NewtekOne Inc (NEWT) 2023 Q2 法說會逐字稿

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  • Operator

  • Good day, and thank you for standing by. Welcome to the NewtekOne, Inc. Second Quarter 2023 Earnings Conference Call. (Operator Instructions) 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.

  • Barry Scott Sloane - President, Chairman & CEO

  • Thank you, operator, and good morning, everyone, and welcome to our second quarter 2023 financial results conference call. For everybody listening in, you can follow along on the PowerPoint presentation by going to our website, newtekone.com, newtekone.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 Leger, our Chief Accounting Officer of NewtekOne; Scott Price, our Chief Financial Officer of NewtekOne and Newtek Bank National Association; and Nick Young, President and Chief Operating Officer of Newtek Bank.

  • 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 from a business development corporation with the acquisition of National Bank of New York City on January 6. Therefore, some of the usual comparisons you'll see in earnings presentation 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 gyrations is difficult. You can obviously get that information by looking towards our 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 6 months. We acquired National Bank of New York City on January 6, a 59 to 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.

  • We've had a big hill to climb 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, loyal customers and tremendous vendors and providers that really enabled us to, I think, produce tremendous 6-month results for our first 6 months positioning the company as a financial holding company. We're not a NewCo. We've been around for almost 25 years, established in 1998 privately been public since September of 2000. And we really look forward to demonstrating that the growth that we've had over our history 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 the forward-looking statement on Slide #1. We'd appreciate if you have an opportunity to read that. Now going to Slide #2. Talking a little bit about our second quarter results as a financial holding company. We talked about completing the acquisition of National Bank of New York City on January 6. Important points of focus for this particular presentation. First of all, we picked up bank analyst coverage within the first 6 months. Mike Perito has recently picked up coverage on KBW. We appreciate his efforts. Crispin Love, a new analyst for bank coverage from Piper Sandler, Bryce Rowe from B. Riley, also covering banks. And hopefully, Raymond James will transition its coverage over from BDC coverage to a bank analyst. We're hopeful that will happen in the near future. And last but not least, Chris Nolan Ladenburg. So we're really appreciative.

  • I think part of the reason why people have become more familiar with the company is 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 full exact BDC type account. Clearly, throughout this presentation, the ability that we've been able to demonstrate to 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, they're typically matched by time deposits. And our core product is the SBA 7(a) loan, which are prime plus 3-type coupons which today would be 11.5%. So even if you're raising money in the 4s or 5s, it's very attractive bid-ask rate floating rate quarterly adjust no cap on the loans. We'll also be able to demonstrate today as a focus we want investors and analysts to look at the return on average asset and return on tangible common equity ratios that we've been able to produce in the first and second quarters and through the first 6 months of the year.

  • As a bank in the second quarter, 4.9% return on average assets. That'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 2% return on average assets and a little over 15% return on tangible common equity.

  • On Slide #3, when we talk about our diversified streams of revenue and income. One of the benefits of an investment in NewtekOne is 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 that one might invest in. So the primary engines for earnings in 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 $0.18 in Q1, $0.18 in Q2. Newtek Small Business Finance is the nonbank lender that historically we did our SBA loans out of. That business is in a rundown mode. It is segmented in our Qs. That's the legacy portfolio of 7(a) loans.

  • We also have subsidiaries that are owned by the holding company, Newtek Merchant Solutions, Mobile Money, Newtek payment solutions, Newtek Insurance Agency, payroll solutions, all are profitable. We're excited about the growth opportunities here, the cash flow they provide to the company and the earnings engine. And obviously, our joint ventures in the nonconforming program. They're a little bit difficult these days, but we'll soon look to get back on track as the economy is stabilizing and where yield curve makes that a little bit more challenging, but we feel very good about our opportunity in the nonconforming loan segment with our joint venture partners with that activity sitting up at the holding company.

  • On Slide #4, we did talk about the comparisons that are difficult between the current NewtekOne year-over-year versus the Newtek that existed in 2022. Obviously, difficult to compare the accounting gyrations between a 33 Act account and a 40 Act account.

  • On Slide #5, we view ourselves as a technology-enabled solutions provider. And we're excited about that label because we think it's accurate. We are not just a depository. The 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 Qs and our information we're providing today, you'll be able to see we had tremendous success in gathering deposits from $140 million of deposits when we took over the bank to $447 million of deposits as of June 30, 2023.

  • Loan originations, moving the SBA 7(a) business with PLP status or from Newtek's small business finance, a nonbank lender, into the bank. We got close to $200 million of 7(a). 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 when 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 is staff and recruit with great talent. Obviously, Nick Young, the 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 NewtekOne Holdco as well as Newtek Bank National Association. In addition to that, we've recently hired a Director of Bank operations in Burt Chandler, who will be helping build out our back office for various different depository functions. People like [Tom Susi, John Bivona], Brian Lawn, real excited and that's combined with the existing talent pool that we brought over from the Newtek BDC that we're able to move into the bank.

  • Obviously, we talked about a mantra of no branches, no brokers, no bankers, no BDOs. Sometimes I get taken to task on the concept of no bankers. The reality of it is we do not have traditional bankers or bank BDOs. What do I mean by that? The $0.25 million to $500,000 a year professionals that exist at most of the 8,000 to 9,000 financial institutions in the United States that take clients out for breakfast, large, dinner, golf, bowling, or whatever they do, bring in deposits and get paid those types of dollars.

  • Well, we think that as the market transitions to our business model and artificial intelligence and the 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. We'll 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 -- the 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 is in Miami, Florida. We look forward to growing our business without the use of branches, brokers, bankers and BDOs and we currently don't have any in the expense structure and our operational processes.

  • I think it's important that we view ourselves and our staff view ourselves as being able to provide a superior service and products to clients. If we cannot give the customer the Newtek advantage, which is the benefit of doing business with us, we haven't earned it. We must earn every transaction. We must be better. We must be superior than our competitors. That's the Newtek Advantage.

  • The Newtek Advantage is obviously a technological platform, but just doing business with it is a Newtek Advantage. We'll 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 Newtek Advantage. We'll talk about how many we have to date and start to track our success in this particular area, beginning in Q3 and Q4.

  • Slide #6 from a capital markets perspective, tracking our stock. For those of you that have hung in there with us over the years. Historically, we've been a very good performer. We obviously transitioned out of the BDC, which was extremely painful, #1 from the longevity standpoint, transitioning from a dividend paying stock into a stock that still pays a very nice dividend but also is relying upon retained earnings and growth in price appreciation. So this year-to-date, new, 14.06, the S&P Regional Bank Index to carry down 15.7%. So we've outperformed the banking index by almost 30 points. We're very proud of that accomplishment and achievement and have even outperformed the Russell 2000.

  • For those of our legacy investors and BDCs, you could buy a T-bill today at 5.5%. So I don't know what's so attractive about the 9% ordinary income that a 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. It's about a 4% yield. It's also taxed at a qualified rate. And hopefully, we'll be able to get back to the types of performance once we turned over -- continue to turn over the stockholder base.

  • According to the NASDAQ online information that I've received and 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 Slide #7, we talk about a differentiated business model. Some of the things we talked about, obviously, in the former 6 slides, well-managed asset liability strategy. We do understand that most deposits have 0 duration but on a going-forward basis, the ability to get more deposits on commercial demand deposit accounts with our NewtekOne, 1% account and 3.5% on commercial high-yield savings. To be able to work with our payroll business, our payments business and our lending business to gathering deposits is something that we'll 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 talked about our ROA and OTC. We can't say it enough. This is why we are an interesting opportunity for investors that want to invest in technology-enabled banks, technology-enabled solutions provider to the all-important independent business owner community in the United States.

  • We've obviously done a real good job for the first 6 months of the year, demonstrating we were able to shift and gather deposits and make loans. We will, going forward, be able to demonstrate the ability to bring in deposits for all these certain verticals as well as the basis and understanding of the Newtek Advantage.

  • On Slide #8, we talk about our second quarter financial highlights. With our previously issued forecasted guidance of $0.26 per common share. Net interest income of $5.7 million. That was an improvement sequentially over the $4.6 million. This is at the NewtekOne level. Total assets up from $1.2 billion to $1.4 billion.

  • I think it's important to note here, we'll talk about this going forward. We're $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 that's where our efficiency ratios are going to grow.

  • As a matter of fact, when we make loans, even though the balance sheet and the SBA only grows by 25% of the loan, please understand that we think this year we'll probably do about $1.25 billion worth of loans. And in the past, with the PPP business going on, we were close to $1.5 billion, $1.5 billion. 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 we will be able to manage it, which should really help grow our earnings per share for our customer base.

  • Total borrowings flat, $697 million. One of the drags on our business relative to return on tangible common equity and return on assets is 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're carrying about $250 million of cash sitting at the Fed. So 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 will carry us from a deposit perspective pretty much through the end of the year. So we've 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 1 leverage ratios as well.

  • On Slide #9, those are the financial highlights for the 6 months, $0.72 for the first 6 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 6 months ended June 30, 2023. Slide #10 focuses really on Newtek Bank National Association just really drilling into the bank. Insured deposits 90% of total deposits. It's an enviable position. I'm not sure we'll always be able to stay that way because we will have some larger customers coming into us, which we'll have to try to satisfy, 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. So before we took over the bank was 2.7%. Now that we're starting to layer on, our business model is jumping 3.61%. There's not too many banks that could state that their net interest margin grew by 90 to 100 basis points in the first 6 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, not a lot of expenses in the bank, a very simple, small local community bank. We talked about our ROTCE, our ROA efficiency ratio of 58.7%. 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.

  • Here's our risk-based capital ratio, Tier 1 leverage ratio also here on Slide #10, really good numbers. Slide #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 6 months of the year. I do think we'll have probably another 12 months of building that's all built into our numbers.

  • So we're going to have some headwinds until we get this bank exactly to where we need it to be technologically and from a process standpoint. And we're really excited about the ability to capture additional revenue from the nonbank business activities, very excited about that.

  • Slide 12, we talked about ROTC and ROAA as well. These are going to be great precursors for growing our EPS down the road. Slide #13 talks about our historical lending, most of our 7(a) lending, I should say all of it was done in Newtek Small Business Finance. That's now in a runoff loan at the holding company. We have a lot of our PLP status into the bank. We also began funding SBA 504 and C&I loans in the bank in the first 6 months of the year.

  • At the close, we infused $79 million of capital. We think the capital at the bank could grow to an excess of $100 million. That's a very nice growth in the first year of owning and operating a bank. Most banks have, frankly, start up. And obviously, we don't view ourselves as a startup, but we really have to change the business model. We have to change the software of so many things that we have to put in motion, staffing, et cetera.

  • So we're obviously good at multitasking. With the hill to climb, with the headwinds, the markets don't wait for you. And 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 debt, $20 million of convertible preferred shares from an institutional investor.

  • Slide #14 talks about our efficiencies and lending, very, very important. Closed 773 loans for the 6 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 or BDOs to help grow the business. And we've been doing this for a long period of time. We do so efficiently, effectively and with good risk management. This loan productivity capability, particularly as we look to do more investor-based 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 key to our growth, technology, people, process, no bankers, brokers, BDOs or branches.

  • Slide #15 talks about what some people consider our ISO, our tangible common book value of $7.05 per share. We're not ashamed of it. We just don't think it has that much relevant value, although most people tell me that it does. Okay, it's fine. This is what it is. I think it's important to note that we've got a lot of assets on our books, Newtek Merchant Solutions, Newtek Tech Solutions, Newtek Insurance Agency, Newtek Payroll. It has a BDC at a fair value of $166.7 million. Transferring over into the deconversion, it has a negative tangible book value.

  • However, those businesses generate a lot of cash. As a matter of fact, when you look at some of the projections going forward, it generates kind of close to half of the income of the business, but yet it doesn't show up in book value. It's because we're different. NewtekOne isn't like other financial institutions that basically almost have one trade. We make loans, we have deposits, we click coupons. That's not us. We have diversified stream of income. We offer a real value and advantage to our customers, so they stay with us and keep coming back and refer friends. This is a different opportunity than investing with other types of bank holding companies, financial holding companies or banks.

  • As a matter of fact, we look at ourselves as a business and financial solutions provider that also provides depository services to our clients. We're really excited about what we're doing. We're comfortable in this structure. We'll hopefully, and the anticipation for our earnings and dividends over time, and that will drive the stock price whatever the multiple of 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 2:1. And I could recall people telling me in the B2C market, you'll never trade above NAV. Well, we broke that mode by growing dividends and growing earnings and being successful.

  • On Slide #16, you can see the deposit growth over that 6-month period of time, 220%. A lot of these things we covered, digital account openings in the quarter, 3,600 new client relationships. I believe that was within the quarter. I think we picked up 4,500 depository accounts from the time we picked up and own the bank.

  • Slide #7, nice slide breaking out our bank deposit growth, and we'll get a little bit more granular as we go forward in our presentation and our presentation skills going forward. But you could see about 21% of brokered CDs, we want to get that number down, but we are within our business plan at this point in time. So we're comfortable with that. We have an unused line of credit at the Federal Home Loan Bank of Atlanta. I think it's about $70 million. So as we get that number down and we get the Federal Home Loan Bank number, we keep that at 0, we'll always have that nice emergency capability in the event some unforeseen circumstance happens. But importantly, we've been able to raise the non-brokered retail CDs, total savings deposits and do so in a short manner.

  • On Slide #8, I think this is important. We are not just an SBA 7(a) lender, although it is our flagship product. And for those of you that aren't familiar with 7(a) lending, there's no fee at the current coupon at our rates of prime plus 3 is 11.5% loading rate quarterly adjust. In addition to that 75% of the loan is government guaranteed, and we typically sell it at approximately a 10% premium plus or minus. That's what helps drive our return on equity and return on assets.

  • The SB final 4 loan, which we have slides in this presentation that cover the types of return on equity, an important product that goes into the bank today. We also -- I used the word conforming commercial and industrial business loans. Conforming relates to conforming the bank underwriting and standards, also conforming investor-owned CRE loans, nonowner-occupied investor-type deals. We've actually had success putting both of these categories on at spreads of 350 or greater to the curve.

  • Our nonconforming C&I loans are funded at the holding company and joint -- some of them on our balance sheet, and we exit out by securitizations. This is also a 20% to 30% ROE business. Slide #19, we inherited the National Bank of New York City portfolio. This is a 5 borough New York City portfolio, Brooklyn, Bronx, Queens, Staten Island, I forgot something. Oh, Manhattan. Sorry, Manhattan, 1 more borough there. You're looking at an average loan size of $1 million to $2 million. The former bank owners and management did a great job. Low loan to values, personal guarantees. There's no real imminent balloons coming up. These are going to roll over the next 12 to 48 months. They're primarily asset liability managed with time deposits.

  • This portfolio is marked to the market during purchase accounting in Q1. I think that's important to note. There's 1 nonperforming loan in the crowd. This obviously is skinny margins. but 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 can 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 we'll be able to get margin. We're not always out there to win on price. We're out there to win on enabling our clients to be more successful, giving them longer AMs, giving them additional products and services and giving them the Newtek Advantage.

  • Slide #20 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 exists at Newtek small business finance in the bank holding company.

  • Slide #21 talks about all lending activity, total commercial loan closings for the 3 months ended $251 million. So you could see as we're ramping up, we're at a clip of about $1 billion of loans if you straight line that. Obviously, you could see what we did in 7(a) on Slide #21, you can see what we did on 504. And in the quarter, we originated $25 million of non-SBA 7(a) loans for the 3 months ended June 30, 2023.

  • For those of you that followed the 7(a) business, our premiums were down from the prior quarter, 10.15. That adds some volatility to our rate stream, 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. As a matter of fact, we think we'll get and hope to get a nice tick in the fourth quarter. The loan increases that you got in July, based upon the Fed raising their rate on the existing portfolio doesn't kick in until October.

  • So everything at NSBF doesn't adjust because it's a quarterly adjust. So one of the headwinds I'm talking about is our funds adjust monthly per se, particularly in the securitization, but the loans adjust quarterly. So we'll get a nice bump in Q4 with a more fuller coupon. And new loans that we're putting on the books in the quarter are done at the fuller coupon. So that's just how the SBA business works. Certainly, as rates are going down, you got a little wind at your back and now the wind as rates are rising, unfortunately, is in our face.

  • Slide #23 is our attempt at putting out what we think are the better market comps or organizations that own 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. The closest one probably is Live Oak Bank, a terrific institution with a great business model and plan. But you could see the types of earnings and multiples that are out there when these organizations are successful.

  • Slide #24, the importance of payments. Banks do 2 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-sized business. That's our target. The fact that we own a payments business for over 20 years is really going to be tremendously helpful. And the legacy business is really as a super iso, but to be able to do items for our clients like same-day funding, putting the money into Newtek depository account, ecommerce solutions, our own POS same-day funding, electronic billing, using BillPay and embedding our debit card in the bill pay. And these are things I'd like to say, oh, yes, they're in place. No, 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 going to be amazing value adds to our client base.

  • And it's going to give them a reason to do business with new (inaudible) cost effectively and it works effectively. For a commercial enterprise, this is invaluable. And we think that we will rise to the top in this particular area. Once again, our goal in moving money is to make the business more successful, not just take your money and keep a depository account.

  • Slide #25 talks about some of the math that our Merchant Solutions business. It's obviously material. We expect to do about $15.4 million of EBITDA in our payments units, NMS, Mobile Money and POS on Cloud. Slide #26, once again, we talked about why payments are important to NewtekOne and to our clients. We will shortly be announcing the issuance of a Newtek Visa Bank debit card, which will give us the ability to access Visa and direct payment rails with that card. And obviously, these types of businesses are reoccurring fee businesses that can benefit NMS and Newtek Bank and noncapital-intensive.

  • Once again, we realize it's extremely important to our business owners to be able to move money quickly, efficiently with really good reporting mechanisms. Obviously, we're all aware of the products like FedNow. Look, FedNow is not going to be snap your fingers and it's all in place. It's going to take place over time. But as these markets grow and move, we are positioned for it with people, process and software.

  • Slide #27, Newtek Technology Solutions. There is a typo on this slide, the expectation for EBITDA of $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 months 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 Newtek Technology Solutions.

  • Slide #28, no charge loss 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-offs to date. 29 is a typical slide that we've shown for 20 years, a gain on sale on 7(a). Slide 30 talks about the revenue and the accounting income of the 7(a) loan. #31, how our 504 loans are structured, how the income flows through on a 504 loan on Slide #32. On Slide #33, nonconforming business, originating loans today, 3.5 points of fee. Obviously, the recent increases in rates were probably at 11.5% gross, 12.5% grows, 13.5% gross, extremely attractive. We make the loans. We warehouse them with our joint venture partners, put them into securitization, a very attractive business for us. And we do believe that this business will get regenned up now as the capital markets are opening to us. This is a capital-intensive business at the holding company.

  • Slide #34, the Newtek 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 Newtek Advantage. This is why customers, SMBs, independent business owners should do business with us. We give Newtek's clients, analytics relationships and transactional capability that other banks just simply do not have. We actually give them an asset day 1 that they don't have to pay for that can enhance their business operation and make them more successful.

  • For example, when you go to the Newtek Advantage, you can get a licensed insurance sales person, a payments person, a depository person, a lending person. All these things are available through the Newtek Advantage and you communicate with them via video. We believe the Advantage can be a market-recognized tool. This is one of the things that we will spin off to other community banks, credit unions and organizations that want to be able to provide these types of solutions in their own brands and their customers with us behind them. We think this is a tremendous opportunity.

  • We're also going to talk about as we have in the past. We look to launch Newtek 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 tie deposits, payments and payroll into an accounting function. This is a progressive institution that's looking to meet and exceed the current needs of businesses, but those needs that are going to 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 of Newtek Accounting in the near future.

  • To date, we've opened up 280 Newtek Advantage accounts. That is 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 and the process.

  • Slide #35, we declared an $0.18 dividend for the second quarter. The dividend was paid on July 21 shareholder of record on July 10. Slide #36 is some of the key assumptions that are in some of the forward projections that you'll see going forward. At this point, I'd like to turn this portion of the presentation over to Scott Price, Chief Financial Officer of NewtekOne and Newtek Bank N.A.

  • Michael Scott Price - CFO

  • Thank you, Barry, and good morning, everyone. I'll start my comments on Slide 7. It summarizes our capital position as of June 30. I'd point out that the regulatory filings for the holding company have not yet been filed. So 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 generated nice returns as Barry has indicated. Slide 38 outlines the summary metrics for the company's forecast for the remainder of 2023 and slides 39 through 44 provide a good amount of detail on the company's expected results for the second half of the year.

  • The forecast assumes that we deploy a portion of our liquidity position, as you'll notice in our numbers, the asset position is considerably higher, and that's mostly due to the defensive 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 originate-to-sell model.

  • I would point out that of that as more of the company's balance sheet composition shifts to the bank and its capital stack, the benefits of lower funding costs should continue to push returns higher, all else equal. Our deposit costs are expected to increase as the recent Fed hike takes effect, lower-cost CDs mature, and we continue to leverage our online deposit gathering platform.

  • The company expects to continue to execute on its 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 has experienced in prior years from the perspective of loan originations and gains on sales spreads are expected to continue in the second half of 2023. So with that, I'll turn the call back over to Barry. Barry?

  • Barry Scott Sloane - President, Chairman & CEO

  • Thank you, Scott. Wrapping things up before we turn the call over to Nick Leger, our Chief Accounting Officer. On Slide #38, 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 if you take a look at where we think we're going to wind up for 2023 as a financial holding company at the bank. We'd just like everyone to try to focus on what we believe we can hit for some very lofty goals for return on average assets, return on tangible common equity, both at the holding company as well as efficiency ratios really moving in our direction.

  • Moving forward to Slide #5. From an investment summary perspective, you could see where we're looking at relative to our profitability ratios and our efficiency ratios. We're maintaining our projections of $1.70 to $2, although I wouldn't say we're really near the midpoint. We're 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 second quarter quarterly dividend of $0.18, we do believe we'll be able to maintain, obviously, given our profitability through the remainder of the year. And we do want everyone to focus that this is a growth-oriented differentiated technology-enabled financial holding company. We're excited about what we were able to deliver in Q1 and Q2. And I'd now like to turn the rest of the presentation over to Nick Leger, our Chief Accounting Officer.

  • Nicholas J. Leger - CAO & Executive VP

  • Thank you, Barry. Good morning, everyone. You can find a summary of our second quarter 2023 results on Slide #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 will see in the consolidated statement of operations upon conversion from our previous BDC investment company accounting, where our portfolio companies did not consolidate in the BDC's financials and those activities would historically be reported as dividend income from the investment of the BDC.

  • As a financial holding company, we are now consolidating those portfolio company operations. As a result of this conversion, there is no comparable prior period consolidated financial statements are referred to with the 2 different types of accounting. I'd like to start with some of the highlights from our second quarter 2023 consolidated statement of operation.

  • On a consolidated GAAP basis for NewtekOne, our first quarter -- our second quarter results are as follows. Net interest income for the second quarter was $5.7 million, which is up 23.9% from the first quarter net interest income of $4.6 million. Net interest income is comprised of $22.6 million of total interest income on loans and fees on loans, offset by $16.9 million of total interest expense. $9.1 million of interest expense is driven by the interest expense of our notes and securitizations. In addition, $3.7 million is due to the interest from bank and FHLB borrowings and $4.1 million of interest expense on deposits.

  • In the first quarter of 2023, the company previously implemented CECL on the Newtek Bank loans portfolio, an additional $2.6 million of provision for loan credit losses was recorded in the second quarter. Net interest income after the provision for loan credit losses is $3.1 million for the second quarter of 2023.

  • Focusing on total noninterest income of $46.4 million, $4.3 million is a result of servicing income, $13.2 million of net gains on sale of loans, $6.5 million from technology and IT support income, $10.7 million from electronic payment processing income, $4.4 million of net gain on loans accounted for under the fair value option and $6.1 million of other noninterest income.

  • Going back to the $13.2 million of net gains on the sale of loans, which is comprised of the realized gains recognized from the sale of the guaranteed portions of SBA 7(a) loans sold during the second quarter totaled $18.5 million. In the second quarter of 2023, Newtek Bank and NSBF sold 566 loans for $154.5 million at an average premium of 10.15%. Realized losses on the SBA 7(a) loans for the second quarter of 2023 was $5.3 million.

  • Moving down to noninterest expense of $40.2 million, which is primarily comprised of $19.4 million of salaries and employee benefits for the consolidated financial holding company, $4.8 million as a result of electronic payment processing expenses, $3.5 million from the technology service expenses, $3.2 million of professional service expenses and $3.6 million of other loan origination and maintenance expenses and $4.9 million of other general and administrative costs.

  • Pretax net income for the second quarter of 2023 is $9.3 million. And on an after-tax basis, consolidated net income for the second quarter of 2023 was $6.8 million or $0.26 per share. I would now like to turn the call back to Barry.

  • Barry Scott Sloane - President, Chairman & CEO

  • Thank you, Nick. Operator, we would love to open it up to Q&A as that concludes the presentation portion of the call.

  • Operator

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

  • Crispin Elliot Love - Director & Senior Research Analyst

  • First, Barry, I was just curious if you could comment on how you view credit quality to be performing in the loan book and just expectations going forward. Your provision came in below your guide in the second quarter. And then also, if you could just share what level nonaccruals were as of quarter end and then if there were any charge-offs in the quarter.

  • Barry Scott Sloane - President, Chairman & CEO

  • Sure. I'll take the first part. I'll see if Scott and Nick can help me on the second. On the first part, relative to the provision, I think in prior calls, we had talked about a 7% or 8% CECL 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 we believe we're consistent with what we've previously forecasted. But from an accounting standpoint, that's pretty much where it comes in at. Relative to the quality, Scott or Nick, do you want to pick that one up?

  • Michael Scott Price - CFO

  • Barry, 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 CECL that we would discount our expected losses. So if you think about the 7(a) portfolio with an over 11% coupon and you discount that back, you can clearly see that a custom discounting that kind of interest rate will really reduce the expected losses. So we are susceptible to future interest rate moves, and it's going to be a very interesting scenario to see play out for the rest of the year. But that is the reason for the discrepancy between the two.

  • Nicholas J. Leger - CAO & Executive VP

  • And then for the other question, the NPLs as a percentage of the loan portfolio at fair value was about 6.9%, and the realized losses for the quarter was $5.3 million.

  • Crispin Elliot Love - Director & Senior Research Analyst

  • Okay. Do you have the NPLs at cost as well or just a fair value?

  • Nicholas J. Leger - CAO & Executive VP

  • At cost, I think it's about 12.8%.

  • Crispin Elliot Love - Director & Senior Research Analyst

  • Okay. Great. And then just one other question for me. Just on the cadence of earnings in the back half of the year. I think in the third quarter, you're now expecting $0.37 in EPS. Previous guide was $0.43, if I'm correct, but kept the fourth quarter pretty steady at $0.69. So just curious on your confidence in the ramp in earnings 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 the acceleration in earnings?

  • Barry Scott Sloane - President, Chairman & CEO

  • I appreciate the question. You're fairly new to us. I think you're about 6 months old. But over the course of 20 years, the fourth quarter has always been our biggest quarter. We can 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 of growing our business.

  • Our night job was moving over people, staff, policies, procedures, wire instructions, PLP status, regulatory issues with 2 new regulators still keeping -- I mean, the headwinds that we've had in the first 6 months of the year, I cannot describe. It's like having 3 jobs. I still think we're going to probably continue to have 3 jobs through the rest of this year and then maybe they'll go down to 2. And then maybe to go down to 1, so we'll be able to focus most of the time going out in the future on the 1 job where we hope to be able to hit the gold stream and outperform things a little bit better than we are today.

  • But we feel pretty good about the numbers. And obviously, you've got also a fairly volatile environment with things changing quite a bit, particularly on the short end of the curve and pricing and things of that nature. So we feel pretty good about the numbers. We've historically been a pretty good forecaster.

  • Operator

  • (Operator Instructions) Your next question is from the line of Michael Perito from KBW.

  • Michael Anthony Perito - MD

  • Just one quick follow-up on the guidance. Just on the margin assumption, the 10.75%, I was just wondering if you could take that a layer deeper for us? I mean it seems like I've looked around at some of the banks that sell a good amount of this paper, including yourselves, and it seems like the secondary environment was pretty stable in the second quarter after some volatility the 2 months -- the 2 quarters before that. And just wondering why does that feel like the right level based on what you're seeing today for the back half of the year for selling loans and what gives you kind of some confidence around that number, so a bit below where you've been historically, but obviously a bit back from where you were in the second quarter?

  • Barry Scott Sloane - President, Chairman & CEO

  • Sure, Mike, and I appreciate the question. I'm going to try to dig out the page in the deck that focuses on our sort of history of gain on sale prices. I think the major difference between us and the organizations is the fact that we're dealing directly with borrowers. Slide #22 really goes back into sort of the history of our net premium trends. You can see there's not -- there's some volatility there, but it's not like -- with the exception of 2021, where the SBA had 0 fees in the middle and we got up to 13%. I mean you're really pretty much looking at about a 1.5 point swing plus or minus.

  • Relative to pricing going forward, we feel very good about on a going-forward basis, our loans being priced at prime plus 300. That's the only rate that we do. So unlike a lot of our competitors in the space that have different rates for different people. We have 1 rig. It's prime plus 3. We deal directly with the borrower. There's no broker and there's no expensive banker in the middle of the transaction. And we were able to quickly ascertain what the borrowers' needs are. We 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 loan.

  • So I think when you look at where the market is, the current price that we've used is based upon a very recent mix of loans that we sold. And then also I think it's important to note and maybe people that aren't day-to-day in the business as we are, a 25-year loan by commercial real estate can get sold into the market at 114, 115, 116 of which it gets split. And then a 10-year deal that's got that commercial real estate sells at 110 or 111.

  • So when you look at the mix and the blend of real estate backed versus non-real estate backed, that changes things. Big loans versus small loans changes the discount. So it's not that easy a formula to figure out, but we're pretty good at making the guesses. And we obviously look at where the entire market is going. And the market right now seems to be pretty good.

  • The other thing that's really important also is -- from a portfolio perspective, when are the rates changing? So our legacy portfolio in NSBF is primarily at prime plus 2.75%. Our new loans since the change was put in place is prime plus 3%. That's why we're also getting better prices holding everything else constant. The extra 25 basis points makes a difference. Hopefully, that was helpful.

  • Michael Anthony Perito - MD

  • It was. And then just a few more for me, and I apologize, it's kind of all over the place. But just one last one on the guide. The jump in share count in the fourth quarter, I just wanted to confirm, is it safe -- that that's just kind of like equity grant or stock comp related stuff, right? That's just an assumption you guys are making around that, nothing more?

  • Barry Scott Sloane - President, Chairman & CEO

  • It's a good catch, Mike. You're very thorough, and I appreciate that. I think that is a plug number in terms of something we may or may not do. I'm not sure we need to do it. But no, that's not comp, that would prospectively be a raise, but we've got access to debt 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 comp will occur. That's just the best guess and that kind of helps us get to these numbers, if that's helpful. I hope it is helpful. Obviously, our goal…

  • Michael Anthony Perito - MD

  • Yes. No, I mean it is, I guess, so is it -- I guess maybe that opens up a broader question then 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, given your growth rates or?

  • Barry Scott Sloane - President, Chairman & CEO

  • No. Need nothing at the bank, nothing. The holding company -- listen, the other thing too is that money is available to you at a fair price, you can make money off via take it. So I'd be frank with you, I'm less enthusiastic about selling shares that would be a debt, although the debt markets haven't been really that [kind] in the last month or so. So it's a really hard thing to do this, which I'm sure you could appreciate. Like I don't know, as a bank holding company debt going to be -- are you going to be able to do a 7.5% or 9.5% in the fourth quarter. I have no idea. 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 guesses out there, and we always want to never overpromise and under deliver. So obviously, that's a little bit of a drag, but I wouldn't say that that's something that you can absolutely count on at this point.

  • Michael Anthony Perito - MD

  • So if I'm hearing you right, it's a conservative assumption that you might add some capital at the holding company level at some point, but that might not happen?

  • Barry Scott Sloane - President, Chairman & CEO

  • It might not happen. Clearly, I don't need it at the bank. And the only capital I need at the holding company would be to do the nonconforming loans because there's nothing else that needs capital.

  • Michael Anthony Perito - MD

  • And then just 2 more. Just on the -- I believe in past conversations, Barry, you've talked a little bit about the credit on the NSBF portfolio, particularly some of the vintages that happened during the pandemic. Based on where the kind of gains and losses were on the fee lines 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 SBF book that you guys are seeing? I mean it's kind of -- you touched on it a little bit, I think, in the prior question, but just wondering if you can go kind of a layer deeper on that for us.

  • Barry Scott Sloane - President, Chairman & CEO

  • Sure. And I think the NSBF portfolio, we have at fair value. So the NSBF portfolio does not have what I would call a traditional bank loan loss reserve. I believe we've got that portfolio valued at -- from here and a good chunk of it is seasoned, 20% cumulative default rate. That's going forward. And approximately a 45% (inaudible) we've got that portfolio fairly conservatively valued. And Nick, was the market clearing yield on that, like 8.4% net of those charge-offs.

  • Nicholas J. Leger - CAO & Executive VP

  • Yes, that's correct. 8.4%.

  • Barry Scott Sloane - President, Chairman & CEO

  • Okay. So net of charging off historically over time, that amount of charge-off, and I would say 40% of the portfolio is 3 to 4 years old. We think that portfolio is fairly conservatively valued. So now if you were to ask me, well, gee, what do you think of the environment going forward. The one thing I can almost bank on it will not be as good as the one we're coming out of. We think I'm probably wrong. But from a goldilocks scenario, you couldn't have had a better economic climate, particularly with our customer base for PPP, an EIDL loan, C-credits, of which, by the way, we're still working that with customers.

  • So I just think that it's going to get a little worse. The other thing too is it's a seasoned portfolio. So it's only to look uglier and other lease time goes on, and I want to embrace you and other people for that. I mean it doesn't get any better if you don't add anything new to it, right? It's only going to get worse from a percentage standpoint. I also want to point out, when I look at nonaccruals, right, I think this is really important for the 7(a) 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. Similarly, we already got the gain on sale and you have a nice high coupon. So people say, oh my God, it's 13%. Well, first of all, the other thing is we've gone through COVID where you couldn't foreclose on stuff, and we chase personal guarantees. So one like a bank that when the thing goes bad, they just bang it out, this is a nonbank asset, and it's driven at a nonbank level. So it's going to look very different than in a bank environment.

  • I just 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 CECL, which is sort of similar, but not exactly. But I think these things you're pointing out are very important differentiators between NewtekOne and most of the organizations that are in this particular structure.

  • Michael Anthony Perito - MD

  • Got it. Very helpful. And then sorry to ask one, but just a couple of other quick ones. Just on the loan portfolio buckets, maybe this is a question for Nick or Scott. But just can you remind us -- I know the NSBF, the answer is no. But as we think about the go-forward provisioning cost, do all the other buckets, the loans at amortized cost, the conventional loans, does everything kind of flow through a CECL provision other than the SBF bucket? I apologize it's kind of basic question. I just want to make sure I have it right.

  • Barry Scott Sloane - President, Chairman & CEO

  • Scott, I'll let you take that one.

  • Michael Scott Price - CFO

  • So, as you think about the portfolio, you've got the traditional NB NYC portfolio. And if you go back to the first quarter, you can see that we reserved about 1.25% on that portfolio. Keep in mind that we did have 1 loan that we were watching. It looks like that loan could be coming to resolution 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 what we had originally projected. So that's one item to note.

  • I think as you think about the portfolio going forward, we generated about $48 million of unguaranteed 7(a) loans during the period. And so as you look at the provisioning on that portfolio, you have to take into account the discounting. I can't emphasize that enough, particularly in the volatile rate scenarios that we find ourselves in today. So as rates move up, our allowance naturally has a propensity to go down, all else equal. So that's just -- that is the math and the accounting that we've elected.

  • So when you look at it, Barry mentioned the 7% to 8%, you discounted back, you're looking at somewhere anywhere $650 million to $675 million based prior to the Fed move. So I think you can expect that kind of provisioning as we move forward, understanding that if rate hikes do go in, we will -- that number will most likely come down.

  • Michael Anthony Perito - MD

  • Perfect. And then just lastly, and this will be quick. But just do you have -- Scott, do you have the -- or Nick, do you have the average earning assets for the quarter? And can you just confirm that what the average kind of full quarter NIM was? I just want to make sure I have it right.

  • Michael Scott Price - CFO

  • Yes. So we're looking at total interest-earning assets for 6/30 quarter end at about $1.8 billion.

  • Michael Anthony Perito - MD

  • Do you have the average for the quarter, though, by chance?

  • Michael Scott Price - CFO

  • That is the average. Yes, sorry. Yes, for the quarter ended 6/30. So $1.89 average daily balance for interest-earning assets, net interest margin at $2.09 for the consolidated company. Perfect. Thank you guys. Sorry for all the questions, but I appreciate you taking them.

  • Operator

  • (Operator Instructions) Your next question comes from the line of Bryce Rowe from B. Riley.

  • Bryce Wells Rowe - Senior Research Analyst

  • I wanted to start maybe on this concept of the guide and the seasonality that you've seen in the past, Barry. So you've got forecasted operating expenses consolidated coming down in the back half of the year. And then you also are showing the NTS and NMS pretax income is going up pretty considerably in the back half of the year. Just curious, how you would kind of characterize the seasonality of that or just capturing operating efficiencies as you move further away from the move from BDC to bank?

  • Barry Scott Sloane - President, Chairman & CEO

  • NMS is clearly a seasonality, particularly with third and fourth quarter. NTS, I think that there were issues, particularly in technology, where given the economy in Q1 and Q2, a lot of people delayed projects, and we think are coming back on stream. Regarding the lending, we're fairly confident about the volumes. Obviously, once again, it is hard to forecast, but we feel very good about it. Relative to the operational expenses, we're just getting much more efficient at this particular business. So when you look at it as a percentage of things from an efficiency ratio, we're really just getting a lot more leverage out of our operations and our business, putting more (inaudible). And that will be a challenge, will be more technology solutions. I'm very confident in the NMS because we're just looking at the seasonal factors there.

  • Bryce Wells Rowe - Senior Research Analyst

  • Okay. Okay. That's helpful. And then I think, Barry, in your prepared remarks, you talked about a dividend from the bank to the holding company. Just wanted to make sure I heard that correctly. And can you speak to kind of the dynamic there, especially considering that you put equity into the bank when you close the transaction.

  • Barry Scott Sloane - President, Chairman & CEO

  • Sure. So with my Chief Legal Officer on my right shoulder here, imaginary, the only party that can declare a bank dividend is the Board of Directors. It has to be approved by the regulators. But I'd say with confidence that this is something that we plan to do and we are in compliance and subject to those 2 authorities approving it. I think it's something that the market can expect and I would hope as somebody that's going to recommend this both to the regulatory authorities and the Board that a 50% ratio might be something that one can expect from the bank to the hold co, paid out of profits, of course. And the hold co dividend, which we set is somewhere around 30%-ish, 33.3%. So that's kind of what our thoughts are there.

  • Bryce Wells Rowe - Senior Research Analyst

  • Okay. And reason for doing that is to kind of help manage capital at the hold co. I mean you just talked about really not needing incremental capital at the hold co. So just curious kind of how you would use that capital at the hold co level.

  • Barry Scott Sloane - President, Chairman & CEO

  • Yes, it would be used for the (inaudible) business primarily. That's got the need for it. It could also be used to pay down debt as well.

  • Operator

  • Your next question comes from the line of Scott Sullivan from Raymond James.

  • Bryce Wells Rowe - Senior Research Analyst

  • Congrats to you and the team on really continuing this transition rather elegantly. So my comments and questions come from a slightly different perspective. As I've really been fortunate enough to be an adviser and portfolio manager for clients and been involved with Newtek since the early BDC days, as you know. And frankly, as everyone knows, you crushed it. You guys have really done an outstanding job. So it's a 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. I see a lack of financial stress. I see a potential eventual de-inversion of the yield curve. Obvious, as you talked about tech developments, AI and other that in my opinion, are going to lead to a huge productivity boom for possibly a decade long. So question after that ramble is what's a blue sky runway for you guys in terms of growth rate, loan growth, et cetera, with the special sauce that you've proven in terms of your process and under these macro assumptions.

  • Barry Scott Sloane - President, Chairman & CEO

  • Sure. Well, I think that if you look at the road map, which relates to people process and software, no bankers, no brokers, no BDOs, no branches. The market visualized as the management team can that we could grow the revenue stream without matching dollar for dollar with expenses, then the future is pretty bright for us. And I want to be real clear about this. A lot of people say, well, gee, why did you buy a bank? Do you want to leverage net deposits. Well, that's just a fact of the banking business, but (technical difficulty) to the ability to communicate and deliver bundled services with margin pooling that actually give that customer a tremendous advantage.

  • So here's a simple thing. -- document storage, okay? We've had this and use it to make loans forever. If you bank with us, you would get free documents and you take advantage, your consumer, could be your insurance policies, your photos, your driver's license, your rental agreements. If you're a business, it's your articles. That's free. It's a benefit. You can go to the Advantage and look at your web traffic analytics that are changing every day. That's free.

  • And then you have -- and I love asking this question to anybody. Who do you know at your bank? Half the time, they say, I don't know anybody. The other half the time, they could 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 Newtek Advantage. You get 6 relationships. So you get the analytics. I mean, there's so many things. That's why I'm very excited about the model, how we're positioned. It's different. 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 owned it.

  • So we owned all these things. They're not just stuff slapped together and hoping they work well. So that's kind of where I see that blue sky without getting into the numbers of the math. Now when you look at the ROAA and the ROTCE that's where people are going to have to look at this and go, okay, I can actually compute this in the numbers. That's very helpful.

  • Bryce Wells Rowe - Senior Research Analyst

  • One last question. Could you speak to any often talked about now, loan office exposure?

  • Barry Scott Sloane - President, Chairman & CEO

  • Did you say loan office? Oh, office. I believe that the National Bank of New York City portfolio might have had maybe $15 million-ish. But these are not skyscrapers. These are like medical offices, $1 million to $1.5 million balances. So there's no -- I mean, we're blessed. We don't have that type of exposure in the portfolio.

  • Bryce Wells Rowe - Senior Research Analyst

  • Well, that's very helpful. As I said, we don't get many opportunities to sort of get in the ground floor of a new bank with new techniques and expertise without all the legacy baggage. So congratulations.

  • Operator

  • There are no further questions. Please go ahead.

  • Barry Scott Sloane - President, Chairman & CEO

  • No, operator, I appreciate it. there any -- I don't think there's any other questions that I'm seeing.

  • Operator

  • We just one have from Christopher Nolan from Ladenburg Thalmann & Company.

  • Christopher Nolan

  • You have a very differentiated business model. Are you finding more resistance from bank regulators who are having a difficult time getting their hands around your business?

  • Barry Scott Sloane - President, Chairman & CEO

  • It wouldn't have surprised me if in fact the regulators would pause. And so far, we haven't seen that at all. So I would say we've been blessed that everything we said we're going to do in our plan we've done, including excessive amounts of capital, good performance. So no, the answer is it wouldn't have surprised me if that occurred. It just has not. And we don't see any hints of that occurring, at least (inaudible).

  • Operator

  • There are no further questions now. You may continue for closing remarks, Mr. Sloane.

  • Barry Scott Sloane - President, Chairman & CEO

  • I can't thank everybody enough. And I appreciate everyone being patient to get on the call and get their questions in. So thank you all very much. We look forward to reporting Q3 and Q4 and delivering everything one step at a time. Thank you so much. Have a good day.

  • Operator

  • This concludes today's conference call. Thank you all for attending. You may now disconnect.