NewtekOne, Inc. Depositary Shares, Non-Cumulative Perpetual Preferred Stock, Series B Q1 FY2025 earnings call

• Mission is to provide business and financial solutions to SMBs, focusing on digital banking and avoiding consumer banking. - Noted earnings beat in Q1 2025 with $0.35 diluted EPS, maintaining EPS range of $2.10 to $2.50. - Moved to split CFO roles with Scott Price focusing on Newtek Bank and Frank DeMaria handling the holding company. - Wind down of non-bank SBA lending subsidiary reduced loss by over 50% from $10.7 million to $5 million. - ALP securitization had a successful execution with good advance rates and bond sales. - Efficiency ratio declined from 71% to 62% due to scalable digital business model.

The company's segments include Newtek Bank National Association and NewtekOne, Inc. as a holding company. Newtek Bank saw deposits with a mix shift to core business and consumer deposits, average cost of deposits at ~4% expected to drift down. The bank's pre-provision net revenue (PPNR) was 13.2% of average loans for Q1, averaging 19% for the year prior vs a peer average of 2.1%. The loan loss provision covered net charges by 3.9 times over the last four quarters. The Alternative Loan Program (ALP) had a successful securitization with an 85% advance rate and a 570 basis point spread. The merchant solutions business made ~$16 million of EBITDA in pretax. Revenue contribution: Net interest income comprises 78% of total revenue, with gain on sale of loans changing due to holding government guaranteed portions longer.

Maintained EPS range of $2.10 to $2.50, projecting annual EPS growth of 17% using the midpoint. Guidance is dependent on loan volumes, with the need to bring on new alliance partners due to tougher credit acquisition. The risk in the range is tied to volumes of loans, whether 7(a) or ALP loans.

Challenges in acquiring credits with less attractive traditional clients, tougher credit environment making it trickier. Overemphasis on credit concerns, particularly for SBA 7(a) loans which are a fraction of the business. Impact of regulatory changes like potential changes in SBA loan program fees and underwriting guidelines on loan performance and gain on sale margins.

Q: Please speak to the sustainability of net gain on loans accounted for under the fair value option, especially for ALP loans.

A: Barry Sloane stated that the ALP securitization had a 570 basis point spread, and they believe earnings and projections are sustainable, with historic charge offs at ~70 basis points and expected growth within loss curves.

Q: Can you speak to the rationale and timing of management changes, and views on splitting CFO roles?

A: Barry Sloane mentioned there will be changes as markets and business evolve, with Scott Price focusing on Newtek Bank and Frank DeMaria handling the holding company CFO role for accounting aspects.

Q: Help parse through the $18 million of fair value gains this quarter, including SBA and ALP pieces.

A: Barry Sloane noted $8 million gain on sale from SBA government guarantees and the ALP securitization had good execution with an 85% advance rate. Scott Price added the gain on sale for SBA was just shy of $8 million.

Q: How long will the fair value gain from SBA loans be held on balance sheet?

A: Barry Sloane stated it won't be for an extended period but couldn't specify exact time, following projections.

Q: What gives comfort that recent SBA loan vintages will have better credit performance vs NSBF?

A: Barry Sloane noted current bank loans are underwritten in a higher rate environment, the non-bank SBA lending subsidiary loss drag is diminishing, and the company has experience managing through credit cycles over two decades.