NEWTG — NewtekOne, Inc. 8.50% Fixed Rate Senior Notes due 2029

Summary of NewtekOne, Inc. Q2 2025 Earnings Call

1. Key Financial Results and Metrics

• Earnings Per Share (EPS): Basic EPS of $0.53 and diluted EPS of $0.52 for Q2 2025, with a first-half EPS of $0.89, exceeding guidance of $0.78 to $0.92.
• Revenue Growth: 15% increase year-over-year, reaching $70.2 million compared to $61 million in Q2 2024.
• Net Interest Margin (NIM): Increased from 4.9% to 5.46%.
• Cost of Funds: Declined from 3.99% to 3.71%, with a 28 basis point decrease.
• Charge-offs: Total charge-offs for the held-for-investment portfolio were $5.1 million, stable compared to the previous quarter.
• Return on Assets (ROAA): 2.5% for Q2 2025; Return on Tangible Common Equity (ROTCE) at 19.4%.

2. Strategic Updates and Business Highlights

• Acquisition of Depository: NewtekOne has acquired a federally insured depository, enhancing its service offerings to small and medium-sized businesses (SMBs).
• Business Deposits Growth: Increased by $50 million sequentially, now representing nearly 30% of total deposits.
• Alternative Loan Program (ALP): Successfully completed three securitizations, with high-quality loans contributing positively to earnings.
• Technological Integration: Focus on digital banking solutions, enabling clients to manage payments, payroll, and banking services seamlessly.
• Management Changes: New hires in key positions, including Chief Strategy Officer and Chief Investment Officer, to enhance operational capabilities.

3. Forward Guidance and Outlook

• EPS Guidance: Maintained annual EPS guidance of $2.10 to $2.50 for 2024, implying a growth rate of 17%.
• Loan Originations: Expecting approximately $1 billion in SBA 7(a) loans for the year, with ALP loan originations projected at $250 million for the second half.
• Credit Quality: Anticipates a slight increase in provisions for loan losses in the second half of the year, with a reserve ratio expected between 4.5% to 5.5%.

4. Bad News, Challenges, or Points of Concern

• Nonperforming Loans (NPLs): Concerns regarding the legacy portfolio of Newtek Small Business Finance (NSBF), which is in a rundown mode, although losses are decreasing.
• Market Competition: Increased difficulty in finding good credit opportunities due to market conditions and regulatory changes affecting non-bank lenders.
• Regulatory Environment: Regulatory scrutiny on loan loss provisions may impact operational flexibility, although management feels comfortable with current provisions.
• SBA Rule Changes: New regulations may affect the volume of 7(a) loans, although management does not anticipate a significant impact on their business.

5. Notable Q&A Insights

• Deposit Growth Drivers: The integration of payroll and payment processing services is driving new business deposits, with a focus on offering zero-fee accounts linked to value-added services.
• Securitization Gains: The recent $32 million gain from residual interests in securitizations is attributed to owning 100% of the residuals, contrasting with past joint ventures.
• Market Perception: Management acknowledges the stock's low P/E ratio compared to industry peers, attributing it to the company's unique business model and ongoing efforts to improve communication with investors.
• Expense Management: Expenses are expected to remain stable, with only a 4% increase year-over-year, indicating effective cost control amidst growth initiatives.

Overall, NewtekOne reported solid financial performance in Q2 2025, with strategic initiatives aimed at enhancing its digital banking capabilities and expanding its customer base. However, challenges related to legacy portfolios and regulatory changes remain areas of concern.