NEWTI - NASDAQ

Good morning, everyone, and welcome to our first quarter 2022 financial results conference call. Today on the call, thank you, Jayne Cavuoto, Director of Investor Relations, I am also here today with Nick Leger, our Chief Accounting Officer, and we will be making the presentation. We are very, very excited about reporting our first quarter results. We are proud to announce that we beat analyst estimates of $0.62 adjusted NII a share for the Q1 consensus coming in at $0.72 of adjusted NII. I'd like to move everyone forward -- move everyone to the forward-looking statement slide on number one. Please take your time with that forward-looking statement slide at your convenience. It's important you absorb that. Slide number two. Historically, the company has proven shareholder value creation with a great track record of successful growth. We are projecting March 31, 2022. Obviously, we are all well-aware the financial markets have been pretty difficult in Q1. When you take a look at our 10-year returns, five-year, three-year, and one-year, all stellar, particularly against most market indices, particularly the Russell 2000. Our market capitalization is little over $620 million as of today's date. And we're very excited about delivering our earnings results to you indicative of the successful track record and growth of the business, its plan and its objectives. I would like to report that in the first quarter NEWT total return was down 101%, which was better than the decline in the Russell of down 7.5% for the first quarter. Slide number three. Obviously important position and topical with respect to investors' investment in Newtek as it has announced back in August its intent to acquire National Bank of New York City subject to a proxy vote and regulatory approval. On May 2nd, very recently the company with confidence filed its definitive proxy statement with SEC seeking shareholder approval to allow the company's Board of Directors to withdraw and to authorize its election to be regulated under the 1940 Company Act. Important for all investors to please familiarize yourself with the proxy, it's now out in the market, will be mailed, and is being mailed and sent electronically as we speak. Some of the important aspects of what's in that proxy statement, once again, we encourage everybody to read the statement including all the risk factors. I could be one of the only CEOs that tell the people to read the risk factors both for and against being a bank holding company versus BDC on both sides. But we've looked at the opportunity to acquire National Bank of New York City. And importantly, it increases our ability to finance ourselves going forward. It is very clear when looking at our returns, Newtek is a growth company, it's been able to grow its total rate of return, it's been able to grow its balance sheet, it's been able to grow its earnings, and historically, it's been able to grow its dividend. So, one of the primary reasons for the potential opportunity to acquire National Bank of New York City is to reduce its reliance on higher cost of commercial financing. I think it's readily apparent particularly when you see what interest rates have done over the last couple of months that the ability to fund its growth going forward by using core retail deposits in lieu of selling shares of stock and raising commercial debt financing at the BDC holding company would be more attractive. In addition, BDCs have a limitation of 150% asset coverage or 2:1 leverage, and a bank holding company would be able to use more debt, it can go as high as approximately 10:1, although it wouldn't start off that way. And a bank holding company and owning a bank, we will be chatting about this in future slides talking about being able to offer banking as a service and banking on demand to its client base. Importantly, we will also talk about the value of the NewtekOne Dashboard and NewTracker, and the opportunity really to unlock the technologies that we built and developed over the course of 20 years, and creating additional shareholder value. Once again, it's very important to note that it's the same company with the same mission, the same passion, same management team, same employees just in a different financial structure that we believe we have evaluated properly, that will be beneficial not just to shareholders but all stakeholders of Newtek, including our clients. Moving to slide number four; one of the things I think that's real important is we've developed our business model and have been able to deliver metrics that are superior to our competitors, particularly based upon the homegrown technology. NewTracker system is a file-vault, technologies within Newtek. And we will be able to leverage our homegrown technology more in the new structure. NewTracker, which those of you that are familiar with our company, enables us to acquire clients really in a much easier manner. We will talk about the referrals that we typically get in a quarter in future slides which are terrific. We are able to basically acquire clients without branches, brokers, business development officers, or bankers; very, very valuable. The dashboard that we will be developing and talking about is a great tool for our clients. And it will make their clients more successful and a tool that we believe that our clients will windup depending upon. With the potential down the road with respect to unlocking value that it may be useful for Newtek subject to vote and approval, to be able to spinout the NewTracker technology into JV with a license to dashboard similar to what Livo Bank has done with nCino. As a matter of fact, Livo Bank has done a very nice job. It recently announced the sale to Finxact, one of their equity stakes gained over $100 million. So, they have really created a terrific technology. One of the benefits of them creating a technology is they use it. So, a lot of software companies create the technology, but they don't have people to use it. When you look at our technologies, the NewTracker system, a file-vault, a way of acquiring clients, transferring data from business owner to our application, we've used it. And we have been in these businesses in all cases of silos over 10 years. This will enable Newtek to be, what we believe, is a business-oriented technology-enabled bank. We believe because we are going to be positioned in this manner, we should be able to run our business with lower expense ratios once again; ranches, bankers, brokers, BDOs, not necessarily required because we use technology to transfer that data. The client acquisition strategy is already in place. And we've been able to demonstrate through some of the numbers that you're seeing, particularly in our SBA and core originations in Q1 as we've come through the tech pandemic, and we've got a remote workforce, that we're actually able to use the technology, deliver the results, and deliver value to our shareholders. Slide Number 5, the one dashboard for all your business needs. What is that that's the NewtekOne Dashboard, NewtekOne Dashboard is trademarked and we've filed a preliminary patent on the dashboard as well, the value of the dashboard to a business owner, first thing is relationship and connectivity, they will be able to relate to a licensed insurance agent, a payment specialist, deposit specialist, a Lending Officer, a tech specialist, all silos and value that we give to our clients, they'll be able to connect, just as you see me here on the screen today talking to you. So, as a technology enabled bank, it's not just about software, and nobody to talk to, for that matter being shipped overseas to somebody to chat with over the course of time, this will be our version of banking on demand. And it's really just more than banking. When I think of banking, I think of deposits and loans. However, you could see that our definition of banking and business solution entails payroll, securing deposits, providing security for important documents, website traffic, being able to move money around real data on payment processing, Visa versus Master debit versus credit, this day, this year, this day, last year, this quarter, this year, this quarter last year, and it's going to be a dashboard for business owner, that will be a terrific tool. And it will be transactional, and informational. And our ultimate goal will be to integrate all these aspects into a general ledger for our client base. Next slide, please. So, we talked about the dashboard, once again the tool to enhance business extremely unique, it's unique, maybe in the marketplace, but not unique to us because we've been in all these businesses. And we use the technology today. Now we're just driving it up into one dashboard, one depository, repository, one single sign on. And once again, from a relationship perspective, it allows business owners to relate not just to one person in the institution, but to multiple. Our vision is for clients that use the dashboard to have this as a market recognized tool, and that clients will ultimately not want to be without, these are the types of the technologies that we believe we can unlock and create tremendous shareholder value down the road. Slide number seven, please. As we're going through what we call our transformation, although we're not there yet, we still have a little bit more to go. But we're excited that we plowed through about nine months of this. We have observed shareholder activity. Someone said why are you discussing people that have sold shares of Newtek? Well, first of all, I believe transparency is important. And I believe this is ultimately important to our transaction. And we ask the audience to draw their own conclusions from it. We analyze the non-objecting beneficial owner list. And we've tracked investors that own the stock on July 20, prior to the bank announcement to January 12. And we track that through various periods of time, you could see that we've had people that had a position, that went to 0, 6.2 million shares, almost 25% of the total outstanding stock. We believe this shareholder transition may or may not be indicative of selling shareholders who prefer a BDC structure over the potential conversion to a bank holding company, we pointed out and look for you to make your own decision. Slide number eight. Lending highlights, first bullet, most important relative to looking at the performance of Newtek and trying to see what type of trajectory that they're on, and as I read some of the reports that are out on the company, and I speak to a lot of shareholders. I don't think people fully grasp the fact that the data point of funding $163 million of 7(a) loans versus $104 million in the previous quarter, which also was a record is just pretty remarkable. So, when you look at the SBAs data with the SBAs on a calendar year that ends September 30. So, for the first six months of the year with the second largest SBA 7(a) lender in the United States, important to note, the first quarter is a light quarter for lending, why? Typically at the end of the year, lenders will blow out their pipeline, they blow out their portfolio to make their annual earnings and borrowers tend to do most of their financing in the fourth quarter, there is a major seasonal component. So, our ability to increase those numbers is nothing less than my opinion than remarkable now, we're going to get into why is that? I mean are we just cutting credit? Are we being easier, we are just trying to put loans on the books? The answer to that is no, no and no. So, once again, this outperformance in Q1 is real important. And you can't take the $750 million in straight line. That's just never how our businesses apart over the course of 18 years. Important to note, we are forecasting a $750 million origination here, we try to be conservative, that will be 33.8% increase over the $560 million from the year prior. Switching to loan categories, which we do at one of our portfolio companies, Newtek Business Lending, a wholly owned controlled portfolio company closed $31 million of 504 loans for the quarter recently ended an increase of 67% over the same quarter in the in the year-prior. We're forecasting $150 million of 504 closings for the full-year, that'll be a 66% increase. Once again, we're going to talk about the technological, operational and management changes that we've made to be able to affect this type of growth. Important to know the Paycheck Protection Program, which the company had to shift into once again, a great example of us being nimble going into the pandemic, we received approximately $50 million of fee income in the calendar year 2021, which relates to about $2.19 a share in revenue alone. So, now the expense is still there, because we were using the same staff. So, when you think that the $3.47 adjusted NII from last year, and you take out a revenue component, because the expense hasn't changed our ability to generate adjusted NII through the first quarter, a $0.65 dividend in Q1 which is paid out of earnings, a forecasted 75% dividend in Q2 equaling $1.40 of dividends, you would think that we always intend to pay the dividend out of earnings, we're on a pretty good course for the first six months of the year. So, we have not projected which we normally do a full-year of BDC earnings because of the potential conversion into a bank holding company. But we ask the analyst community and the shareholder base to be aware of the fact that we think this is an outstanding first quarter, our $0.75 forecast for Q2, we are impressed with, we will endeavor to deliver those earnings as well. And it's really important to note the company is tracking real, real well. So, when you look at the first quarter 2021 financial results, that included $24.2 million of PPP fee income. So, made some of the comparisons a little difficult, but we did point that out in the press release. Slide number nine. Performance drivers, we've made certain changes to the NewTracker platform that's enabled us to transfer the data from the borrower to our lending process in a more seamless and frictionless manner. Once again, no bankers, no brokers, no BDOS, very valuable, and this friction reduction has been really inquest. And you'll see this in our pipeline numbers, our ability to get to the borrower quickly, get the data exchanged and pre-qualify borrowers that are eligible with very large numbers of referrals that are coming in. So, our ability to use technology, which we're seeing in lending, we're going to be using that technology across all the different units, payments, payroll, insurance, tech solutions, et cetera, very, very powerful tool. We are an example of a technology-oriented institution, disruptive player and innovator that's using technology at the same time that it's utilizing, what we seem to hear and find as many organizations get the software, give it to their staff and hope for the best and it takes years for them to integrate it. I like to say, we're an overnight success, it just took 20 years. There's a lot of trial and error in this. We've been really good at it. We are very, very excited about how we're positioned. When we look at the NewTracker referral system, we are averaging of course across the year about 100,000. We are averaging higher referrals last year and year before, primarily because of PPP, and the first quarter came in at a lower average, we've seen better numbers in April and May. So, we feel that 100,000 referrals a quarter or 400,000 or plus a year really enables us to go through them quickly, pick out the borrowers as we want to provide credit to, and it's really given us real good metrics and an improving capability going forward. We've also made major changes at the senior management level under the direction of Peter Downs. We brought Virginia Wiley in to be the Chief Operating Officer under Peter Downs, the President of Newtek's Small Business Finance and Chief Lending Officer. Virginia has a tremendous team of Casey Swabby, Anna Pablo, and Justin Gavin, who has done a great job with their staff during this pandemic-oriented world that we are dealing with, the great resignation, and all that stuff. We think we've got the right mix of people, we've got the right objectives with our staff, we've got the right technology in place to really have Newtek continue on its track record of upward growth and success. Go to slide number 10. Well, our pipeline says it all. So, when you take a look at the 7(a) pipeline, across the three important metrics up 70.5% for the year, up 108% in closings. Finally these closings are early on very valuable, and the fact that these closings are occurring in month one and two of a quarter. Typically closings tend to pile up in March, in June, always in that third month. Now, we're seeing a nice steady flow throughout; very, very exciting. We have five pipelines, also very nice growth. We are not confirming conventional pipeline, obviously coming through the pandemic, it slowed this initiative down. We are going to talk about it. We are equally excited about this initiative, as we are -- anything else that we are doing in the lending market. We had a great securitization exit in January of this year to talk about the types of metrics and income that can be earned off of non-conventional lending. But clearly you could see we are on a great growth track, pipeline based upon better technology, better process, improved staff with line goals to ours, very excited, nothing to do being easy on credit to a degree we are wiser, we are aware, we are paying attention. Go to slide number 12, next. Thank you. Growth in loan referrals, 77,000 for the quarter ended March, down from the same period in 2021, obviously exaggerated that, all those customers are in our database now, we closed 247 loan units. The unit sizes are extremely important, 247 loan units compared to 147 units in the same period in 2021, we're getting much, much more efficient. We have an extensive database, and client opportunities over 1.5 million referrals picking up 400,000 for the year. When you think about the concept of the dashboard for depositors, in a banking environment when you go to the dashboard and see all of the things that are in front of you certainly makes cross-selling and cross-marketing not only effortless, you're not really cross-selling and cross-marketing, you are showing your wares and people are selecting it as they do, their banking business will do. We've got 19 years of history in loan assembly underwriting and technological expertise. We are leader in these businesses, feel very strongly about that. Company was founded in 1998, been a public company since September of 2000, not our first rodeo, we've been through upward cycles, downward cycles, up-credit, down-credit, and the company has done very well navigating all volatile markets and we are certainly in one right now. So, once again, looking at that last bullet, can emphasize this is not, we have materially improved our entire business operations and are positioned for growth and success in the future. Slide number 13, we keep growing our staff. Our staff growth is anticipation of more business now on the road, and yes, we are adding to expenses, while we are also adding to our capacity to do more business which we are clearly seeing as our pipelines are filling. Slide number 14. I thought this was an important slide from the prospect of analysts and disclosure, we talked about this on calls but I felt you know, I better put this down on paper, so it makes it a little bit easier for people to follow. So, we have come out of a little bit of a Goldilocks period for the types of lending that we've done. And frankly, I think a lot of people are looking at their bond and equity portfolios and equating it to Goldilocks as well. During the pandemic, the CARES Act created a 90% guarantee, which ended in 2021. So, all loans that you go into the SBA and get a guarantee number on as of today are to 75% guarantee. So, that creates two issues. One, you get 15% less gain on sale, you have more capital invested in the uninsured, but not subordinated participation certificate. And important to note, pull the two, which is a little bit more obtuse, but the fees that were paid, and it's about a 50 basis point servicing fee, that was part of the CARES Act, which was waived, actually gave our guaranteed piece, a 50% higher coupon, which created higher gain on sale prices. We've stated this previously. Once again, it's important to note, we don't see a dramatic change for us. But this will relate to lower prices, versus say the 103 type price that we got last calendar year, we came in at 102.5 for Q1. And that might be under a little bit of pressure, but we don't think a lot. And please don't ask me to forecast bond prices, or interest rates or anything else to that matter. It's important to note there will not be any PPP income or financings in 2022 from an income perspective. We have had a company focused on PPP loan forgiveness throughout the course of last year, I think we've gotten 26 million units, I think we've gotten by -- 26 million -- 26,000 units, I think we've got about 23,000 of those units forgiven at this point in time. So, we're getting down to the short strokes on loan forgiveness. With that said, we've got the resources that are available for our core business. We're very excited about this. Important to note, everything that you're seeing here is in Q1, and Q2, dividend numbers and the reported earnings numbers. So, this isn't a new revelation. We've got this into our models, we've got this into our forecast, we're already dealing with it. We're very comfortable with these changes. I just want to make one point and that is well I'll come back to it. I was going to talk about our dividends but I'll wait till I get to the dividends slide. Slide number 15, first quarter '22 financial highlights. You could see the headline highlights for total investment income and net investment income were dramatically affected by the allotment of $24.2 million of fee income from PPP, same thing for adjusted NII, still with that $0.72 came in beating consensus forecast of $0.62. Debt-to-equity ratio came in at what we consider a low 1.17, we probably would try to take more advantage of leverage going forward. Total investment portfolio increased by 5.2, yes NAV was down by 1.4%, was also up 8% last year. And given all the volatility that we've had in Q1 relative to cost of capital changes and spreads widening, we think that our NAV performance and our asset quality performance has performed extraordinarily well. Slide number 16, we talk about this transitioning. I think once again important to note, we've been very successful in transitioning away from $50 million of PPP income, repositioning itself into our core lending products. I will also comment that our non-lending portfolio companies do take Newtek Merchant Solutions, Newtek Solutions back on path to achieve $20 million of EBITDA in 2022. Although we talk a lot about lending as sort of a flagship opportunity going forward, these other businesses and business solutions that we have under the umbrella incredibly valuable both to shareholders and to our customer base. I will point out that NMS, NTS and NBL all make contributions to our first quarter 2022 dividend, Nick Leger will report on that, I believe was an excess of $7 million of dividends. Cross selling efforts across our business and financial solutions are expected subject to stockholder approval and regulatory vote through NewtekOne Dashboard. Slide number 17, dividends, so we paid a $0.65 dividend in Q1. We have forecasted a $0.75 dividend in Q2. That's a $1.40. Once again, if you want to try to figure out Q3 and Q4, which we're not going to be giving those forecasts at this point in time, based upon the potential changes with the bank holding company. But those of you that are following us from an analyst perspective and forecasting for the year, and those of you that are investors, who are trying to figure out what things look like going forward. You certainly can take a look at what we did in the first six months of the year and forecast going forward. I will tell you, as I looked at the four analysts that follow us, the expected adjusted NII for the year $2.39, $2.68, $2.71, $2.90 averaging $2.67 adjusted NII. I'll let you draw your own conclusion. We're extremely proud of our six month year-over-year dividend growth forecast, particularly given that we lost all that PPP fee income for our results for this year. Let's move forward to Slide number 19. Got it, okay. So, we look at increasing interest rates and we want to just generally talk about what this means for the business, the markets, obviously, it's extremely topical, particularly coming right off of Chairman Powell's comments yesterday. We've historically done a very good job of managing rates, rising in a folding rate environment. Our 7(a) portfolio is a quarterly floater over prime, no cap. Our lines of credit are also floating rate. Our securitizations for the 7(a) are floating rate. We believe that our margins and durations are appropriately matched. About 18 months ago, we began a hedging program on a SBA 504, either we're brilliant or lucky or a little bit of both. I'm impressed with the way that this has been very well managed by Brian Moon and our treasury function. And you could see some of the results are based upon the hedges that we've done, both in hedging, our portion of our non-conforming loan portfolio in the JV and 504 loans. I think that this is very indicative of a company that does a good job of managing risk in the marketplace. When we securitized the $87 million portfolio in the joint venture, our securitization was done on and sold at a fixed rate bond securitization coupon of 3.18%. The net coupon was 7.2%. The gross coupon was 8.2%, 100 basis points of servicing goes to SBL. We get 100 basis points of that. But you could see, we had a 400 basis point asset liability match. The loans have floors in them. When they adjust most likely, they have a propensity to adjust upward. This is called good asset liability management. Let's pull it on slide number 19. We talked about our proxy filing. We once again, strongly recommend everybody read the proxy and all the aspects to it. But you think in a rising rate environment, that being taking the assets that we have, and being able to finance the growth with core deposits, some of which are checking oriented and don't move in lockstep with treasury rates, as well as being able to use more leverage and not having to sell shares of stock, which effectively dilute earnings per share would make a tremendous amount of sense, in addition to reducing reliance on higher cost of commercial funding, which we're still able to get without question. So, when you see a rising rate environment, what does this mean for Newtek potentially as a bank holding company versus a BDC, today, we've got a five-year treasury. That's about 3%, AAA rated asset backed security. It's going to yield you 4%. So, when you look at the benefits of BDC versus a bank, the time you don't want to be selling shares is when banks is -- when stock prices are lower and when you want to have core retail deposits, when rates are rising. So, we welcome all of you reading the proxy, taking all these factors into consideration. Slide number 20. Important slide because our constituents, a big constituency we have is our workforce, we have an extremely competitive working environment and landscape, post-COVID. Work at Home hybrid model works for us. We began that in April. One of the key aspects of it is, everybody's on screen. So, and we have methods of tracking that and watching that, and we'll be pushing for further and further compliance down the road. But everybody's on screen. Why is that important? We want to have a relationship with our clients. Our clients don't have to be on screen. But our workers do. And we give them the flexibility to work out of their home, but to report to the office on a portion of their time, we've been adding new staff that is accepting, excited and interested in our model, which gives them the flexibility to work from home, and also have the camaraderie, the training and the collaboration from going into an office setting. We think we've got the right mix. The metrics that we've delivered in the first quarter are indicative about that, as well as how well we perform during the pandemic, particularly in 2021, doing 15,000 PPP loans, as well as $540 million to $550 million of SBA 7(a) loans, a record number of funding, and clearly a record number of units. And that's just in the 7(a) category. Obviously, we're thrilled with how we've been able to do that in the other four silos as well. Slide number 21 is a common slide. You've seen it, we always update the average loan size $155,000. That is coming down. We're very pleased with that. We like diversification. Slide number 22, this just talks about the trending on prices. Important to note with $59 million, almost $60 million of guaranteed portions of 7(a) on its balance sheet as of 3/31 available for sale. Slide number 23, very important trend. This is our net interest income, interest income less expense; it grew by a million dollars per quarter year-over-year. So, obviously that's reoccurring, we'll be continuing to add to the portfolio now that we're back in the origination business. So, we're very excited about this trend in our business model. Slide number 24, you could see our seasoning became a little bit more current, because we add new loans in size to the portfolio that comes down, we have a very nice season portfolio that should be through major portions of the curve. Slide number 25. Don't mean to jinx ourselves, maybe this as good as it gets, or for the types of loans that we do. I want to point out, that type of a currency ratio is extraordinary. And we're very, very pleased with the work that our servicing unit has done on our portfolio, I believe we've got an excess of 48 people that are servicing our portfolio of loans, which I think is $2.9 billion to $3 billion. I'm very pleased with how well our portfolio has performed. With that said, we are coming into a more difficult period. But we try to be as transparent as we can be in this area. This is great news, 26, 49 full time employees in our servicing area $2.9 billion, S&P rated both SBL and NSPF, we serve as portfolios for the FDIC have done that for over 10 years and the credit union regulator in Q1. We talk about the things that we've done for our customers, I think it's important to note, most of these programs with the exception of the employee retention credit program have come and gone. So, the benefits that our borrowers are getting from these most of them, I don't say every single one, but most of them have gotten the benefits that ended last June. So, the good news is we've worked with the tools that we had, we kept our clients, liquid will capitalize, we encourage them to downsize, get rid of things that don't make sense. We were an active service or in partner on the lending side. And it's really shown from that currency rate. Slide number 27, our classic slides that we've had for the last 19 years, so I won't spent too much time on them, 28 as well. Let's go through the portfolio company review, 504 Program, so we talked about $31.4 million of closed loans for the quarter up from $18.8 million and we're projecting a 66.5% increase for the year. We have plenty of capacity with our lending lines to put more of this business on. Slide number 31 shows the economics of 504 loan, 32 as well. Let's go to Slide number 33. We talked about the non-conforming conventional loan program done through joint ventures. We talked about a securitization of $56.3 million of notes, NCL Business Loan Trust 2022, a joint venture partner in Newtek, extremely happy with that execution. Slide number 34, the goal in the non-conforming conventional loan area, we're very close to finalizing a new agreement with an institutional investor for $100 million of equity capital. We're excited about it. We've got a forecast of $300 million of non-conforming conventional loans in 2022. For those of you that want to try to develop an income model for this, if you look at the securitization that we did, it required 35% to 38% of equity underneath it, it is a 400 basis point asset liability management spread going forward. So, you could see that the equity returns are in excess of double-digit not including 100 basis point of servicing fee that we get. So, this is a very attractive program for us. Thinking about the growth of this program, these loans typically average $5 million. So, for $5 million, 200 units, and we'll do probably 800 to 900 loan units this year, 200 units in this category gets a billion dollars worth of loans. And once again, we're using that big funnel, where we're getting 100,000 referrals a quarter, 400,000 a year, a lot of those referrals fit NCL 504 7(a) slot in the future, subject to my favorite disclaimer, proxy bond and regulatory approval. This goes into a bank. That's where the conforming CRE and the conforming C&I loans will come into, very exciting future for growth opportunity for Newtek and all of its shareholders. Slide number 35, the benefits of the non-conforming conventional loan program, origination fee, servicing income, it's really a great platform for us, and we're excited. Once again, we talked about the big funnel loans coming in and putting them into each category, you could see how we get tremendous leverage over an existing infrastructure and cost of doing business as it is. So, by adding these other programs, potentially using core deposits to finance them, really puts us in a great spot. We're very excited about our future in whichever way it turns out. Slide number 37, valuation on thank you, Newtek Merchant Solutions, that business has rebounded, I believe on last year 2021 by $13.8 million. We're forecasting about $15.1 million for the combined of NMS and money together, 38 rebound the payment processing volume 8.8% increase, the effects of the pandemic seems to be waning, consumer spending is still pretty strong. We're very, very excited about the NMS business, and equally excited about our POS system. On slide number 39. We believe that our POS system will be a big winner and future source of growth for us, we developed a POS system for a fraction of what some of our competitors have done, and we believe it's extremely competitive, and clearly replace existing users of Square and Clover. I won't get too much into the details here because we have a lot of data to cover. Slide number 40, our Managed Tech Solutions forecast, but $6 million of EBITDA for the calendar year, once again another business with growth opportunity, security risk assessments, this keeps growing. Our alliance partners are picking it up. We're excited about our positioning and being able to offer technology solutions to alliance partners and their client base. On slide number 42, we've gotten some nice lift in the last 12 months from our insurance agency and payroll units. Clearly, want to give a shout out to Shannon Vestal and Sam Razon, both Directors of Payroll Operations and Kyle Sloane and Melissa Walker and the insurance agency. We are looking forward to both payroll benefits and the insurance agency delivering positive EBITDA numbers for 2022. Slide number 43, 10-year track record of over performing against the indices during all types of time. Management interests align a 5.6% of the outstanding shares. I look at that and people say, well, why you like getting out of this B and C thing? I like dividends. I like earnings. I like total returns, but what's most important for me and my seat is to do what's best for all the shareholders and all the stakeholders. And we've analyzed that in making a suggestion to shareholders, as they look at the proxy and they read it that this might and should be something that shareholders strongly consider. Management's interests are very much aligned with shareholders in making suggestions to them. Company has proven to be nimble. That's really important. The market in the second half of 2022 and 2023 is entirely different than 2020 and 2021. And we've proven that we can operate well very quickly in difficult times and difficult market conditions, just like we got through the pandemic and '08 and '09. So, we've studied the markets in particularly arising rate environment, commercial financing. We believe we've made very good recommendations from a management team to the board. The board has supported those recommendations and we look forward to our shareholders continue to support us in all of our efforts and endeavors. We have diversified business model providing multiple streams of income. We are not just a 7(a) lender, and we do a lot of things here. We have a lot of clients. We really do a good job and got multiple streams of income, very, very valuable. We've used technology as a solutions provider to be a disrupter as we were for the first 14 years of our lives, in the last seven or eight years as a BDC and potentially going forward as a technology-enabled bank, we believe it's subject to the share of vote regulatory approval. We have a great opportunity to unlock the value in its technology that is somewhat hidden in the BDC construct that we've built over 18 years and by positioning and transitioning the company into a bank holding company. We think it's in the best interest of shareholders. Once again, before I turn this presentation over to Nick Leger, I want to remind everybody to please read the proxy statement dated May 2. I would also like to comment that once Nick is done, we are going to have Q&A, we have a different a conference call provider today. So, our format is a little bit different. We'll go over this one more time, but I wanted to give you a quick heads up. For everybody, we ask that you please state your name and your organization before you ask a question. With that, I'd like to turn the rest of the presentation over to Nick Ledger. I got that right. We have three Nicks in the company now. So, Nick Ledger, our Chief Accounting Officer. Thank you, Nick.

Thank you, Barry, and good morning, everyone. You can find a summary of our first quarter 2022 results on slide number 45, as well as a reconciliation of our adjusted net investment income or adjusted NII on Slide number 47. For the first quarter of 2022, we had a net investment income of $973,000 or $0.04 per share as compared to a net investment income of $15.2 million or $0.68 per share in the first quarter of 2021. Please note that income related to the PPP of $24.2 million is included in the first quarter 2021 investment income. Adjusted NII, which is defined on Slide number 46 was $17.3 million or $0.72 per share in the first quarter of 2022, as compared to $23.5 million or $1.05 per share for the first quarter of 2021. Focusing on our first quarter 2022 highlights, we recognize $20.3 million in total investment income of 41.2% decrease over the first quarter of 2021 total investment income of $34.7 million. The primary driver of the decrease in total investment income was primarily due to the $24.2 million in fees from the PPP in 2021. Dividends from portfolio companies is $8.5 million in Q1 2022 helped offset the decrease of PPP fees. In addition, interest income increased by $1.1 million resulting from a year-over-year increase in the accrual loan portfolio. Servicing income increased by 14.6% to $3.2 million in the first quarter 2022, versus $22.7 million in the same quarter of 2021. Distribution from portfolio companies for the first quarter 2022 totaled $7.8 million, which included $4.5 million from NMS, $1.5 million from MTS, $525,000 from NBL, our 504 business, and $1.3 million from NCL, our conventional loan joint venture, as compared to non-distribution from portfolio companies in the first quarter of 2021. Total expenses for the first quarter decreased by $100,000 quarter-over-quarter, mainly driven by lower interest-related costs. Realized gains recognized from the sale of guarantee portion of SBA loans sold during the first quarter totaled $17.2 million, as compared to $8.9 million during the same quarter in 2021. In the first quarter of 2022, we sold 221 loans for $122.6 million at an average payment of 12.05%, as compared to 107 loans sold during the first quarter of 2021 for $57.8 million at an average paying of 13.28%. The increase in realized gains attributed to high SBA 7(a) loan origination volume in the first quarter 2022 when compared to the first quarter of 2021. As I mentioned earlier, income related to the PPP is included in the investments income, not in realized gains. Realized loss in SBA loans investments for first quarter of 2022 was $1.9 million, as compared to $1.5 million in the first quarter of 2021. Overall, our operating results for the first quarter of 2022 resulted in net increase in net assets of $9.7 million, or $0.40 per share, and we ended the quarter with NAV per share of $16.49. I will now like to turn the call back over to Barry.

Thank you. Jayne, one more time could you go over how to call in?

Sure. Okay. So, for everyone who would like to ask a question, I'm just going to review again, if you have joined via webinar, you can press the -- or click the 'Raise Hand' icon, and then we will bring you in and allow you to ask the question. If you have joined via dialing in, you can press *9, and then once you get my prompt, you will be allowed to talk, and to unmute you will press *6. So, we would also ask everyone to please state your name and organization prior to asking the question. Okay. I actually have the first question here from Paul Johnson. Paul, I'm going to allow you to talk right now. Okay, Paul, you should be able to ask your question.

Paul, you might be on mute.

Paul, can you unmute your line?

There we go. Can you hear me now?

Yes, we got to know. Thank you.

Yes.

Okay. Sorry about that. It kind of broke me three times. Yes, thanks for taking my question this morning. My first one is just -- can , I guess expect the dividend that you just recently cleared, $0.75 for the second quarter, should we expect that to be the filed dividend as far as the BDC goes?

Good question, Paul. We have probably stated that we believe that our best guess, subject to the vote, an approval, we would look to have the bank transaction closed in the third quarter. So, with that said, there would likely be some true-up between that dividend paid and when the transaction would close. So, I would say, I will guess, and it's only a guess, is that this will not be the last dividend, from a BDC perspective.

Got it. Thank you. And then, just asking about the JV, I'm just curious, you're obviously getting close to getting the new JV started with the new partner this quarter, does the partner -- did they provide any sort of capital or resources into the relationship, or is this viewed as more of just kind of the capital provider in those types of investment?

No, I think the JV partners that we've historically have relationship with like BlackRock TCP and the new entity going forward, they're sophisticated, they're knowledgeable, they have equal say in the management of the JV going forward with respect to credit, and securitization, and financings. So, they do provide a lot of expertise. Obviously this is primarily our area of credit understanding. However, they do provide a lot of expertise outside of that, that we value.

Got it. I appreciate that. And then, just on the trends as far as activity in this quarter, obviously pretty high for the first quarter in the year. Would you say that's just more of a function of borrower demand, or is this something potentially like more efficient SBA, or you're just being more active with originations coming out of the BDC, what exactly is driving, I guess, the higher activity for this time of the year?

Sure. If you look at the SBA lead tables, which came out, I believe towards the end of April, we looked at the top originators, and they were pretty flat. Matter of fact, not positive, but I think is number one, I believe, I'm going to say flat to slightly down, according to SBA statistics. So, we think there is good business demand when you reach out the businesses and make them aware that you are in the market, but it's not overwhelming, and it does not support the amount of fundings we are doing. The amount of fundings we are doing we believe is really better supported by our market presence or technology, and our ability to convert and get to more of these clients, and the best clients and pick the best credits quickly. So, we do think this is a tremendous outperformance relative to the marketplace that will continue. Clearly the second quarter pipeline is up. So, we are very excited about the future in this area of business. And in addition, the technological advances that we've made with respect to data transfer from borrowed application to approval, and make it seamless and frictionless, will be something that we will further develop and drive into payments, payroll, tech solutions, and insurance.

Got it. I appreciate that. And then, I think I talked about this a little bit last quarter with you. I'm just curious about how the dynamic and the relationship kind of works with as far as, you know, rates moving higher this year, and the forward rate curve moving higher. How does that generally borrowers for, I guess, the relationship with prepayments, does that internally cause borrowers to faster, slower? What's that relationship like you've seen in the past?

Yes. And I appreciate the question. I think it's important for everybody to have an understanding. On the servicing side, we have been trumpeting for at least six months now to borrowers to deal with the fact that rates will be rising in the future. So, it's important for businesses to prepare. It's funny. One of the questions it's posed, is, you know, why not 75? At the end of the day, your job isn't to like just play around with the capital markets. Their businesses and consumers out there that have floating rate loans, and doing it slowly over time to allow them to adjust for the fact that their expenses are going to go higher, is a good thing. So, that's one of the things that we are doing now. What's happening from a dynamic perspective is, inflation is up, asset values are up, and it will lead to, we believe, faster prepays than slower prepays. And that's one of the potential depressants on price. But I think we're going like 1/10. No, doesn't really work that way, and it's not that short, but I would expect to see slightly higher prepays. And the coupons on the bonds obviously, they have actually been somewhat depressed in the first quarter, and potentially in the second quarter, because up until yesterday, you couldn't get the full coupon, because of prime, right? But investor's cost of capital was higher. So, it actually had somewhat of a depressing effect on prices. I don't want to just give you really hyper technical answer on a bunch of things. But I don't see any major changes. I think prepays will be a little faster. I don't think you'll see 1/13th, but I don't think you are going to see 1/10s.

Got it. Yes, I appreciate that. I understand it's a complicated subject, so appreciate that. Lastly, I know I generally ask this every quarter, but given that you guys have had a lot of hiring growth obviously in anticipation of closing the merger and potentially the bank conversion. Is there as far as salary expense goes, I mean is this a pretty sustainable level of $5 million or so per quarter, or would you expect that to moderate down or not at all?

I think for -- Nick, would you say for conservatism that's probably a good number for the next couple of quarters?

Yes.

Yes.

Okay, thanks. Appreciate that. Those are all my questions. Thanks for having me today.

Thanks, Paul, appreciate it.

Okay. Our next question is here. And can you please announce your name and organization?

Maybe I knew whomever that is.

Was that to me? Unfortunately, the conference call system was talking to me at the same time.

Hey, Robert.

Yes, Robert. Hi, Robert.

Robert, you don't have to -- you don't have to stay tuned in, Robert. It's that Brooklyn accent that gets me…

Thank you. It gets me in trouble sometimes. So, on the outlook for lending, I mean, obviously $750, the $155, how are you looking at that now given you expect higher prepays? I think there may be higher prepays which really is high defaults, , right, because what drives the prepays cycle in guaranteed 7(a)s, so what's your comfort level of growing the book that much with a time when you expect prepays and defaults to be rising? And how does that balance?

So, I want to be as crystal clear as I can. I didn't use default, you did, which is fine. And, would rising rates put more pressure on borrowers? Certainly could. I would say that this is probably one of the most liquid environments that we've ever seen for business owners coming out of PPP, ERC credits, idle financing et cetera, I believe that that aspect will clearly cushion borrowers. Another aspect, Robert, that will cushion borrowers will be the increased prices of the real estate which I think is about 55 to 60% of our portfolio -- to be able to cushion them in the event that they need to sell. Now what we've seen in Q1 so far from a pricing perspective is that it's been fairly modest. I mean there have not been tremendous changes in price because there is a pretty good demand for government guaranteed floaters. So, to be frank with you, this is such a volatile environment. So, on an agreement, default should go higher but I don't think markedly. I think prepays will go up which prospectively could put a damper on prices. Value of collateral is materially higher and the value of the businesses are materially higher. Those two things I believe will set the default number.

Okay, . Second question is this is broad question because I remember the election shortly after presuming you received approvals from the shareholders?

It's a good question, Robert. I think that -- I have one vote, so it's just one vote, I mean intuitively my thought process would be that the election would be exercised at the time of the close of the transaction, but that's entirely up to the Board. You just heard my guess on May 5, which I have the right to change. That was covering myself, but no, I think that's a very good question, that would be my guess, which leads into -- we think we are going to provide and we could vote, do change, so let's talk about that as a possibility or probability, whatever you want to look at it. Do you think there is another -- I mean there is more likely than not another dividend payment for the quarter or maybe two, but that's just based upon my guess as to what I think could happen, which is kind of out of my hands, because there is a lot of other people that are going to be making those decisions.

Fair play is just obviously the earlier they do it the early you get rid of the AFFE issue about deterring some institutions and buy the stock, at the margin. Anyway, last question, in the proxy, which I didn't read, there is multiple comments about obviously various things being annual elections, right, so I mean BDC election is an annual election, big election, an annual election when you file your tax return. If you convert in the quarter some time, is the result that you end up paying corporate taxes for the full-year, or it only a partial step, given that it's an annual tax return election rather than something that's done day-to-day?

It's up in -- I guess it's up until the time that you withdraw the election, and so it's not necessarily for the calendar year, it's up until the time of the election, but I would have to check with tax experts, but that would be my guess. Nick, would you guess the same, or different?

Yes, correct. We pulled back the election and filed our final BDC with C Corporation for the remainder of the year.

Got it. Thank you.

Thank you, Robert. The next question I have is Steven .

Hi. Thank you for taking my question. I'm largely enquiring about Newtek's intensions for the post bank holding company conversion, I've got two quick questions, first one is once the BDC conversion finishes, how quickly will Newtek leverage up it's balance sheet, and what is the ultimate maximum level of leverage that banking operation will use? And the second question is what factors and considerations will Newtek use to decide how much leverage , and what net interest margin could Newtek earn on this leverage? Thank you.

Appreciate the question, Steven. So, couple of things, one, the only way that question could be answered would be based upon where we get final guidance from the OCC on our application and the business plan that we provided, because the regulators have got a tremendous say in how we run the business. We have provided an illustration. Previously in early March, which I still believe is on our Web site at this point in time, sort of give you an indicative amount of capital that's there, I think that we will grow the business prudently, just as we've managed our own business over the course of time, I don't think it wouldn't be prudent to just all of a sudden, zoom right up and use all of that excess capacity. I will also tell you that, we've got a lot of experienced people, that'll be on the board and on the Alko committee, so we feel pretty comfortable about the ability to prudently with our management tools, grow into the capital, utilize it over the course of time, and grow the business prudently. The illustration that we've put out, I will also remind you, it was in a different interest rate environment. So, a lot of things and variables have changed. But I still think that's a reasonable assumption based upon when we put it out to base some of the answers to your questions on.

I think you're on mute, Steven.

Yes, I think last question was, I don't think you've touched on that was just how much expected net interest margin could Newtek expect?

Good question. Look, I think that, when we look at our competitors in the banking space, we see fairly tight margins, without putting a number on it, the return on equity and the return on assets in our business are materially greater. Once again, I would point to that illustration that's publicly available information to be helpful. But we're not. We will have a lot of, what I will refer to as conventional assets in the bank. We think that's important, that gives us diversification. It balances out the whole portfolio. But for example, that generates on a coupon, a net interest margin, that's pretty wide, same thing for the 504 business. So, we're looking at NIMs that are probably well in excess of 4%. I mean, I think that one of the benefits of what we do is taking some of these businesses that are going to go into the bank and benefiting from being able to use core deposits versus commercially defund deposits to be able to grow the business and then to use the leverage prudently as well over time.

Okay, so just to wrap up my question, you think Newtek would probably a leveraged up, slowly and cautiously, but the extra leverage would earn a lot more net interest margin than most other banking operations would?

Yes.

All right, thank you.

Thank you. Appreciate the question. Thank you.

Okay. The next question comes from . Steven, you should be able to speak. Just check you're mute. Steven, you are on mute.

Pardon me. Okay, can you hear me now?

Yes, you are good now.

Thank you. I'm going to read this because I think it's very seriously, and I help you bear with my reading voice. I am a retired shareholder who needs my dividend stream to pay my bills and help provide for future generations of my family. I'm not a graduate of the Ross Business School or any other business school, yet I feel fairly comfortable about the financial fundamentals of NEWT. And I am wondering why we have to choose between NEWT as a bank holding company and NEWT as a BDC. Couldn't there be a separate organization? Sorry, I need a technology company. Could they be a separate organization that would be a BDC within the new family of companies. From your comment about shareholders who cashed out -- Yes, sorry, your comment about shareholders who cashed out indicates to me that they were thinking along the lines, I was their dividends were becoming more uncertain. Personally, I think NEWT is well aware of the concern of investors about continuing dividends. And I'm looking forward perhaps optimistically to dividends from a bigger company. Just like your thoughts about those things.

Sure, Steven, I appreciate it. And I think as evidence that we care about all of our shareholders, the ones that are in the majority, the ones that are in the minority, the ones that are in the middle is that we want to hear everyone's thoughts and opinions and make ourselves available. So, I appreciate your comments. I think that the board, when they looked at these types of decisions, makes decisions based upon the best interests of all the shareholders. With that said, I think you pointed out that we have the opportunity to continue to grow and get bigger as a bank holding company, excuse me for a minute. Unfortunately, they're conducting the annual sprinkler test. So, bear with me for one second. I'm unmuted, okay. Can you hear me? Okay, great. So, Steven as we get bigger, and continue to grow, which you've demonstrated over 10 years, whenever the dividend payout or philosophy of the company is or whatever form, we hope that will continue to pay greater and greater dividends. I think it's important to note that we look at the company and put it in the form that we think is best suited to get a total return to its shareholders. And that was why the board decided to make this recommendation, board's interests are aligned with the shareholders. And that's the best answer I can give to you at this point in time.

Thank you, Barry.

Any other questions?

Yes, we have one more question. I've just allowed to talk, could you please just unmute and state your name and organization, please?

Hey, Barry, this is Scott with Raymond James.

Hey, Scott, how are you doing?

Doing well. First, just to comment, you know, congrats, kudos on the fabulous loan growth throughout all your different product offerings. And to that, I was wondering if it'd be possible to rank those loan types in terms of expectations for growth for '22 and beyond?

Yes, Scott, I appreciate your good question. Yes, we've been fairly tight on guidance. I think I can kind of give you a feel for the second quarter. But I can't go beyond that, and a lot of just, the transformation of the company. And we're just trying not to go too far out. However, I think that for the 7(a) business, probably look at I'd say $180 million to $200 million of fundings for the second quarter. I think the 504 business will be similar to the first quarter, $530 million of closings approximately. And we had given annual forecasts 7(a) business coming in at a conservative $750 million, and the 504 business coming in at a conservative $150 million. So, that's pretty much where we are for the calendar year for both businesses in 7(a) and 504, that I can business a lot of it depends upon being able to get our JV wrapped up which we're really working at an accelerated pace right now. And hope to do $300 million in the second half of the year that that one might be a tad aggressive.

That's fantastic. And the new JV, how does that stack up in terms of the SBA in terms of net for your bottom line in terms of $4 million loan?

Yes, it is a great question, Scott, I think the one thing about the JVs in a BDC format, and most likely in a bank holding format, they show up as equity investments. So, they'll actually be, they'll be generating basically dividend and distribution income. However, it does provide the servicing income, which is valuable throughout just for a round number, a billion dollars of loan originations, that you're servicing at 1%, it comes out to be quite a material number on a reoccurring basis without that portion of a capital contribution. And then you've got the spread income, which we talked about earlier, and then the equity that goes into the JV. So, we're very optimistic about the business, but that business which we have not given future guidance on could be extremely beneficial and give the company really additional engines.

Fantastic and it seems to me that your special sauce in the lending side is definitely NewTracker. Would I be correct in that assumption?

Yes, and to expand upon it, it's NewTracker from the standpoint of acquiring clients and getting referrals, which is probably what's most visible. However, NewTracker has been updated and improved to where an alliance partner and internal managers at NewTracker can see every email, every text, every phone call that's recorded frictionlessly and seamlessly get to borrowers directly. Get them a Fact Finder, which can get filled out quickly, and get an appointment said, we book about 150 to 175 appointments a day, with clients, with no human interaction. So, that's totally different than walking into Bank of America branch as a bit as a small business owner, or calling up an 800 number for Bank of America and trying to get a business loan. It's like night and day. And we're able to get the data transferred into a Secure File Vault and in a very frictionless manner, pre-qualify a client, it's now the clients working with you to get a loan, different than going to a broker that takes a loan package and auctions that off to three or four or five banks or funders.

Okay, fantastic. Well, congrats on the loan growth, specifically and good luck on the transaction. Thanks.

Thank you so much.

Those are all the questions. Barry?