FinWise Bancorp Q2 FY2026 earnings call

• Credit Quality Portfolio Management • Management reported Q2 2026 earnings of 15 cents per share missed expectations due to higher provision expense on loans with retained credit risk • Proactive credit management delivered a meaningful reduction in nonperforming loan balances in Q2 2026, with all problematic legacy credits ring-fenced to a finite, well-defined $50 million pool • The company has tightened lending policies to avoid repeating legacy credit issues, and credit performance outside the identified legacy pool remains healthy and in line with expectations

• Originations and Diversification • Q2 2026 loan originations reached $1.6 billion, beating management's $1.4 billion expectation and down only modestly from Q1 2026's elevated $1.7 billion • Sequential softness came from seasonally lower student lending volumes, which was offset by growth across other established programs • A diversified partner base (a deliberate strategic priority) has allowed the company to absorb single-program variability and maintain resilient origination levels

• New Partnership and Business Development • Post-quarter-end, the company signed a new strategic partnership with an established prepaid card provider, which will use FinWise's BIN sponsorship and MoneyRail services on the MasterCard network • The new prepaid program is expected to launch in Q4 2026, and the partner name will be disclosed closer to launch • The business development team has been expanded to 5 members, and the current sales pipeline is materially stronger and more bottom-line impactful than pipelines from prior years; management expects additional meaningful deals to sign before year-end 2026

• Acquisitions and Platform Expansion • The Tallydat platform acquisition was structured as a technology acquisition rather than a standalone business acquisition, and adds credit card operating system capabilities that complement FinWise's existing FinTech lending and payments infrastructure • Approximately $4 million in total integration and transition costs for the acquisition are expected over the next year, concentrated in the next two quarters, with initial purchase accounting expected to be finalized by the end of Q3 2026 • The acquired Tallydat loan portfolio has very high credit quality with minimal expected charge-offs

• Strategic Priorities

1. Continue empowering credit and compliance teams to proactively reduce risk in the legacy core portfolio pool
2. Support and capitalize on the strong momentum in the current FinTech partner sales pipeline
3. Grow the multi-product FinTech platform, leveraging the successful scaling model used for credit-enhanced lending to expand into cards, payments, and deposit sponsorships

1. Core Loan Portfolio: Reported $6 million in credit loss provisioning (driven by nonperforming loan liquidation, higher reserves, and updated servicing standards), with net charge-offs of $5.2 million, slightly above the guided $4-$5 million range. Approximately 80% of Q2 2026 core portfolio charge-offs came from a finite, well-defined legacy loan pool with $50 million in remaining performing balances at quarter-end. Nonperforming core loan balances fell from ~$50 million in Q1 2026 to ~$38 million in Q2 2026, a 24% reduction driven by SBA 7A non-accrual resolutions. SBA net charge-offs were $2.9 million in Q2 2026, up from $2.2 million in Q1 2026, with the vast majority tied to legacy credits. Strategic program loans without credit enhancement had flat net charge-offs of $2.3 million in Q2 2026, matching Q1 2026 levels.
2. Credit Enhanced Loans: Net charge-offs were $7.9 million in Q2 2026, up from $4.8 million in Q1 2026, driven by normal seasoning of the growing portfolio. All losses are fully reimbursed, so they do not impact net results. End-of-quarter credit enhanced loan balances stood at $121 million, with corresponding $16.7 million in credit enhancement income that offset the matching $16.7 million provision expense. This segment contributed to the Q2 2026 net interest income increase and margin expansion.
3. Overall Corporate Financials: Q2 2026 net income was $2.1 million, with diluted EPS of $0.15. Net interest income was $28.7 million, up from $28.1 million in Q1 2026; net interest margin was 13.69%, up from 12.90% in Q1 2026. Non-interest income was $25.6 million, up from $14.6 million in Q1 2026, driven primarily by higher credit enhancement income and a $450 thousand litigation gain. Non-interest expense was $28.9 million, up slightly from $28.3 million in Q1 2026. Reported efficiency ratio was 53.1%, down from 66.3% in Q1 2026; adjusted for credit enhancement accounting effects, the core efficiency ratio was 63.9%, down from 65% in Q1 2026. Total assets were $925.3 million, up from $899.4 million at the end of Q1 2026; total deposits were $693.8 million, up from $674.9 million. The bank leverage ratio was 18.1%, more than double the regulatory minimum for well-capitalized status.

• Previous full-year 2026 guidance of $217 million in credit-enhanced balances has been withdrawn, due to the restructuring of the Tallydat portfolio from credit-enhanced to direct core ownership; management still expects modest further growth in credit-enhanced balances in 2026, with meaningful long-term growth coming from new partner additions
• Loan origination guidance: ~$1.6 billion for Q3 2026 (driven by typical seasonal student lending pickup), with a baseline of $1.4 billion for Q4 2026
• Quarterly non-credit-enhanced net charge-off guidance: maintained at a $4-$5 million quarterly range for the remainder of 2026
• Expected net migration of approximately $7 million into non-performing loans in Q3 2026
• Net interest margin guidance: maintained prior outlook; including credit-enhanced balances, NIM is expected to increase driven by credit-enhanced balance growth and lower funding costs; excluding excess credit-enhanced income, NIM is expected to decline gradually consistent with the ongoing risk reduction strategy
• Long-term efficiency ratio goal: continued focus on delivering positive operating leverage and steadily lowering the core (credit enhancement-adjusted) efficiency ratio
• Modeling guidance: a 27% tax rate is recommended for forecasting
• Share repurchase: under the approved program for up to 685,000 shares, repurchases are prioritized when shares trade below tangible book value; management expects to resume repurchases shortly after the earnings call

• Elevated charge-offs from the identified legacy SBA loan pool are expected to continue over the next several quarters as the portfolio is worked through
• Originations are subject to quarterly variability driven by program seasonality and broader economic conditions that can impact demand
• Integration of the Tallydat acquisition will require $4 million in transition costs over the coming year, concentrated in the next two quarters
• New FinTech partnerships require implementation and scaling periods, so meaningful revenue contributions from newly launched programs are typically not realized for several quarters after launch

Q: What share of the Q2 NPL reduction came from collateral liquidations versus paydowns/upgrades, and can we expect this resolution pace to continue? / A: Management confirmed the 25% Q2 NPL reduction reflects active ongoing resolution work, not a one-time adjustment, and the overall directional trend is favorable. The company reaffirmed its guidance of $7 million in expected net migration to non-performing loans in Q3, and noted all at-risk loans are already identified and being actively managed.

Q: How robust is the current FinTech partner sales pipeline compared to past periods, and does the Tallydat acquisition already improve competitiveness for new deals? / A: Management stated the current pipeline is the strongest it has been in the CEO's 8-year tenure, continuing to grow in both number of deals and product breadth. While the Tallydat platform capabilities are already a positive factor in new partner conversations, the deals currently reflected in the public pipeline predate this acquisition capability. Four new full partners have signed term sheets, with one additional partner agreeing to commercial terms but not yet finalizing documentation.

Q: Is the 4-5 million quarterly non-credit-enhanced NCO guidance correct for the core portfolio, and when should we expect credit quality improvements after working through the legacy pool? / A: The $4-$5 million range covers both the core portfolio and strategic non-credit-enhanced loans, and remains the appropriate normalized run rate even though Q2 came in slightly above the range, due to normal quarterly resolution timing. Management confirmed the legacy pool is finite at $50 million remaining, with most charge-offs expected to occur over the next two quarters, tapering as the company enters 2027, with no fixed end date provided.

Q: What is the earnings trajectory expected for H2 2026 and into 2027, and what are the key drivers to watch? / A: Key drivers are originations (guided to $1.6B Q3 / $1.4B Q4, with student lending strength and economy as variables), muted but positive credit-enhanced portfolio growth, provisioning for credit losses that is guided to $4-$5M per quarter and will taper after 2026, and steady flattish operating expenses (excluding Tallydat transition costs). Overall, profitability is consistent across core businesses, with current P&L pressure coming almost entirely from legacy pool provisioning; Q1 2026 can be used as a reasonable proxy for H2 2026 earnings.