NewtekOne (NEWT) Analyst & Investor Day 2024 summary

Strategic transformation and business model

• Completed transformation from a business development company to a financial holding company with an OCC-chartered bank, focusing on technology-driven, frictionless banking for small and medium-sized businesses, and not operating as a traditional bank.

• Emphasizes a unique, non-traditional approach: no branches, bankers, or brokers, leveraging digital platforms and direct client relationships.

• The Newtek Advantage portal offers integrated banking, payroll, payments, insurance, analytics, and document storage, with patent-pending technology to create sticky, value-added relationships.

• Proprietary NewTracker software streamlines client onboarding, loan origination, account opening, and transaction processing, supporting digital-first operations.

• Strategic objective for 2024 is to grow business deposits, leveraging digital channels, high-yield products, and converting lending clients.

Financial performance, guidance, and growth outlook

• 2024 midpoint EPS guidance is $1.95, up from core earnings of $1.20 in 2023 (excluding tax asset effects), with further growth expected as more activity shifts to the bank.

• ROAA was 2.8% and ROE 16.3% in 1Q24, with net interest margin rising to 2.92% and average loan yield at 9.49%.

• Non-interest income, especially gain on sale of loans, is a primary revenue driver, with stable margins and exponential capital recycling through loan sales, averaging 111% of par over the last decade.

• Business deposits grew by over $10 million in 1Q24; deposit growth is expected to outpace loan growth in the near term, with excess cash deployed conservatively.

• Management anticipates adjusting second-half 2024 guidance during the Q2 earnings call.

Credit quality, risk management, and loan portfolio

• Maintains rigorous underwriting standards, with detailed credit write-ups, personal guarantees for most loans, and comprehensive collateral requirements; not a score-and-go lender.

• 24-year lending history with 13 securitizations (soon 14), all maintaining or improving ratings.

• SBA 7(a) charge-offs averaged 4.47% by origination year; higher-quality SBA 504 and ALP loans have had minimal charge-offs, with ALP joint ventures experiencing no charge-offs since 2022 and expected cumulative charge-offs of 3%.

• Loan loss reserves and CECL models are regularly reviewed and adjusted based on economic conditions and portfolio performance.

• Commercial real estate exposure is conservative, with low LTVs and business repayment as the primary source; 504 loans are short-term, hedged, and held for sale.