Good day, ladies and gentlemen and welcome to Newtek Business Services Corporation Q2 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Mr. Barry Sloane, President, CEO and Chairman of the Board. You may begin.

Good morning everyone my name is Barry Sloane, President, CEO and Chairman of the Board of Newtek Business Services Corp. Stock Symbol NEWT in the NASDAC we welcome you all to our second quarter 2017 financial results conference call. On the call with me today helping me throughout the presentation will be Jenny Eddelson, our Chief Accounting Officer. I’d like to point everyone's attention to the fact that they can follow the conference call newtekone.com, the PowerPoint presentation is on the site in the Investor Relations section and will also be archived there from audio perspective. With respect to that presentation if you go to slide number one there is a note regarding forward-looking statements. It's important that everybody has an opportunity to read and review that. Going into the presentation on slide number two, we always like to take a look at our historical stock performance. Newtek’s 12-month total return at June 30, 2017 including reinvested dividends, 41.5%. Our total rate of return year-to-date for June 30, 2017 including reinvestment dividends for six months 7.1%. A five-year return, 27% [ph] a three-year return 49.1%, a one-year return 27.7% all these returns are taken off of Bloomberg. On slide number three we are looking at our second quarter 2017 financial highlights. I would like to point out with the specificity one of the things that the company does desire to do in addition to a paying dividend, growing its dividend is seek to provide value and grow our net asset value. We would like to point out that on a per share basis, we had an increase of 1.7% over the course of six months on the year-end to June 30, 2016 and over the quarter it was four tenths of 1%. We had a net investment loss of 1.7…

Thanks, Barry. Good morning everyone and thank you for joining today’s call. Please turn to slide 34 to review our second quarter results. In total, investment income was $9.9 million, a 37.1% increase over $7.2 million from Q2 2016. The majority of this increase was from the growth and interest income year-over-year. Interest income increased by $2.3 million period-over-period and was attributable to a few factors, including an increase in the primary and the average outstanding performance portfolio of SBA loans increasing to $220.7 million as of June 30, 2017 from $172.7 million for the quarter ended June 310, 2016. In addition, interest was favorably impacted in Q2 2017 by $852,000 of interest income related to accrued non-performing interest owed by one borrower that paid their accreted just balance in full. Dividend income in Q2 2017 was 2.5 million or flat in total versus the same quarter of 2016 and represented 1.75 million from Newtek’s merchants' solutions, 375,000 from premier payments and $350,000 from IPM. Total expenses increased by $280,000 year-over-year. Salaries and benefit increased by 1.4 million, $367,000 of this increase was attributable to stock-based compensation incurred in Q2 2017 related to the issuance of restricted stock awards to employees beginning in the latter half of 2016. The remaining increase in salaries and benefits of approximately $984,000 quarter-over-quarter primarily represented increases in headcount and payroll expenses related to lending activities and its commencement with the increases in loan originations, underwriting, closing and servicing activities required to manage a growing portfolio. Interest expense increased by approximately $642,000 quarter-over-quarter. The increase was due primarily to $212,000 increase in interest on the notes due 2021 as those notes were issued in April 2016 and a $470,000 increase in interest from the issuance of securitization notes in the fourth quarter of 2016. Other…

Thank you, Jenny. And operator, we’d like to open up the call for questions from the audience.

Thank you. [Operator Instructions]. Our first question comes from Nick Grant from KBW. Your line is open.

So, your originations guidance of 415 million, does that still include 40 million of 504 and you had only 4.8 million year to date in that group, so can you provide some color on the 504 pipeline? I know these can be a little bit lumpier.

Yes, they are Nick and obviously, the 504 pipeline is in pretty good shape I think on a gross basis we probably got a 50 million or 60 million in the pipeline. We've also recently hired a specialist in that area which we look forward to them arriving in around three or four weeks from now that would put us in a different light. So, we feel very good about the 504 business, it dovetails very nicely into what we do and I think we got probably around 10 million in loans may be a little more than we're sitting in. I would say we probably got 5 million, 6 million or 7 million that prospectively could be available for gain on sales treatment and we've got indication on bids on parts of that portfolio that are consistent what we've talked about. So, I think that as we look at our business I want to think it's fully linear, everything kind of moves along in march step but we feel pretty good about the size of the business that's why we went out and indicated 40 million of fundings and will probably have a couple of sales that we do think we have one sale that we did in the third quarter, and we've actually completed and funded. So, we feel pretty good about the business, and it would be really complimentary and that will give a nice boost to see as which historically have not been a contributor of pretax to dividend income.

Okay great, thanks. I appreciate the conservatism on your valuation of the merchant business. You are sitting on a pretty significant discount of peers, you have nice growth in this business so what does it take to see some multiple expansion here? Is that all a question of scale and total volume or is this another driver?

Look I think it's a fair question. I think that what the Board looks at as well as the outside valuation firms, is they have a myriad of questions and issues that the public comps clearly are out there and the public comps prospectively if that was the only factor that would lean towards being there. I think the Board is looking for a few things to occur operationally, within the enterprise before it feels real confident to begin to lean and start to push those numbers. I think that's the best answer that we have. When we do these valuations, they are very expensive piece of work that's done, there's discounts associated with it. There's discounted cash flows, there is growth etcetera and so I think it's something that we would certainly like to see, we also like to see some more acquisitions to bulk up the size. I definitely think that if we were at 10 billion versus say 6 that would be a pretty big difference here as well.

Okay, great. Thanks for the color. And then one last one from me. I kind of agree with the point that the kind of the shift in retails once the headwind to small business I mean it is the kind of your big box retails? But have you made the decision to cut back originations that is segmented off and how are you managing your current exposure?

Well, one way we manage the exposure is a good chunk of our retail and I don’t have the statistics, has real-estate associated with it. So, it's not franchises. I mean we are not a big franchise lender. I would say its clear less than 5% it might be less than 2% of our portfolio. so, if a mistake is made you've got hard assets which has really been one of the important aspects of our lending pieces. But so far and we are in the merchant space as well. so, we're are not seeing the smaller retailers that affective by the internet, others might look at it differently and maybe that maybe something has changed but we are not seeing it and I will say we do believe the overall trend to more and more things being done online is there. So, this is where for example if you are a lender you don’t want to be lending the businesses that are on the bowl. You don’t want to do the 1.5 or 1.2 loans you really want to do the 2:1 that have got lot of assets behind it and that’s how you become a differentiator. So, if you're looking at $10 or $11 billion of opportunities to pick through it leave you in a much, much better position to be able to pick the bigger credits. The weaker ones will drive faster.

Thank you. Our next question comes from Casey Alexander from Compass Point Research. Your line is open.

Nick asked my questions about the 504 but can the 4.7 billion in loan referrals from new tracker, can you break that out between how much you received in Q1 versus Q2?

I don’t have that data Casey but the first quarter was bigger than the second quarter and I will tell you that’s not a trend that’s just a situation that we had with an alliance partner that has been, I'd say one, but a couple of alliance partners that we’ve repositioned ourselves with. So, I would indicate to you from a trending perspective and by the way I greatly appreciate the question because lot of the analysts and it's your job function to look at those trends, we feel very confident that we're looking at $10 billion to $11 billion of gross referrals this year. So, we try to position the market to look at us annually and not quarterly.

And when you say you reposition were there alliance partners that you felt were underperforming either from a qualitative or quantitative standpoint that you kind of moved out?

I think the answer for that is, that position is always shifting, some people are coming in, some people are coming out, we add new ones that come on stream, some of them have a contract but they haven’t been at the top of their focal labs, so we go in there, we work the relationship and discuss starts to flow through in a significant manner, so it does fluctuate. We have alliance partners that respectively give us lots of units but they are smaller. So, we're constantly working and massaging that pipeline of referring agents because one thing that you know if all of a sudden, I've got somebody giving me a lot of opportunities but there is nothing coming out of them, that’s just a cost without a return. So, it's always the bit of an ebb and flow for us and there will be always be a little bit notchy.

I'm sure qualitative is just as important as quantitative.

Big time.

Thank you. [Operator Instructions] And our next question comes from Lisa Springer from Singular Research. Your line is open.

I've noticed recently the company has really stepped up its advertising on television, could you talk about that little bit in terms of the investment and how you're measuring the success of the ad and if that something we're likely to see continuing into the second half?

Particularly given that I lost £20 I think I'm going to [Multiple Speakers]. You know Lisa its funny because sometimes I've had people come up and say gee I haven’t seen you take off, no it’s the same spend, we really have not changed the spend much, we don’t advertise what the spend its very low seven figures I will leave it at that. And its CCN, its FOX, it's pretty much 6:00 AM to 8:00 PM, we have a great media company that we work with, does a fantastic job. I just think maybe it is kind of random as to when it appears within those windows but it is really good so we have not put more money into it it's been the same spend for three years.

Okay, thank you. And I’m showing no further questions from our phone lines. I would now like to turn the conference over to Barry Sloane for any closing remarks.

Thank you, operator. I really appreciate it, the one closing remark I'd like to make to the group. We recently went out for a proxy for loan on a discount to NAV on three sensitive subject to shareholders and to myself. And we extended that vote, we are very, very, very, very, very highly confident we will get the vote with management's suggestion or proposal. I will also add that IFS, Greg [ph] Lewis and Egan Jones also put our recommendations to vote with management. We are very thankful for shareholders that actually voted. Whether you have voted, you voted no or you abstained, I know it's kind of a pain you have to make a few calls here and there, we needed another worth couple of 100,000 shares short of quorum but we are in great shape, we are not closed out, it's not done but we feel very confident. Our COO told me I could say that. So, I want to thank everybody that put their votes in and it's important to note we don’t want to sell stock below NAV. There is no reason to sell stock below NAV. We are 20% premium than NAV, but we want to make sure we have that tool if we need something in an emergency. We are internally managed BDC, we have no desire to grow assets for asset stake, we don’t get bigger bonuses, we don’t get bigger management fees but we thank shareholders that understand what it is that we're trying to do and give us the tool to effectively managed our business. If you are owning the stock you should own it because you have trust and faith in, we appreciate that and we appreciate your efforts. With that I'd like to conclude the call today and look forward to reporting next quarter. Thank you very much.

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