FinWise Bancorp

FinWise reported Q2 2020 net income of $2.1 million and diluted EPS of $0.15. Total provision for credit losses was $22.7 million versus $10.6 million in Q1, including $39.4 million related to credit enhancement loans that was offset by corresponding income and did not affect net results; the remaining $6 million was tied to the core portfolio. Net interest income was $28.7 million versus $28.1 million in the prior quarter, and net interest margin was 13.69% versus 12.90%. Noninterest income rose to $25.6 million from $14.6 million, while noninterest expense was $28.9 million versus $28.3 million. Originations were $1.6 billion, above the $1.4 billion guide and down modestly from $1.7 billion sequentially. Nonperforming loans declined to about $38 million from nearly $50 million, and total net charge-offs excluding credit enhancement loans were $5.2 million, slightly above the guided $4 million to $5 million range. For Q3, management expects originations around $1.6 billion, Q4 baseline originations of $1.4 billion, quarterly noncredit-enhanced net charge-offs of about $4 million to $5 million, and about $7 million of migration to nonperforming loans in Q3. Management also said the 27% tax rate is a reasonable modeling assumption and that efficiency should trend lower over the long term, excluding credit enhancement accounting effects.

Jim Noone framed the quarter as one where credit issues were actively managed rather than broad-based deterioration. He emphasized that the troubled loans are a “finite,” “well defined” legacy pool, while the rest of the book remains healthy, and said the bank is proactively pruning risk through credit and compliance actions. He was notably optimistic on the fintech sales pipeline, calling it the strongest he has seen in eight years at the bank and saying the company expects a strong period for new partnerships over the next 12 to 24 months.

Bob Wahlman said Q2 results were pressured by a large provision for losses in the traditional banking portfolio, but net interest income, expense discipline, and credit enhancement economics still supported profitability. He highlighted NIM of 13.69%, noninterest income of $25.6 million, noninterest expense of $28.9 million, and a 53.1% efficiency ratio, or 63.9% excluding credit enhancement accounting effects. He also noted total assets of $925 million, deposits of $694 million, a bank leverage ratio of 18.1%, a holding company leverage ratio above 22%, roughly $4 million of Tallied integration and transition costs over the coming year, and a repurchase of 29.7 thousand shares for about $400 thousand.

Analysts focused heavily on credit quality, asking how much of the NPL improvement came from liquidations versus payoffs and how long the elevated losses would last. Management said the decline was driven by active resolution work, that the risk pool is bounded at about $50 million, and that some of the elevated charge-offs should taper as the bank moves into 2027, though they would stay elevated over the next few quarters. Questions also centered on Tallied and the partner pipeline; management said Tallied is a technology-platform acquisition with high-quality performance history, that its losses are already baked into guidance but are not material, and that the pipeline now includes multiple signed term sheets and other opportunities, with more announcements expected in the back half of the year.