FinWise Bancorp(FINW) - 2023 Q4 - Annual Report

Financial Performance - As of December 31, 2023, total assets increased to $586,221,000 from $400,780,000 in 2022, representing a growth of approximately 46.3%[613] - Loans receivable net of allowance for credit losses rose to $358,560,000 in 2023, up from $224,217,000 in 2022, indicating an increase of about 60%[613] - Total deposits surged to $404,833,000 in 2023, compared to $242,998,000 in 2022, reflecting a growth of approximately 66.5%[613] - Shareholders' equity increased to $155,056,000 in 2023 from $140,459,000 in 2022, marking an increase of about 10.4%[613] - Net income for 2023 was $17,460 thousand, compared to $25,115 thousand in 2022, reflecting a decrease of 30.5%[618] - Basic earnings per share fell to $1.38 in 2023 from $1.96 in 2022, a decline of 29.6%[618] - Total interest income increased to $64,534 thousand in 2023 from $52,329 thousand in 2022, representing a growth of 23.3%[618] - Net interest income after provision for loan losses rose to $42,921 thousand in 2023, up from $37,376 thousand in 2022, an increase of 14.5%[618] - Total non-interest income decreased to $21,080 thousand in 2023, down from $37,411 thousand in 2022, a decline of 43.7%[618] - Total non-interest expense increased to $40,188 thousand in 2023, compared to $38,756 thousand in 2022, an increase of 3.7%[618] Regulatory and Compliance Risks - The company is subject to regulatory compliance costs that may reduce net income and restrict growth[292] - The company faces risks related to noncompliance with the Bank Secrecy Act and anti-money laundering regulations[298] - Legislative and regulatory actions may increase the company's costs and impact its business, governance structure, financial condition, or results of operations[325] - The company is subject to more stringent capital requirements due to the Dodd-Frank Act and related rulemaking[328] - Regulatory scrutiny regarding compliance with consumer protection laws could lead to sanctions, impacting the company's reputation and financial condition[364] - The company is subject to various privacy and data protection laws, which could increase compliance costs and affect business operations[363] - The evolving regulatory framework for Strategic Programs may negatively affect the company's business due to potential new laws and regulations[375] Strategic Programs and Growth - Approximately $25.9 million, or 30.3% of total revenues for the year ended December 31, 2023, were generated from Strategic Programs with annual interest rates above 36%[350] - The company expects to acquire deposit accounts through Fintech Banking Solutions relationships, which must meet internal and regulatory requirements[287] - The company expects to derive a percentage of its deposits, total assets, and income from deposit accounts generated through its Fintech Banking Solutions relationships[319] - The company plans to explore opportunities for investments or acquisitions in financial institutions and service companies to complement its existing business[354] - The company may not be able to raise the additional capital needed to fund its growth strategy if it continues to grow at its current pace[314] Market and Competitive Environment - The rapid rise in interest rates during 2022 and 2023 has increased volatility and uncertainty in the U.S. banking system, leading to heightened awareness around liquidity and deposit composition[282] - Competition in the Fintech Banking Solutions space may increase costs and reduce revenue growth[288] - The company may face increased costs and reduced net income due to potential loss of deductions under Section 162(m) of the Internal Revenue Code[358] Operational and Management Risks - Negative public opinion and reputational harm could adversely affect the company's business and financial condition[280] - Negative public opinion and reputational harm could adversely affect the company's ability to attract new talent and customers[312] - The company’s management team lacks history in working together on acquisitions, which could pose risks during integration activities[354] - The company relies heavily on information supplied by third parties, and misrepresentation of this information could significantly impact loan funding decisions[310] Financial Position and Accounting - The company has beneficially owned 2,993,075 shares, or approximately 22.8% of the issued and outstanding common stock as of December 31, 2023[389] - The company has adopted a new accounting method for credit losses as per Accounting Standards Update No. 2016-13[607] - The allowance for credit losses (ACL) is deemed adequate, with management indicating potential future additions based on economic conditions and individual credit deterioration[640] - The Company recognizes stock-based compensation expense ratably over the vesting period of stock grants, with the total value established at fair market value at the time of the grant[637] - The Company evaluates impairment of securities quarterly, considering various factors such as collateral nature and credit ratings[644] - The Company accounts for leases under ASU 2016-02, recognizing right-of-use assets and lease liabilities for leases longer than 12 months[662] Miscellaneous Financial Metrics - The company reported a net cash provided by operating activities of $12,265 thousand in 2023, down from $61,153 thousand in 2022, a decrease of 80.0%[625] - Cash and cash equivalents at the end of the period rose to $116,975 thousand in 2023 from $100,567 thousand in 2022, an increase of 16.4%[625] - The Federal Reserve's reserve requirement ratio remains at zero percent as of December 31, 2023, following a reduction effective March 26, 2020[642] - The risk-free interest rate increased to 3.68% in 2023 from 3.10% in 2022[672] - Expected volatility for stock options is 44.2% in 2023, down from a range of 45.8% to 46.7% in 2022[672]