NewtekOne, Inc. (NEWT) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone Q4 report; quarterly figures are unaudited. Results are not directly comparable with 2022 because NewtekOne acquired a bank, exited BDC status, and began consolidating previously unconsolidated businesses in January 2023.
Business context
NewtekOne provides banking, SBA and other lending, payments, insurance, payroll, and technology services to small and medium-sized businesses. The January 6, 2023 acquisition of National Bank of New York City (renamed Newtek Bank) transformed the company into a financial holding company regulated by the Federal Reserve; Newtek Bank is regulated by the OCC. Newtek Bank received SBA Preferred Lender Program status in April 2023, and new SBA 7(a) originations shifted from NSBF to the bank. NSBF is winding down its legacy loan portfolio.
Financial results and key metrics
| Metric | 2023 | 2022 |
|---|---|---|
| Net income | $47.3 million | $32.3 million |
| Net income available to common shareholders | $45.9 million | $32.3 million |
| Basic / diluted EPS | $1.89 / $1.88 | $1.34 / $1.34 |
| Net interest income | $26.6 million | $12.3 million |
| Provision for credit losses | $11.7 million | None reported |
| Net interest income after provision | $14.9 million | $12.3 million |
| Noninterest income | $176.8 million | $92.9 million |
| Noninterest expense | $146.3 million | $66.4 million |
| Net interest margin | 2.37% | Not provided on a comparable basis |
Net gains on SBA loan sales were $50.7 million, down from $56.9 million; the average sale price was 110.20% of principal versus 109.71%. The company originated $814.4 million of SBA 7(a) loans and sold $607.6 million of guaranteed portions. Payments and technology income and related costs were included in consolidated results for the first time, contributing to the year-over-year increases in noninterest income and expense. The company reported a $2.0 million income tax benefit for 2023, versus $6.5 million of expense in 2022, reflecting its change in tax status and other items.
For Q4 2023, the filing’s unaudited quarterly table reports net income of $10.2 million and basic and diluted EPS of $0.43. The filing text does not provide a clear standalone Q4 revenue total.
Financial position, cash flow, debt, and liquidity
- Assets and equity: Total assets were $1.43 billion at year-end, up 43.1% from $998.9 million; total shareholders’ equity was $249.0 million, down from $375.4 million. The change in equity reflects, among other items, conversion-related accounting adjustments and the new preferred stock.
- Loans and credit quality: Total loans were $969.0 million. Loans held for investment at amortized cost were $336.3 million, with a $12.6 million allowance for credit losses. Nonaccrual loans were $5.4 million, or 1.6% of amortized-cost loans, and $48.2 million, or 10.3% of fair-value loans. Nonperforming assets were $54.7 million, or 3.8% of total assets.
- Deposits: The balance sheet reports $463.5 million of deposits, including $453.5 million interest-bearing. The filing elsewhere states $519 million of deposits at December 31, 2023; these disclosures do not reconcile clearly.
- Borrowings: Borrowings were $644.1 million, compared with $539.3 million a year earlier. The balance included $292.1 million of securitization notes and $269.1 million of parent-company notes. The $38.25 million of 5.75% notes due in August 2024 and $80 million of notes due in 2025 are notable near-term maturities. Reported weighted-average borrowing cost was 7.04%.
- Liquidity: Cash, restricted cash, and interest-bearing bank deposits totaled $184.0 million. The company listed $265.5 million in available liquidity sources, including bank deposits and available borrowing capacity; $30.9 million of cash was restricted.
- Cash flow: Operating activities used $169.2 million; investing activities used $172.2 million; financing activities provided $345.0 million. Financing included deposit growth, debt issuance, and securitization proceeds, partly offset by debt repayments and dividends.
- Capital: Newtek Bank reported a 16.6% Tier 1 leverage ratio and 22.8% total risk-based capital ratio and was categorized as well-capitalized. The company declared common dividends of $0.18 per share each quarter, or $0.72 for the year; continued distributions are subject to board approval and regulatory limits.
Material changes, outlook, and risks
- The conversion from BDC/RIC to financial holding company changed consolidation, credit-loss, tax, and financial reporting. The company now pays corporate-level income taxes and no longer has RIC pass-through tax treatment.
- Management reported no effective internal control over financial reporting at December 31, 2023. The auditor issued an adverse opinion on ICFR, identifying material weaknesses involving the conversion and consolidation, SOX governance, staff expertise, IT general controls, management review, data accuracy, and NTS revenue systems. The financial statement audit opinion was unqualified. Management said remediation is underway but is not complete; 2023 quarterly statements were revised.
- Under commitments to the Federal Reserve, NewtekOne must divest or otherwise terminate NTS activities by January 6, 2025, subject to possible extension. The filing gives no quantified estimate of the potential earnings or revenue effect.
- Newtek Bank must meet OCC operating-agreement requirements, including minimum Tier 1 leverage and total risk-based capital ratios of 10% and 11.5%, respectively, unless otherwise directed. Regulatory constraints may limit growth, distributions, and transfers of funds between the bank and parent.
- Key operating risks include maintaining SBA 7(a) and PLP status, SBA guarantee repairs or denials, SBA loan-sale premiums and secondary-market access, rising deposit and funding costs, borrower credit deterioration, interest-rate changes, deposit outflows, and the ability to raise capital. Management said it was not seeing broad deterioration at the time of filing, but warned that economic weakness could increase defaults.
- The company had $125.4 million of unfunded lending commitments and guaranteed certain NSBF obligations to the SBA, with $10 million of restricted cash set aside. Management said pending legal matters were not expected to have a material overall effect and reported an immaterial reserve; NMS remains subject to a permanent FTC injunction concerning certain business practices.
- No quantified earnings or revenue guidance is provided. The company identifies deposit growth, loan originations, SBA loan-sale premiums, and profitability across subsidiaries as important assumptions in its forward-looking statements.
Important facts for investors to verify
- Reconcile the filing’s $463.5 million balance-sheet deposit figure with its separate $519 million deposit disclosure, and confirm the deposit mix, costs, and subsequent trends.
- Review the 2023 quarterly financial statement revisions and the status, scope, and testing of remediation for all material weaknesses in internal controls.
- Assess credit performance by accounting category, particularly the elevated nonaccrual share of fair-value loans, the $12.6 million allowance, and the $194 million of non-owner-occupied CRE exposure.
- Confirm plans and funding for the August 2024 notes maturity, other near-term debt maturities, and the sustainability of liquidity and dividends under regulatory constraints.
- Track Newtek Bank’s SBA PLP status, loan-sale premiums, deposit growth and pricing, and the required NTS exit deadline and its effect on operations.