8-K: NewtekOne Reports Strong Second Quarter Results, Maintains Full-Year EPS Guidance

NewtekOne announced a 59.3% increase in earnings per share for the second quarter of 2024 compared to the same period last year, while maintaining its full-year EPS forecast.

Summary

• NewtekOne reported a net income of $10.9 million, or $0.43 per share, for the second quarter of 2024, marking a significant increase compared to both the previous quarter and the same quarter last year.
• Net interest income for the quarter was $9.1 million, showing growth both sequentially and year-over-year.
• The company's total assets reached $1.6 billion, a 14.3% increase since the end of 2023.
• NewtekOne completed a $71.875 million public offering of 8.50% fixed-rate senior notes due in 2029.
• Loans held for investment totaled $867.7 million, up 7.6% from the end of 2023.
• The net interest margin was 2.70% for the quarter, a decrease from the previous quarter but an increase compared to the same period last year.
• Return on Tangible Common Equity (ROTCE) was 21.1% for the quarter, showing improvement over both the previous quarter and the same quarter last year.
• The company's efficiency ratio was 66.3%, an improvement compared to both the previous quarter and the same quarter last year.
• NewtekOne maintains its 2024 annual EPS forecast in a range of $1.85 to $2.05 per basic and diluted common share.
• Newtek Bank's total deposits increased to $663.7 million, a 17.4% increase from the previous quarter and a 27.9% increase from the end of 2023.
• The company's joint venture closed a $154.3 million alternative business loan backed securitization.
• Newtek Bank sold $3.0 million of past due and non-accrual loans acquired through the acquisition of National Bank of New York City.
• SBA 7(a) loan closings were $229.8 million for the quarter, an 18.06% increase year-over-year.
• The company forecasts $935.0 million in total SBA 7(a) loan fundings for 2024, a 14.7% increase over 2023.
• Newtek Bank's net interest margin was 4.83% for the quarter, an increase compared to both the previous quarter and the same period last year.
• Newtek Bank's ROTCE was 48.8% for the quarter, an increase compared to both the previous quarter and the same period last year.
• Newtek Bank's ROAA was 6.4% for the quarter, an increase compared to both the previous quarter and the same period last year.
• Newtek Bank's efficiency ratio was 42.3% for the quarter, a decrease compared to both the previous quarter and the same period last year.

Sentiment

Score: 8

Explanation: The document presents a very positive outlook with strong financial results, significant growth metrics, and a maintained full-year EPS guidance. The management commentary is also optimistic, highlighting the company's unique business model and its ability to outperform industry standards. There are some minor negatives, but the overall tone is very positive.

Positives

• NewtekOne experienced significant growth in earnings per share, net interest income, and total assets.
• Newtek Bank demonstrated strong growth in deposits and loan originations.
• The company's profitability metrics, such as ROTCE and ROAA, showed substantial improvement.
• The efficiency ratio improved for both NewtekOne and Newtek Bank.
• The company successfully completed a public offering of senior notes.
• The company's joint venture successfully completed a securitization of alternative business loans.
• The company is maintaining its full-year EPS guidance.
• Newtek Bank's net interest margin, ROTCE, and ROAA are significantly higher than typical banks.

Negatives

• NewtekOne's net interest margin decreased slightly compared to the previous quarter.
• The total risk-based capital ratio decreased slightly for both NewtekOne and Newtek Bank.
• The Tier-1 leverage ratio decreased for Newtek Bank.
• Net income for the six months ended June 30, 2024 was lower than the same period in 2023, primarily due to a tax benefit in 2023.

Risks

• The company's forward-looking statements are subject to risks and uncertainties, including interest rate fluctuations and economic conditions.
• The company's preliminary data for assets under supervision, capital ratios, risk-weighted assets, and supplementary leverage ratio are subject to change.
• The company's earnings per share guidance is subject to risks, uncertainties, and assumptions regarding interest rates, monetary policy, and economic conditions.
• The company is operating in an environment of higher short-term interest rates, an inverted yield curve, and slumping commercial real estate prices.

Future Outlook

NewtekOne maintains its 2024 annual EPS forecast in a range of $1.85 to $2.05 per basic and diluted common share and forecasts $935.0 million in total SBA 7(a) loan fundings for 2024.

Management Comments

• Barry Sloane, Chairman, President, and Chief Executive Officer, stated that the company continues to meet and exceed expectations despite industry challenges.
• Mr. Sloane highlighted Newtek Bank's powerful earnings model and its ability to generate returns.
• Mr. Sloane emphasized the company's focus on acquiring lower-cost commercial deposits and growing its alternative loan program.
• Mr. Sloane noted the success of the company's joint venture in its recent securitization.

Industry Context

The report acknowledges the challenges in the financial industry, including higher short-term interest rates, an inverted yield curve, and slumping commercial real estate prices, while positioning NewtekOne as a differentiated model for a financial holding company.

Comparison to Industry Standards

• Newtek Bank's ROAA of 6.4%, ROTCE of 48.8%, and efficiency ratio of 42.3% for the second quarter of 2024 are significantly higher than typical returns produced by traditional banks.
• Traditional banks typically have ROAA in the range of 1% to 1.5%, ROTCE in the range of 10% to 15%, and efficiency ratios in the range of 55% to 65%.
• For example, JP Morgan Chase reported a ROAA of 1.2% and ROTCE of 14% in their most recent quarter.
• Similarly, Bank of America reported a ROAA of 0.9% and ROTCE of 10.5% in their most recent quarter.
• Newtek Bank's performance significantly exceeds these industry benchmarks, indicating a highly efficient and profitable business model.

Stakeholder Impact

• Shareholders will benefit from the strong financial performance and maintained EPS guidance.
• Employees will benefit from the company's growth and success.
• Customers will benefit from the company's wide range of business and financial solutions.
• Creditors will benefit from the company's strong financial position.

Next Steps

• NewtekOne will host a conference call on August 6, 2024, to discuss the second quarter 2024 financial results.
• The company will continue to focus on acquiring lower-cost commercial deposits and growing its alternative loan program.
• The company will continue to execute on its goals of raising lower-cost commercial deposits as well as originating high-quality loans.

Key Dates

Keywords

NewtekOne, Newtek Bank, Financial Results, Earnings Per Share, Net Interest Income, Loan Growth, Deposit Growth, SBA Lending, Alternative Lending, Securitization, Financial Holding Company