Good day, ladies and gentlemen and welcome to the Newtek Business Services Fourth Quarter 2016 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, there will be 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 turn the conference over to Barry Sloane, President and CEO. Sir, you may begin.

Good morning everyone and welcome to our full year 2016 financial results conference call. Presenting today Barry Sloane, President, CEO of Newtek Business Services Corp, and Jenny Eddelson, Chief Accounting Officer. For those of you who want to follow the Power Point presentation please go to our Web site newtekone.com, go to the investor relation relations section and presentation and you'll be able to follow along with the Power Point presentation. Jenny, could you please read the note regarding forward-looking statements.

Sure. The matters discussed in this presentation as well as in future, oral and written statements by management of Newtek Business Services Corp that are forward-looking statements are based on current management expectations that 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, predicts, 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. The forward-looking statements contained in this presentation includes statement as to our future operating results, our business prospects and the prospects of our perspective portfolio companies, the impact of investments that we expect to make our informal relationships the third-party, the dependence of our future success on the general economy and is impact on the industries and which we invest, our ability to excess debt markets and equity markets, the ability of our portfolio companies to achieve their objectives, our expected financings and investments, our regulatory structure and tax status, our ability to operate as a BDC and a Rec, adequacy of our cash resources and working capital, the timing of cash flows, if any from the operations of our portfolio company, the timing, form and amount of any dividend distribution, the impacts of fluctuations and interest rate for our business, the valuation of any investments in portfolio companies, particularly those having no record trading market and our ability to recover unrealized losses. The following discussion should be ready in conjunction with our consolidated financial statements and related notes and other financial information carrying in our quarterly and annual reports filed with the U.S. SEC.

Thank you, Jenny. And for those following along we’re on Slide 2 of the presentation. We’re going to move into what we think are three reasons why Newtek Business Services Corp., stock symbol NEWT represents an attractive investment. On Slide 2, you could look at the Company’s historical stock performance, five-year total return including reinvested dividends, 307%, three-year return 49.1%, last year’s return, these are all based on calendar years including reinvest dividend 27.7% and clearly you could see by the chart that we had outperformed the S&P 500, Russell 2000 and NASDAQ composite. On Slide 3, we take a look at where Newtek as a business development corporation of [indiscernible] company, which is internally managed compares itself to other internally managed BDCs. We closed as of March 3rd at 1.16% in NAV, the average of our primary competitors of internally managed BDCs, 1.59%. We believe that the delta between us and the other participants is reflective of the size of our organization and longevity of the dividend history. We do believe that potentially there clearly is room for growth in NAV expansion. Slide 4, we take a look at our dividend distributions and the quality of our dividends. In 2016 approximately 47% of total quarterly cash and annual dividends paid qualify for preferential tax treatment, that’s because, this is income that basically has been up streamed from a portfolio of companies where we are taxed, therefore approximately 47% of the dividend would have a max tax rate of approximately 20% versus ordinary income, which is 39 and fraction up. So the actuality if you look at the dividend it's almost apples-to-apples almost 1% better because half of our dividend is taxed at a lower rate. So when you take a look at our organization from an investment opportunity, we…

Sure, thanks Berry. Good morning, everyone and thank you for joining today's call. I would like to start with some financial highlights from our 2016 consolidated statement of operation. Please turn to Slide 34. In total, we had investment income of $31 million and 18.8% increase over $26.1 million in 2016. The majority of this increase was from the growth and income from interest, servicing and other income on our non-affiliated investments year-over-year. The increase in interest income was attributable to the average outstanding performing portfolio of SDA loans increased in 176.2 million from a 137 million for the year ended December 31, 2016 and 2015 respectively as well as the increase in primary from 3.25% to 3.5% in December 2015. We recognized servicing income of 6.2 million in 2016 as compared to 4.6 million in 2015. The increase was the result of the increased size of the SBA loan portfolio for which we earn servicing income increasing from 520.8 million to 633.1 million year-over-year. Other income which relates primarily to legal, packaging and other loan related fees increased by approximately 40.7% from 1.9 million in 2015 to 2.7 million in 2016 as a result of an increase in loan origination volume year-over-year. Dividend income in 2016 was $10.6 million versus $10.2 million in 2015. The 2016 period our dividend income consisted of approximately 6.8 million from Newtek Merchant Solutions, $1.7 million from Premier Payments, $700,000 from small business lending, $990,000 from Newtek Technology Solution and a $300,000 from bank-serv Partners, a new controlled investment that we added to our portfolio this past June. It's important to note also that in 2015 we had approximately 2.3 million in non-recurring dividend from other controlled portfolio companies that did not re-occur in 2016. Total expenses increased by $8 million year-over-year, salaries and…

Thank you, Jenny. Operator we'll take questions now.

Thank you, [Operator Instructions] our first question comes from Arren Cyganovich with D.A. Davidson, you may begin.

The referral activity continues to grow in a very fast with respect to the SBA program and the funding guidance still very high, but not nearly as high as the referrals. I think you touched a little bit on this in the commentary, but are you being more selective or are you getting higher quality amount of or higher quality level of referrals or is it just -- some of the stuff is just not fitting into the SBA program?

I think you’ve -- there is no one dominant factor that you’ve outlined that can answer that quarter. There are all an important part of it. So a couple of things to take from this. One of the things we emphasize is an investment in Newtek, is an investment in an organization that has done a very good job of figuring out, using technology, how to acquire cost effectively opportunities in credit that work and make sense. So some of the things we are looking to do is develop other programs outside of the four that we currently are in to make utilization of those opportunities. Number two, we do want to be selective. We want to pick the best credits that we have. Number three, a lot of financial services concerns, especially finance companies, bond bank lenders, they all get excited and say, I could grow 50%, I could grow 100% and it’s real easy to do if you’ve got the money and you’ve got the debt lines, but this still a very much of a human business where you’ve got human interaction and controlled growth is important, that’s why we’ve been a lender for 130 years and now God willing you don't step on any land mines I hope I don't Jinx myself today, but I think that we want to continue to let shareholders know they were prudent, we’re not just trying to put numbers on the books, because in the lending market, the problems always show up two, three, four years down the road. So I think that the way for you and investors to look at us is the company is doing what makes sense, they’re creating a large funnel, they’re picking through the funnel, they’re looking to add other loan programs on to make utilization of some of those other lead flows, they are diversified, they're average balance is going down, and they are kind of not getting carried away with themselves at this point. We wake up every morning thinking about who’s going to beat us at our game, who’s going to knock us off.

Thanks. That’s good. I appreciate that. And then the 400 million of fundings for the guidance this year. How much of that broken down between 7a and 504 loans?

We would state, actually this is public, approximately 360 million of 7a and 40 million of 504, and I would use those as a marker between now and the end of the year. We may be making adjustments to that.

Okay. That’s fair. And then just lastly, the salaries and benefits line rows, and I think Jennifer talked about this a little bit. Is that expected to rise more on a variable basis along with the SBA activity or are there other factors at work there?

Yes. I think that, it’s not linear, I think that the way this works sort of it is, it jumps and then it levels and it jumps again. So we've always got to make sure we try to stay ahead of the game, ahead of the referral opportunities. So I think that we did a lot of increases last year in labor. And I think we're in pretty good shape going into this year of given the volumes, so I'd expect this would probably be a good year for us to recoup that.

Thank you. Our next question is from Lisa Springer with Singular Research. You may begin.

My question considers the expanded revolver credit facility for Capital One, you mentioned that’s going to be at a reduced borrowing rate. I'm wondering if you could give us little more color around that and also when do you expect to be able to close this?

Sure, I think that we would like to be able to close this by I'll say April, maybe it may roll into May and we think we will probably be able to reduce our borrowing cost by as much as 1%.

Great, thank you.

Thank you. Our next question comes from Casey Alexander with Compass Point. You may begin.

First of all, when you answered the question about the mix of SBA 7a versus 504, I'm curious with 35 million in 504 loans in the pipeline at the end of the year, and you expected to do may be 40 million for the year. How does that translate, are you -- are those 35 million SBA 504 loans in the pipeline still in the screening stage and you’re going to screen that out?

It’s a good question Casey. I think that from our prospective, until we get to approved pending closing, its -- you're still dealing with ratios. I would expect that we should be able to close on half of those loans may be 60% of those loans that I see here today and then we'll keep building up the price line. And we try to be conservative in our forecasting, the other thing I think that's important to note from your financial models for income purposes at least in 2017, you need to make a loan fully fund it, season it for a quarter or two and then you're selling the conventional piece out for the gain on the sale. The fee that you're booking for point the interest income, that all flows through, but the primary income characteristic would be the sale of the conventional piece. So we try be as conservative and as we realize that we have a lot of people out there looking at things and forecasting, but I think that from your prospective, some assumptions around the 30 million to 40 million for the gain on sales is probably okay. But that’s going to come in a portfolio company and would wind up may be or may be not getting dividend at all.

Right, I mean that’s was going to be my next question, as this sits in the portfolio company, so were actually not going to see necessarily this income unless it gets dividends up from the portfolio company on the traditional sort of BDC income statement, is that correct?

That is correct, yes.

Okay, great that helps my understanding a lot, thank you. Secondly, I understand in the referral program how the traditional financial institutions can be sources of loan referrals. I'm a little curious how a Mynecki muffler or a True Value Hardware would work in that vein.

Sure, so for a Mynecki muffler I think there is close to 750 Mynecki muffler dealers in the association and these are dealers that are in disparate markets all over the United States, and a typically Mynecki muffler dealer takes payments, has payroll, may have a local website, needs health insurance for its employees, needs workman's comp and in many cases needs a business loan. Maybe to refinance bank debt, maybe to do acquisitions of other dealer associations. So we recently started an outbound calling unit, that's headed up by a gentleman by the name of Andy Cholis, who now works at our Lake Success unit and he is adding to his staff to be able to take on these types of opportunities, make outbound calls to members of these associations, introduce Newtek to them as a preferred partner and let all these entities know that we're here for them today and in the future as to what we can do for them. This is you know, we needed to get into this type of facility, this type of staffing and bring in these types of relationships. True Value was interesting, obviously, there's payments, there is loans, a lot of contractors going to True Value Hardware stores, they have house accounts, there's factoring of receivables there for lines of credit backed by accounts receivable. Lot of opportunities in these associations for SMVs and these are entities that typically don't know what their options are. And they don't run around looking for SPA loans they just want financing.

Okay, great I get it that's helpful. Lastly, I understand that the 504 loans ultimately are completely removed from the balance sheet, there's no residual holding piece. But you do hold them longer than the SBA 7a and there is a period where they do stay on the balance sheets, so as that business ramps wouldn't the amount still being held on Newtek Business Credits balance sheet tend to increase over time and to and what's their financial capability in terms of how much they can carry at this point in time?

Sure, the current facility that we have for Newtek Business Credit which is with Sterling Bank and Bank United is a $35 million facility. I believe on the 504 piece the advances up to 90% of the loan amount. So we have decent room there and I think don't anticipate, if we needed more that that would be problematic for us to get more. There is positive carry while the loans are held in the warehouse and there is significant fee income that we receive on 504 lending. A lot of that is written out in one of the slides in the Power Point, but we feel very good about the 504 business you know particularly given that it's really obviously not a bankable product and business owners, all they know is they have a piece of commercial real estate and frankly as you may be aware, a small business owner walking into a local community bank, these banks will do income producing loans, but they typically do them on investor properties not owner occupied properties. So this is an interesting program that we have an ability and expertise in. And I think it could be a very nice complement to our overall lending platform going forward.

Okay. Great. Thanks for taking my questions.

Thank you. [Operator Instructions]. Our next question comes from Leslie Vandegrift with Raymond James. You may begin.

Quick question, I know Jennifer you went through the dividend income for the year. Just missed the bank serve number, if I could grab that?

Sure. That was 300,000.

Perfect. Thank you. And then you’re talking about the funding for the quarter and for the year in general on the 7a loan side and the premium obviously was in there with that. But on the sales, it seems like maybe or slightly below the 75% average of loans funded. So are we getting first quarter hold over there? Like you said the supply seems to be less than demand so maybe getting some better pricing on the first quarter to sell them?

I think that, I think one of your questions is, how does the Q1 pricing compare to Q4 of last year, and we think it’s so far and obviously quarter is not over, but that looks pretty good. I think your other question might have been on the cost to acquire what we pay the third-party, it’s typically 75 basis points. Jenny what was that -- was that it for the fourth quarter?

Yes.

So, Leslie, part of that number. We get some deals that we don’t pay any referrals fees on. So there is a bit of blend there, hopefully that's helpful. I’ve got internal sales people, external sales people. But I think you could use the 75% mark, which has been pretty consistent over the last couple of years. We’re using that in our business model and we would suggest you use that too.

Okay. So there were late funding in the quarter that you held to the first quarter, because you saw [Multiple Speakers].

I’m sorry, carryover.

Yes, exactly. Carryover.

We had some carryover.

Okay. And then final question, you have the slide about investment pipeline looking at the other businesses. And one of them was the SBIC fund. Can you give a little bit of color there?

Sure. This is pretty premature. This is an opportunity we haven’t issued a term sheet on. But obviously, the benefits of an SBIC fund here, sort of near and dear to many BDCs, it enables you to get some additional leverage beyond one-to-one, because the SBIC debt doesn’t count. We are looking at -- to put this way, I do not think you will see us have a dropdown SBIC in 2017. But we may look to make an investment with an SBIC, where it would just be an investment in the fund that perceptively might give us some rights down the road, any unique area of lending. But frankly some of our additional opportunities that Casey pointed out, would be useful. However, the one situation, we’re looking at, is sort of a unique area of lending that we think has some risks characteristic. So it's an early discussion and I would guess most of my targets are listening, you know my phone calls, so I try not to get too over exuberant about these things.

Thank you, I am showing no further questions at this time. I would like to turn the call back over to you Barry Sloane, for closing remarks.

Great, thank you very much just, one more before we sign off, I have one question that was emailed at last night from Nick Rand from KBW. How did interest income increased so much in fourth quarter? We had a delta in the fourth quarter, we had one loan recovery that came back couple of 100,000 of additional interest -- 400,000 of additional interest that we were able to recapture. I mean we do have these circumstances, this is not an anomaly, it's not reoccurring income, but this does happen to us in many cases were we will wind up repositioning a loan and a work out where we recapture interest because of the excess collateral, so that’s happen in Q4. And we appreciate next question from KBW. So with that said as a wrap up, I want to thank everybody for joining the call and participating and we look forward to our first quarter call, we announced our quarterly dividend yesterday and we look forward to increasing and improving second, third and fourth quarter results. Thank you very much and have a great day.

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