Greetings. Welcome to the FinWise Bancorp Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Press 0 on your telephone keypad. Please note that this conference is being recorded. It's now my pleasure to turn the conference over to Juan Arias. Thank you. You may begin.

Good afternoon, and thank you for joining us today for FinWise Bancorp's Fourth Quarter 2025 Earnings Conference Call. Earlier today, we filed our earnings release and investor deck and posted them to our investor website at investors.finwisebancorp.com. Today's conference call is being recorded and webcast on the company's investor website as previously mentioned. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ from those discussed today. Forward-looking statements represent management's current estimates, expectations, and beliefs, and FinWise Bancorp assumes no obligation to update any forward-looking statements in the future. We encourage listeners to review the more detailed discussions related to these forward-looking statements, including factors that may negatively impact them, contained in the company's earnings press release and filings with the Securities and Exchange Commission. Hosting the call today are Kent Landvatter, Chairman and CEO, James Noone, Bank CEO, and Robert Wahlman, CFO. Kent, please go ahead.

Good afternoon, everyone. FinWise delivered a strong 2025, growing net income 26% and posting a steady fourth quarter that demonstrates how our multiyear investments are gradually translating into tangible, sustainable results. The meaningful progress we've made in expanding and diversifying our revenue streams underscores both the durability of our business model and the momentum behind our long-term strategy. Specifically, during the fourth quarter, we delivered healthy revenue growth driven by balanced contributions from both fee and spread income. Additionally, our disciplined approach to expense management further strengthened profitability and supported continued growth in tangible book value per share, reinforcing the long-term value we are delivering to shareholders. Loan originations totaled a solid $1.6 billion in the fourth quarter, exceeding our initial guidance of $1.4 billion. This brings full-year 2025 originations to $6.1 billion, representing a healthy 22% year-over-year growth. Key drivers during the fourth quarter included strong originations from established partners and continued ramp in the maturation of programs launched in recent years. Partly offsetting this was the expected seasonal deceleration from our largest student lending partner. While quarterly loan originations will fluctuate with typical seasonality in certain quarters, we believe we have reached a higher and more sustainable level of quarterly production supported by robust contributions from long-standing partners and newer relationships that continue to scale. We also experienced strong uptake of our credit-enhanced product, ending the quarter with balances of $118 million, exceeding both the $115 million outlook provided on our third-quarter earnings call and our initial guidance of $50 million to $100 million. This product is a core component of our lower-risk asset growth strategy, supported by a structure that requires fintech partners to maintain a deposit account at FinWise against which charge-offs are recovered. Turning to our BIN and payments business, although ramp-up has been more…

Thank you, Kent. I'll shift now to provide an update on our credit quality and our SBA business. Overall, credit trends remain stable, with performance aligning with our expectations, and we remain disciplined and proactive in managing the portfolio. On the SBA side, production pipelines remain healthy, secondary market premiums continue to be attractive, and we're executing operationally to support continued growth. Specifically, during the quarter, we further refined our servicing and standards, which resulted in accelerated classification of certain loans to nonperforming status and earlier recognition of related charge-offs. As part of this refinement, we increased borrower thresholds required to qualify for a one-time short-term deferment. Management views these adjustments as a prudent forward-looking enhancement to our risk management framework. Our portfolio continues to be strong and exhibits good performance. Quarterly net charge-offs were $6.7 million in Q4, compared to $3.1 million in the prior quarter. $1.5 million of the total NCOs were attributable to our credit-enhanced balance sheet program. However, these losses are guaranteed, and FinWise is reimbursed for any losses from the cash reserve each partner is required to maintain at FinWise. Of the remaining $5.2 million in NCOs, $1.2 million was due to the updated servicing standards that we implemented in the quarter. Provision for loan losses was $17.7 million for the fourth quarter, compared to $12.8 million for the prior quarter. The increase was driven primarily by growth in the credit-enhanced loan portfolio as well as higher net charge-offs resulting from our updated servicing standards, which led to the accelerated classification of nonperforming loans and charge-offs. As a reminder, the provision for credit losses associated with the credit-enhanced loan portfolio is different from the core portfolio provision because it's fully offset by the recognition of future recoveries pursuant to the partner guarantee described as credit…

Thanks, Jim, and good afternoon, everyone. FinWise reported net income of $3.9 million for the fourth quarter and diluted earnings per share of $0.27. Key drivers during the fourth quarter included a notable increase in loan originations and a significant rise in credit-enhanced balances, both greater than our expectations. Fourth-quarter results were also impacted by an increase in net charge-offs, in part stemming from the previously mentioned refinement of our servicing and administration standards. The higher net charge-offs resulted in a higher provision for credit losses on our traditional banking portfolio, which negatively impacted our Q4 net income by $1.1 million after taxes. Net interest income grew to $24.6 million from the prior quarter's $18.6 million, primarily due to the increase in the bank's credit-enhanced balances in the held-for-investment portfolio of $76.5 million. The credit-enhanced loans carry a higher contractual interest rate. The higher interest income is partly offset by higher average balances in the certificates of deposits used to fund the loan portfolio growth. Net interest margin increased to 11.42% compared to 9.01% in the prior quarter. The increase is largely attributable to the credit-enhanced portfolio growth of $76.5 million. As a reminder, suggest thinking about our net interest margin in two distinct ways: including and excluding excess credit-enhanced income. When including excess credit-enhanced income, we anticipate the margin to increase, supported by the continued expansion of the credit-enhanced loan portfolio and strategic efforts to lower our cost of funding. Conversely, excluding excess credit-enhanced income, we anticipate a gradual decline in margin consistent with our ongoing risk reduction strategy. The effect of the credit-enhanced income on net interest margin is included in our GAAP to non-GAAP disclosures at the end of the earnings release. We also posted solid non-interest income of $22.3 million compared to the prior quarter's $18…

Thank you. And with that, we will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press 2 to remove yourself from the queue. For any participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we poll for questions. And our first question comes from the line of Brett Rabatin with Hovde. Please proceed with your question.

Hey, guys. This is Anya speaking on behalf of Brett. You know, I was just wondering if you guys feel there's any opportunities to lower CD funding costs in the next few quarters.

In regards to CD funding cost, as we've noted, we are dependent upon wholesale funding. That wholesale funding cost tends to move with the Fed and the Fed's movement of the interest rate. So as the Fed reduces interest rates, we would expect to see a like-type decrease. That'll be blended in over time because we tend to run with CD maturities between three months and one year. So we would expect to benefit from those decreases, but at a gradual rate. And we should be blending in some benefit from past rates over the next couple of quarters yet too.

Thank you. And, you know, do you guys have any thoughts on the progression of MoneyRails and the BIN sponsorship potential later this year?

Yes. As far as let me speak first to the deposits since Bob kind of teed that off. We're still very confident in our strategy on BIN payments, though the timing may be pushed out beyond our initial expectations. But just as a reminder, we never want to rely or over-rely on just one partner as a source of funding, so regardless of who they are, our policy limits concentration on funding from one party, which means there were chunks of the broker deposits that we were replacing, but only to a certain concentration limit. So we don't think it's gonna be hugely impactful this year. We think more of that will come through next year.

Thank you. And last one for me, but any thoughts on the SBA business this year and whether management might be more or less aggressive with origination given the environment?

Yeah. Hey, Anya. This is Jim. You know, SBA demand continues to be really solid. In the pipeline. And versus last year, originations for us were down a little bit in the quarter. But that was really just a timing delay from the shutdown rather than a demand issue. And we had a nice pickup in closings already in January. So, overall, I'd say we have good demand. From everything we see, small business confidence is stable to rising. So we feel good about the SBA business right now.

Thank you. Appreciate it. That's all for me.

Thank you. And our next question comes from the line of Joseph Yanchunis with Raymond James. Please proceed with your question.

Good afternoon.

Hi.

There you go. So I was hoping to kinda circle back with deposits here. So it looks like period-end, guidance-bearing deposits increased pretty nicely this quarter. Well, average balances declined a bit. Was the surge in deposits related to credit enhancement loans kinda coming on at the end of the period?

The surge in deposits resulted from certain of our strategic partners that are making student loans in anticipation of increasing on the student loans and the requirement to maintain collateral equal to the hold that we have on those loans. But they deposited significant funds at the end of the quarter. So those funds will be held during the period of time that they have the higher origination volume. And then as that origination volume goes down, we expect that they will take those funds back away from us.

Okay. That's helpful. And then did I hear you correctly on your strategic or, I'm sorry, your origination guidance? It was, you know, annualized $1.4 billion, which is kind of the quarter-to-date run rate and kind of grow it by 5%. Because if so, that kind of points to a decline year over year. I was just wondering what you would kind of attribute that to.

Yeah. That's the baseline, Joe, that we put out as far as modeling guidance was once you strip away the seasonality associated with student lending, $1.4 billion is a good baseline and then apply a 5% growth factor on that. That's what we put out there because it takes away the seasonality of student lending.

Is there any reason to think that seasonality in student lending wouldn't return in 2020 where you would get that big three q uptick?

There is no reason to think that the seasonality would not return. So very likely would continue in the same seasonal fashion.

Okay. I appreciate that. Switching over to kinda recontracting. I was hoping you could discuss that a little bit. How was the recontracting process gone with existing partners? And is there any, like, slug of notable contracts up for renegotiation this year?

Yeah. Recontracting, just historically, gone really well at FinWise. You know, we've got 15 lending partners. Think you know, since we started this business in 2016 and have been operating without interruption, any type of regulatory issues, you know, since that time. I think we've had three partners in total that for one reason or another, kinda matriculated out of their partnership. Two of them were during COVID. They were commercial lenders that kinda went into COVID, you know, I would say, challenged and closed. So it wasn't anything in the partnership. It was really a business model and a business model issue for them. The third was one of our original partners back in, like, 2017 that we just never saw eye to eye on what the sponsorship relationship looked like. So we've been very fortunate in the partners that we've selected and I think have generally had really good relationships with them. You know, those contracts are generally three to four-year initial terms with two-year renewal terms on each of them. And so they're staggered. Every year, there's a handful that come up for renewal. But there's nothing I would point you to as far as concerns.

Okay. And then last one for me here. There's been increasing discussions around fintech sitting around bank charters. And you know, what's your take on this trend and how it could impact both FinWise and the sponsored bank industry as a whole?

Yeah. I'll take that one. We watch that pretty closely actually. There's a lot of fintech charters out there as you know. There's also some here in Utah, some applications as well. But as we've said in the past, a banking charter is not really the best option for all fintechs. You know, of course, larger, well-established fintechs would be more interested than smaller fintechs, but any fintech looking at considering a charter would have to go through seriously how that would impact their vision on call culture, innovation cycles, and so forth. But for FinWise specifically, we've always thought of our partners in terms of a bell curve. Some of the most successful partners continually are those kind of in the middle of the bell curve, where they put up results and really good results year after year, but probably aren't interested in growing to a size where they would need a bank charter. Of some of those partners that are in the right side of the bell curve that are outperformers as far as volume goes, yeah, I would imagine some of those are some of them are looking at those. But one thing that we've tried to impress on everyone in the past is we've built a scalable platform that allowed us to continually pursue new partnerships. And so, you know, we just plan for partners going away and partners coming on. And as Jim said, right now, we've got 15, and we feel good about two to three years.

Okay. And then, you know, one more for me here. So I understand that you'll continue to add two to three new partners a year. But can you talk a little bit about the success or, you know, planned initiatives to try to cross-sell products with existing partners? And then just to kinda piggyback off that and I may have missed this in the materials, how much volume is currently running through MoneyRails?

Okay. We don't disclose that. It's the last question. We don't disclose that. But it's becoming more meaningful. Usually, the way a partner launches is we get the launch going and then it scales over the next three quarters or so, let's say. And so we're seeing decent volumes, but from a couple partners, but, you know, we anticipate those will grow. But what we're finding in this space right now and especially as regards BIN and payments is for this to make sense as a standalone product, unique partners that can generate significant volumes. And the sales cycles for these guys just take more time. But what we've really found that's a nice surprise is how providing these capabilities to existing partners doesn't require the same levels of scale since the add-on products have incremental income, and they already fit within our oversight regime here. And one of the things we're really excited about is we're attracting newer or different partners that have a greater need for all these products. For example, Tali, we signed last year, and they've been a big contributor, but we signed them as a card sponsor partner, but we're also adding the credit-enhanced balance sheet flexibility for them, which really gives us upside and allows them to operate better regarding their funding. And so does that help?

Yeah. That was very helpful. Well, thank you for taking my questions.

Yep. Thank you. And our next question comes from the line of Andrew Terrell with Stephens Inc. Please proceed with your question.

Hey. Good afternoon.

Hey, Andrew.

If I could start just on the you guys referenced $10 million of watch list loans that you were contemplating could maybe migrate to non-performer here in the first quarter or so. I guess the question is, would this require an incremental provision expense? Or do you feel like those were already kind of taken care of as part of the, you know, SBA kinda cleanup that occurred this quarter?

Yeah. So let me hey, Andrew. This is Jim. Let me just, like, break them up into two things. So you've got the so credit trends generally are stable. We continue to see really good performance kind of across all segments of the portfolio. Bob mentioned in the prepared remarks that we did have a change to the servicing at the '4. Historic let me just give you some color on what that was. So, historically, you know, we followed SBA guidelines, and our procedures allowed a single three or six-month deferment to stressed borrowers. In October, after having completed a review of the performance of those borrowers, we updated the servicing requirements to require full re-underwriting at the time of the deferment request in order to qualify for that. So as a result, the level of NCOs in the quarter accelerated. It was appropriate to implement that proactively after we got the results of the back test and to kind of proactively manage any of those stressed accounts. But we do not expect that level of NCOs from the core portfolio again in the near term and continue to believe that $3.5 million is the right number for modeling. I would just point back that, you know, it is lumpy. When you asked about the $10 million potential migration in Q1, we've kinda guided, you know, over the last probably eighteen months or so, kind of that $10 to $12 million number, and you've had quarters come in well below that, and you've had a couple quarters that were closer to the actual number. It's lumpy. And so the number that we're guiding to right now is up to $10 million. But like you saw in this most recent quarter, you know, just shy of a million dollars migrated even though we guided to 12.

Got it. Okay. No. I appreciate all the extra color there. Just on overall kind of net balance sheet growth, I know you guys guide the Credit Enhance $8 million to $10 million a month, maybe a little bit of lumpiness in there. I guess, like, I was surprised that the SBA was down so much this quarter and kinda offsets some of what was, you know, really strong growth in credit enhanced. I'm just trying to get a sense of, like, when we think about overall balance sheet growth, is this a floor in the SBA book? Will you look to build it from here alongside the credit enhanced? Or should we think about that as, you know, stable, to decline, just help us get a sense of, like, where the net net balance sheet goes.

So hey, Andrew. This is Bob. So I think the net balance sheet will continue to grow. The fourth quarter was a bit of an aberration. For different reasons and because of the market conditions, we accelerated and stepped up the SBA loan sales. I think that looking towards the future, that we expect the SBA loan sales to more or less be approximate equal to the origination volume. So the overall SBA level should stay flat on the guaranteed side. As it relates to the rest of the portfolio, we will continue to see growth in leasing and our other products. But we'll see most of the growth coming from we expect to see most of growth coming from the credit-enhanced portfolio along the lines that Jim had talked about earlier, the $8 to $10 million per month organic growth.

Yep. Okay. And okay. So more of a stable SBA portfolio. Yeah. And maybe this is too technical of a question, but the I'm just comparing the net interest income, you know, up six or so sequentially. The credit-enhanced guarantee and servicing expenses were up, you know, a kinda commensurate amount. I'm assuming that the kinda mismatch here is just the onetime maybe aberration or SBA loan stepping down and not reflective of just a significantly lower level of in the credit-enhanced business. Is that fair?

I'm not fully sure I understand the follow-up question. I would note that the credit-enhanced portfolio did grow significantly during the period to over $70 million. And that the level of profitability that we generated from this remained constant. You know, the real event for the income for this year is the it will for this quarter, was the 1 and a half million dollar charge to the provision account related to the, what we call, the core four that would include the SBA portfolio that included the that considered the higher charge-offs as well as the and the factors as it related to the servicing and administration of that portfolio that Jim had talked about at length. That was the real drag in the period.

Okay. Fair enough. And then on the expense side, you know, it sounds like you guys are looking at or maybe have some opportunities on the technology kinda implementation front. And, you know, with that or even outside of that, I'm just curious how you're thinking about, you know, pace of expense growth holding aside the guarantee expense and kinda servicing expense, just kinda the core core expense lines?

So as it relates to expense lines, we think that the $16 million would be a good starting point from a quarterly run rate for the noncredit enhanced operating expenses. So as we go into 2026, and then we would as we expand the business, as you would see the assets grow, you know, it may be that we need to hire some additional people but we do think that, our revenues will increase, you know, two times two roughly two times faster than our expenses. So I have a positive operating leverage ratio. That's kind of how we're seeing those factors.

Okay. Well, thank you guys for taking the questions.

Thank you. I will now turn it over to Juan Arias as there seems to be few questions that came in via email.

Thank you, operator. Yeah. We did get two questions via email. The first one can you clarify if the impact from what you are describing as refinement of servicing and administrative standards is a onetime item and this cost you approximately 8¢ in earnings per share in Q4?

Certainly. The after-tax net income the way that we're looking the way that we calculate it, but the after-tax income from that increase revision related to these changes that Jim had gone through was down $1.1 million. On that provision for loan losses on that core portfolio or 8¢ a share. The $1.1 million after-tax provision resulted primarily from, as I said before, the higher charge-offs. And then, again, as Jim explained in his comments, the driver for the four q's increased provision was that acceleration of the charge-offs because of the changes in the servicing and administration standards that were applied to that core portfolio, particularly the SBA portfolio, in Q4 and should be viewed as a onetime event.

Okay. And the second question was can you please provide additional examples of how you're using AI?

Yeah. I'll take that one too. We're actually pretty excited about the possibilities of AI right now. Especially now that the cost entry point is so much lower than it has been in the past few years. But as mentioned on the calls, we've been using AI for coding, quality assurance, BSA, AML, and so forth. But with the recent advances in generative AI, with lowering the cost entry point, we think there's some additional lifts that we can find in compliance, operations, and areas where automation can drive efficiency. So we're focusing really intently on that area, you know, specifically things such as policy alignment and regulatory compliance. Is something that would really be helped through AI as well as cybersecurity fraud detection. But I think most importantly right now, analyzing and automating workflows. At the bank.

Alright. Operator, that was the last that came in via email.

Okay. Great. Well, thank you, and thank you, ladies and gentlemen. This does now conclude today's teleconference. We thank you for your participation. And you may disconnect your lines at this time. And have a wonderful day.

Thank you.