Newtek Business Services Corp.
Q1 2018 Earnings Call Transcript

Published: 3 May 2018

[Operator:]

Good day, ladies and gentlemen and welcome to the Newtek Business Services Corp Q1 2018 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr. Barry Sloane, President and CEO. Sir, the podium is yours.

[Barry Sloane:]

Thank you very much, and good morning everyone and welcome. We're proud to host our first quarter 2018 financial results conference call. I have presenting with me today, Jenny Eddelson, our EVP and Chief Accounting Officer. I'd like to welcome everybody to follow the presentation along on a PowerPoint that is on our website newtekone.com in the Investor Relations section, and the presentation and audio portion of this call will also be archived. We have lots to cover today. Let's jump into it and move forward to Slide 2, going over our historic stock performance. Investors in Newtek over the last year, including dividends have earned 27.5%; over three years, a 102.2%; five-year return, 220%. First quarter of this year, total rate of return through March 31, 2018, negative 11 basis points, obviously a tough quarter I think for all BDCs. However, when you take a look at the 3.31% price differential versus where we are today, we think we're going to get a nice bump up here, and we look forward to better stock performance, obviously in the third quarter and second half of the year, which is somewhat typical and historical for our stock. We are typically a second half performing company in many instances where the market is used to having level-pay dividends and earnings throughout the year. We have typically indicated that 55% to 60% of our earnings and dividend comes in the second half of the year and that does benefit the stock price. Moving to Slide 3, we wanted to make a general comment, and hopefully guide investors and the analysts. So we had adjusted NII increasing 10% first quarter of 2018 versus first quarter of 2017. And we wanted to sort of give, what I think were the key metrics to that. We clearly had significant growth in loan referral volume. We will spend a lot of time talking about that today, why we have that growth, what that growth is - why that growth is important. It gives us the ability to make selection of opportunities that come to us directly from business owners without the use of brokers or BDOs, and pick the best credits available to meet what I call, managed growth or controlled growth numbers. We've also demonstrated a significant improvement in our ability to process loans using a proprietary technology. We should pay significant attention to the amount of loans in units, not just in dollars that we're looking at each and every quarter. We also had significant growth in interest income in a rising rate environment, with a floating rate loan portfolio. We had very good investment income increases in the quarter. I'd like to note that Prime has in recent years gone from 3.25% to 4.75%, very beneficial to us as we are - half of our loan portfolio has no leverage on it at all, and we'll talk about that deeper as we get into the portfolio. Historically, we've had stable government guaranteed loan pricing and an increase in government guaranteed loan sales quarter-over-quarter. You also see that going into the second quarter, we had I think $25 million to $30 million of government guaranteed that will carry over, which would give us a nice income boost as those - as that portfolio gets liquidated. And also our other portfolio company that is important to us, both at the NAV and adjusted income perspective, our payments business, always steady performance in growth. We've owned that and operated that business since 2002. Moving the Slide 4, and I think this is important and we're going to spend some time today talking about why we're different, why we're unique from other BDCs. Some people complain why don't we look like the other BDCs. I would rather be one of the few BDCs that are trading at a premium to NAV today, that's had steady dividend growth and NAV growth over our history than everybody else. I think you've only got about 4 or 5 BDCs that are actually trading at a premium to NAV. Also important to note, we are internally managed, so we don't pay ourselves that 2.20% or 4% out the window. But the other BDCs have to basically invest, in my opinion, in riskier assets to be able to generate a 9% or 10% dividend. Historically, our annual cash dividends have been paid, obviously out of 90% to 100% of taxable income. That is our goal. We always state that we anticipate that our annual dividend payout to be between 90% or 100%. So we have given the market guidance, we do it on an annual basis. We've done that. At current, at $1.70, we started off at $1.69, so we've increased to the penny. We would like the market and the analysts to interpolate that what that basically means over the course of the year, that our taxable income, which is sometimes very close and spot on to adjusted NII, will be somewhere between the $1.70 and $1.88. Sometimes we see numbers that are just way outside of the balance reason, and we kind of scratch our head and say, where did that come from. So I thought it was important to give this type of guidance to the Street analysts in the market today to sort of follow it as we go through quarter-to-quarter. We, as I said, encourage the investment community to look at us on an annualized basis, rather than quarterly. Obviously, when you look at our stock, what makes us different, when you look it on a GAAP basis, we have a negative NII. We have a negative NII, because a significant amount of our income is based on and originate and sell loan strategy, which creates gain on sale. Gain on sale is not included in the NII category. So in many cases, analysts show us up as NII is negative. So therefore, people don't look at the stock. Sometimes the headline on the news wires are Newtek loses money, but that's not very exciting either. So those people that have followed the stock, study the stock, done some work and understand it, they've been rewarded and we are hopeful that those rewards will continue. And I mentioned, one of the few publicly traded BDCs, it trades at a premium to NAV, currently about 1.21x. Speaking to investors recently, they say, gee, we'd like to buy BDCs at a discount. Just because it's the discounts from par or with NAV, it does not really mean that it's a great buy. One could argue that sometimes you have to pay a premium, which would be a discount to what the total value is. Hopefully over the course of time and discussions with investors, we can give people the impression that a company that has historically been able to increase its dividend and increased its NAV, actually might be viewed as a discount to what might wind up happening in the future. We always point to what we've been able to do over our 3.5-year tenure as a BDC. We are growing our dividend and NAV, or we're investing excess cash flow and things that don't necessarily show up in immediate results, we're investing in our technology, we're investing in human resource staff, executives that can drive the business model better, particularly in a lot of the portfolio companies. And we've clearly committed historically and more so going forward to make a significant investment increasing security, cyber security, as well as our general operations. We look at our developing portfolio companies as equity options in our overall business model, which is one that acquires business clients in all 50 states cost effectively with a growing basis. Many times people look at the smaller businesses that are controlled portfolio companies, and so you get rid of them. If you look at our values and scheduled investments, we think that they're inexpensive option values on our overall strategy, which is to acquire large amounts of customers through our new track referral system and to be able to ultimately cross-market and cross-sell into that database. And many of those referrals that are coming in create inexpensive business referrals from those business lines, give us a futuristic ability to use artificial intelligence, because we have the data as we take in applications across to be able to cross-market and cross-sell other products into the customer base. We're excited about our business model, we think we're on the right track, and we've done a very good job I think historically, in asset allocating. On Slide number 5, I think it's important to look at BDCs from a macro perspective. And we had a major change in the BDC landscape, New Section 61(a)(2) of the Investment Company Act of 1940, has been amended by The Small Business Credit Availability Act and simply stated, our leverage, which has been limited 1

[Jennifer Eddelson:]

Thanks, Barry. Good morning everyone, and thank you for joining today's call. I'd like to start with some financial highlights from our first quarter 2018 consolidated statement of operations. Please turn to Slide 33. In total, we had investment income for the quarter ended March 31, 2018 of $11.1 million, a 23.1% increase over $9 million in the first quarter of 2017. The majority of this change was from an increase in interest income. The increase in interest income was attributable to the average outstanding performing portfolio of SBA loans increasing to $267 million from $207.4 million for the three months ended March 31, 2018 and 2017 respectively, as well as Prime rate increases throughout the period. Servicing income increased by 25.5% quarter-over-quarter from $1.6 million in Q1 2017 to $2.1 million in the same quarter of 2018, which was the result of the SBA loan portfolio for which we earned servicing income, increasing from $727.3 million to $909.1 million quarter-over-quarter. Other income, which relates primarily to legal, packaging and other loan-related fee revenue, increased by approximately $390,000 in the first quarter of 2018 as compared to Q1 of 2017, primarily as a result of an increase in loan origination volumes year-over-year. Dividend income in the first quarter of 2018 increased by $325,000 to $2.6 million from $2.3 million in 2017. For the quarter ended March 31, 2018, our dividend income included approximately $1.75 million from Newtek Merchant Solutions, $400,000 from Premier Payments, $250,000 from Sidco and $225,000 from United Capital Source. Total expenses increased by $2.8 million quarter-over-quarter or 24.8%. Included in total expense this quarter is a $1.1 million, a loss on extinguishment of debt, which was related to the redemption of the company's notes due 2021 and represents the remaining unamortized deferred financing costs related to those notes. The $227,000 net increase in salaries and benefits was the result of an increase of $547,000 in payroll resulting from an increase in headcount at NSBF, offset by decrease in stock-based compensation expense of $320,000 period-over-period. The additional headcount related primarily to employees performing loan processing, loan closing or loan servicing functions as a result of an increase in the loan origination. The increase in interest expense of $982,000 period-over-period is primarily related to interest from the notes payable securitization trust, note due 2023 and notes payable related parties. The increase in notes payable securitization trust was the result of an additional securitization transaction completed in December, 2017. The company recognized $410,000 of interest expense for the three months ended March 31, 2018 attributable to the 2023 notes issued in February 2018 of which a portion of the proceeds was used to redeem 100% of the 2021 notes. Effectively, the company carried an additional $290,000 of interest expense during the first quarter of 2018 for the time period between closing the notes due 2023 and the redemption of the notes due 2021, which occurred on March 23. Origination and servicing expenses increased by $221,000 in the first quarter of 2018, as compared to the first quarter of 2017, due to higher referral fee expense, which resulted from increase in loan originations period-over-period. Overall, we had a net investment loss of $2.8 million as compared to a net investment loss of $2.1 million quarter-over-quarter. As previously discussed, the Q1 2018 net investment loss included a $1.1 million loss on extinguishment of debt. Adjusted NII for the three months ended March 31, 2018 was $8.1 million or $0.44 per share as compared to $6.5 million or $0.40 per share for the first quarter of 2017. A reconciliation of adjusted NII for the quarter can be found on Slide 35. Net realized and unrealized gains totaled a positive $10.9 million, an increase of 36.1% for the three months ended March 31, 2018 versus the same period last year and primarily represents realized gains on the sale of the guaranteed portions of SBA loans sold during the quarter. In the first quarter of 2018, NSBF originated 125 loans totaling $91.4 million and sold 114 loans for $73.2 million, generating $10.3 million in realized gains at an average sale price of 111.82%. During the first quarter of 2017, NSBF originated 98 loans totaling $78.6 million and sold 84 loans for $59.8 million, generating $8.7 million in realized gains at an average sale price of 112.03%. Overall, the company had a net increase in net assets resulting from operations of $8.1 million or $0.44 per share for the quarter ended March 31, 2018 as compared to $5.9 million or $0.36 per share for the quarter ended March 31, 2017, an increase of 22.2% on a per share basis quarter-over-quarter. I would now like to turn the call back to Barry.

[Barry Sloane:]

Thank you. Operator, we'll open for questions.

[Operator:]

[Operator Instructions]. Our first question comes from the line of Leslie Vandegrift from Raymond James.

[Leslie Vandegrift:]

Sorry, Jennifer I just missed at the very end there, what was the loan sale number for the quarter, thought I would just write something down?

[Jennifer Eddelson:]

The loan sale?

[Leslie Vandegrift:]

Yes.

[Jennifer Eddelson:]

The loan sales were $73.2 million.

[Leslie Vandegrift:]

Okay, and then I know you had the bit held over in the brokers receivable at the end of the quarter, which increased leverage, but post first quarter, how much has been sold or I guess what's your leverage as of today?

[Barry Sloane:]

Like as of this day?

[Leslie Vandegrift:]

Or as of after that sale? Or as after that sale. I want to get that brokers receivable?

[Barry Sloane:]

Approximately 83%, 84%. I think you'd see that demonstrated on Slide 7.

[Leslie Vandegrift:]

Okay, perfect. And then I appreciate all the color around the new leverage rules, and I know you received board permission asking shareholders in July. And if you get the shareholder permission to use immediately or if you just have the board permission to use any here, what are the plans for that extra leverage to use it for 7(a) program, 504, so what is the mix going to be there?

[Barry Sloane:]

I think that we would use the additional leverage judiciously to fund growth in originations. I would say - and these are just rough approximations. Let's say in the second half of the year, we were going to sell [indiscernible] $25 million, $35 million of equity and that's probably a little high, instead of it, we might use debt. Now these are all supposition, these are all hypothetical things. But when you think of, say, $25 million or $35 million debt, you're only moving your leverage ratio by 10%. It's not a big deal one way or another. So I don't think you're going to see us zooming up with leverage. However, we'll use it methodically and judiciously to fund loan growth. But we found an interesting acquisition we could use it for that. However, I would tell you the pipeline is - it's basically a 0, we have a couple of really tiny ones that we might announce that are a couple million dollars here and there. But I don't see us - I think what you'll see from us, Leslie, I appreciate the question, is a methodic judicious utilization of the additional leverage. I also want to point out to you and callers, typical non-bank lenders who would go to a bank and get leverage with a restrictive covenant 4x, 2

[Leslie Vandegrift:]

Okay. And then on those originations, do you mean just 7(a) or mix of 7(a) and 504?

[Barry Sloane:]

Well, so when looking at 504 for example, and it's a healthy question. In 504, we're forecasting say, $75 million the $100 million of closings, maybe that represents $15 million in fundings. The haircut on those lines are between 80% to 90% of pace and that's because you get the CDC take out upfront. So we're not talking about a ton of equity that will go from the BDC down into the portfolio company to be able to fund that.

[Leslie Vandegrift:]

Okay. And then on, I know you said you are not going to zoom up, but you talked about traditional non-bank lenders using up to 4 to 1. What do you feel is kind of an appropriate cap to get to in the long run, again not necessarily in 2 quarters, et cetera, but how much of that 2

[Barry Sloane:]

Well, if I have like a lot of government guaranteed floaters on my books that were earning 3.5% that I get liquidate in an afternoon and get my money back in 5 days, I think that's a smart thing to utilize. I'm probably going to avoid answering your question, because we're so unique, we're not like any other BDC. But buying a portfolio of sub-debt and mez capital and somebody that told me that, hey I got to liquidate this in 30 days or 60 days, I'll be sweating. I'll be sweating a lot, that is not us. I mean, we are just different. So - but one of the issues we all being different is, typical BDCs that bump up against these leverage amounts, everyone gets nerves because if you've got a movement in now one way or another, you can't liquidate the portfolio. Our assets are very liquid, like every one of our loans has gone into a securitization. So we feel pretty good about the utilization of leverage and we use it judiciously and we will respect the other factors, despite the fact, I told you I just made a statement. I know a lot of people don't believe it. So we still pay attention to these ratios and try to stay within the balance. But I mean, you won't see us zooming up to 2

[Leslie Vandegrift:]

And then you said in the past before, obviously you are a BDC that you were able to use that higher leverage, kind of what level did you set at then?

[Barry Sloane:]

When we were C-Corp, we were limited to 401. We managed it beautifully and we managed it beautifully during the credit crisis. So when the world sort of disrupted, Hank Paulson didn't offer us a government payout of TARP money. We made it through that crisis. So we're being a little arrogant here today, but we are good managers, I am, knocking on wood right now. We've been able to manage through good markets and bad markets clearly with higher leverage and not as well-heeled as we are today. Back then the market cap was $60 million, we got a much bigger market cap, much more resources. So we - so management team, it's been together for over a decade. We feel very good about our ability to manage this leverage.

[Leslie Vandegrift:]

Okay. And then you mentioned it in your remarks that the new reliability structure, so either the new credit facility or any other debt out there have covenants. Is that don't allow you to go 2

[Barry Sloane:]

Well, for example and I don't know this, because I'm not insider prospect, but prospect said they were going to use the leverage and next day they came out and said no, not really. So I'm assuming that they've got senior debt lines with a lot of banks, they're a big player. I mean it's not just one bank, it's many. And the banks kind of through - wait a minute, you got to talk to us first. And some of the bigger BDCs with their covenants and their bond issues, so we do not - so we have that flexibility, we appreciated the relationship that we had with our lenders and our borrowers, they know us we're prudent, we're not new to this. We've been in these businesses for over a decade and most importantly, we don't buy other people's assets, we create them.

[Leslie Vandegrift:]

Of course, and just so - a last little wrap-up question. You mentioned again the reason the premium was down a bit this quarter was because the mix of the 10-year versus the 25-year loans you were doing. Is there time when that might shift more to 10-year or 25-year cyclically or are you having more of mix of 10 years now, just as your targets?

[Barry Sloane:]

No, it's kind of random. And let me just take a look at that slide, because is if you look at the slide, I mean, look at - in 2014, we had 12.49% and in 2015 we had 11.72% then it trended back up. So I mean there is no - there is somewhat of a random nature, and by the way this is within a given quarter. So let me give you an example. Let's say, we had 2, $5 million 10-year loans that were large. The larger loans tend to depress price than 10-year loans. So if all of sudden I push that out in the market and their settling at $1.10 that could change the whole quarterly mix. So at the moment prices are stable. I am making a statement which I haven't made for 3 years on these calls and talking about rates rising and is this problematic, and I would always talk to analysts and investors and say look, if things got quite hot and values were escalating, business values were escalating, you will have greater refinance activity. Well I'm saying that although we don't currently see that, that's a possibility. So I want to freak everybody out, we've got - in our model we've got haircut at price valuations. But I'm just making a statement, things don't always last forever. One last thing Leslie. Price changes can easily be made up with loan volume, not forced loan volume, but loan volume, which is why it's extremely important that we continue to grow our infrastructure, core technology. We're taking more real estate space in our Boca. We're going from 3,000 square feet to 8,000 square feet. We just opened up an Orlando office. I think it can seat 20, I've our got room in Irvine for 10 more people. So we have room to be able to expand and opportunities to be able to expand to offset changes in the market.

[Operator:]

And our next question comes from line of Peter Heckmann from D.A. Davidson.

[Alexis Huseby:]

It's Alexis on for Pete. So we are seeing calculations for publicly traded merchant suppliers moving higher and given the move up in valuation, does that make you feel at all like you are being too conservative in your current valuation of your investment portfolio?

[Barry Sloane:]

We'd say possibly. We're obviously putting private valuations on these businesses. I will tell you is, we tend to look at the businesses very prudently, appropriately and aggressive quarter-to-quarter. So I would say that we are going to continue to look at this business, look at the metrics, see how it's performing, see out it's tracking to see if we should take further price increases, but it's a fair comment. We look at these things every quarter.

[Alexis Huseby:]

And then as a follow-up on that merchant acquiring piece, so even though you noted that the company is a lot smaller than some of the top players, according to our research at least Newtek Merchant Solutions is still a Top 50 merchant acquirer in the U.S. So given some of the strong growth from players such as Square, do you believe you can maintain the Top 50 and also continue to take share from some of the smaller providers? And then also, can you comment at all on some of the trends in the business and whether the company is growing at the same rate or faster than the overall market?

[Barry Sloane:]

It's a good question. I think we are, to be fair, on average. We're a little bit above average. And to be honest with you, we're not happy with that. We're not in the business to be average in anything. We have some new initiatives that we're going to be pushing out 0-course payment processing, we think is a big trend and really pushing more into the space of making sure that we've got technological solutions that are fitting customers, which is much more important than, just hey, I can save you money on your payment processing because - that ship has sailed. Square is somewhat unique in that they've done a good job in putting out their technology, but we have like technologies, but I think Square has done for growth however, is that they put out a tremendous amount of financing in conjunction with payments and personally, I am not a fan of their financing, because I think their financing weak credits. And think I'm a stock analyst because I probably would have been crushed on the price of Square, which has done nothing but gone up. But what I've seen in a lot of lending models particularly ones where there is only 1 year, 2 years or three years' worth of lending history with growth that sometimes ends in not so great story. So I think that our goal is to compete in eCommerce, POS and we think there is a big trend in - what would I refer to 0-request processing, which is pushing the cost of processing on to the consumer away from the merchant, because the merchant needed 3% savings, we're currently looking at a small acquisition with some talent that will get us there. So we think we can continue to be competitive in the space by the way, that the markets think is very valuable. I mean the value of customers in the payment space it's been very strong, it continues to be strong, and it continues to be consolidation there. So that's a good thing for us.

[Operator:]

Our next question comes from the line of Frederick Cannon from KBW.

[Frederick Cannon:]

Barry, it was a little confusing press release as you know the story about the organization to 504 business, NBL versus NBC, could you kind of just update us how - how you see the 504 business organized at Newtek?

[Barry Sloane:]

So currently CDS, which is a portfolio company, houses all conventional loan opportunities of which I do consider 504 lending, despite the fact there is a government aspect to it. It technically is a conventional loan that we made in the first. And on a going forward basis with our growth and the acquisition of Tony Zara's team in Orlando office, we will be separating our 504 lending into what Anthony called NBL, Newtek Business lending, so that we got to move over some of the lines of credit, both businesses will be portfolio companies. The will have separate staffs, separate management, separate loan committees and things of that nature. But on a going forward basis, I can't put a data and confirm - negotiating with lenders that takes time, you will see the 504 business primarily separated and segregated in the NBL. Right now on a good note, and I realize, we don't make it easy for you analysts, I'm sorry for that. The numbers are not that significant that it's going to make a change in one way, shape or form the next quarter or so. Fourth quarter there could be some decent numbers in there, but right now, I think CDS is the entity that you would look at for lines of credit business and 504 business.

[Frederick Cannon:]

That's helpful because I was just a little confused on NBL. That's helpful. Secondly, in anticipation of the board meeting, can we assume that there won't be any further share issuance on a go-forward basis until you kind of figure out how you're going to address the leverage issue?

[Barry Sloane:]

My Chief Legal Officer is listening, Fred and he is going to spank me if I can't answer that. Let me, say this. So we put up the press release last night and the board did vote to expand. Now without a shareholder vote, we'd have to wait a year. So I would speculate that we will continue to use the ATM when appropriate for equity until that board comes in.

[Frederick Cannon:]

But I mean in theory though, you could let your leverage move up from that 83% level towards that 100% level in anticipation of that board meeting just in theory?

[Barry Sloane:]

I could, but Leslie wouldn't like that. Yes, I mean I've got people like Oh, my god. Yes, I could put it this way, I could get a little closer to the precipice but we are thrilled secretly, but we're not that thrilling.

[Frederick Cannon:]

One other, Jennifer had mentioned the referral cost going up and I note that your referrals are really moving up rapidly and your fundings are moving up significantly, but not as rapidly as the referrals. Could you talk a little bit about the economics of that, I mean is it, because it would appear that your pull-through on your referrals is declining as you're getting more referrals. Does economics work well in terms of those referral cost going up relative to the number of loan growth?

[Barry Sloane:]

It does. A couple of things. Number one, we're bringing on new people and the market price for our referral fees is much higher than what we pay, and we tell people to come to us and ask us for these higher fee like two business with somebody else, but they still wind up doing business for lower fees because we're quick, we get quick yes or no's and good loans trade very quickly, it's just a fact of life. So we're competing against banks, the fact that we're fast enables us to get loans at lower cost. Now as our portfolio grows and we're able to do more business with the existing portfolio, you get some of those deals are come in, there is no fee, and you get no fee from other companies in the portfolio that come to us for financing. I do think that our current fee paid has been steady like 70 basis points to 75 basis points, gross fees are going to continue to go higher, because we are doing more loans. But I think the average is fairly steady at this point.

[Operator:]

And our next question comes from line of Robert Maltbie from Singular Research.

[Robert Maltbie:]

A couple of questions. So regarding your net income line moving ahead in the next year too, how important this your non-lending and lending servicing business relative to the big picture as a contribution to net income? And as a percentage where do you kind of see that going in a year to from now?

[Barry Sloane:]

Robert, that business kept us in business in '08, '09. And we're not nostalgic or romantic but we also recognized that recurring revenue business that's not tied to credit is valuable to the overall organization. Approximately 33% of our dividends, I think in 2017, came from that side of the business. I would like it to be a bigger percentage, but right now, there is a pretty big tailwind on the lending side of the business. So that may shrink, but long term, I would like to see that side of the business to be frank with you, closer to 40% or 45%. I like the diversification of non-fee-oriented businesses, they also trade at greater multiples which is super for the NAV. So we'd like that to be more, but it's not in the cards at the moment.

[Robert Maltbie:]

And do you expect interest rate increases to impact premiums earned on the sales of your guaranteed portion of your SBA loan sales?

[Barry Sloane:]

So, one of things I did is, I looked at Prime over the last couple of years. Prime has gone from 3.25% to 4.75%. So up 150 basis points. And the government guaranteed bonds, which are floating rate bonds without a cap, haven't moved in price and they haven't moved in price because it's not the level of rate that changes the price. It's the expectation of the loans underneath those bonds prepay, which are caused by the borrower flipping the business, which is going to happen if the prices are higher. These are not - this isn't base book. These are your basic stable bread and butter or American businesses. It's your diner, it's your dry cleaner, it's your bowling alley, it's your doctor's office, et cetera. So what drives prepayment are significant increases in owner-occupied real estate, when the real estate is behind or the business owner just says, hey I got a higher price in business, done really great, I am going to sell it. So without inflation relative to the real estate - so think of your business owner. You bought a diner, you bought a piece of real estate five years ago, the real estate is worth $1.25 million more than when you bought it. It's okay. I'm going to get down. I'm done. I'd rather just sell the real estate and work in the diner. We haven't seen that yet. I mean, owner-occupied real estate does not go up like office building, multi-family, other income producing our CRE base or investor real estate. And you're not seeing this business sector being over financed, which doesn't goose valuations of the business. When and if that happens, you will have more refinancing. I'll give you one more quick example. Let's say I did a loan five years ago. Five years ago, a person brought a group of doctors, they bought an office building for $1 million. That building is now worth $2 million and they're paying a higher rate. They can go to community bank, get a lower fixed-rate at a lower LTV. They can't get the long AMC schedule and I am going to get 20, 2five years, but they make - that they might have extra principal to pay the loan down and they'll take the lower rate. That's when you get a refinance. But my point here is, and I don't want to over-exaggerate this, it is currently not in the cards. Could it be in the cards couple of quarters from now, maybe. First quarter GDP was not indicative of white hot on fire economy of real estate market at this moment.

[Operator:]

And I'm kind of seeing no further questions. And I would like to turn the call back to Mr. Barry Sloane for any closing remarks.

[Barry Sloane:]

All right. I appreciate everyone's attendance. I know we had a lot of material today, but I thought it was important to get out a lot of new things to talk about. And certainly appreciate your attendance and investment. So we look forward to reporting in the second quarter, very soon. I know Jenny's excited about it. Thanks everybody.

[Jennifer Eddelson:]

Thank you.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes this program and you may all disconnect. Everyone have a great day.