NewtekOne Inc

Previous wording

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. 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. 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. 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). 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 under Subchapter M of the Code for federal income tax purposes and no longer qualify for accounting treatment as an investment company. 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. In addition, as a result of commitments made to the Federal Reserve, we will divest or otherwise terminate the activities conducted by NTS by January 6, 2025, subject to any extension. See“Item 1A. Risk Factors – Risks Related to Operating as a Financial Holding Company –We are subject to extensive regulation and supervision as a financial holding company, which may adversely affect our business.”

Current wording

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 (SMB) market. 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. 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. 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). 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 under Subchapter M of the Code for federal income tax purposes and no longer qualify for accounting treatment as an investment company. 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. In addition, as a result of commitments made to the Federal Reserve, we will divest or otherwise terminate the activities conducted by NTS by January 6, 2025, subject to any extension. See“Item 1A. Risk Factors – Risks Related to Operating as a Financial Holding Company –We are subject to extensive regulation and supervision as a financial holding company, which may adversely affect our business.” See NOTE 19—SUBSEQUENT EVENTS - NTS Divestiture.

Previous wording

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. As a BDC under the 1940 Act we were not permitted to acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets, and we were not permitted to issue senior securities unless the ratio of its total assets (less total liabilities other than indebtedness represented by senior securities) to its total indebtedness represented by senior securities plus preferred stock, if any, was at least 150%. 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. Risk Factors – Risks Related to Our Notes – We are subject to 150% asset coverage requirements due to covenants contained in the indentures under which the 2024 and 2026 Notes were issued.”

Current wording

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. As a BDC under the 1940 Act we were not permitted to acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets, and we were not permitted to issue senior securities unless the ratio of our total assets (less total liabilities other than indebtedness represented by senior securities) to our total indebtedness represented by senior securities plus preferred stock, if any, was at least 150%. As of December 31 2022, our asset coverage was 169%. Although we are no longer regulated as a BDC, certain covenants in our outstanding 2026 Notes require us to maintain an asset coverage of at least 150% as long as the 2026 Notes are outstanding. See “Item 1A. Risk Factors – Risks Related to Our Notes – We are subject to 150% asset coverage requirements due to covenants contained in the indentures under which the 2026 Notes were issued.”

Previous wording

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. Currently, Newtek Bank is ranked as the second largest SBA 7(a) lender based on dollar volume of loans approved. Historically, NSBF structured its loans so that it could both sell the government guaranteed portions of SBA 7(a) loans and securitize the unguaranteed portions. This structure generally allowed NSBF to recover its capital and earn excess capital on each loan, typically within a year. Pursuant to the Wind-down Agreement described above, in April 2023 NSBF transitioned its SBA 7(a) loan originations to Newtek Bank and is in the process of winding down its operations 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.

Current wording

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. Currently, Newtek Bank is ranked as the largest SBA 7(a) lender based on dollar volume of loans approved. Historically, NSBF structured its loans so that it could both sell the government guaranteed portions of SBA 7(a) loans and securitize the unguaranteed portions. This structure generally allowed NSBF to recover its capital and earn excess capital on each loan, typically within a year. Pursuant to the Wind-down Agreement described above, in April 2023 NSBF transitioned its SBA 7(a) loan originations to Newtek Bank and is in the process of winding down its operations 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.

Previous wording

We have observed and continue to observe supply chain interruptions, significant labor and resource shortages, commodity inflation, rising interest rates, unrelated bank failures and declines in depositor confidence in certain types of depository institutions. Additionally geopolitical events, such as trade disruptions, the ongoing war between Russia and Ukraine, the Israel conflict with Hamas, rising tensions in Asia, and elements of economic and financial market instability in the United States, the United Kingdom, the European Union and China have led to increased economic uncertainty. One or more of these factors may contribute to increased market volatility, may have long term effects in the United States and worldwide financial markets, and may cause economic uncertainties or deterioration in the United States and worldwide. 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. 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.

Current wording

We have observed and continue to observe supply chain interruptions, significant labor and resource shortages, commodity inflation, rising interest rates, unrelated bank failures and declines in depositor confidence in certain types of depository institutions. Additionally geopolitical events, such as trade disruptions, the ongoing war between Russia and Ukraine, rising tensions in the Middle East and Asia, and elements of economic and financial market instability in the United States, the United Kingdom, the European Union and China have led to increased economic uncertainty. One or more of these factors may contribute to increased market volatility, may have long term effects in the United States and worldwide financial markets, and may cause economic uncertainties or deterioration in the United States and worldwide. 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. 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.

Previous wording

For the quarterly period ended March 31, 2024, we generated income in the form of interest, net gains on sale of the guaranteed portions of SBA 7(a) loans originated, dividends, electronic payment processing income, technology and IT support income, servicing income, and other fee income generated by loan originations and by our subsidiaries. We originated loans that typically have terms of 10 to 25 years and bear interest at prime plus a margin. In some instances, we received payments on our loans based on scheduled amortization of the outstanding balances. In addition, we received repayments of some of our loans prior to their scheduled maturity date. The frequency or volume of these repayments fluctuated significantly from period to period. Our portfolio activity for the quarterly period ended March 31, 2024 also reflects the proceeds of sales of guaranteed portions of SBA 7(a) loans we originated. In addition, we received servicing income related to the guaranteed portions of SBA 7(a) loans which we originated and sold into the secondary market. These recurring fees were earned daily and recorded when earned. In addition, we generated revenue in the form of loan packaging, loan prepayment, legal and late fees. 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.

Current wording

For the quarterly period ended June 30, 2024, we generated income in the form of interest, net gains on the sales of loans originated (which primarily include sales of SBA 7(a) and ALP loans) and related servicing assets on such sales, dividends, electronic payment processing income, technology and IT support income, servicing income, and other fee income generated by loan originations and by our subsidiaries. We originated loans that typically have terms of 10 to 25 years and bear interest at prime plus a margin. In some instances, we received payments on our loans based on scheduled amortization of the outstanding balances. In addition, we received repayments of some of our loans prior to their scheduled maturity date. The frequency or volume of these repayments fluctuated significantly from period to period. Our portfolio activity for the quarterly period ended June 30, 2024, also reflects the proceeds of sales of guaranteed portions of SBA 7(a) loans we originated. In addition, we received servicing income related to the guaranteed portions of SBA 7(a) loans which we originated and sold into the secondary market as well as on the portfolios of ALP loans owned by NCL JV and TSO JV. These recurring fees were earned daily and recorded when earned. In addition, we generated revenue in the form of loan packaging, loan prepayment, legal and late fees. 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.

Previous wording

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. 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 servicing assets, as appropriate, in the consolidated statements of operations.

Current wording

We recognized realized gains or losses on loans based on the difference between (1) the net proceeds from the disposition and any servicing assets recognized and (2) the cost basis of the loan without regard to unrealized gains or losses previously recognized. 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 servicing assets, as appropriate, in the consolidated statements of operations.

Previous wording

For the quarterly period ended March 31, 2024, 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.

Current wording

For the quarterly period ended June 30, 2024, our primary operating expenses were salaries and benefits, interest expense including interest on deposits, electronic payment processing expense, technology services expense, origination and servicing, and other general and administrative costs, such as professional fees, marketing, referral fees, servicing costs and rent.

Previous wording

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. 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. The TSO JV intends to deploy capital over the course of time with additional leverage supported by a warehouse line of credit for the purpose of investing ALP loans made to middle-market companies as well as small businesses. TSO JV began making investments in ALP loans during the fourth quarter of 2022. Refer to NOTE 4—INVESTMENTS for selected financial information and a schedule of investments of TSO JV as of March 31, 2024.

Current wording

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. 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. The TSO JV intends to deploy capital over the course of time with additional leverage supported by a warehouse line of credit for the purpose of investing in ALP loans made to middle-market companies as well as small businesses. TSO JV began making investments in ALP loans during the fourth quarter of 2022. Refer to NOTE 4—INVESTMENTS for selected financial information and a schedule of investments of TSO JV as of June 30, 2024. Refer to “NOTE 19—SUBSEQUENT EVENTS - TSO JV Securitzation.”

Previous wording

At March 31, 2024, the Company had $108.8 million of unfunded commitments consisting of $15.9 million in connection with its SBA 7(a) loans, $87.7 million in connection with its SBA 504 loans, and $5.3 million relating to commercial and industrial loans. The Company funds these commitments from the same sources it uses to fund its other loan commitments.

Current wording

At June 30, 2024, the Company had $109.7 million of unfunded commitments consisting of $15.0 million in connection with its SBA 7(a) loans, $83.5 million in connection with its SBA 504 loans, and $11.2 million relating to commercial and industrial loans. The Company funds these commitments from the same sources it uses to fund its other loan commitments.

Previous wording

Total assets at March 31, 2024 were $1.5 billion, an increase of $80.1 million, or 7.0%, compared to total assets of $1.4 billion at December 31, 2023.

Current wording

Total assets at June 30, 2024 were $1.6 billion, an increase of $187.5 million, or 13.1%, compared to total assets of $1.4 billion at December 31, 2023.

Previous wording

Loans held for sale, at fair value increased $68.2 million during the three months ended March 31, 2024, while loans held for sale, at LCM increased $3.3 million during the same period. The overall increase was primarily the result of new loan originations during 2024.

Current wording

Loans held for sale, at fair value increased $60.9 million during the six months ended June 30, 2024, while loans held for sale, at LCM increased $2.8 million during the same period. The overall increase was primarily the result of new loan originations during 2024.

Previous wording

At Fair value: Loans held for investment, at fair value was $442.9 million at March 31, 2024 compared to $469.8 million at December 31, 2023. The balance consists primarily of SBA 7(a) loans as well as $7.1 million of loans that the Company owns 100% as a result of originating the loan and subsequently repurchasing the guaranteed portion from the SBA. As previously discussed, NSBF ceased originating loans during 2023, resulting in the decrease in the balance of loans held for investment from December 31, 2023 to March 31, 2024 due to the principal payments of existing loans held by NSBF.

Current wording

At Fair value: Loans held for investment, at fair value was $415.9 million at June 30, 2024 compared to $469.8 million at December 31, 2023. The balance consists primarily of SBA 7(a) loans as well as $6.8 million of loans that the Company owns 100% as a result of originating the loan and subsequently repurchasing the guaranteed portion from the SBA. As previously discussed, NSBF ceased originating loans during 2023, resulting in the decrease in the balance of loans held for investment from December 31, 2023 to June 30, 2024 due to the principal payments of existing loans held by NSBF.

Previous wording

At Amortized Cost: Loans held for investment, at amortized cost consists of loans originated at Newtek Bank. The $61.3 million increase in loans held for investment, at amortized cost is the result of an increase in originations in three months ended March 31, 2024 over 2023.

Current wording

At Amortized Cost: Loans held for investment, at amortized cost consists of loans originated at Newtek Bank. The $115.5 million increase in loans held for investment, at amortized cost is the result of an increase in originations for the six months ended June 30, 2024 over 2023.

Previous wording

The Company’s loan portfolio consists of loans to independent business owners (SMBs). The Company’s Loans HFI at amortized cost and Loans HFS at LCM include a total of $216.6 million of loans, including unfunded commitments, backed by CRE and considered non-owner occupied as of March 31, 2024. The average loan-to-value for this CRE portfolio was 59.4%. The table below presents a detail of the loans considered non-owner occupied CRE that are not carried at fair value:

Current wording

The Company’s loan portfolio consists of loans to independent business owners (SMBs). The Company’s Loans HFI at amortized cost and Loans HFS at LCM include a total of $232.4 million of loans, including unfunded commitments, backed by CRE and considered non-owner occupied as of June 30, 2024. The average loan-to-value for this CRE portfolio was 59.4%. The table below presents a detail of the loans considered non-owner occupied CRE that are not carried at fair value:

Previous wording

The change in goodwill and intangible assets relates to amortization of intangible assets during the three months ended March 31, 2024.

Current wording

The change in goodwill and intangible assets relates to amortization of intangible assets during the six months ended June 30, 2024.

Previous wording

Settlement receivables were $56.9 million as of March 31, 2024, a decrease of $5.3 million compared to December 31, 2023. The settlement receivable arises 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.

Current wording

Settlement receivables were $79.9 million as of June 30, 2024, an increase of $17.7 million compared to December 31, 2023. The settlement receivable arises 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.

Previous wording

Total liabilities at March 31, 2024, were $1.3 billion, an increase of $75.0 million, or 6.4%, compared to total liabilities of $1.2 billion at December 31, 2023.

Current wording

Total liabilities at June 30, 2024, were $1.3 billion, an increase of $162.5 million, or 13.8%, compared to total liabilities of $1.2 billion at December 31, 2023.

Previous wording

Total deposits were $512.9 million at March 31, 2024, consisting of $5.5 million in non-interest bearing deposits and $507.5 million in interest bearing deposits, a $49.4 million increase from the balance as of December 31, 2023.

Current wording

Total deposits were $610.4 million at June 30, 2024, consisting of $4.9 million in non-interest bearing deposits and $605.5 million in interest bearing deposits, a $146.9 million increase from the balance as of December 31, 2023.

Previous wording

Borrowings were $662.5 million at March 31, 2024 compared to $644.1 million at December 31, 2023. This increase was primarily due to an additional $4.2 million, $11.3 million, and $29.5 million of borrowings under the SPV I, II, and III facilities, respectively. These increases were partially offset by a $22.6 million reduction in our notes payable on securitization trusts, and $3.5 million paydown of FHLB advances.

Current wording

Borrowings were $652.0 million at June 30, 2024, compared to $644.1 million at December 31, 2023. This increase was primarily due to a $69.4 million issuance of the 2029 8.50% Notes and an additional $4.8 million borrowings under the SPV II facility. These increases were partially offset by a $48.7 million reduction in the notes payable on securitization trusts, a $13.6 million paydown of the SPV I facility, and a $3.9 million paydown of FHLB advances.

Previous wording

The deferred tax assets and liabilities represent the cumulative timing differences between book and tax to the extent such assets or liabilities give rise to taxable income or expense in future periods. Within this balance is the deferred tax asset on net operating loss (NOL) carryforwards not expected to be utilized in the current year. The Company evaluated all NOLS for a valuation allowance and determined that none were required.

Current wording

The deferred tax asset, net represents the cumulative timing differences between book and tax to the extent such assets or liabilities give rise to taxable income or expense in future periods. Within this balance is the deferred tax asset on net operating loss (NOL) carryforwards not expected to be utilized in the current year. The Company evaluated all NOLs for a valuation allowance and determined that none were required.

Previous wording

Other interest earning assets: The $0.6 million increase in interest income from other interest earnings assets was attributable to rising interest rates on cash and due from banks as well as interest bearing deposits in banks, including Newtek Bank earning interest on Federal Reserve Bank cash deposits.

Current wording

Other interest earning assets: The $0.3 million increase in interest income from other interest earnings assets was attributable to rising interest rates on cash and due from banks, as well as interest bearing deposits in banks, including Newtek Bank earning interest on Federal Reserve Bank cash deposits.

Previous wording

The increase in interest expense period over period is primarily from additional interest expense on deposits of $4.1 million, The Company also completed a public offering in August 2023, resulting in an additional $0.9 million of interest relating to the 2028 Notes. The increase is partially offset by a $2.2 million reduction in interest on bank and FHLB borrowings.

Current wording

The increase in interest expense period over period is primarily from additional interest expense on deposits of $6.9 million. The Company also completed a public offering in August 2023, resulting in an additional $1.8 million of interest relating to the 2028 Notes, and a public offering in May 2024, resulting in an additional $0.6 million of interest relating to the 2029 Notes. The increase is partially offset by a $3.7 million reduction in interest on bank and FHLB borrowings.

Previous wording

For the three months ended March 31, 2024 and 2023, there was a provision for credit losses of $4.0 million and $1.3 million, respectively. The increase was due to an increase in loans held for investment at amortized cost, specifically SBA 7(a) loans, as well as a sequential build of the provision year over year as March 31, 2023 was the Company's first quarter as a financial holding company.

Current wording

For the six months ended June 30, 2024 and 2023, there was a provision for credit losses of $9.8 million and $3.9 million, respectively. The increase was due to an increase in loans held for investment at amortized cost, specifically SBA 7(a) loans, as well as a sequential build of the provision year over year as the six months ended June 30, 2023, was the Company's first two quarters reporting as a financial holding company.

Previous wording

The Company accounts for servicing assets in accordance with ASC Topic 860-50 - Transfers and Servicing - Servicing Assets and Liabilities. The Company earns servicing fees from the guaranteed portions of SBA 7(a) loans it originates and sells. Servicing assets for loans originated by the Company’s nonbank subsidiaries are measured at FV at each reporting date and the Company reports changes in the FV of servicing assets in earnings in the period in which the changes occur. The valuation model for servicing assets incorporates assumptions including, but not limited to, servicing costs, discount rate, prepayment rate, and default rate. Considerable judgment 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. Servicing assets for loans originated by Newtek Bank are measured at LCM and amortized based on their estimated life, and impairment is recorded to the extent the amortized cost exceeds the asset’s FV.

Current wording

The Company accounts for servicing assets in accordance with ASC Topic 860-50 - Transfers and Servicing - Servicing Assets and Liabilities. The Company earns servicing fees from the guaranteed portions of SBA 7(a) loans it originates and sells and from servicing the ALP portfolios of NCL JV and TSO JV. Servicing assets for loans originated by the Company’s nonbank subsidiaries are measured at FV at each reporting date and the Company reports changes in the FV of servicing assets in earnings in the period in which the changes occur. The valuation model for servicing assets incorporates assumptions including, but not limited to, servicing costs, discount rate, prepayment rate, and default rate. Considerable judgment 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. Servicing assets for loans originated by Newtek Bank are measured at LCM and amortized based on their estimated life, and impairment is recorded to the extent the amortized cost exceeds the asset’s FV.

Previous wording

The decrease in loan servicing asset revaluation is due to the decrease in NSBF”s total portfolio of investments during the wind-down.

Current wording

The decrease in loan servicing asset revaluation is due to the decrease in NSBF’s total portfolio of investments during the wind-down.

Previous wording

The increase in servicing income was related to an increase of $210.9 million in the average total loan portfolio for which we earn servicing income period over period.

Current wording

The increase in servicing income was related to an increase of $221.9 million in the average total loan portfolio for which we earn servicing income period over period.

Previous wording

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, 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. 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.

Current wording

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, SBL will continue to service and liquidate NSBF’s 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. 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.

Previous wording

The increase in professional fees period over period is primarily attributable to additional audit fees related to the Company’s first audit reporting as a financial holding company after the Acquisition of NBNYC.

Current wording

The increase in professional services expense period over period is primarily attributable to additional audit fees related to the completion of the Company’s first annual audit as a financial holding company after the Acquisition of NBNYC and related audit services, including internal and external audit of controls and procedures.

Previous wording

Technology - Technology (NTS) 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 services including consulting and implementing technology solutions for enterprise and commercial clients across the U.S. As a result of commitments made to the Federal Reserve, the Company will divest or otherwise terminate the activities conducted by NTS within two years of becoming a financial holding company (i.e., by January 6, 2025), subject to any extension of the two-year period.

Current wording

Technology - Technology (NTS) 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 services including consulting and implementing technology solutions for enterprise and commercial clients across the U.S. As a result of commitments made to the Federal Reserve, the Company will divest or otherwise terminate the activities conducted by NTS by January 6, 2025, subject to any extension.

Previous wording

NSBF - Relates to NSBF’s legacy portfolio of SBA 7(a) loans held outside Newtek Bank. The decrease in net income (loss) is due to the wind-down of NSBF’s operations.

Current wording

NSBF - Relates to NSBF’s legacy portfolio of SBA 7(a) loans held outside Newtek Bank. The decrease in net income is due to the wind-down of NSBF’s operations.

Previous wording

For the three months ended March 31, 2024, the Company reported net income of $9.65 million, or $0.38 per basic and diluted share, compared to net income of $18.55 million, or $0.76 per basic and $0.74 per diluted share, respectively, for the three months ended March 31, 2023, respectively.

Current wording

For the three months ended June 30, 2024, the Company reported net income of $10.9 million, or $0.43 per basic and diluted share, compared to net income of $7.0 million, or $0.27 per basic and diluted share, for the three months ended June 30, 2023.

Previous wording

The decrease in net income was attributable to the following items:

Current wording

The increase in net income was attributable to the following items:

Previous wording

Loans and fees on loans: The $7.5 million increase in interest income on the Company’s loan portfolio was attributable to an increase in interest rates as well as the average outstanding accrual portfolio of loans held for investment increasing to $987.5 million from $746.4 million for the three months ended March 31, 2024 and 2023, respectively. The increase in the average outstanding accrual loan portfolio resulted from the origination of new SBA 7(a) loans period over period.

Current wording

Loans and fees on loans: The $7.2 million increase in interest income on the Company’s loan portfolio was attributable to an increase in interest rates as well as the average outstanding accrual portfolio of loans held for investment increasing to $1.1 billion from $609.8 million for the three months ended June 30, 2024 and 2023, respectively. The increase in the average outstanding accrual loan portfolio resulted from the origination of new SBA 7(A) loans period over period.

Previous wording

For the three months ended March 31, 2024, the average sale price as a percent of principal balance was 111.23% compared to 111.83% for the prior period. The decrease in sales prices in 2024 resulted from more loan originations than anticipated coupled with higher demand, leading to the Company selling more loans than anticipated while forward rates increased. The increase in overall net gains on sales of loans resulted from higher volumes of sales compared to the prior year.

Current wording

For the three months ended June 30, 2024, the average sale price as a percent of principal balance was 111.02% compared to 110.15% for the prior period. The increase in sales prices in 2024 resulted from higher demand. The increase in overall net gains on sales of loans resulted from higher volumes of sales at better market premiums compared to the prior year.

Previous wording

Net gain (loss) on loans accounted for under the fair value option relates to the guaranteed portions of SBA loans made which the Company sells into a secondary market, the unguaranteed portions of SBA loans made which the Company holds, SBA 504 loans that are held for sale, and ALP loans that are held for sale. This unrealized gain (loss) represents the fair value adjustment of loans. The amount of the unrealized appreciation (depreciation) is determined by the quantity of guaranteed loans held for sale at quarter end, the change in secondary market pricing conditions, and the valuation of the loans that are not held for sale. During the three months ended March 31, 2024, there was an increase in the gain-on-sale pricing as compared to the prior period.

Current wording

Net gain (loss) on loans accounted for under the fair value option relates to the guaranteed portions of SBA loans made which the Company sells into a secondary market, the unguaranteed portions of SBA loans made which the Company holds, SBA 504 loans that are held for sale, and ALP loans that are held for sale. This gain (loss) represents the fair value adjustment of loans. The amount of the gain (loss) is determined by the quantity of loans held for sale at quarter end, the change in secondary market pricing conditions, and the valuation of the loans that are not held for sale. During the three months ended June 30, 2024, there was an increase in the gain-on-sale pricing as compared to the prior period.

Previous wording

Technology and IT support income decreased by $0.9 million from $6.7 million for the three months ended March 31, 2023 to $5.8 million for the three months ended March 31, 2024. The overall decrease was due to a decrease in procurement and professional services revenue, offset by an increase in managed technology services revenue.

Current wording

Technology and IT support income decreased by $1.2 million from $6.4 million for the three months ended June 30, 2023 to $5.2 million for the three months ended June 30, 2024. The overall decrease was due to a decrease in procurement and professional services revenue, offset by an increase in managed technology services revenue.

Previous wording

For the three months ended March 31, 2024 and 2023, other income related primarily to legal, packaging, prepayment, and late fees earned from SBA 7(a) loans. The decrease was related to an unrealized gain in the first quarter of 2023 on joint ventures of $2.0 million, offset by an increase in legal, prepayment and packaging fees earned as a result of the higher volume of SBA 7(a) loans originated of 489 loans compared to 321 loans for the three months ended March 31, 2024 and 2023, respectively.

Current wording

For the three months ended June 30, 2024 and 2023, other noninterest income related primarily to legal, packaging, prepayment, and late fees earned from SBA 7(a) loans and increased as a result of the higher volume of SBA 7(a) loans originated of 604 loans compared to 400 loans for the three months ended June 30, 2024 and 2023, respectively. The increase also included a $2.6 million increase in gains on joint ventures and non-control investments.

Previous wording

The increase in salaries and benefits was primarily attributable to an increase in entity headcount from 530 employees at March 31, 2023 to 559 employees at March 31, 2024.

Current wording

The increase in salaries and employee benefits was primarily attributable to an increase in entity headcount from 534 employees at June 30, 2023 to 567 employees at June 30, 2024.

Previous wording

Banking - The banking segment includes Newtek Bank as well as its consolidated subsidiary SBL. The financial results include the origination, sale, and servicing of SBA 7(a) loans, 504 loans, C&I loans, CRE loans and ABL loans. In addition, the bank offers depository services. The results include $7.7 million of net interest income during the three months ended March 31, 2024 compared to $2.1 million of net interest income during the three months ended March 31, 2023. During the first quarter of 2024, the majority of loans were funded by Newtek Bank compared to the first quarter of 2023, when most loans were funded by NSBF.

Current wording

Banking - The banking segment includes Newtek Bank as well as its consolidated subsidiary SBL. The financial results include the origination and servicing of SBA 504 loans, SBA 7(a) loans, C&I loans, CRE loans and ABL loans. In addition, the bank offers depository services. The results include $9.3 million of net interest income during the three months ended June 30, 2024 compared to $3.9 million of net interest income during the three months ended June 30, 2023. During the second quarter of 2024, the majority of loans were funded by Newtek Bank compared to the second quarter of 2023, when most loans were funded by NSBF until it went into wind-down on April 13, 2023.

Previous wording

Payments - Payments includes NMS, POS and Mobil Money. Within the segment’s results are $11.7 million of noninterest income for the three months ended March 31, 2024 resulting from marketing credit and debit card processing services, check approval services, processing equipment, and software compared to $11.1 million during the three months ended March 31, 2023. The net income also included $8.1 million and $7.9 million of noninterest expense for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Payments - Payments includes POS and Mobil Money. Within the segment’s results are $14.6 million of noninterest income for the three months ended June 30, 2024, resulting from marketing credit and debit card processing services, check approval services, processing equipment, and software, compared to $11.7 million during the three months ended June 30, 2023. The net income also included $9.0 million and $8.3 million of noninterest expense for the three months ended June 30, 2024 and 2023, respectively.