NewtekOne Inc (NEWT) 2022 Q4 法說會逐字稿

Good day, and thank you for standing by. Welcome to NewtekOne, Inc.'s Fourth Quarter and Full Year 2022 Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Barry Sloane, President and Chief Executive Officer. Please go ahead, Mr. Sloane.

Thank you, operator. And appreciate everyone joining today. Good morning. My name is Barry Sloane, President and CEO and Founder of NewtekOne. I'll be doing the call today from Las Vegas, Nevada. We're a managed structured financial association conference for asset-backed securities. And I certainly appreciate attending the call with me today is Nick Young (sic) [Nick Leger], our EVP and Chief Accounting Officer; also Nicholas Young, our President and Chief Operating Officer of Newtek Bank National Association; and John McCaffrey, our Chief Financial Officer of Newtek Bank National Association.

We're excited today to close our chapter out as a business development corporation. This will be the last time that we're reporting financial results as a BDC. We withdrew our BDC application with the SEC on January 6 when we acquired Newtek Bank, National Association. And on a going-forward basis, we'll be reporting as a financial holding company, which we've been for a little less than approximately 60 days from now.

Most of today's call will focus on our final financial results as a BDC as well as our forward projections as a financial holding company, extremely important, as well as a dividend declaration that the company just made for its first quarterly declaration as well as a potential forecast of dividends going forward.

So I think today is a watershed mark. The transformation that many of you have been waiting for is finally complete. We've had a lot of things that have been transforming. Shareholders have been transforming. Operations have been transforming. Capital has been transforming. Quite a bit of movement, and we certainly look forward to beginning to pick up new analyst coverage. We picked up one this week, so we finally are getting bank analyst coverage to be able to follow the company.

I would like to clarify one thing this morning as we go forward. I think it's important to note that the company had no earnings forecast in 2022. We had dividend forecast. We have no earnings forecast because we didn't know actually when the bank transaction was going to be completed. So with that said, we want to try to move forward through the presentation, give people clarity on how we sit as of today and explain our business and our business operations. We have a lot of new shareholders on the call that obviously are interested in investing in a financial holding company, owning a very unique technology-oriented bank. And we clearly have a lot of things that are transforming.

I would like to call everyone's attention to the forward-looking statement slide on 1 on the deck. For those people who want to follow along, and the deck is hung on newtekone.com, N-E-W-T-E-K-O-N-E.com, in the Investor Relations section, and the presentation will also be archived there.

On Slide #2, we could talk about recent events. We acquired National Bank of New York City on January 6. That acquisition was completed. We withdrew our application with the SEC to be regulated and report as a 40 SEC company, using a different kind of accounting, 40 SEC accounting versus now we'll be doing consolidated '33 Act accounting, which we welcome. And we acquired the 59-year old nationally chartered bank known as National Bank of New York City and renamed it Newtek Bank. We also, at the same time, renamed the holding company, Newtek One. We're going to continue to trade under the existing stock ticker symbol NEWT. And important to note that we are a financial holding company that has positioned itself as a leading business and financial solutions company to a very important economic demographic in the United States that we refer to as independent business owners.

Using an SBA definition of SMBs, it represents about 50% of nonfarm GDP. It represents 9 out of 10 businesses in the United States, and most of the net new job growth in the United States comes from these enterprises. So we've been serving this community for a long period of time. We have been building our platform of business and financial solutions for clients. And by owning a bank and being able to put this all together in the Newtek Advantage, our plan is really very well positioned for the future. We're excited about it, and we really look forward to reporting and developing our business model and serving our client base.

I think it's also important to note that as we go forward as a financial holding company and we transition, certain assets like Newtek Merchant Solutions, Newtek Technology Solutions, the valuation of the payroll company, the insurance company, which were part of NAV from a fair value basis, will not be counted in tangible book value from an accounting perspective going forward. As a matter of fact, we believe that they'll be going into, and we'll report on this at the end of the first quarter, into the financial holding company at approximately a plus or minus 0 basis.

So that's approximately about $170 million of what I would refer to as fair value which if you look at our share count of 24 million, it's almost $5 to $6 a share. So for those of you that are trying to look at the company based upon a multiple of tangible book on a GAAP basis, pretty hard to do.

We're definitely a different unique company. It requires a bit of evaluation. But we think we're unique in terms of we are positioned to be able to grow our earnings over time, raise capital over time, which is what we're able to do with the BDC, but we don't have to be dependent upon constantly selling equity and diluting shareholders. We're very excited about our future and look forward to reporting on our results and telling everyone about our unique technology-enabled bank as well as differentiated financial holding companies.

So let's move to Slide #3. We renamed the company NewtekOne, which I think is appropriate because we believe we're the one company that partners with clients to help them grow their business. We also believe we're the one company that will make our business owners more successful. So rather than do it most other financial organizations do today, maybe take deposits they make them a loan. We actually give our clients an asset, and that's in the Newtek Advantage, which we talked extensively about on our January 18 presentation. The Newtek Advantage is a great solution for our business owners. We have 1.0 on our screen. We'll be developing it further, and we'll talk about the Newtek Advantage in future presentations.

So we're very excited about the Advantage. We realized that our clients typically go to their depository institution 3 to 5 times a week, maybe 12 to 20 times in a given month, and that we're going to be able to position ourselves with our clients that they'll be able to see, number one, that we offer all these rate solutions for them. We're not necessarily having to bring it up.

They'll be able to store their organizational documents there. They able to make payroll. They'll be able to see their merchant processing data and statistics. They'll be able to look at their web trap statistics. We're actually going to get an asset from the organization rather than just "take" the depository money.

So once again, very excited about the opportunity. The Newtek Advantage is a real secret sauce and the value going forward to our clients. The low-hanging fruit, obviously, is the fact that we'll no longer be constrained by 2:1 leverage ratio as a BDC and the ability to raise less expensive liabilities in the core retail deposits, which today, it's a differential of 8.25% approximately to say 4% depository money, plus borrowing commercially at $0.55 in $1 haircut versus 100% in the bank. So you could see that the math really works in our pace, and you'll be able to see that, particularly on a going-forward basis as you analyze our earnings streams.

Slide #4. So in the fourth quarter, final period and 2022, I think the most important lending highlights, clearly, one of the key features of our business historically has been the ability to execute on our SBA 7(a) loan business, which in 2022, we funded a record $775 million of loans. That was up from $362 million. And when you look at our growth forecast going forward, we wanted to tone that down a little bit. Not to say that we can't produce those numbers, but we forecasted $885 million for 2023 and a little bit of an increase. So there's clearly some upside in those particular numbers, but we wanted to be comfortable in forecasting going forward. But the 7(a) business has clearly been a flagship.

One of the benefits of our new structure as a financial holding company is greater diversification of revenue streams and less of a dependence in gain on sale income, which has been, I would refer to it as, nonrecurring income but a reoccurring event. We've had gain on sale for 20 years. It's pretty predictable. We make a loan. We sell 75% of it in the form of guarantee into the Street had a pretty good gain, which was what enables us to get returns on equity net of charge to us of 30% of our business. So it's been a very good business for us, and that's why we can generate return on average assets and return on tangible common equity that clearly exceeds other financial institutions.

So in the fourth quarter, we did a $188 million worth of loans. To be frank with you in the fourth quarter, we slowed some of our activity down to save our capital to be able to put cash resources into the bank because you really can't move things back and forth from a bank holding company into a bank. We actually didn't fund any 7(a) loans in the last 2 calendar -- 7(a) loans in the last 2 weeks of December at a typically our busiest months. We kept the pipeline going, and we'll be rolling that forward. But I think it's important to note that a lot of what we did in the fourth quarter of 2022 was positioning ourselves from a capital perspective and a financial perspective to become a financial holding company as we anticipated closing the bank deal on January 6.

On Slide 4, when you look at our forecast, we're forecasting $175 million of over loans for the 2023 guidance, we think that's fairly not very aggressive. And obviously, we always look to clearly meet or exceed our targets. And the big growth area, obviously, is our nonconforming C&I loan business, of which we did a securitization in January of 2022. Important to note all loans that have been done in that business originated in 2019 are performing.

There's never been a default, and there's never been a charge-off in that particular portfolio. The nonconforming business will be financed at the financial holding company with more expensive securitization and joint venture financing but still generate generating high returns on capital, which we'll talk about. The 7(a) and the 504 business will be financed in the bank once we get the PLP status moved into the bank.

I'll also note that we will diversify our loan portfolio with what I refer to as conforming C&I and conforming investor CRE loans. These are the types of loans that are really typical at all banks, meaning bank standards, bank guidelines, greater equity contributions, shorter prepay schedules on loans that are due in 3 years, due in 5 years with balloons. We have all packed loan covenants and typically are done at tighter margins. But this will diversify our portfolio, which we think is a good thing, having a bar build pool of credits.

Going to Slide #5. Our history as a BDC was we paid out a lot of dividends over our life as a BDC, $330 million in dividends and distributions. And we're proud of the fact that we were able to return that cash back to shareholders. And on a going forward, we will continue to maintain a dividend policy for as far as my eye can see. But obviously, share appreciation is important. We can talk about the structural differences between a BDC and a financial holding company.

We paid $2.75 in dividends and distributions in 2022. And once again, I want to put a fine point on this, the transition and transformation is over. We're now a financial holding company, and we've been acting that way or approximately a little under 60 days. And I do want to repeat, we gave no earnings guidance in 2022, and we didn't give any clue for 2023 as a BDC in 2024. So I have no idea where some of these thoughts or concepts or projections are coming from.

But we'll also point out that people have been waiting for a dividend announcement as a financial holding company. So we'll talk about that declaration. And we also have, I guess, developed a 2.4 million shares short according to NASDAQ; and our outstanding shares, which is about 10%. And that's a fairly interesting phenomenon that, I guess, the markets will deal with on a going-forward basis.

Slide #6. So on Slide #6 and Slide #7. We are doing our final report as a BDC. I must say these are not particularly impressive numbers. However, I think it is important to note for people that are tuning into this call for the first time and trying to follow us as a bank, the adjusted net investment income for the calendar full year was obviously a profit. We say it's adjusted because it's a non-GAAP number. And the important aspect of that adjusted ANII of $51.9 million is that includes gain on sale, which gain on sale from a BDC perspective is not GAAP. So historically, our ANII with the exception of the PPP business that we did in '20 and 2021, we've always been at an ANII loss.

So going forward, ANII will have a totally different meaning as a financial holding company, net interest income instead of net investment income. I look forward to the transition. I look forward to consolidated financials and to be able to be fully transparent on all different verticals with all the analysts. We put a ton of data out there, so analysts can begin to build their own models and develop a following that we really haven't had for the last 12 months. So we've kind of been fully in isolation. And frankly, we have lost quite a few shareholders that love that flow-through structure and the full dividend, which wasn't tax. We got tax on an individual basis instead of us paying tax.

But the results for the financial holding company are readily apparent on 6 and 7. I think the way we look at things on a going-forward basis, we're pleased to say, as we sit here today, we have put out an estimate of sort of where we stand. We have a very well-capitalized bank, which will go through that. We have a very well-positioned financial holding company. We have great earnings projections and a great future going forward. And we think we conservatively marked our portfolio in the fourth quarter to reflect the reality that on a mark-to-market basis, which you have to do as a BDC, is reflect the fact that interest rates went up 4% to 4.5%. The cost of capital went up. So it made sense.

I will say this, we've seen, despite the fact February hasn't been particularly pretty, but January really recouped quite a bit of value from a fair value perspective. As a matter of fact, if you look at the government guaranteed market of SBA lending, it's actually on a gross basis of 4 to 5 points. And we think the uninsured market will somewhat follow in that footstep because we didn't see any major credit deterioration in that period of time.

So when you look at the rationale for gain on sale to the government fees going down, the lagging amount of rates, the high volatility and velocity and rate hikes, the lagging effect of the SBA business only changing in arrears on a quarterly basis really affected the prices, which we talk about. So we think there's a lot of good things going forward with respect to Q1, our future as a financial holding company, and we look forward to continue to report.

On Slide #8, we can take a look at our loan closings and pipeline. So if you look at the top portion of it, it's not particularly impressive, it's flat. I think what's important to note is that we looked at $2.1 billion worth of loans so far in 2023. So obviously, we're very selective, up from $1.7 billion in 2022. In units, 3,597 individual businesses came to us, looking for financing.

Now the approval rate explained. That's approval, I believe, from underwriting. So it's important to know it's hard to get loans, through pre quality into underwriting. But we've really cut down loans that actually put a full credit memo together and got turned down in credit. So a lot more selective in picking through things. I should note that we are typically rejecting 99-and-change percent of the loans that come through that process function at the top part of the page. So we're still getting a lot of demand.

We're being a lot more selective. A lot of people aren't qualifying, but we believe we're very confident that we'll be able to hit the projection numbers out that we have in the market as we've also tightened up our underwriting criteria, which we'll talk about.

On Slide #9, our first quarterly dividend declaration as a financial holding company. Important to note on January 17 in our forecast to investors and analysts that Colas archive, we had a $0.16 projected forecasted dividend for our first quarterly dividend. So the Board declared an $0.18 dividend for the first quarter. It did that in anticipation of hopefully being able to keep that dividend constant lease for the calendar year. So it did that with the concept that it believes in its forecast. It believes in the stability. It's a percentage of total earnings. I think that's important to note.

So the headline risk goes, "Oh, they cut the dividend." Well, it's not like we cut the dividend and our earnings are falling apart here. A matter of fact, we're paying taxes, and we'll talk about how our earnings flow through into different accounting, particularly with the effects of CECL and earnings per share. These things are fairly complex. But when we pick up the analyst coverage, people start to understand what we're doing. I feel fairly confident that the historic track record of the company, it's been around for 24 years, 22 years as a public company, really has developed some great products and solutions in the market. And we just got the right financial structure for the current economic environment, which we'll be able to demonstrate through the course of this presentation.

So the dividend that was declared is payable on April 14 to shareholders of record on April 4. That's our first quarterly dividend as a financial holding company. And we're hopeful and believe that, that dividend will be maintained quarterly for about a year. And then we'll revisit, obviously. If all of a sudden, our earnings go from $1.85 in the midpoint to $3 at the midpoint, we either look at increasing the dividend or maybe a share buyback in conjunction with formulas that we have to demonstrate to the regulators, the dividends paid out of earnings. So as long as we're earning money, we'll be able to do dividends, both out of the holding company and then of the bank to the holding company.

On Slide #10, as of February 17, that was our track record versus the S&P and the Russell. I guess the market is enjoying the fact that we're being able to: a, execute on our plan; b, recognized by the Federal Reserve and accept their application and allow us to be a bank led company with Financial Holding Company designation and the opposite controller of currency, looking at our business model, feeling comfortable that we can capitalize the bank, which we've been able to do and run it successfully. So the market is anticipating good things going forward. And hopefully, that will continue.

On Slide #11, one of the reasons why we reached over, you could clearly see that over the course of 10 years, Russell 2000 stocks outperformed BDC. So this is another reason why we think this is very beneficial to shareholders because from a category standpoint. We're excited about the potential to be added to the Russell. There are some firms on the Street that have indicated that we could pick up as much as 2.1 million to 2.7 million share purchases by just being added to the Russell. I'm sure some of that activity has already occurred as people do jump it, but we haven't been named to it at this point in time. But given the market cap in the current for the Russell, it looks like that has a good possibility of occurring.

Slide #12, valuation going forward. Obviously, we talked about a financial holding company, being regulated by the Federal Reserve Bank of Atlanta, up at the FHC area. That would be NewtekOne. And we talked about no longer reporting as a BDC and using 40 Act accounting. We'll be using 33 accounting. And we're really excited about that, and we're reiterating our EPS projections of $1.70 to $2, $2.80 and $3.20. There's some geographic changes in there. If you take a little closely, you'll see some things move around a little bit. Obviously, you could see the volatility in the market. And from a timing perspective, also things are changing dynamically as we move forward.

On Slide #13, things to focus on, capital ratios. You'll see that the bank subsidiaries very well, very well capitalized, and we'll talk about that. The joint venture that we've created, which will enable us to do, we believe, million of nonconforming loans in 2023 and $1 billion in 2024, an employee category, generating high returns on equity of between 20% to 30% risk-adjusted. And our joint venture partner has committed up to $100 million of equity for us to work together. The ability to lever more, we'll talk about the value of that. You'll see that our return on assets between 3% to 4%. And return on tangible common equity, 20% to 30%.

And we could do this because we're not doing home loans, car loans, all consumer products, which, frankly, the Bank of Americas, Wells Fargo with scale and tight margins are able to do that business, that's not to us. We'll stick to the things we do really well and that we've developed, particularly on the lending side over the course of 20 years. And obviously, our nonbanking activities, we think we'll really further develop payment processing tech solutions payroll insurance, all featured in the Newtek Advantage. And these areas of nonbanking revenue, you can see only show you our projections going forward are very valuable, and they actually have different multiples and banks aspire to get that type of activity.

And you could see that our financial holding company is different and unique. Most financial holding companies or bank holding companies, they don't have much up at that area, and most of the earnings generated solely from the bank. You can see that we have a pretty good mix between the 2, and we'll demonstrate that in the future slide.

On Slide #14, key financial metrics. Once again, we talked about 7(a). We think there's potential upside for those forecasts. But we're comfortable with those numbers today, both on the 7(a) and the 504. The conforming C&I and CRE loans, about $140 million in 2023. Not a big number, but we'll start to blend those basic vanilla multifamily, industrial-type loan. ABL loans, which are lower margin, but cannot be funded with core deposits, which really couldn't be done in a nonbanking environment; and also the nonconforming C&I business that we've done. We had to break that a little bit through COVID, but we turn the program back on. We have a nice pipeline.

You can see on the cash premium for 7(a), we've got to model the 10%. The market is almost 1 point north of that at this point in time. So those numbers are somewhat muted and only 10.5% for 2024. New financial holding company debt raise, that will be the refinance of the existing baby bond debt. We have an S3 that's been put in with the SEC. Hopefully, that will get cleared in the near future. That will enable us to do publicly-traded debt as a financial holding company. Egan-Jones recently rated that debt, BBB+. So we're very pleased with that rating by Egan-Jones.

We'll also be able to do preferred stock and also common equity, which, obviously, if you look at our projections, we don't have a plant currently raised. That's always based upon market conditions. But the benefit of being a financial holding company is you could use the retained earnings. And you're not constantly raising shares that you have to do as a BDC. As a matter of fact, my recollection is we started off as a BDC with about 15 million shares, plus or minus, and that grew at 24 million shares today. That's quite a bit of share issuance, and we were still able to grow our earnings and grow dividend. Well now, we could use leverage with lower cost of forester core deposits versus the commercial financing. This plan, we are confident will work out very nicely.

Let's go forward to Slide #15. Bear with me for a second. Okay. So digging into the NewtekOne, that's the financial holding company, financial summary and pro forma. A couple of things I want to point out once again. The earnings per share projections. Those are midpoints. We range $1.70 to $2, 2023 after tax and $2.80 to $3.20 in 2024. Share count, flat. Dividend per share, I mean that's -- if we continue on the track and hit our forecast, that's most likely the dividend that we'll pay, that should be a qualified dividend because we're taxed already. And as our earnings grow, we'll either -- we obviously do things to benefit our shareholders through share buybacks or dividends.

You could see we're able to grow our earnings substantially at the close of the year from about $1.62 billion. We believe by the end of 2023, $1.7 billion. At the end of 2024, $2.1 billion. We believe that we'll be able to grow our total assets on our balance sheet and still stay within our plan and financial results for the regulators. You could see the return on average assets, and this is at the holding company, the returns on average assets or returns on average tangible common equity are greater at the bank.

But at the holding company, we have that expensive debt, so everything is consolidating up. It includes the bank data. But obviously, things we do with the bank are typically more profitable within the holding company. Still fairly robust numbers for a financial holding company.

Net interest margin, kind of skinny because of the things we go up at the holding company, what's again are funded with that expensive debt. You could see the cost of fund is also very high. And you'll see the differential between the cost of funds on a consolidated basis versus what we can do at the bank. You can see the efficiency ratio from 2023 to 2024 starts to decline, and we're hopeful that we can get to a better efficiency ratio numbers going out in the future as we start to take advantage of the operational leverage to be the bank, brokers, branchless BDO list institution providing business and financial solutions to business owners. And literally, just to round things out, once again, we emphasize the EPS projections for the next 2 years.

Moving to Slide #16. The important items on this particular slide, this is Newtek Bank National Association. You're looking at around $260 million of capital, $77 million of common equity. And that was their aspiration to get the bank fully funded. That slowed some of that activity down in the fourth quarter to be able to move the money around that we needed to do. And you could see that our capital ratios is a very well-capitalized bank, approximately 30% on TCE versus total assets and then you get the CET1 ratio closer to 40%. So we feel pretty good about these numbers, and we're excited about that. We'll obviously use that capital over the course of time.

Slide #17, I think the important aspect of this slide is to see the breakdown of income coming from the bank versus nonbank entities up at the holding company. Everything will consolidate up. But you could see that it's reasonably well balanced, and we get a lot of income coming from nonbanking activities. That's important. Obviously, the bank has got the 7(a) business, the 504 business, the conforming business. But you can see that the other business lines up with the holding company will be important to us and substantial as well as the things that we can do from that activity for our clients.

On Slide #18, I think the important aspect here obviously is the earnings per share number on Slide #18. And dividend per share, we kept it flat. That were just modeling purposes. But if we're generating $3, we'll look to do things for our shareholders relative to buybacks or dividends to always keep in mind the importance of what I'll quote shareholder value.

Going forward to Slide #19. I think the important aspect of this slide would be, once again, looking at the growth of total assets of NewtekOne, that's the financial holding company. $1.06 billion, $1.7 billion, $2.2 billion and very nice growth. Look at the growth in total equity, $189 million. We raised $20 million of preferred stock. That is not calculated in $189 million. It is reflected in the $231 million for total equity, and then growing to [$260 million] in 2024.

Next, Slide #20, I think important to note some holdco financial metrics. Return on common equity, close to 23% in 2024, 30% in '20 -- excuse me, 2023. In 2024, 30.6% return on tangible common equity, 26.5%, 34 points. You don't see these of banks. You just don't because banks don't specialize in the areas that we do, which is to focus on that independent business are all the sites with all these different great assets for them to take advantage of through the Newtek Advantage, the full suite of services.

We feel very good after developing this business model over the course of 20 years. These are businesses that we've owned and 100% of them operated in some cases, 10 years, some cases. In some cases, close to -- and you can see the return on average assets consolidated 2.28% to 3.75%, 2023, 2024.

Also important to now look at the cost of funds, fairly high. That's going to start to decline because the deposit story is really out in the future. We start to really work on getting deposits through our payments division, our payroll division and really coupling deposits from a lending perspective. So we hope to beat that. We hope to get metrics. Nick Young will be reporting on deposit growth on a going-forward basis quarterly to show you how many accounts we open, how many dollars, cost of funds, et cetera. So we're excited to be able to report that.

But we're going to get this business up and running, and we will clearly try to beat these expectations and early conversations with clients. We've had tremendous receptivity about offering same-day funding on payments. Ability to pay people through payrolls faster, to move their depository accounts to us. I'm excited about the future in these particular areas and the ability to ultimately get better economies relative to a pretty important category for banks to think with respect to deposit funding.

On Slide #21, I think the most important thing we could talk about here really relates to equity at the bank and see the growth in the equity. There really is no need for equity contributions at the bank. It's fairly self-sustaining with our ability to retain earnings, both at the bank and obviously at the financial holding company, which is clearly different from a BDC. That's got to pay out between 90% and 100% in earnings.

Moving forward to Slide #22, some general metrics for the holding company assets, PC ratios at the bank. You could see more robust capital ratios. We'll be utilizing that as we grow the balance sheet in the book of business in the bank.

Slide #23, some earnings forecasts for the holding company, return on average assets, return on tangible common equity, fairly robust numbers. The bank's cost of deposits, which you see, are low because we've got some lower cost of deposits from the legacy National Bank in New York City, but they're also match-funded against lower cost of assets that were commercial real estate loans that were fixed. So that's kind of a matched book. But we clearly do want to grow that deposit business, once again. I do believe that is a more of a 2025, 2026 story. We hope to be able to beat that particular guidance that we're giving here today.

Slide #24. For those of you that are not that familiar with us as an SBA lender, we wanted to include this. You can see that we've been in this space for close to 20 years from 2023. That's our history. We've securitized historically, which is the only way to fund our business long term, match-funded with 12 S&P-rated transactions beginning in 2010. Everything has been -- held their rating or been upgraded.

Our average loan size is the uninsured piece $151,000, so we get tremendous diversification. Our loans are now being done at Prime plus 300, Prime plus 275. VSPs changed those rules, and that's helping our gain on sale numbers, particularly for this calendar year. And once again, I do want to repeat that we got more -- we have better pricing right now than we put into our guidance. But pricing can be pretty volatile. We wanted to be conservative. I always want to be able to over deliver and under promise.

So net premium trends on Slide #25, important. We've used 10% or 10% of par. As I've said, we believe that number is probably a point higher. But look at the fourth quarter, 8.72%. So clearly, that was low. We believe that's based upon the fact that bank's cost of funds were rising dramatically, and these loans adjust going forward. So that negative drag, carry. We really do believe really diminish this. The other thing that we're being told is the bid for these S&P government-guaranteed floaters picked up in Q1.

A lot of our competitors in the banking space have had difficulty in their portfolio. They've had the markdown assets, and the floaters tend to gravitate more towards a par valuation. So we do think that we've got a bounce back to equilibrium in pricing, which we would look forward to and would show up in our earnings per share numbers.

Slide #26 shows the benefits of increasing our portfolio and as we get that nice spread income, which we plan on benefiting from at the bank level, you could see that our interest income grew significantly in Q4 2022. And frankly, as the coupons start to adjust, particularly in the first quarter, that spread income will grow because we actually had monthly changeover on our cost of deposits commercially, but the loans adjusted quarterly going forward.

So this will pick up. We should see a nice number although once again, to point this out. This is NSBF. This is a nonbank lender. It will be held at the holding company, getting the runoff mode. And once we get the PLP status transferred over, all the originations to be done at the bank using CECL accounting, which we'll talk about a little bit as well.

Slide #27 talks about our nonaccrual trends. So you can see that we've had a favorable trend there. These are done at fair value. I think it's also important to note that historically, we really haven't reported the rest of the loans that we originate, which you could see on the next slide, Slide #28.

So on Slide #28, we've originated $401 million of 504 loans. Have not experienced a single default or charge up to date. And the company has also originated $132 million of the non-component conventional loans, also no defaults or charges. So in excess of $500 million of loans with a big 0 in non-accruals, a big 0 in charge-offs. So we'll going forward be reporting our loan business on this basis, which I think will give the market a better depiction of the fact that SBA loans are written to a different standard with a different charge-off rate. However, we also get the benefit of a fairly high coupon.

Today, at Prime Plus 300 with where prime is versus a potential future rate adjustment, you're at 10.75% coupon. So you look at cost of funds 4%, 4.25%, that's a very healthy net interest margin on a floating rate asset, not including the fact that you get a gain on sale on 70% of the government-guaranteed piece. So it's a business we've done over 20 years. It works well for us, and we're dedicated to it, and we will continue to grow that business very nicely.

On Slide #29, we have tightened our underwriting criteria in 2022 due to changing market conditions, clearly bringing in the higher FICO and SBS scores. The total portfolio has increased by about 10%, but understand that's just 2022 originations going on to the existing book of business. So without actually calculating what that number is, I would guess, could be 20 to 25 basis points higher in SBS scores in 2022 versus historic originations. But the total portfolio is about 10% higher. We're stressing the portfolios at current levels of rates. So we're actually turning down quite a few more loans as a percentage.

And it's important that one of the things we experienced during COVID is making sure the businesses can basically withstand 4 to 8 quarters of a difficult time versus their expectations and projections going forward. Also letting the business have the ability to liquidate collateral or unencumbered borrowing power supply, higher expense increases and revenue increases. We've been in this business for 20 years. We've survived the late '09 and survived the pandemic. And as a nonbank lender, I think that's quite a bad (inaudible). We now look forward to being able to participate in the banking environment and diversify our funding sources.

Moving forward to Slide #30. You can see that our currency ratio has held up very nicely, still at 97%.

Slide #31 is our classic example of SBA 7(a) loans. So for those people aren't familiar, this is how we create cash when we do with 7(a) loan.

And #32 is the income slide, generates that risk-adjusted profit recognized. I think it's important to point out for the analysts that are looking to model our business going forward. The primary earnings engines for NewtekOne, Newtek Merchant Solutions held up at the holding company, $6 million of EBITDA, approximately in 2022. Tech Solutions, about $3.2 million, $3.3 million of EBITDA, Newtek Insurance Agency Payroll Solutions also will be consolidating up as an engine. The Newtek Business Finance, the SPLC will be up at the holding company in runoff mode.

We are still originating a loans out of Newtek small business finance in January and February. That will be reflected in our Q1 earnings. We look to move that into the bank and move the PLP status over. We've actually gotten 10 loans approved at the bank using GP, non PLP. They're in the process of being funded. And after that, we should be eligible to move that PLP status over. And then obviously, Newtek Bank originating profits and then distributing and dividending cash up through earnings.

Slide #34 talks about how we do 504 loans.

#35 talks about the types of returns that can be gathered in SBA 504 loan origination. So you could see from 504 loans, 7(a) loans can generate high returns on equity.

Slide #36, our non-conforming conventional loan business, which we're really proud of. This is a business that's performed very, very well. We did a securitization. I believe it's [NCUL 2022]. It's modeled on intact. You can look it up. We have a single (inaudible) before portfolio.

And we're looking to expand that business. You could see that on Slide #37. We have a joint venture partner. That's indicated they'll put up to $100 million of equity to fund business out of a JV. We'll fund the equity, they'll fund the equity. We have leverage lines in place. We put out a press release, we raised $300 million in Q4 to be able to leverage our business over and do these types of loans. And we're pretty excited, and we've cranked the model up. And we started -- the JV started client loans in the fourth quarter of 2022, and we feel that we'll have a very robust pipeline in business.

The advantage of the nonconforming loan portfolio, which we see on Slide 38 as we typically originate these loans at 3.5 origination points, 100 basis points of servicing income. That will go into the bank. The origination fees are going to the bank, and the loans will be funded up at the bank holding company through the JV or the holding company's balance sheet. We do hedge these loans. They typically fix their 5 years and they adjust over the 5-year treasury with a floor at the origination rate. We believe that a 4- to 5-year duration. And once again, we anticipate really good volumes in these.

There's good investor demand even at fairly high rates. Today, we're on the street at 10.5 to 11 gross for DA credit, 11 to 11.5 for the B, 12.5 to 13 for the C-type credit. Those are the gross rates we service for 100 basis points, and then they go into the joint venture. And we believe that we generate approximately 20% to 30% of returns on equity, net of anticipated on severity frequency. And so for the portfolio has performed very well, primarily based upon the fact that all loans have personal guarantees similar to the SBA program. And very -- we typically lean towards loans that have strong guarantors tours.

So we talk a little bit more about the program on Slide #39, talk about the securitization that we did, which will model our future exits over.

On Slide #40, as we wind up our discussion before we go into the financial criteria that Nick Leger will report on, what a different 60 days. We say 60 days approve under 60 days, but we're clearly operating as a BDC. So we're looking forward to reporting for the first quarter of 2023 tangible book versus NAV. The major difference I talked to you about before is about $170 million of value between the market value of the Payments business, Tech Solutions business, payroll and insurance that are wind up going into the financial holding company that will go into a basis of plus or minus 0 versus a fair market value on NAV.

So obviously, most banks and bank holding companies don't own a lot of these assets. They're basically filled with home mortgages and home equity lines, car loans, things that all it count as tangible book. (inaudible) count as tangible book. These assets that throw off reoccurring income, very valuable and actually greater market multiples than a typical bank. They're going in and not adding to tangible book. So that's something that we'll have to address and maybe create a non-GAAP statistic is adjusted book value.

Then you look at after-tax net income or EPS versus net investment income and adjusted net investment income. Well, we definitely enjoyed our days as BDC. We paid a lot of dividends, but we're happy to get rid of all those metrics and criteria that made it difficult to evaluate who we are, what we do, when we paid healthy dividend distribution over our life, and we'll continue to pay, what we think is a top quartile-type dividend of 4%. That's not a secret. We've been talking 4% for 12 months. So for people, it will be a surprise that this is the dividend at the current stock price. But anyway, people are going to have their own takes on things, but we just lay the information out and give a lot of information on these particular calls. I hope people pay attention and listen, but these are things that we've been talking about for 12 months.

When you look at deposit versus commercial bank line, as I said, let's say I use a round number deposits of 4% versus right now, if I draw on my commercial bank line, it's 8.25%. I only get $0.55 on the dollar, which means we got to use $0.45 of equity in order to grow, I have to keep raising equity and keep diluting shareholders. Totally different story. So between the lower cost of funds, the ability to lever up to 10.1 over the course of time, very, very beneficial structure going forward.

And obviously, the fourth quarter '22 gains on sale premiums versus the current expected prices, markedly different. I think we pretty much saw decade lows in Q4. That's on everything. For those people that tried to do anything in the capital markets in the month of December when we had to do our market, that was clearly a low point. And the market seems to bounce back nicely and onto January. So we look forward to a bounce back in gain on sale prices as well as the value of loans, of which NSBF will be valued on a fair value basis. So we should get some recoupment of value there as well.

On Slide #41, from an investment summary perspective, we would love the market to focus on as a financial holding company that we operate a little under 60 days well-capitalized entity, not a portfolio. We've been a public company for 22 years. We've been able to manage all different interest rate environments, credit environments. These projections are based upon what we've been able to do in the market with assets that are really generating higher returns, risk-adjusted than what a normal bank does. And we've worked hard at developing these businesses. It's been a 20-year history in the 7(a) business and the 504 business. We've been in the payments business for 20 years.

So when you take a look at the new tech advantage and see that our customers are going to be able to pick and choose and get a real asset, eventually bringing their deposits over. We're fairly comfortable with these projections, and we hope to be able to deliver them and actually hopefully be able to beat them.

We are very comfortable declaring our first quarterly dividend as a financial holding company at $0.18. That's based upon the fact that we're confident that we can produce these numbers, and this is a nice payout ratio versus the earnings. And important to note that we're a growth-oriented differentiated, technology-enabled financial holding company. We look forward to continue delivering the types of results that we've done.

Most importantly, we appreciate the opportunity for you to listen in today, so we can disseminate information that people can make investment decisions on which frankly have been avoid for the last 12, almost 18 months when we declared that we were going to go in this direction. And we couldn't do it because we didn't know when we would get approved. We didn't know what would be approved. Well, now we know it has been approved. We know we are approved. We own the bank. It's just a different story, and this is the beginning of a new period and quite transformational. We look forward and say goodbye to 40's Act Accounting, BDC structure and a lot of investors that want to buy in a technology-enabled bank. And we think we're well positioned to really succeed in this particular structure.

Now I'd like to pass the baton to Nick Leger, our Chief Accounting Officer, to do a financial review.

Thank you, Barry. Good morning, everyone. You can find a summary of our fourth quarter 2022 results on Slide #43 as well as a reconciliation of our adjusted net investment income or adjusted NII on Slide #45 and #46.

For the fourth quarter of 2022, we had a net investment loss of $5.4 million or $0.22 per share, as compared to a net investment income of $1.6 million or $0.07 per share in the fourth quarter of 2021. Adjusted net investment income, which is defined on Slide #44, was $1.5 million or $0.06 per share in the fourth quarter of 2022, as compared to $16 million or $0.66 per share for the fourth quarter of 2021.

Focusing on fourth quarter 2022 highlights, we recognized $23.1 million of total investment income, a 6.9% decrease over the fourth quarter of 2021 total investment income of $24.8 million. The primary driver of the $1.7 million decrease in total investment income was primarily due to the $4.6 million of dividends from the portfolio companies in the fourth quarter of 2022, as compared to the $9.8 million in the fourth quarter of 2021.

In addition, interest income increased by $5.2 million, resulting from a year-over-year increase in the accrual loan portfolio, combined with the prime rate increases in the calendar year of 2022, which increased 425 basis points year-over-year.

Servicing income increased by 27% to $3.8 million in the fourth quarter of 2022 versus $3 million in the same quarter in 2021. Distribution from portfolio companies for the fourth quarter of 2022 totaled $4.6 million, which included $2.6 million from NMS; $1.5 million from NBL, our 504 business; $360,000 from NCL, our conventional loan joint venture; and $125,000 from mobile money.

Focusing on total expenses for the fourth quarter of 2022, which increased by $5.1 million compared to Q4 of 2021. That was mainly driven by higher interest-related costs due to the [4.25%] basis-point increase in the prime rate, which was 3.25% at 12/31/2021 and increased to 7.5% at 12/31/2022.

Realized gains recognized from the sale of the guaranteed portion of the SBA loans sold during the fourth quarter totaled $15.4 million, as compared to $18.1 million during the same quarter in 2021.

In the fourth quarter of 2022, NSBF sold 252 loans for $144.8 million at an average premium of 8.72%, as compared to 223 loans sold during the fourth quarter of 2021 for $126.6 million at an average premium of 12.28. The decrease in realized gains is attributed to lower average premium prices in the secondary market when comparing to the fourth quarter of 2021. NSBF sold 13% more units in the fourth quarter of 2022, as compared to the fourth quarter of 2021.

Realized losses on SBA non-affiliate investments for the fourth quarter of 2022 was $8.5 million as compared to $3.1 million in the fourth quarter of 2021. Overall, our operating results for the fourth quarter of 2022 resulted in a net decrease in net assets of $2.2 million or $0.09 per share, and we ended the quarter with NAV per share of $15.25.

I would now like to turn the call back to Barry.

Thank you. Operator, we'd like to open it up for Q&A.

(Operator Instructions) Our first question comes from the line of Crispin Love with Piper Sandler.

First off, just looking at your targets and origination volume targets. You're expecting significant balance sheet growth with growth in nonconforming C&I from $600 million in 2023 to about $1 billion in 2024. I'm just curious how comfortable you are with those targets specifically the nonconforming C&I just as it implies significant growth and ramp. And then just kind of more broadly growth on the balance sheet just as the credit quality outlook remains uncertain here.

Sure. I would say this. So far, what we've seen relative to this particular segment of the market, a lot of borrowers that would normally go to a bank, and they're good strong borrowers, they can't make the debt service coverage ratio based upon the 3- or 5-year repayment terms are (inaudible) bullet. So we're really getting better quality borrowers to go into this side of it.

So one could look at this, oh, gee, you've never done it before. Well, we're okay with that. We're very comfortable with what our pipeline looks like and our ability to get it. We think a majority of this is going to start flowing through in the third and fourth quarter as our pipeline builds.

On the flip side of it, we've probably been more conservative on the 7(a) side. So I think that we certainly could make things up on the 7(a) side. But typically, the nonconforming book does tend to be better credits. So we're more comfortable and would prefer to hit these numbers and targets and put this on our books and reduce and be a little bit more picky on the 7(a) side. But we do have the flexibility to go in either direction. So we're not totally uncomfortable with the aggregate numbers.

Mind you, we're projecting out 2 years in a market where the 5-year treasury moves by 50 basis points in 2 days. So not an easy thing to project, but we do it. We've done it for 23 years as a public company, and we're comfortable with it. But I would comment that if there is something that is less proven, it would be those volumes. But on the other hand, the ability to do these 7(a) numbers and the 504 numbers is fairly muted as well.

Great. That's helpful. And then I guess just drilling a little bit deeper in the credit quality. I know you said that you might be a little bit conservative on the 7(a) volume side, let's say, if you can't grow nonconforming as much as you'd like and have to grow 7(a) side a little bit. Curious, what your kind of big picture views are on credit quality over the near to intermediate term? And then just related to credit quality as well. I saw on Slide 27, you gave the non-accruals as a percent of loans at fair value. I'm just curious if you have that number on a cost basis as well.

Well, I think, Crispin, as a BDC, I go back and look at the history, we've always had a fairly healthy in this space nonaccrual number because it's just a function of these types of credits. On the other hand, you do get paid for making these types of loans with respect to the coupon and the government guarantee and the gain on sale.

I think when we look at the current environment, it's amazing that 3 and change weeks ago, people were thinking of rate cuts. While all of a sudden, 3 weeks later, they're going from rate cuts to rate hikes. And it's like they went right through. Isn't there a middle ground? Like they raise rates a little bit more, they stop and hold it for a year or 2, which is probably the likely scenario.

We do not see like a braking economy. We see a slowing economy. We see certain sectors performing better than others. But no, we're not looking for -- this is not '08, '09. There's a lot of liquidity in the system. And our customer base has gotten a lot of support from EIDL loans, from PPP loans and ERC tax credits. And many of the individuals got government support as well.

So we think our customer base is pretty liquid. And obviously, we are forecasting higher defaults that we've had historically, but we think we're fairly well reserved. And when you take a look at our numbers going forward from a CECL perspective, we'll have some pretty hefty reserves in that particular calculation when the loans are done on the bank using CECL.

As a matter of fact, when you do CECL, which is one of the reasons why the numbers ramp, you hit fairly -- you get hit fairly heavily when you make the loan because then you have the lifetime accrual and you're not putting the loans on the books at a premium anymore, you're putting it on at par, which is different than fair value that we've experienced historically. So hopefully, that gives you some background that answers your question.

Yes, yes. But just one on the nonaccrual as a percent of loans at cost, curious if you have that number handy.

I don't. I'd have to pull that out of the queue. It might be 1% or 2% higher than that number. We've written these down from a book perspective, that's important to note, and from a taxable income perspective as a BDC.

And our next question comes from the line of Paul Johnson with KBW.

So I just wanted to kind of clarify your comments as well as what's in the slide in terms of what your expectations are on your expected return for the JV investments. You kind of talked about a 20% to 30% consolidated net return on the JV. Is that going to be -- are we talking about the same thing as the return on your respective equity investments in the JVs? Or how should we be thinking about the return on those as you guys ramp that going forward?

The way to think about that at this point is, those returns are based upon income that's generated at the bank, the fee income and servicing income going forward as well as the equity in the JV. So the equity in the JV would be a subset of the total amount of income that's generated from the activity. Important to note that we really get a lot of leverage out of our intake. So we take all those referrals, and some of those referrals now go into nonconforming. Some going to 504. Some come into 7(a). And they get dispersed based upon borrower need investment for the customer. And the fee income would go into the bank. The servicing income would go into the bank, and that starts to pick up because you start to put 100 basis points of income on, and you do that going forward. That kind of compounds and adds on each other creates a nice growing stream of income.

So as you and others, Paul, we appreciate you writing on us as a bank. Obviously, you are a BDC coverage, so we appreciate that. But you'll start to see the stuff starts to ramp going forward, particularly when you look at, for example, the CECL. You do a loan in Q3 and Q4, you've got a huge loan loss reserve. And you haven't got the coupon for a couple of months, right? So because you're not valuing in fair value, you're taking the hit, and that starts to flow through in the following year when you've got a really nice high coupon versus your cost of funds and your margin starts to pick up.

So this is new accounting. It's new modeling. And we look forward to questions like you've asked today because it really will shine a light on what we're trying to do going forward and how this business model is going to be very advantageous to our shareholders.

Got it. Okay. Yes. So I understand it, it's -- obviously you were talking about 20%, 30%. We're looking at the bigger picture of what you're generating off of those portfolios for the business.

Well, thank God today, everything consolidates. So we don't have to deal with portfolio companies. Everyone is going to be able to look and have full transparency into how all these businesses are doing, and they're going to be segmented in the Ks and the Qs. And you guys are going to be able to model the business and have a better understanding of the full value creation far more easily using consolidated accounting and the right segment reporting than you historically have been able to do as a BDC. Not that the BDC is bad, but all these businesses were based upon fair value. And we reported that way, and it worked well. But now we could take advantage of lower cost of funding, diversified liabilities. We can diversify the loans that we make because now we can also add higher quality loans, which to the book will minimize on a total basis and types of loan losses.

But at the end of the day, we make money on both. We'll make money on a tight margin that has 15 basis points of charge-off a year, which is what most banks do. But most banks can't grow their business because that's their whole portfolio. They're lost making residential loans, car loans. They really haven't developed the expertise that we have in these greater risk/reward type opportunity. So that's kind of where we look to hang our hat and make our mark. And then down the road, we're more effective in the deposit category, which we hope to outperform what we stated that we're going to do there. That will also pick up.

So we have real good aspirations with respect to really benefiting from lower cost deposits with all the bundled solutions that we have coming out of the Advantage, diversifying our lending book to have a credit as well as less than a credit in the SBA business. So I think we're well set up for the future.

Just a few more questions. I was wondering if you can, what is the update on the PLP being transferred into the bank? Or basically, what's the status with that? I mean is there going to be a need to reapply for anything? Any sort of renewal process that needs to take place and I guess how you're currently working around that?

Yes. It's in motion. And the employees are now in the bank. The loans are still being made generally out of NSBF, but we've begun to get approvals in the bank. We have funded 7(a) loans in the bank, but they're done GP versus PLP. We anticipate that transitioning over in the very near future.

Got it. Okay. And then I'm just sort of wondering, it might be nice to know, and if you don't have it or you can't share at the time, that's okay. But I'll ask, do you guys have any sort of stats you could share as far as service utilization of clients, customers that you guys have? What are, I guess, sort of some of the common sort of crossovers opportunity of services you might have to offer between your borrowers and clients from other parts of your company?

Not at this time. It's something that we will look to report. The decks is now 40 pages-plus. And I will say that, that has been a greater challenge historically, which is one of the reasons why acquiring the bank and rolling out the Newtek Advantage is going to enable us to have business owners go to their dashboard or their business portal, which being the Newtek Advantage.

Oh, gee, I didn't know I can get insurance for you all. I didn't know I could store my documents with you. Oh, gee, I didn't know I can get this payment processing information. Wow, you've got your own POS system. So that data will become more readily available, and we'll report that. And obviously, where historically, we haven't been able to acquire deposits when we make loans. We'll now be able to do that.

So a lot of things are there in the future, and we'll be able to do that. So we appreciate the question, and it's one of the reasons for our being to be the one company for a business to be able to do more things than just one thing with us. So we feel pretty good about that.

Sure. Last question, I leave there. Just wondering maybe to get your thoughts and you touched on some of the things, obviously, through your remarks. Just I guess how are things progressing now if the merger is closed? I mean do you feel things are on track? Do you think things are ahead of schedule? What are your, I guess, your confidence in the projections you guys provided in terms of like efficiency ratios? And would you expect, I guess, provide any sort of incremental update there as far as your projections throughout the quarter?

Yes. I do think things like efficiency ratio, we'll be out there projecting -- and not projecting, but coming up with those numbers. Obviously, at the moment, you got a lot of things moving around. Like you just brought up, for example, the PLP status, right? So we had some income in the first quarter that might go to NSBF that would normally be in the bank.

So I think in the second quarter or the third quarter, you'll get a better sense of income and expense being put together. We obviously do have Reg W policy and issues that we'll be dealing with as well, but we'll be able to report that. Because I think when you think about our business model, brokerless, branchless, BDOs and bankerless and the capital that we've got, we will be able to deliver really attractive efficiency ratios going forward. We're an organization that has people available to our clients. They're on camera. They have a personal relationships with these people. It's virtual, but that's the world we're in now.

The world going forward is still our customers want to have somebody to talk to versus just typing data into a piece of software into an endless [frame]. So we'll be able to do that, and we feel pretty good about the business model. And really giving -- I mean we give a lot of information out. We've been complemented on that. We're going to continue to do that. So I appreciate the question, and that is really one of the values that we believe we're going to be able to derive.

But I will tell you, it's a heck of a lot easier for me to get on this call and talk about it than to actually execute on it. So we have a lot of work to do, and we'll get there. We have a history of being able to deliver those types of results and do it. It just -- it takes time.

And our question comes from the line of Scott Sullivan with Raymond James.

Congratulations to you and your team. You guys definitely had the vision on the SMB opportunities at the time back then and building, I think, the best mousetrap at the time using the BDC structure. I kind of like an analogy here that you're graduating now top of your class from a sort of intensive master's PhD program and, again, kind of skating to where the puck is going, which I think might be the best structure of financial bank holding. So with that preamble, I've got a couple of questions. Really, how relevant is this Q4 report to the future?

Well, I think -- Scott, I appreciate it. I think that it's a mark in time, and it's really the handoff into the financial holding company. So we obviously -- we paid out, I think, a $17 million dividend on December 31. We paid the owner of the bank $20 million, pushed $51 million of capital into the organization. And that -- really, we have to get that done because that's what we put in our application. That's we have to deliver on.

So I think that people looking at -- first of all, I don't know how people are coming up would be met or beat. I don't know where I got these earnings numbers from, but they didn't get it for me. So with that said, as you sit here and look at the company today from an investment perspective, we have put out into the market that we have, a well-capitalized bank. We have a very well-positioned financial holding company. We're now regulated by 2 great regulators, the Federal Reserve and the OCC. Our status is positionally have a good pipeline. We raised capital in the markets in January, a pretty tough time to raise capital, both preferred from an institutional investor and bonds with our BBB+ rating.

So we're in a good spot. Now we've got obviously a transition going on. We're moving people into the bank. We're changing payroll. Shareholders are transitioning despite the fact that we've talked for 12 to 18 months about a 4% yield without putting a dividend number on it because that would be imprudent. I mean today, we're able to cross over the concept of being imprudent by having the Board actually declare the number and declare the number based upon the earnings because it would be imprudent to really talk about. I don't think impatient shareholders understand that. But for people that like dividends, it's great. But the reality of it is, stocks are able to retain earnings and generate high return on common equity. You're better off. I mean look what we can do with that money.

It's funny, (inaudible) shareholders just say, "Well, gee, what did you do with your dividend?" Well, I held it in cash? Well, how did that do against inflation? Or I put it in the stock market that was down 20%. So I mean the reality of it is, we're still going to pay a very nice dividend, which will be qualified. We're going to retain earnings, which is very beneficial to the company so we don't have to dilute as much as we used to. And we've done the math. That's going to work long term. And we will hit our metrics. That's where our head is at. That's where our goals are at. And we start to hit these numbers, all of a sudden, you get your following, and that's where we're at.

And right now, we're picking up some institutions, which is valuable. Hopefully, we get included in the Russell, which will be very valuable. Hopefully, the 2.4 million short sellers will have realized, well, gee, now the dividend is declared and the party is over and the Seeking Alpha headlines are behind us and don't do what they got to do with their 2.4 million shares short.

Terrific. And you touched on this a bit, but can you give us some more color into the state of your customers in the SMB market?

Well, look, it's interesting in that our customers, they're affected. Everybody is affected. The employees are affected. Customers are affected. To state that nobody is affected by a 450-basis-point interest rate hike would be just ridiculous. So for people not to expect a reevaluation of assets is just silly. I mean I don't know where their heads are at. But it just doesn't work that way.

If you went to college, you got to figure out the cost of capital is higher. You run it through the model, and the assets are worth less. It just is what it is.

Getting down to our business customers. Look, I have to say our business clients are there. Operators are entrepreneurs. And through COVID, a lot of people changed the way they do things. They reevaluated their businesses. They got much more efficient. They got rid of things that were, frankly, wasteful because they were afraid they didn't know whether this is going to be their last meal or they can leave their house. So a lot of them got more efficient.

On the other hand, a lot of them didn't. I say a lot of them, it's a small percentage on the extreme that are good operators. And they're going to have to deal with the fact that their interest expense is higher, and they're going to have to be able to make those payments. However, a lot of them really got bailed out by the government subsidies of those 3 programs. So they're in pretty good shape, and that's kind of showing up in our numbers. Although we do anticipate that we'll get back to more normalized historical charge-offs over time, and we think we've got the right math because we've done this for 20 years. So we've seen the extreme of '08-'09, and we've seen the pandemic numbers. So we think we've got the right numbers in our models and the right reserves, and we'll be able to manage this.

And our customers who we speak to from a servicing perspective, I think we have 40 people in our servicing department. So we're talking to our customers unlike most banks where they make a loan, they won't have a conversation. That's not been our school, and we are very communicative with our borrowers. And we're speaking to them regularly, particularly when we noticed that their payments are lower. We're (inaudible) money out of the account. The money is not there on the 1st. We know we need to make a phone call.

Fantastic. I appreciate that. And you might have touched on this also, but speak a little bit further on your pro forma on tangible common equity.

Yes. Look, I think depending upon how you define this, not including an adjustment. And if you include the preferred stock in there, you're probably looking at -- and I haven't done the calculation, but you're probably looking at $8 or $9, including the preferred stock in there. But that wouldn't be common, that's just equity. But I think that if you were to add back $170 million on 24 million shares, it's almost $6.

So you could basically say it doesn't work. But then again, if you want to buy a bank at [1.1] book or a book or 0.8, there's, I'd say 8,000 -- there's 4,000 of them you could buy. They just don't grow. So if you want to grow organization, you're going to have to look at one like ours, where we have a Payments business, a Tech Solutions business. And only so the businesses that generate reoccurring income that don't suck up capital. And therefore, they should be part of the valuation. But you shouldn't -- in the accounting, gaps as you zero amount, or we could put them in with goodwill, but that's still not going to make it when you get to that tangible common equity. But then again, we don't have a balance sheet -- well, actually, I wouldn't say a balance sheet, we don't have assets that hit the balance sheet, and that's just the accounting treatment.

So people, similar to how they understood us as a BDC and traded at a premium to BDC over most of our BDC life. I believe that we'll explain what we're doing, and we'll show the earnings numbers, and we'll keep growing those earnings. That's their desire. That's our forecast. That's our aspiration. And that's capital asset price. You grow the earnings, you grow the dividend. People are going to reward you with a higher stock price. They're going to get -- by the way, you've got to deliver the numbers. So it's not like we're saying don't put the price up there without delivering the numbers. But you start delivering those numbers, and you show earnings growth, which banks aren't able to show. You look at the return on average assets or return on tangible common equity at most banks, they're not near these numbers. So that's the difference. So we hit those ROAA numbers and the ROTCE numbers, the price will follow.

Perfect. Well, again, congratulations, and best of luck.

Our next question comes from the line of Bryce Rowe with B. Riley Financial.

I appreciate the discussion here this morning and all the questions from the other guys. I wanted just to kind of dive into your sources of fee income that you lay out, I guess, on Slide 17, bank versus nonbank entities. I think you touched on this a little bit with Paul's question, but curious if you could just walk through kind of what the driver of the growth is at the bank. I would assume it's more gain on sale. And then the -- just the sources of nonbank fee income that you show there on Slide 17.

Sure. Thank you. So the growth on the nonbank side is a lot of it is from the return on equity for the JVs, and we're going to put a lot of equity into that business. We don't show in the forecast material growth in payments, tech solutions, insurance and payroll. I think we'll get down to some more granular numbers going forward as we report the first quarter and start to put marks out there, but I do appreciate the question.

In the bank, you're going to get growth from the SBA business. Though frankly, we muted the volumes, and we also have muted currently gain on sale numbers in the forecast versus what the current market is. But you're also going to get value from the servicing aspect of the nonconforming business and the fee income.

So now in the event that we're lower in those numbers, we will have lower capital raising needs up at the holding company if that makes any sense. So we'll be doing less issuance. We'll have more capital because there is a capital that goes into the nonconforming business. It does eat capital because it's more of the traditional non-bank type financing, where you got to put up equity, you got a commercial bank line, you do the securitization. It generates great returns, but the capital is expensive.

I mean down the road as a thought process of that business was never able to go into the bank, and it might down the road if we can get the regulators comfortable with our projections. We didn't want to do that starting off a bank. We just wanted to keep the bank very simple, very vanilla. But so far, our track record in history is pretty good. But right now, using commercial financing, that's a pretty big driver of growth. In the event that that's not the case, we have capital to do a lot of other things that did pay good greater dividends, buy back shares. If we felt strong about the 7(a) business, put more money into the 7(a) business.

You're dealing with a fairly volatile environment. What a different 60 days makes. We talked about that relative to us becoming a financial holding company versus being a BDC. But also the difference between December and January was night and day in the capital markets. Now February has been a little bit softer, but it looks like things are starting to turn around again because we're starting to see hints of a little bit of softness in here.

So I'm not -- I was never a believer that was going to be cutting rates anytime soon, and I'm not a believer that we're going to go much past 25 or 50. I think we'll go up there, and we'll sit there for probably a long period of time. And the Fed's go just look at the math, but you can't raise interest rates by this amount of money without the economy slowing, and it will.

And our last question, one moment, comes from the line of [Steve Alesio], investor.

Okay. I hope this isn't too low level for this discussion. But back in January for the bank savings account was supposed to be 4.15% and then gradual increases and CDs. And what it ended up with was the savings account is 4.5%, which is the same interest rate on the shorter-term CDs, 1, 3 and 6 months and then the 9, 12, 2-year, -- 1- and 2-year CDs all have a 4.6% interest. And I don't know, did it just become an accounting nightmare to have all the different interest rates. I was just kind of interested in knowing why the change?

Appreciate it. And look, it's a very competitive environment right now for deposits. So at the moment, we want to make sure that we can compete. Those deposit rates are for consumer high-yield savings and consumer CDs. Our high-yield savings for commercial accounts is 3.5. And the CD rates, I think you'll see are going up.

Now on a relative basis, it's still a heck of a lot better than the commercial finance rates that we've historically paid, which are currently 8.25, probably going up to 8 3/4 with the Fed's next rate increase. So I think from our standpoint, no, it's not -- thank God we've got a great CFO in John McCaffery in the bank and Nick Leger, as the President and the COO, keeping an eye on things. We've got the right software in place for the purchases coming on stream. So we're able to manage, it's not a problem at all.

Okay. I guess I was just interested as to why they're all the same rate, though. It kind of didn't make sense to me when the change -- the plan was for them to gradually increase with the length of the CD. Maybe I didn't pose that very well.

No, I think you posed it well, and one might also look at the market and go, it doesn't make any sense either because the yield curve is inverted. And the overnight rate for banks is 4.5 or greater. 1-year treasury bills right now, I think you can get a 5% yield. So the only thing I can tell you is those rates are very much pegged to where the competition is in the competitive market for bank financing, not necessarily pegged to what you think a normalized yield curve should be.

Thank you. At this time, I'd like to hand the conference back over to Mr. Barry Sloane for closing remarks.

Well, I appreciate all the analysts we had. We are hopeful that we'll pick up coverage around maybe 4 to 6 over time with bank analysts. And I think that's going to really help tell a story of a bank that's different, a financial holding company that's different and a company that's positioned to take advantage of the future, providing financial and business solutions to this particular important demographic. And I say that to be able to service independent business owners with feet-on-the-street sales force with branches, with commercial bankers.

Business owners today, they want their solution on demand. They want to go online if they wake up late in the evening or on a weekend. They want to get somebody they could talk to on a camera. We're positioned well for that business in the future. And the products and the solutions that we have are frankly better suited to that customer today. So we're clearly ahead of the curve, we're ahead of our time, and we're going to grow into a really exciting company. We appreciate the following, the attention, and we appreciate all the analysts and investors that joined the call today. So thank you very much.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.

Thank you.