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Newtek Highlights New Risk Factors Amid Transformation

Florida-based Newtek Business (NEWT) provides a range of business and financial solutions aimed at small and medium businesses. Newtek is currently regulated as a business development company, but it seeks to transform itself into a financial holding company. (See Insiders’ Hot Stocks on TipRanks)

Let’s take a look at the company’s latest financial performance, corporate updates, and newly added risk factors.

Q2 Financial Results

Newtek reported total investment income of $36.6 million for Q2 2021, compared to $46.7 million in the same quarter last year. It posted adjusted net investment income per share of $1.20. That decreased from $1.37 in the same quarter last year but beat the consensus estimate of $0.71.

For full-year 2021, the company expects to post adjusted net investment income per share of $3.40. Newtek expects to pay an annual dividend of $3.15 per share in 2021, up from the $2.05 paid last year. (See Newtek Business stock charts on TipRanks).

Corporate Updates

In September 2021, Newtek announced the addition of two new directors to its board. As a result, the board will now have a total of seven directors, split between three interested directors and four independent directors. Newtek CEO Barry Sloane explained that the board expansion was part of the company’s growth plan and that the company believes the move is in the best interest of shareholders.

In August 2021, Newtek announced that it plans to acquire National Bank of New York City for $20 million in cash. The bank has $204 million in assets. The acquisition is part of Newtek’s transformation into a financial holding company. The transaction is expected to close in six to 12 months, subject to shareholder and regulatory approvals.

Risk Factors

The new TipRanks Risk Factors tool shows 132 risk factors for Newtek. Since June 2021, the company has updated its risk profile with eight new risk factors.

Newtek tells investors that once it becomes a financial holding company as it intends to, it may become difficult for a third party to acquire it because of regulatory requirements. As a result, shareholders may miss out on the benefits an acquisition could bring.

The company cautions investors that transforming into a financial holding company will subject it to heightened regulatory supervision that may adversely affect its business. For example, Newtek says it may face restrictions on its lending practices and dividend policy.

Newtek warns that its shareholders may lose certain protection of their interests once it changes its status to a financial holding company from a business development company.

Further, Newtek cautions that the change of status to a financial holding company would subject all of its income to corporate-level taxes. As a result, the amount of income available to the company for distribution to shareholders may be significantly reduced.

The majority of Newtek’s risk factors fall under the Finance and Corporate category, with 53% of the total risks. That is above the sector average of 37%. Newtek’s stock price has gained about 44% year-to-date.

Analysts’ Take

In August, James Raymond James analyst Robert Dodd downgraded Newtek stock to a Sell from a Hold without assigning it a price target.

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