Barry Sloane - CEO Jenny Eddelson - EVP and CAO :

Marc Silk - Silk Investment Frank DiLorenzo - Singular Research

Good day, ladies and gentlemen, and welcome to Newtek Business Services Inc Second Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode (Operator Instructions). As a reminder, today’s program is being recorded. I’d now like to introduce to you to your host for today’s program Barry Sloane, Chief Executive Officer. Please go ahead.

Good afternoon everybody and welcome to the Newtek Business Services’ second quarter 2014 financial results conference call. I have here today with me Jenny Eddelson, who will help to present the financial results and financial information. And for those of you that are interested in following the online presentation, I suggest you to go our Web site at thesba.com in the investor relations section of the Web site there will be the PowerPoint that is available for all of you to view as we go through the presentation today. 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, expectations, 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 SEC and available through HTTP www.sec.gov.

Thank you. I’d like to begin our discussion today with page three of the presentation. The title of this slide is Business Development Company. The Company expects to present to its shareholders a proposal to convert to a Business Development Company also known as BDC once we’re cleared to do so by the SEC. We filed preliminary materials with the Securities and Exchange Commission for public offering of up to $50 million. The conversion will take place at the holding company level from Newtek Business Services Inc to Newtek Business Services Corp. And as we have said in prior calls, we’re unable to offer any further information or take any questions regarding this proposed conversion or offering at this time based upon obviously SEC restrictions. I will tell you that as I do take many calls throughout the quarter, I’ve been asked questions such as could you please present with the company was localized as a BDC because there are many investors that want to understand potentially if we do become a BDC what the company looks like in a BDC format you’re interested in dividend projections, you’re interested in NAV projections. This has really kind of put a hold on things for the time being. It has slowed things down particularly with respect to investor participation in the start. For those that are interested in learning more about the BEC, I would suggest you go to the public filings that the SEC has provided. There is a lot of information in there. I think that will help you with your investment decisions and I believe it will particularly as we go forward reduce this concept of deal fatigue that we are currently dealing with. As we move forward in the presentation, in this particular quarter we have made a…

Thank you, Barry. Our three and six months results included a one-time non-cash charge of $1.9 million related to the early repayment of the Company's mezzanine debt with Summit Partners. As Barry noted, we believe the adjusted amount provided more accurate depiction of the Company’s operating performance. On a consolidated as adjusted basis, we have free cash earnings of $4.2 million for the quarter, a 46% increase from the prior year and diluted EPS of $0.07 per share, 40% increase from the one ago. Via reference, Slide 36 reflects the reconciliation for adjusted pretax income for the three and six month periods as well as adjusted diluted EPS. On a consolidated GAAP basis, our second quarter results were as follow. We had operating revenue of $38.1 million, a 3% increase over the second quarter of 2013. Pretax income was $2.3 million, a 21% decrease compared with the year ago quarter, net income decreased by 24%, $1.4 million and our diluted EPS is $0.04 per share, down a penny from $0.05 as reported in the second quarter of 2013. Slide 31 presents the summary of our second quarter 2014 revenue and pretax income net loss and adjusted EBITDA by segment and compared with the year ago period. Electronic Payment Processing segment revenue decreased by 1%, $23.2 million from $23.4 million, processing revenue versus process cost or margin also decreased from 16.3% in Q2 2013 to 15.5% in the current quarter due in part to price compression particularly for larger processing volume version. Total expenses remain flat between periods resulting in a 12% decrease and net income before taxes to $2.2 million from $2.5 million a year ago. Small Business Finance segment had a 22% improvement in total revenue, increasing by $1.9 million to $10.2 million for the second quarter of 2014.…

Thanks, Jenny. Operator, we will take questions now.

(Operator Instructions) Our first question comes from the line of Marc Silk from Silk Investment. Your question please.

Hey, Barry even though it’s not reflected in your stock price this year. I want to congratulate you on continuously creating value for Newtek. So I guess my first question is with the money coming in from Capital One, let’s say you have it right now and let’s say the $50 million rate you have right now. Could you put that money to work right now and if not because it’s a lot more money than you’ve ever dealt with what are your plans as far as are you going to kind of increase your advertising or get the word out? I am just curious on that regard first.

I think the ability to use the leverage point is there for the same point that the advanced on a government thesis (Ph) is 90% and we’re currently in a run rate where particularly in the second half of the year we anticipate doing 50 plus million a quarter easily. So, the additional leverage point we do so it will enable us to hold loans, get a little bit of cost to carry before we sell them. So, having a more liquidity from a financial perspective in both cases they’re revolvers. So when you look at the $70 million, the $10 million of term of which we pay down, we are advertising, the rest of this is revolver. And part of the revolver you put a government in it you sell it you get a premium, you take a line down, and the uninsured piece is so we have it up through a securitization that goes into a securitization facility on a 65% to 70% of equity. So the additional lines will enable us to increase the velocity of lending and I think we’re fairly comfortable that we’ll be able to use those facilities. And the lack of having those facilities in place really forces us to schedule closings which is not easier thing to do with moving this small business forward.

Okay, so now I am hearing that they’re starting to lend money more than in the past, the past years that is. So it will arrive a time just on Board’s meeting that now there is a public spend (Ph) okay the banks are lending let me also see what a small business association can offer as well?

I think I have to say this more we typically are not in the lending book, we’re typically not like a competitive situation with borrowers giving out multiple packages to shareholders and people so they’re lending three type jumbo (Ph). A lot of our leads come through the alliance relationships with the lead cracker (Ph) system, we’re working with the customer, we’re bringing them through the process, we do the assembly, it’s just not -- our model is different not really much growth and you cannot do it with CEO, he would have broken either CEO it takes time in different parts different people you are jumbo. We work with the business and we help them structure loans that works for outstanding (Ph) fleet from a credit standpoint and gives them the ability to borrow on reasonable terms but importantly gives us enough protection. So it’s not a broker. A brokered loan typically or packaged loan but third party provider may in fact have the worse available terms for the lending. So we like the position and where the market we work with customers we help them realize the greatest proceeds but also give us enough comfort and cushion in the event that the business plans and projections don’t work out.

Okay, let’s say your engagement with customer and you do loan for you guys. Now you obviously have a lot more to offer these people some always different barriers to – from a variety of businesses. So when is the right time for your proceeds people to say hey guys we have the structural opportunity to help you. I mean you don’t want to do it beforehand and turn them off but is it when the deal closes that’s when you approach them or how do you work [indiscernible] a stable of potential future customers for other areas?

This is another way process I will tell you that we recently closed the loan and the client moved their payroll over to us 145 people and we’ll be working on their health insurance renewals as well as their P&C insurance. And the lending in this is important to us just the more the other units are important to our results cross selling and cross market. I have to say we treat our customers every customers case by case basis and our customers clearly aware of the fact that we’re halfway to the products available and they’re aware of the fact that for the loan generally and the committee will bring our comfort factor with those borrowers in the event that to using some of our services and the kind of chance to look at and the likelihood of getting approval they will like that being higher because we’re providing sort of system we’ve [indiscernible] present. We don’t tie, we don’t force the people to do the business but I think that on an ongoing basis and you could see by the headcount we are hiring experienced staff people like David Carter (Ph) the changes we’ve made in Managed Technology Solutions the additions that we’ve made in the lending division to further push the culture of being able to help customers our payroll solutions fact of the matter is that’s just better than any piece of paychecks. They are less expensive, they have a dedicated person, they are saving money and on the payment space business owners have got [indiscernible] compliant terminal. They got to have tokenized gateways, they got to be PCI compliant. We can bring that to them. They go to a lender, lenders have no idea what these things mean. So when a business comes to us on a consultative basis, we are able to not only discuss that we can give them a great loan, structured in the right way that make us safe and it enables them to grow their business. We could also reduce their cost and give them state-of-the-art business solutions that helps make validated a business life better more cost effectively with better cash flows.

All right. You have been the biggest small business loan provider independently and you have a very attractive P/E ratio. Has anyone in the last six months approached you guys just because I know as a banking business specially they got to figure out ways to generate revenues.

Remember the Superman show, when Superman was sitting out in the ledge and Inspector Henderson was inside.

That’s okay, I understand. And then my last question is, and I understand you want to be the Wal-Mart with regards to small businesses offer all things for all people but if you didn’t have the business services class, web hosting business, would that have increased our earnings per share over the year?

It’s funny, I always come back to this, in 2009 someone asked me the same question about lending. So, we are real happy with all of our businesses and no, actually those businesses contributed to our earnings and they contributed very nicely, not maybe the higher growth rate but business is a market that cycle-in, cycle-out and I hope this isn’t a case but five years from now we might be talking about a different time of the lending cycle and we will be thankful that we have got these services businesses that are growing particularly ones that are positioned in cloud computing, merchant services that make our way from interchange VISA, MasterCard which I think were well positioned for. Tablet-base POS systems, I mean the key is you got to stay on the cutting edge, if you are in the payments space and you are walking and knocking on doors of retail customers and asking them for their payments payment and tell them you could beat their price that’s dinosaur business. And we are positioned for different business and payments, different business for managing hardware and software for businesses remotely and a different way to acquire financing, talk about health insurance, future health insurance for small business in my opinion will be personal insurance. I think fewer businesses are going to provide health insurance for their businesses benefits. We will be well positioned for that going forward we are working on that, so it’s all about state-of-the-art solutions for business and both the MTS and EBC contributed significantly to our earnings this year.

And finally more comment than a question, you did a great job and as a shareholder I do appreciate that you and some other entities have been stepping up even though you own a lot of stock, buying more with your own money because it drives me crazy when a CEO talks about how great their company is, all they do is give themselves options with putting their own money into this. So, you more or less have similar game than most and appreciate it and good luck going forward Barry.

Thank you. Our next question comes from the line of Frank DiLorenzo from Singular Research. Your question please.

I have a question about Amazon’s move into mobile payments and your thoughts on how that might impact you going forward and also the overall space. Thanks.

Amazon always makes big splashes and they are probably a company that actually does more things than we do, so that basically answers the question. I think they are bringing cloud computing, selling books and providing payment processing and what those things have to do one another. So, I really appreciate the question. I took a look at their offering and I am going wow! this is kind of a non-event, the pricing is a non-event, their services are non-event. Now putting that aside, they have tons and tons of customers and they are trying to cover every side of the world, consumers, merchants but I think that business owners particularly retailers are not going to be thrilled with having Amazon in the pod, showing Amazon their customers. So, if you are a retailer today, I think you would think Amazon is a competitor and launch to market to your customers every single day, every minute and I don’t think they are going to be thrilled by giving Amazon their sensitive customer data or sensitive customer information. So, that’s what I am not really concerned about and the Amazon product is kind of like a little bit of a swear a lookalike and I think those business models are real tough now. I think the business model for the future are the once that can figure out way to dis-intermediate, entertain to get the cost down and importantly provide superior result. So deep inside the payment they’re going to want to know they’re secured, they don’t have a piece of that compliance risk they’re going to want to know that costs are low, they’re going to want to know there is really good customer service and they constantly asking and get question’s answered quickly and I don’t want to be critical of that as I don’t know I don’t see them being a real major players in space.

Okay also regarding electronic payment processing I think there may have been some weakness there in the first quarter due to the weather conditions we had around the country. Do you see any follow through on that into the second quarter?

We saw little bit of better number in the second quarter one of the things that I think we’ve seen and I do have some disagreements with both people internally and externally on this. But most processors make more money off on debit and credit. And as its economy gets better people are more willing to use their credit card and extend their purchases. And I think that would for us and others wasn’t necessarily the greatest trend. But we think the economy clearly was better in the second quarter than the first and we also from what we’ve seen in July, July appears to be better as well. So, I think the first quarter was an anomaly from an economic perspective, systemic perspective and the second quarter clearly was better.

(Operator Instructions) Thank you. And this does conclude the question-and-answer session of today’s program. I’d like to hand the program back for any further remarks.

Great. Thank you operator and I thank you all for attending the call today. We have great attendance and especially appreciate the questions of various people today. And we look forward to reporting our third and fourth quarters. Have a great day.

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