The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. You should read this discussion and analysis in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as well asSoFi Technologies' audited consolidated financial statements and notes thereto included in the final prospectus and definitive proxy statement, datedMay 7, 2021 (the "Proxy Statement/Prospectus") and filed with theSEC . Certain amounts may not foot due to rounding. Certain information in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q contains forward-looking statements that involve numerous risks and uncertainties, including, but not limited to, those described under the sections entitled "Cautionary Note Regarding Forward-Looking Statements" and Item II, Part 1A. "Risk Factors" included in this Quarterly Report on Form 10-Q. We assume no obligation to update any of these forward-looking statements. Actual results may differ materially from those contained in any forward-looking statements.Social Finance, Inc. ("Social Finance") entered into a merger agreement (the "Agreement") withSocial Capital Hedosophia Holdings Corp. V ("SCH") onJanuary 7, 2021 . The transactions contemplated by the terms of the Agreement were completed onMay 28, 2021 (the "Closing"), in conjunction with which SCH changed its name toSoFi Technologies, Inc. (hereafter referred to, collectively with its subsidiaries, as "SoFi", the "Company", "we", "us" or "our", unless the context otherwise requires). The transactions contemplated in the Agreement are collectively referred to as the "Business Combination". Business Overview We are a member-centric, one-stop shop for digital financial services that allows members to borrow, save, spend, invest and protect their money. Our mission is to help our members achieve financial independence in order to realize their ambitions. To us, financial independence does not mean being wealthy, but rather represents the ability of our members to have the financial means to achieve their personal objectives at each stage of life, such as owning a home, having a family, or having a career of their choice - more simply stated, to have enough money to do what they want. We were founded in 2011 and have developed a suite of financial products that offers the speed, selection, content, and convenience that only an integrated digital platform can provide. In order for us to achieve our mission, we have to help people get their money right, which means providing them with the ability to borrow better, save better, spend better, invest better and protect better. Everything we do today is geared toward helping our members "Get Your Money Right" and we strive to innovate and build ways for our members to achieve this goal. Our three reportable segments and their respective products as ofJune 30, 2021 were as follows: Lending Financial Services Technology Platform • Student Loans(1) • SoFi Money • Technology Platform Services • Personal Loans • SoFi Invest(2) (Galileo) • Home Loans • SoFi Relay • SoFi Credit Card • SoFi At Work • SoFi Protect • Lantern Credit • Equity capital markets and advisory services __________________ (1)Composed of in school loans and student loan refinancing. (2)Our SoFi Invest service is composed of three products: active investing accounts, robo-advisory accounts and digital assets accounts. We refer to our customers as "members". We define a member as someonewho has a lending relationship with us through origination or 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, given that our members have continuous access to our certified financial planners ("CFPs"), our career advice services, our member events, our content, educational material, news, tools and calculators at no cost to the member. Additionally, our mobile app and website have a member home feed that is personalized and delivers content to a member about what they must do that day in their financial life, what they should consider doing that day in their financial life, and what they can do that day in their financial life. Since our inception throughJune 30, 2021 , we have served approximately 2.6 million 65 -------------------------------------------------------------------------------- TABLE OF CONTENTS memberswho have used approximately 3.7 million products on the SoFi platform. We believe we are in the early stages of the digital transformation of financial services and, as a result, have a substantial opportunity to continue to grow our member base and increase the number of products that our members use on the SoFi platform. [[Image Removed: sofi-20210630_g1.jpg]] We offer our members a suite of financial products and services, enabling them to borrow, save, spend, invest and protect within one integrated platform. Our aim is to create a best-in-class, integrated financial services platform that will generate a virtuous cycle whereby positive member experiences will lead to more products adopted per member and enhanced profitability for each additional product by lowering overall member acquisition costs and increasing the lifetime value of our members. We refer to this virtuous cycle as our "Financial Services Productivity Loop ". We believe that developing a relationship with our members and gaining their trust is central to our success as a financial services platform. Moreover, we believe that some of the current frictions faced by other financial institutions are caused by a disjointed and non-seamless product experience, a lack of digital acquisition, subpar mobile web products instead of digital native apps and incomplete product offerings to meet a customer's holistic financial needs. Through our mobile technology and continuous effort to improve our financial services products, we are seeking to build a financial services platform that members can access for all of their financial services needs. We believe we are in the early stages of realizing the benefits of theFinancial Services Productivity Loop , as increasing numbers of our members are using multiple products on our platform. In addition to benefiting our members, our products and capabilities are also designed to appeal to enterprises, such as financial services institutions that subscribe to our enterprise services through SoFi At Work, and other enterprises that leverage our capabilities to assist with equity capital markets and advisory services. These enterprises become interconnected with the SoFi platform when using it for these services. While these enterprises are not considered members, they are important contributors to the growth of the SoFi platform, and, in some cases, also have their own constituentswho might benefit from our products in the future. Further, our wholly-owned subsidiary, Galileo, had approximately 79 million total accounts on its platform (excluding SoFi accounts) as ofJune 30, 2021 . Galileo started contributing new accounts to the SoFi ecosystem during the second quarter of 2020. While we primarily operate inthe United States , in 2020, we expanded intoHong Kong with our acquisition of 8 Limited, an investment business. Additionally, with the acquisition of Galileo inMay 2020 , we gained clients inMexico . NationalBank Charter . A key element of our long-term strategy is to secure a national bank charter, which we believe can enhance our overall profitability. While we currently rely on third-party bank holding companies to provide banking services to our members, securing a national bank charter would, among other things, allow us to provide members and prospective members broader and more competitive options across their financial services needs, including deposit accounts, and lower our cost to fund loans (by utilizing ourSoFi Money members' deposits to fund our loans), which would enable us to offer lower interest rates on loans to members as well as offer higher interest rates onSoFi Money accounts, all while continuing not to charge non-interest based fees. 66 -------------------------------------------------------------------------------- TABLE OF CONTENTS InOctober 2020 , we received preliminary, conditional approval from theOffice of the Comptroller of the Currency (the "OCC") for our application for a national bank charter. Final OCC approval is subject to a number of preopening requirements. InMarch 2021 , we entered into an agreement to acquire Golden Pacific Bancorp, Inc., a bank holding company ("Golden Pacific"), and its wholly-owned subsidiary,Golden Pacific Bank, National Association , a national bank ("Golden Pacific Bank "), for a total cash purchase price of$22.3 million . The acquisition is subject to regulatory approval, including approval from the OCC of a revised business plan for the acquiree national bank, and approval from theFederal Reserve to become a bank holding company and for a change of control, and other customary closing conditions. InMarch 2021 , we also submitted an application to theFederal Reserve to become a bank holding company. The application review process is ongoing. In order to be compliant with all applicable regulations, to operate to the satisfaction of the banking regulators, and to successfully execute our business plan for the bank, SoFi has been building out the required infrastructure to run the bank and to operate as a bank holding company. This effort spans our people and organization, technology, marketing/product management, risk management, compliance, and control functions. We have invested and expect to continue to invest substantial time, money and human resources towards bank readiness, and towards the regulatory approval process. During the three and six months endedJune 30, 2021 , we incurred direct costs associated with securing a national bank charter of$3.7 million and$9.2 million , respectively, which consisted primarily of professional fees and compensation and benefits costs. While largely dependent on the timing of the regulatory approvals, we estimate that we could incur additional costs of approximately$5 million to$10 million through the remainder of the regulatory approval process. IPO Investment Center. Through ourFINRA -registered broker-dealer subsidiary,SoFi Securities LLC ("SoFi Securities "), we are licensed to underwrite securities offerings. InMarch 2021 , we launched an IPO investment center that allows members with a SoFi active Invest account to invest in initial public offerings before they trade on an exchange. During the three and six months endedJune 30, 2021 , we recognized underwriting fee revenue of$1.8 million within noninterest income - other in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) associated with our IPO Investment Center underwriting activities. We aim to continue to generate revenues in future periods for our IPO investment center activities in the form of underwriting fees. Our Reportable Segments We conduct our business through three reportable segments: Lending, Financial Services and Technology Platform. Below is a discussion of our segments and their corresponding products. Lending Segment Through our Lending segment, we offer student loans, personal loans, home loans and related services. Student Loans. We primarily operate in the student loan refinance space, with a focus on super-prime graduate school loans. In 2019, we expanded into "in-school" lending, which allows members to borrow funds while they attend school. We offer flexible loan sizes and repayment options, as well as competitive rates, on our student loan refinancing and in-school loan products. Personal Loans. We primarily originate personal loans for debt consolidation purposes and home improvement projects. We offer fixed and variable rate loans with no origination fees and flexible repayment terms, such as unemployment protection. There are other personal loan purposes or channels that we have not aggressively pursued, which we believe could represent opportunities for us in the future. Home Loans. We have historically offered agency and non-agency loans for members purchasing a home or refinancing an existing mortgage. For our home loan products, we offer competitive rates, flexible down-payment options for as little as 5% and educational tools and calculators. A key element of our underwriting process is the ability to facilitate risk-based interest rates that are appropriate for each loan. Using SoFi's proprietary risk models, we project quarterly loan performance, including expected losses and prepayments. The outcome of this process helps us determine a more data-driven, risk-adjusted interest rate that we can offer our members. SoFi has built a comprehensive underwriting process across each lending product that is focused on willingness to pay (measured by credit attributes), ability to pay (measured through income verification), and capacity to pay (measured by debt service in relation to other loans). Our student loan and personal loan underwriting models consider credit reports, industry credit and bankruptcy prediction models, custom credit assessment models, and debt capacity analysis, as indicated by borrower free cash flow (defined as borrower monthly net income less revolving and installment payments less housing payments). Our minimum FICO requirements are 650 for student loan refinancing, 650 for in-school loans (primary or co-signer) and 680 for personal loans. We decreased our in-school loan minimum FICO requirement in conjunction with our launch of a revised 67 -------------------------------------------------------------------------------- TABLE OF CONTENTS underwriting strategy, which utilizes an advanced risk model that focuses on borrowers' ability to pay and provides refined risk separation. Home loans originated by SoFi that are agency conforming loans are subject to credit, debt service, and collateral eligibility established by Fannie Mae. Existing members generally experience a higher approval rate than new members, subject to the existing member being in good standing on their existing products. Home loans originated by SoFi that are non-agency loans are subject to our credit criteria, including a minimum tri-bureau credit score, established credit history requirements, income verification, as well as maximum qualified mortgage limits on debt-to-income service and caps on loan-to-value based on an accredited appraisal. We also leverage our data to provide existing members a streamlined application process through automation. Our lending business is primarily a gain-on-sale model, whereby we originate loans and recognize a gain from these loans when we sell them into either our whole loan or securitization channels. We sell our whole loans primarily to large financial institutions, such as bank holding companies, typically at a premium to par, and in excess of our costs to originate the loans. Our loan premiums fluctuate from time to time based on benchmark rates and credit spreads, and we are not guaranteed a gain on all or any of our loan sales. When securitizing loans, we first isolate the underlying loans in a trust and then sell the beneficial interests in the trust to a bankruptcy-remote entity. In securitization transactions that do not qualify for sale accounting, the related assets remain on our balance sheet and cash proceeds received are reported as liabilities, with related interest expense recognized over the life of the related borrowing. In securitization transactions that qualify for sale accounting, we typically have insignificant continuing involvement as an investor. In the case of both whole loan sales and securitizations, we also typically continue to retain servicing rights following transfer. We, therefore, view servicing as an integral component of the Lending segment. Prior to selling our loans, we hold them on our balance sheet at fair value and rely upon warehouse financing arrangements. Net interest income, which we define as the difference between the earned interest income and interest expense to finance loans, is a key component of the profitability of our Lending segment. With the exception of certain of our home loans, we retain servicing rights to our originated loans, and believe our servicing function is an important asset because of the connection to the member it affords us throughout the life of the loan. We directly service all of the personal loans that we originate. We act as master servicer for, and rely on sub-servicers to directly service, all of our student loans and Federal National Mortgage Association ("FNMA") conforming home loans. We believe this ongoing relationship with our members enhances the effectiveness of ourFinancial Services Productivity Loop by increasing member touchpoints and driving increases in the number of products per member. Furthermore, our platform supports the full transaction lifecycle, including credit application, underwriting, approval, funding and servicing. Through data derived at loan origination and throughout the servicing process, SoFi has life-of-loan performance data on each loan in its ecosystem, which provides a meaningful data asset. Financial Services Segment Our Financial Services segment consists of cash management, investment and other financial services activities. SoFi Money ThroughSoFi Money , a digital, mobile cash management experience for our members, we invest in member acquisition and marketing activities to attract new members, including by offering rewards to incentivize prospective members to house their cash management activities on the SoFi platform. We generate interest income from deposits sitting in our various member banks, which is reduced by the interest fees paid to members. We also earn payment network fees on member expenditures via SoFi-branded debit cards issued by one of our member bank holding companies (each a "Member Bank "). Payment network fees are reduced by direct fees payable to card associations and theMember Bank .The Bancorp Bank ("Bancorp") is the issuer of allSoFi Money debit cards and sponsors access to debit networks for payment transactions, funding transactions and associated settlement of funds under a sponsorship agreement withSoFi Securities . Additionally, Bancorp provides sponsorship and support for ACH, check, and wire transactions along with associated funds settlement. The SoFi Money product also utilizes a sweep administrator,UMB Bank, National Association ("UMB"), to sweep funds to and from the SoFi Money program banks, as necessary, under a program broker agreement betweenSoFi Securities and UMB and program account and program bank agreements with a variety of sweep program banks.The SoFi Securities agreement with Bancorp provides for receipt by Bancorp of program revenue and transaction fees, and is subject to a minimum monthly card activity fee. The agreement with Bancorp is terminable bySoFi Securities with 120 days prior notice. The program broker agreement betweenSoFi Securities and UMB provides for one-year terms that automatically renew and is terminable by either party with at least 90 days' written notice prior to the end of the current term. The program 68 -------------------------------------------------------------------------------- TABLE OF CONTENTS account agreements and program bank agreements betweenSoFi Securities , UMB and the sweep banks provide for the rate of interest payable on the balances in a member'sSoFi Money account and include certain maximum transfer requirements on transfers. These arrangements are generally terminable upon termination ofSoFi Securities' sweep arrangement with UMB. SoFi Invest We also provide introductory brokerage services to our members, and have invested significantly in creating SoFi Invest, a streamlined mobile investing experience through which we offer multiple ways to invest and give members access to active investing, robo-advisory and digital assets services. While we do not charge trading fees, other than for digital assets trading, our platform benefits from increasing assets under management as we generate interest income on cash balances that we hold, and we also earn brokerage revenue through share lending and pay for order flow arrangements. We also believe there are opportunities to generate incremental future revenue through margin lending and options. Through our acquisition of 8 Limited in 2020, we expanded SoFi Invest into theHong Kong market. With respect to our digital assets trading activities, which we initiated in 2019, we do not hold or store members' digital assets, but instead rely on a third party custodian, and we hold an immaterial amount of digital assets in order to facilitate paying new member bonuses when members initiate their first digital assets trade. We do this for member convenience to facilitate a seamless payment of digital assets. Furthermore, our innovative "stock bits" feature allows members to purchase fractional shares in various companies. Through our "stock bits" offering, members with SoFi Invest active brokerage accounts may buy or sell fractional shares in a variety of equity securities. Members can place orders in dollars or shares. During the course of a trading day, all member orders are consolidated into a single order for each equity security, which may be a sell or buy order. These fractional orders are rounded up to the next whole share and executed as a market order prior to market close on a standard trading day. Following market close, we allocate the trades to each individual member. We maintain a stock inventory for each issuer for whose securities we provide fractional trading in order to facilitate "stock bits" trades. Other InAugust 2020 , we began offering the SoFi Credit Card, which we expanded to a broader market in the fourth quarter of 2020. Additionally, we developed SoFi Relay within the SoFi mobile application, a personal finance management product which allows members to track all of their financial accounts in one place and utilize credit score monitoring services. Further, we leverage our technology and information infrastructure to offer services to other enterprises, such as loan referrals and SoFi At Work, which is a platform we offer to enterprises that are looking for a seamless way to provide financial benefits to their employees, such as student loan payments made on their employees' behalf, for which we earn a fee. We have also developed a financial services marketplace platform branded as Lantern Credit to help applicants that do not qualify for SoFi products find alternative products, as well as providing a product comparison experience. Finally, commencing in the second quarter of 2021, we started earning revenues for equity capital markets and advisory services. We earn revenues in connection with our Financial Services segment through various partnerships and ourSoFi Money and SoFi Invest products in the following ways: •Referral fees: Through strategic partnerships, we earn a specified referral fee in connection with referral activity we facilitate through our platform, which is not directly tied to a particular Financial Services product. The referral fee is paid to us by third-party partners that offer services to end userswho do not use one of our product offerings, butwho were referred to the partners through our platform. As such, the third-party enterprise partners are our customers in these referral arrangements. •Payment network fees: We earn payment network fees, which primarily constitute interchange fees from ourSoFi Money and SoFi Credit Card products, which are reduced by fees payable to card associations and the issuing bank holding company. These fees are remitted by merchants and are calculated by multiplying a set fee percentage (as stipulated by the debit card payment network) by the transaction volume processed through such network. We arrange for performance by a card association and the bank issuer to enable certain aspects of the SoFi branded transaction card process. We enter into contracts with both parties that establish the shared economics of SoFi branded transaction cards. •Enterprise service fees: These fees are earned in connection with services we provide to enterprise partners, such as when we facilitate transactions for the benefit of their employees, such as 529 plan contributions or student loan payments through our At Work product, which represents our single performance obligation in the arrangements. Commencing in the second quarter of 2021, enterprise services also included fees for providing advisory services to an enterprise partner to facilitate reaching a quorum on their shareholder vote, which represented our single performance obligation in the arrangement. Our fee was a success-based fee for achieving contractually-specified targets, which 69 -------------------------------------------------------------------------------- TABLE OF CONTENTS represented variable consideration at contract inception. However, as advisory fees were billed to, and collected directly from, our partner only once our performance obligation was satisfied, the variable consideration within the reporting period was not constrained. Our revenue was reported on a gross basis, as we acted in the capacity of a principal, demonstrated the requisite control over the service, and were primarily responsible for fulfilling the performance obligation to our enterprise partner. These fees are discussed herein as a component of equity capital markets and advisory services. •Brokerage fees: We earn brokerage fees from our share lending and pay for order flow arrangements related to our SoFi Invest product (for whichApex Clearing Holdings, LLC , or "Apex", serves as principal), exchange conversion services and digital assets activity. In our share lending arrangements and pay for order flow arrangements with Apex, we do not oversee the execution of the transactions by our members, but benefit through a negotiated multi-year revenue sharing arrangement, since our members' brokerage activity drives the share lending and pay for order flow volume. Apex connects with market makers (order flow) and institutions (share lending) to facilitate the service and is responsible for execution. Apex carries inventory risk with the share lending program and ultimately is responsible for successful order routing to market makers that trigger the pay for order flow revenue. Apex sets the gross price and negotiates with market makers and institutions as part of our order flow and share lending arrangements. We have no discretion or visibility into this pricing and, instead, negotiate a net fee for our order flow and share lending arrangements, which is settled with Apex rather than with market makers or other institutions. In our digital assets arrangements, our fee is calculated as a negotiated percentage of the transaction volume. In our exchange conversion arrangements, we earn fees for exchanging one currency for another. Historically, these fees have not been a significant portion of our total net revenue. Our arrangements with Apex are governed by an agreement which contains certain minimum monthly requirements and which is terminable by either party upon notice. Although we no longer have an equity method investment in Apex as of the balance sheet date, Apex continues to provide the services under this agreement. •Underwriting Fees: Commencing in the second quarter of 2021, we earned underwriting fees related to our membership in underwriting syndicates for initial public offerings. The underwriting of securities is the only performance obligation in our underwriting agreements, and we recognize underwriting fees on the trade date. Moreover, we are a principal in our underwriting agreements, because we demonstrate the requisite control over the satisfaction of the performance obligation through the assumption of underwriter liability for our designated share allotment. As such, we recognize underwriting fee revenue on a gross basis. •Net interest income: Our SoFi Invest andSoFi Money products also generate net interest income based on the cash balances held in these accounts. Historically, this income has not been a significant portion of our total net revenue. Technology Platform Segment Our Technology Platform segment consists of Galileo, and historically included our minority ownership of Apex, a technology-enabled provider of investment custody and clearing brokerage services, in which we invested inDecember 2018 . DuringJanuary 2021 , the seller of the Apex interest exercised its call rights on our Apex investment. Therefore, we did not recognize any Apex equity method investment income during the three and six months endedJune 30, 2021 , nor will we have such equity method investment income in future periods. Additionally, we measured the carrying value of the Apex equity method investment as ofDecember 31, 2020 equal to the call payment that we received inJanuary 2021 . Although following the exercise of the seller's call rights we no longer have an equity method investment in Apex or recognize equity method investment income, Apex continues to provide investment custody and clearing services for SoFi Invest, including for our brokerage activities, under a multi-year revenue sharing arrangement. InMay 2020 , we acquired Galileo, a provider of technology platform services to financial and non-financial institutions. Through Galileo, we provide services through a suite of program, event and authorization application programming interfaces for financial and non-financial institutions. Additionally, Galileo provides vertical integration benefits withSoFi Money . In addition to growth in itsU.S. client base, Galileo is increasingly focused on international opportunities, including inLatin America andAsia . We earn revenue on Galileo's platform in the following two ways: •Technology Platform Fees: The platform fees we earn are based on access to the platform and are specific to the type of transaction. For example, we offer "event pricing", which includes a specific charge for an account setup, an active account on file, use of Program, Event and Authorization Application Programming Interfaces ("APIs"), card activation, authorizations and processing, and card loads. In addition, we offer "partner pricing", which is the back-end 70 -------------------------------------------------------------------------------- TABLE OF CONTENTS support we provide to Galileo's clients, such as live agent customer service, chargeback and fraud analysis and credit bureau reporting, all within one integrated solution for our clients. •Program Management Fees: Also referred to as "card program fees", these transaction fees are generated from the creation and management of card programs issued by banks and requested by enterprise partners. In these arrangements, Galileo performs card management services and the revenue stems from the payment network and card program fees generated by the card program. This revenue is reduced by association and bank issuer costs, and a revenue share passed along to the enterprise partner that markets the card program. We categorize this class of revenue as payment network fees. Galileo typically enters into multi-year service contracts with its clients. The contracts provide for a variety of integrated platform services, which vary by client and are generally either non-cancellable or cancellable with a substantive payment. Pricing structures under these contracts are typically volume-based, or a combination of activity- and volume-based, and payment terms are predominantly monthly in arrears. Most of Galileo's contracts contain minimum monthly payments with agreed upon monthly service levels and may contain penalties if service levels are not met. COVID-19 Pandemic Although the long-term effects of the novel coronavirus ("COVID-19") pandemic globally and inthe United States remain unknown, we are seeing signs of recovery from the impacts of the pandemic due to the increased availability of vaccinations and evolving government stimulus programs, particularly inthe United States , including businesses and schools reopening, improved employment metrics, and increased consumer spending and confidence levels. However, we continue to monitor developments related to the pandemic, particularly the spread of additional strains of the COVID virus and potential related impacts. Through our business continuity program, which was expanded in response to the COVID-19 pandemic, we continue to monitor the recommendations and protocols published by theU.S. Centers for Disease Control and Prevention ("CDC") and theWorld Health Organization , as well as state and local governments, and to communicate with employees on a regular basis to provide updated information and corporate policies. As the guidance issued by governments and regulators continues to evolve, we likewise continue to assess the impacts on us and to adjust our business operations, policies and procedures as needed to best accommodate our ecosystem of members and prospective members, Member Banks and employees. See "- Key Factors Affecting Operating Results - Industry Trends and General Economic Conditions" for discussion of the impact to our business of measures taken in response to the economic and financial effects of the COVID-19 pandemic. Since the onset of the COVID-19 pandemic, we have continued to adapt our response and strategies to navigate uncertain economic, workplace and market conditions. We have taken a number of measures to proactively support our members, applicants for new loans, employees and investors. Members: We have and will continue to approach hardship programs from a member-first perspective. In addition to our Unemployment Protection Plan, which remains available to all eligible members, we launched comprehensive forbearance programs that provided meaningfulFederal Emergency Management Agency disaster hardship relief. Starting inMarch 2020 , we made available a web-enabled self-service forbearance request process to enable memberswho faced unemployment, reduction in income or general economic uncertainty to defer their loan payment for an initial period with options to extend. For student loans and personal loans, when a forbearance request was accepted, interest on the loan continued to accrue and is amortized over the remaining life of the loan, and the maturity date of the loan is extended for the length of the deferment. Home loans are subject toFNMA servicing guidelines, which provide certain options to the borrower. In accordance with these guidelines, after the forbearance period has ended, members are required to repay the amount that was suspended, but are not required to repay the amount all at once, though they have that option. Other potential options we offer allow members to repay all delinquent amounts gradually over a period of time in addition to their regular monthly payments, move the deferred amount to the end of the loan term, or set up a loan modification, if they are eligible. In all instances, interest continues to accrue during the forbearance period. In response to the hardship brought on by the COVID-19 pandemic, we also deferred certain collection recovery activities, while taking every opportunity to work with our members to find a path to repayment. We discontinued enrollment in our COVID-19 forbearance programs, which were designed to be temporary in nature, for personal loans and student loans onMarch 31, 2021 andApril 30, 2021 , respectively. Although enrollment in COVID-19 forbearance programs for home loans remains open, new requests remain low and are primarily related to extensions of existing forbearance. Subject to eligibility, members may participate in other customary hardship programs. 71 -------------------------------------------------------------------------------- TABLE OF CONTENTS As ofJune 30, 2021 , the loans in active short-term hardship relief or payment deferral due to the COVID-19 pandemic included 95 student loans with an aggregate balance of$6.0 million and 84 home loans with an aggregate balance of$22.9 million . There were no personal loans in this category due to the COVID-19 pandemic. Applicants: In response to deteriorating economic conditions and market uncertainty amid the COVID-19 pandemic, in 2020 we proactively executed our recession readiness credit risk strategies. This included introducing elevated credit eligibility requirements for personal loans, thorough validation of income and income continuity, and limiting loan amounts. We expected originations incorporating credit risk strategy changes, when stressed using external loss forecasting models with stressed econometric scenarios, to perform similarly to previous vintages. Our student loan refinance business is substantially composed of applicants refinancing federal loans and/or existing private student loans. We developed objective content and calculators to educate applicants about the Federal relief available to them through the CARES Act and subsequent extensions, which enabled them to maximize their savings. Throughout the first half of 2021, we adapted our elevated credit eligibility requirements for personal loans through phases of reopening following our metric-driven, return-to-normalcy action plan. Employees: In order to safeguard the health and safety of our team members and their families, we virtualized our entire organization beginning inMarch 2020 , enabling all of our team members to work virtually. We have taken a proactive approach to enable ongoing communication and engagement. InFebruary 2021 , we announced that our employees may work with their managers to determine the best place for them to work from, including continuing to work virtually. Additionally, based on feedback we received from an employee engagement survey, we initiated a pilot reopening of ourU.S. offices inJuly 2021 on a voluntary basis. In the Fall of 2021, we expect to commence a staggered Return-To-Workplace program, followed by a full reopening of allUnited States SoFi office locations. We will continue to align our protocols with evolvingCDC , state and local guidelines to continue to safeguard the health and safety of our team members and their families. Investors: Durability of, and confidence in, the performance of our originated asset classes has never been more important. Despite uncertain market and economic conditions, our serviced assets continue to perform at historic low delinquency and loss metrics, even when adjusted for forbearance. The majority of our members have validated their income resiliency and have returned to making full or partial payments on their loan or have paid in full. We have identified memberswho have sustained hardships and we have worked constructively with the investor community to establish expanded loss mitigation tools to maximize recovery while providing empathy for distressed members. Our team has worked to provide greater transparency to our investor community through access to our Capital Markets and Risk Management team and by providing internal and external analytical and stress testing forecasts, which provide a range of economic scenarios that could manifest in performance of their owned assets. Investors continue to not only have demand for our assets, but have grown their demand for our assets in light of their demonstrated performance. Delinquencies: Members enrolled in forbearance or hardship relief programs do not appear in delinquency metrics and are not subject to collection activity. Despite this, during any re-enrollment, we work with members to determine when a short-term hardship becomes long-term, which requires differing solutions to ensure a member has the best chance for repayment success. At the onset of the COVID-19 pandemic, we provided online self-service opportunities to members to request initial relief and subsequently extend that short-term forbearance relief as needed (subject to approval). COVID-19 hardship relief was available to memberswho were current or delinquent at the time of request, although the majority of student loan and personal loan initial enrollments were memberswho were "current" at the time of enrollment. The vast majority of members that entered COVID-19 hardship programs have exited such programs. Liquidity: We took action to prepare for potential liquidity needs resulting from the COVID-19 pandemic by securing additional committed warehouse capacity inMay 2020 . We were able to manage these needs along with other liquidity needs of our business by relying on our strong liquidity position going into the crisis, having a deep and diversified portfolio of warehouse lenders, being proactive and forward-looking as it related to anticipated liquidity risks and needs, and managing decisions conservatively with regard to loan origination growth and loan sales. We remain committed to serving our members, applicants and investors, while caring for the safety of our employees and their families. See Part II, Item 1A "Risk Factors - COVID-19 Pandemic Risks" for additional discussion of the risks and uncertainties associated with the repercussions of the COVID-19 pandemic. 72 -------------------------------------------------------------------------------- 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 corresponding reportable segment and, in the case of our Lending segment, less fair value adjustments attributable to assumption changes associated with our servicing rights and residual interests classified as debt. See "- Results of 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) 2021 2020 2021 2020 Lending Total interest income$ 83,035 $ 83,985 $ 164,582 $ 177,162 Total interest expense (26,213) (39,650) (55,983) (87,166) Total noninterest income 109,469 51,549 205,669 79,766 Total net revenue 166,291 95,884 314,268 169,762 Adjusted net revenue(1)(2) 172,232 117,182 340,269 198,937 Contribution profit(1) 89,188 49,419 176,874 53,514 Financial Services(1) Total interest income 893 316 1,433 2,053 Total interest expense (351) (233) (662) (1,755) Total noninterest income 16,497 2,345 22,731 4,284 Total net revenue 17,039 2,428 23,502 4,582 Contribution loss (24,745) (30,893) (60,264) (57,876) Technology Platform(1)(3) Total interest expense (32) (18) (68) (18) Total noninterest income 45,329 19,037 91,430 20,034 Total net revenue 45,297 19,019 91,362 20,016 Contribution profit 13,013 12,100 28,698 13,097 Other(4) Total interest income 180 1,764 621 4,132 Total interest expense (1,500) (3,417) (6,631) (4,512) Total noninterest income (loss) 3,967 (726) 4,136 (726) Total net revenue (loss) 2,647 (2,379) (1,874) (1,106) Consolidated Total interest income$ 84,108 $ 86,065 $ 166,636 $ 183,347 Total interest expense (28,096) (43,318) (63,344) (93,451) Total noninterest income 175,262 72,205 323,966 103,358 Total net revenue 231,274 114,952 427,258 193,254 Adjusted net revenue(1)(2) 237,215 136,250 453,259 222,429 Net income (loss) (165,314) 7,808 (342,878) (98,559) Adjusted EBITDA(2) 11,240 (23,750) 15,372 (89,902) ___________________ (1)Adjusted net revenue within our Lending segment is used by management to evaluate our Lending segment and our consolidated results. For our Lending segment, total net revenue is adjusted to exclude the fair value changes in servicing rights and residual interests classified as debt due to valuation inputs and assumption changes (including conditional prepayment and default and discount rates). We use this adjusted measure in our determination of contribution profit (loss) in the Lending segment, as well as to evaluate our consolidated results, as it removes non-cash charges that are not realized during the period and, therefore, do not impact the cash available to fund our operations, and our overall liquidity position. For our Financial Services and Technology Platform segments, there are no adjustments from total net revenue to arrive at the consolidated adjusted net revenue shown in this table. 73 -------------------------------------------------------------------------------- TABLE OF CONTENTS (2)Adjusted net revenue and adjusted EBITDA are non-GAAP financial measures. For information regarding our uses and definitions of these measures and for reconciliations to the most directly comparableU.S. Generally Accepted Accounting Principles ("GAAP") measures, see "- Non-GAAP Financial Measures". (3)There was no interest income recorded within our Technology Platform segment for any of the periods presented. (4)"Other" includes total net revenue associated with corporate functions and non-recurring gains from non-securitization investment activities that are not directly related to a reportable segment. For further discussion, see Note 16 to the Notes to Unaudited Condensed Consolidated Financial Statements. Key Recent Developments We continue to execute on our growth and other strategic initiatives and in recent years, we have celebrated launches across our product suite and strategic partnerships, establishing ourselves as a platform that enables individuals to borrow, save, spend, invest, and protect their assets. Some of our key recent achievements are discussed below. Acquisitions InJanuary 2021 , Social Finance entered into the Agreement by and among SoFi, SCH, andPlutus Merger Sub Inc. The transactions contemplated by the terms of the Agreement were completed onMay 28, 2021 , upon which SoFi survived the merger and became a wholly owned subsidiary of SCH, which concurrently changed its name to "SoFi Technologies, Inc. " Shares ofSoFi Technologies' common stock andSoFi Technologies' warrants began trading on The Nasdaq Global Select Market ("Nasdaq") under the symbols "SOFI" and "SOFIW", respectively, onJune 1, 2021 , in lieu of the ordinary shares, warrants and units of SCH. See Note 2 to the Notes to Unaudited Condensed Consolidated Financial Statements for additional information on the transaction. InMarch 2021 , we entered into an agreement to acquire Golden Pacific Bancorp, Inc., a bank holding company, and its wholly-owned subsidiary,Golden Pacific Bank, National Association , a national bank, for a total cash purchase price of$22.3 million . The acquisition is subject to regulatory approval, including approval from the OCC of a revised business plan forGolden Pacific Bank , and approval from theFederal Reserve to become a bank holding company and for a change of control, and other customary closing conditions, which we anticipate can be completed by the end of 2021. InMarch 2021 , we submitted an application to theFederal Reserve to become a bank holding company. The application review process is ongoing. InMay 2020 , we completed our acquisition of Galileo for a purchase price of$1.2 billion . Galileo provides technology platform services to financial and non-financial institutions. Our acquisition of Galileo represented a material addition to our Technology Platform segment, but was not a significant acquisition under Regulation S-X, Rule 3-05, Financial Statements of Businesses Acquired or to be Acquired. InApril 2020 , we acquired 8 Limited, aHong Kong based investment business, for a purchase price of$16.1 million . Our acquisition of 8 Limited marked our first expansion outsidethe United States and enables our non-U.S. members to experience many of the product features we have developed inthe United States for SoFi Invest, including zero commission non-digital assets trading. Product Development and Partnerships InMay 2021 , we launched a feature in ourSoFi Money product that enables members to receive their qualifying direct deposit paychecks (or other eligible direct deposits) up to two days earlier than their regularly scheduled payday, providing them quicker access to money they have already earned. Through ourFINRA -registered broker-dealer subsidiary,SoFi Securities , we are licensed to underwrite securities offerings. InMarch 2021 , we launched an IPO investment center that allows members with a SoFi active Invest account to invest in initial public offerings before they trade on an exchange. Beginning in the second quarter of 2021, we began earning revenues from our underwriting services. See "-Business Overview" for additional information. In 2020, we celebrated the official opening ofSoFi Stadium and the establishment of a 20-year partnership withLA Stadium and Entertainment District atHollywood Park inInglewood, California , a multi-purpose sports and entertainment district that serves as the stadium for theNational Football League teams theLos Angeles Chargers andLos Angeles Rams . SoFi's 20-year partnership with the LA Stadium and Entertainment District atHollywood Park , across the naming rights and sponsorship agreements, collectively requires SoFi to pay sponsorship fees quarterly in each contract year beginning in 2020 and ending in 2040 for an aggregate total of$625.0 million , which includes operating lease obligations, finance lease obligations and sponsorship and advertising opportunities at the stadium complex. See Note 14 to the Notes to Unaudited Condensed Consolidated Financial Statements for discussion of an associated contingent matter. In the second half of 2020, we launched our SoFi Credit Card, which carries no annual membership fee and provides up to two percent unlimited cash back when the cash back rewards are applied to aSoFi Money or SoFi Invest account, or are used to 74 -------------------------------------------------------------------------------- TABLE OF CONTENTS pay down SoFi student loans or personal loans, as well as a one-percent annual percentage rate reduction after 12 consecutive on-time credit card payments, with the reduced rate sustained with continued on-time payments. 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 the fair value changes in servicing rights and residual interests classified as debt due to valuation inputs and assumptions changes, as they are non-cash charges that are not realized during the period, and therefore positive or negative changes do not impact the cash available to fund our operations. This measure helps provide our management with an understanding of the net revenue available to finance our operations and helps management better decide on the proper expenses to authorize for each of our operating segments, to ultimately help achieve target contribution profit margins. Therefore, the measure of adjusted net revenue serves as both the starting point for how we think about the liquidity generated from our operations and also the starting point for our annual financial planning, the latter of which focuses on the cash we expect to generate from our operating segments to help fund the current year's strategic objectives. Adjusted net revenue has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, the analysis of other GAAP financial measures, such as total net revenue. The primary limitation of adjusted net revenue is its lack of comparability to other companies that do not utilize this measure or that use a similar measure that is defined in a different manner. We reconcile adjusted net revenue to total net revenue, the most directly comparable GAAP measure, as presented for the periods indicated below: Three Months Ended June 30, Six Months Ended June 30, ($ in thousands) 2021 2020 2021 2020 Total net revenue$ 231,274
224 18,720 12,333 11,661 Residual interests classified as debt - change in valuation inputs or assumptions(2) 5,717 2,578 13,668 17,514 Adjusted net revenue$ 237,215 $ 136,250 $ 453,259 $ 222,429 ___________________ (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. Quarter Ended June 30, March 31, December 31, September 30, June 30, ($ in thousands) 2021 2021 2020 2020 2020 Total net revenue$ 231,274 $ 195,984
224 12,109 1,127 4,671 18,720 Residual interests classified as debt - change in valuation inputs or assumptions(2) 5,717 7,951 9,401 11,301 2,578 Adjusted net revenue$ 237,215 $ 216,044 $ 182,019 $ 216,759 $ 136,250 ___________________
(1)See footnote (1) to the table above.
75 -------------------------------------------------------------------------------- TABLE OF CONTENTS (2)See footnote (2) to the table above. 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) 2021 2020 2021 2020 Total net revenue - Lending$ 166,291
224 18,720 12,333 11,661 Residual interests classified as debt - change in valuation inputs or assumptions(2) 5,717 2,578 13,668 17,514 Adjusted net revenue - Lending$ 172,232
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(1)See footnote (1) to the table above. (2)See footnote (2) to the table above. Adjusted EBITDA Adjusted EBITDA is defined as net income (loss), adjusted to exclude: (i) corporate borrowing-based interest expense (our adjusted EBITDA measure is not adjusted for warehouse or securitization-based interest expense, nor deposit interest expense and finance lease liability interest expense, as discussed further below), (ii) income taxes, (iii) depreciation and amortization, (iv) stock-based expense (inclusive of equity-based payments to non-employees), (v) impairment expense (inclusive of goodwill impairment and of property, equipment and software abandonments), (vi) transaction-related expenses, (vii) warrant fair value adjustments, and (viii) fair value changes in servicing rights and residual interests classified as debt due to valuation assumptions. We believe adjusted EBITDA provides a useful measure for period-over-period comparisons of our business, as it removes the effect of certain non-cash items and certain charges that are not indicative of our core operating performance or results of operations. It is also a measure that management relies upon to evaluate cash flows generated from operations, and therefore the extent of additional capital, if any, required to invest in strategic initiatives. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, the analysis of other GAAP financial measures, such as net income (loss). Some of the limitations of adjusted EBITDA include that it does not reflect the impact of working capital requirements or capital expenditures and it is not a universally consistent calculation among companies in our industry, which limits its usefulness as a comparative measure. We reconcile adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, for the periods indicated below: Three Months Ended June 30, Six Months Ended June 30, ($ in thousands) 2021 2020 2021 2020 Net income (loss)$ (165,314) $ 7,808 $ (342,878) $ (98,559) Non-GAAP adjustments: Interest expense - corporate borrowings(1) 1,378 3,415 6,386 4,503 Income tax expense(2) (78) (99,768) 1,021 (99,711) Depreciation and amortization(3) 24,989 14,955 50,966 19,670 Stock-based expense 52,154 24,453 89,608 44,138 Transaction-related expense(4) 21,181 4,950 23,359 8,864 Fair value changes in warrant liabilities(5) 70,989 (861) 160,909 2,018 Servicing rights - change in valuation inputs or assumptions(6) 224 18,720 12,333 11,661 Residual interests classified as debt - change in valuation inputs or assumptions(7) 5,717 2,578 13,668 17,514 Total adjustments 176,554 (31,558) 358,250 8,657 Adjusted EBITDA$ 11,240 $ (23,750) $ 15,372 $ (89,902) ___________________ (1)Our adjusted EBITDA measure adjusts for corporate borrowing-based interest expense, which includes interest on our revolving credit facility and the seller note issued in connection with our acquisition of Galileo (for periods prior to the quarter endedJune 30, 2021 ) and other financings assumed in the acquisition, as these expenses are a function of our capital structure. Our adjusted EBITDA measure does not adjust for interest expense on warehouse facilities and securitization debt, which are recorded within interest expense - securitizations and warehouses in the accompanying 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 onSoFi Money deposits or interest expense on our finance lease liability in connection withSoFi Stadium , which are recorded within interest expense - other, as these interest expenses are 76 -------------------------------------------------------------------------------- TABLE OF CONTENTS direct operating expenses driven bySoFi Money deposits and finance leases, respectively. As compared to the three and six months endedJune 30, 2020 , during the three and six months endedJune 30, 2021 , we had a higher average balance on our revolving credit facility as a result of the Galileo acquisition, as well as interest expense related to the Galileo seller note issued inMay 2020 , which we repaid inFebruary 2021 . (2)The significant change in our income tax position for the 2021 periods relative to 2020 was primarily due to a partial release of our valuation allowance in the second quarter of 2020 in connection with deferred tax liabilities resulting from intangible assets acquired from Galileo inMay 2020 . See Note 12 to the Notes to Unaudited Condensed Consolidated Financial Statements for additional information. (3)Depreciation and amortization expense for the three and six months endedJune 30, 2021 increased compared to the same periods in 2020 primarily due to: (i) amortization expense on intangible assets acquired during the second quarter of 2020 from Galileo and 8 Limited, (ii) amortization of purchased and internally-developed software, and (iii) depreciation related toSoFi Stadium related fixed assets. (4)During the three months endedJune 30, 2021 , transaction-related expenses included the special payment to the Series 1 preferred stockholders in conjunction with the Business Combination. Transaction-related expenses for the six months endedJune 30, 2021 also included financial advisory and professional services costs associated with our pending purchase of Golden Pacific Bancorp, Inc. During the three and six months endedJune 30, 2020 , transaction-related expenses included certain costs, such as financial advisory and professional services costs, associated with our acquisitions of Galileo and 8 Limited. (5)In 2019, Social Finance issued Series H warrants in connection with certain redeemable preferred stock issuances, which were accounted for as liabilities and measured at fair value on a recurring basis. In conjunction with the Closing of the Business Combination, we measured the final fair value of the Series H warrants and subsequently reclassified them into permanent equity. Therefore, we will not measure the Series H warrants at fair value on an ongoing basis, subsequent toMay 28, 2021 . In addition, in conjunction with the Business Combination,SoFi Technologies assumed certain common stock warrants ("SoFi Technologies warrants") that are accounted for as liabilities and measured at fair value on a recurring basis, subsequent to the Business Combination. Our adjusted EBITDA measure excludes the non-cash fair value changes in the Series H warrants and theSoFi Technologies warrants during the periods wherein each class of warrants was measured at fair value through earnings. The increases for the three and six months endedJune 30, 2021 compared to the same periods in 2020 were primarily attributable to a significant increase in our assumed Series H redeemable preferred stock share price for the Series H warrants, as well as the assumption of theSoFi Technologies warrants in the second quarter of 2021. The fair value of theSoFi Technologies warrants is based on the closing price of ticker SOFIW and, therefore, fluctuates based on market activity. See Note 7 and Note 9 to the Notes to Unaudited Condensed Consolidated Financial Statements for additional information on these classes of warrants. (6)Reflects changes in fair value inputs and assumptions, including market servicing costs, conditional prepayment and default rates and discount rates. This non-cash change is unrealized during the period and, therefore, has no impact on our cash flows from operations. As such, these positive and negative changes in fair value attributable to assumption changes are adjusted out of net loss to provide management and financial users with better visibility into the earnings available to finance our operations. (7)Reflects changes in fair value inputs and assumptions, including conditional prepayment and default rates and discount rates. When third parties finance our consolidated VIEs through purchasing residual interests, we receive proceeds at the time of the securitization close and, thereafter, pass along contractual cash flows to the residual interest owner. These obligations are measured at fair value on a recurring basis, which has no impact on our initial financing proceeds, our future obligations to the residual interest owner (because future residual interest claims are limited to contractual securitization collateral cash flows), or the general operations of our business. As such, these positive and negative non-cash changes in fair value attributable to assumption changes are adjusted out of net loss to provide management and financial users with better visibility into the earnings available to finance our operations. Quarter Ended June 30, March 31, December 31, September 30, June 30, ($ in thousands) 2021 2021 2020 2020 2020 Net income (loss)$ (165,314) $
(177,564)
1,378 5,008 19,125 4,346 3,415 Income tax expense (benefit) (78) 1,099 (4,949) 192 (99,768) Depreciation and amortization 24,989 25,977 25,486 24,676 14,955 Stock-based expense 52,154 37,454 30,089 26,551 24,453 Transaction-related expenses 21,181 2,178 - 297 4,950 Fair value changes in warrant liabilities 70,989 89,920 14,154 4,353 (861) Servicing rights - change in valuation inputs or assumptions 224 12,109 1,127 4,671 18,720 Residual interests classified as debt - change in valuation inputs or assumptions 5,717 7,951 9,401 11,301 2,578 Total adjustments 176,554 181,696 94,433 76,387 (31,558) Adjusted EBITDA$ 11,240 $ 4,132 $ 11,817 $ 33,509 $ (23,750) 77
-------------------------------------------------------------------------------- TABLE OF CONTENTS Key Business Metrics The table below presents the key business metrics that management uses to evaluate our business, measure our performance, identify trends and make strategic decisions. 2021 vs 2020 June 30, 2021 June 30, 2020 % Change Members 2,560,492 1,204,475 113 % Total Products 3,667,121 1,645,044 123 % Lending Total Products 981,440 861,970 14 % Financial Services Total Products 2,685,681 783,074 243 % Technology Platform Total Accounts 78,902,156 35,988,090 119 % See "- Summary Results by Segment" for additional metrics we review at the segment level. Members We refer to our customers as "members", as defined in "- Business Overview". We view members as an indication not only of the size and a measurement of growth of our business, but also as a measure of the significant value of the data we have collected over time. The data we collect from our members helps us to, among other things: (i) assess loan life performance data on each loan in our ecosystem, which can inform risk-based interest rates that we can offer our members, (ii) understand our members' spending behavior to identify and suggest other products we offer that may align with the members' financial needs; and (iii) enhance our opportunities to sell additional products to our members, as our members represent a vital source of marketing opportunities. When we provide additional products to members, it helps improve our unit economics per member, as we save on marketing costs we would otherwise incur to attract new members. It also increases the lifetime value of an individual member. This in turn enhances ourFinancial Services Productivity Loop . Member growth is generally an indicator of future revenue, but is not directly correlated with revenues, since not all memberswho sign up for one of our products fully utilize or continue to use our products, and not all of our products (such as our complementary product, SoFi Relay) provide direct sources of revenue. Total Products Total products refers to the aggregate number of lending and financial services products that our members have selected on our platform since our inception through the reporting date, whether or not the members are still registered for such products. In our Lending segment, total products refers to the number of home loans, personal loans and student loans that have been originated through our platform through the reporting date, whether or not such loans have been paid off. If a member has multiple loan products of the same loan product type, such as two personal loans, that is counted as a single product. However, if a member has multiple loan products across loan product types, such as one personal loan and one home loan, that is counted as two products. In our Financial Services segment, total products refers to the number ofSoFi Money accounts, SoFi Invest accounts, SoFi Credit Card accounts (including accounts with a zero dollar balance at the reporting date), SoFi At Work accounts and SoFi Relay accounts (with either credit score monitoring enabled or external linked accounts) that have been opened through our platform through the reporting date. Our SoFi Invest service is composed of three products: active investing accounts, robo-advisory accounts and digital asset accounts. Our members can select any one or combination of the three types of SoFi Invest products. If a member has multiple SoFi Invest products of the same account type, such as two active investing accounts, that is counted as a single product. However, if a member has multiple SoFi Invest products across account types, such as one active investing account and one robo-advisory account, those separate account types are considered separate products. Total products is a primary indicator of the size and reach of our Lending and Financial Services segments. Management relies on total products metrics to understand the effectiveness of our member acquisition efforts and to gauge the propensity for members to use more than one product. As ofJune 30, 2021 , we had 3,667,121 total products. 78
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[[Image Removed: sofi-20210630_g2.jpg]] Total lending products were composed of the following as of the dates indicated: Lending Products June 30, 2021 June 30, 2020 Variance % Change Home loans 18,102 10,511 7,591 72 % Personal loans 544,068 474,581 69,487 15 % Student loans 419,270 376,878 42,392 11 % Total lending products 981,440 861,970 119,470 14 % Total financial services products were composed of the following as of the dates indicated: Financial Services Products June 30, 2021 June 30, 2020 Variance % Change Money 954,519 220,201 734,318 333 % Invest 1,038,570 328,837 709,733 216 % Credit Card 42,744 - 42,744 n/m Relay 626,195 227,201 398,994 176 % At Work 23,653 6,835 16,818 246 % Total financial services products 2,685,681 783,074 1,902,607 243 % Technology Platform Total Accounts In our Technology Platform segment, total accounts refers to the number of open accounts at Galileo as of the reporting date, excluding SoFi accounts. We exclude SoFi accounts because revenue generated by Galileo from the SoFi relationship is eliminated in consolidation. No information is reported prior to our acquisition of Galileo onMay 14, 2020 . Total accounts is a primary indicator of the accounts dependent upon Galileo's technology platform to use virtual card products, virtual wallets, make peer-to-peer and bank-to-bank transfers, receive early paychecks, separate savings from spending balances, make debit transactions and rely upon real-time authorizations, all of which result in technology platform fees for the Technology Platform segment. Key Factors Affecting Operating Results Our future operating results and cash flows are dependent upon a number of opportunities, challenges and other factors, including our loan origination volume, financial services products and member activity on our platform, growth in Galileo accounts, competition and industry trends, general economic conditions and whether or not we are able to secure a national bank charter. Origination Volume Our Lending segment is our largest segment, comprising 72% and 83% of our total net revenue during the three months endedJune 30, 2021 and 2020, respectively, and 74% and 88% during the six months endedJune 30, 2021 and 2020, 79 -------------------------------------------------------------------------------- TABLE OF CONTENTS respectively. We are dependent upon the addition of new members and new activity from existing members within our Lending segment to generate origination volume, which we believe is a contributor to Lending segment net revenue. We believe we have a high-quality loan portfolio, as indicated by our weighted average origination FICO score of 763 during the six months endedJune 30, 2021 . See "- Industry Trends and General Economic Conditions" for the impact of specific economic factors, including the COVID-19 pandemic, on origination volume. Member Growth and Activity We have invested heavily in our platform and are dependent on continued member growth, as well as our ability to generate additional revenues from our existing members using additional products and services. Member growth and activity is critical to our ability to increase our scale and earn a return on our technology and product investments. Growth in members and member activity will depend heavily on our ability to continue to offer attractive products and services at sustainable costs and our continued member acquisition and marketing efforts. Product Growth Our aim is to develop and offer a best-in-class integrated financial services platform with products that meet the broad objectives of our members and the lifecycle of their financial needs. We have invested, and continue to invest, heavily in the development, improvement and marketing of our suite of lending and financial services products and are dependent on continued growth in the number of products selected by our members, as well as our ability to build trust and reliability between our members and our platform to reinforce the effects of theFinancial Services Productivity Loop . In order to deliver on our strategy, we aim to foster positive member experiences designed to lead to more products per member, leading to enhanced profitability for each additional product by lowering overall member acquisition costs. Galileo Account Growth During 2020, we acquired Galileo, which primarily provides technology platform services to financial and non-financial institutions, to enable us to diversify our business from a primarily consumer-based business to also serve enterprises that rely upon Galileo's integrated platform as a service to serve their clients. We are dependent on growth in the number of accounts at Galileo, which is an indication of the amount of users that are dependent upon the technology platform for a variety of products and services, including virtual card products, virtual wallets, peer-to-peer and bank-to-bank transfers, early paychecks and relying on real-time authorizations, all of which generate revenues for Galileo. Competition We face competition from several financial services institutions given our status as a diversified financial services provider. In each of our reportable segments, we may compete with more established financial institutions, some of which have more financial resources than we do. We compete at multiple levels, including competition among other personal loan, student loan, credit card and residential mortgage lenders, competition for deposits in ourSoFi Money product from traditional banks and other non-bank lenders, competition for investment accounts in our SoFi Invest product from other brokerage firms, including those based on online or mobile platforms, competition for subscribers to our financial services content, and competition with other technology platforms for the enterprise services we provide. Some of our competitors may at times seek to increase their market share by undercutting pricing terms prevalent in that market, which could adversely affect our market share for any of our products and services or require us to incur higher member acquisition costs. Furthermore, our competitors could offer relatively attractive benefits to our current members, which could limit members using more than one product. Industry Trends and General Economic Conditions Our results of operations have historically been relatively resilient to economic downturns but in the future may be impacted by the relative strength of the overall economy and its effect on unemployment, asset markets and consumer spending. As general economic conditions improve or deteriorate, the amount of consumer disposable income tends to fluctuate, which in turn impacts consumer spending levels and the willingness of consumers to take out loans to finance purchases or invest in financial assets. Specific economic factors, such as interest rate levels, changes in monetary and related policies, unemployment rates, market volatility and consumer confidence also influence consumer spending, saving, investing and borrowing patterns. Increased focus by policymakers and the new presidential administration on outstanding student loans has led to discussions of potential legislative and regulatory actions, among other possible steps, to reduce outstanding balances of loans, or cancel loans at a significant scale, including the potential forgiveness of federal student debt. Such actions resulting in forgiveness or cancellation at a meaningful scale would likely have an adverse impact on our results of operations and overall business. Additionally, our business has been, and may continue to be, impacted by some of the national measures taken to counteract the economic impact of the COVID-19 pandemic. For example, the CARES Act and subsequent extensions of 80 -------------------------------------------------------------------------------- TABLE OF CONTENTS certain hardship provisions led to decreased demand for our student loan refinancing products prior to emerging signs of economic recovery from the pandemic. TheFederal Reserve's actions to reduce interest rates to near-zero benchmark levels have led to increased demand for home loan refinancing and we believe have increased the attractiveness of our SoFi Invest product, as members look for alternative ways to earn higher returns on their cash. Conversely, these lower benchmark rates have reduced deposit interest rates we can offer on ourSoFi Money product, which we believe has adversely impacted demand for the product. The impacts of the COVID-19 pandemic on our products and measures we have taken to help our Company and our members navigate the uncertain economic environment caused by the COVID-19 pandemic are discussed further throughout this "Management's Discussion and Analysis of Financial Condition and Results of Operations". NationalBank Charter A key element of our long-term strategy is to secure a national bank charter. InMarch 2021 , we entered into an Agreement and Plan of Merger to acquire Golden Pacific, a registered bank holding company, and its wholly owned subsidiaryGolden Pacific Bank , a national banking association. See "Business Overview - NationalBank Charter ". If we are successful in securing a national bank charter through the proposed acquisition, we expect to incur additional costs in our operation of the bank primarily associated with headcount, technology infrastructure, governance, compliance and risk management, marketing, and other general and administrative expenses. The key expected financial benefits to us of obtaining a national bank charter include: (i) lowering our cost to fund loans, as we can utilizeSoFi Money deposits to fund loans, which have a lower borrowing cost of funds than our current financing model, (ii) holding loans on our balance sheet for longer periods, thereby enabling us to earn interest on these loans for a longer period and increasing our net interest income margin, and (iii) supporting origination volume growth by providing an alternative financing option, while also maintaining our warehouse capacity. There can be no guarantee that we will be able to secure a national bank charter, either through the proposed acquisition or through the formation of a de novo national bank or, if we do, that we will realize the anticipated benefits. See Part II, Item 1A "Risk Factors". Key Components of Results of Operations Interest Income Interest income is predominantly driven by loan origination volume, prevailing interest rates that we receive on the loans we make and the amount of time we hold loans on our balance sheet. Securitizations interest income is driven by our securitization-related investments in bonds and residual interest positions, which are required under securitization risk retention rules. See Note 1 to the Notes to Unaudited Condensed Consolidated Financial Statements for additional information on our securitization-related investments. Moreover, we earn other interest income on excess corporate cash balances andSoFi Money member balances. Related party interest income was derived from notes extended to Apex and one of our stockholders, and was not core to our operations. We received full repayment of all related party notes as of the balance sheet date. Interest Expense Interest expense primarily includes interest we incur under our warehouse facilities, inclusive of the amortization of debt issuance costs, and under our securitization debt, inclusive of debt issuance costs and discounts. We incur securitization-related interest expense when securitization transfers do not qualify as true sales pursuant to ASC 810, Consolidation. Securitization-related interest expense fluctuates depending on the level of our securitization activity, market rates and whether and how much such activity results in true sale treatment. We also incur interest expense related to our revolving credit facility and on the seller note issued in connection with our acquisition of Galileo inMay 2020 , which was fully repaid inFebruary 2021 , as well as on the other financings assumed in the acquisition. For our residual interests classified as debt, we recognize interest expense over the expected life using the effective yield method, which represents a portion of the overall fair value change in the residual interests classified as debt. On a quarterly basis, we reevaluate the cash flow estimates to determine if a change to the accretable yield is required on a prospective basis, which is a reclassification between two income statement line items, and therefore has no net impact on net income (loss). We also pay interest income to our memberswho haveSoFi Money account balances, which is interest expense to us. Interest expense is dependent on market interest rates, such as LIBOR, interest rate spreads versus benchmark rates, the amount of warehouse capacity we can access, warehouse advance rates and the amount of loans we ultimately pledge to our warehouse facilities. Finally, we incur interest on our finance lease liabilities associated withSoFi Stadium , which relate to certain physical signage within the stadium. Our interest expense has historically fluctuated due to changes in the interest rate environment and we expect it will continue to fluctuate in future periods. Noninterest Income Noninterest income primarily consists of: (i) fair value changes in loans while we hold them on our balance sheet; (ii) gains on sales of loans transferred into the securitization or whole loan sale channels; (iii) the income we receive from our loan 81 -------------------------------------------------------------------------------- TABLE OF CONTENTS servicing activities; (iv) fair value changes related to our securitization activities; and (v) revenue recognized pursuant to ASC 606, Revenue from Contracts with Customers, which primarily relates to our Technology Platform fees. When we originate a loan, we generally expect that we will sell the loan for more than its par value, which will result in positive loan origination and sales results. Moreover, loan origination and sales also includes recognized servicing assets at the time of a loan sale. The subsequent measurement of our servicing assets at fair value impacts noninterest income - servicing in our accompanying Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). When we sell a loan into a securitization trust that qualifies for true sale accounting, the gain or loss on sale is recorded within noninterest income - loan origination and sales. Noninterest income - securitizations is impacted by fair value changes in securitization loan collateral, which is impacted by the change in fair value of the loan collateral from the previous period end, residual interests classified as debt and our securitization investments associated with our continuing interest in the securitization subsequent to the sale. Our revenue recognized in accordance with ASC 606 is attributable to our Financial Services and Technology Platform segments and has grown due to our acquisition of Galileo during 2020, primarily in the form of Technology Platform fees, as well as growth generated in our Financial Services segment. Noninterest Expense Noninterest expense primarily relates to the following categories of expenses: (i) technology and product development, (ii) sales and marketing, (iii) cost of operations, and (iv) general and administrative. Certain costs are included within each of these line items, such as compensation and benefits-related expense (inclusive of stock-based compensation expense), professional services, depreciation and amortization and occupancy and travel-related costs. We allocate certain costs to each of these four categories based on department-level headcounts. We generally expect the expenses within each such category to increase in absolute dollars as our business continues to grow. Noninterest expense also includes the fair value changes in warrant liabilities, as well as the provision for credit losses, which relates primarily to our credit card product within the Financial Services segment. Directly Attributable Expenses As presented within "-Summary Results by Segment", in our determination of the contribution profit (loss) for our Lending, Financial Services and Technology Platform segments, we allocate certain expenses that are directly attributable to the corresponding segment. Directly attributable expenses primarily include compensation and benefits and sales and marketing, and vary based on the amount of activity within each segment. Directly attributable expenses also include loan origination and servicing expenses, professional services, occupancy and travel, tools and subscriptions, bank service charge expenses and other general and administrative expenses. Expenses are attributed to the reportable segments using either direct costs of the segment or labor costs that can be attributed based upon the allocation of employee time for individual products. 82 -------------------------------------------------------------------------------- TABLE OF CONTENTS Results of Operations The following table sets forth condensed consolidated statements of income data for the periods indicated: Three Months Ended June 30, 2021 vs 2020 Six Months Ended June 30, 2021 vs 2020 ($ in thousands) 2021 2020 % Change 2021 2020 % Change Interest income Loans $ 79,678$ 77,485 3 %$ 156,899 $ 163,601 (4) % Securitizations 3,794 6,500 (42) % 8,261 13,561 (39) % Related party notes - 879 (100) % 211 1,931 (89) % Other 636 1,201 (47) % 1,265 4,254 (70) % Total interest income 84,108 86,065 (2) % 166,636 183,347 (9) % Interest expense Securitizations and warehouses 26,250 39,678 (34) % 56,058 87,201 (36) % Corporate borrowings 1,378 3,416 (60) % 6,386 4,504 42 % Other 468 224 109 % 900 1,746 (48) % Total interest expense 28,096 43,318 (35) % 63,344 93,451 (32) % Net interest income 56,012 42,747 31 % 103,292 89,896 15 % Noninterest income Loan origination and sales 109,719 62,958 74 % 220,064 167,213 32 % Securitizations (26) 7,350 (100) % (2,062) (75,754) (97) % Servicing (224) (18,720) (99) % (12,333) (11,661) 6 % Technology Platform fees 44,950 16,202 177 % 90,609 16,202 459 % Other 20,843 4,415 372 % 27,688 7,358 276 % Total noninterest income 175,262 72,205 143 % 323,966 103,358 213 % Total net revenue 231,274 114,952 101 % 427,258 193,254 121 % Noninterest expense Technology and product development 69,389 47,833 45 % 135,337 88,004 54 % Sales and marketing 94,951 64,267 48 % 182,185 126,937 44 % Cost of operations 60,624 41,408 46 % 118,194 74,065 60 % General and administrative 171,216 53,404 221 % 332,913 102,518 225 % Provision for credit losses 486 - n/m 486 - n/m Total noninterest expense 396,666 206,912 92 % 769,115 391,524 96 % Loss before income taxes (165,392) (91,960) 80 % (341,857) (198,270) 72 % Income tax (expense) benefit 78 99,768 (100) % (1,021) 99,711 (101) % Net income (loss)$ (165,314) $ 7,808 n/m$ (342,878) $ (98,559) 248 % Other comprehensive income (loss) Foreign currency translation adjustments, net $ (266)$ (36) 639 % $ (346)$ (43) 705 % Total other comprehensive loss (266) (36) 639 % (346) (43) 705 % Comprehensive income (loss)$ (165,580) $ 7,772 n/m$ (343,224) $ (98,602) 248 % 83
-------------------------------------------------------------------------------- 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, 2021 vs 2020 Six Months Ended June 30, 2021 vs 2020 ($ in thousands) 2021 2020 % Change 2021 2020 % Change Loans$ 79,678 $ 77,485 3 %$ 156,899 $ 163,601 (4) % Securitizations 3,794 6,500 (42) % 8,261 13,561 (39) % Related party notes - 879 (100) % 211 1,931 (89) % Other 636 1,201 (47) % 1,265 4,254 (70) % Total interest income$ 84,108 $ 86,065 (2) %$ 166,636 $ 183,347 (9) % Total interest income decreased by$2.0 million , or 2%, for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , and decreased by$16.7 million , or 9%, for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 due to the following: Three Months - Loans. Loans interest income increased by$2.2 million , or 3%, for the three months endedJune 30, 2021 compared to 2020 primarily driven by an increase in non-securitization personal loan and student loan interest income of$23.6 million , which was primarily a function of an increase in aggregate average balances of$1.5 billion (76%). These increases were offset by a decline of$22.1 million in interest income from consolidated personal loan and student loan securitizations, which were impacted by a$1.2 billion (52%) decline in aggregate average balances attributable to payment activity and the deconsolidation of a VIE inJuly 2020 . The remaining increase was primarily attributable to credit card loans, which launched in the third quarter of 2020, and home loans. Six Months - Loans. Loans interest income decreased by$6.7 million , or 4%, for the six months endedJune 30, 2021 compared to 2020 primarily driven by a decline of$51.4 million in interest income from consolidated personal loan and student loan securitizations, which were impacted by a$1.3 billion (51%) decline in average balances attributable to payment activity and the deconsolidation of two securitizations inMarch 2020 and one inJuly 2020 . This decrease was offset by increases in non-securitization personal loan and student loan interest income of$32.8 million and$11.0 million , respectively, which were primarily a function of increases in average balances for personal loans and student loans of$0.6 billion (98%) and$0.7 billion (56%), respectively. The remaining variance was primarily attributable to increases in interest income on credit card loans, which launched in the third quarter of 2020, and home loans. Three Months - Securitizations. Securitizations interest income decreased by$2.7 million , or 42%, for the three months endedJune 30, 2021 compared to 2020, which was attributable to decreases in residual investment interest income of$1.1 million and asset-backed bonds of$1.2 million related to decreases in average securitization investment balances period over period, and a decrease in securitization float interest income of$0.4 million related to decreases in average securitization loan balances and a decline in interest rates period over period. Six Months - Securitizations. Securitizations interest income decreased by$5.3 million , or 39%, for the six months endedJune 30, 2021 compared to 2020, which was attributable to decreases in residual investment interest income of$1.9 million and asset-backed bonds of$2.0 million related to decreases in average securitization investment balances period over period, and a decrease in securitization float interest income of$1.4 million related to decreases in average securitization loan balances and a decline in interest rates period over period. Three Months - Related Party Notes. Related party notes interest income decreased by$0.9 million , or 100%, for the three months endedJune 30, 2021 compared to 2020 due to a decrease in interest income on a stockholder loan, which was fully settled in the fourth quarter of 2020, and a decrease in interest income related to our loans to Apex, which were fully settled inFebruary 2021 . See Note 13 to the Notes to Unaudited Condensed Consolidated Financial Statements for additional information on our related party notes. Six Months - Related Party Notes. Related party notes interest income decreased by$1.7 million , or 89%, for the six months endedJune 30, 2021 compared to 2020 due to a decrease in interest income on a stockholder loan and a decrease in interest income related to our loans to Apex. Three Months - Other. Other interest income decreased by$0.6 million , or 47%, for the three months endedJune 30, 2021 compared to 2020 primarily due to interest rate decreases period over period and a decrease in our average cash balances. The interest rate decreases impacted the interest income we earned on both our bank balances andMember Bank deposits; however, increases inMember Bank deposits period over period partially offset the interest rate impact. 84 -------------------------------------------------------------------------------- TABLE OF CONTENTS Six Months - Other. Other interest income decreased by$3.0 million , or 70%, for the six months endedJune 30, 2021 compared to 2020 primarily due to interest rate decreases period over period and a decrease in our average cash balances. The interest rate decreases impacted the interest income we earned on both our bank balances andMember Bank deposits. Interest Expense The following table presents the components of our total interest expense for the periods indicated: Three Months Ended June 30, 2021 vs 2020 Six Months Ended June 30, 2021 vs 2020 ($ in thousands) 2021 2020 % Change 2021 2020 % Change Securitizations and warehouses$ 26,250 $ 39,678 (34) %$ 56,058 $ 87,201 (36) % Corporate borrowings 1,378 3,416 (60) % 6,386 4,504 42 % Other 468 224 109 % 900 1,746 (48) % Total interest expense$ 28,096 $ 43,318 (35) %$ 63,344 $ 93,451
(32) %
Total interest expense decreased by$15.2 million , or 35%, for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , and decreased by$30.1 million , or 32%, for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 , due to the following: Securitizations and Warehouses. The following tables present the components of securitizations and warehouses interest expense and other pertinent information. Three Months Ended June 30, 2021 vs 2020 Six Months Ended June 30, 2021 vs 2020 ($ in thousands) 2021 2020 % Change 2021 2020 % Change Securitization debt interest expense$ 9,414 $ 17,772 (47) %$ 20,362 $ 39,083 (48) % Warehouse debt interest expense 9,370 13,489 (31) % 19,901 27,603 (28) % Residual interests classified as debt interest expense 2,146 3,437 (38) % 4,345 7,283 (40) % Debt issuance cost interest expense(1) 5,320 4,980 7 % 11,450 13,232 (13) % Securitizations and warehouses interest expense$ 26,250 $ 39,678 (34) %$ 56,058 $ 87,201 (36) % ___________________ (1)Debt issuance cost interest expense excludes the acceleration of debt issuance costs of$2,632 and$3,587 during the three and six months endedJune 30, 2020 , respectively, associated with the deconsolidation of VIEs, which is reported within noninterest income - securitizations in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
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