WILLIS LEASE FINANCE CORP 10-K

ITEM 9A. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. Based on management’s evaluation (with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”)), as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“the Exchange Act”)), are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. (b) Inherent Limitations on Controls. Management, including the CEO and CFO, does not expect that our disclosure controls and procedures will prevent or detect all errors and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to errors or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. (c) Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting includes policies and procedures that: (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of assets; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and Board of Directors; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Our internal control over financial reporting is a process designed with the participation of our principal executive officer and principal financial officer or persons performing similar functions to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounted principles. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, we used 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 our management believes that, as of December 31, 2022, our internal control over financial reporting is effective under those criteria. Grant Thornton LLP, the independent registered public accounting firm that audited the Company’s 2022 consolidated financial statements included in this Annual Report, issued an audit report on the Company’s internal control over financial reporting. Grant Thornton’s audit report appears on page 42. 34 Table of Contents (d) Changes in internal control over financial reporting. There has been no change in our internal control over financial reporting during our fourth fiscal quarter ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT We have adopted a Standards of Ethical Conduct Policy (the “Code of Ethics”) that applies to all directors and employees including our Chief Executive Officer, President, and Chief Financial Officer. The Code of Ethics is available on our website at www.willislease.com. If we make any substantive amendments to the Code of Ethics or grant any waiver from a provision of the code to our Chief Executive Officer, President and Chief Financial Officer, we will disclose the nature of the amendment or waiver on our investor relations page under the heading “Corporate Governance” on our website at www.willislease.com or in a report on Form 8-K. The remainder of the information required by this item is incorporated by reference to our Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to our Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information in Item 5 of this report regarding our Equity Compensation Plans is incorporated herein by reference. The remainder of the information required by this item is incorporated by reference to our Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to our Proxy Statement. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item is incorporated by reference to our Proxy Statement. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) (1) Financial Statements The response to this portion of Item 15 is submitted as a separate section of this report beginning on page 45. (a) (2) Financial Statement Schedules Schedule II, Valuation Accounts, is submitted as a separate section of this report starting on page 75. All other financial statement schedules have been omitted as the required information is not pertinent to the Registrant or is not material or because the required information is included in the Financial Statements and Notes thereto. (a) (3),(b) and (c):Exhibits: The response to this portion of Item 15 is submitted below. 35 Table of Contents EXHIBITS Exhibit Number Description 3.1 Certificate of Incorporation, dated March 12, 1998, as amended by the Certificate of Amendment of Certificate of Incorporation, dated May 6, 1998 (incorporated by reference to Exhibit 3.1 to our report on Form 10-K filed on March 31, 2009). 3.2 Bylaws, dated April 18, 2001 as amended by (1) Amendment to Bylaws, dated November 13, 2001, (2) Amendment to Bylaws, dated December 16, 2008, (3) Amendment to Bylaws, dated September 28, 2010, (4) Amendment to Bylaws, dated August 5, 2013 (incorporated by reference to Exhibit 3.1 to our report on Form 8-K filed on August 9, 2013), and (5) Amendment to Bylaws, dated October 7, 2016 (incorporated by reference to Exhibit 10.1 to our report on Form 8-K filed on October 18, 2016). 4.1 Rights Agreement dated as of September 24, 1999, by and between the Registrant and American Stock Transfer and Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.1 to our report on Form 8-K filed on October 4, 1999). 4.2 Second Amendment to Rights Agreement dated as of December 15, 2005, by and between the Registrant and American Stock Transfer and Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.5 to our report on Form 10-K filed on March 31, 2009). 4.3 Third Amendment to Rights Agreement dated as of September 30, 2008, by and between the Registrant and American Stock Transfer and Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.6 to our report on Form 10-K filed on March 31, 2009). 4.3.1 Fourth Amendment to Rights Agreement dated August 27, 2018, by and between the Registrant and American Stock Transfer and Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.3.1 to our report on Form 10-K filed on March 12, 2020). 4.4 Form of Certificate of Designations of the Registrant with respect to the Series I Junior Participating Preferred Stock (formerly known as “Series A Junior Participating Preferred Stock”) (incorporated by reference to Exhibit 4.7 to our report on Form 10-K filed on March 31, 2009). 4.5 Form of Amendment No. 1 to Certificate of Designations of the Registrant with respect to Series I Junior Participating Preferred Stock (incorporated by reference to Exhibit 4.8 to our report on Form 10-K filed on March 31, 2009). 4.6 Second Amended and Restated Certificate of Designations, Preferences, and Relative Rights and Limitations of Series A Cumulative Redeemable Preferred Stock dated as of September 25, 2017 (incorporated by reference to Exhibit 10.2 to our report on Form 8-K filed on September 28, 2017). 4.7 Description of Securities (incorporated by reference to Exhibit 4.7 to our report on Form 10-K filed March 12, 2020). 4.8 Certificate Eliminating Series I Junior Participating Preferred Stock of Willis Lease Finance Corporation dated as of October 7, 2016 (incorporated by reference to Exhibit 10.3 to our report on Form 8-K filed October 18, 2016). 10.1† Form of Indemnification Agreement entered into between the Registrant and its directors and officers (incorporated by reference to Exhibit 10.1 to our report on Form 8-K filed on October 1, 2010). 10.2† Amended and Restated 2007 Stock Incentive Plan (incorporated by reference to the Registrant’s Proxy Statement for 2015 Annual Meeting of Stockholders filed on April 28, 2015). 10.3† Employment Agreement, dated as of March 3, 2022 and effective as of April 1, 2022, by and between the Registrant and Charles F. Willis IV (incorporated by reference to Exhibit 10.2 to our report on Form 10-Q filed on May 10, 2022). 10.4† Employment Agreement between the Registrant and Scott B. Flaherty dated May 20, 2016 (incorporated by reference to Exhibit 10.1 to our report on Form 8-K filed on May 25, 2016). 10.5† Employment Agreement between the Registrant and Dean M. Poulakidas dated March 31, 2013 (incorporated by reference to Exhibit 10.23 to our report on Form 8-K filed on June 19, 2013). 10.6* Trust Indenture dated as of September 14, 2012 among Willis Engine Securitization Trust II, Deutsche Bank Trust Company Americas, as trustee, the Registrant and Crédit Agricole Corporate and Investment Bank (incorporated by reference to Exhibit 10.14 to our report on Form 10-Q filed on November 9, 2012). 10.7* Security Trust Agreement dated as of September 14, 2012 by and among Willis Engine Securitization Trust II, Willis Engine Securitization (Ireland) Limited, the Engine Trusts listed on Schedule V thereto, each of the additional grantors referred to therein and from time to time made a party thereto and Deutsche Bank Trust Company Americas, as trustee (incorporated by reference to Exhibit 10.15 to our report on Form 10-Q filed on November 9, 2012). 10.8* Note Purchase Agreement dated as of September 6, 2012 by and among Willis Engine Securitization Trust II, the Registrant, Credit Agricole Securities (USA) Inc. and Goldman, Sachs & Co. (incorporated by reference to Exhibit 10.16 to our report on Form 10-Q filed on November 9, 2012). 10.9* Servicing Agreement dated as of September 17, 2012 between Willis Engine Securitization Trust II, the Registrant and the entities listed on Appendix A thereto (incorporated by reference to Exhibit 10.17 to our report on Form 10-Q filed on November 9, 2012). 10.10* Administrative Agency Agreement dated as of September 17, 2012 among Willis Engine Securitization Trust II, the Registrant, Deutsche Bank Trust Company Americas, as trustee, and the entities listed on Appendix A thereto (incorporated by reference to Exhibit 10.18 to our report on Form 10-Q filed on November 9, 2012). 36 Table of Contents 10.11* Third Amended and Restated Credit Agreement, dated as of April 20, 2016, among the Company, MUFG Union Bank, N.A. as administrative agent and security agent, and certain other lenders and financial institutions named therein (incorporated by reference to Exhibit 10.15 to our report on Form 10-Q filed on August 16, 2016). 10.12† Employment Agreement, dated as of August 2, 2022, by and between the Registrant and Brian R. Hole (incorporated by reference to Exhibit 10.1 to our report on Form 10-Q filed on November 4, 2022). 10.13† Employment Agreement, dated as of March 2022 and effective as of April 1, 2022, by and between the Registrant and Austin C. Willis (incorporated by reference to Exhibit 10.1 to our report on Form 10-Q filed on May 10, 2022). 10.14 Trust Amendment No. 2 dated as of September 9, 2016 to Amended and Restated Trust Agreement of Willis Engine Securitization Trust II dated as of September 14, 2012 (incorporated by reference to Exhibit 10.1 to our report on Form 8-K filed September 20, 2016). 10.15 General Supplement 2016-1 dated as of September 9, 2016 to Trust Indenture dated as of September 14, 2012 (incorporated by reference to Exhibit 10.2 to our report on Form 8-K filed September 20, 2016). 10.16 Series A Preferred Stock Purchase Agreement dated as of October 11, 2016 (incorporated by reference to Exhibit 10.1 to our report on Form 8-K filed October 18, 2016). 10.17* Asset Purchase Agreement dated as of August 4, 2017 between the Registrant and Willis Engine Structured Trust III. (incorporated by reference to Exhibit 10.20 to our report on Form 10-Q filed on November 9, 2017). 10.18* Security Trust Agreement dated as of August 4, 2017 among Willis Engine Structured Trust III, each Grantor referred to therein and from time to time made a party thereto and Deutsche Bank Trust Company Americas, as trustee (incorporated by reference to Exhibit 10.21 to our report on Form 10-Q filed on November 9, 2017). 10.19* Servicing Agreement dated as of August 4, 2017 among Willis Engine Structured Trust III, the Registrant and each Service Group Member referred to therein and from time to time made a party thereto (incorporated by reference to Exhibit 10.22 to our report on Form 10-Q filed on November 9, 2017). 10.20* Administrative Agency Agreement dated as of August 4, 2017 among Willis Engine Structured Trust III, the Registrant, Deutsche Bank Trust Company Americas, as trustee, and each Managed Group Member referred to therein and from time to time made a party thereto (incorporated by reference to Exhibit 10.23 to our report on Form 10-Q filed on November 9, 2017). 10.21* Revolving Credit Agreement dated as of August 4, 2017 among Willis Engine Structured Trust III, BNP Paribas and the Registrant (incorporated by reference to Exhibit 10.24 to our report on Form 10-Q filed on November 9, 2017). 10.22* Series A-2 Preferred Stock Purchase Agreement dated as of September 22, 2017 (incorporated by reference to Exhibit 10.1 to our report on Form 8-K filed on September 28, 2017). 10.23* General Terms Agreement No. CFM-1-1028985 dated December 22, 2017 between CFM International, Inc. and the Registrant (incorporated by reference to Exhibit 10.26 to our report on Form 10-K filed on March 15, 2018). 10.24* Letter Agreement No. 1 to GTA No. 1-1028985 dated December 22, 2017 between CFM International, Inc. and the Registrant (incorporated by reference to Exhibit 10.27 to our report on Form 10-K filed March 15, 2018). 10.25* General Terms Agreement No. GE-1-2299982290-2 dated May 26, 2010 by and amongst General Electric Company, GE Engine Services Distribution, LLC, the Registrant and WEST Engine Funding LLC (incorporated by reference to Exhibit 10.28 to our report on Form 10-K filed March 15, 2018). 10.26* Letter Agreement No. 3 to GTA No. 1-2299982290 dated December 22, 2017 between General Electric Corporation and the Registrant (incorporated by reference to Exhibit 10.29 to our report on Form 10-K filed March 15, 2018). 10.27* Amendment No. 2 to General Terms Agreement No. GE-1-2299982290-2 dated December 22, 2017 between General Electric Company and the Registrant (incorporated by reference to Exhibit 10.30 to our report on Form 10-K filed March 15, 2018). 10.28* Agreement by and between IAE International Aero Engines AG and the Registrant, dated March 16, 2018, to purchase spare engines (incorporated by reference to Exhibit 10.31 to our report on Form 10-Q filed May 10, 2018). 10.29 Redemption Agreement to purchase 294,787 shares of common stock dated as of March 29, 2018 between the Registrant and M3 Partners, LP (incorporated by reference to Exhibit 10.32 to our report on Form 10-Q filed May 10, 2018). 10.30† 2018 Stock Incentive Plan (incorporated by reference to the Registrant’s Proxy Statement for 2018 Annual Meeting of Stockholders filed on April 27, 2018). 10.31* Administrative Agency Agreement dated as of August 22, 2018 among Willis Engine Structured Trust IV, the Registrant, Deutsche Bank Trust Company Americas, as trustee, and each Managed Group Member referred to therein and from time to time made a party thereto (incorporated by reference to Exhibit 10.34 to our report on Form 10-Q filed November 7, 2018). 10.32* Asset Purchase Agreement dated as of August 22, 2018 between the Registrant and Willis Engine Structured Trust IV (incorporated by reference to Exhibit 10.35 to our report on Form 10-Q filed November 7, 2018). 10.33* Trust Indenture dated as of August 22, 2018 among Willis Engine Structured Trust IV, Deutsche Bank Trust Company Americas, as Trustee, the Registrant and Bank of America, N.A. (incorporated by reference to Exhibit 10.36 to our report on Form 10-Q filed November 7, 2018). 10.34* Revolving Credit Agreement dated as of August 22, 2018 among Willis Engine Structured Trust IV, Bank of America, N.A. and the Registrant (incorporated by reference to Exhibit 10.37 to our report on Form 10-Q filed November 7, 2018). 37 Table of Contents 10.35* Servicing Agreement dated as of August 22, 2018 among Willis Engine Structured Trust IV, the Registrant and each Service Group Member referred to therein and from time to time made a party thereto (incorporated by reference to Exhibit 10.38 to our report on Form 10-Q filed November 7, 2018). 10.36* Security Trust Agreement dated as of August 22, 2018 among Willis Engine Structured Trust IV, each Grantor referred to therein and from time to time made a party thereto and Deutsche Bank Trust Company Americas, as security trustee and operating bank (incorporated by reference to Exhibit 10.39 to our report on Form 10-Q filed November 7, 2018). 10.37* Amendment No. 1 to Agreement to Purchase Spare Engines, dated July 25, 2018, between IAE International Aero Engines AG and Willis Lease Finance Corporation (incorporated by reference to Exhibit 10.40 to our report on Form 10-Q filed November 7, 2018). 10.38* Amendment No. 2 to Agreement to Purchase Spare Engines, dated August 9, 2018, between IAE International Aero Engines AG and Willis Lease Finance Corporation (incorporated by reference to Exhibit 10.41 to our report on Form 10-Q filed November 7, 2018). 10.39* Trust Indenture dated as of August 4, 2017 among Willis Engine Structured Trust III, Deutsche Bank Trust Company Americas, as trustee, the Registrant and BNP Paribas (incorporated by reference to Exhibit 4.6 to our report on Form 10-Q filed on November 9, 2017). 10.40* Amendment No. 3 to Agreement to Purchase Spare Engines, dated March 22, 2019, between IAE International Aero Engines AG and Willis Lease Finance Corporation (incorporated by reference to Exhibit 10.43 to our report on Form 10-Q filed on May 8, 2019). 10.41* Amendment No. 4 to Agreement to Purchase Spare Engines, dated June 27, 2019, between IAE International Aero Engines AG and Willis Lease Finance Corporation (incorporated by reference to Exhibit 10.44 to our report on Form 10-Q filed on August 7, 2019). 10.42* Fourth Amended and Restated Credit Agreement, dated as of June 7, 2019, among the Company, MUFG Union Bank, Ltd. as administrative agent, MUFG Union Bank, N.A. as security agent, and certain other lenders and financial institutions named therein (incorporated by reference to Exhibit 10.44 to our report on Form 10-Q filed on August 7, 2019). 10.43* Letter Agreement No. 2 to GTA No. 1-1028985 dated December 12, 2019 between CFM International, Inc. and Willis Lease Finance Corporation (incorporated by reference to Exhibit 10.43 to our report on Form 10-K filed on March 12, 2020). 10.44* Amendment No. 1 to the Fourth Amended and Restated Credit Agreement and Amendment No. 5 to Security Agreement, dated as of December 13, 2019, among the Company, MUFG Union Bank, Ltd. as administrative agent, MUFG Union Bank, N.A. as security agent, and certain other lenders and financial institutions named therein (incorporated by reference to Exhibit 10.44 to our report on Form 10-K filed on March 12, 2020). 10.45* Amended and Restated Administrative Agency Agreement, dated as of March 3, 2020, among Willis Engine Structured Trust V, the Registrant, Deutsche Bank Trust Company Americas, as trustee, and each Managed Group Member referred to therein and from time to time made a party thereto (incorporated by reference to Exhibit 10.45 to our report on Form 10-Q filed May 6, 2020). 10.46* Asset Purchase Agreement, dated as of March 3, 2020, between the Registrant and Willis Engine Structured Trust V (incorporated by reference to Exhibit 10.46 to our report on Form 10-Q filed May 6, 2020). 10.47* Amended and Restated Trust Indenture, dated as of March 3, 2020 among Willis Engine Structured Trust V, Deutsche Bank Trust Company Americas, as Trustee, the Registrant, and Bank of America, N.A. (incorporated by reference to Exhibit 10.47 to our report on Form 10-Q filed May 6, 2020). 10.48* Revolving Credit Agreement, dated March 3, 2020, among Willis Engine Structured Trust V, Bank of America, N.A., and the Registrant (incorporated by reference to Exhibit 10.48 to our report on Form 10-Q filed May 6, 2020). 10.49* Amended and Restated Servicing Agreement, dated as of March 3, 2020, among Willis Engine Structured Trust V, the Registrant, and each Serviced Group Member referred to therein and from time to time made a party thereto (incorporated by reference to Exhibit 10.49 to our report on Form 10-Q filed May 6, 2020). 10.50* Amended and Restated Security Trust Agreement, dated as of March 3, 2020, among Willis Engine Structured Trust V, each Grantor referred to therein and from time to time made a party thereto and Deutsche Bank Trust Company Americas, as Security Trustee and Operating Bank (incorporated by reference to Exhibit 10.50 to our report on Form 10-Q filed May 6, 2020). 10.51* Excluded Property Purchase Agreement, dated as of March 3, 2020, among the Registrant, West Engine Acquisition LLC, and Willis Engine Structured Trust V (incorporated by reference to Exhibit 10.51 to our report on Form 10-Q filed May 6, 2020). 10.52* Agreement by and between International Aero Engines, LLC and the Registrant, dated March 27, 2020, to purchase spare engines (incorporated by reference to Exhibit 10.52 to our report on Form 10-Q filed May 6, 2020). 10.53* Letter Agreement No. 4 to GTA No. 1-2299982290 dated March 31, 2020 between General Electric Company and the Registrant (incorporated by reference to Exhibit 10.53 to our report on Form 10-Q filed May 6, 2020). 10.54* Used Engines Sales Agreement dated December 3, 2020 between Pratt & Whitney Engine Leasing, LLC and the Registrant (incorporated by reference to Exhibit 10.54 to our report on Form 10-K filed March 15, 2021). 10.55* Used Engine Sales Agreement dated December 3, 2020 between [*] Engine Leasing, LLC and the Registrant (incorporated by reference to Exhibit 10.55 to our report on Form 10-K filed March 15, 2021). 38 Table of Contents 10.56* [*] Fixed Price Repair Agreement by and between the Registrant and Raytheon Technologies Corporation dated December 3, 2020 (incorporated by reference to Exhibit 10.56 to our report on Form 10-K filed March 15, 2021). 10.57* [*] Fixed Price Repair Agreement by and between the Registrant and International Aero Engines, LLC dated December 3, 2020 (incorporated by reference to Exhibit 10.57 to our report on Form 10-K filed March 15, 2021). 10.58# Amendment No. 2 to Fourth Amended and Restated Credit Agreement, dated as of June 23, 2021, among the Registrant, MUFG Union Bank, Ltd., as administrative agent, MUFG Union Bank, Inc., as security agent, and certain other lenders and financial institutions named therein (incorporated by reference to Exhibit 10.58 to our report on Form 10-Q filed August 8, 2021). 10.59# Administrative Agency Agreement, dated as of May 17, 2021, among Willis Engine Structured Trust VI, the Registrant, U.S. Bank National Association, as trustee, and each Managed Group Member referred to therein and from time to time made a party thereto (incorporated by reference to Exhibit 10.59 to our report on Form 10-Q filed August 8, 2021). 10.60# Asset Purchase Agreement, dated as of May 17, 2021, between the Registrant and Willis Engine Structured Trust VI (incorporated by reference to Exhibit 10.60 to our report on Form 10-Q filed August 8, 2021). 10.61# Trust Indenture, dated as of May 17, 2021, among Willis Engine Structured Trust VI, U.S. Bank National Association, as Trustee, the Registrant and Bank of America, N.A. (incorporated by reference to Exhibit 10.61 to our report on Form 10-Q filed August 8, 2021). 10.62 Revolving Credit Agreement, dated as of May 17, 2021, among Willis Engine Structured Trust VI, Bank of America, N.A. and the Registrant (incorporated by reference to Exhibit 10.62 to our report on Form 10-Q filed August 8, 2021). 10.63 Servicing Agreement, dated as of May 17, 2021, among Willis Engine Structured Trust VI, the Registrant and each Service Group Member referred to therein and from time to time made a party thereto (incorporated by reference to Exhibit 10.63 to our report on Form 10-Q filed August 8, 2021). 10.64# Security Trust Agreement, dated as of May 17, 2021, among Willis Engine Structured Trust VI, each Grantor referred to therein and from time to time made a party thereto and U.S. Bank National Association, as security trustee and operating bank (incorporated by reference to Exhibit 10.64 to our report on Form 10-Q filed August 8, 2021). 21.1 Subsidiaries of the Registrant. 23.1 Consent of Grant Thornton LLP. 31.1 Certification of Austin C. Willis, pursuant to Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Scott B. Flaherty, pursuant to Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101 The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Redeemable Preferred Stock and Shareholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). ________________________________________________________ * Certain portions of this exhibit have been redacted pursuant to a Securities and Exchange Commission order granting confidential treatment or constitute confidential information have been redacted in accordance with Regulation S-K, Item 601(b)(10). # Portions of this exhibit have been omitted in accordance with Item 601(b)(10)(iv) of Regulation S-K. † Indicates a management contract or compensatory plan or arrangement. Financial Statements are submitted as a separate section of this report beginning on page 45. ITEM 16. FORM 10-K SUMMARY None. 39 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, duly authorized officers and directors. Dated: March 10, 2023 Willis Lease Finance Corporation By: /s/ AUSTIN C. WILLIS Austin C. Willis Chief Executive Officer and Director Dated: Title Signature Date: March 10, 2023 Chief Executive Officer and Director /s/ AUSTIN C. WILLIS (Principal Executive Officer) Austin C. Willis Date: March 10, 2023 Chief Financial Officer /s/ SCOTT B. FLAHERTY (Principal Financial and Accounting Officer) Scott B. Flaherty Date: March 10, 2023 Director /s/ HANS JOERG HUNZIKER Hans Joerg Hunziker Date: March 10, 2023 Director /s/ ROBERT J. KEADY Robert J. Keady Date: March 10, 2023 Director /s/ RAE ANN MCKEATING Rae Ann McKeating Date: March 10, 2023 Executive Chairman and Director /s/ CHARLES F. WILLIS, IV Charles F. Willis, IV 40 Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firm ( PCA OB ID Number 248 ) 42 Consolidated Balance Sheets as of December 31, 202 2 and December 31, 202 1 45 Consolidated Statements of Income for the years ended December 31, 202 2 and December 31, 202 1 46 Consolidated Statements of Comprehensive Income for the years ended December 31, 202 2 and December 31, 20 21 47 Consolidated Statements of Redeemable Preferred Stock and Shareholders’ Equity for the years ended December 31, 202 2 and December 31, 20 21 48 Consolidated Statements of Cash Flows for the years ended December 31, 202 2 and December 31, 20 21 49 Notes to Consolidated Financial Statements 50 Schedule II — Valuation Accounts 75 41 Table of Contents Reports of Independent Registered Public Accounting Firm Board of Directors and Shareholders Willis Lease Finance Corporation Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Willis Lease Finance Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, redeemable preferred stock and shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes and financial statement schedules included under Item 15(a) (collectively referred to as 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. We also have 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, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 10, 2023 expressed an unqualified opinion. 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 the 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 matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of equipment held for operating lease 42 Table of Contents As described further in Notes 1(d) and 9 to the consolidated financial statements, the Company reviews its equipment held for operating lease (which is inclusive of certain failed sale-leaseback transactions classified as notes receivable and investments in sales-type leases), for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and annually, for certain equipment held for operating lease. With respect to the annual review, indicators of impairment are identified by review of independent appraisals. If an indicator of impairment is identified, the Company performs an analysis of undiscounted forecasted cash flows over the life of the asset as compared to the asset book value. When an asset’s undiscounted forecasted cash flows are less than the book value, an impairment charge is recorded for the difference between carrying value and fair value. Fair value is determined by reference to independent appraisals, quoted market prices (e.g., an offer to purchase) and other factors considered relevant by the Company. As a result of the annual impairment test, the Company recorded no impairment charges for the year ended December 31, 2022. As of December 31, 2022, the balance of equipment held for operating lease, notes receivable and investments in sales-type leases was $2.1 billion, $81.4 million and $6.4 million, respectively. We identified the valuation of equipment held for operating lease as a critical audit matter. The principal considerations for our determination that the valuation of equipment held for operating lease is a critical audit matter are that subjective auditor judgment was required to evaluate: (i) the assumptions used by management engaged independent appraisers, including the accuracy of data provided to management’s specialist to determine the fair value; and (ii) the assumptions used by management to calculate the undiscounted future cash flows, including assumptions of estimated lease rates, maintenance revenues, and remaining lease periods. Our audit procedures related to the valuation of equipment held for operating lease included the following, among others: • We evaluated the design and operating effectiveness of certain internal controls related to management’s review of the independent appraiser’s report, including the accuracy of data provided to management’s specialist and the review of assumptions used to determine undiscounted future cash flows. • We evaluated management’s method for determining indicators of impairment, including the potential of management bias. • We tested the annual impairment analysis as follows: • Evaluated the completeness and accuracy of the population of assets included in the analysis; • For a selection of assets, validated the relevant asset condition data that management provided to the independent appraisers; • Evaluated the reasonableness of the following assumptions used in the undiscounted cash flows by comparing them to historical and Company specific data: estimated lease rates, maintenance revenues, and remaining lease periods; • With the assistance of valuation professionals with specialized skills and knowledge, we: (i) evaluated the qualification of management engaged independent appraisers; and (ii) assessed the reasonableness of the methodologies used and appraised values determined by comparing a selection of appraised values to published industry benchmark values of comparable assets. /s/ Grant Thornton LLP We have served as the Company’s auditor since 2021. Cincinnati, Ohio March 10, 2023 43 Table of Contents Board of Directors and Shareholders Willis Lease Finance Corporation Opinion on internal control over financial reporting We have audited the internal control over financial reporting of Willis Lease Finance Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2022, and our report dated March 10, 2023 expressed an unqualified opinion 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, included 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 the 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, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and 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/ Grant Thornton LLP Cincinnati, Ohio March 10, 2023 44 Table of Contents WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except per share data) December 31, 2022 December 31, 2021 ASSETS Cash and cash equivalents $ 12,146 $ 14,329 Restricted cash 76,870 81,312 Equipment held for operating lease, less accumulated depreciation of $ 543,183 and $ 524,968 at December 31, 2022 and 2021, respectively 2,111,935 1,991,368 Maintenance rights 17,708 22,511 Equipment held for sale 3,275 6,952 Receivables, net of allowances of $ 1,511 and $ 1,154 at December 31, 2022 and 2021, respectively 46,954 39,623 Spare parts inventory 38,577 50,959 Investments 56,189 55,927 Property, equipment & furnishings, less accumulated depreciation of $ 16,060 and $ 13,484 at December 31, 2022 and 2021, respectively 35,350 31,327 Intangible assets, net 1,129 1,188 Notes receivable 81,439 115,456 Investments in sales-type leases 6,440 — Other assets 87,205 51,975 Total assets (1) $ 2,575,217 $ 2,462,927 LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY Liabilities: Accounts payable and accrued expenses $ 43,040 $ 26,858 Deferred income taxes 132,516 124,332 Debt obligations 1,847,278 1,790,264 Maintenance reserves 59,453 65,976 Security deposits 20,490 19,349 Unearned revenue 17,863 10,458 Total liabilities (2) 2,120,640 2,037,237 Redeemable preferred stock ($ 0.01 par value, 2,500 shares authorized; 2,500 shares issued and outstanding at December 31, 2022 and 2021) 49,889 49,805 Shareholders’ equity: Common stock ($ 0.01 par value, 20,000 shares authorized; 6,615 and 6,531 shares issued at December 31, 2022 and 2021, respectively) 66 65 Paid-in capital in excess of par 20,386 15,401 Retained earnings 357,493 355,388 Accumulated other comprehensive income, net of income tax expense of $ 7,587 and $ 1,469 at December 31, 2022 and 2021, respectively 26,743 5,031 Total shareholders’ equity 404,688 375,885 Total liabilities, redeemable preferred stock and shareholders’ equity $ 2,575,217 $ 2,462,927 ________________________________________________________ (1) Total assets at December 31, 2022 and 2021 include the following assets of variable interest entity’s (“VIE’s”) that can only be used to settle the liabilities of the VIE’s: Restricted cash $ 76,870 and $ 81,312 ; Equipment $ 1,167,970 and $ 1,226,395 ; Maintenance rights $ 5,433 and $ 5,433 ; Inventory $ 0 and $ 4,367 ; Notes receivable $ 80,220 and $ 90,868 ; and Other assets $ 6,470 and $ 4,775 , respectively. (2) Total liabilities at December 31, 2022 and 2021 include the following liabilities of VIEs for which the VIEs' creditors do not have recourse to Willis Lease Finance Corporation: Debt obligations $ 1,118,721 and $ 1,197,922 , respectively. See accompanying notes to the consolidated financial statements. 45 Table of Contents WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES Consolidated Statements of Income (In thousands, except per share data) Years Ended December 31, 2022 2021 REVENUE Lease rent revenue $ 162,571 $ 134,831 Maintenance reserve revenue 83,424 73,961 Spare parts and equipment sales 27,009 17,417 Interest income 7,579 12,938 Gain on sale of leased equipment 3,133 5,975 Gain on sale of financial assets 3,116 10,874 Asset transition fee — 6,256 Other revenue 25,095 11,950 Total revenue 311,927 274,202 EXPENSES Depreciation and amortization expense 88,260 90,504 Cost of spare parts and equipment sales 20,833 14,927 Write-down of equipment 21,849 7,715 General and administrative 92,530 75,350 Technical expense 14,415 9,381 Net finance costs: Interest expense 66,743 67,985 Gain on debt extinguishment ( 2,558 ) — Total net finance costs 64,185 67,985 Total expenses 302,072 265,862 Income from operations 9,855 8,340 (Loss) Income from joint ventures ( 62 ) 800 Income before income taxes 9,793 9,140 Income tax expense 4,354 5,788 Net income 5,439 3,352 Preferred stock dividends 3,250 3,251 Accretion of preferred stock issuance costs 84 83 Net income attributable to common shareholders $ 2,105 $ 18 Basic weighted average earnings per common share: $ 0.35 $ — Diluted weighted average earnings per common share: $ 0.33 $ — Basic weighted average common shares outstanding 6,071 6,112 Diluted weighted average common shares outstanding 6,297 6,346 See accompanying notes to the consolidated financial statements. 46 Table of Contents WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (In thousands) Years Ended December 31, 2022 2021 Net income $ 5,439 $ 3,352 Other comprehensive income: Currency translation adjustment ( 1,373 ) 398 Unrealized gain on derivative instruments 27,508 11,250 Unrealized gain on derivative instruments at joint venture 1,697 1,454 Net gain recognized in other comprehensive income 27,832 13,102 Tax expense related to items of other comprehensive income 6,120 2,954 Other comprehensive income 21,712 10,148 Total comprehensive income $ 27,151 $ 13,500 See accompanying notes to the consolidated financial statements. 47 Table of Contents WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES Consolidated Statements of Redeemable Preferred Stock and Shareholders’ Equity Years Ended December 31, 2022 and 2021 (In thousands, except per share data) Shareholders' Equity Redeemable Accumulated Other Preferred Stock Common Stock Paid-in Capital in Retained Comprehensive Total Shareholders’ Shares Amount Shares Amount Excess of par Earnings (Loss) Income Equity Balances at December 31, 2020 2,500 $ 49,722 6,570 $ 66 $ 13,696 $ 355,370 $ ( 5,117 ) $ 364,015 Net income — — — — — 3,352 — 3,352 Net unrealized gain from currency translation adjustment, net of tax expense of $ 89 — — — — — — 309 309 Net unrealized gain from derivative instruments, net of tax expense of $ 2,865 — — — — — — 9,839 9,839 Shares repurchased — — ( 268 ) ( 3 ) ( 10,083 ) — — ( 10,086 ) Shares issued under stock compensation plans — — 346 3 183 — — 186 Cancellation of restricted stock units in satisfaction of withholding tax — — ( 117 ) ( 1 ) ( 4,973 ) — — ( 4,974 ) Stock-based compensation, net of forfeitures — — — — 16,578 — — 16,578 Accretion of preferred shares issuance costs — 83 — — — ( 83 ) — ( 83 ) Preferred stock dividends ($ 1.30 per share) — — — — — ( 3,251 ) — ( 3,251 ) Balances at December 31, 2021 2,500 49,805 6,531 65 15,401 355,388 5,031 375,885 Net income — — — — — 5,439 — 5,439 Net unrealized loss from currency translation adjustment, net of tax benefit of $ 302 — — — — — — ( 1,071 ) ( 1,071 ) Net unrealized gain from derivative instruments, net of tax expense of $ 6,421 — — — — — — 22,783 22,783 Shares repurchased — — ( 154 ) ( 1 ) ( 5,244 ) — — ( 5,245 ) Shares issued under stock compensation plans — — 350 2 333 — — 335 Cancellation of restricted stock in satisfaction of withholding tax — — ( 112 ) — ( 3,655 ) — — ( 3,655 ) Stock-based compensation, net of forfeitures — — — — 13,551 — — 13,551 Accretion of preferred shares issuance costs — 84 — — — ( 84 ) — ( 84 ) Preferred stock dividends ($ 1.30 per share) — — — — — ( 3,250 ) — ( 3,250 ) Balances at December 31, 2022 2,500 $ 49,889 6,615 $ 66 $ 20,386 $ 357,493 $ 26,743 $ 404,688 See accompanying notes to the consolidated financial statements. 48 Table of Contents WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) Years Ended December 31, 2022 2021 Cash flows from operating activities: Net income $ 5,439 $ 3,352 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 88,260 90,504 Write-down of equipment 21,849 7,715 Stock-based compensation expense 13,551 16,578 Amortization of deferred costs 5,319 5,016 Allowances and provisions 837 ( 164 ) Payments received on sales-type leases 584 — Gain on sale of leased equipment ( 3,133 ) ( 5,975 ) Gain on sale of financial assets ( 3,116 ) ( 10,874 ) Loss (Income) from joint ventures 62 ( 800 ) (Gain) Loss on disposal of property, equipment and furnishings ( 71 ) 44 Gain on debt extinguishment ( 2,558 ) — Deferred income taxes 2,065 4,193 Changes in assets and liabilities: Receivables ( 3,168 ) ( 11,191 ) Inventory 14,288 7,923 Other assets ( 5,617 ) ( 787 ) Accounts payable and accrued expenses 942 58 Maintenance reserves 2,372 ( 17,582 ) Security deposits 2,372 3,827 Unearned revenue 4,147 ( 1,179 ) Net cash provided by operating activities 144,424 90,658 Cash flows from investing activities: Purchase of equipment held for operating lease and for sale ( 286,393 ) ( 205,779 ) Proceeds from sale of equipment (net of selling expenses) 69,238 37,626 Proceeds from sale of note receivable (net of selling expenses) 40,705 58,363 Issuance of notes receivable ( 15,270 ) ( 44,444 ) Purchase of property, equipment and furnishings ( 6,630 ) ( 2,165 ) Payments received on notes receivable 3,974 8,404 Net cash used in investing activities ( 194,376 ) ( 147,995 ) Cash flows from financing activities: Proceeds from issuance of debt obligations 284,000 513,700 Principal payments on debt obligations ( 228,840 ) ( 416,966 ) Repurchase of common stock ( 5,245 ) ( 10,086 ) Cancellation of restricted stock units in satisfaction of withholding tax ( 3,655 ) ( 4,974 ) Preferred stock dividends ( 3,268 ) ( 3,251 ) Proceeds from shares issued under stock compensation plans 335 186 Debt issuance costs — ( 4,556 ) Net cash provided by financing activities 43,327 74,053 Increase in cash, cash equivalents and restricted cash ( 6,625 ) 16,716 Cash, cash equivalents and restricted cash at beginning of period 95,641 78,925 Cash, cash equivalents and restricted cash at end of period $ 89,016 $ 95,641 Supplemental disclosures of cash flow information: Net cash paid for: Interest $ 63,544 $ 63,600 Income Taxes $ 2,242 $ 1,412 Supplemental disclosures of non-cash activities: Transfers from Equipment held for sale to Equipment held for operating lease $ 542 $ — Transfers from Equipment held for operating lease to Equipment held for sale $ 7,183 $ 13,368 Transfers from Equipment held for operating lease to Spare parts inventory $ 1,906 $ 4,467 Transfers from Spare parts inventory to Equipment held for operating lease $ — $ 1,555 Transfers from Notes receivable to Equipment held for operating lease $ — $ 27,804 Accretion of preferred stock issuance costs $ 84 $ 83 See accompanying notes to the consolidated financial statements. 49 Table of Contents WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. Organization and Summary of Significant Accounting Policies Unless the context requires otherwise, references to the “Company,” “WLFC,” “we,” “us” or “our” in these consolidated financial statements on Form 10-K refer to Willis Lease Finance Corporation and its subsidiaries. (a) Organization Willis Lease Finance Corporation with its subsidiaries is a provider of aviation services whose primary focus is providing operating leases of commercial aircraft, aircraft engines and other aircraft-related equipment to air carriers, manufacturers and overhaul/repair facilities worldwide. The Company also engages in the selective purchase and resale of commercial aircraft engines. Willis Aeronautical Services, Inc. (“Willis Aero”) is a wholly-owned and vertically-integrated subsidiary whose primary focus is the sale of aircraft engine parts and materials through the acquisition or consignment of aircraft engines. Willis Asset Management Limited (“Willis Asset Management”) is a wholly-owned and vertically-integrated subsidiary whose primary focus is the engine management and consulting business. Willis Engine Securitization Trust III (“WEST III” or the “WEST III Notes”) is a bankruptcy remote special purpose vehicle which was established for the purpose of financing aircraft engines through an asset-backed securitization (“ABS”), of which the Company is the sole beneficiary. WEST III is a variable interest entity (“VIE”) which the Company owns 100 % of the interest and consolidates in its financial statements. Willis Engine Securitization Trust IV (“WEST IV” or the “WEST IV Notes”) is a bankruptcy remote special purpose vehicle which was established for the purpose of financing aircraft engines through an ABS, of which the Company is the sole beneficiary. WEST IV is a VIE which the Company owns 100 % of the interest and consolidates in its financial statements. Willis Engine Structured Trust V (“WEST V” or the “WEST V Notes”) is a bankruptcy remote special purpose vehicle which was established for the purpose of financing aircraft engines through an ABS, of which the Company is the sole beneficiary. WEST V is a VIE which the Company owns 100 % of the interest and consolidates in its financial statements. In May 2021, the Company and its direct, consolidated VIE Willis Engine Structured Trust VI (“WEST VI”), closed its offering of $ 336.7 million aggregate principal amount of fixed rate notes (the “WEST VI Notes”). The WEST VI Notes were issued in three series, with the Series A Notes issued in an aggregate principal amount of $ 278.6 million, the Series B Notes issued in an aggregate principal amount of $ 38.7 million and the Series C Notes issued in an aggregate principal amount of $ 19.4 million. Principal and interest on the WEST III, WEST IV, WEST V and WEST VI Notes are payable monthly to the extent of available cash in accordance with a priority of payments included in the respective indenture agreements. The WEST III, WEST IV, WEST V and WEST VI Notes are secured by, among other things, the respective ABS’s direct and indirect interests in a portfolio of assets. The WEST III, WEST IV, WEST V and WEST VI Notes have scheduled amortizations and are payable solely from revenue received from the lease portfolios, after payment of certain expenses of the respective ABS. The assets of WEST III, WEST IV, WEST V and WEST VI are not available to satisfy the Company’s obligations other than the obligations specific to the respective ABS. WEST III, WEST IV, WEST V and WEST VI are consolidated for financial statement presentation purposes, with the respective assets and liabilities on the Company’s balance sheet. Each ABS’s ability to make distributions and pay dividends to the Company is subject to the prior payments of its debt and other obligations and maintenance of adequate reserves and capital. Under each ABS, cash is collected in a restricted account, which is used to service the debt and any remaining amounts, after debt service and defined expenses, are distributed to the Company. Additionally, a portion of the maintenance reserve payments and lease security deposits are formulaically accumulated in restricted accounts and are available to fund future maintenance events and to secure lease payments, respectively. Additionally, in connection with WEST III, WEST IV, WEST V and WEST VI, the Company entered into servicing agreements and administrative agency agreements to provide certain engine, lease management and reporting functions in return for fees based on a percentage of collected lease revenues and asset sales. Because WEST III, WEST IV, WEST V and WEST VI are consolidated for financial statement reporting purposes, all fees eliminate upon consolidation. 50 Table of Contents (b) Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements include the accounts of WLFC and its wholly-owned subsidiaries, including VIEs in which the Company is the primary beneficiary, in accordance with consolidation guidance. The Company first evaluates all entities in which it has an economic interest to determine whether for accounting purposes the entity is either a VIE or voting interest entity. If the entity is a VIE, the Company consolidates the financial statements of that entity if it is the primary beneficiary of such entities’ activities. If the entity is a voting interest entity, the Company consolidates the entity when it has a majority of voting interests in such entity. Intercompany transactions and balances have been eliminated in consolidation. (c) Revenue Recognition Leasing revenue Revenue from leasing of engines, aircraft and related parts and equipment is recognized as operating lease revenue on a straight-line basis over the terms of the applicable lease agreements. Revenue is not recognized when cash collection is not reasonably assured. When collectability is not reasonably assured, the customer is placed on non-accrual status and revenue is recognized when cash payments are received. Under the terms of some of the Company’s leases, the lessees pay use fees (also known as maintenance reserves) to the Company based on usage of the leased asset, which are designed to cover expected future maintenance costs. Some of these amounts are reimbursable to the lessee if they make specifically defined maintenance expenditures. Use fees received are recognized in revenue as maintenance reserve revenue if they are not reimbursable to the lessee. Use fees that are reimbursable are recorded as a maintenance reserve liability until they are reimbursed to the lessee, the lease terminates, or the obligation to reimburse the lessee for such reserves ceases to exist, at which time they are recognized in revenue as maintenance reserve revenue. Unearned Revenue includes deferred nonrefundable use fees which qualify as in-substance fixed lease payments due to the lessee being required to make certain minimum payments. These in-substance fixed lease payments are recognized ratably over the expected lease term rather than when the variable use fees are invoiced. As of December 31, 2022, there was $ 6.3 million of deferred in-substance fixed payment use fees included in Unearned Revenue. Certain lessees may be significantly delinquent in their rental payments and may default on their lease obligations. As of December 31, 2022, the Company had an aggregate of approximately $ 7.4 million in lease rent and $ 5.9 million in maintenance reserve receivables more than 30 days past due. Inability to collect receivables or to repossess engines or other leased equipment in the event of a default by a lessee could have a material adverse effect on the Company. The Company estimates an allowance for doubtful accounts for receivables it does not consider fully collectible. The allowance for doubtful accounts includes the following: (1) specific reserves for receivables which are impaired for which management believes full collection is doubtful; and (2) a general reserve for estimated losses based on historical experience. One customer accounted for more than 10 % of total lease rent revenue during the years ended December 31, 2022 and 2021. Spare parts sales The Spare Parts Sales reportable segment primarily engages in the sale of aircraft engine parts and materials through the acquisition or consignment of engines from third parties or the Company’s leasing operations. The parts are sold at a fixed price with no right of return. In determining the performance obligation, management has identified the promise in the contract to be the shipment of the spare parts to the customer. Title passes to the buyer when the goods are shipped, and the buyer is responsible for any loss in transit, and the Company has a legal right to payment for the spare parts. Management has determined that physical acceptance of the spare parts to be a formality in accordance with Accounting Standards Codification (“ASC”) 606-10-5-86. The spare parts transaction price is a fixed dollar amount and is stated on each purchase order for a fixed amount by total number of parts. Spare parts revenue is based on a set price for a set number of parts as defined in the purchase order. The performance obligation is completed once the parts have shipped and, as a result, all of the transaction price is allocated to that performance obligation. Management has determined that it is appropriate for the Company to recognize spare parts sales at a point in time ( i.e. , the date the parts are shipped) under ASC 606. Equipment sales 51 Table of Contents Equipment sales represent the selective purchase and resale of commercial aircraft engines and other aircraft equipment. The Company and customer enter into an agreement which outlines the place and date of sale, purchase price, payment terms, condition of the asset, bill of sale, and the assignment of rights and warranties from the Company to the customer. Management has identified the promise in the equipment sale contract to be the transfer of ownership of the asset. Management believes the asset holds standalone value to the customer as it is not dependent on any other services for functionality purposes and therefore is distinct within the context of the contract and as described in ASC 606-10. As such, management has identified the transfer of the asset as the performance obligation. The transaction price is set at a fixed dollar amount per fixed quantity (number of assets) and is explicitly stated in each contract. Equipment sales revenue is based on a set price for a set number of assets, which is allocated to the performance obligation discussed above, in its entirety. The Company has determined the date of transfer to the customer to be the date the customer obtains control and title over the asset and the date which revenue is to be recognized and payment is due. Managed services Managed services revenue predominantly represents fleet management and engine storage services which may be combined on a single contract with a customer. Fleet management services are performed for a stated fixed fee as agreed upon in the services agreement. Engine storage services are for a fixed monthly fee. For a contract containing more than one performance obligation, the allocation of the transaction price is generally performed on the basis of the relative stand-alone selling price of each distinct good or service in the contract. As each of the services provided within the contract have separate prices, the Company allocates the price to its related performance obligation described above. Management has determined each of the revenue elements contain performance obligations that are satisfied over time and therefore recognizes revenue over time in accordance with ASC 606-10-25-27. The Company utilizes the percentage-of-completion method (input method) for recognizing fleet management services and will calculate revenues based on labor hours incurred. Additionally, as is required by ASC 606-10-25-35, as circumstances change over time, the Company will update its measure of progress to reflect any changes in the outcome of the performance obligation. Engine storage services are recognized on a monthly basis utilizing the input method of days passed. Amounts owed for managed services are typically billed upon contract completion. At December 31, 2022, unbilled revenue was $ 1.6 million and the Company expects the remaining revenue to be fully recognized by June 30, 2023. Additionally, managed services are presented within the Other revenue line in the Consolidated Statements of Income. Interest income Interest income represents interest earned on notes receivable related to failed sale-leasebacks in which the Company was the buyer-lessor and on sales-type leases. Gain on sale of leased equipment The Company regularly sells equipment from its lease portfolio. This equipment may or may not be subject to a lease at the time of sale. The net gain or loss on such sales is recognized as revenue and consists of proceeds associated with the sale less the net book value of the asset sold and any direct costs associated with the sale. To the extent that deposits associated with the equipment are not included in the sale, any such amount is included in the calculation of gain or loss. Gain on sale of financial assets Some of the Company's leases are recorded as financial assets and classified as notes receivable under ASC 842 as they are failed sale-leaseback transactions. The Company may sell its engines that are classified as notes receivable, and the net gain or loss on such sales is recognized as revenue and consists of proceeds associated with the sale less the net book value of the asset sold and any direct costs associated with the sale. To the extent that deposits associated with the equipment are not included in the sale, any such amount is included in the calculation of gain or loss. Other revenue Other revenue consists primarily of management fee income, lease administration fees, third-party consignment commissions earned, service and maintenance fee revenue, revenue related to the management of fixed base operator services, and other discrete revenue items. (d) Equipment Held for Operating Lease Aircraft assets held for operating lease are stated at cost, less accumulated depreciation. Certain costs incurred in connection with the acquisition of aircraft assets are capitalized as part of the cost of such assets. Major overhauls paid for by the Company, which improve functionality or extend the original useful life, are capitalized and depreciated over the shorter of the estimated period to the 52 Table of Contents next overhaul (“deferral method”) or the remaining useful life of the equipment. The Company does not accrue for planned major maintenance. The cost of overhauls of aircraft assets under long-term leases, for which the lessee is responsible for maintenance during the period of the lease, are paid for by the lessee or from reimbursable maintenance reserves paid to the Company in accordance with the lease, and are not capitalized. Based on specific aspects of the equipment, the Company generally depreciates engines on a straight-line basis over a 15-year period from the acquisition date to a 55 % residual value. This methodology is believed to accurately reflect the Company’s typical holding period for the engine assets and that the residual value assumption reasonably approximates the selling price of the assets 15 years from the date of acquisition. The typical 15 year holding period is the estimated useful life of the Company’s engines based on its business model and plans, and represents how long the Company anticipates holding a newly acquired engine. The technical useful life of a new engine can be in excess of 25 years. The Company reviews the useful life and residual values of all engines periodically as demand changes to accurately depreciate the cost of equipment over the useful life of the engines. The aircraft and airframes owned by the Company are generally depreciated on a straight-line basis over an estimated useful life of 13 to 20 years to a 15 % to 17 % residual value. The marine vessel owned by the Company is depreciated on a straight-line basis over an estimated useful life of 18 years to a 15 % residual value. The other leased parts and related equipment owned by the Company are generally depreciated on a straight-line basis over an estimated useful life of 14 to 15 years to a 25 % residual value. The useful life of older generation engines and aircraft may be significantly less based upon the technical status of the engine, as well as supply and demand factors. For these older generation engines and aircraft, the remaining useful life and the remaining expected holding period are typically the same. For older generation engines or aircraft that are unlikely to be repaired at the end of the current expected useful lives, the Company depreciates the engines or aircraft over their estimated lives to a residual value based on an estimate of the wholesale value of the parts after disassembly. As of December 31, 2022, 28 engines having a net book value of $ 24.2 million were depreciated under this policy with estimated remaining useful lives ranging from 1 to 101 months. The Company adjusts its estimates annually for these older generation assets, including updating estimates of an engine’s or aircraft’s remaining operating life as well as future residual value expected from part-out based on the current technical status of the engine or aircraft. The Company reviews its long-lived assets, including certain failed sale-leaseback transactions classified as notes receivable or investments in sales-type leases under ASC 842, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets to be disposed are reported at the lower of carrying amount or fair value less cost to sell. Impairment is identified by review of appraisals or by comparison of undiscounted forecasted cash flows, including estimated sales proceeds, over the life of the asset with the assets’ book value. If the undiscounted forecasted cash flows are less than the book value, the asset is written down to its fair value. Fair value is determined per individual asset by reference to independent appraisals, quoted market prices ( e.g. , an offer to purchase) and other factors considered relevant by the Company. The Company evaluates assets during the year if a triggering event is identified indicating impairment is possible and also conducts a formal annual review of the carrying value of long-lived assets. The formal annual review resulted in no impairment charge in 2022 and a total impairment charge of $ 3.5 million in 2021. Additionally, the Company recorded impairment charges of $ 21.8 million and $ 4.2 million in 2022 and 2021, respectively, as a result of triggering events occurring during the year. These write-downs are included in “Write-down of equipment” in the Consolidated Statements of Income. (e) Equipment Held for Sale Equipment held for sale includes assets being marketed for sale as well as third-party consigned assets. The assets to be disposed are reported at the lower of carrying amount or fair value less costs to sell. (f) Debt Issuance Costs and Related Fees Fees paid in order to secure debt are capitalized, included in Debt obligations on the Consolidated Balance Sheets, and amortized over the life of the related loan using the effective interest method. (g) Interest Rate Hedging The Company enters into various derivative instruments periodically to mitigate the exposure on variable rate borrowings. The derivative instruments are fixed-rate interest swaps that are recorded at fair value as either an asset or liability. 53 Table of Contents While substantially all of the Company’s derivative transactions are entered into for the purposes described above, hedge accounting is only applied when specific criteria have been met and it is practicable to do so. In order to apply hedge accounting, the transaction must be designated as a hedge and it must be highly effective. The hedging instrument’s effectiveness is assessed utilizing regression at the inception of the hedge and either regression or qualitative analysis on at least a quarterly basis throughout its life. All of the transactions that the Company has designated as hedges are cash flow hedges. The effective portion of the change in fair value on a derivative instrument designated as a cash flow hedge is reported as a component of other comprehensive income and is reclassified into earnings in the period during which the transaction being hedged affects earnings. The ineffective portion of the hedges is recorded in earnings in the current period. (h) Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. The effect on deferred taxes of a change in the tax rates is recognized in income in the period that includes the enactment date. The Company recognizes in the financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs (see Note 8). The Company files income tax returns in various states and countries which may have different statutes of limitations. The Company records penalties and accrued interest related to uncertain tax positions in income tax expense. Such adjustments have historically been minimal and immaterial to our financial results. (i) Property, Equipment and Furnishings Property, equipment and furnishings are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets, which range from three to 39 years. Leasehold improvements are recorded at cost and depreciated by the straight-line method over the shorter of the lease term or useful life of the leasehold. (j) Cash and Cash Equivalents The Company considers highly liquid investments readily convertible into known amounts of cash, with original maturities of 90 days or less, as cash equivalents. (k) Restricted Cash The Company has certain bank accounts that are subject to restrictions in connection with its WEST III, WEST IV, WEST V and WEST VI notes payable. Under these borrowings cash is collected in restricted accounts, which are used to service the debt and any remaining amounts, after debt service and defined expenses, are distributed to the Company. Additionally, a portion of projected maintenance obligations and some or all of the lease security deposits are accumulated in restricted accounts and are available to fund future maintenance events and to secure lease payments, respectively. Under WEST III, cash equal to a portion of the projected maintenance obligations for the subsequent nine months is held in a restricted account and is subject to a minimum balance of $ 9.6 million. Under WEST IV, cash equal to a portion of the projected maintenance obligations for the subsequent ten months is held in a restricted account and is subject to a minimum balance of $ 4.7 million. Under WEST V, cash equal to a portion of the projected maintenance obligations for the subsequent twelve months is held in a restricted account and is subject to a minimum balance of $ 5.0 million. Under WEST VI, cash equal to a portion of the projected maintenance obligations for the subsequent twelve months is held in a restricted account and is subject to a minimum balance of $ 1.0 million. Under WEST III, WEST IV and WEST V, security deposits are held in restricted accounts equal to a portion of the security deposits for leases scheduled to terminate over the subsequent four months , in each case, subject to a minimum balance of $ 1.0 million. Under WEST VI, all security deposits for leases scheduled to terminate before the expected maturity date of the notes are held in a restricted account, subject to a minimum balance of $ 1.0 million. Provided lease return conditions have been met, these deposits will be returned to the lessee. To the extent return conditions are not met, these deposits may be retained by the Company. (l) Spare Parts Inventory 54 Table of Contents Spare parts inventory consists of spare aircraft and engine parts purchased either directly by Willis Aero and also engines removed from the lease portfolio to be parted out. Spare parts inventory is stated at lower of cost or net realizable value. An impairment charge for excess or inactive inventory is recorded based upon an analysis that considers current inventory levels, historical usage patterns, future sales expectations and salvage value. (m) Intangible Assets Intangible assets include customer relationships and goodwill at Willis Asset Management. Intangible assets are accounted for in accordance with ASC 350, “Intangibles — Goodwill and Other.” Customer relationships are amortized on a straight-line basis over their estimated useful life of eight years . Aside from goodwill, the Company has no intangible assets with indefinite useful lives. Goodwill is assessed for impairment annually, at each year end. (n) Other Assets Other assets typically include prepaid purchase deposits and other prepaid expenses. As of December 31, 2022 and 2021, other assets included prepaid deposits of $ 7.0 million and $ 8.5 million, respectively, relating to commitments to purchase equipment. (o) Management Estimates These financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“U.S.”). The preparation of consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management evaluates estimates on an ongoing basis, including those related to residual values, estimated asset lives, impairments and bad debts. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes that the accounting policies on revenue recognition, maintenance reserves and expenditures, useful life of equipment, asset residual values, asset impairment and allowance for doubtful accounts are critical to the results of operations. If the useful lives or residual values are lower than those estimated, upon sale of the asset a loss may be realized. Significant management judgment is required in the forecasting of future operating results, which are used in the preparation of projected undiscounted cash-flows and should different conditions prevail, material impairment write-downs may occur. (p) Earnings Per Share Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is computed by dividing net income by the weighted average number of shares outstanding, adjusted for the dilutive effect of unvested restricted stock awards (“RSAs”). See Note 10 for more information on the computation of earnings per share. (q) Investments The Company’s investments are joint ventures, in which it owns 50 % of the equity of the ventures and are accounted for using the equity method of accounting. The investments are recorded at the amount invested plus or minus our 50 % share of net income or loss, less any distributions or return of capital received from the entities. (r) Stock-Based Compensation The Company recognizes stock-based compensation expense in the financial statements for share-based awards based on the grant-date fair value of those awards. Stock-based compensation expense is recognized over the requisite service periods of the awards on a straight-line basis, which is generally commensurate with the vesting term. Forfeitures are accounted for as they occur. (s) Initial Direct Costs Associated with Leases 55 Table of Contents The Company accounts for the initial direct costs, including sales commissions, incurred in obtaining a new lease by deferring and amortizing those costs over the term of the lease. The amortization of these costs is recorded under general and administrative expenses in the Consolidated Statements of Income. The amounts amortized were $ 0.9 million and $ 0.7 million for the years ended December 31, 2022 and 2021, respectively. (t) Maintenance Rights The Company identifies, measures and accounts for maintenance right assets and liabilities associated with acquisitions of equipment with in-place leases. A maintenance right asset represents the fair value of the contractual right under a lease to receive equipment in an improved maintenance condition as compared to the maintenance condition on the acquisition date. A maintenance right liability represents the Company’s obligation to pay the lessee for the difference between the lease-end contractual maintenance condition of the equipment and the actual maintenance condition of the equipment on the acquisition date. The equipment condition at the end of the lease term may result in either overhaul work being performed by the lessee to meet the required return condition or a financial settlement. When a capital event is performed on the equipment by the lessee, which satisfies their maintenance right obligation, the maintenance rights are added to the equipment basis and depreciated to the next capital event. When equipment is sold before the end of the pre-existing lease, the maintenance rights are applied against any accumulated maintenance reserves, if paid by the lessee, and the remaining balance is applied to the disposition gain or loss. When a lease terminates, an end of lease true-up is performed and the maintenance right is applied against the accumulated maintenance reserves or, for non-reserve lessees the final settlement payment, and any remaining net maintenance right is recorded in the income statement. (u) Foreign Currency Translation The Company’s foreign investments have been converted at rates of exchange in effect at the balance sheet dates. The changes in exchange rates in our foreign investments reported under the equity method are included in stockholders’ equity as accumulated other comprehensive income. (v) Risk Concentrations Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash deposits, lease receivables and interest rate swaps. The Company places its cash deposits, which exceed federally insured limits, with financial institutions and other credit-worthy institutions, such as money market funds, and limits the amount of credit exposure to any one party. Management opts for security of principal as opposed to yield. Concentrations of credit risk with respect to lease receivables are limited due to the large number of customers comprising the customer base, and their dispersion across different geographic areas. Some lessees are required to make payments for maintenance reserves at the end of the lease however, this risk is considered limited due to the relatively few lessees which have this provision in the lease. The Company enters into interest rate swap agreements with counterparties that are investment grade financial institutions. (w) Risks and Uncertainties In January 2022, the Company lifted travel restrictions and subsequently reopened its corporate headquarters and other offices for employees and contractors to work from. The Company has experienced and continues to experience various degrees of disruption due to the COVID-19 pandemic. Lower demand for air travel presents significant risks to the Company, resulting in impacts which have adversely affected the Company's business, results of operations, and financial condition. The Company is not able to evaluate or foresee the full extent of these impacts at the current time. The scope and nature of the impact of COVID-19 on the airline industry, and in turn the Company's business, continue to evolve and the outcomes are uncertain. Given the uncertainty in the rapidly changing market and economic conditions related to COVID-19, we will continue to evaluate the nature and extent of the impact to the Company's business and financial position. The ultimate extent of the effects of the COVID-19 pandemic on the Company will depend on future developments, and such effects could exist for an extended period of time. Other than what has been reflected in the Consolidated Financial Statements, the Company is not aware of any specific event or circumstance related to the COVID-19 pandemic that would require it to update its estimates or judgments or adjust the carrying value of its assets or liabilities. Actual results could differ from those estimates and any such differences may be material to the Consolidated Financial Statements. 56 Table of Contents (x) Recent Accounting Pronouncements Recent Accounting Pronouncements Adopted by the Company In July 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-05, “Lease (Topic 842): Lessors – Certain Leases with Variable Lease Payments” related to accounting for sales-type leases or direct financing leases with variable lease payments. This ASU is effective for interim and annual years beginning after December 15, 2021, with early adoption permitted. The Company adopted this guidance effective January 1, 2022, and the adoption had no impact to the Company’s consolidated financial statements and related disclosures. In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance” related to disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This ASU is effective for annual periods beginning after December 15, 2021, with early application permitted. The Company adopted this guidance effective January 1, 2022, and the adoption had no impact to the Company's consolidated financial statements and related disclosures. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848,” which extended the sunset date to apply the relief in Topic 848 from December 31, 2022 to December 31, 2024. The amendment in this guidance should be applied on a prospective basis and, for companies with a fiscal year ending December 31, are effective December 1, 2022. When the transition occurs, the Company expects to apply this expedient to its existing debt instruments and interest rate swaps that reference LIBOR, and to any other new transactions that reference LIBOR or another reference rate that is discontinued, through December 31, 2024. The adoption of this ASU did not impact the Company’s consolidated financial statements and related disclosures. Recent Accounting Pronouncements To Be Adopted by the Company In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 revises the measurement of credit losses for financial assets measured at amortized cost from an incurred loss methodology to an expected loss methodology. ASU 2016-13 affects trade receivables, debt securities, net investment in leases, and most other financial assets that represent a right to receive cash. Additional disclosures about significant estimates and credit quality are also required. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” This ASU clarifies receivables from operating leases are accounted for using the lease guidance and not as financial instruments. 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.” This ASU clarifies various scoping and other issues arising from ASU 2016-13. In March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments.” This ASU improves the Codification and amends the interaction of Topic 842 and Topic 326. In March 2022, the FASB issued ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326)” which eliminated the accounting guidance for Troubled Debt Restructurings by creditors and enhances disclosure requirements for certain loan refinancing and restructurings. The amendment also requires an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. The amendments in this ASU are effective for the Company on January 1, 2023, with early adoption permitted. The Company will adopt this accounting standard update effective January 1, 2023. We expect that the adoption of the standard will not have a material impact on our consolidated financial statements. 2. Leases As lessor, and as of December 31, 2022, the majority of our leases were operating leases with the exception of certain failed sale-leaseback transactions classified as notes receivable or investments in sales-type leases under the guidance provided by ASC 842. As lessee, the significant majority of leases the Company enters are for real estate (office and warehouse space for our operations) as well as automobiles. These lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, in December 2022, the Company subleased a Willis Mitsui & Company Engine Support Limited (“WMES”) engine to a third party, with WMES as the head lessor. Under ASC 842, the Company recognized a ROU asset of $ 4.9 million and a lease liability of $ 4.9 million for this lease during the year ended December 31, 2022. Leases with terms of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Some of the Company’s leases include variable non-lease components ( e.g. , taxes) which are not separated from associated lease components ( e.g. , fixed rent, common-area maintenance costs, vehicle protection plans and other service fees) as elected under the practical expedient package provided by ASC 842. 57 Table of Contents The Company’s leases have remaining lease terms of approximately one to seven years , some of which include options to renew or extend the lease term from one to five years . Our automobile leases include an option to purchase the vehicle at lease termination. The depreciable life of assets is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The exercise of lease renewal options or purchase at lease termination is at the Company’s sole discretion. If it is reasonably certain that we will exercise such options, the periods covered by such options are included in the lease term and are recognized as part of our ROU assets and lease liabilities. Supplemental balance sheet information related to leases was as follows: Leases Classification December 31, 2022 December 31, 2021 (in thousands, except lease term and discount rate) Assets Operating lease right-of-use assets Other assets $ 11,382 $ 6,067 Total leased assets $ 11,382 $ 6,067 Liabilities Operating lease right-of-use liabilities Accounts payable and accrued expenses $ 10,365 $ 5,206 Total lease liabilities $ 10,365 $ 5,206 Weighted average remaining lease term (years) Operating leases 3.45 6.49 Weighted average discount rate Operating leases 4.9 % 3.4 % The weighted average discount rate is based on the discount rate for each lease and the remaining balance of the lease payments for each lease at the reporting date. Future maturities of the Company’s operating lease liabilities at December 31, 2022 are as follows: Year (in thousands) 2023 $ 3,253 2024 3,218 2025 2,690 2026 757 2027 562 Thereafter 854 Total lease payments 11,334 Less: interest ( 969 ) Total lease liabilities $ 10,365 The following table represents future minimum lease payments under non-cancelable operating leases at December 31, 2022: Year (in thousands) 2023 $ 3,268 2024 3,218 2025 2,691 2026 757 2027 562 Thereafter 854 $ 11,350 58 Table of Contents The components of lease expense were as follows: Years Ended December 31, Lease expense Classification 2022 2021 (in thousands) Operating lease cost General and administrative $ 1,692 $ 1,239 Net lease cost $ 1,692 $ 1,239 Supplemental cash flow information related to leases was as follows: Years Ended December 31, 2022 2021 (in thousands) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 1,388 $ 1,446 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 6,478 $ 4,131 3. Revenue from Contracts with Customers The following tables disaggregate revenue by major source for the years ended December 31, 2022 and 2021 (in thousands): Year ended December 31, 2022 Leasing and Related Operations Spare Parts Sales Eliminations Total Lease rent revenue $ 162,571 $ — $ — $ 162,571 Maintenance reserve revenue 83,424 — — 83,424 Spare parts and equipment sales 1,595 25,414 — 27,009 Interest income 7,579 — — 7,579 Gain on sale of leased equipment 3,133 — — 3,133 Gain on sale of financial assets 3,116 — — 3,116 Managed services 23,613 — — 23,613 Other revenue 994 673 ( 185 ) 1,482 Total revenue $ 286,025 $ 26,087 $ ( 185 ) $ 311,927 Year ended December 31, 2021 Leasing and Related Operations Spare Parts Sales Eliminations Total Lease rent revenue $ 134,831 $ — $ — $ 134,831 Maintenance reserve revenue 73,961 — — 73,961 Spare parts and equipment sales 365 17,042 10 17,417 Interest income 12,938 — — 12,938 Gain on sale of leased equipment 5,975 — — 5,975 Gain on sale of financial assets 10,874 — — 10,874 Asset transition fee (1) 6,256 — — 6,256 Managed services 11,434 — — 11,434 Other revenue 150 523 ( 157 ) 516 Total revenue $ 256,784 $ 17,565 $ ( 147 ) $ 274,202 ________________________________________________________ (1) Asset transition fee reflects the settlement received from the close out of an engine transition program. 59 Table of Contents 4. Equipment Held for Operating Lease As of December 31, 2022, the Company had $ 2,111.9 million of equipment held in our operating lease portfolio, $ 81.4 million of notes receivable, $ 17.7 million of maintenance rights, and $ 6.4 million of investments in sales-type leases, which represented 339 engines, 13 aircraft, one marine vessel and other leased parts and equipment. As of December 31, 2021, the Company had $ 1,991.4 million of equipment held in our operating lease portfolio, $ 115.5 million of notes receivable, and $ 22.5 million of maintenance rights, which represented 304 engines, 12 aircraft, one marine vessel and other leased parts and equipment. The following table disaggregates equipment held for operating lease by asset class (in thousands): As of December 31, 2022 2021 Gross value Accumulated depreciation Net book value Gross value Accumulated depreciation Net book value (in thousands) Engines and related equipment $ 2,491,448 $ ( 525,172 ) $ 1,966,276 $ 2,368,496 $ ( 515,442 ) $ 1,853,054 Aircraft and airframes 150,089 ( 15,543 ) 134,546 134,370 ( 7,790 ) 126,580 Marine vessel 13,581 ( 2,468 ) 11,113 13,470 ( 1,736 ) 11,734 $ 2,655,118 $ ( 543,183 ) $ 2,111,935 $ 2,516,336 $ ( 524,968 ) $ 1,991,368 Notes Receivable During the years ended December 31, 2022 and 2021, the Company recorded interest income related to the notes receivable, recorded in Other revenue of $ 7.6 million and $ 12.9 million, respectively. The effective interest rates on our notes receivable ranged from 7.1 % to 12.2 % as of December 31, 2022 and 6.3 % to 12.2 % as of December 30, 2021. A majority of the equipment is leased and operated internationally. Substantially all leases relating to this equipment are denominated and payable in U.S. dollars. The Company leases equipment to lessees domiciled in seven geographic regions. The tables below set forth geographic information about the leased equipment grouped by domicile of the lessee (which is not necessarily indicative of the asset’s actual location): Years Ended December 31, Lease rent revenue 2022 2021 Region (in thousands) United States $ 64,767 $ 61,947 Asia-Pacific 40,270 27,117 Europe 35,621 29,769 South America 12,246 11,338 Canada 5,083 1,245 Central America 3,391 2,461 Middle East 1,193 954 Totals $ 162,571 $ 134,831 60 Table of Contents As of December 31, Net book value of equipment held for operating lease 2022 2021 Region (in thousands) Asia-Pacific $ 485,737 $ 371,554 United States 471,184 425,822 Europe 353,661 474,198 South America 141,145 111,941 Central America 130,187 163,526 Canada 69,030 55,109 Middle East 42,853 22,320 Off-lease 418,138 366,898 Totals $ 2,111,935 $ 1,991,368 As of December 31, 2022, the lease status of the equipment held for operating lease (in thousands) was as follows: Lease Term Net Book Value Off-lease and other $ 418,138 Month-to-month leases 400,293 Leases expiring 2023 665,055 Leases expiring 2024 156,784 Leases expiring 2025 89,600 Leases expiring 2026 92,682 Leases expiring 2027 85,708 Leases expiring thereafter 203,675 $ 2,111,935 As of December 31, 2022, minimum future payments under non-cancelable leases were as follows: Year (in thousands) 2023 $ 146,842 2024 66,513 2025 52,000 2026 39,410 2027 27,763 Thereafter 35,708 $ 368,236 5. Investments In 2011, the Company entered into an agreement with Mitsui & Co., Ltd. to participate in a joint venture formed as a Dublin-based Irish limited company, WMES, for the purpose of acquiring and leasing jet engines. Each partner holds a 50 % interest in the joint venture and the Company uses the equity method in recording investment activity. As of December 31, 2022, WMES owned a lease portfolio of 35 engines and five aircraft with a net book value of $ 255.5 million. In 2014, the Company entered into an agreement with China Aviation Supplies Import & Export Corporation (“CASC”) to participate in a joint venture named CASC Willis Lease Finance Company Limited (“CASC Willis”), a joint venture based in Shanghai, China. Each partner holds a 50 % interest in the joint venture and the Company uses the equity method in recording investment activity. CASC Willis acquires and leases jet engines to Chinese airlines and concentrates on the demand for leased commercial aircraft engines and aviation assets in the People’s Republic of China. As of December 31, 2022, CASC Willis owned a lease portfolio of four engines with a net book value of $ 42.7 million. 61 Table of Contents As of December 31, 2022 WMES CASC Willis Total (in thousands) Investment in joint ventures as of December 31, 2020 $ 37,365 $ 15,910 $ 53,275 Income from joint ventures 250 550 800 Foreign currency translation adjustment — 398 398 Other comprehensive gain from joint ventures 1,454 — 1,454 Investment in joint ventures as of December 31, 2021 39,069 16,858 55,927 Income (loss) from joint ventures 248 ( 310 ) ( 62 ) Foreign currency translation adjustment — ( 1,373 ) ( 1,373 ) Other comprehensive gain from joint ventures 1,697 — 1,697 Investment in joint ventures as of December 31, 2022 $ 41,014 $ 15,175 $ 56,189 “Other revenue” on the Consolidated Statements of Income includes management fees earned of $ 2.0 million and $ 2.1 million during the years ended December 31, 2022 and 2021, respectively, related to the servicing of engines for the WMES lease portfolio. During 2022, the Company sold two engines to WMES for $ 12.6 million. During 2021, the Company sold two engines to WMES for $ 25.0 million. There were no aircraft or engine sales to CASC Willis during 2022 or 2021. In December 2022, the Company subleased a WMES engine to a third party, with WMES as the head lessor. Under ASC 842, the Company recognized a ROU asset of $ 4.9 million and a lease liability of $ 4.9 million for this lease during the year ended December 31, 2022. Unaudited summarized financial information for 100% of WMES is presented in the following table: Years Ended December 31, 2022 2021 (in thousands) Revenue $ 52,106 $ 29,596 Expenses 51,953 29,303 WMES net income $ 153 $ 293 As of December 31, 2022 2021 (in thousands) Total assets $ 267,580 $ 310,260 Total liabilities 183,083 225,917 Total WMES net equity $ 84,497 $ 84,343 The difference between the Company’s investment in WMES and 50 % of total WMES net equity is primarily attributable to the recognition of deferred gains, prior to the adoption of ASU 2017-05, related to engines sold by the Company to WMES. 62 Table of Contents 6. Debt Obligations Debt obligations consisted of the following: As of December 31, 2022 2021 (in thousands) Credit facility at a floating rate of interest of one-month LIBOR plus 1.75 % at December 31, 2022, secured by engines. The facility has a committed amount of $ 1.0 billion at December 31, 2022, which revolves until the maturity date of June 2024 $ 727,000 $ 590,000 WEST VI Series A 2021 term notes payable at a fixed rate of interest of 3.10 %, maturing in May 2046, secured by engines 262,779 273,723 WEST VI Series B 2021 term notes payable at a fixed rate of interest of 5.44 %, maturing in May 2046, secured by engines 36,502 38,022 WEST VI Series C 2021 term notes payable at a fixed rate of interest of 7.39 %, maturing in May 2046, secured by engines 14,738 18,158 WEST V Series A 2020 term notes payable at a fixed rate of interest of 3.23 %, maturing in March 2045, secured by engines 255,136 272,909 WEST V Series B 2020 term notes payable at a fixed rate of interest of 4.21 %, maturing in March 2045, secured by engines 35,542 38,004 WEST V Series C 2020 term notes payable at a fixed rate of interest of 6.66 %, maturing in March 2045, secured by engines 13,314 16,342 WEST IV Series A 2018 term notes payable at a fixed rate of interest of 4.75 %, maturing in September 2043, secured by engines 238,072 262,260 WEST IV Series B 2018 term notes payable at a fixed rate of interest of 5.44 %, maturing in September 2043, secured by engines 36,386 38,885 WEST III Series A 2017 term notes payable at a fixed rate of interest of 4.69 %, maturing in August 2042, secured by engines 209,061 223,815 WEST III Series B 2017 term notes payable at a fixed rate of interest of 6.36 %, maturing in August 2042, secured by engines 30,255 32,195 Note payable at a fixed rate of interest of 3.18 %, maturing in July 2024, secured by an aircraft 3,304 5,307 1,862,089 1,809,620 Less: unamortized debt issuance costs ( 14,811 ) ( 19,356 ) Total debt obligations $ 1,847,278 $ 1,790,264 One-month LIBOR was 4.39% and 0.10% as of December 31, 2022 and 2021, respectively. Principal outstanding at December 31, 2022, is expected to be repayable as follows: Year (in thousands) 2023 $ 88,090 2024 788,118 2025 59,883 2026 267,562 2027 182,668 Thereafter 475,768 Total $ 1,862,089 At December 31, 2022, the Company had a revolving credit facility to finance the acquisition of equipment for lease as well as for general working capital purposes, with the amounts drawn under the facility not to exceed that which is allowed under the borrowing base as defined by the credit agreement. In June 2019, the Company entered into the Fourth Amended and Restated Credit Agreement (“Amended Credit Agreement”) which incorporates an accordion feature that can expand the $ 1.0 billion credit facility up to $ 1.3 billion. Pursuant to the Amended Credit Agreement, all obligations under the revolving credit facility are collateralized by the title and interest of the Company and certain of its subsidiaries, and to substantially all of its assets and properties. 63 Table of Contents In June 2021, the Company entered into Amendment No. 2 to the Amended Credit Agreement, which updates the provisions relating to the future discontinuance of LIBOR and sets forth the mechanics for establishing the Secured Overnight Financing Rate (“SOFR”) as a benchmark replacement rate. As of December 31, 2022 and 2021, $ 273.0 million and $ 410.0 million were available under this facility, respectively. On a quarterly basis, the interest rate is adjusted based on the Company’s leverage ratio, as calculated under the terms of the revolving credit facility. Under the revolving credit facility, all subsidiaries except WEST III, WEST IV, WEST V and WEST VI jointly and severally guarantee payment and performance of the terms of the loan agreement. The guarantee would be triggered by a default under the agreement. In May 2021, WLFC and its direct, wholly-owned subsidiary WEST VI, closed its offering of $ 336.7 million aggregate principal amount of fixed rate notes. The WEST VI Notes were issued in three series, with the Series A Notes issued in an aggregate principal amount of $ 278.6 million, the Series B Notes issued in an aggregate principal amount of $ 38.7 million and the Series C Notes issued in an aggregate principal amount of $ 19.4 million. The WEST VI Notes are secured by, among other things, WEST VI’s direct and indirect ownership interests in a portfolio of aircraft engines and an airframe. The Series A Notes have a fixed coupon of 3.104 %, an expected maturity of approximately eight years and a final maturity date in May 2046, the Series B Notes have a fixed coupon of 5.438 %, an expected maturity of approximately eight years and a final maturity date in May 2046 and the Series C Notes have a fixed coupon of 7.385 %, an expected maturity of approximately eight years and a final maturity date in May 2046. The Series A Notes were issued at a price of 99.99481 % of par, the Series B Notes were issued at a price of 99.99996 % of par and the Series C Notes were issued at a price of 99.99869 % of par. Principal on the WEST VI Notes is payable monthly to the extent of available cash in accordance with a priority of payments included in the indenture. In May 2021, WLFC repaid an existing note payable with a balance of $ 5.8 million that was secured by two engines. In December 2022, the Company recognized a $ 2.6 million gain on debt extinguishment associated with the repurchase of six tranches of ABS notes with a balance of $ 12.2 million. The assets of WEST III, WEST IV, WEST V and WEST VI are not available to satisfy the Company’s obligations other than the obligations specific to that WEST entity. WEST III, WEST IV, WEST V and WEST VI are consolidated for financial statement presentation purposes. WEST III, WEST IV, WEST V and WEST VI’s ability to make distributions and pay dividends to the Company is subject to the prior payments of their debt and other obligations and their maintenance of adequate reserves and capital. Under WEST III, WEST IV, WEST V and WEST VI, cash is collected in restricted accounts, which are used to service the debt and any remaining amounts, after debt service and defined expenses, are distributed to the Company. Additionally, a portion of maintenance reserve payments and lease security deposits are formulaically accumulated in restricted accounts and are available to fund future maintenance events and to secure lease payments, respectively. The WEST III, WEST IV, WEST V and WEST VI indentures require that a minimum threshold of maintenance reserve and security deposit balances be held in restricted cash accounts. Virtually all of our debt requires ongoing compliance with the covenants of each financing, including debt/equity ratios, minimum tangible net worth and minimum interest coverage ratios, and other eligibility criteria including customer and geographic concentration restrictions. The Company also has certain negative financial covenants such as liens, advances, change in business, sales of assets, dividends and stock repurchases. These covenants are tested either monthly or quarterly, and the Company was in full compliance with all financial covenant requirements at December 31, 2022. 7. Derivative Instruments The Company periodically holds interest rate derivative instruments to mitigate exposure to changes in interest rates, to predominantly one-month LIBOR, with $ 727.0 million and $ 590.0 million of variable rate borrowings at December 31, 2022 and 2021, respectively. As a matter of policy, management does not use derivatives for speculative purposes. As of December 31, 2022, the Company had five interest rate swap agreements. During the first quarter of 2021, the Company entered into four fixed-rate interest swap agreements, each having notional amounts of $ 100.0 million, two with remaining terms of 13 months and two with remaining terms of 37 months as of December 31, 2022. One interest rate swap agreement was entered into during 2019 which has a notional outstanding amount of $ 100.0 million with a remaining term of 18 months as of December 31, 2022. One interest rate swap agreement which the Company entered into in 2016 expired in April 2021. The derivative instruments were designated as cash flow hedges at inception and recorded at fair value. The Company evaluated the effectiveness of the swaps to hedge the interest rate risk associated with its variable rate debt and concluded at the swap inception date that the swaps were highly effective in hedging that risk. The Company evaluates the effectiveness of the hedging relationship on an ongoing basis and concluded there was no ineffectiveness in the hedges for the year ended December 31, 2022. 64 Table of Contents The Company estimates the fair value of derivative instruments using a discounted cash flow technique and has used creditworthiness inputs that corroborate observable market data evaluating the Company’s and counterparties’ risk of non-performance. Valuation of the derivative instruments requires certain assumptions for underlying variables and the use of different assumptions would result in a different valuation. Management believes it has applied assumptions consistently during the period. The Company applies hedge accounting and accounts for the change in fair value of its cash flow hedges through other comprehensive income for all derivative instruments. The net fair value of the interest rate swaps as of December 31, 2022 was $ 34.8 million, representing an asset and is reflected within other assets on the Consolidated Balance Sheets. The net fair value of the interest rate swaps as of December 31, 2021 was $ 7.3 million, representing an asset of $ 8.0 million and a liability of $ 0.7 million, reflected within other assets and accounts payable and accrued expenses on the Consolidated Balance Sheets, respectively. The Company recorded an adjustment to interest expense of $( 7.8 ) million and $ 2.4 million during the years ended December 31, 2022 and 2021, respectively, from derivative investments. As of December 31, 2022, the accumulative derivative gain was $ 34.8 million and as of December 31, 2021 the accumulative derivative gain was $ 7.3 million. Effect of Derivative Instruments on Earnings in the Statements of Income and of Comprehensive Income The following table provides additional information about the financial statement effects related to the cash flow hedges for the years ended December 31, 2022 and 2021: Derivatives in Cash Flow Hedging Relationships Amount of Gain Recognized in OCI on Derivatives (Effective Portion) Years Ended December 31, 2022 2021 (in thousands) Interest rate contracts $ 27,508 $ 11,250 Total $ 27,508 $ 11,250 The effective portion of the change in fair value on a derivative instrument designated as a cash flow hedge is reported as a component of other comprehensive income and is reclassified into earnings in the period during which the transaction being hedged affects earnings or it is probable that the forecasted transaction will not occur. The ineffective portion of the hedges, if any, is recorded in earnings in the current period. There was no ineffectiveness in the hedges for the years ended December 31, 2022 and 2021. Counterparty Credit Risk The Company evaluates the creditworthiness of the counterparties under its hedging agreements. The counterparties for the interest rate swaps are large financial institutions that possessed an investment grade credit rating. Based on this rating, the Company believes that the counterparties were credit-worthy and that their continuing performance under the hedging agreement was probable and did not require the counterparties to provide collateral or other security to the Company. 65 Table of Contents 8. Income Taxes The components of income before income taxes are as follows: Years ended December 31, 2022 2021 (in thousands) United States $ 11,864 $ 4,659 Foreign ( 2,071 ) 4,481 Income before income taxes $ 9,793 $ 9,140 The components of income tax expense for the years ended December 31, 2022 and 2021 were as follows: Federal State Foreign Total (in thousands) 2022 Current $ — $ 128 $ 2,161 $ 2,289 Deferred 3,758 ( 1,693 ) — 2,065 Total $ 3,758 $ ( 1,565 ) $ 2,161 $ 4,354 2021 Current $ — $ ( 2 ) $ 1,597 $ 1,595 Deferred 4,072 121 — 4,193 Total $ 4,072 $ 119 $ 1,597 $ 5,788 The following is a reconciliation of the federal income tax expense at the statutory rate of 21% for the years ended December 31, 2022 and 2021 to the effective income tax expense: Years Ended December 31, 2022 2021 (in thousands) Statutory federal income tax expense $ 2,057 $ 1,844 State taxes, net of federal benefit ( 1,593 ) 119 Foreign tax paid 1,509 — Foreign jurisdiction rate differential 666 705 Permanent differences-nondeductible executive compensation 2,180 2,042 Permanent differences and other ( 465 ) 1,078 Effective income tax expense $ 4,354 $ 5,788 Permanent differences and other includes Subpart F income of $ 0.5 million from foreign operations for the year ended December 31, 2022. The Company records tax expense or benefit for unusual or infrequent items discretely in the period in which they occur. The following table summarizes the activity related to the Company’s unrecognized tax benefits: 66 Table of Contents (in thousands) Balance as of December 31, 2020 $ 330 Decreases related to current year tax positions — Decreases due to tax positions expired ( 317 ) Balance as of December 31, 2021 13 Decreases related to current year tax positions 11 Decreases due to tax positions expired ( 5 ) Balance as of December 31, 2022 $ 19 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below: As of December 31, 2022 2021 (in thousands) Deferred tax assets: Unearned lease revenue $ 3,867 $ 2,217 State taxes 2 — Inventory 2,123 1,486 Reserves and allowances 4,425 6,781 Other accruals 15,973 2,577 Lease liability 1,366 146 Net operating loss carry forward 67,595 68,168 California alternative minimum tax credit 33 33 Charitable contributions 2 2 Total deferred tax assets 95,386 81,410 Less: valuation allowance ( 536 ) ( 518 ) Net deferred tax assets 94,850 80,892 Deferred tax liabilities: Depreciation and impairment on aircraft engines and equipment ( 208,389 ) ( 183,131 ) Notes receivable ( 5,479 ) ( 15,911 ) Right of use liability ( 1,360 ) ( 139 ) Other deferred tax liabilities ( 4,590 ) ( 4,595 ) Net deferred tax liabilities ( 219,818 ) ( 203,776 ) Other comprehensive income deferred tax liability ( 7,548 ) ( 1,448 ) Net deferred tax liabilities $ ( 132,516 ) $ ( 124,332 ) As of December 31, 2022, the Company had net operating loss carry forwards of approximately $ 315.9 million for federal tax purposes and $ 1.3 million (tax effected) for state tax purposes. The majority of the federal net operating loss carry forwards were generated in 2020 and can be carried forward indefinitely. The remainder will expire at various times from 2033 to 2037, and the state net operating loss carry forwards will expire at various times from 2026 to 2043. There is a $ 0.4 million valuation allowance for net operating losses in California that expire between 2034 and 2042 and a $ 0.1 million valuation allowance for net operating losses in Georgia that expire between 2032 and 2040. The Company’s ability to utilize the net operating loss and tax credit carry forwards in the future may be subject to restriction in the event of past or future ownership changes as defined in Section 382 of the Internal Revenue Code and similar state tax law. Management believes that no valuation allowance is required on deferred tax assets related to federal net operating loss carry forwards, as it is more likely than not that all amounts are recoverable through future taxable income. The open tax years for federal and state tax purposes are from 2005 to 2022. 67 Table of Contents Other than $ 6.2 million held at a subsidiary in China, for which the tax impact of the planned repatriation has been accrued, it is the Company's intention to reinvest undistributed earnings of their wholly-owned foreign operations and thereby indefinitely postpone their remittance. Accordingly, no provision has been made for foreign withholding taxes or U.S. income taxes. 9. Fair Value Measurements The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of judgment, and therefore cannot be determined with precision. Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to measure fair value: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, 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 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. The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments: • Cash and cash equivalents, restricted cash, receivables, and accounts payable : The amounts reported in the accompanying Consolidated Balance Sheets approximate fair value due to their short-term nature. • Notes receivable : The carrying amount of the Company’s outstanding balance on its Notes receivable as of December 31, 2022 and 2021 was estimated to have a fair value of approximately $ 83.5 million and $ 117.7 million, respectively, based on the fair value of estimated future payments calculated using interest rates that approximate prevailing market rates at each period end (Level 2 inputs). • Investments in sales-type leases: The carrying amount of the Company's outstanding balance on its Investments in sales-type leases as of December 31, 2022 was estimated to have a fair value of approximately $ 6.4 million based on the fair value of estimated future payments calculated using interest rates that approximate prevailing market rates at each period end (Level 2 inputs). The Company had no Investments in sales-type leases at December 31, 2021. • Debt obligations : The carrying amount of the Company’s outstanding balance on its Debt obligations as of December 31, 2022 and 2021 was estimated to have a fair value of approximately $ 1,540.2 million and $ 1,827.4 million, respectively, based on the fair value of estimated future payments calculated using interest rates that approximate prevailing market rates at each year end (Level 2 inputs). Assets Measured and Recorded at Fair Value on a Recurring Basis and a Nonrecurring Basis As of December 31, 2022 and 2021, the Company measured the fair value of its interest rate swaps based on Level 2 inputs, due to the usage of inputs that can be corroborated by observable market data. The Company estimates the fair value of derivative instruments using a discounted cash flow technique and has used creditworthiness inputs that corroborate observable market data evaluating the Company’s and counterparties’ risk of non-performance. The net fair value of the interest rate swaps as of December 31, 2022 was $ 34.8 million, representing an asset. The net fair value of the interest rate swaps as of December 31, 2021 was $ 7.3 million, representing an asset of $ 8.0 million and a liability of $ 0.7 million. The Company recorded an adjustment to interest expense of $( 7.8 ) million and $ 2.4 million during the years ended December 31, 2022 and 2021, respectively, from derivative investments. Goodwill is assessed for impairment annually, at each year end by comparing the fair values of the reporting units to their carrying amounts. The Company first assesses qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. 68 Table of Contents The Company determines fair value of long-lived assets held and used, such as Equipment held for operating lease and Equipment held for sale, by reference to independent appraisals, quoted market prices ( e.g. , an offer to purchase) and other factors. An impairment charge is recorded when the carrying value of the asset exceeds its fair value. The Company used Level 2 inputs to measure write-downs of equipment held for lease and equipment held for sale. Total Losses Years Ended December 31, 2022 2021 (in thousands) Equipment held for lease $ 21,771 $ 7,651 Equipment held for sale 78 64 Total $ 21,849 $ 7,715 Write-downs of equipment to their estimated fair values totaled $ 21.8 million for the year ended December 31, 2022, primarily reflecting an adjustment of the carrying value of four impaired engines. Of these write-downs, $ 20.4 million reflects the impairment of two engines located in Russia which were determined, due to the Russia and Ukraine conflict, to be unrecoverable. The remaining write-downs were in the ordinary course of business. As of December 31, 2022, included within equipment held for lease and equipment held for sale was $ 32.4 million in remaining book value of 16 assets which were previously written down. Write-downs of equipment to their estimated fair values totaled $ 7.7 million for the year ended December 31, 2021 which included write-downs of $ 3.9 million due to a management decision to monetize three engines and one airframe either by sale to a third party or for part-out and $ 3.8 million for the adjustment of the carrying value of seven impaired engines. 10. Earnings Per Share Basic earnings per common share is computed by dividing net income, less preferred stock dividends and accretion of preferred stock issuance costs, by the weighted average number of common shares outstanding for the period. Treasury stock is excluded from the weighted average number of shares of common stock outstanding. Diluted earnings per share attributable to common stockholders is computed based on the weighted average number of shares of common stock and dilutive securities outstanding during the period. Dilutive securities are common stock equivalents that are freely exercisable into common stock at less than market prices or otherwise dilute earnings if converted. The net effect of common stock equivalents is based on the incremental common stock that would be issued upon the vesting of restricted stock using the treasury stock method. Common stock equivalents are not included in diluted earnings per share when their inclusion is anti-dilutive. Additionally, redeemable preferred stock is not convertible and does not affect dilutive shares. There were no anti-dilutive shares excluded in the computations of diluted weighted average earnings per common share for the years ended December 31, 2022 and 2021. The following table presents the calculation of basic and diluted EPS: Year Ended December 31, 2022 2021 (in thousands) Net income attributable to common shareholders $ 2,105 $ 18 Basic weighted average common shares outstanding 6,071 6,112 Potentially dilutive common shares 226 234 Diluted weighted average common shares outstanding 6,297 6,346 Basic weighted average earnings per common share $ 0.35 $ — Diluted weighted average earnings per common share $ 0.33 $ — 11. Commitments, Contingencies, Guarantees and Indemnities Other obligations 69 Table of Contents Other obligations, such as certain purchase obligations are not recognized as liabilities in the consolidated financial statements but are required to be disclosed in the footnotes to the financial statements. These funding commitments could potentially require the Company’s performance in the event of demands by third parties or contingent events. As of December 31, 2022, the Company had $ 428.1 million in purchase commitments of equipment that will be satisfied within four fiscal years. The purchase obligations are subject to escalation based on the closing date of each transaction. In December 2020, the Company entered into definitive agreements for the purchase of 25 modern technology aircraft engines. As part of the purchase, the Company has committed to certain future overhaul and maintenance services which are anticipated to range between $ 77.7 million and $ 112.0 million by 2030. 12. Equity Common Stock Repurchase At its October 26, 2022 meeting, the Board of Directors approved the renewal of the existing common stock repurchase plan which allows for repurchases of up to $ 60.0 million of the Company’s common stock, extending the plan through December 31, 2024. Repurchased shares are immediately retired. During 2022, the Company repurchased 154,215 shares of common stock for approximately $ 5.2 million under the plan, at a weighted average price of $ 33.98 per share. During 2021, the Company repurchased 268,408 shares of common stock for approximately $ 10.1 million under the plan, at a weighted average price of $ 37.57 per share. At December 31, 2022, approximately $ 39.6 million was available to purchase shares under the plan. Redeemable Preferred Stock In October 2016, the Company sold and issued to Development Bank of Japan Inc. (“DBJ”) an aggregate of 1,000,000 shares of the Company’s 6.5 % Series A Preferred Stock, $ 0.01 par value per share (the “Series A Preferred Stock”) at a purchase price of $ 20.00 per share. The net proceeds to the Company after deducting investor fees were $ 19.8 million. In September 2017, the Company sold and issued to DBJ an aggregate of 1,500,000 shares of the Company’s 6.5 % Series A-2 Preferred Stock, $ 0.01 par value per share (the “Series A-2 Preferred Stock”) at a purchase price of $ 20.00 per share. The net proceeds to the Company after deducting issuance costs were $ 29.7 million. The rights and privileges of the Preferred Stock are described below: Voting Rights: Holders of the Preferred Stock do not have general voting rights. Dividends: The Company’s Series A-1 Preferred Stock and Series A-2 Preferred Stock accrue quarterly dividends at the rate per annum of 6.5 % per share. During each of the years ended December 31, 2022 and 2021, the Company paid total dividends of $ 3.3 million on the Series A-1 and Series A-2 Preferred Stock, respectively. Liquidation Preference: The holders of the Preferred Stock have preference in the event of any voluntary or involuntary liquidation, dissolution, or winding-up of the corporation, including a merger or consolidation. Upon such liquidation event, the Preferred Stockholders are entitled to be paid out of the assets of the Company available for distribution to its stockholders after payment of all the Company’s indebtedness and other obligations and before any payment shall be made to the holders of common stock or any other class or series of stock ranking on liquidation junior to the Preferred Stock an amount equal to $ 20.00 per share, plus any declared but unpaid dividends. Redemption: The Preferred Stock has no stated maturity date, however the holders of the Preferred Stock have the option to require the Company to redeem all or any portion of the Preferred Stock for cash upon occurrence of any significant changes in operating results, ownership structure, or liquidity events as defined in the Preferred Stock purchase agreements. The redemption price is $ 20.00 per share plus dividends accrued but not paid. The Company is accreting the Preferred Stock to redemption value over the period from the date of issuance to the date first callable by the Preferred Stockholders (October 2023 for the Series A Preferred Stock and September 2024 for the Series A-2 Preferred Stock), such that the carrying amounts of the securities will equal the redemption amounts at the earliest redemption dates. 70 Table of Contents 13. Stock-Based Compensation Plans The components of stock compensation expense were as follows: Year Ended December 31, 2022 2021 (in thousands) 2007 Stock Incentive Plan $ — $ 1,659 2021 Stock Incentive Plan 13,401 14,678 Employee Stock Purchase Plan 150 241 Total Stock Compensation Expense $ 13,551 $ 16,578 The significant stock compensation plans are described below. The 2007 Stock Incentive Plan (the “2007 Plan”) was adopted in May 2007. Under this 2007 Plan, a total of 2,800,000 shares were authorized for stock-based compensation available in the form of either restricted stock awards (“RSAs”) or stock options. The RSAs are subject to service-based vesting, typically between one and four years , in which a specific period of continued employment must pass before an award vests. The expense associated with these awards is recognized on a straight-line basis over the respective vesting period, with forfeitures accounted for as they occur. For any vesting tranche of an award, the cumulative amount of compensation cost recognized is equal to the portion of the grant date fair value of the award tranche that is actually vested at that date. As of December 31, 2022, there were no stock options outstanding under the 2007 Plan. The 2018 Stock Incentive Plan (the “2018 Plan”) was adopted in May 2018. Under this 2018 Plan total of 800,000 shares were authorized for stock-based compensation, plus the number of shares remaining under the 2007 Plan and any future forfeited awards under the 2007 Plan, in the form of RSAs. In November 2021, the 2018 Plan was amended and restated as the 2021 Stock Incentive Plan (the “2021 Plan”) to increase the number of shares reserved for issuance under the 2021 Plan by 1,000,000 shares. The RSAs are subject to either service-based vesting, which is typically between one and four years , in which a specific period of continued employment must pass before an award vests, or performance-based vesting, which is typically over one year . The expense associated with these awards is recognized on a straight-line basis over the respective vesting period, with forfeitures accounted for as they occur. For any vesting tranche of an award, the cumulative amount of compensation cost recognized is equal to the portion of the grant date fair value of the award tranche that is actually vested at that date. As of December 31, 2022, the Company has granted 1,256,700 RSAs under the 2021 Plan and has 637,896 shares available for future issuance. The fair value of the restricted stock awards equaled the stock price at the grant date. The following table summarizes restricted stock activity under the 2007 and 2021 Plans for the years ended December 31, 2022 and 2021: Number Outstanding Weighted Average Grant Date Fair Value Balance as of December 31, 2020 581,715 $ 31.34 Shares granted 327,550 42.40 Shares forfeited — — Shares vested ( 348,657 ) 28.66 Balance as of December 31, 2021 560,608 $ 36.30 Shares granted 330,400 32.44 Shares forfeited — — Shares vested ( 395,060 ) 38.09 Balance as of December 31, 2022 495,948 $ 32.30 At December 31, 2022, the stock compensation expense related to the RSAs that will be recognized over the average remaining vesting period of approximately one year totaled $ 13.5 million. At December 31, 2022, the intrinsic value of unvested RSAs was $ 29.3 million. 71 Table of Contents Under the Employee Stock Purchase Plan (“ESPP”), as amended and restated effective November 10, 2021, 425,000 shares of common stock have been reserved for issuance. Full-time employees may designate no more than 10 % of their base cash compensation to be deducted each pay period for the purchase of common stock under the Purchase Plan. Participants may purchase no more than 1,000 shares or $ 25,000 of common stock in any one calendar year. Each January 31 and July 31 shares of common stock are purchased with the employees’ payroll deductions from the immediately preceding six months at a price per share of 85 % of the lesser of the market price of the common stock on the purchase date or the market price of the common stock on the date of entry into an offering period. In 2022 and 2021, 19,789 and 18,211 shares of common stock, respectively, were issued under the ESPP. The Company issues new shares through its transfer agent upon employee stock purchase. 14. Employee 401(k) Plan The Company adopted The Willis 401(k) Plan (the “401(k) Plan”) effective as of January 1997. The 401(k) Plan provides for deferred compensation as described in Section 401(k) of the Internal Revenue Code. The 401(k) Plan is a contributory plan available to all full-time and part-time employees in the U.S. In 2022, employees who participated in the 401(k) Plan could elect to defer and contribute to the 401(k) Plan up to 75 % of pretax salary or wages up to $ 19,500 (or $ 26,000 for employees at least 50 years of age). The Company matches 50 % of employee contributions and was capped at $ 13,500 per employee in 2022. The Company match totaled $ 0.7 million for each of the years ended December 31, 2022 and 2021, respectively. 15. Related Party Transactions Joint Ventures “Other revenue” on the Consolidated Statement of Income includes management fees earned of $ 2.0 million and $ 2.1 million during the years ended December 31, 2022 and 2021, respectively, related to the servicing of engines for the WMES lease portfolio. During 2022, the Company sold two engines to WMES for $ 12.6 million. During 2021, the Company sold two engines to WMES for $ 25.0 million. There were no aircraft or engine sales to CASC Willis during 2022 or 2021. In December 2022, the Company subleased a WMES engine to a third party, with WMES as the head lessor. Under ASC 842, the Company recognized a ROU asset of $ 4.9 million and a lease liability of $ 4.9 million for this lease during the year ended December 31, 2022. Other During 2022, the Company paid approximately $ 35,000 of expenses payable to Mikchalk Lake, LLC, an entity in which our Executive Chairman retains an ownership interest. These expenses were for lodging and other business-related services. Additionally, during the year ended December 31, 2022, the Company paid a third-party vendor approximately $ 0.1 million under an exclusive use agreement for an aircraft used for business-related purposes. The third-party vendor leased the aircraft from a company which our Executive Chairman owns. These transactions were approved by the Board’s Independent Directors. 16. Reportable Segments The Company has two reportable business segments: (i) Leasing and Related Operations which involves acquiring and leasing, primarily pursuant to operating leases, commercial aircraft, aircraft engines and other aircraft equipment and the selective purchase and resale of commercial aircraft engines and other aircraft equipment and other related businesses and (ii) Spare Parts Sales which involves the purchase and resale of after-market engine parts, whole engines, engine modules and portable aircraft components. The Company evaluates the performance of each of the segments based on profit or loss after general and administrative expenses. While the Company believes there are synergies between the two business segments, the segments are managed separately because each requires different business strategies. The following tables present a summary of the reportable segments (in thousands): 72 Table of Contents For the year ended December 31, 2022 Leasing and Related Operations Spare Parts Sales Eliminations Total Revenue: Lease rent revenue $ 162,571 $ — $ — $ 162,571 Maintenance reserve revenue 83,424 — — 83,424 Spare parts and equipment sales 1,595 25,414 — 27,009 Interest income 7,579 — — 7,579 Gain on sale of leased equipment 3,133 — — 3,133 Gain on sale of financial assets 3,116 — — 3,116 Other revenue 24,607 673 ( 185 ) 25,095 Total revenue 286,025 26,087 ( 185 ) 311,927 Expenses: Depreciation and amortization expense 88,124 136 — 88,260 Cost of spare parts and equipment sales 96 20,737 — 20,833 Write-down of equipment 21,849 — — 21,849 General and administrative 87,996 4,534 — 92,530 Technical expense 14,415 — — 14,415 Net finance costs: Interest expense 66,743 — — 66,743 Gain on debt extinguishment ( 2,558 ) — — ( 2,558 ) Total finance costs 64,185 — — 64,185 Total expenses 276,665 25,407 — 302,072 Income from operations $ 9,360 $ 680 $ ( 185 ) $ 9,855 73 Table of Contents For the Year ended December 31, 2021 Leasing and Related Operations Spare Parts Sales Eliminations Total Revenue: Lease rent revenue $ 134,831 $ — $ — $ 134,831 Maintenance reserve revenue 73,961 — — 73,961 Spare parts and equipment sales 365 17,042 10 17,417 Interest income 12,938 — — 12,938 Gain on sale of leased equipment 5,975 — — 5,975 Gain on sale of financial assets 10,874 — — 10,874 Asset transition fee (1) 6,256 — — 6,256 Other revenue 11,584 523 ( 157 ) 11,950 Total revenue 256,784 17,565 ( 147 ) 274,202 Expenses: Depreciation and amortization expense 90,391 113 — 90,504 Cost of spare parts and equipment sales 29 14,898 — 14,927 Write-down of equipment 7,715 — — 7,715 General and administrative 72,333 3,027 ( 10 ) 75,350 Technical expense 9,381 — — 9,381 Net finance costs: Interest expense 67,985 — — 67,985 Total finance costs 67,985 — — 67,985 Total expenses 247,834 18,038 ( 10 ) 265,862 Income (loss) from operations $ 8,950 $ ( 473 ) $ ( 137 ) $ 8,340 _____________________ (1) Asset transition fee reflects the settlement received from the close out of an engine transition program. Leasing and Related Operations Spare Parts Sales Eliminations Total Total assets as of December 31, 2022 $ 2,530,130 $ 45,087 $ — $ 2,575,217 Total assets as of December 31, 2021 $ 2,415,635 $ 47,292 $ — $ 2,462,927 74 Table of Contents WILLIS LEASE FINANCE CORPORATION AND SUBSIDIARIES SCHEDULE II — VALUATION ACCOUNTS (In thousands) Balance at Beginning of Period Additions Charged (Credited) to Expense Net (Deductions) Recoveries Balance at End of Period Year Ended December 31, 2021 Accounts receivable, allowance for doubtful accounts $ 1,372 $ ( 164 ) $ ( 54 ) $ 1,154 Deferred tax valuation allowance $ 468 $ 50 $ — $ 518 Year Ended December 31, 2022 Accounts receivable, allowance for doubtful accounts $ 1,154 $ 837 $ ( 480 ) $ 1,511 Deferred tax valuation allowance $ 518 $ 18 $ — $ 536 Deductions in allowance for doubtful accounts represent uncollectible accounts written off, net of recoveries. 75