Q4 2023 NewtekOne Inc Earnings Call
Participants
Barry Sloane; President, Chairman, CEO; NewtekOne, Inc.
Scott Price; CFO, Newtek Bank, National Association; NewtekOne, Inc.
Crispin Love; Analyst; Piper Sandler & Co.
Tim Switzer; Analyst; Keefe, Bruyette, & Woods, Inc.
Christopher Nolan; Analyst; Ladenburg Thalmann & Company
Steve Moss; Analyst; Raymond James & Associates, Inc.
Presentation
Operator
Good day, and thank you for standing by, and welcome to the NewtekOne Inc., fourth quarter 2023 earnings conference call. (Operator Instructions) Please be advised today's conference is being recorded I would now like to hand the conference over to your speaker today, Barry Sloane, Chairman, President, and CEO of NewtekOne. Please go ahead.
Barry Sloane
Good morning, everyone, and welcome to our fourth quarter and full year 2023 financial results conference call where we're pleased to report our results to you this morning. My name is Barry Sloane, CEO and President and Founder of Newtek Warner, Inc. Joining me today on the call for presentation purposes as Scott Price, our Chief Financial Officer of Newtek Bank, National Association, and Newtek Inc.
In addition, we also have Nick Young, President and CEO of Newtek Bank N.A.; and Nick Leger, EVP and Chief Accounting Officer for NewtekOne Inc. I'd like to draw your attention to the front slide number one, which is our fourth quarter reporting as a financial holding company excuse me, not Slide Number one is the forward-looking statements. It tends to absorb that.
Now go to slide number two, Slide number two. This is our fourth quarter and third full quarter reporting. As a financial holding company, we acquired National Bank of New York City on January 6. So it took a while for us to get a lot of the assets employees into new take Bank National Association. So I think it's important when you look at year-over-year comparisons to Q1 2024 for comparison might be a little bit choppy versus the Q1 2023.
And therefore, when we also look at our 2023 performance. It's very difficult to do the comparisons cost as a prior PDC. However, I think it's important to focus on the quarter-over-quarter sequential comparisons, and we had a really good year and quarter over quarter comparison. When you take a look at things like portfolio of loans, growing net interest margins, expanding and deposit growth. We also now have six analysts that are covering NewtekOne has a financial holding company.
Venerable demonstrated an ability to raise insured deposits quickly with a high growth rate through digital accounts. Also important to note, we'll go into this a little further. We don't have the interest rate risk issues that are currently present in the industry. As you can take a look at our assets liabilities are very well-matched. We also believe that our return on average assets return on tangible common equity and capital ratios when you compare them to the banking industry are well capitalized very high and also well reserved against.
I can now draw everyone's attention to Slide number three. So now Czech Bank National Association summary financial highlights, focusing on Q3 to Q4 growth and the fiscal year 2023. If you look at return on average assets for the year, 5.76% at the bank. Obviously very, very high for a bank as we get through the presentation, explain why we're able to generate such high returns. Return on tangible common equity, 35% efficiency ratio, approximately 50%.
These are really ratios you do not see in the banking industry. And a lot of it is based upon a very unique business model that focuses on returns on shareholder equity return on assets and not necessarily growing a book of business, which is very typical and traditional in the banking sector also be able to like being able to do it at a very efficient basis.
Looking at on slide number three, the margins are important to note. We obviously had increasing yield on loans as we begin to add more of our Newtek type traditional loans to the bank's portfolio that we acquired. Average rates on deposits were fairly stable from Q3 2023. Q4 2023 might have a little bit of an uptick next year as some polled a low interest bearing CDs roll off. But we feel pretty good about the future for that. And Scott Price will talk about that going forward.
And importantly, our net interest margin at the bank, 3.49% to 4.43%. That's pretty high increase. And most banks right now, if they're lucky they're stable with a growing marginally. So we're very proud of this particular accomplishment.
With respect to margin, all the while our capital ratios are strong, CET 1 at the end of the year, 20.94%, total capital, 22% leverage, 16.4%. So we look at why and how we're being able to do this obviously, we have a reliance upon the digital deposit channel for funding. It worked well in 2023. We're excited about the opportunity to add the transactional lower cost deposits throughout 2024.
We've also maintained a very strong capital position and a prudent risk-based tolerance, and we talk about our reserves. Our reserves grew to 310 basis points at the end of the year, we hope will gravitate up to 350 basis points in 2024. That's like six or seven times normal reserve of a of a bank in our in our particular space.
Now when you look at our loan portfolio, particularly in the seven eight category, we were adding assets were a prime plus three lender, and we're able to sell three quarters of the loan at a 10% to 11% gain on sale.
Now important to note, as we go forward, we'll explain why we feel that the risk reward on those loans is well calculated. It's well documented that we believe these types of returns we will be able to preserve them and also be able to withhold any increases in delinquencies or charge-offs as time goes forward.
Slide number four, please. You take one summary financial highlights. This is obviously the publicly traded holding company. Now we're transitioning more and more of the of the operating opportunities down to the bank, where we have lower cost of funds and the ability to lever more. So working off of at the holding company is the higher cost of funds that we've traditionally dealt with to run the business.
But you could still see a return on average assets for the year 3.2% return on tangible common equity, 22.7%. These are all very, very attractive numbers for a bank holding company. Average yield on loans made in the quarter [five] through. And our net interest margin expanded from Q3 2023 to Q4 2023, 2.62% versus 2.78%. We're proud of all these numbers, take a look at our capital ratios. Also well-capitalized financial holding company CET1 16.49, total capital 19.6, leverage 15.6.
Also important to note, we were able to deliver $1.70 on diluted earnings per share and $0.71 on basic earnings per share for the calendar year. That was the midpoint of our guidance, and we continue to encourage the market and analysts to follow our quarterly guidance and our annual guide. Obviously, 2023 was a challenging year about mid point through the year based upon issues that were relating to the banking industry, Silicon Valley Bank Signature Bank issues, First Republic issues it made for a more difficult year.
We slowed down our alternative loan program. It's a program which you'll see in our pipeline reports coming up is back into full gear, and that should read restore some of the growth needless to say, you could see these numbers. We're growing very well. But with that with that particular program in place, it is very much capital driven. We believe that we'll be able to get back to higher growth rates in the future.
Slide number five, these are common questions about Newtek, one that I've had with investors. Just about why is your stock trading at the current market multiple. Why don't people understand somebody go through some of these, I think will be helpful.
First of all, we don't have a desire to operate like a traditional bank. We have a lot more to offer to our clients than just taking their deposits and hoping they get a loan. And we really look nothing like a small community bank. First of all, we're an OCC charter National Bank. We take deposits. I'm using digital account opening and remote deposits and are able to do so in a compliant rapid manner with much lower costs than the traditional way of hiring bankers, brokers and PTOs.
It's important to note we are focused on return on tangible common equity and ROA, not what we refer to as the assets under management, traditional bank model where you make loans get deposits typically from non-interest bearing deposits, which we think going forward, there will be less and less of that in this particular industry and basically making loans selling them and getting various streams of income in which we'll talk about.
Clearly, we have an overweighting of noninterest income versus traditional bank interest income gain on sale, payment processing, income, servicing income income from the insurance agency, growing payroll growing and Newtek Technology Solutions, which will be divested of between now and January of 2024 on our margins, our returns are much higher than that of a traditional bank because of the way we lend on a risk adjusted basis with more than adequate reserves and our floating rate assets that work really well for our customers and value for our shareholders.
Many times I'm suggest, gee, lent to the small business market and we think small business credit is going to get weaker. We've been lending for over 20 years to this space. We've been through oh eight, oh nine. We've been through the pandemic. We understand this market. We have static pool analysis going back over this period of time.
We have 12 securitizations in the market. We have a very good handle and what are losses, delinquencies should be, and we are very confident that our reserves are more than adequate. This is not a new situation. We know and understand small business credit. We will question whether we're able to raise deposits, what we did that for $340 million last year, up from, I think, $140 million when we took over the bank.
The ability to raise lower cost, transactional-based deposits will be able to demonstrate that. And Scott may talk a little bit about that in his presentation, but that will definitely be a Q2, Q3, and Q4 event where we start to really grow that side of the business. We've had to put people process technology and compliance in place. We hired up Jennifer merit as CEO of a digital bank.
She's brought a great team of people, and we've got the compliance department in there with the ceremonies from the BSA officer who I recently brought in their compliance manager, Julio Hernandez. So we're excited about our ability to grow that side of the business. We can make an error in this space.
So we've done it prudently and that should drop the at the cost of funds over time and improve our margins on gain on sale, people sale gain on sale, not be like gain on sale gain on sale for Newtek has been going on for 20 years quarter-by-quarter.
Look at the K's and Q's, we originate loans, we sell them into the market so our gain on sale isn't like a portfolio of securities in a bank or insurance company rates go down, bond prices go up and so on for again, this is clearly a reoccurring with that. However, it's not spread income that traditional and we do believe it's valuable and gives us a diversified stream of income.
Yes, a bank or financial holding company can be a growth vehicle, which is sort of unheard of in the market and kind of unheard of in the from a banking perspective without just doing the traditional bank trade of acquiring another bank, getting bigger, squeezing out the expenses that that might not be an opportunity for us in the future. But it's not our core reason for existing today also important to note, we really strongly suggest that investors get to know what we do and payment processing solutions, tech solutions, insurance solutions and payroll solutions. Please visit our website.
Slide number six talks about the different earnings engines for Newtek across different areas. So we have a very attractive diversified stream of income flowing up to the holding company. You take bank dividending up small business finance is the legacy portfolio in runoff with very few operating expenses against it on the other businesses are fairly well self described in our case and on our website.
I'd now like to turn to slide number seven and eight to Scott Price. We'll talk about the data on these two slides. Scott?
Scott Price
Thanks, Mary, and good morning, everyone. I want to focus most of my comments this morning on slide 8, given the time constraints that we have. But we saw nice expansion in our net interest margin during the quarter. That's going to be driven by mostly lower funding costs on a net basis relative to the balances. We clearly issued debt in the fourth in the third quarter.
We used those proceeds to pay down higher cost debt. We also saw our borrowing costs excuse me, deposit costs increase 40 basis points. That's largely driven by the $92 million of CDs that repriced in the fourth quarter. We experienced good retention on our retail CDs that repriced and expect loans to reprice in the first and second quarters as we move through and tighter eliminate the lumpiness in our and our CD portfolio.
I'd point out that our loan portfolio, the yield on that portfolio in the third quarter included a prepayment penalty. So that's why you see a little bit of lumpiness in between those third and fourth quarters. And we do rely on, as you can see in our deposit mix, we do rely on our high-yield savings products. We've seen nice retention in that product going forward and are achieving so far. We've seen minimal closures and the seasonal slowness in deposit gathering is it fairly muted for us with deposit levels relatively stable through today.
I'd point out the comment that Barry made earlier about business checking and business accounts. We do expect to roll that out in '23 -- excuse me, '24. And that will provide really optimal pricing, optimal funding costs on our on our deposit portfolio. And we expect net expansion as we as we go through the year into '24. So Barry, I'll turn it over to you.
Barry Sloane
Thank you, Scott. Appreciate it. Slide number nine that you take advantage of. And I will tell you, we are doing our best to condense this presentation. I've had people say this amazingly level, the data we give you have other people say, would you please shorten that I've had people say, comb your hair in the middle of.
So we're trying to get through this as much as possible, but it was important in our first year to give as much data as we can to the analysts to give everybody a real good chance of understanding a business model. It is totally different and differentiated, but we will look to condense this going forward. And I appreciate Scott bringing that up, can you take advantage?
It extremely important aspect to why we exist is probably the number one reason why we elected to own a bank. And it has to do with what I'll call impression that most people on this call and most consumers and businesses will go to their depository many times in a given month. They'll do it for transactional reasons. And in today's environment, they do it just to make sure a my money is still there.
My assets are there. My Account is still they're important to note impressions. We get lots of lots of impressions from our business clients by going to the Newtek Advantage business portal, which is an entry level into the bank as well as other solutions that are held up at the at the holding company, what a client receives when they open up a Newtek advantage account free unlimited document storage, free real-time updated web traffic analytics.
And if a merchant client signs up with us, in addition to have that client connected to a bank account, we did positively same day that we receive real free time chargeback that and all debit versus credit Visa versus match all that information right in the business portal. If there are payroll client they can make payroll directly from the business portal and important relationships relationships still matter. So although we are a technology-enabled bank, you can get our stats on camera 24/7, 365 in all these different verticals, extremely important is a real advantage to doing business with Newtek. That's the Newtek advantage.
On slide number 10, we talk about there's 340,000 users that have the ability to see the Newtek advantage. Those are the current users that have a username and password to our new tracker system that now displays the advantage. So we have approximately 5,000 monthly active users that are going in and logging in at least once a month.
So we're getting these impressions month after month time after time, it gives us the ability to communicate with it's webinars, podcasts and really make Newtek the destination point for the authority for all of their business activities to learn about things like tax or payroll initiatives or whatever might be an important topic on this. This is not your local community bank or even major money center bank. We offer things to independent business owners that they've been starving for for most of their first of their active lives.
Slide number 11, fourth quarter and full year 2023 highlights. Look, I think it's important to note. We've sort of laid a lot of this out in the data in the early slides for full year 2023. We came at a $0.71 basic comment above $0.70 diluted on.
We're proud of the fact that we're able to at the midpoint, it's pretty hard to forecast when you're first getting in the business, we had a lot of changes. A lot of changes going from a [BEC] with 1940s Act accounting into banking accounting caused a lot of issues for us to be able to track Followap, make those updates. I'm proud of what we've been able to accomplish in all aspects this calendar year.
On slide number 12, we talk about the enhancements that we've made, I say the team enhancements. Obviously, we welcome Scott Price joining us as Chief Financial Officer, Principal Financial Officer, joined us approximately midyear, May 2023 Nick Leger, our EVP, Chief Accounting Officer. He's been with us a while. It's a 2015 veteran Frank Di Maria, joining us extremely helpful beneficial, a stalwart in that group, SVP accounting and finance.
John Sheffield joining us help us with our reporting performance management, both from a financial metrics perspective as well as an operational metrics perspective, Julio Hernandez joining us as SVP Compliance Officer, Matthew solely another key hire January of 2024 for migrating to next week. And we have a lot of efficiency, so we could be able to report with less spreadsheet transitional risks.
I'll do it on a more done on a more automated basis and really just be a better institution. This is a management team that is in a management team for a $700 million bank for $1.4 billion bank holding company. This is a management team for a much, much, much larger institution with much greater foresight and direction, and that's where we're going.
I will say, unfortunately or fortunately, these are not inexpensive hires, not inexpensive talent. This is all front-loaded. And these are the types of things that affect our returns early on despite the fact that I would argue ROAROTC.s and efficiency ratios are built built to last and as we grow. I do think we have a good chance of these things expanding in the future. And Scott, if you can handle 13, I would appreciate that.
Scott Price
Sure, very, thank you. I wanted to give a picture of how our deposit mix changed quarter over quarter. I also want to point out that we brought in about $40 million plus of deposits that we had at other banks from our affiliates. We've been earning less than Fed funds on those deposits, and we brought them in and were able to earn Fed funds and deploy them in and higher cost and excuse me, higher yielding assets as well as avoid raising outside deposits.
We did reopen in August our high-yield savings product that you'll see a full quarter's impact in the net interest margin and deposit cost from from those increases. We also increased the rate on those deposits during the third quarter. So you see a full quarter impact in the fourth quarter.
And then finally, at the bank, we saw a weighted average cost of deposits of 4.4%, which is slightly down from 4.44%. We will continue to optimize our funding base. We're going to prudently manage that through a combination of retail deposits, wholesale deposits, whether those be brokered or listing service.
And we'll also tap the FHLB if if we'd need short term liquidity. But we are a deposit growing franchise. We want relationships. And as Barry mentioned, and I mentioned earlier, business checking is where we want to be. The deposits are sticky, the relationships are sticky, and that's where we feel like we can offer the most to our clients.
Very, I'll turn it over to you.
Barry Sloane
Thanks, Scott. Slide number 14 are important from a lending activity perspective, and we have been reporting that our pipeline continues to grow based upon our unique business model of acquiring referrals from partners as well as our efficiencies in making loans using technology, but not cutting corners on a fintech type basis, but doing full underwritings, total SBA loans funded $260 million, a 24.2% increase over the prior quarter.
I think that's a we do have some seasonality. The fourth quarter's typically our strongest for the industry for SBA lending was flat. We were the number one originator in Q4 calendar year 2023 by loan volume for SBA seven eight. We're very proud of that fact on.
In addition, yes, the loan portfolio at Newtek Bank reached $169.6 million. Those uninsured loan participations. There's probably some government guaranteed and there are typically prime plus three loans. You could see 1.5% floating rate quarterly adjust, no cap real attractive, sell the government guaranteed piece at a 10 to 11 point gain gets really nice return even posting.
Hi, CECL, reserve of 6.75% upfront, which obviously was far more on I'll use the word punitive than what we used to do as a non-bank lender where we didn't have that CECL reserve. Important to note, we're forecasting $925 million in seven loan fundings, 39% increase in calendar year 2024. We also had a good year and filed for loans at $60.5 million of our four loans for the three months, a big increase over the prior quarter.
Total loan closings of $142 million, ending December 31, 2023. We closed a record $1.1 billion of loans across all products. And we hope to do about $1.4 billion in this coming calendar year 2024. 15 as our pipeline on you can see, we're in good shape across the board, particularly with the alternative loan program, which I would say is a differentiator for extended growth on the SBA business.
We have that down pretty Pat. We've been involved in that for 20 years. The alternative loan program as been growing through difficult times that being a pandemic pandemic had a banking crisis since 2017. We also important to note in the bank too, conforming investor CRE loans and conforming business loans, non government programs, all that in the bank.
Slide number 16 is important because people want to know about the credit. That's one of the things I keep getting asked about. So when you look at the total loan portfolio at Newtek bank and a [1231], 2023 outstanding balances of $41 million, unfunded commitments of $46 million, primarily fiber for loads.
I want to quickly just talk about final for loans from a risk standpoint, it's important to note that pharma more business for us is originate and sell. The second lien gets taken out by the CDC and funded by government debentures. So we're getting very high returns on the coupon gain on sale.
And even in the construction process, we're prime plus two or prime plus three floating rate plus fees for a short term loan. And we don't look at these as being extraordinarily risky with relative to lease up risks because these are owner-occupied and I want to point out, owner-occupied CRE is entirely different, then investor CRE, and it needs to be looked at that way.
First of all, our experience in small business lending over 20 years is, first of all, the loan must meet repayment terms by the business backstop. Number one, the business is repaying the loan must needed based upon historical projections.
Number two, personal guarantees to the owners of these businesses are personally guaranteeing below then you've got the real estate really recovery. Unlike these office buildings, multifamily, everyone is exaggerating the CRE problem. By the way, the problem in and of itself is not an exaggeration really excess. It just really doesn't we believe, pertain to our particular portfolio.
So when you look at our portfolio on Slide number 16, got a real good currency rate, the percentage of E. compensation on the old legacy National Bank of New York City portfolio, which was very well underwritten, also went through purchase accounting adjustments on January 6 of last year. So you're not looking at valuations based upon 2020 -- 2019, 2018. These are recent valuations.
So I think that when you look at the portfolio, the National Bank of New York City portfolio, which we'll talk about in the next slide, doing very well, the CRE loans that we have in our SBA lending business. Basically, we provide recovery if the business can't pay the loan off, it's not the real estate that's repaying the loans and you got P G.'s.
On slide number 17, this will give you a pretty good exposure of picture of what the portfolio looks like. So we have $183 million of total CRE, $56 million are construction loans made under the pilot program. We don't fund these loans until we have a takeout from the CDC on the second lien. So yes, we have construction risk. These deals are typically bonded.
We fund this for five or six years. We've done very well in the final four loan portfolio, which I'll talk about. And you have the debenture take out by the CDC, which can taken out by government funding. Very important to note, cereal was not made under the fiber program, funded $32 million.
Then look at the portfolio, very diverse across industry types, but look at the LTVs, 51.33 MOBs office. These are tiny offices. I mean, these are average loan size on the National Bank of New York City portfolio is $1.5 million, $2 million. These are not skyscrapers, and these are basically local New York City-based real estate loans.
Slide number 18 that we have is the quality of what we've been able to do in fiber for We originated $555 million, [seven eight] as being public for loans was 2017, no charge-offs to date. And in the alternative loan program, which used to be known as the nonconforming loan program. We changed it to ALP. We haven't experienced any charge-offs to date originating loans since 2019.
Slide number 19 talks about gain on sale of the SBA seven loans. We finished up the year at one 10. Decimal two from first quarter looks pretty good. It's up markedly. So we've had an increase in prices, and that's just based upon investors wanting to own assets at the short end of the yield curve floating rate.
Slide number 20 important to note that our payments business, we're excited about our 2024 forecast for losing some amortization and depreciation, pretax income jump of hopefully $16 million for the calendar year up from $12.9 million in the year, plus the insurance agency, a nice increase. Now the insurance agency in the payroll business are going to be benefiting from the bank relationship.
So we hope for a open up a ton of counts, were people looking to insure themselves. They see it. It's there. We'll talk in future calls about the connectivity between the agency and the lender, the connectivity between the payroll company and the lender and both these entities in connection to the bank. Both of these entities are held of a NewtekOne at the holdco.
Slide number 23, basically on the key financial metrics, projections for 2023 and the model we had for 2024 projection and forecast and what we did for 2023 for the quarter and the fourth and for the full year in 2023, while you can get a good feel for where we're going.
We're forecasting for 2024, $1.80 to $2 in basic and diluted common shares for the calendar year. We've got them spread out quarter by quarter. There is seasonality here. There is a ramp up here. We really ask the analyst community to pay attention to what we believe are these seasonal reasons.
Slide number 24 companies invested in 2023 and 2024 for growth. Look, I talked a lot about the dollars that we put into building that and take advantage of operating in a compliant manner. I'm software hardware, consultants, some advisers, a lot of money spent upfront and those investment initiatives are going to continue.
So these are all built into our model through all built into our forecast. We feel very comfortable with these numbers. And but we do want you to understand as we grow and we believe we're going to be able to take advantage of the scale is a management team, not for $700 million bank and $1.4 billion holding company. We believe this team can grow to $5 billion or $10 billion in size.
Slide number 25. Many investors are interested in how we're going to begin to get investor interest. But anyway, the one biggest thing is blocking and tackling and putting up these types of numbers every quarter, a good part by err on the side of good partnering or the middle, I could shake my head would take if we keep putting up numbers like this, I think the market will react differently to us.
And it takes time for analysts to get comfortable with the model for investors who believe these are the numbers that we can deliver. They've never seen a bank or a bank holding company operate in this manner. We had a really terrific year from my perspective we got through our Fit while compliance reporting and OCC. compliance reporting well, our business model and plan is intact.
We plan on attending investor conferences. We plan on hosting an analyst day in the second quarter. We're going to continue to show that year-over-year growth comparisons. Once again, I'll point out Q1 can be a little choppy. The NOL and is also not really having CECL calculation, but we do anticipate a decent number. I think it's $0.22 to $0.23 for Q1 pod diluted and basic EPS for the first quarter on. We're excited about our business going forward.
Slide number 26, when you look at market multiples of Triumph is sort of a bit of anomaly, although I would like to think that we have, but Triumph type growth aspirations and expectations when you look at our ROAAs and our OTCs and our efficiency ratios, but even throwing that out, you're looking at around 9.2% median type of earnings multiple, which is not what we're currently dealing with as we currently look at the marketplace.
Slide number 27 and 28. Look, we feel really good about where we are in the marketplace. We are excited about the opportunity. I think I've expressed most of these items in the summer and the summary that I've discussed throughout the presentation today on slide number 28, I want to enhance and point out that for fiscal year 2023 the bank of which more and more activity is flowing into ROAA 5.76, ROTC, 35% efficiency ratio of 50%. You just don't get these kind of numbers in a community bank holdco three to quarter for ROAA. ROTC, 22.7, efficiency ratio 74. These will get better as we begin to leverage and more opportunities were down into the bank.
Also important to note, obviously, we're a dividend paying company $0.18 a share. I wish the dividend yield was lower because that would mean we'd have a higher stock price. But even with that, you had a 6.4% current yield as of March 1. That is probably not far from that today on an investment in NewtekOne is a growth oriented, differentiated technology-enabled business solutions company that is also a depository that's important to note. We are also a depository we are not like 95% to 98% of the other banks that are out there.
With that, I'd like to turn the remaining portion of the project presentation over to Scott Price through the MD&A.
Scott Price
Thanks, Barry. I'm going to keep my comments brief. I will point out that the comparisons year-over-year are virtually difficult given the change in accounting model and the fact that we're consolidating our previously unconsolidated investments.
And I do want to focus my comments on the non-interest components of our P&L quarter over quarter since I feel like at least trying to cover the net interest margin sufficiently. We did see increases quarter over quarter in noninterest revenue, mostly from higher loan volumes, which include origination fees on loans that we've elected the fair value option on.
We also saw increased gains in valuations on the loan portfolio from a from higher originations in the seven a. portfolio on the noninterest expense side, we saw increases due to prepayment penalties, a prepayment penalty. We terminated one of our warehouse lines in the fourth quarter. We also saw increases and slight increases in our salaries and benefits costs. And then also we saw higher loan origination expenses for our loans under the fair value option.
And so with that, I'll turn it over to the operator for questions.
Question and Answer Session
Operator
(Operator Instructions) Crispin Love, Piper Sandler.
Crispin Love
So good morning, Gary and Scott grew well on first just looking at your guidance on page 23, but the EPS projections show a meaningful ramp through the year. I know you typically build on EPS through the year, but I thought last year included some elevated expenses early in the year from converted to a bank. So just curious if there's anything to call out on the expense or revenue revenue side in the first quarter come for 2024 for part of building later in the year? Or is it business as usual?
Barry Sloane
Sure, Scott, I'll throw out two items and then maybe you cut some other thoughts. One item, Chris, but obviously off from Q1 2023, we had the NOL that affected the earnings. And on the other thing is most of the loans that were originated in Q1 2023 were done at Newtek Small Business Finance.
So there was no CECL reserve was done at fair value. So by being in a bank and reserving that on loan loss reserve upfront, it's really not your earnings down precipitously early on, but then you pick it up out in the future, at least with respect to that aspect on stride, any other thoughts you might have regarding the seasonality and the ramp up?
Scott Price
No. I mean, if you look at the loan production volumes, then as we as we go through the year, the first quarter is just naturally, I see a slower time for businesses and most everything ramps up in the second quarter. So we've seen this pattern over time over the company's history. And so we're just trying to be transparent with you guys and help you build out your models as you get to know us better. And but this is what we expect. And this is what we've seen over overtime.
Crispin Love
Perfect. Yes. I appreciate the detail there and the seasonality. So and then second question for me, just on credit quality. I'm sorry, your comments credits remained strong, but just curious if you can just put some numbers around that. Just looking at the consolidated portfolio, can you just discuss what you're seeing in delinquencies, non-accruals and Japan losses, if there are any and there's expectations as you move through the next few quarters?
Barry Sloane
Sure. So when we look at the consolidated portfolio, it's important to take them in sections. Item number one is NSBF. NSBF is a very large portfolio of loans that are sitting in securitizations. The securitization cost of funds is much, much higher, then where we offer the bank cost of funds with respect to the creditworthiness of that particular book of business, which I believe is about $400 million of current pay loans and I think on $70 million of space, I think it's about $35 million of fair value. So the important part is that portfolio has already been written off the balance sheet and the income statement for the nonaccruals. Okay.
That portfolio is probably 40% season, 36 to 38 months and the rest of it for ICC.'s, Neil, it's through the belly of the default curve. So 60% of the portfolio is probably 2019, 2020, 2021, 2022, 2023 type origination sitting in anesthesia. We have an assumption that that's going to default at a 19% rate and approximately a 45% to 50% severity.
So that hit pretty heavily. And even after that loss frequency and severity on this is clearly not a conversation that we have at the bank analyst because I look at this stuff this way that portfolio, I believe is on the books, a seven point I think was 7.75 yield floating rate over prime. So bottom line is that's just mark very well. Even with the expectations have higher charge-offs on that portfolio going forward.
The major difference between the way we do our business versus the traditional bank, traditional bank, low margin, many cases fixed rate and the way they make their money is, frankly by not paying savers a full rate on their deposits. We have the opposite. We do high rate, but very well reserved.
Now when going into the bank. We have a [six] and three quarter CECL reserve, but a brand-new portfolio. So portfolio of trade in the bank, I don't think we have a defaulted loans from the seven a. portfolio in the bank that's going to happen, but we have a very high reserve on that.
Then you got the CRE portfolio, which we just did purchase accounting on in on in January six. This is very well booked. I think that's really important to get across to you. The other analysts and investors, when they look at our organization relative to what the quality of portfolio obviously is going to be a lot more detail in the K. But just as an overview, this is a very good quality portfolio, and we're going to add investor base CRE at current market spreads and investor base C&I at current market spreads, it's a great time of capital and make loans. So I think they appreciate taking the questions.
Crispin Love
Thanks.
Great.
Operator
Tim Switzer, KBW.
Tim Switzer
Hey, good morning. Thanks for taking my question. You guys gave a lot of good color on the guidance and you just touched on it a few minutes ago, but could you maybe talk about what the puts and takes are in guidance, maybe driver from the low end to the high end over the course of the year?
Barry Sloane
Yes, Tim, I'm going to focus on the asset side. I'll let Scott talk about the deposit side. On the asset side. A lot of it has to do with the alternative loan program. And we're probably going to need to spend more time with the analysts, the analysts and maybe at the Analyst Day or for investors om to explain what that program is, but that program is done up the holding company in terms of the funding, and it does require more capital utilization than down at the bank.
So the volumes there because the alternative loan program generates fee income because it is a portfolio that is originated at the bank level basically sold into the holdco on and there is a gain on sale aspect to it because it goes into joint ventures with other funding partners and it's levered and issued out and financed long term through securitizations.
So that's a big item given what will be the price of the government guaranteed market, which is moving in our direction and the ability to do that volume. So I think on the asset side, it's doing more ALP. loans hitting our numbers and good pricing on seven day. I'll let Scott handle the deposit side and the expenses.
Scott Price
Thanks very much, Tim. I think it's important to note that we're a different animal as we continue to trying to help everyone understand our business model. Importantly, it's important to understand where we've come from Barry mentioned the NSBF securitizations earlier, and those will most likely be coming up for a potential clean-up call during the quarter. So we're going to evaluate those going forward.
We've got some alternative scenarios built into our forecast where we could potentially bring those in. So I think you've got some we got to figure out how we're currently figuring out how we're going to fund those if we decide to exercise. So that's going to be a pretty big mix shift. And then there's a question of how we would fund it. Would it be in the bank, would it be through some other kind of wholesale funding?
That's more of a public nature. So we're evaluating all of that and certainly some wide disparities between those funding costs. If you think about deposits and we have we raised a whole lot of deposits a year ago and does range anywhere from six months to one year to two year tenors.
And if you look at where we are in the curve and what's happened to rates, since we're going to have natural increases in rates as we move through time just because we're refinancing a lumpy CD portfolio. So that's a variable that has to be considered. And then we keep on harping on the fact that we want to roll out business checking during the year.
That's our rollout. So we believe that we can generate very good volumes and we believe that we are dominant kind of currently demonstrating that we have the ability to manage the risk. And so we don't know how much we're going to get off of that and at what cost. But we do have assumptions in there we believe that will bring in business deposits, at least from a checking standpoint, 1% potentially offering an excess funding account like a money market account that would pay a higher rate.
And then yes, we're going to see how the economy lands. I mean this entire forecast is based on a static rate environment. So no changes to rates with the Fed's trying to pull off a soft landing, we'll see how they do. But with the short term nature of our of our loans being priced off of prime on the seven day portfolio. We're asset sensitive and we have a lot of variables to consider. I know I tried to give you enough. I wish I could give you a two sentence answer, but unfortunately, we're just not that kind of company.
Tim Switzer
No, no, that was helpful. Thank you. On the last question I had was could you guys expand on your comments around the SBA premium guys is our earnings year to date is pretty high on, you know, how is competition looking in the space? It appears and, you know, I guess it's like what's driving the upside there? Do you think it's sustainable?
Barry Sloane
Yes. I think the government guaranteed market on you talk about the shape of the yield curve. There's no better place to be on the yield curve than on the short end, and he got a short and government-guaranteed floater. So, you know, I can't tell you how many times I get into conversations with people over pricing of seven and a government guarantee in trying to figure out what is going to be also, I will tell you, supply and demand are extremely important.
So if you get a big seller in here can really push prices down. And so we feel pretty good about where we're currently priced. We don't see major movements in that activity. I do believe, however, that if rates begin to drop, these launched a quarterly adjust. So when rates are going higher, it actually hurts Newtek relative to the frequency of the adjustments versus when rates are falling, there's a bit of a lag.
And that's helpful to us because we're able to maintain our maintained a higher coupon on a I think in terms of loan volumes. We tried to emphasize this. We don't look like anybody else in the market. So the way that we're acquiring credits are assembling loans, putting them through underwriting using our technology to extract a full plethora of data from customers and as frictionless effortless manner as possible is what differentiates us.
So we see our growth in seven day volume actually is being one of the market leaders taking market share from other people. So we like this kind of double digit, low double digit growth in seven, a prudent on it meets our resource capability. It meets our business plan. So we feel pretty good about it.
Tim Switzer
Great. Thank you, guys for all the color.
Barry Sloane
Thank you, Tim.
Operator
Christopher Nolan, Ladenburg Thalmann.
Christopher Nolan
Am I correct that there were no net charge-offs in the quarter?
Barry Sloane
Scott, you want to tell us?
Scott Price
On the bank portfolio that is correct. We did see a couple of loans in the bank, a few seven a. that are micro loans that are showing signs of weakness. We also saw a few loans we were from the acquired portfolio. We expect 100% recovery on that are showing some weakness, but no charge-offs at the bank.
Christopher Nolan
And I have a follow-up on following your answers to Christian's question on the guidance for the first quarter, but understand correctly, that's really for a upfront CECL reserve. Is that correct for small business lending?
Barry Sloane
That's the best quarter. The big differentiators in that in calendar year 2023, there was no CECL reserve.
Christopher Nolan
Okay. On that basis, where should we think about the loan loss reserve ratio following that?
Barry Sloane
So I think that you need to focus, Chris, on the fact that we're originating mostly seven a. loans. If you look at the mix of production we expect over time, I want to point out that the five oh four production is typically we have a fair value option election on those.
So we carry those at fair value at origination because we intend to sell them Same with the alternative lending program so really that the reserve applies to the seven a portfolio that we retain as well as the conforming bank loans, the conforming bank loans carry a reserve on a weighted average basis of about one a quarter percent and the seven day production.
Keep in mind that the $925 million we're projecting is the full 100% of the loan, we keep 25% of that and of the 25% that we keep, we put about a six and three quarter's call, our reserve on that. So if you look at the balance between [seven A] and that we retain 25% of the $925 million and conforming bank loans, we're going to naturally go higher as a as an overall allowance to loans coverage up from where we already are, which is high for the industry.
And I'd point out that there's a reason that that reserve is high there's a real reason we set aside reserves because we will need to use them and we are going to have charge-offs that will happen. But I hope that everybody understands and looks at the level of reserves relative to the industry and we have adequate reserves to cover it. They're appropriate and we also have plenty of capital. So we believe we're well positioned, we believe for managing risk prudently and charge-offs will happen. There's a reason we have that high reserves.
Christopher Nolan
I appreciate the guidance information is very detailed, and I appreciate the work going into the presentation. I would really appreciate going forward if we can get a lot more detail on the credit metrics of 60 days plus non receive delinquencies, net charge-offs for the current quarter as well as you know, on the drivers for any changes in the reserves. That's just my two cents notable.
Operator
(Operator Instructions) Steve Moss with Raymond James.
Steve Moss
Good morning, all, Rich. So thank you very much, Dan, to on the M&A side of things, curious here, I see your prequalified is up modestly flattish to up modestly, but your improved your approved loans and underwritings are up pretty significantly. Just curious, you know, if you're seeing any mix shift on or some of the drivers of that.
Barry Sloane
Yes, and I appreciate you pointing that out. I know my chief lending officer will be happy. You asked that question as well as just and Gavin, who manages that part of the business. What we've been able to do through the utilization of technology is to really clean out the three quals pretty quickly.
So we're able to get to the best credits in rapid fire and get them in the underwriting. So I think it's important that that is a although looks like it's weak. It's actually a sign of strength. The other thing I want to state is we did many, many more loans. I don't have the numbers handy. I don't know if Scott does, but maybe Nikolaj, we did many more loans in units in calendar 2023.
Then 2022, I think we approached in [seven] day, I'd say we approach [2,000]. I know, we had a couple of quarters in excess of 500 units per. So I think what you what you've looked at is it's an efficiency. It's not that a negative we we feel pretty good about getting loads in and out of frequency right away and getting them into underwriting.
Scott Price
Yes, very just to expand on that, we had about a 50% increase in units over the course of '23. So to your point, technology enabled us to increase that throughput. And so and quite frankly, with minimal increases to headcount.
Steve Moss
Okay. That's helpful. And then in terms of the the clean-up call here that you guys mentioned, I'm sorry, I missed the number, but how large could that be a full on 400 or so million that was mentioned earlier, just tied up. And again, I hope.
Barry Sloane
Yes. Well, no, no, no, it's not that many. So it's it's the 2018 and 2019 deal on it is subject to SBA's approval would subject us putting a funding line in place, which we're kind of operating from scratch on. We did not hit the coal in the current quarter. It might happen in the next. Should that in the current quarter in the current month, it might happen next month and it would be a call of around $40 million to $45 billion in bonds program. And wondering that's important.
What it would do is since all those loans and securitizations, all the principle goes to pay down the debt. What I would have thought would happen if you clean it up because they get the P&I, it's flowing down into NSBF and it's available for other uses so we've got a lot of capital in there right now that can be used for other purposes.
Steve Moss
Okay, great. Those are my two questions. Moment. I really appreciate all the color Thank you.
Operator
Thank you. I would now like to hand the conference back over to Barry Sloane for closing remarks.
Barry Sloane
Well, we can't thank everybody enough. We did tried to speed it up. I think Scott and I will regrouping and for the next quarter to see if we can condense and get a little bit more concrete to say we will have a bit of an appendix available for other investors that are more detailed information.
Now, I would say the amount of information that we give out its history and it's the strength of the business. We have many different business lines that are providing cash flow and capital to the overall strategy. And we're proud of what we do, and we look always forward to telling our story each quarter. So thank you. Once again, we look forward to having a good first quarter as well. Thank you.
Operator
This concludes today's conference call. Thank you for participating. And you may now disconnect.
