Fintech Partnerships And New Products Ignite Revenue Growth Despite Asset Quality Challenges

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

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

• Analysts are assuming FinWise Bancorp's revenue will grow by 18.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 20.1% today to 15.6% in 3 years time.
• Analysts expect earnings to reach $18.1 million (and earnings per share of $1.34) by about November 2027, up from $13.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.8x on those 2027 earnings, down from 16.6x today. This future PE is greater than the current PE for the US Banks industry at 11.8x.
• Analysts expect the number of shares outstanding to grow by 0.65% 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

• 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

• The analysts have a consensus price target of $18.5 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 $115.9 million, earnings will come to $18.1 million, and it would be trading on a PE ratio of 15.8x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of $17.42, the analyst's price target of $18.5 is 5.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.