CORRECTION – FinWise Bancorp
CORRECTION – FinWise Bancorp

MURRAY, Utah, May 16, 2022 (GLOBE NEWSWIRE) — This press release corrects a prior version published on April 28, 2022 and is updated to revise the accounting treatment of certain deferred loan acquisition costs when the guaranteed portions of SBA 7(a) loans were sold. Subsequent to issuing the original press release and during the Company’s preparation of its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, the Company determined that it had been incorrectly accounting for such deferred loan acquisition costs. No corrections are required with respect to the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 as filed with the Securities and Exchange Commission on May 16, 2022. In the first quarter of 2021, FinWise Bancorp started paying marketing fees (representing a new expense component to the Company) on SBA 7(a) loans, which are amortized over the life of the loan. The impact to the Company of correcting the accounting for such marketing fees and related deferred loan acquisition costs were reductions in interest income and net loan balances of $1.1 million and the provision for income taxes of $0.3 million for the first quarter ended March 31, 2022. As a result, the Company’s financial results for the first quarter ended March 31, 2022 previously reported in the original press release have been revised to reflect the foregoing changes to interest income and the provision for income taxes. This resulted in a $0.8 million reduction in net income for the first quarter ended March 31, 2022 comprising a cumulative correction of $0.6 million and $0.2 million for the year ended December 31, 2021 (as an out-of-period adjustment) and the quarter ended March 31, 2022, respectively. The Company’s revised net income is $9.4 million, or $0.70 per share, for the quarter ended March 31, 2022. The book value per share of the Company’s common stock decreased by $0.07 as a result of the revision to $9.77 per share at March 31, 2022. The revision had minimal impact on the Company’s capital ratios. The corrected release reads:

FINWISE BANCORP REPORTS FIRST QUARTER 2022 RESULTS

– Net Income of $9.4 Million

– Diluted Earnings Per Share of $0.70 –

Murray, Utah, April 28, 2022 (Updated May 16, 2022) (GLOBE NEWSWIRE) — FinWise Bancorp (NASDAQ: FINW) (“FinWise” or the “Company”), parent company of FinWise Bank (the “Bank”), today announced results for the quarter ended March 31, 2022.

First Quarter 2022 Highlights

  • Loan originations grew 9.0% to $2.5 billion from the quarter ended December 31, 2021 and more than doubled from the prior-year period
  • Net interest income was $13.0 million, compared to $15.3 million for the quarter ended December 31, 2021 and $8.4 million in the prior year period
  • Net Income was $9.4 million, compared to $10.1 million for the quarter ended December 31, 2021 and $5.3 million in the prior year period
  • Diluted earnings per share (“EPS”) were $0.70 for the quarter, compared to $0.90 for the quarter ended December 31, 2021 and $0.59 for the prior year period
  • Efficiency ratio was 36.7%, compared to 34.3% for the quarter ended December 31, 2021 and 45.9% for the prior year period
  • Maintained industry-leading returns with annualized return on average equity (ROAE) of 31.4%, compared to 43.8% in the quarter ended December 31, 2021 and 43.1% in the prior year period
  • Asset quality remained strong with a nonperforming loans to total loans ratio of 0.2%

“FinWise continued to deliver solid results as our platform’s scalability facilitated another quarter of robust loan originations from our existing strategic programs,” said Kent Landvatter, Chief Executive Officer and President of FinWise. “We also maintained our industry-leading efficiency and profitability, while we continued the buildout of our operating infrastructure to further enhance future growth potential. These results exemplify the strength of our business model which gives us confidence that we can continue to expand our market share to the benefit of our customers and shareholders over the long-term.”

Results of Operations

The Company’s first quarter of 2022 was highlighted by continued strength in loan originations across its primary lines of business, substantial earnings growth, solid efficiency, and industry-leading returns.

Selected Financial Data

  For the Three Months Ended
($s in thousands, except per share amounts, annualized ratios) 3/31/2022   12/31/2021   3/31/2021
Net Income $            9,434   $         10,111   $            5,291
Diluted EPS $              0.70   $              0.90   $              0.59
Return on average assets 9.4%   11.3%   6.5%
Return on average equity 31.4%   43.8%   43.1%
Yield on loans 17.7%   21.6%   13.6%
Cost of deposits 0.8%   0.8%   1.5%
Net interest margin 13.4%   16.6%   11.0%
Efficiency ratio 36.7%   34.3%   45.9%
Tangible book value per share $              9.77   $              9.04   $              6.00
Tangible shareholders’ equity to tangible assets (1) 29.4%   30.4%   15.8%
Leverage Ratio (Bank under CBLR) 19.1%   17.7%   19.4%
 
(1) 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. We had no goodwill or other intangible assets as of any of the dates indicated. We have not considered loan servicing rights as an intangible asset 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 $9.4 million for the first quarter of 2022, compared to $10.1 million for the fourth quarter of 2021, and nearly double the net income for the first quarter of 2021. The decline from the previous quarter was primarily due to a decrease in net interest income due to a change in the mix of loans and an increase in non-interest expense, partially offset by an increase in non-interest income driven by gain on sale of loans and higher strategic program fees. Compared to the prior year period, net income growth was primarily driven by increases in net interest income and non-interest income, partially offset by higher non-interest expenses and provision for loan loss.

Net Interest Income

Net interest income was $13.0 million for the first quarter of 2022, compared to $15.3 million for the fourth quarter of 2021, and $8.4 million for the first quarter of 2021. The decline from the previous quarter was primarily due to a change in the mix of held for sale loans reflecting higher average balances from strategic programs with lower yielding loans. Growth over the prior year period primarily reflected strong loan growth resulting in higher balances and an increase in average interest earning assets.   

Loan originations totaled $2.5 billion for the first quarter of 2022, up 9.0% from $2.3 billion for the fourth quarter of 2021, and up 147.8% from $1.0 billion for the first quarter of 2021.

Net interest margin for the first quarter of 2022 was 13.4% compared to 16.6% for the fourth quarter of 2021 and 11.0% for the first quarter of 2021. The decline from the previous quarter was primarily driven by higher average held for sale and held for investment loan balances carrying lower yields from strategic programs. The decrease in net interest margin was partially offset by a change in the underlying mix of held for investment loans reflecting a decrease in lower yielding SBA 7(a) loans. The net interest margin increase from the first quarter of 2021 was driven mainly by a substantial reduction in average PPP loans with a notional interest rate of 1.0% outstanding.

Provision for Loan Losses

The Company’s provision for loan losses was $2.9 million for the first quarter of 2022, compared to $2.5 million for the fourth quarter of 2021 and $0.6 million for the first quarter of 2021. The increase from the previous quarter was primarily due to loan growth on unguaranteed loans held for investment and an increase in net charge-offs. The increase in the Company’s provision for loan losses for the first quarter of 2022 compared to the first quarter of 2021 was due to substantial loan growth and an increase in net charge-offs.

Non-interest Income

  For the Three Months Ended
($s in thousands) 3/31/2022     12/31/2021   3/31/2021
Non-interest income:            
Strategic program fees $            6,623     $            6,082   $            2,953
Gain on sale of loans 5,052     1,813   2,603
SBA loan servicing fees 387     356   152
Change in fair value on investment in BFG (398 )   864   360
Other miscellaneous income 18     14   11
Total non-interest income $         11,682     $            9,129   $            6,079

Non-interest income was $11.7 million for the first quarter of 2022, an increase of 28.0% from $9.1 million for the fourth quarter of 2021, and nearly doubled from $6.1 million for the first quarter of 2021. The increase over both prior periods was driven primarily by higher gain on sale of loans due to an increase in the number of SBA 7(a) loans sold as well as an increase in strategic program fees due to significant loan origination volume. The increase over both periods was partially offset by a decrease in the change in fair value on investment in Business Funding Group, LLC (“BFG”) due primarily to the softening of comparable company values used in determining BFG fair value.

Non-interest Expense

  For the Three Months Ended
($s in thousands) 3/31/2022     12/31/2021   3/31/2021
Non-interest expense:            
Salaries and employee benefits $            7,092     $            6,052   $            4,895
Occupancy and equipment expenses 302     208   194
(Recovery) impairment of SBA servicing asset (59 )   800  
Other operating expenses 1,713     1,311   1,574
Total non-interest expense $            9,048     $            8,371   $            6,663

Non-interest expense was $9.0 million for the first quarter of 2022, compared to $8.4 million for the fourth quarter of 2021 and $6.7 million for the first quarter of 2021. The increase over both prior periods was primarily due to increased expenses from higher employee head count related to an increase in strategic program loan volume, the expansion of the Company’s information technology and security division to support enhancements to the Company’s infrastructure, and contractual bonuses paid relating to the expansion of the strategic programs. The increase compared to the fourth quarter of 2021 was partially offset by the minor recovery and lack of additional impairment on the SBA servicing asset in the first quarter of 2022.

The Company’s efficiency ratio was 36.7% for the first quarter of 2022 as compared to 34.3% for the fourth quarter of 2021 and 45.9% for the first quarter of 2021.

Tax Rate

The Company’s effective tax rate was approximately 25.4% for the first quarter of 2022, compared to 25.3% for the fourth quarter of 2021 and 26.7% for the first quarter of 2021.

Balance Sheet  

The Company’s total assets were $424.5 million at March 31, 2022, an increase of 11.6% from $380.2 million at December 31, 2021, and an increase of 28.6% from $330.1 million at March 31, 2021. The increase over both prior periods was mainly due to growth in deposits to fund the Company’s growing Strategic Program loan portfolio. The increase in total assets compared to March 31, 2021 also reflected an increase in cash from the Company’s public stock offering and an increase in deposits to fund SBA 7(a) loans offset by a substantial decrease in borrowings under the PPP Liquidity Facility due to a decline in PPP loans outstanding.

The following table shows the loan portfolio as of the dates indicated:        

  As of
  3/31/2022   12/31/2021   3/31/2021
($s in thousands) Amount   % of total
loans
  Amount   % of total
loans
  Amount   % of total
loans
SBA $ 127,778   46.9 %   $ 142,392   53.6 %   $ 167,824   68.4 %
Commercial, non real estate 3,285   1.2 %   3,428   1.3 %   3,867   1.6 %
Residential real estate 30,772   11.3 %   27,108   10.2 %   21,712   8.9 %
Strategic Program loans 101,819   37.4 %   85,850   32.3 %   44,427   18.1 %
Commercial real estate 4,187   1.5 %   2,436   0.9 %   2,589   1.1 %
Consumer 4,711   1.7 %   4,574   1.7 %   4,807   2.0 %
Total period end loans $ 272,552   100.0 %   $ 265,788   100.0 %   $ 245,226   100.0 %
                             
Note: SBA loans as of March 31, 2022, December 31, 2021 and March 31, 2021 include $1.0 million, $1.1 million and $65.9 million in PPP loans, respectively.  SBA loans as of March 31, 2022, December 31, 2021 and March 31, 2021 include $53.2 million, $75.7 million and $48.0 million, respectively, of SBA 7(a) loan balances that are guaranteed by the SBA.

Total loans receivable at March 31, 2022 increased 2.5% to $272.6 million from $265.8 million at December 31, 2021 and increased 11.1% from $245.2 million at March 31, 2021. The growth in loans receivable over both periods was due primarily to increases in strategic program loans. The increase in total loans compared to December 31, 2021 was partially offset by a decrease in SBA loans. Growth compared to March 31, 2021 was partially offset by a substantial decrease in PPP loans due to PPP loan forgiveness throughout 2021.

The following table shows the deposit composition as of the dates indicated:

  As of
  3/31/2022   12/31/2021   3/31/2021
($s in thousands) Total   Percent   Total   Percent   Total   Percent
Noninterest-bearing demand deposits $ 127,330   45.9 %   $ 110,548   43.9 %   $ 100,809   53.5 %
Interest-bearing deposits:                            
Demand 7,919   2.8 %   5,399   2.1 %   6,682   3.5 %
Savings 7,089   2.6 %   6,685   2.7 %   6,882   3.7 %
Money markets 53,434   19.3 %   31,076   12.3 %   17,582   9.3 %
Time certificates of deposit 81,688   29.4 %   98,184   39.0 %   56,556   30.0 %
Total period end deposits $ 277,460   100.0 %   $ 251,892   100.0 %   $ 188,511   100.0 %

Total deposits at March 31, 2022 increased 10.2% to $277.5 million from $251.9 million at December 31, 2021, and increased 47.2% from $188.5 million at March 31, 2021. The increase from the fourth quarter of 2021 was driven primarily by an increase in money market deposits and noninterest-bearing demand deposits. The increase from the first quarter of 2021 was driven by a significant increase in money market accounts, noninterest-bearing demand deposits, and time certificates of deposit.

Total shareholders’ equity increased $9.6 million, or 8.2%, to $125.0 million at March 31, 2022 from $115.4 million at December 31, 2021. Compared to the period ending March 31, 2021, shareholder’s equity increased $72.7 million, or more than doubled from $52.3 million. The increase in shareholders’ equity over the prior quarter was mainly driven by an increase in net income during the first quarter of 2022. The increase over the prior year period was primarily due to the Company’s Initial Public Offering and an increase in net income.

Bank Regulatory Capital Ratios

The following table presents the leverage ratios for the Bank as of the dates indicated:

    As of   2022   2021
    3/31/2022   12/31/2021   Well-Capitalized Requirement   Well-Capitalized Requirement
Leverage Ratio (Bank under CBLR)   19.1%   17.7%   9.0%   8.5%

The Bank’s capital levels remain significantly above well-capitalized guidelines as of the end of the first quarter of 2022.

Asset Quality
Nonperforming loans were $0.7 million or 0.2% of total loans receivable at March 31, 2022, compared to $0.7 million or 0.2% of total loans receivable at December 31, 2021 and $0.8 million or 0.3% of total loans receivable at March 31, 2021. As noted above, the provision for loan losses was $2.9 million for the first quarter of 2022, compared to $2.5 million for the fourth quarter of 2021 and $0.6 million for the first quarter of 2021. The Company’s allowance for loan losses to total loans (less PPP loans) was 3.7% at March 31, 2022 compared to 3.7% at December 31, 2021 and 3.4% at March 31, 2021.   During the first quarter of 2022, the Company’s net charge-offs were $2.8 million, compared to $2.3 million during the fourth quarter of 2021 and $0.6 million during the first quarter of 2021. The increase in charge-offs during the first quarter of 2022 compared to the fourth quarter of 2021 was predominantly driven by the normalization of credit losses to pre-pandemic market conditions and by growth in the Company’s held for investment balances. The increase in charge-offs during the first quarter of 2022 compared to the first quarter of 2021 was mainly driven by growth in the Company’s held for investment balances related to four of its strategic programs.

The following table presents a summary of changes in the allowance for loan losses and asset quality ratios for the periods indicated:

  For the Three Months Ended
($s in thousands) 3/31/2022     12/31/2021     3/31/2021  
Allowance for Loan & Lease Losses:                
Beginning Balance $ 9,855     $ 9,640     $ 6,199  
Provision 2,947     2,502     633  
Charge offs                
SBA (31 )   (100 )   (7 )
Commercial, non real estate         (41 )
Residential real estate          
Strategic Program loans (2,878 )   (2,379 )   (741 )
Commercial real estate          
Consumer         (2 )
Recoveries                
SBA     4     11  
Commercial, non real estate 1     11      
Residential real estate          
Strategic Program loans 93     177     132  
Commercial real estate          
Consumer          
Ending Balance $ 9,987     $ 9,855     $ 6,184  
                 
                 
Asset Quality Ratios As of and For the Three Months Ended
($s in thousands, annualized ratios) 3/31/2022     12/31/2021     3/31/2021  
Nonperforming loans $ 658     $ 657     $ 789  
Nonperforming loans to total loans 0.2 %   0.2 %   0.3 %
Net charge offs to average loans 3.8 %   3.2 %   1.0 %
Allowance for loan losses to loans held for investment 5.0 %   4.8 %   3.0 %
Allowance for loan losses to total loans 3.7 %   3.7 %   2.5 %
Allowance for loan losses to total loans (less PPP loans) 3.7 %   3.7 %   3.4 %
Net charge-offs $ 2,815     $ 2,287     $ 648  
                 

Webcast and Conference Call Information

FinWise will host a conference call today at 5:00 PM ET to discuss its financial results for the first quarter of 2022. A simultaneous audio webcast of the conference call will be available on the Company’s investor relations section of the website at https://services.choruscall.com/mediaframe/webcast.html?webcastid=RWKUafDT.

The dial-in number for the conference call is (877) 423-9813 (toll-free) or (201) 689-8573 (international). Please dial the number 10 minutes prior to the scheduled start time.

A webcast replay of the call will be available on the Company’s website at https://finwisebank.gcs-web.com for six months following the call.

Website Information
The Company intends to use its website, www.finwisebancorp.com, as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD. Such disclosures will be included in the Company’s website’s Investor Relations section. Accordingly, investors should monitor the Investor Relations portion of the Company’s website, in addition to following its press releases, SEC filings, public conference calls, and webcasts. To subscribe to the Company’s e-mail alert service, please click the “Email Alerts” link in the Investor Relations section of its website and submit your email address. The information contained in, or that may be accessed through, the Company’s website is not incorporated by reference into or a part of this document or any other report or document it files with or furnishes to the SEC, and any references to the Company’s website are intended to be inactive textual references only.

About FinWise Bancorp

FinWise Bancorp is a Utah bank holding company headquartered in Murray, Utah. FinWise operates through its wholly-owned subsidiary, FinWise Bank, a Utah state-chartered non-member bank. FinWise currently operates one full-service banking location in Sandy, Utah and a loan production office in Rockville Centre, New York. FinWise is a nationwide lender to and takes deposits from consumers and small businesses. Learn more at www.finwisebancorp.com.

Contacts

investors@finwisebank.com 

media@finwisebank.com 

“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995

This release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the Company’s current views with respect to, among other things, future events and its financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “project,” “projection,” “forecast,” “budget,” “goal,” “target,” “would,” “aim” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about the Company’s industry and management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond the Company’s control. The inclusion of these forward-looking statements should not be regarded as a representation by the Company or any other person that such expectations, estimates and projections will be achieved. Accordingly, the Company cautions you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

There are or will be important factors that could cause the Company’s actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following: (a) conditions relating to the Covid-19 pandemic, including the severity and duration of the associated economic slowdown either nationally or in the Company’s market areas, and the response of governmental authorities to the Covid-19 pandemic and the Company’s participation in Covid-19-related government programs such as the PPP; (b) system failure or cybersecurity breaches of the Company’s network security; (c) the success of the financial technology industry, the development and acceptance of which is subject to a high degree of uncertainty, as well as the continued evolution of the regulation of this industry; (d) the Company’s ability to keep pace with rapid technological changes in the industry or implement new technology effectively; (e) the Company’s reliance on third-party service providers for core systems support, informational website hosting, internet services, online account opening and other processing services; (f) general economic conditions, either nationally or in the Company’s market areas (including interest rate environment, government economic and monetary policies, the strength of global financial markets and inflation and deflation), that impact the financial services industry and/or the Company’s business; (g) increased competition in the financial services industry, particularly from regional and national institutions and other companies that offer banking services; (h) the Company’s ability to measure and manage its credit risk effectively and the potential deterioration of the business and economic conditions in the Company’s primary market areas; (i) the adequacy of the Company’s risk management framework; (j) the adequacy of the Company’s allowance for loan losses; (k) the financial soundness of other financial institutions; (l) new lines of business or new products and services; (m) changes in SBA rules, regulations and loan products, including specifically the Section 7(a) program, changes in SBA standard operating procedures or changes to the status of the Bank as an SBA Preferred Lender; (n) changes in the value of collateral securing the Company’s loans; (o) possible increases in the Company’s levels of nonperforming assets; (p) potential losses from loan defaults and nonperformance on loans; (q) the Company’s ability to protect its intellectual property and the risks it faces with respect to claims and litigation initiated against the Company; (r) the inability of small- and medium-sized businesses to whom the Company lends to weather adverse business conditions and repay loans; (s) the Company’s ability to implement aspects of its growth strategy and to sustain its historic rate of growth;

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