Good day, ladies and gentlemen, and welcome to the Newtek Business Services Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator instructions] As a reminder, this call is being recorded.I would now like to introduce your host for today’s conference Mr. Barry Sloane, President, CEO and Founder. You may begin.

Thank you, operator and welcome everybody to our second quarter 2019 financial results conference call. I'd like to thank all the participants – call today for your investment in Newtek as well as your continued interest.Joining me today on the call is our Chief Accounting Officer, Chris Towers. I'd also like to call everyone's attention to our website, where you can follow the presentation along from the PowerPoint that's typically hung at the time we released earnings last night. Go to newtekone.com. Go to the Investor Relations section and you will be able to take a look at our presentation.I'd now like to forward everyone's attention to page 2 on the presentation and we do like to start-off with our historic equity returns of NEWT. So you could see over the course of five years and these prices are all as of June 30th; five-year return 209%, three-year return 139%, one-year return 26.3% that also includes the dividends during the period of time when we were a BDC, which almost fully encompasses that five-year return. So we're extremely proud of our history and being able to deliver results to our shareholders.Moving forward to slide number three and looking at our second quarter 2019 financial highlights, we were able to grow total investment income for the month – for the quarter ended June 30, 2019 an increase of 24% over the three months ended in the prior quarter in the prior year.Our net investment income NII with GAAP reported income for BDCs, we had a narrowing loss, which was originally $2.1 million for the three months ended in June 30, 2018 to $1.1 million. We are clearly proud of that narrowing and we will go into what that actually stands for and what it means and why it's clearly beneficial to our shareholders.Adjusted NII, which we view as a better metric for us given that it encompasses all of our SBA 7(a) loan activity, we had a real strong quarter with an increase of 29.5% compared to the quarter one year earlier ended June 30, 2019. And adjusted NII exceeded analyst forecast by a penny. I should note that the company only gives annual guidance on dividends and we leave the quarterly breakouts to the analysts. Sometimes, we do have vagaries relative to analyst consensus on different metrics. That's up to them. We give annual guidance and pretty much stick to it.Net asset value increased by almost 1%, 0.9% over NAV of $15.19 a share at December 31, 2019. We came in at $15.33, as of June 30, 2019. Debt-to-equity ratio of 127.9% as of June 30, 2019 on a pro forma basis looking at the broker receivable, we will talk about that in our next slide. It would have only been 114.5%, about almost a 14% delta.Total investment portfolio increased by 17.6% and that increase was based upon the June 30, 2019 number versus a year earlier to June 30, 2018. We're also proud to announce that we had our credit facility from Capital One Bank go up by $50 million to $150 million from $100 million, a 50% increase and that was signed off and approved by the SBA which is indicative of our good standing not only with our senior lenders in the 7(a) business, but also our regulator.Slide number 4 this is a slide that we have kept utilizing. I think it's important to note that at the end of the quarter we have a broker receivable. The broker receivable is based upon cash that we'll be receiving from the 11 Wall Street assemblage by a government-guaranteed piece.Essentially, we view the broker receivable offsets against our line of credit and this particular portion of the line of credit is a short-term liability it's within 10 days. We may actually take a position and have a conversation with the SEC to get further clarification on whether or not this portion of the liability should be considered short-term and not be included in the debt to equity calculation. But we look at this once again, as a self-liquidating receivable. The proceeds from the brokers go directly into a secured account to paying out Capital One. So we view this as a portion of a short-term liability, but we have been calculating the ratio historically, as if the line of credit is one long-term liability for us.Moving to slide number 5 we talked about NII, which is the GAAP term for BDCs. As many of you are aware, we have significant gain-on-sale income from SBA 7(a) loans. This has been a reoccurring event for Newtek for 16 years. Now BDCs do not make loans and sell them. They make loans and hold them. They are a different type of investment vehicle. We utilize the BDC format. It's been a great format for us for five years. And based upon the way NII is calculated that gain on sale comes out of the calculation which is why we look a little bit like an odd duck and show up as a net investment loss.Important to note that as our loan portfolio grows and our servicing income grows and our contributions that we anticipate from our conventional lending business and other portfolio companies continue to float up, we believe that the trend of this particular form of income will get larger and larger. We're happy to report the gains from this particular area.We do tell our investors that we're different. We make no bones about it. We ask investors and analysts please do the work. I would like to applaud our analyst community who typically has to create an entirely new business model to be able to track us from any other BDC. We believe that those investors and analysts that have done the work.Clearly, if you look at our historic returns over the last five years and even 10 years, you have been rewarded and I think in the throes of the financial collapse in 2009, our stocks traded at about $0.50. We did the reverse split which would have equaled about $2.50 per day. So for those people that have worked with Newtek, studied Newtek, understand its business model historically, it's been rewarding. We do ask the investment community and analysts and we're thankful for those that have done the work.On slide number 6, we felt it was important to demonstrate the upward trend in adjusted NII. If you take a look at '16, '17 and '18, very nice growth here. We've also forecasted a $1.95 dividend for the 2019 calendar year. We typically state in those forecast that we anticipate and have always been able to do so that the dividend will be paid out of earnings. So, those that believe in those two forecasts from the company could see, they will have further growth in adjusted NII for the year.In reply to one of the bloggers out in the investment community who made a comment that our earnings have not been growing year-to-year, I need to point out that the fallacy in that statement relates to the special dividends that the company participated in. I would point investors to the 12/28/2015 press release, where we talked about approximately a $34 million distribution of which was made in $8 plus million of cash, 1.8 million of shares which frankly changed our whole share count. That is an incorrect comment that our earnings have not been growing year-over-year since we became a BDC. Once again I strongly suggest that people do their work and we certainly appreciate those that have invested in Newtek.On slide number 7, we do point out that we do have seasonality in earnings. The fourth quarter and third quarter are bigger quarters for loan originations and fundings. They're also bigger quarters for our payments business which is a significant part of our dividend, our earnings and our adjusted NII. If you take a look at the trends, approximately 55% of our earnings do come in in the second half of the calendar year.Moving to slide number 8 in dividends and dividend forecast, we paid a second quarter dividend of $0.46 a share against the reported yesterday $0.57 in adjusted NII. That was a 9.5% increase over the company's second quarter 2018 cash dividend of $0.42 and a fairly significant jump in the adjusted NII number year-over-year as well. We mentioned we recently bumped up our dividend guidance from $1.90 to $1.95. The cash dividend paid in 2018 was above 80. We originally forecasted above 83 for 2019. So we're proud to state that we're clearly moving in the right direction based upon what we see.And our metrics you can take a look at where we initially forecast a dividend in 2016. And it's at above 50 or currently at above.95. And as we always state, historically our annual cash dividends paid have been between 90% to 100% of taxable income and we do anticipate our 2019 dividend payout to be within that range. I think, once again it's important to note, please do not confuse us with other BDCs.Most other BDCs have a really hard time being able to maintain their dividend and most of them trade, I'll use the word right around NAV and they should. It's a static portfolio with purchase loans. And as we are growing our dividend, we should command better stock prices and as we grow our earnings, obviously in tandem with the dividend.Slide number 9 talks about our 7(a) lending highlights, a 15.1% growth and increase in 7(a) loans funded during the three months ended June 30, 2019. Looking at July, and once again, we forecast annually and why we forecast annually because, we don't want to have to exaggerate that we funded $35.9 million of SBA loans in 2019, a 215% increase over $11.4 million fundings in July of 2018. I mean, those are factual numbers, but the point here is that, please look at us on an annual basis, not quarter-to-quarter. It's a business, things do not go up in a straight line. I like to remind everybody on this call, we had a week in December of last year where we stock traded off 25%. It was trading in the $15 range.I can't tell you how many investors that I've spoken to, primarily institutions that have said, gee, did you get in? No, I kind of missed that window and that dip. Well, maybe here we have another one to get in. And the question is, are people going to take a look at what we're doing from a long-term trend perspective or they're going to freeze when the opportunity comes to participate?We're still looking at a 2019 7(a) funding forecast of $580 million to $620 million for 7(a). That would be 27.9%. Given what we've experienced over the first half of the year, I would probably guide to the midpoint or lower end of that range to be fair, but we're still keeping that wide guidance and it is still possible to be able to certainly hit the midpoint or the high point. But I will tell you, we're keeping the range, but we're guiding to the midpoint or the lower point.Sufficient capital on slide number 10 to be able to do our business. We're thrilled that the market gave us the opportunity with the recent dip and rally in the fixed income market, to have been able to issue a bond that is listed on NASDAQ, NEWTL. The bond is trading well. It's trading at a premium.$55 million on the issuance side, not including the green shoe, that will give us some very nice capital going forward, doesn't require us to raise additional capital with respect to fundings or equity, gives us tremendous amount of flexibility. There's really good loan demand. We made a big investment in human capital, real estate. All that expense is baked into our historic numbers. We're well positioned for future growth and anticipate some nice operating leverage going forward.Slide number 11, we talk about our conventional loan joint venture with BlackRock. We're really excited about it. We closed on April 29 a $100 million senior secured facility with Deutsche Bank which will give us additional leverage and will enable us to recording up to $200 million, if we need it.We believe that the JV investment in non-conforming conventional loans could be material and growing, contributing to our future business. Based upon what we see, it's not inconceivable that between 1% or 2% of our current referrals could qualify for this non-conforming program.I'd like to remind the investment community in the audience, I believe, the JV closed around mid-May. So relative to mid-May through June, we're only operational for about 40 days.Slide number 12, we talked about the NEWTL raise. We're going to be refinancing the NEWTZ 7.5% notes of 2022. As I mentioned to you, these notes as of August 2 were trading at $25.35 on a $25 par amount. Egan-Jones maintained their A minus rating.So for those of you that are focused on leverage, the rating agencies are going to tend to serve as our guide for leverage going forward and we're pleased that Egan-Jones looked at our business model, looked at our growing dividends, looked at our credit quality, diversification and maintained our rating of A minus.Slide number 13, we talk about NewTracker. Many of you are familiar with the fact that one of the major value propositions in investing in Newtek Business Services Corp is, we're not a group of investment professionals that buy loans and lever them and take asset management fees.We are a living, breathing business with 450 employees, superior technology, growth none of which shows up in NAV number. NewTracker 1.0, which has been our core platform, was launched over a decade ago. We've got a patent, not only on the software but on the service methodology. It's been really the secret sauce of our company.We're excited that Dan Hendel, Director of IT and his development team, who are doing a fabulous job for us, anticipates rolling out NewTracker 2.0 during the third quarter of 2019. NewTracker gives full transparency into our back office from our referral partners and gives referral partners complete confidence that we're taking care of their clients. It also helps our management team manage our staff, our business service specialists who are assembling loans, underwriters putting credit memos together.So this launch will enable us to have all data recorded calls, e-mails to clients, all-in-one place, give us more full robust data platform, enable our master central database capability to grow, which ultimately will increase our outbound capability.We are extremely efficient in our loan origination platform. You'll see that going forward, as our pipeline, which might appear to be slowing in growth or stagnant, is just more a function of being able to efficiently put through and work on the loans that makes sense and get over the goal line.Slide number 14, just wanted to point out a great crew of analysts. We have five companies that do follow us and we certainly appreciate the work that they do on our business and our model. Slide number 15, 16, 17, 18, we've covered this in recent calls and our Analyst Day Meeting tremendous senior addition to staff.Once again important to note in over the last six months we spent a lot of time and energy working on taking referrals and training BSS' to be able to take some of those. Some of those need to go into a 504 bucket now, some of those need to go into a non-conforming bucket. We've got to get the software right. We've got to get the staff trained to recognize, which one of these loans fit and provide the better solution for all. These things do not go up in a straight line. So I'll let -- some of you always have commented on my joke about taking after slide rule. So we look at the first half of this year as a year of investment. We plowed a lot of money back into software, into training, into additional staff, into real estate. We'll continue to do that in the investment over our five-year and 10-year history as paid off handsomely to our shareholders.Looking at slide number 20, we look at this as our pedigree. We're the largest non-bank SBA lender under the 7(a) program. There is only 14 of these licenses. New licenses haven't been issued over the past decade. We're the fourth largest 7(a) lender including banks. We surpassed JP Morgan recently in this category and do more SBA loans in entities like Capital One Bank, Bank of America, et cetera. We've got a great track record and history of the full severity and frequency. We've done nine securitizations average loan size of $179,000.With slide number 21 take a look at our pipeline and some people go, "Oh my god, it's slowing." We don't agree with that. We're just being a lot more efficient. We're able to weed out loans quicker. We feel very good about our pipeline. We feel very good about making our loan forecasts and our budget earnings for the year.For the three months ended, loans -- June 30th loan fundings increased 15% year-over-year and we had a terrific July funding $35.9, which is typically a slow month for us. Growth in loan referrals up 5.6%. Mind you some of these referrals partners, we do need to call through. For those of us that are giving us opportunities without a great hit rate, we might slow them down and we're always adding new referring partners to the party.We're excited about our business model. To our knowledge no one really runs the business using technology to acquire large quantities of opportunities cost effectively. We looked at over 65,000 opportunities last year. We'll probably look at a similar count this year, but we're excited about what we're coming -- what we're looking at for gross referral volumes.Premium trends for gain on sale for the 7(a) 11.5% that's up. The current market dynamics of a slowing economy and rates declining are a very good strong trend for this particular segment of our business. So we are constructive and assume prepayments will slow, which will cause investors to buy these bonds at higher premiums. Less robust economic activity also causes less prepayments.Slide number 24, we talk about the seasoning of the portfolio. We've got a large portfolio right now that's seasoning, and it's seasoning at a faster rate than adding new loans, which means that the portfolio is aging. As we've discussed, the default curve on loans of this nature, you get the peak amount of delinquencies and defaults in month 24 through 40, we are experiencing that. You could see some of that slowdown on slide number 25. I want to point out extremely comfortable with these trends. Slide number 26, we have recategorized our non-performing loans into sub-performing and non-performing. I will give you some examples of why we're doing that. Sometimes I think we get a little too granular to educate the investment community.We're too transparent. We don't want to be confusing but we want to share information. A sub-performing loan is a loan that we look at as from a valuation standpoint as a loan that will be able to be paid off principal and interest based upon the current balance out of the cash flows of the business. A non-performing loan is a loan that is in liquidation. The business no longer will be able to repay us and we're in the process of liquidating the collateral.I'd like to go to slide number 27 and these are important statistics that you can't deem from a K or a Q. You've got to base this based on our 20-year track record as a public company five-year track record as a BDC and a really strong management team that is transparent and has a high degree of integrity with how it looks at these things. These are two loans that were the non-performing category. So for those of you that are familiar with looking at banks in this area non-performing means written off, not in our lending world.Non-performing loans means that the loan is 90-days past delinquent; it falls into that category. These were two loans that recently paid off in full. Okay? The first loan -- and we've redacted the name, paid off in full based upon the sale of the commercial real estate collateral. That was a $365,000 loan.The second loan $1.050 million, we wound up repurchasing this out of a government guaranteed pool. The loan was transferred to liquidation. Our workout team had the loan paid off in full. Here is an example of a loan that showed up in our 120-day past due category. This loan literally on August 1st, the borrower sold the commercial real estate collateral. The loan was paid off in full.Driving your attention to slide number 29, this is the slide you should be -- hitting NII, once we are marking portfolio our balance sheet is marked off on -- is marked on a real-time basis. So if we think there is an impairment to the loan that will occur every single quarter.The charge-offs hit the earning stream. We think that these numbers will gravitate to higher numbers. Our business model supports that. When we get into the belly of the curve as a guesstimate somewhere between 1% to 1.5%. I want to repeat these are comfortable numbers for us giving our credit criteria and a high return on equity business.Slide number 30, 31, 32 you are familiar with. Here is the important aspect: we practically do no startups. We do a smaller amount of business acquisitions. And a lot of our loan is collateralized by -- for the purpose of acquiring, rehabilitating, refinancing commercial real estate clearly good trends that give us better quality credits and we are very pleased with the performance of our portfolio.Slide number 33, 34 the investment community quite familiar with. Moving over to our portfolio company review, the 504 business I'll go to slide number 37 has been a slow roller than we've anticipated. We only funded $10.2 million of SBA 504 loans through July 31, 2019. We are revising our guidance down to $75 million in fundings from a previous forecast of $100 million and $100 million in closings.Delta between closings and fundings is sometimes loans are partially funded and is a portion of construction that occurs. However, we continue to be optimistic regarding our 504 program. We've a pipeline that's growing and as we are repositioning ourselves and bringing in more talent in this area and going to larger size loans, we are confident this business will take off.On slide number 38 these were loans sales of the conventional first piece that we made during the second quarter of 2019. $14.1 million of 504 first position loans were sold. Some of these were sold servicing released. Some of them were retained 25 basis points on. But you could see the nice prices that we get.We typically receive 1 point to 2 points of origination fee both on the senior piece and on the second lean which gets taken out by the government. So you could see that when you look at from where these loans go on our books, we can make gains of 4, 5 and 6 to 7 points not including the carry on the portfolio.The return on equity at this business we could see on slide number 40, quite high. Our non-conventional lending pipeline once again, I believe the venture closed somewhere around May 10, May 15. We funded our first loan on May 20. We funded $20.5 million of loans in the JV through July 31.You could see the pipeline is starting to jump. We are starting to get this criteria out to our alliance partners. As you can imagine, it certainly takes a while for this to flow through, but with that jump in the pipeline, we are very excited about this business. We have no income coming from the conventional loan joint venture this year. We do believe it can be material for next year.Important to note operating leverage, we are getting significant operating leverage off of our business, off of our loan referrals, off of our assemblers, our underwriters their capability to service. These are things that don't show up in NAV.We have operating businesses underneath the BDC umbrella that doesn't show up in NAV. The fact that we are the number one nonbank lender, fourth largest in 7(a). We have a $2.1 billion capability in the servicing portfolio. We've got two entities that are as -- none of these things show up in NAV. And we'll get to that when we get to our final conclusion.Slide number 42, our payment processing business growing nicely. Adjusted EBITDA 9.5% over the same period last year, I also like to note this growth is occurring at the same time even though we sold off a significant portion of reoccurring income in the fourth quarter with the Elavon portfolio which was about $1 million of reoccurring income.So we are very pleased. We point to the public comps. We point to the growing business. This business which I think has $150 million to $155 million enterprise value only has $35 million of debt. This business certainly can be leveraged further in the event that cash was needed for operations a lot of value being created every single day in our payments business.43, we talk about our technology business. We have 3 entities. We look forward to a real good report for the second half of this year, primarily coming from Newtek Technology Solutions which we have struggle with. IPM and Sidco were acquisition that were made only about 2.5 years ago.We look forward to reporting, we are optimistic about our technology portfolio companies and the ability to execute on strategy which you could take a look at on slide number 44. We believe there is a great opportunity in the cloud services space to be able to provide things like desktop business service, security as a service, IT as a service, to give business secure e-mail, hybrid cloud, private cloud, public cloud, big opportunity. We're not competing with Amazon, we're not competing with Google, we're not competing with Microsoft Azure in the space. They're dealing with the major big companies. They're not dealing with that middle-market entity. We think this is a great opportunity as a portfolio company. And we think that we could get nice contribution from this business in the future.Moving the slide number 45. From an investment summary in conclusion, we are an internally managed BDC. We don't pay ourselves any management fees. Management's interest is very much aligned with shareholders. We've got a significant portion of our outstanding float I think it's close to a 6.7% of the outstanding shares. Management's interest is very much aligned with shareholders.We don't do second liens. We don't have SBIC leverage. We're not investing in CDO equity. We have no direct lending exposure to the oil and gas industry extremely important. This isn't our first rodeo; we've got a 16-year lending track record that survived through 2008-2009 without hair cutting any debt holders or getting a bailout from the government.I want to point out one important aspect. That is our premium to NAV on the stock price. As you could see, I think we made a very strong factual argument today about growth in dividends. Growth in dividends and growth in earnings are the way to value Newtek Business Service Corp. We are BDC. We appreciate the benefits that the BDC model gives to us, particularly to tax effective treatment and the ability to raise capital, which we've done very nicely over the last five-years including our recent baby bond offering. And we don't need a lot of leverage to be able to grow our business, because we invest in things that generate higher rates of return, because we operate them.We're not buying packaged products in an auction from Wall Street. So there are people that are having some heartburn on the premium to NAV. Well for argument sake, what if we were distributing $3 a share? And NAV shouldn't move that much, because a significant portion of our NAV is invested in floating rate loan securities that really shouldn't trade at a big premium, right? However, that is a portion of the business. The gain on sale, the servicing income, the platform that's enabling us to do non-confront none of that's valued in NAV.So for those of you that are looking at us versus main or other BDCs, it's just a different business in a BDC rapper. And for those of you that can go back to your finance one-on-one textbook, a stock price is based upon a discounted back of future earnings streams. So we feel that history has served us well in this particular space. And if and we anticipate and hope that we'll continue to performance we have, the market will reward us. And please although we are a BDC, this comparison to other BDCs is irrelevant. They've entirely different business. Please follow the cash flow.When you look at us from a risk perspective, which is really important I took a look at Main Street, the bellwether. $11 million average investment, 180 investments. We have over 2,000 borrowers in our book 180,000 average balance. What's less risky? Apollo $15 million average investment 120 to 130 units. What's less risky?And then I look at two to one, let's say versus I don't know 1.3 or 1.4 to 1 and if I were a bank and I looked at a company like ours, what I have a lot of heartburn over a 66.67% LTV versus a 60% LTV would that cost me not to invest or for was in the midpoint? But the fact of the matter is this is how in today's genre risk is measured in the BDC space.Now I realize, I might be a lone wolf, but I'm going to make a comment: it's wrong. You need to look at all these other factors. You need to do the work. Historically, that work has been rewarded. I appreciate your time that you've spent with us today.I would like to turn the presentation over to Chris Towers our Chief Accounting Officer.

Thank you, Barry, and good morning everyone. You can find a summary of our second quarter 2019 results on slide 49 as well as the reconciliation of our adjusted net investment income or adjusted NII on slide 49. For the second quarter of 2019, we had a net investment loss of $1.1 million or $0.06 per share as compared to a net investment loss of $2.1 million or $0.11 per share in the second quarter of 2018 a 45.5% improvement on a per-share basis.Adjusted NII, which is defined on slide 48 was $11 million or $0.57 per share in the second quarter of 2019 as compared to $8.2 million or $0.44 per share for the second quarter of 2018, a 29.5% improvement on a per-share basis. Focusing on second quarter 2019 highlights, we recognized $14.1 million in total investment income, a 24.1% increase over the second quarter of 2018.Interest servicing and other income was the primary drivers for the increase with interest income increasing by 27.2% resulting from a higher interest rate on our SBA loan investments year-over-year and larger performing loan portfolio. Servicing income increased by 24.7% to $2.5 million in the second quarter of 2019 versus $2 million in the same quarter last year, which was attributable to the average servicing portfolio growing from $950 million at June 30th, 2018 to $1.2 billion at June 30th, 2019.Other income which relates primarily to legal packaging and other loan related fee revenue increased by approximately $458,000 in the second quarter of 2019 as compared to Q2 of 2018, primarily as a result of an increase in loan origination volume year-over-year.Dividend income in the second quarter of 2019 included $2.5 million from NMS, $250,000 from Sidco, and $75,000 for Mobile Money.Total Expenses increased by $1.7 million quarter-over-quarter or 12.5%. Salaries and benefits decreased by 33%, primarily due to NSPF employees being hired by Small Business Lending LLC or SBL, one of Newtek's wholly owned controlled portfolio companies on January 1, 2019. SBL is a lender service provider that effective January 1, 2019 provides NSPF with loan origination and servicing functions performed by its employees.SBL charged NSPF $2.5 million in the second quarter for these services which is reflective on a consolidated statement of operations as origination and servicing related party.Total interest expense increased by $900,000 in the second quarter of 2019, primarily due to higher average outstanding debt balances. Realized gains recognized from the sale of the guaranteed portions of SBA loans sold during the second quarter totaled $13 million as compared to $10.9 million during the same quarter in 2018.In the second quarter of 2019, NSPF sold 170 loans for $96 million at an average premium of 11.52% as compared to 130 loans sold during the second quarter of 2018 for $78.1 million at an average premium of 11.67%.Realized losses on SBA non-affiliate investments for the second quarter of 2019 were $971,000 as compared to $550,000 in the second quarter of 2018. Overall, our operating results for the second quarter resulted in a net increase in net assets of $8.7 million or $0.45 per share and we ended the quarter with NAV per share of $15.33.I would now like to turn the call back to Barry.

Operator?

[Operator Instructions] Our first question comes from Chris York with JMP Securities. Your line is now open.

Good morning guys and thanks for taking my questions. So, Barry the first question is a strategic question. 7(a) loan fundings were once again very strong and I think I calculated maybe a five-year CAGR around 30%. So, at that point, it places you -- as you noted that in your deck as the fourth largest SBA lender and then it puts you in a shared territory with some large financial utility banks.So, the question is how much more share growth do you want to achieve or should investors expect in this loan product longer term as further growth could drive increased regulatory tension?

Thank you, Chris. I think those are all relevant points. I think that from our perspective we're very happy with our I'll call it market share position. In other words, we do not aspire -- I don't aspire to be number one. I don't aspire to be number 10. We'll sort of take it wherever it goes.As long as we're able to pass through credits and do good credits, we'll continue to grow at this rate and it's not inconceivable that the rate could accelerate. The industry for the last 18 months has been down about 10% year-on-year for 7(a) lending. The benefit of our now four programs is -- and we've never gone out as an SBA, we've always gone out as a lender. So that we position ourselves as hey from $2,000 to $15 million, 10 to 25-year amz schedule, no covenants, single-digit interest rate we can fund your business. That's dramatically different than Fintech lenders. We use technology we think to a greater degree than they do. They just do a very limited amount of underwriting and they lend on six to 24-month schedules.We're in good position with our regulators. They've recently increased -- allowed us to increase our facility. Your point about increased scrutiny I don't necessarily -- if you're number one, you're number one; it is what it is. I don't love being number one because everybody likes to take shots at number one, but we're not going to gauge our business by that.I think that we are so pleased with what we're doing across the board. We've added a lot of staffing to the line of credit business that comes under CDS. We have optimism about that business growing with Frank Bertelle at the helm; he's one of the people in the deck that you can look up.And the pipeline as a non-conforming business that's going to roll nicely and what that's going to do Chris is that's going to show up as an equity investment on our scheduled investments. The returns that come off of that are going to be effectively given an income.If you look at the public documents, there is a 10% preferred coupon on the JV investment. So, we'd like to think that we'll outperform that from an equity standpoint, and that'll also give us different income than gain on sale. So, I would tell you that going forward, we would definitely like to be less reliant on gain on sale, and we think that's clearly in the cards. We don't see the 7(a) growth slowing per se. I would say as far as my eye can see maintaining it is the right number.

Got it. Very comprehensive answer and I think investors certainly appreciate what you're doing on the nonconforming side. Switching to that, so you lowered your 504 loan guidance to $75 million from $100 million and then you have it looks like year-to-date loan fundings of $10.2 million. So what gives you such confidence in the second half of the year that should be a strong period of production for that product?

Well, like any good manager, it's my management team gives me those numbers. And then I just have to believe them or not believe them or haircut them. I have a lot of confidence in Tony Zara and his team. I will point out that 504 financing market is actually more complicated than the 7(a). I'll try to quickly explain it.When you do a 504 loan, you have to go to a CDC, the Community Development Corp, they have to underwrite it. Meaning that they're going to basically underwrite it and they're going to wind up effectively financing the second position. Then it's got to go to the SBA. And with the government shutdown, it's been a tough year for 504 lending.But the pipeline is there. We think we've got the best team in the business. Also I have to state that internally we've got tensions and pressures between is it a 7(a) loan, is it a 504 loan, is it a conventional loan, is it a line of credit.And we're working the bugs out of that. Tony and his team have only been here 12 to 18 months. Our business service specialist have to get more comfortable doing 504 loans. It's an important part of our umbrella.It is easier for a business service specialist, because we're a preferred lender to prospectively suggest to a customer to do a 7(a) loan and 504 loan, and we've got to change that psyche and that mindset and sometimes that's easier said than done.We've also got to get our business service specialist to embrace the nonconforming area. And frankly, that's been an easier road to hoe, because there's less parties to deal with than the conventional side.So, it was a really good question, because the reality of it is -- Chris when we hang up this phone and I'm done with the call I've got to deal with managers and a lot of human beings. And human nature is trying to gravitate to what's necessarily easiest. 504 loans are harder to do, and I think we are -- we got a little bit of a hill to climb, but I'm confident that we'll pick it up.

That's good to hear. And I think people certainly appreciate the difficulty associated with all the management responsibilities you have relative to other BDCs. Last question from me is just on the financial that you recognized the largest quarter of unrealized losses on non-guaranteed loans converting to a BDC. So is there any trend in the charge off or delinquency data maybe from a behavior or fundamental side that throw some of that loss?

Yeah, the behavioral aspect is that we are going into the belly of the default curve on the portfolio, because the overall portfolio is growing. I just give a ballpark number. Chris Towers might be able to help me on this. You're looking at around $400 million, so -- and that's uninsureds.So, even if we do our numbers this year, it only represents call it $125 million-ish of uninsured that you're adding to the whole portfolio. So the portfolio is seasoning. As it seasons, you're going to get more loans that are going to underperform.And as I mentioned on the call, for those that are forecasting losses, without putting an exact finger on it, charge was down the road that will be between 1%, 1.5%. It doesn't bother us, because you've got to look at the chart -- on a static pool basis, you have to look at the charge offs over the life of the loan.So, if you look at what we do when we do the valuation of the loans, we look at it fairly conservative 20% gross cumulative default with a 40% severity. So when you put those two things together, that's over the life of the loan, an 8% charge off.Well, the reality of it is you really don't have charge offs in the first 24 months of a loan. They occur in the belly of the default curve. So, therefore, if you took the 8 number and you said, Jeez. 60% of them are going to happen within this period of time. You can have fairly high charge off numbers.So, once again a very good question. I think it's something for you and other investors to track. But as I mentioned, we're comfortable with higher charge off numbers, which is the better way to follow us going forward as well as looking at the unrealized number, because the unrealized number will be indicative of what will get charged off down the road. The unrealized number however, does come off with a balance sheet and affects our NAV right away.

Yep. It makes a lot of sense. That's it for me. Thanks Barry for your time and insights,

Thank you.

Our next question comes from Mickey Schleien with Ladenburg. Your line is now open.

Yes. Good morning, Barry. I have a couple of questions that sort of follow up on Chris's questions. Going into this year, one of your goals – I think a major goal was to increase your loan close rate and also take advantage of operating leverage meaning you invest in a lot of staff last year. So you're definitely reporting very nice top line numbers. What I'm curious about is how you feel about Newtek's progress versus your expectations on these trends you were looking for?

Mickey, thank you. I think that when you look at from an overall basis, maybe it hasn't been that glaring in the second quarter. But when you look at loan closings now we've got to look at 504 or fundings we've going to look at 504, we've got to look at non-conforming, we've got to look at 7(a), as well as the growth in CDS. And that's something I'll think about with my legal and accounting team relative to portraying it. Obviously from a portfolio company perspective we have certain limitations. We don't want to lay too much out there for fear of forced consolidation which isn't necessary. But I think that we're extremely pleased how we're rolling out.Our new programs are being well received by our alliance partners. The staff is starting to pick it up. You could see that by the jump in the non-conforming pipeline from the month of June to the month of July. And we're putting processes in place – people like Brent Ciurlino and Karen McHugh are putting those processes in place that are helping loan assemblers and underwriters get these things through the pipeline quicker and faster. And that pipeline now has four different choices, which if you think about it, at the end of the day what really matters is how well we help the client and the client experience.So if you're a client and you come to us and all of a sudden there's four different choices of different programs, which give you a lot of flexibility with respect to revolvers, term loans, size of the loan it's an exciting time. We are very pleased with the progress we made in the second quarter and we believe that we will be able to ramp the business in the third and fourth and in 2020.

So in terms of that last comment Barry, yeah that actually is a good segue into my last question. Looking at your target borrowers, or the typical borrower at Newtek deals with and I know there's a lot of different industries that you work with and some that you avoid, what are your expectations for demand for your loan products, if the economy were to meaningfully slow? I mean I don't know where the economy is going to go. What's happened in the last few weeks could be a handshake but let's just assume things are going to slow down meaningfully. How would you expect demand for your products to progress?

Okay. So what we do consciously is we don't invest in the fringes of the industry. Let me try to explain that. We didn't invest heavily in oil and gas despite the fact those are easy loans to make as oil prices were soaring. We don't invest in volatile businesses. We invest in businesses that are boring, stable and tend to be more recession-proof than other businesses. Now when I say recession-proof that doesn't mean that they don't weaken or go down during an economic slowdown, or recession, but they go down less. The key is as a lender to stay away from volatility so you don't invest in volatile businesses.Fast growing businesses are great if you can underwrite them at a slow growth and a low loan to value. So we're less concerned about these types of things. It's built into our model. We have anticipations. We've been through really what I hope is the worst of the worst which was what occurred in 2008, 2009. And we were able to once again survive. None of our creditors got haircuted. So I think that the key salvation is we're not investing on the fringe.Now let me comment what the fringe is. The fringe is a business that basically says, jeez give me the money in 48 hours I don't care if I'm paying 25% or 50% and I'll pay you back in 6 to 24 months. Someone that takes our loan they're invested. They filled out 50 slots in our file vault. They've given us projections. They've given us tax returns. They've given us liens on all their personal and their commercial assets. They've made a major bet that they're going to pay us back otherwise unfortunately they're going to lose it all.So that's different than an LBO where okay if it doesn't work okay, I lost the equity too bad. Commercial real estate loans, goes upside down, I lost the equity too bad. So although we do experience higher levels of default frequency in an good economy or a bad economy, we think we have less volatility in our business than other types of lending that require that robust economy to be able to repay the principle or the interest.

And in terms of that outlook -- and this is my final question -- given that the majority of the loans that you make are floating rate loans do you feel you are relatively protected against changes in CPR, if the Fed continues to cut rates and interest rates and mortgages decline?

So Mickey in the scenario where -- which I think right now is more likely than not rates decline, economy slows. The coupon on our portfolio will go down and because we have a reasonable amount of that portfolio funded with equity that prospectively will be a negative relative to interest income. However, we're adding more to the portfolio. So I think we'll be okay there.The flip side of that is -- and you've seen this in the prices of the governments -- the slowing economy slow CPR. People want to buy a government guaranteed floater because loan demand is down they need to -- the banks hedge funds need to put money to work. So the prices of the securities get bit up. So regarding the 7(a) business, it's almost a nonevent as we see it.

That’s where I headed with that. I – that’s very helpful and I appreciate your time, Barry.

Thank you, Mickey. Appreciate your questions.

Our next question comes from Robert Dodd with Raymond James. Your line is now open.

Hi, guys. A couple questions on loan fundings you've guided the 7(a) towards the low-to-mid end of the range. I mean so two questions tied to that. I mean is there anything in your referral channel that is has changed? I mean the pipeline is down a tiny bit year-over-year, but you said you're being much more selective.So have you removed anybody or is anybody withdrawn from contributing to that pipeline because they're not meeting the criteria you set out or anything like that? And is that what's behind the modest slowing of guidance on the 7(a)? Because after all you said I mean overall loan demand is pretty strong but you trimming it back there a little bit.

Yes so look Robert, I appreciate your question because it's the questions that I asked either every other day or a minimum once a week -- as I get the data. One of the reasons why I put the July information in there because if you look at the July information you'll go, oh, my god look what's going on over here. They really outperformed last July.There could be an underlying tone that the economy is slowing a bit and loan demand is slowing a bit. Now let me do the counter to that. Our ability to go out now with a big trumpet up to 15 million, 10 to 25-year around schedule up to 85% advanced on the real estate collateral as a first we always stick to second and tertiary to get that LTV down no covenant single-digit interest rate.No matter what way the economy goes over the long term we're going to get a lot of people coming to us wanting to borrow money because that financing doesn't exist. And that's been our lending thesis for 15 or 16 years. So I'm not concerned about the fact that in my opinion we didn't have a great first and second quarter.It was a good one. It wasn't a, oh, my god wow. I'll tell you something else too. I read some of the notes last night and it's like okay so adjusted NII grew by 29% we kind of expected that. I'm going, oh my god. That gives me a little heartburn. When the market is sort of expecting this type of growth from a company in our space and they're saying, gee I don't -- I mean people got to get a better understanding of it.To answer your question no long term, I'm not concerned at all. I think that we've got a bigger diversified portfolio. We're going to have diversified revenue streams, people come in people come out. No, I do think that we spent a good amount of time in the first half laying tracks for these other things which could have possibly detracted from the traditional more focused 7(a) footprint. I think that's what it is. However, we should ask this question another quarter and maybe I'll have a different answer for you. But I don't think so.

Okay, I appreciate that because obviously, I mean you did have a really great July. The numbers are up 200% year-over-year. But first half your loan fundings are up 11% and to hit the low end of your guidance you got to be up 33% in the second half. So I mean is your confidence level high that you can hit even that low end just to adapt -- just to get -- yes okay.

It is. Otherwise we wouldn't have given it.

Got it. Got it. Moving on just on the -- on a lot of color on charge-offs versus non-performance and defaults. When you talk about that the 1%, 1.5% long run charge-off like, can you give us a bit more color? I mean, is that what you're expecting because that's just what should happen as things that age to et cetera, et cetera or are you seeing trends in the portfolio? Obviously, your non-performers are up a little bit, et cetera, but are you seeing trends in the portfolio that indicate that that will happen or is it just more based on that's what should happen based on aging of the portfolio?

That's what should happen.

Got it. Thank you. That's it. Appreciate it

Thanks Robert.

Our next question comes from Luke Wooten with KBW. Your line is now open.

Good morning Barry and Chris. How are you doing?

Good. Luke, how are you doing?

Doing well. Chris, could you just go over that number? I think you went over it towards the end, but I might have missed it just the loans. So the SBA 7(a) loans sold during the quarter?

Sure. From a unit perspective, it was 170 loans 1-7-0 for $96 billion compared to 130 loans 1-3-0 for $78.1 million.

Perfect. Thank you. And then just kind of switching to like little housekeeping just on the other income line from the non-affiliate investments it seems to be kind of higher than what it's been in previous quarters. Do you mind just like enlightening us on what's in that line so we can kind of manage that going forward? Is it the $1.56 million on the quarter?

Sure. So look what runs through that line is both the -- our origination fees related to packaging fees, any legal fees that we charge, any prepayment fees, any late fees. That's what usually runs through that line. So generally as our loan volume increases, the other income increases in line with that.

Okay. And do you mind -- what was the prepayment speed during the quarter? In the last quarter it was 26%. Was it stable with that or a little bit higher?

For this quarter, we had that at 23%.

Okay. And then kind of just moving over to the non-conventional loan platform, I mean, solid growth so far and since May it seems like it's really boomed. Kind of going forward, should we see that kind of growing in? I know you said that we should start seeing income from that in the next year and that should be shown in the dividend income line, correct?

Yeah, you would see that in the dividend income line as that's an equity investment. And we have 50% of the equity BlackRock TCP has 50% of the equity. So you'll get the spread income off the coupon on the portfolio, less the any interest expense that might be incurred on the Deutsche Bank facility.

Okay. That's helpful. And then Barry I know I've talked to you about this a little bit, but just on that platform you just gathering -- like it's basically using your existing loan referral platform to kind of underwrite the loans and increase the close rate on loans for those that don't qualify for the SBA and just those can go up to $15 million, is that correct?

Yeah. They can go up to $15 million. And so let me give you some of the reasons if there was a choice between 7(a) in that. The SBA program maxes at $5 million. So if somebody already borrowed $5 million, they can't borrow any more from that government guaranteed program.Secondly, maybe they want a fixed rate and we can offer a fixed rate and the conventional where the 7(a) program is prime plus two and three quarters, which today it would be I think around eight in the quarter. Maybe they only occupy 40% of the real estate, the SBA requires 50% of the real estate. Maybe there are five potential guarantors that would have to guarantee an SBA loan, only three of them want to do it. We move it over into conventional.There's a few reasons, which are hyper technical that we move it into conventional versus the 7(a) and it's -- but the credit box is similar. The credit -- so we're fairly confident that given that we've done this for 16 years and up markets and down markets, we have a good feel for how these borrowers react and these businesses react in different interest rate cycles and different credit cycles that we you've got a really good handle on how this portfolio should perform.

Okay. That's helpful colors. Thanks. And then just briefly switching back over to the NSBF. I mean, seems like the gain on sales have come back strong since the end of last year. And just kind of how you see those going forward, I know it's -- there's a lot of moving pieces, but is there any impacts from the lower, I mean, with the Fed Gov last week and kind of just how do you see that those gain on sale premiums going forward?

That's a tough one. It's sort of asking me to forecast a market price on something, but what I can tell you is if you believe that the trend on rates is lower than it has been the last couple of months, which based upon the futures market and the swap market more likely than not. And if you believe, that the economy is slowing.And you could look at that versus, what's happening in the stock market. And other market indicators, maybe more likely they are not that bodes well for prices, on the securities.

Okay. That's helpful. And then lastly, just -- I know, you are hiring out a lot of teams like in the loan origination platform as well as technology side. And with the new tracker coming on, how should we look at expenses towards the back half of the year?I know, I ask this every quarter, but just kind of want to make sure that, I'm framing it right with the new executive players coming on and as well as the loan origination officers?

I think, it's flattening out, I mean I think, Chris and I at some point, in time need to sit down. And take a look at things, which we do every so often. But I wouldn't expect any expense creep in the second half of the year.

Okay. That's helpful. And that's all my questions. Thank you.

Thank you.

And our next question comes from Marc Silk with Silk Investment Advisors. Your linen is now open.

Hi, Barry.

Hey, Marc, how are you?

Good. All good questions, mine is a little different here. So Barry, presently there's a significant amount of foreign government in debt with negative yields. The U.S. 10-year treasuries are yielding below 1.7%.The S&P 500 dividend yield is around 2%. And based on yesterday's close, new text dividend yield is 9.46%. Again, 9.46% based on your increased dividend of $1.95. This is a third year in a row of increased dividend per share by Newtek, so you have a proven track record.And by year end the Newtek dividends meant, my clients have received, will be equal to $11.49 per share since you have become a, BDC, in 2015. We have an environment of extremely low interest rates.And people desperately looking for yield. And not only does Newtek fill that desire, Newtek is clouded by being in the BDC ecosystem, so in my opinion an underpriced asset.In my eyes, when I started buying your stock in 2016. And yes, I was one of the fortunate ones to average down at $0.50, after buying some at $1.80, I was buying a company. And even though you became a BDC, to get the shareholders back significant dividends, you were still a company.I think that's what's lost here. So although, not very appropriately especially in this low interest rate environment, with you having a bona fide track record. My question is this.Since someone wrote a public article, why they sold your shares based on your net asset value, even though your dividend yield is 9.46%. Why do you think it is commercially reasonable that, Newtek is trading at a premium to NAV? And what makes you different than other BDCs?

Yeah. Thanks Marc. That gives me a lot of food for thought. And answering the question as well as thinking about, what we do after this call in this afternoon, and tomorrow, and the next day because.On one hand, I look at our performance. And I go "Jee can you really argue? Its 30% to 40% return a year for the last five years and probably a greater return even over the last 10. So, on that basis we're doing well. But then, should we be doing better?"And I think that, one of the things that everybody can count on is, we're not done. We have more energy today than, we had yesterday. And we're pushing forward. I think that, we're different. And because we're different, people that want to have an opinion, will take us and compare it to a metric that it's not relevant.You asked for BDC, yes BDCs are managed to NAV. But if you want to manage just against a metric just say "Yo! These guys are losing money on NII, just don't invest in them". Well that would have been a mistake.Doing what we do, having a greater reach, particularly into institutions, very valuable, that will do the work. We'll make a difference, I would say exponentially with respect to our future. You know judging by the calls from the analyst community we've come a long way.The calls are -- the answers to questions are great. I don't think there were soft balls I think they're poking and probing and looking at things that could be problematic. But, I think we've got a real good fighting chance going forward, to get -- I'm going to use the word different valuations.In other words, what's a different valuation? A different valuation is to look at a company, whose let's assume the dividends or earnings are highly correlated, that our dividends or earnings have gone from $1.50 forecast to $1.95 and growing. The trajectory is growing.So, for somebody, to say, "Oh, this is too high a premium to NAV", with their finger sticking up, in the air and say, "Oh! 1.5 times NAV, I'm a seller 1.2, I'm a buyer". Well, that may work for a period of time.But at the end of the day, if their earnings keep growing the stock price is going to increase, because people are going to want the earnings. In this kind of an environment, people are looking around for bargains. They still need to put their money to work. They're looking for fixed income or fixed income surrogates. Our stock price never went straight up. It dipped.And I can't tell you, how many times I have conversations, particularly with institutional investors that invest in this space. And they're interested, they're looking at it, they're fascinated by it. And then I get together with them they say, did you take a position, I missed the dip. And I'm going, okay, like after we hit like $15.77 that was an opportunity to jump in and do something, but now they missed it. These – whatever, they get spooked.So here we are again in sort of an odd period where we have a significant retail following and things change and except the company didn't change. I think this is a decent report, decent metrics. And I think it's -- we forecasted reasonable thoughts not overly exaggerated.So no, I would hope we continue to do our work which is going to require us to get in front of more and different people that can look at the stock and say yes, this company makes sense. It's got a good track record, it's on a good path. There are people that are flocking to it who are smart and know what they're doing. And therefore I may want to put some money into it.So I certainly appreciate your thoughts in the recap of the history. And I don't see any reason why our trajectory changes. And we asked a lot of questions about that today. I think the trajectory is there. So if you begin to look at what you think we're going to come in this year and where we're going to come in next year, should we trade at the same yield as Apollo or some of these other guys? I don't know. Somebody wants to buy Apollo because at a discount to NAV, I don't know they really got 20% to 30% energy loans. It doesn't make any sense.

You're -- it's funny because your stock had doubled from here and you're still a 5% dividend and I know when I watch CNBC, all these people want is companies that continue to grow their dividend and you're doing it. So people will continue to find you and you do a great job with your cost controls and you have a great management team and keep up the good work?

Appreciate that Marc. I think if we can get over that $500 million market cap number that'll be -- I think that has the potential to be a catalyst.

Sounds good. Thanks a lot, Barry.

Thank you.

At this time I'm showing no further questions. I'd like to turn the call back over to Barry for any closing remarks.

Thank you, operator. And I really want to thank participants on the call today. This was frankly one of the best Q&As, I think we've ever had. The analysts did an amazing job and really appreciate the thoughtfulness of questions both the ones that were out of the strike zone in the strike zone and very thoughtful and will cause myself the Board and the management team to reflect and make sure that we're on the right path doing what we're supposed to do for the investment community.So once again, thank you for attending. We look forward to reporting good results for the third quarter as well. Thank you so much.

Ladies and gentlemen thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.