DEFA14A: NewtekOne Outlines Strategy as Financial Holding Company, Aims for Tech-Enabled Growth

NewtekOne details its transition to a financial holding company with a focus on technology-driven business solutions and banking services for independent business owners.

Summary

• NewtekOne is transitioning from a Business Development Corporation (BDC) to a financial holding company owning a nationally chartered bank.
• The company aims to leverage its proprietary portal, Newtek Advantage, to provide clients with analytics, relationships, and transactional capabilities.
• NewtekOne intends to partner with other financial institutions to monetize its technologies.
• The company is forecasting full year 2024 EPS in a range of $1.80 to $2.00 per basic and diluted common share.
• NewtekOne achieved a common equity Tier-1 capital (CET1) ratio of 16.2%, a total capital ratio of 19.1%, and a leverage ratio of 13.6% for the year ended December 31, 2023.
• In 2023, NewtekOne declared $0.72 per share in dividends, which equated to $0.18 per share per quarter.
• On April 15, 2024, the company paid a quarterly cash dividend of $0.19 per share, a 5.5% increase over the previous quarter.

Sentiment

Score: 7

Explanation: The document expresses optimism about the company's future and its differentiated business model. While acknowledging some challenges, the overall tone is positive, highlighting strong financial metrics and strategic initiatives.

Positives

• The transition to a financial holding company is expected to improve earnings and dividends.
• The Newtek Advantage portal provides a competitive advantage by offering a range of services and increasing client engagement.
• The company's technology can be monetized through partnerships with other financial institutions.
• NewtekOne's efficiency ratio at its bank subsidiary, Newtek Bank, was approximately 50% for the full year 2023.
• Newtek Bank's ROAA and ROTCE significantly exceed industry averages.
• The company has a strong capital position with a CET1 ratio of 16.2%, a total capital ratio of 19.1%, and a leverage ratio of 13.6% as of December 31, 2023.
• The company increased its quarterly dividend by 5.5% to $0.19 per share.

Negatives

• The transition to a financial holding company has faced 'transformative resistance'.
• The company's business model may be misunderstood by the investment community, potentially leading to undervaluation.

Risks

• The company's success depends on its ability to effectively leverage the Newtek Advantage portal and monetize its technology.
• The company faces competition from traditional banks and other financial institutions.
• The company's business model may be misunderstood by the investment community, potentially leading to undervaluation.
• The company's ability to achieve its EPS forecast depends on various factors, including economic conditions and market trends.

Future Outlook

NewtekOne expects its new structure and operating market to lead to strong results and above-average returns for shareholders. The company is focused on growing its business, posting above-average industry metrics, and delivering financial and business solutions to its customers.

Management Comments

• The current business structure is better positioned to absorb the growth of its operations, and management believes that this investment will pay off with future growth in earnings and dividends that will flow through the current structure better than the former BDC structure.
• We believe the banking function will drive our clients to NewtekOne regularly, and give us free and multiple impressions with our clients on a regular basis.
• We are focused on return on tangible common equity (ROTCE), return on average assets (ROAA), and not assets under management and coupon clipping on which traditional banks focus.
• We believe our business model is misunderstood in the current equity and capital markets and, notably, this is not the first time we have experienced our differentiated business model being misunderstood.

Industry Context

NewtekOne is positioning itself as a technology-enabled business solutions company that also provides depository services, differentiating itself from traditional banks and BDCs. The company aims to capitalize on the evolving financial services industry by offering a comprehensive suite of services through its Newtek Advantage portal.

Comparison to Industry Standards

• Newtek Bank's ROAA of approximately 5.7% in 2023 significantly exceeds the typical bank ROAA of 1.25% to 1.5%.
• Newtek Bank's ROTCE in the mid-30 percentage range for 2023 is higher than the industry leaders' ROTCE in the high-teen percentages.
• Traditional banks focus on assets under management and coupon clipping, while NewtekOne focuses on return on tangible common equity (ROTCE) and return on average assets (ROAA).

Stakeholder Impact

• Shareholders can expect potential increased returns due to the company's new structure and focus on growth.
• Customers will benefit from the comprehensive suite of business and financial solutions offered through the Newtek Advantage portal.
• Employees will be part of a company that is focused on innovation and growth.

Next Steps

• NewtekOne will provide more details on its software systems and processes during its first quarter 2024 conference call.
• The company plans to partner with other financial institutions to monetize its technologies.
• NewtekOne will continue to focus on growing its business, posting above-average industry metrics, and delivering financial and business solutions to its customers.

Key Dates

Keywords

financial holding company, NewtekOne, Newtek Bank, business solutions, technology, dividends, EPS, ROAA, ROTCE, banking, SBA lending