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SOFI

SoFi: capital buffer thins as 2027 guidance bets on rate rises

Sources (2)
  • Bad news: CET1 fell to 16.9% from 20.0% a year earlier, still well above the 10.5% regulatory minimum, as more loans stay on the balance sheet.
  • Mixed: 2027 guidance of about $6.4 billion revenue assumes two rate rises; it fails if the Fed does not raise rates or cuts.
  • Bad news: SoFi Plus had 273,000 members, about 1.2% of products, and Noto admitted growth was below expectations.

What we watchWhether quarterly profit growth outpaces risk-weighted asset growth, so the no-fundraising pledge holds.

Read the full notes

There was no new announcement today (no new filings on EDGAR since the 8-K of 27 Oct, and no new Form 4 since 22 Oct), so we fill in three points from the Q3 results. (1) The capital buffer is thinning. CET1 has fallen to 16.9% from 20.0% a year earlier, and the total capital ratio is 17.0% (20.2% a year earlier).

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Risk-weighted assets are $56.2 billion, up 68% year on year, and down 180bp quarter on quarter on the CFO's basis. That is still well above the 10.5% regulatory minimum, but management has deliberately kept more loans on its balance sheet (loan platform business revenue fell 9%), so risk-weighted assets are growing faster than retained profit. For the 2027 pledge of no fundraising and no dilution to hold, quarterly profit must keep growing quickly or loan sales must be stepped up again. (2) The 2027 guidance of revenue of about $6.4 billion and net income of $1.28 billion assumes two rate rises and a 24% tax rate, with net interest margin staying above 5% (it was 6.14% in Q3). The deposit funding side has a cost advantage when rates rise, but the guidance assumption fails if the Fed does not raise rates in 2027, or even cuts. Personal loan origination fees were about $271 million in Q3, and more than half of new personal loans carried an origination fee. (3) SoFi Plus, relaunched in Q2 as a paid subscription, had 273,000 members at the end of Q3, only about 1.2% of the 23.24 million financial services products. Noto admitted that growth was below expectations. Revenue per product is $90 (against $104 a year earlier), so monetisation per product is weak. The assumed maximum cumulative net loss on personal loans is unchanged at 7-8%, and the 90-day delinquency rate is broadly flat on a year earlier.

Key evidence

  • Common equity tier 1 (CET1) ratio of 16.9%, against 20.0% a year earlier (8-K earnings exhibit, table 9)
  • Total capital ratio of 17.0%, against 20.2% a year earlier
  • Risk-weighted assets of $56.2 billion, up 68% year on year
  • On the CFO's call: down about 180 basis points from the previous quarter, but still well above the 10.5% regulatory minimum (Couch Investor transcript)
  • Loan platform business revenue fell 9%, as management deliberately kept more loans on the balance sheet
  • 2027 guidance of revenue of about $6.4 billion and net income of $1.28 billion, assuming two rate rises and a 24% tax rate (as stated on the call)
Show 9 more
  • Management expects net interest margin to stay above 5%, against 6.14% in Q3
  • Personal loan origination fees were about $271 million in Q3, and more than half of new personal loans carried an origination fee (third-party transcript)
  • SoFi Plus was relaunched in Q2 and fully converted to a paid subscription
  • SoFi Plus had 273,000 members at the end of Q3 (earnings exhibit), only about 1.2% of the 23.24 million financial services products
  • Revenue per product of $90, against $104 a year earlier
  • Noto on the call: SoFi Plus growth in the third quarter was below expectations
  • The assumed maximum cumulative net loss on personal loans is 7-8%, in line with underwriting tolerance
  • The on-balance-sheet 90-day delinquency rate is broadly flat on a year earlier
  • The debit card spending index on 19 Oct pointed to tight consumer budgets, but this has not yet fed through to SoFi's loan quality

Catalysts to watch

  • Whether the 2027 pledge of no fundraising and no dilution holds (watch the gap between quarterly profit growth and risk-weighted asset growth)
  • The Fed's rate path in 2027 (the guidance assumes two rises)
  • Whether SoFi Plus paid membership growth picks up (monetisation moving from $90 back towards $104)
  • Whether loan quality is affected (whether tight consumer budgets show up in the 90-day delinquency rate and net losses)
  • Whether loan sales are stepped up again (whether loan platform business revenue recovers)

Risks

  • The capital buffer is falling by about 1-2 percentage points a quarter, and the pledge not to raise funds over the long term depends on profit growth continuing to outpace risk-weighted asset growth
  • The 2027 guidance bets on two rate rises. If the Fed does not raise rates, or even cuts, net interest margin and net income face downgrades
  • SoFi Plus has been slow to start as a way of monetising each product, and weak ARPU in financial services will be hard to fix
  • Personal loan origination fees make up a large share of fee income, so it depends on origination volumes
  • The macro signal of tight consumer budgets has not yet fed through, but there is a tail risk (the 7-8% maximum cumulative net loss assumption)

Sources 2

  1. SEC EDGAR 8-K (0001818874-26-000065), earnings exhibit, table 9
  2. Couch Investor third-party transcript of the Q3 call (quotes from the CFO and Noto)

A brief is a lead for our research, not a verified conclusion or advice.