NewtekOne, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES. . (a) Evaluation of Disclosure Controls and Procedures: As of December 31, 2023 (the end of the period covered by this report), management evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based on the evaluation of our disclosure controls and procedures management concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2023, due to certain factors including identified material weaknesses. A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will be presented or not detected on a timely basis. Based on additional analysis and other procedures performed by management, management concluded that the Consolidated Financial Statements included in this report fairly present in all material respects the Company’s financial position, results of operations, capital position, and cash flows for the periods presented, in conformity with U.S. GAAP. See the discussion below under “Management’s Report on Internal Control Over Financial Reporting” for further information regarding the material weaknesses identified, as well as “NOTE 24—SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)” to our consolidated financial statements included in “Item 15. Exhibits and Financial Statement Schedules” of this Form 10-K for further information regarding the 2023 prior period adjustments. (b) Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”) and for performing an assessment of the effectiveness of ICFR as of December 31, 2023, as such term is defined in Exchange Act Rule 13a-15(f). ICFR is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company’s ICFR includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the Board ; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, ICFR may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 107 Management assessed the effectiveness of our ICFR based upon the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated Framework (2013). Based on this assessment, management concluded that the Company did not maintain effective ICFR as of December 31, 2023, as a result of the material weaknesses described below. Material Weaknesses in Internal Control Over Financial Reporting The material weaknesses that were identified are as follows: • Significant Unusual Transactions – As noted in Item 1. Business, the Company completed the Acquisition and converted from a BDC to a financial holding company effective January 6, 2023, which caused a major restructuring within the Company, including a transition from being regulated under the 1940 Act and no longer qualifying for accounting treatment as an investment company, which resulted in a significant change in the Company’s accounting and financial reporting requirements for the year ended December 31, 2023. Given the effect of the Acquisition on the Company’s accounting and reporting requirements, the Company expended considerable capital and resources and engaged a reputable, national public accounting firm to assist management with this transition. Ultimately, the Company did not adequately or appropriately identify and assess changes and resulting risks that could significantly impact the system of internal control. This material weakness impacted the consolidation of the control investments that occurred on January 6, 2023 and the three subsequent interim periods, specifically goodwill and intangibles, net deferred tax assets, income taxes receivable, income tax expense, additional paid in capital, non-interest income and expense, and EPS. It also could affect all transaction cycles within the financial statements. • SOX Governance Program – Further adding to the complexity of the significant unusual transactions, the Company’s previously unconsolidated portfolio companies became consolidated subsidiaries subject to the heightened standards of ICFR required by a SEC registrant under SOX 404 for the first time. While the Company engaged a reputable, national public accounting firm to prepare for this transition and the Acquisition, as noted above, there were significant delays in the documentation of the internal control environment’s processes, resulting in inadequate and untimely identification of financial reporting risks and the associated identification of key controls. This material weakness in our control environment impacted the overall effectiveness of our ICFR and also contributed to the Company adjusting its previously issued quarterly financial statements for 2023 as discussed in “NOTE 24—SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)” to our consolidated financial statements. This material weakness could affect all transaction cycles within the financial statements. • Knowledge, Skills, and Experience of Staff – Given the conversion to a financial holding company, the knowledge, skills, and experience of Company staff that comprised those with a financial reporting oversight role consisted of individuals with experience at a public investment company and/or BDC, in positions with less financial reporting oversight at public companies, and/or limited public accounting experience auditing public financial holding companies. This impacted the overall effectiveness of the Company’s ICFR and also contributed to the Company adjusting its previously issued quarterly condensed financial statements for 2023, as discussed in “NOTE 24—SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)” to our consolidated financial statements. This material weakness could affect all transaction cycles within the financial statements. • Information Technology General Controls (ITGC) – In the course of completing the Company’s assessment of ICFR as of December 31, 2023, management identified a number of deficiencies related to the design and operating effectiveness of ITGCs for information systems that comprised part of the Company’s system of ICFR and are relevant to the preparation of the Company’s consolidated financial statements (such information technology systems are referred to as the “Affected IT Systems”). These deficiencies in the design and operating effectiveness of the controls involved logical access and program change management that are intended to ensure that access to financial applications and data are adequately restricted to appropriate personnel, and that changes affecting the financial applications and underlying account records are identified, authorized, tested and implemented appropriately. The material weakness was due to system limitations as a result to the age of the technology, which resulted in management’s inability to generate details of configuration, changes, and settings to evidence the operating effectiveness of ITGCs. Management has concluded that deficiencies in ITGC logical access and related program change management, including controls intended to ensure that access rights are compatible with job duties (segregation of duties) and to test changes to relevant information systems, existed and therefore represented a material weakness. This material weakness could affect all transaction cycles within the financial statements. 108 • Management Review Controls – Management identified deficiencies due to the design and operating effectiveness of management review controls, including documentation and the level of precision. The deficiencies related to control gaps, unmitigated risks, untimely review, insufficient documentation, improper testing procedures, and inconsistent performance frequency of certain controls. This includes ITGCs that did not operate effectively due to insufficient management review controls related to the precision of the review, completeness and accuracy and insufficient evidence of report lists, and the parameters used to generate such report lists. The Company did not sufficiently document and deploy appropriate control activities through policies that establish what is expected and in procedures that put policies into action which resulted in a material weakness. This material weakness could affect all transaction cycles within the financial statements. • Completeness and Accuracy of Information Produced by the Entity (“IPE”) – Management identified deficiencies due to a lack of available and reliable IPE, including multiple control gaps. The control gaps are related to reports extracted from Affected IT Systems that were not verified for completeness and accuracy. These deficiencies related to untimely review, insufficient documentation, improper testing procedures, and ineffective design of certain controls. Management did not sufficiently select and develop IPE control activities that contribute to the mitigation of risks to achieve the reduction of risk to acceptable levels which resulted in a material weakness. This material weakness could affect all transaction cycles within the financial statements. • NTS System Conversion – NTS’s system of record for webhosting revenue was converted during the first quarter of 2023 and certain changes made to the sunsetting system and the newly implemented system to which it was converted were not tested and approved in a separate environment prior to being placed into production, which is a program change management ITGC. As it specifically relates to this system conversion, the deficiencies in the aforementioned change management controls resulted in this material weakness as management did not develop sufficient general control activities over technology to support the achievement of the conversion’s objectives. This material weakness impacted other assets, retained earnings, technology services expense, and technology and IT support income. • NTS Revenue Cycle – Multiple controls over revenue recognition at NTS were not designed and implemented appropriately and/or did not operate effectively. As it specifically relates to this deficiency, there was excessive turnover in the NTS controller role which led to the deficiencies in design, implementation, and operating effectiveness of the controls. Management did not consistently retain individuals in that financial reporting oversight role resulting in a material weakness This material weakness impacted other assets, retained earnings, technology services expense, and technology and IT support income. (c) Audit Report of the Registered Public Accounting Firm. RSM US LLP, our independent registered public accounting firm, has issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, as stated in its report, which is included under “ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this annual report on Form 10-K, which is consistent with management’s report on ICFR as set forth above. (d) Changes in Internal Control over Financial Reporting. Except as described below under “Remediation Process,” there were no changes in the Company’s ICFR (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during our most recently completed fiscal quarter, that have materially affected, or are reasonably likely to materially affect, the Company’s ICFR. Remediation Process While certain actions have been taken to enhance the Company’s ICFR relating to the material weaknesses identified as of the date of this report, we are still in the process of implementing our comprehensive remediation plan. Accordingly, the previously identified material weaknesses cannot be considered remediated until each control has been appropriately designed, has operated for a sufficient period of time, and until management has concluded, through testing, that the control is operating effectively. Following the identification of the material weaknesses described above, with the oversight of the Audit Committee, we commenced a process to remediate the underlying causes of those material weaknesses, enhance the control environment and strengthen our ICFR. The initial steps that the Company has taken to-date, and will continue to take, with respect to remediation of the material weaknesses identified are summarized below: • The hiring of senior financial management and additional qualified finance and accounting resources, including: 109 ◦ The hiring of a Chief Financial Officer in May 2023 with significant financial holding company experience and prior experience as a Chief Accounting Officer of a financial holding company, who was appointed to and is serving as the Company’s Principal Financial Officer as of April 1, 2024; ◦ The appointment of a new Chief Accounting Officer with significant financial holding company experience and prior experience as a Chief Accounting Officer of a bank holding company who is serving as the Company’s Principal Accounting Officer as of April 1, 2024; ◦ The hiring and appointment of a Chief Risk Officer with significant financial holding company experience and prior experience as a Chief Audit Executive of a bank holding company who began employment on April 1, 2024; ◦ The recent and anticipated hiring of additional qualified finance and accounting resources, as well as providing appropriate training to the relevant current and/or prospective control owners. • Improving the design, operation, and monitoring of control activities and procedures to address ICFR requirements, including: ◦ Improvements to the financial reporting process and control activities, including strengthening reconciliation controls; ◦ The expansion of the responsibilities of the Company’s third-party internal audit provider; and ◦ The continuing evaluation of the Company’s third-party vendors whose role is the facilitation of the timely documentation and related evaluation of the design and operating effectiveness of IFCR under SOX 404 and commensurate with the complexity of a well-diversified financial holding company who actively participates in the capital markets. • Improving the design, operating effectiveness, and documentation of management review controls and controls designed to verify the completeness and accuracy of data and IPE used in financial reporting. These activities include the development of new management review controls, training, and education for process owners on audit requirements, and the creation of review templates to properly document evidence of management review in addition to building a data governance framework for data used in financial reporting. • Implementing a new ERP system, along with other technology, that interfaces with other internal systems and are designed to ensure only authorized individuals can access certain modules and perform certain duties based on their role and responsibilities. Detailed processes and automated controls are maintained in the systems in an effort to ensure all control activities conform with our risk and control matrix, and to limit manual intervention and the risk of human error. • Implementing new financial reporting software with (i) greater preventative controls that address completeness and accuracy of information produced by the Company and (ii) data connections that are directly tied to source systems and are explicitly linked to the future data governance framework. • Management has been actively engaged in the implementation of a remediation plan designed to ensure that controls contributing to remediation of our ITGC material weakness are designed appropriately and will operate effectively, which include but are not limited to the following: ◦ Enhancing information technology governance policies and procedures; ◦ Designing and implementing control activities and procedures around user and administrator access and program change management; ◦ Procuring and implementing technology to facilitate change management and logical access to systems; and ◦ Hiring of additional qualified information technology resources and providing appropriate t training to the relevant control owners. The status of our remediation plan is being, and will continue to be, reported by management to the Audit Committee on a regular basis. In addition, management has assigned executive owners to oversee the remedial changes to the overall design of the Company’s internal control environment and to address the root causes of our material weaknesses. As management continues to evaluate and strive to improve the Company’s ICFR, management may take additional measures to address these control deficiencies or modify the previously disclosed remediation plan. While management intends to resolve all of the material weaknesses, no assurance can be provided that these remediation efforts will be successful, that the Company’s internal controls over financial reporting will be effective as a result of these efforts by any particular date, nor is it certain whether additional actions will be required. 110 ITEM 9B. OTHER INFORMATION. Trading Arrangements On June 16, 2023 , Salvatore Mulia , a member of our Board , entered into a written plan for the sale of an aggregate 9,000 shares of common stock. The plan is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act. The plan commenced on September 21, 2023 and terminates on September 22, 2024. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not Applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. The information required by Item 10 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2024 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2024 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year. In November 2023, the Company adopted a Clawback Policy in accordance with Section 10D of the Exchange Act and Rule 10D-1 promulgated thereunder. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by Item 12 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2024 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year. ITEM 13. CERTAIN RELATIONSHIPS, RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE The information required by Item 13 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2024 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by Item 14 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2024 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission not later than 120 days following the end of our fiscal year. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a)(1) Financial Statements. 111 Table of Contents (a)(2) No financial statement schedules are filed herewith because (1) such schedules are not required or (2) the information has been presented in the aforementioned financial statements. (a)(3) Exhibits. The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Securities and Exchange Commission. 112 Table of Contents Number Description 3.1 Amended and Restated Articles of Incorporation of Newtek Business Services Corp. (Previously filed in connection with Pre-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form N-2 (File No. 333-191499) filed on November 3, 2014, and incorporated by reference herein). 3.2 Amended Bylaws of NewtekOne, Inc. ( Incorporated by reference to Exhibit 99.1 of NewtekOne, Inc.''s Current Report on Form 8-K, filed January 24, 2023 ). 3.3 Newtek Conventional Lending II, LLC Limited Liability Company Agreement (Incorporated by reference to Exhibit 3.3 to Newtek’s Form 10-Q for the quarter ended March 31, 2021 (File No. 814-01035), filed May 13, 2021. 4.1 Form of Common Stock Certificate (Incorporated by reference to Exhibit 99.5 to Registrant’s Registration Statement on Form N-14 (File No. 333-195998), filed September 24, 2014). 4.2 Description of Securities filed herewith. 4.3 Base Indenture, dated as of September 23, 2015, between Newtek, as issuer, and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit d.2 to Newtek’s Post-Effective Amendment No. 1 to its Registration Statement on Form N-2, No. 333-204915, filed September 23, 2015). 4.4 Fourth Supplemental Indenture, dated as of July 29, 2019, between Newtek, as issuer, and U.S. Bank, National Association, as trustee (Incorporated by reference to Exhibit d.8 to Newtek’s Post-Effective Amendment No. 7 to its Registration Statement on Form N-2, No. 333-224976, filed July 29, 2019). 4.5 Form of Global Note with respect to the 5.75% Notes due 2024 (Incorporated by reference to Exhibit d.8 to Newtek’s Post-Effective Amendment No. 7 to its Registration Statement on Form N-2, No. 333-224976, filed July 29, 2019). 4.6 Fifth Supplemental Indenture, dated as of November 27, 2020, relating to the 6.85% Notes due 2025, by and between the Company and U.S. Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.2 to Newtek’s Current Report on Form 8-K, filed November 27, 2020). 4.7 Sixth Supplemental Indenture, dated as of January 6, 2021, relating to the 6.85% Notes due 2025, by and between the Company and U.S. Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.3 to Newtek’s Current Report on Form 8-K filed January 6, 2021). 4.8 Seventh Supplemental Indenture dated of January 22, 2021 between Newtek Business Services Corp. and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.1 to Newtek’s Current Report on Form 8-K filed January 22, 2021). 4.9 Form of 5.50 % Notes due 2026 (Incorporated by reference to Exhibit 4.2 to Newtek’s Current Report on Form 8-K filed January 22, 2021). 4.10 Eighth Supplement Indenture dated of February 16, 2021 between Newtek Business Services Corp. and U.S. Bank National Association, as trustee (Incorporated by reference to Exhibit 4.3 to Newtek’s Current Report on Form 8-K filed February 16, 2021). 4.11 Form of 5.75 % Notes due 2024 (Incorporated by reference to Exhibit 4.4 to Newtek’s Current Report on Form 8-K filed February 16, 2021). 4.12 Tenth Supplemental Indenture, dated as of March 31, 2022 relating to the 5.00% Notes due 2025, by and between the Company and U.S. Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to Newtek’s Current Report on Form 8-K, filed March 31, 2022). 10.1 Form of Dividend Reinvestment Plan (Previously filed in connection with Pre-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form N-2 (File No. 333-191499) filed on November 3, 2014, and incorporated by reference herein). 10.2 Guaranty, dated as of February 28, 2011, by and between Newtek Business Services, Inc. and Sterling National Bank (Incorporated herein by reference to Exhibit 10.10.2 to Newtek Business Services, Inc.’s Current Report on Form 8-K (File No. 001-16123), filed March 3, 2011). 10.3 Fourth Amended and Restated Loan and Security Agreement, dated as of May 11, 2017, by and among Newtek Small Business Finance, LLC, Capital One, National Association and UBS Bank USA as Lenders, and Capital One, National Association as Administrative Agent, Sole Bookrunner and Sole Lead Arranger (Incorporated by reference herein to Exhibit 10.1 to Newtek’s Current Report on Form 8-K, filed May 16, 2017). 10.4 Second Amended and Restated Guaranty of Payment and Performance, dated as of May 11, 2017, delivered by Newtek Business Services Corp. in favor of Capital One, National Association, in its capacity as administrative agent, and the Lenders under the Fourth Amended and Restated Loan and Security Agreement (incorporated by reference herein to Exhibit 10.2 to Newtek’s Current Report on Form 8-K, filed May 16, 2017). 113 Table of Contents 10.5 Revolving Credit and Security Agreement, dated as of July 31, 2018, by and among Newtek Business Lending, LLC and Capital One, National Association (Incorporated by reference to Exhibit k.4 to Post-Effective Amendment No. 2 to Newtek’s Registration Statement on Form N-2, No. 333-224976, filed August 31, 2018). 10.6 Guaranty of Payment and Performance, dated as of July 31, 2018, by and among Newtek and Capital One, National Association (Incorporated by reference to Exhibit k.5 to Post-Effective Amendment No. 2 to Newtek’s Registration Statement on Form N-2, No. 333-224976, filed August 31, 2018). 10.7 Omnibus Amendment No. 3 to Loan Documents, dated as of September 13, 2019, by and among Newtek Small Business Finance, LLC, Capital One, National Association and UBS Bank USA as Lenders, and Capital One, National Association as Administrative Agent filed herewith. 10.8 Amended and Restated Form of Custody Agreement dated as of October 30, 2015 by and between Newtek Business Services Corp. and U.S. Bank National Association (Incorporated herein by reference to Exhibit 99.1 to Newtek Business Services Corp.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 (File No. 814-01035) filed on November 5, 2015. 10.9 Membership Purchase Agreement, dated July 23, 2015, by and among Newtek Business Services Corp., Newtek Business Services Holdco1, Inc., Premier Payments LLC and Jeffrey Rubin (Incorporated herein by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K (File No. 814-01035), filed on July 29, 2015). 10.10 Omnibus Amendment No. 2 to Loan Documents, dated as of June 24, 2019, by and among Newtek Small Business Finance, LLC, and UBS Bank USA, as lender, and Capital One, National Association as Administrative Agent (Incorporated by reference to Exhibit 10.1 to Newtek’s Current Report on Form 8-K, filed June 24, 2019). 10.11 Credit Agreement dated November 8, 2018, by and among Universal Processing Services of Wisconsin LLC and Premier Payments LLC, and the several banks and other parties from time to time parties thereto as lenders and Webster Bank, National Association. (Incorporated by reference herein to Exhibit k.6 to Newtek’s Post-Effective Amendment No. 3 to its Registration Statement on Form N-2, No. 333-224976, filed December 14, 2018). 10.12 Parent Guaranty Agreement, dated November 8, 2018, by and among the Company and Webster Bank, National Association. (Incorporated by reference herein to Exhibit k.7 to Newtek’s Post-Effective Amendment No. 3 to its Registration Statement on Form N-2, No. 333-224976, filed December 14, 2018). 10.13 Limited Liability Agreement, dated as of November 27, 2018, by and between Newtek Commercial Lending, Inc. and Conventional Lending TCP Holdings LLC (Incorporated by reference to Exhibit 10.1 to Newtek’s Current Report on Form 8-K filed November 29, 2018). 10.14 Omnibus Amendment No. 4 to Loan Documents, dated as of May 7, 2020, by and among Newtek Small Business Finance, LLC, Capital One, National Association and UBS Bank USA as Lenders and Capital One, National Association as Administrative Agent (incorporated by reference to Exhibit 10.1 to Newtek’s Current Report on Form 8-K, filed May 11, 2020). 10.15 Stock Purchase Agreement by and among Newtek Business Services Corp. and the Sellers named in Schedule A thereto (incorporated by reference to the Company’s Current Report on Form 8-K, filed August 2, 2021). 10.1 6 Mortgage Warehouse Loan and Security Agreement, by and between NBL SPV III, LLC and One Florida Bank, dated September 21, 2021 (incorporated by reference to Exhibit 10.1 to Newtek’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (File No. 814-010305), filed November 12, 2021). 10.1 7 Master Repurchase Agreement, by and between NBL SPV II, LLC and Deutsche Bank AG, dated March 18, 2021 (incorporated by reference to Exhibit 10.1 to Newtek’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (File No. 814-010305), filed November 12, 2021). 10.1 8 Newtek Business Services Corp. 2015 Stock Incentive Plan (incorporated by reference to Exhibit 4.4 to Newtek’s Registration Statement on Form S-8 (File No. 333-212679), filed July 26, 2016 ) . 10. 19 Form of Restricted Stock Award Agreement - 2015 Stock Incentive Plan, filed herewith. 10.2 0 NewtekOne 2023 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to Newtek’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 (File No. 001-36742), filed August 7, 2023). 10.2 1 Form of Restricted Stock Award Agreement - 2023 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to Newtek’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 (File No. 001-36742), filed November 9, 2023). 10.2 2 NewtekOne 2023 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.2 to Newtek’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 (File No. 001-36742), filed August 7, 2023). 114 Table of Contents 10.2 3 Employment Agreement by and between NewtekOne, Inc., Newtek Bank N.A., and M. Scott Price dated as of May 16, 2023 (incorporated by reference to Exhibit 10.1 to Newtek’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 (File No. 001-36742), filed November 9, 2023). 10.2 4 Amendment to Employment Agreement by and between NewtekOne, Inc., Newtek Bank N.A., and M. Scott Price dated as of July 1, 2023 (incorporated by reference to Exhibit 10.2 to Newtek’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 (File No. 001-36742), filed November 9, 2023). 10.2 5 F orm of Change in Control A gree ment . filed herewith. 14.1 Code of Ethics (Previously filed in connection with Pre-Effective Amendment No. 3 to the Registrant’s Registration Statement on Form N-2 (File No. 333-191499) filed on November 3, 2014, and incorporated by reference herein). 21.1 Subsidiaries of the Registrant filed herewith. 23.1 Consent of Independent Registered Public Accounting Firm. 31.1 Certification by Principal Executive Officer required by Rule 13a-14 under the Securities Exchange Act of 1934, as amended, furnished herewith. 31.2 Certification by Principal Financial Officer required by Rule 13a-14 under the Securities Exchange Act of 1934, as amended, furnished herewith. 32.1 Certification by Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith. 32.2 Certification by Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith. 97.1 NewtekOne Clawback Policy, filed herewith. 115 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NEWTEKONE, INC. Date: April 1, 2024 By: / S / B ARRY S LOANE Barry Sloane Chief Executive Officer, President and Chairman of the Board (Principal Executive Officer) Date: April 1, 2024 By: / S / M. S COTT P RICE M. Scott Price Chief Financial Officer (Principal Financial Officer) Date: April 1, 2024 By: / S / F RANK D E M ARIA Frank DeMaria Chief Accounting Officer (Principal Accounting Officer) In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date / S / B ARRY S LOANE Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) April 1, 2024 Barry Sloane / S / M. S COTT P RICE Chief Financial Officer (Principal Financial Officer) April 1, 2024 M. Scott Price / S / F RANK D E M ARIA Chief Accounting Officer (Principal Accounting Officer) April 1, 2024 Frank DeMaria /S/ RICHARD SALUTE Director April 1, 2024 Richard Salute /S/ SALVATORE MULIA Director April 1, 2024 Salvatore Mulia /S/ GREGORY ZINK Director April 1, 2024 Gregory Zink /S/ PETER DOWNS Director April 1, 2024 Peter Downs /S/ FERNANDO PEREZ-HICKMAN Director April 1, 2024 Fernando Perez-Hickman /S/ HALLI RAZON-FEINGOLD Director April 1, 2024 Halli Razon-Feingold 116 NEWTEKONE, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Table of Contents PAGE NO. Report of Independent Registered Public Accounting Firm (PCAOB ID: 49 ) F- 2 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting F- 5 Consolidated Statements of Financial Condition as of December 31, 2023 and 2022 F- 7 Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021 F- 9 Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021 F- 11 Consolidated Statements of Changes in Changes in Shareholders’ Equity for the years ended December 31, 2023, 2022 and 2021 F- 12 Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021 F- 14 Notes to Consolidated Financial Statements F- 16 F-1 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of NewtekOne, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial condition of NewtekOne, Inc. and its subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Our report dated April 1, 2024 expressed an opinion that the Company had not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Change in Accounting Principle As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2023, due to the adoption of Accounting Standard Codification (“ASC”)Topic 326, Financial Instruments—Credit Losses. Registered Investment Company to Financial Holding Company As discussed in Note 1 to the consolidated financial statements, the Company ceased being an investment company subject to accounting guidance ASC 946, Financial Services - Investment Companies and ASC 810, Consolidations became effective for the Company on January 6, 2023. Therefore, controlled investments previously carried at fair value became subsidiaries of the Company and consolidated utilizing historical cost basis. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. F-2 Valuation of loans held for sale and loans held for investment, measured at fair value – Accrual and Non-accrual loans As described in Notes 2, 5, 7 and 9 to the consolidated financial statements, the Company has loans held for sale and loans held for investment, which are measured at fair value using unobservable inputs and assumptions, and as such the Company’s loans held for sale and loans held for investment, which are measured at fair value as of December 31, 2023 are classified as level 3 within the fair value hierarchy as described in Note 9. Determining the fair value of the Level 3 loans held for sale and loans held for investment, which are measured at fair value requires management to make significant judgments about the valuation methodologies and inputs and assumptions used in the fair value calculation, including, but not limited to, historical credit losses, discounts for lack of marketability, underlying cash flows, and the impact of economic conditions. As of December 31, 2023, total Level 3 loans held for sale and loans held for investment, which are measured at fair value had a fair value of $118.5 and $469.8 million, respectively. We identified the valuation of level 3 loans held for sale and loans held for investment, which are measured at fair value as a critical audit matter because of the judgments necessary for management to select and apply valuation techniques and assumptions, the high degree of auditor judgment involved, and the extensive audit effort involved in testing the valuations. Our audit procedures related to the valuation of the Company’s level 3 loans held for sale and loans held for investment, which are measured at fair value included the following, among others: • We obtained an understanding of and evaluated the methods and assumptions management uses to value the loans held for sale and loans held for investment, which are measured at fair value - accrual and non-accrual loans. • We tested the completeness and accuracy of information used in the valuations by agreeing the total amount of schedules to the trial balance. • With the assistance of our valuation specialists, we evaluated the reasonableness of the methods and assumptions used by management in the valuation of accrual loans (discount rate, default rate, prepayment rate, cost of servicing, etc.) and performed a recalculation for a sample of loans to ensure validity of the valuation model. • With the assistance of our valuation specialists, we evaluated the reasonableness of the methods and assumptions used by management in the valuation of non-accrual loans (prepayment rate, probability of default, time to liquidate and discount rate). • We tested management’s estimates to evaluate the reasonableness of the fair market value of collateral used by management in the valuation of non-accrual loans for a sample of loans, by validating the source of information used by management with the relevant internal or external information from which it was derived. Additionally, we recalculated the present value of expected cashflows and compared it with the value of loans determined by management. Valuation of servicing assets As described in Notes 2, 7 and 9 to the consolidated financial statements, servicing assets are measured at fair value. The Company’s servicing assets are measured at fair value using unobservable inputs and assumptions, and as such the Company’s servicing assets as of December 31, 2023 are classified as Level 3 within the fair value hierarchy as described in Note 9. Determining the fair value of the Level 3 servicing assets requires management to make significant judgments about the valuation methodologies and inputs and assumptions used in the fair value calculation, including, but not limited to, discount rate, servicing costs, default rate, prepayment rate, and the impact of economic conditions. As of December 31, 2023, total Level 3 servicing assets had a fair value of $39.7 million. We identified the valuation of servicing assets as a critical audit matter because of the judgments necessary for management to select and apply valuation techniques and assumptions, the high degree of auditor judgment involved, and the extensive audit effort involved in testing the valuations. Our audit procedures related to the valuation of the servicing assets included the following, among others: • We obtained an understanding of and evaluated the methods and assumptions management uses to value the servicing assets. • We tested the completeness and accuracy of information used in the valuations by agreeing the total principal balance of the loans sold in the schedules to the loan subledger. • With the assistance of valuation specialists, developed an independent estimate of fair value for servicing assets or tested management’s fair value estimates as of December 31, 2023. • We reviewed the significant assumptions (e.g. discount rate, prepayment rate, default rate and servicing cost) used by externally engaged valuation specialist for reasonableness. Allowance for credit losses on loans As described in Notes 2 and 5 to the consolidated financial statements, the allowance for credit losses on loans is established through a provision for credit losses and represents an amount which, in management’s judgment, will be adequate to absorb losses on existing loans. The Company’s consolidated allowance for credit losses on loan balances was $12.6 million at December 31, 2023. The allowance for credit losses on loans is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis. F-3 The Company uses the discounted cash flow method to estimate expected credit losses for all loan portfolio segments measured on a pool basis wherein payment expectations are adjusted for estimated prepayment speeds, probability of default (PD), and loss given default (LGD). The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime PD. This analysis also determines how expected PD and LGD will react to forecasted levels of the loss drivers. Management utilizes various economic indicators such as changes in unemployment rates, gross domestic product (GDP), and other relevant factors as loss drivers and has determined that, due to historical volatility in economic data, four quarters currently represents a reasonable and supportable forecast period, followed by a four-period reversion to historical mean levels for each of the various economic indicators. The allowance evaluation also considers various qualitative factors, such as: (i) changes to lending policies, underwriting standards and/or management personnel performing such functions, (ii) delinquency and other credit quality trends, (iii) credit risk concentrations, if any, (iv) changes to the nature of the Company’s business impacting the loan portfolio, (v) and other external factors, that may include, but are not limited to, results of internal loan reviews, stress testing, examinations by bank regulatory agencies, or other events such as a natural disaster. The development of the loan loss allocation for pools of loans with similar risk characteristics requires a significant amount of judgment by management and the assumptions utilized are subject to changing economic conditions. We identified the Company’s allowance for credit losses on loans as a critical audit matter, specifically the economic forecasts and qualitative factors, because they involved complex auditor judgment in the evaluation of the Company’s assumptions. Additionally, complex auditor judgment was required to examine the methodology that underpins the allowance for credit losses on pools of loans with similar risk characteristics. This includes modeling of PD, LGD, economic forecasts, and qualitative factors. Our audit procedures related to this critical audit matter included the following, among others: • We tested the completeness and accuracy of data used by management in determining inputs to the PD and LGD, and the loss rate model used for SBA 7(a) loans by agreeing those inputs to internal or external information sources. • We evaluated management’s judgments used in the identification of peer banks for PD and LGD calculations, by comparing peer banks to external information sources. • We evaluated management’s forecasts of future economic indicators for reasonableness, which included unemployment, housing price index, and national GDP growth, among others, by comparing these forecasts to external and internal information sources. /s/ RSM US LLP Hartford, Connecticut April 1, 2024 F-4 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of NewtekOne, Inc. Opinion on the Internal Control Over Financial Reporting We have audited NewtekOne, Inc. and its subsidiaries' (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, because of the effect of the material weaknesses described below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial condition of the Company as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes to the consolidated financial statements and our report dated April 1, 2024 expressed an unqualified opinion. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management's assessment: • Significant Unusual Transactions – The Company converted from a business development company (BDC) to a financial holding company (FHC) effective January 6, 2023. The Company did not adequately or appropriately identify and assess changes and resulting risks that could significantly impact the system of internal control resulting from this conversion. This material weakness impacted the consolidation of the control investments that occurred on January 6, 2023, and the three subsequent interim periods, specifically goodwill and intangibles, net deferred tax assets, income taxes receivable, income tax expense, additional paid in capital, non-interest income and expense, and earnings per share. This material weakness could affect all transaction cycles within the consolidated financial statements. • SOX Governance Program – The Company’s controlled investments which were previously unconsolidated portfolio companies became consolidated subsidiaries subject to internal control over financial reporting (ICFR) for the first time. There were significant delays in the documentation of the internal control environment’s processes, resulting in inadequate and untimely identification of financial reporting risks and the associated identification of key controls over financial reporting. This material weakness in the control environment impacted the overall effectiveness of the Company’s ICFR and contributed to the Company adjusting its previously issued quarterly financial statements for 2023 as discussed in “Note 24 – Selected Quarterly Financial Data (Unaudited)” to the consolidated financial statements. This material weakness could affect all transaction cycles within the consolidated financial statements. • Knowledge, Skills, and Experience of Staff – Certain Company staff in financial reporting oversight roles had insufficient knowledge, skills, and experience for a public FHC. This impacted the overall effectiveness of the Company’s ICFR and contributed to the Company adjusting its previously issued quarterly financial statements for 2023, as discussed in “Note 24- Selected Quarterly Financial Data (Unaudited)” to the consolidated financial statements. This material weakness could affect all transaction cycles within the consolidated financial statements. • Information Technology General Controls (ITGC) – There were a number of deficiencies related to the design and operating effectiveness of ITGCs for information systems that comprised part of the Company’s system of ICFR and are relevant to the preparation of the Company’s consolidated financial statements. These deficiencies in the design and operating effectiveness of the ITGCs involved logical access and program change management which are intended to ensure that access to financial applications and data are adequately restricted to appropriate personnel, and that changes affecting the financial applications and underlying account records are identified, authorized, tested and implemented appropriately. Deficiencies in ITGC logical access and related program change management, including controls intended to ensure that access rights are compatible with job duties (segregation of duties) and to test changes to relevant information systems, existed and therefore represented a material weakness. This material weakness could affect all transaction cycles within the consolidated financial statements. F-5 • Management Review Controls – There were deficiencies in the design and operating effectiveness of management review controls, including documentation and the level of precision. The deficiencies related to control gaps, unmitigated risks, untimely review, insufficient documentation, improper testing procedures, and inconsistent performance frequency of certain controls. This includes ITGC deficiencies in the precision of review, completeness and accuracy of reports used in management reviews, and the parameters used to generate such reports. This material weakness could affect all transaction cycles within the consolidated financial statements. • Completeness and Accuracy of Information Produced by the Entity (“IPE”) – There were deficiencies due to a lack of available and reliable IPE, including multiple control gaps. The control gaps are related to reports extracted from certain information technology systems that were not verified for completeness and accuracy. These deficiencies related to untimely review, insufficient documentation, improper testing procedures, and ineffective design of certain controls. Management did not sufficiently select and develop IPE control activities that contribute to the mitigation of risks to achieve the reduction of risk to acceptable levels which resulted in a material weakness. This material weakness could affect all transaction cycles within the consolidated financial statements. • Newtek Technology Solutions (NTS) System Conversion – NTS’s system of record for webhosting revenue was converted during the first quarter of 2023 and certain changes made to the former and current systems were not tested and approved in a separate environment prior to being placed into production. As it relates to this system conversion, management did not develop sufficient general control activities over program change management to support the achievement of the conversion’s objectives, resulting in a material weakness. This material weakness impacted other assets, retained earnings, technology services expense, and technology and IT support income. • NTS Revenue Cycle – There were deficiencies in design, implementation and operating effectiveness of the NTS revenue recognition controls. Management did not retain consistent individuals with the appropriate skills knowledge and expertise in that financial reporting oversight role resulting in a material weakness. This material weakness impacted other assets, retained earnings, technology services expense, and technology and IT support income. These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended December 31, 2023 of the Company, and this report does not affect our report dated April 1, 2024 on those financial statements. Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ RSM US LLP Hartford, Connecticut April 1, 2024 F-6 NEWTEKONE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In Thousands, except for Per Share Data) December 31, 2023 December 31, 2022 ASSETS Financial Holding Company Investment Company Cash and due from banks $ 15,398 $ 53,692 Restricted cash 30,919 71,914 Interest bearing deposits in banks 137,689 — Total cash and cash equivalents 184,006 125,606 Debt securities available-for-sale, at fair value 32,171 — Loans held for sale, at fair value 118,867 19,171 Loans held for sale, at LCM 56,607 — Loans held for investment, at fair value 469,801 505,268 Loans held for investment, at amortized cost, net of deferred fees and costs 336,305 — Allowance for credit losses ( 12,574 ) — Loans held for investment, at amortized cost, net 323,731 — Federal Home Loan Bank and Federal Reserve Bank stock 3,635 — Settlement receivable 62,230 — Joint ventures, at fair value (cost of $ 37,864 and $ 23,314 ), respectively 40,859 23,022 Controlled investments (cost of $ 0 and $ 131,495 ), respectively — 259,217 Non-control investments (cost of $ 796 and $ 1,360 ), respectively 728 1,360 Goodwill and intangibles 30,120 — Right of use assets 5,701 6,484 Deferred tax asset, net 5,230 — Servicing assets 39,725 30,268 Other assets 56,102 28,506 Total assets $ 1,429,513 $ 998,902 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities: Deposits: Noninterest-bearing $ 10,053 $ — Interest-bearing 453,452 — Total deposits 463,505 — Borrowings 644,122 539,326 Dividends payable 4,792 — Lease liabilities 6,952 7,973 Deferred tax liabilities, net — 19,194 Due to participants 23,796 35,627 Accounts payable, accrued expenses and other liabilities 37,300 21,424 Total liabilities 1,180,467 623,544 Commitment and contingencies (Note 14) Shareholders' Equity: Preferred stock (par value $ 0.02 per share; authorized 20 shares, 20 shares issued and outstanding) 19,738 — Common stock (par value $ 0.02 per share; authorized 200,000 shares, 24,680 and 24,609 shares issued and outstanding, respectively) 492 492 Additional paid-in capital 200,913 354,243 Retained earnings 28,051 20,623 Accumulated other comprehensive loss, net of income taxes ( 148 ) — F-7 See accompanying notes to consolidated financial statements. Total shareholders' equity 249,046 375,358 Total liabilities and shareholders' equity $ 1,429,513 $ 998,902 F-8 See accompanying notes to consolidated financial statements. NEWTEKONE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands, except for Per Share Data) Year ended December 31, 2023 Financial Holding Company 2022 Investment Company 2021 Investment Company Interest income Debt securities available-for-sale $ 1,518 $ — $ — Loans and fees on loans 84,001 35,696 25,951 Loans and fees on loans - PPP loans — — 49,989 Interest from affiliates — 2,921 3,026 Other interest earning assets 8,854 — — Total interest income 94,373 38,617 78,966 Interest expense Deposits 15,849 — — Notes and securitizations 40,217 21,780 18,591 Bank and FHLB borrowings 11,673 3,998 1,536 Notes payable related party — 547 388 Total interest expense 67,739 26,325 20,515 Net interest income 26,634 12,292 58,451 Provision for credit losses 11,704 — — Net interest income after provision for credit losses 14,930 12,292 58,451 Noninterest income Dividend income 1,757 24,657 9,896 Loan servicing asset revaluation ( 3,549 ) ( 10,095 ) ( 6,778 ) Servicing income 18,289 13,698 11,307 Net gains on sales of loans 50,734 56,901 53,113 Net gain (loss) on loans under the fair value option 18,008 ( 26,504 ) 11,477 Technology and IT support income 24,916 — — Electronic payment processing income 42,855 — — Other noninterest income 23,762 34,221 10,295 Total noninterest income 176,772 92,878 89,310 Noninterest expense Salaries and employee benefits expense 65,708 20,186 17,866 Technology services expense 14,272 — — Electronic payment processing expense 18,327 — — Professional services expense 13,077 7,134 5,610 Other loan origination and maintenance expense 9,433 30,746 29,506 Depreciation and amortization 2,884 239 304 Loss on extinguishment of debt 271 417 1,552 Other general and administrative costs 22,357 7,673 7,454 Total noninterest expense 146,329 66,395 62,292 Net income before taxes 45,373 38,775 85,469 Income tax expense (benefit) ( 1,956 ) 6,464 1,327 Net income 47,329 32,311 84,142 Dividends to preferred shareholders ( 1,454 ) — — Net income available to common shareholders 45,875 32,311 84,142 Earnings per common share: Basic $ 1.89 $ 1.34 $ 3.69 F-9 See accompanying notes to consolidated financial statements. NEWTEKONE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Diluted $ 1.88 $ 1.34 $ 3.69 F-10 See accompanying notes to consolidated financial statements. NEWTEKONE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands, except for Per Share Data) Year ended December 31, 2023 Financial Holding Company 2022 Investment Company 2021 Investment Company Net income $ 47,329 $ 32,311 $ 84,142 Other comprehensive loss before tax: Net unrealized loss on debt securities available-for-sale during the period ( 201 ) — — Other comprehensive loss before tax ( 201 ) — — Income tax benefit 53 — — Other comprehensive loss, net of tax ( 148 ) — — Comprehensive income $ 47,181 $ 32,311 $ 84,142 F-11 See accompanying notes to consolidated financial statements. NEWTEKONE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (In Thousands, except for Per Share Data) Common stock Preferred stock Addition-al paid-in capital Accumul-ated other comprehe-nsive income (loss) Accumulated undistributed earnings Retained earnings Total equity Shares Amount Shares Amount Balance at December 31, 2022 24,609 $ 492 — $ — $ 354,243 $ — $ 20,623 $ — $ 375,358 Conversion from BDC to Bank Holding Company Adjustments: Change in presentation — — — — 20,623 — ( 20,623 ) — — Removal of fair value adjustments — — — — ( 138,043 ) — — — ( 138,043 ) Consolidation of controlled investments — — — 245 ( 57,961 ) — — ( 143 ) ( 57,859 ) Reassessment of deferred tax assets and liabilities — — — — 19,266 — — — 19,266 DRIP shares issued 16 — — — 216 — — — 216 Stock-based compensation expense, net of forfeitures — — — — 2,828 — — — 2,828 Dividends declared related to RSA, net of accrued dividends forfeited 16 — — — 218 — — ( 218 ) — Purchase of vested stock for employee payroll tax withholding ( 17 ) ( 1 ) — — ( 533 ) — — — ( 534 ) Restricted stock awards, net of forfeitures 52 1 — — — — — — 1 ESPP issuances 4 — — — 56 — — — 56 Issuance of Preferred stock — — 20 20,000 — — — — 20,000 Preferred stock issuance costs — — — ( 507 ) — — — — ( 507 ) Dividends declared common shares ($ 0.18 /share) — — — — — — — ( 17,463 ) ( 17,463 ) Dividends declared preferred shares ($ 12.27 /share) — — — — — — — ( 1,454 ) ( 1,454 ) Net income (loss) — — — — — — — 47,329 47,329 Other comprehensive loss, net of tax — — — — — ( 148 ) — — ( 148 ) Balance at December 31, 2023 24,680 $ 492 20 $ 19,738 $ 200,913 $ ( 148 ) $ — $ 28,051 $ 249,046 F-12 See accompanying notes to consolidated financial statements. NEWTEKONE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (In Thousands, except for Per Share Data) Common stock Additional paid-in-capital Accumulated undistributed earnings Total equity Shares Amount Balance at December 31, 2021 24,159 $ 483 $ 367,663 $ 35,741 $ 403,887 DRIP shares issued 95 3 1,611 — 1,614 Stock-based compensation expense — — 2,511 — 2,511 Dividends Declared related to RSA — — 646 ( 646 ) — Purchase of vested stock for employee payroll tax withholding ( 38 ) — ( 826 ) — ( 826 ) Issuance of common stock, net of offering costs 107 2 2,017 — 2,019 Restricted stock awards 286 4 ( 4 ) — — Dividends declared common shares — — — ( 66,158 ) ( 66,158 ) RIC tax reclassification — — ( 19,375 ) 19,375 — Net increase resulting from operations: Net investment income — — — ( 6,476 ) ( 6,476 ) Net realized gain on investments — — — 57,346 57,346 Net unrealized depreciation on investments — — — ( 18,559 ) ( 18,559 ) Balance at December 31, 2022 24,609 $ 492 $ 354,243 $ 20,623 $ 375,358 F-13 See accompanying notes to consolidated financial statements. NEWTEKONE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Year Ended December 31, 2023 2022 2021 Cash flows from operating activities: Financial Holding Company Investment Company Investment Company Net income $ 47,329 $ 32,311 $ 84,142 Adjustments to reconcile net income to net cash used in operating activities: Net unrealized appreciation on joint ventures and non-control investments ( 3,219 ) — — Net unrealized appreciation on controlled investments — ( 24,321 ) ( 2,829 ) Net realized gain (loss) on controlled investments — — 1,266 Net (gain) loss on loans accounted for under the fair value option ( 18,008 ) 26,504 ( 11,477 ) Net unrealized depreciation on servicing assets 3,549 10,095 6,778 Net unrealized depreciation (appreciation) on derivative transactions 699 ( 183 ) 183 Net gain on sales of loans ( 50,734 ) ( 56,901 ) ( 53,113 ) Net accretion of premium/discount ( 675 ) — — Loss on extinguishment of debt 271 417 1,552 Amortization of deferred financing costs 4,052 2,494 2,654 Provision for credit losses 11,704 — — Allowance for doubtful accounts 3,637 — 397 Stock compensation expense 2,828 — — Deferred income tax (benefit) expense ( 4,800 ) 6,464 1,327 Depreciation and amortization 2,884 239 304 Proceeds from sale of loans held for sale 695,461 691,219 1,203,475 Purchase of loans held for sale from affiliate ( 5,279 ) — — Purchase of loans held for sale — ( 2,404 ) ( 9,096 ) Sale of loans to affiliate — — 5,394 Funding of loans held for sale ( 783,035 ) ( 775,577 ) ( 1,289,572 ) Funding of controlled investments — ( 53,198 ) ( 55,270 ) Funding of non-control/affiliate investment — ( 360 ) — Principal received on loans held for sale 12,235 74,287 77,070 Principal received from controlled investments — 6,970 750 Principal received from non-control investments — — 54 Return of investment from controlled investments — 48,709 34,856 Other, net — 3,257 2,851 Changes in operating assets and liabilities: Settlement receivable ( 62,230 ) 44,537 8,193 Income tax receivable ( 4,040 ) — — Dividends receivable 493 — — Due to/from related parties ( 165 ) 2,778 677 Other assets 7,432 1,816 800 Dividends payable 4,776 — — Due to participants ( 11,832 ) ( 110,598 ) 128,340 Accounts payable, accrued expenses and other liabilities ( 22,552 ) 9,021 1,194 Other, net — 6 23 Net cash used in operating activities ( 169,219 ) ( 62,418 ) 140,923 Cash flows from investing activities: F-14 See accompanying notes to consolidated financial statements. NEWTEKONE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Year Ended December 31, 2023 2022 2021 Net decrease in loans held for investment, at fair value 29,349 — — Net increase in loans held for investment, at cost ( 169,003 ) — — Contributions to joint ventures ( 14,550 ) — — Purchase of fixed assets ( 458 ) ( 11 ) — Return of capital - non-control investments 564 — — Net increase in Federal Home Loan and Federal Reserve Bank stock ( 2,112 ) — — Purchases of available-for-sale securities ( 27,167 ) — — Acquisitions, net of cash acquired 11,142 — — Net cash used in investing activities ( 172,235 ) ( 11 ) — Cash flows from financing activities: Net (paydowns) borrowings on bank notes payable ( 78,663 ) 5,885 ( 36,339 ) Net increase in deposits 324,705 — — Repayment of Federal Home Loan Bank advances ( 4,895 ) — — Proceeds from common shares sold, net of offering costs — 2,019 50,007 Proceeds from preferred stock, net of offering costs 19,493 — — Net repayments under related party line of credit — 12,800 ( 12,640 ) Proceeds from 2024 Notes — — 15,000 Proceeds from 2025 6.85 % Notes — — 10,000 Proceeds from 2025 5.00 % Notes — 30,000 — Proceeds from 2025 8.125 % Notes 50,000 — — Proceeds from 2026 Notes — — 115,000 Proceeds from 2028 8.00 % Notes 40,000 — — Redemption of 2023 Notes — — ( 57,500 ) Redemption of 2024 Notes — — ( 40,000 ) Redemption of 2025 6.85 % Notes — ( 15,000 ) — Payments on Notes Payable - Securitization Trusts ( 90,780 ) ( 82,817 ) ( 75,432 ) Issuance of Notes Payable - Securitization Trusts 103,860 116,210 103,430 Dividends paid, net of dividend reinvestment plan ( 14,147 ) ( 64,544 ) ( 70,144 ) Payments of deferred financing costs ( 4,650 ) ( 2,552 ) ( 5,295 ) Proceeds from common stock issued under ESPP 51 — — Purchase of vested stock for employee payroll tax withholding — ( 826 ) ( 1,575 ) Net cash provided by financing activities 344,974 1,175 ( 5,488 ) Net increase (decrease) in cash and restricted cash 3,520 ( 61,254 ) 135,435 Cash and restricted cash—beginning of period (Note 2) 125,606 186,860 51,425 Consolidation of cash and restricted cash from controlled investments and business combinations, net of cash paid 54,880 — — Cash and restricted cash—end of period (Note 2) $ 184,006 $ 125,606 $ 186,860 Non-cash operating, investing and financing activities: Foreclosed real estate acquired $ 2,978 $ 3,466 $ 2,171 Dividends declared but not paid during the period $ 4,363 $ 2,118 $ — Issuance of common shares under dividend reinvestment plan $ 219 $ 1,614 $ 1,923 Supplemental disclosure of cash flow information: Interest paid $ 9,108 $ 18,344 $ 20,131 Income taxes paid $ 6,884 $ — $ — F-15 See accompanying notes to consolidated financial statements. Table of Contents NEWTEKONE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1—DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION: The Company is a financial holding company that is a leading provider of business and financial solutions to SMBs and provides SMBs with the following Newtek® branded business and financial solutions: Newtek Bank, Newtek Lending, Newtek Payments, Newtek Insurance, Newtek Payroll and Newtek Technology. On January 6, 2023, the Company completed the Acquisition of NBNYC, a national bank regulated and supervised by the OCC, pursuant to which the Company acquired from NBNYC’s shareholders all of the issued and outstanding stock of NBNYC for $ 20 million, plus reimbursement of certain expenses. NBNYC has been renamed Newtek Bank, National Association and has become a wholly owned subsidiary of the Company. In connection with the completion of the Acquisition, the Company contributed to Newtek Bank $ 31 million of cash and two of the Company’s unconsolidated subsidiaries, NBL and SBL (NBL was subsequently merged into SBL). Upon the consummation of the Acquisition, Newtek Bank entered into an operating agreement with the OCC concerning certain matters including capital, liquidity and concentration limits, and memorializing the business plan submitted to the OCC. Included in the Operating Agreement were the contribution of two subsidiaries to Newtek Bank which also occurred on January 6, 2023: SBL and NBL (NBL was subsequently merged into SBL on May 3, 2023). In addition, on January 6, 2023, the Company filed with the SEC a Form N-54C, Notification of Withdrawal of Election to be Subject to the 1940 Act (“Withdrawal of Election”), and has ceased to be a BDC effective as of January 6, 2023. As a result of the Acquisition and the Withdrawal of Election, the Company’s accounting and financial reporting requirements changed in the following ways: 1. The Company no longer qualifies as a regulated investment company (RIC) for federal income tax purposes and no longer qualifies for accounting treatment as an investment company, and 2. The Company is now a financial holding company subject to the regulation and supervision of the Federal Reserve and the Federal Reserve Bank of Atlanta and also subject to the related FASB ASC Topics for financial holding companies and depository institutions. Following these changes, as of and for the year ended December 31, 2023 NewtekOne reports on a consolidated basis the financial condition and results of operations for the following consolidated subsidiaries: Newtek Bank; SBL; NSBF; NMS; Mobil Money; NBC; PMT; NIA; TAM; Holdco 6; NCL; EWS; and NTS. Our investment in POS is treated as a non-controlling interest and is included on our consolidated financial statements. In addition, as a result of commitments made to the Federal Reserve, the Company will divest or otherwise terminate the activities conducted by NTS, which includes SIDCO and EWS after a December 31, 2023 merger, within two years of becoming a financial holding company, subject to any extension of the two-year period. As of the date of this filing, the Company has concluded that the assets, liabilities and operations of NTS do not qualify for Discontinued Operations. Moreover, on April 13, 2023, the Company, NSBF and the SBA entered into an agreement in connection with NSBF’s and Newtek Bank’s participation in the SBA 7(a) loan program (the "Wind-down Agreement"). The Company’s business plan prepared in connection with the Acquisition provided for all SBA 7(a) loan originations to be transitioned to Newtek Bank and for NSBF to cease originations of SBA 7(a) loans. Pursuant to the Wind-down Agreement, NSBF has begun to wind-down its operations and NSBF’s SBA 7(a) pipeline of new loans was transitioned to Newtek Bank during the second quarter of 2023. During this wind-down process, NSBF will continue to own the SBA 7(a) loans and PPP Loans currently in its SBA loan portfolio to maturity, liquidation, charge-off or (subject to SBA’s prior written approval) sale or transfer. SBL will 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. In addition, during the wind-down process, NSBF will be subject to minimum capital requirements established by the SBA, be required to continue to maintain certain amounts of restricted cash available to meet any obligations to the SBA, have restrictions on its ability to make dividends and distributions to the Company, and remain liable to the SBA for post-purchase denials and repairs on the guaranteed portions of SBA 7(a) loans originated and sold by NSBF. The Company has guaranteed NSBF’s obligations to the SBA and has funded a $ 10 million account at Newtek Bank to secure these potential obligations. F-16 Table of Contents As a result of the Acquisition and its effects as described above, comparisons to prior periods include adjustments made to reconcile prior investment company accounting to the current financial holding company accounting requirements. For example, the statement of changes in stockholders’ equity includes adjustments for changes in presentation between accumulated undistributed earnings and additional paid in capital, removal of fair value adjustments on entities that are now consolidating entities, and the reassessment of deferred tax assets and liabilities relating to the consolidation of the previous portfolio companies investments. The statement of cash flows includes an adjustment to the opening cash balance for the cash from the previously unconsolidated subsidiaries. The Company’s results of operations for the three and twelve months ended December 31, 2023 include the results of operations of Newtek Bank on and after January 6, 2023. Results for the period prior to January 6, 2023 do not include the results of operations of NBNYC. On January 17, 2023, the Company changed its name from Newtek Business Services Corp. to NewtekOne, Inc. Except as otherwise noted, all financial information included in the tables in the following footnotes is stated in thousands, except per share data. Consolidation The consolidated financial statements include the accounts of NewtekOne, its subsidiaries and certain VIEs. Significant intercompany balances and transactions have been eliminated. The Company considers a voting rights entity to be a subsidiary and consolidates it if the Company has a controlling financial interest in the entity. VIEs are consolidated if NewtekOne has the power to direct the activities of the VIE that significantly impact financial performance and has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE (i.e., NewtekOne is the primary beneficiary). The determination of whether the Company is the primary beneficiary of a VIE is reassessed on an ongoing basis. Investments in companies which are not VIEs but in which the Company has more than minor influence over the operating and financial policies, are accounted for using the equity method of accounting. Investments in VIEs, where NewtekOne is not the primary beneficiary of a VIE, are accounted for using either the equity method of accounting. The maximum potential exposure to losses relative to investments in VIEs is generally limited to the investment balance. Refer to NOTE 4—INVESTMENTS. Reclassifications Certain prior period amounts, to the extent comparable, have been reclassified to conform to the current period presentation. NOTE 2—SIGNIFICANT ACCOUNTING POLICIES: Use of Estimates in the Preparation of Financial Statements The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expense during the reporting period. The level of uncertainty in estimates and assumptions increases with the length of time until the underlying transactions are complete. Actual results could differ from those estimates. Cash The Company considers all highly liquid instruments with maturities of three months or less when purchased to be cash equivalents. Invested cash is held exclusively at financial institutions of high credit quality. As of December 31, 2023, cash deposits in excess of insured amounts totaled $ 37.2 million. The Company has not experienced any losses with respect to cash balances in excess of insured amounts and management does not believe there was a significant concentration of risk with respect to cash balances as of December 31, 2023. Restricted cash Restricted cash includes amounts due on SBA loan-related remittances to third parties, cash reserves established as part of agreements with the SBA, cash reserves associated with securitization transactions, and cash margin as collateral for derivative instruments. As of December 31, 2023, total restricted cash was $ 30.9 million. F-17 Table of Contents Interest bearing deposits in banks The Company’s interest bearing deposits in banks reflects cash held at other financial institutions that earn interest. The following table provides a reconciliation of cash, restricted cash, and interest bearing deposits in banks as of December 31, 2023 and 2022: December 31, 2023 December 31, 2022 Cash and due from banks $ 15,398 $ 53,692 Restricted cash 30,919 71,914 Interest bearing deposits in banks 137,689 — Cash and restricted cash $ 184,006 $ 125,606 Debt securities, available for sale The Company’s securities portfolio primarily consists of available for sale debt securities held by Newtek Bank that are classified as “available for sale” and carried at their estimated fair value, with any unrealized gains or losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders’ equity. The fair values of our instruments are affected by changes in market interest rates and credit spreads. In general, as interest rates rise and/or credit spreads widen, the fair value of instruments will decline. As interest rates fall and/or credit spreads tighten, the fair value of instruments will rise. The Company evaluates available-for-sale instruments in unrealized loss positions at least quarterly to determine if an allowance for credit losses is required. Purchases and sales of debt securities are accounted for on a trade-date basis. Loans Held for Investment Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are classified as held for investment. At amortized cost, net of deferred fees and costs: Loans are reported at their principal amount outstanding, net of charge-offs, deferred origination costs and fees and purchase premiums and discounts. Loan origination and commitment fees and certain direct and indirect costs incurred in connection with loan originations are deferred and amortized to income over the life of the related loans as an adjustment to yield. Premiums or discounts on purchased portfolios are amortized or accreted to income using the level yield method over the remaining period to contractual maturity. Currently, all LHI at amortized cost, net of deferred fees and costs are originated and carried at Newtek Bank and have a weighted average life of five years . Newtek Bank originates SBA 7(a) loans, under its PLP status, and typically sells the guaranteed portions and holds the unguaranteed portions for investment. Newtek Bank also holds CRE and C&I loans for investment. The net amount of deferred fees and costs as of December 31, 2023 was $ 1.2 million. At fair value: On a quarterly basis, management determines the fair values of the retained unguaranteed portions of SBA 7(a) loans HFI, and unrealized changes in FV are recognized in the income statement. The loans within this portfolio were originated by NSBF. Refer to the “Fair Value Option” section below for further information on loans HFI carried at FV under the FV option. Held for Sale Management designates loans as HFS based on its intent to sell loans, or portions of loans, in established secondary markets or to participant banks and credit unions. Salability requirements of government guaranteed portions include, but are not limited to, full disbursement of the loan commitment amount. The Company occasionally transfers loans between the HFS and HFI classifications based on its intent and ability to hold or sell loans. Management’s intent to sell may be impacted by secondary market conditions, loan credit quality, or other factors. F-18 Table of Contents At lower of amortized cost basis or fair value : Both mortgage and non-mortgage loans classified as HFS are carried at the LCM. If the amortized cost basis of a loan exceeds FV, a valuation allowance s hould b e established for the difference. Currently, HFS loans at LCM are carried at Newtek Bank. This includes the government guaranteed portion of SBA 7(a) loans and SBA 504 loans. Management may also make a determination to market for sale certain CRE and C&I loans on a loan by loan basis. At fair value : The Company originates alternative lending program loans (formerly referred to as our nonconforming conventional loans), which are either HFS or HFI, via its nonbank subsidiaries, and joint ventures. Nonconforming loans are carried at FV. The Company also originated SBA 504 loans HFS prior to the Acquisition through its nonbank subsidiaries. SBA 504 loans HFS held at Holdco 6 are accounted for under the FV option. Alternative lending program loans are held at Holdco 6, NCL JV, and TSO JV and are also accounted for under the FV option. Additionally, the existing government guaranteed portion of SBA 7(a) loans held at NSBF are also HFS at FV. Refer to the “Fair Value Option” section below for further information on loans HFS carried at FV under the FV option. Fair Value and the Fair Value Option Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, management used various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and gives the lowest priority to unobservable inputs (Level 3). The levels of the fair value hierarchy are as follows: Level 1 Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury, other U.S. Government and agency mortgage-backed debt securities that are highly liquid and are actively traded in over-the-counter markets. Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes certain U.S. Government and agency mortgage-backed debt securities, derivative contracts and loans held-for-sale. Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing assets, warrant liabilities, joint ventures, guaranteed loans held at fair value, and highly structured or long-term derivative contracts. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset or a liability’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The Company assesses the levels of assets and liabilities at each measurement date. There were no transfers to or from Level 3 of the fair value hierarchy for assets and liabilities during the year ended December 31, 2023 or 2022. Level 1 investments were valued using quoted market prices. Level 2 investments were valued using market consensus prices that are corroborated by observable market data and quoted market prices for similar assets and liabilities. F-19 Table of Contents The Company has two joint venture investments. For TSO JV, the Company calculates the fair value of the investment based on the NAV of the entity. The fair value of the investment is equivalent to 50% of the total NAV of the JV, which represents the Company’s share of the entity and is based upon the practical expedient method permitted under ASC 820. For NCL JV, the Company uses a discounted cash flow methodology and adjusts the NAV of the entity by a fair value adjustment for the fixed rate debt liability. Due to the inherent uncertainty of determining the fair value of Level 3 investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be received or settled. Further, such investments are generally subject to legal and other restrictions or otherwise are less liquid than publicly traded instruments. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, the Company may realize significantly less than the value at which such investment had previously been recorded. The Company’s investments are subject to market risk. Market risk is the potential for changes in the value due to market changes. Market risk is directly impacted by the volatility and liquidity in the markets in which the investments are traded. In addition recent changes in inflation and base interest rates, supply chain disruptions, significant market volatility, risk of recession, recent economic and market events, unrelated bank failures and declines in depositor confidence in depository institutions, the ongoing war between Russia and Ukraine and general uncertainty surrounding the financial and political stability of the United States, United Kingdom, the European Union and China could further negatively impact the fair value of the Company’s investments after December 31, 2023, in addition to other circumstances and events that are not yet known. The Company applies fair value accounting to certain of its financial instruments in accordance with ASC Topic 820 — Fair Value Measurement (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC Topic 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity-specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions reflect those that management believe market participants would use in pricing the financial instrument at the measurement date. The availability of observable inputs can vary depending on the financial instrument and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new, whether the product is traded on an active exchange or in the secondary market and the current market conditions. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value was greatest for financial instruments classified as Level 3. Any changes to the valuation methodology are reviewed by management to confirm that the changes are appropriate. As markets change, new products develop and the pricing for products becomes more or less transparent, the Company will continue to refine its valuation methodologies. See further description of fair value methodology in NOTE 9—FAIR VALUE MEASUREMENTS. Loans for which the FV option were elected are measured at FV and classified as either HFS or HFI, as outlined above. Not electing FV generally results in a larger discount being recorded on the date of the sale. This discount will subsequently be accreted into interest income over the underlying loan’s remaining term using the effective interest method. Management made this election in alignment with its ongoing effort to reduce volatility and drive more predictable revenue. In accordance with accounting standards, any loans for which FV was previously elected continue to be measured as such. Interest income is recognized in the same manner on loans reported at FV as on non-FV loans, except in regard to origination fees and costs which are recognized immediately upon FV election. The changes in FV of loans are reported in noninterest income as Net gain (loss) on loans accounted for under the fair value option. FV of loans includes adjustments for historical credit losses, market liquidity, and economic conditions. Allowance for Credit Losses – Loans Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL”) approach requires an estimate of the credit losses expected over the life of a loan (or pool of loans). The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net, lifetime amount expected to be collected on the loans. Loan losses are charged off against the allowance when management believes a loan balance is uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. F-20 Table of Contents The allowance is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, which generally includes larger non-accruing commercial loans. The discounted cash flow (“DCF”) method is used to estimate expected credit losses for all loan portfolio segments measured on a collective (pool) basis. For each loan segment, cash flow projections are generated at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, probability of default, and loss given default. The modeling of prepayment speeds is based on a combination of historical internal data and peer data. Regression analysis of historical internal and peer data is used to determine suitable loss drivers to utilize when modeling lifetime probability of default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. The SBA 7(a) loan portfolio is the single loan pool where management solely utilizes historical internal data to determine the loss rate as an input to the model. The data utilized represents the most recent economic cycle and management determines the loss rate by analyzing defaulted principal and net charge offs to calculate the historical loss rate. For all loan pools utilizing the DCF method, management utilizes various economic indicators such as changes in unemployment rates, gross domestic product, real estate values, and other relevant factors as loss drivers. For all DCF models, management has determined that due to historic volatility in economic data, four quarters currently represents a reasonable and supportable forecast period, followed by a four-quarter reversion to historical mean levels for each of the various economic indicators. The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Specific instrument effective yields are calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level Net Present Value (“NPV”). An allowance is established for the difference between the instrument’s NPV and amortized cost basis. The allowance evaluation also considers various qualitative factors, such as: (i) changes to lending policies, underwriting standards and/or management personnel performing such functions, (ii) delinquency and other credit quality trends, (iii) credit risk concentrations, if any, (iv) changes to the nature of the Company's business impacting the loan portfolio, and (v) other external factors, that may include, but are not limited to, results of internal loan reviews, stress testing, examinations by bank regulatory agencies, or other events such as a natural disaster. Significant management judgment is required at each point in the measurement process. Arriving at an appropriate level of allowance involves a high degree of judgment. The determination of the adequacy of the allowance and provisioning for estimated losses is evaluated regularly based on review of loans, with particular emphasis on non-performing and other loans that management believes warrant special consideration. While management uses available information to recognize losses on loans, changing economic conditions and the economic prospects of the borrowers may necessitate future additions or reductions to the allowance. Management estimates the allowance balance using relevant available information, from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts. The Company’s historical credit loss experience provides the basis for the estimation of expected credit losses, supplemented with peer loss information, and results in expected probabilities of default and expected losses given default. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as changes in environmental conditions, such as changes in unemployment rates, production metrics, property values, or other relevant factors. Expected losses are applied to loans grouped in portfolio segments, which are pools of loans aggregated based on type of borrower and collateral which is generally based upon federal call report segmentation. Portfolio segments have been combined or sub-segmented as needed to ensure loans of similar risk profiles are appropriately pooled. These portfolio segments are as follows: Commercial Real Estate : The commercial real estate portfolio is comprised of loans to borrowers on small offices, owner-occupied commercial buildings, industrial/warehouse properties, income producing/investor real estate properties, and multi-family loans secured by first mortgages. The Company’s underwriting standards generally target a loan-to-value ratio of 75 %, depending on the type of collateral, and requires debt service coverage of a minimum of 1.2 times. Commercial & Industrial: The commercial & industrial portfolio consists of loans made for general business purposes consisting of short-term working capital loans, equipment loans and unsecured business lines. F-21 Table of Contents SBA 7(a): The SBA 7(a) portfolio includes loans originated under the federal Section 7(a) loan program. The SBA is an independent government agency that facilitates one of the nation’s largest sources of SMB financing by providing credit guarantees for its loan programs. SBA 7(a) loans are partially guaranteed by the SBA, with SBA guarantees typically ranging between 50% and 90% of the principal and interest due. Under the SBA’s 7(a) lending program, a bank or other lender may underwrite loans between $5,000 and $5.0 million for a variety of general business purposes based on the SBA’s loan program requirements. The guaranteed portion of the loans are held for sale and carried at LCM and therefore are not subject to CECL. The unguaranteed portion of the loans that are held on balance sheet at amortized cost are subject to CECL. Individually Evaluated Loans: Loans that do not share risk characteristics with existing pools are evaluated on an individual basis. For loans that are individually evaluated and collateral dependent, financial loans where management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and management expects repayment of the financial asset to be provided substantially through the sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral or going concern, the specific credit loss reserve is calculated as the amount by which the amortized cost basis of the financial asset exceeds the NPV from the operation of the collateral. When repayment is expected to be from the sale of the collateral, the specific credit loss reserve is calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The allowance may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset. Accrued Interest. Accrued interest receivable balances are presented within other assets on the consolidated balance sheet. Accrued interest is excluded from the measurement of the allowance for credit losses, including investments and loans. Generally, accrued interest is reversed when a loan is placed on non-accrual or is written-off. Current year accrued interest is reversed through interest income while accrued interest from prior years is written-off through the ACL. Historically, we have not experienced uncollectible accrued interest receivable on investment debt securities. Allowance for off-balance sheet credit exposures. The exposure is a component of other liabilities in the consolidated balance sheet and represents the estimate for probable credit losses inherent in unfunded commitments to extend credit. Unfunded commitments to extend credit include unused portions of lines of credit and standby and commercial letters of credit. The process used to determine the allowance for these exposures is consistent with the process for determining the allowance for loans, as adjusted for estimated funding probabilities or loan equivalency factors. A charge (credit) to provision for credit losses on the consolidated statements of income is made to account for the change in the allowance on off-balance sheet exposures between reporting periods. Allowance for Credit Losses – Available-fo r Sale (“AFS”) Debt Securities The impairment model for AFS debt securities differs from the CECL approach utilized for financial instruments measured at amortized cost because AFS debt securities are measured at fair value. For AFS debt securities in an unrealized loss position, Newtek Bank first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities AFS that do not meet the aforementioned criteria, in making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, adverse conditions specifically related to the security, failure of the issuer of the debt security to make scheduled interest or principal payments, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. The cash flows should be estimated using information relevant to the collectability of the security, including information about past events, current conditions and reasonable and supportable forecasts. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the AFS security is uncollectible or when either of the criteria regarding intent or requirement to sell is met. As of December 31, 2023, the Company det ermined that the unrealized loss positions in the AFS securities were not the result of credit losses, and therefore, an allowance for credit losses was not recorded. Allowance for Doubtful Accounts Technology: The allowance for doubtful accounts is established by management through provisions for bad debts charged against income. Amounts deemed to be uncollectible are charged against the allowance for doubtful accounts and subsequent recoveries, if any, are credited to income. F-22 Table of Contents The amount of the allowance for doubtful accounts is inherently subjective, as it requires making material estimates which may vary from actual results. Management’s ongoing estimates of the allowance for doubtful accounts are particularly affected by the performance of the client in their ability to provide the Company with future receivables coupled with the collections of their current receivables. The allowance consists of general and specific components. The specific component relates to a client’s aggregate net balance that is owed to the Company that is classified as doubtful. The general component covers non-classified balances and is based on historical loss experience. A client’s aggregate net balance is considered uncollectible when, based on current information and events, it is probable that the Company will be unable to collect the receivable payments or the Company has greatly reduced the amount of receivables to be purchased. The Company’s charge-off policy is based on a client-by-client review for which the estimated uncollectible portion is charged off against the corresponding client’s net balance and the allowance for doubtful accounts. At December 31, 2023 the allowance for doubtful accounts was $ 1.0 million. There was no allowance for doubtful accounts as of December 31, 2022 prior to the Acquisition. Settlement Receivable Settlement receivable represents amounts due from third parties for guaranteed portions of SBA 7(a) loans which have been sold at year-end but have not yet settled. The guaranteed portion of SBA 7(a) principal balances that have been sold but not yet settled at December 31, 2023 was $ 56.5 million. The settlement receivable also includes $ 5.7 million of premiums, which have been recognized in Net Gains on Sales of Loans. Goodwill and Intangible Assets Goodwill is an indefinite lived asset, which is not amortized and is instead subject to impairment testing, at least annually. Intangible assets, such as customer merchant accounts, with finite lives are amortized over an estimated useful life of 66 to 120 months. (See NOTE 8—GOODWILL AND INTANGIBLE ASSETS.) The Company considers the following to be some examples of indicators that may trigger an impairment review outside of its annual impairment review: (i) significant under-performance or loss of key contracts acquired in an acquisition relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of the acquired assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s fair value for a sustained period of time; and (vi) regulatory changes. In assessing the recoverability of the Company’s goodwill and customer merchant accounts, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. These include estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the Company, the period over which cash flows will occur, and determination of the Company’s cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and conclusions on impairment. Leases - Right of use assets and lease liabilities Under ASC 842, operating lease expense is generally recognized on a straight-line basis over the term of the lease. The Company has entered into operating lease agreements for office space with remaining contractual terms up to three years , some of which include renewal options that extend the leases for up to 10 years. These renewal options are not considered in the remaining lease term unless it is reasonably certain the Company will exercise such options. The operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. As the rate implicit in the leases generally is not readily determinable for our operating leases, the discount rates used to determine the present value of our lease liability are based on our incremental borrowing rate at the lease commencement date and commensurate with the remaining lease term. Our incremental borrowing rate for a lease is the rate of interest we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Leases with an initial term of 12 months or less are not recorded on the balance sheet and are excluded from our weighted-average remaining lease term. F-23 Table of Contents Transfers and Servicing of Financial Assets For a transfer of financial assets to be considered a sale, the transfer must meet the sale criteria of ASC 860, which, at the time of the transfer, requires that the transferred assets qualify as recognized financial assets and the Company surrender control over the assets. Such surrender requires that the assets be isolated from the Company, even in bankruptcy or other receivership, the purchaser have the right to pledge or sell the assets transferred and the Company not have an option or obligation to reacquire the assets. Assets related to transactions that do not meet ASC Topic 860 — Transfers and Servicing (“ASC Topic 860”) requirements for accounting sale treatment are reflected in the Company’s consolidated statements of assets and liabilities as investments and the sale proceeds are recognized as a liability. Assets owned by securitization trusts and included in the Company’s consolidated financial statements. The creditors of the special purpose entities have received security interests in such assets and such assets are not intended to be available to the creditors of the Company. From 2010 through December 31, 2023, NSBF engaged in thirteen (13) securitizations of the unguaranteed portions of its SBA 7(a) loans. A securitization uses a special purpose entity (the “Trust”), which is considered a variable interest entity. Applying the consolidation requirements for VIEs under the accounting rules in ASC Topic 860, Transfers and Servicing, and ASC Topic 810, Consolidation, which became effective January 1, 2010, the Company determined that as the primary beneficiary of the securitization vehicles, based on its power to direct activities through its role as servicer for the Trusts and its obligation to absorb losses and right to receive benefits, it needed to consolidate the Trusts. The Company therefore consolidates the entities using the carrying amounts of the Trusts’ assets and liabilities and reflects the assets in SBA 7(a) Unguaranteed Loans and reflects the associated financing in Notes Payable - Securitization trusts on the Consolidated Statements of Assets and Liabilities. The Company accounts for servicing assets in accordance with ASC Topic 860-50 - Transfers and Servicing - Servicing Assets and Liabilities. The Company and Newtek Bank earn servicing fees from the guaranteed portions of SBA 7(a) loans they originate and sell. The Company has also recorded servicing assets/liabilities on loans sold where the Company retained an obligation to service the loan sold. 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 judgement 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. Accounts Receivable Accounts receivable represent amounts owed to the Company by third parties for electronic payment processing, technology services and related residuals. The Company estimates losses on accounts receivable based on known troubled accounts and historical experience of losses incurred. Accrued Interest Receivable Upon the Acquisition and adoption of CECL, the Company made the following elections regarding accrued interest receivable: (1) presented accrued interest receivable balances separately within other assets balance sheet line item; (2) excluded interest receivable that is included in amortized cost of financing receivables from related disclosures requirements and (3) continued our policy to write off accrued interest receivable by reversing interest income. For loans, write off typically occurs upon becoming over 90 to 120 days past due. Historically, the Company has not experienced uncollectible accrued interest receivable on investment securities. F-24 Table of Contents Derivative Instruments The Company uses derivative instruments primarily to economically manage the fair value variability of fixed rate assets and liabilities caused by interest rate fluctuations. Derivative instruments consist of interest rate futures and are held at fair value on the balance sheet. Collateral posted with our futures counterparties is segregated in the Company’s books and records. Interest rate futures are centrally cleared by the Chicago Mercantile Exchange (“CME”) through a futures commission merchant. Interest rate futures that are governed by an ISDA agreement provide for bilateral collateral pledging based on the counterparties’ market value. The counterparties have the right to re-pledge the collateral posted but have the obligation to return the pledged collateral, or, if the Company agrees, substantially the same collateral as the market value of the interest rate futures change. The Company is required to post initial margin and daily variation margin for interest rate futures that are centrally cleared by CME. CME determines the fair value of our centrally cleared futures, including daily variation margin. Effective January 3, 2017, CME amended its rulebooks to legally characterize daily variation margin payments for centrally cleared interest rate futures as settlement rather than collateral. As a result of this rule change, variation margin pledged on the Company’s centrally cleared interest rate futures is settled against the realized results of these futures. Fixed Assets Fixed assets, which are composed of merchant processing terminals, software, telephone systems, computer equipment, automobile, website and leasehold improvements, are stated at cost less accumulated depreciation and amortization. Depreciation of fixed assets is provided on a straight-line basis using estimated useful lives of the related assets ranging from three to seven years . Amortization of leasehold improvements is provided on a straight-line basis using the lesser of the useful life of the asset, which is generally three to five years , or lease term. Due to Participants Due to participants represents amounts due to third party investors in the SBA guaranteed portion of SBA 7(a) and PPP loans. When the Company receives principal payments, including PPP loan forgiveness, after the loan has been either partially or fully sold to the participant, the remittances received by the Company are either owed in part or in full to the participant and amounts are recorded as a liability on the consolidated statements of financial condition. Dividends to Shareholders Dividends and distributions to the Company's stockholders are recorded on the declaration date. The timing and amount to be paid out as a dividend or distribution is determined by the Company's Board each quarter. Loan Interest Income Recognition and Changes in Fair Value Held for Investment At Amortized Cost, net of deferred loan fees and costs: Interest on loans is generally recognized on a daily accrual basis at the applicable interest rate. Interest is not accrued on loans that are more than 90 days delinquent on payments, and any interest that was accrued but unpaid on such loans is reversed from interest income at that time, or when deemed to be uncollectible. Interest subsequently received on such loans is recorded as interest income or alternatively as a reduction in the amortized cost of the loan if there is significant doubt as to the collectability of the unpaid principal balance. Loans are returned to accrual status when principal and interest amounts contractually due are brought current and future payments are reasonably assured. At FV: In accordance with accounting standards, any loans for which FV was previously elected continue to be measured as such. Interest income is recognized in the same manner on loans reported at FV as on non-FV loans, except in regard to origination fees and costs which are recognized immediately upon FV election. The changes in FV of loans are reported within noninterest income as Net gain (loss) on loans accounted for under the fair value option. FV of loans includes adjustments for historical credit losses, market liquidity, and economic conditions. The Company values performing accrual loans on a pool basis. Loans that have experienced credit deterioration are valued individually based on resolution plans developed by the Company based on timing and amount of expected future cash flows from all sources of repayment, including both cash flows of the borrower as a going concern as well as the liquidation of collateral and pursuit of personal guarantees. F-25 Table of Contents Held for Sale At LCM: Net unrealized losses, if any, on loans without a FV election, are recognized through a valuation allowance and recorded as a charge to Other noninterest income. The cost basis of loans HFS includes unamortized loan origination fees and costs. The pro-rata portion, based on the percent of the total loan sold, of the remaining deferred fees and costs are recognized as an adjustment to the gain on sale. Not electing FV generally results in a larger discount being recorded on the origination date. This discount will subsequently be accreted into interest income over the underlying loan’s remaining term using the effective interest method. Management made this change of election in alignment with its ongoing effort to reduce volatility and drive more predictable revenue. If the transfer is accounted for as a sale, the loans are derecognized from the Company’s consolidated balance sheet and a gain or loss is recognized in net gains on sales of loans line item on the consolidated statements of income. The gain on sale recognized in income is the sum of the premium on the guaranteed loan and the FV of the servicing assets recognized, less the discount recorded on the unguaranteed portion of the loan retained. If the transfer does not satisfy the aforementioned control criteria, the transaction is recorded as a secured borrowing with the transferred loans remaining on the Company’s consolidated balance sheet and proceeds recognized as a liability. At FV: In accordance with accounting standards, any loans for which FV was previously elected continue to be measured as such. Interest income is recognized in the same manner on loans reported at FV as on non-FV loans, except in regard to origination fees and costs which are recognized immediately upon FV election. The changes in FV of loans are reported within noninterest income as Net gain (loss) on loans accounted for under the fair value option. FV of loans includes adjustments for historical credit losses, market liquidity, and economic conditions. Non-Interest Income Dividend income: Dividend income is recognized on an accrual basis for equity securities to the extent that such amounts are expected to be collected or realized. In determining the amount of dividend income to recognize, if any, from cash distributions on equity securities, we assess many factors, including the joint ventures’ and non-controlled equity investments’ cumulative undistributed income and operating cash flow. Cash distributions from equity securities received in excess of such undistributed amounts are recorded first as a reduction of our investment and then as a realized gain on investment. Servicing income: The Company earns servicing income related to the guaranteed portions of SBA 7(a) and ALP loan investments sold into the secondary market. These recurring servicing fees are earned and recorded daily. Servicing income is earned for the full term of the loan or until the loan is repaid. Technology and IT support income Our technology segment sells a range of services and goods, including managed IT services, product and procurement services, professional services, webhosting, secure private cloud hosting, and backup disaster recovery. Our technology segment sells hardware and software products on both a stand-alone basis without any services and as solutions bundled with services. When our technology segment provides a combination of hardware and software products with the provision of services, it separately identifies its performance obligations under its contract with the customer as the distinct goods (hardware and/or software products) or services that will be provided. The total transaction price for an arrangement with multiple performance obligations is allocated at contract inception to each distinct performance obligation in proportion to its stand-alone selling price. The stand-alone selling price is the price at which it would sell a promised good or service separately to a customer. Our technology segment estimates the price based on observable inputs, including direct labor hours and allocatable costs, or uses observable stand-alone prices when they are available. Our technology segment’s professional services include the design and implementation of a wide range of IT products and services. Such services are typically provided by us or third-party sub-contractor vendors on a stand-alone basis. Revenue is measured based on the consideration specified in a contract with a customer. Our technology segment recognizes revenue when it satisfies a performance obligation by transferring control of a product or service or by arranging for the sale of a vendor’s products or service to a customer. Our technology segment recognizes revenue from sale of services as its technology segment performs the underlying services, typically based on time and materials basis based upon hours incurred for the performance completed to date for which we have the right to consideration. Our technology segment recognizes revenue on sales of goods at a point in time when customer takes control of goods, which typically occurs when title and risk of loss have passed to the customer. Our technology segment recognizes revenue on a gross basis for each of its services and product offerings principally because it is primarily responsible for fulfilling the promise to provide specified goods or service and it has discretion in establishing the price of specified good or service. F-26 Table of Contents Electronic payment processing income: Revenues are recognized when control of the promised goods or services is transferred to the Company's customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. To achieve this core principle, the Company applies the following five steps: 1. Identify the contract with a customer 2. Identify the performance obligations in the contract 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations in the contract 5. Recognize revenue when or as the Company satisfies a performance obligation Revenue is recognized net of taxes collected from customers, which are subsequently remitted to governmental authorities. NMS’s revenue is primarily derived from electronic payment processing and related fee income. Electronic payment processing and fee income is derived from NMS’s electronic processing of credit and debit card transactions that are authorized and captured through third-party networks. Typically, merchants are charged for these processing services by applying a percentage to the dollar amount of each transaction plus a flat fee per transaction. Certain merchant customers are charged miscellaneous fees, including fees for handling charge-backs or returns, monthly minimum fees, statement fees and fees for other miscellaneous services. Revenues derived from the electronic processing of MasterCard®, Visa®, American Express® and Discover® sourced credit and debit card transactions are reported gross of amounts paid to sponsor banks. NMS's performance obligations are to stand ready to provide holistic electronic payment processing services consisting of a series of distinct elements that are substantially the same and have the same pattern of transfer over time. NMS’s promise to its customers is to perform an unknown or unspecified quantity of tasks and the consideration received is contingent upon the customers’ use (i.e., number of payment transactions processed, number of cards on file, etc.); as such, the total transaction price is variable. The Company allocates the variable fees charged to the day in which it has the contractual right to bill under the contract. ASU 2014-09, "Revenues from Contracts with Customers (“Topic 606”)" (“ASC 606”) requires that the Company determine for each customer arrangement whether revenue should be recognized at a point in time or over time. For the quarter ended December 31, 2023, substantially all of the Company’s revenues were recognized at a point in time. ASC 606 requires disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance obligations; however, as permitted by ASC 606, the Company has elected to exclude from this disclosure any contracts with an original duration of one year or less and any variable consideration that meets specified criteria. As described above, the Company’s most significant performance obligations consist of variable consideration under a stand-ready series of distinct days of service. Such variable consideration meets the specified criteria for the disclosure exclusion; therefore, the majority of the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied is variable consideration that is not required for this disclosure. The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material. Receivable fees; Receivable fees are derived from the funding (purchase) of receivables from the Company’s finance clients. The Company recognizes revenue on the date receivables are purchased at a percentage of face value as agreed to by the client. The Company also has arrangements with certain of its clients whereby it purchases the client’s receivables and charges a fee at a specified rate based on the amount of funds advanced against such receivables. The funds provided are collateralized and the income is recognized as earned which occurs as time passes. Realized gains or losses on joint ventures: Realized gains or losses on joint ventures are measured by the difference between the net proceeds from the disposition and the cost basis of investment, without regard to unrealized gains or losses previously recognized. The Company reports current period changes in the fair value of joint venture investments as a component of the net change in unrealized appreciation (depreciation) on joint ventures in the consolidated statements of operations Other: The Company earns a variety of fees from borrowers in the ordinary course of conducting its business, including packaging, legal, late payment and prepayment fees. All other income is recorded when earned. Other income is generally non-recurring in nature and earned as “one time” fees in connection with the origination of new loans with non-affiliates. F-27 Table of Contents Electronic Payment Processing Costs Electronic payment processing costs consist principally of costs directly related to the processing of merchant sales volume, bank processing fees and costs paid to third-party processing networks. Such costs are recognized at the time the merchant transactions are processed or when the services are performed. In addition to costs directly related to the processing of merchant sales volume, electronic payment processing costs also include residual expenses. Residual expenses represent fees paid to third-party sales referral sources. Residual expenses are paid in accordance with contracted terms. These are generally linked to revenues derived from merchants successfully referred to the Company and that begin using the Company for merchant processing services. Such residual expenses are recognized in the Company’s consolidated statements of income. During the quarter ended December 31, 2023, the Company partnered with two sponsor banks for substantially all merchant transactions. Substantially all merchant transactions were processed by one merchant processor. Technology Services Expenses Costs of services and goods sold include product costs, outbound and inbound freight costs, and direct time and materials in delivering service and goods to customers. Selling and administrative expenses include salaries and wages for staff who are not directly associated with delivering services, bonuses and incentives, employee-related expenses, facility-related expenses, marketing and advertising expense, depreciation of property and equipment, professional fees, amortization of intangible assets, provisions for losses on accounts receivable and other operating expenses. Stock – Based Compensation The Company accounts for its equity-based compensation plans using the fair value method, as prescribed by ASC Topic 718 – Stock Compensation. Accordingly, for restricted stock awards, the Company measures the grant date fair value based upon the market price of the Company’s Common Stock on the date of the grant and amortizes this fair value to salaries and benefits ratably over the requisite service period or vesting term on a straight line basis. Forfeitures are recognized as incurred. Income Taxes Deferred tax assets and liabilities are computed based upon the differences between the financial statement and income tax basis of assets and liabilities using the enacted tax rates in effect for the year in which those temporary differences are expected to be realized or settled. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Such deferred tax assets and liabilities recorded on the statement of financial condition were a deferred tax asset, net of $ 5.2 million at December 31, 2023 and a deferred tax liability, net of $ 19.2 million at December 31, 2022, respectively. Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. We are subject to income taxes in the United States and its political subdivisions. Significant judgments and estimates are required in determining the consolidated income tax expense. The Company’s U.S. federal and state income tax returns prior to fiscal year 2020 are generally closed, and management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. Interest and penalties assessed by tax jurisdictions for income tax matters are presented as income tax expense on the consolidated statement of income. Formerly, as a RIC ending with the Company’s December 31, 2022 fiscal year end, the Company was not subject to corporate level income tax. Beginning on January 1, 2023 with the start of the 2023 fiscal year, the Company no longer qualifies as a RIC and will be subject to corporate level income tax. See NOTE 21—INCOME TAXES . F-28 Table of Contents Segments Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Management has determined that the Company has four reportable operating segments: Banking, Non-Bank SBA 7(a) Lending, Technology, and Payments as discussed more fully in NOTE 22—SEGMENTS. In determining the appropriateness of a segment definition, the Company considers the criteria of FASB ASC 280, Segment Reporting. Business Combinations Business combinations are accounted for under the acquisition method, in which the identifiable assets acquired and liabilities assumed are generally measured and recognized at fair value as of the acquisition date, with the excess of the purchase price over the fair value of the net assets acquired recognized as goodwill. Items such as acquired income-tax related balances are recognized in accordance with other applicable GAAP, which may result in measurements that differ from fair value. Business combinations are included in the consolidated financial statements from the respective dates of acquisition. Historical reporting periods reflect only the results of legacy Company operations. Acquisition-related costs are expensed in the period incurred and presented within the applicable non-interest expense category. Additional information regarding the Company’s acquisitions can be found within NOTE 3—BUSINESS COMBINATION. Fair Value of Assets Acquired and Liabilities Assumed Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, reflecting assumptions that a market participant would use when pricing an asset or liability. In some cases, the estimation of fair values requires management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and are subject to change. Recently Adopted Accounting Pronouncements Beginning in 2023, the Company applies accounting standards applicable to our current status as a financial holding company. Current Expected Credit Losses (Topic 326) In June 2016, FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments (Topic 326) and in April 2019, the FASB issued ASU 2019-04 Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (collectively, “CECL”). CECL changed how entities measure potential credit losses for most financial assets and certain other instruments that are not measured at fair value. CECL replaced the “incurred loss” approach under existing guidance with an “expected loss” model for instruments measured at amortized cost. While ASU 2016-13 does not require any particular method for determining the CECL allowance, it does specify the allowance should be based on relevant information about past events, including historical loss experience, current portfolio and market conditions, and reasonable and supportable forecasts for the duration of each respective loan. CECL was effective for the Company beginning January 1, 2023; however, the Company continues to measure NSBF’s SBA 7(a) loan portfolio at fair value and intends to do so until the portfolio is completely runoff. Following the Acquisition on January 6, 2023, the Company owns and consolidates Newtek Bank, which applies CECL. Troubled Debt Restructurings and Vintage Disclosures (ASU 2022-02) In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The purpose of this guidance is twofold. First, the guidance eliminates TDR recognition and measurement guidance that has been deemed no longer necessary under CECL. The guidance also adds a requirement to incorporate current year gross charge-offs by origination year into the vintage tables. With respect to the TDR impacts, under CECL, credit losses for financial assets measured at amortized cost are determined based on the total current expected credit losses over the life of the financial asset or group of financial assets. Due to the Acquisition, any aspects of credit deterioration to include modifications to loans for borrowers experiencing financial difficulty were captured in purchase accounting and the allowance as of the Acquisition date. Therefore, credit losses on financial assets that have been modified as TDRs would have largely been incorporated in the allowance upon initial recognition. Under ASU 2022-02, the Company will evaluate whether loan modifications previously characterized as TDRs represent a new loan or a continuation of an existing loan in accordance with ASC Topic 310, Receivables. The guidance also added new disclosures that require an entity to provide information related to loan modifications that are made to borrowers that are deemed to be in financial difficulty. Following the Acquisition on January 6, 2023, the Company owns and consolidates Newtek Bank, which adopted the ASU on January 1, 2023, on a prospective basis. The impact of these amendments was not material. F-29 Table of Contents New Accounting Standards In June 2022, the FASB issued ASU No. 2022-03, “Fair Value Measurement (Topic 820),” which clarifies the guidance in Topic 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The amendments affect all entities that have investments in equity securities measured at fair value that are subject to a contractual sale restriction. ASU 2022-03 is effective for public business entities for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. For all other entities the amendments are effective for fiscal years beginning after December 15, 2024, and interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. An entity that qualifies as an investment company under Topic 946 should apply the amendments in ASU No. 2022-03 to an investment in an equity security subject to a contractual sale restriction that is executed or modified on or after the date of adoption. The Company does not expect any material impact from adopting ASU No. 2022-03 on the consolidated financial statements. Improvements to Reportable Segment Disclosures (ASU 2023-07) In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The purpose of this guidance is to improve reportable segment disclosure, primarily through enhanced disclosures about significant segment expenses. This ASU requires that an entity disclose, on an interim and annual basis, significant segment expenses that are regularly provided to the CODM and are included within the reported measure of segment profit or loss. This ASU also requires an entity to disclose, on an interim and annual basis, other segment items by reportable segment, including a qualitative description of the composition of those items. This “other” category is defined as the difference between segment profit or loss and segment revenue less significant segment expenses. Entities are also required to disclose the title and position of the individual, or the name of the group or committee, identified as the CODM. The amendments are effective on January 1, 2024, for annual reporting, and January 1, 2025, for interim reporting, with early adoption permitted. The amendments must be applied using a retrospective approach. Management does not expect the impact of these amendments to be material. Improvements to Income Tax Disclosures (ASU 2023-09) In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The purpose of this guidance is to enhance the rate reconciliation and income taxes paid disclosures. This ASU requires that an entity disclose, on an annual basis, specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. For the state and local income tax category of the rate reconciliation, entities must disclose a qualitative description of the states and local jurisdictions that make up the majority (greater than 50 percent) of the category. For the income taxes paid disclosures, entities will be required to disclose, on an annual basis, the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes. The amendments are effective on January 1, 2025, with early adoption permitted. The amendments must be applied using either a prospective or retrospective approach. Management does not expect the impact of these amendments to be material. Business Combinations—Joint Venture Formations (ASU 2023-05) In August 2023, the FASB issued ASU 2023-05, Business Combinations – Joint Venture Formations (Subtopic 805-60). The amendments in this Update address the accounting for contributions made to a joint venture, upon formation, in a joint venture’s separate financial statements. The objectives of the amendments are to (1) provide decision-useful information to investors and other allocators of capital (collectively, investors) in a joint venture’s financial statements and (2) reduce diversity in practice . The amendments in this Update are effective prospectively for all joint venture formations with a formation date on or after January 1, 2025. Additionally, a joint venture that was formed before January 1, 2025, may elect to apply the amendments retrospectively if it has sufficient information. Early adoption is permitted in any interim or annual period in which financial statements have not yet been issued (or made available for issuance), either prospectively or retrospectively. Management does not expect the impact of these amendments to be material. F-30 NOTE 3—BUSINESS COMBINATION: Acquisition of NBNYC On January 6, 2023, the Company completed the Acquisition of NBNYC, a national bank regulated and supervised by the OCC, pursuant to which the Company acquired from the NBNYC shareholders all of the issued and outstanding stock of NBNYC for $ 20 million, in an all-cash transaction. The Company also agreed to pay the seller’s acquisition costs of approximately $ 1.3 million. NBNYC has been renamed Newtek Bank and has become a wholly owned subsidiary of the Company. In connection with the completion of the Acquisition, the Company contributed to Newtek Bank $ 31 million of cash and two of the Company’s subsidiaries, NBL and SBL (NBL was subsequently merged into SBL). Upon the consummation of the Acquisition, Newtek Bank entered into an operating agreement with the OCC concerning certain matters including capital, liquidity and concentration limits, and memorializing the business plan submitted to the OCC. The NBNYC transaction is accounted for in accordance with ASC 805, Business Combinations, and the Company has performed a purchase price allocation under the acquisition method. Under ASC 805, if the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, which shall not exceed one year from the acquisition date, the acquirer shall adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. The purchase price, including costs incurred by the Company on behalf of the seller directly associated with the Acquisition, was preliminarily allocated to net assets acquired. Final allocation has been obtained and the purchase allocations finalized at December 31, 2023. The following table summarizes the allocation of consideration paid for the fair value of assets acquired and liabilities assumed from NBNYC: F-31 Table of Contents The following table provides a final allocation of consideration paid for the fair value of assets acquired and liabilities assumed from NBNYC as of January 6, 2023: Purchase price consideration $ 21,281 Fair value of assets acquired: Cash and due from banks 29,138 Interest-bearing deposits in banks 3,284 Total cash and cash equivalents 32,422 Available-for-sale securities (at fair value) 5,004 Other investments 1,226 Loans receivable 159,155 Federal Reserve Bank stock, at cost 54 Federal Home Loan Bank stock, at cost 1,470 Accrued interest receivable 353 Deferred income taxes 495 Goodwill 271 Core deposit intangible 1,040 Other assets 399 Total assets $ 201,889 Fair value of liabilities assumed: Deposits: Demand $ 21,878 Savings, Super NOW, and Money Market 10,975 Certificates of deposit 104,162 Total deposits 137,015 Advances from the Federal Home Loan Bank 27,817 Accrued expenses and other liabilities 15,776 Total liabilities $ 180,608 In connection with the Acquisition, the Company recorded $ 0.3 million of goodwill, which represents the excess of the purchase price over the fair value of the net assets acquired. Goodwill is an asset representing the acquired future economic benefits such as synergies that are not individually identified and separately recognized (i.e., it is measured as a residual). The amount of goodwill recognized is also impacted by measurement differences resulting from certain assets and liabilities not being recorded at fair value (e.g., income taxes, employee benefits). In accordance with ASC 805-30-30-1, the measurement of goodwill occurs on the Acquisition Date and, other than qualifying measurement period adjustments, no adjustments are made to goodwill recognized as of the Acquisition Date until and unless it becomes impaired. ASC 805 provides for a period of time during which the acquirer may adjust provisional amounts recognized at the acquisition date to their subsequently determined acquisition-date fair values, referred to as the “measurement period.” Adjustments during the measurement period are not limited to just those relating to assets acquired and liabilities assumed but apply to all aspects of business combination accounting (e.g., the consideration transferred). Measurement-period adjustments are calculated as if they were known at the acquisition date, but are recognized in the reporting period in which they are determined. Prior period information is not revised, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. In accordance with ASC 805, the Company recorded a measurement period adjustment and decreased goodwill by $ 1.0 million related to the finalization of the consideration transferred. F-32 Table of Contents Information regarding the allocation of goodwill to the Company’s reportable segments, as well as the carrying amounts and amortization of the core deposit intangible, can be found within NOTE 22—SEGMENTS and NOTE 8—GOODWILL AND INTANGIBLE ASSETS, respectively. None of the goodwill is tax deductible. Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the NBNYC Acquisition. Cash and cash equivalents. The estimated fair values of cash and cash equivalents approximate their stated face amounts, as these financial instruments are either due on demand or have short-term maturities. Investment securities available-for-sale . Quoted market prices for the securities acquired were used to determine their fair values. If quoted market prices were not available for a specific security, then quoted prices for similar securities in active markets were used to estimate the fair value. Loans. Each loan was assessed individually. The fair values for loans were estimated using a discounted cash flow methodology that considered factors including the type of loan and the related collateral, classification status, fixed or variable interest rate, remaining term, amortization status, and current discount rates. In addition, the probability of default, loss given default, and prepayment assumptions that were derived based on loan characteristics, historical loss experience, comparable market data, and current and forecasted economic conditions were used to estimate expected credit losses. The discount rates used for loans and leases were based on current market rates for new originations or comparable loans and leases and include adjustments for liquidity. The discount rate did not include credit losses as that was included as a reduction to the estimated cash flows. We determined the fair value of the PCD loans using the asset and income approach. We used the income approach for PCD loans where there was evidence that the borrower may be able to continue to service the loan and more likely than not continue to pay. We used the asset approach for PCD loans when the loan is on non-accrual status. Acquired loans were marked to fair value and adjusted for any PCD gross up as of the Acquisition Date. Core Deposit Intangible. CDI is a measure of the value of non-interest-bearing and interest-bearing checking accounts, savings accounts, and money market accounts that are acquired in a business combination. The fair value of the CDI stemming from any given business combination is based on the present value of the expected cost savings attributable to the core deposit funding, relative to an alternative source of funding. The CDI relating to the NBNYC Acquisition will be amortized over an estimated useful life of 10 years using the sum of years digits depreciation method. The Company evaluates such identifiable intangibles for impairment when an indication of impairment exists. Deposit Liabilities. The fair values used for the demand and savings deposits by definition equal the amount payable on demand at the Acquisition date. The fair values for time deposits were estimated using a discounted cash flow methodology that applies interest rates currently being offered to the contractual interest rates on such time deposits. Borrowings . The estimated fair value of borrowed funds is based on bid quotations received from securities dealers or the discounted value of contractual cash flows with interest rates currently in effect for borrowed funds with similar maturities. PCD loans. Purchased loans that reflect a more-than-insignificant deterioration of credit from origination are considered PCD. For PCD loans and leases, the initial estimate of expected credit losses is recognized in the ACL on the date of acquisition using the same methodology as other loans and leases held-for-investment. The following table provides a summary of loans and leases purchased as part of the NBNYC Acquisition with credit deterioration and associated credit loss reserve at acquisition: Par value (unpaid principal balance) $ 42,443 ACL at acquisition ( 870 ) Non-credit (discount) ( 1,559 ) Fair Value $ 40,014 Transaction costs describe the broad category of costs the Company incurs in connection with signed and/or closed acquisitions. Transaction costs include expenses associated with legal, accounting, regulatory, and other transition services rendered in connection with acquisition, travel expense, and other non-recurring direct expenses associated with acquisitions. The Company incurred transaction costs related to the NBNYC Acquisition during the years ended December 31, 2023, 2022 and 2021 of $ 0.2 million, $ 2.3 million and $ 1.3 million, respectively . These costs have been included in the Consolidated Statement of Operations in Professional Services Expense. F-33 Table of Contents NOTE 4—INVESTMENTS: Investments consisted of the following at: December 31, 2023 December 31, 2022 Cost Fair Value Cost Fair Value Debt securities available-for-sale, at fair value $ 32,372 $ 32,171 $ — $ — Federal Home Loan Bank and Federal Reserve Bank stock 3,635 3,635 — — Non-controlled investments 796 728 1,360 1,360 Joint ventures 37,864 40,859 23,314 23,022 Controlled investments: Equity — — 99,195 241,113 Debt — — 32,300 18,104 Total investments $ 74,667 $ 77,393 $ 156,169 $ 283,599 The Company’s Non-Conforming Conventional Loan Program NCL JV: On May 20, 2019, the Company and its joint venture partner launched NCL JV to provide non-conforming conventional commercial and industrial term loans to U.S. middle-market companies and small businesses. NCL JV is a 50 / 50 joint venture between NCL a wholly-owned subsidiary of the Company, and Conventional Lending TCP Holding, LLC, a wholly-owned, indirect subsidiary of BlackRock TCP Capital Corp. (Nasdaq: TCPC). NCL JV ceased funding new loans during 2020. On January 28, 2022, NCL JV closed a conventional commercial loan securitization with the sale of $ 56.3 million of Class A Notes, NCL Business Loan Trust 2022-1, Business Loan-Backed Notes, Series 2022-1, secured by a segregated asset pool consisting primarily of NCL JV’s portfolio of conventional commercial business loans, including loans secured by liens on commercial or residential mortgaged properties, originated by NCL JV and NBL. The Notes were rated “A” (sf) by DBRS Morningstar. The Notes were priced at a yield of 3.209 %. The proceeds of the securitization were used, in part, to repay NCL JV’s credit facility and return capital to the NCL JV partners. The following tables show certain summarized financial information for NCL JV: Selected Statement of Assets and Liabilities Information December 31, 2023 December 31, 2022 (Unaudited) (Unaudited) Cash $ 612 $ 791 Restricted cash 3,298 2,362 Investments in loans, at fair value (amortized cost of $ 68,404 and $ 78,785 , respectively) 70,083 78,595 Other Assets 1,614 1,807 Total assets $ 75,607 $ 83,555 Securitization notes payable $ 38,805 $ 49,273 Other liabilities 905 1,109 Total liabilities 39,710 50,382 Net assets 35,897 33,173 Total liabilities and net assets $ 75,607 $ 83,555 F-34 Table of Contents Selected Statements of Operations Information Year Ended December 31, 2023 2022 2021 (Unaudited) (Unaudited) (Unaudited) Interest and other income $ 6,160 $ 6,966 $ 6,300 Total expenses 2,524 2,916 2,612 Net investment income 3,636 4,050 3,688 Unrealized (depreciation) appreciation on investments 1,869 ( 4,494 ) 282 Net increase (decrease) in net assets resulting from operations $ 5,505 $ ( 444 ) $ 3,970 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. TSO JV began making investments in non-conforming conventional commercial and industrial term loans during the fourth quarter of 2022. 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. TSO JV intends to deploy capital over the course of time with additional leverage supported by a warehouse line of credit. The intended purpose of TSO JV is to invest in non-conforming conventional commercial and industrial term loans made to middle-market companies as well as small businesses. The following tables show certain summarized financial information for TSO JV: Selected Statement of Assets and Liabilities Information December 31, 2023 December 31, 2022 (Unaudited) (Unaudited) Cash $ 4,401 $ 1,046 Restricted cash 1,183 498 Investments in loans, at fair value (amortized cost of $ 62,695 and $ 21,038 , respectively) 66,689 22,449 Other assets 1,374 2,034 Total assets $ 73,647 $ 26,027 Bank notes payable $ 29,636 $ 12,950 Other liabilities 1,092 206 Total liabilities 30,728 13,156 Net assets 42,919 12,871 Total net assets $ 73,647 $ 26,027 Selected Statements of Operations Information Year Ended December 31, 2023 2022 2021 (Unaudited) (Unaudited) (Unaudited) Interest and other income $ 3,823 $ 101 $ — Total expenses 4,430 385 — Net investment income (loss) ( 607 ) ( 284 ) — Unrealized appreciation on investments 2,580 1,412 — Realized loss on investments ( 16 ) — — Realized gain (loss) on derivative transactions 399 — — Unrealized gain (loss) on derivative transactions ( 911 ) 218 — Net increase in net assets resulting from operations $ 1,445 $ 1,346 $ — F-35 Table of Contents Transactions with Affiliated Companies An affiliated company is an unconsolidated entity in which the Company has an ownership of 5% or more of its voting securities. Transactions related to our joint ventures and non-controlled investments for the year ended December 31, 2023 were as follows: Company Fair Value at December 31, 2022 Purchases (Cost) Principal Received Return of Investment Net Realized Gains/(Losses) Net Unrealized Gains/(Losses) Fair Value at December 31, 2023 Interest and Other Income Dividend Income Joint Ventures Newtek Conventional Lending, LLC $ 16,587 $ 248 $ — $ — $ — $ 2,565 $ 19,400 $ — $ 1,641 Newtek TSO II Conventional Credit Partners, LP 6,435 14,302 — — — 722 21,459 — — Total Joint Ventures $ 23,022 $ 14,550 $ — $ — $ — $ 3,287 $ 40,859 $ — $ 1,641 Non-Control Investments EMCAP Loan Holdings, LLC $ 1,000 $ — $ — $ ( 564 ) $ — $ ( 68 ) $ 368 $ — $ 116 Biller Genie Software, LLC 360 — — — — — 360 — — Total Non-Control Investments $ 1,360 $ — $ — $ ( 564 ) $ — $ ( 68 ) $ 728 $ — $ 116 Total Affiliate Investments $ 24,382 $ 14,550 $ — $ ( 564 ) $ — $ 3,219 $ 41,587 $ — $ 1,757 Debt Securities Available-for-Sale The following tables summarize the amortized cost and fair value of available-for-sale securities by major type as of December 31, 2023: At December 31 , 2023 Amortized Cost Unrealized Gains Unrealized Losses Fair Value U.S. Treasury notes $ 29,372 $ — $ 67 $ 29,305 Government agency debentures 3,000 — 134 2,866 Total available for sale securities $ 32,372 $ — $ 201 $ 32,171 There was $ 0.2 million accrued interest receivable on available-for-sale securities at December 31, 2023, and is included in Other assets in the accompanying Consolidated Statements of Financial Condition. During the year ended December 31, 2023, no securities were sold or settled. F-36 Table of Contents Unrealized Losses The following tables summarize the gross unrealized losses and fair value of available-for-sale securities by length of time each major security type has been in a continuous unrealized loss position: At December 31 , 2023 Less Than 12 Months 12 Months or More Total Fair Value Unrealized Losses Fair Value Unrealized Losses Number of Holdings Fair Value Unrealized Losses U.S. Treasury notes $ 29,304 $ 67 $ — $ — 1 $ 29,304 $ 67 Government agency debentures 2,867 134 — — 2 2,867 134 Total $ 32,171 $ 201 $ — $ — $ 3 $ 32,171 $ 201 Management evaluates available-for-sale debt securities to determine whether the unrealized loss is due to credit-related factors or non-credit-related factors. The evaluation considers the extent to which the security’s fair value is less than cost, the financial condition and near-term prospects of the issuer, and intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value. These unrealized losses are primarily the result of non-credit-related volatility in the market and market interest rates. Since none of the unrealized losses relate to marketability of the securities or the issuers' ability to honor redemption obligations and the Company has the intent and ability to hold the securities for a sufficient period of time to recover unrealized losses, none of the losses have been recognized in the Company’s Consolidated Statements of Income. Contractual Maturities The following table summarizes the amortized cost and fair value of available-for-sale securities by contractual maturity: At December 31 , 2023 At December 31, 2022 Amortized Cost Fair Value Amortized Cost Fair Value Maturing within 1 year $ 32,372 $ 32,171 $ — $ — Total available for sale securities $ 32,372 $ 32,171 $ — $ — Other information The following table summarizes Newtek Bank’s available-for-sale securities pledged for deposits, borrowings, and other purposes: At December 31 , 2023 At December 31, 2022 Pledged for deposits $ — $ — Pledged for borrowings and other 30,730 — Total available for sale securities pledged $ 30,730 $ — F-37 Table of Contents NOTE 5—LOANS : Loans held for investment Loans held for investment included SBA 7(a) loans originated by NSBF and Newtek Bank, as well as CRE and C&I loans originated by Newtek Bank. The following tables shows the Company’s loan portfolio by industry for loans held for investment, at fair value and loans held for investment, at amortized cost: Loans Held for Investment, at Fair Value December 31, 2023 December 31, 2022 Cost Fair Value Cost Fair Value Food Services and Drinking Places $ 43,779 $ 43,955 $ 47,012 $ 47,198 Specialty Trade Contractors 40,193 35,451 42,082 38,059 Professional, Scientific, and Technical Services 36,248 35,377 39,910 38,086 Ambulatory Health Care Services 27,291 26,633 27,275 25,151 Merchant Wholesalers, Durable Goods 21,873 21,152 22,164 22,004 Administrative and Support Services 21,319 19,521 22,352 20,827 Amusement, Gambling, and Recreation Industries 21,289 22,839 23,812 24,928 Repair and Maintenance 15,886 17,005 16,993 17,165 Merchant Wholesalers, Nondurable Goods 15,623 15,573 16,183 15,312 Truck Transportation 15,590 12,113 23,673 18,071 Personal and Laundry Services 12,867 13,584 12,949 13,333 Fabricated Metal Product Manufacturing 12,439 13,205 13,483 14,032 Food Manufacturing 10,233 8,714 10,756 8,873 Construction of Buildings 9,868 9,890 11,252 10,194 Accommodation 9,259 10,162 11,476 10,428 Motor Vehicle and Parts Dealers 9,046 9,382 10,071 9,536 Social Assistance 8,857 9,721 9,150 9,857 Support Activities for Mining 8,455 7,754 10,426 8,615 Transportation Equipment Manufacturing 7,687 7,999 8,272 8,445 Building Material and Garden Equipment and Supplies Dealers 7,384 6,781 8,098 7,689 Food and Beverage Stores 7,026 7,306 5,711 5,857 Rental and Leasing Services 6,764 7,178 7,417 7,647 Nursing and Residential Care Facilities 6,182 6,709 8,187 8,697 Educational Services 5,368 5,636 5,838 6,133 Other 102,037 96,161 118,251 109,131 Total $ 482,563 $ 469,801 $ 532,793 $ 505,268 Loans Held for Investment, at Amortized Cost December 31, 2023 December 31, 2022 Commercial Real Estate $ 163,803 $ — Commercial & Industrial 8,191 — Small Business Administration 163,918 — Total Loans 335,912 — Deferred fees and costs 393 — Loans held for investment, at amortized cost, net of deferred fees and costs $ 336,305 $ — F-38 Table of Contents Past Due and Non-Accrual Loans The following tables summarize the aging of accrual and non-accrual loans by class: As of December 31, 2023 30-59 Days Past Due and Accruing 60-89 Days Past Due and Accruing 90 or more Days Past Due and Accruing (1) Non- accrual Total past Due and Non-accrual Current Total Carried at Amortized Cost Total Loans Accounted for Under the Fair Value Option Total Loans Held for Investment At amortized cost SBA $ 3,637 $ 311 $ — $ 752 $ 4,700 $ 159,218 $ 163,918 $ — $ 163,918 Commercial Real Estate 948 — — 4,621 5,569 158,234 163,803 — 163,803 Commercial & Industrial — — — — — 8,191 8,191 — 8,191 Total, at amortized cost $ 4,585 $ 311 $ — $ 5,373 $ 10,269 $ 325,643 $ 335,912 $ — $ 335,912 Deferred fees and costs 393 — 393 Total, at amortized cost net of deferred fees and costs $ 336,305 $ — $ 336,305 Allowance for credit losses ( 12,574 ) — ( 12,574 ) Total, at amortized cost, net $ 323,731 $ — $ 323,731 At fair value SBA $ 20,380 $ 16,075 $ — $ 48,174 $ 84,629 $ 385,172 $ 469,801 $ 469,801 Total loans held for investment $ 24,965 $ 16,386 $ — $ 53,547 $ 94,898 $ 710,815 $ 323,731 $ 469,801 $ 793,532 (1) Represents loans that are considered well secured and in the process of collection. As of December 31, 2022 30-59 Days Past Due and Accruing 60-89 Days Past Due and Accruing 90 or more Days Past Due and Accruing Non- accrual Total past Due and Non-accrual Current Total Carried at Amortized Cost Loans Accounted for Under the Fair Value Option Total Loans SBA $ 18,681 $ 12,754 $ — $ 34,433 $ 65,868 $ 439,400 $ — $ 505,268 $ 505,268 The Company identified five loans that did not share similar risk characteristics with the loan segments identified in NOTE 2—SIGNIFICANT ACCOUNTING POLICIES and evaluated them for impairment individually. The unpaid contractual principal balance and recorded investment for the loans individually assessed was $ 5.3 million with an allowance of $ 0.1 million as of the year ended December 31, 2023. Credit Quality Indicators Newtek Bank uses internal loan reviews to assess the performance of individual loans. An independent review of the loan portfolio is performed annually by an external firm. The goal of Newtek Bank’s annual review of each borrower’s financial performance is to validate the adequacy of the risk grade assigned. Newtek Bank uses a grading system to rank the quality of each loan and lease. The grade is periodically evaluated and adjusted as performance dictates. Loan and lease grades 1 through 4 are passing grades and grade 5 is special mention. Collectively, grades 6 through 7 represent classified loans in Newtek Bank’s portfolio. The following guidelines govern the assignment of these risk grades: Exceptional (1 Rated): These loans are of the highest quality, with strong, well-documented sources of repayment. These loans and leases will typically have multiple demonstrated sources of repayment with no significant identifiable risk to collection, exhibit well-qualified management, and have liquid financial statements relative to both direct and indirect obligations. Quality (2 Rated): These loans are of very high credit quality, with strong, well-documented sources of repayment. These loans and leases exhibit very strong, well defined primary and secondary sources of repayment, with no significant identifiable risk of collection and have internally generated cash flow that more than adequately covers current maturities of long-term debt. F-39 Table of Contents Satisfactory (3 Rated): These loans exhibit satisfactory credit risk and have excellent sources of repayment, with no significant identifiable risk of collection. These loans and leases have documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that can be supplemented with verifiable cash flow from other sources. They have adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor. Acceptable (4 Rated): These loans show signs of weakness in either adequate sources of repayment or collateral but have demonstrated mitigating factors that minimize the risk of delinquency or loss. These loans and leases may have unproved, insufficient or marginal primary sources of repayment that appear sufficient to service the debt at this time. Repayment weaknesses may be due to minor operational issues, financial trends, or reliance on projected performance. They may also contain marginal or unproven secondary sources to liquidate the debt, including combinations of liquidation of collateral and liquidation value to the net worth of the borrower or guarantor. Special mention (5 Rated): These loans show signs of weaknesses in either adequate sources of repayment or collateral. These loans and leases may contain underwriting guideline tolerances and/or exceptions with no mitigating factors; and/or instances where adverse economic conditions develop subsequent to origination that do not jeopardize liquidation of the debt but substantially increase the level of risk. Substandard (6 Rated): Loans graded Substandard are inadequately protected by current sound net worth, paying capacity of the obligor, or pledged collateral. Loans and leases classified as Substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. These loans and leases are consistently not meeting the repayment schedule. Doubtful (7 Rated): Loans graded Doubtful have all the weaknesses inherent in those classified as Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. The ability of the borrower to service the debt is extremely weak, overdue status is constant, the debt has been placed on non-accrual status, and no definite repayment schedule exists. Once the loss position is determined, the amount is charged off. Loss (8 Rated): Loss rated loans are considered uncollectible and of such little value that their continuance as assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this credit even though partial recovery may be affected in the future. F-40 Table of Contents The following tables present asset quality indicators by portfolio class and origination year as of December 31, 2023. Term Loans Held for Investment by Origination Year 2023 2022 2021 2020 2019 Prior Total SBA 7(a) Unguaranteed, net of deferred fees and costs Risk Grades 1-4 $ 161,263 $ — $ — $ — $ — $ — $ 161,263 Risk Grades 5-6 2,655 — — — — — 2,655 Risk Grade 7 — — — — — — — Risk Grade 8 — — — — — — — Total $ 163,918 $ — $ — $ — $ — $ — $ 163,918 SBA, at fair value Risk Grades 1-4 $ 34,289 $ 151,929 $ 53,998 $ 27,870 $ 52,175 $ 94,751 $ 415,012 Risk Grades 5-6 349 8,968 5,813 1,257 11,764 25,727 53,878 Risk Grade 7 — — — — — — — Risk Grade 8 — 149 17 22 16 707 911 Total $ 34,638 $ 161,046 $ 59,828 $ 29,149 $ 63,955 $ 121,185 $ 469,801 Commercial Real Estate Risk Grades 1-4 $ 53,567 $ 28,224 $ 14,590 $ — $ 8,888 $ 49,771 $ 155,040 Risk Grades 5-6 — — 948 910 2,284 4,621 8,763 Risk Grade 7 — — — — — — — Total $ 53,567 $ 28,224 $ 15,538 $ 910 $ 11,172 $ 54,392 $ 163,803 Commercial & Industrial Risk Grades 1-4 $ 6,174 $ — $ — $ — $ — $ 2,017 $ 8,191 Risk Grades 5-6 — — — — — — — Risk Grade 7 — — — — — — — Total $ 6,174 $ — $ — $ — $ — $ 2,017 $ 8,191 Total $ 258,297 $ 189,270 $ 75,366 $ 30,059 $ 75,127 $ 177,594 $ 805,713 December 31, 2022 2022 2021 2020 2019 2018 Prior Total SBA Risk Grades 1-4 $ 171,948 $ 66,113 $ 34,116 $ 69,563 $ 55,376 $ 70,669 $ 467,785 Risk Grades 5-6 698 3,633 595 5,400 6,772 20,273 37,371 Risk Grade 7 — — — — — 112 112 Total $ 172,646 $ 69,746 $ 34,711 $ 74,963 $ 62,148 $ 91,054 $ 505,268 Allowance for Credit Losses See NOTE 2—SIGNIFICANT ACCOUNTING POLICIES for a description of the methodologies used to estimate the ACL. F-41 Table of Contents The following table details activity in the ACL for the year ended December 31, 2023: Commercial Real Estate Commercial & Industrial Small Business Administration Total Beginning Balance $ — $ — $ — $ — Adjustment to Beginning Balance due to PCD marks 1 774 96 — 870 Charge offs — — — — Recoveries — — — — Provision 634 218 10,852 11,704 Ending Balance $ 1,408 $ 314 $ 10,852 $ 12,574 1 Given the January 6, 2023 transition to a financial holding company, the Company established an ACL with the beginning balance representing the purchased credit deteriorated loans acquired through the NBNYC Acquisition. There were no charge-offs or recoveries on the loans held for investment, at amortized cost during the year ended December 31, 2023. Loan Modifications Made to Borrowers Experiencing Financial Difficulty The Company did not make any loan modifications to borrowers experiencing financial difficulty that would require disclosure, such as principal forgiveness, term extension, or interest rate reductions during the year ended December 31, 2023. Additionally there were no troubled debt restructurings under legacy U.S. GAAP during the year ended December 31, 2023. Loans held for sale December 31, 2023 December 31, 2022 At FV At LCM At FV At LCM SBA 504 First Lien $ 66,387 $ 38,787 $ — $ — SBA 504 Second Lien 20,757 5,741 — — SBA 7(a) 262 64 287 — SBA 7(a) Partials 104 11,237 18,884 — ALP 31,357 — — — Subtotal 118,867 55,829 19,171 — Deferred fees and costs — 778 — — Loans held for sale, net of deferred fees and costs $ 118,867 $ 56,607 $ 19,171 $ — F-42 Table of Contents NOTE 6—TRANSACTIONS WITH AFFILIATED COMPANIES AND RELATED PARTY TRANSACTIONS: Due to/from affiliated companies The following table summarizes the amounts due to and due from affiliated companies as of December 31, 2023 and December 31, 2022: December 31, 2023 December 31, 2022 Due to affiliated companies 1 $ 158 $ 1,338 Due from affiliated companies 2 7 1,211 Total due to/due from affiliated companies $ 151 $ 127 1 Included within Other Assets 2 Included within Accounts payable, accrued expenses, and other Liabilities Notes payable - related parties The following table summarizes our Notes payable - related parties as of December 31, 2023 and December 31, 2022. December 31, 2023 December 31, 2022 Notes payable - related parties $ — $ 24,250 Following the January 6, 2023 Acquisition and related consolidation of the Company’s previously unconsolidated portfolio companies, the Company no longer has notes payable with related parties on its statements of financial condition for December 31, 2023. All notes payable with related parties that existed as December 31, 2022 now eliminate in consolidation. Transactions with joint ventures and non-control investments Refer to NOTE 4—INVESTMENTS for a schedule of transactions with our joint ventures and non-control equity investments. The following table summarizes the income earned from our joint ventures for the periods ended December 31, 2023, December 31, 2022 and December 31, 2021: For the years ended December 31, 2023 2022 2021 Servicing income 1 $ 1,240 $ 840 $ 752 Newtek Bank Deposits At December 31, 2023, Newtek Bank, in the normal course of business, had deposits from certain of the Company’s officers, directors and their associated companies totaling $ 5.6 million. Other Transactions with Related Parties The nephew of the Chief Executive Officer of the Company is employed by one of the Company’s consolidated subsidiaries and earned annual compensation in excess of $ 125 thousand during 2023, 2022 and 2021. The sister of a Director and the Chief Admin Officer is employed by one of the Company’s consolidated subsidiaries and earned annual compensation in excess of $ 125 thousand during 2023. NOTE 7—SERVICING ASSETS: Servicing assets held by NSBF and Newtek Bank, including its subsidiary SBL, are measured at fair value and lower of cost or market, respectively. The Company earns servicing fees from the guaranteed portions of SBA 7(a) loans it originates and sells. As of December 31, 2023 the Company services $ 1.8 billion in SBA 7(a) loans and $ 63.5 million in ALP loans. Refer to NOTE 9—FAIR VALUE MEASUREMENTS for a rollforward of servicing assets at fair value. F-43 Table of Contents The following tables summarizes the fair value and valuation assumptions related to servicing assets at December 31, 2023 and December 31, 2022: December 31, 2023 December 31, 2022 Weighted Range Weighted Range Unobservable Input Amount Average Minimum Maximum Amount Average Minimum Maximum Servicing Assets at FV: $ 29,336 $ 30,268 Discount factor 1 13.50 % 13.50 % 13.50 % 16.50 % 16.50 % 16.50 % Cumulative prepayment rate 22.50 % 22.50 % 22.50 % 25.00 % 25.00 % 25.00 % Average cumulative default rate 19.00 % 19.00 % 19.00 % 25.00 % 25.00 % 25.00 % Servicing Assets at LCM: 10,389 — Discount factor 1 13.50 % 13.50 % 13.50 % — % — % — % Cumulative prepayment rate 29.76 % 22.50 % 75.00 % — % — % — % Average cumulative default rate 19.14 % 19.00 % 20.00 % — % — % — % Total $ 39,725 $ 30,268 (1) Determined based on risk spreads and observable secondary market transactions. Servicing fee income earned for the years ended December 31, 2023, 2022, and 2021 was $ 18.3 million, $ 13.7 million, and $ 11.3 million, respectively. NOTE 8—GOODWILL AND INTANGIBLE ASSETS: Goodwill The following table summarizes changes in the carrying amount of goodwill: December 31, 2023 December 31, 2022 Banking $ 271 $ — Payments 13,814 $ — Technology 11,800 $ — Total goodwill $ 25,885 $ — The Company did not have any goodwill as of December 31, 2022 as a BDC. On January 6, 2023, the Company consolidated its previously unconsolidated portfolio companies and completed the Acquisition, which resulted in goodwill of $ 25.6 million and $ 0.3 million, respectively. The goodwill in the payments and technology segments was generated from acquisitions prior to 2022 by the legal entities within those segments. F-44 Table of Contents Intangible Assets The following table summarizes intangible assets: At December 31, 2023 At December 31, 2022 Gross carrying Amount Accumulated Amortization Net Carrying amount Gross carrying Amount Accumulated Amortization Net Carrying amount Core Deposits $ 1,040 $ ( 197 ) $ 843 $ — $ — $ — Payments Customer Lists 8,575 ( 8,562 ) 13 — — — Technology Customer Lists 6,525 ( 3,146 ) 3,379 — — — Total intangible assets $ 16,140 $ ( 11,905 ) $ 4,235 $ — $ — $ — The Company did not have any intangible assets as of December 31, 2022 as a BDC. On January 6, 2023, the Company consolidated its previously unconsolidated portfolio companies and completed the Acquisition, which resulted in intangible assets. As of December 31, 2023, the Company had $ 3.4 million of intangible assets relating to previously unconsolidated portfolio companies and $ 0.8 million on core deposits at Newtek Bank. Amortization expense for the year ended December 31, 2023 was $ 1.5 million and is included in Depreciation and amortization on the Consolidated Statements of Income. There was no amortization expense for the years ended December 31, 2022 and 2021 since there were no intangible assets prior to the Acquisition. The remaining estimated aggregate future amortization expense for intangible assets as of December 31, 2023 is as follows: Amortization Expense 2024 $ 655 2025 622 2026 601 2027 580 2028 560 Thereafter 1,217 Total $ 4,235 F-45 Table of Contents NOTE 9—FAIR VALUE MEASUREMENTS: The following tables present fair value measurements of certain of the Company’s assets and liabilities measured at fair value and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair values as of December 31, 2023 and December 31, 2022: Fair Value Measurements at December 31, 2023 Total Level 1 Level 2 Level 3 Assets: Debt securities available-for-sale U.S. Treasury notes $ 29,305 $ 29,305 $ — $ — Government agency debentures 2,866 — 2,866 — Loans held for sale, at fair value 118,867 — — 118,867 Loans held for investment, at fair value 469,801 — — 469,801 Other real estate owned 1 1,110 — — 1,110 Non-controlled/affiliate investments 728 — — 728 Servicing assets 29,336 — — 29,336 Joint ventures 40,859 — — 40,859 Total assets measured at fair value $ 692,872 $ 29,305 $ 2,866 $ 660,701 Liabilities: Equity warrants 3 $ 141 $ — $ — $ 141 Derivative instruments 2,3 630 — 630 — Total liabilities measured at fair value $ 771 $ — $ 630 $ 141 (1) Included in Other Assets on the Consolidated Statements of Financial Condition. (2) Measured at fair value on a recurring basis with the net unrealized gains or losses recorded in current period earnings. (3) Included in Other Liabilities on the Consolidated Statements of Financial Condition. Fair Value Measurements at December 31, 2022 Total Level 1 Level 2 Level 3 Assets: Loans held for sale, at fair value $ 19,171 $ — $ — $ 19,171 Loans held for investment, at fair value 505,268 — — 505,268 Controlled investments 259,217 — — 259,217 Other real estate owned 1 3,529 — — 3,529 Non-control investments 1,360 — — 1,360 Servicing assets 30,268 — — 30,268 Joint ventures 2 23,022 — — — Total assets $ 841,835 $ — $ — $ 818,813 (1) Included in Other Assets on the Consolidated Statements of Financial Condition. (2) The Company’s investment in TSO JV and NCL JV are measured at fair value using NAV and have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Statements of Financial Condition. F-46 Table of Contents The following tables represents the changes in the investments, servicing assets and liabilities measured at fair value using Level 3 inputs for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 Loans HFI, at FV Loans HFS, at FV Controlled Investments Joint Ventures Servicing Assets Non-Control Investments Warrant Liabilities 2 Other Real Estate Owned 1 Fair value, December 31, 2022 $ 505,268 $ 19,171 $ 259,217 $ 23,022 $ 30,268 $ 1,360 $ — $ 3,529 Additions/(removal) of entities consolidating after Conversion to BHC — 69,745 ( 259,217 ) — — — — — Reclasses between loans at FV and LCM 5,879 ( 28,513 ) — — — — — — Sales ( 23,783 ) ( 180,784 ) — — — — — ( 4,248 ) Principal payments received ( 77,966 ) ( 6,233 ) — — — — — — Foreclosed real estate acquired ( 2,978 ) — — — — — — 2,978 SBA loans, funded 38,889 167,124 — — — — — — ALP loans, funded — 69,835 — — — — — — Additions — — — — 2,617 — 311 — Purchases and repurchases of loans 9,728 5,279 — — — — — — Capital contributions/(distributions) — — — 14,550 — ( 564 ) — — Change in valuation due to: Changes in valuation inputs or assumptions 13,515 3,931 — 3,287 1,847 ( 68 ) ( 170 ) — Other factors 1,249 ( 688 ) — — ( 5,396 ) — — ( 1,149 ) Fair value, December 31, 2023 $ 469,801 $ 118,867 $ — $ 40,859 $ 29,336 $ 728 $ 141 $ 1,110 (1) Included in Other Assets on the Consolidated Statements of Financial Condition. (2) Included in Other Liabilities on the Consolidated Statements of Financial Condition. Year Ended December 31, 2022 Loans HFI, at fair value Loans HFS, at fair value Controlled Investments Servicing Assets Non-Control Investments Other Real Estate Owned 1 Fair value, December 31, 2021 $ 424,417 $ 72,970 $ 230,935 $ 28,008 $ 1,000 $ 2,354 Net change in unrealized appreciation (depreciation) on investments ( 19,972 ) ( 6,532 ) 27,174 — — ( 402 ) Change in net unrealized deprecation on servicing assets due to: Changes in valuation inputs or assumptions — — — ( 2,129 ) — — Other factors — — — ( 7,966 ) — — Realized gain (loss) ( 16,629 ) 61,176 — — — ( 353 ) SBA unguaranteed non-affiliate investments, funded 189,769 585,803 — — — — Foreclosed real estate acquired ( 3,466 ) — — — — 3,466 Purchase of investments — — 47,046 — 360 — Purchase of loans from SBA 2,404 — — — — — Sale of investment — ( 691,219 ) — — — ( 1,536 ) Return of investment — — ( 38,968 ) — — — Principal payments received on debt investments ( 71,255 ) ( 3,027 ) ( 6,970 ) — — — Additions to servicing assets — — — 12,355 — — Fair value, December 31, 2022 $ 505,268 $ 19,171 $ 259,217 $ 30,268 $ 1,360 $ 3,529 (1) Included in Other Assets on the Consolidated Statements of Financial Condition. F-47 Table of Contents The following tables provide a summary of quantitative information about the Company’s Level 3 fair value measurements as of December 31, 2023 and December 31, 2022. In addition to the inputs noted in the table below, according to our valuation policy we may also use other valuation techniques and methodologies when determining our fair value measurements. The tables below are not intended to be all-inclusive, but rather provide information on the significant Level 3 inputs as they relate to the Company’s fair value measurements at December 31, 2023 and December 31, 2022. Fair Value as of Weighted Range December 31, 2023 Unobservable Input Average 1 Minimum Maximum Assets: Held for investment, at fair value - accrual loans $ 421,627 Market yields 7.75 % 7.75 % 7.75 % Cumulative prepayment rate 22.50 % 22.50 % 22.50 % Average cumulative default rate 19.00 % 19.00 % 19.00 % Held for investment, at fair value - non-accrual loans $ 48,174 Market yields 7.39 % 7.39 % 7.39 % Cumulative prepayment rate — % — % — % Average cumulative default rate 30.00 % 30.00 % 30.00 % Held for sale, at fair value $ 118,867 Market yields 6.85 % 6.50 % 7.75 % Cumulative prepayment rate 61.03 % 55.60 % 75.00 % Average cumulative default rate 20.00 % 20.00 % 20.00 % Joint Ventures $ 40,859 Market yields 8.00 % 8.00 % 8.00 % Cost of equity 12.00 % 10.00 % 14.00 % Weighted average cost of capital 8.50 % 7.50 % 9.50 % Non-control equity investments $ 368 Market yields 10.00 % 8.00 % 12.00 % $ 360 Cost basis N/A N/A N/A Servicing assets 1 $ 29,336 Market yields 13.50 % 13.50 % 13.50 % Cumulative prepayment rate 22.50 % 22.50 % 22.50 % Average cumulative default rate 19.00 % 19.00 % 19.00 % Other real estate owned $ 1,110 Appraised value N/A N/A N/A Liabilities: Equity warrants $ 141 Expected volatility 43.00 % 43.00 % 43.00 % Dividend yield 5.20 % 5.20 % 5.20 % Risk free rate 3.88 % 3.88 % 3.88 % (1) $ 29.3 million of servicing assets at held at FV and $ 10.4 million of servicing assets are held at LCM. Refer to NOTE 7—SERVICING ASSETS. F-48 Table of Contents Fair Value as of Weighted Range December 31, 2022 Unobservable Input Average 1 Minimum Maximum Assets: SBA unguaranteed non-affiliate investments - accrual loans $ 470,835 Market yields 7.90 % 7.90 % 7.90 % Cumulative prepayment rate 25.00 % 25.00 % 25.00 % Average cumulative default rate 25.00 % 25.00 % 25.00 % SBA unguaranteed non-affiliate investments - non-accrual loans $ 34,433 Market yields 8.87 % 8.87 % 8.87 % Average cumulative default rate 30.00 % 30.00 % 30.00 % Controlled equity investments 1 $ 241,113 EBITDA multiples-TTM 2 8.00 x 7.50 x 8.50 x EBITDA multiples-NTM 2 6.90 x 6.00 x 7.50 x Revenue multiples 2 2.46 x 0.80 x 3.20 x Book value multiples 2 1.00 x 0.80 x 1.20 x Weighted average cost of capital 2 13.20 % 11.50 % 23.60 % Controlled debt investments $ 18,104 Market yields 10.00 % 10.00 % 10.00 % Non-control equity investments $ 1,000 Market yields 10.00 % 8.00 % 12.00 % $ 360 Recent transaction N/A N/A N/A Servicing assets $ 30,268 Market yields 16.50 % 16.50 % 16.50 % Cumulative prepayment rate 25.00 % 25.00 % 25.00 % Average cumulative default rate 25.00 % 25.00 % 25.00 % Other real estate owned $ 3,529 Appraised value N/A N/A N/A (1) Weighted by relative fair value. (2) The Company valued $ 145.6 million of investments using a combination of EBITDA, trailing twelve months (“TTM”) and next twelve months (“NTM”), and revenue multiples in the overall valuation approach, which included the use of market comparable companies. The Company valued $ 95.3 million of investments using only discounted cash flows. F-49 Table of Contents Estimated Fair Value of Other Financial Instruments GAAP also requires disclosure of the fair value of financial instruments carried at book value on the Consolidated Statements of Financial Condition. The carrying amounts and estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis are as follows: December 31, 2023 Carrying Amount Fair Value Amount by Level: Total Fair Value Level 1 Level 2 Level 3 Financial Assets: Cash and due from banks $ 15,398 $ 15,398 $ — $ — $ 15,398 Restricted cash 30,919 30,919 — — 30,919 Interest bearing deposits in banks 137,689 137,689 — — 137,689 Debt securities available-for-sale, at fair value 32,171 29,305 2,866 — 32,171 Loans held for sale, at fair value 118,867 — — 118,867 118,867 Loans held for sale, at LCM 56,607 — — 56,733 56,733 Loans held for investment, at fair value 469,801 — — 469,801 469,801 Total loans held for investment, at amortized cost, net of deferred fees and costs 336,305 — — 337,133 337,133 Federal Home Loan Bank and Federal Reserve Bank stock 3,635 — 3,635 — 3,635 Joint ventures, at fair value 40,859 — — 40,859 40,859 Non-control investments 728 — — 728 728 Financial Liabilities: Time deposits 167,041 — 168,542 — 168,542 Borrowings 644,122 — 187,555 454,239 641,794 December 31, 2022 Carrying Amount Fair Value Amount by Level: Total Fair Value Level 1 Level 2 Level 3 Financial Assets: Cash and due from banks $ 53,692 $ 53,692 $ — $ — $ 53,692 Restricted cash 71,914 71,914 — — 71,914 Loans held for sale, at fair value 19,171 — — 19,171 19,171 Loans held for investment, at fair value 505,268 — — 505,268 505,268 Controlled investments 259,217 — — 259,217 259,217 Non-control investments 1,360 — — 1,360 1,360 Financial Liabilities: Borrowings 539,326 — 152,162 388,226 540,388 F-50 Table of Contents NOTE 10—DEPOSITS: The following table summarizes deposits by type: December 31, 2023 December 31, 2022 Non-interest-bearing: Demand $ 10,053 $ — Interest-bearing: Checking 11,456 — Money market 15,803 — Savings 259,152 — Time deposits 167,041 — Total interest-bearing 453,452 — Total deposits $ 463,505 $ — Time deposits, money market, and interest-bearing checking obtained through brokers $ 53,548 $ — Aggregate amount of deposit accounts that exceeded the FDIC limit $ 66,511 $ — Demand deposit overdrafts reclassified as loan balances $ 53 $ — Certificates of deposit in excess of $0.25 million totaled $ 20.1 million at December 31, 2023. The following table summarizes the scheduled maturities of time deposits: 2024 $ 54,805 2025 63,402 2026 28,379 2027 19,710 2028 745 Thereafter — Total time deposits $ 167,041 NOTE 11—ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITES: The following table details the components of accounts payable, accrued expenses and other liabilities at December 31, 2023 and December 31, 2022: December 31, 2023 December 31, 2022 Loan related remittances due to SBA and participants $ 3,577 $ 70 Accrued payroll and related expenses 1,349 3,051 Accrued interest 4,114 2,846 Funds in process to PMT's payroll customers 5,060 — Loan processing, servicing and other loan related expenses 3,793 2,059 SBA repair & denial reserve 1 3,063 — Good faith deposits 893 — Other 15,451 13,398 Total accounts payable, accrued expenses and other liabilities $ 37,300 21,424 1 The Company may be exposed to repair and denial liability to the SBA for SBA 7(a) loans in its portfolio. The Company established a loss contingency reserve in accordance with ASC 450-20. To determine the reserve the Company utilizes probability of default and loss given default rates, which are consistent with the assumptions used in its cash flow projections when estimating the fair value of loans. These factors are applied to the outstanding balances of guaranteed SBA 7(a) loans as well as a rate of repurchase based on historical experience. F-51 Table of Contents NOTE 12—BORROWINGS: At December 31, 2023 and December 31, 2022, the Company had borrowings composed of the following: December 31, 2023 December 31, 2022 Commitments Borrowings Outstanding Weighted Average Interest Rate Commitments Borrowings Outstanding Weighted Average Interest Rate Bank Lines of Credit: Capital One line of credit - guaranteed 1 $ — $ — — % $ 150,000 $ 10,500 6.75 % Capital One line of credit - unguaranteed 1 — — — % — 45,385 7.75 % Webster NMS Note 2 54,871 36,628 7.94 % — — — SPV I Capital One Facility 2 60,000 16,080 8.20 % — — — SPV II Deutsche Bank Facility 2 50,000 6,799 10.04 % — — — SPV III One Florida Bank Facility 2 30,000 257 9.50 % — — — FHLB Advances 113,891 23,184 2.13 % — — — Notes issued by Parent Company: 2024 Notes 2 38,250 38,124 5.75 % 38,250 37,903 5.75 % 2025 5.00 % Notes 2 30,000 29,563 5.00 % 30,000 29,306 5.00 % 2025 8.125 % Notes 2,3 50,000 49,433 8.13 % — — — % 2026 Notes 2 115,000 113,564 5.50 % 115,000 112,846 5.50 % 2028 Notes 2,4 40,000 38,378 8.00 % — — — % Notes payable - related parties — — — % 50,000 24,250 6.72 % Notes payable - Securitization Trusts 2,5 296,223 292,112 7.84 % 283,143 279,136 6.19 % Total $ 878,235 $ 644,122 7.04 % $ 666,393 $ 539,326 6.11 % (1) Total combined commitments of the guaranteed and unguaranteed lines of credit were $ 150.0 million at December 31, 2022. The Capital One line of credit was paid off and terminated in October of 2023. (2) Net of deferred financing costs. (3) On January 23, 2023 the Company completed a private placement offering of $ 50.0 million aggregate principal amount of 8.125 % notes due 2025, payable semiannually on February 1 and August 1 each year, commencing on August 1, 2023. The Notes will mature on February 1, 2025. (4) On August 31, 2023, the Company completed a registered offering of $ 40.0 million in aggregate principal amount of its 8.00 % 2028 Notes payable quarterly on March 1, June 1, September 1 and December 1 of each year, commencing on December 1, 2023. The 2028 Notes trade on the Nasdaq Global Market under the trading symbol “NEWTI.” (5) At December 31, 2023 and 2022, the net assets of the consolidated Trusts totaled $ 14.8 million and $ 14.1 million, respectively. F-52 Table of Contents Outstanding borrowings that are presented net of deferred financing costs, which include the bank lines of credit, the 2024, 2025, 2026, and 2028 Notes, and the Notes payable - Securitization Trusts consisted of the following: December 31, 2023 December 31, 2022 Principal balance Unamortized deferred financing costs Net carrying amount 1 Principal balance Unamortized deferred financing costs Net carrying amount Bank Lines of Credit: Webster NMS Note 36,881 ( 253 ) 36,628 — — — SPV I Capital One Facility 16,300 ( 220 ) 16,080 — — — SPV II Deutsche Bank Facility 6,900 ( 101 ) 6,799 — — — SPV III One Florida Bank Facility 375 ( 118 ) 257 — — — Notes issued by Parent Company: 2024 Notes 38,250 ( 126 ) 38,124 38,250 ( 347 ) 37,903 2025 5.00 % Notes 30,000 ( 437 ) 29,563 30,000 ( 694 ) 29,306 2025 8.125 % Notes 50,000 ( 567 ) 49,433 — — — 2026 Notes 115,000 ( 1,436 ) 113,564 115,000 ( 2,154 ) 112,846 2028 Notes 40,000 ( 1,622 ) 38,378 — — — Notes Payable - Securitization Trusts 296,223 ( 4,111 ) 292,112 283,143 ( 4,007 ) 279,136 (1) Net of deferred financing costs. Negative borrowings outstanding are the result of the facilities being paid down to zero principal balance as of December 31, 2023 while the associated deferred financing costs remain. At December 31, 2023 and December 31, 2022, the carrying amount of the Company’s borrowings under the Capital One, Deutsche Bank, Webster, and One Florida lines of credit, and the Notes payable - Securitization Trusts, approximates fair value due to their variable interest rates. At December 31, 2023, the carrying amount of Newtek Bank’s FHLB borrowings includes a $ 0.2 million purchase accounting adjustment from the current principal amount to reach a balance sheet value of $ 23.2 million. The fair values of the fixed rate 2028 Notes, 2026 Notes and 2024 Notes are based on the closing public share price on the date of measurement as included in the chart below. December 31, 2023 December 31, 2022 Closing Price Fair Value Closing Price Fair Value 2028 Notes $ 25.04 $ 40,070 n/a n/a 2026 Notes 23.75 109,250 24.83 114,218 2024 Notes 24.99 38,235 24.80 37,944 These borrowings are not recorded at fair value on a recurring basis. The fixed rate 2025 Notes are held at par as of December 31, 2023 and December 31, 2022. Total interest expense including unused line fees and amortization of deferred financing costs related to borrowings for the year ended December 31, 2023, 2022, and 2021 was $ 51.9 million, $ 26.3 million and $ 20.5 million, respectively. NSBF Capital One Facility Prior to October 2023, NSBF maintained a $ 150 million Capital One facility to finance the origination of the unguaranteed and guaranteed portions of SBA 7(a) loans NSBF originated. The portion of the facility collateralized by the government guaranteed portion of SBA 7(a) loans was Prime minus 0.75 % and the interest rate on the portion of the facility collateralized by the non-guaranteed portion of SBA 7(a) loans was Prime plus 0.25 %. The facility provided for a 55 % advance rate on the non-guaranteed portions of the SBA 7(a) loans NSBF originates and a 90 % advance rate on the guaranteed portions of SBA 7(a) loans NSBF originated. On May 7, 2020, NSBF amended the facility to, among other things, extend the maturity date on which the credit facility converted into a term loan for a period of three years to May 7, 2023, with the term loan maturing on May 7, 2025. The NSBF Capital One facility was paid off and terminated in October of 2023. F-53 Table of Contents For the years ended December 31, 2023, 2022 and 2021, interest expense including amortization of related deferred financing costs was $ 11.0 million, $ 4.0 million and $ 1.5 million, respectively. 2028 Notes On August 31, 2023, the Company completed a registered offering of $ 40.0 million in aggregate principal amount of its 8.00 % 2028 Notes, which includes the underwriters’ exercise of the option granted by the Company to purchase an additional $ 5.0 million in aggregate principal amount of the 2028 Notes. The Company received $ 38.0 million in proceeds, before expenses, from the sale of the 2028 Notes. The Company intends to use the net proceeds from the sale of the Notes for general corporate purposes. The 2028 Notes bear interest at a rate of 8.00 % per year payable quarterly on March 1, June 1, September 1 and December 1 of each year, commencing on December 1, 2023, and trade on the Nasdaq Global Market under the trading symbol “NEWTI.” At December 31, 2023, the Company was in compliance with all covenants related to the 2028 Notes. For the year ended December 31, 2023 interest expense including amortization of related deferred financing costs was $ 1.2 million. No interest expense was incurred during the year ended December 31, 2022 and 2021. 2026 Notes In January 2021, the Company closed a public offering of $ 115.0 million aggregate principal amount of 5.50 % Notes due 2026, including $ 15.0 million in aggregate principal amount sold pursuant to a fully-exercised overallotment option. The sale of the 2026 Notes generated proceeds of approximately $ 111.3 million, net of underwriter's fees and expenses. The 2026 Notes will mature on February 1, 2026 and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after February 1, 2022. The 2026 Notes bear interest at a rate of 5.50 % per year payable quarterly on February 1, May 1, August 1 and November 1 of each year, commencing on May 1, 2021, and trade on the Nasdaq Global Market under the trading symbol “NEWTZ.” For the years ended December 31, 2023, 2022 and 2021, interest expense including amortization of related deferred financing costs was $ 7.0 million, $ 7.0 million and $ 6.7 million, respectively. 2025 Notes On November 27, 2020, the Company closed an exempt offering of $ 5.0 million in aggregate principal amount of its 2025 6.85 % Notes. The offering was consummated pursuant to the terms of a purchase agreement dated November 27, 2020 among the Company and an accredited investor. The purchase agreement provided for the 2025 6.85 % Notes to be issued to the Purchaser in a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The 2025 6.85 % Notes were scheduled to mature on November 30, 2025 and could be redeemed in whole or in part at any time. The 2025 6.85 % Notes bear interest at a rate of 6.85 % per year payable quarterly on February 28, May 31, August 31 and November 30, of each year, beginning February 28, 2021. Total net proceeds received after deducting structuring fees and estimated offering expenses was $ 4.8 million. The Company exercised its option to issue up to $ 10.0 million of additional 2025 6.85 % Notes to the purchaser, and issued $ 10.0 million in additional 2025 6.85 % Notes to the purchaser in an exempt offering in January 2021. On March 31, 2022, the Company caused notices to be issued to the holder of its 2025 6.85 % Notes regarding the Company’s exercise of its option to redeem all $ 15.0 million in aggregate principal amount of the Notes on May 2, 2022. The Notes were redeemed on May 2, 2022 100% of their principal amount ($ 25 per Note), plus the accrued and unpaid interest thereon from February 28, 2022 through, but excluding, May 2, 2022. No interest expense was incurred during the year ended December 31, 2023. For the years ended December 31, 2022 and 2021, interest expense including amortization of related deferred financing costs was $ 0.4 million and $ 1.1 million, respectively. On January 23, 2023 we completed a private placement offering of $ 50.0 million aggregate principal amount of 8.125 % notes due 2025. The net proceeds from the sale of the notes were approximately $ 48.94 million, after deducting estimated offering expenses payable by the Company. 2024 Notes On July 25, 2019, the Company closed a public offering of $ 55.0 million in aggregate principal amount of its 2024 Notes. The 2024 Notes will mature on August 1, 2024 and may be redeemed in whole or in part at any time or from time to time at Newtek’s option on or after August 1, 2021. The 2024 Notes bear interest at a rate of 5.75 % per year payable quarterly on F-54 Table of Contents August 1, November 1, February 1 and May 1, of each year, beginning November 1, 2019. Total net proceeds received after deducting underwriters’ discount and expenses was $ 53.3 million. The 2024 Notes are listed on the Nasdaq Global Market under the trading symbol “NEWTL” and were rated “A-“ by Egan-Jones. A portion of the proceeds were used to redeem the outstanding 2022 Notes. In August 2019, the underwriters exercised their option to purchase an additional $ 8.25 million in aggregate principal amount of the 2024 Notes resulting in an additional $ 8.0 million in net proceeds. On February 16, 2021 and May 20, 2021, the Company issued an additional $ 5.0 million and $ 10.0 million in aggregate principal amount of its 2024 Notes, respectively. The new 2024 Notes are treated as a single series with the prior 2024 Notes and have the same terms as the prior 2024 Notes. The existing 2024 Notes have the same CUSIP number and are fungible and rank equally with the prior 2024 Notes. On December 29, 2021, the Company redeemed $ 40.0 million in aggregate principal amount of the $ 78.25 million in aggregate principal amount of the Notes on the redemption date of December 29, 2021 at 100% of their principal amount ($ 25 per Note), plus the accrued and unpaid interest thereon from November 1, 2021, through, but excluding, the redemption date. As a result of the partial redemption of the 2024 Notes, the Company recorded a $ 0.6 million loss on extinguishment of debt during the year ended December 31, 2021, equivalent to the redeemed portion of the remaining balance of unamortized deferred financing costs as of the redemption date. For the years ended December 31, 2023, 2022, and 2021 interest expense including amortization of related deferred financing costs was $ 2.4 million, $ 2.4 million, and $ 4.7 million, respectively. 2023 Notes On February 21, 2018, the Company closed a public offering of $ 50.0 million in aggregate principal amount of its 2023 Notes. In February 2018, the underwriters exercised their option to purchase an additional $ 7.5 million in aggregate principal amount of the 2023 Notes. Total net proceeds received after deducting underwriters’ discount and expenses was $ 55.2 million. The 2023 Notes were listed on the Nasdaq Global Market under the trading symbol “NEWTI.” A portion of the proceeds were used to redeem the outstanding 2021 Notes. The 2023 Notes were scheduled to mature on March 1, 2023 and could be redeemed in whole or in part at any time or from time to time at Newtek’s option on or after March 1, 2020. The 2023 Notes bore interest at a rate of 6.25 % per year payable quarterly on March 1, June 1, September 1 and December 1, of each year, beginning June 1, 2018. On February 22, 2021, the Company redeemed all $ 57.5 million in aggregate principal amount of the 2023 Notes on the redemption date of February 22, 2021, at 100% of their principal amount ($ 25 per Note), plus the accrued and unpaid interest thereon from December 1, 2020, through, but excluding, the redemption date. As a result of the redemption of the 2023 Notes, the Company recorded a $ 1.0 million loss on extinguishment of debt during the year ended December 31, 2021, equivalent to the balance of unamortized deferred financing costs as of the redemption date. No interest expense was incurred during the years ended December 31, 2023 and 2022. For the year ended December 31, 2021 interest expense including amortization of related deferred financing costs was $ 0.5 million. Notes Payable - Securitization Trusts Since 2010, NSBF has engaged in securitizations of the unguaranteed portions of its SBA 7(a) loans. In the securitization, it uses a special purpose entity (the “Trust”) which is considered a variable interest entity. Applying the consolidation requirements for VIEs under the accounting rules in ASC Topic 860, Transfers and Servicing, and ASC Topic 810, Consolidation, which became effective January 1, 2010, the Company determined that as the primary beneficiary of the securitization vehicle, based on its power to direct activities through its role as servicer for the Trust and its obligation to absorb losses and right to receive benefits, it needed to consolidate the Trusts. NSBF therefore consolidated the entity using the carrying amounts of the Trust’s assets and liabilities. NSBF reflects the assets in SBA 7(a) Unguaranteed Non-Affiliate Investments and reflects the associated financing in Notes Payable - Securitization trusts on the Consolidated Statements of Financial Condition. In December 2017, NSBF completed its eighth securitization which resulted in the transfer of $ 76.2 million of unguaranteed portions of SBA loans to the 2017-1 Trust. The 2017-1 Trust in turn issued securitization notes for the par amount of $ 75.4 million, consisting of $ 58.1 million Class A notes and $ 17.3 million of Class B notes, against the assets in a private placement. The Class A and Class B notes received an “A” and “BBB-” rating by S&P, respectively, with a final maturity date of the notes is February 2043. On February 27, 2023, the 2017-1 Trust was terminated as a result of NSBF purchasing the 2017-1 Trust assets, with the 2017-1 Trust’s noteholders receiving the redemption price. F-55 Table of Contents In November 2018, NSBF completed its ninth securitization which resulted in the transfer of $ 108.6 million of unguaranteed portions of SBA loans to the 2018-1 Trust. The 2018-1 Trust in turn issued securitization notes for the par amount of $ 108.6 million, consisting of $ 82.9 million Class A notes and $ 25.7 million of Class B notes, against the assets in a private placement. The Class A and Class B notes received an “A” and “BBB-” rating by S&P, respectively, and the final maturity date of the notes is February 2044. The Class A and Class B notes bear interest at a rate of adjusted SOFR plus 1.83 % across both classes. In October 2019, NSBF completed its tenth securitization which resulted in the transfer of $ 118.9 million of unguaranteed portions of SBA loans to the 2019-1 Trust, The 2019-1 Trust in turn issued securitization notes for the par amount of $ 118.9 million, consisting of $ 93.5 million of Class A notes and $ 25.4 million Class B notes, against the assets in a private placement. The Class A and Class B notes received an “A” and “BBB-” rating by S&P, respectively, and the final maturity date of the notes is December 2044. The Class A and Class B notes bear interest at a rate of adjusted SOFR plus 1.83 % across both classes. In December 2021, NSBF completed its eleventh securitization which resulted in the transfer of $ 103.4 million of unguaranteed portions of SBA loans to the 2021-1 Trust, The 2021-1 Trust in turn issued securitization notes for the par amount of $ 103.4 million, consisting of $ 79.7 million of Class A notes and $ 23.8 million Class B notes, against the assets in a private placement. The Class A and Class B notes received an “A” and “BBB-” rating by S&P, respectively, and the final maturity date of the notes is December 2044. The Class A and Class B notes bear interest at a rate of adjusted SOFR plus 1.92 % across both classes. In September 2022, NSBF completed its twelfth securitization which resulted in the transfer of $ 116.2 million of unguaranteed portions of SBA loans to the 2022-1 Trust. The 2022-1 Trust in turn issued securitization notes for the par amount of $ 103.4 million, consisting of $ 95.4 million of Class A notes and $ 20.8 million Class B notes, against the 2022-1 Trust assets in a private placement. The Class A and Class B notes received an “A-” and “BBB-” rating by S&P, respectively, and the final maturity date of the notes is October 2049. The Class A and Class B notes bear interest at an average rate of 30-day average compounded SOFR plus 2.97 % across both classes. In June 2023, NSBF completed its thirteenth securitization which resulted in the transfer of $ 103.9 million of unguaranteed portions of SBA loans to the 2023-1 Trust. The 2023-1 Trust in turn issued securitization notes for the par amount of $ 103.9 million, consisting of $ 84.3 million of Class A notes and $ 19.6 million Class B notes, against the 2023-1 Trust assets in a private placement. The Class A and Class B notes received an “A-” and “BBB-” rating by S&P, respectively, and the final maturity date of the notes is October 2049. The Class A and Class B notes bear interest at an average rate of 30-day average compounded SOFR plus 3.24 % across both classes. For the years ended December 31, 2023, 2022 and 2021, interest expense including amortization of related deferred financing costs and discount was $ 23.5 million, $ 10.6 million, and $ 5.5 million, respectively. At December 31, 2023 and 2022, the assets of the consolidated Trusts totaled $ 14.8 million and $ 14.1 million, respectively. The liabilities of the consolidated Trusts totaled $ 296.2 million and $ 283.1 million, respectively. Note Payable - Related Parties In June 2015, the Company entered into the Related Party RLOC. Maximum borrowings under the Related Party RLOC were $ 38.0 million. In June 2017, the Related Party RLOC was amended to increase maximum borrowings to $ 50.0 million. The outstanding balance had an interest rate equal to 1 month LIBOR (with a floor of 0.50 %) plus 6.0 % or a rate equal to the greater of the Prime Rate or 3.5 % plus 5.0 %. In November 2018, the Related Party RLOC was amended to reduce the interest rate to the lesser of 1 month LIBOR plus 2.5 % or the Prime Rate plus 1.5 %. For the years ended December 31, 2022 and 2021, interest expense was $ 0.5 million and $ 0.4 million, respectively. For the year ended December 31, 2023, $ 0.0 interest expense was included in the consolidated financial statements on related party notes payable. F-56 Table of Contents Total expected principal repayments on the Company’s borrowings for the next five fiscal years and thereafter are as follows: Year Ending December 31, Borrowings 2024 $ 53,109 2025 104,701 2026 117,094 2027 41,985 2028 40,000 Thereafter 296,223 $ 653,112 NOTE 13—DERIVATIVE INSTRUMENTS: The Company historically uses derivative instruments primarily to economically manage the fair value variability of certain fixed rate assets caused by interest rate fluctuations and overall portfolio market risk. The following is a breakdown of the derivatives outstanding as of December 31, 2023 and December 31, 2022: December 31, 2023 December 31, 2022 Fair Value Remaining Fair Value Remaining Contract Type Notional 1 Asset Liability 2 Maturity (years) Notional Asset Liability Maturity (years) 5-year Treasury Futures $ ( 27,869 ) $ — $ 630 0.25 years $ — $ — $ — — (1) Shown as a negative number when the position is sold short. (2) Shown in Accounts Payable, Accrued Expenses, and Other Liabilities in the accompanying consolidated balance sheets. The following table indicates the net realized gains (losses) and unrealized appreciation (depreciation) on derivatives as included in Other Noninterest Income in the consolidated statements of operations for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, 2023 December 31, 2022 December 31, 2021 Contract Type Unrealized Appreciation/(Depreciation) Realized Gain/(Loss) Unrealized Appreciation/(Depreciation) Realized Gain/(Loss) Unrealized Appreciation/(Depreciation) Realized Gain/(Loss) 5-year Treasury Futures $ ( 699 ) $ 834 $ 183 $ 445 $ ( 183 ) $ 590 Collateral posted with our futures counterparty is segregated in the Company’s books and records. Historically, the Company’s counterparty has held cash margin as collateral for derivatives, which is included in restricted cash in the consolidated balance sheets. Interest rate futures are centrally cleared by the Chicago Mercantile Exchange (“CME”) through a futures commission merchant. The Company is required to post initial margin and daily variation margin for interest rate futures that are centrally cleared by CME. CME determines the fair value of our centrally cleared futures, including daily variation margin. Variation margin pledged on the Company’s centrally cleared interest rate futures is settled against the realized results of these futures. NOTE 14—COMMITMENTS AND CONTINGENCIES: Operating and Employment Commitments The Company leases office space and other office equipment in several states under operating lease agreements which expire at various dates through 2027. Those office space leases which are for more than one year generally contain scheduled rent increases or escalation clauses. In addition, during 2023, the Company entered into one-year employment agreements with its named executive officers. F-57 Table of Contents The following summarizes the Company’s obligations and commitments, as of December 31, 2023 for future minimum cash payments required under operating lease and employment agreements: Year Operating Leases Employment Agreements 1 Total 2024 $ 2,761 $ 525 $ 3,286 2025 2,469 — 2,469 2026 1,842 — 1,842 2027 430 — 430 2028 — — — Thereafter — — — Total $ 7,502 $ 525 $ 8,027 (1) Employment agreements with certain of the Company’s named executive officers Legal Matters The Company and its subsidiaries are routinely subject to actual or threatened legal proceedings, including litigation and regulatory matters, arising in the ordinary course of business. Litigation matters range from individual actions involving a single plaintiff to class action lawsuits and can involve claims for substantial or indeterminate alleged damages or for injunctive or other relief. Regulatory investigations and enforcement matters may involve formal or informal proceedings and other inquiries initiated by various governmental agencies, law enforcement authorities, and self-regulatory organizations, and can result in fines, penalties, restitution, changes to the Company’s business practices, and other related costs, including reputational damage. At any given time, these legal proceedings are at varying stages of adjudication, arbitration, or investigation, and may relate to a variety of topics. Assessment of exposure that could result from legal proceedings is complex because these proceedings often involve inherently unpredictable factors, including, but not limited to, the following: whether the proceeding is in early stages; whether damages or the amount of potential fines, penalties, and restitution are unspecified, unsupported, or uncertain; whether there is a potential for punitive or other pecuniary damages; whether the matter involves legal uncertainties, including novel issues of law; whether the matter involves multiple parties and/or jurisdictions; whether discovery or other investigation has begun or is not complete; whether material facts may be disputed or unsubstantiated; whether meaningful settlement discussions have commenced; and whether the matter involves class allegations. As a result of these complexities, the Company may be unable to develop an estimate or range of loss. The Company evaluates legal proceedings based on information currently available, including advice of counsel. The Company establishes accruals for those matters, pursuant to ASC 450, when a loss is considered probable and the related amount is reasonably estimable. While the final outcomes of legal proceedings are inherently unpredictable, management is currently of the opinion that the outcomes of pending and threatened matters will not have a material effect on the Company’s business, consolidated financial position, results of operations or cash flows as a whole. As of December 31, 2023, the Company had accrued an immaterial reserve that we believe is appropriate to cover potential settlements. As available information changes, the matters for which the Company is able to estimate, as well as the estimates themselves, will be adjusted accordingly. The Company’s estimates are subject to significant judgment and uncertainties, and the matters underlying the estimates will change from time to time. In the event of unexpected future developments, it is possible that an adverse outcome in any such matter could be material to the Company’s business, consolidated financial position, results of operations, or cash flows as a whole for any particular reporting period of occurrence. In addition. as a result of a litigation brought by the Federal Trade Commission (the “FTC”) in October 2012, NMS voluntarily entered into, and continues to operate under, a permanent injunction with respect to certain of its business practices. Unfunded Commitments At December 31, 2023, the Company had $ 125.4 million of unfunded commitments consisting of $ 20.4 million in connection with its SBA 7(a) loans, $ 81.0 million in connection with its SBA 504 loans, $ 13.1 million in connection with its alternative lending program loans, and $ 10.9 million relating to commercial and industrial loans. The Company anticipates these commitments will be funded from the same sources it used to fund its other loan commitments. F-58 Table of Contents NOTE 15—STOCK BASED COMPENSATION: Stock Plans The Company accounts for its stock-based compensation plan using the fair value method, as prescribed by ASC 718, Compensation—Stock Compensation. Accordingly, for restricted stock awards, the Company measures the grant date fair value based upon the market price of its Common Stock on the date of the grant and amortizes the fair value of the awards as stock-based compensation expense over the requisite service period, which is generally the vesting term. The Compensation, Corporate Governance and Nominating Committee of the Board approves the issuance of awards of restricted stock to employees and directors pursuant to the 2023 Stock Incentive Plan, which was approved by the Board in April 2023 and the Company’s shareholders on June 14, 2023. No new awards may be granted under the 2015 Stock Incentive Plan, which was terminated by the Board in April 2023. The following table summarizes the restricted stock issuances under the 2015 and 2023 Stock Incentive Plans, net of shares forfeited, if any: 2023 Plan 2 2015 Plan Restricted Stock authorized under the plan 1 3.0 million 1.5 million Net restricted stock (granted)/forfeited during: Year ended December 31, 2020 and prior — ( 223 ) Year ended December 31, 2021 — ( 215 ) Year ended December 31, 2022 — ( 251 ) Year ended December 31, 2023 ( 82 ) 28 Total net restricted stock (granted)/forfeited ( 82 ) ( 661 ) (1) No stock options were granted under the 2015 or 2023 Stock Incentive Plan. (2) The 2023 Stock Incentive Plan provides for an initial share reserve of up to 3.0 million shares of Common Stock. Awards of restricted stock granted under the 2015 and 2023 Stock Incentive Plans generally vest over a one - to three-year period from the grant date; awards of restricted stock granted under the 2023 Stock Incentive Plan to non-employee directors generally vest over a one -year period. The fair value is expensed over the service period, starting on the grant date. Stock-based compensation For the years ended December 31, 2023, 2022, and 2021, the Company recognized total stock-based compensation expense of $ 2.8 million, $ 2.5 million, and $ 2.1 million, respectively. As of December 31, 2023, there was $ 3.6 million of total unrecognized compensation expense related to unvested shares of restricted stock granted. This compensation expense is expected to be recognized over a remaining weighted-average period of approximately 1.7 years as of December 31, 2023. Shares outstanding As of December 31, 2023, the Company has 345 thousand shares outstanding related to grants of restricted stock awards. The awards were issued at a weighted average grant date fair value of $ 19.18 . In addition, there are 44 thousand shares outstanding relating to dividends on unvested restricted stock awards as of December 31, 2023. During the years ended December 31, 2023 and 2022, additional shares were issued related to dividends on unvested shares of restricted stock granted as follows: Year Ended December 31, 2023 Year Ended December 31, 2022 # of Shares $ of Shares # of Shares $ of Shares Dividends on Unvested Shares of Restricted Stock Grants 19 $ 263 35 $ 646 F-59 Table of Contents NOTE 16—SHAREHOLDERS EQUITY: Preferred Stock On February 3, 2023, we entered into a Securities Purchase Agreement with Patriot Financial Partners IV, L.P., and Patriot Financial Partners Parallel IV, L.P. in respect of 20 thousand shares of the Company’s Series A Convertible Preferred Stock, par value $ 0.02 per share, in a private placement transaction. The aggregate purchase price was $ 20.0 million. Each share of Series A Preferred Stock was issued at a price of $ 1.0 thousand per share and is convertible at the holder’s option into 47.54053782 shares of the Company’s Common Stock. The Company had not issued preferred stock prior to February 3, 2023. Warrants for Common Stock On February 3, 2023, the Company issued warrants to Patriot to purchase, in the aggregate, 47.54 shares of Common Stock for $ 21.03468 per share. The Warrants are exercisable in whole or in part until the ten year anniversary of the closing of the transaction and may be exercised for cash or on a “net share” basis, with the number of shares withheld determined based on the closing price of the Common Stock on the date of such exercise. Warrants are included in Other Liabilities on the Consolidated Statements of Financial Condition. Common Stock 2020 ATM Program On June 25, 2020, the Company entered into the 2020 ATM Equity Distribution Agreement. On July 20, 2022, the Company entered into Amendment No. 1 to the 2020 ATM Equity Distribution Agreement. The 2020 ATM Equity Distribution Agreement, as amended, provided that the Company may offer and sell up to 6.4 million shares of common stock from time to time through the placement agents. The ATM program was suspended as of January 6, 2023, when the Company did not have an effective shelf registration statement in place. The following table summarizes the total shares sold and net proceeds received under the 2020 ATM Equity Distribution Agreement: Year Ended December 31, 2023 Year Ended December 31, 2022 Year Ended December 31, 2021 Shares sold — 107 1,940 Net weighted average price per share $ — $ 19.12 $ 25.91 Net proceeds $ — $ 2,054 $ 50,261 The Company used the net proceeds for funding investments in debt and equity securities in accordance with its investment objective and strategies. 2023 ATM Program The Company’s shelf registration statement on Form S-3 was declared effective by the SEC on July 27, 2023. On November 17, 2023, the Company entered into the 2023 ATM Equity Distribution Agreement. The 2023 ATM Equity Distribution Agreement, as amended, provided that the Company may offer and sell up to 3.0 million shares of common stock from time to time through the placement agents. The Company may, subject to market conditions, engage in activity under the current ATM program. Dividends and Distributions On February 3, 2023, the Company issued 20 thousand shares of the Company’s Series A Convertible Preferred Stock, par value $ 0.02 per share, in a private placement transaction. The aggregate purchase price was $ 20.0 million. Each share of Series A Preferred Stock was issued at a price of $ 1.0 thousand per share and is convertible at the holder’s option into 47.54 shares of the Company’s Common Stock. During the year ended December 31, 2023 the Company had $ 1.5 million in dividends on its preferred stock. No preferred dividends were paid during the year ended December 31, 2022. F-60 Table of Contents The Company’s dividends and distributions on the Company’s common shares are recorded on the declaration date. On November 7, 2023, the Company issued a 30-day notice of its termination of the DRIP. The following table summarizes the Company’s dividend declarations and distributions during the years ended December 31, 2023 and 2022: Date Declared Record Date Payment Date Amount Per Share Cash Distribution DRIP Shares Issued DRIP Shares Value Year ended December 31, 2023 February 27, 2023 April 4, 2023 April 14, 2023 $ 0.18 $ 4,291 6 $ 72 June 27, 2023 July 10, 2023 July 21, 2023 $ 0.18 $ 4,293 4 $ 73 September 27, 2023 October 10, 2023 October 20, 2023 $ 0.18 $ 4,293 6 $ 71 December 11, 2023 December 29, 2023 January 12, 2024 $ 0.18 $ 4,371 — $ — Year ended December 31, 2022 December 20, 2021 March 21, 2022 March 31, 2022 $ 0.65 $ 15,361 9 $ 225 April 20, 2022 June 20, 2022 June 30, 2022 $ 0.75 $ 17,634 21 $ 374 August 30, 2022 September 20, 2022 September 30, 2022 $ 0.65 $ 15,325 21 $ 323 November 17, 2022 December 20, 2022 December 30, 2022 $ 0.70 $ 16,224 45 $ 692 NOTE 17—REGULATORY CAPITAL: The maintenance of appropriate levels of capital is a management priority and is monitored on a regular basis. The Company’s principal goals related to the maintenance of capital are the following: to provide adequate capital to support the Company’s risk profile consistent with the risk appetite approved by the Board of Directors; to provide financial flexibility to support future growth and client needs; comply with relevant laws, regulations, and supervisory guidance; to achieve optimal ratings for the Company and its subsidiaries; and to provide a competitive return to shareholders. Management regularly monitors the capital position of the Company on both a consolidated and bank level basis. Risk-based capital ratios, which include Tier 1 Capital, Total Capital and Common Equity Tier 1 Capital, are calculated based on regulatory guidance related to the measurement of capital and risk-weighted assets. Regulatory capital rules adopted in July 2013 and fully phased in as of January 1, 2019, which are referred to as the Basel III rules, impose minimum capital requirements for bank holding companies and banks. The Basel III rules apply to all national and state banks and savings associations regardless of size and bank holding companies and savings and loan holding companies with consolidated assets of more than $3 billion. In order to avoid restrictions on capital distributions or discretionary bonus payments to executives, a covered banking organization must maintain the fully phased in “capital conservation buffer” of 2.5% on top of its minimum risk-based capital requirements. This buffer must consist solely of common equity Tier 1 risk-based capital, but the buffer applies to all three measurements (common equity Tier 1 risk-based capital, Tier 1 capital and total capital). The capital conservation is equal to 2.5% of risk-weighted assets. Capital amounts and ratios for NewtekOne, Inc. as of December 31, 2023 are presented in the table below: Actual For Capital Adequacy Purposes 1 For Consideration as Well-Capitalized NewtekOne, Inc. - December 31, 2023 Amount Ratio Amount Ratio Amount Ratio Tier 1 Capital (to Average Assets) $ 180,829 13.6 % $ 53,363 4.0 % N/A N/A Common Equity Tier 1 (to Risk-Weighted Assets) 180,829 16.2 % 50,153 4.5 % N/A N/A Tier 1 Capital (to Risk-Weighted Assets) 180,829 16.2 % 66,870 6.0 % N/A N/A Total Capital (to Risk-Weighted Assets) 213,141 19.1 % 89,160 8.0 % N/A N/A (1) Exclusive of the capital conservation buffer of 2.5% of risk-weighted assets. Capital amounts and ratios for Newtek Bank as of December 31, 2023, are presented in the table below. As of December 31, 2023, Newtek Bank was categorized as “well-capitalized” under the prompt corrective action measures and met the capital conservation buffer requirements. F-61 Table of Contents Actual For Capital Adequacy Purposes 1 For Consideration as Well-Capitalized Newtek Bank - December 31, 2023 Amount Ratio Amount Ratio Amount Ratio Tier 1 Capital (to Average Assets) $ 99,253 16.6 % $ 23,893 4.0 % $ 29,866 5.0 % Common Equity Tier 1 (to Risk-Weighted Assets) 99,253 21.5 % 20,787 4.5 % 30,026 6.5 % Tier 1 Capital (to Risk-Weighted Assets) 99,253 21.5 % 27,716 6.0 % 36,955 8.0 % Total Capital (to Risk-Weighted Assets) 105,105 22.8 % 36,954 8.0 % 46,193 10.0 % (1) Exclusive of the capital conservation buffer of 2.5% of risk-weighted assets. NOTE 18—EARNINGS PER SHARE: Basic and diluted earnings per share are computed based on the weighted average number of shares outstanding during each period. Diluted earnings per share reflects the potential dilution that could occur upon the exercise of stock options, to the extent outstanding, or upon the vesting of restricted stock grants, any of which would result in the issuance of common stock that would then share in the net income of the Company. December 31, 2023 2022 2021 Financial Holding Company 1,2 Investment Company 4 Investment Company 4 Basic earnings per share: Net income available to common shareholders $ 45,875 $ 32,311 $ 84,142 Weighted-average basic shares outstanding 24,263 24,198 22,795 Basic earnings per share $ 1.89 $ 1.34 $ 3.69 Diluted earnings per share: Net income, for diluted earnings per share $ 45,875 $ 32,311 $ 84,142 Total weighted-average basic shares outstanding 24,263 24,198 22,795 Add effect of dilutive warrants and restricted stock awards 3 85 — — Total weighted-average diluted shares outstanding 24,348 24,198 22,795 Diluted earnings per share $ 1.88 $ 1.34 $ 3.69 Anti-dilutive warrants and restricted stock awards 1,153 — — (1) For the years ended December 31, 2023, the convertible preferred stock was not included in the diluted share count because the result would have been anti-dilutive under the if-converted method. (2) For the years ended December 31, 2023, the Warrants have an anti-dilutive impact on earnings per share. (3) Incremental diluted shares from restricted stock awards under the treasury stock method. (4) Per ASC 260-10-15-3, presentation of EPS was not required for investment companies that comply with the requirements of ASC 946, or in the financial statements of wholly-owned subsidiaries. EPS presentation disclosures are now required as the Company is no longer subject to FASB Topic 946 as a financial holding company. NOTE 19—LEASES: Under ASC 842, operating lease expense is generally recognized on a straight-line basis over the term of the lease. The Company has entered into operating lease agreements for office space with remaining contractual terms up to three years , some of which include renewal options that extend the leases for up to 10 years. These renewal options are not considered in the remaining lease term unless it is reasonably certain the Company will exercise such options. The operating lease agreements do not contain any material residual value guarantees or material restrictive covenants. As the rate implicit in the leases generally is not readily determinable for our operating leases, the discount rates used to determine the present value of our lease liability are based on our incremental borrowing rate at the lease commencement date and commensurate with the remaining lease term. Our incremental borrowing rate for a lease is the rate of interest we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Leases with an initial term of 12 months or less are not recorded on the balance sheet and are excluded from our weighted-average remaining lease term. F-62 The following table summarizes supplemental cash flow and other information related to our operating leases: Year Ended December 31, 2023 2022 2021 Cash paid for amounts included in the measurement of lease liabilities (operating cash flows) $ 2,693 $ 1,886 $ 1,555 Weighted-average remaining lease term - operating leases 2.88 years 4.41 years 5.30 years Weighted-average discount rate - operating leases 5.50 % 4.73 % 4.55 % Total lease costs 1 $ 3,124 $ 1,000 $ 894 1 Included in Other general and administrative costs on the consolidated statements of operations. The following table represents the maturity of the Company’s operating lease liabilities as of December 31, 2023: Maturity of Lease Liabilities 2024 $ 2,761 2025 2,469 2026 1,842 2027 430 2028 — Thereafter — Total future minimum lease payments $ 7,502 Less: Imputed interest ( 550 ) Present value of future minimum lease payments $ 6,952 NOTE 20—BENEFIT PLANS: Defined Contribution Plan The Company’s employees participate in a defined contribution 401(k) plan (the “Plan”) adopted in 2004 which covers substantially all employees based on eligibility. The Plan is designed to encourage savings on the part of eligible employees and qualifies under Section 401(k) of the Code. Under the Plan, eligible employees may elect to have a portion of their pay, including overtime and bonuses, reduced each pay period, as pre-tax contributions up to the maximum allowed by law. The Company may elect to make a matching contribution equal to a specified percentage of the participant’s contribution, on their behalf as a pre-tax contribution. For the years ended December 31, 2023, 2022 and 2021, the Company matched 50 % of the first 2 % of employee contributions, resulting in $ 0.4 million, $ 0.1 million and $ 0.1 million in expense, respectively. Employee Stock Purchase Plan (ESPP) On June 14, 2023, the Company's stockholders approved the ESPP. The initial aggregate number of shares of common stock that may be purchased under the ESPP will not exceed 0.2 million shares. Under the terms of the ESPP, employees may authorize the withholding of up to 15 % of their eligible compensation to purchase our shares of common stock, not to exceed $ 25 thousand of common stock for any calendar year. The purchase price per shares acquired under the ESPP will never be less than 85 % of the fair market value of the lesser of our common stock on the offering date or purchase date. The Compensation, Corporate Governance and Nominating Committee of our Board of Directors in its discretion may terminate the ESPP at any time with respect to any shares for which options have not been granted and has the right to amend the ESPP with stockholder approval within 12 months before or after the adoption of the amendment. The difference between the common stock’s fair value and the employee’s discounted purchase price is expensed at the time of purchase. The following table summarizes the Company’s ESPP activity during the year ended December 31, 2023: F-63 Year Ended December 31, 2023 Offering Period 1 Commencement date 10/1/2023 End date 12/15/2023 Shares purchased 4 Weighted average share price $ 13.05 Total purchased $ 51 NOTE 21—INCOME TAXES: The Company elected to be treated as a RIC under the Code beginning with the 2015 tax year and, through the year ended December 31, 2022, operated in a manner so as to continue to qualify for the tax treatment applicable to RICs. The Company filed its final RIC tax return for the year ended December 31, 2022. While the Company operated as a RIC, it was required to distribute substantially all of its respective net taxable income each tax year as dividends to its shareholders. Accordingly, for the period December 31, 2022, no provision for federal income tax was made in the financial statements. For 2023, the Company no longer qualifies as a RIC and instead will file a consolidated U.S. federal income tax return. Financial holding companies are subject to federal and state income taxes in essentially the same manner as other corporations. One of the Company’s former consolidated holding companies is undergoing a NYS tax audit for the fiscal years ended December 31, 2020 and December 31, 2021. Effective Tax Rate and Net Operating Losses The effective tax rate was ( 4.31 )% for the years ended December 31, 2023. The effective tax rate differs from the federal tax rate of 21% for the years ended December 31, 2023 due primarily to the recognition of subsidiary federal net operating losses (“NOLs”) expected to be realized in a federal consolidated return setting and other discrete items. At December 31, 2022, the Company had NOLs in the amount of $ 35.4 million. Certain of these NOLs ($ 4.6 million) expire in 2029 through 2037 with the remainder NOLs ($ 30.8 million) having indefinite lives. The Company expects to apply $ 23.8 million of the total NOLs against 2023 taxable income and will carry forward the remaining balance of $ 11.6 million to apply against future taxable income. The Tax Cuts & Jobs Act of 2017 limits the amount of net operating loss utilized each year after December 31, 2020 to 80% of taxable income. The Company’s and its subsidiaries’ federal income tax returns are generally open to review by the tax authorities for the tax years ended in 2019 and beyond. However, the Company’s NOLs continue to be subject to review by tax authorities in the period utilized notwithstanding origination in closed periods. The Company does not have any material interest and penalties recorded in the income statement for the years ended December 31, 2023, 2022 and 2021. The components of income tax expense for the year ended December 31, 2023, were as follows: 2023 Amount Current income tax expense: Federal $ 1,251 State 1,593 Total current expense 2,844 Deferred income tax expense: Federal ( 4,318 ) State ( 482 ) Total deferred expense ( 4,800 ) Total income tax expense $ ( 1,956 ) F-64 Income taxes for financial reporting purposes differ from the amount computed by applying the statutory federal income tax rate of 21% as shown in the following table: 2023 Tax on income computed at statutory federal income tax rate $ 9,528 Increase (decrease) in taxes resulting from: State income tax, net of federal tax effect 911 Non-deductible expenses 788 Realization of net operating loss carryforwards ( 7,430 ) DTA realization due to change in taxpayer status ( 5,550 ) Other, net ( 203 ) Income tax expense $ ( 1,956 ) Effective tax rate ( 4.31 ) % Significant components of the Company’s net deferred tax asset at December 31 are listed below: 2023 2022 Deferred tax assets: Allowance for Credit Losses $ 3,313 $ — Lease Liabilities 1,832 — Other 1,669 — Purchase Accounting, net 331 — Stock Compensation 396 — Loans 2,677 — Federal and state net operating losses, net of federal tax effect 2,428 — Total deferred tax assets 12,646 — Deferred tax liabilities: Investments 650 19,194 Servicing Rights 2,737 — Right of Use Assets 1,502 — Goodwill and Intangible Assets 2,330 — Other 197 — Total deferred tax liabilities 7,416 19,194 Net deferred tax asset (liability) $ 5,230 $ ( 19,194 ) The following table provides details of the expiration dates for Company’s net operating loss carryforwards at December 31, 2023: Net operating losses - federal December 31, 2023 Expiring: Deferred Tax Asset Balance Years ended 2029 - 2035 $ — Years ended 2036 - 2043 — Never 2,428 Total $ 2,428 F-65 NOTE 22—SEGMENTS: The Company's management reporting process measures the performance of its operating segments based on internal operating structure, which is subject to change from time to time. Accordingly, the Company operates four reportable segments for management reporting purposes as discussed below: Banking - Newtek Bank originates, services and sells SBA 7(a) loans in a similar manner to NSBF’s historic business model (see Non-Bank Lending below) and originates and services SBA 504 loans, C&I loans, CRE loans and ABL loans. In addition, Newtek Bank offers depository services. NSBF - relates to NSBF’s legacy portfolio held outside Newtek Bank, no new originating activity takes place. NSBF’s legacy portfolio consists of SBA 7(a) Loans, a material portion of which reside in securitization trusts. Payments - Includes NMS, POS and Mobil Money. NMS markets credit and debit card processing services, check approval services, processing equipment, and software and: – Assist merchants with initial installation of equipment and on-going service, as well as any other special processing needs that they may have. – Handles payment processing for Mobil Money’s merchant portfolio of taxi cabs and related licensed payment processing software. – POS is a provider of a cloud based Point of Sale (POS) system for a variety of restaurant, retail, assisted living, parks and golf course businesses, which provides not only payments and purchase technology solutions, but also inventory, customer management, reporting, employee time clock, table and menu layouts, and ecommerce solutions as the central operating system for an SMB. Technology - NTS provides website hosting, web design and development, dedicated server hosting, cloud hosting, internet marketing, ecommerce, 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, subject to any extension of the two-year period. Corporate and Other - The information provided under the caption “Corporate and Other” represents operations not considered to be reportable segments and/or general operating expenses of the Company, and includes the parent company, other non-bank subsidiaries including Newtek Insurance and Newtek Payroll, and elimination adjustments to reconcile the results of the operating segments to the condensed consolidated financial statements prepared in conformity with GAAP. The following table provide financial information for the Company's segments: As of and for the year ended December 31, 2023 Banking Technology NSBF Payments Corporate and Other Eliminations Consolidated Interest income $ 34,349 $ — $ 50,823 $ 2,087 $ 11,625 $ ( 4,511 ) $ 94,373 Interest expense 16,625 246 26,796 3,577 25,006 ( 4,511 ) 67,739 Net interest income/(loss) 17,724 ( 246 ) 24,027 ( 1,490 ) ( 13,381 ) — 26,634 Provision for loan credit losses 11,704 — — — — — 11,704 Net interest income after provision for loan credit losses 6,020 ( 246 ) 24,027 ( 1,490 ) ( 13,381 ) — 14,930 Noninterest income 92,129 31,692 25,142 46,422 92,059 ( 110,672 ) 176,772 Noninterest expense 58,375 29,850 32,108 31,600 29,265 ( 34,869 ) 146,329 Income before taxes 39,774 1,596 17,061 13,332 49,413 ( 75,803 ) 45,373 Income tax expense (benefit) 11,647 229 — 1,178 ( 15,010 ) — ( 1,956 ) Net income 28,127 1,367 17,061 12,154 64,423 ( 75,803 ) 47,329 Assets $ 683,202 $ 23,404 $ 633,207 $ 51,819 $ 726,002 $ ( 688,121 ) $ 1,429,513 F-66 Table of C o ntents NOTE 23—SUPPLEMENTAL FINANCIAL DATA: During the years ended December 31, 2022 and 2021 when we operated as a BDC, in accordance with the SEC’s Regulation S-X and GAAP, we were not permitted to consolidate any subsidiary or other entity that is not an investment company, including those in which we have a controlling interest. We had two unconsolidated subsidiaries that met at least one of the significance conditions under Rule 1-02(w) of Regulation S-X during certain periods presented for which we were previously required, pursuant to Rule 3-09 of Regulation S-X, to attach separate financial statements as exhibits to the Form 10-K for the years ended December 31, 2022 and 2021. Refer to our 2022 Form 10-K filed March 15, 2023 and exhibits thereto. NOTE 24—SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): Summary of Revisions to Prior Period Quarterly Consolidated Financial Statements As of January 6, 2023, the Company is no longer subject to Financial Accounting Standard Board Accounting Standards Codification (FASB) Topic (ASC) 946 Financial Services – Investment Companies, which resulted in a significant change in the Company’s accounting and financial reporting requirements for the year ended December 31, 2023. For example, the Company is required to consolidate the financial statements of what was previously referred to as our controlled or majority-owned investments together with those already consolidated by the Company. In accordance with ASC 946, prior to January 6, 2023, the Company was required to account for investments, loans and other receivables at fair value. For fiscal year ended December 31, 2023, the Company is now required to account for debt securities under ASC 320, loans and other receivables, including modifications and restructurings under ASC 310, and must apply the current expected credit loss model to each of these financial instruments under ASC 326. Additionally, management continues to elect the fair value option of accounting under ASC 825 for certain financial instruments. Finally, as a result of the conversion, the Company no longer qualifies as a RIC for federal income tax purposes, and no longer qualifies for accounting treatment as an investment company, therefore management has been required to expend significant efforts in order to implement these changes in accounting and financial reporting requirements. The Company’s condensed comparative financial statements have been adjusted to correct errors made in the Company’s financial statements previously issued for the first, second, and third quarters of 2023. These adjustments include the following adjustments for the year-to-date period ended September 30, 2023: 1. Accounting for deferred loan origination fees and costs, net, under ASC 310 resulting for the year-to-date period ended September 30, 2023, in (a) a $ 5.1 million and $ 5.7 million decrease in non-interest income and non-interest expense, respectively, and (b) net increases to pretax income of $ 0.6 million (the Company was not applying the standard to its SBA 7(a) HFI at amortized cost or to its SBA 504 HFS at LCM portfolios); 2. Calculating EPS under ASC 260 (a) exclude stock compensation awards from average basic shares outstanding and (b) adjust average diluted shares to reflect the (i) treasury stock method for stock compensation awards and warrants and (ii) the if-converted method for preferred stock and (c) adjusting the allocation under the two-class method to align with the contractual limitations for preferred stock, all of which result in quarterly increases per share for both basic and diluted EPS for the first three quarters of 2023; 3. Establishing net deferred net tax assets and income taxes receivable under ASC 740 in conjunction with the common control transaction, as of January 6, 2023, specifically to recognize (a) the book tax differences on the inside basis of the assets and liabilities that were consolidated as of that date (b) net amounts receivable from tax authorities and © deferred tax assets arising from a change in taxpayer filing status in conjunction with the Reorganization, all of which resulted in increased net deferred tax assets and income taxes receivable of $ 10.0 million and an increase to additional paid in capital of $ 2.9 million and an income tax benefit of $ 7.1 million. The results of these adjustments impacted period end balances on the statements of financial condition and year-to-date amounts on the statements of income for each period presented; 4. Establishing certain servicing assets under ASC 860 in conjunction with the common control transaction and servicing assets that stemmed from loan originations that occurred following January 6, 2023, resulting in a $ 1.0 million increase in non-interest income and a $ 1.5 million increase in servicing assets; and 5. An adjusting opening balance sheet entry in conjunction with common control transaction to correct (a) net understatements of goodwill and intangibles and stockholders’ equity resulting in respective increases of $ 3.9 million and (b) amortization of intangible assets. F-67 Table of C o ntents The year-to-date and quarterly impact of these adjustments for the periods presented are outlined in the unaudited tables below. Statements of Financial Condition (Unaudited) September 30, 2023 June 30, 2023 March 30, 2023 As Reported 1 Adjustment As Adjusted As Reported 1 Adjustment As Adjusted As Reported 1 Adjustment As Adjusted Assets Cash and due from banks $ 223,692 $ — $ 223,692 $ 256,333 $ — $ 256,333 $ 197,143 $ — $ 197,143 Loans held for investment, at amortized cost, net 1 272,725 653 273,378 213,501 294 213,795 164,639 9 164,648 Goodwill & intangibles 27,157 4,154 31,311 27,595 4,072 31,667 28,101 3,990 32,091 Deferred tax asset, net 8,656 7,599 16,255 4,622 8,005 12,627 4,706 8,120 12,826 Servicing assets 36,774 1,517 38,291 35,754 484 36,238 33,351 328 33,679 Other assets 48,430 1,418 49,848 46,670 1,541 48,211 49,850 1,629 51,479 All other assets 760,720 — 760,720 852,150 — 852,150 767,933 — 767,933 Total assets $ 1,378,154 $ 15,341 $ 1,393,495 $ 1,436,625 $ 14,396 $ 1,451,021 $ 1,245,723 $ 14,076 $ 1,259,799 Liabilities and Shareholders' Equity Liabilities: Deposits $ 432,559 $ — $ 432,559 $ 447,357 $ — $ 447,357 $ 247,574 $ — $ 247,574 Accounts payable, accrued expenses and other liabilities 36,509 162 36,671 37,512 162 37,674 44,912 — 44,912 All other liabilities 682,063 — 682,063 730,541 — 730,541 734,727 — 734,727 Total liabilities 1,151,131 162 1,151,293 1,215,410 162 1,215,572 1,027,213 — 1,027,213 Shareholders' Equity: All Other Equity 20,045 — 20,045 20,026 — 20,026 20,147 — 20,147 Retained Earnings 14,267 7,935 22,202 9,075 6,990 16,065 7,047 6,832 13,879 APIC 192,711 7,244 199,955 192,114 7,244 199,358 191,316 7,244 198,560 Total shareholders’ equity 227,023 15,179 242,202 221,215 14,234 235,449 218,510 14,076 232,586 Total Liabilities & Shareholders Equity $ 1,378,154 $ 15,341 $ 1,393,495 $ 1,436,625 $ 14,396 $ 1,451,021 $ 1,245,723 $ 14,076 $ 1,259,799 1 Certain amounts labeled “As Reported” have been reclassified to conform to current period presentation. F-68 Table of C o ntents Statements of Income for the Quarterly Periods (Unaudited) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 As Reported As Reported 1 Adjustment As Adjusted As Reported 1 Adjustment As Adjusted As Reported 1 Adjustment As Adjusted Interest income $ 26,369 $ 26,736 $ — $ 26,736 $ 22,553 $ — $ 22,553 $ 18,715 $ — $ 18,715 Interest expense 18,068 18,659 — 18,659 16,880 — 16,880 14,132 — 14,132 Net interest income 8,301 8,077 — 8,077 5,673 — 5,673 4,583 — 4,583 Provision for credit losses 4,365 3,446 — 3,446 2,575 — 2,575 1,318 — 1,318 Noninterest income Net gains on sales of loans 17,252 12,718 1,033 13,751 13,208 156 13,364 6,526 ( 159 ) 6,367 Technology and IT support income 6,460 5,499 ( 123 ) 5,376 6,459 ( 88 ) 6,371 6,709 — 6,709 Other noninterest income 25,395 24,683 ( 2,786 ) 21,897 26,761 ( 2,211 ) 24,550 29,552 ( 272 ) 29,280 Noninterest expense Salaries and benefits 14,535 15,300 ( 1,574 ) 13,726 19,418 ( 1,044 ) 18,374 19,119 ( 46 ) 19,073 Depreciation and amortization 613 812 ( 82 ) 730 832 ( 82 ) 750 873 ( 82 ) 791 Other loan origination and maintenance expense 2,503 3,405 ( 1,569 ) 1,836 3,559 ( 1,246 ) 2,313 2,827 ( 46 ) 2,781 Other noninterest expense 20,558 15,028 — 15,028 16,340 — 16,340 16,378 — 16,378 Income tax expense (benefit) 4,623 3,011 405 3,416 2,524 71 2,595 ( 4,863 ) ( 7,089 ) ( 11,952 ) Net income $ 10,211 $ 9,975 $ 944 $ 10,919 $ 6,853 $ 158 $ 7,011 $ 11,718 $ 6,832 $ 18,550 Weighted average number of shares outstanding Basic 24,259 24,663 ( 386 ) 24,277 24,607 ( 343 ) 24,264 24,609 ( 386 ) 24,223 Diluted 24,342 24,663 ( 250 ) 24,413 25,588 ( 1,282 ) 24,306 25,237 ( 356 ) 24,881 Earnings (loss) per common share Basic $ 0.43 $ 0.38 $ 0.05 $ 0.43 $ 0.26 $ 0.01 $ 0.27 $ 0.46 $ 0.30 $ 0.76 Diluted $ 0.43 $ 0.38 $ 0.05 $ 0.43 $ 0.26 $ 0.01 $ 0.27 $ 0.46 $ 0.28 $ 0.74 Statements of Income for the YTD Periods Ended (Unaudited) For the nine months ended For the six months ended September 30, 2023 June 30, 2023 As Reported 1 Adjustment As Adjusted As Reported 1 Adjustment As Adjusted Interest income 68,004 — 68,004 41,268 — 41,268 Interest expense 49,671 — 49,671 31,012 — 31,012 Net interest income 18,333 — 18,333 10,256 — 10,256 Provision for credit losses 7,339 — 7,339 3,893 — 3,893 Noninterest income: Net gains on sales of loans 32,452 1,030 33,482 19,734 ( 3 ) 19,731 Technology and IT support income 18,667 ( 211 ) 18,456 13,168 ( 88 ) 13,080 Other noninterest income 80,994 ( 5,267 ) 75,727 56,313 ( 2,483 ) 53,830 Noninterest expense: Salaries and benefits 53,837 ( 2,664 ) 51,173 38,537 ( 1,090 ) 37,447 Depreciation and amortization 2,517 ( 246 ) 2,271 1,705 ( 164 ) 1,541 Other loan origination and maintenance expense 9,791 ( 2,861 ) 6,930 6,386 ( 1,292 ) 5,094 Other noninterest expense 47,746 — 47,746 32,718 — 32,718 Income tax expense (benefit) 671 ( 6,612 ) ( 5,941 ) ( 2,339 ) ( 7,018 ) ( 9,357 ) Net income $ 28,545 $ 7,935 $ 36,480 $ 18,571 $ 6,990 $ 25,561 Weighted average number of shares outstanding Basic 24,626 ( 371 ) 24,255 24,608 ( 364 ) 24,244 Diluted 24,626 ( 290 ) 24,336 25,423 ( 1,125 ) 24,298 Earnings (loss) per common share Basic $ 1.10 $ 0.36 $ 1.46 $ 0.72 $ 0.31 $ 1.03 Diluted $ 1.10 $ 0.36 $ 1.46 $ 0.72 $ 0.31 $ 1.03 1 Certain amounts labeled “As Reported” have been reclassified to conform to current period presentation. F-69 Table of C o ntents NOTE 25—NEWTEKONE, INC. - PARENT COMPANY ONLY: The following balance sheets, statements of income and statements of cash flows are for NewtekOne, Inc. and should be read in conjunction with the consolidated financial statements and the notes thereto. Statement of Financial Condition December 31, 2023 Assets Cash and balances due from depository institutions: $ 13,871 Loans and lease financing receivable 4,786 Investments in and receivables due from subsidiaries and associated companies 392,519 Premises and fixed assets (including capitalized leases) 64 Other assets 20,159 Total assets 431,399 Liabilities and shareholders' equity Borrowings with a remaining maturity of one year or less: 38,124 Other borrowed money with a remaining maturity of more than one year 253,888 Other liabilities 59,495 Total liabilities 351,507 Preferred stock 19,493 Common stock 490 Additional paid in capital 314,187 Retained earnings ( 254,278 ) Total shareholders’ equity 79,892 Total liabilities and shareholder's equity $ 431,399 Statement of Income For the year ended 2023 Interest income $ 2,319 Interest expense 18,797 Net interest loss ( 16,478 ) Noninterest income: Dividends 60,317 All other operating income ( 2,345 ) Total noninterest income 57,972 Noninterest expense: Salaries and employee benefits 9,365 Other expenses 10,962 Total noninterest expense 20,327 Net Income before equity in undistributed income of subsidiaries 21,167 Income tax benefit ( 14,837 ) Income (loss) before undistributed income of subsidiaries 36,004 Equity in undistributed income (losses) of subsidiaries and associated companies: 26,813 Net income (loss) $ 62,817 F-70 Table of C o ntents Statement of Cash Flows For the year ended 2023 Cash flows from operating activities: Net income (loss) $ 62,817 Provisions for deferred income taxes ( 5,814 ) Gain (loss) on sale of assets 539 Equity in Undistributed (earnings) losses of subs ( 26,813 ) Net change in other liabilities ( 40,414 ) Net change in other asset ( 10,759 ) Other, net 7,570 Net cash provided (used by operating activities ( 12,874 ) Cash flow from investing activities Payments for investments in and advances to subsidiaries ( 96,265 ) Outlays for business acquisitions ( 21,322 ) Other, net 14 Net cash provided (used) by investing activities ( 117,573 ) Cash flow from financing activities Proceeds from issuance of long-term debt 90,000 Proceeds from issuance of preferred stock 19,493 Dividends paid ( 14,147 ) Other, net ( 2,826 ) Net cash provided (used) by financing activities 92,520 Net (decrease) increase in cash and restricted cash ( 37,927 ) Cash and restricted cash - beginning of period 51,798 Cash and restricted cash - end of period $ 13,871 Borrowings and Maturities Refer to NOTE 12—BORROWINGS for a schedule of borrowings that includes the notes issued by the parent company. Refer to the Liquidity and Capital Resources section of the MD&A under the Contractual Obligations section for a schedule of maturities. Guarantees The Company is a guarantor on the SPV I Capital One Facility. Maximum borrowings under the SPV I Facility are $ 60.0 million. The lender’s commitments terminate in November 2024, with all amounts due under the SPV I Facility maturing in November 2025. At December 31, 2023, total principal owed by SPV I was $ 16.3 million. At December 31, 2023, the Company determined that it is not probable that payments would be required to be made under the guarantee. The Company is a guarantor on the SPV II Deutsche Bank Facility. Maximum borrowings under the SPV II Deutsche Bank Facility are $ 50.0 million. The Deutsche Bank Facility matures in November 2024. At December 31, 2023, total principal owed by SPV II was $ 6.9 million. At December 31, 2023, the Company determined that it is not probable that payments would be required to be made under the guarantee. The Company is a guarantor on the SPV III One Florida Bank Facility. Maximum borrowings under the SPV III One Florida F-71 Table of C o ntents Bank Facility are $ 30.0 million. The One Florida Bank Facility matures in May 2025. At December 31, 2023, total principal owed by SPV III was $ 0.4 million. At December 31, 2023, the Company determined that it is not probable that payments would be required to be made under the guarantee. On April 27, 2023, the SPV III One Florida Bank Facility was amended to increase maximum borrowings under the line to $ 30.0 million. The Company is a guarantor on the Webster Facility, a term loan facility between NMS with Webster Bank with an aggregate principal amount up to $ 54.9 million. The Webster Facility matures in November 2027. At December 31, 2023, total principal outstanding was $ 36.6 million. At December 31, 2023, the Company determined that it is not probable that payments would be required to be made under the guarantee. The Company is a guarantor on certain of NSBF’s potential obligations to the SBA pursuant to the Wind-down Agreement. Specifically, pursuant to the Wind-down Agreement, the Company has guaranteed NSBF’s obligations to the SBA for post-purchase repairs or denials on the guaranteed portion of 7(a) Loans sold by NSBF on the secondary market or servicing/liquidation post-purchase repairs or denial, and has funded a $ 10.0 million restricted cash account at Newtek Bank to secure these potential obligations. NOTE 26—SUBSEQUENT EVENTS: Dividends On March 19, 2024, the Company declared a first quarter 2024 cash dividend of $ 0.19 per share, which is payable on April 15, 2024 to shareholders of record as of April 1, 2024. F-72