NewtekOne Inc (NEWT) 2024 Q3 法說會逐字稿

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  • Operator

  • Good day. And thank you for standing by. Welcome to the New Tech One Inc third quarter, 2024 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session to ask a question during the session. You will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Barry Sloane CEO and President. Please go ahead.

  • Barry Sloane - Chairman of the Board, President, Chief Executive Officer

  • Thanks very much Gerald and Good morning and welcome to our third quarter, 2024 financial results conference call. Today's call is hosted by myself, Barry Sloan CEO and founder of New Tech One and Scott Price, the Chief Financial Officer of New Tech One and New Tech Bank National Association. Also joining on the call is Nicholas Young President and COO of New Tech Bank.

  • Once again, wanted to thank you all for attending. We're very, very pleased and proud of the results for the third quarter. Want to make a couple of quick additional announcements. As many of you have seen, we put out a press release recently that we have hired Ron Lay as the Chief Technology Officer for New Tech Bank N A and New Tech one publicly traded holding company. We've also added the staff that we put out a CC document on this CJ. Burnett CJ previously was CIO and CTO of the publicly traded new tech entities and was also the President and CEO of New Tech Technology Solutions. So we've clearly added, continue to add to our star studded staff of a management team to be able to help us grow, manage risk. We'll talk about that a lot on the call, but particularly with respect to information technology. I wanted to thank the management team for putting up a great performance this year as well as support from the board. Today's presentation will be a little bit unconventional. We're clearly working very hard with analysts in the street to be able to better explain what a differentiated organization like ourselves looks like. We clearly have a differentiated business model and approach to both providing business and financial solutions to independent business owners in ALL 50 states. Something that we've been doing now for well over two decades and that unconventional approach leads to a little bit of unconventional numbers, unconventional analysis. So we're going to focus a lot about things you don't necessarily want to hear and I will try to stay away from repeating the things that are obvious in our press release. Some of the things that are obvious was recorded in one of the notes from our analyst this morning, we reported 45¢ of earnings per share for the quarter. I do want to point out that we actually had a tax charge for deferred tax liability without that, that would have knocked it up to 47. So actually, and Scott will talk about this in the MD&A. Without that, tax charge, we probably would have had 2¢ better. The, the street consensus was about 43¢. Also point out that our return on average assets at the Holdco, we will focus on the bank as well. 2.8% consistent with recent quarters, almost three times the pure median at 2025 guidance, which we gave 2025 midpoint of $2 and 12.5¢. Three consensus is currently 207. So we're extremely appreciative. I also want to point out one other item which is important and this is something that we will spend a lot of time tackling. The provision was higher than expected. New tech book 6.9 million of provision. But we're going to talk about this and specifically spend a lot of time on risk adjusted returns, which is most important. Typically this industry does not really focus on risk adjusted returns. We do. It's been in our DNA for over 20 years. It's really what matters people are in this industry typically invest in very low margin, low charge of assets. So we intend on working hard to continue to get industry participants more comfortable with what our financial numbers actually mean. For those of you following along in the presentation, you can go to our website Newtekone dotcom Investor relations section. We have a powerpoint hung for this presentation. I'd like to suggest to everybody that we fast forward to slide. Number three significant events in Q3, we talked about the earnings be we didn't want to go to core non core. Just leave me at 45¢ per basic diluted. Remind you about a 527,000 tax charge based on the pal talk merger with NTS which is a divestiture which we'll talk about that would have added about 2¢ to that number. We confirmed our guidance 185205 bit point B 95. That's what we think you should focus on. We'd like to think we can gravitate more towards the upper end of that range, but that will remain to be seen. We're in an extremely vul market. We wanted to give ourselves cushion and at the current stock price, we think there's tremendous value based upon these types of numbers. The obvious deposit growth, 12% at the bank loan growth 17% at the bank net interest margin at the bank. 5.29% loan loss reserve coverage 500 basis points. You don't see these types of metrics in this industry. It doesn't exist. We understand the uncomfortability with these metrics. We're going to spend a lot of time going through it. We're making a lot of progress visiting with investors, visiting with analysts and getting us to better understand our model of who keep our, our head down and do that. The internal loan program picked up traction. That's a very important accelerator to us being able to get our EPS in the future higher into the twos. And at one point, many of you remind me frequently that we actually had a $3 number out there and that's based upon our ability to grow faster, which we throttled back after the 2023 banking. I'll call it banking crisis with Silicon Valley Bank, signature bank sygate, etcetera, etcetera. We'll talk about a little bit more in this call and important to note the efficiency ratio 39%.

  • I mean, if I would go to a bank executive or bank holding company executive and I would talk to them about these ratios and tell them 65% to 70% of our income is for non interest bearing, they would salivate, they would trade their seat for my seat. All day long. Our job is to get people comfortable with the model, people comfortable with the risk adjusted returns and that these are going to continue to happen. It happened for 477 quarters. We're going to continue to track. We feel good about this. We're not new to this rodeo. We've been doing this for over 20 years and we feel really good about where we are.

  • Last item on slide number three, we completed a registered public offering of 75 million of bonds. Newth, 858 coupon, listed on the NASDAQ triple plus by Egan Jones with a positive out going to slide. Number four. These are the things we kind of hammered on. I'm going to dust over them because you've seen them looking at third quarter 2024 ROA 6.3 ROTC 49% efficiency ratio. 39.4. These are sort of unheard of nim 5.29% yield on loans. 11.12.

  • And that does not include the gain on sale income that we get from selling the seven A business, the government guarantee participation we've done for 20 years. So people don't like gain on sale. I can understand that if gain on sale is an anomaly because rates move up and down or spreads change. Yeah, but this is our business.

  • This is what's going to continue on and on and it's a cash game.

  • We sell the government guaranteed piece, we get cash for it creates capital, by the way, average grade on funding. This is interesting. We're high here, but you could see as we're gaining speed in business depository accounts, that number will start to come down. That's an execution thing. We have to get the people, the software, the process in place. We're tracking.

  • The third quarter was the first quarter. I would say we were all in the Wilmington office is set up under our Chief Operating Officer for the Digital Bank. Jennifer Merritt, staff with about 25 people. In addition to other people at the bank, we're going to talk about staffing. This is an organization that staff first ask questions later. We are poised for growth and I do want to point out I'm reading from a report when growth is the problem, I'm sorry, growth is never the problem.

  • Growth is good. It's being able to manage the growth and manage the risk. And we have a star studded management team and look, if we had issues, we would be scaling back our growth. We'd be scaling back our projection. Otherwise I'd be doing the wrong thing here on this call. Growth is not the problem that isn't actually more on. I'm reading directly from report.

  • Let's go to slide number five. Now, this is at the hold co a lot of our competitors in the space that we're being managed against and I might suggest we might be better off in a technology segment than in this segment. But it's another time, another story we're going to stick here. This is where we're going to be and we're going to be a stand out relative to these metrics as we are today. We could clearly show which we will in slide number seven, how we stand out events against our industry peers, but relative to today and the Holdco has some fair value in it.

  • It has their A LP business in it. We're going to talk about that today and provide more disclosure. We need to do an enhanced job in giving the market more information on stuff that isn't readily apparent from Ks and Qs in the presentation. Once again, ROA at the Holdco 2.9 nim grew from second quarter, 2024 to third quarter, 2024 3.08. Part of that is because we're putting E LP loans on our books, not in joint ventures and joint ventures, they don't consolidate that way, average yield on loans 9.32%. So, let's move forward to slide number six, our forecast for 2025. So we're very comfortable with a $2.02 $2.25 EPS range for diluted earnings per share for next year between the low end of the range and the high end of the range at the midpoint. It's an 8% to 12.5% range of an increase over 2024 So here is an oxymoron, an institution like this, that's actually growing its bottom line in double digits and we're comfortable with that. We think we can do that. We've done this for our entire history historically as ABDC. And now we're in the seventh quarter seven because the 3/7 quarter of our transition into a financial holding company, we've accomplished growth in the ALP, business growth in business deposits. We talk about our payment processing segment. Nobody talks about it. You're going to see some numbers that you need to look at. It's diversification. it's a business that isn't directly tied to rate movements or credit movements. It's reoccurring income. It's a business we've been in for over 20 years and now that it's part of a bank, there's advantages to the customer. By the way, all of this is about the customer.

  • If we focus on the customers, just like Apple, just like Amazon, just like the four seasons we're going to win. I realize this is a financial conversation. But at the end of the day, we are very focused on a frictionless environment for the customer without brokers, banker, bank, traditional bankers branches or BDOS giving them easy technology, allowing our staff to use the greatest and latest technology. Many of which we developed ourselves in house to make the experience for the staff clean, easy, frictionless that results in transactions which you can clearly see from the numbers once again, our midpoint of $2 and 12.5¢ for 2025. For instance, consensus is $2 and 7¢. We're clearly constructive about where we are. Slide number seven is real important. I'm going to leave this to all of you to dig into this and look at it and analyze it. Look when you look at yield on earning assets, 1 to 3 billion, 3.5 billion commercial banks. 5.53,5.65. Look at the bank 896, 8 82. It's 3 to 350 basis points greater, greater like you can't ignore that or you choose to so far. But it doesn't include the gain on sale servicing income. And the other thing is this book of business is going to start to grow. So you could see we're growing the traditional bank and bank holding company type income all at the same time continuing to get great returns on equity and assets as we make things and then sell them for gains. If you look at our profitability numbers, clearly dusting others credit quality which we need to tackle and cover. This is the, this is the big ugly duckling, so to speak, although we're comfortable with it because once again, in today's environment, we have plenty of reserves, plenty of capital, very adequate checked on a regular basis by two regulators outside auditors, internal quality control people. All historically from the banking environment. So, despite the fact that these numbers are bigger on a risk adjusted basis, we win, we win all day long and it's frankly less risky, although it's not tagged that way than making ac re loan at 250 off the curve at a 65% LTV, that you're totally banking and hoping that the deposits don't go away in the middle of the night and you're hoping that your banker doesn't need it's part of those deposits or that you don't have a signature bank or Silicon Valley Bank situation where these deposits that are discounted, the risk free rate by 250 to 300 basis points because of that relationship and the bank arguably doesn't offer a lot. We love our model and we believe very confidently we're going to win in our model slide number eight.

  • My book is our North Star great company. Please take a look at these numbers. Look at the P/E ratio, look at the fact that it takes them $12.5 billion worth of assets at the bank versus our $914 million asset size, generate net income. Something's off here. You need to take a good hard look at this. Look at the efficiency ratio.

  • That's what you get from technology.

  • This is the future of this business and industry. And by the way, our clients, they love speaking to our staff on camera, they love using our technology now, I'm not telling you, it's perfect. I'm not telling you, our staff doesn't need to get trained better, but we're winning. We're putting on more loans, we're putting on more deposits. We're driving the numbers and I think it's the first or second inning of a long game and the, and the best is yet to come.

  • I once again, live Oak, North Star, we aspire to be like them and the success they've had in the business and I have to say we don't compete. Yes, our assets look similar. I think we have a similar philosophy with technology now, by the way, they create technology and spin it off for huge gains, but they don't get criticized because they get gains on sale for spitting it out.

  • We get criticized for making a loan and selling it every day, every week, every month for the same cash gain and that's reoccurring. Well, I'd rather bet on us making loans and selling them over the next 1,235 or 10 years than creating the next greatest technology like in Zo. But that's beside the point, but they got great valuation for that.

  • We're working on it, we appreciate it, we appreciate you paying attention and doing the hard work that's required to look at making an investment in new tech one slide number nine, this, this lead to the presentation today and I'm going to go through these one by one, but these are some of the things that are missing. Okay? Once again, I'm going to stay away from the highlights in the press release. You can all read them, you could all see the growth in deposits, you could all see the RLA. You can all see that stuff and Scott will handle that. Also in the MD&A and Scott price, our great CFO growth in the payment segment. Let's go to slide number 10. So look, I don't know why this constantly gets ignored, but I really can't find a lot of information on this in the market.

  • This is a segment in our queue pre tax income for the quarter of 32.5% to 5.3 million pre tax income for the nine months of 43% to 14.2 million forecast the pre tax income for 2024 17.7 million forecast for next year, 2025 19.6 million. Now ask why is this growing the business we've been in a long time now, the customer, it always goes back to the customer. Our customers love the fact that they're now dealing with a bank and a payments business. Together. There is a payments ecosystem through the new tech advantage. Many of you have heard me talk about the new tech advantage. It's on our website. We have videos, what is the new tech advantage, the advantage to the business client and there's 30 million of them in the United States is defined by the Small Business Administration. We identify that customer base is independent business owners, small and medium sized businesses, small medium sized enterprises. So in that identification, that customer, that business owner, they want to have analytics, they want to have data and they want to have transactional capability. So by taking our payments business, pushing it into the advantage, the client at night can do the following. They can look at their bank balance. They could see all their bill, pay money leaving your account checks that are cash checks that aren't, they can see their electronic billing invoicing and the money coming back, they can see their Visa Master Discover American Express charges in the advantage. They can see their batches from the day, they could see the refunds, they can see their charge back. Everything is in the advance. I will tell you this is extremely unique and we've recently passed the divide where the bank is now integrated into Quickbooks. Therefore, we are working on taking the balance sheet and the income statement and giving the customer view and the quick books. So if you're a business owner rather than going to 234 different systems or for that matter, having to go to your external accountant who is in fact doing your books and records, you can go online and see everything we have customers now that are willing to come to us. Price is not the big issue. On the payment side and the deposit side, which we'll talk about. They love our no fee. Business accounts, no fee, no wire fee, no ach fee, no monthly statement fee, no abandonment fee, no refunding. Go to our website. We have a calculator there makes it very easy. It's an immediate savings, immediate savings and they don't get 10 or 20 basis points for the top four banks. They get 1% on checking and 3.5% on business savings. It's a tremendous value. And this is why just in early stages, the sampling of people coming to us for a typical payment processing business is growing. There is the advantage.

  • Flight number 11, nice charts and graphs. I've been told about this presentation. It's too long. Some people say it's too short. Some people say it's just right. We try to take all this comments and put it together, but we want to be able to educate people.

  • I don't know how you can ignore this business. It's very valuable. I want to make one other point about this business when we were BDC. It was valued at fair value in the holding company. It's not, it was basically not part of tangible book. Extremely important. We have a slide to address that.

  • If this business, you put a seven or eight multiple on it, which is probably down many, many turns from a public comp we would have $125 million to $150 million valuation. Perspectively, you figure it out. I don't do that net of debt. But if you hypothetically use those numbers 125million -150 million, it's five or six bucks a share that would go back into what you would call adjusted book. So people look at us a book, you shouldn't look at us as book. But if you have to look at as a book, you may want to look at the business which is very liquid, very valuable, put a number on it and then say yes, this is something that they could probably sell. Not that you have any interest in doing that in a short period of time and yet it's not a loan. So it doesn't have a tangible book but it's incredibly valuable.

  • Most financial institutions don't have things like this, particularly in the segments that we're in which is subpar $500 million of assets, which is, which is an issue into itself because we're even below the small cap at, at this point in time of 500 million. But anyway, let's continue slide. Number 12, we put out a press release on this early redemption of the 2018, 2019 securitizations.

  • These are assets and liabilities that are, and we're located in new tech small Business Finance, a segment in our q what we said was when we raised the $75 million we're going to take a piece of it and pay off the debt in the securitization. Why is that important?

  • Those securitizations the way they're structured, they trap all the P&I and they trap liquidations of ALP and reserve funds in the securitization. So by paying off the debt, which netted $18 million you can see it on slide number 12 net of the loan of the cash reserve fund, we were able to free up approximately $68 to $69 million of performing loans and 15 ish million of non performers when you add that up together was a fairly healthy number. Here's the important aspect and this is just an estimate. It's rough but the cash flows that would come in off of that 37 million, 32 million off of NSPF flowing into NSPF. Why is that valuable? Well, that's cash that can be used to repurchase stock.

  • It could be used to pay off debt. If we used to fund a op we have $280 million of equity that is sitting in NSPF new tech, small business finance, people don't think about it. But is this isbu burning down or self liquidating?

  • And I've heard somebody describe it. I'm reading a report as an old legacy investment. Well, that old legacy portfolio has 280 million of cash of, of, excuse me, equity in it. Well, I don't know, I'm not sure I would call it a legacy portfolio and downplay. I think it's as it, as it pays down, it's an attractive asset. Now, it's also the least attractive component to making an SB a loan of which you get a gain on sale up front, you get a servicing asset. Now, I say it's least attractive. The coupon on those assets are currently 11 and a quarter. They are financed with expensive securitization debt. That activity going forward is going to be done in the bank at lower cost. Very important item to think about. Let's go to slide number 13, we'd like to get some credit from the fact that we've been in the banking business now for seven quarters and we've got a book value for com com year going from 865 to 1,007 and the til book going from 735 to 950 that's nice growth. And once again, does not include anything obviously from the payment processing area 14 insurance agency which is currently in one of the segments and it's not broken out.

  • This is something you may look at breaking out next year. But I think it's important to note net active policy since we became a bank grew by 1,429 units or 37%. Now, this is illustrating the benefit of having everything at a business owner fingertips and being able to provide team and life and other insurance to people that are taking out loans. Look, you could see we do a lot of things. I wish we could do all these things simultaneously. At the same time, we can't, we have to continue to make our numbers quarter by quarter. We have a lot of initiatives, we prioritize them. With that said the insurance agency business, a reoccurring fee based business very well positioned in the advantage and is part of the new tech one ecosystem. We now have the capability to provide keyman life on every business loan which we're doing with the policy pre assigned to the loan. So it's pledged all done automatically in a period of 7 to 10 minutes without a medical exempt automation. The insurance agency with its automation is going to be able to provide these policies to a variety of customers not just lending in the vertical. Let's go to slide number 15, many of you are familiar with the fact that we have to divest of our technology unit which basically as we transition to a financial, all the company, the company made a commitment to the board of Governors of the fed to divest or terminate the activities of NTS. So we're there. We have signed an agreement, it's public, we're merging it into an existing public company currently known as Palt Talk Stock symbol. Palt now gets a little confusing but I want to make a couple of comments. Palt talk will have to divest of all its business and the business of NTS will basically become palt talk. So palt talk will change its name to intelligence Protective Management Systems. Stock symbol is anticipated to be IPM,NTS is 17,000 customers. It provides, it provides what the market is thirsting for the market needs.

  • Outsourced it particularly the SMB market, the independent business owner market that's getting hacked. They have cyber risks. They're sending, you know, they're getting interlopers going into their system, they're stealing money, they're stealing wires. This is a big need in this marketplace. So the new code which will be public will wind up being a pure play in this particular space, cyber security outsource, outsource, manage it and professional services. So it'll be sort of a little, little, little, little mini Aws or Azure, but with real people that answer the phone helping customers 2,473,65 is a business we've been in since 04. We really, did one of the best of it. However, we're going to own 4 million shares of newly created nonvoting preferred and we'll get 4 million of cash. And there's also a potential 5 million of earn out to the transaction. This most likely is scheduled for the first quarter. Stay tuned. Palt talk is doing what they need to do. And we're excited about it this year with the NTS, which is a segment we generate between 25 million to 30 million of revenues adjusted even of 2 million. I suggest you take a look at palt talk, look at the cash on the balance sheet. Look at the cash that they anticipate getting for the lawsuit. Add this in. I think you find it interesting. We'll also get one representative for the Palt talk board of director from New Tech. Slide number 16. I think this is the most important slide in the presentation. Our credit thesis as a high margin loan originator, extremely important, high margin loan originator and risk adjusted. Extremely important. We've been doing this for over two decades. We've done it through 0809. We've done it through the pandemic. We are good risk managers. I say that in 0809, we stopped lending for a period of time. That was a smart thing to do during the pandemic. We stopped making SB a loans for almost four months because we didn't think it was prudent to do when people were told to go in their home and we didn't know what the effects of the pandemic was going to be. And we switched to PPP that turned out to be immensely profitable for the company. It shows you how nimble we were as a small company, compete against the giants. We did over $2 billion of PPP loans with 26,500 customers and now having to like us because we provided them with those funds. I want to go back to the adjusting for credit losses slide. Number seven, when you look at those yields again, the banking yields for $1billion to $5 billion banks. 553 yield 565 versus an 896 or 892.

  • After the anticipated charge off, we've got 20 years worth of experience in high rate and low rate in small economies in quick economies. We understand the concept of risk adjusted spread. In addition, loan loss reserves of 5% we've already taken the pain. We've done it up front, we monitor this quarter to quarter. Please understand this is different.

  • The typical I'll call it investor in this space, looks at deposits which we're high on, but that'll be coming down with the growth of the business accounts and they look at credit which we're also high on, but they're not looking at the other half of the business like looking at a bodybuilder. That's great from the way stuff. It's got skinny little legs.

  • That's not our business model. You have to look at the entire prior body. We reject the notion that although it is totally appropriate to consider a small and medium sized business loan based on regulatory standards, a higher level of risk on a risk adjusted basis. Our 20 years of experience in the category gives us the confidence that we continue to manage this risk and get higher rates of a threat. I am much more comfortable doing this and betting on the fact that the deposits aren't going to disappear in the middle of the night because there is no duration on a checking account. There is a name. So then you're betting on the stickiness, you're betting on the brand. Look for the top four banks in the United States. It's great, but for everybody else, I don't know. And it's way too easy to move your money today on the phone.

  • This is the single most important slide in the deck. When you look at our capital, when you look at our provisions for loan loss reserves and when you look at our coupon, the map is showing over seven quarters and it's going to continue. Some of you are alarmed at the ramp up. We had a pretty heavy ramp up in Q1 from Q2, less of a ramp up in 2 to 3. We think this trend is going to continue because we're through the what we consider the belly of the curve. Look, I can't see the out on the C chriss the ball and tell you where the economy is. But we've been, we're going to go, but we've been doing this for a long period of time and I would say we're very good at it. Slide number 17, this is all about scale.

  • 360 employees at new Tech bank. The whole codes got $571.7 billion of assets. I want to read from a report new tech. One is an uneasy amalgamation of a legacy portfolio of secure size 78 loans, joint ventures, which we're going to talk about and non controlled investments that dwarf it's depository. That is factually not correct.

  • First of all, I don't like the word dwarf. Secondly, the bank's got 900 million of assets and 1.7 billion. I don't know, I don't know about an $800 million dwarf. Okay. That's not a dwarf. Matter of fact, it looks pretty even to me that GAAP putting it aside, we're going to talk about the holding company and what's in there. And as we're moving from joint ventures to on balance sheet, funding of ALP, which we'll talk about, by the way, nobody asked me that question. Why don't you do more on balance sheet? It's all about capital allocation. We might go back and forth. We're going to do what's in the best interest of our shareholders. We are good risk managers. We've proven that over two decades and at the end of the day, to be H1st with, you don't invest in the management team.

  • You're on the local, okay? You gotta have some level of comfort. We're going to be here. We're going to keep doing this, we're going to give you the comfort. We're going to be extremely, nobody could say we're not transparent. The size of my deck says we are extremely transparent. Our financials say we're transparent. We go to all these conferences which you talk about important to note some of market participants have questions. Can they manage the risk?

  • 24 months? We've got a Chief Strategy Officer. We've got a Chief Technology Officer. We have promoted Dan Enzo, the Chief Information Officer. We have a Chief Risk Officer. We have a Chief Financial Officer. I mean, we've got so many chiefs. There's a lot of chiefs going on here. This is a stack company that can manage multiples of the asset size. We step first, we ask questions later. I think that's extremely important and the level of sophistication, it's been said, gee you're doing this business with B DC talent. Well, I don't mean to insult Peter Downs, but before he spent 21 years here, he ran the SPA business at Citibank and had a 15 year career in the banking space. Okay. We have career bankers here, Nick Young Scott price, Frank de Maria Taylor Quinn. It's in the appendix. Go look at the talent we're putting in this organization.

  • These are career bankers with exemplary track record. This is not a small little company.

  • Very scalable.

  • Let's go to slide number 18, alternative loan funding court. So we have begun to start to put the loans on our balance sheet versus enjoy ventures. Some people say, why are you doing that? Well, look, first of all, it's a bit of a capital allocation issue operationally it's easier to do and we always want to do better with our joint venture partners, whoever that might be. And we have quite a bit of them we're talking to right now in the queue.

  • Scott Price, I Dave Leone, director of Capital Markets spent two days at a BS East Miami. We had 26 meetings. Very interesting and we are out in the market talking to the biggest and the brightest and they know that in this space of lending and once again, I want to very much focused on the core credit.

  • Some people look at the things we do as lender of last resort, bad credit. Now that's wrong. I say it's wrong. I'm not saying these are AAA credit. What I am saying is the borrowers appreciate a 10 to 25 year, a double O that schedule changes the debt service coverage and it would take a loan that wouldn't fit in the bank and make it eligible for debt service. Now you say, well, gee you're not getting your principal back. You're not reducing your risk.

  • What our experience has showed this over 20 years is I'll take a personal guarantee, joining several for a 20% owner or greater with liens on business and personal assets all day long, over a short and covenance and we can absorb these losses and trade off versus the coupon. You've got a group here that is in my opinion, looking at this business and industry and the way it needs to be looked at for the next 15 and 10 years, the rest of the industry, 98% is a totally different model and it is regulatory friendly, regulatory compliant. We provide funds to SM BS all over the United States. 30% of them happen to be women and minority owned businesses and we take deposits all over the United States. Important to note, Blackrock TCP. Join ventures on our books.

  • More to the market fair value, net of loss of Varian frequency, approximately 12%. Same thing for the Tso joint venture. You'll see that we've got recent a op on our balance sheet and you'll see that going forward from a pipeline perspective. 6 to 900 referrals. Today, we fund less than 1%.

  • We think we'll have 200 million ALPOS by December 31 2024 that prospectively gives us the opportunity to do a securitization, which we saw the last time it was slide on it. Very profitable probably in the first quarter.

  • So we're going to go back and forth between balance sheet JB partnership, diversification of capital joint ventures, senior debt bank lines, equity preferred. We go back and forth slide number 19. Important curative SBA 504 and ALP loan origination volume since 2015. So people look at these not performing loans. They go, oh my God, what are they doing?

  • We see that there's a lot of charger. It scares the heck out of me. Look can you give me a set of criteria like a filed for a loan? It's a 60% LTV against the real estate after a second lien by the government, which doesn't sit on our balance sheet when they take it out.

  • It's pretty clean. What do I mean by that?

  • We have never experienced an unrealized real loss over the life of a 504 loan program cumulatively, 632 million slide 19 zero AP size 394 million cumulatively, we have experienced 3 million unrealized losses. We haven't resolved it yet. But you could see if these were put into your matrix or whatever you do for the evaluations which goes over, but I get it. Listen, I understand you have a way of looking at these businesses. We're good with that, but we need you to consider that we're a good lender. We know what we're doing. Slide number 20 alignment of interest. I put this out there. Look, we're aligned, we're very aligned. I would pay for myself. Went from big dividend paying stock to less dividend paying. That was so punitive from a cash flow perspective. I've been a major investor in the company myself, going to continue to buy very comfortable with it, pouring the notes, 80% to 85% of our employees now are participating in the company stock plan.

  • We recently did a grant, it's alignment of interest and now have 570 owners, my employees, my shareholders, which I think is an extra 20,000. I work for you. I work for the employees. I work for creditors, work for everybody. It's a great situation. We're happy. We have alignment of interest but people in our organization are personally involved with the company interests are aligned. Slide number 21. I'm going to ask everybody to read the press release on deposit. I'll leave that to Scott Zero fee bank account.

  • We've researched this. We believe there are few or no choices for zero fee bank accounts. Our clients have the opportunity to choose a depository accounts with lower expenses, higher interest, use our deposit to calculator zero really means zero. There's no hidden fees, there's no minimum. We're going to be announcing this. We think this is going to be a big deal. We think we're going to get a lot of deposits. We could take deposits without anybody going to a bank branch. Can't find a bank branch here. You do it online. A big big deal. Big opportunity.

  • Slide number 22 speaks for itself. Once again, please read the press release. Slide number 23. We've got tremendous pipeline growth. We're good on all our numbers. Step 30 2024. I want to point out we have 120 million of ALP loans on our balance sheet, mostly funded with cash equity and the leverage and the entity Holdco Six which is broken out in our financials. We created a DB A called New Tech alternative loan program holdings. That'll make it easier to define the ALP business. So the ALP segment in our Qes going forward, I'd like to suggest that we use that DBA, I don't know if we're getting it in this for you in the future, but we start talking about ALP, have that broken out separately. 24 we talked about in previous calls. Same thing for 25,26. Obvious read the press release talks about guidance talks about where we came in 27-9 month numbers, Scott. Please take over her 28 and 20 nine. Thanks.

  • M. Scott Price - Chief Financial Officer

  • Barry and good morning everyone slide. 28 shows our yields and rates. We experienced nice margin expansion resulting from lower deposit costs. As we continue to bring in lower cost deposits from business checking and business money market accounts. We raise debt in the public markets for two consecutive quarters to one refinance maturing issuances and to fund our future investments and our ALP loans.

  • So as you look forward, I believe that you can expect to have a higher balances, but that will result in higher loan balances as well. And that's reflected in our guidance.

  • Nicolas Young - Chief Risk Officer

  • Turning to slide 29 we lowered our CD rates in July and saw a decline in our in our CD retention numbers which was anticipated, this was partially offset by increases in our business checking and business money market accounts.

  • We also saw some growth in our high yield savings accounts which has followed through, through the month of October.

  • I'll point out again that we managed to keep our average balances on borrowings down and the costs flat.

  • And with that Barry, I'll turn it back to you.

  • Barry Sloane - Chairman of the Board, President, Chief Executive Officer

  • Thank you. Let's go to slide number 31 credit and risk management. One of the favorite slides out there important to note and I know a lot of you look at the trend. So I think what concerns some people was the trend from Q1 2024 and small business finance to Q2 2024. Please note the dramatic dramatic decrease. We just charge these things off. We realize, you know, sometimes you can't fight City Hall so you just, you just write it down not a big deal. Fair value went from 5.2 million to 5.3 million & $4 million increase. The jump previously was more substantial from Q1 2024 to Q2 2024. And I think that concerns some people. Look when we look at the fair value of these things, that's just equity coming back to us. Those loans are going to get liquidated. We've got the gain on sale, we've got the servicing income. We, we've marked this thing properly that doesn't bother us in a banking environment. We understand why that would bother us also important to note these are done at the holding company marked to the market with a prospective 8% cumulative charge up going forward despite the fact that the loans are fairly seasonal. So we feel pretty good about this. I want to remind everybody that we have 281 million of shareholder capital. Now let's go down to the bank, the 26 million in allowance for credit loss. I also want to point out that the charge offs but from 800,000 to 1.7 million, that is not a big deal. Now, some of you are going to focus on the non accrual health or investment. That is a classic thing you look at as a bank and you would find it to be typically alarming but therefore those non accrual loans are marked and we're comfortable that the charge off there is the right number as well as adding to the credit losses. So we've covered this for capital, we've covered it for income and unless we make a mistake which we've been doing this for 20 years where our liquidation amounts are dramatically off of where we are and we've got checks and balances of the Y yank to make sure that forbid that that doesn't happen. This isn't a problem for us. The allowance for credit losses divided by total health for investment, 5% non accruals. HF five total loans, 3.8% somewhere. Somebody wrote that are not accruals are growing faster than the portfolio, sorry, not accurate.

  • Slide number 32 adequate loan loss reserves, talk about 5% final paragraph on slide 32 talks about risk adjusted returns. Once again, high capital levels, high levels of income generation, lucrative business margins. Nobody in this part in market. In my view, talks about business margins. Obviously, we do not look at new tech notice my description, we provide business solutions and financial solutions to this demographic of independent business owners and we're also a depository.

  • Okay. That's who we are and we utilize technology so people can access us, get a seamless experience, get somebody on a camera from the comforts of their business or their home and get their solution provided for them and deal with a company that's got an expertise in what their needs are. Slide 33 talks about diversification of earnings. Slide. 34 is important because for those of you that are looking at a deposit and saying why they're so high.

  • These numbers will come down more to the industry standard of discounted deposits to the industry rate. However, ours will be sticky because we can provide payroll, we can provide payment processing. We give them the advantage. They get analytics, they get transactional capability. These accounts are going to move away in the middle of the night and they're also small accounts but not Silicon Valley accounts for 10,20, 30 million with a fancy CFO who wants to get taken to Pebble Beach where at the drop of a hat loses money over that. These are small and medium sized businesses. You look at our percentage of insured deposits. I think they're about 70% plus or minus. So we now have the staff, the management, the software in place, which we've demonstrated in Q3, the growth in business deposit accounts growing as a percentage slide number 35 these are the metrics the 2024 important to note our projection for 20 we kept it wide. 68 to 76 midpoint would be 72 plus the 126 probably gets the higher the current midpoint. We're leaving our midpoint. Leave it alone. Thank you. Slide number 36 we are positioned for growth. I think you're all familiar with this slide number 37. Important. How do we grow? Investor interest? Scott and I have been going to KBWB, Riley Raymond James at upcoming conferences in New York this week. KBW Piper again, we did an analyst day meeting. It's on our website. Please listen to it a lot of good information. We have six sales side analysts that have covered our new tech. We engage in regular quotes. People are getting familiar with this model and this doesn't happen at the drop of a hat instantly. One might argue there's an interesting opportunity here. Others might argue, I don't get it. It's too complicated. I don't want to do the work. No mob, we get it. It's not for everybody. We're going to continue to execute on a business plan and provide a high quality financial and business solution to our growing database of customers. And that's what it's all about.

  • There's 2.6 million of roles in the database. Approximately 80,000 paying customers. I will also add, the board of directors has approved the stock buyback for a million shares. Slide number 38 fairly self explanatory. I'm not going to go into it. Slide number 39 the ratios are in a powerpoint and most importantly, I have a note here, Scott MD&A.

  • M. Scott Price - Chief Financial Officer

  • Thanks Barry. Turning to slide 41. I'm going to focus my comments on the link quarter changes. Net interest income was up based on volumes of loans. I remind everybody again that we raised that in the public market for two sequential quarters and we're able to deploy the proceeds efficiently to reduce leverage on our staging lines. The provision for credit losses was up on migration and on accrual loans in the bank. I remind everyone that the portfolio at the bank is a new portfolio. So non accrual loans, we started zero at the beginning of the year and can only go up from zero.

  • Additionally, we experienced that charge off 59 basis points as a percent of total loans for the quarter. That's an annualized number and we, but I want to reiterate that we have incorporated our credit assumptions into our forecast and our guidance and are comfortable with where we are non interest income was relatively unchanged. So turning to non interest expense salaries and benefits was up approximately 1.9 million. Part of this was based on or the decline, excuse me, increase was, I'm sorry, it was a decrease. The lower expenses and salaries and benefits as a result of lower performance based comp as well as NTS reductions in force that occurred in the second quarter. Our professional fees were up mainly as a result of the NTS disposition, which is approximately 700,000 as well as the preparation of our tax returns. And then our other loan origination and maintenance expenses were up from higher volumes of loans originated as well as higher serviced loan balances. Our other G&A increased on occupancy expenses and marketing expenses increasing both $250,000 each.

  • And then income taxes as very mentioned earlier was up 500,000 as a result of a discrete item on from moving the NTS assets to help for sale, shifting to the balance sheet which we've covered most mostly in the call. We did segregate the assets and liabilities associated with NTS and classified them as held for sale. Given our agreement to sell them in the coming months.

  • Our tangible book value per share was $8.93. And we believe the NTS disposition could provide 57¢ of tangible book value accretion depending on the measurement of the consideration at the future closing date.

  • With that Barry, I'll turn it back to you.

  • Barry Sloane - Chairman of the Board, President, Chief Executive Officer

  • Thank you, Scott. We'd love to take questions from our, from our audience.

  • Operator

  • Thank you. At this time, we will conduct a question and answer session as a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced to draw your question. Please press star 11 again. Please stand by while we compile the Q&A roster up. First. Our first question comes from Crispin Love from Piper Sandler. The floor is yours.

  • Crispin Love - Piper Sandler

  • Thank you and good morning everyone. Just first on the news of the week, can you, can you just discuss some of the specific ways that you believe a Trump presidency can benefit new tech banks actually rallied yesterday, including new tech. So curious if there's anything specific to new tech where you expect the company to benefit, whether it's really to small business overall growth or anything else pointing out and if there could be any headwinds in the Trump presidency as well. Thank you.

  • M. Scott Price - Chief Financial Officer

  • Thanks Cris. Yeah, I think the the biggest item relative to I'll, I'll use the word as you did. The benefit would be, it does seem that he definitely wants to minimally and obviously it's got to get through the House and the Senate maintain the corporate tax rate and not make a change on that. I think there was a risk that if there was some kind of a change in the Senate and the House and the presidency that the corporate tax rate would change. I think that that perspectively was a risk that got removed. Now, on the flip side of it, you've got this very interesting dynamic about tariffs and, you know, we're sensitive to the concept of tariffs. Now, I try to look at these things logically, the tariff thing, it's a threat. It's not definitive, but for businesses that are fairly dominant on components or selling things from China, I would say that's a risk. Matter of fact, you know, the Biden administration didn't remove the tariffs either. So I think that we're being extremely thoughtful in credit looking to see about what if scenarios on these types of things? I think the tax rate was the easiest thing. I would tell you that with Trump and either party, I think you're more likely to get higher rates on the, on the intermediate, the long end of the curve than lower rates. You might finally get an upward sloping yield curve again because I do think that they're particularly in the near term and unfortunately, Chris, but you and I are locked into this day to day, week to week, quarter to quarter. So some of the stuff my comments are relating to short term and I'm, I'm going to keep away from the long term policy effects of it.

  • I would say tax rates positive, good for business. That's very important to, I think you're going to get a upward sloping yield curve. So there could be pressure on the fed to lower but inflation expectations from an expansive standpoint don't go away. And then the concept of businesses that are very dependent upon inexpensive goods and services from China Pakistan wherever. And by the way, nobody ever talks about why it's cheap. It's slave labor because there aren't three countries, but that's why the stuff's cheap.

  • Which that's a whole another long term thing. I'll stay away from that. Those are the things we're focused on. So I appreciate the question.

  • Crispin Love - Piper Sandler

  • Think they all makes sense and yeah, I do get this the big differences between kind of near and long term and the difficulty there. So that absolutely makes sense. And then just one last question for me on slide 7 of the deck, you break out a bunch of data on the bank and the consolidate company versus peers as well and definitely appreciate your comments on risk adjusted returns and reserves. But just looking specifically at the net chart jobs at the bank, the the net charge off right there, increased to 104 basis points from 54 basis basis points last quarter, but consolidated actually declined to 18 basis points. So, can you just discuss some of the differences there? What drove the increases at the bank and the decline at the consolidated level? Just general views on credit going forward and if you believe that you can kind of get, get risk adjusted returns to improve over the near term?

  • M. Scott Price - Chief Financial Officer

  • Sure. I'm going to give a macro and I'm going to got to focus on the numbers. I, I don't know how we can improve on risk adjusted returns when our ROA is where it is and our OTC is where it is. I mean, that's pretty damn good. I think the biggest problem is people don't believe it's sustainable. I mean, if you cut those numbers in half, it would be spectacular. And I asked the audience to say we've been doing this for 20 years. I mean, and we did it without deposits, we did it with more expensive funding. So our work and we did it through 0809 and we did it through a high rates and low rates. So I cannot present a more comprehensive cogent argument than that. I will also say that we, what we're talking about today is consistent with the plan that we have put out in the marketplace to all bodies including regulators. So this isn't a surprise.

  • They probably listen to our calls. I assume they do. We're welcome. We welcome that we're very transparent. So I, I couldn't feel the biggest surprise frankly has been the difficulty in getting across this concept. Now, I will say this. We entered the banking market in 2023. Okay. So everybody on this call that's involved with banking and finance and bank holding companies.

  • We all have post traumatic stress syndrome because we looked at Silvergate, we look at signature, we looked at Republican. It's like, oh my God, here's this new company that's different, just like these other guys say they were, they all blew up. Why is this one not going to blow up? I'm okay with that. I it's human nature. But I also asked goes to look at there is so much cushion in these numbers.

  • Crispin Love - Piper Sandler

  • We marginally off. It's, it's a non event even evolved by a lot, which I don't believe we are. I mean, I say I don't believe it with, with Adamancy. I don't believe we are. So I feel very good about the macro picture. Are these numbers going to grow modestly? Probably. Do we have enough capital? Yeah. Do we have enough excessive reserves? Yes. Are they going to get used and eaten up? I mean, I don't, I I'm telling you right now, don't expect to have this five sitting there. Number one, we're going to add more of the lower risk of boring bank stuff to balance the portfolio and then they're going to be utilized. So maybe Scott could add some color to the exact numbers Scott. Can you help on that.

  • M. Scott Price - Chief Financial Officer

  • Yes, experience. Hey Kristen. So the the charge off ratio at on a consolidated basis was roughly 59 basis points. So you're looking at 59 versus 104, I'll remind you the accounting model that we have our accounting models plural at the holding company, we primarily have a loan portfolios that are carried at fair value. So the charge offs are actually going through unrealized losses in the non interest income line versus the traditional bank loans where the those charge offs are running through the allowance. So at the end of the day, it still falls to the bottom line. It still impacts, you know, the overall level of reserves, but there's just two different accounting models that we're following. I'd say again that we started out during we started out 2024 with minimal NPAS, most of which were traditional bank loans that we purchased and we've seen an increase and this is as expected, we expected an increase during the year because the SB a portfolio is maturing and they're moving along the default curve. So we're monitoring it. We're not concerned, we have it baked in our forecasts and so we're going to deliver to you guys results and you guys are going to evaluate them. But this is a trend that we expect to continue to Barry's Point. We expect modest increases. We have the reserves, we have the capital.

  • Crispin Love - Piper Sandler

  • Great Thank you and I appreciate you taking my questions.

  • M. Scott Price - Chief Financial Officer

  • Thanks, Chris.

  • Operator

  • Thank you for your question.

  • Just one brief moment, please.

  • Our next question comes from Tim Switzer from KBW the floor is yours?

  • Tim Switzer - Analyst

  • Hey, good morning guys. Thank you for taking my questions.

  • M. Scott Price - Chief Financial Officer

  • Thanks, Tim.

  • Tim Switzer - Analyst

  • I, I have a quick follow up on the, on the credit outlook here. More, more specifically about the allowance. I, I think you guys have, you know, historically kind of said a good, you know, level set level for the allowance would be around 350 basis points. When should we expect the allowance to start to sort of move back down towards that level? And, you know, like how quickly will it get there.

  • Scott, would you say we might see that move in the fourth quarter but not dramatic? I mean, it's, it's hard, it's hard to say it's November 7th. But, I don't know. Do you think we're, I mean, I think it's anyone's guess, but are we at that point? I have no, I have no idea.

  • M. Scott Price - Chief Financial Officer

  • Yeah, I think we're look the, the level of allowance relative to the loans held for investment at the bank, which is the basis on which the allowance is calculated is, you're going to be heavily influenced by the level of seven A loans that we have on the balance sheet. You know, our reserves, for seven A loans are, you know, north of 6%.

  • And so as that concentration moves up, you're going to see a higher shift in the allowance. Now, that being said, I'd remind you that while we reserve at north of 6% we're getting, you know, at this, at least this quarter, 10.8% north of 10.8% premium. So the P&L event covers it, what you're going to see in the future, at least what we expect our additional bank loans coming on the balance sheet that are going to be more of your traditional bread and butter bank loans that you know are going to attract a much lower level of allowance. We have not performed as well as we thought during the when we started the year on bringing traditional bank loans onto the balance sheet. But we want to prudently manage our balance sheet. We want to bring on a diverse set of loans so that we're, our risk is manageable. Our risks are diversified. We're not in any 111 product category to where we're running more risk than we anticipate. So to answer your question is 5% the peak I think given our projections, I think that you know, it it very well could be, but we've got to deliver on the bank bank loan production. And so we expect to cover our charge offs. We're not going to be releasing reserves unless we see that in the macro economic factors. And that'll be a function of our, our modeling.

  • So, and, and just to tack on to that, do I think that we'll get there? You know, we'll start trick, trickling down during the quarter. It's possible, but I would say I'd expect it more in the, more of a meaningful decline in 2025 than what you'll see in 2024.

  • Tim Switzer - Analyst

  • Got you. Okay. And you guys had a pretty good quarter on gathering your commercial low cost business deposits. You know, what kind of drove the inflection here? And you know, what do you expect expectations going forward? How, how quickly can you grow that book?

  • M. Scott Price - Chief Financial Officer

  • Yeah, so that's something that we're very focused on and it's, it's really a matter of us getting the staff trained to be able to explain to clients why they should go through moving their account from Brand X to us. There's a compelling reason to do. So take a look at that calculator. You'll see us first, the national average, you have a good idea. So there's a very compelling reason now to get the staff to do it, to be educated, to get on the phone. Now we have staffed up to do it with, with Jennifer Merit Group in Wilmington. It's got people all over the country being able to do the KYCB BSA and AML work, which we now got the right people. We've got the right software we got the right processes in place. So I just think that's a function of time and you're going to see us continuing execute that. In addition to that, our payroll and payments unit needs to, you can't open up a payroll account without a bank account.

  • You can't open up a payments account without a bank account.

  • And frankly, we don't even need to be the primary account. We just be the tertiary account. We've got to convince the customer that there's a tremendous value in terms of the analytics, transactional capability and data to use us to the advantage. It's one place. So there's going to be, it's very hard for me to gauge. I, I feel good about it. I mean, I think we'll, I think we'll continue to grow at nice dollar amounts. Obviously, you know, you get nice big percentage increase of below base, but that you're going to see us continue to pick up business accounts particularly, you know, I put something out in the near future, launching our true H1st zero fee banking account for business, business banking.

  • Tim Switzer - Analyst

  • And if I could just, if I could just pack on to that, Tim, I was sitting close to our BSS folks that are, are selling the account and I mean, we're get it's hand to hand combat. We're getting the client on the phone, we're getting on video, we're analyzing their statements from their other institutions and we're showing them what the value proposition is of switching to us. So we feel we feel that it's compelling then you layer on top of that, the new tech advantage and being able to bring everything into one view. We, we feel like it's there, we're refining our sales process as we move forward and but it's hand to hand combat. I mean, it's, it's a grind and to Barry's point, we're getting the people trained, we're getting them, we're getting their scripts refined. And you know, we saw traction and we, we feel like we're going to continue to see traction.

  • Thanks for the color.

  • Operator

  • Thank you for your questions.

  • One brief moment, please.

  • Our next question comes from Steve Moss from Raymond James. The line is yours.

  • Steve Moss - Anlayst

  • Hi, good morning guys.

  • Maybe Just starting here with the, you know, or following up on the growth in demand deposits is the growth here primarily just on the new originations as the customers come in that, you know, you now are, you know, operational in Wilmington and, and have better integration. Just kind of curious how to, how we think about those dynamics.

  • M. Scott Price - Chief Financial Officer

  • See if I excuse me, I think that Wilmington is the source of compliance surveillance, getting the accounts open doing our, you know, and I say that obviously it's under our BSA officer Sarah Lamona who's not in Wilmington, but she works very closely obviously with our compliance manager, Julia Hernandez, President of the bank, Nick Young and Jennifer. So that's the back office. But I think the way we look at the business and the growth, it's how do you get the at bats? How do you get the customer in the batter's box to pay attention? Say, hey, you need to look at our account and why you should have it with us primarily or secondarily versus them. That's not what Wilmington does or the compliance team that is done by our team that's booking and boarding, merchant accounts, payroll accounts and very importantly in lending. So now in lending, we are now requiring that when the account is open and we're funding loans, that money is using that account. This is all new to us and it sounds like it's easy. I'm, I'm a financial guy too. Unfortunately, I have to put my operating pants on, but you got to train people to do this and it does take time. So Justin Gavin's team that handles the front end of lending is managing his team and that was what Scott was referring to getting people comfortable, you know, on a, on an automated basis, Steve when you apply for a loan in our portal, the data ports over to be able to open up a bank account. So we don't have to ask the customer twice for two accounts. I don't think you've got that.

  • I'm going to, you know, I got my legal hat on in almost most of the banks in the United States, it's done automatically. So I think what you're going to see from us is slowly steadily, that Tortoise is going to keep grinding it out and we're going to get these customers in, in addition, opening up merchant accounts, payroll accounts, the existing lending accounts, 80,000 paying customers in the book. Now, if the product is better, which we're fairly adamant, it is particularly when you go to that mortgage calculator. It's going to happen. It's only a function of how fast, how quick. And when I'm very appreciative of the questions we're getting from you, Steve and others here because you're starting to focus on what has this been? Why is new tech one and the bank going to win?

  • It's because the way we put these things together, the customer wins. If the customer wins, we win, shareholders win and now you can get a feel for we have this, we don't our cost of customer acquisition. This is why you look at the efficiency ratio is very low.

  • We get 6 to 900 referrals a day.

  • Banks would love that. Banks would love to get rid of all their expense of their traditional bankers and their branches and we do it very differently. So that's, I think one of the differences in the model.

  • Steve Moss - Anlayst

  • Okay, great. I appreciate all that. And then in terms of the insurance business, just kind of curious if you could quantify, you know, the revenue you're generating from insurance these days.

  • M. Scott Price - Chief Financial Officer

  • I don't know if we I don't know if we give that out, but I would, you know, say broadly it's, it's a $3 to $4 million type revenue business very comfortably, 34 million a year.

  • Yes, sir.

  • Okay, I appreciate that. II, I would love to have that broken out sooner than later and maybe something we break out next year, but it's valuable. It's reoccurring, it's differentiated, it fits in well with the business model and those businesses are very, you know, highly valued by the marketplace today.

  • Steve Moss - Anlayst

  • Okay, great. And then in terms of the share repurchase authorization that was announced earlier this week, just kind of curious, you know, what are your thoughts and plans for, for using that and just any, any color there?

  • M. Scott Price - Chief Financial Officer

  • Yeah, that's a tough question. I wanted to make sure people are aware of it. Look, I think we have really high returns on equity which you could see from our business model and we're, we're in the growth business, we wanted to have it available. I mean, obviously we're looking at our, at our share price. We want to make sure investors understand where it is. One could argue when you look at the comps versus a live oak or other industry comps, we are below industry multiple. One could argue it should be there, one could argue it should be less. One could argue it should be more. So I would say that, that's not, it's a tool, we're going to use it if things are a little wacky, we will and obviously, you know, to buy low, sell high. But I mean, I think it's just something that, and add to the quiver that's all. And ultimately, you know, we're going to figure out balance between dividend and buy back and things of that nature. But I think it's very important to know we're a growing company and we're going to be raising debt capital. And I just don't think I get over exaggerated about it, but it is something we are open to and will use at the right time.

  • Steve Moss - Anlayst

  • Okay, appreciate that. And then last question for me, Scott, I think you said you know, the credit costs and the marks on the fair value loan go through non II I was just or other income kind of curious. You know, if you could quantify what the marks were on the fair value portfolio this quarter versus last that go through income.

  • M. Scott Price - Chief Financial Officer

  • Steve, I'm going to have to follow up with you on that one. I don't have that, that one specifically in my fingertips. I apologize.

  • Steve Moss - Anlayst

  • Okay, no problem. Appreciate it. Thank you very much guys.

  • Operator

  • Thank you for your question again. As a reminder. If you'd like to ask a question, please press star 11 on your telephone.

  • One brief moment, please as we prepare the queue our next question comes from Christopher Nolan of Liedberg and Thin and co the floor is yours?

  • Christopher Nolan - Analyst

  • Hi, clarification on page 7 of the deck, net charge off average loans for the holding company shows 18 BPS sky. Is that correct? That, that is not an annualized number, correct.

  • M. Scott Price - Chief Financial Officer

  • That's correct. II, I said that a few times earlier. It's, it's 59 basis points approximately.

  • Christopher Nolan - Analyst

  • Okay. And then on the same line for the bank, is that also not an annualized number or that is.

  • M. Scott Price - Chief Financial Officer

  • An annualized number? That's that all this the bank for the third quarter was pulled from sno or excuse me from S&P global capital IQ. So that's calculated off the call report and is annualized.

  • Christopher Nolan - Analyst

  • Okay, great. So it's just a going forward giving. How much discretion do you guys have in terms of the reserve ratio? Obviously the reserve is growing. I just trying to get an understanding in terms of, is this all algorithm driven or is there a good part of it? That is part of your discretion?

  • M. Scott Price - Chief Financial Officer

  • Yeah, I'd say Chris that it is it's a mixed bag. We do have calculations that we apply.

  • But the biggest influencer that we have is the level of production across the portfolio and the concentrations. And I tried to, I can't reiterate that enough that as we move through time, we do expect more traditional bank loans to come on the balance sheet that will cause that reserve to loans coverage ratio go down from here. So that's again, I can't reiterate it enough. Are we is the peak five maybe, maybe not depending on our loan production for the quarter, but we intend to diversify our loan production. It's been in our business plan that we present to our board, we're going to continue to operate with that business plan in terms of the, in terms of the algorithm, there's a quantitative and a qualitative. The qualitative is where we exercise judgment and we evaluate a host of factors between economic projections trends, etcetera. So, you know, it's, I can't give you an exact answer but I can, I can only answer it qualitatively that, that it's mixed but, and we do have some level of judgment.

  • Christopher Nolan - Analyst

  • Great. And I, I guess this is a general question for management. You know, given you guys do operate a differentiated business model and we're about, you know, a year 18 months ever since Silicon Valley Bank and signature and so forth went down. Are you seeing sort of more strict regimen from the bank supervisors on banks in general or sort of business as usual? I mean, I only ask this because, you know, we have a commercial real estate bubble out there and it hasn't really gone through the banking system yet. I'm just trying to see you know, from your perspective, you know, if you're seeing anything changing on the regulatory front.

  • M. Scott Price - Chief Financial Officer

  • Chris, I'm going to answer that. I want to go back a little bit to the thing on the, on the reserves because I think it's, I've been a poor, an additional year when we make a loan, that's a 78 loan, for example, in the fourth quarter, we get hit with that Cecil charge up front and as we're building a portfolio, we keep putting a big cecil that get that get that's a direct hit to the income to capital, etcetera. But the activity happens down the road. So from an income standpoint, this is punitive down the road, it lightens up. So if all of a sudden down the road, you're going to focus on the fact that the reserves are coming out and getting less. We don't look at that as an issue, that's what they're there for. As I say, in the business, the sardines are there for eating, not just for looking at them, but I think it's very important because it is, it is misunderstood the way our business works, particularly given that these loans have got long durations and the losses occur way out in the future. So it's just something to think about now to answer your question with respect to Silicon Valley Bank and Signature Bank. So one thing that almost has nothing to do with us, the first question that we're typically asked is are you involved in crypt, crypto and banking as a service? No. No. Okay. So they're, they're not from our perspective, not even an issue, but I could tell you that for institutions that are involved in banking as a service or crypto, it is, it is, it is an issue that they're looking at. They're not fond of it. Then you got that CRE exposure, which I do agree with that. You know, there hasn't really been that much of a reckoning on that to date. We also don't, don't have that issue. I think in our model, they look at a lot of the things that you guys are looking at and given how we manage the risk and have the reporting and have staff first and ask questions later, and prepared for it with a lot of high quality people. I, I feel like we're, we're in pretty good shape relative to the industry in general in the event that I happen to be. Right. And there is a tremendous movement as money starts to go from, FDIC insured deposits more in the money market funds, which we've clearly seen, you know, with, with sweep accounts in the investment banking world where, you know, sweeping money at 10 or 20 basis points into an account. It's a problem.

  • I think there's going to be more and more of a focus on it and giving depositors the ability to technologically move their money easier into better bank accounts. It's not going to happen automatically, but it's, it's kind of happening on a stealth basis. So, you know, you look at, for example, the, the rates that some organizations are charging, which we do for consumer high yield savings. I don't know how they're supporting that because they're not, they're not earning it on the asset side. We are. So even if these higher rates, which we believe will come down, we think we're in a good spot. But from a regulatory environment, I think the regulators are focused on crypto banking as a service and they are very focused on the banks of obviously being able to to fund themselves. And that's why you have to have a lot of different levels levers to be able to do that.

  • Christopher Nolan - Analyst

  • Okay. Thank you for taking my questions guys.

  • Thank you.

  • Operator

  • Thank you for your question.

  • This concludes the question and answer session. I would now like to turn it back to Barry Sloane CEO and President for closing remarks.

  • Barry Sloane - Chairman of the Board, President, Chief Executive Officer

  • Thank you so much. Greatly appreciate the opportunity. I feel very strongly about where we were for the quarter where we're making our progress. If you know, I was able to look back on January 23rd and, and look forward seven quarters and say this is where we'd be at. I tell you, boy, I'd be very pleased. We're making great progress. We're making great trade business model is in place our job right now is to get out there, educate, continue to be right on our forecast and expectations. And as I said before, we're very experienced in this particular space and comfortable with it and we look forward to delivering these kinds of results in the future. Thank you.

  • Operator

  • Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.