SoFi Technologies Inc

NASDAQ:SOFI

Earnings Call Transcript 2022-Q3

[Operator]

Good morning, and thank you for attending today's SoFi Q3 2022 Earnings Conference Call. All lines will be muted during the presentation portion of the call. There is an opportunity for question and answers at the end.

At this time, I would now like to turn the conference over to our host, Maura Cyr, from SoFi Investor Relations.

Maura, please proceed.

[Maura Cyr, IR]

Thank you, and good morning. Welcome to SoFi's third quarter 2022 earnings conference call. Joining me today to talk about our results and recent events are Anthony Noto, CEO; and Chris Lapointe, CFO. You can find the presentation accompanying our earnings release on the Investor Relations section of our website.

Our remarks today will include forward-looking statements that are based on our current expectations and forecasts and involve risks and uncertainties. These statements include, but are not limited to, our competitive advantages 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 most recent Form 10-K as filed with the Securities and Exchange Commission as well as our subsequent filings made with the SEC, including our upcoming Form 10-Q. Any forward-looking statements that we make on this call are based on assumptions as of today, and 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, CEO]

Thank you, Maura, and good morning, everyone. Our third quarter results demonstrate the continued resilience of both our team and business and our ability to deliver another quarter of record revenue and EBITDA and strong overall operating results.

A few key achievements from the third quarter include our sixth consecutive quarter of record adjusted net revenue of $419 million, up 51% year-over-year, reflecting record revenue in all three business segments; $44 million of record adjusted EBITDA, up 118% quarter-over-quarter; continued strong performance in member and product additions as well as cross-buy volume; further scaling of SoFi Bank with accelerating growth to surpass $5 billion in deposits, up 86% quarter-over-quarter; and savings of 125 basis points; and cost of funds versus using other sources of debt to fund loans. Another quarter of positive GAAP net income for SoFi Bank at $28 million at an 11% margin.

Members and products each saw rapid year-over-year growth with continued strong cross-buy trends. The 424,000 new members in Q3 2022 brings total members to 4.7 million, up 61% year-over-year. We also added 635,000 new products in Q3, ending with nearly 7.2 million total products, up 69% year-over-year. Of these new adds, Financial Services products of 5.9 million at quarter end grew by 83% year-over-year, while Lending products of nearly 1.3 million were up 24%.

The strength of our results once again underscores how our full suite of differentiated products and services provides the foundation for a uniquely diversified business that is able to endure through market cycles.

Now I'd like to spend some time on segment level results, with a particular focus on the benefits of a diversified business drivers as well as the structural advantage of our bank charter.

In Lending, our personal loan performance more than offset the continued lack of demand in student loan refinancing and the less robust performance of home loans. Student loan refi continues to be negatively impacted as federal borrowers await the end of the moratorium on federal student loan payments. Home loans face macro headwinds from rising rates while we continue the process of transitioning to new fulfillment partners.

We originated a record of over $2.8 billion in personal loans in Q3, up 14% from $2.5 billion last quarter and nearly doubled the $1.6 billion in Q3 2021. The product continues to deliver and, most importantly, this is while maintaining our strict credit standards in attracting borrowers with high incomes and FICO scores.

While these origination levels themselves are impressive, the strength of our balance sheet and diversification of our funding sources provide new options to fund Lending growth while driving efficiency with cost savings. These advantages are a direct result of SoFi Bank. Having more flexibility with our balance sheet allows us to generate more net interest margin revenue per loan and optimize returns, a critical advantage in light of the macro uncertainty. Additionally, by using our deposits to fund loans, we benefit from a lower cost of funding for loans and thus more profit per loan. In Q3 alone, the difference in our deposit cost of funds and other sources of debt was approximately 125 basis points versus 100 basis points in Q2, a powerful benefit in a rising rate environment.

Lastly, we have a much more compelling value proposition in SoFi Checking and Savings as we can invest the greater revenue and profit per loan from the two benefits I just mentioned into an industry-leading APY, which drives direct deposit members resulting in high-quality deposits and great levels of engagement. This has led to higher average account balances even as average spend has increased.

We exited the quarter with over $5 billion in total deposits, and 85% of SoFi Money deposits are from direct deposit members. In fact, 50% of newly funded SoFi Money accounts are setting up direct deposit by day 30 versus 37% in the second quarter, and this has had a significant impact on spending. Q3 annualized spend was 2 times full year 2021 total spend and Q3 spend per average funded account was up 22% quarter-over-quarter.

SoFi Money members increased nearly 72% year-over-year to 2.3 million accounts while maintaining attractive demographics. In fact, the median FICO score for direct deposit accounts opened in the third quarter was 750. Given the quality of these members, we see ample opportunity for cross-buying in the future.

Moving on to Financial Services more broadly, where net revenue nearly tripled year-over-year to $49 million and grew 61% from $30 million in Q2. We've continued to achieve strong member and product growth by iterating on products to ensure they are differentiated by four key factors, fast, selection, content and convenience, and continue to invest to make them work better when used together.

We finished Q3 with 5.9 million Financial Services products, up 83% year-over-year and 4.6 times the total Lending products of 1.3 million. The increased scale in Financial Services helps drive cross-buy and marketing efficiencies.

Financial Services sales and marketing spend as a percentage of net revenue was 58% in Q3 versus 81% the prior quarter and 105% in Q3 of last year. We achieved this improved efficiency even as we continue to scale our top-of-the-funnel products, which often do not contribute stand-alone to revenue for 12 to 18 months. This is due to the increasing monetization and attractiveness of these products, growing brand awareness and network effects.

As mentioned, we continue to iterate and invest aggressively in our product suite, and that investment continues to pay dividends as members embrace our launches.

Just in the third quarter, we introduced an increase in our Checking and Savings APY of up to 2.5% as of September 30. In addition to the unmatched value proposition, a host of free features and a unique rewards program. In fact, we're increasing our APY in savings to 3% this week to continue to drive more value for our members.

Within SoFi Invest, we introduced new proprietary ETFs to the platform and remain on track to launch the much anticipated options trading product by year-end, now in beta testing.

We've increasingly utilized our relay platform to acquire, educate and advise our members on their holistic financial picture and their next best move. We launched credit alerts in Q3, and we'll continue to add features to drive engagement.

The relay platform has become a notable source of cross-buying, further bolstering the financial services productivity.

We delivered unprecedented awareness growth as of Q3 2022 by delighting our target audience with compelling value propositions, reaching our target audience where they are effectively and efficiently, producing winning creative and leveraging data-driven tools to continue to get smarter.

Transitioning to the Technology Platform, a critical element of SoFi's strategy. Not only is this segment a strong revenue and cash flow driver, but its two businesses, Galileo and Technisys, also contribute to two main tenets of SoFi strategy: faster innovation at lower cost and high-return, diversified revenue streams.

As a reminder, we're a consumer technology company that delivers financial services products. We need to be a one-stop shop for major financial decisions in all the days in between. To do this, we want to own end-to-end technologies, and that's where our Technology Platform comes into play. Only we can truly understand the technologies that we need the most. We build them in a way that's both great for us and for everyone else in the ecosystem.

In the third quarter, full segment revenue of $85 million grew 69% year-over-year, which included another quarter of record revenue from Galileo, with a 23% margin at the segment level or 30% if you exclude Technisys. Galileo's overall diversified growth strategy includes growth in new verticals, new products and new geographies. In Q3, Galileo signed 10 new clients and made big strides in its strategy, with a strong 30% of new deals in B2B and 40% of new deals outside the United States. Importantly, of these 10 new deals, 7 have existing subscribers, portfolios or payment businesses, reflecting continued demand for our services and new use cases for embedded fintechs from more mature organizations.

In Q3, we further invested in our push into the B2B segment by shipping two core capabilities: first, account-level controls, which provides self-service opportunities for program managers to set tighter controls in real time at the account level for where and how funds can be spent while reducing fraudulent transactions; and second, real-time funding, which automatically funds an account in real time during the transaction process, optimizing the working capital needs of our SMB customers.

I'll finish here by saying that we've been in an all-out sprint over the last five years to build out our digital product suite to meet our members' needs for every major financial decision in their lives in all the days in between. The benefits of our strategy to build a uniquely diversified business, combined with a national bank charter, not only positions SoFi to be the winner who takes most in the secular transition of financial services to digital but also provide greater durability through our market cycle. I'm excited about where we are today and even more excited about where we can go from here.

With that, let me turn it over to Chris to review the financials for the quarter.

[Chris Lapointe, CFO]

Thanks, Anthony, and good morning, everyone. Overall, we had a great quarter with strong growth trends across the entire business. We achieved record revenue and record EBITDA. I'm going to walk you through some key financial highlights for the quarter and then share some color on our financial outlook. Unless otherwise stated, I'll be referring to adjusted results for the third quarter of 2022 versus third quarter of 2021. Our GAAP consolidated income statement and all reconciliations can be found in today's earnings release and the subsequent 10-Q filing, which will be made available next week.

For the quarter, growth accelerated and we delivered record adjusted net revenue of $419 million, up 51% year-over-year and 18% sequentially from the prior quarter's record of $356 million. Adjusted EBITDA and margins improved year-over-year as we delivered a record $44 million at an 11% margin, representing 3x year-over-year growth on a dollar basis and nearly 700 basis points of year-over-year margin expansion. Sequentially, EBITDA was up $24 million and margins expanded nearly 500 basis points as we saw margin improvement across each of sales and marketing, technology and product development, G&A and ops functional expense lines.

Now on to the segment level performance, where we saw a strong growth and record revenue across all three segments.

In Lending, third quarter adjusted net revenue grew 38% year-over-year to $297 million. Results were driven by 93% growth in net interest income and 10% growth in noninterest income. Growth in net interest income was driven by a 70% year-over-year increase in average interest-earning assets and a 144 basis point year-over-year increase in average yields, resulting in an average net interest margin of 5.85% for the quarter. This represents 126 basis points of year-over-year and 62 basis points of sequential NIM expansion. Growth in noninterest income was a result of increased originations and strong personal loan and student loan sales execution. Q3 originations grew 2% year-over-year to $3.5 billion and were driven by record volumes in our personal loans business, which grew 71% year-over-year to $2.8 billion. However, both student loan and home loan originations were down by more than 50% year-over-year as we await the expiration of the moratorium on federal student loan payments coming in January, while rising rates and fulfillment issues continue to impact our home loans business.

We achieved this top line growth while maintaining our stringent credit standards and disciplined focus on quality. Our personal loan borrowers weighted average income is $160,000, with a weighted average FICO score of 746. Our student loan borrowers weighted average income is $170,000 with a weighted average FICO of 771. This focus on quality has led to strong credit performance.

Our on-balance sheet delinquency rates and charge-off rates remain healthy and are still below pre-COVID levels. Our on-balance sheet 90-day personal loan delinquency rate was 30 basis points in Q3 2022, while our annualized personal loan charge-off rate was 1.95%.

Our on-balance sheet 90-day student loan delinquency rate was 11 basis points in Q3 2022, while our annualized student loan charge-off rate was 0.33%.

As we have expressed in the past, it is reasonable to expect credit metrics to revert over time to more normalized pre-pandemic levels but continue to expect very healthy performance relative to broader industry levels.

The Lending business delivered $181 million of contribution profit at a 61% margin, up from $118 million a year ago and a 55% margin. This improvement was driven by a mix shift to higher-margin personal loans revenue as well as ops efficiencies and fixed cost leverage across the entire segment.

Shifting to our Tech Platform, where we delivered record net revenue of $85 million in the quarter, up 69% year-over-year, while record Galileo revenue was up 29% year-over-year. Overall, annual revenue growth was driven by 40% year-over-year Galileo account growth to $124 million in total as well as sequential growth in transactions per active account. The segment delivered a contribution profit of $20 million, representing a 23% margin and 30% if you were to exclude Technisys.

Moving on to Financial Services, where net revenue of $49 million increased 288% year-over-year, with new all-time high revenue for SoFi Money and continued strong contributions from SoFi Credit Card, SoFi Invest and lending as a service. Overall monetization continues to improve with annualized revenue per product increasing for the second consecutive quarter to $34, up 112% year-over-year from $16 in the same prior year quarter and up 46% sequentially from $23.

We reached 5.9 million Financial Services products in the quarter, which is up 83% year-over-year, and we continued to see strong product adds with 557,000 new products in the segment. We hit 2 million products in SoFi Money, $2.1 million in SoFi Invest and $1.6 million in relay. Contribution losses were $53 million in the quarter, which increased year-over-year, predominantly as a result of building our CECL reserves for the SoFi Credit Card business which is expected as we continue to grow in scale. In addition, we saw a year-over-year reduction in higher-margin digital assets revenue.

Switching to our balance sheet, where we remain very well capitalized with ample cash and excess liquidity. The recent opening of SoFi Bank further reinforces our strong balance sheet and provides us with more flexibility and access to a lower cost of capital relative to alternative sources of funding.

In Q3, assets grew by $3 billion as a result of adding loans to the balance sheet given the strong growth we continue to see in personal loan originations.

On the liability side of the balance sheet, we saw tremendous growth in deposits as they grew to $5.0 billion, up $2.3 billion quarter-over-quarter. Because of this, we exited the quarter with $2.5 billion drawn on our $7.1 billion of warehouse capacity, which represents 35% of our total available capacity.

Let me finish up with guidance. Throughout the last 12 months, we have demonstrated the benefit of having a diversified set of revenue streams and a keen focus on underwriting high-quality credit. We expect those benefits to persist going forward even in light of the existing macro backdrop. Our outlook also assumes a late Q4 2022 benefit in student loan originations, ahead of the January 2023 federal student loan payment moratorium exploration based on the trend that we experienced in 2021. This benefit is expected to partially offset seasonal Q4 softness we typically see in other lending products.

For the full year of 2022, we now expect to deliver revenue of $1.517 billion to $1.522 billion, above our prior guidance of $1.508 billion to $1.513 billion and full year 2022 EBITDA of $115 million to $120 million, above our prior guidance of $104 million to $109 million.

Overall, we couldn't be more proud of our Q3 results and continued progress. Having delivered nearly $1.7 billion of annualized revenue and over $170 million of annualized EBITDA, we continue to make great progress against our long-term growth objectives in the quarter and we remain very well capitalized to continue pursuing our ultimate goal of making SoFi a top financial institution.

With that, let's begin the Q&A.

[Maura Cyr, IR]

Thank you, Chris. [Operator Instructions] Thank you for your cooperation. And with that, the operator will now open up the line for questions.

Operator, please go ahead.

[Operator]

[Operator Instructions] Our first question for today comes from Eugene Simuni from MoffettNathanson. Eugene, your line is open.

[Eugene Simuni, MoffettNathanson]

I'll start by asking about the growth in members. Very strong quarter again, over 400,000 added. Can you talk a little bit about what customer acquisition channels are you finding more successful, where these members are coming from and how sustainable do you see the growth trajectory in the members.

[Anthony Noto, CEO]

I would say there wasn't a meaningful change in the different channels that drove member growth. We're really happy with the trend that we're seeing in member growth. And I would say the quality of our members is increasing as well and the data that we have for our members is increasing as well, which gives us more opportunity to help our members get their money, right.

What I'd say is we're really trying to target high-quality members with good compounding growth over years, not over any one quarter. So we're targeting 400,000 net new member adds per quarter. At some point, that could take a step function up. But right now, we're sort of balancing the growth of our member base with quality as well as making sure that we're building our technology and processes to meet our members need as we scale so meaningfully.

The bank strategy has been a huge help to us. It's allowed us to not just drive member growth and SoFi Money and SoFi Checking and Savings, which lowers our cost of funding, but it also allows us to be more nimble in other areas like our relay product, and we can experiment much more with the relay product and having people connect their credit card accounts or their checking and savings accounts or their brokerage accounts and putting their real estate, and that information can then help us cross-sell into the checking sales account which is really attractive. We didn't have that same leverage point in the past, and so the combination of those two is also something that's new.

[Operator]

Our next question comes from Mihir Bhatia from Bank of America Merrill Lynch. Mihir, your line is open.

[Mihir Bhatia, Bank of America Merrill Lynch]

I wanted to start with the student loan changes. Obviously, a fair amount of changes with the Biden administration passing the debt student loan -- passing -- announcing and then trying to implement this student loan plan. In addition to the loan forgiveness of course, changes to income-based repayment levels, too. I was just wondering, what is SoFi's view on the plan overall? And just can you discuss maybe some of the key points of the plan that will impact your business and how -- and the actions you are taking.

[Anthony Noto, CEO]

We've been clear that we support targeted forgiveness programs and the announced programs that the administration released are aligned with what we thought would be a fair and balanced targeted view on programs. We think the most important thing for people that have federal student loans is clarity and consistency. And so we encourage administration to stay on track and to provide transparency and clarity on execution so they can make the best decisions on how they want to get their money right.

We think the addressable market for student loan refinancing is quite large even with these changes. Many of the forgiveness programs will probably not be applicable to our member base and our target demographics, the income levels below, for qualification, our income is higher than the income level we have to be below, and a number of other factors that would cause the TAM to be still large. Now that TAM can increase and decrease, depending on where federal funds rates are and overall WACC is for that product in the marketplace, but the number of people that will still have federal student loans outstanding that could refinance is really large still.

[Operator]

Our next question comes from Dan Dolev from Mizuho. Dan, your line is now open.

[Dan Dolev, Mizuho]

A quick question, Anthony, and Chris, can you just give us a sense of like the cap trends that you've seen over this quarter and the last few quarters?

[Chris Lapointe, CFO]

So what I would say is we've made really good progress in the overall marketing efficiencies over the last few years, and that's been driven by growth in brand awareness, cross-buy and scaling our lower CAC products.

If you were to look at Q3 '22, you'll see that our sales and marketing as a percentage of revenue decreased 400 basis points year-over-year and 200 basis points quarter-over-quarter. In terms of specific CAC trends I would say that we're acquiring members today at a level that supports our longer-term EBITDA margin target of 30%.

When determining how much we're willing to spend to acquire a member on a day-to-day basis, we're looking at a host of different factors. We're looking at the lifetime value that, that member could achieve, and we're also looking at overall payback periods. What we've observed recently over the course of the last few quarters is that our overall LTV of financial services members has increased as a result of having the bank and focus on growing direct deposit members and are to that period are in the 12- to 18-month time frame. That has given us additional flexibility on CAC and the ability to scale the number of financial services products that we have. This growth in investment in Financial Services products has resulted in CAC efficiencies within our Lending products. And you'll see in the queue that our overall CAC for new Lending members decreased by 8% to 9%, both year-over-year and sequentially, and that's really helped contribute to the overall margin compression that we're seeing.

[Anthony Noto, CEO]

The other thing I would just add to what Chris mentioned is something that we've learned in the Lending business and then something that I think applies now that we have a one-stop shop with all the other products.

Sometimes it's misleading when a company drives low CAC. It has been the case that it was in Lending. If we drive CAC too low, we lower the quality of the borrower that we bring in and the life-of-loan losses of that portfolio can actually go up, which would more than offset the CAC savings. And so it's counterintuitive to think about CAC and Financial Services.

What we focus on is what's the right CAC within a unit economic standpoint, whether that's a per account economics or that's per loan economics to drive an acceptable variable profit. So when we multiply that variable profit per account or per member by the number of people that have that product, that total variable profit dollars exceed our fixed costs and drive to our long-term 30% margin.

So there will definitely be ups and downs in CAC based on mix shift, based on environments but know we're solving for the LTV equation and the right unit economics to drive to a 30% margin. It's not always the case that a lower CAC is good. You can have much lower quality members in money and checking account, for example. Our direct deposit growth has been really strong. I pay a lot more money for direct deposit customers than it would for just a funded customer because of all the benefits we get in debit interchange in addition to lower cost of funding on the loan side.

[Operator]

Our next question comes from Moshe Orenbuch from Credit Suisse. Your line is now open. Please go ahead.

[Anthony Noto, CEO]

You're on mute.

[Moshe Orenbuch, Credit Suisse]

Sorry. Can you hear me now? .

[Anthony Noto, CEO]

Yes.

[Moshe Orenbuch, Credit Suisse]

Sorry about that. Maybe this will be a little bit of a follow-up from the previous questions. SoFi Money accounts that you added, you pointed out, were more kind of direct deposit and kind of more likely to be richer. Any sense as to whether this is at least in part a function of kind of a pullback from kind of PE or venture capital funded other neobanks?

And also, following up from those last answers, is there a way to dimension whether it's CAC profitability in terms of how you think about that benefit over the longer term, just given that they're more likely to purchase lots of products and, in particular, lending?

[Anthony Noto, CEO]

We had really strong metrics in Checking and Savings and really high quality. 50% of our newly funded SoFi Money accounts are setting up direct deposits by day 30. That's up versus 37% in the second quarter. And if you benchmark that versus other companies, that's a really high percentage.

The quality of those members from a credit standpoint is also very attractive. The median FICO score for direct deposit accounts opened in the third quarter was 750. That's a direct result of us architecting the product to meet the needs of our target member. We're going after high earners not well served. They have average income of over $100,000 per household. They have 680 FICO scores and higher.

That doesn't mean we won't serve other people that are outside of that core demographic, that target. There are concentric circles around that, that will benefit from these products. But we architect that specifically to attract that type of number. That, combined with great targeted marketing and iteration over the last three years, has resulted in really strong quality as well us still maintaining pretty good growth.

The other thing which doesn't get talked about too much because it's just scaling so significantly is the amount of spending that's happening on the platform. If you annualize our Q3 spend number to four quarters instead of one quarter, it's over 2x what we did in 2021. So really a substantial increase. And on a per account basis, we're up about 22% quarter-over-quarter in spending.

So the strategy is really working and the bank license has allowed that to come to fruition, and we're really happy with the outcome.

[Operator]

Our next question comes from Michael Perito from Stifel. Michael, your line is now open.

[Michael Perito, Stifel]

I wanted to look ahead to next year a little bit, but not kind of financially, just strategically. I mean, obviously, a lot of the year-on-year improvement has really stemmed from the strong bank-related growth, the impressive direct deposit growth, the credit card debit interchange, the lending and on the personal loan side and the growing balance sheet. I'm just curious, obviously, you guys have to balance kind of the bottom line profitability and the balance sheet growth. But as you look ahead to next year, I mean, what's your appetite to continue to grow the bank balance sheet and drive higher NII? Just curious how you guys are kind of strategically thinking about that. That would be great.

[Anthony Noto, CEO]

And Chris and I will tag team. I would say holistically, I'm really looking forward to having a year in which we have continuity and stability across markets and across company-specific initiatives.

If I reflect back in the last five years, every year, we've had a major company-driven initiative or an economic backdrop or a market backdrop that's been somewhat volatile. Obviously, we've been dealing with the student loan monitoring for the last three years, and on top of that going public and on top of that switching to becoming a bank. We just haven't had a year in which all of our businesses have the wind at their back. And that is possible in 2023, and I'm very aware of the current outlook for the economic environment and inflation and interest rates. But if things sort of hit where consensus is, we're going to have a year in which all things could have a really strong tailwind.

As I think about our growth versus investing, we're going to stick to what we've talked about in the past, barring any unforeseen acquisitions or major strategic initiatives that were unplanned, with what we call the 70-30 plan. We're going to reinvest 70% of incremental revenue in the business and drop 30% of incremental revenue to the bottom line to show progress towards our long-term margin of 30-plus percent on an EBITDA basis.

And so the growth that we have this year is one that we want to compound for decades, not for just one year, and have it be consistent over time. So we will continue to reinvest in the business with that ratio. And we think we're in such early days in all of our products.

The only thing that's gating our growth is driving awareness. And there's a lot of ways to drive awareness. One way is obviously paid marketing. Another way is while having your products and partnerships. And we'll continue to lever all three of those opportunities. But we've barely scratched the surface in how big we can be. And now with over 4.5 million members, we have our sights on high single digits and double digits after that and a very aggressive perspective on what the cross-buy opportunity will be for us.

So we will invest meaningfully but against that ratio. And if the economic environment is worse than expected, then we'll adjust accordingly and make sure we deliver that ratio.

[Michael Perito, Stifel]

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

[John Hecht, Jefferies]

Just Chris, I'm wondering, can you maybe characterize or break down a little bit the gain on sale, just lots of interest in hedging versus the kind of executed gains. And also maybe characterize just general investor interest in the different products given the changing environment.

[Chris Lapointe, CFO]

Yes, sure. John, so in terms of our gain on sale margins for the quarter, our personal loans business was at 3.25% excluding hedge gains. And it was 4% when you include hedges associated loans sold in period. Student loan refinancing was 4.3%, excluding the hedge. And it was the same on a hedged basis given that all loans sold in period were in a fixed rate structure. And then our home loans gain on sale was negative 1.7%, excluding the hedge and 90 basis points including the hedges.

What I would say in terms of overall appetite for our loans, things continue to be robust. We ended up selling over $1 billion of loans in the quarter. And like I said, given the fact that we have the bank today, we have sufficiently more flexibility than we had prior to that. We have sufficient excess liquidity. We have -- we just raised $3.6 billion of equity last year. We have a large and growing deposit base of north of $5 billion now. And we have $7.1 billion of warehouse capacity available to us, only 35% of which is drawn.

So we have a ton of flexibility with respect to being able to hold loans on the balance sheet for a longer period of time. And we're going to seek to maximize ROE on every single loan that we underwrite in a given period of time.

[Anthony Noto, CEO]

And one additional thing that I had just at the kind of first principle standpoint, we've been fortunate in that we have the technology data and process systems to test iteratively each week different price points and different credits. And so we've been able to effectively increase the weighted average coupon of our loans as Fed funds rate have increased, which gives us a benefit on the execution and the value of those loans, and at the same time, being able to reduce our cost of funding. The combination of those two with strong life-of-loan losses within our target range allows us to get to great value on a per loan basis that we're trying to drive maximum variable profit dollars within a certain ROE.

[Chris Lapointe, CFO]

Yes. And just building on that, to put it in more context, you'll see in the Q next week that the weighted average interest rate earned on our entire PL personal loans portfolio increased 60 basis points quarter-over-quarter for the second quarter in a row. And that 60 basis point increases on the entire portfolio, not just new in-period originations that occurred.

So if you look at just new period originations, the actual quarter-over-quarter increase in WACC was substantially more.

[Anthony Noto, CEO]

Which is just a phenomenal job by our team to maintain the profitability of our loans and still drive the growth that you're seeing at unprecedented levels in that product.

[Operator]

Our next question comes from Kevin Barker of Piper Sandler. Kevin, your line is now open.

[Kevin Barker, Piper Sandler]

Just a follow-up on some of those comments around the gain on sale and everything. It looks like you originated about $2.8 billion of personal loans this quarter. And the growth on balance sheet, it was a similar amount. Is there some strategy whereby your holding all these loans or there are certain loans that are remaining on the balance sheet for an extended period of time? I know you talked about it earlier this year where you would hold them for average would push out. But is there something going on with the personal loan originations that would cause you to hold them on the balance sheet, maybe have the sales occur mostly in the fourth quarter?

[Chris Lapointe, CFO]

Yes. So what I would say is our strategy hasn't changed. Given the flexibility that we now have with the bank, we're able to hold loans for a longer period of time. And that was certainly something that we did in Q3 as well as Q2.

What I would say is having the bank provides us with sufficiently additional flexibility and a new source of funding which allows us to grow that balance sheet and hold loans for a longer period of time. There are a few ways that we can grow loans on the balance sheet and generate net interest income. We can either originate, which has been the primary source of driving volume in terms of personal loans, but we can also repurchase loans.

In addition to that, one of the things that we've done with a number of our whole loan forward flow agreements is structure them in a way where we have the right of first refusal to purchase loans when the buyer wants to sell. And we're starting to see more and more of that where, from time to time, we see a whole loan buyer come to us with the of first refusal to purchase loans. And given the credit quality and loss profile and return of the loans that we originally underwrite, we strongly consider that. So that's something we'll also take into consideration.

[Operator]

Our next question comes from Dominick Gabriele from Oppenheimer. Dominick, your line is now open.

[Dominick Gabriele, Oppenheimer]

Great results on revenue and EBITDA. I just wanted to ask, versus a lot of the other fintechs that have recently come to market, you've really been obtaining high-quality FICO customers versus lower tiers. And one of the very large banks recently talked about new entrants typically having to gain traction in the lowest tiers first, but that just doesn't seem to be the case for you guys and your strategy seems to be working. So maybe on a product level, how are you beating the competitors and the incumbents to obtain these higher FICO score customers versus the low end? It would be great to hear.

[Anthony Noto, CEO]

Welcome. I'd say it's old school, focusing on the fundamentals, product, pricing, promotion, placement, the four piece. If you go back to 2018, when we first changed leadership of the company, one of our priorities was to focus on quality over quantity. And it was a really tough decision. We took our volume down meaningfully from where it was in 2017. In addition to that, we took it down relative to what the prior team thought they would be able to achieve.

And the reason is we wanted to rearchitect the products so that on a per loan basis we can achieve, through the cycle, a 40% to 50% variable profit margin. I won't walk through the equation of how to get there, but we're happy to do that off-line if it's helpful.

Well, we look at the variable profit margin by channel, by marketing channel. And we developed a much more sophisticated approach to pricing. There was only -- it only could price 50% of the loans at one price and 50% at another price, and we developed a whole construct to be able to do 36 sales across 6 different grids, so to speak, and it's gone way, way beyond that now.

And so it's really hard to find people that don't necessarily need to refinance. It's really easy to find people that need to refinance. In addition, when you do find those people that may not necessarily need to refinance, you have to give them a cost savings or benefit relative to their other choices. So it needs to be compelling. You have to find them. But the price that you're giving them or the savings you're giving them has to be of greater value than what they're currently doing. And then you need to make sure you have the right operational controls, the right life of loan losses and credit processes to ensure that you underwrite appropriately with the right operating and CAC costs.

The last thing I'd mention is our credit models continue to be updated based on on-property data, which helps us now more than before. We're trying to underwrite to free cash flow. And so the more information we have on your income, the more information we have on your spending, the better we can underwrite to free cash flow. So it's a combination of all those different things.

And the last thing I'd mention is our time to fund the personal loan is two days. It used to be eight days. Our time to fund the student loan used to be in the mid- to high teens. Now it's in the single digits. That's also a factor that people underestimate in terms of the ability to meet the demands of that borrower when you do find them.

In addition to that, we have a sense of urgency. We don't rush. We want to make sure we underwrite appropriately. But we have to be competitive using our technology and our operations to deliver a short time to fund.

[Operator]

Our next question comes from Ashwin Shirvaikar from Citigroup. Ashwin, your line is open.

[Ashwin Shirvaikar, Citigroup]

Anthony, Chris, good quarter, congratulations. I want to talk about the technology platform. If you can go through in sort of more granular fashion about the investments you're making in the platform and the client take-up of cloud banking. And then the sequential growth in Galileo accounts has decelerated the last few quarters. Is there an ongoing implementation or other efforts to reaccelerate that?

[Anthony Noto, CEO]

So on the technology platform, we're really pleased with the growth that we're driving and even more so with the processes that have been undertaken to provide a stable, reliable and resilient platform for our partners and the pipeline of products in addition to the integration of Technisys and Galileo.

The major investment that we've made over the last two years of owning Galileo was transitioning from on-prem into the cloud. And that transition is largely done. I think the report I've seen most recently is 99% of our authorizations are now in the cloud. And that's really going to provide great SLA performance for our partners and allow them to innovate faster and be more nimble using data real time to make more better decisions.

We have a robust pipeline within Galileo for our partners, but we also have a robust pipeline for new verticals. We are definitely starting to migrate away from just pure B2C. We talked about the B2B customers that we've been able to attract on the last couple of quarters, and the pipeline there remains very robust.

And generally, the B2B companies already have existing payment systems and payment supply for us to process. So when we convert those over, there will be a faster time to revenue and also get much higher probability.

In addition to building products for B2B that are more controllable for them and meet their needs better in addition to just having the processing capability, we're also continuing to expand internationally with really strong trends throughout Latin America, both on the back of Galileo as well as Technisys, which was where it was strong to begin with.

In addition to geographic expansion, we have a robust pipeline of products for our existing partners. We'll be launching paying for in the coming months. Paying for is a product that was built on Galileo and on Technisys. It will be the first product that's built across both processing and the core technology. And that will be a great product for that large installed base of 120-plus million accounts, many of which are B2C. And it's one that better suits the demand and the interest of the lower-income customers of our partners on the B2C side there.

In terms of growth in the future, I would say we're not planning for accelerating growth, but the TAM is so large and we've made such large investments, that is a possibility, on a revenue standpoint as well as on a revenue per account standpoint. It's not something that we would forecast, but it's -- given it's so early in the transition of physical payment to digital and we're so early in the new launch of many of our products, but it's possible. It's not something that we will forecast.

In terms of demand, we're focused much more on existing portfolios than we are on startups because of the known value that's there and hugely differentiated service that we have in the cloud as being end-to-end with core technology plus processing plus the front end. We are a much better solution than what's currently out in the marketplace for many financial institutions that are very scaled. And so those have longer lead times, but they'll have bigger paybacks and a much bigger impact to the absolute dollars that we generate in our revenue.

[Operator]

Our next question comes from Michael Ng from Goldman Sachs. Michael, your line is now open.

[Michael Ng, Goldman Sachs]

I was just wondering if you could talk a little bit more about deposits. It's encouraging to see the progress there. It seems like the deposit inflows have accelerated pretty meaningfully from the $100 million per week that you talked about earlier this year. Against the backdrop of the upcoming increase, what are your expectations for the deposit inflows run rate? And separately, are you seeing any changes or headwinds in deposit inflows from consumers investing directly into money markets or treasuries?

[Anthony Noto, CEO]

We've definitely been winning share of deposits. We think we have an incredibly differentiated checking and savings account with high interest checking of 2.5%. No fees, free overdraft protection, you can spend with your phone, spend with your card. You can do person to-person payment, you can do bill pay, pre-roundups and a unique rewards program. So I think our product is unmatched when it comes to checking across those different dimensions, not to mention you will become a SoFi member and get a number of other benefits.

We also introduced SoFi Plus, which is a way to pull together all of the different benefits you would get as a member in addition to a few incremental pieces of value on rewards step-ups. And that is a product that gets unlocked through direct deposit. And while it's very small and early from a standpoint, it's actually delivering the type of impact that we thought it would drive.

So we're winning deposit share. I'll tell you we're taking it from the traditional banks. Someone asked the question earlier, and I've got to answer it, what are we seeing from the neobanks that are maybe focused on the underserved or neobanks more broadly, are they pulling back on marketing and not seeing strong growth? I think what we see in the industry is they're seeing great growth, and we're seeing great growth. And I think they're serving the underserved incredibly well, that were unbanked as well as underserved by traditional banks. But the vast, vast majority of what we're seeing is coming from the largest banks in the United States, and we're winning deposit share from them.

We do watch the deposit trends more broadly in the industry, and it's clear that not only are the large banks losing deposits to digital companies like SoFi and fintech companies like SoFi, but they're also losing into money market funds. But we want to have an attractive rate that competes against all of the different options they have, including investment accounts and money market funds.

[Operator]

Our next question comes from Jeff Adelson from Morgan Stanley. Jeff, your line is now open.

[Jeff Adelson, Morgan Stanley]

Chris, just wanted to follow up on the loan growth question from earlier and maybe just honing in a little bit on the outlook from here. I know you mentioned some of those drivers, including the bank flexibility, repurchases, et cetera. But in terms of the kind of doubling of the loan hold period you've talked about from 3 to 6 months, is that now effectively in the run rate and should we more or less be thinking about the loan growth from here as kind of matching the percent growth in originations? Or is this something where you think you can continue to add loans at the same clip as your origination dollars, for instance? You added about $3 billion of sequential loan growth this quarter, which was roughly in line with your personal loan originations.

And then just as a quick follow-up, wondering if you guys can give us an update on your Q-to-date October deposit growth.

[Anthony Noto, CEO]

So I'll let Chris answer the question more numerically. I'll just share a perspective. The great thing about the financial services sector is that the factors for growth change constantly. Interest rates are changing. The economic environment is changing. People or the financial markets are changing. And I would tell you, being here five years, every quarter presents a different set of outcomes across all those market factors than we thought at the beginning of the quarter. And we run to where the opportunity is. And in some quarters, that opportunity may be driven by being able to raise WACC. In some quarters, the opportunity would be driven by a really strong securitization market. And some quarters are going to be driven by a really strong wholesale market.

The most important thing is that we diversify our funding sources and we diversify our distribution as well as our ability to hold. And that gives us an ability to be nimble when the conditions change to go after those opportunities.

And so I don't want anyone to think that it's a straight line, linear in any fashion. It's never been a straight line or linear in every fashion. Every quarter presents different opportunities that we can take advantage of.

The thing has resulted from having a one-stop consumer-focused strategy is that we have these diversified businesses so that we can go in one direction or the other when things change. And the thing that I have found that gates our growth more than anything else isn't the market conditions, it's actually our ability to keep driving awareness and keep driving trial of our products and becoming a household brand name that's trusted. We could grow much faster if we spend more in marketing, it would be very profitable over the long term, but it will be less profitable in the near term. But the gating factor for us is how much do we want to drive awareness and trial.

As it relates to your specific question about what this means in terms of loan growth on the balance sheet.

[Chris Lapointe, CFO]

Yes. So in terms of whether we're benefiting fully from the 6- to 7-month hold period at this point, I'll take you back to when we opened the bank, we started originating all of our SLR PL and home loans in about the March, April time frame, and we weren't fully originating until May. And at that point, it would take 6 to 7 months to really fully realize and get the benefit of the extended hold period. So we certainly saw a material uplift in net interest income in this quarter, in Q3, but we're still not going to see the full realized benefit of that 6 to 7 months hold until Q4 in the November time frame. So really good progress, but the full benefit will likely hit in Q4.

And your other question on deposit growth into October, we aren't disclosing that.

[Anthony Noto, CEO]

And the only other thing I'd add on deposit growth is that we did announce yesterday that we're moving the savings rate to 3% on APY and we'll continue to be nimble in the marketplace and ensure that we're in the top tier of value that we're adding to make sure we continue to get these high-quality deposits.

The FICO score that I mentioned earlier and the conversion of open accounts to is really strong, and we would love to be more aggressive there, but we want to make sure we can maintain the quality.

[Operator]

Our final question for today comes from David Chiaverini from Wedbush. David, your line is now open.

[David Chiaverini]

Could you discuss the dynamics around the net interest margin and the outlook for the next few quarters. You just mentioned about how the savings product, APY, it's going up 50 basis points to 3%. And you mentioned earlier about loan pricing being up 60 basis points in the quarter. But could you kind of net those out for an outlook over the next few quarters?

[Chris Lapointe, CFO]

Yes. So we aren't providing specific guidance on our net interest margin, but what I would say is we've had really good success over the course of the last several quarters in terms of raising our overall yield, and that's a function of a mix shift towards more personal loans and the success in being able to raise our weighted average coupon 60 basis points across the entire portfolio for the last two quarters.

In addition to that, our deposit betas have been roughly 50%. So when -- we're going to see natural and NIM expansion there.

What I would say in terms of the go forward, there will be a number of things that will impact the overall NIM margin. And most predominantly, it will be our ability to keep pace with rising rates which we expect to be able to do on the personal loans product. But it will also have an -- it will also be impacted by the mix shift of student loans and home loans on the balance sheet.

As we continue and expect a rebound in demand from student loan refinancing, those loans have a lower yield or weighted average coupon, which would have an impact on net interest margin. But overall, we're happy and proud of our ability to expand NIM and expect to be able to maintain these levels.

[Anthony Noto, CEO]

Thanks, Chris. And before we wrap, I wanted to share some final thoughts. As we enter the last quarter of 2022, I would be remiss if I didn't take a moment and thank our entire SoFi team that has just been incredibly resilient in our ability to execute through volatile times to deliver a sixth quarter of record revenue and record EBITDA this quarter of $44 million.

The results you see here are a direct result of our people and our people's ability to lead to meet our members. I can't help but be incredibly optimistic about the future of SoFi given the unprecedented results of the last two years and the resilience our team has shown. Even the toughest market conditions, quarter after quarter, we've delivered on our goals and exceed expectations across the board. It's an absolute privilege to lead this company as we help change people's lives every single day for the better.

Our members need us more than ever and we'll continue to show up for them spades. There is no shortage of challenges ahead. But there has been no shortage of challenges every year since I joined nearly five years ago in 2018. And with each set of unique challenges, we've continued to rise to the occasion. And ultimately, we'll work tirelessly to be prepared as best we can for whatever we face ahead just as we have each year before. Until we talk next quarter.

Thank you for your interest, and thank you for your support as our shareholders.

[Operator]

Thank you for joining today's call. You may now disconnect.