NewtekOne - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 EPS of $0.67 diluted beat Wall Street consensus of $0.646; revenue of $99.5M beat consensus $78.3M, driven by strong noninterest income including $29.3M net gain on loans under the fair value option, while efficiency ratio improved to 56.3% and ROAA was 3.06%. EPS and revenue beats vs S&P Global consensus are noted below (Values retrieved from S&P Global)*.
• Deposits grew strongly without branches: commercial deposits +17% Q/Q (+$52M) and consumer core deposits +12% (+$95M); insured deposits were 78%, supporting bank NIM of 5.4% and continued funding at below risk‑free rate via Newtek Advantage ecosystem.
• Management highlighted upcoming ALP securitization in Q4 2025 of $325–$350M (largest to date), capital raises ($30M CET1; $50M preferred) and refinancing of the Merchant Solutions facility ($95M via Goldman Sachs Alternatives) to bolster growth and simplify capital structure.
• Guidance tone: prior Q4 EPS guide ($0.65–$0.80) was not reaffirmed due to the government shutdown affecting SBA processing, though not formally withdrawn; management emphasized model durability, deposit economics, and ALP growth as stock catalysts.

What Went Well and What Went Wrong

• What Went Well

  • “We are pleased to report basic and diluted EPS of $0.68 and $0.67… with 3Q25 ROAA and ROTCE of 3.06% and 23.7%” reflecting operating leverage (efficiency ratio 56.3% vs 61.8% YoY).
  • Bank unit metrics were robust: ROAA 3.57%, ROTCE 32%, NIM 5.4%, deposits +11% Q/Q, HFI loan growth +9% Q/Q; allowance coverage solid at 5.42%.
  • Strategic financing and capital actions: $30M CET1 through Patriot exchange/purchase, $50M Series B preferred issuance, and $95M NMS facility with Goldman Sachs Alternatives to support growth and de‑risk capital stack.

• What Went Wrong

  • SBA program changes and the government shutdown created origination and timing frictions; management would not affirm prior Q4 EPS guidance because of shutdown uncertainty and potential impact on gain-on-sale timing.
  • NSBF legacy non‑bank SBA portfolio remains a headwind (loss trending $18–$20M for 2025), though the drag is declining and non‑accrual inflows have decelerated for five consecutive months.
  • NPLs are elevated on a consolidated basis (driven by SBA 7(a) seasoning and legacy NSBF), requiring higher reserves and careful credit selection; management is avoiding volatile sectors (oil & gas, transportation, agriculture) amid macro uncertainty.

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the NewtekOne Inc. third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one, one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one, one, again. 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.

Barry Sloane (Founder, President, and CEO)

Thank you, Operator, and welcome participants to our Q3 2025 financial results conference call. I'm Barry Sloane, President, Founder, 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.

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 three-year anniversary as a bank holding company owning a nationally chartered bank. 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, we believe, will 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-$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. We'll try to bring some of that as we go through the call. We'd love for you to ask questions. Why could 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.

Also, why are these three 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 number two and note the statement regarding forward-looking statements. Make sure that gets absorbed. Now go to slide number three. 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 U.S. 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 number four, once again, focusing on who we are and our mission statement, take a look at NewtekOne 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. What we really do well is 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. If you look at our financial statements, we typically have higher reserves. We also have higher non-accruals. On a net basis, after that expense, we're still extraordinarily profitable. In January of 2023, NewtekOne 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. 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 9:00 AM to 5:00 PM, Monday to Friday.

They want you on Saturday. They want you on Sunday. They want you in the evenings. We service this independent business owner clientele, which is extremely important. When you go to slide number five and focus 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 the U.S. Chamber of Commerce, it represents 43% of U.S. GDP. According to the Small Business Administration's website, through the last five 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 four 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. They have to go beyond just getting their deposits, which they typically take in in a non-interest-bearing fashion. We do that for this customer base, and we believe we're being rewarded for that. Slide number six talks about those nuts and bolts that we all like to focus on. We can take our slide rulers out and our compasses and our protractors and look at all these nice numbers that we've got. 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 nine months of the year, to $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%-16% respectively. Important trends in book value, $11.72. Mind you, we started off in Q1 of 2023 with a tangible book value of $6.92 per share, and that's grown to $11.22. A 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, and it's NewtekOne's 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'll be our largest to date. The range here of $325 million-$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%-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%. It continued 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. 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. One other important item for Q3 financial highlights. In NSBF, that is our non-bank 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. We've got a slide to accentuate that. We had a $14 million loss for the first three quarters of 2025. In 2024, the full year's loss was $28.7 million. We're probably trending to an $18 million-$20 million type loss. That is going to continue to decline over time, and we have a slide to focus on that.

On slide number seven, we could focus on the Q3 2025 financial highlights. We talked about return on assets, return on equity, return on tangible and common equity, efficiency ratio, all very, very strong, particularly compared to industry standards. I would like to point out that our NPL total loans at 8.1%, which is fairly high compared to a community bank or the banks that you typically look at. I think it's important to note this has already been written off or written down. 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's 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 zero-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 number eight, 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 NIMs of some of the top four banks. This dwarfs that. This is that recurring 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 up front, and you don't get that high coupon from this particular portfolio until over time. I think that due to the negative type of accounting machinations from 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 being 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 all the three 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 number nine, tangible book value per share growth. We talked about this earlier. Real tremendous increase. All the while, we paid a healthy dividend out 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-$11.22. Really, we're very proud of growing this tangible book value number. Slide number 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%-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 along with 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 number 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. It could be what we refer to as the ALP (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 ALP loans. Our average loan size is about $4 million to $5 million. Great growth opportunity. If you do 200 units of ALP loans, it's $1 billion of loans. We do believe there's great growth opportunities here. As we'll show you in slides going forward, very profitable opportunity.

It's important to note that NewtekOne, unlike these other $300 million-$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 two decades, except for the depository side, obviously. That's somewhat new. 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. As I mentioned, we're about to do our fourth securitization in Q4 2025, the biggest ever. On number 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 at origination is 47%. Debt service coverage on average 3.4x. Weighted average gross coupon 13.17%. We say weighted average spread to the base rate. The base rate is the five-year treasury. These loans are typically fixed for five, and then they adjust at the margin. They're floored at the initial rate, so they can never go down. They also have prepayment penalties of 5% in the first 36 months and then 3% in months 36-48. These are not prepaid. We want that spread income to be kept over a long period of time. We talk about diversification in states, diversification in industry. Let's go to slide number 13. We have these securitizations on our books. On slide 13, the 2022-1 deal, that's been paid off. We wound up having all the cash flows behind the bonds repay the bonds. The bonds don't exist.

The security holders are very happy. They got their money back. 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. You could take a look at the ALP loans, the weighted average yield, notes in securitization, the spread, the weighted average rate of 6.72%. The important part is the gross spread before the servicing fee and after the servicing fee. We're the servicer. 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, it was 568. We believe that the spreads we're going to be getting on the next deal will be closer to the 568.

You could see, once you put the business on and the loans go into the securitization structure, there's no costs. We're leveraging the infrastructure across the entire business line and putting these loans in. There's not a transactional cost for deposits. 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. 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?" 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 number 14 gives the status of the three completed ALP securitizations. 2022 is 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 in the joint venture partners in the deal, they invested side by side with us from first loss. We do know where these valuations trade, and we mark them appropriately. All this data is in our queues. 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. That's how we come up with our valuations. Slide number 15, Newtek Bank, National Association credit quality.

We think this is an important slide because it will show you that this portfolio is seasoning because, mind you, we took over the bank. It was $180 million in total assets. Today, I think we're looking at about $1.4 billion of total assets. We're building a new portfolio. 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. Most of the SBA 7(a) loans have these types of characteristics. 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. We're pleased with the performance. There's no surprises here. This performance is done according to the plan. 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. Rooting against us over a 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 lines, securitization investors. We just came back from an ABSE conference. We had 34 meetings in two days. We couldn't be more pleased with how the business itself is performing. Slide number six, the SBA 7(a) loan portfolio, Newtek Bank. The big issue here is there is a concentration in SBA 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. We're very pleased about that initiative, and that is also according to plan.

Slide number 17, we talked about NSBF. That is the old non-bank SBLC, Small Business Lending Corp, licensed non-bank 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 three securitizations right now that exist: 2021, 2022, and 2023. The 2021 is callable, and we'll look to try to do something with that cleanup call shortly. This is a legacy non-bank subsidiary that's holding a portfolio in wind-down mode. Note, the increase in non-accruals from Q3 2024, this is declining. Extremely important. Yes, 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 at $215 million is sitting in securitizations with $140 million of bonds against them. The non-accruals at fair value, which will be liquidated over the next 12 or 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 of the consolidated balance sheet of NewtekOne, is shrinking. Just Q3 2024 was 32%. Q3 2025 down to 16%. 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 to $20 million for this calendar year. The performing loans are also paying down. 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. That's canceled and goes right to the subsidiary. We do believe the non-accrual inflows in the portfolio, they've decelerated for five consecutive months. We're pleased about that as well. Slide number 18, operating leverage being captured. This is all about the efficiency ratio. Declines from 61.8%-56.3%, and that's at the hold co. 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 a higher rate. Slide number 19 talks about the subsidiaries. Our payment processing business, we expect to contribute $16.5 million in pre-tax income in 2025. 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. We expect the insurance agency to contribute about $800,000 of pre-tax. The payroll business contributing about $600,000 of pre-tax. Payroll clients, 860, but there's 20,000 employees that we're doing payroll for. That business is growing nicely. All these three 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 dashboard. 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'll be launching a new offering, not a new product, but a new offering, a NewtekOne 3Play, 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. You get a line of credit, you get a bank account, and a merchant or payroll account all at the same time. NewtekOne's 3Play. Last slide, number 20. We talked about this, the capital that we raised in this particular, I'd say, recent quarter. Patriot Financial, we appreciate their investment, exchanging $20 million of a Series A convertible and an additional $10 million cash investment for shares. 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, non-cumulative preferred potential stock, $50 million at issuance. 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. With that, Operator, I'd like to turn this over to Q&A, where I'll have my CFOs and myself hope to answer any questions we might have from investors or analysts.

Operator (participant)

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 one, one on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Tim Switzer of KBW. Your line is now open.

Tim Switzer (Senior Research Analyst)

Hey, good afternoon. Thanks for taking my question.

Barry Sloane (Founder, President, and CEO)

Thanks, Tim.

Tim Switzer (Senior Research Analyst)

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. I'm curious, are there any certain areas where you're seeing more pressure in terms of industry or geographies relative to others?

Barry Sloane (Founder, President, and CEO)

Yeah. Tim, I think regarding credit trends, we do believe this is an economy of haves and have-nots. I think 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. 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. 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. We know it well. We've seen it in high rates, low rates, inflation, deflation. We have a pretty good feel for it. We also get a very good sense from our portfolio of customers in payment processing and payroll and things of that nature. We have a very good cross-section of credit and see what's working and what's not.

Tim Switzer (Senior Research Analyst)

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

Barry Sloane (Founder, President, and CEO)

Yeah. That's a good question, Tim. I would say this. Right now, we have a government shutdown. If the government gets open within two weeks, I wouldn't see any dramatic changes. Then again, I can't bet on that. This is a pretty volatile, uncertain. 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. Just to be totally fair, we can't live by the previous guidance given the basis of the government shutdown.

Tim Switzer (Senior Research Analyst)

Yeah, that's fair enough. Can you maybe elaborate on, you know, 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, you know, 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, you know, say to like Thanksgiving or something?

Barry Sloane (Founder, President, and CEO)

Sure. Given that we've been doing this for a long period of time, beginning of September, you start to cover your portfolio. 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. 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. 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 two 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.

Tim Switzer (Senior Research Analyst)

Okay, I got it. 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 deck.

Barry Sloane (Founder, President, and CEO)

Frank, could you help with that?

Frank DeMaria (CFO)

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

Tim Switzer (Senior Research Analyst)

Okay, thank you.

Frank DeMaria (CFO)

All right, thank you.

Operator (participant)

Our next question comes from the line of Crispin Love of Piper Sandler. Your line is now open.

Crispin Love (Director and Senior Research Analyst)

Thank you. Good afternoon, Barry. 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? If so, what type of volume could you do from those pulls in the fourth quarter?

Barry Sloane (Founder, President, and CEO)

I don't have the second number, but we did pull product, and you know 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. I mean, we're probably covered for half the quarter. I also want to point out, Crispin, that if you look at our mix of loans, it's changing. ALP, we've done more CRE, we've done more C&I. 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. 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.

Frankly, it's made it a little difficult, and a lot of people have dropped out of the 7(a) space because of the changes in the SBA program. We're sorry for other people's misfortune, but you know we've been able to weather these storms over time. We'll be here for many years and many quarters after this one.

Crispin Love (Director and Senior Research Analyst)

Okay, great. Thanks, Barry. On the $29 million of loans under the fair value option, that revenue line item in the quarter, can you 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?

Barry Sloane (Founder, President, and CEO)

Yeah. Frank, I believe that's a mix of government and ALP, but I'll let you answer that question, Frank.

Frank DeMaria (CFO)

Yeah. No, Crispin, you're spot on. We're ramping up for the next securitization. As you saw in that slide, we're looking at somewhere between $325 million and $350 million in capital. A lot of that this quarter is related to that. Similar to what you saw last quarter, you will see that flip in the fair value line as we close the securitization and pull the residual onto the balance sheet. You will see that again, as you alluded to, in the next quarter. Most of that is related to the originations and stacking the inventory for the securitization. To Barry Sloane's point, some additional SBA 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.

Crispin Love (Director and Senior Research Analyst)

Okay, perfect. Just last point, I just want to make sure I'm thinking about the guidance correctly. 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 kind of Q4, Q1, or beyond, rather than anything more than that?

Barry Sloane (Founder, President, and CEO)

I can't comment on it. It's very difficult to forecast, and I really can't comment on it at this time. The one thing I could tell you, you know what, 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.

Crispin Love (Director and Senior Research Analyst)

No, fair enough. I appreciate it, Barry. Thank you.

Barry Sloane (Founder, President, and CEO)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Steve Moss of Raymond James. Your line is now open.

Steve Moss (Analyst)

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

Barry Sloane (Founder, President, and CEO)

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 this space, and it is harder to do loans. I think when I was asked this question last quarter and there was 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 been 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. The second area has to do with anybody in the ownership chain, even if it's 1%, that cannot prove that they're a U.S. citizen can't get an SBA loan. 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 we're approving for financing, and due to the uncertainty in the marketplace and tariffs and things of that nature, they're not taking it.

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. 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.

Steve Moss (Analyst)

Okay. Great. Appreciate all that color there. 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 ALP loans end up on the bank balance sheet? Just any color there would be great.

Barry Sloane (Founder, President, and CEO)

Yeah. Steve, I think that, you know, diversification is extremely important, and there's a real 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. 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. 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. I think SBA, where right now, you know, the uninsured balance sheet is probably, you know, 44%-45%-ish, not including what is going on at 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. The returns equal the 7(a) business.

Steve Moss (Analyst)

Okay. Maybe on that point, where I was going to go with my next question is on the ALP business here. You know, 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+ range? Maybe do we see more than two a year?

Barry Sloane (Founder, President, and CEO)

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

Steve Moss (Analyst)

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

Barry Sloane (Founder, President, and CEO)

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

Steve Moss (Analyst)

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

Barry Sloane (Founder, President, and CEO)

I think we do plan on using the balance sheet a little bit more and using more leverage. I appreciate the question. It's not going to be dramatic, but I think what's important, A, to yourself, investors, regulators, they want to make sure that we had the capability, the management team, the systems, the software, the policies 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." 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 error. We're on plan. With our three-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.I appreciate you focusing in on that timeframe because it is important to us.

Steve Moss (Analyst)

Okay, I appreciate all the color here, Barry. Thank you very much.

Barry Sloane (Founder, President, and CEO)

Thank you, Steve.

Operator (participant)

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. Our next question comes from the line of Hal Goch of B. Riley Securities. Your line is now open.

Hal Goch (Analyst)

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

Barry Sloane (Founder, President, and CEO)

Sure. Hal, appreciate it. 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 Benesco. One of the SBA changes relating to limited underwriting score and go, I think they dropped the cut from like 500-350. A lot of competitors entered the space after PPP that were basically technology providers. They really didn't provide the fulsome lending that's required, in my opinion, in a regulated environment. That's the only name that I could openly talk about in the public market because it's out there. 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 ALP business at all.

I think just from a volume standpoint for us, we might have a little bit of a degradation in the next quarter or two in 7(a) volume, but we believe we'll be able to deliver good numbers from a market multiple standpoint, and we'll be able to make it up. From an ALP perspective, we were targeting, I think, between $350 million-$400 million in ALP loans for this calendar year, and I believe that's what we'll 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-$600 million, but I haven't really cleared that with my boss, Pete Downs, the President and COO of the bank. He's the boss in that area.

Hal Goch (Analyst)

Okay. I can ask one follow-up. It seems like the LTVs on the LP loans are quite good, right? What are the, refresh our memories on the collateral taken for those loans if you could, yeah.

Barry Sloane (Founder, President, and CEO)

One of the things I will do is DBRS is the rating agency, and they put out a nice pre-sale 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 Roe know. 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 there's not a commercial real estate lien, we're looking at intellectual property, machinery, equipment, inventory, and most importantly, personal guarantees. Every 20% equity owner or greater must personally guarantee it. 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.

Hal Goch (Analyst)

Excellent. Thank you.

Barry Sloane (Founder, President, and CEO)

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 lien on personal assets over a covenant that you're dealing with 45 days in arrears after the fact.

Hal Goch (Analyst)

Excellent. Okay. Thank you, Barry.

Barry Sloane (Founder, President, and CEO)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Christopher Nolan of Ladenburg Thalmann & Company. Your line is now open.

Christopher Nolan (Analyst)

Hey, Barry. Barry, what's your thoughts on increasing the dividend?

Barry Sloane (Founder, President, and CEO)

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 this is not my decision. It's the Board's decision who has to declare it. I would say, you know, if there was a choice of A or B, and there's a choice C, which is do nothing, by the way. If there was a choice A or B, we'd probably be more inclined to buy stock back than increase the dividend. We also might wind up with C, which is do nothing. 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.

Christopher Nolan (Analyst)

Got it. Great. I guess, you know, 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?

Barry Sloane (Founder, President, and CEO)

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. 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. 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. As a non-banker 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. I think that's been good. Not everybody works out. I've been asked, "Are we going to have changes?" and all that stuff.

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 to deliver the results. We're going to continue to work on building this platform together, upgrading it. I'd hand it all off to the management team of the company for delivering these results. They've done a terrific job. We do plan on using the balance sheet more and utilizing more of the capital going forward.

Christopher Nolan (Analyst)

Final question. You guys sort of seem, I mean, you have unusual business models, highly profitable when it works properly. You guys see, while you're a technology bank, you sort of have one foot in technology, one foot in traditional banking. 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, you guys have the back end down. Is that the direction we should see the model evolving, or what are your thoughts on? Does your stock price values help if you start becoming a fintech, which actually has a bank behind it?

Barry Sloane (Founder, President, and CEO)

Yeah. I love the question, Chris. I thank you for it. First of all, I'm going to put the names aside for the moment. I look at organizations that are trading at pretty substantial multiples like a LendingClub or Live Oak or SoFi. 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. Then all of a sudden, it started jumping because some people don't feel the multiples match up or make any sense. When you think of LendingClub, they do small business lending, but it's not a huge number. Look at a company like Enova, which doesn't currently own a depository. It's trading at a multiple in the teens. You look at our multiple.

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. 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% institutional. I'm pretty confident that number is more like 65% or 70%. 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. That's for other people to figure out. There are people that like the stock here, and there are people that obviously don't like it because there's a big share short. We'll figure this out.

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 here. That's why at the beginning of my presentation, I said, "Please focus on the business. Do you like this business? If you like the business, you should like the stock.

Christopher Nolan (Analyst)

Okay. Thanks for the answer, Barry.

Thank you, Chris.

Operator (participant)

Thank you. Our next question comes from the line of Ivan Jimenez of Greenholder. Your line is now open.

Iván Jiménez (Managing Director)

Hello, Barry. Thanks for the question.

Barry Sloane (Founder, President, and CEO)

Hey, Ivan.

Iván Jiménez (Managing Director)

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

Barry Sloane (Founder, President, and CEO)

At the bank.

Iván Jiménez (Managing Director)

At the bank.

Barry Sloane (Founder, President, and CEO)

At the bank, it's $1.4 billion, I believe. At the whole Co, it's approximately $2.4 billion.

Iván Jiménez (Managing Director)

Okay. You started with.

Barry Sloane (Founder, President, and CEO)

With a C, not a T. Pardon me? That's the market cap.

Iván Jiménez (Managing Director)

You started with three. You started with $300 million. Am I correct?

Barry Sloane (Founder, President, and CEO)

National Bank of New York City was $180 million in total assets when we bought it, approximately.

Iván Jiménez (Managing Director)

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

Barry Sloane (Founder, President, and CEO)

Yes, it is. That's where.

Iván Jiménez (Managing Director)

Of which 78% of that is guaranteed deposits. These are deposits of less than the FDIC rate. Am I correct? You don't have this risk of pull-out.

Barry Sloane (Founder, President, and CEO)

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.

Iván Jiménez (Managing Director)

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

Barry Sloane (Founder, President, and CEO)

Yeah. No, the growth numbers are numbers that do not exist, and obviously, it's on 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, "Oh, this is fantastic. It's great growth." I'm kind of scratching my head going, "Hey, what about me?

Iván Jiménez (Managing Director)

I think you're correct. I just wanted the numbers. I just wanted to make sure that I heard right, because to me, those numbers were important for me to model what I'm doing.

Barry Sloane (Founder, President, and CEO)

Thank you.

Iván Jiménez (Managing Director)

Okay.

Operator (participant)

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

Barry Sloane (Founder, President, and CEO)

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. Bryce and I are always available along with Frank and Scott to be helpful and answer any questions you might have. Thank you very much.

Operator (participant)

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