Q2 2023 NewtekOne Inc Earnings Call
Yeah.
Good day and thank you for standing by welcome to the New Tech one Incorporated's second quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one one on your telephone.
Then here an automated message advising that you had this race. Please be advised that today's conference is being recorded I would now like to hand, the conference over to Mr. Barry Sloane Chairman and CEO . Please go ahead.
Thank you operator, and good morning, everyone and welcome to our second quarter 2023 financial results Conference call.
Everybody listening in you can follow along on the Powerpoint presentation by going to our website New Tech one dot com any W. T. K O N E Dot Com go to about go to Investor Relations section and you will see the Powerpoint presented there.
Also joining me on today's call is Nick Ledger, our Chief Accounting Officer, a new Tech one Scott price, our Chief Financial Officer of New Tech won and New Tech Bank National Association, and Nick Young, our President and Chief operating officer of New Tech Bank our.
We're pleased to report in the second quarter.
As a financial holding company.
Obviously for those of you that are somewhat familiar with the story. Some of you are not we recently converted it from a business development Corporation with the acquisition of National Bank of New York City on January 6th.
Therefore, some of the usual comparisons you'll see an earnings presentation and make it a little bit more difficult for example, comparing this quarter. This year to this quarter last year. When we were a BDC given different accounting gyration is difficult you can obviously get that information by.
Looking towards our <unk>.
10-Q, which will be published shortly after this call as well as some of the financial information that we provided in the press release I think it's also important to note that we've been now a bank for a little over six months.
We acquired National Bank of New York City on January six and $59 60 year old financial institution.
That had a very different business model.
It was a smallish bank a community bank lending locally in its market.
<unk> had a big yield decline and a lot of wind in our face and we are really thrilled that we've been able to hit the ground running with a great management team a great business model, our loyal customers and tremendous vendors and providers that really enabled us to I think produced tremendous six months results.
For our first six months.
Positioning the company as a financial holding company.
We're not a newco we've been around for almost 25 years establish a 1998 privately been public since September of 2000.
We look forward to demonstrating that the growth that we've had over our history. We will continue and hopefully you'll be able to glean that from the information that we're going to provide for you today.
Moving forward to these.
Any forward looking.
On slide number one we would appreciate if maybe we would have an opportunity to read that.
As a financial holding company, we talked about completing the acquisition of National Bank of New York City on January six.
Points of focus for this particular presentation first of all we picked up bank analyst coverage within the first six months Mike.
Mike Perito has recently picked up coverage Kb Doug. We appreciate his efforts Crispin love, our new analyst for bank coverage from Piper Sandler Bryce Rowe from B Riley also covering banks and.
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Hopefully Raymond James will transition its coverage over from BDC coverage drove bank analysts were hopeful that will happen in the near future and.
Last but not least Chris Nolan from Ladenburg. So we're really appreciate it I think part of the reason why people are more familiar with the company as the research coverage that we've got from the street being able to lay out what we look like in this particular mode and getting.
Leaving behind the 40 Act BDC type of Cowen.
Clearly throughout this presentation the ability that we've been able to demonstrate the raise insured deposits quickly with a high growth rate.
The fact that we believe we do a really good job of interest rate risk management in a very difficult interest rate risk environment, where we don't have long duration fixed rate bonds or loan portfolios.
Where we do have those types of assets are typically matched by time deposits in our core product is the SBA seven loan which are prime plus three.
Pipe coupons, which today would be 11 and a half so even if you are raising money in the fours or fives, it's very attractive bid ask spread floating rate quarterly adjust no cap on the loans will also be able to demonstrate today and is a focus we want investors and analysts to look at the return on average assets and return on tangible common equity.
Ratios that we've been able to produce in the first.
And second quarters and through the first six months of the year as a bank in the second quarter four 9% return on average assets.
It's an exciting number that we expect to continue given our business model and what we do.
Return on tangible common equity also north of 30%, we're proud of those numbers even at the Holdco, which obviously, we can talk about where the holdco on a consolidated basis isn't quite as attractive approximately two.
2% return on average.
On average assets, a little over 15% return on tangible common equity on.
On slide number three when we talk about our diversified streams of revenue and income one of the benefits of an investment in new Tech one as you get multiple streams. We are not a one trick pony not just looking to arbitrage spread income for example, which is typical in most of the financial institutions holding companies and banks.
One might investing.
The primary engines for earnings at the Bank.
We look forward to declaring our first dividend from the bank in the near future we've already declared dividends.
To our shareholders up at the bank holding company.
We did 18 in Q1 18 in Q2, New Tech small business finance is the non bank lender that historically, we did our SBA loans out of that business is in a rundown mode. It is segmented in our Qs that is the legacy portfolio of <unk> loans. We also have.
Subsidiaries that are owned by the holding company New Tech merchant solutions mobile money, New Tech payment solutions, New Tech insurance agency payroll solutions all are profitable.
We're excited about the growth opportunities here the cash flow they provided to the company and the earnings engine and obviously, our joint ventures in the Nonconforming program Youre, a little bit difficult. These days, but we'll certainly look to get back on track as the economy is stabilizing and inverted yield curve makes that a little bit more challenging but we feel.
Very good about our opportunity in the nonconforming loans segment with our joint venture partners with that activity sitting up at the holding company.
On slide number four we did talk about the comparisons that are difficult between.
The current new tech one year over year versus the new tech that existed in 2022, obviously difficult to compare the accounting gyrations between a 33 Act accounting and a 40 Act account.
On slide number five we view ourselves as a technology enabled solutions provider and we're excited about that label because we think its accurate. We are not just the depository depository is one of the many things that we do for our clients to make them more successful, but clearly throughout this presentation and.
Our q's and our information, we're providing today youll be able to see we had tremendous success in gathering deposits from $140 million of deposits. When he took over to the bed over the bank to $447 million of deposits at June 32023 loan originations moving the SBA seven business with PLP status or from new.
<unk> small business finance non bank lender into the bank, we got close to $200 million of <unk>.
It sounds easy Oh, yes, just move everything over.
Quite challenging you have to move staff, you've got to move software you've got to move processes wiring capability bank accounts set policies and procedures up we're happy that we've been able to demonstrate that we've been able to hit the ground running so in some of these early hills decline headwinds.
Come off our back we believe we'll be able to run faster jump higher and deliver continued improving results.
To our shareholders one of the things, we've obviously been able to do with staff and recruit with great talent obviously.
Nick Young our President and Chief operating officer of the Bank Who's here with US today was a great addition, we've recently been able to bring on Scott price as Chief Financial Officer of New Tech, one holdco as well as New Tech Bank National Association.
In addition to that we've recently hired a director of bank operations in Bird Chandler, who will be helping build out our back office for various different depository functions people like Tom <unk>, John Bellona, Brian Lawn real excited and Thats combined with the existing talent pool that we brought.
Over from the New Tech BDC that we're able to move into the bank. Obviously, we talk about our mantra of no branches no brokers no bankers know BDO, sometimes they get taken to task on the concept of no bankers, but the reality of it is we do not have traditional bankers or bank BDO is what do I mean by that.
The quarter $1 million or $500000 of your professionals that exist that most of the.
809000 financial institutions in the United States to take clients out for breakfast lunch dinner.
Bowling or whatever they do.
Bring in deposits didn't get paid those types of dollars.
We think that as the market.
Transitions to our business model in artificial intelligence and utilization of technology for deposit gathering.
These types of things will be less desirable. The good news is we don't have that we don't have that expense infrastructure will talk about our efficiency ratios and why we'll be able to get better and better as time goes on but we don't have but one thing about the drag we don't have these types of expenses that drag us down.
We currently have one branch in Flushing, New York, our operating headquarters in Miami, Florida, We look forward to growing our business without the use of branches brokers bankers and videos that we currently don't have any <unk> in the expense structure and our operational processes I think it's important that we view ourselves.
And our staff use ourselves, but being able to provide superior service and products to clients. If we cannot give the customer the new tech advantage, which has the benefit of doing business with us we haven't earned it.
You must earn every transaction, we must be better we must be superior than our competitors. That's the new tech advantage. The new Tech advantage is obviously, a technological platform, but just doing business with.
As a new tech advantage, we will demonstrate that throughout our discussions today and how we deal with our clients every single day.
We're also going to begin to track.
Sign ups for the new Tech advantage will talk about how many we have to date and start to track our success in this particular area beginning in Q3 and Q4 slide number six from a capital markets perspective tracking our stock for those of you that have hung in there with us over the years.
Historically it had been a very good performer, we obviously transitioned out of the BDC, which was extremely painful number one from the longevity standpoint transitioning from a dividend paying stock into a stock thats still pays a very nice dividend, but also is relying upon retained earnings and growth and price appreciation. So.
This year to date new 14.6.
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S&P Regional Bank index to carry down $15 five seven so we've outperformed the banking index by almost 30 points, we're very proud of that accomplishment and achievement and of even outperformed the Russell 2000.
For those of our legacy.
Investors in Bdcs, you could buy a T. Bill today at five 5%. So I don't know, what's so attractive about the 9% ordinary income that the BDC pays without a lot of capital appreciation I understand that a lot of people like that dividend, we still pay a very nice dividend thats about a 4% yield. It's also tax that are qualified rate.
And hopefully we'll be able to get back to the types of performance once we turned over.
We continue to turnover the stockholder base. According to the NASDAQ online information that I've received then it's not completed yet the institutional ownership of our stock is up to about 31%.
That is going to continue to grow as we get all the filings.
Through August , but that's where we are as of today and we're excited about that on.
On slide number seven we talk about a differentiated business model.
Some of the things we've talked about obviously.
Former six slide well manage asset liability strategy, we do understand the most deposits have zero duration, but on a going forward basis, the ability to get more deposits on commercial demand deposit accounts with our new Tech one 1% account and three 5% on commercial high yield savings to be able to work with our <unk>.
<unk> business, our payments business and our lending business to gathering deposits is something that will start to track beginning.
Q3, and Q4 that will take a very.
Attractive NIM and make it even more attractive and provide a stickiness to those particular deposits. When you take a look at our net interest margins. These are margins that exceed typical bank and financial institutions, we've talked about our ROI in our OTC, we can't say it enough. This is why we are an interesting opportunity for.
Or is that want to invest in technology enabled.
<unk> technology enabled solutions providers to the all important independent business owner community in the United States. We've obviously done a real good jobs for the first six months of the year, demonstrating we were able to ship and gather deposits and make loans.
We will going forward be able to demonstrate the ability to bring in deposits for all these different verticals as well as the basis and understanding of the new Tech advantage on slide number eight we talk about our second quarter financial highlights with our previously issued forecasted guidance of 26 per common share net interest.
Income of $5 7 million.
That was an improvement sequentially over the $4 6 million. This is it the new tech one level total assets up from $1 2 billion to $1 4 billion I think it is important to note here and we'll talk about this going forward were $1 $4 billion of assets, but we've got an infrastructure.
That we believe.
Actually can be a much much bigger financial institution without having to add the additional expense to it and thats, where our efficiency ratios are going to grow as a matter of fact.
When we when we make loans, even though the balance sheet and the SBA only grows by 25% of the loan. Please understand that we spent this year, we'll probably do about one and a quarter $1 billion worth of loans and in the past with the PPP business going on we're close to <unk> billion at quarter $1 billion in <unk>, We've got an infrastructure that could do a big big amount of business.
And can really handle a much bigger financial institution people process software will be able to manage it which should really help grow our earnings per share for our customer base totaled.
Total borrowings flat $6 $97 million one of the drags on our business relative to return on tangible common equity and return on assets the amount of liquidity that we're currently carrying so you could see $256 million, including $66 7 million of restricted cash at June 30, I think we are carrying about $250 million.
A cash sitting at the fed.
Not much of a margin on that but we're trying to keep the excess liquidity. That's the cash that we'll need that'll carriers from a deposit perspective pretty much through the end of the Es, we really accomplished a lot of our goals relative to deposits. As you can see we've got really nice risk based capital ratios and tier one leverage ratios as well on slide number nine.
Those are the financial highlights for the six months 72.
For the first six months of the year, we are a second half company, we have always been that way.
Net interest income of $10 3 million for the six months ended June 32023.
Number 10 focus is really on new Tech Bank National Association, just really drilling into the bank insured deposits, 90% of total deposits with enviable position natural always be able to stay that way because we will have some larger customers coming into us, which we'll have to try to satisfied but we do want to be careful.
Obviously, because those deposits can move quickly as we've seen with.
The Silicon Valley Bank and signature bank issues, but we're very proud of our ability to raise deposits without having to rely upon just a few customers.
Look at the net interest margin growth just so before we took over the bank was two 7%.
Now that we're starting to layer on our business model jumping, 361% theres not too many banks that could state that their net interest margin grew by 90 to 100 basis points in the first six months of the year. Most banks are going the other way.
And we believe this is going to continue to expand we'll talk about the National Bank of New York City portfolio.
What it looks like the quality of the portfolio, but it was fairly thin margin.
A lot of expenses in the bank.
A very simple small.
Local community Bank.
We talked about our OTC or ROA.
ROA efficiency ratio of $58 seven.
That's a good number but we do think by the end of the year that might trend down to as low as 50.
And we believe we can get there.
So is there a risk based capital ratio tier one leverage ratio also bearing on slide number 10 really good numbers.
Slide number 11, we talk about the efficiency ratio again.
Operational leverage will help that financial leverage will help that further technological innovation, which is in process. We haven't been able to get everything we need to get done in the first six months of the year I do think we will have probably another 12 months of building. That's all all built into our numbers. So we're going to have some headwinds until we get this bank exactly to where are we.
We needed to be technologically and from a process standpoint.
Really excited about the ability to capture additional revenue from the non bank business activity is very excited about that.
Slide 12, we talked about our OTC taro.
ROE AG as well.
These are going to be great precursors for growing our EPS down the road.
Slide number 13 talks about.
Our historical lending most of our seven day lending I should say all of that was done a new tech small business finance that is now in a runoff mode at the holding company were able to move our PLP status into the bank.
We also began funding SBA 504, and C&I loans in the bank in the first six months of the year at the close we infused $79 million of capital we think the capital at the bank to grow to in excess of $100 million. That's a very nice growth in the first year of owning and operating a bank most banks that frankly start up an arguable.
Basically we don't view ourselves as a startup, but we really have to change the business model, we have to change the software.
So many things that we have to put in motion staffing et cetera. So.
Sure.
Obviously good at multitasking.
With the help decline with the headwinds.
The markets don't wait for you.
We've got greater things ahead of us once we put more of some of these items in place we were able to raise 70 million of capital in the first quarter. Despite a tough market $50 million of that $20 million convertible preferred shares from an institutional investor Slide number 14 talks about our efficiencies in lending very very important.
We closed 773 loans for the six months, a 29, 5% increase in loan units over the year. Prior in dollars. It was 11, 2% I think what's really important to note. We use technology not bankers brokers branches of BDO as to help grow the business and we've been doing this for a long period of time, we do.
Do so efficiently effectively and with good risk management this loan productivity capability, particularly as we look to do more investor base CRE more C&I loans. This is going to be valuable that we can demonstrate the ability to grow the balance sheet and gain on sale once again, the keys to our group.
<unk> technology people process know bankers brokerage cdos or branches.
Slide number 15 talks about with some people consider our ISR, our tangible common book value of $7 and <unk> <unk> per share per share.
We're not ashamed of it we just don't think it has that much relevant value. Although most people tell me.
Okay, that's fine.
No solutions provider that also provides depository services to our clients were real excited about what we're doing we're comfortable that in the structure will hopefully in anticipation grow our earnings and dividends over time and that will drive the stock price whenever the multiple a book might be.
We were able to demonstrate this in the BDC market, where there are points in time, we traded for significant amounts of time over two to one and I can recall people telling me in the D. C market, you'll never trade above now well, we broke that mode by growing dividends and growing earnings and being successful.
On slide number.
16, you can see the deposit growth.
You know over that a six month period of time too and 20 per cent why do these things we covered digital account openings in the quarter 3600, new client relationships I believe that was within the quarter I think we picked up 4500 <unk>.
<unk> accounts from the time, we picked up in one of the bank.
Slide number seven nice Sly breaking out our bank deposit growth and we'll get a little bit more granular as we go forward in our presentation and a presentation skills going forward, but you could see about 21 per cent of brokerage C. DS we Wanna get that number down but we are within our business plan at this point in time, So we're <unk>.
Horrible with that we have an unused.
A line of credit with the paranormal bank of Atlanta, and I think it's about 70 million. So as we get that number down and we get the federal home loan bank Numb to keep that zero will always have that nice emergency capability in the event. Some unforeseen circumstance happens, but importantly, we've been able to raise the non brokerage retail C DS <unk>.
Total savings deposits and do so in an insured man.
Slide number eight and I think this is important we're not just an S. B a seven a lender although it is our flagship product and for those of you that aren't familiar with seven eight <unk>. There's no fee is the current coupon at our rates of crime plus three is 11.5% loading rate quarterly adjust in addition to that 75 per cent of loan is <unk>.
Guarantee that we currently sell it at approximately a 10% premium plus or minus that's what helps drive out returned.
Equity in return on assets. The S. P 504 loan, which we have slides in this presentation that cover the types of return on equity and important product that goes into the bank. Today. We also I use the word conforming commercial and industrial business loans conforming relates to conforming to bank underwriting standards.
Also conforming investor owned C. R E loans non owner occupied Investor type deals, we've actually had success putting both of these categories on <unk> 350, or greater to the curve. Our nonconforming CNI loans are funded at the holding company enjoying.
<unk> on our balance sheet, we exit out by securitization. This is also a 20 to 30 per cent <unk> business.
Tried number 19, we inherited a national Bank of New York City portfolio. This is a five borrow New York City portfolio, Brooklyn Bronx Queens.
At an island Bronx.
<unk>, Brooklyn, Queens, Staten Island, I forgot something [laughter], but that's all been happened sorry, Manhattan, one more borough there you're looking at an average loan sides of a million to 2 million. The former bank owners and management, a great job low loan to values personal guarantees there's no real imminent balloons coming up.
These are gonna roll over the next 12 to 48 months to primarily asset liability manage with time deposits.
This portfolio is mark to the market during purchase accounting in Q1, I think that's important to note. There's one non-performing loan in the in the crowd. This obviously is skinny margins.
Good quality and we're appreciative of picking this portfolio up but it's not our business going forward that low margin type business. We think we could do better making these types of loans at wider spreads and given our investor base and the other things we do.
For our clients, we do believe that will be able to get margin. We're not always out there to win on price for in out there to win an enabling our clients to be more successful, giving them longer and giving them additional products and services and giving them the new tech advantage.
Slide number 20 is it is a typical slide for us that we've had relative to what you could look at in a portfolio that we're building at the bank and one that currently exist had new tech small business finance in the bank holding company sliding.
Slide number 21 talks about all lending activity total commercial loan closings for the three months ended $251 million. So you can see as we're ramping up we're at a clip of about a billion dollars of loans, if you're straight line that obviously you can see what we did in seven a on slide number 21, you can see.
What we did on 504 and a quarter, we originated 25 million of non S. B a seven a loans for the three months ended June 30th 2023.
For those you that followed the seven eight business, our premiums or down from the fryer quarter 10.15 that it's some volatility to arrange dream, obviously, but it's just something that we've dealt with for 20 years and have managed it pretty well. The current trend is up and that's a function of rates rising matter of fact, we.
Think we'll get and I hope to get a nice kick.
In the fourth quarter the loan increases that you've got got in July based upon the fed raising their right.
On the existing portfolio doesn't kick in until October so everything at M. S. D. F doesn't Ah just because it's a quarterly address so what are the headwinds I'm talking about is R.
Funds are just monthly per se, particularly in the securitization, but the loan to just <unk>. So we'll get a nice bump in queue for with a more full of coupons and new loans that we're putting on the books in the quarter.
Are done at the full or coupon, but that's just how the S. B a business works suddenly as rates are going down you got a little when did your back and now.
Now the wind as rates are rising Unfortunately is interface.
Number 23 is our attempt at putting out what we think are the better market commsuite organizations that one financial institutions and really focus on technology enablement, whether it's in the deposit gathering phase or the lending phase.
There really isn't an entity that's much like us both closest what probably is viable bank a terrific institution with a great business model and plan, but you could see the types of orange in multiples that are out there. When these organizations are successful.
Slide number 24, the importance of payments thanks, do two things effectively.
They make loans.
And they move money.
Most banks do not really move money well for the independent business owner, that's our target or small to medium size business, that's or target.
The fact that we own the payments business for over 20 years is really gonna be tremendously helpful.
And the legacy businesses really is a super eyesore, but to be able to do items for our clients like same day funding, putting the money into.
New Tech Depository account E Commerce solutions.
Our own P O S.
Same day funding electronic billing using bill pay and and bedding.
Our debit card in the Bill pay and these are the things I'd like to be sent it'll say Oh, yeah. They are in place now it takes time.
It takes time to get them done get them integrated get the software providers to get them in place, but these are gonna be amazing value adds to our client base and it's gonna give them a reason to do business with new telephone.
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[noise] effectively for a commercial enterprise.
[noise] and valuable and we think that we will rise to the top in this particular area. Once again, our goal and moving money is to make the business more successful not just take your money and keep it depository account so.
Hi, number 25 talks about some of the map that our merchants solutions business. It's obviously material, we expect to do about 15.4 million of EBITDA in our payments units NMS mobile money in P. O S O clock.
Slide number 26 once again, we talked about why payments are important to new tech one into our clients will shortly be announcing the issuance of the new Tech visa bank debit card, which would give us the ability to access visa and direct payment rails with that card and obviously the.
These types of businesses are reoccurring fee businesses that can benefit and I'm asking you take bank and Noncapital intention. Once again, we realize it's extremely important to our business loan just to be able to move money quickly efficiently with really good reporting mechanisms. Obviously, we're all aware of the products like fed now.
<unk> <unk>.
<unk> right now is not gonna be snap your fingers and it's all in place is gonna take place over time, but as as these mortgage grow and move we are positioned for it with people process and software.
<unk> number 21, New Tech technology solutions, there was a typo on the Sly the expectation for IBRA at 3.7 million for the calendar year pretax income $2.6 million. This is a great solution. This will most likely be spun off over the next 18 or so <unk>.
<unk> to shareholders in some way shape or form, but it's a valuable opportunity for us we plan on continuing to maintain a relationship with new Tech technology solutions.
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No charge you up to date on this particular portfolio I will say, we have actually had a default recently however, with the collateral we've got no charge off to date.
29 is a typical slide that we've shown for 20 years.
Gain on sale on seven a slide 30 talks about the revenue in the accounting and come up to seven a loan.
31, how are 504 loans are structured.
How the income flows through in a file a for a loan on slide number 32.
Conforming business originating loans today.
Three and a half points in fee obviously, the recent increases in rates will probably at 11 and a half rose 12, and a half grows 13 and a half grows extremely attractive we make the launch your warehouses and I'm Gonna joint venture partners put them into securitization.
Very attractive business for us and we do believe that this business will get.
Regions up now is the capital markets are opening to US. This is a capital intensive business at the holding company.
[noise] slide number 34, the new Tech advantage, we'll be talking more and more about the advantage in presentations going forward in Q3 and Q4, we'd love to suggest that you go on our website really learn everything you need to know about the new tick advantage. This is why.
Customers S M B's independent business owner should do business with us, we give new tax clients analytics relationships and transactional capability that other banks just simply do not have we actually give them an asset day, one that they don't have to pay for that can enhance their business operation and make them more successful for <unk>.
<unk> when you go to the new Tech advantage, you can get a license insurance salesperson payments person a depository personal lending person. All these things are available through the new tech advantage and to communicate with them via video.
We believe the advantage can be a market recognize two this is one of the things that we will spin off the other commute.
Community banks credit unions and organizations that want to be able to provide these types of solutions in their own brand to their customers with us behind them. We think there's a tremendous opportunity. We're also gonna talk about as we have in the past we look to launch a.
New Tech accounting, where we'll be able to provide customers a P&L or an income statement and a balance sheet to them I think that's important for a business owner to be able to eventually tied deposits payments and payroll into an accounting function. This is April .
<unk> institution, that's looking to meet and.
And exceed the current needs of businesses.
Those needs that are gonna be need to be met going forward to compete in the environment. So we are forward thinking we're putting these things in place. We're excited about our future we'll be talking about the launch a new take accounting in the near future.
To date, we've opened up 280, new tech advantage accounts that as a slow walk that will begin to pick up in Q3 and Q4 as we continue to enhance the advantage and market. We wanted to make sure that we are getting the bugs out.
Polishing up the software the people in the process.
My number thirty-five we declared 19 cent dividend for the second quarter. The dividend was paid on July 20, once Charles a record on July 10th Slide number 36, with some of the key assumptions better than some of the forward projections that you'll see going forward.
At this point.
Thank you very good morning, everyone I'll start my comments on slide seven summarizes our capital position as of June 30th I'd point out that the regulatory filings for the holding company has not yet been filed so that those numbers are preliminary.
As you can see for both the consolidated group and the bank, we are well capitalized.
And the bank successfully deployed capital this quarter and generate a nice returns as Berry's indicated.
Slide 38.
Outlines the summary metrics for the company's forecast for the remainder of 2023.
[noise] slides 39 through 44 provided could amount of detail on the company is expected results for the second half of the year.
Before cast assumes that we deploy a portion of our liquidity physician is you'll notice on our numbers the asset position is considerably higher and that's mostly due to the defense of cash position, we've maintained given the market turmoil.
We plan to better deploy that cash as we move throughout the year and optimize our balance sheet efficiency, particularly as we look to our originates cell model.
I would point out that as of excuse me that is more of the company's balance sheet composition shifts to the bank and its capital stack <unk>.
Benefits of lower funding costs should continue to push returns hire all else equal.
And we continue to leverage our online deposit gathering platform.
The company expects to continue to execute on this business strategy for the remainder of the year similar to the way that we executed in the second quarter.
While not exact the seasonal patterns that the company is experienced in prior years from the perspectives of loan originations and gains on sale spreads are expected to continue in the second half of 2023.
So with that I'll turn the call back over to Berry Berry.
Thank you Scott wrapping things up before we turn the call over to Nick Ledger, Our Chief Accounting Officer on Slide number 38, and I think it's important to note that we've got some projections and obviously these are not easy to do in a fairly volatile environment, but you could take a look at where we think we're gonna wind up.
For 2023 at the financial holding company at the Bank. We just like every one to try to focus on what we believe we can head for some very lofty goals return on average asset return on dangerous common equity both of the holding company as well as efficiency ratio is really moving in our direction.
I'm moving forward to slide number 45.
From an investment summary perspective, you could see we're we're looking at relative to our profitability ratios and air efficiency ratios or maintaining our projections of a buck 70 to two bucks, although I wouldn't say, we're really near in the mid point will probably shading to the lower end of that range, but we're very comfortable with that particular.
Number that could easily change around with respect to movements in rates or gain on sale prices.
There's a lot of opportunity here. So we just want to be conservative the.
The second quarter quarterly dividend debate team since we do believe will be able to maintain obviously given our profitability through the remainder of the year and we do want everyone to focus as a growth oriented differentiated technology enabled financial holding company.
We're excited that we were able to deliver in Q1, and Q2 and I now like to turn the rest of the presentation over to Nick Ledger at Chief Accounting Officer.
Thank you <unk>. Good morning, everyone. You can find the summary of our second corner 2023 resolved on slide number 48, we're proud to report our second quarter financial results, which is also the first full quarter reporting as a financial holding company.
As you'll see in the consolidated statement of operations upon conversion from our previous BDC investment company accounting, where our portfolio companies did not consolidate and the bdcs financials and those activities with historically be reported as dividend income from the investments of the B B C and the financial holding company. We are now consolidating those portfolio company off.
<unk> as.
As a result of this conversion if there was no comparable prior period consolidated financial statements refer to with the two different types of accounting.
I'd like to start with some of the highlights from our second quarter 20, twenty-three consolidated statement of operations.
On a consolidated GAAP basis for new Tech one first quarter of a second quarter results were as follows net interest income from the second quarter was 5.7 million, which is up 23.9% in the first quarter net interest income a 4.6 months.
9.1 million of interest expenses, driven by the interest expense of our notes in Securitizations.
In addition, 3.7 million is due to the interest from the bank <unk> Bank and S. H L. B borrowings and 4.1 million of interest expense on deposits.
And the first quarter of 2023 the company previously implemented C. So on the new Tech bank loans portfolio, an additional 2.6 million a provision for loan credit losses was recorded in the second quarter.
Net interest income after the provision for loan loan credit losses is 3.1 million for the second quarter of 2023.
Focusing on total non interest income of 46.4 million 4.3 million as a result of servicing income $13.2 million of net gains on sale of loans $6.5 million from technology in I T support income.
$10.7 million from electronic payment processing income.
$4.4 million, a net gain on loans accounted for under the fair value option and 6.1 million of other non-interest income.
Going back to the 13.2 million of net gains on the sale of loans, which is comprised of the realized gains recognize when the sale of the guaranteed portions of S. B a seven a loans sold during the second quarter totaled $18.5 million.
And the second quarter of 2023, New Tech Bank in N S. B <unk> 566 loans for $154.5 million on an average premium of 10.15 per cent.
Realized losses on the S. B, a seven a loans for the second quarter of 2023 was $5.3 million.
3.5 million from a technology services expenses 3.2 million, a professional service expenses and 3.6 million of other loan origination maintenance expenses and 4.9 million of other general administrative costs <unk>.
Pretax net income for the second quarter of 2023 is $9.3 million on an after tax basis consolidated net income for the second quarter of 20, <unk> 23 was $6.8 million.26 per share.
Now like to turn the call back Tomorrow.
<unk> operator, we we'd love to open it up the Q&A is that concludes the presentation portion of the call.
As a reminder to ask a question you will need to press star one one on your telephone. Please stay on line will be compiled candy roster.
Yeah first question comes from the line of Christian Love from Piper Sandler. Your line is now open.
Thanks, Good morning, Uhm first Barry I'm I was just curious if you could comment on how you view credit quality to be performing and the loan book loan book and just the expectations going forward. Your provision came in below your guide in the second quarter and then also if you'd just share what level Nonaccruals, we're as of <unk>.
<unk> and and then if there were any charge offs in the corner.
Sure I'll take the first part of let's see a side of Nick and helped me on the second on the first port relative to the provision I think in career inquire calls we get talked about you know.
A seven or eight per cent seashore provision, which frankly is consistent with what we did but when you take it back to present value terms. It comes in a little bit less than that so where we believe we're consistent what we previously forecasted from an accounting standpoint, that's pretty much where where it comes in at.
You know relative to the the quality, Scott and neck, you Wanna pick that one up.
This is Scott I can speak to the allowance and just expand on that we did make an accounting policy election, when we bought the bank and implemented Cecil that we would discount are expected losses. So if you think about the seven a portfolio with.
And over 11 per cent coupon and you discount that back you can clearly see that you know.
Accustomed discounting that kind of an interest rate will will really reduce the expected loss and so.
We are susceptible to future interest rate moves and you know it's.
It's gonna be a very interesting scenario does she play out for the rest of the year, but that is the reason that for the discrepancy between the two.
And then for the other question the N P. LS as a percentage of the loan portfolio value was about 6.9 per cent and realized losses for the quarter was $5.3 million.
Okay did you have the the B M P LS at cost as well or just a fair value at cost I think it's about 12.8%.
In the back half of the year, especially the fourth quarter and what the key drivers that you expect to drive that it seems that loan growth is expected to pick up a lot in the fourth quarter. So curious on why that is and then what else does that play driving me acceleration earnings. Thanks.
Chris I appreciate the the question you're fairly new to us and they care about six months, so but over the course of 20 years of Fourthquarter has always been our biggest quarter. We could also tell by the pipeline that we have going and I think it was important to try to emphasize.
That.
We have a day job growing our business our night job was moved.
Moving over People's staff policies procedures wire instructions P O P status.
Regulatory issues with two new regulators still keeping the I mean.
I still think we're gonna gonna probably cause then you'd have three jobs for the rest of this year and then maybe it'll go down to two and then maybe it'll go down to one so we'll be able to focus most of the time going out in the future when the one job, where we hope to be able to hit the gold streaming outperform things a little bit better than we are today, but <unk>.
We feel pretty good about the numbers and obviously you've got also a fairly.
Bodle environment with things changing quite a bit.
Thank you I appreciate you taking my question, that's all I have.
Thank you.
Once again to ask a question. Please press star one one on your telephone your.
Your next question is from the line is Michael Burrito from K B W. Your line is now open.
[noise], Hey, very good morning, Thanks for taking my questions.
Thank you my.
Just one quick follow up on on the guidance <unk> on the <unk>. The martyred assumption. The 10.75 per cent I was just wondering if you could take that a layer deeper for us I mean, it seems like you know I've looked around at some of the banks that sell a good amount of this paper, including yourselves and it seems like you know the the secondary.
The environment was pretty stable in the second quarter or you know after some volatility that the two months the two quarters before that and.
I'm just wondering you know what why does that feel like the right level based on what you're seeing today for the back half of the year for for for selling the loans and we'll give you some kind of some some confidence around that number you know a bit below where you've been historically, but out to be a bounce back from from where you were in the second quarter.
Gain on sale prices I think the the major difference between us and.
The organizations is the fact that we're dealing directly with borrowers.
So I number 22 really goes back and she was sort of the history of our net premium trends and you could see there's not <unk>, there's some volatility there, but it's not like.
With the exception of 2021, where the S. P. A at zero fees in the middle and we got up to 13% I mean, you're really pretty much looking at Ah.
About you know, a one and a half point swing plus or minus relative to pricing going forward.
Do you feel very good about.
Quite a going forward basis, our lowest being priced at prime plus 300, that's the only right that we do so unlike a lot of our competitors in the space that have different rates for different people. We have one right Prime blustery, we deal directly with the borrower, there's no broker and there's no expensive bank or in the middle of the.
<unk> and we were able to quickly ascertain what the borrower's needs or give them a long am schedule, we close the deal and we give them a lot of other things, which is why I believe they do the low Oh I think when you look at.
Hold into the market at 114, 115, 116 of which you get split.
And then a 10 year deal that's got back like commercial real estate sells at 110 or 111. So when you look at the mixing of blend the real estate back versus non real estate back that changes things big loans versus small lounge changes the discount so it's not that easy a formula to figure out, but we're pretty good at making the gas isn't.
From the portfolio perspective, when are the rates changed so our legacy portfolio and N. S. B F is primarily at prime plus two and three quarters are new loans. Since the change was put in place is try and plus <unk>.
We're also getting better prices holding everything else constant the extra 25 basis points makes a difference hopefully that was helpful.
It it it was thank you Uhm and then just a few more for me and I apologize it kind of all over the place, but just one last one on on the guide the jumping share count in the fourth quarter I. Just wanted to confirm is it safe that's just kind of like equity grand or <unk> related stuff right. That's just an assumption you guys are making around that nothing more.
It's a good catch my you're very thorough and I appreciate that I think that is a plug number in terms of something we may or may not too.
I'm not sure we need to do it but no that that's not combat would prospectively b a raise but we've got access to that markets. We've got access to equity markets and that's kind of how we manage our guidance going forward. So I can't tell you that that <unk> will occur that just the best gas and that kind of helps us.
Get to these numbers if that's helpful. I I hope I hope it is helpful. Obviously.
Yeah May I know I mean, it is I guess so is it I guess, maybe that's an opening up a broader question that is just I mean do you guys. As it stands today do you feel you need to add some type of capital at the bank sub in the fourth quarter potentially give them the growth rates or no.
Need need nothing at the bank nothing the holding company listen the other thing too is it money is available to you at a fair price you can make money off if you could take it so.
To be Frank with you on the lessons, Louisiana stick about selling shares.
That would be a dead, although the dead markets haven't been really that time in the last month or so so yeah. You know, it's a really hard thing to do this which I'm sure. You can appreciate like you know I don't know her.
It's hard to tell and I'm not sure we need it so.
As we do this what we try to do is put our best guess is out there and we always want to you know never overpromise in under deliver so obviously, that's a little bit of a drag but I I wouldn't say that that's something that you can absolutely count on at this point.
Okay. So so from here you're right. It's it's it's a conservative assumption that you might add some capital at the holding company level.
At some point like but that might not happen might not have been clearly I don't need it at the bank and you're only capital I needed the holding company would be to do the nonconforming loans, because there's nothing else that needs or eat capital.
Okay perfect. Thank you Mary and then just two more just on the you know I believe in past conversations very you've talked a little bit about you know the.
The the credit on the.
The N S. B F portfolio, particularly some of the vintage is you know that happened during the pandemic you know based on where the the the.
Kind of game gains.
Gains and losses were in on the felines around fair value. It didn't really seem like there was any credit deterioration, but I was wondering if you could just spend a minute talking about any delinquency trends in the S. P. F book that that you guys are seeing I mean, it's kind of your draft. It a little bit and I think in the prior question, but just wondering if you can go kind of a layer deeper on that for us.
I believe we've got that portfolio valued at a.
And approximately.
45.
<unk>.
So we've got that portfolio barely conservatively value.
Nick was the market clearing yield on that like 8.4% net of those charge offs.
Yes, that's correct 8.4 per cent.
You know charging off historically over time that amount of charge up and I would say 40 per cent of the portfolio is three to four years old. We think that portfolio is fairly conservatively valued. So now if you were to ask me well Gee you know what do you think any environment going forward.
The one thing I can almost bank on it will not be as good as the one for coming out.
Which means I'm, probably wrong, but from a goldilocks scenario you couldn't have had a better you know.
Economic climate, particularly with our customer base P. P. P. N E I D. L O T credits of which by the way, we're still working that with customers. So.
I I, just think that it's gonna get a little worse. The other thing too. It's the season portfolio. So it's only to look ugly or an uglier as time goes on and I Wanna race, you and other people for that I mean, it doesn't get any better cause you're not anything new to it <unk>, it's only gonna.
It's only gonna get worse from a percentage standpoint, I also want to point out.
When I look at like Nonaccruals right. Now think this is really important for the seven eight business.
The only thing that really matters is fair value. The original cost is irrelevant now why do I say, it's irrelevant, we already took the charge <unk>.
Similarly, we already got the gain on sale and you have a nice high coupons. So.
You know I bet people that Oh, my God, it's 13% well first of all the other things we've gone through Covid when you couldn't foreclose on stuff and we changed personal guarantees so unlike a.
A bank that's when the thing goes bad it just bang it out this is a non bank.
Asset and it's driven at a non bank.
<unk>. So it's gonna look very different than in a bank environment, you want to point that out because.
And the other thing is we look at losses over the life of the portfolio not in any given year. So like we're very comfortable with Cecil which is sort of similar but not exactly but I think I think the.
These things you're pointing out a very important differentiators between new tech one and most of the <unk>.
Organizations that are in this particular structure.
Got it.
Very helpful. And then you know sorry to have to ask for money, but just a couple a couple of quick quick ones to sit on the the the loan portfolio buckets, maybe that's a question predictor Scott, but just can you remind US you know I know the <unk>. The answer is no but as we think about the go forward perpetrated cost do all the other buckets the loans that amortize.
Sky I'll, let you take that one.
Yeah. So as you think about the portfolio you've got the traditional N B N Y C portfolio.
And if you go back to the first quarter you can see that we reserved about one another 1.21, 0.25% on that portfolio.
Uhm.
Keep in mind that we did have one loan that we were watching it looks like that loan could be coming to resolution in in the future and so we're monitoring that situation, but we don't expect any losses and in fact, we expect performance better than than what we had originally projected.
And so as you look at you know the provisioning on that portfolio you have to take into account the discounting I can't I can't emphasize that enough, particularly in the volatile right scenarios, we find ourselves in today.
So.
<unk> move up our allowance naturally has a propensity to go down al L. G cool so.
That's just the that is the mass and the accounting that that we've elected so.
When you look at it very mentioned the 7% to 8% you discount. It back you know you're looking at you know somewhere anywhere 650 to 675 <unk> prior to the fed move. So I think you can expect that kind of provisioning as we move forward.
Understanding that if rates rate hikes do go in and we will that number will will most likely come down.
Perfect. Thank you and then just lastly, and this will be quick but just do you have the Scott do you have the or Nikki of the average earning assets for the quarter and can you just confirm that what the average kind of full quarter name was I just want to make sure I have it right.
Yeah. So we're looking at total interest, earning assets for 630 quarter and at about a billion 89.
Do you have the average holiday for the quarter, though by chance. That's that is the average okay. Sorry, I thought you said <unk> yeah, sorry, yeah for the quarter ended 630, So a billion 89 average daily balance for interest, earning assets net interest margin at 2.09, So the consolidator company.
Perfect. Thank you guys sorry for all the questions I appreciate you taking them.
Thank you.
Once again to ask a question you May press Star one one on your telephone.
So your next question comes from the line is Bryce <unk> from be Riley. Your line is now open.
Thanks, Thanks, and good morning.
Wanted to to to to start maybe on this concept of of the guide and.
The the the seasonality that you that you've seen in the past area. So you you know you've got forecasted operating expenses consolidated coming down in the back half of the year and then you also are you know showing the N T. S. N N M S pretax incomes going out pretty <unk>.
<unk> in the back half of the year. Just just curious you know how you would how you would kind of characterized seasonality of that or just capturing operating efficiencies as you move further away from from the move from BDC to bank.
M S as quelea seasonality, particularly with third and fourth quarter.
Yes, I I think that there were.
The issues, particularly in technology were given the economy in Q1 and Q2, a lotta people blade projects that we think are coming back on stream.
Regarding the lending.
Fairly confident about the volumes obviously once again, it's it's it's hard to forecast, but we feel very good about it you know relative to.
The operational expenses were just getting much more efficient at this particular business. So when you look at it as you know as a percentage of things from efficiency ratio. We're really just getting a lot more leverage out of our operations in our business putting more.
Okay and that will be a challenge will be more technology solutions I'm very confident.
In the in the in a mask because we're just looking at the seasonal factors there.
Okay. Okay.
That's helpful and then I think Barry.
In your in your prepared remarks, you talked about a dividend from the bank to the holding company just wanted to I wanted to make sure I heard that correctly and can you <unk>.
Can can you speak to kind of the dynamic there, especially considering that yet.
Put you put equity into the into the bank you know when you when you close the transaction.
The only party that can Claire.
Ah Bank dividend as the board of directors it has to be approved by the regulators.
But I I'd say with confidence that this is something that we plan to do and we are in compliance and subject to those two authorities of proving it I think it's something that the market can expect and I would hope at somebody that's gonna recommend this boat too.
The regulatory authorities in board that a 50% ratio might be something that one can expect.
From the bank to the wholesale pay that of profits of course, and and the hold co dividend, which we said is it you know somewhere around you know 30 30 per cent ish 33, and a 3rd%. So that's kind of what what our thoughts are there.
Okay and and <unk>.
<unk> <unk> reason for doing that is to kind of help help manage capital S. At the whole <unk> I mean <unk>.
You just talk about really not needing incremental capital at the old kind of so just curious you know kind of how you. How you would how would how you would use that that that that capitol with alcohol hotel level.
Yeah, it would be used for the.
The business, primarily that's the big need for it.
Could also be used to pay down debt as well.
Okay. Okay.
I appreciate I appreciate it very I think all my other questions were asked and answered. Thanks.
Your next question comes from the line of Scott Sullivan from Raymond changed your line is open.
Hey, good morning, Berry and congrats to you and the team on really continuing this transition rather elegantly.
So my comments and questions questions.
Come from a slightly different perspective.
Really been fortunate enough to be an advisor and portfolio manager for clients and been involved with newt since the early B G. C days since you know and frankly.
Everyone knows you crushed it it hasn't really done it.
Standing job, so natural turn towards the banking side now my question has to do with scalability and perhaps blue Sky runway.
Under some I think some exciting assumptions at least that I have.
Lack of financial stress.
Potential eventual D in version of the yogurt.
I'll be as soon as you talked about check developments AI. Another that <unk> in my opinion are going to lead to a huge productivity boom.
Possibly a decade long so question after that [laughter] ramble is what's a blue sky runway for you guys in terms of growth rate loan loan growth et cetera.
Special sauce that you prove in.
Terms of your process and under these.
Macro assumptions.
If you look at the roadmap, which relates to people processing software.
<unk> no brokers no <unk> no branches.
The market.
Visualize.
We could grow the revenue stream.
Without <unk>.
Matching dollar for dollar with expenses.
Then.
The future is pretty bright <unk> and I want them to be real clear about this a lot of people say well Gee why did you buy bank and you wanted to leverage if deposit.
Well that that's.
That's just a fact of the banking business, but.
Hmm.
Q the ability to communicate and deliver bundled services with margin pooling that actually give that custer.
<unk> a tremendous advantage so like here's a simple thing.
Documents George Okay. We've had this and used it to make loans forever. If you bank with US you can store your documents and the new take advantage your consumer can be your insurance policies. Your photos your driver's license your rental agreement if you're a business of <unk> that's free.
That's pretty it's a benefit.
You can go to the advantage and look at your web traffic analytics changing everything does that <unk>.
And then you have.
And I I Love asking this question to anybody who you know what your bank half the time, they say I don't know anybody.
Half the time naked name, one person, maybe and that one person can't do anything except hand them off to somebody else at the bank to do whatever it is they need to get done that's not the case with the new Tech advantage you get six relationships, so you'll get the analytics.
There's so many things that's why I'm very excited about the model how're position, it's different and unique and it's very hard to replicate because over 20 years. We've owned the payments business. We've owned a tech solutions business. We've all done it. So he owned all these things you're not just <unk>.
<unk> slapped together and hoping they work well.
Kind of where I see that blue sky without getting into the numbers of the map.
Now when you look at.
That's very helpful. Thank you one last question could you speak to any often talked about now loan office exposure.
Did you say a loan officer office Okay.
Yeah.
I I believe.
The <unk>.
National Bank of New York City portfolio Might've had maybe 15 million ish, but these are not these.
These are not skyscrapers these are like medical offices.
You know million two.
I mean, we're blessed we don't have that type of exposure in the portfolio.
Oh, that's very helpful. As I said, you know, we don't get many opportunities to sort of get in at the ground floor.
Of a new bank with new techniques and extra pieces without all the legacy baggage <unk> congratulations.
There are no <unk>.
No operator I appreciate it.
Are there any I don't think there's any other questions that I'm seeing.
Oh, just one half.
From Christopher Nolan from Ladenburg Thalmann and company.
Okay, My name's not red.
Chris Thank you for being paid.
Try to go to a different business model or are you finding more resistance from bank regulators.
Who are having a difficult time getting their hands Roger cause this.
And so far we haven't seen that at all so I would say we've been blessed that.
Okay. Thank you.
There are no further questions now Jimmy continued for closing remarks Mister <unk>.
Can't thank everybody enough and I appreciate everyone being patient.
Does this concludes today's conference call. Thank you all for attending you may now disconnect.
Mmm Mmm.
[music].