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Edited Transcript of NEWT earnings conference call or presentation 8-May-20 12:30pm GMT

Q1 2020 Newtek Business Services Corp Earnings Call

New York May 31, 2020 (Thomson StreetEvents) -- Edited Transcript of Newtek Business Services Corp earnings conference call or presentation Friday, May 8, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Barry Scott Sloane

Newtek Business Services Corp. - Chairman, President & CEO

* Christopher Towers

Newtek Business Services Corp. - Executive VP & CAO

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Conference Call Participants

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* Luke Simeon Wooten

Keefe, Bruyette, & Woods, Inc., Research Division - Associate

* Mickey Max Schleien

Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst

* Robert James Dodd

Raymond James & Associates, Inc., Research Division - Research Analyst

* Scott Sullivan;Raymond James;Analyst

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Presentation

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Operator [1]

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Hello, ladies and gentlemen, welcome to the Newtek Business Services Corp. Q1 2020 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Barry Sloane, President of Newtek Business Corp. Go ahead, sir.

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [2]

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Thank you very much, operator, and good morning. My name is Barry Sloane, CEO, President and Founder of Newtek Business Services Corp., stock symbol NEWT on the NASDAQ. This morning, accompanying me on this call is Chris Towers, our Chief Accounting Officer and Executive Vice President.

First of all, I want to thank all of the Newtek staff that has been working remotely. 100% of our staff has been working remotely during this period of time, 24/7, particularly focused on the PPP program as well as payroll and other important vital services to -- over the 20 -- estimated 27 million businesses in the United States, we don't have all of them. We are servicing many of them, helping business owners have the funds necessary to provide payroll for their employees.

We've estimated that the PPP funds that we have gotten, each round numbers are guarantees from the SBA, will total approximately 130,000 individual payroll checks, and quite proud of that. I want to thank our staff for working 24/7.

For those of you that aren't familiar with Newtek, you can follow along this presentation. It is archived on our website, newtekone, N-E-W-T-E-K-O-N-E.com in the Investor Relations section. I would also like to point everyone's [attention to the] forward-looking statement that exists in that presentation on Slide #1.

Moving forward to Slide #2 on first quarter 2020 highlights. The company yesterday reported a net -- NII, net investment income or loss, of $0.01 a share. That is an improvement of 80%, over $0.05 a share, from the quarter and year prior. Our NII does not include gain on sale. And a significant part of our business is originating loans and selling them for gain on sale. This improvement is valuable because it pretty much indicates that, without any origination and gain on sale, we're pretty close to breakeven.

Moving down to the third bullet on Slide 2. Adjusted NII came in at $0.21 a share, down from $0.44 a share in the year prior. Obviously, our March -- we pretty much shut down our lending operation from the standpoint of normal 7(a) business due to the coronavirus and issues of visibility. So that portion of our pipeline, we believe it was prudent without a lot of visibility to not fund. Otherwise, I do believe that we would have meet-en or beaten prior year's earnings as well as been able to confirm our guidance.

NAV we reported yesterday, down 4.5%. Clearly, at the lower end of the decline for most BDCs. We'll spend a lot of time in today's presentation discussing those valuations, and we feel that they're incredibly appropriate and also conservative and stressed out.

Debt-to-equity ratio of 1.44 on March 31, 2020. We don't see this changing much over the next 2 quarters. With respect to the PPP loan business, we pretty much make the loan and almost 95% of our sales or 100% sales with no long-term balance sheet implications.

Slide #3 shows the company's historic track record of NAV over our life, which historically has been a positive movement in NAV despite the fact that we have clearly a setback in Q1.

On Slide #4, and we'll go into this a little bit deeper from a valuation perspective, particularly with the 7(a) portfolio, for valuation purposes. We have stressed the seasoned portfolio of 7(a) loans, the cumulative gross default at 30%. Particularly given that the portfolio is seasoned, we think that's extremely conservative, and we'll talk about the valuation there and have applied our historic 40% loss severity. Sometimes it's been greater, sometimes it's been less. We've actually done several liquidations that we've talked about at or above our market valuations that we have historically done, which I think validates valuation here.

Slide #5, important focus on the gains that we've made in NII historically over the course of 5 years, growing the business, getting reoccurring cash flow that is not involved in the reoccurring event of gains on sale. Obviously, a lot of the gains that we've accomplished in this area are based upon what I would call a normalized market environment. Our baby bonds have historically been issued at great prices. Our lines of credit have come down. Tighter spreads in the securitization have been very helpful to us. And we'll talk about where our bonds are -- what our bonds are experiencing in the market relative to the collateral, which we think has been enhanced by the PPP program, which we'll talk about in later slides. So we feel pretty good that the gains that we've made in NII over the intermediate and long term will continue to advance, particularly in the next quarter.

Moving to Slide #6. We chatted a little bit about the disruption in March due to the coronavirus, where we pretty much made a prudent election to pause on new funding that we had lined up for March. Obviously, at this point, the focus of the lending unit, which has been a total shift to PPP loans versus 7(a) loans. PPP loans are technically 7(a) loans but they have totally different characteristics, both in terms of balance sheet implications, margin and lending, which we'll talk about. But I think it's important to note that we anticipate 7(a) lending activity returning. That's a different statement that I might have made about a week to 10 days ago. That's how quickly the landscape is changing relative to the concept of visibility. I think it's important to note, as of May 7, there's $120 billion, according to the SBA, of availability for the 7(a) program through the end of this year, which would include normal 7(a) loans and PPP loans. There was a thought process about 10 days ago that, that availability would vanish immediately and be used up by PPP.

On April 29, Senators Rubio and Cardin, who are ranking members of the Senate Committee on Small Business, issued a letter to the U.S. Department of Treasury to encourage them to have a 7(a) program that is enhanced. In the original bill for the CARES Act, there was a program that had 90% guarantees, increases in loan size to $10 million and removing the credit elsewhere test. I think it's conceivable and a good possibility that 7(a) lending will continue through the rest of this year and potentially on better terms. A 90% guarantee leaves us with less balance sheet, less equity as we're able to sell the government guarantee piece off and potentially greater margins and greater loan size.

Moving to Slide #7. The company made a forecast, and I'm sure we'll talk a lot about this in the Q&A, for record NII and ANII for the second quarter of 2020 based on our regular business operations and PPP lending activity. We have not put a number on that. I will state that our largest quarter ever was $0.69 in adjusted NII. We need to get some more visibility, particularly getting through the month of May and maybe the first week in June, to get our fundings in line to be able to come out with a forecast, which will also lead into future dividend expectations as well. We feel very strong. And you take a look at our pipeline and what we sort of expect the fees to be paid for the treasury and the SBA for that activity, we feel pretty good about our second quarter. And visibility is starting to come back to us where things were pretty cloudy 2 to 3 weeks ago.

For those of you that aren't familiar with PPP loans, Payroll Program Protection Act, came out of CARES relative to the Coronavirus Aid Relief and Economic Security Act. About $660 billion, I believe, were appropriated for PPP loans. We were authorized as one of the nation's largest PLP lenders through the first 6 months of the SBA's fiscal year, we're still #2, to be able to make these loans to small businesses for the purposes of maintaining their payroll primarily and as well as paying rent and utilities. PPP loans are 100% federally guaranteed that differs with the normal 7(a) program, which is 75-25, which leaves us with a balance sheet of 25% of uninsureds.

We partner with several large banks, Stifel Financial as well as UBS and others, a total of 4. [This led] to 100% participations in the PPP loans that we've originated, which means we originate them, fund them in our [warehouse line] and are able to sell the entire asset off and earn an administrative fee from the SBA. This has put us in a good position although the margins are narrower than we get for gain on sale on the government. We don't have the balance sheet implications as well, and we're able to turn our capital.

We've currently obtained SBA E-Tran loans, which is effectively the guarantee that goes on top of the loan that enables us to make the loan to the business owner. And so far, we've experienced minimal amounts of fallout once we've obtained an E-Tran number for $1.1 billion worth of PPP loans. We are still taking in applications and opportunities for PPP loans. We feel pretty good about the $1.1 billion number. And I know it's mentioned earlier, we estimate that we have, through the $1.1 billion of expected fundings, been able to provide payroll for over 130,000 employees, which we're quite proud of that fact to enable small and medium-sized business owners to pay their staff, use the funds for that and to remain in business and keep the infrastructure going.

PPP loans essentially should be thought of as a bridge for these small to medium-sized businesses to get through the quarantine period which, in most states, appears to be somewhere within the 6 to 8-week range, some states 4. And then, obviously, these businesses are going to need further financing, which is where additional rounds of SBA lending come into place.

The company has done an amazing job. And once again, I want to thank the staff that's been working 24/7 tirelessly in a tough job. Everybody wants their money, they want it quick. It's hard to accomplish everybody. It was like 30 people trying to get through a door frame that can only fit 2 at a time. But we estimate that we'll fund about 2 years' worth of loan production in about 2 months' time. If you look at the CARES Act, $660 billion worth of funding which, in a normal SBA year, might be $27 million, rounded up to $30 million. So essentially, the industry will be funding 20 years' worth of production in approximately a month or 2, which is pretty remarkable from a dead start.

I think it's also important to note that we have offered 100% of all of our current borrowers a PPP loan. I do want to point out that, according to Survey Monkey -- despite the funny name, it happens to be a fairly prominent survey of small to medium-sized businesses, they estimated recently that only about 45% of the marketplace actually went -- applied for a PPP loan. I think that's a -- says a lot to the resiliency of the entrepreneurs out there owning and operating small businesses that didn't feel that they necessarily need it. But it also indicates -- we've seen a continuing trickling pipeline coming in of people still looking for these loans, and the window will be open all the way through, I believe, June 30.

Moving to Slide #8, further conversations about the CARES Act. One of the important unnoticed aspects of the CARES Act, it authorized the SBA and the Department of Treasury to make 6 months of cash, principal and interest payments on any existing 7(a) loan in regular servicing, which we view as less than 120 days as does the Treasury, basically effectively less than 120 days and not in liquidation. I say that from the standpoint that we've actually received $17.7 billion from the SBA and the Treasury. It came in, in the month of April to flow through our loans, paid principal and interest for a month for borrowers in regular servicing. And as a result, it left our SBA 7(a) loans that are in the accrual portfolio at 98.6% currency rate as of April 30, 2020. We'll get into this a little bit deeper.

We also would like the market to notice what our currency rate was on December 31, 2019, and what it was at the end of the first quarter, it actually improved without these payments. So we're working very hard with our borrowers to get them positioned for what I'll call the new economy going forward. And we have a lot of faith in our borrowers and entrepreneurs that they'll be able to pull through this as we do in the American economy.

I think it's important to note that the $17.7 billion of P&I payments: number one, allowed us to earn our full servicing income stream; it allowed us to pay down securitization debt, which is beneficial to our noteholders. Many of our noteholders bought other small business loan financings that aren't faring as well. We turbocharged the bondholders, meaning that principal that we would normally get on the equity piece has accelerated to the bondholders, so our bondholders are typically well overcollateralized. This is something that we've done historically over the course of 10 years. Our bondholders are and will be extremely happy. And that's an important aspect to the infrastructure and the reputation that we've built up historically in this particular market.

I think it's also important to note that the P&I payments that are being made for our customers are welcome payments. They offer an economic benefit to our 2,175 borrowers, and this will give them a nice respite during this 30 to 60 days of shutdown, and then they'll have 4 months of additional P&I payments for them to be able to recover and come out of this economy on the other side.

On Slide #9, we want to point out, we'll probably address this in a lot of the Q&A, relative to 2020 dividends, we did take our guidance back due to the issue of visibility. To be 100% frank with you, I can create a matrix that gives me a variety of different indications, both beyond the initial forecast, below the initial forecast, at the initial forecast. But we feel very comfortable where we are relative to being able to offer shareholders a very competitive dividend, which we've done historically. We're extremely conservative in our forecasting. You can see how that's benefited investors when we get to the end of the presentation with respect to performance in the stock price.

I will also point out that we are an internally managed BDC. I'm a shareholder as well. I love my dividends and look forward to receiving them out of earnings. I think that, as we look at things going forward, we're going to continue to be prudent, look for further visibility in our business model. Please understand we've had a change in the business model, from a 7(a) model, which has greater margins and greater balance sheet implications, to being able to make a loan and sell 100% of it. We'll certainly be open to having discussions about our dividend policy going forward, which is determined by our Board of Directors.

Moving to Slide #10, we talk about future opportunities in challenging markets. Once again, I want to complement the management team and the staff for really being incredible in adapting and being flexible in a new business model that was basically done fairly seamlessly to: a, getting everybody to work from home; and in the 7(a) market, switching over to PPP loans versus traditional 7(a).

We tried to emphasize this historically and, hopefully, it's becoming more and more apparent to investors. Our business model and the way that we do business post-corona without the use of branches, without the use of brokers, without the use of BDOs and limited sales force contact with end customers, it works. And lo and behold, everyone is sort of gravitating to this model and trying to get involved. We're very appreciative of what we've been able to do in a very short period of time. And we believe that business owners want to go direct to somebody to provide a financial or business solution in a remote location with the right software and hardware, and we're excited about that. We think about the solutions that we have, business owners, they got to work remotely. So our IT solutions is very well situated for that to be able to get them positioned to be able to do mobile computing.

Obviously, PPP loans, which have come to the forefront here, one of the key core functions of the PPP loans is payroll. Our Newtek payroll and benefit solution will be able to work with these businesses immediately, maybe be able to offer them discounts on payroll to be able to move their business over and to help them solve the problems that they're having with respect to payroll and health and benefits.

Similarly, insurance issues have come up. Many people thought they had various types of coverage, which they don't. Our ability to work with companies in our portfolio and offer insurance solutions for health, P&C, extremely important, making sure they've got the right cyber coverages, they're now working from home.

Moving over to payment processing. Obviously, we're in a new world for payment processing. We see how well PayPal has done for online payments. The concept that we have, being able to mobilize our clients to take mobile payments to improve their website and e-commerce platform, to be able to offer them 0-cost payment processing solutions, which we have, to enable them to reduce costs. We'll talk about our POS on Cloud solution, which is perfectly situated for the post-corona environment. We'll talk about that at a later slide.

I think that the one important aspect relative to our current business model and analysts, in trying to figure out, gee, what is the company's leverage ratio, where are their earnings coming from and the fact that we have the switch from 7(a) to PPP. Well, PPP will end. PPP is just a bridge. And in the conversations that I've had with most institutional lenders: number one, people had thought of 7(a) in the past, they think about it differently today. And although there's been problems getting the money out, I think that the marketplace is going to gravitate to be a bigger 7(a) market. We've actually heard many large financial institutions say that, going forward, they plan on extensively using the 7(a) market rather than putting these loans on their balance sheet. So I think that our position as the second largest SBA 7(a) lender for the first 6 months of this fiscal year, making SBA a little bit more of a household name with small to medium-sized businesses and obviously, there's negative and positive connotations that go along with it. When businesses are going to need growth capital and stabilization capital, they're going to come to this market, and we're well positioned to take advantage of that in the future.

Slide #11 is a similar slide that many of you have seen in all our presentations. The one important thing I'd like to point out, our average loan size of $180,000 on unguaranteed pieces, diversification, diversification, diversification. Many people on this call are in the financial community. They tend to be domiciled in New York. They tend to have a New York thought process in their head. New York has been much harder hit on the coronavirus and for small businesses than other states. Very diversified book of business. No geography that I believe is over 10% or 11%. We have a limited amount of business that are in the New York area. We're diversified in geography. I think our motel portfolio is under 2%. I think that the top 4 states, New York, Florida, Texas and California, would obviously -- New York in the top 4, but it -- I think it's still under -- it's either, I'd say, between 9% and 11% tops. And I think it's important to note that our portfolio is extremely resilient to situations like this, once again, because of diversification, diversification, diversification.

Moving to Slide #12. A typical slide that we have in growth in loan referrals, as many of you can see, we have to change our presentation. Referrals are a little bit less relevant given the movement to PPP, although we've gotten 70,000 loan referrals in the past 4 weeks for a PPP loan. Our database of customer opportunities, because of this and our position in the market, is extremely deep. I think it's also important to note that we've had other people that have sort of used referrals and sort of adopted our business model. So I've had people come to me and say, gee, Kabbage, PayPal, Lendio, they're all in your space. We disagree. First of all, the role has been limited to a lender service provider. They do not have an SBA 7(a) license which gives them the authority to actually make the loan and have the reps and warrants. All they've done is use the technology. There's a lot more to lending than aggregating data on the front end. And none of these entities, to my knowledge, actually received the license nor do I expect that to happen in the near future. But then again, that's up to the SBA and the treasury.

We value the skills that we've gotten over the last 17 years in understanding markets and understanding credits and being a fellow performer in this space and utilizing and embracing technology on the front end and in the middle part of the process to actually do credit analysis. So don't be confused of gathering data also in an untested manner relative to compliance is the same as what we've done over 17 years. That's a huge, huge bridge to cross.

I also like to point out Slide #13. In a normal 7(a) market, these are the premiums. Very important to note, and I've said this time and time again, the biggest issue in this area is prepayments in terms of pricing. Supply and demand is extremely important as well, given an oversupply that could be depressed. But the prepayment speeds. And the prepayment speeds on these loans will -- or are expected to slow dramatically. Why are they expected to slow dramatically? Not a lot of refi economic activity in conventional lending. Also, you've got a situation where, obviously, the economy slowed. You also have a situation where the principal and interest payments are now made by the government and not the borrower. So there's less of a likelihood of refi. Obviously, defaults will go to 0 because the payments are being made. This should be constructive in general for the bond prices of these government-guaranteed floaters that do trade at a premium.

Slide #14 is a real important point. And I've bolstered our discussion by putting a link to the Standard & Poor's article, piece of research that actually came out this week, talking about default history for Standard & Poor's, who's probably the leading rating agency in this space. We've historically said defaults tend to accelerate between 18 and 40 months, and then they flat. Our portfolio is 30.6 months seasoned. We've discussed this. This is a big deal. We stress the portfolio for pricing at a 30% default rate on a seasoned portfolio, which could be equal to a 40% to 45% default rate on a new portfolio, cumulative over the life. That's a very high stressed out situation. We feel very good about how we price this, how we've cleared the market and where our valuations are.

I would encourage everybody to take a look at the S&P report. As somebody that's been in the small and medium-sized business space, the concept of what you see on TV or what you might feel in your own local market, for example, in New York, that's not being experienced throughout the United States. And I think that there is a plethora of negative and economic news that basically has a view that none of these businesses are going to be able to survive. And in my view that's the furthest thing from the truth.

Here's some interesting facts. On 12/31/2019, our current portfolio of loans, 92.21%; in March, 93%. And so if the world was coming to an end, and everyone was closing up and going away and just forgetting about it, why did we have an increase in payments? We work our portfolio. We work with these entrepreneurs. They've got everything on the line. They've got personal guarantees. They've got personal collateral pledged. They're going to work really hard to open up.

Now obviously, a lot of the issues here depends upon the health situation that the entire economy and country and universe are betting on. But these entrepreneurs, they're the last person to throw the keys in because they've got everything on the line, personal assets, business assets for the entire family that are involved. So I think it's important to note in the tables that we provided that the payments that we received in April brought the portfolio up to 98.6% current. These businesses are going to get a lot of relief for the next 6 months. They've also all been offered PPP loans. I think they're going to be able to be very well positioned for coming out of this economy where, in that case, we've got a tremendous amount of government stimulus that you've seen, both on the consumer level, on the banking level and on the business level.

So we're probably more optimistic than most relative to the state of the economy going forward. Do we think it's going to be a V, immediate bounce back up? No. But we're not going to -- we're not going down the toilet right away. I think we're going to do just fine.

I think it's also important to note for those people that aren't familiar with Newtek, all our assets are marked to the market. Every single loan, whether it's an accrual or nonaccrual loan, it's in our 10-K and Q. So it's all marked to the market. There's no reserve. So you don't need a reserve because you're marking it to the market and, we believe, done so on a very conservative basis. We've been doing this over the course of 17 years.

On Slide #16 and 17 and 18, I'm not going to go too much into minutia except for the first slide. Simkar was a loan that -- a non-investment banking research piece put up by a short seller, highlighted that we -- he had no belief that there is a value on this particular loan which, to me, puts the value on his research or her research at 0 because I don't know how you could value a loan without looking into the loan file and seeing what the collaterals there. But Simkar is an interesting loan. This is a loan that we had repurchased from the SBA. Repurchased from the SBA doesn't necessarily mean you're going to have losses indicative of it. The loan was 402 days past due, in liquidation. It paid off on full on 4/30. In addition to paying off on full, we're able to collect $450,000 of past interest, $25,000 on late fees, $85,000 in reimbursement of legal fees. So we actually got income above the mark in excess of $500,000. I think it's important to note that, once again, this company has been around, 20 years a publicly traded company, but in the SBA 7(a) business for 17 years. We have a lot of people, we have a lot of eyes on this. All these assets are marked to the market with a mutual fund eye towards that.

FOGO data centers also loan that paid off in full. This loan was severely past due, paid off in full. We had 100% of the loan, was also repurchased.

Slide #18, Mitchell Auto Repair, another situation. I think the investment community, in particular, have just looked at like the last month and thinking it's Armageddon. Why are people paying their loan off? Well, there's value in the business. There's value in the real estate. There's value in what these businesses have done over the past 3, 10 and 30 years. And that's why, when they put their personal guarantee on it, they got their personal assets pledged, they've got their business assets pledged, they will buy these loans back from us so we could recoup. Once again, all of our nonaccrual loans marked to the market, all their accrual loans, marked to the market.

Slide #19 and 20, I won't go over, they're in our presentations on a regular basis. Quickly going through portfolio company review.

On Slide #22, we talk about our conventional loan program. Our conventional loan program, beginning in March and clearly through the second quarter, has been suspended based upon lack of visibility. However, we're proud to state that our conventional loan business has done well. $92 million of closed and committed, we full -- called nonconforming conventional loans. Let me define nonconforming conventional loans. Non-504 SBA program, non-7(a), no guarantee or support of any kind. Totally current. So we now have a situation where borrowers are going to, I'm not paying any of this. They've got personal guarantees on the loans. They have personal collateral. There's a lot of equity underneath the loans. And I believe as of May, of the 14 or 15 units, I think there's only 1 borrower that we know is extremely liquid that has not made their payment yet, we expect that to come in. Portfolio has performed very well. This portfolio was financed by our joint venture, Newtek Conventional Lending, and also financed on our balance sheet. But I think it's important to note, 504 funding and conventional loan funding will clearly be suspended at least through the second quarter and did get suspended in March. So that changed some of the -- obviously, our business model.

Moving to Newtek Merchant Solutions. We've got data in here. I don't think you can get any more transparent than having this data. And I look at this payment processing data on a regular basis, kind of gives me a very good feel for what's going on in the economy to actually see the level of Visa and Mastercard, American Express transactions that are going through the portfolio. We've maintained the full fair value at $115 million. We value POS on Cloud at $850,000.

And moving to Slide #24. We're able to track our processing volume. So for the first quarter, it declined by about 11% over the same period in 2019. In March, the processing volume was down by 23%. Now you're starting to see the effects of business shutdowns and the coronavirus. April was pretty much -- most businesses were shut, retail and restaurant environment, 37% decline. We believe this is the low point as states are now beginning to open up. The processing volume in the first 6 business days in May 2020 increased by 21% over the first business days in April 2020. So we're starting to come out of this. And as you see, states like Georgia, Pennsylvania and many other states starting to open up their business, we think we will see a bounce back. We have 1 portfolio in a company called Mobil Money. The entire portfolio is Newark cab drivers. With the amount of traffic coming from Newark, obviously, we probably only had maybe 5% or 10% of the drivers on the road because there were no planes coming in and out of it, clearly affected our valuation in this particular segment. But obviously, we believe once those airports open up, that will bounce back as well. So certain segments were softer. Certain segments were stronger. We're obviously giving you these averages.

Look, we're making an estimate that processing will be down about 20% in May, that is just an estimate. It's a forecast. And we're thinking the adjusted EBITDA for the merchant solutions business, which includes payments as well as Mobil Money, maybe 10%, maybe 15%. We didn't believe that represented our rationale to take a valuation hit. But we will look at this on a quarterly basis.

We do expect a rebound in our processing business. We're going to talk about POS on Cloud. I think it's also important to note how many of you are going to feel real comfortable walking into a store and giving them a $50 bill and getting your money back in paper currency or coins. I think that's less and less. So I think this is going to continue to increase the amount of touch and go, credit card use and things of that nature, which I think will be very bullish for this particular space.

Moving to Slide #25. Newtek Payment Systems or POS on the Cloud. I think it's important to note an acquisition we did toward the tail end of last year. We plan on rolling out POS on Cloud to our alliance partners in a white labeled solution. What this is going to enable a business to do is to have their own POS, which could be white labeled for creating new payment systems, bank payment systems, investment bank payment systems, so you get the brand with the alliance partner right on the POS, point-of-sale system, that's what POS stands for. Taking payment, integrating with e-commerce, well, what does that mean? Well, if the business is doing business online, like a restaurant or a retail, the data that's coming in from an e-commerce will integrate with the POS, and you get 1 reporting mechanism. And on POS on Cloud, will integrate to several different accounting systems. And also will integrate with all food delivery services like Uber Eats, Grubhub, DoorDash. As I said, it integrates with general ledger accounting systems and will also integrate with our own payroll solution. So the data will be pushed from time and attendance onto POS, right into our iSolved payroll to give a business owner a complete solution. In addition to that, when you're doing payroll, you look at workmen's comp, you look at health insurance, one beautiful complete solution.

When you look at some of our competitors like Square, Square doesn't have a payroll unit, and there's a lot of advantages that we have. We are not just software. We're software combined with staff in remote locations and able to service the customer. That's what small to medium-sized businesses need. They still don't want to do everything directly with a website.

On Slide #26, our technology portfolio companies. We have 3 of them: IPM, Cloud Nine, Newtek managed tech solutions. We're very proud of the turnaround in Newtek managed tech solutions. We're forecasting $3.50 million to $4.5 million of EBITDA this year. That's up from $203,000 in 2019, $836,000. We're a typical company. We have to be mobile in a finger snap. All of a sudden, 450 people are working off-line. They have to have storage. They have to have backup. They got to be secure. They have to be able to move critical data information with VPNs. They want to put them on Microsoft O365. They want to be able to have backup in 2 different locations. We can do all that. So we're very, very optimistic about our ability to be very good in this space. And the one interesting thing about being off-site, I think all of you have probably had some issues, whether it's your phone or your laptop or whatever, relative to being able to do your business. So we're going to be able to go in with our big database of customers and be able to offer those solutions to them.

Slide #27 also just talks further about what we did in our Phoenix-based operation. By the way, Scottsdale is a typo. The Aligned data center we're using is in Phoenix. But we've invested $2.4 million, new hardware, new software. We're very excited about what we plan on doing in this space for growth. This is one of our partner companies, Newtek Managed Tech Solutions.

28 talks about the opportunity in cloud. I think it's important to note, we can -- Newtek can manage workloads in Amazon, Azure, Google as well as our interim data center. So it's not an all-or-none situation. Give us your technology, give us your hardware/software and improve your security, improve your mobility and reduce your costs.

Clearly, our ability to work with payroll benefits is very valuable in the current environment. A lot of people have a ton of questions. They want to change their insurance. We're going to be well positioned right there.

Slide #30 talks about the historic returns we've been able to afford investors, extremely attractive. I would suggest you take a look at our history over the 5 years. In those 5 years, there wasn't a coronavirus. But you could see our stock, it had declined similar to what we have today, but we've always been able to bounce back. Obviously, we're in an unprecedented situation, which is a pandemic with health. But as all of you are trying to figure out your investment thesis going forward, at the end of the day, you basically got to invest in companies with strategies, going forward vision and management teams. And I'm proud of what Newtek is presenting today to the investment community.

Concluding on Slide #13 (sic) [#31]. Note, we're an internally managed BDC, so we're not trying to grow just for growth itself, just to get asset management fees. Our interest is very much aligned with the shareholders. Management owns 6.3% of the outstanding shares. We're not new. We've been around since 1998. We've lived through '08, '09 and didn't get a government bailout. We don't have, we believe, a lot of risk on our balance sheet. There's no CDO equity or derivatives or oil and gas exposure. We're very appreciative of the opportunity to present to you today. Given what's occurred to a lot of companies in this market, we think we're well positioned to proceed and go forward.

And with that, I'd like to turn the rest of the presentation over to Chris Towers.

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Christopher Towers, Newtek Business Services Corp. - Executive VP & CAO [3]

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Thank you, Barry, and good morning, everyone. You can find a summary of our first quarter 2020 results on Slide 40 of the presentation as well as a reconciliation of our adjusted net investment income or adjusted NII on Slide 35.

For the first quarter of 2020, we had a net investment loss of $282,000 or $0.01 per share as compared to a net investment loss of $1 million or $0.05 per share in the first quarter of 2019 and that's an 80% improvement on a per share basis.

Adjusted NII, which is defined in the slide, was $4.3 million or $0.21 per share for the first quarter of 2020 as compared to $8.3 million or $0.44 per share for the first quarter of 2019. That's a 52% decrease on a per share basis.

Focusing on first quarter 2020 highlights, we recognized $15.8 million in total investment income, it's a 14.8% increase over the first quarter of 2019. Service -- servicing, interest and dividend income were the primary drivers for the increase, with interest income increasing by 7.5% resulting from a year-over-year increase in the performing loan portfolio. Servicing income increased by 11.8% to $2.7 million in the first quarter of 2020 versus $2.4 million in the same quarter last year, which is attributable to the average servicing portfolio growing from $1.1 billion to $1.3 billion.

Distributions from portfolio companies for the quarter included $3.75 million from NMS; $75,000 from IPM; $250,000 from SIDCO; and $307,000 from Newtek Conventional Lending.

Total expenses increased by $1.3 million, year-over-year or 9%. Total interest expense increased by $0.4 million in the first quarter of 2020, primarily due to higher average outstanding debt balances. Origination and loan processing costs from SBL increased by $450,000 primarily due to increased head count and overall compensation levels. Small Business Lending LLC, or SBL, is one of Newtek's wholly owned controlled portfolio companies and is a lender service provider that, starting January 1, 2019, provides NSBF with loan origination and loan processing services.

Realized gains recognized from the sale of guaranteed portions of SBA loans sold during the first quarter totaled $5 million as compared to $9.7 million during the same quarter in 2019. In the first quarter of 2020, we sold 67 loans for $38.1 million at an average premium of 10.9% as compared to 117 loans sold during the first quarter of 2019 for $74.1 million at an average premium of 11.09%.

Realized losses on SBA investments for the first quarter of 2019 and 2020 were $400,000.

Overall, our operating results for the first quarter resulted in a net decrease in net assets of $7.3 million or $0.35 per share, and we ended the quarter with NAV of $15 per share.

Now I'd like to turn the call back to Barry.

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [4]

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Thank you, Chris. We'd like to open up the call to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first response is from Mickey Schleien of Ladenburg.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [2]

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Barry, just quickly on the SBA 7(a) prices, and I did look at the slide as you were talking, they were soft in March, as you've shown, and I have data that shows that they were also soft in April, which is a little confusing because these are government guaranteed, and there's low loan origination volumes. So you would expect the supply and demand imbalance to actually improve their pricing. So can you describe the market dynamics? And what's the outlook?

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [3]

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Sure. Mickey, I appreciate the question. And I do want to add that the SBA has done an amazing job during this crisis, just phenomenal. And although it's easy to sit in the bleachers -- and your question doesn't address that at all, but a lot of people, they're critical of everything. It's not the time to be critical. This is the time to be proud of what we've been able to do here. And I do want to complement the SBA on their efforts in working with us.

Now here's a little technical issue however. Well, historically, they've contracted with an entity called Colson, which I believe that will be changing out in the very near future. Well, Colson's located in downtown Brooklyn. So unfortunately, most of the pool assemblers, and I'm saying like, almost all of them, had difficulty in clearing bonds because of Colson issues and issues of having to deliver physical certificates and signatures. And that was a primary cause for there being a market dislocation in the month of March and in the month of April. I do see that shoring up. We did a little bit of selling in April, and were able to clear. We had some product left over from the prior quarter that we held onto. But no, I think from a pure valuation standpoint, these are premium bonds, they're government-guaranteed. And if prepayment speeds aren't at 22 or 24 but they're at lower numbers, putting supply and demand aside, that should affect the bounce back in price.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [4]

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All right, I agree. Moving on to PPP, and this is sort of a subsequent event discussion, and I recognize there's limitations as to what you can say. But my understanding is that you're collecting loan administration fees, which will be at the BDC level, and they range from 1% to 5% of the loan depending on its size, right? Could you describe how you expect the accounting for those fees to be? Are you going to book those fees as they're earned? Or will you capitalize them and then amortize them over the loans to your life?

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [5]

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Important question. First item, we've sold 100% of the loan in the form of participation certificate to third parties. And the fees are earned for the purpose of putting the loan together and putting it on our license. So it -- and obviously, it's early, so I'll put the qualifier on it that auditors haven't signed off on this. But in our conversations internally, these fees will be earned upon the funding date. They'll be paid in cash by the SBA. That's still to be determined. But being the law indicated fairly expeditious manner in which those cash fees will be paid, and there'll be -- those fees should be earned in the current quarter. But I think it's important to note, I think some people wonder where we're selling these at. They're all sold at par. And -- they're all sold at par. So basically, we're trying to come up with some kind of an income model, you could figure it's 1, 3 or 5.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [6]

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Right, right. And so there are parties out there interested in holding this 1% paper? I mean it's a little surprising.

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [7]

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It's done.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [8]

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Okay. So Barry, since PPP doesn't require -- based on what you just said, it doesn't require use of your capital and, meanwhile, your legacy loan programs are sort of on hiatus, at least for now, what's the outlook for Newtek's balance sheet leverage for the balance of the year?

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [9]

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So yes, Mickey, you're asking the questions that really are valuable to investors and have created sort of the lack of visibility that we really haven't been able to address up until this point. We're not giving a lot of visibility, but we're giving what we can. When we originate the PPP loan, we fund it and then we sell it expeditiously so that there's, I'll say, virtually no balance sheet. We've got currently 4 different funding partners. The funding partners have availability beyond what we've got PPP numbers for. So you can imagine that they're fairly deep. I've got 1 funding partner that's fairly small that will keep us with maybe a $5 million or $10 million balance sheet at the end of it. But practically, all of our funding partners are buying 100%.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [10]

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Okay. And these are folks that are -- I guess they're just looking at this, given the guarantees, these are almost like money market investments for them, correct?

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [11]

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Well, look, a financial institution can pledge this at the Federal Reserve for 35 basis points. So -- and they can also put it on their books at 0 risk-based capital with unlimited leverage. So when you think about this, Mickey, and this is once again looking at the company and, all of a sudden, this program gets thrust on us where it may have a 4% rate on Friday, a 50 basis point rate on Tuesday and back to a 1% rate on Thursday, where it can all be -- the way that the United States reacted in this crisis, I think, financially, although it's been heavily criticized, has been just terrific. And once again, I want to complement the Senate, the House, the Administration, the SBA and the Treasury. It's not perfect. And what you see on TV is everything is bad, it's not accurate. Not everything is bad. There's a lot of good things going on out there, and we'll come out of this.

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Mickey Max Schleien, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research & Supervisory Analyst [12]

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For what it's worth, I've stopped watching the TV, Barry. But maybe you can -- could you at least give us a blended average between the 1% and -- a weighted average between the 1% and the 5%? I mean there's a big difference between 1% fee and a 5% fee. Given the size of the borrowers, my sense, it's probably closer to the 5% than to the 1%.

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [13]

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Well, look, let me comment on this because I want to be careful relative to forecasting and what's going to fund and what's not going to fund. So as of this date, we've funded or closed, which I think also is a great number, about $650 million to $670 million worth the $1.1 billion. So we've been working at light speed. The SBA statistics indicate that round 2, the average loan was at the lower end of the wrung. And that would be in the 5% bucket. I think you could indicate that round 1 was closer to the bigger loans from an average. I mean look I -- at this point, I really prefer to wait until June. You could come up with different averages and forecasts and ranges. But we would just prefer to wait until that amount has been funded, that we've been reimbursed from the SBA with cash in the bank. And we can then move on from there. The one thing that has come to fruition is we got a 17 point -- $17 plus million payment from the Treasury for our portfolio, which makes us very happy, and our portfolio is 98.6% current. So that's one act that's passed through and round trip. This will happen too. This will happen as well.

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Operator [14]

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Your next response is from Luke Wooten of KBW.

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Luke Simeon Wooten, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [15]

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So just kind of following up on what Mickey was saying. I mean just because of the, obviously, ins and outs of the PPP program, I just want to reiterate what you said, 100% of the loans that you guys are originating are being sold ex the, think you said, $5 million to $10 million of the smaller partners that you're partnering with, right?

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [16]

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Yes. So the balance sheet won't grow in this activity by more than $5 million or $10 million. Plus, we've also sold governments that we had in the line. So our leverage might actually go down.

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Luke Simeon Wooten, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [17]

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Okay. Got you. And...

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [18]

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Holding everything else constant, okay?

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Luke Simeon Wooten, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [19]

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And then actually, just on the -- this is kind of just the housekeeping question, but on the referral volume for exclusively 7(a) loans in 1Q. Do you have that number on hand? Or is it kind of mixed in with the PPP? So it's hard to delineate between the 2.

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [20]

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Could you repeat that again? I'm sorry -- on the referral volume.

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Luke Simeon Wooten, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [21]

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Yes.

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [22]

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It's -- Luke, I would say that what we've historically done over the course of 4 or 5 years relative to referral volume growing, I mean, the data wouldn't be useful, in other words. Because if people came in and said they were looking for a $10 million normal 7(a) loan, we just -- we stored it. So we -- it's just not useful right now. I can tell you that from a modeling standpoint, the SBA business is now a very common name and word that a lot of business owners didn't know about. Newtek has also become more prominent in the space with a variety of different new referral partners.

Look, I would say, to be frank with you, we've dropped a couple of balls, but not many, and we've made a lot of new friends. So I think that we're going to probably suspend the whole referral volume number for another quarter, and then we'll pick it back up. But I'm confident that our numbers are great, and it's going to grow. So I -- no, but I -- it -- not real relevant. I would say those 70,000 are primarily driven to PPP.

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Luke Simeon Wooten, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [23]

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PPP. Got you. Okay. Got it. That's what I thought. I just wanted to make sure. And then just a second point on that is you're expecting the 7(a) to pick up more towards the back half of the year, correct? So kind of a 2 halves 2020 event rather than anything in the next quarter or even maybe a little bit in 3Q, right because of the PPP?

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [24]

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Yes. Important to note -- I think it's also important to note that the second quarter and the first half is usually weaker than the second half. So I think that if you can put any kind of a typical number in the second half, if you're trying to forecast, we've decided not to do this. So I mean, you guys can do it. I get it, investors want to get a feel for it, but just to go out into the third or fourth quarter. But I mean, if you put any kind of a 7(a) volume in there with any kind of pricing, it actually salvages a year that, in most cases, particularly in BDC world or in financials, is just in the toilet.

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Luke Simeon Wooten, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [25]

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Yes. Got you. Okay. And then kind of switching over to the payment -- or the principal and interest payments from the SBA. On the current accrual portfolio, I think on that slide, I think it's 15, you kind of list -- there's 15 loans that are either a little bit past due or further. And so we should expect that less -- or subtracting out the -- I think it's the 80,000 that will be transferred to liquidation. The rest should be funded with P&I payments from the SBA. So that would be another -- just under 5 here.

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [26]

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Number goes higher.

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Luke Simeon Wooten, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [27]

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$5 million. Yes, I got you. $5 million of balance, but then P&I is obviously lower. Okay.

And then lastly, on that portfolio, I mean, coming out of this, we're kind of -- I mean, I think the question has to remain, what's the demand for businesses and borrowers has been since those -- the borrowers have gone back to work? I mean obviously, just trying to get for a normalized loss rate on some of these, following the 6 months payments from the SBA. So I know you gave the slide of saying that 30% cumulative -- I'm butchering this. The cumulative gross default to 30% with a 40% loss severity, which should imply roughly 12% cumulative loss rates on the portfolio, can you just speak more to that coming out of this event? And what kind of business demand has been for borrowers?

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [28]

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Well, first thing in addressing valuation, I think that is -- I'll use the word fair. And I think, particularly when you pose it against the literature that we put out that shows these curves really flattening based upon seasoning. And I think that for those of you that really aren't immersed in dealing with small businesses and entrepreneurs, they are an extremely resilient class. You've got to come in every day, they got to make their payroll. And unlike a lot of consumers that are, in many cases, living paycheck to paycheck, the small and medium-sized business operator, in my opinion, can survive a month or 2 or 3 of 0 now. When I say that, I'm not talking about 100% of the pie but a pretty big percentage of them. And I think that's what we're seeing. Now relative to loan demand coming out of this, a lot of them have built up net worths. They've got 401-Ks, they got retirement plans, and they believe in themselves. They believe in their business. They're going to tap into those additional resources to give them whatever equity is required to bridge this and to be able to borrow if need be from the next SBA program that comes out. And we do have a lot of people today. We've seen that and we've -- we're holding these situations, but there is clearly a pent-up demand for capital. And this is a classic downturn from the standpoint that you will lose weaker entities. There's no question that you will lose weaker entities. And the entities that are around, they're going to do better because they have less competition. So there's going to be loan demand. I believe there will be loan demand.

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Luke Simeon Wooten, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [29]

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Okay. Got you. Yes. I was kind of just looking for -- I didn't know if you had any anecdotal references from the businesses themselves in terms of kind of consumer demand for their products or anything like that, just in terms of their ongoing kind of cash flows.

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [30]

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It's a little -- with respect to cash flows, the interesting thing, Luke, and we showed this, we pulled in a lot of cash in March from businesses that wanted to get closer to current. So they could benefit from being in regular servicing. And that was very beneficial. We did -- I don't know, very few deferments in the month of March. A lot of people did them immediately. We told people make your payment. So you can still have a deferment down the road if you need to, because you can't get unlimited deferments in the SBA program. I think you're allowed 1, but -- so I don't know, we did like 10 or 15 that I could recall. And they were all short-term just to get people current. But for the most part, these business owners, they've got savings, they've got -- they're not going paycheck to paycheck. Now when I say that, I'm not talking about 100%. I'm talking about 80%, 85%, maybe 90%, but they've got valuable businesses and infrastructure. And some of them have got marginal restaurants or marginal coffee shops or margin -- and they're going to go out. There's going to be businesses that shut. I don't think it's 1 in -- I don't think it's 3 in 10 or 4 in 10.

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Luke Simeon Wooten, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [31]

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Okay. Got you. That's super helpful. And then this one, last one, really quick. Just kind of on with the actual individual loans that you highlighted, the nonaccrual loans that paid off on Slide 16 to 18. Is the interest that's recovered from those recognized in the interest income? Or is it -- like should we expect that to be kind of an interest recovery? Because, I mean, just given the size, it looks like it would be roughly like 8% to 10% of the interest income that you guys receive on a quarterly basis. So I just want to kind of see if we should look at that as kind of one-time if we look at loan yields or overall interest yields coming in on 2Q.

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [32]

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Well, I think the one good question is that these loans are now cash current. We should have a much higher interest income that comes off of that existing portfolio. Portfolio will shrink a little bit. I still think we'll probably have 8% type prepayment speeds, but a lot of the portfolio got that cash infusion, which will be the full interest coupon as well as servicing.

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Operator [33]

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Your next response is from Robert Dodd of Raymond James.

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Robert James Dodd, Raymond James & Associates, Inc., Research Division - Research Analyst [34]

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A lot going on, obviously. First one, if we can go to the dividend momentarily, and then I've got some other questions. I mean is it the current intent -- obviously, in the presentation, you talked about there are annual distribution requirements. But is it the current intent to pay a cash dividend during the second quarter? You're delaying when you declare it because of lack of visibility? Or is it more the intent right now to pay out kind of more in the second half as everything works out and maybe just skip the normal dividend that you would have already declared for the second quarter?

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [35]

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Robert, number one, the Board is going to determine that. I am a Board member, and we kind of get more visibility as every day that goes on. I think that we clearly have got investors that look forward to receiving some cash payment on a quarterly basis. Given that we think that the second quarter could be a very big quarter. And normally, we pretty much -- we kind of keep that dividend very close to what NII is, right? That's historic. But whatever was historic almost goes out the window now. I think that, from our perspective, if you had asked me that question a couple of weeks ago, and maybe my leverage was going up, I might have had a different answer than I have today. I think that we're going to -- I don't have a specific answer for you today because the Board determines that. I don't really think that we're going to try to get investors some regular cash flow that they can count on, but I am hopeful, and I say this, I am hopeful that investors come away with owning Newtek this year and saying, wow, given the coronavirus, they paid me a pretty good dividend. Their portfolio held up.

And this turned out, given that this is a tough space to be in, financials, small- and medium-sized business, this worked out pretty well. So we're going to be judicious. I'll probably have more clarity on that beginning of June. I'd like to understand from the SBA, for example, when we're going to receive that payment. So I feel really uncomfortable saying, yes, we're going to make a cash payment, and I didn't get the cash back from the government yet. So as you can see, I'm being very careful about that, but we feel very strongly about the model, the earnings and what we're doing. I think investors will wind up being pretty happy with our cash dividend performance as well as how well our portfolio held up, and that's important to note, we're partners with the government.

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Robert James Dodd, Raymond James & Associates, Inc., Research Division - Research Analyst [36]

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I really appreciate that color. Second one, I mean, you just mentioned it again, right? I mean if I'd asked you 2 weeks ago, you'd have given a different answer. In your prepared comments, you talked about -- you do expect the SBA market to come back down in the second half of the year. But if I asked you that 2, 3 weeks ago, you might not have said that. So obviously, things are moving really fast and obviously changing every day. But what have you seen -- over those 2 weeks, what is it that's changed your confidence level so much in more -- in the interest of this question about the fact that the traditional program would come back in the second half?

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [37]

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I love that question. 2 weeks ago, everybody believed the money would run out in 10 minutes. There's no money. The whole $310 billion in a second would be gone, which means you need legislation to appropriate new 7(a) money, right? Well, lo and behold, the money is still out there, there's $120 billion left that could be used for 7(a) through the end of this year, and then it will most likely get re-legislated. I've also seen the Rubio-Cardin letter. You hear things from Pelosi and other politicians that the program is a bipartisan program. The administration is talking about growth in going forward and another round of stimulus which I believe and hope the SBA would be part of it.

And important to note, the Rubio Bill was part of the original CARES Act, that portion of it that would have gone to 90% with $10 million limits and giving you the ability to not have credit elsewhere. That got pulled because I think what the administration wanted to do was they wanted to do bridging first, to bridge everybody, get paychecks out there, get money to consumers, do the PPP and then go with stimulus after the fact. So number one, the availability under the 7(a) program; two, what I'm hearing from Washington; three, loan demand from businesses that indicates to me that we'll get back into a normalized environment.

I got to tell you something else, we really covered a lot in my payment sector, looking at the first 6 or 7 business days of May versus April, and you can see it's -- as people -- as things are opening up, people are going out. And they're getting out of their house and they're starting to spend. So those are the things that give me -- give me the confidence that there will be a 7(a) business at some point in time in the rest of the year.

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Operator [38]

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Your next response is from Scott Sullivan of Raymond James.

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Scott Sullivan;Raymond James;Analyst, [39]

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One comment and 2 questions real quick. And also really huge congratulations to you and your staff, your team for helping such an important and vital component of the U.S. economy, and you guys should, obviously, in my opinion, be very proud. So first question is, what's your goal for your staff this next quarter?

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [40]

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Oh boy. Yes, that's a good question, Scott, because they're working real hard. The clients appreciate them. We appreciate them. We've got to keep them going, keep them in their seat, keep hydrated, keep them -- just keep them going at a very high pace to get the money out and then deal with the concept of loan forgiveness on these loans. In addition to that, I've got payroll staff, payment staff, tech staff, insurance staff that's also going to be helping out in the program and working with businesses to get their payroll costs down, to get better health insurance policies, to get other insurance policies that they need to improve their technology for working from remotely and from home. So we have goals that are well beyond what is sitting right in the face.

And the one thing that was very constructive about this crisis, which is destructive across the board was I think our staff realized that the business owners out there, they're just like them. And these are people that really need them. They needed their help. They needed them to process their paperwork and to get money in their hands for payroll. That was a very positive thing that was hard to get across to people that our staff helps businesses every single day. That's what we do. We help people. And getting the staff to recognize it was frankly easy during this pandemic. So those are the primary goals for the quarter, and then this too will end, most likely by June, and we'll shift back into what we normally do, which is helping businesses, but albeit at a different pace.

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Scott Sullivan;Raymond James;Analyst, [41]

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Great. I appreciate that. Last question. With the large number of new customers you've obviously been introduced to and are helping now, what kind of cross-pollination do you think you could see, so starting to brush on this in the last response, what kind of lift could you see for your other small business offerings?

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [42]

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I've told my staff I think this is kind of a once in a lifetime opportunity where businesses now that are, in many cases, not fully functional, not fully operational, not really focused on revenue growth, to really focus in on the expense, to focus in on having the best solution and to get them to make changes. This is a once-in-a-lifetime opportunity for a business owner that can sit there and [say] look, do they have the best technology, can they work remotely, can they work remotely securely, are they storing, are they -- do they have hard backup, are they using the right payment processing solution, should they go to a 0 cost model, should they improve their website? I mean we impressed upon restaurants, for example, to take e-commerce. Well, a lot of them hadn't. Didn't want to spend $1,000 or $2,000 on a new website. That would have been the best investment they ever made.

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Scott Sullivan;Raymond James;Analyst, [43]

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Great.

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [44]

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To be able to order online and have curbside pickup, they would have been able to stay in business. It's the business that don't have curbside pickup, they really got hurt, really got hurt.

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Operator [45]

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Thank you. I'm showing no further questions in the queue. I will turn the conference back over to Barry Sloane.

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Barry Scott Sloane, Newtek Business Services Corp. - Chairman, President & CEO [46]

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Thank you very much. And look, we appreciate the opportunity to present to everybody. I, once again, want to thank all the Newtek associates. I want to thank the small business administration, all aspects of government, investors that have hung in there with us. And we look forward to giving further guidance. The important aspect is, through a really tough time and a tough segment of the market and the economy, I think we're very well positioned going forward, and we look forward to providing the types of returns that the community has become accustomed to with investing in Newtek. Thank you all.

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Operator [47]

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Thank you for joining us today. This concludes today's conference call. You may now disconnect.