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 ofJune 30, 2022 were as follows: Lending Technology Platform Financial Services • Student Loans(1) • Technology
Products and • SoFi Checking and • Loan referrals
Solutions Savings
• Personal Loans • SoFi Money • SoFi At Work
• Home Loans • SoFi Invest(2) • SoFi Protect
• SoFi Relay • Lantern Credit
• SoFi Credit Card • Equity capital markets
and advisory services
__________________
(1)Composed of in-school loans and student loan refinancing.
(2)Our SoFi Invest service is composed of three products: active investing
accounts, robo-advisory accounts and digital assets accounts. SoFi Invest also
includes our brokerage accounts through 8 Limited in
We define a member 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. Since our inception through June 30,
2022 , we have served approximately 4.3 million members who have used
approximately 6.6 million products on the SoFi platform.
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SoFi Technologies, Inc. TABLE OF CONTENTS Members In Thousands [[Image Removed: sofi-20220630_g1.jpg]] We offer our members 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 . 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 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. While we primarily operate inthe United States , we expanded intoHong Kong with our acquisition of 8 Limited (an investment business), we gained clients inMexico andColombia with our acquisition of Galileo, and we further expanded intoLatin America with the Technisys Merger. 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 allow existing members to convert theirSoFi Money cash management accounts into SoFi Checking and Savings accounts held atSoFi Bank , which allows us to offer both checking and savings features and higher interest rates on the accounts, and through whichSoFi Bank can use the deposit accounts as an alternative and more cost-effective source of funding for loans, as compared to our loan warehouse facility financing arrangements. We are originating all new loan applications withinSoFi Bank and transferred SoFi Credit Card and the majority of other lending products toSoFi Bank . Additionally, throughSoFi Bank , we expect to, among other things, issue SoFi debit cards and provide ACH, check, and wire transaction services over time. The key 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 ability to hold loans on our balance sheet for longer periods, thereby enabling 68
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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. Below is a discussion of our segments, their
corresponding products and the ways in which those products generate revenues
and/or incur expenses for the Company. 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 services. We believe that our market opportunity within each of these lending channels is significant. 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. We are originating all new loan applications withinSoFi Bank .
A key element of our underwriting process is the ability to facilitate risk-based interest rates that are appropriate for each loan. Using SoFi's proprietary risk models, we project quarterly loan performance, including expected losses and prepayments. The outcome of this process helps us determine a more data-driven, risk-adjusted interest rate that we can offer our members.
Our lending business is primarily a gain-on-sale model, whereby we seek to originate loans and recognize a gain from these loans when we sell them into either our whole loan or securitization channels. We sell our whole loans primarily to large financial institutions, such as bank holding companies, 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 its ecosystem that we originate and on which we retain servicing, which provides a meaningful data asset. 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 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.
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 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,
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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 across our SoFi Checking and Savings account,SoFi Money cash management account, SoFi Invest, SoFi Credit Card and SoFi Relay products. We also acquired commercial and consumer banking loans in the Bank Merger, which we do not expect to have a material impact on our segment performance. SoFi Checking and Savings provides a digital banking experience, while aSoFi Money cash management account provides a digital cash management experience for our members. Following the Bank Merger, we began to allow members to convert theirSoFi Money cash management accounts into SoFi Checking and Savings accounts held atSoFi Bank . EffectiveJune 5, 2022 , ourSoFi Money 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 ourSoFi Money cash management accounts. SoFi Invest is a mobile-first investment platform offering members access to trading and advisory solutions, such as active investing, robo-advisory and digital assets accounts, the latter of which are further discussed below. SoFi Credit Card has 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. To complement these products, we offer financial tracking through SoFi Relay, and partner with other enterprises through loan referrals and our SoFi At Work service. We also developed a financial services marketplace platform branded Lantern Credit to help applicants that do not qualify for SoFi products with alternative products from other providers, as well as providing a product comparison experience.
We earn revenues in connection with our Financial Services segment through
various partnerships and our SoFi Checking and Savings accounts,
•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. Historically, these fees have not been a significant portion of our total net revenue. Beginning in the fourth quarter of 2021, we introduced a flat monthly platform fee that is charged to members associated with our 8 Limited business inHong Kong . The fee is assessed at each month end on all members with at least one open 8 Limited brokerage account (with the exception of accounts for which the applicable fee exceeds the account's net asset value at month end) regardless of the volume or frequency of trading activity during the month. The fee is deducted directly from the member's primary brokerage account. •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 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. •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 ourSoFi Money 70
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cash management accounts to SoFi Checking and Savings accounts held at
•Enterprise service fees: These fees are earned in connection with services we provide to enterprise partners through our At Work product, such as when we facilitate transactions for the benefit of their employees, such as 529 plan contributions or student loan payments. •Equity capital markets fees: Equity capital markets fees consist of underwriting fees. Beginning in the second quarter of 2021, we began earning underwriting fees related to our membership in underwriting syndicates for IPOs. We recognize equity capital markets fees on the applicable trade date. •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 andSoFi Money cash management balances. COVID-19 Pandemic The ongoing novel coronavirus ("COVID-19") pandemic and its effects continue to evolve, particularly with the emergence of new variants and sub-variants that are increasingly transmissible and immune-evading. Macroeconomic conditions have been volatile and impacted by worker shortages, supply chain issues, inflationary pressures, vaccine and testing requirements, and measures taken in response to the emergence of new variants. We are unable to predict the future path or impact of any global or regional COVID-19 resurgences, including existing or future variants, or other public health crises. The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations and financial condition will depend on future developments that are still uncertain and cannot be predicted. See Part II, Item 1A "Risk Factors - COVID-19 Pandemic Risks" for additional discussion of the risks and uncertainties associated with the ongoing impacts from the COVID-19 pandemic. 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 June 30, Six Months Ended June 30, ($ in thousands) 2022 2021 2022 2021 Lending Net interest income(1)$ 114,003 $ 56,822 $ 208,357 $ 108,599 Total noninterest income 143,114 109,469 301,749 205,669 Total net revenue 257,117 166,291 510,106 314,268 Adjusted net revenue(2) 250,681 172,232 495,053 340,269 Contribution profit 141,991 89,188 274,642 176,874 Technology Platform Net interest expense $ -$ (32) $ -$ (68) Total noninterest income 83,899 45,329 144,704 91,430 Total net revenue(3) 83,899 45,297 144,704 91,362 Contribution profit 21,841 13,013 40,096 28,698 Financial Services Net interest income(1)$ 12,925 $ 542 $ 18,807 $ 771 Total noninterest income 17,438 16,497 35,099 22,731 Total net revenue 30,363 17,039 53,906 23,502 Contribution loss(3) (53,700) (24,745) (103,215) (60,264) Corporate/Other(4) Net interest expense$ (4,199)
(4,653) 3,967 (6,343) 4,136
Total net revenue (loss)(3) (8,852) 2,647 (15,845) (1,874)
Consolidated
Net interest income $ 122,729 $ 56,012 $ 217,662 $ 103,292
Total noninterest income 239,798 175,262 475,209 323,966
Total net revenue 362,527 231,274 692,871 427,258
Adjusted net revenue(2) 356,091 237,215 677,818 453,259
Net loss (95,835) (165,314) (206,192) (342,878)
Adjusted EBITDA(2) 20,304 11,240 28,988 15,372
___________________
(1)Net interest income for our Lending and Financial Services segments reported
for the three and six months ended June 30, 2022 reflects the implementation of
an FTP framework.
(2)Adjusted net revenue and adjusted EBITDA are non-GAAP financial measures. For
information regarding our uses and definitions of these measures and for
reconciliations to the most directly comparable
(3)Technology Platform segment total net revenue for the three and six months endedJune 30, 2022 includes$953 and$1,723 , respectively, of 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. The revenue is eliminated within Corporate/Other and the expense represents a reconciling item of segment contribution profit (loss) to consolidated loss before income taxes. 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 both the three and six months endedJune 30, 2022 , total net revenue for the Technology Platform segment 72
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included$718 of 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. The revenue is eliminated within Corporate/Other and the expense is adjusted in our reconciliation of directly attributable expenses below. See Note 17 to the Notes to Unaudited Condensed Consolidated Financial Statements for additional information. (4)Corporate/Other (previously referred to as "Other") primarily includes total net revenue 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 six months endedJune 30, 2022 , net interest income 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 inLatin America to 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-20220630_g2.jpg]]
We reconcile adjusted net revenue to total net revenue, the most directly comparable GAAP measure, as presented below for the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
($ in thousands) 2022 2021 2022 2021
Total net revenue $ 362,527 $
231,274
(9,098) 224 (20,678) 12,333
Residual interests classified as
debt - change in valuation inputs or
assumptions(2) 2,662 5,717 5,625 13,668
Adjusted net revenue $ 356,091 $ 237,215 $ 677,818 $ 453,259
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(1)Reflects changes in fair value inputs and assumptions on servicing rights,
including conditional prepayment and default rates and discount rates. These
assumptions are highly sensitive to market interest rate changes and are not
indicative of our performance or results of operations. Moreover, these non-cash
charges are unrealized during the period and, therefore, have no impact on our
cash flows from operations. As such, these positive and negative changes are
adjusted out of total net revenue to provide management and financial users with
better visibility into the net revenue available to finance our operations and
our overall performance.
(2)Reflects changes in fair value inputs and assumptions on residual interests
classified as debt, including conditional prepayment and default rates and
discount rates. When third parties finance our consolidated securitization
variable interest entities ("VIEs") by purchasing residual interests, we receive
proceeds at the time of the closing of the securitization and, thereafter, pass
along contractual cash flows to the residual interest owner. These residual debt
obligations are measured at fair value on a recurring basis, but they have no
impact on our initial financing proceeds, our future obligations to the residual
interest owner (because future residual interest claims are limited to
contractual securitization collateral cash flows), or the general operations of
our business. As such, these positive and negative non-cash changes in fair
value attributable to assumption changes are adjusted out of total net revenue
to provide management and financial users with better visibility into the net
revenue available to finance our operations.
We reconcile adjusted net revenue to total net revenue, the most directly
comparable GAAP measure, as presented below for the quarterly periods indicated:
Quarter Ended
June 30, March 31, December 31, September 30, June 30,
($ in thousands) 2022 2022 2021 2021 2021
Total net revenue $ 362,527 $ 330,344
(9,098) (11,580) (9,273) (409) 224
Residual interests classified as debt -
change in valuation inputs or
assumptions(2) 2,662 2,963 3,541 5,593 5,717
Adjusted net revenue $ 356,091 $ 321,727 $ 279,876 $ 277,190 $ 237,215
___________________(1)See footnote (1) to the table above.
(2)See footnote (2) to the table above.
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The reconciling items to determine our non-GAAP measure of adjusted net revenue
are applicable only to the Lending segment. The table below presents adjusted
net revenue for the Lending segment for the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
($ in thousands) 2022 2021 2022 2021
Total net revenue - Lending $ 257,117 $
166,291
(9,098) 224 (20,678) 12,333
Residual interests classified as
debt - change in valuation inputs or
assumptions(2) 2,662 5,717 5,625 13,668
Adjusted net revenue - Lending $ 250,681 $
172,232
___________________
(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
discussed further below), (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-20220630_g3.jpg]]
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We reconcile adjusted EBITDA to net loss, the most directly comparable GAAP measure, below for the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
($ in thousands) 2022 2021 2022 2021
Net loss $ (95,835) $ (165,314) $ (206,192) $ (342,878)
Non-GAAP adjustments:
Interest expense - corporate borrowings(1) 3,450 1,378 6,099 6,386
Income tax expense (benefit)(2) 119 (78) 871 1,021
Depreciation and amortization(3) 38,056 24,989 68,754 50,966
Share-based expense 80,142 52,154 157,163 89,608
Transaction-related expense(4) 808 21,181 17,346 23,359
Fair value changes in warrant liabilities(5) - 70,989 - 160,909
Servicing rights - change in valuation inputs or
assumptions(6) (9,098) 224 (20,678) 12,333
Residual interests classified as debt - change
in valuation inputs or assumptions(7) 2,662 5,717 5,625 13,668
Total adjustments 116,139 176,554 235,180 358,250
Adjusted EBITDA $ 20,304 $ 11,240 $ 28,988 $ 15,372
___________________
(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
six-month 2021 period, interest on the seller note issued in connection with our
acquisition of Galileo. Our adjusted EBITDA measure does not adjust for interest
expense on warehouse facilities and securitization debt, which are recorded
within interest expense-securitizations and warehouses in the unaudited
condensed consolidated statements of operations and comprehensive income (loss),
as these interest expenses are direct operating expenses driven by loan
origination and sales activity. Additionally, our adjusted EBITDA measure does
not adjust for interest expense on deposits or interest expense on our finance
lease liability in connection with SoFi Stadium , which are recorded within
interest expense-other, as these interest expenses are direct operating
expenses. Revolving credit facility interest expense for the three- and
six-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 were primarily a function of SoFi Lending
Corp.'s profitability, and for the 2022 periods, SoFi Bank , in state
jurisdictions where separate filings are required. The income tax expense in the
2022 periods 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 six-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 2021 periods.
(4)Transaction-related expenses in the 2022 periods primarily included financial advisory and professional services costs associated with our acquisition of Technisys. Transaction-related expenses in the three-month 2021 period included the special payment to the holders of Series 1 Redeemable Preferred Stock in conjunction with the Business Combination. Transaction-related expenses in the six-month 2021 period also included 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. The amounts in the 2021 periods 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 and default rates and discount rates. This non-cash change is unrealized during the period and, therefore, has no impact on our cash flows from operations. As such, these positive and negative changes in fair value attributable to assumption changes are adjusted out of net loss to provide management and financial users with better visibility into the earnings available to finance our operations. (7)Reflects changes in fair value inputs and assumptions, including conditional prepayment and default rates and discount rates. When third parties finance our consolidated VIEs through purchasing residual interests, we receive proceeds at the time of the securitization close and, thereafter, pass along contractual cash flows to the residual interest owner. These obligations are measured at fair value on a recurring basis, which has no impact on our initial financing proceeds, our future obligations to the residual interest owner (because future residual interest claims are limited to contractual securitization collateral cash flows), or the general operations of our business. As such, these positive and negative non-cash changes in fair value attributable to assumption changes are adjusted out of net loss to provide management and financial users with better visibility into the earnings available to finance our operations. 76
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We reconcile adjusted EBITDA to net loss, the most directly comparable GAAP measure, for the quarterly periods indicated below:
Quarter Ended
June 30, March 31, December 31, September 30, June 30,
($ in thousands) 2022 2022 2021 2021 2021
Net loss $ (95,835) $ (110,357) $ (111,012) $ (30,047) $ (165,314)
Non-GAAP adjustments:
Interest expense - corporate borrowings 3,450 2,649 2,593 1,366 1,378
Income tax expense (benefit) 119 752 1,558 181 (78)
Depreciation and amortization 38,056 30,698 26,527 24,075 24,989
Share-based expense 80,142 77,021 77,082 72,681 52,154
Transaction-related expense 808 16,538 2,753 1,221 21,181
Fair value changes in warrant liabilities - - 10,824 (64,405) 70,989
Servicing rights - change in valuation
inputs or assumptions (9,098) (11,580) (9,273) (409) 224
Residual interests classified as debt -
change in valuation inputs or assumptions 2,662 2,963 3,541 5,593 5,717
Total adjustments 116,139 119,041 115,605 40,303 176,554
Adjusted EBITDA $ 20,304 $ 8,684 $ 4,593 $ 10,256 $ 11,240
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:
June 30, 2022 June 30, 2021 % Change
Members 4,318,705 2,560,492 69 %
Total Products 6,564,174 3,667,121 79 %
Total Products - Lending segment 1,202,027 981,440 22 %
Total Products - Financial Services segment 5,362,147 2,685,681 100 %
Total Accounts - Technology Platform segment(1) 116,570,038
78,902,156 48 %
___________________
(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 ofJune 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. See "Business Overview". We view members as an indication not only of the size and a measurement of growth of our business, but also as a measure of the significant value of the data we have collected over time. The data we collect from our members helps us to, among other things: (i) assess loan life performance data on each loan in our ecosystem, which can inform risk-based interest rates that we can offer our members, (ii) understand our members' spending behavior to identify and suggest other products we offer that may align with the members' financial needs, and (iii) enhance our opportunities to sell additional products to our members, as our members represent a vital source of marketing opportunities. When we provide additional products to members, it helps improve our unit economics per member, as we save on marketing costs that we would otherwise incur to attract new members. It also increases the lifetime value of an individual member. This in turn enhances ourFinancial 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. 77
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SoFi Technologies, Inc. TABLE OF CONTENTS 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 ofSoFi Money 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 relate to an arrangement in the third quarter of 2021 and 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. Products In Thousands [[Image Removed: sofi-20220630_g4.jpg]]
Total lending products were composed of the following as of the dates indicated:
Lending Products June 30, 2022 June 30, 2021 Variance % Change
Home loans 25,128 18,102 7,026 39 %
Personal loans 714,735 544,068 170,667 31 %
Student loans 462,164 419,270 42,894 10 %
Total lending products 1,202,027 981,440 220,587 22 %
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Total financial services products were composed of the following as of the dates indicated: Financial Services Products June 30, 2022 June 30, 2021 Variance % Change SoFi Money(1) 1,837,138 954,519 882,619 92 % Invest 1,961,425 1,038,570 922,855 89 % Credit Card 139,781 42,744 97,037 227 % Referred loans(2) 28,037 - 28,037 n/m Relay 1,344,538 626,195 718,343 115 % At Work 51,228 23,653 27,575 117 % Total financial services products 5,362,147 2,685,681 2,676,466 100 %
___________________
(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 ofJune 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 Technisys products and solutions, as the revenue model is not primarily dependent upon being a fully integrated, stand-ready service. June 30, 2022 June 30, 2021 Variance % Change Total Accounts 116,570,038 78,902,156 37,667,882 48 %
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
Interest Rates and Macroeconomic Conditions
TheFederal Reserve has increased the benchmark interest rate four times during 2022: 25 basis points inMarch 2022 , 50 basis points inMay 2022 , and 75 basis points in each of June andJuly 2022 . We expect additional increases in the benchmark interest rate during the remainder of 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 experienced negative gross domestic product growth in the first and second quarters of 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. 79
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SoFi Technologies, Inc. TABLE OF CONTENTS Student Loan Relief InApril 2022 ,President Biden directed a sixth extension of the federal student loan payment moratorium toAugust 31, 2022 . We anticipate that there could be an additional extension beyondAugust 2022 by the Biden administration. Increased focus by policymakers and the current presidential administration on outstanding student loans has led to discussions of potential legislative and regulatory actions, among other possible steps, to reduce outstanding balances of loans, or cancel loans at a significant scale, including the potential forgiveness of federal student debt. Should there be further student loan relief measures, we expect that this would continue to decrease the demand for our student loan refinancing products and would likely have an adverse impact on our results of operations and overall business.
Results of Operations
The following table sets forth condensed consolidated statements of income data for the periods indicated:
Three Months Ended June 30, 2022 vs 2021 Six Months Ended June 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Interest income
Loans $ 145,337 $ 79,678 82 % $ 259,722 $ 156,899 66 %
Securitizations 2,567 3,794 (32) % 5,325 8,261 (36) %
Related party notes - - - % - 211 (100) %
Other 1,608 636 153 % 2,877 1,265 127 %
Total interest income 149,512 84,108 78 % 267,924 166,636 61 %
Interest expense
Securitizations and warehouses 18,599 26,250 (29) % 38,505 56,058 (31) %
Deposits 4,543 - n/m 4,974 - n/m
Corporate borrowings 3,450 1,378 150 % 6,099 6,386 (4) %
Other 191 468 (59) % 684 900 (24) %
Total interest expense 26,783 28,096 (5) % 50,262 63,344 (21) %
Net interest income 122,729 56,012 119 % 217,662 103,292 111 %
Noninterest income
Loan origination and sales 144,414 109,719 32 % 302,118 220,064 37 %
Securitizations (11,737) (26) n/m (23,018) (2,062) n/m
Servicing 10,471 (224) n/m 22,707 (12,333) (284) %
Technology products and solutions 81,670 44,950 82 % 141,527 90,609 56 %
Other 14,980 20,843 (28) % 31,875 27,688 15 %
Total noninterest income 239,798 175,262 37 % 475,209 323,966 47 %
Total net revenue 362,527 231,274 57 % 692,871 427,258 62 %
Noninterest expense
Technology and product development 99,366 69,389 43 % 181,274 135,337 34 %
Sales and marketing 143,854 94,951 52 % 281,992 182,185 55 %
Cost of operations 79,091 60,624 30 % 149,528 118,194 27 %
General and administrative 125,829 171,216 (27) % 262,334 332,913 (21) %
Provision for credit losses 10,103 486 n/m 23,064 486 n/m
Total noninterest expense 458,243 396,666 16 % 898,192 769,115 17 %
Loss before income taxes (95,716) (165,392) (42) % (205,321) (341,857) (40) %
Income tax (expense) benefit (119) 78 (253) % (871) (1,021) (15) %
Net loss $ (95,835) $ (165,314) (42) % $ (206,192) $ (342,878) (40) %
Other comprehensive loss
Unrealized losses on
available-for-sale securities, net $ (1,991) $ - n/m $ (6,446) $ - n/m
Foreign currency translation
adjustments, net (56) (266) (79) % (94) (346) (73) %
Total other comprehensive loss (2,047) (266) 670 % (6,540) (346) n/m
Comprehensive loss $ (97,882) $ (165,580) (41) % $ (212,732) $ (343,224) (38) %
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SoFi Technologies, Inc. TABLE OF CONTENTS Interest Income The following table presents the components of our total interest income for the periods indicated: Three Months Ended June 30, 2022 vs 2021 Six Months Ended June 30, 2022 vs 2021 ($ in thousands) 2022 2021 % Change 2022 2021 % Change Loans$ 145,337 $ 79,678 82 %$ 259,722 $ 156,899 66 % Securitizations 2,567 3,794 (32) % 5,325 8,261 (36) % Related party notes - - - % - 211 (100) % Other 1,608 636 153 % 2,877 1,265 127 % Total interest income$ 149,512 $ 84,108 78 %$ 267,924 $ 166,636 61 %
Total interest income increased by
Three Months-Loans. Loans interest income increased by$65.7 million , or 82%, primarily driven by increases in non-securitization personal loan and student loan interest income of$61.7 million (173%) and$9.1 million (41%), respectively, which were primarily a function of increases in aggregate average balances for personal loans and student loans of$2.0 billion (158%) and$1.2 billion (60%), respectively. The personal loan average balance increase was primarily attributable to higher origination volume combined with longer loan holding periods. The student loan average balance increase was primarily attributable to longer loan holding periods. We also had an increase in our whole loan interest rates. These increases were offset by decreases in interest income from consolidated personal loan and student loan securitizations of$6.5 million (61%) and$3.1 million (32%), respectively, which were impacted by decreases in average balances for personal loans and student loans of$265.0 million (63%) and$251.0 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 included$3.2 million attributable to credit card,$1.1 million attributable to the acquired loan portfolio in the Bank Merger, and$0.1 million attributable to home loans. Six Months-Loans. Loans interest income increased by$102.8 million , or 66%, primarily driven by increases in non-securitization personal loan and student loan interest income of$97.5 million and$18.5 million , respectively, which were primarily a function of increases in average balances for personal loans and student loans of$1.6 billion (133%) and$1.2 billion (61%), respectively, attributable to longer loan holding periods. These increases were offset by decreases in interest income from consolidated personal loan and student loan securitizations of$14.1 million (60%) and$7.0 million (34%), respectively, which were impacted by decreases in average balances for personal loans and student loans of$288.9 million (62%) and$277.6 million (35%), 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 included$5.8 million attributable to credit card,$1.7 million attributable to the acquired loan portfolio in the Bank Merger, and$0.6 million attributable to home loans.
Three Months-Securitizations. Securitizations interest income decreased by
Six Months-Securitizations. Securitizations interest income decreased by
Six Months-Related Party Notes. We did not have any related party notes interest income in the 2022 period. Related party notes interest income in the 2021 period of$0.2 million was attributable to our loans to Apex, which were fully settled inFebruary 2021 . See Note 14 to the Notes to Unaudited Condensed Consolidated Financial Statements for additional information on our related party notes. Three Months-Other. Other interest income increased by$1.0 million , or 153%, primarily due to$0.8 million higher interest income earned on our interest-bearing cash and cash equivalents balances primarily due to higher average balances period over period, and interest income of$0.4 million earned on our investments in AFS debt securities, which we did not own 81
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during the comparable 2021 period, partially offset by a decrease of
Six Months-Other. Other interest income increased by$1.6 million , or 127%, primarily due to$1.0 million higher interest income earned on our interest-bearing cash and cash equivalents balances primarily due to higher average balances period over period, and interest income of$0.7 million earned on our investments in AFS debt securities, which we did not own during the comparable 2021 period, partially offset by a decrease of$0.4 million in interest earned onMember Bank deposits, as member balances have increasingly migrated toSoFi Bank . Interest Expense
The following table presents the components of our total interest expense for the periods indicated:
Three Months Ended June 30, 2022 vs 2021 Six Months Ended June 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Securitizations and warehouses $ 18,599 $ 26,250 (29) % $ 38,505 $ 56,058 (31) %
Deposits 4,543 - n/m 4,974 - n/m
Corporate borrowings 3,450 1,378 150 % 6,099 6,386 (4) %
Other 191 468 (59) % 684 900 (24) %
Total interest expense $ 26,783 $ 28,096 (5) % $ 50,262 $ 63,344 (21) %
Total interest expense decreased by
Securitizations and Warehouses. The following tables present the components of
securitizations and warehouses interest expense and other pertinent information.
Three Months Ended June 30, 2022 vs 2021 Six Months Ended June 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Securitization debt interest
expense $ 5,204 $ 9,414 (45) % $ 10,737 $ 20,362 (47) %
Warehouse debt interest expense 9,717 9,370 4 % 19,620 19,901 (1) %
Residual interests classified as
debt interest expense 1,037 2,146 (52) % 2,565 4,345 (41) %
Debt issuance cost interest
expense 2,641 5,320 (50) % 5,583 11,450 (51) %
Securitizations and warehouses
interest expense $ 18,599 $ 26,250 (29) % $ 38,505 $ 56,058 (31) %
Three Months Ended June 30, 2022 vs 2021 Six Months Ended June 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Average debt balances(1)
Securitization debt $ 547,049 $ 983,849 (44) % $ 586,075 $ 1,075,775 (46) %
Warehouse facilities 2,093,373 2,330,664 (10) % 2,318,839 2,435,666 (5) %
Weighted average interest
rates(2)
Securitization debt 3.8% 3.8% n/m 3.7% 3.8% n/m
Warehouse facilities 1.9% 1.6% n/m 1.7% 1.6% n/m
___________________(1)Average balances were calculated based on four- and seven-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 related interest expense.
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Securitizations and warehouses interest expense decreased by$7.7 million , or 29%, for the three months endedJune 30, 2022 compared to the three months endedJune 30, 2021 , and decreased by$17.6 million , or 31%, for the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 , driven by the following: •Securitization debt interest expense (exclusive of debt issuance and discount amortization) decreased by$4.2 million (45%) for the three months endedJune 30, 2022 compared to the same period in 2021, and decreased by$9.6 million (47%) for the six months endedJune 30, 2022 compared to the same period in 2021 primarily driven by a decline in the average balance of securitization debt of 44% and 46%, respectively, which was 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$0.3 million (4%) for the three months endedJune 30, 2022 compared to the same period in 2021, and decreased by$0.3 million (1)% for the six months endedJune 30, 2022 compared to the same period in 2021. The three-month increase in interest expense was attributable to sharp increases in benchmark rates, which were partially mitigated through a decrease in our borrowing base and negotiated decreases in borrowing spreads. The six-month decrease in interest expense was primarily related to the utilization of warehouse facilities with lower spreads during the 2022 period combined with a decrease in our borrowing base, which was partially offset by an increase in benchmark rates. •Residual interests classified as debt interest expense decreased by$1.1 million (52%) for the three months endedJune 30, 2022 compared to the same period in 2021, and decreased by$1.8 million (41%) for the six months endedJune 30, 2022 compared to the same period in 2021, which were correlated with lower balances of residual interests classified as debt during the 2022 periods, as the residual debt balances continue to pay down over time and there were no additions to the balance during the 2022 periods. •Debt issuance cost interest expense decreased by$2.7 million (50%) for the three months endedJune 30, 2022 compared to 2021, and decreased by$5.9 million (51%) for the six months endedJune 30, 2022 compared to the same period in 2021, which were 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 2021 periods, which contributed to favorable variances of$1.5 million and$2.8 million , respectively, period over period. Deposits. Deposits interest expense of$4.5 million and$5.0 million for the three and six months endedJune 30, 2022 , respectively, was related to interest earned by members on deposits held atSoFi Bank , which had average balances of$1.8 billion and$1.1 billion , respectively. Deposit accounts also earned a higher interest rate during the second quarter of 2022. Corporate Borrowings. Corporate borrowings interest expense increased by$2.1 million , or 150%, for the three months endedJune 30, 2022 compared to the same period in 2021, and decreased by$0.3 million , or 4%, for the six months endedJune 30, 2022 compared to the same period in 2021, primarily due to the following:
•We incurred interest expense of
•Interest expense on our revolving credit facility increased by$0.8 million for each of the three- and six-month periods, as one-month LIBOR increased during the second quarter of 2022, while the average balance remained constant.
•Interest expense incurred on the Galileo seller note, which was repaid in
Other. Other interest expense decreased by$0.3 million , or 59%, for the three months endedJune 30, 2022 compared to the same period in 2021, and decreased by$0.2 million , or 24%, for the six months endedJune 30, 2022 compared to the same period in 2021, primarily due to a decrease in interest expense related to ourSoFi Money cash management product, as these accounts ceased earning interest effectiveJune 5, 2022 . 83
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Noninterest Income and Net Revenue
The following table presents the components of our total noninterest income, as well as total net revenue for the periods indicated:
Three Months Ended June 30, 2022 vs 2021 Six Months Ended June 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Loan origination and sales $ 144,414 $ 109,719 32 % $ 302,118 $ 220,064 37 %
Securitizations (11,737) (26) n/m (23,018) (2,062) n/m
Servicing 10,471 (224) n/m 22,707 (12,333) (284) %
Technology products and
solutions 81,670 44,950 82 % 141,527 90,609 56 %
Other 14,980 20,843 (28) % 31,875 27,688 15 %
Total noninterest income $ 239,798 $ 175,262 37 % $ 475,209 $ 323,966 47 %
Total net revenue $ 362,527 $ 231,274 57 % $ 692,871 $ 427,258 62 %
Total noninterest income increased by
Three Months-Loan Origination and Sales. Loan origination and sales increased
by
•an increase of$46.9 million (83%) in personal loan origination and sales income, of which$21.7 million was attributable to the net effect of (i) higher origination volume during the 2022 period, (ii) fair value markups of loans, and (iii) lower execution prices on sales activity. Our economic hedging activities are designed to offset the effects of fair value marks and sales price execution. Overall, we had an increase of$25.2 million on our personal loan economic hedging activities in the 2022 period, which was inclusive of gains on loan origination economic hedges made during the period, as well as economic hedges of loans that remained on our balance sheet fromMarch 31, 2022 or were sold during the 2022 period, and was amplified by the interest rate volatility during the current period as compared to the 2021 period; •an increase of$2.1 million (6%) in student loan origination and sales income, which was inclusive of losses on related student loan commitments of$0.3 million and interest rate caps of$0.9 million . We had an aggregate$31.8 million decline due to the combined impacts of (i) lower origination volume in the current quarter at lower prices, (ii) lower fair value marks of loans, and (iii) lower execution prices on 2022 sales activity. Offsetting these declines were increases of$34.2 million on our student loan economic hedging activities for the same reasons as stated in the foregoing personal loan discussion; •a decrease of$13.9 million (83%) in home loan origination and sales related income, of which$40.7 million was attributable to the effect of lower origination volume in the current quarter at lower prices, as well as lower execution prices on sales activity. Offsetting this decline was the favorable impact related to IRLCs of$3.5 million and higher gains on home loan pipeline hedges of$23.2 million , which offset some of our period-over-period declines in home loan fair values; and •a decrease of$1.1 million (30%) in home loan origination fees, which was driven by a 58% decrease in origination volume that was partially mitigated by higher fees earned per loan originated due the rising interest rate environment in the 2022 period.
Six Months-Loan Origination and Sales. Loan origination and sales increased by
•an increase of$108.5 million (122%) in personal loan origination and sales income, of which$34.7 million was attributable to the net effect of (i) significantly higher origination volume during the 2022 period, (ii) lower fair value marks of loans, and (iii) lower execution prices on sales activity. Our economic hedging activities are designed to offset the effects of fair value marks and sales price execution. Overall, we had higher gains of$73.8 million on our personal loan economic hedging activities in the 2022 period, which was inclusive of gains on loan origination economic hedges made during the period, as well as economic hedges of loans that remained on our balance sheet fromDecember 31, 2021 or were sold during the 2022 period, and was amplified by the interest rate volatility during the current period as compared to the 2021 period; 84
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•an increase of$7.1 million (9%) in student loan origination and sales income, of which$98.0 million was related to our student loan economic hedging activities for the same reasons as stated in the foregoing personal loan discussion. This increase was partially offset by an aggregate$88.5 million decline due to the combined impacts of (i) lower origination volume in the 2022 period at lower prices, (ii) lower fair value mark of loans, and (iii) lower execution prices on 2022 sales activity. Additionally, we had losses on student loan commitments of$2.5 million and interest rate caps of$3.0 million ; •a decrease of$33.8 million (79%) in home loan origination and sales related income, of which$72.2 million was attributable to the effect of lower origination volume in the 2022 period at lower prices, as well as lower execution prices on sales activity. Offsetting this decline was the favorable impact related to IRLCs of$5.2 million and higher gains on home loan pipeline hedges of$33.2 million , which offset some of our period-over-period declines in home loan fair values; and •a decrease of$3.9 million (50%) in home loan origination fees, which was driven by a 58% decrease in origination volume that was partially mitigated by higher fees earned per loan originated due the rising interest rate environment in the 2022 period. Three Months-Securitizations. Securitizations income decreased by$11.7 million , primarily due to an aggregate decrease of$13.9 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$4.6 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$2.7 million in the 2022 period on our economic hedges of securitization investments. Additionally, securitizations income was favorably impacted by a reduction in securitization loan write-offs of$2.9 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 a decline in residual debt fair value adjustments of$1.9 million , exclusive of the portion reclassified to interest expense. Six Months-Securitizations. Securitizations income decreased by$21.0 million , primarily due to an aggregate decrease of$27.9 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$13.2 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$9.1 million in the 2022 period on our economic hedges of securitization investments. Additionally, securitizations income was favorably impacted by a reduction in securitization loan write-offs of$5.6 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 a decline in residual debt fair value adjustments of$6.3 million , exclusive of the portion reclassified to interest expense. 85
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The table below presents additional information related to loan gains and losses
and overall performance:
Three Months Ended June 30, 2022 vs 2021 Six Months Ended June 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Gains from non-securitization loan
transfers $ 21,581 $ 71,064 (70) % $ 68,867 $ 141,964 (51) %
Gains from loan securitization
transfers(1) - 18,021 (100) % - 47,048 (100) %
Economic derivative hedges of
securitization investments(2) 2,749 - n/m 9,068 - n/m
Economic derivative hedges of loan fair values(3) 69,535 (13,937) (599) % 230,142 22,134 940 % Home loan origination fees(4) 2,638 3,770 (30) % 3,931 7,790 (50) % Loan write-off expense - whole loans(5) (13,603) (3,600) 278 % (21,677) (8,725) 148 % Loan write-off expense - securitization loans(6) (425) (3,296) (87) % (2,076) (7,676) (73) % Loan repurchase (expense) benefit(7) (93) (915) (90) % 1,787 (2,398) (175) % ___________________ (1)Represents the gain recognized on loan securitization transfers qualifying for sale accounting treatment, excluding the impact of economic hedging activities. We had no loan securitization transfers during the three and six months endedJune 30, 2022 .
(2)Represents the gain on interest rate swaps utilized to manage interest rate risk associated with certain of our securitization investments.
(3)During the three months endedJune 30, 2022 , we had gains on interest rate swap positions of$53.4 million , which comprised$28.6 million related to student loan hedges and$24.8 million related to personal loan hedges. We also had gains on interest rate caps of$0.9 million . These gains were primarily attributable to increases in interest rates during the period. We also had gains of$15.2 million on home loan pipeline hedges primarily due to decreases in the underlying hedge price index during the period. During the three months endedJune 30, 2021 , we had losses of$5.9 million on interest rate swap positions, primarily due to declines in interest rates during the period, and losses of$8.0 million on mortgage pipeline hedges due to increases in the underlying hedge price index. During the six months endedJune 30, 2022 and 2021, we had gains of$187.9 million and$16.6 million , respectively, on interest rate swap positions. The six-month 2022 period gains comprised$113.2 million related to student loan hedges and$74.8 million related to personal loan hedges. We also had gains on interest rate caps of$3.5 million . These gains were primarily attributable to increases in interest rates during the 2022 period. We also had gains of$38.7 million and$5.6 million during the six months endedJune 30, 2022 and 2021, respectively, on mortgage pipeline hedges primarily due to decreases in the underlying hedge price index during the periods. Our economic hedge gains during the periods also included the impact of hedging of loan origination volume. Amounts presented herein exclude IRLCs and student loan commitments, as they are not economic hedges of loan fair values. (4)For the three and six months endedJune 30, 2022 , the decreases relative to the comparable 2021 periods were correlated with a 58% decrease in each period in home loan origination volume, which was partially mitigated by higher fees earned per loan originated due the rising interest rate environment in 2022. (5)For the three months endedJune 30, 2022 and 2021, includes gross write-offs of$17.7 million and$6.6 million , respectively. During the three-month 2022 period,$1.0 million of the$4.1 million of recoveries were captured via loan sales to a third-party collection agency. During the three-month 2021 period,$1.4 million of the$3.0 million of recoveries were captured via loan sales to a third-party collection agency. For the six months endedJune 30, 2022 and 2021, includes gross write-offs of$29.5 million and$14.0 million , respectively. During the six-month 2022 period,$1.7 million of the$7.8 million of recoveries were captured via loan sales to a third-party collection agency. During the six-month 2021 period,$1.9 million of the$5.2 million of recoveries were captured via loan sales to a third-party collection agency. (6)For the three months endedJune 30, 2022 and 2021, includes gross write-offs of$2.2 million and$5.8 million , respectively. During the three-month 2022 period,$0.2 million of the$1.8 million of recoveries were captured via loan sales to a third-party collection agency. During the three-month 2021 period,$0.6 million of the$2.5 million of recoveries were captured via loan sales to a third-party collection agency. For the six months endedJune 30, 2022 and 2021, includes gross write-offs of$5.5 million and$13.2 million , respectively. During the six-month 2022 period,$0.3 million of the$3.4 million of recoveries were captured via loan sales to a third-party collection agency. During the six-month 2021 period,$1.9 million of the$5.5 million of recoveries were captured via loan sales to a third-party collection agency.
(7)Represents the (expense) benefit associated with our estimated loan repurchase obligation. See Note 15 to the Notes to Unaudited Condensed Consolidated Financial Statements for additional information.
Three Months-Servicing. Servicing income increased by$10.7 million , of which$9.3 million was related to favorable changes in valuation inputs and assumptions, consisting of$6.1 million related to student loans,$3.0 million related to home loans and$0.2 million related to personal loans. The favorable variances were primarily attributable to prepayment rates, as our prepayment rate assumptions increased modestly during the 2021 period compared to a decrease during the 2022 period. We also earned$1.3 million of servicing income in the 2022 period associated with referral activity we facilitate through our platform. Six Months-Servicing. Servicing income increased by$35.0 million , of which$33.0 million was related to favorable changes in valuation inputs and assumptions, consisting of$23.1 million related to student loans,$7.4 million related to home loans and$2.5 million related to personal loans. The favorable variances were primarily attributable to prepayment rates, as our prepayment rate assumptions increased during the 2021 period compared to a decrease during the 2022 period. We also earned$1.9 million of servicing income in the 2022 period associated with referral activity we facilitate through our platform. 86
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We own the master servicing on all of the servicing rights that we retain and,
in each case, recognize the gross servicing rate applicable to each serviced
loan. Sub-servicers are utilized for all serviced student loans and home loans,
which represents a cost to SoFi, but these arrangements do not impact our
calculation of the weighted average basis points earned for each loan type
serviced. Further, there is no impact on servicing income due to forbearance and
moratoriums on certain debt collection activities, and there are no waivers of
late fees. The table below presents additional information related to our loan
servicing activities for the periods indicated:
Three Months Ended June 30, 2022 vs 2021 Six Months Ended June 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Servicing income recognized
Home loans(1) $ 3,103 $ 2,065 50 % $ 6,029 $ 3,809 58 %
Student loans(2) 9,705 12,068 (20) % 19,826 24,228 (18) %
Personal loans(3) 9,103 8,329 9 % 18,095 16,804 8 %
Servicing rights fair value
change
Home loans(4) $ 2,581 $ 5,519 (53) % $ 11,633 $ 13,643 (15) %
Student loans(5) (1,038) (6,737) (85) % (5,084) (1,036) 391 %
Personal loans(6) 1,916 (255) (851) % 2,156 (2,437) (188) %
______________(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 44 bps during the three months endedJune 30, 2022 and 2021, respectively, and 42 bps during each of the six months endedJune 30, 2022 and 2021. (3)The weighted average bps earned for personal loan servicing was 70 bps and 71 bps during the three months endedJune 30, 2022 and 2021, respectively, and 70 bps during each of the six months endedJune 30, 2022 and 2021. (4)The impact on the fair value change resulting from changes in home loan valuation inputs and assumptions was$1.2 million and$(1.8) million during the three months endedJune 30, 2022 and 2021, respectively, and$8.9 million and$1.5 million during the six months endedJune 30, 2022 and 2021, respectively. (5)The impact on the fair value change resulting from changes in student loan valuation inputs and assumptions was$5.7 million and$(0.4) million during the three months endedJune 30, 2022 and 2021, respectively, and$7.0 million and$(16.1) million during the six months endedJune 30, 2022 and 2021, respectively. In addition, the impact of the fair value change resulting from the derecognition of servicing due to loan purchases was$(0.4) million during the three months endedJune 30, 2021 , and$(1.1) million and$(0.4) million during the six months endedJune 30, 2022 and 2021, respectively. (6)The impact on the fair value change resulting from changes in personal loan valuation inputs and assumptions was$2.2 million and$1.9 million during the three months endedJune 30, 2022 and 2021, respectively, and$4.7 million and$2.2 million during the six months endedJune 30, 2022 and 2021, respectively. In addition, the impact of the fair value change resulting from the derecognition of servicing due to loan purchases was$(0.1) million and$(0.2) million during the three months endedJune 30, 2022 and 2021, respectively, and$(0.5) million and$(0.2) million during the six months endedJune 30, 2022 and 2021, respectively. Three Months-Technology Products and Solutions. Technology products and solutions fees increased by$36.7 million , or 82%. The 2022 period was bolstered by$20.3 million of revenue contribution from the Technisys Merger, which closed inMarch 2022 . In addition, our existing integrated technology solutions contributed an increase of$16.4 million in revenue period over period, which was predominantly a function of account growth and activity related to clients that were on our platform for both the 2021 and 2022 periods. Six Months-Technology Products and Solutions. Technology products and solutions fees increased by$50.9 million , or 56%. The 2022 period was bolstered by$26.5 million of revenue contribution from the Technisys Merger, which closed inMarch 2022 . In addition, our existing integrated technology solutions contributed an increase of$24.4 million in revenue period over period, which was predominantly a function of account growth and activity related to clients that were on our platform for both periods. Three Months-Other. Other income decreased by$5.9 million , or 28%, primarily due to (i) a$6.4 million impact from a loss in the 2022 period on a venture capital investment compared to a gain in the 2021 period on the same investment, (ii) the absence in the 2022 period of$1.8 million of equity capital markets services fees earned in the 2021 period, (iii) a$2.9 million decrease in brokerage fees related to lower digital assets trading activity, and (iv) a$2.5 million decrease in enterprise services revenue primarily due to the absence of advisory services revenues in the 2022 period. These decreases were partially offset by increases in referral fees of$5.7 million and payment network fees of$1.7 million . The increase in referral fees was primarily attributable to growth in our partner relationships and related activity, as we continue to onboard new partners and help drive volume to our partners, as well as an increase associated with a referral fulfillment arrangement we entered 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. 87
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Six Months-Other. Other income increased by$4.2 million , or 15%, primarily due to increases in referral fees of$11.2 million and payment network fees of$4.5 million . The increase in referral fees was primarily attributable to growth in our partner relationships and related activity, as we continue to onboard new partners and help drive volume to our partners, as well as an increase associated with a referral fulfillment arrangement we entered 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. We also had a decline in SoFi Invest trading losses of$1.6 million period over period, which had a favorable impact on the other income variance. 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$2.8 million decrease in brokerage fees related to lower digital assets trading activity, (iii) a$2.3 million decrease in enterprise services revenue primarily due to the absence of advisory service revenues in the 2022 period, and (iv) the absence in the 2022 period of$1.8 million of equity capital markets services fees earned in the 2021 period.
Noninterest Expense
The following table presents the components of our total noninterest expense for
the periods indicated:
Three Months Ended June 30, 2022 vs 2021 Six Months Ended June 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Technology and product
development $ 99,366 $ 69,389 43 % $ 181,274 $ 135,337 34 %
Sales and marketing 143,854 94,951 52 % 281,992 182,185 55 %
Cost of operations 79,091 60,624 30 % 149,528 118,194 27 %
General and administrative 125,829 171,216 (27) % 262,334 332,913 (21) %
Provision for credit losses 10,103 486 n/m 23,064 486 n/m
Total noninterest expense $ 458,243 $ 396,666 16 % $ 898,192 $ 769,115 17 %
Total noninterest expense increased by
Three Months-Technology and Product Development. Technology and product
development expenses increased by
•an increase in employee compensation and benefits of$15.9 million , inclusive of an increase in share-based compensation expense of$1.7 million , and of which$9.4 million was attributable to employee compensation and benefits at 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$5.9 million , which was primarily reflective of increased investments in technology in our Technology Platform segment; •an increase in amortization expense on intangible assets of$4.3 million , which was related to intangible asset amortization of$5.6 million associated with acquired intangible assets in the Technisys Merger, partially offset by$1.3 million associated with the acceleration of our core banking infrastructure through the first half of 2021; and
•an increase in software licenses, and tools and subscriptions expense of
Six Months-Technology and Product Development. Technology and product
development expenses increased by
•an increase in employee compensation and benefits of$26.9 million , inclusive of an increase in share-based compensation expense of$7.6 million , and of which$13.8 million was attributable to employee compensation and benefits at 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$3.3 million , which was related to intangible asset amortization of$7.3 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 through the first half of 2021; and 88
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•an increase in software licenses, and tools and subscriptions expense of
Three Months-Sales and Marketing. Sales and marketing expenses increased by
•an increase in advertising expenditures of
•an increase of
•an increase in employee compensation and benefits of$8.2 million , inclusive of an increase in share-based compensation expense of$2.3 million and 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;
•an increase in direct customer promotional expenditures of
•increases in travel and entertainment-related expenditures and software licenses and tools and subscriptions expenses.
Six Months-Sales and Marketing. Sales and marketing expenses increased by
•an increase in advertising expenditures of
•an increase of
•an increase in employee compensation and benefits of$15.1 million , inclusive of an increase in share-based compensation expense of$5.0 million and of which$2.3 million was attributable to Technisys. The remaining increase was correlated with an increase in sales and marketing personnel to support our growth;
•an increase in direct customer promotional expenditures of
•an increase ofSoFi Stadium related expenditures of$2.3 million , which is exclusive of depreciation and interest expense on the embedded lease portion of ourSoFi Stadium agreement; and
•increases related to travel and entertainment-related expenditures and software licenses and tools and subscriptions expenses.
Three Months-Cost of Operations. Cost of operations increased by
•an increase in employee compensation and benefits of$10.3 million , inclusive of an increase in share-based compensation expense of$2.1 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 credit card processing and fulfillment costs of
•an increase in operational losses of
•a decrease in loan origination and servicing expenses of$3.1 million , of which$4.8 million was related to home loans, partially offset by an increase of$1.8 million related to personal loans, which were primarily attributable to changes in origination volume period over period.
Six Months-Cost of Operations. Cost of operations increased by
•an increase in employee compensation and benefits of$19.2 million , inclusive of an increase in share-based compensation expense of$4.8 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
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•an increase in software licenses, tools and subscriptions and other related
fees of
•an increase in operational losses of
•an increase in credit card processing and fulfillment costs of
•a decrease in loan origination and servicing expenses of$6.4 million , of which$9.0 million was related to home loans, partially offset by an increase of$2.9 million related to personal loans, which were primarily attributable to changes in origination volume period over period.
Three Months-General and Administrative. General and administrative expenses
decreased by
•favorability resulting from the absence in the 2022 period of$71.0 million of expense incurred in the 2021 period associated with the fair value increase of our warrant liabilities. The Series H warrants 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; •a decrease in transaction-related expenses of$20.4 million , of which$21.2 million of the variance was attributable to the special payment made to the Series 1 preferred stockholders in the second quarter of 2021 associated with the Business Combination; •an increase in employee compensation and benefits of$35.0 million , inclusive of an increase in share-based compensation expense of$21.8 million and additional increases attributable to Technisys of$1.8 million . The remaining increase was related to an increase in general and administrative personnel to support our growing infrastructure and administrative needs, as well as an increase in average compensation in the 2022 period;
•an increase of
•an increase in corporate insurance of$1.3 million and professional services costs of$1.6 million , which were primarily attributable to the increased costs of being a public company.
Six Months-General and Administrative. General and administrative expenses
decreased by
•favorability 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 warrant liabilities. The Series H warrants 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; •a decrease in transaction-related expenses of$6.0 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; •an increase in employee compensation and benefits of$74.1 million , inclusive of an increase in share-based compensation expense of$50.2 million and additional increases attributable to Technisys of$2.1 million . The remaining increase was related to an increase in general and administrative personnel to support our growing infrastructure and administrative needs in addition to an increase in average compensation in the 2022 period;
•an increase of
•an increase in corporate insurance of$3.9 million and professional services costs of$1.1 million , which were primarily attributable to the increased costs of being a public company.
Three Months-Provision for Credit Losses. The provision for credit losses
increased by
Six Months-Provision for Credit Losses. The provision for credit losses increased by$22.6 million , which reflected higher average credit card balances combined with elevated credit card loss rates during the 2022 period. The provision in the 2022 period was also impacted by loans acquired in the Bank Merger. 90
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SoFi Technologies, Inc. TABLE OF CONTENTS Net Loss We had a net loss of$95.8 million for the three months endedJune 30, 2022 compared to$165.3 million for the three months endedJune 30, 2021 , and a net loss of$206.2 million for the six months endedJune 30, 2022 compared to$342.9 million for the six months endedJune 30, 2021 . The decreases in losses for the current periods were due to the factors discussed above, net of the change in income taxes. For the three months endedJune 30, 2022 and 2021, we recorded income tax (expense) benefit of$(0.1) million and$0.1 million , respectively. For the six months endedJune 30, 2022 and 2021, we recorded income tax (expense) of$(0.9) million and$(1.0) million , respectively. The income tax expense was primarily due to income tax expense associated with the profitability ofSoFi Lending Corp. and, for the 2022 periods,SoFi Bank , in some state jurisdictions where separate company filing is required. In the 2022 periods, this expense was partially offset by income tax benefits from foreign losses in jurisdictions with net deferred tax liabilities related to the Technisys Merger.
Summary Results by Segment
Lending Segment
In the table below, we present certain metrics related to our Lending segment
for the periods indicated:
Three Months Ended June 30, 2022 vs 2021 Six Months Ended June 30, 2022 vs 2021
Metric 2022 2021 % Change 2022 2021 % Change
Total products (number, as of
period end) 1,202,027 981,440 22 % 1,202,027 981,440 22 %
Origination volume ($ in
thousands, during period)
Home loans $ 332,047 $ 792,228 (58) % $ 644,430 $ 1,527,832 (58) %
Personal loans 2,471,849 1,294,384 91 % 4,497,853 2,100,073 114 %
Student loans 398,722 859,497 (54) % 1,382,526 1,864,182 (26) %
Total $ 3,202,618 $ 2,946,109 9 % $ 6,524,809 $ 5,492,087 19 %
Loans with a balance (number,
as of period end)(1) 663,387 581,627 14 % 663,387 581,627 14 %
Average loan balance ($, as
of period end)(1)
Home loans $ 287,205 $ 286,200 - % $ 287,205 $ 286,200 - %
Personal loans 24,421 21,691 13 % 24,421 21,691 13 %
Student loans(2) 48,474 51,320 (6) % 48,474 51,320 (6) %
__________________
(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 six months endedJune 30, 2022 , home loan origination volume declined relative to the corresponding 2021 periods due to 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 and has historically represented a smaller percentage of our home loan originations. 91
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Personal Loans. During the three and six months endedJune 30, 2022 , personal loan origination volume increased significantly relative to the corresponding 2021 periods, primarily due to increased demand driven by expanded marketing efforts amid a backdrop of steady consumer confidence levels in the 2022 periods relative to the 2021 periods, combined with a positive impact from increased loan application approval rates that were implemented during the second half of 2021 and maintained during 2022. Student Loans. During the three and six months endedJune 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 ongoing suspension of principal and interest payments on federally-held student loans, combined with a rising interest rate environment in 2022.
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: 1.74% - 5 - 20 years
$5 ,000+ (2) 7.99%
Fixed rate: 3.24% - 7.99%
In-School Loans Variable rate: 1.44% - 5 - 15 years
$1 ,000+ (2) 13.79%
Fixed rate: 3.75% -
13.55%
Personal Loans Fixed rate: 6.99% - 2 - 7 years
$5,000 - $100,000 (2) 22.23%
$100,000 - $647,200 (3)(4)
(Conforming Normal Cost Areas)
OR
Home Loans $970,800 (4) Fixed rate: 2.38% - 6.88% 10, 15, 20 or 30
(Conforming High Cost Areas) years
OR
$3,000,000 (4)
(Jumbo Loans)
__________________
(1)Loan annual percentage rates presented reflect rates as advertised as of the date indicated, inclusive of an auto-pay discount, as applicable.
(2)Minimum loan size may be higher within certain states due to legal or licensing requirements.
(3)Exceptions for loan sizes less than
(4)Represents the maximum loan size offered within each category as of the reporting date. "Conforming High Cost Areas" refers toFNMA eligible loans above the normal conforming limit, which is determined by county. "Jumbo Loans" refers to loans in the jumbo loan program. 92
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In the table below, we present additional information related to our lending products during the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Overall weighted average origination FICO 751 761 753 763
Student Loans
Weighted average origination FICO 773 776 774 775
Weighted average interest rate earned(1) 4.08 % 4.65 % 4.04 % 4.60 %
Interest income recognized ($ in
thousands)(2) $ 38,078 $ 259,690
744 755 748 758
Weighted average interest rate earned(1) 2.91 % 1.87 % 2.77 % 1.80 %
Interest income recognized ($ in
thousands)(2) $ 1,052 $ 342,780
748 754 747 757
Weighted average interest rate earned(1) 11.62 % 10.78 % 11.34 % 10.58 %
Interest income recognized ($ in
thousands)(2) $ 101,475 $ 1,123,898
__________________
(1)Weighted average interest rate earned represents annualized interest income recognized divided by the average of the four- and seven-month unpaid principal balances of loans outstanding during the period, which are impacted by the timing and extent of loan sales. 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.
Lending Segment Results of Operations
The following table presents the measure of contribution profit for the Lending
segment for the periods indicated. The information is derived from our internal
financial reporting used for corporate management purposes. 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 June 30, 2022 vs 2021 Six Months Ended June 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Net interest income(1) $ 114,003 $ 56,822 101 % $ 208,357 $ 108,599 92 %
Noninterest income 143,114 109,469 31 % 301,749 205,669 47 %
Total net revenue 257,117 166,291 55 % 510,106 314,268 62 %
Servicing rights - change in
valuation inputs or
assumptions(2) (9,098) 224 n/m (20,678) 12,333 (268) %
Residual interests classified as
debt - change in valuation
inputs or assumptions(3) 2,662 5,717 (53) % 5,625 13,668 (59) %
Directly attributable
expenses(4) (108,690) (83,044) 31 % (220,411) (163,395) 35 %
Contribution profit $ 141,991 $ 89,188 59 % $ 274,642 $ 176,874 55 %
Adjusted net revenue(5) $ 250,681 $ 172,232 46 % $ 495,053 $ 340,269 45 %
___________________
(1)Net interest income and, thereby, total net revenue and contribution profit
for our Lending segment reported for the three and six months ended June 30,
2022 reflects the implementation of an FTP framework, 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.
For the comparative periods ended June 30, 2021 , Lending segment net interest
income reflected the external financing costs for our loans. If we had applied
our current FTP framework during the comparative three and six month periods,
the Lending segment net interest income would have increased by $1.4 million and
$2.7 million , respectively.
(2)Reflects changes in fair value inputs and assumptions, including market
servicing costs, conditional prepayment and default rates and discount rates.
This non-cash change, which is recorded within noninterest income in the
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.
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(3)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. (4)For a disaggregation of the directly attributable expenses allocated to the Lending segment in each of the periods presented, see "Directly Attributable Expenses" below. (5)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$57.2 million , or 101%, for the three months endedJune 30, 2022 compared to the same period in 2021, and increased by$99.8 million , or 92%, for the six months endedJune 30, 2022 compared to the same period in 2021, the components of which are discussed below. Three Months-Loans Interest Income. Loans interest income increased by$61.4 million , or 77%, for the three months endedJune 30, 2022 compared to the same period in 2021. See "Results of Operations-Interest Income-Three Months-Loans" for information on the primary drivers of the variance related to our personal loans, student loans and home loans. Six Months-Loans Interest Income. Loans interest income increased by$95.3 million , or 61%, for the six months endedJune 30, 2022 compared to the same period in 2021. See "Results of Operations-Interest Income-Six Months-Loans" for information on the primary drivers of the variance related to our personal loans, student loans and home loans. Three Months-Securitizations Interest Income. Securitizations interest income decreased by$1.2 million , or 32%, for the three months endedJune 30, 2022 compared to the same period in 2021. See "Results of Operations-Interest Income-Three Months-Securitizations" for information on the primary drivers of the variance. Six Months-Securitizations Interest Income. Securitizations interest income decreased by$2.9 million , or 36%, for the six months endedJune 30, 2022 compared to the same period in 2021. See "Results of Operations-Interest Income-Six Months-Securitizations" for information on the primary drivers of the variance.
Interest Expense. Interest expense increased by
For the three and six 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$4.2 million and$9.6 million , respectively; (ii) a decline in residual interests classified as debt interest expense of$1.1 million and$1.8 million , respectively; and (iii) a decline in debt issuance cost interest expense of$2.8 million and$6.2 million , respectively. Additionally, in the six-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 five months of$28.2 million , which was a framework we implemented during the first quarter. In the 2021 periods, which were prior to our implementation of an FTP framework, we recognized the actual interest incurred on our use of securitizations and warehouse facilities for the full three and six month periods of$9.3 million and$19.8 million , respectively.
Noninterest income
Noninterest income in our Lending segment increased by$33.6 million , or 31%, for the three months endedJune 30, 2022 compared to the same period in 2021, and increased by$96.1 million , or 47%, for the six months endedJune 30, 2022 compared to the same period in 2021, the components of which are discussed below. Three Months-Loan Origination and Sales. Loan origination and sales increased by$34.7 million , or 32%, for the three months endedJune 30, 2022 compared to the same period in 2021. See "Results of Operations-Noninterest Income and Net Revenue-Three Months-Loan Origination and Sales" for information on the primary drivers of the variance. Six Months-Loan Origination and Sales. Loan origination and sales increased by$82.1 million , or 37%, for the six months endedJune 30, 2022 compared to the same period in 2021. See "Results of Operations-Noninterest Income and Net Revenue-Six Months-Loan Origination and Sales" for information on the primary drivers of the variance. 94
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SoFi Technologies, Inc. TABLE OF CONTENTS Three Months-Securitizations. Securitizations income decreased by$11.7 million for the three months endedJune 30, 2022 compared to the same period in 2021. See "Results of Operations-Noninterest Income and Net Revenue-Three Months-Securitizations" for information on the primary drivers of the variance. Six Months-Securitizations. Securitizations income decreased by$21.0 million for the six months endedJune 30, 2022 compared to the same period in 2021. See "Results of Operations-Noninterest Income and Net Revenue-Six Months-Securitizations" for information on the primary drivers of the variance.
Three Months-Servicing. Servicing income increased by
Six Months-Servicing. Servicing income increased by
Directly attributable expenses
The directly attributable expenses allocated to the Lending segment that were
used in the determination of the segment's contribution profit were as follows
for the periods indicated:
Three Months Ended Six Months Ended
June 30, 2022 vs 2021 June 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Direct advertising $ 41,097 $ 29,467 39 % $ 82,891 $ 57,316 45 %
Compensation and benefits 26,570 20,909 27 % 50,138 42,307 19 %
Lead generation 21,499 11,702 84 % 43,382 18,412 136 %
Loan origination and servicing
costs 10,471 13,545 (23) % 21,102 27,537 (23) %
Professional services 2,349 1,256 87 % 3,869 2,697 43 %
Other(1) 6,704 6,165 9 % 19,029 15,126 26 %
Directly attributable expenses
31 %$ 220,411 $ 163,395 35 %
______________
(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 six months endedJune 30, 2022 increased by$25.6 million , or 31%, and$57.0 million , or 35%, respectively, compared to the same periods in 2021, primarily due to the following: •increases of$11.6 million for the three-month period and$25.6 million for the six-month period in direct advertising related to direct mail, search engine and social network advertising, partially offset by declines in television advertisement; •increases of$9.8 million for the three-month period and$25.0 million for the six-month period due to increasing utilization of lead generation channels primarily associated with increased personal loan origination volume in the 2022 periods; •increases of$5.7 million for the three-month period and$7.8 million for the six-month period in allocated compensation and related benefits, which primarily reflected increases in headcount allocated to the lending segment, partially offset by declines in home loan commissions of$0.3 million and$1.1 million for the three and six-month periods, respectively, attributable to declines in home loan originations; •increases of$1.1 million for the three-month period and$1.2 million for the six-month period in professional services costs, which were largely audit and advisory related costs; •increases of$0.5 million for the three-month period and$3.9 million for the six-month period in other expenses. The three-month variance was primarily related to increased tools and subscriptions costs. The six-month variance was primarily related to third-party personal loan fraud of$5.3 million during the 2022 period and increased tools and subscriptions costs, which were partially offset by a decline in bad debt expense of$0.8 million ; and •decreases of$3.1 million for the three-month period and$6.4 million for the six-month period in loan origination and servicing costs, which were largely attributable to decreases in home loan origination costs of$4.7 million and$9.1 million , respectively, that correlated with declines in home loan origination volume. This decline was partially offset 95
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by increases in personal loan origination costs of
Technology Platform Segment
In the table below, we present a metric that is related to Galileo within our Technology Platform segment.
2022 vs 2021
June 30, 2022 June 30, 2021 % Change
Total accounts 116,570,038 78,902,156 48 %
See "Key Business Metrics" for further discussion of this measure as it relates to our Technology Platform segment.
Technology Platform Segment Results of Operations
The following table presents the measure of contribution profit for the
Technology Platform segment for the periods indicated. The information is
derived from our internal financial reporting used for corporate management
purposes. Refer to Note 17 to the Notes to Unaudited Condensed Consolidated
Financial Statements for further information regarding Technology Platform
segment performance.
Three Months Ended June 30, 2022 vs 2021 Six Months Ended June 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Net interest expense $ - $ (32) (100) % $ - $ (68) (100) %
Noninterest income 83,899 45,329 85 % 144,704 91,430 58 %
Total net revenue 83,899 45,297 85 % 144,704 91,362 58 %
Directly attributable
expenses(1) (62,058) (32,284) 92 % (104,608) (62,664) 67 %
Contribution profit $ 21,841 $ 13,013 68 % $ 40,096 $ 28,698 40 %
___________________
(1)For a disaggregation of the directly attributable expenses allocated to the Technology Platform segment in each of the periods presented, see "Directly Attributable Expenses" below.
Noninterest income
Noninterest income in our Technology Platform segment increased by$38.6 million , or 85%, for the three months endedJune 30, 2022 compared to the same period in 2021, and increased by$53.3 million , or 58%, for the six months endedJune 30, 2022 compared to the same period in 2021, the components of which are discussed below. Three and Six Months-Technology Products and Solutions. Technology products and solutions revenues increased by$38.4 million , or 85%, for the three months endedJune 30, 2022 compared to the same period in 2021 and by$53.4 million , or 59%, for the six months endedJune 30, 2022 compared to the same period in 2021. See "Results of Operations-Noninterest Income and Net Revenue-Technology Products and Solutions" for information on the primary drivers of the variance. In addition, the variances are inclusive of$1.7 million and$2.4 million of intercompany revenue for the three and six months endedJune 30, 2022 , respectively. 96
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Directly attributable expenses
The directly attributable expenses allocated to the Technology Platform segment
that were used in the determination of the segment's contribution profit were as
follows for the periods indicated:
Three Months Ended June 30, 2022 vs 2021 Six Months Ended June 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Compensation and benefits $ 36,405 $ 16,321 123 % $ 61,682 $ 32,502 90 %
Product fulfillment 9,598 7,460 29 % 18,958 14,458 31 %
Tools and subscriptions 4,881 2,733 79 % 8,127 4,593 77 %
Professional services 4,584 1,847 148 % 6,883 3,916 76 %
Other(1) 6,590 3,923 68 % 8,958 7,195 25 %
Directly attributable expenses $ 62,058 $ 32,284 92 % $ 104,608 $ 62,664 67 %
___________________(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$29.8 million , or 92%, for the three months endedJune 30, 2022 compared to the same period in 2021 and by$41.9 million , or 67%, for the six months endedJune 30, 2022 compared to the same period in 2021, primarily due to the following: •increases of$20.1 million for the three-month period and$29.2 million for the six-month period in compensation and benefits expense, which was correlated with an increase in personnel to support segment growth, as well as an increase in average compensation during the 2022 periods. Technisys compensation and benefits contributed$13.5 million and$18.7 million during the three- and six-month 2022 periods, respectively; •increases of$2.1 million for the three-month period and$4.5 million for the six-month period in product fulfillment costs, primarily related to payment processing network association fees associated with increased activity on the platform. These fees grew by 28% during both the three- and six-month 2022 periods relative to the comparable 2021 periods, which positively correlated with the applicable integrated platform-as-a-service growth in our technology products and solutions revenues; •increases of$2.1 million for the three-month period and$3.5 million for the six-month period in tools and subscriptions costs related to headcount increases and internal technology initiatives to support the growth of the platform, along with the inclusion of Technisys in our 2022 results; •increases of$2.7 million for the three-month period and$3.0 million for the six-month period in professional services costs, of which$2.6 million and$3.2 million , respectively, were related to the operations of Technisys; and •increases of$2.7 million for the three-month period and$1.8 million for the six-month period in other expenses, which were primarily related to advertising, marketing and travel and occupancy-related costs that were largely incurred at Technisys, partially offset by a reversal of provision for credit losses in the six-month 2022 period associated with the recovery of significantly aged accounts receivable.
Financial Services Segment
In the table below, we present a key metric related to our Financial Services
segment:
2022 vs. 2021
Metric June 30, 2022 June 30, 2021 % Change
Total products (number, as of period end) 5,362,147 2,685,681 100 %
Total products in our Financial Services segment is a subset of our total products metric. See "Key Business Metrics" for a further discussion of this measure as it relates to our Financial Services segment.
Financial Services Segment Results of Operations
The following table presents the measure of contribution loss for the Financial
Services segment for the periods indicated. The information is derived from our
internal financial reporting used for corporate management purposes. During the
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first quarter of 2022, we implemented an FTP framework to attribute net interest income to our business segments based on their usage and/or provision of funding, as further discussed below.
Three Months Ended June 30, 2022 vs 2021 Six Months Ended June 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Net interest income(1) $ 12,925 $ 542 n/m $ 18,807 $ 771 n/m
Noninterest income 17,438 16,497 6 % 35,099 22,731 54 %
Total net revenue 30,363 17,039 78 % 53,906 23,502 129 %
Directly attributable expenses(2) (84,063) (41,784) 101 % (157,121) (83,766) 88 %
Contribution loss $ (53,700) $ (24,745) 117 % $ (103,215) $ (60,264) 71 %
___________________
(1)Net interest income and, thereby, total net revenue and contribution loss for
our Financial Services segment reported for the three and six months ended
June 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 June 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 six month periods, the Financial Services segment net
interest income would have decreased by $0.1 million and $0.1 million ,
respectively.
(2)For a disaggregation of the directly attributable expenses allocated to the Financial Services segment in each of the periods presented, see "Directly Attributable Expenses" below.
Net interest income
Net interest income in our Financial Services segment increased by$12.4 million for the three months endedJune 30, 2022 compared to the same period in 2021 and by$18.0 million for the six months endedJune 30, 2022 compared to the same period in 2021. For the three- and six-month 2022 periods, net interest income primarily reflected net interest income earned on our deposits of$8.7 million and$11.5 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$2.6 million and$5.6 million for the three and six month periods, respectively, which was attributable to growth in the average balance.
Noninterest income
Noninterest income in our Financial Services segment increased by$0.9 million , or 6%, for the three months endedJune 30, 2022 compared to the same period in 2021 and by$12.4 million , or 54% for the six months endedJune 30, 2022 compared to the same period in 2021, primarily due to the following: •increases in referral fees of$5.7 million for the three-month period and$11.2 million for the six-month period, which were primarily attributable to a referral fulfillment arrangement we entered 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$1.5 million for the three-month period and$4.6 million for the six-month period, which coincided with increased credit card and debit card transaction volume;
•increases of
•a reduction in trading losses related to our SoFi Invest product during the
six-month period of
•decreases in brokerage-related fees of$2.9 million for the three-month period and$2.8 million for the six-month period, which coincided with lower digital assets trading volume on our platform during the 2022 periods; •decreases in enterprise service fees of$2.5 million for the three-month period and$2.3 million for the six-month period, which were primarily related to advisory service revenues of$2.6 million recognized in the second quarter of 2021; and •decreases in equity capital markets services of$1.8 million for both the three and six-month periods, related to underwriting fee revenue recognized in the second quarter of 2021. 98
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Directly attributable expenses
The directly attributable expenses allocated to the Financial Services segment
that were used in the determination of the segment's contribution loss were as
follows for the periods indicated:
Three Months Ended June 30, 2022 vs 2021 Six Months Ended June 30, 2022 vs 2021
($ in thousands) 2022 2021 % Change 2022 2021 % Change
Compensation and benefits $ 26,371 $ 19,800 33 % $ 50,309 $ 38,584 30 %
Provision for credit losses 10,103 486 n/m 23,064 486 n/m
Direct advertising 9,299 3,030 207 % 16,151 6,798 138 %
Member incentives 9,202 4,309 114 % 15,805 9,290 70 %
Product fulfillment 8,228 5,074 62 % 15,425 10,117 52 %
Lead generation 6,064 2,388 154 % 8,573 5,206 65 %
Professional services 1,234 836 48 % 2,334 2,404 (3) %
Intercompany technology
platform expenses 953 - n/m 1,723 - n/m
Other(1) 12,609 5,861 115 % 23,737 10,881 118 %
Directly attributable expenses $ 84,063 $ 41,784 101 % $ 157,121 $ 83,766 88 %
___________________
(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$42.3 million , or 101%, for the three months endedJune 30, 2022 compared to the same period in 2021 and by$73.4 million , or 88%, for the six months endedJune 30, 2022 compared to the same period in 2021, primarily due to the following: •increases of$9.6 million for the three-month period and$22.6 million for the six-month period related to our provision for credit losses, which were primarily related to increases in the provision for credit card loans of$10.3 million and$22.2 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$6.6 million for the three-month period and$11.7 million for the six-month period in compensation and benefits expense, which were consistent with our ongoing prioritization of growth in the Financial Services segment, which required additional staffing; •increases of$6.3 million for the three-month period and$9.4 million for the six-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, and growth in, our Financial Services products; •increases of$4.9 million for the three-month period and$6.5 million for the six-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$3.2 million for the three-month period and$5.3 million for the six-month period in product fulfillment costs related to SoFi Checking and Savings andSoFi Money cash management, which included such activities as brokerage expenses and debit card fulfillment services, operatingSoFi Bank , and operating our cash management sweep program. In addition, we had$0.9 million and$2.0 million of higher costs related to credit card fulfillment for the three- and six-month 2022 periods, respectively; •increases of$3.7 million for the three-month period and$3.4 million for the six-month period related to lead generation, primarily related to SoFi Checking and Savings;
•an increase of
•increases of$6.7 million for the three-month period and$12.9 million for the six-month period in other costs, which were primarily related to third-party credit card fraud of$4.4 million and$8.4 million , respectively, and operational product losses of$0.6 million and$2.7 million , respectively. In addition, we had increases in travel and occupancy-related costs and tools and subscriptions costs. 99
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Corporate/Other Non-Reportable Segment
Non-segment operations are classified as Corporate/Other (previously referred to as "Other"), which includes net revenues associated with corporate functions that are not directly related to a reportable segment, as well as, beginning in the first quarter of 2022, the financial impact of our capital management activities within the treasury function, which reflects the residual impact from the FTP charges and FTP credits on our reportable segments under our FTP framework.
Reconciliation of Directly Attributable Expenses
The following table reconciles directly attributable expenses allocated to our
reportable segments to total noninterest expense in the unaudited condensed
consolidated statements of operations and comprehensive income (loss) for the
periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
($ in thousands) 2022 2021 2022 2021
Reportable segments directly attributable
expenses $ (254,811) $ (157,112) $ (482,140) $ (309,825)
Intercompany expenses 1,671 - 2,441 -
Expenses not allocated to segments:
Share-based compensation expense (80,142) (52,154) (157,163) (89,608)
Depreciation and amortization expense (38,056) (24,989) (68,754) (50,966)
Employee-related costs(1) (45,316) (36,944) (88,006) (69,224)
Fair value change of warrant liabilities - (70,989) - (160,909)
Special payment(2) - (21,181) - (21,181)
Other corporate and unallocated expenses(3) (41,589) (33,297) (104,570) (67,402)
Total noninterest expense $ (458,243) $ (396,666) $ (898,192) $ (769,115) ___________________
(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 insurance expense and transaction-related expenses.
Liquidity and Capital Resources
We require substantial liquidity to fund our current operating requirements, which primarily include loan originations and the losses generated by our Financial Services segment. We expect these requirements to increase as we continue to pursue our strategic growth goals. Historically, our Lending cash flow variability has related to loan origination and sales volume, our available funding sources and utilization of our warehouse facilities. Moreover, given our continued growth initiatives, we have seen variability in financing cash flows due to growth in deposits, the timing and extent of common stock and redeemable preferred stock raises, redemptions and additional uses and repayments of debt, and our convertible notes issuance. Remaining operating cash flow variability is largely related to our investments in our business, such as technology and product investments and sales and marketing initiatives. 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. To continue to achieve our liquidity objectives, we analyze and monitor liquidity needs and strive to maintain excess liquidity and access to diverse funding sources. We define our liquidity risk as the risk that we will not be able to:
•Originate loans at our current pace, or at all;
•Sell our loans at favorable prices, or at all;
•Grow or maintain our deposit base over time;
•Meet our minimum capital requirements as a bank holding company and a national banking association;
•Meet our contractual obligations as they become due;
•Increase or extend the maturity of our revolving credit facility capacity;
•Satisfy our obligation to repay our convertible notes if they do not convert into common stock before maturity;
•Meet margin requirements associated with hedging or financing agreements;
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•Fund continued operating losses in our business, especially if such operating losses continue at the current level for an extended period of time; or
•Make future investments in the necessary technological and operating infrastructure to support our business.
During the six months endedJune 30, 2022 , we generated negative cash flows from operations. 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, to a lesser extent, the timing of loan repayments. We either fund our loan originations entirely using our own capital, through proceeds from securitization transactions (applicable to 2021 only), via SoFi bank deposits or receive an advance rate from our various warehouse facilities to finance the majority of the loan amount. Our cash flows from operations were also impacted by material net losses in both periods. 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. We have also utilized our revolving credit facility capacity to fund current liquidity needs in the normal course of business, such as general corporate activities. Our revolving credit facility had remaining capacity of$74.0 million as ofJune 30, 2022 , of which$6.0 million was not available for general borrowing purposes because it was utilized to secure the uncollateralized portion of certain letters of credit issued to secure certain of our operating lease obligations. As ofJune 30, 2022 , the remaining$3.1 million of the$9.1 million letters of credit outstanding was collateralized by cash deposits with the banking institution, which were presented within restricted cash and restricted cash equivalents in the unaudited condensed consolidated balance sheets. As ofJune 30, 2022 , we also maintained letters of credit associated with our banking activities of$9.7 million , which serve as collateral for public deposits and are collateralized by loans.
Our warehouse facility and securitization debt is secured by a continuing lien on, and security interest in, the loans financed by the proceeds.
Our operating lease obligations consist of our leases of real property from third parties under non-cancellable operating lease agreements, which primarily include the leases of office space, as well as our rights to certain suites and event space withinSoFi Stadium , the latter of which we apply the short-term lease exemption practical expedient and do not capitalize the lease obligation. Our finance lease obligations consist of our rights to certain physical signage withinSoFi Stadium . 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. We are currently dependent on the success of our lending business. 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 liquidity to fund our balance sheet. 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. 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. Principal and interest payments on federally-held student loans were suspended most recently throughAugust 2022 , which in turn has continued to lower the propensity for borrowers to refinance into SoFi student loans relative to pre-COVID levels. To the extent that additional measures, such as student loan forgiveness or a further extension of the student loan payment moratorium, are implemented, it may continue to negatively impact our future student loan origination volume. 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. See "Key Factors Affecting Operating Results-Student Loan Relief". As a bank holding company, we are subject to regulatory capital and liquidity 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 . 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 101
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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. As ofJune 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 sinceJune 30, 2022 that management believes would change the categorization. See Note 18 to the Notes to Unaudited Condensed Consolidated Financial Statements for additional information on our regulatory capital requirements.
Our material commitments requiring, or potentially requiring, the use of cash in future periods are primarily composed of the following:
•warehouse facility borrowings, which primarily carry variable interest rates
and have terms expiring through
•revolving credit facility borrowings, which includes principal balance and variable interest. See Note 9 for additional information;
•convertible senior notes, which do not bear regular interest, and will mature
in
•operating lease obligations, primarily composed of leases of office premises
with terms expiring from 2022 through 2031, as well as operating leases
associated with
•finance lease obligations, composed of our rights to certain physical signage
within
•the remaining commitment arising out of our agreement (which does not include the foregoing operating lease and finance lease obligations, but includes certain payments for which we are applying the short-term lease exemption) for the naming and sponsorship rights toSoFi Stadium , which pertain primarily to sponsorship and advertising opportunities related to the stadium itself, as well as the surrounding performance venue and planned retail district. See Note 15 to the Notes to Unaudited Condensed Consolidated Financial Statements for additional information on ourSoFi Stadium arrangement, including a contingent matter associated withSoFi Stadium payments; and
•the remaining commitment related to a four-year cloud computing services arrangement that we executed in the fourth quarter of 2021.
As it relates to our securitization debt, the maturity of the notes issued by the various trusts occurs upon either the maturity of the loan collateral or full payment of the loan collateral held in the trusts, the timing of which cannot be reasonably estimated. Our own liquidity resources are not required to make any contractual payments on our securitization borrowings. We may require liquidity resources associated with our guarantee arrangements. We have a three-year obligation toFNMA on loans that we sell toFNMA , to repurchase any originated loans that do not meetFNMA guidelines, and we are required to pay the full initial purchase price back toFNMA . In addition, we make standard representations and warranties related to other student, personal and non-FNMA home loan transfers, as well as limited credit-related repurchase guarantees on certain such transfers. If realized, any of the repurchases would require the use of cash. See "Other Arrangements", as well as Note 15 to the Notes to Unaudited Condensed Consolidated Financial Statements for further information on our guarantee obligations. We believe we have adequate liquidity to meet these expected obligations. Our long-term liquidity strategy includes continuing to grow our SoFi bank deposit base, maintaining adequate warehouse capacity (which we expect to decrease as a percentage of our total funding base over time), 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. We had unrestricted cash and cash equivalents of$707.3 million as ofJune 30, 2022 . We believe our existing cash and cash equivalents balance, investments in AFS debt securities,SoFi Bank deposits, available capacity under our revolving credit facility, together with additional warehouses or other financing we expect to be able to obtain at reasonable terms, will be sufficient to cover net losses, meet our existing working capital and capital expenditure needs, as well as our planned growth for at least the next 12 months. Our non-securitization loans also represent a key source of liquidity for us, and should be considered in assessing our overall liquidity. We have relationships with whole loan buyers who we believe we will be able to continue to rely on to generate near-term liquidity. Securitization markets can also generate additional liquidity, albeit to a lesser extent, as it involves accessing a much less liquid securitization residual investment market, could result in worse 102
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execution as compared to whole loans sales, and in certain cases we are required to maintain a minimum investment due to securitization risk retention rules.
Borrowings
Our borrowings as ofJune 30, 2022 primarily included our loan and risk retention warehouse facilities, asset-backed securitization debt, revolving credit facility and convertible notes. A detailed description of each of our borrowing arrangements is included in Note 9 to the Notes to Unaudited Condensed Consolidated Financial Statements. 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. Each of our loan warehouse facilities allows the lender providing the funds to evaluate the market value of the loans that are serving as collateral for the borrowings or advances being made. As it relates to our current risk retention warehouse facilities, if the lender determines that the value of the collateral has decreased, the lender can require us to provide additional collateral or reduce the amount outstanding with respect to those loans (e.g., initiate a margin call). Our inability or unwillingness to satisfy the request could result in the termination of the facilities and possible default under our other loan funding facilities. In addition, a large unanticipated margin call could have a material adverse effect on our liquidity. The amount owed and outstanding on our loan warehouse facilities fluctuates significantly based on our origination volume, sales volume, the amount of time it takes us to sell our loans, and the amount of loans being self-funded with cash. We may, from time to time, use surplus cash to self-fund a portion of our loan originations and risk retention in the case of securitization transfers. 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 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.
Additionally, inOctober 2021 , we closed on the issuance and sale of$1.2 billion aggregate principal amount of convertible senior notes, which do not bear regular interest, will mature inOctober 2026 (unless earlier repurchased, redeemed or converted) and will be convertible by the noteholders beginning inApril 2026 under certain circumstances. We will settle conversions by paying or delivering, at our election, cash, shares of our common stock or a combination of cash and shares of our common stock, based on the applicable conversion rate(s). The convertible notes will be redeemable, in whole or in part, at our option at any time, and from time to time, beginning inOctober 2024 at a cash redemption price equal to the principal amount of the notes to be redeemed, plus accrued interest, if any. The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a "Make-Whole Fundamental Change" (as defined in the indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time. In addition, calling any note for redemption will also constitute a Make-Whole Fundamental Change with respect to that note, in which case the conversion rate applicable to the conversion of that note will be increased in certain circumstances if it is converted after it is called for redemption. Therefore, redemption events and conversion events (to the extent we elect to cash settle) could require a material use of cash at the time of the event. 103
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Additionally, the convertible notes may incur special interest in the event of default, or additional interest if the Company has not satisfied certain reporting conditions or the convertible notes are not otherwise freely tradable, as such term is defined in the indenture. If special interest or additional interest is incurred on the convertible notes, it could require an additional use of cash. In connection with the pricing of the convertible notes and with the exercise by the initial purchasers of their option to purchase additional notes, which option was exercised, we entered into privately negotiated capped call transactions with certain financial institutions (the "Capped Call Transactions"). The Capped Call Transactions 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. The net proceeds from the convertible debt issuance were$1.176 billion . We used$113.8 million of the net proceeds to fund the cost of entering into the Capped Call Transactions. We allotted the remainder of the net proceeds (i) to pay related expenses and (ii) for general corporate purposes.
Cash Flow and Liquidity Analysis
The following table provides a summary of cash flow data during the periods indicated:
Six Months Ended June 30,
($ in thousands) 2022 2021
Net cash provided by (used in) operating activities $ (1,956,723) $ 82,608
Net cash provided by (used in) investing activities (4,918) 239,339
Net cash provided by (used in) financing activities 2,192,231 (876,576)
Cash Flows from Operating Activities
For the six months endedJune 30, 2022 , net cash used in operating activities of$2.0 billion stemmed from a net loss of$206.2 million and an unfavorable change in our operating assets net of operating liabilities of$2.0 billion , partially offset by a positive adjustment for non-cash items of$277.3 million . The change in operating assets net of operating liabilities was primarily a result of our loan origination and sales activities. We originated loans of$6.5 billion during the period and also purchased loans of$0.4 billion . These cash uses were largely offset by principal payments on loans of$1.2 billion and proceeds from loan sales of$3.6 billion . For the six months endedJune 30, 2021 , net cash provided by operating activities of$82.6 million stemmed from a net loss of$342.9 million that was positively adjusted for non-cash items of$317.6 million , and a favorable change in our operating assets net of operating liabilities of$107.9 million . The change in operating assets net of operating liabilities was primarily a result of our loan origination and sales activities. We originated loans of$5.6 billion during the period and also purchased loans of$149.9 million . These cash uses were offset by principal payments on loans of$1.1 billion and proceeds from loan sales of$4.8 billion .
Cash Flows from Investing Activities
For the six months endedJune 30, 2022 , net cash used in investing activities of$4.9 million was primarily attributable to proceeds of$76.0 million from our securitization investments, the aggregate net cash acquired from the Technisys Merger andBank Merger of$58.5 million , and proceeds of$37.4 million from sales, maturities and paydowns of our investments in AFS debt securities. These sources were more than offset by net cash uses of$81.9 million related to loan activities, primarily driven by credit card loans,$50.0 million for purchases of property, equipment and software, which primarily included internally-developed software and purchased software, and cash uses of$45.0 million related to purchases of AFS debt securities. For the six months endedJune 30, 2021 , net cash provided by investing activities of$239.3 million was primarily attributable to proceeds from Apex of$107.5 million from the call on our equity method investment and$16.7 million from repayment of the outstanding principal balance on its related party notes, as well as proceeds of$141.9 million from our securitization investments. These sources were partially offset by a cash use of$26.8 million for purchases of property, equipment and software, which primarily included internally-developed software, purchased software, and furniture and fixtures. 104
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Cash Flows from Financing Activities
For the six months endedJune 30, 2022 , net cash provided by financing activities of$2.2 billion was primarily attributable to net cash sources from ourSoFi Bank deposits of$2.5 billion . Additionally, our debt repayments related to our lending activities of$5.0 billion , of which$4.8 billion were related to our warehouse facilities, were largely offset by proceeds from debt financing activities of$4.7 billion . Our payments of debt issuance costs were in the normal course of business and reflective of our recurring debt warehouse facility activity, which involves securing new warehouse facilities and extending existing warehouse facilities. Finally, we paid redeemable preferred stock dividends of$20.0 million and taxes related to RSU vesting of$5.8 million . For the six months endedJune 30, 2021 , net cash used in financing activities was$0.9 billion . We received proceeds from the Business Combination andPIPE Investment of$2.0 billion , and paid costs directly related to the Business Combination andPIPE Investment of$27.0 million . We received$3.8 billion of proceeds from debt financing activities related to our lending activities. These debt proceeds were more than offset by$6.4 billion of debt repayments, of which$5.7 billion were related to our warehouse facilities. Our payments of debt issuance costs were in the normal course of business and reflective of our recurring debt warehouse facility activity, which involves securing new warehouse facilities and extending existing warehouse facilities. We also paid taxes related to RSU vesting of$28.6 million , as well as redeemable preferred stock dividends of$20.0 million . Finally, we paid$282.9 million to repurchase redeemable common and preferred stock, of which$150.0 million related to redeemable common stock repurchased in conjunction with the Business Combination, and$0.5 million to repurchase common stock during the period.
Other Arrangements
We enter into arrangements in which we originate loans, establish an SPE and transfer loans to the SPE, which has historically served as an important source of liquidity. We also retain the servicing rights of the underlying loans and hold additional interests in the SPE. When an SPE is determined not to be a VIE or when an SPE is determined to be a VIE but we are not the primary beneficiary, the SPE is not consolidated. In addition, a significant change to the pertinent rights of other parties or our pertinent rights, or a significant change to the ranges of possible financial performance outcomes used in our assessment of the variability of cash flows due to us, could impact the determination of whether or not a VIE is consolidated. VIE consolidation and deconsolidation may lead to increased volatility in our financial results and impact period-over-period comparability. Historically, we have established personal loan trusts and student loan trusts that were created and designed to transfer credit and interest rate risk associated with the underlying loans through the issuance of collateralized notes and residual certificates. We hold a variable interest in the trusts through our ownership of collateralized notes in the form of asset-backed bonds and residual certificates in the trusts. The residual certificates absorb variability and represent the equity ownership interest in the equity portion of the personal loan trusts and student loan trusts. We are also the servicer for all trusts in which we hold a financial interest. Although we have the power as servicer to perform the activities that most impact the economic performance of the VIE, we do not hold a significant financial interest in the trusts and, therefore, we are not the primary beneficiary. Further, we do not provide financial support beyond our initial equity investment, and our maximum exposure to loss as a result of our involvement with nonconsolidated VIEs is limited to our investment. For a more detailed discussion of nonconsolidated VIEs, including activity in relation to the establishment of trusts, the aggregate outstanding values of variable interests and the deconsolidation of VIEs, see Note 5 to the Notes to Unaudited Condensed Consolidated Financial Statements. As a component of our loan sale agreements, we make certain representations to third parties that purchased our previously held loans, which includesFNMA repurchase requirements, general representations and warranties and credit-related repurchase requirements, all of which are standard in nature. We establish a loan repurchase liability, which is based on historical experience and any current developments which would make it probable that we would buy back loans previously sold to third parties at the historical sales price. Our credit-related repurchase requirements are assessed for credit losses. During the three and six months endedJune 30, 2022 , we made repurchases of$5.8 million and$8.4 million , respectively, associated with these arrangements. As ofJune 30, 2022 andDecember 31, 2021 , we accrued liabilities of$4.8 million and$7.4 million , respectively, related to our estimated repurchase obligation. 105
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SoFi Technologies, Inc. TABLE OF CONTENTS Financial Condition Summary
Changes in the composition and balance of our assets and liabilities as of
•an increase of
•an increase of
•an increase in total loans of
•an increase in intangible assets of
•an increase in goodwill of$726.8 million related to our two acquisitions during the first quarter of 2022. See Note 2 to the Notes to Unaudited Condensed Consolidated Financial Statements for additional information; •a decrease in securitization investments of$86.0 million , of which$76.0 million was related to cash receipts. There were no securitization investments made during the first half of 2022;
•an increase in deposits of
•an increase in deferred tax liabilities of$55.0 million , which was primarily attributable to the separately identifiable intangible assets acquired in the Technisys Merger; •a decrease of$75.5 million in gross warehouse facility debt to support our originations during the current period, which reflected the net impact of$4.8 billion of cash repayments and$4.7 billion of cash borrowings; and
•a decrease of
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted inthe United States . In preparing our consolidated financial statements, we make judgments, estimates and assumptions that affect reported amounts of assets and liabilities, as well as revenues and expenses. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. The results involve judgments about the carrying values of assets and liabilities not readily apparent from other sources. Actual results could differ materially from these estimates under different assumptions or conditions. We regularly evaluate our estimates, assumptions and judgments, particularly those that include the most difficult, subjective or complex judgments and are often about matters that are inherently uncertain. We evaluate our critical accounting policies and estimates on an ongoing basis and update them as necessary based on changes in market conditions or factors specific to us. There have been no material changes in our significant accounting policies or critical accounting estimates during the first half of 2022. For a complete discussion of our significant accounting policies and critical accounting estimates, refer to our Annual Report on Form 10-K for the year endedDecember 31, 2021 within Note 1 to the Notes to Consolidated Financial Statements for a summary of our significant accounting policies and "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates".
Recent Accounting Standards Issued, But Not Yet Adopted
See Note 1 to the Notes to Unaudited Condensed Consolidated Financial Statements
herein and Note 1 to the Notes to Consolidated Financial Statements in our
Annual Report on Form 10-K for the year ended
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