Is FinWise Stock a Buy? The three biggest banks in the United States have nearly $7 trillion in assets. They include:
JPMorgan Chase – $2.87 trillion
Bank of America – $2.16 trillion
Wells Fargo – $1.75 trillion
Branches can be found throughout the country, and their brands are household names – but that doesn’t mean consumers have limited choices. There are more than four thousand other banks serving clients nationwide.
Though most of these smaller financial institutions have limited footprints, they typically offer benefits the bigger banks don’t match: free checking accounts, higher interest on savings accounts, and lower rates on loans and lines of credit.
Better still, they can take a personal interest in their customers, which means they may be willing to extend credit to those who don’t meet the rigid eligibility requirements of commercial banks.
While major banks continue to increase fees and finance charges, their community-focused competitors are committed to customer experience.
In many cases, that translates into a boost for smaller banks’ bottom-line results. That’s good for investors, but the question is which small bank stock is best?
Which Are The Best Regional Bank Stocks To Buy Now?
Of the 4,000+ banks in the US, roughly 600 are publicly traded. That narrows down the list for investors quite a bit, but still – choosing the best out of 600 bank stocks is a difficult task.
In addition to studying past financial statements and historical returns, the key questions for analyzing bank stocks include:
What does the bank do?
How do share prices compare against earnings power?
How much risk is the bank taking to achieve its earnings power?
Some of the most popular small bank stocks have seen higher-than-average growth in share prices over the past year. For example:
Amalgamated Financial – up 55 percent year-to-date
CVB Financial – up 31 percent year-to-date
First Horizon – up 47 percent year-to-date
Southern States Bancshares – up 49 percent year-to-date
The trouble with buying these bank stocks is that past performance doesn’t guarantee future returns. These four may continue to generate returns for their shareholders, but there is no way to know whether they have already peaked.
Investors willing to take on some risk in exchange for the chance of higher returns are better off buying a bank stock that is on its way up. Some analysts believe FinWise Bancorp stock fits that criteria.
Is FinWise Bank A Real Bank?
FinWise Bank isn’t well-known outside of Utah, its home base, but that doesn’t matter to its clients. They appreciate the personal service and get all the basic products and services needed to manage their personal and business finances.
The bank is a wholly-owned subsidiary of FinWise Bancorp, which specializes in lending. Specifically, FinWise partners with third-party platforms that process loan applications on a national level.
Loan originators like Upstart, Lending Point, Reach Financial, and Mulligan Funding connect with borrowers and collect application information. Then, FinWise makes the final decision when it comes to funding the loans.
The company aims to “challenge the status quo of banking to deliver financial innovation and education” and “remove critical roadblocks to fintech innovation.”
It is committed to strengthening communities through access to credit, and it provides financial education, tools, and resources to underserved populations.
FinWise Q3 Earnings
Financial institutions have faced a variety of challenges this year as inflation remains high and consumers are reconsidering discretionary purchases. However, unlike most industries, the higher interest rates that have resulted from rising inflation offer lenders the opportunity to generate larger profits on the credit they extend to borrowers.
This effect is visible in FinWise’s third-quarter 2022 results. Its Efficiency Ratio, a critical performance indicator for financial institutions, came in at 42.3 percent compared to third-quarter 2021’s 33.7 percent.
Also known as the Cost to Income Ratio, the Efficiency Ratio assesses profitability. It can be calculated by dividing operating expenses by total income.
Most financial institutions target an Efficiency Ratio of 50 percent or more, and FinWise has achieved that goal in previous quarters. For example, the company’s Efficiency Ratio for the period ending June 30, 2022, was 52 percent.
Other highlights from the third-quarter earnings report include:
Loan Originations – $1.5 billion, compared to $1.8 billion in the prior year period.
Net Interest Income – $12.5 million, compared to $13.5 million in the prior year period.
Net Income – $3.7 million, compared to $8.4 million in the prior year period.
Diluted Earnings Per Share (EPS) – $0.27, compared to $0.91 for the prior year period
Annualized Return On Average Equity (ROAE) – 11 percent, compared to 52.2 percent in the prior year period.
Most importantly, FinWise noted that asset quality was solid, and it did not have any nonperforming loans when the quarter closed on September 30th.
Is FinWise Stock A Buy?
As with any trade, choosing the best time to buy bank stocks is tricky. Ideally, investors want to add shares to their portfolios when the stock is down so that they can realize gains when the share price goes up. Year-to-date, FinWise stock has declined more than 35 percent, but there are signs that it could be turning around.
The company achieved a 29.8 percent return on invested capital and reported a 41.7 percent free cash flow yield. Based on discounted cash flow forecast analysis, there is a 43.3 percent upside to fair value, which suggests that FinWise stock is a buy.
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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.