NEWT — NewtekOne, Inc. · 2026-09-09 · Verdict: PASS · Conviction 4
Price $12.33 (screen close, 2026-09-09) · Mkt cap $356M · EV $515M (screen basis, excludes $2.15B deposits) · EV/EBIT n/m for a bank · FCF yield n/m · Net debt $159M · ADV $3.3M Sources read: 10-K 2026-03-10 (Items 1, 1A, 7), 10-Q 2026-08-10, DEF 14A 2026-04-24, 8-Ks 2026-04-30, 2026-06-12, 2026-08-06, 2026-08-14, Form 4s (12m), Q2 2026 call transcript.
Desk stats - Revenue trend. Net interest income plus noninterest income was $284.8M in FY2025 vs $257.6M in FY2024, up 10.6%; Q2 2026 $75.1M vs $70.2M, up 7.0% (8-K 2026-08-06). Volume, not price: average earning assets rose 49% year over year while earning-asset yield fell from 7.81% to 6.64% (10-Q Q2 2026). - Normalised after-tax profit. GAAP trailing-twelve-month pre-tax income $85.8M (Q3 2025 $25.1M, Q4 2025 $24.5M, Q1 2026 $17.1M, Q2 2026 $19.2M). Remove net gain on residuals in securitizations, $56.7M, a Level 3 mark on first-loss certificates of the company's own 2025-1 and 2026-1 ALP trusts (10-K Item 7; 10-Q Q2 2026). Remove net gain on loans under the fair value option, $25.9M, already net of the $66.4M reversal the January 2026 securitization triggered (10-Q Q2 2026). Net loss on loan servicing assets, minus $20.1M, is not added back: it is the recurring amortisation cost of the gain-on-sale model. Normalised pre-tax $23.3M; at 25% tax, normalised after-tax $17.5M against GAAP TTM net income of $65.5M ($61.5M to common). - EV / normalised after-tax profit. 29x on the screen's EV; the honest bank equivalent is P / normalised after-tax profit 20.4x, against 5.8x on GAAP. Upper bound: FY2025 disclosed $34.7M of fair-value gains on SBA 7(a) guaranteed strips, Level 2 and realisable near 111% of par (10-K Item 7); if that recurs, normalised after-tax is ~$43M and the multiple ~8x. The 10-Q does not split 1H26, so the range is $17.5M–$43M and I use the low end. - Financial-lane equivalents (no EV/EBIT). P/E 5.8x GAAP, 20.4x normalised; price to tangible book per common share 1.02x ($12.13 at 30 June 2026); ROTCE 15.7% GAAP in Q2 2026, ~5% normalised; tangible book per common share up 15.0% year over year. Bank Tier 1 leverage 8.6%, from 10.3%; holdco unsecured notes $307.1M at 8.00%–8.625%. - Growth sustainable? Organic and deposit-funded in volume (deposits $142M to $2.2B in 14 quarters, Q2 call), but not cash-backed at the profit line, and guidance was pulled, not raised. - What the screen got wrong. Its tangible book of $398.8M includes $48.2M of Series B preferred; tangible common book is $350.7M, so P/TBV is 1.02x, not 0.89x (8-K 2026-08-06, non-GAAP table). Equity/assets 13.0% is likewise pre-preferred; common is 11.5%. The 7.9% dividend yield uses FY2025 dividends paid including preferred; the common run rate is $0.19 a quarter, 6.2%.
1. What the business does
A branchless, technology-led financial holding company for US small businesses, built around Newtek Bank, N.A., acquired January 2023 when the BDC election was withdrawn (10-K Item 1). It originates SBA 7(a) loans (second largest lender by approval volume), SBA 504, CRE, C&I and long-amortising C&I loans; sells the government-guaranteed 7(a) strips at premiums averaging 111.05% of par in 2025; retains servicing; and funds itself with digital deposits gathered without branches or bankers. Alongside sit merchant payments ($5.2B of volume in 2025), payroll and an insurance agency.
2. Why it is mispriced — the edge case
There is a real edge case, but it explains the discount rather than a mispricing. NEWT is an accounting orphan: BDC holders left when the RIC election went in 2023, and bank analysts run it through call-report frameworks that do not fit a company where noninterest income is most of revenue. Sloane says as much: the price is "mostly driven by typical analytics of call reports pushed through models" (Q2 call). Coverage is thin and ADV is $3.3M. But the low multiple is paid for: the screen's 5.9x rests on earnings roughly 73% of which are unrealised marks, and the item producing them now exceeds half of tangible common equity. Correctly discounted, not misunderstood.
3. Credit quality, margin, deposits
Credit is deteriorating faster than the reserve. Nonperforming assets were 4.6% of total assets at December 2024, 5.8% at December 2025 and 8.1% at June 2026 (10-K Item 7; 10-Q Q2 2026). Nonaccruals in the amortized-cost book went 3.9% → 8.8% → 12.1%; 30–89 day past dues doubled to 4.8% in six months. The allowance fell to 4.6% of that book from 5.0%, so reserve coverage of nonaccruals has gone 124% → 57% → 38% in eighteen months. Provisions: $26.2M (2024), $38.7M (2025), $21.7M (1H26). The mitigant is genuine. Much of the increase is repurchased guaranteed 7(a) paper, which keeps its guarantee subject only to repair and denial, and 89% of the allowance sits against unguaranteed 7(a) at 8.56% coverage (Q2 call, Sloane and DeMaria). But the trend runs one way. So does margin: 3.01% (FY2025) → 2.41% (1H26) → 2.15% (Q2 2026), with over $500M parked at the Fed against deposits costing 3.75%. Holding guaranteed paper swaps an 11-point sale premium for a thin spread. The deposit book is the best asset here: $2.15B, 81% insured, loan-to-deposit 90%.
4. Balance sheet and capital allocation
Residuals in securitizations, at fair value, went from zero at December 2024 to $76.7M to $204.0M at June 2026, 58% of tangible common equity of $350.7M. Level 3, 100%-owned trust equity, deliberately unconsolidated. Company Total Capital is 22.0%, but bank Tier 1 leverage fell 10.3% → 8.6% in two quarters as assets grew 50%. The holdco carries $307.1M of unsecured notes at 8.00%–8.625% against bank equity and those residuals, expensive double leverage. Shares went 26.3M to 28.9M, mostly September 2025's exchange of Patriot Financial's Series A preferred plus $10M cash for 2.31M shares (DEF 14A). Insiders bought nine times and sold nothing in twelve months, Sloane taking 16,000 shares at $14.20–$14.27 (Form 4s, 2026-06-15/16). CEO pay is aligned: $1.0M salary, no bonus, no 2025 stock award, 4.7% ownership (DEF 14A).
5. Said versus did
On 30 April 2026 Sloane reaffirmed FY2026 EPS guidance of $2.15–$2.55 and added a 2027 target implying $2.40–$2.80 (8-K 2026-04-30). On 6 August, with 1H26 diluted EPS at $0.90, the company said guidance "is being re-evaluated," and Sloane put the rework at "roughly a 45-day window, maybe up to 60 days" (Q2 call). Ninety-eight days between reaffirming and pulling is a credibility gap.
6. Valuation
Base (50%): marks partly normalise, margin stabilises near 2.4%, provisions ~$45M, sustainable ROTCE 9–10%, tangible common book compounds 6–8%, multiple stays at 1.0x, giving $13.00 plus $0.76 of dividend. Bear (30%): nonaccruals keep climbing, the allowance rebuilds toward full coverage of the unguaranteed nonaccrual book and residual marks are cut as the loans season; a $60–80M hit takes tangible common book to ~$10 and the multiple to 0.7x on a halved dividend, giving $7.00. Bull (20%): the SBA Express pivot lifts spreads, the Fed cash is deployed, credit flattens past 36 months' weighted average life, guidance is reset and beaten, and the market pays 1.5x on 12–13% ROTCE, giving $18.20. Probability-weighted $12.24 against $12.33. Reverse DCF: at 1.02x tangible common book with an 11% cost of equity and 5% growth, the price already implies sustainable ROTCE of about 11%, below the 15.7% reported, above the ~5% my normalised earnings support.
7. Catalysts
Reset FY2026 guidance, due by roughly 5 October 2026. Q3 results in late October. A planned $300–400M securitization out of the bank in Q4 (Q2 call), which will book another large residual mark. Resolution of the $15M Simad Holdings camp loan in bankruptcy, which Sloane expects to recover in full but could not mark on the call.
8. Kill criteria
- Reset FY2026 guidance lands at or above $1.90 with the 2027 growth target intact.
- Allowance divided by nonaccrual loans at amortized cost recovers above 60% for two consecutive quarters (38% at 30 June 2026).
- Residuals fall below 45% of tangible common equity for two consecutive quarters (58% now), or the trusts distribute cash at or above the marked yield.
- Holding-company net interest margin exceeds 2.75% for two consecutive quarters (2.15% in Q2 2026). Other risks: loss of PLP status or an SBA secondary-market restriction; another shutdown (October–November 2025 already cut 2025 originations); a repair-and-denial cycle at NSBF, against which only $10M is reserved.
9. Verdict and summary
PASS, conviction 4. NewtekOne screens at 5.9x earnings and 0.89x tangible book, and both numbers are wrong in the same direction. Tangible book per common share is $12.13, so you pay 1.02x, because the screen counts $48.2M of preferred as common equity. And the earnings are mostly marks: of $85.8M of trailing pre-tax income, $56.7M is the gain booked marking first-loss residual certificates of securitizations the company sponsored and wholly owns, and $25.9M more is fair-value gains on loans it has not sold; strip both, leave in the recurring servicing amortisation, and normalised after-tax profit is about $17.5M, or 20x the market cap and roughly a 5% return on tangible common equity. Those residuals are now $204M, 58% of tangible common equity. Meanwhile nonperforming assets went 4.6% to 8.1% of total assets in eighteen months while reserve coverage of nonaccruals fell 124% to 38%, net interest margin collapsed 3.01% to 2.15% as the company swaps an 11-point sale premium for a thin held spread, and management reaffirmed full-year guidance on 30 April and pulled it on 6 August. The deposit franchise is genuinely good, insiders are buying above today's price, and the bull case is real if the pivot works, but you are paying full tangible book for a bank whose reported returns depend on its own Level 3 marks, and the probability-weighted value lands on the current price. Revisit on the reset guidance in early October, or on two quarters of rebuilding reserve coverage.
Research for discussion, not investment advice. Positions and sizing are the reader's decision.