Newtek One, Inc. (NASDAQ: NEWT) is a diversified financial holding company that has successfully navigated the transition from a business development company (BDC) to a bank holding company. The company's impressive financial performance in the first quarter of 2024 highlights its ability to generate strong earnings and cash flow, even in a challenging economic environment.

Financials

For the full year 2023, Newtek reported annual net income of $45.37 million, annual revenue of $253.14 million, annual operating cash flow of -$88.60 million, and annual free cash flow of -$89.06 million. In the first quarter of 2024, the company reported core earnings of $0.38 per basic and diluted common share, exceeding its previously issued guidance of $0.19 to $0.25 per share. This represents a significant improvement over the first quarter of 2023, where the company reported earnings of $0.17 and $0.16 per basic and diluted share, respectively, after adjusting for a one-time tax benefit.

Business Overview

Newtek's transition to a financial holding company has been a key driver of its recent success. The company's acquisition of National Bank of New York City (NBNYC) in January 2023 has allowed it to expand its banking operations and diversify its revenue streams. Newtek Bank, the company's wholly-owned subsidiary, has demonstrated impressive financial performance, with a return on average assets (ROAA) of 5.8% and a return on tangible common equity (ROTCE) of 37% in the first quarter of 2024.

Non-Interest Income

One of the standout features of Newtek's business model is its focus on non-interest income, which accounted for a significant portion of the company's revenue in the first quarter. This includes income from loan sales, servicing, and electronic payment processing, among other sources. The company's ability to generate a high level of non-interest income sets it apart from traditional banks, which typically rely more heavily on net interest income.

Lending Operations

Newtek's lending operations have also been a key driver of its success. The company's SBA 7(a) lending business, which it has operated for over 20 years, continues to be a strong performer, with loan originations increasing by 35.9% in the first quarter of 2024 compared to the prior quarter and the prior year. The company's alternative lending program, which provides non-conforming commercial and industrial loans, has also gained traction, with $53.8 million in originations in the first quarter.

Technology and Innovation

The company's focus on technology and innovation has also been a key competitive advantage. Newtek's Newtek Advantage platform, which provides a suite of business and financial solutions to its clients, has been a key driver of deposit growth and customer engagement. The company has also invested in artificial intelligence and data analytics to enhance its underwriting and risk management capabilities.

Outlook

Looking ahead, Newtek has provided guidance for fiscal year 2024, raising its previous guidance to $1.85 to $2.05 per basic and diluted common share. This guidance reflects the company's confidence in its ability to continue to generate strong earnings and cash flow, even in a challenging economic environment.

Risks and Challenges

One potential risk factor for Newtek is the performance of its legacy SBA 7(a) loan portfolio, which is held at the holding company level. While the company has a strong track record of managing this portfolio, the loans are subject to credit risk and could experience higher levels of delinquencies and charge-offs as they season. However, the company's conservative underwriting and risk management practices, as well as its diversified business model, should help to mitigate this risk.

Conclusion

Overall, Newtek's impressive financial performance in the first quarter of 2024, coupled with its strong competitive position and diversified business model, make it an attractive investment opportunity for investors seeking exposure to the financial services sector. The company's focus on technology, innovation, and non-interest income generation should continue to drive its growth and profitability in the years to come.