Good day, ladies and gentlemen, and welcome to the Newtek Business Services Inc Q1 2013 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 be given at that time. (Operator Instructions) As a reminder, today's conference call is being recorded. I would now like to turn the conference over to your host Mr. Barry Sloane President and CEO of Newtek Business Services. Please go ahead, sir.

Thank you very much and welcome everyone to our first quarter 2013 financial results conference call. We appreciate the opportunity to chat with you today and welcome you all for following along to our presentation, which is archived on the Investor Relations section of our website. Speaking today along with myself, Barry Sloane, President and CEO of Newtek Business Services, a small business authority is Jenny Eddelson, our Chief Accounting Officer. Jenny would you like to read the safe harbor statement?

Sure. The statements in this slide presentation including statements regarding anticipated future financial performance, Newtek's beliefs, expectorations, intentions or strategies for the future maybe forward-looking statements under the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the plans, intentions and expectations reflected in or suggested by the forward-looking statements. Such risks and uncertainties include among others, intensified competition, operating problems and their impacts on revenues and profit margins, anticipated future business strategies and financial performance, anticipated future number of customers, business prospects, legislative developments, and similar matters. Risk factors, cautionary statements and other conditions, which could cause Newtek's actual results to differ from management's current expectations are contained in Newtek's filings with the Securities and Exchange Commission and available through www.sec.gov.

Thanks Jenny. Moving to slide three of the PowerPoint and looking at our agenda, we are going to talk about our results for the first quarter on a consolidated basis. We are going to break down the segments for the quarter. We are going to talk about the reaffirmation of our 2013 guidance. We are going to spend a lot of time talking about our growth strategy going forward. We are going to spend some time on our marketing initiatives, which will create that growth strategy and make it successful as well as future initiatives of the overall company and some investment merits. Moving to slide number four when you take a look at our consolidated earnings performance for the first quarter we are real proud of the results in modified EBITDA, which was up 41.9% compared to Q1 2012, our net income was up 42.5% compared to Q1 2012 and on a consolidated basis, our pretax net income was up 34.8% compared to Q1 2012. We reported earnings per diluted share up $0.04 this year versus $0.03 last year. Looking at our year-over-year guidance going forward, we are reaffirming our midpoint guidance of $0.18 with $0.17 to $0.19 as the range. For 2013, on a fully diluted basis, with pretax income coming in at around $11.5 million at the midpoint for 2013. When you take a look at our balance sheet at the end of March 31, 2013, we had some nice performance results in terms of our total shareholders' equity increasing to $70.5 million that was an increase of $1.6 million in total equity. We had an increase in cash and cash equivalents of a little under $5 million, about $4.4 million and we really grew the total assets of the business and liabilities modestly. Switching over to…

Thank you, Barry. To summarize our consolidated results for the quarter, total revenue was $34.1 million, an 11% increase from $30.7 million during the same quarter in 2012 driven primarily by the performance in the EPP and SBF segment. The net change in fair value was a loss of $357,000 as compared to a loss of 58,000 in the year ago period, which is reflective of the growth in loans funded quarter-over-quarter and the associated fair value discount recognized upfront. Total consolidated expenses grew by approximately 9% quarter-over-quarter due in part to an increase in electronic payment processing cost and interest expense recognized in the small business finance segment, as well as increases in marketing expenses and salaries and benefits. The company's effective tax rate was 41% and net income attributable to Newtek Business Services was $1.5 million with $0.04 per diluted earnings per share, a 43% and 33% increase respectively over 2012’s third quarter net income and diluted EPS of $1 million and $0.03 per share. Please turn to slide 36 for a summary of the first quarter 2013 segment results. In the Electronic Payment Processing segment, revenue was $21.7 million, a 5% increase over the first quarter 2012 revenue of $20.6 million. The overall increase in revenue was due to growth in processing volume and the average number of merchant service, partially offset by lower average pricing between years due to both competitive pricing considerations and the mix of merchant sales volumes realized during periods. Pretax income increased by 15% to $1.8 million through the quarter -- current quarter, compared to $1.6 million during the same period last year. Our EPP margin increased by $128,000 period-over-period and depreciation and amortization decreased by 53% as a result of intangible assets becoming fully amortized during 2012. In the Small Business…

Thank you, Jenny. Operator, we would love to take questions at this time.

(Operator instructions) Our first question comes from Marc Silk of Silk Investment. Please go ahead.

Barry, congratulations on another good quarter. My question has to do with -- obviously I see your revenues rising on the banking sector, so you are adding new clients, so can you may be comment more on how you are going to be able to do cross-selling?

How am I going to be able to cross-selling to the overall customer base?

Yes, you are getting new customers and obviously your existing customer base absolutely.

I think that cross-selling Marc, is sort of the Holy Grail of business today. Everyone is trying to put more products into the customer and we are extremely realistic about the ability to cross-sell. The other new business that comes to us, which we do get quite a bit of them is not hard to put multiple products into the customers into the customer. As a matter of fact, one of the things is we are currently working on as a new business starter kit. When you come to us and we can pre-approve for a merchant account, pre-populate in a [court] application obviously, we will not thrilled of our [people] and not thrilled about what takes money to start businesses. We can do it, but it is not a real strategy for us. Relative to the ongoing customer base, we currently are putting out 67,000 newsletters a month to the existing customer base that have opted into the newsletter for the 18% open rate. Customers that are coming into us for merchant or for hosting are basically getting the Newtek Advantage product for free and when they go the Newtek Advantage product and they are getting all their data and their information, every time they go there, they are seeing the menu of products and services on a regular basis. So we think that over the course of time, business owners they get constantly reminded that we do these other things is the best way to cross-selling across markets. In addition to the training of staff, regular, consistent forward messaging to the customer base on a repetitive basis is going to lead us to the path of being able to cross-sell and cross-market into the customer base.

Okay. Good luck. Thanks Barry.

Thank you.

Our next question comes from George Sutton of Craig-Hallum. Please go ahead.

Hi Barry, how are you?

Good George. How are you today?

Good. So curious you had talked about cloud computing within the managed technology area being your biggest opportunity long term and I am curious as you look at the market being ranging from folks like Rackspace and Cbeyond on a cross, do you view yourself as having a service capability advantage or are you viewing this from a relationship advantage perspective?

We -- thank you George. I think we think that basically we are not a competitor to Rackspace and we are a not a competitor to Amazon. We think those enterprises particularly are focusing on the upscale customer, the bigger customer and Rackspace is really dealing with medium size to upsize customer and they are getting the box, they are stacking in the data center, it's almost close to a co-location. We think our specialty, which we've done for many, many years in the space is being able to provide and outsource solution for hardware, software, really in all computing technology and most importantly, 24X7 pick up the phone and answer the question, that's what we are good at and we think that business owners are going to want to have their bookkeeping in the cloud, the tax information in the cloud, they are going to want to have their merchant processing in the cloud, they are going to want to have their payroll in the cloud, their insurance agency in the cloud, they are having benefits in the cloud. So that's where we -- that's where we see our organization really specializing and it's really most small business owners, they will latch on to technology, but they still want to talk to somebody and they are not technologists. So they want to know that -- you know the big pool in the cloud is how many people are ultimately going to give up hugging their server, or their tower, or their software, their hardware? Well we think it's going to happen just like nobody would put money in an ATM machine, they could even deal with a seller or do banking online. We think this is just going to happen. The reason why we say it's the biggest opportunity, you can see huge trend and there is not so many people that are positioned in this space. So that's where we see Newtek having the niche and a lot of our services are going to be cloud based and we are going to give the data on an iPad or smartphone to our client. So we definitely think we are different than the entities that you mentioned. We are a lot smaller obviously today and our target customer base will be smaller in size as well.

Relative to your EPP segment, you mentioned revenue should ramp as the year evolves, is this specifically related to the ISO wins that you are anticipating or is there something else behind that?

Well one of the ISOs behind that is the effective [Durbin] on a comparative basis. I've also taken a look at you know, [quick] April. I feel very good about it and it's my group in Louisville listening, I am putting a lot of pressure on them in the last half of the year. So we've been fairly modest in what we portray to the marketplace, but our expectations and their talents are their capabilities far exceed what we've built into the projections.

Okay. Lastly for me, you mentioned a $65 million servicing portfolio that got transferred in, can you just give us a sense of what those economics look like for you?

What I would like to do George is rather than be specific to that portfolio, I would be more than happy just to give you sort of basic economics. You know, for an SBA portfolio, we typically service for a lot of our basis points for a performing loan and greater numbers for sub-performing and non-performing loans. Not that much greater, but greater. So I think you could pretty much back on the envelop and guess these are fairly a significant reoccurring revenues that would fit, stick with us for a period of time. This particular bank also is going to be utilizing us to service their branches for these types of loans because they don’t want to do them anymore, they just haven’t had their success in really managing the SBA program and their 16 interpage policy and procedure manual. So you know, in addition to taking over their portfolio and servicing it for them we are also anticipating significant amount of loan originations and this is a multi-billion dollar bank and we are pretty happy about the relationship. We would like to put a press release out on this transaction. We are just waiting for the legal department to clear it and hopefully it will happen before the end of the year.

Okay. Thanks Barry.

Thanks George.

(Operator instructions) Our next question comes from Charles Kaplan of Singular. Please go ahead.

Congratulations on a very nice quarter.

Thank you, Charlie.

What I was curious in it is there are two questions, the premium income is almost doubled, has the consistency of I know the velocity of the loans has increased, but how can you explain such a huge increase in the fixed premium income given that I think the last quarter the amount of business loans increased by $10 million, what was the main factor behind this significant 80% increase in premium income?

There are two factors, it's volume and price.

Right.

And the volumes are higher quarter-over-quarter. We anticipate that and the other aspect of it is price. Jenny, do you have the actual net price, which will be in our Q. I am going to guess it's somewhere around 114%.

Yes. That's correct.

So we cleared about 114% and those are probably up three points year-over-year.

Four.

Four, okay.

So it was just increasing demand basically for the loans that led to the high premiums.

Well [that] zero interest rate policy is making pretty much all assets that are viewed as safe and secure attractive. I mean we have been a beneficiary of that in all aspects of how you fund their businesses and the cost of capital is going down. So that's clearly one of the reasons. Now it is a floating rate obligation, so it's not like there is an interest play on it, but right now it is interesting Charles. There is a scarcity and I don’t see this changing. There is a scarcity of structured product in the marketplace today and let me elaborate on that. When the accounting rates change particularly for securitization where banks were basically told that if you are going to securitize, it's got to be on balance sheet, their interest in making a loan, putting it into a special purpose vehicle and creating a structured security, almost one way. So there is a tremendous scarcity value in entities like ours to create structured product whether it's a government guarantee floater or whether it's a private label asset securitization that we recently saw, what we recently financed in March and I think that scarcity value is going to stay for a long period of time.

Thank you.

Thank you.

And I am showing no further questions at this time and I would like to turn the conference back over to Mr. Barry Sloane for any closing remarks.

We greatly appreciate the participants on the call. We had a lot of participants today and some great questions and thank you for your faith and confidence for those of you that have invested in our equity and we look forward to delivering good results for the rest of the year. So thank you very much and we will speak to you shortly. Thank you.

Ladies and gentlemen, this does conclude today conference. You may all disconnect and have a wonderful day.