NewtekOne (NEWT) Q2 FY26 earnings call: guidance and Q&A

Analyst asked for more color on the strategy to hold more guaranteed portions of SBA loans, its near-term impact on guidance (citing previous 79-89 cents for Q4), and longer-term implications.

Management confirmed the strategic shift to hold more loans for stable net interest income, acknowledging it would likely affect near-term headline EPS and require a re-evaluation of guidance. They aim for a more stable income stream and higher PE valuations, viewing the change as a long-term benefit despite potential short-term top-line impact.

“Organizations that do not have our ROAA, ROTCE, and business model that is I wouldn't say focused, but drives a lot of gain on sale income, but basically have net interest income and net margins that they view as more long-term and more stable. has entered into our thinking that we're going to continue to do both.”

asked by Tim Switzer · answered by Unknown Speaker

Analyst inquired about plans for future securitizations and an update on the expected size for Q4.

Management confirmed plans for a securitization out of the bank in Q4, estimating its size to be between $300 million and $400 million.

“Yes, we will do a securitization out of the bank. And, you know, I think that securitization size will be, I'm going to say, between $300 to $400 million.”

asked by Tim Switzer · answered by Unknown Speaker

Analyst noted improvement in net charge-off rates but an increase in NPLs, especially on guaranteed loans, asking if these were repurchased loans and for color on the situation.

Management explained that when 7A loans sold in the secondary market go bad, they must be bought out by the government or the originator. NewtekOne has chosen to be more aggressive in buying out these loans to support its partnership with the SBA, even if they are in bankruptcy. The government guarantee remains on these repurchased loans, subject to repair and denial.

“And we have chosen to be more aggressive in those buyouts that's helpful to our partnership with the SBA And what we then wind up doing in many cases... we've made decisions to increase that purchase rate, which helps the partnership with the government agency.”

asked by Tim Switzer · answered by Unknown Speaker

Analyst sought clarification on the rationale for NewtekOne buying back problem loans instead of the government, and if any government guarantees had ever been removed from their books.

Management stated that government guarantees are only removed in cases of 'repair and denial,' for which they hold reserves. They emphasized that buying back problem loans is a common practice among top lenders and reinforces their relationship with the SBA, as the government guarantee remains intact.

“But Joe, what you're asking is, and I can be honest with you, it's a long story. incredible to me, and I'm not being a jerk on this, there's other top five lenders in the United States that have this. Just look at their call reports.”

asked by Joe Yankunis · answered by Unknown Speaker

Analyst asked about the realism and opportunity of outsourcing NewTek's technology (e.g., NewTek Advantage) to other banks.

Management indicated they have opportunities in the pipeline with material players, highlighting the cost-effectiveness of their non-branch, technology-driven approach for large banks to serve SMBs. They believe their unique model, incorporating AI for mundane tasks, is attractive to others, despite the slow pace of change in financial institutions.

“Yes, we have opportunities in the pipeline now that we're working on with some material players. In addition, when you look at the business model, which is to utilize non-branches, non-brokers, no BDOs, no bankers. and to be able to outreach to an existing book of SMBs in a large bank's portfolio, much more cost effective on camera, with this technology...”

asked by Joe Yankunis · answered by Unknown Speaker

Analyst inquired about the abnormally large 'other income' bucket, its drivers, and sustainability.

The CFO attributed the increase to higher payoffs and paydowns in securitizations. He anticipated this line item would normalize in future quarters, returning to historical levels rather than remaining elevated.

“So we did, with the securitization, we did see some increased payoffs and paydowns in the securitization, as you saw on that slide with the loans kind of getting paid down. So that's what drove that little bit of an increase that you're seeing quarter of a quarter and especially year over year in that line item.”

asked by Joe Yankunis · answered by Unknown Speaker

Analyst asked if holding more loans on the books was putting pressure on the company's deposit franchise and gathering efforts.

Management stated they are 'pretty liquid' with over $500 million in cash at the Federal Reserve. They highlighted their strong deposit acquisition strategy, driven by high Trustpilot scores, customer service, low acquisition costs, and fair rates for clients, particularly for sticky retail deposits in high-yield savings accounts.

“So Hal, we're pretty liquid. It's indicative of A, our view on where rates are, and B, I want to be a little careful here. We believe I'll have good use for the money.”

asked by Hale Goats · answered by Unknown Speaker

Analyst asked why the Net Interest Margin (NIM) contracted so much at the holding company during the quarter.

The CFO explained that the contraction was due to moving most operations, including income-generating activities, into the bank. The holding company now has fewer income-generating assets and some more expensive debt. The CEO added that interest income from securitized loans is now folded into the securitization, not showing up in the holding company's NIM.

“Well, we're moving most of the operations into the bank. So you're seeing that expansion at the bank. So you're having less income generating operations up at the holding company while we still have some assets, as you know, left up. there, as well as some of the debt that we are paying down, as you've seen, quarter to quarter, is a little bit more expensive debt than you see typically on the deposits, hence the shift in the operations.”

asked by Christopher Nolan · answered by Unknown Speaker