FinWise Bancorp(FINW) - 2025 Q2 - Quarterly Results

Q2 2025 Financial Highlights FinWise Bancorp reported strong Q2 2025 results with increased net income and diluted EPS, driven by robust loan originations and improved efficiency Second Quarter 2025 Performance Overview FinWise Bancorp reported solid financial results for Q2 2025, with net income of $4.1 million and diluted EPS of $0.29. The company saw strong loan origination growth to $1.5 billion, reflecting successful execution of its growth strategy. Despite an increase in nonperforming loans, the company maintained disciplined expense management, leading to an improved efficiency ratio of 59.5% and an increase in tangible book value per share to $13.51 - The company achieved strong loan originations of $1.5 billion, maintained solid revenue, and practiced disciplined expense management, contributing to growing profitability and an increase in tangible book value per share to $13.51[4] - Nonperforming loan balances increased to $39.7 million as of June 30, 2025, up from $29.9 million in the prior quarter and $27.9 million in the prior year. Of this, $21.2 million was guaranteed by the SBA[5] Q2 2025 Key Financial Metrics | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Loan Originations | $1.5 billion | $1.3 billion | $1.2 billion | | Net Income | $4.1 million | $3.2 million | $3.2 million | | Diluted EPS | $0.29 | $0.23 | $0.24 | | Efficiency Ratio | 59.5% | 64.8% | 66.8% | Financial Performance Analysis This section analyzes key financial performance metrics including net interest income, net interest margin, credit loss provisions, and non-interest income and expenses Net Interest Income and Net Interest Margin Net interest income for Q2 2025 was $14.7 million, a slight increase from both the prior quarter and the prior year, primarily driven by higher loan volumes. However, the net interest margin (NIM) decreased to 7.81% from 8.27% in the previous quarter and 10.31% a year ago. This compression in NIM is attributed to a strategic shift towards higher-quality, lower-yielding loans and interest reversals on loans that moved to nonaccrual status - The increase in net interest income was primarily due to higher average balances in Strategic Program loans and the held-for-investment portfolio[8] - The decrease in NIM was caused by $0.6 million in accrued interest reversals on new nonaccrual loans and the company's strategy to add higher quality, lower yielding loans to its portfolio[10] Net Interest Income and Margin Performance | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Net Interest Income | $14.7 million | $14.3 million | $14.6 million | | Net Interest Margin | 7.81% | 8.27% | 10.31% | Provision for Credit Losses The provision for credit losses increased to $4.7 million in Q2 2025, up from $3.3 million in the prior quarter and $2.4 million in the prior year. This increase was mainly due to higher net charge-offs and growth in the credit enhanced loan portfolio, as well as expansion in other held-for-investment loans - The rise in provision was driven by higher net charge-offs and growth in the credit enhanced, Strategic Program, and other held-for-investment loan portfolios[11] Provision for Credit Losses Trend | Period | Provision for Credit Losses | | :--- | :--- | | Q2 2025 | $4.7 million | | Q1 2025 | $3.3 million | | Q2 2024 | $2.4 million | Non-interest Income Total non-interest income significantly increased to $10.3 million in Q2 2025, compared to $7.8 million in the prior quarter and $5.2 million in the prior year. The growth was primarily driven by a substantial increase in credit enhancement income, higher gain on sale of loans, and increased Strategic Program fees from higher originations - The increase from the prior quarter was mainly due to higher credit enhancement income, gain on sale of SBA 7(a) loans, and increased Strategic Program fees[12] Non-interest Income Components ($ in thousands) | Component | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Strategic Program fees | $5,404 | $4,962 | $4,035 | | Gain on sale of loans | $1,483 | $846 | $356 | | Credit enhancement income | $2,275 | $85 | $39 | | Total non-interest income | $10,337 | $7,810 | $5,166 | Non-interest Expense Non-interest expense rose to $14.9 million in Q2 2025 from $14.3 million in the prior quarter. The increase was primarily due to higher salaries and employee benefits resulting from annual compensation reviews. Despite the rise in expenses, the efficiency ratio improved significantly to 59.5% from 64.8% in the prior quarter, largely due to the strong growth in non-interest income - The increase in non-interest expense from the prior quarter was mainly driven by higher salaries and employee benefits from annual compensation reviews and deferred compensation amortization[14] - The efficiency ratio improved to 59.5% in Q2 2025, down from 64.8% in Q1 2025 and 66.8% in Q2 2024, primarily due to the increase in credit enhancement income[16] Non-interest Expense Components ($ in thousands) | Component | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Salaries and employee benefits | $10,491 | $9,826 | $8,609 | | Professional services | $949 | $907 | $1,282 | | Total non-interest expense | $14,912 | $14,318 | $13,218 | Balance Sheet and Capital Analysis This section examines the company's balance sheet composition, loan portfolio, deposit trends, and capital adequacy Overall Balance Sheet Total assets grew to $842.5 million as of June 30, 2025, up from $804.1 million at the end of the prior quarter. This growth was primarily fueled by increases in net loans held-for-investment and loans held-for-sale, consistent with the company's strategy to expand its loan portfolio with higher quality assets - Asset growth was driven by a $34.1 million increase in net loans held-for-investment and a $28.5 million increase in loans held-for-sale from the prior quarter[19] Total Assets Growth | Date | Total Assets | | :--- | :--- | | June 30, 2025 | $842.5 million | | March 31, 2025 | $804.1 million | | June 30, 2024 | $617.8 million | Loan Portfolio Total gross loans held-for-investment (HFI) increased to $530.0 million, a rise of $37.8 million from the previous quarter. Growth was concentrated in owner-occupied commercial real estate and commercial leases, aligning with the strategy to add higher quality, lower rate loans. SBA loans remain the largest component of the portfolio at 46.6% - The company experienced growth primarily in its owner-occupied commercial real estate and commercial leases, consistent with its strategy to increase its portfolio with higher quality, lower rate loans[21] Composition of Loans Held-for-Investment (HFI) ($ in thousands) | Loan Type | 6/30/2025 | % of total | 3/31/2025 | % of total | | :--- | :--- | :--- | :--- | :--- | | SBA | $246,903 | 46.6% | $246,004 | 50.0% | | Commercial leases | $88,957 | 16.8% | $76,823 | 15.6% | | Owner occupied CRE | $77,871 | 14.7% | $65,920 | 13.4% | | Residential real estate | $54,132 | 10.2% | $55,814 | 11.3% | | Other | $62,181 | 11.7% | $48,686 | 9.7% | | Total period end loans | $530,044 | 100.0% | $492,223 | 100.0% | Deposits Total deposits increased to $635.2 million, up from $605.8 million in the prior quarter. The growth was primarily driven by an increase in brokered time certificates of deposit, which were utilized to fund loan growth and enhance balance sheet liquidity. Time certificates of deposit now constitute 65.2% of total deposits - The increase in total deposits was driven primarily by increases in brokered time certificates of deposits to fund loan growth and provide liquidity[23] Deposit Composition ($ in thousands) | Deposit Type | 6/30/2025 | % of total | 3/31/2025 | % of total | | :--- | :--- | :--- | :--- | :--- | | Noninterest-bearing demand | $120,747 | 19.0% | $123,322 | 20.4% | | Time certificates of deposit | $413,831 | 65.2% | $372,200 | 61.4% | | Other Interest-bearing | $100,596 | 15.8% | $110,237 | 18.2% | | Total period end deposits | $635,174 | 100.0% | $605,759 | 100.0% | Shareholders' Equity and Capital Ratios Total shareholders' equity grew to $182.0 million, an increase of $4.6 million from the prior quarter, driven by net income and stock-based compensation. The Bank's leverage ratio decreased to 18.0% due to asset growth outpacing capital growth from earnings, but it remains significantly above the 9.0% well-capitalized requirement. No shares were repurchased during the quarter - Total shareholders' equity increased by $4.6 million to $182.0 million from Q1 2025, primarily due to net income and stock-based compensation[24] - No shares were repurchased during the second quarter of 2025 under the share repurchase program[26] Bank Leverage Ratio | Date | Leverage Ratio | Well-Capitalized Requirement | | :--- | :--- | :--- | | 6/30/2025 | 18.0% | 9.0% | | 3/31/2025 | 18.8% | 9.0% | | 6/30/2024 | 20.8% | 9.0% | Asset Quality This section reviews the company's asset quality, including trends in nonperforming loans, net charge-offs, and the allowance for credit losses Asset Quality Summary Asset quality metrics showed some deterioration in Q2 2025. Nonperforming loans increased to $39.7 million, or 7.5% of total loans HFI, up from 6.1% in the prior quarter. This increase was primarily driven by SBA 7(a) loans being classified as non-accrual due to the impact of sustained high interest rates on small business borrowers. Net charge-offs also rose to $2.8 million for the quarter. The allowance for credit losses to total loans HFI stood at 3.1% - The increase in nonperforming loans was primarily attributable to an increase in the SBA 7(a) loan portfolio being classified as non-accrual, mainly due to the negative impact of sustained elevated interest rates on small business borrowers[27] Asset Quality Indicators | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Nonperforming loans | $39.7M | $29.9M | $27.9M | | Nonperforming loans to total loans HFI | 7.5% | 6.1% | 6.5% | | Net charge-offs | $2.8M | $2.2M | $1.9M | | Allowance for credit losses to loans HFI | 3.1% | 2.9% | 3.2% | Allowance for Credit Losses and Credit Quality Data ($ in thousands) | Credit Quality Data | 6/30/2025 | 3/31/2025 | 6/30/2024 | | :--- | :--- | :--- | :--- | | Total nonperforming loans | $39,739 | $29,884 | $27,907 | | Allowance for credit losses | $16,247 | $14,235 | $13,127 | | Net charge-offs | $2,784 | $2,248 | $1,898 | | Total loans held-for-investment | $530,043 | $492,223 | $414,341 | Company Information and Forward-Looking Statements This section provides an overview of FinWise Bancorp's business model and outlines key forward-looking statements and associated risk factors About FinWise Bancorp FinWise Bancorp is a Utah-based bank holding company for FinWise Bank. The company provides Banking and Payments solutions to fintech brands through its scalable API-driven infrastructure. Its business lines include Strategic Program Lending, a Credit Enhanced Balance Sheet Program, SBA 7(a) lending, and other commercial lending programs. FinWise is also expanding into Payments (MoneyRails™) and BIN Sponsorship offerings, emphasizing a culture of compliance and risk management - FinWise provides Banking and Payments solutions to fintech brands via API-driven infrastructure[34] - Key business lines include Strategic Program Lending, Credit Enhanced Balance Sheet Program, SBA 7(a) lending, and other lending programs[34] - The company is expanding its business model to include Payments (MoneyRails™) and BIN Sponsorship offerings[34] Forward-Looking Statements and Risk Factors The report contains forward-looking statements subject to risks and uncertainties. Key risk factors include the success and regulation of the fintech and BaaS industries, the company's ability to manage relationships with service providers, changes in laws and interest rate caps, cybersecurity threats, credit risk management, the adequacy of the allowance for credit losses, and reliance on the SBA 7(a) program - Key risks include the success and regulation of the financial technology (fintech) and banking-as-a-service (BaaS) industries[37] - The company's performance is subject to its ability to manage credit risk, the adequacy of its allowance for credit losses (ACL), and its levels of nonperforming assets[37] - Changes in SBA rules and regulations, particularly for the Section 7(a) program, could materially impact results[37] Consolidated Financial Statements (Unaudited) This section presents the unaudited consolidated balance sheets, statements of income, and average balances, yields, and rates Consolidated Balance Sheets This section provides the unaudited consolidated balance sheets as of June 30, 2025, March 31, 2025, and June 30, 2024, detailing the company's assets, liabilities, and shareholders' equity Consolidated Statements of Income This section presents the unaudited consolidated statements of income for the three-month periods ending June 30, 2025, March 31, 2025, and June 30, 2024, outlining revenues, expenses, and net income Average Balances, Yields, and Rates This section details the average balances for assets and liabilities, along with the average yields and rates for interest-earning assets and interest-bearing liabilities for the respective three-month periods Reconciliation of Non-GAAP to GAAP Financial Measures This section provides reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures, offering additional insights into performance Non-GAAP Measures Overview The company provides several non-GAAP financial measures to offer additional insight into its performance, primarily by illustrating the impact of its credit enhancement program. These measures adjust for credit enhancement income and expense to show underlying operational trends. Key reconciliations provided include the efficiency ratio, net interest income, net interest margin, and the allowance for credit losses - The company uses non-GAAP measures to show the impact of its credit enhancement program, where Strategic Program service providers indemnify the bank for certain credit losses[50] - The allowance for credit losses, when excluding the effect of credit enhanced loans, was $13.8 million as of June 30, 2025, compared to the GAAP figure of $16.2 million[55] Efficiency Ratio vs. Adjusted Efficiency Ratio | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Efficiency ratio (GAAP) | 59.5% | 64.8% | 66.8% | | Adjusted efficiency ratio (Non-GAAP) | 65.1% | 65.0% | 67.0% |