Q3 2023 SoFi Technologies Inc Earnings Call

Hello, and thank you for your patient today's call will begin shortly.

[music].

Good morning, and thank you for attending <unk> third quarter 2023 earnings conference call.

All lines will be need to join the presentation portion of the call there's an opportunity for questions and answers at the end.

At this time I'd now like to turn the conference over to Alex Morris from SIFI Investor Relations. Laura. Please go ahead.

Thank you and good morning, welcome to <unk> third quarter 2023 earnings Conference call.

Joining me today to talk about our results and recent events are Anthony Noto, CEO and Chris The point C. F O U.

You can find the presentation accompanying our earnings release on the Investor Relations section of our website.

Our remarks today will include forward looking statements that are based on our current expectations and forecasts and involve risks and uncertainties.

These statements include but are not limited to our competitive advantage with strategy macroeconomic conditions and outlook future products and services and future business and financial performance.

Our actual results may differ materially from those contemplated by these forward looking statements factor.

Factors that could cause these results to differ materially are described in today's press release and our most recent Form 10-K as filed with the Securities and Exchange Commission as well as our subsequent filings made with the SEC, including our upcoming Form 10-Q.

Any forward looking statements that we make on this call are based on assumptions as of today, we undertake no obligation to update these statements as a result of new information or future events and now I'd like to turn the call over to Anthony.

Thank you and good morning, everyone.

For my formal remarks, I want to take a moment to recognize the devastating tragedy.

Currently taking place in Israel, Gaza and the surrounding regions.

It's been incredibly difficult to witness the acts of terrorism and result in more unfold over the past couple of weeks.

And what is sure to be tough days to come.

The murder of innocent people is unacceptable in any form and it's beyond belief that such actions are unfolding in the world today.

With that let's turn to our third quarter results.

The third quarter at Tso, five marked our 10th consecutive quarter of record revenue and fifth consecutive quarter of record adjusted EBITDA.

We delivered strong diversified growth with record revenue and improved margins across all three of our business segments.

Among our notable achievements in the quarter I want to highlight two major milestones first.

67% of our absolute growth in adjusted net revenue dollars was driven by the non lending businesses, specifically, the technology platform and financial services segments and second.

Our financial services segment achieved positive contribution profit for the first time, making all three reported segments profitable while bolstering our consolidated profitability, even while we continue to invest aggressively for high levels of compounding growth for years to come.

These overall results are a testament to our ability to outperform a difficult we're rapidly changing environments.

But also our ability to deliver on our goals and our overall mission, while maintaining financial discipline and continuously setting new operational and financial records.

Unknown Attendee: Hello all and thank you for your patience. Today's call will begin shortly.

To share more about this quarter's notable achievements.

A few key financial achievements from the third quarter include adjusted net revenue of $531 million rose, 27% year over year.

And importantly, all three segments recorded record revenue and we continue to diversify the revenue composition.

Adjusted EBITDA of $98 million represented a 48% incremental margin and a record 18% consolidated margin.

Our financial services segment achieved positive contribution profit of $3 $3 million at a 3% margin versus a $4 million loss last quarter, and a $53 million loss in the year ago quarter.

Our technology platform segment had a contribution margin of 36%.

20% in Q2, and 23% in the year ago quarter.

In our lending segment more than 77% of adjusted net revenue was net interest income, which grew 90% year over year to $265 million nearly two X lending directly attributable expenses of $139 million.

Maura Cyr: Good morning and thank you for attending SoFi's third quarter, 2023 earnings conference call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answer at the end.

That is to say our net interest income is now nearly two times greater than our expenses.

Maura Cyr: At this time, I'd now like to turn the conference over to our host, Maura Cyr from SoFi Investor Relations. Maura, please go ahead.

Contribution margin improved by nearly 300 basis points sequentially to 60%.

At the company level, excluding one time items incremental GAAP net income margin of 48% resulted in a loss of just $19 $5 million versus $48 million loss last quarter, and a $74 million loss in the year ago quarter.

Maura Cyr: Thank you and good morning. Welcome to SoFi's third quarter, 2023 earnings conference call. Joining me today to talk about our results and recent events are Anthony Noto, CEO and Chris Appointe, CFO. You can find the presentation accompanying our earnings release on the Investor Relations section of our website.

Earnings per share loss, excluding the impact of goodwill impairment was <unk> <unk> per share.

Unknown Attendee: Our remarks today will include forward-looking statements that are based on our current expectations and forecasts and involve risks and uncertainties. These statements include, but are not limited to, our competitive advantages strategy, macroeconomic conditions and outlook, future products and services and future business and financial performance. Our actual results may differ materially from most contemplated by these forward-looking statements. Factors that could cause these results to differ materially are described in today's press release and our most recent form 10K as filed with the Securities and Exchange Commission, as well as our subsequent filings made with the SEC, including our upcoming form 10K. Any forward-looking statements that we make on this call are based on assumptions as of today. We undertake no obligation to update these statements as a result of new information or future events.

So five bank reported $84 $8 million of GAAP net income at a 19, 3% margin representing 13% annualized return on tangible equity.

We remain well on track for GAAP profitability for the overall company by Q4 and in the years that follow.

From a balance sheet perspective, our unique value proposition and so far it continues to fuel high quality deposits that increased by a record of $2 9 billion sequentially and we ended the quarter with nearly $15 7 billion and total deposits.

Importantly, more than 90% of our consumer deposits are from sticky direct deposit customers and 98% of our deposits are insured.

Our cash and cash equivalents, excluding restricted cash remained healthy at $2 8 billion reinforcing our strong liquidity position.

Anthony Noto: And now I'd like to turn the call over to Anthony. Thank you and good morning, everyone.

Anthony Noto: Before my formal remarks, I want to take a moment to recognize the devastating tragedy that is currently taking place in Israel, Gaza and the surrounding regions. It's been incredibly difficult to witness the acts of terrorism and resulting more unfold over the past couple of weeks and what is sure to be tough days to come. The murder of innocent people is unacceptable in any form and it's beyond belief that such actions are unfolding in the world today.

We grew tangible book value for the third consecutive quarter by a record of $68 million at the consolidated level.

On a trailing 12 month basis, we generated $171 million in tangible book value growth.

From a member and product perspective, we added 717000, new members in Q3 23, bringing total members to nearly $7 million up 47% year over year, an acceleration in growth.

Anthony Noto: With that, let's turn to our third quarter results. The third quarter at SOFI marked our 10th consecutive quarter of record revenue and 5th consecutive quarter of record-adjustity bidat. We've delivered strong, diversified growth with record revenue and improved margins across all three of our business segments.

Our highest quarter ever of new products in Q3 of $1 million brought total products to $10 4 million at quarter end.

By 45% year over year also an acceleration with record product additions in both lending and financial services.

Even with this rapid growth in members overall products per member remains at one five ex <unk>.

Anthony Noto: I want to highlight two major milestones. First, 67% of our absolute growth in adjusted net revenue dollars was driven by the non-letting businesses, specifically the technology platform, and financial services segments. And second, our financial services segment achieved positive contribution profit for the first time, making all three reported segments profitable while bolstering our confelidated profitability, even while we continue to invest aggressively for high levels of compounding growth for years to come. These overall results are a testament to our ability to outperform in difficult or rapidly changing environments, but also our ability to deliver on our goals and our overall mission while maintaining financial discipline and continuously setting new operational and financial records.

Reinforcing the appeal of our robust product suite and multi product adoption by existing members.

Financial services products of $8 9 million at quarter end grew by 50% year over year, while lending products of over $1 6 million were up 24% year over year.

I am incredibly proud of these accomplishments and the progress achieved on our March to making so far a household brand name.

Our unaided brand awareness continues to grow as a result of successfully executing viral marketing campaigns bolstered by key events at <unk> stadium, improving customer satisfaction driving word of mouth and the result of us truly helping people get their money right.

Now I'd like to spend some time touching on the segment level results and trends.

Anthony Noto: I'm excited to share more about this quarter's notable achievements. A few key financial achievements from the third quarter include adjusted net revenue of $531 million dollars, rose 27% year-to-year, and importantly, all three segments recorded record revenue, and we continue to diversify the revenue composition. Adjusted to the amount of $98 million represented a 48% incremental margin in a record 18% consolidated margin. Our financial services segment achieved positive contribution profit of $3.3 million at a 30% margin versus a $4 million dollar loss last quarter and a 53 million dollar loss in the year-go quarter.

Lending adjusted net revenue of $342 million grew 15% year over year.

The personal loans business maintained its strength in the quarter with record originations up 38% from Q3 22.

Student loans as expected saw some increasing demand ahead of the resumption of student loan payments.

Marking our highest origination quarter since Q1 of 2022 with.

Within home loans total originations were up 46% sequentially and 64% year over year. Despite a continued challenging rate environment for both purchase and refi.

We continue to fully leverage the benefits of our bank license to drive greater economics in both our lending and financial services businesses.

Anthony Noto: Our technology platform segment had a contribution margin of 36% versus 20% in Q2 and 23% in the year-go quarter. In our lending segment, more than 77% of our adjusted net revenue was net interest income, which grew 90% year-veer to $265 million, nearly 2X lending directly attributable expenses of $139 million. That's to say, our net interest income is now nearly two times greater than our expenses. Seven contribution margin improved by nearly 300 basis points sequentially to 60%.

This has resulted in strong net interest income and sequential net interest margin expansion as lower cost deposits on our balance sheet have grown.

As of the end of Q3 over 65% of our loans were funded by deposits and our $2 9 billion of new deposits raised in the quarter were essential and funding our $5 2 billion.

Total originations and $2 8 billion.

And net loan growth in the most cost effective way.

Our lending capacity remains robust with over $27 billion in total capacity to fund loans and meet our liquidity needs, which includes our $15 $7 billion of deposits $3 billion of equity capital and over $8 4 billion of warehouse capacity.

Anthony Noto: At the company level, excluding one-time items, incremental gap net income margin of 48% resulted in a loss of just 19.5 million dollars versus 48 million dollar loss last quarter and a 74 million dollar loss in the year-go quarter. Earnings per share loss, excluding the impact of goodwill and payment, was $3 cents per share. So-Fi bank reported $84.8 million of gap net income at a 19.3% margin representing 13% annualized return on tangible equity.

Lastly, the bank contributes to strong growth in Sofia money products high quality deposits and great levels of engagement.

This has led to higher average account balances even as average spend has increased.

So find money products have increased nearly 53% year over year to $3 1 million accounts gives.

Given the quality of these members with a median FICO of 743 for our direct deposit portfolio, we see ample opportunity for cross buy.

Anthony Noto: We remain well on track for gap profitability for the overall company by Q4 and in the years that follow. From a balance-y perspective, our unique value proposition in So-Fi continues to fuel high-quality deposits that increased by a record of $2.9 billion sequentially. And we ended the quarter with nearly $15.7 billion in total deposits. Importantly, more than 90% of our consumer deposits are from sticky direct deposit customers, and 98% of our deposits are insured.

More than 50% of newly funded so fund money accounts are setting up direct deposit by day 30.

And this account primacy as expected has had a significant impact on spending which exceeded $1 billion in quarterly debit transactions volume up 3.2 X year over year and represents more than $5 billion of annualized debit transaction volume.

Within financial services more broadly net revenue grew 142% year over year, and 21% sequentially to $118 million driven by continued strong monetization within this segment, which Chris will cover in more detail later.

Anthony Noto: Our cash and cash equivalents, excluding restricted cash, remained healthy at $2.8 billion, reinforcing our strong liquidity position. We grew tangible book value for the third consecutive quarter by a record of $68 million at the consolidated level. At a challenge 12 month basis, we generated $171 million in tangible book value growth.

What is most impressive in the financial services segment is that we reached $3 $3 million in contribution profit despite still spending significantly across money credit card and invest.

Anthony Noto: From a member and product perspective, we added 717,000 new members in Q323, bringing total members to nearly $7 million, up 47% year of year, in acceleration and growth. Our highest quarter ever of new products in Q3 of 1 million brought total products to 10.4 million at quarter end, growing by 45% year of year, also in acceleration with record product additions in both lending and financial services. Even with this rapid growth in members, overall products per member remains at 1.5x, reinforcing the appeal of our robust product suite, and multi-product adoption by existing members. Financial services products of 8.9 million at quarter end, grew by 50% year of year, while lending products of over 1.6 million were up 24% year of year.

Moreover, the credit card and invest businesses are still in heavy investment mode generating significant losses at a run rate of well over $100 million annually as they scale acquisition in order to achieve variable profitability, but will eventually see positive contribution profit similar to how we delivered with Sofia money.

Selection is one of our key points of differentiation across our products.

During Q3, we enabled our invest members to participate in three initial public offerings, including the oddity IPO.

The instant card IPO and the Rmi Apio.

Providing retail investors access to Ipos at IPO prices, which was once unthinkable is just another way we're working to help level the playing field for our members.

This differentiation helps bring more people onto the platform, while increasing brand awareness and member growth.

Anthony Noto: I am incredibly proud of these accomplishments, and the progress achieved on our march to making SoFi a household brand name. Our native brand awareness continues to grow as a result of successfully executing viral marketing campaigns, altered by key events at SoFi Stadium, improving customer satisfaction driving word of mouth, and the result of us truly helping people get their money right.

We were delighted to see such high quality demand in these offerings and growth in our member base.

For our technology platform full segment revenue of $89 $9 million saw a slight acceleration in growth of 6% year over year.

Importantly, as noted previously we expect the year over year growth rate in technology platform revenue to continue to accelerate into Q4 with increased contribution from new partners to the platform along with greater product adoption among the existing partners.

Anthony Noto: Now I'd like to spend some time touching on the segment level results and trends. Lending adjusted net revenue of 342 million dollars through 15% year of year, the personal loans business maintained its strength in the quarter with record originations of 38% from Q322. Student loans as expected saw some increasing demand ahead of the resumption of student loan payments, marking our highest origination quarter since Q1 of 2022. Within home loans total originations were up 46% sequentially, and 64% year of year, despite a continued challenging great environment for both purchase and refine.

Tech platforms overall diversified growth strategy includes growth in new vertical segments, such as <unk> and traditional financial institutions, new products and geographies and a focus on partners with large existing customer bases with more durable revenue streams and growth prospects.

In Q3 Tech platform made significant strides against this strategy with the majority of new signed clients, bringing existing customer bases and portfolios, which drives much faster time to revenue generation compared to a startup along with a growing pipeline of joint opportunities selling combined Gallo and <unk> offerings.

Anthony Noto: We continue to fully leverage the benefits of our bank license to drive greater economics in both our lending and financial services businesses. This has resulted in strong net interest income and sequential net interest margin expansion as lower cost deposits on our balance sheet have grown. As of the end of Q3, over 65% of our loans were funded by deposits, and our 2.9 billion dollar of new deposits raised in the quarter were essential in funding our 5.2 billion dollars of total originations and 2.8 billion dollars in net loan growth in the most cost effective way.

Through an expanded customer base.

The demand from traditional financial institutions and new categories is the most robust that we've seen.

While the lead times for winning Rfps and ensuing integrations are long measured in many quarters not months their transition to modern processing and modern Coors is playing out in real time the way we envisioned it would.

On the product side, we continue to build and ship a diverse range of products for multiple sectors. We launched a corporate credit solution, which is designed to modernize expense management for both financial and nonfinancial corporations by introducing a central account with a single credit limit.

Anthony Noto: Our lending capacity remains robust with over 27 billion dollars in total capacity to fund loans and meet our liquidity needs, which includes our 15.7 billion dollars of deposits, 3 billion dollars of equity capital, and over 8.4 billion dollars of warehouse capacity.

In addition, we've expanded our buy now pay later offering to allow lenders to offered as a form of working capital loans for this small business clients. A great example of the joint Galileo and technical capabilities.

Anthony Noto: Lastly, the bank contributes to strong growth in so-fine money products, high quality deposits, and great levels of engagement. This has led to higher average account balances, even as average spend has increased. So-fine money products have increased nearly 53% year of year to 3.1 million accounts. Give them the quality of these members with a median phyto of 743 for a direct deposit portfolio, we see ample opportunity for crossbuy. More than 50% of newly funded SoFi money accounts are setting up direct deposit by day 30.

And third Galileo powered experience launch of an innovative debit card program that allows users to improve their credit scores.

From a geographic perspective, we received Mastercard certification to provide our payment cards and processing services and five new Latam countries.

Additionally, we have continued to see great product uptake in new Standalone products, such as our payments risk platform product, which has recently been launched to the entire financial services ecosystem, not just existing gallo clients as well as connector.

Anthony Noto: And this account pharmacy, as expected, has had a significant impact on spending which exceeded $1 billion in quarterly debit transactions volume of 3.2x year year and represents more than $5 billion of annual finalized debit transaction volume.

Natural language AI, driven intelligent digital assistant, which provides faster resolution of customer contacts and reduced contacts per customer for our partners as well as so far.

Anthony Noto: Within a financial services more broadly, net revenue grew 142% year year and 21% sequentially to $118 million. Given by continued strong monetization within the segment, which crystal cover in more detail later, what is most impressive in the financial services segment is that we reach $3.3 million in contribution profit despite still spending significantly across money, credit card and invest. More over the credit card and invest businesses are still in heavy investment mode, generating significant losses at a run rate of well over $100 million annually, as they scale acquisition in order to achieve variable profitability, they'll eventually see positive contribution profit similar to how we delivered with SoFi money.

I'll finish here by saying, how proud I am of the team's relentless ability to not just persevere through the disruption and volatility of the financial services industry in the first three quarters of the year, but to delivered record results.

Could not feel more blessed by our great teams ability to execute and importantly, our more than 7 million members that have been so critical in making our vision of being a one stop shop for all your financial needs become such an amazing reality.

With that let me turn it over to Chris for a review of the financials for the quarter and our outlook.

Thanks, Anthony overall, we had a great quarter with strong growth trends across the entire business.

We achieved record revenue and adjusted EBITDA, Despite operating in a rapidly evolving macro backdrop with notable financial services industry headwinds.

Anthony Noto: Selection is one of our key points of differentiation across our products. During Q3, we enabled our invest members to participate in three initial public offerings, including the IDID IPO, the Instacart IPO, and the RM IPO. Providing retail investors access to IPOs at IPO prices, which was once unthinkable, is just another way we're working to help level the playing field for our members. This differentiation helps bring more people onto the platform while increasing brand awareness and member growth. We were delighted to see such high quality demand in these offerings and growth in our member base.

Im going to walk you through some key financial highlights for the quarter and then share some color on our financial outlook.

Unless otherwise stated I'll be referring to adjusted results for the third quarter of 2023 versus third quarter of 2022.

Our GAAP consolidated income statement and all reconciliations can be found in today's earnings release and the subsequent 10-Q filing which will be made available next week.

For the quarter topline growth remains strong as we delivered record adjusted net revenue of $531 million up.

Up 27% year over year, and 9% sequentially from the second quarter's record at $489 million.

Anthony Noto: For our technology platform, full segment revenue, $89.9 million saw a slight acceleration in growth of 6% year of year. Importantly, as noted previously, we expect the year of year growth rate and technology platform revenue to continue to accelerate into Q3. For with increased contribution from new partners to the platform, along with greater product adoption among existing partners. Tech platforms overall diversified growth strategy includes growth in new vertical segments, such as B2B and traditional financial institutions, new products and geographies, and a focus on partners with large existing customer bases with more durable revenue streams and growth prospects.

Adjusted EBITDA was $98 million at an 18% margin also ahead of the prior record quarter at $77 million.

This represented over seven points of year over year, and nearly three points of sequential margin improvement demonstrating significant operating leverage across all functional expense lines.

In fact sales and marketing declined as a percentage of adjusted net revenue for the fourth consecutive quarter.

With marketing intensity 349 basis points lower relative to Q3 'twenty two.

Overall this resulted in a 48% incremental adjusted EBITDA margin year over year.

If you look at marketing expense per new member this quarter saw a 17% decline versus last quarter, and a 32% decline versus the year ago quarter.

Anthony Noto: In Q3, tech platform made significant strides against the strategy with the majority of new signed clients bringing existing customer bases and portfolios, which drives much faster time to revenue generation compared to a startup, along with a growing pipeline of joint opportunities selling combined Galileo and technical offerings into an expanded customer base. The demand from traditional financial institutions and new categories is the most robust that we've seen. While the lead times for winning RFPs and ensuing integrations are long, measuring in many quarters not months, their transition to modern processing and modern cores is playing out in real time the way we envisioned it was.

This is a function of increased monetization of our member base and investments made in all of our operating segments as well as continued improvement in marketing efficiency and success of our financial services productivity loop.

Our GAAP net losses were $267 million this quarter.

Excluding the one time impairment expense of $247 million.

Net losses would have been $19 $5 million, which is up $55 million improvement year over year.

We saw a notable year over year leverage in stock based compensation with SPC dropping to 12% of adjusted net revenue versus 19% in the prior year period.

Anthony Noto: On the products side, we continue to build and ship a diverse range of products for multiple sectors. We launched a corporate credit solution, which is designed to modernize expense management for both financial and non financial corporations by introducing a central account with a single credit limit. And technical capabilities. And third, Galileo powered experience launch of an innovative debit card program that allows users to improve the credit scores. From a geographic perspective, we received master card certification to provide our payment cards and processing services in five new light amp countries.

Our incremental GAAP net income margin would have been 48% for the quarter, excluding the one time goodwill impairment expense.

This is a noncash charge that has no impact on tangible book value, which grew by $68 million to $3 3 billion.

We remain committed to achieving GAAP net income profitability in Q4 2023.

In terms of GAAP EPS, a reported loss of 29.

When adjusted to exclude the onetime impairment expense would equate to a loss of <unk> <unk>.

Now on to the segment level performance, where we saw strong year over year growth across all three segments.

And lending third quarter, adjusted net revenue grew 15% year over year to $342 million.

Anthony Noto: Additionally, we have continued to see great product uptake in new spend loan products, such as our payments risk platform product, which has recently been launched to the entire financial services ecosystem, not just existing Galileo clients, as well as connect the natural language AI driven intelligent digital assistant, which provides faster resolution of customer contacts and reduced contacts per customer for our partners, as well as so far.

Results were driven by a 90% year over year growth in our net interest income while noninterest income was down 51%.

Growth in net interest income was driven by 113% year over year increase in average interest, earning assets and a 244 basis point year over year increase in average yields resulting in an average net interest margin of $5, 99% for the quarter, which is a 13 basis point expansion year over year and importantly, a 25.

Anthony Noto: I'll finish here by saying how proud I am of the team's relentless ability to not just persevere through the disruption volatility of the financial services industry in the first three quarters of the year, but delivered record results. I could not feel more blessed by our great team's ability to execute and importantly are more than seven million members that have been so critical in making our vision of being a one stop shop for all your financial needs become such an amazing reality.

At this point expansion versus Q2 2023.

I'd also highlight our $2 $9 billion of deposit growth in the quarter compared to the $2 $8 billion of net loan growth on the balance sheet period over period.

With 219 basis points of cost savings between our deposits in our warehouse facilities. This has resulted in a meaningful benefit to our net interest margin and has underscored the advantage of holding loans on the balance sheet and collecting net interest income.

Chris Lapointe: With that, let me turn it over to Chris for a review of the financials for the quarter in our outlook. Thanks Anthony. Overall, we had a great quarter with strong growth trends across the entire business. We achieved record revenue and adjusted EBITDA despite operating and a rapidly evolving macro backdrop with notable financial services industry headways. I'm going to walk you through some key financial highlights to the quarter and then share some color on our financial outlook.

We expect to maintain very healthy net interest margin as a result of two things first the mix of funding will continue to move toward deposit funding, which is currently north of 60% and second we will continue to pass on benchmark rate increases for new loan originations.

On the noninterest income side Q3 originations grew 48% year over year to $5 2 billion and.

Chris Lapointe: Unless otherwise stated, I'll be referring to adjusted results for the third quarter of 2023 versus third quarter of 2022. Our gap consolidated income statement and all reconciliation can be found in today's earnings release and the subsequent 10 queue filing, which will be made available next week. For the quarter, top line growth remained strong as we delivered record adjusted net revenue of $531 million, up 27% year of year and 9% sequentially from the second quarters record of $489 million.

And were driven by strong performance from all three products, even as we continued our unrelenting focus of underwriting against our stringent credit standards.

We saw record volumes in our personal loans business, which grew 38% year over year, and 4% sequentially to $3 9 billion.

Our student loans business, our origination volume double year over year and grew notably on a sequential basis to $919 million ahead of the resumption of payments.

Home loans grew by 64% year over year and 46% sequentially.

Chris Lapointe: Adjusted EBITDA was $98 million and 18% margin also ahead of the prior record quarter at 77 million. This represented over seven points of year of year and nearly three points of sequential margin improvement demonstrating significant operating leverage across all functional expense lines. In fact, sales and marketing declined as a percentage of adjusted net revenue for the fourth consecutive quarter with marketing intensity 349 basis points lower relative to queue 322. Overall, this resulted in a 48% incremental adjusted EBITDA margin year of year.

And this growth despite continued headwinds from the current rate environment stems from the early benefits of the integration of Wyndham capital, which has allowed us to add deep fulfillment expertise into our tech stack and better fulfill member demand in the third quarter, we sold portions of our personal loan and home loans portfolio in terms of in period sales execution levels.

We sold personal loans and execution level of 105, 1% and will be sold home loans at a weighted average execution level of 102%.

In addition last week, we executed a $100 million sale of personal loans at a 105, 1% execution to the same partner who purchased personal loans in Q3, and we agreed to terms would that same partner for $2 billion forward flow agreement at similar execution levels. We.

Chris Lapointe: If you look at marketing expense per new member, this quarter saw a 17% decline versus last quarter, and a 32% decline versus the year ago quarter. This is a function of increased monetization of our member base and investments made in all of our operating segments, as well as continued improvement in marketing efficiency in success of our financial services productivity loop. Our gap net losses were $267 million this quarter. Excluding the one time impairment expense of $247 million, net losses would have been $19.5 million, which is a $55 million improvement year-of-year.

We are also in the market, including in discussions with funds and accounts managed by Blackrock with respect to a $375 million securitization at favorable execution levels and that is expected to close mid November.

Personal loan borrowers weighted average income is $167000 with a weighted average FICO score of 744.

Our student loan borrowers weighted average income is $180000 with a weighted average FICO of 781.

Chris Lapointe: We saw notable year-of-year leverage in stock-based compensation with SPC dropping to 12% of adjusted net revenue versus 19% in the prior year period. Our incremental gap net income margin would have been 48% for the quarter, excluding the one time goodwill impairment expense. This is a non-cash charge that has no impact on tangible book value, which grew by $68 million to $3.3 billion. We remain committed to achieving gap net income profitability in Q4 2023.

Our on balance sheet delinquency rates and charge off rates remain healthy and are still below pre COVID-19 levels.

Our on balance sheet 90 day personal loan delinquency rate was 48 basis points in Q3 23, while our annualized personal loan charge off rate was 344%.

Our on balance sheet 90 day student loan delinquency rate was 14 basis points in Q3 23, while our annualized student loan charge off rate was 38 basis points.

We continue to expect very healthy performance relative to broader industry levels.

Chris Lapointe: In terms of gap EPS, our reported loss of $0.29 when adjusted to exclude the one time impairment expense would equate to a loss of $0.3. Now onto the segment level performance where we saw a strong year-of-year growth across all three segments. In lending, third quarter adjusted net revenue grew 15% year-of-year to $342 million. Results were driven by a 90% year-of-year growth in our net interest income, while non-interest income was down 51%.

The lending business delivered $204 million of contribution profit at a 60% margin up from $181 million, a year ago, which represented a 61% margin.

Shifting to our tech platform, where we delivered record net revenue of $90 million in the quarter up 6% year over year and 3% sequentially.

Annual revenue growth was driven primarily by a Galileo account growth to $137 million in total.

The segment delivered a contribution profit of $32 million, representing a 36% margin up significantly quarter over quarter as we leverage investments made to integrate Galileo and techno says and to position the segment for higher rates of diversified durable growth going forward.

Chris Lapointe: Growth in that interest income was driven by 113% year-of-year increase in average interest earning assets, and a 244 basis-point year-of-year increase in average yields, resulting in an average net interest margin of 5.99% for the quarter, which is a 13 basis-point expansion year-of-year, and importantly a 25 basis-point expansion versus Q2 2023. I'd also highlight our $2.9 billion of deposit growth in the quarter, compared to the $2.8 billion of net loan growth on the balance sheet period over period.

We expect the technology platform segment revenue to see an acceleration in Q4 with ongoing strong margins as we leverage prior investments.

Moving on to financial services, where net revenue of $118 million increased 142% year over year with new all time high revenue for soap my money in India and continued strong contributions from sulfide credit card and lending as a service.

Chris Lapointe: With 219 basis points of cost savings between our deposits and our warehouse facilities, this has resulted in a meaningful benefit to our net interest margin, and has underscored the advantage of holding loans on the balance sheet and collecting net interest income. We expect to maintain very healthy net interest margin as a result of two things. First, the mix of funding will continue to move toward deposit funding, which is currently north of 60%, and second, we will continue to pass on benchmark rate increases for new loan originations.

Overall monetization continues to improve with annualized revenue per product of $53 up 61% year over year versus $33 in Q3 dollars 22, and up nearly 8% sequentially driven by higher deposits and remember spending levels and so my money.

Greater AUM and monetize both features and so behind us and stability within itself by credit cards that we.

We reached $8 9 million financial services products in the quarter, which is up 50% year over year, and we saw record product ads with 957000, new products in the segment.

Chris Lapointe: On the non-interesting side, Q3 originations grew 48% year-of-year to $5.2 billion, and were driven by strong performance from all three products, even as we continued our unrelenting focus of underwriting against our string and credit standards. We saw record volumes in our personal loans business, which grew 38% year-of-year, and 4% sequentially to 3.9 billion. Our student loans business saw origination volume double year-of-year and grew notably on a sequential basis to $919 million, ahead of the resumption of payments.

We hit nearly $3 1 million products and stope by money $2 5 million, and so find us and $3 million and relay.

For the first time. This segment reached positive contribution profit at $3 3 million for the quarter and we continue to expect positive contribution in this segment in Q4, 'twenty three and beyond.

This is while we continue to invest aggressively against ample opportunities to rapidly grow this operating segment with attractive returns.

Chris Lapointe: Home loans grew by 64% year-to-year, and 46% sequentially. And this growth, despite continued headwinds from the current rate environment, stems from the early benefits of the integration of Wyndham Capital, which has allowed us to add deep fulfillment expertise into our tech stack and better fulfill member demand. In the third quarter, we sold portions of our personal loan and home loans portfolio. In terms of in-period sales execution levels, we sold personal loans at an execution level of 105.1%, and we sold home loans at a weighted average execution level of 100.2%.

Switching to our balance sheet, where we remain very well capitalized with ample cash and liquidity.

Now more than ever sulphide bank reinforces our strong balance sheet and provides us with more flexibility and access to a lower cost of capital relative to alternative sources of funding.

In Q3 assets grew by $2 4 billion as a result of strong growth in both student and personal loans.

On the liability side of the balance sheet, we continued strong growth in deposits, reaching $15 7 billion up.

Up $2 9 billion sequentially versus $2 7 billion in the prior quarter and $2 7 billion in Q1.

Chris Lapointe: In addition, last week, we executed a $100 million sale of personal loans at a 105.1% execution to the same partner who purchased personal loans in Q3, and we agreed to terms with that same partner for $2 billion forward flow agreement at similar execution levels. We are also in the market, including in discussions with funds and accounts managed by BlackRock, with respect to a $375 million securitization at favorable execution levels, and that is expected to close mid-November.

Important to note that deposit growth outpaced loan growth for the third consecutive quarter, resulting in more efficient funding costs and a lower reliance on warehouse lines as we ramp the portion of loans that are funded by deposits versus other sources of capital.

Because of this we exited the quarter with $4 billion drawn on our $8 $4 billion of warehouse facilities.

This further highlights our strong liquidity position, particularly in this market.

Chris Lapointe: Our personal loan borrowers weighted average income is $167,000, with a weighted average FICO score of 744. Our student loan borrowers weighted average income is $180,000, with a weighted average FICO of 781. Our on-balance sheet delinquency rates and charge-off rates remain healthy and are still below pre-COVID levels. Our on-balance sheet 90-day personal loan delinquency rate was 48 basis points in Q3, 23, while our annualized personal loan charge-off rate was 3.44%. Our on-balance sheet 90-day student loan delinquency rate was 14 basis points in Q3, 23, while our annualized student loan charge-off rate was 38 basis points.

In terms of our regulatory capital ratios, our total capital ratio of 14, 5% as of the end of the quarter remains comfortably above the regulatory minimum of 10, 5%.

Throughout the last 12 months, we have demonstrated the benefit of having a diversified high growth set of revenue streams multiple cost efficient sources of capital our keen focus on underwriting high quality credit and a high degree of operating leverage as we scale the business.

We expect those benefits to persist going forward, even in light of the existing macro backdrop.

For the full year of 2023, we now expect to deliver revenue of 2.0 405 to 2.065 billion.

Chris Lapointe: We continue to expect very healthy performance relative to broader industry levels. The lending business delivered $204 million of contribution profit at a 60% margin, up from $181 million a year ago, which represented a 61% margin. Shifting to our tech platform where we delivered record net revenue of $90 million in the quarter, up 6% a year a year, and 3% sequentially. Annual revenue growth was driven primarily by a Galileo account growth to 137 million in total.

Above our prior guidance of 190 704 to 2.034 billion.

And full year 2023, EBITDA of $386 million to $396 million above our prior guidance of $333 million to $343 million.

For the full year this represents 33% to 34% adjusted net revenue growth.

19% adjusted EBITDA margin and a 48% incremental adjusted EBITDA margin, meaning we expect to drop 48% of all incremental revenue to the bottom line.

Chris Lapointe: The segment delivered a contribution profit of $32 million, representing a 36% margin, up significantly quarter of a quarter, as we leverage investments made to integrate Galileo and technesis, and to position the segment for higher rates of diversified durable growth going forward. We expect the technology platform segment revenue to see an acceleration in Q4 with ongoing strong margins as we leverage prior investments. Moving on to financial services, where net revenue of $118 million increased 142% year a year, with new all-time high revenue for so-fi money and invest, and continued strong contributions from so-fi credit card and lending as a service.

Despite growing up more than 30%.

In terms of depreciation and amortization and stock based compensation expense, we expect mid to high single digit percentage increases in the fourth quarter relative to the third quarter results.

With that let's begin the Q&A.

Thank you we will now.

Open the lines for Q&A.

Press Star followed by the number one if you'd like to ask a question and ensure that your devices, Amit like Cleveland tend to spike.

Please limit yourself to one question.

If you'd like to ask another question. Please re enter the queue.

Our first question today comes from Andrew Jeffrey of Chile.

Chris Lapointe: Overall monetization continues to improve, with annualized revenue for product of $53, up 61% year a year versus $33 in Q322, and up nearly 8% sequentially, driven by higher deposits and member spending levels and so-fi money, greater AUM and monetizable features and so-fi and death, and stability within so-fi credit card. We reached $8.9 million financial services products in the quarter, which is a 50% year over year, and we saw a record product ads with 957,000 new products in the segment.

Your line is open. Please go ahead.

Hi, good morning, Thanks for taking the question the third quarter nice set of resources of our personal loan and home loans portfolio in terms of in period sales execution levels, we sold personal loans and execution level of 105, 1% and will be sold home loans at a weighted average execution level.

Alright got you.

Yeah.

Hi, Andrew.

Okay, great. Thanks, I appreciate it.

Chris Lapointe: We hit nearly $3.1 million products in SoFi money, $2.5 million in SoFi and thus, and $3 million in relay. For the first time, this segment reached positive contribution profit at $3.3 million for the quarter, and we continue to expect positive contribution in the segment in Q423 and beyond. This is why we continue to invest aggressively against ample opportunities to rapidly grow this operating segment with attractive returns. Switching to our balance sheet where we remain very well capitalized with ample cash and liquidity.

I wanted to ask about the decision to sell some personal loans.

Sort of how you arrive at the decision as to which loans you sell and you got great execution in the quarter could you compare that to the the marks or the assumptions for those loans that you continue to hold on the balance sheet.

Sure.

Sure. Thanks for the question. So what I would say here is that we've really built a nice high quality balance sheet that generating net interest income that nearly two times the cost of our directly attributable expenses to that to that segment now despite cutting credit and driving up quality of our loans. We are still and will continue to see a lot more.

Chris Lapointe: Now more than ever, SoFi Bank reinforces our strong balance sheet and provides us with more flexibility and access to a lower cost of capital relative to alternative sources of funding. In Q3, assets grew by $2.4 billion as a result of strong growth in both student and personal loans. On the liability side of the balance sheet, we continued strong growth in deposits reaching $15.7 billion up $2.9 billion sequentially versus $2.7 billion in the prior quarter and $2.7 billion in Q1.

Opportunity to originate more high quality loans, so selling at these attractive prices at the 105, 1% that I mentioned plus having the opportunity to originate more as optimal at this point in terms of how the the execution compares to where the loans are marked on the book.

Hold at 105, 1%.

The book is marked at 104.0%, which is down 10 basis points quarter over quarter. Despite the weighted average coupon on the overall portfolio increasing.

Chris Lapointe: Important to note that deposit growth outpaced loan growth for the third consecutive quarter, resulting in more efficient funding costs and a lower reliance on warehouse lines as we ramped the portion of loans that are funded by deposit versus other sources of funding. Because of this, we exited the quarter with $4 billion drawn on our $8.4 billion of warehouse facilities. This further highlights our strong liquidity position, particularly in this market. In terms of our regulatory capital ratios, our total capital ratio of 14.5% as of the end of the quarter remains comfortably above the regulatory minimum of 10.5%.

Operator next question.

Okay.

Operator can we take the next question.

Our next question comes from John Hecht of Jefferies. John Your line is open.

Chris Lapointe: Throughout the last 12 months, we have demonstrated the benefit of having a diversified, high-grow set of revenue streams, multiple cost-efficient sources of capital, a keen focus on underwriting high-quality credit, and a high degree of operating leverage as we scale the business. We expect those benefits to persist going forward, even in light of the existing macro backdrop.

Good morning, guys. Congratulations on a good quarter I'm, just wondering if you've got a resumption of growth in student lending demand of you still grow in the other products too I'm kind of I'm wondering how do we think about kind of the mix at the bank and the NIM at the bank over the next few quarters as you know.

Chris Lapointe: For the full year of 2023, we now expect to deliver revenue of $2.045 to $2.065 billion above our prior guidance of $1.974 to $2.034 billion in full year 2023 EBITDA of $386 to $396 million above our prior guidance of $333 to $343 million. For the full year, this represents 33 to 34% adjusted net revenue growth, 19% adjusted EBITDA margins, and a 48% incremental adjusted EBITDA margin, meaning we expect to drop 48% of all incremental revenue to the bottom line, despite growing at more than 30%. In terms of depreciation and amortization and stock-based compensation expense, we expect mid-to-high single-digit percentage increases in the fourth-quarter relative to the third-quarter results.

Particularly as the student lending.

Reverts to normal demand sequel.

Sequences.

Yes definitely.

We're going to plan our favor the way I think about it is we have a pretty good hand in how we allocate capital.

I'll keep the capital based on what's going to give us the best balanced returns.

As Chris mentioned, we've grown the balance sheet really well over the last two years is having a bank is generating an impressive amount of net interest income and it's more than covering our costs. There in the quarter you saw that we drove 67% of our growth in absolute.

Dollars from non lending from a tech platform and from financial services. I think you should expect that type of trend to continue in that.

Balanced or skewed more towards non lending.

As we think about our balance sheet, we think about student loans is in particular, what I'd say is we saw exactly the trend we expected and student loans in the quarter, which was a slight bump relative to where we've been in the past we don't expect to see a step function change in student loan originations for a couple of reasons, one I think students.

Unknown Attendee: With that, let's begin the Q&A. Thank you.

Unknown Attendee: We will now open the line for Q&A. Please, by star follow by the number one if you'd like to ask a question and ensure that your device is unmuted locally when it's your turn to speak. Please limit yourself to one question only. If you'd like to ask another question please read and to the queue.

Loan or a referral shlomo borrowers refinancing because of two reasons. We mentioned one is saving specifically in cost relative to their current rate and getting a lower rate and then others that are looking to lower their monthly payment some of which are doing that actually higher rate than they are today.

Andrew Jeffrey: Our first question today comes from Andrew Jeffrey of Truist. Your line is open, please go ahead. Hi, good morning. Thanks for taking the question. You know, third floor, nice head resortions of our personal loan and home loan portfolio. In terms of in-period sales execution levels we sold personal loans at an execution level of 105.1% and we sold home loans at a weighted average execution level. All right, we got you. Okay, great. Thanks. Appreciate it.

And so we think that will be a slow steady climb as people had each months of having to pay their bill on the second factor is our decisions, we're going to be very prudent in how we allocate capital to maximize returns and now that we have for effective loan platforms.

Allocate that capital too.

It will really be driven by the opportunity each before being home loans in school loans and school student loans student loan refinancing and then personal loans.

I would just mentioned that we did see an acceleration in growth and technology platform.

Unknown Attendee: I wanted to ask about the decision to sell some personal loans sort of how you arrive at the decision is to which loans you sell and you know you got great execution in the quarter. Could you compare that to the the marks or the assumptions for those loans that you continue to hold on the balance sheet? Yeah, sure. Thanks for the question. So what I would say here is that we've really built a nice high-quality balance sheet that's generating that interest income that's nearly two times the cost of our directly attributable expenses to that to that segment.

Pipeline, there is pretty visible on its most robust what I have seen.

It won't take quarters to answer Rfps not months and to integrate partners.

We've made the transition of that business over a year ago, when we will start to anniversary.

Tougher comps.

In Q4, and we'll see an acceleration in that business as well, so really strong products prospects and tech platform great trends in financial services, So think about <unk> being additive to growth not the driver of growth as we go into 'twenty four.

Unknown Attendee: Now despite cutting credit and driving up quality of our loans, we are still and will continue to see a lot more opportunity to originate more high-quality loans. So selling at these attractive prices at the 105.1% that I mentioned plus having the opportunity to originate more is optimal at this point. In terms of how the execution compares to where the loans are marked on the book, we sold at 105.1% and the the book is marked at 104.0%, which is down 10 basis points quarter over quarter, despite the weighted average coupon on the overall portfolio increase.

And then the only other thing I would add John in terms of the actual NIM margins, specifically, what we are expecting those to remain very healthy throughout the remainder of the year, but we are taking a bit of a conservative approach and thats. What is currently embedded in our guidance reason for that is obviously as a result of increases in cost of funds in various pricing.

Strategies as well as the mix shift.

Into student loan refinancing.

Thank you our.

Our next question today comes from Dan Donlan of Mizuho.

Your line is open.

Hey, guys terrific results really really strong I just have one question. We're at the end of October now could you maybe talk about overall.

Unknown Attendee: I'll put it next question. Operating if we take the next question.

Trends consumer health everything Youre seeing into the fourth quarter. There is obviously a lot of debate out there in terms of the overall health of the consumer Im sure Youre seeing a lot of it. So would appreciate some comments on that in your business. Thank you.

Sure first I would like to caveat my comments with the fact that we are relatively unique in that we're a secular grower not a cyclical grower at this point, yes, there are cycles in some of our businesses with the vast majority of our growth is us taking market share from existing incumbents as opposed to an indication of the economy or the economic cycle.

John Hecht: And next question comes from John Hector of Jeffery. John, your line is open. Morning guys, congratulations on a good quarter. I'm just wondering if you've got a resumption of growth in student lending demand and you're still growing the other products too.

So the sector growth and driving force that said, we continue to see really strong demand for our products and really strong consumer trends.

Anthony Noto: I'm wondering how do we think about kind of the mix at the bank and in the name at the bank over the next few quarters as particularly as a student lending reverse to normal demand sequences? Yeah, it's definitely going to plan our favor the way I think about it is we have a pretty good hand in how we allocate capital. And we're going to allocate the capital based on what's going to give us the best balance returns.

And so find money, we're seeing balances increase on a per account basis, not just new accounts, adding toward deposits were also seeing increased spending on a per account basis, not just because were adding new accounts and so those are two positive underlying trends. We've also seen the quality of our deposits remained strong 90% of our.

Our deposits are from direct deposit customers and 98% of our insured deposits, which means theyre not just high quality book of diversified.

Anthony Noto: As Chris mentioned, we've grown the balance sheet really well over the last years since having the bank is generating an impressive amount of that interesting come. It's more than covering our costs there. In the quarter you saw that we drove 67% of our growth in absolute dollars from non lending from the tech platform and from financial services. I think you should expect that type of trend to continue in that it's balanced or skewed more towards non- lending.

In addition to that our invest business continues to benefit from the growth of our member base overall and cross buying and we see nice trends there from an asset assets under management standpoint.

As it relates to loans, we're seeing unprecedented demand for unsecured personal loans and obviously, we saw an uptick in student loan refinancing I think the student loan refinancing trend.

We report what we won't be more driven by what we decided underwritten the actual demand and I think you can say the same for our personal loans, which has been the case for the last two years. We've continued to reduce the credits that were willing to approve and we're seeing continued strong demand even in higher credits and higher quality.

Anthony Noto: As we think about our balance sheet, we think about the still loans in particular. What I'd say is we saw exactly the trend that we expected in student loans in the quarter, which was a slight bump relative to where we've been in the past.

Anthony Noto: We don't expect to see a step function change in student loan originations for a couple of reasons. One, I think student loan borrowed federal loan borrowers are refinancing for the two reasons we mentioned. One is saving specifically in cost relative to their current rate and getting a lower rate. And then others that are looking to lower their monthly payment. Some of which are doing that at actually higher rate than they are today. And so we think that will be as slow as steady climb as people hit each month of having to pay their bill.

And so Chris would you add anything to that.

Thank you Dan.

Thank you. Our next question is from Mihir Bhatia of Bank of America. Your line is open.

Good morning. Thank you for taking my question I wanted to ask about the technology segment, we saw a nice uptick in the contribution margin this quarter.

After.

And then I wanted to ask a couple of questions that I just wanted to get some more details is like what drove the uptick in Colombia accounts. This quarter and then on the contribution margin side is the big investment period in that segment done at this point like what.

Anthony Noto: The second factors are decisions. We're going to be very prudent in how we allocate capital and maximize returns. And now that we have four effective loan platforms to allocate that capital to, it'll really be driven by the opportunity before being home loans, in-school loans, in-school student loans, student loan or financing, and then a personal I would just mention that we did see an acceleration growth in a technology platform. The pipeline there is pretty visible and it's the most robust that I've seen.

Or should you expect that to trend and as you grow internationally.

Is there a difference in the revenue or margin profile between the U S account or a Latin American economy.

That we should be just keeping in mind as we think about.

This business out over the next few years. Thank you.

Thank you for your question.

Anthony Noto: It'll take quarters to answer RFPs not months and to integrate partners, but we made the transition of business over a year ago and we'll start to anniversary the tougher comps in Q4 and we'll see an acceleration in that business as well. So really strong product prospects and tech platform, great trends and financial services, so think about SLR and PL being added as a growth, not as a driver of growth as we go into 24.

Talk about the overall trends in terms of demand in an account growth and Chris will talk about the leverage that we're getting there and where we are in an investment cycle, which we talked about last couple of quarters.

The demand within the technology platform segment is as robust as we've seen strategically we pivoted away Bonnie year year, and a half ago from signing up a high number of accounts each quarter that would have a low volume to focusing on larger customers that were more durable and not just survived the financial.

Chris Lapointe: And then the only other thing I would add, John, in terms of the actual NIN margin specifically, we are expecting those to remain very healthy throughout the remainder of the year, but we are taking a bit of a conservative approach and that's what's currently embedded in our guidance. The reason for that is obviously as a result of increases in cost of funds and various pricing strategies as well as a mixed shift into student loan refinancing.

The economic cycle, but that also could it be.

<unk> through the lack of financing in the private market. In addition to focusing on larger customers or more durable we started to build out other verticals such as the <unk> channel with the products that we have they serve growth DTC companies <unk> companies. In addition to that we focused on nonfinancial institution.

Dan Dolev: Thank you. And next question today comes from Dan Dolev of Nizuho. Your line is open. Hey guys, terrific results. Really, really strong. I just have one question. You know, we're at the end of October now.

And have large customer bases and for institutions that do have a large customer base as well as the time.

<unk> revenue much faster, we will start to see the benefits of that slowly gradually.

Revenue number over the next 18 to 24 months it won't be a step function all I don't want to mislead anybody inevitably a nice steady climb on a nice steady slope.

Unknown Attendee: Can you maybe talk about overall trends, consumer health, everything you're seeing into the fourth quarter. There's obviously a lot of debate out there in terms of the overall health of the consumer. I'm sure you're seeing a lot of it. So I would appreciate some comments on that and your business. Thank you.

The results of our strategic switch are really paying.

<unk> dividends and right now we're in RFP stages with a number of large financial institutions.

One eight.

Anthony Noto: Sure. First, I'd like to caveat on my comments with the fact that we are relatively unique in that we're a sector of growth, not a circle, but we're at this point. Yes, there are cycles and some of our businesses with the vast majority of our growth is us taking market share from existing incumbents, as opposed to an indication of the economy or the economic cycle. So sector growth and driving force that said we continue to see really strong demand for our products and really strong consumer trends and so far money.

Regional bank deal at that time.

One component of a larger piece of their business.

<unk> will come on over the next 18 to 24 months.

Pipeline is very strong on both financial institutions incumbent banks and non financial institutions.

<unk> so.

Prospects that we're expecting there have really started to come through in a much bigger way as many institutions are under pressure upgrade their technology and to go after new growth opportunities first talking about the expenses in terms of the declining attributable costs as well as the margin expansion that we saw at 36%. This is art.

Anthony Noto: We're seeing balances increase on a per account basis, not just new accounts adding to our deposits. We're also seeing increased spending on a per account basis, not just because we're adding new account. And so those are two positive underlying trends. We've also seen the quality of our deposits remains strong 90% of our deposits are from direct deposit customers and 90% are insured deposits, which means they're not just high quality, but they're diversified.

And due to realizing the benefits of early investments that we've made in these businesses to push technological and product development and to integrate the two platforms. In addition, Q2 was elevated as a result of a few one time items, including FX and country related taxes, and then in Q3, we benefited from lower comp and benefits as a result of that.

Anthony Noto: In addition to that, our investment business continues to benefit from the growth of our member base overall and cross buying. And we see nice trends there from an asset asset management standpoint. As relates to loans, we're seeing, you know, unprecedented demand for unsecured personal loans and obviously we saw an uptick in student loan refinancing. I think the student loan refinancing trend will that way report will be more driven by what we decide to underrate than the actual demand.

Getting out of payroll taxes for the year and a few other one time items as far as the margin profile. Looking ahead. You can expect continued strong margin performance as we've already made so many investments to integrate the two businesses and position the combined entity to leverage demand from a broader mix of clients with more durable revenue streams overall, we're expecting.

<unk> to be in the upper 20% to 30% in the near term.

Anthony Noto: And I think you can say the same for our personal loans, which has been the case for last two years. We've continued to reduce the credits that we're going to approve and we're seeing continuous strong demand, even in higher credits and higher quality. And so Christopher, do you add anything to that?

Our next question comes from Kevin Barker of Piper Sandler Your line is open.

Good morning, Thanks for taking my questions I just wanted to follow up on some of the movements on the balance sheet, particularly the loan sales.

We saw.

Capital ratios.

Chris Lapointe: Thank you, Dan. Thank you.

Come down a bit but it seems like this $2 billion for flow agreement will relieve some of that.

Mihir Bhatia: Our next question is from Mihir Bhatia of Bank of America. Your line is open. Good morning. Thank you for taking my question. And then on the contribution margins, I is a big investment period in that segment done at this point like what way should you expect segments to trend and as you grow internationally. If there are difference in the revenue or margin growth out between a US account or a Latin American account that we should be just keeping in mind as you know we think about modeling this business out over the next few years. Thank you. Thank you for your question.

Also our tangible equity grew $68 million.

Just given these factors, where do you expect capital ratios to.

<unk> drift over the next couple of quarters, particularly if we start to see a larger amount of loans come off the balance sheet due to forward flow agreements. Thank you.

Yeah, Hey, Kevin.

So our total capital ratio Youll see in our disclosures is 14, 5%, that's 400 basis points above our 10, 5% regulatory minimum we aren't currently providing a specific outlook in that ratio, but what I would say is that there are a number of tailwind that will help bolster our capital ratios first we have a growing book value.

We've been growing book value for the last five quarters in a row and expect to sustain that going forward, particularly as we reach GAAP profitability in Q4, as you mentioned $68 million of tangible book value growth this past quarter and 171 over the course of the last 12 months.

Anthony Noto: And I'll talk about the overall trends in terms of demand and an account growth and Chris will talk about the leverage that we're getting there and where we are in investment cycle, which we talked about last couple of quarters. The demand within the technology platform segment is as robust as we've seen strategically we pivot away about a year, year and a half ago from signing up a high number of accounts each quarter that would have low volume to focusing on larger customers that were more durable and that could not just survive the financial the economic cycle.

We have a robust demand.

Pipeline of loan buyers that solid execution levels as I mentioned in my prepared remarks, we are selling $475 million in Q4.

Favorable execution, and we have a $2 billion forward flow lined up at favorable execution and then third the size of our loan book in the relatively short duration of personal loans in particular, the amortization on a quarterly basis is quite material now between our personal loans business and the student loan refinancing business in quarter three.

Anthony Noto: But that also could it be durable through the lack of financing and the private market in addition to focusing on larger customers that were more durable. We started to build up other verticals such as the B2B channel with the products that we had we they served both B2C companies and B2B companies. In addition to that we focused on non financial institutions that have large customer bases and French dishes that do have large customer bases well to get to times revenue much faster.

<unk> amortization or Paydowns was $2 billion or $8 billion on an annualized basis. So those three factors combined are going to enable us to continue to originate high quality loans, while maintaining healthy capital ratios.

Anthony Noto: We'll start to see the benefit to that slowly gradually hit the revenue number over the next 18 to 24 months it won't be a step functional and I want to mislead anybody there but it'll be a nice steady climb on a nice steady slope. The results of our strategic switch are really paying dividends and right now we're in RFP stages with a number of large financial institutions. We've actually won a regional bank deal that's that's one component of a larger piece of their business that will come on over the next 18 to 24 months but the pipeline is very strong and both financial institutions incumbent banks and non financial institutions.

I would add Kevin is in the call I mentioned, the fact that.

Some of our financial services business are still an aggressive mode of investing.

And they haven't reached scale you have to weigh the money business has some of our other businesses within the financial services segment I mentioned on annualized basis, we're losing.

Well over $100 million in a couple of those businesses. That's a discretionary expense that we could decide to be more conservative on and drive to profitability faster.

The scale that we have in our member base now at over 7 million members really gives us a significant opportunity just to market through our own members in a bigger way.

To help them get their money right with additional products and services that meet their needs based on the data that we have and I can't underscore that enough so that more than $100 million in losses from just two businesses annualized is also an opportunity if we need to go down that path as well.

Anthony Noto: As well as B2B and so the growth prospects that we're expecting there really started to come through it in a much bigger way as many institutions are under pressure on greater technology and to go after new growth opportunities.

Our next question comes from Ashwin <unk> of Citigroup. Please go ahead.

Chris Lapointe: Let's talk about the expenses. In terms of the declining attributable costs as well as the margin expansion that we saw at 36 percent this is part in due to realizing the benefits of early investments that we've made in these businesses to push technological and product development. And it integrates the two platforms. In addition Q2 was elevated as a result of a few one-time items including FX and Contrulated taxes and then in Q3 we benefited from lower comp and benefits as a result of maxing out on payroll taxes for the year and a few other one-time items.

Thank you.

Congratulations on the quarter.

I wanted to ask about member growth.

And this is I think the first time in a.

Very long time that we've seen a reacceleration in member growth wanted to get down into what's driving that was that driven by.

Chris Lapointe: As far as the margin profile looking ahead you can expect continued strong margin performance as we've already made so many investments to integrate the two businesses and position the combined entity to leverage demand from a broader mix of clients with more durable revenue. James Streams. Overall, we're expecting margins to be in the upper 20s to 30% in the near term.

Particular member combination.

Yeah.

Should we expect to sustain itself, maybe a slightly higher.

Level of member growth now.

Any commentary there.

Yes, we had a really strong quarter in member growth as well as product growth.

We exceeded we set a record of member growth at over 700000, and a record in product growth with more than 1 million for the first time.

I mentioned on last quarter's call that we're starting to see and we're continuing to see this quarter. The compounding effects of everything working together cross marketing and product as well as the experience and satisfaction word of mouth.

Kevin Barker: And next question comes from Kevin Barker of Piper Sandler. Your line is open. More and thanks for taking my questions.

Chris Lapointe: I just wanted to follow up on some of the movements on the balance sheet, particularly the loan sales. You know, we saw, you know, capital ratios come down a bit, but it seems like this $2 billion for flow agreement will release some of that and also tangible equity grew 68 million. Just given these factors, where do you expect, you know, capital ratios to drift over the next couple of quarters, particularly if we start to see a larger amount of loans come off the balance sheet due to four flow agreements.

We've been focused on driving unaided brand awareness because it makes the rest of our marketing more efficient as that goes up our performance marketing has better performance and it's much more efficient.

The second thing is as you scale your data and information.

You're hopeful that you can increase marketing and maintain those levels of efficiency.

That's been the biggest shift this year is that our marketing efficiencies have maintained as we spent more money.

But clearly we are spending more dollars, but we're getting greater yield from a what we're spending and that's also a factor in what the teams have just done a great job.

Chris Lapointe: Thank you. So our total capital ratio you'll see in the disclosures is 14.5%. That's 400 basis points above our 10.5% regulatory minimum. We are currently providing a specific outlook in that ratio, but what I would say is that there are a number of tailwinds that will help bolster our capital ratios. First, we have a growing book value. We've been growing book value for the last five quarters in a row and expect to sustain that going forward, particularly as we reach gap profitability in Q4.

Allocating 25% of our marketing to brand building, which drives unaided brand awareness and efficiently spend the other 75% against performance marketing and then cross buying continues to be very positive reinforcing our overall one stop shop.

<unk> in terms of the outlook for member growth and product grows what I'd say is we have.

Has largely been averaging in the 400000 range for members.

I wouldn't start assuming that we're going to average over 600000 or 700000 today I think you can start to focus on 500000, plus members and a quarter in keeping with a five handle on it and we'll see how the quarter goes and how we're doing overall, we've really been focused on driving to profitability and as we go into 2024.

Chris Lapointe: As you mentioned, $68 million of tangible book value growth is past quarter and $171 over the course of the last 12 months. Second, we have a robust demand and pipeline of loan buyers at solid execution levels. As I mentioned in my prepared marks, we are selling $475 million in Q4 at a favorable execution, and we have a $2 billion forward flow lined up at favorable execution. Third, the size of our loan book and the relatively short duration of personal loans in particular, the amortization on a quarterly basis is quite material now.

We haven't set our plans yet so I wouldn't I wouldn't set this had a new level it was an extraordinary quarter.

Can we repeat this quarter, yes, but I wouldn't I wouldn't plan on it.

Outlook for members in the 500000 range for now.

The next question today comes from Jeff Edelson of Morgan Stanley. Please go ahead.

Chris Lapointe: Between our personal loans business and the student loan refinancing business in Q4.3, amortization or paydowns was $2 billion or $8 billion on an annualized basis. So those three factors combined are going to enable us to continue to originate high quality loans while maintaining healthy capital ratios.

Yes.

Hey, good morning, Thanks for taking my questions guys.

So I think just looking at the guidance for the full year. It looks like <unk> 23 of your it looks like Youre looking for something like.

28% to 32% revenue growth exit rate for the year.

Anthony Noto: The only other thing I'd add, Kevin, is in the call I mentioned the fact that some of our financial services businesses are still on aggressive mode of investing, and they haven't reached scale yet the way the money business has, some of our other businesses within the financial services segment. I mentioned that on an annualized basis, we're losing well over $100 million in a couple of those businesses. That's a discretionary expense that we could decide to be more conservative on and drive to profitability faster.

Just thinking through next year I know, it's early still but.

If rates stay where they are at these elevated levels is that a good number to be thinking about for next year or is there any reason that shouldnt stay where it is and how should we be thinking about the different revenue components should we be seeing you know continue to strengthen the NII a little bit less in the fee income maybe a little bit more in tech platform and then Chris if I could just.

Really quick on the.

$100 million loans I think you said you saw that.

105, one is that an unhedged or hedged number and could you just maybe speak quickly to what those loans were with a more seasoned or more new originations.

Anthony Noto: The scale that we have in our member base now at over $7 million members really gives us a significant opportunity just to market to our own members in a bigger way to help them get their money right with additional products and services that meet their needs based on the data that we have. And I can't underscore that enough so that more than $100 million losses from just two businesses, annualized is also an opportunity if we need to go down that path as well.

Yeah.

Okay. Thanks for the question the first thing I'd say is the.

Certainly we have the drive growth is significant we can drive compounding growth for years, given how large these markets are in a low level of market share what we choose to grow in 2024 will be a function of the environment as we get through the fourth quarter and where things sit in January. So we've taken an approach that we give full year guidance at the.

Ashwin Shirvaikar: And next question comes from Ashwin Shaveka of 50 Group. Please go ahead. Thank you and congratulations on the quarter.

The beginning of the year. After we report Q4, so we'll do that again and I will update you each quarter. So I don't want to dig into the details of 2024, because there's a lot left to be decided in 'twenty three as well as in January.

Unknown Attendee: I want to ask about member growth and this is I think the first time in a very long time that we've seen a re-acceleration in member growth, wanted to get down into what's driving that was that, you know, driven by particular member product combinations. Questions, you know, should we expect assistance of maybe a slightly higher level of member growth now, any commentary there. Yeah, we had a really strong quarter in member growth as well as product growth.

The fed has some tough decisions to make and that could impact the year. So I don't want to make any assumptions on where rates are.

Especially as using a sarah where they're flat versus where they could be up 25% or even 50 basis points as we start we start the new year.

But.

Suffice it to say the growth opportunities are in front of us are quite significant and we can use a lot of different levers that drive that growth. The one thing I will say as we look into 2024 and to reiterate what I said earlier.

67% of the growth in absolute dollars in revenue year over year were from non lending businesses.

Unknown Attendee: We see that we set a record in member growth at over 700,000 and a record in product growth of more than a million for the first time. I've mentioned on last quarter's call that we're starting to see and we're continuing to see this quarter, the compounding effects of everything working together across marketing and product, as well as the experience and satisfaction of word of mouth. You know, we've been focused on driving on a brand awareness because it makes the rest of our marketing more efficient as that goes up.

As you go into 2024, you should assume that personal loans and student loans will be additive to growth not the drivers of growth our technology platform business and our financial services segment. This will be the drivers of growth and we will supplement that on.

On the lending side.

In addition to that we're committed to GAAP profitability in the fourth quarter of 2023 and for the full year of 2024. So those are two guideposts to think about and then the last thing I'd say is we're really focused on tangible book value growth.

Unknown Attendee: Our performance marketing has better performance and it's much more efficient. The second thing is as you scale your data and information, it's you're hopeful that you can increase marketing and maintain those levels of efficiency. And I'd say that's been the biggest shift this year is that our marketing efficiencies have maintained as we spent more money, but clearly we're spending four dollars, but we're getting greater yield from what we're spending. And that's also a factor with the teams and just done a great job of allocating 25% of our marketing to brand building which drives on a brand awareness and officially spending the other 75% against performance marketing and then cross buying continues to be very positive reinforcing our overall one stop shop mentality.

Our trailing 12 month basis in my remarks, and Chris as we've talked about driving over $107 million of tangible book value growth. We're just getting started there. So that's another target you can think about.

And then Jeff in terms of your question about the $100 million sale in Q4.

105, 1% on an unhedged basis in terms of the actual pool of loans that we sold we will get into more details on loan sales in our next quarterly call specifically as it relates to Q4, but what I would say is that it is generally reflective of the overall portfolio. This specific pool had.

Unknown Attendee: In terms of the outlook for member growth and product growth, what I'd say is we had largely been averaging in the 400,000 range for members. I wouldn't start assuming we're in average over 600,000 or 700,000 today. I think you could start to focus on 500,000 plus members in a quarter and keep it with a five handle on it and we'll see how the quarter goes and how we're doing overall.

Slightly higher weighted average coupon than the average.

But there are other offsetting.

Puts us well to it so it's a blend but we don't talk about the specific loan pools that yourself.

The next question comes from Michael <unk> of Goldman Sachs.

Line is open.

Anthony Noto: We've really been focused on driving to profitability and as we go into 2024, we haven't spent our plans yet, so I wouldn't set this at a new level. It was extraordinary quarter. Can we repeat this quarter? Yes, but I wouldn't plan on it. So I keep the outlet for members in the 500,000 range for now.

Hey, good morning, I, just have two questions one for Anthony and one for Chris first Anthony on just sales and marketing efficiency per new member.

I wanted to follow up on an earlier question, which was just around that point.

If you could tell us about in terms of like.

How sales and marketing.

Members, becoming more efficient.

Jeffrey Adelson: The next question today comes from Jeff Adelson of Morgan Stanley. Please go ahead. Hey, good morning. Thanks for sticking my question to guys. So I think just looking at the guidance for the folder, it looks like, you know, 4-3-23, you're, you're, you're looking for something like a 28% to 32% revenue growth exit rate for the year. Just thinking through next year, I know it's early still, but if rates say where they are, these elevated levels, is that a good number to be thinking about for next year or is there any reason it shouldn't stay where it is and how should we be thinking about the different revenue components should we be seeing, you know, continue strength and the NII a little bit less than the income, maybe a little bit more intact platform and then Chris, if I could just ask really quick on the 100 million of loans, I think you said you sold that. 1051, is that an un- hedged or hedged number and could you just maybe speak quickly to what those loans were with a more seasoned or more new originations. Thanks. Thanks for the questions.

Do you see continuing opportunities too.

To drive efficiency and effectiveness there.

And then for Chris.

I wanted to ask about the discount rate changes for personal loans and student loans relative to last quarter.

I think the PL discount rate went up by 50 basis points student loans went up by 40 basis points any color there in terms of.

That increase in the context of how benchmark rates have changed in any other key factors. Thank you.

On the sales and marketing side. There are many factors that are driving efficiency, but I'm going to just focus on the big macro factor. There are others that are that are much more detail.

Over the long term as we drive unaided brand awareness higher.

All the rest of the money that we spend.

We'll be more efficient if people know the brand if they trust the brand and we're a household brand name. The promotions, we do have a higher click through rate. The conversion that we have two new customers and new products will also have a greater efficiency.

Anthony Noto: The first thing I'd say is the opportunity we have to drive growth is significant. We can drive compounding growth for years, given how large these markets are in a low level of market share. What we choose to grow in 2024 will be a function of the environment as we get through the fourth quarter and work in January. So we've taken a approach that we give for your guidance at the beginning of the year after we report Q4.

And so as we scale the business and scale and brand awareness those would be the two macro drivers. There are many other factors in there tied to data.

Anthony Noto: So we'll do that again. And then we'll update you each quarter. So I don't want to dig into the details of 2024 because there's a lot left to be decided in 23, as well as in January. Clearly, the Fed has some health decisions to make and that could impact the year. So I don't want to make any assumptions on where rates are, especially using a Sarah where they're flat versus where they could be up 25 or even 50 basis points as we start the new year.

Channels and additional technologies like artificial intelligence and other algorithms that we have and for re targeting et cetera, but the biggest factor is going to be our unaided brand awareness and the scale that we have.

And then in terms of the underlying inputs of our marks in the discount rate moves specifically I'll hit on both PEO and SLR and some of the movements. There. So in Q3, the fair market value Mark on our PL loans decreased from 104, 1% to $104 zero percent. So it was down 10 basis points that was a function of the discount.

<unk>, increasing by 50 basis points.

Anthony Noto: But, you know, suffice it to say the growth opportunities in front of us are quite significant and we can use a lot of different levers to drive back growth. The one thing I will say is we're looking to 2024 to reiterate what I said earlier. 67% of the growth in absolute dollars in revenue year by year were from non lending businesses. As you go to 2024, you should assume that personal loans and student loans will be added to growth, not the drivers of growth.

Embedded in that discount rate assumption was in benchmark rates increased 70% 17 basis points Thats, a two year swaps and then spread assumptions widened by about 33 basis points and then we had CPR is increasing.

And collectively those were offset by a 20 basis point increase in the weighted average coupon of one thing Thats important to note in the personal loans business is that our actual CPR rates realized in Q3 were $3 four 4% versus an assumed four 6% embedded in the marks so that means what were actually.

Anthony Noto: Our technology platform business and our financial services segment in this will be the drivers of growth. And we'll supplement that on the lending side. In addition to that, we're committed to gap profitability in the fourth quarter of 2023 and for the full year of 2024. So those are two guideposts to think about. And then the last thing I'd say is we're really focused on tangible book value growth on the telling 12 month basis in my remarks and increases. We talked about driving over $107 million of tangible book value growth. We're just getting started there. So that's another story you could think about.

Observing in terms of losses of about 116 basis points per year or 175 basis points over the life of the loan below what is actually embedded in the 104.0% Mark and then within SLR.

The fair market value Mark of our student loans decreased from 101, 9% to 101, 4% down 50 basis points and that was a function of the discount rate increasing by 40 basis points.

Our benchmark rates increased by about 35 basis points, and then spread assumptions widened slightly.

Chris Lapointe: And then Jeff in terms of your question about the $100 million sale in Q4. That was at 105.1% on an un hedged basis in terms of the actual pool of loans that we sold will get into more details on loan sales and our next quarterly call specifically as they relate to Q4. But what I would say is that it's generally reflective of the overall portfolio. This specific pool had slightly higher weighted average coupon than the average. But there are other offsetting inputs as well to it. So it's a blend, but we don't talk about the specific loan pools of yourself.

It was offset by a 30 basis point increase in WAC.

Prepayment rates ended up decreasing by about 10 basis points.

Mexican Mckee, we have a question from from.

Gabrielle of Oppenheimer. Please go ahead.

Hey, good morning, Thanks, so much for taking my question.

I was just curious about.

If the environment stays roughly the way it is today for demand for your products on the origination side in particular.

How should we be thinking about the current level.

Michael Ng: The next question in the key comes from Michael. I'm not a Goldman back. Your line is open. Hey, good morning. I just have two questions. One for Anthony and one for Chris. First Anthony on just sales and marketing efficiency per new member. I wanted to follow up on our earlier question, which was just around that point. Anything can tell us about in terms of how sales and marketing we remember is becoming more efficient.

Personal loans versus the current level of student loans and I only ask because <unk>.

Given where the quarter when it feels like you could actually see an acceleration of.

Revenue growth next year, and so I was just curious what how you are feeling about.

The demand for your products and the current level and market penetration rate that you have in these products. Thanks, so much.

Michael Ng: Do you see continued opportunities to drive efficiency and effectiveness there? And then for Chris, I wanted to ask about the discount rate changes for personal loans and student loans relative to the last quarter. I think the PL discount rate went up by 50 basis points. Student loans went up by 40 basis points. Any color there in terms of that increase in the context of how benchmark rates have changed and any other key factors.

Yeah.

I can appreciate your enthusiasm and if we wanted to accelerate revenue growth for next year, we absolutely could.

Given how lower market shares in all of these different businesses.

Under this scenario, where you have higher for longer I think we all need to be realistic on what that means for the industry the demand for our products and higher for longer as you mentioned, we will continue to be robust.

And the opportunity for us to capture that will also be very strong, but we can't just think about so far. We also have to think about the other market participants I do think higher for longer.

Anthony Noto: Thank you. The sales and marketing side, there are many factors that are driving the efficiency, but I'm going to just focus on the big macro factor, there are others that are much more detailed. Over the long term, as we drive, our native brand awareness higher, all the rest of the money that we spend will be more efficient. If people know the brand, if they trust the brand and we're a household brand name, the promotions we do will have a higher click through rate, the conversion that we have to new customers and new products will also have a greater efficiency.

So we put pressure on other financial companies. Unlike so far are not benefiting from growing deposits and that fee based notable interest rate risk because they either don't hedge.

The ability to pass on higher rates the way that we are able to and those are two really important points allows us to manage our assets and liabilities in real time and to do it on a micro level down to the loan level higher.

Higher for longer could put pressure on these other financial companies and in that environment, We would want to be a lot more conservative than actually see something like personal loans are not grow very much at all in student loans grow marginally.

Anthony Noto: And so as we scale the business and scale down in brand awareness, those would be the two macro drivers, there are many other factors in there, tied to data and channels and additional technologies like artificial intelligence and other algorithms that we have and for retargeting, etc. But the biggest factor is going to be our native brand awareness and the scale that we have.

So as we think about higher for longer when we think about being very balanced now because of the opportunity in front of us, but because the turmoil that may happen around us.

As I said earlier think about personal loans and student loans being additive to growth.

The tech platform and the financial services segment as being the driver of growth those are low capital businesses in fact nearly capital free.

Chris Lapointe: And then in terms of the underlying inputs of our marks and the discount rate moves specifically, I'll hit on both PL and SLR and some of the movements there. So in Q3, the fair market value mark on our PL loans decreased from 104.1% to 104.0% so it's down 10 basis points. That was a function of the discount rate increasing by 50 basis points. Embedded in that discount rate assumption was that benchmark rate increased 17 basis points.

I've also hit the point of profitability, which allows us to step on the gas drive even more scale in them.

Haven't talked about it yet on the call, but it was not an easy progress over the last six years in which we invested heavily in so far money. So find vast so by credit card. So far really are land turn product are at work business and a number of other businesses that are in that franchise services segment for it to go from a loss of over $50 million a year ago.

Chris Lapointe: That's a two-year swap. And then spread assumptions widened by about 33 basis points. And then we had CPRs increasing and collectively those were offset by a 20 basis point increase in the weighted average coupon. The one thing that's important to note in the personal loans business is that our actual CDR rates realizing Q3 were 3.44% versus an assumed 4.6% embedded in the marks. So that means what we're actually observing in terms of losses are about 116 basis points per year or 175 basis points over the life of loans below what is actually embedded in the 104.0% mark.

So a positive profit on a contribution basis of $3 million. This year gives us license to grow that in a much bigger way because we don't absorb losses. The way. We were previously we're still losing quite a bit of money and invest in credit card given their investment modes, but.

But we can really step on the gas on the other products to drive greater scale and profitability. There. So it's a great option for us to have but higher for longer may not be the center for next year, but if you actually believe that this scenario, we're going to we're going to be conservative we're still going to have really strong growth, but we'll be very balanced, especially on the origination side.

Thank you.

Final question today comes from.

Chris Lapointe: And then within SLR, the fair market value mark for our student loans decreased from 101.9% to 101.4% that was down 50 basis points. And that was a function of the discount rate increasing by 40 basis points. Our benchmark rates increased by about 35 basis points and then spread assumptions widened slightly. This was offset by a 30 basis point increase in wax and prepayment rate ended up decreasing by about 10 basis points.

Steven Please go ahead.

Hi, good morning, Thanks for taking my questions.

Great to hear the positive reiteration of positive GAAP.

Net income in the fourth quarter.

Just wondering when we look forward on that trend.

And you've talked about revenues accelerating increased efficiencies of the business. So should we expect the profitability of the business to actually continue to accelerate from here or are there investments or something else.

Dominic Gabriel: Next in the queue we have a question from Dominic Gabriel of Openheimer. Please go ahead. Hey, good morning. Make so much for taking my question. I was just curious about, you know, if the environment stays roughly the way it is today for demand for your products on the origination side in particular, how should we be thinking about the current level of personal loans versus the current level of student loans. I only asked because given where the quarter went, it feels like you could actually see an acceleration, of Revenue Growth next year. And so I was just curious what how you're feeling about, you know, the demand for your products and the current level and market penetration rate that you have in these products. Thanks so much. Thanks.

I'd like to make in the meantime, and how we should anticipate that profitability. Thank you.

Got it obviously in the fourth quarter, we're expecting the profitability to increase as we go from not generating positive GAAP earnings to generating positive GAAP earnings for the first time, we're committed to generating GAAP positive GAAP earnings for all of 2024.

We will we're still in investment mode, but we have to balance growth versus investment I would think about.

What we talked about earlier this year from an investment standpoint that will focus on 30% incremental EBITDA margins and 20% incremental GAAP net income margins as our guiding factor and how much will drop to the bottom line versus reinvesting in the business. Obviously this year, we've been well well ahead of the 30% incremental EBITDA margin.

<unk>, while still maintaining groups in fact, what I would say is I can't find another company, that's driven the level of consistent growth that we have in revenue as well as our member base and product base, while driving such significant improvement in profitability and building a high quality deposit and funding base and diversifying it in addition to growing.

Anthony Noto: I can appreciate your enthusiasm. And if we want to accelerate revenue growth from next year, we absolutely could be given how lower market shares and all these different businesses. But under this scenario where you have higher for longer, I think we all need to be realistic of what that means for the industry. The demand for our products and hire for longer, as you mentioned, will continue to be robust. And the opportunity for us to capture that will also be very strong.

Anthony Noto: But we can't just think about SoFi. We also have to think about the other market participants. I do think hire for longer will absolutely put pressure on other financial companies that unlike SoFi are not benefiting from growing deposits. And that faith, faith, notable interest rate risk because they either don't hedge, they lack the ability to pass on higher rates the way that we are able to. And those are two really important points.

Tangible book value by the level that I mentioned.

We will continue to make sure that we balance growth versus profitability next year.

And we're committed to GAAP profitability for the full year in that 30% incremental EBITDA margin and 20% GAAP net income margin at a minimum.

Thank you we have no further questions in the queue. So I'll turn the call back over to Anthony for any closing remarks.

Thank you for your questions I want to end with the following outlook.

We remain confident that no company is better positioned than <unk> to be the winner that takes most and the digital transformation of financial services.

Anthony Noto: It allows us to manage our assets and liabilities in real time. I had to do it on a micro level down to the loan level higher for longer could put pressure on these other financial companies. And in that environment, we would want to be a lot more conservative than actually see something like personal loans, not grow very much at all and student loans grow marginally. And so as we think about higher for longer, we think about being very balanced not because the opportunity in front of us, but because the torment that may happen around us.

Building the technology capabilities to offer our complete suite of financial products, All your mobile phone.

To support our scaled over $10 million products and over $2 billion and run rate annual revenue has proven to be a daunting challenge a daunting challenge not just for the most well equipped incumbent banks and financial institutions, but also for the most innovative entrepreneurs add to that the regulatory requirements and sizable financial capital.

Anthony Noto: As I said earlier, think about personal loans and student loans being added to growth and the tech platform and the financial services like when it's being the driver of growth. Those are low capital businesses. In fact, nearly capital free. I've also hit the point of profitability, which allows us to step on the gas drive even more scale them. We haven't talked about it yet on the call, but it was not an easy progress over the last six years in which we invested heavily and so far money.

And research is required and it's fair to conclude <unk> is in a class of one <unk>.

I could not be prouder of our team for getting us to this point and thankful to our more than 7 million members, whose lives. We impact every day. Thank you for your time and look forward to addressing you again next quarter.

This concludes today's call. Thank you for joining you may now disconnect your lines.

Anthony Noto: So if I invest, so if I credit card, so if I relay our land turned product or act work business and a number of other businesses that are in that financial services segment, free to go from a loss of over $50 million a year ago to a positive profit on a contribution basis of $3 million this year gives us license to grow that in a much bigger way because we don't absorb losses the way we work previously. We're still losing quite a bit of money and investing credit card given their investment modes, but we can really step on the gas and the other products to drive great scale and profitability there.

[music].

Okay.

Anthony Noto: So it's a great option for us to have. But higher for longer may not be the center for next year, but if you actually believe that this scenario, we're going to be conservative. We're still going to have really strong growth, but we'll be very balanced, especially on the origination side. Thank you.

Vincent Caintic: Our final question today comes from Vincent Caintic of Stephen. Please go ahead. Good morning.

Chris Lapointe: Things are taking my questions and briefly here are the positive iteration of positive gap net income in the fourth quarter. I'm just wondering when we look forward on that trend and you've talked about revenues accelerating increased efficiencies of the business. So should we expect the profitability of the business to actually continue to accelerate from here or are there investments or something else that you'd like to make in the meantime. And now we should anticipate that profitability.

Chris Lapointe: Thank you. Yeah, obviously in the fourth quarter, we're expecting the profitability to increase since we go from not generating positive gap earnings to generating positive gap earnings for the first time. We'll committed to generating gap, positive gap earnings for all of 2024. We will, we're still in investment mode, but we have to balance growth versus investment. I would think about the, you know, what we talked about earlier this year, from an investment standpoint, that will focus on 30% incremental EBITDA margins and 20% incremental gap net income margins as a guiding factor in how much will drop to the bottom line versus re-invest in the business.

Chris Lapointe: Have to see this year, we've been well, well ahead of the 30% incremental EBITDA margin, while still maintaining growth. In fact, you know, what I'd say is, I can't find another company that's driven the level of consistent growth that we have in revenue, as well as our member base and product base, while driving such significant improvement in profitability and building a high quality deposit and funding base and diversifying it in addition to growing tangible book value by the level that I mentioned.

Chris Lapointe: We'll continue to make sure that we balance growth versus profitability next year, and we're committed to gap profitability for the full year in that 30% incremental EBITDA margin and 20% gap net income margin at a minimum.

Unknown Attendee: Thank you.

Anthony Noto: We have no further questions in the queue, so I'll turn the call back over to Anthony, no talk for any closing remarks. Thank you for your questions.

Anthony Noto: I want to end with the following outlook. I remain confident that no company is better positioned than so far to be the winner that takes most in the digital transformation of financial services. Building the technology capabilities to offer our complete suite of financial products on your mobile phone at the supporter of scale over 10 million products and over $2 billion in run rate annual revenue has proven to be a daunting challenge.

Anthony Noto: A daunting challenge, not just for the most well-equipped income of banks and financial institutions, but also for the most innovative entrepreneurs. Add to that the regulatory requirements and sizable financial capital and resources required and it's fair to conclude so far is in a class of one. I could not be prouder of our so far team for getting us to this point and thankful to our more than 7 million members whose lives we impact every day.

Unknown Attendee: Thank you for your time and look forward to dressing you again next quarter.

Unknown Attendee: This concludes today's call. Thank you for joining.

Unknown Attendee: You may now disconnect your line.