Newtek's Q1 2025 Earnings Call: Navigating Contradictions in SBA Loans, Fair Value Gains, and Expense Guidance

SBA loans and fair value gains, investment in SG&A and 2025 expense guidance, SBA gain on sale margins and sustainability, ALP loans and fair value gains, SBA loan holdings and fair value are the key contradictions discussed in Newtek Business Services' latest 2025Q1 earnings call.



Earnings Beat and Revenue Growth:
- NewtekOne reported revenue of $25.2 million for Q1 2025, up 47% from $17.1 million in Q1 2024, with a 5.88% adjusted pre-provision net revenue.
- The revenue growth was primarily driven by superior industry-leading pre-provision net revenue and increased contributions from the merchant processing business.

Deposit Growth and Cost Management:
- Deposits were relatively flat compared to the previous quarter, with a shift to core deposits in the business and consumer spaces.
- The average cost of deposits was approximately 4%, expected to drift down to between 3.8% to 3.85% by year-end.
- Cost management is achieved by lowering rates on high-yield savings and consumer CDs, contributing to a positive carry on SBA 7(a) loans.

Net Interest Margin and Asset Growth:
- NewtekOne's net interest margin expanded 24 basis points quarter-over-quarter compared to Q4 2024, with adjusted NIM increasing 27 basis points.
- Asset growth, especially in the ALP program, benefited from a 570 basis point spread between net yield on loans and bond yields, enhancing profitability.

Credit and Loss Provisions:
- The loan loss provision averaged covering net charge-offs by 3.9x over the last four quarters.
- NewtekOne doubled its loan loss provision reserve from the year earlier, focusing on the higher charge-offs expected in the SBA 7(a) portfolio due to increased prime rates and economic conditions.