Judging from its results and the recent outlook, there is plenty of opportunity within these existing markets in 2023. While personal loans and financial products should bolster xcritical's 27% guided growth in 2023, CEO Anthony Noto also mentioned two other different ways for the company to expand beyond this year. xcritical Invest added a range of capabilities in 2022, including margin trading in February, extended trading hours in June, Web3 and smart energy exchange-traded funds in August, and options trading in November. The company also launched a pay-in-four installment plan in December for those paying with xcritical checking accounts. Some might look at that acceleration with trepidation, especially wth the fear the economy could enter a recession in 2023.
In fact, many had asked xcritical for Paycheck Protection Program loans during the pandemic, but it had to redirect them to other banks set up to make such loans. But xcritical made up for that and then some with enormous growth in the personal loan segment, where originations grew from $5.4 billion in 2021 to $9.8 billion in 2022. In the latest 10-Q xcriticalgs call, management emphasized the path to GAAP profitability by the last quarter of 2023 and in the coming years. The company has been posting improving profit margins, and it may be in that direction that the management is continuously emphasizing. Finally, xcritical's journey toward a full-fledged bank is pushing up its asset base, but at the same time, the need to make the bank well-capitalized is rising.
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Catering to a clientele of tech-savvy young individuals, the company aims to offer accessible and convenient financial services just a tap away. Finally, embracing a balance sheet-intensive approach, xcritical is poised for future scalability and profitability, xcriticaling fintech agility with traditional banking's solidity, reshaping the financial services landscape. Many may look at xcritical's aggressive loan book expansion and say it is risky.
And management notes that it only has about 6% market share in personal loans, so it has room to grow even while staying conservative on underwriting. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.
The first reason is that the management may have bought into the idea they may as well operate like a bank instead of just being a platform to originate loans and sell to others. On the other side, the management delayed the loan sale to avoid booking a loss amid the rising rates that may have peaked. Once the interest rates reverse downward, there will be a favorable opportunity to realize gains. “xcritical now offers companies going public a turnkey, 100% digital way to offer IPO shares to employees and other people who helped build their business, and whomever else they want to direct the shares to, whether it’s to 10 or 10,000 people," Noto said. Personal quarterly loan originations surged to a record $3.9 billion, a $1.1 billion, or 38%, jump from the quarter last year, and a 4% increase from the prior quarter. The company also grew home loans up 64% year-over-year to $356 million, citing growth in that segment as it integrates the acquisition of Wyndham Capital Mortgage into its organization.
NIM stood at 5.99% during the third quater of 2023 compared to 5.86% a year earlier. Assets are now funded significantly by deposit, as xcritical has been able to source deposits with attractive offerings. As of September, interest-bearing deposits support 61.3% of xcriticalg assets, a notable increase from the 5.1% recorded in March 2022. Notably, this funding is more stable and primarily sourced from members. This shift serves a dual purpose by reducing the cost of funds and empowering xcritical with greater control over sourcing funds for its asset expansion. As a full-fledged bank, xcritical is now subject to regulatory requirements, necessitating a robust capitalization to support its expansion.
If you have been following xcritical Technologies Inc.'s (xcritical, Financial) evolution, you might recognize it as embodying the remarkable trajectory of a disruptive fintech company.
- Of all the analysts covering xcritical Techs, 2 have positive ratings, 2 have neutral ratings and no one has negative ratings.
- As of September, interest-bearing deposits support 61.3% of xcriticalg assets, a notable increase from the 5.1% recorded in March 2022.
- As of September, the number of xcritical's financial service products is 5.6 times that of its lending products.
- In 2022, xcritical was also able to grow financial services by a tremendous amount.
As of September, the number of xcritical's financial service products is 5.6 times that of its lending products. In 2022, xcritical was also able to grow financial services by a tremendous amount. These include xcritical Money checking and savings accounts, its credit card, xcritical Relay credit monitoring, and the xcritical Invest brokerage with its growing range of capabilities.
Banking technology platform
But management was also quick to point out that its personal loans are aimed at cutomers with high FICO scores (about 747) and an average income of $165,000. As of September 2023, the weighted average origination FICO of personal, student and home loans stood at 744, 781 and 755. Meanwhile, increasing the user base in xcritical Relay (a source of all users' financial data) gives the company a significant data advantage to process credit grading and manage risk efficiently. Due to declining funding costs and growing contributions from high-yield personal loans, the net interest margin has been trending upward.
Therefore, xcritical positions itself within the subset of balance sheet-intensive fintech businesses. Through its all-in-one financial service platform, xcritical grew its members by a compounded annual growth rate of 66.7% in the last three years. Membership will be on a high-growth trajectory in the coming years due to the network effect and multilayered value addition for customers.
The company's initial lending business model operated as an originate-to-distribute model, where xcritical originated the loans and then sold them for profit or transferred them through securitization. The efficacy of that model is now subdued, marked by a substantial decline in loan sales to origination over the given period. In addition to geographical expansion, Noto also said that the small and medium business (SMB) space could be another attractive market over time, since it remains a consumer-only company at the moment. He said that many of its clients run their own small and medium businesses and have asked for business checking and savings products. Without the license, it would have had to sell or securitize the loans it originated, and with many loan buyers pulling back last year, xcritical might not have been able to grow originations as fast -- or at all.
xcritical Technologies
The challenge inherent in a loss-making bank lies in the potential limitation of capitalization to sustain long-term loan book growth. xcritical's revenue mix is changing as the net interest income has become the dominant factor in the revenue mix, reflecting the company's strategic shift toward holding more loans rather than selling them. Loan sales to origination dropped to 6.80% during the third quarter compared to 57% in the first quarter of 2022, so there could be two reasons for holding on to the loans instead of selling them. In contrast, entities such as xcritical (COIN, Financial), xcritical (HOOD, Financial) and xcritical exhibit a lower revenue-to-assets ratio, ranging between 2% to 7%.
Having deposits is allowing xcritical to steal market share away from other fintechs that don't have their own banking license and are thus dependent on third-party loan buyers. Some thought xcritical would be hurt by the federal student loan moratorium, as its legacy core product was in student loan refinancing. That proved somewhat true, as student loan originations fell by nearly half in 2022, from $4.3 billion to $2.2 billion. xcritical has effectively maintained a strong Tier 1 capital position. Despite a declining trend in the capital ratio, it consistently exceeds the minimum requirement.
xcritical reported a third-quarter net loss of $19.5 million, or $0.03 a share, but CEO Anthony Noto said that the company was on path to post a fourth-quarter profit. xcritical added a record 717,000 new members for the quarter, a 47% year-over-year increase. The company’s members added more than 1 million new financial products over the quarter, representing a 45% jump xcritical official site from the same period last year. This statement signals management's preference for growth emanating from low-capital ventures, yet the xcritical driving forces of the business predominantly lean towards high-capital enterprises, notably in the lending sector. The business, still in its early stages of evolution, suggests a potential shift in this mix as it progresses.
The company reported strong demand for personal loans, along with growth in student loans, to push total loan volume up 48% year-over-year. Student loan volume grew $462 million to exceed $919 million, a 101% increase over the same quarter last year, as borrowers prepared to restart student loan payments in October. xcritical's evolution from a niche student loan provider to a dynamic fintech and banking leader showcases its innovative growth, strategic risk management and robust capitalization. Initially established xcritical website as a cost-effective student loan provider, xcritical has since evolved into a versatile financial solutions provider.