Pagaya (PGY) 2026年第三季度业绩电话会：净利润达5000万美元，上调业绩指引lg...

Pagaya Technologies（纳斯达克代码：PGY）公布2026财年第三季度创纪录的盈利表现，主要得益于网络交易量与申请流量的扩大，同时核心运营费用总体保持平稳。管理层在2026年第三次上调了GAAP净利润指引，尽管利率上升对近期FRLPC利润率造成了压力。

要点速览

• 第三季度网络交易量同比增长29%至36亿美元，而申请量增长42%至3770亿美元。
• GAAP净利润达到创纪录的5000万美元，同比增长121%，净利润率从上年同期的6%扩大至13%。
• 调整后EBITDA增长22%至1.3亿美元。调整后EBITDA利润率上升3个百分点至33%。
• FRLPC增长5%至1.46亿美元，但在网络交易量中的占比降至4.1%，下降了91个基点，这主要是由于两年期美国国债收益率上升所致。
• Pagaya新增了公民金融集团（Citizens Financial Group）和第一奥马哈国家银行（FNBO）两家合作伙伴，使2026年入驻的合作伙伴数量达到6家。管理层表示，潜在合作伙伴管线同比增长超过50%。
• 2026全财年GAAP净利润指引上调至1.62亿美元至1.82亿美元。管理层预计第四季度交易量将出现季节性下滑，且FRLPC将保持在其4%-5%区间的下限附近。

关键财务结果

据管理层称，核心运营费用已连续七个季度基本保持持平。这使得新增的FRLPC和利息收入能够以较高的比例转化为利润。

Pagaya在季度末拥有3.06亿美元的现金及现金等价物，以及11亿美元的贷款和证券。债券占投资组合的49%。本季度凭证部分的公允价值减少了4300万美元。

业务与运营表现

Pagaya在本季度新增了两家银行合作伙伴。公民金融集团合作开展个人贷款业务，而第一奥马哈国家银行（FNBO）则合作开展家居改造销售点（POS）融资业务。该公司在2026年前三个季度共新增6家合作伙伴，超出了其每年新增2至4家的年度目标。

管理层表示，银行正利用Pagaya的基础设施提供额外的信贷产品、留存存款客户并产生费用收入，而无需将相关贷款列入自身资产负债表。公司进入第四季度时，拥有管理层所描述的迄今为止规模最大的潜在合作伙伴管线，同比增长超过50%。

个人贷款仍是Pagaya最大的资产类别，而汽车贷款继续保持更快增长。通过益博睿（Experian）和Credit Karma，Affiliate Optimizer新增了两家合作伙伴。Pagaya表示，使用该产品的合作伙伴发放的贷款量比上年平均增长了60%。

Direct Marketing Engine（直销引擎）已完成约70次营销活动，并为合作伙伴生态系统新增了2万多名客户。管理层维持了到年底年化交易量达到5亿美元的目标。

在汽车贷款领域，漏斗顶层的申请量同比增长了40%。Pagaya继续开发其Counter Offer（反要约）和Dual Look（双重审查）产品，管理层称这些产品使合作伙伴有70%的时间能够满足客户要求的全部金额。该公司还在开发一款实时优化产品，允许经销商在无需重新提交申请的情况下模拟贷款条件。

管理层强调借款人和抵押品特征有所改善。汽车贷款借款人的平均收入从2022年的62,000美元增至88,000美元，而平均车辆里程数从65,000英里降至24,000英里。个人贷款申请人的平均借款人收入约为120,000美元。

资金来源仍然是核心增长驱动力。Pagaya通过资产支持证券化（ABS）筹集了30亿美元，其中包括18亿美元的个人贷款和12亿美元的汽车贷款。其投资者网络扩大到180多个参与者，且在其最新的个人贷款交易中，利差收窄了20多个基点。

该公司还达成了三项协议，在24个月内提供超过20亿美元的承诺资金：包括与路博迈（Neuberger Berman）达成的7亿美元汽车贷款远期流转协议、7亿美元的个人贷款可变资金票据（VFN），以及在存续期内支持8.5亿美元生成的循环个人贷款证券化。

管理层指引

管理层在2026年第三次上调净利润指引，并预计按电话会议上讨论的指引水平，全年增幅将达到112%。

第四季度的网络交易量预计将因季节性因素低于第三季度。扣除Klarna后，管理层预计环比将下降约5%至6%，而2025年第四季度为下降9%。据公司称，Klarna在第三季度贡献了约3.3亿美元的交易量，但对FRLPC或利润并不构成重大影响。

第四季度FRLPC占交易量的百分比预计将保持在4%-5%区间的低位附近，随后在季度末开始改善。Pagaya在9月和10月将个人贷款的年化利率（APR）上调了100个基点，汽车贷款上调了140个基点。管理层预计，这些举措加上合作伙伴成熟度的提高，将在2027年推动FRLPC迈向该区间的中点。

风险与关注点

基准利率上升推高了Pagaya的资金成本，并降低了第三季度的FRLPC利润率。进一步紧缩可能会继续影响近期单位经济效益，尽管管理层表示其最近上调APR提供了缓冲。

新合作伙伴和新产品初始产生的转化率和FRLPC比率较低。管理层表示，随着Pagaya评估贷款表现并逐渐增加资金投入，转化率通常会在约12个月内趋于正常化。

第四季度的交易量将面临季节性因素以及失去Klarna后的首个完整季度。管理层认为失去Klarna的交易量对FRLPC、调整后EBITDA和利润的影响不重大。

该公司还指出，保持信贷纪律可能会导致网络交易量出现短期波动。管理层认为，在需要保护单位经济效益时，近期增速放缓是可接受的权衡。

分析师问答集锦

• 银行管线：管理层表示，潜在合作伙伴管线越来越多地包含大型区域性银行、大型货币中心银行，以及在汽车贷款领域的大型原始设备制造商（OEM）。与早期合作伙伴群相比，大型机构能在长期内带来显著更大的交易量。
• 经营杠杆：Pagaya表示，现有基础设施可以在不导致运营费用相应加速增长的情况下，支持现有资产类别中新增的合作伙伴和交易量。
• 利率传导：管理层报告称，在个人贷款APR上调100个基点以及汽车贷款上调140个基点后，激活率并未出现明显下降。
• 信贷表现：各业务领域的信贷表现均符合预期。管理层引用了最近的KBRA监测报告，报告显示有63个证券化分档获得评级上调，且无一例被下调。
• 合作伙伴成熟度：管理层表示，新合作伙伴的转化率通常会在约12个月内达到正常水平。成熟合作伙伴预计将实现大致相近的FRLPC比率。
• 2027年入驻目标：尽管潜在管线规模更大，Pagaya仍维持每年新增2至4家合作伙伴的年度目标，因为入驻时间线并不完全在公司的控制范围内。

业绩电话会议完整文字记录

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完整财报电话会议逐字稿

管理层陈述

Operator

Greetings, and welcome to the Pagaya Third Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Craig Smyth, Investor Relations. Thank you. You may begin.

Craig Smyth

Thank you, and welcome to Pagaya's third quarter 2026 earnings conference call.

Joining me today to talk about our business and results are Gal Krubiner, Chief Executive Officer of Pagaya; Sanjiv Das, President; and Jon Dobres, Chief Financial Officer.

You can find the materials that accompany our prepared remarks and a replay of today's webcast on the Investor Relations section of our website at investor.pagaya.com. Our remarks today will include forward-looking statements that are based on our current expectations and forecasts with respect to, among other things, our operations and financial performance, including our financial outlook for the fourth quarter and full year 2026.

Our actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially from our expectations include, but are not limited to, those risks described in today's press release and our filings with the U.S. Securities and Exchange Commission. We undertake no obligation to update any forward-looking statements as a result of new information or future events.

Please refer to the documents we file from time to time with the SEC, including our 10-Ks, 10-Qs and other reports for a more detailed discussion on these factors. Additionally, non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, fee revenue less production costs, or FRLPC, FRLPC as a percentage of network volume, core operating expenses and core operating expenses as a percentage of FRLPC will be discussed on the call and included in the accompanying materials.

We also provide an outlook for the fourth quarter and full year 2026 on a non-GAAP basis. Reconciliations to the most directly comparable GAAP financial measures are available to the extent available without unreasonable efforts in our earnings release and other materials, which are posted on our Investor Relations website.

We encourage you to review the shareholder letter, which was furnished to the SEC on Form 8-K today for detailed commentary on our business and performance in conjunction with the accompanying earnings supplement and press release.

With that, let me turn the call over to Gal.

Gal Krubiner

Thank you, everyone, for joining us today. We had another outstanding quarter. We delivered record GAAP net income of $50 million. We grew network volume by 29%. We held costs flat, driving nearly 100% to the bottom line. Today, I want to discuss the key drivers of the quarter and then to discuss the progress we have made on our partner and product strategy that led us to become a profitable company in 2025, put Pagaya on a path to generate $172 million of GAAP net income in 2026 and set us up for a record year in 2027.

Higher rates increased our cost of capital in Q3 and therefore, reduced our FRLPC margin, driving us to a lower end of our 4% to 5% range. We are taking action by raising APRs in September and October, and this will result in a higher FRLPC percentage as we close out Q4 and enter into 2027.

On credit, our performance is strong and in line with expectation in both Auto and Personal Loans. We have been laser-focused on credit performance through market cycles as reflected in the profile of the borrowers we underwrite, and that continues to pay off. Funding availability is very robust. In fact, it is stronger than ever. We raised $3 billion in ABS this quarter to support our network production, and we are using that availability to strengthen our long-term funding stability. We also executed on the funding diversity we discussed last quarter with a focus on long-term committed capital.

More of our funding now comes through revolving structures that can be drawn, repaid and reused. That capacity carries forward, so it does not have to be rebuilt every quarter, and it gives us more stability across market environments. Now to what excites me most, 2027 and the long-term vision behind it. Pagaya is really becoming an important part of the infrastructure for lenders. To gain and retain valuable deposit customers, banks needs to meet product demand. Multiyear lead time for product development or conflicting balance sheet strategies is no longer an excuse to forgo that path to deposit growth.

We are that solution. We are this partner that gives banks the products, the decisioning and the capital network to move faster. This is precisely the demand that is reflecting in our pipeline. Citizens and FNBO are the latest proof points of this momentum. These 2 banks joined the network this quarter, bringing our new partners count to 6 this year.

Their integration is a signal that we are becoming a utility for financial institutions. More partners and more products bring more applications. More applications data widens our moat and improved decisioning. Better results deepen those relationships and bring more volume back into the network. And with the operational expenses held flat, that growth increasingly reaches the bottom line.

We entered the fourth quarter with the largest partner pipeline in Pagaya's history, and we are seeing the early innings of enabling lending outside of the bank balance sheets. Consumer credit in the U.S. represents nearly $1 trillion in annual originations compared with our current annualized volume of about $14 billion. We have substantial room to grow. Banks can count on our infrastructure through every part of the cycle, and that infrastructure only gets stronger as we grow and scale. Thank you to our team for executing this quarter. The results definitely belongs to them.

Sanjiv Das

Thanks, Gal. We delivered another quarter of disciplined execution. We stayed focused on our 3 growth pillars: signing new partners, expanding flow from existing ones and deepening product adoption across the network. By staying focused on these fundamentals, we drove 29% network volume growth year-over-year and reached our highest profit ever. We also kept our credit posture strong with application-to-conversion holding steady at approximately 1%. This is the network growth strategy we've been talking about, and it is now compounding as a repeatable playbook rather than a series of one-off wins.

I want to start by talking about our bank and partner adoption. This quarter, we are pleased to welcome 2 new bank partners, Citizens Financial Group for Personal Loans and FNBO for home improvement point-of-sale financing. That brings us to 6 new partners onboardings over the past 3 quarters, well above our annual target of 2 to 4. Our pipeline remains strong, and we expect to announce more significant partnerships in the coming quarters. Offering personal loans and other credit products helps banks deepen customer relationships. It improves deposit retention and drives adoption of additional products, which supports higher customer lifetime value.

This matters even more when banks face capital constraints on growing their lending programs. That is the main reason banks are leaning into our network at record levels, particularly in Personal Loans and Auto. It's driving the strongest bank pipeline in Pagaya's history. Importantly, we are also deepening product adoption among current partners. Our flagship Personal Loans business keeps delivering strong, stable performance. We use a selective multiproduct approach to capture stronger applications higher up the funnel.

The Affiliate Optimizer Engine remains a key growth driver. We onboarded 2 new partners into Experian and Credit Karma this quarter. We also keep equipping partners with tools and insights to perform better in these channels. On average, partners that launch in Pagaya's Affiliate Optimizer see a 60% increase in issued volume compared to the prior year.

With demand strong and more partners in the pipeline, we expect further launches in the coming quarters. Our Direct Marketing Engine continues to perform exceptionally well. To date, we have executed approximately 70 campaigns, and we remain on track to achieve our $0.5 billion annualized volume goal by the end of the year. These campaigns have enabled partners to add more than 20,000 customers to their ecosystems. This demonstrates our ability to advance further up the application funnel while supporting partners in acquiring and cross-selling customers.

Now turning to Auto. Last quarter, we introduced Pagaya's auto flywheel. By continuously improving our Auto product and features, we enhanced the dealer experience with our lending partners. Higher dealer engagement drives more application volume and expands Pagaya's flow. That volume fuels further product innovation and reinforces our data moat. This self-sustaining loop drives steady, disciplined growth. We saw a 40% increase in top-of-funnel application volume year-over-year. As our partners become dealers' first choice, our application mix and origination profile keep getting stronger.

In Auto, we are strengthening our Counter Offer and Dual Look products. They help lenders convert more dealer applications into approvals. Our internal analysis shows these products help partners meet customers' full requested amount 70% of the time. They expand approval opportunities and deliver tailored offers, so our lending partners compete better and generate higher loan volume.

As a result, Pagaya's issuance mix is evolving with a growing share of applications coming from higher up the funnel. Additionally, we are in the process of building a real-time optimization product that allows dealers to simulate loan terms without resubmitting applications. Our data shows that deals with multiple submissions convert at a significantly higher rate compared to single submissions.

Next, on point-of-sale. Sezzle and FlexPay continue to scale nicely. We remain committed to building out and scaling our point-of-sale business, including cross-selling to existing partners. We also see significant upside in using our core personal loan funding capabilities to fund larger, longer-term purpose-driven loans. And finally, I want to touch on our funding this quarter.

Our funding engine remains exceptionally strong. That strength has become a competitive advantage, and it's attracting new bank partners. This quarter, we closed 3 deals that together add more than $2 billion of committed capital over the next 24 months. We announced a $700 million auto forward flow with Neuberger Berman, our second such partnership. In Personal Loans, we launched our inaugural Variable Funding Note, establishing $700 million in additional funding capacity. We also closed our second revolving personal loan securitization supporting $850 million of production over its life, which demonstrates demand from insurance capital for bespoke solutions.

Within ABS, we raised $3 billion this quarter. That was anchored by our largest-ever Auto ABS transaction, which was upsized as new investors joined our Auto shelf. These funding sources provide both diversification and the capacity to support originations at scale through cycles. I want to take a step back and look at what's ahead. Regardless of market cycles, our strategy remains focused on core fundamentals, onboarding high-quality new partners and deepening relationships with existing ones through expanded product offerings.

We are doing this intentionally to diversify our partner base, secure our funding capacity and maintain credit with strict discipline. We believe a short-term dip in volume growth is an acceptable trade-off to maintain our unit economics as expanding the network provides far greater long-term value for the business and its shareholders.

Jonathan Dobres

Thank you, Sanjiv. This quarter delivered record net income of nearly $50 million, driven by the mission-critical nature of our infrastructure. Before I walk through our successful quarter and outlook, let me talk about the impact from higher rates. As Gal mentioned earlier, rates increased in September, which we reacted to in regular course.

Let me explain. In the short term, higher rates lower FRLPC as a percentage of volume. Q3 came in at 4.1%, the low end of our 4% to 5% target range. To bring us back to the midpoint, in September and October, we staged APR increases across our asset classes, 100 basis points in Personal Loans and 140 basis points in Auto. By the end of Q4, we expect to trend upward and in 2027, move towards the middle of the 4% to 5% range.

Now to the quarter and strong outlook. On the funding side, investor demand is very strong. We executed $1.8 billion of personal loan securitization and $1.2 billion of auto securitizations in Q3 and increased our investor network to over 180 unique investors. Spreads are consistent with or have improved from earlier in the year. For example, spreads tightened more than 20 basis points on our most recent personal loan transaction. Tighter spreads and more investors are the clearest signal of investor confidence in the network's credit performance and investor demand.

Outside of our core ABS franchise, our long-term diversified committed capital strategy is delivering. Forward flow, long-term revolving structures and warehouses discussed last quarter have all come to fruition, and the pipeline for non-prefunded ABS partnerships remains strong in Q4.

Now the results. Network volume grew 29% year-over-year to $3.6 billion, led by Personal Loans and Auto. Application volume rose 42% year-over-year to $377 billion. This follows Q2, which you'll remember was our first quarter over $300 billion in applications. Application growth is our leading indicator for future volume from new partners and products. So $377 billion tells us our bank-led partner strategy is working.

Conversion remains around 1%. It came down slightly as we prudently onboard new partner and product-driven volume. As we prove out the quality of the new partner and product flow, conversion and volume follow. Revenue and other income grew 12% year-over-year to $390 million. Collectively, FRLPC and other income, which is predominantly interest income, grew 17% year-over-year to $175 million or 4.8% of network volume. The vast majority of this is received as cash when earned in the quarter.

Fee revenue grew 7% to $362 million, driven by volume and partly offset by the lower FRLPC rate. Interest and investment income more than doubled as our cash-yielding bond portfolio grew. FRLPC grew 5% to $146 million. As a percentage of network volume, it was 4.1%, down 91 basis points year-over-year, reflecting the elevated 2-year treasury.

As we pass along these costs, FRLPC as a percentage of volume will move upward toward the midpoint of our 4% to 5% range in 2027. Adjusted EBITDA rose 22% or $23 million to $130 million, a 33% margin, up 3 points. Core operating expenses were $45 million, $2 million lower than a year ago and 31% of FRLPC, down 3 percentage points. Operating income was $113 million, up 41%. And finally, GAAP net income was $50 million, up 121% from Q3 2025, a 13% net income margin versus 6% a year ago.

Let me double-click on one element of what I just spoke about. Core operating expenses have been essentially flat for 7 straight quarters. That's what lets incremental FRLPC and interest income flow through to the bottom line at such a high rate. Our fixed cost base doesn't move with volume. Credit is in line with expectations across all verticals.

As 2025 vintages season for PL and Auto, our most recent KBRA surveillance reports upgraded 63 tranches with 0 downgrades. This gives us additional confidence in our future level of impairments and that impairments will continue to come down as a percentage of production.

Now the balance sheet. We've continued to improve the quality and mix of our investment assets. As of September 30, we had $306 million in cash and cash equivalents and $1.1 billion in loans and securities, with bonds making up 49% of the portfolio. The majority of the interest recognized from our investments in loans and securities is cash. The fair value of the certificate portion was adjusted down $43 million in the quarter. Our balance sheet has become a strategic driver of value for Pagaya and a key strength as we were able to borrow on our bond portfolio at our choosing to lower our cost of capital on a nonrecourse basis.

These secured borrowings are increasingly bank-led and priced very attractively. For example, our most recent agreement with a major bank funds at about a 6.5% cost of capital, supporting bonds that yield about 11% to Pagaya on an unlevered basis. Overall, cost of secured borrowings is currently about 8.5% versus about 11.5% in mid-2025. We expect this aggregate rate to continue to decline. A further indicator of balance sheet strength is our shareholders' equity, which has increased by about 50% since the close of 2024.

Finally, on to guidance. We're raising net income guidance for the third time this year. Even in a higher rate environment, application volume and investor demand remain extremely strong, which lets us exit the year with a projected 112% increase in net income. Q4 volume will be seasonally lower than Q3. Excluding Klarna, Q3 volumes were $3.3 billion. Q4 reflects the first full quarter without Klarna plus Q4 seasonality.

To be clear, Klarna contributed volume but was not material to FRLPC or profit. Ex Klarna, the Q4 2026 seasonal decline is expected to be milder than what we saw in 2025, about 5% to 6% versus 9% in 2025. FRLPC as a percentage of volume is expected near the lower end of the 4% to 5% range. It begins to rise towards the end of Q4 and continues into 2027 when we expect to get closer to the middle of the range.

For full year 2026, we expect network volume of $12.725 billion to $13.025 billion, total revenue and other income of $1.45 billion to $1.5 billion, adjusted EBITDA of $465 million to $485 million and GAAP net income of $162 million to $182 million.

With that, let me turn it over to the operator for Q&A.

Operator

[Operator Instructions] The first question is from John Hecht from Jefferies.

分析师问答

John Hecht

Good results. Congrats. First question is 2 new bank announcements, that's pretty -- that's a pretty good development. Maybe you could tell us what drove those, I guess, negotiations across the line and how the pipeline is generally related to that?

Gal Krubiner

John, it's Gal here. Thank you for the question. So definitely, by far, the thing that I and the team are most excited about, we definitely see a shift in the way banks are thinking about the Pagaya offering.

Let me start with Citizens and FNBO. We'll move a little bit to the main driver that we see in the market, and we'll close by a few remarks on the pipeline. But from Citizens perspective, I think the best way to think about it is when they looked into opening the Personal Loan business again that they had in the past, their best way or easiest way to do it was really to partner with Pagaya. So we can take a project that could take for a bank something like 2 to 3 years and with our technology capabilities and with the capital market capabilities, really to bring it up to life in 6 to 9 months.

And for a bank like Citizens that has -- mainly motivation is to provide solutions and products to their depository base, that's the easiest, most straightforward way to do that. And the reason why Citizens and FNBO are so exciting for us because we definitely feel this is marking the full shift of the understanding of the banks on the value proposition that we are providing and making it something like more a category leader.

Things that we spoke in the past on the theory level are now coming and becoming the real way to do business. And the same goes for FNBO when they are actually doing the same for the point-of-sale on home improvement. So they were looking for a partner to help them approve more, expand more, provide more value to their customers and we were the selected partner, and we are very fortunate and appreciative both the managements of FNBO and Citizens.

On the things behind what's pushing these partners to come, so we can think about the 2 major motivations, as the first one is to maintain and increase the consumers' deposits. So the personal loan is really a product that is attached to deposits needs. And a lot of the situation where customers that have a big deposits are looking for personal loan, and the bank can't provide it, they will end up looking for the same thing in a fintech and more likely than not, will be in a situation where they are moving part of their deposits elsewhere.

So the ability to have the same solutions, the same capabilities inside the bank is really something that we are helping them provide and think about it as the way to protect their deposits from fleeing away to other banks. The other side of the coin is really about growth. So the bank is actually starting to realize that they need to grow and they could do that through increasing their fee income that is not really correlated to their bank balance sheet. So we are working with them and sharing with them a little bit of the upside that is being generated from the fees that the banks are being producing through these loans, but they don't need to attach any balance sheet to that.

That's really materially increasing the return on the equity and showcasing the growth that they should and can now propose, but not through a heavy lifting of bank balance sheet or any tech big investments. So all of that to say that we are really seeing the market moving to us, and we are expecting even more significant surge in the engagement from bank lenders. We are actually today speaking with many more of the lenders. And even more than that, we are speaking with the bigger players than we expect before.

So that's what we feel about the motivation and discussion. All of that is bringing us really to a super strong pipeline, as I mentioned, driven by big banks, not by medium or small banks. Some of them are even mega banks. And when we think about the pipeline number, it definitely grew over 50% year-over-year, making and marking a significant change in the understanding of the banks on the value proposition.

John Hecht

Okay. That's great context. And then second question is just the Q4 volume guide, maybe talk about what you're thinking in terms of approval rates and the mix, just to give us a little bit of more details on that. I mean it still shows good momentum but also ongoing selectiveness.

Jonathan Dobres

When you think about Q4 volume, the mix will be pretty similar to what we've seen throughout the year. So PL remains our largest asset class, but Auto is growing faster. So you'll kind of continue to see that trend. As I mentioned in my remarks, Q4 is the first quarter where Klarna is fully out of the network.

Again, that reduces volume. It was about $300 million or so -- $330 million of volume last quarter. However, has really no effect on FRLPC EBITDA or anything below. But that's how you should think of it, sort of a continuation of the volume trend for the year sort of ex Klarna in the quarter.

Operator

The next question is from Sanjay Sakhrani from KBW.

Sanjay Sakhrani

Congrats on all the progress that's being made. I guess, Gal, you mentioned how the mix of your originations or the potential is moving towards larger banks. I guess what changes as that happens as we think about the mix of types of loans and the economic potential of those loans?

Gal Krubiner

Sanjay, thanks for the question. Definitely. So just let me clarify. I spoke that the Q4 onboarding are moving into bigger banks, et cetera. I think the big way to think about the change is actually the quality of the borrowers that we are actually originating. So if you take a look on, for example, the personal loan and the actual income of what it used to be a year ago, was much lower, and now we're talking about $120,000 for application. And you can imagine that these borrowers are living much more in the big banks and our ability to access them through the big banks is actually very meaningfully different.

And if you will see on the shareholder letter, we actually spoke on the same thing, but just for the Auto. And you will see that when we speak about the income, borrower income of the production that we have on the Auto portfolio this quarter versus 2022, you're talking about average income of $88,000 versus $62,000. So it's a 41% increase.

You talk about vehicle mileage that went down from 65,000 miles to 24,000, which is a reduction of 63%. So that's definitely part of our strategy to increase the capability and to increase our ability to originate better and better collateral. And that is coming from being able to penetrate into a bigger, more robust, more well-known banks that, quite frankly, many of them do not have the PL offering or even if they have the PL offering, they have it in a much more limited scale. And therefore, our solution to them is much more full spectrum to the upwards and to the better borrowers, and that tie out to our long-term strategy of improving the collateral outcome.

Sanjay Sakhrani

Okay. And I guess, as we think, obviously, significant operating leverage potential and what you guys demonstrated this quarter and what's expected for the remainder of the year. As we look ahead, should we expect this type of profile to persist? Or are there investments that you might need to make as you move into these different partnerships that you might have?

Sanjiv Das

Sanjay, this is Sanjiv. I'll take this. Yes. So I think -- I mean, if you really think about what's happened in the last 6 quarters -- last 4 quarters, we have onboarded 7 new accounts, which is like significant in terms of the scale of onboardings with absolutely 0 increase in our onboarding costs and 0 increase in our ramp-up costs. In fact, we've shortened the operating onboarding time, and we've rapidly increased the ramp-up time. All this has happened without any increase in operating expense.

The short answer to your question was do we expect anything to happen in the next few quarters with the continued momentum? The short answer, in my opinion, is absolutely don't expect it to happen because it's highly scalable. And that's what we've been talking about for quite some time. So yes, so continue to expect significant operating leverage with continued momentum in the rate of partner onboarding.

One other thing I'd just like to add is that in addition to the rate of partner onboarding is, if you notice what Gal mentioned was not just the rate of network volume growth, but the change in the quality of network volume. And so we are shifting that also significantly as we move top of the funnel. So the growth is coming from both the growth in the new partners as well as the growth in volume from existing partners, neither of which requires additional operating expense.

Operator

The next question is from Moshe Orenbuch from TD Cowen.

Moshe Orenbuch

Great. You guys talked about the tighter spreads in the more recent deals that you've done. I think that's -- I think it's particularly interesting given that I think investors have been concerned in addition to the increase in base rates that spreads broadly in the industry had widened towards the end of Q3. So maybe could you put that into context a little bit? Like is it just kind of more consistent recent performance? And how does that kind of translate into your outlook for Q4 and beyond?

Jonathan Dobres

Thanks for the question. It's really something that has been tremendously exciting for us this quarter. So credit is performing very well within our expectations. If you look at KBRA's last surveillance report, for example, we had 63 upgrades and 0 downgrades in terms of our securitization. So indicators, obviously, what we see internally and also externally are very positive on credit.

When you take a step back, though, let's think about funding more holistically. We set a strategy to have a long-term diverse committed capital base. When you looked at us a year ago, about 75% of our funding was from prefunded ABS. Now it's more like 50-50 in terms of other channels.

So the ABS is performing very well, which we see from the spreads. We see from increasing -- increasing our investor base from about 170 to over 180. So a lot of indications around there, which are very, very solid. But what excites us even more are the wins we've had this quarter on the nontraditional ABS initiatives. So we set out last quarter on the earnings call, and we said we were going to execute a new revolving structure, forward flow and VFN off-balance sheet warehouse. We achieved all of that this quarter, as Sanjiv talked about in his remarks.

So we see a really diverse array of investor interest. It's on the securitization side, it's on the nontraditional securitization side, and we have a pipeline of additional interest. You'll see another warehouse from us this quarter, for example, that will be bank-led, that will continue to drive down spreads and really make our cost of capital increasingly attractive and diversified.

Gal Krubiner

And one more sentence to add, Moshe. As we think about 2027, why we are excited and actually bullish about the year and bullish about Q4, et cetera, is that we see these 2 trends, right? On the one hand side, we have a very strong adaptation from the banks. So that side of the business is doing and doing well. And as Sanjiv mentioned, quicker and faster and more pronounced. And then on the other side, we have what we call the maturing of our funding channels and capabilities.

So part of the spread tightening is us moving flow to other channels, being able to bring more banks, more balance sheets, more insurance capital. So all of that together is what you should think about the full Pagaya flywheel, which is lower cost of capital is driving more ability to compete and to convert into the partner side, the partner side seeing more value into that and therefore, more profits are being translated to us. So we have the guidance of like, continue to increase the FRLPC, continue to drive more economics to Pagaya and all of that is coming from the 2 sides, reducing the cost of capital and increasing the access to borrowers.

Moshe Orenbuch

Right. And it seems like investors from the comments we've gotten seem to have focused a little bit on the FRLPC in this quarter. But I guess, is it -- you guys have already done the things from a pricing standpoint that are needed to get that towards your 4.5% target, right? There's nothing else that you would have to do in order to get there. Is that a fair observation?

Jonathan Dobres

I think that's definitely the right way to think about it.

Operator

The next question is from Kyle Joseph from Stephens.

Kyle Joseph

I probably just add one on to what Moshe said. Yes, on FRLPC, like Moshe said, you guys kind of laid out strategies to get it back towards that -- the mid-4% range, right, in your zone. Obviously, in '25, we got a little bit, call it, spoiled when it was towards that elevated level closer to 5%. Is that really just a function of just adding more new partners in '26 and a little bit of -- that's the cost of business, but over time, even those new partnerships will ramp back towards that kind of level we saw in '25? Is that how we should be thinking about things in terms of both the impact of rates and new partnerships on FRLPC?

Jonathan Dobres

Right. When you look at the 2 components, I think you're thinking about it correctly. So on the rate side, we've moved these APR increases through. And as we get into 2027, you'll begin to see kind of the restoration higher up in the 4% to 5% range from that. On new partners and products, we had an unbelievable year of onboarding, right? So that does have a lowering effect on the FRLPC rate early on. But as those partners and products mature, the combination of those products and partners maturing and the moves we took on rates will begin to push the aggregate rate forward. Just as a single point, all partners over time get to a similar FRLPC rate. It's just as we onboard them, it's lower at first. So your earlier comment on a mature partner getting to the same rate is exactly right.

Sanjiv Das

And Kyle, I'll just add -- this is Sanjiv. I'll just add from the market's perspective in terms of how we responded to the increase in rates was -- there are 2 things that you should consider. One is, do we have the ability to transmit this in terms of the speed of transmission from an increase in our cost of funds to the consumer? And the short answer is yes, and we did that. So that's point number one.

Point number two is when you did the increase in rates, did you guys see a drop in activation which impacted your volumes? And we did. We watched it now over the last 3 weeks, and we have seen that our activation rates have stayed pretty much constant. And the reason for that is because in this segment, we have pricing power and consumers feel that the need for credit at a responsible rate, because if you take it too far up, it has its own consequences, but we find that it has actually been -- it's been pretty steady. So from a market perspective, we have been able to not only transmit the rates, but also hold our activation rates relatively stable.

Kyle Joseph

Really helpful. And then just a quick follow-up for me, talking about the reacceleration in network volume growth. I mean, obviously, we know you've added a great deal of new partners this year, which is obviously a good thing. But can you just kind of balance that out with what you're seeing in terms of penetration at existing partners and new products as well and a little -- give us a sense for the kind of the balance of growth we've seen this year?

Sanjiv Das

Yes. So as I mentioned to Sanjay before, we have definitely seen that the rate of network growth has been very, very strong. And as I said earlier, the rate of network growth has pretty much offset the volume fluctuations because of the rate. Number two, the rate of top line growth because of our ability to scale with our existing partners has been -- has far exceeded the expense growth, which has mostly been flat.

So both the network as well as existing partner growth has been very, very strong and continues to be strong. I mean we've taken partners that used to operate at about $250 million a year at roughly $1 billion of volume production. In our PL business as well as in our Auto business, we have seen existing partners that have grown very, very substantially in the last 18 months as we continue to ramp up our potential with them and pretty much replicate what we've done this one with the other partners.

And as I said, the most important thing, I know we focus on volume a lot, but I think it's important to also focus on quality of volume. We have started moving very much top of the funnel and are very much changing the quality of the mix of the consumers that we are getting now. As Gal mentioned, Personal Loans at an average income of $120,000 and FICO scores that are very close to like 680,700-ish. So quality of flows are also extremely important, and we continue to see that happen, and we expect that to happen as we move along.

Operator

The next question is from Peter Christiansen from Citi.

Peter Christiansen

Nice execution, guys. Two questions here. I'd like -- Jon, it was helpful to talk about how application growth versus the conversion rate on onboarding new bank partners, how that kind of goes through the pieces. Can you just elaborate on that and how we should think about when does conversion, I guess, eventually normalize when you're onboarding a new partner like some of the banks that you have this quarter?

Jonathan Dobres

Yes. So we see sort of normalization over kind of a 12-month period. And if you should think of that, you should think of it as sort of prudently onboarding, right? We obviously, before we actually activate a new partner, are doing a ton of work, modeling out exactly what we think the flow will look like, what the performance will look like, et cetera.

However, you need to actually start funding loans to see this performance. So in the short term, we intentionally slowly ramp up so we can make any necessary tweaks or anything else to ensure that the performance, the credit performance from new partners will be good. So that's why you'll see application growth before you see volume growth, right? Because a lot of that is being evaluated, and over that sort of 12-ish month period, we're then ramping that into steady-state volume.

Peter Christiansen

That's helpful. And then I do want to chat about the pipeline here, which sounds really exciting. You highlighted the pipeline is over 50% larger year-over-year, the largest. Can you just -- trying to help size that opportunity. So is the average expected volume contribution from the current pipeline, is it materially larger than some of the cohorts that you signed in '24 or '25? Or should we think of the growth is primarily being driven by a higher count of opportunities?

Sanjiv Das

Yes. This is Sanjiv. Pete, let me take a shot at it and, Gal, Jon, feel free to chime in. A couple of things. One is it's absolutely right. The pipeline is, in fact, 50% up and the change in the pipeline towards banks is a material qualitative difference from 18 months ago. The fact that we have now, as Gal mentioned earlier, both major money center banks as well as regional banks after we sort of proved that the model works with U.S. Bank and Barclays Bank, which is now -- which acquired Best Egg, we proved that we were regulatory completely robust and we proved the ability to grow fee income, that has demonstrably moved the pipeline towards banks.

What do I expect as a result of banks coming in? Because banks are significantly larger and because banks have started thinking about Personal Loans through Pagaya as a mechanism to both defend their deposits as well as grow their fee income, the ability to materially grow is substantially larger in the big banks, as you would expect. And I think that value proposition is actually going -- is very strong and makes us very bullish about the prospects of what we are doing in '27, '28.

Gal Krubiner

And the only thing I will add, Pete, I think that's one of the things that it's a little bit missing because it's hard to see, it takes some time. But we are really becoming and shaping to be a company that is working with major players, big banks. And then you can think about it that we kind of like have a line in sight for each partner to eventually contribute $30 million of annual in contribution margin.

I'm not sure how many companies in the U.S. financial ecosystem could have these numbers while they are working with banks in the ability to drive so much revenue and contribution margin from a specific partner. So I think as much as the importance is the pace and the speed and the robustness of the process, in the same time, the ability to actually have the power to generate from a single onboarding, even if it takes 2 years or 3 years, $30 million, $50 million, $80 million sometimes of contribution margin in a year is really the powerful piece about Pagaya that is still underappreciated a bit. And that talks to the question that Sanjay asked about, wait, so what's the operational leverage? And is it meant to stay like that?

So when you have these 2 pieces together and you connect the dots about, on the one hand side, cost of capital going down that we spoke in this call, and then you have the other piece of the constant ability to add partner, which we spoke on this call. And then you take all of that and you ask the question of what it means for Pagaya to have, hopefully, in the next 2 to 3 years, additional 10 to 20 partners that could contribute $10 million, $20 million, $30 million each is a very meaningful, stable with high-margin business that we are actually after.

And the fact that we are becoming that category definer, we definitely feel the market is going to us and that we are -- I'm not saying an inflection point because it's a long journey, but definitely in the right way to achieve our strategic goals.

Sanjiv Das

And I would -- one more thing I would like to add, I know we've doubled down a lot on banks, particularly on the Personal Loan side. But I would say that on the Auto side, the fact that we are now very, very significantly engaged with large OEMs is another major shift, which I think will have a similar impact to banks on the Personal Loan side. So the Auto growth should continue to happen with the new partners that we are seeing in the network.

Peter Christiansen

If I could just squeeze in one more. A couple of weeks ago, there was a really interesting article in the Wall Street Journal about banks looking to improve their conversion rates with second-look technology, very similar, describing kind of the business model that you guys have built. Just curious if that has brought more attention to Pagaya or conversations increasing for potential new partner deals, anything of that sort?

Gal Krubiner

So Pete, funny enough, I don't know if you had the time to read my shareholder letter, but I actually spoke about Jamie there. That's true. Like I think that the Wall Street Journal article from our perspective is what's flagging a little bit that the so-called market is moving to us. People do recognize that banks in the U.S. today, specifically consumer banks, could not provide everything that they need to their partners, let it be United Airlines or others. And we see that these type of co-brands and different parts are pushing them to find different solutions.

I think though the one thing that is a little bit lost, it's not a second-look or other pieces. It's really about the technology that it has behind to do Personal Loan, Auto loans at scale that we are actually as part of the fintech so-called progression, have developed for many years, the state-of-the-art technology capabilities and funding capabilities that to be able to embed it directly into a major bank without them need to do a lot of work to get there, it's just the right thing. So banks have a lot of the question of build, partner or buy. That's the classic partner.

So we are seeing that happening. It's being recognized across the United States. It's double important for consumer credit type of assets. It is very technology-driven and integration to AI embedded into all of that. And that's really the thing we're playing on. That's the tailwind that we believe are going to carry this company for the next 10, 15 years to the size it should become.

Operator

The next question is from Rayna Kumar from Oppenheimer.

Guru Sidaarth

This is Guru on for Rayna. This was slightly commented on earlier, but if you can maybe just comment on how much additional volume can the current expense base support before investments need to step up? And where would you prioritize incremental spending, right? And can we continue to expect earnings to keep growing faster than FRLPC here?

Jonathan Dobres

Yes. As Sanjiv mentioned earlier, the operating leverage is a feature of our business model. So we can continue to onboard our pipeline in our current asset classes without any acceleration of those costs. So we see that trend continuing.

Operator

The next question is from Hal Goetsch from B. Riley Securities.

Harold Goetsch

My question is -- I'm looking at the change in the customer quality, the age of the cars, it was a nice table you have on your note. Is that the key insight here is that these banks are -- need to offer more loans, they've maybe exited the Personal Loan market or other markets need to get back into it because they need to have those deposit relationships that go with that, and they're worried about losing those. Is that a key insight that you're sharing with us this week?

Sanjiv Das

Yes, Hal, this is Sanjiv. Yes, it is, in fact, the key insight, particularly from the perspective of banks. As you rightly mentioned, banks doubled down on credit cards and sort of paid less attention to Personal Loans are now realizing that Personal Loans are a critical retention mechanism for their deposit customers. Because deposit customers not only take a Personal Loans elsewhere if it's not available at a bank, they also take their deposit with them when they do that.

And so it's a critical retention tool. And that's a fundamental point that we are trying to make in the table as well as the fact that we enable banks to grow fee income while they are doing that, which banks who are very focused on growing, particularly growing fee income, find this a very attractive feature of what we offer.

Harold Goetsch

That makes a lot of sense. I mean it seems your partners are doing quite well. Your SoFi, your Sezzles, and allies are doing quite well, and I guess their competitors are noticing. And my next question is, several years ago, the market was -- you were going with this decline monetization, Personal Loans. Now you have multiple offerings for each lender and the pace at which you're onboarding them is picking up. Are the lenders starting out with the same, maybe one offering? Or are they able to launch more offers at the same time maybe versus a couple of years ago a new lending partner but only launched with maybe one offering, now it's more? Could you share with us the pace it gains?

Sanjiv Das

The short answer is -- sorry, Hal. Yes, the short answer is that they are starting with multiple capabilities on day 1. So a year ago, we ramped one product at a time. Now when we onboarded a customer, we had one product a year or so ago. Now we have all our products embedded in our API when we onboard an institution. And so multiple products are available from day 0. And pretty much that's part of the reason why the rate of growth is much higher than on the deposit fees.

Operator

The next question is from David Scharf from Citizens Capital Markets.

David Scharf

First, just quickly, just shifting to the consumer. Just curious, have you seen any change in behavior, application flow kind of basically price elasticity? Since you kind of raised the rates, the 100 basis points to Personal, 140 basis points to Auto, has there been any change in uptake since those were instituted?

Gal Krubiner

So the short answer is no. We think what's happening is twofold. One is when you have that quickly of a move, the others are moving with you. So the full market is pricing higher or at least most of it. And the other piece, as Sanjiv mentioned, that even when you speak about the 100 more basis points, et cetera, still the U.S. economy is very strong, very robust. Just this morning, the GDP was in the last quarter was the highest it's been in the last year. So people do have the ability to observe another 100 basis points on a $10,000 loan or a $20,000 on a car if they want to have a new car or have that vacation or whatsoever.

So it's in that fact, and usually, I'm the opposite. I'm saying that the things that are being read in the newspaper are not what we actually see in reality. But this time, it's very much in line. We don't see any other delinquencies. But you should remember that we're talking about very specific type of consumer, which is very strong, like Personal Loan, $120,000 of an income clearly. It's a strong borrower that has a strong ability to pay. And even on the Auto, we're talking about the $88,000 of financial income per year. But in that -- this cohort, the segments, not at all.

David Scharf

Got it. Okay. Good to hear. Needed to be asked. Maybe just one follow-up. Shifting to AI. On the Affiliate Optimizer, I don't believe you've provided what mix of revenue that product accounts for, but you have highlighted it as a significant growth driver lately. Do you have any thoughts about how channels might change as lenders have to start marketing to agents as opposed to consumers directly? As we've talked to some lenders, they've noted that as there's more marketing to -- agentic marketing to agents that it's possible that maybe the Credit Karmas or the NerdWallets start to get disintermediated. Have you or any of your partners kind of formulated any opinions on how this might play out over the next few years?

Gal Krubiner

So that goes a little bit to our strategy. We don't tend to bet on one lender or one flow. Our strategy is to be everywhere to everyone. So let's assume we'll be an agent provider that is really rapidly growing. They will need to close loans too, and we will know and learn how to work with them. As for now, we don't see a major shift because at the end of the day, in order to get a loan, you need to have a lender. And since we are on both the Personal Loan and the Auto very well embedded into the ecosystem, so it's less important for us, it will come from this channel or the other. It's just a matter of building the capabilities, which we definitely have the capability and we'll do so. But actually you are touching an interesting point of the business model of Pagaya, which is not to say we are better in this or that. And it's just like the infrastructure behind the lending that is so critical if you're coming through an agent, if you're coming through a Credit Karma or you're coming through just the organic channels of the website.

Operator

The next question is from Joseph Vafi from Canaccord Genuity.

Joseph Vafi

Guys, great results, great performance, nice to see. Just wondering here maybe some puts and takes in the model if we do see some more Fed tightening on the interest rate side into early next year, some of the puts and takes there. And then quickly as a follow-up, a big onboarding year. Should we -- do we expect the kind of guidance you had on the number of partners to onboard for next year to be higher than we saw this year given how much you've done so far? Or is there so much to do on the '26 cohort that it may be harder to onboard more in '27?

Jonathan Dobres

So on rates, and we've talked about this a bunch, but the 2-year treasury is obviously our benchmark. I think the market is pretty widely expecting further tightening. So that's likely embedded in the rate today. And -- but again, the actions we've taken to date, moving those APRs higher, we feel provides us with the buffer that we need. Sanjiv, do you want to take the partner question?

Sanjiv Das

Sure. Look, we'd like to keep our guidance the same that we've always had, which is 2 to 4 partners a year. And we think that's the right and responsible thing for us to do. We have always -- while we get very strong demand, and we are in good late -- very late-stage discussions with a number of our partners, we are not always sort of in control of how long it takes. So we'd like to keep it at 2 to 4.

Operator

The next question is from Randy Binner from Texas Capital.

Randy Binner

So I think I heard this in a prior response, but my question is on credit and how pushing higher APRs through to your target borrowers affects their ability to pay? And have you analyzed how that's impacted borrowers in kind of past interest rate hiking cycles?

Gal Krubiner

Yes. So we actually touched upon this. We don't see any impact as for now, both from performance. The ability to pay of 1% more on a $10,000 loan per year is not something that is materially important for someone who pays $120,000. So the short answer is it doesn't and should not impact.

Randy Binner

Is there -- I guess, is there -- like just given your past and your data set, is there a level we would think about where that would start to matter more? Or again, assuming that you have the $125,000, 662 FICO borrower. Is it -- is there a level where that gets more sensitive? Or is that too hard to analyze?

Gal Krubiner

Yes, of course, there is some level. I would just say that like since we are already at elevated high interest rate, like even now we're at 4 points, it's not like we are at 0. So the really way you should think about it is when you see 400 basis points, 500 basis points, 600 basis points movement, that could materially impact the ability of consumers to pay. 100 basis points, 50 basis points, 150 basis points, like these are things that transmitted over time are actually not impacting the ability of the borrower to pay.

Operator

There are no further questions at this time. I'd like to turn the floor back over to Gal Krubiner for closing comments.

Gal Krubiner

Well, thank you very much, everyone, for joining us today. As you can see, we are continuing to progress on our strategic initiatives of reducing cost of capital, onboarding more partners to our network and driving towards a stable long-term vision for our company. We appreciate all the support throughout the year and looking forward to see you in the first earnings in 2027. Thank you very much.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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