NewtekOne, Inc. (NEWT) Earnings Call Transcript & Summary

Good morning, everyone. This is Barry Sloane, President and CEO, Chairman of the Board, Newtek Business Service Corp. I would like the 2021 Annual Meeting of Newtek Business Services Corp. please come to order. Welcome to the 2021 Annual Meeting of Shareholders of Newtek Business Service Corp. As stated in the notice of the annual meeting, the 2021 annual meeting has been called for the purpose of: one, to elect 2 directors of the company to serve on the Board of Directors until the company's annual meeting of the shareholders in 2024 until their successors are duly elected and qualified; two, to ratify the selection of RSM US LLP as the company's independent registered accounting firm for the fiscal year ended December 31, 2021; three, to conduct an advisory vote on the compensation of our named executive officers; and four, to transact such other business as may properly come before the annual meeting or any adjournment thereof. I'm Barry Sloane, Chairman of the Board of the company. I'll act as chairman of the meeting. Also participating on behalf of the company is Michael Schwartz, Chief Legal Officer, Chief Compliance Officer and Corporate Secretary for the company, who will act as secretary of the 2021 annual meeting. I'd also like to present to you other persons attending on behalf of the company, the other members of the Board of Directors of the company: Salvatore Mulia, Richard Salute, Greg Zink and Peter Downs. Also participating are Joseph Dashuta and Prashant Nisar of RSM US LLP on behalf of the company's independent auditors. Each shareholder should have seen the guidelines for shareholder participation at the time you entered the virtual meeting room. I would like to call these to your attention and point out that these guidelines have been adopted to ensure that the annual meeting begin properly -- excuse me, that the annual meeting properly addresses the issues before us and does so in a businesslike manner. [Operator Instructions] On recognition by the chair, your question will be read and responded to. In this manner, each shareholder who wishes to speak regarding an agenda item should have an opportunity to do so. If there's any shareholder present who has not delivered his or proxy and desires to do so, will he or she please do so now in accordance with the online voting procedures set forth in the proxy statement. The secretary has informed me that records of the company show 22,406,001 share of the company's common stock were outstanding on the voting record date, April 29, 2021, and entitled to notice of and to vote that at the annual meeting. The secretary has prepared and certified an alphabetical list of the shareholders of the company entitled to vote at the 2021 annual meeting, showing their addresses, the number of shares held by each as of the close of business on April 29, 2021, the voting record date. This list is available for inspection by any shareholder. I've previously received an affidavit from the secretary of the notice of the 2021 annual meeting. A proxy statement in form of proxy and company annual report for the year-end December 31, 2020, were first being mailed on or about May 13, 2021, to each shareholder of record on the close of business on April 29, 2021. I therefore declare that the annual meeting has been duly called, and the secretary is directed to include this affidavit with documents attached as an exhibit to the minutes of the annual meeting. The Board of Directors has appointed Michael Schwartz to act as the inspector of the election of the 2021 annual meeting or any adjournments and the inspector has taken an oath to fairly and impartially perform his duties. The inspector's responsibility for, amongst other matters, determining the number of votes represented at the annual meeting, the existence of quorum, the authenticity and validity check of the proxies and the tabulation of the votes. The secretary is directed to include the inspector's oath as an exhibit to the minutes of the annual meeting. The secretary has a list of shareholders and copies of all proxies, which have been received. The company's bylaws provide that a majority of the outstanding common shares entitled to vote represented in person or by proxy shall constitute a quorum at the meeting of the shareholders. The secretary informed me that more than a majority of the company's common shares outstanding and entitled to vote at the annual meeting are represented in person or by proxy. The inspector is making an exact plan and will submit a formal report on the number of shares present or represented during the course of the annual meeting. Based on this preliminary count, a quorum is declared and present. The annual meeting is declared, lawfully convened and may proceed to transact business subject to the confirmation of the quorum by the inspector in his report. The first item of business to be acted upon by the shareholders at this meeting, as stated in the notice of the annual meeting, is the election of 2 directors in accordance with the company's certificate of incorporation and its bylaws. It is proposed that the 2 directors be elected at the annual meeting for a term of 3 years and until their successors are duly elected and qualified. Each shareholder is entitled to 1 vote for each common share held on the record date. Under Maryland law, directors are elected by a plurality of the voters present in person or by proxy and entitled to vote on the election of directors. There is no cumulative voting in elections of the company's directors. In accordance with the certificate of incorporation and the bylaws of the company, 2 individuals have been nominated for election by the Board of Directors to serve for terms of 3 years or until their successors are elected and qualified. The Board of Directors nominees are Barry Sloane and Peter Downs. Since there's been no notice of other nominations as required by the certificate of incorporation, no other nominations may be made at the annual meeting, therefore, I declare nominations to be closed. The vote will now be taken on ballot #1 for the election of 2 directors. If you have previously submitted a proxy, you need not to vote by online ballot. Will anyone who has not voted, please do so online. [Voting]

I declare the polls closed for the election of directors. The second item of business to be acted upon by the shareholders at this meeting, as stated in the notice of 2021 annual meeting, is the ratification of selection by the company's Audit Committee of RSM US LLP as the company's independent registered accounting firm for the year ended December 31, 2021. Each shareholder is entitled to 1 vote for each common share as on the record date. Under Maryland law, this matter will be decided upon the majority of the votes present and voted in person, by proxy and entitled to vote. There is no cumulative voting. The voting will now be taken on ballot #2 for the ratification of choice of RSM LLP. If you have previously submitted a proxy, you need not to vote by ballot. Will anyone who has not voted, please do so online now. [Voting]

I declare the polls closed. The third item of the business to be acted upon by the shareholders of annual meeting, as stated in the notice of annual meeting, is the advisory vote on executive compensation. Each shareholder is entitled to 1 vote for each common share held on the record date. Under Maryland law, this matter will be decided by a majority of the votes present and voted in person, by proxy and entitled to vote. There is no cumulative voting. The vote will now be taken on ballot #3 for the advisory approval of executive compensation. If you've previously submitted a proxy, you need not to vote by ballot. Will anyone who has not voted, please do so now. [Voting]

I declare the polls closed. The fourth and final matter of business before the meeting is a vote to adjourn the meeting in the absence of a proxy, so as to permit the company solicit additional proxies. As I've previously been informed that there is, in fact, a quorum present, I rule that no vote be taken on this matter. The inspector has completed his tabulation, and the inspector will now read his certificate and report.

I, Michael Schwartz, the duly appointed inspector of election for the annual meeting of shareholders of Newtek Business Service Corp. being duly sworn, do solemnly swear that I will fairly now -- and impartially perform my duties as inspector of elections at the election to be held at the 2021 annual meeting of shareholders on June 11, 2021, for the matters set forth in the notice of annual meeting, and that I will faithfully and diligently tabulate the votes cast at such meeting and will honestly and truthfully report the results of the meeting. I, Michael Schwartz, duly appointed inspector of elections, hereby certify that the 2021 annual meeting of shareholders of the company was held electronically via live webcast on June 11, 2021, at 9 a.m. over the Internet. According to the certified list of shareholders, which was presented at the annual meeting, there are outstanding entitled to vote at the annual meeting 22,406,001 common shares as of the record date of April 29, 2021. There were represented at the 2021 annual meeting in person or by proxy the holders of 16,256,959 common shares, representing 73% of the outstanding common shares constituting more than a majority of the outstanding shares of the company entitled to vote. I inspected and signed proxies and ballots used at the annual meeting, and I found the same to be in proper form and the following is a record of the votes cast. Proposal 1. Election of directors. Barry Sloane. For, 8,083,315, withheld 178,071. Peter Downs. For, 7,506,245, withheld 755,141. Proposal 2. Ratification of the selection of RSM US LLP. For, 16,022,301, against 126,417. Proposal 3. Advisory vote on executive compensation. For, 7,428,003, against 450,442. That concludes the tabulation, Mr. Chairman.

Thank you. The certificate and report of the inspector of election confirms that a quorum is and has been in attendance at the annual meeting for all purposes, and it shows that Barry Sloane and Peter Downs have been duly elected directors of the company. The appointment of RSM US LLP as the company's independent registered accounting firm has been ratified. And the company's shareholders approved the compensation of the named executive officers. The certificate and report of the inspector of election is hereby accepted and approved and the secretary is directed to attach the certificate and report as an exhibit to the minutes of the annual meeting. There being no other further business to come before this annual meeting, I hereby declare the meeting adjourned. I just wanted before I do that, wanted to check, were there any other questions or comments that came in on the Internet.

There is one question, Mr. Chairman, from Howard Tenenbaum.

Sure.

Good morning, Chairman, Sloane. This is Howard Tenenbaum. Remember me from your original Penn Station headquarters, whom attended shareholders' meetings anyway. I have 3 areas I would like to discuss. One, due to inflation pressures, it appears interest rates will be rising. How will this affect us strategically and investing into our portfolio companies as well as internally on our balance sheet? Two, regarding cybersecurity, how would you briefly assess our security? How much is budgeted? And three, have you dealt with any cryptocurrency transactions?

Okay. Thank you, Mike. I'll take the simplest answer first, number three. We have not dealt with any cryptocurrency transactions. We don't accept cryptocurrency. We are watching what's going on in the markets, and we will act appropriately in the event that cryptocurrencies become more mainstream, less volatile and something that our clientele require that we perform the service. Item #1, which relates to changes in interest rates. We have a portfolio of SBA 7(a) loans, which is the largest portion of our portfolio and assets that is floating rate, quarterly adjust over prime with no cap. And that suits us well in a rising rate environment. We do have some fixed rate exposure in the 504 segment, where we make the loans and then sell them off to third parties with very wide margins. We also, through our joint ventures, have fixed rate exposure. Our secured line of credit is floating rate. We might, on a going-forward basis, look to hedge a very small, nominal fixed rate exposure that we currently have in the 504 portfolio before we sell the loans and possibly in our joint ventures. Regarding interest rates rising for -- in the payment space, and in the other areas, inflation, which would prospectively drive the rise in rates would be constructive for those fee-oriented, reoccurring revenue businesses. Relating to cybersecurity, the company has a CSO that performs regular security work for our organization and portfolio companies. We give a quarterly report to the Board of Directors. We are very up on paying attention to the risks associated with cyber hacking. And we spend, I would say, hundreds of thousands of dollars a year. And if not, depending upon how you would calculate the costs between personnel, between our data center expense and software expense, it's clearly -- if it's not 7 figures, it's approaching 7 figures, not to be cavalier about this because the hackers are always working hard. We also educate our staff on a regular basis with respect to phishing issues and how to protect the company and its customers and our sensitive data. So we definitely take security of our data and cyber hacking very, very seriously. And Howard, I appreciate your history, your loyalty, attendance and your questions. Secretary, anything else -- any other questions in the database?

There are no further questions at this time, Mr. Sloane, and there's nothing else on the agenda.

Great. Then I hereby declare the meeting adjourned. And thank you, everyone. We appreciate your support and investment in Newtek. Thank you. Have a good day.

This concludes today's conference call. Thank you all for participating. You may now disconnect. Have a good day, and enjoy your weekend.