FinWise Bancorp Q4 FY2025 earnings call

• Loan originations: Fourth quarter $1.6B, full-year $6.1B (22% y-o-y growth); key drivers included established partners and matured programs, with seasonal deceleration from a large student lending partner offsetting some growth.
• Credit-enhanced product: Ended Q4 with $118M balances, exceeding outlook; core component of lower-risk asset growth strategy, with fintech partners maintaining deposit accounts for charge-off recovery.
• BIN and payments business: Ramp-up measured but long-term value proposition maintained; integration enhances ability to win partners, expand cross-sell, and deepen relationships.
• DreamFi launch: Strategic program agreement announced last quarter officially launched, providing financial products to underbanked communities; active discussions with additional prospects.
• AI use: Disciplined adoption approach; using AI in coding, quality assurance, BSA AML, with generative AI opening efficiency and automation opportunities.

In the fourth quarter, loan originations totaled $1.6 billion, exceeding initial guidance of $1.4 billion, with full-year 2025 originations at $6.1 billion (22% y-o-y growth). The credit-enhanced product ended the quarter with balances of $118 million, surpassing both the third-quarter outlook and initial guidance. The BIN and payments business has had a more measured ramp-up but retains long-term value. The SBA business saw quarterly originations decrease due to processing delays, but the pipeline remains healthy. The credit-enhanced loan portfolio contributed to net interest income growth, with net interest margin increasing to 11.42%. Non-interest income was $22.3 million, driven by credit enhancement income, offset somewhat by lower strategic program fees. Non-interest expense rose to $23.7 million due to growth in credit-enhanced loan portfolio-related expenses.

• Loan originations Q1 2026: Tracking at ~$1.4B quarterly run rate. Full-year 2026: Baseline $1.4B quarterly originations with 5% growth.
• Credit-enhanced balances 2026: Organic growth of $8-10M average per month, with potential monthly variability.
• SBA loan sales: Continue selling guaranteed portions as long as market conditions favorable.
• Quarterly net charge-offs: ~$3.5M for non-credit-enhanced loans projected.
• NPL migration Q1 2026: Potentially up to $10M watch list loans could migrate to NPL.
• Net interest margin: Including credit-enhanced balances, margin projected to increase; excluding excess credit-enhanced income, gradual decline expected.
• Efficiency ratio: Focus on sustainable positive operating leverage, long-term goal to lower core efficiency ratio.
• Tax rate: Suggest using 26% in modeling.

• Seasonality: Quarterly loan originations fluctuate with seasonality, though production at higher sustainable level.
• BIN/payments ramp-up: Slower than initial anticipation.
• NPL migration: Lumpy, with potential variability in migration levels.
• Wholesale funding costs: Dependent on Fed rate movements, with gradual benefit from rate decreases expected.
• Regulatory/partnership: Risks related to regulatory changes and potential issues with fintech partners.

Q: Any opportunities to lower CD funding costs in the next few quarters?

A: Dependent on wholesale funding costs tied to Fed rate movements; as Fed reduces rates, expect decrease, blended in over time due to CD maturities.

Q: Thoughts on progression of MoneyRails and BIN sponsorship potential later this year?

A: Confident in BIN payments strategy, timing pushed out; policy limits concentration on funding from one party, impact not huge this year, more next year.

Q: Thoughts on SBA business this year and origination aggressiveness?

A: SBA demand solid, Q4 decline due to timing delays, pick-up in closings in January; small business confidence stable to rising.

Q: Recontracting process with existing partners and notable contracts up for renegotiation?

A: Recontracting gone well historically; 15 lending partners, few matriculated out, contracts staggered with 3-4 year initial terms and 2-year renewals, no major concerns.

Q: Take on fintech sitting around bank charters and impact on FinWise?

A: Banking charter not best for all fintechs; scalable platform allows pursuit of new partnerships, partners come and go, 15 partners currently.

Q: Migration of watch list loans to NPL and incremental provision expense?

A: Migration lumpy; recent quarter saw shy of a million migrate despite guidance of 10-12M, $3.5M net charge-offs projected for non-credit-enhanced loans.

Q: Net balance sheet growth and SBA portfolio outlook?

A: Net balance sheet expected to grow; SBA loan sales approximate origination volume, overall SBA level flat on guaranteed side, growth from credit-enhanced portfolio.

Q: Additional examples of AI use?

A: Using AI in compliance, operations, cybersecurity fraud detection, analyzing and automating workflows at the bank.