Release Date: November 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NewtekOne Inc (NEWT, Financial) reported earnings per share of 45¢ for the quarter, exceeding the street consensus of 43¢.
- The company achieved a return on average assets of 2.8%, which is almost three times the peer median.
- NewtekOne Inc (NEWT) experienced significant deposit growth of 12% and loan growth of 17% at the bank.
- The net interest margin at the bank was reported at 5.29%, indicating strong profitability.
- The company completed a registered public offering of $75 million in bonds, enhancing its financial flexibility.
Negative Points
- The provision for loan losses was higher than expected, with NewtekOne Inc (NEWT) booking $6.9 million.
- There is a noted discomfort in the market with NewtekOne Inc (NEWT)'s unconventional metrics and business model.
- The company faces challenges in getting industry participants comfortable with its risk-adjusted returns.
- Non-accrual loans at the bank increased, which could be a concern for investors.
- The allowance for credit losses remains high, influenced by the concentration of seven A loans on the balance sheet.
Q & A Highlights
Q: Can you discuss how a Trump presidency might benefit NewtekOne Inc and if there could be any headwinds?
A: M. Scott Price, CFO, mentioned that a Trump presidency could maintain the corporate tax rate, which is beneficial. However, there are concerns about tariffs, especially for businesses reliant on imports from countries like China. The administration's stance on tariffs could pose a risk, but the corporate tax rate stability is seen as a positive.
Q: On slide 7, the net charge-off rate at the bank increased, while the consolidated rate declined. Can you explain the differences and your views on credit going forward?
A: M. Scott Price, CFO, explained that the bank's charge-offs are reflected in the allowance for credit losses, while the holding company's charge-offs go through unrealized losses in non-interest income. The increase in bank charge-offs was expected as the SBA portfolio matures, and they are comfortable with their reserves and capital levels.
Q: Regarding the allowance for credit losses, when should we expect it to move back down towards historical levels?
A: M. Scott Price, CFO, indicated that the allowance level is influenced by the concentration of SBA loans, which have higher reserves. As more traditional bank loans are added, the allowance should decrease. A meaningful decline is expected in 2025.
Q: What drove the recent growth in commercial low-cost business deposits, and what are your expectations going forward?
A: M. Scott Price, CFO, attributed the growth to staff training and the compelling value proposition of NewtekOne's accounts. They are focused on educating clients about the benefits of switching to NewtekOne and expect continued growth as they refine their sales process.
Q: Are you seeing more stringent regulations from bank supervisors post-Silicon Valley Bank and Signature Bank issues?
A: M. Scott Price, CFO, noted that while NewtekOne is not involved in crypto or banking as a service, which are under scrutiny, they are prepared for regulatory focus on funding and have diverse funding levers in place. They feel well-positioned relative to the industry.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
