Demand for personal loans, direct deposit accounts and “cross-buy” opportunities boosted SoFi Technologies’ results despite macro headwinds.
Total deposits at SoFi Bank grew 46% sequentially during the fourth quarter to $7.3 billion. Management said on the conference call that 88% of SoFi Money deposits — across checking, savings and SoFi Money cash management – came from direct deposit members.
Management noted that roughly half of newly funded SoFi Money accounts set up direct deposit within 30 days of setting up the accounts.
According to commentary from the call, those accounts provide significant conduits to lifting transaction activity among members.
The average spending in the fourth quarter was up 25% over the third quarter.
Investors cheered the results, bidding the stock up about 15% at the market open on Monday.
Personal loan originations of nearly $2.5 billion in the fourth quarter of 2022 were up nearly $820 million, or 50%, and offset 72% declines and 84% declines in student loans and home lending, respectively.
During the call with analysts, CEO Anthony Noto said that the diversification of revenue streams and the fact that the company obtained a national bank license last year allowed SoFi “to be incredibly flexible in a rapidly changing environment.”
He added that the aforementioned deposit activity “bolsters and diversifies our sources of funding, enabling us to offer our best rates on loans while generating impressive returns and improving net interest income revenue.” By using deposits as a funding source, he said, the company benefitted, and continues to benefit, from a lower cost of funding for loans.
Drilling down a bit into customer profiles, he said that the total roster of SoFi Money members had increased more than 53% year on year to 2.2 million.
And, given that these members have strong FICO scores, at 745, there is “ample opportunity,” in Noto’s language, for cross-selling. Thus, net revenues in Financial Services tripled year on year to $64 million.
Management also noted on the call the Technology Platform also saw strong results, with Galileo accounts growing to more than 130 million from under 100 million last year. In the fourth quarter, Galileo assigned 11 new clients 36% of new deals were in B2B — and 27% of new deals came from outside the United States.
Chief Financial Officer Chris Lapointe said, “our personal loan borrower’s weighted average income is $165,000 with a weighted average FICO score of 747. Our student loan borrowers weighted average income is $170,000 with a weighted average FICO 773. This focus on quality has led to continued strong credit performance.”
He said that delinquency and charge-off rates “remain healthy” and are still below pre-COVID levels. In the quarter, the on-balance-sheet 90-day personal loan delinquency rate was 34 basis points.
Management also noted on the call that there is ample headroom for growth in personal loans — where the company has a roughly 6% share in what Noto called the company’s “credit box,” up from 4.5% last year. Looking ahead, according to remarks made during the question and answer session, there are also opportunities to leverage other deposits, such as small to medium-sized businesses (aided by the fact that SoFi has a banking license already in place).
Noto also noted that another business line that could open up “is if the IPO market opens up, we can underwrite IPOs … we’re the sole retail distribution channel for the Riviana IPO … our members want access to IPOs, and we’re providing Main Street with access to IPOs.” And with a nod to B2B-focused partners, the company has been broadening its fraud protection offerings for Galileo partners and helping firms launch new financial products into their own markets.
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