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SoFi’s banking moves are proving a ‘unique advantage’, says analyst


SoFi Technologies Inc. continues to win praise for its banking efforts after the digital financial services company released an upbeat earnings forecast and touted the benefits of banking charters for its business. broader business.

The acquired a small community bank about a year ago SoFi enabled
cartoon,
+3.74%

become a joint stock bank. At that time, SoFi expected the bank to take action to reduce funding costs and allow for more competitive lending rates, and now latest income The report is showing some early results of its banking efforts.

Jefferies analyst John Hecht wrote in a report Monday night: “SoFi banking continues to enable the flexibility that is proving so valuable in the current macro/rate environment.

He added that SoFi deposits have increased by 46% sequentially “as a result of [SoFi’s] competitive offer with [annual percentage yields] is 3.75% for checks/savings that are consistently revalued to remain competitive.”

Hecht has a buy rating and $8 target price on SoFi stock.

MoffettNathanson analyst Eugene Simuni wrote that the so-called new bank must decide whether to become a “real” bank on its own or partner with a third-party bank to accept deposits. In his view, SoFi’s choice to do the former seems to have paid off.

“After acquiring banking charter, SoFi was able to accelerate the growth of its digital bank account offering deposits increased from ~$1 [billion] up to ~$7.3 [billion] throughout 2022,” he wrote.

By using these deposits to finance loans, he said, SoFi has been able to generate substantial net interest income in its financial services business while also providing financing for its operations. The business lends itself to a stable, low-cost source of capital, which he describes as “a single source of capital.” advantage in a challenging credit market environment.”

While the digital banking sector is getting crowded, Simuni thinks SoFi’s product is “different enough to allow SoFi to become one of the leading players in the field in the next few years.”

He rates the stock as outperformer with a $10 price target.

Keefe, Bruyette & Woods analyst Michael Perito also acknowledged the bank’s contributions, though he would look for other motivations.

“So far, the revenue acceleration has been mainly driven by deposit growth in [SoFi] currency products, to which the financial services segment is allocated contributes revenue to the arbitrage earned on those deposits,” Perito wrote. “We note, however, that capital has declined significantly since the start of the year (15 percent leverage at the bank versus 59% at the bank). [the first quarter of 2022]). To be clear, [SoFi] there’s still plenty of capital today, although we think it’s reasonable to assume that balance sheet growth (and therefore deposit growth) will have to slow in 2023 at a more measured rate from the point of view of capital consumption.”

In his view, SoFi “will need to see meaningful contributions from other sectors to achieve profitability and achieve its lead.” The company said Monday that it expects to hit GAAP profits in the fourth quarter of 2023.

Perito has a market performance rating and a $5 price target for the stock.

SoFi stock rose 12.5% ​​in trading Monday following the earnings report but fell just under 1% in premarket trading on Tuesday.

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