NewtekOne, Inc. (NEWT) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary reveals strong financial performance with high ROAA and ROTCE, indicating profitability. The Q&A session highlights growth in deposits and successful securitization strategies, although management's vague responses on stock valuation and integration impacts introduce some uncertainty. The stable expense outlook and no dividend increase align with a conservative approach. Overall, the positive financial metrics, clear growth strategies, and lack of significant negative trends suggest a positive stock price movement in the short term.
Key Financial Performance
Revenue $70.2 million in Q2 2025, a 15% increase from $61 million in Q2 2024. The growth was attributed to operational and financial successes, including growth in business deposits and integrated solutions from lending, merchant services, and payroll.
Business Deposits Increased by $50 million sequentially in Q2 2025. This growth was driven by opportunities from lending, merchant services, and payroll, leading to a decline in the cost of funds at the bank by 28 basis points to 3.71%.
Net Interest Margin (NIM) Increased by 56 basis points to 5.46% in Q2 2025. This improvement was supported by the growth in business deposits and the retention of government-guaranteed 7(a) loans with a prime plus 3 or 10.5% coupon.
Losses in Newtek Small Business Finance (NSBF) Reduced from $10.7 million in prior quarters to $3.7 million in Q2 2025. This reduction reflects the rundown mode of the non-bank SBA lender and improved performance.
Earnings Per Share (EPS) Basic and diluted EPS were $0.53 and $0.52, respectively, in Q2 2025. The first half basic and diluted EPS were $0.89 and $0.87, above the midpoint of guidance, reflecting strong financial performance.
Tangible Book Value Per Share Increased by 3.7% sequentially and 21% year-over-year in Q2 2025. This growth was achieved while paying a healthy dividend, showcasing strong shareholder returns.
Alternative Loan Program (ALP) Performance ALP loans had a historic charge-off rate of 1% as of June 30, 2025. The program completed three securitizations successfully, with a weighted average coupon of 13.3% and a spread of 570 basis points, contributing significantly to earnings per share.
Cost of Deposits Declined from 3.99% to 3.71% in Q2 2025. This decline was driven by the growth in business deposits and the bank's strategic initiatives.
Efficiency Ratio Improved from 66.3% to 60.3% year-over-year at the holding company level in Q2 2025. This improvement reflects the scalable operating infrastructure and strong financial management.
Return on Average Assets (ROAA) and Return on Tangible Common Equity (ROTCE) ROAA was 2.5% and ROTCE was 19.4% in Q2 2025, showcasing strong profitability metrics driven by the company's business model and operational efficiency.
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Operating Highlights
Digital Banking Platform: NewtekOne operates a fully digital bank without traditional branches, focusing on remote customer acquisition and automation using AI and technology.
Alternative Loan Program (ALP): The ALP has completed three securitizations, with plans for another in Q4 2025. The program is highly accretive to earnings, with a 14% yield on residual interests.
Business Deposits Growth: Business deposits grew by $50 million sequentially, reducing the cost of funds and improving net interest margins.
Loan Portfolio Expansion: The company expects its loan book to reach $4.4 billion by year-end 2025, supported by increased credit facilities from Deutsche Bank and Capital One.
Revenue Growth: Achieved 15% revenue growth in Q2 2025 compared to Q2 2024, reaching $70.2 million.
Cost Efficiency: Operating expenses increased by only 4% year-over-year despite a 37% balance sheet growth, improving the efficiency ratio to 60.3%.
Focus on Technology and AI: The company is leveraging AI and technology to enhance customer acquisition and operational efficiency, positioning itself as a tech-oriented financial holding company.
Shift from Traditional Banking: NewtekOne emphasizes its differentiation from traditional banks by focusing on digital solutions and non-traditional lending practices.
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Risk or Challenges
Regulatory Changes: The SBA has implemented a 55 basis points fee to better balance its loss reserves, which could impact the gain on sale of SBA 7(a) loans. This regulatory change may affect profitability and operational planning.
Nonperforming Loans: The company is dealing with nonperforming loans in both NSBF and the bank. While efforts are underway to sell these loans, they currently impact financial ratios and capital utilization.
Cost of Deposits: Although the cost of deposits has declined, it remains a critical factor for maintaining profitability. Any adverse changes in deposit costs could impact the net interest margin.
Economic Conditions: The company acknowledges that the great financial crisis for SBA lending occurred in 2021-2023 due to rising interest rates, which led to significant losses. This historical context highlights the sensitivity of their portfolio to economic conditions.
Loan Portfolio Risks: The company’s ALP loans, while performing well, carry a 15% frequency of default and a 20% severity, with a 3% charge-off rate. These metrics indicate inherent risks in the loan portfolio.
Strategic Execution: The company is heavily reliant on its digital and AI-driven business model. Any failure to execute or adapt this strategy effectively could impact its competitive position and operational efficiency.
Market Perception: Investors have expressed confusion over unrealized gains and losses in the ALP securitization process, which could affect market confidence and valuation.
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Guidance & Outlook
Earnings Per Share (EPS) Guidance: Maintaining EPS guidance of $2.10 to $2.50 for calendar year 2024, with a midpoint implying a 17% growth rate.
Revenue Growth: Achieved 15% revenue growth in Q2 2025 compared to Q2 2024, with expectations for continued growth.
Cost of Funds and Net Interest Margin: Cost of funds at the bank declined by 28 basis points to 3.71%, with further declines forecasted. Net interest margin increased by 56 basis points to 5.46%.
Alternative Loan Program (ALP) Growth: ALP business is growing, with plans for another securitization in Q4 2025. ALP loan originations for the second half of 2025 are expected to approximate $250 million.
Deposit Growth: Business deposits grew by $50 million sequentially, with expectations for continued growth in business deposits to reduce funding costs.
SBA 7(a) Loan Pricing: Guiding to a lower gain on sale for SBA 7(a) loans, with premiums expected to average 110 for the second half of 2025.
Operational Efficiency: Efficiency ratio improved to 60.3%, with scalable infrastructure to manage a larger balance sheet.
Future Use of Capital: Plans to free up approximately $200 million of capital from the NSBF portfolio as it pays down, to be used for debt repayment, stock buybacks, and dividends.
Digital and AI Integration: Continued focus on digital banking and AI integration to enhance customer acquisition and operational efficiency.
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Shareholder Return Plan
Dividend Payment: Tangible book value per share increased 3.7% sequentially quarter-over-quarter and 21% year-over-year while paying a very healthy dividend.
Share Buyback: The company mentioned the potential use of freed-up capital from the NSBF portfolio for activities such as paying off debt, buying back stock, and paying dividends.
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Key Q&A
Q:Can you talk about the drivers behind the $50 million growth in commercial deposits and expectations for deposit costs going forward?
A:Barry Scott Sloane explained that the growth was driven by the Newtek Advantage, which offers clients benefits in merchant services and payroll, integrated solutions, and a 0-fee, higher-rate account. He acknowledged the need to improve utilization of the 4,000 business accounts opened and mentioned plans to offer a line of credit and bank account as part of their solutions.
Q:What were the total charge-offs this quarter for the held-for-investment portfolio?
A:Frank M. DeMaria stated that the total charge-offs were $5 million, consistent with the previous quarter's $5.1 million.
Q:Can you break down the drivers behind the $11.8 million negative net fair value line item this quarter?
A:Frank M. DeMaria explained that the primary component was the reversal of $35.1 million unrealized gains on ALP loans, written down to par and sold into securitization. This resulted in a net gain of $32.4 million on the equity interest. ALP loan gains for the quarter were $6.3 million, offsetting part of the loss.
Q:What are the expectations for net gains in residual and securitizations going forward?
A:Frank M. DeMaria noted that the $32 million gain this quarter was due to owning 100% of the residual in the ALP securitization, unlike previous 50-50 joint ventures. They anticipate continuing similar structures in the future.
Q:What are your thoughts on the SBA rule changes effective June 1 and their impact on 7(a) loan volumes?
A:Barry Scott Sloane stated that the changes have not impacted their guidance of $1 billion in 7(a) loans for the year. He noted that non-bank lenders are struggling with compliance, but Newtek is well-prepared. He also mentioned that borrowing appetite is improving due to reduced tariff issues.
Q:What is the expected holding period for 7(a) loans, and how does it impact the strategy?
A:Barry Scott Sloane mentioned a holding period of 60 to 75 days, possibly extending to 90 days. This strategy helps net interest income, and they still intend to sell the loans for cash gains.
Q:What are the expectations for expenses in the second half of the year?
A:Barry Scott Sloane expects expenses to remain relatively stable, with a slight increase due to ongoing investments. He noted a 4% increase in expenses year-over-year for Q2.
Q:Can you explain the $32.4 million net gain on residuals and securitization?
A:Barry Scott Sloane explained that the gain is based on a 14% discount rate, 15% default frequency, and 20% severity, resulting in a 3% charge-off. The book value is approximately $35 million, and the valuation is around 5.5x income.
Q:What are your thoughts on the provision levels and reserve ratios?
A:Barry Scott Sloane stated that the provision is expected to range between 4.5% and 5.5% for the year. He emphasized the importance of maintaining a strong provision as a form of capital and noted that 7(a) loans account for 90-92% of the total provision.
Q:Are regulators giving more flexibility in provisioning?
A:Barry Scott Sloane mentioned that regulators seem comfortable with their provisioning levels and have not imposed restrictions. He emphasized their experience in lending to SMEs and SMBs with higher provisions.
Q:Is there a possibility of a dividend increase given the over-earning of the dividend?
A:Barry Scott Sloane indicated that while the dividend is healthy, they are unlikely to increase it at this time. He mentioned focusing on other priorities and noted their dividend is already above the industry average.
Q:Why does the stock trade at a lower P/E ratio compared to the industry?
A:Barry Scott Sloane attributed this to the company's unique and disruptive business model, which is not well understood by the market. He emphasized their focus on making money and providing high returns on equity.
Q:How is the integration of payroll and payment processing driving new bank accounts?
A:Barry Scott Sloane explained that they are integrating bank accounts with merchant and payroll accounts through a single application process. This provides customers with cost savings, better analytics, and a seamless experience through the Newtek Advantage.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing why the stock trades at a lower P/E ratio compared to the industry, using vague language about being 'disruptive' and 'different.' They also did not provide specific details on how the integration of payroll and payment processing quantitatively impacts new bank account growth.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ACL
ALP loan
Bank
Inc Research
NSBF
Newtek Advantage
Research Division
SBA
Slide
ability
account
balance sheet
bank
basis point
book
capital
cash
charge
cost
credit
deal
deposit
gain
government
income
lender
loss
lot
market
merchant
money
opportunity
portfolio
purpose
rate
securitization
securitizations
solution
type
value
NEWT Transcript
NewtekOne, Inc. (NEWT) Q1 2026 Earnings Call Transcript
Positive4-30
The earnings call summary shows strong financial performance with significant growth in tangible book value and return on equity. Despite some net charge-offs, risk management remains robust. The Q&A section reveals positive sentiment, with expectations of continued loan growth and efficient capital use through securitization. Concerns about NII growth projections and unclear management responses slightly temper the overall sentiment. However, the guidance on EPS and loan originations, along with technological advancements and strategic diversification, suggest a positive outlook for the stock price movement.
NewtekOne, Inc. (NEWT) Q4 2025 Earnings Call Transcript
Positive1-29
The earnings call summary reveals strong financial performance with improved efficiency ratios, deposit growth, and tangible book value. Product development and market strategy are promising, with new offerings and partnerships. Despite flat noninterest income, optimistic guidance and strategic initiatives are positive. The Q&A section highlights digital growth and competitive positioning, with some concerns about unclear management responses. Overall, the sentiment is positive, given the financial health and strategic plans, suggesting a potential stock price increase of 2% to 8%.
NewtekOne, Inc. (NEWT) Q3 2025 Earnings Call Transcript
Unknown10-29
The earnings call presents mixed signals: strong revenue growth and improved efficiency are positive, but uncertainties like the government shutdown and unclear guidance impact sentiment negatively. The company's strategy to diversify its loan portfolio and ALP growth is promising, yet the reluctance to increase dividends and the cautious stance on guidance due to external factors create a neutral outlook.
NewtekOne, Inc. (NEWT) Q2 2025 Earnings Call Transcript
Positive7-28
The earnings call summary reveals strong financial performance with high ROAA and ROTCE, indicating profitability. The Q&A session highlights growth in deposits and successful securitization strategies, although management's vague responses on stock valuation and integration impacts introduce some uncertainty. The stable expense outlook and no dividend increase align with a conservative approach. Overall, the positive financial metrics, clear growth strategies, and lack of significant negative trends suggest a positive stock price movement in the short term.
NEWT Slides
NEWT Report
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