Good day, ladies and gentlemen and welcome to the Newtek Business Service Corporation First Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, today’s conference may be recorded. I would like to introduce your host for today’s conference, Mr. Barry Sloane, Founder, President and CEO. Sir, please go ahead.

Good morning, everyone. My name is Barry Sloane, Founder, President and CEO of Newtek Business Services Corp., stock symbol NEWT on the NASDAQ. This morning, to help me present our first quarter results, is Jenny Eddelson, our Chief Accounting Officer and welcome to our call today. Obviously, we have tons of things to discuss. We reported last night a great first quarter with tremendous optimism for the rest of the year. This is against the backdrop of a lot of things happening in the marketplace. We had an announcement last night of an ADP hack. We had announcements of some of our lending participants in On Deck Capital with earnings issues, prosper, laying people off; Triangle, one of our BDCs announcing that they are going to be cutting their dividend, we have a lot of things to talk about. We welcome calls from the – we welcome questions from all the listeners. Our quarter was great. We are extremely optimistic about the future. And with that, I would like to turn the presentation over to Jenny to talk about our forward-looking statements.

This presentation contains certain forward-looking statements. Words such as plan, believes, expects, plans, anticipates, forecast and future or similar expressions are intended to identify forward-looking statements. 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 impact on revenue and profit margin, 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 SEC and available through www.sec.gov.

Thank you, Jenny and for those of you that would like to follow the presentation along today, you can go to newtekone.com, go to the Investor Relations section and click on Presentations and you will be able to follow the PowerPoint, which begins on Page 2. So, looking at our first quarter 2016 financial highlights, we are happy and proud to announce that we have increased the forecasted cash dividend to $22 million, or $1.52 a share from previously forecasted $1.50 a share. This is based upon the management’s business outlook and improved metrics of the underlying businesses. Our net asset value came in at $203.8 million or $14.10 a share, that’s up from the previous quarter of $14.06 per share. Adjusted net income was $4.9 million or $0.34 a share. That compares negatively to $0.51 a share from a year prior, but we will be addressing that on the next page of the presentation in terms of why we think that’s not indicative of the business metrics or what we are doing going forward. Total investment income was a strong $6.8 million, an increase of $4.8 million from the quarter and year prior. Total investment portfolio of $278 million on March 31 compared to $266.9 million on December 31, 2015. Debt to equity ratio was 66% at the end of the quarter, that will go up based upon our baby bond offering that was completed in the month of April. The company has also announced that it repurchased 70,000 shares of Newtek common stock, NEWT, during Q1 2016 at a weighted average price of $12.37 share. The company will be announcing over the next several days another share repurchase that would be – I should say another share authorization that will be similar to the authorization that was previously…

Thank you, Barry. Good morning, everyone and thank you for joining today’s call. I would like to start with some financial highlights from our first quarter 2016 consolidated statement of operations on Slide 36. In total, we had investment income of $6.8 million, a 43% increase over $4.8 million in Q1 2015. Interest income increased by 14.5% period-over-period and was attributable to the average outstanding performing portfolio of SBA nonaffiliated investments increasing to $158.1 million from $125 million period-over-period. The increase in the average outstanding performing portfolio resulted from the origination of new SBA loans period-over-period. We had a $1.2 million increase in dividend income for the first quarter of 2016 versus the first quarter of 2015. Specifically, we earned dividends from premier payments of $450,000, $1.3 million from universal processing services, $330,000 from Newtek Technology Solutions, and $200,000 from small business lending. Overall, our dividend income from our controlled investments was $2.3 million for the three months ended March 31, 2016 versus $1.1 million for the same period last year. Servicing income, which is recurring fee revenue that we earned from servicing the guaranteed portions of loans originated and sold by Newtek small business finance increased by $328,000 or 31% period-over-period. The increase was attributable to the growth in the size of the total SBA loan portfolio for which we earned servicing income of approximately $107 million year-over-year. Our total expenses for the period increased by $948,000, which was primarily driven by increases in loan related costs and salaries and benefits, both of which increased as a result of an increase in loan originations and servicing activities. Overall, we had a net investment loss of $1.4 million as compared to a net investment loss of $2.5 million period-over-period. Our net realized and unrealized gains totaled a positive $7 million…

Thank you, Jenny. Appreciate that. Operator, we would like to open up the call to questions.

Thank you. [Operator Instructions] Our first question comes from the line of Arren Cyganovich with D.A. Davidson. Your line is open. Please go ahead.

Yes, thank you. In terms of the referrals that you are growing at a very high pace, could you tell me a little bit about how you get into the partners if you have a sales force that gets that in front of the individuals that are actually making the referrals? I would like to better understand that process.

Sure. I appreciate the question. I think that one of the important aspects of what you have mentioned, I think the market doesn’t realize that this takes a lot of work and a long time. So, we have been in the lending business since 2003, so that’s taken visits, conferences, presentations, meetings for senior management and a staff that’s led by our EVP of Strategic Alliances, Tom Stier, who has approximately 9 or 10 people in his sales force that manage these relationships. So, those are the only feet on the street people that we have. I would say the 80/20 rule is relevant in sales and marketing unfortunately. I have been a sales manager in my life and my career. But with that said, the UBS retail sales force, Morgan Stanley retail sales force, the New York community banks, the IBERIABANKs, we have got to go out and get into the branches, get into the lending officers and develop those referrals. That takes a lot of work. We also recently developed relationships with electronic providers that are driving tons of referrals to us as well. Now, I think it’s important to note we don’t pay for these referrals, so they are all effectively free. However, we have put a lot of money into going to conferences, meeting with people, etcetera that are generating this. So, we are excited about sort of the fruits of our labor. I don’t think we are going to continue to grow with 40% a year in referrals, but there is going to be big growth and we have a tremendous selection opportunity. If we didn’t pick those credits in the first quarter, it’s conceivable we could have picked other credits that still would have been credit good, if you know what I mean. So, we have – what’s very unique about our model is we have large pools of opportunities to pick really good credits. Now, we are scaling this business. We are moving our headquarters. If you look at our lending staff, we have added four or five management professionals in Peter Downs, our Chief Lending Officer’s infrastructure that are bringing in teams and talents to really grow this business. We are I think at the early point of scaling an operational methodology that will drive significant loan growth. And the unusual part about this is we are going to drive significant loan growth without cutting credit quality. That’s quite rare in the marketplace.

That’s very helpful. Thank you. And then you mentioned there obviously can be seasonality aspects to loan fundings, etcetera, but there seemed to be a pretty big jump in April versus the first three months of the year. Was there anything specific that was driving that kind of large year-over-year increase in loan fundings?

I put my loan staff in the basement and I water-boarded all of them on April 1. I am just kidding, that’s a bad April Fool’s joke. Sometimes it just happens and this is a business where you are dealing with borrowers, human intervention, but we put a lot of things in place that are finally happening. We have been evangelistic about not funding loans in week 11 or 12 of a quarter, not funding loans in the third month of a 3-month quarterly cycle. And to be honest with you, we really cranked in April. And my expectations are that we will do very well in May and do very well in June. This could be the first quarter where we have actually had an even distribution of fundings across the quarter. The reasons for that are management, technology and an evangelistic approach to really improving our process using staff, using technology as well as really lining up borrowers. I can’t tell you how many times – for those of you that are lenders on the phone, you have got X amount of loans, you think you are going to close and at the last minute, the appraisal comes in and it’s 25% of what the owner said it would be or it’s 30%. You have got a problem, you can’t close that loan. That means that loan has got to come out, another loan has got to come in. So if you think you are going to fund $75 million worth of loans in a quarter, you better be prepared to fund $90 million or $100 million. Now, when you have got more referral opportunities, better staff, better technology, it makes this process a lot easier and I could sleep on the night of the 29th or the 30th going into a quarterly end, so I don’t have to come on to a call and worry about a miss. But that’s the answer. And frankly, unless you are in the business operationally and you see these things happen, it’s hard to portray it. But I would say I really appreciate the question.

Thank you. Appreciate it.

Thank you.

Thank you. And our next question comes from the line of Nick Grant with KBW. Your line is open. Please go ahead.

Hey, Barry. Good morning, guys.

Good morning, Nick.

I didn’t see this in the presentation and I’m not sure if it’s a Q item or -- so with 504 production, can you give kind of some color on what your breakout was, and what percentage of that $320 million forecast is 504? And just really kind of your pipeline and what you guys are seeing in that business?

Zero for Q1. We funded no new 504 loans in the first quarter. And disappointed, we have got to do a better job. My sales team has got to do a better job. My management team has got to do a better job. My channel partners have to do a better job. But we are not concerned about it. We think that 504 is additive and gravy and hopefully one day I will be able to get on here and blow a funding number away. The good news is I don’t meet my numbers or blow funding numbers away jamming stuff through the pipeline. I got enough stuff to fix this. So unfortunately and I know Nick this might sound unusual, but I use these public forums to speak to my staff. My staff is on these calls. They listen to these calls. We are very transparent. That’s how we manage the company. We got a doughnut on new 504 loans in the first quarter.

Okay. Yes. It seems like that space takes a little more time to get going as well. Okay. So, moving to the buyback, I like seeing the 70,000 shares you have repurchased in the quarter and the new authorization that sounds like it’s on the way, so how do you think about buybacks moving forward, is it really just anywhere trading below NAV or what’s kind of your methodology in terms of the buyback?

Well, I think number one, we have got to justify that the stock price’s value, which obviously we demonstrated that by buying 70,000 shares at that price. We also have to look at what are our alternatives for the cash, not just for the immediate term, but for 5 years or 10 years, because that’s how we run the business. We don’t run the business quarter-to-quarter. So I think number one, it’s important to demonstrate to the market that you like the stock so they like the stock. It’s very expensive and arduous to go out into the market, particularly as a BDC, particularly in the current market environment for BDCs and raise equity. So we are fairly judicious. And you buy the stock, you get a pop, and then what are you going to do. So from my perspective, my greater return is to take that capital and deploy it into my business than just buying the shares back. Now, I know this is one of these things where, if you took a poll, you are going to get a lot of market participants that love stock buybacks. I am just making a general comment. If I could buy a business that’s accretive and is going to keep providing exponential returns time and time again, I would certainly prefer that than doing a stock buyback. Putting that aside, we want to demonstrate to the market we like our stock, we think these are very good prices and the authorization that will be announced within the next couple of days will be similar in size and scope to the prior authorization. I have been told by my lawyers I can’t say any more than that.

Okay, great. And then one more quick question on the referral partners, the pipeline there is obviously really strong and I know in the past you guys have seen pretty level growth across a lot of your different alliance partners, are there any that are really shining through and providing a lot of this growth or are they all still pretty balanced?

It’s a good question. One thing I want to – and I am glad you asked it, okay. One side of this equation is the referring partners, the other side is the closes, so some of these referral partners are fairly new to picking up opportunities versus closes. So I would say that our traditional – the electronic partners are giving us quite a bit of opportunity right now and maybe that’s sort of a function of some of my other electronic compatriots kind of falling by the wayside. When people go to some of my other electronic players and they are shown really high rates where they get an answer into three hours and it’s not the answer they want, because the reality is, I don’t care what they say, unless they are really credit scoring and showing electronic cash movements that are really constructive, they don’t get a loan. So we are seeing good flow across the full gamut. I have got a lot of new ones in the pipeline because we are developing good [indiscernible] good brand recognition. I think everything is coming together. But I wouldn’t say – I think this is really important Nick. We don’t want any one alliance partner dominating our business. And on the closes, that’s not the case.

Okay, great. Thanks for taking my questions.

Thank you.

[Operator Instructions] Our next question comes from the line of Lisa Springer with Singular Research. Your line is open. Please go ahead.

Okay. Good morning. My question concerns acquisitions, I am wondering if there are business service areas of interest to the company that you are not in currently that you might consider or if all of the acquisitions are going to pretty much focus in the areas you are already in?

So I think Lisa your question is would we consider expanding outside of the current footprint, is that the question?

Yes, essentially yes.

Yes, I appreciate it. I mean I think the answer is yes, but with reservations. So I really prefer not to go wider and I am looking out obviously, the next three quarters, just because I really have a strong desire to – in addition to the two engines that are doing real well, like being payments and lending to get lift from managed tech, insurance, and payroll. And I think those businesses are an easier lift than bringing in digital tax, digital bookkeeping, business formation, etcetera. But if something came our way that was significant in those particular areas and gave us good customer account and the cash flows were attractively priced, we would look at it. But in the pecking order, I would rather get a greater lift from the three I will use the term modest performing sectors of the proposition. And when I say modest performing, it’s really just when you look at growth and growth in the business – and businesses tell me I am having a hard time growing my business and they are growing one business, I kind of laugh and say we are trying to grow five at the same time. So I think that we would look outside of the footprint, but it’s not the primary objective.

Okay. And in terms of size of acquisitions, what would you say would be a maximum level for you for one acquisition?

$50 million.

Okay, thank you.

Yes. I mean we could do $50 million with about 50% debt, 50% equity. I would think that that would be more likely in a robust equity market than not, but I think we could do $50 million.

Okay, great. 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 further remarks.

Thank you very much operator. I really appreciate the attendance today. We had a ton of people on the call. The questions were great. We feel real good about what we are doing in the marketplace. We are delivering increasing dividends, increasing NAV, good credit story, good business model, good underlying metrics. We look forward to reporting our second quarter and just being consistent and delivering a great product to our clients and a great performance in terms of dividends and stock price to shareholders. So thank you very much for attending today.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.