SoFi Q2 Earnings Boosted by Personal Loan Growth, Net Interest Income

No-moat-rated SoFi technologies reported solid second-quarter earnings as weak student loan origination was offset by personal loans and deposit growth that came in well above our expectations. SoFi’s net revenue grew 57% year over year and 9.7% from last quarter to $362.5 million. As we incorporate these results, we do not expect to materially alter our $15 fair value estimate for SoFi.

SoFi Sees Strong Growth in Deposits

SoFi’s lending business, which remains the firm’s largest segment, saw its revenue grow 55% from last year to $257 million. The segment continues to benefit from rapid growth in net interest income, which rose 101% year over year and 21% quarter over quarter to $114 million. Increasing net interest income was one of the primary goals behind SoFi’s acquisition of a national bank charter as it allows SoFi to retain its client’s deposits and use them to finance its lending arm. Deposit growth impressed during the quarter, rising 135% from last quarter to $2.7 billion. We had expected the high rates offered by SoFi’s bank accounts to act as a tailwind to the firm’s deposit gathering efforts, but these results are impressive, with deposits now making up roughly 40% of the company’s total funding.

SoFi Personal Loan Origination Up 91%

SoFi’s loan origination volume was more mixed, with total origination rising 8.7% from last year but falling 3.4% from last quarter. Personal loans remained strong, with origination rising 91% from last year to $2.5 billion. This was offset by weakness student loans and mortgage origination which fell 54% and 58%, respectively, to $399 million and $332 million. Federal student loan forbearance remains a major headwind to SoFi, with student loan volume during the quarter coming in at around 25% of pre-pandemic volume. While forbearance is slated to end Aug. 31, our current projections include an assumed extension into 2023 as student loan servicers have been told not to send billing notices to borrowers. This means forbearance will likely remain an ongoing headwind for SoFi in 2022.