Good day, ladies and gentlemen, and welcome to the Newtek Business Services Corporation Q3 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct the question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today’s conference, President, Founder and CEO, Mr. Barry Sloane. Sir, you may begin.

Good morning, everyone, and appreciate everybody attending our Third Quarter Financial Results Conference Call. This morning, the call would be hosted by myself as well as Jenny Eddelson, EVP and Chief Accounting Officer. For those of you that would like to follow along with the presentation, we have a Power Point presentation that exists on our website, Newtekone.com, and please go to the Investor Relations section of website and you’ll be able to see and follow along with the presentation that exists in the Presentation section. I’d like to turn everyone’s attention to slide number 2, and we have onto our historical stock performance. Over the last 5 years, according to Bloomberg 220%, 3 years 102%, last year 27.5%. According to a research report issued by Ladenburg on October 10th, Newtek ranked in the top 5 performing BDCs with a total return of 21% over the last 12 months, outperforming the S&P 500, the S&P 600 Financials, and the Russell 2000. We are one of the few publicly-traded BDCs that trades at a premium to NAV at approximately 1.3 to NAV. That’s as of closing price on 11/6/2018. For the last 9 months ended September 30th, our total return including re-invested dividends, 20.3%. Year-to-date through November 6, 14.5%, also outperforming the Russell 2000 and the S&P 500. Moving to slide number 5, the rationale or reasons for our performance from a stock perspective and business perspective. We continue to have year-over-year increases in SBA 7(a) originated loan volume. We continue to have quarterly and annual growth in loan referral volume. The key, obviously, to our ability to lend without cutting into credit quality is the ability to be selective off of a very high base of loan referrals, which we’ll go into later on in the presentation. Our ability to…

Thanks, Barry. Good morning everyone, and thank you for joining today’s call. I’d like to start with some financial highlights from our third quarter 2018 consolidated statement of operations. Please turn to slide 36. In total, we had investment income for the quarter ended September 30, 2018 of $12.4 million, a 29% increase over $9.6 million in the third quarter of 2017. The majority of this change was from an increase of 34.7% in interest income due to several factors. Interest income increased due to the size of the average outstanding performing portfolio of SBA loans increasing from $233.5 million at September 30, 2017 to $286.7 million at September 30, 2018, coupled with increases in the prime rate during the 12-month period. For the quarter ended September 30, 2018, we also had an increase of $445,000 over the same quarter last year from interest income earned on holding guaranteed portions of loans held for sale. Servicing income increased by 21.3% quarter-over-quarter from $1.8 million in Q3 2017 to $2.2 million in the same quarter of 2018, which was the result of the SBA loan portfolio for which we earn servicing income, increasing from $791.5 million to $996.6 million quarter-over-quarter. Dividend income in the third quarter of 2018 increased to $3 million, or 15.7% quarter-over-quarter. So the quarter-ended September 30, 2018, our divided income included approximately $1.9 million from Newtek Merchant Solutions and $550,000 from Premier Payments which were the primary drivers of the $400,000 increase in total portfolio company dividends quarter-over-quarter. Other income which relates primarily to legal, packaging and other loan-related fee revenue increased by $423,000 in the quarter of 2018 as compared to Q3 2017. Total expenses increased by $3 million quarter-over-quarter, or 28.1%. Contributing to that increase was a $748,000 reduction in expenses in the 2017 period…

Thank you, Jenny. Operator, we’d like to open up the call to questions from the investment group.

[Operator Instructions] Our first question comes from Peter Heckmann with D.A. Davidson and Company. Your line is now open.

This is actually Alexis [ph] on for Pete today. How you’re doing.

Good Alexis, how are you.

I am doing pretty well. Thank you so much for the color on the quarter, part of really good information here. I have a little bit of a high-level question and then just a little bit more of a clarification question. So over on the payments processing business, do you have any information on volume growth? So it’s great to see the $6.1 billion processed in 2017, but do you have any information in front of you in terms of growth trends over 2018 or in between 2018 and 2017?

Volume -- I can give you revenue growth. I don’t have volume growth. But revenue growth for this year, year-over-year, I believe is around 6%. EBITDA growth I believe is close to 15%. That’s the first nine months of this year versus first nine months of last year.

Okay, great, thank you. And then just to make sure that I’m understanding the -- that we’re understanding the net premium difference, so, it’s down a little bit this quarter due to the prepayment. But you were talking about earlier in the call, you have prepayments being a benefit. So would you say that you expect the net premium being down, which is the trend that you would expect going forward? And would you say that the other benefits of having higher prepayments outweigh that?

That’s a good question. I think that to a degree, there’s been somewhat of a focused look at the price of the government’s regain-on-sale, and I think that’s an important metric. And that particular gain-on-sale price on a fairly rapid -- which we haven’t seen -- I could sort of explain why, but it’s a -- I’ll call it a market phenomenon more than anything else -- is definitely a negative. What I was trying to comment on is the offset to that is, we’ve had rising rates which significantly give us a higher coupon on the portfolio. We could see our interest income keeps expanding as we have an 8% coupon on our floating-rate portfolio. It also leads to faster prepay speeds on the bonds, which leads to higher overcollateralization. So we’re able to pick up about $15 million worth of cash capital that would have been locked up normally in a securitization, which are effectively $15 million worth of equity shares that we wouldn’t have had to have sold or gotten debt elsewhere. So what I was trying to basically say, is that there are somewhat offsetting factors to those price changes. We also believe that obviously for the third quarter, as well as the fourth quarter, things that we’re doing in the company overall drive offsetting factors to our business model which is multi-dimensional and helps offset a fairly significant change. It wasn’t small. That was a fairly significant change in gain-on-sale between Q2 and Q3, and what we tried to demonstrate that, and I’ve said all along, it’s a diverse company. We have a lot of intrinsic value in our operation. For example, the ability to get $18 billion to $19 billion worth of referrals, replace that dollar volume, or I should say, price gain, with increasing volume as well as to utilize a significant amount of that volume for 504 loans and hopefully launch into the non-conforming sector, we believe will enable us to make up for changes and negative factors in the market. So that was really what we were trying to portray and we wanted to put all the factors out there for the investment community.

Our next question comes from Leslie Vandegrift with Raymond James. Your line is now open.

Just a little bit more color on the premium, obviously thank you for the color you’ve already given about the higher prepayment rate and kind of what we saw in the market as well. But specifically for your premium, does the mix in 10-year versus 25-year loans you were doing on the 7(a) side have any impact there?

Great question. There’s a major difference between a 25-year loan and a 10-year loan. So a 25-year loan after the 50% split will clear the market, net to us today, at around I’m going to say 110-5/8 and today, a 10-year loan will clear around 109-5/8. There’s almost 2 points different in pricing. And we also experienced a mix in the third quarter that was not a mix that we thought we would see. It was actually blended more to the 10 years. Now, one of the benefits of our model, which is to get real retail referrals, speak to thousands of referring partners, gives us the ability to pick and choose the best credits. And obviously we could lean more towards looking at more 25-year deals backed by real estate. We just happened to get caught in a fairly radical shift in a short period of time. But your question is very good. I think that for the fourth quarter we’re looking at our pipeline, we’ll probably be near 50/50. Our pipeline in the third quarter was about two-thirds 10-year and one-third 25-year.

Perfect. And then for the fourth quarter about 50-50, but given the loan referral system does it seem more likely that maybe not an even split going forward? But in the future, you might be a little bit more weighted to the 10-years than you have in the past just given the nature of those referrals?

Yes. It’s a great question. We forecast a lot of things, and it’s real hard to exactly forecast 10 years versus 25 years. But we believe that there is enough 25-year opportunity with good credit in that $18 billion to $19 billion that we’ll be able to make our numbers. And there are a reasonable amount of moving parts in our model. We pay very close attention to that in all aspects of the business, both financially, operationally, and from a credit side. So I mean, I think that 50-50 is probably a good range but we’re not concerned that we’re not going to be able to find good credit opportunities in 25-year deals going forward. It’s not -- there’s no market change. And we think our origination sources will continue to increase next year. And at the end of the day, our goal was to make sure we deliver good results and make our numbers and do good credits.

Okay, perfect. Thank you. And on leverage, obviously you got the ability from shareholders in the quarter to increase your leverage cap or in other words, decrease the asset coverage ratio. And you’ve already started to utilize that a bit. I know you said it will take time to leverage up, but when you do eventually move up, what’s kind of the new target cap? I know 2 times is the regulatory one now, but kind of the target range you’re shooting for?

At the moment, it’s -- I’m going to say slightly over the 1-to-1 but that’s not the long-term target. Part of it, Leslie, is we are looking for some guidance from the rating agencies which is kind of far and few between at the moment. We are an A-minus Egan-Jones-rated entity, which I’m not sure is -- it’s been helpful on baby bond issuances, but not the be-all and end-all. So I don’t think you will see us super-levered. However, I don’t -- we have absolutely zero issues with concern from a risk standpoint, managing 1.6, 1.8. We were not a BDC prior to 2014. So we’ve managed 3-to-1 and 4-to-1 leverage as a non-bank lender. That’s really not an issue. Our issue is to sort of feel out where the market is. We’re very comfortable with increased leverage. Why? My average loan size is $181,000. It’s a floating-rate portfolio. We’ve done this over 15 years. We’re primarily senior secured, collateralized lender. So unlike other BDCs that have hidden leverage in the assets because they’re mez and sub-debt lenders, therefore should be limited to this amount, as a non-bank lender primarily doing senior secured loans we’re very comfortable within the 2-to-1 boundary. And if I remember, we had this conversation back I think a year ago when we were like, 0.85 versus 0.78. It was like, oh my god, you know? But the reality is the market perception is the reality. So I say that and I think what we’ve indicated is that we anticipate staying under 1.2-to-1 through March. Hopefully we’ll be able to keep that, but it doesn’t bother me that we can’t manage that risk. My concern would be more what’s the market thoughts and where’s the rating agency thoughts. But we’re not uncomfortable managing that additional leverage at all, particularly given the unlevered status of our assets.

Okay. Thank you. And on the dividend income, you gave the breakdown in the prepared remarks and I heard the $550,000 from Premier and the, excuse me, $1.9 million from Premier and $550,000 from Newtek Merchant. But, or I actually got that backwards? Sorry. But what was the remaining $475,000 dividend income from?

Sure. I could answer that, Leslie. The additional $475,000, $375,000 came from Sico and $100,000 came from Mobile Money.

Perfect, thank you. And then we talked about the 504 loans, for the past few quarters quite a bit, and you’re starting to be able to grow those fundings. But when it comes to the BDC income statement, Barry, if you could just walk me through exactly how maybe 2, 3 years from now as it grows, how that really impacts the profit/loss statement for the company?

Sure. Leslie, the 504 business will I’m going to say primarily, I won’t say exclusively, but I’ll say primarily, come through a controlled portfolio company and will be taxable. And then the after-tax income will be distributed up through dividending, and most likely the entity that that business will come out of, I’ll say almost exclusively next year will be an entity called Newtek Business Lending. As we’ve shifted that business into that entity, that’s where our Capital One Bank leverage line is. So the income is, you know, your coupon on the loan, versus your cost of money in the warehouse line, origination fees that you receive, and then gain-on-sale when you sell the conventional first-off into the market.

Do the regulatory requirements around 504 and part of it being non-profit impact how much you can pay out on that dividend?

Yes. I’m not familiar with any aspect of non-profit in 504, so in the 504 business we’re lending to for-profit companies and there’s no prohibition on our ability to distribute the money up.

And just a last quick question, what was the previous cost of debt at Premier and Newtek Merchant that you were able to bring in by 350 basis points? Because that’s a big change, that’s a good savings there.

Yes, LIBOR plus 6.

Our next question comes from Mickey Schleien from Ladenburg.

Barry, could we just step back a minute? I mean, it was, the prepared remarks are fairly extensive and we’re all scribbling our notes. Can you just sort of give us your base case view of the economy next year that’s baked into your budget and what you’re sort of assuming in terms of prime rate increases for next year and CPR and pricing for SBA 7(a)? And then I have another follow-up.

So I’m glad I have the opportunity to answer this post- the election, because that helps a little bit with a split Congress. But we believe that we have a very strong economy that most likely now will not get derailed given that the regulatory changes, which I think is probably a significant portion of the driver for economic growth, probably won’t change much. The tax cut was beneficial to our small-to-medium-size businesses that pay taxes. And the Fed’s forecasting a rate hike in December, and I believe they’re forecasting two rate hikes next year. And with personal income growing and inflation starting to show its head, I don’t believe we will see any changes there until, I’m assuming, those three rate hikes happen. From a speculative perspective, I think that trade deals will continue to get done, so a trade deal with Mexico and Canada was kind of a surprise. I think we’re likely to get a trade deal done with China. I think that’ll be fairly constructive to the market. It’ll also be somewhat inflationary. So we think that market continues to have very good growth, tight unemployment, some inflationary trends which will keep the Fed tight.

Okay, appreciate that Barry. And just can you give us an update to the extent that you can on banc-serv? I think that occurred about a year ago. I’m just interested in what’s occurred since that initial event.

Sure. So basically, as we sit here today, that is an ongoing investigation of a portfolio company that we made an investment in. We’ve written the investment down significantly. We have stated that we have a similar organization, small business lending, that’s in the LSP business. And we believe that this is not a bank-serv issue. We strongly believe this is not a Newtek issue at all. And that this is an issue that’s primarily based upon employees that used to be at bank-serv many, many years ago. So we have valued the bank-serv investment appropriately. We think that the bank-serv brand has been tarnished, and we’re minimizing assets and activity in bank-serv but are able to service those customers in affiliated entities. We’ve been very supportive of bank-serv since the September of last year issue, for the purposes of supporting clients that had business in bank-serv and supporting the small business administration because effectively bank-serv provided services to banks, who in turn used bank-serv as an agent. So I mean, the best thing that I could tell you is, we think this is a non-event to Newtek Business Services Corp. We think that we have appropriately valued bank-serv’s assets in the right spot. The bank-serv staff has recently changed and downsized its location, and is now cohabitating with the sister company, the affiliated entity, Newtek Small Business Lending, in Indiana which will enable us to service customers and the SBA in the best possible way. But this has really had no effect on us with the exception of the write-down of the bank-serv investment.

[Operator Instructions] Our next question comes from Fred Cannon with KBW. Your line is now open.

Just two kind of bigger-picture questions, Barry. We see this decline on gain-on-sale, and it appears to be driven by prepayment speeds accelerating. Could you talk a little bit about the background behind prepayment speeds accelerating? I mean, I see it as a combination of interest rates rising and small businesses being fairly flush with cash as a result of the tax bill, but maybe there’s more to it than that?

So the prepayment speed changes for a small business loan are night and day, for example, between for a residential mortgage or even an auto loan. The driver for a small business to refinance a current SBA loan, or sell its business which drives the prepayment speeds, has to do with economic activity. It has to do with the slope of the yield curve. And currently with the coupon at 8% because short rates are almost as high as long rates. And if you own commercial real estate, which we might have advanced at 85 or 90, and now you can get an advance at 70 or 75, you might be able to go to your local community bank, get a fixed-rate loan at 6% or 6.5% for 5-year fixed or 10-years fixed, which is significantly better than the current floating rate. And you don’t need the over-advance, because the value with the real estate and/or the business has appreciated. That’s the primary driver to refinancing. The secondary driver would be, hey, the market’s up, my business is worth more, the real estate’s worth more, I’m selling the business. Or I’m selling the real estate. Those are the drivers by refinance. Honestly, that’s 90% of the refis.

Okay great, so when I said rising rates it’s really a combination of rising short-term rates and a flattening curve at the same time creates this kind of refi opportunity, if you own some commercial real estate?

Big time. If you had a sloping yield curve so the 10-year wasn’t at 320 but was at 5%, which by the way, when you think of where short rates are at 3%, in my lifetime, 200 basis points between short rates and 10-years wasn’t a big deal. I mean, we’ve been in this weird market for a long time with fairly flat yield curve. That’s not absurd. That takes away this refi opportunity as well.

Sure, of course. We’ll have to see what happens with German bonds and the rest of the world on those things.

Yes.

The second challenge, and this is kind of my challenge, Barry, or Luke and my challenge, is in terms of modeling moving forward. And that is, if three months ago we had correctly expected gain-on-sale margins to come in where they did this quarter because of accelerated prepayments, we couldn’t have gotten to, we would have had to kind of cut our estimates because we couldn’t have gotten to your number. Although you know, through the portfolio company improvement and expense improvement, you continue to generate good numbers. This afternoon, we have to kind of put in a 2020 estimate, and we’re probably going to since we have a fairly flat curve into the future, keep gain-on-sale relatively kind of in the current line. But I suspect the company will continue to be able to, through various things, be able to offset that with improvements in some of the non-7(a) program. Maybe you could just help us from a modeling -- but yet, what we find is it’s been very difficult to model the income from the portfolio companies. Maybe you could just help us kind of work through that challenge, if you don’t mind?

I appreciate it, Fred, and your challenge is my challenge. So we’re very careful running our business. We’ve been doing this for a long period of time, and we give one-year guidance out in advance. And we look at all the different inputs that go into driving the number. One of the things we did on the call today, was that we expressed that given the amount of referrals we get, a very modest change in the close rate with no increase in referral volume would equate to an increase in 7(a) that would almost make up for the price difference. We also talked about the refinancing of debt and lower cost of capital, which will reduce interest expense and improve cash flow. And we also feel that you’re going to need to use some pricing number which -- Jenny’s given me an okay on this -- we’re using around a 109 for our forecast for next year. Now, I will tell you that when you look to start to model these floaters, that at 109 have a coupon of net prime plus 1.25% -- prime, I think, is 5.25% now, I think -- so 1.25%, you’re almost at a 6.5% coupon. And now you’re amortizing even at a 28 or 25 CPR, that floater is still a very attractive floater, even at all-time high prepay speeds. I don’t think there’s a tremendous amount of downside as you start to model these things out. We have a pretty good feel for the metrics in our portfolio companies, so I think that we could look at our track record of dividending funds up from the portfolio companies for income. Jenny, I think last year was like between 30% and 33%?

Correct.

Of the dividend. That’s not -- yes. I think that’s -- and by the way, this is a forecast. I could be wrong. But you know, I’ve got my Chief Legal Officer on my right shoulder here. You may want to use past history to use that number to give you some guidance. We’re trying to be as transparent, as helpful as we are. And then you could sort of look at it quarter-to-quarter in terms of what those dividends are, and we’ll be here every quarter to walk you through it.

Okay. That’s helpful, Barry. We have the same challenge. I appreciate it.

Thank you, Fred. Thank you very much, and look, we always try to be careful. And we’ve had a good track record historically going forward, and that’s why we want you to take a look at what we’ve done historically and how we try to forecast these things.

Our next question comes from Casey Alexander with Compass Point.

There was an entry in the income statement, a $300,000 gain from something called conventional loan. Was that the first sale of a 504 loan, or the first group of sales?

That actually was a straight conventional loan. We had teed the borrower up for a 504. The borrower had an earlier financing need. We did do the loan conventionally and we subsequently sold the loan.

Okay. So that’s going to be non-recurring in future quarters then, most likely?

Correct. Particularly from the BDC level, absolutely, 100% yes.

Right, okay. Secondly, I was looking at your debt-to-equity ratio explanation, and if you have $39 million, and this could very well be just because I don’t understand the timing of this, but if you have $39 million that are rolling over the edge of the quarter and you funded $122 million during the quarter, does that, is that $39 million all fundings that were done in, you know, essentially the last week, week-and-a-half of the quarter?

Yes, Casey, that was a fun last week. Peter really appreciated my presence in his office that week, yes.

Okay. So 32% of your funding for the third quarter basically came right at the end?

That happened in the last quarter, and that’s not supposed to happen.

Okay. Secondly, or I guess, thirdly, your forecast of fundings for 2019, if I take the midpoint, and the midpoint of ‘18, presumes 26% growth. But the economics of a new SBA 7(a) loan are exactly the same economics as an existing loan because of the floating rate nature. Your existing earn 8%, the new that you’re underwriting are at 8%. The factors that are impacting the prepayments, why would those not also be impacting the demand for SBA 7(a) loans, if the economics are compelling for a larger group of people to refi their SBA 7(a) loans?

Casey, great question. So I point you to our referral volume. Our referral volume is blowing away industry statistics, for the industry has been down I think 10% for the last year in fundings. And look at our referral volume. And our referral volume is where it is because we do our business not just in lending, but in payments, insurance, technology, entirely differently than anybody else because of the alliance partner relationships, because we use technology, because we process the business better. So I think that the secret sauce that we have isn’t based upon industry trends. We continue to beat industry trends and we make SBA 7(a) loans. So I think one of your questions might be, Barry, why do you think you will be able to make an SBA loan when the market is at 8%, when it was easier to make it in the past at 7%, or 6%, versus the competition? And it’s because of how we do the business. And our loans are interesting to borrowers that want a long am schedule, that want to not have a financial covenant that banks typically charge, and are okay paying the extra rate because they can get a slightly better over-advance than a commercial bank can. I also want to point out that this is a program that’s been around for 64 years, so it was around when prime was at 10%, 12%, 14%, etc. And therefore, there are borrowers that will do well in that interest rate market. We will have demand and if you look at our types of loans, the typical SBA lender is in convenience stores and gas stations, they’re in hotels, they’re in car washes. The percentage of that business for us is always very, very low. We have a very non-traditional way of working with borrowers to suit their needs with the primary functionality of an SBA loan being the long am schedule, which a bank won’t do. So we have certain customers that once they get to be able to refi out because they have a higher LTV, they’ll refi out. That’s really the issue.

Thank you for that. I appreciate your statement that it’s just -- that based upon seasoning, we should expect some increase in non-performers and charge-offs but that you’re well within the SBA guidelines. In relation to non-performers which are 5.8%, or charge-offs which are 0.84%, what is the level where the SBA would start to become concerned?

Casey, I could never answer that question.

I can appreciate the difficulty of parrying the thrust from a government entity. Let me ask you a different question. Were you --

Well, let me try to -- let me try to give you an answer. We’re in good standing with them. They were just in here in August. Our PLP status is intact. They just approved $109 million securitization. We’re a lender in good standing.

Okay. To what degree is the increase in rates actually contributing to the increase in non-performers or charge-offs?

That’s a good question. I think that the increase in rates -- so we’ve talked about this in prior calls, just tax rates went down which benefit our borrowers. But the increase in rates take a borrower that’s marginal and puts additional stress on the borrower. So I do think that the increase in rates will stress borrowers more and cause weaker borrowers in the portfolio. By the way, you could make a loan and the borrower’s strong, then over the course of time based upon whatever, they become weaker. And the rate stress will weaken a portfolio. So I would tend to agree with the assumption that higher rates are problematic, but it’s not like -- when you look at the percentage of change, on a million-dollar loan, depending upon the size of the business if you bump rates up by 1% on a million-dollar loan, it’s $10,000 over the course of a year. To any business that’s significant, it’s not a lot of money.

I can appreciate that. This is my last question. As it relates to the payment processing business, the 2018 forecast of revenue and adjusted EBITDA did not change. The companies that you used as comps at the end of the second quarter, their multiples declined quarter-over-quarter but you added three higher-multiple companies to the mix and then increased the multiple that you used against a business where you forecast didn’t change, and then marked the business up $4.5 million. Is that fair?

You’re asking me if my mark is fair? Based upon my SEC standard and all the processes that we’ve gone through, and the fact that my mark is 7.4 times EBITDA and all those entities are double-digits? So I got one guy on one of my shoulders saying it’s marked too low, and you’re telling me it’s marked too high. And let me tell you…

I’m just saying, on a quarter-to-quarter comparison, one would fairly ask, why add these other portfolio companies and then mark it up when the ones that you were using in the second quarter all came down?

So I give you an A for all your questions except for this one, and you could give me, you can give me a C failing grade too at times. But I will tell you, Casey, these are businesses that we’re marking as securities and what we do is on a quarterly basis, look at moving averages, trends, and we think that given the valuations in these businesses the trend of a higher price value on this business is totally appropriate. And when you look at, like i3 Vertical, that just went public over the summer. And the stock price screamed. EVO stock price is screaming. Which, by the way, for the most part, those entities respectively would love to have our customer base. So these are the things that go into our valuations along with discounted cash flow and cost of capital, and we’re very comfortable with that number. It’s totally appropriate.

Our next question comes from Scott Sullivan with Raymond James. Your line is now open.

My phone dropped off as you were talking about the non-performing JV, so I missed that commentary. I’ll definitely go back to the transcript, but my question to that is, number one, is there any material contribution to that JV in any of your guidance going forward?

I would say, Scott, at this point in time we, without that being inked, and starting in the process, the answer is no. It would be zero.

I respect that. So I’ve owned the stock for quite a while, and obviously you guys have put together a very nice process. And what’s always struck me has been the incredible volumes of referrals. And I see that you’re using or utilizing, finishing off if you will, around 2.5% of that large volume of referrals. And yet, you’re continuing to grow your loan book. And I guess I would sort of put a weird question in front of you. What are you guys doing so well that the rest of the banking community is not, where they’re actually seeing pressure on their loan growth?

Well, thank you, Scott. I think that the real issue, once again, it relates to our business model and the fact that we know how to handle, interface with, business owners where banks go after business owners with very high-priced bankers that are incented to make these kinds of loans. They do it very manually. Matter of fact, most of the time they’re taking documents from clients on a totally unsecured basis. And we’ve been in this business now for 15 going on 16 years. So it’s the way that we relate, number one, to the client. The fact that we don’t use brokers, which are the easiest way. The fact that we’ve had a long-term approach to this business and other businesses, despite pressures to -- as a public company you could see by the nature of this call, we’re under a microscope. You know, we’ve got people in our ears, they want to know every little thing that’s going on. We try to be as transparent as we possibly can. But the reality of it is, Scott, we made an investment in this business model a long time ago and it always has -- it hasn’t always been pretty. But right now, we’ve got it right and we make it very easy for some business to get to us and say, I’m interested in a $0.5 million loan. And instead of having a banker who really doesn’t want to make the loan -- because it’s a $500,000 loan or it’s a $1 million loan and there’s not a lot of deposits, which they’re rated on -- we give them a technological file vault to upload documents so it makes the borrower’s life really easy. They don’t have to chase their outside accountant, they don’t have to chase their outside lawyer for the formation documents. They don’t chase their inside controller. We make it very easy to get a quick yes or quick no. So people that have gone through the process, go, oh my god, this is fantastic. I want to do more of this. And banks -- I meet with a ton of banks, and they look at this and they go, gee, I can’t get my people to act any differently. Nobody wants to change. Whether it’s a technology company, it’s a bank -- so we’ve developed this over the course of time, and it’s really the model that allows us to connect with a business owner when they want to connect. Not necessarily 8:00 a.m. to 5:00 p.m., because what business owner wants to talk to you from 8:00 a.m. to 5:00 p.m.? They want to talk to you when they want to talk to you, when their business isn’t open, in the evening, on the weekends. And we make it very user-friendly for them. And that’s the reason why the business models work and the referrals keep increasing.

So, you obviously have a wide moat from that respect relative to other institutions trying to make a loan book grow. If you had suddenly the capacity of a mid-size regional, would that materially suck up a lot of those referrals, conceptually?

If we had the -- I think I missed the question, Scott.

Sorry. If you had the capacity to handle a lot more than 2.5% of this referral book, wouldn’t that be material?

Well, I think that it wouldn’t be a big deal for us to go from 2.5% to 3% with referrals being the same. So you know, what we’ve tried to portray is in the last year, we’ve expanded our footprint geographically in Lake Success and in Boca, and in Orlando. We’ve increased our staff. We’ve hired some really good additional talented people. And we continue to improve our technology. So, our ability to process and close greater volumes of loans without stressing the system at all is there. So we’re pretty comfortable with that. In addition, we think there’s significant volumes in the $18 billion to $19 billion that will fit 504 and will fit non-conforming when it’s in place, and all that will be additive.

Right. And obviously the non-conforming is the big question mark for the horizon, I guess, and that’s all I have for today. Thank you so much for taking my call.

Thank you, and I am now showing any further questions at this time. I would now like to turn the call back to Barry Sloane for any further remarks.

All right. Well, thank you all for attending. We certainly appreciate your investment, your patience and your studying our company, and look forward to reporting fourth-quarter results. Thank you very much.

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