FinWise (FINW) Q4 2025 Earnings Call Transcript

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DATE

Thursday, January 29, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Kent Landvatter
• President and Chief Executive Officer, FinWise Bank — James Noone
• Chief Financial Officer — Robert Wahlman
• Chief Legal Officer, Corporate Secretary — Juan Arias

TAKEAWAYS

• Net Income -- $3.9 million for the quarter, a 26% increase for the year driven by higher loan originations and disciplined expense control.
• Loan Originations -- $1.6 billion in the quarter, above guidance of $1.4 billion, bringing annual originations to $6.1 billion and reflecting 22% year-over-year growth.
• Credit-Enhanced Loan Balances -- $118 million at quarter-end, exceeding both prior guidance of $50 million–$100 million and the $115 million outlook issued in the prior quarter.
• Net Interest Income -- $24.6 million, up from $18.6 million sequentially; primarily attributed to credit-enhanced balances in the held-for-investment portfolio.
• Net Interest Margin -- 11.42%, up from 9.01% the previous quarter, reflecting the expansion of the credit-enhanced loan portfolio.
• Non-Interest Income -- $22.3 million, an increase from the prior quarter’s $18 million, mainly due to higher credit enhancement income.
• Provision for Loan Losses -- $17.7 million, versus $12.8 million last quarter, driven by credit-enhanced portfolio growth and accelerated charge-offs from updated servicing standards.
• Net Charge-Offs -- $6.7 million in the quarter, compared to $3.1 million previously; $1.5 million of this related to credit-enhanced loans and fully reimbursed from partner reserves.
• Nonperforming Loans (NPLs) -- $43.7 million at period end, with $24.2 million federally guaranteed and a net increase below $1 million, lower than the $10 million–$12 million previously estimated for migration.
• Efficiency Ratio -- 50.5% this quarter, rising from 47.6% previously, reflecting higher credit-enhanced guarantee and servicing expenses.
• Total End-of-Period Assets -- $977 million, increased by growth in cash at the Fed, loans held for investment, and the credit enhancement asset.
• Deposit Balances -- Average interest-bearing deposits were $567.4 million, up from $523.9 million, led by certificates of deposit and partner collateral needs for seasonal student loan fundings.
• SBA Loan Sales and Premiums -- Increased sales of SBA-guaranteed loans during the quarter after government reopening led to elevated gain on sale income; 34% of the portfolio at quarter end consisted of lower-risk SBA and strategic program loans held for sale.
• Forward Guidance—Originations -- Quarterly loan originations are running at a $1.4 billion baseline at the start of the year, with a modeled 5% annual growth rate suggested for full-year expectations.
• Forward Guidance—Credit-Enhanced Balances -- Expected organic growth of $8 million–$10 million per month, with noted month-to-month variability.
• Forward Guidance—Net Charge-Offs -- Approximately $3.5 million in quarterly net charge-offs is expected for the non-credit-enhanced portfolio.
• Forward Guidance—NPL Migration -- Up to $10 million in additional loans on the watch list could migrate to nonperforming in the following quarter, with gradual moderation anticipated.
• Forward Guidance—Net Interest Margin -- Projected continued increase when including credit-enhanced balances, with core margin expected to decline in line with risk-reduction strategy if excluding excess credit-enhanced income.
• Forward Guidance—Efficiency Ratio -- Ongoing focus on reducing the core efficiency ratio over the long term, though short-term increases may occur.
• One-Time Provision Impact -- CFO Wahlman said, "the after-tax income from that increased revision related to these changes...was down $1.1 million...or 8¢ a share," attributing this to the onetime impact from the update in servicing and administration standards for the core loan portfolio.
• Contract Renewal Process -- Management described long-term partner stability: "We've got 15 lending partners...operating without interruption, any type of regulatory issues...since that time...we've generally had really good relationships with them."
• AI Adoption -- CEO Landvatter highlighted targeted expansion, stating, "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."
• Strategic Partnership Launch -- The DreamFi program was officially launched during the quarter to provide financial products and services to underbanked communities.

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RISKS

• Quarterly net charge-offs increased to $6.7 million from $3.1 million in the prior quarter, with $1.2 million attributed to stricter servicing standards and earlier recognition of problem loans.
• The provision for loan losses rose to $17.7 million from $12.8 million sequentially, primarily from higher charge-offs and credit-enhanced portfolio growth.
• The efficiency ratio worsened to 50.5% from 47.6%, primarily due to higher guarantee and servicing expenses tied to the credit-enhanced portfolio.
• CFO Wahlman confirmed a one-time $1.1 million after-tax provision impact, or 8¢ per share, arising from updated servicing standards, which negatively affected net income this quarter.

SUMMARY

Management delivered explicit detail on material quarterly and annual growth in originations, credit-enhanced balances, and non-interest income, outpacing previously stated outlooks and underpinning ongoing business model diversification. They outlined a forward baseline for quarterly loan originations and projected run rates for both credit-enhanced balances and charge-offs, enabling investor modeling accuracy while directly addressing expected portfolio seasonality and product mix. Migration of watch list loans to nonperforming status was significantly lower than guidance despite refined servicing standards, reflecting enhanced risk controls and proactive collateral management. The call confirmed formal launch of the DreamFi fintech partnership targeting underbanked customer segments, signaling a continued strategic emphasis on scalable, diversified revenues. Unique cost headwinds and the impact of operational enhancements were disclosed in CFO commentary, demarcating a clear line between recurring expense base and one-time credit risk measures.

• CFO Wahlman said, "we think that the $16 million would be a good starting point from a quarterly run rate for the noncredit enhanced operating expenses" as a baseline for modeling core expense trends in 2026.
• Robert Wahlman clarified, "SBA loan sales to more or less be approximate equal to the origination volume," suggesting portfolio size will stabilize at recent levels as gains are opportunistically realized in active secondary markets.
• CEO Landvatter noted, "we're attracting newer or different partners that have a greater need for all these products," emphasizing cross-sell momentum and incremental product adoption, particularly within BIN and MoneyRails services.
• Deposits surged at quarter-end due to partners' need to collateralize seasonal student loans, with these balances expected to normalize as origination volumes recede.
• Borrower qualification for short-term deferment was tightened this quarter, requiring full re-underwriting, which led to earlier charge-off recognition and reflects lasting changes to credit risk management practices.

INDUSTRY GLOSSARY

• Credit-Enhanced Loans: Loan products backed by partner-funded cash reserves at FinWise, permitting recovery of charge-offs and resulting in lower credit risk for the bank.
• BIN: Bank Identification Number sponsorship, where the bank enables fintech or partner payment card issuance and transaction processing via its charter.
• MoneyRails: FinWise’s proprietary payments optimization platform used by partners for salary deduction repayments and real-time transaction settlements (RTP, FedNow).
• SBA 7(a) Loans: Government-guaranteed small business loans originated under Section 7(a) of the Small Business Administration lending program.
• Nonperforming Loans (NPLs): Loans on which the borrower is not making interest or principal payments as scheduled, typically 90 days past due.

Full Conference Call Transcript

Kent Landvatter: 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 measured than we initially anticipated, we remain confident in the long-term value proposition. Integrating these capabilities under one roof enhances our ability to win new partners, expand cross-sell opportunities, and deepen strategic relationships over time.

While strategic partnerships with a lending focus remain our most profitable relationships, we are generating increased interest by also offering BIN and payment solutions. For example, some clients use our award-winning payments optimizer, MoneyRails, to process salary deduction repayments on FinWise-originated loans, while others are leveraging MoneyRails to fund transactions through RTP and FedNow, demonstrating the expanding utility and appeal of the platform. Ultimately, these ancillary services enable our partners to innovate faster, operate more efficiently, and compete more effectively, reinforcing FinWise as a true strategic partner, not just a regulatory gateway. We are also pleased to share that DreamFi, a strategic program agreement we announced last quarter, has officially launched.

DreamFi is a startup financial technology company that will provide financial products and services to underbanked communities. Overall, our pipeline remains healthy, and we remain in active discussions with several additional prospects. As we've mentioned before, the pace of new agreements can appear lumpy, and timing may fluctuate, particularly with larger strategic opportunities. That said, each strategic partnership we secure has the potential to create outsized value. Under this one-to-many framework, a single can drive substantial growth in portfolio balances and revenue, underscoring the inherent scalability and strength of our platform. On the AI front, given the high cost and rapid pace of change associated with early-stage AI development, a disciplined adoption approach remains the most effective strategy for FinWise.

While we have already been using AI in areas such as coding, quality assurance, and BSA AML, the advances in generative AI are opening new opportunities for efficiency and automation. We are actively exploring opportunities to broaden the deployment of these capabilities across the company to drive efficiency and long-term value with a disciplined focus on safeguarding sensitive data through secure and controlled implementation. Lastly, while we will be disciplined in managing near-term performance, our priority remains building durable long-term growth by pursuing opportunities that significantly enhance the company's future. We are confident in the outlook ahead and in our ability to deliver lasting value for our customers and shareholders.

With that, let me turn the call over to James Noone, our bank CEO.

James Noone: 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 enhancement income in our noninterest income. This quarter, we included a new table in the earnings press release that breaks out the total provision between the core portfolio and the credit-enhanced portfolio.

Positively, during Q4, the net increase to our NPL balance was less than a million dollars, bringing our total NPL balance to $43.7 million at the end of the quarter. This modest increase was mostly due to SBA seven Watchlist and special mention loans migrating to classified status and compares to our guidance on our prior call that $10 million to $12 million in balances could migrate to NPL during Q4. The lower-than-potential migration reflects the team's proactive efforts in disposing of collateral securing NPLs. Of the $43.7 million in total NPL balances, $24.2 million or 55% is guaranteed by the federal government, and $19.5 million is unguaranteed.

Quarterly SBA seven a loan originations decreased quarter over quarter, primarily due to extended SBA processing delays resulting from staffing cuts at the SBA, with additional impact from the government shutdown. During the quarter, we took advantage of attractive secondary market premiums to increase sales of the guaranteed portion of our SBA loans, particularly after the government's reopening in November, which contributed to elevated gain on sale income. We will continue to follow our strategy of selling guaranteed portions of our SBA loans as long as market conditions remain favorable. Following the government's reopening in late November, the environment for SBA loan originations has normalized, with turnaround times returning to more typical levels.

Notably, our SBA guaranteed balances and strategic program loans held for sale, both of which carry lower credit risk, collectively accounted for 34% of the total portfolio at the end of Q4, underscoring the lower-risk composition of our loan book. I will now turn the call over to our CFO, Robert Wahlman, to provide more detail on our financial results.

Robert Wahlman: 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 million. The growth was primarily due to increases in credit enhancement income driven by our higher credit-enhanced loan balances outstanding at year-end 2025.

Partly offsetting the rise in noninterest income was a decrease in strategic program fees due to lower origination volume. As a reminder, credit enhancement income offsets the provision for credit losses on credit-enhanced loans dollar for dollar. As a result, when the provision expense and the credit enhancement income are considered together, they offset and result in no effect on our profitability. Noninterest expense was $23.7 million compared to $17.4 million in the prior quarter, primarily due to increases in credit enhancement guarantee and servicing expenses resulting from the growth in the credit-enhanced loan portfolio.

As a reminder, credit enhancement guarantee and servicing expenses are amounts FinWise owes to the strategic partners with credit-enhanced programs for their servicing and guarantee activities. Reported efficiency ratio for the quarter was 50.5% versus 47.6% in the prior quarter. Importantly, we continue to generate solid balance sheet growth with total end-of-period assets reaching $977 million. The increase is primarily due to continued growth in the company's cash balances deposited at Fed, loans held for investment, and an increase in the credit enhancement asset. Average interest-bearing deposits were $567.4 million compared to $523.9 million in the prior quarter.

The increase was primarily in certificates of deposit, which were added to fund loan growth, and an increase in noninterest-bearing demand deposits, primarily related to collateral deposits by certain strategic programs that anticipated increased volumes due to typical seasonality student loan fundings in January 2026, increased our balance sheet liquidity. Let me provide forward outlook on some key metrics as we've done in prior quarters. Loan originations for Q1 2026. Originations through the first four weeks of January are tracking at a quarterly run rate of approximately $1.4 billion. Loan originations for full year 2026. We remain comfortable using $1.4 billion in quarterly originations as our baseline, as it normalizes 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. We remain comfortable with organic growth in credit-enhanced balances of $8 million to $10 million on average per month for 2026, but could see some variability between months. SBA loan sales. While we don't provide a specific outlook, we will continue to follow our strategy of selling guaranteed portions of our SBA loans as long as market conditions remain favorable. Quarterly net charge-offs. We anticipate that approximately $3.5 million in net charge-offs for our non-credit-enhanced loans is a good quarterly number to use in your models. Nonperforming loan balances for Q1 2026.

We think there is potentially as much as $10 million in watch list loans that could migrate to NPL in Q1 2026. We continue to expect a gradual moderation in NPL migration as loans underwritten in lower interest rate environments continue to season, though the migration may be lumpy. Net interest margin. We remain comfortable with our prior outlook that when including credit-enhanced balances, the margin is projected to increase, supported by the continued expansion of our credit-enhanced loan portfolio and strategic efforts to lower our cost of funding. This upward trend is expected to persist until growth in these balances begins to moderate.

Conversely, excluding excess credit-enhanced income, we anticipate a gradual decline in margin consistent with our ongoing risk reduction strategy. Efficiency ratio. We remain focused on driving sustainable positive operating leverage with a long-term goal of steadily lowering our core efficiency ratio. That said, there may be periods in which the efficiency ratio may rise. Tax rate. While multiple factors may influence the actual tax rate, we suggest using 26% in your modeling. With that, we would like to open the call for Q&A. Operator?

Operator: 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.

Anya (on behalf of Brett Rabatin): 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.

Robert Wahlman: 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.

Anya (on behalf of Brett Rabatin): Thank you. And, you know, do you guys have any thoughts on the progression of MoneyRails and the BIN sponsorship potential later this year?

Kent Landvatter: 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.

Anya (on behalf of Brett Rabatin): 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?

James Noone: 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.

Anya (on behalf of Brett Rabatin): Thank you. Appreciate it. That's all for me.

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

Joseph Yanchunis: Good afternoon.

Robert Wahlman: Hi.

Joseph Yanchunis: 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?

Robert Wahlman: 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.

Joseph Yanchunis: 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.

James Noone: 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.

Joseph Yanchunis: 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?

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

Joseph Yanchunis: 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?

James Noone: 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.

Joseph Yanchunis: 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?

Kent Landvatter: 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.

Joseph Yanchunis: 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?

Kent Landvatter: 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?

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

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

Andrew Terrell: Hey. Good afternoon.

James Noone: Hey, Andrew.

Andrew Terrell: 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?

James Noone: 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.

Andrew Terrell: 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 balance sheet goes.

Robert Wahlman: 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.

Andrew Terrell: 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?

Robert Wahlman: 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.

Andrew Terrell: 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 expense lines?

Robert Wahlman: 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.

Andrew Terrell: Okay. Well, thank you guys for taking the questions.

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

Juan Arias: 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?

Robert Wahlman: 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.

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

Kent Landvatter: 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.

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

Operator: 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.

Kent Landvatter: Thank you.

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