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What changed in NewtekOne, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of NewtekOne, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+967 added−789 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-16)

Top changes in NewtekOne, Inc.'s 2023 10-K

967 paragraphs added · 789 removed · 500 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

201 edited+82 added−30 removed127 unchanged
Biggest changeIn addition to Form 1919, the following additional information is required: • an SBA Form 912 (Statement of Personal History), if the relevant questions in Form 1919 are answered affirmatively; • an SBA Form 413 (Personal Financial Statement), for all owners of 20% or more (including the assets of the owner’s spouse and any minor children), and proposed guarantors; • business financial statements dated within 180 days prior to submission to SBA, consisting of (a) year-end balance sheets for the last three years, including detailed debt schedule, (b) year-end profit & loss (P&L) statements for the last three years, (c) reconciliation of net worth, (d) interim balance sheet, and (e) interim P&L statements; • a list of names and addresses of any subsidiaries and affiliates, including concerns in which the applicant holds a controlling interest and other concerns that may be affiliated by stock ownership, franchise, proposed merger or otherwise with the applicant, and business financial statements meeting the same requirements as above of such subsidiaries and affiliates; • formation documents for all obligor entities to validate existence and structure; • the applicant’s original business license or certificate of doing business; • records of any loans the applicant may have applied for in the past; • signed personal and business U.S. federal income tax returns of the principals of the applicant’s business for previous three years; 23 • personal resumes for each principal; • a brief history of the business and its challenges, including an explanation of why the SBA loan is needed and how it will help the business; • a copy of the applicant’s business lease, or note from the applicant’s landlord, giving terms of proposed lease; and • if purchasing an existing business, (a) current balance sheet and P&L statement of business to be purchased, (b) previous two years U.S. federal income tax returns of the business, (c) proposed Bill of Sale including Terms of Sale, and (d) asking price with schedule of inventory, machinery and equipment, furniture and fixtures.
Biggest changeFinancials should consist of (a) year-end balance sheets for the last three years, including detailed debt schedule, (b) year-end profit & loss (P&L) statements for the last three years, (c) reconciliation of net worth, (d) interim balance sheet, including a detailed debt schedule, and (e) interim P&L statements; • formation documents for all obligor entities to validate existence and structure; • the applicant’s original business license or certificate of doing business; 26 • records of any loans the applicant may have applied for in the past; • signed personal and business U.S. federal income tax returns of the principals of the applicant’s business for previous three years; • personal resumes for each principal; • a brief history of the business and its challenges, including an explanation of why the SBA loan is needed and how it will help the business; • a copy of the applicant’s business lease, or note from the applicant’s landlord, giving terms of proposed lease; and • if purchasing an existing business, (a) current balance sheet and P&L statement of business to be purchased, (b) previous two years’ U.S. federal income tax returns of the business, (c) proposed Bill of Sale including Terms of Sale, and (d) asking price with schedule of inventory, machinery and equipment, furniture and fixtures.
We have established a direct origination pipeline for loan origination opportunities without the necessity for financial institutions or brokers as well as broad marketing channels that we believe allow for highly selective underwriting.
We have established a direct loan origination pipeline for opportunities without the necessity for financial institutions or brokers as well as broad marketing channels that we believe allow for highly selective underwriting.
In addition, electronic payment processing services are marketed through independent sales representatives and web technology and eCommerce services are marketed through internet-based marketing and third-party resellers. A common thread across all business lines of our subsidiaries relates to acquiring customers at low cost.
In addition, electronic payment processing services are marketed through independent sales representatives and web technology and eCommerce services are marketed through internet-based marketing and third-party resellers. A common thread across all business lines of our subsidiaries and subsidiaries relates to acquiring customers at low cost.
Spouses are required to sign all personal financial statements in order for the Underwriting Department to verify compliance with the SBA’s personal resource test. In addition, the Underwriting Department will ensure that there has been no adverse impact on financial condition of the applicant or its principals since the approval of the loan.
Spouses are required to sign all personal financial statements in order for the Underwriting Department to verify compliance with the SBA’s personal resource test. In addition, the Underwriting Department will ensure that there has been no adverse impact on the financial condition of the applicant or its principals since the approval of the loan.
In general, appraisals will be required as follows: • For loans greater than $500,000 is secured by commercial real property; or • For loans $500,000 or less secured by commercial real property, an appraisal will be required if such appraisal is necessary for appropriate evaluation of creditworthiness. • The appraiser must be either State-licensed or State-certified (except when the property’s estimated value is over $1,000,000, when the appraiser must be State-certified) and the appraisal report must conform to Uniform Standards of Professional Appraisal Practice (USPAP); • Appraisal reviews are required for all commercial real estate with an appraised value of $500,000 or more conducted by a licensed/certified and independent MAI appraiser.
In general, appraisals will be required as follows: • For loans greater than $500,000 secured by commercial real property; or • For loans $500,000 or less secured by commercial real property, an appraisal will be required if such appraisal is necessary for appropriate evaluation of creditworthiness. • The appraiser must be either State-licensed or State-certified (except when the property’s estimated value is over $1,000,000, when the appraiser must be State-certified) and the appraisal report must conform to Uniform Standards of Professional Appraisal Practice (USPAP); • Appraisal reviews are required for all commercial real estate with an appraised value of $500,000 or more conducted by a licensed/certified and independent MAI appraiser.
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 32 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.
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.
We believe the combination of our brand, our portal, our patented NewTracker® technology, and our web presence as Your Business Solutions Company® have created an extensive deal sourcing infrastructure. Although we pay fees for loan originations that are referred to us by our alliance partners, our Senior Lending Team works directly with the borrower to assemble and underwrite loans.
We believe the combination of our brand, our portal, our patented NewTracker® technology, and our web presence as Your Business Solutions Company® have created an extensive deal sourcing infrastructure. Although we pay fees for loan originations that are referred to us by our alliance partners, our lending team works directly with the borrower to assemble and underwrite loans.
Failure to comply with these laws, or to meet our regulators’ supervisory expectations in connection with these laws, could subject us to supervisory or enforcement action, significant financial penalties, criminal liability and/or reputational harm. 18 Third-Party Relationship Risk Management We utilize third-party service providers to perform a wide range of operations and other functions, which may present various risks.
Failure to comply with these laws, or to meet our regulators’ supervisory expectations in connection with these laws, could subject us to supervisory or enforcement action, significant financial penalties, criminal liability and/or reputational harm. Third-Party Relationship Risk Management We utilize third-party service providers to perform a wide range of operations and other functions, which may present various risks.
In this regard, and unless otherwise directed by the OCC, we have made commitments for Newtek Bank to maintain a tier 1 leverage ratio of no less than 10% and a total risk-based capital ratio of 11.5% for the term of the Operating Agreement. The Federal Deposit Insurance Act provides for a system of “prompt corrective action” (“PCA”).
In this regard, and unless otherwise directed by the OCC, we have made commitments for Newtek Bank to maintain a tier 1 leverage ratio of no less than 10% and a total risk-based capital ratio of 11.5% for the term of the Operating Agreement. 19 The Federal Deposit Insurance Act provides for a system of “prompt corrective action” (“PCA”).
Our Senior Lending Team has developed what we believe to be an extensive underwriting due diligence process, which includes a review of the operational, financial, legal and industry performance and outlook for the prospective borrower, including quantitative and qualitative stress tests, review of industry data and when necessary, consultation with outside experts regarding the creditworthiness of the borrower.
Our Senior Lending Team has developed what we believe to be an extensive underwriting due diligence process, which includes a review of the operational, financial, legal and industry performance and outlook for the prospective investment, including quantitative and qualitative stress tests, review of industry data and when necessary, consultation with outside experts regarding the creditworthiness of the borrower.
This capability is supported in large part by NewTracker ® , our patented prospect management technology software, which is similar to, but we believe better suited for our needs than, the system popularized by Salesforce.com and similar providers. In addition, we have launched the Newtek Advantage TM (patent pending) dashboard for our depository and non-depository clients.
This capability is supported in large part by NewTracker®, our patented prospect management technology software, which is similar to, but we believe better suited for our needs than, the system popularized by Salesforce.com and similar providers. In addition, we have recently launched the Newtek Advantage TM (patent pending) dashboard, for our depository and non-depository clients.
However, there is a specific exception for loans by financial institutions, such as Newtek Bank, to its executive officers and directors that are made in compliance with federal banking laws. Acquisition of a Significant Interest in the Company Banking laws impose various regulatory requirements on parties that may seek to acquire a significant interest in the Company.
However, there is a specific exception for loans by financial institutions, such as Newtek Bank, to its executive officers and directors that are made in compliance with federal 21 banking laws. Acquisition of a Significant Interest in the Company Banking laws impose various regulatory requirements on parties that may seek to acquire a significant interest in the Company.
We believe that SMBs, most of which are privately-held, are relatively underserved by traditional capital providers such as commercial banks, finance companies, hedge funds and collateralized loan obligation funds. Further, we believe that such companies generally possess conservative capital structures with significant enterprise value cushions, as compared to larger companies with more financing options.
We believe that SMBs, most of which are privately-held, are relatively underserved by traditional capital providers such as commercial banks, finance companies, hedge funds and collateralized loan obligation funds. Further, we believe that such businesses generally possess conservative capital structures with significant enterprise value cushions, as compared to larger companies with more financing options.
Our Code of Ethics establishes applicable policies, guidelines, and procedures that promote ethical practices and conduct by the Company and all its employees, officers, and directors. Our Code of Ethics can be found on our website at https:/investor.newtekbusinessservices.com/corporate-governance . We aim to provide a safe environment at work.
Our Code of Ethics establishes applicable policies, guidelines, and procedures that promote ethical practices and conduct by the Company and all its employees, officers, and directors. Our Code of Ethics can be found on our website at https:/investor.newtekbusinessservices.com/corporate-governance . 33 We aim to provide a safe environment at work.
NMS’ business model allows it to own the customer as well as the stream of residual payments, as opposed to models which rely more heavily on independent sales agents. Mobil Money provides payment processing for a merchant portfolio of taxi cabs and related licensed payment processing 11 software.
NMS’ business model allows it to own the customer as well as the stream of residual payments, as opposed to models which rely more heavily on independent sales agents. Mobil Money provides payment processing for a merchant portfolio of taxi cabs and related licensed payment processing software.
A thorough review of the facts behind the bankruptcy and impact on creditors will be undertaken in determining whether the principal has demonstrated the necessary willingness and ability to repay debts. In addition, we will examine whether the applicant and its principals and guarantors have abided by the laws of their community.
A thorough review of the facts 27 behind the bankruptcy and impact on creditors will be undertaken in determining whether the principal has demonstrated the necessary willingness and ability to repay debts. In addition, we will examine whether the applicant and its principals and guarantors have abided by the laws of their community.
For example: • pursuant to Rule 13a-14 of the Exchange Act, our Chief Executive Officer and Chief Accounting Officer must certify the accuracy of the consolidated financial statements contained in our periodic reports; • pursuant to Item 307 of Regulation S-K, our periodic reports must disclose our conclusions about the effectiveness of our disclosure controls and procedures; • pursuant to Rule 13a-15 of the Exchange Act, our management must prepare a report regarding its assessment of our internal controls over financial reporting; and • pursuant to Item 308 of Regulation S-K and Rule 13a-15 of the Exchange Act, our periodic reports must disclose whether there were significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
For example: • pursuant to Rule 13a-14 of the Exchange Act, our Chief Executive Officer and Chief Financial Officer must certify the accuracy of the consolidated financial statements contained in our periodic reports; • pursuant to Item 307 of Regulation S-K, our periodic reports must disclose our conclusions about the effectiveness of our disclosure controls and procedures; • pursuant to Rule 13a-15 of the Exchange Act, our management must prepare a report regarding its assessment of our internal controls over financial reporting; and 34 • pursuant to Item 308 of Regulation S-K and Rule 13a-15 of the Exchange Act, our periodic reports must disclose whether there were significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Newtek Bank’s deposits are insured by the DIF up to applicable legal limits. As an FDIC-insured depository institution, Newtek Bank is subject under certain circumstances to supervision, regulation and examination by the FDIC. The FDIC charges deposit insurance assessments to FDIC-insured institutions, including Newtek Bank, to fund and support the DIF.
Newtek Bank’s deposits are insured by the Depositors Insurance Fund (DIF) up to applicable legal limits. As an FDIC-insured depository institution, Newtek Bank is subject under certain circumstances to supervision, regulation and examination by the FDIC. The FDIC charges deposit insurance assessments to FDIC-insured institutions, including Newtek Bank, to fund and support the DIF.
The closing of a loan is handled by the closing and legal department consisting of loan closer, in-house attorneys and paralegals, whose primary responsibility is to close the loan in accordance with prudent lending standards and in compliance with SBA requirements thereby seeking to preserve SBA’s guaranty of repayment.
The closing of a loan is handled by SBL’s closing and legal department, consisting of loan closer, in-house attorneys and paralegals, whose primary responsibility is to close the loan in accordance with prudent lending standards and in compliance with SBA requirements thereby seeking to preserve SBA’s guaranty of repayment.
Our patented NewTracker ® software enables us to board a SMB customer, process the application or inquiry, assemble necessary documents, complete the transaction and create a daily reporting system that is sufficiently unique as to receive a U.S. patent.
Our patented NewTracker® software enables us to board an SMB customer, process the application or inquiry, assemble necessary documents, complete the transaction and create a daily reporting system that is sufficiently unique as to receive a U.S. patent.
Real Estate Transactions: Loan proceeds for the acquisition or refinancing of land or an existing building or for renovation or reconstruction of an existing building must meet the following criteria: • the property must be at least 51% owner-occupied pursuant to SBA policies; and • loan proceeds may not be used to remodel or convert any rental space in the property. 26 For new construction, the Applicant must occupy 60% of the Rentable Property, may permanently lease to a third party up to 20% and temporarily lease an additional 20% with the intention of using some of the additional 20% within 3 years and all of it within 10 years.
Real Estate Transactions: Loan proceeds for the acquisition or refinancing of land or an existing building or for renovation or reconstruction of an existing building must meet the following criteria: • the property must be at least 51% owner-occupied pursuant to SBA policies; and • loan proceeds may not be used to remodel or convert any rental space in the property. 29 For new construction, the applicant must occupy 60% of the rentable property, may permanently lease to a third party up to 20% and temporarily lease an additional 20% with the intention of using some of the additional 20% within 3 years and all of it within 10 years.
We strive to continue to create a welcoming and inclusive work environment for our employees. We are committed to recruiting, motivating. and developing a diversity of talent and to create an inclusive community where all individuals are welcomed, valued, respected, and heard.
We strive to continue to create a welcoming and inclusive work environment for our employees. We are committed to recruiting, motivating and developing a diversity of talent and to creating an inclusive community where all individuals are welcomed, valued, respected, and heard.
We believe the Newtek Advantage will enable us to grow core retail deposits and provide an advantage to our existing and new clients. We believe that NewtekOne’s technology and business model distinguishes us from our competitors.
We believe the Newtek Advantage will enable us to grow core retail deposits and provide an advantage to our existing and new clients. We believe that NewtekOne’s technology and business model distinguishes us from our competitors. OCC.
In the event of a repair or denial, liability on the guaranty, in whole or in part, would be transferred to NSBF or Newtek Bank as the originator of the loan, as the case may be.
In the event of a repair or denial, liability on the guaranty, in whole or in part, would be transferred to NSBF or 22 Newtek Bank as the originator of the loan, as the case may be.
The incurrence of repairs and denials when NSBF is no longer generating income from the sales of guaranteed portions of SBA 7(a) loans can have a material negative impact on our financial results and liquidity. In addition, changes in SBA regulations and economic factors may adversely impact NSBF’s or Newtek Bank’s repair and denial rates. See “Item 1A.
The incurrence of repairs and denials while NSBF is no longer generating income from the sales of guaranteed portions of SBA 7(a) loans can have a material negative impact on our financial results and liquidity. In addition, changes in SBA regulations and economic factors may adversely impact NSBF’s or Newtek Bank’s repair and denial rates. See “Item 1A.
Additionally, competition for loans has emerged among alternative investment vehicles, such as collateralized loan obligations, some of which are sponsored by other alternative asset investors, as these entities have begun to focus on making investments in SMBs. As a result of these new entrants, competition for our loan opportunities may intensify.
Additionally, competition for investment opportunities has emerged among alternative investment vehicles, such as collateralized loan obligations, some of which are sponsored by other alternative asset investors, as these entities have begun to focus on making investments in SMBs. As a result of these new entrants, competition for our lending opportunities may intensify.
Valuation factors are applied as follows: • Commercial real estate — 75% • Residential real estate — 85% 25 • Vacant land — 50% • Machinery & Equipment — 50% • Furniture & Fixtures — 10% • Accounts receivable & inventory —10% • Leasehold improvements — 5% • Certificate of Deposit — 100% • Regulated Licenses — will vary dependent upon type of license and geographic area.
Valuation factors are applied as follows: 28 • Commercial real estate — 75% • Residential real estate — 85% • Vacant land — 50% • Machinery & Equipment — 50% • Furniture & Fixtures — 10% • Accounts receivable & inventory —10% • Leasehold improvements — 5% • Certificate of Deposit — 100% • Regulated Licenses — will vary dependent upon type of license and geographic area.
We typically structure our loans to include non-financial covenants that seek to minimize our risk of capital loss such as lien protection and prohibitions against change of control. Our loans have strong protections, including default penalties, information rights and, in some cases, affirmative, negative and financial covenants.
We typically structure our loans to include non-financial covenants that seek to minimize our risk of capital loss such as lien protection and prohibitions against change of control. Our loans are typically structured to have strong protections, including default penalties, information rights and, in some cases, affirmative, negative and financial covenants.
For individuals or personal guarantors, we require a personal financial statement dated within 180 days of the application (sixty days is preferred) and personal income tax returns for the prior three years. In connection with each yearly update of business financial information, the personal financial information of each principal must also be updated.
For individuals or personal guarantors, we require a personal financial statement dated within 120 days of the application (sixty days is preferred) and personal income tax returns for the prior three years. In connection with each yearly update of business financial information, the personal financial information of each principal must also be updated.
In many cases, we believe that our competitors are not as able as we are to take advantage of changes in business practices due to technological developments and, for those with a larger size, are unable to offer the personalized service that many SMB owners and operators desire.
In many cases, we believe that our competitors are not as able as we are to take advantage of changes in business practices due to technological developments and, for those with a larger size, are unable to offer the personalized service that many independent business owners and operators desire.
The most recent financial information may not be more than 180 days old at the time of the approval of the loan, but we generally request that the most recent financial information not be older than 90 days in order to provide time for underwriting and submission to SBA for guaranty approval, if required.
The most recent financial information may not be more than 120 days old at the time of submission to the SBA for approval of the loan, but we generally request that the most recent financial information not be older than 90 days in order to provide time for underwriting and submission to SBA for guaranty approval, if required.
However, there is no guarantee that Newtek Bank will be able to continue to earn premiums of 106% to 123% on future sales of the guaranteed portions of SBA 7(a) loans or obtain PLP status. See “Item 1A.
However, there is no guarantee that Newtek Bank will be able to continue to earn premiums of 106% to 123% on future sales of the guaranteed portions of SBA 7(a) loans or will be able to maintain PLP status. See “Item 1A.
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 regulated investment company for federal income tax purposes and no longer qualify for accounting treatment as an investment company.
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 for federal income tax purposes and no longer qualify for accounting treatment as an investment company.
NSBF’s Regulation as a Small Business Lending Company and the Transition of SBA 7(a) Lending to Newtek Bank Our wholly-owned subsidiary, NSBF, is licensed by the SBA as an SBLC that originates loans through the SBA 7(a) Program.
NSBF’s Regulation as a Small Business Lending Company and the Transition of SBA 7(a) Lending to Newtek Bank Our wholly-owned subsidiary, NSBF, is licensed by the SBA as an SBLC that originated loans through the SBA 7(a) Program.
If the applicant’s debt service coverage ratio decreases to 1:1 or less than 1:1, the loan may only be made as an exception to our Underwriting Guidelines and would require the approval of our credit committee. Required Site Visit No loan will be funded without an authorized representative of NSBF first making a site visit to the business premises.
If the applicant’s debt service coverage ratio decreases to 1:1 or less than 1:1, the loan may only be made as an exception to our Underwriting Guidelines and would require the approval of our credit committee. Required Site Visit No loan will be funded without an authorized representative of Newtek Bank first making a site visit to the business premises.
These processes continue during the loan portfolio monitoring process, when we will conduct field examinations, when appropriate, review all compliance certificates and covenants and regularly assess the financial and business conditions and prospects of borrowers.
These processes continue during the portfolio monitoring process, when we will conduct field examinations, when appropriate, review all compliance certificates and covenants and regularly assess the financial and business conditions and prospects of our borrowers.
Increased competition and rapid technological innovation are creating an increasingly competitive business environment that requires SMBs to fundamentally change the way they manage critical business processes. This environment is characterized by greater focus on increased quality, lower costs, faster turnaround and heightened regulatory scrutiny.
Increased competition and rapid technological innovation are creating an increasingly competitive business environment that requires independent business owners to fundamentally change the way they manage critical business processes. This environment is characterized by greater focus on increased quality, lower costs, faster turnaround and heightened regulatory scrutiny.
Risk Factors – There can be no guarantee that Newtek Bank will be able to maintain its SBA 7(a) lending license.” Pursuant to the SBA’s regulations, the SBA is released from liability on its guaranty of an SBA 7(a) loan and may, in its sole discretion, refuse to honor a guaranty purchase request in full or in part, or recover all or part of the funds already paid in connection with a guaranty purchase, if the lender failed to comply materially with a SBA Loan Program Requirement; failed to make, close, service or liquidate the loan in a prudent manner; placed the SBA at risk through improper action or inaction; failed to disclose a material fact to the SBA in a timely manner; or misrepresented a material fact to the SBA regarding the loan.
Risk Factors - Risks Related to SBA Lending - There can be no guarantee that Newtek Bank and NSBF will be able to maintain their SBA 7(a) lending licenses.” Pursuant to the SBA’s regulations, the SBA is released from liability on its guaranty of an SBA 7(a) loan and may, in its sole discretion, refuse to honor a guaranty purchase request in full or in part, or recover all or part of the funds already paid in connection with a guaranty purchase, if the lender failed to comply materially with a SBA Loan Program Requirement; failed to make, close, service or liquidate the loan in a prudent manner; placed the SBA at risk through improper action or inaction; failed to disclose a material fact to the SBA in a timely manner; or misrepresented a material fact to the SBA regarding the loan.
NMS’ development and growth are focused on selling NMS’ services to internally generated referrals, merchant referrals identified by NewtekOne alliance partners and by independent sales representatives. We believe NMS is different than most electronic payment processing companies who acquire their clients primarily through independent sales agents.
NMS’ development and growth is focused on selling NMS’ services to internally generated referrals, merchant referrals identified by Newtek alliance partners and by independent sales representatives. We believe NMS is different than most electronic payment processing companies who acquire their clients primarily through independent sales agents.
The SBA grants PLP status to certain lenders originating SBA 7(a) loans based on achievement of certain standards in lending which are regularly monitored by the SBA. As a Preferred Lender, Newtek Bank will be authorized to place SBA guarantees on SBA 7(a) loans without seeking prior SBA review and approval.
The SBA grants PLP status to certain lenders originating SBA 7(a) loans based on achievement of certain standards in lending which are regularly monitored by the SBA. As a Preferred Lender, Newtek Bank is authorized to place SBA guarantees on SBA 7(a) loans without seeking prior SBA review and approval.
Our subsidiaries provide critical business solutions such as electronic payment processing, managed IT solutions, personal and commercial insurance services and full-service payroll and benefit solutions, receivables financing, funding of SBA 504 loans, which provide financing of fixed assets such as real estate or equipment, and non-conforming (non-SBA) commercial loans.
We provide critical business solutions such as electronic payment processing, managed IT solutions, personal and commercial insurance services and full-service payroll and benefit solutions, receivables financing, funding of SBA 504 loans, which provide financing of fixed assets such as real estate or equipment, and non-conforming (non-SBA) commercial loans.
We believe we will be able to compete with these entities primarily on the basis of our financial technology infrastructure, our experience and reputation, our deep industry knowledge and ability to provide customized business solutions, our willingness to make smaller loans than other specialty finance companies, the breadth of our contacts, our responsive and efficient loan analysis and decision-making processes, and the loan terms we offer.
We believe we will be able to compete with these entities primarily on the basis of our financial technology infrastructure, our experience and reputation, our deep industry knowledge and ability to provide customized business and financial solutions, our willingness to make smaller loans than specialty finance companies, the breadth of our contacts, our responsive and efficient underwriting analysis and decision-making processes, and the lending terms we offer.
NSBF policy regarding the use of real estate appraisals and environmental reports is intended to provide for a secure, orderly and independent process for the ordering, receipt and approval of independent valuation and environmental reports. Commercial real estate appraisals are required on all primary collateral prior to the loan closing.
Newtek Bank’s policy regarding the use of real estate appraisals and environmental reports is intended to provide for a secure, orderly and independent process for the ordering, receipt and approval of independent valuation and environmental reports. Commercial real estate appraisals are required on all primary collateral prior to the loan closing.
We continue to utilize and grow our primary marketing channel of strategic alliance partners as well as a direct marketing strategy to SMB customers through our “go to market” brand, Your Business Solutions Company® and One Solution for All Your Business Needs ® .
We continue to utilize and grow our primary marketing channel of strategic alliance partners as well as a direct marketing strategy to independent business owner customers through our “go to market” brand, Your Business Solutions Company® and One Solution for All Your Business Needs® .
During this wind down process, NSBF will be required to continue to own the SBA 7(a) loans and PPP Loans in its SBA loan portfolio to maturity, liquidation, charge-off, or (subject to SBA’s prior written approval), sale or transfer.
During this wind-down process, NSBF will continue to own the SBA 7(a) loans and PPP Loans currently in its SBA loan portfolio to maturity, liquidation, charge-off or (subject to SBA’s prior written approval) sale or transfer.
NPS is a majority owned subsidiary of NewtekOne which provides a cloud based Point of Sale (POS) system for a variety of restaurant, retail, assisted living, parks and golf course businesses, which provides not only payments and purchase technology solutions, but also inventory, customer management, reporting, employee time clock, table and menu layouts, and ecommerce solutions as the central operating system for an SMB.
POS is a majority owned subsidiary of NewtekOne which provides a cloud based Point of Sale system for a variety of restaurant, retail, assisted living, parks and golf course businesses, which provides not only payments and purchase technology solutions, but also inventory, customer management, reporting, employee time clock, table and menu layouts, and ecommerce solutions as the central operating system for an independent business owner.
Former Business Development Company Status Our predecessor was formed on June 29, 1999 under the laws of the State of New York and, on November 12, 2014, in connection with our election to be regulated as a BDC, merged with and into us for the purpose of reincorporating under the laws of the State of Maryland.
Prior Business Development Company History Our predecessor was formed on June 29, 1999 under the laws of the State of New York and, on November 12, 2014, in connection with our election to be regulated as a BDC, merged with and into us for the purpose of reincorporating under the laws of the State of Maryland.
In order to support a culture of learning, we provide many training opportunities for our employees to continue to build their skills and increase their effectiveness as members of a team, including offering a variety of external and internal classes and training sessions as well as hands-on learning and one-on-one mentorship.
In order to support a culture of learning, we provide many training opportunities for our employees to continue to build their skills and increase their effectiveness as members of a team, including offering a variety of external and internal classes and training sessions as well as hands-on learning and one-on-one mentorship. We continue to encourage dialogue between managers and employees.
These referring organizations and associations are typically paid a percentage of the processing revenue derived from the respective merchants that they successfully refer to NMS. In 2022, NMS processed merchant transactions with sales volumes of $5.0 billion. We believe NMS has a number of competitive advantages which we believe will enable it to effectively compete in this market.
These referring organizations and associations are typically paid a percentage of the processing 12 revenue derived from the respective merchants that they successfully refer to NMS. In 2023, NMS processed merchant transactions with sales volumes of $5.4 billion. We believe NMS has a number of competitive advantages which we believe will enable it to effectively compete in this market.
While we compete with many different providers in our various businesses, we have been unable to identify any direct and comprehensive competitors that deliver the same broad suite of services focused on the needs of the SMB market with the same marketing strategy as we do.
While we compete with many different providers in our various businesses, we have been unable to identify any direct and comprehensive competitors that deliver the same broad suite of services focused on the needs of the independent business owner market with the same marketing strategy as we do.
Our lending will continue to focus on making loans to SMBs that: • have 3 to 10 years of operational history; • significant experience in management; • credit worthy owners who provide a personal guarantee for our investment; • show a strong balance sheet; and • show sufficient cash flow to be able to service the payments on our investments comfortably.
Our lending will continue to focus on making loans to independent business owners that: • have 3 to 10 years of operational history; • significant experience in management; • credit worthy owners who provide a personal guarantee for our investment; 15 • show a strong balance sheet to collateralize our investments; and • show sufficient cash flow to be able to service the payments on our investments comfortably.
These companies should be well positioned to capitalize on organic and strategic growth opportunities, and should compete in industries with strong fundamentals and meaningful barriers to entry. We further analyze prospective loans in order to identify competitive advantages within their industry, which may result in superior operating margins or industry-leading growth. Customer and Supplier Diversification.
These businesses should be well positioned to capitalize on organic and strategic growth opportunities, and should compete in industries with strong fundamentals and meaningful barriers to entry. We further analyze prospective lending opportunities in order to identify competitive advantages within their industry, which may result in superior operating margins or industry-leading growth. 23 Customer and Supplier Diversification.
As a result, we believe we and Newtek Bank are well positioned to provide financing to the types of SMBs that we have historically targeted and we have the technology and infrastructure in place presently to do it cost effectively in all 50 states and across many industries. Increased demand for comprehensive, business-critical SMB solutions .
As a result, we believe we are well positioned to provide financing to the types of independent business owners that we have historically targeted and we have the technology and infrastructure in place presently to do it cost effectively in all 50 states and across many industries. Increased demand for comprehensive, business-critical SMB solutions .
The Newtek Advantage will allow clients to access the entire suite of the NewtekOne business and financial solutions, and provide clients analytics, relationships and transactional capability that other banks do not offer.
The Newtek Advantage allows clients to access the entire suite of the NewtekOne business and financial solutions, and provide clients analytics, relationships and transactional capability that other banks do not offer.
As a result, we are no longer subject to regulation as a BDC under the 1940 Act, and no longer qualify for tax treatment as a RIC under the Code or investment company accounting treatment. Regulation and Supervision General The U.S. financial services and banking industry is highly regulated.
As a result, we are no longer subject to regulation as a BDC under the 1940 Act, and no longer qualify for tax treatment as a RIC under the Code. Regulation and Supervision General The U.S. financial services and banking industry is highly regulated.
Once the online form and the application materials were completed, our underwriting department (the “Underwriting Department”) became primarily responsible for reviewing and analyzing the application in order to accurately assess the level of risk that would be undertaken in making a loan.
Once the online form and the application materials are completed, our underwriting department (the “Underwriting Department”) becomes primarily responsible for reviewing and analyzing the application in order to accurately assess the level of risk that would be undertaken in making a loan.
During the wind down process, it is anticipated that NSBF will be required to maintain minimum capital requirements established by the SBA, will be required to maintain certain amounts of restricted cash available to meet any obligations to the SBA, will have restrictions on its ability to make dividends and distributions to its parent, and will remain liable to SBA for post-purchase denials and repairs, from the proceeds generated by NSBF’s SBA loan portfolio.
During the wind down process, NSBF is required to maintain minimum capital requirements established by the SBA, required to maintain certain amounts of restricted cash available to meet any obligations to the SBA, and has restrictions on its ability to make dividends and distributions to its parent, and will remain liable to SBA for post-purchase denials and repairs, from the proceeds generated by NSBF’s SBA loan portfolio.
However, we also recognize that from time to time, an attractive lending opportunity with some concentration among the borrower’s customer base or supply chain will present itself.
However, we also recognize that from time to time, an attractive lending opportunity with some concentration among its customer base or supply chain will present itself.
Stress Test The standard underwriting process requires a stress test on the applicant’s interest rate to gauge the amount of increase that can be withstood by the applicant’s cash flow and still provide sufficient cash to service debt. The applicant’s cash flow is tested up to a 2% increase in interest rate.
Stress Test The standard underwriting process requires a stress test on the applicant’s interest rate to gauge the amount of increase that the applicant’s cash flow can withstand and still provide sufficient cash to service the debt. The applicant’s cash flow is tested up to a 2% increase in interest rate.
We expect that this approach will allow us to continue to cross-sell the business and financial solutions of our subsidiaries to our customers and customers of our subsidiaries, and to build upon our extensive deal sourcing infrastructure. Screening We screen all potential loan referrals that we receive for suitability and consistency with our loan origination criteria and underwriting guidelines.
We expect that this approach will allow us to continue to cross-sell the business and financial solutions of our subsidiaries and subsidiaries to our customers and customers of our subsidiaries, and to build upon our extensive deal sourcing infrastructure. 25 Screening We screen all potential loan opportunities that we receive for suitability and consistency with our underwriting criteria.
On January 6, 2023, we completed the Acquisition of NBNYC, a national bank regulated and supervised by the OCC, pursuant to which the Company acquired from the NBNYC shareholders all of the issued and outstanding stock of NBNYC for $20 million. NBNYC has been renamed Newtek Bank, National Association and has become a wholly owned subsidiary of the Company.
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 the NBNYC shareholders all of the issued and outstanding stock of NBNYC. NBNYC has been renamed Newtek Bank, National Association (“Newtek Bank”) and has become a wholly owned subsidiary of the Company.
For business entities or business guarantors, we request U.S. federal income tax returns for each fiscal year-end to meet the prior three-year submission requirement. For interim periods, we will accept management-prepared financial statements.
For business entities or business guarantors, we request U.S. federal income tax returns for each fiscal year-end to meet the prior three-year submission requirement. For interim periods, management-prepared financial statements are accepted.
On January 28, 2022, NCL JV closed a non-conforming conventional commercial loan securitization with the sale of $56.3 million of Class A Notes, NCL Business Loan Trust 2022-1, Business Loan-Backed Notes, Series 2022-1, secured by a segregated asset pool consisting primarily of NCL JV’s portfolio of non-conforming conventional commercial business loans, including loans secured by liens on commercial or residential mortgaged properties, originated by NCL JV and NBL.
On January 28, 2022, NCL JV closed a securitization with the sale of $56.3 million of Class A Notes, NCL Business Loan Trust 2022-1, Business Loan-Backed Notes, Series 2022-1, secured by a segregated asset pool consisting primarily of NCL JV’s portfolio of alternative lending program loans, including loans secured by liens on commercial or residential mortgaged properties, originated by NCL JV and NBL.
Government; • lack of reasonable assurance of ability to repay loan (and other obligations) from earnings; • lack of reasonable assurance that the business can be operated at a rate of profit sufficient to repay the loan (and other obligations) from earnings; • disproportion of loan requested and of debts to tangible net worth before and after the loan; • inadequate working capital after the disbursement of the loan; • the result of granting the financial assistance requested would be to replenish funds distributed to the owners, partners, or shareholders; • lack of satisfactory evidence that the funds required are not obtainable without undue hardship through utilization of personal credit or resources of the owner, partners or shareholders; • the major portion of the loan requested would be to refinance existing indebtedness presently financed through normal lending channels; • credit commensurate with applicant’s tangible net worth is already being provided on terms considered reasonable; • gross disproportion between owner’s actual investment and the loan requested; • lack of reasonable assurance that applicant will comply with the terms of the loan agreement; • unsatisfactory experience on an existing loan; or • economic or physical injury not substantiated.
Government; • lack of reasonable assurance of ability to repay loan (and other obligations) from earnings; • lack of reasonable assurance that the business can be operated at a rate of profit sufficient to repay the loan (and other obligations) from earnings; • disproportion of loan requested and of debts to tangible net worth before and after the loan; • inadequate working capital after the disbursement of the loan; • the result of granting the financial assistance requested would be to replenish funds distributed to the owners, partners, or shareholders; • the major portion of the loan requested would be to refinance existing indebtedness presently financed through normal lending channels; • credit commensurate with applicant’s tangible net worth is already being provided on terms considered reasonable; • gross disproportion between owner’s actual investment and the loan requested; • lack of reasonable assurance that applicant will comply with the terms of the loan agreement; • unsatisfactory experience on an existing loan; or • economic or physical injury not substantiated.
We view current financial information as the foundation of sound credit analysis. To that end, we verify all business income tax returns with the Internal Revenue Service and generally request that financial statements be submitted on an annual basis after the loan closes.
We view current financial information as the foundation of sound credit analysis. To that end, verification of all business income tax returns with the Internal Revenue Service is required, and after the loan closes, we request financial statements be submitted on an annual basis.
We and our subsidiaries compete in a large number of markets for the sale of financial and business solutions to SMBs. Each of our subsidiaries competes not only against suppliers in its particular state or region of the country but also against suppliers operating on a national or even a multi-national scale.
We and our subsidiaries compete in a large number of markets for the sale of financial and business solutions to independent business owners. We compete not only against suppliers in its particular state or region of the country but also against suppliers operating on a national or even a multi-national scale.
Although we may make investments in start-up businesses, we generally seek to avoid investing in high-risk, early-stage enterprises that are only beginning to develop their market share or build their management and operational infrastructure with limited collateral. Disciplined Underwriting Policies and Rigorous Portfolio Management . We pursue rigorous due diligence of all prospective loans originated through our business finance ecosystem.
Although we may make loans to start-up businesses, we generally seek to avoid lending to high-risk, early-stage enterprises that are only beginning to develop their market share or build their management and operational infrastructure with limited collateral. Disciplined Underwriting Policies and Rigorous Portfolio Management . We pursue rigorous due diligence of all prospective loans originated through our Business Lending Platform.
Maintenance of Credit Files Loan files (consisting of credit files, due diligence, loan closing documentation) are maintained and administered in the Newtek Loan Portal and permanently stored in the Newtek Filevault.
Maintenance of Credit Files Loan files (consisting of credit files, due diligence, loan closing documentation) are maintained and administered in the Newtek Loan Portal and permanently stored in the Newtek File Vault.
The Newtek Advantage offers NewtekOne’s clients a single online dashboard to access all of NewtekOne’s business and financial solutions. We believe the Newtek Advantage will allow NewtekOne clients to easily interact with NewtekOne subject matter experts in the areas of Banking, Lending, Payments, Technology, Payroll and Insurance.
The Newtek Advantage offers NewtekOne’s clients a single online dashboard to access all of NewtekOne’s business and financial solutions. The Newtek Advantage allows NewtekOne clients to easily interact with NewtekOne subject matter experts in the areas of Banking, Lending, Payments, Technology, Payroll and Insurance.
Newtek Insurance NIA is a wholly-owned subsidiary which is a retail and wholesale brokerage insurance agency licensed in all 50 states, specializing in the sale of commercial and health/benefits lines insurance products to the SMB market as well as various personal lines of insurance.
Newtek Insurance Newtek Insurance Agency (NIA), is a wholly-owned subsidiary which is a retail and wholesale brokerage insurance agency licensed in all 50 states, specializing in the sale of commercial and health/benefits lines insurance products to independent business owners, as well as the sale of various personal lines of insurance.
NSBF will be required to continue to service and liquidate its SBA Loan Portfolio, including processing forgiveness and loan reviews for PPP Loans, pursuant to an SBA approved lender service provider agreement with SBL.
NSBF is further required to continue to service and liquidate its SBA loan portfolio, including processing forgiveness and loan reviews for PPP Loans, pursuant to an SBA approved lender service provider agreement with SBL.
In most cases, our debt investment will be collateralized by a first lien on the assets of the company and a first or second lien on assets of guarantors, in both cases primarily real estate. All SBA 7(a) loans are made with personal guarantees from any owner(s) of 20% or more of the company’s equity.
In most cases, our loans will be collateralized by a first lien on the assets of the business and a first or second lien on assets of guarantors, in both cases primarily real estate. All SBA 7(a) loans are made with personal guarantees from any owner(s) of 20% or more of the business’ equity.
Unlike many of our competitors, we believe we have the business finance ecosystem that allows us to provide a complete package of business and financing solutions for SMBs, which allows for cross-selling opportunities and improved client retention.
Unlike many of our competitors, we believe we have the business finance ecosystem that allows us to provide a complete package of business and financial solutions for independent business owners, which allows for cross-selling opportunities and improved client retention.
See “Item 1A Risk Factors - Risks Related to Regulation, Supervision and Compliance - Federal law may discourage certain acquisitions of our common stock which could have a material adverse affect on our shareholders.” 19 Effect on Economic Environment The policies of regulatory authorities, including the monetary policy of the Federal Reserve, have a significant effect on the operating results of bank holding companies and their subsidiaries.
See “Item 1A Risk Factors - Risks Related to Operating as a Financial Holding Company - Federal law may discourage certain acquisitions of our common stock which could have a material adverse effect on our shareholders.” Effect on Economic Environment The policies of regulatory authorities, including the monetary policy of the Federal Reserve, have a significant effect on the operating results of bank holding companies and their subsidiaries.
Through our web presence, www.newtekone.com , we believe we are establishing ourselves as a preferred “go-to” provider for SMB financing and business solutions offered by NewtekOne ® and its subsidiaries, including Newtek Bank ® .
Through our web presence, www.newtekone.com , we believe we are establishing ourselves as a preferred “go-to” provider for independent business owner financial and business solutions offered by NewtekOne ® and its subsidiaries, including Newtek Bank ® .
We expect to make loans to companies with sufficiently diverse customer and supplier bases. We believe these companies will be better able to endure industry consolidation, economic contraction and increased competition than those that are not sufficiently diversified.
We expect to lend to businesses with sufficiently diverse customer and supplier bases. We believe these businesses will be better able to endure industry consolidation, economic contraction and increased competition than those that are not sufficiently diversified.
We believe that some of the competitive advantages of our ecosystem include: • compatible products such as our e-commerce offerings that we are able to bundle to increase sales, reduce costs and reduce risks for our customers and enable us to sell two, three, or four products at the same time; • the patented NewTracker® referral system, which allows us and our subsidiaries to process new business utilizing a web-based, centralized processing point and provides back end scalability, and allows our alliance partners to offer a centralized access point for their SMB clients as part of their larger strategic approach to marketing, thus demonstrating their focus on providing a suite of services to the SMB market in addition to their core service; • the focus on developing and marketing business and financial solutions aimed at the SMB market; • scalability, which allows us to size our business and financial solutions capabilities very quickly to meet customer and market needs; • the ability to offer personalized service and competitive rates; • a strategy of multiple channel distribution, which gives us maximum exposure in the marketplace; • high quality customer service 24/7/365 across all business lines, with a focus primarily on absolute customer service and; • a telephonic and video interview process, as opposed to requiring handwritten or data-typing processes, which allows us to offer high levels of customer service and satisfaction, particularly for SMB owners who do not get this service from our competitors Human Capital including Senior Lending Team and Executive Committee The long-term success of our Company depends on our people.
We believe that some of the competitive advantages of our platform include: • compatible products such as our e-commerce offerings that we are able to bundle to increase sales, reduce costs and reduce risks for our customers and enable us to sell two, three, or four products at the same time; • our patented NewTracker® referral system, which allows us to process new business utilizing a web-based, centralized processing point and provides back end scalability, and allows our alliance partners to offer a centralized access point for their independent business owner clients as part of their larger strategic approach to marketing, thus demonstrating their focus on providing a suite of services to this market in addition to their core service; • our focus on developing and marketing business solutions and financial products and services aimed at the independent business owner market; • scalability, which allows us to size our business solutions capabilities very quickly to meet customer and market needs; • the ability to offer personalized service and competitive rates; • a strategy of multiple channel distribution, which gives us maximum exposure in the marketplace; 32 • high quality customer service 24/7/365 across all business lines, with a focus primarily on absolute customer service and; • a telephonic interview process, as opposed to requiring handwritten or data-typing processes, which allows us to offer high levels of customer service and satisfaction, particularly for independent business owner who do not get this service from our competitors.
If the applicant was eligible to fill out the entire application, the online system pre-qualified the applicant based on preset credit parameters meeting the standards of the Company and the SBA.
If the applicant is eligible to fill out the entire application, the online system pre-qualifies the applicant based on preset credit parameters meeting the standards of the Company and the SBA.
NMS’ primary sales efforts focus on direct sales through our Your Business Solutions Company® brand. Their indirect sales channels consist of alliance partners, principally financial institutions (banks, credit unions, insurance companies and other related businesses), and independent sales agents across the United States.
NMS utilizes a multi-pronged sales approach of both direct and indirect sales. NMS’ primary sales efforts focus on direct sales through our Your Business Solutions Company® brand. Their indirect sales channels consist of alliance partners, principally financial institutions (banks, credit unions, insurance companies and other related businesses), and independent sales agents across the United States.
We anticipate that our principal source of loan origination opportunities will continue to be in the same types of SMBs to which we currently provide financing.
We anticipate that our principal source of loan origination opportunities will continue to be in the same types of independent business owners to which we currently provide financing.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRisks Related to Our Industry • We operate in a highly competitive market for clients, which could reduce returns and result in losses. • We could be adversely affected by the soundness of other financial institutions. 33 Risks Related to Our Business and Structure • We are dependent upon our Senior Lending Team and our Executive Committee for our future success, and if we are unable to hire and retain qualified personnel or if we lose any member of our Senior Lending Team or our Executive Committee, our business could be significantly harmed. • If we are unable to acquire and process lending opportunities and clients effectively, we may be unable to achieve our objectives. • To the extent we borrow money to finance client loans, changes in interest rates will affect our cost of capital and net investment income. • We are subject to risks associated with the discontinuation of LIBOR, which will affect our cost of capital and results of operations. • An inability to maintain adequate liquidity could jeopardize our business and financial condition. • Our acquisitions and other strategic transactions, including the Acquisition, may not yield the intended benefits. • If we and our subsidiaries are unable to protect our intellectual property rights, our business and prospects could be harmed. • We are subject to specific risks associated with our small business loans lending activities and certain other activities of our subsidiaries.
Biggest changeRisks Related to Our Business and Structure • We are dependent upon our Senior Lending Team and our executive officers for our future success, and if we are unable to hire and retain qualified personnel or if we lose any member of our Senior Lending Team or our executive officers our ability to achieve our business could be significantly harmed. • We could be adversely affected by the soundness of other financial institutions. • We operate in a highly competitive market for clients, which could reduce returns and result in losses. • If we are unable to acquire and process clients effectively, we may be unable to achieve our investment objective. • Our business may be adversely affected if our risk management framework does not effectively identify, assess and mitigate risk. • An inability to maintain adequate liquidity could jeopardize our business and financial condition. • Our acquisitions and other strategic transactions, including the Acquisition, may not yield the intended benefits. • If we and our subsidiaries are unable to protect our intellectual property rights, our business and prospects could be harmed . • The development and use of Artificial Intelligence (“AI”) present risks and challenges that may adversely impact our business.
However, any acquisition (including the Acquisition), disposition or other strategic transactions involves risks, including: • difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, products and services of the acquired business, which may require ongoing investment in development and enhancement of additional operational and reporting processes and controls; • inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefits; • difficulties in retaining, training, motivating and integrating key personnel; • diversion of management’s time and resources from our normal daily operations; • difficulties in successfully incorporating licensed or acquired technology and rights into our platform; • difficulties in maintaining uniform standards, controls, procedures and policies within the combined organization; • difficulties in retaining relationships with customers, employees and suppliers of the acquired business; • risks of entering markets in which we have no or limited direct prior experience; • regulatory risks, including remaining in good standing with existing regulatory bodies or receiving any necessary pre-closing or post-closing approvals, as well as being subject to new regulators with oversight over an acquired business; • assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property rights or increase our risk for liability; • failure to successfully further develop any acquired technology; • liability for activities of the acquired or disposed of business before the acquisition or disposition, including patent and trademark infringement claims, violations of laws, regulatory actions, commercial disputes, tax liabilities and other known and unknown liabilities; • difficulty in separating assets and replacing shared services; • assumption of exposure to performance of any acquired loan portfolios; • potential disruptions to our ongoing businesses; and • unexpected costs and unknown risks and liabilities associated with the acquisition.
However, any acquisition (including the Acquisition), disposition or other strategic transactions involves risks, including: • difficulties in assimilating and integrating the operations, personnel, systems, data, technologies, products and services of the acquired business, which may require ongoing investment in development and enhancement of additional operational and reporting processes and controls; • inability of the acquired technologies, products or businesses to achieve expected levels of revenue, profitability, productivity or other benefits; • difficulties in retaining, training, motivating and integrating key personnel; • diversion of management’s time and resources from our normal daily operations; • difficulties in successfully incorporating licensed or acquired technology and rights into our platform; • difficulties in maintaining uniform standards, controls, procedures and policies within the combined organization; • difficulties in retaining relationships with customers, employees and suppliers of the acquired business; • risks of entering markets in which we have no or limited direct prior experience; • regulatory risks, including remaining in good standing with existing regulatory bodies or receiving any necessary pre-closing or post-closing approvals, as well as being subject to new regulators with oversight over an acquired business; 49 • assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property rights or increase our risk for liability; • failure to successfully further develop any acquired technology; • liability for activities of the acquired or disposed of business before the acquisition or disposition, including patent and trademark infringement claims, violations of laws, regulatory actions, commercial disputes, tax liabilities and other known and unknown liabilities; • difficulty in separating assets and replacing shared services; • assumption of exposure to performance of any acquired loan portfolios; • potential disruptions to our ongoing businesses; and • unexpected costs and unknown risks and liabilities associated with the acquisition.
A number of factors related to a public health emergency impacting us or our borrowers, customers or business partners could materially adversely affect our business, results of operations, and financial condition, including but not limited to: • increases in loan delinquencies, losses and charge-offs; • increases in borrowers seeking and being granted deferments of principal and interest payments; • collateral for loans, including real estate, may decline in value, which could cause loan losses to increase; 38 • demand for our business products and solutions may decline, making it difficult to grow or maintain our assets and income; • net worth and liquidity of the guarantors on our loans may decline, which could cause loan losses to increase; • our risk management policies and practices may be negatively impacted by among, other things, changes in the SBA 7(a) loan program, including changes to SBA rules, regulations and SBA standard operating procedures; and • increases in cyber risk as criminals may take advantage of the changes of business practices necessitated by a public health emergency.
A number of factors related to a public health emergency impacting us or our borrowers, customers or business partners could materially adversely affect our business, results of operations, and financial condition, including but not limited to: • increases in loan delinquencies, losses and charge-offs; • increases in borrowers seeking and being granted deferments of principal and interest payments; • collateral for loans, including real estate, may decline in value, which could cause loan losses to increase; • demand for our business products and solutions may decline, making it difficult to grow or maintain our assets and income; • net worth and liquidity of the guarantors on our loans may decline, which could cause loan losses to increase; • our risk management policies and practices may be negatively impacted by, among other things, changes in the SBA 7(a) loan program, including changes to SBA rules, regulations and SBA standard operating procedures; • increases in cyber risk as criminals may take advantage of the changes of business practices necessitated by a public health emergency.
The occurrence of a disaster, such as a cyber-attack against us or against a third-party that has access to our data or networks, a natural catastrophe, an industrial accident, failure of our disaster recovery systems, or consequential employee error, could have 55 an adverse effect on our ability to communicate or conduct business, negatively impacting our operations and financial condition.
The occurrence of a disaster, such as a cyber-attack against us or against a third-party that has access to our data or networks, a natural catastrophe, an industrial accident, failure of our disaster recovery systems, or consequential employee error, could have an adverse effect on our ability to communicate or conduct business, negatively impacting our operations and financial condition.
If NMS is not able to pass these fee increases along to merchants through corresponding increases in its processing fees, its profit margins in this line of business will be reduced. 47 Unauthorized disclosure of merchant or cardholder data, whether through breach of our computer systems or otherwise, could expose us to liability and business losses.
If NMS is not able to pass these fee increases along to merchants through corresponding increases in its processing fees, its profit margins in this line of business will be reduced. Unauthorized disclosure of merchant or cardholder data, whether through breach of our computer systems or otherwise, could expose us to liability and business losses.
Legal entity liquidity is an important consideration as there are legal, regulatory, contractual and other limitations on our ability to utilize liquidity from one legal entity to satisfy the liquidity requirements of another, which could result in adverse liquidity events at either NewtekOne, Inc. and/or Newtek Bank.
Legal entity liquidity is an important consideration as there are legal, regulatory, contractual and other limitations on our ability to utilize liquidity from one legal entity to satisfy the liquidity requirements of another, which could result in adverse liquidity events at either NewtekOne and/or Newtek Bank.
The 2024 and 2026 Notes were issued pursuant to a base indenture, dated as of September 23, 2015 (the “Base Indenture”), and a Fourth Supplemental Indenture, dated as of July 29, 2019, and a Seventh Supplemental Indenture dated as of January 22, 2021, respectively, each between us and U.S. Bank National Association, as trustee.
The 2024 and 2026 Notes were issued pursuant to a base indenture, dated as of September 23, 2015 (the “Base Indenture”), and a fourth supplemental indenture (the “Fourth Supplemental Indenture”), dated as of July 29, 2019, and a Seventh Supplemental Indenture dated as of January 22, 2021, respectively, each between us and U.S. Bank National Association, as trustee.
Network, system, application and data breaches could result in operational disruptions or information misappropriation, which could have a material adverse effect on our business, results of operations and financial condition. In addition, our business operations involve the storage and transmission of Newtek, customer and employee proprietary information.
Network, system, application and data breaches could result in operational disruptions or information misappropriation, which could have a material adverse effect on our business, results of operations and financial condition. 68 In addition, our business operations involve the storage and transmission of Newtek, customer and employee proprietary information.
There can be no assurance that we would be able to recover any such fines from such customer. NMS is liable if its processing merchants refuse or cannot reimburse charge-backs resolved in favor of their customers.
There can be no assurance that we would be able to recover any such fines from such customer. 56 NMS is liable if its processing merchants refuse or cannot reimburse charge-backs resolved in favor of their customers.
The systems we have implemented to manage risks relating to these types of events could prove to be inadequate and, if compromised, could become inoperable for extended periods of time, cease to function properly or fail to adequately secure private information.
The systems we have implemented to manage risks relating to these types of events could prove to be inadequate and, if compromised, could become inoperable for extended periods of time, cease 69 to function properly or fail to adequately secure private information.
Failure to 35 comply with these regulations could result in fines or sanctions, including restrictions on conducting acquisitions or expanding activities. During the last several years, several banking institutions have received large fines for non-compliance with these laws and regulations.
Failure to comply with these regulations could result in fines or sanctions, including restrictions on conducting acquisitions or expanding activities. During the last several years, several banking institutions have received large fines for non-compliance with these laws and regulations.
A major regulatory violation, while not fatal to our Capco business, would materially increase the cost of operating the Capcos. 52 We know of no other publicly-held company that sponsors and operates Capcos as a part of its business.
A major regulatory violation, while not fatal to our Capco business, would materially increase the cost of operating the Capcos. We know of no other publicly-held company that sponsors and operates Capcos as a part of its business.
While we are currently not subject to any securities litigation or shareholder activism, due to the potential volatility of our stock price and for a variety of other reasons, we may in the future become the target of securities 53 litigation or shareholder activism.
While we are currently not subject to any securities litigation or shareholder activism, due to the potential volatility of our stock price and for a variety of other reasons, we may in the future become the target of securities litigation or shareholder activism.
Applicable laws and regulations, including capital and liquidity requirements and the Operating Agreement, could restrict our ability to transfer funds between Newtek Bank and NewtekOne, Inc., which could adversely affect our cash flow and financial condition.
Applicable laws and regulations, including capital and liquidity requirements and the Operating Agreement, could restrict our ability to transfer funds between Newtek Bank and NewtekOne, which could adversely affect our cash flow and financial condition.
The laws and regulations applicable to us govern a variety of matters, including permissible types, amounts, and terms of loans and investments we may make, the maximum interest rate that may be charged, the amount of reserves we must hold against deposits we take, the types of deposits we may accept, maintenance of adequate capital and liquidity, changes in the control of Newtek Bank and the Company, restrictions on dividends, and establishment of new offices.
The laws and regulations applicable to us govern a variety of matters, including permissible types, amounts, and terms of loans and investments we may make, the maximum interest rate that may be charged, the amount of reserves we must hold against deposits we take, the types of deposits we may accept, maintenance of adequate capital and liquidity, changes in the control of Newtek Bank, N.A. and us, restrictions on dividends, and establishment of new offices.
These factors include, but are not limited to, the following: • price and volume fluctuations in the overall stock market from time to time; • investor demand for our stock; • significant volatility in the market price and trading volume of securities of other companies in our sector, which are not necessarily related to the operating performance of these companies; • changes in regulatory policies or tax guidelines with respect to financial holding companies; • any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; • changes, or perceived changes, in the value of our loans; • departures of key Company personnel; • operating performance of companies comparable to us; and • general economic conditions and trends and other external factors.
These factors include, but are not limited to, the following: • price and volume fluctuations in the overall stock market from time to time; • investor demand for our stock; • significant volatility in the market price and trading volume of securities of other companies in our sector, which are not necessarily related to the operating performance of these companies; • changes in regulatory policies or tax guidelines with respect to financial holding companies; • any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; 63 • changes, or perceived changes, in the value of our investments; • departures of key Company personnel; • operating performance of companies comparable to us; or • general economic conditions and trends and other external factors.
As a result, we are subject to 150% asset coverage requirements under the 1940 Act even though, effective January 6, 2023, we are not regulated as a BDC or under the 1940 Act.
As a result, we are subject to 150% asset coverage requirements under the 1940 Act even though, effective January 6, 2023, we are not regulated as a BDC.
The extent of the impact of any public health emergency, such as the COVID-19 pandemic, on our results of operations and financial performance will depend on many factors, including the duration and scope of such public health emergency, the actions taken by governmental authorities to contain its financial and economic impact, the extent of any related travel advisories and restrictions implemented, the impact of such public health emergency on overall supply and demand, goods and services, investor liquidity, consumer confidence and levels of economic activity and the extent of its disruption to important global, regional and local supply chains and economic markets, all of which are highly uncertain and cannot be predicted.
The extent of the impact of any public health emergency, such as the COVID-19 pandemic, on our operational and financial performance will depend on many factors, including the duration and scope of such public health emergency, the actions taken by governmental authorities to contain its financial and economic impact, the extent of any related travel advisories and restrictions implemented, the impact of such public health emergency on overall supply and demand, goods and services, investor liquidity, consumer confidence and levels of economic activity and the extent of its disruption to important global, regional and local supply chains and economic markets, all of which are highly uncertain and cannot be predicted.
The CISO regularly reports to the Board and the board of directors of Newtek Bank on the state of our cybersecurity risk management program and provides updates on cybersecurity matters.
The CISO regularly reports to the Risk Committee of the Board and the risk committee of the board of directors of Newtek Bank on the state of our cybersecurity risk management program and provides updates on cybersecurity matters.
Climate change is widely considered to be a significant threat to the global economy. Climate change creates physical and financial risk and we and some of our subsidiaries may be adversely affected by climate change. For example, the needs of customers of energy companies vary with weather conditions, primarily temperature and humidity.
Climate change is widely considered to be a significant threat to the global economy. Climate change creates physical and financial risk and some we, or subsidiaries or our clients may be adversely affected by climate change. For example, the needs of customers of energy companies vary with weather conditions, primarily temperature and humidity.
To the extent weather conditions are affected by climate change, energy use could increase or decrease depending on the duration and magnitude of any changes. Increases in the cost of energy could adversely affect the cost of operations of us or our subsidiaries if the use of energy products or services is material to their business.
To the extent weather conditions are affected by climate change, energy use could increase or decrease depending on the duration and magnitude of any changes. Increases in the cost of energy could adversely affect the cost of operations of our subsidiaries or clients if the use of energy products or services is material to their business.
In addition, if we cannot service our indebtedness, we may have to take actions such as utilizing available capital, limiting the facilitation of additional loans, selling assets, selling equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances, any of which could impede the implementation of our business strategy, prevent us from entering into transactions that would otherwise benefit our business and/or adversely affect our business and financial results.
In addition, if we cannot service our indebtedness, we may have to take actions such as utilizing available capital, limiting the origination of loans, selling assets, selling equity or reducing or delaying capital expenditures, strategic acquisitions, investments and alliances, any of which could impede the implementation of our business strategy, prevent us from entering into transactions that would otherwise benefit our business and/or adversely affect our business and financial results.
In addition, rising interest rates may increase pressure on us to provide fixed rate loans, which could adversely affect our income, as increases in our cost of borrowed funds would not be accompanied by increased interest income from such fixed-rate investments.
In addition, rising interest rates may increase pressure on us to provide fixed rate loans, which could adversely affect our net interest margin, as increases in our cost of borrowed funds would not be accompanied by increased interest income from such fixed-rate investments.
Compliance with any new laws or regulations increases our regulatory burden and could make compliance more difficult and expensive, affect the manner in which we or our subsidiaries conduct our businesses and adversely affect our profitability. The effect of global climate change may impact our operations and the operations of our subsidiaries.
Compliance with any new laws or regulations increases our regulatory burden and could make compliance more difficult and expensive, affect the manner in which we or our subsidiaries conduct our businesses and adversely affect our profitability. 71 The effect of global climate change may impact our operations and the operations of our subsidiaries and clients.
RISKS RELATED TO OUR BUSINESS AND STRUCTURE We are dependent upon our Senior Lending Team and our Executive Committee for our future success, and if we are unable to hire and retain qualified personnel or if we lose any member of our Senior Lending Team or our Executive Committee, our business could be significantly harmed.
RISKS RELATED TO OUR BUSINESS AND STRUCTURE We are dependent upon our Senior Lending Team and our executive officers for our future success, and if we are unable to hire and retain qualified personnel or if we lose any member of our Senior Lending Team or our executive officers our business could be significantly harmed.
The Maryland General Corporation Law and our charter and bylaws contain provisions that may discourage, delay or make more difficult a change in control of NewtekOne or the removal of our directors. We are subject to the Maryland Business Combination Act.
The Maryland General Corporation Law and our charter and bylaws contain provisions that may discourage, delay or make more difficult a change in control of Newtek or the removal of our directors. We are subject to the Maryland Business Combination Act.
Additionally, as noted above, we are subject to stringent capital and liquidity regulations and requirements and need to manage our liquidity position at NewtekOne, NSBF and Newtek Bank within the parameters and terms set forth by applicable regulations and regulators.
Additionally, as noted above, we are subject to stringent capital and liquidity regulations and requirements and need to manage our liquidity position at both NewtekOne and Newtek Bank within the parameters and terms set forth by applicable regulations and regulators.
An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.
An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not have detected. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.
Changes in these laws or regulations applicable to us as a financial holding company, including changes in the interpretation or implementation of those regulations or policies, may negatively impact the profitability of our business activities, require us to change certain of our business practices, materially affect our business model, limit the activities in which we may engage, affect retention of key personnel, require us to raise additional regulatory capital, increase the amount of liquid assets that we hold, otherwise affect our funding profile or expose us to additional costs (including increased compliance costs).
Other changes in the laws or regulations that will be applicable to us as a financial holding company, including changes in the interpretation or implementation of those regulations or policies, may negatively impact the profitability of our business activities, require us to change certain of our business practices, materially affect our business model, limit the activities in which we may engage, affect retention of key personnel, require us to raise additional regulatory capital, increase the amount of liquid assets that we hold, otherwise affect our funding profile or expose us to additional costs (including increased compliance costs).
NTS’ web and cloud services involve the storage and transmission of our customers’and employees’ proprietary information. NTS’ business relies on its digital technologies, computer and email systems, software, and networks to conduct its operations.
NTS’ web and cloud services involve the storage and transmission of our customers’ and employees’ proprietary information. NTS’ business relies on its digital technologies, computer and email systems, software, and networks to conduct its operations.
Although we have policies and procedures designed to assist in compliance with the Bank Secrecy Act and other anti-money laundering laws and regulations, there can be no assurance that such policies or procedures will work effectively all of the time or protect us against liability for actions taken by our employees, agents, and intermediaries with respect to our business or any businesses that we may acquire.
Although we have policies and procedures designed to assist in compliance with the BSA and other anti-money laundering laws and regulations, there can be no assurance that such policies or procedures will work effectively all of the time or protect us against liability for actions taken by our employees, agents, and intermediaries with respect to our business or any businesses that we may acquire.
As a result, we and some of our subsidiaries may become subject to new or strengthened regulations or legislation, which could increase our and their operating costs and decrease our and their revenues.
As a result, some we, our subsidiaries or our clients may become subject to new or strengthened regulations or legislation, which could increase their operating costs and/or decrease their revenues.
During the wind down process, it is anticipated that NSBF will be required to maintain minimum capital requirements established by the SBA, will be required to maintain certain amounts of restricted cash available to meet any obligations to the SBA, will have restrictions on its ability to make dividends and distributions to its parent, and will remain liable to SBA for post-purchase denials and repairs, from the proceeds generated by NSBF’s SBA loan portfolio.
During the wind down process NSBF will be required to maintain minimum capital requirements established by the SBA, will be required to maintain certain amounts of restricted cash available to meet any obligations to the SBA, will have restrictions on its ability to make dividends and distributions to its parent, and will remain liable to SBA for post-purchase denials and repairs, from the proceeds generated by NSBF’s SBA loan portfolio.
Our future success depends on the continued service of our Senior Lending Team and our Executive Committee and the replacement of any departing individuals with others of comparable skills and experience.
Our future success depends on the continued service of our Senior Lending Team and our executive officers and the replacement of any departing individuals with others of comparable skills and experience.
In addition, individuals with whom members of our Senior Lending Team and our Executive Committee have relationships are not obligated to provide us with referral opportunities, and, therefore, there is no assurance that such relationships will generate opportunities for us. Indebtedness could adversely affect our business and financial results. In the past, we have had a significant amount of indebtedness.
In addition, individuals with whom members of our Senior Lending Team and our executive officers have relationships are not obligated to provide us with client opportunities, and, therefore, there is no assurance that such relationships will generate opportunities for us. Indebtedness could adversely affect our business and financial results. In the past, we have had a significant amount of indebtedness.
Due to the Company’s withdrawal of its election to be regulated as a BDC on January 6, 2023, the Company is no longer subject to FASB Accounting Standards Codification Topic 946, Financial Services – Investment Companies, which will result in a significant change in our accounting and financial reporting requirements.
Due to the Company’s withdrawal of its election to be regulated as a BDC on January 6, 2023, the Company is no longer subject to FASB Accounting Standards Codification Topic 946, Financial Services – Investment Companies, which has resulted in a significant change in our accounting and financial reporting requirements.
These impacts can be exacerbated by failures of governments and societies to adequately respond to an emerging event or threat. 37 Uncertainty can result in or coincide with, among other things: increased volatility in the financial markets for securities, derivatives, loans, credit and currency; a decrease in the reliability of market prices and difficulty in valuing assets; greater fluctuations in spreads on debt instruments and currency exchange rates; increased risk of default (by both government and private obligors and issuers); further social, economic, and political instability; nationalization of private enterprise; greater governmental involvement in the economy or in social factors that impact the economy; changes to governmental regulation and supervision of the loan, securities, derivatives and currency markets and market participants and decreased or revised monitoring of such markets by governments or self-regulatory organizations and reduced enforcement of regulations; limitations on the activities of investors in such markets; controls or restrictions on foreign investment, capital controls and limitations on repatriation of invested capital; the significant loss of liquidity and the inability to purchase, sell and otherwise fund investments or settle transactions (including, but not limited to, a market freeze); unavailability of currency hedging techniques; substantial, and in some periods extremely high rates of inflation, which can last many years and have substantial negative effects on credit and securities markets as well as the economy as a whole; recessions; and difficulties in obtaining and/or enforcing legal judgments.
Uncertainty can result in or coincide with, among other things: increased volatility in the financial markets for securities, derivatives, loans, credit and currency; a decrease in the reliability of market prices and difficulty in valuing assets; greater fluctuations in spreads on debt investments and currency exchange rates; increased risk of default (by both government and private obligors and issuers); further social, economic, and political instability; nationalization of private enterprise; greater governmental involvement in the economy or in social factors that impact the economy; changes to governmental regulation and supervision of the loan, securities, derivatives and currency markets and market participants and decreased or revised monitoring of such markets by governments or self-regulatory organizations and reduced enforcement of regulations; limitations on the activities of investors in such markets; controls or restrictions on foreign investment, capital controls and limitations on repatriation of invested capital; the significant loss of liquidity and the inability to purchase, sell and otherwise fund investments or settle transactions (including, but not limited to, a market freeze); unavailability of currency hedging techniques; substantial, and in some periods extremely high rates of inflation, which can last many years and have substantial negative effects on credit and securities markets as well as the economy as a whole; recessions; and difficulties in obtaining and/or enforcing legal judgments.
The price of our common stock may be higher or lower depending on many factors, some of which are beyond our control and may not be directly related to our operating performance.
The trading price of our common stock may fluctuate substantially. The price of our common stock may be higher or lower depending on many factors, some of which are beyond our control and may not be directly related to our operating performance.
On November 4, 2016, the past administration announced that the United States would cease participation in the Paris Agreement with the withdrawal taking effect on November 4, 2020. However, on January 20, 2021, President Joseph R. Biden signed an executive order to rejoin the Paris Agreement.
On November 4, 2016, the past administration announced that the U.S. would cease participation in the Paris Agreement with the withdrawal taking effect on November 4, 2020. However, on January 20, 2021, President Joseph R. Biden signed an executive order to rejoin the Paris Agreement.
Management will be required to expend significant efforts in order to implement this change in accounting and financial reporting requirements, which could adversely affect the time and attention devoted to other aspects of our business and operations.
Our management has been and continues to be required to expend significant efforts in order to implement this change in accounting and financial reporting requirements, which could adversely affect the time and attention devoted to other aspects of our business and operations.
Any public health emergency, pandemic or any outbreak of other existing or new epidemic diseases, or the threat thereof, and the resulting financial and economic market uncertainty could have a significant adverse impact on us. Economic recessions or downturns, including as a result of the COVID-19 pandemic, could impair our clients and our operating results.
Any public health emergency, pandemic or any outbreak of other existing or new epidemic diseases, or the threat thereof, and the resulting financial and economic market uncertainty could have a significant adverse impact on us. Economic recessions or downturns could impair our clients and our operating results.
In addition, recently, concerns have arisen with respect to the financial condition of a number of banking organizations in the United States, in particular those with exposure to certain types of depositors and large portfolios of investment securities.
During 2023 and more recently, concerns have arisen with respect to the financial condition of a number of banking organizations in the United States, in particular those with exposure to certain types of depositors and large portfolios of investment securities.
Policies of extended periods of remote working, whether by us or by our service providers, could strain technology resources, introduce operational risks and otherwise heighten the risks described above. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts.
Policies of extended periods of remote working, whether by us or by our service providers, could strain technology resources, introduce operational risks and otherwise heighten the risks described above. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts. Accordingly, the risks described above are heightened under current conditions.
If we fail to comply with the relevant laws and regulations, we could suffer financial losses, a disruption of our businesses, liability to investors, regulatory intervention or reputational damage. We and our service providers continue to be impacted by the occurrence of remote work arising from the global COVID-19 pandemic.
If we fail to comply with the relevant laws and regulations, we could suffer financial losses, a disruption of our businesses, liability to investors, regulatory intervention or reputational damage. We and our service providers continue to be impacted by the increase in remote work in response to the global COVID-19 pandemic.
It is critical to our business strategy that our facilities and infrastructure remain secure and are perceived by the marketplace to be secure.
It is critical to NTS’ business strategy that its facilities and infrastructure remain secure and are perceived by the marketplace to be secure.
Such loans are generally not rated by any statistical rating organization. Small businesses usually have smaller product lines and market shares than larger companies and therefore may be more vulnerable to competition and general economic conditions.
Loans to small businesses involve a high risk of default. Such loans are generally not rated by any statistical rating organization. Small businesses usually have smaller product lines and market shares than larger companies and therefore may be more vulnerable to competition and general economic conditions.
Weakness in residential home and commercial real estate values could impair our ability to collect on defaulted SBA loans as real estate is pledged in many of our SBA loans as part of the collateral package. We could be adversely affected by the soundness of other financial institutions.
We could be adversely affected by weakness in the residential housing and commercial real estate markets. Weakness in residential home and commercial real estate values could impair our ability to collect on defaulted SBA loans as real estate is pledged in many of our SBA loans as part of the collateral package.
We are unable to predict all of the ways in which changes in the legal or regulatory environment could impact our anticipated business models or objectives.
We are unable to predict all of the ways in which any change in the regulatory environment could impact our anticipated business models or objectives.
Securities litigation and shareholder activism, including potential proxy contests, could result in substantial costs and divert management’s and our Board’s attention and resources from our business.
Securities litigation and shareholder activism, including potential proxy contests, could result in substantial costs and divert management’s and our board of directors’ attention and resources from our business.
If our Senior Lending Team and our Executive Committee fail to maintain its existing relationships or develop new relationships with referral partners, we may not be able to acquire new clients.
If our Senior Lending Team and our executive officers fail to maintain its existing relationships or develop new relationships with potential clients, we may not be able to acquire new clients.
We risk damage to our brand and reputation if we fail to act responsibly in a number of areas, such as environmental stewardship, corporate governance and transparency.
We risk damage to our brand and reputation if we fail to act responsibly in a number of areas, such as environmental stewardship, corporate governance and transparency and considering ESG factors in our investment processes.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Executive Summary.” RISKS RELATED TO THE ECONOMY Global economic, political, social and market conditions, including uncertainty, including uncertainty about the financial stability of the United States could have a significant adverse effect on our business, operating results and financial condition.
RISKS RELATED TO THE ECONOMY Global economic, political, social and market conditions, including uncertainty about the financial stability of the United States could have a significant adverse effect on our business, operating results and financial condition.
The departure of any of the members of our Senior Lending Team, our Executive Committee or a significant number of our other senior personnel could have a material adverse effect on our business and operations.
The departure of any of the members of our Senior Lending Team, our executive officers or a significant number of our senior personnel could have a material adverse effect on our business.
If we fail to meet these minimum capital adequacy and liquidity guidelines and other regulatory requirements, our business activities, including lending, and its ability to expand could be limited.
From time to time, regulators may implement changes to these capital adequacy and liquidity requirements. If we fail to meet these minimum capital adequacy and liquidity guidelines and other regulatory requirements, our business activities, including lending, and its ability to expand could be limited.
In addition, a bank holding company 36 must obtain the prior approval of the Federal Reserve before, among other things, acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank, including Newtek Bank.
In addition, a bank holding company must obtain the prior approval of the Board of Governors of the Federal Reserve System before, among other things, acquiring direct or indirect ownership or control of more than 5 percent of the voting shares of any bank or bank holding company.
If NSBF or Newtek Bank fail to comply with SBA regulations in connection with the origination, servicing, or liquidation of an SBA 7(a) loan, liability on the SBA guaranty, in whole or part, could be transferred to NSBF or Newtek Bank. Loans to small businesses involve a high risk of default.
If NSBF or Newtek Bank fail to comply with SBA regulations in connection with the origination, servicing, or liquidation of an SBA 7(a) loan, liability on the SBA guaranty, in whole or in part, could be transferred to NSBF or Newtek Bank.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us, which could have a material adverse effect on our business, financial condition or results of operations. We are subject to stringent capital and liquidity regulations and requirements.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us, which could have a material adverse effect on our business, financial condition or results of operations.
While the Company intends that NBSF will continue to service its current portfolio of SBA 7(a) loans, and that new SBA 7(a) loan originations will be made by Newtek Bank, there can be no guarantee that Newtek Bank will be able to maintain its SBA 7(a) lending license or obtain and maintain PLP status.
While the Company intends that NBSF will continue to service its current portfolio of SBA 7(a) loans, and that new SBA 7(a) loan originations will be made by Newtek Bank, there can be no guarantee that Newtek Bank and NSBF will be able to maintain their SBA 7(a) lending licenses.
Accordingly, we may be unable to raise additional capital if needed or on acceptable terms, which may adversely affect our liquidity, business, financial condition and results of operations. 43 Our acquisitions and other strategic transactions, including the Acquisition, may not yield the intended benefits.
Accordingly, we may be unable to raise additional capital if needed or on acceptable terms, which may adversely affect our liquidity, business, financial condition and results of operations. Our acquisitions and other strategic transactions, including the Acquisition, may not yield the intended benefits. We have historically and may continue to evaluate and consider strategic transactions, combinations, acquisitions, dispositions or alliances.
While the Company’s business, balance sheet and depositor profile differs substantially from banking institutions that are the focus of the greatest scrutiny, the operating environment and public trading prices of financial services sector securities can be highly correlated, in particular in times of stress, which may adversely affect the trading price of the Company’s common stock and potentially its results of operations.
While our business, balance sheet and depositor profile differs substantially from the banking institutions that are the focus of the greatest scrutiny, the operating environment and public trading prices of financial services sector can be highly correlated, in particular in times of stress, which has, and may continue to adversely affect the trading price of our common stock.
Finally, our risk management framework may be deemed insufficient or inadequate by our regulators, which have in the past required, and we expect to continue to require, that we invest additional resources into remediating any deficiencies and adversely impact our ability to operate our business until such time as the revised framework is deemed sufficient and adequate by our regulators.
Finally, our risk management framework may be deemed insufficient or inadequate by our regulators, which have in the past required, and we expect to continue to require, that we invest additional resources into remediating any deficiencies and adversely impact our ability to operate our business until such time as the revised framework is deemed sufficient and adequate by our regulators. 50 Internal control deficiencies could impact the accuracy of our financial results or prevent the detection of fraud.
Changes in the presidential administration or control of Congress also increases the likelihood of further changes to laws, regulations and supervisory practices affecting financial institutions, which could include more stringent requirements and greater scrutiny from regulatory authorities.
Any changes in the Presidential Administration or control of Congress also increases the likelihood of further changes to laws, regulations and supervisory practices affecting financial institutions, which could include more stringent requirements and greater scrutiny from regulatory authorities. 38 Changes in laws, regulations, or policies may adversely affect our business.
The Company will no longer qualify as a RIC beginning with the 2023 taxable year (e.g., beginning on January 1, 2023). For more information, see “Item 7.
The Company will no longer qualify as a RIC beginning with the 2023 taxable year. For more information, see “Item 7.
Increasing competition could also require us to lower the rates we charge on loans in order to maintain our desired loan origination volume, which could also have a material adverse effect on our business, financial condition and results of operations. We could be adversely affected by weakness in the residential housing and commercial real estate markets.
Increasing competition could also require us to lower the rates we charge on loans in order to maintain our desired loan origination volume, which could also have a material adverse effect on our business, financial condition and results of operations. We could be adversely affected by the soundness of other financial institutions.
We are subject to the USA PATRIOT Act of 2001 and the Bank Secrecy Act, which require financial institutions to design and implement programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with Financial Crimes Enforcement Network.
The USA PATRIOT Act of 2001 and the Bank Secrecy Act, or the BSA, require financial institutions to design and implement programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with FinCEN.
We also may not be able to refinance our indebtedness or take such other actions, if necessary, on commercially reasonable terms, or at all. To the extent we borrow money to finance our lending activities, changes in interest rates will affect our cost of capital and net investment income.
We also may not be able to refinance our indebtedness or take such other actions, if necessary, on commercially reasonable terms, or at all. 47 To the extent we borrow money to originate new loans, changes in interest rates will affect our cost of capital and net interest margin.
To the extent we borrow money to finance our lending activities, our earnings will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we lend those funds. General interest rate fluctuations may also have an impact on the value of our common stock.
To the extent we borrow money to finance client loans, our net interest margin will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we lend those funds. General interest rate fluctuations may also have an impact on the value of our stock and our rate of return.
A reduction in the price of guaranteed SBA 7(a) loans could negatively impact our business. There can be no assurance that we will be able to continue originating these loans, or that a secondary market will exist for, or that we will continue to realize premiums upon the sale of the guaranteed portions of the SBA 7(a) loans.
There can be no assurance that we will be able to continue originating these loans, or that a secondary market will exist for, or that we will continue to realize premiums upon the sale of the guaranteed portions of the SBA 7(a) loans.
Our lending prospects as a financial holding company may differ significantly from our investment prospects as a BDC, and it is difficult to predict future operating results and to assess the likelihood of the success of our business as a financial holding company.
Accordingly, we have a limited operating history upon which to evaluate our business and future prospects as a financial holding company. Our lending prospects may significantly differ from our investment prospects as a BDC, and it is difficult to predict future operating results and to assess the likelihood of the success of our business as a financial holding company.
As a new financial holding company, we may be subject to risks and levels of risk that are greater than those encountered by financial institutions with longer established operations and relationships.
As a new financial holding company, we may be subject to risks and levels of risk that are often greater than those encountered by financial institutions with longer established operations and relationships. We may also require significant capital from sources other than operations.
There can be no assurance that continued and more widespread inflation in the United States and/or other economies will not become a serious problem in the future and have a material adverse impact on us.
There can be no assurance that continued and more widespread inflation in the United States and/or other economies or the maintenance of higher interest rests in an effort to curb inflation will not become a serious problem in the future and have a material adverse impact on us.
Our ability to achieve our objectives depends on our ability to acquire clients. Accomplishing this on a cost-effective basis is largely a function of our marketing capabilities, our management of our referral processing, our ability to provide efficient services and our access to financing sources on acceptable terms.
Accomplishing this result on a cost-effective basis is largely a function of our marketing capabilities, our management of our client processing, our ability to provide efficient services and our access to financing sources on acceptable terms.
Any such changes may also require us to invest significant management attention and resources to make any necessary changes and may adversely affect our ability to conduct our business as previously conducted or our results of operations or financial condition.
Any such changes may also require us to invest significant management attention and resources to make any necessary changes and may adversely affect our ability to conduct our business as previously conducted or our results of operations or financial condition. We may be adversely affected by increased governmental and regulatory scrutiny or negative publicity.
Consistent with the terms of the agreement, NSBF has established a segregated restricted cash account in the amount of $10 million to account for potential post-purchase repairs and denials of guaranteed portions of SBA 7(a) loans, and agreed to take certain actions to demonstrate the sufficiency of NSBF’s liquidity and establish certain additional reporting and compliance procedures.
In connection with NSBF’s 2018 examination by the SBA, NSBF entered into a voluntary agreement with the SBA pursuant to which NSBF established a segregated restricted cash account in the amount of $10 million to account for potential post-purchase repairs and denials of guaranteed portions of SBA 7(a) loans, and take certain actions to demonstrate the sufficiency of NSBF’s liquidity and establish certain additional reporting and compliance procedures.
As a result, a significant change in market interest rates may have a material adverse effect on our income in the event we borrow money to finance our loans. In periods of rising interest rates, our cost of funds would increase, which could reduce our income.
As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net interest margin in the event we borrow money to finance our loans. In periods of rising interest rates, our cost of funds would increase, which could reduce our net interest margin.
We may continue to enter into such hedging transactions in an effort to mitigate our exposure to adverse fluctuations in interest rates and we may increase our floating rate loans to hedge against interest rate increases.
We may continue to enter into such hedging transactions in an effort to mitigate our exposure to adverse fluctuations in interest rates and we may increase our floating rate investments to position the portfolio for rate increases.
We depend on our Senior Lending Team and Executive Committee as well as other key personnel for the identification, final selection, structuring, closing and monitoring of business opportunities. These executive officers and employees have critical industry experience and relationships that we rely on to implement our business plan.
We depend on our Senior Lending Team and executive officers as well as other key personnel for the management of our and our subsidiaries’ businesses. These executive officers and employees have critical industry experience and relationships that we rely on to implement our business plan.
Currently, NMS is operating under an order for injunctive relief it voluntarily entered into with the Federal Trade Commission. 49 RISKS RELATED TO OUR SUBSIDIARIES - NEWTEK BANK If the credit decisioning, pricing, loss forecasting and scoring models we use contain errors, do not adequately assess risk, or are otherwise ineffective, our reputation and relationships with customers could be harmed, our market share could decline and the value of loans held on our balance sheet may be adversely affected.
RISKS RELATED TO OUR SUBSIDIARIES - NEWTEK BANK If the credit decisioning, pricing, loss forecasting and scoring models we use contain errors, do not adequately assess risk, or are otherwise ineffective, our reputation and relationships with customers could be harmed, our market share could decline and the value of loans held on our balance sheet may be adversely affected.
Further, rising interest rates could also adversely affect our financial condition and results of operations if we hold loans with floating interest rates, subject to specified minimum interest rates (such as a LIBOR floor), while at the same time engaging in borrowings subject to floating interest rates not subject to such minimums.
Further, rising interest rates could also adversely affect our performance if we hold loans with floating interest rates, subject to specified minimum interest rates, while at the same time engaging in borrowings subject to floating interest rates not subject to such minimums.
The portions of SBA 7(a) loans to be retained by us do not benefit directly from any SBA guarantees; in an event of default, however, we and the SBA typically cooperate in collateral foreclosure or other work-out efforts and share in any resulting collections. We have generally sold the guaranteed portion of SBA loans in the secondary market.
The portions of Section 7(a) loans to be retained by us do not benefit directly from any SBA guarantees; in an event of default, however, we and the SBA typically cooperate in collateral foreclosure or other work-out efforts and share in any resulting collections. The loans we make under the Section 7(a) Loan Program face competition.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeBelow is a list of our leased offices and space as of December 31, 2022 which are material to the conduct of our business: Location Lease expiration Purpose Approximate square feet 4800 T Rex Avenue Boca Raton, FL 33431 April 2026 Corporate headquarters and NSBF lending operations 7,800 1981 Marcus Avenue Lake Success, NY 11042 April 2027 Lending operations, corporate operations, NY Capco offices and certain subsidiaries’ offices 44,800 14 East Washington Street Orlando, FL 32801 Month-to-Month NBL lending operations 1,700 1111 Brickell Avenue, Suite 135 Miami, Florida 33131 February 2027 Main office Newtek Bank, National Association 1,800
Biggest changeBelow is a list of our leased offices and space as of December 31, 2023 which are material to the conduct of our business: Location Lease expiration Purpose Approximate square feet 4800 T Rex Avenue Boca Raton, FL 33431 April 2026 Corporate headquarters and NSBF lending operations 7,800 1981 Marcus Avenue Lake Success, NY 11042 April 2027 Lending operations, corporate operations, NY Capco offices and subsidiaries’ offices 44,800 14 East Washington Street Orlando, FL 32801 Month to Month Lending operations 1,700 1111 Brickell Avenue, Suite 135 Miami, Florida 33131 February 2027 Main office Newtek Bank 1,800

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+2 added−5 removed0 unchanged
Biggest changeIn addition, as a result of a litigation brought by the Federal Trade Commission (the “FTC”) in October 2012, NMS voluntarily entered into, and is presently operating under, a permanent injunction with respect to certain of its business practices.
Biggest changeAs of December 31, 2023, the Company had accrued an immaterial reserve that we believe is appropriate to cover potential settlements. In addition, as a result of a litigation brought by the Federal Trade Commission (the “FTC”) in October 2012, NMS voluntarily entered into, and is presently operating under, a permanent injunction with respect to certain of its business practices.
Removed
ITEM 3. LEGAL PROCEEDINGS. In the ordinary course of business, the Company and its wholly-owned subsidiaries may from time to time be party to lawsuits and claims. The Company evaluates such matters on a case by case basis and its policy is to contest vigorously any claims it believes are without compelling merit.
Added
ITEM 3. LEGAL PROCEEDINGS. Refer to “NOTE 14—COMMITMENTS AND CONTINGENCIES” within the accompanying Notes to the Consolidated Financial Statements, which is incorporated by reference herein.
Removed
The Company is not currently involved in any litigation matters that are expected to have a material impact on the Company’s financial condition. For legal proceedings involving controlled portfolio companies, refer to Part I, “Item 1A. Risk Factors” of this Annual Report on Form 10-K for the year ended December 31, 2022, filed on March 1, 2022.
Added
While the final outcomes of legal proceedings are inherently unpredictable, management is currently of the opinion that 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 as a whole.
Removed
For example, the Company closed on its $5.4 million investment in BSP in June 2016. Subsequently, as previously disclosed, the Company invested $1.7 million in additional capital and recorded $7.1 million in unrealized losses on the BSP investment to write down the fair value of the investment to $0.0 million by June 30, 2019.
Removed
The BSP investment resulted in protracted litigation with Kerri Agee, the former owner and President of BSP, who filed for bankruptcy and was indicted in 2019 for, and convicted in 2021 of, defrauding the SBA. The Agee litigation concluded with Holdco 5 obtaining a nondischargeable judgment against Agee in the amount of $6.2 million in January 2022.
Removed
Holdco 5 intends to vigorously pursue all of its rights relating to this matter, though there can be no assurances of the possibility of recovering some or substantially all of the assets referred to in the judgement. Holdco 5 has not recorded any gain contingency relating to this litigation.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+2 added−28 removed1 unchanged
Biggest changeBusiness.” 61 Table of Contents The following table summarizes our dividend declarations and distributions through December 31, 2022: Record Date Payment Date Distribution Declared March 30, 2015 April 13, 2015 $ 0.39 June 29, 2015 July 15, 2015 $ 0.47 October 22, 2015 November 3, 2015 $ 0.50 November 18, 2015 (1) December 31, 2015 $ 2.69 January 7, 2016 January 19, 2016 $ 0.40 March 22, 2016 March 31, 2016 $ 0.35 June 20, 2016 June 30, 2016 $ 0.35 September 20, 2016 September 30, 2016 $ 0.43 December 15, 2016 December 30, 2016 $ 0.40 March 20, 2017 March 31, 2017 $ 0.36 May 31, 2017 June 30, 2017 $ 0.40 September 22, 2017 September 29, 2017 $ 0.44 December 18, 2017 December 28, 2017 $ 0.44 March 20, 2018 March 30, 2018 $ 0.40 June 15, 2018 June 29, 2018 $ 0.42 September 17, 2018 September 28, 2018 $ 0.48 December 18, 2018 December 28, 2018 $ 0.50 March 15, 2019 March 29, 2019 $ 0.40 June 14, 2019 June 28, 2019 $ 0.46 September 20, 2019 September 30, 2019 $ 0.58 December 16, 2019 December 30, 2019 $ 0.71 March 18, 2020 March 31, 2020 $ 0.44 July 15, 2020 July 31, 2020 $ 0.56 September 21, 2020 September 30, 2020 $ 0.58 December 18, 2020 December 30, 2020 $ 0.47 March 22, 2021 March 31, 2021 $ 0.50 June 15, 2021 June 30, 2021 $ 0.70 September 20, 2021 September 30, 2021 $ 0.90 December 20, 2021 December 30, 2021 $ 1.05 March 21, 2022 March 31, 2022 $ 0.65 June 20, 2022 June 30, 2022 $ 0.75 September 20, 2022 September 30, 2022 $ 0.65 December 20, 2022 December 30, 2022 $ 0.70 $ 19.52 (1) The Special dividend was declared as a result of the Company’s RIC election for tax year 2015 and represents the distribution of 100% of the Company’s accumulated earnings and profits through December 31, 2014.
Biggest changeUpon satisfying this requirement in respect of a taxable year, we generally were not subject to U.S. federal income taxes at corporate rates on any income we distributed to our shareholders as dividends for U.S. federal income tax purposes. 76 Table of Contents The following table summarizes our dividend declarations and distributions from January 1, 2019 through December 31, 2022, after which the Company no longer operates as a RIC: Record Date Payment Date Distribution Declared March 15, 2019 March 29, 2019 $ 0.40 June 14, 2019 June 28, 2019 $ 0.46 September 20, 2019 September 30, 2019 $ 0.58 December 16, 2019 December 30, 2019 $ 0.71 March 18, 2020 March 31, 2020 $ 0.44 July 15, 2020 July 31, 2020 $ 0.56 September 21, 2020 September 30, 2020 $ 0.58 December 18, 2020 December 30, 2020 $ 0.47 March 22, 2021 March 31, 2021 $ 0.50 June 15, 2021 June 30, 2021 $ 0.70 September 20, 2021 September 30, 2021 $ 0.90 December 20, 2021 December 30, 2021 $ 1.05 March 21, 2022 March 31, 2022 $ 0.65 June 20, 2022 June 30, 2022 $ 0.75 September 20, 2022 September 30, 2022 $ 0.65 December 20, 2022 December 30, 2022 $ 0.70 The Company has a stock-based compensation plan as discussed in NOTE 15—STOCK BASED COMPENSATION.
The graph assumes that, on January 1, 2018, a person invested $100 in each of our common stock, the Nasdaq Composite, S&P 500 Index, Russell 2000 and S&P Small Cap 600. The graph measures total shareholder return, which takes into account both changes in stock price and dividends. It assumes that dividends paid are invested in like securities.
The graph assumes that, on January 1, 2019, a person invested $100 in each of our common stock, the Nasdaq Composite, S&P 500 Index, Russell 2000 and S&P Small Cap 600. The graph measures total shareholder return, which takes into account both changes in stock price and dividends. It assumes that dividends paid are invested in like securities. Source: Bloomberg
Securities authorized for issuance under equity compensation plans as of December 31, 2022: Plan Category (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (b) Weighted-average exercise price of outstanding options, warrants and rights (c) 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 2,311,596 shares Equity compensation plans not approved by security holders None None None 63 Table of Contents Stock Performance Graph The following graph compares the return on our common stock with that of the Standard & Poor’s 500 Stock Index, the NASDAQ Composite Index, the Russell 2000, and S&P Small Cap 600 for the period from December 31, 2017 through December 31, 2022.
Securities authorized for issuance under equity compensation plans as of December 31, 2023: Plan Category (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (b) Weighted-average exercise price of outstanding options, warrants and rights (c) 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 77 Table of Contents Stock Performance Graph The following graph compares the return on our common stock with that of the Standard & Poor’s 500 Stock Index, the NASDAQ Composite Index, the Russell 2000, and S&P Small Cap 600 for the period from December 31, 2018 through December 31, 2023.
Holders As of March 14, 2023, there were approximately 92 holders of record of our common stock. Sales of Unregistered Securities We issue shares of common stock that are not subject to the registration requirements of the Securities Act in connection with the DRIP.
Holders As of March 28, 2024, there were approximately 89 holders of record of our common stock. Sales of Unregistered Securities We have issued shares of common stock that are not subject to the registration requirements of the Securities Act in connection with the DRIP.
During the years ended December 31, 2022 and December 31, 2021 we issued 95,300 and 72,200 shares of common stock, respectively, valued at $1.6 million and $1.9 million, respectively to shareholders in connection with the DRIP.
During the year ended December 31, 2023 and December 31, 2022, we issued 15,700 and 95,300 shares of common stock, respectively, valued at $0.2 million and $1.6 million, respectively, to shareholders in connection with the DRIP. On December 8, 2023, the Company terminated the DRIP.
During the years ended December 31, 2022 and December 31, 2021 we issued an additional 35,500 and 19,200 shares, respectively, valued at $0.6 million and $0.5 million, respectively, related to dividends on unvested restricted stock awards. 60 Table of Contents Distributions Prior to our 2023 taxable year, when the Company operated as a RIC, we were required to timely distribute to our shareholders, in respect of each taxable year, dividends for U.S. federal income tax purposes of an amount generally at least equal to the Annual Distribution Requirement.
Business.” Prior to our 2023 taxable year, when the Company operated as a RIC, we were required to timely distribute to our shareholders, in respect of each taxable year, dividends for U.S. federal income tax purposes of an amount generally at least equal to the Annual Distribution Requirement.
As a financial holding company, the Company will no longer maintain the dividend policy pursuant to which the Company distributed an amount equal to the Annual Distribution Requirement and can offer no assurance that we will achieve results that will permit the payment of any cash distributions. See “Item 1.
We can offer no assurance that we will achieve results that will permit the payment of any cash distributions. See “Item 1.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock is traded on the Nasdaq Global Market under the symbol “NEWT.” The last reported price for our common stock on March 28, 2024 was $11.00 per share.
Removed
Price Range of Common Stock Our common stock is traded on the Nasdaq Global Market under the symbol “NEWT.” High and low prices for the common stock over the previous two years are set forth below, based on the highest and lowest intraday sales price per share during that period.
Added
During the years ended December 31, 2023 and December 31, 2022 we issued an additional 18,700 and 35,500 shares, respectively, valued at $0.3 million and $0.6 million, respectively, related to dividends on unvested restricted stock awards. Dividends The Company declared common dividends of $0.18 per share for the first, second, third and fourth quarters of 2023.
Removed
Price Range NAV 1 Premium of High Sales Price to NAV 2 Premium of Low Sales Price to NAV 2 High Low 2021 First Quarter $28.63 $18.77 $16.28 76% 15% Second Quarter $38.78 $26.41 $16.38 137% 61% Third Quarter $36.41 $24.07 $16.23 124% 48% Fourth Quarter $32.38 $25.63 $16.72 94% 53% 2022 First Quarter $28.70 $24.00 $16.49 74% 46% Second Quarter $27.18 $17.65 $16.31 67% 8% Third Quarter $23.11 $15.65 $16.04 44% (2)% Fourth Quarter $19.51 $14.75 $15.25 28% (3)% 2023 First Quarter: January 1, 2023 through March 14, 2023 $20.83 $11.26 * *% *% (1) Net asset value per share is determined as of the last day in the relevant quarter and therefore may not reflect the net asset value per share on the date of the high and low sales prices.
Added
The Company’s ability to continue to pay common stock dividends is subject to, among other things, Board approval and limitations on capital distributions in the event of a breach of any regulatory capital buffers, with the degree of such restrictions based on the extent to which the buffers are breached.
Removed
The values reflect net asset value per share and are based on outstanding shares at the end of each period. (2) Calculated as the respective high or low sales price divided by net asset value and subtracting 1. * Not determinable at time of filing.
Removed
The last reported price for our common stock on March 14, 2023 was $12.66 per share. The possibility that our shares of common stock will trade at a discount from net asset value or at premiums that are unsustainable over the long term are separate and distinct from the risk that our net asset value will decrease.
Removed
It is not possible to predict whether our shares will trade at, above, or below net asset value. During the time that we operated as a BDC, our shares of common stock have traded at prices both less than and exceeding our NAV per share.
Removed
Upon satisfying this requirement in respect of a taxable year, we generally were not subject to U.S. federal income taxes at corporate rates on any income we distributed to our shareholders as dividends for U.S. federal income tax purposes.
Removed
However, as a RIC we were subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income and gains unless we made distributions treated as dividends for U.S. federal income tax purposes in a timely manner to our shareholders in respect of each calendar year of an amount at least equal to the Excise Tax Avoidance Requirement.
Removed
We were not subject to this excise tax on any amount on which we incurred U.S. federal corporate income tax (such as the tax imposed on a RIC’s retained net capital gains).
Removed
Depending on the level of taxable income earned in a taxable year, we could choose to carry over taxable income in excess of that taxable’s year distributions treated as dividends for U.S. federal income tax purposes from such taxable income into the next taxable year and incur a 4% U.S. federal excise tax on such taxable income, as required.
Removed
The maximum amount of excess taxable income that may be carried over for distribution in the next taxable year under the Code is the total amount of distributions treated as dividends for U.S. federal income tax purposes paid in the following taxable year, subject to certain declaration and payment guidelines.
Removed
Pursuant to applicable Treasury Regulation and IRS guidance, 27% of the dividend was paid in cash and 73% was paid in newly issued shares of our common stock.
Removed
Prior to 2023, as a BDC and RIC, our Board maintained a variable distribution policy with the objective of distributing four quarterly distributions in an amount that approximated 90 - 100% of our estimated annual taxable income for a particular taxable year.
Removed
As a financial holding company the Company’s ability to pay dividends and make other capital distributions is limited by regulatory capital rules and other aspects of the regulatory regime.
Removed
For example, a policy statement of the Federal Reserve provides that, among other things, a financial holding company generally should not pay dividends if its net income for the past year is not sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the company’s capital needs, asset quality, and overall financial condition.
Removed
Historically, distributions in excess of our current and accumulated earnings and profits would generally be treated first as a return of capital to the extent of a shareholder’s tax basis in our shares, and any distributions paid in excess of a shareholder’s tax basis in our shares would generally be treated as a capital gain.
Removed
The determination of the tax attributes of our distributions is 62 Table of Contents made annually as of the end of our taxable year and is generally based upon our taxable income for the full taxable year and distributions paid for the full taxable year.
Removed
Of the distributions declared during the year ended December 31, 2022, $48.3 million was distributions derived from our current and accumulated earnings and profits and capital gains and $17.9 million was a return of capital.
Removed
Of the distributions declared during the year ended December 31, 2021, 100% were distributions derived from our current and accumulated earnings and profits and capital gains. See NOTE 18—INCOME TAXES. There can be no certainty to shareholders that this determination is representative of the tax attributes of the 2023 distributions that we anticipate would be made to shareholders.
Removed
We maintain an “opt-out” dividend reinvestment plan for our common shareholders. As a result, if we declare a distribution, cash distributions will be automatically reinvested in additional shares of our common stock unless the shareholder specifically “opts out” of the dividend reinvestment plan and chooses to receive cash distributions.
Removed
During the years ended December 31, 2022 and 2021, we issued 95,300 and 72,200 shares, respectively, of common stock to shareholders in connection with the DRIP. The Company has a stock-based compensation plan as discussed in NOTE 12—STOCK BASED COMPENSATION.
Removed
Senior Securities As of December 31, 2022, we held $546.5 million of aggregate principal amount of senior securities, which represented 169% asset coverage, as defined under the 1940 Act. Information about our senior securities is shown in the following table as of the end of each fiscal year for the past ten years.
Removed
The information as of December 31, 2022, 2021, 2020, 2019, 2018, 2017, 2016, 2015, 2014, and 2013 has been derived from Newtek Business Services Corp. and Subsidiaries’, and Newtek Business Services, Inc. and Subsidiaries’, consolidated financial statements, which have been audited by RSM US LLP.
Removed
RSM US LLP’s report on the senior securities table as of December 31, 2022 is attached as an exhibit to this Annual Report. 64 Class and Year Total Amount Outstanding Exclusive of Treasury Securities (1) (in thousands) Asset Coverage Ratio Per Unit (2) Involuntary Liquidation Preference Per Unit (3) Average Market Value Per Unit (4) Securitization Trust December 31, 2022 $ 283,143 $ 3,256 $ — $ N/A 2021 249,750 3,537 — N/A 2020 221,752 3,595 — N/A 2019 276,637 2,754 — N/A 2018 220,137 2,839 — N/A 2017 165,432 3,018 — N/A 2016 120,945 3,184 — N/A 2015 91,745 3,692 — N/A 2014 79,520 3,634 — N/A 2013 60,140 2,966 — N/A Bank Notes Payable December 31, 2022 55,885 16,496 — N/A 2021 50,000 17,667 — N/A 2020 86,339 9,234 — N/A 2019 30,000 25,392 — N/A 2018 34,700 18,010 — N/A 2017 — — — N/A 2016 5,100 75,512 — N/A 2015 29,100 11,641 — N/A 2014 43,023 6,716 — N/A 2013 41,218 4,327 — N/A Notes Payable Related Parties December 31, 2022 24,250 38,016 — N/A 2021 11,450 77,147 — N/A 2020 24,090 33,096 — N/A 2019 12,163 62,633 — N/A 2018 16,840 37,111 — N/A 2017 7,001 71,324 — N/A 2016 1,400 275,081 — N/A 2015 5,647 59,990 — N/A 2014 — — — N/A 2013 — — — N/A Notes due 2026 December 31, 2022 115,000 8,016 — 997 2021 115,000 7,681 — 1,035 2020 — — — — 2019 — — — — 2018 — — — — 2017 — — — — 65 2016 — — — — 2015 — — — — 2014 — — — — 2013 — — — — Notes due 2025 December 31, 2022 30,000 30,730 — N/A 2021 15,000 58,889 — N/A 2020 5,000 159,457 — N/A 2019 — — — N/A 2018 — — — N/A 2017 — — — N/A 2016 — — — N/A 2015 — — — N/A 2014 — — — N/A 2013 — — — N/A Notes due 2024 (5) December 31, 2022 38,250 24,102 — 1,002 2021 38,250 23,094 — 1,014 2020 63,250 12,605 — 963 2019 63,250 12,044 — 1,009 2018 — — — N/A 2017 — — — N/A 2016 — — — N/A 2015 — — — N/A 2014 — — — N/A 2013 — — — N/A Notes due 2023 (6) December 31, 2022 — — — — 2021 — — — — 2020 57,500 13,866 — 983 2019 57,500 13,248 — 1,027 2018 57,500 10,869 — 1,023 2017 — — — N/A 2016 — — — N/A 2015 — — — N/A 2014 — — — N/A 2013 — — — N/A Notes due 2022 (7) December 31, 2022 — — — N/A 2021 — — — N/A 2020 — — — N/A 2019 — — — N/A 2018 8,324 75,078 — 968 66 2017 8,324 59,988 — 1,018 2016 8,324 46,265 — 969 2015 8,324 40,697 — 1,025 2014 — — — N/A 2013 — — — N/A Notes due 2021 (8) December 31, 2022 — — — N/A 2021 — — — N/A 2020 — — — N/A 2019 — — — N/A 2018 — — — N/A 2017 40,250 12,406 — 1,019 2016 40,250 9,568 — 972 2015 — — — N/A 2014 — — — N/A 2013 — — — N/A (1) Total amount of each class of senior securities outstanding at the end of the period presented.
Removed
(2) Asset coverage per unit is the ratio of the carrying value of our total consolidated assets, less all liabilities and indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness. Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness.
Removed
(3) The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it. The “—” indicates information that the SEC expressly does not require to be disclosed for certain types of senior securities.
Removed
(4) Not applicable for senior securities that are not registered for public trading. The average market values per unit for our 2026 Notes, 2024 Notes, 2023 Notes, 2022 Notes, and for our 2021 Notes are based on the average daily prices of such notes and are expressed per $1,000 of indebtedness.
Removed
(5) On February 16, 2021 and May 20, 2021, the Company issued an additional $5.0 million and $10.0 million in aggregate principal amount of its 2024 Notes, respectively. The Company partially redeemed $40.0 million in aggregate principal amount of the 2024 Notes on December 29, 2021.
Removed
(6) The Company redeemed all $57.5 million in aggregate principal amount of the 2023 Notes on February 22, 2021. (7) The Company redeemed all $8.324 million in aggregate principal amount of the 2022 Notes on August 29, 2019. (8) The Company redeemed all $40.25 million in aggregate principal amount of the 2021 Notes on March 23, 2018.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

110 edited+132 added−158 removed53 unchanged
Biggest changeExpenses: (in thousands) Year Ended December 31, 2022 Year Ended December 31, 2021 Change Salaries and benefits $ 20,186 $ 17,866 $ 2,320 Interest 26,325 20,515 5,810 Depreciation and amortization 239 304 (65) Professional fees 7,134 5,610 1,524 Origination and loan processing 11,606 10,234 1,372 Origination and loan processing - related party 19,140 19,272 (132) Loss on extinguishment of debt 417 1,552 (1,135) Other general and administrative costs 7,673 7,454 219 Total expenses $ 92,720 $ 82,807 $ 9,913 Salaries and Benefits The increase in salaries and benefits was attributable to an increase in salaries and bonuses and related accruals period over period due to increased performance pay as well as a higher headcount period over period. 76 Interest Expense The following is a summary of interest expense by facility for the year ended December 31, 2022 and 2021: (in thousands) Year Ended December 31, 2022 Year Ended December 31, 2021 Change Notes payable - Securitization Trusts $ 10,641 $ 5,520 $ 5,121 Bank notes payable 3,998 1,536 2,462 2023 Notes 1 — 549 (549) 2024 Notes 2 2,424 4,714 (2,290) 2025 6.85% Notes 3 379 1,134 (755) 2025 5.00% Notes 1,294 — 1,294 2026 Notes 7,042 6,675 367 Notes payable - related parties 547 387 160 Total interest expense $ 26,325 $ 20,515 $ 5,810 (1) On February 22, 2021, the Company redeemed all $57.5 million in aggregate principal amount of the 2023 Notes on the redemption date at 100% of their principal amount ($25 per Note), plus the accrued and unpaid interest thereon from December 31, 2020 through, but excluding, the redemption date.
Biggest changeInterest Expense The following is a summary of interest expense by facility for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 December 31, 2022 Change Deposits 1 $ 15,849 $ — $ 15,849 Notes and securitizations: Notes payable - Securitization Trusts 23,469 10,641 12,828 2024 Notes 2,421 2,424 (3) 2025 6.85% Notes 2 — 379 (379) 2025 5.00% Notes 1,757 1,294 463 2025 8.125% Notes 3 4,335 — 4,335 2026 Notes 7,043 7,042 1 2028 Notes 4 1,192 — 1,192 Bank and FHLB Borrowings: Bank notes payable 10,995 3,998 6,997 FHLB Advances 678 — 678 Notes payable - related party — 547 (547) Total interest expense $ 67,739 $ 26,325 $ 41,414 (1) Includes the interest-bearing deposit liabilities of NYNBC acquired on January 6, 2023, and the deposits added by Newtek Bank during the year ended December 31, 2023 (2) On May 2, 2022, the Company redeemed all $15.0 million in aggregate principal amount of the 2025 6.85% Notes at 100% of their principal amount ($25 per Note), plus the accrued and unpaid interest thereon from February 28, 2022 through, but excluding, the redemption date.
The 2026 Notes will mature on February 1, 2026 and may be redeemed in whole or in part at any time or from time to time at 80 the Company’s option on or after February 1, 2022, upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price equal to the following amounts, plus accrued and unpaid interest to, but excluding, the redemption date: (1) 100% of the principal amount of the 2026 Notes to be redeemed plus (2) the sum of the present value of the scheduled payments of interest (exclusive of accrued and unpaid interest to the date of redemption) on the 2026 Notes to be redeemed from the redemption date until February 1, 2023, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) using the applicable Treasury Rate plus 50 basis points; provided, however, that if the Company redeems any 2026 Notes on or after February 1, 2023 (the date falling three years prior to the maturity date of the 2026 Notes), the redemption price for the 2026 Notes will be equal to 100% of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.
The 2026 Notes will mature on February 1, 2026 and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after February 1, 2022, upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price equal to the following amounts, plus accrued and unpaid interest to, but excluding, the redemption date: (1) 100% of the principal amount of the 2026 Notes to be redeemed plus (2) the sum of the present value of the scheduled payments of interest (exclusive of accrued and unpaid interest to the date of redemption) on the 2026 Notes to be redeemed from the redemption date until February 1, 2023, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) using the applicable Treasury Rate plus 50 basis points; provided, however, that if the Company redeems any 2026 Notes on or after February 1, 2023 (the date falling three years prior to the maturity date of the 2026 Notes), the redemption price for the 2026 Notes will be equal to 100% 95 of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption.
From 2012 through December 31, 2022, NSBF, our wholly-owned subsidiary, was consistently the largest non-bank SBA 7(a) lender in the U.S. based on dollar volume of loan approvals, and, as of December 31, 2022, was the third largest SBA 7(a) lender in the United States.
From 2012 through December 31, 2022, NSBF, a wholly-owned subsidiary, was consistently the largest non-bank SBA 7(a) lender in the U.S. based on dollar volume of loan approvals, and, as of December 31, 2022, was the third largest SBA 7(a) lender in the United States.
The 2026 Notes bear interest at a rate of 5.50% per year payable quarterly on February 1, May 1, August 1 and November 1 of each year, commencing on May 1, 2021, and trade on the Nasdaq Global Market under the trading symbol “NEWTZ.” At December 31, 2022, the Company was in compliance with all covenants related to the 2026 Notes. 2024 Notes In July 2019, the Company and the Trustee entered into the Fourth Supplemental Indenture to the Base Indenture between the Company and the Trustee, relating to the Company’s issuance, offer and sale of $55.0 million aggregate principal amount of 5.75% 2024 Notes.
The 2026 Notes bear interest at a rate of 5.50% per year payable quarterly on February 1, May 1, August 1 and November 1 of each year, commencing on May 1, 2021, and trade on the Nasdaq Global Market under the trading symbol “NEWTZ.” At December 31, 2023, the Company was in compliance with all covenants related to the 2026 Notes. 2024 Notes In July 2019, the Company and the Trustee entered into the Fourth Supplemental Indenture to the Base Indenture between the Company and the Trustee, relating to the Company’s issuance, offer and sale of $55.0 million aggregate principal amount of 5.75% 2024 Notes.
The Company exercised its option to issue up to $10.0 million of additional 2025 6.85% Notes to the purchaser, and issued $10.0 million in additional 2025 6.85% Notes to the purchaser in an exempt offering in January 2021.
The Company exercised its option to issue up to $10.0 million of additional 2025 6.85% Notes to the purchaser, and issued $10.0 million in additional 2025 6.85% 96 Notes to the purchaser in an exempt offering in January 2021.
Level 3 investments were valued at fair value as determined in good faith by the Board, based on input of management, the audit committee and independent valuation firms that were engaged at the direction of the Board to assist in the valuation of certain portfolio investments without a readily available market quotation at least once during a trailing twelve-month period under a valuation policy and a consistently applied valuation process.
Level 3 assets and liabilities were valued at fair value as determined in good faith by the Board, based on input of management, the audit committee and independent valuation firms that were engaged at the direction of the Board to assist in the valuation of certain portfolio investments without a readily available market quotation at least once during a trailing twelve-month period under a valuation policy and a consistently applied valuation process.
The 2024 Notes bear interest at a rate of 5.75% per year payable quarterly on February 1, May 1, August 1, and November 1 of each year, commencing on November 1, 2019, and trade on the Nasdaq Global Market under the trading symbol “NEWTL.” At December 31, 2022, the Company was in compliance with all covenants related to the 2024 Notes.
The 2024 Notes bear interest at a rate of 5.75% per year payable quarterly on February 1, May 1, August 1, and November 1 of each year, commencing on November 1, 2019, and trade on the Nasdaq Global Market under the trading symbol “NEWTL.” At December 31, 2023, the Company was in compliance with all covenants related to the 2024 Notes.
In addition, NSBF will be required to continue to service and liquidate its SBA Loan Portfolio, including processing forgiveness and loan reviews for PPP Loans, pursuant to an SBA approved lender service provider agreement with SBL. The Company will continue to fair value NSBF’s SBA 7(a) loan portfolio until the portfolio is completely runoff.
In addition, NSBF will be required to continue to service and liquidate its SBA Loan Portfolio, including processing forgiveness and loan reviews for PPP Loans pursuant to an SBA approved lender service provider agreement with SBL. The Company will continue to measure NSBF’s SBA 7(a) loan portfolio at fair value until the portfolio is completely runoff.
In addition, NSBF will be required to continue to service and liquidate its SBA Loan Portfolio, including processing forgiveness and loan reviews for PPP Loans, pursuant to an SBA approved lender service provider agreement with SBL. The Company will continue to fair value NSBF’s SBA 7(a) loan portfolio until the portfolio is completely runoff.
In addition, NSBF will be required to continue to service and liquidate its SBA Loan Portfolio, including processing forgiveness and loan reviews for PPP Loans, pursuant to an SBA approved lender service provider agreement with SBL. The Company will continue to measure NSBF’s SBA 7(a) loan portfolio at fair value until the portfolio is completely runoff.
Level 2 investments were valued using market consensus prices that are corroborated by observable market data and quoted market prices for similar assets and liabilities.
Level 2 assets and liabilities were valued using market consensus prices that are corroborated by observable market data and quoted market prices for similar assets and liabilities.
We may have sought pricing information with respect to certain of our investments from pricing services or brokers or dealers in order to value such investments. We also employed independent third party valuation firms for certain of our investments for which there is not a readily available market value.
We may have sought pricing information with respect to certain of our instruments from pricing services or brokers or dealers in order to value such instruments. We also employed independent third party valuation firms for certain of our instruments for which there is not a readily available market value.
Government and agency mortgage-backed debt securities, corporate debt securities, derivative contracts and residential mortgage loans held-for-sale. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Government and agency mortgage-backed debt securities, derivative contracts and loans held-for-sale. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
On January 28, 2022, NCL closed a conventional commercial loan securitization with the sale of $56.3 million Class A Notes, NCL Business Loan Trust 2022-1, Business Loan-Backed Notes, Series 2022-1, secured by a segregated asset pool consisting primarily of NCL’s portfolio of conventional commercial business loans, including loans secured by liens on commercial or residential mortgaged properties, originated by NCL and NBL.
On January 28, 2022, NCL JV closed a conventional commercial loan securitization with the sale of $56.3 million Class A Notes, NCL Business Loan Trust 2022-1, Business Loan-Backed Notes, Series 2022-1, secured by a segregated asset pool consisting primarily of NCL JV’s portfolio of conventional commercial business loans, including loans secured by liens on commercial or residential mortgaged properties, originated by NCL JV and NBL.
As of December 31 2022, our asset coverage was 169%. Although we are no longer regulated as a BDC, certain covenants in our outstanding 2024 and 2026 Notes require us to maintain an asset coverage of at least 150% as long as the 2024 and 2026 Notes are outstanding.
As of December 31 2022, our asset coverage was 169%. Although we are no longer regulated as a BDC, certain covenants in our outstanding 2024 and 2026 Notes require us to maintain an asset coverage of at least 150% as long as the 2024 and 2026 Notes are outstanding. See “Item 1A.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a readily available market value existed for such investments and may differ materially from values that may ultimately be received or settled.
Due to the inherent uncertainty of determining the fair value of our instruments that do not have a readily available market value, the fair value of the instruments may differ significantly from the values that would have been used had a readily available market value existed for such instruments and may differ materially from values that may ultimately be received or settled.
This discussion and analysis should be read in conjunction with the consolidated financial statements and the accompanying notes. The statements in this Annual Report may contain forward-looking statements relating to such matters as anticipated future financial performance, business prospects, legislative developments and similar matters.
This discussion and analysis should be read in conjunction with the consolidated financial statements and the accompanying notes as well as Item 1 - Business. The statements in this Annual Report may contain forward-looking statements relating to such matters as anticipated future financial performance, business prospects, legislative developments and similar matters.
The Class A and Class B notes received an “A” and “BBB-” rating by S&P, respectively, and the final maturity date of the notes is December 2048. The Class A and Class B notes bear interest at an average rate of LIBOR plus 1.92% across both classes.
The Class A and Class B notes received an “A” and “BBB-” rating by S&P, respectively, and the final maturity date of the notes is December 2048. The Class A and Class B notes bear interest at an average rate of adjusted SOFR plus 1.92% across both classes.
The Class A and Class B notes received an “A” and “BBB-” rating by S&P, respectively, and the final maturity date of the notes is December 2044. The Class A and Class B notes bear interest at an average rate of LIBOR plus 1.83% across both classes.
The Class A and Class B notes received an “A” and “BBB-” rating by S&P, respectively, and the final maturity date of the notes is December 2044. The Class A and Class B notes bear interest at an average rate of adjusted SOFR plus 1.83% across both classes.
At December 31, 2022, the Company was in compliance with all covenants related to the Notes. 2025 Notes (Private Placement) On November 27, 2020, the Company and Trustee entered into the Fifth Supplemental Indenture to the Base Indenture between the Company and the Trustee, relating to the issuance, offer and sale of $5.0 million aggregate principal amount of its 2025 6.85% Notes.
At December 31, 2023, the Company was in compliance with all covenants related to the Notes. 2025 Notes (Private Placements) On November 27, 2020, the Company and Trustee entered into the Fifth Supplemental Indenture to the Base Indenture between the Company and the Trustee, relating to the issuance, offer and sale of $5.0 million aggregate principal amount of its 2025 6.85% Notes.
In addition, our portfolio companies have become consolidating subsidiaries of NewtekOne in 2023 and therefore, under the new organizational structure, their income will be consolidated within the statement of operations going forward along with our joint ventures.
In addition, our portfolio companies have become consolidating subsidiaries of NewtekOne in 2023 and therefore, under the new organizational structure, their income is consolidated within the statement of operations going forward along with our joint ventures.
The 2022-1 Trust in turn issued securitization notes for the par amount of $103.4 million, consisting of $95.4 million of Class A notes and $20.8 million Class B notes, against the 2022-1 Trust assets in a private placement.
The 2022-1 Trust in turn issued securitization notes for the par amount of $116.2 million, consisting of $95.4 million of Class A notes and $20.8 million Class B notes, against the 2022-1 Trust assets in a private placement.
We supported 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 SMBs as companies having revenues of $1.00 million to $100.00 million, and we have generally estimated the SMB market to be over 30 million businesses in the United States.
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 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.
However, a readily available market value did not exist for many of the investments in our portfolio, and we valued these portfolio investments at fair value as determined in good faith by our Board under our valuation policy and process.
However, a readily available market value did not exist for many of the instruments in our portfolio, and we valued these instruments at fair value as determined in good faith by our management under our valuation policy and process.
(Nasdaq:TCPC). NCL provided non-conforming conventional commercial and industrial term loans to U.S. middle-market companies and small businesses. NCL ceased funding new loans during 2020.
NCL JV provided non-conforming conventional commercial and industrial term loans to U.S. middle-market companies and small businesses. NCL JV ceased funding new loans during 2020.
As of January 6, 2023, the Company no longer qualifies as a regulated investment company for federal income tax purposes and no longer qualifies for accounting treatment as an investment company and therefore, will no longer fair value the investments in its portfolio companies.
As of January 6, 2023, the Company no longer qualifies as a regulated investment company for federal income tax purposes and no longer qualifies for accounting treatment as an investment company and therefore, we no longer fair value the investments in our portfolio companies.
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 clients will not be negatively impacted by economic conditions, which could have a negative impact on our future results.
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.
The amount of the unrealized appreciation (depreciation) is determined by the quantity of guaranteed loans held for sale at quarter end as well as the change in secondary market pricing conditions. During the year ended December 31, 2022, there was a reduction in the gain-on-sale pricing as compared to the prior period.
The amount of the unrealized appreciation (depreciation) is determined by the quantity of guaranteed loans held for sale at quarter end, as well as the change in secondary market pricing conditions. During the year ended December 31, 2023, there was an increase in the gain-on-sale pricing as compared to the prior period.
Contemporaneously with withdrawing our election to be regulated as a BDC, on January 6, 2023, we completed the previously announced Acquisition of NBNYC, a national bank regulated and supervised by the OCC, pursuant to which we acquired from the NBNYC shareholders all of the issued and outstanding stock of NBNYC for $20 million.
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.
We recorded current period changes in fair value of investments and assets that were measured at fair value as a component of the net change in unrealized appreciation (depreciation) on investments or servicing assets, as appropriate, in the consolidated statements of operations.
We recorded current period changes in fair value of loans and assets that were measured at fair value as a component of the net change in unrealized appreciation (depreciation) on the loans or se rvicing assets, as appropriate, in the consolidated statements of operations.
Income Recognition Management reviewed all loans that became 90 days or more past due on principal or interest or when there was reasonable doubt that principal or interest would be collected for possible placement on management’s designation of non-accrual status. Interest receivable was analyzed regularly and reserved against when deemed uncollectible.
Income Recognition For the fiscal year ended December 31, 2023, management reviewed all loans that became 90 days or more past due on principal or interest or when there was reasonable doubt that principal or interest would be collected for possible placement on management’s designation of non-accrual status. Interest receivable was analyzed regularly and reserved against when deemed uncollectible.
Refer to NOTE 3—INVESTMENTS for selected financial information and a schedule of investments of NCL as of December 31, 2022. Newtek-TSO JV: On August 5, 2022, Newtek Commercial Lending, Inc. and TSO II Booster Aggregator, L.P. (“TSO II”) entered into a joint venture, Newtek-TSO JV, governed by the Amended and Restated Limited Partnership Agreement for the Newtek-TSO JV.
Refer to NOTE 4—INVESTMENTS for selected financial information and a schedule of investments of NCL as of December 31, 2023. 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.
Executive Overview Conversion to a Financial Holding Company As of January 6, 2023, we are a financial holding company that, together with our consolidated subsidiaries, intends to provide a wide range of business and financial solutions under the NewtekOne ® brand to the SMB market.
Executive Overview Conversion to a Financial Holding Company 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 market.
Following our conversion to a financial holding company, for 2023, the Company and its subsidiaries will no longer qualify as a RIC and will file a consolidated U.S. federal income tax return. Financial holding companies are subject to federal and state income taxes in essentially the same manner as other corporations.
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.
NBNYC has been renamed Newtek Bank, National Association and has become our wholly owned subsidiary. In connection with the completion of the Acquisition, we have contributed to Newtek Bank $31 million of cash and two of our subsidiaries, NBL and SBL.
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).
In addition, as a result of commitments made to the Federal Reserve, we will divest or otherwise terminate the activities conducted by EWS and NTS including its subsidiary SIDCO, within two years of becoming a financial holding company, subject to any extension of the two-year period. See “Item 1A.
In addition, as a result of commitments made to the Federal Reserve, we will divest or otherwise terminate the activities conducted by NTS, which includes SIDCO and EWS after a December 31, 2023 merger, within two years of becoming a financial holding company, subject to any extension of the two-year period. See “Item 1A.
Due to the inherent uncertainty of determining the fair value of Level 3 investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be received or settled.
The Company used this valuation approach for its investment in its joint ventures. 101 Due to the inherent uncertainty of determining the fair value of Level 3 investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be received or settled.
Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies for the year ended December 31, 2022. 85 Fair Value Measurements For the years ended December 31, 2022 and 2021, we valued investments for which market quotations are readily available at their market quotations.
Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies for the fiscal year ended December 31, 2023. Fair Value Measurements For the fiscal year ended December 31, 2023, we valued instruments for which market quotations are readily available at their market quotations.
As a result, in addition to Newtek Bank and its consolidated subsidiaries, NBL and SBL, the following portfolio companies and subsidiaries will now be consolidated non-bank subsidiaries in our financial statements: NSBF; NMS; Mobil Money; NBC; PMT; NIA; TAM; Newtek Business Services Holdco 6, Inc; NCL; EWS; NTS and POS.
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.
Distributions of earnings from a portfolio companies were evaluated to determine if the distribution is income, return of capital or realized gain. Following our conversion to a financial holding company, we intend to generate income in the form of interest, servicing and other fee income on the loans we and Newtek Bank originate.
For the fiscal year ended December 31, 2023, distributions of earnings from our joint ventures were evaluated to determine if the distribution is income, return of capital or realized gain. Following our conversion to a financial holding company, we generate income in the form of interest, servicing and other fee income on the loans we and Newtek Bank originate.
In addition, as a result of commitments made to the Federal Reserve, the Company will divest or otherwise terminate the activities conducted by EWS and NTS, including its subsidiary SIDCO, within two years of becoming a financial holding company, subject to any extension of the two-year period.
As a result of commitments made to the Federal Reserve, the Company will divest or otherwise terminate the activities conducted by NTS (SIDCO and EWS were merged into NTS on December 31, 2023), within two years of becoming a financial holding company, subject to any extension of the two-year period.
In addition, in order to obtain RIC tax benefits, we were required to distribute to our shareholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses. 68 For 2023, the Company and its subsidiaries will no longer qualify as a RIC and will file a consolidated U.S. federal income tax return.
In addition, in order to obtain tax benefits applicable to an entity treated as a RIC for U.S. federal income tax purposes, we were required to distribute to our shareholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses.
The interest rate on the portion of the facility, collateralized by the non-guaranteed portion of SBA 7(a) loans, was reduced to Prime plus 0.25% (previously Prime plus 0.75%).
The portion of the facility collateralized by the government guaranteed portion of SBA 7(a) loans had an interest rate of Prime minus 0.75% and the interest rate on the portion of the facility collateralized by the non-guaranteed portion of SBA 7(a) loans was Prime plus 0.25% .
Additionally, in the event that the U.S. economy enters into a protracted recession, it is possible that the results of some of the companies similar to those in which we invest could experience deterioration, which could ultimately lead to difficulty in meeting debt service requirements and an increase in defaults.
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.
On May 7, 2020, NSBF amended its existing line of credit with Capital One to, among other things, extend the maturity date on which the credit facility will convert into a term loan for a period of three years to May 7, 2023, with the term loan maturing on May 7, 2025.
On May 7, 2020, NSBF amended the facility to, among other things, extend the maturity date on which the credit facility converted into a term loan for a period of three years to May 7, 2023, with the term loan maturing on May 7, 2025. The NSBF Capital One facility was paid off and terminated in October of 2023.
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 closed-end, non-diversified management investment company that was subject to regulation as a BDC under the 1940 Act.
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.
The 2016-1 Trust in turn issued securitization notes for the par amount of $53.4 million, consisting of $43.6 million Class A notes and $9.8 million of Class B notes, against the assets in a private placement.
The 2023-1 Trust in turn issued securitization notes for the par amount of $103.9 million, consisting of $84.3 million of Class A notes and $19.6 million Class B notes, against the 2023-1 Trust assets in a private placement.
On January 6, 2023, we completed the previously announced Acquisition of NBNYC and converted to a financial holding company. See “Item 1.
On January 6, 2023, the Company completed the previously announced Acquisition and converted to a financial holding company. See NOTE 1—DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION.
For the year ended December 31, 2022, 2021, and 2020, we received a variety of fees from borrowers in the ordinary course of conducting our business, including packaging fees, legal fees, late fees and prepayment fees. All other income was recorded when earned.
Servicing income was earned for the full term of the loan or until the loan is repaid. 103 For the fiscal year ended December 31, 2023, we received a variety of fees from borrowers in the ordinary course of conducting our business, including packaging fees, legal fees, late fees and prepayment fees. All other income was recorded when earned.
Securitization Transactions Since 2010, NSBF has engaged in securitizations of the unguaranteed portions of its SBA 7(a) loans. In the securitization, it uses a special purpose entity (the “Trust”) which is considered a variable interest entity.
Securitization Transactions From 2010 through June 2023, NSBF engaged in thirteen (13) securitizations of the unguaranteed portions of its SBA 7(a) loans. In the securitizations, NSBF used a special purpose entity (the “Trust”) which is considered a variable interest entity.
Following the Acquisition, NSBF will begin to wind down its operations, transition SBA 7(a) loan originations to Newtek Bank, and will continue to own the 7(a) Loans and PPP Loans in its SBA loan portfolio to maturity, liquidation, charge-off or (subject to SBA’s prior written approval) sale or transfer.
NSBF will continue to own the 7(a) Loans and PPP Loans in its SBA loan portfolio to maturity, liquidation, charge-off or (subject to SBA’s prior written approval) sale or transfer pursuant to the Wind-down Agreement and as described further above.
For the years ended December 31, 2022, 2021, and 2020, we received servicing income related to the guaranteed portions of SBA loan investments which we sell into the secondary market. These recurring fees were earned and recorded daily. Servicing income was earned for the full term of the loan or until the loan is repaid.
For the fiscal year ended December 31, 2023, we received servicing income related to the guaranteed portions of SBA loan investments which we sell into the secondary market. These recurring fees were earned and recorded daily.
Risk Factors – Risks Related to SBA lending – There can be no guarantee that Newtek Bank will be able to maintain its SBA 7(a) lending license .” Additionally, we and our subsidiaries have historically provided a wide range of business and financial solutions to SMB relationships, including Business Lending, which includes SBA 7(a) loans, SBA 504 loans and conventional 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 SMB relationships nationwide across all industries.
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 alternative lending program loans (formerly referred to as nonconforming conventional 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.
Expenses For the years ended December 31, 2022 and 2021, our primary operating expenses were salaries and benefits, interest expense, origination and servicing and other general and administrative costs, such as professional fees, marketing, referral fees, servicing costs and rent.
Expenses For the fiscal year ended December 31, 2023, our primary operating expenses were salaries and benefits, interest expense including interest on deposits, electronic payment processing expense, technology services expenses, origination and servicing and other general and administrative costs, such as professional fees, marketing, referral fees, servicing costs and rent.
On July 20, 2022, the Company entered into Amendment No. 1 to the 2020 ATM Equity Distribution Agreement. The 2020 ATM Equity Distribution Agreement, as amended, provides that the Company may offer and sell up to 6,400,000 shares of common stock from time to time through the placement agents.
On November 17, 2023, the Company entered into the 2023 ATM Equity Distribution Agreement. The 2023 ATM Equity Distribution Agreement, as amended, provides that the Company may offer and sell up to three million shares of common stock from time to time through the placement agents.
The Amended 2019 ATM Equity Distribution Agreement provided that the Company may offer and sell up to 3,000,000 shares of common stock from time to time through the placement agents. From inception through June 24, 2020, we sold 1,716,517 shares of our common stock at a weighted average price of $21.88 per share.
The 2020 ATM Equity Distribution Agreement, as amended, provided that the Company could offer and sell up to 6,400,000 shares of common stock from time to time through the placement agents. From inception through December 31, 2022, we sold 3,069,754 shares of our common stock at a weighted average price of $23.02 per share.
The Company will report both realized and unrealized gains and losses relating to the fair value adjustments on the legacy NSBF SBA 7(a) portfolio.
The Company reports both realized and unrealized gains and losses relating to the fair value adjustments on the legacy NSBF SBA 7(a) portfolio. Allowance for Credit Losses The allowance for credit losses consists of the allowance for credit losses and the reserve for unfunded commitments.
The facility provides for a 55% advance rate on the non-guaranteed portions of the SBA 7(a) loans NSBF originates, and a 90% advance rate on the guaranteed portions of SBA 7(a) loans NSBF originates.
The facility provided for a 55% advance rate on the non-guaranteed portions of the SBA 7(a) loans NSBF originated, and a 90% advance rate on the guaranteed portions of SBA 7(a) loans NSBF originated and a 90% advance rate on the guaranteed portions of SBA 7(a) loans NSBF originated. NSBF ceased originating new loans in April 2023.
In December 2017, NSBF completed its eighth securitization which resulted in the transfer of $76.2 million of unguaranteed portions of SBA loans to the 2017-1 Trust.
In October 2019, NSBF completed its tenth securitization which resulted in the transfer of $118.9 million of unguaranteed portions of SBA loans to the 2019-1 Trust.
The net proceeds from the sale of the notes were approximately $14.5 million, after deducting structuring fees and estimated offering expenses, each payable by the Company.
The net proceeds from the sale of the notes were approximately $14.5 million, after deducting structuring fees and estimated offering expenses, each payable by the Company. The Company intends to use the net proceeds from the sale of the notes to fund investments in debt and equity in accordance with its investment objectives and strategies.
NSBF has redeployed resources used to generate PPP loans to the origination of SBA 7(a) loans. 70 We recognized realized gains or losses on investments based on the difference between the net proceeds from the disposition and the cost basis of the investment without regard to unrealized gains or losses previously recognized.
We recognized realized gains or losses on loans based on the difference between the net proceeds from the disposition and the cost basis of the loan without regard to unrealized gains or losses previously recognized.
The Notes will mature on February 1, 2025. The Notes bear interest at a rate of 8.125% per year payable semiannually on February 1 and August 1 each year, commencing on August 1, 2023.
(3) On January 23, 2023, the Company completed a private placement offering of $50.0 million aggregate principal amount of 8.125% notes due 2025. The Notes will mature on February 1, 2025. The Notes bear interest at a rate of 8.125% per year, payable semiannually on February 1 and August 1 each year, commencing on August 1, 2023.
Considerable judgement is required to estimate the fair value of servicing assets and as such these assets are classified as Level 3 in our fair value hierarchy.
The valuation model for servicing assets incorporates assumptions including, but not limited to, servicing costs, discount rate, prepayment rate, and default rate. Considerable judgement is required to estimate the fair value of servicing assets and, as such, these assets are classified as Level 3 in our fair value hierarchy.
The net proceeds from the sale of the notes were approximately $48.94 million, after deducting estimated offering expenses payable by the Company. The Company intends to use the net proceeds from the sale of the Notes for general corporate purposes, including payment of expenses incurred in connection with the issuance of the notes and other working capital purposes.
The Company intends to use the net proceeds from the sale of the Notes for general corporate purposes, including payment of expenses incurred in connection with the issuance of the notes and other working capital purposes. The Notes will mature on February 1, 2025.
The decrease reflects the lagging prime rate adjustments and the quarterly reset of interest rates on our loan portfolio. During this wind-down of NSBF’s operations, NSBF will be required to continue to own its SBA 7(a) loans and PPP Loans in its SBA loan portfolio to maturity, liquidation, charge-off, or (subject to SBA’s prior written approval), sale or transfer.
The reduction in overall net gains on sales of loans resulted from lower volumes of sales compared to the prior year. 91 During the wind-down of NSBF’s operations, NSBF will be required to continue to own its SBA 7(a) loans and PPP Loans in its SBA loan portfolio to maturity, liquidation, charge-off, or (subject to SBA’s prior written approval) sale or transfer.
In addition, for certain debt investments, the Company may have based its valuation on quotes provided by an independent third party broker. For certain investments, the Company generally calculated the fair value of the investment primarily based on the NAV of the entity and adjusted the fair value for other factors that would affect the fair value of the investment.
For certain investments, the Company generally calculated the fair value of the investment primarily based on the NAV of the entity and adjusted the fair value for other factors that would affect the fair value of the investment.
The majority, or $71.2 million of restricted cash includes reserves in the event payments are insufficient to cover interest and/or principal with respect to securitizations and loan principal and interest collected which are due to loan participants. 84 The Company generated and used cash as follows: (in thousands) Year Ended December 31, 2022 Year Ended December 31, 2021 Net cash provided by (used in) operating activities $ (62,418) $ 140,923 Net cash used in investing activities (11) — Net cash provided by (used in) financing activities 1,175 (5,488) Net (decrease) increase in cash and restricted cash (61,254) 135,435 Cash and restricted cash, beginning of period 186,860 51,425 Cash and restricted cash, end of period $ 125,606 $ 186,860 During the year ended December 31, 2022, operating activities used cash of $62.4 million, consisting primarily of (i) $775.6 million of SBA 7(a) loan investments funded; (ii) $53.2 million of investments in controlled portfolio companies; (iii) a $110.6 million decrease in due to participants which arises when loan payments are received in the current period but not processed in time to have funds remitted to the participant during the current period; the amount varies depending on payment volume and timing at quarter end; and (iv) a $44.5 million increase in broker receivables which arise 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.
The Company generated and used cash as follows: Year Ended December 31, 2023 Year Ended December 31, 2022 Net cash used in operating activities $ (169,219) $ (62,418) Net cash used in investing activities (172,235) (11) Net cash provided by financing activities 344,974 1,175 Net increase (decrease) in cash and restricted cash 3,520 (61,254) Cash and restricted cash—beginning of period (Note 2) 125,606 186,860 Consolidation of cash and restricted cash from controlled investments and business combinations, net of cash paid 54,880 — Cash and restricted cash—end of period (Note 2) $ 184,006 $ 125,606 During the year ended December 31, 2023, operating activities used cash of $169.2 million, consisting primarily of (i) $783.0 million of loans held for sale; (ii) an $11.8 million decrease in due to participants which arises when loan payments are received in the current period but not processed in time to have funds remitted to the participant during the current period; the amount varies depending on payment volume and timing at quarter end; (iii) a $62.2 million increase in broker receivables which arise 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; and (iv) $14.6 million in contributions to non-consolidating joint ventures.
Results of Operations for the year ended December 31, 2022 and 2021 Set forth below is a comparison of the results of operations for the years ended December 31, 2022 and 2021, during which years the Company operated as both a BDC and a RIC.
Refer to NOTE 4—INVESTMENTS for selected financial information and a schedule of investments of TSO JV as of December 31, 2023. 82 Results of Operations for the years ended December 31, 2023 and 2022 Set forth below is a comparison of the results of operations for the years ended December 31, 2023 and 2022, during which years the Company operated as both a financial holding company and a BDC.
For the year ended December 31, 2022, the Company carried all investments at fair value. Additionally, the Company carried its servicing assets at fair value. The fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and gives the lowest priority to unobservable inputs (Level 3).
The fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and gives the lowest priority to unobservable inputs (Level 3). The levels of the fair value hierarchy are as follows: Level 1 Quoted prices in active markets for identical assets or liabilities.
The Class A and Class B notes received an “A” and “BBB+” rating by S&P, respectively, and the final maturity date of the notes is February 2042. The Class A and Class B notes bear interest at an average rate of 1 month LIBOR plus 3.0% and 4.25%, respectively.
The Class A and Class B notes received an “A-” and “BBB-” rating by S&P, respectively, and the final maturity date of the notes is October 2049. The Class A and Class B notes bear interest at an average rate of 30-day average compounded SOFR plus 3.24% across both classes.
As a RIC, we generally did not have to pay U.S. federal income taxes at corporate rates on any ordinary income or capital gains that we distributed to our shareholders as dividends. To maintain our qualification as a RIC, we were required to, among other things, meet certain source-of-income and asset diversification requirements (as described below).
As an entity electing to be treated as a RIC, we generally did not have to pay U.S. federal income taxes at corporate rates on any ordinary income or capital gains that we distributed to our shareholders as dividends.
In addition, our portfolio companies have become consolidating subsidiaries of NewtekOne in 2023 and therefore, under the new organizational structure, their revenues will be consolidated within the statement of operations going forward along with our joint ventures.
The controlled portfolio companies have become consolidating subsidiaries of the Company in 2023 and therefore, under the new organizational structure, their profits and losses are consolidated within the statement of operations instead of in the form of dividend income going forward.
The increase in interest expense period over period is primarily from additional interest expense on the 2026 Notes of $0.4 million, 2025 5.00% Notes of $1.3 million, Notes payable - Securitization Trusts of $5.1 million, and Bank notes payable of $2.5 million related to an increase in the average outstanding balance and interest rates period over period.
The increase in interest expense period over period is primarily from additional interest expense on the Notes payable - Securitization Trusts of $12.8 million, Bank notes payable of $7.0 million, 2025 8.125% Notes of $4.3 million, and 2028 8.00% Notes of $1.2 million related to an increase in the average outstanding balance and interest rates period over period, as well as the consolidation of additional subsidiaries associated with the Company’s withdrawal of its election to be treated as a BDC, which added $82.9 million in additional borrowings to the Company’s balance sheet as of December 31, 2023.
Dividend income was recorded at the time dividends were declared. Distributions of earnings from portfolio companies were evaluated to determine if the distribution was income, return of capital or realized gain.
We recorded such fees related to loans as other income. Distributions of earnings from our joint ventures were evaluated to determine if the distribution was income, return of capital or realized gain.
These uses of cash were offset by (i) $691.2 million of proceeds from the sale of SBA 7(a) guaranteed loan investments and (ii) $74.3 million of principal payments received from SBA non-affiliate investments.
These uses of cash were offset by (i) $695.5 million of proceeds from the sale of loans and (ii) $12.2 million of principal payments received from loans held for sale.
The Class A and Class B notes received an “A” and “BBB-” rating by S&P, respectively, and the final maturity date of the notes is February 2044.
The Class A and Class B notes received an “A” and “BBB-” rating by S&P, respectively, and the final maturity date of the notes is February 2044. In December 2017, NSBF completed its eighth securitization which resulted in the transfer of $76.2 million of unguaranteed portions of SBA loans to the 2017-1 Trust.
Risk Factors – Risks Related to Regulation, Supervision and Compliance – Our status as a financial holding company requires us to curtail certain activities and imposes limitations on certain activities, which may negatively impact the Company’s business, financial condition and results of operations .” Historical Business Regulation and Taxation Prior to January 6, 2023, we operated as an internally managed non-diversified closed-end management investment company that elected to be regulated as a BDC under the 1940 Act.
The Company has guaranteed certain of NSBF’s obligations to the SBA. 79 Historical Business Regulation and Taxation Prior to January 6, 2023, we operated as an internally managed non-diversified closed-end management investment company that elected to be regulated as a BDC under the 1940 Act.
Newtek Commercial Lending, Inc. and TSO II each committed to contribute an equal share of equity funding to the Newtek-TSO JV and each will have equal voting rights on all material matters. The Newtek-TSO JV intends to deploy capital over the course of time with additional leverage supported by a warehouse line of credit.
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.
At December 31, 2022, the Company determined that it is not probable that payments would be required to be made under the guarantee. 71 The Company’s Non-Conforming Conventional Commercial Loan Program NCL: We established a 50/50 joint venture, NCL, between Newtek Commercial Lending, Inc., a wholly-owned subsidiary of Newtek, and Conventional Lending TCP Holding, LLC, a wholly-owned, indirect subsidiary of BlackRock TCP Capital Corp.
The Company’s Alternative Lending Program (Non-Conforming Conventional Commercial Loan Program) NCL JV: In 2019, we launched a 50/50 joint venture, NCL JV, between NCL, a wholly-owned subsidiary of Newtek, and Conventional Lending TCP Holding, LLC, a wholly-owned, indirect subsidiary of BlackRock TCP Capital Corp. (Nasdaq:TCPC).
NSBF has been granted PLP status and is authorized to place SBA guarantees on loans without seeking prior SBA review and approval. Being a national lender with PLP status allows NSBF to expedite the origination of loans since NSBF is not required to present applications to the SBA for concurrent review and approval.
Being a national lender with PLP status allows Newtek Bank to expedite the origination of loans since Newtek Bank is not required to present applications to the SBA for concurrent review and approval. The loss of PLP status would adversely impact our marketing efforts and ultimately our loan origination volume, which would negatively impact our results of operations.
There can be no guarantee that Newtek Bank will be able to maintain its SBA 7(a) lending license, nor that Newtek Bank will o btain PLP status under the SBA 7(a) program following the Acquisition. See “Item 1A.
See “Item 1A. Risk Factors - Risks Related to SBA Lending - There can be no guarantee that Newtek Bank and NSBF will be able to maintain their SBA 7(a) lending licenses” and “Item 1A.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAll of our transactions are conducted in U.S. dollars and we do not have any foreign currency or foreign exchange risk. We do not trade commodities or have any commodity price risk. We believe that we have placed our demand deposits, cash investments and their equivalents with high credit-quality financial institutions.
Biggest changeWe do not purchase or hold derivative financial instruments for trading purposes. All of our transactions are conducted in U.S. dollars and we do not have any foreign currency or foreign exchange risk. We do not trade commodities or have any commodity price risk.
Sale prices for guaranteed portions of SBA 7(a) loans could be negatively impacted by market conditions, in particular a higher interest rate environment, which typically lead to higher prepayments during the period, resulting in lower sale prices in the secondary market. A reduction in the price of guaranteed portions of SBA 7(a) loans could negatively impact our business.
Sale prices for guaranteed portions of SBA 7(a) loans could be negatively impacted by market conditions, in particular a higher interest rate environment, which typically lead to higher prepayments during the period, resulting in lower sale prices in the secondary market.
Risk management systems and procedures are designed to identify and analyze our risks, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs.
Risk management systems and procedures are designed to identify and analyze our risks, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs. The Company’s interest rate profile on loans is based on a mix of fixed and variable rates.
The Company is evaluating these rule changes and the potential impacts. NSBF depends on the availability of secondary market purchasers for the guaranteed portions of SBA loans and the premium received on such sales to support its lending operations.
NewtekOne depends on the availability of secondary market purchasers of our loans held for sale, but primarily for the guaranteed portions of SBA loans and the premium received on such sales to support its lending operations.
We consider the principal types of risk in our investing activities to be fluctuations in interest rates and the availability of the secondary market for our SBA loans.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We consider the principal types of risk in our business activities to be fluctuations in interest rates, the ability to raise funds (deposits, debt, and or equity) to fund our operations, and the availability of the secondary market for our SBA loans.
Removed
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Added
The same is true for its sources of funding (deposits, warehouse lines of credit, securitization trust notes, public notes, etc.). Some of our assets and liabilities are match funded, meaning that the interest rate and duration profiles are closely linked.
Removed
Uncertainty with respect to the economic effects of the ongoing COVID-19 pandemic, the ongoing war between Russia and Ukraine, rising inflation, increasing interest rates and the risk of recession has introduced significant volatility in the financial markets, and the effect of the volatility could materially impact our market risks, including those listed below.
Added
Managing interest rate risk with matched funding means that movements in interest rates are expected to largely offset between income from assets and expenses on liabilities. For the remainder of our balance sheet, we largely take a portfolio approach to managing interest rate and liquidity risk that is inherently imprecise.
Removed
NSBF primarily lends, and Newtek Bank will primarily originate SBA 7(a) loans, at an interest rate of prime, which resets on a calendar quarterly basis, plus a fixed margin.
Added
A reduction in the price of guaranteed portions of SBA 7(a) loans or disruptions in the markets to which we sell could negatively impact our business. The Company’s invested cash (includes cash and cash equivalents and restricted cash) of approximately $184.0 million is subject to changes in the Federal Funds rate set by the Federal Open Market Committee.
Removed
The Capital One revolver lines are on a prime plus or minus a fixed factor basis and the securitization notes are at prime or 1 month LIBOR, plus a fixed margin, whichever is less. As a result, the Company believes it has historically matched its cost of funds to its interest income in its financing activities.
Added
We believe that we have placed our cash investments and their equivalents, which include deposits at other institutions, with high credit-quality financial institutions. As of December 31, 2023, cash deposits in excess of insured amounts totaled approximately $37.2 million.
Removed
However, because of the differential between the amount lent and the smaller amount financed a significant change in market interest rates will have a material effect on our income.
Added
The Company and its non-bank subsidiaries have deposit accounts at Newtek Bank that total $55.6 million, of which $52.8 million is uninsured. 105 Interest rate risk is a significant market risk and can result from timing and volume differences in the repricing of rate-sensitive assets and liabilities, widening or tightening of credit spreads, changes in the general level of market interest rates and changes in the shape and level of market yield curves.
Removed
In periods of sharply rising interest rates, our cost of funds will increase at a slower rate than the interest income earned on the loans we have originated; this should improve our net investment income, holding all other factors constant.
Added
The Company manages the interest rate sensitivity of interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment balanced against maximizing profit. Management of interest rate risk is carried out primarily through strategies involving available-for-sale securities, loan and lease portfolio, and available funding sources.
Removed
However, a reduction in interest rates will result in the Company experiencing a reduction in investment income; that is, its interest income will decline more quickly than interest expense resulting in a net reduction of benefit to investment income. On June 30, 2022, SBA published final rules, effective August 1, 2022, revising various regulations governing the SBA’s business loan programs.
Added
The Newtek Bank board of directors has established an Asset/Liability Committee (the “ALCO Committee”) to oversee the implementation of an effective process for managing the risk profile inherent in Newtek Bank’s balance sheet and related business activities as well as the ongoing monitoring and reporting thereon.
Removed
As part of these rule changes, the SBA amended 13 CFR 1201.214(d), to require the use of loan amounts as the basis upon which the variable interest rate is set on SBA 7(a) loans, instead of loan maturities.
Added
Risks inherent in Newtek Bank’s balance sheet include interest rate risk (i.e., the risk to liquidity and capital resulting from changes in interest rates), liquidity risk (the risk to the availability of funds to execute its business strategy and meet its obligations), and similar risks.
Removed
To implement this change, SBA revised 13 CFR 1201.214(d) to reflect the maximum variable interest rates for all SBA 7(a) loans, as follows: (1) For all 7(a) loans of $50,000 and less, the interest rate shall not exceed six and a half (6.5) percentage points over the base rate; (2) For all 7(a) loans of more than $50,000 and up to and including $250,000, the maximum interest rate shall not exceed six (6.0) percentage points over the base rate; (3) For all 7(a) loans of more than $250,000 and up to and including $350,000, the maximum interest rate shall not exceed four and a half (4.5) percentage points over the base rate; and (4) For all 7(a) loans of more than $350,000, the maximum interest rate shall not exceed three (3.0) percentage points over the base rate.
Added
The ALCO Committee, subject to Newtek Bank board approval, is responsible for establishing policies, risk limits and capital levels (collectively “ALM Policies”) as well overseeing and monitoring compliance therewith. Newtek Bank’s ALM Policies set forth a risk management framework relating to managing liquidity, managing fluctuations in interest rates, capital management, investments, and hedging and the use of derivatives.
Removed
During the second quarter of 2022, the weighted average net gain-on-sale price for the guaranteed portions of SBA 7(a) loans sold decreased over the first quarter of 2022, which we believe reflects the rising interest rate environment, other capital market pressures and the fact that increases in prime rate, which is base rate for our SBA 7(a) loans, have lagged other base rate interest rate increases and further, that the interest rates on our SBA 7(a) loans reset on a calendar quarterly basis.
Added
The ALCO Committee and Newtek Bank’s board may implement additional policies and procedures relating to these areas in order to manage risk to an appropriate level.
Removed
We do not have significant exposure to changing interest rates on invested cash (includes cash and cash equivalents and restricted cash) which was approximately $125.6 million at December 31, 2022. We do not purchase or hold derivative financial instruments for trading purposes.
Added
The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period.
Removed
As of December 31, 2022, cash deposits in excess of insured amounts totaled approximately $90.6 million.
Added
The Company analyzes interest rate sensitivity position to manage the risk associated with interest rate movements through the use of two simulation models: economic value of equity (“EVE”) and net interest income (“NII”) simulations. These simulations project both short-term and long-term interest rate risk under a variety of instantaneous parallel rate shocks applied to a static balance sheet.
Added
The EVE simulation provides a long-term view of interest rate risk because it analyzes all of the Company’s future cash flows. EVE is defined as the present value of the Company’s assets, less the present value of its liabilities, adjusted for any off-balance sheet items.
Added
The results show a theoretical change in the economic value of shareholders’ equity as interest rates change. EVE and NII simulations are completed routinely on Newtek Bank’s balance sheet and presented to the ALCO Committee. Other positions outside of Newtek Bank are typically match funded or hedged with instruments that have similar terms and/or interest rate features.
Added
The simulations provide an estimate of the impact of changes in interest rates on equity and net interest income under a range of assumptions. The numerous assumptions used in the simulation process are provided to the ALCO Committee on at least an annual basis. Changes to these assumptions can significantly affect the results of the simulation.
Added
The simulation incorporates assumptions regarding the potential timing in the repricing of certain assets and liabilities when market rates change and the changes in spreads between different market rates. The simulation analysis incorporates management’s current assessment of the risk that pricing margins will change adversely over time due to competition or other factors.
Added
Simulation analysis is only an estimate of interest rate risk exposure at a particular point in time. The Company regularly models various forecasted rate projections with non-parallel shifts that are reflective of potential current rate environment outcomes.
Added
Under these scenarios, the Company’s interest rate risk profile may increase in asset sensitivity, decrease in asset sensitivity, or depending on the scenario and timing of anticipated rate changes, may transition to a liability sensitive interest rate risk profile.
Added
Regular, robust modeling of various interest rate outcomes allows the Company to properly assess and manage potential risks from various rate shifts. Estimated Changes in EVE and NII.
Added
The table below sets forth, as of December 31, 2023, the estimated changes in our (i) EVE that would result from the designated instantaneous changes in the forward rate curves; and (ii) NII that would result from the designated instantaneous changes in the U.S. Treasury yield curve, Prime Rate and the Secured Overnight Finance Rate.
Added
Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied on as indicative of actual results.
Added
Basis Point ("bp") Change in Estimated Increase/Decrease in Net Interest Income Estimated Percentage Change in EVE Interest Rates 12 Months Beginning December 31, 2023 12 Months Beginning December 31, 2024 As of December 31, 2023 +200 15.4% 16.0% 1.8% +100 7.7 8.0 1.0 -100 (7.6) (7.7) (1.0) -200 (15.4) (15.6) (2.2) 106 Rates are increased instantaneously at the beginning of the projection.
Added
The Company is asset sensitive, as the Company’s variable rate loan portfolio reprices the full amount of the assumed change in interest rates, while fixed-rate Company notes will reprice on maturity and the retail savings and short-term retail certificates of deposits portfolio will reprice with an assumed beta.
Added
Interest rates do not normally move all at once or evenly over time, but management believes that the analysis is useful to understanding the potential direction and magnitude of net interest income changes due to changing interest rates. The EVE analysis shows that the Company would theoretically modestly increase market value in a rising rate environment.
Added
The EVE asset sensitivity results from the combination of fixed-rate debt and variable-rate debt which funds the variable-rate loan portfolio outside of Newtek Bank.

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