NewtekOne, Inc. 8.50% Fixed Rate Senior Notes due 2031 2026 Q2 Earnings Call

Please go ahead. Thank you very much, everyone.

Welcome to our second quarter 2026 financial results conference call. We appreciate everybody attending. Thank you for tuning in today. I wanted to also let everybody know that presenting, in addition to myself, will be Frank DeMaria, EVP, CFO of NewtekOne, the publicly traded holding company, stock symbol AWT, and Newtek Bank, National Association. We appreciate everyone patching into our call. We always sort of start off with why should you care about NewtekOne? Company was established in 1998. I am the original founder of the company, established out of a spare bedroom in a New York City apartment.

When you take a look at the business model that we have today and look at metrics such as return on average assets, return on tangible common equity, the dividend yield, the book value growth over time, all things that we will talk about extensively today. It is a very interesting, what I would call a value and a growth story. However, three and a half years into our inception, we are still evolving. We are appreciative of things that are changing in the marketplace today. We are adopting to all different changing conditions. Obviously, if you take a look at our presentation today and recent presentations, more things are being done out of the bank than in the bank holding company. We recently acquired or merged the payroll solutions business into the bank. We are doing our commercial and industrial C&I LA loans out of the bank.

One thing that is important to notice, you will see that our income, our net interest income at the bank is growing, particularly on comparisons. We will talk about that in the call. I think going forward as we transform, you will see a little bit less gain on sale, more net interest income, more use of the balance sheet and the portfolio. I think as we have grown in this particular space, obviously we traded at market multiples to earnings of 5.5 times-6 times, where the banking industry is trading at nine or less. From our perspective, our goal is to do good credits, do what is best for shareholders. Most importantly, really do a great job for our customers. Let us go to slide number three. Newtek's mission statement has not changed from 1998.

To provide business and financial solutions to this sort of underserved demographic, independent business owners in the U.S. Most importantly, we provide real good products and solutions for our customers for the purpose of making them more successful. Many times I am asked, "Barry, is there a comp? Is there a company like yours?" I have to say, not really. Sometimes historically, that works against you. From our perspective, we believe we've got the right business model, the right way to handle our customers, work with all of our employees, associates in-house to provide the solution to the client, and really provide a valuable service to the independent business owner community. On slide number four, we can see that utilizing technology, which we've done over two decades, is extremely important.

Instead of traditional bankers, branches, we use technology to exchange data, analyze the data, put the data in a better decision-making mode. We've recently started to use AI when we're analyzing data coming to us from the customer. It reduces friction, increases speed. All these things are extremely valuable. We look at what we do, which is a technology-oriented company there to service the independent business community across the U.S. We believe we have taken on some of the tasks in a bank holding company owning a nationally chartered bank that we think most of the market and the industry is interested in adopting too in a very big way, but is slow to adopt. Number one, the high cost infrastructure with branches and traditional bankers.

For those of you that haven't used our solutions, you get an executive on camera 24 seven, you also get great software to exchange data that has minimal amounts of friction and important for us, accuracy. Two, by the way, the existing bank model is extremely costly. We think going forward, the giants of the industry, the top four players, are pouring huge dollars into the space to do what we believe we have done within our confines already. Second, inefficient lending margins from loans that bear very little risk and frankly, just really tight on the margins. Deposit products that we're able to offer our business clients with, historically, we're competing against zero interest paid and excessive fees for the business client.

I think it's important. Our goal is to manage risk, not avoid it. Put a fair product and price onto our customers, beat the competition, like merchant cash advance or daily debit-type loans, and basically provide our banking solution in a safe and sound manner. Slide number five, these are things that you've heard previously. It pretty much labels all the things that we do. Slide number six, we talk about the importance of our target market. That SMB, SME, independent business owner. There's 36 million of them in the U.S. According to the U.S. Chamber of Commerce, it's 43% of U.S. GDP. Importantly, over the last six and a half years, according to the SBA statistics, we have supported or created 280,000 jobs, the second highest amongst all SBA lenders in the 7 program.

The independent business owner is a huge economic demographic. Even the top four large institutions struggle with acquiring the client, solutioning the client. Therefore, what we have built, our technology, our infrastructure, we'll take you through some of those things today, we think is extremely valuable. We don't believe it's fully reflected in our current stock price, which is mostly driven by the typical analytics of taking the call report, pushing it through a model and coming out with numbers. By the way, I will comment, the concept of loan loss provisions and things of that nature, at the end of the day, it's a business expense. That's what it is. You don't want it growing or going out of control. It's an organization that's been in this space for over 23 years, lending to SMBs, 17 securitizations, never credit watch, never downgrade.

We're proud of what we've been able to accomplish. Slide number seven talks about the quarterly highlights. Obviously, we came in within the range, between basic and diluted, $0.48 and $0.47 respectively. Importantly, book value, we have a slide to address that, continues to grow very nicely. That's really important. That's value to our shareholders. We continue to capture the operating leverage of growing a business with asset growth of 50% and expenses just up 3.6%. At the holding company, our ROA is 2%, compares very favorably to the industry. We recently switched to putting our C&I lending business down in the bank versus doing it up at the holding company. We believe this will pay great dividends going forward. We'll continue to securitize the C&I loans out of the bank.

We've had tremendous success in our Digital Account Opening with deposit gathering, focusing on business and consumer-type deposits. In 14 quarters since our inception, we've grown from $142 million to $2.2 billion. Non-affiliate deposits increased in the quarter by $15 million. Obviously the core consumer deposits, which are very sticky, not very transactional, with basically close to zero acquisition costs, climbed by $297 million in the quarter. We're very proud of how we've been able to get deposits digitally. It's part of our technological advantage. Slide number eight, we focus on tangible book value, per share growth. You could see all the math. You could see that when you add the dividends in, it's been a nice run since we've gotten into this financial holding company owning a nationally chartered bank structure.

You could see that the tangible book value has grown 75.3% in 12 quarters since converting to a technology-enabled financial holding company. Extremely important. We're very proud of growing tangible book. Obviously, that's the value portion of it. Slide number nine shows the profitability of NewtekOne with all these different data points. Slide number 10 really drills down on the deposit growth. We talked about the non-affiliate deposits. We talked about the total deposit changes. Deposit accounts, 1,471 accounts quarter-over-quarter. Core to core consumer, 2,600 accounts. I believe combined, you're looking at about 40,000 depository accounts. Important to note, 81% of our depository accounts are insured under the $250,000 balance. Loan-to-deposit ratio, about 90%. When we think about deposits, we're extremely pleased with how we acquire them, extremely efficient, how we give a great value to consumers and businesses that do business with us, and that's very important for branding and brand loyalty.

Slide number 11 talks about the three active C&I long amortization loan securitizations. There's a lot to talk about this. We've spent a lot of time in prior calls, which are all archived on our website. I think the important aspect of the C&I LA securitization business is what we refer to as the initial over-collateralization. That's more loans versus the bonds. We hyper-amortize the bonds and drive the cash flow to pay the bonds down. The current over-collateralization, for example, on the 2026-1 deal, which is just done, started off at $47 million. It's grown by $11 million.