NewtekOne(NEWT) - 2023 Q4 - Annual Report

FORM 10-K General Information This section provides fundamental information about NewtekOne, Inc., including its corporate structure, registration details, and filing status Registrant Information NewtekOne, Inc. is a Maryland-incorporated company with IRS Employer Identification No. 46-3755188, headquartered in Boca Raton, Florida, with its common stock and various notes registered on the Nasdaq Global Market LLC - NewtekOne, Inc. is a Maryland corporation (IRS Employer ID: 46-3755188) with its principal executive offices in Boca Raton, Florida[2] Securities Registered on Nasdaq Global Market LLC | Title of each class | Trading Symbol(s) | | :------------------------------ | :---------------- | | Common Stock, par value $0.02 per share | NEWT | | 5.75% Notes due 2024 | NEWTL | | 5.50% Notes due 2026 | NEWTZ | | 8.00% Notes due 2028 | NEWTI | - The registrant is an accelerated filer and has filed all required reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months[3][5] Market Value and Shares Outstanding As of the last business day of Q2 2023, the aggregate market value of common equity held by non-affiliates was approximately $365.7 million, with 24,708,771 shares of common stock outstanding as of March 28, 2024 - Aggregate market value of voting and non-voting common equity held by non-affiliates was approximately $365.7 million as of the last business day of the second fiscal quarter of 2023, based on a closing price of $15.90[5] - As of March 28, 2024, there were 24,708,771 shares of Common Stock, par value $0.02 per share, outstanding[6] TABLE OF CONTENTS This section provides an organized listing of all major sections and subsections within the report Defined Terms and Subsidiaries This section outlines key terminology and lists the company's consolidated subsidiaries and joint ventures Defined Terms This section provides definitions for key terms used throughout the report, including various loan trusts, notes, and financial/regulatory acronyms Subsidiaries and Joint Ventures The company lists its consolidated subsidiaries and joint ventures, including Newtek Small Business Finance (NSBF), Newtek Bank, Newtek Merchant Solutions (NMS), Newtek Technology Solutions (NTS), and various lending and payment entities - Key consolidated subsidiaries include NSBF, Newtek Bank, NMS, Mobil Money, NTS, NBC, PMT, NIA, TAM, Holdco 6, NCL, and POS; joint ventures include NCL JV and TSO JV[11][12] - NBL was merged into SBL on May 2, 2023, and SIDCO and EWS were merged into NTS on December 31, 2023[11] Explanatory Note This section explains the company's significant transition to a financial holding company and its implications for financial reporting Conversion to Financial Holding Company On January 6, 2023, NewtekOne completed the acquisition of NBNYC (renamed Newtek Bank) and withdrew its election to be a Business Development Company (BDC), becoming a financial holding company subject to Federal Reserve supervision - On January 6, 2023, NewtekOne completed the acquisition of NBNYC (renamed Newtek Bank) and ceased to be a BDC, becoming a financial holding company regulated by the Federal Reserve[14] - The company no longer qualifies as a Regulated Investment Company (RIC) for federal income tax purposes or for investment company accounting treatment, necessitating adjustments for prior period comparisons[14] CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS This section warns that the report contains forward-looking statements subject to substantial risks and uncertainties Forward-Looking Statements and Risks This section highlights that the report contains forward-looking statements subject to substantial risks and uncertainties, including the impact of COVID-19, interest rate changes, market volatility, and the costs associated with operating as a financial holding company - The report contains forward-looking statements based on current expectations, estimates, and projections, which are not historical facts[16] - These statements involve substantial risks and uncertainties, including the impact of COVID-19, changes in interest rates, market volatility, and increased compliance costs as a financial holding company[16][17] - Key assumptions include Newtek Bank's ability to originate SBA 7(a) loans, maintain PLP status, sell guaranteed portions, grow deposits, and the subsidiaries' ability to generate revenue and profitability[17] ITEM 1. BUSINESS. This section provides a comprehensive overview of NewtekOne's business operations, transformation, market strategy, and regulatory environment Business Overview and Transformation NewtekOne transitioned from a Business Development Company (BDC) to a financial holding company on January 6, 2023, following the acquisition of NBNYC (now Newtek Bank), subjecting it to Federal Reserve supervision and consolidating its non-bank subsidiaries - On January 6, 2023, NewtekOne completed the acquisition of NBNYC (renamed Newtek Bank) and ceased operating as a BDC, becoming a financial holding company regulated by the Federal Reserve[19][20] - The company now consolidates its non-bank subsidiaries (e.g., NSBF, NMS, NTS) into its financial statements[21] - NewtekOne offers a suite of business and financial solutions to SMBs (revenues $1 million-$100 million), supported by patented technology like NewTracker® and the Newtek Advantage dashboard for client interaction and access to services[21] - NSBF is winding down its SBA 7(a) loan originations, with new originations transitioned to Newtek Bank in Q2 2023; Newtek Bank received PLP status in April 2023[22][25] NewtekOne's Business and Financial Solutions Ecosystem NewtekOne offers a diverse range of financial and business solutions, including SBA 7(a) and 504 loans, C&I, CRE, and ABL through Newtek Bank, alongside third-party loan servicing, alternative lending, digital deposit growth, electronic payment processing, insurance, payroll, and technology solutions - Newtek Lending, a material revenue source, includes SBA 7(a) loans (originated $814.4 million in 2023, $775.6 million in 2022), SBA 504, C&I, CRE, and ABL loans, primarily through Newtek Bank[24][26][33] - Newtek Bank, a digital direct bank, grew total deposits by $382 million (279%) to $519 million by December 31, 2023, with over 7,500 retail deposit customers acquired digitally in 2023[37] - Newtek Payments (NMS, Mobil Money, POS) processed $5.4 billion in merchant transactions in 2023, leveraging direct and indirect sales channels[38][40] - Newtek Technology Solutions (NTS) provides various IT services but is mandated to divest or terminate its activities by January 6, 2025, due to Federal Reserve commitments[46] Market Opportunity and Competitive Advantages NewtekOne targets the large, underserved SMB market with competitive advantages including an experienced Senior Lending Team, a business model enabling attractive risk-weighted returns on SBA 7(a) loans, patented NewTracker® technology, and a direct origination platform - The independent business owner/SMB market, estimated at over 33 million businesses, is largely underserved by traditional capital providers[50] - NewtekOne's competitive advantages include a Senior Lending Team with over 25 years of experience, a business model for SBA 7(a) lending that allows rapid sale of guaranteed portions and securitization of unguaranteed portions, and patented NewTracker® software for efficient client onboarding and processing[52][53][54] - The company's direct origination platform and comprehensive business finance ecosystem enable cross-selling and improved client retention, focusing on seasoned businesses with strong balance sheets and cash flow[55][56] Regulatory Environment and Compliance As a financial holding company, NewtekOne is extensively regulated by the Federal Reserve, OCC, and FDIC, with strict capital and liquidity requirements, consumer protection, anti-money laundering, and cybersecurity laws, while NSBF winds down its SBA 7(a) operations - NewtekOne is regulated by the Federal Reserve (as a financial holding company), OCC (for Newtek Bank), and FDIC (for deposit insurance), with broad examination and enforcement authority[65][66][67] - Newtek Bank operates under an Operating Agreement with the OCC, setting parameters for capital (Tier 1 leverage ratio ≥ 10%, total risk-based capital ratio ≥ 11.5%), liquidity, and concentration limits[72][82] - The company is subject to various laws including CRA, consumer protection, anti-money laundering, economic sanctions, and cybersecurity regulations, requiring significant compliance investment[77][88][91][93] - NSBF is winding down its SBA 7(a) loan originations and remains liable for post-purchase denials and repairs on its legacy portfolio, with NewtekOne guaranteeing these obligations up to $10 million[98][100] Lending Activities and Process NewtekOne's lending strategy targets SMBs with experienced management and strong financials, employing a rigorous origination process involving deal generation, screening, stress testing, site visits, and comprehensive credit assessments, with guaranteed portions of SBA 7(a) loans sold in the secondary market - Lending targets SMBs with experienced management, significant equity, appropriate capital structures, strong competitive positions, and diversified customer/supplier bases[104][105][106][107][108] - Loans are typically structured with first liens on business assets, first or second liens on guarantor assets (primarily real estate), and personal guarantees from owners[110][114] - The loan origination process includes deal generation via NewTracker® and alliance partners, screening, detailed SBA lending procedures, stress testing (up to 2% interest rate increase), site visits, and credit assessments (character, cash flow, capital, liquidity, collateral)[118][119][121][122][127][128][129] - Guaranteed portions of SBA 7(a) loans are sold in the secondary market, historically at premiums ranging from 106% to 123% of par value, with premiums above 110% shared with the SBA[158] Competition and Human Capital NewtekOne operates in a highly competitive market for SMB loans, financial solutions, and deposits, leveraging its financial technology, experienced team, and customized solutions, with long-term success dependent on its Senior Lending Team and executive officers - NewtekOne competes in a highly competitive market for SMB loans, payment processing, technology solutions, and deposits, facing larger financial institutions and fintech companies[159][161][162] - Competitive advantages include financial technology infrastructure, experienced Senior Lending Team, customized solutions, efficient underwriting, and personalized customer service[159][164] - The company's success is dependent on its Senior Lending Team and executive officers, who have extensive experience; it prioritizes competitive compensation, succession planning, and an inclusive work environment for its 528 professionals[165][166][168][169] Corporate Governance and Compliance NewtekOne adheres to SEC and Nasdaq listing rules, maintaining a Code of Ethics and complying with Sarbanes-Oxley, while its subsidiaries navigate SBA regulations, and the company now faces corporate-level federal and state income taxes as a financial holding company - NewtekOne is subject to SEC and Nasdaq Global Market requirements, maintaining a Code of Ethics and Privacy Principles[173][174][175][180] - The Sarbanes-Oxley Act mandates CEO/CFO certification of financial statements and management's assessment of internal controls over financial reporting[177][178] - NSBF is winding down its SBA 7(a) lending, while Newtek Bank holds PLP status, both remaining subject to SBA regulations and potential guaranty liabilities[181][183][184] - Effective January 6, 2023, NewtekOne no longer qualifies as a RIC and will file a consolidated U.S. federal income tax return, subjecting it to a flat corporate federal statutory income tax rate of 21%[185][186] ITEM 1A. RISK FACTORS. This section details the various risks NewtekOne faces, including those related to its operation as a financial holding company, economic conditions, business structure, SBA lending, AI, tax, and subsidiary-specific challenges Risks Related to Operation as a Financial Holding Company Operating as a financial holding company presents significant risks due to limited operating history, extensive federal and state regulation, loss of 1940 Act protections, altered accounting, and identified material weaknesses in internal controls - NewtekOne has a limited operating history as a financial holding company, making future operating results difficult to predict[195] - The banking industry is highly regulated by the FDIC, OCC, and Federal Reserve; non-compliance can result in sanctions, penalties, and reputational harm[196][198][199] - The company's conversion from a BDC on January 6, 2023, removed 1940 Act protections for shareholders and significantly altered accounting and financial reporting requirements, leading to identified material weaknesses in internal controls[211][212][213][215] - Loss of pass-through tax treatment (RIC status) substantially reduces net assets and income available for dividends and debt repayments due to corporate-level taxes[218] Risks Related to the Economy Global economic, political, and market conditions, including geopolitical conflicts, inflation, and banking sector instability, pose significant risks, potentially impairing client repayment abilities, decreasing portfolio value, and increasing funding costs - Global economic, political, and social conditions (e.g., wars, natural disasters, inflation) create uncertainty and can adversely affect business, operating results, and financial condition[219][220][221] - Economic recessions or prolonged high interest rates can impair clients' ability to repay debt, decrease portfolio value, and increase funding costs, potentially leading to increased loan delinquencies and losses[226][227][228] - Recent banking sector events (e.g., Silicon Valley Bank, Signature Bank failures) highlight risks of rapid deposit outflows and market volatility, which could affect Newtek Bank's deposit funding and the company's stock price[208][230] - Inflation increases capital, labor, energy, and raw material costs, potentially impacting clients' ability to service loans and reducing the fair value of investments; governmental efforts to curb inflation (e.g., raising interest rates) can negatively affect economic activity[234][235] Risks Related to Our Business and Structure NewtekOne's success is highly dependent on its Senior Lending Team, operates in a highly competitive market, is affected by indebtedness and interest rate fluctuations, faces integration challenges from acquisitions, and is vulnerable to ineffective risk management or internal control deficiencies - The company's future success is dependent on its Senior Lending Team and executive officers; loss of key personnel could significantly harm the business[239] - Operating in a highly competitive market for clients, including banks, non-bank lenders, and fintech companies, could reduce returns or result in losses if NewtekOne cannot match competitors' terms[240][241] - Indebtedness and changes in interest rates affect the cost of capital and net interest margin, with rising rates potentially increasing funding costs and impacting loan premiums and prepayments[246][249][250] - The company has identified material weaknesses in its internal controls over financial reporting, which could adversely affect timely and accurate financial reporting and investor confidence[269] - Client concentration in a limited number of industries could lead to significant losses if those industries experience downturns[272] Risks Related to SBA Lending Changes to the SBA Section 7(a) Program, non-compliance with regulations, curtailment of government-guaranteed loan programs, high default risk in small business loans, and governmental funding failures could adversely affect NewtekOne's SBA lending operations and profitability - Changes to the SBA Section 7(a) Program, including SOP revisions, can negatively impact loan origination volume and the ability of Newtek Bank and NSBF to maintain their lending licenses and PLP status[274][275][276] - Failure to comply with SBA regulations in loan origination, servicing, or liquidation can result in the SBA being released from its guaranty, transferring liability (denials/repairs) to NSBF or Newtek Bank[281][282] - Curtailment of government-guaranteed loan programs, high default risk in small business loans, and governmental failure to fund the SBA could adversely affect loan originations and profitability[283][285][287] - Participation in the PPP exposed the company to risks of SBA not funding loan guaranties due to potential non-compliance or deficiencies in origination/servicing[288][289] Risks Related to the Development and Use of Artificial Intelligence (AI) The development and use of AI, both internally and by third parties, present risks including an uncertain regulatory environment, potential for incorrect or biased outputs, release of confidential information, intellectual property infringement, and challenges in understanding complex AI models, alongside threats from bad actors using AI for fraud and cyberattacks - The legal and regulatory environment for AI is uncertain and rapidly evolving, potentially requiring changes in AI implementation and increasing compliance costs[292] - AI models may produce incorrect, biased, or harmful outputs, release confidential information, or infringe on intellectual property rights, leading to liability and reputational damage[292] - The complexity of AI models makes it challenging to assess proper operation, understand capabilities, reduce errors, and comply with regulations requiring decision basis documentation[292] - The use of AI by bad actors for fraud and cyberattacks poses a significant threat to financial stability and the company's security measures[293] Risks Related to U.S. Federal Income Tax New tax legislation or changes in interpretations by the IRS and Treasury Department could adversely affect the company, its investments, or stockholders, with uncertain likelihood and impact - New tax legislation or changes in interpretations by the IRS and Treasury Department could adversely affect the company, its investments, or stockholders[294] - The likelihood of such legislation being enacted is uncertain, and new rules could significantly and negatively affect federal income tax consequences[294] Risks Related to Our Subsidiaries - Newtek Merchant Solutions (NMS) NMS faces risks from the termination of essential bank sponsorships, non-compliance with card standards, reduced profit margins from unpassable fee increases, liability from data breaches, charge-backs, and merchant fraud, as well as challenges from rapid technological changes and increased regulatory scrutiny - Termination of NMS's bank sponsorships, essential for processing bankcard transactions, or failure to comply with Visa/MasterCard standards, could materially adversely affect its business[295][297] - Inability to pass on increases in interchange and sponsorship fees to merchants would reduce NMS's profit margins[298] - Unauthorized disclosure of sensitive merchant or cardholder data, ineffective collection of charge-backs, and merchant fraud expose NMS to liability, business losses, and reputational damage[299][301][302][303] - Rapid technological changes (e.g., mobile payments) and increased regulatory focus on the payments industry (e.g., data protection, AML, FTC investigations) present competitive and costly compliance burdens[305][306][307][308] Risks Related to Our Subsidiaries - Newtek Bank Newtek Bank's business relies on credit decisioning, pricing, loss forecasting, and scoring models, where errors or ineffectiveness could lead to higher losses, mispriced loans, and negative investor confidence, while ineffective collection efforts on delinquent loans would adversely affect investor returns and servicing fee revenue - Newtek Bank's credit decisioning, pricing, loss forecasting, and scoring models are critical; errors or ineffectiveness could lead to higher than forecasted losses, mispriced loans, and reduced investor confidence[309][310][311][312] - Many loan products are unsecured, and ineffective collection efforts on delinquent loans would adversely affect investor returns and servicing fee revenue[313][314][315] Risks Related to Our Subsidiaries - Newtek Technology Solutions (NTS) NewtekOne's commitment to divest or terminate NTS activities by January 2025 may negatively impact revenue and IT management, while NTS faces intense competition, rapid technological change, and risks from system failures, security breaches, and dependence on software licenses - NewtekOne is committed to divesting or terminating NTS activities by January 2025, which may negatively impact the company's revenue and ability to manage IT systems and cybersecurity risk[316] - NTS operates in a highly competitive industry with rapid technological change, facing larger competitors and potential price pressure[317] - NTS's business depends on the uninterrupted operation of its computer and communication systems; failures or security breaches could lead to severe disruption, liability, reputational damage, and significant remediation costs[318][319][320] - NTS's managed technology business relies on licenses for software and intellectual property, primarily from Microsoft, and the inability to maintain these or product obsolescence could adversely affect the business[321] Risks Related to Our Subsidiaries - Newtek Insurance Agency (NIA) NIA's business depends on third-party property and casualty insurance companies for products, faces comprehensive state-level government regulations and licensing requirements, and has no control over commission rates or premiums, leading to potential reductions in profit margins - NIA depends on third-party property and casualty insurance companies; termination of contracts or inability to obtain competitive prices would adversely affect its business[322] - NIA's insurance agency business is subject to comprehensive state regulations and licensing; failure to comply or changes in regulations could have a material adverse effect[323][325] - NIA has no control over commission rates or premiums, which are set by insurers and market conditions, potentially reducing profit margins[324] Risks Related to Our Subsidiaries - Newtek Payroll and Benefit Solutions (PMT) PMT faces risks from unauthorized disclosure of sensitive employee data due to cybersecurity breaches, credit risk in ACH payments, disruptions in computer systems, and potential unreimbursed costs or damages from delays in processing payroll or tax payments - Unauthorized disclosure of sensitive employee data through cybersecurity breaches could expose PMT to liability, business losses, and reputational damage[326] - PMT is subject to credit risk in ACH payments if clients fail to deposit funds, potentially bearing the financial burden of settling contracts[327] - Disruptions in PMT's computer systems or failure to adapt technology to client needs and preferences could adversely affect its business and reputation[328][329] - Delays in processing customer payrolls or payroll taxes could incur unreimbursed costs or damages[330] Risks Related to Our Subsidiaries - Newtek Business Credit Solutions (NBC) NBC faces risks from unexpected defaults in its accounts receivables or inventory portfolios, which would reduce income and increase expenses, and its reserve for credit losses may prove insufficient to cover unexpected losses, particularly in unstable economic conditions - Unexpected defaults in NBC's accounts receivables or inventory portfolios would reduce income and increase expenses[331] - NBC's reserve for credit losses may be insufficient to cover unexpected losses, particularly in unstable economic conditions, which could materially affect its financial condition and results of operations[332] Risks Related to Our Capco Business The Capco programs are subject to state legislation and regulation, with risks of repeal or retroactive revision, failure to meet state law requirements, and difficulty in peer comparison due to the unique nature of operating Capcos as a publicly-held company - Capco programs and their associated tax credits are subject to state legislation and regulation, with a risk of repeal or retroactive revision, which could cause material financial harm[333][334] - Failure to meet state law requirements for Capcos could lead to the loss of one or more Capcos[335] - The lack of comparable publicly-held companies operating Capcos makes it difficult for investors to assess the business, potentially depressing stock value[336] Risks Related to Our Securities The common stock price may be volatile due to various factors, future issuances of common stock or other securities could dilute existing shareholders' ownership, provisions in Maryland General Corporation Law and the company's charter/bylaws could deter takeover attempts, and sales of substantial amounts of common stock may adversely affect the market price - The common stock price may be volatile due to factors like market fluctuations, operating performance, regulatory changes, and departures of key personnel[338] - Future issuances of common stock or other securities (e.g., preferred shares, stock options) could dilute current shareholders' ownership interest and decrease per-share book value[340][341][342] - Provisions in Maryland General Corporation Law and the company's charter/bylaws, such as 'blank check' preferred shares and classified boards, could deter takeover attempts[343][345][346] - Sales of substantial amounts of common stock in the public market could adversely affect the prevailing market price and the company's ability to raise additional capital[347] Risks Related to Our Notes The company's various Notes are unsecured and structurally subordinated to secured indebtedness and subsidiary liabilities, offer limited protection in their indentures, and may be redeemed when interest rates are low, while their market value can fluctuate, and the 2024 and 2026 Notes remain subject to 150% asset coverage requirements - The 2024, 2025, 2026, and 2028 Notes are unsecured and effectively subordinated to any secured indebtedness of the company or its subsidiaries[348] - The Notes are structurally subordinated to all indebtedness and liabilities of the company's subsidiaries, as subsidiaries are not guarantors[349][350] - Indentures for the Notes offer limited protection, lacking restrictions on additional debt, asset sales, or changes in financial condition, which could negatively affect holders[351][352] - The company may redeem Notes when prevailing interest rates are low, potentially impacting holders' reinvestment returns[355] - The 2024 and 2026 Notes are subject to 150% asset coverage requirements under the 1940 Act covenants, despite the company no longer being regulated as a BDC[361][362] Risks Related to Cybersecurity NewtekOne's business relies heavily on secure information technology systems, making it vulnerable to cyber-attacks and information security breaches that could lead to operational disruptions, data misappropriation, financial losses, litigation, regulatory penalties, and reputational damage, with increased risks from mobile and cloud technologies - NewtekOne's business relies on secure IT systems, making it vulnerable to cyber-attacks and information security breaches that could cause operational disruptions, data misappropriation, financial losses, and reputational damage[363][364][365] - The increased use of mobile and cloud technologies, particularly with remote work, heightens cybersecurity and operational risks[366][374][376] - A cybersecurity risk management program, overseen by the CISO and the Board's Risk Committee, is in place, but complete protection is not guaranteed, and breach costs may exceed insurance coverage[367] - Third-party service providers also pose cybersecurity risks, and the company is subject to evolving regulations requiring disclosure of material cybersecurity incidents[372][373] ITEM 1B. UNRESOLVED STAFF COMMENTS. This section confirms that the company has no unresolved staff comments from the SEC No Unresolved Staff Comments The company has no unresolved staff comments from the SEC - There are no unresolved staff comments[385] ITEM 1C. CYBERSECURITY. This section details NewtekOne's enterprise-wide cybersecurity risk management system, strategy, and governance framework Risk Management and Strategy NewtekOne employs an enterprise-wide cybersecurity risk management system and strategy, integrated into its overall ERM framework, including regular comprehensive risk assessments, continuous threat intelligence monitoring, risk prioritization, and robust mitigation strategies - NewtekOne maintains an enterprise-wide cybersecurity risk management system and strategy, integrated into its overall ERM framework[386][387] - The strategy involves comprehensive risk assessments, continuous threat intelligence monitoring, risk prioritization, and robust mitigation strategies (technical controls, policies, training)[387] - External assessors, consultants, and auditors are engaged for independent evaluations, and a vendor risk management program monitors third-party cybersecurity controls[391] Governance and Oversight The Board's Risk Committee provides focused oversight of cybersecurity and technology risk, receiving regular reports from the CISO and CTO, who are accountable for identifying, assessing, and managing cybersecurity risks - The Board's Risk Committee oversees cybersecurity and technology risk, receiving regular reports from the CISO and CTO[388][389] - The CISO, housed within NTS, is responsible for developing, maintaining, and enforcing cybersecurity policies, monitoring threats, and overseeing employee training[389][392] - The CISO is a Certified Information System Security Professional (CISSP) with decades of experience, and the CTO has over 25 years of experience in enterprise technology services[393] ITEM 2. PROPERTIES. This section describes NewtekOne's principal business locations, which are primarily leased facilities Leased Facilities NewtekOne conducts its principal business activities in leased facilities, with its headquarters in Boca Raton, Florida, and other significant offices in Lake Success, New York, and Miami, Florida - NewtekOne's principal business activities are conducted in leased facilities[395] Key Leased Office Locations (as of December 31, 2023) | Location | Lease expiration | Purpose | Approximate square feet | | :---------------------------- | :--------------- | :-------------------------------------------- | :---------------------- | | 4800 T Rex Avenue, Boca Raton, FL | April 2026 | Corporate headquarters and NSBF lending operations | 7,800 | | 1981 Marcus Avenue, Lake Success, NY | April 2027 | Lending operations, corporate operations, NY Capco offices and subsidiaries' offices | 44,800 | | 1111 Brickell Avenue, Suite 135, Miami, FL | February 2027 | Main office Newtek Bank | 1,800 | ITEM 3. LEGAL PROCEEDINGS. This section addresses the company's involvement in legal and regulatory matters, including an immaterial reserve for potential settlements and a permanent injunction against NMS Legal Matters and Accruals NewtekOne and its subsidiaries are routinely involved in legal proceedings and regulatory matters, with management believing outcomes will not materially affect financial position, and an immaterial reserve has been accrued for potential settlements - NewtekOne and its subsidiaries are routinely subject to actual or threatened legal proceedings and regulatory matters[397] - Management believes the outcomes of pending and threatened matters will not have a material effect on the company's business, consolidated financial position, results of operations, or cash flows[397] - As of December 31, 2023, an immaterial reserve has been accrued to cover potential settlements[397] - Newtek Merchant Solutions (NMS) operates under a permanent injunction from the Federal Trade Commission (FTC) since October 2012 regarding certain business practices[398] ITEM 4. MINE SAFETY DISCLOSURES. This section confirms that the company has no disclosures related to mine safety No Mine Safety Disclosures The company has no disclosures related to mine safety - There are no mine safety disclosures[399] PART II This section covers market information, financial data, controls, and other disclosures required for Part II of the Form 10-K ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. This section provides information on the market for NewtekOne's common stock, equity issuances, dividends, and stock performance Common Stock Market and Holders NewtekOne's common stock trades on the Nasdaq Global Market under the symbol 'NEWT', with a closing price of $11.00 per share and approximately 89 holders of record as of March 28, 2024 - NewtekOne's common stock is traded on the Nasdaq Global Market under the symbol 'NEWT'[401] - The last reported price for common stock on March 28, 2024, was $11.00 per share[401] - As of March 28, 2024, there were approximately 89 holders of record of the common stock[402] Equity Issuances and Dividends The company issued common stock through its Dividend Reinvestment Plan (DRIP) and for dividends on unvested restricted stock awards in 2022 and 2023, with quarterly common dividends of $0.18 per share declared for 2023, though the DRIP was terminated Shares Issued from Unregistered Securities | Year Ended December 31, | DRIP Shares Issued | Value (Millions) | Shares for Unvested Restricted Stock | Value (Millions) | | :---------------------- | :----------------- | :--------------- | :----------------------------------- | :--------------- | | 2023 | 15,700 | $0.2 | 18,700 | $0.3 | | 2022 | 95,300 | $1.6 | 35,500 | $0.6 | - The Dividend Reinvestment Plan (DRIP) was terminated on December 8, 2023[403] - Common dividends of $0.18 per share were declared for each quarter of 2023[405] - Prior to 2023, as a RIC, the company was required to distribute at least 90% of its annual taxable income[406] Securities Authorized Under Equity Compensation Plans (as of December 31, 2023) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | | :------------------------------------------ | :------------------------------------------------------------------------ | :---------------------------------------------------------- | :------------------------------------------------------------------------------------------------------------------------------------ | | Equity compensation plans approved by security holders | None | None | 2,257,528 shares | | Equity compensation plans not approved by security holders | None | None | None | Stock Performance Graph The stock performance graph compares NewtekOne's total shareholder return against various market indices for the period from December 31, 2018, through December 31, 2023, assuming a $100 investment on January 1, 2019 ITEM 6. [RESERVED]. This section is reserved and contains no information Reserved This item is reserved and contains no information ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This section provides an executive overview of NewtekOne's business transformation, a detailed analysis of its financial condition, and results of operations Executive Overview and Business Transformation NewtekOne converted to a financial holding company on January 6, 2023, acquiring Newtek Bank and withdrawing its BDC election, leading to consolidation of former portfolio companies and a shift from RIC tax treatment to corporate income tax, while providing diverse business and financial solutions to SMBs - NewtekOne converted to a financial holding company on January 6, 2023, acquiring Newtek Bank and withdrawing its BDC election, leading to consolidation of former portfolio companies[412] - The company no longer qualifies as a RIC and will file a consolidated U.S. federal income tax return, subject to a 21% corporate tax rate[415] - Newtek Bank, with PLP status, now originates SBA 7(a) loans, taking over from NSBF which is winding down its originations[416][420] - Economic developments, including supply chain interruptions, labor shortages, commodity inflation, rising interest rates, and geopolitical events, create uncertainty and potential negative impacts on operating results[421][422] Financial Condition Analysis (December 31, 2023 vs. 2022) Total assets increased by $430.6 million (43.1%) to $1.4 billion at December 31, 2023, primarily due to the consolidation of entities and new loan originations, while total liabilities increased by $556.9 million (89.3%) to $1.2 billion, driven by deposits and increased borrowings Total Assets (in thousands) | Metric | Dec 31, 2023 | Dec 31, 2022 | Change ($) | Change (%) | | :------------- | :----------- | :----------- | :--------- | :--------- | | Total Assets | $1,429,513 | $998,902 | $430,611 | 43.1% | Loans (in thousands) | Loan Category | Dec 31, 2023 | Dec 31, 2022 | Change ($) | | :-------------------------------------------------- | :----------- | :----------- | :--------- | | Loans held for sale, at fair value | $118,867 | $19,171 | $99,696 | | Loans held for sale, at LCM | $56,607 | — | $56,607 | | Loans held for investment, at fair value | $469,801 | $505,268 | $(35,467) | | Loans held for investment, at amortized cost, net | $323,731 | — | $323,731 | | Total Loans | $969,006 | $524,439 | $444,567 | - Total liabilities increased by $556.9 million (89.3%) to $1.2 billion at December 31, 2023, primarily due to the addition of $463.5 million in deposits and increased borrowings[439][440] Borrowings (in thousands) | Borrowing Category | Dec 31, 2023 | Dec 31, 2022 | Change ($) | | :-------------------------------------- | :----------- | :----------- | :--------- | | Capital One Lines of Credit | — | $55,885 | $(55,885) | | Other Bank Borrowings | $82,948 | — | $82,948 | | Parent Company Notes (2024, 2025, 2026, 2028) | $269,062 | $180,055 | $89,007 | | Notes Payable - Securitization Trusts | $292,112 | $279,136 | $12,976 | | Notes Payable - Related Parties | — | $24,250 | $(24,250) | | Total Borrowings | $644,122 | $539,326 | $104,796 | Results of Operations (December 31, 2023 vs. 2022) Net income increased by $15.0 million to $47.33 million in 2023, driven by a significant rise in noninterest income (up $83.9 million) and net interest income (up $14.3 million), partially offset by a substantial increase in noninterest expense (up $79.9 million) and a $11.7 million provision for credit losses Key Financial Highlights (in thousands) | Metric | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | Change ($) | Change (%) | | :-------------------------- | :---------------------- | :---------------------- | :--------- | :--------- | | Net income | $47,329 | $32,311 | $15,018 | 46.5% | | Net interest income | $26,634 | $12,292 | $14,342 | 116.7% | | Provision for credit losses | $11,704 | — | $11,704 | N/A | | Noninterest income | $176,772 | $92,878 | $83,894 | 90.3% | | Noninterest expense | $146,329 | $66,395 | $79,934 | 120.4% | - Interest income increased by $55.8 million to $94.4 million, driven by higher interest rates and an expanded average outstanding accrual loan portfolio ($552.3 million in 2023 vs. $482.6 million in 2022), and interest from Federal Reserve Bank cash deposits[445][446][447] - Interest expense increased by $41.4 million to $67.7 million, primarily due to $15.8 million in interest on deposits (new in 2023), additional securitization notes, and increased bank borrowings[445][448][449] - Noninterest income surged due to the consolidation of technology and electronic payment processing segments (adding $24.9 million and $42.9 million respectively), partially offset by a decrease in dividend income (due to consolidation) and net gains on sales of loans[456][457][461][466] - Noninterest expense increased significantly due to the consolidation of subsidiaries, particularly in salaries and benefits (up $45.5 million), technology services, and electronic payment processing expenses[467][468][469][470] Results of Segment Operations NewtekOne operates four reportable segments: Banking, Technology, NSBF, and Payments, with Banking contributing $28.1 million to net income, Technology $1.4 million, NSBF $17.1 million, and Payments $12.2 million in 2023 - NewtekOne has four reportable segments: Banking, Technology, NSBF, and Payments[474] Net Income by Operating Segment (Year Ended December 31, 2023, in thousands) | Segment | Net Income ($) | | :--------- | :------------- | | Banking | $28,127 | | Technology | $1,367 | | NSBF | $17,061 | | Payments | $12,154 | | Other | $(11,380) | | Consolidated net income | $47,329 | - Banking segment includes Newtek Bank and SBL, with $17.7 million in net interest income from SBA 504, C&I, CRE, and ABL loans, and depository services[475] - Technology segment (NTS) generated $31.7 million in noninterest income but is slated for divestiture or termination by January 2025[476] - Payments segment (NMS, POS, Mobil Money) contributed $46.4 million in noninterest income from credit/debit card processing and related services[478] Liquidity and Capital Resources NewtekOne's liquidity and capital are derived from various notes, securitization transactions, and operational cash flows, maintaining prudent capital levels and meeting regulatory ratios, with cash flows from operating activities being negative in 2023 while financing activities provided significant cash - Liquidity and capital are sourced from notes, securitization transactions, and operational cash flows, with additional capital raised through ATM programs and public offerings (e.g., $40 million in 8.00% 2028 Notes issued in August 2023)[480][485][486] Regulatory Capital Ratios (as of December 31, 2023) | Entity | Capital Ratio Type | Actual Ratio | Minimum for Adequacy | Minimum for Well Capitalized | | :----------- | :----------------------------- | :----------- | :------------------- | :--------------------------- | | NewtekOne, Inc. | Tier 1 Capital (to Average Assets) | 13.6% | 4.0% | N/A | | | Common Equity Tier 1 (to Risk-Weighted Assets) | 16.2% | 4.5% | N/A | | | Total Capital (to Risk-Weighted Assets) | 19.1% | 8.0% | N/A | | Newtek Bank | Tier 1 Capital (to Average Assets) | 16.6% | 4.0% | 5.0% | | | Common Equity Tier 1 (to Risk-Weighted Assets) | 21.5% | 4.5% | 6.5% | | | Total Capital (to Risk-Weighted Assets) | 22.8% | 8.0% | 10.0% |