Welcome to the Newtek Business Services Corp. Full Year 2021 Earnings Conference Call. My name is Hilda and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Now, I would like to turn the call over to Mr. Barry Sloane, President, Founder, CEO. You may begin.

Good morning everyone and first and foremost Newtek would like to send its prayers, thoughts, and feelings out to the country of Ukraine and its citizens. We certainly appreciate the dilemma that they're facing and witnessing this morning. Welcome everyone to our full year 2021 financial results conference call. My name is Barry Sloane. Joining me today will be Nick Leger, our Chief Accounting Officer. I would also like to thank our accounting staff, legal staff, business leaders, and all Newtek associates that made 2021 and the results that we're about to talk about today a great year. For those following along on the PowerPoint presentation it can be found on our website newtekone.com in the Investor Relations section. Please go to Events & Presentations and we are ready to begin. I first like to call everyone's attention to slide number one and please remind everyone to read the note regarding forward-looking statements and comments. Slide number two, we always like to go over our report card, particularly as a public company and on slide number two you could see that Newtek Business Service Corp. has been a very successful organization over the course of 10 years. The data that you see is end of year data acquired from Bloomberg and obviously, the returns include capital price improvement as well as dividends. Moving to slide number three, as many of you are aware, approximately August 2nd or 3rd, the company announced our intent to acquire National Bank of New York City and potentially convert, subject to a proxy vote and regulatory approval, from a business development corporation to a bank holding company and designated financial holding company status. There's been a lot of activity in the share count. This particular document demonstrates that shareholders that owned stock at the beginning of the period in their name to the end of the period sold out to zero. So, we asked the market participants to draw their own conclusions from this, but clearly, there's been a significant amount of movement in the share from people that had a position to not having a position. Obviously, the potential transformative change that we're talking about may have caused this. Slide number four, obviously, we're here today to talk about our 2021 performance and clearly we were dealing with tremendous headwinds from the 2020 and 2021 pandemic. We've used the expression we're firing on all cylinders. Simply stated, investing in Newtek Business Service Corp. means you're investing in a diversified business model under the Newtek brand. People come to Newtek for loans, payment processing solutions, tech solutions, insurance agency solutions, payroll solutions and other solutions that will make their business successful. We're very pleased with our performance in 2021. But I'm particularly excited about the momentum that we're carrying into 2022. We'll demonstrate that throughout the course of the deck. Since January 21, 2021, NSBF, which is Newtek Small Business Finance, our non-bank lending SBLC, increased its headcount by 63 individuals to 253 people, a 33% increase. This headcount increase is indicative of the fact that we have geared up, and as you'll see in terms of units and loan volume, we're gearing up with the great operating leverage that we have to do more and more business, both in 2021 with the records that we produce as well as going forward into 2022. We're looking forward to further demonstrating not just in lending, but in our other solutions area, whether it's payment processing solutions, tech solutions, payroll solutions, or insurance agency solutions. If you look at every one of these individual areas, there's tremendous change in payments. There's tremendous change in how businesses are looking and seeking assistance for their technology. There's tremendous change in people that are looking for payroll and HR solutions. We are very well positioned for these changes going forward, with our solutions that we believe very strongly will make businesses more successful and better. On the fourth bullet of slide 4, we will talk about our NewtekOne Dashboard that we unveiled recently. We are really excited about the product. Important to note, we are hopeful that the company will carry forward its objectives with the proxy vote and regulatory approval to become a bank. In the event we're not a bank, the Dashboard will still be available, however, without deposits. But we've been working on this and we will be rolling this Dashboard out in calendar year 2022. Also to note, obviously, during the fourth quarter of 2021, we really put tremendous resources into closing and funding 7(a) loans, 504 loans, and our non-conventional or non-conforming conventional loan business has taken off really well. Obviously, in calendar year 2019, there were no PPP loans, and no PPP income. There will be none in calendar year 2022. But when you look at the momentum and the performance of the company through 2020 and 2021, we're extremely excited about our future. We have great momentum going particularly in the lending vertical, based upon technology changes that we've made, staffing changes, and training changes. And we've got plenty of capital to be able to fund our loan growth and quality portfolios going forward. On slide number 5, some lending highlights. We provided 198 million of 7(a) loans in the fourth quarter—a 74% increase. On the year, we funded $560 million of loans for the full 12 months, an increase of 184% over the prior year. That's the largest amount of SBA funded loans that Newtek has done. We're the second-largest SBA lender in the United States, based on December 31 quarter metrics. Our Newtek Business Lending facility, which originates and creates SBA 504 loans and non-conforming loans, closed $90 million of loans during the 12 months versus $87 million. I would say from a metric perspective this was an underperformance. However, we do have a very nice roll-forward on some loans that we thought could or should have closed in Q4 that are rolling over into Q1. We feel really good about that. We'll talk about our first quarter 504 closing position in a later slide. Newtek Business Lending is forecasting $150 million of 504 loans for the full calendar year 2022, which would represent a 66.5% increase. Once again, it is important to note that in the 504 business, in addition to us making the loans, we have to receive CDC, Community Development Corp approval, SBA approval, and the borrower—the closing and funding dates can shift from time to time. Lastly, we say goodbye to PPP, with $1.9 billion of PPP loans funded. We likely forgave approximately 75% of the total 26,500 portfolio. To remind everyone, we have sold 100% participation certificates in almost all of our PPP financings. On slide number 6, we've talked previously about the addition of staff. I think it's important to note that we have brought in new management in the lending space for all four of the products. It's important to note, once again, the way we do our business, there is a big funnel up at the top, the referrals come in, and then our business service specialists and management teams decide if it's a 7(a) loan, a 504 loan, a non-conforming loan, or a secured line of credit. So you've got a very big funnel to get the referrals in, the front end decides what is best for the customer and what suits their needs and demands obviously to make good credit decisions. On a positive note, the addition of Justin Gavin, Jessye Brem, Scott Shulman, and others have really strengthened that management team, which you'll see as you look at the portfolio and growth in the pipeline this quarter and in the same timeframe last year. We have had staff turnover—some may see this negatively, but in our case, the turnover that we've had over the past year and a half has put a very talented team in place with similar goals and metrics for both personal and professional growth that align with the company. We're very confident in our staff and training going forward. In the press release, we indicated that we had north of 3,200 management training hours for lending staff. We're extremely proud of that. Slide 7 gives you a good idea of what our efforts are accomplishing and what we believe is an operationally leverageable and scalable lending business. We received 57,000 referral units for the quarter in 2021, compared to 92,000 in 2020. For the year, we had 413,000 referrals for the 12 months versus 239 for the same period in 2020. In unit closes, it’s important to note we're closing more units. That's a big deal. We had 282 loan units for the three months ended December 31, 2021, compared to 122 units for the year prior. 761 units versus 215 units. Now this is all based on 7(a) data. Once you get into the non-conforming conventional loan business, you're looking at average loan sizes that could be around $5 million plus or minus. It’s very important to note that to achieve very significant material volumes, we really don’t have to close a lot of units, and that big referral funnel coming in is going to generate that type of activity. So when you think of the non-conforming business, we will talk about that going forward; it requires a robust referral infrastructure, assembly infrastructure, and underwriting infrastructure—tremendous opportunities for operating leverage. Newtek's database of customer opportunities is extensive, with over 1.5 million referrals in the database. We'll discuss the Newtek One Dashboard and our ability to cross-sell, but more importantly, provide a quality solution to independent business owners across the United States. Once again, it's important to note that the dashboard we are developing is going to provide business owners a tool that will enable them to be more successful in their business—both in data information and transaction management. With a 19-year track record of loan assembly, underwriting, and technological expertise, we have materially improved our processes across the board to operate more efficiently in the lending business while closing out 2021 and clearly moving into 2022. We're optimistic about the growth potential and possibilities. Slide number 8 talks about our financial highlights. Total investment income is up 17.7% for the year, while net investment income saw a decrease of 25.8%. The explanation here is the delta of the PPP income recorded in 2020 versus 2021, due to the gain on sale being included. So, on a positive note, we've had significantly greater adjusted ANNI for the calendar year at $3.47 versus the prior year's $2.05. However, the PPP income in calendar year 2020 dwarfs everything else, and we did very little regarding our core business. Core business is coming online—we're getting back to basics, and we are growing, which is very exciting. I do want to point out that the $3.47 was a nickel better than consensus estimates which were at $3.42; we had previously forecasted $3.40 for the year. The debt-to-equity ratio stood at 1.19 as of December 31. That's one of our lower debt-to-equity numbers in recent quarters and years. We feel good about our progress in reducing leverage at this point, and it's likely that that leverage number will bounce back up. Once again, total investment portfolio increased by 13.1%. It's important to note that BDCs have a hard time growing their total asset size because they're constrained when trading below NAV. We obviously traded at a premium to NAV. So being a BDC, it’s important to have a strong stock price to continue raising equity and debt to grow the business. The net asset value of $403 million crossed the $400 million mark, an increase of 8.2% per share on a year-over-year basis. Slide number 9 addresses the adjusted NII trend. Obviously, a strong $3.47 adjusted NII. Look, I would say we have not provided full-year guidance as a BDC for the calendar year. There's good reason for that. We may not be a BDC for the full year. We have indicated that we think the third quarter would be the likely timeline for that. But that's up to our work with regulatory bodies—we will work with them and give them as much time as needed to make appropriate decisions. We have declared a $0.65 dividend for the first quarter and have forecasted a $0.65 dividend for the second quarter. That’s a total of $1.30 for the first six months, which I think is a formidable forecast going forward. Typically, we have had stronger performance in the second half than the first. There is, and maybe this is the understatement of the day, a lot of uncertainty and volatility in the markets today. So trying to figure out what the third and fourth quarters look like is challenging at this time. However, when you consider the trends, pipelines, efficiencies, and the nature of the businesses that we are involved with—these are independent business owners primarily focused in the U.S., we think we're in pretty good shape. We would like the market to consider the company's historical performance over 10 years, as well as how our processes and training improvements have unfolded—we are excited about 2022. Slide number 10 discusses dividends. We noted that the $3.15 declared in 2021 signifies a 53% increase over 2020. In Q1, 2022, we declared a $0.65 dividend, and we forecast a $0.65 dividend in Q2. This declared dividend is a 30% increase. In metrics for Q1, we expect a very strong performance. We’re thrilled about not just finishing the current review today, but also reporting our first quarter performance as well. Going back to 2021, we achieved great numbers as we've noted. However, those were achieved amidst significant challenges. One must recognize the company's agility, nimbleness, and forward-thinking approach in making adjustments. These characteristics were demonstrated over our 20 years as a public company. Slide number 11 discusses the debt-to-equity ratio of 1.19 and how we sometimes sell government guaranteed pieces, which settle in the first week or second week of the next quarter. That leverage typically disappears fairly quickly, and we would have been close to 1.10 otherwise. We’ve been able to produce strong numbers without excessive leverage. As many know, we redeemed $40 million of the NEWTL outstanding baby bond notes without prepayment penalties. Egan-Jones has recently maintained their BBB+ rating on our notes and debt. We also have the NEWTZ notes totaling $115 million, at 5.50% due 2026 callable after February 2022, with make-whole provisions applying for one year after that. Slide number 13 highlights the market's concerns about managing interest rate risk. It’s important to note that our SBA 7(a) portfolio floats quarterly over prime, with no cap. Our liabilities in the warehouse line with Capital One are also subject to floating rates, and the rate on securitizations are floating. Thus, we have a favorable asset-liability match on both sides. Additionally, we successfully securitized the joint venture of non-conforming conventional loans, creating a good template for our business moving forward—something we hope analysts and the investment community will begin to focus on. In terms of performance, we issued a little over $56 million in notes rated single A by DBRS, with a fixed coupon of 3.187. The net coupon on the portfolio was 7.2, and the gross coupon 8.2. We retain 100% of the servicing spread on all the loans, with the joint venture split between us and our partner. This transaction has been favorable for us and we see it as a good example for future opportunities, subject to volume. It's important to note that these loans are seasonal, and as of today, they are all performing, with all but two or three originated before the pandemic. Last year, the Board of Management decided it was prudent to hedge interest rate risk in our 504 and non-conforming portfolios. Acknowledging the timing was possibly fortuitous, we initiated a hedging program that yielded a realized net gain of $644,000 for the calendar year 2021. The non-conforming portfolio achieved a realized hedging gain of $1 million upon the closing of the securitization. Slide number 14 offers our SBA pedigree. Notably, the average loan size has reduced to $156,000. The uninsured portion of the loans sold since the market has gained is adjustable based on a Prime plus 2.75% agreement, equating approximately to a 6% cost to borrowers and a matching earned coupon for us. I'd like to highlight that the secondary market pricing, as seen on slide 15, remains strong. It's essential to note that the high 13.05 premium was influenced by an additional 50 basis points coupon for SBA lenders due to pandemic adjustments in various government programs. Although that benefit is dissipating, prices still remain strong and above the 10.78 benchmark. The mix between 10-year paper and 25-year paper also plays a significant role in determining pricing, influenced by market conditions. On slide 15, it is important to point out that the company has $59.3 million guaranteed portions of 7(a) loans on its balance sheet, which if sold in Q1, would produce a gain on sale from that portfolio. Slide number 16 reveals that we successfully finished our 11th securitization of the uninsured portions of our SB portfolio, completing $79.7 million in Class A notes rated A and $23.8 million in Class B notes rated BBB by Standard and Poor's. The demand exceeded expectations—we had to close the books due to overwhelming interest, about four and a half to one oversubscribed on Class A. Once again, these are non-recourse financings. Slide 17 is a new addition that highlights Newtek Small Business Finance as a 7(a) lender, whose loans fall under the Capital One Bank line and into securitizations. Review the net interest income trend, which represents good quality recurring income being added. In Q4 2021, we noted net interest income of $4.7 million—the highest number we've ever achieved, up from $3.1 million the year before and $3.6 million in Q4 2019. Naturally, we didn’t originate many loans in 2020 and dealt with portfolio attrition. We're thrilled about this additional stream of income continuing to grow moving forward. This type of spread income is vital for Newtek; as we expand the non-conforming business out of the JVs, we anticipate similar spread income growth. Slide 18 illustrates our pipeline progress, indicating strong growth across 7(a), 504, and the non-conforming conventional sectors. By February 23, 2022, we had already closed $60 million in 7(a) loans and have $155 million in approved pending closures. If you refer to 2018 and 2019 data, excluding 2020 where we saw significant policy shifts, it’s evident that we’re set to have a strong Q1 in the SBA 7(a) portfolio. The same positive trend applies to the 504 unit, where we anticipatively closed $15.6 million, with hopes of reaching $30 million or $40 million closed in Q1. We aim for $150 million in closings or funded loans in the calendar year 2022 for the 504 sector. In the non-conforming segment, our pipeline is expanding, and we are nearing the closure of our second joint venture. Last year, our first JV remained dormant throughout the pandemic, but we now have new negotiations with second and third parties and aim to fund about $300 million in these loans, conservatively estimated. Turning to Slide 19, we present total pipeline growth across all business segments. Slide 20 highlights the seasoning of our 7(a) portfolio, showing that it is steadily becoming more seasoned. We observe that default rates accelerate within the first four years of a portfolio, particularly between 18 to 40 months, before flattening out. So we feel confident that our portfolio seasoning is beneficial. Slide 21 proudly shows that, as of December 31, 2021, no accounts exceeded 60 days past due, and the non-accrual portfolio has diminished year-over-year. Given the pandemic affected many businesses, we're satisfied with the origination and service perspectives of our portfolios. Slide 22 shows we have 44 full-time employees managing our portfolio, which totaled approximately $3.1 billion as of December 31. This was heightened due to receiving forgiveness on a substantial number of PPP loans. Notably, we are a Standard and Poor's rated servicer for both SBA and NSBF. In servicing portfolios for two government regulators, the FDIC and the National Credit Union Administration (NCUA), we worked diligently over the past two years, as government restrictions limited commerce for our clients. We assisted them with PPP financing, EIDL loans, and Employment Retention Tax Credit programs, all of which help maintain excellent loan performance. Moving to Slide 25, we review key entities—Newtek Merchant Solutions, Newtek Technology Solutions, Newtek Insurance Agency, Newtek Payroll Solutions, and Newtek Business Lending. Slide 26 outlines data for the 504 loan program, forecasting approximately $150 million in 504 loan closings in 2022—a significant increase over 2021—indicating a 66% growth compared to previous funding or closings. We have the capacity thanks to facilities from Deutsche Bank ($100 million), Capital One Bank ($75 million), and One Florida Bank ($20 million) which assists our construction financing efforts. It’s noteworthy that we sold approximately $64.6 million in 24 units of 78 loans to third-party investors just for a gain of over $2 million in the past year. Regarding the 504 business depicted on Slide 27, the loan structure involves first funding from Newtek Business Lending followed by securing funding through government debentures and borrower injections. Slide 28 addresses our return on investment showing that the 504 business, like our 7(a) business and non-conforming business, is profitable. These segments lead to higher returns on equity; it showcases why our stock price has consistently performed well over the last decade. Moving to Slide 29, we delve into non-conforming conventional loans, noting successful securitization of our portfolio totaling $86.6 million with 17 loans rated by DBRS. The pandemic slowed initiatives on this front, but we have now regained momentum. We are forecasting conservatively $300 million, but we are excited about opportunities to exceed that target. Currently, we negotiate three joint venture agreements that will considerably enhance our capital potential to fund between $500 million to $1 billion worth of these loans in the near future. On slide 30, we exhibit the advantages of our non-conforming conventional loans. This aspect plays a key role in analyzing Newtek and its cash flows from various business areas, including merchant processing, technology solutions, the 7(a) business, gain on sale, servicing income, and spread income. The non-conforming loan sector allows us to earn origination fees prior to entering or exiting JVs, plus the added servicing income of 100 basis points for servicing these loans. We proactively manage interest rate risk through a hedging portfolio. When loans go into securitizations, we achieve match funding, ensuring that the NCL business leverages our existing origination platform for enhanced revenue on fixed expenditures. The overall operational plan emphasizes a significant referral network, showcasing a need for diversified services rather than merely being identified as a 7(a) lender. This includes lending options such as 10 to 25-year loans without balloons or covenants, personal guarantees, and high advancement rates securing primary collateral at competitive interest rates. In the future, we aspire to diversify offerings through proxy votes and regulatory authorities, evolving the Newtek brand to include regular bank loans consistent with standard banking practices, incorporating lower deposit funding costs. This comprehensive approach aids independent business owners as they progress through the financial cycle. Once again, there's an emphasis on our inclusive referrals that encompass women, minority-owned businesses, and loans towards rural communities as we aggregate these opportunities by utilizing technology and forming alliances. We're highly enthusiastic about servicing independent business owners across diverse communities. Slide 31 highlights our merchant processing valuation, anticipating a recovery in growth as the pandemic recedes. Slide 33 mentions a 23.2% increase in monthly sales volume for the fourth quarter compared to the prior year. We hold optimism that rising consumer spending will persist. Also noteworthy, we have considerable taxi driver portfolios in New York, deeply impacted by reduced international travel, an area rich with potential. Overall, I want to bring attention to our management alignment, highlighted by David Simon's appointment as President and Chief Operating Officer of Newtek Merchant Solutions. He restructured our strong management team along with Mike Campbell, now overseeing underwriting risks, policies, and procedures—critical considerations especially if we progress into a bank role in the future, provided regulatory approval. Transitioning to Slide 32, Newtek Payment Systems, legally referred to as POS on Cloud, presents significant excitement. For more details, you can visit newtekpaymentsystems.com. Our platform is a robust processor-agnostic one, fully integrated into payroll and payment systems, offering extensive benefits through branding for partner channels—something competitors like Square and Clover lack. This positions us strongly in the market. We’re optimistic about this product's growth trajectory. Turning to Slide 35, regarding our technology business, Newtek Technology Solutions generated $41.1 million in revenue, with an $5.4 million EBITDA, compared to $4.3 million last year. Growth forecasts are aggressive, aiming to deliver around $7 million. We cater to small businesses, offering Security as a Service, advisory and consulting for tech solutions, and professional services. We help independent business owners efficiently store data and technology securely, especially amidst increasing cyber-attacks. We understand that while Amazon and Azure are significant players, their services cater less to our smaller business demographic. We offer tailored support, even guiding clients into those environments if they desire. Fast-forwarding to Slide 38, our payroll and benefits offerings are evolving based on regulatory changes—customers need our assistance. We’re available 24/7, providing crucial support to clients through modern communication means, negating the need for traditional banking branches—our current team configured during the pandemic effectively addresses independent business owners’ needs across all domains. Now, let’s discuss slide number 39, showcasing the NewtekOne Dashboard. This will be available upon our hopeful acquisition of the National Bank of New York City and will still launch regardless of that outcome. Currently in progress, this dashboard will be an aggregation tool providing essential services. It will encompass payroll, web traffic data, storage functions, lending tools, and payment processing information. Our goal is to consolidate all services into one dashboard that leads towards business success. We aim to create not just an information platform, but one that offers transactional capabilities, evolving over different iterations. We're progressing in education regarding banking software and systems, and we’re keen on rolling out the Dashboard. Moving to slide number 40, this is a screenshot of the intended layout for the dashboard. It is crucial to note that it will include direct access to your dedicated Newtek team, encompassing various specialists such as payment, payroll, and tech experts. Rather than facing the impersonal experience typical of larger banks, our dashboard will deliver a tailored, interactive environment where clients can video chat with their specialists. In addition to banking functions, we will provide essential data storage, helping manage insurance policies and business documents securely. We aspire to broaden our services to include tax support and digital bookkeeping down the line—this remains in the planning stages, but it remains a key focus. Our differentiator lies in ensuring the dashboard makes our clients more successful, merging software functionality with human engagement. The Newtek One Dashboard signifies the vision of a technology-enabled bank, highlighting our future directions. To conclude on slide 41, investment in Newtek Business Service Corp presents potential as a BDC or prospective financial holding company. Our proven track record shows we've outperformed the Russell and S&P 500 for over a decade, aligning management interests with the shareholder base. We prioritize dividends and capital appreciation—noting that the relationship between stock price and dividends holds equal importance. Our objective is clear: enhance shareholder value for all involved. Thank you for your attention, and I would like to turn the floor over to Nick Leger, our Chief Accounting Officer, for the remainder of our financial review on our fourth quarter and annual results.

Thank you Barry. Good morning, everyone. You can find a summary of our fourth quarter 2021 results on slide number 43, along with the reconciliation of our adjusted net investment income (NII) on slide number 45. On slide number 43, for the fourth quarter 2021, we had a net investment income of $1.6 million or $0.07 per share, compared to a net investment income of $850,000 or $0.04 per share in the fourth quarter of 2020. That represents a 75% increase on a per share basis. Adjusted NII, which is defined on slide number 44, was $16 million or $0.68 per share in the fourth quarter of 2021 as compared to $9.6 million or $0.44 per share in the fourth quarter of 2020. Focusing on fourth quarter 2021 highlights, we recognized $24.8 million in total investment income, marking a 67.7% increase over the fourth quarter of 2020. Total investment income of $14.8 million stemmed from dividends from portfolio companies, interest income, and other income being the primary drivers for this increase. Notably, interest income grew by $1.4 million from the year-over-year uptick in the accrual loan portfolio. Other income rose by $3.3 million for the fourth quarter of 2021, mainly attributed to an increase in SBA 7(a) loan origination volume. Servicing income increased by 7.2% to $3 million in the fourth quarter of 2021, up from $2.8 million in the same quarter of prior year. Distributions from portfolio companies for Q4 2021 totaled $9.75 million, which included $6 million from NMS, $3.5 million from NBL—the 504 business—and $250,000 from NPS, compared to $4.175 million in the fourth quarter of 2020. Moving on to expenses, total expenses for the fourth quarter increased by $9.2 million quarter-over-quarter, primarily driven by rising SBA 7(a) loan referral fees due to heightened loan origination volume, as well as escalated professional fees and processing costs for loans. Realized gains recognized from the sale of guaranteed portions of SBA loans sold during the fourth quarter totaled $18.1 million, compared to $11.4 million during the same quarter last year. In Q4 2021, NSBS sold 223 loans for $126.6 million at an average premium of 12.28%, vs. 123 loans sold during the fourth quarter of 2020 for $85.1 million at an average premium of 11.42%. The increase in realized gains is attributed to higher SBA loan origination volumes in Q4 2021, coupled with increased average premium prices compared to Q4 2020. Realized losses on SBA non-affiliate investments for Q4 2021 amounted to $3.5 million, compared to $2.7 million for Q4 2020. Overall, our operating results for the fourth quarter of 2021 resulted in a net increase in net assets of $20 million or $0.84 per share, and we ended the quarter with a NAV per share of $16.72.

Thank you, Nick. Operator, let's move to the Q&A segment.

Thank you. We will now begin the question-and-answer session. And we have a question from Paul Johnson from KBW.

Yes. Good morning, guys. Thanks for taking my questions. Just have a few for you today. I'm curious as far as what you're seeing with your portfolio in terms of credit trends, just subsequent to the expiration of the CARES Act last year in September, if that's changed at all, if that's improved or any sort of significant developments there.

Yes. I think that if you assess the results, most of the portfolio ceased receiving CARES payments around the March-April timeframe. Many businesses viewed those as temporary measures, and with various government restrictions, capitalizing on these funds became essential. Looking at our portfolio performance, we’re quite pleased and feel that Newtek embodies how businesses adapted to reduce unnecessary expenses while adjusting to current business conditions. So we believe trends are favorable. Currently, consumer spending has been exceptionally robust until very recently. Positive trends persist in our payment metrics, and with moderate considerations regarding fuel prices. If we're seeing oil prices at $125 per barrel for several months, that could pose challenges. But at present, we feel optimistic about the quality of our portfolio. Our clients are on solid footing, particularly post CARES. We've effectively eliminated late payments exceeding 60 days, and our non-accruals have reduced, reflecting our portfolio's strength and the value of collateral.

Thanks for that. Yeah. It's great to hear. Secondly, you guys have grown your staff pretty significantly last year. Just wondering, do you expect that kind of rate of hiring to continue into this year or do you think you've kind of reached a point where you're pretty satisfied with the staff you have today?

Yes. That’s a great question. The lending team, led by Tony Zara and Peter Downs, routinely reviews headcount needs. We've currently secured the right staff size capable of handling our growth. As we expand the NCL business, we may seek to onboard selective roles but not extensively. We lean towards reallocating resources due to the expected reduction of PPP forgiveness. Overall, our significant SG&A increase last year was well managed, and we believe we'll maintain that momentum while maximizing the growth potential of the NCL opportunity, along with the augmentation from acquiring the National Bank of New York City.

Thanks for that, Barry. Appreciate that. I just had a few more and I'll hop back in the queue, let a few others ask questions. I'm curious on the JVs that you talked about with new partners and potentially forming those, growing those over time. How do you plan funding the JVs? Is that going to be essentially cash on your balance sheet, or potentially assets from the portfolio, or how—what's the plan for just getting those JVs started?

Sure. That’s a great question, Paul. I appreciate you asking this because many don’t fully grasp the capabilities of the JVs. We currently approach it similar to our existing BDC operations, by employing a blend of debt and equity. Typically, these are 50/50 equity stakes, paired with leverage financing from different partners. We have term sheets and offers prepared. Thus, the loan growth will be funded through Newtek Business Services Corp’s equity stake in the respective joint ventures.

Got it, got it. And then, lastly, I was hoping maybe you could just to kind of maybe talk about the effect of inflation and how you've seen that kind of flow through your portfolio companies, or maybe even how you expect that kind of flow through this year. Any sort of effect that had on your portfolio or maybe even your underwriting process, just any kind of color there would be helpful.

Yes, I think that inflation positively impacts the payments business. I dislike saying that, but it tends to boost volumes since there are many fixed expenses involved. For our payments, insurance agency, and payroll businesses, inflation could be beneficial. However, in lending, it might pose challenges if rates spike significantly. Pressure generally arises for businesses lacking pricing flexibility in such cases. We’ve equipped ourselves well against inflation concerns. This is where our diversified model reigns; we’re confident we can navigate these fluctuations without adverse effects. Our long history within the SBA space has prepared us for the uncertainties.

Yes, appreciate that. Actually, one more question. Just a housekeeping thing for Nick. He mentioned that, I think, I just missed it. But could you just verify the realized losses on the SBA loans in the fourth quarter?

Yes, for the fourth quarter, it was $3.5 million.

Okay, appreciate that. Alright, that's all for me. Congratulations on a really active quarter and a really active 2021. Hopefully, we see more this year.

Thank you very much.

Thank you. The next question comes from Mickey Schleien from Ladenburg.

Good morning, everyone. Hi, Barry.

How are you doing?

Okay. Thank you, Barry, most of my questions were already asked, but just a couple more. You mentioned that SBA 7(a) prices weakened in the fourth quarter as the government's fee waiver, and following that, how do you view pricing developing this year? And what do you expect for demand as interest rates rise?

Yes, the pricing on the bonds has held up reasonably well—currently quoted at approximately 1:13, but just shy of that mark. Admittedly, I can’t provide a firm outlook for Q1 rates and consider anywhere between 1:11 to 1:12.5 as possible ranges. The need for government-backed loans remains high, and that underpins the prices well. More critically, we can’t overlook that rising interest costs can change dynamics, though the demand remains resilient.

And how about demand for the loans in terms of originations, Barry? In other words, when you look at your long history, let's say interest rates climb—they could climb a couple 100 basis points in the relatively near future. How does that impact demand by your borrowers for debt?

That’s a fantastic question, Mickey. Despite the higher rates, lending in our structure allows us to provide better alternatives than traditional bank loans. While we aim slightly higher than conventional banks, the extended repayment terms are invaluable. In essence, higher interest rate environments do not significantly deter our target market differentiating our pipeline. Additionally, as evidenced by our steady pipeline growth, demand remains consistent even amid rising rates. We’re optimistic about our future origination activities.

I understand. Thanks Barry. Just to follow-up on the credit quality questions. Could you give us a sense of how your borrowers' revenues and margins trended in 2021? And do you expect those to be sustainable in 2022?

That’s insightful. Currently, it’s rather early to glean trends; we've observed significant pricing elasticity. Consumers seem amenable to price increases, thus far sustaining demand for products alongside rent costs. Unfortunately, lingering supply chain issues might hold volatility risks. Today, nimble businesses are flourishing, ours included. Our servicing team of 44 is diligently providing support to clients navigating employment retention tax credits—many are unaware that they qualify. We are fully committed to helping our borrowers not only obtain funding, but to actively foster their business development.

I appreciate that. I understand. Thank you. Barry my last question. Thinking about sort of secular trends, are you seeing opportunities developing amongst small and medium-sized businesses to service the alternative energy market? I'm just thinking about companies that may go out to houses to service solar panels or wall chargers for electric cars, things of that nature, and can that displace historically loans that used to make to gas stations, for example?

Yes, that shift will occur. However, we don’t specifically serve as venture lenders. That said, we've observed burgeoning entrepreneurship in solar panel installation and charging stations, among other emerging sectors. While these are rapidly growing markets, they currently don’t constitute an area of focus for our lending strategy.

Understand—maybe down the road. That's it for me this morning. Thanks for your time.

Thank you, Mickey. Appreciate it.

Thank you. Our next question comes from Matt Jaden from Raymond James.

Hey all, morning, and appreciate you taking my questions. First one maybe for you Nick. Apologies if I missed it during the prepared remarks. Can you give the breakdown of dividend income in the quarter? And then as a follow-up maybe for you, Barry, kind of expectations for the dividend income line in 2022?

Yes, I'll address the latter. The expectation for dividend income is we have declared a $0.65 dividend for Q1 and forecasted a $0.65 dividend for Q2. Given the strong performance from the 7A loans rolling over and the projections from portfolio companies, we’re feeling optimistic. We previously noted our cautious approach concerning Q3 and Q4 due to uncertainty regarding our status as either a bank or a BDC, but traditionally, the company tends to perform stronger in the latter half.

From the last year’s dividends, there was $6 million in dividends from NMS, $3.5 million from NBL, and $250,000 from NPS.

Got it. Appreciate that. Barry, maybe as a follow-up to you on the bank holding conversion company timing. Any sense you can give us as to when we might expect to see a proxy statement?

I apologize Matt, but I cannot provide a precise timeframe. Our main goal is ensuring that when the proxy goes out, stakeholders understand the details thoroughly. We prefer sooner rather than later, but the depth we're currently engaged in has made things complex. While we’ve made adjustments along the way, it’s all contingent on regulatory sign-offs before we can plot a definitive course. But we’re optimistic and confident about the merger benefiting both clients and our operations.

Fair enough. Last one for me, kind of continuing on that theme, there maybe – maybe at a high level now that both of the baby bonds are fully callable. How are you thinking about a refi or a call of those heading into the conversion?

Certainly. It makes sense to get further along in the process before making those decisions. If we speculate that a third quarter timeline is plausible, then a call would likely be evaluated around then. I don’t want to commit here to whether we will or will not call it tomorrow—it largely hinges on the conditions we encounter.

That's it for me, Barry. I appreciate the time this morning.

Thank you for these insightful questions. I should have been better prepared, but I'm grateful for the engagement today.

Thank you. At this moment, we show no further questions. I would like to turn the call back to Mr. Sloane for any additional remarks.

Great. I want to thank everybody for attending the call today. I understand this is a challenging time with substantial market activity. We had a remarkable 2021 and I am genuinely optimistic about 2022. I'm looking forward to collaborating with each of you regarding your needs and objectives. Thank you for your time and attention.

Thank you, ladies and gentlemen. This concludes today's conference. We thank you for participating. You may now disconnect.