10-Q: NewtekOne Reports Strong Q3 2025 Earnings Amidst Growth

NewtekOne, Inc. reported a significant increase in net income for the nine months ended September 30, 2025, driven by higher interest income and strategic loan portfolio expansion.

Summary

• Net income for the nine months ended September 30, 2025, increased to $41.0 million, or $1.57 per basic share, up from $32.5 million, or $1.26 per basic share, in the prior year period.
• Total assets grew by $339.2 million, or 16.5%, to $2.4 billion as of September 30, 2025, compared to $2.1 billion at December 31, 2024.
• Loans held for sale, at fair value, surged by $384.7 million to $757.0 million, primarily due to holding guaranteed portions of SBA 7(a) loans for longer periods and new originations.
• Loans held for investment, at amortized cost, increased by $212.4 million to $834.1 million, reflecting higher originations.
• Total deposits reached $1.2 billion, a $0.2 billion increase from December 31, 2024, with interest-bearing deposits comprising $1.2 billion.
• The company closed a securitization of ALP loans on April 23, 2025, through NALP Business Loan Trust 2025-1, selling $155.9 million of Class A Notes, $23.8 million of Class B Notes, and $4.3 million of a Class C Note.
• The NMS Webster Note was repaid in full on September 26, 2025, resulting in a $0.2 million loss on extinguishment of debt.
• NMS entered into a new Goldman Facility on September 26, 2025, providing term loans up to $90.0 million and a revolving facility up to $5.0 million, maturing on September 26, 2030.
• The Alternative Lending segment's net income increased by 77% to $60.4 million for the nine months ended September 30, 2025, driven by higher loan originations and gains on fair value loans.
• The Technology segment was divested on January 2, 2025, with NTS sold to Intelligent Protection Management Corp. for $4.0 million cash and 4.0 million shares of IPM Preferred Stock, plus a potential earn-out of up to $5.0 million.

Sentiment

Score: 7

Explanation: The company demonstrated strong growth in net income, total assets, and loan portfolios, alongside successful strategic financing activities like securitization and new debt facilities. However, increased provision for credit losses and a rise in nonperforming assets, coupled with the impact of the NTS divestiture on certain income streams and the federal government shutdown affecting SBA programs, temper the overall positive sentiment. The proactive management of liquidity and capital is a positive sign.

Positives

• Net income increased by $8.4 million, or 26%, for the nine months ended September 30, 2025, compared to the prior year.
• Total assets grew by 16.5% to $2.4 billion, indicating significant balance sheet expansion.
• Loans held for sale, at fair value, increased by $384.7 million, reflecting strong origination activity and strategic holding periods for SBA 7(a) loans.
• Loans held for investment, at amortized cost, increased by $212.4 million, demonstrating growth in the core lending portfolio.
• Total deposits increased by $0.2 billion, enhancing the company's liquidity position.
• The Alternative Lending segment showed robust growth with a 77% increase in net income, driven by higher loan originations and fair value gains.
• Successful securitization of $216.6 million of ALP loans through NALP Business Loan Trust 2025-1, generating $30.0 million in net gains on residuals.
• New Goldman Facility provides $95.0 million in new borrowing capacity, enhancing funding flexibility.
• The company maintains strong regulatory capital ratios, categorized as well-capitalized under prompt corrective action measures.

Negatives

• Provision for credit losses increased significantly by $13.6 million to $30.3 million for the nine months ended September 30, 2025, reflecting higher net charge-offs and specific reserves.
• Net loss on loan servicing assets increased by $7.1 million to $(12.5) million, primarily due to the decrease in NSBF's total portfolio during its wind-down.
• Net gains on sales of loans decreased by $30.5 million, or 44.5%, due to lower sales volumes and reduced market premiums compared to the prior year.
• Technology and IT support income decreased by $14.3 million to zero, following the divestiture of NTS.
• Other noninterest income decreased by $4.4 million, partly due to lower prepayment and late fees from SBA 7(a) loans and net unrealized losses on joint ventures.
• Past due and nonaccrual loans as a percentage of outstanding UPB for loans HFI at fair value remained high at 31.5% as of September 30, 2025.
• The NMS Webster Note repayment resulted in a $0.2 million loss on extinguishment of debt.

Risks

• An economic downturn could impair subsidiaries' ability to operate or repay borrowings, adversely affecting results.
• A contraction of available credit and/or inability to access equity markets could impair lending and business activities.
• Impacts to financial markets and the global macroeconomic and geopolitical environment, including higher inflation and tariffs.
• Higher interest rates and their impacts on macroeconomic conditions and funding costs.
• Changes to the SBA 7(a) loan program, including recent revisions to SBA Standard Operating Procedure (SOP).
• The current Federal government shutdown has frozen the SBA 7(a) Program and SBA 504 program, which could materially and adversely affect Newtek Bank's lending business.
• Inability to maintain SBA 7(a) lending license and PLP status could adversely impact loan origination volume.
• The company is subject to 150% asset coverage requirements due to covenants in certain outstanding debt, which could restrict operations.
• The valuation of Level 3 loans and servicing assets requires significant management judgment and is subject to inherent uncertainties, potentially leading to significant changes in future periods.
• The impact of utilizing the CECL approach to calculate credit loss reserves may result in greater volatility in reported earnings.

Future Outlook

The company intends to continue using net proceeds from its ATM Program for funding investments, repaying outstanding indebtedness, repurchasing common shares (subject to market conditions), and for general corporate purposes. Management continues to closely monitor market conditions, asset liability management policies, and capital levels to ensure compliance with regulatory guidelines. The company is evaluating the impact of new accounting standards, but does not anticipate a material impact on its consolidated financial statements at this time.

Management Comments

• We are a financial holding company owning Newtek Bank a branchless OCC nationally chartered bank.
• Our target market is owners and prospective owners of SMBs and our services are offered online and in some cases delivered and fulfilled by our staff via video and voice calls.
• Unlike traditional financial and bank holding companies, the majority of our income is driven and influenced by noninterest income, specifically gains on sales and market value adjustments on loans.
• We fund our activities at Newtek Bank primarily through the aforementioned deposit products.
• We are subject to the regulation and supervision of the Federal Reserve and the Federal Reserve Bank of Atlanta.
• Newtek Bank management continues to closely monitor market conditions with a focus on its asset liability management policies, as well as closely monitoring, among other things, capital levels, to ensure compliance with regulatory guidelines and the OCC Operating Agreement.

Industry Context

NewtekOne operates as a financial holding company providing diverse business and financial solutions to SMBs, a market estimated at over 34 million businesses in the U.S. The company's strategy of leveraging noninterest income, particularly from loan sales and servicing, differentiates it from traditional banks. The current economic environment, characterized by commodity inflation, rising interest rates, and geopolitical conflicts, presents both challenges and opportunities. The company's focus on increasing liquidity and managing interest rate risk is a direct response to these broader market trends, particularly after recent bank failures and shifts in depositor confidence. The ongoing federal government shutdown impacting SBA programs highlights regulatory and political risks inherent in its core lending business.

Comparison to Industry Standards

• Newtek Bank is ranked as the second largest SBA 7(a) lender based on dollar volume of loans approved, demonstrating strong performance within the specialized SBA lending market.
• The company's average net sale price for SBA 7(a) loans as a percent of principal balance was 110.67% for the nine months ended September 30, 2025, which is a strong premium, though slightly lower than the 111.00% in the prior period due to lower demand.
• The company's asset sensitivity, where market value theoretically increases modestly in a rising rate environment, suggests a potentially favorable position compared to some liability-sensitive institutions in the current interest rate climate.

Management Changes

Corporate Governance

Legal Proceedings

• The company and its subsidiaries are routinely subject to actual or threatened legal proceedings, including litigation and regulatory matters, arising in the ordinary course of business.
• Management is currently of the opinion that the outcomes of pending and threatened matters will not have a material effect on the company's business, consolidated financial position, results of operations or cash flows as a whole.
• NMS continues to operate under a permanent injunction with respect to certain of its business practices, resulting from litigation brought by the Federal Trade Commission (FTC) in October 2012.

Related Party Transactions

• Newtek Bank holds FDIC insured deposits from certain of the company's officers, directors, and their associated companies, totaling $4.8 million as of September 30, 2025.
• NALH acquired TCP's 50% ownership interest in NCL JV for $15.75 million on August 27, 2025, making NALH 100% owner.

Stakeholder Impact

• Shareholders: Increased net income and asset growth could positively impact shareholder value, while increased credit loss provisions and potential share dilution from ATM program or preferred stock offerings could be factors.
• Employees: Stock-based compensation expense and ESPP issuances provide incentives, while the divestiture of NTS impacts employees in that segment.
• Customers (SMBs): Continued provision of diverse business and financial solutions, including lending, payments, and insurance, supports SMB growth.
• Creditors: Increased borrowings and securitization activities provide funding, while maintaining strong capital ratios and compliance with debt covenants reassures creditors.
• Regulatory Authorities: Ongoing compliance with Federal Reserve, OCC, and SBA regulations, including capital requirements and wind-down agreements, is critical.

Next Steps

• Continue to monitor market conditions, asset liability management policies, and capital levels to ensure compliance with regulatory guidelines and the OCC Operating Agreement.
• Engage in activity under the ATM Program, subject to market conditions, for funding investments, repaying indebtedness, and general corporate purposes.
• Execute the debt repurchase program for up to $5.0 million aggregate principal amount of 2029 Notes, subject to market conditions.
• Manage the wind-down of NSBF's operations, including servicing and liquidating its SBA loan portfolio.
• Evaluate the impact of newly issued accounting standards (ASU 2024-03, ASU 2024-04, ASU 2025-03, ASU 2025-04, ASU 2025-05, ASU 2025-06, ASU 2025-07) on future financial statements.

Key Dates

Recommendation

NewtekOne demonstrates strong financial performance with a significant increase in net income and total assets. The company's strategic focus on expanding its loan portfolios, particularly in Alternative Lending, and its ability to secure new funding through securitizations and credit facilities, positions it for continued growth. While the increase in provision for credit losses and nonperforming assets warrants monitoring, the overall growth trajectory, strong capital position, and proactive management of market risks suggest a favorable outlook for long-term investors. The divestiture of NTS streamlines operations, and new debt offerings enhance financial flexibility. The current valuation may not fully reflect the growth potential and strategic execution.

Keywords

Financial Holding Company, SBA Lending, Small Business Loans, Alternative Lending Program, Securitization, Banking Services, Payments Processing, Credit Losses, Interest Rates, Deposits, Loan Origination, Financial Technology