Barry Sloane – Founder, President and Chief Executive Officer Jenny Eddelson – Chief Accounting Officer

Leslie Vandegrift – Raymond James Arren Cyganovich – D.A. Davidson Lisa Springer – Singular Research Scott Sullivan – Merrill Lynch

Good day, ladies and gentlemen and welcome to Newtek Business Services Q1 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll have 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, Chief Executive Officer. Sir, you may begin.

Thank you very much and everyone welcome to our first quarter 2017 financial results conference call. Presenting here today with me is Jennifer Eddelson, EVP and Chief Accounting Officer. I’d like to welcome all of you to please follow along on our newly launched website newtekone.com, and if you go to the Investor Relations section under Events & Presentation, you’ll be able to see our PowerPoint presentation. From that presentation, I’d like you to turn to slide number one on the note regarding forward-looking statements. I’d like everybody to have an opportunity to read through that, we’re not going to recite that, we’ve done it for about 14 years and hopefully could read through that for themselves. I’d like to ask everybody to go to slide number two in the presentation and talk about our stocks performance. Newtek’s total return on its equity for the first quarter of 2017 including reinvested dividends was 9.1%. Our one year return for the last year was 27.7%. You could see the returns over time five years, three years and in 2015 quite stellar. Going to slide number three, the financial highlights looking at the first quarter of 2017, our NAV increased approximately 21% and that percentage increase is primarily on the gross dollars. We had a 17.8% increase in NAV of $209 million and that’s versus December 31, 2016 number. Our net investment loss of $2.1 million or $0.13 per share for the three months ended March 31, 2017, a lot of that net investment loss is based upon the fact that for GAAP reporting, there are no capital gains. For most BDCs, that is relevant. We’ve had capital gains for over 14 years – the reoccurring nature of selling government guaranteed SBA 7(a) loans into the marketplace. Therefore, we do report an adjusted net investment income of $6.5 million or $0.40 a share for three months. That was an increase of 32.6% over the $4.9 million for the three months March 31, 2016. We had an increase in total investment income of 32.4%. Our debt-to-equity ratio at the end of the quarter was 70.8% and total investment portfolio increased by 4% from March 31, 2016 from December 31, 2016. On slide number four, our dividend activity, we paid our first quarter 2017 dividend of $0.36 on March 31 and our Board recently declared, and we announced that this morning, a second quarter 2017 cash dividend of $0.40 per share. The $0.40 per share declaration represents a 14% increase over the prior quarter in the prior year. If you look at the first six months of the year, we paid out $0.76 per share, that’s an 8.6% increase for the first six months of the year. Over the full year, we’re forecasting a 2.5% increase. There are some one-item events that we experienced in the first quarter that Jenny will allude to, we also tried to be extremely conservative in our forecasting and feel very good about our forecasted annual cash dividend which we’re maintaining at $1.57. We also want to note that approximately 47% of our cash dividends paid qualify for preferential tax treatment because those are cash flow and income coming up for the portfolio companies that are already taxed. Jenny will talk about that from a forecast for the full year. It’s important to note, obviously, that almost 50% of the dividend that we paid to shareholders is not taxed at ordinary income rates, but is taxed at qualified rates, that makes our dividend income, we think, more valuable than a typical BDC. Go to slide number five, we had some SBA lending highlights. Funding for the first quarter up 40%, $70.86 million in the first quarter of 2017. Newtek Business Credit, our controlled portfolio company funded $3.5 million of SBA 504 loans. Our servicing portfolio was approximately little over $1 billion, an increase of 25% over the three months, ended March 31, 2016. Our referrals coming in through the first quarter $2.8 billion, a 38% increase over the three months. Throughout the company’s 14 year lending history, we’ve approved over 3,000 SBA 7(a) loans, totaling over $2 billion. We anticipate $400 million in 7(a) and 504 loans, now represent a 26% increase in total SBA loan funding over 2016. Moving to slide number six, we think it’s important to sort of note we’re clearly a different BDC. And while we believe our business model is better, when we look at our business model versus our competitors, we think we offer attractive returns without excessive amount of risks inherent in the assets or an excessive amount of leverage on the portfolio. First off, we do not pay a 4% -- we call it a 4% external management fee, many BDCs are externally managed, we’re internally managed. So we don’t pay 20% fee to an external manager. We’re primarily investing in senior secured loans that are actually originated through the BDC. So we’re not purchasing other people’s package products from Wall Street or intermediaries, we’re actually originating loans. We believe that our portfolio companies do have potential net asset value upside as the portfolio companies grow, we move towards private valuations to larger public company valuations. Looking at our average loan size, 178,000, that is the average of the uninsured unguaranteed piece that remain in our books. So we have a fairly large portfolio of geographically diversified, industry diversified and credit diversified loans that are floating rates, without a cap, rising rate environment, obviously that will benefit us because we only have maximum one to one leverage. You can see a lot of that portfolio doesn’t have any debt against it. As soon as those rates rise, that will accrue and be beneficial to our shareholders. From the alignment of interest standpoint, on approximately $5.8 million outstanding shares, I do think this benefits all the shareholders, my interest very much aligned with all shareholders. We typically are not putting our capital into loans that are 10% to 14% rate of interest with equity kicker. We don’t have any SBIC leverage. There is no derivative securities in our BDC and is a very unlevered asset. It is a senior secured loan portfolio. We have our NAV invested in businesses that we owned, operated and managed through the portfolio companies for over 10 [Audio Gap] equity to get the types of return that we have experienced in the market that benefit our shareholders. On slide number seven, we wanted to talk a little bit about our capital markets activity. We did a capital raise in the first quarter in January 30. KBW, Raymond James and UBS our book running mangers, important to note, many of you are aware of the fact that we do have an active ATM at the money ability to pull down shares off of their shelf. We execute none of their shelf in the first quarter. And on the lending side, Newtek’s small business, finance has entered into an agreement with Capital One Bank, increase our facility from $50 million to $100 million. The SBA has given us verbal approval. I think we are probably a week away from finally consummating this deal and announcing it officially. We will also have a rate reduction of 1.25 on the government guarantee spread and 1.125 on the uninsured spread. So, I think it’s important to note that we are raising capital. On the equity side, the premium to NAV, stocks trading at premium to NAV, our debt costs are coming down. We’ve also negotiated an increase at our Goldman Sachs credit facility for $50 million to $38 million and there will be a rate reduction on that as well. approximately 1% when the deal gets consummated and then further rate reduction, if we go to lower leverage amounts which could be up to 2%. The current Goldman Sachs line is $22 million, there’s about $14.5 million currently available. If we up it to $50 million, we’ll have $28 million of availability under that line. On slide number eight, we always look to compare ourselves to other internally managed BDCs. As of May 3, we’re trading at a 14% premium. The primary internally managed BDC’s Triangle, Main Street, Hercules and KCAP. They average 1.37. Obviously, we think we traded at discount because we’re different or a little smaller and we’re newer. I also think some of the complexities for example, when we report our net income, it comes as negative because of the capital gains. There are certain things that our ratios don’t match up for stand up against some of the other internally managed BDCs, so we’re a little less known. I think that’s just the function of time, but obviously there’s clearly value in looking at our NAV to the other internally managed BDCs, particularly when you look at our returns and we believe the level of inherent risk that compromise and make up our NAV. When you go to slide number nine, one of our strategies in addition to small business lending, is our investments and growth in our controlled portfolio companies. On July 23, 2015, we acquired payments for a little over $16 million, six times EBITDA purchase. On June 24, 2016, we acquired banks or partners little over four times EBITDA purchase. We acquired ITS and [indiscernible] data, small acquisition primarily of clients’ accounts a little bit under one time gross revenues. And on April 6, 2017, we completed an investment in IPM, an information technology consulting company that is a new wholly owned controlled portfolio company. We are very excited about the IPM acquisition. We acquired 45 IT professions that will help companies out in the marketplace, very large enterprise companies and SMBs, craft a more competitive cloud computing strategy. IPM in addition with Newtek Managed Technology Solutions will be able to go into large and small enterprises and consult meaning; work with the client to map out what they have; two, strategize, what they need to do going forward, particularly in the new area of new hardware, new software and technological innovations particularly the movement to cloud; three, sell them the new hardware and software; four, deploy and implement these software on their hardware and work with the organization to get it ready; five, manage service provider, be a long-term managed service provider 24x7, help desk, disaster recovery and use the capability that we’ve established in our Phoenix facility. When you look at our strategy of making acquisitions, obviously we’re looking to continue to grow the size of our portfolio companies, expand to more publicly traded market multiples. We’re obviously looking at continued growth in loan originations which we’ve clearly evidenced that in the first quarter of this year and last year and obviously make strategic investments within the business solutions footprint. On slide number 10, you can take a look at our pipeline, we’re currently looking at an ISO with about $2 billion of annualized payment processing volume. We’re looking at a PEO, professional employment organization with approximately $3 million of EBITDA. By the way, ISO, an independent selling organization, that’s a merchant service company for those who aren’t familiar with the term ISO. And three, we’re looking at a cloud computing host in company with $4 million of EBITDA. These are the ones that we’re a little bit deeper into the process and as I mentioned, we just closed on IPM. On slide number 11, we get a lot of questions particularly with the new President, the new administration, what is going on in Washington that could affect BDCs in general and also could affect our BDC? I wanted to point out that there has been talk for several years about changing the cap of leverage on BDCs. BDCs are currently limited to one-to-one leverage. We closed our last quarter at about 70%. There is discussion in the House and in the senate, particularly around Jeb Hensarling and him sponsoring the bill to potentially increase the leverage ratio to two to one. Given the change of the SEC chair, and the fact that lending and small business lending in particular, happens to be a bipartisan opportunity which is kind of rare in Washington, other industry participants and various research firms have pointed out that there is a potential likelihood of increase in the leverage bill from one to one to two to one. It’s possible. This might come under the Financial Choice Act and there’s also broader capital formation bills that are being discussed in the House and in the senate. Some of this activity could happen in the second half of ‘17 maybe in early ‘18. I think the important aspect to note here is that the leverage has increased from one-to-one to two-to-one or even one and a half to one, but on one-to-one and two-to-one, in our case, rather than issue equity for the next $150 million or $200 million, we maybe actually able to issue debt. That would be, we think, beneficial to shareholders. Obviously, issuing debt takes on more risk, but we think that that would be viewed as a positive aspect to all BDCs particularly our BDC. I would like to note that if this happened today, and it’s not, but if this happened today, we have certain covenants in our baby bonds that would need to be addressed. I’ll also add the fact that our big baby bond issue, NEWTL is currently callable to current moments. I don’t really view the opportunity that might present itself with additional leverage to be constraining upon us but I didn’t want to point that out that we would need to make some changes in some of our capital structure. However, if this occurred, we would embrace it and we’ll have to take on some more debt which would really be beneficial to shareholders. Second item, acquired funds and expenses AAFE. This is primarily an SEC issue. For those of you who are BDC followers, in the summer of 2014, many BDCs were thrown out of the S&P 500 and the Russell 2000 Index. There is no BDC that sits in that index today primarily because of how the SEC counts the term acquired funds and expenses as a key issue. It is reasonable to conclude that a more favorable SEC chairman might look to enforce this issue differently and if that is the case, then it is conceivable BDCs will get put back into the Russell 2000 and possibly the S&P 500. We think that could be very beneficial. We actually had a large mutual fund that owned our stockbroker 10 years, after converting to a BDC, they actually had to divest because of how our expense ratio is calculated in our fund. Current administration’s tax reform initiative. I think the biggest issue here number one is that the Trump plan if it ever went through in part or whole, would be viewed as constructive for small businesses. In addition, 47% of our historic dividend has been paid out of our portfolio companies. Those controlled portfolio companies are currently taxed at 38% to 40%. If in fact Trump’s bill pass, the corporate tax rate is lowered to 15% to 20%, number one, that would improve internal cash flow, improve our dividend. Number two, it would also change our valuation process because our after tax cash flow yields will be significantly higher. That would be particularly bullish for us. Linda McMahon is now the main Small Business Administration Chief, I was actually at a NAGGL conference yesterday, National Association of Government Guaranteed Lenders in Indiana. I was fortunate enough to hear administrator McMahon address the crowd and audience very constructive on the 7(a) program. She actually has been speaking to the Chair of the household business committee and was indicated that he would like to give her the ability to - provided that the program remains a zero subsidy to be able to increase the amount of guarantee that’s available by 20% at her discretion. She actually went in and testified and asked for 15%, Nydia Velázquez who’s one of the senior members of that committee, went back to her and suggested 20% in a memo. So, very constructive for small business things that are happening in Washington D.C. Slide number 12, I’d like to point out we continue to add to our senior management team, upgrade staff. We have made a hire who’ll be joining us on Monday. Jesse Davis will be joining us as Director of Information Technology. Jesse has over 30 years of experience in this particular area. He’s a Co-Founder and President of Creative Mobile Technology. So for those of you that are taxi cab riders, many taxi cabs in New York and major metropolitan areas have got this technology in the backseat that has a TV screen back there and connects the front end of the cab meter to the back and to be able to make payments. This was a product that Jesse created. We welcome him joining us. I think he’s going to be really important and instrumental to our ability to take our basic business processes and enhance the customer experience directly with enhanced technological solutions and make our in-house processing for our clients in terms of booking and bonding in customer service significantly more efficient. Tom Wesner joined us this week as Chief Operating Officer of Newtek Technology Solutions, working with John Raven out in Arizona, over 20 years of experience managing technology engineers and development professionals, came – from the Xerox Corporation. We are very excited to have Tom working for us out of our Phoenix office. Slide number 13, many of you are obviously familiar with our expertise in the SBA 7(a) market. We’re the largest non-bank government guaranteed lender in the United States looking at banks for the – banking, 7th largest lender. We’ve been doing this for over 14 years. We’ve got a terrific track record of default history and severity. We have average loan size which we talked about earlier of 178,000. There’s not a BDC in the marketplace that has an average loan size that low with that type of diversification that has all floating rate without any caps. We’ve issued seven S&P rated securitizations. We recently announced two of our deals in the markets on S&P credit watch for an upgrade. Looking at slide number 14, it’s just to give you a feel for our business is growing. Our funded loans in the first quarter up 40%. Our pipeline going forward up 63%. We looked at $2.8 billion of loan referrals in Q1 of 38%. Regarding pricing on slide number 15, the topic of conversation for the last 18 months has been, what are you going to do if rates rise? Well, guess what? Rates have risen. Matter of fact, they have risen about 50 basis points on the short end in the last four or five months and lo behold, prices are still holing. As I’ve had many conversations with analyst, investors, the pricing function is a function of prepayment speeds[ph] Yes, rates are a part of that, meaning that rates going higher, indicates greater amount of economic activity which might increase greater prepayment speeds. What I’m telling the market today, our first quarter gain on sale 12.03, you can see on this chart, it’s fairly steady over the course of five years. These are floating rate instruments that are government guaranteed without a cap and they yield investors approximately plus 65 to plus 70 over LIBOR. It’s an attractive investment. If the concept of voluntary or involuntary prepayments are going to change, that will affect the price. Another important aspect of the price is supply and demand. Prices do tend to sack in the fourth quarter and tend to elevate in the first quarter because a lot of banking institutions that participate in this market are bigger sellers in Q4, but when the pipeline is blown out, there tends to be less supply and prices rise up in Q1. We’re very pleased with the prices that we’ve been able to get on our securities. Looking at our credit quality on slide number 16, non-performing loans as a percentage of the portfolio, 3.7%. On slide number 17, charge-offs for the first quarter as a percentage of the outstanding portfolio, 44 basis points. Slide number 18 and 19 kind of depict the cash flow aspects and revenue recognition of a 7(a) loan. Most of our listeners are fairly well attuned to these slides, I’ll go right through them. On slide number 20, we talk about the 504 program. Obviously we’ve been looking to build this business. We hope to fund $40 million of 504 loans. We are hopeful that you will see some gain on sale from 504 loans that we have funded that are sitting in our pipeline. We have bids ranging from 103 to 105 on these loans. We’re in the process of closing them out. And we have a really nice pipeline going forward of SBA 504 loans approximately $33 million that are sitting there in the pipeline. Slide number 21 gives you the typical math of what a 504 loan looks like. It is a loan that is used to acquire real-estate or refinance real-estate. It’s a 90% loan-to-value. The government takes out the 40% second debenture. We’re left with over 50% conventional first that we sell into the marketplace. And on slide number 22 that’s the income and cash flow aspect of making an SBA 504 loan, very attractive return on equity of approximately 38.5%. Moving to slide number 23, our payments business continues to track very nicely. It’s a great business for us. We’ve been in this business over 12 years. Our revenue for the three months ended March 31, 2017 versus March 31, 2016 up by 9.5%. Our adjusted EBITDA up almost 12%. This business is valued on our book at approximately $85 million, that’s a multiple of 6.3 times EBITDA. You can see the public comps significantly higher to the right, with comps ranging from 10 times to 15 times adjusted EBITDA. Lot of good opportunity in the payment space. Obviously, we believe that the payments opportunity over a course of time is going to lead more towards e-commerce solutions, our ability to host website, design websites, use our own payment gateway and obviously our own merchant services entity, very attractive. This is a business we’ve been in for a long time, got a great operating team. We’re happy with our growth and look to propel it further. On slide number 25, this is Managed Tech Solutions business. I believe what you will see for us in the next quarter is this segment will be a combined look at our Managed Tech Solutions business in Arizona and IPM together. We believe these businesses over the course of time will intersect very nicely. We have no plan on merging them in the near future or the foreseeable future. However, the customer base that is acquiring hardware and software, that is acquiring professional services also has to their hardware and software somewhere. They could put it in Amazon’s cloud or Azure’s cloud. They can put it on-prem or they can put it into a private cloud with us and our data center footprint in Singapore, the UK, New Jersey, Scottsdale or Denver. Here’s the important aspect, we could manage our clients hardware and software and do 24x7 remotely in any location, anywhere at any time. This is the move of the future. Small-medium sized businesses, large businesses and enterprise businesses are going to find over the course of time, it is much more cost effective to outsource the management of their services and that is how we are positioned. The acquisition of IPM to have the upfront intellect to coach, consult, strategize, deploy, implement is an outstanding acquisition for us. It’s an acquisition we brought it four times, part of that is earned out over the next 24 months. We’re excited about the acquisition of IPM to add to our technology strategy. Fast forwarding to ‘27, as a summation, Newtek Business Service Corp, a differentiated business model. We don’t pay 4% management fees out the door. Therefore, the things that we invest in are able to generate their types of return to shareholders without separating a 4% fee. We are internally managed, fully expensed. We’ve owned and operated our portfolio companies, for most part, over 10 years. We have forecasted $1.57 per share dividend in 2017. This is a company with a proven track record that was established in ‘98, and publicly traded since September of 2000. We have a 14 year history in making loans to small and medium sized businesses. That 14 year history gives us history of the full frequency and severity. Our loans are primarily floating rate which is extremely attractive in a rate environment, particularly given that we have less than one-to-one leverage on that portfolio. Management’s interest very much aligned with shareholders, myself and the Board and the managers probably a little under 10% at this point in time, I myself have a 5.8% but the outstanding shares very much aligned with shareholders. And with that, I’d like to turn the rest of the presentation over to Jenny Eddelson.

Thanks, Barry. Good afternoon everyone and thank you for joining today’s call. Please turn to slide 29 to review our first quarter results. In total, investment income was $9 million, a 32.4% increase over $6.8 million from Q1 2016. The majority of this increase was from the growth of interest and servicing year-over-year. Interest income increased by $1.8 million period over period and was attributable to few factors, including an increase in the primary and the average outstanding performance portfolio of SBA loans increasing to $207.4 million as of March 31, 2017 from $158.1 million for the quarter ended March 31, 2016. In addition, interest was favorably impacted in Q1 2017 by $641,000 of interest income related to accrued non-performing interest owed by one borrower that paid their balance in full. Our total servicing asset value at quarter end was approximately $17.1 million as compared to $16.2 million at December 31, 2016. Servicing income increased by $275,000 quarter-over-quarter as the total portfolio that we earned servicing income fund increased from $591 million to $727 million year-over-year. SBA guaranteed loans sales totaled $59.8 million in the first quarter of 2017 as compared to $42.5 million during the first quarter of 2016. The net realized gain on sale was $8.7 million compared to $6.3 million for the three months ended March 31, 2017 and 2016 respective, a 38.4% increase. The weighted average premiums declined slightly to 12.03% versus 12.41% quarter-over-quarter. Looking at the credit quality on our SBA loan portfolio, realized losses or charge-offs as a percentage of the average outstanding loan portfolio was 0.44%, a four basis points reduction from December 31. Total non-performing SBA loans totaled $8.1 million representing 3.7% of the total unguaranteed SBA loan portfolio by quarter end as compared to $8.6 million or 4.1% of the total loan portfolio as of year-end 2016. Dividend income in Q1 2017 was $2.3 million or flat in total versus the same quarter of 2016 and represented $1.75 million from Newtek Merchant Solutions, $450,000 from Premier Payments and $100,000 from small business lending. As a reminder, approximately 47% of our 2016 dividends, we generated dividends from our portfolio companies which are taxed that qualify tax rates. We expect similar results this year for the 2017 tax year. Total expenses increased by $2.9 million year-over-year. Salaries and benefits increased by $1.3 million, $385,000 of this increase was attributable to stock-based compensation incurred in Q1 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 $900,000 quarter-over-quarter primarily represented increases in headcount and payroll expenses at the lending division and is commensurate with the increases in loan originations, underwriting, closing and servicing activities required to manage the growing portfolio. Interest expense increased by approximately $1 million quarter-over-quarter. The increase was due primarily to $790,000 increase in interest on note due 2021 as those notes were issued in April 2016 and $452,000 increase in interest from issuance of securitization notes in the fourth quarter of 2016. Interest expense on a warehouse line of credit declined by $80,000 quarter-over-quarter as we utilized excess liquidity to keep our borrowing cost low. Other G&A expenses increased approximately $515,000 quarter-over-quarter, primarily due to increases in referral fees and loan processing costs, commensurate with increase in loan originations year-over-year. In addition, Q1 of 2016 benefitted from a real-estate tax refund of approximately $150,000. Overall, we had a net increase in net asset of $5.9 million to the quarter as compared to $5.6 million from Q1 2016 or a 5.4% increase. Back to you, Barry.

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

Thank you. [Operator Instructions]. Our first question comes from the line of Leslie Vandegrift of Raymond James. Your line is open.

Thank you. Good afternoon.

Hi, good afternoon.

Thank you. Quick question, on the SBA volume originated in the quarter, obviously this is the same quarter in the row where you’ve had high volume for that in the 7(a) program, obviously that’s a good thing, but looking for an outlook there for the year, are we adding new higher steady state or just a bit of hyperactivity in the first quarter?

Leslie, we’re forecasting still, 25% 30% growth, obviously we’re a little higher in Q1. We just feel more comfortable at lower levels, although, to be honest with you, we have the funding, we have the capital and we’re getting pretty good opportunities. Just came from a NAGGL conference, National Association of Government Guaranteed Lenders, and one of the interesting things that’s come out of the conference is without naming names, but the big banks of the United States and there’s four of them, two of them are actually significant SBA lenders. Their SBA volume is down year-over-year and a lot of that has to do with some of the problems they’ve had in not wanting to do loans for their branches because of the problems that have shown up at the Wall Street Journal. So we may be seeing more and more of that, the industry average right now for SBA business is up 9% or 10%. So we feel pretty good about where we are. We just like staying at these conservative numbers and that’s probably what we’ll stick to for the time being.

Okay. And then, on to that point, if there’s a bit of bank hesitation from I guess, like said stories in the Journal, etcetera for regulation reasons. Do you see an issue with premium them not from repayment activities just that from banks, just wanted to get off with that a bit?

Well, I think overall loan volume for 7(a) is higher, it’s up 10%. And there definitely appears to be an interest in the program, we’re not seeing it from a competitive perspective, we’ll try and push two and three quarters, we don’t have to cut our rate, we’re not losing deals at the approval level. I think it’s a strange market. I mean you’ve got talking Washington about breaking up big banks, Glass-Steagall. I think that from our standpoint, I’d like the marketplace to look at what we do as different unique. I think the acquisition of banc-serv, very valuable, so we’re now able to go into smaller community banks and say hey, we can assemble, underwrite and service and we can -- a lot of these community banks they have loans that are outside of their footprint, that are outside of their size limitations, they may not like a particular category. They’re referring those loans to us. Then our [indiscernible] bank service getting the fees from those businesses. So, we’re doing things in the marketplace that are totally different than any of our competitors in the particular space. We signed up some new alliance partners, Raymond James was one of those. So we’re getting more leaves in. We like the model that we’re involved with. We’re seeing really good credits, lot of opportunities and as a target, we say 25%-30%, now the reality is, if we see really good credits that are coming in and we see, it looks like we’re on a $10 billion or $11 billion referral pace for the year, that’s up from $8.5 billion last year, we may wind up beating these numbers. But it’s not because we’re cutting credit, it’s not because we’re paying bigger brokerage fees to third parties, it’s because the business model is very leverageable and we’re accelerating into it.

Okay. So you’re not seeing a pull back on the sale side though because of that, so you’re not having issue with banks who wants to purchase these off you?

No.

Okay.

No, that’s why the referral volume continues to go in the right direction. We’re not seeing banks saying I don’t want to refer you, I want to do it myself. We’re not seeing that.

Okay. All right. And then, last question on one of your slides you obviously have the slide about why our model is better. The top bullet on that slide is about you’ve been an internally managed BDC. Obviously another BDC in the space last night suggested going over to an external structure, I’m curious if that would ever fit your structure?

No.

Okay. Short and sweet.

Very happy, my team is happy. We’re all good. No.

Okay. Well thank you for answering my questions.

Okay.

Our next question comes from the line of Arren Cyganovich of D.A. Davidson.

Thank you. The referrals into the new tracker system continue to come in at a very high level. Is that from new alliance partners that you’re adding? Is it coming from penetration of the existing partners? Some thoughts around that.

I would say the bigger growth was probably from new participants. We’ll be a little bit careful there because sometimes new participants aren’t necessarily the best, but I think, we’re getting more from the core book, from new and it’s a good mix and it’s a good blend. Part of it is to work with the existing alliance partners to get more out of them. We do that on a regular basis, in addition to signing up new.

Do you have a lot of repeat from the same referring sources after they have the successful – I mean do you track the repeat business from your existing referrals?

We do and we work those relationships. We have 11 regional Vice Presidents in all the major markets, Texas, California, Florida, New York, that go out and meet with alliance relationships whether it’s branches, whether it’s bankers, whether it’s working with call centers, whether it’s tomb stoning various participants that can give us deals. We do that on a regular basis.

Thanks. And in terms of the payments processing business, I think I saw a fairly large expectation and increase of volume. What’s driving, I mean it was $5.8 billion to $8 billion, what’s driving that expectation?

Well the potential acquisition. Without the acquisition, that’s not happening.

Okay. And then just lastly there, operating costs have kind of come up a bit with your high growth. Can you frame the amount of growth in operating expenses you’re expecting for the next year?

I would say, and I would let Jenny elaborate on this, I think it’s modest. I say that right now, this stuff comes and goes. Couple of things, right now we’ve got, I’ll say duplicative rent, I’ve got 34,000 square feet here – success, that square footage is being used up. I think I’ll be full in June. Our Brownsville facility will go away at the end of June. Our facility in Wisconsin will go from 14,000 to 4,000 square feet. I’m losing some rent I think in November in Great Neck which went along with the Premier deal. So I look at rent obviously as one area. I would say that’s the biggest area of increase in expense, Jenny, I don’t know if there’s anything else.

Yeah, I mean the other increases would be in relation to loan volume, so we’ve got our referral fees, origination costs those types of expenses.

So I think it’s important to note Arren, on part of that and maybe we need to try to break that out, a lot of that SG&A, if we do more loans, we’re paying more referrals fees, so it’s variable, so it’s not a bad thing. But to be honest with you, we really are cost conscious. We keep an eye on those costs and I don’t really think our fixed costs have gone up that much. The only thing that has gone up this year is somewhat of the duplicative rent which I think will begin to go away towards the second half of this year.

Okay. So the salary and benefit line, you talked about it a little bit, part being some stock comp and also headcount increase. Is that also partially variable cost in the salaries and benefits as well?

I think that we have added certain amount of senior staff to be able to lever the business to higher highs, particularly in the lending area. I think you’ll see greater contribution from a portfolio company Newtek Business Credit. I think we’ve added some technology resources as well, but I don’t see a real explosion in compensation at all.

Okay. Thank you.

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

Thank you. Hi, Barry. My question concerns the 504 pipeline. I’m not clear, is the referral sources for 504, do they overlay up with the 7(a) or do you have to build a completely separate referral source area for that, for the 504?

It’s a great question, so I’m going to give you a weird answer. I’ll say it’s the same but it’s different. So this is what’s important. The traditional 504 lender in the market goes out to I’ll call it the usual spend suspects which are CDCs, community development corps or banks or brokers that really know that market well. The SBA rates have changed to where you can now do a 504 loan to refinance an existing loan and it’s a 90% LTV. So there’s a tremendous opportunity for us. We don’t have a broker driven model, but we have to do a better job getting out to our RVPs, to get to our alliance partners that hey, we now have a 504 product. As a matter of fact, we have a buyer like 25 year fully amortizing fixed rate 504 loans, that’s great for us. So I can go out and quote, 4.5% 5% rates depending upon the credit for 90% LTV loan to a business backed by commercial real-estate. That’s powerful. But I’ve got to get sales people focused, sales people have to get alliance partners focused, alliance partners have to get their customers focused. Now when the leaf blow comes in, part of our job is to work with borrowers. Now there are many times a loan can qualify for 7(a) loan and a 504 loan at the same time. So we have to make that value judgment what’s best for the client in that case. I would say it is generally a work in process and it would lean toward a new message and the same distribution channel, but a different message.

Okay. Well thank you for all the color. Appreciate it.

Thank you.

[Operator Instructions]. Our next question comes from the line of Scott Sullivan of Merrill Lynch. Your line is open.

Good afternoon and thanks for taking my call.

Good evening, Scott.

Congratulations on a great quarter, obviously humming along here. Wondering if you could expand a little bit in terms of what percentage of sales, EBITDA that technology solutions and consulting might be in the future?

I would say it probably represents 5% today. And we look at studies from Gartner, Forrester, every research, the growth of IT spending in the U.S. it’s going to double or triple in the next five years, it’s just off the charts. In addition to that, the churn, people are going from different software, different hardware, and moving to the cloud. And so, I would certainly would like to get our technology business, it’s not going to happen overnight, but I would like to get it up to 15% or 20% of the total earnings or dividends at some point of time. We have a lot of wood to chop there, we got to develop the channels, we have to develop the intersections, get the portfolio companies to work well with each other. But I’m pretty bullish about it and optimistic. It can be a very significant opportunity for us.

Terrific. And could you speak to the potential leverage you have using your existing lending customer list and sort of cross-selling to these technology solution area?

I think that this is an area where if my lending executives and management team were listening, we need to do a lot better job. In addition to that, the new director of IT, Jesse Davis is being brought been to help me build the tools to make that easier and a little effortless. I think we have done an okay job at it, but not anywhere near where it can be and I look at intellectual property for businesses and ewe should have that, we should have leans on it. Now obviously you got to be careful, you don’t want to get into the area of tying which is fairly sensitive which is fairly sensitive to lending professionals nor would we ever force somebody or tie things together. But I think the ability to really work with business owners particularly with our lending clientele and offer them state-of-the-art IT solutions is extremely important. It’s money that’s being left on the table and we got to push – I got to push all my divisions do a better job in this area.

But there’s good upside obviously.

Big upside. That’s why we’re here. That’s why we do all these things.

Terrific. Terrific. Thank you very much.

Thank you, Scott.

And ladies and gentlemen, I’m showing no further questions in the queue at this time. I’d like to turn the call back to you sir for closing remarks.

Great. I appreciate everybody participating in the call today and we look forward to reporting our second quarter. We, the Board declared a $0.40 dividend, it was a little early, we’re little early than usual but we feel really confident about where we are and wanted to get that out to the marketplace as soon as possible. So, we look forward to reporting our second quarter results in the near future and thank you all for attending today and your questions. Thank you.

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