NewtekOne, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Mission: Providing business and financial solutions to independent business owners since 1998.
• Growth: Tremendous growth in tangible book value from $6.92 per share in Q1 2023 to $11.22. Core deposits grew with business deposits up $52 million (17%) and consumer deposits up $95 million (12%) sequentially.
• Alternative Loan Program: Expecting largest securitization in Q4 2025 ($325M - $350M). Historic charge-offs below 1%, loans have long amortization and call protection.
• Efficiency: Efficiency ratio at holdco declined from 61.8% to 56.3%, operating expenses up 8.5% while assets up 43%.
• Capital: Boosted Tier 1 capital and common equity Tier 1 by ~$80M and ~$30M respectively through Series B preferred and common equity issuance.

Segment Performance

• Newtek Bank National Association: Q3 2025 ROAA was 3.57%, return on tangible common equity 32%, efficiency ratio 47%, NIM 5.4%. Loan growth 9% held for investment, deposits up 11%. Capital ratios strong, allowance for credit losses 5.42%.
• Alternative Loan Program: Expecting a $325 million to $350 million securitization in Q4 2025. Historically, charge-offs below 1%, average loan size about $4 million to $5 million. Historical securitizations like 2024-1 had a weighted average rate of 6.72% with good servicing streams.
• Payment processing: Expected to contribute $16.5 million of pretax income in 2025 and drive deposit growth.
• Payroll: Contributing about $600,000 in pretax, with 20,000 employees on payroll, growing nicely.
• Insurance: 10,000 policies in 2025, up 34% year-over-year, expected to contribute about $800,000 of pretax.

Guidance

• Previous guidance for Q4 was $0.65 to $0.80, but noted government shutdown could impact, though no reason to pull guidance yet.
• Plan to continue business model, use balance sheet more, and provide better execution on deposit and Alternative Loan Program sides.
• Aim to do 2 or more AOP securitizations annually, with larger pools for better diversification and investor receptivity.

Risks

• Government Shutdown: Impact on SBA loan originations and potential delay in loan fundings. Some competitors leaving SBA space due to program changes.
• Credit Market Volatility: Uncertainty in credit trends, particularly in volatile industries like oil and gas, transportation, and agriculture.

Question and Answer

• Q: Tim Switzer on credit trends and guidance A: Barry R. Sloane discussed credit trends in haves and have-nots, staying away from volatile industries, and confidence in previous guidance despite government shutdown.
• Q: Crispin Love on SBA shutdown and fair value option A: Barry R. Sloane and Frank DeMaria discussed pulling product for loans funding 45 days ahead, and fair value line related to securitization ramp-up.
• Q: Steve Moss on customer demand and balance sheet diversification A: Barry R. Sloane noted tougher SBA loan market, plans to diversify balance sheet with C&I and CRE loans, and aim for 2 AOP securitizations annually.
• Q: Harold Goetsch on SBA lenders leaving and ALP loan collateral A: Barry R. Sloane discussed competitors leaving due to SBA program changes, and ALP loans underwritten with business appraisals, personal guarantees, and various collaterals.
• Q: Christopher Nolan on dividend and capital ratios A: Barry R. Sloane mentioned unlikely near-term dividend increase, and plans to use balance sheet more while emphasizing management team's role in delivering results.
• Q: Ivan Jimenez on asset size and deposit sources A: Barry R. Sloane clarified asset size at the bank is ~$1.4 billion, holdco ~$2.4 billion, and deposits are primary funding source with 78% insured.