UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 For the transition period from _____to_____ Commission file number: 814-01035 FORM 10-K NEWTEKONE, INC. ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) Maryland 46-3755188 For the fiscal year ended December 31, 2023 OR o TRANSITION REPORT PURSUAN ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 March 19, 2024 Date of Report (date of Earliest Event Reported) NEWTEKONE, INC. (Exact Name of Company as Specified in its Charter) Maryland 814-01035 (Company's telephone number, including area code) (Former name or former address, if changed from last report) Securities registered pursuant to Section 12(b) of the Act: | Title of each class | ...

Financial Data and Key Metrics Changes - The company reported a net interest margin increase from 2.62% in Q3 2023 to 2.78% in Q4 2023, indicating improved profitability [77] - The return on average assets for the year was 5.76%, with a return on tangible common equity of 22.7% [74][108] - The company achieved diluted earnings per share of $1.70 and basic earnings per share of $1.71 for the calendar year [94] Business Line Data and Key Metrics Changes - The SBA loan portfolio reached $169.6 million, with total SBA loans funded increasing by 24.2% over the prior quarter [30][132] - The company originated $555 million in 7(a) SBA loans since 2017, with no charge-offs to date [34] - The alternative loan program has been growing steadily, contributing to the overall loan volume despite market challenges [109] Market Data and Key Metrics Changes - The company is positioned as a market leader in SBA 7(a) lending, being the number one originator by loan volume in Q4 2023 [132] - The company noted that the government guaranteed market is favorable, with a strong demand for short-term loans [7] Company Strategy and Development Direction - The company aims to leverage its digital deposit channel for funding and plans to roll out business checking accounts to optimize funding costs [87][61] - The management team is focused on scaling the business, with aspirations to grow to a $5 billion to $10 billion institution [39][96] - The company emphasizes a differentiated business model that relies on technology and non-interest income streams rather than traditional banking practices [78][79] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the quality of the loan portfolio and the adequacy of reserves, anticipating charge-offs but maintaining a strong capital position [14][80] - The company is optimistic about its growth trajectory, expecting to maintain double-digit growth in 7(a) loan volumes [7][41] - Management highlighted the importance of understanding the unique business model and the potential for future investor interest as the company continues to deliver strong performance [141][142] Other Important Information - The company has a high CECL reserve of 6.75%, which is significantly above industry norms, reflecting a conservative approach to risk management [100][64] - The company has been able to raise insured deposits quickly, demonstrating a high growth rate through digital account opening [61] Q&A Session Summary Question: What are the factors driving guidance from low to high end? - Management indicated that asset-side performance, particularly through the alternative loan program and government guaranteed market pricing, will influence guidance [4] Question: How is competition in the SBA lending space? - Management noted that supply and demand dynamics are crucial, and they feel confident about their current pricing and market position [7] Question: Can you provide details on credit quality and charge-offs? - Management confirmed that while there are signs of weakness in some microloans, there have been no charge-offs to date, and they expect full recovery on certain loans [12][14] Question: What is the expected impact of the cleanup call on the bond portfolio? - Management stated that a cleanup call could involve around $40 million to $45 million in bonds, which would free up capital for other uses [22] Question: Can you elaborate on the increase in loan volumes? - Management highlighted a 50% increase in loan units in 2023 compared to 2022, attributing this to improved efficiency and technology [21]

For the transition period from _____to_____ Commission file number: 814-01035 NEWTEKONE, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Not Applicable (Former name, former address and former fiscal year, if changed since last report) Secu ...

Note Regarding Forward-Looking Statements www.newtekone.com 2.92% 3.19% 3.49% 3.26% -9.7% 31.2% 38.3% 20.5% 109.9% 58.7% 49.1% 77.5% 34.8% 29.4% 25.0% | --- | --- | --- | --- | --- | |---------------------------------------------|-------|-------|-------|-------| | Metrics1 | 1Q23 | | | | | NIM | | | | | | ROAA | | | | | | ROE | | | | | | ROTCE | | | | | | Efficiency Ratio | | | | | | Capital | | | | | | CET 1 | | | | | | Total Capital | | | | | | Leverage | | | | | | Average Yield on Loans | | | | | | Avera ...

Company Overview - As of June 30, 2023, the company ranked as the second largest SBA 7(a) lender based on dollar volume of loans approved, combining Newtek Bank and NSBF[249]. - The company completed the acquisition of NBNYC, now renamed Newtek Bank, contributing $31 million in cash and merging two subsidiaries, enhancing its financial services capabilities[244]. - The company is now a financial holding company, subject to regulation by the Federal Reserve, and has withdrawn its previous BDC election, affecting its operational structure and compliance requirements[244]. - The company no longer qualifies as a RIC for U.S. federal income tax purposes, which changes its tax obligations and financial reporting[248]. Financial Performance - For the six months ended June 30, 2023, the company reported net income of $18.54 million, a decrease of 20.0% from $23.17 million for the same period in 2022[280]. - For the six months ended June 30, 2023, the company reported a consolidated net income of $18.6 million, compared to a net income of $24.5 million for the same period in 2022, reflecting a decrease of approximately 24.3%[322]. - The Company reported a loss attributable to noncontrolling interests of $31, impacting the net income attributable to NewtekOne, Inc. to $18.57 million[281]. - For the three months ended June 30, 2023, the Company reported net income of $6.9 million, a decrease of 48.9% compared to $13.5 million for the same period in 2022[328]. Revenue Streams - Noninterest income increased by 87.3% to $89.22 million in 2023, compared to $47.64 million in 2022, driven by significant growth in technology and IT support income and electronic payment processing income[298]. - The payments segment contributed $5.5 million to consolidated net income, with $22.8 million of noninterest income from various processing services[324]. - The technology segment contributed $16.5 million of noninterest income and incurred $15.2 million of noninterest expense for the six months ended June 30, 2023[325]. - The company generated $10.7 million in electronic payment processing income, reflecting a new revenue stream[347]. Loan and Asset Management - Total loans reached $873.8 million, an increase of $349.4 million from $524.4 million at December 31, 2022, primarily due to the consolidation of previously controlled portfolio companies and new loan originations[269]. - The company originated 721 SBA loans totaling $343.8 million for the six months ended June 30, 2023, compared to 576 loans totaling $363.9 million for the same period in 2022, indicating a 25.2% increase in the number of loans originated[312]. - The average outstanding accrual loan portfolio increased to $636.7 million in 2023 from $479.1 million in 2022, reflecting growth in SBA 7(A) loans and total commercial loan originations[283]. - The company transitioned SBA 7(a) loan originations to Newtek Bank as NSBF begins to wind down operations, continuing to manage existing loans until maturity or liquidation[249]. Financial Position - Total assets increased to $1.4 billion as of June 30, 2023, reflecting a growth of $440.2 million, or 44.1%, compared to $1.0 billion at December 31, 2022[268]. - Total deposits amounted to $447.4 million at June 30, 2023, with $38.2 million in non-interest bearing deposits and $409.1 million in interest bearing deposits, marking the first deposits recorded since the acquisition[275]. - Borrowings increased to $697.4 million at June 30, 2023, up from $539.3 million at December 31, 2022, driven by new notes payable and bank borrowings from newly consolidating entities[277]. - The company maintains an asset coverage requirement of at least 150% due to covenants in its outstanding 2024 and 2026 Notes[245]. Expenses and Losses - Salaries and employee benefits expense increased by 301.1% to $38.5 million for the six months ended June 30, 2023, compared to $9.6 million in the same period of 2022[305]. - Total non-interest expense for the three months ended June 30, 2023, was $40.180 million, an increase of 156.7% compared to $15.652 million in 2022[354]. - The total other expense for the six months ended June 30, 2023, was $79.4 million, an increase of 161.4% compared to $30.4 million in the same period of 2022[305]. - The provision for loan credit losses was $3.9 million for the six months ended June 30, 2023, compared to no provision in the same period in 2022 due to a change in accounting methodology[296]. Capital and Financing - The company raised approximately $111.3 million from the issuance of $115.0 million aggregate principal amount of 5.50% 2026 Notes, net of underwriter's fees and expenses[380]. - The company completed a private placement offering of $50.0 million aggregate principal amount of 8.125% notes due 2025, with net proceeds of approximately $48.94 million[392]. - The company was in compliance with all covenants related to the 2024 and 2026 Notes as of June 30, 2023[387]. - The Capital One facility was increased from $100.0 million to $150.0 million in June 2019, with various amendments to interest rates and terms[393]. Tax and Regulatory Matters - The company recognized an income tax benefit of $2.3 million during the six months ended June 30, 2023, primarily related to carried forward net operating losses[320]. - The company reported a deferred tax asset, net of $4.6 million, and a deferred tax liability, net of $19.2 million, reflecting changes in tax positions[436]. Market Conditions and Economic Factors - The company has observed significant economic challenges, including rising interest rates and supply chain interruptions, which may impact future performance and borrower defaults[254]. - The company adopted the CECL approach for estimating credit losses, which requires an estimate of expected credit losses over the life of an exposure[425].

Financial Performance & Projections - NewtekOne的2023年稀释后每股收益预计为1.70美元至2.00美元[12] - Newtek Bank在截至2023年6月30日的三个月内的ROAA为4.9%[28, 80, 82] - NewtekOne在截至2023年6月30日的三个月内的ROTCE为32.1%[68, 70, 178] - NewtekOne预计2023财年税后净收入为4460万美元，每股收益为1.80美元[169] Balance Sheet & Capitalization - NewtekOne截至2023年6月30日的总资产为14亿美元[10, 78] - Newtek Bank截至2023年6月30日的总资产为5.68亿美元[10] - Newtek Bank截至2023年6月30日的总存款为4.474亿美元，比2022年12月31日的1.4亿美元增长了220.6%[67, 87] - Newtek Bank截至2023年6月30日的总风险资本比率为29.4%[10, 80, 98] Lending Operations - NewtekOne在截至2023年6月30日的六个月内发放了4.761亿美元的贷款，比2022年同期的4.283亿美元增长了11.2%[72] - NewtekOne预计2023年SBA 7(a)贷款总额为8.75亿美元，比2022年增长12.8%[124, 167] - Newtek Bank的SBA 7(a)贷款组合在2023年6月30日达到1.89亿美元[93]

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for NewtekOne, Inc [Consolidated Statements of Financial Condition](index=7&type=section&id=Consolidated%20Statements%20of%20Financial%20Condition) The company's total assets grew significantly due to the consolidation of Newtek Bank Consolidated Statements of Financial Condition (In Thousands) | ASSETS | March 31, 2023 (Unaudited) | December 31, 2022 (Investment Company Accounting) | |:---|:---|:---| | Cash and due from banks | $27,349 | $53,692 | | Restricted cash | $72,599 | $71,914 | | Interest bearing deposits in banks | $97,196 | — | | Total cash and cash equivalents | $197,144 | $125,606 | | Loans held for sale, at fair value | $125,639 | $19,171 | | Loans held for investment, at fair value | $532,788 | $505,268 | | Total assets | $1,249,739 | $998,902 | | **LIABILITIES AND NET ASSETS** | | | | Deposits: | | | | Noninterest-bearing | $22,878 | — | | Interest-bearing | $224,696 | — | | Total deposits | $247,574 | — | | Borrowings | $697,395 | $539,326 | | Total liabilities | $1,031,701 | $623,544 | | Total shareholders' equity | $218,038 | $375,358 | | Total liabilities and shareholders' equity | $1,249,739 | $998,902 | - Total assets increased by **$250.8 million (25.1%)** from December 31, 2022, to March 31, 2023, primarily due to the consolidation of Newtek Bank and other entities[13](index=13&type=chunk)[14](index=14&type=chunk)[242](index=242&type=chunk) - Total deposits of **$247.6 million** were reported at March 31, 2023, with no deposits at December 31, 2022, reflecting the acquisition of Newtek Bank[13](index=13&type=chunk)[14](index=14&type=chunk)[247](index=247&type=chunk) [Consolidated Statements of Income](index=9&type=section&id=Consolidated%20Statements%20of%20Income) Net income increased year-over-year, driven by higher interest and noninterest income Consolidated Statements of Income (In Thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | |:---|:---|:---| | Total interest income | $18,715 | $7,743 | | Total interest expense | $14,132 | $4,667 | | Net interest income | $4,583 | $3,076 | | Provision for loan credit losses | $1,318 | — | | Net interest income after provision for loan credit losses | $3,265 | $3,076 | | Total noninterest income | $42,787 | $22,228 | | Total noninterest expense | $39,197 | $14,709 | | Income before taxes | $6,855 | $10,595 | | Income tax (benefit) expense | $(4,863) | $943 | | Net income | $11,718 | $9,652 | | Net income available to common shareholders | $11,469 | $9,652 | | Basic EPS | $0.46 | $0.40 | | Diluted EPS | $0.46 | $0.40 | - Net income increased by **$2.066 million**, from $9.652 million in Q1 2022 to $11.718 million in Q1 2023[16](index=16&type=chunk)[18](index=18&type=chunk)[251](index=251&type=chunk)[252](index=252&type=chunk) - Total interest income significantly increased by **$10.972 million**, driven by a $10.4 million increase in loan portfolio interest income[16](index=16&type=chunk)[253](index=253&type=chunk)[254](index=254&type=chunk) - Total noninterest income increased by **$20.559 million (92.5%)** to $42.787 million in Q1 2023, primarily due to the consolidation of new entities and related technology/IT support and electronic payment processing income[16](index=16&type=chunk)[252](index=252&type=chunk)[265](index=265&type=chunk)[269](index=269&type=chunk) [Consolidated Statements of Comprehensive Income](index=11&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Total comprehensive income for Q1 2023 was slightly lower than net income due to an unrealized loss Consolidated Statements of Comprehensive Income (In Thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | |:---|:---|:---| | Net income | $11,718 | $9,652 | | Other comprehensive loss, net of tax | $(82) | — | | Total comprehensive income | $11,636 | $9,652 | - Total comprehensive income for Q1 2023 was **$11.636 million**, including a net unrealized loss on debt securities available-for-sale of $(113) thousand before tax[19](index=19&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=12&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Shareholders' equity decreased significantly due to accounting adjustments from the BDC conversion - Total shareholders' equity decreased from **$375.358 million** at December 31, 2022, to **$218.038 million** at March 31, 2023[14](index=14&type=chunk)[21](index=21&type=chunk) - Significant adjustments in Q1 2023 include a **$(138.043) million** removal of fair value adjustments and a **$(65.215) million** consolidation of controlled investments due to the conversion to a financial holding company[21](index=21&type=chunk) - The Company issued **$20.0 million** in preferred stock and declared common share dividends of **$(4.363) million** and preferred share dividends of **$(249) thousand** in Q1 2023[21](index=21&type=chunk) [Consolidated Statements of Cash Flows](index=15&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash flow from operations turned negative while financing activities provided substantial cash inflows Consolidated Statements of Cash Flows (In Thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | |:---|:---|:---| | Net cash (used in) provided by operating activities | $(116,359) | $6,478 | | Net cash used in investing activities | $(23,898) | — | | Net cash provided by (used in) financing activities | $186,899 | $(29,884) | | Net increase (decrease) in cash and restricted cash | $46,642 | $(23,406) | | Cash and restricted cash—end of period | $197,144 | $163,454 | - Operating activities used **$116.359 million** in Q1 2023, a significant change from $6.478 million provided in Q1 2022, primarily due to SBA 7(a) loan investments funded and increases in broker receivables[25](index=25&type=chunk)[27](index=27&type=chunk)[317](index=317&type=chunk) - Investing activities used **$23.898 million** in Q1 2023, mainly for purchasing available-for-sale securities and increasing loans held for investment[25](index=25&type=chunk)[27](index=27&type=chunk)[318](index=318&type=chunk) - Financing activities provided **$186.899 million** in Q1 2023, driven by preferred stock issuance, bank borrowings, and 2025 8.125% Notes issuance, offsetting securitization note payments[25](index=25&type=chunk)[27](index=27&type=chunk)[319](index=319&type=chunk) [Notes to Consolidated Financial Statements](index=17&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes detail the accounting policies and financial items following the company's transformation [NOTE 1—DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION](index=17&type=section&id=NOTE%201%E2%80%94DESCRIPTION%20OF%20BUSINESS%20AND%20BASIS%20OF%20PRESENTATION) The company transformed into a financial holding company after acquiring Newtek Bank - The Company is now a financial holding company providing business and financial solutions to SMBs, including **Newtek Bank, Newtek Lending, Newtek Payments, Newtek Insurance, Newtek Payroll, and Newtek Technology**[29](index=29&type=chunk) - On January 6, 2023, the Company acquired NBNYC for **$20 million**, renamed it Newtek Bank, National Association, and contributed $31 million cash and two subsidiaries (NBL, SBL) to it[30](index=30&type=chunk) - The Company ceased to be a BDC and RIC, becoming subject to **Federal Reserve supervision**, and now consolidates various non-bank subsidiaries (e.g., NSBF, Newtek Merchant Solutions, Newtek Technology Solutions)[31](index=31&type=chunk) - Comparisons to prior periods include adjustments to reconcile investment company accounting to financial holding company accounting, affecting stockholders' equity and cash flows[32](index=32&type=chunk) [NOTE 2—SIGNIFICANT ACCOUNTING POLICIES](index=18&type=section&id=NOTE%202%E2%80%94SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines key accounting policies adopted after converting to a financial holding company - The Company applies fair value accounting to certain financial instruments, categorizing them into a **three-level hierarchy** based on observability of inputs (ASC Topic 820)[36](index=36&type=chunk) - Business combinations are accounted for under the acquisition method, recognizing identifiable assets and liabilities at fair value, with excess purchase price as goodwill (ASC 805)[41](index=41&type=chunk) - The Company adopted the **CECL (Current Expected Credit Loss)** approach for measuring credit losses on financial instruments, effective January 1, 2023, replacing the incurred loss approach[42](index=42&type=chunk)[72](index=72&type=chunk) - Deferred tax assets and liabilities are computed based on temporary differences between financial statement and income tax bases, with a valuation allowance if realization is unlikely[62](index=62&type=chunk) - Revenue from electronic payment processing and fee income is recognized when control of goods/services is transferred to customers, reflecting expected consideration (ASC 606)[89](index=89&type=chunk) [NOTE 3—BUSINESS COMBINATION](index=27&type=section&id=NOTE%203%E2%80%94BUSINESS%20COMBINATION) This note details the acquisition of NBNYC for $20 million, resulting in $1.3 million of goodwill - On January 6, 2023, the Company acquired NBNYC for **$20 million** in an all-cash transaction, plus $1.3 million in acquisition costs[102](index=102&type=chunk) - The acquisition resulted in a preliminary goodwill of **$1.3 million**, representing the excess of purchase price over the fair value of net assets acquired[106](index=106&type=chunk) Preliminary Allocation of Consideration Paid for NBNYC (in thousands) | Item | Amount | |:---|:---| | Purchase price consideration | $21,322 | | Fair value of assets acquired: | | | Cash and cash equivalents | $32,574 | | Securities | $6,527 | | Loans held for investment | $159,057 | | Goodwill | $1,279 | | Core deposit intangible | $1,040 | | Other Assets | $1,631 | | Total assets acquired | $202,108 | | Fair value of liabilities assumed: | | | Deposits | $137,015 | | Borrowings | $27,972 | | Other liabilities | $15,799 | | Total liabilities assumed | $180,786 | | Fair value of net assets acquired | $21,322 | - Fair values of acquired assets and assumed liabilities are **preliminary** and subject to adjustment for up to one year post-acquisition[104](index=104&type=chunk) [NOTE 4—INVESTMENTS](index=30&type=section&id=NOTE%204%E2%80%94INVESTMENTS) This note details the company's portfolio of equity investments, joint ventures, and debt securities Total Investments (in thousands) | Investment Type | March 31, 2023 Cost | March 31, 2023 Fair Value | December 31, 2022 Cost | December 31, 2022 Fair Value | |:---|:---|:---|:---|:---| | Non-controlled equity investments | $1,360 | $1,360 | $1,360 | $1,360 | | Joint Ventures | $23,314 | $25,022 | $23,314 | $23,022 | | Controlled investments (Equity) | — | — | $99,195 | $241,113 | | Controlled investments (Debt) | — | — | $32,300 | $18,104 | | Total investments | $24,674 | $26,382 | $156,169 | $283,599 | - The Company's debt securities available-for-sale portfolio totaled **$32.905 million** at fair value as of March 31, 2023, primarily consisting of U.S. Treasury notes and Government agency debentures[121](index=121&type=chunk) - Unrealized losses on available-for-sale securities totaled **$198 thousand** at March 31, 2023, primarily due to non-credit-related market volatility and interest rate changes[122](index=122&type=chunk) - NCL JV and TSO JV are **50% owned joint ventures** focused on non-conforming conventional commercial and industrial term loans[116](index=116&type=chunk)[118](index=118&type=chunk) [NOTE 5—LOANS HELD FOR INVESTMENT](index=34&type=section&id=NOTE%205%E2%80%94LOANS%20HELD%20FOR%20INVESTMENT) This note breaks down the loan portfolio, credit quality, and allowance for credit losses Loan Portfolio by Type (in thousands) | Loan Type | March 31, 2023 Fair Value | December 31, 2022 Fair Value | |:---|:---|:---| | Loans held for investment, at fair value | $532,788 | $505,268 | | Loans held for investment, at amortized cost, net | $164,639 | — | | Total Loans | $697,426 | $505,268 | - As of March 31, 2023, total past due and non-accrual loans amounted to **$120.092 million**, with **$42.380 million** on non-accrual status[128](index=128&type=chunk) - The Allowance for Credit Losses (ACL) at March 31, 2023, was **$2.189 million**, established due to the transition to a financial holding company and the acquisition of purchased credit deteriorated (PCD) loans[145](index=145&type=chunk) - The Company uses an internal grading system (1-8) to rank loan quality, from Exceptional (1) to Loss (8), with grades 6-7 representing classified loans[133](index=133&type=chunk)[140](index=140&type=chunk) [NOTE 6—TRANSACTIONS WITH AFFILIATED COMPANIES AND RELATED PARTY TRANSACTIONS](index=38&type=section&id=NOTE%206%E2%80%94TRANSACTIONS%20WITH%20AFFILIATED%20COMPANIES%20AND%20RELATED%20PARTY%20TRANSACTIONS) This note summarizes transactions with affiliated companies, including joint ventures and investments Affiliate Investments (in thousands) | Company | Fair Value at Dec 31, 2022 | Net Unrealized Gains/(Losses) | Fair Value at Mar 31, 2023 | Dividend Income | |:---|:---|:---|:---|:---| | Newtek Conventional Lending, LLC | $16,587 | $2,315 | $18,900 | $484 | | Newtek TSO II Conventional Credit Partners, LP | $6,435 | $(313) | $6,122 | — | | EMCAP Loan Holdings, LLC | $1,000 | — | $1,000 | $20 | | Biller Genie Software, LLC | $360 | — | $360 | — | | Total Affiliate Investments | $24,382 | $2,002 | $26,382 | $504 | - Amounts due from affiliated companies decreased from **$1.3 million** at December 31, 2022, to **$0.1 million** at March 31, 2023[148](index=148&type=chunk) - Newtek Business Services Holdco 6, Inc. purchased a **$5.3 million** loan from Newtek Conventional Lending, LLC during Q1 2023[148](index=148&type=chunk) [NOTE 7—SERVICING ASSETS](index=39&type=section&id=NOTE%207%E2%80%94SERVICING%20ASSETS) This note details the company's servicing assets derived from SBA 7(a) loans - Servicing assets are measured at **fair value**, with changes reported in earnings[149](index=149&type=chunk) - As of March 31, 2023, the Company services **$1.6 billion** in SBA 7(a) loans[149](index=149&type=chunk) Servicing Assets and Valuation Assumptions (in thousands) | Date | Fair Value | Unobservable Input | Weighted Average | Minimum | Maximum | |:---|:---|:---|:---|:---|:---| | March 31, 2023 | $33,351 | Discount factor | 14.50 % | 14.50 % | 14.50 % | | | | Cumulative prepayment rate | 25.00 % | 25.00 % | 25.00 % | | | | Average cumulative default rate | 20.00 % | 20.00 % | 20.00 % | | December 31, 2022 | $30,268 | Discount factor | 16.50 % | 16.50 % | 16.50 % | | | | Cumulative prepayment rate | 25.00 % | 25.00 % | 25.00 % | | | | Average cumulative default rate | 25.00 % | 25.00 % | 25.00 % | - Servicing fee income for Q1 2023 was **$4.4 million**, up from $3.2 million in Q1 2022[149](index=149&type=chunk) [NOTE 8—GOODWILL AND INTANGIBLE ASSETS](index=39&type=section&id=NOTE%208%E2%80%94GOODWILL%20AND%20INTANGIBLE%20ASSETS) This note details goodwill and intangible assets arising from acquisitions and consolidations Goodwill (in thousands) | Item | March 31, 2023 | December 31, 2022 | |:---|:---|:---| | NBNYC acquisition | $1,279 | — | | Other goodwill | $19,910 | — | | Total goodwill | $21,189 | — | Intangible Assets (in thousands) | Item | March 31, 2023 Net Carrying Amount | December 31, 2022 Net Carrying Amount | |:---|:---|:---| | Core Deposits | $989 | — | | Customer lists | $5,923 | — | | Total intangible assets | $6,912 | — | - Amortization expense for intangible assets was **$0.4 million** for Q1 2023[151](index=151&type=chunk) - The remaining estimated aggregate future amortization expense for intangible assets is **$6.912 million**, with $1.207 million expected in the remainder of 2023[152](index=152&type=chunk) [NOTE 9—FAIR VALUE MEASUREMENTS](index=40&type=section&id=NOTE%209%E2%80%94FAIR%20VALUE%20MEASUREMENTS) This note details the company's fair value measurements using a three-level hierarchy - Fair value is defined as the exit price in an orderly transaction between market participants, categorized into **Level 1** (quoted active markets), **Level 2** (observable inputs other than Level 1), and **Level 3** (unobservable inputs)[153](index=153&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk) Fair Value Measurements at March 31, 2023 (in thousands) | Assets | Total Fair Value | Level 1 | Level 2 | Level 3 | |:---|:---|:---|:---|:---| | Debt securities available-for-sale | $32,905 | $29,102 | $3,803 | — | | Loans held for sale, at fair value | $125,639 | — | $125,639 | — | | Loans held for investment, at fair value | $532,788 | — | — | $532,788 | | Servicing assets | $33,351 | — | — | $33,351 | | Total assets | $754,581 | $29,102 | $129,442 | $571,015 | | Liabilities: | | | | | | Derivative instruments | $624 | — | $624 | — | - The change in net gain/loss on Level 3 loans accounted for under the fair value option included **$6.1 million in gains** on SBA unguaranteed non-affiliate investments and **$0.9 million in unrealized depreciation** on servicing assets for Q1 2023[162](index=162&type=chunk) - The Company's investments in TSO JV and NCL JV are measured at fair value using **NAV** and are not classified within the fair value hierarchy[162](index=162&type=chunk)[163](index=163&type=chunk) [NOTE 10—DEPOSITS](index=45&type=section&id=NOTE%2010%E2%80%94DEPOSITS) This note details the company's deposit liabilities following the acquisition of Newtek Bank Deposits by Type (in thousands) | Deposit Type | March 31, 2023 | |:---|:---| | Non-interest-bearing: | | | Demand | $22,878 | | Interest-bearing: | | | Checking | $784 | | Money market | $25,770 | | Savings | $16,700 | | Time deposits | $181,442 | | Total interest-bearing | $224,696 | | Total deposits | $247,574 | - Time deposits, money market, and interest-bearing checking obtained through brokers totaled **$106.763 million**[169](index=169&type=chunk) - Aggregate amount of deposit accounts that exceeded the FDIC limit was **$13.357 million**[169](index=169&type=chunk) - Scheduled maturities for time deposits show **$104.922 million** maturing in the remainder of 2023[171](index=171&type=chunk) [NOTE 11—BORROWINGS](index=46&type=section&id=NOTE%2011%E2%80%94BORROWINGS) This note details the company's borrowings, which increased due to new notes and credit lines Borrowings by Type (in thousands) | Borrowing Type | March 31, 2023 Outstanding | Weighted Average Interest Rate | December 31, 2022 Outstanding | Weighted Average Interest Rate | |:---|:---|:---|:---|:---| | Bank Lines of Credit | $147,797 | 7.90 % | $55,885 | 7.25 % | | FHLB Advances | $24,531 | 2.20 % | — | — | | 2024 Notes | $37,958 | 5.75 % | $37,903 | 5.75 % | | 2025 5.00% Notes | $29,365 | 5.00 % | $29,306 | 5.00 % | | 2025 8.125% Notes | $49,040 | 8.13 % | — | — | | 2026 Notes | $113,025 | 5.50 % | $112,846 | 5.50 % | | Notes payable - Securitization Trusts | $248,577 | 6.85 % | $279,136 | 6.19 % | | Total | $697,395 | 6.69 % | $539,326 | 6.11 % | - Total borrowings increased by **$158.069 million** from December 31, 2022, to March 31, 2023[172](index=172&type=chunk)[248](index=248&type=chunk) - The Company completed a private placement of **$50.0 million** aggregate principal amount of 8.125% notes due 2025 in January 2023, with net proceeds of approximately $48.94 million[172](index=172&type=chunk) - Total interest expense related to borrowings for Q1 2023 was **$11.1 million**, compared to $26.3 million in Q1 2022[176](index=176&type=chunk) [NOTE 12—DERIVATIVE INSTRUMENTS](index=47&type=section&id=NOTE%2012%E2%80%94DERIVATIVE%20INSTRUMENTS) This note describes the use of interest rate futures to manage fair value variability - The Company uses **interest rate futures** to economically manage fair value variability of fixed rate assets[177](index=177&type=chunk) Derivative Instruments Outstanding (in thousands) | Contract Type | March 31, 2023 Fair Value Liability | Remaining Maturity (years) | |:---|:---|:---| | 5-year Swap Futures | $624 | 0.25 | Net Realized Gains (Losses) and Unrealized Appreciation (Depreciation) on Derivatives (in thousands) | Contract Type | Q1 2023 Unrealized Appreciation/(Depreciation) | Q1 2023 Realized Gain/(Loss) | Q1 2022 Unrealized Appreciation/(Depreciation) | Q1 2022 Realized Gain/(Loss) | |:---|:---|:---|:---|:---| | 5-year Swap Futures | $197 | $(693) | $183 | $445 | [NOTE 13—COMMITMENTS AND CONTINGENCIES](index=48&type=section&id=NOTE%2013%E2%80%94COMMITMENTS%20AND%20CONTINGENCIES) This note outlines operating commitments, legal matters, guarantees, and unfunded commitments Operating and Employment Commitments (in thousands) | Year | Operating Leases | Employment Agreements | Total | |:---|:---|:---|:---| | 2023 | $2,163 | $2,131 | $4,294 | | 2024 | $2,820 | $363 | $3,183 | | 2025 | $2,585 | — | $2,585 | | 2026 | $2,035 | — | $2,035 | | 2027 | $479 | — | $479 | | Total | $10,082 | $2,494 | $12,576 | - The Company is a guarantor on several credit facilities, including SPV I Capital One (**$19.3 million** owed), SPV II Deutsche Bank (**$7.1 million** owed), SPV III One Florida Bank (**$13.7 million** owed), and the Webster Facility (**$39.9 million** outstanding)[185](index=185&type=chunk)[186](index=186&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk) - Unfunded commitments as of March 31, 2023, totaled **$110.4 million**, comprising $14.3 million in SBA 7(a) loans, $81.7 million in SBA 504 loans, and $14.4 million in commercial and industrial loans[189](index=189&type=chunk) [NOTE 14—STOCK BASED COMPENSATION](index=49&type=section&id=NOTE%2014%E2%80%94STOCK%20BASED%20COMPENSATION) This note details the company's stock-based compensation plan and related expenses - The Company accounts for equity-based compensation using the **fair value method** (ASC Topic 718)[190](index=190&type=chunk) - As of March 31, 2023, **$5.1 million** of total unrecognized compensation expense related to unvested restricted shares is expected to be recognized over a weighted-average period of approximately **2.3 years**[192](index=192&type=chunk) - Total stock-based compensation expense for Q1 2023 was **$0.7 million**, compared to $0.8 million for Q1 2022[193](index=193&type=chunk) - The Equity Incentive Plan was **terminated in April 2023**, with a new plan to be considered by shareholders[192](index=192&type=chunk) [NOTE 15—EARNINGS PER SHARE](index=51&type=section&id=NOTE%2015%E2%80%94EARNINGS%20PER%20SHARE) This note presents the earnings per share calculations using the two-class method Earnings Per Share Calculation (in thousands, except per share data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | |:---|:---|:---| | Net income | $11,718 | $9,652 | | Net income available to common shareholders | $11,469 | $9,652 | | Basic EPS | $0.46 | $0.40 | | Weighted average shares outstanding | 24,609 | 24,156 | | Total adjustments to weighted average shares outstanding | 628 | — | | Diluted weighted average shares outstanding | 25,237 | n/a | | Diluted EPS | $0.46 | n/a | - The Company issued 20,000 shares of Series A Convertible Preferred Stock for **$20.0 million**, convertible into 47.54053782 shares of Common Stock per preferred share[195](index=195&type=chunk) - Warrants were issued to purchase **47,540 shares** of Common Stock at $21.03468 per share[195](index=195&type=chunk) [NOTE 16—LEASES](index=51&type=section&id=NOTE%2016%E2%80%94LEASES) This note details the company's operating lease liabilities recognized under ASC 842 - Operating lease expense is recognized on a **straight-line basis** over the lease term (ASC 842)[196](index=196&type=chunk) Operating Lease Information | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | |:---|:---|:---| | Cash paid for amounts included in lease liabilities | $709 | $461 | | Weighted-average remaining lease term | 3.63 years | 4.91 years | | Weighted-average discount rate | 5.64 % | 4.76 % | | Total lease costs | $949 | $239 | Maturity of Lease Liabilities (in thousands) | Year | Amount | |:---|:---| | 2023 | $2,163 | | 2024 | $2,820 | | 2025 | $2,585 | | 2026 | $2,035 | | 2027 | $479 | | Thereafter | — | | Total future minimum lease payments | $10,082 | | Less: Imputed interest | $(938) | | Present value of future minimum lease payments | $9,144 | [NOTE 17—DIVIDENDS AND DISTRIBUTIONS](index=52&type=section&id=NOTE%2017%E2%80%94DIVIDENDS%20AND%20DISTRIBUTIONS) This note summarizes the company's dividend declarations and distributions for the quarter Dividend Declarations and Distributions | Period | Date Declared | Amount Per Share | Cash Distribution (in thousands) | DRIP Shares Issued | DRIP Shares Value (in thousands) | |:---|:---|:---|:---|:---|:---| | Three months ended March 31, 2023 | February 27, 2023 | $0.18 | $4,291 | 6 | $72 | | Three months ended March 31, 2022 | December 20, 2021 | $0.65 | $15,361 | 9 | $225 | - An additional **$0.1 million** in shares were issued for dividends on unvested restricted stock awards in both Q1 2023 and Q1 2022[200](index=200&type=chunk) [NOTE 18—INCOME TAXES](index=52&type=section&id=NOTE%2018%E2%80%94INCOME%20TAXES) This note explains the significant change in the company's income tax status - The Company ceased to be a RIC and became subject to **corporate-level income tax** as a financial holding company starting January 1, 2023[204](index=204&type=chunk)[348](index=348&type=chunk) - The effective tax rate for Q1 2023 was **(71.41)%**, differing from the 21% federal rate due to subsidiary net operating losses and other discrete items[207](index=207&type=chunk) - At December 31, 2022, the Company had **$34.2 million** in federal net operating losses (NOLs), with $4.6 million expiring between 2029-2037 and $29.6 million having indefinite lives[208](index=208&type=chunk) - Deferred tax liabilities were **$3.5 million** at March 31, 2023, down from $19.2 million at December 31, 2022, reflecting the accounting change[346](index=346&type=chunk) [NOTE 19—SEGMENTS](index=53&type=section&id=NOTE%2019%E2%80%94SEGMENTS) This note outlines the company's four reportable operating segments and their financial results - The Company operates four reportable segments: **Banking, Non-Bank SBA 7(a) Lending (NSBF), Payments, and Technology**[211](index=211&type=chunk) - The Banking segment includes Newtek Bank, NBL, and SBL, originating and servicing various loans and offering depository services[211](index=211&type=chunk)[288](index=288&type=chunk) - The NSBF segment relates to legacy SBA 7(a) loan portfolios held outside the bank, with **no new origination activity**[212](index=212&type=chunk) Segment Net Income (Loss) for Q1 2023 (in thousands) | Segment | Net Income (Loss) | |:---|:---| | Banking | $(2,483) | | Technology | $182 | | NSBF | $13,547 | | Payments | $2,664 | | Corporate and other | $(2,193) | | Consolidated net income | $11,718 | [NOTE 20—SUBSEQUENT EVENTS](index=55&type=section&id=NOTE%2020%E2%80%94SUBSEQUENT%20EVENTS) This note details the NSBF Wind-down Agreement and Newtek Bank's new lending status - On April 13, 2023, NSBF and the SBA entered an agreement for NSBF to **wind down its SBA 7(a) loan originations**, transitioning them to Newtek Bank[219](index=219&type=chunk) - NSBF will continue to own, service, and liquidate its existing SBA 7(a) and PPP loan portfolio, subject to SBA approval for sales/transfers[219](index=219&type=chunk) - Newtek Bank received **Preferred Lenders Program (PLP) status** on April 27, 2023, granting it delegated authority for SBA-guaranteed loans[219](index=219&type=chunk) - The Company has guaranteed NSBF's obligations to the SBA and agreed to fund a **$10 million** account to secure these obligations[219](index=219&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=56&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and results, highlighting its transformation [Forward-Looking Statements](index=56&type=section&id=Forward-Looking%20Statements) This section cautions that the report contains forward-looking statements involving risks - Statements in the report that are not historical facts are **forward-looking** and involve substantial risks and uncertainties[221](index=221&type=chunk) - Forward-looking statements relate to future operating results, business prospects, contractual arrangements, economic dependence, ability to achieve objectives, liquidity, and compliance costs as a financial holding company[222](index=222&type=chunk) - Risks include economic downturns, credit market contractions, interest rate volatility, and impacts from global macroeconomic and geopolitical environments[222](index=222&type=chunk) [Executive Overview](index=57&type=section&id=Executive%20Overview) The company became a financial holding company after acquiring Newtek Bank in January 2023 - As of January 6, 2023, NewtekOne became a **financial holding company**, providing business and financial solutions to the SMB market, following the acquisition of NBNYC (Newtek Bank)[224](index=224&type=chunk) - The Company withdrew its BDC election and ceased to be a RIC, now subject to **Federal Reserve supervision** and corporate income tax[224](index=224&type=chunk)[227](index=227&type=chunk) - NSBF, historically a top SBA 7(a) lender, is winding down operations, with originations transitioning to Newtek Bank, which has **PLP status** for expedited loan processing[228](index=228&type=chunk)[229](index=229&type=chunk) [Economic Developments](index=59&type=section&id=Economic%20Developments) The company faces risks from supply chain issues, inflation, and financial market instability - The Company observes supply chain interruptions, labor shortages, commodity inflation, rising interest rates, and financial market instability[230](index=230&type=chunk) - Concerns about banking organizations' financial condition, including recent bank failures (e.g., **Silicon Valley Bank, Signature Bank**), may increase market volatility and adversely affect the Company's stock and operations[231](index=231&type=chunk) - A protracted recession could impair subsidiaries' operations and borrowers' ability to repay, potentially increasing defaults[230](index=230&type=chunk) [Income and Expenses](index=59&type=section&id=Income%20and%20Expenses) Income is generated from interest, loan sales, dividends, and fees from various services - Income for Q1 2023 was generated from interest, net gains on SBA 7(a) loan sales, dividends, electronic payment processing, servicing, and other fees[232](index=232&type=chunk) - Primary operating expenses for Q1 2023 included salaries and benefits, interest expense (including deposits), electronic payment processing, technology services, and other general and administrative costs[234](index=234&type=chunk) - Realized gains or losses on investments were recognized based on the difference between net proceeds and cost basis, while fair value changes were recorded as unrealized appreciation/depreciation[233](index=233&type=chunk) [Guarantees](index=59&type=section&id=Guarantees) The company provides guarantees on several credit facilities for its special purpose vehicles - As of March 31, 2023, the Company was a guarantor on the Receivable and Inventory Facility at NBC, with **$2.2 million** principal owed (facility repaid in April 2023)[235](index=235&type=chunk) - The Company guarantees the SPV I Capital One Facility (**$19.3 million** owed), SPV II Deutsche Bank Facility (**$7.1 million** owed), SPV III One Florida Bank Facility (**$13.7 million** owed), and the Webster Facility (**$39.9 million** outstanding)[236](index=236&type=chunk)[237](index=237&type=chunk) - As of March 31, 2023, the Company determined it was **not probable** that payments would be required under these guarantees[236](index=236&type=chunk)[237](index=237&type=chunk) [Non-Conforming Conventional Commercial Loan Program](index=60&type=section&id=Non-Conforming%20Conventional%20Commercial%20Loan%20Program) The company participates in non-conforming commercial lending through joint ventures - NCL JV, a 50/50 joint venture, **ceased funding new non-conforming conventional commercial and industrial term loans** in 2020[238](index=238&type=chunk) - TSO JV, a new joint venture formed in August 2022, intends to invest in non-conforming conventional commercial and industrial term loans to middle-market and small businesses[239](index=239&type=chunk) [Unfunded Commitments](index=60&type=section&id=Unfunded%20Commitments) The company had over $110 million in unfunded commitments at the end of the quarter - As of March 31, 2023, the Company had **$110.4 million** in unfunded commitments[240](index=240&type=chunk) - These commitments include **$14.3 million** for SBA 7(a) loans, **$81.7 million** for SBA 504 loans, and **$14.4 million** for commercial and industrial loans[240](index=240&type=chunk) [Discussion and Analysis of Financial Condition](index=60&type=section&id=Discussion%20and%20Analysis%20of%20Financial%20Condition) Total assets, deposits, and borrowings increased significantly due to the company's transformation - Total assets increased by **$250.8 million (25.1%)** to $1.2 billion at March 31, 2023, primarily due to the conversion to a financial holding company and the acquisition of Newtek Bank[241](index=241&type=chunk)[242](index=242&type=chunk) - Loans held for sale increased by **$106.5 million**, and loans held for investment at amortized cost increased by **$164.6 million**, reflecting new originations and the acquisition of Newtek Bank loans[243](index=243&type=chunk)[244](index=244&type=chunk) - Goodwill and intangibles increased by **$28.1 million**, comprising $2.3 million from the Newtek Bank acquisition and $25.8 million from consolidating previously unconsolidated portfolio companies[245](index=245&type=chunk) - Total deposits were **$247.6 million** at March 31, 2023, with no deposits at December 31, 2022, due to the Newtek Bank acquisition[247](index=247&type=chunk) - Borrowings increased by **$158.069 million** to $697.4 million, driven by increased Capital One lines of credit, consolidated bank borrowings, and new 2025 8.125% Notes[248](index=248&type=chunk) [Results of Operation](index=63&type=section&id=Results%20of%20Operation) Net income grew year-over-year, driven by higher noninterest income from consolidated entities - Net income for Q1 2023 was **$11.72 million ($0.46 diluted EPS)**, up from $9.65 million ($0.40 diluted EPS) in Q1 2022[251](index=251&type=chunk) - Net interest income increased by **$1.507 million** to $4.583 million, driven by a $10.4 million increase in loan portfolio interest income[253](index=253&type=chunk)[254](index=254&type=chunk) - Total noninterest income increased by **$20.559 million (92.5%)** to $42.787 million, largely due to consolidated technology, IT support, and electronic payment processing income[265](index=265&type=chunk)[269](index=269&type=chunk) - Total noninterest expense increased by **$24.488 million** to $39.197 million, primarily due to the consolidation of subsidiaries' salaries, benefits, and electronic payment processing costs[252](index=252&type=chunk)[271](index=271&type=chunk)[272](index=272&type=chunk)[273](index=273&type=chunk) - Net realized gains on sales of SBA loans decreased to **$6.5 million** in Q1 2023 from $15.3 million in Q1 2022, despite higher loan origination volume[276](index=276&type=chunk)[278](index=278&type=chunk) - Net unrealized appreciation (depreciation) on joint ventures was **$2.002 million** in Q1 2023, a significant improvement from a $(2.321) million loss in Q1 2022[284](index=284&type=chunk) [Liquidity and Capital Resources](index=71&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains liquidity through credit facilities, notes, and cash flows - Liquidity is derived from Capital One Facility, various Notes, securitization transactions, and cash flows from operations[292](index=292&type=chunk) - As of March 31, 2023, unused liquidity sources included **$8.2 million** from the Capital One facility, **$97.2 million** in interest-bearing deposits, and **$27.3 million** in unrestricted cash[314](index=314&type=chunk) - Operating activities used **$10.4 million** in cash in Q1 2023, while financing activities provided **$81.0 million**, primarily from preferred stock issuance, bank borrowings, and new 2025 8.125% Notes[317](index=317&type=chunk)[319](index=319&type=chunk) Consolidated Capital Ratios (in thousands) | Capital Ratio (March 31, 2023) | Actual Amount | Ratio | Minimum Requirement Amount | Ratio | |:---|:---|:---|:---|:---| | Tier 1 Capital (to Average Assets) | $184,667 | 16.5 % | $46,207 | 4.0 % | | Common Equity Tier 1 (to Risk-Weighted Assets) | $184,667 | 18.3 % | $45,479 | 4.5 % | | Tier 1 Capital (to Risk-Weighted Assets) | $184,667 | 18.3 % | $60,639 | 6.0 % | | Total Capital (to Risk-Weighted Assets) | $206,594 | 20.4 % | $80,852 | 8.0 % | Bank Capital Ratios (in thousands) | Capital Ratio (March 31, 2023) | Actual Amount | Ratio | Minimum Requirement Amount | Ratio | |:---|:---|:---|:---|:---| | Tier 1 Capital (to Average Assets) | $77,076 | 27.2 % | $11,325 | 4.0 % | | Common Equity Tier 1 (to Risk-Weighted Assets) | $77,076 | 34.1 % | $10,176 | 4.5 % | | Tier 1 Capital (to Risk-Weighted Assets) | $77,076 | 34.1 % | $13,568 | 6.0 % | | Total Capital (to Risk-Weighted Assets) | $79,265 | 35.1 % | $18,090 | 8.0 % | [Critical Accounting Policies and Estimates](index=78&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Key estimates include fair value measurements, CECL adoption, and servicing asset valuation - **Fair value measurements** are critical, especially for investments without readily available market values, requiring significant management judgment and independent valuation firms[326](index=326&type=chunk)[331](index=331&type=chunk) - The adoption of **CECL** for allowance for credit losses is a critical policy, requiring estimates of expected credit losses over the life of loans based on past events, current conditions, and forecasts[337](index=337&type=chunk)[338](index=338&type=chunk) - Valuation of **servicing assets** at fair value involves considerable judgment, incorporating assumptions like servicing costs, discount rates, prepayment rates, and default rates[339](index=339&type=chunk) - Income recognition policies for loans, servicing income, and various fees are critical, as is the accounting for deferred tax assets and liabilities following the change in tax status[340](index=340&type=chunk)[342](index=342&type=chunk)[343](index=343&type=chunk)[346](index=346&type=chunk) [Off Balance Sheet Arrangements](index=82&type=section&id=Off%20Balance%20Sheet%20Arrangements) The company had no off-balance sheet arrangements as of the reporting date - There were **no off-balance sheet arrangements** as of March 31, 2023[355](index=355&type=chunk) [Recent Developments](index=83&type=section&id=Recent%20Developments) NSBF is winding down its SBA loan originations, which are transitioning to Newtek Bank - On April 13, 2023, NSBF and the SBA entered into an agreement for NSBF to **wind down its SBA 7(a) loan originations**, transitioning them to Newtek Bank[357](index=357&type=chunk) - NSBF will continue to own, service, and liquidate its existing SBA 7(a) and PPP loan portfolio, with the Company guaranteeing NSBF's obligations to the SBA[357](index=357&type=chunk) - Newtek Bank began funding and servicing SBA 7(a) loans in April 2023 and received **Preferred Lenders Program (PLP) status** on April 27, 2023[357](index=357&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=84&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are interest rate fluctuations and SBA secondary market availability - Principal market risks include fluctuations in **interest rates** and the availability of the **secondary market for SBA loans**[359](index=359&type=chunk) - The Company's lending rates (prime plus margin) are matched to its cost of funds (prime or LIBOR plus margin) to manage interest rate risk[360](index=360&type=chunk) - A significant change in market interest rates will materially affect income; rising rates could improve net investment income, while falling rates could reduce it more quickly than interest expense[360](index=360&type=chunk) - Secondary market conditions, especially higher interest rates, could negatively impact sale prices and premiums for guaranteed portions of SBA 7(a) loans[361](index=361&type=chunk) Estimated Changes in Net Interest Income (NII) and Economic Value of Equity (EVE) as of March 31, 2023 | Basis Point ("bp") Change in Interest Rates | Estimated Increase/Decrease in Net Interest Income (12 months beginning March 31, 2023) | Estimated Increase/Decrease in Net Interest Income (12 months beginning March 31, 2024) | Estimated Percentage Change in EVE (As of March 31, 2023) | |:---|:---|:---|:---| | +200 | 2.7% | 6.0% | 2.5% | | +100 | 1.3% | 2.8% | 1.8% | | -100 | (1.1)% | (2.8)% | 0.3% | | -200 | (2.2)% | (5.5)% | (0.6)% | [Item 4. Controls and Procedures](index=86&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2023 - As of March 31, 2023, disclosure controls and procedures were evaluated and deemed **effective**, providing reasonable assurance of timely and accurate information reporting[371](index=371&type=chunk) - **No material changes** in internal controls over financial reporting occurred during the period covered by the report[372](index=372&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=87&type=section&id=Item%201.%20Legal%20Proceedings) The company is not involved in any litigation expected to have a material financial impact - The Company is not currently involved in any litigation matters expected to have a **material impact** on its financial condition[375](index=375&type=chunk) - Holdco 5 obtained a **$6.2 million** non-dischargeable judgment against Kerri Agee in January 2022, related to a former controlled portfolio company (BSP)[376](index=376&type=chunk) - NMS operates under a permanent injunction from the Federal Trade Commission (FTC) since October 2012 regarding certain business practices[377](index=377&type=chunk) [Item 1A. Risk Factors](index=87&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors disclosed in the 2022 Form 10-K - Readers should carefully consider risk factors discussed in the **Annual Report on Form 10-K** for the year ended December 31, 2022[378](index=378&type=chunk) - **No material changes** to the risk factors have occurred since the Annual Report on Form 10-K[378](index=378&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=87&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on unregistered equity sales through the Dividend Reinvestment Plan - The Company issues common stock not subject to Securities Act registration requirements through its **DRIP**[379](index=379&type=chunk) - For Q1 2023, **5,800 shares** valued at $0.1 million were issued under the DRIP, compared to 8,900 shares valued at $0.2 million in Q1 2022[379](index=379&type=chunk) - Additionally, **4,700 shares** valued at $0.1 million were issued in Q1 2023 for dividends on unvested restricted stock awards, compared to 4,108 shares valued at $0.1 million in Q1 2022[380](index=380&type=chunk) [Item 3. Defaults Upon Senior Securities](index=87&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the reporting period - **No defaults** upon senior securities occurred[381](index=381&type=chunk) [Item 4. Mine Safety Disclosures](index=87&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the company - No mine safety disclosures are **applicable**[382](index=382&type=chunk) [Item 5. Other Information](index=87&type=section&id=Item%205.%20Other%20Information) There is no other information to report under this item for the period - **No other information** to report[383](index=383&type=chunk) [Item 6. Exhibits](index=88&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q report - Exhibits include Amended and Restated Articles of Incorporation, Bylaws, Articles Supplementary, Investor Rights Agreement, and Registration Rights Agreement[384](index=384&type=chunk) - Certifications by the Principal Executive Officer and Principal Financial Officer are filed herewith (31.1*, 31.2*, 32.1**, 32.2**)[384](index=384&type=chunk) - **Interactive Data Files (XBRL)** for financial statements and notes are included[384](index=384&type=chunk) [Signatures](index=89&type=section&id=Signatures) The report is certified by the company's authorized officers as of May 11, 2023 - The report is signed by **Barry Sloane**, Chief Executive Officer, President and Chairman of the Board (Principal Executive Officer)[388](index=388&type=chunk) - The report is signed by **Nicholas Leger**, Chief Accounting Officer (Principal Financial Officer and Principal Accounting Officer)[388](index=388&type=chunk) - The report was signed on **May 11, 2023**[388](index=388&type=chunk)

NewtekOne, Inc. (NASDAQ:NEWT) Q1 2023 Earnings Conference Call May 9, 2023 8:30 AM ET Company Participants Barry Sloane - President and Chief Executive Officer Nicholas Leger - Chief Accounting Officer Conference Call Participants Crispin Love - Piper Sandler Christopher Nolan - Ladenburg Thalmann & Co Bryce Rowe - B. Riley Paul Johnson - KBW Scott Sullivan - RJ Sean-Paul Adams - Raymond James Steven Nemo - Private Investor Operator Good day, welcome to the Newtek One, Inc. First Quarter 2023 Earnings Confe ...

Financial Data and Key Metrics Changes - The company reported total investment income of $23.1 million for Q4 2022, a 6.9% decrease from $24.8 million in Q4 2021, primarily due to a drop in dividends from portfolio companies [90] - The net investment loss for Q4 2022 was $5.4 million or $0.22 per share, compared to a net investment income of $1.6 million or $0.7 per share in Q4 2021 [101] - The company anticipates total assets to grow from $1.62 billion at the end of 2022 to $1.7 billion by the end of 2023 and $2.1 billion by the end of 2024 [43][45] Business Line Data and Key Metrics Changes - The company funded a record $775 million in SBA 7(a) loans in 2022, up from $362 million, with a forecast of $885 million for 2023 [65] - Servicing income increased by 27% to $3.8 million in Q4 2022 compared to $3 million in the same quarter in 2021 [58] - The non-conforming C&I loan business is expected to grow significantly, with projections of increasing from $600 million in 2023 to about $1 billion in 2024 [1][16] Market Data and Key Metrics Changes - The company noted a favorable trend in non-accruals as a percentage of loans at fair value, indicating improved credit quality [49] - The company has tightened underwriting criteria, resulting in higher FICO and SBSS scores for new originations, suggesting a focus on better-quality borrowers [50] Company Strategy and Development Direction - The company has transitioned to a financial holding company, allowing it to offer a broader range of financial solutions and reduce reliance on equity sales [12][14] - The strategy includes diversifying the loan portfolio with conforming C&I and CRE loans, which are expected to enhance stability and profitability [34] - The company aims to leverage lower-cost deposits to improve net interest margins and overall profitability [42][78] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to meet growth targets despite a slowing economy, citing strong liquidity and government support for customers [3][25] - The company anticipates a return on average assets and return on tangible common equity to be robust, with projections of 3.28% to 3.75% for 2023 and 2024 [78] - Management highlighted the importance of maintaining a consistent dividend, projecting it to be stable for about a year before reassessing based on earnings performance [38] Other Important Information - The company declared a dividend of $2.75 for 2022 and aims to maintain a top quartile dividend yield of around 4% [67][98] - The company has received a BBB+ rating from Egan-Jones for its net debt, indicating strong creditworthiness [74] Q&A Session Summary Question: How comfortable is the company with its growth targets, especially in non-conforming C&I? - Management indicated comfort with the targets, acknowledging the challenges of projecting in a volatile market but expressing confidence based on historical performance [2] Question: What is the update on the PLP status and its implications? - Management noted that the PLP status is crucial for financing 7(a) and 504 loans, and they are optimistic about achieving this status [6][34] Question: How does the company view the current economic environment? - Management sees a slowing economy but not a severe downturn, emphasizing strong liquidity and support from government programs for their customer base [3][25] Question: What are the expectations for the joint venture investments? - Management expects a consolidated net return of 20% to 30% from joint venture investments, highlighting the potential for significant returns [115][116] Question: How relevant is the Q4 report to future performance? - Management stated that while the Q4 report reflects past performance, the transition to a financial holding company marks a new beginning with different operational metrics [126][127]