Newtek Business Services Corp. Reports First Quarter 2020 Financial Results

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Newtek Business Services Corp. Reports First Quarter 2020 Financial Results

May 7, 2020

Net Investment Income (Loss) Improved Year Over Year by 80% on a Per Share Basis in the First Quarter of 2020

BOCA RATON, Fla., May 07, 2020 (GLOBE NEWSWIRE) -- Newtek Business Services Corp. (“Newtek” or the “Company”) (Nasdaq: NEWT), an internally managed business development company (“BDC”), announced today its financial and operating results for the three months ended March 31, 2020.  

First Quarter 2020 Financial Highlights

  • Net investment income (loss) (“NII”) of $(0.28) million, or $(0.01) per share, for the three months ended March 31, 2020; an improvement of 80%, on a per share basis, over net investment loss of $(0.99) million, or $(0.05) per share, for the three months ended March 31, 2019.
  • Total investment income of $15.8 million for the three months ended March 31, 2020; an increase of 14.8% over total investment income of $13.8 million for the three months ended March 31, 2019.
  • Adjusted net investment income (“ANII”)1 of $4.3 million, or $0.21 per share, for the three months ended March 31, 2020; a decrease of 52.3%, on a per share basis, over ANII of $8.3 million, or $0.44 per share, for the three months ended March 31, 2019.
  • Net asset value (“NAV”) of $312.5 million, or $15.00 per share, at March 31, 2020; a decrease of 4.5%, on a per share basis, over NAV of $15.70 per share at December 31, 2019.
  • Debt-to-equity ratio of 1.44x at March 31, 2020.
  • Total investment portfolio increased by 18.8% to $662.4 million at March 31, 2020, from $557.7 million at March 31, 2019.
  • The Company paid a first quarter 2020 cash dividend of $0.44 per share on March 31, 2020 to shareholders of record as of March 18, 2020

First Quarter 2020 Lending Highlights

  • Newtek Small Business Finance, LLC (“NSBF”) funded $52.8 million of U.S. Small Business Administration (“SBA”) 7(a) loans during the three months ended March 31, 2020; compared to $97.8 million of SBA 7(a) loans funded for the three months ended March 31, 2019.
  • Newtek announced Congress’ approval of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), highlighting NSBF’s position as a nationally licensed SBA lender to originate Paycheck Protection Action (“PPP”) loans and thereby support American small businesses in these challenging times

Subsequent First Quarter 2020 Loan Highlights

  • NSBF has obtained SBA loan (E-Tran) numbers for $1.1 billion of PPP loans.
  • NSBF estimates that its PPP lending activity will contribute to record NII and ANII for the second quarter of 2020.
  • NSBF estimates that upwards of 130,000 PPP borrowers’ employees could be retained if NSBF’s total potential funding of the $1.1 billion in PPP loans is reached.
  • In April, NSBF received approximately $17.7 million from the U.S.Treasury pursuant to the CARES Act, to pay the principal and interest on its SBA 7(a) loan portfolio in regular servicing (accrual) status, which, as a result, is 98.6% current on all payments as of April 30, 2020.

Barry Sloane, Chairman, President and Chief Executive Officer said, “We have experienced a number of challenges over our 20-year operating history, however we believe that the current unprecedented situation affecting the U.S. economy is by far our greatest challenge to date. I believe, however, that with adversity comes opportunity. I recently addressed my staff and relayed to them that we now have the single greatest opportunity to assist U.S. small businesses in the history of our Company. I impressed upon Newtek staff that we must all seize the day to support our U.S. small business clientele to help them sustain and improve the many facets of their businesses in order to weather this difficult time and ready themselves to move forward post COVID-19 quarantines. We are gratified to have been able to provide access to funding through the PPP to help the U.S. small business community maintain their business and employees, as well as facilitating their employees’ transitions to work remotely with the support and guidance of our portfolio companies managed technology solutions teams. In addition, through our portfolio companies, we have the capability to address and support our clients’ numerous additional business needs, including payroll solutions, insurance solutions, and eCommerce solutions. We believe that the current challenges present Newtek with the opportunity to grow our business because we have the financial products and business solutions to assist our clients with sustaining and improving their operations during these challenging times.

Mr. Sloane continued, “Our NAV declined by 4.5%, on a per share basis, from December 31, 2019 to March 31, 2020, based on higher cost of capital and as a result of stressing our loan portfolio to forecast potential higher levels of cumulative default frequency over the life of the portfolio. Even at this stressed level of default frequency and loss severity, we believe that our 6% floating-rate coupon SBA 7(a) unguaranteed loan portfolio still maintains its value. Although we have withdrawn our full year 2020 dividend guidance, we are forecasting record ANII for the second quarter of 2020 based on our PPP loans funded to date and the total amount of PPP loans with SBA loan (E-Tran) numbers that we anticipate funding during the remainder of the second quarter. As a result of Newtek’s steady operations and NSBF’s herculean efforts in the PPP, the second quarter of 2020 is expected to achieve the single largest quarterly earnings in the Company’s 21 quarters since converting to a BDC. In addition, with the passing of the CARES Act, the federal government recognized that small businesses employ close to 50% of the U.S. workforce and, in doing so, in partnership with its SBA lenders, the SBA has begun the process of providing six months of payments of principal and interest to every one of our SBA 7(a) borrowers in regular (accrual) servicing status. To that end, on April 29, 2020, we received in excess of $17.7 million from the SBA earmarked for the principal and interest payments for our SBA 7(a) borrowers in regular servicing (accrual) status, which offered a tremendous economic benefit to our borrowers while the economy recovers. As a result, as of April 30, 2020, our SBA 7(a) loan portfolio in accrual status was 98.6% current with payments. These principal and interest payments enabled us to achieve full servicing income as well as pay down securitization debt, which pleased our asset-backed bond holders who are currently experiencing overcollateralization and now further enhancement of the securitized bond structure. Due to the nature of the economy, we believe that prepayment speeds will slow significantly going forward, which enhances valuation of our servicing asset and the performance of our non-conforming and SBA loan portfolios.”

Mr. Sloane continued, “Newtek Conventional Lending, the Company’s joint venture, funds non-conforming conventional loans, and portfolio company Newtek Business Lending, LLC, originates SBA 504 loans and non-conforming conventional loans. The portfolio of closed and committed non-conforming conventional loans had a total principal balance of approximately $92 million and is 100% current on payments as of April 30, 2020. This level of performance is a testimony to funding borrowers with favorable business models.”

Mr. Sloane further commented, “In summation, we believe the current COVID-19 pandemic and resulting economic crisis may present an opportunity for Newtek and its business model. Our primary challenge will be to manage the credits in the portfolio and help our clients navigate these difficult economic conditions.  We are extremely proud of NSBF’s ability to process 8,651 PPP loans in a few weeks’ time, which is over 3 times the size of our existing SBA 7(a) loan portfolio. We believe NSBF will likely fund PPP loans equal to 2 years’ worth of SBA 7(a) production in two months’ time. The PPP is legislatively scheduled to conclude on June 30, 2020, unless it is extended by the government. At that time, we expect to transition back to our normal SBA 7(a) lending activity. As of the date of this release, there is approximately $120 billion of SBA 7(a) appropriation remaining for PPP loans and SBA 7(a) loans.” 

Mr. Sloane concluded, “We were able to offer every single one of our SBA 7(a) borrowers the opportunity to apply for a PPP loan to provide them additional aid in the event they needed to keep their employees intact. We view our 450 Company and portfolio company employees as heroes who, in addition to performing their normal job functions, have performed patriotic duties 24 hours a day, 7 days per week in many cases, steadfastly serving U.S. small business owners who employ hundreds of thousands of workers across the U.S.  We have cultivated many new relationships with customers and garnered valuable data, both of which we believe will be valuable and everlasting resources. Due to the PPP, many new alliance partners and clients have become acquainted with Newtek’s technology offerings, and financial and business solutions across financing, payment processing, payroll, insurance, and IT solutions. We look forward to reviewing our quarterly performance and NAV in greater detail on tomorrow morning’s conference call.”

Investor Conference Call and Webcast

A conference call to discuss first quarter 2020 results will be hosted by Barry Sloane, President, Chairman and Chief Executive Officer, and Chris Towers, Chief Accounting Officer, tomorrow, Friday, May 8, 2020 at 8:30 a.m. ET. The live conference call can be accessed by dialing (877) 303-6993 or (760) 666-3611.

In addition, a live audio webcast of the call with the corresponding presentation will be available in the ‘Events & Presentations’ section of the Investor Relations portion of Newtek’s website at A replay of the webcast with the corresponding presentation will be available on Newtek’s website shortly following the live presentation and will remain available for 90 days following the live presentation.

1Use of Non-GAAP Financial Measures - Newtek Business Services Corp. and Subsidiaries

In evaluating its business, Newtek considers and uses ANII as a measure of its operating performance.  ANII includes short-term capital gains from the sale of the guaranteed portions of SBA 7(a) loans and conventional loans, and capital gain distributions from controlled portfolio companies, which are reoccurring events. The Company defines ANII as net investment income (loss) plus net realized gains recognized from the sale of guaranteed portions of SBA 7(a) loan investments, less realized losses on non-affiliate investments, plus or minus loss on lease adjustment, plus the net realized gains on controlled investments, plus or minus the change in fair value of contingent consideration liabilities, plus loss on extinguishment of debt.

The term ANII is not defined under U.S. generally accepted accounting principles, or U.S. GAAP, and is not a measure of operating income, operating performance or liquidity presented in accordance with U.S. GAAP. ANII has limitations as an analytical tool and, when assessing the Company’s operating performance, investors should not consider ANII in isolation, or as a substitute for net investment income, or other consolidated income statement data prepared in accordance with U.S. GAAP. Among other things, ANII does not reflect the Company’s actual cash expenditures. Other companies may calculate similar measures differently than Newtek, limiting their usefulness as comparative tools. The Company compensates for these limitations by relying primarily on its GAAP results supplemented by ANII.

About Newtek Business Services Corp.

Newtek Business Services Corp., Your Business Solutions Company®, is an internally managed BDC, which along with its controlled portfolio companies, provides a wide range of business and financial solutions under the Newtek® brand to the small- and medium-sized business (“SMB”) market. Since 1999, Newtek has provided state-of-the-art, cost-efficient products and services and efficient business strategies to SMB relationships across all 50 states to help them grow their sales, control their expenses and reduce their risk.

Newtek’s and its portfolio companies’ products and services include: Business Lending, SBA Lending Solutions, Electronic Payment ProcessingTechnology Solutions (Cloud Computing, Data Backup, Storage and Retrieval, IT Consulting), eCommerce, Accounts Receivable Financing & Inventory FinancingInsurance Solutions, Web Services, and Payroll and Benefits Solutions.

Newtek® and Your Business Solutions Company®, are registered trademarks of Newtek Business Services Corp.

Note Regarding Forward Looking Statements

This press release contains certain forward-looking statements. Words such as “believes,” “intends,” “expects,” “projects,” “anticipates,” “forecasts,” “goal” and “future” or similar expressions are intended to identify forward-looking statements. All forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the plans, intentions and expectations reflected in or suggested by the forward-looking statements. Such risks and uncertainties include, among others, intensified competition, operating problems and their impact on revenues and profit margins, anticipated future business strategies and financial performance, anticipated future number of customers, business prospects, legislative developments and similar matters. Risk factors, cautionary statements and other conditions, which could cause Newtek’s actual results to differ from management’s current expectations, are contained in Newtek’s filings with the Securities and Exchange Commission and available through Newtek cautions you that forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those projected or implied in these statements.

SOURCE: Newtek Business Services Corp.

Investor Relations & Public Relations
Contact: Jayne Cavuoto
Telephone: (212) 273-8179 /

(In Thousands, except for Per Share Data)
  March 31, 2020   December 31, 2019
ASSETS (Unaudited)    
Investments, at fair value      
SBA unguaranteed non-affiliate investments (cost of $436,474 and $429,697, respectively; includes $353,846 and $364,063, respectively, related to securitization trusts) $ 419,486     $ 417,223  
SBA guaranteed non-affiliate investments (cost of $23,676 and $23,345, respectively) 25,152     25,004  
Controlled investments (cost of $118,995 and $107,300, respectively) 216,723     215,817  
Non-control/affiliate investments (cost of $1,000 and $1,000, respectively) 1,000     1,000  
Total investments at fair value 662,361     659,044  
Cash 37,073     1,762  
Restricted cash 33,452     31,445  
Broker receivable 1,683     51,173  
Due from related parties 3,853     2,972  
Servicing assets, at fair value 26,309     24,411  
Right of use assets 7,724     7,990  
Other assets 19,022     18,614  
Total assets $ 791,477     $ 797,411  
Bank notes payable $ 44,069     $ 30,000  
Notes due 2023 (par: $57,500 as of March 31, 2020 and December 31, 2019) 56,152     56,035  
Notes due 2024 (par: $63,250 as of March 31, 2020 and December 31, 2019) 61,460     61,354  
Notes payable - Securitization trusts (par: $261,082 and $276,637 as of March 31, 2020 and December 31, 2019) 257,056     272,376  
Notes payable - related parties 24,213     12,163  
Due to related parties 338     131  
Lease liabilities 9,596     9,897  
Deferred tax liabilities 9,494     12,405  
Accounts payable, accrued expenses and other liabilities 16,634     20,824  
Total liabilities 479,012     475,185  
Commitment and contingencies      
Net assets:      
Preferred stock (par value $0.02 per share; authorized 1,000 shares, no shares issued and outstanding)      
Common stock (par value $0.02 per share; authorized 200,000 shares, 20,838 and 20,530 issued and outstanding, respectively) 417     411  
Additional paid-in capital 296,577     289,963  
Accumulated undistributed earnings 15,471     31,852  
Total net assets 312,465     322,226  
Total liabilities and net assets $ 791,477     $ 797,411  
Net asset value per common share $ 15.00     $ 15.70  

(In Thousands, except for Per Share Data)
  Three Months Ended March 31,
  2020   2019
Investment income      
From non-affiliate investments:      
Interest income $ 7,322     $ 7,017  
Servicing income 2,715     2,428  
Other income 906     921  
Total investment income from non-affiliate investments 10,943     10,366  
From non-control/affiliate investments:      
Dividend income 20     31  
From controlled investments:      
Interest income 457     217  
Dividend income 4,382     3,150  
Total investment income from controlled investments 4,839     3,367  
Total investment income 15,802     13,764  
Salaries and benefits 3,447     3,588  
Interest 5,184     4,735  
Depreciation and amortization 115     129  
Professional fees 964     984  
Origination and loan processing 1,824     1,653  
Origination and loan processing - related party 2,638     2,188  
Change in fair value of contingent consideration liabilities 54     46  
Other general and administrative costs 1,858     1,427  
Total expenses 16,084     14,750  
Net investment loss (282 )   (986 )
Net realized and unrealized gains (losses):      
Net realized gain on non-affiliate investments - SBA 7(a) loans 4,513     9,344  
Net unrealized (depreciation) appreciation on SBA guaranteed non-affiliate investments (183 )   70  
Net unrealized (depreciation) appreciation on SBA unguaranteed non-affiliate investments (4,511 )   2,629  
Net unrealized (depreciation) appreciation on controlled investments (10,789 )   (1,947 )
Change in deferred taxes 2,911     529  
Net unrealized (depreciation) appreciation on servicing assets 1,088     (556 )
Net realized and unrealized gains (losses) $ (6,971 )   $ 10,069  
Net (decrease) increase in net assets resulting from operations $ (7,253 )   $ 9,083  
Net (decrease) increase in net assets resulting from operations per share $ (0.35 )   $ 0.48  
Net investment loss per share $ (0.01 )   $ (0.05 )
Dividends and distributions declared per common share $ 0.44     $ 0.40  
Weighted average number of shares outstanding 20,738     19,003  


(in thousands, except per share amounts) Three months ended March 31, 2020   Per share   Three months ended March 31, 2019   Per share
Net investment loss $ (282 )   $ (0.01 )   $ (986 )   $ (0.05 )
Net realized gain on non-affiliate investments - SBA 7(a) loans   4,513       0.22       9,344       0.49  
Loss on lease   -       -       (78 )     (0.00 )
Change in fair value of contingent consideration liabilities   54       0.00       46       0.00  
Adjusted Net investment income $ 4,285     $ 0.21     $ 8,326     $ 0.44  

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Source: Newtek Business Services Corp.