NewtekOne, Inc. Q3 FY2024 earnings call

• Hired Ron Lay as Chief Technology Officer for Newtek Bank, N.A. and NewtekOne, and CJ Brunet who has prior experience with Newtek entities.
• Reported $0.45 earnings per share for the quarter, with a deferred tax charge of $527,000 affecting EPS; without the tax charge, EPS would have been $0.47.
• Provision for credit losses was higher than expected at $6.9 million, but the focus is on risk-adjusted returns, which is a key aspect of the business model.
• Highlighted deposit growth (12%), loan growth (17%), net interest margin at the bank (5.29%), and efficiency ratio of 39.4%.
• Alignment of interest with employees through a significant portion of employees participating in the company's stock plan, and the Board of Directors approved a stock buyback of 4 million shares.
• Progress in the Alternative Loan Program (ALP) with loans being put on the balance sheet instead of in joint ventures, and active engagement in the market to secure funding for ALP.

Bank Segment: Deposit growth was 12%, loan growth was 17%, net interest margin at the bank was 5.29%, and return on average assets at the holdco was 2.8% (consistent with recent quarters, almost 3 times the peer median). Payment Processing Segment: Pre-tax income for the third quarter was $5.3 million, pre-tax income for the nine months was $14.2 million, forecasted pre-tax income for 2024 was $17.7 million, and for 2025 was $19.6 million. Newtek Small Business Finance (NSBF): Early redemption of securitizations freed up approximately $68-69 million of performing loans and $15 million of non-performing loans, with cash flows from NSBF potentially used for stock repurchases, debt repayment, or funding ALP. Revenue contribution percentages weren't explicitly stated for all segments, but key financials for each were highlighted.

• For 2025, guidance is $2 to $2.25 for diluted earnings per share, with a midpoint representing an 8% to 12.5% increase over 2024.
• Confirmed the 2024 guidance range of $1.85 to $2.05 for EPS.
• Expect to continue growing through deposit and loan growth, and the payment processing segment is seen as a diversifying factor with reoccurring income.

• Regulatory concerns related to areas such as crypto, banking-as-a-service, and the potential impact of a commercial real estate bubble.
• Market volatility affecting interest rates and credit quality, which can impact loan performance.
• Uncertainty around economic conditions and how they will affect the performance of loans and the overall business.

Q: Discuss specific ways a Trump presidency can benefit Newtek and any headwinds?

A: Barry Sloane mentioned tax rates were a positive as there was a risk of corporate tax rate change, but tariffs and inflationary expectations were noted as potential risks.

Q: Discuss net charge-offs at the bank increasing to 104 basis points from 54 basis points last quarter vs. consolidated declining to 18 basis points?

A: Barry Sloane and Scott Price explained differences in accounting models, with charge-offs at the holding company going through unrealized losses and non-interest income line vs. traditional bank loans where charge-offs run through allowance.

Q: When should the allowance start to move back down towards 350 basis points and how quickly?

A: Scott Price said it's expected to start trickling down during the quarter, with more meaningful decline in 2025 than 2024.

Q: What drove the inflection in gathering commercial low-cost business deposits and expectations going forward?

A: Barry Sloane and Scott Price cited staff training, having the right scripts, processes, and integration with Payroll and Payments units as drivers, with expectation of continued growth.

Q: Thoughts on share repurchase authorization and use?

A: Barry Sloane said it's a tool, to be used when appropriate, with balance between dividends and buyback to be determined.

Q: Discretion in reserve ratio and regulatory regimen post-Silicon Valley Bank?

A: Scott Price said reserve ratio is mixed with quantitative and qualitative factors, and Barry Sloane discussed regulatory focus on crypto, banking-as-a-service, and funding of banks.