Newtek Business Services Reports First Quarter 2008 Financial Results


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Newtek Business Services Reports First Quarter 2008 Financial Results

May 8, 2008

May 8, 2008 (PrimeNewswire via COMTEX News Network) --



    Meets Previously Stated First Quarter 2008 Consolidated Guidance

        Company Maintains 2008 Quarterly and Annual Guidance

NEW YORK, May 8, 2008 (PRIME NEWSWIRE) -- Newtek Business Services, Inc. (Nasdaq:NEWT) (www.newtekbusinessservices.com), a provider of business services and financial products to the small- and medium-sized business market, reports today its financial results for the first quarter ended March 31, 2008.

First Quarter 2008 and Related Highlights



 * First quarter 2008 revenue for the three core operating segments
   (electronic payment processing, web hosting and small business
   finance) increased by 10% over the first quarter of 2007.
 * SFAS No. 159 "The Fair Value Option for Financial Assets and
   Financial Liabilities" ("SFAS 159") was adopted in connection with
   the accounting for the Capco segment operations as of January 1,
   2008.
 * The adoption of SFAS 159 resulted in a one-time $14.3 million
   reduction in retained earnings which accelerated the decrease of
   the Company's deferred tax liability by $9.6 million.
 * For the 12 months ended March 31, 2008, total cash borrowings were
   reduced by $6.8 million.
 * Cash and cash equivalents, and restricted cash totaled $30.9
   million, or $0.86 per share, at March 31, 2008.
 * First quarter 2008 pre-tax loss totaled $3.9 million, which is
   consistent with previously stated guidance.
 * Total number of business accounts increased to over 88,000 at March 31,
   2008, a 14% increase over March 31, 2007.

Barry Sloane, chairman and chief executive officer of Newtek Business Services, Inc. said, "We met our first quarter 2008 consolidated guidance, and are reaffirming our previously stated quarterly and annual guidance under SFAS 159."

Mr. Sloane continued, "During the first quarter, we continued to undertake initiatives to draw increased focus on our operating businesses, and demonstrate why we believe Newtek is well positioned to capitalize on market opportunities and to continue to grow. We adopted SFAS 159, which enables us to simplify our reporting to more clearly depict our operating businesses. Additionally, in conjunction with the adoption of this accounting pronouncement, our deferred tax liability decreased by $9.6 million. Furthermore, we significantly increased our investor relations efforts leveraging both our internal and external investor relations functions as we believe the adoption of SFAS 159 clarifies Newtek's model and enables us to more easily communicate to the investment community what we believe to be its inherent value."

Commenting on the first quarter 2008 results Mr. Sloane concluded, "Our results were materially affected by the loss in our lending segment, which was partially offset by the results in our electronic payment processing and web hosting segments. While we deliberately originated fewer loans in the first quarter of 2008, we do not expect to continue this trend, and are on track to meet our lending segment guidance for the remainder of the year. In fact, we expect the first quarter to be the low point of our lending operation in 2008. In the second quarter of 2008, we are already seeing loans that better meet our underwriting criteria, which should have a positive impact on the amount of loans we originate. In addition, we continued to actively bid on performing and non-performing loan portfolios and have the funding in place to support this initiative, which we firmly believe will have a material positive impact on our lending segment. Furthermore, we are hopeful to receive our license to originate USDA government-guaranteed loans by the third quarter of 2008, which will enable us to expand our product offering beyond SBA loans, allowing us to offer loans up to $25 million and potentially generate additional income through premium and processing fees."

First Quarter 2008 Financial Results

For the first quarter ended March 31, 2008, the Company reported a loss before benefit for income taxes of $3.9 million, compared to a loss before benefit for income taxes and discontinued operations of $4.1 million, for the same period last year. The Company reported a net loss of $2.7 million, or $(0.08) per share, in the first quarter of 2008, compared to a net loss of $2.9 million, or $(0.08) per share, in the first quarter of 2007. First quarter 2008 results reflect the adoption of SFAS 159, which reduced the Capco note related non-cash loss (income from tax credits less Capco note interest expense and amortization of prepaid insurance without giving effect to taxes) by approximately $2.0 million compared to previous cost basis accounting.

For the first quarter of 2008, total revenue increased by $1.7 million, or 7.8 percent, to $23.5 million compared to $21.8 million one year ago. Total revenue from the three core business services segments (electronic payment processing, web hosting and small business finance) increased to $21.4 million, or 10 percent, in the first quarter of 2008 compared with $19.5 million for the comparable period in 2007. These three segments represented 91 percent of total revenue in the first quarter of 2008, an increase from 89 percent of total revenue in the first quarter of 2007.

Adoption of Fair Market Value Accounting for Capco Segment

The Company adopted SFAS No. 159 "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159") in connection with certain of the financial elements of the Capco segment, commencing January 1, 2008. In February 2007, the FASB issued SFAS 159 which permits companies to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company's adoption of SFAS 159 will have a material non-cash effect on the Company's statement of operations and financial position. The adoption will result in a decrease in future non-cash losses associated with the Capco segment, an approximate one-time $14.3 million after-tax reduction to the Company's retained earnings and a $9.6 million reduction in its deferred tax liability.

The unaudited table below for the Capco segment illustrates the Capco note related non-cash losses (income from tax credits less Capco note interest expense and amortization of prepaid insurance without giving effect to taxes) projected for 2008 through 2012 both without and with the adoption of SFAS 159.



 ---------------------------------------------------------------------
 in thousands)           2008     2009     2010    2011    2012
                         ----     ----     ----    ----    ----
 ---------------------------------------------------------------------
 Without adoption of
  SFAS 159:
 Projected non-cash
  loss                $(8,320) $(6,283) $(4,323) $(2,692) $(1,387)
 ---------------------------------------------------------------------
 With the Adoption of
  SFAS 159:
 Projected pro forma
  non-cash (loss)
   income                (645)    (303)      12      102       76
 ---------------------------------------------------------------------
 Improvement from
  SFAS 159 adoption   $ 7,675  $ 5,980  $ 4,335  $ 2,794  $ 1,463
 ---------------------------------------------------------------------

Reaffirmation of Outlook for 2008

The Company expects 2008 consolidated revenues to be between $100.5 million and $103.1 million. As a result of the adoption of SFAS 159, and as previously reported, the Company expects a loss before benefit for income taxes of between $9.6 million and $12.0 million. Quarterly and annual guidance by segment for revenue, loss before benefit for income taxes, and EBITDA are provided in the tables below.

Cautionary Statement

2008 Guidance information contained in this press release is based on management's current expectations. These statements are forward looking and actual results may differ materially. See "Note Regarding Forward Looking Statements" below.

Use of Non-GAAP Financial Measures

In evaluating its business, Newtek considers and uses EBITDA as a supplemental measure of its operating performance. The Company defines EBITDA as earnings before interest expense, taxes, depreciation and amortization. Newtek uses EBITDA as a supplemental measure to review and assess its operating performance. The Company also presents EBITDA because it believes it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance.

The term EBITDA is not defined under U.S. generally accepted accounting principles, ("U.S. GAAP"), and is not a measure of operating income, operating performance or liquidity presented in accordance with U.S. GAAP. EBITDA has limitations as an analytical tool and, when assessing the Company's operating performance, investors should not consider EBITDA in isolation, or as a substitute for net income (loss) or other consolidated income statement data prepared in accordance with U.S. GAAP. Among other things, EBITDA does not reflect the Company's actual cash expenditures. Other companies may calculate similar measures differently than Newtek, limiting their usefulness as comparative tools. Newtek compensates for these limitations by relying primarily on its GAAP results and using EBITDA only supplementally.

Additionally, the term Capco note related non-cash losses is defined as income from tax credits less Capco note interest expense and amortization of prepaid insurance without giving effect to taxes.

First Quarter 2008 Conference Call and Webcast

A conference call to discuss these results will be hosted by Barry Sloane, chairman and chief executive officer, and Seth Cohen, chief financial officer, today Thursday, May 8, 2008 at 4:15 p.m. ET. The live conference call can be accessed by dialing (877) 340-7913 (domestic) or (719) 325-4846 (international).

A live audio webcast of the call and the corresponding presentation will be available in the 'Events & Presentation' section of the Investor Relations portion of Newtek's website at www.newtekbusinessservices.com. A replay of the webcast with the corresponding presentation will be available on Newtek's website shortly following the live presentation. The telephone replay can be accessed by dialing (888) 203-1112 (domestic) or (719) 457-0820 (international), and using the replay passcode 1210451. Both web-based and telephonic replays will be available for 90 days following the live presentation.

About Newtek Business Services, Inc.

Newtek Business Services, Inc. is a direct distributor of a wide range of business services and financial products to the small- and medium-sized business market under the Newtek(tm) brand. Since 1999, Newtek has helped small- and medium-sized business owners realize their potential by providing them with the essential tools needed to manage and grow their businesses, and to compete effectively in today's marketplace. Newtek provides one or more of its services to over 88,000 business accounts, and has positioned the Newtek(tm) brand as a one-stop-shop provider of business services to the small- and medium-sized business market. According to the U.S. Small Business Administration, there are over 26.8 million small businesses in the United States, which in total represent 99.7 percent of all employer firms.

Newtek's business service lines include:



 * Electronic Payment Processing: Electronic solutions to accept non-
   cash payments, including credit and debit cards, check conversion,
   remote deposit capture, ACH processing, and electronic gift and
   loyalty card programs.

 * Web Hosting: Full-service web host which offers shared and
   dedicated web hosting and related services including domain
   registration and online shopping cart tools.

 * Business Lending: Broad array of lending products including SBA
   7(a), conventional commercial real estate and SBA 504 loans,
   business lines of credit, and business credit cards.

 * Insurance Services: Commercial and personal lines of insurance,
   including health and employee benefits in all 50 states, working
   with over 40 insurance carriers.

 * Web Design and Development: Customized web design and development
   services.

 * Data Backup, Storage and Retrieval: Fast, secure, off-site data
   backup, storage and retrieval designed to meet the specific
   regulatory and compliance needs of any business.

 * Accounts Receivable Financing: Receivable purchasing and financing
   services.

 * Payroll: Complete payroll management and processing services.

 * Outsourced Digital Bookkeeping: Bookkeeping and financial
   information management solutions.

 * Tax Preparation and Advisory Services: Expert tax planning and
   consultation for businesses.

 * Business Plan Preparation: Professional business plan development.

Note Regarding Forward Looking Statements

Statements in this press release including statements regarding 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 http://www.sec.gov.

For more information, please visit www.newtekbusinessservices.com.



             NEWTEK BUSINESS SERVICES, INC., AND SUBSIDIARIES
             ------------------------------------------------
        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
        -----------------------------------------------------------
           FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
           --------------------------------------------------
                 (In Thousands, except for Per Share Data)

                                                    2008       2007
                                                  --------   --------

 Operating revenues                               $ 23,520   $ 21,809
                                                  --------   --------
 Operating expenses:
  Electronic payment processing costs               12,225      9,865
  Salaries and benefits                              6,579      5,397
  Interest                                           2,290      3,883
  Depreciation and amortization                      1,809      1,567
  Other operating costs                              4,652      5,287
                                                  --------   --------
   Total operating expenses                         27,555     25,999
                                                  --------   --------

 Operating loss from continuing operations
  before minority interest, benefit for income
  taxes, and discontinued operations                (4,035)    (4,190)
  Minority interest                                    102        124
                                                  --------   --------

 Loss from continuing operations before benefit
  for income taxes and discontinued operations      (3,933)    (4,066)
  Benefit for income taxes                           1,238      1,372
                                                  --------   --------

 Loss from continuing operations before
  discontinued operations                           (2,695)    (2,694)
  Discontinued operations, net of taxes                 --       (205)
                                                  --------   --------
 Net loss                                         $ (2,695)  $ (2,899)
                                                  ========   ========

  Weighted average common shares outstanding:
   Basic and diluted                                35,869     35,651
 Loss per share from continuing operations:
   Basic and diluted                              $  (0.08)  $  (0.07)
 Loss per share from discontinued operations,
  net of taxes:
   Basic and diluted                                    --      (0.01)
                                                  --------   --------
 Basic and diluted loss per share                 $  (0.08)  $  (0.08)
                                                  ========   ========

         NEWTEK BUSINESS SERVICES, INC., AND SUBSIDIARIES
         ------------------------------------------------
              CONDENSED CONSOLIDATED BALANCE SHEETS
              -------------------------------------
               MARCH 31, 2008 AND DECEMBER 31, 2007
               ------------------------------------
             (In Thousands, except for Per Share Data)

                                                 March 31,   Dec. 31,
                                                   2008        2007
                                                 ---------  ---------

                   ASSETS
                   ------
 Cash and cash equivalents                       $  20,230  $  25,372
 Restricted cash                                    10,755     12,948
 Credits in lieu of cash                            86,186     92,781
 SBA loans held for investment (net of reserve
  for loan losses of $2,226, and $2,196,
  respectively)                                     27,605     27,895
 Accounts receivable (net of allowance of $442
  and $321, respectively)                            3,673      3,957
 SBA loans held for sale                               957        360
 Prepaid and structured insurance                    3,775     14,738
 Prepaid expenses and other assets (net of
  accumulated amortization of deferred financing
  costs of $1,736 and $1,593, respectively)         10,607      9,789
 Servicing asset (net of accumulated amortization
  and allowances of $3,432 and $3,160,
  respectively)                                      2,483      2,718
 Fixed assets (net of accumulated depreciation
  and amortization of $7,339 and $6,616,
  respectively)                                      5,417      5,433
 Intangible assets (net of accumulated
  amortization of $9,484 and $8,775,
  respectively)                                      8,316      8,829
 Goodwill                                           12,996     12,996
                                                 ---------  ---------
 Total assets                                    $ 193,000  $ 217,816
                                                 =========  =========

        LIABILITIES AND SHAREHOLDERS' EQUITY
        ------------------------------------
  Liabilities:
   Accounts payable and accrued expenses         $   8,606  $  10,259
   Notes payable                                    24,699     26,765
   Deferred revenue                                  2,254      2,032
   Notes payable in credits in lieu of cash         85,686     79,085
   Deferred tax liability                            7,038     17,880
                                                  ---------  ---------
     Total liabilities                             128,283    136,021
                                                 ---------  ---------

 Minority interest                                   4,726      4,970
                                                 ---------  ---------

 Commitments and contingencies
 Shareholders' equity:
 Preferred stock (par value $0.02 per share;
  authorized 1,000 shares, no shares issued and
  outstanding)                                          --         --
 Common stock (par value $0.02 per share;
  authorized 54,000 shares, issued and
  outstanding 35,947 and 36,081, respectively,
  not including 474 and 583 shares held in
  escrow, respectively, and 473 held by an
  affiliate)                                           722        722
 Additional paid-in capital                         56,237     56,161
 Retained earnings                                   3,223     20,245
 Treasury stock, at cost (137 and 217 shares)         (191)      (303)
                                                 ---------  ---------
 Total shareholders' equity                         59,991     76,825
                                                 ---------  ---------

 Total liabilities and shareholders' equity      $ 193,000  $ 217,816
                                                 =========  =========

 Newtek Business Services, Inc.
 2008 Guidance
 Business Segments
 $ Millions

                         Electronic                        Small
                          Payment            Web          Business
                         Processing        Hosting        Finance
 ---------------------------------------------------------------------
                       Low      High    Low      High   Low      High
 ---------------------------------------------------------------------

 2008 Full Year
 Revenue               65.5     66.1    18.0     18.5   10.5     11.0
 Pretax Net Income      4.3      4.8     2.9      3.3   (2.0)    (1.5)
                   ---------------------------------------------------
 Interest Expense       0.1      0.1     0.0      0.0    1.8      1.8
 Depreciation and
  Amortization          2.2      2.2     3.3      3.3    1.5      1.5
                   ---------------------------------------------------
 EBITDA                 6.5      7.0     6.2      6.6    1.3      1.8
 ---------------------------------------------------------------------

 2008 2nd Quarter
 Revenue               15.8     16.0     4.4      4.5    2.1      2.2
 Pretax Net Income      1.0      1.1     0.7      0.8   (0.9)    (0.8)
                   ---------------------------------------------------
 Interest Expense       0.0      0.0     0.0      0.0    0.4      0.4
 Depreciation and
  Amortization          0.5      0.5     0.8      0.8    0.3      0.3
                   ---------------------------------------------------
 EBITDA                 1.6      1.7     1.5      1.6   (0.1)      --
 ---------------------------------------------------------------------

 2008 3rd Quarter
 Revenue               16.7     16.8     4.6      4.7    3.2      3.3
 Pretax Net Income      1.1      1.2     0.8      0.9   (0.1)     0.1
                   ---------------------------------------------------
 Interest Expense       0.0      0.0     0.0      0.0    0.5      0.5
 Depreciation and
  Amortization          0.5      0.5     0.9      0.9    0.4      0.4
                   ---------------------------------------------------
 EBITDA                 1.6      1.7     1.6      1.8    0.8      0.9
 ---------------------------------------------------------------------

 2008 4th Quarter
 Revenue               18.2     18.3     4.7      4.9    3.7      3.8
 Pretax Net Income      1.4      1.5     0.8      0.9    0.4      0.6
                   ---------------------------------------------------
 Interest Expense       0.0      0.0     0.0      0.0    0.5      0.5
 Depreciation and
  Amortization          0.5      0.5     0.9      0.9    0.4      0.4
                   ---------------------------------------------------
 EBITDA                 2.0      2.1     1.7      1.8    1.3      1.5
 ---------------------------------------------------------------------

                                     All               Corporate
                                    Other              Activities
 ---------------------------------------------------------------------
                                Low       High     Low          High
 ---------------------------------------------------------------------

 2008 Full Year
 Revenue                        2.5        3.0     3.5           4.0
 Pretax Net Income             (3.2)      (2.7)   (8.7)         (8.2)
                              ----------------------------------------
 Interest Expense                --         --      --            --
 Depreciation and Amortization  0.1        0.1     0.3           0.3
                              ----------------------------------------
 EBITDA                        (3.1)      (2.6)   (8.3)         (7.8)
 ---------------------------------------------------------------------

 2008 2nd Quarter
 Revenue                        0.6        0.8     0.9           1.0
 Pretax Net Income             (0.8)      (0.7)   (2.2)         (2.1)
                              ----------------------------------------
 Interest Expense                --         --      --            --
 Depreciation and Amortization   --         --     0.1           0.1
                              ----------------------------------------
 EBITDA                        (0.8)      (0.7)   (2.1)         (2.0)
 ---------------------------------------------------------------------

 2008 3rd Quarter
 Revenue                        0.6        0.8     0.9           1.0
 Pretax Net Income             (0.8)      (0.7)   (2.2)         (2.1)
                              ----------------------------------------
 Interest Expense                --         --      --            --
 Depreciation and Amortization   --         --     0.1           0.1
                              ----------------------------------------
 EBITDA                        (0.8)      (0.6)   (2.1)         (2.0)
 ---------------------------------------------------------------------

 2008 4th Quarter
 Revenue                        0.7        0.8     0.8           1.0
 Pretax Net Income             (0.7)      (0.6)   (2.2)         (2.1)
                              ----------------------------------------
 Interest Expense                --        --       --            --
 Depreciation and Amortization   --        --      0.1           0.1
                              ----------------------------------------
 EBITDA                        (0.7)      (0.6)   (2.1)         (2.0)
 ---------------------------------------------------------------------

 Totals may not add due to rounding

 Newtek Business Services, Inc.
 2008 Guidance
 $ Millions
                        Total
                       Business             CAPCO        Intercompany
                       Segments            Segment       Eliminations
 ---------------------------------------------------------------------
                     Low       High     Low       High
 ---------------------------------------------------------------------

 2008 Full Year
 Revenue            100.0     102.6     6.1        6.1       (4.6)
 Pretax Net Income  (6.7)      (4.3)   (5.3)      (5.3)        --
 ---------------------------------------------------------------------

 2008 2nd Quarter
 Revenue            23.7       24.5     1.5        1.5       (1.1)
 Pretax Net Income  (2.2)      (1.6)   (1.3)      (1.3)        --
 ---------------------------------------------------------------------

 2008 3rd Quarter
 Revenue            26.0       26.6     1.6        1.6       (1.1)
 Pretax Net Income  (1.2)      (0.6)   (1.3)      (1.3)        --
 ---------------------------------------------------------------------

 2008 4th Quarter
 Revenue            28.1       28.8     1.6        1.6       (1.1)
 Pretax Net Income  (0.3)       0.4    (1.3)      (1.3)        --
 ---------------------------------------------------------------------

                                 Total
                           Current Accounting           Total
 ---------------------------------------------------------------------
                           Low           High     Low          High
 ---------------------------------------------------------------------

 2008 Full Year
 Revenue                  100.5         103.1    101.5         104.1
 Pretax Net Income        (19.3)        (16.9)   (12.0)         (9.6)
 ---------------------------------------------------------------------

 2008 2nd Quarter
 Revenue                   23.9          24.6      24.2         24.9
 Pretax Net Income         (5.3)         (4.7)     (3.5)        (2.9)
 ---------------------------------------------------------------------

 2008 3rd Quarter
 Revenue                   26.2          26.8      26.5         27.0
 Pretax Net Income         (4.3)         (3.7)     (2.5)        (1.9)
 ---------------------------------------------------------------------
 2008 4th Quarter
 Revenue                   28.3          28.9      28.6         29.2
 Pretax Net Income         (3.4)         (2.8)     (1.6)        (1.0)
 ---------------------------------------------------------------------

 Totals may not add due to rounding

This news release was distributed by PrimeNewswire, www.primenewswire.com

SOURCE: Newtek Business Services Inc.

Newtek Business Services, Inc.
          Jayne L. Cavuoto, Director, Investor Relations
          212-273-8193
          jcavuoto@newtekbusinessservices.com

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