NewtekOne, Inc. Q2 FY2024 earnings call

• Barry Sloane noted second quarter 2024 earnings per share of $0.43, beating Bloomberg consensus. Reconfirmed 2024 full EPS guidance of $1.85 to $2.05. - Quarterly deposit growth at the bank was approximately 17%, loan growth over the last quarter 13% of the bank. - Net interest margin was 4.3% for the three months ended June 30. - Efficiency ratio at Newtek Bank declined to 42%. - Completed a $71 million registered public offering of 8.5% fixed rate notes. - Securitization of alternative loan program with $190.5 million of collateral backing $154 million of investment-grade rated notes, with bids over $370 million. - Launched Newtek Advantage business portal providing analytics, transactional capability, etc. - Opened Wilmington office and saw growth in business deposits.

Newtek Bank had Q2 2024 ROAA of 6.4%, ROTCE of 48.8%, and efficiency ratio of 42.3%. Loan growth ended quarter-over-quarter at 14%, deposit growth at 17%. The Newtek small business finance portfolio had fair value adjustments and charge-offs. The merchant business was forecasted to do about $16 million of EBITDA with $16 million of pretax. Revenue contribution details: Newtek Bank's performance contributed significantly to overall earnings, with loan and deposit growth driving its segment, while the small business finance portfolio and merchant business each had their own financial metrics impacting the overall picture.

• Reaffirmed 2024 full-year EPS guidance of $1.85 to $2.05, comfortable with the range despite market events. - Adjusted origination volumes and guidance for the remainder of 2024, assuming a 0.25 point rate cut for 2024. - Anticipated higher expenses in the second half for infrastructure support related to business deposit accounts. - Q3 and Q4 earnings timing differences due to joint ventures and securitization transitions, but confident the full-year guidance will be met.

• Market volatility impacting guidance and stock performance. - Uncertainty in credit losses and the default curve for certain loan portfolios. - Interest rate movements affecting deposit costs, loan margins, and securitized debt valuations. - Timing differences in accounting and market reactions causing quarterly earnings volatility.

Q: On the 2024 guide, where is the makeup of noninterest income to meet the guide?

A: Barry Sloane said it's in the ALP business picking up steam, especially in the third quarter, and in the merchant services area.

Q: How did recent market volatility impact the guidance?

A: Barry Sloane said they held the guidance as market events were hard to predict, and the midpoint of EPS was $1.95 with an abnormal stock multiple.

Q: What's the mechanics of EPS shift from Q3 to Q4?

A: Barry Sloane said it's a timing difference due to joint ventures, securitization transitions, and factors like credit losses and noninterest income that could weigh on Q3 and recoup in Q4.

Q: Why the origination underperformance in 504, conforming C&I and CRE?

A: Barry Sloane said they had to curtail some due to existing guidelines, focusing on balancing the portfolio with lower margin, lower charge-off conforming loans to reduce CECL reserve.

Q: How do nonperforming loan volumes impact reserving?

A: Scott Price said it's a detailed loan-by-loan analysis, including collateral assessment, pass-through payments, and liquidation time, with reserves calculated on a loan-by-loan basis for loans above $50,000 and a $0.50 on the dollar reserve for smaller loans.

Q: What's the forward guidance on gain on sale?

A: Scott Price said they're expecting pretty similar production numbers for the third quarter, with 11% premium on 7(a) loans and ALP program volumes driving results.

Q: How to bundle services to attract low-cost business deposits?

A: Barry Sloane mentioned same-day payroll, payment processing with same-day funding, and the Newtek Advantage portal providing analytics and transactional capabilities.