SoFi buying small California bank for $22.3 million

Social Finance announced Tuesday that it has reached an agreement to buy a small bank in California, a move designed to hasten the online lender’s quest to obtain a bank charter.

SoFi said that it will pay $22.3 million in cash for Golden Pacific Bank and its holding company in a transaction expected to close before the end of 2021. The Sacramento-based bank has three branches and about $150 million of assets.

Last October, SoFi received preliminary conditional approval from the Office of the Comptroller of the Currency to start its own bank. The deal announced Tuesday will enable SoFi to switch from a de novo application to a change of control application, which is generally seen as a faster route to a bank charter than starting from scratch.

Bloomberg

CEO Anthony Noto said in a press release that the acquisition will enable SoFi to “accelerate our pursuit to establish a national bank subsidiary.”

Assuming SoFi obtains the necessary regulatory approvals, the San Francisco-based fintech plans to contribute $750 million in capital to SoFi Bank, and to pursue a plan to build a nationwide digital banking operation. Paul Mayer, a former executive at Sallie Mae, Navient and Cross River Bank, is expected to serve as the bank’s president.

SoFi plans to keep operating Golden Pacific’s community bank business and its branches as a division of SoFi Bank.

“We will continue our commitment to bringing more services and convenience for our individual customers, small businesses and the communities that we serve in Sacramento and surrounding counties,” Golden Pacific President and CEO Virginia Varela, who will remain at the helm of the business, said in the release.

SoFi, founded in 2011 with a focus on refinancing student loans, has since expanded into mortgages, personal loans, credit cards, deposit accounts and investment products, focusing on young, well-to-do consumers. In January, SoFi announced plans to go public via a merger with a blank-check company that values the firm at $8.65 billion.

SoFi first applied in 2017 to become a Utah-based industrial bank, but quickly withdrew its application amid a scandal that forced the departure of CEO Mike Cagney.

In July 2020, SoFi filed a de novo bank application with the OCC, following a path blazed by the neobank Varo Money. After getting the OCC’s preliminary conditional approval three months later, the company was expected to apply for Federal Reserve membership and to seek deposit insurance from the Federal Deposit Insurance Corp.

SoFi said Tuesday that it expects to file an application soon with the Fed for bank holding company status. And together with Golden Pacific, SoFi plans to file an updated business plan with the OCC.

Last October, the OCC stated that SoFi Bank’s initial paid-in capital was to be no less than $550 million. That’s $200 million less than what SoFi pledged Tuesday to contribute.

Golden Pacific is an OCC-regulated national bank that reported a $50,000 loss last year after earning $333,000 in 2019.

The bank charter, if approved, figures to bring several benefits to SoFi. It should lower the company’s cost of funds, which are considerably higher than banks', and it could make it easier for SoFi, over time, to offer more deposit products.

SoFi would also be able to operate under a single set of regulatory standards, rather than the 50-state scheme that applies to nonbank lenders, which should result in cost savings.

A slew of fintechs have sought to obtain bank charters in the last couple of years, either by starting a new depository or acquiring one. Firms that have taken the latter route include the online lender LendingClub, which in February completed its acquisition of Radius Bancorp in Boston.

Piper Sandler and Wachtell, Rosen, Lipton & Katz advised SoFi. Janney Montgomery Scott and Hogan Lovells advised Golden Pacific.