2025 Q3 Earnings Call Contradictions: Credit Market Volatility, SBA Lending Shifts, and Dividend Strategy Divergence

Date of Call: October 29, 2025

Financials Results

• EPS: $0.68 basic / $0.67 diluted for Q3; YTD $1.57 basic / $1.54 diluted; EPS growth ~47% (Q3) and ~22% (YTD) YOY
• Operating Margin: Efficiency ratio 56.3% at holding company, improved from 61.8% prior period; bank efficiency ~46%–47%

Guidance:

• Q4 EPS previously guided $0.65–$0.80 but management cannot affirm the range due to the federal government shutdown
• Expect largest-ever ALP securitization in Q4 2025 of approximately $325M–$350M
• NSBF (wind‑down) loss for 2025 estimated ~$18M–$20M (vs $28.7M in 2024)
• Target to run ~2 ALP securitizations per year and materially grow AOP originations going forward

Business Commentary:

* Strong Financial Performance: - NewtekOne reported a Q3 basic and diluted EPS of $0.68 and $0.67, an increase of 47% compared to the previous quarter and 22% year-on-year. - The growth was driven by a combination of strong revenue growth, particularly in business deposits and consumer deposits, and effective loan portfolio management.

• Capital Raising and Financial Stability:
• The company raised $80 million in Tier 1 capital and $30 million in common equity, bolstering its capital position.

• This move was aimed at supporting the company's growth trajectory while maintaining a strong financial foundation.

• Deposit Growth and Diversification:

• Business deposits grew by $52 million, representing a 17% increase sequentially, while consumer deposits rose by $95 million, representing a 12% increase.

• The growth is attributed to Newtek's unique approach of offering bundled financial services such as payroll and payments, attracting deposits without traditional bankers or branches.

• Alternative Loan Program Expansion:

• NewtekOne is expecting a $325 million to $350 million securitization for its Alternative Loan Program in Q4, the largest to date.
• This expansion is part of a strategic effort to capitalize on the existing infrastructure to increase asset liability matching and capitalize on higher spread margins.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted strong profitability and improving operating leverage: ROAA 3.15%, efficiency ratio down to 56.3% (holdco) from 61.8%, NIM 5.4% at the bank, tangible book value growth from $6.92 to $11.22, and capital raises boosting Tier 1 and CET1 by roughly $80M and $30M respectively.

Q&A:

• Question from Timothy Switzer (Keefe, Bruyette, & Woods): Could you update on credit trends and which industries/geographies are showing more pressure?
  Response: Avoiding commodity‑exposed and volatile sectors (oil & gas, transportation, agriculture); consumer-facing credits remain relatively strong and portfolio seasoning is flattening NPL inflows.

• Question from Timothy Switzer (Keefe, Bruyette, & Woods): Are you still confident in prior Q4 EPS guidance of $0.65–$0.80?
  Response: Management is not affirming the prior guidance because the government shutdown creates short‑term uncertainty, though they have no current reason to withdraw it.

• Question from Timothy Switzer (Keefe, Bruyette, & Woods): How can you originate/process loans during the SBA shutdown and how long will you be able to operate before originations/sales are impacted?
  Response: We pulled PLP numbers ahead (covering ~45 days), continue to take applications, and provide bridge financing to carry borrowers until SBA guarantees resume.

• Question from Timothy Switzer (Keefe, Bruyette, & Woods): What are the holding company Tier 1 and total risk‑based capital ratios?
  Response: Holding company leverage ratio ~12.5% and total risk‑based capital just under ~16%.

• Question from Crispin Love (Piper Sandler): Did you pull PLP numbers ahead of the shutdown and what Q4 volume might that cover?
  Response: Yes — PLP pulls cover roughly half the quarter (about 45 days), so a portion of expected closings are covered.

• Question from Crispin Love (Piper Sandler): Can you explain the $29M fair‑value loans line and what to expect going forward with the large securitization?
  Response: Fair‑value volatility driven by ALP originations being warehouse‑funded ahead of the $325M–$350M securitization; expect a similar 'flip' in the fair‑value line when the deal closes.

• Question from Crispin Love (Piper Sandler): Is the guidance issue mainly a timing question (gain on sale hitting 4Q vs 1Q)?
  Response: Management says forecasting timing is difficult amid current uncertainty and thus cannot confidently comment on precise timing.

• Question from Stephen Moss (Raymond James): How are customer demand and confidence in the SBA space given the shutdown and regulatory changes?
  Response: Demand is tougher as some lenders exit the space and certain borrower eligibility rules tightened; long‑term opportunity remains but near‑term originations may soften.

• Question from Stephen Moss (Raymond James): What will diversification of the bank balance sheet look like (CRE, C&I); will ALP loans end up on the bank's books?
  Response: Plan to add more C&I and CRE lines to lower uninsured concentration; ALP historically sold/securitized but the bank will use the balance sheet more selectively — details to be provided at a planned analyst day.

• Question from Stephen Moss (Raymond James): Is the $300M+ securitization size and frequency (e.g., 2/year) a new run rate?
  Response: Yes — goal is about two ALP securitizations per year and to increase pool sizes, with this Q4 deal being the largest to date.

• Question from Harold Goetsch (B. Riley Securities): Why are some SBA lenders leaving the market and does the government shutdown affect the ALP program?
  Response: Some competitors reduced activity due to tighter underwriting and operational changes; ALP is not impacted by the SBA shutdown and management expects calendar‑year AOP originations to hit ~$350M–$400M (with an internal longer‑term target of $500M–$600M).

• Question from Harold Goetsch (B. Riley Securities): What collateral and protections back ALP loans?
  Response: ALP underwriting includes business appraisals, ~65% have commercial real estate liens; other collateral can include IP, machinery, inventory, plus personal guarantees from ≥20% owners.

• Question from Christopher Nolan (Ladenburg Thalmann): Thoughts on increasing the dividend?
  Response: Board decision; management considers buybacks preferable to increase shareholder value and views a near‑term dividend increase as possible but unlikely.

• Question from Christopher Nolan (Ladenburg Thalmann): Do regulators urge you to pad capital because of the unconventional model?
  Response: No direct regulator directive; management proactively raised capital to demonstrate strong capitalization and to support growth plans.

• Question from Christopher Nolan (Ladenburg Thalmann): Is Newtek evolving into a fintech with a bank behind it?
  Response: Company positions itself as a technology‑enabled bank combining front‑end distribution and back‑end banking; management believes the market underappreciates the integrated model but sees no change to the core strategy.

• Question from Ivan Jimenez (Greenholder): Clarification on asset and deposit figures (bank assets, holdco, deposit composition)?
  Response: Bank assets ~ $1.4B, holdco assets ~ $2.4B; deposit base ~ $1.2B with ~78% insured deposits, and deposits are the primary funding source going forward.

Contradiction Point 1

Credit Market Stability and Volatility

It involves differing perspectives on the stability and volatility of the credit market, which impacts lending strategies and risk management.

Can you provide an update on credit trends and identify areas facing increased pressure? - Timothy Switzer (KBW)

2025Q3: The credit market reflects an economy of two halves. Volatility is high in small business, affected by rate increases. - Barry R. Sloane(President, Chairman & CEO)

What were your total charge-offs for the held-for-investment portfolio this quarter? - Timothy Jeffrey Switzer (Keefe, Bruyette, & Woods, Inc., Research Division)

2025Q2: Credit quality at the holding company remains stable, with charge-offs and provisions stable over the last two quarters. - Barry S. Sloane(CEO and President)

Contradiction Point 2

SBA Lending Market Conditions

It involves differing views on the state of the SBA lending market, affecting strategic positioning and expectations for competition.

How strong is customer demand and confidence in the SBA lending space? - Stephen Moss (Raymond James)

2025Q3: The market is tougher with changes affecting lenders, but we're well-positioned. We expect some market shake-up in the top 20 lenders. - Barry R. Sloane(President, Chairman & CEO)

Have you noticed any changes since the SBA rule changes took effect on June 1? - Crispin Love (Piper Sandler & Co., Research Division)

2025Q2: The SBA rule changes have long been anticipated and are consistent with the goals of these programs. - Barry S. Sloane(CEO and President)

Contradiction Point 3

Credit Market and Economic Conditions

It reflects differing perspectives on the credit market and economic conditions, which are crucial for assessing the company's risk management and strategic positioning.

What are the current credit trends in the market, and are specific sectors experiencing increased pressure? - Timothy Switzer (KBW)

2025Q3: The credit market reflects an economy of two halves. Volatility is high in small business, affected by rate increases. We avoid volatile industries like oil, gas, and transportation. Consumer spending remains strong, and we expect stabilization as interest rates ease. - Barry R. Sloane(President, Chairman & CEO)

What is the impact of SBA lender service fee changes on the industry and margins? - Timothy Switzer (KBW)

2025Q1: We've seen an increase in SBA loan originations and an increase in credit quality and a reduction in non-performing assets. - Barry R. Sloane(Chairman, President, CEO)

Contradiction Point 4

Dividend Increase Consideration

It involves the company's financial strategy, particularly dividend policy, which can impact investor decisions and expected returns.

Are dividend increases under consideration? - Christopher Nolan(Ladenburg Thalmann)

2025Q3: We're more inclined toward stock buybacks than dividend increases. The decision remains with the Board, but an increase is unlikely. - Barry R. Sloane(CEO)

Will the sale of Technology Solutions to Paltech be accretive to book value? - Mike Paramonov(Freedom Broker)

2024Q4: We just put a 10% increase in the dividend. - Barry R. Sloane(CEO)