NewtekOne, Inc. Q4 FY2024 earnings call

• NewtekOne is a technology-enabled disruptor operating as a bank holding company. It transitioned from a Business Development Corp to a financial holding company owning a nationally chartered bank.
• Strong loan growth, deposit growth, with ROAA and ROTCE performing well, and attractive efficiency ratios.
• Mission statement focuses on providing business and financial solutions to independent business owners with technology-driven loan origination and deposit gathering.
• Acquired Newtek Bank in January 2023 to add depository solutions and real-time payments.
• Business referrals: 600-900 unique business referrals daily through tracker system.
• Deposit base: 75%-80% insured, with core business deposits growing to $216 million in 2024.
• Credit risk management: Loans made with alpha, considering risk-reward, and diversified portfolio in 7(a) program with average uninsured loan balance $120,000-$140,000.
• Loan programs: ALP anticipated to do $500 million in 2025, 504 loans had $672 million in 2024 with no charge-offs since inception.

Newtek Bank had financial statistics for 2024 with ROAA 6.3%, ROTCE 48%, and an efficiency ratio of 42%. The holding company exhibited strong return on average assets and return on tangible common equity north of 20%. In terms of loan segments, the ALP (Alternative Loan Program) had $269 million in loans over 12 months and approximately $83 million in the quarter. The bank's net interest margin, yield on loans, and allowance for credit losses at 4.9% were also highlighted, with deposits at 75%-80% insured.

• Revised 2025 earnings per share range to $2.10 to $2.50, with a midpoint of $2.30.
• Anticipates $500 million of ALP loans in 2025, with the portfolio currently at $400 million.
• Charge-off rate assumption for 2025 is a little under 2%, expected to flatten and start to go down.
• Diversification of loan portfolio on the balance sheet, with ALP loans going into securitizations and different vintages of loans in the 7(a) program.

• Credit risk sensitivity: Concerns about potential increase in charge-offs, with scenarios modeled for higher default rates.
• NSBF portfolio impact: Declining NSBF portfolio is a drag on consolidated results, with servicing asset write-offs and higher funding costs.
• Interest rate sensitivity: Impact of interest rate changes on loan yields, deposit rates, and net interest margin.

Q: Can you provide detail on the cadence of earnings throughout 2025?

A: First quarter 2025 range is $0.28 to $0.32 low, $0.32 high; Q2 $0.55 to $0.65; Q3 $0.52 to $0.64; Q4 $0.75 to $0.89, giving a full range of $2.10 to $2.50.

Q: What drove the $9.4 million markup on loans accounted for under the fair value options?

A: The fair value of ALP loans, which go into securitizations with large margins, is the primary driver.

Q: How does the $500 million ALP origination flow through the income statement?

A: Need to create own models based on market clearing yields and securitization details; past slides show net and gross coupons and servicing asset capitalization.

Q: When might the dividend be increased?

A: Dividend decision is with the Board; currently dividend is generous, but it's a Board-only decision.

Q: What causes the mismatch between SBA loan approvals and actual distribution?

A: Loans in the pipeline may not close due to issues like undisclosed liens, appraisal problems, or committee rejections.