The following discussion and analysis of our financial condition and results of operations is intended to assist in the understanding and assessment of significant changes and trends related to the results of operations and financial position of the Company together with its subsidiaries. This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the accompanying notes.

This Quarterly Report on Form 10-Q contains forward-looking statements. Additional written or oral forward-looking statements may be made by Newtek from time to time in filings with the Securities and Exchange Commission or otherwise. The words "believe," "expect," "seek," "anticipate" and "intend" and similar expressions identify forward-looking statements, which speak only as of the date the statement is made. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements may include, but are not limited to, projections of income or loss, expenditures, acquisitions, plans for future operations, financing needs or plans relating to our services, as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. Newtek does not undertake, and specifically disclaims, any obligation to publicly release the results of revisions which may be made to forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after such statements.

We also need to point out that our Capcos operate under a different set of rules in each of the 8 jurisdictions and that these place varying requirements on the structure of our investments. In some cases, particularly in Louisiana, we don't control the equity or management of a qualified business but that cannot always be presented orally or in written presentations.

We directly distribute business services to small- and medium-sized businesses, a very significant marketplace in the United States. According to statistics published by the U.S. Small Business Administration, approximately 51% of the GDP and private sector employment in the United States comes from small businesses, and 99% of businesses in the United States which have one or more employees fit into this market segment. As of June 30, 2009, we had over 87,000 customer accounts. We use state-of-the-art web-based proprietary technology to be a low cost acquirer and provider of products and services to our small- and medium-sized business clients. We partner with Chartis (the property/casualty insurance companies of AIG), the Latino Coalition, Morgan Stanley, the Credit Union National Association with its 8,100 credit unions and 91 million members, Navy Federal Credit Union with 3.2 million members, Pershing, PSCU Financial Services, Inc., the nation's largest credit union service organization, and Fiserv Solutions, Inc. d/b/a IntegraSys, , all of whom have elected to offer certain of our business services and financial products rather than provide some or all of them directly for their customers. We have deemphasized our Capco business in favor of growing our operating businesses and do not anticipate creating any new Capcos in the foreseeable future.

For the quarter ended June 30, 2009, the Company substantially reduced its loss before benefit for income taxes to $(775,000) from $(2,629,000) in the same quarter of 2008. While this reduction in loss demonstrates improvements in operations with increases in revenue being matched to reductions in salaries and benefits, part of the reduction reflects the recovery of a $1,000,000 related to an investment previously written off and shown in the All other segment. We had a net loss of $(637,000), an improvement of $1,345,000 over 2008, on revenues of $27,077,000. Total revenues increased by $2,447,000 or 10.0%, from

$24,630,000 for the quarter ended June 30, 2008 principally due to increased revenues in the Electronic payment processing, Web hosting, Capco, and All other segments offset by decreases in revenues from our Small business finance and Corporate activities segments. The reduction in the net loss of $1,345,000 from the second quarter of 2008 reflects improvements in income from operations for the Web hosting segment from increased sales and a decrease in the losses for the Small business finance, Capco, All other, and Corporate segments offset by decreased income from operations for the Electronic payment processing segment. The decreased gross margin in Electronic payment processing primarily occurred during the slowing of the economy in the second half of 2008 and is anticipated to continue to negatively impact profitability for the segment throughout 2009. The improved net income in the Web hosting segment resulted from increased revenues combined with relatively stable expenses.

As a result of the dislocation in the secondary market for guaranteed loan sales, the Small business finance segment stopped originating new loans in the fourth quarter of 2008. Improving secondary market conditions and changes to the SBA 7(a) loan program in the 2 nd quarter have permitted us to begin lending again, although the temporary nature of our lending line has caused management to limit the amount of loans we will originate. In June 2009, the Small business finance segment originated and sold a new loan at a premium. As of June 30, 2009, we had approximately $16,327,000 outstanding under the $30,000,000 GE line of credit of which the Company guarantees up to $15,000,000 of the advances. On July 22, 2009 we entered into a Fifth Amendment and Consent (the "Fifth Amendment") to the Credit Agreement dated as of August 31, 2005 between NSBF and General Electric Capital Corporation (GECC) which made certain changes in the terms of the warehouse lending facility provided to NSBF. The Fifth Amendment reduces the aggregate total of the credit facility to $15 million from $28 million, adjusts the interest rate and other terms and extends the maturity date from August 31, 2009 to May 31, 2010 based upon progress shown by NSBF in obtaining a commitment for a replacement lender. The effectiveness of the Fifth Amendment is subject to the approval of the United States Small Business Administration. Upon the Fifth Amendment becoming effective the Company will have to partially pay the line down. There can be no assurance that we will be able to renew our credit line with GE, or that we will be able to negotiate an alternate arrangement. Failure to obtain replacement financing will have a material adverse effect on our business.

Improvement in operations and the investment recovery provided the Company with positive cash flow for the quarter and the first six months of 2009. Cash and cash equivalents increased to $18,594,000 on June 30, 2009 from $16,852,000 on December 31, 2008. Overall, we believe that throughout 2009 the Company will enjoy both the full year benefit from the expense reductions made in 2008 in the Small business finance, All other and Corporate segments as well as the continuing costs cutting efforts in 2009.

Our operating businesses are dependent on the health of the small- and medium-sized segments of the U.S. economy. The reduction in the availability of credit and a weakening economy could have a negative impact on consumer and commercial spending which could adversely impact Newtek's small business customers. This could also negatively impact the value of commercial and residential real estate, which could adversely impact the loan portfolio of our SBA Lending segment.

On August 13, 2008, the Company received a staff deficiency letter from The Nasdaq Stock Market ("Nasdaq") indicating that, for the prior 30 consecutive days, the bid price for Newtek's common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Global Market under Marketplace Rule 4450(a)(5) (the "Rule"). In accordance with Marketplace Rule 4450(e)(2), the Company was given 180 calendar days, or until February 9, 2009, to regain compliance with the Rule. The letter also indicated that if the Company did not regain compliance by February 9, 2009, Nasdaq would provide written notification that Newtek's common stock will be delisted. On October 16, 2008, Nasdaq announced that it was suspending the rules requiring a minimum $1.00 closing bid price and a minimum market value of publicly held shares until December 19, 2008, and on December 19, 2008 the suspension was extended until April 20, 2009, at which time the Rule will begin to run again. On July 13, 2009 the Company received another letter from the NASDAQ stating that the Company will have until November 27, 2009 to regain compliance. The Company can regain compliance, either during the suspension or during the compliance period resuming after the suspension, by achieving a $1 closing bid price for a minimum of 10 consecutive trading days. At the current market price, the Company would not regain compliance, and there can be no assurance that the Company would be able to do so by November 27, 2009. If the Company is unable to regain compliance, it faces delisting. In the event that the common stock is delisted, there can be no assurance that an active public market for our stock can be sustained or that current trading levels can be sustained or not diminished.

Finally, in May 2009 the Company received a letter from the state of Florida stating that the Company's Florida capco, Wilshire Partners, LLC, had achieved 100% investment and therefore was eligible for final dissolution. Dissolution of the Capco will result in additional cost savings for the Company. In addition, as a result of meeting the conditions of its insurance policy, Wilshire Partners, LLC received a return of premium in the amount of $250,000.

The Company's reportable business segments are:

Electronic Payment Processing: Credit card and debit card processing, check conversion and ACH solutions for the small- and medium-sized business market.

Web Hosting: CrystalTech Web Hosting, Inc., d/b/a/ Newtek Technology Services, which offers shared and dedicated web hosting and related services to the small- and medium-sized business market.

Small Business Finance: Newtek Small Business Finance, Inc., a nationally licensed, U.S. Small Business Administration lender that originates, sells and services loans to qualifying small businesses, which are partially guaranteed by the SBA. Texas Whitestone Group performs the closing function for all SBA 7(a) loans underwritten by NSBF. CDS Business Services, Inc. (d/b/a Newtek Business Credit) provides financing services to businesses by purchasing their receivables at a discounted rate. In addition, the Company provides billing and accounts receivable maintenance services to businesses.

All Other: Includes results from businesses formed from Investments in Qualified Businesses made through Capco programs which cannot be aggregated with other operating segments.

Corporate Activities: Corporate implements business strategy, directs marketing, provides technology oversight and guidance, coordinates and integrates activities of the segments, contracts with alliance partners, acquires customer opportunities and owns our proprietary NewTracker™ referral system. Revenue and expenses not allocated to our other segments, including interest income, Capco management fee income and corporate operations expenses.

Capcos: Fourteen certified capital companies, which invest in small- and medium-sized businesses. They generate non-cash income from tax credits and non-cash interest.

Segment Results:

The results of the Company's reportable segments for the three and six months ended June 30, 2009 and 2008 are discussed below.

Electronic Payment Processing



                                             Three months
                                            ended June 30:
 (In thousands):                            2009       2008      $ Change       % Change
 Revenue:
 Electronic payment processing            $ 16,880   $ 15,921   $      959             6 %
 Interest income                                 9         18           (9 )         (50 )%

 Total revenue                              16,889     15,939          950             6 %

 Expenses:
 Electronic payment processing costs        14,107     12,925        1,182             9 %
 Salaries and benefits                         991        977           14             1 %
 Professional fees                              59         85          (26 )         (31 )%
 Depreciation and amortization                 425        559         (134 )         (24 )%
 Other general and administrative costs        247        226           21             9 %

 Total expenses                             15,829     14,772        1,057             7 %

 Income before benefit for income taxes   $  1,060   $  1,167   $     (107 )          (9 )%

Three months ending June 30, 2009 and 2008:

Electronic payment processing revenue increased $959,000 or 6% between periods principally due to the overall impact of growth in organic revenue of approximately 8% while revenues from acquired portfolios decreased overall revenue growth by 2% between periods due to merchant attrition. Approximately 6% of the growth in organic revenue was derived from an increase in

the average number of merchants under contract between years of 9%. However, the average monthly processing volume per merchant decreased 3% between years. The decrease in the average monthly processing volume per merchant in 2009 reflects a combination of a decrease in the average sales volume from existing merchants and the effect of new merchants added in 2009 being smaller in terms of average monthly processing volumes. The overall decrease in the average processing volume per merchant in 2009 we believe is primarily attributable to the recessionary economic environment in the United States. The remaining 2% increase in organic revenue is principally due to an increase in transaction count related fees. Total transactions processed increased 13% between years, including an increase in check card transactions of 18% between periods.

Electronic payment processing costs increased $1,182,000 or 9% between years. Electronic payment processing cost resulting from acquired portfolios had the overall effect of decreasing such cost by approximately 2% between periods due to merchant attrition. Organic electronic payment processing costs had the effect of increasing total electronic payment processing costs by 11% between years. The revenues less electronic payment processing cost ("margin") declined approximately 2.4% from 18.8% in 2008 to 16.4% in 2009. The 1.8% reduction in the margin was due to the increased residual payments made to certain third-party sales referral sources and the growth of such third-party sales on a sales mix basis. The remaining reduction in such margin between periods is principally due to the effects of competitive pricing pressures for new and existing merchants between years.

Excluding electronic payment processing costs, other costs decreased $125,000 or 7% between years. Depreciation and amortization decreased $134,000 between periods. The decrease in depreciation and amortization is principally due to a previously acquired portfolio intangible asset becoming fully amortized during 2009 and the effect between years of a portfolio impairment charge recorded in the fourth quarter of 2008. Remaining costs increased $9,000 between years as the result of an increase in costs related to information technology and sales and marketing related services.

Income before benefit for income taxes decreased $107,000 to $1,060,000 in 2009 from $1,167,000 in 2008. The decrease in income before benefit for income taxes in 2009 is principally due to the lower margin partially offset by an overall reduction in other costs between years.

                                              Six months
                                            ended June 30:
 (In thousands):                            2009       2008      $ Change       % Change
 Revenue:
 Electronic payment processing            $ 32,641   $ 31,102   $    1,539             5 %
 Interest income                                22         48          (26 )         (54 )%

 Total revenue                              32,663     31,150        1,513             5 %

 Expenses:
 Electronic payment processing costs        27,048     25,149        1,899             8 %
 Salaries and benefits                       2,124      2,041           83             4 %
 Professional fees                             114        152          (38 )         (25 )%
 Depreciation and amortization                 885      1,121         (236 )         (21 )%
 Other general and administrative costs        469        440           29             7 %

 Total expenses                             30,640     28,903        1,737             6 %

 Income before benefit for income taxes   $  2,023   $  2,247   $     (224 )         (10 )%

Six months ending June 30, 2009 and 2008:

Electronic payment processing revenue increased $1,539,000 or 5% between periods principally due to the overall impact of growth in organic revenue of approximately 6% while revenues from acquired portfolios decreased overall revenue growth by 1% between periods due to merchant attrition. Approximately 5% of the growth in organic revenue was derived from an increase in the average number of merchants under contract between years of 11%. However, the average monthly processing volume per merchant decreased 6% between years. The decrease in the average monthly processing volume per merchant in 2009 reflects a combination of a decrease in the average sales volume from existing merchants and the effect of new merchants added in 2009 being smaller in terms of average monthly processing volumes. The overall decrease in the average processing volume per merchant in 2009 we believe is primarily attributable to the recessionary economic environment in the United States. The remaining 1% increase in organic revenue is principally due to an increase in transaction count related fees. Total transactions processed increased 12% between years, including an increase in check card transactions of 21% between periods.

Electronic payment processing costs increased $1,899,000 or 8% between years. Electronic payment processing costs resulting from acquired portfolios had the overall effect of decreasing such cost by approximately 2% between periods due to merchant attrition. Organic electronic payment processing costs had the effect of increasing total electronic payment processing cost by 10% between years. The margin declined approximately 2.0% from 19.1% in 2008 to 17.1% in 2009. The 1.6% reduction in margin was due to increased residual payments made to certain third-party sales referral sources and the growth of such third-party sales on a sales mix basis. The remaining reduction in such margin between periods is principally due to the effects of competitive pricing pressures for new and existing merchants between years.

Excluding electronic payment processing costs, other costs decreased $162,000 or 4% between years. Depreciation and amortization cost decreased $236,000 between years. The decrease in depreciation and amortization cost is principally due to a previously acquired portfolio intangible asset becoming fully amortized during 2009 and the effect between years of a portfolio impairment charge recorded in the fourth quarter of 2008. Remaining costs increased $74,000 between years as the result of an increase in the use and cost of services related to information technology and sales and marketing related services.

Income before benefit for income taxes decreased $224,000 to $2,023,000 in 2009 from $2,247,000 in 2008. The decrease in income before benefit for income taxes in 2009 is principally due to the lower margin partially offset by an overall reduction in other costs between years.

Web Hosting



                                              Three months
                                             Ended June 30:
  (In thousands):                            2009      2008     $ Change       % Change
  Revenue:
  Web hosting                              $  4,702   $ 4,499   $     203             5 %
  Interest income                                 5         2           3           150 %

  Total revenue                               4,707     4,501         206             5 %

  Expenses:
  Salaries and benefits                       1,245     1,218          27             2 %
  Interest                                       33        15          18           120 %
  Professional fees                              28        28          -             -  %
  Depreciation and amortization                 762       815         (53 )          (7 )%
  Other general and administrative costs      1,722     1,688          34             2 %

  Total expenses                              3,790     3,764          26             1 %

  Income before benefit for income taxes   $    917   $   737   $     180            24 %

Three months ended June 30, 2009 and 2008:

The segment derives revenue primarily from monthly recurring fees from hosting websites. Web hosting revenue between periods increased $203,000, or 5%, to $4,702,000 for the three months ended June 30, 2009 over the same period in 2008 due to a combination of improved revenue per website offsetting a decrease in the average number of hosted websites. Average monthly revenue per site increased 8% to $23.84 from $21.99. NTS utilized price increases coordinated with service and plan enhancements as well as new higher priced service offerings to help drive growth in revenue.

The total average number of sites for the three months ended June 30, 2009 as compared to the same period in 2008 decreased 2,442 sites, or 4%, to 65,727 from 68,169. A 2,503 or 4% decrease in average number of shared sites to 63,410 in 2009 from 65,913 in 2008 accounts for most of the lost sites; this recent trend of decreasing shared websites since the fourth quarter of 2008 reflects the effects of a deliberate price increase to improve profitability of the lowest priced plans as well as economic conditions and increased competition. The additional 147 average number of virtual dedicated websites in 2009, a new service offering which was not offered in the beginning of 2008, offset the decrease in the average number of total dedicated websites by 85 in 2009 as compared to 2008, or 4%, to 2,171 from 2,256. Although improvement in revenue per site reflects the greater growth in virtual dedicated sites in 2009 over 2008, which generate higher monthly fees versus higher end shared and lower end dedicated web hosting plans, revenues from shared and dedicated sites improved as well reflecting better pricing and utilization of higher priced plans by customers.

Total expenses increased 1% or $26,000 to $3,790,000 from $3,764,000 for the three months ended June 30, 2009 as compared to the same period 2008. The increase in total expenses was due to a $27,000 increase in salaries and benefits, a $34,000 increase in other general and administrative costs mainly for marketing, and a $18,000 increase in interest expense relating to the outstanding $2.5 million note, offset in part by a $53,000 decrease in depreciation and amortization.

Income before benefit for income taxes increased 24% or $180,000 to $917,000 for the three months ended June 30, 2009 from $737,000 for the same period 2008. The improvement in profitability primarily resulted from increased web site plan revenue growing more quickly than the substantially fixed costs of the datacenter; imbedded rent, utility and software licensing fees effectively contributed more revenue. Maintenance of current staffing levels since the third and fourth quarter of 2008 contributed to the improvement in income as well. Due to management's focus on cost efficiency, continued growth in revenue should result in improved future profits and margins.

                                               Six months
                                             ended June 30:
  (In thousands):                            2009      2008     $ Change       % Change
  Revenue:
  Web hosting                              $  9,374   $ 8,775   $     599             7 %
  Interest income                                 8         8          -             -  %

  Total revenue                               9,382     8,783         599             7 %

  Expenses:
  Salaries and benefits                       2,430     2,413          17             1 %
  Interest                                       67        31          36           116 %
  Professional fees                             109        54          55           102 %
  Depreciation and amortization               1,554     1,633         (79 )          (5 )%
  Other general and administrative costs      3,389     3,301          88             3 %

  Total expenses                              7,549     7,432         117             2 %

  Income before benefit for income taxes   $  1,833   $ 1,351   $     482            36 %

Six months ended June 30, 2009 and 2008:

The segment derives revenue primarily from monthly recurring fees from hosting websites. Web hosting revenue between periods increased $599,000, or 7%, to $9,374,000 for the six months ended June 30, 2009 over the same period 2008 due to improved revenue per website and organic growth of hosted virtual websites, which was a new service offering successfully launched in the third quarter of 2008. NTS utilized sales promotions and service and plan enhancements to help drive growth in sites and revenue.

The increase in revenue reflects a decrease in the average number of total websites by 1,321 for the six months ended June 30, 2009 as compared to the same period in 2008, or 2%, to 66,268 from 67,589 as well as an increase in average monthly revenue per site of 9% to $23.57 from $21.64. Improvement in revenue per site primarily reflects the greater growth in virtual dedicated sites, the customers gravitating towards higher end services combined with additional options, and is also a result of a price change to our lowest priced plan in the third quarter of 2008. The average number of dedicated websites, which generate a higher monthly fee versus shared websites, decreased by 8 between periods, or less than 1%, to an average of 2,206 per month from an average of 2,214 per month for the same period in 2008. The average number of shared websites decreased 1,434, or 2%, to an average of 63,941 per month for the six months ended June 30, 2009, from an average of 65,375 per month for the same period 2008. The decreasing trend in total shared and dedicated site counts began in the fourth quarter of 2008. This change in trend reflects the continuing economic conditions, which started impacting the web hosting segment in the fourth quarter of 2008, along with increased competition, a deliberate price increase by the hosting division to improve profitability of the lowest priced plans, and the move of high-end shared users and low-end dedicated users to the new Hyper-V plan.

. . .