8-K: NewtekOne Forecasts Significant Loan Origination Growth for 2024 and 2025

NewtekOne projects originating $1.4 billion in business loans in 2024 and $1.9 billion in 2025, representing a 36% increase year-over-year.

Summary

• NewtekOne anticipates originating approximately $1.4 billion in business loans in 2024.
• The company forecasts loan originations to reach approximately $1.9 billion in 2025.
• This represents a projected 36% increase in loan originations from 2024 to 2025.
• The growth is expected to be driven primarily by the alternative loan program, CRE conforming loans, C&I conforming loans, and SBA 504 loans.
• NewtekOne ceased originating SBA 7(a) loans at Newtek Small Business Finance in the second quarter of 2023, with all SBA 7(a) loans now originated by Newtek Bank, N.A.
• The company's loan servicing portfolio exceeds $3.5 billion.
• NewtekOne maintains its annual common and diluted earnings per share forecasts of $1.85 to $2.05 for 2024, and $2.00 to $2.25 for 2025.

Sentiment

Score: 8

Explanation: The document conveys a positive outlook with strong growth projections and confidence in the company's lending model. The management's comments are optimistic, and the company is maintaining its EPS forecasts. However, there are some risks associated with the company's lending practices and accounting methods.

Positives

• The company is projecting significant growth in loan originations, with a 36% increase expected from 2024 to 2025.
• NewtekOne has a diversified loan portfolio, including SBA 7(a), SBA 504, alternative loan program, CRE conforming, and C&I conforming loans.
• The company has a 20-year history of lending, providing a strong foundation for risk management.
• NewtekOne's loan products offer flexible terms, such as longer amortization schedules and no balloon payments, which are attractive to borrowers.
• The company has a large database of 2.5 million business referrals accumulated over 20 years.

Negatives

• The company ceased originating SBA 7(a) loans at Newtek Small Business Finance in the second quarter of 2023, which may impact historical comparisons.
• The company relies on personal guarantees from business owners, which could pose a risk if those guarantees are not enforceable.
• The company's loans are valued at fair value, which includes loss expectations, potentially impacting reported earnings.

Risks

• The company's loan origination forecasts are subject to economic conditions and market fluctuations.
• The company's reliance on personal guarantees could expose it to losses if borrowers default.
• The company's fair value accounting method could lead to volatility in reported earnings.
• The company's growth is dependent on the continued success of its alternative loan program, SBA 504, and SBA 7(a) loan products.

Future Outlook

NewtekOne anticipates significant growth in loan originations in 2025, driven by its alternative loan program, SBA 504, and SBA 7(a) loan products. The company also expects to diversify its loan portfolio at Newtek Bank and maintain its earnings per share forecasts.

Management Comments

• We are extremely pleased with the progress we have made as we approach the first two full years of operating our federally regulated bank holding company, NewtekOne, Inc., and our OCC-regulated nationally chartered bank, Newtek Bank N.A.
• We believe the economy continues to be quite strong with only some pockets of weakness, which are well within our loss expectations.
• Our success in originating loans, both within the bank, funded by deposits, as well as at the bank holding company, primarily funded by securitizations and other secured debt, is part of our overall strategy to provide a best-in-class loan solution to our clients.
• We are trading the longer amortization periods without balloon payments for multiple personal guarantees from business owners and operators.
• We are confident and look forward to continuing to demonstrate that we can be the premier lender that funds independent business owners in all 50 states.
• We will continue to provide additional disclosures to give investors and analysts a better understanding that the Company fully accounts for future losses and charge offs that it anticipates based on its 20-years worth of experience.

Industry Context

This announcement highlights NewtekOne's focus on providing specialized lending solutions to independent business owners, differentiating itself from traditional banks and fintech lenders. The company's emphasis on personal guarantees and longer amortization periods is a unique approach in the market.

Comparison to Industry Standards

• NewtekOne's loan origination growth forecast of 36% year-over-year is significantly higher than the average growth rate for traditional banks.
• The company's focus on SBA and alternative lending programs sets it apart from larger financial institutions that primarily offer conventional loans.
• Unlike many banks that hold loans on their balance sheets, NewtekOne sells a significant portion of its SBA 7(a) and SBA 504 loan originations, recording gains on sale.
• The company's fair value accounting method for loans is different from the amortized cost method used by most traditional banks, which can lead to different financial reporting outcomes.
• NewtekOne's emphasis on personal guarantees as a tradeoff for flexible loan terms is a unique approach compared to traditional lending practices.

Stakeholder Impact

• Shareholders can expect potential growth in earnings and value due to increased loan originations.
• Employees may benefit from the company's growth and expansion.
• Customers will have access to a wider range of loan products and flexible terms.
• Alliance partners will have the ability to offer NewtekOne's loan products to their customers.

Next Steps

• The company will provide further details on its 2024 performance and 2025 projections during its full-year 2024 earnings call.

Key Dates

Keywords

loan origination, business loans, SBA 7(a) loans, SBA 504 loans, alternative loan program, CRE conforming loans, C&I conforming loans, NewtekOne, lending, financial services