The theme of the call was perseverance through financial service sector volatility. It was not “things were bad because of this.” It was “things were good despite this.”
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1. Demand
SoFi beat revenue estimates by 3.3% and beat its guidance by 2.9%. This was a record quarter for sequential member adds.
Demand Context:
- Lending revenue rose 29% Y/Y, tech revenue rose 4% Y/Y (8% Q/Q), financial service revenue rose 223% Y/Y
- 2nd highest quarter for new product adds and a record setting quarter for new members.
- Financial service products up 47% Y/Y and lending products up 25% Y/Y.
2. Margins
- Beat EBITDA estimates by 35.9% & beat guidance by 39.6%.
- Beat EPS estimates by a penny.
Fair Value Credit Markings:
SoFi added a table showing the variables and data guiding its markings to offer more clarity on that matter. As you can see, weighted coupon continues to rise Q/Q while defaults and pre-payments are steady. Discount rate rose for personal loans this quarter (I’m sure analysts will love seeing that) and fell a bit for student loans.
- Personal loan volume impressively rose 51% Y/Y to offset -1% Y/Y student loan volume growth and -27% Y/Y home loan volume growth.
- 103% Y/Y growth in net interest income was driven by higher loan balances and net interest margin expansion via higher weighted coupons, strong loss rates and a shift from warehouse funded credit to deposit funded credit (cheaper capital).
Credit Quality & Fair Value Markings:
Despite rapid volume growth, net charge off rate for personal loans FELL Q/Q to 2.94%. Its annual default and 90 day delinquency rates are steady. Furthermore, SoFi’s fair value markings (which offer a sense of expected gain on sale margin) fell for all 3 lending segments. Analysts will love that. For personal loans specifically, markings fell from 104.3 to 104.1 as discount rates rose with more rate hikes (offset by higher coupon & falling prepayment rate). Student loan markings went from 102.6 to 101.9 as well. Home loans are now marked at 89.2. A few added notes on just how safe and conservative these markings truly are: