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 our Annual Report on Form 10-K filed with theSEC onMarch 1, 2022 . 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.
Business Overview
We are a member-centric, one-stop shop for financial services that, through our Lending and Financial Services products, allows members to borrow, save, spend, invest and protect their money. We refer to our customers as "members". 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 offerings as ofSeptember 30, 2022 were as follows: Lending Technology Platform Financial Services SoFi Money (SoFi Checking Technology Products and and Savings and cash • Student Loans(1) • Solutions • management accounts) • Loan
referrals
• Personal Loans • SoFi Invest(2) • SoFi At Work
• Home Loans • SoFi Relay • SoFi Protect
• SoFi Credit Card • Lantern Credit
• Equity capital markets
and advisory services
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(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. SoFi Invest also
includes our brokerage accounts through 8 Limited in
Members. We offer our members (as defined under "Key Business Metrics") a suite of financial products and services, enabling them to borrow, save, spend, invest and protect their finances across 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. 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 ourFinancial Services Productivity Loop . Enterprises. 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 called SoFi At Work, and have become interconnected with the SoFi platform. We have continued to expand our platform capabilities for enterprises through our acquisition of Galileo in 2020, which provides technology platform services to financial and non-financial institutions and which has allowed us to vertically integrate across more of our financial services, and the Technisys Merger in the first quarter 68
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of 2022, through which we expanded our technology platform services to a broader international market. We believe that these expansions will deepen our participation in the entire technology ecosystem powering digital financial services, allowing us to not only reduce costs to operate our member-centric business, but also deliver increasing value to our enterprise customers. While our enterprises are not considered members, they are important contributors to the growth of the SoFi platform, and also have their own constituents who might benefit from our products in the future. International Operations. While we primarily operate inthe United States , we expanded intoHong Kong with our acquisition of 8 Limited (an investment business) in 2020, we gained clients inCanada ,Mexico andColombia with our acquisition of Galileo in 2020, and we further expanded intoLatin America with the Technisys Merger in 2022. NationalBank Charter . InFebruary 2022 , we closed the Bank Merger, pursuant to which we acquired all of the outstanding equity interests inGolden Pacific Bancorp, Inc. and its wholly-owned subsidiary,Golden Pacific Bank , a national bank. Upon closing the Bank Merger, we became a bank holding company and Golden Pacific began operating asSoFi Bank . Golden Pacific's community bank business continues to operate as a division ofSoFi Bank . As a bank holding company, we offer SoFi Checking and Savings accounts held atSoFi Bank . Additionally, we are originating all new loan applications withinSoFi Bank and transferred SoFi Credit Card and the majority of other lending products toSoFi Bank . We intend to continue to explore other products forSoFi Bank over time. The key current and expected financial benefits to us of operating a national bank include: (i) lowering our cost to fund loans, as we can utilize deposits held atSoFi Bank to fund loans, which have a lower borrowing cost of funds than our warehouse and securitization financing model, (ii) increasing our flexibility to hold loans on our balance sheet for longer periods, thereby enabling us to earn interest on these loans for a longer period, and (iii) supporting origination volume growth by providing an alternative financing option, while also maintaining our warehouse capacity. See Part II, Item 1A "Risk Factors" for a discussion of certain potential risks related to being a bank holding company.
Our Reportable Segments
We conduct our business through three reportable segments: Lending, Technology
Platform and Financial Services. In the first quarter of 2022, we implemented a
funds transfer pricing ("FTP") framework to attribute net interest income to our
business segments based on their usage and/or provision of funding. See Note 17
to the Notes to Unaudited Condensed Consolidated Financial Statements for
additional information on the FTP framework.
Lending Segment
We offer personal loans, student loans and home loans and related servicing. Our lending process primarily leverages an in-application, digital borrowing experience, which we believe serves as a competitive advantage as digital lending becomes increasingly ubiquitous.
A key element of our underwriting process is the ability to facilitate risk-based interest rates that are appropriate for each loan using proprietary risk models through which 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. Although our lending business remains primarily a gain-on-sale model, whereby we seek to originate loans, recognize a gain from these loans and sell them into either our whole loan or securitization channels, operatingSoFi Bank also provides us with more flexibility to hold loans on our balance sheet for longer periods, thereby enabling us to earn interest on these loans for a longer period. We sell our whole loans primarily to large financial institutions, such as bank holding companies, for which we target 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. In securitization transactions that do not qualify for sale accounting, the related assets remain on our 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, and with the exception of certain of our home loans, we also continue to retain servicing rights to our originated loans following transfer. 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 our ecosystem that we originate and on which we retain servicing, which provides a meaningful data asset. 69
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Prior to selling our loans, we rely upon deposits, warehouse financing and our own capital to enable us to expand our origination capabilities. We believe our ability to utilize deposits held atSoFi Bank to fund our loans can continue to lower our overall cost of asset-backed financing over time. 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. In the first quarter of 2022, we implemented an FTP framework to attribute net interest income to our business segments based on their usage and/or provision of funding, under which Lending segment net interest income represents the difference between interest income earned on our loans and an FTP charge for the segment's use of funds to originate loans, which can fluctuate based on changes in interest rates, funding curves, the composition of our balance sheet and the availability of capital.
Technology Platform Segment
Our Technology Platform segment consists of Galileo, which we acquired inMay 2020 , and Technisys, which we acquired inMarch 2022 . Galileo is 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. Technisys is a cloud-native digital and core banking platform with financial services customers predominantly inLatin America . Through Technisys, we earn technology product and solutions revenue through sales of software licenses and provision of maintenance and support services related to those software licenses. We also provide additional technology solutions for our customers as their business needs evolve over time, which we refer to as "evolution labs." Many technology platform segment contracts are multi-year contracts. In certain of our contracts, we provide for a variety of integrated platform services, which vary by client and are 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. Some of these contracts contain minimum monthly payments with agreed upon monthly service levels and may contain penalties if service levels are not met. Our technology platform software licenses are either perpetual or term based, and are recognized at a point in time, with the transaction price dependent upon the enforceable term of the software license in the case of a term-based license. We also have arrangements that are time and materials based, wherein the contractual term varies by customer. Finally, maintenance and support services are performed over time, and typically have a defined period of service.
Financial Services Segment
Our digital suite of financial services products, by nature, provides more daily interactions with our members and is, therefore, differentiated from our lending products, which inherently have less consistent touchpoints with our members. We offer a suite of financial services solutions, some of which include: •SoFi Checking and Savings: Provides a digital banking experience. Following the Bank Merger, we began to allow members to convert their cash management accounts into SoFi Checking and Savings accounts held atSoFi Bank . EffectiveJune 5, 2022 , our cash management accounts no longer earn interest, as we implemented our plan to build new features only for SoFi Checking and Savings and reduced support of our cash management accounts.
•SoFi Invest: A mobile-first investment platform offering members access to trading and advisory solutions, such as active investing, robo-advisory and digital assets accounts.
•SoFi Credit Card: Features no annual fee and is designed to help our members save, invest and pay down debt through a variable rewards program, with higher rewards offerings when redeeming into other SoFi products.
•Loan referrals: A service through which we present loan referral leads to our enterprise partner customers.
•SoFi Relay: A personal finance management product that allows members to track all of their financial accounts in one place and utilize credit score monitoring services. •SoFi At Work: A service through which we partner with other enterprises looking for a seamless way to provide financial benefits to their employees, such as student loan payments made on their employees' behalf. •Lantern Credit: A financial services marketplace platform developed to help applicants that do not qualify for SoFi products with alternative products from other providers, as well as to provide a product comparison experience.
We primarily earn revenues in connection with our Financial Services segment 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
users who
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do not use one of our product offerings, but who 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, we entered into a referral arrangement whereby we earn referral fulfillment fees for providing pre-qualified borrower referrals to a third-party partner who separately contracts with a loan originator. The referral fulfillment fee is determined as either of two fixed amounts based on the aggregate origination principal balance of the loan. •Brokerage fees: We earn brokerage fees from our share lending and payment for order flow arrangements related to our SoFi Invest product, exchange conversion services and digital assets activity. In our share lending arrangements and payment for order flow arrangements, we benefit through a negotiated multi-year revenue sharing arrangement, since our members' brokerage activity drives the share lending and payment for order flow volume. 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. •Payment network fees: We earn payment network fees, which primarily constitute interchange fees from our SoFi-branded debit cards and our SoFi Credit Card product, which are reduced by fees payable to card associations and our fulfillment partners. These fees are remitted by merchants and are calculated by multiplying a set fee percentage 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. As we continue to transition our cash management accounts to SoFi Checking and Savings accounts held atSoFi Bank , we expect to decrease certain fees payable to third parties over time. •Net interest income: Our Financial Services segment earns interest income from deposits held atSoFi Bank through our implementation of an FTP framework in the first quarter of 2022, whereby the Financial Services segment is credited for the deposit funding it provides to our Lending segment. This interest income has no impact on our consolidated financial statements. To a lesser degree, we generate interest income from deposits sitting in our Member Banks, which are member bank holding companies that we exclusively relied on prior to becoming a bank holding company to provide cash management services to our members through our bank sweep program at our broker-dealer subsidiary. While we continue to utilize Member Banks, we now also sweep cash management accounts toSoFi Bank . We also generate interest income on SoFi Credit Card and on cash balances that we hold through SoFi Invest. Finally, we earn interest income in the Financial Services segment on certain commercial real estate and other commercial loans, such as small business loans. We incur interest expense on SoFi Credit Card through the FTP framework, which is eliminated in consolidation, as well as incur interest expense related to SoFi Checking and Savings and cash management balances. 71
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SoFi Technologies, Inc. TABLE OF CONTENTS 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 reportable segment and, in the case of our Lending segment, adjusted for fair value adjustments attributable to assumption changes associated with our servicing rights and residual interests classified as debt. See "Results of 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) 2022 2021 2022 2021 Lending Net interest income$ 139,516 $ 72,257 $ 347,873 $ 180,856 Noninterest income 162,178 138,034 463,927 343,703 Total net revenue 301,694 210,291 811,800 524,559 Adjusted net revenue(1) 296,965 215,475 792,018 555,744 Contribution profit 180,562 117,668 455,204 294,542 Technology Platform Net interest income (expense) $ -$ 39 $ -$ (29) Noninterest income 84,777 50,186 229,481 141,616 Total net revenue(2) 84,777 50,225 229,481 141,587 Contribution profit 19,536 15,741 59,632 44,439 Financial Services Net interest income$ 28,158 $ 1,209 $ 46,965 $ 1,980 Noninterest income 20,795 11,411 55,894 34,142 Total net revenue 48,953 12,620 102,859 36,122 Contribution loss(2) (52,623) (39,465) (155,838) (99,729) Corporate/Other(3) Net interest expense$ (9,824) $ (1,130) $ (19,326) $ (7,140) Noninterest income (loss) (1,615) - (7,958) 4,136 Total net loss(2) (11,439) (1,130) (27,284) (3,004) Consolidated Net interest income$ 157,850 $ 72,375 $ 375,512 $ 175,667 Total noninterest income 266,135 199,631 741,344 523,597 Total net revenue 423,985 272,006 1,116,856 699,264 Adjusted net revenue(1) 419,256 277,190 1,097,074 730,449 Net loss (74,209) (30,047) (280,401) (372,925) Adjusted EBITDA(1) 44,298 10,256 73,286 25,628 ___________________
(1)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 comparable
(2)Technology Platform segment total net revenue for the three and nine months endedSeptember 30, 2022 includes intercompany fees earned by Galileo from SoFi, which is a Galileo client. There is an equal and offsetting expense reflected within the Financial Services segment contribution loss representing the intercompany fees incurred to Galileo. The intercompany revenue and expense are eliminated in consolidation. For the year endedDecember 31, 2021 , all intercompany amounts were reflected in the fourth quarter, as inter-quarter amounts were determined to be immaterial. Additionally, for the three and nine months endedSeptember 30, 2022 , total net revenue for the Technology Platform segment included intercompany fees earned by Technisys from Galileo, which is a Technisys client. There is an equal and offsetting expense reflected within the Technology Platform segment directly attributable expenses representing the intercompany fees incurred by Galileo to Technisys. The intercompany revenue and expense are eliminated in consolidation. See Note 17 to the Notes to Unaudited Condensed Consolidated Financial Statements for additional information. 72
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(3)Corporate/Other (previously referred to as "Other") primarily includes total
net loss associated with corporate functions, non-recurring gains and losses
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
the three and nine months ended September 30, 2022 , net interest expense within
Corporate/Other also reflects the residual impact from FTP charges and FTP
credits allocated to our reportable segments under our FTP framework.
Key Recent Developments
We continue to execute on our growth and other strategic initiatives and we continue to celebrate launches across our product suite and strategic partnerships, further establishing ourselves as a platform that enables individuals to borrow, save, spend, invest, and protect their assets.
InMarch 2022 , we closed the Technisys Merger, which added a cloud-native digital and core banking platform with an existing footprint of clients into our technology platform offerings. We believe that the combination of the Technisys core banking platform with our existing technology platform offerings provides an end-to-end vertically integrated technology stack, which we expect will meet both the expanding needs of our existing and expected future clients. See Note 2 to the Notes to Unaudited Condensed Consolidated Financial Statements for additional information on the Technisys Merger. InFebruary 2022 , we closed the Bank Merger, after which we became a bank holding company and Golden Pacific began operating asSoFi Bank . We believe operating a national bank allows us to provide members and prospective members broader and more competitive options across their financial services needs and lowers our cost of asset-backed financing (by utilizing deposits held atSoFi Bank to fund our loans). We also believe that operating as a national bank enables us to offer lower interest rates on loans to members as well as offer higher interest rates on deposit accounts. See "Business Overview-National Bank Charter" herein and Note 2 to the Notes to Unaudited Condensed Consolidated Financial Statements for additional information on the Bank Merger.
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.
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SoFi Technologies, Inc. TABLE OF CONTENTS Quarterly Adjusted Net Revenue In Thousands [[Image Removed: sofi-20220930_g1.jpg]]
We reconcile adjusted net revenue to total net revenue, the most directly comparable GAAP measure, as presented below:
Three Months Ended
2022 2021 2022 2021
Total net revenue $ 423,985 $ 272,006 $ 1,116,856 $ 699,264
Servicing rights - change in valuation
inputs or assumptions(1) (6,182) (409) (26,860) 11,924
Residual interests classified as
debt - change in valuation inputs or
assumptions(2) 1,453 5,593 7,078 19,261
Adjusted net revenue $ 419,256 $ 277,190 $ 1,097,074 $ 730,449
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(1)Reflects changes in fair value inputs and assumptions on servicing rights,
including conditional prepayment, 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, 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 below:
Quarter Ended
September 30, June 30, March 31, December 31, September 30,
($ in thousands) 2022 2022 2022 2021 2021
Total net revenue $ 423,985 $
362,527
(6,182) (9,098) (11,580) (9,273) (409)
Residual interests classified as debt -
change in valuation inputs or
assumptions(2) 1,453 2,662 2,963 3,541 5,593
Adjusted net revenue $ 419,256 $ 356,091 $ 321,727 $ 279,876 $ 277,190
___________________(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:
Three Months Ended
2022 2021 2022 2021
Total net revenue - Lending $ 301,694 $ 210,291 $ 811,800 $ 524,559
Servicing rights - change in valuation
inputs or assumptions(1) (6,182) (409) (26,860) 11,924
Residual interests classified as
debt - change in valuation inputs or
assumptions(2) 1,453 5,593 7,078 19,261
Adjusted net revenue - Lending $ 296,965 $
215,475
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(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, as
applicable: (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
these are not direct operating expenses), (ii) income tax expense (benefit),
(iii) depreciation and amortization, (iv) share-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) fair value changes in warrant liabilities,
and (viii) fair value changes in each of 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.
Quarterly Adjusted EBITDA
In Thousands
[[Image Removed: sofi-20220930_g2.jpg]]
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The tables below reconcile adjusted EBITDA to net loss, the most directly comparable GAAP measure:
Three Months Ended September 30, Nine Months Ended September 30,
($ in thousands) 2022 2021 2022 2021
Net loss $ (74,209)
5,270 1,366 11,369 7,752
Income tax expense (benefit)(2) (242) 181 629 1,202
Depreciation and amortization(3) 40,253 24,075 109,007 75,041
Share-based expense 77,855 72,681 235,018 162,289
Transaction-related expense(4) 100 1,221 17,446 24,580
Fair value changes in warrant liabilities(5) - (64,405) - 96,504
Servicing rights - change in valuation inputs or
assumptions(6) (6,182) (409) (26,860) 11,924
Residual interests classified as debt - change
in valuation inputs or assumptions(7) 1,453 5,593 7,078 19,261
Total adjustments 118,507 40,303 353,687 398,553
Adjusted EBITDA $ 44,298 $ 10,256 $ 73,286 $ 25,628
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(1)Our adjusted EBITDA measure adjusts for corporate borrowing-based interest
expense, as these expenses are a function of our capital structure. Corporate
borrowing-based interest expense primarily included (i) interest on our
revolving credit facility, (ii) for the 2022 periods, the amortization of debt
discount and debt issuance costs on our convertible notes, and (iii) for the
nine-month 2021 period, interest on the seller note issued in connection with
our acquisition of Galileo. Revolving credit facility interest expense for the
three- and nine-month periods increased due to higher interest rates during the
2022 periods on identical outstanding debt period over period.
(2)Our income tax expense positions for the nine-month periods were primarily a
function of SoFi Lending Corp.'s profitability, and for the 2022 period, SoFi
Bank , in state jurisdictions where separate filings are required. The income tax
expense in the 2022 period was partially offset by an income tax benefit at
Technisys. See Note 13 to the Notes to Unaudited Condensed Consolidated
Financial Statements for additional information.
(3)Depreciation and amortization expense for the three- and nine-month 2022 periods increased compared to the comparable 2021 periods primarily in connection with our recent acquisitions and growth in our software balance, partially offset by the acceleration of core banking infrastructure amortization during the nine-month 2021 period.
(4)Transaction-related expenses in the nine-month 2022 period primarily included financial advisory and professional services costs associated with our acquisition of Technisys. Transaction-related expenses in the three-month 2021 period included costs associated with our then-exploratory acquisition of Technisys. Transaction-related expenses in the nine-month 2021 period also included the special payment to the holders of Series 1 Redeemable Preferred Stock in conjunction with the Business Combination and financial advisory and professional services costs associated with our then-pending acquisition of Golden Pacific. (5)Our adjusted EBITDA measure excludes the non-cash fair value changes in warrants accounted for as liabilities, which were measured at fair value through earnings. In conjunction with the Business Combination,SoFi Technologies assumed certain common stock warrants ("SoFi Technologies warrants") that were 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 theSoFi Technologies warrants. The fair value of theSoFi Technologies warrants was based on the closing price of ticker SOFIW and, therefore, fluctuated based on market activity. In addition, a portion of the amount in 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 toMay 28, 2021 in conjunction with the Business Combination, as they were reclassified into permanent equity. (6)Reflects changes in fair value inputs and assumptions, including market servicing costs, conditional prepayment, 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, 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. 76
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SoFi Technologies, Inc. TABLE OF CONTENTS Quarter Ended September 30, June 30, March 31, December 31, September 30, ($ in thousands) 2022 2022 2022 2021 2021 Net loss$ (74,209) $ (95,835) $ (110,357) $ (111,012) $ (30,047) Non-GAAP adjustments: Interest expense - corporate borrowings 5,270 3,450 2,649 2,593 1,366 Income tax expense (benefit) (242) 119 752 1,558 181 Depreciation and amortization 40,253 38,056 30,698 26,527 24,075 Share-based expense 77,855 80,142 77,021 77,082 72,681 Transaction-related expense 100 808 16,538 2,753 1,221 Fair value changes in warrant liabilities - - - 10,824
(64,405)
Servicing rights - change in valuation inputs or assumptions (6,182) (9,098) (11,580) (9,273)
(409)
Residual interests classified as debt - change in valuation inputs or assumptions 1,453 2,662 2,963 3,541 5,593 Total adjustments 118,507 116,139 119,041 115,605 40,303 Adjusted EBITDA$ 44,298 $ 20,304 $ 8,684 $ 4,593 $ 10,256 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: September 30, 2022 September 30, 2021 % Change Members 4,742,673 2,937,379 61 % Total Products 7,199,298 4,267,665 69 % Total Products - Lending segment 1,280,493 1,030,882 24 % Total Products - Financial Services segment 5,918,805 3,236,783 83 %
Total Accounts - Technology Platform segment(1) 124,332,810
88,811,022 40 %
___________________
(1)Total accounts refers to the number of open accounts at Galileo as of the reporting date. Beginning in the fourth quarter of 2021, we included SoFi accounts on the Galileo platform-as-a-service in our total accounts metric to better align with the Technology Platform segment revenue reported in Note 17 to the Notes to Unaudited Condensed Consolidated Financial Statements. Intercompany revenue is eliminated in consolidation. We did not recast the total accounts as ofSeptember 30, 2021 to conform to the current year presentation, as the impact was determined to be immaterial.
See "Summary Results by Segment" for additional metrics we review at the segment level.
Members
We refer to our customers as "members", which we define as someone who has a
lending relationship with us through origination and/or 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, and our tools and calculators, which are provided 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.
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 that 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 complimentary product, SoFi Relay) provide direct sources of revenue.
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Since our inception throughSeptember 30, 2022 , we have served approximately 4.7 million members who have used approximately 7.2 million products on the SoFi platform. Members In Thousands [[Image Removed: sofi-20220930_g3.jpg]] 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 ofSoFi Money accounts (presented inclusive of cash management accounts and SoFi Checking and Savings accounts held atSoFi Bank ), SoFi Invest accounts, SoFi Credit Card accounts (including accounts with a zero dollar balance at the reporting date), referred loans (which are originated by a third-party partner to which we provide pre-qualified borrower referrals), 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 assets 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. 78
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SoFi Technologies, Inc. TABLE OF CONTENTS Products In Thousands [[Image Removed: sofi-20220930_g4.jpg]]
Total lending products were composed of the following:
Lending Products September 30, 2022 September 30, 2021 Variance % Change Home loans 25,707 21,318 4,389 21 % Personal loans 783,645 578,772 204,873 35 % Student loans 471,141 430,792 40,349 9 % Total lending products 1,280,493 1,030,882 249,611 24 %
Total financial services products were composed of the following:
Financial Services Products September 30, 2022 September 30, 2021 Variance % Change Money(1) 2,002,791 1,161,322 841,469 72 % Invest 2,067,621 1,233,527 834,094 68 % Credit Card 153,978 65,595 88,383 135 % Referred loans(2) 36,538 - 36,538 n/m Relay 1,600,102 749,972 850,130 113 % At Work 57,775 26,367 31,408 119 % Total financial services products 5,918,805 3,236,783 2,682,022 83 %
___________________
(1)Includes SoFi Checking and Savings accounts held at
(2)Limited to loans wherein we provide third party fulfillment services.
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. Beginning in the fourth quarter of 2021, we included SoFi accounts on the Galileo platform-as-a-service in our total accounts metric to better align with the Technology Platform segment revenue reported in Note 17 to the Notes to Unaudited Condensed Consolidated Financial Statements, which includes intercompany revenue from SoFi. Intercompany revenue is eliminated in consolidation. We did not recast total accounts as ofSeptember 30, 2021 to conform to the current year presentation, as the impact was determined to be immaterial. Total accounts is a primary indicator of the accounts dependent upon our 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 revenues for the Technology Platform segment. We do not measure total accounts for the 79
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Technisys products and solutions, as the revenue model is not primarily dependent upon being a fully integrated, stand-ready service.
September 30, 2022 September 30, 2021 Variance % Change
Total Accounts 124,332,810 88,811,022 35,521,788 40 %
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 technology platform customers, competition and industry trends, general economic conditions and our ability to optimize our national bank charter. The key factors affecting our operating results are discussed in our Annual Report on Form 10-K, with notable updates provided herein.
Industry Trends and General Economic Conditions
TheFederal Reserve has increased the benchmark interest rate multiple times in 2022, largely in response to increasing inflation. We anticipate that in a rising interest rate environment, and operating under a bank charter, we will be able to offer more competitive interest rates to our members on their deposits, which we believe would result in increasing demand for our deposits. However, rising interest rates could unfavorably impact demand for refinancing loan products. In addition, if theFederal Reserve does not effectively curb inflation or interest rates rise unexpectedly or too quickly, it could have a negative impact on the overall economy which could adversely impact our results of operations. In addition to rising interest rates, theU.S. economy has experienced negative gross domestic product growth during 2022 and consumer confidence indicators are down. Negative changes to macroeconomic conditions may result in decreased demand for our products, increased operating costs and negatively impact our results of operations.
Student Loan Relief
InAugust 2022 ,President Biden directed a final extension of the federal student loan payment moratorium throughDecember 31, 2022 .President Biden also announced additional relief measures for federal student loan borrowers, subject to income caps, including up to$20,000 in debt cancellation for Pell Grant recipients, and up to$10,000 in debt cancellation for non-Pell Grant recipients, as well as certain changes to income-driven repayment plans. While the number of applicants underPresident Biden's program and the impact of legal challenges to the program are unknown, we expect demand for our student loan refinancing products to benefit from these factors beginning in the fourth quarter of 2022, as borrowers who are not eligible for the debt relief or whose debt relief was processed timely may look to refinance ahead of the moratorium expiration. The timing and extent of such benefits to our student loan refinancing product will largely depend on the timing of execution of debt cancellation as well as the interest rate environment. 80
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SoFi Technologies, Inc. TABLE OF CONTENTS Results of Operations The following table sets forth condensed consolidated statements of income data: Three Months Ended September 30, 2022 vs 2021 Nine Months Ended September 30, 2022 vs 2021 ($ in thousands) 2022 2021 % Change 2022 2021 % Change Interest income Loans$ 191,525 $ 89,844 113 %$ 451,247 $ 246,743 83 % Securitizations 2,633 2,999 (12) % 7,958 11,260 (29) % Related party notes - - - % - 211 (100) % Other 3,881 758 412 % 6,758 2,023 234 % Total interest income 198,039 93,601 112 % 465,963 260,237 79 % Interest expense Securitizations and warehouses 20,653 19,360 7 % 59,158 75,418 (22) % Deposits 14,149 - n/m 19,123 - n/m Corporate borrowings 5,270 1,366 286 % 11,369 7,752 47 % Other 117 500 (77) % 801 1,400 (43) % Total interest expense 40,189 21,226 89 % 90,451 84,570 7 % Net interest income 157,850 72,375 118 % 375,512 175,667 114 % Noninterest income Loan origination and sales 163,697 142,147 15 % 465,815 362,211 29 % Securitizations (8,772) (4,551) 93 % (31,790) (6,613) 381 % Servicing 7,296 458 n/m 30,003 (11,875) (353) % Technology products and solutions 82,035 49,951 64 % 223,562 140,560 59 % Other 21,879 11,626 88 % 53,754 39,314 37 % Total noninterest income 266,135 199,631 33 % 741,344 523,597 42 % Total net revenue 423,985 272,006 56 % 1,116,856 699,264 60 % Noninterest expense Technology and product development 110,702 74,434 49 % 291,976 209,771 39 % Sales and marketing 162,129 114,985 41 % 444,121 297,170 49 % Cost of operations 83,083 69,591 19 % 232,611 187,785 24 % General and administrative 126,199 40,461 212 % 388,533 373,374 4 % Provision for credit losses 16,323 2,401 580 % 39,387 2,887 n/m Total noninterest expense 498,436 301,872 65 % 1,396,628 1,070,987 30 % Loss before income taxes (74,451) (29,866) 149 % (279,772) (371,723) (25) % Income tax benefit (expense) 242 (181) (234) % (629) (1,202) (48) % Net loss$ (74,209) $ (30,047) 147 %$ (280,401) $ (372,925) (25) % Other comprehensive loss Unrealized losses on available-for-sale securities, net (1,914) (150) n/m (8,360) (150) n/m Foreign currency translation adjustments, net 325 204 59 % 231 (142) (263) % Total other comprehensive income (loss) (1,589) 54 n/m (8,129) (292) n/m Comprehensive loss$ (75,798) $ (29,993) 153 %$ (288,530) $ (373,217) (23) % 81
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SoFi Technologies, Inc. TABLE OF CONTENTS Interest Income
The following table presents the components of our total interest income:
Three Months Ended Nine Months Ended
September 30, 2022 vs 2021 September 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Loans $ 191,525 $ 89,844 113 % $ 451,247 $ 246,743 83 %
Securitizations 2,633 2,999 (12) % 7,958 11,260 (29) %
Related party notes - - - % - 211 (100) %
Other 3,881 758 412 % 6,758 2,023 234 %
Total interest income $ 198,039 $ 93,601 112 % $ 465,963 $ 260,237 79 %
Total interest income increased by $104.4 million , or 112%, for the three months
ended September 30, 2022 compared to the three months ended September 30, 2021 ,
and increased by $205.7 million , or 79%, for the nine months ended September 30,
2022 compared to the nine months ended September 30, 2021 , the components of
which are discussed below.
Loans
Three Months. Loans interest income increased by $101.7 million , or 113%,
primarily driven by increases in non-securitization personal loan and student
loan interest income of $94.1 million (202%) and $10.0 million (43%),
respectively, which were primarily a function of increases in aggregate average
balances for personal loans and student loans of $2.9 billion (179%) and $1.2
billion (57%), respectively. The personal loan average balance increase was
primarily attributable to higher origination volume combined with a higher
weighted average interest rate earned on whole loans and longer loan holding
periods. The student loan average balance increase was primarily attributable to
longer loan holding periods, partially offset by a lower weighted average
interest rate earned on whole loans. These increases were offset by decreases in
interest income from consolidated personal loan and student loan securitizations
of $5.7 million (65%) and $2.2 million (25%), respectively, which were impacted
by decreases in average balances primarily attributable to payment activity and
the absence of additions to our consolidated securitization loan balances. The
remaining increase in interest income also included $4.1 million attributable to
credit card loans.
Nine Months. Loans interest income increased by $204.5 million , or 83%,
primarily driven by increases in non-securitization personal loan and student
loan interest income of $191.6 million (169%) and $28.5 million (43%),
respectively, which were primarily a function of increases in average balances
for personal loans and student loans of $2.1 billion (150%) and $1.2 billion
(59%), respectively. The personal loan average balance increase was primarily
attributable to higher origination volume combined with a higher weighted
average interest rate earned on whole loans and longer loan holding periods. The
student loan average balance increase was primarily attributable to longer loan
holding periods, partially offset by a lower weighted average interest rate
earned on whole loans. These increases were offset by decreases in interest
income from consolidated personal loan and student loan securitizations of $19.9
million (61%) and $9.3 million (31%), respectively, which were impacted by
decreases in average balances for personal loans and student loans of $265.9
million (63%) and $255.3 million (34%), respectively. The decreases in aggregate
average balances were primarily attributable to payment activity and the absence
of additions to our consolidated securitization loan balances. The remaining
increase in interest income also included $9.9 million attributable to credit
card loans.
Securitizations
Three Months. Securitizations interest income decreased by $0.4 million , or 12%,
which was primarily attributable to decreases in residual investment interest
income and asset-backed bonds related to decreases in average securitization
investment balances period over period due to securitization payment activity.
Nine Months. Securitizations interest income decreased by $3.3 million , or 29%,
which was primarily attributable to decreases in residual investment interest
income of $1.8 million and asset-backed bonds of $2.0 million related to
decreases in average securitization investment balances period over period due
to securitization payment activity.
Other
Three Months. Other interest income increased by
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Nine Months. Other interest income increased by$4.7 million , or 234%, primarily due to$4.4 million higher interest income earned on our interest-bearing cash and cash equivalents balances primarily due to higher average balances period over period. Interest Expense
The following table presents the components of our total interest expense:
Three Months Ended Nine Months Ended
September 30, 2022 vs 2021 September 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Securitizations and warehouses $ 20,653 $ 19,360 7 % $ 59,158 $ 75,418 (22) %
Deposits 14,149 - n/m 19,123 - n/m
Corporate borrowings 5,270 1,366 286 % 11,369 7,752 47 %
Other 117 500 (77) % 801 1,400 (43) %
Total interest expense $ 40,189 $ 21,226 89 % $ 90,451 $ 84,570 7 %
Total interest expense increased by $19.0 million , or 89%, for the three months
ended September 30, 2022 compared to the three months ended September 30, 2021 ,
and increased by $5.9 million , or 7%, for the nine months ended September 30,
2022 compared to the nine months ended September 30, 2021 , the components of
which are discussed below.
Securitizations and Warehouses. The following tables present the components of
securitizations and warehouses interest expense and other pertinent information.
Three Months Ended Nine Months Ended
September 30, 2022 vs 2021 September 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Securitization debt interest
expense $ 4,492 $ 8,186 (45) % $ 15,229 $ 28,548 (47) %
Warehouse debt interest expense 12,539 6,360 97 % 32,159 26,261 22 %
Residual interests classified as
debt interest expense 904 2,036 (56) % 3,469 6,381 (46) %
Debt issuance cost interest
expense 2,718 2,778 (2) % 8,301 14,228 (42) %
Securitizations and warehouses
interest expense $ 20,653 $ 19,360 7 % $ 59,158 $ 75,418 (22) %
Three Months Ended Nine Months Ended
September 30, 2022 vs 2021 September 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Average debt balances(1)
Securitization debt $ 487,141 $ 844,747 (42) % $ 553,790 $ 999,752 (45) %
Warehouse facilities 1,752,032 1,620,392 8 % 2,167,493 2,258,908 (4) %
Weighted average interest
rates(2)
Securitization debt 3.7% 3.9% n/m 3.7% 3.8% n/m
Warehouse facilities 2.9% 1.6% n/m 2.0% 1.5% n/m
___________________(1)Average balances were calculated based on four- and ten-month ending balances.
(2)Calculated as annualized interest expense divided by average debt balance for the respective debt category. Interest rates on securitization debt and warehouse facilities exclude the effect of debt issuance cost interest expense and amortization of debt discounts and premiums. 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 interest expense. Securitizations and warehouses interest expense increased by$1.3 million , or 7%, for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , and decreased by$16.3 million , or 22%, for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , driven by the following: •Securitization debt interest expense (exclusive of debt issuance and discount amortization) decreased by$3.7 million (45%) for the three-month period, and decreased by$13.3 million (47%) for the nine-month period primarily driven by 83
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declines in the average balances of securitization debt of 42% and 45%, respectively, which were attributable to payment activity and the absence of additional securitization debt during the 2022 periods.
•Warehouse debt interest expense (exclusive of debt issuance amortization) increased by$6.2 million (97%) for the three-month period, and by$5.9 million (22%) for the nine-month period. The three-month increase in interest expense was attributable to sharp increases in benchmark rates combined with an increase in our average warehouse debt balance. The nine-month increase in interest expense was primarily related to share increases in benchmark rates, partially offset by the utilization of warehouse facilities with lower spreads during the 2022 period combined with a moderate decrease in our average warehouse debt balance.
•Residual interests classified as debt interest expense decreased by
•Debt issuance cost interest expense decreased by$5.9 million (42%) for the nine-month period, which was primarily driven by a lower run rate on our issuance cost amortization related to our loan warehouse facilities, as we have extended certain loan warehouse facilities over time, which had the effect of lowering the quarterly debt issuance cost amortization. The variance was also impacted by the acceleration of certain debt issuance costs during the nine-month 2021 period, which contributed to a favorable variance of$2.8 million period over period. Deposits. Deposits interest expense of$14.1 million and$19.1 million for the three and nine months endedSeptember 30, 2022 , respectively, was related to interest earned by members on deposits held atSoFi Bank , which had average balances of$3.8 billion and$2.1 billion , respectively. Deposit accounts also earned a higher interest rate during the third quarter of 2022. Corporate Borrowings. Corporate borrowings interest expense increased by$3.9 million , or 286%, for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , and increased by$3.6 million , or 47%, for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , primarily due to the following: •Interest expense of$1.3 million and$3.8 million for the three- and nine-month 2022 periods, respectively, was associated with our issuance of convertible notes in the fourth quarter of 2021, which consisted of the amortization of the debt discount and debt issuance costs. •Interest expense on our revolving credit facility increased by$2.6 million and$3.5 million for the three- and nine-month periods, respectively, as one-month LIBOR increased during 2022, while the average balance remained constant.
•Interest expense incurred on the Galileo seller note, which was repaid in
Noninterest Income and Net Revenue
The following table presents the components of our total noninterest income, as well as total net revenue:
Three Months Ended Nine Months Ended
September 30, 2022 vs 2021 September 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Loan origination and sales $ 163,697 $ 142,147 15 % $ 465,815 $ 362,211 29 %
Securitizations (8,772) (4,551) 93 % (31,790) (6,613) 381 %
Servicing 7,296 458 n/m 30,003 (11,875) (353) %
Technology products and
solutions 82,035 49,951 64 % 223,562 140,560 59 %
Other 21,879 11,626 88 % 53,754 39,314 37 %
Total noninterest income $ 266,135 $ 199,631 33 % $ 741,344 $ 523,597 42 %
Total net revenue $ 423,985 $ 272,006 56 % $ 1,116,856 $ 699,264 60 %
Total noninterest income increased by $66.5 million , or 33%, for the three
months ended September 30, 2022 compared to the three months ended September 30,
2021 , and increased by $217.7 million , or 42%, for the nine months ended
September 30, 2022 compared to the nine months ended September 30, 2021 , the
components of which are discussed below.
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SoFi Technologies, Inc. TABLE OF CONTENTS Loan Origination and Sales The following table presents the components of noninterest income-loan origination and sales: Three Months Ended Nine Months Ended September 30, 2022 vs 2021 September 30, 2022 vs 2021 ($ in thousands) 2022 2021 Change 2022 2021 Change In period originations, loan sale execution and fair value adjustments(1)$ 88,026 $ 133,196 $ (45,170) $ 183,098 $ 342,319 $ (159,221) Economic derivative hedges of loan fair values 106,240 1,305 104,935 336,382 23,439
312,943
Other derivative instruments(2) (6,087) 3,974 (10,061) (10,711) (3,886) (6,825) Home loan origination fees 2,238 3,502 (1,264) 6,169 11,292 (5,123) Loan write-off expense - whole loans(3) (26,021) (3,830) (22,191) (47,698) (12,555)
(35,143)
Loan repurchase (expense) benefit(4) 479 (190) 669 2,266 (2,588) 4,854 Other (1,178) 4,190 (5,368) (3,691) 4,190 (7,881) Loan origination and sales noninterest income$ 163,697 $ 142,147 $ 21,550 $ 465,815 $ 362,211 $ 103,604 ___________________
(1)Includes fair value adjustments on loans originated during the period, fair value adjustments of loans held at the balance sheet date, as well as gains (losses) on loans sold during the period.
(2)Includes IRLCs, interest rate caps and purchase price earn-out.
(3)For the three months endedSeptember 30, 2022 and 2021, includes gross write-offs of$31.4 million and$6.1 million , respectively. During the three-month 2022 period,$2.7 million of the$5.4 million of recoveries were captured via loan sales to a third-party collection agency. During the three-month 2021 period,$0.5 million of the$2.3 million of recoveries were captured via loan sales to a third-party collection agency. For the nine months endedSeptember 30, 2022 and 2021, includes gross write-offs of$60.9 million and$20.1 million , respectively. During the nine-month 2022 period,$4.4 million of the$13.2 million of recoveries were captured via loan sales to a third-party collection agency. During the nine-month 2021 period,$2.4 million of the$7.5 million of recoveries were captured via loan sales to a third-party collection agency.
(4)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. Loan origination and sales increased by
•an increase of$43.8 million (53%) in personal loan origination and sales income, which was attributable to increases of$45.8 million related to personal loan interest rate swap positions primarily driven by increases in interest rates, and$26.9 million related to fair value adjustments primarily driven by higher origination volume in the 2022 period. These increases were partially offset by$21.8 million higher loan write offs, which were primarily attributable to a higher average loan balance and elevated charge off rates in the 2022 period; •an increase of$1.0 million (3%) in student loan origination and sales income, which was attributable to an increase of$48.4 million on our student loan interest rate swap positions primarily driven by increases in interest rates, largely offset by a decrease of$41.6 million related to fair value adjustments primarily driven by lower origination volume in the 2022 period, and lower execution prices on sales activity, combined with a$5.4 million loss related to student loan commitments; and •a decrease of$22.7 million (106%) in home loan origination and sales related income, which was attributable to a decrease of$30.5 million related to fair value adjustments primarily driven by lower origination volume in the 2022 period, and lower execution prices on sales activity. This decline was partially offset by the favorable impact related to hedging activities of$7.8 million , which was primarily related to gains on home loan pipeline hedges due to decreases in the underlying hedge price index.
Nine Months. Loan origination and sales increased by
•an increase of$152.3 million (89%) in personal loan origination and sales income, which was attributable to increases of$119.6 million related to personal loan interest rate swap positions primarily driven by increases in interest rates, and$72.4 million related to fair value adjustments primarily driven by higher origination volume in the 2022 period, net of lower execution prices on sales activity. These increases were partially offset by$33.6 million higher loan write offs, which were primarily attributable to a higher average loan balance and elevated charge off rates in the 2022 period; 85
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•an increase of$8.1 million (7%) in student loan origination and sales income, which was attributable to an increase of$146.4 million on our student loan hedging activities primarily related to our student loan interest rate swap positions, which were primarily driven by increases in interest rates, largely offset by a decrease of$128.9 million related to fair value adjustments, which were primarily driven by lower origination volume in the 2022 period, and lower execution prices on sales activity, combined with a$7.9 million loss related to student loan commitments; and •a decrease of$56.5 million (88%) in home loan origination and sales related income, which was attributable to a decrease of$102.7 million related to fair value adjustments primarily driven by lower origination volume in the 2022 period, and lower execution prices on sales activity. This decline was partially offset by the favorable impact related to hedging activities of$46.2 million , which was primarily related to gains on home loan pipeline hedges due to decreases in the underlying hedge price index.
Securitizations
Three Months. Securitizations income decreased by$4.2 million , or 93%, primarily due to an aggregate decrease of$8.6 million in securitization loan fair market value changes, principally due to increases in market interest rates. We also had a decline in securitization investment fair values of$4.3 million , which was primarily attributable to negative fair value adjustments on our securitization bonds that were impacted by the interest rate volatility during the 2022 period. These unfavorable variances were partially offset by gains of$5.1 million in the 2022 period on our economic hedges of securitization investments. Offsetting these declines, securitizations income was favorably impacted by a reduction in securitization loan write-offs of$0.7 million in the 2022 period, which was correlated with lower average securitization loan balances and stronger securitization loan credit performance during the 2022 period, as well as favorable changes in residual debt fair value adjustments of$3.0 million . Nine Months. Securitizations income decreased by$25.2 million , or 381%, primarily due to an aggregate decrease of$36.5 million in securitization loan fair market value changes, principally due to increases in market interest rates. We also had a decline in securitization investment fair values of$17.6 million , which was primarily attributable to negative fair value adjustments on our securitization bonds that were impacted by the interest rate volatility during the 2022 period. These unfavorable variances were partially offset by gains of$14.2 million in the 2022 period on our economic hedges of securitization investments. Offsetting these declines, securitizations income was favorably impacted by a reduction in securitization loan write-offs of$6.3 million in the 2022 period, which was correlated with lower average securitization loan balances and stronger securitization loan credit performance during the 2022 period, as well as favorable changes in residual debt fair value adjustments of$9.3 million . Servicing We own the master servicing on all of the servicing rights that we retain and, in each case, recognize the gross servicing rate applicable to each serviced loan. Sub-servicers are utilized for all serviced student loans and home loans, which represents a cost to SoFi, but these arrangements do not impact our calculation of the weighted average basis points earned for each loan type serviced. Further, there is no impact on servicing income due to forbearance and moratoriums on certain debt collection activities, and there are no waivers of late fees. The table below presents information related to our loan servicing activities: Three Months Ended Nine Months Ended September 30, 2022 vs 2021 September 30, 2022 vs 2021 ($ in thousands) 2022 2021 % Change 2022 2021 % Change Servicing income recognized Home loans(1)$ 3,387 $ 2,398 41 %$ 9,416 $ 6,207 52 % Student loans(2) 9,293 11,305 (18) % 29,119 35,533 (18) % Personal loans(3) 9,806 8,216 19 % 27,901 25,020 12 % Servicing rights fair value change Home loans$ (1,460) $ 6,588 (122) %$ 10,173 $ 20,231 (50) % Student loans (4,053) (3,582) 13 % (9,137) (4,618) 98 % Personal loans (3,013) 701 (530) % (857) (1,736) (51) % ______________
(1)The contractual servicing earned on our home loan servicing portfolio was 25 bps during all periods presented.
(2)The weighted average bps earned for student loan servicing was 42 bps and 43 bps during the three months endedSeptember 30, 2022 and 2021, respectively, and 42 bps during each of the nine months endedSeptember 30, 2022 and 2021. 86
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(3)The weighted average bps earned for personal loan servicing was 78 bps and 70 bps during the three months endedSeptember 30, 2022 and 2021, respectively, and 73 bps and 70 bps during the nine months endedSeptember 30, 2022 and 2021, respectively. Three Months. Servicing income increased by$6.8 million , of which$5.8 million was related to favorable changes in valuation inputs and assumptions, consisting of$6.5 million related to student loans and$1.3 million related to personal loans, partially offset by$2.0 million related to home loans. The favorable variances in student loans and personal loans were primarily attributable to decreased prepayment rate assumptions during the 2022 period compared to increased assumptions during the 2021 period, partially offset by increased discount rate assumptions during the 2022 period. The unfavorable variance in home loans was primarily attributable to decreased prepayment rate assumptions in the 2021 period combined with increased discount rate assumptions in the 2022 period. We also earned increased servicing income of$1.0 million in the 2022 period associated with referral activity we facilitate through our platform. Nine Months. Servicing income increased by$41.9 million , or 353%,of which$38.8 million was related to favorable changes in valuation inputs and assumptions, consisting of$29.6 million related to student loans,$5.3 million related to home loans and$3.8 million related to personal loans. The favorable variances in student loans and personal loans were primarily attributable to decreased prepayment rate assumptions during the 2022 period compared to increased assumptions during the 2021 period, partially offset by increased discount rate assumptions during the 2022 period. The favorable variance in home loans was primarily attributable to a larger decrease in prepayment rate assumptions during the 2022 period compared to the 2021 period, partially offset by increased discount rate assumptions during the 2022 period. We also earned increased servicing income of$3.0 million in the 2022 period associated with referral activity we facilitate through our platform that began in the third quarter of 2021.
Technology Products and Solutions
Three and Nine Months. Technology products and solutions fees for the three and nine months endedSeptember 30, 2022 increased by$32.1 million , or 64%, and$83.0 million , or 59%, respectively, relative to the comparable periods in 2021. The 2022 periods were bolstered by$18.5 million and$45.0 million , respectively, of revenue contribution from the Technisys Merger, which closed inMarch 2022 . In addition, our existing integrated technology solutions contributed increases in revenue of$13.5 million and$38.0 million , respectively, which was predominantly a function of account growth combined with increased activity from existing clients.
Other
Three Months. Other income increased by$10.3 million , or 88%, primarily due to increases in referral fees of$5.8 million , and payment network fees of$2.1 million . The increase in referral fees was primarily attributable to growth in our partner relationships and related activity, as well as an increase associated with referral fulfillment activity. The increase in payment network fees (which includes interchange fees) was primarily attributable to increased credit card spending on our platform. Nine Months. Other income increased by$14.4 million , or 37%, primarily due to increases in referral fees of$17.0 million and payment network fees of$6.7 million . The increase in referral fees was primarily attributable to growth in our partner relationships and related activity, as well as an increase associated with a referral fulfillment activity that we began in the third quarter of 2021. The increase in payment network fees (which includes interchange fees) was primarily attributable to increased credit card spending on our platform. The favorable variance was also impacted by lower SoFi Invest trading losses of$1.6 million period over period. These impacts were partially offset by (i) a$7.0 million impact from losses on venture capital investments in the 2022 period compared to gains in the 2021 period, (ii) a$3.2 million decrease in brokerage fees related to lower digital assets trading activity, and (iii) a$2.1 million decrease in enterprise services revenue primarily due to the absence of advisory service revenues in the 2022 period. 87
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SoFi Technologies, Inc. TABLE OF CONTENTS Noninterest Expense The following table presents the components of our total noninterest expense: Three Months Ended Nine Months Ended September 30, 2022 vs 2021 September 30, 2022 vs 2021 ($ in thousands) 2022 2021 % Change 2022 2021 % Change Technology and product development$ 110,702 $ 74,434 49 %$ 291,976 $ 209,771 39 % Sales and marketing 162,129 114,985 41 % 444,121 297,170 49 % Cost of operations 83,083 69,591 19 % 232,611 187,785 24 % General and administrative 126,199 40,461 212 % 388,533 373,374 4 % Provision for credit losses 16,323 2,401 580 % 39,387 2,887
n/m
Total noninterest expense$ 498,436 $ 301,872 65 %$ 1,396,628 $ 1,070,987 30 % Total noninterest expense increased by$196.6 million , or 65%, for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 , and increased by$325.6 million , or 30%, for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 , the components of which are discussed below.
Technology and Product Development
Three Months. Technology and product development expenses increased by
•an increase in employee compensation and benefits of$18.0 million (inclusive of an increase in share-based compensation expense of$1.2 million ), of which$12.9 million was attributable to Technisys. The remaining increase was related to an increase in technology and product personnel in support of our growth, as well as an increase in average compensation in the 2022 period; •an increase in purchased and internally-developed software amortization of$7.6 million , which was primarily reflective of increased investments in technology in our Technology Platform segment; and
•an increase in amortization expense on intangible assets of
Nine Months. Technology and product development expenses increased by
•an increase in employee compensation and benefits of$45.0 million (inclusive of an increase in share-based compensation expense of$8.8 million ), of which$26.6 million was attributable to Technisys. The remaining increase was related to an increase in technology and product personnel in support of our growth, as well as an increase in average compensation in the 2022 period;
•an increase in purchased and internally-developed software amortization of
•an increase in amortization expense on intangible assets of$8.8 million , which was primarily related to intangible asset amortization of$12.9 million associated with acquired intangible assets in the Technisys Merger, partially offset by$4.1 million associated with the acceleration of our core banking infrastructure in the first half of 2021.
Sales and Marketing
Three Months. Sales and marketing expenses increased by
•an increase in advertising expenditures of$17.3 million , which was primarily attributable to an increase in direct mail, digital media, search and social network advertising expenditures in the 2022 period;
•an increase of
•an increase in employee compensation and benefits of$8.6 million (inclusive of an increase in share-based compensation expense of$1.9 million ), of which$1.9 million was attributable to Technisys. The remaining increase was correlated with an increase in sales and marketing personnel to support our growth, as well as an increase in average compensation in the 2022 period; and
•an increase in direct customer promotional expenditures of
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Nine Months. Sales and marketing expenses increased by
•an increase in advertising expenditures of$56.6 million , which was primarily attributable to an increase in direct mail, digital media, search and social network advertising expenditures in the 2022 period;
•an increase of
•an increase in employee compensation and benefits of$23.7 million (inclusive of an increase in share-based compensation expense of$6.9 million ), of which$4.3 million was attributable to Technisys. The remaining increase was correlated with an increase in sales and marketing personnel to support our growth, as well as a modest increase in average compensation in the 2022 period;
•an increase in direct customer promotional expenditures of
•an increase in amortization expense on intangible assets of
Cost of Operations
Three Months. Cost of operations increased by
•an increase in employee compensation and benefits of$8.8 million (inclusive of an increase in share-based compensation expense of$1.6 million ), which was correlated with an increase in cost of operations personnel in support of our growth, as well as an increase in average compensation in the 2022 period;
•an increase of
•an increase in software licenses, tools and subscriptions and other related
fees of
•a decrease in loan origination and servicing expenses of$5.1 million , of which$6.2 million was related to home loans, partially offset by an increase of$1.2 million related to personal loans, which were primarily attributable to changes in origination volume period over period.
Nine Months. Cost of operations increased by
•an increase in employee compensation and benefits of$28.1 million (inclusive of an increase in share-based compensation expense of$6.4 million ), which was correlated with an increase in cost of operations personnel in support of our growth, as well as an increase in average compensation in the 2022 period;
•an increase of
•an increase in software licenses, tools and subscriptions and other related
fees of
•an increase in operational losses of
•a decrease in loan origination and servicing expenses of$11.5 million , of which$15.2 million was related to home loans, partially offset by an increase of$4.1 million related to personal loans, which were primarily attributable to changes in origination volume period over period.
General and Administrative
Three Months. General and administrative expenses increased by
•unfavorability resulting from a$64.4 million decrease in the fair value of theSoFi Technologies warrants assumed in the Business Combination during the 2021 period. TheSoFi Technologies warrants were exercised or redeemed during the fourth quarter of 2021 and, therefore, had no impact on the 2022 period; •an increase in employee compensation and benefits of$14.1 million (inclusive of an increase in share-based compensation expense of$0.4 million ), of which$1.4 million was attributable to Technisys. The remaining increase was related to an increase in personnel to support our growing infrastructure and administrative needs, as well as a modest increase in average compensation in the 2022 period; and
•an increase of
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Nine Months. General and administrative expenses increased by
•favorability of$96.5 million related to our warrant liabilities, resulting from the absence in the 2022 period of$160.9 million of expense incurred in the 2021 period associated with the fair value increase of our Series H warrant liabilities, which were reclassified to permanent equity in the second quarter of 2021 in conjunction with the Business Combination and, therefore, had no impact on the 2022 period, partially offset by a fair value decrease of$64.4 million related to theSoFi Technologies warrants assumed in the Business Combination during the 2021 period, which were exercised or redeemed during the fourth quarter of 2021 and, therefore, had no impact on the 2022 period; •an increase in employee compensation and benefits of$86.4 million (inclusive of an increase in share-based compensation expense of$50.6 million ), of which$4.0 million was attributable to Technisys. The remaining increase was related to an increase in personnel to support our growing infrastructure and administrative needs in addition to a modest increase in average compensation in the 2022 period;
•an increase of
•an increase in corporate insurance of$3.6 million and professional services costs of$0.9 million , which were primarily attributable to the increased costs of being a public company;
•an increase in software licenses, tools and subscriptions and other related
fees of
•a decrease in transaction-related expenses of$7.1 million during the 2022 period, which was attributable to the special payment of$21.2 million to the Series 1 preferred stockholders in the second quarter of 2021 associated with the Business Combination, partially offset by costs associated with our acquisitions in the 2022 period.
Provision for Credit Losses
Three and Nine Months. The provision for credit losses for the three and nine months endedSeptember 30, 2022 increased by$13.9 million and$36.5 million , respectively, relative to the comparable periods in 2021, which reflected higher average credit card balances combined with elevated credit card loss rates during the 2022 periods.
Net Loss
We had a net loss of$74.2 million for the three months endedSeptember 30, 2022 compared to$30.0 million for the three months endedSeptember 30, 2021 , and a net loss of$280.4 million for the nine months endedSeptember 30, 2022 compared to$372.9 million for the nine months endedSeptember 30, 2021 . The changes in losses for the current periods were due to the factors discussed above, net of the changes in income taxes. For the three months endedSeptember 30, 2022 and 2021, we recorded income tax benefit (expense) of$0.2 million and$(0.2) million , respectively. For the nine months endedSeptember 30, 2022 and 2021, we recorded income tax expense of$(0.6) million and$(1.2) million , respectively. The income tax expense in the nine month periods was primarily due to income tax expense associated with the profitability ofSoFi Lending Corp. and, for the 2022 periods,SoFi Bank , in some state jurisdictions where separate company filing is required. In the 2022 periods, this expense was partially offset by income tax benefits from foreign losses in jurisdictions with net deferred tax liabilities related to the Technisys Merger. 90
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SoFi Technologies, Inc. TABLE OF CONTENTS Summary Results by Segment Lending Segment In the table below, we present certain metrics related to our Lending segment: Three Months Ended Nine Months Ended September 30, 2022 vs 2021 September 30, 2022 vs 2021 Metric 2022 2021 % Change 2022 2021 % Change Total products (number, as of period end) 1,280,493 1,030,882 24 % 1,280,493 1,030,882 24 % Origination volume ($ in thousands, during period) Home loans$ 216,246 $ 793,086 (73) %$ 860,676 $ 2,320,918 (63) % Personal loans 2,809,759 1,640,572 71 % 7,307,612 3,740,645 95 % Student loans 457,184 967,939 (53) % 1,839,710 2,832,121 (35) % Total$ 3,483,189 $ 3,401,597 2 %$ 10,007,998 $ 8,893,684 13 % Loans with a balance (number, as of period end)(1) 717,148 594,730 21 % 717,148 594,730 21 % Average loan balance ($, as of period end)(1) Home loans$ 286,855 $ 286,522 - %$ 286,855 $ 286,522 - % Personal loans 24,772 22,207 12 % 24,772 22,207 12 % Student loans(2) 47,152 49,723 (5) % 47,152 49,723 (5) % __________________ (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.
(2)In-school loans carry a lower average balance than student loan refinancing products.
Total Products Total products in our Lending segment is a subset of our total products metric. 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. Home Loans. During the three and nine months endedSeptember 30, 2022 , home loan origination volume declined relative to the corresponding 2021 periods due to continued rising interest rates relative to the 2021 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. Although purchase originations have historically represented a smaller percentage of our home loan originations, our mix has shifted toward more purchase originations in the third quarter of 2022. Personal Loans. During the three and nine months endedSeptember 30, 2022 , personal loan origination volume increased significantly relative to the corresponding 2021 periods, primarily due to increased demand driven by expanded marketing efforts and increased demand for debt consolidation products in a rising interest rate environment, combined with a positive impact from increased loan application approval rates that were implemented during the second half of 2021 and largely maintained during 2022. Student Loans. During the three and nine months endedSeptember 30, 2022 , student loan origination volume decreased relative to the corresponding 2021 periods, as demand for student loan refinancing products continued to be unfavorably impacted by the suspension of principal and interest payments on federally-held student loans through the end of 2022 and the debt cancellation for certain federal student loan borrowers that was announced during the third quarter, combined with a rising interest rate environment in 2022. See "Key Factors Affecting Operating Results-Student Loan Relief" for additional discussion of student loans. 91
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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.
The following table presents additional information on the terms as of
Product Loan Size Rates(1) Term
Student Loan Refinancing Variable rate: 2.99% - 5 - 20 years
$5 ,000+ (2) 8.24%
Fixed rate: 3.49% - 8.24%
In-School Loans Variable rate: 1.44% - 5 - 15 years
$1 ,000+ (2) 13.79%
Fixed rate: 3.75% -
13.60%
Personal Loans Fixed rate: 7.99% - 2 - 7 years
$5,000 - $100,000 (2) 23.43%
$100,000 - $647,200 (3)(4)
(Conforming Normal Cost Areas)
OR
Home Loans $970,800 (4) Fixed rate: 2.75% - 7.63% 10, 15, 20 or 30
(Conforming High Cost Areas) years
OR
$3,000,000 (4)
(Jumbo Loans)
__________________
(1)Loan annual percentage rates reflect rates as advertised as of the date indicated, inclusive of an auto-pay discount, as applicable.
(2)Minimum loan size may be higher within certain states due to legal or licensing requirements.
(3)Exceptions for loan sizes less than
(4)Represents the maximum loan size offered within each category as of the
reporting date. "Conforming High Cost Areas" refers to
In the table below, we present additional information related to our lending products during the periods indicated:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Overall weighted average origination FICO 749 758 752 761
Student Loans
Weighted average origination FICO 771 775 773 775
Weighted average interest rate earned(1) 4.23 % 4.64 % 4.09 % 4.59 %
Interest income recognized ($ in
thousands)(2) $ 40,019 $ 32,210 $ 115,859 $ 96,578
Sales of loans ($ in thousands) $ 74,080 $ 922,271 $ 877,920 $ 2,469,372
Home Loans
Weighted average origination FICO 747 753 747 756
Weighted average interest rate earned(1) 4.37 % 2.01 % 3.24 % 1.85 %
Interest income recognized ($ in
thousands)(2) $ 1,499 $ 1,002 $ 3,731 $ 2,678
Sales of loans ($ in thousands) $ 251,821 $ 789,259 $ 959,971 $ 2,308,467
Personal Loans
Weighted average origination FICO 746 749 747 754
Weighted average interest rate earned(1) 12.22 % 11.20 % 11.65 % 10.70 %
Interest income recognized ($ in
thousands)(2) $ 143,757 $ 55,368 $ 317,342 $ 145,574
Sales of loans ($ in thousands) $ 749,648 $ 1,196,798 $ 2,851,466 $ 2,946,374 __________________
(1)Weighted average interest rate earned represents annualized interest income recognized divided by the average of the four- and ten-month unpaid principal balances of loans outstanding during the period, which are impacted by the timing and extent of loan sales and purchases. The weighted average interest rates earned for the comparative 2021 periods were recast to conform to the current period methodology for calculating average balances.
(2)See "Results of Operations-Interest Income" for a discussion of interest income recognized during the periods indicated.
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Lending Segment Results of Operations
The following table presents the measure of contribution profit for the Lending
segment. The information is derived from our internal financial reporting used
for corporate management purposes. In the first quarter of 2022, we implemented
an FTP framework to attribute net interest income to our business segments based
on their usage and/or provision of funding, as further discussed below.
Three Months Ended Nine Months Ended
September 30, 2022 vs 2021 September 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Net interest income $ 139,516 $ 72,257 93 % $ 347,873 $ 180,856 92 %
Noninterest income 162,178 138,034 17 % 463,927 343,703 35 %
Total net revenue 301,694 210,291 43 % 811,800 524,559 55 %
Servicing rights - change in
valuation inputs or
assumptions(1) (6,182) (409) n/m (26,860) 11,924 (325) %
Residual interests classified as
debt - change in valuation
inputs or assumptions(2) 1,453 5,593 (74) % 7,078 19,261 (63) %
Directly attributable
expenses(3) (116,403) (97,807) 19 % (336,814) (261,202) 29 %
Contribution profit $ 180,562 $ 117,668 53 % $ 455,204 $ 294,542 55 %
Adjusted net revenue(4) $ 296,965 $ 215,475 38 % $ 792,018 $ 555,744 43 %
___________________
(1)Reflects changes in fair value inputs and assumptions, including market servicing costs, conditional prepayment, default rates and discount rates. This non-cash change, which is recorded within noninterest income in the unaudited condensed 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 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, with fair value changes recorded within noninterest income in the unaudited condensed 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. (4)Adjusted net revenue is a non-GAAP financial measure. For information regarding our use and definition of this measure and for a reconciliation to the most directly comparableU.S. GAAP measure, total net revenue, see "Non-GAAP Financial Measures" herein. Net interest income Net interest income in our Lending segment increased by$67.3 million , or 93%, and by$167.0 million , or 92%, for the three and nine months endedSeptember 30, 2022 , respectively, compared to the same periods in 2021, the components of which are discussed below. Loans Interest Income. Loans interest income increased by$96.7 million , or 109%, and by$192.0 million , or 78%, for the three and nine months endedSeptember 30, 2022 , respectively, compared to the same periods in 2021. See "Results of Operations-Interest Income-Loans" for information on the primary drivers of the variances related to our personal loans, student loans and home loans. Securitizations Interest Income. Securitizations interest income decreased by$0.4 million , or 12%, and by$3.3 million , or 29%, for the three and nine months endedSeptember 30, 2022 , respectively, compared to the same periods in 2021. See "Results of Operations-Interest Income-Securitizations" for information on the primary drivers of the variances. Interest Expense. Interest expense increased by$29.1 million , or 150%, and by$21.7 million , or 29%, for the three and nine months endedSeptember 30, 2022 , respectively, compared to the same periods in 2021. For the three and nine month 2022 periods relative to the comparable 2021 periods, interest expense in our Lending segment reflected the following: (i) a decline in securitization debt interest expense (exclusive of debt issuance and discount amortization) of$3.7 million and$13.3 million , respectively; (ii) a decline in residual interests classified as debt interest expense of$1.1 million and$2.9 million , respectively; and (iii) a decline in debt issuance cost interest expense of$0.1 million 93
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and$6.2 million , respectively. Additionally, in the three-month 2022 period, we recognized FTP interest expense of$40.3 million compared to$6.3 million of actual interest incurred on our use of securitizations and warehouse facilities in the corresponding 2021 period prior to our implementation of the FTP framework. In the nine-month 2022 period, we recognized the actual interest incurred on our use of securitizations and warehouse facilities for one month of$1.7 million and FTP interest expense for eight months of$68.5 million , compared to$26.1 million of actual interest expense on our use of securitizations and warehouse facilities in the corresponding 2021 period.
Noninterest income
Noninterest income in our Lending segment increased by$24.1 million , or 17%, and by$120.2 million , or 35%, for the three and nine months endedSeptember 30, 2022 , respectively, compared to the same periods in 2021, the components of which are discussed below. Loan Origination and Sales. Loan origination and sales increased by$21.6 million , or 15%, and by$103.6 million , or 29%, for the three and nine months endedSeptember 30, 2022 , respectively, compared to the same periods in 2021. See "Results of Operations-Noninterest Income and Net Revenue-Loan Origination and Sales" for information on the primary drivers of the variances. Securitizations. Securitizations income decreased by$4.2 million , or 93%, and by$25.2 million , or 381%, for the three and nine months endedSeptember 30, 2022 , respectively, compared to the same periods in 2021. See "Results of Operations-Noninterest Income and Net Revenue-Securitizations" for information on the primary drivers of the variances. Servicing. Servicing income increased by$6.8 million and by$41.7 million , or 352%, for the three and nine months endedSeptember 30, 2022 , respectively, compared to the same periods in 2021. See "Results of Operations-Noninterest Income and Net Revenue-Servicing" for information on the primary drivers of the variances.
Directly attributable expenses
The directly attributable expenses allocated to the Lending segment that were
used in the determination of the segment's contribution profit were as follows:
Three Months Ended Nine Months Ended
September 30, 2022 vs 2021 September 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Direct advertising $ 44,813 $ 31,581 42 % $ 127,704 $ 88,897 44 %
Compensation and benefits 27,717 23,697 17 % 77,855 66,004 18 %
Lead generation 25,999 17,278 50 % 69,381 35,690 94 %
Loan origination and servicing
costs 10,736 15,810 (32) % 31,838 43,347 (27) %
Professional services 1,896 1,896 - % 5,765 4,593 26 %
Other(1) 5,242 7,545 (31) % 24,271 22,671 7 %
Directly attributable expenses
19 %$ 336,814 $ 261,202 29 %
______________
(1)Other expenses primarily include loan marketing expenses, third party loan fraud, member promotional expenses, tools and subscriptions, travel and occupancy-related costs.
Lending segment directly attributable expenses for the three and nine months endedSeptember 30, 2022 increased by$18.6 million , or 19%, and$75.6 million , or 29%, respectively, compared to the same periods in 2021, primarily due to the following: •increases of$13.2 million for the three-month period and$38.8 million for the nine-month period in direct advertising related to direct mail, search engine and social network advertising, partially offset by declines in television advertisement; •increases of$8.7 million for the three-month period and$33.7 million for the nine-month period due to increasing utilization of lead generation channels primarily associated with increased personal loan origination volume in the 2022 periods; •increases of$4.0 million for the three-month period and$11.9 million for the nine-month period in allocated compensation and related benefits, which primarily reflected increases in headcount allocated to the lending segment, partially offset by decreases in home loan commissions attributable to decreases in home loan originations; 94
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•an increase for the nine-month 2022 period related to third-party personal loan
fraud of
•decreases of$5.1 million for the three-month period and$11.5 million for the nine-month period in loan origination and servicing costs, which were largely attributable to decreases in home loan origination costs of$6.2 million and$15.2 million , respectively, that correlated with decreases in home loan origination volume. These decreases were partially offset by increases in personal loan origination costs of$1.6 million and$4.4 million , respectively, which corresponded with increases in personal loan origination volume.
Technology Platform Segment
In the table below, we present a metric that is related to Galileo within our Technology Platform segment:
2022 vs 2021
September 30, 2022 September 30, 2021 % Change
Total accounts 124,332,810 88,811,022 40 %
See "Key Business Metrics" for further discussion of this measure as it relates to our Technology Platform segment.
Technology Platform Segment Results of Operations
The following table presents the measure of contribution profit for the
Technology Platform segment. The information is derived from our internal
financial reporting used for corporate management purposes. Refer to Note 17 to
the Notes to Unaudited Condensed Consolidated Financial Statements for further
information regarding Technology Platform segment performance.
Three Months Ended Nine Months Ended
September 30, 2022 vs 2021 September 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Net interest income (expense) $ -
(100) % $ -$ (29) (100) % Noninterest income 84,777 50,186 69 % 229,481 141,616 62 % Total net revenue 84,777 50,225 69 % 229,481 141,587 62 %
Directly attributable expenses (65,241) (34,484)
89 % (169,849) (97,148) 75 %
Contribution profit $ 19,536 $ 15,741 24 % $ 59,632 $ 44,439 34 %Noninterest income
Noninterest income in our Technology Platform segment increased by
Technology Products and Solutions. Technology products and solutions revenues increased by$33.8 million , or 68%, and by$87.2 million , or 62%, for the three and nine months endedSeptember 30, 2022 , respectively, compared to the same periods in 2021. See "Results of Operations-Noninterest Income and Net Revenue-Technology Products and Solutions" for information on the primary drivers of the variances. In addition, the variances are inclusive of$1.8 million and$4.2 million of intercompany revenue for the three and nine months endedSeptember 30, 2022 , respectively. 95
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Directly attributable expenses
The directly attributable expenses allocated to the Technology Platform segment
that were used in the determination of the segment's contribution profit were as
follows:
Three Months Ended Nine Months Ended
September 30, 2022 vs 2021 September 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Compensation and benefits $ 39,862 $ 17,469 128 %$ 101,544 $ 49,971 103 % Product fulfillment 10,531 8,696 21 % 29,489 23,154 27 % Tools and subscriptions 5,425 2,840 91 % 13,552 7,433 82 % Professional services 3,609 912 296 % 10,492 4,828 117 % Other(1) 5,814 4,567 27 % 14,772 11,762 26 % Directly attributable expenses$ 65,241 $ 34,484 89 %$ 169,849 $ 97,148 75 % ___________________
(1)Other expenses are primarily related to advertising and marketing, travel and occupancy-related costs, bad debt and data center expenses.
Technology Platform segment directly attributable expenses increased by$30.8 million , or 89%, and by$72.7 million , or 75%, for the three and nine months endedSeptember 30, 2022 , respectively, compared to the same periods in 2021, primarily due to the following: •increases of$22.4 million for the three-month period and$51.6 million for the nine-month period in compensation and benefits expense, which was correlated with an increase in personnel to support segment growth. Technisys compensation and benefits contributed$15.7 million and$34.3 million during the three- and nine-month 2022 periods, respectively; •increases of$1.8 million for the three-month period and$6.3 million for the nine-month period in product fulfillment costs, primarily related to payment processing network association fees associated with increased activity on the integrated platform-as-a-service; •increases of$2.6 million for the three-month period and$6.1 million for the nine-month period in tools and subscriptions costs, primarily related to headcount increases and internal technology initiatives to support the growth of the platform, of which$0.5 million and$1.8 million , respectively, were related to the operations of Technisys; •increases of$2.7 million for the three-month period and$5.7 million for the nine-month period in professional services costs, of which$1.7 million and$4.8 million , respectively, were related to the operations of Technisys; and •increases of$1.2 million for the three-month period and$3.0 million for the nine-month period in other expenses, which were primarily related to advertising, marketing and travel and occupancy-related costs that were largely incurred at Technisys, partially offset by lower data center expenses.
Financial Services Segment
In the table below, we present a key metric related to our Financial Services
segment:
2022 vs. 2021
Metric September 30, 2022 September 30, 2021 % Change
Total products (number, as of period end) 5,918,805 3,236,783 83 %
Total products in our Financial Services segment is a subset of our total products metric. See "Key Business Metrics" for a further discussion of this measure as it relates to our Financial Services segment.
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Financial Services Segment Results of Operations
The following table presents the measure of contribution loss for the Financial
Services segment. The information is derived from our internal financial
reporting used for corporate management purposes. During the first quarter of
2022, we implemented an FTP framework to attribute net interest income to our
business segments based on their usage and/or provision of funding, as further
discussed below.
Three Months Ended Nine Months Ended
September 30, 2022 vs 2021 September 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Net interest income(1) $ 28,158 $ 1,209 n/m $ 46,965 $ 1,980 n/m
Noninterest income 20,795 11,411 82 % 55,894 34,142 64 %
Total net revenue 48,953 12,620 288 % 102,859 36,122 185 %
Directly attributable expenses (101,576) (52,085) 95 % (258,697) (135,851) 90 %
Contribution loss $ (52,623) $ (39,465) 33 % $ (155,838) $ (99,729) 56 %
___________________
(1)Net interest income and, thereby, total net revenue and contribution loss for
our Financial Services segment reported for the three and nine months ended
September 30, 2022 reflects the implementation of an FTP framework, under which
Financial Services segment net interest income reflects the difference between
an FTP credit for the segment's provision of deposits as a source of funding and
an FTP charge for the segment's use of funds to originate credit card loans. For
the comparative periods ended September 30, 2021 , our Financial Services segment
net interest income was nominal, as it did not have deposits and the credit card
product was nascent. If we had applied our current FTP framework during the
comparative three and nine month periods, the Financial Services segment net
interest income would not have materially changed.
Net interest income
Net interest income in our Financial Services segment increased by$26.9 million and$45.0 million for the three and nine months endedSeptember 30, 2022 , respectively, compared to the same periods in 2021. For the three- and nine-month 2022 periods, net interest income primarily reflected net interest income earned on our deposits of$22.3 million and$33.7 million , respectively, which includes interest income based on our FTP framework (which eliminates in consolidation) and interest expense to members, and corresponds with the level of deposits atSoFi Bank . In addition, net interest income earned on our credit card loans increased by$3.0 million and$7.9 million for the three and nine month periods, respectively, which was primarily attributable to growth in the average balance. Noninterest income
Noninterest income in our Financial Services segment increased by
•increases in referral fees of$5.8 million for the three-month period and$17.0 million for the nine-month period, which were primarily attributable to growth in referral fulfillment activity that we began in the third quarter of 2021, as well as growth in our partner relationships and related activity, as we continue to onboard new partners and help drive volume to these partners;
•increases in payment network fees of
•increases of
•a reduction in trading losses related to our SoFi Invest product during the
nine-month period of
•decreases in brokerage-related fees of$0.4 million for the three-month period and$3.2 million for the nine-month period, which coincided with lower digital assets trading volume on our platform during the 2022 periods; and
•a decrease in enterprise service fees of
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Directly attributable expenses
The directly attributable expenses allocated to the Financial Services segment
that were used in the determination of the segment's contribution loss were as
follows:
Three Months Ended Nine Months Ended
September 30, 2022 vs 2021 September 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Compensation and benefits $ 31,369 $ 22,087 42 % $ 81,678 $ 60,671 35 %
Provision for credit losses 16,323 2,401 580 % 39,387 2,887 n/m
Member incentives 11,712 4,456 163 % 27,517 13,746 100 %
Direct advertising 10,063 6,299 60 % 26,214 13,097 100 %
Product fulfillment 8,416 6,539 29 % 23,841 16,656 43 %
Lead generation 7,751 2,668 191 % 16,324 7,874 107 %
Professional services 1,020 1,003 2 % 3,354 3,407 (2) %
Intercompany technology
platform expenses 1,065 - n/m 2,788 - n/m
Other(1) 13,857 6,632 109 % 37,594 17,513 115 %
Directly attributable expenses
95 %$ 258,697 $ 135,851 90 %
___________________
(1)Other expenses primarily include tools and subscriptions, operational product losses, third party fraud expense, travel and occupancy-related costs, and marketing-related expenses.
Financial Services directly attributable expenses increased by
•increases of$13.9 million for the three-month period and$36.5 million for the nine-month period related to our provision for credit losses, which were primarily related to increases in the provision for credit card loans of$13.7 million and$35.5 million , respectively, due to higher average credit card balances combined with elevated credit card loss rates during the 2022 periods. The remaining changes were associated with loans acquired in the Bank Merger during the first quarter of 2022; •increases of$9.3 million for the three-month period and$21.0 million for the nine-month period in compensation and benefits expense, which reflected our ongoing prioritization of growth in the Financial Services segment that required additional staffing; •increases of$7.3 million for the three-month period and$13.8 million for the nine-month period primarily related to increased direct member incentives utilized to drive adoption and usage of our Financial Services products, the most significant of which was SoFi Checking and Savings, partially offset by lower incentives related to SoFi Invest; •increases of$3.8 million for the three-month period and$13.1 million for the nine-month period in direct advertising costs primarily driven by an increase in search engine and social network marketing. The marketing initiatives were primarily related to the continued promotion of SoFi Checking and Savings; •increases of$5.1 million for the three-month period and$8.5 million for the nine-month period related to lead generation, primarily related to SoFi Checking and Savings; •increases of$1.9 million for the three-month period and$7.2 million for the nine-month period in product fulfillment costs related to SoFi Checking and Savings and cash management accounts, which included such activities as brokerage expenses and debit card fulfillment services, operatingSoFi Bank , and operating our cash management sweep program. The nine-month variance was also driven by$1.9 million of higher costs related to credit card fulfillment; and •increases of$7.2 million for the three-month period and$20.1 million for the nine-month period in other costs, which were primarily related to increases in third-party credit card fraud of$5.0 million and$13.4 million , respectively, and increases in operational product losses of$0.7 million and$3.4 million , respectively. In addition, we had increases in travel and occupancy-related costs and tools and subscriptions costs. 98
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Corporate/Other Non-Reportable Segment
Non-segment operations are classified as Corporate/Other (previously referred to as "Other"), which includes net revenues associated with corporate functions that are not directly related to a reportable segment, as well as, beginning in the first quarter of 2022, the financial impact of our capital management activities within the treasury function, which reflects the residual impact from the FTP charges and FTP credits on our reportable segments under our FTP framework.
Reconciliation of Directly Attributable Expenses
The following table reconciles directly attributable expenses allocated to our reportable segments to total noninterest expense in the unaudited condensed consolidated statements of operations and comprehensive income (loss):
Three Months Ended September 30, Nine Months Ended September 30,
($ in thousands) 2022 2021 2022 2021
Reportable segments directly attributable
expenses $ (283,220) $
(184,376)
1,757 - 4,198 -
Expenses not allocated to segments:
Share-based compensation expense (77,855) (72,681) (235,018) (162,289)
Depreciation and amortization expense (40,253) (24,075) (109,007) (75,041)
Employee-related costs(1) (49,248) (39,601) (137,254) (108,825)
Fair value change of warrant liabilities - 64,405 - (96,504)
Special payment(2) - - - (21,181)
Other corporate and unallocated expenses(3) (49,617) (45,544) (154,187) (112,946)
Total noninterest expense $ (498,436) $
(301,872)
___________________
(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)Included a special payment to the Series 1 preferred stockholders in connection with the Business Combination in the second quarter of 2021.
(3)Represents corporate overhead costs that are not allocated to reportable segments, which primarily includes corporate marketing and advertising costs, tools and subscription costs, professional services costs, corporate andFDIC insurance costs and transaction-related expenses.
Liquidity and Capital Resources
Liquidity
We strive to maintain access to diverse funding sources and ample liquidity to
fund our operating requirements, to pursue strategic growth initiatives and to
meet our legal and regulatory requirements. Our principal sources of liquidity
are our cash and cash equivalents, including cash from operations, and
investments in other highly liquid assets.
We maintain a Capital and Asset Liability Management policy ("CALM") that
outlines specific requirements relating to the oversight of SoFi Technologies,
Inc. (and its subsidiaries) capital planning, financial planning and
forecasting, liquidity risk management, contingency funding planning, interest
rate risk management, cash management and financial operations, among other
activities. Oversight of these activities is the responsibility of our Asset
Liability Committee (the "ALCO"). The ALCO is comprised of a cross-functional
leadership team that is responsible for managing our use of capital, liquidity,
sources and uses of funding, and sensitivities to various market risks, by
identifying key risks and exposures, monitoring them appropriately, establishing
tolerances and limits, and mitigating risks where appropriate, to ensure the
company has the ability to meet its obligations.
The following table summarizes our on-balance sheet liquidity:
September 30, December 31,
($ in thousands) 2022 2021
Cash and cash equivalents $ 935,159 $ 494,711
Investments in available-for-sale debt securities 195,133 194,907
Available liquidity $
1,130,292
We believe our existing balance sheet liquidity 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.
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SoFi Technologies, Inc. TABLE OF CONTENTS Sources of Funding
Our primary funding sources include
Deposits
We commenced offering deposit accounts (SoFi Checking and Savings accounts) to our members throughSoFi Bank in the first quarter of 2022. During the third quarter of 2022, we also sourced brokered and non-brokered wholesale deposits, which include certificates of deposit. As ofSeptember 30, 2022 , time deposit balances due in less than one year totaled$509.3 million . We did not have any deposits as ofDecember 31, 2021 .
Borrowing Capacity
The following table summarizes our available capacity on our borrowings:
September 30, 2022 December 31, 2021
Available Available
($ in thousands) Capacity Maturity Capacity Maturity
Warehouse facilities $ 4,586,050 October 2022 - $ 5,561,130 January 2022 -
January 2032 January 2030
Revolving credit facility 74,000 September 2023 74,000 September 2023
Total available capacity $ 4,660,050 $ 5,635,130
Uses of Funding
Our primary uses of funds include loan originations, the losses generated by our
Financial Services segment, and investments in our business, such as technology
and product investments and sales and marketing initiatives. Our capital
expenditures have historically been less significant relative to our operating
and financing cash flows, and we expect this trend to continue for the
foreseeable future.
As of September 30, 2022 , we had debt obligations, common stock and redeemable
preferred stock outstanding. Our borrowings primarily included our loan and risk
retention warehouse facilities, asset-backed securitization debt, revolving
credit facility and convertible notes. In connection with the issuance of the
convertible notes, we entered into privately negotiated capped call transactions
with certain financial institutions (the "capped call transactions"), which are
expected to generally reduce the potential dilutive effect on the common stock
upon any conversion of the notes and/or offset any cash payments we are required
to make in excess of the principal amount of the converted notes, as the case
may be. A detailed description of each of our borrowing arrangements is included
in Note 9 to the Notes to Unaudited Condensed Consolidated Financial Statements
in this Form 10-Q and in Note 10 to the Notes to Consolidated Financial
Statements in our Form 10-K for the year ended December 31, 2021 (the "Form
10-K"). Refer to Note 12 in the Form 10-K for additional information on the
Capped Call Transactions.
The amount owed and outstanding on our loan warehouse facilities fluctuates
significantly based on our origination volume, sales volume, the amount of time
we strategically hold loans on our balance sheet, and the amount of loans being
self-funded with cash.
The amount of financing actually advanced on each individual loan under our loan
warehouse facilities, as determined by agreed-upon advance rates, may be less
than the stated advance rate depending, in part, on changes in underlying
characteristics of the loans securing the financings.
Covenants
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 Redeemable Preferred Stock. Additionally, we
have compliance requirements associated with our convertible notes, and certain
provisions of the arrangement could change in the event of a "Make-Whole
Fundamental Change", as defined in the indenture.
The availability of funds under our warehouse facilities and revolving credit
facility is subject to, among other conditions, our continued compliance with
the covenants. These financial covenants include, but are not limited to,
maintaining: (i) a certain minimum tangible net worth, (ii) minimum cash and
cash equivalents, and (iii) a maximum leverage ratio of total debt to tangible
net worth. A breach of these covenants can result in an event of default under
these facilities and allows the
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lenders to pursue certain remedies. Our subsidiaries are restricted in the amount that can be distributed to SoFi only to the extent that such distributions would cause the financial covenants to not be met.
In addition, pursuant to our amended and restated agreement related to our Series 1 Redeemable Preferred Stock, we are subject to the following financial covenants:
•Tangible net worth to total debt ratio requirement, which excludes our warehouse, risk retention and securitization related debt;
•Tangible net worth to Series 1 Redeemable Preferred Stock ratio requirement; and
•Minimum excess equity requirements, where the measure of equity includes permanent equity and SoFi Technologies Redeemable Preferred Stock (exclusive of Series 1 Redeemable Preferred Stock), as applicable.
We were in compliance with all covenants.
Capital Management
SoFi Technologies , a bank holding company, andSoFi Bank , a nationally chartered association, are required to comply with regulatory capital rules issued by theFederal Reserve and otherU.S. banking regulators, including the OCC andFDIC . Shortly after we closed the Bank Merger, we allocated$750 million in capital toSoFi Bank and may contribute more capital asSoFi Bank continues to grow. We are required to manage our capital position to maintain sufficient capital to satisfy these regulatory rules and support our business activities, including the requirement to maintain minimum regulatory capital ratios in accordance with theBasel Committee on Banking Supervision standardized approach forU.S. banking organizations (U.S. Basel III). If theFederal Reserve finds that we are not "well-capitalized" or "well-managed", we would be required to take remedial action to comply with all applicable capital and management requirements, which may contain additional limitations or conditions relating to our activities. Additionally, the applicable federal regulatory authority is authorized to determine, under certain circumstances relating to the financial condition of a bank or bank holding company, that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. The requirements establish required minimum ratios for Common Equity Tier 1 ("CET1") risk-based capital, Tier 1 risk-based capital, total risk-based capital and a Tier 1 leverage ratio; set risk-weighting for assets and certain other items for purposes of the risk-based capital ratios; and define what qualifies as capital for purposes of meeting the capital requirements. Additionally, regulatory capital rules include a capital conservation buffer of 2.5% that is added on top of each of the minimum risk-based capital ratios in order to avoid restrictions on capital distributions and discretionary bonuses. 101
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The risk- and leverage-based capital ratios and amounts are presented below:
September 30, 2022 Amount Ratio Required Minimum(1) Well-Capitalized Minimum(2)SoFi Bank CET1 risk-based capital$ 973,457 16.4 % 7.0 % 6.5 % Tier 1 risk-based capital 973,457 16.4 % 8.5 % 8.0 % Total risk-based capital 1,007,447 17.0 % 10.5 % 10.0 % Tier 1 leverage 973,457 17.2 % 4.0 % 5.0 % Risk-weighted assets$ 5,919,709 Quarterly adjusted average assets 5,664,896 SoFi Technologies CET1 risk-based capital$ 3,157,539 24.2 % 7.0 % N/A Tier 1 risk-based capital 3,157,539 24.2 % 8.5 % N/A Total risk-based capital 3,511,903 26.9 % 10.5 % N/A Tier 1 leverage 3,157,539 31.0 % 4.0 % N/A Risk-weighted assets$ 13,048,370 Quarterly adjusted average assets 10,196,750
____________________
(1)Required minimums presented for risk-based capital ratios include the required capital conservation buffer.
(2)The well-capitalized minimum measure is applicable at the bank level only.
As ofSeptember 30, 2022 , our regulatory capital ratios exceeded the thresholds required to be regarded as a well-capitalized institution, and meet all capital adequacy requirements to which we are subject. There have been no events or conditions sinceSeptember 30, 2022 that management believes would change the categorization. Commitments In addition to our warehouse facility borrowings, revolving credit facility borrowings and convertible senior notes, our material commitments requiring, or potentially requiring, the use of cash in future periods primarily include commitments associated with being the named sponsor ofSoFi Stadium , including operating lease obligations and finance lease obligations, which expire in 2040, as well as sponsorship and advertising opportunities related to the stadium itself and the surrounding performance venue and planned retail district. Additional material commitments include operating lease obligations primarily associated with office premises and the remaining commitment related to a four-year cloud computing services arrangement that we executed in the fourth quarter of 2021. Guarantees We may require liquidity resources associated with our guarantee arrangements. As a component of our loan sale agreements, we make certain representations to third parties that purchased our previously held loans. We have a three-year obligation to GSEs on loans that we sell to GSEs, to repurchase any originated loans that do not meet certain GSE guidelines, and we are required to pay the full initial purchase price back to the GSEs. In addition, we make standard representations and warranties related to student, personal and 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 15 to the Notes to Unaudited Condensed Consolidated Financial Statements for further information on these and other guarantee obligations. We believe we have adequate liquidity to meet these expected obligations.
Factors Affecting Liquidity
We are currently dependent on the success of our lending business. The primary
drivers of operating cash flows related to our Lending segment are origination
volume, the holding period of our loans, loan sale execution and the timing of
loan repayments. Our ability to access whole loan buyers, to sell our loans on
favorable terms, to maintain adequate warehouse capacity at favorable terms, to
access new SoFi bank deposits and grow existing bank deposits and to
strategically manage our continuing financial interest in securitization-related
transfers is critical to our growth strategy and our ability to have adequate
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liquidity to fund our balance sheet. Our ability to attract and maintain bank deposits can be impacted by, among other things, general economic conditions, competition from other financial services firms, idiosyncratic events and the interest rates we offer, which can impact our liquidity from deposits. Additionally, there is no guarantee that we will be able to execute on our strategy as it relates to the timing and pricing of securitization-related transfers. 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. Our cash flows from operations have also been impacted by material net losses. 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. Further, future uncertainties around the demand for our personal loans, home loans and around the student loan refinance market in general, including as a result of worsening macroeconomic conditions, should be considered when assessing our future liquidity and solvency prospects. In the future, our loan origination volume and our resulting loan balances, and any positive cash flows thereof, could also be lower based on strategic decisions to tighten our credit standards. In addition to our ability to pledge unencumbered loans against available warehouse capacity, we have relationships with whole loan buyers who have historically demonstrated strong demand for our loans. Securitization markets can also generate additional liquidity; however, financing through the securitization market could result in worse execution as compared to whole loans sales depending on market conditions and, in certain cases, we are required to maintain a minimum investment due to securitization risk retention rules. Additionally, our securitization transactions require us to maintain a continuing financial interest in the form of securitization investments when we deconsolidate the 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. 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. Our long-term liquidity strategy includes continuing to grow our SoFi bank deposit base, maintaining adequate warehouse capacity, maintaining corporate debt and other sources of financing, as well as effectively managing the capital raised through debt and equity transactions. 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. OnAugust 16, 2022 , the Inflation Reduction Act (the "IRA"), was signed into law. The IRA enacted a 15% corporate book minimum tax and a 1% excise tax on stock repurchases effective afterDecember 31, 2022 . The IRA is not expected to have a material impact on our operations or cash flows for the foreseeable future.
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