[Management View]
NewtekOne reported a 15% year-over-year revenue growth in Q2 2025, reaching $78.2 million, driven by strong performance in its Alternative Loan Program (ALP) and digital banking initiatives. Management emphasized its unique digital-first, fee-heavy business model, which differentiates it from traditional banks. Key strategic priorities include expanding ALP securitizations, growing business deposits, and leveraging integrated solutions like merchant accounts and payroll services.

[Outlook]
Management reaffirmed its full-year EPS guidance for CY2024 at $2.10-$2.50, targeting 17% growth at the midpoint. ALP loan originations for the second half of 2025 are expected to approximate $250 million, with another securitization planned for Q4. The company aims to continue reducing deposit costs and scaling its digital banking infrastructure.

[Financial Performance]
- Revenue: $78.2 million in Q2 2025 (+15% YoY).
- EPS: Basic and diluted EPS of $0.53 and $0.52, respectively.
- Net interest margin (NIM): Increased from 4.90% to 5.46%.
- Business deposits: Sequential growth of $50 million, now comprising nearly 30% of total deposits.
- Efficiency ratio: Improved to 60.3% from 66.3% YoY.
- Tangible book value: Grew 3.7% sequentially and 21% YoY.

[Q&A Highlights]
Question 1: What drove the $50 million growth in commercial deposits, and what are the expectations for deposit costs going forward?
Answer: Growth was driven by integrated solutions like merchant services and payroll, which tie directly to Newtek bank accounts. The company offers zero-fee accounts with competitive rates, enhancing customer value. Management aims to improve utilization of the 4,000 business accounts opened and expects deposit costs to continue declining.

Question 2: What were the total charge-offs for the held-for-investment portfolio this quarter?
Answer: Charge-offs totaled $5.1 million, identical to the previous quarter.

Question 3: Can you break down the $11.8 million negative net fair value line item and the gain on ALP loans this quarter?
Answer: The reversal of $35.1 million in unrealized gains on ALP loans was the primary component. ALP loan gains for the quarter were $6.3 million, offsetting part of the loss.

Question 4: Will net gains in residual and securitizations only occur during ALP securitizations?
Answer: Yes, these gains are tied to ALP securitizations. The recent $32 million gain reflects NewtekOne’s 100% ownership of the residual interest, a change from prior joint ventures.

Question 5: How do SBA rule changes impact 7(a) loan volumes and margins?
Answer: Management expects no significant impact on volumes, maintaining guidance for $1 billion in 7(a) originations for the year. Gain-on-sale margins are guided slightly lower due to a reintroduced SBA fee.

Question 6: What is the expected holding period for 7(a) loans before sale?
Answer: Loans are held for 60-75 days, potentially extending to 90 days, before being sold for cash gains.

Question 7: Will expenses remain stable in the second half of the year?
Answer: Management expects expenses to remain relatively flat, noting only a 4% YoY increase in Q2 2025.

Question 8: Why does NewtekOne trade at a lower PE ratio compared to peers?
Answer: Management attributes this to its unique business model and disruptive approach, which may be less understood by the market. The company is focused on improving storytelling and transparency.

Question 9: How does the integration of payroll and payment processing drive new bank accounts?
Answer: Integrated solutions like merchant accounts and payroll services are bundled with zero-fee bank accounts, providing customers with seamless analytics and cost savings.

[Sentiment Analysis]
Analysts expressed a positive tone, focusing on operational improvements, deposit growth, and ALP securitization success. Management maintained a confident outlook, emphasizing its differentiated business model and robust profitability metrics.

[Quarterly Comparison]
| Metric | Q2 2025 | Q2 2024 | YoY Change |
|----------------------------|-----------------|-----------------|------------------|
| Revenue | $78.2 million | $61 million | +15% |
| Basic EPS | $0.53 | N/A | N/A |
| Net Interest Margin (NIM) | 5.46% | 4.90% | +56 bps |
| Efficiency Ratio | 60.3% | 66.3% | -6.0% |
| Tangible Book Value | +3.7% QoQ | +21% YoY | N/A |

[Risks and Concerns]
- Higher loss provisions due to the unique SBA lending model.
- Potential challenges in scaling ALP securitizations and maintaining credit quality.
- Market perception issues due to the company’s unconventional business model.

[Final Takeaway]
NewtekOne delivered strong Q2 2025 results, showcasing double-digit revenue growth, improved efficiency, and robust profitability metrics. The company’s focus on digital banking and ALP securitizations positions it for continued success, though market understanding of its unique model remains a challenge. Management’s reaffirmed guidance and strategic initiatives signal confidence in achieving long-term growth and shareholder value.