NewtekOne, Inc. (NEWTH) Q1 2026 Earnings Report, Transcript and Summary

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.