NewTekOne (NEWT) Q2 2025: ALP Securitization Adds $32M Residual, Accelerating Operating Leverage
NewTekOne’s second quarter showcased the power of its differentiated, technology-driven lending and deposit platform, with the $32 million ALP securitization gain crystallizing the firm’s off-balance sheet earnings engine. Operating leverage and deposit cost improvements outpaced peers, while guidance and capital allocation discipline signal confidence in the model’s scalability. The firm’s unique approach to small business banking and loan monetization continues to diverge from legacy banks, with future growth hinging on execution in ALP and digital deposit integration.
Summary
- ALP Securitization Unlocks Earnings: $32 million gain on ALP residuals highlights scalable off-balance sheet value creation.
- Deposit Cost and Margin Tailwind: Business deposit growth and falling cost of funds drive net interest margin expansion.
- Guidance Steadfast Amid Rule Changes: Management maintains originations and EPS outlook despite regulatory and credit shifts.
Performance Analysis
NewTekOne delivered 15% year-over-year revenue growth in Q2 2025, driven by robust loan origination, fee income from loan sales, and expanding digital deposit relationships. The standout event was the successful ALP (Alternative Loan Program, NewTek’s non-traditional, high-yield commercial lending platform) securitization, which generated a $32 million gain on residual interest and shifted the entire economics of the ALP business model to the holding company’s bottom line. This move also marked the first time NewTek owned 100% of the ALP residual, streamlining earnings recognition and future cash flow visibility.
Operating leverage was evident: while the balance sheet grew 37%, operating expenses rose just 4%, compressing the efficiency ratio to 60.3% from 66.3% a year ago. The bank’s cost of deposits fell 28 basis points sequentially to 3.71%, directly supporting a 56 basis point increase in net interest margin to 5.46%. Business deposit growth of $50 million was concentrated in DDA (Demand Deposit Account, non-interest-bearing checking) accounts, a critical driver of funding cost improvement. Charge-offs in the held-for-investment portfolio remained stable at $5 million, and the allowance for credit losses continued to build, though at a slower pace, reflecting credit normalization post-rate shock in legacy SBA portfolios.
- ALP Securitization Gain: The $32 million gain from the ALP residual interest underscores the model’s ability to monetize loan creation rapidly and efficiently.
- Deposit Cost Decline: Sequential drop in cost of funds and rising business DDA penetration directly boosted margin and profitability.
- Expense Control: Minimal expense growth against significant balance sheet expansion demonstrates scalable, technology-driven infrastructure.
NewTekOne’s model—originating, selling, and securitizing loans at scale—continues to generate above-average returns versus traditional banks, with tangible book value per share up 3.7% sequentially and 21% year over year, even as the company pays a healthy dividend.
Executive Commentary
"We believe we're different than 95% of the other banks out there. And we're very, very excited about our business model now operating through 10 quarters of success...making loans and selling them is what we do. We've been doing it for 20 years. We'll probably do it for another 20 years. It provides great returns. It provides great risk adjusted returns."
Barry Sloan, President and CEO
"The balance sheet climbed 37% over the last year while operating expenses were up just 4%, and the efficiency ratio once again improved on a year-over-year basis. We believe we have the infrastructure to manage a much larger balance sheet."
Frank DiMaria, Chief Financial Officer
Strategic Positioning
1. ALP Securitization Engine
NewTekOne’s ALP business—focused on higher-yield, non-traditional commercial loans—now runs on a repeatable securitization model. The latest $218 million deal, with $184 million in bonds and a 14% yield on the residual, demonstrates the company’s ability to monetize origination and offload risk while retaining high-margin economics. The company expects to execute another ALP securitization in Q4, with $138 million already warehoused, supporting ongoing EPS accretion and capital recycling.
2. Digital-First Deposit Acquisition
Business deposit growth is fueled by integrated digital solutions, including merchant services and payroll, bundled with zero-fee, high-rate accounts. This approach lowers funding costs and deepens customer engagement, positioning NewTekOne as a technology-first financial partner for SMBs (Small and Medium Businesses). The company’s pipeline of 19,000 depository accounts and 4,000 business DDA accounts is expected to see increased utilization as integration with lending and payments tightens further.
3. Scalable, Brokerless Infrastructure
NewTekOne’s operating model eschews branches, brokers, and traditional bankers, relying instead on proprietary technology and remote origination. This structure enables rapid scaling without commensurate expense growth, as evidenced by the minimal increase in operating costs despite robust asset growth. The model is designed to manage a much larger balance sheet, setting the stage for continued growth without margin compression.
4. Credit and Capital Management Discipline
Allowance for credit losses remains robust, with 90% of reserves tied to unguaranteed SBA 7A loans—reflecting prudent risk management in a higher-loss, higher-return segment. The company anticipates provision levels to remain elevated (4.5% to 5.5% of loans), providing a capital cushion while maintaining strong returns and dividend capacity. Legacy SBA portfolios are running off, freeing up capital for redeployment.
5. Regulatory and Market Adaptation
Despite recent SBA rule changes impacting gain-on-sale margins, NewTekOne is maintaining its $1 billion 7A origination target, leveraging its scale and compliance infrastructure to outcompete non-bank lenders struggling with new requirements. Management sees no volume impact from these changes and is embedding lower gain assumptions into guidance, demonstrating proactive risk management.
Key Considerations
NewTekOne’s Q2 demonstrates the firm’s ability to operationalize a non-traditional, technology-driven banking model at scale, with ALP securitizations and digital deposit integration driving both growth and margin expansion. The company’s willingness to hold high provisions and its transparent handling of ALP accounting provide confidence in the durability of its earnings streams.
Key Considerations:
- Off-Balance Sheet Earnings Power: ALP securitizations convert loan origination into immediate, high-margin gains, supporting EPS and capital return optionality.
- Deposit Mix Shift: Business DDA and integrated payment solutions are lowering funding costs, a critical advantage as legacy banks struggle with deposit betas.
- Expense Leverage: The brokerless, digital-first model is delivering real operating leverage, supporting future scalability.
- Credit Normalization: While legacy SBA portfolios are running off, current credit costs are stable and well-reserved, reducing future volatility risk.
- Regulatory Navigation: Management’s ability to adapt to SBA rule changes and maintain originations signals competitive resilience.
Risks
Key risks include potential volatility in ALP securitization markets, which could impact the timing and economics of off-balance sheet gains. A slowdown in business deposit growth or underutilization of digital accounts could pressure funding costs and margin. Additionally, sustained credit deterioration in new originations or regulatory shifts in SBA and alternative lending could impact profitability. Management’s confidence in provision levels and capital strength is reassuring, but investors should watch for any signs of stress in the underlying loan portfolios or execution missteps in scaling the ALP platform.
Forward Outlook
For Q3 2025, NewTekOne guided to:
- Continued ALP loan originations, with $250 million targeted for the second half of 2025
- Stable to declining deposit costs as business DDA penetration increases
For full-year 2025, management maintained EPS guidance of $2.10 to $2.50 per share, with the midpoint implying 17% earnings growth. The company expects another ALP securitization in Q4, and no change to its $1 billion SBA 7A origination target, despite lower gain-on-sale margins baked into the outlook.
- ALP volume and gain-on-sale margins embedded in guidance
- Expense base expected to remain flat in the back half
Takeaways
NewTekOne’s differentiated model—monetizing loan origination through ALP securitizations and scaling digital deposit relationships—is driving superior returns and operating leverage.
- ALP Securitization as Growth Engine: The $32 million gain and repeatable structure position the company for sustainable, off-balance sheet earnings power.
- Deposit and Margin Tailwind: Digital-first deposit growth is lowering funding costs and supporting margin expansion, a key differentiator in today’s banking landscape.
- Watch for Utilization and Credit Trends: Future upside depends on deeper deposit account utilization and stable credit performance as the ALP book grows.
Conclusion
NewTekOne’s Q2 results reinforce its status as a disruptive, technology-driven financial holding company, with ALP securitizations and digital deposit integration delivering both earnings growth and operational leverage. The model’s scalability and resilience to regulatory change position the firm for continued outperformance, provided execution on loan origination, deposit utilization, and credit discipline remains consistent.
Industry Read-Through
NewTekOne’s results highlight the growing divergence between digitally native, technology-first lenders and legacy banks, especially in the SMB segment. The ability to monetize loan origination through securitization, combined with integrated digital deposit and payment solutions, is setting a new standard for operating efficiency and margin. Other regional banks and fintechs will need to accelerate digital transformation and rethink deposit acquisition strategies to remain competitive. The success of ALP securitizations also signals broader investor appetite for high-yield, non-traditional commercial credit, suggesting continued growth in private credit and alternative lending markets.