NewtekOne, Inc. Q3 FY2023 Earnings Call

Good day, and thank you for standing by. Welcome to the NewtekOne, Incorporated. Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Barry Sloane, Chief Executive Officer. Please go ahead.

Good morning, everyone, and welcome to our third quarter 2023 financial results conference call. My name is Barry Sloane, President and CEO, and Chairman of the Board of NewtekOne, Inc., a NASDAQ company. Joining me on today's call are Nicholas Leger, EVP and Chief Accounting Officer, Scott Price, Chief Financial Officer of NewtekOne and Newtek Bank National Association, and Nick Young, President and Chief Operating Officer of Newtek Bank N.A. For those of you who would like to follow along with the presentation, you can visit our website, newtekone.com. While there, I encourage you to check out the Newtek Advantage, our important business banking portal. For the conference call materials, please navigate to the Investor Relations section. On Slide number 1, we have our notice regarding forward-looking statements, which we encourage you all to review. Slide number 2 presents the summary financial highlights for Newtek Bank National Association. We want to highlight that our bank metrics are performing very well, with our net interest margin increasing from 3.19% to 3.49%. Our return on assets rose from 4.93% to 5.32%, return on tangible common equity increased from 32.1% to 39%, and our efficiency ratio improved from 58.7% to 49%. Such metrics are uncommon in the banking industry, largely due to our unique business model and the high-yielding assets we manage. This marks our second quarter reporting as a full bank holding company. I often receive feedback from investors and analysts who express skepticism about our numbers, which I understand given their unusual nature for an organization of our type. However, we are indeed a different kind of entity, embodying a technology-enabled bank for the future. We are committed to delivering these impressive results consistently. Additionally, Newtek Bank, our wholly-owned subsidiary, is well-capitalized with a CET1 ratio of 23.8%, a total capital ratio of 25%, and a leverage ratio of 14.9%. We are pleased with our quarterly performance and expect this growth trend and metrics to continue. It is also important to note that deposit growth has been relatively flat quarter-to-quarter, which is intentional. We currently have several hundred million dollars held at the Fed to support anticipated loan growth in Q4 and Q1. While we don't require deposit growth at this moment, we are adjusting our deposit mix, and Scott Price will delve into that later in the presentation. Importantly, we can continue to fund our loan growth, achieving an average growth rate of 27% and 31% for the third quarter. Reflecting on our 20 years of experience with SBA 7(a) loans, we usually sell the government guaranteed portion for gain on sale. The current market conditions for these premiums are soft, impacting our EPS projections. However, we anticipate that the conclusion of Fed tightening will lead to an improvement in these premiums. On Slide number 3, we present similar metrics for our consolidated holding company, NewtekOne. We've experienced a 42% increase in net interest income from $5.6 million to $8 million, as we leverage capital more effectively by replacing low-margin assets from the previous National Bank of New York City. Moreover, our provision for credit losses increased from $2.5 million to $3.4 million, positioning us well to navigate an anticipated weakening credit environment without affecting our forecasts. In the holding company, our net interest margin has grown from 2.09% to 2.71%, return on assets increased from 2.03% to 2.76%, return on tangible common equity improved from 15.07% to 22.8%, and our efficiency ratio decreased from 77% to 67.8%. The holding company's capital ratios remain strong with a CET1 of 15.1%, total capital of 17.7%, and leverage of 14.6%. We are pleased to report these results as we continue to operate as a financial holding company. On Slide number 4, we summarize that on January 6, we completed the acquisition of National Bank of New York City. Comparing this year to last year is challenging due to our transition from being a BDC and the associated accounting differences. It is crucial to focus on quarter-over-quarter comparisons as we face various headwinds and significant upfront costs from modernizing a 59-year-old bank with outdated systems. We are pleased with our progress in implementing necessary policies and procedures while complying with regulations. Our ability to provide dividends from the bank to the holding company, and then to investors, shows our strong regulatory compliance. We are also gaining recognition from the Street, as analysts learn about our unique business model. As a note, we've included 51 slides in this presentation to provide comprehensive information to analysts. We have demonstrated the ability to raise insured deposits at a rapid pace, increasing from $140 million to approximately $440 million. Importantly, we do not face the interest rate risk commonly seen in the industry, as our securities portfolio consists mainly of government and agency assets with a duration of under nine months and a weighted average coupon of 5%. Furthermore, we are in good shape regarding commercial real estate, and we will address this during the Q&A. The returns on assets and capital ratios speak volumes about our stability. On Slide number 5, we discuss our earnings engines. Unlike traditional banks that rely primarily on spread income, we have multiple earnings sources, with the bank being our premier engine. Our Small Business Finance segment continues to manage legacy SBA loans while keeping expenses low. Our merchant business also contributes significantly to EBITDA, alongside our technology solutions that we plan to divest by the first quarter of 2025. Our non-conforming joint venture portfolios hold substantial growth potential, although they have faced delays due to capital market conditions and SEC registration requirements. On Slide number 6, we reiterate the challenges of comparing results as a BDC. It is important to highlight that our business model does not rely on traditional banking structures to source clients. Through our proprietary NewTracker system, we have leveraged technology to receive unique business referrals cost-effectively. On Slide number 7, we demonstrate our technology-enabled solutions. We have gathered about $275 million in digital accounts, primarily in consumer high-yield savings. Looking ahead to 2024, we aim to enhance our offerings with more transactional accounts and commercial deposits as our staff is finalized. Loan originations have demonstrated strong growth, with units consistently showing double-digit increases year-over-year. We focus on making the loan process smooth and efficient, without compromising credit standards. We are also looking to hire a COO for our digital bank, who will enhance our commercial demand deposit and money market accounts, thus expanding our net interest margins. As we shift away from traditional bankers and branches, we plan to close our only physical branch in December, continuing to build our remote business model. Providing superior service remains essential, and we are recruiting a Client Experience Officer to further this goal. On Slide number 8, we outline the unique advantages of the Newtek Advantage, which provides clients with analytics, relationships, and transactional capabilities that are not easily replicated. The Newtek Advantage equips businesses with management assets to enhance their success. Slide number 9 elaborates on client benefits when they open a Newtek Advantage account, including free document storage and real-time web traffic analytics for businesses. For those using our merchant processing services, we provide valuable insights and detailed transactional capabilities. On Slide number 10, we update you on our rollout of the Newtek Advantage to 5,000 existing clients. This initiative has generated new referrals, demonstrating the tangible value we offer. Approximately 325,000 NewTracker users are now able to access the Advantage. Slide number 11 serves as a quick recap of our key points and emphasizes the integrated nature of our sales and marketing efforts across multiple solutions. On Slide number 12, we highlight our third quarter 2023 financial metrics, achieving $0.38 per common share—an increase of 46.2%—and net interest income of $8.1 million, up 42%. On Slide number 13, we review our performance over the first nine months as a financial holding company, noting $1.10 per basic common share and net interest income of $18.3 million. Slide number 14 proudly presents our efficiency ratio of 49.1% for the quarter, a significant improvement. We believe that we can further enhance our efficiency over time through improved operating leverage and additional revenue captured from our non-bank activities. Slide number 15 reaffirms our impressive ROTCE and ROAA figures. We expect continued growth in our cumulative earnings per share and are optimistic about a strong Q4 and a successful 2024. Slide number 16 summarizes key data points, including our recent $40 million raise with an 8% coupon that is currently trading at $25.10. Slide number 17 explains the transition from BDC to 33 Act accounting, which impacts how we report book value. Finally, Slide number 18 showcases the bank's accomplishments, emphasizing growth in small insured deposits, 5,000 new digital account relationships, and excellent capital ratios. I will now hand the presentation over to Scott Price, our Chief Financial Officer.

Thanks, Barry, and good morning, everyone. I'd like to discuss the changes in our deposit levels during the quarter. I want to assure you that our actions were intentional, and we ended the quarter very close to our target. Our view of bank deposits by quarter shows the changes compared to the second quarter. In the first quarter, the Bank intentionally brought in a significant amount of short-term brokered CDs due to the liquidity crunch, which increased the brokered CDs to 43% of total deposits. In the second quarter, we raised a considerable amount of customer deposits through our digital account opening platform. Then, in the third quarter, we repaid nearly $60 million of brokered CDs. After evaluating replacement options and their pricing, we concluded that brokered money was too costly as we wanted to adjust the liquidity profile of our CD portfolio. Thus, we decided to partially counter the decline in brokered CDs by increasing balances in our high-yield savings product, launched in August. We raised the interest rate to 5.25% from 4.9% following the Fed's rate hike in July. We also adjusted the rate profiles of our retail CD offerings to reduce our reliance on brokered money. Additionally, we chose to transfer the deposit accounts held by our non-bank affiliates into Newtek Bank. With over $200 million in liquid assets as of September 30 and an average cash balance at the Fed of $190 million, it didn’t make sense to take on more money and incur unnecessary costs just to maintain a flat deposit level from the previous quarter. Looking ahead, we have $29 million of brokered CD capacity as of September 30, along with available borrowing capacity at the FHLB of $93 million and the mentioned liquid assets. We will continue to manage our net interest margin during these uncertain economic times. The five-year treasury reached as high as 5% in October, up from around 4.40%. These are indeed very volatile times. Moving forward, we are investing in our back office and infrastructure as we manage our regulatory compliance risk while expanding our product offerings. This will support a scalable business into 2024 and beyond. With that, Barry, I'll turn it back to you.

Thank you, Scott. I appreciate Scott recently joining Newtek as part of our senior accounting and finance team alongside Nick Leger. It's important to note that our management team isn't geared for a $600 million bank or a $1.4 billion bank holding company; rather, I believe it's competitive with a $5 billion or $10 billion organization. We are poised for growth in a controlled, methodical manner. The talent we are bringing in with Scott's addition, along with Nick Young, our Chief Operating Officer, highlights the hard work of the team that prepared this presentation. I want to express my gratitude to the existing management team and acknowledge that we are close to completing our team, allowing us to continue this performance quarterly. On Slide 20, NewtekOne offers five loan programs, four of which are under the Bank, including the SBA 7(a) and SBA 504, as well as conforming commercial and industrial business loans and investor-owned commercial real estate loans, which many banks find challenging. The portfolio we acquired from the National Bank of New York City is what I consider a solid, low-risk, low-margin portfolio. In today's market, it's an opportune time to add loans to our balance sheet while many banks are shrinking due to a lack of capital. This stands in stark contrast to NewtekOne and Newtek Bank NA, which are growing. I want to emphasize that we will be discussing a non-conforming commercial and industrial business created at the holding company, which contributes significantly to the decline in some of our forecasts. However, there is demand, and our joint venture and lending partners are established. When we raise capital at the holding company, it will specifically support this area due to its remarkable returns, warranting additional investment. Slide 21 highlights the CRE portfolio we inherited from the National Bank of New York City, featuring low loan-to-value ratios and small average loan sizes. These loans are based in New York City and have minimal office exposure, with personal guarantees in place. There is only one non-performing loan in this portfolio, which we believe we can recover fully. While this portfolio has low margins, it is closely matched with our time deposit liabilities. Slide 22 provides more detail on our SBA 7(a) business, with an average loan size of $133,000, demonstrating our diversification across industries and geographies. Florida and New York represent our largest states, with 12% and around 5%, respectively. These floating-rate loans are currently being originated at Prime plus 3%, yielding an 11.5% coupon. We typically sell the government guaranteed piece for a gain of 9% to 10%, which drives our high return on investments. Slide 23 outlines our lending activity, while Slide 24 details our premium, which for Q3 was 9.73%, leading to a revision in guidance due to factors beyond our control, such as interest rates and government shutdowns. Slide 25 illustrates what clients experience when applying for a loan through Newtek Bank. Recently streamlined processes enable us to automate significant aspects of lending, thanks to our Chief IT Director Dan Hendel, who has been with us for over ten years. When a lead enters NewTracker, essential data is collected swiftly. Once completed, business owners receive immediate feedback, enabling them to schedule a remote appointment and often get a pre-qualification notice. Additionally, they receive an actionable quote for workers' compensation and a business owner's policy in a seamless manner. Moving forward, after completing the loan application without additional documentation requests, business owners can open a business account that complies with BSA, AML, and KYC regulations without needing a prior conversation. These new features were rolled out in September 2023 and exemplify the Newtek Advantage, fostering efficient and frictionless customer interactions. Slide 26 provides a comparative look at our business with various public market companies that are also technologically advanced banks. Notably, we pay a more substantial dividend of 4.25% to 4.5%, which does not receive due recognition. Our growth rates warrant a more favorable valuation. While the market for bank investors isn't ideal right now, we're still engaging with them, and continued strong performance will solidify our position. Slide 27 highlights Newtek Payments, which encompasses Newtek Merchant Solutions and Mobil Money. We see substantial opportunities in payments and expect significant revenue generation from this segment, transforming it from a secondary focus to a key contributor. Serving clients since 2002, we manage comprehensive payment processes, and our new offerings, such as same-day funding, will enhance our deposit gathering capabilities. On Slide 28, we anticipate a pre-tax income of $14.2 million and an EBITDA of $15.5 million for Newtek Merchant Solutions, Mobil Money, and POS on Cloud. Slides 29 and 30 affirm the growing importance of payments in the banking sector, with expected profits from products like FedNow and electronic billing that will benefit clientele and NewtekOne. Slide 31 focuses on our non-conforming conventional loan business, underscoring that since 2017, we have originated $502 million of loans with zero charge-offs. Our joint venture in non-conforming loans contributed an additional $194.4 million, also without charge-offs. This growth area is integral for future profitability, especially in a challenging banking landscape. Slides 32 through 35 summarize previously discussed points, while Slide 36 breaks down potential profitability in non-conforming lending, projecting strong margins and impressive returns on equity. Slide 37 mentions our expectations to fund approximately $110 million in non-conforming conventional loans in 2023, also noting a revised outlook due to evolving market conditions. Slide 38 announces our quarterly dividend declaration to shareholders of $0.18, disbursed on October 20, 2023. Slide 39 outlines our expectations for Q4 2023 and fiscal year projections for 2023 and 2024, estimating EPS of $1.60 to $1.80 for 2023 and $1.80 to $2 for 2024. I urge the investment community to be patient as we methodically work towards our goals. Overall, we are building a solid foundation for long-term success, navigating challenges while adhering to regulatory requirements and achieving positive metrics. Our newly established banking team comprises qualified professionals who are aligning with our vision. Despite the inverted yield curve and the unpredictable capital market, we feel confident about the existing business portfolio we acquired. We're leveraging capital opportunities effectively now that our registration statement is active. We aim to grow our non-conforming loans, finding success in Q4 with approximately $60 million in loan funding. Additionally, 2024 is pivotal for establishing commercial core deposit accounts which will enhance our net interest margin. We will continue to expand our experience in higher-margin SBA loans while maintaining reserve levels to mitigate future credit risks. We envision the Newtek Advantage as a key player in banking, providing technology-based solutions that benefit shareholders in the long term. We also plan to announce new significant hires, which have been factored into our earnings forecast. We have successfully addressed questions about deposit-taking and SBA PLP processes, positioning ourselves effectively in the market. Slide 45 reiterates key points from today's discussion, and I appreciate your attention as we open up for questions.

All right. For your first question, it comes from the line of Christopher Nolan from Ladenburg Thalmann. Christopher, your line is open. Please ask your question.

Hey, Barry. Thank you for the detail. A couple of real basic questions, just looking forward. For the non-conforming C&I, what is the average loan amount that you guys are contemplating? I didn’t see that?

Yeah. It's a good question and probably should add it in the future. Our average loan amount is currently about $4 million. We go up to $15 million and we go as low as $0.5 million. So we get enough diversification to put into a rated structure. Our first structure which is modeled on Index had a DBRS single A rating and we look to achieve that or better going forward in the first quarter on the next securitization. But Chris, I think it's important to note, we'll do over, I think, 2,000 units this year in lending. To do a billion dollars’ worth of loans with a $4 million average, it's just, and I say just another 200 units, easy for me to say, but it's not out of reach. We believe that the demand is there for the product because it's a long-term, it's a long-term amortizing loan with personal guarantees. And our customers like the flexibility and they're willing to pay the higher rate for that flexibility that we give them.

Got it. And then in the quarter, were there any non-performing loans? I didn't see it in the deck.

Were there any non-performing loans in the non-conforming area or just in general?

In general, please.

Yeah. So, I might ask Scott to help me with that or Nick Leger. Hey, Nick?

Yep. I'm here, Barry.

I apologize for missing your question. After Chris presents quickly, could you provide insights on NSBF, which pertains to the legacy portfolio? There were no non-performing loans in the 7(a) bank portfolio, with only one non-performing loan from the legacy 7(a) portfolio. Were there any other non-performing loans? Let's review the non-performing loans at NSBF and discuss how those figures changed from Q2 to Q3 of 2023.

Sure. So as a reminder, loans at NSBF are on fair value for the historical portfolio that was previously at the BDC. So as of Q3 2023, in the portfolio that you'll see that's held for investment at fair value on the balance sheet. There was $70 million of non-accruals at a cost basis, which we do a DCF fair value mark on those loans. So at a fair value basis, those are at $38 million. So there's a $32 million valuation adjustment against those. So price approximately $0.54 on the dollar. On a prior quarter June 30, 2023 on a cost basis, it was $66.6 million. So quarter-over-quarter, there was an increase of about $3.5 million at a cost basis and the price at fair value was pretty flat quarter-over-quarter.

Great. Thanks, Nick. And then, I guess a final question…

I just wanted to ask Scott, Scott were there any other non-performers in the bank that I missed?

Barry, there were, I think, the one that we disclosed were actively working. There were two others. They're well-secured and in the process of collection. It's important to note that on those loans, they did not require any incremental reserves.

Thank you.

My final question is about your growing reserves. How should we evaluate the reserve ratio for 2024?

I think in the bank we have a CECL reserve of about 6.75% against the uninsured portion of those loans. And Scott maybe you could address the reserve on the rest of the portfolio.

Yeah. I mean – yeah, if you think about the reserve methodology Chris we've got you know about a 6, call it 6.65 to 6.75 reserve ratio on 7(a). So as we increase our 7(a) concentration or percentage of the loan portfolio, that reserve percentage is going to continue to increase. So we were at I think 2.9 and change somewhere around there for the end of the quarter and I expect that to naturally gravitate higher. The portfolio that we acquired from NYC as Barry alluded earlier in his remarks was very clean and so from a CECL perspective that reserve to loans ratio was about 1.25%. So as the 7(a) portfolio increases, I expect the allowance to loans ratio to continue to increase as the 7(a) portfolio becomes a larger portion of the overall loan portfolio.

Was that a contributor to the lower 2024 EPS guidance?

No. We did not change our reserve or loss metrics for 2024. I think if you dig into the 2024 guidance, we're trying to really invest measuredly in our back office so that we can create stable, sticky deposit relationships with our business customers, whether they come in the form of money market accounts or our business checking accounts. In order to be able to manage those products, we have to have the right infrastructure for compliance reasons. So that's one aspect of it. We have a lot of, we're not an easy puzzle to figure out at times with all the different products and all the different accounting methods that we have. But that was one of the drivers. But I would say that the loss content on the portfolio has not changed year-over-year.

Okay. That's it for me. Thank you very much.

Thanks, Chris.

One moment for our next question. And for our next question, it comes from Michael Perito from KBW. Please go ahead.

Hey. Good morning, guys. Thanks for taking my questions.

Thank you, Mike.

I wanted to just follow up on the last question just about the EPS guide. And I apologize if I missed this, but can you maybe share a bit about what macro kind of assumptions you guys are using around rates and credit just in that forecast?

I think that from a credit perspective, I believe we are reserving for double what we've received for charge-offs over the last five years. That's both from the CECL perspective as well as the fair value of the NSBF portfolio. For example, Mike, the NSBF portfolio, which is the holding company, is valued at fair value. I believe, Nick, the market clearing yield was 8.5 for the third quarter, net of a 19% default rate and a 45% severity. So after those charge-offs, and that's a seasoned portfolio, 38 months, we think we're hitting these assets very hard. And frankly, when you look at doing the loans in the bank, from an upfront perspective, it's far less profitable using CECL accounting than fair value because you've got that upfront hit up front on the 7(a). So I think we are very comfortable doubling expectation of recent history to believe that will hold. Secondly, for rates, our rate forecast, give or take, is up another 25 basis points to 50 basis points and then flat.

Okay. So, just a couple of follow-ups to that and thanks for that Barry. So just to be clear, the doubling, it sounds like a conservative assumption around credit, but just does that, but that from a macro perspective, I mean, is that just kind of a normalization of charge-offs given, the rate on these credits is now north of 11% and you just assume charge-off activity to kind of drift higher normally or is there an actual kind of macro credit deterioration assumption driving that? And then secondly, just on the rate, so I mean, it would be fair for us to think that there could be some upside to guidance if rate cuts materialized because it sounds like you guys have a pretty high for longer assumption driving your ‘24 EPS guide at this point.

I believe that having higher rates for an extended period is not beneficial for anyone, including us. Regarding credit, I want to emphasize that we have been in this industry for 20 years and are continuously improving. Our history shows that we’ve already taken into account the possibility of a declining economy, rather than just assuming a return to normal in our operations.

Okay.

So I feel very good about our reserve position. You look at our reserve position versus other lenders, and I think you'll see that we've got more reserves than they do. I believe that's the case on the SBA stuff. And unfortunately for rates, we do think that the short end, I think they will be somewhat reluctant to drop rates in the near term, and I wouldn't be surprised if we get another rate hike or two, particularly given that the commodities keep pushing up, particularly oil. So we'll see.

Yeah. I tend to, sorry, go ahead.

Sorry. I just wanted to add on to the credit discussion. Keep in mind that the portfolio at the bank is essentially a new portfolio. So there is a lead time to when we'll start incurring charge-offs on that portfolio. We can't take them before the loan goes bad. So there's got to be a seasoning of the portfolio. And that's just the nature of migrating from a fair value approach that we had at the old BDC to the bank accounting that we're having to apply CECL to.

Okay, that's helpful, thanks for that. I have some questions about the non-conforming C&I loans. I feel like I'm missing some details. It seems costly to fund and hold these loans at the HoldCo. Wouldn't it be more efficient to hold them at the bank subsidiary and fund them with deposits and other wholesale borrowing? I'm trying to grasp the dynamics here. The new slide you provided shows significant ROE potential, but I'm trying to figure out why this is the most efficient way to fund the business. Also, Barry, I want to confirm if I heard correctly that the approximately $40 million in proceeds is expected to remain at the HoldCo to fund these loans, without any expectation of dividends down to the bank subsidiary, which makes sense since the bank subsidiary doesn't need the capital. I just want to ensure I understood that correctly.

Yeah. The last part you did hear that right. 100% for sure. And I think, the first part is, there's always another participant at the table and that's the regulators. And when we set ourselves up to get our approval, I think it was important for us to lay out what we wanted to do in a simple most vanilla manner that we can. And we don't have the history in this area of lending that we've got in the SBA 7(a) side. So this is something that might be doable down the road, but for now, there's enough margin in it that it works up at the holding company. It's not the cost of capital that is going to drive this. It's the availability of capital.

So is it correct for us to believe that for the foreseeable future here, there might be additional kind of debt needs at the HoldCo to fund this depending on the environment right? I mean, if the economics remain attractive is it fair for us to assume that you would come back and raise more debt to fund these loans if that was the situation a year or year and a half, whatever the timeline is from now?

Yeah, that would be desirable, yes. And I think that we have revolvers that we've paid down. We're in a good cash position. And one of the things I think you asked in the last call was the capital raise of equity, that's out. So there's no capital raise for this calendar year for equity. So I mean, we put it in because we didn't know whether it would be a debt market. Obviously, we're pleased that there is a debt market for us and we'll continue to grow the business methodically.

Yeah. No, I mean the 8% rate is actually like for the product that was, I think, pretty attractive on it. Obviously, it's still more expensive than anything incremental that you could fund with that the bank sub. But I appreciate that commentary. And then – so just my last question is you guys mentioned the loan size, the personal guarantees. Can you just give us a little bit more color kind of about what these loans are for these non-conforming C&I loans? Like what use case or I don't know how general it is and if it's broad I apologize but just any kind of examples would be helpful as we think about that portfolio growing near term here?

This would involve an owner-operator who has a cash-flowing business. They prefer fixed rates over floating ones and seek flexibility in using their proceeds. They want to avoid restrictions from banks regarding loan covenants that limit their ability to pay dividends, increase leverage, or pursue acquisitions. Our approach, particularly in the SBA sector, includes taking personal guarantees and leveraging personal and commercial assets as collateral. This strategy has kept us in a strong position, with no charge-offs since we launched the program in 2019.

Okay. All right, guys, Thank you for the color on the guidance and macro and on the non-conforming loans. I appreciate it.

Thank you.

One moment for our next question. And for our next question comes from the line of Scott Sullivan from Raymond James. Scott, your line is open. Please ask your question.

Hey, Barry. Thanks to you and your team for taking my call. A lot of my questions were sort of covered by the prior reps. And I was wondering, if you could sort of speak a little bit more on the non-conforming products. We meant to sort of view this as a unique and kind of a special driver going forward.

I think this particular product is unique and aligns well with our client acquisition model. We receive about a thousand referrals each day, including borrowers seeking loans of $7 million or $8 million. Some borrowers prefer fixed rates, while others have maxed out their $5 million SBA guarantees or occupy only 45% of the real estate, making them ineligible for SBA loans. We can offer these borrowers this specific loan. We believe the credit quality is stronger since these businesses tend to be larger, and the effectiveness of personal guarantees is something that the capital markets and rating agencies often overlook. We have been lending with personal guarantees for 20 years, and we ensure that borrowers are held accountable, which captures their full attention. This allows us to charge a very healthy rate. Currently, we have a solid pipeline that is expanding thanks to a recent capital raise. That capital raise alone could enable us to fund about $200 million in equity for these particular loans through joint ventures.

That's terrific. And yeah, for me, I think you guys have created a very interesting new banking model. And I just wish you continued success.

Appreciate it, Scott. Thank you.

One moment for our next question. And for the next question comes from the line of Bryce Roe from B. Riley. Bryce, your line is open. Please ask your question.

Thanks. Good morning. Hey, Barry. Wanted to just ask about the potential spin of new technology solutions. Is that contemplated in your guidance for ‘24 and any kind of thought process around why and possibly when? I know you said by the end of 1Q ‘25, but just any more clarity on that would be helpful. Thanks.

Sure. Bryce, we like the business a lot. And right now, although different things can occur, I think it's our intention to offer that as a dividend to shareholders. Now, I would say that I hope to do it tax-free. So therefore, the effects of the business on a consolidated basis will flow through the full calendar year of 2024, and anything else probably will be at 2025 event.

Okay. Appreciate that. I think all the other questions were asked and answered. Thank you.

Thank you.

All right. So presenters, there are no further questions at this time. I would like to turn the conference back to the CEO, Barry Sloane for closing remarks.

Certainly appreciate everybody attending today. We had a very full call. And we'll continue to keep our head down, plow forward, and deliver the results that you expect from us. Thank you very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.