Good day, ladies and gentlemen and welcome to the Newtek Business Services Second Quarter 2012 Earnings Conference Call. [Operator Instructions] And as a reminder this call is being recorded. I would now like to introduce your host for today’s conference, Mr. CEO and Chairman, Barry Sloane. Sir, you may begin.

Thank you very much. Good afternoon, everybody, and welcome to the Second Quarter 2012 Financial Results Conference Call. I'm Barry Sloane, President and CEO of Newtek Business Services. Here with me today to present is Jenny Eddelson, our Chief Accounting Officer. Jenny would you be so kind as to read the safe harbor statement.

Sure. The statements in this slide presentation, including statements regarding anticipated future financial performance, Newtek’s beliefs, expectation, 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 statement. Such risks and uncertainties include, among others: intensified competition, operating problems and their impacts on revenue 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 www.sec.gov. Our Capcos operate under a different set of rules in each of the 6 jurisdictions and these place varying requirements on the structure of our investments. In some cases, particularly in Louisiana or in certain situations in New York, we do not control the equity or management of a qualified business, but that cannot always be presented orally or in written presentations.

Thank you, Jenny. For those of you that would like to follow along with the PowerPoint presentation, you can go to the investor relation section of our website where the PowerPoint presentation is currently available. I’d now like everybody to forward to Page 3. Looking at our agenda for the conference call, we’re going to be going over our Q2 2012 financial performance, cash position, balance sheet, discuss our recent buyback of common shares, have a general discussion over developments and business trends, focus on our revenue growth, focus on the new financing arrangement with Summit Parnters, reaffirm our 2012 guidance. Our key performance statistics for the second quarter. The company reported a consolidated pretax income of $1.9 million, that’s an increase of $1.8 million year-over-year compared to the second quarter of 2011. The company also had consolidated net income of $1.2 million, a $1.5 million increase and $0.03 a share in earnings per share compared with the loss of a penny diluted share for the second quarter 2012. Company had consolidated Modified EBITDA for the second quarter 2012 of $3.7 million, as compared to $1.7 million for the second quarter in 2011. The company reported for the full 6 months $0.07 of earnings per diluted share for the 6 months ended June 30, 2012, as compared to a $0.01 per diluted share for the 6 months ended June 30, 2011. Our electronic payment processing segment had pretax income, which was 42% higher than the year prior to $1.9 million in the second quarter of 2012 versus $1.3 million in the second quarter of 2011. And the small business finance segment had pretax income increased 43% to $1.5 million in the second quarter of 2012, compared to $1.0 million in the second quarter of 2011. We are also proud to…

Thank you, Barry. For the quarter ended June 30, 2012, the company has consolidated pretax income of $1.9 million and after-tax income of $1.2 million, both significant improvements from the second quarter of 2011. Each of our segments reported improvements in current quarter earnings compared with the year ago period and EPS also improved from the loss $0.01 per diluted share at June 30, 2011, the income of $0.03 per share at June 30, 2012. Please turn to Slide 36 for a summary of revenue, pretax income/loss and modified EBITDA by segment for the second quarter of 2012. Electronic payment processing segment revenue increased by $656,000 with 3% period-over-period to $21.4 million, predominantly due to a combination of growth and processing volume, selective fee increases and additions to services provided through our merchants. Pretax income increased by $560,000 or 42% to $1.9 million for the second quarter of 2012, compared to $1.3 million recorded in the same period last year. The increase is due primarily to a $436,000 improvement in dollar margins of operating revenues less electronic payment procession cost resulting from the introduction of new higher margin products and services during 2011, as well as the impact on revenues on EPP costs resulting from debit card pricing and interchange cost deduction. In addition depreciation and amortization decreased by $211,000 carried over period due to intangible assets becoming fully amortized. Manage Technology Solutions segment revenue totaled $4.6 million for the second quarter of 2012, a decrease of $197,000 compared with the year ago period. The decrease was due to our reduction in the total number of web hosting plans totaled as well as the decrease in web design revenue for the period, which was offset in part by improved revenue per plan. The increase in the average revenue per plan…

Thank you Jenny. Operator, we would like to take questions now.

[Operator Instructions] Our first question comes from the line of Mark Silte [ph] with Sidoti Investment Advisors.

Let’s see, first of all, you talked about the direct channel referrals. Is that internal business referrals or is that -- I guess my question really is, is your SBA authority like Index in market sentiment, are you getting business because of that and can you kind of judge it as far as how it’s progressing?

Yes, the direct channel numbers that we talked about today are basically customers that have gone directly to the website, have not come through our alliance partner, and that is a function of search, it’s a function of the amount of content that we have through the index through our blog or through tweeting, through our newsletter, we put out 65,000 newsletters every month to customers. We also have an MSP Authority magazine, like when I certainly consented to you, it’s about 35, 40 color pages. We’ve got all the content with all articles about business. We haven’t done any digital dollars at any significant way. When I say that, maybe a $1000 a month, nothing significant, but we’re going to be buying key words, key phrases, we’re also going to be putting banners up that will wind up searching for people that come to our site or other types of sites to really take advantage of that, so. The 13% that you’re seeing is from the direct channel and we think that’s from our strategy of positioning ourself with an authoritative presence in business, as well as advertising PR, et cetera.

And also on like the SPA index market sentiments, you talked about eyeballs growing and maybe you don’t want to do this, but could advertising be in this model at some point down the line?

Yes, matter of fact what we talked about today, historically in the last 18 months, which ended in June, we had a radio campaign with WABC. That campaign has ended as of June 30. That was quite an early in the New York market. I think occasionally that would get up to sit on the channel. I have heard people say they are harder in New Hampshire, but anyway we will be launching national TV in September, you will see small business authority ads, the primary ads will be on business lending. We will probably have ads on healthcare, and health insurance, I should say. We think that health insurance is the number one need or question of business owners and they need participants like us to help them navigate through what their questions are with respect to health and benefits and whether they go to exchanges or not. So, we’re clearly going to use our national health insurance agency as legion, but you could see we are going to be out there with our e-commerce in the cloud and all these offerings and you will see these commercials on major cable channels or major networks.

Shifting to your lending, on the collateral side, what would you say is your mix, someone puts up a piece of property to secure their SBA loans, what’s the mix between residential and commercial?

I would say to go to the more macro category, about 80% to 85% of our loans have a real estate lien on it. I would venture to guess with in the last 6 months, because the world does change, but within the last 6 months, of all loans with a mortgage lien, I would say 70% and this is a guess, probably a band of 60% to 80% have a lien on piece of commercial property, the rest are residential from the guarantor.

Okay. So, the clients that are coming to you on the leading, especially getting anecdotes, so are the banks as willing to lend these people, some of these people are just quite often rejected by banks, or what have you kind of seen besides obviously the normal channel you get?

We love the lending opportunity and the lending space because we are seeing conventional credits in a government box and we say -- we’re seeing them government box, they’re basically capable to take a loan or a bar that’s been banking with the banker 3 years, 5 years, 15 years, 20 years. They’ve had a banking relationship that banks cannot hold that client on their books anymore because they are being forced to shrink, forced to de-lever. When banks are forced to shrink and forced to de-lever and they got to get their asset side sound, you know which credits go first?

The rich ones.

The best ones.

Yes, the best ones, all right.

Those are the only ones that can get financed away.

Right. If you don’t need money, there’s plenty out there.

You got it. So what typically happens when they have to shrink is they lose the stronger credits first. We’re getting those stronger credits. So we’re getting exceptionally strong credits, this is going to give us the fuel as we get out there and let people know with a real simple outreach that we’re here to provide money, 7- to 25-year amortization schedule, $50,000 to $5 million when a national lender come to us, we think we’re going to get a lot of opportunities from that. So we’re seeing good credits. We think we’ll grow our volumes without having to press the credit box. I will reiterate, we do not use brokers. We do not let sophisticated intermediaries to find what the loan looks like. We do that directly with our clients and there is nobody in that chain within our organization that assembles the loan or underwrites the loan or runs the leading position that has paid a commission or percentage of the profits, and that includes yours truly.

That was very diplomatic calling them -- I don’t know who’s held responsible, I forget the word you use. But anyway…

So you just look at what everybody else has messed up in the last 5 or 10 years. So we don’t want to make this big mistake as the market expands.

So now we’re heading to this fiscal cliff and the question is, will this make banks even more weary to lend in the short-term as there is more questions, which could be short-term opportunities to you guys?

I think the trend of banks providing balance sheet is downward sloping and I think if the fiscal cliff is -- it is what it is, obviously, we have an election coming up, some people think there won’t be one, if one guy gets in there will one, if another guy gets in, I don’t know. We are here no matter who is the president and whoever the president is, we will welcome him and embrace him and do the best job that we can. We think that in a market that -- we’re certainly for strong economic growth, but in a market that’s declining 1% or 2% GDP, let’s say, and a lot of people look at that as tax Armageddon, and it’s a disaster, even in that environment there are plenty of businesses that need financing and need cloud solutions and need to improve their technology. One of the things that we’re seeing right now, while there is not a lot of robust economic activity, the one place where businesses are spending their money is improving their operations and their efficiencies, and that’s where our cloud solutions, we think, are going to be very well suited to business organizations, they want real-time payment processing information, they want to get rid of their IT costs, both internal and external, and reduce it and be in the cloud. So we think good economy, bad economy we’re well positioned and we are not overly concerned about the lending space because we are avoiding clients and credits that are on the bubble.

And then the MasterCard, Visa settlement, does that -- do you want to just comment on that in regards to your EPP division?

Yes, I think the Visa, MasterCard situation really is irrelevant to us in terms of the settlement and the payment to retailers. I think we are uniquely positioned as I guess what the industry would refer to as an ISO, but I think from our perspective, business owners are going to need guidance, and that’s what we do. Our job and our function is to deal with business owners. And as business owners are going to be using virtual terminals and mobile payment processing solutions, they are going to want to do business with entities that can be transparent, show them their balance sheet and their income statement, show that their data is in SAS 70 Level for data facility, give them $100,000 insurance certificate in the events they get fined by Visa and Mastercard and, because we own our own gateways, be able to deliver real time payment processing data and information to the right phone in the right way.

Okay and lastly and I’ll turn the call over, as I haven’t gone on twitter up to this date so now you are killing me, so what’s your twitter address?

I’ll give the corporate one, which is the_sba, and I think mine is @sloanebarry. I’m not on Facebook, but I had to do the twitter thing.

Our next question comes from the line of Adam Norton [ph] with RBC.

Can you talk a little about the cloud services strategies that you’d mentioned that are rolling out this fall, maybe talk about the marketing strategy behind it, how it may comparative with some of the other guys in this space are doing, what opportunity do you see, where you see it going?

Well, we’re thrilled about what I would call the cloud trend and the big issue about the cloud trend is in -- I watched a boat load of TV and media, IBN, AT&T, Verizon, it’s in our market. It’s constantly advertising the cloud. We also know that Amazon. There was a cloud product in Google, et cetera. Those enterprises are typically positioning cloud services to large corporations or larger size businesses. We offer a cloud solution to small businesses. And it’s the small, independent businesses that can least afford to have an internal employee for IT or can least afford to have the local break-fix guy or girl company, who charge them $3,000, $4,000, $5,000, $6,000 a month, whether they use the service or not. So the benefit of cloud, it is pay for what you use, you don’t buy the server, you don’t buy the software, in fact you’re going to rent it. And all your data is in a military strength proof facility if you use our cloud, where we are positioning ourselves on to that new tech, small business authority monition is what we call for the cloud authority. And we are going to be able to deliver our business service solutions in the cloud. So our payroll will be in the cloud. Look at yourself as an insurance user, you’d like to be able to access every one of our deck pages of polices on your iPhone or iPad, you’d also likely to notice you -- 120 days out when your policy is about to expire, and then 90 days out, and then 60 days out, you may also want me to send you a bill, which gives you the ability to put your credit card in there, so you can pay. I mean these are all things that we’re going to be able to deliver to business owners because of who we are and how we’re positioned. Because we have our own data center, because we’re used to dealing with technological solutions and applications for business, we think we’re very well positioned to get this out in the market. Now, what’s our marketing strategy? We clearly plan on embracing designers, developers and technology providers, we’re going to be doing a lot of blogging, a lot of posting, we’re going to be using a digital campaign to attract those intermediaries, and give them discounts to recommend us to their customer base, and we’re also going to be positioning ourselves on national TV as an authority in the cloud. So we think there’s going to be a big opportunity for us, and we also view the payment processing space as -- we’re historically -- we make a technology application that a company like ours is well positioned and suited for. The days of selling payment processing by knocking on a store’s door and saying, “Can I see your statement? I can beat the price,” we think, are behind us.

Thank you. Our next question comes from the line of Keith Sidror [ph] with National Securities.

I guess the question is with how well that the company is doing, now is it time to really try to focus more and trying to get the stock price going? The stock, it may seem to move up a little bit, but still seems like its grossly undervalued, and I guess, now is it time to look to spent more money, even more money on IR, trying to get the word out get more exposure for the stock, do you spend more money trying to get companies to do more research on your stock, and do you look at the possibility of paying another dividend to shareholders. Seems that gets more attention for the stock or at least reward the shareholders with the dividend, or do we, now is it time to even explore the option of, do you hire a firm to see about trying to sell the whole company and if it’s the company is grossly undervalued, is it possible that somebody out there could find a value for that. I guess the question is, how do we get the stock price going and, with what I’m mentioning of these things that are on the table or that you’re looking into?

Okay, for the 5 questions, the first 3 are easy, yes, yes and yes. And I'll go back in detail on each one, question 4 on the dividend and question 5, sell the company, let’s go to 4 and 5 first. Regarding a dividend, we always look at dividend strategy and buyback, it’s something I discussed in most board meetings. Most board meetings would discuss and we always take a look at it, we have limitations on our ability to do that based upon our lender arrangements. And you could certainly feel free to look at those documents at the sec.com. So we clearly have got limitations in that particular area and at one, our vested interest and I’m always interested in seeing a higher stock price. Regarding the concept of selling the company, if that was something that we had an intention of doing and had a mandate to do, it would be annexed. So with that said, we believe that our strategy is jelling, coming together and it’s to be noticed. And it’s now to be highlighted sort of on a bigger platform and bigger theater. So I think that the concept of evaluation is always left up to you in the market. And my belief is that if investors think that stock is undervalued and we’ve pointed out other companies in market comparables you need to take a look at. We do believe we are finally going to get there because it’s really -- part of it is the function of being big enough to be discovered, it would be found. So I think we are small enough, sophisticated enough, have got an intelligent enough board and our great management team, with the wind at our back finally, and a lot of the distractions relating to kept…

[Operator Instructions] Our next question comes from the line of Harold Elish [ph] with UBS Financial Services.

I want to follow up on a couple of things, Mark earlier was asking about the way in which you measure how the marketing efforts are going on. I am wondering if you could comment a bit on what you see the payoff thus far for the alliance with WABC?

Good question, we have to say we are -- from what I understand, I think we’re reasonably sophisticated in terms of how we measure, how our clients come to us and a lot of that’s based upon our technological platforms, new track assistance that we built. We pretty much can capture where clients are coming to us from, what they are asking for, with full information and note taking. As well as our business has a web host, so we look at the information daily, to be frank with you, and track web traffic in referrals and closed rates and things of that nature. When we embark on a WABC campaign, we have a goal in mind and the goal was, we want to learn, we want to learn about the market and we want to do it sort of in our home base. We put out a lot of different messages, we did a lot of branding, I’m actually currently looking right now at the poster that was hung behind Bernard McGirk on the Imus in the morning show, which is now in my office. I guess when you stop paying them, they give you the backdrop. So the small business authority studio, radio studio, is now in my office. I think that I went in a meeting today with a top 20 insurance company and the first thing that gentlemen said to me was, “Hey, that was a great picture in the post last week,” and then he said, “And you are all over the radio.” So, I mean the fact that we’ve been off for a month doesn’t make a difference, but if your WABC was, now he heard it and that provides a lot of value. I think we got much more branding value out of…

Thank you. This does conclude our question-and-answer session. I’d now like to turn the call back over to Barry Sloane, sir?

Thank you, I appreciate everyone tuning into the call. We had a great audience, great questions and I also thank you for your patience and investor participation and look forward to reporting good results on the third quarter. Thank you very much.

Ladies and gentlemen, this does concludes your conference. You all may disconnect and have a good day.