Q2 2021 Newtek Business Services Corp Earnings Call

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Your call is scheduled to begin shortly thank you for standing by we do appreciate your patience.

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Good day, Thank you for standing by and welcome to the New Tech business Services Corp, Q2, 2021 earnings conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

I'll ask a question during the session you will need to press star one on your telephone.

If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Barry Sloane. Thank you. Please go ahead.

Thank you very much operator, and welcome everybody to the new Tech business Services Corp.

Our second quarter financial results conference call.

I would also like to have.

Announce and welcome Nick Ledger, our EVP and Chief Accounting Officer, who will share the presentation with me today.

Like to point out to all listeners that they can follow the presentation by going to our website, a new tech one and EW Teekay <unk> Dot Com go to the Investor Relations section and there actually are two decks as part of the presentation.

Net number one will be the second quarter 2021 financial results conference call deck number two will be the.

Second addendum to the Investor presentation dated August 3rd with the current date of August 10th on it. So it will be using both of those deck today.

We're excited to report our first half earnings as well as our forward look for the second half of the year.

Company is doing really really well, we have a bright future company in business extremely well position we have.

Also addressed some slides talk about talent pool, and we've recently added and obviously a lot of people are intently focused on the results that we put out last night through the first half in the second half as well as the recent announcement of <unk>.

A contract to acquire National Bank of New York City.

Before I get into our focus today, which obviously, we'll be focusing on the company's performance as well as the acquisition I do want to point out that.

There clearly has been more activity in the questions coming into the company relative to the acquisition.

Broadly speaking because it will get into this a little bit deeper we've got the same business New Tech was the same business a month ago at all it would be the same business a month forward.

We basically if in fact, the transaction goes through and we expect that it will.

It's why we move forward on the transaction and we.

We will be recommending it most likely to shareholders.

It's the same business in a different structure I think thats with real real important. This business has been built over a long period of time, we do most of the things that banks currently do.

We were excited about converting to a BDC in November of 2014, when that made the most sense for the company and its shareholders and we're excited about the potential.

Conclusion of the transaction subject to regulatory approval and shareholder vote.

We look forward to day to discussing our earnings.

In the first six months of the year recent quarter projections going forward and the real strong performance that we've had I'd like to call everyone's attention to slide number two of the conference call.

The earnings deck and on slide number two we talked about proven shareholder value creation that track record of successful growth.

Important to note new Tech has always been a growth company when I say a growth company growth in revenue and growth in earnings so.

When you take a look at our stock price.

Year to date.

Through August five 2021 up 42%.

For the year 10 year return, 754% five year, 222% three year, 71% and one year over the last 12 months from that particular day, 50% I think.

It's once again important to note that the reason why we're able to generate these returns and these include dividends plus share appreciation is the company as a growth company, it's always been a growth company.

And we believe that despite the fact that the business development Corp has been a great vehicle our ability to grow the business grow the cash flow those are better suited from a total rate of return basis in a bank holding company. So we believe that.

The transaction net.

We have announced and hope to proceed forward with is a great transaction for all shareholders.

To point out that if you would have earned a 10% dividend with no appreciation over 10 year period of time, that's a 200% return obviously there are dividend oriented shareholders that are somewhat concerned about not getting net regular cash flow well if <unk> got share appreciation you could just get that cash flow by periodically selling off pieces.

Of of your of your shares at the end of the day, New <unk> business Services Corp, and its form we will continue to be going forward and has always been a growth company growing its cash flows. We're excited about reporting our third quarter results, our first quarter, our first half results.

And projections, let's go to slide number three.

Important adaptability of new Tech business model, well nobody expected a pandemic to really a recap on our health and business in 2020 in 2021.

Clearly these were extremely challenging years in our 23 year operating history, we were able to demonstrate the ability to shift our business model quickly and I think that's really important being able to transform to current market conditions and positioning yourself. So you could provide good results for all of our stakeholders.

We've also proven that new tech in its current form is vital to the economy and essentially you could look at what we've done, particularly with respect to our SBA activity the partnering with the government.

And for all of Us can see going forward, particularly in the foreseeable future government keeps getting larger and larger partnering with the government is not a bad position to be in and I think the financial results that we've been able to deliver through a tough 2020 in 2021 have demonstrated that we believe the company's <unk>.

Hearing on all cylinders, what does that mean as the economy opens up we believe that we'll be able to grow our payments business. Our tech solutions business insurance agency payroll and ship the lending focus from PPP, which is a product that effectively sunset it.

With the exception of forgiveness, which we're working on with our customers.

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Shift the lending focus back to seven day by well for not conforming and secured line of credit. We think new tech is extremely well positioned to capture those market opportunities and for those investors that aren't totally familiar with our model and there are many new investors that are attending today's call. When we go out to the marketplace, we have a big.

Total.

Business has come to us not for a PPP loan or a seven day loan or they come to us for financing.

And we will talk about the amount of referrals that we get the referrals come into the funnel, we use technology to parse that funnel out to get.

Borrowers Prequalify quickly and then figure out what the right product is so from us the shifting of PPP to 708, a firewall afford a secured line of credit of Nonconforming. That's just what we do with what we've always done. This is not a big issue for us and we're excited about being able to continue the success in the profit and the.

Billy that we've demonstrated over the last one year two year and actually 10 years over the course of time.

We will provide forecasts across several key metrics for 2021 and really reflect the.

The growth of our <unk>.

Many many faceted, earning stream, whether it's from payments Tac.

Whether it is gain on sale income, whether it's servicing income or spread income.

We're very excited about what we are doing and what we're positioned going forward. We're also indicating that on a going forward basis, given the potential change to a bank holding company our forecast in 2022 will be limited to quarterly basis. So approximately 30 to 45 days, we hope to give some additional tranche.

Apparently and forecast a dividend for Q1.2020 to go on to slide number for 2021 key metrics.

We've clearly positioned ourselves for a <unk>.

<unk> dividend of $3.15 for the year there'll be a 53% increase over the year prior.

708.

Loan forecast for the year $5.50 to 600, we dropped the lower end from.

$5.80 to 550.

From our perspective, there has been tremendous receptivity for price appreciation, which we'll talk about so our gain on sale metrics can easily be net within this this new footprint.

Or I should say forecast of a range.

This isn't necessarily indicative of anything of a slowdown or a change in growth as a matter of fact, we outperformed in the second quarter, our PPP fundings, while we funded $722 million worth of loans instead of a previously forecast and analyst review of $600 million worth of those loans. So.

Just a little bit of a shifting around and we feel very comfortable with these changes our final four business, our forecasting $125 million to $150 million, that's up from our previous forecast of $125 million.

And we'll talk also a lot about our non conforming conventional loan business going forward clearly a growth engine.

Particularly in 2022 and beyond.

Okay.

Slide number five.

So on August 10th the company's board declared a third quarter dividend of 90 cents a share that's a 55% increase over the same quarter last year of 58.

And with the payment of the third quarter dividend from <unk>.

Paid out $202.10.

Over the first three quarters of 2021, there'll be 32% increase.

And.

If our forecast.

Is accurate the fourth quarter should deliver $1 five dividend or 123% increase over the fourth quarter.

The prior year.

So were prior year and prior quarter.

Once again, we're reaffirming our dividend forecast range from the midpoint of $3.15, and we look forward to continuing to hit on all cylinders as we go through the third quarter and the fourth quarter.

Moving to slide number six the second quarter financial highlights.

Yeah.

The difference between the second quarter and the first quarter, primarily dominated by a shift in PPP revenue recognition, where we had in 2020 more PPP revenue recognition in Q2 than Q1 in 2021 that was more of a.

PPP income from the first quarter to the second quarter. So you can see there was a little bit of a shifting around I think important to note adjusted NII for this particular recent quarter that we're reporting today came in at $27.1 million or $1.20, a share although it was a decline from the year prior.

It was clearly a stronger number than consensus estimates by about 46.

We had a 77 guests a 65000 guests in 81 guests.

Fourth analyst and guests, but we were able to beat the numbers primarily based on the outperformance of the PPP business and the ability to actually.

Closed end fund I believe close to 16000 units.

For the year in this particular round the PPP funding.

Net asset value also increased at June 30 from $16.38, a share.

The $15.45 on December 31, 2020.

On slide number seven.

We're talking about PPP resources, which are really important.

We're estimating and obviously this is subjective about 65% to 70% of our resources in lending that we're focused on PPP financing and now going to be shift shifted to the other four product lines. Once again think it's important to note and I'll go into this a little bit further in the presentation.

In calendar year 2019, there was no PPP there was no pandemic. It was a very clean year, we're going to look to give analysts and investors somewhat of a base of what we think we can project going forward, taking some of the PPP noise out but were excited about the shift of resources.

The shifting of the resources is going to give us the ability to do more business from <unk> 500 for nonconforming unsecured lines of credit I should also note that.

Given the volumes that we did particularly with respect to units.

We wound up making 46 net new hires in the calendar year.

2021, and that is not over yet about a 25% increase in staff. So for those of you that are trying to figure out Gee, our expenses going up we're able to handle it we're very comfortable as we are growing our revenue side to be able to grow.

Our head count.

We also believe that we are getting greater returns on our equity and our assets by doing this as we make technological changes one of the technological changes that we've made is we're pushing out fact finders to referral partners early.

And we're giving referral partners the ability to set calendar invites for our internal staff. These are all things that are expediting, our ability to get loans into pre qual and underwriting sooner and earlier and larger to get to these borrowers real quickly.

Moving forward to slide number eight our six month comparison.

Ended June 32021 versus June 32020.

Increases of total investment income Ann and I will point out that day in and I up 43% for the year net investment income.

Actually it was a slight decrease.

We'll comment that in Q1 and Q2, we did not distribute.

Any income coming up from the portfolio companies to the BDC to be paid out in the form of a dividend that was held back that was a conscious decision at each particular portfolio company.

Net cash and earnings still resides at the portfolio company, which can be dividends distributed out in the future when needed in the meantime, it's good to have that cash we could use that cash to lend to.

The BDC to make loans or provide greater returns on capital, but I think it's just important to note that.

That withholding of that dividend I do believe does provide.

<unk> drag on net investment income once again were excited and we believe that the six month results give us a more accurate depiction of the company's performance, particularly due to the uneven distribution of PPP income between Q1 and Q2.

On slide number nine in slide number 10, they kind of go together a little bit there's been obviously a lot of discussion on forecasting we try to be conservative in that but trying to give as much transparency.

And ideas for the investment community and analyst day based some of the forecast, particularly given as things are changing and potentially capital structures.

And legal structures are changing so.

As I mentioned, we plan on issuing 2022 Q1 dividend guidance for the next 30 to 45 days to give greater transparency.

To the market.

Relative to our next few quarters of operations and I think it is important to note that in 2019, the full year NII was $2.33.

Bring that up and people said why are you, bringing that up well you've got PPP noise in 2020% EBIT PPP noise in 2021, and I see noise that was good noise.

A very good indication of how the company is able to shift through changing conditions changing market conditions as well as changing technology and structure. So we look at that as a good a good base and ni to try to establish a projection in the future for what gross earnings can be I'd like to.

Draw everyone's attention to slide number 10. So you can take a look at the adjustment of NII in the trend in the forecast, but as I said at the beginning of the presentation.

<unk> business Service Corp, as a growth company, it's a growth company, it's been able to grow its earnings on a regular basis.

And as you could see the trend here is clearly up.

Could put some fairly high numbers when you actually calculate what the trend is over that over that period of time.

Obviously, we were affected by the pandemic in 2020 with really primarily relying on PPP and taking a hiatus in some aspects of our business lending with an uncertain unquestionable view towards credit, which I think at this point in time is primarily corrected itself, but I think it's important to note that the street estimates for.

'twenty 'twenty two going forward as a BDC approximately $2.29.

As the average amongst the four different participants I look at the $2.29 and look at what we did in 2019, I'd say that there's no growth and frankly.

I just don't see it.

So whether you put a 25% number of growth a year, you put up 15% number or a 10% number of five or zero or negative put whatever number you like on it I think this is a good way for all of US try to calculate what's our earnings capability going to be as we go forward now we want to be careful try not to confuse the market too much.

Relative to the transition of becoming a bank holding company versus a BDC. So we will do this in bite sizes, but for many of you. Hopefully this will give you a good base to configure what we look like the one thing I'm fairly I feel fairly strongly about we are a significantly bigger better stronger.

More efficient company.

In 2021 going into 2022 than we were in 2019 I feel great about our prospects I hope that analysis is helpful to investors.

And the analyst community going forward to slide number 12, we talked about.

PPP.

Results $722 million.

Loans 15800 units on an aggregate basis in 2000.22021 26000.

PPP customers that are all available for discussion about other things that we can do for them.

$1.9 billion worth of loans I will point out that in excess of 99, 6% of all of these loans were sold to third parties. So no balance sheet implications just income and move them off the balance sheet.

<unk>.

I think most people on this call are familiar with all the PPP information there's information on our website to take a look at what the PPP program was about which we talked extensively about in prior calls if you need to get that data on slide number 13, we talk about our SBA 700, fundings, which were transitioning back in.

<unk>.

Very full basis.

$94 million of loans during the three months ended June $198 million for the first six months.

Forecasted range by $50 to 600.

And once again, we shifting of redeploying of assets.

We have held over approximately $26.7 million of guaranteed portions of SBA loans that are available for sale going forward.

Slide number 14.

Just some information and other portfolio companies, particularly NBL, new tech business lending detect business lending is our origination unit that does the 504 loans and also originates nonconforming loans for the joint venture.

We funded our closed $49 million and 504 loans for the three months ended June there was nothing that was done in that quarter and the year prior and $72 million for the first six months, it's $18 million increase over the six months of last year and we bump there.

Funding is up in a range of $1.25 million to $150 million, our credit facilities of $175 million.

With Deutsche Bank Capital One bank, respectively are in place on Slide number 15 is a good snapshot of our pipeline you can see it's real strong robust puts us in a great spot to be able to fund close seven day loans in Q3, and Q4 and well beyond that.

We're really excited about the shift back to a regular course of business as business owners are looking forward to getting back on track and.

And growing through the effects of the pandemic on slide number 16, obviously, COVID-19, <unk> effect affecting our workforce.

We're able to shrink our real estate footprint by closing down offices in Milwaukee, Irvine, San Antonio Dallas, and New York City, We demonstrated the company has been able to manage our employee sufficient officially working remotely through our our time tracker program, which gives us the ability to monitor and manage remote workers.

With respect to time on the phone, who they're calling outbound calls inbound calls as well as knowing what customers they service within different hours of the day.

And our staff has been able to benefit by not having long commutes.

So we have adapted well to remote work environment. We do believe going forward, we will operate on some kind of a hybrid structure. We thought to go back to work might begin September one given the current conditions that might get pushed back.

Another month or so, but we do plan on getting back into the office and develop.

As well as a great environment for people to work out of their house or sense of camaraderie coordination communication by coming to the office a couple of days a week slide number 17 for those that aren't familiar with our ability as a SBA lender under the 700 program. There's some good data on here.

Which really just talks about the profitability of the program our ability to access the markets two rated securitizations with average uninsured, but not subordinated.

Participation certificates of 170000.

And fairly high attractive coupons on the uninsured of 6% floating window caps.

Slide number 18 talks about growth and lower referrals through our patented new tracker system, which would be something that clearly would carryover.

To the bank and the bank holding company once again.

Getting a 109000 loan referrals many of these loan referrals would qualify for more traditional types of bank lending.

C&I loans commercial real estate loans.

That we are able to fund with our lower cost of retail deposits.

I think it's important to note that we don't see National Bank of New York doing car loans or consumer credit cards, we will be focused on the things that we currently do best which is lend money process payments, which we do from a payment processor provide payroll another.

Cash management systems for our business clients will talk about that new Tech one dashboard, which you talked about in previous presentations. So once again, not a major change and shift in business, but important to note we get lots of referrals, we have a database.

In near time of $1.5 million.

Customers in our database.

One 5 million that are passed to referral to new tech seeking a product.

Our solution in one particular area and other.

The cross selling efforts should be enhanced significantly through the new tech one dashboard, which is clearly a bank product that will be rolling out. The one solution for all your business needs to be able to go to that dashboard senior deposits senior loan information be able to make your payroll be able to get human HR tools right on the day.

<unk> to be able to have all of your important organizational documents saved and stored there obviously a lot of these forward looking comments relative to the bank or subject to regulatory review and approval by our application through the federal reserve and the OCC.

But these are the things that we are we believe and are hopeful that we'll be able to do if the regulators approve that transaction and if the shareholders vote for the conversion into a bank holding company.

Our 18 year track record of loan Assembly underwriting and technological expertise really has made it a leader in the areas of lending.

And we look forward to getting through this pandemic and as fatality and getting back to a more normalized business practice.

Slide number 19 talks about premium trends.

One of the reasons why we were able to cut back on the amount of loans. We are doing is because of these higher prices that we're getting.

And these higher prices should go away by September 30th I say that because due to the COVID-19.

Relief bills passed in Congress some of the fees that were charged to borrowers and originators like ourself waived which enable us effectively to sell higher coupons projecting forward I would look at the numbers from 2016 to 2020, maybe even part way through 2021 gives us.

A little bit more normalized type pricing for gain on sale, but.

Clearly this has been helpful to us we've taken advantage of it and we.

Realize that based on our projections will go back to a more normalized type of a market, which we saw as a company way back when in 2019.

Slide number 20 shows the seasoning of our portfolio real important wheel a season portfolio Thats, primarily sitting in securitized structures. That's good we have an analysis in our deck that from standard and poors It basically shows.

When defaulter.

Particularly occurring are accelerating so we're comfortable that obviously were doing new loans to put on the books, but our season portfolio hopefully has experienced a good portion of the stress relative to seasonality with that said, we're still going through the effects of the pandemic a lot of businesses that are coming out of the pandemic are struggling somewhat.

But so far we feel pretty good about how our portfolio was performing as evidenced by our currency analysis of our currency.

Portfolio on slide number 21, so we see that from $3.31, 2021% to 682021 slight deterioration, but not significant obviously we've had the.

Reduction of the 11.12 payments for a quarter. So we were comfortable that there wasn't a major shift in those particular metrics slide number 22 and 'twenty three are slides. We've used for 15 years I believe in these call. So for those that are not familiar with it it will show how an SBA seven loan is fun.

<unk> had the government guaranteed piece gets sold how income is booked and how cash is create.

Slide number 24 going into the App.

Portfolio.

Sure.

Company review.

These are our controlled portfolio companies.

504 loan program, we talked about how well it's done this year versus last particularly with growth in originations looking for $125 million to $150 million a day.

And I believe we have dividend money up from NCL.

I believe in the first or second quarter. That's dollars that will go back into making additional loans potentially can get distributed in Q3 or Q4.

Slide number 26 demonstrates for those that aren't familiar with 504 lending. It gives the ability to make a 90% LTV loan to a business owner that.

Fully personally guaranteed.

When we make the loans with respect to our underwriting guidelines.

SBA and the community development Corp. The CDC has already approved it therefore, the 40% second lien gets taken out by the government were left with a 50% first lien, which we typically sell into the market for gain on sale slide number 27 is illustrative of that so when you look at our <unk> business getting higher.

Turns on equity and assets are 504 business also high returns on equity and assets you can see why we are able to generate larger.

Returns, obviously as a BDC from other bdcs.

And we do believe that that will carryover into a bank holding company and bank structure. Once again subject to regulatory review and shareholder vote Slide number 28, we talk about our conventional loan program.

We are working on at the moment on.

A potential small private securitization with our partner in the first JV.

We're excited about that we think that will give us good validation.

And on Slide number 29, we signed up a second joint venture partner and currently working on a third.

These programs do take a while to put into place with respect to getting a securitization done getting our leverage lines in place, but we feel pretty good about the program and.

We expect to fund up to $50 million of nonconforming conventional loans through.

JV is around our balance sheet through the second half of the year Slide number 30, we talk about our payment processing companies that being mobile money and new Tech merchant solutions, we've come up with a total enterprise.

Market multiple value of eight five times.

<unk> 2021.

EBIT numbers.

Good about that.

And I also want to make a note that we.

We also did not distribute earnings out of.

NMS or MTS through the first half of this year and Thats something that can be done. In addition can also provide funding to the BDC from making loans. So we've got a lot of flexibility in our business model. That's an important aspect of investing in new tech to have many different levers many different diversified streams of income and we try to be.

As transparent as we can to our analysts and the investment community up slide number 31, we talked about our payments business in the prior slide we obviously have an increase in record volume coming off of the pandemic. We anticipate continued growth in processing volume. So the remainder of 2021.

Slide number 32, we talk about one of our important solutions that will be very valuable, particularly in the bank holding company or bank structure being able to provide pls software directly to a customer to enable them to do their payroll e-commerce integrate to their accounting gl's.

Integrate the e-commerce and in store.

Great to food delivery services, we already have an existing book of business in this particular space and we're very very excited about <unk>.

Everything that we're doing in the payment space, particularly with our with our software solutions.

Slide number 33.

Technology portfolio companies.

We have a real nice turnaround in NTS.

We're forecasting revenue between 40 to 50 million from 2021, and EBIT of about $6.2 million a very realistic multiple of six seven times, particularly for growing tech business.

This business, obviously a growth had a consolidated.

EBITDA in 2020 of that $4.3 million. So we're looking at $6.2 million for this year and we're excited about what we're doing in tech solutions I want to encourage.

Listeners and analysts go to our website and see what we do there.

We're not just evaluated reseller, we are able to provide great solutions to our customers manage their technology 24, 7% moving to slide number 35, just as a comment we've re.

Recently.

Embarked on several broker dealer initiatives as more broker dealers have ria's and brokers working remotely to be able to give them their total solution charge them on a per seat basis.

And really enable people to work at home safely securely with $24 seven helped us to be able to do remote remote.

Compute I think once again, we see cloud services is a significant market opportunity and new tech is very well positioned for that.

Slide number 36.

About our payroll and insurance solutions, we're excited about the.

The performance of those businesses they've historically been.

Slow growth, they're growing nicely. This year it will probably have some more information at the end of the third quarter.

And we look for them to finally begin to distribute contribute to earnings and dividends.

<unk>.

Slide number 37, and some in summary of our earnings reported for the first half.

This year without forecasting the second half as a BDC clearly we've demonstrated a diversified business model, our proven track record and ability to take a business that consistently outperformed the Russell 2000, and the S&P 500 for over a decade, we've over 19 year history through.

Lending cycles and great depth of management.

I think it is important to note that.

Management's interests are very much aligned with shareholders I think thats <unk>.

Very important.

We are about $5 one per cent of the outstanding shares.

We love dividends, we love share appreciation.

We are an internally managed BDC I think that's important to note. So we're not getting paid for growth in assets. We're getting paid for performance very important to note I will comment that from an individual perspective.

My cash bonus for last calendar year was zero.

I did get long term compensation in form of <unk>.

Stock for 12, 24, 36 months worth of work, but in New Tech you perform you get paid you don't perform you don't get paid so we believe that what we're suggesting.

Is not self enriching any of the executives.

People from making this decision. We believe this is in the best interest of all of our shareholders and stakeholders and Thats why.

<unk>.

Contracted to buy National Bank of New York City.

And look forward to discussing that transaction a little bit further so I'd like to turn everyone's attention to the second deck.

Second addendum to the Investor presentation dated August 3rd 2021.

I want to also relay that information regarding the proposal to withdraw a new tax election to be treated as a business development company will be contained in the new tech proxy statement when the documents becomes available stockholders should read the proxy statement when such document becomes available the proxy statement may be obtained.

<unk> free of charge when available from the SEC Edgar web.

SEC Edgar website, and the company so with that said I'd like to turn everyone's attention to that.

Particular deck I will probably read this again at the conclusion of this discussion just to make sure everyone's heard it.

So.

Looking at the information that's in the second deck for today.

The purpose of this deck is to kind of separate real important.

<unk> provide some more information.

Why do we think.

We make sense dropping our business into a bank holding company and subsequently buying a bank.

I've had people say Gee.

Why are you buying banks banks are out of favor, but we liked banks wealth.

Being that banks are out of favor and being able to buy a bank and a 100% of book is a good thing.

Why sell out of BDC interest rates are low people are buying yield well that may not last forever.

And particularly as we're looking at current market conditions and rates rising. We just think that this is given our current business model, which is a growth business model. We are better situated in a financial structure to be able to benefit from a better growth structure than a BDC, which is really not.

A weighted typically as a growth structure.

Let's go to slide number three.

Yes.

So as we go to slide number three.

It's a.

Slide it talks about the actual transaction to acquire natural bank in New York City.

Basically $20 million cash price for book.

Intensified at 100% of book and.

We believe that we can add to national Bank of New York City.

Is.

A great digital platform to be able to provide financing in digital solutions. We believe we can transform our combined entities into a technology enabled bank.

We believe that.

We don't need nor do we want or desire a large real estate footprint nor.

Nor do we need or want or desire commercial bankers all over the United States. We are a technology enabled bank utilizing technology to provide the best products services and solutions to our customers.

And I think it's important to note new takes got approximately 450 employees. So we're not short of human beings that can work with clients digitally or telefonica <unk> to be able to provide the solutions that they need.

For loan Assembly for payment processing protect solutions for insurance from payroll I'd like to go forward to slide number four.

And this is an anticipated well capitalized institution that being.

<unk> Bank and trust the banking subsidiary and the potential holding company you could see looking at these ratios and once again. This is illustrative of what our current capital base.

Looks like plus.

Our projection or an estimate with the bank will look like on a going forward basis, you have got when we say the other day is this a well capitalized bank. Some people got 10.11 12, net we have a lot of capital going into this particular institution. So the holding company and the bank will prospectively on a gas flow.

<unk> assumption startup as well educated.

<unk> slide number five once again, our potential profitability targets.

For the bank holding company for.

For those people that invest in banks.

Bank with strong ROA, one and a half maybe some it too.

Why are we able to achieve these well we've got a business model that is a growth oriented model. We are a business model that we've managed over the course of time and been able to perfect that where others have not really done that well in SBA seven lending, our 504 lending or payment processing payroll solutions and be able.

To put those into this structure.

Obviously, diversifying our cost of funds.

<unk> going to use some commercial sources of funding.

Use core retail deposits, which tend to be more sticky and a lower cost clearly beneficial you could see that by increasing those deposits will be able to generate higher rates of return you could see these profitability targets on an after tax basis, we believe keeps us in the game with respect to.

<unk> potential market multiples similar institutions from product categories, which all of you can make those assessments yourself, even in a stress case where deposit costs.

Our higher than we currently estimate.

Still able to generate very exciting.

And returns on average tangible common equity.

Go to slide number six profitability targets.

Well.

A lot of bank holding companies and banks today, they love to get that other income versus spread income. So most banks are primarily driven by interest income less the cost of deposits. It's fairly stable not very exciting that's why banks typically traded book and that's typically why they can't grow very much.

However, we're seeing that the world is changing in the market is changing and tech enabled banks such as live Oak Bank square so far.

And.

Other institutions like lending club or <unk>.

Positioning themselves in the market to be able to.

Safely and conservatively grow the book and growth earnings and revenue over time. So when you look at on slide number six the pretax income other business lines, you got payments you've got tech you've got payroll you got yet all of these other incomes that are coming in you've got gain on sale, you've got servicing income and you could see that.

We do believe and with target obviously, this particular bank holding company and bank.

A growth vehicle.

Go to slide number seven.

These are benchmarking illustrations of where we'd like to take the institution.

Obviously, if you look at ROA is significantly higher than traditional banks that are not tech enabled same thing for return on average tangible common equity.

And obviously, we start off with.

Hi.

Percentage ratios with tangible common equity a significantly higher than most other institutions in the space. So when we hear about comparisons to Nab intangible book that's fine.

There are others that may compares to that and there is some that may not there's some that Mike just look at growth of earnings over time, which were.

Anticipating and potentially projecting.

And all of that will show up in the proxy perspective, I think it's also to note the price multiples of some of their <unk>.

Competitors in the market, whether it's tech enabled bank or commercial finance companies.

We look we do believe we look more like them.

Then the traditional bank, that's making car loans or credit card loans to consumers like.

Move everyone's attention to slide number eight.

I think the important aspect of once again this slide is to give an illustration.

The bank holding company BHP or FHA financial holding company, which is an elective under the under the bank holding company enacted we may decide to take.

Once again, very well capitalized I do want to point out we.

We have a note at the bottom of the slide talking about the $173 million of goodwill.

Now I think it's important to know where does that come from so.

In the BDC, we've got our payments business, which has got a very healthy.

Plus $100 million valuation our tech solutions business.

Other portfolio companies that I believe the total value of those business is around $250 million net of debt it gets down to 173.

And then a BDC you have got a purge your earnings so those assets are on our books at zero.

When they get transferred to the bank using purchase accounting I do want to point out. These statements are not audited and can't be rely upon nor any of my forward.

Leaning comments here.

I really enjoy making those statements by the way I want you to know that but relative to.

That particular $173 million number.

We've had people look at and gold G.

Your typical basic.

<unk> grandfather as goodwill.

I bought $100 million of assets and it paid 110.120, because I like to have the whole thing fits together.

Because I'm paying a premium above book or it's on the books.

It's the same principle.

And most likely this will be GAAP based goodwill, but understand these are assets that are throwing off $14.5 million to $6 million of EBITDA 2000, $25 million of cash flow and.

That's a different kind of goodwill than just paying a premium above book value of assets.

What I'm, telling you isn't isn't GAAP, but it's an important thing to note when you try to figure out what the tangible book value of this business is and you don't necessarily include that because those will prospectively be cash flow and earning assets slide number nine one of the comments I heard is G you're going to need to add people youre going to have all of these.

Expense, we have the.

The mother of all advisory teams.

From legal to individual advisors to perspective bank boards.

I've got the biggest consulting team I could ever imagine and with that said we have expense. This bank going forward, we have factored that into when we come out with projections in the proxy prospectus. In addition to that these are people who currently work for the company I don't think people realize.

We do.

Most things that banks do today.

And when you look at.

Our resume of O'brien, Schulman, who is EVP chief credit officer.

Our spada, who ran the ABL business with Banco Santander, there, Brian lawn as SVP.

Okay.

Peoples banks commercial real estate business, Michael because it goes on and on and on including Peter Downs, Our Chief lending Officer, Who's got 20 years of experience in banks and Nick Young will be the president we've got the talent. So please don't underestimate new tech.

Respect theyre doing that many new technical to slide number 10.

So I can understand a little bit of an unusual slide I want to comment that past stock performance and circumstances are not indicative of anything that one could estimate going forward, but this is a very good example of our history, particularly as a BDC when we completed the conversion.

November 12.

And we did a re IPO transaction.

I think there is $12.50.

Stock price not including the feet to the banks and that.

That was fairly transformative.

A lot of people who have the same questions that are being asked today, but in reverse right onto a BDC like it doesn't make any sense no one's going to understand you.

And we believe at that point in time that.

That particular capital structure would work for us we could make it work, although we look although we didn't look like any other BDC we're.

We're not even close.

We were able to make it work and that structured fit us well, we were able to raise more equity we're able to raise more debt or a much larger company today, we're much better capitalized today and as we look forward, we see continued growth in our future.

And a structure that enables us to grow past 201 cap that we have in the BDC that enables us to retain earnings so that when we grow we can potentially grow a portion of our business with bank depository money instead of having to sell a dollars worth of stock at $1 three year $1. Four of that every time, which is very dilutive from a share count.

So with that said.

This is an indicative slide that one could look at and draw their own conclusions from.

Moving to <unk>.

Slide number 11.

In summary, we have a diversified business model providing.

Providing multiple streams of income.

Gain on sale servicing income payments Tac mind, you a lot of these businesses will be sitting up at the bank holding company and.

We certainly appreciate that diversified stream of income.

Is that our first rodeo we've been a publicly traded companies from September 2000, we have consistently outperformed the Russell and the S&P.

We do believe at the bank holding company will be in the best long term interest of the company and all stakeholders. It's the same company just dropped into a different structure.

Youre not going to be sales seeing us sales toasters and making car loans.

I do believe we're going to round out our product offering by being able to offer the new tech one dashboard to clients and be able to resell that to other financial institutions.

To me that's extremely exciting our interests are very much aligned with shareholders. I mean, I don't know anybody could say theyre not aligned. So if you think the dividend is going to get cut we're cutting our own dividend to ourselves and we.

We believe in this particular.

Transformation, just like we believed in that transformation, a long time ago in November of 2014 into a BDC.

We also think that shareholders can gain from stock appreciation, which they've done in a big way as well as.

Prospectively subject to regulatory review and earnings receive and Board Declaration Bank dividend.

We believe by changing our corporate structure, we're going to broaden and enhance our access to financing growth and actually reduce the risk of the overall company. We also believe we're going to be in our structure.

That's more readily accepted by a bigger pool of investors and I'll also relate back to 2014, we did a reverse split and.

People said 910 business do reverse split the stock was down 19, net 2099 out of 100 will actually work for us and we did that to be able to broaden the base of people that could buy the stock, but we're doing that now this will be a structure that doesn't alienate existing shareholders that have gained from.

Net capital gains and dividends and we can't talk about the magnitude at this point in time, but we plan on continuing our business model, which is to grow that business and grow the cash flow over the course of time, we're excited about the new tech one dashboard will be able to talk about that more and more into that further develops.

And certainly appreciate everyone's paying attention and we covered a lot of information today I would now like to pass the presentation of net ledger.

Oh.

One other thing I want to repeat information regarding the proposal to withdraw a new tax election to be treated us back the business development company will can be contained in <unk> proxy statement when such document becomes available stockholder should read the proxy statement when such document becomes available. The proxy statement may be obtained free of charge and available from the SEC Edgar website and the company.

Go ahead Nick.

Nick.

Okay.

Nick.

Operator.

Yes, Sir.

Okay, Nick call got dropped and he's dialing back yes, okay. Okay.

[noise].

Operator, any chance you could.

You can try to give him a call.

Hey, Bob.

Good day.

Okay, Nick Europe.

Thank you Bob Good morning, everyone. You can find a summary box second quarter 2021 results on slide number 39, as well as a reconciliation of our adjusted net investment income or adjusted NII on slide number 41.42.

The second quarter of 2021, we had net investment income of $15.5 million or <unk> 69 per share.

<unk> net investment income of $29.7 million or $1.42 per share from second quarter of 2020. Please.

Please note that income related to the PPP is included in investment income adjust.

Adjusted NII, which is defined on slide number 40 was $27 million or $1.20 per share in the second quarter of 2021 as compared to $28.5 million or $1.37 per share for the second quarter of 2020.

Focusing on second quarter 2021 highlight we.

Recognized $36.6 million in total investment income of 21, 6% decrease over the second quarter of 2020 total investment income of $46.7 million.

Interest income related to the fees from the PPP was the primary driver flow the decrease.

<unk> $25.5 million of income related to the origination of PPP loans on $297.6 million PPP loan originations during the second quarter of 2000.2021 as compared to $34.7 million net income related in the second quarter of 2020 on $1.1 billion of PPP loan origination.

Yeah.

Moving on there were no material distributions from portfolio companies from the second quarter of 2021 as compared to $2.3 million from the second quarter of 2020.

Total expenses increased by $4.1 million quarter over quarter of 24, 2%, mainly driven by an increase in SBA seven loan growth fees due to the higher loan origination volume.

Also compensation related costs and other loan administrative expenses.

Realized gains recognized from the sale of the guaranteed portions of SBA loans sold during the second quarter totaled $14.1 million as compared to $1.7 million during the same quarter in Corp in 2020 and.

In the second quarter of 2021, and SBF sold a 142 loans for $87.4 million at an average premium of 14% as.

Compared to 20 loans sold during the second quarter of 2020 from $19.1 million at an average coupon of 7%.

Increase in realized gains was attributed to higher SBA seven loan origination volume in the second quarter of 2021, combined with higher average premium prices when comparing the second quarter of 2020.

Mentioned earlier income related to the PPP is included in investment income realized gains.

Realized losses on SBA non affiliate in Washington for the second quarter of 2021 was $2.7 million as compared to $2.9 million in second quarter of 2020.

Overall, our operating results for the second quarter 2021 resulted in a net increase and net assets of $17.4 million or 77 per share and we ended the quarter with NAV per share of $16.38.

I'd like to turn the call back over to Barry.

Thank you Nick operator, we'll take questions now.

If you would like to ask a question simply press Star then the number one on your telephone keypad, we will pause for just a moment to compile the Q&A.

And your first question comes from the line of Mickey Selene from Linden.

Yes, good morning, very hope you're well.

Very high level question about the conversion to a bank holding company my understanding as part of the rationale for that is to lower your cost of capital by collecting deposits. So could you describe to us how new new tech will compete for those deposits.

For example, do you see yourself competing with online banks, who tend to pay more for those deposits than brick and mortar banks.

Sure I think that.

First of all on the heaters such a.

I would call it delta between.

Currently financing growth with a dollar of equity through a share issuance and $1.3 million of debt or a baby bonds or five or 6%.

To being able to raise money at core retail deposits, whether they are at 1% or one 5% or even 2% right.

It's that and using the capital base and the leverage range.

<unk>.

How do we go after that.

We've got.

We get a heart thousand referrals of quarter 400000, a year and when you look at that new Tech one dashboard, which is in aggregating tool for our business.

Single sign on.

Posits loans payroll.

Google analytics.

These are Mastercard. This day this year. This day last year. This quarter. This year that we're going to have the tools that others are a magic filing all the stuff is in place. It's just a function easy for me to say my development guys are probably going to shoot me for this but you just have to put it together.

Make it more and presented so with that said that is currently being worked on.

It's not a fan of seats on a dream.

These are tools that we currently use today, we talk about unlocking shareholder value.

This is going to unlock shareholder value that you can't see in the BDC.

BDC investors don't see us as an operating business.

I understand Barry so if I.

I want to make sure I.

Have your.

Thesis correct are you going to go after the small business borrowers that are your target market in terms of their cash management or are you also going to go after the.

Owners of these business is in terms of their personal cash as well.

Yes, so good question Mickey.

Not intending.

And it's a great question actually we're not intending to be a well call. It a consumer bank. However, a majority of the deposit money in this country is from business owners or banks that have their commercial accounts and maybe a personal account in the bank. So.

Will we might do an accommodation alone here or there, but where we want we want the business banking relationship we want to provide those business solutions.

Not going to be in the securities business at all.

Not what we do we're going to stick to the core things that we do today lending payments insurance payroll Huff from benefits HR solutions things of that nature, so not not from that perspective, not that much of a change.

That's helpful. So if we think about all of those borrowers that are already existing customers of new tech.

You've underwritten their loans you have a sense of well know more of a sense you know their balance sheets any scope of how much cash is on all of those balance sheets that you might be able to capture at least partially there their deposits.

It's <unk>.

I can't I can't speculate a number but it's unfathomable.

And we want to be careful not to step on.

Our alliance partners, and we won't do that but I've got 25000, PPP loans I've got 100000 referrals per quarter I mean, it's just big big numbers.

We also have a lot of borrowers today, they're coming to us directly I mean, we've developed a quite quite a significant viral marketing plan because of what we're doing so I mean the concept of.

At least in today's world getting three for $500 million of deposits that's.

That is currently within my imagination that shouldnt be a big deal over a fairly short period of time.

Okay. That's helpful I understand.

I'm going to just switch gears, a little bit towards the.

Seven day market as we know the federal government temporarily suspended.

55 basis point guarantee fee and increased the guaranteed to 90% if I'm not mistaken that expires next month.

That's helped drive up the secondary market prices. So I realize that the question I'm going to ask is difficult to answer but when you think about your given your experience. When we think about the <unk> market next year with the economy doing well, but without those two catalysts along with the potential for interest rates decline how do.

You see seven day pricing developing next year and how do you see 70 volumes next year versus this year, which is going to be a phenomenal growth for the economy.

Sure. So I mean, I'll give you a fairly wide range, Mickey which hopefully.

Probably it would help you that much but I mean, if you go back and you look at the history, It's a $110 five to 112 type market and it depends upon whether youre doing the 10 year paper at a 25 year paper and the mix plus from our standpoint, we look to enjoy.

The benefit of expanding our loan products. So those referrals they don't come to us for <unk> loans, they come to us for loans and many of those clients would qualify for bank loans.

And with a lower cost of deposits you can put that business on and make good money off of it. So we're not I think it's important to note, we're still going to focus on obviously.

The attractive business that we've been in in <unk> and 504 in nonconforming, but.

Great growth opportunity for us and I think the market next year.

I mean, one thing that I.

I don't think we need to be afraid of well, who knows I'm not I'm not an economist, but people are talking on CNBC. This morning about 5% GDP, 9% I mean big numbers and you put all of this government spending in stimulus out. There. So then you got the question of rates rising which.

By the way that's good from banks.

So.

That's one reason why you want to buy the out of favor bank because the out of favor bank didn't really look good when rates were flat nobody wanted to buy banks.

People say banks are highly regulated I would like to point out that the.

The OCC put out ability just last week on SBA and small business lending, which.

We read that they want.

Banks to do this profitably and have the right risk measures in it but it also indicates that they want.

Financial institutions to provide funds to this important segment of the market.

Thanks, Thanks for that.

Helpful.

Last question, just sort of looking at next year versus 2019, which is <unk>.

Pointed out in your prepared remarks with sort of the base year, we can think about.

How would you compare the time and resources it takes to underwrite a PPP loan versus your non PPP loans the ones you've done historically and how much unit volume do you think the company can now support with its current headcount.

But more employees working remotely compared to 2019.

So.

It's a good question, because PPP loans to assemble and fun.

<unk>.

I would say it.

It's probably 30.

To 50%.

Of.

The labor.

Now the backend, however, which is.

The credit memo the committee and the funding.

Yes, because you got to take liens and do a lot of other stuff.

It's not just the amount of labor it's.

The fallout rate from a pvp learn once you have an aggregated is not very high so you'll have a greater fallout rate so, but when you talk about.

How we've improved our capacity to do more business.

And that's why I go back to that 2019, adjusted NII to current dates, particularly in this construct that will enable us to grow more. These are all very powerful additives that put us in a position for the future that we want to have the best.

Corporate structure to take advantage of it so I'm going to tell you that.

Well put it this way.

Let's say the 25000 units.

I'll just cover a number.

Not a number that you should rely upon but let's say, it's it's equivalent to 5000 units I mean.

The ability to do significantly more loans has been enhanced and these loans are bigger sizes as well.

Loan size of nonconforming is five.

<unk> 5 million the average loan size I think of the Pvp was like $50 average loan size of our <unk> business is about 800000 so.

Im not suggesting that we're going to do five.

Of <unk> loans, but you can see that.

With the advancements that we've made in technology and management changes.

<unk>.

We've grown the business significantly and I believe in the right direction and are well positioned for growth in the future.

I appreciate your time Barry Thats. It from me. This morning, Thank you for taking my questions.

Thank you Mickey.

And your next question comes from the line of Paul Johnson from K B W.

Good morning, Barry Thanks for taking my questions Congrats.

Congrats on a good quarter and obviously being.

Important facilitator of the critical program for the U S economy.

But as you approach I guess, the closing date or the proposed closing date of the merger or.

The acquisition of the Bank do you expect to make any changes to your capital structure along the way.

In anticipation of the conversion.

Hum.

No I don't.

I don't expect to see changes in the capital structure.

I do not.

Okay, what about loan.

Loan originations is it pretty much business as usual or do you expect to make any kind of changes to I don't know the type of yields that you're putting into the book or the type of loans that you are you underwriting any changes to your underwriting practices.

Obviously, we're a little bit more selective relative to credits coming to us.

That we think are pandemic or COVID-19 problematic.

Things like gyms.

Harriss salons for example, which we wouldn't have thought twice about now we do so.

We're a little bit more selective in certain categories and other categories, we like a little bit more so I think it's it's.

It's still a very big diversification box with respect the sic codes industries and geographies, but.

Narrower.

With respect to the mix no I think we had pretty good guidance on what we think the seven day book will look like the final four book the NCL book now I think this business is and I think it's a good question because once again I want to repeat this.

This is the same business thats going to be dropped into a different structure and we're going to add a few product lines to it.

But it's going to be we're going to be positioned in a different light.

Yes.

<unk> Bank and trust and New Tech the bank holding company will be looked at entirely different by customers.

Then new tech the BDC.

Particularly with the dashboard.

Sure that's understandable.

And then.

Switching over to the to the salary expense for the quarter, it's understandable that that's obviously higher.

<unk> over quarter.

I know you noted that you had in increased.

Increased head count by about 25 centers. So I mean do you expect salary expense to be kind of running around these levels up into the acquisition or do you expect them to moderate at all kind of post PPP.

Could you repeat that Paul Im sorry, Im not sure I gathered that.

Sure, Yes, just asking about the salary expense do you expect will be running higher salary or even just higher overall G&A kind of heading into the end.

The acquisition at all.

Yes, I think you've already got an embedded so what you've seen through Q1 and Q2.

<unk>.

<unk> got it I think it's already there.

Okay.

And then lastly, I think I think it's important that it is important to note Paul we've been.

We've been adding to staff for growth and whatever the structure, we wind up in.

<unk>.

We've we've added we've added to the staff we've added to the staff to do PPP. So no I don't I don't see any major change I mean, frankly, I could tighten expenses that will get reduced.

From being in the bank holding company and the bank structure than being in the BDC structure.

A lot of these entities are going to wind up going into the bank. So you don't need tax returns you don't need independent stock ones.

Yeah.

We've got this well calculated so no we don't we don't see expenses going crazy in here.

Do you think that.

You would have to make any additional hires or.

Prior to closing for the bank.

Maybe one or two but.

I think the hiring them.

Nick Young.

So I mentioned in the second addendum deck some of the in house talent that we have that half.

2030 years experience in the bank environment can fill some of these things and obviously, where we're very well advised we're very well schooled across the board from our advisory teams. So we know what we need to do what we need to put in place.

We.

Don't we need to do to position ourselves and obviously a lot of that will also come out based upon our discussion with the.

The regulators as we go forward, but I think we're I think we've got good estimates out there of.

The business in whatever form we wind up there.

That makes sense, thanks for that and.

Lastly, my question either for you or Nick.

Can answer this but I realize.

You chose to retain income down at the control income or the total company level for this quarter.

Hi.

Haven't seen the filings yet you would expect to see that.

It would be showing up obviously in slightly higher marks may be for the control investments, but cedar is roughly like $8 million or so.

Unrealized depreciation in the affiliate investments this quarter is there anything in particular that was.

Driving that depreciation.

Net can you answer that one.

Yes, I think that was just when we took a look at some of the run rates on some of the portfolio companies and just making sure that the multiples are in line with the work that.

A lot of you.

Got you okay. Thanks, Thats all from me.

Thank you Paul.

And your next question comes from the line of Scott Sullivan from Raymond James.

Good morning, and congrats on a good quarter.

Okay.

Yeah.

Yeah.

Breaking some interesting barriers in the Fintech space here.

Only you only one theory to be serving the middle market business.

Pro forma how.

How do you compare new tech versus lending club's soap.

Square or even a line book.

They're they're kind of interesting comparison, Scott in that lending club so Phi.

We're non bank.

Lenders that wound up.

<unk> into or acquiring a bank.

<unk> level.

We've started off as a bank with a technology bent to it so there are all little bit different.

Lending club and sulfide consumer lenders LIBOR book is probably the closest thing to us relative to a fairly significant put footprint in government guaranteed loan programs as well as the only having one branch.

Their expense ratios are entirely different than ours, which we are proud of ours versus theirs.

<unk>.

So I think that.

They're all very decent comparisons, particularly when the market looks at them and doesn't value them at multiples of tangible book because they all traded.

234 times.

Tangible book not too dissimilar from how we traded at a multiple to our BDC NAV and at the end of the day stocks trade based upon I mentioned.

[laughter] average we learned in school its future earnings stream.

And the reason why banks typically trade at.

Multiples of book was because they couldnt really grow the business much because they did.

They did very few things and in a competitive environment, but really no different from a BDC.

So the fact that we were different than every other BDC is what enabled us to get that.

Stock price appreciation as people became.

To become more comfortable with us and familiar with the model so those.

That got in early.

When we made that transformation did well.

What we're trying to do here is to educate people and is best way as we can with being transparent.

And give as much information without going too far ahead of ourselves, but I think I think those are decent comparisons for us because in all cases those are organizations that felt that a banking structure in a banking environment.

Reduces risks and improves their ability to grow and diversify their funding sources.

Fantastic. Thank you.

And don't want to put words in your mouth, but I believe I heard you say the capex is not going to be materially materially higher.

Can you speak to any development cost with the dashboard or any other technology enhancements you see before you.

Yeah, obviously.

<unk> begun discussions.

No.

And.

I should say, we will be beginning discussions I don't know if they are actually taking place yet with the core platform provider to.

Begin to integrate what they have a into the dashboard obviously.

The payroll software we've got be insurance agency software, we've thought of all we've got the new tracker system, we already have.

We have the capability to project all of that other data that I talked about.

The visa Mastercard.

These are all pieces that we have it's really a function of our internal development team, putting that product together and we've actually got some time to do it before.

Before opening day, which we forecasted six to nine months six to 12 months out so.

We have some work to do but.

We've.

<unk> always been a bootstrap company, we'd be up have been able to develop real good technology without.

Without spending crazy dollars on it.

That's terrific. Thank you and congratulations good luck.

Thank you Scott.

And your next question comes from the line of Robert Dodd from Raymond James.

Got it got it sorry [laughter].

Okay.

Bye bye.

One of the.

Slide you said in 30.45 day, so give some preliminary guidance for.

The first quarter 'twenty two dividend.

The footnote, obviously, you said see I'm presuming, you're still a BDC.

If things go according to your expected time scale.

It's tricky would you actually expect to still be a.

BDC in in the first quarter I mean, you've said it could take six to 12 months to get approval from the bank purchase and would you leave.

The D BDC election potentially.

Because you're moving to the very end or would you anticipate doing that.

Earlier in the cycle.

I think it's.

Sure.

Without getting into the precise timing of <unk>.

What transpires.

I do think it's more likely than not so as a probability so I'm, saying it could go either way, but more likely than not we will probably be paying a BDC dividends in the first quarter.

Understood. Thank you for that one on one of the questions kind of follow up.

Those questions.

When would you.

The BDC baby bonds, you have outstanding on material.

Quite expensive by myeloma.

When would you anticipate.

Potentially you know lease financing those out or do you tell them you expect that you're just going to roll those into the.

The bank liability structure.

So.

Thanks for the question, Robert and I by the way that's a great question from a transparency standpoint.

So.

My belief is that the covenants in those bonds.

Our really leverage covenants.

So that theoretically as long as we don't violate that leverage covenant on a consolidated basis. They can remain outstanding.

And.

One of the bonds is fully callable. The other one I think it is callable after February with some kind of a make whole provision for a 12 month window I think that we will wind up.

Working through that with bondholders and we've got a lot of options on that so.

Not that that isn't a concern.

We probably have and we've had conversations with several of our bank lenders. So.

We're going to need to make.

Some adjustments on that here and there, but not not a big major I'm not overly concerned about the baby bonds or where we're situated with some of our other lenders at this point in time.

I appreciate that.

The covenants are exactly what I was getting at so understood on that point and then just last one if I can follow up to Mickey's question. You have is about your questions are good actually they actually helped me.

[laughter].

One on the most business deposits in the U S. I mean, there was a lot of them, but they're not typically in time locked.

Cds et cetera.

Would you anticipate that your your deposit.

Getting sourcing.

Cost of funds is that anticipated more b.

Short term callable deposits would you expect Cds to play a material role in that and if so what are you going to get the CD source from because they're typically not going to be I wouldn't think.

Business deposits typically.

Sure I think I think the answer really Robert is a little bit of both once again I go back to.

The dashboard the relationship that we have with borrowers.

And the ability to offer them more than just our rate.

So I see us with having developed.

Both core retail deposits.

And in some cases.

Would you have described which some of the other fintech lenders have tapped into like square for example.

I believe the entity day acquired was an industrial loan Corp.

I can't say for sure, but most ilc's are limited and they can't take demand deposits. So those have got to be.

<unk>.

Retail related and brokerage so to speak so I think that we will have a mix of both but I don't think we're going to I do believe we're going to be able to bring in.

With our reach core retail deposits as well as a full mixture of funding.

Got it thank you.

Thank you Robert.

And your next question comes from the line of Rob Brock from point.

Hum partner.

Congrats on a great quarter and congrats on your decision to change your corporate structure.

I think it's gonna be it create a lot of value for your investors.

My question. This morning, Barry has to do with the operating businesses like your cloud business and your payroll business, how might these change or benefit as part of a bank holding company.

So I think that.

<unk>.

All of us.

The portfolio companies are.

Projected to be part of the bank holding company so.

Merchant solutions payroll insurance.

<unk> solutions, we part of the bank holding company and obviously.

We.

We'll be having discussions with the regulators, we feel pretty good at this point that.

What we have will fit into a bank holding company or a financial holding company structure. It's conceivable it may not and we'll have to deal with that if that occurs but.

We think that.

Going to your financial institution and being able to have.

All of your organizational documents your operating agreement your Secretary's certificate your leases.

Your.

Insurance policies.

Employment agreements all year core documents stored there, which is what we do today in our secure firewall. So we've taken loans only taken data using the file vault through the other services or solutions that we have is a great value add for our customer.

Sure.

So that's where we see that fitting in so.

Remote work remote computing mobile computing, whether it's through a smartphone or a laptop today really important and businesses that are 5% to 50 employees. They can't afford a CTO or CIO and those entities really they can't go to Azure.

Or AWS they need somebody that can help them that will pick up the phone and answer your question. That's what we do and managed tech solutions and it's been up.

It always hasn't been a bit of roses.

It's been pretty good lately as you can see by the pickup in these businesses Tech business is typically traded.

Really good multiples and drive cash flow and provide other storms of reoccurring income rather than spread income that you get from a bank on coupon versus deposit expense. So we're pretty excited about putting these solutions together and.

We think we're going to get a lot of traction we think that there is good reason to be doing this.

Great. Thanks, very good luck.

Thank you Rob.

And your next question comes from the line of our Ham.

From our Ham.

Partner.

Hi, Good morning, this is Scott.

How're you doing.

Good morning, Sir.

Okay.

Just wanted to start with some high level questions for you I wanted to ask you about business as soon as we move out of Covid, We're still kind of in this area, where where that's needed, but we're not fully protected.

We're still learning so wanted to.

No if there's opportunities.

That you are looking at now that you might not have looked at 12 months ago.

Net income of chances.

Is that from a lending perspective or business lenders.

And then just.

Hum.

I would say, we're cautious because of the delta.

And although speculatively I think the Delta variant will come and go quickly because of the level of vaccination.

It's still all over the news. This morning Southwest for example reported that they've got a lot of cancellations on flights near terms, which is indicative of the fact that consumers are being concerned and changing some of their behavioral patterns. So.

<unk>.

I just think that no we have not we still have a bit of a caution flag for things like per.

Travel and entertainment.

Business is of that nature, So no we're not.

As a lender.

If we get a coupon we win.

If.

The business goes bad you get a haircut. So it's not so we try to be try to be cautious from a lending standpoint.

Okay.

Just to follow up on that regarding geographic diversification are there any regions that you're looking at anything that shaken up over the last couple of years or the last year that you saw.

Seeing maybe those regions that you wanted business right into that you don't have a presence in.

People are moving out or any demographic shifts.

Yes by the way diversification.

Has been a great assets to new Tech.

As we don't have.

We've got one state that's 11.

And then everything else was below double digit so when you take the top four States, Texas, New York, Florida.

In California.

<unk> represents about 65% of GDP and were probably half of that when you add up all those states for us so.

You really didn't want to have too much in New York city or too much in la.

Who would have ever believe we were going to have a pandemic.

Some of the things were saying are seeing is like who never believe that would ever happen.

But it did which is why diversification is really good so no we're not.

When I look at the on diversified we're not looking to concentrate in a Texas or Florida, where there is growth we like diversification.

We think thats, the best way to manage the risk.

Okay. Okay got it and then follow up on somebody else's question that I've actually spent some time on particularly because.

Stay tuned into it but because you just can't avoid it at this point and it's about the lending clubs and many other of these.

Since like lending platform, some of which are nothing more than that.

<unk> simply just aggregating some of them do more and as you see some of them are client base.

But I think they all kind of different things.

Some of them are predictive modeling underwriting mix things like that but then the day.

I believe they are really disrupting enabling some technology that some banks in the past a lot of them had not embraced.

But you're coming in from from.

The BDC strength, you put you already.

New tank, where you have technology enabled.

Infrastructure for your from your clients.

Where do you stand in incorporating that kind of technology.

Because they are taking some market share away from certain banking institutions book, but we're taking that to what I believe is coming.

Coming down on the spreads between for example, credit cards versus personal loans gorgeous, enabling technology, how do you how do you come in and make sure that doesn't happen.

I mean, one could take the position net of credit card.

Net.

A consolidation loan from our lending club is a termed out credit card.

That gives the borrower benefit because they've got term.

Reduces their payment and they're able to utilize technology to come to the same credit decision as they did in the credit card.

New Tech.

We do full.

Any loan over 350000 government in uninsured piece, we're doing a full underwriting.

20% 25 page credit review, so we use technology to expedite some of the processes.

The banks have used for example, we don't need branches and we don't need 200, or 2000 commercial bankers because of our utilization of technology. However.

People that can put credit memos together lawyers in house that know how to gather the documents and close the deal and make sure we get all available liens.

Closures, we don't that's not something that we skimp on so we think that we've actually got the technological solutions that not only our bank could use but other banks can use to be able to reduce.

Losses now.

When you look at some of these other fintech.

The credit review from a personal standpoint, it's really not much more different than a consumer loan.

So I guess my point being is.

I don't know once.

That activity gets sort of fill where they go with it.

They are taking advantage of that low hanging fruit, we are too or wood as well, but we do have a much more longer term vision with respect to.

Utilizing technology to acquire clients.

100000 referrals to be able to fill up a file both securely so that the borrower can connect their lawyer their internal controller their tax return preparer.

Those are the things that improve our customer experience, but don't count on being able to underwrite and put a fully funded package together, that's a major difference between us and them at this point.

We've used our technology, we don't have a black box there is no algorithm.

Basically <unk> of credit, which can be converted into some of that but it's still a full underwriting.

Yeah.

Okay.

Got it.

So all my questions. Thank you very much.

Thank you and congratulations on the recent.

Nonsense.

Thank you for your interest I appreciate it.

Yeah.

Operator anymore.

Yes, Sir your last question comes from the line of Mickey Silence from Ladenburg.

Sure Barry just a quick follow up do you think the federal regulators are going to require new tech to a point to CFO.

To meet their regulatory requirements.

Yes, we will most likely have a CFO at the bank level for sure.

And does that do.

Well.

Do you have candidates.

Inside the organization that you can think can take on that role.

I do.

I will say that I think from our perspective that.

The candidate.

Our candidates need to have extensive experience dealing with bank regulation.

Compliance.

I think that forms of $13.13 forms for.

Making sure that all the ratios are intact. So yes, I mean, we have.

We have a pretty good pool of applicants internal and external to the company at this point in time to be ready.

If that event does does take place.

I understand that that's it thank you for the update.

Thank you.

And there are no further questions at this time.

Okay, well I want to thank everyone for joining the call greatly appreciate the interest I know this was a long one.

But very worthwhile and gave.

Gave us a good opportunity to disseminate a lot of information.

Under fair disclosure to all the investors.

And analysts out there. So thank you very much look forward to reported in the third quarter have a good day.

Yeah.

This does conclude today's conference call. Thank you for your participation you may now disconnect.

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