Earnings Call Transcript - NEWT Q2 2023

Operator, Operator

Good day and thank you for standing by. Welcome to the Newtek One, Inc. Second Quarter 2023 Earnings Conference Call. At this time, all participants are in listening-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, Chairman and CEO. Please go ahead.

Barry Sloane, Chairman and CEO

Thank you, operator, and good morning everyone. Welcome to our second quarter 2023 financial results conference call. Everyone listening can follow along with the PowerPoint presentation on our website, newtekone.com, in the About section under Investor Relations. Joining me today are Nick Leger, our Chief Accounting Officer; Scott Price, our Chief Financial Officer; and Nick Young, President and Chief Operating Officer of Newtek Bank. We are excited to report our second-quarter results as a financial holding company. For those who may not be familiar, we converted from a business development corporation with the acquisition of National Bank of New York City on January 6th. This makes some comparisons more complex, especially when looking at this quarter versus the same quarter last year, given the differences in accounting methods. We will provide additional information in our upcoming 10-Q as well as the press release that went out. It’s important to mention that we have now been operating as a bank for just over six months after acquiring a 59 to 60-year-old community bank that serves a local market. We are delighted with our progress made so far. Our new management team and loyal clients have contributed to strong results in our initial months as a financial holding company. We have been established since 1998 and have a long history of growth that we intend to continue. Please make sure to read our forward-looking statement on slide one. Moving to slide two, I’ll discuss our second quarter results as a financial holding company. We have garnered analyst coverage from several banks in the past months, which we appreciate and believe enhances our visibility. We’ve been successful in rapidly raising insured deposits and managing interest rate risks effectively, despite challenges in the current environment. Our core product, the SBA 7(a) loan, is currently at prime plus 3, which offers an appealing bid/ask spread with no caps on the loans. Today we'll showcase our return on average assets and return on tangible common equity ratios, which are impressive at 4.9% and above 30% respectively in the second quarter. Even as a holding company, our returns remain strong at approximately 2% for average assets and over 15% for tangible common equity. On slide three, we highlight our diverse revenue streams. An investment in NewtekOne offers multiple income avenues, and we anticipate declaring our first bank dividend soon. Newtek Small Business Finance is in a rundown phase but remains significant. Our subsidiaries, including Newtek Merchant Solutions and others, are profitable, providing essential cash flow and opportunities for growth. Meanwhile, our joint ventures in the non-conforming program may face challenges, but we remain optimistic. Slide four focuses on the challenges of year-over-year comparisons. Slide five emphasizes our identity as a technology-enabled solutions provider, not only a depository bank. We’ve effectively gathered deposits, growing from $140 million at takeover to $447 million by the end of June 2023. Our loan originations also reflect our transition, and despite the complexities encountered, we believe we're positioned for continued success. We've recently recruited outstanding talent, including Scott Price as CFO and Burt Chandler for Bank Operations, helping us enhance our infrastructure. We operate with a model that doesn’t depend on traditional banking practices, allowing us to maintain lower costs. Our sole branch is in Flushing, New York, with our headquarters in Miami, Florida. We emphasize providing superior service and products that deliver the Newtek Advantage to our clients. For tracking purposes, we will soon monitor sign-ups for the Newtek Advantage starting this quarter. On slide six, we will monitor our stock performance, with strong growth noted this year, outperforming several indices. On slide seven, we reiterate our differentiated business model, highlighting our asset-liability management approach. Our net interest margin is on the rise, with expectations for continued growth. Significant loan capabilities are supported by our technology and personnel. Slide eight discusses our quarterly and year-to-date financial highlights, including an increase in net interest income and total assets. Our infrastructure supports more substantial growth without incurring increased expenses. Slide nine summarizes our six-month financial highlights, with a net interest income of $10.3 million. Slide ten provides a closer look at Newtek Bank's performance, emphasizing the stability provided by insured deposits. Slide eleven covers our efficiency ratios, forecasting improvements as we streamline operations. On slide twelve, we present our ROTCE and ROAA as indicators of future EPS growth. In slide thirteen, we relay our shift from using Newtek Small Business Finance to fully integrating into the bank. Our strong capital infusion positions us well for growth. Slide fourteen highlights our lending growth, with significant increases noted through the first half of the year, driven by our technology-focused model. Slide fifteen reflects our tangible common book value, underscoring the value that our subsidiaries deliver, even if their contribution is not apparent in traditional metrics. Slide sixteen presents our recent deposit growth, including client relationship gains. Slide seventeen offers a breakdown of bank deposit sources, focusing on reducing brokered CDs and increasing non-brokered deposits. Slide eighteen emphasizes our position as a leading SBA 7(a) lender, noting the advantages of government guarantees and advantageous premium sales. Slide nineteen reviews the quality of our inherited loan portfolio from the National Bank of New York City, highlighting the robust management of this comparatively low-margin asset class. Slides twenty to twenty-one provide an overview of our lending activity, with substantial commercial loan closings indicating strong operational ramp-up. Slide twenty-three outlines our market positioning within financial institutions emphasizing technology enablement. Slides twenty-four and twenty-five underline the significance of our payments business and its contribution to our financial ecosystem. Slide twenty-seven presents projections for Newtek Technology Solutions, hinting at future spin-off opportunities. Slide twenty-eight assures no charge-offs to date on the portfolio. Slides twenty-nine to thirty discuss revenue generation from 7(a) loans and how 504 loans are structured. Slides thirty-one and thirty-two overview our non-conforming lending strategies and their attractive yield profiles. Finally, slides thirty-three to thirty-six discuss the Newtek Advantage, our recent dividend declaration, and key forecasts moving forward. At this point, I’ll turn it over to Scott Price, our Chief Financial Officer.

Scott Price, CFO

Thank you, Barry, and good morning, everyone. I'll start my comments on slide 37, which summarizes our capital position as of June 30th. I want to point out that the regulatory filings for the holding company have not yet been submitted, so those numbers are preliminary. As you can see, both the consolidated group and the bank are well-capitalized, and the bank successfully deployed capital this quarter and generated good returns, as Barry mentioned. Slide 38 outlines the summary metrics for the company's forecast for the remainder of 2023. Slides 39 through 44 provide detailed insights into the company's expected results for the second half of the year. The forecast assumes that we will deploy a portion of our liquidity position. You'll notice that our asset position is significantly higher, mainly due to the defensive cash position we've maintained in light of market turmoil. We plan to deploy that cash more effectively as we progress through the year and optimize our balance sheet efficiency, particularly regarding our originate to sell model. I want to emphasize that as more of the company's balance sheet composition shifts towards the bank and its capital stack, the advantages of lower funding costs should continue to improve returns, all else being equal. Our deposit costs are expected to rise as the recent Fed hike takes effect, lower-cost CDs mature, and we continue to utilize our online deposit gathering platform. The company plans to follow its business strategy for the remainder of the year in a manner similar to how we executed in the second quarter. Although not identical, we expect the seasonal patterns we've experienced in previous years regarding loan originations and gains on sale spreads to persist in the second half of 2023. With that, I'll turn the call back over to Barry.

Barry Sloane, Chairman and CEO

Thank you, Scott. Wrapping things up before we turn the call over to Nick Leger, our Chief Accounting Officer. On slide number 38, and I think it's important to note that we've got some projections and obviously, these are not easy to do in a fairly volatile environment, but you can take a look at where we think we're going to wind up for 2023 at the financial holding company, at the bank. We just like everyone to try to focus on what we believe we can hit for some very lofty goals for return on average assets, return on tangible common equity, both at the holding company as well as efficiency ratios really moving in our direction. Moving forward to slide number 45, from an investment summary perspective, you could see, where we're looking at relative to our profitability ratios and our efficiency ratios. We're maintaining our projections of $1.70 to $2. Although, I wouldn't say we're really near the midpoint, we're probably shading to the lower end of that range, but we're very comfortable with that particular number that could easily change around with respect to movements in rates or gain on sale prices. There's a lot of opportunity here. So we just want to be conservative. The second quarter quarterly dividend of $0.18, we do believe we'll be able to maintain, obviously, given our profitability through the remainder of the year, and we do want everyone to focus as a growth-oriented differentiated technology-enabled financial holding company. We're excited about what we're able to deliver in Q1 and Q2. And I now like to turn the rest of the presentation over to Nick Leger, our Chief Accounting Officer.

Nicholas Leger, Chief Accounting Officer

Thank you, Barry. Good morning, everyone. You can find a summary of our second quarter 2023 results on slide number 48. We're pleased to share our financial results for the second quarter, which marks our first full quarter as a financial holding company. As seen in the consolidated statement of operations, we have transitioned from our previous BDC investment company accounting, which did not consolidate our portfolio companies in the financials and reported those activities as dividend income. Now, as a financial holding company, we are consolidating the operations of our portfolio companies. Consequently, there are no comparable prior period consolidated financial statements available due to the change in accounting methods. I would like to highlight some key points from our second quarter 2023 consolidated statement of operations. On a consolidated GAAP basis for NewtekOne, our results for the second quarter are as follows. Net interest income was $5.7 million, reflecting a 23.9% increase from the first quarter's net interest income of $4.6 million. This net interest income includes $22.6 million in total interest income on loans and fees, offset by $16.9 million in total interest expense. Of that interest expense, $9.1 million is attributed to our notes and securitizations, $3.7 million relates to bank and FHLB borrowings, and $4.1 million is interest on deposits. In the first quarter of 2023, we implemented CECL on the Newtek Bank loans portfolio, which led to an additional provision for loan credit losses of $2.6 million recorded in the second quarter. After accounting for the provision for loan credit losses, net interest income stands at $3.1 million for the second quarter of 2023. We also noted total non-interest income of $46.4 million, which includes $4.3 million from servicing income, $13.2 million from net gains on the sale of loans, $6.5 million from technology and IT support income, $10.7 million from electronic payment processing, $4.4 million from net gains on loans recorded at fair value, and $6.1 million from other non-interest income. Delving into the $13.2 million of net gains on the sale of loans, these gains stem from $18.5 million of realized gains from the sale of the guaranteed portions of SBA 7(a) loans sold during the second quarter. In this quarter, Newtek Bank and NSPF sold 566 loans for $154.5 million at an average premium of 10.15%. There were realized losses of $5.3 million on SBA 7(a) loans for the second quarter. Moving on to non-interest expense totaling $40.2 million, which comprises $19.4 million for salaries and employee benefits, $4.8 million for electronic payment processing, $3.5 million for technology service expenses, $3.2 million for professional services, $3.6 million for other loan origination and maintenance costs, and $4.9 million for general administrative expenses. Pre-tax net income for the second quarter is $9.3 million, and after tax, consolidated net income is $6.8 million or $0.26 per share. I will now turn the call back to Barry.

Barry Sloane, Chairman and CEO

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

Operator, Operator

Your first question comes from the line of Crispin Love from Piper Sandler. Your line is now open.

Crispin Love, Analyst

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

Barry Sloane, Chairman and CEO

Sure. I'll address the first part, and I’ll see if Scott and Nick can assist with the second. Regarding the provision, in previous calls we mentioned a CECL provision of around 7% or 8%, which aligns with our past estimates. However, when we consider present value terms, it appears to be slightly lower. We believe this is consistent with our earlier forecasts from an accounting perspective. Scott or Nick, would you like to answer the question about quality?

Scott Price, CFO

Hey, Barry. This is Scott. I can speak to the allowance and just expand on that. We did make an accounting policy election when we bought the bank and implemented CECL that we would discount our expected losses. So, if you think about the 7(a) portfolio with an over 11% coupon and you discount that back, you can clearly see that a custom discounting, that kind of interest rate will really reduce the expected losses. So, we are susceptible to future interest rate moves and going to be a very interesting scenario to see play out for the rest of the year. But that is the reason for the discrepancy between the two.

Nicholas Leger, Chief Accounting Officer

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

Crispin Love, Analyst

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

Nicholas Leger, Chief Accounting Officer

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

Crispin Love, Analyst

Okay, great. Thanks. And then just one other question for me. Just on the cadence of earnings in the back half of the year, I think in the third quarter, you're now expecting $0.37 in EPS previous guide was $0.43, if I'm correct, but kept the fourth quarter pretty steady at $0.69. So, just curious on your confidence in the ramp and earnings in the back half of the year, especially the fourth quarter and what the key drivers that you expect to drive that? It seems that loan growth is expected to pick up a lot in the fourth quarter. So, curious on why that is and then what else is play driving the acceleration earnings? Thanks.

Barry Sloane, Chairman and CEO

Cris, thank you for your question. You are relatively new to us, having joined about six months ago. Over the past 20 years, the fourth quarter has consistently been our strongest quarter. We can also see that from our current pipeline. It's essential to note that our main focus is on growing our business. Alongside that, we've been working on transitioning people's staff policies, procedures, wire instructions, POP status, and addressing regulatory issues with two new regulators. The challenges we've faced in the first half of the year have been significant, akin to managing three separate jobs. I anticipate that we will continue juggling these responsibilities for the remainder of this year, potentially scaling down to two jobs, and then possibly just one. This will allow us to concentrate more on that primary responsibility in the future, with hopes of achieving our goals and improving performance. We are optimistic about our financials and must acknowledge the volatile environment, especially regarding short-term rates and pricing dynamics. Overall, we feel confident about our projections as we have a solid track record in forecasting.

Crispin Love, Analyst

Thanks, Barry. Appreciate taking my questions. That's all I had.

Operator, Operator

Your next question is from Michael Perito from KBW. You may now proceed.

Michael Perito, Analyst

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

Barry Sloane, Chairman and CEO

Thanks, Mike.

Michael Perito, Analyst

I have a quick follow-up regarding the margin assumption of 10.75%. Can you provide more insight into that? From my observations of various banks, including yours, it seems the secondary market remained quite stable in the second quarter following some volatility in the previous two quarters. I'm curious about why you believe this is the appropriate level based on current conditions for selling loans in the latter half of the year, especially since it's a bit lower than your historical figures but shows recovery from the second quarter.

Barry Sloane, Chairman and CEO

Sure, Mike, thank you for the question. I will refer to a page in the presentation that details our history of gain on sale prices. The main distinction between us and other organizations is that we work directly with borrowers. Slide number 22 revisits our net premium trends over time. You can observe some volatility, particularly in 2021 when the SBA had no fees, leading to rates as high as 13%. However, generally, we see about a 1.5-point fluctuation either way. Looking ahead, we are optimistic about pricing our loans at prime plus 300. We maintain a single rate unlike many competitors who offer varied rates for different customers. We work directly with borrowers without intermediaries, allowing us to quickly understand their needs. We provide a long amortization schedule, finalize the deal efficiently, and offer additional benefits, which is why borrowers choose us. Our current pricing is based on the latest mix of loans we've sold. It's also worth noting that we have 25-year loans backed by commercial real estate selling at around 114 to 116, which gets divided, while a 10-year commercial real estate-backed deal sells at 110 or 111. The mix of real estate-backed loans versus non-real estate-backed loans affects pricing, as do loan sizes. This makes it more complex to determine pricing, but we’re adept at estimating it and monitoring market trends, which currently appear favorable. Additionally, it’s crucial to consider when interest rates are changing in terms of our portfolio. Our legacy portfolio in NSPF largely operates at prime plus two and three-quarters, while new loans since the adjustment are at prime plus three, contributing to better pricing under stable conditions. I hope that clarifies things.

Michael Perito, Analyst

Thank you. I have a few more questions, and I apologize for being all over the place. I wanted to clarify something regarding the guidance. The increase in the share count in the fourth quarter, is it correct to say that this is primarily due to equity grants or stock compensation? Is that the assumption you are making about it, or is there something else involved?

Barry Sloane, Chairman and CEO

It's a good observation, Mike. I appreciate your thoroughness. That figure is a tentative estimate regarding something we may or may not pursue. I'm not certain we need to go in that direction, but it's important to clarify that it's not comparable. It could potentially represent an increase, but we have access to debt markets and equity markets, which is how we manage our expectations moving forward. I can assure you that those counts will happen. That's merely our best estimation, and it helps us arrive at these figures. If that clarifies things, I hope it does.

Michael Perito, Analyst

Yes. I mean, do you feel that you might need to add some type of capital at the bank subsidiary in the fourth quarter, considering your rates?

Barry Sloane, Chairman and CEO

No, nothing at the bank. Nothing. The holding company listen, the other thing too is if money is available to you at a fair price, you can make money off via take it. So, I believe, frankly, with you, I'm less enthusiastic about selling shares. There would be a debt, although the debt markets haven't been really that in the last month or so. So, it's a really hard thing to do this, which I'm sure you could appreciate. Like, I don't know, or is bank holding company debt going to be able are you going to be able to do it at 7.5 or 9.5 in the fourth quarter? I have no idea. It's hard to tell. And I'm not sure we need it. So, as we do this, what we try to do is put our best guesses out there and we always want to never overpromise and underdeliver. So, obviously, that's a little bit of a drag, but I wouldn't say that that's something that you can absolutely count on at this point.

Michael Perito, Analyst

Okay. So, from here, you're right. It's a conservative assumption that you might add some capital at the holding company level at some point, but that might not happen?

Barry Sloane, Chairman and CEO

Might not happen. And clearly, I don't need it at the bank. And the only capital I needed the holding company would be to do the non-conforming loans because there's nothing else that needs or eats capital.

Michael Perito, Analyst

Thank you, Barry. I have two more questions. In previous discussions, you mentioned the credit on the NSBF portfolio, especially regarding some of the vintages from the pandemic. It seemed there was no significant credit deterioration based on the gains and losses around fair value. Could you elaborate on any delinquency trends in the SBF book that your team is observing? You touched on this in a prior question, but I'd appreciate a deeper insight.

Barry Sloane, Chairman and CEO

Sure. The NSBF portfolio has been evaluated at fair value and does not include a traditional bank loan loss reserve. We have it fairly conservatively valued, and a significant portion of it has a 20% cumulative default rate going forward, with about 45% being seasoned. If I were to comment on the future environment, I believe it won't be as favorable as the current one. While this might not be entirely accurate, the economic setting we've experienced is nearly ideal, especially with our customers paying for PPP and EIDL loans, which we are still assisting with. I anticipate some decline moving forward. The nature of this portfolio means it may appear increasingly problematic over time since we aren't adding anything new, potentially making the situation worse in percentage terms. Additionally, in terms of non-accruals, it's crucial to focus on fair value rather than the original cost. The original cost doesn't matter because we've already accounted for the charge. We also have the gain from the sale, along with a favorable high coupon. Some might be concerned about a 13% return, but we've navigated challenges like COVID, where foreclosure wasn't an option, and we've pursued personal guarantees. This situation differs significantly from traditional banking, as it operates as a non-bank asset with distinct characteristics. We assess losses across the entire portfolio's lifespan rather than in individual years, and we feel comfortable with CECL, which shares similarities but isn't identical. These factors highlight key differences between NewtekOne and many organizations within this framework.

Michael Perito, Analyst

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

Barry Sloane, Chairman and CEO

Scott, I'll let you take that one.

Scott Price, CFO

Yes. When considering the portfolio, we have the traditional NB-NYC portfolio. In the first quarter, we reserved about 1.25% for that portfolio. There was one loan that we were closely monitoring, which may reach a resolution in the future. We're keeping an eye on that situation, but we do not anticipate any losses and actually expect better performance than originally projected. Looking ahead at the portfolio, we generated approximately $48 million in unguaranteed 7(a) loans during the period. It's important to take discounting into account when evaluating provisioning for that portfolio, especially given the current volatile interest rate environment. As rates increase, our allowance naturally tends to decrease, all else being equal. This is the accounting approach we've decided on. If you refer to the 7% to 8% mentioned by Barry, calculating it back suggests an expectation of around 650 to 675 basis points before any Fed actions. Thus, you can anticipate that level of provisioning moving forward, understanding that if rates increase, that number will likely decrease.

Michael Perito, Analyst

Perfect. Thank you guys. Sorry for all the questions, but I appreciate you taking them.

Barry Sloane, Chairman and CEO

Thank you.

Operator, Operator

Your next question comes from the line of Bryce Roe from B. Riley. Your line is now open.

Bryce Roe, Analyst

Thanks and good morning. Wanted to start maybe on this concept of the guide and know the seasonality that you that you've seen in the past, Barry. So, you've got forecast that operating expenses consolidated coming down in the back half of the year. And then you also are showing the NTS and NMS pre-tax incomes going up pretty considerably in the back half of the year. Just curious how you would kind of characterize the seasonality of that or just capturing operating efficiencies as you move further away from the move from BDC to Bank?

Barry Sloane, Chairman and CEO

NMS is clearly impacted by seasonality, particularly in the third and fourth quarters. In MTS, there were challenges, especially in technology, as many projects were delayed due to the economy in the first and second quarters. However, we believe those projects are now resuming. As for lending, we are quite optimistic about the volume, although forecasting remains difficult. We feel good about the situation. Concerning operational expenses, we are becoming significantly more efficient in our business. When considering efficiency ratios, we are gaining much more leverage from our operations, which presents its own challenges. We are focusing more on technology solutions. I have strong confidence in NMS as we take into account the seasonal factors.

Bryce Roe, Analyst

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

Barry Sloane, Chairman and CEO

Sure. So, with my Chief Legal Officer on the right shoulder here, imaginary, the only party that can declare a bank dividend is the Board of Directors, and it has to be approved by the regulators. But I'd say with confidence that this is something that we plan to do, and we are in compliance and subject to those two authorities approving it. I think it's something that the market can expect. And I would hope, as somebody that's going to recommend this, both to the regulatory authorities and the Board that a 50% ratio might be something that one can expect from the bank to the HoldCo, paid out of profits, of course. And the HoldCo dividend, which we set is somewhere around 30%-ish, 33% and 300%. So, that's kind of what our thoughts are there.

Bryce Roe, Analyst

And reason for doing that is to kind of help manage capital at the HoldCo. I mean, you just talked about really not needing incremental capital at the HoldCo. So, just curious how you would use that capital at the whole HoldCo level?

Barry Sloane, Chairman and CEO

Yes. It would be used for the non-business primarily, that's a big need for it. Could also be used to pay down debt as well.

Bryce Roe, Analyst

Okay. Okay. I appreciate it Barry. I think all my other questions were asked and answered. Thanks.

Barry Sloane, Chairman and CEO

Okay. Thank you.

Operator, Operator

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

Scott Sullivan, Analyst

Hey, good morning, Barry and congrats to you and the team on, really continuing this transition rather elegantly. So, my comments and questions come from a slightly different perspective, as I've really been fortunate enough to be an advisor and portfolio manager for clients, and been involved with Newtek since the early BBC days, as you know, and frankly, as everyone knows, you crushed it. You guys have really done an outstanding job. So, the natural turn towards the banking side now. My question has to do with scalability and perhaps Blue Sky Runway under some, I think, some exciting assumptions, at least that I have. I see a lack of financial stress. I see a potential eventual de-inversion of the yield curve. Obvious, as you talked about tech developments, AI and other that are, in my opinion, are going to lead to a huge productivity boom, possibly a decade long. So, question after that ramble is what's a Blue Sky Runway for you guys in terms of growth rate, loan growth, et cetera, with the special sauce that you prove in in terms of your process and, under these macro assumptions?

Barry Sloane, Chairman and CEO

If you look at our roadmap regarding people processing software, we envision a future where we can grow our revenue stream without directly correlating it to our expenses. This indicates a promising outlook. Some may question our decision to acquire a bank, wondering if it was to leverage deposits. While that's a part of the banking business, our focus is on enhancing communication and providing bundled services that give customers significant advantages. For instance, we offer document storage, allowing customers to access their documents easily if they bank with us. This is a distinct Newtek benefit, as it includes everything from insurance policies to photos. Additionally, our clients can access web traffic analytics, which is transformative. A common question I ask is, "Who do you know at your bank?" Most people either can't name anyone or can only name one person who is unable to assist with their needs effectively. This is not the case with Newtek, where you benefit from multiple relationships and analytics support. Our model is unique and difficult to replicate because we have owned our payments and tech solutions businesses for over 20 years. We have integrated these services thoughtfully rather than just combining them casually. That's my perspective on the potential ahead without diving into specific numbers. Now, regarding ROAA and ROTCE, this is where stakeholders will need to analyze and translate our achievements into quantifiable metrics.

Scott Sullivan, Analyst

That's very helpful. Thank you. One last question. Could you speak to any loan office exposure?

Barry Sloane, Chairman and CEO

Did you say a loan office?

Scott Sullivan, Analyst

Office. Office, right.

Barry Sloane, Chairman and CEO

Yes. I believe that the National Bank of New York City portfolio might have around $15 million, but these are not skyscrapers. They are more like medical offices, with balances ranging from $1 million to $1.5 million. So, we are fortunate in that we do not have that type of exposure in the portfolio.

Scott Sullivan, Analyst

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

Barry Sloane, Chairman and CEO

Thank you, Scott. I appreciate it.

Operator, Operator

There are no further questions. Please go ahead.

Barry Sloane, Chairman and CEO

No, operator. I appreciate it. I don't see any other questions.

Operator, Operator

We just one have from Christopher Nolan from Ladenburg Thalmann & Co. Your line is now open.

Christopher Nolan, Analyst

Given that it does have a very differentiated business model, are you finding more resistance from bank regulators who are having a difficult time getting their hands around your business?

Barry Sloane, Chairman and CEO

It would not have surprised me if the regulators had decided to pause. However, we have not seen that happening at all. I would say we have been fortunate that we have accomplished everything we set out to do, including holding significant amounts of capital and achieving good performance. So, the answer is that while it wouldn't have surprised me if that had occurred, it simply has not, and we do not see any indications that it will happen.

Christopher Nolan, Analyst

Got it. Okay. Thank you.

Operator, Operator

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

Barry Sloane, Chairman and CEO

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

Operator, Operator

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