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Key Takeaways
- Expansion in loan originations and fintech partnerships positions FinWise Bancorp for potential revenue growth and improved market share.
- Infrastructure investments and strategic funding initiatives are expected to enhance profitability and net interest margin.
- Challenges in asset quality and non-performing loans, coupled with lower yields and higher taxes, may strain FinWise Bancorp's future margins and earnings.
Catalysts
About FinWise Bancorp- Operates as the bank holding company for FinWise Bank that provides various banking products and services to individual and corporate customers in Utah.
- FinWise Bancorp's expanding loan originations, including new lending programs with fintech partners and expected growth in SBA 7(a) loans, are catalysts for potential revenue growth.
- The strategic partnerships with fintech companies and cross-selling opportunities may improve market share and positively impact future net margins due to diversified product lines and enhanced compliance oversight.
- Planned infrastructure investments, now largely completed, are expected to lead to improved profitability metrics, particularly return on average equity, as operating expenses decelerate.
- The initiation of a program to call callable CDs and replace them with lower-rate funding is expected to improve net interest margin (NIM) and overall earnings.
- Successful completion and launch of the payments hub and card products in 2025 represent new revenue streams, likely contributing positively to both top-line growth and earnings.
FinWise Bancorp Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming FinWise Bancorp's revenue will grow by 18.5% annually over the next 3 years.
- Analysts assume that profit margins will shrink from 19.8% today to 15.3% in 3 years time.
- Analysts expect earnings to reach $17.7 million (and earnings per share of $1.32) by about December 2027, up from $13.8 million today. The analysts are largely in agreement about this estimate.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.7x on those 2027 earnings, up from 15.4x today. This future PE is greater than the current PE for the US Banks industry at 12.5x.
- Analysts expect the number of shares outstanding to grow by 0.59% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.
FinWise Bancorp Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- The provision for credit losses decreased slightly but remains significant, reflecting potential challenges in credit quality and higher charge-offs, which could impact future net margins.
- The net charge-off rate increased to 2.3%, suggesting potential asset quality issues that could affect earnings.
- The anticipation of sporadic increases in non-performing loans (NPLs) due to elevated rates may put pressure on net interest margins and revenue stability.
- The net interest margin declined from 10.31% to 9.7% due to lower yields and a one-time adjustment related to nonperforming loans, indicating potential ongoing challenges to maintain net interest income.
- The company's effective tax rate increased, which, along with a decrease in net interest income due to a one-time interest adjustment, could adversely affect future earnings.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $20.33 for FinWise Bancorp based on their expectations of its future earnings growth, profit margins and other risk factors.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $115.7 million, earnings will come to $17.7 million, and it would be trading on a PE ratio of 17.7x, assuming you use a discount rate of 5.9%.
- Given the current share price of $15.99, the analyst's price target of $20.33 is 21.4% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
Warren A.I. is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by Warren A.I. are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that Warren A.I.'s analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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