8-K: NewtekOne Exceeds Q1 Earnings Forecast, Raises Full Year Guidance

NewtekOne reported strong first quarter 2024 results, exceeding its earnings per share forecast and raising its full-year guidance.

Summary

• NewtekOne announced its financial results for the first quarter of 2024, with net income of $9.7 million, or $0.38 per basic and diluted share.
• This compares to $18.6 million, or $0.76 and $0.74 per basic and diluted share, respectively, for the same period in 2023, which included a significant tax benefit.
• Excluding the tax benefit from 2023, the company's core EPS outperformed the first quarter of 2023.
• The company has raised its full-year 2024 earnings forecast to a range of $1.85 to $2.05 per basic and diluted share, up from the previous range of $1.80 to $2.00.
• Net interest income increased by 93.5% year-over-year to $8.9 million.
• Total assets grew to $1.5 billion, a 7.1% increase from the end of 2023.
• Loans held for investment reached $840.6 million, a 4.3% increase from the previous quarter.
• Total deposits at Newtek Bank were $565.3 million, an 8.9% increase from the previous quarter and a 299.2% increase from December 31, 2022.
• The company's net interest margin was 2.92%, a 46% increase year-over-year.
• Newtek Bank's net interest margin was 4.80%, a 62.7% increase year-over-year.
• SBA 7(a) loan closings increased by 35.9% year-over-year to $207.1 million.
• The company forecasts $925 million in total SBA 7(a) loan fundings for 2024, a 13.5% increase over 2023.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the company exceeding earnings expectations, raising guidance, and demonstrating strong growth in key areas. While there are some negative aspects, the overall tone is optimistic and confident.

Positives

• The company exceeded its first quarter earnings per share forecast.
• NewtekOne increased its full-year earnings guidance.
• The company experienced significant growth in loans and deposits.
• Net interest income and net interest margin showed substantial increases.
• SBA 7(a) loan originations saw a significant year-over-year increase.
• Newtek Bank's deposit growth significantly outpaced the industry average.
• The company increased its quarterly dividend by 5.6% to $0.19 per share.
• The company's loan loss reserves have increased, providing a buffer against potential losses.

Negatives

• Net income for the first quarter of 2024 was lower than the same period in 2023, primarily due to a tax benefit in 2023.
• Return on Tangible Common Equity (ROTCE) and Return on Average Assets (ROAA) decreased compared to the previous quarter and the same period in 2023.
• Cash and cash equivalents decreased by 11.3% from the end of 2023.
• SBA 504 loan closings decreased by 29.7% year-over-year.
• The efficiency ratio increased for both the consolidated company and Newtek Bank compared to the previous quarter.

Risks

• The company's performance is subject to economic conditions, interest rates, and monetary policy.
• The company's forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.
• The company's loan portfolio is subject to credit risk, and the company must maintain adequate loan loss reserves.
• The company's transition from a BDC to a financial holding company makes year-over-year comparisons difficult.
• The company's growth in commercial deposits was limited in 2023 due to the need to implement proper staff, software, policies, and procedures.

Future Outlook

The company has raised its full-year 2024 earnings forecast to a range of $1.85 to $2.05 per basic and diluted share and forecasts $925 million in total SBA 7(a) loan fundings for 2024.

Management Comments

• We are more than pleased to report our first quarter 2024 financial results.
• We broke several records this quarter and continue to perform exceptionally well as a financial holding company.
• We are modestly increasing our 2024 annual earnings guidance to $1.85 to $2.05 per basic and diluted common share from our previous forecast of $1.80 to $2.00 per basic and diluted common share.
• We feel good about our practices and where we are, predicated on over two decades of lending history, experience and management, and would expect to be analyzed within this framework.
• We can't underscore enough the transformative change from a 1940s Act business development company (BDC) to a 1934 Act financial holding company.
• Our experience has taught us that the equity markets appreciate growth of earnings and returns no matter what the business model, and we expect to consistently deliver on our expectations.

Industry Context

NewtekOne's deposit growth significantly outpaced the industry average, demonstrating the effectiveness of its digital account opening strategy. The company's focus on serving independent business owners provides a competitive advantage in the market.

Comparison to Industry Standards

• NewtekOne's deposit growth of 8.9% in Q1 2024 significantly exceeds the 1.2% average deposit growth for US commercial banks during a similar period, as reported by S&P Global Market Intelligence.
• While NewtekOne's ROTCE and ROAA decreased compared to the previous quarter, the company's ROTCE of 20.6% and ROAA of 2.8% still indicate strong profitability compared to many traditional banks.
• Newtek Bank's net interest margin of 4.80% is higher than the average for many banks, reflecting its focus on higher-yielding loans and effective deposit gathering strategies.
• The company's efficiency ratio of 70.6% is higher than some of the most efficient banks, but it is improving and is expected to normalize as the company continues to grow.
• NewtekOne's SBA 7(a) loan growth of 35.9% year-over-year demonstrates its strength in this niche market, outperforming many competitors in the small business lending space.

Stakeholder Impact

• Shareholders will benefit from the increased earnings per share and raised full-year guidance.
• Shareholders will also benefit from the increased quarterly dividend.
• Employees will benefit from the company's continued growth and success.
• Customers will benefit from the company's expanded range of business and financial solutions.
• Creditors will benefit from the company's strong financial position and increased loan loss reserves.

Next Steps

• The company will host a conference call on May 7, 2024, to discuss the first quarter 2024 financial results.
• The company expects to fully roll out its lower-cost business checking accounts to its client database.

Key Dates

Keywords

NewtekOne, Financial Results, Earnings Per Share, SBA Lending, Net Interest Income, Deposits, Loan Growth, Financial Holding Company, Newtek Bank, Dividend