Q1 2024 SoFi Technologies Inc Earnings Call
Jordan: Good morning, my name is Jordan, and I will be your conference operator today. At this time, I'd like to welcome everyone to the SoFi Technologies Q1 2020 4Earnings conference call.
Good morning, My name is Jordan and I'll be your conference operator today at this time I'd like to welcome everyone to the safeguard technologies Q1, 'twenty 'twenty four earnings conference call.
Jordan: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press a star followed by one on your telephone keypad. If you'd like to withdraw your question, please press a star followed by 2. With that, you may begin your conference.
Jordan: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session. If you'd like to ask a question. During this time simply press star followed by one on your telephone keypad.
If you'd like to withdraw your question. Please press star followed by two.
Jordan: We've got you may begin your conference.
Unknown Attendee: Thank you and good morning. Welcome to SoFi's first quarter of 2024 earnings conference call. Joining me today to talk about our results and recent events are Anthony Noto, CEO, and Christopher Lapointe, CFO. You can find the presentation accompanying our earnings release in the investor relations section of our website.
Jordan: Thank you and good morning, welcome to <unk> first quarter of 2024 earnings Conference call. Joining me today to talk about our results and recent events are Anthony Noto, CEO and Chris <unk> CFO.
Jordan: You can find the presentation accompanying our earnings release on the Investor Relations section of our website.
Unknown Attendee: Our remarks today will include forward-looking statements that are based on our current expectations and forecasts and involve risks and uncertainty. These statements include, but are not limited to, our competitive advantage and 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. Factors that could cause these results to differ materially are described in today's press release and our subsequent filings made with the SEC, including our upcoming form.
Jordan: Our remarks today will include forward looking statements that are based on our current expectations and forecasts and involve risks and uncertainties.
Jordan: These statements include but are not limited to our competitive advantage and strategy macroeconomic conditions and outlook future products and services and future business and financial performance.
Jordan: Our actual results may differ materially from those contemplated by these forward looking statements.
Jordan: Factors that could cause these results to differ materially are described in today's press release and our subsequent filings made with the SEC, including our upcoming Form 10-Q.
Unknown Attendee: Thank you. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. Now, I'd like to turn the call over to Anthony.
Jordan: Any forward looking statements that we make on this call are based on assumptions as of today.
Jordan: 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.
Anthony Noto: Thank you and good morning, everyone Q1 was another exceptionally strong quarter for so far we continue to successfully execute on our strategy of making so far the one stop shop for digital financial services, we expected that 2024 would be an important year of transition.
Anthony Noto: Thank you and good morning everyone. Q1 was another exceptionally strong quarter for SoFi. We continue to successfully execute on our strategy of making SoFi the one-stop shop for digital financial services. We expected that 2024 would be an important year of transition. Heading into this year, we had a conservative outlook given interest rate volatility, industry liquidity, inflation, and macroeconomic environment concerns.
Anthony Noto: Heading into this year, we had a conservative outlook given interest rate volatility industry liquidity inflation in macroeconomic environment concerns. We plan for continued strong growth from our financial services and technology platform segments up 50% year over year offsetting our planned for lending to be 90% to 95% of too.
Anthony Noto: We planned for continued strong growth from our financial services and technology platform segments, up 50% year-over-year, offsetting our plan for lending to be 92 to 95% of 2023 revenue. And we set out to strengthen our balance sheet and capital ratios by continuing to grow our tangible book value. I'm proud to report that our team delivered across each of these fronts and more in the first quarter of 2024.
Anthony Noto: 'twenty three revenue when we set out to strengthen our balance sheet and capital ratios by continuing to grow our tangible book value.
Anthony Noto: I am proud to report that our teams delivered across each of these fronts and more in the first quarter of 2024 first we responsibly grew revenue while further diversifying our business. We grew adjusted net revenue in Q1 to $581 million up 26% year over year. This marks the 12th consecutive quarter.
Anthony Noto: First, we responsibly grew revenue responsibly while further diversifying our business. We grew adjusted net revenue in Q1 to $581 million, up 26% year-over-year. This marks the 12th consecutive quarter of greater than 25% growth.
Anthony Noto: Of greater than 25% growth.
Anthony Noto: We grew adjusted EBITDA to $144 million, up 91% year-over-year. This represents a 25% margin compared to 16% a year ago. I'm pleased to report that our financial services and technology platform segments make up a growing portion of our revenue quarter-over-quarter, contributing 42% of adjusted net revenue in Q1. This is up from 40% last quarter and 33% a year ago, and we remain on track to finish 2024 with our revenue mix near 50-50.
Anthony Noto: We grew adjusted EBITDA to $144 million up 91% year over year. This represents a 25% margin compared to 16% a year ago I'm pleased to report that our financial services and technology platform segments make up a growing portion of our revenue quarter over quarter contributing 42% of adjusted net revenue.
In Q1, this was up from 40% last quarter and 33% a year ago and we remain on track to finish 2024 with a revenue mix near 50 50.
Anthony Noto: Second, we posted a gap net income of $88 million. This includes a $59 million one-time benefit from the recent exchange of convertible notes, which Chris will talk about more in a moment. After achieving our first quarter of GAP profitability in Q4 2023, we committed to sustaining profitability for the full year of 2024, and we did so in Q1. We posted GAAP EPS of two cents per share, which excludes the benefit from the convertible note exchange.
Second we posted GAAP net income of $88 million. This includes a $59 million one time benefit from the recent exchange of convertible notes, which Chris will talk about more in a moment.
Anthony Noto: After achieving our first quarter of GAAP profitability in Q4, 2023, we committed to sustaining profitability for the full year of 2024, and we did so in Q1, we posted GAAP EPS of <unk> <unk> per share, which excludes the benefit from the convertible note exchange.
Anthony Noto: Third, we further reinforced our balance sheet for long-term growth. We grew tangible book value for the seventh consecutive quarter to $4.1 billion, an increase of $608 million from the prior quarter. Equally as important, our tangible book value per share now stands at $3.92, up 16% sequentially.
Third we further reinforced our balance sheet for long term growth. We grew tangible book value for the seventh consecutive quarter to $4 $1 billion, an increase of $608 million from the prior quarter.
Equally as important our tangible book value per share now stands at $3 and 92.
Anthony Noto: 16% sequentially, we grew consumer deposits by a record of $3 billion and saw continued strong buying demands for our loans selling over $1 9 billion of loans in Q1.
Anthony Noto: We grew consumer deposits by a record of $3 billion and saw continued strong demand for our loans, selling over $1.9 billion of loans in Q1. SoFi Bank reported net income of $100 million with a 21% margin and a return on tangible equity of 11.7%. Our total capital ratio for SoFi Technologies is now 17.3%, a 200 basis point improvement from last quarter and well above our 10.5% regulatory minimum. Finally, our broad product offering, enabling people to borrow, save, spend, invest, and protect their money, continues to attract more and more members to SoFi. In Q1, we grew our member base to 8.1 million, up 44% from the prior year, adding 622,000 new members in the quarter.
Anthony Noto: So probably bank reported net income of $100 million with a 21% margin and a return on tangible equity of 11, 7%.
Anthony Noto: Our total capital ratio for <unk> technologies is now 17, 3%, a 200 basis point improvement from last quarter, and well above our 10, 5% regulatory minimum.
Anthony Noto: Finally, our broad product offering enabling people to borrow save spend invest and protect their money continues to attract more and more members to so far in Q1, we grew our member base to $8 1 million up 44% from the prior year, adding 622000, new members in the quarter.
Anthony Noto: Just as important, we continue to see members adopt more products and deepen their relationship with SoFi. We recorded 989,000 new product additions in the quarter, with 93% of those product ads coming in our financial services segment. A remarkable milestone, considering it's been only five years since we launched our first non-lending products and two years since we launched SoFi Bank. This increasingly diverse product relationship with our members is what maximizes the power of the financial services productivity loop and allows us to leverage our unique structural economic advantage. Despite external unpredictability in the year ahead, I remain as confident as ever in SoFi's future, our plan to sustain responsible growth, and our ability to deliver meaningful value to our shareholders.
Just as important we continued to see members adopt more products and deepen their relationship with Sofia, We recorded 989000, new product additions in the quarter with 93% of those product adds coming in our financial services segment.
Anthony Noto: A remarkable milestone considering it's been only five years since we launched our first non lending products and two years since we launched Sofia Bank.
Anthony Noto: Its increasingly diverse product relationship with our members as what maximizes the power of the financial services productivity loop and allows us to leverage our unique structural economic advantage. Despite external unpredictability in the year ahead, I remain as confident as ever in so far as future our plans to sustain.
Anthony Noto: <unk> growth and our ability to deliver meaningful value to our shareholders.
Anthony Noto: Before handing it over to Chris to cover our financial highlights and share updated guidance, I wanted to give a quick peek under the hood on our segment-level results, starting with financial services. We continue to drive acquisition and monetization, and importantly, rapidly expanding margins. We achieved record net revenue of $151 million in Q1, up 86% year-over-year and 8% from the prior quarter. Demonstrating the strong operating leverage in this segment, we generated this 86% growth with only an 8% increase in directly attributable expenses year-over-year. The overall financial services segment achieved $37 million in contribution profit at a 25% margin compared to a $24 million loss in the year-ago quarter.
Speaker Change: Before handing it over to Chris to cover our financial highlights and share updated guidance I wanted to give a quick peek under the hood on our segment level results starting with financial services.
Chris: We continued to drive acquisition and monetization and importantly rapidly expanding margins, we achieved record net revenue of $151 million in Q1 up 86% year over year and 8% from the prior quarter demonstrating the strong operating leverage in this segment, we generated this 86% growth with.
Chris: Only an 8% increase indirectly attributable expenses year over year.
Chris: Overall financial services segment achieved $37 million in contribution profit at a 25% margin compared to a $24 million loss in the year ago quarter that margin is up seven points from last quarter and a full 22 points from our first quarter of segment profitability achieved in the third quarter of 2023.
Anthony Noto: That margin is up 7 points from last quarter and a full 22 points from our first quarter of segment profitability achieved in the third quarter of 2023. This progress is notable given our significant investment across our money, credit card, and investment products. SoFi Money delivered strong growth, high-quality deposits and engagement, and higher average account balances, even as spending increased. We grew to 3.9 million SoFi Money accounts, up 61% year-over-year, with over 90% of our consumer deposits coming from direct deposit members.
Chris: This progress is notable given our significant investment across our money credit card and invest products.
Chris: I'll, probably money delivered strong growth high quality deposits and engagement and higher average account balances even as spending increased we grew to $3 9 million, so probably money accounts up 61% year over year with over 90% of our consumer deposits coming from direct deposit members are direct deposit members having.
Anthony Noto: Our direct deposit members have a median FICO of 744, and over 50% of our newly funded SoFi money accounts set up direct deposit by day 30, presenting ample opportunities for cross-buy into other SoFi products. As these members make SoFi money, their account of choice spending follows, with overall debit transaction volume exceeding $1.9 billion in the quarter, up 20% from the prior quarter and over 150% year over year. Looking at our credit card and investing products, we previously shared that these are our heaviest areas of investment in the financial services segment, with current losses of nearly $100 million annually on a run rate basis.
Chris: Median FICO of 744 and over 50% of our newly funded so far money accounts set up direct deposit by day 30, presenting ample opportunities for cross buy into other Sofia products.
Chris: These members makes Sofia money their account of choice spending follows with overall debit transaction volume exceeding $1 9 billion in the quarter up 20% from the prior quarter and over 150% year over year.
Looking at our credit card and invest products. We previously shared that these are our heaviest areas of investment and the financial services segment with current losses of nearly $100 million annually on a run rate basis. However, through improved unit economics and scale. We expect that these products will eventually contribute profit similar to our progress so far.
Anthony Noto: However, through improved unit economics and scale, we expect that these products will eventually contribute profit similar to our progress in SoFi money. Next, we turn to our technology platform segment. Our consistent product development and successful shift in sales strategy have enabled us to diversify growth and pursue larger, more durable revenue opportunities. In Q1, we exceeded $94 million in revenue, representing 21% year-over-year growth versus 13% last quarter, in line with our guidance for accelerating growth. Our tech platform segment contribution margin was 33% compared to 32% last quarter and 19% a year ago. Demand from traditional financial institutions and clients in non-financial categories remains strong.
My money net.
Chris: Next turning to our technology platform segment.
Chris: Our consistent product development and successful shift in sales strategy has enabled us to diversify growth and pursue larger more durable revenue opportunities in Q1, we exceeded $94 million in revenue, representing 21% year over year growth versus 13% last quarter in line with our guidance for accelerating growth.
Chris: Our tech platform segment contribution margin was 33% compared to 32% last quarter and 19% a year ago.
Chris: Demand from traditional financial institutions and clients and non financial categories remained strong while lead times for winning Rfps and integrations and time to revenue are measured in multiple quarters and years not months, we're seeing as the transition to modern processing and modern quarters playing out as envisioned we also made significant.
Anthony Noto: While lead times for winning RFPs and integrations and time to revenue are measured in multiple quarters and years, not months, we're seeing the transition to modern processing and modern cores playing out as envisioned. We also made significant strides in product development in Q1. We enhance our partnership with Bancorp to offer real-time payments, improving the money movement hub, and enabling multiple new use cases for B2C and B2B clients. We launch post-purchase, buy now, pay later for banks and fintechs to deliver flexible financing solutions for debit and credit purchases. Galileo and SoFi Bank have partnered to launch a small business financing card program with Rapid Finance.
Chris: Strides in product development in Q1.
Chris: We enhanced our partnership with the Bank Corp to offer real time payments and proving the money movement hub, enabling multiple new use cases for BDC and <unk> clients. We launched post purchase buy now pay later for banks and Fintech to deliver a flexible financing solutions for debit and credit purchases.
Chris: Galileo and so by bank partner to launch a small business financing card program with rapid finance and importantly, we continued to make progress with our growing pipeline of new partners in the quarter.
Anthony Noto: And importantly, we continue to make progress with our growing pipeline of new partners in the quarter. And finally, on lending. As we shared last quarter, we've taken a more conservative approach toward originations, given our concerns around rate uncertainty and the broader macro climate. For Q1, adjusted net revenue of $325 million was flat year-over-year. Personal loan origination growth slowed to 11% year-over-year to $3.3 billion, in line with our more conservative approach.
Chris: And finally, turning to lending as we shared last quarter, we've taken a more conservative approach toward originations given our concerns around rate uncertainty and the broader macro climate.
Chris: For Q1, adjusted net revenue of $325 million was flat year over year personal loan origination growth slowed to a 11% year over year to $3 3 billion in line with our more conservative approach in fact, the balance of personal loans on our balance sheet declined 2% quarter over quarter.
Chris: Student loan originations grew 43% year over year to $752 million and home loan originations increased 274% year over year to $336 million.
Anthony Noto: In fact, the balance of personal loans on our balance sheet declined 2% quarter-over-quarter. Student loan originations grew 43% year-over-year to $752 million, and home loan originations increased 274% year-over-year to $336 million. A record 82% of the segment's adjusted net revenue was derived from net interest income, compared to 76% last quarter and 62% in the year-ago quarter. This is a direct benefit of our bank charter and our ability to hold loans longer when advantageous.
Chris: A record 82% of the segments. Adjusted net revenue was derived from net interest income compared to 76% last quarter and 62% in the year ago quarter. This is a direct benefit of our bank charter and our ability to hold loans longer when advantageous.
Chris: Adjusted lending revenue from net interest income has more than doubled since we launched the bank two years ago.
Chris: Together these efforts contribute to great results for us so far in the first quarter of 2024, I am incredibly proud of our team's perseverance to serve our members and clients financial needs and face of continued volatility and uncertainty around the world, while delivering good consistent growth profitability and share holder value creation with that.
Anthony Noto: The percent of adjusted lending revenue from net interest income has more than doubled since we launched the bank two years ago. Together, these efforts will contribute to great results for SoFi in the first quarter of 2024. I am incredibly proud of our team's perseverance to serve our members and clients' financial needs in the face of continued volatility and uncertainty around the world while delivering good, consistent growth, profitability, and shareholder value creation. With that, I'll hand it over to Chris.
Chris: I'll hand, it over to Chris.
Chris: Thanks, Anthony the first quarter demonstrated strong evidence of how our increasingly diversified and differentiated business model drives sulfides durability and long term growth potential.
Chris: I'm going to walk through key financial highlights and our financial outlook.
Chris: Unless otherwise stated I'll be referring to adjusted results for the first quarter of 2024 versus first quarter of 2023.
Chris Lapointe: Thanks, Anthony. The first quarter demonstrates strong evidence of how our increasingly diversified and differentiated business model drives SoFi's durability and long-term growth potential. I'm going to walk through key financial highlights in our financial outlook. Unless otherwise stated, I'll be referring to adjusted results for the first quarter of 2024 versus the first quarter of 2023.
Chris: 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 month.
Chris: For the quarter, we delivered adjusted net revenue of $581 million with growth of 26% year over year.
Adjusted EBITDA was $144 million at a 25% margin.
Chris Lapointe: 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. For the quarter, we delivered a net revenue of $581 million with growth of 26% year over year. Adjusted EBITDA was $144 million at a 25% margin. This represented over eight points of year-over-year margin improvement, demonstrating significant operating leverage across all functional expenses. In fact, sales and marketing declined as a percentage of adjusted net revenue by nine points relative to the year-ago quarter, while total non-interest operating expenses declined 16 points year over year.
Chris: This represented over eight points of year over year margin improvement demonstrating significant operating leverage across all functional expense lines.
Chris: In fact sales and marketing declined as a percentage of adjusted net revenue by nine points relative to the year ago quarter, while total noninterest operating expenses declined 16 points year over year.
Chris: We delivered our second quarter of GAAP profitability with GAAP, net income, reaching $88 million or $122 million improvement year over year.
Chris: Net income included the benefit of about $59 million net gain associated with the exchange of a portion of our 2026 convertible notes at a discount for equity during the quarter.
Chris: We reported GAAP diluted EPS of <unk>.
Chris Lapointe: We delivered our second quarter of GAP profitability with GAP net income reaching $88 million, a $122 million improvement year over year. Net income included the benefit of a $59 million net gain associated with the exchange of a portion of our 2026 convertible notes at a discount for equity during the quarter. We reported diluted EPS of two, which was not impacted by the gain from the convertible mode exchange. Now on to the segment level performance.
Chris: Which was not impacted by the gain from the convertible note exchange.
Speaker Change: Now on to the segment level performance.
Speaker Change: Starting with financial services, where net revenue of $151 million increased 86% year over year with new all time high revenue for so by money and lending as a service as well as continued contributions from <unk> and credit card.
Speaker Change: Overall monetization continues to improve with annualized revenue per product of $59 up 31% year over year versus $45 in Q1 2023.
Speaker Change: This is driven by higher deposits and remember spending levels and sulfide money greater AUM and monetize both features and so if I invest and robust growth within sulfide credit card spend.
Chris Lapointe: Starting with financial services, where net revenue of $151 million increased 86% year-over-year, with new all-time high revenue for SoFi money and lending as a service, as well as continued contributions from SoFi Invest in credit cards. Overall monetization continues to improve, with annualized revenue per product of $59 up 31% year-over-year versus $45 in Q1 2023. This is driven by higher deposits and member spending levels in SoFi money, greater AUM and monetizable features in SoFi Invest, and robust growth within SoFi credit card spend.
Speaker Change: Net interest income increased 106% year over year, primarily driven by $11 $5 billion growth in deposits year over year.
Speaker Change: Our noninterest income increased 34% year over year, primarily driven by two factors interchange, which grew 65% year over year based on over $7 $5 billion in annualized spend and referrals from our lending as a service product, which grew 32% versus the prior year period.
Speaker Change: Contribution profit reached $37 million at a 25% margin for the quarter, even as we continue to invest to rapidly grow this segment.
Chris Lapointe: Net interest income increased 106% year over year, primarily driven by $11.5 billion growth in deposits year over year. Our non-interest income increased 34% year over year, primarily driven by two factors: interchange, which grew 65% year-over-year based on over $7.5 billion in annualized spend, and referrals from our lending-as-a-service product, which grew 32% versus the prior year period. Contribution profit reached $37 million at a 25% margin for the quarter, even as we continue to invest to rapidly grow this segment.
Speaker Change: Despite our invest in credit card businesses collectively losing nearly $100 million on an annualized basis, we still achieved strong margins.
Speaker Change: Lastly, we reached $10 1 million financial services products in the quarter, which is up 42% year over year with 919000, new products in the quarter.
Speaker Change: We reached nearly $3 9 million products, and so find money $2 2 million and still find us and $3 6 million in realized.
Speaker Change: Shifting to our tech platform, where we delivered net revenue of $94 million in the quarter up 21% year over year and down 3% sequentially.
Chris Lapointe: Despite our investing credit card businesses collectively losing nearly $100 million on an annualized basis, we still achieve strong margins. Lastly, we reached 10.1 million financial services products in the quarter, which is up 42% year-over-year with 919,000 new products in the quarter. We reached nearly 3.9 million products in SoFi Money, 2.2 million in SoFi Invest, and 3.6 million in Relay.
Speaker Change: Annual revenue growth was driven by strong performance from new clients on boarded over the last nine months.
Speaker Change: Large bank deal signed in Latin America, and strong monetization of existing clients launching new products on our platform.
Speaker Change: Galileo accounts grew 20% year over year to $151 million.
Speaker Change: The segment delivered a contribution profit of $31 million, representing a 33% margin.
Speaker Change: We continue to leverage investments made in the segment as we continue to position tech platform for higher rates of diversified durable growth going forward.
Chris Lapointe: Moving to our tech platform, where we delivered net revenue of $94 million in the quarter, up 21% year over year and down 3% sequentially. Annual revenue growth was driven by strong performance from new clients onboarded over the last nine months, large bank deals signed in Latin America, and strong monetization of existing clients launching new products on our platform. Galileo accounts grew 20% year over year to 151 million.
Speaker Change: We expect tech platform revenue to accelerate in 2024 with strong margins.
Speaker Change: Turning to lending first quarter adjusted net revenue remained flat year over year at $325 million with $208 million of contribution profit at a 64% margin versus $210 million a year ago.
Speaker Change: These results were driven by a 33% year over year growth in our net interest income while noninterest income was down by 53%.
Speaker Change: Growth in net interest income was driven by a 59% year over year increase in average interest, earning assets and a 114 basis point year over year increase in the average yields.
Chris Lapointe: The segment delivered a contribution profit of $31 million, representing a 33% margin. We continue to leverage investments made in the segment as we continue to position the tech platform for higher rates of diversified, durable growth going forward. We expect tech platform revenue to accelerate in 2024 with strong, Turning to lending, first quarter adjusted net revenue remained flat year over year at $325 million with $208 million of contribution profit at a 64% margin versus $210 million a year ago.
This resulted in an average net interest margin of 591% for the quarter up 43 basis points year over year.
Speaker Change: I'd also highlight our $3 billion of deposit growth in the quarter compared to the $242 million of net loan growth on the balance sheet.
This has allowed us to continue to reduce our reliance on outside warehouse funding, which is 226 basis points more expensive than our deposits.
As a result, we reduced our warehouse utilization this quarter by $2 4 billion.
Speaker Change: The 226 basis points of cost savings between our deposits and our warehouse facilities continues to support our net interest margin and translates to nearly $500 million of annualized interest expense savings and our current deposit base.
Chris Lapointe: These results were driven by a 33% year-over-year growth in net interest income, while non-interest income was down by 53%. Growth in net interest income was driven by a 59% year-over-year increase in average interest-earning assets and a 114 basis point year-over-year increase in average yield. This resulted in an average net interest margin of 5.91% for the quarter, up 43 basis points year over year. I'd also highlight our $3 billion of deposit growth in the quarter compared to the $242 million of net loan growth on the balance sheet. This has allowed us to continue to reduce our reliance on outside warehouse funding, which is 226 basis points more expensive than our deposit. As a result, we reduced our warehouse utilization this quarter by $2.4 billion.
Speaker Change: It also underscores the benefits of having the option of holding loans on balance sheet, when advantageous and collecting net interest income.
Speaker Change: We expect to maintain a healthy net interest margin above 5% for the foreseeable future and benefit from the continued mix towards deposit funding along with our ability to sustain healthy deposit versus lending betas.
Speaker Change: On the noninterest income side Q1 originations grew 22% year over year to $4 $4 billion and were driven by growth across our personal student and home loan products.
Speaker Change: Personal loan originations growth slowed to 11% year over year, and 2% sequentially to $3 3 billion.
Chris Lapointe: The 226 basis points of cost savings between our deposits and our warehouse facilities continues to support our net interest margin and translates to nearly $500 million of annualized interest expense savings at our current deposit base. It also underscores the benefits of having the option of holding loans on the balance sheet when it is advantageous in collecting net interest income. We expect to maintain a healthy net interest margin above 5% for the foreseeable future and benefit from the continued shift towards deposit funding, along with our ability to sustain healthy deposit versus lending betas.
Speaker Change: Which was anticipated and in line with our more conservative approach given macro uncertainty.
Our student loans business, our origination volume grow 43% year over year with a slight 5% declined sequentially to $752 million.
Speaker Change: Home loans grew by over 270% year over year, and 9% sequentially to $336 million.
Our personal loan borrowers weighted average income is $169000 with a weighted average FICO score of 746.
Our student loan borrowers weighted average income is $146000 with a weighted average FICO of 768.
Chris Lapointe: On the non-interest income side, Q1 Originations grew 22% year-over-year to $4.4 billion, and this was driven by growth across our personal, student, and home loan products. However, personal loan originations growth slowed to 11% year over year and 2% sequentially to $3.3 billion, which was anticipated and in line with our more conservative approach, given macro uncertainty. Our student loans business saw our origination volume grow 43% year over year, with a slight 5% decline sequentially to $752 million. Home loans grew by over 270% year over year and 9% sequentially to $336 million. A personal loan borrower's weighted average income is $169,000, with a weighted average FICO score of 746.
Speaker Change: In the first quarter, we sold portions of our personal loan student loan and home loan portfolios totaling over $1 9 billion.
Speaker Change: That comprises approximately $1 6 billion in personal loan principle $300 million in student loan principal and nearly $350 million in home loan principal.
Speaker Change: In terms of personal loan sales, we closed $500 million of loans in whole loan form and $700 million in ABS at a blended execution of 105, 7%.
Speaker Change: These had similar structures to other recent personal loan sales with cash proceeds at par or at a small premium to par and the majority of the premium consisted of contractual servicing fees that are capitalized.
Speaker Change: These deals included a small loss share provision that is above our base assumption of losses and immaterial relative to the exposure we would otherwise have if we held the loans.
Chris Lapointe: Our student loan borrower's weighted average income is $146,000, with a weighted average FICO of 768. In the first quarter, we sold portions of our personal loan, student loan, and home loan portfolios for totaling over $1.9 billion. That comprises approximately $1.26 billion in personal loan principal, $300 million in student loan principal, and nearly $350 million in home loan principal. In terms of personal loan sales, we closed $500 million of loans in whole loan form and $700 million in ABS at a blended execution of 105.7%.
Speaker Change: As a result of the personal loan sales in the quarter the quantity of personal loans on our balance sheet declined sequentially despite growth in originations.
Speaker Change: Additionally, we sold $62 $5 million of late stage delinquent personal loans principal in the quarter.
Speaker Change: Typically we do not sell delinquent loans until they are charged off but we were able to generate positive value generated from both recovery and servicing value relative to letting the loans charge offs and sell after the fact.
Speaker Change: As discussed during Q4 results roughly 15% of our losses came from credit tiers that we ceased originating several quarters earlier, which represented 3% of unpaid principal balance.
Chris Lapointe: These had similar structures to other recent personal loan sales, with cash proceeds at par or at a small premium to par, and the majority of the premium consisted of contractual servicing fees that are capitalized. These deals also included a small loss share provision that is above our base assumption of losses and immaterial relative to the exposure we would otherwise have if we held the loan.
Speaker Change: We were therefore able to reduce exposure to those credit tiers as the loans run off and become a much smaller portion of overall unpaid principal balance.
Speaker Change: In addition, we continue to make adjustments to our credit underwriting model in line with the internal and external indicators underlying our risk scorecard.
Chris Lapointe: As a result of the personal loan sales in the quarter, the quantity of personal loans on our balance sheet declined sequentially despite growth and origination. Additionally, we sold $62.5 million of late stage delinquent personal loans principal in the quarter. Typically, we do not sell delinquent loans until they are charged off, but we were able to generate positive value from both recovery and servicing value relative to letting the loans charge off and sell after the fact.
Speaker Change: Moving to our student loan sales, we closed $294 million of loans in whole loan form and execution of 104, 9%.
Speaker Change: This sale had no accompanying loss share provision north senior secured financing option.
Speaker Change: Finally, our $344 million of home loan sales were sold at a blended execution of 109%.
Speaker Change: Also in the quarter, we executed $399 million in senior secured financing, which will show up on our detailed balance sheet as senior secured loans held for investment at amortized cost.
Chris Lapointe: As discussed during Q4 results, roughly 15% of our losses came from credit tiers that we ceased originating several quarters earlier, which represented 3% of unpaid principal balance. We were therefore able to reduce exposure to those credit tiers as the loans run off and become a much smaller portion of overall unpaid principal balance. In addition, we continue to make adjustments to our credit underwriting model in line with the internal and external indicators underlying our risk scorecard. Moving to our student loan sales, we closed $294 million of loans in whole loan form with an execution of 104.9%. This sale had no accompanying lost share provision or senior secured financing option.
Speaker Change: These loans have a fixed term structure and our secured against the underlying assets. Therefore equivalent to the investment grade bonds. If we were to do a securitization for the same pool of collateral.
Speaker Change: In addition, these loans are priced at market rates, which not only helps to diversify our balance sheet. But also provides an additional return above our cost of funding and a yield similar to the net interest margin of our loans, which are unsecured.
Speaker Change: Turning to credit performance, our on balance sheet 90 days student loan delinquency rate was 13 basis points, while our annualized student loan charge off rate was 60 basis points.
Speaker Change: Our Q1 on balance sheet 90 day personal loan delinquency rate was 72 basis points.
Chris Lapointe: Finally, our $344 million of home loan sales was sold at a blended execution of 100.9%. Also, in the quarter, we executed $399 million of senior secured financing, which will show up on our detailed balance sheet as senior secured loans held for investment at amortized costs. These loans have a fixed-term structure and are secured against the underlying assets, therefore equivalent to investment-grade bonds if we were to do a securitization for the same pool of collateral.
Speaker Change: Our annualized personal loan charge off rate decreased to 345% from 4.0% to 2% in Q4, including the impact of asset sales, new originations and the delinquency sale in the quarter.
We anticipate ongoing normalization in credit performance towards pre pandemic levels of 7% to 8% life of loan losses.
Speaker Change: Now turning to our fair value marks and key assumptions are.
Chris Lapointe: In addition, these loans are priced at market rates, which not only helps to diversify our balance sheet but also provides an additional return above our cost of funding and a yield similar to the net interest margin of our loans, which are unsecured. Turning to credit performance, our on-balance sheet 90-day student loan delinquency rate was 13 basis points, while our annualized student loan charge-off rate was 60 basis points. In Q1, our on-balance sheet 90-day personal loan delinquency rate was 72 basis points.
Speaker Change: Our personal loans are marked at 104, 2% as of quarter end down from 104, 9% at the end of Q4 and well below the 105, 7% blended execution achieved on the $1 2 billion and personal loan sales.
The lower personal loan Mark was primarily a function of the discount rate increasing by approximately 30 basis points to five 8%.
Speaker Change: This was driven by the underlying benchmark rate, increasing by approximately 50 basis points and spreads tightening by 20 basis points in line with industry trends.
Speaker Change: Importantly, the benchmark rate change and the spread change our empirical is there actual market observed inputs not assumptions.
Chris Lapointe: Our annualized personal loan charge-off rate decreased to 3.45% from 4.02% in Q4, including the impact of asset sales, new originations, and the delinquency sale in the quarter. We anticipate ongoing normalization in credit performance toward pre-pandemic levels of 7 to 8% life loan loss. Now turning to our Fair Value Marks and Kia, our personal loans are marked at 104.2% as of quarter end, down from 104.9% at the end of Q4, and well below the 105.7% blended execution achieved on the $1.2 billion in personal loan sales.
Speaker Change: In addition, the Mark was negatively impacted by the annual default rate, increasing by nine basis points to 485% and the annual prepayment speeds, increasing by 150 basis points to 24, 7%, which has an immaterial impact on the overall change in the Mark.
Speaker Change: When a borrower prepays, we're still capturing the principal and the impact of the value of the asset is only based on the premium above par at a given point in time, which is very small relative to the principal outstanding.
The weighted average coupon of the personal loan portfolio remained unchanged at 13, 8%.
Speaker Change: For our student loan portfolio, the fair value Mark remained unchanged at 103, 8% at quarter end.
Chris Lapointe: The lower personal loan mark was primarily a function of the discount rate increasing by approximately 30 basis points to 5.8%. This was driven by the underlying benchmark rate increasing by approximately 50 basis points and spreads tightening by 20 basis points in line with industry trends. Importantly, the benchmark rate change and the spread change are empirical, as they are actual market-observed inputs, not assumptions.
In terms of the input our weighted average coupon remained flat at five 6% annual losses remained flat at 60 basis points prepayments increased by eight basis points to 10, 5% and the discount rate remained unchanged at four 3%.
Speaker Change: As mentioned previously we sold $294 million of student loan collateral in the quarter.
Speaker Change: Had we not sold those assets the student loan discount rate would have increased by a similar magnitude as our personal loans business.
Chris Lapointe: In addition, the mark was negatively impacted by the annual default rate increasing by nine basis points to 4.85% and the annual prepayment speeds increasing by 150 basis points to 24.7%, which has an immaterial impact on the overall change in the mark. When a borrower prepays, we are still capturing the principal, and the impact on the value of the asset is only based on the premium above par at a given point in time, which is very small relative to the principal outstanding. The weighted average coupon of the personal loan portfolio remained unchanged at 13.8%.
Speaker Change: Switching to our balance sheet, where we remain very well capitalized with ample cash and liquidity.
Speaker Change: Assets grew by $1 2 billion.
Speaker Change: Largely as a result of $242 million growth in loans and approximately $803 million growth in cash cash equivalents and investment securities.
Speaker Change: On the liability side deposits grew by $3 billion sequentially to nearly $22 billion.
Speaker Change: As mentioned earlier, we reduced our reliance on warehouse facilities through our robust deposit growth and exited the quarter with approximately $800 million of warehouse debt drawn.
Speaker Change: In Q1, we opportunistically executed two transactions in order to optimize our financing structure and bolster our capital capacity.
Chris Lapointe: For a student loan portfolio, the fair value mark remained unchanged at 103.8% at quarter end. In terms of the inputs, our weighted average coupon remained flat at 5.6%, annual losses remained flat at 60 basis points, prepayments increased by 8 basis points to 10.5%, and the discount rate remained unchanged at 4.3%. As mentioned previously, we sold $294 million of student loan collateral in the quarter. Had we not sold those assets, the student loan discount rate would have increased by a similar magnitude as our personal loans business.
Speaker Change: First we issued $862 $5 million in convertible notes due in 2029, and a 125% coupon.
Speaker Change: The net proceeds are being used to replace higher cost financing, including the redemption of the $320 million of outstanding series, one preferred stock carries an annual dividend of 12, 5%, which was set to increase to over 15% in late may.
Speaker Change: In total this new convertible issuance should reduce our financing expense by $40 million to $60 million per year, including cost saving opportunities with the remaining proceeds.
Speaker Change: Second we agreed to an exchange of $600 million principal of our convertible notes due in 2026 per shares of Sofia common stock.
Chris Lapointe: Switching to our balance sheet, where we remain very well capitalized with ample cash and liquidity. Assets grew by $1.2 billion, largely as a result of $242 million growth in loans and approximately $803 million growth in cash, cash equivalents, and investment security. On the liability side, deposits grew by $3 billion sequentially to nearly $22 billion.
Speaker Change: This was a notable discount compared to what we would have had to pay in two years.
Speaker Change: This transaction generated a gain of $59 million for us in the quarter, while notably, reducing our 2026 maturities and bolstering our funding capacity.
Speaker Change: When viewed in total these transactions are accretive to book value and net income and have minimal impact on our fully diluted EPS basis.
Chris Lapointe: As mentioned earlier, we reduced our reliance on warehouse facilities through our robust deposit growth and exited the quarter with approximately $800 million of warehouse debt drawn. In Q1, we opportunistically executed two transactions in order to optimize our financing structure and bolster our capital capacity. First, we issued $862.5 million in convertible notes due in 2029 at a 1.25% coupon. The net proceeds are being used to replace higher-cost financing, including the redemption of the $320 million of outstanding Series 1 preferred stock that carries an annual dividend of 12.5%, which was set to increase to over 15% in late May.
Speaker Change: In terms of our regulatory capital ratios, our total capital ratio of 17, 3% improved by 200 basis points from 15, 3% last quarter due in large part to these transactions and remains comfortably above the regulatory minimum of 10, 5%.
Speaker Change: While we don't intend to utilize the excess capital capacity in the year, given our view of the macro uncertainty these transactions put us in an even stronger position for years to come.
Speaker Change: Lastly, we grew book valued at $6 1 billion intangible book value of $4 $1 billion.
Speaker Change: We recorded tangible book value per share at $3 92.
Speaker Change: Up 16% quarter over quarter.
Speaker Change: Now moving on to our updated guidance.
Speaker Change: About 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 are continued keen focus on underwriting high quality credit and a high degree of operating leverage as we scale the business.
Chris Lapointe: In total, this new convertible issuance should reduce our financing expense by $40 to $60 million per year, including cost-saving opportunities with the remaining proceeds. Second, we agreed to an exchange of $600 million principal of our convertible notes due in 2026 for shares of SoFi Common. This was a notable discount compared to what we would have had to pay in two years. This transaction generated a gain of $59 million for us in the quarter, while notably reducing our 2026 maturities and bolstering our funding capacity. When viewed in total, these transactions are accretive to book value and net income and have minimal impact on a fully diluted EPS basis.
Speaker Change: We expect those benefits to persist going forward, even in light of the existing macro backdrop.
Speaker Change: 2024 remains a transitional year for <unk> as the tech platform and financial services segments, together will drive our growth and increase from 38% of total adjusted net revenue in 2023 to approximately 50% for all of 2024.
Speaker Change: For the full year 2024, we now expect to deliver adjusted net revenue of 2.39 to $2 $43 billion, which is $25 million higher than our implied prior guidance range of $2 365 to $2 405 billion.
Chris Lapointe: In terms of regulatory capital ratios, our total capital ratio is 17.3%, improved by 200 basis points from 15.3% last quarter, due in large part to these transactions, and remains comfortably above the regulatory minimum of 10.5%. While we don't intend to utilize the excess capital capacity this year, given our view of the macro uncertainty, these transactions put us in an even stronger position for years to come. Lastly, we grew book value to $6.1 billion and tangible book value to $4.1 billion. We recorded tangible book value per share at $3.92, up 16% quarter over quarter.
Speaker Change: This guidance assumes lending revenue will be 92% to 95% of 2023 levels, which is unchanged from prior guidance and tech platform will grow approximately 20% year over year, which is also unchanged.
Speaker Change: We expect the financial services segment revenue to grow more than 75% year over year.
Speaker Change: We now expect adjusted EBITDA of $590 to $600 million.
Speaker Change: Above our prior guidance of $580 million to $590 million.
Speaker Change: And that incorporates increased investment into more product innovation, new businesses services and member benefits.
Speaker Change: This represents 15% to 17% adjusted net revenue growth and a 25% adjusted EBITDA margin.
Speaker Change: We now expect full year GAAP net income of $165 million to $175 million above prior guidance of $95 million to $105 million, which includes a $59 million gain associated with the convertible note exchange.
Chris Lapointe: Now moving on to our updated guidance. 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 continued 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 environment.
Speaker Change: We expect fully diluted GAAP EPS of eight to nine <unk> per share above prior guidance of seven to eight cents per share.
Speaker Change: We now expect growth in tangible book value of approximately $800 million to $1 billion for the year versus our previous guidance of $300 million to $500 million given the benefits of the recent convertible debt exchange along with the effects of new convertible issuance.
Chris Lapointe: 2024 remains a transitional year for SoFi as the tech platform and financial services segments together will drive our growth and increase from 38% of total adjusted net revenue in 2023 to approximately 50% for all of 2024. For the full year 2024, we now expect to deliver adjusted net revenue of $2.39 to $2.43 billion, which is $25 million higher than our implied prior guidance range of $2.365 to $2.405 billion. This guidance assumes lending revenue will be 92 to 95% of 2023 levels, which is unchanged from prior guidance, and the tech platform will grow approximately 20% year over year, which is also unchanged. We expect the financial services segment revenue to grow more than 75% year over year.
Speaker Change: We now expect to end the year with a total capital ratio of north of 16% due to those transactions versus our previous guidance of 14%.
Speaker Change: We continue to expect to add at least $2 3 million new members in 2024, which represents 30% growth.
Speaker Change: For Q2, we expect to deliver adjusted net revenue of $555 million to $565 million.
Speaker Change: Adjusted EBITDA of $115 million to $125 million and net income of $5 million to $10 million.
Speaker Change: In terms of phasing you can see for the past two years that the second quarter is seasonally flattish for lending, which coupled with our more conservative approach towards originations. This year should drive a sequential decline in lending revenue, which largely offsets tailwind and the two other segments.
Speaker Change: In terms of operating expenses, you can expect low single digit sequential growth as we continue to invest in future growth.
Chris Lapointe: We now expect Adjusted EBITDA of $590 to $600 million, above our prior guidance of $580 to $590 million, and that incorporates increased investment in more product innovation, new businesses, services, and member benefits. This represents 15 to 17% adjusted net revenue growth and a 25% adjusted EBITDA margin. We now expect full-year gap net income of $165 to $175 million, above prior guidance of $95 to $105 million, which includes a $59 million gain associated with a convertible note exchange.
Speaker Change: Overall, we couldn't be more proud of our Q1 results and continued progress.
Speaker Change: <unk> delivered over $581 million of adjusted net revenue and $144 million of adjusted EBITDA. We continued to make great progress against our long term objectives in the quarter and remained very well capitalized to achieve our vision of making sulfide. The one stop shop for digital financial services.
Speaker Change: With that let's begin the Q&A.
Speaker Change: Yeah.
Speaker Change: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Speaker Change: Keep in mind, we will take only one question per person at a time, please rejoin the queue for any additional questions.
John Hecht: Your first question comes from the line of John hedged.
Chris Lapointe: We expect fully diluted GAP EPS of $0.08 to $0.09 per share, above prior guidance of $0.07 to $0.08 per share. We now expect growth in tangible book value of approximately $800 million to $1 billion for the year, versus our previous guidance of $300 to $500 million, given the benefits of the recent convertible debt exchange, along with the effects of new convertible issues. We now expect to end the year with a total capital ratio north of 16% due to those transactions versus our previous guidance of 14%.
Of Jefferies. John Please go ahead.
John Hecht: Good morning, guys excuse me good morning, Thanks for taking my question.
John Hecht: Chris you gave some of the metrics and the personal lending book.
John Hecht: Charge offs and so forth I'm wondering what you are looking at at this point.
John Hecht: In terms of payment trends in kind of the underwriting factors that informs your credit outlook and maybe if you could give us your.
John Hecht: Your thoughts on that as well.
Chris: Sure I'll start and then.
Speaker Change: Anthony can chime in so.
Speaker Change: So we feel really good about our credit and the underlying performance of our loans and everything is performing in line with expectations. While we continue to see the underlying signs of improvement in.
Chris Lapointe: We continue to expect to add at least 2.3 million new members in 2024, which represents 30% growth. For Q2, we expect to deliver adjusted net revenue of $555 to $565 million, adjusted EBITDA of $115 million to $125 million, and net income of $5 to $10 million. In terms of phasing, you can see for the past two years that the second quarter is seasonally flattish for lending, which coupled with our more conservative approach toward originations this year should drive a sequential decline in lending revenue, which largely offsets tailwinds in the two other segments.
Anthony Noto: In Q1, our net charge off rate was 345%, which was down from 4.0% in Q4, which included the impact of asset sales new originations as well as the delinquency sale that we did in the quarter.
Anthony Noto: In terms of our outlook, we anticipate ongoing normalization in credit performance towards pre pandemic levels of 7% to 8% life of loan losses, which is in line with what we said last quarter.
Anthony Noto: Historically life of loan losses could reasonably be approximated by the weighted average life of the portfolio multiplied by given quarters annualized net charge offs. However.
Anthony Noto: Our life of loan loss trends and our outlook are unchanged the relationship to any given quarter's Ncos has changed in fact, what we're now seeing particularly with how recent vintages are playing out as a more rapid factoring down of loan principle as a result of increasing prepayment speeds and demand for shorter term.
Chris Lapointe: In terms of operating expenses, you can expect low single-digit sequential growth as we continue to invest in future growth. Overall, we couldn't be more proud of our Q1 results and continued progress. Having delivered over $581 million of adjusted net revenue and $144 million of adjusted EBITDA, we continued to make great progress against our long-term objectives in the quarter and remain very well positioned to achieve our vision of making SoFi the one-stop shop for digital financial services. With that, let's begin the Q&A.
What that means is that we're starting to see a greater proportion of losses happening sooner and as a result, we're seeing an outsized impact on NCL rates that are not directly correlated to the life of loan losses, when applying the normal one five weighted average life to them.
Anthony Noto: Other words for any specific recent vintage you can expect to see losses lower in the latter stages than before and higher in the earlier stages. However, our life of loan losses will remain in line with our 7% to 8% outlook.
Anthony Noto: It gives us confidence in that 7% to 8% outlook is that we have a decade of experience of underwriting high quality credit and as we've been talking about for quite some time optimizing the credit profile of those we underwrite too as part of our DNA.
Jordan: At this time, I'd like to remind everyone that in order to ask a question, press star then the number one on your telephone keypad. Please keep in mind, we'll take only one question per person at a time. Please rejoin the queue for any additional questions. Your first question comes from the line of John Hecht of Jeffrey's. John, please go ahead. Good morning.
Anthony Noto: We underwrite to cash flow, we had very robust analytics detailed vintage based models and forecasts, which are managed by our second line of defense and all of our outlooks are data driven resulting in a strong performance and outcomes that we've been able to achieve.
Now when looking at some of the specific numbers and trends that we're observing today, we've seen a material improvement in performance since we started tightening credit in mid 2022.
Chris Lapointe: Sure, I'll start, and Anthony can chime in. So we feel really good about our credit and the underlying performance of our loans, and everything is performing in line with expectations while we continue to see the underlying signs of improvement. In Q1, our net charge-off rate was 3.45%, which was down from 4.0% in Q4, which included the impact of asset sales, new originations, as well as the delinquency sale that we did in the quarter.
Anthony Noto: When looking at recent vintages and their loss rates at comparable point in time to our Q3 2022 vintage we've observed the following.
Anthony Noto: Q1, our Q1 2023 cumulative vintage losses through 12 months of being on the books was approximately 20% better than the Q3 2022 vintage over that same period of time 12 months of being on the books.
Chris Lapointe: In terms of our outlook, we anticipate ongoing normalization in credit performance towards pre-pandemic levels of 7 to 8% for life loan losses, which is in line with what we said last quarter. Historically, life-alone losses could reasonably be approximated by the weighted average life of the portfolio, multiplied by a given quarter's annualized net charge-offs. However, while our life-alone loss trends and our outlook are unchanged, the relationship to any given quarter's NCOs has changed. In fact, what we're now seeing, particularly with how recent vintages are playing out, is a more rapid factoring down of loan principal as a result of increasing prepayment space and demand for shorter-term loans.
Anthony Noto: You look at our Q2 2023 cumulative vintage losses through nine months of being on the books that was also 20% better than the Q3 2022 vintage over the same period of time and then finally, our Q3 2023 cumulative vintage losses through six months of being on the books was nearly 40%.
Anthony Noto: Other than the Q3 2022 vintage of the same period of time.
So putting it all together the performance improvement that we've observed in recent vintages, coupled with the short duration nature of the assets and the remaining principal on older and newer vintages prior to making credit cuts gives us a very high degree of confidence in our 78% last 12 months' outlook.
Chris Lapointe: What that means is that we're starting to see a greater proportion of losses happening sooner, and as a result, we're seeing an outsized impact on NCO rates that is not directly correlated to the life alone losses when applying the normal 1.5x weighted average life to them. In other words, for any specific recent vintage, you can expect to see losses lower in the latter stages than before and higher in the earlier stages.
Anthony Noto: Our next question comes from Mark Devries of Deutsche Bank. Your line is open.
Anthony Noto: Okay.
Mark Devries: Yes, thanks for taking my question.
Mark Devries: I was curious whether it's just kind of given where you are now.
Mark Devries: The equity capital levels.
Mark Devries: Whether you feel you have enough.
Mark Devries: Sources to support future growth or do you potentially see yourself having to raise.
Mark Devries: Additional outside equity.
Speaker Change: Thanks for the question.
Chris Lapointe: However, our life-alone losses will remain in line with our 7-8% outlook. What gives us confidence in that 7% to 8% outlook is that we have a decade of experience underwriting high-quality credit. And as we've been talking about for quite some time, optimizing the credit profile of those we underwrite is part of our DNA. We underwrite for cash flow. We have very robust analytics, detailed vintage-based models, and forecasts, which are managed by our second line of defense. And all of our outlooks are data-driven, resulting in the strong performance and outcomes that we've been able to achieve.
We have significant excess capital prior to the transactions that occurred in the quarter, our risk based capital level was over 15% as our 17% well above our regulatory requirement.
Speaker Change: And given our outlook on lending there is no reason for us to change our stance on that business. We have we went into 2024 with a view that our growth will be driven by the combined impact of tech platform and financial services business.
Speaker Change: These are not big enough in terms of total scale and profitable enough.
Speaker Change: Our resources behind them still grow as we did this quarter over 26% year over year, while the lenses was essentially flat year over year, So our decision to make.
Speaker Change: Make that transition in 2024, it wasn't driven by capital, we have excess capital and could grow at much faster, we have even more excess capital now.
Chris Lapointe: Now, when looking at some of the specific numbers and trends that we're observing today, we've seen a material improvement in performance since we started tightening credit in mid-2022. For example, when looking at recent vintages and their loss rates at comparable points in time to our Q3 2022 vintage, we observed the following. In Q1, our Q1 2023 cumulative vintage losses through 12 months of being on the books were approximately 20% better than the Q3 2022 vintage over that same period of time, 12 months of being on the books.
Speaker Change: Our stance hasn't changed because that wasn't the reason for keeping it relatively conservative we feel great about the trend in the tech platform and Franco services I think it's quite remarkable growth rate that we're achieving there in the world.
Speaker Change: <unk> profitability, if you'd asked me six years ago could we deliver in the first quarter of 2024, 25% revenue growth, 25% EBITDA margin growth intangible book about 16% sequentially. In addition to record deposits and strong member growth of 44% are finally being flat I would say not a chance.
Chris Lapointe: If you look at our Q2 2023 cumulative vintage losses through nine months of being on the books, that was also 20% better than the Q3 2022 vintage over the same period of time. And then finally, our Q3 2023 cumulative vintage losses through six months of being on the books were nearly 40% better than the Q3 2022 vintage over the same period of time. So, putting it all together, the performance improvement that we've observed in recent vintages, coupled with the short-duration nature of the assets and the remaining principal on older and newer vintages prior to making credit cuts, gives us a very high degree of confidence in our 7 to 8% life-long loss outlook. Our next question comes from Mark DeVries of Deutsche Bank. Your line is open. Yeah, thanks for taking
Speaker Change: So it is a rough estimate of the diversification of our business and the Optionality, we have to drive growth and different environments.
Started in October we're talking about higher for longer and while the market and different government officials led people to believe there'll be six rate at one point now we're down to 1% to two rate cuts. We think we took the appropriate stance and we're well positioned to play where the economy goes in 2024.
Speaker Change: Our next question comes from Dan <unk> of Mizuho. Please go ahead.
Speaker Change: Yes.
Dan: Hey, guys really strong results. Congrats I had a question about the NIM really stable NIM trends can you Chris comment.
Dan: The future NIM trends, how you're seeing them I would appreciate it. Thank you.
Sure makes sense.
Chris: So yes, we've been very successful in maintaining healthy net interest margins and continuing to expand them over time.
Chris: In Q1, our net interest margin was five 9%, which was up 43 basis points year over year and more importantly, what we've seen is year over year net interest margin expansion in every single quarter throughout 2022, and 2023, our ability to constantly expand NIM was a function of maintaining loan price.
Chris Lapointe: Our next question comes from Mark DeVries of Deutsche Bank. Your line is open.
Anthony Noto: Thanks for the question. You know, we had significant excess capital prior to the transactions that occurred in the quarter. Our risk-based capital level was, you know, over 15 percent. It's now over 17 percent, well, well, well above our regulatory requirement.
Chris: <unk> betas that are above 100% in a rising rate environment scaling our high quality deposits and maintaining data a loved 100% in a rising rate environment for our loans business as well as capital structure optimization moves that provide us with a lower cost of funding, we do expect to maintain healthy margins.
Anthony Noto: And given our outlook on lending, there's no reason for us to change our stance on that business. We went into 2024 with the view that our growth would be driven by the combined impact of our tech platform and financial services business. Those businesses are now big enough in terms of total scale and profitable enough that we could put our resources behind them and still grow, as we did this quarter, more than 26 percent year-over-year, while the lending business was essentially flat year-over-year.
Chris: For the foreseeable future breaking it down between the asset side and the liability side on the asset side of the equation and are higher for longer rate environment. We do expect to maintain strong yields north of 9%.
As consistent with what we've observed over the course of the last several quarters, even in light of seeing a mix shift away from personal loans on the balance sheet.
Chris: And then on the liability side, we expect to be able to maintain a healthy cost of funding, even while maintaining our highly competitive <unk> on our Sofia money product. That's a function of a few things first we recently issued $862 $5 million of convertible notes at a rate of $1, two 5%, which was used to displace much higher cost of funding.
Anthony Noto: So our decision to make that transition in 2024 wasn't driven by capital. We had excess capital and could grow it much faster. We have even more excess capital now, but our stance hasn't changed because that wasn't the reason for keeping it relatively conservative.
Anthony Noto: We feel great about the trends in tech platforms and financial services. I think it's quite remarkable the growth rate that we're achieving there and the level of profitability. If you had asked me six years ago, could we deliver in the first quarter of 2024 25 percent revenue growth, 25 percent EBITDA margin, growth in tangible book of about 16 percent sequentially, in addition to record deposits and strong member growth of 44 percent, with lending being flat, I would have said not a chance.
Second we still have room to fund more of our balance sheet with lower cost deposits, we have $2 $6 billion of higher cost brokered Cds $800 million of warehouse lines that are outstanding and about $500 million of a corporate revolver outstanding. So net net we're really confident in being able to maintain.
Chris: Net interest margin above four 5% for the foreseeable future.
Chris: Yeah.
Chris: Yeah.
Chris: Our next question comes from Kyle Peterson of Needham and company. Your line is open.
Anthony Noto: So it's a real testament to the diversification of our business and the optionality we have to drive growth in different environments. But we started in October talking about hiring for longer, and while the market and different government officials led people to believe there'd be six rate cuts at one point, now we're down to one to two rate cuts. We think we took the appropriate stance, and we're well positioned to play where the economy goes in 2024. Our next question comes from Dan Dolev of Mizzou. Please go ahead.
Chris: Yes.
Kyle Peterson: Great. Thanks, guys. Good morning, and I appreciate you taking the question just.
Kyle Peterson: I just wanted to dive a bit more into deposit growth and pricing.
Kyle Peterson: Really strong growth on that front, but if you could give a little more detail specifically on.
Kyle Peterson: Deposit betas and what the biggest drivers of growth will be in.
Particularly if we are in are higher for longer environment that'd be great.
Kyle Peterson: Yeah.
Speaker Change: Yes, Chris can comment on the data is what I'd say is we raised our 24 revenue outlook.
Chris: The range more than we'd be in Q1, and that's because of the positive tailwind. We are seeing in both tech platform as well as financial services, we had record growth.
Chris Lapointe: So, yeah, we've been very successful in maintaining healthy net interest margins and continuing to expand them over time. In Q1, our net interest margin was 5.9%, which was up 43 basis points year-over-year. And more importantly, what we've seen is year-over-year net interest margin expansion in every single quarter throughout 2022 and 2023. Our ability to constantly expand NIM has been a function of maintaining loan pricing betas that are above 100% in a rising rate environment, scaling our high-quality deposits, and maintaining betas below 100% in a rising rate environment for our loans business, as well as capital structure optimization moves that provide us with a lower cost of funding
Chris: Deposits in Q1 of $3 billion.
Chris: We've seen really strong spending trends were annualized more than $8 billion now so that will definitely continue to have a tailwind where you.
Chris: They've positioned to be able to provide an attractive <unk> in the deposit business given the fact that we're originator and we can match up what we're lending at versus what we're paying out from a depository standpoint. In addition to that we really see strong trends from existing customers for the tech platform business. In addition to uptake of new products such as.
Chris: Payment risk platform as well as the connective chat product. So we feel good about the largest components of our revenue going into the back half of the year and then we have the additional contributions from businesses like Sofia invest as well in our credit card business and.
Chris Lapointe: We do expect to maintain healthy margins for the foreseeable future, breaking them down between the asset side and the liability side. On the asset side of the equation, in a higher for a longer rate environment, we do expect to maintain strong yields north of nine percent, which is consistent with what we've observed over the course of the last several quarters, even in light of seeing a mixed shift away from personal loans on the balance sheet. And then on the liability side, we expect to be able to maintain a healthy cost of funding even while maintaining a highly competitive APY on our SoFi Money product. That's the function of a few things.
In efforts that we had with land turn out small medium business lead generation.
All contributing smaller dollar amounts, but moving quite strongly in the direction of continued tailwind as well.
Chris: And then from a data perspective, we ended up exiting the quarter with $21 $6 billion of deposits that was up $3 billion quarter on quarter over quarter with more than 90% of the deposits coming from direct deposit numbers.
Chris Lapointe: First, we recently issued $862.5 million in convertible notes at a rate of 1.25%, which was used to displace a much higher cost of funding. Second, we still have room to fund more of our balance sheet with lower cost deposits. We have $2.6 billion of higher-cost brokered CDs, $800 million of warehouse lines that are outstanding, and about $500 million of a corporate revolver out there. So, net net, we're really confident in being able to maintain net interest margins above 5% for the. Our next question comes from Kyle Peterson of Needham and Company.
Chris: We ended up launching the checking and savings product back in February of 2022, with an <unk> of 1% and then at the end of Q1 or if you wanted to four 6% of our overall data over the course of time it has been in the 65% to 70% range.
Okay.
Chris: Our next question comes from Reggie Smith of Jpmorgan. Please go ahead.
Reginald Lawrence Smith: Hey, good morning, Thanks for taking the question.
Reginald Lawrence Smith: I wanted to kind of dig into the financial services segment, a little bit.
Reginald Lawrence Smith: One of the disclosures you guys gave in the press release.
Reginald Lawrence Smith: As the FICO score of some of the new depositors.
Reginald Lawrence Smith: I guess my question is.
Reginald Lawrence Smith: What's your appetite or.
Jordan: Your line is open. Great. Thanks, guys. Good morning.
We're really growing the credit card business.
Jordan: Our next question comes from Kyle Peterson of Needham and Company. Your line is open.
Reginald Lawrence Smith: Maybe talk about like what that looks like ultimately grow on that.
Reginald Lawrence Smith: And then my second question as it related to the managed services is is what.
Anthony Noto: Yeah, Chris can comment on the data. What I'd say is we raised our 24 revenue outlook in terms of the range by more than we beat in Q1. And that's because of the positive tailwinds we're seeing in both tech platforms as well as financial services. We had record growth and deposits in Q1 of $3 billion. We've seen really strong debit spending trends. We're annualizing more than $8 billion now. So that will definitely continue to have a tailwind.
Reginald Lawrence Smith: Point.
Reginald Lawrence Smith: Would I guess interest.
Reginald Lawrence Smith: Card outweigh.
Reginald Lawrence Smith: Maybe some of the transfer pricing again.
Reginald Lawrence Smith: On the lending segment is that an ultimate goal where that business is driven more by the actual linden at the credit card business.
Speaker Change: That makes sense, thanks a lot.
Speaker Change: We're really excited about where we are with credit card.
Speaker Change: Have a great journey and launching a credit card learning quite a bit about our go to market strategy, our marketing and targeting a potential new members with credit card. In addition to understanding the underlying credit trends and what the right credit model. In addition to other factors like fraud and risk overall, we brought in significant.
Anthony Noto: We're uniquely positioned to be able to provide an attractive APY in the deposit business, given the fact that we're an originator and we can match up what we're lending at versus what we're paying out from a depository standpoint. You know, in addition to that, we've really seen strong trends from the underlying existing customers to the tech platform business, in addition to the uptake of new products such as the payment risk platform, as well as the Connecta chatbot product.
Speaker Change: Wider expertise in the credit card business that are actually built near near Prime cards in the past our product remains a prime product that we will continue to be a prime product, but we felt like.
Anthony Noto: So we feel good about the largest components of our revenue going into the back half of the year. And then we have the additional contributions from businesses like SoFi Invest, as well as our credit card business, and efforts that we have with Lantern on small and medium business lead generation. Those are all contributing smaller dollar amounts but moving quite strongly in a direction of continued tailwind as well.
Speaker Change: Coming out of 2023 that we have the learnings that allow us to be more aggressive in 2024 in that business as things unfold. So expect us to invest more in the business and see some good innovation in the back half of the year based on the learnings that we've had for the last three years.
Speaker Change: Great product.
Chris Lapointe: And then, from a
Speaker Change: ROE product, but there is a J curve that you have to go through I think one of the things that may often be missed by the partner investments Trinity is that now we have eight.
Chris Lapointe: And then from a beta perspective, we ended up exiting the quarter with $21.6 billion in deposits. That was up $3 billion quarter over quarter, with more than 90% of the deposits coming from direct deposit members. We ended up launching a checking and savings product back in February of 2022 with an APY of 1%, and then at the end of Q1, our APY was 4.6%, so our overall beta over the course of time has been between 65 and 70%.
Speaker Change: 1 million members, we can market, our credit card and known members with known credit profiles known spending capabilities cash flow capacity et cetera, and so we're at that point now.
Speaker Change: They can put more resources behind the strides that we think is really working in our benefit as it relates to the interest rate and our relationship to the rest of our funding cost or what percentage of that.
Speaker Change: Yes, so right now this is.
Speaker Change: Super High ROE business in terms of the.
Jordan: Our next question comes from Reggie Smith of J.P. Morgan. Please go ahead.
Speaker Change: The mix shift towards.
Speaker Change: The lending product, we still have significant low cost of funding.
Anthony Noto: Hey, good morning. Thanks for taking the time to answer the question. I wanted to kind of dig into the financial services segment a little bit. One of the disclosures you got given in the press release is the FICO score of some of your new depositors. I guess my question is, you know, what's your appetite for, you know, really growing the credit card business? And maybe talk about what that looks like in the end.
Speaker Change: Through our deposit base.
Speaker Change: As Anthony mentioned, we're going to start scaling this business more rapidly we have started to see some good green shoots in terms of early stage delinquencies and losses that are performing materially better than.
Speaker Change: Historical vintages, so we can start investing more heavily in this.
Speaker Change: That's us.
Speaker Change: Our next question comes from Peter Christiansen of Citigroup. Your line is open.
Anthony Noto: And then my second question, still related to financial services, is, you know, at what point would, I guess, interest from credit cards outweigh, maybe some of the transfer pricing that you're getting from the lending segment? Is that an ultimate goal where that business is driven more by the actual lending of the credit card business? That makes sense. Thanks a lot.
Good morning, Thanks for the question great to be on the call.
Peter Christiansen: I'm curious about network fees in the financial services segment, which were down quarter over quarter I'm, just I think the expectation there was that they would it would rise sequentially.
Peter Christiansen: If you can give a little bit of color there. Thank you so much.
Speaker Change: Yeah, absolutely. So we are seeing really good spend behavior, we added about $1 9 billion.
Speaker Change: Overall spend in the quarter that was up from $1 5 billion in Q4, and $1 2 billion in Q3 of last year.
Chris Lapointe: We're really excited about where we are with credit card. We've had a great journey launching a credit card, learning quite a bit about our go-to-market strategy, how we're marketing and targeting potential new members with credit card, in addition to understanding the underlying credit trends and what the right credit model is, in addition to other factors like fraud and risk overall. We've brought in significant subject matter expertise in the credit card business who have actually built near-prime cards in the past.
Speaker Change: Did benefit from a small one time.
Benefits from a partner.
Speaker Change: On the network fee side, but what you can expect going forward is relatively linear growth with spend behavior over the course of 2024. So there was a one timer.
In Q1, Q4 that made for a tough comp, but going forward you can think of linear growth relative to spend.
Speaker Change: Okay.
Speaker Change: Our next question comes from Jeff Adelson of Morgan Stanley.
Chris Lapointe: Our product remains a prime product. It will continue to be a prime product, but we felt like coming out of 2023 that we had the learnings that would allow us to be more aggressive in 2024 in that business as things unfold. So expect us to invest more in the business and see some good innovation in the back half of the year based on the learnings that we've had from the last three years.
Speaker Change: Rose.
Jeffrey David Adelson: Hey, good morning, guys. Thank you for taking my question.
Jeffrey David Adelson: Chris maybe just to circle back on the improvement in the charge off rate for personal lines.
Jeffrey David Adelson: Seems like we saw a 15% sequential decline there sort of in line with the comments you've made about 15% of credits coming out of the system and over the last quarter and this quarter.
Chris Lapointe: It's a great product. It has a high ROE, but there is a J curve that you have to go through. I think one of the things that may often be missed by the broader investment community is that now we have 8.1 million members. We can market our credit card to known members with known credit profiles, known spending capabilities, cash flow capacity, et cetera. And so we're at that point now where we'd really like to put more resources behind these strides that we think are really working in our benefit as relates to the interest rate and in relationship to the rest of our funding costs. And let Chris answer that. Yeah, so right now, you know, this is a really great time
Speaker Change: How long should we maybe expect that to persist I know youre still talking about the charge off rates normalizing towards your life of loan targets just kind of curious how about short term dynamic might play out and then I guess the comments on keeping your excess capital this year in light of the macro uncertainty.
Are you are you hearing anything from your regulators on there about.
Speaker Change: You sort of buffer you might need to keep have you have you tried to run.
Speaker Change: And excess capital drawdown scenario from an internal stress tests or have you ever tried to size that.
Speaker Change: Just kind of curious because it seems like the macro uncertainty is a bit at odds with what we're hearing from other lenders, which are pointing to a little bit more of a stable to improving macro. So just trying to understand why maybe you wouldn't lean in a little bit more on the personal loan side here.
Chris Lapointe: Yeah, so right now, this is a super high ROE business. And in terms of the makeshift towards the lending product, we still have, you know, a significantly low cost of funding. But through our deposit base, and as Anthony mentioned, we're going to start scaling this business more rapidly, we have started to see some good green shoots in terms of early stage delinquencies and losses that are performing materially better than historical vintages. So we can start investing more heavily in this business.
Speaker Change: Yeah.
Speaker Change: Yeah sure I'll take some losses to Anthony can hit on some of the excess capital on the losses friends. We did see a decline in net charge offs, but what's important is the net charge off rate as a function of a number of factors that originations in the period as paydowns.
Chris Lapointe: Our next question comes from Peter Christensen of Citigroup. Your line is open.
Jordan: Yeah, absolutely. So we are seeing really good spend behavior. We had about $1.9 billion of overall spend in the quarter, which was up from $1.5 billion in Q4 and $1.2 billion in Q3 of last year. We did benefit from a small one-time benefit from a partner on the network fee side. But what you can expect going forward is relatively linear growth with spend behavior over the course of 2024. So there was a one-timer in Q4 that made for a tough comp, but going forward, you can think of linear growth for relatively small.
Speaker Change: <unk>.
Speaker Change: The loans that we're underwriting to we did benefit in this period.
Speaker Change: From the late stage delinquency sale that we did which helped drive the overall.
Speaker Change: Losses down sequentially.
Speaker Change: Would guide you to is that 7% to 8% life of loan loss outlook.
Speaker Change: We feel extremely confident and given some of the.
Speaker Change: Loss trends in delinquency trends that we're seeing in our more recent 2023 vintages.
Jordan: Our next question comes from Jeff Adelson of Morgan Stanley. The line is yours.
Speaker Change: On the excess capital point, yes, so what I'd say is we have.
Chris Lapointe: Hey, good morning, guys. Thank you for taking my question. Chris, maybe just circle back on the improvement in the charge operation for personal loans. Seems like we saw a 15% sequential decline there, sort of in line with the comments you've made about the 15% of credits coming out of the system over the last quarter in this quarter. How long should we maybe expect that to persist?
Speaker Change: 100% have the option to drive the lending business faster, we'd like we do stress test as you would imagine internally and externally for others.
Speaker Change: Across the entire ecosystem in which we operate and starting the year at the risk based capital that we had at 15% even with stress test gave us ample opportunity to.
Chris Lapointe: I know you're still talking about the charge operating normalizing towards your life of loan targets. I'm just kind of curious how that short-term dynamic might play out. And then I guess, you know, comments on keeping your excess capital this year in light of the macro uncertainty. Are you, you know, hearing anything from your regulators on there about, you know, any sort of buffer you might need to keep? Have you have tried to run, you know, an excess capital drawdown scenario from an internal stress test?
Speaker Change: To invest in that business at a rate that we wanted to.
Speaker Change: I'd say our outlook for the lending business is more reflective of the uncertainty as opposed to whether or not there are great trends as <unk> seen our lending business is actually performing quite well, we're driving great returns, they're good steady credit performance as expected, it's not that we're expecting a huge drop off the cliff or huge deterioration is that we've gone from us.
Speaker Change: The last six months the market anticipating six rate cuts.
Speaker Change: You got into sort of October time period to then.
Chris Lapointe: Or have you ever tried to size that? Just kind of curious, because it seems like the macro uncertainty is a bit at odds with what we're hearing from other lenders, which are pointing to a little bit more of a stable to improving macro. So just trying to understand why maybe you wouldn't lean in a little bit more on the personal loan side here.
Now youre down to one to two rate cuts in prior to the 6% rate cuts people were talking about higher for longer in October and so.
Speaker Change: So theres been a complete swing of the interest rate environment. As you just saw in the banking industry that creates liquidity issues for different banks were concerned about others not being able to manage the liquidity issues last year. At this time, we are experiencing first republic going under that was not anticipated I don't know what's around the next quarter I do know that we have a great member base we have.
Chris Lapointe: Yeah, sure. I'll take some of the losses. Anthony can hit on some of the excess capital. On the losses front, we did see a decline in net charge-offs. But what's important is the net charge-off rate is a function of a number of factors. It's originations, and the period is paydowns. It's a term of the loans that we're underwriting to. What I would guide you to is that 7% to 8% life-alone loss outlook, which we feel extremely confident in, given some of the loss trends and delinquency trends that we're seeing in our more recent 2023 vintages. On the excess capital point. Yeah, so what I'd say is...
Excess capital well above what we started the year with that 17%. So we have the option to grow that business much faster, if we choose to and one of the things. We havent talked about it is we're now selling significant amount of loans, we sold $1 9 billion of loans in the quarter.
Speaker Change: That demand remains strong and so to the extent that that demand continues to increase and remained strong and the environment remains stable and more predictable could we be more aggressive in the Atlantic the 100% we have the capital we have to go to market strategy, we have the flexibility in our balance sheet and we have the aptitude to be able to do it. We're just taking a very conservative view.
Anthony Noto: Yeah, so what I'd say is we 100% have the option of driving the lending business faster if we'd like. We do stress tests, as you would imagine, internally and externally for others across the entire ecosystem in which we operate.
Anthony Noto: And starting the year at the risk-based capital that we had at 15%, even with stress tests, gave us ample opportunity to invest in that business at a rate that we wanted to. I would say our outlook for the lending business is more reflective of uncertainty as opposed to whether or not there are great trends. As you can see in our lending business, we're actually performing quite well. We're driving great returns there, and we have good, steady credit performance as expected.
Speaker Change: Make sure we don't go into the environment that were completely unprepared for taking a conservative stance gives us the most optionality to do more but not necessarily have to do less yes.
Speaker Change: And the only other thing I would add to quantify some of those numbers in terms of our overall capacity is that we have more than $20 billion in capacity to originate loans and even though were.
Speaker Change: Even if we were to originate at that level, we would remain well.
Anthony Noto: It's not that we're expecting a huge drop off the cliff or a huge deterioration. It's that we've gone from, in the last six months, the market anticipating six rate cuts as you got into this sort of October time period, and now you're down to one to two rate cuts. And prior to the six rate cuts, people were talking about higher rates for longer in October.
Speaker Change: Above all regulatory minimums in terms of what's driving the overall 20 billion first we expect to generate 800 to a $1 billion of tangible book value in 2024, which translates to about six $5 billion to $8 billion of incremental capacity second loans are amortizing or paying down at an annual rate of nine 5 billion.
Third we have our previously announced $2 billion forward flow agreement. In addition to a number of on the run transactions.
Anthony Noto: And so there's been a complete swing in the interest rate environment. As you just saw in the banking industry, that creates liquidity issues for different banks. We're concerned about others not being able to manage the liquidity issues. Last year at this time, we were experiencing First Republic going under. That was not anticipated.
Speaker Change: That we're doing in the capital markets front demand is extremely strong we did $1 $9 billion of sales this past quarter.
Speaker Change: And then lastly, we have incremental headroom in our overall capital ratio. So having said that we have sufficient capacity, but we are taking a conservative approach.
Anthony Noto: I don't know what's around the next quarter, but I do know that we have a great member base. We have excess capital well above what we started the year with at 17%, so we have the option to grow the business much faster if we choose to. And one of the things we haven't talked about is that we're now selling a significant amount of loans. We sold $1.9 billion of loans in the quarter. That demand remains strong.
Speaker Change: Our next question comes from Mihir Bhatia of Bank of America. Your line is open.
Mihir Bhatia: Hi, Good morning, and thank you for taking my question I wanted to switch to the Tech segment for a second.
Mihir Bhatia: 80% account growth this quarter I was wondering if you could comment on a couple of things. There. One is can you just comment on what is driving that maybe talk about some of the key customers you may be added in the quarter.
Mihir Bhatia: Also just curious if you could provide some examples of the larger clients you have won since transitioning the sales strategy to focus on these large clients and then just relatedly on the segment margins improved nicely and I think you've talked about this being a margin expansion you, but can you just comment on the margin trajectory from here. Thank you.
Anthony Noto: And so to the extent that demand continues to increase and remain strong, and the environment remains sort of stable and more predictable, could we be more aggressive in the lending business? 100%. We have the capital, we have the go-to-market strategy, we have the flexibility and the balance sheet, and we have the aptitude to be able to do it. We're just taking a very conservative view to make sure we don't go into an environment that we're completely unprepared for. Taking a conservative stance gives us the most optionality to do more but not necessarily to have to do less. Yeah.
Speaker Change: Yes in terms of tech platform, we saw good consistent trends there. The tech platform grew 21%, which was an acceleration in year over year growth compared to Q4, and Q3 and Q4 also accelerated we expect the trends there to continue we have a really sizeable client base with growing underlying youth.
Speaker Change: <unk> and that client base.
Speaker Change: And to driving additional product attachments to our existing clients. We're also seeing a greater contribution from new clients over the last nine months.
Chris Lapointe: Yeah, and the only other thing I would add to quantify some of those numbers in terms of our overall capacity is that we have more than $20 billion in capacity to originate loans. And even if we were to originate at that level, we would remain well above all regulatory minimums.
Speaker Change: As it relates to the broader macro environment for technology platform segment.
The demand and interest in using our technology platform, our modern genetree core as well as our API based.
Chris Lapointe: In terms of what's driving the overall $20 billion, first, we expect to generate $800 to $1 billion of tangible book value in 2024, which translates to about $6.5 to $8 billion of incremental capacity. Second, loans or amortization are paying down at an annual rate of $9.5 billion. Third, we have our previously announced $2 billion forward flow agreement, in addition to a number of on-the-run transactions that we're doing on the capital markets front.
Speaker Change: Payment.
Speaker Change: Foreign exchange platform is as high as it's ever been and we continue to sign up New partners I'd say those new partners fall into a couple of buckets we.
Speaker Change: We are converting people from other competitive processing sites to go live.
Speaker Change: <unk>.
Speaker Change: Listen to that there's a lot of demand still from AR partners.
Speaker Change: Partners that have historically used in issuing platform processing platform like <unk> that are transitioning to that platform from a sector standpoint, and then in the large financial institutions. The demand for modern cores and processing continues to be really robust.
Chris Lapointe: Demand is extremely strong. We did $1.9 billion in sales this past quarter. And, lastly, we have incremental headroom in our overall capital ratio. So, having said that, we have sufficient capacity, but we are taking it.
Speaker Change: Timing on those deals is really driven by those end customers. We haven't lost any of the Rfps. We've continued to be down selected as big financial institutions go from a large RFP to a few select partners. So we feel good about our chances there we're not expecting to win 100% of those deals, but we feel like we can win our fair share.
Jordan: Our next question comes from Mihir Bhatia of Bank of America. Your line is open.
Chris Lapointe: Hi, good morning, and thank you for taking my call. I wanted to switch to the tech segment for a second. You had 20% account growth this quarter. I was wondering if you could comment on a couple of things there. One is, can you just comment on what's driving that? Maybe talk about some of the key customers you may have added in the quarter. Also, just curious if you could provide some examples of the larger clients you have won since transitioning the sales strategy to focus on these large clients. And then just relatedly on the segment, margins improved nicely. And I think you've talked about this being a margin expansion year, but can you just comment on the margin trajectory from here? Thank you.
Speaker Change: Those deals will take longer to not only sign up but to also implement and so the contribution from that quarter.
Speaker Change: Quarter is nine months after their announced but we feel great about the current trends there and thats why the acceleration happened in the quarter Q2 is a seasonally weaker quarter for the technology platform business, but the year over year growth rates, what people should focus on because that eliminates the impact of seasonality and accelerated.
Speaker Change: Our next question comes from Terry MA of Barclays. Your line is open.
Chris Lapointe: Yeah, in terms of the tech platform, we saw good consistent trends there. The tech platform grew 21%, which was an acceleration in year-over-year growth compared to Q4 and Q3. Q4 also accelerated, and we expect the trends there to continue. We have a really sizable client base with growing underlying users in that client base, in addition to driving additional product attachments to our existing clients. Q2 is a seasonally weaker quarter for the technology platform business, but the year-over-year growth rate is what people should focus on because that eliminates the impact of seasonality and that acceleration. Our next question comes from Terry Ma of Barclays. Your line is open.
Terry MA: Hey, thanks.
Terry MA: Digging a little bit more on the late stage personal loan delinquency personal loan sales can you, maybe just talk about the structure and execution around that and whether or not you plan on selling more.
Yeah.
Speaker Change: Yes, absolutely.
Terry MA: So in Q1, we ended up selling $62 $5 million of late stage delinquent personal loans in the quarter typically we do not sell delinquent loans until they are charged off.
Terry MA: We were able to generate an opportunity, where we're able to generate positive value relative to letting the lowest charge off and so after the fact.
Terry MA: So.
Terry MA: Typically how it works at a high level as we would normally when a loan charge off and then sell in release servicing to.
Chris Lapointe: Yeah, absolutely. So in Q1, we ended up selling 62 and a half million dollars of late-stage delinquent personal loans in the quarter. Typically, we do not sell delinquent loans until they're charged off, but we were able to generate an opportunity where we were able to generate positive value relative to letting the loans charge off and sell after the fact. So typically, how it works at a high level is we would normally let a loan charge off and then sell and release servicing to a debt settlement company or another investor for low double-digit pennies on the dollar.
Terry MA: That settlement company or another investor firms low double digit pennies on the dollar and this late stage delinquency sales structure, we were able to retain servicing and portions of the recovery, which will result in nearly double the returns we would have otherwise been able to achieve.
Terry MA: Our final question comes from share of UBS, Joe. Please go ahead.
Joe: Thanks, Good morning, So I just wanted to touch on operating expenses and just wondering if you could highlight any opportunities there and the largest at this isn't seeking areas and then also how does continued brand awareness improvement impact your sales and marketing spend.
Chris Lapointe: In this late stage delinquency sales structure, we were able to retain servicing and portions of the recovery, which will result in nearly double the returns we would have otherwise been able to achieve. Our final question comes from Jill Sher of UBS. Jill, please go ahead.
Chris Lapointe: Yeah, so I'll hit on some of the operating expense lines. I'll let Anthony hit on the brand awareness.
Joe: Yeah, So I'll hit on some of the the operating expense lines I will let Anthony hit on the brand awareness, but overall, we saw meaningful improvements across all functional expense line items.
Chris Lapointe: But overall, we saw meaningful improvements across all functional expense line items. Sales and marketing specifically was down about 900 basis points year-over-year as a result of obviously improvements in overall brand awareness, continued and elevated cross-buy. We're close to 40% of all new products that were taken out in the period of work coming from existing members on the platform. And then we're just getting much more efficient at being able to market them.
Anthony Noto: Sales and marketing specifically.
Anthony Noto: About 900 basis points year over year as a result of obviously improvements in the overall brand awareness continued and elevated cross buy we're at close to 40% of all new products that were taken out in the period.
Anthony Noto: But we are coming from existing members on the platform and then we're just getting much more efficient.
Anthony Noto: Being able to to market.
Chris Lapointe: In terms of other efficiencies, we continue to see efficiencies in R&D as a result of the migration from being on-prem to the cloud in our tech platform business, as well as other investments that we've made over the course of the years that are starting to pay out. On the operations side, we're seeing meaningful leverage as a result of some of the automation efforts that we've invested in over the course of the last 24 months, which are starting to pay out as we're seeing better funnel conversion and improvement.
Anthony Noto: In terms of other efficiencies we continue to see.
Anthony Noto: The efficiencies in <unk> and R&D as a result of the migration from being on Prem to the cloud and our tech platform business as well as well as other investments that we've made over the course of the years that are starting to play out on the operation side, where we're seeing meaningful leverage as a result of some of the automation efforts that.
Anthony Noto: We've invested in over the course of the last 24 months, which again are are starting to play out is we're seeing better funnel conversion.
Chris Lapointe: And then in G&A, as you would expect, there's meaningful operating leverage in the system as we continue to scale. We made significant investments as we became a public company and got our bank charter and also invested heavily in risk and second and third lines of defense. And those investments were made over the course of the last 12 to 24 months at scale. I'll turn it over to Anthony to hit on the brand piece. Yeah, on the brand awareness side, we'll...
Anthony Noto: Improvement and then in G&A.
Anthony Noto: As you would expect there's meaningful operating leverage in the system as we continue to scale, we made significant investments.
Anthony Noto: As we became a public company and got our bank charter.
Anthony Noto: And also invested heavily in.
Anthony Noto: Risk in second and third lines of defense and as.
Anthony Noto: Those investments were made over the course of the last 12 months to 24 months.
Anthony Noto: At scale.
Anthony Noto: I'll turn it over to Anthony to hit on the brand piece and the brand awareness side. We're really pleased with just the continued improvement we have in unaided brand awareness.
Anthony Noto: Yeah, on the brand awareness side, we're really pleased with just the continued improvement we have in unaided brand awareness. Our marketing team and our businesses have done a great job of putting together a very integrated multimedia strategy that leverages partnerships with big, well-known brands that help us achieve unaided brand awareness to become a household brand name. That helps improve our overall performance marketing as well. The more people that know us, the more people that trust us, the better reaction we get from every offer we have in the marketplace or other ways that we connect with potential new members in addition to building their awareness of new products beyond their initial product.
Anthony Noto: Our marketing team and our businesses have done a great job of putting together a very integrated multimedia strategy that leverages partnerships with big well known brands that help us achieve.
Anthony Noto: Unaided brand awareness to become a household brand name that helps improve our overall performance marketing as well the more people that know us more people that trust us that better reaction, we get from every offer we have in the marketplace or other ways that we connect with potential new members. In addition to building their awareness of new products beyond their initial.
Anthony Noto: Product our cross brand continues to remain really strong and we're seeing that our financial service productivity and leverage in our customer acquisition cost. So it's been a great year end 2024 is off to a great start as it relates to.
Anthony Noto: Our cross-blind continues to remain really strong, and we're seeing good financial service productivity leverage in our customer acquisition costs. So, it's been a great year, and 2024 is off to a great start as it relates to the impact on unaided brand awareness from things like our recent partnership with the NBA as the official bank of the National Basketball Association. With that, let me add some concluding remarks. I want to thank everyone for joining us today.
Anthony Noto: Impact on unaided brand awareness from things like our recent partnership with the NPS official bank of the National Basketball Association.
Speaker Change: With that let me conclude.
Speaker Change: Concluding remarks.
I wanted to thank everyone for joining us today, we're proud we're proud to kick off 2024, with an exceptionally strong first quarter or 26% revenue growth driven by 54% growth in revenue from the combined tech platform and fragile services, which now constitutes 42% of revenue while no growth in lending gives us a.
Anthony Noto: We're proud to kick off 2024 with an exceptionally strong first quarter. Our 26 percent revenue growth, driven by 54 percent growth in revenue from the combined tech platform and financial services, which now constitutes 42 percent of revenue, while no growth in lending, gives us a very strong outlook for the year, with 25 percent EBITDA margins in the quarter and for the full year. Record $3 billion of deposit growth and 16 percent growth in tangible book value and 44 percent growth in members, now totaling $8.1 million, in total, are a great testament to the success of our bold strategy and ability to execute across an unprecedented set of financial conditions over the last six years.
Very strong outlook for the year.
Speaker Change: 25% EBITDA margins in the quarter and for the full year record $3 billion of deposit growth and 16% growth in tangible book value and 44% growth in members now totaling $8 1 million in total are a great Testament to the success of our bold strategy and ability to execute across an unprecedented set of <unk>.
Speaker Change: Conditions over the last six years, although we live in an unpredictable world our team at <unk> is resolved to serve the needs of our more than 8 million members and clients, while sustaining the growth profitability and increasing the shareholder value that we've done so far we thank you for your interest and look forward to talking to you next quarter.
Anthony Noto: Although we live in an unpredictable world, our team at SoFi is resolved to serve the needs of more than 8 million members and clients while sustaining the growth, profitability, and increase in shareholder value that we've achieved so far. We thank you for your interest and look forward to talking to you next quarter.
Speaker Change: Goodbye.
Jordan: [inaudible] This concludes today's call. You may now disconnect.
Speaker Change: Yes.
Speaker Change: This concludes today's call you may now disconnect.
Speaker Change: [music].
Speaker Change: Yeah.