NewtekOne, Inc. — Q1 2024 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three months ended March 31, 2024; balance-sheet comparisons are with December 31, 2023. NewtekOne is a financial holding company serving small and medium-sized businesses through banking, lending, payments, insurance, payroll and technology services. Newtek Bank originates SBA and other loans; legacy lender NSBF is winding down. Unless stated otherwise, financial amounts below are in millions.
Key financial results and position
| Metric | Q1 2024 / March 31, 2024 | Comparable period / prior year-end |
|---|---|---|
| Total operating revenue (interest income plus noninterest income) | $76.4 | $61.1 in Q1 2023, as restated |
| Net interest income | $8.9; net interest margin 2.92% | $4.6; margin 2.00% in Q1 2023 |
| Provision for credit losses | $4.0 | $1.3 in Q1 2023 |
| Net income | $9.7; $0.38 basic and diluted EPS | $18.6; $0.76 basic and $0.74 diluted EPS in Q1 2023 |
| Cash from operations / investing / financing | $(38.7) / $(43.8) / $61.7 | $(116.4) / $(23.9) / $186.9 in Q1 2023 |
| Total assets / shareholders’ equity | $1,509.6 / $254.1 | $1,429.5 / $249.0 at December 31, 2023 |
| Cash and cash equivalents | $163.2, including $35.8 restricted | $184.0 at December 31, 2023 |
| Deposits / borrowings | $512.9 / $662.5 | $463.5 / $644.1 at December 31, 2023 |
| Allowance for credit losses | $16.1; 4.1% of amortized-cost loans | $12.6; 3.7% at December 31, 2023 |
Loan originations increased the balance of loans held for sale and loans held for investment at amortized cost. Total loans were $1,071.4, up $102.4 from year-end. Management reported $215.7 of available liquidity sources, including $12.3 of unrestricted cash, bank deposits and borrowing availability. Newtek Bank was categorized as well-capitalized; its total capital ratio was 18.9%.
Material changes versus Q1 2023
- Net income fell $8.9 despite higher pretax income. Q1 2024 income tax expense was $3.4, compared with a $12.0 tax benefit in the restated prior-year quarter; the tax comparison was the principal reported reason for the decline.
- Net interest income increased $4.3, reflecting loan growth and higher interest income, partly offset by higher funding costs. Deposit interest expense rose $4.1 as the deposit base and rates increased.
- Noninterest income increased $7.0, led by net gains on loan sales of $20.3 versus $6.4. Loan servicing asset revaluation changed from a $0.9 gain to a $1.7 loss, while fair-value loan gains declined from $5.9 to $2.8.
- The provision for credit losses increased $2.7. The allowance rose to $16.1 from $12.6 at year-end, and nonaccrual loans at amortized cost rose to $8.0 from $5.4.
- Segment results shifted materially: Banking earned $9.4 versus a $1.9 loss; NSBF reported a $0.9 loss versus $13.5 income as its legacy portfolio winds down. Payments earned $3.4 versus $2.7.
- Cash and restricted cash declined $20.8 during the quarter. Operating cash use reflected loan funding, partly offset by loan sale proceeds; financing cash inflows included deposit growth and bank borrowings.
Outlook, risks and unusual items
- Guidance: The filing provides no specific quantitative earnings or revenue guidance. Management cautions that quarterly results are not necessarily indicative of full-year results.
- Funding and debt: $38.25 principal of 5.75% notes is due August 1, 2024. The company also has $80.0 of notes due in 2025 and $115.0 due in 2026. It reported compliance with note covenants at March 31, 2024. Deposit growth, access to funding, refinancing and interest expense remain important considerations.
- Credit and markets: The company cites potential economic deterioration, higher rates, borrower defaults, liquidity constraints and changes to the SBA 7(a) program. It relies on secondary-market demand and premiums for sales of guaranteed SBA loans. Nonperforming assets were $56.5, or 3.7% of assets.
- Regulatory and business transition: NewtekOne is subject to Federal Reserve and OCC oversight following its conversion to a financial holding company and acquisition of Newtek Bank. Commitments to the Federal Reserve require divestiture or termination of NTS technology activities by January 6, 2025, subject to extension. NSBF remains subject to its SBA wind-down agreement and the company has restricted $10.0 to secure certain potential SBA obligations.
- Controls and reporting: Management concluded disclosure controls were not effective at March 31, 2024 because of previously identified material weaknesses in internal control over financial reporting. Remediation is underway but the weaknesses were not considered remediated. Q1 2023 comparative financial statements are presented as restated to correct previously reported errors.
- Other items: Management reported no material subsequent events and considered pending legal matters unlikely to have a material overall effect, while noting outcomes remain uncertain. The company reported an immaterial legal reserve and $108.8 of unfunded loan commitments.
Most important facts for investors to verify
- Progress and testing of remediation for the material weaknesses, and whether future filings identify further restatements or control deficiencies.
- How NewtekOne plans to repay or refinance the $38.25 of notes maturing in August 2024 and manage other scheduled maturities.
- Trends in deposit growth, deposit costs, available borrowing capacity and unrestricted liquidity; distinguish restricted cash from funds available for general use.
- Loan delinquency, nonaccrual, charge-off and allowance trends, including the performance of growing SBA, CRE and other bank-originated portfolios.
- SBA loan origination and sale volumes, secondary-market premiums, and progress in winding down NSBF and exiting NTS by the required date.
- Underlying earnings excluding volatile loan-sale gains, fair-value changes and the unusual prior-year tax benefit; confirm the restated comparison when assessing year-over-year performance.