Newtekone Aims for $2.10–$2.50 EPS in 2025, Betting Big on Tech-Driven Banking

Insights from the Earnings Call: NewtekOne, Inc. (NEWT) First Quarter 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

• The management restated their yearly earnings per share forecast for 2025 within the bracket of $2.10 to $2.50, showcasing faith in expanding loan portfolios and improved operational effectiveness.
• 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 reserve set aside for loans kept for investment was at 5.4%, indicating an active strategy towards setting funds aside for potential losses.
• The firm showcased a successful ALP securitization involving a $215 million loan portfolio, securing a 570-basis-point margin.
• At the banking level, the efficiency ratio stayed relatively low, within the lower 40th percentile, suggesting inefficiency in operations.

Q&A

• Crispin Love from Piper Sandler asked about the sustainability of ALP loan profits. CEO Barry Sloane responded, “Our projected total net charge should fall within the range of 3% to 3.5%, with these figures reflecting how we value our loans currently.”
• Tim Switzer from KBW queried what was driving the fair value gains. CFO Scott Price mainly credited these gains to the strong performance of the ALP portfolio and the advantages gained through securitization.
• Experts likewise expressed worries regarding the credit quality and alterations in underwriting within the SBA loan portfolio. Barry Sloane reassured them that the firm upholds strict underwriting criteria and adapts these practices based on prevailing economic circumstances.

Sentiment Analysis

• The analysts had varied opinions, with significant attention paid to the credit quality and the durability of profits associated with the ALP portfolio. There was also considerable worry regarding how modifications to the SBA programs might affect profit margins.
• The management kept an assured demeanor, stressing the firm’s robustness and concentration on tech-powered financial services. Barry Sloane often underscored the organization’s extensive expertise and flexibility over time.
• In comparison to the last quarter, the management’s stance stayed unchanged, emphasizing their efforts to tackle misconceptions in the marketplace regarding their business approach.

Quarter-over-Quarter Comparison

• In Q1 of 2025, the earnings per share (EPS) forecast was adjusted upwards from the more hesitant perspective presented last quarter, indicating better insight into factors boosting profit margins.
• The focus has moved more towards the securitization of ALPs and how it contributes to income, as opposed to the fourth quarter of 2024 when the priority was on increasing deposits and shifting portfolios.
• This quarter, analysts directed their inquiries toward credit performance and the durability of recent progress, underscoring shifting worries.
• 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. remains committed to establishing itself as a distinct, tech-driven financial holding firm by utilizing its digital banking approach for expansion and increased profits. The corporation upholds its revised yearly earnings per share forecast between $2.10 and $2.50 and prioritizes ALP loan securitization efforts with the aim of overcoming lending obstacles and enhancing shareholder benefits. Their strategic provisions ahead of time along with improved operations highlight their assurance in maintaining progress despite economic fluctuations.

Review the complete earnings call transcript.