FinWise (NASDAQ:FINW) reported first-quarter financial results on Thursday. The transcript from the company's first-quarter earnings call has been provided below.
Benzinga APIs provide real-time access to earnings call transcripts and financial data. Visit https://www.benzinga.com/apis/ to learn more.
The full earnings call is available at https://viavid.webcasts.com/starthere.jsp?ei=1753411&tp_key=cd51efaaa1
Summary
FinWise reported a decrease in net interest margin to 7.15% from 7.85% in the prior quarter, influenced by adjustments in credit enhanced program expenses.
Non-interest income fell to $14.6 million from $22.3 million, driven by lower credit enhanced income and a decline in BFG investment value.
Total assets decreased to $899.4 million from $977.1 million, with a decline in deposits due to runoff of funding not needed for current asset levels.
Loan originations for Q2 2026 are tracking at a quarterly run rate of approximately $1.4 billion, with a full year expectation of 5% growth.
The company anticipates $8 million to $10 million average monthly growth in credit enhanced balances for 2026, and continues to sell guaranteed portions of SBA loans.
Management remains focused on reducing the efficiency ratio and controlling expenses, while increasing revenues through new partnerships and product developments.
Despite a slow start in Q1, FinWise is confident in its credit enhanced program, expecting meaningful growth from a key partner in upcoming quarters.
The company is exploring AI adoption to improve efficiencies and has seen a headcount increase in fintech business development and operations.
Full Transcript
OPERATOR
In the prior quarter. The increase was driven by the change in estimate of the credit enhanced loans excess spread allocated to origination cost which is a reduction of income to credit enhanced servicing and guaranteed expenses as well as an increase in average balances in the credit enhanced portfolio. Net of the adjustment for credit enhanced program expenses, net interest margin was 7.15% compared to 7.85% in the prior quarter, consistent with our ongoing risk reduction strategy and fourth quarter 2025 onboarding of a new credit enhancement program for which our compensation includes both interest income generated by credit cards and a portion of the interchange generated by the card usage. As we've noted on prior calls, we suggest thinking about our net interest income and net interest margin in two distinct ways including and excluding excess credit enhanced income. Non interest income was 14.6 million compared to the prior quarter's 22.3 million. The sequential quarter decline was primarily driven by lower credit enhanced income and gain on sale revenue as well as a decline in the fair value of our BFG investment reflecting a broader pullback in private company valuations observed in March following heightened global market volatility. As a reminder, credit enhancement income mirrors the provision for credit losses on credit enhanced loans. Partially offsetting the sequential decline in non interest income was higher interchange income driven largely by a full quarter of contributions from the credit card portfolio acquired in mid November 2025. Non interest expense was $28.3 million compared to $23.7 million in the prior quarter. The increase was primarily due to higher credit enhancement guarantee and servicing expenses resulting from the change in estimated allocation of excess spread on credit enhanced loans from contra income origination costs to servicing and guarantee expenses as described earlier as well as an increase in average balances of credit enhanced loans and the resulting growth in the excess spread excluding credit enhancement related items, core operating expenses remained well controlled. The reported efficiency ratio for the quarter was 66.3% versus 50.5% in the prior quarter. Excluding the offsetting accounting effects of the credit enhanced loans, the efficiency ratio was 65.0% for Q1 2026 and 60.6% for Q4 2025. Total assets were 899.4 million as of the end of the quarter compared to 977.1 million in the prior quarter. The decline was primarily due to decreases in interest bearing deposits with small declines in loans held for sale and loans held for investment. Total end of the period deposits were 674.9 million compared to 754.6 million in the prior quarter. The decline was primarily due to runoff of funding, principally non interest bearing deposits and brokered CDs that were not needed to support the lower level of assets. Finally, we continue to operate with a very strong capital position reflected in a bank leverage ratio of 16.8%, nearly double the current well capitalized minimum requirement to be well capitalized. Let me provide forward outlook on some key metrics as we've done in prior quarters. Loan originations for Q2 2026 originations through the first four weeks of April are tracking at a quarterly run rate of approximately 1.4 billion loan originations for the full year 2026. While there may be variability quarter to quarter, we are reaffirming 1.4 billion in quarterly loan originations as our baseline reflecting typical seasonality from student lending partners. Annualizing this baseline and applying a 5% growth rate provides a reasonable outlook for full year 2026 originations. We will continue to update our originations outlook each quarter as the year progresses. Origination levels are influenced by several variables including new partner additions and contributions from both established programs and newer launches. 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. Quarterly results may be lumpy with growth skewed toward the middle and back half of the year. SBA Loan Sales we will continue to follow our strategy of selling guaranteed portions of our SBA loans as long as market conditions remain favorable. That said, we expect this quarter's gain on sale of loans to better reflect a sustainable quarterly run rate for the year. Quarterly Net Charge Offs we anticipate an approximate range of 4 to 5 million in net charge offs for non credit enhanced loans is a good quarterly number to use in your models for the remainder of this year. Non Performing loan balances for Q2 2026 we think there is potentially as much as $10 million in watch list loans that could migrate to non performing loans in the second quarter. Net Interest Margin we remain comfortable with our prior outlook that when including credit enhanced balances, the net interest margin is expected to increase driven by growth in credit enhanced balances and efforts to lower funding costs. 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. The Efficiency Ratio we remain focused on driving sustainable positive operating leverage with a long term goal of steadily lowering our core efficiency ratio, that is Excluding the credit enhancement accounting effects. That said, there may be periods in which the efficiency ratio may increase tax rate, while multiple factors may influence the actual tax rate. We suggest using 27% in your modeling. With that, we would like to open the call for Q and A operator. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. We ask that and we'll pause for just a moment. Our our first question we'll hear from Joe Yanchunis with Raymond James.
Joe Yanchunis (Equity Analyst)
Hey guys, how are we doing? Good, Joe, how are you? I'm doing well. So I was wondering, can you help size the remaining pool of these legacy SBA credits? And you know, how should we think about the difference between proactively cleaning up, you know, this specific cohort versus there being some fundamental softening in the industry? And then also I understand that you called out the E commerce industry, but is there any specific vintages you could point to where they're concentrated?
Jim Noon
Yes, let me just walk through. Hey Joe, this is Jim Noon. Let me just walk through, I think the couple pieces there. So to just bound it, it's about $50 million in performing outstanding balances at the end of Q1 that carry these attributes. As far as, you know, what the attributes are. You know, we had a surge in SBA originations back in 22 and 23, specifically in some of the consumer focused businesses like E commerce. There's six attributes from a few cohorts there that we zeroed in on. Like I said, it's about $50 million in remaining outstanding and performing balances at the end of Q1. Really importantly, you know, these attributes are what has led to 75% of the macroeconomic conditions and a similar amount of the unguaranteed loan balances over the last three years. So. So we feel like we've identified it, we've segmented it, we're actively managing it. So I think we're in good shape with it.
Joe Yanchunis (Equity Analyst)
Okay, so shifting gears here. Just kind of want to understand or make sure I'm thinking about what's going on with the NIM here. So it benefited from the change in estimates on that excess interest allocation within the credit enhanced portfolio, but that also flowed through higher servicing and guaranteed expenses. So one, is that right? And two, what's the cleanest way to think about kind of the normalized earnings contribution from the credit enhanced portfolio after this change or has there been any change to that outlook?
Jim Noon
So Joe, I think that you are understanding it properly. The change in estimate grosses up or increases the interest income and flows through all the way through net interest income and an exact offsetting amount is recorded as an expense and so that grosses up the expense. So you understood it exactly. In regards to the performance of the credit enhanced portfolio, nothing really changes from this change in estimate. It's just when we first started the program we thought that this would be the distribution of the expense, particularly a portion that relates to origination which offsets net income, which offsets interest income. But a year later, now we have some experience with it and we're looking back at it. We changed that estimate and we've shifted those expenses entirely to guarantee expense and servicing expense.
Joe Yanchunis (Equity Analyst)
Okay, and was that changed? Was that recommended by like your accounting firm or any of the regulators or was this just done kind of internally?
Jim Noon
This was done based upon our own review, but it has been reviewed and discussed with our external accounting firm.
Joe Yanchunis (Equity Analyst)
Okay, just a couple more for me here. So with respect to your credit enhanced strategic partners, what's the general duration of these loans and have your partners changed their credit box or were there any partners that experienced outside losses that might have surprised them and then just also some color on the health of these fintechs that are supporting these loans?
Jim Noon
Yep. So there's five programs right now that are live in that program. Joe, As far as the average term, they vary as they are five different programs and products that are being managed there. But they are on the shorter end generally I would say on average it's probably like 15 months if you look at the pool in total. As far as the health of the partners that are there and the results in this quarter, you know we grew this from virtually zero to 100 million in a year and we were able to beat the high-end guidance at the end of 25. But we were, you know, I was disappointed in the Q1 balances that they didn't grow, you know, from year end. The product is still central to our long term plans and we know our business well enough that we know this stuff is lumpy sometimes the guidance is intact for the full year. We are expecting one of our partners to grow meaningfully in that program here in Q2 and Q3. We'll update you again next quarter. As far as the other partners, they did moderate during Q1. So where the growth is going to come from of those five partners over the next, call it two quarters is likely from one of our partners. The others have kind of slowed down on the growth in that product, or at least they did in Q1. I'd like to add one other point. That slowdown be because of demand for the product or appetite around kind of the current credit environment or the losses that we're seeing in the portfolio? No, it has to do with normal balances and kind of like the trajectory of that product. With those three partners, we knew about where they would start to plateau out in their balances, at least for the products that we have with them right now. So that's the answer.
Joe Yanchunis (Equity Analyst)
Okay, then, last one for me here. So if we were to look out two to three years or you could pick a duration. Where do you see credit enhanced loans as a percent of loans held for investment?
Jim Noon
There's no way for me to forecast that for you, Joe. I would just tell you that, you know, the balances were virtually zero nine months ago. We are still on the beginning of that growth curve. But, you know, it's incumbent on me to bring additional partners in and work with our business development team and our fintech team to bring those partners in to grow our balances. This is central to the strategic plan that we have. It's been approved by the board that we've talked to investors about. And you know, I feel good about the program. Like I said, you know, our guidance for the year is still intact, but we didn't have the growth that we thought we would have in Q1. We had more growth than we thought
Joe Yanchunis (Equity Analyst)
we would have for fiscal year 25. All right, well, I appreciate you taking my questions. No problem.
OPERATOR
And next we'll move to Andrew Turrell with Stevens Inc.
Andrew Turrell
Hey, good afternoon. Hey, Andrew. So just sticking on the last point. You know, if I were to take the kind of original 8 to 12amonth kind of guide, you know, you should by the end of the year be 215 million or so to 250 on credit enhanced balances. You still feel like you can achieve that by the end of the year?
Jim Noon
That is still our expectation, Andrew.
Andrew Turrell
Okay. And Bob, are you able to quantify the, I think I understand what's going on with the excess spread. We talked about it a minute ago. But are you able to quantify the dollar amount that that impacted the guarantee and servicing expense lines by this quarter?
Jim Noon
I certainly can, but I don't have that with me, Andrew.
Andrew Turrell
Okay, I can follow up I think last quarter, Bob, we talked about a 56, 57% type efficiency ratio in 2026. I know the excess spread kind of change impacted a little bit of efficiency, but even accounting for that running well north on efficiency versus those expectations. So I just wanted to hear from you updated kind of expectations around either full year efficiency or where you think you can manage efficiency at moving forward.
Jim Noon
Certainly I can do that. I think the important part to note first is that by increasing the revenue and the expense when you do the efficiency ratio, that portion of it is, you know, one-for-one. So, you know, that does make the getting the efficiency ratio down to the level that we had previously stated or previously forecast, it makes it more difficult. But I do think that, you know, the key, you know, we have been controlling our expenses I think very well over the past three or four quarters and we believe we continue to explore expenses. The key then to getting that efficiency ratio down is going to be growing our revenues, which we are focused on at this point in time. Given the expense numbers that we have right now, considering that they're inflated, it would require us to have about a $2 million increase in revenue to get that efficiency ratio down to 60%. I think that's still possible. I think that's very possible for this year and I would expect to be able to continue that going forward. When we are bringing new on, when we're bringing on new partners, we are looking at the efficiency ratio, the operating leverage ratio, and most of those partners will be coming on well below that, call it the 50% mark. And so I think that we'll continue to work on it. We'll get it down to. It's just going to take a little bit longer, but we will get it back down to the mid-50s.
Andrew Turrell
Okay, understood. Maybe for Jim, I think in your opening remarks, I think you made a comment to the tune of you were increasingly sourcing more mature lending opportunities or lending partner opportunities. Can you maybe unpack that a bit for us both on the lending side, but then more broadly, just what you're seeing, top of funnel, how the skew is changing from smaller to larger, if it is. And I know, you know, there's, it takes some time to onboard new partners, but just want to get a sense of kind of what you're, what you're working on, how you feel about the pipeline right now.
Jim Noon
Sure, yeah. So based on what we're seeing, Andrew, you know, the lending pipeline is stronger than I've seen it, you know, in my eight years at the bank, you know, we intend to keep executing to convert that pipeline into contracts and announcements. You know, we announced a new product with Albert at the end of February. We're very supportive of Enon and Malcolm and their team there. They do a great job. And just generally our business development team has their hands full right now as far as like color on the growth and pipeline there. I would say, you know, where historically we had, you know, we had invested in cards and payments and historically we continued to have success from lending partners that wanted cards and payments rather than those as standalone products. I think that that's likely to continue to be the case for another quarter or two. But we are starting to see meaningful opportunities on both of those new products. Overall, I characterize the pipeline as probably about 50% lending, 50% split between cards and payments. And I think by the end of the year we'll have some good announcements on winning couple partners here. So I should be able to give you a better update next quarter.
Andrew Turrell
Okay, great. Thank you for taking the questions.
OPERATOR
And next we'll move to Manuel Navis with Piper Sandler.
Manuel Navis
Just one follow up on that last, some of that last commentary. Where will we see card and payment wins? Is that only in the interchange line? Where else will we see that? On the fee and fees.
Jim Noon
So with the cards and payments you will see, I mean on the payments it's going to be coming through that C line on cards it's going to come through depending upon a couple of different things. One, if they are interested in the credit enhanced balance sheet and balance sheet, some of that, we'll see some of that come through and interested in income. If they are, you know, it's, if they, and in that particular case, if they're doing credit enhanced, they'll also need to supplement that with some interchange. So we'll see some revenue there. Other than that it will be processing fees. Processing fees. And I also, I also want to mention, I also want to mention one other very important thing, particularly on the payment side. That business is frequently accompanied by significant deposits. And so we would look to see significant deposit increase which will allow us to change our funding structure some. If we can get several of these new partners in here, we could significantly decrease our broker deposits and our cost of funds.
Manuel Navis
Okay, I appreciate that. Can you give any color on what was the makeup of originations this quarter and what pieces of it kind of step down towards the lower rate for the rest of the year?
Jim Noon
Yeah, no problem. Manuel, this is Jim. So the originations were really strong in the quarter at 1.7 billion that exceeded our guidance of 1.4 and it's up 38% year over year. As far as the composition, it's the seasonality of student lending that surged and that was a big portion of the quarterly uptick. The higher rate lenders were down in the quarter, which is also typical in Q1, and then the rest of our lending partners, it was kind of a mix with nothing that stood out one way or the other materially. The one thing I would point out, you're continuing to see this gradual step up and I just want to remind everyone we were at 850 million in originations three years ago in quarterly originations three years ago. So I'm really happy with the consistent increase that we've managed in getting to 1.7 billion this quarter.
Manuel Navis
What I appreciate that. Where's some of the higher headcount quarter is it compliance operations?
Jim Noon
Oh, you're talking about the increase in the headcount in the quarter. The headcount that we had in the quarter, we brought on a few additional people focused on facilitating growth, as Jim has talked about, and also to facilitate improved efficiencies through AI adoption. So when you take a look at the particular areas, we saw that Fintech business development, so that would be the marketing side increased. You also saw a little bit of an increase in technology for that is the AI as we are emphasizing that across the organization. And you also see a few headcount increase in the onboarding program. Excuse me, in operations where we have the onboarding program for the new programs we anticipate coming through here in the next couple quarters.
Manuel Navis
Thank you. I'll step back into the queue.
Joe Yotanes (Equity Analyst)
And next we'll take a follow up question from Joe Yotanes with Raymond James. So I just wanted to revisit your guide for originations. So on an annual basis you annualize the 1.4 billion, you slap a 5% growth rate on that. But then when you remove what happened in 1Q, it seems like you're kind of calling for, you know, 1.4 billion over the next few quarters, which would include the seasonal step up in student loan originations that occur in the third quarter. I mean, is that just a conservative view or is there something that might have impacted or that could impact that seasonal uptick that we see in the September quarter?
Jim Noon
You're correct, Joe. You know, the 1.4 billion is the baseline that we propose to use for modeling and it strips out the student lender, the student lending seasonality, and then you annualize that apply 5% growth and that's what we've used as far as guidance for the year. So you're correct in that it's the student lending seasonality that we are not accounting for. Okay, so assuming that seasonality does occur, you know, that annual guide is probably lower than what you're kind of expecting. Seasonality would pull from 2Q and 4Q of 26. Yeah. There's nothing specific to student lending that would. That indicates that, you know, private student lending is certainly going to be in any sort of contraction mode. I think it's the opposite. But you know what we are comfortable with giving AS guidance is 1.4 billion quarterly with a 5% growth rate as far as the annual 2026 originations.
Joe Yotanes (Equity Analyst)
Okay, thanks.
OPERATOR
You're welcome.
Juan Arias (Head of Investor Relations)
And we do have a few questions via email and I will turn the call over to Juan Arias, head of investor relations. Thanks, operator. We got a couple questions that came in. The first one, can you comment on if you see a potential impact to your business from fintech's pursuant bank charters?
Jim Noon
Yes, no problem, Juan. There's been a number of developments with fintech banking and charters the last three months. So I think it's good to address a couple of the items. First, you know, generally the industry of bank sponsorship, it's always changing. Right now there's some large diversified fintechs that are seeking bank charters during a window that appears open. That path works for a handful of large diversified players. But for the vast majority of fintechs, partnering with an experienced sponsor bank remains the faster, more capital efficient path. And that's driving a growing wave of inbound interest towards banks like ours. Charters pull a few large players out, but I would say simultaneously they also validate the model and drive dozens of others towards sponsor banks. And the investments that we made over the past several years position us really well to capture that demand. I did want to just say Upstart filed its bank charter in March and OPFI announced its agreement to purchase BNC national bank on Wednesday. There is no immediate change to our business from the regulatory applications they have filed. And we were in contact with both of them ahead of the public announcement as they work through their regulatory process. We will continue to support them. And I don't know how many fintechs in our industry will apply for charters, nor how many will receive them, but the lending pipeline at Finwise is stronger than I've seen it in my eight years here and that is what we manage to.
Juan Arias (Head of Investor Relations)
Thanks, Jim. We got another question. It's actually for you. As you look Ahead to your first 12 months in the CEO seat, what are your top three priorities?
Jim Noon
Thanks, Juan. Happy to address that. I think first, some context on the transition itself. You know, this was deliberate. It was a multi year succession plan developed by the board. I've worked alongside Kent for many years and I'm grateful to him and the board for their trust and confidence. My role as CEO is straightforward. Align our quarterly and annual execution with the strategic plan approved by our board and filed with our regulators and set the tone across the organization to deliver on it. And I want to be direct about my commitment. I moved my family across the country eight years ago because I believed in this company and wanted the opportunity to be in exactly this seat. We had $65 million in assets at the time. We now have the capital, the partners, the team, the products and the infrastructure. My focus is making sure that those pieces work together with discipline and speed to create meaningful value in terms of specific priorities. You heard much of it in our prepared remarks. First, we need to support the momentum that's already coming through. Our business development team originations were 1.7 billion in the quarter and our pipeline for both new partners and new products is strong. Second, we will continue to empower our credit and compliance teams to identify and prune risk proactively. You're seeing that right now in a segment of our SBA program, but this is not new for us. We took similar disciplined actions in our FinTech programs in 2019 and again in 2022. Active oversight and risk management is part of who we are and it will continue. And then third, being a multi product platform carries enormous value for our bank and our shareholders. We saw this with credit enhanced lending, where we built the product capability, onboarded the partners, and in 12 months grew that portfolio from zero to over 100 million. That same model, building the infrastructure, piloting it, marketing it, and then beginning to launch the right partners, is just now turning the corner in cards, payments and deposit sponsorship. So in the same way that our compliance investments positioned us during a previous cycle, these product investments are positioning us for exactly the cycle we're now entering. And finally, with more fintechs seeking sponsorship and our platform now offering lending cards, payments and deposits, I believe that we are entering a very strong period for new partnerships over the next 12 to 24 months. So to answer your question, simply the strategic direction doesn't change. What's changing is the pace of opportunity in front of us. And it's my job to make sure we capitalize on it for the long term benefit of our shareholders,
OPERATOR
And that will conclude today's question and answer session. In addition, it does conclude today's teleconference. We thank you for your participation, and you may disconnect your lines at this time.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
Login to comment