Greetings. Welcome to the FinWise BanCorp third quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. The conference will begin now.
Good afternoon, and thank you for joining us today for FinWise BanCorp's third quarter 2026 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 CEO Jim Noone, CFO Bob Wahlman, and Executive Chairman Kent Landvatter. Jim, please go ahead.
Good afternoon, everyone. Third quarter results demonstrate the tangible progress we have made in broadening our platform and building a more capital-efficient sponsor bank. We originated $2.1 billion in loans, and we nearly doubled our credit-enhanced balances to $146 million in the quarter. Even after the cost of those partner arrangements, net interest income rose 17% from the second quarter. We also recognized a one-time gain from our first acquisition transaction. Credit performance also improved during the quarter. Net charge-offs on loans without credit enhancement were $2.6 million in the quarter, well below the range of the last few quarters. Non-performing asset balances also decreased slightly quarter-over-quarter. With tangible book value up 9% over the past year, a leverage ratio of 18.1%, a strong pipeline of prospective partners, and continued share repurchases, we have the capital strength, teams, and operating environment to continue to execute.
I'll now provide some additional context on the factors that drove our core performance during the quarter. First, loan originations increased to $2.1 billion, reflecting both the typical seasonal increase in our student lending program, as well as strong organic growth from a credit-enhanced consumer lending program we launched in 2025. Volume across the remainder of the portfolio was stable quarter-over-quarter. Second, credit-enhanced balances grew to $146.2 million, driven by a meaningful pickup from a partner that we previously noted was slower to ramp during the first half of the year. For modeling purposes, please note that prior period credit-enhanced balances have been recast to reflect the reclassification of the Tallied credit card portfolio to discontinued operations. As a result, comparisons to previously reported amounts may differ.
Long-term growth in credit-enhanced balances will come from new partner additions, and expanding the pipeline for this product remains a key area of focus and an important part of our long-term plans. I want to briefly walk through how we manage partner risk in the credit-enhanced product. We rely first and foremost on the structure and strength of the underlying loans and then look to the fintech partner. Under credit enhancement, the fintech partner contractually agrees to cover credit losses on the loans and keeps a cash reserve at FinWise that we can draw on to recover against any charge-offs. Before any partner launches, they go through our full due diligence, covering compliance, risk, cyber, controls, and financial strength. They must then pass three credit tests. We first model the worst-performing vintage. We then stress historical charge-offs by 50% and 100%.
In each case, the portfolio must demonstrate an ability to replenish the required cash reserve. Finally, we review the partner's indemnity strength, including under the stress scenarios just mentioned. After launch, reserves are contractually required to be replenished weekly. We monitor the portfolio performance monthly and review updated charge-off and vintage analysis quarterly with our loan committee and board. We judge partner strength on existing capitalization, earnings, and resources, not on their ability to raise new capital. Lastly, backup servicing ensures collections continue if a partner ceases operations. Returning to the key drivers of our third quarter performance, credit trends were positive during the quarter. Net charge-offs for non-credit enhanced loans declined to $2.6 million from $5.2 million in the prior quarter, primarily reflecting the resolution of several previously classified credits and a reduced number of accounts migrating to classified status.
Non-performing loan balances decreased slightly quarter-over-quarter from $37.7 million to $37.1 million, with approximately 48% of those balances at the end of Q3 guaranteed by the federal government. As part of our effort to manage risk tolerance levels and streamline our balance sheet, the bank is actively working on a securitization for a portion of our SBA unguaranteed balances. We anticipate transferring these balances at par with a credit enhancement for securitization investors in the form of our retained interest. While we are encouraged by improved credit performance, we do not expect the unusually favorable credit results reported this quarter to be indicative of a new run rate in the near term. Bob will provide additional context around our expectations for net charge-offs and classified asset migration in his remarks. Overall, we remain very comfortable with the quality of our portfolio.
Credit performance across the portfolio remains healthy and generally in line with our expectations. Our pipeline of fintech partners remains very strong, and we believe we are entering a favorable period for new partnership growth over the next 12-24 months across lending, cards, and payments. As we have discussed previously, we expect to announce new partners towards the end of this year, and importantly, the opportunities we are pursuing today are larger, more diverse, and often have greater long-term revenue potential than those we were evaluating just a few years ago. Next, FinWise and Upstart have mutually agreed to end our sponsorship relationship effective September 30, 2026. Upstart contributed an immaterial amount of origination volume and an immaterial amount of revenue in the third quarter. We continue to have no meaningful credit exposure to Upstart loans on our balance sheet.
This termination is not expected to have any material impact on our financial condition or results of operations. Upstart has been a great partner for us since 2019. We are proud of the customers we have served with them, and we wish them the best in their future plans. On a related note, I also want to touch on the increase in fintech charter activity under the current administration, including both de novo and bank merger applications. Our strategy to diversify partners and lines of business is designed to withstand the occasional transition of a fintech partner to that of an insured bank. As many of you know, charter and merger applications are inherently uncertain in both outcome and timing. While a small number of larger fintechs are pursuing charters, the embedded finance market remains heavily dependent on sponsor bank partnerships.
Against that backdrop, we believe our diversified business model, broad product capabilities, regulatory and compliance infrastructure, and strong pipeline position us well to manage through any potential changes over time. We value all of our partnerships and remain focused on continuing to diversify revenue streams across lending, cards, and payments. In closing, this quarter's results reinforce our conviction in the company's long-term trajectory and the significant opportunity that exists. The progress we are making across lending, cards, and payments, coupled with a growing pipeline of increasingly meaningful partners, supports our confidence in the future. We remain focused on disciplined execution, continued improvement in credit quality, and building long-term shareholder value. I will now turn the call over to our CFO, Bob Wahlman, to provide more detail on our financial results.
Thanks, Jim, and good afternoon, everyone. Before reviewing our results, I would like to briefly address the impact of the Tallied transaction completed during the quarter. As part of the transaction, we acquired credit card technology, program management capabilities, and an experienced team that will expand our ability to support card programs for fintech partners. At the same time, we determined that holding credit card receivables was not aligned with our long-term strategy and approved a plan to exit the business while retaining the technology platform and servicing capabilities. As a result, the credit card portfolio and other related assets and liabilities are being reported as discontinued operations while the retained portfolio and the team remain part of continuing operations. This approach allows us to leverage the acquired capabilities through a more capital-efficient model consistent with our broader fintech banking strategy.
Given the impact of the Tallied transaction, discontinued operations presentation, and purchase accounting adjustments, reported results for the quarter are in some respects not directly comparable to prior periods. Accordingly, I will focus today's discussion on the underlying performance of the business and the key trends we are seeing across the platform. For the third quarter, FinWise reported net income of $10 million or $0.73 per diluted share. Continuing operations generated net income of $10.4 million or $0.76 per diluted share while discontinued operations reported a loss of $0.4 million or $0.03 per diluted share. Importantly, continuing operations results in the third quarter included a $6.5 million bargain purchase gain recognized in connection with the Tallied transaction, which was recorded in non-interest income. Net interest income was $41.9 million for the third quarter, reflecting continued growth in the credit-enhanced loan portfolio and improved credit performance.
Lower migration of performing loans to non-performing loans reduced interest reversals on non-accrual loans and contributed to a higher average yield on loans held for investment. Receipt of interest on a tax refund also increased net interest income. Net interest margin was 19.58% for the third quarter. The margin reflected continued growth in the higher yielding credit-enhanced loan portfolio and improved credit performance. Lower migration of performing loans to non-accrual status reduced interest reversals on non-accrual loans and supported higher yields on loans held for investment. These benefits were partially offset by higher interest expense associated with growth in average time certificates of deposit. Non-interest income was $60.8 million in the third quarter. The results reflect higher credit enhancement income associated with growth in the credit-enhanced portfolio.
The $6.5 million bargain purchase gain previously discussed in connection with the Tallied transaction, and increased Strategic Program fees driven by higher program volume and Strategic Program loans held for investment. These benefits were partially offset by a decline in the fair value of the company's investment in BFG. Non-interest expense was $42.7 million in the third quarter. Results reflected higher credit enhancement guarantee and servicing expenses associated with growth in the credit-enhanced loan portfolio. Excluding credit enhancement related expenses, non-interest expense increased $2.8 million, primarily driven by higher salaries and employee benefits, including employees added to the Tallied transaction, as well as other higher operating expenses. The efficiency ratio was 41.6% for the third quarter. The ratio benefited partly from strong revenue growth, particularly from interest income generated by our expanding credit-enhanced loan portfolio.
While the ratio was influenced by the Tallied transaction and related accounting impacts, we continue to believe there is meaningful opportunity for improvement in core efficiency over time as revenues from our growing credit-enhanced loan portfolio outpace expense growth. Total assets were $958.3 million as of September 30, 2026. Asset growth during the quarter was driven primarily by continued expansion of the credit-enhanced loan portfolio and the related credit enhancement asset. Of note, the credit-enhanced balances increased to $146.2 million as of September 30. This is a 97% one quarter increase from credit-enhanced balance as of June 30 of $74.2 million, adjusted for the movement of credit card receivables to discontinued operations. These increases were partially offset by reductions in Strategic Program loans held for sale and other loans held for investment, reflecting the company's ongoing balance sheet optimization efforts.
Total deposits were $707.6 million as of September 30, 2026. Deposit growth during the quarter was driven by an increase in time certificates of deposit and non-interest bearing demand deposits, partially offset by a decrease in interest bearing demand deposits. We continue to maintain a strong capital position with a bank leverage ratio of 18.1%, well above the 8% threshold required to be considered well-capitalized. Finally, we continue to execute our share repurchase program during the quarter while maintaining a strong capital position. We believe repurchasing shares below tangible book value remains a compelling use of capital. During the three months ended September 30, 2026, we repurchased 159,099 shares for $2.2 million. Since the board authorized the program in May 2026, we have repurchased 188,835 shares for $2.6 million, representing approximately 28% of the 685,000 shares authorized under the program.
Additionally, the board has approved a Rule 10b5-1 share repurchase plan that will become effective at the start of our self-imposed blackout period in mid-December. Let me provide forward outlook on some key metrics. Loan originations for 4Q 2026 and full year 2027. While origination volumes may fluctuate from quarter- to- quarter, loan originations for the fourth quarter are currently tracking in the range of approximately $1.5 billion-$1.6 billion based on activity through the first four weeks of October. We view $1.5 billion-$1.6 billion of quarterly originations as a reasonable run rate for 2027, with approximately 5% growth above that level as the year progresses. We also suggest that you consider Q3 seasonality in any forecast. This 2027 outlook excludes any contribution from new partners. 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. For modeling purposes, the average gain on sale over the past two quarters is a reasonable proxy for fourth quarter gain on sale income. In 2027, we anticipate that the level of sales will decline, reflecting the lower level of origination volume. Quarterly net charge-offs. Based on current portfolio balances, we continue to view net charge-offs for non-credit enhanced loans of around $4 million as a reasonable assumption for the fourth quarter and a more normalized level over time. Non-performing loan balances for 4Q 2026. We anticipate a migration to non-performing loans in the range of approximately $5 million-$7 million in the fourth quarter. Net interest margin. We are maintaining our prior outlook.
Including the impact of credit-enhanced balances, we expect net interest margin to increase over time as the credit-enhanced portfolio continues to grow and the funding costs increase at a slower rate. Excluding excess credit-enhanced income, we continue to expect a gradual decline in the margin, consistent with our ongoing risk reduction strategy. Efficiency ratio. We continue to see opportunities to enhance operating leverage as the business scales. While the path may not be linear from quarter- to- quarter, our long-term focus remains on improving our core efficiency ratio, excluding credit enhancement accounting effects. Tax rate. While multiple factors may influence the actual tax rate, we suggest using 26% in your modeling for 4Q 2026 and full year 2027. With that, we would like to open the call for Q&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. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For any participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Your first question comes from Andrew Terrell with Stephens. Please proceed with your question.
Hey, good afternoon.
Hey, Andrew.
I wanted to start on the originations were really strong this quarter. I think you guys had guided for, I think it was like $1.6 billion. Obviously, well north of that. I was curious just kind of what—it is obviously a positive, but curious what drove such a large delta this quarter. Anything outsized or any kind of trends that have improved you could speak to?
Sure. Let me speak to that, Andrew. I guess there are two components that I see there. The first component is the student lending program activity, which was more robust than what we have experienced in the past. Very strong. The second was the program that we had been looking to ramp up for a long time, and really coming through and ramping up during the third quarter. I think those were the primary two drivers for the increased origination volume over what we had suggested previously.
Okay. Great. If I could ask around, we have obviously been talking a lot about credit throughout this year within the SBA business, and the credit performance this quarter, very solid. Jim, I think in some of your remarks, you talked about maybe working on a securitization the SBA business, but then some of the credit kind of forward commentary. It sounds like charge-offs step back up from here and maybe some NPL migration as well. Can you help us just piece those two items together? I would love a little more color on the SBA securitization and expected moves there.
Yeah. I would look at the SBA securitization as an event, Andrew, right? It is something that we are working towards. We have certainly been working towards for a while. We anticipate transferring those balances at par, but with the credit enhancement. The kind of the forward guidance is independent of a securitization transaction. If that transaction is successful, we would certainly announce it and look to provide some updated commentary at that point. I think we were very happy with the continued improvement in credit quality, particularly the decrease in NCOs and NPAs this quarter. Most of the difference quarter- over- quarter in NCOs came from that core portfolio, which includes SBA. The NCOs there were roughly $400,000 for the core portfolio versus $2.9 million last quarter. It is a marked improvement and it is encouraging.
I would call it unusually favorable this quarter and not indicative of a new run rate. It is just confirmation of the direction generally, is how I would describe it. Just to be clear, we are moving the figure on NCO guidance to $4 million from the $4 million-$5 million range we provided last quarter because we are seeing improvement in that legacy portfolio. We knew it would be lumpy, and we still expect core portfolio NCOs that are higher than what we had this quarter.
Got it. Okay. Just to make totally sure, the guidance for the charge-offs is independent of it would get better if you work through anything securitization-wise in the SBA book?
That is accurate.
Okay, great. Lastly, I just want to ask on the core expenses, if you back out the credit-enhanced piece up pretty decently this quarter. I think I have it going from $15.6 million last quarter to $18.4 million this quarter. I know there was some added cost from Tallied, but it feels like a surprising step up. Curious if there are any other drivers that caused the move up in expenses this quarter, and is this the right level to build off of for operating expenses going forward?
That is my question, Andrew. As you know, we do not guide to expense numbers. Third quarter includes the Tallied team and other costs to run the program. It also includes some true-up personnel costs. Our focus is revenue growth outpacing expense growth to improve our core efficiency ratio. That path may not be linear, be lumpy. We have said we will increase our spend as necessary to support our growth in partners and partner growth. I am not aware of anything right now that would change my view. Of course, it includes the Tallied expenses. Some of the Tallied expenses are included in discontinued operations. To the extent that it relates to the platform, those continue to be included in our numbers. I do not think I see anything else there of note.
Okay. Thanks for taking the questions.
Thank you. Your next question comes from Manuel Navas with Piper Sandler. Please proceed with your question.
Good afternoon, guys. Can you talk to the pipeline a bit more? I appreciate that the revenue increase this quarter was from someone that you guys had almost paused, and then they ramped up again. Then you have a number of partners coming online this year and early next year, and the pipeline seems to be added one. Just kind of talk through it a little bit and what our expectations and how quickly things ramp. I know there's usually not all the revenues hit it right away, but just give us an update on pipeline expectations.
Yeah, no problem, Manuel. I had mentioned last quarter the pipeline was stronger than I had seen it in eight years at the bank, and I would just say it's continuing to compound. The pipeline slide in our deck gives you some details there, but we did disclose another signed contract during Q3. It's a payments partner, which is an important milestone for us. So we're highlighting both a new prepaid partner last quarter, a new payments partner contract this quarter, both of which are signed. We haven't been able to release any formal announcements on either of them yet. But generally, we're really happy with the results of the sales efforts and the contracts that are coming through.
Then with this, that is what is to come. Anything else to discuss about what happened with Upstart? Is there anyone else that you would consider tenuous at the moment?
With Upstart, I think first off, it was mutually agreed to end the relationship effective September 30. As we noted in the prepared remarks, Upstart contributed an immaterial amount of originations and an immaterial amount of revenue in the third quarter. The termination is not expected to have any material impact on financial condition or results of operations, and we continue to have no meaningful credit exposure there. Upstart has been a great partner for us since 2019. We are proud of the customers that we have served. We wish them the best. We are also very happy to have delivered $2.1 billion in originations with no material contribution from Upstart.
Do you sense any other partners that are on the way out?
Hi. Yeah, I will take that one, Manuel. This is Kent. We do have a couple that have made their intentions clear that they are thinking of pursuing a charter. One is actually pursuing a bank. We just wanted to note that both those agreements run into late 2028 and early 2029, which gives us time to replace partners. Even with the charter, a sponsor bank relationship keeps its value for certain products and capabilities. Generally speaking, though, a charter makes sense for certain well-established fintechs where the advantages outweigh the significant lift of becoming a bank. Most of our partners still sit in the middle of the bell curve, and our target market is really focused on fintechs that would be less interested in becoming a bank.
Importantly, we've always operated on the premise that we'll exit partners for one reason or another from time to time. That's why we've built a scalable platform. We added payments and cards, and we've built out a great sales team.
I appreciate that. Shifting over to the balance sheet, the credit-enhanced loan increase is welcome. I have to track that you removed some of the credit card piece from Tallied. Based on what's in there now, is there anything you can tell us about growth potential for those balances and for the overall loan portfolio?
Yeah. I can start first with the credit-enhanced piece, Manuel. It's been a successful product for us. We're happy to have delivered meaningful growth this quarter. It's a good example, I think, that the direction of travel with all of our products at the bank is very positive. Quarter- to- quarter, it can be challenging to forecast when exactly a growth engine kicks in or when it turns up into a higher gear. We grew this from virtually zero to $100 million in a couple of quarters. Growth then slowed, and now it kicks back up. Looking forward, I would say most of the long-term growth will have to come from new partners there that we launch. The organic growth in Q4 is likely to be another $20 million or 15% on top of the balances that we just reported by the end of the year.
Then, for modeling purposes, I would probably use a 5% growth rate on that balance next year until new partners can be launched. Like I said, it's been a successful product for us, and we're confident we'll continue to deliver for shareholders with it.
At the moment, no existing partners are adding to that credit-enhanced, but you do have some pipeline partners that should be adding to that credit-enhanced over the next two quarters. Is that right?
I would say that the organic growth between, let's say, the end of Q4, and then the 5% growth rate that I just mentioned for 2027 balances, that is all organic. As far as new partners in the pipeline, there's tons of new partners across payments, cards, credit-enhanced balance sheet, some of which are disclosed. I think it's on slide 12 of our investor deck. But ultimately, to move beyond that $20 million pickup in Q4 and then a 5% growth rate on those balances in 2027, to get beyond that, we need new partners to launch with that product.
Okay. All right. I'll step back into the queue, but I might be back.
Your next question comes from Joe Yanchunis with Raymond James. Please proceed with your question.
Hey, guys. Thanks for taking my questions.
Hey, Joe.
I apologize if some of this was already discussed. I hopped on a little late, so just tell me to read the transcript if it has. Did you guys discuss the new originations, the massive leap this quarter, and what that would impact, or what you're kind of expecting in 4Q? Given that strength in the student lending and the rapid growth in credit-enhanced relationships, just updated expectations for what you expect in 2027.
So yeah, we had talked about that a little bit at the beginning, Joe. We would anticipate that during the third quarter, we had two significant events. One of which was the high level of originations from the new partner that we had been monitoring and we had set things up and had been waiting for some time for everything to work and for them to really launch their program, which was big. The second item that drove the origination volume was the size of the credit card activity. Not credit card activity, my apologies. It's the size of the student lending activities, which the origination volume was, again, significantly greater than what we anticipated.
Okay. Looking at the updated pipeline slide, you have four signed agreements under five signed term sheets with most of those programs looking to expect to launch over the next three quarters. Can you help us understand how meaningful those relationships could be financially once fully ramped? Whether the majority of the revenue should come towards the end of 2027, or is that more of a 2028 event?
On the last piece of your question, it really depends on when they launch here, Joe. If they are launching and the piloting stage gets off quickly, then it is going to be more of an end of 2027. But somewhere between the end of 2027 and into 2028 is when that pipeline would start to monetize or be revenue-producing for the bank. As far as just helping you gauge size, we did speak to the fact that the partners that are in pipeline that are either under contract or under term sheet, they are generally larger, meaning more mature and also meaning greater long-term revenue potential for us. We are not going to, and we have not put a kind of a revenue figure on the pipeline, just like we do not bake new partners into our origination guidance until we have more of a track record with them.
But we are trying to give you as much disclosure and insight as we can into how productive and successful that pipeline is becoming. All of it really stems back to the investments that we made to broaden the products that we offer across cards and payments. You saw us announce our first prepaid partner last quarter, our first payments contract this last quarter. So I think overall, we are really pleased with the efforts of the sales team.
Okay, that is helpful. Looking at the expense side, I noticed that the headcount across IT, compliance and risk management, BSA/AML, it declined sequentially while the total headcount increased just a little bit. At the same time, the NIE excludes credit enhance increases. Can you help us understand how much of that increase reflects temporary Tallied integration costs versus permanent investment in personnel infrastructure? What would be a reasonable quarterly expense run rate that we could use as a jumping-off point to 2027?
Okay. I'll speak to that. We don't guide to expenses. Third quarter numbers include the Tallied team and other costs to improve the program. Some of those costs are embedded in the discontinued operations. Other of those costs related to the platform are included in operating expenses. Our focus is on generating growth that outpaces expenses and will improve our core efficiency, although that path may not be linear. We have talked about increasing our spend as necessary to support our growth in partners and new partners and partner revenue growth. At this time, I'm not aware of anything that would change my view in regards to the expenses. I do look for some of those expenses to be moderated related to Tallied that is included in the continuing operations.
Okay, then last one from me here, kind of doing a pivot on the current partners. I guess aside from Upstart, are you aware of any of your other partners that are pursuing a bank charter?
Yeah. We have two partners that have indicated that they would be pursuing a bank charter. The agreements on those run into late 2028 and early 2029, which gives us time to replace them. But one of the most important things here is we've built a platform and a sales team out that really is designed to increase the number of partners. We've always assumed partners would leave for one reason or another, and this just ensures that that pipeline is maintained as fresh and that we're getting new partners in. When we look for new partners, we're looking very carefully at those who might be less interested at pursuing a fintech charter. Does that help?
No, that was very helpful. Has the way you write these contracts changed for protections? I know you just mentioned that some of these ones run through 2028, 2029. Have the way you write these contracts changed to protect the bank from this type of activity? Or has that always been in place?
There is no specific language in there that protects the bank from that. They could stop originating with the bank if they chose to. But we have had very good open conversations with both these partners and there are products that they are interested in offering with us through us, even if they do get the charter.
But is there any exclusivity where you would have that type of product should they receive that bank charter?
No.
No? Okay.
No. Exclusivity, just to give you a little background, is a difficult one here because partners always try and avoid a single point of failure if the bank gets in trouble that is supporting them. We actually encourage partners at certain levels to find other partners. So we are co-partners with other banks on a fintech or two. So it is very standard practice to not have those exclusivity clauses in your contracts.
That's interesting and very helpful. Well, thank you for taking my questions.
Yeah.
Your next question comes from Manuel Navas with Piper Sandler. Please proceed with your question.
Just to kind of dig in here. I can look at this quarter as fully including Tallied expenses, but the Tallied expenses might shift around a bit, it sounds like. It sounds like they might decline. Is that the right way to think about the run rate with Tallied?
Yeah. This was a purchase of assets and assumption liabilities transaction of a business accounted for as an acquisition of a business. Anytime you do an acquisition, you're going to have some heavy costs up front, whether they be legal to execute on the transaction and then just the ongoing run rate for that business. But as you bring that business on and integrate those activities into our core business, those expenses we should see decline some.
Do you have a sense for that amount? And if there's any other cost savings you expect to have on top of that?
We don't provide guidance as to expenses, and I don't have a number that I could share with you anyway.
Okay. Separately, the bargain purchase gain is great. You bought back 1% of shares. You still trade well below tangible book value. You're doing that trading plan. Do you speak to the buyback pace going forward? What does that
Sure
kind of contemplate?
The buyback plan is our policy provides that we maintain a consolidated bank leverage ratio at least 5% above the well-capitalized level, so 13% with an early warning trip wire at 14%. The guidance from our board is to buy back as much as is available and complies with the rules on share buyback, as long as the buyback price is below book value. As you know, we're not a heavily traded stock, and when we apply the 25% rule, it limits the amount that we can repurchase. But we've done as much as we can in every day in the market that we've been able to access the market.
One thing that Jim referenced in his comments is that we will, we have, the board has approved us implementing a 10b5-1 election, whereby we can continue to buy back shares during the blackout period, which is something that we did not have in place as we went into the third quarter quiet period of the second half of September and then the entire month of October. That will also be different. We're buying back as much as we can within those parameters.
In essence, this last quarter, you were able to buy back 159,000 shares, but you'll be able to do it on more days in the fourth quarter, potentially.
Yes. We should be able to do that with more days because we'll have the 10b5-1.
Yes.
Program in place.
Okay.
We should be able to buy all the way through the end of the year and through January.
Is your concentration levels, you have the slide where you talk about your top three fintech programs were 50% of originations. Do you have a sense for how much your top three produce across all your revenues, your top three customers?
Yes.
Just trying to think about concentration.
Yeah, we do, Manuel. We do not disclose it. What we did try to do when we did that slide is to give you a metric that you can kind of gauge. We certainly do internally. It is not something we have disclosed publicly, but I think generally with a lot of the other things that we talked about today, you can see the direction of travel, right? You can see that origination volume becoming more diffused amongst partners. You can see less reliance on heavy originators. I think especially with the disclosure on Upstart and the bank leaving that agreement, I think to post $2.1 billion in originations with no material contribution from Upstart is also indicative of just the diversification that we built into the business over the years and you will continue to see built out in the business.
When you look at that sales pipeline and you see those payment partners on there, that is not a product that we had two years ago. I would just point to the direction of travel generally.
Okay. One other, last one I think, but it might be thorny. The main place where core revenues grew most was net interest income, ex credit enhancement. So very core net interest income. That allowed for an increase in adjusted NIM.
Yep.
That moved in a different direction than you have kind of been expecting it to go. Can you kind of describe why? I know from here you kind of expect that particular metric of NIM to come down. The reported NIM will keep rising. Can you talk about those forces? Why did it not go in the direction you expected? Why is it going to shift direction going forward?
If the net interest margin on a particular client that we have in the credit-enhanced program exceeds that average interest rate that we had on, call it the non-credit enhanced portfolio, and I'm talking again after excluding the credit-enhanced accounting anomalies, that's going to pull that rate up. I think that you can't look at one quarter and say, okay, things have changed dramatically. I would also note there is the reference in the earnings release that there was a tax interest income number for a large refund that we had been waiting for roughly three years. That goes into the net interest margin too and helped to drive that up. You can't look at just one quarter and say that's not what we're expecting.
It's going to be up and down, and we did have that anomaly in the third quarter with this tax interest income.
That's helpful. All right. I will look for that refund. I'm good for now. I appreciate this. Thank you for the commentary.
No problem. Thank you.
Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. This now concludes our question and answer session. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a wonderful day.