Barry Sloan: 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 LDV, 47%. Weighted average debt service coverage, over three. 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 to 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, of putting a three- or a five-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, then 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 7A with really good margins, and we have an expertise in it. Slide number 15 just kind of 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 you 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, 566. 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. 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 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's certificates, we're slightly over 2 to 1. on the value, but look at that spread, and you're probably five to five and a half times 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 number 16. So when you look at the active securitizations, because the first one's already paid off, and wound up look at the 2024 deal and look at how the over collateralization 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 three to three and a half years so because you've got all that excess cash flow flowing into the securitizations into the special purpose vehicle it really hyper-amortizes the bonds. I would now like to turn the rest of the presentation over to Frank DiMaria.
Frank DiMaria: Thanks, Barry. Slide 18 highlights our consolidated profitability metrics, of which there are two primary takeaways. One, our measures of profitability continue to be very strong, with a 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 New Tech 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 NewTek One balance sheet. With the shift of CNILA 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 three components. traditional CRE, traditional CNI, and unguaranteed SBA 7A loans. Unguaranteed portions of SBA 7A loans comprise roughly 59% of the health or investment book, down slightly quarter over quarter from 60%. The allowance for credit losses related to the unguaranteed 7A 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.
Barry Sloan: 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 CNILA, 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 it as quarter-to-quarter. We're not telling you how to look at it. But To give you an example, we have, I think, about $38390 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 CNI 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 falls in very nicely. Also want to point out the ability to grow the business is a lot stronger with CNI LA at an average loan size of $45 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 asking 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, you know, staying to our sticking to our knitting in what we know and from the results as you can see from this particular quarter and frankly three years and a quarter of operating we're hitting our stride in in a good spot so with that operator i'd like to open this up to q a thank you at this time we will conduct the question and answer session as a reminder to ask a question you will need to press star 1 1 on your telephone and wait for your hand
Operator: be announced to withdraw your question please press star 1 1 again please stand by while we compile the q a roster our first question comes from timothy switzer of kbw your line is open hey good afternoon how are you guys doing good tim how are you good thanks uh thanks for taking my questions um my first one you just kind of touched on it barry but on balance sheet growth
Timothy Switzer: um you know quite a bit of growth in the loan book this quarter excluding the uh securitization here um you know drove assets a little bit higher does that change kind of the trajectory of loan growth going forward or what should we be expecting i think um the growth of loans is going to be in the bank uh i don't think you're going to see any loan origination at the holding company whatsoever and i think the holding company
Barry Sloan: is going to continue to house merchant solutions. Um, it's conceivable we might put payroll down into the bank and 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 businesses 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 CNILA loans, which are clearly better credits down in the bank, but also do so with good margins.
Timothy Switzer: Okay. Got it. Oh, very, very clear. And then similar question, but on the deposit side, I mean, tons of growth there, your LDR now is super low. Is that going to normalize down at all? Or can you, are you going to maintain this liquidity?
Barry Sloan: Um, it's, uh, yeah, it's interesting on one, on one side, I have banks that were holding all that cash at the fed at a low amount and on the other high, 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 a waiting list of people for deposits, frankly. If you go to Trustpilot, I believe we're like a 4748, 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 rates. 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 a fed now, um, and the clearing house RTP. Um, at some point, you know, we might use stable coin, 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 stable coin. But being able to use the new tech advantage in 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 will continue to do so.
Moderator: Thank you for your question.
Operator: One moment for our next question. This question comes from Christopher Nolan of Linenberg, Tallman & Company. Your line is open.
Christopher Nolan: Hey, guys. Frank, what was the lower loan yields due to again, please?
Frank DiMaria: The loan yields are on a blended rate around 7.25%. Yeah.
Christopher Nolan: Why was it decreased quarter over quarter, please?
Frank DiMaria: 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 kind of 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.
Christopher Nolan: Okay, so it's timing issues for the late loans, right?
Frank DiMaria: Correct.
Barry Sloan: 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's certificate. Does that make sense, Chris? It's just that it's a recharacterization of the income.
Christopher Nolan: Not really, but I'll catch up with you guys later on and ask. Thank you. And then second, my follow-up question is the leverage ratio. You guys are growing and the capital ratios are going down. And you know, I think your leverage ratio at the whole code is like 9% or so. And I know you've mentioned that you're not going to chase growth for growth's sake, but is it now become more of a balancing act where you have to moderate growth with securitizations just because you're starting to approach you know, capitalization constraints?
Barry Sloan: No, 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, I mean, 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 on all of a sudden for example the first quarter is the weakest quarter for income i think you'll see a market drum jump in both the capitalization and the income of the of the of the bank so no um we're not stretching We're not going to overuse that capital. I think that'll gravitate back up and then it'll just keep going back and forth.
Frank DiMaria: Okay, thank you. And Chris, just to clarify, the leverage ratio at the holding company is 13.1%. Okay, thank you.
Moderator: Thank you.
Operator: Our next question comes from Hal Goach at B. Riley Securities. Your line is open.
Hal Goach: Hey, thank you, and terrific quarter, guys. Well done. I've got a question on the seven-day loan. Is there any data on how much of the loans were from that program in the first quarter, if there were any? And if there wasn't, you know, is this kind of 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. What are your thoughts on that?
Barry Sloan: 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 26th versus April 25th, 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.
Hal Goach: Okay. And my next question, could you go over some of the before and after again? That was pretty interesting about, you know, I think, you know, in a securitization where there's three tranches and there's a 70% advance rate. advanced rate and a 30% equity stake, you're essentially transitioning to a model where you have to weigh out substantially less equity capital for the use. Is that what you're saying? Could you go over some of those numbers again? Sure.
Barry Sloan: 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 when you do a securitization you get three 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 financed 100 million with deposits. Now, I have obviously capital against it, but that's okay. We've calculated it. It works out just fine. All right. Okay. Thank you very much. So it's a major benefit with less need to pull in capital with the holding company. Okay.
Moderator: Thank you.
Operator: Our next question comes from Steve Moss of Raymond James. Your line is now open.
Steve Moss: Good afternoon.
Barry Sloan: Hey, Steve.
Steve Moss: Hey, Steve. Hey, Barry, Frank, maybe just start off on your cost of funds here going forward and just go into that getting rid of the lines that you were parking the CNILA loans at. 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 In average balances, you know, NIA should be probably taking a pretty decent step up as the year goes on here. Just kind of curious as to how you guys are thinking about that.
Barry Sloan: Got it. When you say step up, I'm not sure I know what you mean. What do you mean?
Steve Moss: Just that there's, you know, it looks like you're funding them with deposits that call it 4%, and before you were funding those loans that call it 7% with silver plus 3.25%. Yeah.
Barry Sloan: Plus an equity haircut, yes.
Steve Moss: Correct.
Barry Sloan: Right. So it's immeasurably beneficial, and the program now is six and a half, seven years old, and we've developed a good track record for 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.
Steve Moss: 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, you know, 24, 25 million, or my number's just maybe a little too large as we think about when you'll do the next securitization?
Barry Sloan: Frank, I'll let you handle that one. That's above my pay grade.
Frank DiMaria: Yeah, 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, you know, getting past the timing issue we had in the first quarter.
Steve Moss: And then in terms of, you know, why don't we think about when the next securitization is coming? I know you guys generally want them to be larger, but, you know, any updated thoughts maybe as this is now on balance sheet as to how large the next securitization could be?
Barry Sloan: We're hoping it's a fourth quarter event, Steve. And we'd like the collateral pool to be $400 to $500 million.
Steve Moss: Okay. And then one last one from you, Barry. Just, you know, you've been good in terms of a barometer of the health or challenges of the SDA market. You know, just kind of curious as to what you're seeing these days in terms of borrower confidence and activity. It's been an interesting couple of months lately.
Barry Sloan: yeah uh and i appreciate it steve i just came from the national association of government guaranteed lenders i was up in orlando uh yesterday and the day before um 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 uh i think that knocked volume down by 10 to 20% in 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 seven-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 percent of those credits are actually credits that will last five or ten 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 7A. 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.
Steve Moss: Okay, great. Appreciate all that color. I'll step back here. Thank you very much, guys. Thank you, Steve.
Frank DiMaria: Thank you.
Operator: Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for our next question. This question comes from Ken Billingsley of Compass Point Research and Trading. Your line is open.
Ken Billingsley: Good afternoon. Hey, Ken.
Barry Sloan: Good afternoon. Welcome to our call. Good to have you.
Ken Billingsley: 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. Then my second question. is the loan size. I saw that you've grown the number of loans, but it seems, are the loan size 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?
Barry Sloan: 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 kind of going to be that middle bucket. And then the CNILA will probably be bigger size loans. So I think from our standpoint, the one thing that I've learned managing NewTek over two 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 loan committee, one of the key aspects of loan committee 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.
Ken Billingsley: I appreciate you taking my question. Thank you. Thank you, Ken.
Moderator: Thank you.
Operator: Our next question comes from Timothy Switzer of KBW. Your line is open.
Timothy Switzer: Hey, guys. Got a quick one real quick. 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, you know, 10%, 20% of borrowers have basically been eliminated, and obviously there's other disruptions to the market, I guess, more on the supply side. You know, what is the trajectory of premiums going forward?
Barry Sloan: 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 110.5 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. Um, I don't really see prices declining. That's always a question people ask about, um, the big issue on a price decline is, is prepaid driven period and the story. It's not rates higher rates, lower it's prepaid driven. And then you could have a conversation. What's driving the prepay. Is it voluntary defaults, involuntary defaults, you know, the markets, um, you know, put it this way, when rates were moving three to 5% in a 18 month to two year period of time, that was pretty volatile and you had a lot of changes. Right now they're fairly, I mean, although I will tell you, rates have moved around by 50 basis points, hopefully they'll kind of 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.
Frank DiMaria: Yeah, we are seeing the price, as you said, right around the 110 and a half. The dollars, and then I think you see that in the balance sheet there, Tim. We had a neck and on sale number for the quarter of about 26.7 million, driven mainly by those 7A sales with some final four sales sprinkled in there.
Timothy Switzer: Got it. And then...
Timothy Switzer: 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? What do spending patterns look like in those accounts?
Barry Sloan: Frank, what do you see in savings? 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 kind of sits there. Frank, you could help on if you know the average size of consumer and business.
Frank DiMaria: The average deposit account size, Tim? Was that the question?
Barry Sloan: Yep.
Frank DiMaria: Yeah, 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 $250,000 mark.
Timothy Switzer: Nice. Okay. Thank you, guys.
Operator: Thank you. I am showing no further questions at this time. I would now like to turn it back to Barry Sloan for closing remarks.
Barry Sloan: 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. And NewTek, we look forward to delivering great results for the second quarter as well. Thank you.
Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
