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NewtekOne, Inc. 8.50% Fixed Rate Senior Notes due 2029 (NEWTG)

Q4 2018 Earnings Call· Thu, Mar 7, 2019

$25.55

+0.91%

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Transcript

Operator

Operator

Good day, ladies and gentlemen, and welcome to the Newtek Business Services Corporation's Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Barry Sloane, President, CEO and Founder. Sir, you may begin.

Barry Sloane

Analyst · Davidson. Your line is open

Thank you very much, operator. And to our Investors present today, we greatly appreciate you attending our full year 2018 financial results conference call. We do have a PowerPoint presentation that is attached to our website newtekone.com, Investor Relations section and we'll be following along with that presentation. I'd like to point all your attention to slide number 1 on the forward-looking statement and would appreciate if everyone would have the opportunity to absorb that. We'll now move to slide number 2 and as we do on these calls regularly, we like to look at the company's historical stock performance. Obviously, last year was a challenging year for most public companies with respect to stock performance. However, if you look at our five year, three year and one year returns, all quite stellar. Newtek's total return for this calendar year, which does not include the first quarter dividend, 13.8% as of Feb 28 and that's with the stock trading at $19.84. We are higher than that. We closed yesterday around $20.19. Moving to slide number 3, relative to outperformance, for the year ended December 31, 2018, total return, which would include reinvested dividends, Newtek is up 3.5%. We clearly outperformed the S&P, which was negative, the Russell 2000 and we look forward to continuing to be able to deliver that type of performance to our shareholders. On slide number 4, we added a slide that we usually don't and probably won't in the future, however, there was a foreseeable jump in short interest on our shares to follow along from the middle of November to February 15th, which is the last active date. We've gone from about three days in cover to 14.63 days in cover. We see this activity as unusual. We wanted to point it out to the…

Jenny Eddelson

Analyst · Davidson. Your line is open

Thank you Barry, and good morning everyone. You can find a summary of our fourth quarter and full year results on slide 42 as well as the reconciliation of our adjusted net investment income or adjusted NII on slides 44 and 45. For the fourth quarter of 2018, we had a net investment loss of $1.1 million or $0.06 per share, as compared to a net investment loss of $2.9 million or $0.16 per share in the fourth quarter of 2017, a 63% improvement on a per share basis. Adjusted NII which is defined on slide 43 was $10.8 million or $0.57 per share in the fourth quarter of 2018, as compared to $9.2 million or $0.51 per share for the fourth quarter of 2017, a 12.6% improvement on a per share basis. For the full year of 2018, we had net investment loss of $7.5 million or $0.40 per share, as compared to a net investment loss of $7.9 million or $0.45 per share, an 11.1% improvement on a per share basis. Adjusted NII for the full year of 2018 was $36.4 million or $1.94 per share, as compared to $30.8 million or $1.77 per share in 2017, an improvement of 9.5% on a per share basis year-over-year. Focusing on some of the fourth quarter 2018 highlights, we are pleased to report $14.7 million in total investment income, a 40.7% increase over the fourth quarter of 2017. Both interest and dividend income were the primary drivers for the increase, with interest income increasing by 34% resulting from a higher interest rate on our SBA loan investments year-over-year, as well as an increase in dividend income from our controlled portfolio companies. Our dividend income in the fourth quarter of 2018 included $2.4 million from NMS, $375,000 from Sidco and $1.6…

Barry Sloane

Analyst · Davidson. Your line is open

Thank you. Operator, we'd love to take questions now.

Operator

Operator

Thank you. [Operator Instructions] Our first question comes from Peter Heckmann with Davidson. Your line is open.

Peter Heckmann

Analyst · Davidson. Your line is open

Good morning, everyone. Thanks for taking my questions.

Barry Sloane

Analyst · Davidson. Your line is open

Thank you, Peter.

Peter Heckmann

Analyst · Davidson. Your line is open

Barry, what are you contemplating – you may have said it, I may have missed it but in terms of average debt-to-equity for the year, do you see that ramping with or going within a range, but kind of where are you seeing the average now that you can lever up a little bit more?

Barry Sloane

Analyst · Davidson. Your line is open

Sure. Well, I think that we look at the real risk not necessarily what is reported on a GAAP basis at the end of a quarter where we get a little bit inflated, but you know we're averaging a little bit over one-to-one and we've historically stated that we want to modestly grow that side of the leverage and take it in. Now when you look at leveraging risk, it's important to note once again we're primarily leveraging loan balances of $180,000. So these aren't mezz. These aren't sub debt. These aren't leveraged buyout loans at four, five, six times multiples that require growth. So, we feel that, we can clearly handle substantially higher levels of leverage. But we're going to – we're going to monitor what we're doing. We're going to look at the capital markets, the ability to issue equity at attractive prices. We've been very modest, I think Jen, if you don't have the number handy, but in the fourth quarter we raised a small amount of equity.

Jenny Eddelson

Analyst · Davidson. Your line is open

Yeah.

Barry Sloane

Analyst · Davidson. Your line is open

Couple of hundred thousand – couple of hundred thousand dollars yeah. So we keep our eye on stock price that's important to us and we've been a premium to NAV. We don't hit the accelerator. We don't want to hurt shareholders. So I think that Pete, the best way to describe it is do not expect us to zoom up to 1.8 or 1.9. It will be modest. We want to demonstrate to the markets that we can handle it. Realistically speaking most non-bank lenders are levered three to four to one, forget BDCs. Now BDCs are little bit special in the sense that they typically have to go a little bit out on the risk spectrum to pay the two in 20 and I say it's two and 20, maybe it's one and half, one and half the market is conceding a little bit more there, but we don't do that. We've got an infrastructure. We have a higher return on equity. So I would say a modest slow increase quarter-by-quarter.

Peter Heckmann

Analyst · Davidson. Your line is open

Got it. That's helpful. And then I didn't understand the mechanism exercising the call option on that block of merchant accounts within the payments business. Is that – you're taking those in from like an ISO network?

Barry Sloane

Analyst · Davidson. Your line is open

It's a little bit convoluted. I also want to mention Peter that, that particular option is not something that you'll see reoccurring. It was something that we acquired when we acquired Premier as one of the assets. But we had a basic – we had the opportunity to call the portfolio at modest valuations and we took advantage of that. So that allows us to pick up significant cash flow with very low cost of acquisition and we manage those accounts over a period of time and that helps our overall cash flow. So when you look at the transaction that we did in Q4, even though we gave up about $1 million of reoccurring cash flow to Elavon we've picked up approximately and this is conservative $1.5 million by calling in other residual that were going to third-party participants in the distribution channel.

Peter Heckmann

Analyst · Davidson. Your line is open

Okay. And was the consideration to exercise that calls to get to that?

Barry Sloane

Analyst · Davidson. Your line is open

Was the consideration – well I'm sorry. The consideration was cash. We had to pay cash for those, but the math in the accounting treatment was favorable to us.

Peter Heckmann

Analyst · Davidson. Your line is open

Okay. Okay. And then just last question; I'll get back in the queue. But on the joint venture with BlackRock in terms of timeline getting the funding in place and then starting to actually look at underwriting some loans do you expect that to happen summertime or so?

Barry Sloane

Analyst · Davidson. Your line is open

I would like to answer that question with a song yesterday all my troubles. I'm just kidding. For others that are listening. No, I would have liked this to have been completed by now. So I am hopeful we'll have a Spring Fling on this.

Peter Heckmann

Analyst · Davidson. Your line is open

Great. Good to hear. Thank you.

Barry Sloane

Analyst · Davidson. Your line is open

Thank you.

Operator

Operator

Thank you. Our next question comes from Casey Alexander with Compass Point. Your line is open.

Casey Alexander

Analyst · Compass Point. Your line is open

Hi, good morning.

Barry Sloane

Analyst · Compass Point. Your line is open

Hi, Casey. Good Morning.

Casey Alexander

Analyst · Compass Point. Your line is open

The JV if I read it right it's sort of a hybrid vehicle? Am I guessing that you're going to be sort of contributing half of the assets and BlackRock is going to be sort of contributing half of the assets from an underwriting and origination standpoint do I get that right?

Barry Sloane

Analyst · Compass Point. Your line is open

You're pretty close Casey. So relative to the concept of and I'll use the word contribution the venture is clearly an origination venture and BlackRock TCP [ph] will contribute half of the equity, Newtek Business Services Corp will contribute half of the equity, we'll get a leverage line from a third-party and that through the Newtek – the Newtek system we are going to be taking in the referrals just as we always have been creating that big funnel and when appropriate we're going to take referrals and direct them assemble them and underwrite them to the conventional business. BlackRock TCP and Newtek will each control 50% of the credit committee and both require an approval to be able to fund the loan in the venture. But the infrastructure for creation of the loan, which won't be bought won't be previously made will be the Newtek infrastructure through its alliance relationship so that the UBS's, the Morgan Stanley's, the Raymond James's, the Navy Federal Credit Union et cetera, et cetera will be bringing us referrals as they always have been and we'll be channeling when appropriate those referrals into what we refer to as a non-conforming. We use that term because it's non-governmental program bucket in which BlackRock and Newtek will each own half of the equity and a special purpose vehicle, in which we will be doing securitizations out of and generating good returns for the equity. The equity Casey will show up on our schedule of investments and the leverage in the SPV. We'll not consolidate, because this is a true joint venture between BlackRock and Newtek.

Casey Alexander

Analyst · Compass Point. Your line is open

Right. So this is then similar to from a portfolio standpoint to how other BDCs do JVs that just your equity is going to show up like a portfolio company and that will pay dividends to the BDC?

Barry Sloane

Analyst · Compass Point. Your line is open

Yes, sir. Exactly right. You got it right, yeah.

Casey Alexander

Analyst · Compass Point. Your line is open

Okay. Great and thank you for clarifying, what non-conforming means because sort of non-conforming conventional sound sort of like an oxymoron. The dividend should we think in terms of the dividend from portfolio companies as in 2019 sort of ratcheting back to the trend that it had been working on given that this dividend included a part of the gain from the Elavon transaction?

Barry Sloane

Analyst · Compass Point. Your line is open

It's a good question Casey. I think that realistically speaking in the last couple of years, we have been between 30% to 35% in contribution, from the portfolio companies to the ultimate dividend of which that 30% to 35% given that they come from taxable entities is considered a qualify dividend. I think for the 2019 purpose, it's fair to assume that we're going to be within that range; that's our forecast. However, I would say as a goal, I would like to get that number to be a higher number and that's beneficial to all the shareholders because it just demonstrates diversified sources of revenue apart from just what you might call 7(a) gain on sale and the spread of the 7(a) loans on the book. So we look to grow dividend income from payments from 504, from non-conforming, from tech solutions, from insurance agency, from payroll health and benefits to grow that side of the business.

Casey Alexander

Analyst · Compass Point. Your line is open

Okay, I appreciate that. I also appreciate your commentary about the non-performing loans and the charge-offs that you believe you're sort of at the belly of the loan curve and so they should be stabilizing here. But let me ask you a question, if you expect referrals to increase and you're going to increase your capture from referrals from 2.5% to 3%. Even though your NPLs and your charge-offs are at manageable levels, if you're increasing the size of that funnel, should we expect to see those reset at some higher level than where they're at right now?

Barry Sloane

Analyst · Compass Point. Your line is open

It's a good question. I'll try to give you kind of a blanket answer. I think that as a percentage of the portfolio, we are hopeful and optimistic that from a 7(a) standpoint levels out. Some of the things you're going to start to see is a decoupling because we're going to wind up putting a bigger percentage of non-conforming loans on our books. So Jenny and I have had conversation and what you're going to see in Q1, you should begin to see a breakout of that particular number which loans are 7(a) and which loans are -- and I want to define conventional and non-conforming for you because -- for you and everybody else. You know as an old Ginnie Mae and Fannie Mae and Freddie Mac mortgage-backed security sales person, any loan that went into a government program was called a government loan. Any loan that was done private was considered conventional and the concept of non-conforming means, it doesn't conform to a government program. By the way Casey these are my definitions, it's not GAAP. So I kind of use them synonymously. With that said, we are hopeful that the 7(a) portfolio which is in the belly of the curve, if it picks up a little bit as a percentage of the total portfolio, it shouldn't grow, it may grow a little, but it shouldn't grow and we'll start to begin to segregate out. There are certain loans that are in that category. Here's an example, I've currently got loans that are in the category that are current pay, but the borrower is in bankruptcy. Now why would you say a company in our business is currently paying it in bankruptcy? Well they've got other obligations outside of our obligations that they are renegotiating. We don't think that's a non-performing loan. However based upon how we've historically defined it, it's sitting in that bucket. We are going to redefine that going forward in our upcoming Q and reset the parameters. We have been extremely conservative in defining what is an NPL? To me, if the loan is current pay and performing in this segment, I'm happy. I'm very happy. And we have some loans that are in that bucket. We also have some loans that are in that bucket that are conventional. They will need to come out.

Casey Alexander

Analyst · Compass Point. Your line is open

All right. Thank you very much. I appreciate you taking my questions.

Barry Sloane

Analyst · Compass Point. Your line is open

Thank you very much.

Operator

Operator

Thank you. [Operator instruction] Our next question comes from Leslie Vandegrift with Raymond James. Your line is open.

Leslie Vandegrift

Analyst · Raymond James. Your line is open

Hi, good morning.

Barry Sloane

Analyst · Raymond James. Your line is open

Hey Leslie, how are you?

Leslie Vandegrift

Analyst · Raymond James. Your line is open

Doing well, back in business this morning. You mentioned guidance on the call for 7(a) in 2019 about 20%-plus volume growth. That's pretty healthy growth. How much of that is because competitors such as [indiscernible] et cetera are starting to move away from it.

Barry Sloane

Analyst · Raymond James. Your line is open

I definitely think some competitors that don't have our system and efficiencies back out of the market and that's going to be helpful. But -- and maybe wind up, giving us more business and more opportunity and we do have a lot of people coming to us saying, oh gee, I give you all my business, just pay me two or three points for a loan and we say, sorry not interested, it's just not what we do and it's not our model. But putting that aside, I think that a lot of that growth is based upon the fact that when we launch the non-conforming program, when we look at getting a -- so by launching non-conforming program, we're just going to get more looks. Businesses come to us not looking for a 7(a) loan or a line of credit where we come. They just come to us for funding. So by being able to state that we can do loans up to $15 million by broadening our horizons with alliance partners, we just think that's where the growth is coming from. We believe that by going into the market and saying, we lend money to businesses, 10 to 25 year AM schedule, no covenants, single-digit interest rates; that's our business. That's totally different that OnDeck, Kabbage. They are like six to 24 months. They're 25% to 80%. They're not long-term capital. So our ability to position ourselves in the market as a real provider of credit to this market based upon our 16 years' worth of experience in dissecting this market and being able to take a funnel and weed through 64000 referrals in a given year. I mean it's funny because people say to me a lot of times and they go oh, you're an SBA lender and then I like you know my head tilts and I'm kind of bummed out; and no that's not what we do. What we do is we figure out a way to create distribution channels, to process business whether it's loan, technology, payment, et cetera faster and better. So we think that our growth is not based upon our competition; it's not based upon market conditions; it's based upon the fact that we have created what we believe is a better funneling system, distribution channel, mousetrap to improve the client experience, to improve the alliance partner experience, and to improve the employees experienced in processing a lot of business more efficiently. We think that's why we're going to grow.

Leslie Vandegrift

Analyst · Raymond James. Your line is open

Okay. And then on the third quarter call, you gave a bit of guidance for what you're seeing possibly for premiums in 2019 you said about the 109 handle level would be your expectation. Is there any update there?

Barry Sloane

Analyst · Raymond James. Your line is open

Yeah. So, we finished off the year close to 110, and the market is higher in the first quarter. I'm not going to say how much higher. This is publicly available information I tried to stay away from price discovery, but I think the other factor in price is what's your split between the 10-year paper, which tends to trade close to 109-110 give or take and the 25-year paper, which tends to trade close to 114 plus but we net 112 because we split the premium. So I mean I would like to think and hope and the quarter’s not over and we have a lot of work to do that we could be north of 110 in the first quarter and we've given guidance that our models are based on 109. So hopefully that's a little helpful to you it.

Leslie Vandegrift

Analyst · Raymond James. Your line is open

Got it. Thank you.

Operator

Operator

Thank you. And our next question comes from Mickey Schleien with Ladenburg. Your line is open.

Mickey Schleien

Analyst · Ladenburg. Your line is open

Yeah, good morning Barry and Jenny. Barry, I wanted to start by asking you about how the government shutdown affected your business in January?

Barry Sloane

Analyst · Ladenburg. Your line is open

Thank you. Well, you know, like all government shutdowns they're always challenging. This one was a little more challenging given the duration. So approaching December 21st when it became apparent to us that the government was shutting down. I think at the same -- at the same time the market and cost of capital was going crazy, which frankly did affect our NAV marks for the year and will most likely rebound in Q1, stock market down 10%, in December up 10%, in January effectively. So the government shutdown basically forced us to push some of our fundings back into the quarter, but frankly we've been through this. We've got our -- being a PLP lender, we were able to cover the existing pipeline. We sold forward that pipeline as it closed. We held back on fundings through the first four to six weeks, which by the way if there ever was a shutdown having it happen in January isn't a bad thing, because that's usually our weakest quarter people typically don't do much borrowing in Q1 or I should say closing. So I think you will not see an effect, I think that this won't affect our guidance, this won't affect our loan quality. And what happened Mickey was we were able to build up a substantial portfolio, which when the government opened we then got guarantee numbers and we're able then to close loans, which we're in the process of doing and consequently sell them into the market. So we're in good shape.

Mickey Schleien

Analyst · Ladenburg. Your line is open

So from a volume perspective, you think you'll be able to make up for whatever opportunity you lost in January -- in February and in March, is that correct?

Barry Sloane

Analyst · Ladenburg. Your line is open

That's what Pete Downs tells me.

Mickey Schleien

Analyst · Ladenburg. Your line is open

Okay.

Barry Sloane

Analyst · Ladenburg. Your line is open

And I know he's listening. So I just put some pressure on him.

Mickey Schleien

Analyst · Ladenburg. Your line is open

Barry, in terms of the close rate that's obviously an important factor for this year. We're almost -- well we're a couple of months into the year, it's early days. But have you seen signs of that close rate improving so far if you look at the year-over-year numbers?

Barry Sloane

Analyst · Ladenburg. Your line is open

I think Mickey that what we try to do is we try to maintain what I'm going to call modest controlled disciplined growth in our lending business. And I think relative to the close rate and focusing on the close rate of 7(a) we're very comfortable, 2.5%, 3%, 3.25%, 2.25%. We're going to do what's required to put the best credits that we see on the books within our numbers. So we're very comfortable with the numbers that we put out into the market and do manage to a generic close rate. I'd say this because there is going to come a point in time where our referrals aren't growing by 74% that's just unsustainable. The reality of it is we have such a huge portfolio of opportunities to pick and choose good credits from given the underwriting guidelines, the close rate -- I mean, I'm not saying we're going to go from 2.5% to 15% because our model, the referrals that come to us and this is a good question, they're raw, they're not packaged, they're not assembled, they're not structured. That's what our great team under Bob Rabuck does who manages 25, 26 people. So you know I think that the key question is we are very comfortable. I'm going to use the term with a 2.5% to 3% close rate and the current 7(a) growth, although we're going to be scrambling a little bit, but I think we're going to be able to do it.

Mickey Schleien

Analyst · Ladenburg. Your line is open

Okay. Thank you for that, Barry. Looking ahead for the last few years, always talked about rising rates. But if you look at the forward curve now, the market is expecting rates to start to decline next year and we all know that the curve can be wrong. But I'd like to understand, I do understand that the balance sheet is match funded but when you consider also CPR and how an economic slowdown could affect all of your businesses. Net-net, how would an interest rate decline impact Newtek particularly since you've lived through cycles before?

Barry Sloane

Analyst · Ladenburg. Your line is open

Yeah. So I'm going to also assume this is important, interest rate decline with a subsequent slowdown in the economy. So I'm go take that hand -- because look rates can go wherever they want to go, we believe that holding everything else constant by the way it doesn't make a difference. However, rates moving I think are a consequence of the economy speeding up or slowing down. So assuming that the economy slows down, look I think that gain on sale will pick back up again. We get higher prices for the government guaranteed securities, and I also think that loan demand in a slower economy would pick up, because banks become a little bit less aggressive in a slower market. So it would be a little bit more competitive, but look Mickey for 16 years we've been doing this, we don't feel we -- in this one segment of the business, I'm just focusing on 7(a) lending that we get much affected by rates going up or down. I think we've kind of proven that in an up-rate scenario. Now by the way, one of the provisions is that we continue to get a good asset liability match on our portfolio. The capital markets do well. I think we're in pretty good shape Mickey. I'm not overly concerned about rates going in either direction. I don't think we'd benefit or lose by a rise or an increase in rates. It's pretty balanced.

Mickey Schleien

Analyst · Ladenburg. Your line is open

I understand. Barry, I do want to follow-up on the questions about the JV maybe to get a little bit away from the jargon in the market. Can you just sort of give us a bigger picture of what kind of a loan might go into the JV that just couldn't go into 7(a) or 504 to give us a sense of what kind of assets you're looking at for that vehicle?

Barry Sloane

Analyst · Ladenburg. Your line is open

Sure. So first off, the balance. So if you are a borrower and you need more than $5 million, you can't qualify for an SBA 7(a) program, because it's -- the max loan is capped at $5 million; that's item number one. So someone comes in for $7 million loan and $10 million loan they're going to go into this bucket. Then there are certain vagaries of the SBA program. First of all, the only loan that we do under 7(a) is prime plus 2.75%. So if you've got a borrower that says, I've got to be fixed, this program will be fixed for five years. So if somebody wants a fixed-rate loan and won't do a floating rate loan, it will wind up going into this program. That could mean, they could be a $2 million borrower, but they're going into this program. Let's say you've got three guarantors that own 33% and 30% of the business. One of the guarantors that is an outside investor will not personally guarantee the loan. With a debt service coverage two to one, commercial real estate behind it been in business five years can get an SBA loan. That's going to go into this program. So the concept of the term non-conforming, loans that do not conform to the strict SBA policies and procedures within the $5 million cap will be offered this program and we think there is voluminous amount of those opportunities. Secondly, borrowers that want more than $5 million will go into this program. In addition, we have borrowers in the portfolio that have used up their $5 million of SBA guarantee, they're great operators, they're great owners and they had got a new business opportunity. We now can offer them additional financing.

Mickey Schleien

Analyst · Ladenburg. Your line is open

So Barry taking all of that into consideration and I'm sure you analyze this backwards and forwards before you launched it. What sort of coupons are you talking about and cost of debts and leverage and ultimately ROE in the JV?

Barry Sloane

Analyst · Ladenburg. Your line is open

Sure. I think that on a gross coupon, we're probably going to be out on the street from like 8% to 10.5% and that will be fixed for five years.

Mickey Schleien

Analyst · Ladenburg. Your line is open

And I know you haven't finalized your debt capital, but what kind of spread can you capture and how much leverage your lenders going to allow in that JV?

Barry Sloane

Analyst · Ladenburg. Your line is open

Yeah, I think I'm going to have to stop at this point until that's baked Mickey. But I certainly appreciate the question and I know that you and others are going to be working on building a model for this. So we'll try to be as helpful as we can. Until this gets baked, I think, we're going to hold off on that. I would hope to be able to give you more guidance at the end of the next quarter and we've been pretty clear not to include any of this income for 2019, but it is on the table and it could generate some income for 2019.

Mickey Schleien

Analyst · Ladenburg. Your line is open

Okay. Well, do you suspect that it could generate ROEs at least in the low double digits? Is that a reasonable target?

Barry Sloane

Analyst · Ladenburg. Your line is open

Well, let me say this, given that we've got to payout a healthy market dividend and we'd strongly prefer -- look, when we look at stuff at time, sometimes I look at stuff and it's like, okay, we can earn 9% or 10%. So one of my challenges are, okay, do I do that, because that will basically pay the dividend, right? So that's okay. But the more of that that I do, the more it dilutes from the higher returned activity like 504 lending or like 7(a) lending. We would like to believe that this activity, as we modeled it, will be a higher return on equity after charge-off and severity than our dividend coupon, so that it's not dilutive to shareholders. But that's a forecasted guess at this point in time. And my Chief Legal Officer has an imaginary finger on my shoulder and he's telling me to stop talking.

Mickey Schleien

Analyst · Ladenburg. Your line is open

Okay. Fair enough. But maybe, just one last broad question on the JV, given the collateral constraints in your funding on your balance sheet, maybe a question for Jenny. How does Newtek fund the cap or the equity commitment for the JV, if it happens in the next few quarters?

Barry Sloane

Analyst · Ladenburg. Your line is open

Well, I think, what we'll be doing, Mickey, is on a very balanced approach. Number one, we're liquid at the moment. We've got a lot of capacity on our lines of credit across the board. We've got ATM, we got baby bond capability, so we definitely try to stay away from giving out our plans, less the market jumps in front of us and starts front running us. But I'm very pleased with our capital structure receptivity of the market. Every baby bond we've done is trading at a premium. I think, you'll be hearing positive news on our lines of credit, as well as additional lines to fund these businesses. So I guess after 16 years of paying people timely and principal interest, they get comfortable with you and they should. I will be honest with you and I've said this on a regular basis, I look -- I wake up every day and figure out what crane is going to hit me on the head and we are not carried away with where we sit in the market. We have a lot left to do. We have a lot of blocking and tackling and I think we're just at the beginning of really doing a nice job for our clients that being medium-sized companies all across the United States, as well as stock investors and creditors, et cetera. So we can't be more excited about 2019 and going forward than where we are today. We're very well set up and I thank all the investment banks and investors and creditors for being helpful in that endeavor.

Mickey Schleien

Analyst · Ladenburg. Your line is open

Okay. So just to follow up on that. The credit lines would allow you to draw with the use of proceeds to be injected into the JV. There's just no restriction on--

Barry Sloane

Analyst · Ladenburg. Your line is open

Yes, I've got underutilization on every single one of my lines.

Mickey Schleien

Analyst · Ladenburg. Your line is open

Okay. I was just curious from a collateral perspective. And lastly, I just want to--

Barry Sloane

Analyst · Ladenburg. Your line is open

I think I just want to say -- now that you're on that -- I want to say one thing. So, given that somebody that really wants to have multiple avenues, I could draw my credit lines, we could do baby bonds, we could do ATM, we could do this -- not this -- joint venture specific, but mind you our goal, from Jenny and my perspective, is to always be diverse, have diversified pools of capital because markets do shut, they do change. So, we've always made sure we've got as many levers to pull as possible. We don't want to be reliant on any one thing.

Mickey Schleien

Analyst · Ladenburg. Your line is open

No, I agree with that and appreciate it. And just sort of a housekeeping question. I think in the past Barry, part of the 504 business was actually reflected on Newtek's income statement, but now that all of that business will be in NBL starting this year, will that business completely be reflected through the dividend from NBL or will those still be some sort of straggler affecting the income statement at the Newtek level?

Barry Sloane

Analyst · Ladenburg. Your line is open

Broadly speaking the 504 business should be reflected out of a portfolio company NBL and that would relate to spread, underwriting fees, and gain on sale. That's the goal and that was why we put that slide in there today. It's been a little convoluted in the past. As you sort of put things together and part of it was with CDS and I think there was one point we made a -- I think we made a conventional loan out of the BDC, but that's a portfolio company.

Mickey Schleien

Analyst · Ladenburg. Your line is open

Okay thanks. That will be cleaner that way. I appreciate your time this morning Barry and Jenny. Thank you.

Barry Sloane

Analyst · Ladenburg. Your line is open

Thanks Mickey.

Jenny Eddelson

Analyst · Ladenburg. Your line is open

Thank you.

Operator

Operator

Our next question comes from Fred Cannon with KBW. Your line is open.

Unidentified Analyst

Analyst · KBW. Your line is open

Hey guys this is Luke on for Fred. How is it going?

Barry Sloane

Analyst · KBW. Your line is open

Hey Luke, how are you?

Unidentified Analyst

Analyst · KBW. Your line is open

Good. Just a housekeeping thing. Jenny my speaker went out when you were giving the loans sold in dollar amount for the SBA. Do you mind just reiterating that?

Jenny Eddelson

Analyst · KBW. Your line is open

Sure, for the fourth quarter?

Unidentified Analyst

Analyst · KBW. Your line is open

Yes.

Jenny Eddelson

Analyst · KBW. Your line is open

So, in 2018, we sold 158 loans for $108.6 million and that was at an average price of 109.97%.

Unidentified Analyst

Analyst · KBW. Your line is open

Okay, perfect. Thanks. And then just a couple of questions. I'll keep it quick. On the origination and servicing expenses you guys saw that was a little bit higher than previous quarters, but it looks like it was similar to last year. Was that just year-end seasonal?

Jenny Eddelson

Analyst · KBW. Your line is open

Exactly that's basically referral fees that do tend to be higher in the fourth quarter.

Unidentified Analyst

Analyst · KBW. Your line is open

Okay got you. And I know there's a lot of talk earlier about the sale to Elavon did you guys quantify the dollar amount that was impacted or that their dividend income was impacted by that?

Barry Sloane

Analyst · KBW. Your line is open

About $1 million.

Unidentified Analyst

Analyst · KBW. Your line is open

$1 million. Okay. Thank you very much. And then just one last one you guys have talked extensively over the past couple of quarters about how you've been able to bring down some of your interest cost and credit lines, how do you see your interest expense going forward?

Barry Sloane

Analyst · KBW. Your line is open

Well, obviously, in a growing business the total number will definitely increase, but I think that tapping a variety of different markets being diverse leaves us in a pretty good position. We've got longstanding relationship with a lot of our capital providers and we're appreciative of that. So, you know, we try to keep a good balance on that. I would say this, I do believe that our thought process, going forward, is not a major change in rates up or down in the next 12 to 24 months. So from that perspective, being floating rate is useful to us because it gives us the most value without a lot of volatility. Baby bonds being fixed are problematic, but they can be swapped back into floating and we haven't done that yet, but that might be something that we'd look at. I think when you look at the spread of our assets, with the floating cost of money to the fixed coupons we're talking about, it's attractive. And I don't see -- and you got to be careful here just because the trade issue is the big swing in the market right now. I mean, that could move equity and debt markets in a big way. So, I reserve the right to see what happens in the next 60 days regarding trade. I think if Trump -- this is a -- if Trump cuts a deal with China and our whole trade balance -- all bets are off. There is going to be a lot of changes. So, we'll answer that question again at the end of the next quarter. Q –Unidentified Analyst: Thank you. And then -- sorry -- just one other one. I know there's been a lot of talk about the conventional loan program. You guys have -- and as you said, you're trying to target a 2%, 2.5% to 3% close rate on referrals, the rest of the conforming or the non-conforming loans could come out of that other 97.5%, right?

Barry Sloane

Analyst · KBW. Your line is open

100%. Q –Unidentified Analyst: Perfect. Thank you very much. Thank you for taking my questions.

Barry Sloane

Analyst · KBW. Your line is open

Thank you.

Operator

Operator

Thank you. And I'm not showing any further questions at this time. I'd now like to turn the call back over to Mr. Barry Sloane for any closing remarks.

Barry Sloane

Analyst · Davidson. Your line is open

Well, wanted to thank everybody for their participation today and want to thank the staff, all the employees associates at Newtek. They did a great job. We are optimistic that we'll deliver equal to or better results next year and look forward to our first quarter call which will come up very quickly. Thank you everyone.

Operator

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a wonderful day.