NewtekOne(NEWT) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported earnings per share of $0.70 for basic and$ 0.69 for diluted, representing a 43% improvement over the previous year and quarter [11] - Net interest income increased by 36% compared to the same three-month period a year earlier [12] - Shareholders' equity rose to $296 million, a 19% increase [13] Business Line Data and Key Metrics Changes - The Alternative Loan Program (ALP) saw$ 269 million in loans for the year, with over $83 million in ALP loans for the 12 months [14] - The company acquired 950 new business checking accounts, with core business deposits growing to$ 216 million, an increase of approximately $106 million from the previous year [27] Market Data and Key Metrics Changes - The company reported a return on average assets (ROAA) of 6.3% and a return on tangible common equity (ROTCE) of 48% [28] - The efficiency ratio was reported at 42%, indicating strong operational performance [28] Company Strategy and Development Direction - The company aims to provide technology-enabled financial solutions to over 30 million independent business owners in the U.S. [9] - The transition from a Business Development Corporation to a financial holding company is intended to enhance service offerings and customer acquisition through technology [3][10] - The company positions itself as a disruptor in the banking industry, similar to Uber and Amazon, focusing on technology to improve customer experience and operational efficiency [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to manage credit risk and maintain profitability despite potential increases in charge-offs [40][41] - The company anticipates a range of$ 2.10 to $2.50 in earnings per share for 2025, reflecting a cautious but optimistic outlook [31][32] - Management noted that the first quarter is typically the lowest for earnings, with expectations for a ramp-up throughout the year [78] Other Important Information - The company has a significant amount of cash on hand, approximately$ 325 million, which will be used to pay off higher-cost CDs maturing in the near term [58] - The company has been recognized for its strong non-interest income, which is expected to continue growing [56] Q&A Session Summary Question: Can you provide detail on the cadence of earnings throughout 2025? - Management indicated that the first quarter is typically lower, with a range of $0.28 to$ 0.32 expected, and a ramp-up in subsequent quarters [80] Question: What drove the $9.4 million markup on loans accounted for under fair value options? - The markup was primarily due to the fair value of ALP loans, which are securitized with strong margins [84] Question: How are charge-off expectations being modeled? - Charge-off expectations are based on historical patterns, with a projected increase to 2% for 2025, reflecting the seasoning of the loan portfolio [90][92] Question: What are the drivers of the negative$ 7.3 million loan servicing asset revaluation? - This was attributed to the decay in the balance of the 7(a) portfolio, which is not growing, leading to amortization and fair value changes [99] Question: What investments are planned for 2025? - The company plans to invest in resources across various departments to support growth while managing risk [108]