Newtek Business Services Corp. has been trying to buy National Bank of New York City since August of last year, and an end to the red tape may finally be in sight.
The Boca Raton, Florida-based business development company is the nation's third-largest Small Business Administration 7(a) lender, and the $20 million acquisition of the $206 million-asset NBNYC would make it a nationally chartered bank, opening the door for it to fund its loans with lower-cost deposits instead of higher-priced cash from capital markets.
Last week, Newtek received a long-awaited approval from the Federal Reserve to become a bank holding company. The one remaining hurdle is approval from the Office of the Comptroller of the Currency, which Newtek CEO Barry Sloane said he expects to receive soon enough to complete the acquisition in January.
Newtek initially forecast closing within six to 12 months of the merger announcement. Despite the delay, NBNYC also remains committed to seeing the deal through to completion, Sloane said.
The merged company would operate as Newtek Bank.
Stephanie Collins, an OCC spokeswoman, declined to comment, noting the agency does not comment on specific banks or pending decisions.
The hitch in its bank conversion plans has had no discernible impact on Newtek's SBA lending business. Between Oct. 1 and Nov. 27, the company approved 269 7(a) loans for $169.6 million. During the SBA's 2022 fiscal year, which ended Sept. 30, Newtek closed 1,677 7(a) loans for just over $1 billion.
During the third quarter, Newtek funded a record $223 million in 7(a) loans. For the calendar year 2022, the company expects to fund $775 million, up 38% from its 2021 result.
Under the 7(a) program, the SBA provides guarantees of 50% to 75% on loans of up to $5 million made by participating lenders.
Despite signs pointing to a slowing economy, Sloane doesn't foresee any significant falloff in activity for Newtek. There's "plenty of demand," he said.
"We expect modest deterioration in credit in line with the rest of the industry, but there's still enough sweet-spot credits in the pool [of applications] we get," Sloane said.
Newtek shares were trading at $17.72 midday Monday, down 1% from Friday's close and dropped more than 35% year-to-date.
Sloane insists a bank charter, with corresponding access to low-cost deposit funding, will make Newtek a more profitable company in the long run.
In a recent investor presentation, Newtek estimated deposits would represent 50% of funding in 2023, driving earnings per share of $2 to $2.20 per share. In 2024, as the company grows more accustomed to its bank status, deposits-as-a-share-of-total-funding would jump to 55%, while earnings-per-share jump to about $3.
"The benefits [of a bank conversion] will start to show up in year two, after we've had time to train our staff," Sloane said.
As a business development company, Newtek is required to pay out at least 90% of earnings as dividends. Through the first three quarters of 2022, Newtek's dividends totaled $2.05 per share. The company declared a 70-cent dividend for the fourth quarter earlier this month.
