NewtekOne, Inc.

Good day, and thank you for standing by. Welcome to the New Tech One, Inc. 2024 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker for today, Barry Sloan, Chief Executive Officer. Please go ahead.

Thank you very much, and welcome everyone to our first quarter 2024 financial results conference call we're very pleased to present our results to you today uh joining me on the call is scott price our chief financial officer of new tech one uh inc the publicly traded company as well as new tech bank national association in addition frank d maria the chief accounting officer evp for new tech bank new tech one inc And I also have Nick Young, the President and Chief Operating Officer of NewTek One, excuse me, NewTek Bank joining me today. For all of you that want to follow along with the PowerPoint presentation, you could do so by going to our website, NewTekOne.com, N-E-W-T-E-K-O-N-E.com. While you're there, you may want to take a look at NewTekBank.com and the NewTek Advantage, all valuable information to understanding our organization. We'd also like to welcome the analyst coverage from KBW, Tim Switzer, from Raymond James, Steve Moss, from Compass Point, Noah Ross, from Ladenburg, Chris Nolan, from B. Riley, Bryce Rowe, and last but not least, Crispin Love from Piper Sandler. This call today should illuminate a management company that is building a business. That's important to note. Take a look at all the building blocks that we put in our presentation. from growing the accounting and finance department, to growing our ability to take deposits at NewTek Bank and A, to our ability to move our lending operation into the bank and making a growing high quality group of loans that have generous risk reward provisions, as well as to being compliant. NewTek One is clearly a long-term opportunity to invest in a technology-enabled business that provides business solutions and financial solutions and depository services to the 30 million independent business owners across the United States. I'd like to call everyone's attention to slide number one in the presentation deck, which, once again, you can find at our website in the investor relations section. Slide number one is a note regarding forward-looking statements. Then we'll move forward to slide number two. Clearly, the biggest takeaway from our results that we published last night in our press release, the biggest takeaway is from Q1 in 2024. First quarter 2024, core earnings of 38 cents per basic and diluted common share exceeded our previously issued guidance of 19.25 cents per basic and common diluted share. Also important to note that in comparison, the first quarter 2023 earnings We reported 76 and 74 cents. It was an income tax benefit of approximately 59 cents per basic, 58 per diluted, almost 60 cents. Without that income tax benefit, EPS would have been 17 and 16. So we really beat on a core basis from an operating perspective year-over-year comparison by about 20 cents. Conservatively, we raised our guidance for fiscal year 2024 to $1.85 to $1.05 from previous $1.80 to $2. Important to note sequentially quarterly deposit growth at the bank, 9% growth. According to S&P Global, US-based banks grew 1.2% in their deposits from December 31, 2023 to March 31, 2024. So we're clearly proud of that ability to grow deposits. Sequential loan growth also up 11%. That's on a consolidated basis. at NewTek 1 over Q4 2023. Also important to note that in the SBA 7A business, we sell 75% of the government guaranteed loans, typically within the quarter that we produce them. Therefore, the growth obviously would have been higher. It is important to note that this organization that has a consolidated total asset base of $1.4 billion and about $700 million of the bank really has the loan generation capability of an institution that is four or five times larger. Important to note that interest margin at NewTek Bank grew sequentially by 37 basis points from 4.43 to 4.80. Growth in NIM at banks is hard to find. Clearly, we are very proud of this extraordinary accomplishment. In addition, while we're able to grow NIM, four and five basis points of loan loss reserve coverage at March 31, 2024. Growing loan loss reserves while growing profits, not an easy thing to do. These are accomplishments we're extremely proud of. We also increased the quarterly dividend in the first quarter by 5.5% for 19 cents a share from 18. That was an indicative sign of confidence that these dividends will be paid out of earnings. the board and the management feels comfortable that what we're doing is there, consistent, stable, and we'll be able to repeat it quarter after quarter. On slide number three, we've got NewTek Bank financial summary highlights. ROAA 5.8%, ROTCE 37%, efficiency ratio 15%. I don't know where you find financial institutions or banks that have this type of performance. Frankly, People are looking at it and saying, I don't know if this can be kept up or I don't believe it. Well, we're in our fifth quarter right now and we keep producing these kinds of numbers and we'll continue to work hard to produce these kinds of numbers for our shareholders. The net interest margin at the bank, 4.8% up from 4.43. Average yield on loans at the bank increased. A lot of that is based upon, I would say, an overperformance in the 7A business. We're going to talk about the other loans that we do with the bank that respectively are lower margin, lower yielding, and will have less charge-offs. Deposit rates increased slightly from 4.4 to 4.48. That's a trend that probably will continue, but we think modestly, not to any great extent, that will affect net interest margins. Net interest margins will be more effective by putting on lower risk, more vanilla bank-type loans, in the bank to diversify the portfolio. To take a look at capital and credit, moving all the way over to the right-hand side of the slide, you can see our institution continues to be well capitalized. Our Q1 returns clearly were impacted by higher volumes of loans, greater prices, also higher expenses compared to the fourth quarter of 2023. I think it's important to note that NewTekOne is not an organization that's built to be a $1.5 billion financial holding company. It's projected to be much, much larger. So we're putting in the infrastructure to be able to continue to achieve growth rates in deposits, in lending, as well as the ancillary services that come out of the holding company that make us extraordinarily unique. The net interest margin in yields and loans, are primarily due to a higher concentration of SBA 7A loans as we're a Prime Plus 3 lender. Today, that would be 11.5%. So once again, we're very, very proud of the results and the performance at NewTek Bank. Consolidating it up to the holding company, the ROA 2.8, ROTCE still very high at 20%. And obviously, as you take a look at the difference between the holdco and the bank, Clearly, we've got institutional funding up at the holding company, so less opportunity to take advantage of deposits, which are lower cost down in the bank. We do our alternative loan program funding at the holding company, first on the balance sheet and then into joint ventures. But once again, important to note, for a financial holding company, these are still extraordinary numbers that you can't find when you run your finger down the page of other financial holding companies and new tech. Toward the bottom of the page, you can see on slide four, the core EPS non-GAAP. Last year, if you took out the tax benefit from the first quarter, about $1.30-ish. We're looking at a revised forecast for 2024 of $1.85 to $2.05. clearly some nice growth there, particularly in core. We think that that growth should start to seep into the investor and analyst community and to start to achieve a more normalized market multiple as the market and investors start to get a better understanding of our financials, our balance sheet, our income statement, and how we project going forward. Slide number five. I think this is important. I get asked as to Scott Price, a lot of questions. Once again, very hard to compare us to a traditional bank. First of all, we offer so much more to our clients, and we do this without branches, brokers, bankers, in a traditional sense, and BDOs. We're more focused on return on tangible common equity and return on average assets, not assets under management. I use the term coupon clippings. Our competitors in the banking industry, they make loans, they try to get as much non-interest-bearing deposits as they can, and they're clipping that coupon. Clearly, we have an overweighting of non-interest income versus traditional bank interest income, which we think is an envy of most other banks, but this is something that's been inherent in new tech, and it's won in its business model for over the course of 25 years. and since it became a public company in September of 2000. Our marketing and returns were higher than a traditional bank and bank holding company. Important to note, we believe our credits remain strong, lending to the small and medium-sized business. Now, some people say, gee, these small business loans, aren't these really bad credits? Aren't these the credits that are going to go bad first? Well, first of all, we've been doing this for 20 years. We've done it through 08, 09. We did it through the pandemic. We understand this, but our investors are rewarded from the programs that generate an 11.5% coupon and even net of the expectation, which we believe our history and our management team has very good knowledge of how this portfolio is going to perform, provides excessive returns. That's why Our ROAAs and ROTCEs are much, much higher than our competitors, even while we're posting loan loss reserves that are north currently of 4%, which we think will modify down to three and a half when we start to diversify the portfolio into some more traditional banking types of loans. But when you look at what we're doing in the bank from a risk perspective, We love our business model much more than the deemed to be low risk, low charge off, low margin loans that our competitors are doing, hoping that their non-interest bearing deposits don't run away into money market accounts, which is a trend that we see continuing to go on as far as the eye can see. It's way too easy to move money on a phone into the right account so maybe i don't leave 250 you know over two and a half million dollars in the bank i mean at least 250 000 put it in a money market fund and keep moving the money back and forth that's where we see the trend we're very well positioned for that and we certainly even with the higher cost of consumer deposits that we've got we're going to talk about reducing that cost of commercial deposits we are very well situated for the risk inherent in the business industry going forward. Yes, we're able to raise deposits. We brought in approximately 6,000 depository accounts in our early stages of life. Yes, gain on sale is a reoccurring event and it's reoccurring income. I've got a beautiful slide on slide 17 that shows this. People don't like gain on sale. They may not like it, but we've made money doing this for 20 years. We make loans and we sell them. and it generates a higher return on equity and a higher return on assets. It's a better strategy. Can a financial or a bank holding company be a growth company? Yes. We don't know how the others can do that within their model, but yes, we can be. Our alternative loan program, we'll talk about this. We've demonstrated in earlier presentations, it's a 20 to 30% return on equity business for our company. It was slower in 2023 due to the issues that were occurring in the market with respect to rates volatility capital availability for banks it's an important growth aspect and you can see had a great first quarter have a great pipeline and we think we're in pretty good shape going forward i'd like to turn the next few slides over to scott price to go over six seven and eight thanks barry good morning everyone

Turning to slide six, our net interest income expanded 16 basis points during the quarter despite higher deposit costs. Average earning assets increased $31.1 million, and we experienced a sizable mix shift with average cash balances declining $45 million and average loans increasing $73 million. The higher percentage of the loan portfolio in the SBA 7A product versus last quarter drove the increase in yields on loans. On the funding side, our cost of deposits on a consolidated basis increased 20 basis points as the acquired CD portfolio continues to mature at lower costs. Separately, our interest expense on borrowings was lower as we experienced swift prepays on the NSBF 7A portfolio, which led to reductions in notes payable to securitization trusts. Slide seven is a graphical representation of the ins and outs of net interest income, most of which I've already covered. To summarize, we were able to increase our balance sheet efficiency by deploying excess funds to originate loans. I do expect higher levels of leverage at the bank as we roll out our business checking products and continue our retail deposit gathering. Shifting to slide eight, our deposit mix was relatively unchanged sans our high yield savings balances staying relatively stable and CD portfolio balances increasing. We expect our business checking account product and business money market product to increase at lower balances, to increase at lower rates as we move into the last three quarters of the year. The maturing digital CDs during the quarter largely rolled into the same product at similar rates. Important to note our retention that we've experienced on CDs maturing in the last few months, March and April have been above industry standards at 90%. Barry, I'll turn the call back to you.