NewtekOne, Inc. 8.50% Fixed Rate Senior Notes due 2029 Q2 FY2025 earnings call

• Introduced new hires like Andrew Kaplan, Chief Strategy Officer, and Vik Mahajan, Chief Investment Officer.
• Overview of NewtekOne's business: provides business and financial solutions to SMBs, acquired a federally insured depository, uses technology to acquire customers cost-effectively.
• Q2 2025 financial highlights: 15% revenue growth to $70.2 million, growth in business deposits by $50 million, cost of funds at the bank declined 28 basis points to 3.71%, net interest margin at the bank increased 56 basis points, losses in Newtek Small Business Finance shrank, ALP securitizations successful with upsized credit facilities from Deutsche Bank and Capital One.
• Profitability and operating leverage: efficiency ratio at holdco improved from 66.3% to 60.3%, strong ROAAs and ROTCEs.

Newtek Merchant Solutions had about $17 million of pretax income and EBITDA. Newtek Small Business Finance saw losses shrink from $10.7 million to $3.7 million. The alternative loan program (ALP) has completed 3 successful securitizations, with loans in joint ventures and structures around $450 million to $500 million. ALP is growing, has high-quality loans, and is accretive to earnings per share.

• Maintained earnings per share guidance of $2.10 to $2.50 for calendar year 2024.
• Anticipates ALP loan originations in the second half of 2025 to approximate $250 million.
• Guides to a lower gain on sale from SBA 7(a) loans, expecting around $110 million, based on SBA rule changes.

• Potential challenges with nonperforming loans in Newtek Small Business Finance and the bank.
• Impact of regulatory changes on SBA 7(a) loans, such as the 55 basis point fee affecting loan gains.
• Market uncertainties affecting borrowing appetite for SBA loans.

Q: Can you talk about the drivers of deposit trends, growth in commercial deposits, and expectations for deposit costs going forward?

A: Deposits grew due to integrated solutions in merchant services, payroll, and lending. Expect to continue growing business deposits and see further declines in deposit costs.

Q: What were total charge-offs this quarter for the held for investment portfolio?

A: It was $5 million, approximately flat with last quarter.

Q: Will the net gain in residual and securitizations only occur when doing ALP securitizations?

A: Yes, previously done through 50-50 joint ventures, now holding the entire residual in new structures.

Q: Thoughts on SBA rule changes and volumes in the 7(a) product?

A: Not expecting a drop-off in volumes, guiding to $1 billion of 7(a) originations for the year, with mix changes between loan types possible.

Q: Expectations for the provision in the second half of the year and reserve ratio?

A: Provision expected to go higher, reserve ratio likely in the range of 4.5% to 5.5%.

Q: Why does the stock trade at a low P/E compared to the industry?

A: Due to being disruptive, different business model of making and selling loans, and complexity for the market to understand the business fully.