Q3 2021 Newtek Business Services Corp Earnings Call
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Today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Good day, and thank you for standing by.
Welcome to the New Tech business Services Corp, third quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one on your telephone.
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I would now like to hand, the conference over to your speaker today.
Mr. Barry Sloane, President and CEO of <unk> business Services Corp. Sir Please go ahead.
Thank you operator, and good morning, everybody and welcome to our third quarter 'twenty, One financial results Conference call I'd also like everyone to welcome Nick Ledger, Our Chief Accounting Officer will assist me in the presentation today.
I would like to point everybody to our Powerpoint presentations that are hung on our website New tech won any W. T. K O N E Dot com go to the Investor Relations section.
Events and presentations and there are a powerpoint presentations for today, which is the third quarter 2021 financial results Conference call. We also have a presentation introducing the new tech one dashboard, which we'll talk about I'd also like to point out we may have some new <unk>.
Bester group on the conference call that has an interest in <unk>.
And banks, we obviously announced over 90 days ago.
Acquisitions subject to proxy vote.
Regulatory approval of National Bank of New York City. So we might have some new investors on the call of those investors are interested in seeing information previously distributed to the investment community on what the bank might look at.
There are presentations on the website for mortgage second fifth and tech.
We're proud to announce our results today, we think we had a terrific quarter a lot of the results that youre going to be seeing really a representative of the company's ability to apply technology to financial and business services solutions.
We've got some terrific key performance indicators and metrics.
They are dedicated to demonstrate that our business is growing is well positioned for the fourth quarter and beyond into 2022.
I'd now like to bring everyone's attention to the Powerpoint presentation.
And that is on our Investor Relations section regarding today's particular call on slide number one. Please note. The forward looking statement disclaimer that is there. We appreciate everyone taking the opportunity to read and review that.
Moving forward to slide number two.
We've historically had proved.
Proven shareholder value creation with a track record of growth and returns.
Using friday's close we had a year to date return of 73, 3% through November five from January one the one year return, 105% three year, 124% five year, 264% 10 year 1100, 62%, obviously, we've historically been able.
Two.
In addition to paying dividends, while we were a BDC get tremendous capital gains from.
From the marketplace and that's been based upon our ability to grow core revenues.
And earnings I believe that.
We feel very good about the third quarter, good about the fourth quarter coming up as well as the projected dividend.
Dividend for Q1 of 2022 that we'll chat about today once again important to note we do believe.
And anticipate that we'll be able to continue this type of performance and whether we're in a BDC form or another for we do believe that the value will be given out to shareholders through dividends and stock price appreciation. If we continue to perform as well as we've done historically.
Slide number three.
Important to note that companies all across the globe and the United States are coming through the pandemic.
And obviously a lot of our comparisons are a little murky with respect to pre pandemic results versus pandemic.
Results versus post pandemic, which we think we are in the period now hope we're in that period now.
We have clearly emerged from the pandemic are firing on all cylinders using many levers for the business model, whether thats gain on sale from the government guaranteed portions of <unk> servicing income spread income.
SBA seven eight portfolio, which was at a record net interest income for the quarter, which we're excited about.
504 loans by conforming loans payment processing Tech solutions, many many levers we have.
<unk> business service Corp to be able to provide divvy.
Dividends and earnings to our shareholders. In addition throughout the calendar year, we've continued to invest in our business model with technology and human Labor we've increased.
Tom.
Our lending portfolio company, and then SPF, new take small business finance head count by 52 individuals 27, 5% increase.
We do believe once again, we're extremely well positioned we want to give some cautionary note to various comparisons we would cut the great lengths in this particular document a discussion today.
Particularly when looking at lending to go back to 2019 2019 as pre pandemic 2019, we won't have the noise of the PPP income or loan originations and.
We also believe that what we've done in the pandemic is indicative of what the company is capable of doing one unexpected situations come up where there are negative or positive where obviously, we were able to shift quickly hire new people put a new technology put a new processes and procedures, which enabled us to.
To be able to process PPP loans.
For our partner the SBA and for the business community that we serve each and every day.
Slide number four talks about some of the SBA seven lending highlights we talk about core lending, we're talking about SBA 504 and.
Non conforming business away from PPP, which that at this point in time is behind us from an income generation standpoint, we're obviously still servicing PPP loans to get the forgiveness for our clients, but for the most part it's important to note as you're evaluating new tech as an investment opportunity.
The core lending business the trajectory the growth is what everybody should be focusing on.
Looking at the second bullet on slide number four you take small business finance funded $163 million of 70 loans. Three months ended Sept 32021, that's a 43% increase over the $114 million of <unk> loans for the three months funded September 32019 pre pandemic.
When you look at a nine month number it's $362 million loans versus 334, and eight 3% increase important to note in the fourth bullet we had a record $102 million of SBA seven loans in October which is unusual for us because we do typically fund.
Most of our loans and close them in the second and third months of the quarter. We're very proud that we've been able to flatness that we had a great October.
When we say they're approved pending closing it means that we've given a commitment letters to the borrower that usually comes in around 90% plus or minus close rate from there on funding rate I should say, but $102 million up 7% loans in a month is spectacular and I give the management team.
Technology team that's provided us these enhanced technological solutions.
Some of them, which we can chat about today, whether it's.
Getting.
Loan assemblers to have calendar invites from borrowers.
Speeding up processes from a technological data moving perspective from assembly to underwriting the credit memos to committee to closing we've done a tremendous job in making the company more efficient there'll be other kpis will talk about today to demonstrate those particular efficiencies we've increased the lower end of our 2021.
700, <unk> funding guidance to $5 60 from $5 50 to 600 million per key for the full calendar year.
And obviously in this particular calendar year, we funded $1 9 billion of PPP loans I think it's important to note that while we funded and.
I believe we will get to a record number of seven eight loans in any given year for a new tech. We also funded $1 9 billion of PPP loans with 26500 customers now I realize that many of us are sort of embedded in the financials, but operationally you could see we really been working on all cylinders.
We're significantly more operationally efficient and we're deploying those resources into core lending, which in my opinion, which runs a great growth up.
Future for our business slide number five.
It's sort of a precursor to slides going forward just talking about.
Growth, how we're well positioned.
Once again, we're going to discuss our pipeline being strong technology story being strong and growth being strong.
I'd number six is indicative of the type of progress that we've made looking at the pipeline.
In calendar year.
Ended Sept, 32021, 2020, and 2019, using a 2019 pre pandemic a comparison as being most important particularly with notice approved pending closing.
<unk> hundred $60 million at.
At the end of September we had $100 million in October we look forward to a very good fourth quarter. I think it's also important to note that we've had significant growth in our SBA 504 business and our nonconforming conventional business moving along a little bit slower with a little bit more caution, but still an important part of our future growth story.
New Tech.
Slide number seven important to note that we feed off of our technology, the new tracker referral system.
We've been using this system for 18 years. This makes US branch list broker list BDO listen bankroll, this really using technology to reduce.
What we would call a significant amount of real estate and human labor interaction with a borrower that can really be replaced more efficient and more accurate through the utilization of technology to the point where.
Loan referrals received for the quarter 72000 versus $12600 for the same period in 2019.
Looking at the nine month run rate.
We will get 355000 of loan referrals for the nine months versus 41000 for the same period in 2019 from a unit perspective, we closed 214 loan units in the recent quarter ended Sept 32021, that's versus 149 units in 2019, if youre looking at 30% to 35%.
Higher with respect to efficiencies, we obviously have a very large database of existing clients that pay us as well as clients in a database of over $1 5 million businesses have given us referral opportunities through one of the five particular product areas. We will spend time talking today toward the end of our presentation.
Our cross selling efforts as well as a separate Powerpoint presentation detailing the new tech one dashboard I would say this will get rolled out regardless of the bank acquisition.
Not to say that the bank acquisition will or will not happen. It's more of a point that the dashboard from a product perspective is something that will be done with or without us as depository. We're excited about the dashboard.
We'll talk about its capability, particularly using the dashboard subject to shareholder vote subject to regulatory approval as a bank very exciting product very competitive.
And really puts us in a unique position. So we will be chatting about that later on in the presentation.
To wrap up this slide once again important to note with 18 Years' worth of history and loan assembly underwriting and using our technological expertise. We believe we are a leader in the area of small business lending have materially improved our tec technological assets and resources.
To create operational efficiencies in all of these particular areas. What these efficiencies do as they improve the client experience to enable us to process loans.
<unk> quicker and with less effort, which makes it a much easier.
Employee experience and most importantly, it makes it more efficient for bottom line earnings.
Number eight I do get asked quite frequently.
What's happening in the small and medium sized business community in your market. The SBA defines small and medium sized businesses is 30 million.
Individual unique business owners in the United States I have to say that from a macro perspective.
This particular demographic and market segment as we're going into the pandemic people clearly we're concerned about it.
We are excited about the partnership that we have with the SBA.
As a non bank lender and one of the leaders in all SBA lending.
We feel that really that that partnership.
Creates a bit of embedded infrastructure in us and when you look at what the SBA has done for us.
All businesses across the United States in terms of providing support it's pretty remarkable.
A couple of quick data points.
Brokerage record for traditional lending $44 8 billion in funding in 2021 fiscal year. That's in addition to the trillion dollars.
Of other COVID-19 related rescue programs.
<unk> program accounted for $36 5 billion.
The SBA also funded $8 2 billion through its 504 program.
Important to note the SBA still have tens of billions of dollars left and its economic injury disaster loan program known as idle.
Grant programs outstanding.
And have already funded $3 8 billion.
With respect to the idle program. The agency currently has improved more than $283 billion small business owners can currently applied for additional idled loans with it was original cap of $502 million with talk about how we're active in helping our clients through the use of these programs.
I'd number nine depicts our lending staff. In addition to growing head count we've significantly improved the quality, particularly.
At the managerial level, that's worked very hard.
People like.
Just Gavin Tony Zara, Virginia, wildly and others in our organization really hiring training, bringing people into the organization that want to help build the business not that wanted to do the business that they've done in the last five or 10 or 15 years somewhere else I want to come in and use our technology use our thought.
Process use our way of providing financial and business solutions to our customer base and a more cleaner faster more efficient way building businesses are what we're looking for and our staff. So in addition to growing the FTE count we've clearly improved the quality of our staff both from the rank and file.
And managerial perspective slide.
Slide number 10 is a focus on the third quarter financial highlights.
There is quite a bit of PPP noise in some of these numbers.
I want to point that the important aspect for us, which we always look at is adjusted NII for those that are new to the new Tech story and Theyre trying to figure out what adjusted means the adjustment of NII, which is a non-GAAP term as the gain on sale that we get from SBA lending, which has been a reoccurring event for this company for 18 or 19.
In years, so although it is not considered GAAP for BDC. The market has begun to accept that our adjusted NII came in at 56 cents a share that was an increase of 300% over the same quarter last year as we are reaching up our <unk> program, our debt to equity ratio of 137.
When you take out the broker receivable at the end of the quarter 124, our net asset value grew to $16 23 from $15 45.
It was reduced a little bit as we begin to pay off the cash that we've received from.
From prior earnings.
Mind you.
We've generated about $2 21 of adjusted NII for the first three quarters and have been paying that dividend out sequentially, but obviously, we've got a big dividend payout coming in Q number four which could have an effect holding everything else constant with respect to any slides.
Slide number 11.
The nine months picture once again.
Move right to the adjusted NII of $2 81, a share that's 74, 5% increase once again as we regaining up to 7% portfolio. This particular calendar year, we had the benefit of PPP plus M&A, we had that last year, but we had it for a smaller portion.
Pipeline is growing and the portfolio is growing and we're getting back into our core lending all of that will end up replacing.
A significant portion of the PPP income. So we're excited about our future and we were able to forecast Q1 dividend growth, which we'll talk about maybe that would be helpful to those that are looking for a more full picture for calendar year 2022.
Slide number 13.
From a metric standpoint, we as a BDC are always talking about a dividend.
The company has declared dividends for the full year of $3 15.
This represents a 53, 7% increase over those paid in 2020.
We've also forecasted a first quarter 2022 dividend of <unk> 65 per share now when looking at that 65 per share dividend.
We have forecasted.
For the first quarter of 2022 important to note pre pandemic.
Thousand 19 first quarter 40.
In 2020.
Somewhat pre pandemic the pandemic kind of came in in the month of March 44 cents.
You could see that.
We're growing our dividend on a core basis.
For those of you investors that follow our story you typically know our second half stronger than first.
Second half, even if you straight line the 65 across the four quarters.
65 times for represents about $2 60.
You start to play around with the math of looking at that that.
First half represents.
40% of the full year of 45% you wind up with numbers that.
A little shy of $3 a little over $3. That's on adjusted NII, assuming you pay 100% of the dividend out.
Full year 70 funding forecast, we said $5 60 to 600.
For 2021, and <unk>. The 504 funding 125 to 150 for the full year that we're excited about the growth of the fiber poor visual talk about that a little bit more.
And with respect to the nonconforming conventional loans.
We look forward and anticipate that will bring a securitization of our nonconforming product in the fourth quarter of 2021.
Moving to slide number 14 download five dividend declared for Q4.
<unk> to shareholders of record as of December 2000, 2021.
We've mentioned that debt.
Payment of the fourth quarter dividend, 123% increase over the prior year and quarter.
You talked about the 65% dividend.
I think it's important to note and looking at our dividends earnings forecast for this year.
Portfolio companies I will point out three in particular, <unk> technology solutions <unk> managed <unk> merchant solutions.
New Tech business lending, which are the three entities that contribute material amounts of income to the businesses did not distribute income to the BDC for the first three quarters of 2021, except for $50000.
Each one of these portfolio companies have made elections to not distribute.
That income and that cash.
That cash can be used for other things it can be used for lending money to the lender. So it doesn't have to sell stock. It can be used for lending money to the lender to buyback publicly traded bonds that can also be used for acquisitions that are interesting out there. So I think it's important to note and I realize it's put a little bit of a burden.
On the.
And the analyst community first three quarters of this year and Theres been significant earnings generated from those businesses, which will talk about later on in the presentation have been held both the cash and the earnings at the portfolio companies in those portfolio companies best interests.
Slide number 15, adjusted NII or forecasting $3 40.
I want to point out and it's important to note.
<unk> recently put out a press release on the $3 40, adjusted NII forecast.
We have four analysts and the community one forecasting $3 41, $336 $3 36, and $103 58.
$3 58, based upon our projections and forecasts.
To be an anomaly, obviously, everybody is going to make their own decisions investors analysts et cetera, but it has tended to mess up the consensus numbers out there, which it is what it is but we would like the investment community to follow our forecast we like to believe that these are things that can be relied upon.
Also important to note.
From a dividend yield.
And yielding perspective, there has been a tremendous improvement.
The BDC segment over the course of the last year. According to a recent keyw research piece put out an $11 15, it looks like last 12 months trailing.
About eight 6% on the date of the research piece, which was $10 30, 179% and those are for.
The externally managed bdcs the internally managed bdcs in which one they are 666% yield.
And.
That's less 12 months trailing so when you equate that to our expected dividends for next year.
We think we look.
Like an interesting investment opportunity, whether or BDC, we convert into a different forum, which we do look forward to.
Slide number 17, a slide on lowering the cost of capital and important to note. The company has the ability to call existing baby bond debt. The <unk> the five and three quarter notes due 2024 have been callable as of August 2021, without any form of.
Call lockout or prepayment difference.
Any wpz's a five 5% notes due 2026 are callable after February.
There is make whole provisions for 12 months after that to diminish through the course of the year to where they're fully callable year. After the fact or.
The company intends to use securitizations cash on its balance sheet, which at this point in time is significant material.
On the capital markets tools to refinance this expensive debt and the whole apart I think this is important for going forward story, because we do look forward to reducing expensive high cost of debt, whether as a BDC or in a bank holding company structure.
Slide number 18.
Slide that many of you are familiar with once again important to point out at the Sps fiscal year.
Ending September 3rd largest SBA lender by lending volume.
Average loan size of the uninsured risk based piece on our books 161000.
Floating rate with two and three quarter percent coupon, which currently would be a 6% yield.
Our net interest margins and income generated from that portfolio company has never been as high as it has been in the third quarter. We're proud of that reoccurring income so that will be beneficial to us in years to come.
Slide 19 talks about the net premium trends.
I want to point out that in the fourth quarter, we've got about half of our portfolio covered with 90% guaranteed loans and those are trading at higher dollar prices.
We also had $25 million of guaranteed portions on our books at the end of September 30 that were available for sale.
Slide number 20 talks about the seasoning of our portfolio with recent loan volumes. This probably we will start to diminish.
And get a little bit more newer but I think it's important to note that the existing portfolio clearly is in the belly of what we refer to with the default curve.
I'd number 21 shows our currency rate.
We're pleased that the currency rate actually got a little bit better through September we aggressively work our portfolio and we'll talk about that shortly and I say got better improved from 632021 to 932021.
Slide number 22, we talk about loan servicing metrics and functionality. We have 60 full time employees as of Sept, 30 servicing loans working with our borrowers improving.
Their position in life through a variety of different solutions that we offer whether it's better way to process payments a better way to ensure themselves is a better way to manage their technology, a better way to have a website that's more interactive.
A better way to process payroll manage human resources, whatever it might be in addition to that we.
We have used the tools that are available in the marketplace to enhance the creditworthiness of our borrowers obviously, the PPP financing, which is now over.
Our borrowers also experienced the section $111 12 payments from the cares Act, which ended September 27.
We are also securing idle loans for our borrowers when needed and employee retention credit program, which now can be used in addition to the PPP funding, we aggressively worked with our customers to make sure that they've got all available tools to dwell on the market and it's important to note once again.
Times like these to be.
<unk> partners with the government in various different activities, particularly in 700 lending slide number $23 24 for our new clients show the income in cash effects of SBA seven lending.
Let's quickly swing into our portfolio Company review.
SBA 504 program, which we're very proud of.
We funded or close to $100 million of 504 loans through the nine months of this calendar year, a 359% increase over the same period in 2280% increase over the same period in 2019, we had 31 loans closed for $92 million of total financing.
I think it's also important to note that during this period of time, we sold $41 5 million of the first liens. The second liens are taken out by the government in the form of SBA debentures, which represented about 18 units at about one $4 million of gain on sale, we have plenty of capacity.
Sitting here, where they're funding facility from Deutsche Bank and capital one bank and we're forecasting $125 million to $150 million of 504 loans for the full year of 2020, which at the midpoint would be a 57, 7% increase slide number 27, and 28 demonstrate the high return on equity that you get from a 504 loan.
So when people look at our returns and they say Gee, how do you generate such high returns that the BDC will the important aspect of that is we have these.
Lending operating businesses under the BDC umbrella.
Qualified for good BDC assets could be you see income and these activities generate significantly higher returns on equity and buying loans levering them, which is basically with most bdcs do so we're proud of our business. We're proud of our model that doesn't include the operating businesses of the portfolio companies and payment solutions.
<unk> and new Tech business lending, our <unk> business as well as the.
New Tech merchant solutions, our payment processing business slide number 29, our conventional loan portfolio as we mentioned, we look forward to a securitization coming up in the fourth quarter.
Balance of $87 million, all of which are current payments 15 loans I think we've had two or three pay off most of these loans are pre pandemic. We've only had two loans that we funded in recent times.
Moving forward to slide number 31, our payment processing business, an important business for us we've been in this business since 2002.
We have an enterprise value of $121 million on this business that's obviously.
Including debt and excess cash.
To give us that total enterprise value.
We're forecasting EBITDA of $14 million for this business this year.
We've experienced a 14, 3% increase in monthly sales volume for the third quarter. Obviously, that's rebounding from the pandemic. So we look forward to increasing and better growth numbers in calendar year 2022, as we rebound.
Colby clearly had an impact on our mobile money business, where we've got <unk>.
800, 900 cab drivers at Newark that represent about $1 3 million of gross profit margin and a good year, that's down probably by 60% to 70% and Cedar point opens up particularly as international travel we expect a nice rebound from that particular business slide number 33, we talk about our payment systems.
Pos on cloud without getting too much into the weeds here because this could be a longer conversation.
And we have a whole webpage and website devoted to new tech payment system is dot com. Please go take a look at it important to note. This isn't just the Pos it takes a payment. It's a pass that makes the business more efficient it makes them more efficient in processing payroll processing payments integrating with e-commerce.
Integrating with food delivery services integrating with general Ledger accounting software deducting money from our 401K very very valuable system. We look forward to growing this side of the business as well.
Slide number 34 in our technology portfolio area. We're proud to report that we bumped up our 2021 EBITDA forecast about $6 5 million. If you go back to 2020, when these businesses were broken out individually.
Looking at around $3 5 million of EBITDA combined so we've had tremendous growth in this calendar year. We're excited about the business I would suggest are those people looking to see what we do in this area.
Please go to our website, new Tech technology solutions Dot com.
I would like to point out that the businesses are primarily.
Infrastructure as a service.
Desktop as a service disaster recovery as a service software as a security as a service secure E mail hybrid cloud public cloud private cloud.
Very important business segment for us and will be an important segment as we look to roll potentially subject to shareholder vote.
And regulatory approval to be able to provide data storage solutions in a banking environment for our customers. We currently do that today.
In lending across many of our businesses. So that business has approximately 17000 paying customers slide number 37 to round out the full suite and the tech payroll and benefit solutions Youre, Czech insurance solutions. We're excited about both of these businesses and we're confident.
That will fit very well in.
That new Tech one dashboard, let us go to.
The Powerpoint on our website.
The new Tech one dashboard I've been asked a lot of questions about the dashboard I've been ask Jeeves is special.
What makes it different than other dashboards what makes it unique so I quickly wanted to go through a couple of screenshots. These are obviously screenshots that at the moment are not operational we look forward to the dashboard being operational hopefully in Q2 of 2022.
When you go to slide number 39.
This would be the primary interface on the dashboard and what it enables want to do is to see all the things that new Tech currently does for its customers merged into one dashboard one single sign on the New Tech one dashboard is the one dashboard will your business needs. The purpose of giving this dashboard to.
Prospectively, a banking customer or a new tech BDC customer is to give them the ability to have all their critical business functions in one place first of all to sign up for the function as well as to see the function see the array transact. It really just many different things, which I'll talk.
At the conclusion of the presentation.
Look if.
We do ultimately position ourselves as a bank holding company, you'll be able to see all the different account balances.
Lending balances.
Merchant processing information, which will talk about in these forward slides looking at the efficiency of the website from an e-commerce solution being able to make payroll from the dashboard manage workman's comp health insurance have HR tools on the dashboard.
<unk> to purchased all the insurance needs.
Workmen's comp to a pop to cyber liability and importantly, storing all those corporate documents tax returns articles of incorporation insurance policies leasing agreements.
All of those important corporate documents that are held elsewhere in multiple places one single sign on and we're very excited about.
The dashboard going forward I'd like to turn everyone's attention to what is slide number three.
That will give you just a quick glimpse of the.
Depository nature. This obviously will I'll use the word ultimately be available in mobile in the event that we're a bank or obviously online it'll be something that could be used for viewing balances as well as moving money around bill pay and all statements will be stored in the dash.
For slide number four is the view of alone that.
And they have with us.
So you could take a look at the payments upcoming take a look at the statements. The interest rates. The due date whatever information is needed will be on that Len.
<unk> dashboard slide number five the merchant solutions section I've got a few slides here. So for those businesses that are taking payments whether through credit card or AC H, whether its visa Mastercard discover American express.
Are you able to see the breakdown of all the different car types there'll be able to see the different.
Payment dates per transaction there'll be able to see all of the statements there'll be able to look at how their sales are growing from month to month quarter to quarter year over year going to slide number six the auction to be able to take a look at batches of payment processing information and be able to drill in and review those particular.
Particular batches slide number seven to actually be able to drill down and look at the actual payments for the credit card.
And see all of those payments going directly.
Into their account important to note our solutions are intended and we anticipate and expect they will all be able to be integrated into account Ngls like Quickbooks zero et cetera, slide number eight new take payroll solutions be able to make payroll directly from the dashboard.
Payroll information whether that's.
Taxes that are escrowed.
Taxes do that are coming up.
Employee salary.
Be able to sign off on payroll right from the dashboard be able to purchase payroll from new Tech. So I think it's important to note as clients come to us if we're a bank for depository services. We can also offer them the payroll solution right on the dashboard will be able to margin pool across all these different items.
Solutions this.
This will give our clients real time data to their website, how effective is that website by the way. These are all things we do today. So this isn't very tail. This isn't something we're trying to do in the future every solution. We've talked about we currently do today, so you'll be able to go through our <unk>.
Cash board look at how many people visited the site yesterday, how many of them were unique visitors. The average time on the site the bounce rate the activity from organic search from SCO tremendous information coming in from the dashboard and the storage component looking at all the important documents that one might have articles of incorporation.
<unk> operating agreement.
Workmen's comp policy general liability listing of all buy sell agreements real estate leases et cetera look when we talk about the dashboard and the importance of it to the company, whether it's BC or as a bank did you take dashboard harnesses the power of new Tech and it gives you the ability to monitor and visualize your business.
Real time in one place. It's also the one dashboard thats going to help you track. Your key performance indicators of course banking lending processing Bill pay payroll website accounting and other important information.
But I'll also be customizable, we look to add things like tax digital bookkeeping at some point in time. It's also gives us the ability to bring in third party provider information, maybe you have got bank accounts for business elsewhere.
I've had people say Gee I've seen this in other places this isn't unique I beg to differ you look at entities like Yodlee and <unk> Theyre aggregators of data, but it's not their data in fact their solution. This is pulling data and putting it into one place.
We have something thats, well beyond that it'll be a tool for a business owner.
That doesn't really want to go away from us because of the value add that we give them.
Looking at the center of the New Tech one dashboard as I said. These are services that are currently provided by new tech directly by New Tech. It gives you the ability to transact directly from a dashboard and that dashboard is customizable.
Moving forward to slide number 40.
In summary look we've consistently outperformed.
The Russell and the S&P over decades, not an easy thing to do and all different kinds of markets.
If you are looking at us for our lending talent and expertise we've been doing this over 19 years.
Through to the worst credit moments the non credit crisis.
It's a non bank lender and the current pandemic, which was extremely challenging.
Our interests are very much aligned with shareholders.
Management and the board own pipe, one 1% of the outstanding shares.
We do what's in the shareholders' best interest our interest are aligned.
We've demonstrated an ability to succeed in all different markets most.
<unk> the company thesis.
This is predicated upon this great segment of the market, that's very favorable both in Washington on main Street.
Independent business owners small and medium sized businesses, we've used technology as a solutions provider to be a disruptor in our industry demographic, whether it is a BDC or another corporate structure and we will always be an innovator. That's one thing new tech has been we've always been an innovator, which really underscores the reason why we've been able to perform.
But we have I appreciate your time today I'd like to turn the financial review over to Nick Ledger, Chief Accounting Officer.
Thank you Bob Good morning, everyone. You can find a summary of our third quarter 2021 results on slide 42, as well as a reconciliation of our adjusted net investment income or adjusted NII on slide 44, and <unk> 45 for.
For the third quarter 2021, we had a net investment loss of $6 7 million or 30 cents per share as compared to a net investment income of $1 <unk>.
$7 million or <unk> <unk> per share in the third quarter 2020. Please.
Please note that income related to the PPP is included in investment income.
Adjusted NII, which is defined on slide 43 was $12 6 million or <unk> 56 per share in the third quarter of 2021 as compared to 900000 or <unk> <unk> per share third quarter 2020.
Focusing on third quarter 2021 highlights we recognized $12 4 million in total investment income, which is a 16, 7% decrease over the third quarter of 2020 total investment income of $14 9 million.
Interest income related to the fees from the PPP was the primary driver for the decrease.
Recognize 269000 of income related to the origination of PPP loans on $6 $4 million of PPP loan originations.
Quarter 2021, as compared to $3 $1 million of income recognized in the third quarter of 2020, an $82 $5 million of PPP loan originations.
There were no distributions from portfolio companies in the third quarter of 2021 as compared to $2 2 million in the third quarter of 2020.
Moving on to expenses total expenses increased by $5 $8 million quarter over quarter or 43, 7%.
Increased mainly driven by an increase in SBA seven loan referral fees due to higher loan origination volume also <unk> related costs and other lower administrative expenses.
Realized gains recognized from the sale of the guaranteed portions of SBA loans sold during the third quarter totaled $22 4 million as compared to one $6 million during the same quarter in 2020.
In the third quarter of 2021, and SBF sold 205 loans for $148 million at an average premium of 13.
As compared to 16 loans sold during the third quarter of 2020 from $11 $8 million of average premium of 11, 7%.
The increase in realized gains is attributable to higher SBA seven loan origination volume in the third quarter of 2021, combined with higher average premium prices when compared to the third quarter 2020, as I mentioned earlier income related to the PPP is included in investment income and realized gains.
Moving on to realized losses.
SBA non affiliate investments for the third quarter of 2021 was $3 2 million as compared to $2 4 million in the third quarter of 2020.
Overall, our operating results for the third quarter of 2021 resulted in a net increase and net assets of $16 6 million or seven four cents per share ended the quarter with <unk> per share of $16 23.
Now, let's turn the call back over to Barry.
Thank you Nick operator, we'd like to open up the call to Q&A.
Thank you Sir.
We would like to take any questions you might have for us today is.
As a reminder, if you would like to ask a question simply press Star then the number one key on your Touchtone telephone.
We have over our first question from the line of Richard Lynskey from next ventures. Your line is now open congratulations congratulations on continuing to execute I just have a couple of quick questions.
Is there any plans for any distribution of dividends from the portfolio of companies is the first question. The second one what is the earliest time that possibly this acquisition with National Bank of New York City could go through what's the earliest wins the latest states I think that would be a major benefit based on your track record you know getting that deal done.
Richard on the.
On the second question.
We originally back in August given indication.
Six months to 12 months.
At this point.
I believe that.
Given the timetable.
I think we're probably going to be closer to the 12 months and therefore this is just a guess at this point.
Right.
It's a total guess based upon the creation of a proxy vote.
Discussions with regulators and obviously, we know that there is a lot of changes going on at the Federal reserve and the OCC right now so I think that Youre looking at.
Third third quarter.
The best guess for chloride and regarding the dividend.
The portfolio companies do at the end of each quarter.
Make a decision in their best interests, whether or not to distribute dividend income up and best use of that so the portfolio of companies have been able to work with.
The BDC to provide.
Funding, because theyre generating quite a bit of cash.
Projection for MMS this calendar year $14 million projection for MTS $6 5 million.
<unk> four.
<unk>.
Business lending.
Those two numbers are EBITDA numbers at <unk>.
Lending is a lender.
Say between four 5 million so.
The reasonable amount of income generated from those businesses and cash that it can basically provide.
To the BDC to land or perspective, we use that cash to buyback debt.
Thats expensive, which is I guess part of an overall plan that we disclosed today so.
I can state that for the firm.
Three quarters, that's where we wound up and we'll see what happens next quarter.
Those that cash net earnings can also be distributed at any point in time, they don't they don't go away.
In the BDC World.
The portfolio companies have the opportunity to retain <unk>.
For periods of time, and then distribute.
Don't have that luxury at the BDC I call it a luxury and social benefits shareholders, because they get a more full amount of the dividend, but given that we have a $3 15.
Quite healthy dividend this year.
Projected adjusted NII of $3 40, we think we've had a pretty good year, so far yes.
Barry as always thank you so much I appreciate the answer.
Thank you rich thank you.
Thank you.
Thank you. Our next question is from the line Mikey Sling with Ladenburg. Please go ahead.
Good morning, Barry.
Everyone is doing well.
There is this year lenders, including new Tech has had a lot of positive trends providing tailwind.
Including things like the strong economic growth and a very low default environment.
I'm thinking next year will be more challenging with forecast for lower growth than that.
<unk> already announcing that they're going to end quantitative easing and potentially they will start to tighten I'd like to understand how you're thinking about those risks in terms of <unk>.
Managing new techs balance sheet next year.
Mickey Thanks, I think it's an important question I think that.
What we're seeing.
And.
We all know it's a strange company as kind of a country, it's split down the middle.
We have got tremendous.
Loan growth needs.
And you can see it from our pipeline both in October. So there is plenty of businesses right now that have.
Optimism they are flush with cash.
We don't see loan demand being weaker relative to interest rates and interest rate changes.
We've been somewhat surprised we made a decision to hedge the <unk>.
For portion of our portfolio, which is a fixed component and the nonconforming portion of our portfolio isn't a fixed component.
And I think that's worked out well for us, but even in the last couple of days have been somewhat surprising with high PPI numbers.
And rates still seem low because the government keeps.
Buying bonds back and keeping rates low and providing liquidity so.
I think that we are in good shape for next year.
$3 40 would be a lofty number if we remain as a BDC for the full calendar year, but.
Given the 65 projection in Q1, I think we will have a very good year for next year, particularly given where market clearing dividend yields are for most bdcs looking at this as a BDC.
If we do convert to a bank obviously.
Financial technology enabled banks like.
Banks are lending clubs and sulfides et cetera, those are trading at different multiples and there's exciting opportunities there as well for us. So whichever way. We go we're excited about our future and.
The small and medium sized business market is very strong right now.
Barry do you think your demand profile for loans.
Leading indicator and perhaps the market just underestimating how strong the economy could be next year.
The market is underestimating the strength of the economy, particularly with the amount of corporate dollars that are still out there. Other government stimulus. These are unprecedented numbers and the fed's insistence on keeping interest rates low.
I think that the government.