Newtek Business Services Reports Quarterly Loss [May 12, 2005]

NEW YORK, May 12, 2005 /PRNewswire-FirstCall via COMTEX/ -- Newtek Business Services, Inc. (Nasdaq: NKBS, www.newtekbusinessservices.com), a direct distributor of financial and business products to the small to medium-sized business market, today announced its first quarter loss of $(0.08) per share on revenues of $13.1 million.

Barry Sloane, Chairman and CEO of Newtek Business Services, Inc., said, "Our plan to establish Newtek as the premier provider of business and financial services to the small to medium-sized business market is on track and continues to pick up momentum. We are confirming our 2005 guidance of $0.39 to $0.40 of EPS along with anticipated revenues of $100 million, despite a modest loss for the first quarter."

Both revenue and earnings projections for 2005 would be record numbers for the company and significant increases over 2004. Out of 20 quarters of reporting as a public company, Newtek has had 8 quarters of pre-tax net losses. We believe this is attributable primarily to our financial position in the certified capital company business which creates uneven and non- sequential revenue recognition.

Newtek has grown its annualized revenues and pre-tax earnings from 2001 to 2004 by 198% and 1067% respectively. Newtek also increased shareholders equity from $9 million at the end of 2000 to $75 million at March 31, 2005 (unaudited), a 733% increase. Mr. Sloane continued "We have had tremendous growth in our merchant services business, despite the first quarter being seasonally weak, of approximately 13% revenue growth during the quarter. We also exceeded our initial projections in the web hosting business, adding an average of over 1,000 new clients per month net of attrition, and earning approximately $943,000 of pre-tax net income (unaudited) for the quarter in the segment."

Mr. Sloane concluded by noting "Newtek has evolved and will continue to evolve over time into a special, cutting edge organization focusing on the 'crown jewel' of the U.S. economy: the small to medium-sized business owner. We will not lose our focus or our mission as we navigate the company through many difficult but exiting challenges."

The previously announced conference call will be accessible via a toll free number by dialing 800-561-2731 and providing the pass code 32478748. Listeners are encouraged to ask any questions that they may have during the call. The conference call will also be broadcasted over the Internet through Newtek's website at http://www.newtekbusinessservices.com. To listen to the webcast live, please go to Newtek's website approximately 15 minutes prior to the call to download any audio software which may be necessary. For those who miss the live broadcast, a replay will be available on the website approximately one hour after the call.

The conference call will also be broadcasted over the Internet through Newtek's website at http://www.newtekbusinessservices.com. To listen to the webcast live, please go to Newtek's website approximately 15 minutes prior to the call to download any audio software which may be necessary. For those who miss the live broadcast, a replay will be available on the website approximately one hour after the call. The company will use a PowerPoint presentation which will be posted on the homepage of the website.

About Newtek Business Services, Inc.

Newtek Business Services, Inc. is a direct distributor to the small to medium-sized business market. According to the SBA, there are over 23 million small businesses in the United States which in total represent 99.7% of all employers, generate 60 - 80 percent of all new jobs annually and generate more than 50% of non-farm GDP. Since 1999, Newtek has helped these business owners realize their potential by providing them with the essential tools needed to manage and grow their businesses. Newtek focuses on providing its 45,000 customers with access to financial, management and technological resources that enable them to better grow and compete in today's marketplace. Newtek's products and services include:

* Newtek Small Business Finance: U.S. government-guaranteed small
business lending services;

* Newtek Merchant Solutions: electronic merchant payment processing
solutions;

* Newtek Insurance Agency: commercial and personal insurance;

* CrystalTech Web Hosting: domain registration, hosting and storage;

* Newtek Financial Information Systems: outsourced digital bookkeeping;
and

* Newtek Tax Services: tax filing, preparation and advisory services.

The statements in this release may contain forward looking statements relating to such matters as anticipated future business strategies and financial performance, anticipated future number of customers, business prospects, legislative developments and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward looking statements. In order to comply with the terms of the safe harbor, Newtek Business Services, Inc. notes that a variety of factors could cause its actual results to differ materially from the anticipated results expressed in the Company's forward looking statements such as intensified competition and/or operating problems and their impact on revenues and profit margins or additional factors as described in Newtek Business Services' 2004 annual report on Form 10-K.

Contacts:
Newtek Business Services
Barry Sloane
Chairman of the Board & CEO
212-356-9500
bsloane@newtekbusinessservices.com

Dave Gentry
Aurelius Consulting Group, Inc.
407-644-4256
dave@aurcg.com

NEWTEK BUSINESS SERVICES, INC., AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS MARCH 31, 2005 (UNAUDITED) AND DECEMBER 31, 2004

March 31, December 31,
2005 2004
A S S E T S

Cash and cash equivalents $48,295,721 $50,921,982
Restricted cash 2,402,427 2,181,675
Credits in lieu of cash 85,779,300 88,883,335
SBA loans receivable (net of reserve for
loan losses of $981,305 and 1,621,259,
respectively) 35,804,300 34,186,047
Accounts receivable (net of allowance
of $91,716 and $72,062, respectively) 1,474,635 1,561,252
Receivable from bank 7,479,851 1,799,537
SBA loans held for sale 5,455,957 2,262,035
Accrued interest receivable 362,829 375,411
Investments in qualified businesses -
cost method investments 300,000 300,000
Investments in qualified businesses -
held to maturity investments 3,009,186 2,909,097
Structured insurance product 3,256,464 3,216,112
Prepaid insurance 14,844,347 15,505,326
Prepaid expenses and other assets (net of
accumulated amortization of deferred
financing costs and other intangibles
of $592,162 and $404,105, respectively) 7,269,533 4,708,865
Capitalized servicing asset (net of
accumulated amortization of $749,891
and 486,799, respectively) 2,041,620 2,084,763
Furniture, fixtures and equipment (net of
accumulated depreciation of
1,270,196 and $1,025,672, respectively) 2,977,767 1,958,927
Customer merchant accounts (net of accumulated
amortization of $1,620,463
and 1,226,741, respectively) 6,079,388 4,393,226
Goodwill 7,892,508 11,150,326
Total assets $234,725,833 $228,397,916

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $7,039,240 $9,725,690
Notes payable - certified investors 3,934,047 3,925,946
Notes payable - insurance 7,185,226 7,877,195
Notes payable - other 8,440,000 520,000
Bank notes payable 35,227,301 27,987,696
Deferred revenue 1,159,783 1,160,286
Note payable in credits in lieu of cash 75,119,731 76,258,728
Mandatory redeemable preferred stock 1,500,000 1,500,000
Deferred tax liability 15,071,075 16,626,577
Total liabilities 154,676,403 145,582,118

Minority interest 5,421,257 5,720,950

Commitments and contingencies
Shareholders' equity:
Preferred stock (par value $0.02 per share;
authorized 1,000,000 shares,
no shares issued and outstanding) -- --
Common stock (par value $0.02 per share;
authorized 39,000,000 shares, issued
and outstanding 33,907,172 and 33,873,333,
not including 582,980 shares held in escrow) 678,144 677,467

Additional paid-in capital 53,206,615 52,858,400

Unearned compensation (2,288,325) (2,297,459)

Retained earnings 23,031,739 25,856,440

Total shareholders' equity 74,628,173 77,094,848
Total liabilities and shareholders' equity $234,725,833 $228,397,916

NEWTEK BUSINESS SERVICES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2005, AND 2004

2005 2004
Revenue:
Income from tax credits $ 1,061,341 $ 2,023,525
Electronic payment processing 6,010,983 3,232,504
Servicing fee and premium income 812,965 1,177,372
Web hosting 2,248,876 -
Interest and dividend income 1,073,133 1,028,948
Other income 1,883,087 473,149
Insurance commissions 221,099 -

Total revenue 13,311,484 7,935,498

Expenses:
Interest 3,697,291 3,764,774
Payroll and consulting fees 4,096,982 2,185,449
Electronic payment processing costs 4,481,074 2,100,986
Professional fees 1,738,822 994,609
Insurance 720,737 714,962
Provision for loan losses 100,762 104,681
Depreciation and amortization 1,089,395 290,321
Other 1,960,021 968,260

Total expenses 17,885,084 11,124,042

Loss before minority interest and
benefit for income taxes (4,573,600) (3,188,544)

Minority interest 259,857 300,314

Loss before benefit for income taxes (4,313,743) (2,888,230)
Benefit for income taxes 1,489,042 1,184,174

Net loss $(2,824,701) $(1,704,056)

Weighted average common shares
outstanding

Basic 33,892,252 26,471,248

Diluted 33,892,252 26,471,248

Net loss per share
Basic $ (.08) $ (.06)
Diluted $ (.08) $ (.06)

NEWTEK BUSINESS SERVICES, INC., AND SUBSIDIARIES
SEGMENT FOOTNOTE

For the three For the three
month period month period
ended ended
March 31, March 31,
2005 2004
Revenue
SBA Lending $ 2,222,391 $ 2,205,058
Electronic payment processing 6,010,983 3,232,504
Web hosting 2,248,876 -
Capco & other 2,829,234 2,497,936
Total $ 13,311,484 $ 7,935,498

Loss before benefit for income taxes
SBA Lending $ (105,733) $ 288,761
Electronic payment processing (46,000) 10,573
Web hosting 942,999 -
Capco & other (5,105,009) (3,187,564)
Total $ (4,313,743) $ (2,888,230)

Depreciation and Amortization
SBA Lending $ 398,064 $ 79,204
Electronic payment processing 186,749 168,604
Web hosting 357,225 -
Capco & other 147,357 42,513
Total $ 1,089,395 $ 290,321

INTERCOMPANY Revenue eliminated above
SBA Lending $ - $ -
Electronic payment processing 336,265 214,932
Web hosting 240 -
Capco & other 1,095,829 416,532
Total $ 1,432,334 $ 631,464

INTERCOMPANY Expenses eliminated above
SBA Lending $ 422,804 $ 158,113
Electronic payment processing 571,630 320,656
Web hosting 69,099 -
Capco & other 368,801 152,695
Total $ 1,432,334 $ 631,464

March 31, December 31,
2005 2004
Identifiable Assets
SBA Lending $ 59,405,339 $ 48,839,937
Electronic payment processing 6,595,668 3,507,162
Web hosting 13,760,586 12,367,893
Capco & other 154,964,240 163,682,924
Total $ 234,725,833 $ 228,397,916

SOURCE Newtek Business Services, Inc.