NewtekOne Inc (NEWT) 2009 Q2 法說會逐字稿

Good day, everyone. Welcome to today's Newtek Business Services Q2 2009 earnings conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Barry Sloane. Please go ahead, sir.

Thank you, very much. Good afternoon, everyone. Thank you for joining our second quarter 2009 conference call. I will be presenting today. My name is Barry Sloane. I'm CEO and Chairman of the Board. And also with me here today is Seth Cohen. We're going to be basically following a format with respect to a power point presentation that is on our website, www.newtekbusinessservices.com. If you tuned in to the Investor Relations section, you should be able to find that power point for today's presentation. With that, I would like to have Seth to read the Safe Harbor Statement for today's presentation.

Safe Harbor Statement. The statements in this slide presentation, including statements regarding anticipated future financial performance, Newtek's beliefs, expectations, intentions or strategies for the future, may be forward-looking statements under the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the plans, intentions and expectations reflected in or suggested by the forward-looking statements. Such risks and uncertainties include, among others, intensified competition, operating problems and their impact on revenues and profit margins, anticipated future business strategies and financial performance, anticipated future number of customers, business prospects, legislative developments and similar matters.

Risk factors, cautionary statements and other conditions which could cause Newtek's actual results to differ from Management's current expectations are contained in Newtek's filings with the Securities and Exchange Commission and available through www.sec.gov. Also, we need to point out that our Capcos operate under a different set of rules in each of the eight jurisdictions, and that these place varying requirements on the structure of our investments. In some cases, particularly in Louisiana or in certain situations in New York, we don't control the equity or management of the qualified business, but that can't always be presented orally or in written presentations. Thank you, Barry.

Thank you, Seth. I would like to draw your attention to page 3 of the power point presentation. We are very pleased with the Company's second quarter performance. Our Management team has clearly succeeded at cutting expenses, reducing our quarter-over-quarter loss, maintaining our cash balances while still managing to grow revenues and our EPP and our web hosting segments. With respect to the second quarter, one important event was Wilshire Partners, which was our Florida-based Capco, had its notes matured. Those notes effectively were [defeased] by the [AAG] policy. The AAG policy paid off all the certified investors, and we now have another certified capital company where principle payments have satisfied the debt repayments from our third party credit enhancer.

The primary revenue trends and EPP and web hosting continue to be good and exceeded 2008 comparisons. continue to be good and exceeded 2008 comparisons. We recently signed an amendment with GE, our lead lender who provides us with financing for our SBA portfolio. The details of that amendment have been filed with the SEC and are on public record. But most importantly, they have basically offered us extensions all the way out to May of next year, provided that we meet certain guidelines and milestones, which the Company at this point in time, believes that it will meet, although it offers no guarantees that that will be the case.

In the SBA lending space, the business dynamics changed very positively. Obviously, we have had difficult reports in the segment the last few quarters. But as we is the here today, the government-guaranteed pricing and the government-guaranteed portion of SBA loans, which is at 90%, is returning prices of [$108 to $109] on the premium portion of the government-guaranteed loan participations. Our portfolio loss frequency in [severities] performed very well. We have 12% loss reserves against our portfolio, and we have had no deterioration in the portfolio over the first six months of this year. We have begun originating SBA 7A loans again on a modest basis. Our guidelines that we have given the market has no benefit for any originations whatsoever, so we do think that we -- and hope to anticipate improved performance based on our guidance from our SBA lending sector.

The securitization market from a capital markets perspective has begun to thaw. We think that is a very good and positive effect for us with respect to us being able to get leverage lending lines for SBA business, as well as to potentially access the securitization market for our own SBA loans, in terms of securitizing the uninsured portion of 7A. And lastly, we have had several new alliance partners that have queued up to do business with us. Obviously in a dynamically-changing economic environment, many of our past providers aren't quite as financially healthy or robust as they may be. We anticipate making some new announcements in the near future about new alliance partners that are extremely interested in offering our business services.

For the most part, our call today will focus on primary corporate initiatives and strategy, financial results snapshot, specific developments and EPP and hosting segments, developments in the small business finance initiatives, cost reduction measures, particularly at the holding Company. We'll discuss our focus on marketing, a financial review on the 2009 outlook. When looking at the Company's strategic planned mission and execution strategies, we are staying on course and sticking with the current strategy as it's working very, very well. We have done a terrific job in reducing expenses, both in he corporate overhead perspective as wells as within the individual segments. Our marketing focus is very closely attuned to developing an outward presence.

Historically, our inbound marketing efforts were -- our referral partners are driving customers to us on a regular basis -- has basically got us in single- and double-digit growth historically. We have now expended significant dollars in Brownsville and some of our other facilities out in Phoenix and in Wisconsin. And we anticipate renewed growth, and look forward to getting back to double-digit growth in revenues from some of these outbound marketing efforts. We believe that we're out-performing others in the industry based upon our business model. If you take a look at entities like Mastercard and Visa and you look at their domestic processing volume, both entities, which obviously represent the bulk of the payment processing market, are down for 2009. Where we, on the EPP segment, are up in 2009 on our processing volume.

In addition to that, when you look at our hosting business, we actually are generating more revenue per dollars from our hosting segment despite the fact that we are experiencing attrition in the overall customer base. We basically view the trading up and focus on the larger segment of the [SNB] market as a healthy dynamic for Newtek and its divisions, and we believe that trend will continue as we're looking for larger customers that are more robust, purchasing higher plans such as [Hyper V] or dedicated-type plans at hosting and giving us more revenue or processing volume per month in the EPP segment. The Company strategically has avoided the pitfalls of many other companies. We have stayed away from leverage, buying or acquiring merchant portfolios with debt or buying or acquiring hosts with debt. We improved our cash flow significantly with expense reductions and growth in the business.

We believe that we will successfully be able to reposition the lender's financing this year. It was extremely important to get the GE extension in place, and we have a few opportunities in the queue to get GE refinanced out and to continue our SBA 7A lending business. As we've recently announced, we had success signing up new alliance partners like Microsoft, Latino Coalition, [Pershing] and others. This is a slight movement away from the financial institution segment that has historically been a driver and provider of referrals for our system. We look forward to further developing our outbound outreach program versus our historic dependencies on inbound marketing goals.

Looking at the second quarter 2009 financial results, comparing Q2 2009 versus Q2 2008, our EPP segment was up about 6% over Q2 2008. In revenues, web hosting up 5% from Q2 2008, and in the small business finance segment we were down 25%. A lot of that decline is based upon not having any gain on sale or limited gain on sale from government-guaranteed pieces. We're optimistic about our third and fourth quarters as we have begun originating SBA 7A loans. And we do anticipate picking up some gain on sale from the sale of the government-guaranteed portion of the 7A loans. We reduced our pretax loss in Q2 2009, with a 71% decrease, formerly $2.6 million loss. We came in at $775,000 loss. I will add that we expensed about $1.6 million of depreciation and amortization in Q2 2009. So if you add those two together, you actually come up with positive cash flow, which is another positive statistic for us to discuss with the marketplace.

Looking at our balance sheet cash position, as of the end of the quarter, we came in at $26.9 million, up from $25.2 million in the prior sequential quarter. That comes in at about $0.75 in cash per share. We had a fairly significant swing in net cash on our operating cash flow statement, from $5 million of [debt] cash provided by operating activities versus negative $11 million. That to a certain degree is a little bit of an overstatement, although it's a $16 million swing. Part of that is based upon the funding of lending and putting dollars into loans and not selling those loans during that period of time. Part of it is also from expense reduction, which we are quite proud of. As you can see, we also had a $1.7 million net increase in cash and cash equivalents for the first six months of 2009 versus last year.

Focusing on the electronic payment processing space, our revenue was up 6%. We continued to have margin compression due to the competitive nature of the EPP market. However, I will tell you that we are keenly aware that some of our competitors appear to be in some financial [constraints]. We have information that many of our levered competitors are experiencing some difficulty. It wouldn't surprise us if see some top 20 processors file for bankruptcy. With that said, we do think that those types of trends will reverse the type of margin compression that we have had. Typically, in the midst or at the beginning of a beginning of a very competitive cycle, you will have competitors who are cannibalizing each other, and pushing each to other to the mat to put new business on. We think we have experienced the worst of that and we do look forward to our reduced pressure on us to have to continue to narrow our margins as clients are coming in quite frequently for repricing.

The EPP business, as many of you are aware, is a cash flow-positive business for us, gives us great operating leverage. We're estimating 2009 EPP segment EBITDA forecast to come in at $5.5 million to $6.1 million. We have no debt on this business. And an important focus for e-Commerce, which we believe is the single most important corporate initiative from a Newtek perspective -- If we look at e-commerce, the business of a, providing a web internet interface for businesses as well as taking payments, we clearly have the competitive advantage. If we're not the only player, we're one of the few players that actually own and control both enterprises. Our ability to offer a client Newtek Gateway, Newtek Shopping Cart, Newtek payment processing and Newtek hosting, we think is unique and significant. And our ability to have our own personnel being able to book and bind all four functions, and in the customer service area, handle customer service issues related to those problems for clients, we think is significant and gives us a significant competitive advantage. We will be pushing this particular marketing initiative on radio and television as well as with our Alliance partnerships.

Looking at our web hosting initiatives for the recent quarter, we came in revenue up 5% Q2 2009 versus Q2 2008. Pretax net up 24%, EBITDA up 9%. Hosting, like many other businesses, very challenging, very aggressive. We have some competitors that are out there, particularly on the low end of the market, giving away free websites. This is part of the market, frankly, that is least attractive to us. Customers that aren't willing to pay a minimum amount for a site and don't view their site and the hosting of that site and the service relating to that site as important are more apt to go for the free or very low-cost hosting initiatives. We are losing some of those customers but, frankly, it's not of great concern to us. As I did mention earlier, our actual dollar per customer, per hosted customer, has increased over the course of the last quarter and over the course of the last year.

We still have plenty of real estate capacity in our data center. We're only operating at 60% of real estate capacity. Our hosting segment we anticipate doing about $6.9 million to $7.7 million of EBITDA this year. Our CapEx budget, which we initially thought was going to come in at about $2 million for the year, is coming in at about $1 million to $1.5 million. We're excited about our marketing channel, particularly focusing on IT partners and web developers, and have rolled out a [tech exec] product for them to become resellers of our other business services to their small and medium-sized business clientele.

Looking at the small business finance segment, we had a revenue decline which was primarily driven due to the reduction in gain on sale of government-guaranteed pieces. Pricing has lifted. We have seen the government's portion of SBA loans trading back at the 8% to 9% premium level. That's quite favorable to us. If you do a $1 million loan at a 90% guarantee, $900,000 of that loan can be sold into the secondary market at a 9-point premium. And that returns a significant portion of the $100,000 piece and leaves us with a $0.20 to $0.25 basis in a $100,000 loan plus the servicing. So the additional leverage that a, premiums have given us in the government-guaranteed market, and the 90% guarantee we think should give us a good third and fourth quarter for the SBA lender.

As we have discussed in prior calls, the Company has positioned itself to be a buyer of sub- and non-performing portfolios. We have also answered an RFP to the FDIC to be an asset manager and servicer for the FDIC. We think there is a lot of business that can be done in this particular segment. We believe the asset management function can be quite lucrative. We believe the competitive nature of our ability to perform this service for the FDIC and the lack of other national participants that carry 50-state licenses and have the capability to service, repossess and collect SBA government-guaranteed a, 7A loans across the map of the United States and follow the 1600 policy and procedure guideline is somewhat limited. We are hopeful that we will be appointed by the FDIC to be an asset manager in this segment. We continue to believe that the lending segment is the most decimated sector in the marketplace today, and may offer the best opportunity for Newtek shareholders.

If you look at our existing portfolio, slides 16 to 17 give everybody pretty good comfort that we have got fairly healthy reserves against our portfolio. We're probably looking at about 12% reserves against our loans in the portfolio. If you net out reserves and discount, we have our uninsured loans on our book somewhere at about $0.80 on the dollar. At the corporate level, we have done a significant job historically of reducing expenses in the corporate segment. We have discontinued a few lines of business historically and that has created a reduction in headcount. We believe in 2009 there is a minimum of $4 million of cash savings out of the corporate overhead segment. We paid a lot of attention to our real estate. We had some real estate exposure in Alabama, Florida, and in Great River, Long Island. That exposure is now gone. We are focusing on sublets in Washington DC and in New York City as our next targets.

As you can see from a payroll standpoint, looking at our February 15, 2008 payroll to our July 15, 2009 payroll, we have had about a 30% reduction both in headcount and dollars. Some additional savings that we have had from the corporate segment perspective, merging our IT Department into our web hosting division, which has done a great job in servicing our organization; several million-dollar reduction in payroll at the corporate segment. We talked about reduction in our real estate exposure, and we have really done a terrific job of cutting expenses without cutting process or production, which you can tell from the growth that we have had over 2008, as well as the fact that we're out-performing the market.

We're really excited about our Brownsville initiative. If we are awarded that FDIC contract, a lot of our activity will be based out of Brownsville. We have got a terrific real estate opportunity, a great labor opportunity working with the University of Texas at Brownsville to help train professionals to be insurance professionals or web hosting professionals or design professionals. And our outbound initiative is headquartered out of Brownsville. We have also made some new hires in the sales management area both in Brownsville and in Phoenix to help us with our outbound and outreach marketing initiatives.

Our growth strategy going forward is heavily weighted upon our outreach, cross- selling and cross-marketing strategy. We currently have approximately 1500 Newtek customers, or about 1.5% of the total portfolio that have more than two products in what I would call a core offering segment. The core offering segment would comprise of our seven primary products. That would be, hopefully I can name this, insurance, payroll, lending, electronic payment processing, hosting, web design and storage. So if you took those seven product categories, approximately 1.5% of the existing portfolio has two products.

If you go into broader categories, such as purchasing, homeowner's insurance, as well as the business owner purchasing insurance for the business. Or if you go into the Merchant Club, which is a $15-a-month product that we sell to EPP clients plus processing. Or look at things like payroll and workman's comp. So you go outside of those seven core segments, we've probably sold more than two products to about 20% of our existing customer base. We do believe that is an impressive number. We're looking to gain the cross-sell and cross-marketing across the seven key core products. And we'll be following this and tracking this with the market going forward.

A lot of investors have looked at our situation in Capco and overhead trends. We believe that the reduction of cash Capco expense will continue to be positive as these certified capital companies mature. We have two other Capcos, Wisconsin and Louisiana, where the debt principal repayments are scheduled and can be repaid in Q4. With that, we anticipate receiving a return of insurance premium of about $250,000. When we retired our Wilshire Partners debt and our exposure went down to $0, [and we ended] that particular credit enhancement, we received a $250,000 payment as well from the carrier.

Once these Capcos go away, the operating agreements go away, monitoring agreements go away, the dependencies upon audited financials, tax returns and real estate will dissipate and you really start to diminish expenses. A lot of these expenses are sitting in the all-other category or somehow filtered into corporate overhead. We have recently sold -- or I should way we've contracted the [seller, broker, dealer]. This [sale again] Seth?

It's done.

Good news.

We've closed, sold, [We're all done].

Okay, so we are no longer in the broker-dealer business. That will save us about $50,000 of annualized expenses.

Looking at our marketing message. If you go to slide 30, our push to our customer base, which is that 27 million targeted customer base of small, medium-sized businesses. What is Newtek? We're a Company that for small or medium-sized business can help them grow their revenues, reduce their expenses and their risk. This particular chart, I think, is a good chart. It's indicative of the types of products that we could utilize with our customer base to help them match these three objectives. There is not a small business owner in the US today that is not interested in the message that that we can help you grow revenues, cut your expenses and reduce your risk.

We recently embarked on a strategy which was a test strategy by advertising on WAFN. We have signed a new agreement and we'll be on WAFN for the next six months going forward. We got pretty good receptivity from our initiatives here with small business owners calling in and asking us for services. We also are looking into spending some dollars on TV as well. Looking at our 2009 segment guidance, which I'm going leave to Seth, we are maintaining our guidance that we have given previously. We feel comfortable with our guidance, and are very happy to report that business is coming in on expectations. Our cash balances are increasing. More and more dollars are floating up to the holding Company. With that said, I would like to turn the financial presentation over to Seth.

Thank you, Barry. I will now review our second quarter results. For the quarter ended June 30, 2009, we recorded a loss before benefit for income taxes of $775,000 as compared with the loss before benefit for income taxes of $2.6 million one year ago. Our net loss of $637,000 or $0.02 per share in 2009 compared to a net loss of $2 million or $0.06 per share in 2008. The reduction in net loss benefited from improvements in operations, as well as a $1 million one-time gain from the redemption of preferred stock and a qualified investment previously written off.

Revenue increased by $2.4 million or 9.9% to $27.1 million compared to prior year. This is primarily attributable to the growth in our electronic payment processing and web hosting segments, as well as to the one-time gain previously described. We began the year with $16.9 million of unrestricted cash and cash equivalents and ended the current quarter with $18.6 million, an increase of $1.7 million. The $4.6 million of net cash provided by operating activities in the current six months benefited from the sale of $8.8 million of the guaranteed portions of SBA 7A loans, largely funded in 2008. And was used primarily to repay our lender's line of credit from GE.

I would now like to review the performance by segment. If you could turn your attention to slide 37 in the power point presentation, you will see the comparison of our second quarter 2009 results versus the second quarter of 2008. Electronic payment processing segment revenue increased by $950,000 or 6% in the second quarter of 2009 to $16.9 million, predominantly due to organic revenue growth. Growth in our merchant [account] outpaced a slight decline in process volume per merchant. Income before taxes decreased 9% to $1.1 million for the second quarter of 2009, from $1.2 million in 2008. As expected, the decrease in income before taxes in 2009 was principally due to the lower margin of revenues, less electronic payment processing costs. The expense associated with additional volume did not generate as much revenue as in the past. This is partially offset by an overall reduction in costs other than electronic payment processing costs between years.

Web hosting segment revenue increased by $206,000 or 5% in the second quarter of 2009 to $4.7 million, from $4.5 million in 2008. The increase was due to a combination of improved revenue received [per] website and organic growth in virtual dedicated websites. Hosted, dedicated and shared websites decreased period-over-period. Income before benefit for taxes increased 24% or $180,000, to $917,000 for the second quarter of 2009, from $737,000 in 2008. The improvement in profitability primarily resulted from a 5% increase in revenues outpacing a 1% increase in total expenses for the segment. We have maintained current staffing and data center costs.

Small business finance segment revenue for the second quarter of 2009 decreased by $516,000 or 25%, to $1.6 million. In the second quarter of 2009, NSBF originated one new loan resulting in the sale of one $1.5 million guaranteed portion, compared to 22 guaranteed portions sold aggregating $7.3 million in the same period for the prior year. As a result, premium income decreased $189,000 period-over-period. The Company doesn't expect to generate material premium income until NSBF begins to originate new loans in substantial volumes. Segment revenue also decreased $282,000 in interest income, reflecting the decline in the prime rate upon which our loans' interest rates are based as well as the size of our performing portfolio between periods. Loss before benefit for taxes decreased 5% or $43,000 to a loss of $748,000 for the second quarter of 2009. Expense reductions, including a $454,000 decrease in salaries and benefits, primarily contributed to the improvement.

For 2009, the pretax loss in the Capco segment decreased to $1.1 million or 63%, compared to $2.9 million of loss in 2008. The reduction in loss primarily reflects reduced management fees accrued period-over-period, as well as the return of $250,000 of insurance premium for an expired Capco insurance policy. For 2009, the all-other segment improved $951,000 to produce pretax income of $555,000, as compared to a pretax loss of $396,000 in the second quarter of 2008. The reduction in loss primarily reflects the one-time gain of $1 million from the redemption of preferred stock of a qualified investment, previously written down to $0. Decreases in other income and insurance commissions were offset by a reduction in salaries and benefits expense of $417,000 period-over-period.

In 2009, corporate activities, which generates revenue primarily from management fees from the Capco segment, recorded revenue of $925,000, a 63% decrease from $2.5 million one year ago. This decrease is primarily due to the recovery of management fees from one Capco totaling approximately $1.5 million in the previous period, which was not repeated in the current period. Management fees are expected to continue to decline in the future as Capcos mature and utilize their cash. Our efforts to reduce cost resulted in a $553,000 decrease in total expenses as compared to 2008. Corporate salaries and benefits decreased $658,000 period-over-period. However, as a result of the decrease in management fees, the corporate segment increased its pretax loss to $1.5 million compared to a loss of $487,000 in 2008.

Finally, please turn to slide 38, which shows our 2009 guidance which we are reaffirming at this time. We currently expecting each segment to perform within their guidance spans, with some chance of improvement for the Company overall if the economy continues to stabilize and Management's growth plans are met for the remainder of the year. The small business finance will benefit if our lender originates SBA 7A loans at material levels in the third and fourth quarters. Current guidance assumes no loan originations in those periods. I would now like to turn it back to Barry.

Thank you, Seth. Operator, we would like to open up for Q&A.

Thank you. (Operator Instructions). We'll go first to [Michael London]. Mr. London, your line is open.

Okay, thank you. Congratulations on a good quarter, gentlemen. I wish the market would appreciate what you have been doing. I have a question about your listing. Are you going to lose your listing or is that going to be maintained or do you know?

I think the issue with respect to our listing is the dollar share price needs to occur, I believe, 10 days in a row between now and November -- You know the dates, Seth?

No -- We have it -- .

We'll take a look at it. It's between now and I'm going to say around November 20. So that would be the gate that we would have to deal with. The answer is, we don't know at this point in time.

Okay. Well, I would say looking at what the performance is, it doesn't sound very likely. Okay. Well, I wish you the best. I hope you keep your listing. And again, that's a good quarter.

Thank you very much.

November 27, 2009.

Okay, thank you.

Thank you.

We'll go next to Stephen Silk with C. Silk and Sons.

Good afternoon, Barry and Seth. The credits [and cash] on the balance sheet has by 30% in the first six months of 2009. I guess that is a schedule that you would have pretty much laid out as far as how it's going to decrease. Could you give us an idea of what you expect it to be at the end of the year and at the end of 2010?

Sure, roughly speaking, it should be about $45 million give or take by the end of the year, and it should be decreasing to about $30 or so million at the end of 2010. [Point to] remember, that this is on a fair market value basis, and one of the reasons for the decline in the first six months -- actually it bumped back up a bit. -- is the way that we do the fair market valuation and the interest rates that are used, which have been bouncing around with the marketplace. However, on the whole, between the delivery of the credit and assuming that the rates stay constant from here on, then we should come down to $45 million and $30 million as I described.

Okay. And you have the offsetting liability to the asset. So that number will remain in lock step.

Yes, actually we calculate the liability first and then the asset is matched to it.

Okay. How long will it take to completely run its course?

The bulk of it, Steve -- this is Barry. The bulk of it will go away over the course of the next three years, and then you're going to have this small [tail].

Okay. So outside of that -- What I'm trying to get at is that the score that the shareholders have looking at your Company on a daily bases is the price of the stock. Which, unfortunate as it is where it is. But in three measures, your cash and equivalents, your web hosting and the payment processing, I think, in each of those three instances alone, would have more value than what you're currently trading. At some point, do you have to say to shareholders that the best opportunity for shareholder value is the sale of the company, or sale of parts of the Company? And then going back to the Capco, is that something that is holding back, in your opinion, holding back the price of the stock or the ability for somebody to come in and look at owning your Company, since it just seems like things have so much potential?

Let me try to answer your question as if they were two questions. And I think question number one is, does the Company, is the Company and has the Company considered shareholder value with respect to the sale of the Company? And the answer is, we look at every single option and every single alternative with respect to shareholder value regularly. Regarding the second question, which is how does Capco perspectively affect that? I think that historically, it's affected it in a very big way. Now you're look at credits in lieu of cash as of June 30, 2009 of $49.6 million, with the offsetting liability notes, payable in credits in lieu of cash of $49.6 million. Seth, wasn't that over $100 million at one point?

I think so.

Yes.

Certainly $80 million to $100 million before we started the fair market value.

Right.

But then with them running down -- so you haven't added the Capcos since 2005 and then just running down by natural -- over time they've continued to decrease at a fairly rapid clip.

To further add to my answer, as we come up with occurrences like Wilshire Partners where the notes are paid off, where we come up with occurrences like we will in the fourth quarter with Wilshire Investors in Louisiana, Wilshire Louisiana, [Bitco], where the notes get paid off, where expenses get reduced, where we continue to demonstrate good compliance and, as difficult as it is, attempt to simplify our business by minimizing Capcos' importance, the answer is yes, it becomes more [easier] for others to understand.

Sure, and I think as far as -- I can't imagine how it's not frustrating for to you recognize that some of your parts is a whole lot more than the value of the Company.

I try not to make those statements. I leave them to investors. You can certainly make them. I appreciate, that Steve. We don't comment on that, but we do believe that the Company is doing everything that it can do in the current environment,. We think the Company has built very good enterprise value. We're now demonstrating GAAP positive cash flows. So we're happy with the way things are rolling out, and at the end of the day, we believe that the value will be recognized. Whatever that value may be.

I understand. The GE line. Could you explain, perhaps -- Is there a level that you are below from what you have to lend, or are they kind of marking you down for that? So that as you pay it back, they decrease it? And the reason for my question, or the end result of my question would be, if SBA starts to pick up, you need to have the ability to make those loans. Where do you stand on that?

Basically, Steve, we are extremely comfortable, number one, with the -- and number one, the 90% guarantee. Number two, the premium that is being achieved. We feel very comfortable, and the reason why we've begun opening up 7A originations again, is because we can fund it out of our own cash flow. And we believe that -- and we've been conservative. And we believe we've managed our risk conservatively. We believe that we will be able to continue to finance the existing book of business with current and future providers. And we don't believe that we have any concerns turning on the spigot at this point in time, and can fund new originations out of our cash flow. And we think that doing that really offers a tremendous benefit to shareholders, to our cash flows and to our customer base.

I would think that would be a huge benefit because the cost of the capital -- How quickly are you able to create a loan and sell the 90%?

The typical cycle, Steve, I'm going to say is 75 days. Some stuff gets done in 60 or slightly under, some stuff longer, But 75 days is probably a pretty good cycle. And we have begun to take applications. And we actually did close a loan in the second quarter.

So am I looking at this right? If I'm looking at your cash and equivalents, and you're using a fraction of that for creating loans, that would be like an inventory turn type of situation where you would lend out, or would decrease your cash and it would come back 75 days later, where you would have almost free and clear 10% of the loan. And the ability to re-create another loan.

Let me say this. With the 90% guarantee and the 9-point premium, you can do $50 million worth of loans, and you only have a basis -- I'm just being conservative here. Let's say $1 million to $1.5 million in the loans.

Okay. And on top of that servicing fees?

You've got $50 million of servicing fees at 100 basis points.

Okay. Well I think things have the opportunity to be very interesting, and I'm very pleased with how you [cut] your expenses so when things turn up, you should be lean and mean and ready to make money. Wish you the best, Barry.

Thank you, appreciate it, Steve. Thank you.

We'll go next to Mark Silk with C. Silk and Sons.

Hi, Seth. First question for you. If you guys do get delisted, which in my opinion is not really a big deal, what would it save you guys on a quarterly basis, I guess?

A private-public change.

It would not be private, it would be just delisted.

All right. If we're delisted, I think pretty much all of the existing expenses are still in place. We still --

You would have some [SOX savings].

But I think we're still under [SOX].

You would have some SOX savings and you wouldn't necessarily, I believe, have to file [Qs]

Where they would be -- the Qs would be smaller. It depends on the exchange.

I'm going to guess, Mark, you're looking at maybe $500,000 to $1 million.

Annually?

Yes.

Okay. That is what I figured. Because you're going to use some of you cash to do loans, et cetera, would that preclude you from rethinking a buyback? Because as you know, you're getting -- every $0.66 you buy you're getting a dollar worth of value, not to mention -- that's just the cash alone -- not to mention the value of your Company.

I think your question was -- your underlying question was buying back shares. Is that your underlying question?

Yes, you could sat that.

My only comment on that is I believe we still have some room on the authorized buyback, and that is about as far as I can go.

That's fine. And on your radio ads, what segment of you business have you been getting the most interest in?

Electronic payment processing and receivables financing. And for the most part, to be frank with you, we had a three-month experiment of which the first 45 days was general, and then the second 45 days we split it between EPP and receivables. I think over the course of the next six months, we're going to be pushing e-commerce very hard. If you're a business owner and you're doing business on the Internet, you need to come to Newtek et cetera. I think we might also push lending, which is a little scary. But -- I don't want the phones to break. I think that we would probably push those two segments.

I might have to call you on the lending. And then on your TV, let's say strategy, are you going try to be local in New York? Or how -- what are your thoughts?

That, we seek to be national on cable. Focus in on what we believe is the business owner, the independent business owner that watches Fox News, Bloomberg News, CNBC, things of that nature. The cost of advertising today is a tremendous value versus where it was two years ago. And this is a good time for us to make an investment in those particular segments.

All right. I think that makes sense and again, continued luck going forward.

Thank you, appreciate it.

You're welcome.

We'll go next to Ivan Jimenez with Aurora Capital.

Hi, Ivan.

Congratulations on your quarter. I wanted to raise a question just for clarification. What What does it actually mean? How can I explain to someone what it means that he Wilshire Partners [capital] notes matured? Does that mean the operating company is no longer as such? Or does it mean that you had debt that it has now been satisfied? And two, how can you communicate, in your view, the opportunity that exists on the web? And have you thought of owning revenue-generating properties on the web with the portfolios?

On the first question, our Capco notes are defeased with the insurance policy/credit enhancement. So historically, those notes didn't show up on our balance sheet and shouldn't because a third party is making that repayment. The fact that the notes were paid off in Florida was beneficial, number one, because we received a return of premium back from the carrier which is available to us on two other transactions as well well, in Louisiana and Wisconsin. No others. So we only had a total of three that we had that feature on the credit enhancement. And also, Florida is a little bit different than in Wisconsin. Florida has a sunset provision a year from today and in that basis, the operating agreement goes away, a lot of the expenses go away.We're also working with the regulators in those states, because we are at a 100% invested, to determine -- to voluntarily be certified prior. Now, as I'm going into all this discussion, you now see why this is very hard to explain to somebody simply. Because, the problem is, it's not a simple process.

With respect to the benefit of having these notes repaid, I think the simplest way to say it is, this is a demonstration that these Capcos will be going away, cash is getting freed up, is being floated up to the holding Company by the virtue of management fees. Our Wisconsin Capco goes away entirely in October -- October 25, 2009. And so in that instance, Wilshire Investors will cease to exist, and that's because of a statutory provision in Wisconsin. But I think the best way to describe it is that the Company has a concerted effort to minimize the cash impact, to reduce the expenses associated with Capco, which are voluminous from a lot of different areas. And I guess as the other caller mentioned, the GAAP impact of the offsetting asset and liability will also decline, the bulk of it over three years. So instead of having a Company that's got $135 million or $140 million of assets, it will have $100 million of assets and liabilities that looks less levered. Now basically, both the asset and the liability match. And to a certain degree, there is no cash movement on either side. But it looks look we're more levered than not. So there is no real simple explanation to that, unfortunately. And that is why because of the complicated nature of the Company, we can't help that ,we trade where we trade. But we also are really aware of -- that in order to recognize shareholder value, coming up with alternatives for shareholders that will prospectively provide better shareholder value than we have currently done through breaking things apart, liquidations,et cetera, is important.

All right. Then, how can you -- I believe you have an undiscovered asset, or not discovered, certainly a not ubiquitous asset in terms of the market as it relates to your web presence. You have the four quadrants covered on the web.

Yes, we do.

But you are viewed as -- I guess -- So how can you communicate that more effectively?

Great comment. Let me -- And we've talked about this a lot internally. Business owners today, don't -- they don't purchase hosting. They don't wake up in the morning and say I need to find a new host. Where can I buy hosting? Historically, we've done a lot of our business through the conduit of developers, designers and IT professionals that have driven the customers to us, and that's been very beneficial. We believe because of our position, and to use your terms, have the four key products, to basically position us as an e-commerce provider. Or, if you're a small business owner and you're doing business on the Internet, you need to speak to Newtek. Because at Newtek, we can grow your revenues, we can reduce your expenses and we can reduce your risk. How do we grow your revenues? Through a better website, through search engine optimization, providing you with the financing to help you grow your business, providing reduction of expenses, by reducing your EPP cost, by reducing your hosting cost, by bundling everything together and giving away lower charges on Gateway fees or SSL certificates.

How do we reduce your risk? By [perspectively] providing an insurance policy for business interruption or cyber liability policy and bundling this into one offer. We want to be known as the Company to go to that if you're doing business on the web, you've got to talk to Newtek. And to my knowledge, there is not a Company out there that exists, that does that. You can go to Google, you can go to Amazon, you can go to Dell, you can go to Microsoft. If you're a small business owner and you want all that stuff done, you're aren't getting it done there. You can get it done at Newtek. So our job will be to simplify a message, both in advertising as well as our internal professionals that are speaking to customers every day, that are handling our clients, both for inbound as well as customer service issues, and make them aware of the fact that if you're doing business on the Internet, you have to talk to Newtek.

Thank you very much.

Thank you, Ivan.

Okay.

(Operator Instructions). That concludes our question-and-answer session. I would like to turn the conference back to our speakers for any closing remarks.

Appreciate the calls -- excuse me, the questions, and the opportunity to get in front of all of you and your continued support in a tough environment. And we look forward to our next presentation at the end of the third quarter.

Thank you, everyone. That does conclude today's conference. We thank you for your participation.