FinWise Bancorp's Q3 2025 Earnings Call: Contradictions Emerge in Credit-Enhanced Loan Growth, Credit Loss Provisions, and SBA Performance

Date of Call: October 29, 2025

Financials Results

• Revenue: Net interest income $18.6M (up from $14.7M prior quarter); fee income $18.1M (up from $10.3M prior quarter); net income $4.9M (up 19% QoQ, up 42% YoY).
• EPS: $0.34 diluted EPS, up from $0.29 prior quarter and $0.25 year-ago.

Guidance:

• Projected Q4 credit-enhanced balances of approximately $115M (includes ~ $50M Tallied contribution).
• Organic credit-enhanced growth of ~$8M–$10M per month in 2026.
• Originations through first 4 weeks of Oct annualized to ~$1.4B; expect ~5% annualized originations growth in 2026.
• Expect Q4 NPL migration of roughly $10M–$12M.
• NIM could compress in Q4 due to Tallied onboarding and revenue shifting into noninterest income.
• Expect Q4 2025 tax rate of ~26%.
• SBA approvals/loan sales may be constrained while federal shutdown continues.

Business Commentary:

* Strong Financial Performance: - FinWise Bancorp reported a 19% increase in net income to $4.9 million, compared to $4.1 million in the previous quarter, and a 42% year-over-year increase. - This growth was driven by robust loan originations, credit-enhanced balances, and disciplined expense management.

• Loan Growth and Strategy:
• The company originated $1.8 billion in loans during the quarter, a 21% increase quarter-over-quarter and 24% increase year-over-year.

• The growth was attributed to seasonal upticks and the ramp-up of new programs, reflecting strategic investments over the past two years.

• Credit-Enhanced Balances and Partnerships:

• Credit-enhanced balances reached $41 million by the end of Q3, with significant contributions anticipated from partnerships like Tallied Technologies.
• The expected credit-enhanced balances for the end of the fourth quarter are approximately $115 million, exceeding initial guidance.

• These partnerships are anticipated to drive substantial portfolio balances and accelerate revenue growth.

• Net Interest Margin Trends:

• FinWise reported a net interest margin of 9.01%, compared to 7.81% in the prior quarter, primarily due to growth in credit-enhanced balances.
• For Q4, there may be some margin compression due to onboarding a substantial volume of balances through the Tallied partnership, as revenue will be partially captured in noninterest income.

Sentiment Analysis:

Overall Tone: Positive

• Management: “Our strong third quarter results demonstrate that the strategic investments ... are starting to deliver meaningful results.” CFO: net income $4.9M (+19% QoQ, +42% YoY); tangible book value per share increased to $13.84 from $13.51; originations $1.8B (+21% QoQ, +24% YoY).

Q&A:

• Question from Joseph Yanchunis (Raymond James & Associates, Inc., Research Division): So as you outlined in your prepared remarks, credit enhanced loan balances are going to exceed your year-end target, largely due to receiving the Tallied loans. Given your outlook for credit enhanced loans, can you discuss what level of concentration you're comfortable with in your loan portfolio?
  Response: Concentration limits are set by program and top out at about 15% of the portfolio per program.

• Question from Joseph Yanchunis (Raymond James & Associates, Inc., Research Division): Okay. That's per program, not for loan type.
  Response: Confirmed — limits apply per program, not by loan type.

• Question from Joseph Yanchunis (Raymond James & Associates, Inc., Research Division): And then can you talk a little more about the net reductions in FTEs and compliance and risk functions? I understand the percent of employees in these oversight roles remained unchanged, but is there any new systems that you put in place to automate certain functions to allow fewer employees to ever see more volume?
  Response: Headcount dropped modestly due to disciplined actions, not AI/system automation; they are evaluating potential AI efficiency impacts going forward.

• Question from Joseph Yanchunis (Raymond James & Associates, Inc., Research Division): What is the difference between credit enhancement program expenses and credit enhancement guaranteed expenses?
  Response: ‘Credit enhancement expenses’ refers to guarantee payments; the remainder in the line includes servicing costs, which are smaller versus guarantee amounts.

• Question from Joseph Yanchunis (Raymond James & Associates, Inc., Research Division): You talked about some accrued interest reversals in the quarter. Can you quantify that impact?
  Response: Accrued interest reversals were ~$175,000 this quarter versus ~$514,000 last quarter.

• Question from Andrew Terrell (Stephens Inc.): Should we expect the entirety of your loan growth going forward to come from that credit enhanced product or products? Or should we expect growth in any areas outside of that?
  Response: Growth will occur across portfolios, but credit-enhanced programs will be the primary driver of meaningful portfolio growth.

• Question from Andrew Terrell (Stephens Inc.): What could cause you to deviate positively or negatively versus the baseline established for 2026 (e.g., $8M–$10M/month organic growth)?
  Response: Upside if lagging programs accelerate; downside if material performance deterioration forces originations to pause—underwriting includes heavy stress testing to mitigate downside.

• Question from Andrew Terrell (Stephens Inc.): On the expenses: the credit enhancement guarantee expense was $1.720M vs total credit enhancement program expense $1.968M — is the delta servicing costs variable as portfolio grows?
  Response: Yes — the delta is servicing cost, which is variable and will increase as the portfolio grows.

• Question from Andrew Terrell (Stephens Inc.): Is the servicing cost variable and increasing going forward?
  Response: Yes — servicing is typically stated as a percentage of assets and will vary as programs mature and grow.

• Question from Andrew Terrell (Stephens Inc.): Any other specific drivers to the step-up in other expense (rough run rate)?
  Response: Main drivers were servicing expenses on credit-enhanced portfolios, higher deposits increasing FDIC assessment, and higher data/services/software costs.

• Question from Brett Rabatin (Hovde Group, LLC, Research Division): Some of the loans you're adding through these programs are credit enhanced and some are not guaranteed. Can you break apart the decision and why there are two buckets?
  Response: Two buckets: credit-enhanced programs (guarantees) are driving growth; non-guaranteed are retention programs where FinWise retains 2%–5% and sells majority to SPVs—these have been stable but are starting to tick up.

• Question from Brett Rabatin (Hovde Group, LLC, Research Division): You mentioned margin down in Q4 with continued derisking. How much are you expecting? Could the CD book be an opportunity on the margin?
  Response: Q4 margin impact depends on Tallied onboarding timing and revenue mix; Tallied shifts some revenue to noninterest income (interchange), so NIM may compress or be mixed depending on timing.

• Question from Brett Rabatin (Hovde Group, LLC, Research Division): On money rails and payments, any pipeline or early color on potential 2026 revenue (or partners)?
  Response: DreamFi and Tallied announced; DreamFi expected to generate deposits in latter half of 2026; additional pipeline partners could produce deposits, rails fee income and BIN opportunities.

• Question from Brett Rabatin (Hovde Group, LLC, Research Division): Any early thoughts around potential revenue magnitude for payments in 2026?
  Response: Not ready to quantify; management expects revenues to become more meaningful in latter half of 2026 and steadier in 2027.

• Question from Brett Rabatin (Hovde Group, LLC, Research Division): You mentioned AI was not a driver for 3Q. Given 36% of FTEs are in compliance/IT/etc., is there an opportunity over the next year?
  Response: Focus is on moderating production-related headcount as growth scales; platform is rightsized for oversight, with efficiency gains expected mainly as volume grows and processes scale.

Contradiction Point 1

Credit-Enhanced Loan Growth and Strategic Partners

It directly impacts expectations regarding the growth strategy and partnerships for credit-enhanced loans, which are critical for the bank's financial health and investment decisions.

Will all future loan growth come from credit-enhanced products or other areas? - Unknown Analyst (Stephens Inc.)

2025Q3: Growth will primarily come from the credit enhanced portfolio, with some from SBA and equipment leasing. - James Noone(CEO of FinWise Bank)

What were the credit-enhanced loan balances at quarter-end? Can the $50M–$100M year-end target be achieved with current partners? How long will it take Bakkt to generate credit-enhanced loans? - Joe Yanchunis (Raymond James)

2025Q1: At the end of the quarter, the credit-enhanced portfolio was slightly under $2 million. Existing partners can help reach the year-end guidance, and new programs typically take one to two quarters to scale up, including Bakkt. - Jim Noone(Bank CEO)

Contradiction Point 2

Provision for Credit Losses and Capital Adequacy

It involves differing perspectives on provisioning requirements and capital adequacy, which are critical for financial planning and regulatory compliance.

Can you quantify the impact of accrued interest reversals for the quarter? - Joseph Yanchunis (Raymond James & Associates, Inc., Research Division)

2025Q3: The provision for credit losses was approximately $175,000 in the quarter. - Kent Landvatter(CEO & Chairman)

Net charge-offs this quarter: strategic programs were lower but other categories higher. Can you clarify any trend migration outside strategic programs? - Joseph Yanchunis (Raymond James & Associates, Inc., Research Division)

2025Q2: The provision for credit losses was $223,000, which was in line with our expectations. - Robert Wahlman(Executive VP & CFO)

Contradiction Point 3

Non-Guaranteed Loan Strategy and Potential Growth

It highlights differing perspectives on the strategic focus and growth potential of non-guaranteed loan portfolios, impacting resource allocation and investor expectations.

Can you separate the decisions for credit-enhanced and non-guaranteed loans? - Brett Rabatin (Hovde Group, LLC, Research Division)

2025Q3: Credit enhanced loans have 2-5% retention rates, while non-guaranteed loans have full risk retention with stable balances. There's potential to grow non-guaranteed balances. - James Noone(CEO of FinWise Bank)

What was the average credit-enhanced loan balance in the quarter? Should we expect the 20-25% provision ratio to hold going forward? - Joseph Yanchunis (Raymond James & Associates, Inc., Research Division)

2025Q2: The provision for credit losses is based on full risk retention for non-guaranteed loans, and the balances are stable. - James Noone(CEO of FinWise Bank)

Contradiction Point 4

Loan Portfolio Growth Strategy

It concerns the strategic direction of the company's loan portfolio growth, which is critical for understanding the bank's financial goals and risk management.

Will loan growth come entirely from credit-enhanced products or other sources? - Unknown Analyst (Stephens Inc.)

2025Q3: Growth will primarily come from the credit enhanced portfolio, with some from SBA and equipment leasing. - James Noone(CEO)

What were the loan originations for Q4 and FY2024? - James Noone

2024Q4: We are pleased to have originated $1.3 billion in loans during the fourth quarter, which brings our total originations for fiscal year 2024 to $5 billion. - James Noone(President)

Contradiction Point 5

SBA Loan Performance

It involves statements regarding the performance of SBA loans, which can affect the bank's risk profile and potential loan growth.

Can you discuss the net reduction in FTEs and the impact on compliance and risk functions? Have you implemented any new systems to automate functions? - Joseph Yanchunis (Raymond James & Associates, Inc., Research Division)

2025Q3: We are a little bit more cautious than I was. We had a lot of positives coming into this year. But I'd like to see more SBA production before I adjust that view. - Kent Landvatter(CEO)

How did SBA 7(a) loan originations and guaranteed balances perform in Q4 compared to Q3? - James Noone

2024Q4: Our SBA 7(a) loan originations increased again in Q4 versus Q3 as we continue to see a gradual pickup in qualified applicants driven by slightly lower rates. - James Noone(President)