8-K/A: NewtekOne Reports Audited 2023 Financial Results, Cites Strong Growth as Financial Holding Company

NewtekOne announced its audited full-year 2023 financial results, highlighting a successful transition to a financial holding company with strong earnings per share and key banking metrics.

Summary

• NewtekOne reported its audited financial results for the full year and fourth quarter of 2023, marking its first full year as a financial holding company after acquiring Newtek Bank.
• The company achieved basic earnings per share of $1.89 and diluted earnings per share of $1.88 for the full year 2023.
• Newtek Bank realized a return on average assets (ROAA) of 5.7%, a return on tangible common equity (ROTCE) of 35.7%, and an efficiency ratio of 49.9% for the full year 2023.
• NewtekOne, as the financial holding company, reported a ROAA of 3.6% and a ROTCE of 27.6% for the full year 2023.
• The company's net income for the fourth quarter was $10.8 million, or $0.43 per basic and diluted common share.
• Net interest income for the fourth quarter was $8.3 million, a 2.5% increase compared to the previous quarter.
• Total assets remained relatively consistent at $1.4 billion as of December 31, 2023.
• Loans held for investment increased by 4.1% to $806.1 million at the end of the fourth quarter.
• The company's net interest margin for the fourth quarter was 2.76%, a 6.2% increase from the previous quarter.
• NewtekOne's common equity Tier 1 capital (CET1) ratio was 16.2%, with a total capital ratio of 19.1% and a leverage ratio of 13.6%.
• Newtek Bank's total deposits increased by 227.3% to $463.5 million at the end of 2023 compared to $141.6 million at the end of 2022.
• The company funded $815 million in SBA 7(a) loans and closed $142.9 million in SBA 504 loans for the full year 2023.
• NewtekOne forecasts $925 million in total SBA 7(a) loan fundings for 2024, a 13.5% increase over 2023.
• The company closed a record $1.1 billion of loans across all loan products for the full year 2023.
• The company has corrected errors in its previously issued financial statements for the first, second, and third quarters of 2023, resulting in an increase of $0.36 per share in year-to-date EPS.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to strong financial results, successful transition to a financial holding company, and optimistic future outlook. The company's unique business model and technology-driven approach are also viewed favorably.

Positives

• The company successfully transitioned to a financial holding company, demonstrating a strong business model.
• NewtekOne's unique business model, which relies on technology and avoids traditional banking methods, has allowed it to expand during difficult times in the banking sector.
• The company's net interest margin increased by 6.2% in the fourth quarter compared to the previous quarter.
• NewtekOne 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%.
• The company's loan loss reserves have increased to 3.7% of loans held for investment.
• The company's digital presence is growing, with approximately 18,000 unique digital visitors per month to its websites.
• The company has corrected errors in its previously issued financial statements, increasing year-to-date EPS by $0.36 per share.

Negatives

• The company's efficiency ratio increased to 66.6% in the fourth quarter, compared to 63.8% in the previous quarter.
• Cash and cash equivalents decreased by 17.7% in the fourth quarter.
• The company's Tier-1 leverage ratio decreased by 6.8% in the fourth quarter.
• The company's total risk-based capital ratio decreased by 8.8% at Newtek Bank from September 30, 2023 to December 31, 2023.
• The company had to restate prior period financials due to accounting errors.

Risks

• The company's forward-looking statements are subject to significant risks and uncertainties, including interest rates, monetary policy, and economic conditions.
• The company's earnings per share guidance reflects risks, uncertainties, and assumptions that are beyond its control.
• The company's management continues to assess the effectiveness of its internal controls over financial reporting, including any deficiencies that led to accounting errors.
• The company's financial metrics are subject to change prior to any filings with regulatory agencies.

Future Outlook

The company is forecasting full year 2024 EPS in a range of $1.80 to $2.00 per basic and diluted common share and intends to update this forecast when it releases its first quarter 2024 financial results. The company also forecasts $925 million in total SBA 7(a) loan fundings for 2024.

Management Comments

• We are pleased to report our first full year as a financial holding company owning Newtek Bank, a nationally chartered bank.
• We believe that we can achieve EPS growth in today's environment, given the majority of our net revenue is non-interest-bearing, making our business model unique and valuable.
• We believe these metrics clearly depict a thriving business; one that serves independent business owners in all 50 states and that is well positioned for financial and operational growth in future quarters, demonstrated by our expanding net interest margin.
• We firmly believe that our business model can be executed with prudent risk management practices while servicing our clients with multiple solutions that can enhance their business and commercial endeavors.
• The goal of owning a nationally chartered bank was driven by recognizing that our client base communicates with their bank digitally with high frequency, so the opportunity and our ability to communicate with our clients through our Newtek Advantage platform, and assist them on a daily basis to become part of their operating ecosystem, has been our goal and is now closer to reality.
• We spent a good part of 2023 building out our bank infrastructure, continuing to hire top-quality executives and establishing additional policies and procedures, all at a great expense, an investment we believe will provide a great return in the future.

Industry Context

NewtekOne's transition to a financial holding company and its focus on technology-driven solutions positions it uniquely within the banking sector, particularly in serving small and medium-sized businesses. The company's ability to expand during difficult times in the banking sector highlights the resilience of its business model compared to traditional banks.

Comparison to Industry Standards

• NewtekOne's ROTCE of 27.6% as a financial holding company is significantly higher than the average for traditional banks, which typically range from 8% to 12%.
• Newtek Bank's ROTCE of 35.7% is also well above industry averages, indicating strong profitability and efficiency.
• The company's efficiency ratio of 49.9% for Newtek Bank is competitive, but there is room for improvement compared to the best-in-class banks that operate in the 30-40% range.
• NewtekOne's focus on SBA lending and technology-driven customer acquisition differentiates it from traditional banks, which rely more on branch networks and traditional marketing.
• Companies like Live Oak Bancshares (LOB) and Customers Bancorp (CUBI) are also active in SBA lending, but NewtekOne's unique technology platform and diversified business model set it apart.
• While some fintech companies like LendingClub (LC) and SoFi (SOFI) offer digital lending solutions, NewtekOne's combination of banking and non-banking services provides a broader range of solutions for small businesses.

Stakeholder Impact

• Shareholders will benefit from the strong financial performance and the company's commitment to paying an attractive market dividend.
• Employees will benefit from the company's growth and investment in its infrastructure.
• Customers will benefit from the company's wide range of business and financial solutions and its focus on technology-driven customer service.
• Suppliers and creditors will benefit from the company's strong financial position and its ability to generate revenue.

Next Steps

• The company intends to update its full year 2024 EPS forecast when it releases its first quarter 2024 financial results.
• The company will continue to focus on growing its business, paying an attractive market dividend, and growing retained earnings.
• The company will continue to assess the effectiveness of its internal controls over financial reporting.

Key Dates

Keywords

financial holding company, Newtek Bank, SBA lending, earnings per share, net interest margin, return on assets, return on equity, loan origination, digital banking, financial results