NewtekOne, Inc. (NASDAQ:NEWTI): A Diversified Financial Services Provider Powering Small Businesses

Published on March 17, 2025 | Ticker: NEWTI

NewtekOne, Inc. (NASDAQ:NEWTI) is a diversified financial services provider catering to the needs of small and medium-sized businesses (SMBs) across the United States. The company's comprehensive suite of offerings, including business lending, payment processing, technology solutions, and insurance services, positions it as a one-stop-shop for the financial and operational requirements of SMBs.

Business Overview and History

NewtekOne was founded in 1998, initially focusing on providing technology solutions and web services to SMBs. In the early 2000s, the company expanded its offerings to include business lending, primarily through its wholly-owned subsidiary Newtek Small Business Finance (NSBF). NSBF quickly became one of the largest non-bank lenders of SBA 7(a) loans in the United States, capitalizing on the growing demand for small business financing.

The company faced a challenge in 2012 when the Federal Trade Commission (FTC) brought litigation against its merchant processing subsidiary, Newtek Merchant Solutions (NMS). NMS voluntarily entered into a permanent injunction with the FTC regarding certain of its business practices. However, NewtekOne successfully navigated this issue and continued to grow its overall business.

In 2023, NewtekOne made a significant strategic move by acquiring National Bank of New York City (NBNYC), a nationally chartered bank. This acquisition allowed the company to become a financial holding company, regulated by the Federal Reserve, and operate Newtek Bank, a national bank subsidiary. The acquisition expanded NewtekOne's lending capabilities, particularly in the SBA 7(a) loan program, and provided a stable source of deposits to fund its lending activities.

Today, NewtekOne operates through several business segments, including Banking, Payments, Technology, and NSBF (the company's legacy SBA 7(a) loan portfolio). The Banking segment originates and services SBA 7(a) loans, SBA 504 loans, commercial and industrial (CI) loans, and commercial real estate (CRE) loans, while also offering deposit products. The Payments segment provides credit and debit card processing, check approval services, and other payment-related solutions to merchants. The Technology segment offers website hosting, cloud computing, and other IT services, while NSBF manages the company's historical SBA 7(a) loan portfolio.

Business Segments

Banking Segment The Banking segment includes Newtek Bank, a national bank regulated and supervised by the Office of the Comptroller of the Currency (OCC), as well as its consolidated subsidiary SBL. This segment is responsible for originating, servicing, and selling SBA 7(a) loans, SBA 504 loans, commercial and industrial (CI) loans, commercial real estate (CRE) loans, and asset-based lending (ABL) loans. Additionally, Newtek Bank offers depository services. For the nine months ended September 30, 2024, the Banking segment reported net interest income of $28.25 million, compared to $11.10 million for the same period in 2023, reflecting an increase in loan originations and the transition of the majority of loans being funded by Newtek Bank versus NSBF.

Technology Segment

The Technology segment includes NTS, which provides website hosting, dedicated server hosting, cloud hosting, web design and development, internet marketing, e-commerce, data storage, backup and disaster recovery, and other related technology services for enterprise and commercial clients across the United States. As a result of commitments made to the Federal Reserve in connection with the acquisition of NBNYC, the company will divest or otherwise terminate the activities conducted by NTS by January 6, 2025, subject to any extension.

NSBF Segment

The NSBF segment relates to the legacy portfolio of SBA 7(a) loans held outside of Newtek Bank. NSBF was previously the largest non-bank SBA 7(a) lender in the U.S. based on loan approval volume. However, in April 2023, NSBF transitioned its SBA 7(a) loan originations to Newtek Bank and is currently in the process of winding down its operations, while continuing to own and service the SBA 7(a) loans and PPP Loans in its portfolio.

Payments Segment

The Payments segment includes Newtek Merchant Solutions (NMS), POS on Cloud (POS), and Mobil Money. NMS markets credit and debit card processing services, check approval services, processing equipment, and software, and assists merchants with installation and ongoing service. POS is a provider of cloud-based point-of-sale systems for various businesses. Mobil Money handles payment processing for the merchant portfolio of taxi cabs and related licensed payment processing software. For the nine months ended September 30, 2024, the Payments segment reported $39.09 million in noninterest income, compared to $35.00 million for the same period in 2023, reflecting growth in the payments processing business.

Financial Performance and Ratios

NewtekOne's financial performance has been solid, with the company reporting quarterly revenue of $31.27 million and net income of $11.93 million in its most recent quarter. The company's return on equity (ROE) stands at 17.33%, indicating an efficient use of shareholder capital, while its net profit margin of 17.89% showcases the company's ability to convert revenue into profits.

Liquidity

In terms of liquidity, NewtekOne's cash position stands at $190.42 million, providing a strong foundation for its operations and future growth initiatives. The company's debt-to-equity ratio, current ratio, and quick ratio are not provided, limiting a comprehensive assessment of its short-term liquidity and capital structure.

Risks and Challenges

Despite its strong performance, NewtekOne faces several risks and challenges that investors should be aware of. The company's reliance on the SBA 7(a) loan program exposes it to potential changes in government regulations and funding, which could impact its lending business. Additionally, the highly competitive nature of the financial services industry requires NewtekOne to continuously innovate and adapt to maintain its market position.

The company's recent conversion to a financial holding company also brings increased regulatory oversight and compliance requirements, which could impact its operations and profitability. Furthermore, the economic environment, including interest rate movements and macroeconomic conditions, can significantly affect NewtekOne's lending and investment activities.

Guidance and Outlook

NewtekOne's recent transition to a financial holding company structure has resulted in a more diversified business model, with the company now reporting income from interest, servicing and other fees on loans originated, as well as income from its consolidated portfolio companies in the areas of technology, payments, and insurance. The company's strategy is focused on providing a comprehensive suite of business and financial solutions to independent business owners and SMBs through its Newtek Advantage platform.

The company's recent acquisition of NBNYC is expected to contribute to its future performance, as it enhances NewtekOne's lending capabilities and provides a stable source of deposits. Additionally, the company's diversified business model, spanning lending, payments, technology, and insurance, positions it well to navigate the evolving financial services landscape.

Conclusion

NewtekOne, Inc. (NASDAQ:NEWTI) has established itself as a leading provider of financial services to the SMB market, with a comprehensive suite of offerings and a proven track record of growth and profitability. The company's recent strategic moves, including the acquisition of NBNYC, have further strengthened its position and positioned it for continued success. While the company faces some risks and challenges, its diversified business model, strong financial performance, and positive outlook make it an intriguing investment opportunity for those seeking exposure to the resilient SMB market.

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