8-K: NewtekOne Reports Strong Q3 2024 Earnings, Driven by Growth in Deposits, Loans, and Payments

NewtekOne announced third quarter 2024 earnings of $0.45 per share, demonstrating growth in deposits, loans, and its payments segment.

Summary

• NewtekOne reported a net income of $11.9 million, or $0.45 per share, for the third quarter of 2024, which is a 4.7% increase on a per share basis compared to both the previous quarter and the same quarter last year.
• Net interest income for the quarter was $11.0 million, a 20.9% increase from the previous quarter and a 35.8% increase year-over-year.
• Total assets reached $1.7 billion, a 21.4% increase since the end of 2023.
• Loans held for investment totaled $913.0 million, a 13.3% increase since the end of 2023.
• The company's net interest margin was 3.08%, a 14.1% increase from the previous quarter and an 18.5% increase year-over-year.
• The Return on Tangible Common Equity (ROTCE) was 21.3%, a slight decrease of 0.5% from the previous quarter and a 14.5% decrease year-over-year.
• The Return on Average Assets (ROAA) was 2.9%, a 3.6% increase from the previous quarter and a 3.3% decrease year-over-year.
• The efficiency ratio improved to 61.8%, a 6.8% improvement from the previous quarter and a 3.1% improvement year-over-year.
• The Newtek Payments segment saw a 32.5% increase in pretax income compared to the same quarter last year, reaching $5.3 million.
• The company completed a $75.0 million public offering of 8.625% Fixed Rate Senior Notes due 2029 on September 16, 2024.
• NewtekOne's joint venture closed a $154.3 million alternative business loan backed securitization on July 23, 2024.
• The company is selling its subsidiary, Newtek Technology Solutions, with a deadline of January 6, 2025.
• The company maintains its 2024 annual EPS forecast range of $1.85 to $2.05 per share and forecasts 2025 annual EPS in a range of $2.00 to $2.25 per share.
• For the nine months ended September 30, 2024, net income was $32.5 million, or $1.26 per share, compared to $36.5 million, or $1.46 per share, for the same period in 2023, with the 2023 results positively impacted by a $14.2 million income tax benefit.
• Net interest income for the nine months was $29.0 million, a 58.5% increase year-over-year.
• Total deposits at Newtek Bank were $745.7 million, a 12.4% increase from the previous quarter and a 43.7% increase since the end of 2023.
• Newtek Bank's net interest margin was 5.29% for the quarter, a 9.5% increase from the previous quarter and a 49.9% increase year-over-year.
• Newtek Bank's ROTCE was 49.3% for the quarter, a 0.8% increase from the previous quarter and an 11.8% increase year-over-year.
• Newtek Bank's efficiency ratio was 39.4% for the quarter, a 6.9% improvement from the previous quarter and a 2.2% improvement year-over-year.
• SBA 7(a) loan closings were $245.3 million for the quarter, a 12.5% increase year-over-year, and the company forecasts $935.0 million in total SBA 7(a) loan closings for 2024, a 14.7% increase over 2023.
• Newtek Bank closed $38.4 million of SBA 504 loans for the quarter, a 117.0% increase year-over-year.
• Total loans closed across all loan products were $372.1 million for the quarter, a 43.0% increase year-over-year.

Sentiment

Score: 8

Explanation: The document presents a very positive outlook with strong financial results, growth across key segments, and positive future guidance. The management commentary is also very upbeat, contributing to a high sentiment score.

Positives

• The company's earnings per share exceeded expectations, coming in at $0.45 compared to a forecast of $0.43.
• There was substantial growth in net interest income, with a 20.9% increase from the previous quarter and a 35.8% increase year-over-year.
• Total assets increased significantly, reaching $1.7 billion, a 21.4% increase since the end of 2023.
• The net interest margin improved to 3.08%, a 14.1% increase from the previous quarter and an 18.5% increase year-over-year.
• The efficiency ratio improved to 61.8%, a 6.8% improvement from the previous quarter and a 3.1% improvement year-over-year.
• The Newtek Payments segment showed strong growth, with a 32.5% increase in pretax income compared to the same quarter last year.
• Newtek Bank's net interest margin was 5.29% for the quarter, a 49.9% increase year-over-year.
• SBA 7(a) loan closings increased by 12.5% year-over-year, with a forecast of $935.0 million for 2024.
• Newtek Bank's SBA 504 loan closings increased by 117.0% year-over-year.
• Total loans closed across all loan products increased by 43.0% year-over-year.
• The company maintains its 2024 EPS forecast and provides a positive 2025 EPS forecast.

Negatives

• The Return on Tangible Common Equity (ROTCE) decreased by 0.5% from the previous quarter and 14.5% year-over-year.
• The Return on Average Assets (ROAA) decreased by 3.3% year-over-year.
• Net income for the nine months ended September 30, 2024, was lower than the same period in 2023, primarily due to a one-time tax benefit in 2023.
• Newtek Bank's total risk-based capital ratio decreased by 26.3% from December 31, 2023.
• Newtek Bank's tier-1 leverage ratio decreased by 19.9% from December 31, 2023.

Risks

• The company's forward-looking statements are subject to risks and uncertainties, and actual results may differ.
• The sale of Newtek Technology Solutions (NTS) is required by January 6, 2025, and failure to complete the sale could have implications.
• The company's earnings per share guidance is subject to risks, uncertainties, and assumptions, particularly concerning interest rates, monetary policy, and economic conditions.
• The company's capital ratios are preliminary and subject to change with regulatory filings.

Future Outlook

The company maintains its 2024 annual EPS forecast range of $1.85 to $2.05 per basic and diluted common share and forecasts 2025 annual EPS in a range of $2.00 to $2.25 per basic and diluted share. The company anticipates the Payments segment achieving $17.7 million in pretax income for the full year 2024.

Management Comments

• Barry Sloane, CEO, stated that the company is extremely pleased with their third quarter 2024 financial and operational performance.
• Mr. Sloane highlighted the growth in total deposits, business deposits, loan growth, and the electronic payment processing segment.
• Mr. Sloane noted that the company has successfully demonstrated its ability to overcome hurdles in its transition to a financial holding company.
• Mr. Sloane believes that Newtek Bank's low efficiency ratio of 39.4% is evidence of a more cost-efficient business strategy.
• Mr. Sloane mentioned that the company utilizes cutting-edge technology, including aspects of artificial intelligence, to improve client interactions.
• Mr. Sloane stated that the company is well positioned to continue its growth trajectory and fulfill its mission of making clients more successful.
• Mr. Sloane expressed excitement about the company's future, noting that their original three-year growth plan continues to fully develop without the need to modify.

Industry Context

This announcement reflects a trend in the financial services industry where companies are focusing on technology-enabled solutions and diversified revenue streams. NewtekOne's emphasis on its payments segment and its technology platform aligns with this trend. The company's transition to a financial holding company and its focus on small business lending also positions it within a growing market segment.

Comparison to Industry Standards

• NewtekOne's efficiency ratio of 61.8% for the consolidated company and 39.4% for Newtek Bank are both very strong, indicating a high level of operational efficiency compared to many traditional banks.
• The company's ROTCE of 21.3% for the consolidated company and 49.3% for Newtek Bank are also very strong, suggesting a high level of profitability relative to equity.
• The net interest margin of 3.08% for the consolidated company and 5.29% for Newtek Bank are both above average for the industry, indicating effective management of interest-earning assets and liabilities.
• Compared to other small business lenders, NewtekOne's growth in SBA loan closings and total loan volume is notable, suggesting a strong market position.
• The company's focus on technology and its proprietary platform, the Newtek Advantage, differentiates it from traditional banks and aligns with the trend of fintech companies offering integrated solutions.
• While specific comparisons to other financial holding companies are not provided, the company's performance metrics suggest it is performing well relative to industry benchmarks.

Stakeholder Impact

• Shareholders will likely view the results positively due to the strong earnings and growth.
• Employees may benefit from the company's continued growth and success.
• Customers will likely benefit from the company's focus on providing a broad array of business and financial solutions.
• Creditors may view the company's strong financial position favorably.

Next Steps

• The company will host a conference call on November 7, 2024, to discuss the third quarter 2024 financial results.
• The company will continue to execute on its three-year growth plan.
• The company will continue to focus on risk management, compliance, and diversification of business lines.
• The company will continue to grow pretax income in the Payments segment in the fourth quarter of 2024 and throughout 2025.

Key Dates

Keywords

NewtekOne, Earnings, Financial Results, Net Income, EPS, Net Interest Income, Loans, Deposits, Payments, SBA Loans, Banking, Financial Holding Company