NewtekOne Inc
For the period ended Sep 30, 2024. Filed Nov 12, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 12, 2024
NEWT$10.70+0.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0001587987-24-000168
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-12.
0001587987-24-000237
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 272 previous paragraphs and 283 current paragraphs.
183 unchanged; 70 reworded; 27 added; 16 removed; 3 previous and 3 current paragraphs rearranged.
Tables are not compared: 34 previous and 35 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (27)
Current report
The Company has originated loans under its ALP since 2019. These loans have terms between 10 and 25 years, bear fixed interest rates that reset every five years, and have prepayment penalties. The criteria evaluated in underwriting ALP loans and the terms of these loans have been generally consistent over the ALP’s existence. Prior to July 1, 2024, the Company originated ALP loans with the intent to sell to a JV. While the Company continues to source JV partners to participate in this program, the Company could also originate ALP loans designated as HFI. The Company does not expect any significant changes to the underwriting or terms of loans in its ALP.
Current report
1 As of September 30, 2024, the assets of the Technology segment are classified as held-for-sale. See NOTE 9—ASSETS AND LIABILITIES DIRECTLY ASSOCIATED WITH ASSETS HELD FOR SALE for more information.
Current report
Servicing Assets
Current report
A sensitivity analysis of the current fair value of servicing assets to adverse changes in significant assumptions as of September 30, 2024 and December 31, 2023 is as follows:
Current report
The sensitivity analysis presents the hypothetical effect on fair value of the servicing assets due to the change in significant assumptions. Changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value is not linear. Additionally, the sensitivity analysis shocks each significant assumption individually, while keeping all other assumptions unchanged. In practice, changes in one assumption generally impact other assumptions, which could increase or lessen the effect of the change.
Current report
1 Net of deferred financing costs.
Current report
Comparison of the nine months ended September 30, 2024 and 2023
Current report
(4) On September 16, 2024, the Company completed a public offering of $75.0 million aggregate principal amount of 8.625% notes due 2029. The Notes will mature on October 15, 2029. The Notes bear interest at a rate of 8.625% per year, payable quarterly on January 15, April 15, July 15, and October 15 each year, commencing on January 15, 2025.
Current report
Net gains on sales of loans for the nine months ended September 30, 2024 and 2023 were as follows:
Current report
Technology Services Expense
Current report
The $1.4 million decrease in technology services expenses for the nine months ended September 30, 2024 corresponded with the $4.2 million decrease in technology and IT support income.
Current report
Origination and loan processing expenses during the nine months ended September 30, 2024, was $9.4 million compared to $6.9 million for the nine months ended September 30, 2023. During the first quarter of 2024, the majority of loans were funded by Newtek Bank, which accounts for loans at amortized cost, net of deferred fees and costs, resulting in a portion of the loan origination fees being deferred and amortized over the life of the loan, compared to the first quarter of 2023, when most loans were funded by NSBF, which accounts for loans at fair value and expenses all origination fees at the time they are incurred.
Current report
Banking
Current report
NSBF
Current report
(3) On September 16, 2024, the Company completed a public offering of $75.0 million aggregate principal amount of 8.625% notes due 2029. The Notes will mature on October 15, 2029. The Notes bear interest at a rate of 8.625% per year, payable quarterly on January 15, April 15, July 15, and October 15 each year, commencing on January 15, 2025.
Current report
Technology and IT Support Income
Current report
Technology Services Expenses
Current report
The $0.9 million decrease in technology services expenses for the three months ended September 30, 2024 corresponded with the $2.1 million decrease in technology and IT support income.
Current report
Banking
Current report
NSBF
Current report
On September 16, 2024, the Company completed a public offering of $75.0 million aggregate principal amount of 8.625% notes due 2029. The Notes will mature on October 15, 2029. The Company received $72.8 million in proceeds, before expenses, from the sale of the 2029 Notes. The Notes bear interest at a rate of 8.625% per year, payable quarterly on January 15, April 15, July 15, and October 15 each year, commencing on January 15, 2025. , and trade on the Nasdaq Global Market under the trading symbol “NEWTH.” At September 30, 2024, the Company was in compliance with all covenants related to the 2029 8.625% Notes.
Current report
Stock Repurchase Program
Current report
On November 1, 2024, the Company’s Board of Directors approved a new stock repurchase program granting the Company authority to repurchase up to 1.0 million shares of Company common stock during the next twelve months. The actual timing and amount of any repurchases under the plan will be determined by the Company in its discretion, and will depend on a number of factors, including market conditions, applicable legal requirements, the Company's capital needs and whether there is a better alternative use of capital. The Company has no obligation to repurchase any amount of its common stock under its new stock repurchase program.
Current report
Early Redemption of Securitization Notes Issued by the 2018-1 Trust and 2019-1 Trust
Current report
On October 23, 2024, the Company executed an early redemption of the NSBF securitization notes (the “2018 and 2019 Notes”) issued by the 2018-1 and 2019-1 Trusts. The balance on the 2018 and 2019 Notes as of September 30, 2024, was $25.4 million, and the Company paid $18.3 million out of interest bearing deposits in banks and $6.9 million out of restricted cash.
Current report
SBA 504 Loans Sale
Current report
On October 30, 2024, the Company executed a sale, to a third party, of $12.5 million of SBA 504 first lien loans at par, servicing retained.
Removed paragraphs (16)
Previous report
Comparison of the six months ended June 30, 2024 and 2023
Previous report
Dividend Income
Previous report
For the six months ended June 30, 2024 and 2023, dividend income was dependent on the earnings of our joint ventures.
Previous report
Net gains on sales of loans for the six months ended June 30, 2024 and 2023 were as follows:
Previous report
Electronic Payment Processing Expense
Previous report
The $1.2 million increase in electronic payment processing expense corresponded with the increase in electronic payment processing revenue of $2.6 million.
Previous report
Dividend Income
Previous report
For the three months ended June 30, 2024 and 2023, dividend income was dependent on the earnings of our joint ventures.
Previous report
Electronic Payment Processing Expense
Previous report
The $0.9 million increase in electronic payment processing expense corresponded with the $2.0 million increase in electronic payment processing revenue.
Previous report
Other General and Administrative Costs
Previous report
The decrease in other general and administrative costs of $0.5 million is primarily due to $0.3 million of expenses relating to other real estate owned in the second quarter of 2023.
Previous report
In addition, under the PPP that began in the second quarter of 2020, the SBA reimbursed the Company for originating loans. Such SBA reimbursements are included as interest income on PPP loans. Such fees are accounted for under ASC-310 Receivables and deferred until the loan was sold to one of our Participants. Income earned in connection with the PPP should not be viewed as recurring. NSBF funded the balance of its PPP loans by the end of July 2021. NSBF has redeployed the resources used to generate PPP loans to the origination of SBA 7(a) loans.
Previous report
TSO JV Securitization
Previous report
NTS Divestiture
Previous report
As a result of our anticipation to divest of NTS (consistent with our commitments to the Federal Reserve), we expect NTS’s net assets to be presented as a held-for-sale in the third quarter of 2024, and are evaluating ASC Subtopic 205-20 - Presenting Discontinued Operations for any additional requirements. Although we anticipate entering into an agreement to divest NTS in the short term, there can be no assurance that we will enter into any agreement.
Reworded paragraphs (70)
Previous wording
As of January 6, 2023, we are a financial holding company that, together with our consolidated subsidiaries, provides a wide range of business and financial solutions under the NewtekOne® brand to the independent business owner (SMB) market. Effective January 6, 2023, following authorization by our shareholders, we withdrew our previous election to be regulated as a BDC under the 1940 Act. Prior to such time, we operated as a BDC under the 1940 Act. Contemporaneously with withdrawing our election to be regulated as a BDC, on January 6, 2023, we completed the Acquisition of NBNYC, a national bank regulated and supervised by the OCC, pursuant to which we acquired from NBNYC’s shareholders all of the issued and outstanding stock of NBNYC. NBNYC has been renamed Newtek Bank and has become our wholly owned bank subsidiary. In connection with the completion of the Acquisition, we contributed to Newtek Bank $31 million of cash and two of our subsidiaries, NBL and SBL (subsequently, NBL was merged into SBL). As a result of the Acquisition, we are now a financial holding company subject to the regulation and supervision of the Federal Reserve and the Federal Reserve Bank of Atlanta. We no longer qualify as a RIC under Subchapter M of the Code for federal income tax purposes and no longer qualify for accounting treatment as an investment company. As a result, in addition to Newtek Bank and its consolidated subsidiary SBL, the following former portfolio companies and subsidiaries are now consolidated non-bank subsidiaries in our financial statements: NSBF; NMS; Mobil Money; NBC; PMT; NIA; TAM; Holdco 6; NCL; NTS and POS. In addition, as a result of commitments made to the Federal Reserve, we will divest or otherwise terminate the activities conducted by NTS by January 6, 2025, subject to any extension. See“Item 1A. Risk Factors – Risks Related to Operating as a Financial Holding Company –We are subject to extensive regulation and supervision as a financial holding company, which may adversely affect our business.” See NOTE 19—SUBSEQUENT EVENTS - NTS Divestiture.
Current wording
As of January 6, 2023, we are a financial holding company that, together with our consolidated subsidiaries, provides a wide range of business and financial solutions under the Newtek® and NewtekOne® brands to the independent business owner (SMB) market. Effective January 6, 2023, following authorization by our shareholders, we withdrew our previous election to be regulated as a BDC under the 1940 Act. Prior to such time, we operated as a BDC under the 1940 Act. Contemporaneously with withdrawing our election to be regulated as a BDC, on January 6, 2023, we completed the Acquisition of NBNYC, a national bank regulated and supervised by the OCC, pursuant to which we acquired from NBNYC’s shareholders all of the issued and outstanding stock of NBNYC. NBNYC has been renamed Newtek Bank and has become our wholly owned bank subsidiary. In connection with the completion of the Acquisition, we contributed to Newtek Bank $31 million of cash and two of our subsidiaries, NBL and SBL (subsequently, NBL was merged into SBL). As a result of the Acquisition, we are now a financial holding company subject to the regulation and supervision of the Federal Reserve and the Federal Reserve Bank of Atlanta. We no longer qualify as a RIC under Subchapter M of the Code for federal income tax purposes and no longer qualify for accounting treatment as an investment company. As a result, in addition to Newtek Bank and its consolidated subsidiary SBL, the following former portfolio companies and subsidiaries are now consolidated non-bank subsidiaries in our financial statements: NSBF; NMS; Mobil Money; NBC; PMT; NIA; TAM; NALH; NCL; NTS and POS. In addition, as a result of commitments made to the Federal Reserve, we agreed to divest or otherwise terminate the activities conducted by NTS by January 6, 2025, subject to any extension. As a result of the Company’s entry into the NTS Sale Agreement and the Company’s anticipation to divest of NTS, the Company has reported NTS as Held for Sale as of September 30, 2024. See“Item 1A. Risk Factors – Risks Related to Operating as a Financial Holding Company –We are subject to extensive regulation and supervision as a financial holding company, which may adversely affect our business.” See NOTE 9—ASSETS AND LIABILITIES DIRECTLY ASSOCIATED WITH ASSETS HELD FOR SALE.
Previous wording
The Company and its subsidiaries no longer qualify as a RIC for U.S. federal income tax purposes and will file a consolidated U.S. federal income tax return beginning with the 2023 fiscal year. Financial holding companies are subject to federal and state income taxes in essentially the same manner as other corporations. Taxable income is generally calculated under applicable sections of the Internal Revenue Code of 1986, as amended (the “Code”), including Sections 581 through 597 that apply specifically to financial institutions. Some modifications are required by state law and the 2017 tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). Among other things, the Tax Act (i) established a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminates the corporate alternative minimum tax and allowed the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limited the deduction for net interest expense incurred by U.S. corporations, (iv) allowed businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminated or reduced certain deductions related to meals and entertainment expenses, (vi) modified the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarified the definition of a covered employee and (vii) limited the deductibility of deposit insurance premiums. There can be no assurance as to the actual effective rate because it will be dependent upon the nature and amount of future income and expenses as well as actual investments generating investment tax credits and transactions with discrete tax effects.
Current wording
The Company and its subsidiaries no longer qualify as a RIC for U.S. federal income tax purposes and filed a consolidated U.S. federal income tax return beginning with the 2023 fiscal year. Financial holding companies are subject to federal and state income taxes in essentially the same manner as other corporations. Taxable income is generally calculated under applicable sections of the Internal Revenue Code of 1986, as amended (the “Code”), including Sections 581 through 597 that apply specifically to financial institutions. Some modifications are required by state law and the 2017 tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). Among other things, the Tax Act (i) established a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminates the corporate alternative minimum tax and allowed the use of any such carryforwards to offset regular tax liability for any taxable year, (iii) limited the deduction for net interest expense incurred by U.S. corporations, (iv) allowed businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminated or reduced certain deductions related to meals and entertainment expenses, (vi) modified the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarified the definition of a covered employee and (vii) limited the deductibility of deposit insurance premiums. There can be no assurance as to the actual effective rate because it will be dependent upon the nature and amount of future income and expenses as well as actual investments generating investment tax credits and transactions with discrete tax effects.
Previous wording
Additionally, we and our subsidiaries have historically provided a wide range of business and financial solutions to independent business owner relationships, including Business Lending, which includes SBA 7(a) loans, SBA 504 loans and our ALP loans, Electronic Payment Processing, Managed Technology Solutions (Cloud Computing), Technology Consulting, eCommerce, Accounts Receivable and Inventory Financing, personal and commercial lines Insurance Services, Web Services, Data Backup, Storage and Retrieval, and Payroll and Benefits Solutions to independent business owner relationships nationwide across all industries. We support the operations of our subsidiaries by providing access to our proprietary and patented technology platform, including NewTracker®, our patented prospect management software. We have historically defined independent business owners (SMBs) as companies having revenues of $1 million to $100 million, and we have generally estimated the SMB market to be over 33 million businesses in the United States. We have historically made loans and provided business and financial solutions to the SMB market through NSBF and our controlled portfolio companies (now subsidiaries). In addition, we have begun to offer the Newtek Advantage®, the One Dashboard for All of Your Business Needs®, which provides independent business owners with instant access to a team of NewtekOne business and financial solutions experts in the areas of Business Lending, Electronic Payment Processing, Managed Technology Solutions, personal and commercial lines Insurance Services and Payroll and Benefits Solutions. Moreover, we believe that the Newtek Advantage can provide our independent business owner clients with analytics on their businesses, as well as transactional capabilities that other organizations do not presently offer.
Current wording
Additionally, we and our subsidiaries have historically provided a wide range of business and financial solutions to independent business owner relationships, including Business Lending, which includes SBA 7(a) loans, SBA 504 loans and our ALP loans, Electronic Payment Processing, Managed Technology Solutions (Cloud Computing), Technology Consulting, eCommerce, Accounts Receivable and Inventory Financing, personal and commercial lines Insurance Services, Web Services, Data Backup, Storage and Retrieval, and Payroll and Benefits Solutions to independent business owner relationships nationwide across all industries. We support the operations of our subsidiaries by providing access to our proprietary and patented technology platform, including NewTracker®, our patented prospect management software. We have historically defined independent business owners (SMBs) as companies having revenues of $1 million to $100 million, and we have generally estimated the SMB market to be over 33 million businesses in the United States. We have historically made loans and provided business and financial solutions to the SMB market through NSBF and our controlled portfolio companies (now subsidiaries). In addition, we have begun to offer the Newtek Advantage®, the One Dashboard for All of Your Business Needs®, which provides independent business owners with instant access to a team of NewtekOne business and financial solutions experts in the areas of Business Lending, Electronic Payment Processing, Managed Technology Solutions, personal and commercial lines Insurance Services and Payroll and Benefits Solutions. Moreover, we believe the Newtek Advantage provides our independent business owner clients with analytics on their businesses, as well as transactional capabilities, including free unlimited document storage, free real-time updated traffic analytics, free real-time credit card processing and chargeback batch information for merchant solutions clients and the ability for PMT clients to make payroll directly from the Newtek Advantage business portal.
Previous wording
We have observed and continue to observe supply chain interruptions, significant labor and resource shortages, commodity inflation, rising interest rates, unrelated bank failures and declines in depositor confidence in certain types of depository institutions. Additionally geopolitical events, such as trade disruptions, the ongoing war between Russia and Ukraine, rising tensions in the Middle East and Asia, and elements of economic and financial market instability in the United States, the United Kingdom, the European Union and China have led to increased economic uncertainty. One or more of these factors may contribute to increased market volatility, may have long term effects in the United States and worldwide financial markets, and may cause economic uncertainties or deterioration in the United States and worldwide. Additionally, in the event that the U.S. economy enters into a protracted recession, it is possible that the businesses and industries in which our customers operate and to which we lend to could experience deterioration, which could ultimately lead to difficulty in meeting debt service requirements and an increase in defaults. While we are not seeing signs of an overall, broad deterioration in our operating results at this time, there can be no assurance that the performance of certain of our subsidiaries and our current and prospective borrowers will not be negatively impacted by economic conditions, which could have a negative impact on our future results.
Current wording
We have observed and continue to observe supply chain interruptions, significant labor and resource shortages, commodity inflation, rising interest rates, unrelated bank failures and declines in depositor confidence in certain types of depository institutions. Additionally geopolitical events, such as trade disruptions, the ongoing war between Russia and Ukraine, conflict in the Middle East, rising tensions in Asia, and elements of political, economic and financial market instability in the United States, the United Kingdom, the European Union and China have led to increased economic uncertainty. One or more of these factors may contribute to increased market volatility, may have long term effects in the United States and worldwide financial markets, and may cause economic uncertainties or deterioration in the United States and worldwide. Additionally, in the event that the U.S. economy enters into a protracted recession, it is possible that the businesses and industries in which our customers operate and to which we lend to could experience deterioration, which could ultimately lead to difficulty in meeting debt service requirements and an increase in defaults. While we are not seeing signs of an overall, broad deterioration in our operating results at this time, there can be no assurance that the performance of certain of our subsidiaries and our current and prospective borrowers will not be negatively impacted by economic conditions, which could have a negative impact on our future results.
Previous wording
TSO JV: On August 5, 2022, NCL and TSO II Booster Aggregator, L.P. (“TSO II”) entered into a joint venture, TSO JV, governed by the Amended and Restated Limited Partnership Agreement for the TSO JV. NCL and TSO II each committed to contribute an equal share of equity funding to the TSO JV and each have equal voting rights on all material matters. The TSO JV intends to deploy capital over the course of time with additional leverage supported by a warehouse line of credit for the purpose of investing in ALP loans made to middle-market companies as well as small businesses. TSO JV began making investments in ALP loans during the fourth quarter of 2022. Refer to NOTE 4—INVESTMENTS for selected financial information and a schedule of investments of TSO JV as of June 30, 2024. Refer to “NOTE 19—SUBSEQUENT EVENTS - TSO JV Securitzation.”
Current wording
TSO JV: On August 5, 2022, NCL and TSO II Booster Aggregator, L.P. (“TSO II”) entered into a joint venture, TSO JV, governed by the Amended and Restated Limited Partnership Agreement for the TSO JV. NCL and TSO II each committed to contribute an equal share of equity funding to the TSO JV and each have equal voting rights on all material matters. The TSO JV intends to deploy capital over the course of time with additional leverage supported by a warehouse line of credit for the purpose of investing in ALP loans made to middle-market companies as well as small businesses. TSO JV began making investments in ALP loans during the fourth quarter of 2022. On July 23, 2024, TSO JV closed a securitization backed by ALP loans, selling $137.2 million of Class A Notes and $17.2 million of Class B Notes (collectively, the “TSO Notes”) issued by NALP Business Loan Trust 2024-1. The TSO Notes are backed by $190.5 million of collateral, consisting of Company originated ALP loans. The Class A and Class B Notes received Morningstar DBRS ratings of “A (sf)” and “BBB (high) (sf),” respectively. TSO JV ceased investing in new ALP loans in July 2024. Refer to NOTE 4—INVESTMENTS for selected financial information and a schedule of investments of TSO JV as of September 30, 2024.
Previous wording
At June 30, 2024, the Company had $109.7 million of unfunded commitments consisting of $15.0 million in connection with its SBA 7(a) loans, $83.5 million in connection with its SBA 504 loans, and $11.2 million relating to commercial and industrial loans. The Company funds these commitments from the same sources it uses to fund its other loan commitments.
Current wording
At September 30, 2024, the Company had $102.5 million of unfunded commitments consisting of $17.5 million in connection with its SBA 7(a) loans, $73.4 million in connection with its SBA 504 loans, and $11.6 million relating to commercial and industrial loans. The Company funds these commitments from the same sources it uses to fund its other loan commitments.
Previous wording
Total assets at June 30, 2024 were $1.6 billion, an increase of $187.5 million, or 13.1%, compared to total assets of $1.4 billion at December 31, 2023.
Current wording
Total assets at September 30, 2024 were $1.7 billion, an increase of $244.7 million, or 17.1%, compared to total assets of $1.4 billion at December 31, 2023.
Previous wording
Loans held for sale, at fair value increased $60.9 million during the six months ended June 30, 2024, while loans held for sale, at LCM increased $2.8 million during the same period. The overall increase was primarily the result of new loan originations during 2024.
Current wording
Loans HFS, at fair value increased $123.4 million during the nine months ended September 30, 2024, while loans HFS, at LCM increased $3.6 million during the same period. The overall increase was primarily the result of new loan originations during 2024.
Previous wording
At Fair value: Loans held for investment, at fair value was $415.9 million at June 30, 2024 compared to $469.8 million at December 31, 2023. The balance consists primarily of SBA 7(a) loans as well as $6.8 million of loans that the Company owns 100% as a result of originating the loan and subsequently repurchasing the guaranteed portion from the SBA. As previously discussed, NSBF ceased originating loans during 2023, resulting in the decrease in the balance of loans held for investment from December 31, 2023 to June 30, 2024 due to the principal payments of existing loans held by NSBF.
Current wording
At Fair value: Loans HFI, at fair value was $394.5 million at September 30, 2024 compared to $469.8 million at December 31, 2023. The balance consists primarily of SBA 7(a) loans as well as $6.8 million of loans that the Company owns 100% as a result of originating the loan and subsequently repurchasing the guaranteed portion from the SBA. As previously discussed, NSBF ceased originating loans during 2023, resulting in the decrease in the balance of loans held for investment from December 31, 2023 to September 30, 2024, primarily due to the principal payments of existing loans held by NSBF.
Previous wording
At Amortized Cost: Loans held for investment, at amortized cost consists of loans originated at Newtek Bank. The $115.5 million increase in loans held for investment, at amortized cost is the result of an increase in originations for the six months ended June 30, 2024 over 2023.
Current wording
At Amortized Cost: Loans HFI, at amortized cost consists of loans originated at Newtek Bank. The $182.2 million increase in loans HFI, at amortized cost is the result of an increase in originations for the nine months ended September 30, 2024 over 2023.
Previous wording
Credit Quality: The following table presents an analysis of loans held for investment with credit metrics, including a breakdown by days aged:
Current wording
Credit Quality: The following table presents an analysis of loans HFI with credit metrics, including a breakdown by days aged:
Previous wording
The Company’s loan portfolio consists of loans to independent business owners (SMBs). The Company’s Loans HFI at amortized cost and Loans HFS at LCM include a total of $232.4 million of loans, including unfunded commitments, backed by CRE and considered non-owner occupied as of June 30, 2024. The average loan-to-value for this CRE portfolio was 59.4%. The table below presents a detail of the loans considered non-owner occupied CRE that are not carried at fair value:
Current wording
The Company’s loan portfolio consists of loans to independent business owners (SMBs). The Company’s Loans HFI at amortized cost and Loans HFS at LCM include a total of $284.8 million of loans, including unfunded commitments, backed by CRE and considered non-owner occupied as of September 30, 2024. The average loan-to-value for this CRE portfolio was 56.2%. The table below presents a detail of the loans considered non-owner occupied CRE that are not carried at fair value:
Previous wording
1 Construction land development includes first and second lien loans. The LTV on first lien is generally 65%. Second liens are typically taken out by the SBA following project completion.
Current wording
1 Construction and land development includes first and second lien loans. The LTV on first lien is generally 65%. Second liens are typically taken out by the SBA following project completion and occupancy by the borrower. The LTV calculated is based on total exposure.
Previous wording
The change in goodwill and intangible assets relates to amortization of intangible assets during the six months ended June 30, 2024.
Current wording
The change in goodwill and intangible assets for the Payments segment and NBNYC acquisition relates to amortization of intangible assets during the nine months ended September 30, 2024.
Previous wording
Settlement receivables were $79.9 million as of June 30, 2024, an increase of $17.7 million compared to December 31, 2023. The settlement receivable arises from the guaranteed portions of SBA 7(a) loans that were traded in the period but did not settle during the current period end and the cash was not received from the purchasing broker during the current period; the amount varies depending on loan origination volume and timing of sales at quarter end.
Current wording
Settlement receivables were $62.1 million as of September 30, 2024, a decrease of $0.1 million compared to December 31, 2023. The settlement receivable arises from the guaranteed portions of SBA 7(a) loans that were traded in the period but did not settle during the current period end and the cash was not received from the purchasing broker during the current period; the amount varies depending on loan origination volume and timing of sales at quarter end.
Previous wording
Total liabilities at June 30, 2024, were $1.3 billion, an increase of $162.5 million, or 13.8%, compared to total liabilities of $1.2 billion at December 31, 2023.
Current wording
Total liabilities at September 30, 2024, were $1.4 billion, an increase of $211.9 million, or 18.0%, compared to total liabilities of $1.2 billion at December 31, 2023.
Previous wording
Total deposits were $610.4 million at June 30, 2024, consisting of $4.9 million in non-interest bearing deposits and $605.5 million in interest bearing deposits, a $146.9 million increase from the balance as of December 31, 2023.
Current wording
Total deposits were $649.5 million at September 30, 2024, consisting of $11.0 million in non-interest bearing deposits and $638.4 million in interest bearing deposits, a $185.0 million increase from the balance as of December 31, 2023.
Previous wording
Borrowings were $652.0 million at June 30, 2024, compared to $644.1 million at December 31, 2023. This increase was primarily due to a $69.4 million issuance of the 2029 8.50% Notes and an additional $4.8 million borrowings under the SPV II facility. These increases were partially offset by a $48.7 million reduction in the notes payable on securitization trusts, a $13.6 million paydown of the SPV I facility, and a $3.9 million paydown of FHLB advances.
Current wording
Borrowings were $655.8 million at September 30, 2024, compared to $644.1 million at December 31, 2023. This increase was primarily due to a $69.5 million issuance of the 2029 8.50% Notes and a $72.5 million issuance of the 2029 8.625% Notes. These increases were partially offset by a $67.9 million reduction in the notes payable on securitization trusts, a $38.1 million redemption of the 2024 5.75% Notes, a $8.5 million paydown of the SPV I facility, a $6.5 million paydown on the SPV II facility, and a $7.4 million paydown of FHLB advances.
Previous wording
The deferred tax asset, net represents the cumulative timing differences between book and tax to the extent such assets or liabilities give rise to taxable income or expense in future periods. Within this balance is the deferred tax asset on net operating loss (NOL) carryforwards not expected to be utilized in the current year. The Company evaluated all NOLs for a valuation allowance and determined that none were required.
Current wording
The deferred tax liability, net represents the cumulative timing differences between book and tax to the extent such assets or liabilities give rise to taxable income or expense in future periods. Within this balance is the deferred tax asset on net operating loss (NOL) carryforwards not expected to be utilized in the current year. The Company evaluated all NOLs for a valuation allowance and determined that none were required.
Previous wording
As disclosed in our 2023 Form 10-K, the Company’s prior year condensed, comparative financial statements have been adjusted to correct errors made in the Company’s financial statements previously issued for the first, second, and third quarters of 2023. Results for the six months ended June 30, 2023 are presented as restated. Refer to our 2023 Form 10-K for further detail.
Current wording
As disclosed in our 2023 Form 10-K, the Company’s prior year condensed, comparative financial statements have been adjusted to correct errors made in the Company’s financial statements previously issued for the first, second, and third quarters of 2023. Results for the nine months ended September 30, 2023 are presented as restated. Refer to our 2023 Form 10-K for further detail.
Previous wording
For the six months ended June 30, 2024, the Company reported net income of $20.6 million, or $0.81 per basic and diluted share, compared to net income of $25.6 million, or $1.03 per basic and diluted share, for the six months ended June 30, 2023.
Current wording
For the nine months ended September 30, 2024, the Company reported net income of $32.5 million, or $1.26 per basic and diluted share, compared to net income of $36.5 million, or $1.46 per basic and diluted share, for the nine months ended September 30, 2023.
Previous wording
Loans and fees on loans: The $14.6 million increase in interest income on the Company’s loan portfolio was attributable to an increase in interest rates as well as the average outstanding accrual portfolio of loans held for investment increasing to $1.0 billion from $636.7 million for the six months ended June 30, 2024 and 2023, respectively. The increase in the average outstanding accrual loan portfolio resulted from the origination of new SBA 7(a) loans period over period.
Current wording
Loans and fees on loans: The $20.0 million increase in interest income on the Company’s loan portfolio was attributable to increases in the average balances of loans HFI and HFS, which increased $170.9 million and $96.3 million, respectively, as well as the average outstanding accrual portfolio of loans held for investment increasing to $1.1 billion from $687.2 million for the nine months ended September 30, 2024 and 2023, respectively. The increase in the average balance of loans HFS was attributable to originations of SBA 504 and ALP loans, and the increase in the average outstanding accrual loan portfolio resulted from the origination of new SBA 7(a) loans period over period.
Previous wording
Other interest earning assets: The $0.3 million increase in interest income from other interest earnings assets was attributable to rising interest rates on cash and due from banks, as well as interest bearing deposits in banks, including Newtek Bank earning interest on Federal Reserve Bank cash deposits.
Current wording
Other interest earning assets: The $0.4 million decrease in interest income from other interest earnings assets was attributable to lower interest rates on cash and due from banks, as well as interest bearing deposits in banks, including Newtek Bank earning interest on Federal Reserve Bank cash deposits.
Previous wording
The following is a summary of interest expense by facility for the six months ended June 30, 2024 and 2023:
Current wording
The following is a summary of interest expense by facility for the nine months ended September 30, 2024 and 2023:
Previous wording
The increase in interest expense period over period is primarily from additional interest expense on deposits of $6.9 million. The Company also completed a public offering in August 2023, resulting in an additional $1.8 million of interest relating to the 2028 Notes, and a public offering in May 2024, resulting in an additional $0.6 million of interest relating to the 2029 Notes. The increase is partially offset by a $3.7 million reduction in interest on bank and FHLB borrowings.
Current wording
The increase in interest expense period over period is primarily from additional interest expense on deposits of $9.0 million. The Company also completed a public offering in August 2023, resulting in an additional $2.4 million of interest relating to the 2028 Notes, and public offerings in May and September 2024, resulting in an additional $2.2 million and $0.3 million, respectively, of interest relating to the 2029 Notes. The increase is partially offset by a $0.4 million reduction in interest due to the payoff of the 2024 Notes at maturity, as well as a $4.6 million reduction in interest on bank and FHLB borrowings.
Previous wording
For the six months ended June 30, 2024 and 2023, there was a provision for credit losses of $9.8 million and $3.9 million, respectively. The increase was due to an increase in loans held for investment at amortized cost, specifically SBA 7(a) loans, as well as a sequential build of the provision year over year as the six months ended June 30, 2023, was the Company's first two quarters reporting as a financial holding company.
Current wording
For the nine months ended September 30, 2024 and 2023, there was a provision for credit losses of $16.7 million and $7.3 million, respectively. The increase was due to an increase in loans held for investment at amortized cost, specifically SBA 7(a) loans, as well as a sequential build of the ACL year over year due to higher growth in SBA 7(a) loans in the nine months ended September 30, 2024 versus the comparable period in 2023.
Previous wording
The increase in servicing income was related to an increase of $221.9 million in the average total loan portfolio for which we earn servicing income period over period.
Current wording
The increase in servicing income was related to an increase of $195.1 million in the average total loan portfolio for which we earn servicing income period over period.
Previous wording
For the six months ended June 30, 2024, the average sale price as a percent of principal balance was 111.12% compared to 110.44% for the prior period. The increase in sales prices in 2024 resulted from higher demand. The increase in overall net gains on sales of loans resulted from higher volumes of sales compared to the prior year at better market premiums than the prior year.
Current wording
For the nine months ended September 30, 2024, the average sale price as a percent of principal balance was 111.00% compared to 110.17% for the prior period. The increase in sales prices in 2024 resulted from higher demand. The increase in overall net gains on sales of loans resulted from higher volumes of sales compared to the prior year at better market premiums than the prior year and the expectation of lower interest rates which would slow prepay speeds.
Previous wording
Net gain (loss) on loans accounted for under the fair value option for the six months ended June 30, 2024 and 2023 were as follows:
Current wording
Net gain (loss) on loans accounted for under the fair value option for the nine months ended September 30, 2024 and 2023 were as follows:
Previous wording
During the six months ended June 30, 2024, the Company recorded unrealized losses on SBA 7(a) unguaranteed loans accounted for under the fair value option as the portfolio paid down. During the first six months of 2023, the Company originated $154.6 million of SBA 7(a) loans and elected the fair value option on those loans, which led to increased gains.
Current wording
During the nine months ended September 30, 2024, the Company recorded unrealized losses on SBA 7(a) unguaranteed loans accounted for under the fair value option as the portfolio paid down. During the first nine months of 2023, the Company originated $157.4 million of SBA 7(a) loans and elected the fair value option on those loans, which led to increased gains.
Previous wording
Technology and IT support income decreased by $2.1 million from $13.1 million for the six months ended June 30, 2023 to $10.9 million for the six months ended June 30, 2024. The overall decrease was due to a decrease in procurement and professional services revenue, offset by an increase in managed technology services revenue.
Current wording
Technology and IT support income decreased by $4.2 million from $18.5 million for the nine months ended September 30, 2023 to $14.3 million for the nine months ended September 30, 2024. The overall decrease was due to a decrease in web hosting and IT support revenue.
Previous wording
For the six months ended June 30, 2024 and 2023, other noninterest income was related primarily to legal, packaging, prepayment, and late fees earned from SBA 7(a) loans and increased as a result of the higher volume of SBA 7(a) loans originated of 1,093 loans compared to 721 loans for the six months ended June 30, 2024 and 2023, respectively. The increase also includes $3.4 million of gains on joint ventures and non-control investments for the six months ended June 30, 2024 compared to $2.7 million in the prior period.
Current wording
For the nine months ended September 30, 2024 and 2023, other noninterest income was related primarily to legal, packaging, prepayment, and late fees earned from SBA 7(a) loans and increased as a result of the higher number of SBA 7(a) loans originated of 1,732 loans compared to 1,236 loans for the nine months ended September 30, 2024 and 2023, respectively. The increase also includes $9.6 million of gains on joint ventures and non-control investments for the nine months ended September 30, 2024 compared to $3.1 million in the prior period.
Previous wording
The increase in salaries and employee benefits was primarily attributable to an increase in entity headcount from 534 employees at June 30, 2023 to 567 employees at June 30, 2024, as well as an increase in the bonus pool accrual.
Current wording
The increase in salaries and employee benefits was primarily attributable to an increase in entity headcount from 529 employees at September 30, 2023 to 570 employees at September 30, 2024, as well as an increase in the bonus pool accrual.
Previous wording
The increase in professional services expense period over period is primarily attributable to additional audit fees related to the completion of the Company’s first annual audit as a financial holding company after the Acquisition of NBNYC and related audit services, including internal and external audit of controls and procedures.
Current wording
The increase in professional services expense period over period is primarily attributable to additional audit fees related to the completion of the Company’s first annual audit as a financial holding company after the Acquisition of NBNYC and related audit services, including internal and external audit of controls and procedures, as well as costs associated with the anticipated NTS disposition.
Previous wording
Banking - The banking segment includes Newtek Bank as well as its consolidated subsidiary SBL. The financial results include the origination, sale, and servicing of SBA 7(a) loans, 504 loans, C&I loans, CRE loans and ABL loans. In addition, the bank offers depository services. The results include $17.0 million of net interest income during the six months ended June 30, 2024 compared to $6.0 million of net interest income during the six months ended June 30, 2023. During the first two quarters of 2024, the majority of loans were funded by Newtek Bank compared to the first two quarters of 2023, when most loans were funded by NSBF until it went into wind-down on April 13, 2023.
Current wording
The banking segment includes Newtek Bank as well as its consolidated subsidiary SBL. The financial results include the origination, sale, and servicing of SBA 7(a) loans, 504 loans, C&I loans, CRE loans and ABL loans. In addition, the bank offers depository services. The results include $28.2 million of net interest income during the nine months ended September 30, 2024 compared to $11.1 million of net interest income during the nine months ended September 30, 2023. During the first three quarters of 2024, the majority of loans were funded by Newtek Bank compared to the first three quarters of 2023, when all SBA 7(a) loans were funded by NSBF until it went into wind-down on April 13, 2023.
Previous wording
Technology - Technology (NTS) provides website hosting, dedicated server hosting, cloud hosting, web design and development, internet marketing, e-commerce, data storage, backup and disaster recovery, and other related services including consulting and implementing technology solutions for enterprise and commercial clients across the U.S. As a result of commitments made to the Federal Reserve, the Company will divest or otherwise terminate the activities conducted by NTS by January 6, 2025, subject to any extension.
Current wording
Technology (NTS) provides website hosting, dedicated server hosting, cloud hosting, web design and development, internet marketing, e-commerce, data storage, backup and disaster recovery, and other related services including consulting and implementing technology solutions for enterprise and commercial clients across the U.S. As a result of commitments made to the Federal Reserve, the Company will divest or otherwise terminate the activities conducted by NTS by January 6, 2025, subject to any extension.
Previous wording
NSBF - Relates to NSBF’s legacy portfolio of SBA 7(a) loans held outside Newtek Bank. The decrease in net income is due to the wind-down of NSBF’s operations.
Current wording
NSBF includes NSBF’s legacy portfolio of SBA 7(a) loans held outside Newtek Bank. The decrease in net income is due to the wind-down of NSBF’s operations.
Previous wording
Payments - Payments includes NMS, POS and Mobil Money. Within the segment’s results are $26.4 million of noninterest income for the six months ended June 30, 2024 resulting from marketing credit and debit card processing services, check approval services, processing equipment, and software, compared to $22.8 million during the six months ended June 30, 2023. The net income also included $17.1 million and $16.2 million of noninterest expense for the six months ended June 30, 2024 and 2023, respectively.
Current wording
Payments includes NMS, POS and Mobil Money. Within the segment’s results are $39.1 million of noninterest income for the nine months ended September 30, 2024 resulting from marketing credit and debit card processing services, check approval services, processing equipment, and software, compared to $35.0 million during the nine months ended September 30, 2023. The net income also included $24.4 million and $24.0 million of noninterest expense for the nine months ended September 30, 2024 and 2023, respectively.
Previous wording
Corporate and Other - Represents operations not considered to be reportable segments and/or general operating expenses of the Company, and includes the parent company, other non-bank subsidiaries including NIA, PMT, non-bank lending, including Holdco 6 and our joint ventures, and elimination adjustments to reconcile the results of the operating segments to the consolidated financial statements prepared in conformity with GAAP.
Current wording
Corporate and Other represents operations not considered to be reportable segments and/or general operating expenses of the Company, and includes the parent company, other non-bank subsidiaries including NIA, PMT, non-bank lending, including NALH (Newtek ALP Holdings) and our joint ventures, and elimination adjustments to reconcile the results of the operating segments to the consolidated financial statements prepared in conformity with GAAP.
Previous wording
For the three months ended June 30, 2024, the Company reported net income of $10.9 million, or $0.43 per basic and diluted share, compared to net income of $7.0 million, or $0.27 per basic and diluted share, for the three months ended June 30, 2023.
Current wording
For the three months ended September 30, 2024, the Company reported net income of $11.9 million, or $0.45 per basic and diluted share, compared to net income of $10.9 million, or $0.43 per basic and diluted share, for the three months ended September 30, 2023.
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Current report — wording carried from elsewhere
(1) On August 1, 2024, the 2024 Notes matured.
Current report — wording carried from elsewhere
Other Loan Origination and Maintenance Expense
Current report — wording carried from elsewhere
The 2024 Notes traded on the Nasdaq Global Market under the trading symbol “NEWTL” until the 2024 Notes matured on August 1, 2024. The 2024 Notes were also subject to BDC Covenants.
Rearranged previous paragraphs (3)
Previous report — wording carried elsewhere
Technology and IT Support Income and Electronic Payment Processing Income
Previous report — wording carried elsewhere
The 2024 Notes matured on August 1, 2024.
Previous report — wording carried elsewhere
On July 23, 2024, the Company’s joint venture, TSO JV, closed a securitization backed by ALP loans, selling $137.2 million of Class A Notes and $17.2 million of Class B Notes (collectively, the “TSO Notes”) issued by NALP Business Loan Trust 2024-1. The TSO Notes are backed by $190.5 million of collateral, consisting of $159.8 million of Company originated ALP loans and a $30.8 million prefunding account to acquire additional ALP loans originated by the Company in May 2024. The Class A and Class B Notes received Morningstar DBRS ratings of “A (sf)” and “BBB (high) (sf),” respectively.