Earnings Call Transcript - NEWT Q2 2024

Operator, Operator

Good day and thank you for standing by. Welcome to the NewtekOne, Inc. Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' 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 first speaker for today, Barry Sloane, CEO and President. Barry?

Barry Sloane, CEO and President

Thank you, operator, and everyone for attending our Second Quarter 2024 Financial Results Conference Call. Joining me today is Scott Price, the Chief Financial Officer at NewtekOne and Newtek Bank National Association. Also attending is Nick Young, President and Chief Operating Officer of Newtek Bank, N.A. For those of you who'd like to follow along with our call today, please go to our website, Newtekone.com, or the Investor Relations section on the presentation, and our PowerPoint presentation is available there today. I'd like to draw your attention to slide number one, which includes a note regarding forward-looking statements. On slide number two, we will be discussing significant events that occurred in Q2 2024. We announced last night at the close of the market, second-quarter 2024 earnings of $0.43 earnings per share, both basic and diluted. Importantly, according to Bloomberg, which had a consensus estimate from our analysts at $0.405, that was a nice beat for us with a revenue estimate on Bloomberg of $60.6 million, which I think reflects well where we are. The second bullet confirms our full EPS guidance for 2024 of $1.85 to $2.05 for both basic and diluted. Given the events of the last few trading days, Thursday, Friday, and Monday, we are very comfortable with this range, and we'd like to gain a little bit more clarity on what's going to happen in the world before we make any adjustments. It's important to note that quarterly deposit growth at the bank over the last quarter was approximately 17%, and the sequential total loan growth at the bank was 13%. We find these numbers to be terrific, particularly given that the industry averages are about flat. Our net interest margin stands at 4.3% for the three months ended June 30, which is pretty flat quarter-to-quarter, and we are comfortable with that. Many of you look at the net interest margin at the holding company. I want to highlight that the net interest margin at the holding company, which has the payment processor, tech solutions, payroll, and the insurance agency, is somewhat diluted from a margin standpoint because those assets don't provide interest income. They yield ancillary income that skews our income in the business model to close to 65% to 70%. However, if you look at the types of loans we put on the books versus our funding cost, it is extremely attractive. I'd also point out that the institutional funding of securitizations of the SBA 7(a) loan for the nonbank lender in NSBF comes with a much higher financing cost. The weighted average is likely SOFR plus 250, bringing it close to 8%, compared to where we stand in the bank. Thus, as our cost of funding transitions from that higher cost securitization on the old 7(a) portfolio to the bank, these margins should improve. It's also important to note that we had approximately 470 basis points of loan loss reserve coverage at June 30, 2024, in the bank. At the holding company, we use fair value and estimate the losses over time, so 470 basis points, as many of you are aware, is quite generous. We'll talk about that and its future effects going forward. Business deposits are also crucial; remember, these are our lower-cost business checking accounts. Our business money market grew by 17%, from $116 million in Q1 to $136 million in Q2. We also have exciting developments regarding our alternative loan program, which is extremely important to our growth and profitability. We are very excited to showcase our alternative loan program through recent securitizations. The NewtekOne small business finance loan portfolio began to experience the fold curve aging with realized and unrealized losses, and we will discuss that. These losses are not flat, they're not linear; a small business borrower typically displays seasonal characteristics concerning the loan's seasonality. So, we'll elaborate on that during the call today. NewtekOne demonstrates its six consecutive quarters of operating history as a bank holding company, owning a nationally chartered bank that allows us to continue to put loans on the books and fund ourselves at the bank with higher margins and higher yielding assets while offsetting current higher cost of deposits. Of course, we're aiming to generate lower-cost deposits through business checking and business money markets. We're very excited about the efforts here and the growth. We are different from a typical bank, and we've made it clear in previous calls that we aspire not to conform to traditional banking standards. We also anticipate higher expenses related to credit losses, but we must consider the returns we are generating and the coupons that offset them, which is why we maintain high returns on average assets and tangible common equity. We are proud of our achievements over these six operational quarters. We also note that our efficiency ratio at Newtek Bank improved to 42%, demonstrating tremendous improvement. We continue to showcase that the Newtek Bank can acquire business clients effectively through our patented NewTracker referral system and process their business with an emphasis on our unique, internally developed technological platform. Lastly, we successfully completed a registered public offering of $71 million in 8.5% fixed-rate notes; while it's not a low coupon, our returns validate that this cost of capital suffices to support our earnings growth and revenue model moving forward. On slide number three, focusing on the Newtek Bank summary financial highlights. For the second quarter and previous quarters, please observe the returning ROAA of 6.4% for the quarter. These are solid figures, not commonly seen in 95% of other banking institutions. Our ROTCE for the quarter stood at 48.8%, with the efficiency ratio declining to 42.3%. We are very pleased with our second quarter performance. Growth in a financial holding company and a bank like ours is viable; you can achieve growth in a financial institution that owns a depository. Our loan growth was 14%, and deposit growth was 17%, with a capital ratio that remains robust, almost double compared to most banks. We're exceptionally well-capitalized, supported by strong cash balances, and our reserve coverage is more than adequate for anticipated conditions at the bank due to CECL and at the holding company through NSBF via fair value. Slide number four covers our financial summary for the holding company. We spoke about the ROA and ROTCE, with the latter still north of 20%. Some muted results stem from income derived not from net interest income; this is reflected in our net interest margin, which is at 2.71 compared to a significantly higher figure at the bank. The capital ratios at the holding company, CET1 total capital leverage are at 18.7%, 21.9%, and 14%. Towards the end of slide four, we discuss our earnings; we are satisfied to report our $0.43 figure for Q2 2024, which is up year-over-year from $0.27 in Q2 2023 and up sequentially by $0.05 quarter-over-quarter. On slide five, we address frequently asked questions regarding NewtekOne. We regularly communicate with investors and have attended two recent investor conferences, B. Riley and KBW. We also had an Analyst Day conference. The questions we receive usually revolve around banks and bank holding companies, with a focus on deposits and concerns regarding interest rates and loss coverage. This creates some confusion. However, let's discuss how we generate revenue. Our business model yields an outsized amount of noninterest income compared to traditional bank net interest income. Notably, fears surrounding credit and interest rates do not influence a government-backed sale for cash, occurring consistently on daily, weekly, and quarterly bases. Despite skepticism towards gains on sale, we have enjoyed gains on sale for 20 years. Our traction with lower-cost business deposits is encouraging, with a reported 17% increase. We have raised our SBA fundings for 2024 to $135 million. Our mission statement emphasizes making our clients more successful, which is crucial; without that, we shouldn't be in business. Thus, we acquired the bank to enhance our profile for deposits and transactional capability. We are strategically positioning NewtekOne as a growth-oriented company, aiming to achieve a growth multiple on earnings, evidenced each quarter, even with the current elevated deposit costs and the anticipated losses due to high coupons. Our alternative loan program's history and future will be covered in slide six. We happily announce that we completed a securitization; our previous attempt in 2022 faced challenges from the banking crisis, but we are back at the forefront. Our pipeline remains strong and active. In the alternative loan program, we receive hundreds of business loan referrals daily, possessing approximately 80,000 paying customers and three million referrals in our database. These are independent business owners seeking loans with low monthly payments. The program we offer includes no balloon payments and features a 10- to 25-year amortization schedule. Furthermore, these borrowers dislike harsh bank covenants; they prefer flexible agreements in exchange for personal guarantees. When analyzing the demand cross-section, we find numerous willing guarantors, who are prepared to accept a higher interest rate for enhanced loan flexibility. This can be seen from our pipeline and recent securitization details, available on DBRS's website, which provide an extensive overview of the collateral backing the loans. To summarize this transaction, $190.5 million of collateral backs $154 million in investment-grade rated notes filed by institutional investors across various classes. Before moving to slide seven, I'd like to extend our appreciation to Capital One and Deutsche Bank for their assistance in the securitization. Concerning loan metrics, we originate loans for approximately 3 to 3.5 points, a conservative estimation of origination expenses at around 2 points. The amortization schedule does not allow for balloons. Interest rates are typically around 850 to the five-year, with servicing handled at 100 basis points by the bank. It's important to note that these securitizations are funded by joint ventures representing equity interest at the holding company; they yield high returns. As such, we encourage everyone to utilize your Excel spreadsheets to calculate potential yields from this last transaction, which featured an 80% advance rate to an investment-grade rating. This set-up creates a situation whereby 80% of the spread income has no required equity counterbalance, reflecting the collateral yield. Though historically, we base our metrics against an 8% charge-off standard, these credits are fundamentally more robust than the 7(a) loans typically considered. We analyze severity and frequency with an understanding that these borrowers possess greater liquidity. Loans exceeding the $5 million cap of 7(a) have been classified in this alternative loan program. Moving to slide eight, we highlight the significant catalysts driving the business. We expect substantial deposit growth; our SBA business, which has been consistent for two decades, continues to thrive. Notably, our deposit growth reached 17%. Newtek's financial model allows us the advantage of offering more favorable depository services compared to traditional banks that face strict margins and subpar charge-off assets. We aim to launch a zero-fee banking program supported by a deposit calculator, detailing customer savings resulting from reduced expenses and competitive interest rates. Thus far, we've attracted 1,300 to 1,700 new business banking accounts at the bank, demonstrating promising growth with an upcoming Wilmington office to enhance service capabilities in that area. Moving to slide nine, we are enthusiastic about the loan pipeline growth ahead in the second half of the year. I will not go into detail—it's self-explanatory. Our year-to-date loan origination figures are on the bottom of this slide. It’s important to note that our origination performance lagged in 504, conforming C&I, and CRE products; we aim to rectify this in the latter half of the year. Achieving a balanced portfolio through additional conforming C&I and CRE loans provides diversification and, consequently, reduces CECL reserves on these loans. Based on our analysis, we expect the reserves to hover around 3.5, balancing the portfolio effectively. Hence, these reserves are indeed available for utilization; smaller reserves on higher credit-worthy, lower-margin conforming CRE and C&I loans are advantageous. In slide ten, we revisit second-quarter financial highlights. We've discussed key aspects on this slide, but the most crucial point I want to stress is growth. The EPS of Q2 2023 was significantly lower, from $0.27 to $0.43. If we exclude tax effects from 2023, the EPS will stand between $1.03 and $1.07; this year, our midpoint is anticipated to reach $1.95. This encapsulates our growth trajectory and the unsung elements deemed missing from the market perspective. Now, I would like to hand it over to Scott Price for slide twelve.

Scott Price, CFO

Thanks, Barry. Good morning, everyone. Turning to slide 12, our net interest margin contracted by 12 basis points during the quarter, driven by increased leverage and higher cash balances. We raised over $70 million in our bond offering at the end of May and paid down warehouse lines of credit. Currently, we have about $20 million of excess cash, which we have invested in accounts earning approximately 5%. Furthermore, we successfully retired our bond issuance that matured on August 1. Next, on slide 13, we observed deposit growth from our business customers amounting to roughly $20 million during the quarter, corresponding with much lower costs in our retail offerings. Our CD campaign successfully secured over $79 million, primarily in six-month paper that will reprice in the fourth quarter. Moreover, we anticipate about $70 million of CDs to reprice in the third quarter, maturing in the fourth with roughly $100 million also slated for reprice. These funds have an average cost of around 5%, presenting a cost-savings opportunity moving forward. Due to the recent market turmoil, we have been monitoring the bond market, paying particular attention to our competitors' pricing strategies. Our forecast includes expected deposits, which I'll elaborate on in a few slides. Now, I will pass it back to Barry.

Barry Sloane, CEO and President

Thank you, Scott. Slide 14 highlights the Newtek Advantage, our proprietary business portal, which allows clients to access analytics and transactional capabilities that other institutions cannot offer. We believe that the industry must provide added value to customers beyond just accepting their money. In an age where transfer of funds from one bank to another is just a click away, retaining deposits requires us to add value for our customers beyond traditional methods. We're innovating with features such as pre-unlimited document storage, real-time web traffic analytics, real-time credit card processing, and payroll capabilities in the business portal. We will delve deeper into the Newtek Advantage in upcoming slides. Slide 15 covers our credit risk management. Despite having gone public in September, founded in 1998, we have significant experience managing credit risks. In the bank's small business finance sector, for example, we noted fair value adjustments resulting in a quarterly charge-off of around $5 million, which we were able to absorb. Though we reported charge-offs exceeding 38% over a five-quarter period, the good news is those figures are already written off and have been assessed for liquidation. The loans will be converted to cash, subsequently benefiting the holding company, decreasing the funds we require for stock buybacks, dividends, debt reduction, etc. The allowance for credit losses stands strong at $21 million, representing 4.7%. The pipeline for new loans is robust and gaining traction. Looking at the bank's nonaccrual loans, we would like to highlight that the number has climbed to $13.5 million. Many analysts may react with concern, but it’s essential to understand that some of these loans stem from our previous acquisition and will fluctuate, given we sold $3 million of these loans in Q3. This brings the total down to a more manageable amount. I do not anticipate a significant change in charge-offs for Q3 resulting from the loan sale to the National Bank of New York City. The nonaccrual loans comprise assets that we acquired through our business model; I will now shift back to slide 16.

Scott Price, CFO

Right, Barry. As mentioned on this slide, we noted 470 basis points of the CECL reserve at the bank. The introduction of conforming C&I and CRE loans is anticipated to decrease that reserve. We are confident in our projections, drawn from our 20-year history. I’d like to remind everyone that if you're looking for straight lines in our reporting, it might not be as straightforward with our operations. However, over the past two decades, we've successfully developed our business and our model remains strong. Slide number 17 addresses our merchant business, which we tend to overlook. It’s on track to generate around $16 million in EBITDA for 2022 without interest income. Slide number 18 discusses diversifying our earnings further. At the bank, we foresee benefits from expanding lower-cost business accounts, continued growth in SBA lending, and utilizing more traditional lower-margin loans to diversify and automate the Newtek Advantage while transforming merchant and payroll accounts into banking accounts. Our alternative loan program remains attractive as we have evidenced its effectiveness with our investor factions, yielding gains on sale alongside net interest income. The loans are initially held in our warehouse and transferred to joint ventures for securitization. I would now like to highlight our upcoming plans regarding asset sales and product development before opening the floor to questions.

Barry Sloane, CEO and President

Thank you for your attention. We have hired Jennifer Merritt as Chief Operating Officer of the Digital Bank, and we launched our Wilmington office in July 2024, where we've brought on about 25 professionals to oversee commercial banking accounts. Since our operations began on January 6, we've successfully managed 8,000 distinct banking accounts, which is impressive. Scott, would you like to encompass slide 20?

Scott Price, CFO

Certainly, Barry. In slide 20, we've outlined our updated guidance for the remainder of 2024. Our origination volumes have been adjusted, along with our guidance for the upcoming two quarters. We've incorporated an anticipated 0.25 point rate cut into our projections. Furthermore, we expect premiums on SBA 7(a) loans to remain around 11% over the next two quarters. While we've trimmed our loan production expectations for the year, it’s worth noting that we're reaffirming our EPS guidance of $1.85 to $2.05. As previously mentioned, various factors influence our results, including loan production, gains and losses on sales, and performance from our payment and other nonbank operations. Notably, we completed our ALP securitization in late July which is anticipated to positively influence our guidance for Q3, along with the expected rise in expenses tied to investment in our infrastructure to support our business deposit accounts. I’ll briefly discuss quarter-over-quarter performance, as depicted on slide 28. Overall, our net interest income has seen a slight increase thanks to improved liquidity and leverage. We've noted an upturn of $1.8 million in our loan loss provision compared to last quarter, largely due to some charge-offs and the increased percentage of 7(a) loans at the bank. Shifting to noninterest income, we’ve reported a rise in net gains from selling loans due to higher sales volumes, and our electronic payments processing has seen increased revenue following the acquisition of a customer with multiple accounts. Expenses were lower than the previous quarter, with multiple positives and negatives impacting the overall figure, the most prominent being higher professional services expenses around audit activities from the first quarter. As we factor in higher customer-related payment processing expenses, we remain optimistic about the trends moving forward. Barry, I'll now return it to you.

Barry Sloane, CEO and President

Thank you, Scott. As we reflect on 2023, it's vital to acknowledge the remarkable capabilities of our management and accounting teams, alongside our legal staff and entire Newtek workforce. They have successfully navigated considerable hurdles in establishing and growing our business. I consider the National Bank of New York City a precursor to our evolution; this bank has no real capability for digital transactional deposit acquisition. Historically, our business model leaned on originating loans from brokers, which succeeded for the bank based on its strategy. Internally, we overcame operational and software system changes during our transition towards a unified business model, which diverges significantly from traditional practices. The Newtek Advantage has launched, bearing fruits in attracting deposits digitally without the need for branches. Enhancements have been made to our accounting and regulatory compliance divisions as we transition from a business development corporation into a conventional public company, providing a solid automation foundation for our business. In 2024, we’ll further refine the Newtek Advantage to rank as the premier business portal in the market. Our management team is well-positioned to bolster our business deposits while showcasing our ability to aid our clients beyond basic services. Looking forward to slide 23, we see an increase in investor interest. I recently attended the KBW and B. Riley conferences, and we will be participating in more upcoming conferences, including Raymond James. Throughout these presentations and meetings, we strive to educate and build familiarity within the investment community. This organization is challenging to analyze, as our business model diverges from the conventional structure, being one that delivers comprehensive business and financial solutions to independent owners. We regularly engage with institutional representatives and aim to maintain our dividend policy, which currently presents an attractive return. We are steadfast in executing our business plan and asserting our potential to foster growth while managing credit and facilitating low-cost deposits in a disruptive fashion across our industry. Finally, I want to highlight slide 24, which provides comparative metrics demonstrating our performance against market peers such as Live Oak Bank, emphasizing our lower efficiency ratio, ROAA, and ROTCE. It’s essential for those evaluating our company to recognize the value of our operational methods and market positioning. As we traverse the forthcoming quarters, we will consistently deliver high returns on our performance comparable to those we've historically achieved as a publicly traded entity. Slide 25 highlights our uniquely structured model that provides high returns; we anticipate improved margins owing to lower-cost deposits and diversified low-margin offerings. The ALP program and Newtek Advantage are significant growth initiatives, as are our well-honed SBA lending activities. Competing businesses entering our sector should welcome the challenge as our acquisitions differ greatly compared to traditional methods. While challenges remain, we clearly see the finish line ahead and are eager to reach it. Slide 26 summarizes our growth as a differentiated technology-driven business solutions provider that also functions as a depository. We will now transition to the Q&A session.

Operator, Operator

Thank you. At this time, we will conduct the question-and-answer session. Our first question comes from the line of Crispin Love of Piper Sandler. Your line is now open.

Crispin Love, Analyst

Thank you. Good morning, Barry. Good morning, Scott. Hope you're well. Just first off, on the 2024 guidance. EPS at a headline level is unchanged, but you are expecting lower originations, lower held-for-investment loans, and a lower margin guide. Can you provide some detail on how you plan to make that up? It would appear that lower NII would impact these figures, but you know that NII is a relatively small part of your income. Could you clarify specific areas in noninterest income where you are most optimistic for the second half of the year to meet your guidance?

Barry Sloane, CEO and President

Cris, can I give you a general response? I would indicate our strongest growth area will likely come from the ALP business that is gaining traction, particularly for Q3. We also have some interesting opportunities within the merchant services sector that I think will be influential as well. That’s the direction I believe we will outperform in.

Crispin Love, Analyst

Thanks, Barry. One more on the guidance. You noted earlier the recent volatility in broader markets impacting your guidance, keeping it steady. Can you explain how the recent events affected that guidance relative to your expectations from a week ago or at Investor Day? Did any adjustment to the guidance change the expected quarterly cadence to a slightly lower Q3 before an acceleration in Q4?

Barry Sloane, CEO and President

That's a great question, Crispin. Considering what transpired last Thursday, Friday, and yesterday, would it have mattered if I raised the guidance? We strive to provide guidance that is both reliable and dependable. We didn't foresee the recent fluctuations affecting the market, so there’s a slight concern about guidance. Our midpoint is $1.95; as of yesterday, our stock price stood at $12.50. If you believe in the business, that’s a distinct multiple. I encourage everyone to anticipate the unexpected. I cannot predict what will transpire in August or September.

Crispin Love, Analyst

Thanks, Barry. I appreciate the details, and that’s all I have.

Barry Sloane, CEO and President

Thank you, Crispin. We appreciate your participation.

Tim Switzer, Analyst

Good morning, everyone. Thanks for taking my questions.

Barry Sloane, CEO and President

Good morning, Tim.

Tim Switzer, Analyst

Could you clarify your earlier comments about the shift in EPS between Q3 and Q4 being driven by the ALP program? Did the securitization close in Q3? Should that impact Q3 EPS or is it more about the timing related to ore charge-offs?

Barry Sloane, CEO and President

I appreciate your question and its nuances. Investors should recognize the cyclical nature of our reports. We perceive substantial internal factors impacting joint ventures as well as transitions that could affect gain on sales margins. Their timing relative to quarter-end can result in unpredictable analyses, but overall, Q3 and Q4 will align with our previously issued guidance. Many of these factors bring volatility; while we anticipate some short-term challenges in Q3, we expect to recover in Q4.

Tim Switzer, Analyst

Can you explain the mechanics driving that shift from Q3 to Q4? Is it primarily influenced by noninterest income?

Barry Sloane, CEO and President

Yes, from the noninterest income perspective, it relates to credit losses and default curves as well. Additionally, lower deposit gains are noteworthy in driving this.

Tim Switzer, Analyst

Does your commentary regarding the default curve imply that you anticipate either higher provisions or increased net losses on the tender value loans?

Barry Sloane, CEO and President

That’s tough to tell. I need to approach September 30 to gain clarity on that.

Tim Switzer, Analyst

Understood. Regarding the recent other noninterest income, it jumped up approximately $6 million this quarter beyond the typical range. Can you detail what drove that increase?

Barry Sloane, CEO and President

The primary driver for that uptick is the alternative loan program, as we processed a significant volume of loans.

Tim Switzer, Analyst

That makes sense. Thank you for the insights.

Barry Sloane, CEO and President

You're welcome.

Steve Moss, Analyst

Good morning.

Barry Sloane, CEO and President

Good morning, Steve.

Steve Moss, Analyst

Perhaps starting with the comment about 504 loan originations. Can you provide more insight on the performance here and your expectations for it to improve in the second half?

Barry Sloane, CEO and President

That's a great question. Scott, we have reduced our guidance on 504 for the year, correct?

Scott Price, CFO

175.

Barry Sloane, CEO and President

Exactly, Steve. Excellent question. Our team acknowledges the importance of portfolio diversification. Hence, we have perhaps leaned a bit on 7(a); however, we've recently increased our guidance there.

Steve Moss, Analyst

Got it. One final question regarding the Newtek small business finance portfolio; I know this is smaller, but the balance has fluctuated significantly quarter-over-quarter. What do you foresee happening?

Barry Sloane, CEO and President

I expect it to stabilize moving forward. Our outlook incorporates these fluctuations—our guidance acts as a reference point, and I foresee the trajectory stabilizing shortly.

Steve Moss, Analyst

Understood. Thanks, Barry.

Barry Sloane, CEO and President

Thank you, Steve.

Christopher Nolan, Analyst

Hey, guys. Following up on Steve's question regarding total nonperforming loan volumes and how they might impact reserves or quart provisioning.

Barry Sloane, CEO and President

Scott, do you want to handle that?

Scott Price, CFO

Sure, Chris. That's a valuable question, although the answer isn’t straightforward. We conduct a detailed analysis of our nonperforming portfolio, which takes into account collateral evaluations and borrower circumstances. Each loan's unique situation influences our reserve requirements, particularly with larger loans.

Christopher Nolan, Analyst

Understood. Regarding your forward guidance, should we expect flat gains on sale?

Scott Price, CFO

Essentially, Chris, we’re looking forward to pretty stable production numbers for Q3, slightly higher than before. Although our premium on loans was marked at 11.02%, we should expect similar results for Q3.

Barry Sloane, CEO and President

Let’s make sure we don’t feel confined to the 7(a) metrics; developments within our ALP avenue will also contribute to our overall performance.

Christopher Nolan, Analyst

Understood. Final question: given your recent hire for business deposits, how do you envision bundling services offered by the Newtek Advantage to better attract low-cost business deposits?

Barry Sloane, CEO and President

Absolutely. One emerging initiative, which we aim to roll out in the second half, focuses on same-day payroll—unleashing our payroll capacities is crucial. Clients want to get paid sooner than later, and we can facilitate that.

Christopher Nolan, Analyst

Thank you for the information.

Barry Sloane, CEO and President

Thank you, Chris.

Bryce Rowe, Analyst

Good morning. I wanted to follow up on Tim's question regarding the default curve. In this fluid macro backdrop, do you think you'll provide upfront support for your lending products amidst rising uncertainties?

Barry Sloane, CEO and President

It’s prudent for us to be realistic. The higher rates place stress on borrowers who took loans at lower rates, raising concerns for us with yielding assets.

Bryce Rowe, Analyst

Understood. If Scott indicated that you baked in a 125 basis point cut for your forecast, how do you assess multiples of 25 basis point cuts?

Scott Price, CFO

We anticipate that changes in short rates over the next few years are more likely to trend down than up, showing stability in the results. Low or negative margins position us well for challenges.

Bryce Rowe, Analyst

What is the timeframe for your technology business disposition requirement?

Barry Sloane, CEO and President

The deadline in our application is Q1 2024.

Bryce Rowe, Analyst

Thank you for clarifying.

Barry Sloane, CEO and President

Thank you.

Operator, Operator

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Barry Sloane, CEO and President, for closing remarks.

Barry Sloane, CEO and President

We truly appreciate everyone’s participation, particularly from the analysts. Your thoughtful inquiries regarding the quarter are valuable. We are looking forward to continually delivering on our numbers while confirming our business model's alignment with industry timing. Thank you once again for joining us.

Operator, Operator

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

Barry Sloane, CEO and President

Thank you.