NewtekOne, Inc. 8.00% Fixed Rate Senior Notes due 2028 Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Mission: Providing business and financial solutions to independent business owners since 1998, acquired Newtek Bank National Association in Jan 2023 for depository solutions.
• Deposits: Core deposits grew sequentially with business deposits up $52 million (17%) and consumer deposits up $95 million (12%) without branches or traditional bankers.
• Alternative Loan Program: Financed through securitizations, expecting largest securitization in Q4 2025. Historical charge-offs below 1%, average loan size $4M to $5M.
• Capital: Boosted Tier 1 capital by ~$80 million and common equity Tier 1 by ~$30 million. Efficiency ratio declined from 61.8% to 56.3% at holding company.
• NSBF: Loss in wind-down mode continuing to decline, nonaccruals inflows decelerated for 5 consecutive months.
• New Offerings: Launching NewtekOne Triple Play, an unsecured line of credit up to $10,000 with merchant or payroll account.
• Financings: Issued $50 million fixed reset noncumulative preferred perpetual stock, refinanced merchant business with $95 million financing solution.

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 was 9% quarter-over-quarter, deposits up 11%. Capital ratios were strong, with key leverage ratios around 12.5% at the holding company and just shy of 16% for total risk-based capital.
• Alternative Loan Program (ALP): Expecting a $325 million to $350 million securitization in Q4 2025, which would be the largest to date. Historical charge-offs for ALP were below 1%, with an average loan size of about $4 million to $5 million.
• NSBF: Loss in wind-down mode was $14 million for the first 3 quarters of 2025, trending down from $28.7 million in 2024, expected to be $18 million to $20 million in 2025.
• Other Segments: Payment processing expected to contribute $16.5 million of pretax income in 2025. Insurance policies were up 34% year-over-year, with the insurance agency expected to contribute ~$800,000 in pretax. Payroll was contributing ~$600,000 in pretax, with 20,000 employees on payroll.

Guidance

• Previous Q4 guidance was $0.65 to $0.80, but government shutdown complicates, though no immediate pullback, just timing issues.
• Expecting $325 million to $350 million ALP securitization in Q4 2025.
• Plan to diversify bank balance sheet with more C&I and CRE loans, aiming to reduce uninsured balance sheet and grow ALP business.

Risks

• Government Shutdown: Impact on SBA 7(a) loan originations, harder market to do loans, though using bridge financing.
• SBA Program Changes: Competitors leaving the space due to SBA program changes, affecting 7(a) loan volume.
• Credit Trends: Volatile industries like oil, gas, transportation, agriculture showing pressure, staying away from these sectors.

Question and Answer

• Q: Update on credit trends and areas of pressure? A: Staying away from volatile industries (oil, gas, transportation, agriculture), consumer side still strong, portfolio seasoning flattening.
• Q: Tier 1 and total capital risk-based ratios? A: ~12.5% leverage at holding company, just shy of 16% total risk-based capital.
• Q: Impact of government shutdown on SBA 7(a) loans? A: Covering portfolio, using bridge financing, but harder market to do loans.
• Q: Diversification of bank balance sheet? A: Adding C&I and CRE loans, goal to reduce uninsured balance sheet, grow ALP business.
• Q: Dividend increase? A: Possible but unlikely in near term, focus on stock buybacks and balance sheet use.
• Q: Business model evolution? A: Focus on technology and efficiency, building on existing platform, using balance sheet more.