Before we get started, I just have to read some disclosures. For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. The taking of photographs and use of recording devices is also not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative. Very happy to welcome Chris Lapointe, CFO of SoFi, to our conference. Chris, thanks for joining us. Thanks for having me, Jeff. Well, let's get started with the question everyone's asking. The debt ceiling agreement recently locked in an end to the moratorium later this year. Can you talk about the size and timing of the benefit to your origination volumes as we kind of look forward, maybe what we're seeing today, what are you originating at? How quickly do you think you can get back to 2019 levels, if at all? Yeah, sure, thanks for the question. What I would say is we think the need to help our student loan borrowers, and the overall burden of student loan debt on our members is at an all time high. We have been firm supporters of forgiveness over the course of the last three years and supporters of the moratorium for the first two years that it was in place. We view, you know, getting bipartisan agreement over the course of the last few weeks as a real win for our country, and we applaud our representatives for making that decision. What I would do is I would start at the higher level and talk a little bit about the total addressable market that we think is still out there today, given where rates are. If you look at the 2006 and 2007 academic years, all the way up through 2019 and 2020, there was $1.7 trillion of student loans underwritten during that time. Of that, there was $575 billion underwritten in the high 6%-high 7% range, in line with where we can price today. As part of that, we estimate there to be about $200 billion worth of loans that are outstanding that are in that price range, but also within the credit box that we operate in today. A huge opportunity, especially given that if you look back over time, the largest year that we ever saw across the industry in aggregate was under $20 billion of refinancing. A really big opportunity for us to go out and see increased demand. What I would say is borrowers will refi under two different value propositions. The first of which, people will seek to refi by getting a lower interest rate. Second, we expect people to refinance by keeping their rate the same or even increasing their rate, but extending out the term of the loan that they're taking out. To give you a specific numerical example for that, take, for instance, one of our average borrowers who has $70,000 of outstanding debt. Assume for a second they have a 6% interest rate, over, you know, the next 10 years. On average, that person is paying a monthly payment of about $775. Assume for a second that that person comes and refis their loan at that same 6% rate, but instead of doing a 10-year term, they extend it to 20 years. That person will no longer be paying $775 a month. They're going to be paying $500 a month. $275 of savings that they can use to spend elsewhere or use to pay down other debt. We think we have a unique value proposition to enable people to refi both at a lower rate, but also extending their term because the friction and cost of someone doing so is frictionless and costless. Someone can come in and refi their loan without paying an actual cost, especially when rates are going down, which we expect them to do over the course of the next 12 months or so. In addition to that, you're going to start seeing people who will actually take on a higher interest rate and extend out the term. Go back to that same exact example I gave, where someone was paying 6% over 10 years. Assume for a second they're paying 7% and extend out to 20 years. Their monthly payment will go to $540. It's still a meaningful savings relative to the $775 that they were paying prior to that. Really big opportunity. We think that there's going to be excess demand in Q4 for us this year. This was all contemplated in the guide that we gave during our Q1 earnings call. We expect interest to start accruing on August 30th of this year, servicers to start sending out bills in September, and people to actually go back into repayment in October. We do expect an uplift in demand. As a reminder for folks, back in 2019, prior to CARES Act, we originated on average, about $1.7 billion per quarter. We were about 40% market share participant at that point in time. Today, it's obviously a different rate cycle, but there's still that $200 billion TAM, and we have a 60% market share. We feel really good about the pent-up demand and our value proposition and the opportunity ahead of us. How does that $200 billion compare to, like, two years ago, three years ago? Have you done the math on that, or? Yeah, we've done the math. It's smaller as a result of where rates are today, but, you know, it's still, you know, quite sizable as a percentage of where it was two years ago. Are you seeing any indications as you look at applications and flows today of maybe what's happening on the quarter so far? Yeah. It's still early to really dissect if when and if that uptick in demand is going to be coming in this specific quarter. What I would say is we are seeing a high propensity of people extending out the term, that phenomenon that I was just talking about, even on the private side. We think that's gonna play a big role in what's to happen in late Q3 and Q4. sounds like maybe like 75, 25% more extend versus rate at this point, something like that? Yeah, I don't wanna. Yeah peg it at a specific percentage, but it'll be a healthy mix, on both. Okay. You know, you talked earlier in the year about how you did expect lower monetization as student came through. Is that still the case? Can you help us understand where you're maybe originating today or where you expect to originate? I know you talked about the 4.9% weighted average coupon last quarter. What are you thinking there? In terms of overall monetization, there are a number of factors that go into how we monetize all of our loans. It's a function of the weighted average coupon of the loan that we're underwriting, underlying benchmark rates, credit spreads, prepayment speeds, annualized loss rates. It's a function of all of those things. What's actually underpinning where the book was marked and how we monetized in Q1 of this year was a weighted average coupon of about 4.9%, an annualized loss rate of 40 basis points, and a cost of or a discount rate of about 4.1%, which includes the underlying benchmark rate and a spread assumption. You know, all else equal, in an environment where weighted average coupon is increasing, the value of those loans would increase. Similarly, all else equal, in an environment where benchmark rates decrease, the value of our loans would increase. It's a confluence and a combination of all of those factors which impact the overall monetization, in addition to what a buyer is actually willing to pay. In terms of where we're originating today, we're originating at about a 6.5% weighted average coupon. That's up 160 basis points quarter-over-quarter, right? Yeah. To know, what I would say is that 4.9% that I just referenced was the entire portfolio, the weighted average coupon in the entire portfolio, and includes loans that we had underwritten even prior to Q1. The 6.5% that I just mentioned is new in period originations. If we're thinking about, you know, the mark you've held on the total book last quarter for student, I think, was something like 2.6%. I know that's the entire book, but hypothetically, we would layer on another 160 basis points to think about maybe what the incremental revenue rate would be going forward. Does that sound like good math, or is it still below- Yeah you're saying lower monetization? Yeah. All else equal, if you look at just the weighted average coupon on new originations, you would expect those to be valued at a higher level. Okay. It's a combination of factors. It's the stuff that rolls off as a result of payments, prepayment speeds, et cetera, et cetera, and any changes in relation to default rates. You mentioned the lower friction or the zero friction costs, rather, of someone refi-ing again, if they wanted to, down the line. How does that influence your prepay speeds? I know they've come down a lot recently. Would that cause them to re-accelerate as you got more of those folks in the door? Is it more dependent on just what the level of rates are? Yeah, it's more dependent on, you know, our existing book and people prepaying the loans that are on our existing book as opposed to anything else. What's taken into consideration is a forward interest rate curve and a whole host of other factors that drive the overall prepayment speeds. We did see a decrease in prepayment speeds this past quarter as a result of the trends that we've experienced over the course of the last year and a half. We expect those prepayment speeds to be relatively in line with where they are today in the foreseeable future. Maybe just talking about the, you know, the desire to sell versus hold from here. You know, everyone's talked a lot about that on the personal side, but as you start to do more on the student side from here, how are you thinking about that hold versus sell equation? Especially considering that your incremental cost of funding today, I think you just raised your deposit rate to 4.3% the other day, is much closer to your student rate than on the personal side. How do you view the trade off there? Is there a way we could think through the ROE math that Anthony walked through on the personal side and maybe apply that to the student side? I think he talked about the 40%, 20%. Sure. Sure. We take a very balanced and risk-based approach to how we grow our balance sheet. Our student loans are very, very low risk, with annualized charge off rates at about 30 basis points. We take a prudent and thoughtful approach to how we regrow the balance sheet and hold versus sell. It's the same exact math and thought process that goes into how we've talked about it from a personal loan perspective. At the end of the day, we're looking to maximize the return on every single loan that we underwrite, and we're gonna do that, whether that means selling or holding. On student loans, specifically, to run you through the math that we've talked about publicly, similar to personal loans, if you take that 6.5% weighted average coupon that I just talked about, we're experiencing 30 basis points of annualized losses, and our funding costs are about 3.85% as of Q1. Yes, our deposit rate has gone up. Remember, that's just for direct deposits, and the blend is still relatively low. If you take those three numbers, the 6.5, -30 basis points - 3.85%, you're getting a 2.4% ROA. On a levered basis or ROE perspective, that's about a 20% ROE. Got it. Okay. Mm-hmm. I mean, based on that math, it seems like you would still have a pretty reasonable desire to sell, unless... I mean, to hold rather, unless you were getting much higher... That's exactly right. Just, also from the buyer's perspective and the person holding it, like, this is 6.5% paper with 30 basis points of losses, so it's still attractive to buyers as well. Can you maybe give us an update on anything you're seeing on that front from buyers or what they're saying at this point, or? No new updates that we're willing to share at this time. Okay. Appetite still remains strong. Got it. Maybe switching gears to the personal loan side. You know, as I mentioned before, you've held off on selling loans in recent quarters. Can you maybe just give us a re update on the decision, the drivers of that decision, and what might lead you to start selling the loans again? Is it more what the market's willing to pay you, or is it more, you know, once you've fully utilized the capital that you have on balance sheet? Yeah. The decision to hold remains the same. We're looking to maximize the returns of every single loan that we're underwriting. As a reminder for folks, we have talked about that we believe we're generating about 6% returns on these personal loans. What's embedded in that is the 13.2% weighted average coupon of our portfolio, about a 3% annualized loss rate, and a 3.85% cost of funds. We're generating about a 6.2% ROA, and on a, you know, levered basis and ROE perspective, that's about 40%, 43%. Really solid returns at 6% relative to where the book is marked and where we can sell, which is at 104. You've got about 200 basis points of spread between the two. In terms of what would cause us to sell at this point in time, it's a multivariable equation, and there are a number of factors that go into that decision. That includes our overall funding capacity, it includes our liquidity, it includes capital ratios, and obviously, the returns that we're generating. You know, as a result of getting the bank charter back in February of 2022, we've provided ourselves with a ton of flexibility relative to where we were, you know, several years ago. We now have a large and growing deposit base at about north of $10 billion. The deposits are extremely sticky, with over 90% of them coming from direct deposit members, and over 97% of them being fully insured by the FDIC. In addition to that $10 billion, we've got north of $8 and a half billion of warehouse capacity and over $3 and a half billion of our own equity capital, with $2.4 billion of cash on the balance sheet. well north of $20 billion of overall funding capacity. you know, from a buyer perspective, if spreads narrow to the point where that 200 basis points becomes much tighter, and the trade-off in taking all those other considerations into effect, we may be more willing to sell. At this point, we owe it to our shareholders to maximize returns on all the loans that we're underwriting. You know, I think you've talked a lot about your ability to take share in recent quarters, 8% market share at this point. I think you're also talking about how you're tightening standards. Could you give us maybe some tangible examples of how you're actually doing that? You know, I think you've talked about only approving 30%, but maybe has that 30% gotten a little bit lower within the range, or is there something else that you're doing? I think folks have a little bit of trouble squaring how you're tightening but also taking share. Yeah, we are certainly tightening around the edges. Our risk team's been doing a phenomenal job of maintaining, you know, our high quality borrower and loss rates where they are today. I would say is, in terms of being able to continue to gain share, it's not necessarily a function of us putting more marketing dollars into the market and driving overall demand. It's a function of two other things. One is we're getting much more efficient in terms of getting people through the funnel and conversion. Every uptick that we're seeing at every stage in the funnel is providing material uplift in overall loans underwritten, without having to put more marketing dollars into the market. Second is being able to maintain really healthy cross-buy rates. In a world, or given how we've been executing, where a large portion of our new members and products are coming in through our low customer acquisition cost channels on the financial services side, so our checking and savings business, our invest business, credit card, and Relay, and keeping cross-buy rates relatively healthy and consistent on the personal loan side, you're naturally going to get marketing efficiencies and market share gains without having to put more marketing spend out there. Is there any way to kind of contextualize what your, you know, your tax look like today, cost of acquiring versus maybe a year ago? Yeah. Overall, as a result of that phenomenon of people coming in through our financial services products, we've seen a reduction in the cost to acquire a new lending member. It's down about 19% year-over-year. What are some of these early warning indicators you're looking at? What are you seeing on that front? Have they changed from yellow, gotten a little deeper yellow, or how are you thinking about those? Yeah. We have a recession early warning system that was put in place several years ago. It looks at a combination of both internal and external factors. On the internal front, we're looking at forbearance requests, early month on book, delinquencies. On the external front, we're looking at things like unemployment, recession probability models, et cetera. What I would say is that has certainly evolved over time, given where the macro is, it has changed. If you look back and back test this model, it would have successfully predicted a heightened probability of recession every single time. We feel really good about this early warning system that we've put in place. Our risk team's done a phenomenal job, and that's what governs our underwriting standards and our overall risk tolerances in any given period in time. It seems like maybe the employment statistics will probably be a bigger weight in those. You know, we look at every single factor, across the report card. There's not one single one that weighs more heavily than the other. It's a, it's a combination of, you know, the 10 or 12 that we look at. I think if I have it right, you're baking into your personal loan valuation, annualized losses of about 4.6%. Mm-hmm. Call that 7%-8% over the life. Yep. You've been outperforming that, I think, with almost 3% this past quarter. Mm-hmm. Other banks that, you know, we look at in the consumer space often talk about the fact that rates are going to peak out, loss rates are going to peak out sometime next year. Have you given any thought to the trajectory of that? If you did get closer to, say, that 4.6 or above that, would that influence that number and the valuation assumption, or is that more of a through the cycle number and it wouldn't really matter? Yeah. What I would say is it's constantly evaluated and tweaked. You saw a 20 basis point increase this past quarter as a result of the trends that we're seeing. Just to reiterate the points that you're making, what's embedded in our marks is a 4.6 annualized charge off rate. What we're actually experiencing is 3% across the entire portfolio, so a 50% delta between what we're actually seeing and what's embedded in the marks. What I would say is, what's embedded in the marks is what a buyer is willing to pay for those marks and what's embedded there. You could assume that they are baking in a level of conservatism or a cushion that would account for potential recessions or harder times or, you know, through the cycle type of losses. Probably safe to assume there should be some sort of gap between those two numbers over time, right? Yeah. I mean, I'm not going to- Right state what it would be, but the fact is we consistently have outperformed from a loss perspective. Maybe we just switch to, what you're seeing this quarter so far. Mm-hmm that we haven't already chatted about. I think last we heard, you're on track for deposit growth of $2 billion plus. Anything else that you're willing to share on the quarter? Overall, quarter's going extremely well. We remain comfortable with the guidance that I provided during our Q1 earnings call. We continue to see really strong growth from a member and product perspective, in line with what we've seen, you know, over the course of the last several quarters. From an originations perspective, we continue to expect to see modest growth in our personal loans business. On the student loan refinancing front, we do expect an uptick in demand in Q4. On the home loans front, we just acquired Wyndham Capital, and, you know, the integration there is going extremely well, and we expect to see an uplift as a result of that acquisition in the back part of this year as well. From a member product growth perspective and originations perspective, all is going extremely well and in line with expectations. From a deposit perspective, deposits growth remains very healthy. We've talked publicly about the fact that we expect $2 billion plus of deposits on an ongoing basis per quarter. We continue to expect that here in Q2, and things are off to a really good start throughout the first half of the quarter. What I would say is we have a lot of flexibility given where our APY is today and our cost of funds relative to, you know, the next alternative for us, which is warehouse lines and ABS. You know, at the end of Q1, there was a 210 basis point delta between our overall cost of deposits and those alternative sources. Even in an environment where rates are where they're at, we still have room to increase APY and have a really strong value proposition to grow deposits. In an environment where interest rates go down and betas are high for other deposit folks, we don't necessarily have to go down and can maintain our strong value proposition, both in the form of an APY as well as the product that we have. Have you given any thought to what maybe, something like a prospective beta or where you have to be relative to Fed funds from here in a world where maybe Fed funds goes up a little bit more from here to keep that $2 billion+? How do you think about that? Yeah. Overall beta, over the course of through the end of Q1 was about 60%. I'm not going to provide a specific beta on a forward-looking basis, but, you know, like I said, we have the flexibility to continue to increase as needed. And I don't think we necessarily have to have a high beta if interest rates go down and given that spread as well. I think we're in a really unique position where repricing our back book, doesn't have the same impact as it does for larger legacy institutions, where a 10, 15, 20 basis point move in APY has a meaningful impact on the PNL. Just want to see if anyone in the audience wants to ask any questions. If you do, feel free to speak up. If not, I am happy to keep going. Maybe let's just talk about the outlook for positive profitability by year end. I think you're looking to hit that in 4Q. You talked a lot about the stock-based comp coming down. You have the moratorium now going away. What do you see as most important to getting there? Just kind of curious, do you see any other expense rationalization opportunities from here? Yeah. I'd break this down into a few different components, starting at the segment level. By the end of this year, we're going to have all three segments operating at positive Contribution Profit. Starting with our lending segment, we've been operating at north of 60% for the last few quarters. That's a result of, you know, getting much more efficient from a marketing and ops expense perspective. We expect to continue to maintain really healthy margins in that segment for the foreseeable future. In addition to, you know, the progress that we've made on the unsecured personal loan front, we expect the tailwind from student loans, which have really strong ROAs. Our home loans business through this acquisition, it's an asset light business. We have less than 0.1% market share, and even in this type of rate environment, there's a ton of headroom for us to start growing that business in an asset-light way, which will help contribute to, you know, both top line and bottom line in the lending segment. On the tech platform segment, right now we're operating at about 19%-20% contribution margins. What we said during our Q1 earnings call is that we do expect margins to expand throughout the course of the rest of this year. We expect, you know, solid revenue growth each of the next few quarters, with an acceleration of revenue likely in 2024, as we shift focus from going after smaller fintech and neobank customers to larger, more durable B2B and financial institution customers. We're well on our way. We're in a number of great conversations with a dozen or so large financial institutions that we expect to help accelerate revenue, you know, exiting this year. We're going to have higher than 20% margins in that business, with strong growth in revenue. On financial services, we ended up losing $24 million of contribution profit in Q1, we hit a critically important milestone where we turned variable profit positive, inclusive of marketing expenses. The reason that that's really important is because once we hit that level, it's about scaling, you know, those variable profit-positive members to the extent that we can cover our fixed costs, which we expect to be able to do by the end of this year. We're gonna have all three segments delivering positive contribution profit. Below the consolidated contribution profit, you have depreciation and amortization, which is a large expense item and is primarily associated with amortization of intangibles of the Galileo and the Technisys acquisitions. We expect, as revenue continues to grow, that we're gonna see meaningful leverage in that line item, and that line item is not gonna grow meaningfully for the foreseeable future. On the stock based compensation side, it was 14% of revenue this past quarter. EBITDA was larger than stock-based comp for the first time, and we expect to continue to get meaningful leverage in that line item as well. What we've said publicly is that we expect it to be single digits in the medium term. It's at 14% today, down from about 26.5% a year ago, so we're well on our way. In addition to that, you know, the expense associated with performance share units is gonna roll off in Q1 of 2024. You know, three segments of positive contribution and meaningful leverage below that line is what's gonna help but get us to GAAP profitability by the end of this year in Q4. We expect it to continue delivering 30% incremental EBITDA margins for the foreseeable future and 20% GAAP net income margins. Just to follow up on the tech platform, you've had this new focus on larger financial institutions. You've got the Technisys core banking offering to go to market now. Any details or insight you can give us into what's in your pipeline? You know, separately, what do you find is giving you maybe a bit of a leg up on the competition in those conversations of people who also have kind of that core banking offering today? Yeah. No, this is a result of, you know, countless hours and quarters of conversations. The fact that we could win that POC with a top 10 financial institution was a huge win for us. You know, we're really proud of the team and what they've been able to accomplish by even being in those conversations and winning those deals. What I would say is these are longer lead time deals, longer sales cycles, longer integration phases. We are in late stage conversations with over a dozen larger legacy financial institutions who are looking to modernize their tech stack. We feel good about where we stand today, better than we ever have before, as a result of now fully integrating our Technisys business. We think we have a really unique value proposition relative to anyone else in the market. You know, combining our debit processing and API capabilities on the Galileo front and our, you know, our cloud-based core technology that's extensible and customizable across products on the Galileo front. We, we feel good about where we're at. We're making really good progress, and, you know, setting us up nicely for accelerated revenue in 2024. I'm gonna jump around a little bit here because we have, you know, five minutes left. Of course. You know, you guys don't do CECL, obviously. Yep. One thing you've kind of put out there is that you're also very conservative on marking delinquencies down as they roll through. I think you've said. Mm-hmm. 35% Mm-hmm. at 30 days or something along those lines. They're marked at $0.30 on the dollar at 30 days. Yeah, sorry. Thank you. Yep. Can you quantify, like, how big that is today? Like, what is actually rolling through the book? You know, we don't get the actual delinquency number on the held book. We get it on the service book. Maybe help investors think about that one. The best, one of the things, just starting at the highest level, there are two ways that we account for forecasted losses in our actual PNL. The first of which is there's an assumption embedded in the actual mark that we're marking these loans at time of origination. On the personal loan front, we're assuming, you know, annualized losses of 4.6% right now. The second way that we account for losses is as soon as a loan goes 10 days past due, we take a fair market value write down, a material one below par, as soon as they hit 10 days past due. Once they hit 30 days past due, they're written down 70% or to $0.30 on the dollar. They're written down again at 60 days, and then at 90 days, they're at worth $0.10 on the dollar. We're taking meaningful write-downs early on in the life cycle of a loan, going through the delinquency process. You see in our filings that we report 90 day delinquencies, and you obviously have the write off amount. What I would say is the embedded amount of write-offs in our actual balance sheet is several hundred million dollars. I'm not gonna specifically quantify it, but it's of that magnitude, which will help give you a sense for where things stand. Okay. Just maybe circling back to the student loan discussion, have you given any thought to the sustainability of a rebound in volumes in a world where we stay at today's level of rates? You know, maybe once you get this initial wave of refi, what do you think? I know you talked about the TAM. I'm just kind of curious what you're thinking about from individuals who maybe initially do that first wave of refi and then take a, take a beat. Yeah, I think you're gonna see a lot of people refi-ing by extending out the term. I think, you know, as rates come down, which everyone expects them to do over the course of the next 12 to 18 months, I think you're gonna get another wave of people who are looking to refi, that have those extended terms, but now at a lower rate. I think you're gonna get that. The fact that, you know, there's that $200 billion TAM, and, you know, the largest year that we ever experienced in the industry is $20 billion, goes to show that there's a huge market for years and years to come. Got it. Okay, thank you for that. Maybe just to wrap it up, long term aspirations here. I know that Anthony has put out that whole, you know, top 10 aspiration, financial services. What do you think the biggest drivers are in getting SoFi there? Is there anything that you feel you're missing from the toolkit today? What I would say is we certainly have those aspirations, and we're well on our way to getting there. If you rewind back to 2021 when we went public, we talked a lot about, you know, creating a one stop shop that enables people to borrow better, save better, spend better, invest better, and protect better, all in one digital device. We have successfully rolled out all of the table stake products that enable a member to do all of those things, and we've started scaling them to the point where we're gonna be GAAP profitable by the end of this year. We're really proud of the progress that we've made, and for the first time, we feel like we have all the products in place at a scaled level that will enable us to really start driving this business over the course of, you know, the next several quarters and years. You know, we've always been facing headwinds since, you know, 2018, 2019 time period. For the first time, now that the moratorium is lifted and given where rates are today, and the progress that we've made across the entire product set, we feel like we're in a really good spot. Does that mean we're not gonna go out and do any tuck-in acquisitions or add more features and products around the fringes? Absolutely not. I'm just saying that because we have all the pieces in place, we're no longer in critical growth or build mode. We don't need to build out sufficiently new products or a management team. All of the building blocks are in place for us to really start scaling this. Okay, great. That's all the time we have. Thanks for joining us, Chris. Awesome. Thanks a lot, Jeff.