FinWise Bancorp outlines $50M-$100M credit enhanced balance growth for 2025

Earnings Call Insights: FinWise Bancorp (FINW) Q1 2025

Management View

• CEO Kent Landvatter highlighted the resilience of FinWise Bancorp amid macroeconomic challenges, reporting $1.3 billion in loan originations and a tangible book value per common share of $13.42, up from $13.15 in the prior quarter. He emphasized the company’s focus on lower risk loan portfolio migration while maintaining profitable growth.
• The company announced a strategic program agreement with fintech Bakkt, which includes providing business installment loans to small and medium-sized enterprises and leveraging a credit-enhanced balance sheet program.
• CFO Bob Wahlman reported Q1 net income of $3.2 million or $0.23 per diluted share, driven by fee income growth and increased loan balances. He noted a decline in net interest margin to 8.27%, attributing this to seasonal declines in high-yielding programs and portfolio diversification efforts.

Outlook

• Management expects a gradual growth progression through 2025, supported by originations from existing programs and incremental contributions from newly signed programs.
• Jim Noone, Bank CEO, indicated that the new strategic agreement with Bakkt could contribute to growth primarily in Q4 2025.
• The company reaffirmed its year-end target for credit-enhanced balances to increase by $50 million to $100 million, with contributions expected from current and newer partners.

Financial Results

• Q1 net interest income was $14.3 million, down from $15.5 million in the previous quarter, due to changes in loan mix and re-pricing of variable rate loans.
• Fee income increased to $7.8 million from $5.6 million in Q4 2024, driven by strategic program fees and other miscellaneous income sources.
• Non-interest expenses rose to $14.3 million from $13.6 million in the prior quarter, largely due to increases in salaries and professional services costs.
• Provision for credit losses fell to $3.3 million from $3.9 million in Q4 2024, reflecting improved credit quality.
• Non-performing assets (NPAs) declined to $29.9 million from $36.5 million in the previous quarter, with $15.1 million federally guaranteed.

Q&A

• Brett Rabatin, Hovde Group, asked about expense trajectory and margin outlook. CFO Wahlman explained that while expenses related to new initiatives are largely complete, incremental expenses may arise with revenue growth. He also noted that net interest income is expected to grow despite margin compression due to asset mix changes.
• Joe Yanchunis, Raymond James, inquired about credit-enhanced loan balances and Bakkt's contribution timelines. Management clarified that Bakkt’s impact would likely materialize by Q4 2025, with current partners driving near-term growth.
• Andrew Terrell, Stephens, Inc., asked about commercial real estate growth. Jim Noone emphasized the focus on owner-occupied properties with low credit risk and good loan-to-value ratios, although yields are tighter than other products.

Sentiment Analysis

• Analysts expressed cautious optimism, focusing on expenses, margin compression, and the timeline for contributions from new programs. Their tone was slightly positive but tempered by concerns about macroeconomic challenges and funding costs.
• Management maintained a confident tone, emphasizing resilience and strategic growth opportunities. Wahlman acknowledged margin pressures but highlighted fee income growth and credit-quality improvements.
• Compared to the previous quarter, management’s tone was consistent, with a continued focus on steady, lower-risk growth. Analysts maintained a neutral to slightly positive stance, mirroring prior sentiment.

Quarter-over-Quarter Comparison

• Guidance language remained consistent, with a focus on gradual growth and credit-enhanced balance sheet contributions.
• Strategic priorities shifted slightly toward implementing new fintech partnerships, like Bakkt.
• Analysts' questions focused on expenses, margins, and new partner contributions, reflecting continuity in concerns from the previous quarter.
• Key metrics, including loan originations and NPAs, showed improvement, while net interest margin declined as expected.

Risks and Concerns

• Management identified macroeconomic risks, including potential slowdowns in consumer spending, as a key concern.
• Analysts raised questions about funding costs and expense management in the context of margin compression.
• Management’s mitigation strategies include leveraging fintech partnerships, diversifying funding sources, and maintaining vigilant credit risk management.

Final Takeaway

FinWise Bancorp demonstrated resilience in Q1 2025, emphasizing strategic growth through fintech partnerships and a focus on lower-risk lending. The announcement of a new program with Bakkt highlights the company’s commitment to diversification and innovation. While margin compression presents challenges, management remains confident in meeting its growth targets and achieving $50 million to $100 million in credit-enhanced balances by year-end 2025.

Read the full Earnings Call Transcript