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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
    
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to_____
Commission file number: 814-01035
NEWTEKONE, INC.
(Exact name of registrant as specified in its charter)
 
Maryland46-3755188
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
4800 T Rex Avenue, Suite 120, Boca Raton, Florida
33431
(Address of principal executive offices)(Zip Code)
(212356-9500
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.02 per shareNEWTNasdaq Global Market LLC
5.75% Notes due 2024NEWTLNasdaq Global Market LLC
5.50% Notes due 2026NEWTZNasdaq Global Market LLC
8.00% Notes due 2028
NEWTI
Nasdaq Global Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated fileroAccelerated Filerx
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial or accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
As of May 8, 2024, there were 24,733,816 shares outstanding of the registrant’s Common Stock, par value $0.02 per share.




TABLE OF CONTENTS
 
 Page
Item 1.
Item 2.
Item 3.
Item 4.
PART II - OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



Defined Terms

We have used “we,” “us,” “our,” “our company,” and “the Company” to refer to NewtekOne, Inc. and its subsidiaries in this report. We also have used several other terms in this report, which are explained or defined below:
Terms
1940 ActInvestment Company Act of 1940, as amended
2017-1 TrustNewtek Small Business Loan Trust, Series 2017-1, terminated in February 2023
2018-1 TrustNewtek Small Business Loan Trust, Series 2018-1
2019-1 TrustNewtek Small Business Loan Trust, Series 2019-1
2021-1 TrustNewtek Small Business Loan Trust, Series 2021-1
2022-1 TrustNewtek Small Business Loan Trust, Series 2022-1
2023-1 TrustNewtek Small Business Loan Trust, Series 2023-1
2024 Notes5.75% Notes due 2024
2025 6.85% Notes6.85% Notes due 2025, redeemed in May 2022
2025 5.00% Notes5.00% Notes due 2025
2025 8.125% Notes8.125% Notes due 2025
2025 NotesCollectively, the 2025 6.85% Notes, the 2025 5.00% Notes and the 8.125% Notes due 2025
2026 Notes5.50% Notes due 2026
2028 Notes
8.00% Notes due 2028
ABLAsset based lending
ACLAllowance for credit losses
AcquisitionThe Company’s Acquisition of NBNYC, pursuant to which the Company acquired from the NBNYC shareholders all of the issued and outstanding stock of NBNYC
ALP
Alternative Lending Program
ASCAccounting Standards Codification, as issued by the FASB
ASUAccounting Standards Updates, as issued by the FASB
2023 ATM Equity Distribution AgreementEquity Distribution Agreement, dated November 17, 2023, by and among the Company and the placement agents
BDCBusiness Development Company under the 1940 Act
BoardThe Company's board of directors
Capital OneCapital One Bank, National Association
C&IConventional commercial and industrial loans
CodeInternal Revenue Code of 1986, as amended
CRE
Commercial real estate
Deutsche BankDeutsche Bank AG
DIFDeposit Insurance Fund of the FDIC
DRIP
The Company's former dividend reinvestment plan
EBITDAEarnings before interest, taxes, depreciation and amortization
2015 Stock Incentive PlanThe Company's 2015 Stock Incentive Plan
2023 Stock Incentive PlanThe Company’s 2023 Stock Incentive Plan
ESPP
Employee Stock Purchase Program
Exchange ActSecurities Exchange Act of 1934, as amended
FASBFinancial Accounting Standards Board
Federal ReserveBoard of Governors of the Federal Reserve System
FDICFederal Deposit Insurance Corporation
FV
Fair Value
HFI
Held for investment
HFS
Held for sale
LIBORLondon Interbank Offered Rate
LCM
Lower of amortized cost basis or fair value
4


LTV
Loan-to-Value
NAVNet Asset Value
NBNYCNational Bank of New York City, which has been renamed Newtek Bank, National Association
OCCOffice of the Comptroller of the Currency
PCD
Purchased Financial Assets with Credit Deterioration
PLPPreferred Lenders Program, as authorized by the SBA
PPPPaycheck Protection Program
RICRegulated investment company under the Code
S&PStandard and Poor's
SBAUnited States Small Business Administration
SECU.S. Securities and Exchange Commission
SMBSmall-and-medium sized businesses
SPV I Capital One FacilityRevolving Credit and Security Agreement between NBL SPV I, LLC, a wholly-owned subsidiary of Holdco 6, and Capital One
SPV II Deutsche Bank FacilityRevolving Credit and Security Agreement between NBL SPV II, LLC, a wholly-owned subsidiary of Holdco 6, and Deutsche Bank
SPV III One Florida Bank FacilityRevolving Credit and Security Agreement between NBL SPV III, LLC, a wholly-owned subsidiary of Holdco 6, and One Florida Bank
Stock Purchase Agreement Stock Purchase Agreement dated August 2, 2021, between the Company, NBNYC and certain NBNYC shareholders to acquire all of the issued and outstanding stock of NBNYC, as amended through December 12, 2022
TrusteeU.S. Bank, National Association
TSO IITSO II Booster Aggregator, L.P.
U.S. GAAP or GAAPGenerally accepted accounting principles in the United States
WebsterWebster Bank, N.A.
Subsidiaries and Joint Ventures
NSBFNewtek Small Business Finance, LLC, a consolidated subsidiary
NBL
Newtek Business Lending, LLC, a former wholly-owned subsidiary of Newtek Bank merged into SBL on May 2, 2023
NCLNewtek Commercial Lending, Inc, a consolidated subsidiary
NCL JVNewtek Conventional Lending, LLC, a 50% owned joint venture
Newtek Bank
Newtek Bank, National Association, a consolidated subsidiary
Holdco 6
Newtek Business Services Holdco 6, Inc., a consolidated subsidiary
TSO JV
Newtek-TSO II Conventional Credit Partners, LP, a 50% owned joint venture
NMS
Newtek Merchant Solutions, LLC, a consolidated subsidiary
Mobil MoneyMobil Money, LLC, a consolidated subsidiary
NTSNewtek Technology Solutions, Inc., a consolidated subsidiary
NBCCDS Business Services, Inc. dba Newtek Business Credit Solutions, a consolidated subsidiary
SBLSmall Business Lending, LLC, a wholly owned subsidiary of Newtek Bank
PMTPMTWorks Payroll, LLC dba Newtek Payroll and Benefits Solutions, a consolidated subsidiary
NIANewtek Insurance Agency, LLC, a consolidated subsidiary
TAMTitanium Asset Management, LLC, a consolidated subsidiary
EMCAPEMCAP Loan Holdings, LLC
POS
POS on Cloud, LLC, dba Newtek Payment Systems, a 88.34% owned consolidated subsidiary
5




NEWTEKONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, except for Per Share Data)
March 31, 2024December 31, 2023
ASSETS(Unaudited)
Cash and due from banks$12,295 $15,398 
Restricted cash35,759 30,919 
Interest bearing deposits in banks115,152 137,689 
Total cash and cash equivalents163,206 184,006 
Debt securities available-for-sale, at fair value28,127 32,171 
Loans held for sale, at fair value187,104 118,867 
Loans held for sale, at LCM59,880 56,607 
Loans held for investment, at fair value442,928 469,801 
Loans held for investment, at amortized cost, net of deferred fees and costs397,625 336,305 
Allowance for credit losses(16,126)(12,574)
Loans held for investment, at amortized cost, net381,499 323,731 
Federal Home Loan Bank and Federal Reserve Bank stock3,773 3,635 
Settlement receivable56,890 62,230 
Joint ventures, at fair value (cost of $45,108 and $37,864), respectively
48,247 40,859 
Non-control investments (cost of $772 and $796), respectively
728 728 
Goodwill and intangibles29,944 30,120 
Right of use assets5,193 5,701 
Deferred tax asset, net2,717 5,230 
Servicing assets41,172 39,725 
Other assets58,169 56,102 
Total assets$1,509,577 $1,429,513 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 Liabilities:
Deposits:
Noninterest-bearing$5,466 $10,053 
Interest-bearing507,476 453,452 
Total deposits512,942 463,505 
Borrowings662,488 644,122 
Dividends payable5,038 4,792 
Lease liabilities6,344 6,952 
Due to participants26,647 23,796 
Accounts payable, accrued expenses and other liabilities41,986 37,300 
Total liabilities1,255,445 1,180,467 
Shareholders' Equity:
Preferred stock (par value $0.02 per share; authorized 20 shares, 20 shares issued and outstanding)
19,738 19,738 
Common stock (par value $0.02 per share; authorized 199,980 shares, 24,715 and 24,680 shares issued and outstanding, respectively)
493 492 
Additional paid-in capital201,431 200,913 
Retained earnings32,611 28,051 
Accumulated other comprehensive loss, net of income taxes(141)(148)
Total shareholders' equity254,132 249,046 
Total liabilities and shareholders' equity$1,509,577 $1,429,513 
6
See accompanying notes to consolidated financial statements.


NEWTEKONE, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands, except for Per Share Data)
Three Months Ended March 31,
20242023
(as restated)
Interest income
Debt securities available-for-sale$460 $232 
Loans and fees on loans24,985 17,502 
Other interest earning assets1,622 981 
Total interest income27,067 18,715 
Interest expense
Deposits5,576 1,475 
Notes and securitizations10,827 8,718 
Bank and FHLB borrowings1,758 3,939 
Total interest expense18,161 14,132 
Net interest income8,906 4,583 
Provision for credit losses4,015 1,318 
Net interest income after provision for credit losses4,891 3,265 
Noninterest income
Dividend income386 504 
Loan servicing asset revaluation(1,735)919 
Servicing income5,357 4,403 
Net gains on sales of loans20,292 6,367 
Net gain on loans under the fair value option2,798 5,905 
Technology and IT support income5,770 6,709 
Electronic payment processing income10,987 10,328 
Other noninterest income5,512 7,221 
Total noninterest income49,367 42,356 
Noninterest expense
Salaries and employee benefits expense20,506 19,073 
Technology services expense3,408 3,803 
Electronic payment processing expense4,846 4,504 
Professional services expense4,565 3,440 
Other loan origination and maintenance expense2,244 2,781 
Depreciation and amortization532 791 
Other general and administrative costs5,058 4,631 
Total noninterest expense41,159 39,023 
Net income before taxes13,099 6,598 
Income tax expense (benefit)3,449 (11,952)
Net income9,650 18,550 
Dividends to preferred shareholders(400)(249)
Net income available to common shareholders$9,250 $18,301 
Earnings per common share:
Basic$0.38 $0.76 
Diluted$0.38 $0.74 
7
See accompanying notes to consolidated financial statements.


NEWTEKONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In Thousands, except for Per Share Data)
Three Months Ended March 31,
20242023
(as restated)
Net income$9,650 $18,550 
Other comprehensive gain (loss) before tax:
Net unrealized gain (loss) on debt securities available-for-sale during the period9 (113)
Other comprehensive gain (loss) before tax9 (113)
Income tax (expense) benefit(2)31 
Other comprehensive income (loss), net of tax7 (82)
Comprehensive income$9,657 $18,468 
8
See accompanying notes to consolidated financial statements.


NEWTEKONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
(In Thousands, except for Per Share Data)
 Common stock  Preferred stock  Additional paid-in capital  Accumulated other comprehensive income (loss) Retained earnings  Total equity
 Shares  Amount  Shares  Amount
Balance at December 31, 202324,680 $492 20 $19,738 $200,913 $(148)$28,051 $249,046 
Stock-based compensation expense, net of forfeitures— — — — 681 — — 681 
Dividends declared related to RSA, net of accrued dividends forfeited6 — — — 73 — (73) 
Purchase of vested stock for employee payroll tax withholding(21)— — — (253)— — (253)
Restricted stock awards, net of forfeitures45 1 — — — — — 1 
ESPP issuances— — — 56 — — 56 
Amortization of offering costs— — — — (39)— — (39)
Dividends declared common shares ($0.19/share)
— — — — — — (4,617)(4,617)
Dividends declared preferred shares ($20.00/share)
— — — — — — (400)(400)
Net income (loss)— — — — — — 9,650 9,650 
Other comprehensive loss, net of tax— — — — — 7 — 7 
Balance at March 31, 202424,715 $493 20 $19,738 $201,431 $(141)$32,611 $254,132 





9
See accompanying notes to consolidated financial statements.


NEWTEKONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
(As Restated)
(In Thousands, except for Per Share Data)
Common stockPreferred stockAdditional paid-in-capitalAccumulated other comprehensive incomeAccumulated undistributed earningsRetained earnings
Total equity
SharesAmountSharesAmount
Balance at December 31, 202224,609 $492  $ $354,243 $ $20,623 $ $375,358 
Conversion from BDC to Bank Holding Company Adjustments:
Change in presentation— — — — 20,623 — (20,623)—  
Removal of fair value adjustments— — — — (138,043)— — — (138,043)
Consolidation of controlled investments— — — 245 (57,970)— — — (57,725)
Reassessment of deferred tax assets and liabilities— — — — 19,266 — — — 19,266 
DRIP shares issued6 — — — 72 — — — 72 
Stock-based compensation expense, net of forfeitures— — — — 738 — — — 738 
Dividends declared related to RSA, net of accrued dividends forfeited5 — — — 59 — — (59) 
Purchase of vested stock for employee payroll tax withholding(11)(1)— — (428)— — — (429)
Issuance of Preferred stock— — 20 20,000 — — — — 20,000 
Preferred stock issuance costs— — — (507)— — — — (507)
Dividends declared common shares ($0.18/share)
— — — — — — — (4,363)(4,363)
Dividends declared preferred shares ($12.27/share)
— — — — — — — (249)(249)
Net income (loss)— — — — — — — 18,550 18,550 
Other comprehensive loss, net of tax— — — — — (82)— — (82)
Balance at March 31, 202324,609 $491 20 $19,738 $198,560 $(82)$ $13,879 $232,586 
10
See accompanying notes to consolidated financial statements.


NEWTEKONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
Three Months Ended March 31,
20242023
(as restated)
Cash flows from operating activities:
Net income$9,650 $18,550 
Adjustments to reconcile net income to net cash used in operating activities:
Net appreciation on joint ventures and non-control investments(169)(2,000)
Net gain on loans accounted for under the fair value option(2,798)(5,905)
Net unrealized depreciation (appreciation) on servicing assets1,735 (919)
Net unrealized (appreciation) depreciation on derivative transactions(592)495 
Net gain on sales of loans(20,292)(6,367)
Net accretion of premium/discount(61) 
Amortization of deferred financing costs987 1,249 
Provision for credit losses4,015 (1,318)
Lower of cost or market adjustment on loans held for sale221  
Allowance for doubtful accounts167  
Stock compensation expense681 739 
Deferred income tax expense (benefit)2,513 (11,739)
Depreciation and amortization532 791 
Proceeds from sale of loans held for sale184,332 121,575 
Sale (purchase) of loans held for sale from affiliate22,531 (5,295)
Purchase of loans held for sale (5,797)
Funding of loans held for sale(255,727)(156,742)
Principal received on loans held for sale1,638 1,347 
Other, net 180 
Changes in operating assets and liabilities:
Settlement receivable5,340 (41,427)
Capitalized servicing asset (2,164)
Other assets(1,430)6,692 
Dividends payable246  
Due to participants2,852 (7,447)
Accounts payable, accrued expenses and other liabilities4,955 (20,816)
Other, net (41)
Net cash used in operating activities(38,674)(116,359)
Cash flows from investing activities:
Net decrease (increase) in loans held for investment, at fair value21,688 (7,595)
Net (increase) decrease in loans held for investment, at cost(62,123)269 
Contributions to joint ventures(7,243) 
Purchase of fixed assets(57)(165)
Return of capital - non-control investments24  
Net (increase) decrease in Federal Home Loan and Federal Reserve Bank stock(138)242 
Sales (purchases) of available-for-sale securities, net of maturities4,044 (27,901)
Acquisitions, net of cash acquired 11,252 
Net cash used in investing activities(43,805)(23,898)
11
See accompanying notes to consolidated financial statements.


NEWTEKONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
Three Months Ended March 31,
20242023
(as restated)
Cash flows from financing activities:
Net borrowings on bank notes payable43,814 47,274 
Net increase in deposits49,098 105,933 
Repayment of Federal Home Loan Bank advances(3,484)(3,699)
Proceeds from preferred stock, net of offering costs 19,493 
Proceeds from 2025 8.125% Notes
 50,000 
Payments on Notes Payable - Securitization Trusts(22,954)(31,015)
Dividends paid, net of dividend reinvestment plan(4,771) 
Payments of deferred financing costs(24)(1,087)
Net cash provided by financing activities61,679 186,899 
Net (decrease) increase in cash and restricted cash(20,800)46,642 
Cash and restricted cash—beginning of period (Note 2)184,006 125,606 
Consolidation of cash and restricted cash from controlled investments and business combinations, net of cash paid 24,896 
Cash and restricted cash—end of period (Note 2)$163,206 $197,144 
Non-cash operating, investing and financing activities:
Foreclosed real estate acquired$1,447 $694 
Dividends declared but not paid during the period$4,617 $4,363 
Issuance of common shares under dividend reinvestment plan$ $72 
Supplemental disclosure of cash flow information:
Interest paid$19,079 $12,259 
Income taxes paid $73 $4,539 


12
See accompanying notes to consolidated financial statements.

NEWTEKONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:

The Company is a financial holding company that is a leading provider of business and financial solutions to independent business owners (SMBs) and provides SMBs with the following Newtek® branded business and financial solutions: Newtek Bank, Newtek Lending, Newtek Payments, Newtek Insurance, Newtek Payroll and Newtek Technology.

NewtekOne reports on a consolidated basis the financial condition and results of operations for the following consolidated subsidiaries: Newtek Bank; SBL; NSBF; NMS; Mobil Money; NBC; PMT; NIA; TAM; POS; Holdco 6; NCL; and NTS. In addition, as a result of commitments made to the Federal Reserve, the Company will divest or otherwise terminate the activities conducted by NTS by January 6, 2025, subject to any extension. As of the date of this filing, the Company has concluded that the assets, liabilities and operations of NTS do not qualify for Discontinued Operations.

Except as otherwise noted, all financial information included in the tables in the following footnotes is stated in thousands, except per share data.

The accompanying notes to the consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed on April 1, 2024 (the “2023 Form 10-K”). The unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. GAAP and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all information and footnotes necessary for a fair presentation of the consolidated financial statements in accordance with U.S. GAAP. In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications that are necessary for the fair presentation of financial results as of and for the periods presented. The annualized results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results of operations that may be expected for the entire fiscal year. The December 31, 2023 consolidated statement of assets and liabilities has been derived from the audited financial statements as of that date. All intercompany balances and transactions have been eliminated in consolidation.

Consolidation

The consolidated financial statements include the accounts of NewtekOne, its subsidiaries and certain VIEs. Significant intercompany balances and transactions have been eliminated. The Company considers a voting rights entity to be a subsidiary and consolidates it if the Company has a controlling financial interest in the entity. VIEs are consolidated if NewtekOne has the power to direct the activities of the VIE that significantly impact financial performance and has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE (i.e., NewtekOne is the primary beneficiary). The determination of whether the Company is the primary beneficiary of a VIE is reassessed on an ongoing basis. Investments in companies which are not VIEs but in which the Company has more than minor influence over the operating and financial policies are accounted for using the equity method of accounting. Investments in VIEs, where NewtekOne is not the primary beneficiary of a VIE, are accounted for using the equity method of accounting. The maximum potential exposure to losses relative to investments in VIEs is generally limited to the investment balance. Refer to NOTE 4—INVESTMENTS.

Reclassifications and Restatements

Certain prior period amounts, to the extent comparable, have been reclassified to conform to the current period presentation.

In addition, as disclosed in our 2023 Form 10-K, the Company’s prior year condensed comparative financial statements have been adjusted to correct errors made in the Company’s financial statements previously issued for the first, second, and third quarters of 2023. Balances as of and results for the three months ended March 31, 2023 are presented as restated. Refer to our 2023 Form 10-K for further detail.


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NOTE 2—SIGNIFICANT ACCOUNTING POLICIES:
A more detailed description of our accounting policies is included in the Company’s 2023 Form 10-K, which accounting policies remain significantly unchanged. There have been no other significant changes to our accounting policies, or the estimates made pursuant to those policies as described in our 2023 Form 10-K.

Cash

The Company considers all highly liquid instruments with maturities of three months or less when purchased to be cash equivalents. Invested cash is held exclusively at financial institutions of high credit quality. As of March 31, 2024, cash deposits in excess of insured amounts totaled $34.2 million. The Company has not experienced any losses with respect to cash balances in excess of insured amounts and management does not believe there was a significant concentration of risk with respect to cash balances as of March 31, 2024.
Restricted cash

Restricted cash includes amounts due on SBA loan-related remittances to third parties, cash reserves established as part of agreements with the SBA, cash reserves associated with securitization transactions, and cash margin as collateral for derivative instruments. As of March 31, 2024, total restricted cash was $35.8 million.

Interest bearing deposits in banks

The Company’s interest bearing deposits in banks reflects cash held at other financial institutions that earn interest.

The following table provides a reconciliation of cash, restricted cash, and interest bearing deposits in banks as of March 31, 2024 and 2023 and December 31, 2023:

March 31, 2024March 31, 2023December 31, 2023
Cash and due from banks$12,295 $29,103 $15,398 
Restricted cash35,759 73,421 30,919 
Interest bearing deposits in banks115,152 94,620 137,689 
Cash and restricted cash$163,206 $197,144 $184,006 

Allowance for Credit Losses – Loans

Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL”) approach requires an estimate of the credit losses expected over the life of a loan (or pool of loans). The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net, lifetime amount expected to be collected on the loans. Loan losses are charged off against the allowance when management believes a loan balance is uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The allowance is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, which generally includes larger non-accruing commercial loans.

The discounted cash flow (“DCF”) method is used to estimate expected credit losses for all loan portfolio segments measured on a collective (pool) basis. For each loan segment, cash flow projections are generated at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, probability of default, and loss given default. The modeling of prepayment speeds is based on a combination of historical internal data and peer data.

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Regression analysis of historical internal and peer data is used to determine suitable loss drivers to utilize when modeling lifetime probability of default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. The SBA 7(a) loan portfolio is the single loan pool where management solely utilizes historical internal data to determine the loss rate as an input to the model. The data utilized represents the most recent economic cycle and management determines the loss rate by analyzing defaulted principal and net charge offs to calculate the historical loss rate. For all loan pools utilizing the DCF method, management utilizes various economic indicators such as changes in unemployment rates, gross domestic product, real estate values, and other relevant factors as loss drivers. For all DCF models, management has determined that due to historic volatility in economic data, four quarters currently represents a reasonable and supportable forecast period, followed by a four-quarter reversion to historical mean levels for each of the various economic indicators.

The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Specific instrument effective yields are calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level Net Present Value (“NPV”). An allowance is established for the difference between the instrument’s NPV and amortized cost basis.

The allowance evaluation also considers various qualitative factors, such as: (i) changes to lending policies, underwriting standards and/or management personnel performing such functions, (ii) delinquency and other credit quality trends, (iii) credit risk concentrations, if any, (iv) changes to the nature of the Company's business impacting the loan portfolio, and (v) other external factors, that may include, but are not limited to, results of internal loan reviews, stress testing, examinations by bank regulatory agencies, or other events such as a natural disaster. Significant management judgment is required at each point in the measurement process.

Arriving at an appropriate level of allowance involves a high degree of judgment. The determination of the adequacy of the allowance and provisioning for estimated losses is evaluated regularly based on review of loans, with particular emphasis on non-performing and other loans that management believes warrant special consideration. While management uses available information to recognize losses on loans, changing economic conditions and the economic prospects of the borrowers may necessitate future additions or reductions to the allowance. Management estimates the allowance balance using relevant available information, from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts. The Company’s historical credit loss experience provides the basis for the estimation of expected credit losses, supplemented with peer loss information, and results in expected probabilities of default and expected losses given default. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as changes in environmental conditions, such as changes in unemployment rates, production metrics, property values, or other relevant factors.

Expected losses are applied to loans grouped in portfolio segments, which are pools of loans aggregated based on type of borrower and collateral, generally based upon federal call report segmentation. Portfolio segments have been combined or sub-segmented as needed to ensure loans of similar risk profiles are appropriately pooled. These portfolio segments are as follows:

CRE:     The CRE portfolio is comprised of loans to borrowers on small offices, owner-occupied commercial buildings, industrial/warehouse properties, income producing/investor real estate properties, and multi-family loans secured by first mortgages. The Company’s underwriting standards generally target a loan-to-value ratio of 75%, depending on the type of collateral, and requires debt service coverage of a minimum of 1.2 times.

C&I:     The C&I portfolio consists of loans made for general business purposes consisting of short-term working capital loans, equipment loans and unsecured business lines.

SBA 7(a):     The SBA 7(a) portfolio includes loans originated under the federal Section 7(a) loan program. The SBA is an independent government agency that facilitates one of the nation’s largest sources of SMB financing by providing credit guarantees for its loan programs. SBA 7(a) loans are partially guaranteed by the SBA, with SBA guarantees typically ranging between 50% and 90% of the principal and interest due. Under the SBA’s 7(a) lending program, a bank or other lender licensed by the SBA may underwrite loans between $5.0 thousand and $5.0 million for a variety of general business purposes based on the SBA’s loan program requirements. The guaranteed portion of the loans are held for sale and carried at LCM and therefore are not subject to CECL. The unguaranteed portion of the loans that are held on balance sheet at amortized cost are subject to CECL.

15


Individually Evaluated Loans. Loans that do not share risk characteristics with existing pools are evaluated on an individual basis. For loans that are individually evaluated and collateral dependent, financial loans where management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and management expects repayment of the financial asset to be provided substantially through the sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral or going concern, the specific credit loss reserve is calculated as the amount by which the amortized cost basis of the financial asset exceeds the NPV from the operation of the collateral. When repayment is expected to be from the sale of the collateral, the specific credit loss reserve is calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The allowance may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

Accrued Interest. Accrued interest receivable balances are presented within other assets on the consolidated balance sheet. Accrued interest is excluded from the measurement of the allowance for credit losses, including investments and loans. Generally, accrued interest is reversed when a loan is placed on non-accrual or is written-off. Current year accrued interest is reversed through interest income while accrued interest from prior years is written-off through the ACL. Historically, we have not experienced uncollectible accrued interest receivable on investment debt securities.

Allowance for off-balance sheet credit exposures. The exposure is a component of other liabilities in the consolidated balance sheet and represents the estimate for probable credit losses inherent in unfunded commitments to extend credit. Unfunded commitments to extend credit include unused portions of lines of credit and standby and commercial letters of credit. The process used to determine the allowance for these exposures is consistent with the process for determining the allowance for loans, as adjusted for estimated funding probabilities or loan equivalency factors. A charge (credit) to provision for credit losses on the consolidated statements of income is made to account for the change in the allowance on off-balance sheet exposures between reporting periods.

Allowance for Credit Losses – Available-for Sale (“AFS”) Debt Securities

The impairment model for AFS debt securities differs from the CECL approach utilized for financial instruments measured at amortized cost because AFS debt securities are measured at fair value. For AFS debt securities in an unrealized loss position, Newtek Bank first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities AFS that do not meet the aforementioned criteria, in making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, adverse conditions specifically related to the security, failure of the issuer of the debt security to make scheduled interest or principal payments, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. The cash flows should be estimated using information relevant to the collectability of the security, including information about past events, current conditions and reasonable and supportable forecasts. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the AFS security is uncollectible or when either of the criteria regarding intent or requirement to sell is met. As of March 31, 2024, the Company determined that the unrealized loss positions in the AFS securities were not the result of credit losses, and therefore, an allowance for credit losses was not recorded.

Accrued Interest Receivable

Upon the Acquisition and adoption of CECL, the Company made the following elections regarding accrued interest receivable: (1) presented accrued interest receivable balances separately within other assets balance sheet line item; (2) excluded interest receivable that is included in amortized cost of financing receivables from related disclosures requirements and (3) continued our policy to write off accrued interest receivable by reversing interest income. For loans, write off typically occurs upon becoming over 90 to 120 days past due. Historically, the Company has not experienced uncollectible accrued interest receivable on investment securities.

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Settlement Receivable

Settlement receivable represents amounts due from third parties for guaranteed portions of SBA 7(a) loans which have been sold at period-end but have not yet settled. The guaranteed portion of SBA 7(a) principal balances that have been sold but not yet settled at March 31, 2024 was $51.1 million. The settlement receivable also includes $5.8 million of premiums, which have been recognized in Net Gains on Sales of Loans.

Income Taxes

Deferred tax assets and liabilities are computed based upon the differences between the financial statement and income tax basis of assets and liabilities using the enacted tax rates in effect for the year in which those temporary differences are expected to be realized or settled. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Such deferred tax assets and liabilities recorded on the statements of financial condition were a deferred tax asset, net of $2.7 million and $5.2 million at March 31, 2024 and December 31, 2023, respectively.

Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. We are subject to income taxes in the United States and its political subdivisions. Significant judgments and estimates are required in determining the consolidated income tax expense.

The Company’s U.S. federal and state income tax returns prior to fiscal year 2020 are generally closed, and management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. Interest and penalties assessed by tax jurisdictions for income tax matters are presented as income tax expense on the consolidated statement of income.

Formerly, as a RIC ending with the Company’s December 31, 2022 fiscal year end, the Company was not subject to corporate level income tax. Beginning on January 1, 2023 with the start of the 2023 fiscal year, the Company no longer qualifies as a RIC and is subject to corporate level income tax. See NOTE 18—INCOME TAXES.

Recently Adopted Accounting Pronouncements

Current Expected Credit Losses (Topic 326): In June 2016, FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses—Measurement of Credit Losses on Financial Instruments (Topic 326) and in April 2019, the FASB issued ASU 2019-04 Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (collectively, “CECL”). CECL changed how entities measure potential credit losses for most financial assets and certain other instruments that are not measured at fair value. CECL replaced the “incurred loss” approach under existing guidance with an “expected loss” model for instruments measured at amortized cost. While ASU 2016-13 does not require any particular method for determining the CECL allowance, it does specify the allowance should be based on relevant information about past events, including historical loss experience, current portfolio and market conditions, and reasonable and supportable forecasts for the duration of each respective loan. CECL was effective for the Company beginning January 1, 2023; however, the Company continues to measure NSBF’s SBA 7(a) loan portfolio at fair value and intends to do so until the portfolio is completely runoff. Following the Acquisition on January 6, 2023, the Company owns and consolidates Newtek Bank, which applies CECL.
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Troubled Debt Restructurings and Vintage Disclosures (ASU 2022-02): In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The purpose of this guidance is twofold. First, the guidance eliminates TDR recognition and measurement guidance that has been deemed no longer necessary under CECL. The guidance also adds a requirement to incorporate current year gross charge-offs by origination year into the vintage tables. With respect to the TDR impacts, under CECL, credit losses for financial assets measured at amortized cost are determined based on the total current expected credit losses over the life of the financial asset or group of financial assets. Due to the Acquisition, any aspects of credit deterioration to include modifications to loans for borrowers experiencing financial difficulty were captured in purchase accounting and the allowance as of the Acquisition date. Therefore, credit losses on financial assets that have been modified as TDRs would have largely been incorporated in the allowance upon initial recognition. Following the Acquisition on January 6, 2023, the Company owns and consolidates Newtek Bank, which adopted the ASU on January 1, 2023, on a prospective basis. Under ASU 2022-02, the Company evaluated whether loan modifications previously characterized as TDRs represent a new loan or a continuation of an existing loan in accordance with ASC Topic 310, Receivables. The guidance also added new disclosures that require an entity to provide information related to loan modifications made to borrowers deemed to be in financial difficulty. The impact of these amendments was not material.

Fair Value Measurement (ASU 2022-03): In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820), which clarifies the guidance in Topic 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The amendments affect all entities that have investments in equity securities measured at fair value that are subject to a contractual sale restriction. ASU 2022-03 is effective for public business entities for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. An entity that qualifies as an investment company under Topic 946 should apply the amendments in ASU No. 2022-03 to an investment in an equity security subject to a contractual sale restriction that is executed or modified on or after the date of adoption. The impact of these amendments was not material.

New Accounting Standards

Improvements to Reportable Segment Disclosures (ASU 2023-07)
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The purpose of this guidance is to improve reportable segment disclosure, primarily through enhanced disclosures about significant segment expenses. This ASU requires that an entity disclose, on an interim and annual basis, significant segment expenses that are regularly provided to the CODM and are included within the reported measure of segment profit or loss. This ASU also requires an entity to disclose, on an interim and annual basis, other segment items by reportable segment, including a qualitative description of the composition of those items. This “other” category is defined as the difference between segment profit or loss and segment revenue less significant segment expenses. Entities are also required to disclose the title and position of the individual, or the name of the group or committee, identified as the CODM. The amendments are effective on January 1, 2024, for annual reporting, and January 1, 2025, for interim reporting, with early adoption permitted. The amendments must be applied using a retrospective approach. Management does not expect the impact to be material.

Improvements to Income Tax Disclosures (ASU 2023-09)
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The purpose of this guidance is to enhance the rate reconciliation and income taxes paid disclosures. This ASU requires that an entity disclose, on an annual basis, specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. For the state and local income tax category of the rate reconciliation, entities must disclose a qualitative description of the states and local jurisdictions that make up the majority (greater than 50 percent) of the category. For the income taxes paid disclosures, entities will be required to disclose, on an annual basis, the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes. The amendments are effective on January 1, 2025, with early adoption permitted. The amendments must be applied using either a prospective or retrospective approach. Management does not expect the impact of these amendments to be material.

Compensation—Stock Compensation (ASU 2024-01)
In March 2024, the FASB issued ASU 2024-01, Compensation - Stock Compensation (Topic 718), Scope Application of Profits Interest and Similar Awards. This standard provides clarity regarding whether profits interest and similar awards are within the scope of Topic 718 of the Accounting Standards Codification. This standard is effective for fiscal years beginning after December 15, 2024. The amendments should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is permitted. The Company is in the process of evaluating the impact of adopting this standard and, at this time, does not anticipate it will have a material impact on its consolidated financial statements.
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NOTE 3—BUSINESS COMBINATIONS

Acquisition of NBNYC

On January 6, 2023, the Company completed the Acquisition of NBNYC, a national bank regulated and supervised by the OCC, pursuant to which the Company acquired from the NBNYC shareholders all of the issued and outstanding stock of NBNYC for $20 million, in an all-cash transaction. The Company also agreed to pay the seller’s acquisition costs of approximately $1.3 million. NBNYC was renamed Newtek Bank and became a wholly owned subsidiary of the Company. In connection with the completion of the Acquisition, the Company contributed to Newtek Bank $31 million of cash and two of the Company’s subsidiaries, NBL and SBL (NBL was subsequently merged into SBL). Upon the consummation of the Acquisition, Newtek Bank entered into an operating agreement with the OCC concerning certain matters including capital, liquidity and concentration limits, and memorializing the business plan submitted to the OCC.

The NBNYC transaction was accounted for in accordance with ASC 805, Business Combinations, and the Company performed a purchase price allocation under the acquisition method. Under ASC 805, if the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, which shall not exceed one year from the acquisition date, the acquirer shall adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.

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The purchase price, including costs incurred by the Company on behalf of the seller directly associated with the Acquisition, was preliminarily allocated to net assets acquired. Final allocation was obtained and the purchase allocations finalized at December 31, 2023. The following table summarizes the allocation of consideration paid for the fair value of assets acquired and liabilities assumed from NBNYC:

Purchase price consideration$21,281 
Fair value of assets acquired:
Cash and due from banks29,138
Interest-bearing deposits in banks3,284
Total cash and cash equivalents32,422
Available-for-sale securities (at fair value)5,004
Other investments1,226
Loans receivable159,155
Federal Reserve Bank stock, at cost54
Federal Home Loan Bank stock, at cost1,470
Accrued interest receivable353
Deferred income taxes495
Goodwill271
Core deposit intangible1,040
Other assets399
Total assets
$201,889 
Fair value of liabilities assumed:
Deposits:
Demand$21,878 
Savings, Super NOW, and Money Market10,975
Certificates of deposit104,162
Total deposits137,015
Advances from the Federal Home Loan Bank27,817
Accrued expenses and other liabilities15,776
Total liabilities$180,608 

In connection with the Acquisition, the Company recorded $0.3 million of goodwill, which represents the excess of the purchase price over the fair value of the net assets acquired. Goodwill is an asset representing the acquired future economic benefits such as synergies that are not individually identified and separately recognized (i.e., it is measured as a residual). The amount of goodwill recognized is also impacted by measurement differences resulting from certain assets and liabilities not being recorded at fair value (e.g., income taxes, employee benefits). In accordance with ASC 805-30-30-1, the measurement of goodwill occurs on the Acquisition Date and, other than qualifying measurement period adjustments, no adjustments are made to goodwill recognized as of the Acquisition Date until and unless it becomes impaired.

ASC 805 provides for a period of time during which the acquirer may adjust provisional amounts recognized at the acquisition date to their subsequently determined acquisition-date fair values, referred to as the “measurement period.” Adjustments during the measurement period are not limited to just those relating to assets acquired and liabilities assumed but apply to all aspects of business combination accounting (e.g., the consideration transferred). Measurement-period adjustments are calculated as if they were known at the acquisition date, but are recognized in the reporting period in which they are determined. Prior period information is not revised, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. In accordance with ASC 805, the Company recorded a measurement period adjustment and decreased goodwill by $1.0 million related to the finalization of the consideration transferred.
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Information regarding the allocation of goodwill to the Company’s reportable segments, as well as the carrying amounts and amortization of the core deposit intangible, can be found within NOTE 8—GOODWILL AND INTANGIBLE ASSETS. None of the goodwill is tax deductible. Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the NBNYC Acquisition.

Cash and cash equivalents. The estimated fair values of cash and cash equivalents approximate their stated face amounts, as these financial instruments are either due on demand or have short-term maturities.

Investment securities available-for-sale. Quoted market prices for the securities acquired were used to determine their fair values. If quoted market prices were not available for a specific security, then quoted prices for similar securities in active markets were used to estimate the fair value.

Loans. Each loan was assessed individually. The fair values for loans were estimated using a discounted cash flow methodology that considered factors including the type of loan and the related collateral, classification status, fixed or variable interest rate, remaining term, amortization status, and current discount rates. In addition, the probability of default, loss given default, and prepayment assumptions that were derived based on loan characteristics, historical loss experience, comparable market data, and current and forecasted economic conditions were used to estimate expected credit losses. The discount rates used for loans and leases were based on current market rates for new originations or comparable loans and leases and include adjustments for liquidity. The discount rate did not include credit losses as that was included as a reduction to the estimated cash flows. We determined the fair value of the PCD loans using the asset and income approach. We used the income approach for PCD loans where there was evidence that the borrower may be able to continue to service the loan and more likely than not continue to pay. We used the asset approach for PCD loans when the loan is on non-accrual status. Acquired loans were marked to fair value and adjusted for any PCD gross up as of the Acquisition Date.

Core Deposit Intangible. CDI is a measure of the value of non-interest-bearing and interest-bearing checking accounts, savings accounts, and money market accounts that are acquired in a business combination. The fair value of the CDI stemming from any given business combination is based on the present value of the expected cost savings attributable to the core deposit funding, relative to an alternative source of funding. The CDI relating to the NBNYC Acquisition will be amortized over an estimated useful life of 10 years using the sum of years digits depreciation method. The Company evaluates such identifiable intangibles for impairment when an indication of impairment exists.

Deposit Liabilities. The fair values used for the demand and savings deposits by definition equal the amount payable on demand at the Acquisition date. The fair values for time deposits were estimated using a discounted cash flow methodology that applies interest rates currently being offered to the contractual interest rates on such time deposits.

Borrowings. The estimated fair value of borrowed funds is based on bid quotations received from securities dealers or the discounted value of contractual cash flows with interest rates currently in effect for borrowed funds with similar maturities.

PCD loans. Purchased loans that reflect a more-than-insignificant deterioration of credit from origination are considered PCD. For PCD loans and leases, the initial estimate of expected credit losses is recognized in the ACL on the date of acquisition using the same methodology as other loans and leases held-for-investment. The following table provides a summary of loans and leases purchased as part of the NBNYC Acquisition with credit deterioration and associated credit loss reserve at acquisition:

Par value (unpaid principal balance)$42,443 
ACL at acquisition(870)
Non-credit (discount)(1,559)
Fair Value$40,014 

Transaction costs describe the broad category of costs the Company incurs in connection with signed and/or closed acquisitions. Transaction costs include expenses associated with legal, accounting, regulatory, and other transition services rendered in connection with acquisition, travel expense, and other non-recurring direct expenses associated with acquisitions.

The Company incurred transaction costs related to the NBNYC Acquisition during the year ended December 31, 2023 of $0.2 million. These costs have been included in the Consolidated Statement of Operations in Professional Services Expense.

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NOTE 4—INVESTMENTS:

Investments consisted of the following at:
March 31, 2024December 31, 2023
CostFair ValueCostFair Value
Debt securities available-for-sale, at fair value
$28,319 $28,127 $32,372 $32,171 
Federal Home Loan Bank and Federal Reserve Bank stock