Business Context and Reporting Period
NewtekOne, Inc. (NEWT) is a financial holding company and the largest SBA 7(a) lender in the U.S. by dollar loan approval volume as of December 31, 2024. The company provides business and financial solutions to small and medium-sized businesses (SMBs) through its subsidiaries, including Newtek Bank (a national bank), Newtek Small Business Finance (NSBF), and various non-bank subsidiaries focused on payments, technology, and alternative lending. The reporting period covers the fiscal year ended December 31, 2024. The company transitioned from a Business Development Company (BDC) to a financial holding company in January 2023.
Key Financial Metrics
| Metric | 2024 | 2023 |
|---|---|---|
| Net Income | $50.9 million | $47.3 million |
| Earnings Per Share (Diluted) | $1.96 | $1.88 |
| Total Assets | $2.06 billion | $1.43 billion |
| Total Loans (Held for Sale & Investment) | $1.39 billion | $0.97 billion |
| Total Deposits | $973.1 million | $463.5 million |
| Total Borrowings | $708.0 million | $644.1 million |
| Net Interest Income | $40.3 million | $26.6 million |
| Noninterest Income | $217.3 million | $176.8 million |
| Provision for Credit Losses | $26.2 million | $11.7 million |
| Allowance for Credit Losses (ACL) | $30.2 million | $12.6 million |
| Nonperforming Assets (NPA) | $95.4 million (4.6% of total assets) | $54.7 million (3.8% of total assets) |
Material Changes vs. Prior Period
- Asset Growth: Total assets increased by 44.1% ($630.4 million) driven by a significant expansion in loans held for sale (up $253.4 million) and loans held for investment at amortized cost (up $285.3 million).
- Deposit Expansion: Total deposits grew by $508.6 million (110%) to $973.1 million, primarily due to growth in consumer high-yield savings and business checking accounts.
- Profitability: Net income increased by 7.4% to $50.9 million. This was driven by a $40.5 million increase in noninterest income, largely due to higher net gains on sales of loans ($97.2 million vs. $51.5 million in 2023).
- Expense Increase: Noninterest expense rose by 11.2% to $162.7 million, primarily due to increased salaries and benefits (headcount grew from 528 to 591) and higher loan origination expenses.
- Credit Quality: The provision for credit losses more than doubled to $26.2 million. Nonperforming assets increased to 4.6% of total assets, reflecting a rise in nonaccrual loans within the fair value portfolio.
- Debt Issuance: The company issued $146.9 million in new parent company notes (2029 8.50% and 8.625% Notes) and increased borrowings on SPV facilities, partially offset by the maturity of the 2024 Notes and reductions in securitization trust notes.
Guidance, Outlook, and Risks
Management Commentary: Management highlighted the successful transition of SBA 7(a) originations to Newtek Bank, which achieved Preferred Lender Program (PLP) status. The company continues to focus on growing core deposits to fund loan originations and reduce reliance on wholesale funding. The Alternative Lending Program (ALP) shifted strategy in late 2024 to originate loans with the intent to securitize rather than sell to joint ventures.
Subsequent Events: On January 2, 2025, the company completed the divestiture of its technology subsidiary, Newtek Technology Solutions (NTS), to Intelligent Protection Management Corp. (IPM) for $4.0 million in cash and 4.0 million shares of IPM preferred stock, plus a potential $5.0 million earn-out. This divestiture was a commitment made to the Federal Reserve.
Risks and Contingencies:
- SBA Regulatory Risk: The company's business model relies heavily on maintaining its SBA 7(a) lending license and PLP status. Loss of these designations would materially impact origination volumes.
- Secondary Market Risk: Revenue depends on selling guaranteed portions of SBA loans at premiums. Market conditions, particularly interest rates, can impact sale prices and prepayment speeds.
- Credit Risk: The company faces risks related to the unguaranteed portions of SBA loans and its ALP portfolio. Rising nonperforming assets and increased provisions indicate deteriorating credit quality in certain segments.
- Interest Rate Risk: The company is asset-sensitive; rising rates generally benefit net interest income, but higher rates can also increase funding costs and borrower defaults.
- Internal Controls: The company remediated material weaknesses in internal controls over financial reporting identified in 2023 related to the conversion to a financial holding company. Management concluded controls were effective as of December 31, 2024.
Investor Verification Checklist
- Verify the sustainability of the 110.97% average sale price for SBA 7(a) guaranteed portions in the current interest rate environment.
- Monitor the trend of nonperforming assets (currently 4.6% of total assets) and the adequacy of the $30.2 million Allowance for Credit Losses.
- Confirm the status of Newtek Bank's Preferred Lender Program (PLP) designation and any regulatory correspondence regarding SBA compliance.
- Assess the impact of the NTS divestiture on future technology revenue streams and the valuation of the IPM preferred stock received.
- Review the company's ability to maintain deposit growth rates to fund loan originations without excessive reliance on higher-cost wholesale borrowings.