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Cash & Chaos
SoFi Q3 2026: deposits power growth, credit sets the test
Oct 27, 2026
SoFi Q3 2026: deposits power growth, credit sets the test
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Transcript
0:00
Welcome to Cash and Chaos. Today, we're breaking down SoFi's third-quarter earnings released on October twenty-seventh, twenty twenty-six. The headline is strong. Revenue rose forty-four percent.
0:14
Net income rose seventy-three percent, and management put out a twenty twenty-seven outlook calling for six point four billion dollars in adjusted revenue. But there's a more useful question underneath those numbers.
0:28
Is SoFi becoming a more diversified financial platform, or is it becoming a much more effective lender? This quarter's answer is that both things are happening.
0:38
The second one, though, supplied most of the immediate growth. Deposits made the lending engine cheaper to fund.
0:46
Loan activity drove a large part of fee growth, and the technology business was still working its way back from losing a major client. Let's start with what SoFi actually earned.
0:57
For the three months ended September thirtieth, revenue under standard accounting rules was about one point three nine billion dollars. Net income was two hundred and forty-one million dollars.
1:09
That compares with about one hundred and thirty-nine million a year earlier. The important comparison is how much of each revenue dollar remained as profit. A year ago, SoFi kept about fourteen and a half cents.
1:22
This quarter, it kept about seventeen and a half cents. That improvement is real operating progress. Here's the bridge in plain English. Revenue increased by roughly four hundred and twenty-three million dollars.
1:36
Non-interest operating expenses increased by about two hundred and forty-nine million. The provision for credit losses rose by another six million.
1:45
Revenue therefore grew considerably faster than those costs, and pre-tax profit more than doubled. Taxes then took a much larger bite.
1:55
Income tax expense increased from about nine million dollars to seventy-seven million. That absorbed around sixty-eight million dollars of the pre-tax improvement.
2:06
So the after-tax growth rate understates how much the pre-tax business improved. Equally, it would be a mistake to assume that last year's unusually small tax expense is the normal baseline.
2:19
There are two adjusted measures worth separating here. Adjusted net income was two hundred and forty-three million dollars, only about two million above standard accounting net income. That is a small gap this quarter.
2:32
Adjusted EBITDA was much larger at roughly four hundred and seventy million dollars. That calculation adds back taxes, depreciation, share-based expense, and other specified items.
2:45
It is useful for the company's chosen operating comparison. It is not the amount of cash shareholders could simply take out of the business. The balance sheet also shows less cash than at the end of December.
2:59
That is a nine-month comparison, not a quarterly cash flow result. Deposits and loan deployment move a lender's cash balances, so the change alone does not tell us how much free cash flow it generated.
3:11
This release does not contain a complete cash flow statement, and we are not substituting an EBITDA figure for one. Now to the deposit engine.
3:21
Net interest income is the money SoFi earns on interest-bearing assets after paying its funding costs. It reached about nine hundred and twenty-nine million dollars, up fifty-nine percent from a year earlier.
3:33
That increase supplied approximately four-fifths of the entire increase in SoFi's standard accounting revenue. That's our calculation from the release. It tells you where the biggest economic change happened.
3:45
There were two forces behind it. Average interest earning assets grew fifty-one percent. Meanwhile, the company's funding cost fell much more than its asset yield did.
3:57
SoFi had more assets earning money, and the spread between what it earned and what it paid improved. Deposits are central to that story.
4:05
They increased by about five point eight billion during the quarter, finishing at fifty-one point three billion. Average deposits represented ninety percent of average liabilities. Why does that matter?
4:19
Imagine financing a loan book with two different sources. One is customer deposits. The other is warehouse financing.
4:27
In this quarter, SoFi says its average deposit rate was one point four five percentage points below its warehouse facility rate. That difference helps the bank retain more of its loan income.
4:39
Management estimates the funding mix produces around seven hundred and forty-five million dollars of annualized interest expense savings compared with warehouse funding. Keep the time period and comparison straight.
4:52
That is an annualized company estimate against a different funding source. It is not an extra seven hundred and forty-five million dollars of quarterly profit.
5:02
The net interest margin was six point one four percent, improving from the previous quarter. The bank charter and deposit gathering are doing economically useful work.
5:12
The continuing test is whether SoFi can attract the deposits it needs at attractive prices while keeping the loans sound. Next, the fee business. This is where the diversification story needs a little more precision.
5:26
SoFi's company-defined fee-based revenue was about five hundred and seventy-one million dollars. That was up twenty-one percent from the previous quarter and about forty percent from a year earlier.
5:38
But calling revenue a fee does not automatically make it independent of lending. Loan origination fees increased by roughly one hundred and sixty-six million dollars compared with last year.
5:50
The entire fee-based measure increased by about one hundred and sixty-two million. In other words, the increase in origination fees was larger than the net increase in the whole fee business.
6:02
Gains in some categories were partly offset by declines elsewhere. Nearly half of the quarter's fee-based revenue came from origination fees alone. This does not make the growth low quality by definition.
6:15
It tells us what the growth depends on. Borrowers need to want loans, SoFi needs to originate them on sensible terms.
6:22
And where outside partners are buying or funding the loans, those partners need to remain willing participants. The loan platform business helps SoFi earn revenue without retaining every loan.
6:35
Originations through that business reached about three point eight billion dollars this quarter. That is a useful way of expanding activity while sharing the financing burden with others.
6:46
There is still a qualification in the fee table. Total loan platform fees were lower than a year earlier, even though recent origination volumes grew sequentially. Interchange and brokerage fees increased strongly.
7:00
So there are several moving parts rather than one uniform fee growth trend. Also, don't add the fee-based measure to standard accounting non-interest income or to financial services revenue.
7:13
There are different ways of presenting overlapping business activity. What do the actual business segments show? Lending was the strongest growth contributor.
7:22
Its adjusted revenue increased sixty-eight percent and its contribution profit increased seventy-four percent. Financial services grew revenue twenty-five percent.
7:34
Its contribution profit grew sixteen percent, a slower pace. Its contribution margin fell from fifty-four percent to fifty percent. That means the additional products and activity were useful, but costs also grew.
7:50
Signing someone up is the beginning of the economics. The relationship still has to produce enough revenue to cover acquiring and serving that customer.
7:59
The technology platform is the weaker part of a year-over-year picture. Revenue increased three percent from the previous quarter, but it was still down twenty-four percent compared with last year.
8:12
A large client had left the platform. Management says revenue grew eighteen percent if you remove that client from both periods. That helps us understand how the remaining customer base performed.
8:24
It does not undo the twenty-four percent decline in actual reported revenue.
8:29
The technology business is making sequential progress, but it has not recovered its previous revenue base, and its contribution profit was much lower than a year earlier.
8:40
Those segment contribution profits are not standalone net income figures. Corporate costs and intercompany eliminations still sit between the segment presentation and the consolidated result. Now the credit numbers.
8:54
There are three different types of percentage here, and mixing them up produces a much more comforting story than the evidence supports.
9:02
First, the reported annualized personal loan net charge-off rate fell from two point six percent to two point two six percent. That is encouraging.
9:12
But the dollar losses in the same table increased from about one hundred and thirty-seven million to one hundred and seventy-four million dollars. Average personal loan balances grew faster than the losses did.
9:24
Think of a much larger pool with more dollars of losses, but a smaller percentage lost. Both statements can be true. The rate tells you one thing. The dollar total tells you another.
9:36
Second, SoFi provides a broader estimate that removes the effect of selling late-stage delinquent loans and includes recoveries.
9:45
On that basis, the annualized personal loan net charge-off rate would have been approximately three point four percent. It improved from three point seven percent in the previous quarter.
9:57
That estimate is a useful companion to the reported rate because selling delinquent loans affects the comparison. Management also says growth in average loans helped lower the rate.
10:08
New loan balances enter the denominator before their full credit experience has played out. Third, the company discusses a seven to eight percent maximum cumulative loss assumption for personal loans.
10:21
That is about losses over the lifetime of a loan cohort. It is not an annual charge-off rate. There is another useful cross-check in the fair value assumptions.
10:31
The weighted average annual default assumption for personal loans increased from four point seven seven percent at the end of June to five point one zero percent at the end of September.
10:43
A model's assumed defaults are not the same as realized net charge-offs. They also differ from lifetime cumulative losses.
10:51
The sensible conclusion is that observed credit metrics improved while loan seasoning and valuation assumptions still deserve attention. We do not need to force all three measures into one number.
11:04
What about customers and dilution? Members reached seventeen point one million. Products reached twenty-six point seven million.
11:12
Existing members opened just over half of in new products during the quarter, supporting the argument that SoFi can sell additional services to people it already knows. But products are not equal units of economic value.
11:27
The definitions changed in twenty twenty-six, including changes in Invest and the addition of paid plus subscriptions to the count. Some account categories can include zero balances or inactive relationships.
11:42
Revenue and profit remain the checks on whether that product growth is paying off. Share count matters as well. The average diluted share count increased about five percent from a year earlier.
11:54
That helps explain why earnings per share grew more slowly than net income. The profit is being divided among more shares.
12:02
And the fact that both standard and adjusted earnings rounded to eighteen cents does not mean the calculations were identical.
12:09
The adjusted calculation excludes specified convertible note dilution covered by cap call arrangements. Finally, let's put the guidance changes in perspective.
12:20
In July, the midpoint of SoFi's twenty twenty-six adjusted revenue range was four point eight billion dollars. It is now five point zero four billion. That is a five percent increase.
12:33
The full year adjusted net income outlook increased by less than two percent, and the adjusted earnings per share outlook increased from sixty cents to sixty-one cents.
12:44
So the stronger revenue outlook did not translate into an equally large increase in this year's expected per share earnings.
12:52
For twenty twenty-seven, management expects six point four billion dollars of adjusted revenue, one point two eight billion of adjusted net income, and ninety cents of adjusted earnings per share.
13:04
Against the updated twenty twenty-six outlook, that means roughly twenty-seven percent revenue growth, fifty-two percent adjusted net income growth, and forty-eight percent earnings per share growth.
13:16
The key consequence is the margin. Management is effectively asking the business to keep twenty cents of adjusted net income from each revenue dollar, compared with roughly seventeen cents in this year's outlook.
13:29
Those are forecasts. They require continued growth and better profit conversion. They are also adjusted forecasts. Management has not supplied a full forward-looking reconciliation to standard accounting results.
13:43
Our reading of the quarter is that SoFi has become better at funding growth and turning revenue into profit. Deposits are a meaningful advantage. Fees are growing. Customer relationships are broadening.
13:56
The dependencies are equally specific. Loan demand and outside buyers still matter. Recent loans need to perform as they mature.
14:05
The deposit advantage has to survive competition, and the expected profit expansion has to arrive after the cost of growth. A recovery in the technology business would broaden the engine further.
14:18
For this quarter, though, deposit funded lending did most of the heavy lifting. That's the SoFi earnings breakdown from Cash and Chaos.
14:27
The accompanying article includes the original company release, the comparison tables, and the calculation details.
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