Author: David Callahan

Newtek Business Services Corp. (NASDAQ:NEWT) Investor Conference Call December 14, 2022 8:30 AM ET

Company Participants

Barry Sloane – Chairman, President and Chief Executive Officer

Nicholas Leger – Executive Vice President and Chief Accounting Officer

John McCaffery – Senior Vice President of Accounting and Finance

Conference Call Participants

Adam Morton – RBC Capital Markets, LLC

Christopher Nolan – Ladenburg Thalmann & Co. Inc.

Robert Dodd – Raymond James & Associates, Inc.

Scott Sullivan – Raymond James & Associates, Inc.

Timothy Switzer – Keefe, Bruyette & Woods, Inc.

Marc Silk – Silk Investment Advisers

Operator

Good day, and thank you for standing by. Welcome to the Newtek Investor Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation there will be question-and-answer session. [Operator Instructions] 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. Please go ahead.

Barry Sloane

Thank you, operator. Good morning, everyone. My name is Barry Sloane, President, Chairman, Founder, CEO of Newtek Business Services Corp. We appreciate everybody attending an update on the pending acquisition of National Bank of New York City.

For those of you that would like to follow the presentation along today in PowerPoint form, please go to our website, newtekone.com. Go to the Investor Relations section, and you will see the presentation is positioned there, will also be archived dated December 12, 2022.

Joining me on today’s call is Nick Leger. Nick is a Chief Accounting Officer of a publicly traded company, Newtek Business Service Corp.; and John McCaffery, who is the CFO of the soon to be formed, Newtek Bank in North America. We certainly appreciate everyone joining on today’s call.

I would like to forward to Slide 1 of the presentation as well as Slide 2, which really relates to the notes regarding the forward-looking statements, comments, and a special note regarding the financial illustration and targets that we prepared here today.

The purpose of today’s call, obviously, is to update analysts and investors in the pending acquisition of National Bank of New York City as well as the transformation of the company from 1940’s Act, Business Development Corporation, into a financial holding company under the 1933 Act. Clearly, this is an important and valuable transformation to the company and all of its stakeholders, including its shareholders.

On Slide 1 and Slide 2, we talk about a lot of the estimates and expectations that we have made to being able to put this particular presentation and illustration together. A lot of work went into it. Obviously, some of the things we have previously estimated, things such as originations of nonconforming loans of $600 million in 2023, $1 billion in 2024; 7(a) originations, which in this year looks to be somewhere in the neighborhood of $775 million of fundings with fairly modest growth in 2023 and 2024, probably exceeding $800 million, maybe to $900 million; the 504 originations, of which we have previously indicated, we’ll close around $150 million-ish of loans this year. Very modest growth in calendar year 2022, 2023 to come up with these illustrations.

And we’ve also obviously forecasted the portfolio of companies, which are the nonbanking activities, which will be sitting up at the holding company. So a lot of work went into being able to provide this particular illustration. We all realize that we’re dealing with fairly fast-moving market conditions. And we will – once the anticipated close date of the bank is finalized, we’ll talk about when the expectation of that is.

We will come out with a very granular forecast what the bank holding company and the bank would look like, which will break down things like deposits, categories, growth, precise cost of funds. But this particular illustration today is to give the market a very good sense of where we think we can ultimately deliver the bank holding company and the ownership of the bank based upon everything that we have in place.

Clearly, the organization has been working very hard to get legally accounting, the software, the ability to open a bank accounts online, digitally with a mobile application. So when the bank does open in January, we’ll be ready to go. We obviously also had to take over the management of the core operating platform and manage it in our own cloud. We’ve hired a significant amount of staff, which we’ll talk about today, as well as obviously broadening the product menu to include, what I call conforming C&I loans and conforming CRE loans to add to the complement of things that we have historically done such as 504 lending, 7(a) lending, et cetera.

We’re really excited also about delivering The Newtek Advantage. We’ll talk about that, as well as our digitized, technology-enabled manner to do online banking without brokers, branches, BDOs or bankers.

I’d like to move forward to Slide 3 and focus on the actual acquisition of National Bank of New York City. I think it’s important to note, we put out an 8-K recently that we’ve extended our agreement with National Bank of New York City for a close date ranging from January 3. I believe the other date is January 23, and that is the anticipated estimated date. Then we will actually own the bank. So we’re looking at anywhere between a couple of weeks to 45 days away, to get that transaction consummated.

Obviously, we’ve entered into an agreement to acquire National Bank of New York City that was previously announced, for a price of $20 million, which is approximately 1x tangible book paid in cash. We have received, as we previously reported, the conditional regulatory approvals from the Federal Reserve and the OCC, and we believe that we will meet all those conditions, and Newtek Bank North America will operate as a subsidiary under the bank holding company.

We think this is a terrific opportunity for us and our shareholders. The bank has been family-owned, very well managed, very clean bank. The bank, according to core reports, only has one nonperforming loan, a little over $3 million in balance. We’ve recently appraised the real estate that are lean behind that loan. It’s a north of $5 million. So very, very clean bank portfolio, primarily of New York City-based CRE loans, and probably $120 million, $130 million of deposits. Some of them are termed out. That should be somewhat helpful to us going forward.

We have some customary conditions. We’re very comfortable that those will be met. It shouldn’t be an issue. Important, the management team of the bank will be – and I say the very senior management team, obviously, because the bank is primarily family run, family-owned – will be stepping aside. The Board will resign and will be replacing the bank Board with nine very qualified bank board members. The bank holding company Board will remain as a public company transitions from a publicly traded BDC to a financial holding company.

Important to note, there’s no core conversion. We’re going to be sticking on the current platform, Fiserv Premier. We used Apiture, our terrific technology integrating organization, to give us the mobile account opening, online bank opening and to work with our existing tech team to integrate The Newtek Advantage. So not a lot of disruption there relative to accounts. So we’re very, very excited about this acquisition, which is very close to being finalized.

On Slide 4 – and obviously, we continue to put these illustrations out there because until the deal closes, a lot of things could move around. Although we are very, very close right now and believe that, obviously, our illustrations that we previously put out and now believe are no longer relevant, both in March and August of 2022 obviously, this is much closer, much sharper focus.

But I think it’s important to note, when you look at Slide 4, we are starting off with a very well capitalized financial holding company and bank subsidiary, and that is what we are targeting for we are at the holding company, you’re looking at $1.1 billion of total assets. You’re looking at 18{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} to 22{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} TCE ratio, 19{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} to 21{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} CET1 ratio, and total capital ratio is about 20{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}, 25{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}.

We think that, obviously, these are incredibly reasonable pictures and estimates of what the bank holding company, which will elect financial holding company status will look like. And at the bank, the bank is around $200 million worth of assets. We’ll be putting in between cash and unencumbered assets, probably another $50 million approximately at the close. That will get total asset size up to $245 million, $250 million. But you could see, very well capitalized.

And we do plan on utilizing this capital over time. I think it’s important to note that. I think it’s also important to note that, at the holding company, you will have Newtek Merchant Solutions, which currently has an NAV somewhere between $135 million to $150 million, and Newtek Technology Solutions probably also has a net asset value net of debt of around $25 million to $30 million. Those will be hold at the bank holding company. Those entities would not be part of our tangible book going forward.

So that’s important that, that gets included from a BDC perspective, but it’s not part of book going forward. However, those assets are quite valuable, and so, generate close to $20 million of EBITDA and cash flow this year. In addition, the holding company will have the payment processing business, tech solutions business, the insurance agency, the payroll business and our joint ventures of nonconforming loans.

So the holding company will be very well diversified, give us additional types of income, additional types of cash flow, and needless to say, we’re extremely excited about the structure.

One other thing that I would like to point out and illustrate, Newtek’s Small Business Finance. Our current SBLC, which is – currently obviously sits and owned by the publicly traded company, will remain there based upon technical issues that I won’t get into too much at this point in time, relative to 23A issues, the Fed and the OCC level. It was difficult, which required an exemption to actually put the debt – securitized debt versus the loans into the bank.

So that’s going to be sitting up at the holding company under regulatory – continued regulatory supervision, but will be in a runoff mode, and the new originations will be done at the bank level. So it’s important to understand how these things are laid out. And when we re-up the number post the close, we’ll be able to really get into a more granular presentation for analysts or investors, but I want to be able to talk to it so people get a real good understanding of how we’re laying out, what it looks like, what we anticipate, what we believe and what we expect.

I’d like to go now forward to Slide 5. The earnings target illustration, particularly from a consolidated Newtek financial holding company. I would also like to point out, which we’ll talk about, we have publicly stated to a press release, we do plan on renaming. The holding company, NewtekOne, will explain that whole rebranding strategy within the context of this presentation.

I think it’s important to note, when you look at these profitability targets of fiscal year 2023 and fiscal year 2024, we’re very excited about the types of returns that we can generate with respect to ROAA, and ROATCE. These are clearly not returns you see normally within a banking environment.

Well, if we were going to be doing residential mortgages and car loans and home equity loans, which are very competitive, very, very thin margins and really can only be done by successfully the big banks would scale, the Wells Fargo to JPMorgan, you couldn’t get these kinds of numbers just because the margins are so thin, and then you don’t have those economies of scale.

However, the types of things that we do that are unique and novel, we’ve developed an expertise over the course of 20 years, the 7(a) lending, the 504 lending, and we will complement them with what I call conforming C&I and conforming CRE loans in the bank, to have a nice diversified portfolio. We’ll be able to generate these types of returns. So we’re very, very excited about that.

In addition, you’ve got the nonbanking activities at the bank holding company that do not eat a lot of capital, with the exception of the nonconforming lending business out of the JV, which we’ll talk about. But clearly, the Merchant business, the Tech Solutions business really does not need much capital at all. Merchant, really nothing. Solutions – Technology Solutions does at time have some CapEx, but it’s really not a lot. The Payroll business, no, the Insurance Agency business, no. The nonconforming business through joint ventures does utilize capital going forward. But it gives us – you could see that we have a lot of levers, a lot of flexibility in the organization. And these are things we’ve been doing for a long period of time, and now we’re able to roll them up and position, not just from an operational perspective or a marketing perspective or an organizational perspective, but also delivering these solutions to our customers through The Newtek Advantage, which we’ll talk quite a bit about.

I think once again, when you look at these profitability targets and the capital ratios, this is a unique holding company. It has a lot of assets, lot of cash flow. Consequently, it also has a lot of debt. I’d say a lot of debt relative to a normal bank holding company which has almost no assets and very little debt, and really relies upon the dividend solely of the bank, dividend up to be able to make the interest payments. So I think it’s important to note that we will be very much a unique organization.

So when you look at the profitability targets for fiscal year 2023, obviously, these targets are at the financial holding company. We actually believe that they will be higher within the bank. However, in 2023, return on average assets, 3{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} to 4{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}, return on tangible common equity between 18{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} and 22{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} in our first year of operations. Obviously, you could see in 2024, that will expand, we believe.

We put bank cost of deposits 2.75{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} to 3.5{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}. Now early on, we’ll probably be doing more of the expensive types of deposits, probably in the first quarter or two. And then, we’ll really start to gain steam by getting deposits in from our Merchant processing accounts. We have 15,000 of them. In the Payroll business, we probably have 800 or so unique business clients, probably with 11,000 employees that we do payroll on. That is the deposit fertile opportunity for us.

We probably have close to 80,000 clients that are paying us, and 2.2 million referrals in the database. So I keep asking – getting asked the question, where are you going to get deposits from? Boy, we have a lot of targets. And the spread between, obviously, institutional money and core deposits is very wide and very valuable. So we do see these ratios changing. Obviously, our ratios are going to be quite different because this is deposits to total funding, and it’s a financial holding company, which we already indicated. We have a lot of assets and a lot of debt, so where this might not be the normal good number for a normal bank that’s got nothing at the bank holding company or doesn’t have these nonbanking activities. Our nonbanking activities generate a lot of cash flow, and they also have some very modest amount of leverage on this, which we feel pretty comfortable about.

Earnings per share or after-tax EPS range up, first year, $1.70 to $2.00; second year, $2.80 to $3.20. We’re excited about the growth. We believe that’s achievable. Obviously, we will be utilizing the excess capital that we put into the organization. As you could see, we’ve indicated that the bank itself will start up with about $250 million of total assets. We do believe that, within our plan that’s been approved, that could grow to $735 million after 12 months, $1.2 billion after 24 months, $1.5 billion after 36 months.

So we’re excited about that we actually have something in place that allows us to be able to utilize the capital and grow the business. Obviously, as we get our sea legs under us and further develop staffing, technology, capital utilization, these numbers do start to grow. And these numbers, in my opinion, don’t fully reflect the value of The Newtek Advantage and us being able to take market share from other participants in the market. So once again, very, very excited about these financial numbers, particularly the growth in earnings per share that we do believe – anticipate is achievable.

When you go to Slide 6, you could take a look at the mix, and we’re very proud of the mix relative to what I’ll call the bank earnings and revenue versus the financial holding company. Obviously, the financial holding company will be participating in the income stream that comes off the nonconforming business and the joint venture, primarily funded by the fundings that we did recently as well as securitizations.

But we like this mix. We think it’s a great mix, and it really diversifies once again our revenue stream. We’re excited about the nonbank revenue that’s going to be coming in on a reoccurring basis. We’re excited about the joint ventures we put together. We recently put out a press release of us securing $300 million worth of leverage lines, which are being used to close the transaction, which require a cash payment to the current owner of the bank as well as really well capitalizing the bank at its inception.

And once again, we’re really, really excited about our ability to reduce certain dependencies and diversify. Clearly diversify our funding sources to grow our business using more inexpensive debt versus the BDC model, which requires regular equity raises. When we closed our BDC and transitioned in 2014, I believe, the share count was somewhere around 14 million shares, give or take. Today, we’re 24 million, approaching 25 million. So clearly, we have to constantly issue shares to keep the leverage ratio intact for a BDC.

I do want to point out, when you go into our history, and we became a public company in September of 2000, we were 1933 Act company, all the way through November of 2014, and that suited us well. And the company made a strategic decision that we should convert from a 1933 Act company into BDC. Not an easy task, very difficult, and we have to go through a shareholder transformation in addition to transforming a lot of our operations, the accounting, legal. This isn’t easy.

So the management and the Board of Newtek historically, when the two roads are in front of it, it doesn’t take the easy road. It takes the right road. And we’re confident that we are on the right road, although this is the easy road. I will point out that when we did do the BDC, the stock traded off fairly sharply initially. And then it did – history may or may not repeat itself, but all of the marketplace will have to determine that. But it did rebound pretty quickly in a couple of months.

And that transformation to the shareholder base is something that we expected. Obviously, we didn’t expect the Fed to also raise rates by 4{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} and to have the types of inflation that we’ve got right now. But with that said, we feel very, very good about, at this point in time, being able to grow our business using more retail deposits, using more debt leverage, and also have the ability to retain earnings. So we’re very pleased with where we are today, and that’s really from just a pure financial perspective.

Then, when you go to the next slide in the presentation, Slide 7, this is the current depiction of what The Newtek Advantage will look like. And The Newtek Advantage, this is something that we believe is – and we’ll argue this and deliver it and continue to develop it. It will give independent business owners and according to the Small Business Administration, whether you want to call them SMEs or SMBs or where they got five employees, 50 employees or 1,000 employees – we’re going to be giving these businesses relationships. What does that mean? Well, most of these clients, if they do know anybody at the institution that they give their money to, it’s maybe a new business banker that typically can’t solution anything. It’s got to bring multiple assortment of people. Well, when they get The Newtek Advantage, which they will have, and it will be delivered methodically over the course of time, but every depositor will get The Newtek Advantage.

They’re going to get these relationships. They’re going to get a licensed insurance agent, not a call center. They’re going to get a payment specialist. They’re going to get a payrolls and health specialist. They’re going to get a tech solution specialist. They’re going to get a deposit specialist. They’re going to get a lending specialist and they’ll get a relationship manager. So they’ll be able to pull somebody up on a camera, on a screen and be able to visually have that conversation when they want to have that conversation, and to be able to schedule an appointment. So they get those relationships. They’re going to get analytics. Well, what are those analytics? Well, they’ll be able to see their web traffic data and statistics, unique visitors, total visitors, time on the site, bounce rate, how effective their site is. They’ll be able to store all their organizational documents in the Newtek Advantage.

By the way, everything I’m telling you about, exists. It will be part of 1.0. They’ll be able to go to The Advantage and make payroll. They’ll be able to – in the event that they are processing payments with us, get all their Merchant data, all in one place. What is the Merchant data? They’ll be able to look at batches from the day earlier. They’ll be able to look at chargebacks, refunds, slicing and dicing, AmEx, Visa, debit, credit. These are all things exist, but they exist in the Merchant silo or they exist in a Tech Solution silo or they exist today in the Payroll. So they’re all being pushed up right through to the Newtek Advantage, and a real simple question. Our staff will be trained to offer the Advantage to our clients and the client will say, what’s the Advantage? Boom, here it is. And they’ll be able to see, gee, I didn’t know you do all these things, and you could have it in one place, that’s terrific, in addition to what you basically get with a bank.

Listen, I’ve got to make a comment at this point. Is a depository account of commodity? Does it really make that much of a difference, whether your money is sitting at Bank A, Bank B, Bank C? It’s a depository account. I mean, you could dress it up. Now I’m not saying there aren’t differentiators in the consumer business or in the Fortune 1000 with different platforms and treasury functions and certain ways to move money around P2P, et cetera. But in this environment, our customers typically shoved into the retail segment for those people that are familiar with banking, and they’re just not really well treated. We’re going to be giving the client the Newtek Advantage. They’re going to be getting an asset. We believe this will be a gem, and we’re excited to roll it out and make it happen. We’re unlocking 20 years of value. And by the way, this is not just software. This is software, people and process that has existed for over a decade, it’s been developed, the staff uses it and it functions.

And we’ve also begun conversations with many institutions to white label list for their benefit. Unlocking this value, is, we believe, tremendous upside. So we would white label this for a $1 billion organization, a $100 billion organization, and we would be provisioning the Payroll, the Payments, the Insurance, et cetera, because these are all the entities that sit up at the bank holding company. So we’re very, very, very excited about the Newtek Advantage.

Going to Slide 8 – a lot of the questions, and we’re trying to answer as many questions as we can today – relate to, are you staffed? Can you manage this? When are you ready to open? Well, we’re ready. We’re ready for the curtain to go up. Obviously, when you look at Slide 8 and Slide 9 and Slide 10, we’ve got the right executive team to manage policies and procedures, risk, supervisory issues.

Nick Young will become President of the soon to be established Newtek Bank. Nick’s been with the company currently for 18 months. So it’s not like he’s walking indoor and the curtain is going up. So he’s had a lot of opportunity to understand the organization and to get us positioned to take over the reins of National Bank of New York City, which will become Newtek Bank North America.

Peter Downs and Nick has been with us 18 months. Peter Downs will be with the company coming January – well, actually be July, 20 years, two decades. A lot of banking experience with Peter Downs. He’s our Chief Lending Officer, also President of Newtek Small Business Finance.

Thrilled to have John McCaffery as our CFO of Newtek Bank North America. John, I believe, has been with us about six months. And John’s been working directly with Nick Leger, our EVP and Chief Accounting Officer of the publicly traded company, soon to be named NewtekOne.

David Simon, President and COO of Newtek Merchant Solutions. David will also have a dual role, in-charge of Director of Deposit Acquisitions in the bank. David has got a lot of banking experience, sat on two Citibank boards, and was very, very involved with both Citibank and Visa, Visa, in particular, which is a more recent stop, where he was Global Head of Small Business and Medium Enterprise Business over at Visa.

John Vivona recently joined us. I think John’s been with us three or four months as Chief Compliance Officer of Newtek’s soon to be created Newtek Bank N.A. Really excited about John, a lot of experience here. John has made an offer, it’s been accepted to BSA officer, and we’ll be hiring a fraud officer shortly. So we’re very well set up to be positioned to manage the risk of taking deposits.

Brian Moon. I believe Brian has been with the company, I think, three years, maybe four. Brian’s Treasurer and SVP, joins us from the investment banking world, and Brian has worked with our organization in modeling, treasury functions and some capital markets activity.

Kelvin Lui, I believe, around nine to 12 months. Kelvin is Chief Digital Officer, and Kelvin has been terrific in working with Apiture to get us up and running with the mobile account opening and online banking within hopefully – I would say, hopefully, but within, I’d say, five to six minutes, you should be able to open up the required bank accounts here at our organization. And obviously, then John’s team takes over with respect to all the KYC issues and the follow-up and making sure that these are the types of accounts that are supposed to be banking with our institution.

We recently brought on Tom Soucy. He will be running our C&I lending book reporting directly to Peter Downs. Tom’s had a lot of experience in the business and has had great track record formally working with Nick Young, both in IBERIA and Sabadell.

Brian Lawn has been with our organization, I believe, about two years. And Brian previously had a senior position at Peoples United Bank in the commercial real estate area. That’s where he will be spending his time as the Head of CRE lending, also reporting to Peter Downs. Mike Ogus, 39 years of banking. Mike sits on several of our committees.

So moving forward to Slide 11 and hopefully, I’ve given you a good snapshot of what we look like, and we will open this up to Q&A. We believe that we’re clearly worth a look and maybe more than a look with respect to NEWT. We’re progressing towards the full operational, financial and shareholder repositioning to the transformation of our organization from a BDC, 1940 Act company to a financial holding company. We’re confident that it’s in the shareholders’ best interest to make the acquisition, which we obviously will do, and be positioned as a business solutions company, important to note to the 30 million independent business earners across the United States. And to add banking and depository services, in addition to Tech Solutions, in addition to Lending in addition to Insurance, Payroll Health and Benefits, technology, et cetera.

So we are a solutions company. We make our clients more successful. We’re the one company that makes them more successful. We’re the one company for all their businesses. We’re the one company they need to partner with. We’ve been around a long time. We publicly traded since September 2000. We’re established since January of 1998. We’ve survived 2008, 2009. We survived the pandemic.

This is a company that has historically been able to manage its risk very well, as well as importantly to know we’ve managed transitions. These transitions are not easy. So transitioning from a 1933 Act company into a 1940 Act company, and then a 1940 Act company back into a 1933 Act company. I’m telling you, we don’t do that for fun. We do it because we believe strongly it is in all our stakeholders’ best interest.

As a quick comment. I do speak to shareholders quite frequently. I’ve had shareholders telling me, you’re doing this because you want management, including yourself to be paid more. I can’t tell you how silly that question or comment is. Acquiring a $200 million, $250 million bank is not a blueprint for paying yourself more money, okay? It’s not. However, what we do with that organization and delivering value to shareholders will be – and we will obviously look to grow the business. And with management owning 5.5{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} of the outstanding shares, it loved the dividends it used to get. But there are times when you want to invest in your platform. And what we’ve been able to demonstrate when we transitioned into a BDC, which enabled us to raise more capital on cost effectively because that was the right structure for the business at the right time.

We grew the business. We grew the earnings. We grew the dividend. Well, guess what? It’s time to make the change now. That’s what we believe, and we’ve studied that. And this is not something that feathers anyone’s nest by doing this. A matter of fact, it’s been a job. It’s been a hope, but we believe very strongly that we now have the benefit of taking the existing business. So the business methodology all went back to 2000, and mission statement is the same in 2014. It’s the same today, provide those solutions, and this is the best structure.

And frankly, I think many people feel that dividend paying stocks are the way to go. And therefore, growth is out of favor. Well, you know what they say, buy low, sell high, not the other way around. So I think you just need to take a look at what we’re trying to do and figure out whether this makes sense for you or not. We certainly appreciate – some people like dividend stocks and some people liking growth stocks, but we firmly believe this is in the best interest of all the shareholders, and that’s why we’ve done it.

Obviously, as a financial holding company, we think we can reduce our cost of capital, which is now – this is – if this isn’t clear, then we haven’t really done a good job on these calls. But selling shares and issuing BDC notes in the current market, we think that the current structure will be better suited to reduce our cost of capital and grow the business accordingly because we are a growth company. We’re really appreciative with the management team and all that the associates of Newtek have been able to do.

In addition, we’ll be able to retain earnings which were restricted by – from a BDC perspective, based upon the RIC requirements to distribute between 90{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} to 100{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} of the taxable income. And as most people know, BDCs are really not eligible for mutual funds with respect to – certain mutual funds can buy other mutual funds, certain mutual funds cannot buy BDCs. So typical institutional ownership in BDC is very limited. And there are some funds that get penalized by the AFFE requirement. So this should open up the base, and BDCs are not in the Russell and not in the S&P 500. So it is estimated by some sources, there could be up to $1.5 million or $2 million worth of additional buying, but just getting it to the Russell 2000, if that does happen.

So we believe, once again – we talked about management interest being aligned, The Newtek Advantage business portal, really excited about it. Please understand we have approximately 80,000 customers in the book that are currently paying us in some way, shape or form, $2.2 million of referrals. And you don’t think we’re going to be able to try to get some of their deposits demand that’s just out there. That’s a phone call away. That’s an advantage call or an e-mail solicitation away.

I don’t need new business bankers begging to have a meeting or a lunch. We’ve got a lot of opportunity to bring in deposits with the existing people that really do know us and recognize that the Advantage is an asset, that the Advantage is an advantage that they can’t really get anywhere else.

We talked about our name change to NewtekOne. We’re excited about being the one company for all your business needs, the one partner that enhances your level of success, and the one company that provides you with the necessary state-of-the-art solutions to be able to grow your business.

And once again, we look at providing solutions. We want to be a solutions-based company that also provides banking services. And when you look at our organization and you look at our return on tangible common equity, and the types of returns that we believe we can drive, this isn’t a 1x book, 1.25 book with really narrow margins. If you keep hitting those growth numbers, which we’ve seen in the BDC market, we’ve clearly seen that in the BDC market that if you grow the dividend, grow your earnings, you’ll be rewarded. So we believe we’ll be able to do that in this financial structure as well.

I think it’s important to note that we really look forward to competing against other depositories and partnering with the depository sharing of technology and unlocking that value. So a lot of opportunity. We’re excited about it. We wanted to give shareholders and analysts an update today. And if there are any questions today, operator, we’d love to take them. And that concludes the presentation for today.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question will come from Adam Morton of RBC. [Operator Instructions] Your line is open.

Adam Morton

Hi. Good morning, Barry. Hey, Barry, how are you?

Barry Sloane

Good morning, Adam.

Adam Morton

Congrats on the approvals. Good stuff. Could you get a little deeper into the weeds about the deposit strategy? I know you glanced on it briefly, but if you could talk a little bit more about that, I’d appreciate it.

Barry Sloane

Sure. So, look, I think it’s important to note, we’ll be capped obvious for a second – we’re not a bank. So I’ve had some people say, how many deposits you’re going to get in the first quarter, the second quarter? It’s like, hey, it’s great to be a financial guy, but at the end of the day, we’re operators, and it’s going to take time. So we will most likely use what I would refer to as internet-based methods of gaining deposits early on. And then we will begin to work the customer base that we have existing, like, for example, in the Merchant services business, being a payment processor. Now we can – where we’re not conflicted, open up deposit accounts, potentially move money in the same day, bundle things together for deposits, whether it’s months of free payroll, a terminal, a POS system. We have so much opportunity to gain deposits with the existing base. However, we will use the more expensive money, but it’s in part of our plan to reduce our dependency on that more expensive money. And that’s where you’ll see that margin expansion start – we do want to be realistic on those lower cost deposits.

One thing I also want to note, the environment of frictionless money movement is becoming more and more prevalent. So, more and more institutions today really have the ability to move money over from a noninterest-bearing checking account, and one of the big boys into your organization, and we’re seeing that a lot. So there’s a pretty big margin right now between zero and three or four, and if the balance sheet are big enough, they’re meaningful, and it takes five or 10 minutes to move over into an interest-bearing account. People are doing it. And the good news is, between things like Payroll and the connectivity, e-commerce, Merchant services, a lot of opportunities. So we’re really excited about the ability to demonstrate that we can really gather good, solid deposit base and have this well integrated into our solutions.

In addition, historically, we’ve made a loans we’ve never taken to pause. Well, now we can do that. And we got between 3,000 to 4,000, I think, existing borrowers, and we did 26,000 PPP loans. So we’ve got a lot of people that we can have conversations with that – now as well. So deposit gathering is important to us. We’re measuring the metrics quarter-to-quarter. I wouldn’t expect huge growth there in first and second quarter, but you should start to see things perk up Q3, Q4.

Adam Morton

Awesome. Thank you so much. Good luck.

Barry Sloane

Thank you.

Operator

And our next question will come from Christopher Nolan of Ladenburg Thalmann. Your line is open.

Christopher Nolan

Barry, what do you consider it to be operationally your minimum tangible common ratio?

Barry Sloane

If the question relates to the bank, I would say that the minimum would probably – over the course of 36 months would be probably around 10{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} to 10.5{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}.

Christopher Nolan

So there’s – just given the type of assets that you invested, there’s no reason to keeping materially higher levels of capital?

Barry Sloane

Well, those numbers for most banks would be considered exceedingly well capitalized. I think that – for our institution, I think it’s important to note, we’re starting with a blank slate relative to the bank, but with a 20-year track record. So we’re very pleased that we were able to position ourselves with the regulators and a plan and be able to demonstrate that we could start this thing off with really good reserves, manage the business, generate really good returns and be well capitalized.

So no, there’s really no need for us to really push those numbers at this point in time. And we’ve got plenty of time to deal with that. I mean, obviously, when you’re looking at the ratios of the bank, TCE ratio, 30{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} to 33{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}, CET1, 38{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} to 42{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}, total capital 38{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}. So we got a lot of business to be done. And we have a 20-year track record in the selected areas. Now you take these selected areas and then you put on what I’ll call the AAA conforming, I refer to that as conforming bank-type credit, [indiscernible] properly bulletproof credits and you blend them together. We’re going to have a very well-diversified, nice portfolio that’s frankly barbelled somewhat. But I think it’s important to note, we’ve been through 2008, 2009 with SBA lending as well as the pandemic. So we have a pretty good feel for how these markets do act in poor environment. So I think it’s once again important to note that – we do know how to manage risk being out of that. Listen, if you can manage your funding and your capital in a nonbanking environment, this becomes – I won’t say easy, nothing in life is easy, but it’s easier.

Christopher Nolan

And then as a follow-up question, for all the services you’re going to be offering, what percentage of revenues do you think they will account for the [indiscernible] organization?

Barry Sloane

Thank you, Chris. So on Slide 6, there was a pretty good – and that wasn’t done on a granular basis. And that is something that we’ll do shortly after the close because everything will consolidate, so we do plan on really being very granular and showing what Payments will be, what Payroll will be, what Insurance Agency will be, what the JVs will be. But I mean, broadly speaking, we think that the bank will probably contribute about 50{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} of the revenues.

Today, that’s probably closer to – we don’t have a bank, but I would say lending activity is probably closer to 65{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} with a lot of it driven by gain on sale. So that becomes much more diverse going forward. But when you look at the Merchant business today, it generates about $16-ish million of EBITDA in 2022, Tech Solutions, probably $3.5 million to $4 million. The Insurance Agency and the Payroll business a little under that. The joint ventures are clearly an important area of growth, which is the recent financing lines that we put in place and close, are really important going forward.

And I want to complement the Newtek management team where people are really having a hard time getting funding. Our partners were great. We thank Webster Bank, we thank Deutsche Bank, we thank Capital One Bank, we thank Santander, Bank United, all of our partners that really helped us. And they’re not providing money to everybody, and that’s going to be an important area of growth for us. We feel very good about that.

Now one shouldn’t be really startled by those numbers because although the numbers are big, the average loan size in the nonconforming book is, call it, $5 million. So where we’ll probably do 1,300 to 1,400 units in 7(a), to do $600 million, you need 125 units or so, give or take. So – and understand, we’re going to be using the current infrastructure. We’re going to be using the current referral sources. So the operational leverage that we get out of the current infrastructure that we’ve built over 20 years, it’s going to be immensely valuable to the organization, obviously, into all of our stakeholders and customers, which we’re excited about.

Christopher Nolan

Great. Thank you for the update.

Barry Sloane

Thank you.

Operator

And our next question will come from Rob Dodd of Raymond James. Rob your line is open.

Robert Dodd

Good morning, Barry.

Barry Sloane

Hi, Robert.

Robert Dodd

Congratulations on getting a close date probably approved. I mean one question – I mean you’ve been very clear on this presentation, these kind of – these are earnings target illustrations, and you’ll give more detailed guidance later. Can you give us any color on how much more work needs to be done to come up with the detailed guidance? Because I’m trying to get a sense obviously, there’s still an enormous amount of work to be done. The profitability targets in the presentation may be very, very rough, right? Versus if it’s just crossing T’s and dotting I’s on the guidance, then we should have a lot more confidence in the profitability target. So can you tell us – give us any indication of how much confidence we should have the guidance will align with the profitability targets versus these are just theoretical?

Barry Sloane

Good question, Robert. I appreciate it. Look, I think our organization has been historically a good estimator of future activity. And, Robert, as you can imagine, I got the lawyers on one chair – on one shoulder, I got shareholders on other shoulder, okay. So your question is like spot on, bull’s eye, right between my eyeballs, so I appreciate it. Look, we obviously did a lot of work on these numbers. And we understand that it’s important when we provide information to the market, there’s work behind it, there’s thought behind it, there’s modeling behind it. There’s best case, worst case, et cetera. So we were comfortable enough to put this out.

With that said, my question to you is, what’s Chairman Powell going to do this afternoon? I don’t know. Do you know? So yes. Well, okay, then I’ll hold you to that. I will call you later and see if you’re right. But the 10-year is moving 20 basis points in the morning. And spreads were widening and now they’re contracting. So just from the standpoint of really being full disclosure to investors and sort of explaining that there’s a lot of volatility out there, that has nothing to do with Newtek, right? That’s the key. It has nothing to do with Newtek. We’ve got to take that into account.

I think that what we put out is a very good illustration and impression of where we’re going to be. We have year-end, there’s things moving around. There’s things closing, but we feel very comfortable with the illustration. And historically, we’ve been pretty good at really – and we’ve done this for 22 years of public company. So I think that this presentation today is useful to stockholders, and that’s why we did it.

Robert Dodd

I appreciate that color. You have historically been pretty good on the 7(a) origination numbers, for example. But obviously, that’s not all the bank is going to be doing. So more wheels on this chariot than previously, but I appreciate that color. I do have one on the – is it the intention to give going forward – I mean you talked about the kind of the NAV of the processing business, et cetera. Are you going to give a pro forma book value or just tangible book going forward? I mean, how are you going to incorporate your assessment of value of those businesses into your presentation or – go ahead.

Barry Sloane

Sure. So I mean my understanding is there are institutions that actually put out things like adjusted book which are non-GAAP. And yes, the reality of it is, when you take the nonbanking activity, which most banks don’t have, and they’re going into the book of zero, and arguably, they were $150 million to $170 million, you may want to explain that to the market because as you know, Robert, at one point, we traded at 2x to 2.5x NAV. And for most of our BDC life, we traded above NAV, despite the fact that nobody ever thought we could trade at a premium to NAV. I mean, who are you? You don’t look like any other BDC? You were kind enough to model us being different. So we believe that when you grow earnings, and we anticipate it, you’re going to ultimately get your number and the – there will be bank investors that will – if they look at what’s the value of the book, blah, blah, blah.

But listen, if you want to buy banks at 3.25 to book or 1 to book and trade the 1 to 1.25, 1.5, we’re probably not the cup of tea with respect to – but by the way, if we look like the other 9,000 financial institutions, I’m not doing my job, and Newtek hasn’t fulfilled its mission. So frankly, I think that is why we’re a solutions company that also provides depository services and Payroll services and Merchant services and Tech – so these are the services we’re going to provide. And by the way, we also take your deposits, which is great.

Robert Dodd

I appreciate that. Thank you, Barry. And have a busy New Year.

Barry Sloane

Robert. Thank you so much. I appreciate that. Thank you.

Operator

And our next question will come from Scott Sullivan of Raymond James. Your line is open.

Scott Sullivan

Hey, Barry. Thanks for taking the call.

Barry Sloane

Hey, Scott. Thank you.

Scott Sullivan

Kind of a two-part question, a little more longer-term growth from the inorganic side. What’s your take or desire on longer-term acquisitions? And second part of that same question is, do you look to sort of stay in the asset-light branchless model? Thanks.

Barry Sloane

Yes. So both really good questions. Historically, I’ll call this – the bank trade is the only way you could create value as you merge. You layer your fixed expenses on a bigger asset base, you squeeze the cost out. Well, I don’t know, I think that’s history. And also, the one real – amongst many benefits, National Bank of New York City will be a really good integration for us. They’ve been helpful, cooperative, and there’s not a lot of fixed expense. There’s no long-term leases. There’s really no long-term obligations that lock us in. It will be on a relative basis, easy integration versus merging into $1 billion or $2 billion bank with bankers and branches and a culture that’s just immovable. We’ve had really good dialogue, obviously, with the owners, the sellers and the employees of the bank that have been really helpful and cooperative in doing this. So I think that’s important. It would be – we’re always going to look to be opportunistic, but it is not in our plan to do acquisitions. First of all, we’ve got plenty of loan growth opportunity. We’ve demonstrated that over our history. And we feel strongly we’re going to be able to grow deposits with our existing book of relationships.

So the reality of it is, the only – in our view, based upon how we do the business versus the other 9,000 institutions, the only value would be the customer list and the brand. The way they do business night and day versus how we do the business, which is no bankers, no brokers, no branches, no BDOs. So that’s not what we want. And the good news is we actually have a plan that goes into that. So when we ultimately go out and we report metrics and you look at our efficiency ratios and our ability to grow when you look at our margins, we shouldn’t trade like anybody else in – we should trade like a solutions company, not like a traditional bank and bank holding company that makes 30-year fixed rate mortgages, home equity loans and tries to take people’s money and not pay them any interest.

Scott Sullivan

Very cool. Thank you. Second question more macroeconomic observational. What’s your take on small business appetite for new loans currently, let’s say, over the last couple of months?

Barry Sloane

Well, we’ve had really good growth numbers for Q2 and Q3. And listen, at the end of the day, we obviously live in a macro market, but the technology and the methodology that we have built with our partners, the UBSs, the Morgan Stanleys, the Stifel Banks, Raymond James, credit unions, trade associations, it’s working. So we’re seeing borrowers that are concerned about the economic slowdown that normally wouldn’t borrow there. They’ve got liquidity, but they’re afraid that things might slow in the next four to eight quarters. They want the extra cushion and they’re creditworthy and they have unencumbered assets. Those are good loans. I mean, I hate to say it, but you don’t want to make loans to the person that’s like run out of gas at the gas station when they get to the pump. You want to have it with half tank or three quarters of a tank.

So there’s good opportunity. There is loan demand, importantly, for people that can withstand an economic downturn, and we’re seeing that. We’ve indicated on recent calls that our credit scores, particularly in recent vintages are higher than they’ve historically been, so we’re able to tighten. Our loan sizes are smaller, which is good. We’re getting more diversification. So we feel pretty good about the environment for loan demand.

Scott Sullivan

That’s great stuff, Barry. Thanks and congratulations.

Barry Sloane

Thank you, Scott.

Operator

Our next question comes from Tim Switzer of KBW. Your line is open, Tim.

Timothy Switzer

Hey. Thanks for taking my question. I’m on for Paul Johnson.

Barry Sloane

Thank you.

Timothy Switzer

I had a question kind of about your origination mix on the loan side. You mentioned may be doing some more conforming C&I, CRE to diversify the portfolio. Can you kind of walk us through your view on what the origination mix will look like over time, maybe year-end or something, especially like what percent of SBA?

Barry Sloane

So without getting – like pinpointing it, Tim, I think that you’re probably looking at in 2023, $200 million to $300 million, what I would call traditional banks, CRE, your multifamily loans, self-storage, things like that, and traditional C&I lending, 30{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} equity down, three to five-year maturity, fully guaranteed, great cash flow, those sort of bulletproof credits that banks do in tight margins and really low charge-off rates.

I will add – I know people look at us, oh, gee, you’re just a 7(a) lender, which we are, we do a nice job of it. By the way, after today’s adjustment, the gross coupon on the portfolio will probably be rolling up to like 10.5{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}. So people don’t realize it, but those floors above prime on the uninsureds are very valuable. So it’s attractive. Obviously, when you start to do the nonconforming, you’re competing when you got to get rates that are lower. So you’re not at 10.5, you’re 5, 6 and 7, and you’ve got a short M schedule, and you’ve got all the covenants in there that our borrowers and the other programs hate and are willing to pay the higher rate on.

But our plan in working with the regulators and having a diversified portfolio and diversified risk is to put on that business – it’s less profitable, but it really balances the portfolio out, which is important. We think it overall diversifies us, gives us that spread income, which is nice, and we’ll be growing that part of the business as we go forward.

The other thing, too, is if you think about the maturation, you could start somebody off with a 7(a) loan, then going to a 504 loan, then to a nonconforming loan and then maybe go into a conforming C&I or CRE loan. So we really cover the aspects of the business as they sort of mature over time. It’s a really neat – and it’s just what banks don’t do, particularly for the more early-stage businesses that we’ve cut our teeth on over 20 years.

Timothy Switzer

Right. Okay. That’s helpful. And do you guys expect to hold more guaranteed than you are right now? Or any plans to change that?

Barry Sloane

No. I think that we will probably be a seller of guaranteed for the foreseeable future. I mean that could change. It depends on the market and things, but now we think – continue to be a seller. It produces the highest return on equity.

Timothy Switzer

Right. Okay. And I know you won’t – you’re not really talking about the deposit growth rate you expect or anything, but do you think your deposit growth can keep up with your loan growth?

Barry Sloane

Yes.

Timothy Switzer

Okay. That’s helpful. And the last question I had was on, if you have any guidance or range you can give us on G&A or like an efficiency ratio target, anything like that?

Barry Sloane

Not prepared to do that at this point in time, but it will be – at the bank level, it will be obviously, as we grow. That’s the big thing. I just got to remember, we’re starting off with a boatload of capital. But you get into the second year, it will be very – people will look at and go, how do you get there? Well, if you don’t have those branches, you don’t have these new business bankers that arguably are extremely expensive and don’t add a lot of value component, but you’re basically dealing with the solutions experts that are on camera, we’re able to generate tremendous economies and efficiencies.

So I’m not prepared to do that. We don’t want to get too granular on this call, but we’ll have some very exciting efficiency numbers, and we will highlight and showcase that. That’s a real important aspect to what we’re doing. We’re going to be able to demonstrate that we are a technology-enabled bank that really is, number one, able to extract data and put it into the right format to make a decision, but we really don’t need the expensive sales and marketing effort that most financial institutions go after, with branches and bankers and brokers and BDOs all over the place.

Timothy Switzer

Great. Okay. That’s helpful. Thank you.

Barry Sloane

Thank you.

Operator

Our next question will come from Marc Silk of Silk Investments. Your line is open.

Marc Silk

Hi, Barry. So there were certain closing conditions by National Bank of New York City. How do you feel about meeting those conditions? And also any color you can give us – share with us would be beneficial.

Barry Sloane

Sure. So regarding certain closing conditions that were in the original agreement – I mean, there was one, for example, that required the repayment of the existing BDC debt. That’s something that can be waived. So there isn’t anything that I see – we’re in discussions. Well, we’ve concluded those discussions. There isn’t anything I could see from their side or outside that’s problematic at all. So anything that you might have seen that’s there in the original agreement that was done a long time ago, we’re dealing with. So no, we feel very good about the Jan 3 – Jan 2023 date of closing this transaction.

Marc Silk

Okay. And another note. I’ve been a shareholder since 2006, so I saw you manage the great financial crisis. And maybe that was more of a surprise than anything to most people. So fast forward to now, I think everybody knows that because the Fed fund rate has gone 4{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} in record time – up to 4{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} at record time, I think most people think there’s going to be a recession, whether it’s deep or shallow, whatever. What kind of things are you basically preparing for and managing your business as you probably have these warning signs going forward?

Barry Sloane

Well, look, I think that it’s – nobody has a crystal ball, but we all do have opinions. And look, I think – I don’t know the exact date, but I would say about 18 months ago for the first time where we had fixed rate exposure in the 504 business and the nonconforming business, we opened up hedging accounts to be able to hedge the pricing duration of loans that we originated, and obviously worked out very well.

And when those get funded in a bank structure, you’ll be able to obviously ladder deposits, to ease although bank advances, et cetera, through that particular mechanism. So we’ve got really good, smart people that obviously are sharp with banking experience as well as capital market experience. And I think from our perspective, we do believe that credit criteria in 2023 and 2024 with respect to the existing portfolio, will be more difficult.

So I mean, if you were to say, Barry, where do you think your charge-offs might wind up being your loan loss reserves? Without saying what that is, it wouldn’t be imprudent for us to go up 1.5 to 1.75x where historically, we’ve been assuming that things will get worse, that would make sense. Those are the things we think about. Those are the things that we utilize when we put out illustrations and ultimately a forecast. So as somebody that started on Wall Street in 1982, when the current coupon, Ginnie Mae was a 15 and Fed funds were double digit. And this is not foreign to me, and these things can happen. So we try never to be surprised and expect the unexpected. The good thing about what we do, Marc, is we’re in areas that just really aren’t heavily trafficked in. It makes it harder to get ourselves positioned historically, particularly as a nonbank, getting people to finance the business because it’s not a simple, easy answer as our analysts will tell you, they have a lot of modeling.

So it’s been hard, but we made it. And life is going to get a lot easier going forward, and we’ll really be able to focus a lot of the management’s efforts on the blocking and tackling and really letting people know that we are an advantageous organization to really provide a myriad of solutions in addition to taking their deposit money, of which when they deal with the other institutions, they get nothing. They leave their money there, they hope they get a loan and they really don’t get a lot else. We’re going to give them an advantage, whether it’s storing their docs with us, whether it’s doing payroll, whether it’s the analytics, whether it’s the transactional capability. So yes, we feel pretty good about where we are, and we are expecting the unexpected going forward.

Marc Silk

Great. Thanks, Barry. Good luck.

Barry Sloane

Thank you. Appreciate it Marc. Operator, any other questions?

Operator

[Operator Instructions] Our next question will come from [Douglas Darby]. Your line is open.

Unidentified Analyst

Good morning, Barry. I don’t know – I don’t mean to be a pain in the side or anything, but I just don’t understand why there’s no clarity as to what is to happen in the transition between the BDC and BHC for the current noteholders? Would it be long to think that the refinancing to eliminate the 1940 Act BDC leverage protections is a condition that needs to be satisfied before you can leverage up to a BDC as a BHC? And if it is wrong, then what alternative actions will be utilized to satisfy the preconditions of closing terminology into the stock purchase and proxy statements? I just don’t understand what’s going to happen?

Barry Sloane

And Doug, you’re not a pain. And I appreciate understanding your patience. I know you’re frustrated, but you also need to understand that we have an obligation in the note, in the indenture, to perform, and we’ve done that. And the notes are fine, they’re current, and they’re in good shape. There is one covenant in the note, and it is a leverage ratio covenant. It’s not a BDC or a non-BDC covenant. We’ve talked about this previously. So relative to the flexibility that we have, as long as we’re in compliance with that note, we will act accordingly within the best interest of all of our stakeholders, which includes creditors like yourself to make sure we pay you and all the other bondholders on a timely basis. And we – I mean, I think it’s somewhat evident that those notes will need to be refinanced at some point in time. Until that date comes, we’re going to do what’s in the best interest of all the stakeholders. From a creditor standpoint, as long as we pay the note timely, we’re performing our obligations. And apart from that, if I had a total crystal ball with respect to the capital markets, how things are going, we would have done already.

Now relative to the condition between the seller and the buyer, we could waive that. If it’s in our best interest, we can waive that. I’m not going to go any further than what I’ve told you today, except that I believe that we will continue to perform according to the terms of the indenture, and it is, I would say, more likely than not, given the acquisition that the one covenant that exists in the notes, which is with respect to the leverage ratio, will ultimately have to be satisfied with the refinance at some point in time.

But it is conceivable. I’m not saying it will happen or it won’t. And you want to know, well, why won’t you tell me? I can’t tell you, A, what I don’t know, and I can’t give you “inside information” relative to what may or may not happen. But it is conceivable if the acquisition could occur and those notes can still be outstanding.

Unidentified Analyst

However…

Barry Sloane

And Doug, I’ll be honest with you, I’m not answering anything else, so you could ask it to me, but it’s unlikely I’m going to give you an answer. So go ahead, ask your question.

Unidentified Analyst

It doesn’t sound like I will get an answer, but it seems – I mean, I want to understand what…

Barry Sloane

Actually, I gave you a really good answer. I did. You may not like it, but I gave you a really good answer.

Unidentified Analyst

Well, I guess what I was trying to get at next on the same question is that, that point in time, even if it is not as having to do with the closing, that point in time will be when you attempt to or want to raise your leverage ratios higher than is required by the 1940 Act – that’s allowed by the 1940 Act. Isn’t that right?

Barry Sloane

I think your question was, if you’re in a position where that covenant would be violated, are you likely to refinance the notes then? Is that your question?

Unidentified Analyst

Basically, I suppose. I mean, I assume you’re saying that it’s probably not going to happen as a precondition of the stock purchase. So yes, that’s the next area of protections that seems to be there, and that’s what I want to understand.

Barry Sloane

So my answer to the question that I illuminated on is, yes. And relative to the second question, that’s a condition between the seller and the buyer. It’s got nothing to do with the bondholders.

Unidentified Analyst

Okay. That didn’t make any sense to me. I don’t know who the seller and the buyer are in this case, but this is probably not the right…

Barry Sloane

Seller is the seller of the bank. The buyer is Newtek, and the bondholders – we have an obligation to the bondholders, which is to make sure that we’re in compliance. And we anticipate and will endeavor to continue to be in compliance and make sure that, that does not get violated. And I understand your position, you’d like to get the make-whole premium or whatever it is you want to do. I understand it. But our obligation was to pay the note and pay it timely. That’s all I can tell you.

Unidentified Analyst

All right. I guess we’re not going to get any further with this then, so yes.

Barry Sloane

Well, I thought we’ve accomplished a lot, and I appreciate you joining the call. I really do.

Unidentified Analyst

Okay. Thank you.

Barry Sloane

Thank you, Doug.

Operator

And our next question will come from [indiscernible]. Your line is open.

Unidentified Analyst

Yes. Good morning, Mr. Sloane. I’m a stockholder. So let me just ask you some simple questions. Basically, I purchased the stock for the dividend. I understand the dividend is going to be adjusted downward. But where would you see the dividend being in a year from now compared to where it is now?

Barry Sloane

Thank you. And I appreciate the question. And look, I want to be clear to everybody on the call. We know it’s great questions. We don’t filter them. I can tell, we take them all. And we try to be transparent. We’ve been doing this for two decades. And I appreciate everyone that’s invested in the company. I think we’ve historically done a good job for shareholders.

I think from your perspective, you bought the stock for the dividend. We went through a process of soliciting votes. We got 89{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} of the vote to withdraw our election as a BDC. So obviously, a majority of the stockholders believe it was our best interest to ultimately buy the bank, convert to a bank holding company withdraw. Now the bank currently does not exist. The bank should exist or anticipated in January, then it’s real. The only party that can actually declare a dividend is the bank Board. I can’t. I’ve given the market a sense that we will think about paying a dividend that’s equivalent to the higher end of the range of bank holding companies that are similar.

But I say that it’s December 14 by the time the deal closes, and this gets declared and – we’re going to have a conversation with the Board. It would be imprudent for me and totally inappropriate for me to put a number on this because I can’t declare it. I have a sense of things, and I’ve tried to give that. So that’s kind of what I’ve said. And I think that because we’ve been that transparent almost from the beginning, investors that – solely only wanted to get the dividend – only. They’ve exited. And we believe that the total return will benefit in the current structure, which is why; A, management and the Board thought it was good to buy the bank while it went out and got an 89{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} vote and why we’ve done the transaction.

So I certainly understand your frustration. Look, in the event that you believe in management and that they’re right – now you also understand you’ve got this transformation of shareholders, you’ve got a bear market, you’ve got financials being bad, you’ve got rates going up 4{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550}. So I mean if you want to blame me for the stock price solely and nothing else, you can do that. But I think my point is we would like – we’ve likely indicated to the market, and it’s only an indication, that the company will have a dividend. I’m being very clear, the only party that can declare that dividend is the bank Board. By the way, it’s easier for me to say that today because now, I believe that we project it to the regulators in our plan that that’s part of our plan. So I feel better about it today than I did down the road. That’s why people wanted more certainty. It’s like, how do you have certainty when you know your plan isn’t approved? So this isn’t easy to do. Anyway, we’re trying as best as we can. I appreciate your question. Did I answer it for you?

Unidentified Analyst

Yes. I understand what you said, and I understand the dividend is going down, but as the stockholder, I’m going to stick with you guys for a while because I understand we’re going to go to growth mode, but I still like growth as well as the dividend. So you did answer my question.

Barry Sloane

And by the way, I want you to know, I love the dividend. You know why?

Unidentified Analyst

Why?

Barry Sloane

Because I own 1 million shares and I get a lot of it.

Unidentified Analyst

There you go.

Barry Sloane

I don’t know why people can’t understand that. I mean management owns 5.5{ac23b82de22bd478cde2a3afa9e55fd5f696f5668b46466ac4c8be2ee1b69550} of the – I get those dividends. I love those dividends.

Unidentified Analyst

Thank you very much. I appreciate the answers.

Barry Sloane

Thank you for your questions.

Operator

And I’m showing no further questions. I would now like to turn the conference back to Barry for closing remarks.

Barry Sloane

All right. Well, look, this has been terrific. Really thankful for all the thoughtful questions, the update, the analyst participation. We’re going to work hard with our head down. We’re running to the finish line, and we look forward to delivering. And thank you very much. Appreciate all your time today. Thank you.

Operator

And this concludes today’s conference call. Thank you for participating. You may now disconnect.