SOFI TECHNOLOGIES, INC. The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. You should read this discussion and analysis in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as well asSoFi Technologies' audited consolidated financial statements and notes thereto included in the final prospectus and definitive proxy statement, datedMay 7, 2021 (the "Proxy Statement/Prospectus") and filed with theSEC . Certain amounts may not foot or tie to other disclosures due to rounding. Certain information in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q contains forward-looking statements that involve numerous risks and uncertainties, including, but not limited to, those described under the sections entitled "Cautionary Note Regarding Forward-Looking Statements" and Item II, Part 1A. "Risk Factors" included in this Quarterly Report on Form 10-Q. We assume no obligation to update any of these forward-looking statements. Actual results may differ materially from those contained in any forward-looking statements.Social Finance, Inc. ("Social Finance") entered into a merger agreement (the "Agreement") withSocial Capital Hedosophia Holdings Corp. V ("SCH") onJanuary 7, 2021 . The transactions contemplated by the terms of the Agreement were completed onMay 28, 2021 (the "Closing"), in conjunction with which SCH changed its name toSoFi Technologies, Inc. (hereafter referred to, collectively with its subsidiaries, as "SoFi", the "Company", "we", "us" or "our", unless the context otherwise requires). The transactions contemplated in the Agreement are collectively referred to as the "Business Combination". Business Overview We are a member-centric, one-stop shop for digital financial services that allows members to borrow, save, spend, invest and protect their money. Our mission is to help our members achieve financial independence in order to realize their ambitions. To us, financial independence does not mean being wealthy, but rather represents the ability of our members to have the financial means to achieve their personal objectives at each stage of life, such as owning a home, having a family, or having a career of their choice - more simply stated, to have enough money to do what they want. We were founded in 2011 and have developed a suite of financial products that offers the speed, selection, content, and convenience that only an integrated digital platform can provide. In order for us to achieve our mission, we have to help people get their money right, which means providing them with the ability to borrow better, save better, spend better, invest better and protect better. Everything we do today is geared toward helping our members "Get Your Money Right" and we strive to innovate and build ways for our members to achieve this goal. Our three reportable segments and their respective products as ofSeptember 30, 2021 were as follows: Lending Technology Platform Financial Services • Student Loans(1) • Technology Platform Services • SoFi Money • Personal Loans (Galileo) • SoFi Invest(2) • Home Loans • SoFi Relay • SoFi Credit Card • SoFi At Work • SoFi Protect • Lantern Credit • Equity capital markets and advisory services __________________ (1)Composed of in-school loans and student loan refinancing. (2)Our SoFi Invest service is composed of three products: active investing accounts, robo-advisory accounts and digital assets accounts. We refer to our customers as "members". We define a member as someonewho has a lending relationship with us through origination and ongoing servicing, opened a financial services account, linked an external account to our platform, or signed up for our credit score monitoring service. Once someone becomes a member, they are always considered a member unless they violate our terms of service. Our members have continuous access to our certified financial planners ("CFPs"), our career advice services, our member events, our content, educational material, news, tools and calculators at no cost to the member. Additionally, our mobile app and website have a member home feed that is personalized and delivers content to a member about what they must do that day in their financial life, what they should consider doing that day in their financial life, and what they can do that day in their financial life. Since our inception throughSeptember 30, 2021 , we have served approximately 2.9 77 -------------------------------------------------------------------------------- TABLE OF CONTENTS million memberswho have used approximately 4.3 million products on the SoFi platform. We believe we are in the early stages of the digital transformation of financial services and, as a result, have a substantial opportunity to continue to grow our member base and increase the number of products that our members use on the SoFi platform. Members In Thousands [[Image Removed: sofi-20210930_g1.jpg]] YoY Growth 74% 90% 110% 113% 96% We offer our members a suite of financial products and services, enabling them to borrow, save, spend, invest and protect their finances within one integrated platform. Our aim is to create a best-in-class, integrated financial services platform that will generate a virtuous cycle whereby positive member experiences will lead to more products adopted per member and enhanced profitability for each additional product by lowering overall member acquisition costs and increasing the lifetime value of our members. We refer to this virtuous cycle as our "Financial Services Productivity Loop ". We believe that developing a relationship with our members and gaining their trust is central to our success as a financial services platform. Moreover, we believe that some of the current frictions faced by other financial institutions are caused by a disjointed and non-seamless product experience, a lack of digital acquisition, subpar mobile web products instead of digital native apps and incomplete product offerings to meet a customer's holistic financial needs. Through our mobile technology and continuous effort to improve our financial services products, we are seeking to build a financial services platform that members can access for all of their financial services needs. We believe we are in the early stages of realizing the benefits of theFinancial Services Productivity Loop , as increasing numbers of our members are using multiple products on our platform. In addition to benefiting our members, our products and capabilities are also designed to appeal to enterprises, such as financial services institutions that subscribe to our enterprise services through SoFi At Work, and other enterprises that leverage our capabilities to assist with equity capital markets and advisory services. These enterprises become interconnected with the SoFi platform when using it for these services. We also leverage our platform to provide pre-qualified borrower referrals to a third-party partnerwho separately contracts with the loan originator. While these enterprises and partner are not considered members, they are important contributors to the growth of the SoFi platform, and, in some cases, also have their own constituentswho might benefit from our products in the future. Further, our wholly-owned subsidiary, Galileo, had approximately 89 million total accounts on its platform (excluding SoFi accounts) as ofSeptember 30, 2021 . Galileo started contributing new accounts to the SoFi ecosystem during the second quarter of 2020. While we primarily operate inthe United States , in 2020, we expanded intoHong Kong with our acquisition of 8 Limited, an investment business. Additionally, with the acquisition of Galileo inMay 2020 , we gained clients inMexico . NationalBank Charter . A key element of our long-term strategy is to secure a national bank charter, which we believe can enhance our overall profitability. While we currently rely on third-party bank holding companies to provide banking services to our members, securing a national bank charter would, among other things, allow us to provide members and prospective members broader and more competitive options across their financial services needs, including deposit accounts, and lower our cost to fund loans (by utilizing ourSoFi Money members' deposits to fund our loans), which would enable us to offer lower interest rates on loans to members as well as offer higher interest rates onSoFi Money accounts, all while continuing not to charge non-interest based fees. 78 -------------------------------------------------------------------------------- TABLE OF CONTENTS InOctober 2020 , we received preliminary, conditional approval from theOffice of the Comptroller of the Currency (the "OCC") for our application for a national bank charter. Final OCC approval is subject to a number of preopening requirements. InMarch 2021 , we entered into an agreement to acquire Golden Pacific Bancorp, Inc., a bank holding company ("Golden Pacific"), and its wholly-owned subsidiary,Golden Pacific Bank, National Association , a national bank ("Golden Pacific Bank "), for a total cash purchase price of$22.3 million . The acquisition is subject to regulatory approval, including approval from the OCC of a revised business plan for the acquiree national bank, and approval from theFederal Reserve to become a bank holding company and for a change of control, and other customary closing conditions. InMarch 2021 , we also submitted an application to theFederal Reserve to become a bank holding company. The application review process is ongoing. In order to be compliant with all applicable regulations, to operate to the satisfaction of the banking regulators, and to successfully execute our business plan for the bank, SoFi has been building out the required infrastructure to run the bank and to operate as a bank holding company. This effort spans our people and organization, technology, marketing/product management, risk management, compliance, and control functions. We have invested and expect to continue to invest substantial time, money and human resources towards bank readiness, and towards the regulatory approval process. During the three and nine months endedSeptember 30, 2021 , we incurred direct costs associated with securing a national bank charter of$4.4 million and$13.6 million , respectively, which consisted primarily of professional fees and compensation and benefits costs. While largely dependent on the timing of the regulatory approvals, we estimate that we could incur additional costs of approximately$4 million through the remainder of the regulatory approval process. IPO Investment Center. Through ourFINRA -registered broker-dealer subsidiary,SoFi Securities LLC ("SoFi Securities "), we are licensed to underwrite securities offerings. InMarch 2021 , we launched an IPO investment center that allows members with a SoFi active invest account to invest in initial public offerings before they trade on an exchange. During the three and nine months endedSeptember 30, 2021 , we recognized underwriting fee revenue of$0.3 million and$2.0 million , respectively, within noninterest income - other in the consolidated statements of operations and comprehensive income (loss) associated with our IPO Investment Center underwriting activities. We aim to continue to generate revenues in future periods from our IPO investment center activities in the form of underwriting fees. Our Reportable Segments We conduct our business through three reportable segments: Lending, Technology Platform and Financial Services. Below is a discussion of our segments and their corresponding products. Lending Segment Through our Lending segment, we offer student loans, personal loans, home loans and related services. Student Loans. We primarily operate in the student loan refinance space, with a focus on super-prime graduate school loans. We later expanded into "in-school" lending, which allows members to borrow funds while they attend school. We offer flexible loan sizes and repayment options, competitive rates, and the ability to lock in an interest rate for funding at a later time on our student loan products. Personal Loans. We primarily originate personal loans for debt consolidation purposes and home improvement projects. We offer fixed and variable rate loans with no origination fees and flexible repayment terms, such as unemployment protection. There are other personal loan purposes or channels that we have not aggressively pursued, which we believe could represent opportunities for us in the future. Home Loans. We have historically offered agency and non-agency loans for members purchasing a home or refinancing an existing mortgage. For our home loan products, we offer competitive rates, flexible down-payment options for as little as 5% and educational tools and calculators. A key element of our underwriting process is the ability to facilitate risk-based interest rates that are appropriate for each loan. Using SoFi's proprietary risk models, we project quarterly loan performance, including expected losses and prepayments. The outcome of this process helps us determine a more data-driven, risk-adjusted interest rate that we can offer our members. SoFi has built a comprehensive underwriting process across each lending product that is focused on willingness to pay (measured by credit attributes), ability to pay (measured through income verification), and capacity to pay (measured by debt service in relation to other loans). Our student loan and personal loan underwriting models consider credit reports, industry credit and bankruptcy prediction models, custom credit assessment models, and debt capacity analysis, as indicated by borrower free cash flow (defined as borrower monthly net income less revolving and installment payments less housing payments). Our minimum FICO requirements are 650 for student loan refinancing, 650 for in-school loans (primary or co-signer) and 680 for personal loans. We decreased our in-school loan minimum FICO requirement in conjunction with our launch of a revised 79 -------------------------------------------------------------------------------- TABLE OF CONTENTS underwriting strategy in the second quarter of 2021, which utilizes an advanced risk model that focuses on borrowers' ability to pay and provides refined risk separation. Home loans originated by SoFi that are agency conforming loans are subject to credit, debt service, and collateral eligibility established by Fannie Mae. Existing members generally experience a higher approval rate than new members, subject to the existing member being in good standing on their existing products. Home loans originated by SoFi that are non-agency loans are subject to our credit criteria, which typically includes a minimum tri-bureau credit score, established credit history requirements, income verification, as well as maximum qualified mortgage limits on debt-to-income service and caps on loan-to-value based on an accredited appraisal. We also leverage our data to provide existing members a streamlined application process through automation. Our lending business is primarily a gain-on-sale model, whereby we originate loans and recognize a gain from these loans when we sell them into either our whole loan or securitization channels. We sell our whole loans primarily to large financial institutions, such as bank holding companies, typically at a premium to par, and in excess of our costs to originate the loans. Our loan premiums fluctuate from time to time based on benchmark rates and credit spreads, and we are not guaranteed a gain on all or any of our loan sales. When securitizing loans, we first isolate the underlying loans in a trust and then sell the beneficial interests in the trust to a bankruptcy-remote entity. In securitization transactions that do not qualify for sale accounting, the related assets remain on our consolidated balance sheet and cash proceeds received are reported as liabilities, with related interest expense recognized over the life of the related borrowing. In securitization transactions that qualify for sale accounting, we typically have insignificant continuing involvement as an investor. In the case of both whole loan sales and securitizations, we also typically continue to retain servicing rights following transfer. We, therefore, view servicing as an integral component of the Lending segment. Prior to selling our loans, we hold them on our consolidated balance sheet at fair value and rely upon warehouse financing arrangements. Net interest income, which we define as the difference between the earned interest income and interest expense to finance loans, is a key component of the profitability of our Lending segment. With the exception of certain of our home loans, we retain servicing rights to our originated loans, and believe our servicing function is an important asset because of the connection to the member it affords us throughout the life of the loan. We directly service all of the personal loans that we originate. We act as master servicer for, and rely on sub-servicers to directly service, all of our student loans and Federal National Mortgage Association ("FNMA") conforming home loans. We believe this ongoing relationship with our members enhances the effectiveness of ourFinancial Services Productivity Loop by increasing member touchpoints and driving increases in the number of products per member. Furthermore, our platform supports the full transaction lifecycle, including credit application, underwriting, approval, funding and servicing. Through data derived at loan origination and throughout the servicing process, SoFi has life-of-loan performance data on each loan in its ecosystem, which provides a meaningful data asset. Technology Platform Segment Our Technology Platform segment consists of Galileo, and historically included our minority ownership ofApex Clearing Holdings, LLC ("Apex"), a technology-enabled provider of investment custody and clearing brokerage services, in which we invested inDecember 2018 . DuringJanuary 2021 , the seller of the Apex interest exercised its call rights on our Apex investment. Therefore, we did not recognize any Apex equity method investment income during the three and nine months endedSeptember 30, 2021 , nor will we have such equity method investment income in future periods. Additionally, we measured the carrying value of the Apex equity method investment as ofDecember 31, 2020 equal to the call payment that we received inJanuary 2021 . Although following the exercise of the seller's call rights we no longer have an equity method investment in Apex or recognize equity method investment income, Apex continues to provide investment custody and clearing services for SoFi Invest, including for our brokerage activities, under a multi-year revenue sharing arrangement. InMay 2020 , we acquired Galileo, a provider of technology platform services to financial and non-financial institutions. Through Galileo, we provide services through a suite of program, event and authorization application programming interfaces for financial and non-financial institutions. Additionally, Galileo provides vertical integration benefits withSoFi Money . In addition to growth in itsU.S. client base, Galileo is increasingly focused on international opportunities, including inLatin America andAsia . We earn revenue on Galileo's platform in the following two ways: •Technology Platform Fees: We earn Technology Platform revenues for providing continuous delivery of an integrated technology platform as an outsourced service for financial and non-financial institutions. The platform fees we earn are based on access to the platform and are specific to the type of transaction. For example, we offer "event pricing", which includes a specific charge for an account setup, an active account on file, use of Program, Event and 80 -------------------------------------------------------------------------------- TABLE OF CONTENTS Authorization Application Programming Interfaces ("APIs"), card activation, authorizations and processing, and card loads. In addition, we offer "partner pricing", which is the back-end support we provide to Galileo's clients, such as live agent customer service, chargeback and fraud analysis and credit bureau reporting, all within one integrated solution for our clients. •Program Management Fees: Also referred to as "card program fees", these transaction fees are generated from the creation and management of card programs issued by banks and requested by enterprise partners. In these arrangements, Galileo performs card management services and the revenue stems from the payment network and card program fees generated by the card program. This revenue is reduced by association and bank issuer costs, and a revenue share passed along to the enterprise partner that markets the card program. We categorize this class of revenue as payment network fees. Galileo typically enters into multi-year service contracts with its clients. The contracts provide for a variety of integrated platform services, which vary by client and are generally either non-cancellable or cancellable with a substantive payment. Pricing structures under these contracts are typically volume-based, or a combination of activity- and volume-based, and payment terms are predominantly monthly in arrears. Most of Galileo's contracts contain minimum monthly payments with agreed upon monthly service levels and may contain penalties if service levels are not met. Financial Services Segment Our Financial Services segment consists of cash management, investment and other financial services activities. SoFi Money ThroughSoFi Money , a digital, mobile cash management experience for our members, we invest in member acquisition and marketing activities to attract new members, including by offering rewards to incentivize prospective members to house their cash management activities on the SoFi platform. We generate interest income from deposits sitting in our various member banks, which is reduced by the interest fees paid to members. We also earn payment network fees on member expenditures via SoFi-branded debit cards issued by one of our member bank holding companies (each a "Member Bank "). Payment network fees are reduced by direct fees payable to card associations and theMember Bank .The Bancorp Bank ("Bancorp") is the issuer of allSoFi Money debit cards and sponsors access to debit networks for payment transactions, funding transactions and associated settlement of funds under a sponsorship agreement withSoFi Securities . Additionally, Bancorp provides sponsorship and support for ACH, check, and wire transactions along with associated funds settlement. The SoFi Money product also utilizes a sweep administrator,UMB Bank, National Association ("UMB"), to sweep funds to and from the SoFi Money program banks, as necessary, under a program broker agreement betweenSoFi Securities and UMB and program account and program bank agreements with a variety of sweep program banks.The SoFi Securities agreement with Bancorp provides for receipt by Bancorp of program revenue and transaction fees, and is subject to a minimum monthly card activity fee. The agreement with Bancorp is terminable bySoFi Securities with 120 days prior notice. The program broker agreement betweenSoFi Securities and UMB provides for one-year terms that automatically renew and is terminable by either party with at least 90 days' written notice prior to the end of the current term. The program account agreements and program bank agreements betweenSoFi Securities , UMB and the sweep banks provide for the rate of interest payable on the balances in a member'sSoFi Money account and include certain maximum transfer requirements on transfers. These arrangements are generally terminable upon termination ofSoFi Securities' sweep arrangement with UMB. SoFi Invest We also provide introductory brokerage services to our members, and have invested significantly in creating SoFi Invest, a streamlined mobile investing experience through which we offer multiple ways to invest and give members access to active investing, robo-advisory and digital assets services. While we do not charge trading fees, other than for digital assets trading, our platform benefits from increasing assets under management as we generate interest income on cash balances that we hold, and we also earn brokerage revenue through share lending and pay for order flow arrangements. We also believe there are opportunities to generate incremental future revenue through margin lending and options. Through our acquisition of 8 Limited in 2020, we expanded SoFi Invest into theHong Kong market. With respect to our digital assets trading activities, which we initiated in 2019, we do not hold or store members' digital assets, but instead rely on a third party custodian, and we hold an immaterial amount of digital assets in order to facilitate paying new member bonuses when members initiate their first digital assets trade. We do this for member convenience to facilitate a seamless payment of digital assets. 81 -------------------------------------------------------------------------------- TABLE OF CONTENTS Furthermore, our innovative "stock bits" feature allows members to purchase fractional shares in various companies. Through our "stock bits" offering, members with SoFi Invest active brokerage accounts may buy or sell fractional shares in a variety of equity securities. Members can place orders in dollars or shares. During the course of a trading day, all member orders are consolidated into a single order for each equity security, which may be a sell or buy order. These fractional orders are rounded up to the next whole share and executed as a market order prior to market close on a standard trading day. Following market close, we allocate the trades to each individual member. We maintain a stock inventory for each issuer for whose securities we provide fractional trading in order to facilitate "stock bits" trades. Other InAugust 2020 , we began offering the SoFi Credit Card, which we expanded to a broader market in the fourth quarter of 2020. Additionally, we developed SoFi Relay within the SoFi mobile application, a personal finance management product which allows members to track all of their financial accounts in one place and utilize credit score monitoring services. Further, we leverage our technology and information infrastructure to offer services to other enterprises, such as loan referrals, referral fulfillment and SoFi At Work, which is a platform we offer to enterprises that are looking for a seamless way to provide financial benefits to their employees, such as student loan payments made on their employees' behalf, for which we earn a fee. We have also developed a financial services marketplace platform branded as Lantern Credit to help applicants that do not qualify for SoFi products find alternative products, as well as providing a product comparison experience. Finally, commencing in the second quarter of 2021, we started earning revenues for serving in underwriting syndicates and advisory services in connection with helping companies successfully complete the business combination process, inclusive of obtaining required shareholder votes. We earn revenues in connection with our Financial Services segment through various partnerships and ourSoFi Money and SoFi Invest products in the following ways: •Referral fees: Through strategic partnerships, we earn a specified referral fee in connection with referral activity we facilitate through our platform. Referral fees are paid to us by third-party partners that offer services to end userswho do not use one of our product offerings, butwho were referred to the partners through our platform. As such, the third-party enterprise partners are our customers in these referral arrangements. Beginning in the third quarter of 2021, referral fees also include referral fulfillment fees earned for providing pre-qualified borrower referrals to a third-party partnerwho separately contracts with a loan originator. The referral fulfillment fee is determined as the lower of a fixed per-loan amount or the multiplication of a set fee percentage by the aggregate loan origination principal balance. As such, the third-party partner is our customer in this referral fulfillment arrangement. •Payment network fees: We earn payment network fees, which primarily constitute interchange fees from ourSoFi Money and SoFi Credit Card products, which are reduced by fees payable to card associations and the issuing bank holding company. These fees are remitted by merchants and are calculated by multiplying a set fee percentage (as stipulated by the debit card payment network) by the transaction volume processed through such network. We arrange for performance by a card association and the bank issuer to enable certain aspects of the SoFi branded transaction card process. We enter into contracts with both parties that establish the shared economics of SoFi branded transaction cards. •Enterprise service fees: These fees are earned in connection with services we provide to enterprise partners, such as when we facilitate transactions for the benefit of their employees, such as 529 plan contributions or student loan payments through our At Work product, which represents our single performance obligation in the arrangements. Commencing in the second quarter of 2021, enterprise services also included fees for providing advisory services to an enterprise partner to facilitate reaching a quorum on their shareholder vote, which represented our single performance obligation in the arrangement. Our fee was a success-based fee for achieving contractually-specified targets, which represented variable consideration at contract inception. However, as advisory fees were billed to, and collected directly from, our partner only once our performance obligation was satisfied, the variable consideration within the reporting period was not constrained. Our revenue was reported on a gross basis, as we acted in the capacity of a principal, demonstrated the requisite control over the service, and were primarily responsible for fulfilling the performance obligation to our enterprise partner. These fees are discussed herein as a component of equity capital markets and advisory services. •Brokerage fees: We earn brokerage fees from our share lending and pay for order flow arrangements related to our SoFi Invest product (for which Apex serves as principal), exchange conversion services and digital assets activity. In our share lending arrangements and pay for order flow arrangements with Apex, we do not oversee the execution of the transactions by our members, but benefit through a negotiated multi-year revenue sharing arrangement, since our members' brokerage activity drives the share lending and pay for order flow volume. Apex connects with market 82 -------------------------------------------------------------------------------- TABLE OF CONTENTS makers (order flow) and institutions (share lending) to facilitate the service and is responsible for execution. Apex carries inventory risk with the share lending program and ultimately is responsible for successful order routing to market makers that trigger the pay for order flow revenue. Apex sets the gross price and negotiates with market makers and institutions as part of our order flow and share lending arrangements. We have no discretion or visibility into this pricing and, instead, negotiate a net fee for our order flow and share lending arrangements, which is settled with Apex rather than with market makers or other institutions. In our digital assets arrangements, our fee is calculated as a negotiated percentage of the transaction volume. In our exchange conversion arrangements, we earn fees for exchanging one currency for another. Historically, these fees have not been a significant portion of our total net revenue. Our arrangements with Apex are governed by an agreement which contains certain minimum monthly requirements and which is terminable by either party upon notice. Although we no longer have an equity method investment in Apex as of the balance sheet date, Apex continues to provide the services under this agreement. •Underwriting Fees: Commencing in the second quarter of 2021, we earned underwriting fees related to our membership in underwriting syndicates for initial public offerings. The underwriting of securities is the only performance obligation in our underwriting agreements, and we recognize underwriting fees on the trade date. Moreover, we are a principal in our underwriting agreements, because we demonstrate the requisite control over the satisfaction of the performance obligation through the assumption of underwriter liability for our designated share allotment. As such, we recognize underwriting fee revenue on a gross basis. •Net interest income: Our SoFi Invest andSoFi Money products also generate net interest income based on the cash balances held in these accounts. Historically, this income has not been a significant portion of our total net revenue. COVID-19 Pandemic Although the long-term effects of the novel coronavirus ("COVID-19") pandemic globally and inthe United States remain unknown, we are seeing signs of recovery from the impacts of the pandemic due to the increased availability of vaccinations and government stimulus programs, particularly inthe United States , including businesses and schools reopening, improved employment metrics, and increased consumer spending and confidence levels. However, we continue to monitor developments related to the pandemic, particularly the spread of additional strains of the COVID virus and potential related impacts, as well as vaccine adoption rates. Through our business continuity program, which was expanded in response to the COVID-19 pandemic, we continue to monitor the recommendations and protocols published by theU.S. Centers for Disease Control and Prevention ("CDC") and theWorld Health Organization , as well as state and local governments, and to communicate with employees on a regular basis to provide updated information and corporate policies. Since the onset of the COVID-19 pandemic, we took a number of measures to proactively support our members, applicants for new loans and employees. Members: We have and will continue to approach hardship programs from a member-first perspective. In addition to our Unemployment Protection Plan, which remains available to all eligible members, we launched comprehensive forbearance programs that provided meaningfulFederal Emergency Management Agency disaster hardship relief. Starting inMarch 2020 , we made available a web-enabled self-service forbearance request process that enabled memberswho faced unemployment, reduction in income or general economic uncertainty to defer their loan payment for an initial period with options to extend. We also deferred certain collection recovery activities, while taking every opportunity to work with our members to find a path to repayment. We discontinued enrollment in our COVID-19 forbearance programs, which were designed to be temporary in nature, for personal loans and student loans onMarch 31, 2021 andApril 30, 2021 , respectively. Although enrollment in COVID-19 forbearance programs for home loans remains open, new requests remain low and are primarily related to extensions of existing forbearance. As ofSeptember 30, 2021 , the remaining loans in active short-term hardship relief or payment deferral due to the COVID-19 pandemic included 72 home loans with an aggregate balance of$19.1 million . There were no personal loans or student loans in this category due to the COVID-19 pandemic. Subject to eligibility, members may participate in other customary hardship programs. Applicants: In response to deteriorating economic conditions and market uncertainty amid the COVID-19 pandemic, in 2020 we proactively executed our recession readiness credit risk strategies. This included introducing elevated credit eligibility requirements for personal loans, thorough validation of income and income continuity, and limiting loan amounts. Throughout the first half of 2021, we adapted our elevated credit eligibility requirements for personal loans through phases of reopening following our metric-driven, return-to-normalcy action plan. Additionally, in the third quarter of 2021, we implemented a proprietary Recession Early Warning System ("REWS"), which applies a set of internal and external indicators and enables us to closely monitor economic conditions and to be more proactive and agile in taking decisive credit actions. REWS is currently enabled for personal loans only, as it is our product with the highest credit risk. Employees: In order to safeguard the health and safety of our team members and their families, we virtualized our entire organization beginning inMarch 2020 , enabling all of our team members to work virtually. We initiated a pilot reopening of 83 -------------------------------------------------------------------------------- TABLE OF CONTENTS ourUnited States offices inJuly 2021 on a voluntary basis. InOctober 2021 , we delayed our staggered Return-To-Workplace program originally planned for Fall 2021. Our reopening of United States SoFi office locations began with senior management onNovember 1, 2021 and will follow with our other employeeswho plan to return to the office onFebruary 1, 2022 . Employees are working with their managers and departmental leaders to determine the best place for them to work from upon our full reopening of our office locations, which may include full-time remote and hybrid in-office options. Our offices will continue to be open on a voluntary basis in the interim period. These plans remain subject to change as the impacts of the COVID-19 pandemic continue to evolve. We will continue to align our protocols with evolvingCDC , state and local guidelines to continue to safeguard the health and safety of our team members and their families. See Part II, Item 1A "Risk Factors - COVID-19 Pandemic Risks" for additional discussion of the risks and uncertainties associated with the repercussions of the COVID-19 pandemic. Executive Overview The following tables display key financial measures for our three reportable segments and our consolidated company that are used, along with our key business metrics, by management to evaluate our business, measure our performance, identify trends and make strategic decisions. Contribution profit (loss) is the primary measure of segment-level profit and loss reviewed by management and is defined as total net revenue for each reportable segment less expenses directly attributable to the corresponding reportable segment and, in the case of our Lending segment, less fair value adjustments attributable to assumption changes associated with our servicing rights and residual interests classified as debt. See "- Results of 84 -------------------------------------------------------------------------------- TABLE OF CONTENTS Operations", "- Summary Results by Segment" and "- Non-GAAP Financial Measures" herein for discussion and analysis of these key financial measures. Three Months Ended September 30, Nine Months Ended September 30, ($ in thousands) 2021 2020 2021 2020 Lending Total interest income$ 91,579 $ 86,468 $ 256,161 $ 263,630 Total interest expense (19,322) (34,246) (75,305) (121,412) Total noninterest income 138,034 109,890 343,703 189,656 Total net revenue 210,291 162,112 524,559 331,874 Adjusted net revenue(1)(2) 215,475 178,084 555,744 377,021 Contribution profit(1) 117,668 103,011 294,542 156,525 Technology Platform(1) Total interest income (expense) 39 (47) (29) (65) Total noninterest income 50,186 38,865 141,616 58,899 Total net revenue 50,225 38,818 141,587 58,834 Contribution profit 15,741 23,986 44,439 37,083 Financial Services(1) Total interest income 1,651 365 3,084 2,418 Total interest expense (442) (267) (1,104) (2,022) Total noninterest income 11,411 3,139 34,142 7,423 Total net revenue 12,620 3,237 36,122 7,819 Contribution loss (39,465) (37,467) (99,729) (95,343) Other(3) Total interest income 371 1,284 992 5,416 Total interest expense (1,501) (4,345) (8,132) (8,857) Total noninterest income (loss) - (319) 4,136 (1,045) Total net loss (1,130) (3,380) (3,004) (4,486) Consolidated Total interest income$ 93,601 $ 88,117 $ 260,237 $ 271,464 Total interest expense (21,226) (38,905) (84,570) (132,356) Total noninterest income 199,631 151,575 523,597 254,933 Total net revenue 272,006 200,787 699,264 394,041 Adjusted net revenue(1)(2) 277,190 216,759 730,449 439,188 Net loss (30,047) (42,878) (372,925) (141,437) Adjusted EBITDA(2) 10,256 33,509 25,628 (56,393) ___________________ (1)Adjusted net revenue within our Lending segment is used by management to evaluate our Lending segment and our consolidated results. For our Lending segment, total net revenue is adjusted to exclude the fair value changes in servicing rights and residual interests classified as debt due to valuation inputs and assumption changes (including conditional prepayment and default and discount rates). We use this adjusted measure in our determination of contribution profit in the Lending segment, as well as to evaluate our consolidated results, as it removes non-cash charges that are not realized during the period and, therefore, do not impact the cash available to fund our operations, and our overall liquidity position. For our Technology Platform and Financial Services segments, there are no adjustments from total net revenue to arrive at the consolidated adjusted net revenue shown in this table. (2)Adjusted net revenue and adjusted EBITDA are non-GAAP financial measures. For information regarding our uses and definitions of these measures and for reconciliations to the most directly comparableU.S. Generally Accepted Accounting Principles ("GAAP") measures, see "- Non-GAAP Financial Measures". (3)"Other" includes total net revenue associated with corporate functions, non-recurring gains from non-securitization investment activities and interest income and realized gains and losses associated with investments in available-for-sale ("AFS") debt securities, all of which are not directly related to a reportable segment. For further discussion, see Note 17 to the Notes to Unaudited Condensed Consolidated Financial Statements. 85 -------------------------------------------------------------------------------- TABLE OF CONTENTS Key Recent Developments We continue to execute on our growth and other strategic initiatives and in recent years, we have celebrated launches across our product suite and strategic partnerships, establishing ourselves as a platform that enables individuals to borrow, save, spend, invest, and protect their assets. Some of our key recent achievements are discussed below. Acquisitions InMarch 2021 , we entered into an agreement to acquire Golden Pacific Bancorp, Inc., a bank holding company, and its wholly-owned subsidiary,Golden Pacific Bank, National Association , a national bank, for a total cash purchase price of$22.3 million . The acquisition is subject to regulatory approval, including approval from the OCC of a revised business plan forGolden Pacific Bank , and approval from theFederal Reserve to become a bank holding company and for a change of control, and other customary closing conditions, which we anticipate can be completed by the end of 2021. InMarch 2021 , we submitted an application to theFederal Reserve to become a bank holding company. The application review process is ongoing. InJanuary 2021 , Social Finance entered into the Agreement by and among SoFi, SCH, andPlutus Merger Sub Inc. The transactions contemplated by the terms of the Agreement were completed onMay 28, 2021 , upon which SoFi survived the merger and became a wholly owned subsidiary of SCH, which concurrently changed its name to "SoFi Technologies, Inc. " Shares ofSoFi Technologies' common stock andSoFi Technologies' warrants began trading on The Nasdaq Global Select Market ("Nasdaq") under the symbols "SOFI" and "SOFIW", respectively, onJune 1, 2021 , in lieu of the ordinary shares, warrants and units of SCH. See Note 2 to the Notes to Unaudited Condensed Consolidated Financial Statements for additional information on the transaction. InMay 2020 , we completed our acquisition of Galileo for a purchase price of$1.2 billion . Galileo provides technology platform services to financial and non-financial institutions. Our acquisition of Galileo represented a material addition to our Technology Platform segment, but was not a significant acquisition under Regulation S-X, Rule 3-05, Financial Statements of Businesses Acquired or to be Acquired. InApril 2020 , we acquired 8 Limited, aHong Kong based investment business, for a purchase price of$16.1 million . Our acquisition of 8 Limited marked our first expansion outside theU.S. and enables our non-U.S. members to experience many of the product features we have developed inthe United States for SoFi Invest, including zero commission non-digital assets trading. Product Development and Partnerships In the third quarter of 2021, we entered into a partnership deal with a leading artificial intelligence network for lenders wherein we provide pre-qualified borrower referrals to the partnerwho separately contracts with a loan originator. This arrangement allows us to serve a broader addressable market for personal loans without incurring additional credit risk. InMay 2021 , we launched a feature in ourSoFi Money product that enables members to receive their qualifying direct deposit paychecks (or other eligible direct deposits) up to two days earlier than their regularly scheduled payday, providing them quicker access to money. Through ourFINRA -registered broker-dealer subsidiary,SoFi Securities , we are licensed to underwrite securities offerings. InMarch 2021 , we launched an IPO investment center that allows members with a SoFi active Invest account to invest in initial public offerings before they trade on an exchange. Beginning in the second quarter of 2021, we began earning revenues from our underwriting services. See "-Business Overview" for additional information. In 2020, we celebrated the official opening ofSoFi Stadium and the establishment of a 20-year partnership withLA Stadium and Entertainment District atHollywood Park inInglewood, California , a multi-purpose sports and entertainment district that serves as the stadium for theNational Football League teams theLos Angeles Chargers andLos Angeles Rams . SoFi's 20-year partnership with the LA Stadium and Entertainment District atHollywood Park , across the naming rights and sponsorship agreements, collectively requires SoFi to pay sponsorship fees quarterly in each contract year beginning in 2020 and ending in 2040 for an aggregate total of$625.0 million , which includes operating lease obligations, finance lease obligations and sponsorship and advertising opportunities at the stadium complex. See Note 15 to the Notes to Unaudited Condensed Consolidated Financial Statements for discussion of an associated contingent matter. In the second half of 2020, we launched our SoFi Credit Card, which carries no annual membership fee and provides up to two percent unlimited cash back when the cash back rewards are applied to aSoFi Money or SoFi Invest account, or are used to pay down SoFi student loans or personal loans, as well as a one-percent annual percentage rate reduction after 12 consecutive on-time credit card payments, with the reduced rate sustained with continued on-time payments. 86 -------------------------------------------------------------------------------- TABLE OF CONTENTS Non-GAAP Financial Measures Our management and board of directors use adjusted net revenue and adjusted EBITDA, which are non-GAAP financial measures, to evaluate our operating performance, formulate business plans, help better assess our overall liquidity position, and make strategic decisions, including those relating to operating expenses and the allocation of internal resources. Accordingly, we believe that adjusted net revenue and adjusted EBITDA provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. Adjusted Net Revenue Adjusted net revenue is defined as total net revenue, adjusted to exclude the fair value changes in servicing rights and residual interests classified as debt due to valuation inputs and assumptions changes, which relate only to our Lending segment. We adjust total net revenue to exclude these items, as they are non-cash charges that are not realized during the period, and therefore positive or negative changes do not impact the cash available to fund our operations. This measure helps provide our management with an understanding of the net revenue available to finance our operations and helps management better decide on the proper expenses to authorize for each of our operating segments, to ultimately help achieve target contribution profit margins. Therefore, the measure of adjusted net revenue serves as both the starting point for how we think about the liquidity generated from our operations and also the starting point for our annual financial planning, the latter of which focuses on the cash we expect to generate from our operating segments to help fund the current year's strategic objectives. Adjusted net revenue has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, the analysis of other GAAP financial measures, such as total net revenue. The primary limitation of adjusted net revenue is its lack of comparability to other companies that do not utilize this measure or that use a similar measure that is defined in a different manner. We reconcile adjusted net revenue to total net revenue, the most directly comparable GAAP measure, as presented for the periods indicated below: Three Months Ended
2021 2020 2021 2020
Total net revenue $ 272,006 $ 200,787 $ 699,264 $ 394,041
Servicing rights - change in valuation
inputs or assumptions(1) (409) 4,671 11,924 16,332
Residual interests classified as
debt - change in valuation inputs or
assumptions(2) 5,593 11,301 19,261 28,815
Adjusted net revenue $ 277,190 $ 216,759 $ 730,449 $ 439,188
___________________
(1)Reflects changes in fair value inputs and assumptions on servicing rights,
including conditional prepayment and default rates and discount rates. These
assumptions are highly sensitive to market interest rate changes and are not
indicative of our performance or results of operations. Moreover, these non-cash
charges are unrealized during the period and, therefore, have no impact on our
cash flows from operations. As such, these positive and negative changes are
adjusted out of total net revenue to provide management and financial users with
better visibility into the net revenue available to finance our operations and
our overall performance.
(2)Reflects changes in fair value inputs and assumptions on residual interests
classified as debt, including conditional prepayment and default rates and
discount rates. When third parties finance our consolidated securitization
variable interest entities ("VIEs") by purchasing residual interests, we receive
proceeds at the time of the closing of the securitization and, thereafter, pass
along contractual cash flows to the residual interest owner. These residual debt
obligations are measured at fair value on a recurring basis, but they have no
impact on our initial financing proceeds, our future obligations to the residual
interest owner (because future residual interest claims are limited to
contractual securitization collateral cash flows), or the general operations of
our business. As such, these positive and negative non-cash changes in fair
value attributable to assumption changes are adjusted out of total net revenue
to provide management and financial users with better visibility into the net
revenue available to finance our operations.
We reconcile adjusted net revenue to total net revenue, the most directly
comparable GAAP measure, as presented for the quarterly periods indicated below:
Quarter Ended
September 30, June 30, March 31, December 31, September 30,
($ in thousands) 2021 2021 2021 2020 2020
Total net revenue $ 272,006 $
231,274
(409) 224 12,109 1,127 4,671
Residual interests classified as debt -
change in valuation inputs or
assumptions(2) 5,593 5,717 7,951 9,401 11,301
Adjusted net revenue $ 277,190 $ 237,215 $ 216,044 $ 182,019 $ 216,759
___________________
(1)See footnote (1) to the table above.
(2)See footnote (2) to the table above.
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The reconciling items to determine our non-GAAP measure of adjusted net revenue
are applicable only to the Lending segment. The table below presents adjusted
net revenue for the Lending segment for the periods indicated:
Three Months Ended
2021 2020 2021 2020
Total net revenue - Lending $ 210,291 $ 162,112 $ 524,559 $ 331,874
Servicing rights - change in valuation
inputs or assumptions(1) (409) 4,671 11,924 16,332
Residual interests classified as
debt - change in valuation inputs or
assumptions(2) 5,593 11,301 19,261 28,815
Adjusted net revenue - Lending $ 215,475 $
178,084
___________________
(1)See footnote (1) to the table above.
(2)See footnote (2) to the table above.
Adjusted EBITDA
Adjusted EBITDA is defined as net income (loss), adjusted to exclude:
(i) corporate borrowing-based interest expense (our adjusted EBITDA measure is
not adjusted for warehouse or securitization-based interest expense, nor deposit
interest expense and finance lease liability interest expense, as discussed
further below), (ii) income taxes, (iii) depreciation and amortization,
(iv) stock-based expense (inclusive of equity-based payments to non-employees),
(v) impairment expense (inclusive of goodwill impairment and property, equipment
and software abandonments), (vi) transaction-related expenses, (vii) warrant
fair value adjustments, and (viii) fair value changes in servicing rights and
residual interests classified as debt due to valuation assumptions. We believe
adjusted EBITDA provides a useful measure for period-over-period comparisons of
our business, as it removes the effect of certain non-cash items and certain
charges that are not indicative of our core operating performance or results of
operations. It is also a measure that management relies upon to evaluate cash
flows generated from operations, and therefore the extent of additional capital,
if any, required to invest in strategic initiatives. Adjusted EBITDA has
limitations as an analytical tool and should not be considered in isolation
from, or as a substitute for, the analysis of other GAAP financial measures,
such as net income (loss). Some of the limitations of adjusted EBITDA include
that it does not reflect the impact of working capital requirements or capital
expenditures and it is not a universally consistent calculation among companies
in our industry, which limits its usefulness as a comparative measure.
We reconcile adjusted EBITDA to net loss, the most directly comparable GAAP
measure, for the periods indicated below:
Three Months Ended September 30, Nine Months Ended September 30,
($ in thousands) 2021 2020 2021 2020
Net loss $ (30,047)
1,366 4,346 7,752 8,849
Income tax expense (benefit)(2) 181 192 1,202 (99,519)
Depreciation and amortization(3) 24,075 24,676 75,041 44,346
Stock-based expense 72,681 26,551 162,289 70,689
Transaction-related expense(4) 1,221 297 24,580 9,161
Fair value changes in warrant liabilities(5) (64,405) 4,353 96,504 6,371
Servicing rights - change in valuation inputs or
assumptions(6) (409) 4,671 11,924 16,332
Residual interests classified as debt - change in
valuation inputs or assumptions(7) 5,593 11,301 19,261 28,815
Total adjustments 40,303 76,387 398,553 85,044
Adjusted EBITDA $ 10,256 $ 33,509 $ 25,628 $ (56,393)
___________________
(1)Our adjusted EBITDA measure adjusts for corporate borrowing-based interest
expense, which primarily includes interest on our revolving credit facility and
the seller note issued in connection with our acquisition of Galileo (for
periods prior to the quarter ended March 31, 2021 ), as these expenses are a
function of our capital structure. Our adjusted EBITDA measure does not adjust
for interest expense on warehouse facilities and securitization debt, which are
recorded within interest expense - securitizations and warehouses in the
accompanying consolidated statements of operations and comprehensive income
(loss), as these interest expenses are direct operating expenses driven by loan
origination and sales activity. Additionally, our adjusted EBITDA measure does
not adjust for interest expense on SoFi Money deposits or interest expense on
our finance lease liability in connection with SoFi Stadium , which are recorded
within interest expense - other, as these interest expenses are direct operating
expenses driven by SoFi Money deposits and finance leases, respectively. The
decreases in interest expense for the three- and nine-month 2021 periods
compared to 2020 were primarily related to interest expense on the Galileo
seller note, which was issued in May 2020 and repaid in February 2021 . Revolving
credit facility interest expense remained
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relatively consistent for the three-month periods, primarily due to identical
outstanding debt and relatively consistent interest rates, and decreased
slightly in the nine-month 2021 period compared to 2020, as the higher average
balance in the 2021 period as a result of the Galileo acquisition was more than
offset by a decrease in LIBOR.
(2)The significant change in our income tax position for the nine-month 2021
period relative to the corresponding period in 2020 was primarily due to a
partial release of our valuation allowance in the second quarter of 2020 in
connection with deferred tax liabilities resulting from intangible assets
acquired from Galileo in May 2020 . See Note 13 to the Notes to Unaudited
Condensed Consolidated Financial Statements for additional information.
(3)Depreciation and amortization expense for the three months ended September
30, 2021 decreased moderately compared to the same period in 2020 due primarily
to the acceleration of core banking infrastructure amortization beginning in the
second quarter of 2020 in connection with the acquisition of Galileo that did
not fully impact the third quarter of 2021, partially offset by increases in
amortization of purchased and internally-developed software and depreciation
related to SoFi Stadium fixed assets and computer and related hardware.
Depreciation and amortization expense for the nine months ended September 30,
2021 increased compared to the same period in 2020 primarily due to increases in
amortization of intangible assets recognized during the second quarter of 2020
associated with the Galileo and 8 Limited acquisitions, amortization of
purchased and internally-developed software, and depreciation related to SoFi
Stadium fixed assets and computer and related hardware, partially offset by a
decrease related to the acceleration of core banking infrastructure
amortization.
(4)During the three months ended September 30, 2021 , transaction-related
expenses were primarily incurred for an exploratory acquisition process.
Transaction-related expenses for the nine months ended September 30, 2021 also
included the special payment to the Series 1 preferred stockholders in
conjunction with the Business Combination, as well as financial advisory and
professional services costs associated with our pending purchase of Golden
Pacific Bancorp, Inc. During the three and nine months ended September 30, 2020 ,
transaction-related expenses included certain costs, such as financial advisory
and professional services costs, associated with our acquisitions of Galileo and
8 Limited.
(5)Our adjusted EBITDA measure excludes the non-cash fair value changes in
warrants accounted for as liabilities, which are measured at fair value through
earnings. The amounts in the three- and nine-month 2020 periods and a portion of
the nine-month 2021 period related to changes in the fair value of Series H
warrants issued by Social Finance in 2019 in connection with certain redeemable
preferred stock issuances. We did not measure the Series H warrants at fair
value subsequent to May 28, 2021 in conjunction with the Business Combination,
as they were reclassified into permanent equity. In addition, in conjunction
with the Business Combination, SoFi Technologies assumed certain common stock
warrants ("SoFi Technologies warrants") that are accounted for as liabilities
and measured at fair value on a recurring basis. The amount in the three-month
2021 period and a portion of the nine-month 2021 period relate to the SoFi
Technologies warrants. The fair value of the SoFi Technologies warrants is based
on the closing price of ticker SOFIW and, therefore, fluctuates based on market
activity. See Note 8 and Note 10 to the Notes to Unaudited Condensed
Consolidated Financial Statements for additional information on these classes of
warrants.
(6)Reflects changes in fair value inputs and assumptions, including market
servicing costs, conditional prepayment and default rates and discount rates.
This non-cash change is unrealized during the period and, therefore, has no
impact on our cash flows from operations. As such, these positive and negative
changes in fair value attributable to assumption changes are adjusted out of net
loss to provide management and financial users with better visibility into the
earnings available to finance our operations.
(7)Reflects changes in fair value inputs and assumptions, including conditional
prepayment and default rates and discount rates. When third parties finance our
consolidated VIEs through purchasing residual interests, we receive proceeds at
the time of the securitization close and, thereafter, pass along contractual
cash flows to the residual interest owner. These obligations are measured at
fair value on a recurring basis, which has no impact on our initial financing
proceeds, our future obligations to the residual interest owner (because future
residual interest claims are limited to contractual securitization collateral
cash flows), or the general operations of our business. As such, these positive
and negative non-cash changes in fair value attributable to assumption changes
are adjusted out of net loss to provide management and financial users with
better visibility into the earnings available to finance our operations.
We reconcile adjusted EBITDA to net loss, the most directly comparable GAAP
measure, for the quarterly periods indicated below:
Quarter Ended
September 30, June 30, March 31, December 31, September 30,
($ in thousands) 2021 2021 2021 2020 2020
Net loss $ (30,047) $ (165,314) $ (177,564) $ (82,616) $ (42,878)
Non-GAAP adjustments:
Interest expense - corporate borrowings 1,366 1,378 5,008 19,125 4,346
Income tax expense (benefit) 181 (78) 1,099 (4,949)
192
Depreciation and amortization 24,075 24,989 25,977 25,486 24,676 Stock-based expense 72,681 52,154 37,454 30,089 26,551 Transaction-related expenses 1,221 21,181 2,178 -
297
Fair value changes in warrant liabilities (64,405) 70,989 89,920 14,154
4,353
Servicing rights - change in valuation inputs or assumptions (409) 224 12,109 1,127
4,671
Residual interests classified as debt - change in valuation inputs or assumptions 5,593 5,717 7,951 9,401 11,301 Total adjustments 40,303 176,554 181,696 94,433 76,387 Adjusted EBITDA$ 10,256 $ 11,240 $ 4,132 $ 11,817 $ 33,509 89
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Key Business Metrics
The table below presents the key business metrics that management uses to
evaluate our business, measure our performance, identify trends and make
strategic decisions.
2021 vs 2020
September 30, 2021 September 30, 2020 % Change
Members 2,937,379 1,500,576 96 %
Total Products 4,267,665 2,052,933 108 %
Lending
Total Products 1,030,882 892,934 15 %
Financial Services
Total Products 3,236,783 1,159,999 179 %
Technology Platform
Total Accounts 88,811,022 49,276,594 80 %
See "- Summary Results by Segment" for additional metrics we review at the
segment level.
Members
We refer to our customers as "members", as defined in "- Business Overview". We
view members as an indication not only of the size and a measurement of growth
of our business, but also as a measure of the significant value of the data we
have collected over time. The data we collect from our members helps us to,
among other things: (i) assess loan life performance data on each loan in our
ecosystem, which can inform risk-based interest rates that we can offer our
members, (ii) understand our members' spending behavior to identify and suggest
other products we offer that may align with the members' financial needs; and
(iii) enhance our opportunities to sell additional products to our members, as
our members represent a vital source of marketing opportunities. When we provide
additional products to members, it helps improve our unit economics per member,
as we save on marketing costs we would otherwise incur to attract new members.
It also increases the lifetime value of an individual member. This in turn
enhances our Financial Services Productivity Loop . Member growth is generally an
indicator of future revenue, but is not directly correlated with revenues, since
not all members who sign up for one of our products fully utilize or continue to
use our products, and not all of our products (such as our complementary
product, SoFi Relay) provide direct sources of revenue.
Total Products
Total products refers to the aggregate number of lending and financial services
products that our members have selected on our platform since our inception
through the reporting date, whether or not the members are still registered for
such products. In our Lending segment, total products refers to the number of
home loans, personal loans and student loans that have been originated through
our platform through the reporting date, whether or not such loans have been
paid off. If a member has multiple loan products of the same loan product type,
such as two personal loans, that is counted as a single product. However, if a
member has multiple loan products across loan product types, such as one
personal loan and one home loan, that is counted as two products. In our
Financial Services segment, total products refers to the number of SoFi Money
accounts, SoFi Invest accounts, SoFi Credit Card accounts (including accounts
with a zero dollar balance at the reporting date), SoFi At Work accounts and
SoFi Relay accounts (with either credit score monitoring enabled or external
linked accounts) that have been opened through our platform through the
reporting date. Our SoFi Invest service is composed of three products: active
investing accounts, robo-advisory accounts and digital asset accounts. Our
members can select any one or combination of the three types of SoFi Invest
products. If a member has multiple SoFi Invest products of the same account
type, such as two active investing accounts, that is counted as a single
product. However, if a member has multiple SoFi Invest products across account
types, such as one active investing account and one robo-advisory account, those
separate account types are considered separate products. Total products is a
primary indicator of the size and reach of our Lending and Financial Services
segments. Management relies on total products metrics to understand the
effectiveness of our member acquisition efforts and to gauge the propensity for
members to use more than one product. As of September 30, 2021 , we had 4,267,665
total products.
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Products
In Thousands
[[Image Removed: sofi-20210930_g2.jpg]]
Total lending products were composed of the following as of the dates indicated:
Lending Products September 30, 2021 September 30, 2020 Variance % Change
Home loans 21,318 12,174 9,144 75 %
Personal loans 578,772 488,546 90,226 18 %
Student loans 430,792 392,214 38,578 10 %
Total lending products 1,030,882 892,934 137,948 15 %
Total financial services products were composed of the following as of the dates
indicated:
Financial Services Products September 30, 2021 September 30, 2020 Variance % Change
Money 1,161,322 417,613 743,709 178 %
Invest 1,233,527 415,718 817,809 197 %
Credit Card 65,595 261 65,334 n/m
Relay 749,972 318,384 431,588 136 %
At Work 26,367 8,023 18,344 229 %
Total financial services products 3,236,783 1,159,999 2,076,784 179 %
Technology Platform Total Accounts
In our Technology Platform segment, total accounts refers to the number of open
accounts at Galileo as of the reporting date, excluding SoFi accounts. We
exclude SoFi accounts because revenue generated by Galileo from the SoFi
relationship is eliminated in consolidation. Total accounts is a primary
indicator of the accounts dependent upon Galileo's technology platform to use
virtual card products, virtual wallets, make peer-to-peer and bank-to-bank
transfers, receive early paychecks, separate savings from spending balances,
make debit transactions and rely upon real-time authorizations, all of which
result in technology platform fees for the Technology Platform segment.
Key Factors Affecting Operating Results
Our future operating results and cash flows are dependent upon a number of
opportunities, challenges and other factors, including our loan origination
volume, financial services products and member activity on our platform, growth
in Galileo accounts, competition and industry trends, general economic
conditions and whether or not we are able to secure a national bank charter.
Origination Volume
Our Lending segment is our largest segment, comprising 77% and 81% of our total
net revenue during the three months ended September 30, 2021 and 2020,
respectively, and 75% and 84% during the nine months ended September 30, 2021
and
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2020, respectively. We are dependent upon the addition of new members and new
activity from existing members within our Lending segment to generate
origination volume, which we believe is a contributor to Lending segment net
revenue. We believe we have a high-quality loan portfolio, as indicated by our
weighted average origination FICO score of 761 during the nine months ended
September 30, 2021 . See "- Industry Trends and General Economic Conditions" for
the impact of specific economic factors, including the COVID-19 pandemic, on
origination volume.
Member Growth and Activity
We have invested heavily in our platform and are dependent on continued member
growth, as well as our ability to generate additional revenues from our existing
members using additional products and services. Member growth and activity is
critical to our ability to increase our scale and earn a return on our
technology and product investments. Growth in members and member activity will
depend heavily on our ability to continue to offer attractive products and
services at sustainable costs and our continued member acquisition and marketing
efforts.
Product Growth
Our aim is to develop and offer a best-in-class integrated financial services
platform with products that meet the broad objectives of our members and the
lifecycle of their financial needs. We have invested, and continue to invest,
heavily in the development, improvement and marketing of our suite of lending
and financial services products and are dependent on continued growth in the
number of products selected by our members, as well as our ability to build
trust and reliability between our members and our platform to reinforce the
effects of the Financial Services Productivity Loop . In order to deliver on our
strategy, we aim to foster positive member experiences designed to lead to more
products per member, leading to enhanced profitability for each additional
product by lowering overall member acquisition costs.
Galileo Account Growth
During 2020, we acquired Galileo, which primarily provides technology platform
services to financial and non-financial institutions, to enable us to diversify
our business from a primarily consumer-based business to also serve enterprises
that rely upon Galileo's integrated platform as a service to serve their
clients. We are dependent on growth in the number of accounts at Galileo, which
is an indication of the amount of users that are dependent upon the technology
platform for a variety of products and services, including virtual card
products, virtual wallets, peer-to-peer and bank-to-bank transfers, early
paychecks and relying on real-time authorizations, all of which generate
revenues for Galileo.
Competition
We face competition from several financial services institutions given our
status as a diversified financial services provider. In each of our reportable
segments, we may compete with more established financial institutions, some of
which have more financial resources than we do. We compete at multiple levels,
including competition among other personal loan, student loan, credit card and
residential mortgage lenders, competition for deposits in our SoFi Money product
from traditional banks and other non-bank lenders, competition for investment
accounts in our SoFi Invest product from other brokerage firms, including those
based on online or mobile platforms, competition for subscribers to our
financial services content, and competition with other technology platforms for
the enterprise services we provide. Some of our competitors may at times seek to
increase their market share by undercutting pricing terms prevalent in that
market, which could adversely affect our market share for any of our products
and services or require us to incur higher member acquisition costs.
Furthermore, our competitors could offer relatively attractive benefits to our
current members, which could limit members using more than one product.
Industry Trends and General Economic Conditions
Our results of operations have historically been relatively resilient to
economic downturns but in the future may be impacted by the relative strength of
the overall economy and its effect on unemployment, asset markets and consumer
spending. As general economic conditions improve or deteriorate, the amount of
consumer disposable income tends to fluctuate, which in turn impacts consumer
spending levels and the willingness of consumers to take out loans to finance
purchases or invest in financial assets. Specific economic factors, such as
interest rate levels, changes in monetary and related policies, unemployment
rates, market volatility and consumer confidence also influence consumer
spending, saving, investing and borrowing patterns. Increased focus by
policymakers and the new presidential administration on outstanding student
loans has led to discussions of potential legislative and regulatory actions,
among other possible steps, to reduce outstanding balances of loans, or cancel
loans at a significant scale, including the potential forgiveness of federal
student debt. Such actions resulting in forgiveness or cancellation at a
meaningful scale would likely have an adverse impact on our results of
operations and overall business.
Additionally, our business has been, and may continue to be, impacted by some of
the national measures taken to counteract the economic impact of the COVID-19
pandemic. For example, the CARES Act and subsequent extensions of
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certain hardship provisions led to decreased demand for our student loan
refinancing products prior to emerging signs of economic recovery from the
pandemic. The Federal Reserve's actions to reduce interest rates to near-zero
benchmark levels have led to increased demand for home loan refinancing and we
believe have increased the attractiveness of our SoFi Invest product, as members
look for alternative ways to earn higher returns on their cash. Conversely,
these lower benchmark rates have reduced deposit interest rates we can offer on
our SoFi Money product, which we believe has adversely impacted demand for the
product.
National Bank Charter
A key element of our long-term strategy is to secure a national bank charter. In
March 2021 , we entered into an Agreement and Plan of Merger to acquire Golden
Pacific, a registered bank holding company, and its wholly owned subsidiary
Golden Pacific Bank , a national banking association. See "Business Overview -
National Bank Charter ". If we are successful in securing a national bank charter
through the proposed acquisition, we expect to incur additional costs in our
operation of the bank primarily associated with headcount, technology
infrastructure, governance, compliance and risk management, marketing, and other
general and administrative expenses.
The key expected financial benefits to us of obtaining a national bank charter
include: (i) lowering our cost to fund loans, as we can utilize SoFi Money
deposits to fund loans, which have a lower borrowing cost of funds than our
current financing model, (ii) holding loans on our consolidated balance sheet
for longer periods, thereby enabling us to earn interest on these loans for a
longer period and increasing our net interest income margin, and (iii)
supporting origination volume growth by providing an alternative financing
option, while also maintaining our warehouse capacity. There can be no guarantee
that we will be able to secure a national bank charter, either through the
proposed acquisition or through the formation of a de novo national bank or, if
we do, that we will realize the anticipated benefits. See Part II, Item 1A "Risk
Factors".
Key Components of Results of Operations
Interest Income
Interest income is predominantly driven by loan origination volume, prevailing
interest rates that we receive on the loans we make and the amount of time we
hold loans on our consolidated balance sheet. Securitizations interest income is
driven by our securitization-related investments in bonds and residual interest
positions, which are required under securitization risk retention rules. See
Note 1 to the Notes to Unaudited Condensed Consolidated Financial Statements for
additional information on our securitization-related investments. Beginning in
the third quarter of 2021, other interest income also includes the interest
earned on investments in AFS debt securities as well as amortization of premiums
and discounts and other basis adjustments associated with the investments.
Moreover, we earn other interest income on excess corporate cash balances and
SoFi Money member balances. Related party interest income was derived from notes
extended to Apex and one of our stockholders, and was not core to our
operations. We received full repayment of all related party notes as of
September 30, 2021 .
Interest Expense
Interest expense primarily includes interest we incur under our warehouse
facilities, inclusive of the amortization of debt issuance costs, and under our
securitization debt, inclusive of debt issuance costs, premiums and discounts.
We incur securitization-related interest expense when securitization transfers
do not qualify as true sales pursuant to ASC 810, Consolidation.
Securitization-related interest expense fluctuates depending on the level of our
securitization activity, market rates and whether and how much such activity
results in true sale treatment. We also incur interest expense related to our
revolving credit facility and on the seller note issued in connection with our
acquisition of Galileo in May 2020 , which was fully repaid in February 2021 , as
well as on the other financings assumed in the acquisition, which were repaid in
July 2021 . For our residual interests classified as debt, we recognize interest
expense over the expected life using the effective yield method, which
represents a portion of the overall fair value change in the residual interests
classified as debt. On a quarterly basis, we reevaluate the cash flow estimates
to determine if a change to the accretable yield is required on a prospective
basis, which is a reclassification between two income statement line items, and
therefore has no net impact on earnings. We also pay interest income to our
members who have SoFi Money account balances, which is interest expense to us.
Interest expense is dependent on market interest rates, such as LIBOR, interest
rate spreads versus benchmark rates, the amount of warehouse capacity we can
access, warehouse advance rates and the amount of loans we ultimately pledge to
our warehouse facilities. Finally, we incur interest on our finance lease
liabilities associated with SoFi Stadium , which relate to certain physical
signage within the stadium. Our interest expense has historically fluctuated due
to changes in the interest rate environment and we expect it will continue to
fluctuate in future periods.
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Noninterest Income
Noninterest income primarily consists of: (i) fair value changes in loans while
we hold them on our consolidated balance sheet; (ii) gains on sales of loans
transferred into the securitization or whole loan sale channels; (iii) the
income we receive from our loan servicing activities, as well as the assumption
of servicing rights from third parties; (iv) fair value changes related to our
securitization activities; (v) revenue recognized pursuant to ASC 606, Revenue
from Contracts with Customers, which primarily relates to our Technology
Platform fees; (vi) gains and losses on derivative instruments, as well as
student loan commitments; and (vii) realized gains and losses on investments in
AFS debt securities.
When we originate a loan, we generally expect that we will sell the loan for
more than its par value, which will result in positive loan origination and
sales results. Moreover, noninterest income - loan origination and sales also
includes recognized servicing assets at the time of a loan sale. The subsequent
measurement of our servicing assets at fair value, as well as the initial and
ongoing measurement of servicing rights assumed from third parties, impact
noninterest income - servicing in our consolidated statements of operations and
comprehensive income (loss). When we sell a loan into a securitization trust
that qualifies for true sale accounting, the gain or loss on sale is recorded
within noninterest income - loan origination and sales. Noninterest income -
securitizations is impacted by fair value changes in securitization loan
collateral, which is impacted by the change in fair value of the loan collateral
from the previous period end, residual interests classified as debt and our
securitization investments associated with our continuing interest in the
securitization subsequent to the sale. Our revenue recognized in accordance with
ASC 606 is attributable to our Financial Services and Technology Platform
segments and has grown due to our acquisition of Galileo during 2020, primarily
in the form of Technology Platform fees, as well as growth generated in our
Financial Services segment.
Noninterest Expense
Noninterest expense primarily relates to the following categories of expenses:
(i) technology and product development, (ii) sales and marketing, (iii) cost of
operations, and (iv) general and administrative. Certain costs are included
within each of these line items, such as compensation and benefits-related
expense (inclusive of stock-based compensation expense), professional services,
depreciation and amortization and occupancy-related costs. We allocate certain
costs to each of these four categories based on department-level headcounts. We
generally expect the expenses within each such category to increase in absolute
dollars as our business continues to grow. Noninterest expense also includes the
fair value changes in warrant liabilities (within general and administrative),
as well as the provision for credit losses, which relates primarily to our
credit card product within the Financial Services segment.
Directly Attributable Expenses
As presented within "-Summary Results by Segment", in our determination of the
contribution profit (loss) for our Lending, Financial Services and Technology
Platform segments, we allocate certain expenses that are directly attributable
to the corresponding segment. Directly attributable expenses primarily include
compensation and benefits and sales and marketing, inclusive of member
incentives, and vary based on the amount of activity within each segment.
Directly attributable expenses also primarily include loan origination and
servicing expenses, professional services, product fulfillment, lead generation
and occupancy-related costs. Expenses are attributed to the reportable segments
using either direct costs of the segment or labor costs that can be attributed
based upon the allocation of employee time for individual products.
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Results of Operations
The following table sets forth condensed consolidated statements of income data
for the periods indicated:
Three Months Ended September 30, 2021 vs 2020 Nine Months Ended September 30, 2021 vs 2020
($ in thousands) 2021 2020 % Change 2021 2020 % Change
Interest income
Loans $ 89,844 $ 81,130 11 % $ 246,743 $ 244,731 1 %
Securitizations 2,999 5,337 (44) % 11,260 18,898 (40) %
Related party notes - 778 (100) % 211 2,709 (92) %
Other 758 872 (13) % 2,023 5,126 (61) %
Total interest income 93,601 88,117 6 % 260,237 271,464 (4) %
Interest expense
Securitizations and warehouses 19,360 34,280 (44) % 75,418 121,481 (38) %
Corporate borrowings 1,366 4,345 (69) % 7,752 8,849 (12) %
Other 500 280 79 % 1,400 2,026 (31) %
Total interest expense 21,226 38,905 (45) % 84,570 132,356 (36) %
Net interest income 72,375 49,212 47 % 175,667 139,108 26 %
Noninterest income
Loan origination and sales 142,147 103,869 37 % 362,211 271,082 34 %
Securitizations (4,551) 12,752 (136) % (6,613) (63,002) (90) %
Servicing 458 (6,637) (107) % (11,875) (18,298) (35) %
Technology Platform fees 49,951 35,405 41 % 140,560 51,607 172 %
Other 11,626 6,186 88 % 39,314 13,544 190 %
Total noninterest income 199,631 151,575 32 % 523,597 254,933 105 %
Total net revenue 272,006 200,787 35 % 699,264 394,041 77 %
Noninterest expense
Technology and product development 74,434 55,428 34 % 209,771 143,432 46 %
Sales and marketing 114,985 77,458 48 % 297,170 204,395 45 %
Cost of operations 69,591 51,821 34 % 187,785 125,886 49 %
General and administrative 40,461 58,766 (31) % 373,374 161,284 132 %
Provision for credit losses 2,401 - n/m 2,887 - n/m
Total noninterest expense 301,872 243,473 24 % 1,070,987 634,997 69 %
Loss before income taxes (29,866) (42,686) (30) % (371,723) (240,956) 54 %
Income tax (expense) benefit (181) (192) (6) % (1,202) 99,519 (101) %
Net loss $ (30,047) $ (42,878) (30) % $ (372,925) $ (141,437) 164 %
Other comprehensive income (loss)
Unrealized losses on
available-for-sale securities, net $ (150) $ - n/m $ (150) $ - n/m
Foreign currency translation
adjustments, net 204 24 750 % (142) (19) 647 %
Total other comprehensive income
(loss) 54 24 125 % (292) (19) n/m
Comprehensive loss $ (29,993) $ (42,854) (30) % $ (373,217) $ (141,456) 164 %
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Interest Income
The following table presents the components of our total interest income for the
periods indicated:
Three Months Ended September
30, 2021 vs 2020 Nine Months Ended September 30, 2021 vs 2020
($ in thousands) 2021 2020 % Change 2021 2020 % Change
Loans $ 89,844 $ 81,130 11 % $ 246,743 $ 244,731 1 %
Securitizations 2,999 5,337 (44) % 11,260 18,898 (40) %
Related party notes - 778 (100) % 211 2,709 (92) %
Other 758 872 (13) % 2,023 5,126 (61) %
Total interest income $ 93,601 $ 88,117 6 % $ 260,237 $ 271,464 (4) %
Total interest income increased by $5.5 million , or 6%, for the three months
ended September 30, 2021 compared to the three months ended September 30, 2020 ,
and decreased by $11.2 million , or 4%, for the nine months ended September 30,
2021 compared to the nine months ended September 30, 2020 due to the following:
Three Months - Loans. Loans interest income increased by $8.7 million , or 11%,
for the three months ended September 30, 2021 compared to the same period in
2020 primarily driven by an increase in non-securitization personal loan and
student loan interest income of $23.2 million , which was primarily a function of
an increase in aggregate average balances of $1.1 billion (37%) primarily
attributable to longer loan holding periods. These increases were offset by a
decline of $16.3 million in interest income from consolidated personal loan and
student loan securitizations, which were impacted by a $773.4 million (44%)
decline in aggregate average balances attributable to payment activity and the
deconsolidation of a VIE in July 2020 . The remaining increase in interest income
primarily included $1.1 million attributable to credit card loans, which
launched in the third quarter of 2020, and $0.5 million attributable to home
loans.
Nine Months - Loans. Loans interest income increased by $2.0 million , or 1%,
for the nine months ended September 30, 2021 compared to the same period in 2020
primarily driven by increases in non-securitization personal loan and student
loan interest income of $52.5 million and $14.5 million , respectively, which
were primarily a function of increases in average balances for personal loans
and student loans of $646.2 million (85%) and $606.5 million (41%),
respectively, attributable to longer loan holding periods. This increase was
offset by a decline of $67.7 million in interest income from consolidated
personal loan and student loan securitizations, which were impacted by a $1.1
billion (49%) decline in average balances attributable to payment activity and
the deconsolidation of two VIEs in March 2020 and one VIE in July 2020 . The
remaining increase in interest income primarily included $1.7 million
attributable to credit card loans, which launched in the third quarter of 2020,
and $0.8 million attributable to home loans.
Three Months - Securitizations. Securitizations interest income decreased by
$2.3 million , or 44%, for the three months ended September 30, 2021 compared to
the same period in 2020, which was primarily attributable to decreases in
residual investment interest income of $1.0 million and asset-backed bonds of
$1.3 million related to decreases in average securitization investment balances
period over period.
Nine Months - Securitizations. Securitizations interest income decreased by
$7.6 million , or 40%, for the nine months ended September 30, 2021 compared to
the same period in 2020, which was attributable to decreases in residual
investment interest income of $2.9 million and asset-backed bonds of
$3.3 million related to decreases in average securitization investment balances
period over period, and a decrease in securitization float interest income of
$1.4 million related to decreases in average securitization loan balances and a
decline in interest rates period over period.
Three Months - Related Party Notes. We did not have any related party notes
interest income in the three-month 2021 period. Related party notes interest
income in the three-month 2020 period of $0.8 million was attributable to a
stockholder loan, which was fully settled in the fourth quarter of 2020 and to
our loans to Apex, which were fully settled in February 2021 . See Note 14 to the
Notes to Unaudited Condensed Consolidated Financial Statements for additional
information on our related party notes.
Nine Months - Related Party Notes. Related party notes interest income decreased
by $2.5 million , or 92%, for the nine months ended September 30, 2021 compared
to the same period in 2020 due to the absence of interest income on a
stockholder loan and a decrease in interest income related to our loans to Apex,
as the loans were fully settled in February 2021 .
Three Months - Other. Other interest income decreased by $0.1 million , or 13%,
for the three months ended September 30, 2021 compared to the same period in
2020, of which $0.2 million was primarily due to interest rate decreases period
over period. The interest rate decreases impacted the interest income we earned
on both our interest-bearing cash and
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cash equivalents balances and Member Bank deposits despite higher average
balances in the 2021 period. This variance was partially offset by interest
income of $0.1 million earned on our investments in AFS debt securities, which
we established during the third quarter of 2021.
Nine Months - Other. Other interest income decreased by $3.1 million , or 61%,
for the nine months ended September 30, 2021 compared to the same period in 2020
primarily due to interest rate decreases period over period that impacted the
interest income we earned on both our interest-bearing cash and cash equivalents
balances and Member Bank deposits, despite higher average balances in the 2021
period. This variance was partially offset by interest income of $0.1 million
earned on our investments in AFS debt securities in the 2021 period.
Interest Expense
The following table presents the components of our total interest expense for
the periods indicated:
Three Months Ended September
30, 2021 vs 2020 Nine Months Ended September 30, 2021 vs 2020
($ in thousands) 2021 2020 % Change 2021 2020 % Change
Securitizations and warehouses $ 19,360 $ 34,280 (44) % $ 75,418 $ 121,481 (38) %
Corporate borrowings 1,366 4,345 (69) % 7,752 8,849 (12) %
Other 500 280 79 % 1,400 2,026 (31) %
Total interest expense $ 21,226 $ 38,905 (45) % $ 84,570 $ 132,356 (36) %
Total interest expense decreased by $17.7 million , or 45%, for the three months
ended September 30, 2021 compared to the three months ended September 30, 2020 ,
and decreased by $47.8 million , or 36%, for the nine months ended September 30,
2021 compared to the nine months ended September 30, 2020 , due to the following:
Securitizations and Warehouses. The following tables present the components of
securitizations and warehouses interest expense and other pertinent information.
Three Months Ended September
30, 2021 vs 2020 Nine Months Ended September 30, 2021 vs 2020
($ in thousands) 2021 2020 % Change 2021 2020 % Change
Securitization debt interest
expense $ 8,186 $ 14,346 (43) % $ 28,548 $ 53,429 (47) %
Warehouse debt interest expense 6,360 11,475 (45) % 26,261 39,078 (33) %
Residual interests classified as
debt interest expense 2,036 2,711 (25) % 6,381 9,994 (36) %
Debt issuance cost interest
expense(1) 2,778 5,748 (52) % 14,228 18,980 (25) %
Securitizations and warehouses
interest expense $ 19,360 $ 34,280 (44) % $ 75,418 $ 121,481 (38) %
___________________
(1)Debt issuance cost interest expense excludes the acceleration of debt
issuance costs of
Three Months Ended September 30, 2021 vs 2020 Nine Months Ended September 30, 2021 vs 2020
($ in thousands) 2021 2020 % Change 2021 2020 % Change
Average debt balances(1)
Securitization debt $ 822,364 $ 1,529,236 (46) % $ 970,573 $ 1,953,343 (50) %
Warehouse facilities 1,846,473 2,459,028 (25) % 2,195,743 2,085,891 5 %
Weighted average interest
rates(1)(2)
Securitization debt(3) 4.0 % 3.8 % n/m 3.9 % 3.6 % n/m
Warehouse facilities(3) 1.4 % 1.9 % n/m 1.6 % 2.5 % n/m
___________________
(1)Table excludes residual interests classified as debt, as interest expense is
dependent on the timing and extent of securitization loan cash flows and,
therefore, a derived weighted average interest rate using the methodology in the
table herein is not meaningful for the purposes of understanding the change in
residual interests classified as debt related interest expense.
(2)Calculated as annualized interest expense divided by average debt balance for
the respective debt category.
(3)Interest rates on securitization debt and warehouse facilities exclude the
effect of debt issuance cost interest expense.
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Securitizations and warehouses interest expense decreased by $14.9 million , or
44%, for the three months ended September 30, 2021 compared to the three months
ended September 30, 2020 , and decreased by $46.1 million , or 38%, for the nine
months ended September 30, 2021 compared to the nine months ended September 30,
2020 , driven by the following:
•Securitization debt interest expense (exclusive of debt issuance and discount
amortization) decreased by $6.2 million (43%) for the three months ended
September 30, 2021 compared to the same period in 2020, and decreased by $24.9
million (47%) for the nine months ended September 30, 2021 compared to the same
period in 2020 primarily driven by declines in average balance of 46% and 50%,
respectively, which were attributable to payment activity and the
deconsolidation of securitizations discussed within the "interest income"
section. The impact of the period-over-period decrease in one-month LIBOR, which
primarily affects our student loan securitization debt, was more than offset by
payoffs of debt with lower interest rates, raising the overall weighted average
interest rate.
•Warehouse debt interest expense (exclusive of debt issuance amortization)
decreased by $5.1 million for the three months ended September 30, 2021 compared
to the same period in 2020, and decreased by $12.8 million for the nine months
ended September 30, 2021 compared to the same period in 2020, which were
primarily related to decreases in one- and three-month LIBOR period over period
and lower warehouse facility interest rate spreads, as well as lower average
warehouse debt balances outstanding for the three-month 2021 period. The
nine-month period decrease was partially offset by higher average warehouse debt
balances outstanding in the 2021 period.
•Residual interests classified as debt interest expense decreased by $0.7
million for the three months ended September 30, 2021 compared to the same
period in 2020, and decreased by $3.6 million for the nine months ended
September 30, 2021 compared to the same period in 2020, which was correlated
with a lower balance of residual interests classified as debt during the 2021
periods, a significant driver of which was the deconsolidation of two
securitizations in March 2020 and one securitization in July 2020 .
•Debt issuance cost interest expense decreased by $3.0 million for the three
months ended September 30, 2021 compared to 2020, and decreased by $4.8 million
for the nine months ended September 30, 2021 compared to the same period in
2020. The variances were primarily driven by a lower run rate on our issuance
cost amortization related to our loan warehouse facilities, as we extended
certain loan warehouse facilities, which had the effect of lowering the
quarterly debt issuance cost amortization. The variance for the nine-month
period was also impacted by a decrease in the acceleration of debt issuance
costs in the 2021 period compared to the same period in 2020.
Corporate Borrowings. Corporate borrowings interest expense decreased by $3.0
million , or 69%, for the three months ended September 30, 2021 compared to the
same period in 2020, and decreased by $1.1 million , or 12%, for the nine months
ended September 30, 2021 compared to the same period in 2020, primarily due to
the following:
•Interest expense incurred on the Galileo seller note decreased by $3.0 million
for the three months ended September 30, 2021 compared to the same period in
2020, and decreased by $0.9 million for the nine months ended September 30, 2021
compared to the same period in 2020. For the nine-month 2021 period, we incurred
interest at the note's stated rate prior to its repayment in February 2021 . As
such, we did not incur interest expense during the three-month 2021 period. For
the three- and nine-month 2020 periods, we incurred imputed interest during the
interest-free period.
•Interest expense on the revolving credit facility was consistent for the three
months ended September 30, 2021 compared to the same period in 2020, as the
average balance was consistent period over period and one-month LIBOR decreased
modestly. For the nine months ended September 30, 2021 relative to the same
period in 2020, interest expense decreased $0.2 million , which reflected a
decline in one-month LIBOR period over period, partially offset by a higher
average balance in the 2021 period, as we drew $325.0 million on the facility
during the second quarter of 2020.
Other. Other interest expense increased by $0.2 million , or 79%, for the three
months ended September 30, 2021 compared to the same period in 2020, and
decreased by $0.6 million , or 31%, for the nine months ended September 30, 2021
compared to the same period in 2020. The primary contributor to other interest
expense was related to our SoFi Money product, for which interest expense
increased by $0.1 million and decreased by $1.0 million during the three and
nine-month 2021 periods, respectively, relative to the corresponding 2020
periods. The increase in the three-month period was primarily associated with an
increase in member cash balances, which was partially offset by lower weighted
average interest rates
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offered to members. The decrease in the nine-month period was primarily
attributable to lower weighted average interest rates offered to members, which
was partially offset by an increase in member cash balances.
Noninterest Income and Net Revenue
The following table presents the components of our total noninterest income, as
well as total net revenue for the periods indicated:
Three Months Ended September 30, 2021 vs 2020 Nine Months Ended September 30, 2021 vs 2020
($ in thousands) 2021 2020 % Change 2021 2020 % Change
Loan origination and sales $ 142,147 $ 103,869 37 % $ 362,211 $ 271,082 34 %
Securitizations (4,551) 12,752 (136) % (6,613) (63,002) (90) %
Servicing 458 (6,637) (107) % (11,875) (18,298) (35) %
Technology Platform fees 49,951 35,405 41 % 140,560 51,607 172 %
Other 11,626 6,186 88 % 39,314 13,544 190 %
Total noninterest income $ 199,631 $ 151,575 32 % $ 523,597 $ 254,933 105 %
Total net revenue $ 272,006 $ 200,787 35 % $ 699,264 $ 394,041 77 %
Total noninterest income increased by $48.1 million , or 32%, for the three
months ended September 30, 2021 compared to the three months ended September 30,
2020 , and increased by $268.7 million , or 105%, for the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020 , due to
the following:
Three Months - Loan Origination and Sales. Loan origination and sales increased
by $38.3 million , or 37%, for the three months ended September 30, 2021 compared
to the same period in 2020, which was primarily related to an increase of
$69.0 million in personal loan origination and sales income. The increase was
primarily attributable to higher origination volume and higher valuations on the
originated loans period over period, as well as higher sales activity during the
2021 period. Additionally, to a much lesser extent, $7.2 million of the increase
was related to a personal loan purchase price earn-out derivative position. The
personal loan increase was partially offset by a decrease in student loan
origination and sales income of $25.4 million , which was primarily due to higher
pricing execution on sales in the 2020 period in relation to the carrying value
at the time of sale, as well as higher fair value adjustments in the 2020 period
following depressed fair values in the second quarter of 2020 amid the impacts
of the CARES Act and COVID-19 pandemic, and reduced origination volume.
We also had a $5.5 million period-over-period decrease in home loan originations
and sales related income, net of hedges and related interest rate lock
commitments ("IRLCs"). The decrease was primarily driven by an $8.1 million
decrease in home loan valuations during the 2021 period relative to the 2020
period, partially offset by an increase of $4.4 million related to home loan
pipeline hedge activity. Additionally, there was a decrease in IRLCs of $1.8
million , which was correlated with a decline in the home loan pipeline pricing
during the 2021 period compared to an increase during the 2020 period.
We also had an increase of $0.2 million in home loan origination fees period
over period in conjunction with an increase in origination volume, partially
offset by strategic home loan origination fee pricing initiatives.
Nine Months - Loan Origination and Sales. Loan origination and sales increased
by $91.1 million , or 34%, for the nine months ended September 30, 2021 compared
to the same period in 2020, which was primarily related to an increase of $120.6
million in personal loan origination and sales income. The personal loan
increase was primarily attributable to higher origination volume period over
period, as well as higher sales activity during the 2021 period. Additionally,
$7.2 million of the increase was related to a personal loan purchase price
earn-out derivative position. The personal loan increase was partially offset by
a decrease in student loan origination and sales income of $1.2 million , which
was primarily due to lower origination volume in the 2021 period and increased
fair value adjustments in the 2020 period following depressed fair values in
2020 amid the impacts of the CARES Act and COVID-19 pandemic. These student loan
decreases were largely offset by our student loan economic hedging activities.
Finally, loan origination and sales income was impacted by a credit default swap
gain of $22.5 million in the 2020 period that did not recur.
We also experienced a $2.4 million period-over-period decrease in home loan
origination and sales related income, net of hedges and related IRLCs (exclusive
of home loan origination fees), which was reflective of a decrease of $26.8
million associated with IRLCs that was correlated with a decline in the home
loan pipeline and pricing in the 2021 period compared to significant increases
in the home loan pipeline and pricing during the 2020 period. This decrease was
offset by a $21.2 million increase in home loan pipeline hedges, which
corresponded with a decline in home loan prices during the period. The remaining
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increase was attributable to higher origination volume, partially offset by the
impact of the aforementioned home loan price decline, which impacted sales
execution and our home loan valuations.
Additionally, home loan origination fees increased $3.9 million period over
period in conjunction with a 54% increase in origination volume.
Three Months - Securitizations. Securitizations income decreased by $17.3
million , or 136%, for the three months ended September 30, 2021 compared to the
same period in 2020 primarily due to $14.9 million lower fair value increases on
securitization loans, which was primarily related to timing, as we experienced
meaningful fair value gains in the three-month 2020 period after some of the
uncertainty of the COVID-19 pandemic was abated that had driven significant fair
value declines in the first quarter of 2020. We also had a decline in bond fair
values of $4.7 million period over period, which was primarily influenced by
realized interest income cash flows (which lower bond fair values and increase
interest income by the amount realized during the period) and, therefore, had no
net impact on earnings. Securitizations income was also impacted by an
unfavorable variance in residual debt fair value of $1.4 million period over
period, which reduced our earnings and was correlated with improved
securitization loan collateral valuations and residual interest positions
representing a greater percentage of securitization claims (which occurs over
time as securitization loans are paid off and, accordingly, securitization debt
gets paid off).
Partially offsetting these items was a reduction in securitization loan
write-offs of $3.2 million , which was correlated with stronger securitization
loan credit performance and lower average securitization loan balances during
the 2021 period.
Nine Months - Securitizations. Securitizations income improved by $56.4
million , or 90%, for the nine months ended September 30, 2021 compared to the
same period in 2020, primarily due to an aggregate increase of $37.4 million
period over period in securitization loan fair market value changes, principally
due to the significantly improved economic environment during the 2021 period
relative to the 2020 period associated with the impacts of the COVID-19 pandemic
in 2020. Additionally, we experienced a reduction in securitization loan
write-offs of $25.3 million in the 2021 period, which was correlated with the
deconsolidation of securitizations in the 2020 period, stronger securitization
loan credit performance and lower average securitization loan balances during
the 2021 period. Additionally, we had losses from deconsolidations of $14.7
million during the 2020 period and none in the 2021 period. Finally, we had a
positive variance in our securitization residual interest investments of $5.7
million .
Partially offsetting these effects was an unfavorable variance in residual debt
fair value of $19.3 million period over period, which was correlated with
underlying securitization performance and residual interest positions
representing a greater percentage of securitization claims period over period.
We also had a decline in bond fair values of $7.1 million period over period,
which was primarily influenced by realized interest income cash flows (which
lower bond fair values and increase interest income by the amount realized
during the period) and, therefore, had no net impact on earnings.
The table below presents additional information related to loan gains and losses
and overall performance:
Three Months Ended September
30, 2021 vs 2020 Nine Months Ended September 30, 2021 vs 2020
($ in thousands) 2021 2020 % Change 2021 2020 % Change
Gains from non-securitization
loan transfers $ 76,816 $ 75,516 2 % $ 218,780 $ 175,347 25 %
Gains from loan securitization
transfers(1) 39,162 3,584 993 % 86,210 129,855 (34) %
Economic derivative hedges of
loan fair values(2) 1,305 (4,125) (132) % 23,439 (50,412) (146) %
Home loan origination fees(3) 3,502 3,326 5 % 11,292 7,408 52 %
Loan write-off (expense)
benefit - whole loans(4) (3,830) 241 n/m (12,555) (3,743) 235 %
Loan write-off expense -
securitization loans(5) (1,806) (5,046) (64) % (9,482) (34,758) (73) %
Loan repurchase (expense)
benefit(6) (190) (23) 726 % (2,588) 160 n/m
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(1)Represents the gain recognized on loan securitization transfers qualifying
for sale accounting treatment. For the three and nine months ended September 30,
2020 , the gains are exclusive of deconsolidation losses of $1.0 million and
$14.7 million , respectively. There were no deconsolidation losses during the
three and nine months ended September 30, 2021 .
(2)During the three months ended September 30, 2021 and 2020, we had gains on
interest rate swap positions of $1.1 million and $0.1 million , respectively,
primarily due to modest increases in interest rates during each of the periods.
During the three months ended September 30, 2021 , we also had gains of
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$0.2 million on home loan pipeline hedges primarily due to modest decreases in
the underlying hedge price index during the period. During the three months
ended September 30, 2020 , we also had losses of $4.2 million on home loan
pipeline hedges due to increases in the price index during the period. During
the nine months ended September 30, 2021 , we had gains of $17.7 million on
interest rate swap positions primarily due to higher interest rates since the
start of the 2021 period. We also had gains of $5.7 million on home loan
pipeline hedges primarily due to decreases in the underlying hedge price index
during the period. During the nine months ended September 30, 2020 , we had
losses of $57.3 million on interest rate swap positions primarily due to
significant declines in interest rates amid the COVID-19 pandemic. We also had
losses of $15.5 million on home loan pipeline hedges primarily due to increases
in the underlying hedge price index during the period. These losses were
partially offset by gains on our credit default swaps of $22.5 million . Amounts
presented herein exclude IRLCs and student loan commitments, as they are not
economic hedges of loan fair values.
(3)For the three and nine months ended September 30, 2021 , these increases were
correlated with increases in home loan origination volumes relative to the
corresponding 2020 periods. The three-month period impact was also impacted by
strategic home loan origination fee pricing initiatives.
(4)For the three months ended September 30, 2021 and 2020, includes gross
write-offs of $6.1 million and $3.5 million , respectively. During the 2021
period, $0.5 million of the $2.3 million of recoveries were captured via loan
sales to a third-party collection agency. During the 2020 period, $2.1 million
of the $3.7 million of recoveries were captured via loan sales to a third-party
collection agency. For the nine months ended September 30, 2021 and 2020,
includes gross write-offs of $20.1 million and $12.7 million , respectively.
During the 2021 period, $2.4 million of the $7.5 million of recoveries were
captured via loan sales to a third-party collection agency. During the 2020
period, $3.3 million of the $9.0 million of recoveries were captured via loan
sales to a third-party collection agency.
(5)For the three months ended September 30, 2021 and 2020, includes gross
write-offs of $4.2 million and $8.3 million , respectively. During the 2021
period, $0.3 million of the $2.4 million of recoveries were captured via loan
sales to a third-party collection agency. During the 2020 period, $1.3 million
of the $3.3 million of recoveries were captured via loan sales to a third-party
collection agency. For the nine months ended September 30, 2021 and 2020,
includes gross write-offs of $17.4 million and $46.7 million , respectively.
During the 2021 period, $2.2 million of the $7.9 million of recoveries were
captured via loan sales to a third-party collection agency. During the 2020
period, $6.6 million of the $12.0 million of recoveries were captured via loan
sales to a third-party collection agency.
(6)Represents the (expense) benefit associated with our estimated loan
repurchase obligation. See Note 15 to the Notes to Unaudited Condensed
Consolidated Financial Statements for additional information.
Three Months - Servicing. Servicing income increased by $7.1 million , or 107%,
for the three months ended September 30, 2021 compared to the same period in
2020, which was primarily related to fair value changes in our servicing assets
that were largely attributable to a lower rate of increase in servicing asset
prepayment speed assumptions relative to the 2020 period. The rate of change was
greater during the 2020 period, primarily because actual prepayment activity
exceeded our expectations due to uncertainty around payment behavior in the
early stages of the COVID-19 pandemic and declines in interest rates. This
effect was most pronounced in our home loans product. In contrast, during the
2021 period, our rate of prepayment speed assumption change was largely
constant, which was aligned with less pronounced changes in interest rates
during the 2021 period.
Nine Months - Servicing. Servicing income increased by $6.4 million , or 35%, for
the nine months ended September 30, 2021 compared to the same period in 2020,
which was primarily related to fair value changes in our servicing assets that
were largely attributable to a lower rate of increase in servicing asset
prepayment speed assumptions relative to the 2020 period. The rate of change was
greater during the 2020 period, primarily because actual prepayment activity
exceeded our expectations due to uncertainty around payment behavior in the
early stages of the COVID-19 pandemic and declines in interest rates.
We own the master servicing on all of the servicing rights that we retain and,
in each case, recognize the gross servicing rate applicable to each serviced
loan. Sub-servicers are utilized for all serviced student loans and home loans,
which represents a cost to SoFi, but these arrangements do not impact our
calculation of the weighted average basis points earned for each loan type
serviced. Further, there is no impact on servicing income due to forbearance and
moratoriums on certain debt collection activities, and there are no waivers of
late fees. The table below presents additional information related to our loan
servicing activities:
Three Months Ended September 30, 2021 vs 2020 Nine Months Ended September 30, 2021 vs 2020
($ in thousands) 2021 2020 % Change 2021 2020 % Change
Servicing income recognized
Home loans(1) $ 2,398 $ 1,243 93 % $ 6,207 $ 3,143 97 %
Student loans(2) 11,305 12,207 (7) % 35,533 38,487 (8) %
Personal loans(3) 8,216 10,702 (23) % 25,020 33,535 (25) %
Servicing rights fair value
change
Home loans(4) 6,588 2,152 206 % 20,231 6,958 191 %
Student loans(5) (3,582) (21,618) (83) % (4,618) (30,686) (85) %
Personal loans(6) 701 (6,910) (110) % (1,736) (20,242) (91) %
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(1)The contractual servicing earned on our home loan portfolio was 25 bps during
the three and nine months ended September 30, 2021 and 2020.
(2)The weighted average bps earned for student loan servicing during the three
months ended September 30, 2021 and 2020 was 43 bps and 37 bps, respectively,
and during the nine months ended September 30, 2021 and 2020 was 42 bps and 37
bps, respectively.
(3)The weighted average bps earned for personal loan servicing during the three
months ended September 30, 2021 and 2020 was 70 bps and 77 bps, respectively,
and during the nine months ended September 30, 2021 and 2020 was 70 bps and 74
bps, respectively.
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(4)The impact on the fair value change resulting from changes in valuation
inputs and assumptions was $0.6 million and $(1.9) million during the three
months ended September 30, 2021 and 2020, respectively, and $2.1 million and
$(3.5) million during the nine months ended September 30, 2021 and 2020,
respectively.
(5)The impact of the fair value change resulting from changes in valuation
inputs and assumptions was $(1.7) million and $(5.6) million during the three
months ended September 30, 2021 and 2020, respectively, and $(17.8) million and
$(18.2) million during the nine months ended September 30, 2021 and 2020,
respectively. The three- and nine-month 2020 periods included the impacts of the
derecognition of servicing due to loan purchases, which had an effect on the
total fair value changes of $(12.4) million and $(12.6) million , respectively.
(6)The impact of the fair value change resulting from changes in valuation
inputs and assumptions was $1.5 million and $2.8 million during the three months
ended September 30, 2021 and 2020, respectively, and $3.7 million and $5.3
million during the nine months ended September 30, 2021 and 2020, respectively.
Three Months - Technology Platform Fees. Technology Platform fees earned by
Galileo increased by $14.5 million , or 41%, for the three months ended September
30, 2021 compared to the same period in 2020, which was driven by incremental
revenue from existing clients of $12.4 million , as well as revenue from new
clients of $2.1 million in the 2021 period.
Nine Months - Technology Platform Fees. Technology Platform fees earned by
Galileo increased by $89.0 million , or 172%, for the nine months ended September
30, 2021 compared to the same period in 2020, in part due to a partial period of
earnings in the 2020 period, as we acquired Galileo on May 14, 2020 . Existing
clients contributed incremental revenue of $85.4 million in the 2021 period
relative to the partial period in 2020, and new clients contributed revenue of
$3.6 million .
Three Months - Other. Other income increased by $5.4 million , or 88%, for the
three months ended September 30, 2021 compared to the same period in 2020
primarily due to period-over-period increases in brokerage-related revenues of
$3.3 million , referral fees of $3.0 million (a portion of which was related to a
referral fulfillment arrangement we entered into in the 2021 period), payment
network fees of $1.0 million , credit card fee income of $0.3 million and
underwriting revenues of $0.3 million . These gains were offset by $3.0 million
of equity method investment income during the 2020 period that did not recur, as
our Apex equity method investment was called in the first quarter of 2021.
Nine Months - Other. Other income increased by $25.8 million , or 190%, for the
nine months ended September 30, 2021 compared to the same period in 2020
primarily driven by increases in brokerage-related revenues of $13.9 million ,
payment network fees of $3.4 million and referral fees of $5.7 million . The
brokerage-related fees earned during the 2021 period were primarily attributable
to increased digital assets activities and were also positively impacted by our
acquisition of 8 Limited in the second quarter of 2020. The increase in payment
network fees (which includes interchange fees) was directly correlated with
increased credit card spending (which was a product launched in the second half
of 2020) and debit card transactions on our platform in addition to the impact
from the acquisition of Galileo in the second quarter of 2020. Lastly, the
increase in referral fees was primarily attributable to growth in our partner
relationships and related activity, as we continue to onboard new partners and
help drive volume to our partners, as well as an increase associated with a
referral fulfillment arrangement we entered into in the third quarter of 2021.
In addition, we had earnings from a historical period venture capital investment
of $4.0 million in the 2021 period (for which we sold a portion of our
investment during 2021) compared to a loss on a different privately-held
investment of $0.8 million in the 2020 period. Finally, we had additional new
sources of revenue in the 2021 period consisting of underwriting revenues of
$2.0 million and advisory services of $2.6 million . These gains were primarily
offset by $6.6 million of equity method income during the 2020 period that did
not recur, as our Apex equity method investment was called in the first quarter
of 2021.
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Noninterest Expense
The following table presents the components of our total noninterest expense for
the periods indicated:
Nine Months Ended
Three Months Ended September 30, 2021 vs 2020 September 30, 2021 vs 2020
($ in thousands) 2021 2020 % Change 2021 2020 % Change
Technology and product
development $ 74,434 $ 55,428 34 % $ 209,771 $ 143,432 46 %
Sales and marketing 114,985 77,458 48 % 297,170 204,395 45 %
Cost of operations 69,591 51,821 34 % 187,785 125,886 49 %
General and administrative 40,461 58,766 (31) % 373,374 161,284 132 %
Provision for credit losses 2,401 - n/m 2,887 - n/m
Total noninterest expense$ 301,872 $ 243,473 24 %$ 1,070,987 $ 634,997 69 % Total noninterest expense increased by$58.4 million , or 24%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , and increased by$436.0 million , or 69%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 , due to the following: Three Months - Technology and Product Development. Technology and product development expenses increased by$19.0 million , or 34%, for the three months endedSeptember 30, 2021 compared to the same period in 2020 primarily due to: •an increase in purchased and internally-developed software amortization of$1.4 million , which was reflective of increased investments in technology to support our growth; •an increase in employee compensation and benefits of$17.4 million , inclusive of an increase in share-based compensation expense of$12.2 million , which was related to an increase in technology and product personnel in support of our growth, and the effect of new awards issued at increased share prices. We also had an increase in average compensation in the 2021 period; and •an increase in software licenses and tools and subscriptions expense of$2.0 million related to headcount increases and internal technology initiatives; partially offset by •a decrease in amortization expense of$2.8 million related to the acceleration of our core banking infrastructure amortization in connection with the acquisition of Galileo. Nine Months - Technology and Product Development. Technology and product development expenses increased by$66.3 million , or 46%, for the nine months endedSeptember 30, 2021 compared to the same period in 2020 primarily due to: •an increase in amortization expense on intangible assets of$10.6 million , of which$11.5 million was associated with intangible assets acquired during the second quarter of 2020; •an increase in purchased and internally-developed software amortization of$4.0 million , which was reflective of increased investments in technology to support our growth; •an increase in employee compensation and benefits of$42.5 million , inclusive of an increase in share-based compensation expense of$28.5 million , which was related to an increase in technology and product personnel in support of our growth, and the effect of new award issuances at increased share prices. We also had an increase in average compensation in the 2021 period; and •an increase in software licenses and tools and subscriptions expense of$7.8 million related to headcount increases and internal technology initiatives. Three Months - Sales and Marketing. Sales and marketing expenses increased by$37.5 million , or 48%, for the three months endedSeptember 30, 2021 compared to the same period in 2020 primarily due to: •an increase in employee compensation and benefits of$5.0 million , inclusive of an increase in share-based compensation expense of$2.2 million , which was correlated with an increase in sales and marketing personnel to support our growth, and the effect of new awards issued at increased share prices, partially offset by a decrease in average compensation in the 2021 period; •an increase of$14.2 million related to increasing utilization of lead generation channels during the 2021 period; 103 -------------------------------------------------------------------------------- TABLE OF CONTENTS •an increase in direct customer promotional expenditures of$4.4 million , which is one of our levers for stimulating member product adoption and engagement; and •an increase in advertising expenditures of$14.3 million , which was primarily attributable to an increase in search, social, digital and television advertising expenditures in the 2021 period. Nine Months - Sales and Marketing. Sales and marketing expenses increased by$92.8 million , or 45%, for the nine months endedSeptember 30, 2021 compared to the same period in 2020 primarily due to: •an increase in amortization expense of$12.9 million associated with the customer-related intangible assets acquired in the second quarter of 2020; •an increase in employee compensation and benefits of$14.8 million , inclusive of an increase in share-based compensation expense of$5.2 million , which was correlated with an increase in sales and marketing personnel to support our growth, and the effect of new awards at increased share prices, partially offset by a decrease in average compensation in the 2021 period; •an increase ofSoFi Stadium related expenditures of$6.8 million , which is exclusive of depreciation and interest expense on the embedded lease portion of ourSoFi Stadium agreement; •an increase of$22.5 million related to increasing utilization of lead generation channels during the 2021 period; •an increase in direct customer promotional expenditures of$11.5 million , which is one of our levers for stimulating member product adoption and engagement; and •an increase in advertising expenditures of$19.6 million , which was attributable to an increase in search, social, television and digital advertising expenditures in the 2021 period, partially offset by a decrease in direct mail marketing expenditures. Three Months - Cost of Operations. Cost of operations increased by$17.8 million , or 34%, for the three months endedSeptember 30, 2021 compared to the same period in 2020 primarily due to: •an increase in loan origination and servicing expenses of$5.1 million , of which$4.0 million was related to home loans and was correlated with the growth in origination volume period over period; •an increase of$2.8 million in third-party fulfillment costs, which was correlated with growth in technology platform revenue; •an increase in employee compensation and benefits of$9.4 million , which was correlated with an increase in cost of operations personnel in support of our growth, in addition to an increase in average compensation in the 2021 period; •an increase in software licenses, tools and subscriptions and other related fees of$1.7 million related to headcount increases and internal technology initiatives; and •an increase in brokerage-related costs and debit card fulfillment costs of$1.2 million , which were primarily related to the growth ofSoFi Money and SoFi Invest; partially offset by •a decrease inSoFi Money account operational losses of$3.7 million . Nine Months - Cost of Operations. Cost of operations increased by$61.9 million , or 49%, for the nine months endedSeptember 30, 2021 compared to the same period in 2020 primarily due to: •an increase in loan origination and servicing expenses of$14.0 million , of which$12.5 million was related to home loans and was correlated with the growth in origination volume period over period; •an increase of$13.8 million in third-party fulfillment costs, which was correlated with growth in technology platform revenue and was partially attributable to post-acquisition Galileo operations; •an increase in employee compensation and benefits of$23.0 million , which was correlated with an increase in cost of operations personnel in support of our growth, in addition to an increase in average compensation in the 2021 period; •an increase in software licenses, tools and subscriptions and other related fees of$6.1 million related to headcount increases and internal technology initiatives; and 104 -------------------------------------------------------------------------------- TABLE OF CONTENTS •an increase in brokerage-related costs and debit card fulfillment costs of$4.2 million , primarily related to the growth of SoFi Invest andSoFi Money ; partially offset by •a decrease inSoFi Money account operational losses of$3.2 million . Three Months - General and Administrative. General and administrative expenses decreased by$18.3 million , or 31%, for the three months endedSeptember 30, 2021 compared to the same period in 2020 primarily due to: •a decrease in the fair value of our warrant liabilities of$68.8 million , which was related to the combination of a decrease in the fair value of theSoFi Technologies warrants assumed in the Business Combination during the 2021 period and an increase in the fair value of the Series H redeemable preferred stock during the 2020 period; partially offset by •an increase in employee compensation and benefits of$39.2 million , inclusive of an increase in share-based compensation expense of$29.8 million , which was related to an increase in general and administrative personnel to support our growing infrastructure and administrative needs in addition to an increase in average compensation in the 2021 period, the effect of new awards issued at increased share prices, and the employer tax expense associated with vested RSUs; •an increase in occupancy-related costs of$0.5 million and an increase in transaction-related expenses of$0.9 million primarily associated with an exploratory acquisition process in the 2021 period; •an increase in non-transaction related professional services of$4.5 million , such as accounting, advisory and legal services, and an increase in corporate insurance of$2.5 million , which were primarily attributable to the increased costs of being a public company; and •an increase in software licenses and tools and subscriptions of$1.8 million . Nine Months - General and Administrative. General and administrative expenses increased by$212.1 million , or 132%, for the nine months endedSeptember 30, 2021 compared to the same period in 2020 primarily due to: •an increase in employee compensation and benefits of$78.6 million , inclusive of an increase in share-based compensation expense of$55.8 million , which was related to an increase in general and administrative personnel to support our growing infrastructure and administrative needs in addition to an increase in average compensation in the 2021 period, and the effect of new awards issued at increased share prices; •an increase in the fair value of our warrant liabilities of$90.1 million , which was related to a larger fair value increase on the Series H redeemable preferred stock during the 2021 period relative to the 2020 period, partially offset by a fair value decrease related to theSoFi Technologies warrants assumed in the Business Combination during the 2021 period; •an increase of$21.2 million related to the special payment made to the Series 1 preferred stockholders in the 2021 period associated with the Business Combination, which was partially offset by lower other transaction-related expenses. The 2021 period included transaction-related costs of$3.4 million , which were primarily related to our pending purchase of Golden Pacific and an exploratory acquisition process, and the 2020 period included$9.2 million of transaction-related costs associated with our acquisitions of Galileo and 8 Limited; •an increase in non-transaction related professional services of$13.3 million , such as accounting, advisory and legal services, and an increase in corporate insurance of$4.0 million , which were primarily attributable to the increased costs of being a public company; •an increase in occupancy-related expenses of$2.3 million ; and •an increase in software licenses and tools and subscriptions of$4.2 million . Provision for Credit Losses. The provision for credit losses during the three and nine months endedSeptember 30, 2021 reflects the expected credit losses associated with our credit card loans. We did not recognize a provision for credit losses during the 2020 periods, as we launched our credit card product in the third quarter of 2020 and had immaterial activity through the end of the quarter. 105 -------------------------------------------------------------------------------- TABLE OF CONTENTS Net Loss We had a net loss of$30.0 million for the three months endedSeptember 30, 2021 compared to$42.9 million for the three months endedSeptember 30, 2020 , and a net loss of$372.9 million for the nine months endedSeptember 30, 2021 compared to$141.4 million for the nine months endedSeptember 30, 2020 . The decrease in loss for the three-month period and increase in loss for the nine-month period were due to the factors discussed above, as well as the change in income taxes. The significant tax benefit in the nine-month 2020 period was associated with the remeasurement of our valuation allowance during 2020 primarily as a result of the deferred tax liabilities recognized in connection with our acquisition of Galileo, which decreased the valuation allowance by$99.8 million . Summary Results by Segment Lending Segment In the table below, we present certain metrics related to our Lending segment: Three Months Ended September 30, 2021 vs 2020 Nine Months Ended September 30, 2021 vs 2020 Metric 2021 2020 % Change 2021 2020 % Change Total products (number, as of period end) 1,030,882 892,934 15 % 1,030,882 892,934 15 % Origination volume ($ in thousands, during period) Home loans $ 793,086$ 631,666 26 %$ 2,320,918 $ 1,510,797 54 % Personal loans 1,640,572 616,309 166 % 3,740,645 1,966,983 90 % Student loans 967,939 1,035,137 (6) % 2,832,121 3,958,337 (28) % Total$ 3,401,597 $ 2,283,112 49 %$ 8,893,684 $ 7,436,117 20 % Loans with a balance (number, as of period end)(1) 594,730 610,747 (3) % 594,730 610,747 (3) % Average loan balance ($, as of period end)(1) Home loans $ 286,522$ 291,279 (2) % $ 286,522$ 291,279 (2) % Personal loans 22,207 22,394 (1) % 22,207 22,394 (1) % Student loans 49,723 55,878 (11) % 49,723 55,878 (11) %
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(1)Loans with a balance and average loan balance include loans on our balance sheet and transferred loans with which we have a continuing involvement through our servicing agreements. Personal loans also include loans that we service in a referral fulfillment arrangement. The following table presents additional information on our terms for our lending products as ofSeptember 30, 2021 : Product Loan Size Rates(1) Term Student Loan Refinancing Variable rate: 2.25% - 5 - 20 years$5 ,000+ (2) 6.59% Fixed rate: 2.49% - 6.94% In-School Loans Variable rate: 0.99% - 5 - 15 years n/a (2)(3) 11.33% Fixed rate: 2.99% - 10.90% Personal Loans Fixed rate: 4.99% - 2 - 7 years$5,000 -$100,000 (2) 19.63%$100,000 -$747,000 (4) (Conforming 2021 Normal Cost Areas) 10, 15, 20 or 30 Home Loans OR Fixed rate: 1.75% - 4.75% years$1,050,000 (2) (Conforming 2021 High Cost Areas) __________________ (1)Loan annual percentage rates presented reflect an auto-pay discount. (2)Minimum loan size may be higher within certain states due to legal or licensing requirements. (3)Minimum loan size requirement for in-school loans was removed in conjunction with a revised underwriting strategy. (4)Exceptions for loan size less than$100,000 are considered on a case-by-case basis. 106 -------------------------------------------------------------------------------- TABLE OF CONTENTS In the table below, we present additional information related to our lending products: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Student Loans Weighted average origination FICO 775 772 775 774 Weighted average interest rate earned(1) 4.56 % 4.76 % 4.58 % 5.02 % Interest income recognized ($ in thousands) $ 32,210$ 33,831 $ 96,578 $ 101,391 Sales of loans ($ in thousands)(2) $ 922,271$ 852,504 $ 2,469,372 $ 3,799,553 Home Loans Weighted average origination FICO 753 766 756 764 Weighted average interest rate earned(1) 1.94 % 1.63 % 1.83 % 2.37 % Interest income recognized ($ in thousands) $ 1,002$ 498 $ 2,678$ 1,875 Sales of loans ($ in thousands) $ 789,259$ 522,971 $ 2,308,467 $ 1,421,939 Personal Loans Weighted average origination FICO 749 766 754 763 Weighted average interest rate earned(1) 10.70 % 10.67 % 10.67 % 10.54 % Interest income recognized ($ in thousands) $ 55,368$ 46,801 $ 145,574 $ 141,465 Sales of loans ($ in thousands)(2)$ 1,196,798 $ 147,638 $ 2,946,374 $ 1,130,975
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(1)Weighted average interest rate earned represents annualized interest income recognized divided by the average of the month-end unpaid principal balances of loans outstanding during the period, which are impacted by the timing and extent of loan sales. (2)Excludes the impact of loans transferred into consolidated securitizations. Total Products Total products in our Lending segment is a subset of our total products metric that refers to the number of home loans, personal loans and student loans that have been originated through our platform since our inception through the reporting date, whether or not such loans have been paid off. See "- Key Business Metrics" for further discussion of this measure as it relates to our Lending segment. Origination Volume We refer to the aggregate dollar amount of loans originated through our platform in a given period as origination volume. Origination volume is an indicator of the size and health of our Lending segment and an indicator (together with the relevant loan characteristics, such as interest rate and prepayment and default expectations) of revenues and profitability. Changes in origination volume are driven by the addition of new members and existing members, the latter of which at times will either refinance into a new SoFi loan or secure an additional, concurrent loan, as well as macroeconomic factors impacting consumer spending and borrowing behavior. Since the profitability of the Lending segment is largely correlated with origination volume, management relies on origination volume trends to assess the need for external financing to support the Financial Services segment and the expense budgets for unallocated expenses. During the three and nine months endedSeptember 30, 2021 , home loan origination volume increased relative to the corresponding 2020 periods due to an increase in our loan application approval rate and operational efficiencies gained through scale of the platform, which were tempered by risingU.S. treasury rates relative to the 2020 levels, which tends to lower demand for home loans overall and shift demand from refinance originations to purchase originations, the latter of which is a more competitive landscape. During the three and nine months endedSeptember 30, 2021 , personal loan origination volume increased significantly relative to the corresponding 2020 periods, primarily due to the improved economic outlook and consumer confidence levels in the second and third quarters of 2021 relative to the 2020 periods, as there was lower consumer spending behavior during the earlier stages of the COVID-19 pandemic, which we believe decreased the overall demand for debt consolidation loans. We also increased our loan application approval rate during the 2021 periods. Demand for our student loan products decreased modestly during the three months endedSeptember 30, 2021 relative to the corresponding 2020 period, with a continued decrease in the nine-month 2021 period relative to the 2020 period. Demand for both student loan refinancing and in-school loans continued to be unfavorably impacted by the automatic suspension of principal and interest payments on federally-held student loans enacted through the CARES Act inMarch 2020 that was extended by executive action most recently throughJanuary 2022 . 107 -------------------------------------------------------------------------------- TABLE OF CONTENTS Loans with a Balance and Average Loan Balance Loans with a balance refers to the number of loans that have a balance greater than zero dollars as of the reporting date. Loans with a balance allows management to better understand the unit economics of acquiring a loan in relation to the lifetime value of that loan. Average loan balance is defined as the total unpaid principal balance of the loans divided by loans with a balance within the respective loan product category as of the reporting date. Average loan balance tends to fluctuate based on the pace of loan originations relative to loan repayments and the initial loan origination size. Lending Segment Results of Operations The following table presents the measure of contribution profit for the Lending segment for the periods indicated. The information is derived from our internal financial reporting used for corporate management purposes. Refer to Note 17 to the Notes to Unaudited Condensed Consolidated Financial Statements for more information regarding Lending segment performance. Three Months Ended September 30, 2021 vs 2020 Nine Months Ended September 30, 2021 vs 2020 ($ in thousands) 2021 2020 % Change 2021 2020 % Change Net revenue Net interest income$ 72,257 $ 52,222 38 %$ 180,856 $ 142,218 27 % Noninterest income 138,034 109,890 26 % 343,703 189,656 81 % Total net revenue 210,291 162,112 30 % 524,559 331,874 58 % Servicing rights - change in valuation inputs or assumptions(1) (409) 4,671 (109) % 11,924 16,332 (27) % Residual interests classified as debt - change in valuation inputs or assumptions(2) 5,593 11,301 (51) % 19,261 28,815 (33) % Directly attributable expenses(3) (97,807) (75,073) 30 % (261,202) (220,496) 18 % Contribution Profit$ 117,668 $ 103,011 14 %$ 294,542 $ 156,525 88 % ___________________ (1)Reflects changes in fair value inputs and assumptions, including market servicing costs, conditional prepayment and default rates and discount rates. This non-cash change, which is recorded within noninterest income in the consolidated statements of operations and comprehensive income (loss) is unrealized during the period and, therefore, has no impact on our cash flows from operations. As such, the changes in fair value attributable to assumption changes are adjusted to provide management and financial users with better visibility into the cash flows available to finance our operations. (2)Reflects changes in fair value inputs and assumptions, including conditional prepayment and default rates and discount rates. When third parties finance our consolidated securitizations through purchasing residual interests, we receive proceeds at the time of the securitization close and, thereafter, pass along contractual cash flows to the residual interest owner. These obligations are measured at fair value on a recurring basis, with fair value changes recorded within noninterest income in the consolidated statements of operations and comprehensive income (loss). The fair value change attributable to assumption changes has no impact on our initial financing proceeds, our future obligations to the residual interest owner (because future residual interest claims are limited to contractual securitization collateral cash flows), or the general operations of our business. As such, this non-cash change in fair value is adjusted to provide management and financial users with better visibility into the cash flows available to finance our operations. (3)For a disaggregation of the directly attributable expenses allocated to the Lending segment in each of the periods presented, see "-Directly Attributable Expenses" below. Net interest income Net interest income in our Lending segment increased by$20.0 million , or 38%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , and increased by$38.6 million , or 27%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 , due to the following: Three Months - Loans Interest Income. Loan interest income increased by$7.5 million , or 9%, for the three months endedSeptember 30, 2021 compared to the same period in 2020. See "Results of Operations-Interest Income-Three Months - Loans" for information on the primary drivers of the variance related to our personal loans, student loans and home loans. Nine Months - Loans Interest Income. Loan interest income increased by$0.2 million , or 0.1%, for the nine months endedSeptember 30, 2021 compared to the same period in 2020. See "Results of Operations-Interest Income-Nine Months - Loans" for information on the primary drivers of the variance related to our personal loans, student loans and home loans. Three Months - Securitizations Interest Income. Securitizations interest income decreased by$2.3 million , or 44%, for the three months endedSeptember 30, 2021 compared to the same period in 2020. See "Results of Operations-Interest Income-Three Months - Securitizations" for information on the primary drivers of the variance. 108 -------------------------------------------------------------------------------- TABLE OF CONTENTS Nine Months - Securitizations Interest Income. Securitizations interest income decreased by$7.6 million , or 40%, for the nine months endedSeptember 30, 2021 compared to the same period in 2020. See "Results of Operations-Interest Income-Nine Months - Securitizations" for information on the primary drivers of the variance. Three and Nine Months - Securitizations and Warehouses Interest Expense. Interest expense related to securitizations and warehouses decreased by$14.9 million , or 44%, for the three months endedSeptember 30, 2021 compared to the same period in 2020 and decreased by$46.1 million , or 38%, for the nine months endedSeptember 30, 2021 compared to the same period in 2020 primarily due to: •declines in securitization debt interest expense (exclusive of debt issuance and discount amortization) of$6.2 million for the three-month period and$24.9 million for the nine-month period; •declines in warehouse debt interest expense (exclusive of debt issuance amortization) of$5.1 million for the three-month period and$12.8 million for the nine-month period; •declines in residual interests classified as debt interest expense of$0.7 million for the three-month period and$3.6 million for the nine-month period; and •declines in debt issuance cost interest expense of$3.0 million for the three-month period and$4.8 million for the nine-month period. See "Results of Operations-Interest Expense-Securitizations and Warehouses" for information on the primary drivers of the variances. Noninterest income Noninterest income in our Lending segment increased by$28.1 million , or 26%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , and increased by$154.0 million , or 81%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 , due to the following: Three Months - Loan Origination and Sales. Loan origination and sales increased by$38.3 million , or 37%, for the three months endedSeptember 30, 2021 compared to the same period in 2020. See "Results of Operations-Noninterest Income and Net Revenue-Three Months - Loan Origination and Sales" for information on the primary drivers of the variance. Nine Months - Loan Origination and Sales. Loan origination and sales increased by$91.1 million , or 34%, for the nine months endedSeptember 30, 2021 compared to the same period in 2020. See "Results of Operations-Noninterest Income and Net Revenue-Nine Months - Loan Origination and Sales" for information on the primary drivers of the variance. Three Months - Securitizations. Securitizations income decreased by$17.3 million , or 136%, during the three months endedSeptember 30, 2021 compared to the same period in 2020. See "Results of Operations-Noninterest Income and Net Revenue-Three Months - Securitizations" for information on the primary drivers of the variance. Nine Months - Securitizations. Securitizations income improved by$56.4 million , or 90%, for the nine months endedSeptember 30, 2021 compared to the same period in 2020. See "Results of Operations-Noninterest Income and Net Revenue-Nine Months - Securitizations" for information on the primary drivers of the variance. Three Months - Servicing. Servicing income increased by$7.1 million , or 107%, for the three months endedSeptember 30, 2021 compared to the same period in 2020. See "Results of Operations-Noninterest Income and Net Revenue-Three Months - Servicing" for information on the primary drivers of the variance. Nine Months - Servicing. Servicing income increased by$6.4 million , or 35%, for the nine months endedSeptember 30, 2021 compared to the same period in 2020. See "Results of Operations-Noninterest Income and Net Revenue-Nine Months - Servicing" for information on the primary drivers of the variance. 109 -------------------------------------------------------------------------------- TABLE OF CONTENTS Directly attributable expenses The directly attributable expenses allocated to the Lending segment that were used in the determination of the segment's contribution profit were as follows: Three Months Ended September Nine Months Ended 30, 2021 vs 2020 September 30, 2021 vs 2020 ($ in thousands) 2021 2020 % Change 2021 2020 % Change Direct advertising$ 31,581 $ 26,817 18 %$ 88,897 $ 78,367 13 % Compensation and benefits 23,697 20,409 16 % 66,004 61,319 8 % Loan origination and servicing costs 15,810 10,835 46 % 43,347 29,574 47 % Lead generation 17,278 5,076 240 % 35,690 19,647 82 % Unused warehouse line fees 3,006 4,575 (34) % 8,841 10,902 (19) % Professional services 1,896 1,382 37 % 4,593 5,253 (13) % Other(1) 4,539 5,979 (24) % 13,830 15,434 (10) % Directly attributable expenses$ 97,807 $ 75,073 30 %$ 261,202 $ 220,496 18 %
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(1)Other expenses primarily include loan marketing expenses, tools and subscriptions, and occupancy-related costs. Lending segment directly attributable expenses for the three and nine months endedSeptember 30, 2021 increased by$22.7 million , or 30%, and$40.7 million , or 18%, compared to the three and nine months endedSeptember 30, 2020 , respectively, primarily due to: •increases of$4.8 million for the three-month period and$10.5 million for the nine-month period in direct advertising related to an increase in search engine, digital and social media advertising expenditures. During the nine-month period, an additional increase in television advertising expenditures was offset by a decline in direct mail marketing expenditures; •increases of$5.0 million for the three-month period and$13.8 million for the nine-month period in loan origination and servicing costs, which supported our growth in origination volume period over period, primarily in home loans; •increases of$12.2 million for the three-month period and$16.0 million for the nine-month period due to increasing utilization of lead generation channels associated with increased personal loan origination volume in both 2021 periods. The increase in the nine-month period was partially offset by lower student loan origination volume through lead generation channels; •decreases of$1.4 million for the three-month period and$1.6 million for the nine-month period in other expenses, primarily related to decreases in occupancy-related costs. Additionally, the decrease in the nine-month period was partially offset by servicing receivable bad debt expense in the first quarter of 2021; •increases of$3.3 million for the three-month period and$4.7 million for the nine-month period in allocated compensation and related benefits, which primarily reflected increased lending initiatives during 2021; •decreases of$1.6 million for the three-month period and$2.1 million for the nine-month period in unused warehouse line fees due to higher average committed warehouse line usage and lower unused fee rates; and •an increase of$0.5 million for the three-month period in professional services costs primarily related to advisory services. For the nine-month period, professional services costs decreased$0.7 million primarily related to a decrease in the use of our third-party consultants for our operations and technology teams during the first and second quarters of 2021, partially offset by an increase in advisory services in the third quarter of 2021. 110 -------------------------------------------------------------------------------- TABLE OF CONTENTS Technology Platform Segment In the table below, we present a metric that is related to Galileo within our Technology Platform segment: 2021 vs 2020 September 30, 2021 September 30, 2020 % Change Total accounts 88,811,022 49,276,594 80 % In our Technology Platform segment, total accounts refers to the number of open accounts at Galileo as of the reporting date, excluding SoFi accounts, as such accounts are eliminated in consolidation. Total accounts is a primary indicator of the amount of accounts that are dependent upon Galileo's technology platform to use virtual card products, virtual wallets, make peer-to-peer and bank-to-bank transfers, receive early paychecks, separate savings from spending balances and rely upon real-time authorizations, all of which result in technology platform fees for the Technology Platform segment. Technology Platform Segment Results of Operations The following table presents the measure of contribution profit for the Technology Platform segment for the periods indicated. The information is derived from our internal financial reporting used for corporate management purposes. Refer to Note 17 to the Notes to Unaudited Condensed Consolidated Financial Statements for further information regarding Technology Platform segment performance. Three Months Ended September Nine Months Ended 30, 2021 vs 2020 September 30, 2021 vs 2020 ($ in thousands) 2021 2020 % Change 2021 2020 % Change Net revenue Net interest income (loss)$ 39 $ (47) (183) %$ (29) $ (65) (55) % Noninterest income 50,186 38,865 29 % 141,616 58,899 140 % Total net revenue 50,225 38,818 29 % 141,587 58,834 141 % Directly attributable expenses(1) (34,484) (14,832) 132 % (97,148) (21,751) 347 % Contribution Profit$ 15,741 $ 23,986 (34) %$ 44,439 $ 37,083 20 %
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(1)For a disaggregation of the directly attributable expenses allocated to the Technology Platform segment in each of the periods presented, see "-Directly Attributable Expenses" below. Noninterest income Noninterest income in our Technology Platform segment increased by$11.3 million , or 29%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , and increased by$82.7 million , or 140%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 , due to the following: Three and Nine Months - Technology Platform Fees. Technology Platform fees increased by$14.5 million , or 41%, for the three months endedSeptember 30, 2021 compared to the same period in 2020 and by$89.0 million , or 172%, for the nine months endedSeptember 30, 2021 compared to the same period in 2020. See "Results of Operations-Noninterest Income and Net Revenue-Technology Platform Fees" for information on the primary drivers of the variance. Three and Nine Months - Other. Other income decreased by$3.2 million , or 93%, for the three months endedSeptember 30, 2021 compared to the same period in 2020 and by$6.2 million , or 86%, for the nine months endedSeptember 30, 2021 compared to the same period in 2020, which was primarily related to equity method investment income during the 2020 periods that did not recur, as our Apex equity method investment was called in the first quarter of 2021. 111 -------------------------------------------------------------------------------- TABLE OF CONTENTS Directly attributable expenses The directly attributable expenses allocated to the Technology Platform segment, which are related to the operations of Galileo, that were used in the determination of the segment's contribution profit were as follows: Three Months Ended September Nine Months Ended 30, 2021 vs 2020 September 30, 2021 vs 2020 ($ in thousands) 2021 2020 % Change 2021 2020 % Change Compensation and benefits$ 17,469 $ 6,718 160 %$ 49,971 $ 9,858 407 % Product fulfillment 8,696 4,911 77 % 23,154 7,239 220 % Professional services 912 230 297 % 4,828 321 n/m Tools and subscriptions 2,840 1,510 88 % 7,433 2,153 245 % Other(1) 4,567 1,463 212 % 11,762 2,180 440 % Directly attributable expenses$ 34,484 $ 14,832 132 %$ 97,148 $ 21,751 347 % ___________________ (1)Other expenses are primarily related to marketing, occupancy-related costs, bad debt and data center expenses and other costs associated with the operation of our technology platform-as-a-service. The increase in Technology Platform directly attributable expenses for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 in each of the expense categories was partially impacted by the timing of our acquisition of Galileo during the second quarter of 2020 compared to full period results in the 2021 period. The increases in the three- and nine-month periods were also primarily driven by the following: •increases of$10.8 million for the three-month period and$40.1 million for the nine-month period in compensation and benefits expense, which was correlated with an increase in Galileo and other allocated personnel to support segment growth, as well as an increase in average compensation during both 2021 periods; •increases of$3.8 million for the three-month period and$15.9 million for the nine-month period in product fulfillment costs, primarily related to payment processing network association fees associated with increased activity on the platform. These fees grew by 54% and 202% during the three and nine-month 2021 periods, respectively, compared to 2020, which correlated with growth of 41% and 172%, respectively, in technology platform fees; •increases of$0.7 million for the three-month period and$4.5 million for the nine-month period in professional services costs related to third-party technology and product consulting for technology infrastructure support; •increases of$1.3 million for the three-month period and$5.3 million for the nine-month period in tools and subscriptions related to headcount increases and internal technology initiatives to support the growth of the platform; and •increases of$3.1 million for the three-month period and$9.6 million for the nine-month period in other expenses, which was primarily related to data center expenses, which correlated with the growth in accounts on the Galileo platform, bad debt expense, which correlated with growing contract assets from increasing technology platform revenue, occupancy-related costs and general marketing expenses. Financial Services Segment Financial Services Segment Results of Operations The following table presents the measure of contribution loss for the Financial Services segment for the periods indicated. The information is derived from our internal financial reporting used for corporate management purposes. Refer to Note 17 to 112 -------------------------------------------------------------------------------- TABLE OF CONTENTS the Notes to Unaudited Condensed Consolidated Financial Statements for further information regarding Financial Services segment performance. Three Months Ended September 30, 2021 vs 2020 Nine Months Ended September 30, 2021 vs 2020 ($ in thousands) 2021 2020 % Change 2021 2020 % Change Net revenue Net interest income$ 1,209 $ 98 n/m$ 1,980 $ 396 400 % Noninterest income 11,411 3,139 264 % 34,142 7,423 360 % Total net revenue 12,620 3,237 290 % 36,122 7,819 362 % Directly attributable expenses(1) (52,085) (40,704) 28 % (135,851) (103,162) 32 % Contribution loss$ (39,465) $ (37,467) 5 %$ (99,729) $ (95,343) 5 % ___________________ (1)For a disaggregation of the directly attributable expenses allocated to the Financial Services segment in each of the periods presented, see "-Directly Attributable Expenses" below. Net interest income Net interest income in our Financial Services segment increased by$1.1 million for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , and by$1.6 million , or 400%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . The increases were primarily attributable to interest income on credit card loans, which launched during the third quarter of 2020. Noninterest income Noninterest income in our Financial Services segment increased by$8.3 million , or 264%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , and increased by$26.7 million , or 360%, for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 , primarily due to the following: •increases in brokerage-related fees of$3.3 million for the three-month period and$13.9 million for the nine-month period, which coincided with increases in digital assets trading volume on our platform during the 2021 periods, and payment network fees of$1.2 million for the three-month period and$3.0 million for the nine-month period. The nine-month variance was also impacted by an increase of$2.6 million in enterprise service fees, which primarily consisted of advisory service fees; •underwriting revenues of$0.3 million for the three-month period and$2.0 million for the nine-month period; and •increases in referral fees of$3.0 million for the three-month period and$5.7 million for the nine-month period, which were primarily attributable to growth in our partner relationships and related activity, as we continue to onboard new partners and help drive volume to these partners, as well as an increase associated with a referral fulfillment arrangement we entered into in the third quarter of 2021. 113 -------------------------------------------------------------------------------- TABLE OF CONTENTS Directly attributable expenses The directly attributable expenses allocated to the Financial Services segment that were used in the determination of the segment's contribution loss were as follows: Three Months Ended September Nine Months Ended 30, 2021 vs 2020 September 30, 2021 vs 2020 ($ in thousands) 2021 2020 % Change 2021 2020 % Change Compensation and benefits$ 22,087 $ 20,231 9 %$ 60,671 $ 59,107 3 % Product fulfillment 6,539 2,753 138 % 16,656 7,982 109 % Member incentives 4,456 3,020 48 % 13,746 7,157 92 % Direct advertising 6,299 3,328 89 % 13,097 5,875 123 % Professional services 1,003 1,821 (45) % 3,407 4,538 (25) % Provision for credit losses 2,401 - n/m 2,887 - n/m Other(1) 9,300 9,551 (3) % 25,387 18,503 37 % Directly attributable expenses$ 52,085 $ 40,704 28 %$ 135,851 $ 103,162 32 %
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(1)Other expenses primarily include lead generation, tools and subscriptions,SoFi Money , SoFi Invest and SoFi Credit Card account write-offs and occupancy-related and marketing-related expenses. Financial Services directly attributable expenses for the three and nine months endedSeptember 30, 2021 increased by$11.4 million , or 28%, and$32.7 million , or 32%, compared to the three and nine months endedSeptember 30, 2020 , respectively, primarily due to the following: •increases of$1.9 million for the three-month period and$1.6 million for the nine-month period in compensation and benefits expense, which were consistent with our ongoing prioritization of growth in the Financial Services segment; •increases of$3.8 million for the three-month period and$8.7 million for the nine-month period in product fulfillment costs related to SoFi Invest andSoFi Money , which included such activities as operating our cash management sweep program, brokerage expenses and debit card fulfillment services, and is also inclusive of the impact of our 8 Limited acquisition on a full nine-month period of operations during 2021. In addition, corresponding with our launch of our credit card product during the third quarter of 2020, we had additional costs related to credit card fulfillment, which had a more significant impact on both 2021 periods; •increases of$1.4 million for the three-month period and$6.6 million for the nine-month period primarily related to direct member incentives for ourSoFi Money product. The nine-month period increase was also attributable to our SoFi Invest product; •increases of$3.0 million for the three-month period and$7.2 million for the nine-month period in direct advertising costs. The three-month period increase was primarily driven by an increase in search engine marketing. During the nine-month period, we had increased social media and search engine marketing costs. All marketing initiatives were primarily related to the continued promotion of, and growth in, our Financial Services products; •increases of$2.4 million for the three-month period and$2.9 million for the nine-month period related to our provision for credit losses on our credit card product, which launched during the third quarter of 2020 and, therefore, did not have meaningful activity during the 2020 periods; •decreases of$0.8 million for the three-month period and$1.1 million for the nine-month period in professional services costs. The three-month period decrease was primarily related to reduced third-party technology and product consulting forSoFi Money . The decrease for the nine-month period was primarily related to reduced third-party consulting forSoFi Money , Lantern Credit and SoFi Relay, partially offset by an increase for SoFi Invest; and •other expenses were consistent for the three-month period and increased$6.9 million during the nine-month period. The three-month period change was primarily attributable to increases in lead generation costs, general marketing, and account losses in SoFi Invest and SoFi Credit Card, offset by decreases inSoFi Money -related operational losses. The nine-month period increase was primarily attributable to the same directional changes noted for the three-month period, albeit with significantly higher lead generation costs during the 2021 period. 114 -------------------------------------------------------------------------------- TABLE OF CONTENTS Reconciliation of Directly Attributable Expenses The following table reconciles directly attributable expenses allocated to our reportable segments to total noninterest expense in the consolidated statements of operations and comprehensive income (loss) for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Reportable segments directly attributable expenses$ (184,376) $
(130,609) $ (494,201)
(72,681) (26,551) (162,289) (69,781)
Depreciation and amortization expense (24,075) (24,676) (75,041) (44,346)
Fair value changes in warrant liabilities 64,405 (4,353) (96,504) (6,371)
Employee-related costs(1) (39,601) (29,022) (108,825) (85,315)
Special payment(2) - - (21,181) -
Other corporate and unallocated expenses(3) (45,544) (28,262) (112,946) (83,775)
Total noninterest expense $ (301,872) $
(243,473)
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(1)Includes compensation, benefits, recruiting, certain occupancy-related costs and various travel costs of executive management, certain technology groups and general and administrative functions that are not directly attributable to the reportable segments. (2)Represents a special payment to the Series 1 preferred stockholders in connection with the Business Combination. See Note 10 to the Notes to Unaudited Condensed Consolidated Financial Statements for additional information. (3)Includes corporate overhead costs that are not allocated to reportable segments, such as certain tools and subscription costs, corporate marketing costs and professional services costs. Liquidity and Capital Resources We require substantial liquidity to fund our current operating requirements, which primarily include loan originations and the losses generated by our Financial Services segment. We expect these requirements to increase as we pursue our strategic growth goals. Historically, our Lending cash flow variability has related to loan origination volume, our available funding sources and utilization of our warehouse facilities. Moreover, given our continued growth initiatives, we have seen variability in financing cash flows due to the timing and extent of common stock and redeemable preferred stock raises, redemptions and additional uses and repayments of debt. DuringFebruary 2021 , we paid off the seller note issued in 2020 in connection with our acquisition of Galileo, inclusive of all outstanding interest payable, for a total payment of$269.9 million . Remaining operating cash flow variability is largely related to our investments in our business, such as technology and product investments and sales and marketing initiatives, as well as our operating lease facilities. Our capital expenditures have historically been immaterial relative to our operating and financing cash flows, and we expect this trend to continue for the foreseeable future. We received substantial proceeds from the recent Business Combination and the sale, in connection with the Business Combination, of 122,500,000 shares of SCH common stock at$10.00 per share (which automatically converted into shares ofSoFi Technologies common stock) (the "PIPE Investment ") during the second quarter of 2021, which provided significant liquid resources, as further discussed herein. To continue to achieve our liquidity objectives, we analyze and monitor liquidity needs and strive to maintain excess liquidity and access to diverse funding sources. We define our liquidity risk as the risk that we will not be able to: •Originate loans at our current pace, or at all; •Sell our loans at favorable prices, or at all; •Meet our contractual obligations as they become due; •Increase or extend the maturity of our revolving credit facility capacity; •Fund continued operating losses in our business, especially if such operating losses continue at the current level for an extended period of time; or •Make future investments in the necessary technological and operating infrastructure to support our business. During the nine months endedSeptember 30, 2021 and 2020, we generated negative cash flows from operations. The primary driver of operating cash flows related to our Lending segment are origination volume, the holding period of our loans, loan sale execution and, to a lesser extent, the timing of loan repayments. We either fund our loan originations entirely using our own capital, through proceeds from securitization transactions, or receive an advance rate from our various warehouse facilities to finance the majority of the loan amount. Our cash flows from operations were also impacted by material net losses 115 -------------------------------------------------------------------------------- TABLE OF CONTENTS in both the nine-month 2021 and 2020 periods. The net losses were primarily driven by our technology and product investments and sales and marketing initiatives, which benefit each of our reportable segments, although our Financial Services segment historically has not generated material net revenues. Our practice of not charging account or trading fees on the majority of our products within the Financial Services segment could result in sustained negative cash flows generated from the Financial Services segment in the short and long term. If our current net losses continue for the foreseeable future, we may raise additional capital in the form of equity or debt, which may not be at favorable terms when compared to previous financing transactions. Historically, we primarily utilized our revolving credit facility capacity and additional equity proceeds to fund the portion of our current net loss unrelated to our loan origination activities. Our revolving credit facility had remaining capacity of$74.0 million as ofSeptember 30, 2021 , of which$6.0 million was not available for general borrowing purposes because it was utilized to secure the uncollateralized portion of certain letters of credit issued to secure certain of our operating lease obligations. As ofSeptember 30, 2021 , the remaining$3.3 million of the$9.3 million letters of credit outstanding was collateralized by cash deposits with the banking institution, which were presented within restricted cash and restricted cash equivalents in the consolidated balance sheets. Our warehouse facility and securitization debt is secured by a continuing lien on, and security interest in, the loans financed by the proceeds. We have various affirmative and negative financial covenants, as well as non-financial covenants, related to our warehouse debt and revolving credit facility, as well as our Series 1 preferred stock. We were in compliance with all covenants as ofSeptember 30, 2021 . Our operating lease obligations consist of our leases of real property from third parties under non-cancellable operating lease agreements, which primarily include the leases of office space, as well as our rights to certain suites and event space withinSoFi Stadium , which commenced in the third quarter of 2020 and the latter of which we apply the short-term lease exemption practical expedient and do not capitalize the lease obligation. Our finance lease obligations consist of our rights to certain physical signage withinSoFi Stadium , which commenced in the third quarter of 2020. Additionally, our securitization transactions require us to maintain a continuing financial interest in the form of securitization investments when we deconsolidate the special-purpose entity ("SPE") or in consolidation of the SPE when we have a significant financial interest. In either instance, the continuing financial interest requires us to maintain capital in the SPE that would otherwise be available to us if we had sold loans through a different channel. We are currently dependent on the success of our Lending segment. Our ability to access whole loan buyers and to sell our loans on favorable terms, maintain adequate warehouse capacity at favorable terms and limit our continuing financial interest in securitization-related transfers is critical to our growth strategy and our ability to have adequate liquidity to fund our balance sheet. As it relates to securitization-related transfers, there is no guarantee that we will be able to find purchasers of securitization residual interests or that we will be able to execute loan transfers at favorable price points. Therefore, we may hold securitization interests for longer than planned or be forced to liquidate at suboptimal prices. Securitization transfers are also negatively impacted during recessionary periods, wherein purchasers may be more risk averse. Further, future uncertainties around the demand for our personal loans and around the student loan refinance market in general should be considered when assessing our future liquidity and solvency prospects. Through the CARES Act that was passed during 2020 in response to the COVID-19 pandemic and subsequent extensions, principal and interest payments on federally-held student loans have been suspended throughJanuary 2022 , which has lowered the propensity for borrowers to refinance into SoFi student loans relative to pre-COVID levels. To the extent that additional measures, such as student loan forgiveness, are implemented, it may negatively impact our future student loan origination volume. In addition, we have previously altered our credit strategy to defend against adverse credit consequences during recessionary periods, as we did following the outbreak of COVID-19, although those elevated credit eligibility requirements for personal loans were adapted during the first half of 2021 through phases of reopening following our metric-driven, return-to-normalcy action plan. In the future, our loan origination volume and our resulting loan balances, and any positive cash flows thereof, could be lower based on strategic decisions to tighten our credit standards. See "- Key Factors Affecting Operating Results - Industry Trends and General Economic Conditions" and "- Business Overview - COVID-19 Pandemic" for discussions of the impact of certain measures taken in response to the COVID-19 pandemic on our loan origination volumes and uncertainties that exist with respect to future operations in light of the continued pandemic. 116 -------------------------------------------------------------------------------- TABLE OF CONTENTS Our commitments requiring the use of capital in future periods are primarily composed of: •warehouse facility borrowings of$1.5 billion , which carry variable interest rates and have terms expiring throughJanuary 2030 . See Note 9 to the Notes to Unaudited Condensed Consolidated Financial Statements for additional key terms; •revolving credit facility borrowings of$496.5 million , which includes principal balance and variable interest, assuming (i) such interest remains unchanged, (ii) the borrowings are held to maturity, and (iii) interest is incurred at the rate for standard withdrawals in effect as ofSeptember 30, 2021 . See Note 9 for additional information; •operating lease obligations of$170.1 million , primarily composed of leases of office premises with terms expiring from 2021 through 2031, as well as operating leases associated withSoFi Stadium , which expire in 2040; •finance lease obligations of$19.3 million , composed of our rights to certain physical signage withinSoFi Stadium , which expire in 2040; and •the remaining commitment arising out of our agreement (which does not include the foregoing operating lease and finance lease obligations, but includes certain payments for which we are applying the short-term lease exemption) for the naming and sponsorship rights toSoFi Stadium of$546.1 million , which pertain primarily to sponsorship and advertising opportunities related to the stadium itself, as well as the surrounding performance venue and planned retail district. See Note 15 to the Notes to Unaudited Condensed Consolidated Financial Statements for additional information on ourSoFi Stadium arrangement, including a contingent matter associated withSoFi Stadium payments. As it relates to our securitization debt, the maturity of the notes issued by the various trusts occurs upon either the maturity of the loan collateral or full payment of the loan collateral held in the trusts, the timing of which cannot be reasonably estimated. Our own liquidity resources are not required to make any contractual payments on our securitization borrowings. We may require liquidity resources associated with our guarantee arrangements. We have a three-year obligation toFNMA on loans that we sell toFNMA , to repurchase any originated loans that do not meetFNMA guidelines, and we are required to pay the full initial purchase price back toFNMA . In addition, we make standard representations and warranties related to other student, personal and non-FNMA home loan transfers, as well as limited credit-related repurchase guarantees on certain such transfers. If realized, any of the repurchases would require the use of cash. See Note 1 and Note 15 to the Notes to Unaudited Condensed Consolidated Financial Statements for further information on our guarantee obligations. We believe we have adequate liquidity to meet these expected obligations. Our long-term liquidity strategy includes maintaining adequate revolving credit facility capacity and seeking additional sources of financing. Although our goal is to increase our cash flow from operations, there can be no assurance that our future operating plans will lead to improved operating cash flows. We had unrestricted cash and cash equivalents of$533.5 million and$872.6 million as ofSeptember 30, 2021 andDecember 31, 2020 , respectively. We believe our existing cash and cash equivalents balance, investments in AFS debt securities, available capacity under our revolving credit facility (and expected extensions or replacements of the facility), together with additional warehouses or other financing we expect to be able to obtain at reasonable terms and cash proceeds received from the Business Combination, will be sufficient to cover net losses, meet our existing working capital and capital expenditure needs, as well as our planned growth for at least the next 12 months. Our non-securitization loans also represent a key source of liquidity for us, and should be considered in assessing our overall liquidity. We have relationships with whole loan buyerswho we believe we will be able to continue to rely on to generate near-term liquidity. Securitization markets can also generate additional liquidity, albeit to a lesser extent, as it involves accessing a much less liquid securitization residual investment market, and in certain cases we are required to maintain a minimum investment due to securitization risk retention rules. We received gross cash consideration from the Business Combination of$764.8 million , from which we made payments totaling$27.0 million during the nine months endedSeptember 30, 2021 for costs directly attributable to the issuance of common stock in connection with the Business Combination. Additionally, we used a portion of the funds for the repurchase of certain redeemable common stock from a shareholder for$150.0 million and for a special payment to Series 1 preferred stockholders for$21.2 million in accordance with the Agreement. In addition, we received gross cash consideration of$1,225.0 million from thePIPE Investment . The remaining net cash proceeds were utilized by the Company to help fund future strategic and capital needs, including repayment of$1.5 billion of loan warehouse facility debt inJune 2021 . InOctober 2021 , we closed on the issuance and sale of convertible senior notes. See "-Borrowings" herein for additional information. 117
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TABLE OF CONTENTS InNovember 2021 , we announced that we will redeem all outstandingSoFi Technologies warrants that remain outstanding onDecember 6, 2021 (the "Redemption Date") for a redemption price of$0.10 per warrant. The Warrants may be exercised by the holders thereof until the Redemption Date to purchase fully paid and non-assessable shares of common stock underlying such warrants. The payment upon exercise of the warrants may be made either (i) in cash, at an exercise price of$11.50 per share of common stock, or (ii) on a "cashless basis" in which the exercising holder will receive a number of shares of common stock to be determined in accordance with the terms of the warrant agreement and based on the Redemption Date and the fair market value of the common stock during the 10 trading days immediately following the date on which the notice of redemption was sent to holders of warrants. Any warrants that remain unexercised on the Redemption Date will be void and no longer exercisable, and the holders of those warrants will be entitled to receive only the redemption price of$0.10 per warrant. See Note 18 to the Notes to Unaudited Condensed Consolidated Financial Statements for additional information.
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