8-K: NewtekOne Reports Full Year 2023 Earnings, Achieves EPS Within Guidance

NewtekOne, Inc. announced its full year 2023 financial results, reporting basic earnings per share of $1.71 and diluted earnings per share of $1.70, aligning with previous guidance.

Summary

• NewtekOne, Inc. reported its fourth quarter and full year 2023 financial results, marking its first full year as a financial holding company after acquiring Newtek Bank.
• The company achieved a full year basic earnings per share (EPS) of $1.71 and diluted EPS of $1.70, which was within the previously issued guidance range of $1.60 to $1.80.
• For 2024, NewtekOne is forecasting an annual EPS range of $1.80 to $2.00, representing an approximate 11% increase from 2023 EPS at the midpoint.
• Newtek Bank realized a return on average assets (ROAA) of 5.8%, return on tangible common equity (ROTCE) of 35.8%, and an efficiency ratio of 49.8% for the full year 2023.
• NewtekOne, as the financial holding company, reported a ROAA of 3.2% and ROTCE of 22.7%.
• The company's common equity Tier 1 (CET1) ratio is 16.5%, total capital ratio is 19.6%, and leverage ratio is 15.6%.
• The company's net income for the fourth quarter of 2023 was $13.4 million, or $0.53 per basic and diluted common share, a 20.5% increase on a per share basis compared to the previous quarter.
• Net interest income for the fourth quarter was $8.3 million, a 2.5% increase from the previous quarter.
• Total assets remained relatively consistent at $1.4 billion, while loans held for investment increased by 4.2% to $806.8 million.
• The company's net interest margin for the fourth quarter was 2.83%, a 4.4% increase from the previous quarter.
• 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 $815.0 million in SBA 7(a) loans and closed $142.9 million in SBA 504 loans for the full year 2023.
• NewtekOne forecasts $925.0 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 year ended December 31, 2023.
• Prior period financial statements have been adjusted to correct errors, resulting in an increase of $0.08 per share in year-to-date EPS (basic) and $0.07 per share in year-to-date EPS (diluted).

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, meeting guidance, and forecasting growth. The company's unique business model and technology focus are also positive factors. However, the need to correct prior period financial statements and some decreases in certain metrics temper the overall sentiment slightly.

Positives

• The company met its full year 2023 earnings per share guidance.
• NewtekOne is projecting significant EPS growth for 2024.
• Newtek Bank's ROAA and ROTCE are strong, indicating a profitable business.
• The company has a strong capital position with a CET1 ratio of 16.5%.
• The company's loan portfolio is growing, with a 4.2% increase in loans held for investment in the fourth quarter.
• The company's net interest margin increased by 4.4% in the fourth quarter.
• Newtek Bank's deposit base has grown significantly, increasing by 227.3% year-over-year.
• The company has increased its loan loss reserves to 3.1% of loans held for investment.
• The company's unique business model, which relies on technology rather than traditional banking methods, is proving successful.

Negatives

• The company had to adjust prior period financial statements to correct errors, which may raise concerns about internal controls.
• The company's ROTCE decreased by 16.0% for the three months ended December 31, 2023 compared to the previous quarter.
• Cash and cash equivalents decreased by 17.7% in the fourth quarter.
• The efficiency ratio for NewtekOne was 61.2% for the three months ended December 31, 2023, which is higher than the efficiency ratio for Newtek Bank at 34.4%.

Risks

• The company's forward-looking statements are subject to risks and uncertainties, including interest rates, monetary policy, and economic conditions.
• The company's reliance on technology and its unique business model may present operational risks.
• The company's loan portfolio is subject to credit risk, and the company must manage its loan loss reserves prudently.
• The company's conversion to a financial holding company has presented operational and accounting challenges.
• The company's financial results are subject to change prior to filings with regulatory agencies and the filing of the Form 10-K.

Future Outlook

NewtekOne is forecasting full year 2024 EPS in a range of $1.80 to $2.00 per basic and diluted common share, representing an approximate 11% increase from 2023 EPS at the midpoint. The company also forecasts $925.0 million in total SBA 7(a) loan fundings for 2024.

Management Comments

• Barry Sloane, CEO, President and Chairman, stated that they are pleased to report their first full year as a financial holding company owning Newtek Bank.
• Mr. Sloane noted that the company achieved basic earnings per share (EPS) of $1.71 and diluted EPS of $1.70, in line with their previously issued annual earnings guidance.
• Mr. Sloane believes that they can achieve double-digit controlled EPS growth given the majority of their net revenue is non-interest-bearing.
• Mr. Sloane emphasized that the company's business model is unique and valuable, and that they should not be valued like a traditional bank.
• Mr. Sloane stated that the company is on a path to being recognized as the premier business and financial solutions provider for independent business owners in the U.S.
• Mr. Sloane highlighted the company's use of technology and AI to enhance the client experience and improve work flow processes.
• Mr. Sloane mentioned that the company spent a good part of 2023 building out their bank infrastructure and establishing additional policies and procedures.

Industry Context

This announcement comes at a time when the banking sector is facing challenges, but NewtekOne's unique business model, which relies on technology and non-interest income, has allowed it to expand its business. The company's focus on serving independent business owners and its ability to generate business referrals through its patented NewTracker system sets it apart from traditional financial holding companies.

Comparison to Industry Standards

• NewtekOne's business model is distinct from traditional banks, focusing on technology and non-interest income, which makes direct comparisons challenging.
• Traditional banks typically rely on branches and business development officers, while NewtekOne uses its NewTracker system to generate business referrals.
• Newtek Bank's ROAA of 5.8% and ROTCE of 35.8% for the full year 2023 are strong compared to many traditional banks, but these metrics are not directly comparable due to the different business models.
• Companies like JP Morgan Chase and Bank of America have much larger asset bases and branch networks, but NewtekOne's focus on small and medium-sized businesses and its technology-driven approach provide a different value proposition.
• While traditional banks may have lower efficiency ratios, NewtekOne's higher efficiency ratio of 74.6% for the full year 2023 reflects its investment in technology and infrastructure.

Stakeholder Impact

• Shareholders will benefit from the company's strong financial performance and future growth prospects.
• Employees will benefit from the company's growth and investment in its infrastructure.
• Customers will benefit from the company's focus on providing high-quality business and financial solutions.
• Suppliers and creditors will benefit from the company's financial stability and growth.

Next Steps

• The company will host a conference call on March 6, 2024, to discuss the fourth quarter and full year 2023 financial results.
• The company will continue to focus on growing its business and serving independent business owners.
• The company will continue to assess the effectiveness of its internal controls over financial reporting.
• The company will continue to implement cutting-edge technology and AI to enhance the client experience.

Key Dates

Keywords

NewtekOne, Financial Holding Company, Newtek Bank, Earnings Per Share, SBA Lending, Return on Assets, Return on Equity, Net Interest Margin, Loan Fundings, Financial Results