Newtek Business Services Corp. Stock

Good day and thank you for standing by. Welcome to the NewtekOne Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Barry Sloane, President and CEO of NewtekOne. Please go ahead.

Thank you very much, everyone, and welcome to our second quarter 2026 financial results conference call. We appreciate everybody attending, and thank you for tuning in today. I wanted to also let everybody know that presenting, in addition to myself, will be Frank DeMaria, EVP, CFO of NewtekOne, the publicly traded holding company, stock symbol NEWT, and Newtek Bank, National Association.

We appreciate everyone patching into our call and we always sort of start off with why should you care about NewtekOne? The company was established in 1998. I'm the original founder of the company established out of a spare bedroom in a New York City apartment. So take a look at the business model that we have today and look at metrics such as return on average assets, return on tangible common equity, the dividend yield, the book value growth over time, all things that we'll talk about extensively today. It's a very interesting, what I would call a value and a growth story.

However, three and a half years into our inception, we're still evolving and we're appreciative of things that are changing in the marketplace today and we're adopting to all different changing conditions. Obviously, if you take a look at our presentation today and recent presentations, more things are being done out of the bank than in the bank holding company. We recently acquired or merged the payroll solutions business into the bank. We are doing our commercial and industrial long-am loans out of the bank.

And one thing that's important to notice, you'll see that our income, our net interest income at the bank is growing, particularly on comparisons. We'll talk about that in the call. So I think going forward as we transform, you'll see a little bit less gain-on-sale, more net interest income, more use of the balance sheet and the portfolio. I think as we've grown in this particular space, obviously we traded at market multiples to earnings of 5.5x to 6x where the banking industry is trading at 9x or 11x.

So from our perspective, our goal is to do good credits, do what's best for shareholders. Most importantly, really do a great job for our customers. Let's go to Slide #3. Newtek's mission statement hasn't changed from 1998: To provide business and financial solutions to this sort of underserved demographic, independent business owners in the United States. Most importantly, we provide real good products and solutions for our customers for the purpose of making them more successful.

Many times I am asked, "Barry, is there a comp? Is there a company like yours?" And I have to say, not really. Sometimes historically that works against you, but from our perspective, we believe we've got the right business model, the right way to handle our customers, work with all of our employees, associates in-house to provide the solution to the client and really provide a valuable service to the independent business owner community.

Which on Slide #4, we can see that utilizing technology, which we've done over two decades, is extremely important. Instead of traditional bankers, branches, we use technology to exchange data, analyze the data, put the data in a better decision-making mode. We've recently started to use AI when we're analyzing data coming to us from the customer. It reduces friction, increases speed. All these things are extremely valuable.

So we look at what we do, which is a technology-oriented company, and there to serve the independent business community across the United States. We believe we have taken on some of the tasks in a bank holding company, owning a nationally chartered bank, that we think most of the market and the industry is interested in adopting, too, in a very big way, but is slow to adopt.

Number one, the high-cost infrastructure with branches and traditional bankers. For those of you that haven't used our solutions, you get an executive on camera 24/7, and you also get great software to exchange data that has minimal amounts of friction and, important for us, accuracy. [ Two ], and by the way, the existing bank model is extremely costly. We think going forward the giants of the industry, the top four players, are pouring huge dollars into the space to do what we believe we have done within our confines already.

Second, inefficient lending margins from loans that bear very little risk and frankly just really tight on the margins. Deposit products that we're able to offer our business clients with historically we're competing against zero interest paid and excessive fees for the business client. I think it's important. Our goal is to manage risk, not avoid it, put a fair product and price onto our customers, beat the competition like merchant cash advance or daily debit type loans, and basically provide our banking solution in a safe and sound manner.

Slide #5. These are things that you've heard previously. It pretty much labels all the things that we do. Slide #6, we talk about the importance of our target market, that SMB, SME, independent business owner. There's 36 million of them in the United States. According to the Chamber of Commerce, it's 43% of U.S. GDP. And importantly, over the last six and a half years, according to the SBA statistics, have supported or created 280,000 jobs, the second highest amongst all SBA lenders in the 7(a) program.

The independent business owner is a huge economic demographic, and even the top four large institutions struggle with acquiring the client, solutioning the client, and therefore what we have built, our technology, our infrastructure, and we'll take you through some of those things today, we think is extremely valuable. We don't believe it's fully reflected in our current stock price, which is mostly driven by the typical analytics of taking the call report, pushing it through a model, and coming out with numbers.

By the way, I will comment, you know, the concept of loan loss provision and things of that nature. At the end of the day, it's a business expense. That's what it is. Now, you don't want it growing or going out of control. Mind you, it's an organization that's been in this space for over 23 years, lending to SMBs, 17 securitizations, never credit watched, never downgraded. So we're proud of what we've been able to accomplish.

Slide #7 talks about the quarterly highlights. Obviously, we came in within the range between basic and diluted, $0.48 and $0.47, respectively. Importantly, book value, we have a slide to address that, continues to grow very nicely. And that's really important. That's value to our shareholders. We continue to capture the operating leverage and growing a business with asset growth of 50% and expenses just up 3.6%. At the holding company, our ROA is 2%, compared very favorably to the industry.

We recently switched to putting our C&I lending business down in the bank versus doing it up at the holding company. We believe this will pay great dividends going forward. We'll continue to securitize the C&I loans out of the bank.

We've had tremendous success in our digital account opening with deposit gathering focusing on business and consumer-type deposits. So in 14 quarters since our inception, we've grown from $142 million to $2.2 billion. Non-affiliate deposits increased in the quarter by $15 million. And obviously, the core consumer deposits, which are very sticky, not very transactional, with basically close to zero acquisition costs, climbed by $297 million in the quarter. And we're very proud of how we've been able to get deposits digitally. It's part of our technological advantage.

Slide #8, we focus on tangible book value per share growth. You can see all the math, and you can see that when you add the dividends in, it's been a nice run since we've gotten into this financial holding company owning a nationally chartered bank structure. You can see that the tangible book value has grown 75.3% in 12 quarters since converting to a technology-enabled financial holding company. Extremely important. We're very proud of growing tangible book. Obviously that's the value portion of it.

Slide #9 shows the profitability of NewtekOne with all these different data points.

Slide #10 really drills down on the deposit growth. We talked about the non-affiliate deposits, we talked about the total deposit changes, deposit accounts, 1,471 accounts, quarter-over-quarter, core consumer, 2,600 accounts. I believe combined you're looking at about 40,000 depository accounts. Important to note, 81% of our depository accounts are insured under the $250,000 balance. Loan-to-deposit ratio about 90%.

You know, when we think about deposits, we're extremely pleased with how we acquire them, extremely efficient, and we give a great value to consumers and businesses that do business with us. And that's very important for branding and brand loyalty.

Slide #11 talks about the three active C&I long amortization loan securitizations. There's a lot to talk about this. We spent a lot of time in prior calls, which are all archived on our website. I think the important aspect of the C&I LA securitization business is what we refer to as the over-collateralization, that's more loans versus the bonds, and we hyper-amortize the bonds and drive the cash flow to pay the bonds down. So the current over-collateralization, for example, on the 2026-1 deal, which is just done, started off at $47 million, it's grown by $11 million.

2025-1, a little bit more seasoned, started off at $31.6 million. Current OC is $45 million. So you can see it's really nice growth there, about $13 million to $14 million. The 2024 deal, also $14 million increase on the OC. You can see that the notes have paid down across all three issues. And obviously the collateral is paying down too at the same time.

Let's go to Slide 12. This is Newtek Bank financial highlights. You can see by putting more of our activity down in the bank, we believe will provide much greater efficiencies, much greater value. When you think of things like payments or insurance, those are both eligible. We want to do this slowly, we want to do it methodically, we want to do it correctly. When you look at our ROAA, our ROTCE, these are numbers in the final column on Slide #12 that are just extremely attractive.

I will point out the net interest income, Q2 2025, $16.2 million, Q2 2026, $25 million. That's the reoccurring income that most people that invest in institutions like ourselves really want to be very involved with. I also like to point out the cost of deposits over this window has been pretty flattish, which we're really appreciative about as you go from Q2 2025 to Q2 2026, actually declined from Q1 2026 to Q2 2026. Also a very nice NIM. That NIM is helped by putting more SBA 7(a) loans on our books and holding them prior to a potential sale, but we're going to hold more of these on our books. And in addition to that, the C&I LA business provides some nice NIM to the bank, while we're accumulating for securitization.

We take a look at our capital ratios. They're all in line with what we consider a more than adequately capitalized bank. Obviously, we always focus on our cushion with respect to our ACL in particular, and we're pleased our ACL ratio to unguaranteed loans 5.31%. When you exclude the government guarantees that are on our books that are in an non-accrual category, it's 4.14%. So it's a ratio we keep close attention to, to make sure that we've got the right amount of reserves because, as I said, we manage credit risk, we don't avoid it.

These things are marked-to-market on a quarterly basis with our CECL calculation. So we're very pleased with how our performance has been over the course of three and a half years. Many of you will see that we increased that provision on a quarterly basis and net charge-offs went down. So once again, we are pleased with how we're handling and managing risks. Slide #13, a little repetitive here with some charts and graphs. Particularly I just discussed the provision for credit losses versus net charge-offs at the bottom right category. I will point out that although you see 30 days past due increasing somewhat, we believe that this is a brand new bank with a brand new portfolio. So when you're starting from zero, it's almost impossible as you're climbing that default curve, with most loans defaulting in the 30 to 36 months, we've only been around for three and a half years, that is going to grow and it's going to begin to flatten.

So, once again, having the right reserves with the right underwriting and the right mix of assets is extremely important. Needless to say, most of that comes in from the SBA 7(a) business, but by adding the higher quality C&I LA, the CRE book, the C&I short-am book to the portfolio, I believe that our uninsured 7(a) balances are about 42%, down from close to 50%, and we want to continue to diversify our book of business.

Slide #14 gives a nice quarterly profitability snapshot at the bank. You can see these numbers that don't look, frankly, they're really high. I'm sorry to say. I know that sounds funny, but people look at it and go, "How can you do that?" Invest in assets that provide an attractive return, net of the anticipated and expected losses, and continue to manage that risk quarter-to-quarter, you'll do just fine. With that said, I would now like to pass the presentation off to Frank DeMaria, EVP and CFO of NewtekOne and Newtek Bank, N.A.

Thanks, Barry. Barry's covered most of the highlights for the quarter, but I wanted to touch on a couple of noteworthy items that are outlined on the next couple of slides. The pre-provision net revenue continues to grow in absolute dollar terms with balance sheet growth. As a percentage of average assets, the PPNR was down year-over-year from 5.25% for the second quarter of 2025 to 4.22% for this quarter, but still remains well ahead of the industry average, which is below 2%.

Moving to the next slide, we provide some details on the bank's loans held for investment at cost, which is the loan portfolio against where CECL is applied. Consistent with past quarters, as Barry mentioned, the bulk of our CECL reserves are about 89% of our allowance for credit losses is directed at the unguaranteed SBA 7(a) loans. The ACL coverage ratio on that portfolio was about 8.56% of that portion of the loan portfolio, which is elevated to appropriately reflect the higher loss characteristics of those 7(a) loans. With that, I'll turn it back to Barry for some closing remarks before we take questions.

Thank you, Frank. Slide #18, I think this is an important slide. It's the technology. When you look at how we do our business, how we acquire clients, 600 to 800 unique business referrals a day. How we open up accounts for a digital account opening. How we process loans through our Secure File Vault in an automated and frictionless manner. How we have rolled out our real-time payments offering so businesses can move money quicker, faster, cheaper with real-time information through the Newtek Advantage in an automatic manner to do so.

NewTracker referral system, which is how we track referrals, manage the opportunity as it goes through, whether it's payroll, whether it's insurance, whether it's loans, whether it's deposits, everything is in NewTracker. At Newtek, if we say it's not in NewTracker, it doesn't exist.

And the very important Newtek Advantage, which is the business portal for the customer that really helps the client with so many different things, to be able to make payroll from their banking interface, to be able to look at their credit card batches, refunds, chargebacks from their banking interface, to be able to look at their line of credit, to be able to see that they're not being charged for an ACH or a wire. It really is a tool that gives the customer an advantage and helps them manage their business.

What makes NewtekOne unique and special is the fact that it has innovated and put technology in a banking environment for the benefit of this huge tremendous demographic that we have almost an exclusive focus on, the SMB, the SME, in all 50 states in the United States, and are able to do so in an efficient way where 98% of the banks, that's just a guess on my part, are still operating with branches, with traditional bankers, high-cost manner, not paying businesses a fair rate for their deposits, charging them excessive amounts of fees for moving money, not allowing them to move it in a real-time basis, not giving them the analytics and information and tools that can track their business, analyze their business.

So when it comes to our organization, and I will tell you, technologically, I'm getting a lot of organizations coming to me looking at what we're doing that we believe isn't necessarily reflected in the markets that are looking at what we do, how we do it, and seeing basically taking this and putting this involved in their infrastructure would be immeasurably valuable.

We greatly appreciate the time you spend here today. As you can see, many of you have labored through much longer presentations. There is a very exciting appendix that's hung on our website that has a lot more data on things that we've covered. Many of you are familiar with that, and obviously you'll be following shortly.

With that, operator, we'd like to open it up for questions.

[Operator Instructions] Our first question today is from Tim Switzer with KBW.

I was wondering if you could maybe provide a little bit more color on the strategy about holding more guaranteed portions of the SBA loans on your balance sheet than you have in the past. And it seems like this might have a near-term impact on guidance. I know previously you guys were guiding like $0.79, $0.89 for Q4. Could you maybe talk about the impact that will have near term and then the longer term impact of that?

Yes, so I think that organizations that do not have our ROAA, ROTCE, and business model that is, I wouldn't say focused, but drives a lot of gain-on-sale income, but basically have net interest income and net margins that they view as more long-term and more stable, has entered into our thinking that we're going to continue to do both. We're going to continue to grow that net interest income line. And yes, I would say on a top line category, it probably will affect the net next couple of quarters coming up. However, it could provide a more stable stream of income and we also hope to obtain the P/E valuations that other industry participants do that don't have our technology, don't have our innovation, and don't have the capability to service the customer.

I mean, there's almost a five-point spread between where we are and others are that have that different type of income. So we're going to put our toe in the water and start to drive toward that. And yes, it could potentially affect that top-line headline EPS, which we're appreciative of and proud of, but frankly it's left us with a low earnings multiple.

Okay, all right. So right now the near-term impact is the lower gain-on-sale revenue, not fully offset by interest income, but it will be in future quarters.

Well, you said fully offset. I've got to be clear. I've got a lot of lawyers on my shoulder. So, we haven't fully run these numbers through, but over the long term, adding more net interest income and giving up some of the gain-on-sale income is definitely something that is in the cards for us. So we are holding more government guarantees on our books. Some of them we're setting them up and then selling them into the market. But with that said, I think you'll see a mix and a change going forward.

Also, the C&I LA business is now on our books. That's going to add to net interest income while its incubation period as well. So yes, there'll be a bit of a change. I think that people that invest in our organization should be investing not quarter to quarter, but should be looking at the business model, looking at the technology, looking at what we do differently and figuring how in effect these things that we have put into place and are working would be extremely attractive in a bigger customer base that we acquire organically as well as possibly other things down the road.

Okay. Can you talk about with the ALP loans, have there been any benefits now that you're originating them through the bank? And what are the challenges with that?

Well, one of the challenges, Tim, I try to be as transparent as possible. With rates at these levels, it certainly makes it a little harder. I think businesses are a little bit more reluctant to take it. But the good news is these loans are well underwritten. They have good debt service coverage, strong guarantors, and they actually fit well in the banking environment.

Okay, are you planning to still do some more securitizations and any update on size for Q4?

Yes, we will do a securitization out of the bank. And, you know, I think that securitization size will be, I'm going to say, between $300 million to $400 million.

Okay, that's helpful. And then on credit, I'm looking at your call report and it looks like really good improvement in the net charge-off rates. That's good to see. But NPL were up a little bit and it seemed like a lot of it was on the guaranteed loan balance for a lot of loans. Can you provide some color on these guaranteed NPLs? Were these loans you repurchased after you previously originated, or were these loans that went NPL after issuance? Whatever color you can provide would be helpful.

Sure. And I appreciate the question, Tim. When you do a 7(a) loan and you sell it in the secondary market, which at points in time in our career and history, we've been, you know, as much as 95% of all of our loans got sold to the secondary market. And I believe as of today, we are the second largest lender by volumes and the first by units. Okay? So when you put that into the market, you know, these are credits as defined by the SBA's SOP that are technically not bankable, meaning that without the guarantee and not the program, you wouldn't be able to make the loan.

So the guarantee provides a significant amount of the credit support. However, when you have situations where those loans go bad and there's a lot of sensitivity in the market today, that has to get bought out. So either the government buys it out or we buy it out. And we have chosen to be more aggressive in those buyouts that's helpful to our partnership with the SBA.

And what we then wind up doing in many cases, and this gets really into the weeds of when a loan should be bought or not, you could have a situation where the loan might be in bankruptcy, but it's still in that bad category and they have to get worked out and there's partial payments or things of that nature. We've made decisions to increase that purchase rate, which helps the partnership with the government agency.

Okay, interesting. And is the guarantee on that portion of the loan still covered by the government if it goes bad or some of these loans you might need to pay for a long time?

No, no, no. Guaranteed participation certificate. The government guarantee is still on it when we buy it back. Subject only to repair and denial, which we have reserves on our books for.

Okay. All right. Understood. Thank you, Barry.

Our next question is from Joe Yanchunis from Raymond James.

I wanted to follow up on Tim's last line of questioning there. And I might have just missed this and could get it in the transcript. Can you go back through the rationale versus buying out the problem loan versus having the government buy it back? And I guess, have you ever had a government guarantee on your books that was removed?

Only in the case of what I would call a repair and denial, and that's been historic, and we have reserves for that based upon the history. But Joe, what you're asking is, and I can be honest with you, it's a little incredible to me, and I'm not being a jerk on this, there's other top five lenders in the United States that have this. Just look at their call reports. So this is not new, and it's not something that hasn't been done probably for 25 years. It's just something that we've historically not done much of, but at this point in time, our view of this is we have a joint relationship with the SBA. We're putting this on our books. These are government guaranteed obligations and the guarantee's good.

All right, well that horse has been beat. So you mentioned that, you know, what Newtek has built from a technology standpoint could be valuable to, you know, other institutions if they were to put it in their own infrastructure. How realistic is it to outsource, you know, a white-labeled, your NewTracker or Newtek Advantage, other banks? And can you talk through some of that opportunity?

Yes, we have opportunities in the pipeline now that we're working on with some material players. In addition, when you look at the business model, which is to utilize non-branches, non-brokers, no BDOs, no bankers, and to be able to outreach to an existing book of SMBs in a large bank's portfolio, much more cost effective on camera, with this technology to be able to effortlessly take a payroll app, take a merchant app, take loan app, take a line of credit out.

This is a big deal and we don't believe we've been given. It's different. And once again, I don't believe there's anybody else doing what we're doing. So there's no, I get asked all the time, where's the comp? Well, there isn't any. Okay, except that based upon the conversations I'm having, everybody wants to go in this direction.

Everybody wants to go in an automated manner. And we're using AI tools particularly in gathering the data, putting the apps together. Human beings are still reviewing everything, but we're taking the mundane tasks out of it. So we think it's very realistic. However, as you can imagine, Joe, change occurs in this world at slow rates, particularly when you're dealing with other financial institutions. But we have been at this for a while. We're getting good traction. I will tell you, our referral system, we get 600 to 800 referrals a day, is kind of predicated on these types of relationships. That's like putting your toe or your ankle in the water.

Got it, I appreciate that. Certainly exciting. It will be something to monitor from our perspective. So can you talk about what was in the other income bucket on the P&L? It looked to be abnormally large and just curious what drove that increase and the sustainability kind of behind that line item.

All right, now I pass the baton to Frank. Frank.

Thanks, Joe. So we did, with the securitization, we did see some increased payoffs and paydowns in the securitization, as you saw on that slide with the loans kind of getting paid down. So that's what drove that little bit of an increase that you're seeing quarter-over-quarter and especially year-over-year in that line item. So it's mainly due to the loan paydowns on the securitizations.

So should that normalize in future quarters back to a more historical norm or would you remain--

Yes, I would anticipate that to normalize. I don't anticipate to remain elevated.

Got it. All right. Well, thanks, gentlemen, for taking my questions.

Our next question is from Crispin Love with Piper Sandler.

Hey, good afternoon. This is Ben Graham in for Crispin Love. I'm just wondering if you could give some background on the $15 million loan to Simad Holdings, the company that operates summer camps in light of their June bankruptcy. Seems like a big loan for Newtek. And I would just be interested to hear the background of the sourcing, underwriting, and then any recent updates on that loan. And lastly, where that loan was marked at March 31 versus now, if you could give color on that. Thank you.

Sure. That loan is in a securitization. I believe it's in one of our prior securitizations. So it is sitting in that. Now the loan has seven or eight camps collateralizing the loan as collateral that is outside of the camps in a lot of different categories. And I believe the fair value of the collateral, I believe it's somewhere in, I don't want to guess, but it covers the loan amount.

That loan is in bankruptcy. As you're aware based upon public information, those camps are being sold, those camps are operating, those camps are cash flowing generally speaking. And I don't have the exact mark on that, but I would believe that we will have full recovery. I am familiar with the loan. I believe we'll have full recovery on the loan.

Awesome. Thanks so much for the color there. That's all I had, so I'll step back, but thank you so much.

That's the key to having, I can't tell you for sure, because there's a bankruptcy going on here, but it's important to have good cash flow on the businesses which are still operating, and liens. In this case, there's liens that are outside of the camps. It's on other assets.

Got it. Thank you so much.

Our next question is from Hal Goetsch with B. Riley Securities.

Hey Barry, just you know with maybe holding more loans in the books, is this putting more pressure on your deposit franchise and gathering deposits? Could you comment on that for a moment?

So Frank, I believe as of this date or recent days our deposits are over $500 million.

Our cash that we're holding at the Federal Reserve.

Sorry.

Yes.

Cash at the Fed, right?

Yes. That's correct.

So Hal, we're pretty liquid. It's indicative of A, our view on where rates are, and B, I want to be a little careful here. We believe I'll have good use for the money. Well, why are we good at acquiring deposits? We're good at acquiring deposits, so if you go look at our Trustpilot scores in the bank and in the holdco, it's 4.6 to 4.9. Jennifer Merritt and her team, fabulous job.

We have a gentleman, Rodney Becerra reports to Andrew Kaplan, Chief Strategy Officer, Client Success and Services. We're talking to our customers and we answer their questions and we're available on demand. So service is extremely important. Because we have a very low cost of acquisition, we're able to pay the client a fair rate. So we don't need branches. I don't need bankers taking people out to the Masters. As you can see from our insured deposits, which are north of 80%, these are retail deposits.

They don't move around that much, particularly in a high-yield savings account. Yes, it might be a high rate, but money sits there, they're not moving it, they're not calling up people, they're not transacting. So we really like our strategy for deposit acquisition. Matter of fact, the brethren, the industry, would actually calculate the expense that they pay to go acquire the deposits and service the deposits, they would probably be very interested in our digital account opening and the way we wind up servicing our customers. That's a very good question. We have, knock wood, been very good in this particular area.

Okay. And, you know, with the commentary in the press release on your guidance going forward being re-evaluated, what kind of timeline you could get back to that guidance at some point or, can you give us kind of a path to like more visibility on that?

Yes, I know I just gave all you guys heartburn. I'm sorry. I think we're going to be looking at, I'm going to say, a 45-day window, give or take, maybe 60. We have to do a lot of calculation. We've shifted a lot of things around. I also want to point out that although we've historically not been an SBA Express lender, I think we're going to go toward that model where you're able to get a much more generous rate which makes it beneficial to hold on our balance sheet.

I think it's up for the really small loans, it goes up to prime plus 6.5% and up to $500,000 I think it's prime plus 4.5%. So you still get obviously the government guarantee with it, it's a smaller guarantee, but at the end of the day, we've got to do a lot of number crunching. These are decisions we've pretty much made more recently. So we do need to crunch some numbers. I realize we've given you some heartburn here but we're not really trading in crazy market multiples, although some people might think they're crazy, but you can interpret that both ways. I don't want to get yelled at by my chief legal officer.

[Operator Instructions] Our next question is from Christopher Nolan from Ladenburg Thalmann.

Hey, guys. Frank, why did the NIM contract so much in the quarter? And NIM at the holding company?

And NIM at the holding company?

Yes.

Well, we're moving most of the operations into the bank. So you're seeing that expansion at the bank. So you're having less income generating operations up at the holding company while we still have some assets, as you know, left up there, as well as some of the debt that we are paying down, as you've seen, quarter-to-quarter, which is a little bit more expensive debt than you see typically on the deposits, hence the shift in the operations. So with everything moving into the bank, that's really driving the compression.

Yes. And Frank and Chris, I got to add one other thing to that. When you do securitizations at the holding company, which we've done historically, there's a lot of interest income that is now folded into the securitization. So it doesn't show up in the NIM. So we have fewer and fewer loans with just interest coming in at the holdco. And a lot of that has been converted into a spread in the ownership certificates at the holding company.

So is it fair to say in terms of part of the strategy to move more of the activity to the bank is to capture more what is gain income as net interest income, which bank investors generally prefer and thus hopefully improve the stock trading multiple?

Well, I think, and I can't answer the last part of it, Chris, but what I can tell you is that we have a lot of staff down in the bank, and by putting things like payroll in the bank, and maybe other things in the future. We want to be methodical. We want to give our regulatory agencies that we have a good relationship with, comfort that we could manage these things. So certainly by doing the lending out of the bank, it's tremendously advantageous, particularly based upon the cost of the deposits and things of that nature.

By putting payroll into the bank, which really is a core function for any business, it ties right into the operator, ties right into the loans, helps you control the situation. You can see, are they making payroll? Are they balancing payroll? It's incredibly valuable. So having less activities at the holding company and more down in the bank is definitely of interest to us. Yes.

As a final question, Barry, on the move to the bank, does that give you any flexibility on capital ratios at all?

I think I'd pass on that question, but you can see what the ratios are and I would say they're competitive and a well-capitalized market. No, I think they've actually been a good partner with us in terms of working with us, educating us, helping us really develop a bank that's safe and sound. So, no, we've been appreciative of that relationship.

Great. Thanks for taking my questions, and I appreciate the more expedited format of the call. Good job.

It took him three and a half years, but eventually we listened, Chris.

You're getting there, Barry. Sounds good. Thank you.

I am showing no further questions at this time, so I'd like to turn it back to Barry Sloane for closing remarks.

We're extremely thankful for the thoughtful questions and the work the analysts put into our business and business model. We look forward to keeping our head down, plowing ahead, and really doing a great job for our clients, the small to medium-sized business customer in the United States that is a major driver of the U.S. economy, employment, and also helps our shareholders. Thank you very much.

Thank you for your participation in today's conference. This does conclude the program, so you may now disconnect.

Good day, and thank you for standing by. Welcome to the NewtekOne, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Barry Sloane, President and CEO. Please go ahead.

Thank you very much, and welcome to our Q1 2026 Financial Results Conference Call. My name is Barry Sloane, President, CEO, and founder of NewtekOne. Also presenting today is Frank DeMaria, Chief Financial Officer of NEWT, the financial holding company that's publicly traded, and Frank is also Chief Financial Officer of Newtek Bank, National Association.

Those who want to follow today's presentation along, please go to newtekone.com, N-E-W-T-E-K-O-N-E.com. Go to the Investor Relations section and the Presentations section. We appreciate everyone's attending today, given that this is our 25th year as a publicly traded company and our 13th quarter reporting as a bank holding company after acquiring National Bank of New York City. We've accomplished quite a lot, from $180 million of total assets in National Bank of New York City to over $2 billion, the financial holding company is approximately $2.9 billion of assets, and the bank has over $2 billion of deposits, up from $140 million at the time we acquired it approximately 3.25 years ago.

We want to make sure in today's presentation, one of the biggest concerns I think people have, particularly in the current volatile market, is credit quality. I want to point everyone towards Slide 21, where we're able to demonstrate that the bank clearly has stabilized credit. NPLs are down as a percentage when we typically take out the government guarantees for both the numerator and the denominator.

With that said, let's go to Slide #2 under forward-looking statements. Let's absorb that. And then let's go to Slide #3. Important always to note when you look at NewtekOne as its purpose: our mission hasn't changed since it was founded in 1998 at 120 West 18th Street, Apartment 4B, with 3 founders. The focus of NewtekOne is to provide small- to medium-sized businesses, small- to medium-sized enterprises, and independent business owners all across the United States to have financial and business solutions that are state-of-the-art. We help our clients become more successful by growing their revenues, reducing their expense, and reducing their risk. I think more importantly, we're very much involved in the concept of real-time payments. We'll talk about that quite a bit today, moving money, and giving businesses the analytics that they really desire and require, apart from what they typically get from the top 4 large financial institutions in the United States, regional banks, and community banks.

On Slide #4. How do we do this? NewtekOne uses technology to tackle its mission statement. I think it's important to point out that although we've taken many different sizes and shapes as a publicly traded company, we started off as a 1933 Act company, converted in November of 2011 to a 1940 Act BDC company, and then converted back into a financial holding company. We acquired National Bank of New York City primarily for the purpose of improving our client experiences historically. We believe that by using technology, we have solved the 3 primary challenges that the banking industry needs to overcome to be able to help the customer base.

One, the high cost of infrastructure with too many branches and expensive traditional bankers. We are traditional bankerless and branchless. If you take a look at the efficiency ratio at Newtek Bank, National Association for this particular quarter, it was 40%. Insufficient lending margins from riskless loans. We think this particular industry, when they're lending, generally is avoiding risk. They're not managing risk, and we think that there's very little margin in their business. And frankly, if they aren't able to acquire deposits materially below the risk-free rate, there's not a lot of margin in their business.

Lastly, from a deposit perspective, basically taking in deposits with 0 interest paid or noninterest-bearing deposits and charging excessive fees for the business client is not in the domain of NewtekOne or Newtek Bank, National Association. We have an extremely attractive platform that pays for business clients: 1% on checking, 3.5% on business savings, and a true, no asterisk, 0 fee bank account. Important to note, we're a major adopter of real-time payments. We can announce today that we are now -- have FedNow for receiving payments for our client base. We've been approved by the Federal Reserve's FedNow program and The Clearing House RTP. So we're fully approved, this is live, and we're able to benefit our clients today with real-time payments appearing in their account.

On Slide #5, obviously, these are things I think many of you are already aware of in terms of our structure. NewtekOne is considered a bank holding company regulated by the Fed Board of Governors. Newtek Bank, National Association, which used to be called National Bank of New York City, is a depository offering great solutions, real-time payments, obviously, it's a lender to the business community. Through its holding company, investment in Newtek Merchant Solutions provides payment processing solutions, payroll solutions, and insurance solutions that support independent business owners all across the United States.

We've utilized our own proprietary and patented technological solutions to acquire customers cost effectively. We receive 600 to 800 unique business referrals a day through our NewTracker trademark client acquisition tool, and we give customers through the Newtek Advantage, a far-advanced business portal to help them manage their business, move money on a real-time basis, as well as get the types of historic data and analytics that they so rightly deserve. NewtekOne provides a full menu of best-in-class on-demand business and financial solutions to independent business owners. Importantly, we don't leave clients to just software. We have staff, over 300, that are available on demand, on camera. So in addition to great software and great technology in a frictionless manner, they can also get somebody on camera when they need them.

On Slide #6, we talk about our target market. I think the relevance of our target market is the SMB, SME, or independent business owner market is quite large and quite lucrative. It's estimated that there's 36 million independent business owners in the United States that identify themselves in this category. According to the U.S. Chamber of Commerce, it's 43% of U.S. GDP. And frankly, we've been tremendously supportive of this particular asset class. And according to the SBA, we have stabilized and supported over 110,000 jobs over the last 5 years, the second highest amongst all SBA lenders. The independent business owner is a huge economic demographic that, frankly, the existing industry has taken advantage of by basically taking their deposits, not really providing them attractive lending solutions to enable them to grow their business, or for that matter, the ability to move money on a real-time basis.

It's important to point out that in recent SBA data, NewtekOne is the largest SBA lender by units and is top 2 or 3 by loan volume. Also important to note that even though the bank's balance sheet is a little over $2.1 billion, when we make an SBA loan, 75% is government guaranteed, we typically sell it. So even though the bank is $2 billion, we basically -- when you look at the government guarantees and the fact that we're servicing them, it's a much bigger infrastructure. I would guess over our history, if we kept all the government guarantees on the balance sheet rather than selling them, it would be approximately $4 billion of total assets.

On Slide #7, we're going to focus on the really attractive quarter that we just reported. Really good start to 2026, EPS of $0.43, beating Street consensus by about $0.01, reflected 19% and 23% growth over Q1 '25 basic and diluted EPS, and was within our $0.37 to $0.47 guidance range. We want to reconfirm our 2026 guidance of $2.35 at the midpoint and establish a $2.60 midpoint for 2027. The current Street consensus for 2027, $2.35, $2.40, $2.45, and $2.50 from 4 of the 6 analysts to blend to $2.43. Also, for those that follow our stock closely, you're familiar that we've done a very nice job in growing book value and tangible book value. So book value per share ended Q1 2026 at $12.35 and tangible book at $11.84. We started off at a tangible book at $6.92 in Q1 2023, quite a substantial growth over the course of time. It's the technological advancements that are supporting a record number of originated loans and tremendous year-over-year growth.

In the first quarter of 2026, we originated 961 loan units, up 40% year-over-year, with 500 loan units alone originated in March versus 287. In dollar terms, $391 million of loans, versus $366 million of loans for Q1 2025. And March's momentum has continued in April with approximately 10% year-over-year growth. In addition, we were able to capture the operating leverage. Q1 2026 operating expense was just over -- up over 7.5% on year-over-year asset growth of 35%, and a return on average assets of 1.96%, very favorable to the industry, but also important for those of you that follow the company, the first quarter is clearly our weakest from an earnings perspective. I think it's important to note, using technology on a loan under $350,000, we're using AI to read tax returns, read lease agreements, read operating agreements, as well as alternative valuation methods. So by being able to do this, we're able to really fund small business loans quite quickly. As a matter of fact, we talked about, which we'll do in future slides, the 7-day loan. Once a loan application is completed, we can clearly fund that particular application under $350,000 within 7 days.

Slide #8, deposit growth, extremely important for banks. We had 2 consecutive quarters of record number of deposit accounts. We ended Q1 2026 with 37,000 deposit accounts, more than doubling year-over-year. In 13 quarters, we've grown deposits from $142 million to $1.9 billion. Business deposits, which come in at a lower cost, increased Q-over-Q and year-over-year by $37 million and $173 million, respectively. Consumer deposits also climbing quarter-over-quarter and year-over-year by $392 million and $668 million. Since the acquisition of Newtek Bank in 2023, 54% of our lending clients have opened up a business deposit account. And since February of 2024, when we initiated key man life to Newtek Bank business lending clients, 25% of those clients have purchased key man life and do so in an automatic, frictionless basis where they apply once and they can get a bank account, key man life, they can currently get flood insurance in the menu, in the very near future, we're also going to be able to offer property and casualty, all automated, one app, frictionless, and get that client their funds as quickly as possible for those that qualify.

We just started in January originating C&I long am loans, nicknamed C&I LA. We used to call them ALP loans, and these are being originated at the bank. The C&I LA originations approximated $85.7 million versus $68.5 million in the same quarter a year earlier. We are now funding these, obviously, with bank deposits, where historically, in 2025 and earlier than that, we funded them up at the holding company with warehouse facilities. The cost of those facilities were approximately SOFR plus 325 basis points, but the bigger cost, which I'll describe in a second, has been not using a warehouse facility, but the bank funding. We have historically securitized C&I LA loans on a regular basis, and we may do so from the bank's balance sheet.

Once again, let's take an example of, say, a $500 million portfolio. So a $500 million portfolio, which historically was originated at the holding company with a 70% advance rate from a street warehouse line -- and we should note, we just paid 2 of those down to 0, one from Capital One, one from Deutsche Bank -- had a 30% equity haircut. So on $500 million worth of loans, you need $150 million of capital from the holdco. Once you securitize with a 15% OC, or owner certificate, meaning that you had 3 classes of bonds above it -- single A bond, a BBB bond, and a BB bond -- to give you an 85% advance rate. An 85% advance rate on $500 million of collateral is $75 million. All would have to be contributed from the holding company. In the event that we securitize off the bank's balance sheet, it's dramatically less. You're funding it with core deposits at approximately a 10-to-1 leverage, much more efficient and much more profitable.

On Slide #9, tangible book value per share, one of my favorite slides. So real simple for those people that like to invest based upon tangible book value growing. If you look at this slide, it's a little dizzying to a certain degree: $6.92 in Q1 2023. It's currently $11.84. Frank DeMaria will talk about where we think we'll be at the end of the year, and it'll be $13.50 approximately. And then on top of that, you look at the dividends that we paid. So $2.43 of cumulative common dividends declared, $4.92 of tangible book value growth since the conversion, we've delivered $7.35 of value to shareholders, more than double the Q1 tangible book value of $6.92, something we're really proud of.

On Slide #10, we touched upon this a little earlier, the technological advances that are supporting increased loan volume. Those advances have also helped us with deposit growth. I think once again, it's important to note, we had tremendous unit and dollar growth in the first quarter. We talked about the 7-day business loan. We talked about our AI that we use for smaller balance loans with respect to using it to read tax returns, which are very important to spreading financials and actually calculating debt service coverage.

Some of our competitors in the marketplace, frankly, that have been scoring [ going ] some of these loans, they can't do it. They've got to change their technology. It's creating friction. We've had several of our competitors in the space reporting problems with their fintech originators that aren't able to actually deliver the solution. Not a problem for NewtekOne or Newtek Bank. We've been using the 5 Cs of credit lending in our entire history. We're doing that on the $350,000 loans to basically get liens, get appraisals, read operating agreements, and lease agreements.

Importantly, when you compare our business loans, which are structured to amortize over 10 to 25 years with no balloon payments, these are commercially viable rates. Compare it to merchant cash advance, or the daily debit type loans, we can create monthly payments that are 7% lower than a borrower would experience with alternative financing options that are structured with shorter maturities. So our business model, whether it's 7(a), C&I LA, or loans that go into the bank, I think it's important: we have been long amortizing lenders since 2003. We have that expertise. Our loans give the borrower a lot of flexibility. There's no covenant, so it allows them to distribute all the income. It allows them to borrow more without asking. It allows them to do an acquisition.

What's the trade-off? We get a personal guarantee. We get a lien on all business assets, and in many cases, personal assets. We would trade that off all day long. We have the knowledge and experience making loans over 2 decades to have a very good feel for the full frequency and severity. We know these businesses. We know these markets. We do know how to manage, making these types of loans, get greater net returns after provisions, after allowance for credit losses, which are almost 5%, very, very strong risk management within the walls of Newtek Bank. We're very proud of what we've been able to do here. And now when you add technology, there's no need for a business owner to borrow money from an MCA or a daily debit loan at [ huge risk weightings ]. They might have to wait a couple of more days, but they get a long am, they get an adult payment, and they actually get an adult loan.

Those technological advances that we have created for ourselves internally have also been very valuable to our digital account opening and deposit growth on Slide #11. Take a look at the graphs. They're very attractive. You can see we've grown business deposits. We've grown total deposits. We've grown depository accounts. We're just doing very, very well in this particular area. Importantly, these are insured deposits, 78% insured. These deposits are not going anywhere. They're insured. They're small. You're not going to have a Silicon Valley Bank-type problem because the customers weren't paid any interest. They had millions or tens of millions or hundreds of millions of dollars that just flew at a moment's notice. We're very, very happy about paying market rates of interest. We get good margins on our loans, net of write-offs. It's a real good, smart business model.

Slide #12. This is our nonbank lender, held over from the days when we didn't own a bank, and we had to fund our business with warehouse lines and securitization at the holding company. So Newtek Small Business Finance is winding down. I think it's also important to note that this portfolio has really experienced what we consider the Great Financial Crisis for small business, where rates went up 3% to 5% in a short period of time and inflation really made it difficult for businesses. So when you look at net increase in nonaccruals, shrinking. The accruing portfolio, shrinking. Nonaccruals at fair value, shrinking. The outstanding securitization notes, down to $113 million. That's really important because the loans that are in the securitizations, all the cash flow is being used to pay down the debt in the securitization.

So once you hit the cleanup call, and there's 3 securitizations left -- we started off with 13 -- and you hit the cleanup call, which we're going to start to hit those in the next 6 to 24 months, probably on all 3, then those loans and the monthly P&I flows through, and we're able to use that cash flow for a lot of nice things up at the holding company. Also, when you look at NSBF on a total consolidated basis, at the beginning of 2025, it was 21%. On 3/31/2025, it's down to 13%. So it continues to shrink. We're happy about that. The remaining portfolio is fairly seasoned. The weighted average life is about 66 months. So we think we're through the worst part of the curve. And we certainly appreciate the opportunity to participate in the program as a nonbank lender. And we've been participating as a bank lender pretty much for 3.25 -- actually about 3 years.

Slide #13, the C&I LA program, extremely additive. I want to really emphasize how additive it is. The average loan size on C&I LA is about $4 million to $5 million. Let's use $5 million because it's a nice round number. So on 100 units, you've got $500 million. On 200 units, it's $1 billion. To do $1 billion of 7(a) loans, you almost have to do 3,000 units. So the ability to grow with our pipeline in a quality manner exists, it's there without reaching for bad credits. Importantly, the C&I LA program is not a 7(a) type program with a 7(a) borrower. The borrowers are seasoned, will go through the metric profile. You'll see these are very strong credits. So this is going to help us diversify.

As a matter of fact, at the end of March, the 7(a) portfolio at the bank, I think, was down to about 41% of the total portfolio. So diversification is an extremely important part of risk management at the bank. We plan on doing more CRE at the bank, more short am C&I, as well as the C&I LA program, which has the great margins, and we've developed a 6- to 7-year expertise in. Once again, the size of the loans are extremely important. It will enable us to grow the balance sheet in a better quality manner without having to reach. In January of 2026, we successfully launched our fourth C&I LA securitization. There was $295 million of securitized notes sold, backed by $342 million of loans. It was our 17th securitization in our history. The deal was 10x oversubscribed with 32 institutions purchasing the notes.

Slide #14, very important. I think you need to absorb this. These businesses, on a weighted average basis, have been around for about 10 years. That is not an SBA borrower. Weighted average LTV, 47%; weighted average debt service coverage, over 3. That is not an SBA borrower. When you look at the coupon, you say, "Well, gee, how are they getting a coupon?" If you give an entrepreneur the flexibility of not dealing with intrusive covenants, letting them distribute their income, but they're willing to personally guarantee, lien all business assets, and some personal assets so that you're covered, this is a good loan program.

We have repositioned the value of early amortizing a C&I loan, or putting a 3- or a 5-year balloon payment on a loan, of requiring certain financials, 45 days in arrears after the quarter. I would much rather look into their bank account, see what they're doing, who they're paying, what they're paying, seeing the revenues coming into the bank account, than have those financials all day long. That's once again the advantage of being technologically on top of this particular business and this particular industry. Once again, limiting state concentrations, limiting industry concentrations, diversification, diversification, and more diversification. This is a program which is stronger credit than 7(a) with really good margins, and we have an expertise in it.

Slide #15 just gives you an idea of how successful we've been in this particular marketplace. I'd like to point out a recent deal we did, 2026-1. So the gross spread before we deduct the servicing fee was 6.6%. That's the coupon on the collateral versus the yield on the securities, net of the servicing fee, 5.66%. Now securitization interest expense is higher than bank deposits, but also it's match-funded, which is extremely important. So you get the duration benefit.

Now the other thing about securitization costs, you set it and forget it. And when I say that, I'm not talking about what we're doing on the servicing side, because we're fairly active on the servicing side with our borrowers. But think about a 566 bps spread after servicing. So if you went to a bank and said, "Oh, by the way, I can give you and make loans at a 5.66% spread, and there's no cost to run the bank. You don't need FDIC insurance. You don't need people managing depository accounts. You don't need branches. You don't need bankers. You just put the loans in a special purpose vehicle, you click the coupon, you service the loans, and you pay the bondholders." That's a winning business. And when you look at the valuations on the owner certificates, we're slightly over 2:1 on the value, but look at that spread and you're probably 5x to 5.5x cash flow, very reasonable. That's after the markup. So we love this business. We have an expertise in this business. We have a track record in this business. We're good at this business.

Slide #16. So when you look at the active securitizations, because the first one is already paid off and wound up, look at the 2024 deal and look at how the overcollateralization grows because you've got all that excess cash flow that goes to pay down the senior notes. So the OC went from $36.2 million to $50 million. That shows you that the book value will ultimately get to the fair value in about 3 to 3.5 years. So because you've got all that excess cash flow flowing into the securitizations, into the special purpose vehicles, it really hyperamortizes the bonds.

I would now like to turn the rest of the presentation over to Frank DeMaria.

Thanks, Barry. Slide 18 highlights our consolidated profitability metrics, of which there are 2 primary takeaways: one, our measures of profitability continue to be very strong, with the first quarter return on average assets just below 2% and a return on tangible common equity approaching 15%; and two, profitability is improving with notable step-ups over the 2025 first quarter. I'd like to again reiterate that there's an element of seasonality to the business, with the first quarter of the year being typically our weakest.

Slide 19 focuses on trends specifically at Newtek Bank. Note the pickup in the returns on average assets, equity, and tangible common equity and the improvement in the efficiency ratio, all of which are influenced by moving the origination and funding of longer amortizing C&I loans to our bank subsidiary. We also show margin trends on this slide. Due to the exceptional deposit growth in the first quarter, the bank experienced a meaningful shift in its quarter-over-quarter earning asset mix, leading to NIM compression. However, the absolute dollar balance of net interest income continues to increase.

Also, as Barry noted, significant loan production occurred in the second half of the quarter, which should bode well for net interest income and the bank's NIM in the second quarter. Loan and deposit growth remained very healthy, and we saw a decline in delinquencies and NPLs, excluding government-guaranteed loans.

The next slide shows the geography of our loan production on the NewtekOne balance sheet. With the shift of C&I LA loan originations into the bank, the first quarter securitization that moved loans off balance sheet, and the ongoing wind-down of the NSBF portfolio, loans at Newtek Bank now comprise 83% of total loans, up from 65% for year-end 2025 and 57% for the first quarter of 2025.

Slide 21 walks through credit trends at Newtek Bank, which highlight the following: one, delinquencies were down for a third quarter in a row; two, the ratio of NPLs to loans, excluding government-guaranteed loans, was down for a fourth consecutive quarter; three, provisioning continues to cover net charge-offs; and four, as expected, net charge-offs have picked up as the loan portfolio has seasoned. That seasoning was anticipated and captured by our CECL calculation. That called for building our allowance for credit losses as we grew the loan portfolio almost from scratch after acquiring the bank.

Slide 22 covers Newtek Bank's held-for-investment loan portfolio. The held for investment portfolio increased roughly 10% in the first quarter with solid contributions from all 3 components: traditional CRE, traditional C&I, and unguaranteed SBA 7(a) loans. Unguaranteed portions of SBA 7(a) loans comprise roughly 59% of the held for investment book, down slightly quarter-over-quarter from 60%. The allowance for credit losses related to the unguaranteed 7(a) portfolio continues to make up a bulk of the bank's ACL.

Slide 23 is a depiction of how our strong asset growth is supported by healthy capital ratios, with leverage being above 13%, CET1 over 15.5%, Tier 1 capital above 18%, and total capital approaching 19.5%. Lastly, on Slide 24, we've reaffirmed the EPS and origination guidance for 2026. And as Barry noted -- laid out an EPS range for 2027 to give market participants an early read on how we see future trends.

And with that, I'll turn it back to Barry.

Thank you, Frank. And before we go to Q&A, I want to point out just a few more quick items for emphasis. The net interest margin for the business, once we do a securitization, particularly in C&I LA, typically declines. So I ask all of you, please -- the best way to value our organization is on a year-over-year basis. Certainly, look at us quarter-to-quarter. We're not telling you not to look at it. But to give you an example, we have, I think, about $383 million or $390 million of cash at the Fed. That's a bit of a drag, particularly on interest income. So someone would say, "Well, why do you have that much cash at the Fed?" Well, we had the opportunity to get deposits. We are very constructive on our loan platform going forward, and we're going to use it. Now that may hurt in the near term, but on a long-term basis, it should work out really well.

And if you can develop a little bit of foresight, putting these C&I LA loans down in the bank, all of a sudden, you're going to start to get some really nice interest spreads, some really nice margins, nice diversification of the portfolio, improved credit metrics, it folds in very nicely. Also want to point out the ability to grow the business is a lot stronger with C&I LA at an average loan size of $4 million to $5 million. And the efficiency ratio at the bank is very indicative. As you can see, there's more activity at the bank, and that is our goal. And our goal is to do this methodically. A lot of times I'm asked, "Can you grow faster? And the answer is I don't want to grow any faster. It makes everybody comfortable. We're growing fast enough, but we're doing controlled growth. We're managing our risk well. We're basically sticking to our knitting in what we know. And from the results that you can see from this particular quarter, and frankly, 3.25 years of operating, we're hitting our stride in a good spot.

So with that, operator, I'd like to open this up to Q&A.

[Operator Instructions] Our first question comes from Timothy Switzer of KBW.

My first one, you just touched on it, Barry, but on balance sheet growth, quite a bit of growth in the loan book this quarter, excluding the securitization here, drove assets a little bit higher. Does that change the trajectory of loan growth going forward? Or what should we be expecting?

I think the growth of loans is going to be in the bank. I don't think you're going to see any loan origination at the holding company whatsoever. And I think the holding company is going to continue to house merchant solutions. It's conceivable we might put payroll down into the bank. That makes it a lot easier. We currently do same-day payroll. What I mean by that is we have the ability, and are doing this, if a business wants to make money available on Monday, they could pay their employees on Monday; same-day payroll. It's easier to do that if the payroll business is down into the bank. But I think you're going to see the same type of historic growth. I'll use the word low double-digit, and I think you're going to see greater diversification. You're going to see improved credit metrics because we're going to be putting on a lot more of these C&I LA loans, which are clearly better credits down in the bank, but also do so with good margins.

And then similar question, but on the deposit side. Tons of growth there. Your LDR now super low. Is that going to normalize down at all? Or can you - are you going to maintain this liquidity?

It's interesting. On one side, I have banks that were holding all that cash at the Fed at a low amount. And on the other side, it's like, okay, I know I've got the liquidity to basically make loans going forward. I think this is a bit excessive. I don't think we need $390 million, but I think we're always going to keep a good amount of liquidity at the bank. We've got waiting list of people for deposits, frankly. If you go to Trustpilot, I believe we're like a 4.7, 4.8, which is extremely favorable for customer service. Hats off to Jen Merritt and the Wilmington group, they do a fantastic job there. It's not just rate. We do a really good job servicing customers. I think that's important.

I think it's also important that with real-time payments, and we have a real real-time payments offering. It's not just ACH. We now have the real-time payments with FedNow and The Clearing House RTP. At some point, we might use stablecoin, but it's not something that we're going to use for deposits. So we're going to stay out of the traffic there, but just give people the ability to move money quicker using probably somebody else's stablecoin. But being able to use the Newtek Advantage and the portal for the analytics to make payroll quicker, to have merchant money in your account on the same day and show up and get credit for it, these are all very beneficial. So we do think that we're going to get more business deposits over time because of this. And these things do take time. It takes time to train your staff, use artificial intelligence where you can to deliver those solutions to customers better. We're early adopters of technology, and we'll continue to do so.

This question comes from Christopher Nolan of Ladenburg Thalmann & Company.

Frank, what was the lower loan yields due to again, please?

The loan yields are on a blended rate around 7.25%.

Yes. Why was the decrease quarter-over-quarter, please?

The decreased quarter-over-quarter is mainly driven by the ALP loans going off balance sheet at the beginning of the quarter. And then with the second half of the quarter being strong, we, on an average basis, didn't get as much credit for that, given we had it go off at the beginning of the quarter into the securitization, and then started to see some originations later in the second quarter on the higher-yielding ALP loans. So you should see that come back to a normalized basis as we get into the second quarter and start getting the benefit of those loans being on balance sheet for the full quarter.

Okay. So it's timing issues for the [ late ] loans, right?

Correct.

It's timing, but it's also a little recharacterization, because the coupon didn't go away. It's just in a securitization with those spreads. So we get the income from the owner certificate. Does that make sense, Chris? It's just that it's a recharacterization of the income.

Not really, but I'll catch up with you guys later on and ask. And then second -- my follow-up question is the leverage ratio. You guys are growing and the capital ratios are going down. And I think your leverage ratio at the holdco is like 9% or so. And I know you've mentioned that you're not going to chase growth for growth's sake, but has it now become more of a balancing act where you have to moderate growth with securitizations just because you're starting to approach capitalization constraints? Is that a fair characterization?

Once again, I want to be clear on this. And I commented, it's really hard -- and maybe this is our cross to bear -- to look at us quarter-over-quarter. But when I've got $390 million of cash at the Fed, which I'm fine with long term, and I take loans and I put them into a special purpose vehicle, people that are looking at this shouldn't be penalizing us for that. They should be going, "Okay, you're good managers." Now relative to the concept of the capitalization, as I start to put those into loans, all of a sudden, for example, the first quarter is the weakest quarter for income, I think you'll see a marked jump in both the capitalization and the income of the bank. So no, we're not stretching. We're not going to overuse that capital. I think that will gravitate back up and then it'll just keep going back and forth.

And Chris, just to clarify, the leverage ratio at the holding company is 13.1%.

Our next question comes from Hal Goetsch at B. Riley Securities.

Terrific quarter, guys. Well done. Got a question on the 7-day loan. Is there any data on that -- how much of the loans were from that program in the first quarter, if there were any? And if there wasn't, is this a competitive advantage to have a tech-led stack that allows you to basically convert your funnel at a better rate, giving a better user experience to the borrower? Would lover to get your thoughts on that.

Hal, I think we don't have it broken out specifically. But I think if you look at the loan volume, which we talked about in the deck in the month of March when we announced it and the precipitous jump, we also indicated that we're up 10% on total loans April 26 versus April 25. We think that, that could be a continuing trend. So we think we continue to make more loans at double-digit rates without stretching for credit.

Okay. And my next question, could you go over some of the before and after again? That was pretty interesting about -- I think, in a securitization where there's 3 tranches and there's a 70% advance rate and a 30% equity stake, you're essentially transitioning to a model where you have to lay out substantially less equity capital for these. Is that what you're saying? Could you go over some of those numbers again?

Sure. Let's use $100 million. Let's take a $100 million portfolio. If you were going to do it at the holding company, you'd get a $70 million line of credit from, say, a Deutsche Bank or Capital One. So you'd need $30 million of equity during the accumulation phase. When you do a securitization, you get 3 classes of rated bonds, which we sell, at an 85% advance rate. That means your owner certificate in the securitization is about 15%, or $15 million. And that's got to be permanently financed at the holding company. In the bank, I finance all the activity with deposits at 3.6% to 3.7%, [ 100 cents ] on the dollar. So I finance $100 million with deposits. Now I have obviously capital against it, but that's okay. We've calculated it and it works out just fine. So it's a major benefit with less need to pull in capital with the holding company.

Our next question comes from Steve Moss of Raymond James.

Barry, Frank, maybe just starting off on your cost of funds here going forward and just go into that, getting rid of the lines that you were parking the C&I LA loans at. It seems like a pretty meaningful cost savings -- I mean, it should be a pretty meaningful cost savings just on the spread. Just thinking about if you're going to be running several hundred million dollars in average balances, NII should be probably taking a pretty decent step up as the year goes on here. Just curious as to how you guys are thinking about that.

When you say step up, I'm not sure I know what you mean. What do you mean?

Just that there's -- it looks like you're funding them with deposits at, call it, 4%, and before you were funding those loans at, call it, 7% with SOFR plus 3.25%.

Yes. Plus an equity haircut, yes.

Correct.

Right. So it's immeasurably beneficial. And the program now is 6.5, 7 years old, and we've developed a good track record and 4 securitizations, and have improved a lot of different aspects within our organization to be able to manage the risk. And that's why it's now being funded down at the bank.

Right. So maybe just trying to put it this way. As I think about your funding -- your NII growth before your next securitization, could it peak around $24 million to $25 million, or my numbers are just maybe a little too large, as we think about when you'll do the next securitization?

Frank, I'll let you handle that one. That's above my pay grade.

Yes. I think that's a little -- so one, to answer your question, Steve, you're right, we will see a benefit from the spread because we're going to see a reduced cost of funds. But I do think that $24 million is a little bit high. We're not getting quite there on our projections. But you're right, we are going to see a noticeable step-up as we go quarter-over-quarter, just given the spreads that we do anticipate with the lower cost of funds. And as we do see those yields starting to come back on the asset side with getting past the timing issue we had in the first quarter.

And then in terms of when we think about when the next securitization is coming, I know you guys generally want them to be larger, but any updated thoughts maybe as this is now on balance sheet, as to how large the next securitization could be?

We're hoping it's a fourth quarter event, Steve, and we'd like the collateral pool to be $400 million to $500 million.

Okay. And then one last one for me, Barry. Just, you've been good in terms of a barometer of the health or challenges of the SBA market. Just curious as to what you're seeing these days in terms of borrower confidence and activity. It's been an interesting couple of months to say the least.

Yes. And I appreciate it, Steve. I just came from the National Association of Government Guaranteed Lenders. I was up in Orlando yesterday and the day before. And there's been a lot of changes to the program. So some of the changes: change number one, 100% of the owners must be U.S. citizens. I think that knocked volume down by 10% to 20% in the last calendar year. The ability to use the funds to refinance a merchant cash advance or a daily debit loan when the money is going to purchase a receivable also a no-go.

Now on the flip side of it, the changes that we've made for the 7-day loan, for example, are very valuable because when you think of merchant cash advance and daily debit opportunities, let's say, 65% to 70% of those credits are actually credits that will last 5 or 10 years. Maybe 30% won't and they go bad. But based upon the math, they still make money, the lenders. So we are now extraordinarily competitive with borrowers to be able to give them funding to repay the loan over 10 years at a 70% discount to the monthly pay rate for good borrowers. So we believe that we will get back to the volumes we had previously. But 2025 was a challenging year for 7(a).

Now there are certain fintechs that they're not spreading financials. They're not doing debt service coverage. And their technology wasn't positioned for that. And they don't have underwriters to do that. And now the program doesn't work for them anymore. So I think we picked up a nice competitive advantage. I think the business has gotten harder. But I think we're well positioned to continue to be a leader in the space.

[Operator Instructions] This question comes from Ken Billingsley of Compass Point Research & Trading.

So one of my questions was partially answered. It sounds like you're looking at a fourth quarter event for the next securitization, and the trigger would be a pool of $400 million to $500 million. Would that all be coming out of the bank?

Yes.

Okay. And my second question is the loan size. I saw that you've grown the number of loans, but it seems -- are the loan sizes shrinking at least quarter-over-quarter? And if that is the case, is it just something that you're doing with underwriting? Or is it just market conditions in the first quarter?

It's a good question, Ken. I think in the SBA bucket, the loan sizes are getting smaller. We are doing a lot of commercial and industrial short am loans and commercial real estate loans that are going to be in that middle bucket. And then the C&I LA will probably be bigger size loans. So I think from our standpoint, the one thing that I've learned managing Newtek over 2 decades is diversification in different credit aspects, different loan sizes, and it's served us well. So we're not going smaller. We're not going bigger. We're pretty much spreading it out. And I think that's going to serve us well. Pete Downs and I work very closely together on these things. And the loan committee -- one of the key aspects of the loan committee isn't -- is the credit -- you always want to see, is the credit a good credit or not a good credit. But one of the big things is, what's the makeup of the portfolio.

Do I have too much in this state? Do I have too much in this category? How does it balance? And that's, I think, part of where our heads are at here. But we're very pleased with how things are rolling out. Risk-adjusted returns are where they should be, they're expected, and that's why we're able to continue to grow the business.

Our next question comes from Timothy Switzer of KBW.

I didn't see it in the materials anywhere. What was the SBA gain-on-sale premium this quarter? And how have the pricing dynamics changed with -- I mean, Barry just mentioned 10%, 20% of borrowers have basically been eliminated. And obviously, there's other disruptions in the market, I guess, more on the supply side. What is the trajectory of premiums going forward?

So Tim, I'll take the price, and I'll let Frank fill in the gain number. We're seeing pricing being maintained. I think we're about [ 1.105% ], plus or minus, and that's being maintained. I think on a supply and demand basis, there was a little bit less supply, and that held prices up quite a bit. I don't really see prices declining. That's always a question people ask about -- the big issue on a price decline is prepay driven, period, end of story. It's not rates higher, rates lower. It's prepay driven and then you could have a conversation, what's driving the prepay. Is it voluntary defaults, involuntary defaults?

The markets, put it this way, when rates were moving 3% to 5% in an 18-month to 2-year period of time, that was pretty volatile and you had a lot of changes. Right now they're fairly -- although I will tell you, rates have moved around by 50 basis points, hopefully, they'll stay in that range. So I think prices are in pretty good shape. There's not a lot of supply out there right now selling into the secondary market. Frank, you can comment on the dollars.

Yes. We are seeing the price, as you said, right around [ 1.105% ] the dollars, and then I think you see that in the balance sheet there, Tim. We had a net gain on sale number for the quarter of about $26.7 million, driven mainly by those 7(a) sales with some 504 sales sprinkled in there.

And then, I mean, Barry, you mentioned the prepayment rates. I'm just curious, what percent of your production is floating versus fixed? Is it pretty much all floating?

100% floating.

Okay. And one last one for me. Your new business deposits, you're seeing really good growth here. What's the average account size right now? And what do spending patterns look like in those accounts?

Frank, what do you see in savings? It's pretty -- I'm going to leave it to you, Frank. It's pretty healthy in savings and the consumer side, but that money doesn't move. It just sits there. Frank, you could help on -- if you know the average size of consumer and business.

The average deposit account size, Tim, was that the question?

Yes.

Yes. I think we're seeing that on the consumer side, the averages are probably around $10,000 on the account. They're relatively small. The business accounts we're seeing closer to that $200,000 to $250,000 mark.

Thank you. I am showing no further questions at this time. I would now like to turn it back to Barry Sloane for closing remarks.

All right. Thank you, everyone. Appreciate your attendance and great questions, and glad to be able to wrap it up in an hour. So once again, thank you, everybody, for attending and paying attention to Newtek. We look forward to delivering great results for the second quarter as well. Thank you.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.

Thank you for standing by, and welcome to NewtekOne, Inc.'s Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]

I would now like to hand the call over to Barry Sloane, President and CEO. Please go ahead.

Thank you very much, operator, and welcome, everyone, to the Fourth Quarter 2025 Financial Results Conference Call. Joining me today on the call is Frank DeMaria, Executive Vice President and Chief Financial Officer of NewtekOne. For those of you that would like to follow the presentation online, go to newtekone.com, go to the Investor Relations section and the PowerPoint presentation for today's event is being held there. I'd now like to ask everybody to go to Slide #2 of that presentation and note the forward-looking statements.

To begin our presentation today, we're happy to report the results of Q4 2025 and the annual achievements for 2025, including to, but are not limited, to celebrating the 3-year anniversary of NewtekOne owning and operating an OCC chartered bank. We're extremely pleased about the acquisition that was done in January of 2023.

There's a very interesting slide on 24, which actually names several competitors in the space, SoFi, Live Oak, Triumph, Northeast Bank and Axos. And if you take a look at those charts, you'll see how their stock price action moved over the first several years of their operation, and then it started to change direction. We'll talk about that later in the presentation.

We're also celebrating today opening up 9,000 new depository accounts and 34,000 active depository accounts. We're celebrating the technology that we have built, particularly our digital account opening and our lending operating systems as well as the Newtek Advantage. All of these off-balance sheet technological innovations are really important to serving our clients and being able to offer a true technology-enabled financial institution for independent business owners all across the United States to work with.

We are celebrating our leading status as a lender to independent businesses. We refer to our lending programs as an adult loan. loans that have repayment of principal over 10 to 25 years, not the 6-month to 24-month paybacks with 30% to 80% interest charges or effective yields to the customer. Lower monthly payments, patient capital makes these loans exceptionally affordable to our clients.

We're celebrating many new hires that were added to the senior management team. Greg Devaney, Chief Credit Officer of the bank; Chris Lucas, Chief Compliance Officer of the Bank; Frank De Maria, Chief Financial Officer of the bank; Andrew Kaplan, Chief Strategy Officer of NewtekOne, our holding company.

We're also celebrating record earnings and revenue growth. I'd like to report that as a financial holding company, net income before taxes for 2025 was approximately $80 million, up 16.4%. And our revenue, total revenue as defined as the sum of net interest income and noninterest income, $284 million, up 10.6% over the 2024 number of $257 million. We're very pleased with how we did. With all that, I guess we can go right to the Q&A, just kidding.

Let's go to Slide #3. So on Slide #3, we particularly and historically have talked about the company's focus, which has been on the independent business owner on SMBs, it's extremely important that the marketplace understands that this is our demographic, it is an underserved demographic, and it's been Newtek's primary focus from its inception as a private company in 1998 and a publicly traded company in September of 2000. We believe we have better loans with long amortizations and more flexibility. We believe we have a better banking product with absolutely 0 fee, no asterisks, no if/ands, no buts, better payroll solutions that are integrated in our bank account with a dedicated concierge person that you can get on camera. Our insurance agency offers a frictionless opportunity for our clients to access all forms of insurance, both personal and business.

Going to Slide #4, we talk about our financial structure and product solutions. Obviously, in our history, in 2000 to 2014, we're a 1933 Act company. And in 2014 of November, we converted to a BDC. And in 2023, when we acquired National Bank of New York City, a $180 million total asset bank that today is approximately $1.4 billion, $1.5 billion with the holdco consolidated assets $2.4 billion, $2.5 billion, we have grown significantly.

But it's important to note that we have changed our financial structure. And with that, you've had turnover of equity shareholders as well. The holdco is regulated by the Federal Reserve. The bank is regulated by the OCC. We utilize proprietary and patented advanced technological solutions to acquire customers cost effectively and to manage our business. We have a full menu best-in-class on-demand business and financial solutions to independent business owners. Our trademark, no branches, no traditional bankers, no brokers, no BDOs, very cost-effective way to service our customers on demand.

Let's go to Slide #5. We talk about our target market. At the end of the day, the SBA defines this as 36 million businesses in the United States, 43% of nonfarm GDP. And we believe this market is typically unfarmed, untapped, and we offer our best-of-breed solutions to this customer base. And we're very excited about what we've been able to do in the first 3 years of operating the OCC chartered bank, and we're very excited about our future.

On Slide #6, we'll talk about the annual and quarterly highlights. The EPS for the quarter, $0.65, either basic or diluted, which aggregated up to a 2025 number, basic $2.21; diluted $2.18, up 12% and 11% over the 2024 results. We're pleased to offer our 2026 guidance with a midrange of $2.35, quite interesting at a $14 stock price handle what our multiple is compared to some of those other competitors in the marketplace that I would also call technology-enabled banks with a disruptive business plan and new entrants into the market but began many years before we did.

The bullet point #3 on Slide #6 is important, tangible book value. We've been able to materially grow our tangible book value, which ended the year 2025 at $12.19. When we began, I think it was approximately $6.92. In addition, we've also paid a dividend during that period of time, which we'll talk about in a future slide.

2026 got off to a great start. On January 21, we closed our largest securitization on what we refer to as alternative loan program, also known as C&I loans held for sale or C&I LA, meaning longer amortization. These are basically business loans with long ams. And this is what we have experienced well over 2 decades in making these types of loans, whether it has been in the 7(a) program or in the ALP program, and we started originating these loans in 2018 and 2019. The deal that we kicked off in 2026 was 10x oversubscribed, 38 institutions subscribing, 32 institutions purchasing notes after we repriced after the IPT and really pleased that 10 of the 32 purchasing institutions were new to our securitizations.

We have a lot of ALP momentum growing and the credit quality metrics overall on the entire portfolio on a consolidated basis, including the bank, including the old NSBF portfolio at the holding company and all loans, as we have indicated in prior press releases, seems to have stabilized. NPLs have declined for 2 consecutive quarters from 7.3% to 7.1% and to 6.9% for the fourth quarter of 2025.

Slide #7. We talked about this a little while earlier, and that's deposit growth. I remember one of the things in acquiring the bank, people said, how are you going to grow deposits? Well, with our alliance partners and relationships, 9,000 deposit accounts in the fourth quarter, surpassing our previous record. Business deposits increased, and these are the important ones because they are at a lower cost by $34 million in the quarter and $164 million for the year. So very, very nice growth.

Obviously, consumer deposits growing materially as well by $167 million in the quarter, $293 million for the year. We have a nice big deposit base going into the first quarter to be able to deploy in business loans. Since the acquisition of Newtek Bank, roughly 50% of Newtek's Bank business lending clients have opened up a business deposit account. In addition, we started initiating the offering of life insurance, Keyman Life to Newtek Bank business lending clients and 25% of borrowers have now purchased life insurance through the Newtek Agency.

We continue to capture operating leverage. The efficiency ratio at the holdco was declined from 63.2% to 58.3%, with assets up 33%. So we're very, very pleased about our efficiency ratio. At the bank, I believe the efficiency ratio is in the 40s, I think approximately 47%. Our return on average assets for the calendar year, 2.78% at the holding company. Also important to note, the earnings headwinds, which we'll talk about this a little deeper in a further slide, from our NSBF lending subsidiary continue to decline. We had a $28.7 million loss in 2024 and it should be approximately $20 million in 2025, and we expect the NSBF loss will continue to materially decline throughout 2026.

On Slide #8, we talk about our tangible book value growth. I think it's real important to analyze. Obviously, we paid $2.24 of dividends during our period of time as a bank holding company, although we don't look like a bank holding company, and we don't look like a lot of the other community banks that we're compared to and a $4.76 share of tangible book value since conversion. So we're very, very pleased at how we've been able to deliver value to shareholders through growth in tangible book value and dividends.

Slide #9. We talked about the alternative loan program. We'll drill down a little deeper here. I think it's important to note, and I have been asked by several investors, the credit quality for ALP loans is much stronger than the 7(a) loans. We'll show that on the next slide. And the ALP loans are originated with the intention to sell them into a joint venture or securitizations. They have great margins on them. They have prepay penalties, so they last for a longer period of time. So the spread that we get on them is enjoyed by the benefit of our shareholders and our earnings.

I think it's important to note that similar to 7(a) loans, there is a structural similarity to the ALP loans. 10- to 25-year ams, no balloons. They're typically fixed for 5 years with a spread over the 5-year treasury curve of approximately 950 basis points at origination. And then they adjust, they're floored at that initial rate and they could adjust up based upon changes in rates. So we give the borrower flexibility in amortizing the principal over a longer period of time.

So we're basically giving them equity. We give them flexibility on distributions. We give them flexibility on borrowing. We give them flexibility on doing acquisitions. But that trade-off is for joint and several personal guarantees for every 20% equity owner or greater and leans on business and in many cases, personal assets and much stronger guarantors. We're very pleased that in the January month, we brought our fourth ALP securitization to the market. And as I mentioned, it was extremely successful.

On Slide #10, you can get a feel for the matrix or what the underlying loans look like in these securitizations. So the total amount of nonperforming ALP loans, $27.6 million on a current origination balance of $694 million, but total originations, I believe, was $820 million to $830 million. So we've actually had low levels of nonperformers and very low levels of charge-offs. I believe total charge-offs are about $6 million to date. Weighted average LTV at origination, 48% debt service coverage, 3.3 very high coupon, very high spread. Now the spread is important because the spread is protected with the call protection of 5% prepays through 36 months and 3% in month 36 through 48. You could see we're big believers in diversification of geography and industry.

On Slide #11, the economics of the securitization is discussed further. On Slide #11, you could see that the gross spread before the 1% servicing fee on the last 2 deals was about 6.65 to 6.70, net about 5.65 to 5.70. Now these are match funded in a securitization, I should say match funded by the durations. Important to note that although the liability arguably is more expensive than in a deposit gathering sense, it is match funded for term and there's no cost from a depository perspective. Obviously, take deposits in a bank, you've got a lot of different cost to service the loan to help the customer, et cetera, et cetera. But here, you've got a 565 basis point spread, set it and forget it, clip the coupon.

And you could see that on Slide #12, these securitizations pay down very quickly, and they pay down quickly because of the excess servicing goes to pay down the senior bonds. And the overcollateralization that you see on Slide 12 on 2026-1, 2025-1, 2024-1 happens rather quickly. And as that's happening, what's occurring is the book value or the loans in the special purpose vehicle versus the amount of debt keeps growing. As matter of fact, on average, the book value should equal the fair value of these in approximately 3 to 3.5 years, extremely important when it comes to being comfortable with our valuations.

Slide #13, our nonbank lending subsidiaries, the payments business, which we've owned since 2002, grown materially, contributed about $16.8 million of adjusted EBITDA in 2025 and is forecasted to do $17.9 million in 2026. Our insurance agency is growing nicely, particularly as it's been positioned with the bank and uses automatic processes to make insurance available to people that are borrowing money. And we've contributed $740 million of pretax income in 2025, and we think it will be about $1.6 billion in 2026. Payroll contributing $450,000 of pretax net income. We expect to generate $630,000. We have high hopes and expectations for both of these businesses as they are particularly payroll and payments connected to the bank account.

All of NewtekOne's business lines have and should continue to contribute growth to business deposits. We've talked about the new triple play offering, which includes merchant, payroll line of credit and a bank account. We're continuing to polish up this offering, enhance the client experience, 1 application, 3 approvals.

Slide #14. Newtek Small Business Finance is the legacy nonbank SBA lender that's got the uninsured loan participations that are sitting in securitizations and are paying down. The remaining loans are from the tougher vintages of '21, '22 and '23 and had tremendous stress as rates went up 3 to 5 points during that period of time. So in addition to having their debt service almost double, we all know that during that prior administration's period, we had a lot of inflation, labor costs going higher, insurance costs going higher, rent going higher. So this is a fairly stressed portfolio. However, we have reported that we see stabilization in credits, both at the holdco and in the bank.

Nonaccruals at fair value, you can see on Slide 14, leveling off. Net increase in nonaccruals ticked up a little bit, but still a fairly low number. Notes issued in securitizations, only $127 million left. Those notes are capturing the cash flow until they get paid off. So we look forward to eliminating those notes as the loans pay off. The loans that were in the NSBF portfolio not too long ago represented 32% of the total balance sheet. It's now down to 13%. So as we said earlier, the loss declined in NSBF to approximately $20 million from $28.7 million the year prior. The accrued portfolio is down $88 million over the course of the last year. And 100% of NSBF loans are now aged 33 months or more, so they're through the top part of the default curve.

Also on Slide #15, we talk about some of the creditworthy aspects at the bank. You can see our delinquency, our currency ratio, the delinquency ratio is down precipitously, provision for credit losses are covering charge-offs, NPLs to total loans stabilizing and declining, all good metrics for NewtekOne and its shareholders.

With that, I would like to pass the baton to Frank DeMaria, our CFO, who will go over some financial performance metrics for the company.

Thanks, Barry. The next 7 slides will dive into the details of the highlights that Barry touched on. Turning to Slide 17. We have our financial highlights for 2025. We are particularly proud that we're able to concurrently generate balance sheet growth, earnings growth, efficiency and strong profitability while maintaining healthy capital ratios, all while our nonbank lender NSBF continues to run off.

Slide 18 runs through Newtek Bank's highlights, which paint a similar picture of balance sheet growth, earnings growth, efficiency and profitability. Important to note the overall downward trend in our cost of deposits as we continue to see a shift in the deposit mix with the growth in business deposits throughout the year. And while our ACL to loans held for investment coverage ratio remains healthy, we are starting to see a leveling as we've built the ACL over the last 3 years and start to see the bank's portfolio begin to season.

On the next slide, Newtek's deposit story continues to be a good one. We're growing both business and consumer deposits and offering what we believe to be tremendous value to both consumer and business depositors. As I briefly mentioned, the cost of deposits at Newtek Bank declined roughly 16 basis points sequentially, coinciding with lower market rates. As Barry mentioned earlier, and as noted on this slide, we're finding success in lending clients opening bank accounts with roughly half of the borrowers opening at least one bank account since we acquired the bank in early 2023. We expect that penetration rate to grow over time. We also believe we're creating sticky deposit relationships given our competitive market rates on deposits, our integrated business portal and our insured deposit rate, which currently sits at 74%.

Shifting to Newtek Bank's held for investment portfolio on Slide 20. The held for investment portfolio increased roughly 44% in 2025 with the portfolio mix largely unchanged throughout the year. Unguaranteed portions of SBA 7(a) loans comprised roughly 60% of the held for investment book, while the allowance for credit losses related to the unguaranteed 7(a) portfolio makes up the bulk of the bank's ACL, which resulted in the previously mentioned coverage ratio of just over 5% at the end of the year.

On the next slide, we show the operating leverage continues to be a meaningful contributor to our financial performance. We have consistently stated that our technological and operational infrastructure was designed to support a much larger balance sheet and organization. and we continue to deliver on those statements. Annual operating expenses were up just 2% in 2025 against 33% growth in assets, which supported that year-over-year decline in efficiency ratio from 63% to 58%.

We included the next slide in our Investor Day presentation a few weeks ago. We have maintained fairly stout regulatory capital ratios, and we've grown the balance sheet, strategically layering in capital along the way.

I'll conclude my portion of today's discussion with Newtek's financial projections for 2026 on Slide 23. Relative to diluted EPS of $2.18 for 2025, we have established an EPS guidance range of $2.15 to $2.55 for 2026 with a midpoint of $2.35. Estimates incorporate $1 billion of SBA 7(a) originations, $500 million of ALP or long amortizing C&I loan originations, $175 million of SBA 504 originations and $150 million of net growth in the combined C&I and CRE portfolios. Projected originations and net growth reflect step-ups from 2025 levels. We've included a quarterly EPS view for 2026, which reflects the recently closed NALP 2026-1 transaction in the first quarter and a projection for a second securitization this year in the fourth quarter.

And with that, I'll turn it back to Barry for the last few slides ahead of Q&A.

Thank you, Frank. Slide #24, which we talked about at the beginning of the presentation, this kind of represents a lot of what NewtekOne and Newtek Bank National Association are trying to do. We don't look like a community bank. We don't act like a community bank. We basically have built a financial institution to service our customers. Utilizing technology, we're able to provide a frictionless environment to exchange information, have customer service and business service specialists be on a camera and be available on demand. We give our business clients the ability to send and receive money at the lowest cost with the greatest amount of data and the greatest amount of analytics to run their business.

We actually give them loans that are valuable, not "I'll fund you in 24 to 48 hours, and forget what the rate is, but you got to pay me back the principal in 6 to 24 months." From a branding perspective, we disagree that being able to charge those high rates for quick money really provide great brand value. We do provide great brand value. Yes, we have larger provisions. Yes, we have greater allowance for credit losses, which cover the amount of losses that we'll achieve. We have accurately forecasted what our charge-offs are, what our losses are, and we have that reserve. And on top of that, we have ROAAs at the holdco of 2.7% and ROTCEs at the holdco approximately 20%. So we're able to earn greater returns with greater margins on a net basis. We're an organization that manages credit risk, not avoids it.

And when you look at the other organizations in the market that were also disruptors, some of them for consumer, some of them for online deposits. Axos, almost 5 years, on Slide #24, before the stock started to move higher. Now trades 11x consensus and 207% of book value. Live Oak Bank, 5 years for the stock started to move, trades at 13x 2026 consensus, 164% of book. TFIN, 6 years for the stock started to move. I hope this doesn't take 6 years. It's trading at 40% 2026 EPS. SoFi, 2.5- to 3-year period, sideways to lower before the stock making a move.

It just takes a while before investors get comfortable, get a feel for how the business works, test the model. You see it in Northeast Bank, you see it in LendingClub. These are all good markers for us. They're all technology-enabled banks that have been able to service their client base in similar ways to what we are, but we obviously got this positioning and expertise with SMBs, SMEs and what we refer to as independent business owners, a very viable and valuable demographic in the marketplace that we've developed this level of expertise over the course of 2 decades.

And with that, we appreciate the opportunity to present our Q4 and annual results. And operator, we'd like to go to the Q&A.

[Operator Instructions] Our first question comes from the line of Tim Switzer of KBW.

Barry, you told me for a minute -- at the beginning, I thought we were getting this question-and-answer session in a few -- in the first 5 minutes. I was ready to go.

That would have made everybody happy. But it was half an hour. We're getting better, Tim. We're practicing.

Sure. So my first question is something in the press release, you mentioned that you increased deposit account openings by about 50% this quarter. And I know it's something you talked a little bit about on the Investor Day, but it just seems like a pretty sizable increase in one quarter. Could you maybe talk about what was driving that and what your expectations are going forward? Because it seems like there's some pretty good trends.

Thank you, Tim. Look, first of all, we believe that the ability to access us digitally from your home in a frictionless manner for business deposits as well as consumer is important. And I think there's plenty of people that do it well for consumer, a little harder to do for business, harder to acquire, harder to manage. And we've been blessed. We've gotten through 3 years of audits, and it's worked out well. I think that we've got very good margins in our business. I believe the NIM at the bank has got a 5 handle on it. I got to go dig it out here. But I think it's -- Frank, was it like 5.3%, 5.4%??

Yes, 5.25%.

Right. So we're able to offer a generous rate and no fees, no asterisk, no waste. So the rates are generous. Now some people say, "Oh my God, those are really risky deposits." I think 78% of them are insured. And the important part is they're at a market rate. Those people aren't going anywhere. So our portfolio can afford to pay that deposit base. I think that's a more able deposit than one that is at 0. So we're paying a healthy rate. We don't see the attrition. Clients are sticking with us. They're not leaving. And we're getting more and more deposits. It's an interesting interest rate environment whether you think the Fed is going to drop rates. The recent Fed meeting says they're going to stick. So I think that's the fact that it's frictionless, the fact that our alliance partners are appreciating what we're doing. We're bringing on more alliance partners, and we're going to continue to be able to grow deposits to fuel good loan growth.

Awesome. Okay. Yes, that's good to hear. And if I'm looking at the noninterest income detail here, the gain on sale was maybe just a little bit light relative to what we had expected. It was flat quarter-over-quarter, but -- could you maybe talk about some of the trends there and what we should expect next year given your guidance for about $1 billion of SBA originations?

Well, we do expect the 7(a) business to pick up again. It was a bit of a shift. There's been a lot of changes in the SBA world. Some of these I didn't expect to be as dramatic such as the citizenship issue was dramatic. The inability to refinance MCA product is dramatic. Recently, I think this is going to be somewhat helpful. The SBA is going away from the SBSS score. We're waiting for some further guidance on this, but they're asking us to use our own scoring methodology. That SBSS score will stick until the 31st. So I think that our volumes will do better. I think you've seen entities like BayFirst get out of the business, a few others that I won't mention that seem to be having financial struggles that were of the fintech variety.

One of the other changes, which I think is important, is the SBA is clearly requiring forecasting of debt service coverage over time. And most of the competitors in the fintech space, these are technology companies that are not credit. They lay them off to other participants. They've got to change their whole front and end tech. We don't -- intake, we don't. So I think we're better positioned competitively. We've always been a 5 Cs of credit lender. We take liens. We spread financials. And our technology and our AI covers this. I think some of our competitors have got to put that in place, scramble and do it rather quickly, and it's also untested.

Okay. Got it. That's really helpful. I have a few cleanup questions, if you can entertain me real quick. The first one is, what were the net charge-offs for the bank subsidiary? I might have missed it, but I can't find it in the earning materials.

Right. Frank, total charge-offs on all loans held for sale and investment at 12/31 was about 2.2%?

That's right. And at the bank, Tim, to answer your question, was $8.2 million for the quarter and $23 million for the year, $23 million.

Okay. Okay. All right. That's helpful. And then are you able to provide the breakdown you guys have in the 10-Q for the gain on loans accounted for under the fair value. Are you able to give us kind of what portion of that was from the ALP loans versus the SBA loans?

So I'd say about -- go ahead, Barry.

You're talking about the unrealized gain between ALP and the 7(a)?

Yes. What you guys report, it was the combined number was $25.6 million this quarter.

Do you have that breakout, Frank?

Yes. It was about 35% on the ALP with the remainder on the 7(a) that we're holding.

Okay. With a slight loss in NSBF, right?

Correct.

Okay. So I'm calculating NSBF with a $20 million loss for the full year. That's close to like a $6 million, $7 million loss this quarter. So it stepped up a little bit?

That's right. That's correct, Tim.

Our next question comes from the line of Steve Moss of Raymond James.

Maybe just circling back to the SBA originations. I hear you in terms of the changes in the rules being a big disruptor. I know you had indicated and you kind of touched on it already, this call in terms of like the challenges a lot of businesses faced. Kind of what are you seeing for business confidence and business activity these days versus maybe 6 or 12 months ago?

Yes. I think it's a good question, Steve. I think that the rate cuts of about 1.5% from the high has been helpful, but it is absolutely 100% K-shaped economy, haves and have-nots. And businesses servicing the lower end of the market are as a customer, they're struggling and businesses that are serving the middle market or the upper end are doing well. So you really -- you kind of need to pick your spots here. I think we're all hoping that in 2026, productivity kicks in, and therefore, the inflation numbers push things down.

I'm not sure we're seeing that, to be honest with you, Steve. We're seeing commodity prices going high. I think oil picked up today, and the Fed is probably not going to do anything until you get a Chairman change. But overall, the confidence of businesses is good. People are spending money. The stock market is making people feel good, people that have portfolios, which is a lot bigger number today than it was 40 years ago. So I think business confidence is pretty good. Businesses are willing to invest, particularly in technology to make their business more efficient and reduce their expenses.

Okay. Great. And then maybe just on the AOP originations. Just kind of curious, you had another good quarter here. Do you expect that kind of continued cadence throughout the year or a step up from these levels? Or should we maybe think about some weakness here in the first quarter?

The first quarter is always a tough quarter for lending. And I can't explain why the first quarter is always great in the fourth quarter. First quarter is weak in the fourth quarter is great. I mean I can tell you the industry reason is people blow out their loans at the end of the year and people borrow at the end of the year and then they're exhausted and they go into the first quarter. I mean it happens every year. It's our weakest quarter.

With respect to ALP loans, I think it's important to note, business owners don't come to us for a 7(a) or an ALP. They come to us for a loan, which is why these daily debit MCA players make a lot of loans because people go to them for the money, whether it's costing them a 30 or 50 or a 70. They make the money they make readily available and they grab it. We do is we try to actually give them a good product. We lower the payment. It's massively different than for loans that are in that we're competing against because of the long am. We take longer. We're more thorough, but it's a better product for them.

And we -- by adding the ALP or what I refer to held-for-sale C&I or C&I long am, we're developing a reputation that if you're a business owner and you want a loan that's not MCA or daily debit, which dominates this industry and you want a low payment because you have interest rate in the high single digits or low double digits, we're the place to come to and get that long-term patient capital. So very bullish on ALP or what we're going to call C&I held for sale because it's going to go into a securitization.

And when people come to us, I mean, you can't -- I say there's always guards because you never know what sneaks in there. I don't think you can find SBA on our website. And we don't want to be known as the SBA lender. It was obviously with our history, it's one of the few things that we did. But we make all kinds of loans to businesses, including shorter am loans with a full covenant package, balloons and short repayments, which are more traditional for borrowers that insist on having a lower rate.

Right. Okay. That's helpful. And then in terms of the expense side here of the equation, just kind of curious, you guys did do a good job on expenses there. I hear you in terms of continue to upgrade systems and make things more polished. Just kind of curious how you're thinking about investments and maybe that cadence of expenses here.

It's an interesting question, Steve, because I've had a lot of conversation with expenses and expense control, and there's always a push and pull on the expense line. I think that we're continuing to grow the business. We're putting expenses, particularly into business deposit functionality and gathering. On a good note, I feel very good about the C-suite with the adds. The team is very much Newtek culture, Newtek. So I think that's pretty rock solid and pretty steady.

I would like to add some executives in the Biz Dev area to help grow the business and to help Andrew Kaplan, our Chief Strategy Officer, who's done a fabulous job for us. But I don't think you'll see explosive expenses, expense growth. I think we're in good step. Obviously, if you look at our revenue growth versus the expense line, I think we had a good year last year. We have a lot reserved for next year in the expense line so it should be very comfortable for us.

Our next question comes from the line of Christopher Nolan of Ladenburg Thalmann & Company.

Looking at the forward guidance, it looks like the efficiency ratio is projected to total revenues percent -- expenses percentage of revenues, to stay pretty flat with current levels, 55% to 56%. Assuming that's true, what do you see as the leverage for EPS growth in 2026?

Well, Chris, I hope I beat that expense line, but we've got that out there. I see the big leverage in continuing to grow business deposits from payroll, from merchant services to lower that cost of funds so that the dollars that we're spending to build out more inexpensive deposits will give us a lower reoccurring liability cost going forward. In addition, the ALP loans or the C&I loans held for sale, they're bigger and they're larger. I won't say they're easier to do, but we're seeing more flow there.

So it's going to be easier to get volume, from my mouth to God's ears, in that particular space and grow it versus the SBA business where the average loan size is, call it, $400,000. The average loan size in ALP is $4.5 million to $5 million. So that's, I think, where we see the leverage. Now the other thing that's important is there's leverage and expense ratio at the bank and at the holdco. Look, we need to continue to watch the expense line. I am hopeful that we beat the expense line this year versus what's projected, but I appreciate you pointing that out.

Okay. Great. It looks like margin expansion, hopefully, will be the leverage there, if I heard you correctly.

Yes. It should be.

And I guess as a follow-up, and congratulations on the deposit growth because I know that's something that you guys were aiming for, for a long time. Have you guys put in some sort of new mechanism where you deposit the loan into a new tech deposit account for that client or something which is sort of helping goosing along the deposit growth?

Yes. So when you apply for a loan, the data used to apply for the loan automatically populates the application for a bank deposit, which goes through KYC, AML, BSA group so that the deposit account is approved without a separate application, but using the data that we get from a loan. So that's made that a lot more automatic. And we are going forward, and it's been this way, I think, for about 6 or 7 months, we are requiring the borrowers to make the loan payments out of that Newtek account.

Okay. Great. And that generally is a low interest-bearing account. It's a core deposit account. Is that correct?

1%, yes.

Yes. So you're just basically -- that's going to be a driver for lower deposit costs. Okay. Good stuff.

And we increase the utilization. So if my staff is listening and hopefully, they are, they've got to diligently talk to customers and explain that this is, we think, one of the best accounts out there with 0 fee for ACH, 0 fee for wire, higher cost, you move your money back and forth between savings and checking. How does that sound, Chris?

Sounds great.

Our next question comes from the line of [ Dylan Hynes ] of B. Riley Securities.

I was wondering, could you share your perspective on how Newtek's SBA loans are performing versus the many others in the SBA sector that don't have your underwriting and other business services offerings that create better long-term customer relationships?

I appreciate it. I think if you go to S business, I believe the NIM at the bank it's got a 5 handle on it. I got to go dig it out here. But I think it's -- Frank, what is it, like 5.3%, 5.4%?

Yes, 5.25%.

Right. So we're able to offer a generous rate and no fees, no asterisk no. our margins they typically dwarf some of our big competitors in the space. So I would strongly suggest that you look at our margins versus some of our competitors with respect to ROAA, ROTCE and gain on sale. Once again, we believe that being able to put the loan out, treat the customer well, you can get a full margin loan. You don't have to be prime plus 1 or prime plus 1.5.

I would now like to turn the conference back to Barry Sloane for closing remarks. Sir?

Well, we appreciate that, and we appreciate the questions, and we're appreciative of the hard work the team has done to make this better and more concise. We look forward to being able to continue to drive results in 2026 with the growth rates that we had in 2025. We've got some challenges, but good momentum at our back, and we want to follow in the footsteps of other disruptors in this industry, but within our category of serving SMEs, SMBs and independent business owners because it's pretty untapped, and we've got a 2-decade head start on most of the players in the space. So we thank everybody for attending and look forward to reporting in 2026.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you for standing by. Welcome to today's program entitled NewtekOne 2026 Investor Day. I'd now like to introduce your host for today's program, Bryce Rowe, Vice President, Investor Relations. Please go ahead, sir.

Excellent. Thank you, Jonathan. I wanted to welcome all of you here in Boca and then those that have joined via the webcast. My name is Bryce Rowe, if you haven't met me, Investor Relations here for NewtekOne. We're very excited to be here today for the Investor Day. I wanted to make a few introductory remarks and then turn it over to Barry. So today's presenters here for NewtekOne we've got Barry Sloane, Chairman, CEO and President; Frank DeMaria, EVP and Chief Financial Officer.

We have Peter Downs, who is President of Newtek Bank, N.A.; and then Andrew Kaplan, Chief Strategy Officer. Definitely don't want to steal their thunder, but we'll run quickly through some of the logistics for the event. Barry and Frank are going to start with a financial presentation, including a discussion of the '26 forecast. Andrew will then cover the Newtek Advantage.

Peter will then talk about Newtek's technological advantage and how we're using AI, and then we'll go back to Frank and Barry to dive into the ALP securitizations before Barry makes some concluding remarks and we move to Q&A. As far as Q&A, for those of you here in the room, you're going to have the ability to ask questions. I just ask that you raise your hand. I've got another microphone over there, and that will give those on the webcast the benefit of hearing the question as well.

Those of you on the webcast, there's a chat box at the top right corner of that website. You can input questions there, and I'll be monitoring that and can answer -- can ask those questions for you. That should really cover the logistics. Before I turn it over to Barry, I do want to note Slide 2 in the presentation that covers some forward-looking statements, and those forward-looking statements could be made during the presentation. So just be aware of those. With that, I will turn it over to Barry.

Thank you, everyone. I appreciate you all attending our Investor Day presentation and conference. And obviously, the purpose of doing this today is to really give a better explanation of our organization, what we're about, what the company stands for and also to give greater exposure to a great management team that I have here between Frank, Peter and Andrew. For those of you that aren't familiar, the company was founded in 1998 out of a spare bedroom in a New York City apartment, 120 West 18th Street, Apartment 4B.

And when you go forward to Slide #4, Frank, if you could help me with that. Newtek's mission hasn't changed since the company was formed in 1998. I think what's important, particularly as you understand the culture and the DNA of the organization, is the goal of our organization is to build a company that provides business and financial solutions to independent business owners. So we're all about building a company and a business first.

For those of you who have followed the long and winding road over 27 years, 25 as a public company, we have taken different forms. We started off as a '33 Act company. We switched to a BDC when it became relevant to do so to grow the business. And then recently, and we are celebrating our 3-year anniversary of owning and operating an OCC chartered bank. But all in all, the important aspect of it is our goal to make our clients more successful has been the primary driver to what really runs this company each and every day. I think it's also important that we've developed a brand.

And when I say that, when customers do business with Newtek and they get a 10- to 25-year amortizing loan, they go, you know what, that's a real good loan. It sounds like they borrowed $100,000, paid $140,000 back at the end of the year and said, now what did I do? And who did I do that with? And is their value. We're creating a real brand. And when people ask me many times, why did you buy a bank, the simple answer, and I keep repeating myself and maybe more and more people over time will pay attention.

I do believe after today, after Peter speaks, Andrew speak and Frank speak, you'll have a better understanding of why we exist, how we help our customers and why there's really a brand to be built here that is currently built and that this is a very scalable operation using the technology of which many of you are not familiar with, including artificial intelligence, we have used across the different areas of gathering deposits and making loans.

Let's go to Slide 5. So from a technical standpoint, we're a technology-enabled financial holding company regulated by the Fed. In January of 2023, obviously, I mentioned we're celebrating our 3-year anniversary of acquiring Newtek Bank and OCC chartered bank. And within its 5 core verticals, we're able to offer to customers depository solutions through banking, making really attractive business loans that are extremely useful to their business growth, payment processing solutions, payroll and insurance agency.

Most importantly, we support independent business owners approximately 80,000 across the United States with one or more of our services. Also important to note, we'll spend a lot of time on this today, we use proprietary and patented advanced technological solutions to acquire customers cost effectively. It's extremely important. And importantly, to offer treasury management services through the Newtek Advantage.

One of the things that I think is totally misunderstood, I say this sort of tongue in cheek if you want insult me, say we're an SBA lender. Oh, yes, Newtek, I know they're an SBA lender. We are so much more than an SBA lender, it's not funny. Once again, one of the purposes of having this discussion today is to demonstrate all the things that we do for businesses. What I can tell you is the customer base moves money every single day. And we talk about the customer base. We're not talking about consumers.

We're not talking about Fortune 1000. We're talking about independent business owners that are identified as approximately 36 million businesses in the United States that have 2 employees to 2,000 and about $50 million to -- a couple of hundred thousand a month to $50 million of annualized sales or annualized revenues. I think it's important that when you look at our organization, we have patents on our technology, particularly NewTracker.

We have a patent pending on the Newtek Advantage. We offer a full menu best-in-class on-demand solution to a business. Our business clientele doesn't necessarily want to be bothered between 9:00 in the morning and 5, Monday to Friday. They want to be talked to in the evening, maybe on Saturday or Sunday, and they want to be able to not have to leave the comfort of their business or their home.

Therefore, our customer-facing staff is on camera and is available in addition to having great technology to be able to exchange data effortlessly and frictionlessly, we also give the customer a human being to deal with, particularly when they become a customer, every customer has a customer service rep whether it's in payroll, whether it's in payment processing, whether it's in servicing a loan, whatever it might be, we service our customers. It's very important to note.

When you look at our business model, it's cost efficient. There's a better client experience. There's less friction to becoming a client. And we believe that our solutions, whether it's a loan, whether it's payroll, whether it's processing payments, whatever it might be, is best-in-class for the customer. Let's go to Slide #6. This kind of an important slide. Many of you, obviously, are capital markets participant. I say this with great pain.

The most frequently asked question I get is what is wrong with your stock price, okay? I say that with transparency. I say that with candor. My answer really is nothing. It is what it is. I've had the stock price at $0.50 for periods of time, and we've almost been delisted. I've had at $0.39. I wasn't euphoric at $0.39. I wasn't despondent when it was at $0.50. We just go out every day and perform great solutions to business clients. And most importantly, we manage risk.

That's extremely important in every aspect of these businesses. You can't be in business today without managing risk, whether you're taking in customer data, whether you're helping clients, whether you're giving a lending solution, taking deposits, you are managing risk. So when we talk about what's misunderstood or I'll use the word underappreciated, #1, I'll say credit, I'll talk about credit.

There's a tremendous misunderstanding of what I'll call SME, SMB or small and medium-sized business credit. It is fully misunderstood. And I think that when you look at our organization, we have wider lending margins. And for those that are businesspeople, people or businesses that have great margins have the ability to absorb mistakes. Now thank God, in our period of time, we've made a few, but they've been small, and they haven't been great.

So the fact that we have wider lending margins allows us to have larger provisions for credit losses, higher allowance for credit losses. And in our 20 years of this business model, we do a really good job of managing risk. We believe this industry is in a risk avoidance spectrum. In other words, the typical loans that they make have very low margins and they're typically avoiding risk. They want to have no charge-offs, minimal amounts of allowance for credit losses.

But when you look at our returns, which Frank will talk about today, they're extraordinary net of the write-offs, the write-downs, the large allowance for credit losses. Importantly, the assets are mark-to-market on a regular basis. We have RSM, top 5 accounting firm in the United States evaluating what we're doing. We've had 3 years of audits from both the OCC and the Fed, and we've been doing this for over 2 decades. We know how to manage risk on a 10- to 25-year amortizing portfolio.

We have proven that as an SBA lender, and we'll spend a lot of time talking about the AOP business, which is not an SBA credit. The credit is extremely stronger, and we have data to back that up and data to show you. The acquisition of National Bank of New York City rounded out our offering of business solutions because now we're able to push everything into the Newtek Advantage. Andrew will talk about that today and the real benefit of offering a solution and an asset to a customer that basically gives you the ability to take their depository money below the risk-free rate.

Why should a customer give a bank money at a noninterest-bearing account or low interest rate if they're not getting anything. An FDIC insured depository account, it's a commodity. There're probably 4,000 places in the banking industry to get it, and then you go to credit unions, other forms of government insurance. So if this industry does not prepare to offer a value to the customer for the movement of money, for the holding of money, that money will move.

So we are very well positioned for the trend going forward in the business. I also want to talk about an important trend, fair value. I'm very thrilled. Lending Club has announced they use fair value. SoFi uses fair value. My good friends at Grasshopper just merged with Enova, they use fair value. I think we need to start to get used to this. It's not rocket scientry. It's not that complicated. I realize it doesn't necessarily fit the models out there, and some of you are getting it and we're appreciative of that.

But when you look at the math and you look at the numbers, and I think we'll be able to hear some of that today, it's very, very beneficial and valuable. Most importantly, we believe we've solved the 3 problems that exist in the industry. #1, cost effectiveness. Without branches or traditional bankers, we're able to operate the business at a 46% to 47% operating ratio -- efficiency ratio. That's only going to get better.

And you need to use technology, you need to have a human interface preferably in the United States for a business customer, you need to be available on demand when the customer wants you. Secondly, being able to put assets on the books that have value. I could argue that a bank standard 65% to 70% CRE loan or C&I loan or a car loan, the margins are razor thin. It's a crowded market, and there really is not a big margin forever.

God forbid, if the cost of funding for banks ever creeps up to where the customer because they can move money on a phone very easily, starts to creep up, it's going to be a problem for the industry. It will not be a problem for Newtek. And lastly, Andrew will talk a lot about the Newtek Advantage. We will earn the faith and trust of our customers through the Newtek Advantage to actually give them a business portal that makes them better, makes them more successful.

We're constantly polishing it, scrubbing it. important. We acquired the bank 3 years ago. This was a single branch bank in Flushing, Queens with no technology. So we've had to put this in. So we don't get any credit for running this business, making money, putting on 30,000 business accounts digitally, doing $1.5 billion of loans a year using a great lending operating system that Peter Downs will talk about. So many of you will be uphold at the fact that I'm going to shut my mouth for a while and pass the baton. Frank?

Thank you, Barry, and good afternoon, everybody. Thanks again for joining us today. A brief background on myself, prior to joining Newtek in May of '23, I spent about 9 years at KPMG auditing banks of various sizes before transitioning into the industry, where I held various roles, including Chief Accounting Officer at a publicly traded financial holding company. That, along with the almost 2 years that I spent at Newtek prior to my appointment as CFO, has given me, I'd say, quite a unique perspective into our mission as the preeminent small business financial institution.

I've titled my portion of the Investor Day presentation. The model is working, which feels like an appropriate title to describe Newtek since transitioning to a technology-enabled financial holding company. I don't think it's a stretch for me to say that many CFOs in the industry would love to put up the graphs on the following 5 slides to display the constantly or consistently improving fundamental financial trends, consistent growth in revenue and assets, and the stable to increasing capital levels that are comfortably above regulatory thresholds.

These include tangible book value per common share growth alongside a hefty dividend, revenue growth, industry-leading returns, as Barry mentioned, on assets and tangible common equity. And again, those regulatory capital ratios that have only increased since the transition to the financial holding company. So the model is absolutely working, and we'll dive into Slide 8 here. Again, book value per common share has grown. It's up 45%.

Tangible book value per common share is up 62% in less than 3 years, respectively. In absolute dollars, that's about $4.30 per share. And we paid a $2.05 per common dividend, which does not include the $0.19 that we paid last week. Bank stock investors and analysts are often screening for tangible book value growth over time because we only have that 3-year history as a financial holding company, we're not hitting the radar of the longer-term screens, those 5-year-plus screens for tangible book growth.

But we feel if this trend continues, and we believe it will, we're going to start showing up on those screens likely near or at the top. Go to Slide 9. Again, revenue growing nicely. Note 25 is an annualized figure for the first 9 months of 2025. And as you'll see in the next 2 slides when we get there, our fourth quarter is typically the strongest quarter of the calendar year. The primary takeaway from this revenue slide is the mix of revenue.

Noninterest income comprises roughly 80% of revenue, which is contrary to your typical bank, which is usually seeing 80% of that revenue in net interest income. We do acknowledge, and as Barry mentioned, fair value trends, we do acknowledge that a portion of the noninterest income consists of those fair value marks on loans that are originated to be sold, and we've dedicated a portion of today's presentation to help investors gain a better appreciation for that revenue.

Slide 10. This slide, we believe, is the very definition of operating leverage. Our franchise is built to scale. Our efficiency ratio has improved from north of 80% immediately subsequent to the bank acquisition and now sits below 60%, and there's no reason to think that this won't continue, and we won't continue to capture that operating leverage as the model continues to work. Our operating infrastructure can support a much larger organization.

And not only is that downward trend or improving trend important, but more so is the consistency of it. Slide 11. All the measures of profitability that you see here are, as Barry mentioned, exceptionally strong, so strong that it may give some pause. But if we continue to operate this model as we have and as we plan to do, we believe that this profitability will continue. And that's going to be difficult to ignore. Annual ROAs consistently with 2 or 3 handles is uncommon in the industry.

And as good as these are, there is potential for even further improvement as we continue to capture incremental operating leverage as provisioning for credit losses stabilize and we move away from some of the tougher vintages of '23 and '24 and continue to diversify our loan portfolio. And in addition, as our legacy nonbank lender, NSBF continues to wind down and becomes an increasingly smaller part of our balance sheet.

Slide 12. I also don't believe we get enough credit for how we've managed capital given the asset growth, most operators in the industry, the concept of managing capital is a combination of determining how much stock can be bought back and how big of a dividend to pay because there is very little aggregate asset growth in the industry.

Our asset base is growing because we've developed that expertise in certain pockets of small business lending over the 20 years that are hard to replicate, especially at scale. We have more than doubled our asset base in less than 3 years while also strengthening that capital position. So again, I'll say it again, the model is working. Slide 13. We'll shift to the forecast for '26.

We're showing a range of EPS of $2.15 to $2.55, 7(a) originations of $1 billion, ALP or C&I loans that we ultimately plan to hold for sale and sell at $500 million, SBA 504 originations of $175 million and net growth in the more traditional C&I and CRE held-for-investment portfolio of $150 million. We've tried to layer in a degree of conservatism to these estimates and believe if we continue to execute with growth in EPS and tangible book, we should start to see an expansion in our PE and price to tangible book multiples. And with that, I'll turn it back to Barry.

Thank you, Frank. Before I pass the baton to Andrew, I want to give an honorable mention to Nick Young. Nick, thank you for joining us here today. The father of Newtek Bank, National Association. Nick has left us for greener pastures, but we appreciate you being here for, I think it was 4.5 years and really set us up in a good spot to pass the baton to Pete. So thank you very much for coming today. And with that, I wanted to introduce Andrew Kaplan. Andrew is somebody, I believe I've known for about 15 years.

Andrew was an alliance partner. I'll let Andrew go over his background, but he is eminently qualified and a big disciple of our strategy. Once again, that strategy is to basically be the organization that makes our clients more successful, delivers state-of-the-art technology in a frictionless manner, understands the client experience and delivers a best-in-class solution to help customers grow their revenue, reduce their expense and reduce their risk. Andrew?

Thank you, Barry, and thank you, everybody. I am Andrew Kaplan, Chief Strategy Officer for NewtekOne, and I have the privilege to present the Newtek Advantage to everyone here today. A little bit about me, 30 years plus in the banking space. Prior to joining Newtek, I was with a growing banking organization, was part of a deal team that finished 14 successful banking transactions.

And if anybody has been part of a banking transaction, to get to 14 transactions, we probably did due diligence on a couple of hundred different transactions. So familiar with what the space looks like and what is out there. And what delights me the most about sharing the Newtek Advantage is this is a game changer. My opinion, nobody else out there has this.

This is a best-in-class client experience, which is critically important as we deliver on meeting that mission of growing revenue for our customers, reducing expense and reducing risk. The Newtek Advantage has been built for business. It is a client-first, client-centric solution, and let me share a little bit more with you. Next slide, please. The financial -- the financial services space is built in a very siloed structure, payments, banking, lending, payroll, all different verticals, different silos.

And if you obtain these products from an organization, from that same organization, we ask clients to go through, they ask clients to go through a whole new application process, a whole new structure and then clients interact with these solutions through very fractured solutions. So different log-ons, different systems. The financial services industry is very, very vertical. But independent business owners manage their financial business in a very horizontal way. It's all interconnected.

It's capital, its payments, it's the movement of money. And what we've done with the Newtek Advantage is we've brought that into a single friendly user experience. Next slide, please. The Newtek Advantage as a concept was announced by Newtek in 2012, cloud-based, web-based solution for independent business owners. Since then, it has been built and layered with additional solutions, practicing the art of what I would like to refer to as the Japanese art of Kaizen. It's a system of continuous improvement.

How is the world changing? How are our clients changing and how can we make this experience better. This top-of-the-line technology and because of the way that this has been thoughtfully constructed for client experience over time, not easily replicated by anybody. We don't mind sharing what our 7 secret spices are to our crispy chicken because nobody can recreate what has been built here over many, many years with absolute service to client. And we'll share that on the next slide.

But before we go there, let's talk about what this has delivered for Newtek now with the addition of the banking services to the platform. Since the acquisition of the bank, the bank has grown 7x in the past 3 years, 7x, $1.5 billion in assets. We have opened digitally 30,000 bank accounts. We will originate over $1.4 billion, $1.5 billion in loans in 2025. Our client acquisition tools generate 600 unique opportunities for us to have discussion about financial solutions a day, 600 unique opportunities a day.

Over time, we've assembled a marketing database that we communicate with often and we solicit often, 2.5 million names. And using this brilliant technology, efficiency ratio in the mid-50s, and industry ending. Next slide, please. So let me show you the Newtek Advantage. Within the Newtek Advantage, we have a frictionless environment in which our customers can add payroll services, payment services, their banking, their lending, all with a single stream frictionless wiring of their information.

Our customers can then interact with that on a day-to-day basis. As Barry highlighted before, why did we buy a bank? Most people buy banks as they want to drive more cash to the company. But no, this was the missing piece to a financial ecosystem and the most critical piece. As Barry highlights, people visit their bank account, check on their balances, check on their transactions 1 time, 2 times, 3 times a day.

You put this as the cornerstone and then combine this with payments, payroll, insurance, all real time, all frictionless, marry that to the bank, you get your payments quicker, you could originate your payments same day. And the entire experience in a single pane of glass, one screen. By the way, we didn't stop there. We also provide free and unlimited document storage. We provide free website analytics.

And while most banks will talk about how they integrate their information into a QuickBooks solution, which is the most common accounting solution used by independent business owners, we reverse the flow. You connect your QuickBooks accounts to the Advantage, and we can display for you real time, your balance sheet, your income statement, your revenue, your invoices, your money due and your balances across whatever other institutions you may choose to do your financial services with, all in the single pane of glass.

In the meantime, we don't forget the human part of what is really driving behind all this. As Barry highlighted before, at any time, you can speak to your Newtek representative or a Newtek representative if you're interested in a new solution on camera 24/7, 365 days a year. Picture above me happens to be Aniseko. Aniseko is in our offices today, on camera, sharing screens, helping customers all day long. This is not only the Newtek Advantage, this is the Newtek Advantage. I can just add one note.

As we look at a system of continuous improvement coming soon, you probably heard a lot about stablecoin and people looking at things truly quickly as that tool really moves money at real time, stay tuned. Our solution not only enables what we do at Newtek and what we do for Newtek clients, but it also helps enable partners. So today, for banks and credit unions, either some or all of our services can be provided to those institutions effectively and efficiently because we are scalable.

And later on, our President of the bank, Peter Downs, will talk about the technology that we use and how this technology has been developed under the hood of this and highly scalable, highly efficient so that we can drive more business part of that 600 opportunities a day that we drive to the organization through partnership mechanism. And what does that do? And why do people come to us? What problems are bankers trying to solve for every day, grow deposits, grow revenue, retain customers.

And we have a model where we can originate loans, and we can do it for their balance sheet and service those loans for their benefit. So we solve not only for ourselves, but for others, which complements our business and creates even more opportunities. That's the Newtek Advantage advantage. The bank piece and the bank acquisition were a critical complementary element to the entire structure.

It was an anchoring solution that we look towards. What we do is embedded. It's financial technology. It's financial technology at the finest, balanced with personal and available solutions, domestic and all Newtek employees. We help our customers consistently grow revenue, cut costs and reduce risk. And this is a best-in-class solution that cannot be replicated by our competitors. Thank you.

Thanks, Andrew. And what Andrew says it can't be replicated. This has been obviously approved in our business plan by the OCC, by the Fed with Reg W and understanding. And a competitor would have to buy a payroll company, buy a merchant processor, buy an insurance agency, buy a bank, be a long-term amortizing small business lender. I'm telling you they really don't exist. Put this all in and get the staff to do it at the same time and weave the technology in place.

So Pete is going to spend a lot of time talking about the technology. He's done a fabulous job historically with Dan Hendel, our Chief Information Officer. But we say this, it can't be replicated easily, but it's immeasurably scalable. I think that's important as well. Our ability to scale this, both from deposits, lending, payment processing, payroll, margin pool, it's all there. Unfortunately, most of the market doesn't really understand this and don't value it. And I wouldn't say it's a 0.

It's probably a negative, like what is that crazy company doing? But hopefully, with what Andrew has talked about today with respect to the Newtek Advantage, which is constantly being polished, honed and advanced. And when Pete talks about what we've done technologically, hopefully, you'll come away with a different viewpoint. In addition to comfort on credit, which we're going to give you today, we believe our credits have stabilized to improve. We'll be reporting in a month.

We'll be able to demonstrate that. But this technological aspect of it is no one asked about it. It's totally misunderstood. I mean I would like to know how you raised -- how you got opened up 30,000 bank accounts fairly quickly from a single branch bank in Flushing, Queens that their backup disaster recovery plan was driving a truck up if the power went down with a generator attached to it. And all of this is connected obviously, to the Fiserv core to NewTracker to the Advantage. Pete, take it away.

Thank you, Barry, and thank you all for attending today. It's 75 and sunny here in Boca. You all had a choice to do something else, but you chose to come inside and listen to us today. So I do appreciate that. Peter Downs, President of Newtek Bank. I think outside of Barry and maybe Jon Schmidt, who's here today, I might be the longest tenured employee at Newtek. Started here in July of 2003. I did start when I was 12. So it's helpful. And Barry is fond of saying I was 6-foot 4 actually when I started.

So a little shorter than that now. But it's been a great 22 going on 23 years at Newtek. I was asked to talk a little bit about our technology, our use of AI, kind of the future and what we're doing and how we do things. But I thought it was important to talk a little bit about history before we talk about the future and what we're doing here today. So July 1, 2003, I started at Newtek. I asked Barry, what he'd like me to do first. He said, get your hands around the pipeline of loans that we just started to develop.

I said, sure, I went out to the one and only underwriter we had, and I asked him to show me the pipeline. He took me into an office, and that office was a whiteboard sitting on a chair couldn't even afford to bolt it to the wall yet. We just had a whiteboard on a chair. It had 3 loans in marker, 3 loans. This is a true story, by the way. I'm not making this one up. It had 3 loans in marker. I came back about 15 minutes later to Barry, and I said, what do you want to know? And he said, oh, you've only been gone 15 minutes.

What do you know? You have a pipeline of 3 and they're tracked on a whiteboard with marker. And he's like, well, we got to do something about that. Let's go build a pipeline. So I went out and I said, let's see how we get referrals in. We had 2 referral partners. Each of those referral partners had a fax number to fax things to fax machine. One had green paper; one had yellow paper. When the fax would ring, it would have information about the borrower, how to contact them, what they were looking for.

We would take the paper off the fax machine, poke 3 holes in it, put it in a binder. That was the beginning of NewTracker. When we started to add on more referral partners, we were running out of color for paper. So we had to do something else other than fax machines and taking them in that way. So we developed NewTracker as it exists today. So you've heard Barry talk about NewTracker having a patent on it. You talk about the Newtek Advantage inside of NewTracker.

NewTracker started as our ability to communicate with referral partners to accept referrals for the products we offered at that time was merchant solutions and lending. They would come to us with that information through a username and password protected login. They'd be able to see that referral and track it through its life. We gave them a window into our back office, which was unique back in 2003 and 2004. We put a barcode on that referral.

We call it a referral ID, a RID for short, and they were able to track those referrals throughout the process from beginning to end. They could see the comments we made, how many times we reach out to their clients and what the process was going to be from there going forward. We matured that platform and grew some more referral partners and figured that we would start to focus in on the customer side of the transaction.

At that point, we were sending needs list out, and I'll talk about lending for a moment, needs list out to clients via an e-mail, and they were sending us back a FedEx package with their documents in the paper. And we would push paper around. And as we grew and grew in referrals, we realized paper wasn't going to be the long road for us.

So we built on top of NewTracker, a portal, a customer portal and interface to be able to grab documentation from those potential business owners, those independent business owners, and we had to make it easy so that we could track the information coming in as easy as attaching a document would be to an e-mail. And we were able to track throughout that process, all the information that came in. And we developed that and matured that, so we went paperless at that point in time.

And we started to be frictionless to particular business owners in helping smooth out the process. As we grew from there, we started to develop that further for our internal needs. So think about NewTracker now going from referral to document gathering and now to our internal processes. How do we complete a credit template? How do we gather information to document your loan and fund it? How do we provide funding documents to you? And then ultimately, when the loan is on the books, how do we service you as a client of ours over the next 5, 10, 15, 20 and 25 years.

And so we built a repository for those business owners to be able to transact with us their business, yes, initially and then ongoing as they became a client of Newtek. So that -- and I don't know if you can visualize what NewTracker is, but that is the core of what NewTracker is and we built this. We own this code. This is a CRM. This is a loan operating system. This is a loan servicing system. It is a doc prep system, fully compliant with regulatory needs, audit needs.

We'll go into some of that in these slides. But it's our system. We built it. We didn't buy it from someone and adapt our process to how they produce a piece of software. We bought it. We built it. We developed it over years. We own the code. It's ours, and we continue to use it. We have a saying at Newtek. If it's not a NewTracker, it didn't happen. So it's the core of everything we do, how our business operates, how our employees' function, and how we interact with our referral partners, and we take every referral very seriously.

They're like gold. We don't expect we're going to get another one tomorrow. Come in every day thinking that today is the day we're going to get a referral, tomorrow we're not. So we have to do it well. And that's how NewTracker was built. That's how we developed it over the years and how we integrate it into our company. So I just wanted to give a little background in history. It really was -- I do -- if anybody would like to see someday, I could show you, we really do have yellow fax paper and green fax paper, and I do have them in a 3-ring binder. So we can go to Slide 21, talking into today.

And today, we'll talk about -- we'll look at this from a lending kind of viewpoint. But keep in mind that what I'm talking about here today works equally well in our payments processing business, in our payroll business, in our insurance business and our banking and deposit gathering business. So -- but I'm talking about this in the lending operating system side of the equation. So we're driving scale and efficiency. How are we doing that?

Well, scale without hiring, automating workflows to handle growth without increasing headcount, sounds pretty interesting. Just to give you real numbers in 2022, we had 31 folks in the closing side of our equation. Those are closes, paralegals and attorneys. Today, we still have 31 people in that group. We are closing this year 3x the number of units we closed in 2022. So no additional headcount since 2022, 3x the number of units. That is the development of the technology that we just talked about today.

Digital customer access, as we just talked about, customers and referral partners can give us referrals, but customers apply track and manage their loans online through the phone, through their laptop. They all have access to see exactly where they are in the process. And then once they're a customer of ours to be able to manage their loan and their relationship with us online using tools like Newtek Advantage. Faster decision-making AI, big ticket today.

We're using AI to help streamline the process for quicker approvals. We are not using AI to make decisions. We still make decisions, but the AI is helping us do analytics and streamline processes. I'll give you an example. We have prequalification calls. Those are recorded calls between a business owner and a business service specialist. That recorded call is listened to and transcribed by AI, put in a format that starts our credit template to the transaction summary without anybody having to put fingers on a keyboard.

Have a conversation on the screen, as Barry was talking about, as we do all our interactions with borrowers. And from that conversation comes the beginning stages of our credit template transaction summary and all the foundation without putting figures on the keyboard. Think about having a conversation with a business owner, not having to take notes, not having to remember what they said, how many employees did they say they had, what was their competitive advantage?

What was the use of proceeds? Don't need to do that. Have the conversation, ask the questions, listen as a business service specialist. And then we're going to let AI do the enabling analytics and processing for us, drives growth, shorter turn times, best-in-class customer experience. Andrew taught me best-in-class. So he uses that a lot. So figure that's rolling in. Seamless integrations. We're connecting with core banking systems. All of our NewTracker systems are connected to the cores.

So when a customer is boarded, we're not putting fingers on a keyboard. It's going directly from NewTracker into the core. It's taking much of the heartache of boarding clients out of the way. Risk management, integrated tools we use to monitor credit risk, transparency, clear audit trails, internal regulatory, Nick Young didn't explain to me that this was a regulated entity and what that meant. Thank you, Nick. So there's a lot of scrutiny at the bank, as you can imagine, in how we do what we do.

NewTracker allows us to be able to do that in a very organized and electronic fashion without having to throw a lot of bodies at it. Clear audit trails, who touched the document, when they touched it, what they did with it, all recorded inside of the system. So very audit friendly, which is a big deal in a regulated bank environment. Track the application on smartphones and tablets and reducing operating costs.

Let me jump in for just a quick second. A couple of things to talk about. One, appointment setting. I think it's important. Pete and the team have built a funnel where we get 600 referrals a day, and you basically want to get back to the best ones first. So we quickly get out of fact finder, it gets answered. Someone from the comfort of their home or in a business gets a very fast answer. If they've been in the business x amount of years, if they have a high credit score, if their revenues are x, they get a secure file vault opportunity, which connects them and they get an appointment center, a calendar to speak to a human being, very different.

I think another important part is the funnel. We have one big funnel. Businesses come in for money. They don't know whether it's a line of credit, which we now do or connected to the core. They don't know if they need a term loan. They don't know if they need an ALP loan a 504 loan or 7(a) loan, but we guide them through that process. And the one reason that you all know this is true is because people take merchant cash advance and daily debit like that at 30% to 80% rates just because the money is there.

The customer experience, I would argue might be good for the moment. But at the end of paying that loan off after a year, what do they have? They may need to reborrow again at 40% rate. It's not a lot of branding. We have a totally different approach to making loans to this customer base, long AMs, no balloons, maximum flexibility and covenants. I want to bring one other point before I hand the phone back to -- the microphone back to Pete.

Obviously, we recently heard about fraud. Fraud is a big thing, particularly fraud in Minnesota and moving money. The reality of it is, if you give a customer funding, and I'm not saying it's here today, whatever, the government wants to know, is it any money laundering? Is it BSA? Is it AML? So the reality of this is we are a financially regulated institution that's got fintech inside of it. It's extremely valuable. So we all know that there are issues with Banking as a Service, Lending as a Service, in dealing with that organization, you get the best of both worlds.

And we've been regulated and examined over 3 years. It's fully compliant. So for organizations and customers that are looking for a model that's technologically capable, that's scalable and that's compliant, Pete, Dan Hendel and many others in the organization have built an incredible way to do business. And I will tell you, we have fairly large core operating platform providers that are interested in our lending operating system and working with us. And that is something that is testament to what Pete has built.

Thank you. Page 22. We are branchless. We're a unique bank. We had to open up digital deposit accounts for business customers, not consumers, but business customers had a lot of work to be done to be able to do that digitally inside of the platform that we've built and that we just described today. So we simplified small business banking to be able to open deposit accounts for business customers very easily and quickly using the tools that we just talked about today.

So ease of application, it's a simple intuitive process for the small business to open up deposit accounts online. We couldn't make it difficult to do. We would lose interest from people, integrated with our loan operating system. So all of what we just talked about in gathering data to get a loan in, we had much of the data we needed to also offer a deposit account for you.

So rather than ask you to put the information again to apply for a deposit account, we're able to integrate our loan operating system and our digital account opening process for deposit accounts so that there's no redundant data entry. It sounds easy. It's not. It's difficult. If it was easy, everybody to be doing it right now, they're not. So we worked hard to make it so that it's a single application for a business owner. These are independent business owners running their businesses.

As Barry said, want to communicate at night, weekends. They don't have time to be filling out multiple applications or coming into a branch and want to be able to do this on their own time in their own place of business. A single knows your customer process, KYC. Barry just talked about that, with fraud, money movement and all sorts of heightened awareness of issues that are out there today, having that process in place easily through our digital account opening process is key.

Instant offering with the loan approval. So when we have the loan approved, we instantly offer because we gathered the information, we needed to approve you for a deposit account at the same time you apply for the loan, and we did that single integrated KYC. We're able to instantly offer you a deposit account automatically upon your loan approval. You didn't ask, my mom always said, try to do something for somebody when they don't ask you do it. That's polite. Well, we're trying to be polite.

You didn't ask, we're going to offer it anyway. Direct boarding to the core as we do on the loan side of the equation, regulatory compliance built in. And as Barry said, we've been fully tested with banking regulations and audit requirements. And then the enhanced customer experience with faster boarding. It's one application. It's a better experience for the client. They don't have to do things multiple times. Page 23, I'll talk a little bit about AI and lending today and what we're going to do in the future.

We talked a little bit about the call recording and translation. We do automated review of financial data. So we're reading tax transcripts, bank statements, credit bureau information as they come in and placing that information integrated into our credit templates. We're not sitting here and typing in spreads for tax returns or your average bank balances or what your FICO score was.

They're coming in and they're coming in directly into our template. Speed, spreading the tax returns, spreading of the bank statements. It's not only speed and ease for our underwriting side, but it also makes it a more consistent cash flow analysis as it gets pulled in from the tax returns and tax returns lend themselves very well to this type of analysis. Line 23 is Line 23 on everybody's tax return. So makes it easy to do and gives us a more consistency of cash flow.

We look at -- we use AI to do some summation of documents. Think about leases, think about operating agreements or business corporate docs, think about franchise agreements. Somebody has to read those and pull key terms out of those agreements to see if they match what we're looking for in our credit approval. I'm making you a 10-year loan, I'd to know you have a lease in your building for the next 10 years.

Somebody's got to read a lease and look to see if it's a 10-year lease and if it's coterminous with the maturity of your loan. AI is reading those, summarizing those instantly as the client is uploading those documents to their portal and giving us back that information so we don't have somebody doing the mundane task of reading and picking out documents. They can actually do what they're paid for, which is make sure it actually fits what we're looking for.

So we're taking more mundane tasks and turning them into better and faster processes. Instant access to insurance needed to close loans. We started -- many of our loans would require keyman life insurance as an instance of this bullet point. Inside of our NewTracker portal is a connection to life insurance option. If you'd like to take life insurance out through Newtek insurance agency, it's a click of a button. It's about 3 minutes' worth of additional questions.

Again, we're porting over as much information as we have on the individuals already to the life insurance application, you're filling in a few additional questions. With those questions comes an instant quote bindable quote, bindable quote, not an offer, not come and talk to us if you're interested, but a bindable quote. Okay. There you go. Thank you. I appreciate that. I'm sorry, so you said it wasn't 3 minutes. It was only 1.5 minutes, so we had a client in here that held me accountable. Thank you very much for that.

They can choose who the beneficiary is, but it's assigned to Newtek. So if there ever were an issue and you needed the insurance to pay off the remaining balance of the loan, you could use that insurance payoff remaining balance of the loan. And that's the key that was what I was getting to on the next part of the insurance. It's not only a bindable quote that's instant, but you're delivering the policy with the assignment language back to us as a lender.

So that used to take days, if not weeks, to go to carriers to get the actual policy and then the assignment back to us before we can close. This is now instant. So thank you within 1.5 minutes, we delivered an instant bindable quote with an assignment back.

[indiscernible] never delivered.

So we had to purchase the second insurance, spending $1.5 million again and eventually, that was a very successful experience, the client experience.

Thank you. And we're not related in any way. So that's...

No.

This is what is emphasizing the position that we have in the market of embedding solutions into a single application. So if you come in for a loan, the solutions are embedded. We're about to roll out the P&C policy for the loan, the life is there for the loan. The flood insurance is there for the loan. So it makes the lending process much better. The bank account is there for the loan. So it's one application and you get multiple solutions all at the same time. That's the benefit. So crossing back to what Andrew was talking about in the Newtek Advantage.

Do you think business owners want to go to ADP, want to go to the bank, want to go to their daily debit provider and their -- I mean, this is all in one place. Now we don't force it. We don't require it, but it's there. It's convenient. It's at the right price, people take it. And that's what we built. And that's what, frankly, very few people know and understand. I will tell you that the internal teaching, training and mentoring of our staff to be able to roll these things out is at a very low level, but it's still working, and it's going to grow from here. Pete?

Thank you. I want to go to Page 24. What's all this going to do for us, right? It's nice to say that we do all these things, and we have all these things integrated, how do they become tangible offerings. So because of the loan operating system we have, the digital account opening process we just talked about for business deposits and the AI that we're using today, we're able to look at 2 offerings that we're focused on and very excited to roll out. Small business term loan launch.

That will be apply and prequalify in 7 minutes, close and fund in 7 days with a real term loan, long-term 10-year amortization, which is going to give you much lower payments, secured by business and personal assets, not just the daily deposit loan and hope the money is there to when you want to debit the account to take the money out. These are secured loans. They'll meet SBA eligibility criteria. competitive interest rates, talking prime plus 3.

We're not talking about 40% on the daily deposit merchant cash. underwritten, not score-based. So we keep to our 5 Cs of credit and loan size is up to $350,000. This is achievable because of the things that we've built inside of that loan operating system, that digital account opening process and utilizing AI. In addition...

Let me pause here. This is the one area of a hole in our offering just because we're competing against the TV ads that says, come to me, I'll make a loan in 5 minutes. I'll get you the money in 5 days or whatever the heck it is. We can basically be able to go out on a secured basis, extremely important. It's not daily debit, it's not MCA. And through our technology, I'm not saying it's going to fit everybody, but make a secured offering with liens that will help us on the credit side where we could do well at prime plus 3 and the customer walks away and goes, I'm not paying a 40% or 50% vig for money. So this will be added to it.

What are the terms of these companies that hit you up and are proactive and...

Well, typically, social media. You could -- I don't want to mention names on the call, but the MCA players, and there was a big play in the market with one player that's kind of merging into a private company, they're public, but it's able to deliver the money quickly. I mean the business owner today, if they want the cash, they want it quick and they want certainty of funding. They're not discriminating. It's not to say they're happy after they realize that after a year, they paid all the principal back and they paid a 40% to 50% rate on it.

They can't be happy. and they might be okay, but they're not thrilled. We offer what we refer to as an adult loan. And now we can give them an adult loan. It's not going to fit everybody; we want to basically -- we're not in the business of funding businesses leading to the cemetery. We're in the business of funding businesses that should be underwritable. They've been in business a long time. They have a legitimate business. They have good balances in the bank. If they need quick funding, we can do it and we can get security on the loan. So we will have this particular program, Pete?

So you're talking about when you get these things to your text, and you see these on a daily basis. We've talked a lot to business owners because we talk to them on a daily basis, hundreds. And it is ease and speed as well as the terms that we offer. So using the tools that we've built to be able to offer something that's easy and quick to be able to be funded and keep us into the types of loans that we make today is really what we're trying to take advantage of.

So we had this in place, and we've worked hard to put this all together so that we can offer these things on a quick basis. Offering #2 is what we call the triple play offering. We talked earlier about having one application to be able to do multiple things. And this is the culmination of that work. One application, I'm going to get you 3 instant offers. The business bank account that we talked about today and our business bank accounts have no fees, no fees, and pay you interest on your balances.

I give you earnings credits towards -- and offset the fees that we charge you, so effectively, you have no fees. We don't charge you fees. And we pay you interest on your balances. That is actually cash that we put into your account on a monthly basis in interest that you can go and spend and go and do things with it. So this is not earnings credit offsetting your fees that we're charging you so that you think you've got no fee banking. No, this is true, no fee banking, not charging you and paying you interest.

We're able to do that because we don't have a back book of fee interest. And when you look at our net interest margin at the bank, what's it Frank, it's about 5.5%, give or take.

Give or take.

About 5.5% at the bank, give or take. So these are risk-adjusted returns, which is what I talked about previously. So if you're making low margin, no-risk loans, you can't do this. As a matter of fact, most of the bank's entire business model is predicated upon interest way below the discount rate and the fees from the back book. We don't have the back book. So we're able to actually give our customers a really good deal. It's true 100%, no fee banking, no asterisk, no BS.

Even if you bounce a check, we don't charge a fee. Won't let you bounce checks for too long. But even if you bounce a check, there is absolutely no fee, no minimum, no asterisk. So -- and the triple play that Pete is talking about probably start up with a minimum of around $10,000 to get you that instant decisioning. It's connected to the bank account.

You put that and you attach it to the debit card that's on the business that has a cash back capability. It's a pretty powerful offering to a small business. There will be no fee for the line of credit. There'll be no non-usage fee. So if I want to grow my payroll book or I want to grow my merchant book at the same time, you could pick up a $10,000 line of credit doesn't cost you anything, extremely attractive.

Some of us bankers would like you to charge a fee on NSFs, even if it's a small one.

I'll argue with you after, that's not my question.

Frank, 30,000 accounts opened, I think you had up on your sheet or Andrew. What's the average balance in those accounts? Where does it start? And what's it grows to when it's normal?

It's about...

Hopefully, somebody up there knows, Barry is not...

We're just putting the -- who's going to answer you. It's about $50,000 in size.

And those are -- we're not talking CDs, right? Those are...

No, it's...

Transaction accounts of some kind.

It's very -- we don't do consumer checking. It's consumer high-yield savings. Of the 30,000 accounts, those have been opened. There's probably about 27,000 that are open today. So some of those were CDs that came in and were rolled off. There are about 7,000 business accounts.

Okay. That's -- and how many business checking accounts would you open in a month?

I would say -- the utilization of business checking accounts, I would say it's probably around in a month, 300, 400.

And am I correct today that those are only offered to people that are borrowing money. You have not yet rolled out a program to offer the Advantage without the loan to small businesses.

We have not aggressively marketed the Advantage as a product to itself. You can get it from our website, but we have not gone out and aggressively marketed the Advantage. If you have a merchant account with us, you can access the Advantage. If you have a payroll account with us, you can access the Advantage. So it's not a requirement.

Right. But today, there's a huge opportunity to offer business checking accounts to the millions of businesses that don't borrow money.

Absolutely.

If it's because of the customer experience.

Yes. And I think, Birk, it's a good point. We've grown very quickly. I don't think anyone could argue that. I'm not sure I want to grow any faster than we're currently growing, but we're doing it methodically. We're doing it in a compliant manner. And I would say the biggest impediment, which we're spending a lot of time on right now is teaching, training, mentoring and educating our staff because we still do believe that outside of having really good software, customers do want to talk to somebody, particularly this particular customer base, so.

Yes. I'd be happy to have you have unlimited growth in business DDA without loans. So you can find a place to put that if you find it. Second question, you're going to do $1 billion in 7(a), I think was shown $500 million in ALP in 2026. With your customer acquisition strategy, which is very low cost, unique to the company that you've built, is that strategy sufficient today for you to double those amounts to $2 billion and $1 billion? Or do you need to do something else more of the same in customer acquisition strategy or new customer acquisition strategies?

I think that particularly in the ALP business where the average loan size is $5 million, it's easy -- it will be relatively easy to grow that business. You go from 100 units to 200 units; you're going from $500 million to $1 billion. We are in discussions with a lot of channel partners that are off the charts, monstrous and huge. So that's possible to grow the business. There's a very easily to expand the distribution strategy through channel, and we're also very interested in growing the direct business as well. So question was about ALP loans, and we're about to get into that portion of the presentation.

They've proven to be well underwritten with good credit quality. The program has existed since 2019. We're currently in the market as I sit here today. So when I leave here, I'll put my bond hat back on and we'll be in the market with a $350 million collateralized transaction. The question is, could you put an ALP loan, which I've also called a C&I loan held for sale into the bank. And the answer is there's -- it's a C&I loan. It's a bank eligible loan, and that is something that could be done. Okay. Pete, are you going to finish? You all done?

No, I took enough time, so...

All right. We -- if you can hold the questions because I want to get this out of the way, and then we got a big Q&A at the end. We are ahead of schedule, which I'm very pleased.

The next part of the presentation is this underappreciated aspect of NewtekOne, underappreciated, understood, and it really relates to the alternative loan program. Let's go to Slide 26.

But before I get into that, I do want to make a comment. And we talked about earlier sort of where we're underappreciated or misunderstood. We do believe that Q2 to Q3, we demonstrated stability both at the bank and at the holding company through the old NSBF portfolio, which is a legacy SBA lender that's winding down. We'll be reporting most likely at the end of January, I haven't given a date, that will probably be next week. I believe you'll see stability and improving performance in those credits. I'm not prepared to give out numbers today, but I'm confident and feel pretty good about, a, the economy and our performance in the fourth quarter. So I think that's important. That clearly has been an impediment to market participants looking at the level of nonperforming loans, the provisions and things of that nature.

We're fairly adamant that the cost has been absorbed. It's been written off. There's no surprises. It's appropriate. And maybe after another year or two of operating, everyone will get to appreciate that and understand it. But even with that, those numbers, we believe, will be viewed as positively when we report.

So let's go to Slide #26. The alternative loan program, which Kirk from Patriot, one of our larger institutional shareholders brought a question. We also refer to them as C&I loans held for sale. We originate them and we put them in special purpose vehicles, and we securitize them. We do that because these loans are longer amortizing loans. They have longer durations. They're meant to have longer durations because they're actually attractive capital for the business. Holding back the principal payments, which we think is overrated from a credit perspective. [indiscernible] likes to get their money back. I get it. They really need it back after a year, and we substitute that long amortization for personal guarantees, joint and several for liens on personal and business assets. And all these loans have very strong debt service coverage ratios. And we'll go into some of those metrics.

But important to note, the C&I loans or the ALP loans have much stronger risk profiles than those of SBA 7(a) loans. I think I've had some people say, well, these -- are these just loans that have bigger than a $5 million balance? The answer is no. That's not the purpose of loans going into this particular bucket. The operating history is longer. As a matter of fact, look at the average operating history on the 2025-1 deal, it was 16 years. I think the current deal we have in the market is 10 years or longer. So these are seasoned businesses.

We say the loan-to-value is lower. The average LTV on these loans is about 50%. You don't get that in a 7(a) loan. The guarantors have got stronger liquidity and supporting financials. I would say the average guarantors net worth is clearly seven figures and some have eight and some actually have nine. So then you would say, well, why would anybody with those strong financials take a loan that has an interest rate that's in the low double digits?

Well, the reason is we give them greater flexibility. We treat them as an adult. If they're willing to guarantee their personal and their business assets, if they've been in business a long period of time, if the businesses have debt service coverage ratios of 2:1, which is typical for an ALP loan. Well, so you could pay your principal back slower. If you want to borrow money, you can do that without necessarily having to ask us. You don't necessarily need to give us monthly financials, but we have everything tied up, and we're happy about that. And this is the experience that we've learned in being in this space for over two decades. Important to note, every one of these loans has a business appraisal. So these are not little businesses that don't have significant material values.

About across $850 million of originations across 180 loans since 2018, we've had $23 million of defaults. We've had $6 million of charge-offs. That's a pretty good record. We believe these loans historically in the portfolio will have a 3% cumulative charge-off over the life of the loans, and they're valued that way.

Important to note, the assetability match is a 4- to 5-year duration. Why is that? Well, we get very nice margins on these loans. So because we have nice margins, we want these loans to stay on our books. So the borrowers are typically willing to accept a 5% prepaid penalty in month zero through month 36, meaning if they want to pay the loan off, you got to pay a 5% prepaid penalty. In month 36 through 48, it's a 3% prepayment penalty.

So typically, these loans do stay on the books unless there's a tremendous liquidity event, somebody comes in and wants to buy the business. In that case, they'll pay the prepaid penalty. But our experience in doing this is these loans typically pay off once they get past the 48th month, and the loans have a floor at the original rate of interest and then they typically float. They're fixed for 5 and then they float at T plus 9.50. Better client experience versus our competitors offering that quick money because loan gives them a longer prepayment period, a lower monthly payment. They're not paying yields of 40% to 80% at the end of the year, they have to do it all over again.

ALP securitization that we recently completed in April generated 570 basis points of spread income. We talk about spread income, that is the net coupon on the loans going into the special purpose vehicle versus the yield on the securitized bonds. If you included the 100 basis points of servicing, that would be 670 basis points. So the servicing asset is particularly valuable given the prepayments. So we have the ownership certificates marked at a 14% net yield, and that is a net yield net of a 3% charge-off. If we did it gross, it will probably be 15.5% to 16%. So these are the fair values. Our obviously, a public accounting firm analyzes these values as does Frank, our internal audit team. And we do have a third-party organization that looks at the valuations on these, and we'll be doing so at the K for this year.

These assets are mark-to-market quarterly. So we're looking at them every single quarter. Fair value is not something that is foreign to us. We did it as a BDC from 2014 to current date. And it works. It makes sense. We see SoFi, the Lending Clubs who just announced they're going to go to fair value, Enova, other lenders that are in this space being comfortable utilizing this. And by the way, this is no different than CECL. It's just upside down. By the way, I've never been asked a question about CECL before. People don't ask about CECL. But oh my God, the question is on fair value, it's the upside down. CECL, you're forecasting what your loans are and you're putting a charge upfront. That's the same assumption effectively that goes into fair value, except you're theoretically present value in the income. But given that these assets are going on the books at a 14% yield, we're not taking all the juice out of these things. There's still plenty of juice. So we'll go through this a little bit deeper. You'll see the cash flows.

Let's go to Slide 27. Okay. So we've been a securitizer since 2010. 13 of the 16 securitizations were backed by 7(a) loans, and these were the uninsured portions of the 7(a) loans. We've never had a credit watch of our securitizations. We've never had a downgrade. All the bonds have held up very well. We've done three securitizations backed by ALP loans, and we're currently bringing a fourth transaction that hopefully will be announced next week.

So if you look at some of the numbers here, and I want to point out, the 2026 one is a hypothetical of what the pool looks like, but it should be very similar to the 2025-1. But you could see what the spread income is. And by the way, that's a spread income of 568 basis points. So if that was in a bank, and the bank said, I have 568 basis points of spread income. By the way, on a bank's liabilities for deposits, they have a tremendous amount of expense in managing that book of business going in and out. In a securitization, it's kind of set it and forget it. Yes, we have to market.

The loans are in the SPV, the bonds are sold and you're just clipping the coupons, right? And we evaluate this every single quarter. So if you said to me, what's the cost of that liability? Well, it's fixed, it's fixed based upon the securitization yield on the bonds that are sold. So that's just a nice cash flow that's sitting there. It's coming in. It's held up at the holding company. We've also done this with joint venture partners. And people say, well, why do you use a joint venture partner? Why don't you use a joint venture partner? It's just another alternative form of capital. It's diversification. It also validates the fact that the prices and the yields that we're putting on the books are validated by institutional investors. '22-1 joint venture partners, [indiscernible], Tennenbaum Capital Partners. That deal has come full circle. It's unwound. The bondholders got paid. The joint venture partner got paid. They're very happy. They moved into the sunset.

The 2024-1 deal TowerBrook is our joint venture partner. And obviously, they're validating these valuations. We have more validation going on than I'd care to shake a stick at. I've got ungodly amounts of validation, ungodly amounts of cost. The good news is we figured out ways to actually make loans that on a risk-adjusted basis, drive return on assets north of 3% return on tangible common equity, 25% to 30% because we do things differently. We're a disruptor. It may not necessarily neatly fit into the call report, but we're getting there. People are beginning to understand it.

I also want to point out being a disruptor in an industry that typically doesn't disrupt. And maybe this is not a great example. But I recently looked up some of the entities that I mentioned, the SoFis and Lending Clubs, they flatlined for a couple of years. And then all of a sudden, people got comfortable with how they were doing things and the stock price took a different portion. And obviously, these traded at entirely different multiples than our multiples today.

But I looked at a company called Carvana. Maybe it's not the best example because they clearly have got a unique background and a unique past. But what are the similarities? Carvana looked at the used car market, similar to the independent business owner market, big market, big opportunity, not a lot of people in it. So Carvana did an IPO, I think it was in 2017. And then COVID happened. I think the stock at the IPO was like $15, $16, $17. Then COVID happened, they get traded at $3. I didn't look at Carvana in the last couple of days. The last time I looked, it was over $400 a share, okay?

What does Carvana do? That's simple that we do? Well, they put technology in place so that an individual from the comfort of their home can buy and sell a used car and can get the car provision. They can get all the payments done and get the insurance done. So they use technology to disintermediate an industry that wasn't used to it. But it took a while for the investment community to get comfortable that they can keep on doing what they're doing. So my suggestion to all of you is just keep watching what we're doing. We're through three years. I feel very good and confident about this particular management team. There's probably about 15 other people I'd like to put on stage today, but we'll do this in small bites because I know you're used to hearing me talk. But on Slide #27, this is a good idea of what actually is in these particular portfolios.

Let's go to Slide #28. Our equity certificates in ALP securitizations, they're on our balance sheet. They're represented by the balance sheet of Holdco VI, which is a segment. It's held at fair value. It's valued quarterly. And particularly on the K, it will be evaluated by a third party with expertise in valuations. As I mentioned, the 2024 deal is held by a joint venture with an institutional investor. And we do value these things every quarter. And when we do joint ventures, the partner is approving our financials and obviously, our valuations as well.

We're using discounted cash flow. It's not that complicated. We're looking at the performance of the underlying loans in the security, our internal accountants, our external accountants, they're looking at these. We're looking at change in interest rates and market clearing yields and discounted cash flows. It's something that we've been doing, obviously, since 2014.

Also important to note, the cash flows of these securitizations are modeled on INTEX. So for those people that are not in the ABS securitization market, you can go on to INTEX, you could see how the bonds are performing. They're the recognized provider of cash flow models for asset-backed securities in the United States.

Slide #29, we talked about what these loans look like in the securitizations, the spreads, how they're valued. I think it's important to note, and we'll go right down to the last bullet on Slide #29. The way these deals are structured, 90% of the excess spread income is used to pay off the senior bonds, okay? That's really important. And because of that, the book value, which are just the assets in the special purpose vehicle less the bonds, grows very quickly.

And you can see that on Slide #30. We refer to this as overcollateralization. It could also be referred to as book value. We estimate that in a typical deal in 3 to 3.5 years, the book value because of the excess cash flow that's coming off of the deals will prepay the senior notes so that the book value will equal the fair value. So these are things that you could take a look at in the existing deals that are out there, the 2024-1, the 2025-1 deal. These might be information that we start to put into our Ks and Qs. But the reality of this is we're not making this stuff hub. This is how the market works.

Slide #31 kind of gives you a hypothetical example of how profitable an ALP deal could look at. Now so -- and it's important, this is non-GAAP. I want to repeat. This is non-GAAP. I say it's non-GAAP because if you look at the cash flows of $3.325 million and $1.4 million of interest expense and you look at that January through December, boy, that's a lot of income. As a matter of fact, it's approximately $22 million of income on the current securitization. But it doesn't -- we don't treat it that way.

Well, that excess cash flow is going in to pay down the senior bonds, and we're fair valuing the instrument at a 14% yield net of the 3% charge-offs. By the way, if the charge-offs are coming in at a bigger number, we're going to make the adjustment. We're going to make the adjustment on the valuation of the equity certificates, either up or down. And the third parties looking at this are going to make those comments. And our external audit firm, RSM is going to be looking at it.

But you could see by these cash flows, there's tremendous value in this business opportunity. And these are not short-term loans. These loans have call protection with a nice wide spread with really strong credits. So I would say to most bankers in the room, if you had a debt service coverage ratio of greater than 2:1 and you had an LTV of 50%, and not a pretty good loan. So maybe you would allow the business. Maybe I'm creating new competitors in the market. I wish you all good luck and a lot of success doing this. It's extremely painful.

But the point is long-term amortizing loans with no balloons make a lot of sense with personal guarantees and leans on personal and business assets. This is just stuff that we've learned over 20 years of doing this business. A distribution channel is set up to do this. We also have an SBA and securitization track record. So we're able to get the funding to be able to do this at the holding company level. We have investors that keep lining up to buy our bonds on a regular basis. Hopefully, I'm not changing our transaction for next week, but we're in pretty good shape.

Eric, do you want to ask a question? So that's a real number that we've said on calls. And I don't know if it's actually written into the Ks and Qs, but it's a number that I've said in transcripts. It could go to 13 or 12. It could go to 16. It will change based upon the market clearing yield for cost of capital and what's going on in the markets. I mean we're -- when we go to an ABS conference, we typically have 32 meetings in two days. So these are yields that institutional investors subscribe to, whether that's in CLO equity or equity in any part of the ABS market. So we're not making it up. I'm not saying that there's a locked market at 14 or that it shouldn't be 13.75 or 14.25, but this is the number that we believe is correct. We're comfortable with it. And we actually think that there is an element of conservatism to the mark, particularly given how the cash flows will gravitate so that the book value will achieve the fair value in a reasonable period of time.

So you didn't do gain on sale or you didn't have gain on sale, but instead you just recognize the cash flow. What would be the yield based on the cost? And in other words, how much of the -- relative to the cost of creating the residual are you marking it up when it goes into -- when you do the securitization at that point?

So I think the question is -- and I get asked this occasionally, would you consider, for example, using CECL for this business? I won't consider anything. This is currently how we do it. I don't see us changing in the near term. We might. We have the ability to make that change. But we think this is clearly consistent with doing securitizations and putting the valuation on the residual.

At the end of the day, Ron, at 570 basis points of spread income, net of an expected loss, it's a pretty attractive asset. And we market it as such. And every single quarter, by the way, if it was done in the converse, you'd still have the same quarterly valuation of marking it and figuring out what the loss is. It really isn't any different than the other way of doing the business.

Now one might say, is it really reoccurring income? As matter of fact, I remember being at a B. Riley conference, and I had an investor say to me, Oh my God, you're going to have a huge hole in the business next quarter if you don't originate any loans. And my comment was, well, gee, if Apple doesn't sell any cell phones next quarter, they're not going to make any money either. So part of this is our business model is to make loans and sell them. We're in a return on equity and return on asset business. We'll continue to do this.

By the way, the SoFis of the world and the Lending Clubs of the world that are doing this, they're trading at pretty hefty market multiples, and the market seems to be comfortable with them. So that's my answer to your question. Chris?

Chris Nolan, Ladenburg Thalmann. First of all, I want to thank you all for this great show, great presentation, all the details and appreciate hearing from the different management teams.

Two-part question. One, the first part is for the securitizations, do the regulators, bank regulators require you put more capital against the loans you're going to securitize as opposed to loans that you don't securitize or is no difference?

I think that when you look at the equity certificate, there are certain capitalization levels, whether it's held at the bank holding company or we haven't done a securitization out of the bank. It is part of our original application. So it's not that we can't do it. It's totally permissible activity and provided it made sense from a match funding standpoint, we would do it. But there's capitalization requirements for ownership certificates in a securitization that we obviously would follow.

Second question, given everything you said and the attractive spreads and so forth, is a commercial bank the best vehicle for this?

The commercial bank is the best vehicle for Newtek because of the NewtekOne platform, the Newtek Advantage. And by owning a federally chartered institution, we've been able to diversify our financing in the 7(a) and 504 business, which is currently done in the bank. And we're actually able to offer the clients a platform of moving money, which they typically do 3x to 5x a week, 12x to 8x a month.

So the question was a great question. And one of the things we're trying to get across today is please don't value us as a lender. That's probably a mistake. Although the money gets the honey, okay? And we get a lot of people coming to us because they're interested in using our organization for growth capital. A lot of businesses come to us to get a 10- to 25-year amortizing loan, but they don't qualify. So the best thing that they could do, open up a bank account, process payroll with us, do electronic payment processing, so we could charge for sales on a regular basis. make sure that your business is insured and you don't have cancellations on your insurance policy.

So we are very happy being a bank holding company owning a bank. We just don't wish to be looked at like a community bank. We like to look at a company that provides business and financial solutions and is really able to help customers and have multiple streams of revenue and reoccurring income that are incredibly valuable. And also importantly, we are an organization that knows how to manage risk.

Barry, do you want to move into Q&A?

Yes, let's go right into Q&A. That's great. Thank you.

And for those on the webcast, remember, you can use that chat box at the top right of the website. I'll go ahead and pass the mic to Crispin here.

Crispin Love, Piper Sandler. Barry, I know you want to keep talking about the fair value, so I got one there. Can you talk a little bit...

I'm not going to talk about fair value if asked me a CECL question. I want to do the yin and yang.

Okay. I'll ask you both. So first on the fair value marks, how they're impacting the '26 guide. Can you just talk a little bit what's implied there for net gains on residuals and securitizations and then net gains under the fair value option as you look at the total noninterest income or the -- what's it the $330 million in total revenue that you're expecting?

I would say you're probably -- a lot of it depends upon whether we do the ALP business out of joint venture or whether we put it on our books. I would probably say 1/3 might be based on the alternative loan program. But that's conservative and that's subject to change.

Okay. Okay. That makes sense. And then because you asked on CECL, if you did carry the ALP loans at cost like a lot of other balance sheet lenders out there, a lot of banks and then accrued a loan loss provision consistent with CECL, how would that impact the '26 guide?

We probably make you very happy because I would fit your model like that. And you'd be looking at the interest income and you'd be forecasting it and you'd see this net interest income line just doing great and my ROAA and my ROTCE would probably go down. So -- the CECL reserve probably would be consistent with what we think is a cumulative 3% historical charge-offs. So you probably put maybe 2 and change upfront or something of that nature. We get 3.5 points of origination fee. But then you'd have this huge spread income and you'd be clipping coupon and everybody that buys community banks would get all excited and who knows, maybe we get a better valuation than where we currently are.

I mean the reality of this is -- and I'm just making a comment. This is not rocket scientry. This is easy for all of you to figure out. And you could take a position, you think it's aggressive or not. But we've made a lot of changes. This is not one that I particularly see us making in the near term. I think we're just going to continue to do what we're doing, make a lot of money and we keep originating these loans and doing these deals, we'll be just fine.

And could you ever put the ALP business in the bank? And if not, why not?

We certainly could because the loans are OCC eligible. They're C&I loans, and they're underwritten to federal standards based upon the OCC model for a C&I loan. I would ask the bankers in the audience a question. If you could make a C&I loan that had a 50% LTV debt over 2:1 debt service coverage ratio with a personal guarantee and you got a hard collateral against it. They'd be lined up around the block. The important part, in my view, is the asset liability management through a securitization.

So I'm trying to keep this thing as simple as possible for as long as I can before I make another change. And -- but right now, we're doing just fine. It all works. It all works. I appreciate the question. And thank you for this. I was almost going to pass the baton to Frank, but I figured I can answer that one.

Steve Moss, Raymond James. A couple of questions. Maybe one, just starting with the 3-year anniversary. What changes could we see going forward here now that you've hit the 3-year anniversary with the business model, if any?

Yes. I think that from a holding company consolidated basis, I don't see any product changes. I think it's really a lot of -- which is thank God, oh my God, distress to get the policies and procedures, the software, the compliance and the rigors of running a bank in addition to turnover. We've had turnover. I've talked about this on calls. So, no, we're really excited about just coming in every day and doing the blocking and tackling. So I don't see any major changes.

I will tell you, we do plan on using the bank balance sheet more, particularly diversification. I think about 46% of the bank's balance sheet is in uninsured participations in SBA loans. I think we'd like to get that number down as a percentage. And I think we have ways to do that, that are quite interesting, particularly we talk about the triple play, the lines of credit, things of that nature. So we feel pretty good about everything that we've got in place, and it's really a lot of blocking and tackling.

Okay. Appreciate that color. And then the other thing you mentioned here was with the ALP loans, they typically, I think, have -- you expect them to pay off after about 48 months, if I recall you saying that correctly. So just kind of curious, what's the catalyst that drives that typically for a customer because loans are much longer in terms of permissible life?

Yes. So it's a good question. So if you look at the 2022 deal, which was primarily created by 2018, '20, 2019 originations, then we had COVID. So the world stopped, and we put probably a couple of 2021 originations in there as well. When the loans hit what we perceived as the fourth and fifth year anniversary, most of them were gone. Now we were able to take some of them and roll them into this new deal. So that was helpful. But the driver is that they're performing if you think of the life cycle of a small- and medium-sized business owner, many of them sell their businesses, they'll sell the real estate after that period of time, too.

So there is a tail, but a good chunk of them do tend to go. But the biggest advantage is the flexibility. For -- if you have a deal with a business owner complaints about a bank, these are the common complaints. Oh, I got to give them regular monthly financials. Oh, I got to give them regular quarterly financials. Oh, they're all over me because I'm tripping a covenant. I mean they just don't like the oversight due to typical and traditional bank covenants.

So for entrepreneurs that are not afraid to PG, have strong guarantees, this gives them a lot of flexibility. They will pay the higher rate because on the AM schedule, because they're not repaying the principals, you're basically giving them equity as well as being able to distribute more freely, like a lot of them don't understand, well, why can't distribute my own money? No, you got to keep half of it if you get a good loan in the bank. So you give them that flexibility. We're okay because we have the collateral. So it works well from a credit standpoint. It's a different way of looking at credit.

This is Emily Lee stepping in for Tim Switzer at KBW. So for modeling purposes, what kind of assumptions should we make for the fair value mark upon origination for an ALP loan? I think at the end of Q3, the cumulative mark up on the portfolio was about 9%, and it was super helpful to see all the income statement mechanics laid out. But what would be the net impact to earnings on the day that it goes into the securitization? Is it generally neutral overall or a positive impact because you get the servicing gain?

I think what you're going to see going forward is really just the valuation on the residual. So we're going to try to eliminate some of that noise in the interim period. So it's really just are you comfortable valuing the equity certificate in the asset class.

Understood. And then kind of on the guide, what kind of deposit and loan growth assumptions are embedded within the 2026 guide?

I think they're pretty modest, to be frank with you. It's always a fun conversation. I've got the public guidance and then I've got the stretch goals that I'd like to have the management do and holding people accountable and all that other kinds of stuff.

So they're pretty modest. I think particularly on the deposit side relative to cost of funds reduction, what do we have about -- we have like 50 basis points, Frank. Well, that's [indiscernible] right. So we've improved about 50 basis points this year. So we're -- it's a fair disclosure conversation, so that's okay. I don't think we're there next year. I think we're probably a quarter maybe. So we've probably dropped our cost of funds by about 1/4. I think that's conservative.

But I also believe that banks are not going to be able to drop their rates as easily as they think they would. I think that's going to be fairly sticky. I think that's going to be a surprise. We are rate agnostic with the exception of the fact lower rates are better for our legacy portfolio and our borrowers from a credit standpoint. But apart from that, we are fairly well asset liability matched.

Very helpful. And then if I could do one more. Do you have any updated thoughts on capital deployment and the decision between dividends and repurchases?

No major changes. I think we're in pretty good shape with respect to our capital position, particularly with the securitization coming up, which will free up a lot of liquidity. We did obviously a lot of capital raises and substantially improved our capital base in the second half of this year. This is a tricky one.

Obviously, the dividends are only approved by the Board. I don't think it's likely you'll see much of a dividend change, but that's subject to change every single quarter. I think we'll stick there. That dividend was set with the stock price significantly higher. And now it's at a level that's just like wow. And relative to repurchase, we made an announcement. We bought some stock back. I think you'll continue to see us take advantage of that opportunity. We're still trading below, I believe, what is tangible book, where we perceive tangible book going.

So yes, I do think we'll continue -- we have an authorization to do that. Blackout period goes away shortly. Time flies pretty quickly. So yes, I think we'll continue to opportunistically take advantage of the authorization we have.

Andrew Scutt from ROTH. And maybe an Andrew for Andrew question. But as you kind of grow, you're looking to grow business deposits, telling clients the advantage of putting their money in Newtek through the Newtek Advantage. Kind of what has resonated with clients so far, maybe friction points that you didn't expect on client feedback? And kind of how is the account opening to deposits in the account conversion rate going, do you think, in your opinion?

So what resonates is these. The bank account essentially comes with the loan. Today, so does the merchant account. So that's there. What we are working on and improving where I think you'll see lift in the organization is improving utilization.

So today, we don't necessarily say you've got to close your old account. But we need to keep tantalizing folks to bring them into the Advantage, be interested in the other solutions that we have to offer. And we don't look at this as cross-selling. In fact, we find that phrase to be repugnant. It's not cross-selling, it's not bundling. It's a financial ecosystem. And the more that we introduce customers to that convenience, the more folks become frustrated with their existing depositories and the more opportunities we have to do one more thing with folks, and that's really what we are marketing heavily at this point. We see the level of engagement picking up, which will create stickier deposits, greater deposits and greater adoption of the other solutions.

All right. I'm going to -- Barry, I'm going to ask a question from the webcast and then walk over to Hal and give them the mic.

So the question here is Newtek has a compelling 7(a) business where loss rates are more than offset by very compelling loan yields. As we look forward, what do you think a good expectation for lifetime default and severity rates might be for 7(a)? Maybe that's repeat, too.

Yes. Historically, we have estimated that the cumulative lifetime charge-off rate or loss rate is about 8% over time. Now mind you, these are long-term amortizing loans, so that typically gets spread out over time, and there's loss curves on this with humps. Therefore, our CECL reserve is about -- it vacillates between 6.25% to 6.5% present value, but that will obviously be affected over time with future value.

Bryce, I'm not sure I see that changing dramatically. I see that it's sticking. I don't see that -- I certainly don't see it getting worse. I don't see it getting better. I will point out that 2021, '22 and 2023 vintage years in an SBA floating rate loan program, that was the great financial crisis for small- and medium-sized business. I want to repeat that. The great financial crisis for SMBs was '21, '22, '23. Why? Well, if your rates went up by 3% to 5%, your debt payment almost doubled, put aside the fact that the cost of labor went up, the cost to insure went up, every expense went up. And really, although you could say the economy was good, it wasn't particularly robust so that the NSBF portfolio, which lost $28.5 million in 2022 is anticipated to lose materially less. I don't want to preempt their call coming up.

And then even in 2020 -- I'm sorry, in 2025 is expected to lose materially less, you could figure it out for the first three quarters and will be less next year because that portfolio is burned down. It's a diminishing portfolio. It also has a capitalization of about $200 million, which we would really like to free up, okay? It's in loans, okay? But as that pays off and goes away, it turns into cash and has a tremendous amount of usefulness for a lot of lovely things. So we look forward to that portfolio continuing to pay off, returning capital back to the holding company and going from there. Hal?

My question relates to Slide 18, the Newtek Advantage is designed for deployment by banks and credit unions seeking to modernize their experiences for the clients. Is this something like a Platform as a Service that you're offering to banks? And could you expand on it a little more? Have you got some banks and credit unions in pilot or explain more on that.

Yes, this is an interesting one. So we go to banks and credit unions and make offers to them to help them raise deposits and make loans under the program. So you'd say, well, why would you do that? Well, we'll be the payroll provider, we'll be the merchant processor or in the lender service provider, -- they'll pay us a fee to maybe to service the loans or to do the kickouts.

I will tell you this is not an easy sale because you've got to cut through why am I letting the fox in the henhouse. I will tell you, we've done business with partners like UBS, Morgan Stanley, Raymond James forever. And we do not take their deposits. We don't take their customers. The NewTracker system gives a great audit trail for that. So this program is a great program for depositories to partner with us. It's available, and we've had some that are taking advantage of it, but it's at very early stages.

And if I have one follow-up on that last comment you made about maybe for SMBs from 2020 to 2023 was kind of the great financial crisis. I don't think that view is widely understood.

No...

And -- maybe that was. Yes. But that was tapered over with a lot of PPP loans that helped out quite a bit. But for 2026, 2027, based on what you're seeing now, can you give us maybe a macro outlook that you're seeing right now based on the phrase below is their cost of funds is down about 1.25% to 1.5%. That's helpful.

Inflation, although it's still positive, the rate of growth is slower. It's methodical. It's not spiking up in their face. There's a lot of slack in the business. Some of the businesses are having problem with employees and employment, particularly with losing undocumented workers. But -- I mean from Q2 to Q3, and I've indicated and we'll announce it Q3 to Q4, the portfolio has stabilized to improve in NPLs, both in percentages and in absolute dollar amount. So we are seeing less stress on that portfolio.

I think that's an important announcement. I'm sure my Chief Legal Officer will be man, I had said that comment. But this is what my belief is at this point in time. And Frank sweating bullets, so is Pete.

Hal, any else? Thank you very much. Ivan?

[ Ivan Jimenez, Greenholder Corporation ]. My question relates to the future as assets are held, particularly there was a cursory mention to digital assets. And I'd like to know what -- I would think the company, Newtek would be well positioned to take advantage of the Genius Act and the -- let's say, the transition towards alternative and digital assets, particularly stablecoins. So if you could -- someone can highlight, there's a cursory mentioned, but if you could highlight more as to how that could apply to the net digital platform of Newtek.

Sure. I'll try to differentiate between Bitcoin and I'll call it stablecoin. We're -- we don't have any interest in Bitcoin. We -- it's historic value, it's not transactional. It's not a currency. We have no -- we have nothing to do with Bitcoin. Stablecoin is something that has utility. And we do plan on having it on the menu. We have a partner that we'll be using. We're not going to be spending ungodly amounts of money creating our own stablecoin nor are we initially and maybe forever going to use stablecoin to gather deposits. Andrew has tremendous experience. He created a stablecoin at Flagstar Bank, New York Community Bank. Frank also very familiar with it from Signature Bank as well. So we've seen what's good about it and what can possibly be problematic.

The value of stablecoin and putting it on the menu is that, first of all, for international businesses, it's great. You get rid of the currency risk and you're able to move money with some level of immediacy, so it's valuable. Two, for businesses that do business, on Saturday and Sunday and for whatever reason, they want to see the asset versus waiting for their Visa or Mastercard to batch out or in the middle of the night, we believe we have customers that would like to have it as a choice.

What does it mean? It means their customers are going to have to get an app. The customers are going to have to use the app. So for B2B, it's a lot easier. In other words, if I'm a business and I'm constantly paying this party and it's international, it's not a big deal to use the app. You pay with the app, you get rid of the currency risk, it hits. And then the business easily has the ability to turn that into cash at a finger snap and they're not waiting and they're not transferring and they're getting paid a rate on their money. So there is application there.

Our goal as a provider of the best solutions in the Newtek Advantage, you can move money through credit card, debit card, by the way, we have our own debit card with big interchange because we're not a $10 billion bank. So the utilization of that debit card, which should be a line item and should be something we really push to get utilization should be valuable to us.

ACH and wire, invaluable. So if you're a business, don't you want to go to one place and see every place where you're sending money and receiving money and then get analytics for that as well? The answer is yes. You don't really want to go to three or four places. You don't want to go to Fiserv or your merchant processor, go to your bank and then you want to go to one place and see it all. Therein lies the Newtek Advantage.

And also in terms of sending and moving money, it's payroll. It's payroll. You want to be able to have payroll, you want to see your merchant batches in the Advantage. You want to be able to see your ACHs, your wires all in one place and be able to get analytics and have it integrate today only QuickBooks, but down the road, it will be other accounting packages as well.

Guys, I just want to thank you guys for doing this. I think it's extremely helpful. Chris Lahiji, LD Micro. Two questions. First, has -- can you, Barry, give us kind of a little bit of color on how the appetite for M&A has changed for Newtek year-over-year? And then my second question is, do we really have a publicly traded comp that you guys kind of use as a North Star or a guiding light?

Thank you, Chris. So first question, relative to the M&A market, it's off the charts. I mean the bankers that we work closely with that specialize in M&A for banks, they haven't been calling me lately because their phone is ringing off the hook, okay? So I mean, there's -- they're all lined up to do deals. Everyone is buying and a lot of people are selling.

So the -- and by the way, parties that weren't interested in owning a bank for the obvious reasons are now interested in owning a bank. So the value of an OCC chartered franchise has just gone up through the roof. So that's a good thing for us. Secondly, comps. There isn't one. The best comps, I believe, are some of the ones I mentioned, the Lending Clubs, the SoFi, Enova/Grasshopper, technology-enabled banks. Some people compare us to Live Oak. The only thing that's consistent between us and Live Oak is we both have a government-guaranteed loan program that we're good at. But apart from that, they're not -- they don't acquire customers the way we do. By the way, they do an amazing job in creating technology and spinning it off for huge sales and gain on sale.

Everyone is happy about that. But God forbid, you put a fair value on ownership interest and like, oh, what is this? But if you sell a business, and I don't blame, it's a cash sale. I get it. But I think the point is Live Oak is probably not a great comparison of ours. But if you look at their ROAAs, ROTCEs, they're just different. By the way, I wish I had the market multiple. So I appreciate the question. But we're going to get there.

Steve, another one for you.

Thanks, Bryce. So, Barry, just maybe following up on SBA originations. Your guidance is essentially flat year-over-year for originations. I noticed you made the comment about shrinking as a percentage of your balance sheet in future periods.

Just kind of curious here, rates have come down, as you mentioned, better economic setup for borrowers. Kind of normally I would think of you maybe originating more in 2026. But maybe is it a change in some of the SBA rules or maybe a change in some of your underwriting just to tighten the box? I noticed like the number of originations or daily referrals is at 600, I think it was 800 before. Like is there a little bit of change maybe underneath that we should be thinking about with regard to USB originations?

Yes. And Steve, I appreciate the question. I think what you will see at the end of January is clearly diminished volume in 7(a). Now we've confirmed our guidance. We're going to deliver the earnings numbers. Part of that is the government shutdown. This was the longest government shutdown in history. Part of it is the SBA regs changed, and they changed in a bigger way than I thought they would have when I got asked this question in July or August.

Some of the issues are how the SBA actually does their business. They're now doing their own OFAC and CBR checks, which might be different than how we do them. And then you got discrepancies and you can't make them go away even though they may or may not be wrong.

In addition to the issue of making sure that every owner, even a 1% owner has to be a U.S. citizen. That showed up in a more prevalent manner than we would have thought or anticipated. In addition to not being able to utilize an SBA loan to refinance a merchant cash advance. So these things have been problematic.

We also have tightened up our credit score guidelines somewhat. And from my perspective, as long as we could satisfy the customer. And the one thing I working with Pete for 22 or 23 years. I've never had to worry about him pushing loans out to make numbers. It's not a good thing. It's not what we want to do. It's why we've been around for 22 or 23 years. So you will see diminished 7(a) loan closures for this year. The projection for next year, we've made a few changes that I think due to the technology, due to new alliance partners coming on because that stuff is constantly coming going.

So, Steve, for example, if you previously had an alliance partner that was doing business in the categories that you can't do it anymore, all of a sudden, those referrals come down. So it's always coming and going. We're always shifting and making changes in the business. We have a couple of monsters that we're talking to that could be a game changer for all aspects of our business. And we think we feel pretty good about where we are. I mean the one thing I'm not overly concerned about at the current market multiple, anything with a 2 handle is a pretty good EPS.

So the key here, keep the car going, keep it on the tracks, don't make bad loans. That's what we've been -- that's what we've been doing over 25 years. So -- but I do think that the dominance of the 7(a) business, it's less and less important to us. It's still important. I'm not throwing the baby out the bathwater. We're really good in the business, and we're going to continue to be good. We just want to continue to do it at the high level that we've done it over two decades.

Barry, there's one more here from the webcast we're at. About 3:10. I don't know if you want to.

Yes, let's take one more and then we'll call it a day.

It's similar to Emily's question, but it's around capital allocation and how the Board thinks about retaining capital internally, buybacks, dividends? How do you all think about that at the Board level?

I think the Board, obviously, and we meet frequently, I would -- my directors earn their fee. They'll probably now be asking me for an increase. But it's pretty hard. I mean, in the past, I would basically say, I'm paying people for this, but no, no, they earn it. So -- and I speak to them very frequently pretty much every weekend on an off basis, not all of them, but a good chunk of them. And I think that they're cognizant of all the stakeholders, the creditors, the employees and the shareholders, and they're constantly paying attention to that.

Obviously, from a stock price, this has been somewhat painful. We're not necessarily the most popular people at a cocktail party when your stock is down. But on the other hand, they've looked at the business performance and opening up depository accounts, making loans. not having any surprises with our regulators from the standpoint of what our expected provisions and charge-offs. So they're extraordinarily pleased.

Relative to the concept of -- I'm just going to make this -- whether you're paying a dividend or buying shares back, that's financial engineering. I mean, if you can buy stock back below your tangible book, it clearly always makes sense. If you could pay a nice dividend, that's really important because if the stock price goes down, people are being rewarded for waiting. So we don't see those things dramatically changing.

I think that the most important thing that shareholders can focus on, is this a business that I now understand it's got tremendous technological advantages. over its competitors in the space. I have a greater appreciation for what they're doing and the accounting and the cash flows. It's a company that's been around for 25, 26 years. There's tremendous insider participation and ownership. That's not changing. It's never changed. And they're good risk managers. So not to say that it could never happen, the likelihood of us blowing up after doing this for such a period of time and being very clearly invested in the business ourself is less likely than a management team that's typical at our competitors that doesn't have the ownership mentality.

So we're very appreciative of everyone attending. We had great attendance here today, people tuning in and really listening. We're not going to hide from the fact that we are not simple. We don't fit the mode, and we are more complicated. On the other hand, all this stuff makes a lot of sense. We're all invested in this. I could tell you, there's nobody on this front for here that doesn't work 70-plus hours a week that gets e-mails in the middle of the night from some strange person and works very hard for the purpose of creating a successful business. If you create a successful business and you do right things for the customer, everything follows through.

So I can't thank everybody enough for traveling and attending today and also being very appreciative of the patience as well. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

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" Keefe, Bruyette, & Woods, Inc., Research Division

" Piper Sandler & Co., Research Division

" Raymond James & Associates, Inc., Research Division

" B. Riley Securities, Inc., Research Division

" Ladenburg Thalmann & Co. Inc., Research Division

"

Good day and thank you for standing by. Welcome to the NewtekOne, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Barry Sloane, President and Chief Executive Officer. Please go ahead.

Thank you, operator, and welcome participants to our Q3 2025 financial results conference call. I'm Barry Sloane, President, Founder and CEO of NewtekOne and Newtek Bank National Association. Joining me on today's call is Frank DeMaria, Chief Financial Officer of NewtekOne, the publicly traded holding company, stock symbol NEWT on the NASDAQ; and Scott Price, our Chief Financial Officer of Newtek Bank National Association.

We certainly appreciate everybody attending the call today and the investment that you've made in analyzing and evaluating Newtek as an investment opportunity. We'd like everybody to try to focus today, in addition to the great financial numbers that we put out, really look at the investment in NewtekOne from a business perspective; how we raise deposits, how we make loans, how we're able to do this with low expense ratios in the marketplace and really create what we believe is a business model for the future for a technology-enabled bank.

Once again, focusing on technology and efficiency in a market that we clearly see is rapidly changing. Obviously, the focus on credit quality is important. I think we'll be able to demonstrate that; our credits have stabilized, both within the bank and at the holding company through the NSBF results. We have a slide to demonstrate that. And we're also going to be able to focus on raising deposits below the risk-free rate, which we also think there'll be future benefits based upon how we have ourselves situated in the Newtek Advantage by performing payroll for our customers, merchant services for our customers connected with a bank account, which we actually think is rare and unique in the marketplace today.

In addition to that, as you could see from the press release, we just put out; we have some outstanding numbers for return on average assets, return on tangible common equity, efficiency ratio. And also, we're excited about approaching our 3-year anniversary as a bank holding company owning a nationally chartered bank, and we're very pleased that we have been able to demonstrate our ability to manage the bank, manage risk and hit all of our strategic goals and objectives, importantly, according to plan.

Investors that focus on what we're doing in the marketplace believe we'll be happily rewarded over the course of time. What we do believe is that we really don't compare and contrast well to $300 million to $500 million community banks. I just came from a conference sponsored by the American Bankers Association on small business finance and small business as a targeted marketplace. I met some of my competitors. We're just very different than them in every facet, and we'll try to bring some of that as we go through the call.

We'd love for you to ask questions, why can we grow deposits below the risk-free rate without traditional bankers and branches? Why are NPLs higher? Important to note, they're higher, but we're still profitable. And also, why are these 3 things that we do very well going to continue such as raising deposits below the risk-free rate, being able to do loans with our lending operating system in remote locations as well as the important progress that we've made in our Alternative Loan Program.

We'll focus on that today. For those people following along, please go to newtekone.com, go to the Investor Relations section, where you can find the PowerPoint presentation.

Please go to Slide #2 and note the statement regarding forward-looking statements, make sure that gets absorbed. Now go to Slide #3. Important always to reemphasize the mission of the company because at the end of the day, it always gets down to the customer. If you do a good job for the customer and there's good margin in your business, you're going to do well for all your stakeholders.

Our mission has not changed since the company was formed in 1998, which is providing business and financial solutions to independent business owners all across the United States. Within this mission and recently acquiring a bank and being a bank holding company, we've opened up 22,000 depository accounts in our window of time, and we have 10,000 borrowers in our database that we've been able to do remotely without traditional bankers, brokers, BDOs or branches. We do payroll for 20,000 employees, and we're processing electronic payments for over $5 billion on an annualized basis.

On Slide #4, once again, focusing on who we are and our mission statement, take a look at Newtek being a technology-oriented financial holding company. We look at that particular organization as we are now also a depository. That's important to note. We do not want to be compared as a community bank that's traditional. We don't look like one. We don't compare like one. And what we really do well, acquire customers cost effectively, service their needs with great margin and make loans on a risk-adjusted basis. We manage credit risk. We don't avoid it.

So, if you look at our financial statements, we typically have higher reserves. We also have higher nonaccruals. But on a net basis, after that expense, we're still extraordinarily profitable. So, in January of 2023, Newtek acquired what is now known as Newtek Bank National Association to add depository solutions. We use proprietary and patented advanced technological solutions to acquire customers cost effectively.

We receive about 600 business referrals that are unique a day. And we have a full menu of best-in-class on-demand solutions because our customers, they want you on demand. A typical entrepreneur and business owner doesn't necessarily want you from 9 to 5, Monday to Friday. They want you on Saturday. They want you on Sunday, they want you in the evening. We service this independent business owner clientele, which is extremely important.

When you go to Slide #5 and focusing on this target market of independent business owners, SMEs, SMBs, small and medium-sized enterprises, small- and medium-sized businesses, there's more than 36 million business owners in the U.S. according to the SBA. According to U.S. Chamber of Commerce, it represents 43% of U.S. GDP. And according to the Small Business Administration's website, through the last 5 years, we have been able to support or stabilize over 110,000 jobs, which is the second highest amount of jobs supported by all the lenders in the SBA 7(a) program.

We think this market is important. We think it is valuable. We do know that the top 4 banks and many other financial institutions based upon what I saw at these recent conferences are trying to figure out how to bank this particular customer base, and they have to go beyond just getting their deposits, which they typically take in, in a noninterest-bearing fashion. We do that for this customer base, and we believe we're being rewarded for that.

Slide #6 talks about those nuts and bolts that we all like to focus on. So, we take our slide rulers out and our compasses and our protractors and look at all these nice numbers that we've got. So, we have a very healthy Q3 and 2025 earnings and revenue growth.

When you look at Q3 basic and diluted, $0.68 and $0.67 over the course of the first 9 months of the year, it's $1.57 and $1.54. The growth rates are up 47% comparatively and 22% when you look at that year-over-year comparison with revenue growth of 19% to 16%, respectively.

Important trends in book value, $11.72. Mind you, we started off in Q1 of 2023 with tangible book value of $6.92 per share, and that's grown to $11.22. So tremendous growth in tangible book, all the while we paid a very healthy dividend to our shareholders, currently $0.19 a quarter or $0.76 for the year.

We've also experienced continued success in growing core deposits. Business deposits sequentially over the quarter of $52 million or 17%. Consumer deposits climbed $95 million or 12%. We're growing deposits without the use of branches, bankers, brokers or BDOs.

Next bullet talks about a very important category, which we refer to as our Newtek it's Newtek Alternative Loan Program. In our Alternative Loan Program, we finance that through securitizations. We use securitizations to be able to better asset liability match these longer-term duration-based assets.

We are currently expecting an ALP securitization in the fourth quarter of 2025 that will be our largest to date. The range here of $325 million to $350 million of ALP loans will clearly be our biggest. This will be the 17th securitization in NewtekOne's history and fourth in this particular category. We're excited about it. We look forward to bringing it and should be a very profitable endeavor for all of our shareholders.

Capital position bolstered and capital structure simplified. In the recent quarter, we were very pleased with the capital that we raised. We issued Series B preferred and common equity. We boosted Tier 1 capital and common equity Tier 1 by roughly $80 million and $30 million, respectively. We're very pleased that we're able to boost our capital ratios to support the growth rates that we're doing on a safe and sound basis.

Regarding operating leverage, our efficiency ratio declined from 61.8% to 56.3% at the holding company, even with assets up 43%, but operating expenses only up 8.5%. Our return on average assets for the quarter was 3.15% and continue to trend well ahead of the industry.

Payments, payroll, insurance, they're additive to earnings, a good value proposition. We'll talk about that within the confines of the presentation today. But also importantly, they're very additive to our deposit gathering function, and they bring tremendous value to our business customers. If you're doing business with ADP, for example, you're not really connected to an ADP bank account because they're not a bank. If you're doing payments through Worldpay or Fiserv, you're not really connected to a bank. With us, we give you one solution, fully integrated with a dashboard called the Newtek Advantage that gives you transactional capability, analytics and data to be able to manage your transactions.

So, one other important item for Q3 financial highlights in NSBF, that is our nonbank lender that is in a wind-down mode. This is left over from when we were a BDC. This is held up at the holding company. The loss in this business because it is not originating, it's in a wind-down mode, keeps going smaller and smaller, and we've got a slide to accentuate that.

So we had a $14 million loss for the first 3 quarters of 2025. In 2024, the full year's loss was $28.7 million. So, we're probably trending to an $18 million to $20 million type loss. That is going to continue to decline over time, and we have a slide to focus on that.

On Slide #7, we can focus on the Q3 2025 financial highlights. We talked about return on assets, return on equity, return on tangible common equity, efficiency ratio, all very, very strong, particularly compared to industry standards. I would like to point out that our NPL to total loans at 8.1%, which is fairly high compared to a community bank or the banks that you typically look at. But I think it's important to note, this has already been written off or written down.

So, the important part to notice is as we're building new portfolios, these numbers are stabilizing, and we believe our data will show that. When you adjust for the NPLs, it 3.8%, that will be taking out the NSBF portfolio, which was probably underwritten during one of the most difficult times for small business finance.

2021, 2022 and 2023, going through that 0 rate environment with prime was 3%. We know prime went up to 8.5% at some point. Now it's starting to come down. The wind we think is finally at our back. We're experiencing lower provisions, and we believe this is stabilizing and will be less of a headwind going further.

Slide #8, Newtek Bank National Association, the financial highlights. Please go to the last column, Q3 2025. ROAA, 3.57% return on tangible common equity, 32% efficiency ratio rounds up to 47%. NIM, 5.4%. I look at the NIM, some of the top 4 banks, just dwarfs that. This is that reoccurring benefit that you're going to get as we begin to build a bigger and bigger portfolio at the bank.

Needless to say, at the bank, we're dealing with CECL, which is negatively biasing us currently because you have that big charge upfront and you don't get that high coupon from this particular portfolio until over time. So, I think that due to the negative type of accounting machinations for CECL, this will be more beneficial as time goes on as we begin to use the balance sheet more, particularly with SBA 7(a) lending, keeping some loans on our balance sheet, not selling them all off. That's a strategy that we've seen other people in the space been quite successful with.

Look at our quarter-over-quarter loan growth, 9% held for investment, deposits up 11%. I'm reading research reports from other banks our size that we're being compared against. They're growing 2%, 3%, and they're getting rave reviews. I don't know what the problem with us is, but we'll keep doing this, and I'm sure we'll get there eventually.

Look at our capital ratios very strong, 11%, up to close to 15% on the 3 key leverage ratios. Once again, very important, allowance for credit losses, 5.42%. We have the reserves that will be able to support higher losses and higher charge-offs.

Slide #9, tangible book value per share growth. We talked about this earlier, real tremendous increase. All the while we paid a healthy dividend now to our shareholders of $0.76 on an annual basis, $0.19 per quarter. As you can see tangible book value increasing materially from $6.92 to $11.22. Really, we're very proud of growing this tangible book value number.

Slide #10, deposits. We talked about the growth in deposits. We're currently at about 3.72% on deposits. We think that number can maybe get down to 2% to 2.5%. That's going to depend upon the merchant business and the payroll business and the insurance agency and the lender helping chip in and embracing clients to give us the depository account all the other things that we do. From a risk standpoint, 78% of our deposits are insured, very valuable with a loan-to-deposit ratio of 95%.

Slide #11, the Alternative Loan Program, extremely important to NewtekOne, this business is currently done up at the holding company. It was developed in 2019. Historically, our charge-offs have been below 1%. I believe we had $5.7 million of charge-offs historically, $720 million of total loans originated. Important to understand what this program is about.

We have a funnel to lend money to businesses. When the referrals come in, the customer doesn't know what the best loan might be for them. It could be a revolver. It could be a 7(a) loan. It could be a 504 loan, or it could be what we refer to as the Newtek Alternative Loan Program, which has similar characteristics to a 7(a) in that it's got a 10-year or 25-year fully amortizing amount of principal with no balloon, but the credits are much, much stronger. We have guarantors that range from $5 million to $100 million on AOP loans. Our average loan size is about $4 million to $5 million.

So great growth opportunity. If you do 200 units of AOP loans, it's $1 billion of loans. So, we do believe there's great growth opportunities here. And as we'll show you in slides going forward, very profitable opportunity. It's important to note that Newtek, unlike these other $300 million to $500 million banks, make loans and sell them or sell them into securitization vehicles. Other banks hold them.

One of the reasons why they hold them is they can't replace them. We have a machine that makes loans and sells them. We have a machine that acquires deposits. This machine has been going on for over 2 decades, except on the depository side, obviously, that's somewhat new. But we're showing that we're able to acquire deposits at attractive rates. I think it's extremely important to be able to analyze this Alternative Loan Program business. And as I mentioned, we're about to do our fourth securitization in Q4 2025, the biggest ever.

On #12, this will give you an idea of what the metrics are for these types of loans. First of all, high FICO scores. Weighted average LTV and originations, 47%, debt service coverage on average, 3.4x. Weighted average gross coupon 13.17% and we say weighted average spread to the base rate. The base rate is the 5-year treasury. So, these loans are typically fixed or 5 and then they adjust at the margin, they're float at the initial rates, and they can never go down. They also have prepayment penalties of 5% in the first 36 months and then 3% in months 36 to 48. So, these are not prepaid. We want that spread income to be kept over a long period of time. So, we talk about diversification in states, diversification in industry.

Let's go to Slide #13. So, we have these securitizations on our books. On Slide 13, the 2022-1 deal, that's been paid off. So, we wound up having all the cash flows behind the bonds repay the bonds. So, the bonds don't exist. The security holders are very happy. They got their money back, and we're able to roll these loans into a new transaction. The 2024-1 was our next deal. That was done with a joint venture partner, similar to 2022-1. So you could take a look at the AOP loans, the weighted average yield, notes and securitization, the spread, the weighted average rate of 6.72%.

Now the important part is the gross spread before the servicing fee and after the servicing fee. So we're the servicer. So it's a good servicing stream because of the call protection. The servicing lasts for a long period of time, 496 basis points on 2024-1. On the recent deal was 5.68%. We believe that the spreads we're going to be getting on the next year will be closer to the 5.68%.

So you could see once you put the business on and the loans go into the securitization structure, there's no costs. So we're leveraging the infrastructure across the entire business line and putting these loans in. So there's not a transactional cost for deposits. So the cost of funding is greater in a securitization, but it's match funded. So you don't have to worry about interest rate risk.

But look at that spread margin. If I was to go to a banker and say you can get 568 basis points of spread, that's after the servicing fee. And there's no cost associated with it. They would say, where do we sign up? Well, good news, we have it. It's our program. We have a track record. We have alliance partners that are getting more and more familiar with the business, and we believe this will be a growth area for the company going forward.

Slide #14 gives the status of the 3 completed ALP securitizations. 2022 was gone. 2024 is on the books, 2025-1 on the books. This will give you a feel for the original balances, the notes paid down and whether we did this with a partner or not.

By the way, the partners and the joint venture partners in the deal, they invested side-by-side with us from first loss. So we do know where these valuations trade and we mark them appropriately. All this data is in our Qs. It's a 14% yield with a 15% frequency over the life of the pool and a 20% severity that gets you to a 3% historical charge-off. And that's how we've come up with our valuations.

Slide #15, Newtek Bank National Association Credit Quality. We think this is an important slide because it will show you that we're, as this portfolio is seasoning because [mind you], we took over the bank, it was $180 million of total assets. Today, I think we're looking at about $1.4 billion of total assets. So we're building a new portfolio. But as you're building a new portfolio, particularly in the types of loans that we do, these aren't car loans. These aren't residential mortgages.

I mean, most of the 7(a) loans have these types of characteristics. So you do have a ramp of NPLs and charge-offs, but this is starting to level off. Most importantly, the allowance for credit losses, we believe will adequately cover the NPLs. So we're pleased with the performance. There's no surprises here. This performance is done according to the plan. So for those that were concerned that we're not going to make it, I don't fully understand the marketplace here.

We have people rooting for us. We have people rooting against us. Ring against us over the course of 25 years is not a good bet. We're very pleased with the management team, with the relationship we have with the regulatory authorities, with all of our providers and warehousing line securitization investors. We just came back from an ABSE's conference. We had 3, 4 meetings in 2 days. We couldn't be more pleased with how the business itself is performing.

Slide #6, the SBA 7(a) loan portfolio, Newtek Bank. The big issue here is there is a concentration in 7(a), particularly with respect to the allowance for credit losses combining for 89% we believe that we're going to begin to layer in more CRE, more C&I into the bank portfolio, and that will level off. And we're very pleased about that initiative, and that is also according to plan.

Slide #17, we talked about NSBF. That is the old nonbank SBLC Small Business Lending Corp. licensed nonbank SBA lender. Some of you may not know that when we acquired the bank, we were not able to put these assets into the bank because of the debt. These loans are sitting in securitizations.

There are 3 securitizations right now that exist 2021, 2022 and 2023, although the 2021 is callable and we'll look to try to do something with that cleanup call shortly. But this is the legacy nonbank subsidiary that's holding a portfolio in a wind-down mode.

Note, the increase in nonaccruals from Q3 2024, this is declining, extremely important. It's still increasing, but it's increasing at a lower rate. The aging of the portfolio, these are seasoned loans. They are less likely to default.

The accruing portfolio of $215 million is sitting in securitizations with $140 million of bonds against them. The nonaccruals at fair value, which will be liquidated over the next 12 to 24 months, $64 million that should get turned into cash and be available for a bunch of things, dividends, share buybacks, paying off debt and other things.

NSBF equity, $256 million. Notice that the NSBF loans as a percentage of the total balance sheet or the consolidated balance sheet of NewtekOne is shrinking. Just Q3 2024 was 32%, Q3 2025 down to 16%. So this loss is declining materially.

Once again, we talked about $28.7 million loss in 2024. It's probably going to come in at $18 million to $20 million for this calendar year. And the performing loans are also paying down. So when they pay down, if they're in securitization, they pay off the debt. When they're outside of securitization, I think we have about $55 million of those, that's canceled it was right to the subsidiary. And we do believe the nonaccrual inflows in the portfolio, they've decelerated for 5 consecutive months. We're pleased about that as well.

Slide #18, operating leverage being captured. This is all about the efficiency ratio, declined from 61.8% to 56.3%, and that's at the holdco. At the bank, I think we're at 46% or 47%. We're pleased with that as well. This is all while total assets are growing, revenues are growing, but operating expenses are not growing at as high a rate.

Slide #19 talks about the subsidiaries. Our payment processing business, we expect to contribute $16.5 million of pretax income in 2025. And we also are looking for greater contribution from a deposit perspective. We'll have some of that data going into the next quarter.

Insurance policies, 10,000 policies in 2025. It's up 34% year-over-year. That's the total cumulative policies, and we expect the insurance agency to contribute about $800,000 of pretax. The payroll business contributing about $600,000 in pretax. Payroll clients, $860, but there's 20,000 employees that we're doing payroll for. And that business is growing nicely. All these 3 things are great complement to a depository, and they should be part of the total treasury management system, which we have through the Newtek Advantage.

So we all believe that these business lines should continue to contribute growth in business deposits and bring in sticky, more attractive deposits. One last item, we will be launching a new offering, not a new product, but a new offering, the NewtekOne Triple Play, which will give a customer an unsecured line of credit for up to $10,000 provided they are credit approved and a merchant account or a payroll account. So you get a line of credit, you get a bank account and a merchant and payroll account, all at the same time. NewtekOne’s Triple Play.

Last slide, #20. We talked about this, the capital that we raised in this particular, I'd say, recent quarter. And Patriot Financial, we appreciate their investment exchanging $20 million of the Series A convertible and an additional $10 million cash investment for shares. And those shares are locked up for 24 months.

Patriot sits on the Board of the bank. They have a pretty good bird's eye view. We really appreciate a sophisticated institutional bank investor having faith in our organization.

Second, we issued $50 million of fixed reset noncumulative preferred perpetual stock, $50 million in issuance. And we also refinanced the merchant business, Newtek Merchant Solutions through Goldman Sachs Alternatives, $95 million financing solution. It took out, I believe, it was about a little over $30 million of financing. That gives us plenty of cash capital going into 2026 to be able to pay off our unsecured debt of any WTZs and other obligations in the future. We are very well positioned going into 2026.

And with that, operator, I'd like to turn this over to Q&A, where I'll have my CFOs and my hope to answer any questions we might have from investors or analysts.

[Operator Instructions] Our first question comes from the line of Tim Switzer of KBW.

First one I have is just on credit trends real quick. Could you guys update us on what you're seeing in the market? There's obviously been some disruption in a bit of a credit cycle. And I'm curious, are there any certain areas where you're seeing more pressure in terms of like industry or geographies relative to others?

Yes. So Tim, I think regarding credit trends, we do believe this is an economy of haves and have-nots. I think that, that's kind of been the case for a while. And I think we've experienced quite a bit of stress and strain and uncertainty in the small business community. With rates spiking up, obviously, we're starting to get that rate relief. We appreciate the drop in rates today as well as the inflation pressures.

We are staying away from the volatile businesses and volatile industries where they are commodity-based. Anything that relates to oil and gas, transportation is a difficult category and clearly, agriculture. So, anything that's related to those particular industries, we're staying away from. The consumer side is still pretty strong. As long as we have an equity market and a home real estate market where values are holding or appreciating, we think that spend will continue. And we do believe that our portfolio, primarily driven by the seasoning is flattening out.

Mind you, we've been a lender in this space for over 25 years. So, we know it well. We've seen it in high rates, low rates, inflation, deflation. So, we have a pretty good feel for it. We also get a very good sense from our portfolio of customers and payment processing and payroll and things of that nature. So, we have a very good cross-section of credit and see what's working and what's not.

Got it. That's helpful. And then there is no slides on updated guidance this quarter. Are you still confident in the previous guide for $0.65 to $0.80 for Q4?

Yes, that's a good question, Tim. I would say this. Right now, we have a government shutdown. And if the government gets open within 2 weeks, I wouldn't see any dramatic changes. But then again, I can't bet on that. This is a pretty volatile uncertain. So, we don't have a reason to pull the guidance, but hopefully, people invest in us, not necessarily on what happens in the fourth quarter, but from a standpoint of the business model, looking at book and things of that nature. But just to be totally fair, we can't live by the previous guidance given the basis of the government shutdown.

Yes, that's fair enough. Can you maybe elaborate on, I think you're still able to originate or at least process some loans that have already been approved before the SBA shutdown. Can you maybe explain that and then maybe provide a timeline on what's kind of the deadline on when your originations and ability to sell loans would actually start to be more challenged if the shutdown lasted, say, to like Thanksgiving or something?

Sure. So given that we've been doing this for a long period of time, beginning of September, you start to cover your portfolio. So you can estimate what's going to be closing throughout the month of October and maybe even in November. Although you can't get a guarantee number, we are still taking in applications. And there is also a provision in the SBA's SOP that allows you to bridge a borrower through a period of time and then roll it into a 7(a) loan.

So it's very hard to predict whether this will affect us or not affect us, but we do know the ways to be able to get through these shutdowns; over more than 2 decades, we've experienced this, and we have all the tools, and we currently are providing bridge financing to borrowers to enable to fund them into a bridge that will get taken out with a 7(a) loan.

Okay. I got it. And then the last question I have is, can you provide the Tier 1 and total capital risk-based ratios for the holding company? I don't believe I saw that in the release or Slide 10.

Frank, could you help with that?

Yes. Currently, Tim, we're looking at about 12.5% on leverage at the holding company and just shy of 16% at the for total risk-based capital.

Our next question comes from the line of Crispin Love of Piper Sandler.

Just first, just following up on the shutdown. Barry, did you pull PLP numbers ahead of the shutdown in September for potential SBA 7(a) loans in your pipeline? And if so, kind of what type of volume could you do from those pulls in the fourth quarter?

I don't have the second number, but we did pull product, and that's pretty much covering loans that we had going forward that probably fund about 45 days from the time we get the PLP number. So I mean, we're probably covered for half the quarter.

But I also want to point out, Crispin, that if you look at our mix of loans, it's changing. AOP, we've done more CRE, we've done more C&I. So this is one of these times where I don't really want to predict what Chuck Schumer is going to do or Trump or John Thune or Mike Johnson. So it's, when I say it's a tough time, this is temporary. This too shall pass. It's only a quarter. I know we're all focused on the next quarter, and that's what we do when we look at these things. But this too shall pass. And frankly, it's made of the difficult, a lot of people have dropped out of the 7(a) space. because of the changes in the SBA program. So we're sorry for other people's misfortune, but we've been able to weather these storms over time. We'll be here for many years and many quarters after this one.

Okay. Great. And then just on the $29 million of loans under the fair value option that revenue line item in the quarter. Can you just discuss some of the key drivers there, what you might expect on a go-forward basis as it can be fairly volatile, especially with the large securitization coming in the fourth quarter?

Yes. Frank, I believe that's the mix of governments and ALP, but I'll let you answer that question, Frank.

Yes. No, Crispin, you're spot on. We're ramping up for the next securitization. And as you saw on that slide, we're looking at somewhere between $325 million and $350 million in capital. So a lot of that this quarter is related to that. And similar to what you saw last quarter, you will see kind of that, I'll call it, that flip in the fair value line as we close the securitization and pull the residual onto the balance sheet. So you'll see that again, as you alluded to, in the next quarter. But most of that is related to the originations and backing the inventory for the securitization. And then to Barry's point, some additional 7(a) guarantees that we're holding a little bit longer for sale and obviously, with the shutdown, but we plan to continue to sell those once the government reopens.

Okay. Perfect. And then, yes, just last point on. I just want to make sure I'm thinking about the guidance correctly. So you're not pulling the guidance, but not affirming the prior guidance. Is it really just more of a timing issue, whether that gain on sale revenue hits in 4Q, 1Q or beyond rather than anything more than that?

I can't comment on it. It's very difficult to forecast. And I really can't comment on it at this time. I mean the one thing I could tell you, the stock price with a 10 or 11 handle, does it really make a difference? You don't have to answer that, but that's my view.

Our next question comes from the line of Steve Moss of Raymond James.

Barry, maybe just, maybe on the SBA program from a higher level or just the business activity. Just kind of curious what's your sense of customer demand or customer confidence? I realize maybe the closure of the SBA makes a little harder to get a read, but just kind of curious how you're feeling about the potential pipeline if, or potential activity within the space you land?

Steve, I think it's a great question, and it's pointed to this particular market, which right now, as we know, there are lenders that are leaving the space, and it is harder to do loans. I think when I was asked this question last quarter, and there was a discussion about the changes that the agency had made, whether it would affect originations or not, I didn't believe that it would. It has. It's in a tougher market to do loans. One particular area has to do with merchant cash advance and not being able to refinance a merchant cash advance loan.

And the second area has to do with anybody in the ownership chain, even if it's 1%, that cannot prove that their U.S. citizen can't get an SBA loan. And I think you'd be surprised at the amount of participants that would apply that can't do it. Now we've also got customers that are coming to us that insist that they're citizens, they have the documented proof, but the database isn't saying that they are. So, you can't make a loan.

I will also tell you; we've got people that were approving for financing. And due to the uncertainty in the marketplace and tariffs and things of that nature, they're not taking it. So, I would just say that on a going-forward basis, it's going to be a much harder business to do business. We feel good about it. We feel good about our position in the market from a long-term perspective. But I think that where it was a very effervescent year from October 1, 2024, to September 30, 2025, I think you're going to see some different numbers in this coming government fiscal year from all originators.

We finished up last year second to Live Oak Bank from SBA statistics. But I think that whole top 20 is going to shake up quite a bit. We like the business. We've been in it for a long period of time. We think it's a great program and a great product.

Okay. Great. Appreciate all that color there. And then the other thing I noticed was you're talking about diversifying the bank balance sheet here, adding more C&I and CRE. Just kind of curious what does that look like in the future, the type of loan you're thinking about adding? Could some of the ALF loans end up on the bank balance sheet? Just any color there would be great.

Yes. So, Steve, I think that diversification is extremely important. And there's a lot of good opportunities for us in straight C&I line of credit type lending and CRE type lending. One of the things we're going to, I'm going to suggest to my team, I think we're going to look to do an Analyst Day sometime in December or very early in January right after the new year and be able to reforecast out and give the analyst community, investors some better guidance on a going-forward basis.

But I think that when you look at total loan originations across ALP, CRE, C&I, line of credit, clearly, where historically, we were very much well known as an SBA 7(a) lender, it's the furthest thing from the truth. And we like the program. We think it's great, but it's going to be part of a diversified approach to really developing that franchise in the SMB marketplace.

But I think SBA, we're right now, the uninsured balance sheet is probably 44% to 45%-ish, not including what is going on in NSBF. We would like that to come down a little bit, and we clearly want to grow the Alternative Loan Program business dramatically from where it is today. It's very profitable. credits are bigger, customers are bigger and the returns equal the 7(a) business.

Okay. And, And maybe on that point, just where I was going to go to my next question is on the business here. It's clearly a big securitization coming. Is this kind of like what you expect to be the more normal run rate in future securitizations kind of in this $300 million plus range? And maybe do we see more than 2 a year?

Good question. I'd like to keep it at 2 a year, and the goal would be to get those numbers bigger. This is the first time we've ever done 2 AOP securitizations in the same calendar year. So I'd like to do 2 a year, get the numbers bigger, bigger pools are better. There's more diversification. You get better receptivity from investors. So Yes, I definitely appreciate the question and would like to do bigger deals. It's an average loan size of $4.5 million to $5 million. So not a lot of credits. I mean we'll do 2,500 to 2,700 credits now, just to do another 200 credits. It takes a lot of effort to do $1 million loan, takes about the same amount of effort to do that bigger loan.

Right. Okay. That's helpful. And then in terms of, you touched on your 3-year anniversary here coming up in January. Kind of curious as to what potential flexibility we may see or we should expect after that 3-year anniversary, if any?

It's a good question, Steve. I think you'll see from a flexible standpoint, I think you'll see the business model, all the things that we talked about. But I think you'll see from my mouth to good, better execution on the deposit side, better execution on the AOP side in terms of more volume, but no change in the product mix, which is important.

But I think you'll see a bank and a bank holding company that maybe you're more familiar with in analyzing the metrics than what you've seen to date. That's our goal to just be able to provide more information, better information. We're hopeful that we provided additional information in this deck that will give people a better insight in terms of what we're doing. We want to be as transparent as we possibly can.

There definitely was a lot of information in the deck. I'm still trying to digest it. Maybe put it this way, with the 3-year anniversary, you're 12.5% leverage right now. Would you go down to like a 9% or 10% type number in the next 2 or 3 years?

I think we do plan on using the balance sheet a little bit more and using more leverage. So, I appreciate the question. It's not going to be dramatic. But I think what's important, I think, A, to yourself, investors, regulators, they want to make sure that we have the capability, the management team, the systems, the software, the policy in place to be able to manage the business and manage the growth.

We clearly had people that said to me, you can't grow this fast, you can't do what you're doing. Well, we're still here, and our plans are intact. As I've stated in many calls, we're on plan. We're on plan with NPLs, with capital, with, we're on plan. So, with our 3-year anniversary here, we're looking to continue to grow and hopefully get better recognition from the markets for what we've been able to do so far. So yes, I appreciate you focusing in on that time frame because it is important to us.

Our next question comes from the line of Hal Goetsch of B. Riley Securities.

You mentioned on the call, and this is kind of a sector question that some SBA lenders are leaving the market. And I was wondering if you could give us a little color on that, why that is? And you have been taking share. So, I wanted to get your feel on the long-term outlook for SBA lenders, your ability to increase share? And the other question is just on the ALP side, the government shutdown isn't holding up the ALP program, right? So, correct me if I'm wrong, but then if it isn't, like can you give us a little color on originations through the first 3 quarters of the year or the third quarter and your outlook there, if you can because that isn't being impacted.

Sure. I appreciate it. So I mean this is public information. BayFirst, which was a top 20 lender pushed out of the market. I think their business went to an entity called Banesco. There were one of the SBA changes relating to limited underwriting score and go. I think they dropped the cut from like 500 to 350.

So a lot of competitors entered the space after PPP that were basically technology providers. And they really didn't provide the fulsome lending that's required, in my opinion, in a regulated environment. So I mean that's the only name that I could openly talk about in the public market because it's out there. But we are familiar with several other lenders right now that basically have got to cut back.

We hear this and see this from the interviewing process with people coming to us expressing reservations about what they're doing going forward. This does not affect the AOP business at all. And I think just from a volume standpoint for us, we might have a little bit of a degradation in the next quarter or 2 in 7(a) volume. But we believe we'll be able to deliver good numbers from a market multiple standpoints, and we'll be able to make it up.

From an AOP perspective, we were targeting, I think, between $350 million to $400 million in AOP loans for this calendar year, and I believe that's what will hit. We hope to do materially more than that next year. I don't have a number on that, but if I had to come up with a number, I would say $500 million to $600 million, but I haven't really cleared that with my boss. Peter Downs the President and COO of the bank. He's the boss in that area.

Okay. And if I could ask one follow-up. It seems like the loan, the LTVs on the LP loans are quite good, right? And what are the, refresh me on the collateral for those loans, if you could.

Yes. One of the things, how I will do is DBRS is the rating agency, and they put out a nice presale agreement. I'll make sure that we can get you a copy of those, so you can get a description of what the loans look like, how they're underwritten. Anybody that wants that, please let myself or Bryce Rowe. I'm sure DBRS will be happy to provide that.

What goes into it is these are businesses that do have a business valuation, so we get a business appraisal. About 65% of our loans typically have commercial real estate liens behind them. If it's not a commercial real estate lien. We're looking at intellectual property. We're looking at machinery, equipment, inventory and most importantly, personal guarantees. So, every 20% equity owner or greater must personally guarantee it. So, in many cases, we're getting things like marketable securities, real estate assets, it could be residences, it could be investment in real estate property to all go into that LTV.

The reason why these borrowers subscribe to these types of loans is because of the long amortization, you're basically giving them equity because they get to keep the principal for longer periods of time. And the flexibility in the covenants, which we think I'll take a personal guarantee and lean on personal assets over a covenant that you're dealing with 45 days in arrears after the fact.

Our next question comes from the line of Christopher Nolan of Ladenburg Thalmann & Company.

Barry, what's the thoughts on increasing the dividend?

Good question, but always a tough one. We obviously have one of the best dividend-paying stocks in the market. As a shareholder, I'm a participant in that. I love the dividend. I would say, to be frank with you, we're not getting a tremendous amount of value for its dividend or the increase. I would say, and this is not my decision. It's the Board's decision, who has to declare it.

I would say if there was a choice in A or B, and there's a choice C, which is do nothing, by the way. But if there was a choice A or B, we'd probably be more inclined to buy stock back to increase the dividend. But we also might wind up with C, which is do nothing. But I think to answer your question, I would just say it's possible, but unlikely that we'll increase the dividend in the near term.

Got it. Great. And I guess the capital ratios look awfully healthy and kudos to you guys. Do you guys sort of get a nudge from regulators, whatever to pad your capital ratios a little bit just because of the unconventional business model?

I would have thought that would have been the case, but the answer is no. They typically don't tell you what to do. They tell you what you can't do. So no, nothing along those lines, although to be frank with you, that was a management decision that we made during, I guess, what I'll refer to as our maiden voyage currently.

So we're comfortable with it. We wanted to demonstrate to the market, we're well capitalized. We've got generous allowance for credit losses, and we know how to run a bank. We, as a nonbanker that's CEO of a bank, so I guess I am a banker now, we brought in really experienced people across the board in every single area. And I think that's been good. And not everybody works out.

I've been asked, are we going to have changes and all that stuff. And look, if I was to say, no, I'm not going to change anybody in my management team out, they lose their incentive to work hard and deliver the results. So we're going to continue to work on building this platform together, upgrading it. And I hand it all off to the management team of the company for delivering these results. They've done a terrific job. And we do plan on using the balance sheet more and utilizing more of the capital going forward.

Final question. You guys sort of seem, I mean, you have an unusual business model. It's highly profitable and it works properly. The, but you guys see, while you're a technology bank, you sort of have one foot in technology, one foot in traditional banking. And when you start looking at models like LendingTree, which are much more focused on the user interface, mobile and everything else, less so on the back end, but you guys have the back end down. Is that the direction we you see the model evolving? Or what are your thoughts on, because it, does your stock price values help if you start becoming a FinTech, which actually has a bank behind it?

Yes. So I love the question, Chris. I thank you for it. First of all, I want to put the names aside for the moment. But I look at organizations that are trading at pretty substantial multiples like a LendingClub or Live Oak or SoFi. And SoFi is a little bit different. But some of these companies for the first several years, they flatlined. They didn't move until the market got comfortable with their model and what they were doing and developed a better understanding and then all of a sudden, it started jumping because some people don't feel the multiples match up or make any sense.

But when you think of LendingClub, I mean they do, do small business lending, but it's not a huge number. Look at a company like Innova, which doesn't currently own a depository, it's trading at a multiple in the teens and you look at our multiple. So I think that there's not a lot different than they're doing what we're doing relative to the returns on equity, returns on assets. I just think this is a familiarity issue. But I will tell you that the people that I meet with who spend the time and put the work in, they like what we're doing.

If you look at our shareholder base, according to NASDAQ, it's 52% of institutional. I'm pretty confident that number is more like 65% or 70%. So if you play around with the math, there's 10 million shares in the float and there's 2.5 million shares short. Something just doesn't make a lot of sense here. But that's for other people to figure out.

I mean there are people that like the stock here, and there are people that I that don't like it because there's a big share short. We'll figure this out. But in the meantime, we're building a great business. We got 22,000 digital depository accounts, 10,000 lending customers, 20,000 employees that we do payroll for. We move money quickly, efficiently at lower cost. Someone's got to like what we're doing. And that's why at the beginning of my presentation, I said, please focus on the business. Do you like this business? You like the business; you should like the stock.

Our next question comes from the line of Ivan Jimenez of Greenholder.

My question relates, I just want to understand the math right. You have $1.2 trillion in assets. I correct?

At the bank. At the bank, it's $1.4 billion, I believe, at the holdco, it's $2.4 billion approximately.

And you start...

That's the market cap.

You started with $300 million. Am I correct?

National Bank was $180 million in total assets when we bought it approximately.

So in essence, your model has gone from a BDC that we used to have to raise money every quarter or whatever, whenever you needed money to basically a depository. So that's your primary source of funds now. Am I correct?

Yes, it is.

That's where, 78% of that is guaranteed deposits. So these are deposits of less than the FDIC rate. Am I correct? So you don't have this risk of pull out?

Yes. We have a deposit base, which I think is about $1.2 billion. We still do have other liabilities, but more and more of the liabilities are going to come from deposit gathering. We're going to look to grow the balance sheet and the earnings of the bank.

Okay. That was my question. I just want to make sure that I heard the numbers right.

Yes. No, the growth numbers are numbers that do not exist. And obviously, it's off a low basis, but these are numbers that don't exist in the banking business. I read research reports. People are growing their deposits and loans by like 1% or 2% or 3%. It's like, all this is fantastic. It's great growth, and I'm kind of scratching my head going. Hey, what about me?

That's correct. the numbers, I just want to make sure that I heard right because to me, those numbers were important for what I'm doing.

I'm showing no further questions at this time. I would now like to turn it back to Barry for closing remarks.

I want to thank everybody for attending. I really appreciate the work the analysts have done and the great questions, thoughtful, insightful, forward-thinking both for us and the industry. And Bryce and I are always available along with Frank and Scott to be helpful and answer any questions you might have. So thank you very much.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.