FinWise Bancorp (FINW) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals a positive sentiment with strategic partnerships, a strong pipeline, and optimistic guidance. Despite some short-term margin compression, long-term growth is expected through credit-enhanced balances. The Q&A highlights stable credit trends and positive SBA business outlook. New partnerships and cross-selling initiatives further boost sentiment. Therefore, the stock price is likely to see a positive movement over the next two weeks.
Key Financial Performance
Net Income $3.9 million for the fourth quarter, representing a 26% year-over-year growth. The increase was driven by higher loan originations and credit enhanced balances, despite higher net charge-offs and provisions for credit losses.
Loan Originations $1.6 billion in the fourth quarter, exceeding the initial guidance of $1.4 billion. Full year 2025 originations totaled $6.1 billion, a 22% year-over-year growth. Growth was driven by strong originations from established partners and newer programs, partially offset by seasonal deceleration from the largest student lending partner.
Credit Enhanced Balances $118 million at the end of the quarter, exceeding the $115 million outlook and initial guidance of $50 million to $100 million. Growth was supported by a structure requiring fintech partners to maintain a deposit account at FinWise for charge-off recovery.
Net Charge-Offs (NCOs) $6.7 million in Q4 compared to $3.1 million in the prior quarter. $1.5 million of the NCOs were from the Credit Enhanced Balance Sheet Program, which are guaranteed and reimbursed. The remaining $5.2 million included $1.2 million due to updated servicing standards.
Provision for Loan Losses $17.7 million for the fourth quarter compared to $12.8 million in the prior quarter. The increase was driven by growth in the credit enhanced loan portfolio and higher net charge-offs due to updated servicing standards.
Net Interest Income $24.6 million in Q4, up from $18.6 million in the prior quarter. The increase was primarily due to growth in the credit enhanced balances, which carry higher contractual interest rates.
Net Interest Margin 11.42% in Q4 compared to 9.01% in the prior quarter. The increase was largely due to the growth in the credit enhanced portfolio.
Noninterest Income $22.3 million in Q4 compared to $18 million in the prior quarter. Growth was driven by increases in credit enhancement income, offset by a decrease in Strategic Program fees due to lower origination volumes.
Noninterest Expense $23.7 million in Q4 compared to $17.4 million in the prior quarter. The increase was due to higher credit enhancement guarantee and servicing expenses from the growth in the credit enhanced loan portfolio.
Nonperforming Loan (NPL) Balances $43.7 million at the end of Q4, with a net increase of less than $1 million. $24.2 million (55%) of the NPL balances are guaranteed by the federal government, while $19.5 million are unguaranteed.
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Operating Highlights
Credit Enhanced Product: Strong uptake with balances reaching $118 million, exceeding the $115 million outlook and initial guidance of $50 million to $100 million. This product is a core component of the lower-risk asset growth strategy.
BIN and Payments Business: Although ramp-up has been slower than expected, it is enhancing the ability to win new partners and expand cross-sell opportunities. The MoneyRails platform is being used for salary deduction repayments and funding transactions, showcasing its utility.
DreamFi Launch: Officially launched as a strategic program to provide financial products to underbanked communities.
Loan Originations: Totaled $1.6 billion in Q4, exceeding the $1.4 billion guidance. Full-year originations reached $6.1 billion, a 22% year-over-year growth. Growth driven by established partners and newer programs.
SBA Loan Sales: Increased sales of guaranteed portions of SBA loans due to attractive secondary market premiums, contributing to elevated gain on sale income.
Expense Management: Disciplined approach strengthened profitability and supported growth in tangible book value per share.
Credit Quality: Stable credit trends with proactive portfolio management. Refinements in servicing standards led to earlier recognition of charge-offs and improved risk management.
Net Interest Margin: Increased to 11.42% from 9.01% in the prior quarter, driven by growth in credit enhanced balances.
AI Adoption: Disciplined approach to AI adoption, focusing on efficiency and automation while safeguarding sensitive data.
Strategic Partnerships: DreamFi and other partnerships are expected to drive substantial growth and scalability. Active discussions with additional prospects are ongoing.
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Risk or Challenges
Loan Originations: Quarterly loan originations are subject to seasonal fluctuations, particularly with student lending partners. This could lead to variability in revenue and operational planning.
BIN and Payments Business: The ramp-up of the BIN and Payments business has been slower than anticipated, which may delay expected revenue growth and strategic benefits.
AI Adoption: High costs and rapid changes in AI development require a disciplined approach, posing challenges in balancing innovation with cost management and data security.
Credit Quality: Net charge-offs increased significantly in Q4, partly due to updated servicing standards. This could impact financial performance if not managed effectively.
SBA Loan Processing: Extended SBA processing delays and government shutdowns have disrupted SBA loan originations, potentially affecting revenue and operational efficiency.
Provision for Loan Losses: Provision for loan losses increased significantly, driven by growth in the credit enhanced loan portfolio and higher net charge-offs, which could strain financial resources.
Nonperforming Loans (NPLs): The NPL balance increased modestly, with a significant portion unguaranteed, posing a risk to financial stability.
Strategic Partnerships: The pace of securing new strategic partnerships is inconsistent, which could lead to uneven growth and revenue generation.
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Guidance & Outlook
Loan Originations for Q1 2026: Originations through the first 4 weeks of January are tracking at a quarterly run rate of approximately $1.4 billion.
Loan Originations for Full Year 2026: The company remains comfortable using $1.4 billion in quarterly originations as a baseline, normalizing for student lending seasonality. Annualizing this level and applying a 5% growth rate provides a reasonable outlook for originations for full year 2026.
Credit Enhanced Balances for Full Year 2026: The company remains comfortable with organic growth in credit enhanced balances of $8 million to $10 million on average per month for 2026, with some variability between months.
SBA Loan Sales: The company will continue to follow its strategy of selling guaranteed portions of SBA loans as long as market conditions remain favorable.
Quarterly Net Charge-Offs: The company anticipates approximately $3.5 million in net charge-offs for non-credit enhanced loans as a good quarterly number to use in models.
Nonperforming Loan Balances for Q1 2026: The company estimates potentially as much as $10 million in watch list loans could migrate to nonperforming loan status in Q1 2026. A gradual moderation in NPL migration is expected, though the migration may be lumpy.
Net Interest Margin: When including credit enhanced balances, the margin is projected to increase, supported by the continued expansion of the credit enhanced loan portfolio and strategic efforts to lower the cost of funding. Excluding excess credit enhanced income, a gradual decline in margin is anticipated, consistent with the ongoing risk reduction strategy.
Efficiency Ratio: The company remains focused on driving sustainable positive operating leverage with a long-term goal of steadily lowering the core efficiency ratio. However, there may be periods in which the efficiency ratio may rise.
Tax Rate: The company suggests using 26% in modeling, though multiple factors may influence the actual tax rate.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Are there opportunities to lower CD funding costs in the next few quarters?
A:The company is dependent on wholesale funding, which moves with the Fed's interest rate changes. As the Fed reduces rates, CD funding costs are expected to decrease gradually over time, blending in benefits from past rates over the next few quarters.
Q:What are the thoughts on the progression of MoneyRails and BIN Sponsorship potential later this year?
A:The company remains confident in its BIN payments strategy, though the timing may be delayed beyond initial expectations. They aim to avoid over-reliance on a single funding partner, and significant impacts are expected more next year rather than this year.
Q:What are the thoughts on the SBA business this year and whether management might be more or less aggressive with originations?
A:SBA demand remains solid, with a stable to rising small business confidence. Originations were down slightly in the quarter due to a timing delay but picked up in January. Management feels positive about the SBA business.
Q:Was the surge in noninterest-bearing deposits related to credit enhancement loans at the end of the period?
A:The surge in deposits was due to strategic partners facilitating student loans and depositing significant funds as collateral for increased origination volumes. These funds are expected to be withdrawn as origination volumes decrease.
Q:Is the annualized $1.4 billion origination guidance with 5% growth indicative of a year-over-year decline?
A:The $1.4 billion baseline guidance, with a 5% growth factor, accounts for seasonality in student lending. This guidance removes seasonal effects and is not necessarily indicative of a year-over-year decline.
Q:Will the seasonality in student lending return in 2026?
A:There is no reason to believe that the seasonality in student lending will not return in 2026, and it is expected to continue in the same seasonal pattern.
Q:How has the recontracting process gone with existing partners, and are there any notable contracts up for renegotiation this year?
A:Recontracting has historically gone well, with 15 lending partners since 2016 and minimal interruptions. Contracts are staggered with 3- to 4-year initial terms and 2-year renewals. There are no significant concerns about upcoming renewals.
Q:What is the take on fintechs obtaining their own bank charters and its impact on FinWise and the sponsor bank industry?
A:The company monitors this trend closely. While larger fintechs may pursue charters, it is not suitable for all. FinWise focuses on scalable partnerships and anticipates some partners may leave, but they continue to add 2-3 new partners annually.
Q:What are the success and planned initiatives for cross-selling products with existing partners, and how much volume is running through MoneyRails?
A:The company does not disclose specific MoneyRails volumes but notes it is becoming more meaningful. They focus on cross-selling add-on products to existing partners, which provide incremental income and fit within their oversight framework.
Q:Will the $10 million of watch list loans migrating to nonperformers in Q1 require incremental provision expense?
A:Credit trends are stable, and the $10 million migration is considered lumpy. Management does not expect the same level of net charge-offs (NCOs) as in Q4 and believes $3.5 million is appropriate for modeling.
Q:What is the outlook for overall balance sheet growth, particularly for SBA and credit-enhanced portfolios?
A:The SBA portfolio is expected to remain stable, with loan sales matching origination volumes. Most growth will come from the credit-enhanced portfolio, with $8-10 million monthly organic growth expected.
Q:Is the lower profitability in the credit-enhanced business reflective of a trend?
A:The lower profitability in Q4 was due to a $1.5 million provision charge related to servicing changes in the SBA portfolio, which is considered a one-time event. The credit-enhanced portfolio's profitability remains constant.
Q:What is the pace of expense growth, excluding guarantee and servicing expenses?
A:Core operating expenses are expected to start at $16 million quarterly, with revenues growing approximately twice as fast as expenses, leading to positive operating leverage.
Q:Was the impact from the refinement of servicing and administrative standards a one-time item, and what was its effect on earnings per share?
A:The refinement of servicing standards was a one-time event, costing approximately $0.08 per share in Q4 due to a $1.1 million after-tax provision increase.
Q:What are the additional examples of how the company is using AI?
A:The company uses AI for coding, quality assurance, BSA/AML, compliance, operations, cybersecurity, fraud detection, and workflow automation. They are exploring further applications in policy alignment and regulatory compliance.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the volume running through MoneyRails, citing that they do not disclose this information. Additionally, while discussing fintechs obtaining bank charters, the response was somewhat general and lacked specific data or examples.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI area
AI front
AI opportunity
AML advance
BIN Payment
BIN Payments
BSA AML
Balance Sheet
Bancorp Conference
FinWise Bancorp
MoneyRails
NCOs
NPL balance
Program
ability
agreement
approach
balance NPL
capability
classification loan
contribution
core portfolio
focus
framework portfolio
government reopening
loan status
market premium
pace
partner FinWise
portfolio charge
ramp
recognition
relationship
service
servicing standard
standard classification
term value
FINW Transcript
FinWise Bancorp (FINW) Q4 2025 Earnings Call Transcript
Positive1-29
The earnings call reveals a positive sentiment with strategic partnerships, a strong pipeline, and optimistic guidance. Despite some short-term margin compression, long-term growth is expected through credit-enhanced balances. The Q&A highlights stable credit trends and positive SBA business outlook. New partnerships and cross-selling initiatives further boost sentiment. Therefore, the stock price is likely to see a positive movement over the next two weeks.
FinWise Bancorp (FINW) Q3 2025 Earnings Call Transcript
Positive10-30
The earnings call shows strong financial performance with significant increases in net income, EPS, and net interest income. The company's strategic focus on credit-enhanced products is driving growth, and the efficiency ratio has improved significantly. While there are some concerns about increased provisions for credit losses, the overall sentiment remains positive due to strong operational execution and optimistic future growth projections. The Q&A session did not reveal any major risks or uncertainties that would significantly alter this positive outlook.
FinWise Bancorp (FINW) Q2 2025 Earnings Call Transcript
Unknown7-25
The earnings call presents a mixed picture: positive aspects include a new partnership, increased fee income, and a decrease in the efficiency ratio. However, there are concerns about rising noninterest expenses, increased net charge-offs, and a decline in net interest margin. The Q&A session reveals some uncertainties, such as unclear guidance on provision ratios and reliance on wholesale funding. Without a market cap, the stock's reaction is uncertain, but the mixed signals suggest a neutral sentiment.
Earnings call transcript: FinWise Q1 2025 earnings beat forecasts, stock dips
Unknown4-30
The earnings call reveals several concerns: declining Net Interest Margin (NIM), increased operational expenses, and no share buybacks, which could negatively impact investor sentiment. Although there are positive aspects like increased fee income and healthy origination levels, the lack of clear guidance on credit enhanced loans and the expected NIM decline overshadow these positives. The Q&A session did not alleviate concerns, as management provided vague timelines for scaling up programs. Overall, the negative aspects are likely to outweigh the positives, leading to a negative stock price movement.
FINW Slides
FINW Report
Frequently Asked Questions
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