Newtekone targets $2.10–$2.50 EPS range for 2025 with focus on technology-driven banking

Earnings Call Insights: NewtekOne, Inc. (NEWT) Q1 2025

Management View

  • Barry Sloane, CEO, emphasized the company's differentiation as a technological financial holding company, highlighting its digital banking model without traditional branches. He noted, "We feel really good about our progress, but we feel bad about the market's misunderstanding."
  • The company reported Q1 2025 earnings of $0.35 diluted EPS, above its forecasted range of $0.28 to $0.32. Management affirmed its annual EPS guidance of $2.10 to $2.50, reflecting projected growth of 17% at the midpoint.
  • Key drivers of profitability include growth in deposits, core loan portfolio expansion, and operational leverage. The efficiency ratio at the holding company level declined to 63% from 71%.
  • Peter Downs, a 22-year company veteran, was named President of Newtek Bank following Nick Young's departure. Management highlighted the depth of its leadership bench.
  • Scott Price, CFO of Newtek Bank, discussed the bank's cost of deposits, noting a decrease to 3.95% in Q1 2025 from 4.4% the previous year. The company expects further reductions as it restructures its deposit mix.

Outlook

  • Management reiterated its annual EPS guidance for 2025 in the range of $2.10 to $2.50, reflecting confidence in loan growth and operational efficiencies.
  • Q2 EPS guidance was adjusted to $0.50 to $0.60, with Q3 and Q4 predictions at $0.60 to $0.75 and $0.75 to $0.89, respectively.
  • Barry Sloane noted, "We believe that our earnings and projections are real and sustainable."
  • The company aims to originate $500 million in Alternative Loan Program (ALP) loans in 2025, with a focus on securitization and favorable leverage.

Financial Results

  • Q1 2025 pre-provision net revenue (PPNR) increased to $25.2 million from $17.1 million a year ago.
  • Return on assets for Q1 was reported at 1.18%, above the peer average of 0.90% for banks with $1 billion to $10 billion assets.
  • The allowance for loans held for investment stood at 5.4%, reflecting a proactive approach to provisioning.
  • The company highlighted a successful ALP securitization with a $215 million loan pool, achieving a 570 basis point spread.
  • The efficiency ratio at the bank level remained low, in the low 40% range, indicating operational efficiency.

Q&A

  • Crispin Love, Piper Sandler, inquired about ALP loan gains sustainability. CEO Barry Sloane explained, "We believe our cumulative net charge will be between 3% to 3.5%, and we have the loans valued as such."
  • Tim Switzer, KBW, questioned the drivers of fair value gains. CFO Scott Price attributed them primarily to ALP portfolio performance and securitization leverage.
  • Analysts also raised concerns about credit quality and underwriting changes in the SBA portfolio. Barry Sloane clarified that the company maintains rigorous underwriting standards and adjusts for economic conditions.

Sentiment Analysis

  • Analysts expressed mixed sentiment, focusing heavily on credit quality and the sustainability of gains related to the ALP portfolio. Concerns about the impact of SBA program changes on margins were prominent.
  • Management maintained a confident tone, emphasizing the company's resilience and strategic focus on technology-driven banking solutions. Barry Sloane frequently highlighted the company's long-term experience and adaptability.
  • Compared to the previous quarter, management's tone remained consistent, with a focus on addressing market misunderstandings about its business model.

Quarter-over-Quarter Comparison

  • Q1 2025 EPS guidance was revised upward compared to the previous quarter's cautious outlook, reflecting improved visibility into profitability drivers.
  • Focus shifted more toward ALP securitization and its contribution to income, compared to Q4 2024's emphasis on deposit growth and transitioning portfolios.
  • Analysts' questions this quarter were more focused on credit performance and the sustainability of recent gains, highlighting evolving concerns.
  • Management reiterated its confidence in navigating a challenging credit environment, supported by proactive provisioning and a diversified loan portfolio.

Risks and Concerns

  • Management identified credit quality as a key risk, particularly in the SBA 7(a) portfolio, which is subject to higher loss ratios due to its structure.
  • Analysts raised concerns about the impact of SBA program changes on pricing and gain-on-sale margins; management noted these were factored into forecasts.
  • The company acknowledged challenges in acquiring high-quality credits in the current environment but highlighted its technology-driven client acquisition model as a mitigating factor.

Final Takeaway

NewtekOne, Inc. continues to position itself as a differentiated, technology-enabled financial holding company, leveraging its digital banking model to drive growth and profitability. With a reaffirmed annual EPS guidance of $2.10 to $2.50 and a focus on ALP loan securitizations, the company aims to navigate credit challenges while delivering shareholder value. Management's proactive provisioning and operational efficiencies underscore its confidence in sustaining growth amid market uncertainties.

Read the full Earnings Call Transcript

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