- Net Income of $4.2 Million for Fourth Quarter of 2023 - - Diluted Earnings Per Share of $0.32 for Fourth Quarter of 2023 - MURRAY, Utah, Jan. 29, 2024 (GLOBE NEWSWIRE) -- FinWise Bancorp (NASDAQ:FINW) ("FinWise" or the "Company"), parent company of FinWise Bank (the "Bank"), today announced results for the quarter ended December 31, 2023. Fourth Quarter 2023 Highlights Loan originations were $1.2 billion, compared to $1.1 billion for the quarter ended September 30, 2023, and $1.2 billion for the fourth qu ...

Financial Performance - Net income for the three months ended September 30, 2023, was $4.8 million, an increase of $1.1 million, or 31.5%, from $3.7 million in the same period of 2022, driven by a $4.4 million increase in interest income[281]. - Net income for the nine months ended September 30, 2023, decreased by $5.3 million to $13.3 million, a decline of 28.4% compared to the same period in 2022[300]. - Earnings per share for the three months ended September 30, 2023, were $0.38 basic and $0.37 diluted, compared to $0.28 basic and $0.27 diluted in the same period of 2022[292]. - Net income for the three months ended September 30, 2023, increased by $1.1 million to $4.8 million compared to the same period in 2022, driven by an increase in interest income and a decrease in provision for credit losses[326]. Interest Income and Expenses - The net interest margin for the quarter ended September 30, 2023, was 11.77%, down from 14.93% in the same quarter of 2022, primarily due to a $12.1 million decrease in average balances of loans held for sale[278]. - Total interest income increased by $7.4 million, or 19.0%, while interest expense rose by $5.5 million, or 676.4%, due to a shift in the deposit portfolio mix[303]. - Interest expense increased by $2.5 million, or 821.8%, due to a shift in the deposit portfolio mix from lower costing deposits to higher costing deposits[281]. - The net interest margin decreased to 12.11% from 13.96% year-over-year, reflecting changes in interest-earning assets and liabilities[307]. Loan Originations and Portfolio - Loan originations decreased by $0.4 billion to $1.1 billion for the three months ended September 30, 2023, and decreased by $3.0 billion to $3.1 billion for the nine months ended September 30, 2023, due to adverse market conditions[279]. - The company has expanded its loan origination relationships to new markets across the United States, contributing to its growth and profitability[276]. - The company retained a greater percentage of the guaranteed portion of SBA loans on its balance sheet in 2023, aiming to enhance interest income amid declining gain-on-sale revenue[1]. - Total loans held for investment rose to $337,635 thousand as of September 30, 2023, up from $236,601 thousand as of December 31, 2022, an increase of 42.7%[1]. Assets and Deposits - Total assets increased to $555.1 million as of September 30, 2023, an increase of $154.3 million, or 38.5%, from $400.8 million as of December 31, 2022[318]. - Total deposits as of September 30, 2023, were $386.8 million, compared to $242.9 million as of December 31, 2022[286]. - Total period end deposits as of September 30, 2023, were $386.8 million, a significant increase from $243.0 million at December 31, 2022[405]. - Noninterest-bearing demand deposits increased to $94.3 million, or 24.4% of total deposits, compared to $78.8 million, or 32.5% at December 31, 2022[405]. Noninterest Income and Expenses - Total noninterest income for the three months ended September 30, 2023, decreased by $2.3 million, or 30.5%, to $5.2 million compared to the same period in 2022, primarily due to an $1.6 million, or 81.4%, reduction in gain on sale of loans[313]. - For the nine months ended September 30, 2023, total noninterest income decreased by $12.6 million, or 45.6%, to $15.0 million compared to the same period in 2022, mainly due to an $8.1 million, or 86.7%, reduction in gain on sale of loans[314]. - Noninterest expense for the nine months ended September 30, 2023, was $28.8 million, a slight increase of $270, or 0.9%, compared to $28.5 million for the same period in 2022[316]. - Noninterest expense increased by 18.9% to $10.1 million for the three months ended September 30, 2023, primarily due to higher salaries and employee benefits[1]. Credit Losses and Risk Management - The provision for credit losses decreased by $1.9 million, or 18.3%, contributing to the offset of the decline in net income[303]. - The allowance for credit losses (ACL) totaled $12.986 million as of September 30, 2023, with 55.4% attributed to Strategic Program loans[396]. - The company maintains a proactive approach to managing credit risk, focusing on early identification and resolution of problem loans[361]. - The Company had a total of $10.7 million in nonperforming assets as of September 30, 2023, an increase from no nonperforming assets at December 31, 2022[388]. Tax and Equity - The effective income tax rate for the nine months ended September 30, 2023, was 26.1%, down from 31.3% in the same period of 2022, influenced by nondeductible wages and state taxes[289]. - Total shareholders' equity as of September 30, 2023, was $150.4 million, reflecting an increase of $9.9 million, or 7.1%, from $140.5 million as of December 31, 2022[318]. - The company’s total equity to total assets ratio was 27.1% as of September 30, 2023, down from 34.9% as of December 31, 2022[443]. Internal Controls - There were no changes in the Company's internal controls over financial reporting during the fiscal quarter[450]. - The Company reported that there are no material effects on internal controls over financial reporting[450]. - The Company is likely to maintain its current internal controls without significant changes[450].

Financial Data and Key Metrics Changes - For Q3 2023, the company generated revenue of $22.4 million, with net income of $4.8 million and diluted earnings per share of $0.37, reflecting a return on average equity of 12.8% [7][42] - The tangible book value per common share increased to $12.04 from $11.59 in the previous quarter [10] - The efficiency ratio improved to 51.3% from 52.7% in the prior quarter, although it was higher than 42.3% in the same period last year [13][53] Business Line Data and Key Metrics Changes - The loans held for investment portfolio grew by 16.2% quarter-over-quarter, driven by strong SBA 7(a) lending [6][27] - Loan originations totaled $1.1 billion for the quarter, down from $1.2 billion in Q2 and $1.5 billion in the prior year [68] - Non-interest income was $5.2 million, slightly down from $5.3 million in the previous quarter and significantly lower than $7.5 million in the same quarter last year [71] Market Data and Key Metrics Changes - Average loan balances increased by 9.4% to $354.6 million from $324.1 million last quarter, and up 34.5% from $263.6 million in the prior year [41] - Average interest-bearing deposits rose to $255.8 million from $219.1 million in the second quarter and $104.8 million during the prior year period [69] Company Strategy and Development Direction - The company is focused on expanding its Banking-as-a-Service initiative and expects to launch a card sponsorship business and payments hub in the first half of 2024 [26][56] - The strategy includes retaining a higher balance of government-guaranteed loans to generate recurring growth in interest income with minimal credit risk [28] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about the higher-for-longer interest rate outlook and tight capital markets impacting loan originations through 2023 and into 2024 [8] - Despite macro challenges, the company remains confident in its ability to manage growth and credit performance due to its experienced team and strong capital levels [47] Other Important Information - The company repurchased all remaining shares under the Board-approved buyback plan, focusing on capital deployment to support organic growth opportunities [11] - Non-performing loans increased to $10.7 million, primarily driven by the SBA portfolio, with $4.7 million guaranteed by the SBA [33][77] Q&A Session Summary Question: What is the breakdown of non-accruals this quarter? - $10.4 million of the $10.7 million in non-accruals is attributable to the SBA portfolio, with $4.7 million guaranteed by the SBA [77] Question: How is the rollout of the card programs and payments hub progressing? - The rollout is on track for the first half of 2024, with early successes in staffing and no major roadblocks reported [78][80] Question: What are the expectations for loan growth and capital management? - Loan growth is expected to be stable, but there may be a slight decrease in SBA originations due to economic uncertainty [84] - The company is assessing capital management strategies, including potential future buybacks, while maintaining sufficient capital for growth [87][88]

Financial Performance - Net income for the three months ended June 30, 2023 decreased by $0.8 million to $4.6 million compared to the same period in 2022, primarily due to lower strategic program fees and higher interest expenses [193]. - Net income for the six months ended June 30, 2023 was $8.5 million, a decrease of 43.0% from $14.9 million for the same period in 2022 [199]. - Net income for Q2 2023 was $4.6 million, a decrease of 15.5% from $5.5 million in Q2 2022, primarily due to a $2.2 million decline in strategic program fees and a $2.0 million increase in interest expense [215]. - The company experienced a $10.3 million decrease in non-interest income, primarily due to an 88.1% reduction in the gain on sale of loans [199]. - Total noninterest income decreased by $10.3 million, or 51.2%, to $9.8 million for the six months ended June 30, 2023, compared to the same period in 2022 [242]. Interest Income and Expenses - Interest income increased by 21.9% to $15.9 million for the three months ended June 30, 2023, compared to $13.0 million for the same period in 2022 [198]. - Total interest expense increased by 798.3% to $2.2 million for the three months ended June 30, 2023, compared to $0.2 million for the same period in 2022 [198]. - Net interest income for the six months ended June 30, 2023, increased by $0.1 million, or 0.2%, to $25.8 million compared to the same period in 2022 [202]. - The cost of funds on interest-bearing liabilities increased by 288 basis points to 3.65%, with an average balance increase of $61.9 million, or 47.4%, to $192.5 million compared to the prior year [202]. - The cost of funds on interest-bearing liabilities increased by 325 basis points to 4.01% for Q2 2023, with average interest-bearing liabilities rising by $91.5 million, or 71.6% [217]. Loan Performance - Originations of Strategic Program loans held-for-sale decreased by $0.9 billion to $1.2 billion for the three months ended June 30, 2023, compared to the same period in 2022 [196]. - The average balance of loans held for sale decreased by $33.4 million, contributing to the decline in net interest margin [213]. - SBA 7(a) loans increased to $189.0 million, representing 65.0% of total loans held for investment as of June 30, 2023, up from 61.3% [249]. - Strategic Program loans held for investment decreased to $20.7 million, representing 7.1% of total loans held for investment as of June 30, 2023 [259]. - Commercial non-real estate loans increased to $24.9 million, representing 8.5% of total loans held for investment as of June 30, 2023 [257]. Asset and Equity Growth - Total assets increased by $94.8 million to $495.6 million as of June 30, 2023, primarily due to a $53.4 million increase in net loans receivable [214]. - Total deposits rose by $89.5 million, or 36.8%, to $332.5 million as of June 30, 2023 [247]. - Total shareholders' equity increased by $6.99 million, or 5.0%, to $147.4 million as of June 30, 2023 [247]. - Loans receivable, net, increased by $53.4 million, or 23.8%, to $277.7 million as of June 30, 2023 [247]. Tax and Regulatory Matters - The effective income tax rate for the six months ended June 30, 2023 was 26.1%, compared to 25.1% for the same period in 2022 [180]. - The Company plans to acquire an additional 10% of BFG's membership interests in exchange for 372,132 shares of its stock, subject to regulatory approval [188]. Risks and Challenges - The company faces risks related to potential losses from loan defaults and nonperformance on loans [282]. - The adequacy of the company's allowance for credit losses (ACL) is a critical factor for financial performance [273]. - The company is subject to increased competition in the financial services industry, particularly from regional and national institutions [281]. - The company is exposed to interest rate risk, which affects its interest-earning assets and liabilities [282]. - The company is reliant on third-party service providers for core systems support and other processing services [281]. Non-Interest Income - Non-interest income decreased by 37.3% to $5.3 million for the three months ended June 30, 2023, compared to $8.4 million for the same period in 2022 [198]. - Total noninterest expense decreased by $1.0 million, or 9.3%, to $10.0 million for the three months ended June 30, 2023, compared to the same period in 2022 [244]. - Total noninterest expense decreased by $1.0 million, or 9.3%, to $10.0 million in Q2 2023, attributed to a recovery on the SBA servicing asset and a reduction in salaries and employee benefits [227].

Financial Data and Key Metrics Changes - For Q2 2023, the company generated revenue of $21.2 million, with net income of $4.6 million, translating to diluted earnings per share of $0.35 and a return on average equity of 12.8% [11][28] - Net interest income grew 13% to $13.7 million compared to $12.1 million in the previous quarter, and increased 7.1% from $12.8 million in the same quarter last year [21][38] - The company's tangible book value per common share increased to $11.59 from $11.26 in the prior quarter [31] Business Line Data and Key Metrics Changes - Loan originations totaled $1.2 billion for the quarter, up from $0.9 billion in the previous quarter but down from $2.1 billion in the same quarter last year [60] - Non-interest income was $5.3 million, an increase from $4.5 million in the first quarter but a decrease from $8.4 million in the same quarter last year [39] - The efficiency ratio was 52.7%, slightly up from 52.5% in the previous quarter and 52% in the same quarter last year [32][63] Market Data and Key Metrics Changes - Average interest-bearing deposits increased to $219.1 million from $165.2 million in the first quarter and $127.2 million in the same quarter last year [20] - The net charge-off rate decreased to 3.4% compared to 4.5% in the first quarter and the same quarter last year [36] Company Strategy and Development Direction - The company continues to focus on diversifying revenue streams and investing in its team and infrastructure, including expanding its Banking-as-a-Service product line [14][35] - A definitive agreement was made to acquire an additional 10% of BFG's membership interests, which is part of the long-term strategy to increase equity ownership [15] Management's Comments on Operating Environment and Future Outlook - Management expressed a cautious outlook for loan originations for the remainder of 2023 due to tight capital markets and interest rate pressures [30] - The company remains committed to prudent credit underwriting and long-term growth strategies despite current macroeconomic challenges [34] Other Important Information - The company bought back 269,690 shares for approximately $2.2 million during the quarter [40] - The effective tax rate for the second quarter was 26.1%, consistent with the previous quarter [40] Q&A Session Summary Question: What drove the step down in SBA loan servicing fees this quarter? - The decrease was attributed to a couple of SBA loans paying off, affecting accruals and deferrals [77] Question: What is the outlook for operating expenses in the next couple of quarters? - The increase in compensation was due to higher performance bonuses, and the company plans to maintain consistent relationships [79] Question: How many shares were bought back this quarter and what is the remaining authorization? - The company purchased 269,690 shares for about $2.2 million, with plans to remain active in buybacks [80][81]

Financial Performance - Net income for Q1 2023 was $3.9 million, a decrease of $5.6 million or 59.1% from $9.4 million in Q1 2022, primarily due to a $7.2 million or 61.3% drop in non-interest income[41]. - Net interest income decreased by $0.9 million, or 6.6%, to $12.1 million for Q1 2023 compared to Q1 2022, attributed to decreases in loans held for sale balances and increased rates on certificates of deposit[33]. - Non-interest income decreased by $7.2 million or 61.3% to $4.5 million, driven by a $4.9 million or 96.3% reduction in gain on sale of loans and a $2.9 million or 44.4% decline in strategic program fees[51]. - The return on average equity was 11.1% for Q1 2023, down from 31.4% in Q1 2022, while the return on average assets was 3.8%, down from 9.4%[39]. - The effective income tax rate for the three months ended March 31, 2023, was 26.1%, compared to 25.4% for the same period in 2022[131]. Asset and Liability Management - Total assets increased by $41.5 million to $442.3 million as of March 31, 2023, driven by a $36.0 million increase in net loans receivable and a $5.0 million increase in interest-bearing deposits[29]. - Total liabilities increased to $297.9 million, a 14.5% increase from $260.3 million as of December 31, 2022, primarily due to an increase in brokered deposits for Strategic Programs[117]. - Total deposits increased to $283.2 million as of March 31, 2023, from $243.0 million as of December 31, 2022, representing a growth of $40.2 million, or 16.5%[122]. - The average balance of interest-bearing liabilities increased by $31.9 million, or 23.9%, to $165.5 million for Q1 2023 compared to the prior year period[33]. - Interest-bearing deposits in other banks rose to $105.2 million at March 31, 2023, up $5.0 million or 5.0% from $100.2 million at December 31, 2022[109]. Loan Portfolio - The total loan portfolio reached $297.7 million as of March 31, 2023, compared to $260.2 million as of December 31, 2022[66]. - The company reported a significant increase in SBA 7(a) loans, totaling $178.7 million as of March 31, 2023, up from $145.2 million at the end of 2022, representing 60.0% of total loans[57]. - Total residential real estate loans decreased to $31.0 million (10.4% of total loans) as of March 31, 2023, from $37.8 million (14.5%) as of December 31, 2022[60]. - Strategic Program loans totaled $46.8 million (15.7% of total loans) as of March 31, 2023, down from $47.8 million (18.4%) as of December 31, 2022[61]. - Commercial real estate loans increased to $17.0 million (5.7% of total loans) as of March 31, 2023, compared to $12.1 million (4.7%) as of December 31, 2022[62]. Credit Quality and Risk Management - The provision for credit losses was $2.7 million for Q1 2023, slightly down from $2.9 million in Q1 2022, reflecting a decrease in strategic program loans held for investment[47]. - The allowance for loan losses (ALL) related to Strategic Programs constituted 55.9% of the total ALL as of December 31, 2022, while comprising 10.3% of total loans[101]. - The ratio of net charge-offs to average loans outstanding was 1.1% for the three months ended March 31, 2023, compared to 1.4% for the same period in 2022[108]. - The ACL to total loans ratio was 4.4% as of March 31, 2023, with nonaccrual loans to total loans at 0.3%[105]. - The company emphasizes proactive identification and resolution of problem loans to maintain asset quality[90]. Capital and Equity - Shareholders' equity increased by $3.9 million to $144.4 million at March 31, 2023, primarily due to net income recognized of $3.9 million[38]. - The leverage ratio under the Community Bank Leverage Ratio framework was 24.0% as of March 31, 2023, compared to 25.1% as of December 31, 2022, well above the 9.0% requirement[145]. - The ending balance of the allowance for credit losses (ACL) was $12,034 thousand as of March 31, 2023, with a provision for loan losses of $2,668 thousand during the period[99]. - The company aims to maintain adequate capital to support anticipated asset growth and ensure compliance with regulatory capital guidelines[40]. - Total contractual obligations amount to $269,761,000, with $225,634,000 due in less than one year[153]. Strategic Initiatives - The company launched an HSA deposit product in 2022 and plans to leverage online and mobile banking to enhance customer service without expanding physical branches[73]. - The company utilizes brokered deposits and a rate listing service to attract deposits, maintaining competitive rates to draw in funds[127]. - Originations of Strategic Program loans held-for-sale decreased by $1.6 billion to $0.9 billion for the three months ended March 31, 2023, due mainly to market deceleration[138]. - The company maintains a disciplined lending approach and monitors delinquency levels to manage credit risk effectively[91]. - The company had $0.7 million in nonperforming assets as of March 31, 2023, compared to no nonperforming assets at December 31, 2022[89].

Financial Data and Key Metrics Changes - For Q1 2023, the company generated revenue of $18 million, net income of $3.9 million, and diluted earnings per share of $0.29, compared to $6.5 million in net income for Q4 2022 and $9.4 million for Q1 2022 [10][25] - The return on average equity was 11.1% for the quarter, and the tangible value per common share increased to $11.26 from $10.95 in the previous quarter [10][10] - Net interest income for Q1 was $12.1 million, down from $12.6 million in Q4 2022 and $13 million in Q1 2022, with a net interest margin of 12.51%, which is lower than 14.27% in Q4 2022 and 13.37% in Q1 2022 [25][26] Business Line Data and Key Metrics Changes - Loan originations totaled $0.9 billion in Q1 2023, down from $1.2 billion in Q4 2022 and $2.5 billion in Q1 2022, primarily due to a contraction in capital markets and conservative underwriting [20][21] - Average loan balances were $290.4 million, an 11% increase from $261.4 million in Q4 2022, but a 2% decrease from $296.7 million in Q1 2022 [22] - Noninterest income was $4.5 million in Q1, significantly lower than $9.8 million in Q4 2022 and $11.7 million in Q1 2022, mainly due to a reduction in loan sales and strategic program fees [27] Market Data and Key Metrics Changes - Average interest-bearing deposits increased to $165.2 million in Q1 2023 from $126.1 million in Q4 2022 and $132.5 million in Q1 2022, driven by an increase in certificates of deposit [23][24] - The company reported that approximately 85% of deposits are insured by the FDIC or are its own capital, with a significant portion of uninsured deposits being its own capital [53] Company Strategy and Development Direction - The company aims to secure additional revenue growth opportunities and diversify income and funding streams, focusing on strategic programs and expanding its footprint in the Banking-as-a-Service ecosystem [12][14] - Investments in personnel and infrastructure are ongoing to position the company for future growth, with a focus on maintaining strong credit quality and risk management [15][18] - The company is committed to maximizing long-term shareholder value and is prepared to navigate economic headwinds while pursuing growth opportunities [19] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging macroeconomic environment but expressed confidence in the company's resilience and ability to maintain profitability [9][11] - The company anticipates that the industry-wide slowdown in loan originations may persist throughout 2023, but remains focused on long-term growth strategies [20][21] - Management emphasized the importance of disciplined underwriting and maintaining credit quality amid economic uncertainties [18][32] Other Important Information - The company's efficiency ratio increased to 52.5% in Q1 2023 from 45.6% in Q4 2022 and 36.7% in Q1 2022, reflecting ongoing investments in infrastructure [28] - The company implemented CECL credit accounting on January 1, 2023, which requires provisioning for estimated lifetime credit losses [30] Q&A Session Summary Question: What is the tone regarding strategic programs on origination volume? - Management indicated that origination levels were under pressure in Q1 and foresee a continuation of this trend throughout 2023, with Q1 potentially being the high point for the year [34] Question: How is SBA loan production trending? - Management noted that while there is growth in the market, demand for SBA loans may soften as rates rise, and there are no seasonal patterns affecting this growth [35] Question: Can you provide insights on expense trends and hiring? - Management confirmed that the decrease in bonuses impacted expenses, and they continue to hire professionals in the Banking-as-a-Service area, indicating a modest growth in expenses moving forward [36][58] Question: What are the drivers of the CECL model for the company? - Management highlighted that the high watermark methodology for the SP HFI portfolio is a significant driver, more so than general economic indicators [40][41] Question: What percentage of originations is driven by the largest partner? - Management did not disclose specific percentages but noted that there is greater diversification among partners compared to the previous year [50][51] Question: Can you discuss noninterest-bearing deposit growth? - Management explained that a significant portion of deposits is insured or consists of their own capital, with growth in noninterest-bearing deposits being correlated with strategic business volume [52][53]

Financial Performance - Net income decreased to $25,115,000 in 2022 from $31,583,000 in 2021, a decline of 20.5%[648] - Earnings per share (diluted) fell to $1.87 in 2022 from $3.27 in 2021, a decrease of 42.7%[648] - Total revenues for the year ended December 31, 2022, were generated through Strategic Programs[414] - Non-interest income increased to $37,411,000 in 2022, up from $31,844,000 in 2021, representing an increase of 17.9%[648] - Cash provided by operating activities increased significantly to $61,153,000 from a cash used of $(9,232,000) in the previous year[654] - The company reported a net decrease in loans receivable of $(17,330,000) for the year, compared to an increase of $41,622,000 in 2021[654] - The company originated Strategic Program loans held-for-sale totaling $(6,974,133,000) in 2022, compared to $(6,335,194,000) in 2021, indicating a growth in loan origination activities[654] Asset and Liability Management - Total assets increased to $400,780,000 in December 2022 from $380,214,000 in December 2021, representing a growth of 4.2%[645] - Total liabilities decreased to $260,321,000 in December 2022 from $264,772,000 in December 2021, a decline of 1.7%[645] - Total shareholders' equity increased to $140,459,000 in December 2022 from $115,442,000 in December 2021, a growth of 21.7%[645] - The ending balance for the Allowance for Loan Losses was $9,855 thousand at the end of 2022, compared to $6,199 thousand at the end of 2021, indicating a rise of 59.5%[718] Regulatory and Compliance Risks - The company is subject to regulatory capital requirements, and failure to meet these could result in limitations on activities and adversely affect customer and investor confidence[372] - Legislative and regulatory changes may increase costs and impact the company's business operations and financial condition[380] - The Bank is subject to various laws and regulations, including the Community Reinvestment Act, which could result in sanctions for non-compliance[399] - Increased scrutiny of lending practices could lead to significant administrative burdens and potential liability for failures to comply with fair lending laws[404] - The Federal Trade Commission has increased scrutiny of financial technology companies' marketing practices, which could lead to regulatory actions and fines[391] Operational Risks - The company is subject to operational risks, including employee errors and misconduct, which could lead to financial losses or regulatory sanctions[362] - The company relies heavily on its executive management team, and the unexpected loss of key personnel could adversely affect its financial condition and results of operations[363] - Climate change poses risks that could disrupt operations and negatively impact the company's geographic markets, potentially increasing delinquency rates and credit losses[373] - The company may face challenges in managing joint ventures and strategic collaborations, which could expose it to financial penalties and reputational harm[440] Strategic Programs and Revenue Generation - Approximately $61.7 million, or 68.7% of total revenues for the year ended December 31, 2022, were generated through Strategic Programs[414] - Approximately $28.4 million, or 31.6% of total revenues for the year ended December 31, 2022, were generated from Strategic Programs with annual interest rates above 36%[422] - The Bank's relationships with Strategic Program service providers are non-exclusive, posing risks if providers choose to work with competitors[414] - The regulatory framework for Strategic Programs is evolving, with potential new laws and regulations that may negatively affect the business[418] Market and Economic Conditions - The company may recognize realized and/or unrealized losses in future periods due to changing economic and market conditions affecting interest rates and the financial condition of issuers[361] - Future special assessments or increases in FDIC insurance premiums could reduce profitability and limit business opportunities[407] - The risk-free interest rate increased to 3.10% in 2022 from a range of 0.4% - 1.3% in 2021[699] Stock and Shareholder Information - As of December 31, 2022, directors and executive officers beneficially owned approximately 21.5% of the issued and outstanding common stock, totaling 2,758,242 shares[446] - The common stock is not insured or guaranteed by the FDIC or any other government agency, and investment in the common stock is subject to investment risk, including possible loss[457] - The company’s governing documents may have an anti-takeover effect, potentially delaying or preventing acquisitions favored by shareholders[451] Accounting and Financial Reporting - The independent auditor's report states that the consolidated financial statements present fairly the financial position of the company as of December 31, 2022, and 2021, in conformity with GAAP[636] - The company adopted new accounting guidance under Accounting Standards Codification Topic 842, Leases, in 2022[640] - The company maintains an adequate allowance for loan losses (ALL), which may require future additions based on economic conditions[679] Miscellaneous - The company qualifies as an emerging growth company and intends to take advantage of reduced regulatory and reporting requirements for up to five years or until it exceeds $1.235 billion in total annual gross revenue[449] - The company is not required to provide information requested by Part II, Item 7A of the Report under the filer category of "smaller reporting company"[633]

Financial Data and Key Metrics Changes - Total revenue for Q4 2022 was $23.0 million, compared to $20.5 million in Q3 2022 and $29.0 million in Q4 2021 [75] - Net income for Q4 2022 was $6.5 million, an increase from $3.7 million in Q3 2022 but a decrease from $10.1 million in Q4 2021 [16][75] - Net interest margin for Q4 2022 was 14.27%, down from 14.93% in Q3 2022 and 16.62% in Q4 2021 [25] - Return on average equity was 19.1% for Q4 2022, reflecting strong profitability measures [30] Business Line Data and Key Metrics Changes - Loan originations totaled $1.2 billion in Q4 2022, down from $1.5 billion in Q3 2022 and $2.3 billion in Q4 2021 [90] - Non-interest income was $9.8 million in Q4 2022, up from $7.5 million in Q3 2022 but slightly down from $9.1 million in Q4 2021 [17] - The provision for loan losses was $3.2 million in Q4 2022, a decrease from $4.5 million in Q3 2022 and an increase from $2.5 million in Q4 2021 [18] Market Data and Key Metrics Changes - Average interest-bearing deposits were $126.1 million in Q4 2022, compared to $104.8 million in Q3 2022 and $148 million in Q4 2021 [79] - Credit quality remained solid with non-performing loans to total loans at 0.1% at the end of Q4 2022, down from 0.25% in Q4 2021 [18] Company Strategy and Development Direction - The company plans to focus on expanding its banking-as-a-service offerings, particularly in deposits and payments, while continuing to develop its lending capabilities [60][68] - Management emphasized the importance of maintaining strong credit quality and prudent underwriting standards despite the challenging macro environment [64][70] - The company intends to remain opportunistic in hiring and investments to support growth and capitalize on future opportunities [13][89] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the potential for further economic deterioration but expressed confidence in the company's ability to navigate challenges and maximize long-term shareholder value [14][59] - The company expects continued pressure on loan originations due to macroeconomic factors but remains committed to its strategic programs and partnerships [24][31] Other Important Information - The efficiency ratio increased to 45.6% in Q4 2022, up from 42.3% in Q3 2022 and 34.3% in Q4 2021, reflecting higher expenses related to infrastructure and staffing [82] - The company repurchased 120,000 shares for approximately $1.1 million during 2022, indicating a commitment to capital return strategies [30][61] Q&A Session Summary Question: What is the outlook for loan originations and held for sale portfolio? - Management indicated that loan originations are expected to remain challenged due to macroeconomic conditions, with the held for sale portfolio likely to continue declining [46][84] Question: How does the company plan to grow its franchise in the coming years? - Management highlighted a focus on building infrastructure and expanding banking-as-a-service offerings, while maintaining strong credit quality [51][60] Question: What are the company's thoughts on capital return and share buybacks? - Management expressed a strong commitment to share buybacks, especially when trading below tangible book value, while ensuring sufficient capital for future opportunities [61][30]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | --- | |--------------------------------------------------------|-----------------------------------------------------------|----------------------------------| | | | | | For ...