Q4 2021 Newtek Business Services Corp Earnings Call
Thank you for joining the New Tech business Services Corporation Conference call. We will begin in two minutes. Thank you for your patience.
[music].
Welcome to the New Tech business Services Corporation full year 2021 earnings conference call. My name is Hilda and I will be your operator for today.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
During the question and answer session. If you have a question. Please press star and then one on your Touchtone phone.
And now I would like to turn the call over to Mr. Barry Sloane, President founder and CEO you may begin.
Good morning, everyone and first and foremost new tech, we'd like to send its prayers.
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And feelings out to the country of Ukraine and citizens. We certainly appreciate the dilemma that there.
Seeing and witnessing this morning.
Welcome everyone to our full year 2021 financial results Conference call. My name is Barry Sloane, joining me today will be Nick Ledger, our chief Accounting officer.
I would also like to thank our accounting staff legal staff business leaders and to all New Tech associates that made 2021 and the results that we're about to talk about today a great year.
For those following along on the Powerpoint presentation. It can be found on our website new Tech one AWT K O N E dot com in EWC U K O N E Dot com in the Investor Relations section. Please go to events and presentations.
And we are ready to begin.
I first like to call everyone's attention to slide number one and please remind everyone to read the note regarding forward looking statements and comments.
Yeah.
Slide number two.
We always like to go over our report card, particularly as a public company and on slide number two you could see that new Tech business Service Corp has been a very successful organization over the course of 10 years.
But to hear that you see as the end of year data acquired from Bloomberg and obviously the returns include capital price improvement as well as dividends.
Moving to slide number three.
As many of you are aware.
Approximately August 2nd or third the company announced our intent to acquire National Bank of New York City.
And potentially convert subject to a proxy vote and regulatory approval from a business development Corporation to a <unk>.
Holding company and designated financial holding company status.
There's been a lot of activity in the share count This particular document.
Demonstrates that shareholders that owned stock at the beginning of the period.
In their name.
To the end of the period sold out to zero.
So we asked the market participants to draw their own conclusions from this but clearly there's been a significant amount of movement.
In the share from people that had a position to not having a position obviously.
The potential transformative.
Change that we're talking about may have cost us.
Yeah.
Yes.
Slide number four.
Obviously.
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Here today to talk about our 2021 performance and clearly we were dealing with tremendous headwinds from the 2020 and 2021 pandemic. We've used the expression we're firing on all cylinders.
Simply stated investment a new Tech business Service Corp, Youre investing in a diversified business model under the new Tech brand.
People come to new Tech for allowance payment processing solutions Tech solutions insurance agency solutions payroll solutions and other solutions that will make their business successful.
Real real happy with our performance in 'twenty, one, but it particularly happy with the momentum that we're carrying into 2022 will demonstrate that throughout the course of the deck.
Since January 20, excuse me January 21, 2021, NSP, App, which is new tech small business finance or non bank lending SPL C.
<unk> increased its headcount by 63 individuals to 253 people at 33% increase this head count increase is indicative of the fact that we have.
<unk> geared up and as you'll see in terms of units and loan volume we're gearing up.
With the great operating leverage that we have to do more and more business. Obviously, both in 2021 with the records that we produce as well as going forward into 2022.
We're looking forward to further demonstrating not just in lending, but in our other solutions area, whether it's payment processing solutions Tech solutions payroll solutions for insurance Agency solutions. If you look at every one of these individual areas.
There is tremendous change in payments there is tremendous change in how businesses are looking and seeking assistance further technology theres tremendous change in people that are looking for payroll and HR solutions. We are very very well positioned for these changes going forward with our solutions that we believe.
Very strongly make businesses more successful and make them better on the fourth bullet on slide four we will talk about our new Tech one dashboard that we unveiled recently, we were really excited about the product important to note.
We are hopeful that the company will carryforward its objectives with the proxy vote and regulatory approval to become a bank in the event, we're not a bank the dashboard will still be available however, without deposits but.
We've been working on this we will be rolling this dashboard out.
In calendar year 2022.
Also to note.
Obviously during the fourth quarter of 2021, we really put tremendous amounts of resources into closing and funding <unk> loans fiber for loans.
Our nonconventional or non conforming conventional loan business has taken off really really well obviously in calendar year 2019, there were no PPP allowance and op income it will be not in calendar year 2022, but when you look at the momentum and the performance of the company.
Through 2020 in 2021, we're extremely excited about our future we have great momentum going into particularly the lending vertical based upon technology changes that we've made staffing changes training changes.
And we've got plenty of capital to basically be able to fund our loan growth and quality portfolio going forward on slide number five.
Some lending highlights are $190 million of 70 loans in the fourth quarter of 74% increase on the year of $560 million of loans for the full 12 months, an increase of 184% over the prior year. That's the largest amount of SBA funded loans that new Tech has done we are the second largest SBA lender in the United State.
After the December 31 quarter for the SBA, that's their first quarter for us, it's our fourth quarter.
Our new tech business lending facility, which originates.
And creates SBA 504 loans.
Nonconforming loans, which go into joint ventures.
For portfolio closed $90 million of loans during the 12 months versus $87 million I would say.
From a metric perspective. This was an underperformance. However, we do have a very nice roll forward on some loans that.
We thought could or should have closed in Q4 that are rolling over into Q1, we feel really good about that we'll talk about our first quarter 504.
Closing position in a later slide.
Business lending is forecasting a $150 million if I look for launch for the full calendar year, 2022, which would represent a 66, 5% increase once again important to note in the 504 business. In addition to us making the loans, we have to get CDC community Development Corp approval SBA approval and the borrower everything has got to get lined up.
It's.
Important to understand that.
Markets change Panther.
Pandemic issues staffing legal et cetera.
Necessarily move closing and funding dates around from time to time.
Lastly, we say goodbye the PPP $1 9 billion of PPP loans funded we probably forgiven and units about 75% of total 26500 portfolio.
To remind everyone. We have sold 100% participation certificates in almost all of our PPP financings on slide number six we talked about this previously.
Addition to staff I think it is important to note that we have brought in some new management.
In the in the lending space for all the four products. Okay. Its important to note once again the way we do our business big funnel up at the top the referrals come in and then our business service specialists and management teams sides as the <unk> loan is it a 504 loan is it a nonconforming loan is a secured line of <unk>.
So you've got a very big funnel to get the referrals in the front end decides what is best for the customer and whats suited to their needs and demands obviously to make a good credit. So on a positive note. The addition of <unk>.
Adjusted Gavin Jesse Bram Scott.
Scott Sherman and forgetting somebody at the moment.
To that management team I will have to come back to that.
But that <unk>.
Our management team has done a great job, which you'll see as you look at the portfolio.
Growth in the pipeline growth.
This quarter end time this year this quarter in time last year. So we have had staff turnover for some companies to have turnover was bad and <unk> in our case the turnover that we have.
<unk>.
<unk> been involved with in the past I would say year and a half has really put a very talented team in place that has similar goals and metrics for both personal and professional growth that the company has so we feel very good about our staff and our training going forward in the press release, we indicated I think it was north of 3200 management.
Raining hours for lending staff, we're very proud of that.
Slide seven gives you a good idea of what our efforts are doing and what we think is the.
The operationally Leverages Bull and scalable lending business 57000 referral units for the quarter.
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In 2021 compared to 92002 thousand 20 for the year 413000 referrals for the 12 months for $2 39 for the same period in 2020 and.
And unit close is important to note. We're closing more units that's a big deal 282 units for the three months ended $31 21, compared to 122 units for the year 761 units versus 215 units. Now. This is all based on 708 data once you get into the nonconforming.
Forming conventional loan business Youre looking at average loan sizes that could be around $5 million plus or minus I think it's very important to note that in order to get the very significant material volumes you really don't have to do a lot of units and that big referral funnel that's coming in on the front end is going to create that type of activity. So when you think of the non.
Second point business that we'll talk about that going forward, putting that on to the referral infrastructure. The assembly infrastructure, the underwriting infrastructure tremendous opportunities for operating leverage.
New text database of customer up customer opportunities Youre seeing is extensive with over $1 5 million referrals in the database, we will talk about the new tech one dashboard and our ability to cross sell but more importantly provide a quality solution to our independent business owners all across the United States. Once again, it's important to.
Note that the dashboard that we're going to provide is going to give business owners a tool that is going to enable them to be more successful in their business both for data information and transaction.
To note with a 19 year track record of loan Assembly underwriting and technological expertise, we haven't materially improved our processes across the board to be much much better in the lending business closing out 2021, and clearly going into calendar year 2022.
We're excited about the growth potential and all the possibilities slide number eight talks about our financial highlights total investment income up 17, 7% for the year net investment income.
It was a decrease of 25, 8%. The explanation there is the delta of the PPP income that came in in 2020 versus 2021, because the gain on sale is included so on a positive note clearly we had significantly greater adjusted.
NII or an ni for the calendar year of $3 47.
Versus the prior year of $2 <unk>. However, the PPP income in calendar year 2020, dwarfed everything else, we did very little bit of our core business core business coming online.
Back to basics were growing very exciting I do want to point out the $3 47.
Was a nickel better than consensus analysts of our four analysts estimates of $3 42.
And we previously forecast $3 40 for the year debt to equity ratio of 1.19 at December 31.
It's one of our lower debt to equity numbers in.
In recent quarters in recent years.
Feel pretty good about reducing our leverage at this point in time. It is likely that that leverage number will bounce back up once again total investment portfolio increased 13, 1% important to note that bdcs have a hard time growing their total asset size because they are constrained when they are trading below NAV, we obviously traded a premium.
So being a BDC, it's important to have a real strong stock price to be able to continue to raise equity and debt to grow the business net asset value of $403 million crossed over the 400 billion Mark an increase of eight 2% per share on a year over year basis.
Slide number nine the adjustment NII trend.
Obviously big $3 47 adjusted NII.
Look I would say that we are not giving full year guidance as a BDC for the calendar year. There's good reason for that we may not be a BDC for the full year, we've indicated that we think that.
The third quarter would be.
The most likely guess, but that's up to our work obviously with the regulatory bodies, which we're going to work with them and give them as much time as they need to make the appropriate decisions to work with us to make sure that.
Everything goes smoothly and we've got the best plan in place. So we have declared from the board of <unk> 65 dividend in the first quarter. We are forecasting a 65 dividend in the second quarter. That's $1 30 for the first six months, which I think is a good formidable forecast.
Going forward.
Typically we've had better second half than first half there is.
And maybe this is the understatement of the day, a lot of uncertainty and volatility in the markets today. So.
To figure out what the third and fourth quarter of the year look like looks like at this point in time, we're going to.
Hold that back at this point in time, but once again when you look at the trends when you look at the pipelines. When you look at the efficiencies the areas that we're in and frankly, the fact that the businesses that we're involved with these.
These are not international businesses. They are independent business owners, primarily with a U S focused.
We do think we're in pretty good shape here. So we would like the market to obviously look at it.
The Companys historical performance over trend over 10 years, how things are trending the processes and training that we put in place the technological improvements.
Excited about 2022.
Slide number 10 dividends.
Dividends, which we're just talking about obviously $3 15, and 2021 was at 53% increase.
Over 2020, we talked about our first quarter 2022 dividend declared 65 forecasted 65 in Q2.
The declared dividend is it 30% increase I think youll look at some metrics that we have going forward for Q1, very very strong very very strong. So we're real excited.
Obviously about finishing what we're doing here today, but also reporting our first quarter performance as well.
Going back 2021 clearly.
We put up some great numbers, you can see that what we talked about but those numbers without or without great challenges and I think that one has to look at the company I would say this is a company that is flexible that is nimble that is forward thinking and is able to make these adjustments and these are things that we've done over the course of our 20 years as a public company.
Slide number 11 talks about the $1 109 debt to equity ratio and then as many of you are familiar with our model, we sometimes sell government guaranteed pieces, which settled in the first week or second week of the.
Next quarter so.
I mean, those that leverage basically goes away fairly quickly and we would have been about $1. One out. So we're really putting up some great numbers without a lot of leverage.
As many of you know, we redeemed $40 million.
Slide number 12.
Of the AWT L.
Outstanding Baby Bond notes with no prepay penalties.
Yes.
You can Jones has recently maintained our triple B plus rating on our notes and debt and.
There is also the any WTC notes 150 million five <unk> due 2026 that are callable. After February 2022, and then there are make whole provisions for one year after that.
Slide number 13, obviously the market should be concerned about companies managing their interest rate risk and interest rate risk exposure. Once again important to remind everybody that our SBA seven eight portfolio floats quarterly over prime with no cap.
And our liabilities in the warehouse line with capital one also are floating rate.
And the.
Right on our Securitizations are floating rate. So we have a very nice asset liability match on both sides.
We also did a recent securitization of the joint venture of our nonconforming conventional loans. This is a very good template going forward for our business that we'd like the analysts and the investment community to begin to focus on in the category of well what if what if.
New Tech can grow this business, which we intend to do what if this becomes valuable and important and what are the margins in this business well, we wound up issues.
Issuing.
A little over $56 million of notes I believe which were rated single a by <unk> with a fixed coupon of 387%. The net coupon on the portfolio was seven two the gross coupon eight point too we keep the servicing spread 100% of that on all the loans, but the joint venture is split.
Between us and our joint venture partner.
Really a very good transaction for us and should serve as a template for what we can do going forward, obviously subject to the volume point to note those loans were season and as of this date. They are all currently performing which is valuable all of them except for two or three were originated pre pandemic.
Yeah.
In the calendar year.
2021 I believe that's when it began.
The board and management decided it was prudent to hedge the interest rate risk and the final four portfolio when the nonconforming portfolio I go back to having good foresight and maybe look and good timing to begin a hedging program 504 loans are typically fixed for five years and then they adjust at a spread over a five year.
Index with a margin.
And our nonconforming conventional loans are typically structured the same way.
Fixed for five years or a term than to the full adjustment without a cap and and a floor. So it is important to note that the hedging is basically for the duration. During the time the portfolio is hedged we successfully hedged our portfolio in calendar 2021, with a realized net gain of 644000, and then entre point.
Folio, what's it got securitize, then it was asset liability matched with a fixed rate coupon realized a hedging gain of $1 million when the securitization was closed.
Slide number 14, as our typical slide that we talk about.
With our SBA pedigree point to note our average loan size is coming down a 156000.
Per unit Thats, the uninsured portion of the loans to government guaranteed pieces are sold into the market again and that uninsured portfolio is typically in non recourse securitization debt.
Our adjusting the loans are prime plus two and three quarters, no caps, which is approximately a 6% cost to the borrower and a 6% earns coupon to ourselves.
I would like to point out also that the secondary market pricing, which you can see on slide 15.
<unk> remained strong.
Without getting too much into the weeds and this is in the past history. There was one of the reasons for the high <unk> premium.
Was the fact that there was 50 basis points of additional coupons for SBA lenders like ourselves because of the pandemic adjustments in various biden and Trump programs.
That benefit is going away prices still remains strong not quite at that number, but certainly not far from it and significantly above the 10 seven eight mind you the mix between 10 year paper and 25 year paper determines this as well as market conditions, but essentially.
It's a full faith in credit government guaranteed floater, where the big determinant the price changes as prepayment imports.
Important to note on slide 15, the final bullet the company had $59 3 million of guaranteed portions of <unk> loans on its balance sheet that are available for sale. So this.
It's sold in Q1 will produce a gain on sale from that portfolio.
Slide number 16, we successfully did our 11th securitization of the uninsured portions of our SBA portfolio, which cleans out our capital one bank line created $79 $7 million of class a notes that were single a rated and $23 8 million of class B notes that were triple B.
Rated by standard and Poor's very nice advance rate and we're proud of the execution, we want to make sure that we think.
Great work that Deutsche Bank and capital one bank did on this particular transaction.
Deal I think it is sold out in a day or two we have to close the books down.
Almost $4 five to one oversubscribed on the E class.
Once again these are non recourse financings slide number 17 and important new slide to the deck, a new tech small business finance. That's the 700, a lender that basically has its loans in the capital One bank line and then into Securitizations take a look at the net interest income trend, which I think is very very valuable.
Good quality reoccurring income.
That has added so when you look at Q4 2021, and you look at the net interest.
Income $4 7 million Thats, the highest number we've ever had and obviously that will reoccur throughout the year next year up from $3 1 million in the prior year and $3 6 million in Q4, 2019, obviously, we didn't do many loans in 2020 and you had attrition on the portfolio. So we're very.
Happy and proud about this additional stream of income continuing to grow.
On a going forward basis. This type of spread income is valuable to new Tech, we anticipate as we grow the nonconforming business out of the Jv's will pick up that type of spread income will talk about that in a slide going forward.
Again real excited, particularly when we look at our pipeline.
Pipeline progress going forward, which you can see on slide number 18.
So we've got the pipeline on the $785 four in the nonconforming conventional so on the <unk>.
To note.
That as a $223 22, we have already closed $68 million of seven loans, we have an approved pending closing of $155 million.
If you go back to.
Calendar years, 2018, 2019, I'll throw 2020 out for the most part because we kind of dumped the March portfolio.
'twenty one.
And 80% $90 million to $100 million closed here in the first quarter, which is typically light.
You can see we're going to have a heck of a good Q1 for <unk>.
The SBA, 7% portfolio and as you go down you could see the growth in.
Pre qual and the total growth the total size of the portfolio in <unk> of 66, 67% over the prior year and the final four unit you have got the same type of numbers you got $15 6 million closed you've got a lot and approved pending closing.
I'm hopeful that we'll get to a 30 or $40 million close number.
In the first quarter, we're looking to do $150 million of closer funded loans in calendar year 2022 from 504.
And the non conforming space, we've got a nice pipeline. That's building, we're very close to closing our second JV. Our first JV was dormant throughout the pandemic last year.
We have a second and third party.
In close negotiations were going to forecast about $300 million in these loans, which will be funded by 50 50 joint ventures, I think thats, a very conservative forecast and one that can be met and this is obtainable.
On slide number 19, Thats total pipeline growth across all the different businesses.
On slide number 20 shows the seasoning of the 7% portfolio.
And we do like the fact that portfolio is getting more and more season.
Defaults tend to accelerate within the first four years.
The portfolio, particularly from 18% to 40 months and then they flattened so we feel pretty good about the seasoning of our portfolio being helpful. Slide number 21, we are proud of.
If you take a look at the 12 31 21 dates theres.
Theres nothing greater than 60 in the portfolio and the non accrual portfolio went down year over year.
Given a.
Our pandemic COVID-19 affected business affected shut down we feel very good about the.
Portfolio Thats been originated.
And our.
2018 year 19 year history at New Tech small business finance. So we're really pleased with what's gone on in the portfolio from an origination and from a servicing perspective on slide number 22, we have 44 full time employees that service our portfolio the size of the portfolio.
<unk> was approximately $3 1 billion of these 31 it was higher obviously because we have.
<unk> gotten forgiveness on a sizeable amount of PPP loans important to note that we are a standard and poors rated servicer, both for SPL and SPF.
We also service portfolios for two government regulators, the FDIC and the National credit Union administrator in the Q or the regulators or credit unions and 75 other banking entities.
We worked very hard through the course of the last two years as the government shutdown.
This is in industries and really limited the amount of commerce for some of our clients. So we helped our clients with PPP financing.
Idle loans E IDL as well as employment retention tax credit program, which is still going on these programs helped keep our borrowers healthy and very well positioned for 2022 going forward.
Let's go to slide number 25.
<unk>.
Portfolio Company review.
Important to note the key entities in this review Neutec merchant solutions due to technology solutions did take insurance agency New Tech payroll solutions also new tech business lending that we talked about the final four and participates in originating those loans and selling them into the joint ventures and new.
<unk> business credit, which is DBA for Cts.
On slide number 26 here some of the important data for the 504 loan program.
And it talks about.
We accomplished in calendar year 2021.
On a going forward basis, we're looking to close or fund approximately $150 million of 504 loans, which would be a big increase over 2021, so that will be the 2022 forecast of $150 million.
66% increase over the 2021 fundings of closings, we have the capacity to do these loans with $100 million facility from Deutsche Bank, a $75 million facility capital one bank of $20 million facility with one, Florida Bank, which helps us through construction financing also important to note we sold approximately six.
$4 6 million and 24 units of seven eight loans to third party investors for a gain on sale over $2 million for the 12 months.
So when you look at our 504 business on Slide number 27, you have got a typical structure of alone in terms of what the first is funded by NPL and then you've got the second lien that we fund that gets taken out by government debentures bar injection.
With 10%, but we are left with a 50% first we don't fund alone until the government take out is in place.
Slide number 28 talks about the return on investment, which we can see that the 504 business is profitable like our <unk> business is profitable like our non conforming business is profitable. These are all businesses that are providing high returns on equity and we are excited about these businesses.
As the businesses that we're in that we've successfully managed for over a decade provide higher returns on equity, which is why our stock price has been a stellar performer over the course of 10 years slide number 29, a little bit of a deeper dive into our conventional loan portfolio, what we call nonconforming conventional loans.
We're real happy to announce that we.
Successfully.
Securitized.
Our portfolio of $86 6 million 17 loans.
<unk> was the rating agency for those of you that are interested in more details on that securitization you can go to <unk> website and take a look at the presale agreement, which I still believe is up there.
Obviously, the pandemic slowed the initiatives down both of us ourselves and joint venture partners.
We're up and running and we're forecasting conservatively $300 million, we'd love to beat that number but thats, where we are in 2022, and we said we are currently negotiating three JV agreements, which would give us tremendous.
Capital powder too.
Clearly fund between say $500 million to $1 billion worth of these loans in the foreseeable future. We're very very excited about this business on slide number 38 30 excuse me when you talk about the benefits of nonconforming conventional loans and this is important in the contract or looking at new tech and trying to analyze the cash flows.
From the different areas, whether it's the merchant processing business, whether it's tech solutions business, whether it's the <unk> business with its gain on sale it servicing income and spread income from its portfolio and now you've got the nonconforming conventional loan business, where we can earn origination fees priority going.
Into the JV or out of the JV additional servicing income of 100 basis points for servicing these loans, which goes into SPL.
We have the opportunity obviously.
Manage the interest rate risk through our hedging portfolio and then once the loans go into a securitization.
Pretty much match funded and what the NCL or non conforming conventional loan business does is it leverages our existing origination platform, which allows for increased revenue offer fixed expenses. So when you look at the overall operating plan once again big funnel lots of referrals.
And when we're in the market, we don't say how come to new Tech, where <unk> lender, we're a lender.
How do we lend 10% to 25 year am loans no balloons.
No covenants.
Personally guarantee the loan willingness to give you a high advance rate and the primary collateral and we indicate a single digit interest rate that brings businesses to us they could ultimately wind up in any one of these four buckets that exist today down the road and we're hopeful that we're successful with the proxy vote and regulatory.
<unk> already the new take brand will also be able to make regular bank loans that are.
More consistent with bank type lending practices.
With.
Lower cost of deposit funding to fund that so <unk> got a full menu for independent business owners and you've got a full menu as businesses mature and graduate through the cycle and get better and better and qualify for different types of financing once again, no balloons long am schedule means.
For the borrower lower payments.
And it really is working very well and the additions of nonconforming conventional loans and the ability to use the brand to put assets qualifying assets into the bank extremely exciting so.
Slide number 31, I believe we covered this I jumped the gun a little bit we talked about the securitization.
That we did very very useful and beneficial.
And one other thing Thats important in all of these loan categories 785 O four secured line of credit not conforming conventional and bank lending.
Our referrals encompass a wide swath of women and minority owned businesses and loans to rural communities because of how we aggregate these opportunities.
Branches broker lists BDO list environment, using technology and alliance partners to refer to US gives us. These opportunities. So we're extremely excited about servicing independent business owner communities and the communities where these people live in all areas, whether they are men when.
Min transgender rural urban we're very excited about our potential future.
Slide number 31 talks about our merchant processing.
<unk>, we expect our growth to begin to return back to this business coming off of the pandemic slide number 33, just a couple of points to consider 23, 2% increase in monthly sales volume for the fourth quarter compared to the fourth quarter of 2021 were hopeful that increased consumer spending will continue.
Also.
We have a significant portfolio of taxi drivers and Newark, that's been tremendously affected by the lack of international travel that business at one point throw up one to $1 3 million of cash flow that has been diminished I think last year down to like 300000, and so theres a lot of upside in the Rotten These various different businesses that we're in.
I will also state that we had.
Significant management realignment in 2021, which we believe will bear a lot of fruit this year, David Simon named as President.
And Chief operating officer, a new Tech merchant solutions and he's repositioned a very strong management team along with Mike Campbell, who is.
In charge of all of us.
Underwriting risk and policies and procedures today, which will be valuable, particularly as we are hopeful that we will morph into a bank at some point in time in the future once again subject to shareholder vote.
And regulatory approval when I go to slide number 32, when we look at our new Tech payment systems and what is referred to also.
Legally as Pos on cloud we are very excited about this system.
For those who don't want to learn more about it go to a new tech payment systems Dot com on the website. There is a lot to go over I don't want to spend too much time on the call today to go over but here's what I'm very comfortable with when you look at square do you look at Clover.
Our software our system, it's just better where processor agnostic, it's fully integrated into the GL for payroll for payments, we are able to integrate a full range of benefits into the system. It can be branded for any channel partner like an ISO community Bank credit Union.
Ian which square and Clover do not do this as a winning product for US. We're very excited about this and see it as a future opportunity for growth Slide number 35, we talk about our technology business tick technologies solutions 2021 revenue of $41 1 million EBIT of $5 4 million.
That's versus $4 $3 million last year. So we're really excited we have a very aggressive growth forecast I am hopeful that we will deliver that a $7 million the ability to offer two independent business owners security as a service.
Advice and consulting protect solutions professional services and to be able to give our facilities out.
Two independent business owners that can't afford a CTO or CIO or really can't afford to have servers on prem nor would they really know how to manage them.
We do this business for a three to five person medical or dental office and we also do it for larger players as well with a particular emphasis and focus going forward on financial institutions and clearly commercial enterprises. So we're very excited about this business we believe in it it's great.
And businesses today need to be able to store their data and information technology in a safe and secure place that's current and up to date, particularly when you see all the cyber attacks going on right now.
We play a very important role not to say that Amazon and Azure don't do this but they really don't do it for smaller businesses.
And in Amazon's case, you kind of need to use their development tools and their software.
The 30 million Smbs as the SBA would define it theyre not going to Amazon per se. They can but it's extremely expensive and they really don't have that.
Ability to relate to the Amazon cloud, we can help them with that by the way if they want to be in the Amazon cloud.
Could help them get into the Amazon cloud with our advisory and consulting we can help them get into the Azure cloud, we can help them manage their solution on their own print.
Or to use our facilities in Phoenix, or New Jersey extremely excited about the future of our tech solutions business.
I'm going to fast forward now to 38, we talked about payroll and benefits. This is a changing environment I mean, when you look at all the regulatory changes customers need help we're there.
They're 24, 7%.
And we're very excited about our staff being able to help people in remote locations on video screen and available to our customers. We believe we don't need branches, we don't need brokerage, we don't need bankers, we don't need videos, we need the current team of people that are currently set up the way they were doing the business in.
The pandemic to be able to serve independent business owners and all.
All areas.
24, <unk>, we're really excited about that let's go to slide number 39, the new Tech one dashboard. The one dashboard for all your business needs, which will be available. If we are hopefully successful in acquiring national Bank of New York City, and even without the dashboard will be launched the dashboard is currently in.
Process and it is very much of an aggregation tool that's important to note. So.
With that said.
Payroll.
Web traffic data.
Storage function.
The data information and storage function.
The lending tools the payment processing information at all exist today.
We're going to drive this up into one single sign on one dashboard.
And this is going to be the dashboard, that's going to make businesses more successful, it's going to make them better it's going to make them more informed there'll be parts of this dashboard that will wind up being transactional that is our goal will that be available in one.
Or two data with <unk> still remains to be seen but we're very excited about our initiative in essence, as we forayed into the world of.
Banking software and banking systems, we've gotten a tremendous education.
And once again Baker no banks dashboard will be rolled out we're really excited about it.
And.
We're looking forward to moving forward in this particular area.
On slide number 40. This is a screenshot of what the dashboard will look like so I think its real important its the one dashboard for all your business needs. As you go down the left hand column extremely important number one your new tech team. So.
When you go into.
One of the competing banks community big banks et cetera.
Who do you talk to well you go to the dashboard, you'll have a relationship manager.
And Youll have a payment specialist 11 insurance specialists youll have a payroll health and benefits specialist you'll have a tech specialist lending specialists and if our bank depository specials, so you'll be able to go on the system and communicate via video with anybody on your team.
So it.
It's not like you're walking into one of these big banks today, that's happy to take your deposits and not giving you much for it.
And may be occasionally, making you alone, but really not doing a lot else for you, but in the dashboard and you can see in.
In addition to the things that banks do here's your deposit information Here's your lending information your credit card data will be available to you charge backs refunds.
Processing data, how much visa how much master how much American express how much stab at how much credit.
Looking at all your batches.
Our goal is to be able to get into the dashboard and be able to allow you to make your payroll. So you could actually see who you are making the payroll too you can see the money coming out for the workman's comp you can see the money coming out for the health insurance you can see the money coming up with a oral NK.
All in the dashboard, because we are a payroll.
Processor and solutions company for our clients.
The <unk>.
Storing data storing documents for businesses, helping them manage their business insurance policies buy sell agreements operating agreement Secretary certificates all of that stored safely and security in the dashboard very very exciting too futuristic Lee.
We'd certainly love to maybe be in the tax business digital bookkeeping business. It's on it's on the drawing board I don't have a specific time, we have a lot of initiatives, which you could tell by the length of this call today. So.
That is something that we'll get to it the big differentiator here.
He is our dashboard is going to make our clients better and more successful and it's not just software.
<unk> and people.
May not take out for breakfast lunch and dinner are play golf.
They may not bring into a fancy branch, but there'll be available on screen when you need them on demand the new Tech one dashboard New Tech technology enabled bank, we're really excited about what we're doing here slide number 41, and conclusion and investment in New Tech business Service Corp, as a BDC or.
Potentially as a financial holding company, which we are hopeful for you have got a proven track record we've outperformed the Russell and the S&P 500 for over a decade management's interests are aligned.
Heard people say Gee.
Why are you doing this bank deal.
Management is very much aligned with the shareholder base we.
Love dividends, and we love capital appreciation.
I.
I don't quite a kind of get the difference between the stock price goes up for capital and yourself, a little piece off and you get your dividend and you make it whats the difference total return, but that's for other people to decide not made at the end of the day.
We are looking to enhance shareholder value for all shareholders and we're very excited about what we're doing and the historic returns that we've provided to shareholders. Yes. It includes dividends, but it also includes a significant amount of capital appreciation, which based upon what we're doing in the business within the business.
<unk>.
It is very material.
We've used technology.
In our world as a disruptor, okay. So we've never been your typical BDC.
And if we move forward with the bank, we won't be a typical bank either.
In the event, we're successful in our quest to obtain a proxy vote regulatory approval. We believe it's in the best interest of our clients and stakeholders and we really appreciate the opportunity to present to you today I'd like to turn the remaining portion of the financial review of our fourth quarter and annual results to Nick <unk>, Our Chief Accounting Officer.
Thank you Barak.
Everyone. You can find a summary of our fourth quarter 2021 results on slide number 43 as well as the reconciliation of our adjusted net investment income or adjusted NII on slide number 45.
On slide 43 for the fourth quarter of 2021, we had a net investment income of $1 6 million or seven cents per share as compared to a net investment income of $850000 or four cents per share in the fourth quarter of 2020.
75% increase on a per share basis.
Adjusted NII, which is defined on slide number 44 was $16 million or <unk> 68 per share in the fourth quarter of 2021 as compared to $9 6 million or <unk> 44 per share in the fourth quarter of 2020.
Focusing on fourth quarter of 2021 highlights we recognized $24 8 million in total investment income of 67, 7% increase over the fourth quarter of 2020 total investment income of $14 8 million.
Dividends from portfolio companies interest income and other income were the primary drivers for this increase with interest income increasing by $1 4 million, resulting from a year over year increase in the accrual loan portfolio.
Other income increased by $3 3 million for the fourth quarter 2021, resulting mainly from a year over year increase in SBA 708 loan origination volume.
Servicing income increased by seven 2% a $3 million in the fourth quarter of 2021 versus $2 8 million in the same quarter.
Distributions from portfolio companies for the fourth quarter 2021 totaled $9 $75 million.
Which included 6 million from NMS three.
$3 5 million from NBL, our 504 business and $250000 from MTS as compared to $4 $175 million in the fourth quarter of 2020.
Moving onto expenses total expenses for the fourth quarter increased by $9 $2 million quarter over quarter.
Driven by an increase in the SBA seven loan referral fees due to higher loan origination volume.
It related costs.
Professional fees and loan origination and processing costs.
Realized gains recognized from the sale of the guaranteed portions of the SBA loans sold during the fourth quarter totaled $18 1 million as compared to $11 4 million during the same quarter in 2020.
In the fourth quarter of 2021, and SBF sold 223 loans for $126 6 million at an average premium of $12 two 8% as compared to 123 loans sold during the fourth quarter of 2020 by $85 1 million at an average premium of 11, 42%.
The increase in realized gains was attributed to higher SBA loan origination volume in the fourth quarter of 2021, combined with higher average premium prices when compared to the fourth quarter of 2020.
Realized losses on SBA non affiliate investments for the fourth quarter of 2021 was $3 5 million as compared to $2 7 million for the fourth quarter of 2020.
Overall, our operating results for the fourth quarter 2021 resulted in a net increase and net assets of $20 million or <unk> 84 per share.
For the quarter with NAV per share of $16 72.
I would like to turn the call back over to Barry.
Thank you Nick operator, we'd love to take Q&A.
Thank you.
We'll now begin the question and answer session. If you have a question. Please press star and then one on your Touchtone phone if.
If you wish to be removed from the question queue. Please press the pound sign or Husky and if you are using a speakerphone, we recommend that you pick up the handset first before pressing the numbers.
Again for any questions. Please press star one.
And we have a question from Paul Johnson from <unk>.
Yes, good morning, guys.
Thanks for taking my questions.
Just have a seat for you today.
I'm curious as for the.
What youre seeing with your portfolio in terms of credit trends.
Subsequent to the expiration of the cares Act.
First last year in September .
<unk> at all if thats approved or any sort of.
The developments there.
Yes, I think that.
If you look at.
The results of the majority of the portfolio.
Stopped receiving.
The cares payments in probably March April time frame and I think that.
People looked at that as G.
First of all not none of these things are permanent and these businesses.
Took these funds and because in many cases they were very limited by government action to open up are wearing masks or.
A variety of different things they have to do things that are so when you look at our portfolio performance, which we covered in one of the slides, we're very very pleased and we think that busy.
Businesses.
And new Tech is kind of an example of it really took the opportunity to.
Pay attention and get rid of unnecessary expenses and position themselves for how business has to be done in the future. So we think the trends are pretty good now today is all of a sudden the new day [laughter] lots of change.
Consumer spending has been incredibly strong up until I would even say yesterday.
Seeing that in the payments numbers so.
This is not.
<unk>.
Overly punitive meaning that if we if we have oil at 125 Bucks a barrel for six months that will be a problem I would presume to a degree but.
So far we are in good shape I mean, the future is a little bit more uncertain with what's happened yesterday, but right now we feel pretty good about that.
The quality of the portfolio, where our clients are I mean, we we.
We knocked out everything 60 days and over.
Non accruals went down so we feel pretty good about where we are as well and I will tell you the value of the collateral is very strong right now.
Thanks for that yes, it's great to hear.
Secondly.
You guys have grown your stat pretty significantly last year.
Just wondering do you expect that kind of rate of hiring to continue into this year or do you think you've kind of reached a point, where youre pretty satisfied with that but.
Yet today.
It's a great question.
Myself.
The lending.
The team led obviously by.
Tony Zara and Peter Downs.
Look at head count regularly, but we've got the right staff size and the capacity to lean into the business now as we grow the NCL business will probably need to add a few select people, but not a lot because you got to remember the NCL business, you've got bigger loans and fewer units.
So.
The other thing I would tell you on the servicing side.
Hopefully loan forgiveness in PPP will diminish.
So we'll be able to shift resources around I think we're in pretty good shape I think the most important story to tell as we significantly increased what I think was.
Our SG&A last year, and we were able to cover it and I think that based upon what we're looking at for Q1 and Q2.
We are able to handle it and we think we get a tremendous amount of leverage.
Through the NCL.
Opportunity as well as we get leverage in the event. We're successful in the acquisition of National Bank of New York City.
Thanks for that Barry <unk>.
David I, just have a few more and I'll hop back in the Q2, others ask questions.
Curious on the Jv's that you've talked about with new partners.
And potentially forming nose and growing those over time, how do you plan funding. The GBS is that going to be essentially cash on your balance sheet or essentially assets from the portfolio or.
What's the.
Plan in terms of just getting those JV started.
Sure.
It's a great question Paul I appreciate you asking because I think that a lot of people don't fully understand the value and capability of the <unk> and.
The way we currently do with today, which is what we will continue to do as a BDC and frankly be not much different than <unk>.
If we were had that assets at a bank holding company would be by a combination of debt and equity.
<unk>.
<unk>.
They are typically $50 50.
Equity pieces, and we have leverage financing.
From different partners.
We've got term sheets and offers on that now so.
The loan growth with basically be funded on balance sheet by the equity investment of New Tech business Service Corp into the joint venture.
Got it got it.
And then.
Lastly, just hoping maybe you could just kind of maybe talk about the effect of each relation and how you've seen that kind of flow through your portfolio companies.
Or maybe even how you expect that to kind of flow through this year.
Any sort of affect the tad on your portfolio or maybe even your underwriting process.
Any kind of color there would be.
Helpful.
Yes, I think that.
Installation.
As.
A good thing for the payments business I hate to say that because it's just accurately but it increases the volume and you've got a lot of fixed expense there. So for the payments business. It's good for the insurance agency. It's good for the payroll business is good.
So the business services business, it's great now in the lending business. It can be problematic. If in fact, it drives rates up a material amount and I say that driving up rates a material amount.
<unk>.
It does put pressure on businesses that don't have the price elasticity. So.
Where we begin to see certain strains.
From borrowers typically is when you have a very material rate shock.
But it's nothing that we I mean, we've been doing this for.
In the SBA space since 2003, so it's nothing that we haven't seen before it's stuff that we model in all of our models.
When it's not.
Not overly concerned about inflation as being problematic for our overall businesses, which is why it's great to have all these diversified streams.
Yes, I appreciate that actually one more question just housekeeping thing.
Nick you mentioned that I think I just missed it but.
Could you just clarify the realized losses on the SBA loans in the fourth quarter.
Great quarter.
Yes, $3 5 million for the fourth quarter.
Okay.
Okay I appreciate that.
Alright, that's all from me.
Gratulation has done a really active quarter.
Really active 2021, hopefully we see more this year.
Thank you very much.
Yes.
Thank you. The next question comes from Mike Snyder from Ladenburg.
Hey, good morning, everyone, Hey, Barry are you doing.
Okay. Thank you Barry most of my questions were already asked but just a couple more.
You mentioned that SBA seven prices weakened in the fourth quarter as the government's fee waiver ended.
Following that how do you view pricing developing this year and what do you expect for demand as interest rates.
Yes.
Okay.
Yes, the prices Mickey on the bonds have actually been not as good.
Call it $1 13, and change, but not too far from that so without putting a number on it.
The need and appetite for government.
Full faith in credit government guaranteed floater in the current environment is desirous.
And.
Prices have held up pretty well.
To be frankly, you don't have or don't.
Don't have a forecast or a number for Q1, but.
We'll probably be there in about five weeks with the way things are going so.
I don't see major changes.
If you wanted to do some modeling.
Anywhere between 111, and maybe $1 12, and a half I'm, just giving you a very wide range, but I don't have.
Any further information relative to the mix of the portfolio.
And I wanted to emphasize the change in the pricing was based upon the fact that there's 50 basis points less in coupon that we're selling so.
The flip side of it is the demand for the full faith and credit government guaranteed floater is pretty high and that's what's keeping prices stellar.
And how about demand for the loans in terms of originations buried in other words when you look at your long history in let's say interest rates climb they could climb a couple of hundred basis points in the relatively near future how does that impact demand by your borrowers for for that.
Okay.
It's a great question Mickey it's still.
Because of the fact that we are a 10% to 25 year am more type lender.
We are a better alternative than a conventional bank loan due obviously were higher rate than they are but it's the stretching out of the payments Thats, a measurably and valuable so higher rate environment don't tend to dissuade the universe of opportunity and you could see.
See that from our pipeline.
Which has been growing throughout.
Very material significant rate increases over the late its not declining and it's.
And we're closing in the credits are good and the economy is good. So no. We do not see a problem with loan demand I would say on a new tech specific basis.
I understand thanks Perry.
To follow up on the credit.
Quality questions.
Could you give us a sense of how your borrowers revenues and margins trended in two.
2021, and do you expect those to be sustainable in 2022.
Well that's a good one.
I think that.
Too early to tell to date.
<unk>.
There's been a lot of pricing elasticity and I guess that.
People going into restaurant with a higher bill and they're paying.
So far we see people.
From a rent standpoint, being able to afford rent hikes.
And other expenses I do believe that we're still dealing with supply chain issues.
That will wind up having some effect on the business and business credit I think if I was to tell you anything else I don't think I'd be telling you what's what's truthful here so.
You've got an environment that is really volatile, it's changing rapidly and businesses that are smart and nimble do well, which frankly, we have 44 people in our servicing department we.
We are all over our clients right now with the employment retention tax credit thing.
I would say a lot of our businesses don't know that they're eligible for so we work very hard not just in giving people money, but giving them. These other solutions that make their business better and that's why we've been able to lend money for 18 or 19 years in the space that typically people they get in.
Get their fingers blown off and they get out this we've really.
Put a mark in working with our client base to make them more successful not just in giving them money, but at helping them grow and develop their business with the best solutions.
I appreciate that I understand thank you.
My last question.
Thinking about.
Sort of secular trends are you seeing opportunities developing.
Amongst small and medium sized businesses too.
Service the alternative energy.
Market I'm just thinking about.
Companies that May go out to houses to service solar panels or wall Chargers for electric cars things of that nature and Ken that displace.
Historically loans that used to make to gas stations for example.
Yes, it's a good question look that is going to happen.
Right now we would be.
We typically do not we're not a venture lender I think it's important to note that.
But there is no question, we have seen an unbelievable amount of entrepreneurship.
We talk about charging stations.
Solar panels.
CBD cannabis, but we're seeing a lot of economic changes going on industry changes.
And yes, we think these are burgeoning market, it's not typically what we have any interest in lending to.
Understand maybe down the road.
Thats It for me this morning, Thanks for your time.
Thank you Mickey appreciate it.
Thank you. Our next question comes from Matt <unk>.
From Raymond James.
Hey, all morning, and appreciate you taking my questions first one maybe for you Nick apologies if I missed it during the prepared remarks can you give the breakdown of dividend income in the quarter and then as a follow up maybe for you Barry.
Expectations for the dividend income line in 2022.
Yes, I'll take the latter and I'll, let Nick do the former so I'll do the latter first.
The expectation for dividend income is we have declared a <unk> 65 cent dividend for Q1.
We have forecasted a 65 cent dividend for Q2.
If you look at the momentum that we've got in the business with respect to.
700, <unk> rolling over the projections of the portfolio companies.
We think we're in pretty good shape now we've been reluctant and we did say this our earlier in the call to forecast Q3, Q4, we don't know whether it will be a bank, we don't know whether it will be a BDC.
But I do think the company has historically trended to be higher in earnings in the second half than the first I also cautioned that we have a lot of volatility just looking at what's going on in the market today with rates gas stuff like that so.
We're we're a little conservative on that what I will say is given that we think.
The the bank transaction is not a second quarter, we don't think the bank transaction second quarter transaction. It may be a third quarter transaction.
If it's a third quarter transaction.
We probably would pay a dividend consistent with what we normally do as a BDC now that's that's a gas that might change.
Retract that.
But.
Knowing our customer base, our investor base.
We want to reward our investors with that.
Going beyond that I could but I think youre going to have to do your own projections I. Appreciate the work that our four analysts have done because you guys do have.
Adjusted NII projections for the calendar year, all four of you.
After this call hopefully maybe you will look at them a little bit closer.
But.
I keep an eye on that pretty well Nick you can you answer Matt's questions on the dividends for a while here.
Yes, so from the one 6 million in dividends from NMS.
$3 5 million from NBL.
And 250000 from MTS.
Got it appreciate that Barry maybe as a follow up to you on the bank Bank holding conversion company timing.
Any any sense you can give us as to when we might expect to see a proxy statement.
I should've been prepared for that question actually.
The answer is I can't really give you a timeframe I think from our perspective, the most important thing.
That we can do here is make sure when the proxy goes out that people are just really well informed with everything that we know.
So that's kind of what we're studying right now.
<unk>.
I prefer it to be sooner than later, but.
I think the deeper that we get into the transaction and we're in it we're in a pretty deep at this point.
And.
I can say that.
We have not encompassed any road bump at all Thats caused us to say no now I'd say that with all humility.
Because.
Until the regulators sign off on our final plan you don't have a final plan.
We're in discussions with them and we've made certain adjustments to date and things of that nature, but nothing thats changed the company and the board's position that.
We like the deal that we did.
And are hopeful that.
Shareholders will.
Follow through with our belief that this makes sense to opt to do that evaluation based upon.
What's in the proxy, which is basically a vote on being a BDC or not being a BDC.
I know I didn't answer your question, Matt, but hopefully I gave you a little bit color that's useful.
Yes fair enough.
One for me kind of continuing on that theme dairy maybe maybe at a high level now that both of the baby bonds are fully callable.
How are you thinking about a refi or a call of those heading into the conversion.
So I think that it makes most sense for us to.
Get a little bit further along and.
I think that one way to think about it would be that.
If you speculate that the third quarter is likely then.
In all likelihood that would be less callable and more callable I don't want we want to box myself in here and say that we won't call Tomorrow, we will call tomorrow, but I think.
As you try to analyze this and make your own guesses.
What are you going to refinance into and refinance out of I will say if you look at the the way that.
Baby bond debt and bank holding company that is evaluated by the rating agencies are actually not too dissimilar.
So.
I think that as you try to figure out that I think the.
The likelihood obviously a call ability.
With the bank deal.
Definitive at some point in time, we're not being definitive will be the real determinant as to when those bonds go now we did pay off 40 million of an issue that was callable because we had excess cash we believe the coupon was high we wanted to reduce our.
Our leverage and.
I think that's indicative of the fact that this company is confident.
Of what.
Forecasted beliefs are going forward if thats helpful at all.
That's it for me Barry I appreciate the time this morning.
Thank you for the questions good questions I should've been prepared for the other one but anyway. Thank you Matt.
Okay.
Thank you at this moment, we show no further questions I would like to turn the call back to Mr. Sloane for any other remarks.
Right.
I want to thank everybody for attending the call today I know this is a tough day a lot of a lot of activity in the market.
We had a great 2021, and we are very very optimistic about 2020 to look forward to working with each and every one of you on whatever your needs are objectives are.
Thank you very much for your time and attention today. Thank you operator.
Thank you ladies and gentlemen. This concludes today's conference. We thank you for participating you may now disconnect.
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