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Newtek Business Services Corp. (NASDAQ:NEWT) Q2 2019 Earnings Conference Call August 7, 2019 8:30 AM ET
Newtek Business Services Corp.（纳斯达克股票代码：[NEWT]）2019年第二季度收益电话会议2019年8月7日美国东部时间上午8:30
Barry Sloane - President, Chief Executive Officer & Founder
Chris Towers - Chief Accounting Officer
- Barry Sloane - 总裁，首席执行官兼创始人
- Chris Towers - 首席会计官
Chris York - JMP Securities
Mickey Schleien - Ladenburg
Robert Dodd - Raymond James
Luke Wooten - KBW
Marc Silk - Silk Investment Advisors
- 克里斯约克 - JMP证券
- 米奇施莱恩 - 拉登堡
- 罗伯特多德 - 雷蒙德詹姆斯
- Luke Wooten - KBW
- Marc Silk - 丝绸投资顾问
Good day, ladies and gentlemen, and welcome to the Newtek Business Services Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator instructions] As a reminder, this call is being recorded.
I would now like to introduce your host for today’s conference Mr. Barry Sloane, President, CEO and Founder. You may begin.
美好的一天，女士们，先生们，欢迎来到Newtek商业服务第二季度2019年收益电话会议。 此时，所有参与者都处于只听模式。 之后，我们将进行问答环节，届时将提供相关说明。 [操作员说明]提醒一下，正在记录此呼叫。
我现在想向大家介绍今天的会议主席Barry Sloane先生，他是总裁兼首席执行官兼创始人。 你可以开始吧。
Thank you, operator and welcome everybody to our second quarter 2019 financial results conference call. I'd like to thank all the participants – call today for your investment in Newtek as well as your continued interest.
Joining me today on the call is our Chief Accounting Officer, Chris Towers. I'd also like to call everyone's attention to our website, where you can follow the presentation along from the PowerPoint that's typically hung at the time we released earnings last night. Go to newtekone.com. Go to the Investor Relations section and you will be able to take a look at our presentation.
I'd now like to forward everyone's attention to page 2 on the presentation and we do like to start-off with our historic equity returns of NEWT. So you could see over the course of five years and these prices are all as of June 30th; five-year return 209%, three-year return 139%, one-year return 26.3% that also includes the dividends during the period of time when we were a BDC, which almost fully encompasses that five-year return. So we're extremely proud of our history and being able to deliver results to our shareholders.
Moving forward to slide number three and looking at our second quarter 2019 financial highlights, we were able to grow total investment income for the month – for the quarter ended June 30, 2019 an increase of 24% over the three months ended in the prior quarter in the prior year.
Our net investment income NII with GAAP reported income for BDCs, we had a narrowing loss, which was originally $2.1 million for the three months ended in June 30, 2018 to $1.1 million. We are clearly proud of that narrowing and we will go into what that actually stands for and what it means and why it's clearly beneficial to our shareholders.
Adjusted NII, which we view as a better metric for us given that it encompasses all of our SBA 7(a) loan activity, we had a real strong quarter with an increase of 29.5% compared to the quarter one year earlier ended June 30, 2019. And adjusted NII exceeded analyst forecast by a penny. I should note that the company only gives annual guidance on dividends and we leave the quarterly breakouts to the analysts. Sometimes, we do have vagaries relative to analyst consensus on different metrics. That's up to them. We give annual guidance and pretty much stick to it.
Net asset value increased by almost 1%, 0.9% over NAV of $15.19 a share at December 31, 2019. We came in at $15.33, as of June 30, 2019. Debt-to-equity ratio of 127.9% as of June 30, 2019 on a pro forma basis looking at the broker receivable, we will talk about that in our next slide. It would have only been 114.5%, about almost a 14% delta.
Total investment portfolio increased by 17.6% and that increase was based upon the June 30, 2019 number versus a year earlier to June 30, 2018. We're also proud to announce that we had our credit facility from Capital One Bank go up by $50 million to $150 million from $100 million, a 50% increase and that was signed off and approved by the SBA which is indicative of our good standing not only with our senior lenders in the 7(a) business, but also our regulator.
谢谢运营商，欢迎大家参加2019年第二季度财务业绩电话会议。我要感谢所有与会者 - 今天致电您对Newtek的投资以及您的持续兴趣。
继续下滑至第二季度，我们看到了2019年第二季度的财务亮点，我们能够增加本月的总投资收益 - 截至2019年6月30日的季度比上一季度结束的三个月增长了24％在前一年。
调整后的NII，我们认为它是一个更好的指标，因为它涵盖了我们所有的SBA 7（a）贷款活动，我们有一个真正的强劲季度，比截至6月30日的一年前一季度增加了29.5％， 2019.调整后的NII超出了分析师预测的一分钱。我应该注意到，该公司只提供年度股息指导，我们将季度突破留给分析师。有时，相对于分析师对不同指标的共识，我们确实存在变幻莫测。这取决于他们。我们提供年度指导，并且非常坚持。
总投资组合增加了17.6％，这一增长基于2019年6月30日与2018年6月30日之前的数字相比。我们也很自豪地宣布，我们从Capital One Bank获得的信贷额度增加了50美元从1亿美元增加到1.5亿美元，增加了50％，并且得到了SBA的批准和批准，这表明我们不仅与7（a）业务的高级贷方以及我们的监管机构有良好的信誉。
Slide number 4 this is a slide that we have kept utilizing. I think it's important to note that at the end of the quarter we have a broker receivable. The broker receivable is based upon cash that we'll be receiving from the 11 Wall Street assemblage by a government-guaranteed piece.
Essentially, we view the broker receivable offsets against our line of credit and this particular portion of the line of credit is a short-term liability it's within 10 days. We may actually take a position and have a conversation with the SEC to get further clarification on whether or not this portion of the liability should be considered short-term and not be included in the debt to equity calculation. But we look at this once again, as a self-liquidating receivable. The proceeds from the brokers go directly into a secured account to paying out Capital One. So we view this as a portion of a short-term liability, but we have been calculating the ratio historically, as if the line of credit is one long-term liability for us.
Moving to slide number 5 we talked about NII, which is the GAAP term for BDCs. As many of you are aware, we have significant gain-on-sale income from SBA 7(a) loans. This has been a reoccurring event for Newtek for 16 years. Now BDCs do not make loans and sell them. They make loans and hold them. They are a different type of investment vehicle. We utilize the BDC format. It's been a great format for us for five years. And based upon the way NII is calculated that gain on sale comes out of the calculation which is why we look a little bit like an odd duck and show up as a net investment loss.
Important to note that as our loan portfolio grows and our servicing income grows and our contributions that we anticipate from our conventional lending business and other portfolio companies continue to float up, we believe that the trend of this particular form of income will get larger and larger. We're happy to report the gains from this particular area.
We do tell our investors that we're different. We make no bones about it. We ask investors and analysts please do the work. I would like to applaud our analyst community who typically has to create an entirely new business model to be able to track us from any other BDC. We believe that those investors and analysts that have done the work.
Clearly, if you look at our historic returns over the last five years and even 10 years, you have been rewarded and I think in the throes of the financial collapse in 2009, our stocks traded at about $0.50. We did the reverse split which would have equaled about $2.50 per day. So for those people that have worked with Newtek, studied Newtek, understand its business model historically, it's been rewarding. We do ask the investment community and analysts and we're thankful for those that have done the work.
On slide number 6, we felt it was important to demonstrate the upward trend in adjusted NII. If you take a look at '16, '17 and '18, very nice growth here. We've also forecasted a $1.95 dividend for the 2019 calendar year. We typically state in those forecast that we anticipate and have always been able to do so that the dividend will be paid out of earnings. So, those that believe in those two forecasts from the company could see, they will have further growth in adjusted NII for the year.
In reply to one of the bloggers out in the investment community who made a comment that our earnings have not been growing year-to-year, I need to point out that the fallacy in that statement relates to the special dividends that the company participated in. I would point investors to the 12/28/2015 press release, where we talked about approximately a $34 million distribution of which was made in $8 plus million of cash, 1.8 million of shares which frankly changed our whole share count. That is an incorrect comment that our earnings have not been growing year-over-year since we became a BDC. Once again I strongly suggest that people do their work and we certainly appreciate those that have invested in Newtek.
On slide number 7, we do point out that we do have seasonality in earnings. The fourth quarter and third quarter are bigger quarters for loan originations and fundings. They're also bigger quarters for our payments business which is a significant part of our dividend, our earnings and our adjusted NII. If you take a look at the trends, approximately 55% of our earnings do come in in the second half of the calendar year.
Moving to slide number 8 in dividends and dividend forecast, we paid a second quarter dividend of $0.46 a share against the reported yesterday $0.57 in adjusted NII. That was a 9.5% increase over the company's second quarter 2018 cash dividend of $0.42 and a fairly significant jump in the adjusted NII number year-over-year as well. We mentioned we recently bumped up our dividend guidance from $1.90 to $1.95. The cash dividend paid in 2018 was above 80. We originally forecasted above 83 for 2019. So we're proud to state that we're clearly moving in the right direction based upon what we see.
And our metrics you can take a look at where we initially forecast a dividend in 2016. And it's at above 50 or currently at above.95. And as we always state, historically our annual cash dividends paid have been between 90% to 100% of taxable income and we do anticipate our 2019 dividend payout to be within that range. I think, once again it's important to note, please do not confuse us with other BDCs.
Most other BDCs have a really hard time being able to maintain their dividend and most of them trade, I'll use the word right around NAV and they should. It's a static portfolio with purchase loans. And as we are growing our dividend, we should command better stock prices and as we grow our earnings, obviously in tandem with the dividend.
Slide number 9 talks about our 7(a) lending highlights, a 15.1% growth and increase in 7(a) loans funded during the three months ended June 30, 2019. Looking at July, and once again, we forecast annually and why we forecast annually because, we don't want to have to exaggerate that we funded $35.9 million of SBA loans in 2019, a 215% increase over $11.4 million fundings in July of 2018. I mean, those are factual numbers, but the point here is that, please look at us on an annual basis, not quarter-to-quarter. It's a business, things do not go up in a straight line. I like to remind everybody on this call, we had a week in December of last year where we stock traded off 25%. It was trading in the $15 range.
I can't tell you how many investors that I've spoken to, primarily institutions that have said, gee, did you get in? No, I kind of missed that window and that dip. Well, maybe here we have another one to get in. And the question is, are people going to take a look at what we're doing from a long-term trend perspective or they're going to freeze when the opportunity comes to participate?
We're still looking at a 2019 7(a) funding forecast of $580 million to $620 million for 7(a). That would be 27.9%. Given what we've experienced over the first half of the year, I would probably guide to the midpoint or lower end of that range to be fair, but we're still keeping that wide guidance and it is still possible to be able to certainly hit the midpoint or the high point. But I will tell you, we're keeping the range, but we're guiding to the midpoint or the lower point.
Sufficient capital on slide number 10 to be able to do our business. We're thrilled that the market gave us the opportunity with the recent dip and rally in the fixed income market, to have been able to issue a bond that is listed on NASDAQ, NEWTL. The bond is trading well. It's trading at a premium.
$55 million on the issuance side, not including the green shoe, that will give us some very nice capital going forward, doesn't require us to raise additional capital with respect to fundings or equity, gives us tremendous amount of flexibility. There's really good loan demand. We made a big investment in human capital, real estate. All that expense is baked into our historic numbers. We're well positioned for future growth and anticipate some nice operating leverage going forward.
Slide number 11, we talk about our conventional loan joint venture with BlackRock. We're really excited about it. We closed on April 29 a $100 million senior secured facility with Deutsche Bank which will give us additional leverage and will enable us to recording up to $200 million, if we need it.
We believe that the JV investment in non-conforming conventional loans could be material and growing, contributing to our future business. Based upon what we see, it's not inconceivable that between 1% or 2% of our current referrals could qualify for this non-conforming program.
I'd like to remind the investment community in the audience, I believe, the JV closed around mid-May. So relative to mid-May through June, we're only operational for about 40 days.
Slide number 12, we talked about the NEWTL raise. We're going to be refinancing the NEWTZ 7.5% notes of 2022. As I mentioned to you, these notes as of August 2 were trading at $25.35 on a $25 par amount. Egan-Jones maintained their A minus rating.
So for those of you that are focused on leverage, the rating agencies are going to tend to serve as our guide for leverage going forward and we're pleased that Egan-Jones looked at our business model, looked at our growing dividends, looked at our credit quality, diversification and maintained our rating of A minus.
Slide number 13, we talk about NewTracker. Many of you are familiar with the fact that one of the major value propositions in investing in Newtek Business Services Corp is, we're not a group of investment professionals that buy loans and lever them and take asset management fees.
幻灯片编号12，我们谈到了NEWTL加注。我们将对2022年的NEWTZ 7.5％票据进行再融资。正如我提到的那样，截至8月2日这些票据的票面金额为25美元，交易价格为25.35美元。 Egan-Jones维持A减号评级。
We are a living, breathing business with 450 employees, superior technology, growth none of which shows up in NAV number. NewTracker 1.0, which has been our core platform, was launched over a decade ago. We've got a patent, not only on the software but on the service methodology. It's been really the secret sauce of our company.
We're excited that Dan Hendel, Director of IT and his development team, who are doing a fabulous job for us, anticipates rolling out NewTracker 2.0 during the third quarter of 2019. NewTracker gives full transparency into our back office from our referral partners and gives referral partners complete confidence that we're taking care of their clients. It also helps our management team manage our staff, our business service specialists who are assembling loans, underwriters putting credit memos together.
So this launch will enable us to have all data recorded calls, e-mails to clients, all-in-one place, give us more full robust data platform, enable our master central database capability to grow, which ultimately will increase our outbound capability.
We are extremely efficient in our loan origination platform. You'll see that going forward, as our pipeline, which might appear to be slowing in growth or stagnant, is just more a function of being able to efficiently put through and work on the loans that makes sense and get over the goal line.
Slide number 14, just wanted to point out a great crew of analysts. We have five companies that do follow us and we certainly appreciate the work that they do on our business and our model. Slide number 15, 16, 17, 18, we've covered this in recent calls and our Analyst Day Meeting tremendous senior addition to staff.
Once again important to note in over the last six months we spent a lot of time and energy working on taking referrals and training BSS' to be able to take some of those. Some of those need to go into a 504 bucket now, some of those need to go into a non-conforming bucket. We've got to get the software right. We've got to get the staff trained to recognize, which one of these loans fit and provide the better solution for all. These things do not go up in a straight line. So I'll let -- some of you always have commented on my joke about taking after slide rule. So we look at the first half of this year as a year of investment. We plowed a lot of money back into software, into training, into additional staff, into real estate. We'll continue to do that in the investment over our five-year and 10-year history as paid off handsomely to our shareholders.
Looking at slide number 20, we look at this as our pedigree. We're the largest non-bank SBA lender under the 7(a) program. There is only 14 of these licenses. New licenses haven't been issued over the past decade. We're the fourth largest 7(a) lender including banks. We surpassed JP Morgan recently in this category and do more SBA loans in entities like Capital One Bank, Bank of America, et cetera. We've got a great track record and history of the full severity and frequency. We've done nine securitizations average loan size of $179,000.
我们是一家生机勃勃，充满活力的企业，拥有450名员工，卓越的技术，增长，其中没有一个显示出净资产值。 NewTracker 1.0是我们的核心平台，十多年前推出。我们获得了专利，不仅是软件，还有服务方法。这真的是我们公司的秘诀。
我们很高兴IT主管及其开发团队的Dan Hendel，他们为我们做了出色的工作，预计将在2019年第三季度推出NewTracker 2.0.NewTracker通过我们的推荐合作伙伴为我们的后台提供完全透明的服务。让推荐合作伙伴完全相信我们会照顾他们的客户。它还有助于我们的管理团队管理我们的员工，我们正在组装贷款的业务服务专家，承销商将贷项通知单放在一起。
在过去的六个月中，我们再次注意到我们花了很多时间和精力去接受推荐和培训BSS，以便能够采取其中的一些。其中一些人现在需要进入一个504桶，其中一些需要进入一个不合格的桶。我们必须正确使用该软件。我们必须让受过培训的员工认识到，这些贷款中的哪一个适合并为所有人提供更好的解决方案。这些事情并没有直线上升。所以我会让 - 你们中的一些人总是评论我关于采取幻灯片规则的笑话。因此，我们将今年上半年视为投资年份。我们将大量资金投入软件，培训，增加员工，投入房地产。我们将继续在五年和十年历史的投资中做到这一点，因为我们的股东获得了丰厚的回报。
看看20号幻灯片，我们将其视为我们的血统。我们是7（a）计划下最大的非银行SBA贷方。这些许可证中只有14个。过去十年没有颁发新的许可证。我们是包括银行在内的第四大7（a）贷方。我们最近在这一类别中超越了摩根大通，并在Capital One Bank，Bank of America等实体中获得了更多的SBA贷款。我们有完整的记录和完整的严重性和频率的历史记录。我们已经完成了九次证券化，平均贷款额为179,000美元。
With slide number 21 take a look at our pipeline and some people go, "Oh my god, it's slowing." We don't agree with that. We're just being a lot more efficient. We're able to weed out loans quicker. We feel very good about our pipeline. We feel very good about making our loan forecasts and our budget earnings for the year.
For the three months ended, loans -- June 30th loan fundings increased 15% year-over-year and we had a terrific July funding $35.9, which is typically a slow month for us. Growth in loan referrals up 5.6%. Mind you some of these referrals partners, we do need to call through. For those of us that are giving us opportunities without a great hit rate, we might slow them down and we're always adding new referring partners to the party.
We're excited about our business model. To our knowledge no one really runs the business using technology to acquire large quantities of opportunities cost effectively. We looked at over 65,000 opportunities last year. We'll probably look at a similar count this year, but we're excited about what we're coming -- what we're looking at for gross referral volumes.
Premium trends for gain on sale for the 7(a) 11.5% that's up. The current market dynamics of a slowing economy and rates declining are a very good strong trend for this particular segment of our business. So we are constructive and assume prepayments will slow, which will cause investors to buy these bonds at higher premiums. Less robust economic activity also causes less prepayments.
Slide number 24, we talk about the seasoning of the portfolio. We've got a large portfolio right now that's seasoning, and it's seasoning at a faster rate than adding new loans, which means that the portfolio is aging. As we've discussed, the default curve on loans of this nature, you get the peak amount of delinquencies and defaults in month 24 through 40, we are experiencing that. You could see some of that slowdown on slide number 25. I want to point out extremely comfortable with these trends. Slide number 26, we have recategorized our non-performing loans into sub-performing and non-performing. I will give you some examples of why we're doing that. Sometimes I think we get a little too granular to educate the investment community.
We're too transparent. We don't want to be confusing but we want to share information. A sub-performing loan is a loan that we look at as from a valuation standpoint as a loan that will be able to be paid off principal and interest based upon the current balance out of the cash flows of the business. A non-performing loan is a loan that is in liquidation. The business no longer will be able to repay us and we're in the process of liquidating the collateral.
I'd like to go to slide number 27 and these are important statistics that you can't deem from a K or a Q. You've got to base this based on our 20-year track record as a public company five-year track record as a BDC and a really strong management team that is transparent and has a high degree of integrity with how it looks at these things. These are two loans that were the non-performing category. So for those of you that are familiar with looking at banks in this area non-performing means written off, not in our lending world.
在截止的三个月中，贷款 - 6月30日的贷款资金同比增长了15％，我们7月份的资金非常可观，为35.9美元，这对我们来说通常是一个缓慢的月份。贷款转介增长5.6％。请注意这些推荐合作伙伴，我们确实需要打电话通过。对于我们这些给我们机会而没有很高命中率的人来说，我们可能会放慢他们的速度，我们总是会加入新的推荐合作伙伴。
我们对我们的商业模式感到兴奋。据我们所知，没有人真正运用技术来经济有效地获取大量机会。去年我们看了65,000多个机会。今年我们可能会看到类似的数字，但我们对即将到来的事情感到兴奋 - 我们正在考虑的是什么样的总推荐量。
Non-performing loans means that the loan is 90-days past delinquent; it falls into that category. These were two loans that recently paid off in full. Okay? The first loan -- and we've redacted the name, paid off in full based upon the sale of the commercial real estate collateral. That was a $365,000 loan.
The second loan $1.050 million, we wound up repurchasing this out of a government guaranteed pool. The loan was transferred to liquidation. Our workout team had the loan paid off in full. Here is an example of a loan that showed up in our 120-day past due category. This loan literally on August 1st, the borrower sold the commercial real estate collateral. The loan was paid off in full.
Driving your attention to slide number 29, this is the slide you should be -- hitting NII, once we are marking portfolio our balance sheet is marked off on -- is marked on a real-time basis. So if we think there is an impairment to the loan that will occur every single quarter.
The charge-offs hit the earning stream. We think that these numbers will gravitate to higher numbers. Our business model supports that. When we get into the belly of the curve as a guesstimate somewhere between 1% to 1.5%. I want to repeat these are comfortable numbers for us giving our credit criteria and a high return on equity business.
Slide number 30, 31, 32 you are familiar with. Here is the important aspect: we practically do no startups. We do a smaller amount of business acquisitions. And a lot of our loan is collateralized by -- for the purpose of acquiring, rehabilitating, refinancing commercial real estate clearly good trends that give us better quality credits and we are very pleased with the performance of our portfolio.
Slide number 33, 34 the investment community quite familiar with. Moving over to our portfolio company review, the 504 business I'll go to slide number 37 has been a slow roller than we've anticipated. We only funded $10.2 million of SBA 504 loans through July 31, 2019. We are revising our guidance down to $75 million in fundings from a previous forecast of $100 million and $100 million in closings.
Delta between closings and fundings is sometimes loans are partially funded and is a portion of construction that occurs. However, we continue to be optimistic regarding our 504 program. We've a pipeline that's growing and as we are repositioning ourselves and bringing in more talent in this area and going to larger size loans, we are confident this business will take off.
On slide number 38 these were loans sales of the conventional first piece that we made during the second quarter of 2019. $14.1 million of 504 first position loans were sold. Some of these were sold servicing released. Some of them were retained 25 basis points on. But you could see the nice prices that we get.
We typically receive 1 point to 2 points of origination fee both on the senior piece and on the second lean which gets taken out by the government. So you could see that when you look at from where these loans go on our books, we can make gains of 4, 5 and 6 to 7 points not including the carry on the portfolio.
不良贷款意味着贷款是逾期90天;它属于那一类。这是最近全额还清的两笔贷款。好的？第一笔贷款 - 我们已经修改了名称，根据商业房地产抵押品的销售情况全额付清。这是一笔365,000美元的贷款。
提醒你注意29号幻灯片，这是你应该的幻灯片 - 击中NII，一旦我们标记投资组合，我们的资产负债表就会被标记为开启 - 实时标记。因此，如果我们认为每个季度都会出现贷款减值。
您熟悉的幻灯片编号30,31,32。这是重要的方面：我们几乎没有创业公司。我们进行少量的业务收购。我们的很多贷款都是以抵押为目的 - 为了获得，修复，再融资商业房地产明显的良好趋势，为我们提供更好的质量信用，我们对我们的投资组合的表现非常满意。
The return on equity at this business we could see on slide number 40, quite high. Our non-conventional lending pipeline once again, I believe the venture closed somewhere around May 10, May 15. We funded our first loan on May 20. We funded $20.5 million of loans in the JV through July 31.
You could see the pipeline is starting to jump. We are starting to get this criteria out to our alliance partners. As you can imagine, it certainly takes a while for this to flow through, but with that jump in the pipeline, we are very excited about this business. We have no income coming from the conventional loan joint venture this year. We do believe it can be material for next year.
Important to note operating leverage, we are getting significant operating leverage off of our business, off of our loan referrals, off of our assemblers, our underwriters their capability to service. These are things that don't show up in NAV.
We have operating businesses underneath the BDC umbrella that doesn't show up in NAV. The fact that we are the number one nonbank lender, fourth largest in 7(a). We have a $2.1 billion capability in the servicing portfolio. We've got two entities that are as -- none of these things show up in NAV. And we'll get to that when we get to our final conclusion.
Slide number 42, our payment processing business growing nicely. Adjusted EBITDA 9.5% over the same period last year, I also like to note this growth is occurring at the same time even though we sold off a significant portion of reoccurring income in the fourth quarter with the Elavon portfolio which was about $1 million of reoccurring income.
So we are very pleased. We point to the public comps. We point to the growing business. This business which I think has $150 million to $155 million enterprise value only has $35 million of debt. This business certainly can be leveraged further in the event that cash was needed for operations a lot of value being created every single day in our payments business.
43, we talk about our technology business. We have 3 entities. We look forward to a real good report for the second half of this year, primarily coming from Newtek Technology Solutions which we have struggle with. IPM and Sidco were acquisition that were made only about 2.5 years ago.
We look forward to reporting, we are optimistic about our technology portfolio companies and the ability to execute on strategy which you could take a look at on slide number 44. We believe there is a great opportunity in the cloud services space to be able to provide things like desktop business service, security as a service, IT as a service, to give business secure e-mail, hybrid cloud, private cloud, public cloud, big opportunity. We're not competing with Amazon, we're not competing with Google, we're not competing with Microsoft Azure in the space. They're dealing with the major big companies. They're not dealing with that middle-market entity. We think this is a great opportunity as a portfolio company. And we think that we could get nice contribution from this business in the future.
我们在BDC保护伞下面有经营业务，但没有出现在资产净值中。事实上，我们是排名第一的非银行贷款机构，在7（a）中排名第四。我们在服务组合方面拥有21亿美元的能力。我们有两个实体 - 这些东西都没有出现在资产净值中。当我们得出最终结论时，我们将会这样做。
43，我们谈谈我们的技术业务。我们有3个实体。我们期待着今年下半年的真实报告，主要来自我们一直在努力的Newtek Technology Solutions。 IPM和Sidco的收购仅在大约2。5年前完成。
Moving the slide number 45. From an investment summary in conclusion, we are an internally managed BDC. We don't pay ourselves any management fees. Management's interest is very much aligned with shareholders. We've got a significant portion of our outstanding float I think it's close to a 6.7% of the outstanding shares. Management's interest is very much aligned with shareholders.
We don't do second liens. We don't have SBIC leverage. We're not investing in CDO equity. We have no direct lending exposure to the oil and gas industry extremely important. This isn't our first rodeo; we've got a 16-year lending track record that survived through 2008-2009 without hair cutting any debt holders or getting a bailout from the government.
I want to point out one important aspect. That is our premium to NAV on the stock price. As you could see, I think we made a very strong factual argument today about growth in dividends. Growth in dividends and growth in earnings are the way to value Newtek Business Service Corp. We are BDC. We appreciate the benefits that the BDC model gives to us, particularly to tax effective treatment and the ability to raise capital, which we've done very nicely over the last five-years including our recent baby bond offering. And we don't need a lot of leverage to be able to grow our business, because we invest in things that generate higher rates of return, because we operate them.
We're not buying packaged products in an auction from Wall Street. So there are people that are having some heartburn on the premium to NAV. Well for argument sake, what if we were distributing $3 a share? And NAV shouldn't move that much, because a significant portion of our NAV is invested in floating rate loan securities that really shouldn't trade at a big premium, right? However, that is a portion of the business. The gain on sale, the servicing income, the platform that's enabling us to do non-confront none of that's valued in NAV.
So for those of you that are looking at us versus main or other BDCs, it's just a different business in a BDC rapper. And for those of you that can go back to your finance one-on-one textbook, a stock price is based upon a discounted back of future earnings streams. So we feel that history has served us well in this particular space. And if and we anticipate and hope that we'll continue to performance we have, the market will reward us. And please although we are a BDC, this comparison to other BDCs is irrelevant. They've entirely different business. Please follow the cash flow.
When you look at us from a risk perspective, which is really important I took a look at Main Street, the bellwether. $11 million average investment, 180 investments. We have over 2,000 borrowers in our book 180,000 average balance. What's less risky? Apollo $15 million average investment 120 to 130 units. What's less risky?
And then I look at two to one, let's say versus I don't know 1.3 or 1.4 to 1 and if I were a bank and I looked at a company like ours, what I have a lot of heartburn over a 66.67% LTV versus a 60% LTV would that cost me not to invest or for was in the midpoint? But the fact of the matter is this is how in today's genre risk is measured in the BDC space.
我们不做第二次留校。我们没有SBIC杠杆。我们不会投资CDO股权。我们对石油和天然气行业没有直接的贷款风险极为重要。这不是我们的第一次牛仔竞技表演;我们有一个16年的贷款记录，在2008 - 2009年期间幸存下来，没有削减任何债务持有人或从政府获得救助。
我想指出一个重要方面。这是我们对股票价格的资产净值的溢价。正如您所看到的，我认为我们今天就股息增长做出了非常强烈的事实论证。股息增长和收益增长是重视Newtek Business Service Corp.的方式。我们是BDC。我们很欣赏BDC模式给我们带来的好处，特别是税收有效的待遇和筹集资金的能力，我们在过去五年中做得非常好，包括我们最近提供的婴儿保证金。而且我们不需要很多杠杆就能够发展我们的业务，因为我们投资于产生更高回报率的事物，因为我们经营它们。
Now I realize, I might be a lone wolf, but I'm going to make a comment: it's wrong. You need to look at all these other factors. You need to do the work. Historically, that work has been rewarded. I appreciate your time that you've spent with us today.
I would like to turn the presentation over to Chris Towers our Chief Accounting Officer.
现在我意识到，我可能是一只孤独的狼，但我要发表评论：这是错的。 您需要查看所有这些其他因素。 你需要做的工作。 从历史上看，这项工作得到了回报。 感谢您今天和我们一起度过的时光。
Thank you, Barry, and good morning everyone. You can find a summary of our second quarter 2019 results on slide 49 as well as the reconciliation of our adjusted net investment income or adjusted NII on slide 49. For the second quarter of 2019, we had a net investment loss of $1.1 million or $0.06 per share as compared to a net investment loss of $2.1 million or $0.11 per share in the second quarter of 2018 a 45.5% improvement on a per-share basis.
Adjusted NII, which is defined on slide 48 was $11 million or $0.57 per share in the second quarter of 2019 as compared to $8.2 million or $0.44 per share for the second quarter of 2018, a 29.5% improvement on a per-share basis. Focusing on second quarter 2019 highlights, we recognized $14.1 million in total investment income, a 24.1% increase over the second quarter of 2018.
Interest servicing and other income was the primary drivers for the increase with interest income increasing by 27.2% resulting from a higher interest rate on our SBA loan investments year-over-year and larger performing loan portfolio. Servicing income increased by 24.7% to $2.5 million in the second quarter of 2019 versus $2 million in the same quarter last year, which was attributable to the average servicing portfolio growing from $950 million at June 30th, 2018 to $1.2 billion at June 30th, 2019.
Other income which relates primarily to legal packaging and other loan related fee revenue increased by approximately $458,000 in the second quarter of 2019 as compared to Q2 of 2018, primarily as a result of an increase in loan origination volume year-over-year.
Dividend income in the second quarter of 2019 included $2.5 million from NMS, $250,000 from Sidco, and $75,000 for Mobile Money.
Total Expenses increased by $1.7 million quarter-over-quarter or 12.5%. Salaries and benefits decreased by 33%, primarily due to NSPF employees being hired by Small Business Lending LLC or SBL, one of Newtek's wholly owned controlled portfolio companies on January 1, 2019. SBL is a lender service provider that effective January 1, 2019 provides NSPF with loan origination and servicing functions performed by its employees.
SBL charged NSPF $2.5 million in the second quarter for these services which is reflective on a consolidated statement of operations as origination and servicing related party.
Total interest expense increased by $900,000 in the second quarter of 2019, primarily due to higher average outstanding debt balances. Realized gains recognized from the sale of the guaranteed portions of SBA loans sold during the second quarter totaled $13 million as compared to $10.9 million during the same quarter in 2018.
In the second quarter of 2019, NSPF sold 170 loans for $96 million at an average premium of 11.52% as compared to 130 loans sold during the second quarter of 2018 for $78.1 million at an average premium of 11.67%.
Realized losses on SBA non-affiliate investments for the second quarter of 2019 were $971,000 as compared to $550,000 in the second quarter of 2018. Overall, our operating results for the second quarter resulted in a net increase in net assets of $8.7 million or $0.45 per share and we ended the quarter with NAV per share of $15.33.
总支出比上一季度增加170万美元，增幅为12.5％。薪资和福利减少了33％，主要是由于NSPF员工于2019年1月1日被Newtek的全资控股投资组合公司之一Small Business Lending LLC或SBL聘用.SBL是一家贷款服务提供商，自2019年1月1日起生效。 NSPF的贷款发放和服务功能由其员工执行。
I would now like to turn the call back to Barry.
[Operator Instructions] Our first question comes from Chris York with JMP Securities. Your line is now open.
[操作员说明]我们的第一个问题来自Chris York和JMP Securities。 你的生产线现已开放。
Good morning guys and thanks for taking my questions. So, Barry the first question is a strategic question. 7(a) loan fundings were once again very strong and I think I calculated maybe a five-year CAGR around 30%. So, at that point, it places you -- as you noted that in your deck as the fourth largest SBA lender and then it puts you in a shared territory with some large financial utility banks.
So, the question is how much more share growth do you want to achieve or should investors expect in this loan product longer term as further growth could drive increased regulatory tension?
早上好，感谢您提出我的问题。 所以，巴里第一个问题是一个战略问题。 7（a）贷款资金再次非常强劲，我认为我计算出的五年复合年增长率可能在30％左右。 因此，在那一点上，它会让你 - 正如你所指出的那样，在你的套牌中作为第四大SBA贷款人，然后它会让你与一些大型金融公用事业银行分享。
Thank you, Chris. I think those are all relevant points. I think that from our perspective we're very happy with our I'll call it market share position. In other words, we do not aspire -- I don't aspire to be number one. I don't aspire to be number 10. We'll sort of take it wherever it goes.
As long as we're able to pass through credits and do good credits, we'll continue to grow at this rate and it's not inconceivable that the rate could accelerate. The industry for the last 18 months has been down about 10% year-on-year for 7(a) lending. The benefit of our now four programs is -- and we've never gone out as an SBA, we've always gone out as a lender. So that we position ourselves as hey from $2,000 to $15 million, 10 to 25-year amz schedule, no covenants, single-digit interest rate we can fund your business. That's dramatically different than Fintech lenders. We use technology we think to a greater degree than they do. They just do a very limited amount of underwriting and they lend on six to 24-month schedules.
We're in good position with our regulators. They've recently increased -- allowed us to increase our facility. Your point about increased scrutiny I don't necessarily -- if you're number one, you're number one; it is what it is. I don't love being number one because everybody likes to take shots at number one, but we're not going to gauge our business by that.
I think that we are so pleased with what we're doing across the board. We've added a lot of staffing to the line of credit business that comes under CDS. We have optimism about that business growing with Frank Bertelle at the helm; he's one of the people in the deck that you can look up.
And the pipeline as a non-conforming business that's going to roll nicely and what that's going to do Chris is that's going to show up as an equity investment on our scheduled investments. The returns that come off of that are going to be effectively given an income.
If you look at the public documents, there is a 10% preferred coupon on the JV investment. So, we'd like to think that we'll outperform that from an equity standpoint, and that'll also give us different income than gain on sale. So, I would tell you that going forward, we would definitely like to be less reliant on gain on sale, and we think that's clearly in the cards. We don't see the 7(a) growth slowing per se. I would say as far as my eye can see maintaining it is the right number.
谢谢你，克里斯。我认为这些都是相关的观点。我认为从我们的角度来看，我们对我们称之为市场份额的位置非常满意。换句话说，我们并不渴望 - 我不想成为第一。我不想成为第10名。我们会把它带到任何地方。
只要我们能够通过积分并获得良好的信用，我们将继续以这个速度增长，并且速度可能加速并不是不可想象的。过去18个月的行业7（a）贷款同比下降约10％。我们现在的四个项目的好处是 - 我们从未作为SBA出局，我们总是作为贷方出局。因此，我们将自己定位为2000美元至1500万美元，10至25年的amz时间表，没有契约，我们可以为您的业务提供单位数的利率。这与Fintech贷方有很大不同。我们使用的技术比他们更大程度地考虑。他们只进行了非常有限的承保，他们提供6到24个月的时间表。
我们的监管机构处于有利地位。他们最近增加了 - 允许我们增加我们的设施。关于加强审查的观点我不一定 - 如果你是第一，你就是第一;就是这样。我不喜欢成为第一，因为每个人都喜欢在排名第一，但我们不会因此而衡量我们的业务。
Got it. Very comprehensive answer and I think investors certainly appreciate what you're doing on the nonconforming side. Switching to that, so you lowered your 504 loan guidance to $75 million from $100 million and then you have it looks like year-to-date loan fundings of $10.2 million. So what gives you such confidence in the second half of the year that should be a strong period of production for that product?
得到它了。 非常全面的答案，我认为投资者肯定会欣赏你在不合格方面做的事情。 切换到那个，所以你将你的504贷款指引从1亿美元降低到7500万美元，然后你看起来像年初至今的贷款资金1020万美元。 那么是什么让你对今年下半年这个产品的强大生产期有信心呢？
Well, like any good manager, it's my management team gives me those numbers. And then I just have to believe them or not believe them or haircut them. I have a lot of confidence in Tony Zara and his team. I will point out that 504 financing market is actually more complicated than the 7(a). I'll try to quickly explain it.
When you do a 504 loan, you have to go to a CDC, the Community Development Corp, they have to underwrite it. Meaning that they're going to basically underwrite it and they're going to wind up effectively financing the second position. Then it's got to go to the SBA. And with the government shutdown, it's been a tough year for 504 lending.
But the pipeline is there. We think we've got the best team in the business. Also I have to state that internally we've got tensions and pressures between is it a 7(a) loan, is it a 504 loan, is it a conventional loan, is it a line of credit.
And we're working the bugs out of that. Tony and his team have only been here 12 to 18 months. Our business service specialist have to get more comfortable doing 504 loans. It's an important part of our umbrella.
It is easier for a business service specialist, because we're a preferred lender to prospectively suggest to a customer to do a 7(a) loan and 504 loan, and we've got to change that psyche and that mindset and sometimes that's easier said than done.
We've also got to get our business service specialist to embrace the nonconforming area. And frankly, that's been an easier road to hoe, because there's less parties to deal with than the conventional side.
So, it was a really good question, because the reality of it is -- Chris when we hang up this phone and I'm done with the call I've got to deal with managers and a lot of human beings. And human nature is trying to gravitate to what's necessarily easiest. 504 loans are harder to do, and I think we are -- we got a little bit of a hill to climb, but I'm confident that we'll pick it up.
所以，这是一个非常好的问题，因为它的实际情况是 - 克里斯，当我们挂断这款手机时，我已经接到电话，我必须与管理人员和很多人打交道。人性试图倾向于最简单的东西。 504贷款更难做，而且我认为我们是 - 我们有一点爬山，但我相信我们会接受它。
That's good to hear. And I think people certainly appreciate the difficulty associated with all the management responsibilities you have relative to other BDCs. Last question from me is just on the financial that you recognized the largest quarter of unrealized losses on non-guaranteed loans converting to a BDC. So is there any trend in the charge off or delinquency data maybe from a behavior or fundamental side that throw some of that loss?
听起来还不错。 我认为人们当然也很欣赏与其他BDC相关的所有管理职责所带来的困难。 我提出的最后一个问题就是您承认转换为BDC的非保证贷款的最大季度未实现损失。 因此，是否有任何趋势可能来自行为或基本方面的收费或拖欠数据，从而引发一些损失？
Yeah, the behavioral aspect is that we are going into the belly of the default curve on the portfolio, because the overall portfolio is growing. I just give a ballpark number. Chris Towers might be able to help me on this. You're looking at around $400 million, so -- and that's uninsureds.
So, even if we do our numbers this year, it only represents call it $125 million-ish of uninsured that you're adding to the whole portfolio. So the portfolio is seasoning. As it seasons, you're going to get more loans that are going to underperform.
And as I mentioned on the call, for those that are forecasting losses, without putting an exact finger on it, charge was down the road that will be between 1%, 1.5%. It doesn't bother us, because you've got to look at the chart -- on a static pool basis, you have to look at the charge offs over the life of the loan.
So, if you look at what we do when we do the valuation of the loans, we look at it fairly conservative 20% gross cumulative default with a 40% severity. So when you put those two things together, that's over the life of the loan, an 8% charge off.
Well, the reality of it is you really don't have charge offs in the first 24 months of a loan. They occur in the belly of the default curve. So, therefore, if you took the 8 number and you said, Jeez. 60% of them are going to happen within this period of time. You can have fairly high charge off numbers.
So, once again a very good question. I think it's something for you and other investors to track. But as I mentioned, we're comfortable with higher charge off numbers, which is the better way to follow us going forward as well as looking at the unrealized number, because the unrealized number will be indicative of what will get charged off down the road. The unrealized number however, does come off with a balance sheet and affects our NAV right away.
是的，行为方面是我们正在进入投资组合的默认曲线的腹部，因为整体投资组合正在增长。我只是给一个球场号码。 Chris Towers也许可以帮助我。你正在寻找大约4亿美元，所以 - 这是没有保险的。
正如我在电话会议中所提到的那样，对于预测损失的人而言，如果没有准确地指责它，那么收费就会落在1％，1.5％之间。它不会打扰我们，因为你必须查看图表 - 在静态池的基础上，你必须查看贷款期限内的收费。
Yep. It makes a lot of sense. That's it for me. Thanks Barry for your time and insights,
是的。 这很有道理。 这对我来说。 感谢Barry您的时间和见解，
Our next question comes from Mickey Schleien with Ladenburg. Your line is now open.
Yes. Good morning, Barry. I have a couple of questions that sort of follow up on Chris's questions. Going into this year, one of your goals – I think a major goal was to increase your loan close rate and also take advantage of operating leverage meaning you invest in a lot of staff last year. So you're definitely reporting very nice top line numbers. What I'm curious about is how you feel about Newtek's progress versus your expectations on these trends you were looking for?
是。 巴里，早上好。 我有几个问题可以跟进克里斯的问题。 进入今年，你的目标之一 - 我认为一个主要目标是提高你的贷款收盘率，并利用经营杠杆，这意味着你去年投资了很多员工。 因此，您肯定会报告非常好的顶线号码。 我很好奇的是你对Newtek的进步与你对这些趋势的期望有何看法？
Mickey, thank you. I think that when you look at from an overall basis, maybe it hasn't been that glaring in the second quarter. But when you look at loan closings now we've got to look at 504 or fundings we've going to look at 504, we've got to look at non-conforming, we've got to look at 7(a), as well as the growth in CDS. And that's something I'll think about with my legal and accounting team relative to portraying it. Obviously from a portfolio company perspective we have certain limitations. We don't want to lay too much out there for fear of forced consolidation which isn't necessary. But I think that we're extremely pleased how we're rolling out.
Our new programs are being well received by our alliance partners. The staff is starting to pick it up. You could see that by the jump in the non-conforming pipeline from the month of June to the month of July. And we're putting processes in place – people like Brent Ciurlino and Karen McHugh are putting those processes in place that are helping loan assemblers and underwriters get these things through the pipeline quicker and faster. And that pipeline now has four different choices, which if you think about it, at the end of the day what really matters is how well we help the client and the client experience.
So if you're a client and you come to us and all of a sudden there's four different choices of different programs, which give you a lot of flexibility with respect to revolvers, term loans, size of the loan it's an exciting time. We are very pleased with the progress we made in the second quarter and we believe that we will be able to ramp the business in the third and fourth and in 2020.
我们的新计划受到我们的联盟合作伙伴的欢迎。工作人员开始接受它。你可以看到从6月份到7月份不合格管道的跳跃。我们正在制定流程 - 像Brent Ciurlino和Karen McHugh这样的人正在制定这些流程，帮助贷款装配商和承销商更快更快地通过管道获得这些东西。这条管道现在有四种不同的选择，如果您考虑一下，最终真正重要的是我们如何帮助客户和客户体验。
So in terms of that last comment Barry, yeah that actually is a good segue into my last question. Looking at your target borrowers, or the typical borrower at Newtek deals with and I know there's a lot of different industries that you work with and some that you avoid, what are your expectations for demand for your loan products, if the economy were to meaningfully slow? I mean I don't know where the economy is going to go. What's happened in the last few weeks could be a handshake but let's just assume things are going to slow down meaningfully. How would you expect demand for your products to progress?
所以就巴里的最后评论而言，是的，这实际上是我最后一个问题的一个很好的问题。 看看你的目标借款人，或Newtek的典型借款人处理，我知道你有很多不同的行业和你避免的，你对贷款产品的需求有什么期望，如果经济有意义的话 慢？ 我的意思是我不知道经济将走向何方。 过去几周发生的事情可能是握手，但让我们假设事情会有意义地放慢速度。 您如何期望对您的产品的需求进步？
Okay. So what we do consciously is we don't invest in the fringes of the industry. Let me try to explain that. We didn't invest heavily in oil and gas despite the fact those are easy loans to make as oil prices were soaring. We don't invest in volatile businesses. We invest in businesses that are boring, stable and tend to be more recession-proof than other businesses. Now when I say recession-proof that doesn't mean that they don't weaken or go down during an economic slowdown, or recession, but they go down less. The key is as a lender to stay away from volatility so you don't invest in volatile businesses.
Fast growing businesses are great if you can underwrite them at a slow growth and a low loan to value. So we're less concerned about these types of things. It's built into our model. We have anticipations. We've been through really what I hope is the worst of the worst which was what occurred in 2008, 2009. And we were able to once again survive. None of our creditors got haircuted. So I think that the key salvation is we're not investing on the fringe.
Now let me comment what the fringe is. The fringe is a business that basically says, jeez give me the money in 48 hours I don't care if I'm paying 25% or 50% and I'll pay you back in 6 to 24 months. Someone that takes our loan they're invested. They filled out 50 slots in our file vault. They've given us projections. They've given us tax returns. They've given us liens on all their personal and their commercial assets. They've made a major bet that they're going to pay us back otherwise unfortunately they're going to lose it all.
So that's different than an LBO where okay if it doesn't work okay, I lost the equity too bad. Commercial real estate loans, goes upside down, I lost the equity too bad. So although we do experience higher levels of default frequency in an good economy or a bad economy, we think we have less volatility in our business than other types of lending that require that robust economy to be able to repay the principle or the interest.
And in terms of that outlook -- and this is my final question -- given that the majority of the loans that you make are floating rate loans do you feel you are relatively protected against changes in CPR, if the Fed continues to cut rates and interest rates and mortgages decline?
而就这一前景而言 - 这是我的最后一个问题 - 鉴于您提供的大部分贷款都是浮动利率贷款，您认为如果美联储继续降息并且您的CPR发生变化，您会相对受到保护。 利率和抵押贷款下降？
So Mickey in the scenario where -- which I think right now is more likely than not rates decline, economy slows. The coupon on our portfolio will go down and because we have a reasonable amount of that portfolio funded with equity that prospectively will be a negative relative to interest income. However, we're adding more to the portfolio. So I think we'll be okay there.
The flip side of that is -- and you've seen this in the prices of the governments -- the slowing economy slow CPR. People want to buy a government guaranteed floater because loan demand is down they need to -- the banks hedge funds need to put money to work. So the prices of the securities get bit up. So regarding the 7(a) business, it's almost a nonevent as we see it.
所以米奇在这种情况下 - 我认为现在更有可能是利率下降，经济放缓。 我们投资组合的优惠券将会下降，因为我们有合理数量的投资组合资产，其股权预期将与利息收入相关。 但是，我们正在增加投资组合。 所以我认为我们会好起来的。
另一方面 - 你已经在政府的价格中看到了这一点 - 经济放缓导致CPR缓慢。 人们希望购买政府保证的浮动因为他们需要的贷款需求下降 - 银行对冲基金需要投入资金。 因此，证券的价格会上涨。 所以对于7（a）业务来说，它几乎是我们所看到的非事。
That’s where I headed with that. I – that’s very helpful and I appreciate your time, Barry.
这就是我的目标。 我 - 这非常有帮助，我感谢你的时间，巴里。
Thank you, Mickey. Appreciate your questions.
Our next question comes from Robert Dodd with Raymond James. Your line is now open.
我们的下一个问题来自Robert Dodd和Raymond James。 你的生产线现已开放。
Hi, guys. A couple questions on loan fundings you've guided the 7(a) towards the low-to-mid end of the range. I mean so two questions tied to that. I mean is there anything in your referral channel that is has changed? I mean the pipeline is down a tiny bit year-over-year, but you said you're being much more selective.
So have you removed anybody or is anybody withdrawn from contributing to that pipeline because they're not meeting the criteria you set out or anything like that? And is that what's behind the modest slowing of guidance on the 7(a)? Because after all you said I mean overall loan demand is pretty strong but you trimming it back there a little bit.
嗨，大家好。 关于贷款资金的几个问题，你已经将7（a）引导到范围的中低端。 我的意思是两个问题与此相关。 我的意思是你的推荐频道中有什么东西改变了吗？ 我的意思是管道同比下降了一点点，但你说你的选择性更强。
那么你有没有删除任何人，或者是否有人因为没有达到你提出的标准或类似的东西而退出管道？ 这是7（a）指导适度放缓的原因吗？ 因为毕竟你说我的意思是整体贷款需求非常强劲，但你会把它修改一下。
Yes so look Robert, I appreciate your question because it's the questions that I asked either every other day or a minimum once a week -- as I get the data. One of the reasons why I put the July information in there because if you look at the July information you'll go, oh, my god look what's going on over here. They really outperformed last July.
There could be an underlying tone that the economy is slowing a bit and loan demand is slowing a bit. Now let me do the counter to that. Our ability to go out now with a big trumpet up to 15 million, 10 to 25-year around schedule up to 85% advanced on the real estate collateral as a first we always stick to second and tertiary to get that LTV down no covenant single-digit interest rate.
No matter what way the economy goes over the long term we're going to get a lot of people coming to us wanting to borrow money because that financing doesn't exist. And that's been our lending thesis for 15 or 16 years. So I'm not concerned about the fact that in my opinion we didn't have a great first and second quarter.
It was a good one. It wasn't a, oh, my god wow. I'll tell you something else too. I read some of the notes last night and it's like okay so adjusted NII grew by 29% we kind of expected that. I'm going, oh my god. That gives me a little heartburn. When the market is sort of expecting this type of growth from a company in our space and they're saying, gee I don't -- I mean people got to get a better understanding of it.
To answer your question no long term, I'm not concerned at all. I think that we've got a bigger diversified portfolio. We're going to have diversified revenue streams, people come in people come out. No, I do think that we spent a good amount of time in the first half laying tracks for these other things which could have possibly detracted from the traditional more focused 7(a) footprint. I think that's what it is. However, we should ask this question another quarter and maybe I'll have a different answer for you. But I don't think so.
是的，所以看看罗伯特，我感谢你的问题，因为这是我每隔一天或每周至少一次询问的问题 - 因为我得到了数据。我把7月信息放在那里的原因之一是因为如果你看看七月份的信息你会去，哦，我的上帝看看这里发生了什么。去年7月他们的表现确实超过了他们
可能存在一种潜在的基调，即经济正在放缓，贷款需求正在放缓。现在让我来反击。我们现在能够以高达1500万的大号小号出货，10至25年的时间安排，高达85％的房地产抵押品提前，我们总是坚持第二和第三，以使LTV下降没有契约单一 - 数字利率。
这是一个很好的。这不是，哦，我的上帝哇。我也会告诉你一些其他的东西。我昨晚看了一些笔记就好了，所以调整后的NII增长了29％我们有点期待。我要去，天啊。这让我有点胃灼热。当市场有点期待这种类型的增长来自我们空间的公司并且他们说，但我不这样做 - 我的意思是人们必须更好地了解它。
Okay, I appreciate that because obviously, I mean you did have a really great July. The numbers are up 200% year-over-year. But first half your loan fundings are up 11% and to hit the low end of your guidance you got to be up 33% in the second half. So I mean is your confidence level high that you can hit even that low end just to adapt -- just to get -- yes okay.
好的，我很欣赏，因为很明显，我的意思是你确实有一个非常好的七月。 这一数字同比增长了200％。 但是，上半年你的贷款资金增加了11％，并且在你的指导的低端，你必须在下半年增加33％。 所以我的意思是你的信心水平很高，你甚至可以达到低端只是为了适应 - 只是为了得到 - 是的好吧。
It is. Otherwise we wouldn't have given it.
Got it. Got it. Moving on just on the -- on a lot of color on charge-offs versus non-performance and defaults. When you talk about that the 1%, 1.5% long run charge-off like, can you give us a bit more color? I mean, is that what you're expecting because that's just what should happen as things that age to et cetera, et cetera or are you seeing trends in the portfolio? Obviously, your non-performers are up a little bit, et cetera, but are you seeing trends in the portfolio that indicate that that will happen or is it just more based on that's what should happen based on aging of the portfolio?
得到它了。 得到它了。 继续进行 - 关于充电的很多颜色与非性能和默认值相比。 当你谈到1％，1.5％的长期充电时，你能给我们多一点颜色吗？ 我的意思是，这是你所期待的，因为这就是应该发生的事情，因为等待的事物等等，或者你是否看到了投资组合的趋势？ 显然，你的非表现者有点上升等等，但是你是否看到投资组合中的趋势表明会发生这种情况，还是更多地基于投资组合的老龄化会发生什么？
That's what should happen.
Got it. Thank you. That's it. Appreciate it
得到它了。 谢谢。 而已。 欣赏它
Our next question comes from Luke Wooten with KBW. Your line is now open.
我们的下一个问题来自Luke Wooten和KBW。 你的生产线现已开放。
Good morning Barry and Chris. How are you doing?
Good. Luke, how are you doing?
Doing well. Chris, could you just go over that number? I think you went over it towards the end, but I might have missed it just the loans. So the SBA 7(a) loans sold during the quarter?
做得好。 克里斯，你能不能超过这个数字？ 我想你到最后都要过去，但我可能只是错过了贷款。 那么SBA 7（a）贷款在本季度出售了吗？
Sure. From a unit perspective, it was 170 loans 1-7-0 for $96 billion compared to 130 loans 1-3-0 for $78.1 million.
Perfect. Thank you. And then just kind of switching to like little housekeeping just on the other income line from the non-affiliate investments it seems to be kind of higher than what it's been in previous quarters. Do you mind just like enlightening us on what's in that line so we can kind of manage that going forward? Is it the $1.56 million on the quarter?
完善。 谢谢。 然后，只是在非附属投资的其他收入线上转换为像小家务一样，它似乎比前几个季度更高。 你是否在意我们对这条线上的内容有所启发，以便我们可以对此进行管理？ 这个季度是156万美元吗？
Sure. So look what runs through that line is both the -- our origination fees related to packaging fees, any legal fees that we charge, any prepayment fees, any late fees. That's what usually runs through that line. So generally as our loan volume increases, the other income increases in line with that.
当然。 因此，看看通过这条线路的是 - 我们与包装费相关的原始费用，我们收取的任何法律费用，任何预付费用，任何滞纳金。 这通常贯穿该线。 因此，一般来说，随着我们的贷款额增加，其他收入也随之增加。
Okay. And do you mind -- what was the prepayment speed during the quarter? In the last quarter it was 26%. Was it stable with that or a little bit higher?
好的。 你介意 - 本季度的预付款速度是多少？ 在上一季度，它是26％。 它是稳定的还是稍微高一点？
For this quarter, we had that at 23%.
Okay. And then kind of just moving over to the non-conventional loan platform, I mean, solid growth so far and since May it seems like it's really boomed. Kind of going forward, should we see that kind of growing in? I know you said that we should start seeing income from that in the next year and that should be shown in the dividend income line, correct?
好的。 然后有点只是转移到非传统的贷款平台，我的意思是，到目前为止稳固的增长，从五月开始看起来真的很蓬勃。 那种向前发展，我们应该看到这种增长吗？ 我知道你说我们应该从明年开始看到收入，这应该显示在股息收入线上，对吗？
Yeah, you would see that in the dividend income line as that's an equity investment. And we have 50% of the equity BlackRock TCP has 50% of the equity. So you'll get the spread income off the coupon on the portfolio, less the any interest expense that might be incurred on the Deutsche Bank facility.
是的，你会在股息收入线上看到这是股权投资。 我们拥有50％的股权，BlackRock TCP拥有50％的股权。 因此，您将从投资组合的优惠券中获得差价收入，减去德意志银行工厂可能产生的任何利息费用。
Okay. That's helpful. And then Barry I know I've talked to you about this a little bit, but just on that platform you just gathering -- like it's basically using your existing loan referral platform to kind of underwrite the loans and increase the close rate on loans for those that don't qualify for the SBA and just those can go up to $15 million, is that correct?
好的。 这很有帮助。 然后巴里我知道我已经和你谈过这个问题，但只是在你刚刚收集到的平台上 - 就像它基本上使用你现有的贷款转介平台来承保贷款并提高贷款的收盘率 那些不符合SBA资格的人，只有那些可以达到1500万美元，这是正确的吗？
Yeah. They can go up to $15 million. And so let me give you some of the reasons if there was a choice between 7(a) in that. The SBA program maxes at $5 million. So if somebody already borrowed $5 million, they can't borrow any more from that government guaranteed program.
Secondly, maybe they want a fixed rate and we can offer a fixed rate and the conventional where the 7(a) program is prime plus two and three quarters, which today it would be I think around eight in the quarter. Maybe they only occupy 40% of the real estate, the SBA requires 50% of the real estate. Maybe there are five potential guarantors that would have to guarantee an SBA loan, only three of them want to do it. We move it over into conventional.
There's a few reasons, which are hyper technical that we move it into conventional versus the 7(a) and it's -- but the credit box is similar. The credit -- so we're fairly confident that given that we've done this for 16 years and up markets and down markets, we have a good feel for how these borrowers react and these businesses react in different interest rate cycles and different credit cycles that we you've got a really good handle on how this portfolio should perform.
有几个原因，超技术，我们把它转移到传统的7（a）和它 - 但信用箱是相似的。信用 - 所以我们相当有信心，鉴于我们已经做了16年以及市场和市场下行，我们对这些借款人的反应如何以及这些企业在不同的利率周期和不同的信贷中做出反应有一个良好的感觉我们已经非常好地处理了这个投资组合的表现。
Okay. That's helpful colors. Thanks. And then just briefly switching back over to the NSBF. I mean, seems like the gain on sales have come back strong since the end of last year. And just kind of how you see those going forward, I know it's -- there's a lot of moving pieces, but is there any impacts from the lower, I mean, with the Fed Gov last week and kind of just how do you see that those gain on sale premiums going forward?
好的。 这是有用的颜色。 谢谢。 然后简单地切换回NSBF。 我的意思是，自去年年底以来，销售收益似乎恢复了强劲势头。 还有就是你怎么看待未来的事情，我知道 - 有很多动人的事情，但是我的意思是，上周美联储政府对你的影响是否有任何影响，你怎么看待这一点？ 那些销售溢价的收益在未来？
That's a tough one. It's sort of asking me to forecast a market price on something, but what I can tell you is if you believe that the trend on rates is lower than it has been the last couple of months, which based upon the futures market and the swap market more likely than not. And if you believe, that the economy is slowing.
And you could look at that versus, what's happening in the stock market. And other market indicators, maybe more likely they are not that bodes well for prices, on the securities.
这是一个艰难的。 这有点要求我预测某个市场的价格，但我可以告诉你的是，如果你认为利率的趋势低于过去几个月的趋势，这是基于期货市场和掉期市场 更有可能。 如果你相信，经济正在放缓。
Okay. That's helpful. And then lastly, just -- I know, you are hiring out a lot of teams like in the loan origination platform as well as technology side. And with the new tracker coming on, how should we look at expenses towards the back half of the year?
I know, I ask this every quarter, but just kind of want to make sure that, I'm framing it right with the new executive players coming on and as well as the loan origination officers?
好的。 这很有帮助。 最后，只是 - 我知道，你正在招聘很多团队，比如贷款发放平台和技术方面。 随着新的追踪器的问世，我们应该如何看待今年下半年的费用？
I think, it's flattening out, I mean I think, Chris and I at some point, in time need to sit down. And take a look at things, which we do every so often. But I wouldn't expect any expense creep in the second half of the year.
我认为，这是平坦的，我的意思是我认为，克里斯和我在某个时候，需要及时坐下来。 并看看我们经常做的事情。 但我不希望在今年下半年有任何费用蔓延。
Okay. That's helpful. And that's all my questions. Thank you.
好的。 这很有帮助。 这就是我的全部问题。 谢谢。
And our next question comes from Marc Silk with Silk Investment Advisors. Your linen is now open.
我们的下一个问题来自Marc Silk与Silk Investment Advisors。 你的床单现已开放。
Hey, Marc, how are you?
Good. All good questions, mine is a little different here. So Barry, presently there's a significant amount of foreign government in debt with negative yields. The U.S. 10-year treasuries are yielding below 1.7%.
The S&P 500 dividend yield is around 2%. And based on yesterday's close, new text dividend yield is 9.46%. Again, 9.46% based on your increased dividend of $1.95. This is a third year in a row of increased dividend per share by Newtek, so you have a proven track record.
And by year end the Newtek dividends meant, my clients have received, will be equal to $11.49 per share since you have become a, BDC, in 2015. We have an environment of extremely low interest rates.
And people desperately looking for yield. And not only does Newtek fill that desire, Newtek is clouded by being in the BDC ecosystem, so in my opinion an underpriced asset.
In my eyes, when I started buying your stock in 2016. And yes, I was one of the fortunate ones to average down at $0.50, after buying some at $1.80, I was buying a company. And even though you became a BDC, to get the shareholders back significant dividends, you were still a company.
I think that's what's lost here. So although, not very appropriately especially in this low interest rate environment, with you having a bona fide track record. My question is this.
Since someone wrote a public article, why they sold your shares based on your net asset value, even though your dividend yield is 9.46%. Why do you think it is commercially reasonable that, Newtek is trading at a premium to NAV? And what makes you different than other BDCs?
Yeah. Thanks Marc. That gives me a lot of food for thought. And answering the question as well as thinking about, what we do after this call in this afternoon, and tomorrow, and the next day because.
On one hand, I look at our performance. And I go "Jee can you really argue? Its 30% to 40% return a year for the last five years and probably a greater return even over the last 10. So, on that basis we're doing well. But then, should we be doing better?"
And I think that, one of the things that everybody can count on is, we're not done. We have more energy today than, we had yesterday. And we're pushing forward. I think that, we're different. And because we're different, people that want to have an opinion, will take us and compare it to a metric that it's not relevant.
You asked for BDC, yes BDCs are managed to NAV. But if you want to manage just against a metric just say "Yo! These guys are losing money on NII, just don't invest in them". Well that would have been a mistake.
Doing what we do, having a greater reach, particularly into institutions, very valuable, that will do the work. We'll make a difference, I would say exponentially with respect to our future. You know judging by the calls from the analyst community we've come a long way.
The calls are -- the answers to questions are great. I don't think there were soft balls I think they're poking and probing and looking at things that could be problematic. But, I think we've got a real good fighting chance going forward, to get -- I'm going to use the word different valuations.
In other words, what's a different valuation? A different valuation is to look at a company, whose let's assume the dividends or earnings are highly correlated, that our dividends or earnings have gone from $1.50 forecast to $1.95 and growing. The trajectory is growing.
So, for somebody, to say, "Oh, this is too high a premium to NAV", with their finger sticking up, in the air and say, "Oh! 1.5 times NAV, I'm a seller 1.2, I'm a buyer". Well, that may work for a period of time.
But at the end of the day, if their earnings keep growing the stock price is going to increase, because people are going to want the earnings. In this kind of an environment, people are looking around for bargains. They still need to put their money to work. They're looking for fixed income or fixed income surrogates. Our stock price never went straight up. It dipped.
And I can't tell you, how many times I have conversations, particularly with institutional investors that invest in this space. And they're interested, they're looking at it, they're fascinated by it. And then I get together with them they say, did you take a position, I missed the dip. And I'm going, okay, like after we hit like $15.77 that was an opportunity to jump in and do something, but now they missed it. These – whatever, they get spooked.
So here we are again in sort of an odd period where we have a significant retail following and things change and except the company didn't change. I think this is a decent report, decent metrics. And I think it's -- we forecasted reasonable thoughts not overly exaggerated.
So no, I would hope we continue to do our work which is going to require us to get in front of more and different people that can look at the stock and say yes, this company makes sense. It's got a good track record, it's on a good path. There are people that are flocking to it who are smart and know what they're doing. And therefore I may want to put some money into it.
So I certainly appreciate your thoughts in the recap of the history. And I don't see any reason why our trajectory changes. And we asked a lot of questions about that today. I think the trajectory is there. So if you begin to look at what you think we're going to come in this year and where we're going to come in next year, should we trade at the same yield as Apollo or some of these other guys? I don't know. Somebody wants to buy Apollo because at a discount to NAV, I don't know they really got 20% to 30% energy loans. It doesn't make any sense.
所以不，我希望我们继续做我们的工作，这将要求我们走到更多不同的人面前，可以看看股票并说是，这家公司是有道理的。 这是一个很好的记录，它是一条很好的道路。 有些人蜂拥而至聪明，知道自己在做什么。 因此我可能想要投入一些资金。
所以我非常感谢你对历史回顾的想法。 而且我认为没有任何理由可以改变我们的轨迹。 我们今天问了很多关于这个的问题。 我认为轨迹就在那里。 因此，如果你开始看看你认为我们今年将会出现什么以及明年我们将要来的地方，那么我们应该以与阿波罗或其他一些人相同的收益率进行交易吗？ 我不知道。 有人想购买阿波罗，因为扣除净资产值，我不知道他们真的得到了20％到30％的能源贷款。 它没有任何意义。
You're -- it's funny because your stock had doubled from here and you're still a 5% dividend and I know when I watch CNBC, all these people want is companies that continue to grow their dividend and you're doing it. So people will continue to find you and you do a great job with your cost controls and you have a great management team and keep up the good work?
你是 - 这很有趣，因为你的股票从这里翻了一倍，你还有5％的股息，我知道当我看CNBC时，所有这些人都想要的是那些继续增加股息并且你正在做的公司。 那么人们会继续找到你，你在成本控制方面做得很好，你有一支优秀的管理团队，并保持良好的工作态度？
Appreciate that Marc. I think if we can get over that $500 million market cap number that'll be -- I think that has the potential to be a catalyst.
Sounds good. Thanks a lot, Barry.
At this time I'm showing no further questions. I'd like to turn the call back over to Barry for any closing remarks.
Thank you, operator. And I really want to thank participants on the call today. This was frankly one of the best Q&As, I think we've ever had. The analysts did an amazing job and really appreciate the thoughtfulness of questions both the ones that were out of the strike zone in the strike zone and very thoughtful and will cause myself the Board and the management team to reflect and make sure that we're on the right path doing what we're supposed to do for the investment community.
So once again, thank you for attending. We look forward to reporting good results for the third quarter as well. Thank you so much.
谢谢运营商。 我真的要感谢参与者今天的电话会议。 坦率地说，这是最好的问答之一，我想我们曾经有过。 分析师们做了一个了不起的工作，非常感谢问题的深思熟虑，这些问题既包括在罢工区的罢工区，又非常深思熟虑，并且会让董事会和管理团队反思并确保我们在 正确的道路，做我们应该为投资界做的事情。
再一次，谢谢你的参与。 我们期待第三季度也能取得好成绩。 非常感谢。
Ladies and gentlemen thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.
女士们，先生们，感谢您参加今天的会议。 这确实结束了该计划。 您现在可以断开连接。 每个人都有美好的一天。
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