 31, 2023 and June 30, 2022 was primarily due to increases in SBA 7(a) loan balances, commercial loan balances and commercial real estate loan balances.
The following table shows the Company’s deposit composition as of the dates indicated:
| As of | |||||||||||||||||
| ​ | 6/30/2023 | 3/31/2023 | 6/30/2022 | ||||||||||||||
| ($s in thousands) | Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||
| Noninterest-bearing demand deposits | $ | 93,347 | 28.1 | % | $ | 79,930 | 28.3 | % | $ | 83,490 | 38.1 | % | |||||
| Interest-bearing deposits: | |||||||||||||||||
| Demand | 46,335 | 13.9 | % | 42,030 | 14.8 | % | 11,360 | 5.1 | % | ||||||||
| Savings | 9,484 | 2.9 | % | 7,963 | 2.8 | % | 7,462 | 3.4 | % | ||||||||
| Money market | 14,473 | 4.3 | % | 12,993 | 4.6 | % | 48,273 | 22.0 | % | ||||||||
| Time certificates of deposit | 168,891 | 50.8 | % | 140,276 | 49.5 | % | 68,774 | 31.4 | % | ||||||||
| Total period end deposits | $ | 332,530 | 100.0 | % | $ | 283,192 | 100.0 | % | $ | 219,359 | 100.0 | % | |||||
Total deposits as of June 30, 2023 increased to $332.5 million from $283.2 million and $219.4 million as of March 31, 2023 and June 30, 2022, respectively. The increase over both prior periods was primarily due to growth in brokered CDs which were generally utilized for short term funding needs. The increase in noninterest-bearing demand deposits of June 30, 2023 compared to both prior periods was primarily due to increases in deposit reserve account balances related to the Company’s outstanding strategic program loans held for sale. The increase in interest-bearing demand deposits as of June 30, 2023 compared to June 30, 2022 was primarily due to HSA deposits from Lively, Inc., a technology-focused Health Savings Account provider. The decrease in money markets as of June 30, 2023 compared to June 30, 2022 was primarily due to a decrease in brokered money market deposits and a reduction in reserve account balances related to the Company’s strategic programs. As of June 30, 2023, 36.3% of deposits at the Bank level were uninsured, compared to 36.1% as of March 31, 2023. As of June 30, 2023, 8.1% of total bank deposits were required under our Strategic Program agreements and an additional 13.2% were associated with other accounts owned by the Company or the Bank.
Total shareholders’ equity
