NewtekOne CEO Barry Sloane offered a full-throated defense of his company's business model, and it resonated with investors, sending the company's share price climbing Wednesday despite a sizable increase in first-quarter nonaccrual loans.
Newtek's shares were trading up 4% Wednesday afternoon at $9.91, making up some of the ground they lost earlier in the week.
Boca Raton, Florida-based Newtek reported first-quarter net income totaling $9 million, down about 3% from the same three months in 2024. The results were impacted by the uptick in nonaccrual loans, along with a bigger loan loss provision.
Newtek is the nation's second-largest Small Business Administration 7(a) lender, and most of its credit problems reside in that book of business, according to Sloane. Investors who focus on Newtek's 7(a) issues run the risk of overlooking more positive trends in the company's SBA 504 and conventional lending segments, as well as a growing and profitable merchant services business, the CEO argued Wednesday on a conference call with analysts.
"We realize a lot of the markets are hyper-focused on credit concerns," Sloane said. "I also think those concerns are hyper-focused on the 7(a) portfolio, which frankly is a fraction of our business."
Newtek projects that both its SBA 504 and conventional loan originations will double in 2025 to $250 million and $500 million, respectively. Newtek is forecasting 6% growth in 7(a) originations to $1 billion.
The 7(a) program is SBA's largest lending program, offering guarantees of 50% to 85% on loans of up to $5 million. The smaller SBA 504 program focuses on big-ticket equipment purchases and commercial real estate. Newtek began making non-SBA commercial loans in 2018.
First-quarter nonaccrual loans totaled $59.3 million, more than double the $28.2 million Newtek reported on March 31, 2024. The company's first-quarter provision was $13.5 million, up from $4 million a year ago. The nonaccrual and loan-loss disclosures in the earnings report sparked a late–in-the-day selloff on Tuesday that saw Newtek shares slide more than 4% to $9.50.
Sloane said he spent much of Tuesday evening on the phone with investors, and his comments seem to have had the desired effect on Wednesday. "We're going to continue to grind out earnings quarter over quarter and pay our dividend," he said.
While most banks continued to report solid credit quality in the first quarter, a number of CEOs expressed concerns about an economic slowdown. Nearly three in four bankers queried on a
Newtek had previously warned about potential challenges in 2025, as clients grapple with continued high interest rates, market volatility and persistent inflation, Sloane noted Wednesday. Given that backdrop, adding to the company's loss provisions seemed warranted, he said.
"We think the heavier loan loss provision is a good thing for ourselves and our investors," Sloane said. "We're planning ahead. It's not inconsistent with what we've said for the last several quarters, that we see headwinds in 2025."
Newtek became a bank holding company in 2023 with its acquisition of the $200 million-asset National Bank of New York City. Newtek renamed the institution Newtek Bank and has grown loans and deposits significantly over the past two years.
Sloane said Wednesday he doesn't regret the acquisition, since many of Newtek's small and mid-size business clients prefer doing business with a bank. At the same time, viewing the company through a banking lens, which places a premium on low-cost deposits and pristine asset quality, undervalues Newtek, Sloane argued.
While Newtek pays market rates for deposits, and its heavy involvement in riskier 7(a) lending means problem loan totals are frequently elevated, its higher loan yields generate above-average profitability. Newtek reported a first-quarter return on average assets of 1.81%. For the full-year 2024, the industrywide average ROAA was 1.11%, according to the Federal Deposit Insurance Corp.
"We're clearly misunderstood," Sloane said. "The traditional metrics that are being used to analyze banks don't apply here...As a matter of time and data and analysis, there is an opportunity in NewtekOne."
Newtek is projecting a full-year 2025 loan-loss provision in the neighborhood of $50 million, well above the $26.2 million recorded for 2024. However, the company's increased credit costs should be offset by strong expense control.
Newtek reported last month that it was able to terminate three office leases by moving to a work-from-home model and continuing to employ technology that permits it to reduce the number of bankers, brokers and business development officers on its team.
"We believe this is the way banks will operate in the future," Sloane said. "Without branches, without traditional bankers."
