Finwise Bancorp (FINW)·Q2 2025 Earnings Summary

Executive Summary

• Q2 2025 EPS of $0.29 beat S&P Global consensus $0.23; adjusted operating revenue (net interest income + non-interest income) rose to $25.07M, while net interest margin compressed to 7.81% on nonaccrual interest reversals and continued mix shift to lower-risk, lower-yielding assets . EPS Consensus Mean Q2 2025: $0.23*; Actual: $0.29*.
• Originations accelerated to $1.48B (+17% q/q, +27% y/y), with higher Strategic Program fees and SBA 7(a) gain on sale boosting non-interest income to $10.34M (+33% q/q) .
• Asset quality mixed: nonperforming loans rose to $39.7M (7.5% of HFI) with 53% guaranteed by SBA; allowance coverage increased to 3.1% of HFI; net charge-offs rose to $2.8M .
• Efficiency ratio improved to 59.5% (65.1% adjusted), and management reaffirmed credit-enhanced balance sheet assets targeted at $50–$100M by year-end; tax-rate outlook trimmed to ~27% for 2025, supporting operating leverage trajectory .

What Went Well and What Went Wrong

• What Went Well

  • Originations strength: $1.48B, driven by new programs signed in late 2024/early 2025 and seasonal rebound among higher-yielding partners; Strategic Program fees rose to $5.40M .
  • Non-interest income growth: Total rose to $10.34M on credit enhancement income ($2.28M), SBA gain on sale ($1.48M), and Strategic Program fees; efficiency ratio declined to 59.5% .
  • Strategic momentum: Credit-enhanced balances reached ~$12M by quarter-end; management guided to $50–$100M by year-end and highlighted Payments (MoneyRails) and BIN Sponsorship as future deposit catalysts; TBV/share increased to $13.51 .

• What Went Wrong

  • Margin compression: NIM fell to 7.81% from 8.27% on ~$0.6M interest reversals from loans moving to nonaccrual and ongoing mix shift to lower-yield assets .
  • Credit metrics: Nonperforming loans increased to $39.7M (7.5% of HFI), and net charge-offs rose to $2.8M; management flagged potential up to $12M NPA migration in Q3, primarily variable-rate SBA loans seasoned in higher-rate environment .
  • Funding costs: Cost of interest-bearing deposits rose to 4.07% (from 4.01%), with reliance on brokered CDs to fund balance-sheet growth; this will remain a near-term headwind until Payments/BIN deposits scale .

Financial Results

Segment portfolio mix (HFI balances):

KPIs and Selected Data:

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We delivered strong loan originations, maintained solid revenue and remained disciplined on expense management… Tangible book value per share also continued to increase, ending the quarter at $13.51.” — Kent Landvatter, CEO .
• “Funding started in the last week of the quarter, and this brought our credit-enhanced balances to $12 million… expect credit-enhanced assets to reach $50–$100 million by the end of the fourth quarter.” — Jim Noone, Bank CEO .
• “Short-term… dependent upon wholesale funding, principally certificates of deposits… longer term, working diligently to bring payments business into the bank… source of lower-cost deposits.” — Bob Wahlman, CFO .
• “Adjusting for credit enhancement-related accounting gross ups… efficiency ratio was 65.1% for Q2 2025… currently expect [tax rate] to be around 27% for 2025.” — Bob Wahlman, CFO .

Q&A Highlights

• Credit-enhanced accounting: Credit enhancement income offsets CECL provision dollar-for-dollar on credit-enhanced loans; “credit enhancement expense” reflects pass-through of excess spread to fintech counterparties .
• Funding strategy: Near-term brokered CDs with ~1-year duration to match variable-rate assets; longer-term deposits from Payments/BIN to reduce cost of funds .
• Asset quality cadence: NCOs rose to $2.8M mainly on SBA charge-offs; management models ~$3.3M as a reasonable quarterly NCO figure; Q3 potential NPA migration up to ~$12M .
• Held-for-sale balances: Extended HFS program drove higher average balances; current level a fair representation “maybe just a tick or two higher” .
• Strategic pipeline: Four new programs in 2024 ramping; target 2–3 new lending partners in 2025; partner health “outstanding” with broad demand .

Estimates Context

Values retrieved from S&P Global.*

Context and reconciliation:

• EPS beat Q2 (+$0.06) consistent with higher non-interest income (credit enhancement, SBA gain on sale) and modestly higher net interest income, despite NIM compression .
• S&P revenue actuals differ from company “adjusted operating revenue” (NII + non-interest income = $25.07M) due to definitional differences; operational drivers include $0.6M interest reversals and mix shift to lower-yield assets .

Key Takeaways for Investors

• Near-term earnings drivers: Continued originations strength and monetization via Strategic Program fees and SBA gain on sale support EPS, even as NIM trends lower; watch the scale-up of credit-enhanced assets into Q4 .
• Margin watch: Expect gradual NIM compression as lower-risk assets scale; variability tied to mix and pace of extended HFS vs higher-yield HFS originations .
• Credit lens: Rising NPLs concentrated in variable-rate SBA loans but over half guaranteed; allowance coverage increased; model potential Q3 NPA migration up to ~$12M .
• Funding pivot: Brokered CDs remain core near-term funding; medium-term thesis hinges on Payments/BIN-driven lower-cost deposits reducing cost of funds and improving profitability .
• Efficiency path: Reported efficiency ratio improved; adjusted ratio flat; operating leverage to improve as revenue scales with limited headcount additions .
• Capital adequacy: Leverage ratio at 18.0%—well above 9% “well-capitalized” threshold—supports asset growth plans without near-term capital actions .
• Regulatory/compliance: Strong oversight culture remains a differentiator; monitor post-quarter legal developments regarding alleged 2024 data incident for potential reputational/operational implications .