NewtekOne's Third Quarter Tests Whether Its Costly Shift To Balance-Sheet Lending Pays Off

NewtekOne is asking shareholders to accept less money now in exchange for steadier money later, and the market has not been patient. Since the company said last quarter that it would hold more SBA 7(a) guaranteed loans on its balance sheet rather than sell them for upfront gains, the stock has fallen roughly 26% while the S&P 500 was essentially flat. The September-quarter report is the first full look at what that trade-off costs and whether the recurring income it is meant to build is arriving on schedule.

The Street is braced for a sharp step down. Consensus calls for earnings of $0.40 per share on revenue of about $74.9 million, which would be a 40% drop in EPS and a nearly 25% decline in revenue from a year ago, and a meaningful slide from the $0.47 and $106.4 million posted last quarter. That contraction is largely self-inflicted. Gain-on-sale income has historically been a big driver of NewtekOne's revenue, and keeping guaranteed loans instead of selling them pulls that revenue forward into future net interest income rather than booking it today.

Management has already reset the bar. After repeatedly reaffirming a 2026 EPS midpoint of $2.35 earlier this year, the company put that target under review last quarter and has since cut its 2026 outlook to $1.70 to $1.80 and its 2027 outlook to $2.00 to $2.20, from $2.15 to $2.55 and $2.40 to $2.80, respectively. Full-year consensus of $2.18 for 2026 and $2.36 for 2027 still sits above both new ranges, which suggests some estimates have not fully absorbed the reset. That gap matters: if the quarterly print and commentary anchor firmly to the lower guidance, further downward revisions could follow even if the company hits the $0.40 figure.

The more important question is whether the replacement engine is spinning up. Bank net interest income nearly doubled year over year to $25 million last quarter, deposits climbed to $2.2 billion on a $297 million jump in core consumer balances, and deposit costs were flat to lower. Continued growth in bank NII, stable funding costs, and evidence that SBA Express lending at prime plus 4.5% to 6.5% is gaining traction would validate the strategy. So would progress on the planned $300 million to $400 million securitization out of the bank in the fourth quarter and any concrete movement on the technology licensing deals management described as being in the pipeline. Conversely, a further slide in bank pre-provision profitability, which fell to 4.22% of average assets from 5.25% a year earlier, would suggest the margin math is weaker than hoped.

Credit is the swing factor that could undermine an otherwise orderly transition. Thirty-day past dues and nonperforming loans rose last quarter as a young portfolio seasons, provisions increased, and a $15 million summer-camp loan landed in bankruptcy. Meanwhile, higher rates have dampened borrower appetite for some products, and SBA program changes, including a citizenship requirement and a ban on refinancing merchant cash advances, have weighed on 7(a) volume. Holding more loans means owning more of that credit risk, so any acceleration in delinquencies would land harder than it used to.

Sentiment has soured considerably, moving to 40.4% bearish from 16.5% heading into the last report, and the stock at $10.93 trades well below its 200-day moving average of $12.90 and only a few percent above its post-earnings low of $10.56. Expectations are clearly low. The report will turn on a single question: can NewtekOne show that net interest income growth and contained credit losses are on track to carry the lower guidance, or is the reset itself still a moving target?

This earnings preview was originally published on Earnings Whispers.

This article is for informational purposes only and is not investment advice. Earnings Whispers and its staff may hold positions in the securities mentioned. It was generated automatically, with the help of AI, from Earnings Whispers and company data, and checked by Earnings Whispers before publication.