Executive Summary / Key Takeaways

• FinWise Bancorp is strategically transforming into a technology-focused bank, leveraging its "one-to-many" business model to drive growth through Banking as a Service (BaaS) and a diversified lending portfolio, underpinned by significant infrastructure investments.
• The company's Credit Enhanced Balance Sheet Program is a key growth driver, with balances projected to reach approximately $115 million by year-end 2025, significantly exceeding prior guidance, and expected to contribute $8 million to $10 million in organic monthly growth in 2026.
• FinWise is expanding its technological moat with BIN Sponsorship and Payments (MoneyRails™), which are anticipated to materially impact profitability and reduce funding costs by shifting its deposit mix in the latter half of 2026 and into 2027.
• Despite a declining Net Interest Margin (NIM) in the short term due to risk reduction and new program structures, the company projects a long-term rebound in Return on Average Equity (ROAE) to low to mid-teens and Return on Average Assets (ROAA) exceeding 2% by 2027, driven by scalable revenue and disciplined expense management.
• Key risks include counterparty exposure in credit enhancement programs, potential NPL migration from sustained higher interest rates, and the inherent lumpiness of new partner onboarding, necessitating vigilant risk management and continuous operational excellence.

The Evolution of a Digital-First Bank

FinWise Bancorp (NASDAQ:FINW), established in 1999, has evolved from a traditional regional bank into a dynamic, technology-focused financial institution. Operating through its wholly-owned subsidiaries, FinWise Bank and FinWise Investment, LLC, the company has strategically embraced a "one-to-many" business model, leveraging technology to streamline loan originations and payment processing for a diverse array of fintech partners. This foundational shift has been instrumental in expanding FinWise's reach across the United States, moving beyond its Salt Lake City, Utah, Metropolitan Statistical Area (MSA) roots to become a significant player in the Banking as a Service (BaaS) landscape.

The company's strategic journey is marked by a continuous drive for diversification and risk reduction. Historically, FinWise engaged in the Small Business Administration (SBA) 7(a) loan program, initially selling the guaranteed portions but later retaining more to boost interest income. This strategy was recalibrated in 2024, with FinWise resuming limited sales of guaranteed SBA loans as market conditions became favorable. A pivotal moment in its history was the investment in Business Funding Group (BFG), a small business loan broker, with FinWise increasing its ownership to 20% by early 2024. This deepened its involvement in the SBA program and provided a consistent source of qualified loan applicants.

FinWise's overarching strategy centers on building a scalable platform that supports both asset and liability growth through innovative product offerings. The company has made significant infrastructure investments over the past two years, particularly in its compliance and risk management functions, with approximately 38% of its total staff dedicated to these areas by the end of 2024. This proactive approach to regulatory adherence positions FinWise as a trusted partner for fintechs seeking to navigate complex compliance landscapes, providing a distinct competitive advantage in a maturing ecosystem.

Technological Edge and Innovation Driving Growth

At the heart of FinWise's investment thesis lies its differentiated technology and continuous innovation. The company's core technological advantage stems from its API-driven infrastructure, which enables seamless integration with third-party loan origination platforms and facilitates efficient payment processing. This technological backbone allows FinWise to offer a suite of specialized products, including its Credit Enhanced Balance Sheet Program, BIN Sponsorship, and Payments (MoneyRails™).

The Credit Enhanced Balance Sheet Program is a prime example of FinWise's technological differentiation. This program allows FinWise to provide asset generation capacity for its fintech partners while significantly minimizing its own credit risk. The underlying technology ensures that credit risk is retained by the fintech partner, who indemnifies or reimburses FinWise for incurred credit and fraud losses, backed by a cash loss reserve deposit account. This structure enables FinWise to build stable interest income from these loans without taking on the associated credit exposure, a tangible benefit that enhances the bank's risk-adjusted returns. For investors, this translates into a growth engine with a lower risk profile, contributing to more predictable earnings streams.

Beyond lending, FinWise is expanding its technological moat with BIN Sponsorship and Payments (MoneyRails™). These initiatives are designed to provide comprehensive card and payment solutions to fintech brands. The stated goals for these new technologies are clear: to enhance profitability by gradually shifting the bank's deposit mix away from higher-cost certificates of deposit (CDs) towards lower-cost, more stable deposits (including floating-rate and non-interest-bearing accounts), and to generate sticky, recurring revenue streams. While the material impact from BIN Sponsorship and Payments is expected to ramp up in the latter part of 2026, these offerings are critical for FinWise's long-term strategy, promising meaningful earnings leverage and a reduction in the overall cost of funds. The company also utilizes AI in its IT development, fraud detection across its payment rails and lending programs, and for enhancing back-office operational efficiency, such as comparing policies against federal regulations to identify gaps quickly.

Performance and Strategic Execution

FinWise Bancorp's recent financial performance underscores the efficacy of its strategic investments and technological advancements. For the three months ended September 30, 2025, the company reported net income of $4.9 million, a 41.6% increase year-over-year, with diluted earnings per share rising to $0.34. This robust profitability reflects solid revenue growth and disciplined expense management.

Net interest income, a primary contributor to earnings, increased to $18.6 million for Q3 2025, driven by a $40.70 million increase in credit enhanced balances within the held-for-investment portfolio and a $62.20 million increase in average balances in the Strategic Program loans held-for-sale portfolio. This growth was partially offset by an increase in brokered CD deposits used for funding. The Net Interest Margin (NIM) for Q3 2025 was 9.01%, an increase from 7.81% in the prior quarter, primarily due to the expansion of the credit enhanced portfolio, though partially offset by accrued interest reversals on nonaccrual loans.

Non-interest income saw a significant boost, reaching $18.1 million in Q3 2025, largely due to a substantial increase in credit enhancement income, which mirrors the provision for credit losses on the growing credit enhanced loan portfolio. Strategic Program fees also rose due to stronger originations, and gains on the sale of loans increased as FinWise capitalized on favorable market conditions for guaranteed SBA 7(a) loan portions. Other miscellaneous income benefited from increased dividends from BFG and higher operating lease rental income.

On the expense side, total non-interest expense for Q3 2025 was $17.4 million, an increase from $14.9 million in the prior quarter. This was primarily driven by higher credit enhancement guarantee expenses, reflecting the growth in credit enhanced loans, and increased salaries and employee benefits. However, when excluding credit enhancement costs, operating expenses increased only modestly, demonstrating solid operating leverage. The efficiency ratio improved to 47.6% in Q3 2025 from 59.5% in the prior quarter, largely due to the increase in credit enhanced fee income and SBA loan sales.

Total assets reached nearly $900 million as of September 30, 2025, marking a $154 million increase from December 31, 2024. This expansion was fueled by growth in both loans held-for-investment and held-for-sale portfolios, and an increase in the credit enhancement asset. Deposits, the major source of funding, increased by $137.4 million to $682.31 million, primarily driven by a $105 million increase in brokered time deposits to support loan growth and liquidity. FinWise maintains strong capital levels, with shareholders' equity increasing to $187.80 million, and the Bank remains well-capitalized under regulatory frameworks.

Competitive Landscape and Strategic Positioning

FinWise Bancorp operates in a competitive financial services landscape, primarily contending with other regional banks like Zions Bancorporation (ZION), KeyCorp (KEY), and Huntington Bancshares (HBAN), as well as indirect competitors from the fintech sector. While larger regional players often boast greater scale, broader geographic reach, and more extensive technological infrastructure, FinWise carves out its niche through a focused strategy and specialized offerings.

FinWise's competitive advantage lies in its agility and deep expertise in specific lending areas, particularly SBA 7(a) loans, commercial leasing, and its innovative Strategic Programs. Its "one-to-many" model allows it to partner with numerous fintechs, providing a scalable platform that larger, more traditional banks may struggle to replicate due to their legacy systems and risk aversion. The company's proactive investment in compliance and risk management infrastructure, with a significant portion of its staff dedicated to these functions, further differentiates it by offering a robust and compliant environment for fintech partnerships. This commitment to regulatory excellence is a critical moat, especially in an environment where regulatory scrutiny on fintech-bank partnerships is intensifying.

Compared to larger regional banks, FinWise's smaller scale can present certain disadvantages, such as potentially higher operational costs for customer acquisition and a more limited market reach. However, its targeted approach allows for greater efficiency in localized operations and a stronger focus on relationship-based banking. The introduction of the Credit Enhanced Balance Sheet Program, BIN Sponsorship, and Payments directly addresses competitive pressures by diversifying revenue streams and reducing reliance on traditional, often more credit-intensive, lending. These offerings enable FinWise to compete effectively by providing essential infrastructure for fintechs, fostering a sticky ecosystem that benefits both the bank and its partners.

The broader industry trends, including the rise of AI and the demand for digital transformation in banking, present both opportunities and challenges. FinWise's internal focus on AI for fraud detection and back-office efficiency positions it to leverage these trends for operational gains. The clarity provided by the Genius Act regarding stablecoins is also welcomed, as it could open new avenues for FinWise in settlement services, although this is a longer-term consideration.

Outlook, Guidance, and Risks

FinWise Bancorp's outlook is characterized by a strategic focus on continued growth, particularly within its BaaS segment and through its credit enhanced offerings. Management anticipates a gradual progression in growth through 2025 and 2026, driven by the maturation of new programs launched in late 2024 and early 2025, and incremental growth from existing Strategic Programs.

Key Guidance Figures and Assumptions:

• Loan Originations: Loan originations are tracking at a quarterly rate of approximately $1.4 billion in October 2025, with an expected 5% annualized growth rate in 2026.
• Credit Enhanced Balances: Credit enhanced balances reached $41 million at the end of Q3 2025. Management projects incremental organic growth of approximately $8 million per month for November and December 2025. Additionally, a new agreement with Tallied Technologies is expected to contribute approximately $50 million in Q4 2025, leading to a projected total of approximately $115 million in credit enhanced balances by year-end 2025. For 2026, organic growth in credit enhanced balances is anticipated to be $8 million to $10 million per month.
• Net Interest Margin (NIM): While Q4 2025 may see some NIM compression due to the onboarding of Tallied Technologies, where revenue is bifurcated between net interest income and interchange fees, the long-term outlook for NIM (including credit enhanced balances) is projected to increase, supported by the expanding credit enhanced loan portfolio and efforts to lower funding costs. Excluding credit enhanced balances, a gradual decline in NIM is anticipated, consistent with the risk reduction strategy.
• Non-Performing Loans (NPLs): For Q4 2025, approximately $10 million to $12 million in watch list loans could migrate to NPL. Management expects a gradual moderation in NPL migration as loans season, though it may remain lumpy.
• Efficiency Ratio: While further improvement may be less pronounced in the near term, FinWise remains focused on driving sustainable positive operating leverage, with a long-term goal of steadily lowering its core efficiency ratio.
• Tax Rate: The effective tax rate for Q4 2025 is expected to be approximately 26%, with a full-year 2025 rate around 27%.
• Long-Term Profitability: By 2027, FinWise believes its Return on Average Equity (ROAE) could rebound into the low to mid-teens range, with Return on Average Assets (ROAA) exceeding 2%. These targets are based on a fully leveraged balance sheet at a mid-teens leverage ratio, with management suggesting potential for outperformance.

• New Partnerships: The company targets 2 to 3 new lending partners annually, with card and payment programs being additive to this goal.

Key Risks and Challenges:

• Counterparty Risk: The credit enhancement arrangements expose FinWise to counterparty risk. If a Strategic Program service provider fails to meet its obligations, FinWise could face increased credit or fraud losses.
• Interest Rate Environment: Sustained elevated interest rates can negatively impact small business borrowers, leading to increased non-performing assets and delinquencies, particularly within the variable-rate SBA portfolio.
• Regulatory Scrutiny: Changes in the regulatory framework for financial institutions and fintech partnerships, or the application of existing rules, could impact FinWise's business model and profitability.
• Data Breach Litigation: An ongoing class action lawsuit related to an alleged data breach in July 2025 presents a legal and reputational risk, with an uncertain outcome.
• Onboarding and Scaling New Programs: While the pipeline for new partners is strong, the process of onboarding and scaling new programs can be lumpy and take longer than anticipated, impacting the pace of revenue growth.
• Funding Costs: In the short term, FinWise remains dependent on wholesale funding, primarily certificates of deposit, making its cost of funds sensitive to market interest rate movements.

Conclusion

FinWise Bancorp is executing a compelling transformation, strategically positioning itself as a technology-focused bank at the nexus of traditional finance and the burgeoning fintech ecosystem. Its "one-to-many" model, underpinned by robust technological infrastructure and a commitment to regulatory compliance, is driving a diversified revenue stream and a lower-risk loan portfolio. The rapid expansion of its Credit Enhanced Balance Sheet Program, coupled with the nascent but promising BIN Sponsorship and Payments initiatives, forms the core of its investment thesis, promising scalable growth and enhanced profitability.

While the company faces challenges from a dynamic interest rate environment and the inherent complexities of fintech partnerships, its proactive risk management, disciplined expense control, and clear strategic roadmap suggest a path toward sustained value creation. The projected rebound in ROAE and ROAA by 2027, alongside continued growth in credit enhanced balances and new partnerships, underscores FinWise's potential to deliver meaningful returns for discerning investors who recognize the long-term implications of its digital ascent and its unique competitive positioning in the evolving financial services landscape.