FinWise Bancorp Q3 FY2025 earnings call

• Strong third quarter results show strategic investments over 2 years are delivering results, with $1.8 billion in loan originations and $41 million in credit enhanced balances.
• Revenue growth was solid from fee and spread income, and tangible book value per share increased.
• Announced 2 strategic program agreements: with DreamFi for under-banked communities and with Tallied for a substantial credit enhanced portfolio balance in Q4 2025.
• SBA lending impacted by government shutdown: loan approvals and closings suspended, but loan servicing not materially affected.
• Total provision for credit losses was $12.8 million in Q3, with $8.8 million attributable to growth of credit enhanced balances.
• Total end-of-period assets reached nearly $900 million, reflecting balance sheet expansion from loan growth.

During the third quarter, FinWise Bancorp had robust loan originations of $1.8 billion and credit enhanced balances of $41 million. Revenue growth was solid, driven by fee and spread income growth. Tangible book value per share increased to $13.84 from $13.51 in the prior quarter. SBA 7(a) loan originations declined 7.8% quarter-over-quarter but were up 68% year-over-year. Net interest income increased to $18.6 million from $14.7 million in the prior quarter. Average loan balances totaled $683 million for the quarter compared to $634 million in the prior quarter. Credit enhanced balances reached $41 million, and the partnership with Tallied is expected to bring a substantial credit enhanced portfolio balance in Q4 2025. The SBA guaranteed balances and strategic program loans held for sale collectively represent 40% of the total portfolio at the end of Q3.

• Expect credit enhanced balances to be around $115 million by end of Q4 2025, above prior guidance of $50 million to $100 million.
• Project incremental organic growth in credit enhanced balances at $8 million to $10 million per month in 2026.
• Net interest margin could see some compression in Q4 due to the Tallied partnership, but including credit enhanced balances, the margin is projected to increase, while excluding them, a gradual decline is anticipated.
• Expect growth across the board, with the credit enhanced portfolio being the primary driver of loan growth.

• Government shutdown impacts SBA lending: suspension of loan approvals, some loan closings impacted, and secondary market sales suspended.
• Potential material weakness in performance of credit enhanced programs could lead to underperformance.
• Current government shutdown may impact the amount of loans that can be sold in the fourth quarter.

Q: Can you discuss the concentration of credit enhanced loans per program?

A: Some of the concentration policies limit by percent of the portfolio by program, with a top out at about 15% per program.

Q: Talk about net reductions in FTEs and compliance/risk functions?

A: The number of employees has dropped a little, not due to AI, but due to discipline; analyzing potential efficiency impacts from AI like other banks.

Q: Difference between credit enhancement program expenses and credit enhancement guaranteed expenses?

A: Credit enhancement expenses refer to actual guarantees on programs, and servicing costs related to credit enhanced loans are also part of expenses but less significant than guarantee amounts.

Q: Quantify accrued interest reversals in the quarter?

A: The accrued interest reversal during the period was about $175,000, which is when a loan goes nonperforming and accrued interest is reversed.

Q: Should we expect entirety of loan growth to come from credit enhanced products?

A: Growth across the board is expected, but the credit enhanced portfolio is the primary driver of meaningful growth on the portfolio side.

Q: What could cause deviation in 2026 credit enhanced growth?

A: Acceleration in programs hitting stride could cause upside; material weakness in performance or stopping originations for programs could cause downside.

Q: Break apart decision on credit enhanced and non-guaranteed loans?

A: Credit enhanced loans have guarantees, while non-guaranteed are full risk retention programs with 2%-5% retention rates on receivables.

Q: Margin down in Q4 and CD book impact?

A: Tallied partnership could result in margin toss-up; CD book may be an opportunity, but depends on transaction structure.

Q: Thoughts on revenue from money rails and payments in 2026?

A: DreamFi expected to generate deposits in latter half of 2026, with additional partners in pipeline, more meaningful in latter half of 2026 and steady state in 2027.