Good morning, ladies and gentlemen and welcome to the Newtek Business Services Corporation Quarter Three 2016 Earnings Conference Call. 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] I would now like to turn the call over to our host Mr. Barry Sloane, President and CEO. You may begin.

Good morning, everyone and thank you for attending and welcome to our third quarter 2016 financial results conference call. I am Barry Sloane, President and CEO of Newtek Business Services Corp, NASDAQ stock symbol NEWT. Here with me today, to present also is Jenny Eddelson, Executive Vice President and Chief Accounting Officer. Jenny, would you read the forward-looking statement.

Sure. As matters discussed in this presentation as well as in future, oral and written statements my management of Newtek Business Services Corp that forward-looking statements are based on current management expectations and involve substantial risk and uncertainties which could cause actual results to differ materially from the results expressed in or implied by these forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identified forward-looking statements by terminology such as may, will, should, expect, plans, anticipate, could, intend, target, project, contemplate, believe, estimates, predict, potential or continue or the negative of these terms or other similar expressions. Important assumptions include our ability to originate new investments, achieve certain margins and levels of profitability, the availability of additional capital and the ability to maintain certain debt to asset ratios. In light of these and other uncertainties the inclusion of a projections or forward-looking statement in this presentation should not be regarded as a representation by us that our plans or objectives will be achieved. For more information of forward-looking statements, please refer to our complete note on Slide 2 of today’s PowerPoint presentation.

Thank you, Jenny. I want to point out that we recently had an Investor and Analyst Day in Newtek approximately for six weeks ago, it was fantastic. We spent two hours with the investment community going over our business and our business model. We drilled down deep into sort of what we do as a company and also how – what we do in a BDC format, changes how we look to the investment public, some of that, part of that presentation has now been indoctrinated into what we are want to be doing quarterly. This PowerPoint presentation is already currently on our website for those of you that want to go follow along newtekone.com, NEWONE.com [ph], go to our website, go to the Investor Relations section, you will be able to see the PowerPoint. Going to Slide #2, Newtek’s differentiated BDC model and why we think our model is better. The company is primarily investing in senior secured loans and in operating businesses, which we’ve owned and operated for over 10 years. We believe those are less risk investment than what some of their competitors are investing in which were mezzanine loans, subordinated debt with equity kickers with interest rates of 10% to 14%. They need to put levered debt instruments on their books in order to be able to pay the 2%, 20% ops. We do not pay 4% external management fee to an external advisor or an internally managed BDC, we didn’t touch one of our advantages. So one of the things that we emphasized recently in the Investor Analyst Day meeting is risk per reward. We think that what you are core investing in under our BDC model is significantly less risky than what our competitors have to put into their BDCs in order to pay…

Thank you, Berry and good morning, everyone. I would like to start with some financial highlights from our third quarter 2016 consolidated statement of operation. Please turn to Slide 34. In total, we had investment income of $7.9 million and 11.6% increase over $7 million in Q3, 2015. The majority of this increase was from the growth and income from interest, servicing and other income on our non-affiliate investments period-over-period. Dividend income for the third quarter of 2016 was $2.9 million versus $3.1 million in 2015. The 2015 period included a onetime $1 million dividend from Exponential Business Development Co. For the 2016 period, our dividend income consisted primarily of 1.7 million from Newtek Merchant Solutions, $450,000 from Premier Payments, $200,000 from small business lending, 330,000 from Newtek Technology Solution and a $240,000 from BankServ partners, a new controlled investment that we added to our portfolio this past June. Our total expenses for the quarter ended September 30, 2016 increased by $1.4 million over the prior year quarter primarily due to a $477,000 increase in interest expense of which $972,000 is attributable to the notes due 2022 and note due 2021 which closed in September 2015 and April 2016 respectively. Offsetting this was a $442,000 decrease in interest expense on related party notes payable. Other G&A increased approximately $830,000 quarter-over-quarter and was primarily due to an increase in referral fees and loan processing cost of approximately $527,000 which was commensurate with the increase in loan fundings quarter-over-quarter. Overall, we had a net investment loss of $2.1 million as compared to a net investment loss of $1.5 million period-over-period. Our net realized and unrealized gains totaled a positive $12.2 million and primarily represents gain on the sale of the guaranteed portions of SBA loans sold during the period. In the third…

Thank you, Jenny. I appreciate that rundown, and operator, we would like to open up the call to questions.

[Operator Instructions] And your first question comes from Mickey Schleien from Ladenburg. Your line is open.

Yes, good morning, Barry and Jenny. Just a quick question. I saw the pricing for 10-year 7(a) loans was somewhat weak towards the end of the previous quarter. I would like to ask you how the market is trading this quarter particularly following the relatively strong U.S. GP number and then more importantly, how are you managing your mix between teners [ph] and borrowers in this environment you know, considering looks like the Feds just itching to raise rates after the election?

Sure, will, Mickey, we feel strongly that it's not the increase in rate that has the, I am going to say tremendous change in prices because these are floating rates, the increase in rate may be the tail wagging the dog in that the rate increase is based upon the fact that maybe the Fed or the economy think it’s going to pick up significantly and be more robust. But what we feel in here and you look at the Fed funds futures, you're looking at prospectively no rate increase in November prior to the election and maybe a quarter of a point which is expected in December and not much thereafter in terms of a wait and see. It’s a pretty fragile economy, the 10 year sector that you look at is much more sensitive to the pre-phase than the longer dated because the 10 year loans have no prepayment protection under 7(a) and sometimes the 10 year sector may wind up sagging a little bit if in particular the 10 year loan is a larger loan. So how do we manage that? We have the opportunity looking at we think the fourth quarter could be $2.5 billion to $3 billion of referrals on a going forward basis to pick and choose the best credits that we have, with the best pricing results and using obviously the operating staff that we have to make sure we can hit our performance numbers both in volume and price and deliver that to the capital markets. The secret sauce of Newtek is the small business lender, is its ability to look at large amounts of opportunities, improve its operating efficiencies to be able to figure out which loans that can do to be able to A, provide a public service to the…

Barry, what do you mean by avoiding the last two weeks of the year? I am not clear on that?

Sure, well when you’re funding and or selling into the last two weeks of a quarter calendar year and the investment community knows, you need to make your quarterly earnings, they tend to bid you back.

Sure.

You know, how Wall Street can be.

Of course.

So what we try to do more recently given that we've improved our operations with management talent, with technology and fundings is to avoid certain periods of the year, so for example this year particularly given the size of our pipeline, we think we’re going to be able to clearly make our goals without having to force a lot of funding, you know, in the last two weeks of the year or for that matter, a lot of sales where the Street does not want to have balance sheet. So if you would say to me, with Wall Street rather have balance sheet from December 15 to December 31, or January 15 to January 31, the answer is the 15th to the 31st.

Got it and reading between the lines, it sounds like you're skewing sort of toward 20 and 25 year papers, would you agree with that?

Well let me say this, it’s a great question. Holding everyone else constant would I rather make you know a 25 year loan fully secured by commercial real estate with 30% to 40% equity? Yes. It gets me the highest price. However, we’re in the business to service small businesses, we’re in the business to service our alliance partners and we like 10 year loans too and we’ll continue to do them. It may provide good risk reward, they are underwritten well but holding everything else constant, I would prefer to create a product with the same unit of labor that nets me 114 or 115 than 110 or 111 or 112, so the answer is yes. But we’re not intentionally avoiding that nor do we avoid smaller loans because we make more money on bigger loans than smaller loans but smaller loans will also form the basis of our farm team that be able to go back and make more loans as the business grows, so recently, we always had 50,005 million now we’re 10,010 million and we are doing a lot more to small loans even though technically, we make less money on smaller loans and it cost us about the same amount of money.

I understand, I appreciate your time this morning, thank you.

Thank you for your question.

Your next question comes from the line of Arren Cyganovich from Davidson. Your line is open.

Thanks. Just want to hear your thoughts about where you think the SBA lending or funding would go into 2017, considering you had such strong growth recently, do you expect that the slowdown or you know, just from large numbers is going to be a little harder to grow at the pace that you’ve been growing at?

Sure and appreciate the question. So I think that, you know, we will give guidance at this point that on the 7(a) side, we are looking to do around $360 million to $365 million of 7(a) loans. That’s our 14 month forecast. And obviously there’s more risk in a 14 month forecast, we feel pretty good about it, you know, that’s probably a slower growth rate than we had the year before, we certainly like to meet that or beat it or exceed it. Putting that aside, we’re going to be doing more 504 loans, we’re going to be doing more inventory lines of credit and receivable lines of credit that we did the year before and we’re also working on ancillary programs with external and internal funding sources to grow the full menu because we are a financial solutions provider to small business. So we’re not an SBA lender. We don’t position ourselves as an SBA lender in the marketplace with the exception to the financial community, so when businesses come to us, we give them a financial solution and in many cases historically we’ve used the 7(a) product but the menu will expand for probability, diversification but we certainly would like to keep our very high growth rates on 7(a) lending.

Thanks, and I guess getting to your dividend forecast for 2017, how does that compare to your expectations for earnings because if you are having SBA fundings that are going to be north of that dividend growth forecast, are you expecting a slowdown in dividend income from your control positions or rising expenses or to something to offset the strong growth in the SBA lending?

Yes, well, we clearly hope and anticipate to put out a significant amount of dollars in our business services business through investments and acquisitions and business opportunities. So I think you could see a decent rise in that. We actually talked about an increase in our Goldman Sachs line as well. So I think you are going to anticipate better growth there both from acquisitions and organic, I think you are also going to get much greater leverage out of the entire business, you know, $210 million NAV company, you know, we like to get that the NAV up and total asset size up and we think we can get tremendous operating efficiencies and leverage off of that as well.

Okay, but I guess just the relationship between the earnings potential versus divided, are you being somewhat short of under dividend?

I think we’re always conservative in whatever we do because we want to make sure that we meet our market expectations particularly doing a 14 month forecast, listen the last thing I want to do is not meet my numbers. Now, if you look at our stock price performance over the course of five years, we’ve had that kind of performance not because we missed our numbers but because we’ve given good guidance and we’ve tended to outperform the market. So my view of this is and I obviously appreciate the question but we want investors to have the confidence that we hopefully will have performance over the next five years like we had the last five years. The way we’ve been able to create that is by being very comfortable with numbers and guidance and tell people really what we believe in most scenarios, and look I can't predict who is going to win election, I can't predict what’s the Fed is going to do, I can't predict whether we are going to get into a war, given all those things that are out both you know things I have control over and not control over, we feel very comfortable with that number and I think, you need, obviously you are fairly new to the company and the stories, I appreciate the question but I would suggest that you look at our track record, which tends to be making sure we do what we say we’re going to do, which is why we’re able to get increasing gross lines to seven securitizations and tighter spreads, we are going to, we anticipate and off to be able to report some really nice capital markets initiatives with respect to more dollars, better terms, ability to grow, ability to deploy money and I think over the course of time, you will get that comfort. Now, I will say this, from a BDC perspective, the ability to increase the dividend nicely on an 14 month forecast, increase the NAV when my competitors are going the other way, pay a very healthy dividend in a market where yields are very low, I mean, I’ve got competitors that traded deep discounts to NAV and may have higher yields but the issue is the markets looking at the quality of what they’re involved in mez debt, sub debt with equity, CDOs, oil and gas exposure so it’s properly priced. We feel when you look at what we’re doing, there is really good value there. So hopefully, I’ve answered your question without giving you the answer, yes, this is really low bolt guidance and we’re fine because I am not going to say that.

Thanks. And then on credit quality, where do you seeing there, is this quarterly seasonality to your nonaccrual numbers and what you’re seeing just underlying trends of the loans in your portfolio currently.

They look great. Collateral values are great. We’re going to – look at the credit trends over the course of you know five years, they’ve just really gotten significantly better. So from a seasonality perspective, borrowers decide themselves based upon their own business conditions when to pay and when not to pay, so there’s really not a seasonal aspect to it.

Okay, thank you.

Thank you.

[Operator Instructions] Your next question comes from Jefferson Harrelson from KBW. Your line is open.

Thanks, I was going to ask you about the M&A outlook and you did have a slide in there that talked about various different businesses, but you can just talk about the pitch that you go in with and can you talk about the – your likelihood of getting something meaningful early next year?

Jefferson, could you repeat that a little bit, I…

Part of this one, as you go and talk to these companies, you’re trying to bring them into the fold, I guess, what is your pitch to them when you want them to join the Newtek team, and two, you kind of missed that somewhat but can you talk about your likelihood of bringing in something meaningful early in the year?

Sure, thanks Jefferson. To add a little humor to this, I tell them Jenny is very nice and I am very mean. What we try to do is we look for and this is not, first of all, we’re not bidding in auctions, so I mean, I am not going to be bidding on private equity disposing of a company and I am bidding with 12 other bidders. We’re typically dealing with business owners that have worked really hard build their business up over 10 or 12 years for example like Kerri Agee from BankServ that has done a lot as 40 great employees operator but importantly not done with what they want to do professionally and that business was a great add-on to what we do at Newtek. She is lender service provider, we’re able to acquire that a little bit over for EBITDA multiple and in doing that what she does with the same types of institutions that we want to do our business with, she has 350, she as an agent assembles, underwrites and services loans. So now, she's able to look at clients and I just came back from an work wise I just came back from a NAGGL conference, National Association of Government Guaranteed Lenders with Kerri, met a lot of her clients, met SBA officials, met the Industry Trade Association and we are able to say, listen you can put the loads on your books but the ones you don't want to do, now Kerri has a funding alternative for those, why may they not want to do it? There are bank in Nebraska and they’ve got a borrower that is in Iowa and has an Iowa loan its had a footprint, or they have a $2 million loan cap and they want to…

Alright, somewhat of a follow-up here, you talk about the menu expanding on the small business side, you went into it little bit, but can you talk about the products that you are thinking about adding on the – to the menu?

We are looking at things like staffing companies and they are interesting particularly if you look at staffing companies in technology staffing which is a growing business or healthcare. All of a sudden you place this staffing individual, that individual is decision-maker and they could also drive business to us, payroll is really interesting to us, insurance agency is interesting to us. We are looking at PEOs but we’re looking at it cautiously because there's major risks associated with PEOs and we had some reservations about the PEO business model being the model going forward but in the services space there if I found anything that was intact, that would be very interesting to us as well, and clearly things that we’ve already done. So we found another LSP that would be interesting, those are the kinds of things we are looking at.

Alright, I appreciate that was actually asked that from a different angle which is the ancillary programs you talk about on the Linux side?

Well on the ancillary programs, although we have announced 504, we haven’t made a big splash it is. However, we’ve added several professionals particularly on the frontend of the business that are active in 504. We made a lot of recent inroads at NAGGL. I mean, it is not inconceivable, we could have, I will be try to be as conservative as I can, a $25 million to $50 million 504 a year in the near future and maybe in one year out it could be 100 million to 200 million not inconceivable at all. We would like to look at provided that we acquire the right expertise, construction financing for 7(a) and 504 which will be additive to our nloan [ph] business and very helpful to frontend business. We are looking at a program that might be nonconforming SBA, that wouldn’t conform to an SBA program but use the SBA credit box to do that. I won’t go much deeper into it because it’s kind of proprietary but that’s a lot, it’s a big growth opportunity. So your question is great, what do I want to do for Newtek and what does management and the board want to do? We want to take advantage of the fact that we get $8 billion worth of lux [ph] and a lot of the deals we don't do isn't necessarily because they’re not credit worthy. We just don’t have a full menu of products. So we’re working on it and we’re working on figuring out what goes on balance sheet, off-balance-sheet and side-by-side funds. We have a great future ahead of us because we build an outstanding company with a great customer acquisition strategy which is the secret sauce to small business and it keeps growing and expanding. I would hope in the next 30 days to make some major announcements on alliance partners and stayed tuned.

Okay. And just one more down that credit, I know we will see it in the queue that comes out, but can you talk about how long that credit had been in place, has it been, was a mature credit that the 2 million that moved to NPA?

Yes, it was a mature credit.

Alright thank you.

Your next question comes from the line of Scott Sullivan from Merrill Lynch. Your line is open.

Hi, thanks for taking the call and congratulations on a great quarter.

Thanks Scott.

You gave us some nice granularity on the secret sauce and deal flow et cetera. Wondering if you could give us a little bit more color on the since June synergies and other aspects of the BankServ deal?

Well as I mentioned, I was just out at what I referred was the NAGGL conference, NAGGL standing for National Association of Government Guaranteed Lenders and I spent a lot of time with the BankServ people and that BankServ powered by Newtek, we kept the brand, the like the brand. So Newtek had a booth, BankServ had a booth. And our next conference, hopefully the booths will be right next to each other. They were little bit apart but not too far and to give you an example, we met with a couple of hundred million dollar bank in a particular market and this bank has their own internal operation but they give their overflow to BankServ. Their overflow, this overflow loans that they want to put on their books. The President, CEO told me, he had $50 million worth of loans that he believe were SBA eligible that he did not want to do because they were out of his footprint and gave them to other people. Now that he knows BankServ can provide those to us through a new tracker, he is going to give them to us. Now, this banker said to me, Berry, I will do three things, I take deposits, I make commercial loans and I make consumer loans because that is all I do. I don’t want to do anymore. If you could show me easily how I can get ancillary income through your other products and services without causing me expense, I would look at that. So, I would go out and visit that President who is a very nice gentleman with Tim and gave them the other people now that he knows Baxter can provide those are strange attractor he's going to give them to snap this bank reset to me. It…

Fantastic. And wondering if you wouldn’t mind speaking to obviously you have a wonderful window on to the small business community and wondering if you wouldn’t mind giving us your read of the temperature of the small business currently and hopefully a little bit better after the election?

Well, I think that small businesses like certainty, you know, the uncertainty is always bothersome to them. I think, the capital markets have opened up to them a little bit because they’ve got more equity in their home, their credit scores are better. So generally, they are feeling better. What they’re concerned about is obviously you know the government regulation side of it. Most of them do not know how to fill out the Affordable Care Act forms, you got Department of Labor issues right now with taking people that are hourly wages and bundling them up to a base because of the non-exempt issue that’s coming out of DOL [ph]. I’ve got business owners that are telling me they’ve got to take people that are eating lunch at their desk and forcing them to leave the premises because the Department of Labor feels, so that were the small business owners like shaking their head and going, really, is this America? Away from that, they are very much looking for technologic solutions that will reduce their cost of business and make them more efficient instead of trying to grow the revenue base because in a low growth to no growth economy, it’s really hard to grow the revenue base which is why we fit in as an organization very well particularly in the business service side, so we are trying to make them more efficient in their payroll, in their HR and insurance choices, in better technological solutions, off-prem versus on-prem, in designing a website that has no vulnerabilities and is more effective from a marketing tool and giving them a better way to finance themselves then going to a bank more likely is not getting turn down but if they happen to get grazed with a bank loan, it’s due in two, three or five years straight line out. So that’s really what we are seeing from our client base. They are happy. We are there to serve them and it’s working well and I think the small business environment particularly with immigration which I don't see ending despite whether Donald Trump gets in and build a wall, don’t figure out how to get around it, immigration is going to continue, small business growth is going to continue and generally speaking away from excessive government regulation. They are pretty healthy and they feel pretty good.

Thanks a lot and congratulations.

Thank you.

Your next question comes from the line of Lisa Springer from Singular Research. Your line is open.

Thank you, good morning, Barry. I wonder if you could give us a little bit more color around the surge in lending referrals and what would it have to happen to maintain that kind of momentum going into 2017?

I think that we’ve added better RVPs to our group that are able to go out reach with smaller large size institutions. We are going to have several announcements in the next 30 days about new alliance partners. In addition, not giving away any trade secrets, we have several partners that have really increased their referrals some of that is based upon better operational efficiencies, high close rates, higher level of local intermediary satisfaction. The addition of Tim Ihlefeld and helping to further build out that unit, the hiring of Glenn Weisberg on the West Coast, so we will be not ignoring California as much as we have historically. All that in addition to, look, I mean, BankServ wasn’t a big impact this year. If BankServ gives us 25 million to 50 million loans next year that will be terrific. So we’re in a great place relative to referrals and closings with a lot of things converging on the growth of the leading business. Now most people I'd say this grow in lending because they are cutting credit, I mean, they are in cyclical wave, that’s not our case. We're growing because of our unique distribution model to acquire businesses cost effectively which we’ve patiently built over the course of time and in many early days, we took losses in this business model because you know instead of looking for quick gains and – quick gains on sale, we ploughed our dollars back into swapping management, research and this model which is very hard to build. The average person wants to go to the BDO or the broker to get the loan, that’s easy. Frankly, I will say this because my sales people are listening, they want to do that. I don’t want them doing that. I want them signing up appliance relationships, getting referrals in the door, and we want to deal directly with the business element. And being dogmatic and staying true to what our core is, I mean, you could probably go back and listen to conference calls from 7, 8, 9 years ago, things are a little bit different but for the most part, you would hear the same message.

Okay, thank you.

Thank you.

Your next question comes from the line of Jefferson Harrelson. Your line is open.

We did had Jefferson before, we would certainly get another question.

Yes, I am back. I have one more follow-up, you had talked about Wells Fargo, I know, they are dominant in the SBA space. They had their some trust issues out there with the stand – I was king of traveling through the Carolinas and it seem like some of the banks down there anyway were getting some business from them because of it. Are you seeing any impact on your – in your SBA business of a – from Wells Fargo maybe giving some – taking some market share from them?

You know, Jefferson, I think that will occur. I would not view that as anything that is going to move my numbers 5% or 10%. But I do believe what has occurred with Wells is going to occur with other banks, bless you Jenny. So I think that, I don’t know if call it the Wells effect but I think I would certainly call it, look, you know, and I think Wells did a billion plus or minus but I don’t see that changing a whole heck or lot. However, banks are going to be really reigning in what they do particularly with outbound solicitation.

Yes, alright, makes sense. Thanks a lot. Let me come back on. Have a good day.

Thanks Jefferson.

And I am showing no further questions at this time. I would like to turn the conference back over to you Mr. Sloane.

We certainly appreciate the thoughtful questions, the attendance, we appreciate our analyst that cover the stock, it’s been fantastic and certainly appreciate many of them making the trip to Lake Success to see our new facility and get a better understanding of our business model. We look forward to reporting our Annual Results and executing on our plan. We’ll have some, we will have a lot of announcements over the next 30 days. Thank you very much.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect.