Prepared remarks
Hello, and welcome everyone to Pagaya's First Quarter 2026 Earnings Call. Please note this call is being recorded, and we are standing by. It is now my pleasure to turn the meeting over to Craig Smyth, Investor Relations. Please go ahead.
Thank you, and welcome to Pagaya's First 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; Evangelos Perros, Chief Financial Officer; and Jon Dobres, Chief Strategy 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 second 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-K, 10-Q and other reports for a more detailed discussion of 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. We also provide an outlook for the second quarter and the 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 effort 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 with the SEC on Form 8-K today for detailed commentary on our business and performance in conjunction with the company earnings supplement and press release. With that, let me turn the call over to Gal.
Thank you, and welcome, everyone. Before turning to the quarter, this morning, we announced that Evangelos Perros is stepping down as Chief Financial Officer after nearly five years with Pagaya. He has been a great partner to Sanjiv and me and was instrumental in laying the foundation for positive GAAP net income and cash flow, one of the most important pillars for our long-term success. The transition takes effect June 15, with Evangelos remaining as a strategic adviser through year-end. We are grateful for his contribution and look forward to continuing to work with him in the future. We are also excited to announce Jon Dobres as the Chief Financial Officer of Pagaya. Since joining Pagaya in 2021, he has worked closely with me, Sanjiv and Evangelos on our corporate strategy and key financing initiatives, including our term loan and high-yield bond offering. I'm confident he is the right leader for this role. He knows our business inside out and has been a driving force behind our financial transformation. He will continue to strengthen our balance sheet, drive profitable growth and sharpen our engagement with the investor community that is here on the call. With that, let me turn to our quarterly results. I'm pleased to report another strong quarter for Pagaya. Despite the macro environment full of volatility, we stayed focused on what we can control, our core business drivers, and delivered GAAP net income of $25 million. This is now five consecutive quarters of profitability. These results reflect a team that is executing a clear plan, driving sustained profitability by expanding our partner network, building a differentiated product and operating a platform that is designed to perform through cycles. Now let's turn to the consumer. What we see is a resilient consumer, supported by stable labor markets and credit conditions. Our first-quarter credit performance is in line with expectations with some benefit from seasonal tax trends. But I want to be clear, we are not relying on those tailwinds to extend risk. We continue to maintain our selective posture, and that strategic cushion is what allows us to execute our long-term plan regardless of short-term market dislocation. As you will recall, in the fourth quarter last year, we intentionally pulled back origination volumes in selected segments. Throughout the first quarter, we maintained that same credit posture unchanged. We are data-dependent and flexible, and we believe that a measured approach today is what secures our ability to scale tomorrow. On funding, we have raised $2.1 billion this quarter, attracted five new investors into our deals and expanded our investor base through our first-ever auto resecuritization. The consumer credit public market continued to demonstrate strength despite recent volatility. In fact, we are seeing an influx of new investors participating in this market. We also reached another important funding milestone. We welcomed Fitch into our capital market platform, marking the first time we have added a major rating agency alongside Kroll. This is meaningful because it provides enhanced stability to our capital market presence and reinforces confidence in our asset performance. Now while private credit markets are going through a period of repricing, we have strategically leaned into the public ABS markets. While volatile markets may create some near-term earnings pressure, the diversified funding structure we have built allows us to lean on different sources depending on market conditions, giving us great flexibility. Whole loan buyers remain an important pillar of our funding, and we will continue to have relationships there, evidenced by an additional term sheet that we have signed just a few weeks ago and ongoing discussions with additional parties. However, we are not dependent on any single channel. This is the benefit of how we are built. It is the same focused execution that continues to drive our B2B2C business model forward. And what I would say is that our growth enterprise strategy is working well. Since the start of the year, we reached a new onboarding record with four partners joining our network this quarter and making progress with regional banks in the pipeline. Allow me to provide a quick overview of our businesses. On the personal loan side, we expanded our platform capabilities by adding Experian Activate and continue to operate across significant affiliate marketplaces in consumer lending, broadening the reach of our partners to be active in more marketplaces through our products. On our auto loans business, the auto business reached record performance this quarter with volume hitting all-time highs. Auto has become a true structural growth engine for Pagaya, enhanced by product improvements and network pricing efficiency. Finally, on our point-of-sale business, our POS business continued to evolve. Instead of just being an enabler of point-of-sale, we have embedded longer-term, larger-ticket lending capabilities inside POS platforms like Sezzle and Flex Pay, Upgrade's buy now, pay later solution. Sanjiv will give you more color on what we have accomplished and the momentum we are seeing across the business. Before we close my section, I want to step back. We have built a business that operates through volatility with clarity and purpose. As we approach our 10-year anniversary, I am reminded that the companies that endure are the ones that build through cycle. We are capital disciplined, and by proving our model yet again, we are separating Pagaya as the preferred technology partner for every major consumer lender in the United States. With that, let me turn the call over to Sanjiv.
Thank you, Gal. First, I want to thank Evangelos, who has been an excellent partner and collaborator over the last couple of years. He's clearly accomplished a great deal for Pagaya, and he has my sincere best on what's next for him. Jon Dobres has been a key part of the management team, and I am looking forward to partnering with him. We've structured this as a deliberate transition with Evangelos remaining actively involved over the coming months to ensure continuity. Now to the quarter. Our focus this quarter has been clear: drive GAAP net income through disciplined execution. Simply put, we are diversifying the business as we expand to the top of the origination funnel. More partners, more products, more channels. And as we do that, we are becoming deeply embedded with our lending partners, and that is strengthening our foundation for durable bottom-line growth. What's important is that these growth levers don't require us to expand our credit box. They are driven by the combination of existing and new partner growth. And our relevance to those partners remains very high. Banks are solving for noninterest income and customer lifetime value. Fintechs are solving for return on acquisition spend. That's exactly what we enable, and that is why our pipeline remains so strong. As Gal mentioned, we are very intentional about pulling back on marginal risk exposure since late last quarter. Consumer behavior right now is in line with our expectations, but we are watching it closely. Our product suite is robust, it's market-tested, and it's what's driving our balanced growth this year. New partners, meanwhile, are setting the stage for growth in the back half of the year and beyond. So let me walk you through the details of what we have accomplished this quarter and what we are on track to execute over the remainder of the year. Starting with new partners. We continue to work through the onboarding pipeline we announced at the end of last year, which is a healthy mix of banks, fintechs and auto players. Year-to-date, we completed the onboarding of four partners: Global Lending Services, or GLS, Upstart, Sezzle, and Flex Pay, which is a buy now, pay later solution from Upgrade. It's still early days, but all four are showing healthy progression in their ramps, which is very encouraging. On top of that, we are in the process of onboarding regional banks that we expect to announce soon. As a reminder, our onboarding process is truly industrial grade at this point. Every new partner gets a prebuilt integration with our entire product suite from day one, which accelerates scaling. Turning to our existing partners, I'm really excited about the momentum we are seeing. Think about it this way. We are evolving from what was a single product, single channel company into a multiproduct, multichannel platform that touches the entire cycle of our lenders' underwriting processes. This is a meaningful shift, and we are now in execution mode, building a true multiproduct enterprise that is increasingly embedded in our partners' businesses and loan origination funnels through products like our Affiliate Optimizer Engine and Direct Marketing Engine. Our largest lending partners continue to move through the Pagaya lifecycle by adopting more products, and that translates directly into more volume and revenue for both sides. As we've discussed before, partners who adopt our products see material growth in their partnership. To give you a concrete example, we increased volume with one of our partners by 37% this quarter versus the same period a year ago, simply by onboarding them onto a leading affiliate marketplace. So that really highlights the value add of our affiliate channels. As we are expanding these strategic relationships with the affiliates, we have partnered with Experian, which enables our personal loan partners to join Experian Activate. This partnership allows our personal loan partners to tap directly into Experian's high-intent marketplace, fueling a mutual increase in volume and profitability. Following a successful launch of a top-five partner this quarter, we have a robust pipeline of major lenders that are scheduled for onboarding throughout the remainder of the year. On the Direct Marketing Engine, we continue to onboard more partners to our prescreen solutions across email and direct mail. We have now completed twelve campaigns across five partners, and each campaign gives us additional insights that allow us to enhance our response models to drive higher efficiency for future campaigns. Now turning to our asset classes. We are increasingly operating a diversified platform across personal loan, auto, and point-of-sale. We are rebalancing our products and channels towards more stable, scalable economics and are continuing to optimize flow through pricing and activation tests. Pagaya brings longer-term, larger-ticket lending capabilities to our POS partners. Together, we can pursue enterprise merchants with a full lending solution that further differentiates the partner within their verticals. Personal loans remain our flagship asset class and represent 63% of production this quarter. Our Affiliate Optimizer Engine will continue to drive near-term growth, while our Direct Marketing Engine will support growth over the longer term. Auto remains a key focus for us. We are seeing significant growth and strong profitability driven by access to additional flow sources, improved ABS execution, optimized pricing and, frankly, some tax season tailwinds as well. Our auto volumes now stand at a record annualized run rate of $2.3 billion. That is double where we were in the first quarter of last year. On the product side, we have been focused on transaction optimization at the dealership level, which has allowed us to better address what dealers actually need. Now turning to funding. Funding remains robust across all asset classes. This quarter, we raised four ABS transactions totaling $2.1 billion in funding across our paid and RPM shelves, and we did that despite the increased market volatility. That is a testament to the quality of our assets and the strength of our investor relationships. So stepping back, our foundation is strong, and we continue to build a resilient B2B2C business. The diversification across partners and products is what drives the value of our platform. It gives us unique access to data and insights, an unparalleled vantage point and the ability to stay nimble. As we continue to grow net income and cash, we are strengthening the business fundamentals for the long term. Before I hand the call over to Evangelos for a detailed review of our financials and outlook, I just want to say we are executing with discipline and momentum across our business as we continue to build it across new and existing partners, across products and across asset classes. We remain focused on building an enduring platform.
Thank you, Sanjiv. Before I get into the quarterly results, I want to briefly note that this will be my final earnings call as Chief Financial Officer. It has truly been a privilege to serve as CFO of Pagaya, and I'm proud of what we've built, architecting a financial and business foundation to deliver and grow GAAP net income profitability and expand access to capital. After careful consideration, I have decided this is the right time for me to step down and pursue my next chapter. I remain very confident in the company's strategy and the strength of the team. I'm also excited for Jon, as he steps into the role. Jon and I have worked closely together since joining the company, and I'm confident in both his leadership and the strength of the finance organization that we built over the last two years. We're focused on a seamless transition and continuity across, particularly in the areas of investor engagement and capital efficiency. I will remain heavily involved as a strategic executive adviser to Jon on Pagaya's long-term funding strategy for its next phase of growth. Jon is joining us here today also. So Jon, perhaps you can say a few words.
Thanks, Evangelos. I'm honored to step into the CFO role and grateful for Evangelos' partnership over the past several years. We've worked closely together across capital formation and balance sheet strategy, and I look forward to building on the strong foundation already in place. Our priorities and financial strategy remain unchanged, and I'm excited to continue working with the team as we execute through the next phase of evolution.
Thanks, Jon. Turning to results. We delivered our fifth consecutive quarter of GAAP net income, generating $25 million of profit while continuing to operate within a disciplined risk framework in a challenging macro environment. More broadly, what you're seeing is the strength of our model, optimizing for credit discipline, growth and operating efficiency while positioning the business for long-term success. At the same time, we remain cautious given the current geopolitical and macro backdrop. So let me take you through the numbers. For the first quarter of 2026, we reported revenue of $318 million, fee revenue less production costs of $121 million and adjusted EBITDA of $94 million. FRLPC as a percent of network volume was 4.6%. Network volume was $2.6 billion, up 9% year-over-year and 23% excluding SFR from the same quarter last year. As it relates to SFR, Darwin Homes, our tech-enabled property manager, continues to be the main engine of our SFR business, managing over 15,000 homes, and we expect to continue to add more homes under management as the platform scales. Strategically, our focus remains on consumer credit and becoming the partner of choice for lending institutions in our industry. So we will continue to assess strategic alternatives for Darwin and our SFR business. Application-to-volume conversion was below 1%, consistent with our deliberate shift towards higher-quality borrowers and tighter underwriting, reflecting the actions we took in the prior quarter. Total revenue and other income grew 10% year-over-year to $318 million. Revenue from fees grew 6% to $299 million, driven by higher volume and partially offset by lower take rate and FRLPC percent rate. Interest and investment income almost doubled as a result of our continued growth in our investments. Fee revenue less production costs grew 5% year-over-year to $121 million. FRLPC as a percent of network volume contracted by 19 basis points year-over-year to 4.6%, driven by new partner contributions and tighter pricing on our ABS transactions, reflecting higher cost of capital. As I discussed last quarter, tighter pricing flows through FRLPC in the form of lower fee revenue from capital markets execution, reducing upfront fees but providing support against potential future earnings volatility. In practical terms, we are effectively pricing at higher loss assumptions relative to the rating agencies in the range of approximately 125 to 175 basis points, creating a more clear risk boundary for our investors. Turning to profitability. Adjusted EBITDA was $94 million, up $15 million with a margin of 29.6%, an increase of 200 basis points year-over-year. Core operating expenses remained well controlled, flat sequentially and modestly higher year-over-year, and represented 39% as a percent of FRLPC. We continue to see strong operating leverage with substantially all of revenue growth translating into adjusted EBITDA growth in dollar terms. Operating income was $80 million, up 68% year-over-year. GAAP net income was $25 million, up $17 million compared to 1Q '25, driven by total revenue growth, cost discipline and lower interest expense. This equated to an 8% margin compared to 3% in the year-ago quarter. Gains and losses on investments in loans and securities amounted to a loss of $38 million. Turning to credit performance. All asset classes are performing in line with underwriting expectations. 2025 vintages reflect normalized production levels and underwriting at a lower cost of capital by approximately 200 basis points versus 2024, and up to 400 basis points lower versus 2023. In personal loans, though still a few months of seasoning is needed, early-stage delinquencies are stabilizing and loss trends remain consistent with our expectations. In auto, recent vintages continue to perform well relative to prior periods with delinquencies and losses within expected ranges and recoveries improving. POS credit performance also remained stable. Turning to funding. Despite volatility in private credit markets, demand for our production remains strong. This quarter, we issued $2.1 billion through our ABS program across four transactions marketed to our network of more than 160 institutional funding partners. Additionally, new investor participation accelerated quarter-over-quarter, highlighting the continued quality and demand of our paper. I would highlight two key milestones here. Firstly, we received our first AAA rating from Fitch on our personal loan resecuritization shelf. And secondly, we successfully executed our first auto securitization. These are meaningful achievements that further validate the strength of our credit performance and our platform. In fact, the resecuritization is actually becoming a key part of our capital market strategy. It gives us two things: first, a repeatable mechanism to return capital from prior vintages on an accelerated basis, and second, lower funding costs by refinancing seasoned collateral with more predictable credit performance. This is a very powerful combination. Over the last 12 months, we have generated $44 million in net cash flows from this type of transaction while attracting new investors to our platform. As we have discussed, we continue to diversify our funding channels to reduce reliance on any single source and to mitigate market volatility. In recent months, we have leaned more into our ABS execution. This week, we completed another $800 million ABS transaction that was upsized from $600 million. And within ABS, we have different flavors like public and private structures, giving us significant flexibility. Turning to the balance sheet. Asset quality and mix continue to materially improve, increasing both liquidity and flexibility. Approximately 35% of our investment portfolio is in bonds from our sponsored ABS transactions, which provides both accretive returns and access to financing. Over the last 12 months, we have sold $30 million of these notes above cost and have received gross funding of approximately $180 million in secured borrowings, which we have raised and paid off during this period in line with our needs, highlighting the flexibility that these assets provide. Towards the last two weeks of the quarter, we drew down on our revolver as a precautionary measure given geopolitical uncertainty and paid it back in April. We also continue to deploy capital opportunistically, repurchasing $7 million of our corporate notes in February and an additional $4 million in April. During the first quarter, the fair value of the overall investment portfolio and allowances prior to new additions was adjusted downwards by $21 million compared to $50 million in the prior quarter. Now turning to guidance. We expect network volume growth to be driven by deeper engagement with existing partners, primarily in auto, contribution from new partners and new product initiatives. FRLPC margin is expected to be between 4% and 5% for the year, and we assume that the cost of capital remains elevated at current levels for the rest of the year. For the second quarter of 2026, we expect network volume in the range of $2.875 billion to $3.075 billion, total revenue and other income in the range of $345 million to $365 million and adjusted EBITDA in the range of $100 million to $115 million. We expect GAAP net income for the quarter of $25 million to $45 million. For the full year 2026, we are expecting network volume in the range of $11.45 billion to $13 billion, increasing the lower end of the range by about $200 million versus prior guidance. Total revenue and other income remains in the range of $1.4 billion to $1.575 billion. We are increasing adjusted EBITDA guidance to a range of $420 million to $460 million. We are also increasing GAAP net income guidance for the year to a range of $110 million to $160 million. With that, let me turn it over to the operator for Q&A.
Questions and answers
We will take our first question from John Hecht with Jefferies.
Evangelos, I wish you the best. Great working with you. Jon, look forward to working with you. So first question is the quarter showed relatively stable outcome. It was a good quarter, but it reflected a lot of stability despite a period of volatility in funding markets, ABS markets and then a lot of headline noise with the private credit markets. Gal, I'm wondering, can you talk about how you're managing these markets and how the volatility in your funding markets is affecting your ability to strategically work with that volatility?
Thanks, John. This is Gal. I'll take that. Pleasure again working with you, and you're staying in great hands with Jon. So first, broadly speaking, keep in mind that we were very well positioned in this environment given some of the actions that we took in the last year and the previous quarter. When you think about the funding environment, it's obviously very dynamic. I would say we're fortunate given the access to capital that we have to some of the deepest-pocket institutional capital out there. Maybe I'll step back and give you a little bit of how we think about it and how we see things. Think about the funding markets across two dimensions: public versus private and consumer versus corporate, particularly in the context of what's happening in the marketplace right now. What we see today is that most of the stress is in the private corporate credit side, not on consumer credit. Keep in mind that the consumer overall is resilient and overall consumer credit performance is attractive, particularly relative to the corporate side. On the public consumer side, demand remains constructive and robust. In fact, some capital is finding its way from the corporate side into the consumer because insurance capital, pension funds and others have to continue to deploy capital. They are finding their way primarily through public consumer channels. That's also evident in our execution. We just announced a new deal this week on the personal loan side and upsized it during a short marketing period, very similar to the one we did in January. So all of that to say that we have continued to see very strong demand on the consumer side. On the private side, it's something we have been focusing on and have executed well over the last 12 to 24 months to continue to diversify and have access to different types of structures like forward flows, pass-throughs, revolving ABS — many flavors. But we do see the private credit market going through a repricing. We're monitoring closely for potential contagion. Therefore, we are leaning tactically more into the public ABS side at this juncture. Keep in mind there are two things that allow us to do that. First, we have the access to capital and can pivot as needed, and second, we remain disciplined and laser-focused on continuing to deliver and grow GAAP net income profitability and not just execute at any price point. All of that means there is a recalibration in the marketplace, but the key point for us is that we're not relying on a single funding channel. We have a robust, diversified model, and that allows us to have stability and pivot as market conditions evolve.
Second, a follow-up question. Your expense management was a good surprise this quarter. I know you've been focused on that in the past. I'm wondering to what degree should we think about efficiencies in the business and cost management? How high is that on the priority list for you guys?
Two things. First, one of the key differentiators of the business is operating leverage. This is a unique business where you can continue to grow the top line without having to put a lot more capital to work to grow the business. The infrastructure is already built out. When you think about capital allocation and growth, there is not much incremental capital required. That's a great place to be. Second, many of the actions we've taken over the last three years are continuing to play out. There were investments in certain areas, but the operating scalability and efficiencies will continue to play out to our favor over many years. As you continue to see us in the existing asset classes, much of what we do can be achieved with minor incremental investment, and the levels of growth and targets we have do not require large incremental investments. That's something to consider when modeling the business.
John, maybe one thing to add. Think about it as design, not a period. It's not to say this number will be forever the same, but we are purposefully running a very lean, technology-driven company that is highly leveraged. With the world of agents and AI, we could see acceleration in our ability to do more with deeper and more sophisticated technology embedded — which is our bread and butter and where we grew up.
We will move next to Rayna Kumar with Oppenheimer.
Maybe just one on AI. As AI underwriting becomes more commoditized, how do you ensure that Pagaya's data advantage remains differentiated and proprietary?
Great question. The things that are becoming more commoditized are the models and the ability to build them. Many of the models we use are not large language models by nature, and LLMs are not necessarily the most relevant tools for these underwriting areas. For underwriting itself, it's really all about the data we have. We have relationships with dozens of partners and historical performance data across millions of customers, with tens of millions of historical payments. Those datasets are specific to the segments we operate in — middle-FICO personal loan and auto customers. That unique data advantage is not easily replicated, and regulatory regimes further protect how data is shared, which creates a structural barrier. Agentic AI can provide leap growth for our business in many avenues, such as connectivity to banks, and agents could accelerate our ability to integrate. With our unique data capabilities, enhanced risk management and data science combined with agentic tools and LLMs will be an additional pillar. We're forming that holistic strategy and believe it will drive better outcomes and growth. At the same time, many banks and lenders view us as a technology provider, and our ability to help them through the AI era is something we are exploring deeply.
We'll move next to Alex Howell with Stephens Inc.
Congrats on the quarter and the CFO announcement. We'll miss working with Evangelos. Just a quick question: could you help us better understand the mechanics of these resecuritized ABS from a credit and risk transfer and collateral standpoint? How should we think about the longer-term benefits of these transactions as market and credit conditions change?
Alex, thanks for the question. The resecuritization is increasingly a key part of our capital market strategy. In simple terms, it does two things. One, it's a repeatable mechanism for us to get capital back from deals we did previously and do that on an accelerated basis. If you think about the life of an ABS being three to five years, we're effectively able to recycle capital about two years post deal. Two, as collateral seasons, we can refinance at a lower cost of capital, which allows us to extract more economic value through higher cash. For perspective, we did two resecuritizations year-to-date, one in personal loans and one in auto. We refinanced about $800 million of seasoned collateral and got cash back that would otherwise return to us over several years. From a corporate balance sheet perspective, this is a powerful tool to recycle capital that we put into these deals. I encourage you to look at our shareholder letter for more details on how these dynamics have played out over the last 12 months. Additionally, these structures differ somewhat from our traditional prefunding ABS, and they allow us to attract different institutional investors who may become long-term partners for other structures. It's a powerful tool, and you should expect to see more of this in the future.
We'll move next to Peter Christiansen with Citi.
I want to tap into two areas: first, risk posturing and then a little more detail on the pipeline and how momentum is going there. On the risk side, given the posture change last quarter and your comment that you're not extending credit risk at this time, Gal, can you walk us through what areas you are worried about? And on the data dependency side, what's your perceived green light or red light for any future changes in risk posturing generally?
This is Sanjiv Das. Let me address your pipeline question first, and then Gal will come back on consumer risk. In terms of the pipeline, we had mentioned last quarter that we had about five partners that we were onboarding, and we are very much on track with that. We have announced partners like Achieve, GLS, Sezzle, Upstart and are in the process of onboarding Flex Pay. The pipeline of new partners has been very robust. Five partners in a couple of quarters is much higher than our typical target. We have about three more that are in the process of being onboarded, primarily regional banks. The onboarding process is highly systematized and prebuilt integrations accelerate scaling. The pipeline includes all three asset classes: personal loans, auto loans and point-of-sale. Beyond that, the pipeline remains strong with several banks in late-stage discussions, some in economic and term sheet discussions and several in business case discussions. I would say there are two major banks and about five to six regional banks in those stages. The appeal to these partners includes: we can stand up a stand-alone personal loans business for regional banks, help banks expand into marketplaces such as Credit Karma and Experian, and improve dealer satisfaction in auto through product range extensions. Long story short: five partners onboarded, three more in process, and about eight to ten in the pipeline that include banks and fintechs.
Peter, regarding consumer health. This is our business, so risk management is instrumental to how we think about growth. We continue to grow the business without expanding the credit box. The consumer is behaving in line with our expectations this quarter, so we did not change our credit posture. The first quarter had some tax-season tailwinds, and we are watching the rest of the year closely. Two areas of concern if things deteriorate would be macro headlines, such as inflation or geopolitical shocks. However, we continue to position our portfolio strongly around higher-income borrowers. While our FICO is around the mid-600s on personal loans, our average annual income for these borrowers has reached about $115,000 recently. For auto, even at slightly lower FICO ranges, average incomes are around $80,000 to $85,000, which are above U.S. averages. To summarize, we have a disciplined growth strategy: we are growing by adding partners and products rather than opening the credit box. Growth and credit posture can go hand-in-hand for us, and we feel good about where we are today while staying vigilant.
It's good to hear that growth is primarily driven by pipeline expansion. Sanjiv, expanding on your comments, over the next three to four quarters, is the current pipeline more constrained by lender onboarding and integration timing and less so by available capital or risk appetite?
100%. I would totally agree with that, Pete. It's not at all constrained by capital; it's a function of execution. Our onboarding process has been significantly reduced and systematized, which is how we were able to accelerate. We added all this without adding a single headcount to the system. That's the power of the platform. So short answer: not constrained by capital — constrained by execution timing.
We'll move next to Lemar Clarke with Freedom Capital Markets.
I wanted to ask a question on your multiproduct growth strategy and the continued momentum you're seeing in Q1. Could you provide some color around the interest you're seeing from various lending partners across the newer products? Are there specific insights around how certain products resonate with your lending partners across the different asset classes?
This is Sanjiv. Our growth is driven by growing the network (new partners) and growing product adoption within the existing network. On the personal loan side, partners grow organically or by extending into affiliate marketplaces. We have a product called the Affiliate Optimizer Engine, and Pagaya now owns that category in personal loans, building it into a successful distribution expansion engine. One of our top-five partners grew by 37% simply by joining another affiliate marketplace. The principal affiliate platforms are Credit Karma and Experian, and we have about five lending partners in the pipeline for Experian Activate, including our top-five partners. On the Direct Marketing Engine, we've run about 12 prescreen campaigns and built response models for partners; economics have been agreed and trials will roll out to broader adoption by year-end. On the auto side, we've improved dealer satisfaction by modifying loan terms, extending loan amounts and higher APR caps, which reduced friction and drove growth. None of these are credit box expansions; these are product feature expansions. Overall, interest from partners is high across PL, auto and POS, and our ability to help partners access marketplaces and enhance dealer experiences has strong appeal.
We'll move next to David Scharf with Citizens Capital Markets.
I'll echo the congrats on the CFO transition for both Jon and Evangelos. One quick question on funding: 12 to 18 months ago, funding mix was a large topic and funding diversification. As ABS markets continue to become increasingly attractive, do you still have a ceiling on what percentage of total funding you'll allow to come from securitizations and the accompanying risk retention? Or are you thinking things are more fluid based on recent developments?
David, I'll take that. We don't think about ceilings; we think about infrastructure. Building a funding strategy takes time. We started with capital markets and have expanded to private channels and whole-loan buyers. The key is diversification. We will continue building capabilities and partnerships on both public and private sides. How we utilize these channels in a specific quarter or year depends on pricing discipline and earnings. So rather than targeting a specific percentage, we aim for robust infrastructure and the ability to pivot seamlessly across funding sources while maintaining discipline on pricing and profitability.
A quick follow-up on the product diversification and specifically products like the Direct Marketing Engine. As we look a couple of years down the road, are more products going to be tied to less predictable one-off events like a marketing campaign by your partners? Or will visibility and predictability of volumes remain unchanged in your view?
We see many moving parts in direct marketing and marketplaces. Consumers may shift to AI-enabled shopping over time, and marketplaces are adapting. Banks and fintechs are focused on affiliate channels and leveraging good consumer selection and credit spectrum expansion using our products. For us, marketplaces and affiliate channels have become a strong catalyst for growth in the personal loan business. We cannot predict exactly how consumer behavior with AI will land, but the banks and fintech partners are focused now on affiliate channels and prescreen capabilities, which provide predictable and repeatable volume growth as we roll out campaigns and integrations.
At this time, we've reached our allotted time for questions. I'll now turn the call back over to Gal Krubiner, CEO and Co-Founder, for any final or closing remarks.
I just want to say thank you to everyone today. This was a very strong quarter that demonstrates our B2B2C model in action and the discipline in the way we think about underwriting and growth. Looking forward to seeing you in the future, and thank you to everyone for listening. Have a great day.
Thank you. This concludes today's meeting. We appreciate your time and participation. You may now disconnect.