TABLE OF CONTENTS
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 our consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. Certain amounts may not foot or tie to other disclosures due to rounding. Certain information in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K 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 Part I, Item 1A. "Risk Factors". 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") with Social Capital Hedosophia Holdings Corp. V ("SCH") on January 7, 2021. The transactions contemplated by the terms of the Agreement were completed on May 28, 2021 (the "Closing"), in conjunction with which SCH changed its name to SoFi 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
Our three reportable segments and their respective offerings as of December 31, 2021 were as follows:
LendingTechnology PlatformFinancial Services
•Student Loans(1)
•Technology Platform Services (Galileo)•SoFi Money
•Personal Loans•SoFi Invest(2)
•Home Loans•SoFi Relay
•SoFi Credit Card
•SoFi At Work
•SoFi Protect
•Lantern Credit
•Equity capital markets and advisory services
(1)Composed of in-school loans and student loan refinancing.
(2)Our SoFi Invest service is composed of three products: active investing accounts, robo-advisory accounts and digital assets accounts. SoFi Invest also includes our brokerage accounts through 8 Limited in Hong Kong.
We refer to our customers as "members". We define a member as someone who has a lending relationship with us through origination and/or ongoing servicing, opened a financial services account, linked an external account to our platform, or signed up for our credit score monitoring service. Once someone becomes a member, they are always considered a member unless they violate our terms of service. Our members have continuous access to our certified financial planners ("CFPs"), our career advice services, our member events, our content, educational material, news, and our tools and calculators, which is provided at no cost to the member. Additionally, our mobile app and website have a member home feed that is personalized and delivers content to a member about what they must do that day in their financial life, what they should consider doing that day in their financial life, and what they can do that day in their financial life. Since our inception through December 31, 2021, we have served approximately 3.5 million members who have used approximately 5.2 million products on the SoFi platform.
Members
In Thousands
We offer our members a suite of financial products and services, enabling them to borrow, save, spend, invest and protect their finances within one integrated platform. Our aim is to create a best-in-class, integrated financial services platform that will generate a virtuous cycle whereby positive member experiences will lead to more products adopted per member and enhanced profitability for each additional product by lowering overall member acquisition costs and increasing the lifetime value of our members. We refer to this virtuous cycle as our "Financial Services Productivity Loop".
We believe that developing a relationship with our members and gaining their trust is central to our success as a financial services platform. 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 the Financial Services Productivity Loop. During the year ended December 31, 2021, approximately 600,000 members became multi-product members.
In addition to benefiting our members, our products and capabilities are also designed to appeal to enterprises, such as financial services institutions that subscribe to our enterprise services called SoFi At Work, and have become interconnected with the SoFi platform. While these enterprises are not considered members, they are important contributors to the growth of the SoFi platform, and also have their own constituents who might benefit from our products in the future. Further, Galileo has approximately 100 million total accounts on its platform (including SoFi accounts) as of December 31, 2021. Galileo started contributing new accounts to the SoFi ecosystem during the second quarter of 2020.
National Bank Charter. A key element of our long-term strategy has been to secure a national bank charter. In February 2022, we acquired Golden Pacific pursuant to the "Bank Merger", pursuant to which we acquired all of the outstanding equity interests in Golden Pacific and its wholly-owned subsidiary, Golden Pacific Bank, for total cash purchase consideration of $22.3 million. Upon closing the Bank Merger, we became a bank holding company and Golden Pacific Bank began operating as SoFi Bank. Golden Pacific's community bank business will continue to operate as a division of SoFi Bank.
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 SoFi Bank, we have built out and continue to expand the required infrastructure to run SoFi 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 incurred direct costs associated with securing our national bank charter of $17.0 million during the year ended December 31, 2021 and $3.7 million during the year ended December 31, 2020, which consisted primarily of professional fees and compensation and benefits costs.
We have begun to transfer SoFi Money products to SoFi Bank and intend to continue to transfer our SoFi Money, lending, and SoFi Credit Card products to SoFi Bank over time. We have begun to allow existing members to convert their SoFi Money cash management accounts into deposit accounts held at SoFi Bank. Further, we expect to begin accepting new loan applications and originating new loans within SoFi Bank over time.
IPO Investment Center. Through our FINRA-registered broker-dealer subsidiary, SoFi Securities LLC ("SoFi Securities"), we are licensed to underwrite securities offerings. In March 2021, we launched an initial public offering ("IPO") investment center that allows members with a SoFi active invest account to invest in initial public offerings. Through this offering, we earn underwriting fees for participating in the underwriting syndicate for IPO deals, or we recognize dealer fees for
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providing dealer services in partnership with underwriting syndicates for IPOs. Together, these services are referred to as "equity capital markets services". During the year ended December 31, 2021, we recognized revenue of $2.6 million within noninterest income-other in the consolidated statements of operations and comprehensive income (loss) associated with our IPO Investment Center services.
Our Reportable Segments
We conduct our business through three reportable segments: Lending, Technology Platform and Financial Services. See Item 1 "Business-Our Products" for a discussion of our segments, their corresponding products and the ways in which those products generate revenues and/or incur expenses for the Company.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization designated the novel coronavirus ("COVID-19") as a global pandemic. Although the long-term effects of the COVID-19 pandemic globally and in the United States remain unknown and consumer activity began to recover and many government mandates to restrict daily activities were lifted, worker shortages, supply chain issues, inflationary pressures, vaccine and testing requirements, the emergence of new variants and the reinstatement of restrictions and health and safety related measures in response to the emergence of new variants, such as the Delta and Omicron variants, contributed to the volatility of ongoing recovery. There can be no assurance that economic recovery will continue or that consumer behavior will return to pre-pandemic levels. 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 the U.S. Centers for Disease Control and Prevention ("CDC") and the World Health Organization, as well as state and local governments, and to communicate with employees on a regular basis to provide updated information and corporate policies. Since the onset of the COVID-19 pandemic, we have taken a number of measures to proactively support our members, applicants for new loans and employees.
Members: We have and will continue to approach hardship programs from a member-first perspective. In addition to our Unemployment Protection Plan, which remains available to all eligible members, we launched comprehensive forbearance programs that provided meaningful FEMA disaster hardship relief. We discontinued enrollment in our COVID-19 forbearance programs, which were designed to be temporary in nature, for personal loans and student loans on March 31, 2021 and April 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. There were no personal loans or student loans in this category as of December 31, 2021 due to the COVID-19 pandemic. Subject to eligibility, members may participate in other customary hardship programs.
Applicants: In response to deteriorating economic conditions and market uncertainty amid the COVID-19 pandemic, in 2020 we proactively executed our recession readiness credit risk strategies, which included introducing elevated credit eligibility requirements for personal loans, thorough validation of income and income continuity, and limiting loan amounts. Throughout the first half of 2021, we adapted our elevated credit eligibility requirements for personal loans through phases of reopening following our metric-driven, return-to-normalcy action plan. Additionally, in the third quarter of 2021, we implemented a proprietary Recession Early Warning System ("REWS"), which applies a set of internal and external indicators to assist us in closely monitoring economic conditions and to be more proactive and agile in taking decisive credit actions in the event of an economic downturn. REWS is currently enabled for personal loans only, as it is a product with higher credit risk.
Employees: In order to safeguard the health and safety of our team members and their families, we virtualized our entire organization beginning in March 2020. We offer, and plan to continue to offer, all of our employees the choice of working full time in the office, a hybrid approach, or full-time remote. Coming into the office remains 100% voluntary, unless a person's role requires them to be on site to do their job. We will continue to align our office protocols with evolving CDC, state and local guidelines to continue to safeguard the health and safety of our team members and their families.
See Item 1A "Risk Factors-COVID-19 Pandemic Risks" for additional discussion of the risks and uncertainties associated with the repercussions of the ongoing COVID-19 pandemic.
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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, adjusted for fair value adjustments attributable to assumption changes associated with our servicing rights and residual interests classified as debt. See "Results of Operations", "Summary Results by Segment" and "Non-GAAP Financial Measures" herein for discussion and analysis of these key financial measures.
Year Ended December 31,
($ in thousands)202120202019
Lending
Total interest income$348,160 $354,383 $593,644
Total interest expense(90,058)(155,038)(268,055)
Total noninterest income480,221 281,521 108,712
Total net revenue738,323 480,866 434,301
Adjusted net revenue(1)(2)
763,776 536,541 442,971
Contribution profit(1)
399,607 241,729 92,460
Technology Platform(1)
Total interest expense$(29)$(107)$-
Total noninterest income194,915 96,423 795
Total net revenue(3)
194,886 96,316 795
Contribution profit64,447 53,889 795
Financial Services(1)
Total interest income$5,607 $2,796 $5,950
Total interest expense(1,842)(2,312)(5,336)
Total noninterest income54,313 11,386 3,318
Total net revenue58,078 11,870 3,932
Contribution loss(3)
(134,918)(132,096)(118,800)
Other(4)
Total interest income$1,253 $6,358 $8,599
Total interest expense(10,847)(28,149)(4,968)
Total noninterest income (loss)3,179 (1,729)-
Total net revenue (loss)(3)
(6,415)(23,520)3,631
Consolidated
Total interest income$355,020 $363,537 $608,193
Total interest expense(102,776)(185,606)(278,359)
Total noninterest income732,628 387,601 112,825
Total net revenue984,872 565,532 442,659
Adjusted net revenue(1)(2)
1,010,325 621,207 451,329
Net loss(483,937)(224,053)(239,697)
Adjusted EBITDA(2)
30,221 (44,576)(149,222)
(1)Adjusted net revenue within our Lending segment is used by management to evaluate our Lending segment and our consolidated results. For our Lending segment, total net revenue is adjusted to exclude the fair value changes in servicing rights and residual interests classified as debt due to valuation inputs and assumption changes (including conditional prepayment and default and discount rates). We use this adjusted measure in our determination of contribution profit in the Lending segment, as well as to evaluate our consolidated results, as it removes non-cash charges that are not realized during the period and, therefore, do not impact the cash available to fund our operations, and our overall liquidity position. For our Technology Platform and Financial Services segments, there are no adjustments from total net revenue to arrive at the consolidated adjusted net revenue shown in this table.
(2)Adjusted net revenue and adjusted EBITDA are non-GAAP financial measures. For information regarding our uses and definitions of these measures and for reconciliations to the most directly comparable U.S. Generally Accepted Accounting Principles ("GAAP") measures, see "Non-GAAP Financial Measures" herein.
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(3)Technology Platform segment total net revenue for the years ended December 31, 2021 and 2020 includes $1,863 and $686, respectively, of intercompany technology platform fees earned by Galileo from SoFi, which is a Galileo client. There is an equal and offsetting expense reflected within the Financial Services segment contribution loss representing the intercompany technology platform fees incurred to Galileo. The intercompany revenue and expense are eliminated in consolidation. The revenue is eliminated within "Other" and the expense represents a reconciling item of segment contribution profit (loss) to consolidated loss before income taxes. The prior year information was recast to conform to the current year presentation. See Note 18 to the Notes to Consolidated Financial Statements for additional information.
(4)"Other" primarily includes total net revenue associated with corporate functions, non-recurring gains from non-securitization investment activities and interest income and realized gains and losses associated with investments in available-for-sale ("AFS") debt securities, all of which are not directly related to a reportable segment. For further discussion, see Note 18 to the Notes to Consolidated Financial Statements.
Key Recent Developments
We continue to execute on our growth and other strategic initiatives and, in doing so, 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.
In February 2022, we entered into the Technisys Merger. Technisys is a cloud-native digital and core banking platform with an existing footprint of established banks, digital banks and fintechs in Latin America. See Note 2 to the Notes to Consolidated Financial Statements for additional information on the Technisys Merger.
In February 2022, we closed the Bank Merger, after which we became a bank holding company and Golden Pacific Bank began operating as SoFi Bank. Following the Bank Merger, we have begun to transfer SoFi Money products to SoFi Bank and intend to continue to transfer our SoFi Money, lending, and SoFi Credit Card products to SoFi Bank over time. We believe operating a national bank will 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 our members' deposits held at SoFi Bank to fund our loans), which we expect will enable us to offer lower interest rates on loans to members as well as offer higher interest rates on member deposit accounts. See "Business Overview-National Bank Charter" herein, as well as Item 1 "Business-Company Overview-National Bank Charter" and Note 2 to the Notes to Consolidated Financial Statements for additional information on our regulatory approval process and the Bank Merger.
In January 2021, Social Finance entered into the Agreement by and among SoFi, SCH, and Plutus Merger Sub Inc. The transactions contemplated by the terms of the Agreement were completed on May 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." On June 1, 2021, shares of SoFi Technologies' common stock and SoFi Technologies' warrants began trading on the Nasdaq under the symbols "SOFI" and "SOFIW", respectively, in lieu of the ordinary shares, warrants and units of SCH. See Note 2 to the Notes to Consolidated Financial Statements for additional information on the transaction. The SoFi Technologies warrants ceased trading on the Nasdaq and were delisted following their redemption on December 6, 2021.
In September 2020, we celebrated the official opening of SoFi Stadium associated with the establishment in September 2019 of a 20-year partnership with LA Stadium and Entertainment District at Hollywood Park in Inglewood, California, a multi-purpose sports and entertainment district that serves as the stadium for the National Football League teams the Los Angeles Chargers and Los Angeles Rams. SoFi's partnership with the owner of the LA Stadium and Entertainment District at Hollywood Park ("StadCo") provides SoFi with exclusive naming rights of the stadium and official partnerships with the Los Angeles Chargers and Los Angeles Rams and with the performance venue, which shares a roof with the stadium, and the surrounding planned entertainment district, which is anticipated to include office space, retail space and hotel and dining options. The 20-year partnership, across the naming rights and sponsorship agreements, collectively requires SoFi to pay sponsorship fees quarterly in each contract year for an aggregate total of $625.0 million. See Note 16 to the Notes to Consolidated Financial Statements for discussion of an associated contingent matter.
In May 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.
In April 2020, we acquired 8 Limited, a Hong Kong based investment business, for a purchase price of $16.1 million. Our acquisition of 8 Limited marked our first expansion outside the United States and enables our non-United States members to experience many of the product features we have developed in the United States for SoFi Invest, including non-digital assets trading.
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.
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Accordingly, we believe that adjusted net revenue and adjusted EBITDA provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors.
Adjusted Net Revenue
Adjusted net revenue is defined as total net revenue, adjusted to exclude the fair value changes in servicing rights and residual interests classified as debt due to valuation inputs and assumptions changes, which relate only to our Lending segment. We adjust total net revenue to exclude these items, as they are non-cash charges that are not realized during the period, and therefore positive or negative changes do not impact the cash available to fund our operations. This measure helps provide our management with an understanding of the net revenue available to finance our operations and helps management better decide on the proper expenses to authorize for each of our operating segments, to ultimately help achieve target contribution profit margins. Therefore, the measure of adjusted net revenue serves as both the starting point for how we think about the liquidity generated from our operations and also the starting point for our annual financial planning, the latter of which focuses on the cash we expect to generate from our operating segments to help fund the current year's strategic objectives. Adjusted net revenue has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, the analysis of other GAAP financial measures, such as total net revenue. The primary limitation of adjusted net revenue is its lack of comparability to other companies that do not utilize this measure or that use a similar measure that is defined in a different manner.
Annual Adjusted Net Revenue
We reconcile adjusted net revenue to total net revenue, the most directly comparable GAAP measure, as presented below for the years indicated:
Year Ended December 31,
($ in thousands)202120202019
Total net revenue $984,872 $565,532 $442,659
Servicing rights - change in valuation inputs or assumptions(1)
2,651 17,459 (8,487)
Residual interests classified as debt - change in valuation inputs or assumptions(2)
22,802 38,216 17,157
Adjusted net revenue $1,010,325 $621,207 $451,329
(1)Reflects changes in fair value inputs and assumptions on servicing rights, including conditional prepayment and default rates and discount rates. These assumptions are highly sensitive to market interest rate changes and are not indicative of our performance or results of operations. Moreover, these non-cash charges are unrealized during the period and, therefore, have no impact on our cash flows from operations. As such, these positive and negative changes are adjusted out of total net revenue to provide management and financial users with better visibility into the net revenue available to finance our operations and our overall performance.
(2)Reflects changes in fair value inputs and assumptions on residual interests classified as debt, including conditional prepayment and default rates and discount rates. When third parties finance our consolidated securitization variable interest entities ("VIEs") by purchasing residual interests, we receive proceeds at the time of the closing of the securitization and, thereafter, pass along contractual cash flows to the residual interest owner. These residual debt obligations are measured at fair value on a recurring basis, but they have no impact on our initial financing proceeds, our future obligations to the residual interest owner (because future residual interest claims are limited to contractual securitization collateral cash flows), or the general operations of our business. As such, these positive and negative non-cash changes in fair value attributable to assumption changes are adjusted out of total net revenue to provide management and financial users with better visibility into the net revenue available to finance our operations.
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We reconcile adjusted net revenue to total net revenue, the most directly comparable GAAP measure, as presented below for the quarterly periods indicated:
Quarter Ended
($ in thousands)December 31,2021September 30,2021June 30,2021March 31,2021December 31,
2020
September 30,
2020
June 30,
2020
March 31,2020
Total net revenue$285,608 $272,006 $231,274 $195,984 $171,491 $200,787 $114,952 $78,302
Servicing rights - change in valuation inputs or assumptions(1)
(9,273)(409)224 12,109 1,127 4,671 18,720 (7,059)
Residual interests classified as debt - change in valuation inputs or assumptions(2)
3,541 5,593 5,717 7,951 9,401 11,301 2,578 14,936
Adjusted net revenue
$279,876 $277,190 $237,215 $216,044 $182,019 $216,759 $136,250 $86,179
(1)See footnote (1) to the table above.
(2)See footnote (2) to the table above.
The reconciling items to determine our non-GAAP measure of adjusted net revenue are applicable only to the Lending segment. The table below presents adjusted net revenue for the Lending segment for the years indicated:
Year Ended December 31,
($ in thousands)202120202019
Total net revenue - Lending
$738,323 $480,866 $434,301
Servicing rights - change in valuation inputs or assumptions(1)
2,651 17,459 (8,487)
Residual interests classified as debt - change in valuation inputs or assumptions(2)
22,802 38,216 17,157
Adjusted net revenue - Lending
$763,776 $536,541 $442,971
(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 tax expense (benefit), (iii) depreciation and amortization, (iv) share-based expense (inclusive of equity-based payments to non-employees), (v) impairment expense (inclusive of goodwill impairment and property, equipment and software abandonments), (vi) transaction-related expenses, (vii) fair value changes in warrant liabilities, and (viii) fair value changes in each of servicing rights and residual interests classified as debt due to valuation assumptions. We believe adjusted EBITDA provides a useful measure for period-over-period comparisons of our business, as it removes the effect of certain non-cash items and certain charges that are not indicative of our core operating performance or results of operations. It is also a measure that management relies upon to evaluate cash flows generated from operations, and therefore the extent of additional capital, if any, required to invest in strategic initiatives. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, the analysis of other GAAP financial measures, such as net income (loss). Some of the limitations of adjusted EBITDA include that it does not reflect the impact of working capital requirements or capital expenditures and it is not a universally consistent calculation among companies in our industry, which limits its usefulness as a comparative measure.
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Annual Adjusted EBITDA
We reconcile adjusted EBITDA to net loss, the most directly comparable GAAP measure, below for the years indicated:
Year Ended December 31,
($ in thousands)202120202019
Net loss $(483,937)$(224,053)$(239,697)
Non-GAAP adjustments:
Interest expense - corporate borrowings(1)
10,345 27,974 4,962
Income tax expense (benefit)(2)
2,760 (104,468)98
Depreciation and amortization(3)
101,568 69,832 15,955
Share-based expense239,371 100,778 61,419
Impairment expense(4)
Transaction-related expense(5)
27,333 9,161 -
Fair value changes in warrant liabilities(6)
107,328 20,525 (2,834)
Servicing rights - change in valuation inputs or assumptions(7)
2,651 17,459 (8,487)
Residual interests classified as debt - change in valuation inputs or assumptions(8)
22,802 38,216 17,157
Total adjustments514,158 179,477 90,475
Adjusted EBITDA
$30,221 $(44,576)$(149,222)
(1)Our adjusted EBITDA measure adjusts for corporate borrowing-based interest expense, as these expenses are a function of our capital structure. Corporate borrowing-based interest expense primarily included (i) interest on our revolving credit facility, (ii) amortization of debt discount and debt issuance costs on our convertible notes, and (iii) interest on the seller note issued in connection with our acquisition of Galileo. Our adjusted EBITDA measure does not adjust for interest expense on warehouse facilities and securitization debt, which are recorded within interest expense-securitizations and warehouses in the consolidated statements of operations and comprehensive income (loss), as these interest expenses are direct operating expenses driven by loan origination and sales activity. Additionally, our adjusted EBITDA measure does not adjust for interest expense on SoFi Money deposits or interest expense on our finance lease liability in connection with SoFi Stadium, which are recorded within interest expense-other, as these interest expenses are direct operating expenses driven by SoFi Money deposits and finance leases, respectively. The fluctuations in interest expense were impacted by interest expense on the Galileo seller note, which was issued in May 2020 and repaid in February 2021, as well as the amortization of debt discount and debt issuance costs on our convertible notes, which were issued in October 2021. Revolving credit facility interest expense decreased modestly during 2021 relative to 2020, as a higher average balance in 2021 was more than offset by a decrease in LIBOR, and increased during 2020 relative to 2019 primarily due to a higher average balance following the acquisition of Galileo.
(2)Our income tax expense positions in 2021 and 2019 were primarily a function of SoFi Lending Corp.'s profitability in state jurisdictions where separate filings are required. Our income tax benefit position in 2020 was primarily due to a partial release of our valuation allowance in the second quarter in connection with deferred tax liabilities resulting from intangible assets acquired from Galileo in May 2020. See Note 14 to the Notes to Consolidated Financial Statements for additional information.
(3)Depreciation and amortization expense for 2021 increased compared to 2020 primarily due to the amortization of intangible assets recognized during the second quarter of 2020 associated with the Galileo and 8 Limited acquisitions, amortization of purchased and internally-developed software, and depreciation related to SoFi Stadium fixed assets, partially offset by a decrease related to the acceleration of core banking infrastructure amortization. Depreciation and amortization expense for 2020 compared to 2019 increased primarily due to amortization expense on intangible assets acquired during the second quarter of 2020 from Galileo and 8 Limited, acceleration of core banking infrastructure amortization, and amortization of purchased and internally-developed software.
(4)Impairment expense in 2019 primarily includes software abandonment.
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(5)Transaction-related expenses during 2021 included a $21.2 million special payment to the Series 1 preferred stockholders in conjunction with the Business Combination and financial advisory and professional costs associated with transactions that occurred during the period. We incurred such costs as follows: (i) $2.2 million related to our acquisition of Golden Pacific Bank, (ii) $3.3 million related to a recently announced acquisition, and (iii) $0.6 million related to debt and equity transactions, including our convertible debt, capped call and secondary offering on behalf of certain investors. During 2020, transaction-related expenses included certain costs, such as financial advisory and professional services costs, associated with our acquisitions of Galileo and 8 Limited.
(6)Our adjusted EBITDA measure excludes the non-cash fair value changes in warrants accounted for as liabilities, which were measured at fair value through earnings. The amounts in 2019 and 2020, as well as a portion of 2021, related to changes in the fair value of Series H warrants issued by Social Finance in 2019 in connection with certain redeemable preferred stock issuances. We did not measure the Series H warrants at fair value subsequent to May 28, 2021 in conjunction with the Business Combination, as they were reclassified into permanent equity. In addition, in conjunction with the Business Combination, SoFi Technologies assumed certain common stock warrants ("SoFi Technologies warrants") that were accounted for as liabilities and measured at fair value on a recurring basis. The fair value of the SoFi Technologies warrants was based on the closing price of ticker SOFIW and, therefore, fluctuated based on market activity. The vast majority of outstanding SoFi Technologies warrants were exercised during the fourth quarter of 2021, and therefore the Company incurred gains and losses associated with fair value changes until the warrant liabilities converted into SoFi common stock. The remaining unexercised warrants were redeemed at a redemption price of $0.10 on December 6, 2021. See Note 9 to the Notes to Consolidated Financial Statements for additional information.
(7)Reflects changes in fair value inputs and assumptions, including market servicing costs, conditional prepayment and default rates and discount rates. This non-cash change is unrealized during the period and, therefore, has no impact on our cash flows from operations. As such, these positive and negative changes in fair value attributable to assumption changes are adjusted out of net loss to provide management and financial users with better visibility into the earnings available to finance our operations.
(8)Reflects changes in fair value inputs and assumptions, including conditional prepayment and default rates and discount rates. When third parties finance our consolidated VIEs through purchasing residual interests, we receive proceeds at the time of the securitization close and, thereafter, pass along contractual cash flows to the residual interest owner. These obligations are measured at fair value on a recurring basis, which has no impact on our initial financing proceeds, our future obligations to the residual interest owner (because future residual interest claims are limited to contractual securitization collateral cash flows), or the general operations of our business. As such, these positive and negative non-cash changes in fair value attributable to assumption changes are adjusted out of net loss to provide management and financial users with better visibility into the earnings available to finance our operations.
We reconcile adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, for the quarterly periods indicated below:
Quarter Ended
($ in thousands)December 31,2021September 30,2021June 30,2021March 31,2021December 31,2020September 30,2020June 30,2020March 31,2020
Net income (loss) $(111,012)$(30,047)$(165,314)$(177,564)$(82,616)$(42,878)$7,808 $(106,367)
Non-GAAP adjustments:
Interest expense - corporate borrowings2,593 1,366 1,378 5,008 19,125 4,346 3,415 1,088
Income tax expense (benefit)1,558 181 (78)1,099 (4,949)192 (99,768)57
Depreciation and amortization26,527 24,075 24,989 25,977 25,486 24,676 14,955 4,715
Share-based expense77,082 72,681 52,154 37,454 30,089 26,551 24,453 19,685
Transaction-related expense2,753 1,221 21,181 2,178 - 297 4,950 3,914
Fair value changes in warrant liabilities10,824 (64,405)70,989 89,920 14,154 4,353 (861)2,879
Servicing rights - change in valuation inputs or assumptions(9,273)(409)224 12,109 1,127 4,671 18,720 (7,059)
Residual interests classified as debt - change in valuation inputs or assumptions3,541 5,593 5,717 7,951 9,401 11,301 2,578 14,936
Total adjustments115,605 40,303 176,554 181,696 94,433 76,387 (31,558)40,215
Adjusted EBITDA $4,593 $10,256 $11,240 $4,132 $11,817 $33,509 $(23,750)$(66,152)
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Key Business Metrics
The table below presents the key business metrics that management uses to evaluate our business, measure our performance, identify trends and make strategic decisions.
December 31,2021 vs. 2020% Change2020 vs. 2019% Change
202120202019
Members3,460,298 1,850,871 976,459 87 %90 %
Total Products5,173,197 2,523,555 1,185,362 105 %113 %
Total Products - Lending segment1,078,952 917,645 798,005 18 %15 %
Total Products - Financial Services segment4,094,245 1,605,910 387,357 155 %315 %
Total Accounts - Technology Platform segment(1)
99,660,657 59,735,210 - 67 %n/m
(1)Beginning in the fourth quarter of 2021, we included SoFi accounts on the Galileo platform-as-a-service in our total accounts metric to better align with the Technology Platform segment revenue reported in Note 18 to the Notes to Consolidated Financial Statements. Intercompany revenue is eliminated in consolidation. We recast the total accounts as of December 31, 2020 to conform to the current year presentation, which resulted in an increase of 375,367 in total accounts as of such date.
See "Summary Results by Segment" for additional metrics we review at the segment level.
Members
We refer to our customers as "members", which we define as someone who has a lending relationship with us through origination and/or ongoing servicing, opened a financial services account, linked an external account to our platform, or signed up for our credit score monitoring service. See "Business Overview". We view members as an indication not only of the size and a measurement of growth of our business, but also as a measure of the significant value of the data we have collected over time. The data we collect from our members helps us to, among other things: (i) assess loan life performance data on each loan in our ecosystem, which can inform risk-based interest rates that we can offer our members, (ii) understand our members' spending behavior to identify and suggest other products we offer that may align with the members' financial needs, and (iii) enhance our opportunities to sell additional products to our members, as our members represent a vital source of marketing opportunities. When we provide additional products to members, it helps improve our unit economics per member, as we save on marketing costs that we would otherwise incur to attract new members. It also increases the lifetime value of an individual member. This in turn enhances our Financial Services Productivity Loop. Member growth is generally an indicator of future revenue, but is not directly correlated with revenues, since not all members who sign up for one of our products fully utilize or continue to use our products, and not all of our products (such as our complimentary product, SoFi Relay) provide direct sources of revenue.
Total Products
Total products refers to the aggregate number of lending and financial services products that our members have selected on our platform since our inception through the reporting date, whether or not the members are still registered for such products. In our Lending segment, total products refers to the number of home loans, personal loans and student loans that have been originated through our platform through the reporting date, whether or not such loans have been paid off. If a member has multiple loan products of the same loan product type, such as two personal loans, that is counted as a single product. However, if a member has multiple loan products across loan product types, such as one personal loan and one home loan, that is counted as two products. In our Financial Services segment, total products refers to the number of SoFi Money accounts, SoFi Invest accounts, SoFi Credit Card accounts (including accounts with a zero dollar balance at the reporting date), referred loans (which relate to an arrangement in the third quarter of 2021 and are originated by a third-party partner to which we provide pre-qualified borrower referrals), SoFi At Work accounts and SoFi Relay accounts (with either credit score monitoring enabled or external linked accounts) that have been opened through our platform through the reporting date. Our SoFi Invest service is composed of three products: active investing accounts, robo-advisory accounts and digital assets accounts. Our members can select any one or combination of the three types of SoFi Invest products. If a member has multiple SoFi Invest products of the same account type, such as two active investing accounts, that is counted as a single product. However, if a member has multiple SoFi Invest products across account types, such as one active investing account and one robo-advisory account, those separate account types are considered separate products. Total products is a primary indicator of the size and reach of our Lending and Financial Services segments. Management relies on total products metrics to understand the effectiveness of our member acquisition efforts and to gauge the propensity for members to use more than one product.
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Products
In Thousands
Total lending products were composed of the following as of the dates indicated:
December 31,2021 vs. 20202020 vs. 2019
Lending Products202120202019Variance% Change
Variance% Change
Home loans23,035 13,977 7,859 9,058 65 %6,118 78 %
Personal loans610,348 501,045 445,559 109,303 22 %55,486 12 %
Student loans445,569 402,623 344,587 42,946 11 %58,036 17 %
Total lending products
1,078,952 917,645 798,005 161,307 18 %119,640 15 %
Total financial services products were composed of the following as of the dates indicated:
December 31,2021 vs. 20202020 vs. 2019
Financial Services Products202120202019Variance% Change
Variance% Change
Money1,436,955 645,502 156,603 791,453 123 %488,899 312 %
Invest1,595,143 531,541 181,817 1,063,602 200 %349,724 192 %
Credit Card91,216 6,445 - 84,771 n/m6,445 n/m
Referred loans(1)
7,659 - - 7,659 n/m- n/m
Relay930,181 408,735 43,012 521,446 128 %365,723 850 %
At Work33,091 13,687 5,925 19,404 142 %7,762 131 %
Total financial services products
4,094,245 1,605,910 387,357 2,488,335 155 %1,218,553 315 %
(1) This product type is limited to loans wherein we provide third party fulfillment services.
Technology Platform Total Accounts
In our Technology Platform segment, total accounts refers to the number of open accounts at Galileo as of the reporting date. Beginning in the fourth quarter of 2021, we included SoFi accounts on the Galileo platform-as-a-service in our total accounts metric to better align with the Technology Platform segment revenue reported in Note 18 to the Notes to Consolidated Financial Statements, which includes intercompany revenue from SoFi. Intercompany revenue is eliminated in consolidation. We recast the total accounts as of December 31, 2020 to conform to the current year presentation. No total accounts information is reported prior to our acquisition of Galileo on May 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
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Galileo accounts, competition and industry trends, general economic conditions and our ability to optimize our national bank charter.
Origination Volume
Our Lending segment is our largest segment, comprising 75%, 85% and 98% of total net revenue during the years ended December 31, 2021, 2020 and 2019, 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 Lending segment weighted average origination FICO score of 761 during the year ended December 31, 2021. See "Industry Trends and General Economic Conditions" for the impact of specific economic factors, including those resulting from the COVID-19 pandemic, on origination volume.
Member Growth and Activity
We have invested heavily in our platform and are dependent on continued member growth, as well as our ability to generate additional revenues from our existing members using additional products and services. Member growth and activity is critical to our ability to increase our scale and earn a return on our technology and product investments. Growth in members and member activity will depend heavily on our ability to continue to offer attractive products and services at sustainable costs and our continued member acquisition and marketing efforts.
Product Growth
Our aim is to develop and offer a best-in-class integrated financial services platform with products that meet the broad objectives of our members and the lifecycle of their financial needs. We have invested, and continue to invest, heavily in the development, improvement and marketing of our suite of lending and financial services products and are dependent on continued growth in the number of products selected by our members, as well as our ability to build trust and reliability between our members and our platform to reinforce the effects of the Financial Services Productivity Loop. In order to deliver on our strategy, we aim to foster positive member experiences designed to lead to more products per member, leading to enhanced profitability for each additional product by lowering overall member acquisition costs.
Galileo Account Growth
During 2020, we acquired Galileo, which primarily provides technology platform services to financial and non-financial institutions, to enable us to diversify our business from a primarily consumer-based business to also serve enterprises that rely upon Galileo's integrated platform-as-a-service to serve their clients. We are dependent on growth in the number of accounts at Galileo, which is an indication of the amount of users that are dependent upon the technology platform for a variety of products and services, including virtual card products, virtual wallets, peer-to-peer and bank-to-bank transfers, early paychecks and relying on real-time authorizations, all of which generate revenue for Galileo.
Competition
We face competition from several financial services institutions given our status as a diversified financial services provider and bank holding company. 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 from other banks and 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. See "Business-Competition" for more information.
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
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rates, market volatility, consumer confidence and changing expectations for inflation and deflation, also influence consumer spending, saving, investing and borrowing patterns. Increased focus by policymakers and the current presidential administration on outstanding student loans has led to discussions of potential legislative and regulatory actions, among other possible steps, to reduce outstanding balances of loans, or cancel loans at a significant scale, including the potential forgiveness of federal student debt. 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 certain hardship provisions led to decreased demand for our student loan refinancing products amid emerging signs of economic recovery from the pandemic. The Federal Reserve's actions to reduce interest rates to near-zero benchmark levels during 2020 that were sustained during 2021 led to increased demand for home loan refinancing and we believe increased the attractiveness of our SoFi Invest product, as members looked for alternative ways to earn higher returns on their cash. Conversely, these lower benchmark rates reduced the deposit interest rates we could offer on our SoFi Money product, which we believe adversely impacted demand for the product. In its January 2022 meeting, the Federal Reserve signaled that the first of potentially several interest rate increases could occur in March 2022. We anticipate that in a rising interest rate environment, and operating under a bank charter, we will be able to offer more competitive interest rates to our members on their deposits, which we believe would result in increasing demand for the product. However, rising interest rates could unfavorably impact demand for all refinancing loan activities and reduce demand across student loans, personal loans and mortgage loans, including but not limited to any variable-rate loan products.
National Bank Charter
A key element of our long-term strategy has been to secure a national bank charter. In February 2022, we closed the Bank Merger and began operating Golden Pacific Bank as SoFi Bank. See "Business Overview-National Bank Charter" and Note 2 to the Notes to Consolidated Financial Statements for additional information on our regulatory approval process and the Bank Merger. In connection with operating a national bank, we have incurred and expect to continue to incur additional costs 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 operating a national bank include: (i) lowering our cost to fund loans, as we can utilize member deposits held at SoFi Bank to fund loans, which have a lower borrowing cost of funds than our current financing model, (ii) holding loans on our consolidated balance sheet for longer periods, thereby enabling us to earn interest on these loans for a longer period, and (iii) supporting origination volume growth by providing an alternative financing option, while also maintaining our warehouse capacity. See Item 1A "Risk Factors" for discussion of certain potential risks related to being a bank holding company.
Key Components of Results of Operations
Interest Income
Interest income is predominantly driven by loan origination volume, prevailing interest rates that we receive on the loans we make and the amount of time we hold loans on our consolidated balance sheet. Securitizations interest income is driven by our securitization-related investments in bonds and residual interest positions, which are required under securitization risk retention rules. See Note 1 to the Notes to Consolidated Financial Statements for additional information on our securitization-related investments. Beginning in the third quarter of 2021, other interest income also includes the interest earned on investments in available-for-sale ("AFS") debt securities as well as amortization of premiums and discounts and other basis adjustments associated with the investments. Moreover, we earn other interest income on excess corporate cash balances and SoFi Money member balances. Related party interest income was derived from notes extended to Apex and one of our stockholders, and was not core to our operations. We had no outstanding related party notes as of December 31, 2021.
Interest Expense
Interest expense primarily includes interest we incur under our warehouse facilities, inclusive of the amortization of debt issuance costs, and under our securitization debt, inclusive of debt issuance costs, premiums and discounts. We incur securitization-related interest expense when securitization transfers do not qualify as true sales pursuant to ASC 810, Consolidation. Securitization-related interest expense fluctuates depending on the level of our securitization activity, market rates and whether and how much such activity results in true sale treatment. We also incurred interest expense related to our revolving credit facility, on the seller note issued in connection with our acquisition of Galileo in May 2020, which was fully
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repaid in February 2021, on the other financings assumed in the acquisition, which were repaid in July 2021, as well as on our convertible notes issued in October 2021 in the form of amortization of debt issuance costs and original issue discount.
For our residual interests classified as debt, we recognize interest expense over the expected life using the effective yield method, which represents a portion of the overall fair value change in the residual interests classified as debt. On a quarterly basis, we reevaluate the cash flow estimates to determine if a change to the accretable yield is required on a prospective basis, which is a reclassification between two income statement line items, and therefore has no net impact on earnings. We also pay interest income to our members who have SoFi Money account balances, which is interest expense to us. Interest expense is dependent on market interest rates (such as USD LIBOR, SOFR or other representative alternative reference rates, commercial paper rates, and the prime rate), interest rate spreads versus benchmark rates, the amount of warehouse capacity we can access, warehouse advance rates and the amount of loans we ultimately pledge to our warehouse facilities. Finally, we incur interest on our finance lease liabilities associated with SoFi Stadium, which relate to certain physical signage within the stadium. Our interest expense has historically fluctuated due to changes in the interest rate environment, and we expect it will continue to fluctuate in future periods.
Noninterest Income
Noninterest income primarily consists of: (i) fair value changes in loans while we hold them on our consolidated balance sheet, inclusive of our hedging activities; (ii) gains on sales of loans transferred into the securitization or whole loan sale channels; (iii) the income we receive from our loan servicing activities, as well as the assumption of servicing rights from third parties; (iv) fair value changes related to our securitization activities; (v) revenue recognized pursuant to ASC 606, Revenue from Contracts with Customers ("ASC 606"), which primarily relates to our technology platform fees; (vi) realized gains and losses on investments in AFS debt securities, and (vii) gains and losses on non-securitization investments.
When we originate a loan, we generally expect that we will sell the loan for more than its par value, which will result in positive loan origination and sales results. Moreover, noninterest income-loan origination and sales also includes recognized servicing assets at the time of a loan sale. The subsequent measurement of our servicing assets at fair value, as well as the initial and ongoing measurement of servicing rights assumed from third parties, impact noninterest income-servicing in our consolidated statements of operations and comprehensive income (loss). When we sell a loan into a securitization trust that qualifies for true sale accounting, the gain or loss on sale is recorded within noninterest income-loan origination and sales. Noninterest income-securitizations is impacted by fair value changes in securitization loan collateral, which is impacted by the change in fair value of the loan collateral from the previous period end, residual interests classified as debt and our securitization investments associated with our continuing interest in the securitization subsequent to the sale. Our revenue recognized in accordance with ASC 606 is attributable to our Financial Services and Technology Platform segments and has grown due to our acquisitions of Galileo and 8 Limited during 2020, as well as due to the growth and expansion of our financial services offerings.
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 share-based compensation expense), professional services, depreciation and amortization, and occupancy-related costs. We allocate certain costs to each of these four categories based on department-level headcounts. We generally expect the expenses within each such category to increase in absolute dollars as our business continues to grow. Noninterest expense-general and administrative also includes the fair value changes in warrant liabilities, which will not be incurred in the future as the SoFi Technologies warrants were redeemed in December 2021 and the Series H warrants were reclassified to equity in connection with the Business Combination. Lastly, noninterest expense includes 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, Technology Platform and Financial Services segments, we allocate certain expenses that are directly attributable to the corresponding segment. Directly attributable expenses primarily include compensation and benefits and sales and marketing, inclusive of member incentives, and vary based on the amount of activity within each segment. Directly attributable expenses also include loan origination and servicing expenses, professional services, product fulfillment, and lead generation. Expenses are attributed to the reportable segments using either direct costs of the segment or labor costs that can be attributed based upon the allocation of employee time for individual products.
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Results of Operations
The following table sets forth consolidated statements of income data for the years indicated:
Year ended December 31,2021 vs. 2020 % Change2020 vs. 2019 % Change
($ in thousands)
202120202019
Interest income
Loans$337,862 $330,353 $570,466 2 %(42)%
Securitizations14,109 24,031 23,179 (41)%4 %
Related party notes211 3,189 3,338 (93)%(4)%
Other2,838 5,964 11,210 (52)%(47)%
Total interest income355,020 363,537 608,193 (2)%(40)%
Interest expense
Securitizations and warehouses90,485 155,150 268,063 (42)%(42)%
Corporate borrowings10,345 27,974 4,962 (63)%464 %
Other1,946 2,482 5,334 (22)%(53)%
Total interest expense102,776 185,606 278,359 (45)%(33)%
Net interest income252,244 177,931 329,834 42 %(46)%
Noninterest income
Loan origination and sales497,626 371,323 299,265 34 %24 %
Securitizations(14,862)(70,251)(199,125)(79)%(65)%
Servicing(2,281)(19,426)8,486 (88)%(329)%
Technology platform fees191,847 90,128 - 113 %n/m
Other60,298 15,827 4,199 281 %277 %
Total noninterest income732,628 387,601 112,825 89 %244 %
Total net revenue984,872 565,532 442,659 74 %28 %
Noninterest expense
Technology and product development276,087 201,199 147,458 37 %36 %
Sales and marketing426,875 276,577 266,198 54 %4 %
Cost of operations256,980 178,896 116,327 44 %54 %
General and administrative498,534 237,381 152,275 110 %56 %
Provision for credit losses7,573 - - n/mn/m
Total noninterest expense1,466,049 894,053 682,258 64 %31 %
Loss before income taxes(481,177)(328,521)(239,599)46 %37 %
Income tax (expense) benefit(2,760)104,468 (98)(103)%n/m
Net loss $(483,937)$(224,053)$(239,697)116 %(7)%
Other comprehensive loss
Unrealized losses on available-for-sale securities, net$(1,351)$- $- n/mn/m
Foreign currency translation adjustments, net46 (145)(9)(132)%n/m
Total other comprehensive loss(1,305)(145)(9)800 %n/m
Comprehensive loss$(485,242)$(224,198)$(239,706)116 %(6)%
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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Interest Income
The following table presents the components of our total interest income for the years indicated:
Year Ended December 31,
($ in thousands)
20212020$ Change% Change
Loans$337,862 $330,353 $7,509 2 %
Securitizations14,109 24,031 (9,922)(41)%
Related party notes211 3,189 (2,978)(93)%
Other2,838 5,964 (3,126)(52)%
Total interest income
$355,020 $363,537 $(8,517)(2)%
Total interest income decreased by $8.5 million, or 2%, for the year ended December 31, 2021 compared to the year ended December 31, 2020 due to the following:
Loans. Loans interest income increased by $7.5 million, or 2%, primarily driven by increases in non-securitization personal loan and student loan interest income of $67.8 million (71%) and $16.5 million (22%), respectively, which were primarily a function of increases in average balances for personal loans and student loans of $657.5 million (74%) and $611.9 million (39%), respectively. The personal loan average balance increase was primarily attributable to higher origination volume. The student loan average balance increase was primarily attributable to longer loan holding periods, partially offset by lower origination volume. The student loan interest income was also negatively impacted by lower loan coupon rates. The increase from non-securitization loan interest income was partially offset by a decline of $81.4 million in interest income from consolidated personal loan and student loan securitizations, which were impacted by an aggregate $1.0 billion (49%) decline in average balances attributable to payment activity and the deconsolidation of two VIEs in March 2020 and one VIE in July 2020. The remaining increase in loans interest income primarily included $3.7 million attributable to credit card loans, which launched in the third quarter of 2020, and $1.0 million attributable to home loans.
Securitizations. Securitizations interest income decreased by $9.9 million, or 41%, which was primarily attributable to decreases in residual investment interest income of $4.1 million and asset-backed bonds of $4.4 million, due primarily to decreases in average securitization investment balances year over year, as securitization payments outpaced new securitization investments. We also had 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 year over year.
Related Party Notes. Related party notes interest income decreased by $3.0 million, or 93%, due to the absence of interest income on a stockholder loan and a decrease in interest income related to our loans to Apex, as the Apex loans were fully settled in February 2021.
Other. Other interest income decreased by $3.1 million, or 52%, primarily due to interest rate decreases period over period that impacted the interest income we earned on both our interest-bearing cash and cash equivalents balances and Member Bank deposits. For cash and cash equivalents, this impact was combined with a lower average balance year over year, while the impact on Member Bank deposits was partially offset by a higher average balance year over year. In addition, this variance was partially offset by interest income of $0.2 million earned on our investments in AFS debt securities in 2021.
Interest Expense
The following table presents the components of our total interest expense for the years indicated:
Year Ended December 31,
($ in thousands)
20212020$ Change
% Change
Securitizations and warehouses$90,485 $155,150 $(64,665)(42)%
Corporate borrowings10,345 27,974 (17,629)(63)%
Other1,946 2,482 (536)(22)%
Total interest expense
$102,776 $185,606 $(82,830)(45)%
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Total interest expense decreased by $82.8 million, or 45%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, due to the following:
Securitizations and Warehouses. The following tables present the components of securitizations and warehouses interest expense and other pertinent information.
Year Ended December 31,
($ in thousands)20212020$ Change% Change
Securitization debt interest expense$35,576 $66,110 $(30,534)(46)%
Warehouse debt interest expense29,596 51,983 (22,387)(43)%
Residual interests classified as debt interest expense8,200 12,678 (4,478)(35)%
Debt issuance cost interest expense(1)
17,113 24,379 (7,266)(30)%
Securitizations and warehouses interest expense
$90,485 $155,150 $(64,665)(42)%
(1)Debt issuance cost interest expense excludes the acceleration of debt issuance costs of $4.2 million during the year ended December 31, 2020 associated with the deconsolidation of VIEs, which is reported within noninterest income-securitizations in the consolidated statements of operations and comprehensive income (loss).
Year Ended December 31,
($ in thousands)20212020% Change
Average debt balances(1)
Securitization debt$903,902 $1,794,758 (50)%
Warehouse facilities1,972,184 2,266,694 (13)%
Weighted average interest rates(1)(2)
Securitization debt3.9 %3.7 %n/m
Warehouse facilities1.5 %2.3 %n/m
(1)Table excludes residual interests classified as debt, as interest expense is dependent on the timing and extent of securitization loan cash flows and, therefore, a derived weighted average interest rate using the methodology in the table herein is not meaningful for the purposes of understanding the change in residual interests classified as debt related interest expense.
(2)Calculated as annualized interest expense divided by average debt balance for the respective debt category. Interest rates on securitization debt and warehouse facilities exclude the effect of debt issuance cost interest expense and amortization of debt discounts and premiums.
Securitizations and warehouses interest expense decreased by $64.7 million, or 42%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, driven by the following:
•Securitization debt interest expense (exclusive of debt issuance and discount amortization) decreased by $30.5 million (46%), primarily driven by a decline in average balance of 50%, which was attributable to payment activity during the year and the deconsolidation of securitizations discussed within the "Interest Income" section. The impact of the year over year decrease in one-month LIBOR, which primarily affects our student loan securitization debt, was more than offset by payoffs of debt with lower interest rates, which raised the overall weighted average interest rate.
•Warehouse debt interest expense (exclusive of debt issuance amortization) decreased by $22.4 million, which was primarily related to decreases in reference rates year over year and lower warehouse facility interest rate spreads, as well as a 13% lower average warehouse debt balance outstanding in 2021, which was enabled by our other financing activities during 2021.
•Residual interests classified as debt interest expense decreased by $4.5 million, which was correlated with a lower balance of residual interests classified as debt during 2021, a significant driver of which was the deconsolidation of two securitizations in March 2020 and one securitization in July 2020, in combination with no consolidations of VIEs during 2021.
•Debt issuance cost interest expense decreased by $7.3 million, which was primarily driven by a lower run rate on our issuance cost amortization related to our loan warehouse facilities, as we extended certain loan warehouse facilities, which had the effect of lowering the quarterly debt issuance cost amortization. The variance was also impacted by a decrease in the acceleration of debt issuance costs in 2021 compared to 2020.
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Corporate Borrowings. Corporate borrowings interest expense decreased by $17.6 million, or 63%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to the following:
•Interest expense incurred on the Galileo seller note, which was issued in May 2020 and repaid in February 2021, decreased by $18.6 million. In 2020, we incurred imputed interest during the six-month interest-free period, followed by incremental interest at the note's stated rate when the promotional period lapsed and we did not pay off the Galileo seller note. Comparatively, in 2021 we incurred interest at the Galileo seller note's stated rate through its repayment in February 2021.
•Interest expense on the revolving credit facility decreased by $0.2 million, which reflected a decline in one-month LIBOR year over year, partially offset by a higher average balance in 2021, as we drew $325.0 million on the facility during the second quarter of 2020.
•These decreases were partially offset by interest expense of $1.2 million associated with our issuance of convertible notes in the fourth quarter of 2021, which consisted of the amortization of the debt discount and debt issuance costs.
Other. Other interest expense decreased by $0.5 million, or 22%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to the following:
•Interest expense related to our SoFi Money product decreased by $0.8 million, primarily attributable to lower weighted average interest rates offered to members, which was partially offset by an increase in cash balances in member SoFi Money accounts.
•Interest expense related to our finance leases increased by $0.3 million, primarily due to a full year of expense in 2021, as we entered into the arrangement in September 2020.
Noninterest Income and Net Revenue
The following table presents the components of our total noninterest income, as well as total net revenue for the years indicated:
Year Ended December 31,
($ in thousands)
20212020$ Change% Change
Loan origination and sales$497,626 $371,323 $126,303 34 %
Securitizations(14,862)(70,251)55,389 (79)%
Servicing(2,281)(19,426)17,145 (88)%
Technology platform fees191,847 90,128 101,719 113 %
Other60,298 15,827 44,471 281 %
Total noninterest income
$732,628 $387,601 $345,027 89 %
Total net revenue
$984,872 $565,532 $419,340 74 %
Total noninterest income increased by $345.0 million, or 89%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, due to the following:
Loan Origination and Sales. Loan origination and sales increased by $126.3 million, or 34%, year over year, which was primarily related to the following:
•an increase of $187.0 million in personal loan origination and sales income, which was primarily attributable to higher origination volume and higher sales activity during 2021 combined with increased fair value adjustments at the end of 2021, as well as a personal loan purchase price earn-out derivative position in 2021. We also had higher gains on our personal loan economic hedging activities;
•a decrease of $7.7 million in student loan origination and sales income, net of a gain on related student loan commitments. The student loan decrease was primarily attributable to lower origination volume and lower sales activity during 2021 at lower execution prices combined with decreased fair value adjustments at the end of 2021. The execution prices and fair value marks were impacted by lower interest rates offered in 2021. These student loan decreases were largely offset by gains on our student loan economic hedging activities;
•a $22.3 million gain on credit default swaps in 2020 that did not recur in 2021;
•a decrease of $19.4 million in home loan origination and sales related income, net of hedges and related IRLCs (exclusive of home loan origination fees), of which $19.0 million was attributable to lower sales execution and lower
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home loan valuations despite higher origination and sales volumes. The variance also reflected a decrease of $26.4 million associated with IRLCs that was correlated with a decline in the home loan pipeline and pricing in 2021 compared to significant increases in the home loan pipeline and pricing during 2020. The decrease in IRLCs was largely offset by a $26.0 million increase in home loan pipeline hedge values, which corresponded with a decline in home loan prices during 2021; and
•an increase of $2.9 million in home loan origination fees in conjunction with a 36% increase in origination volume.
Securitizations. Securitizations income improved by $55.4 million, or 79%, primarily due to an aggregate increase of $31.7 million year over year in securitization loan fair market value changes, principally due to the significantly improved economic environment during 2021 relative to 2020, when the impacts of the COVID-19 pandemic were more pronounced. Additionally, we experienced a reduction in securitization loan write-offs of $27.3 million in 2021, which was correlated with the deconsolidation of securitizations in 2020, stronger securitization loan credit performance and lower average securitization loan balances during 2021. Additionally, we had losses from deconsolidations of $14.7 million during 2020 and no corresponding losses in 2021. Finally, we had a positive variance in our securitization residual interest investments of $5.1 million.
Partially offsetting these effects was an unfavorable variance in residual debt fair value of $14.3 million year over year, which was correlated with underlying securitization performance and residual interest positions representing a greater percentage of securitization claims year over year. We also had a decline in bond fair values of $8.5 million year over year, which was primarily attributable to positive fair value adjustments in the second and third quarters of 2020 due to increased bond pricing following a resurgence in market demand for securitization bonds. Subsequent to those quarters and through 2021, we had negative fair value adjustments due to realized interest income cash flows (realized cash flows lower bond fair values and increase interest income by the amount realized during the period) and, therefore, realized interest income, which lowers bond fair values, had no net impact on earnings.
The table below presents additional information related to loan gains and losses and overall performance:
Year Ended December 31,
($ in thousands)20212020$ Change% Change
Gains from non-securitization loan transfers$272,967 $259,451 $13,516 5 %
Gains from loan securitization transfers(1)
117,451 129,855 (12,404)(10)%
Economic derivative hedges of loan fair values(2)
49,090 (54,829)103,919 (190)%
Home loan origination fees(3)
14,452 11,576 2,876 25 %
Loan write-off expense - whole loans(4)
(17,440)(5,873)(11,567)197 %
Loan write-off expense - securitization loans(5)
(11,357)(38,621)27,264 (71)%
Loan repurchase expense(6)
(3,117)(342)(2,775)811 %
(1)Represents the gains recognized on loan securitization transfers qualifying for sale accounting treatment. For the year ended December 31, 2020, the gains are exclusive of deconsolidation losses of $14.7 million. There were no deconsolidation losses during the year ended December 31, 2021.
(2)During the year ended December 31, 2021, we had gains of $42.7 million on interest rate swap positions primarily due to higher interest rates since the start of 2021. We also had gains of $6.5 million on home loan pipeline hedges primarily due to decreases in the underlying hedge price index during the year. During the year ended December 31, 2020, we had losses of $57.5 million on interest rate swap positions primarily due to significant declines in interest rates amid the COVID-19 pandemic. We also had losses of $19.5 million on home loan pipeline hedges primarily due to increases in the underlying hedge price index during the year. These losses were partially offset by gains on our credit default swaps of $22.3 million during 2020. Amounts presented herein exclude IRLCs and student loan commitments, as they are not economic hedges of loan fair values.
(3)For the year ended December 31, 2021, these increases were correlated with a 36% increase in home loan origination volumes relative to 2020.
(4)For the years ended December 31, 2021 and 2020, includes gross write-offs of $27.6 million and $17.1 million, respectively. During 2021, $2.8 million of the $10.1 million of recoveries were captured via loan sales to a third-party collection agency. During 2020, $3.6 million of the $11.2 million of recoveries were captured via loan sales to a third-party collection agency.
(5)For the years ended December 31, 2021 and 2020, includes gross write-offs of $21.2 million and $54.7 million, respectively. During 2021, $2.4 million of the $9.8 million of recoveries were captured via loan sales to a third-party collection agency. During 2020, $7.2 million of the $16.1 million of recoveries were captured via loan sales to a third-party collection agency.
(6)Represents the expense associated with our estimated loan repurchase obligation. See Note 16 to the Notes to Consolidated Financial Statements for additional information.
Servicing. Servicing income increased by $17.1 million, or 88%, which was primarily related to fair value changes in our servicing assets that were largely attributable to a lower rate of increase in servicing asset prepayment speed assumptions in 2021 relative to 2020, and a decrease in the discount rate for home loan servicing assets during 2021. The home loan
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servicing asset discount rate decline was informed from market trends which demonstrated stronger demand (lower required yields) for the home loan servicing asset class during 2021 as compared to during 2020.
We own the master servicing on all of the servicing rights that we retain and, in each case, recognize the gross servicing rate applicable to each serviced loan. Sub-servicers are utilized for all serviced student loans and home loans, which represents a cost to SoFi, but these arrangements do not impact our calculation of the weighted average basis points earned for each loan type serviced. Further, there is no impact on servicing income due to forbearance and moratoriums on certain debt collection activities, and there are no waivers of late fees. The table below presents additional information related to our loan servicing activities:
Year Ended December 31,
($ in thousands)20212020$ Change% Change
Servicing income recognized
Home loans(1)
$8,975 $4,651 $4,324 93 %
Student loans(2)
46,519 50,491 (3,972)(8)%
Personal loans(3)
34,093 42,646 (8,553)(20)%
Servicing rights fair value change
Home loans(4)
$26,619 $10,733 $15,886 148 %
Student loans(5)
(10,634)(37,945)27,311 (72)%
Personal loans(6)
2,677 (24,809)27,486 (111)%
(1)The contractual servicing earned on our home loan portfolio was 25 bps during the years ended December 31, 2021 and 2020.
(2)The weighted average bps earned for student loan servicing during the years ended December 31, 2021 and 2020 was 43 bps and 37 bps, respectively.
(3)The weighted average bps earned for personal loan servicing during the years ended December 31, 2021 and 2020 was 71 bps and 74 bps, respectively.
(4)The impact on the fair value change resulting from changes in valuation inputs and assumptions was $4.3 million and $(5.1) million during the years ended December 31, 2021 and 2020, respectively.
(5)The impact of the fair value change resulting from changes in valuation inputs and assumptions was $(16.2) million and $(20.2) million during the years ended December 31, 2021 and 2020, respectively. In addition, the impact of the fair value change resulting from the derecognition of servicing due to loan purchases was $(0.4) million and $(12.9) million during the years ended December 31, 2021 and 2020, respectively.
(6)The impact of the fair value change resulting from changes in valuation inputs and assumptions was $9.2 million and $7.8 million during the years ended December 31, 2021 and 2020, respectively. In addition, the impact of the fair value change resulting from the derecognition of servicing due to loan purchases was $(0.7) million and $(0.9) million during the years ended December 31, 2021 and 2020, respectively.
Technology Platform Fees. Technology platform fees earned by Galileo, which do not include fees earned from SoFi (as they are eliminated in consolidation), increased by $101.7 million, or 113%, in part due to a partial period of earnings in 2020, as we acquired Galileo on May 14, 2020. The increased fees were predominantly driven by growth from existing clients.
Other. Other income increased by $44.5 million, or 281%, primarily driven by increases in brokerage-related revenues of $19.3 million, payment network fees of $8.2 million and referral fees of $9.9 million. The brokerage-related fees earned during 2021 were primarily attributable to increased digital assets activities and were also positively impacted by our acquisition of 8 Limited in the second quarter of 2020, inclusive of a monthly platform fee that is charged to our SoFi Hong Kong members and was introduced in the fourth quarter of 2021. The increase in payment network fees (which includes interchange fees) was directly correlated with increased credit card spending (which was a product launched in the second half of 2020) and debit card transactions on our platform, in addition to the impact from the acquisition of Galileo in the second quarter of 2020. Lastly, the increase in referral fees was primarily attributable to growth in our partner relationships and related activity, as we continue to onboard new partners and help drive volume to our partners, as well as an increase associated with a referral fulfillment arrangement we entered into in the third quarter of 2021.
Additionally, we had earnings from a historical period venture capital investment of $4.0 million in 2021 (for which we sold a portion of the investment during 2021). For another privately-held investment, we had earnings from an upward adjustment of $0.7 million in 2021 compared to a loss of $0.8 million in 2020. Finally, we had additional new sources of revenue in 2021 consisting of equity capital markets revenues of $2.6 million and advisory services of $2.6 million. These gains were primarily offset by a $4.6 million decrease in equity method income, primarily resulting from our equity method investment in Apex, which was called in the first quarter of 2021.
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Noninterest Expense
The following table presents the components of our total noninterest expense for the years indicated:
Year Ended December 31,
($ in thousands)
20212020$ Change% Change
Technology and product development$276,087 $201,199 $74,888 37 %
Sales and marketing426,875 276,577 150,298 54 %
Cost of operations256,980 178,896 78,084 44 %
General and administrative498,534 237,381 261,153 110 %
Provision for credit losses7,573 - 7,573 n/m
Total noninterest expense
$1,466,049 $894,053 $571,996 64 %
Total noninterest expense increased by $572.0 million, or 64%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, due to the following:
Technology and Product Development. Technology and product development expenses increased by $74.9 million, or 37%, primarily due to:
•an increase in amortization expense on intangible assets of $7.9 million, which included both an $11.5 million increase associated with intangible assets acquired during the second quarter of 2020 and a $3.6 million decrease associated with the acceleration of our core banking infrastructure amortization during 2020;
•an increase in purchased and internally-developed software amortization of $7.2 million, which was primarily reflective of increased investments in technology in our Technology Platform segment;
•an increase in employee compensation and benefits of $48.5 million, inclusive of an increase in share-based compensation expense of $33.2 million, which was related to an increase in technology and product personnel in support of our growth, and the effect of new award issuances at increased share prices. We also had an increase in average compensation in 2021; and
•an increase in software licenses, and tools and subscriptions expense of $8.9 million related to headcount increases and internal technology initiatives.
Sales and Marketing. Sales and marketing expenses increased by $150.3 million, or 54%, primarily due to:
•an increase in amortization expense of $12.9 million associated with the customer-related intangible assets acquired in the second quarter of 2020;
•an increase in employee compensation and benefits of $20.2 million, inclusive of an increase in share-based compensation expense of $8.1 million, which was correlated with an increase in sales and marketing personnel to support our growth, and the effect of new awards at increased share prices, partially offset by a decrease in average compensation in 2021;
•an increase of SoFi Stadium related expenditures of $8.6 million, which is exclusive of depreciation and interest expense on the embedded lease portion of our SoFi Stadium agreement;
•an increase of $38.5 million related to increasing utilization of lead generation channels during 2021;
•an increase in direct customer promotional expenditures of $18.5 million, which is one of our levers for stimulating member product adoption and engagement; and
•an increase in advertising expenditures of $44.2 million, which was attributable to an increase in search, social, television and digital advertising expenditures in 2021, partially offset by a decrease in direct mail marketing expenditures.
Cost of Operations. Cost of operations increased by $78.1 million, or 44%, primarily due to:
•an increase in loan origination and servicing expenses of $14.7 million, of which $12.9 million was related to home loans and was correlated with the growth in origination volume year over year;
•an increase of $16.1 million in product fulfillment costs, which was primarily related to payment processing network association fees associated with increased activity on our technology platform, and was predominantly attributable to post-acquisition Galileo operations;
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•an increase in employee compensation and benefits of $32.2 million, which was correlated with an increase in cost of operations personnel in support of our growth, in addition to an increase in average compensation in 2021;
•an increase in software licenses, tools and subscriptions and other related fees of $9.1 million related to headcount increases and internal technology initiatives;
•an increase in credit card expenses, primarily processing fees, of $3.5 million related to increased credit card activity;
•an increase in brokerage-related costs and debit card fulfillment costs of $5.3 million, primarily related to the growth of SoFi Invest and SoFi Money; and
•a decrease in SoFi Money account operational losses of $3.8 million.
General and Administrative. General and administrative expenses increased by $261.2 million, or 110%, primarily due to:
•an increase in employee compensation and benefits of $120.7 million, inclusive of an increase in share-based compensation expense of $92.2 million, which was related to an increase in general and administrative personnel to support our growing infrastructure and administrative needs in addition to an increase in average compensation in 2021, and the effect of new awards issued at increased share prices;
•an increase in the fair value of our warrant liabilities of $86.8 million, which was comprised of a larger fair value increase on the Series H redeemable preferred stock during 2021 prior to the Business Combination relative to 2020 of $101.3 million, partially offset by fair value decreases related to the SoFi Technologies warrants assumed in the Business Combination of $14.5 million;
•an increase of $21.2 million related to the special payment made to the Series 1 preferred stockholders in 2021 associated with the Business Combination, which was partially offset by $3.0 million lower other transaction-related expenses. Transaction-related expenses in 2021 were primarily related to our acquisition of Golden Pacific, our anticipated acquisition of Technisys, and debt and equity transactions, including our convertible debt, capped call and secondary offering on behalf of certain investors. Transaction-related expenses in 2020 included costs associated with our acquisitions of Galileo and 8 Limited;
•an increase in non-transaction related professional services of $14.5 million, such as accounting, advisory and legal services, and an increase in corporate insurance of $6.3 million, which were primarily attributable to the increased costs of being a public company and preparation to become a bank holding company;
•an increase in occupancy-related expenses of $3.2 million; and
•an increase in software licenses and tools and subscriptions of $4.3 million, which was correlated with increased headcount.
Provision for Credit Losses. The provision for credit losses of $7.6 million during the year ended December 31, 2021 reflects the expected credit losses associated with our credit card loans. The provision for credit losses was not meaningful during the year ended December 31, 2020, as we launched our credit card product in the third quarter of 2020 and had immaterial activity through the end of the year.
Net Loss
We had a net loss of $483.9 million for the year ended December 31, 2021 compared to $224.1 million for the year ended December 31, 2020. The increase in loss was due to the factors discussed above, as well as the change in income taxes. The significant tax benefit in 2020 was associated with the remeasurement of our valuation allowance during 2020 primarily as a result of the deferred tax liabilities recognized in connection with our acquisition of Galileo, which decreased the valuation allowance by $99.8 million.
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Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Interest Income
The following table presents the components of our total interest income for the years indicated:
Year Ended December 31,
($ in thousands)20202019$ Change% Change
Loans$330,353 $570,466 $(240,113)(42)%
Securitizations24,031 23,179 852 4 %
Related party notes3,189 3,338 (149)(4)%
Other5,964 11,210 (5,246)(47)%
Total interest income
$363,537 $608,193 $(244,656)(40)%
Total interest income decreased by $244.7 million, or 40%, for the year ended December 31, 2020 compared to the year ended December 31, 2019 due to the following:
Loans. Loans interest income decreased by $240.1 million, or 42%, primarily driven by a $218.3 million decrease in personal loan interest income year over year. A significant portion of this decrease was related to a decline in securitization loan interest income of $209.4 million, which was a function of our deconsolidation of three variable interest entities ("VIEs") during 2020 that were previously consolidated during 2019, and earning interest income from loans in three consolidated VIEs in 2019 that were deconsolidated in the fourth quarter of 2019. In all cases, our deconsolidations of previously consolidated VIEs were triggered by a third party purchasing enough residual interest ownership in the VIEs from us such that we owned less than 10% of the VIE residual interest. As we no longer had a significant financial interest in the VIEs, we deconsolidated them, which included the related securitization loans.
Further, we did not consolidate any personal loan VIEs during 2020. In addition, our monthly average non-securitization personal loan balance during 2020 was 5% lower than in 2019, which contributed to an $8.9 million decline in loan interest income year over year. This decline was heavily influenced by the COVID-19 pandemic, which contributed to a year over year decline in personal loan origination volume of 31%. Student loan securitization interest income declined by $34.1 million, which was correlated with an increase in prepayments and was also negatively impacted by the COVID-19 pandemic. These declines in interest were offset by an $11.6 million increase in non-securitization student loan interest income, which was consistent with a 33% higher average balance year over year as a result of a longer holding period for loans on the balance sheet and a significant strategic purchase of loans during 2020.
Securitizations. Securitizations interest income increased by $0.9 million, or 4%, which was attributable to an increase in residual investment interest income of $2.9 million and asset-backed bonds of $1.2 million. These increases were offset by a decline in securitization float interest income of $3.2 million, which was largely attributable to declining interest rates during 2020.
Related Party Notes. Related party notes interest income decreased by $0.1 million, or 4%, due to a decrease in interest income on a stockholder loan, which was fully settled in 2020, partially offset by an increase in interest income related to loans to Apex, as the first loan was issued in November 2019 with additional amounts loaned during 2020.
In March 2019, we entered into a $58.0 million note receivable agreement with a stockholder (the "Note Receivable Stockholder"), which accrued interest at 7.0%. In October 2019, we assigned a portion of our call option rights pursuant to such agreement to another stockholder who paid $15.2 million to purchase an aggregate of 3,095,078 common and preferred shares held by the Note Receivable Stockholder. The Note Receivable Stockholder then paid us $15.2 million to settle a portion of the outstanding note receivable and accrued interest owed to us. During the year ended December 31, 2020, the Note Receivable Stockholder made payments totaling $47.8 million to settle the remaining outstanding note receivable and accrued interest.
As of December 31, 2020, we had three notes receivable outstanding from Apex with a total principal balance of $16.7 million, of which $7.6 million was loaned by us during the year ended December 31, 2020 in two transactions and accrued interest annually at a fixed rate of 10.0%. The initial note receivable of $9.1 million was loaned by us in November 2019 and accrued interest annually at a fixed rate of 5.0% as of December 31, 2020. In February 2021, Apex repaid the total outstanding principal balances and accrued interest.
See Note 15 to the Notes to Consolidated Financial Statements for additional information on our related party notes.
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Other. Other interest income decreased by $5.2 million, or 47%, primarily due to interest rate decreases during 2020, which impacted the interest income we earn on our bank balances and Member Bank deposits.
Interest Expense
The following table presents the components of our total interest expense for the years indicated:
Year Ended December 31,
($ in thousands)
20202019$ Change
% Change
Securitizations and warehouses$155,150 $268,063 $(112,913)(42)%
Corporate borrowings27,974 4,962 23,012 464 %
Other2,482 5,334 (2,852)(53)%
Total interest expense
$185,606 $278,359 $(92,753)(33)%
Total interest expense decreased by $92.8 million, or 33%, for the year ended December 31, 2020 compared to the year ended December 31, 2019, due to the following:
Securitizations and Warehouses. The following tables present the components of securitizations and warehouses interest expense and other pertinent information.
Year Ended December 31,
($ in thousands)20202019$ Change% Change
Securitization debt interest expense$66,110 $132,811 $(66,701)(50)%
Warehouse debt interest expense51,983 80,895 (28,912)(36)%
Residual interests classified as debt interest expense12,678 30,562(17,884)(59)%
Debt issuance cost interest expense(1)
24,379 23,7955842 %
Securitizations and warehouses interest expense
$155,150 $268,063 $(112,913)(42)%
(1)Debt issuance cost interest expense excludes the acceleration of debt issuance costs of $4.2 million and $8.4 million during the years ended December 31, 2020 and 2019, respectively, associated with the deconsolidation of VIEs, which is reported within noninterest income-securitizations in the consolidated statements of operations and comprehensive income (loss).
Year Ended December 31,
($ in thousands)20202019% Change
Average debt balances(1)
Securitization debt$1,794,758 $3,888,058 (54)%
Warehouses facilities2,266,694 1,800,902 26 %
Weighted average interest rates(1)(2)
Securitization debt3.7 %3.4 %n/m
Warehouse facilities2.3 %4.5 %n/m
(1)Table excludes residual interests classified as debt, as interest expense is dependent on the timing and extent of securitization loan cash flows and, therefore, a derived weighted average interest rate using the methodology in the table herein is not meaningful for the purposes of understanding the change in residual interests classified as debt related interest expense.
(2)Calculated as annualized interest expense divided by average debt balance for the respective debt category. Interest rates on securitization debt and warehouse facilities exclude the effect of debt issuance cost interest expense and amortization of debt discounts.
Securitizations and warehouses interest expense decreased by $112.9 million, or 42%, for the year ended December 31, 2020 compared to the year ended December 31, 2019, driven by the following:
•Securitization debt interest expense (exclusive of debt issuance and discount amortization) decreased by $66.7 million, which was correlated with the deconsolidation of VIEs and the absence of new consolidated VIEs, with the exception of one student loan VIE, which was only briefly consolidated before we transferred the significant portion of our financial interest and subsequently deconsolidated it. Moreover, the majority of our student loan securitization debt is tied to one-month LIBOR, which decreased during 2020;
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•Warehouse debt interest expense (exclusive of debt issuance amortization) decreased by $28.9 million, which was related to a decrease in one- and three-month LIBOR during 2020. Interest rate declines were partially offset by a higher average warehouse debt balance outstanding during 2020;
•Residual interests classified as debt interest expense decreased by $17.9 million, which was correlated with a lower balance of residual interests classified as debt during 2020, a significant driver of which was the deconsolidation of VIEs during 2020 and 2019; and
•Debt issuance cost interest expense increased by $0.6 million, which was associated with an initiative to increase our warehouse borrowing capacity to protect against potential future funding constraints attributable to the COVID-19 pandemic, partially offset by a decrease in securitization debt issuance costs in 2020, as the deconsolidation of VIEs contributed to lower debt issuance cost amortization in 2020.
Corporate Borrowings. Corporate borrowings interest expense increased by $23.0 million, or 464%, primarily due to the following:
•Interest expense incurred on the Galileo seller note issued in May 2020, which was comprised of two components: (i) non-cash interest expense accretion of $6.0 million incurred because of the seller note discount to face value, and (ii) interest expense incurred of $16.2 million related to the outstanding seller note balance of $250.0 million at a stated rate of 10.0%; and
•An increase of $0.8 million in interest expense on the revolving credit facility, which reflected a higher average balance during 2020, as we drew $325.0 million on the facility during the second quarter of 2020, partially offset by a decline in one-month LIBOR year over year.
Other. Other interest expense decreased by $2.9 million, or 53%, primarily due to a decrease in interest expense of $3.0 million associated with SoFi Money balances, which was correlated with the decline in interest rates during 2020.
Noninterest Income and Net Revenue
The following table presents the components of our total noninterest income, as well as total net revenue for the years indicated:
Year Ended December 31,
($ in thousands)
20202019$ Change
% Change
Loan origination and sales$371,323 $299,265 $72,058 24 %
Securitizations(70,251)(199,125)128,874 (65)%
Servicing(19,426)8,486 (27,912)(329)%
Technology platform fees90,128 - 90,128 n/m
Other15,827 4,199 11,628 277 %
Total noninterest income
$387,601 $112,825 $274,776 244 %
Total net revenue
$565,532 $442,659 $122,873 28 %
Total noninterest income increased by $274.8 million, or 244%, for the year ended December 31, 2020 compared to the year ended December 31, 2019, due to the following:
Loan Origination and Sales. Loan origination and sales increased by $72.1 million, or 24%. We experienced an $81.1 million year over year increase in home loan originations and sales related income, net of hedges, and related interest rate lock commitments, which was driven by a 182% increase in home loans origination volume and a mix shift toward more FNMA loans during 2020, which sold for a greater loan premium compared to non-agency home loans. Home loan origination fees also increased by $7.9 million year over year in conjunction with the increase in origination volume.
Offsetting these increases was a $16.9 million decline in aggregate personal and student loan origination and sales income, which was attributable to lower origination volumes, partially offset by combined lower write-offs and repurchase expense due to improved loan credit and underwriting performance. Student loan origination volume declined 26% year over year, primarily due to lower demand for our student loan refinancing products as a result of the payment deferral period on federal student loans enacted through the CARES Act in 2020. Personal loan origination volume declined 31% year over year, primarily due to our efforts in 2020 to further tighten our underwriting and credit policies to mitigate our credit risk exposure during the economic downturn combined with lower demand for personal loan financing, which we believe was a result of lower consumer spending behavior during the early stages of the COVID-19 pandemic.
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Securitizations. Securitization income improved by $128.9 million, or 65%, primarily due to a reduction in securitization loan write-offs of $82.5 million, which was related to the deconsolidation of VIEs and stronger securitization loan credit performance during 2020. The decrease in securitization loan write-offs also had the impact of improving our assumed future credit outlook for our securitization loans, which contributed to an aggregate increase of $39.0 million year over year in securitization loan fair market value changes. Additionally, we had a $38.7 million loss realized in the fourth quarter of 2019 related to the deconsolidation of three personal loan VIEs compared to losses in 2020 of $8.6 million attributable to a previously consolidated VIE that was both consolidated and deconsolidated in 2020 and $6.1 million attributable to the deconsolidation of three additional VIEs. Finally, we had a positive variance in our securitization residual investments of $1.9 million.
Partially offsetting these effects was an unfavorable variance in residual debt fair value of $16.4 million year over year, which was correlated with underlying securitization performance and residual interest positions representing a greater percentage of securitization claims year over year.
The table below presents additional information related to loan gains and losses and overall performance:
Year Ended December 31,
($ in thousands)20202019$ Change% Change
Gains from non-securitization loan transfers$259,451 $129,989 $129,462 100 %
Gains from loan securitization transfers(1)
129,855 226,394 (96,539)(43)%
Economic derivative hedges of loan fair values(54,829)(24,803)(30,026)121 %
Home loan origination fees(2)
11,576 3,639 7,937 218 %
Loan write-off expense - whole loans(3)
(5,873)(13,888)8,015 (58)%
Loan write-off expense - securitization loans(4)
(38,621)(121,102)82,481 (68)%
Loan repurchase expense(5)
(342)(2,337)1,995 (85)%
(1)Represents the gain recognized on loan securitization transfers qualifying for sale accounting treatment during the years presented. For the years ended December 31, 2020 and 2019, the gains were exclusive of deconsolidation losses of $14.7 million and $38.7 million, respectively.
(2)This variance was correlated with an increase in home loan origination volume year over year.
(3)Includes gross write-offs of $17.1 million and $22.3 million for the years ended December 31, 2020 and 2019, respectively. During 2020, $3.6 million of the $11.2 million of recoveries were captured via loan sales to a third-party collection agency. During 2019, $0 of the $8.4 million of recoveries were captured via loan sales to a third-party collection agency.
(4)Includes gross write-offs of $54.7 million and $139.2 million for the years ended December 31, 2020 and 2019, respectively. During 2020, $7.2 million of the $16.1 million of recoveries were captured via loan sales to a third-party collection agency. During 2019, $7.6 million of the $18.1 million of recoveries were captured via loan sales to a third-party collection agency.
(5)Represents the expense associated with our estimated loan repurchase obligation. See Note 16 to the Notes to Consolidated Financial Statements for additional information.
Servicing. Servicing income decreased by $27.9 million, or 329%, and was primarily related to fair value changes in our servicing assets that were largely attributable to an increase in servicing asset prepayment speed assumptions year over year. We experienced an increase in loan prepayments during 2020, which we believe is correlated with the market interest rate declines in 2020 compared to 2019.
The table below presents additional information related to our loan servicing activities:
Year Ended December 31,
($ in thousands)20202019$ Change% Change
Servicing income recognized
Home loans(1)
$4,651 $2,648 $2,003 76 %
Student loans(2)
50,491 47,489 3,002 6 %
Personal loans(3)
42,646 34,290 8,356 24 %
Servicing rights fair value change
Home loans(4)
$10,733 $4,558 $6,175 135 %
Student loans(5)
(37,945)16,507 (54,452)(330)%
Personal loans(6)
(24,809)14,849 (39,658)(267)%
(1)The contractual servicing earned on our home loan portfolio was 25 bps during the years ended December 31, 2020 and 2019.
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(2)The weighted average bps earned for student loan servicing during the years ended December 31, 2020 and 2019 was 37 bps and 39 bps, respectively.
(3)The weighted average bps earned for personal loan servicing during the years ended December 31, 2020 and 2019 was 74 bps and 72 bps, respectively.
(4)The impact on the fair value change resulting from changes in valuation inputs and assumptions was $(5.1) million and $1.5 million during the years ended December 31, 2020 and 2019, respectively.
(5)The impact of the fair value change resulting from changes in valuation inputs and assumptions was $(20.2) million and $0.2 million during the years ended December 31, 2020 and 2019, respectively. The amount in 2020 includes the impact of the derecognition of servicing due to loan purchases, which had an effect of $(12.9) million on the total fair value change.
(6)The impact of the fair value change resulting from changes in valuation inputs and assumptions was $7.8 million and $6.8 million during the years ended December 31, 2020 and 2019, respectively.
Technology Platform Fees. Technology platform fees of $90.1 million during 2020 were earned by Galileo, which we acquired on May 14, 2020 and, therefore, had no impact in 2019.
Other. Other income increased by $11.6 million, or 277%, primarily due to increases of $3.4 million in equity method investment income, $3.4 million in brokerage-related fees, $2.9 million in payment network fees and $2.2 million in referral fees. The brokerage fees and payment network fees earned during 2020 were bolstered by our acquisitions of 8 Limited and Galileo. The equity method investment income increase was reflective of an increase in trading volume at Apex. This trend in trading volume also positively impacted our brokerage-related fees. Equity method investment income included a $4.3 million impairment charge recognized during the fourth quarter of 2020, which was incurred because the seller of our Apex interest exercised its call option on our equity investment in January 2021 and we measured the carrying value of our Apex equity method investment as of December 31, 2020 equal to the call payment. Payment network fees (which include interchange fees) were directly correlated with increased spending and card transactions on our platform during 2020 compared to 2019. Lastly, the referral fee increase was primarily attributable to our material affiliate revenue relationships launched during the third quarter of 2019; therefore, 2019 is not fully comparable to 2020.
Noninterest Expense
The following table presents the components of our total noninterest expense for the years indicated:
Year Ended December 31,
($ in thousands)
20202019$ Variance
% Change
Technology and product development$201,199 $147,458 $53,741 36 %
Sales and marketing276,577 266,198 10,379 4 %
Cost of operations178,896 116,327 62,569 54 %
General and administrative237,381 152,275 85,106 56 %
Total noninterest expense
$894,053 $682,258 $211,795 31 %
Total noninterest expense increased by $211.8 million, or 31%, for the year ended December 31, 2020 compared to the year ended December 31, 2019, due to the following:
Technology and Product Development. Technology and product development expenses increased by $53.7 million, or 36%, primarily due to:
•an increase in amortization expense on intangible assets of $24.6 million, of which $19.9 million was associated with intangible assets acquired during 2020, and of which $5.8 million was related to the acceleration of our core banking infrastructure amortization. These increases were offset by lower amortization in 2020 due to certain smaller intangible assets that were fully amortized during 2019;
•an increase in purchased and internally-developed software amortization of $4.2 million, which was reflective of increased investments in technology to support our growth;
•an increase in employee compensation and benefits of $27.1 million, inclusive of an increase in share-based compensation expense of $12.2 million, which was related to a 12% increase in technology and product personnel in support of our growth in addition to an increase in compensation per person in 2020;
•an increase in software licenses and tools and subscriptions spend of $6.9 million related to headcount increases and internal technology initiatives, which was partially offset by $2.1 million of software abandonment in 2019 ; and
•partially offset by a decrease in the utilization of professional services of $2.3 million.
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Sales and Marketing. Sales and marketing expenses increased by $10.4 million, or 4%, primarily due to:
•an increase in amortization expense of $22.1 million associated with the customer-related intangible assets acquired during 2020;
•an increase in employee compensation and benefits of $10.5 million, inclusive of an increase in share-based compensation expense of $3.9 million, which was correlated with a 29% increase in sales and marketing personnel to support our growth. The headcount-related compensation increase was partially offset by higher severance expense of $1.0 million and higher bonus and commission expenses of $0.8 million during 2019;
•an increase in professional services of $3.2 million during 2020;
•SoFi Stadium related marketing expenditures of $11.5 million related to the opening of SoFi Stadium, which is exclusive of depreciation and interest expense on the embedded lease portion of our SoFi Stadium agreement;
•partially offset by a decrease of $4.0 million related to decreased utilization of lead generation channels, which was reflective of an initiative to rely less on this channel for member growth during 2020; and
•further partially offset by a decrease in advertising expenditures of $31.1 million, which was attributable to the impact of the COVID-19 pandemic on our live sports marketing strategy, the aforementioned SoFi Stadium related marketing expenditures in lieu of advertising expenditures, and the expected advertising benefits we expected to derive from the opening of SoFi Stadium.
Cost of Operations. Cost of operations increased by $62.6 million, or 54%, primarily due to:
•an increase in loan origination expenses of $16.2 million, of which $16.6 million was related to home loans, which supported the growth in home loan origination volume year over year;
•an increase in third-party fulfillment expenses of $12.5 million, which was primarily attributable to post-acquisition Galileo operations, and primarily relates to the fees we pay to payment networks to route authorized transactions;
•an increase in employee compensation and benefits of $20.0 million, inclusive of an increase in share-based compensation expense of $4.4 million, which was correlated with a 15% increase in cost of operations personnel in support of our growth in addition to an increase in home loan commissions of $5.8 million related to growth in the home loan product. The headcount-related compensation increase was partially offset by higher severance expense of $0.7 million during 2019;
•an increase in occupancy-related costs of $5.6 million;
•an increase in software licenses and tools and subscriptions of $5.1 million related to headcount increases and internal technology initiatives;
•an increase of $3.3 million associated with SoFi Money account write-offs; and
•an increase in brokerage-related costs of $2.1 million related to the growth of SoFi Invest and our wholly-owned subsidiary, 8 Limited, which we acquired in April 2020;
•partially offset by a decrease in professional services of $5.2 million, primarily due to non-recurring operations costs related to SoFi Money incurred in 2019.
General and Administrative. General and administrative expenses increased by $85.1 million, or 56%, primarily due to:
•an increase in employee compensation and benefits of $37.0 million, inclusive of an increase in share-based compensation expense of $18.5 million, which was related to a 46% increase in general and administrative personnel to support our growing infrastructure and administrative needs in addition to an increase in compensation per person in 2020;
•an increase in bank service charges of $5.8 million, which was primarily related to an increase in unused line fees as a result of increased capacity on our warehouse lines partially offset by a decrease in bank fees year over year;
•an increase in software licenses and tools and subscriptions of $3.6 million;
•transaction-related expenses of $9.2 million during 2020 associated with our acquisitions of 8 Limited and Galileo, which largely consisted of legal, accounting and financial advisory services;
•share-based payments to non-employees of $0.9 million during 2020 for financial advisory services related to our acquisitions;
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•an increase in non-transaction related professional services of $5.7 million, which included accounting and legal services; and
•an increase in the fair value of our warrant liabilities of $23.4 million related to an increase in the fair value of our Series H preferred stock.
Net Loss
We had a net loss of $224.1 million for the year ended December 31, 2020 compared to $239.7 million for the year ended December 31, 2019. The decrease in net loss was due to the factors discussed above, as well as the change in income taxes. The primary driver of the $104.6 million year over year decrease in income taxes was associated with the remeasurement of our valuation allowance during 2020, which was primarily a result of the deferred tax liabilities recognized in connection with our acquisition of Galileo, which decreased the valuation allowance by $99.8 million. The deferred tax liabilities recognized in the acquisition were substantially all related to acquired intangibles, which had a fair value of $388.0 million and a tax basis of zero.
Summary Results by Segment
Lending Segment
In the table below, we present certain metrics related to our Lending segment:
December 31,
2021 vs. 2020 % Change2020 vs. 2019 % Change
Metric
202120202019
Total products (number, as of period end)1,078,952 917,645 798,005 18 %15 %
Origination volume ($ in thousands, during period)
Home loans$2,978,222 $2,183,521 $773,684 36 %182 %
Personal loans5,386,934 2,580,757 3,731,981 109 %(31)%
Student loans4,293,526 4,928,880 6,695,138 (13)%(26)%
Total$12,658,682 $9,693,158 $11,200,803 31 %(13)%
Loans with a balance (number, as of period end)(1)
603,201 598,682 623,511 1 %(4)%
Average loan balance ($, as of period end)(1)
Home loans$286,991 $291,382 $296,812 (2)%(2)%
Personal loans22,820 21,789 24,372 5 %(11)%
Student loans(2)
50,549 54,319 60,127 (7)%(10)%
(1)Loans with a balance and average loan balance include loans on our balance sheet and transferred loans with which we have a continuing involvement through our servicing agreements.
(2)In-school loans, which we launched in the third quarter of 2019 and which have continued to increase in origination volume in each of 2020 and 2021, carry a lower average balance than student loan refinancing products.
The following table presents additional information on our terms for our lending products as of December 31, 2021:
ProductLoan SizeRates(1)
Term
Student Loan Refinancing$5,000+ (2)
Variable rate: 1.74% - 6.59%5 - 20 years
Fixed rate: 2.49% - 6.94%
In-School Loans$5,000+ (2)
Variable rate: 0.95% - 11.29%5 - 15 years
Fixed rate: 2.99% - 10.90%
Personal Loans$5,000 - $100,000 (2)
Fixed rate: 4.74% - 16.44%2 - 7 years
Home Loans$100,000 - $548,250 (3)
Fixed rate: 1.75% - 4.75%10, 15, 20 or 30 years
(Conforming Normal Cost Areas)
OR
$1,050,000 (4)
(Conforming High Cost Areas)
OR
$2,700,000 (4)
(Jumbo Loans)
(1)Loan annual percentage rates presented reflect rates as advertised as of the date indicated, inclusive of an auto-pay discount.
(2)Minimum loan size may be higher within certain states due to legal or licensing requirements.
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(3)Exceptions for loan size less than $100,000 are considered on a case-by-case basis.
(4)Represents the maximum loan size outstanding within the loan category as of the reporting date. "Conforming High Cost Areas" refers to FNMA eligible loans above the normal conforming limit, which is determined by county. "Jumbo Loans" refers to loans in the jumbo loan program. We began funding loans under our relaunched jumbo loan program in the fourth quarter of 2021.
In the table below, we present additional information related to our lending products:
Year Ended December 31,
202120202019
Student Loans
Weighted average origination FICO774 773 774
Weighted average interest rate earned(1)
4.43 %4.97 %5.48 %
Interest income recognized ($ in thousands)(2)
$127,496 $134,917 $157,447
Sales of loans ($ in thousands)(3)
$2,854,778 $4,534,286 $6,051,418
Home Loans
Weighted average origination FICO755 764 761
Weighted average interest rate earned(1)
1.94 %2.19 %3.39 %
Interest income recognized ($ in thousands)(2)
$3,778 $2,731 $2,230
Sales of loans ($ in thousands)$2,935,038 $2,102,101 $726,443
Personal Loans
Weighted average origination FICO754 764 756
Weighted average interest rate earned(1)
10.58 %10.65 %10.92 %
Interest income recognized ($ in thousands)(2)
$202,706 $192,450 $410,789
Sales of loans ($ in thousands)(3)
$4,290,424 $1,531,057 $2,604,263
(1)Weighted average interest rate earned represents annualized interest income recognized divided by the average of the month-end unpaid principal balances of loans outstanding during the period, which are impacted by the timing and extent of loan sales.
(2)See "Results of Operations-Interest Income" for a discussion of interest income recognized during the years indicated.
(3)Excludes the impact of loans transferred into consolidated VIEs.
Total Products
Total products in our Lending segment is a subset of our total products metric that refers to the number of home loans, personal loans and student loans that have been originated through our platform since our inception through the reporting date, whether or not such loans have been paid off. See "Key Business Metrics" for further discussion of this measure as it relates to our Lending segment.
Origination Volume
We refer to the aggregate dollar amount of loans originated through our platform in a given period as origination volume. Origination volume is an indicator of the size and health of our Lending segment and an indicator (together with the relevant loan characteristics, such as interest rate and prepayment and default expectations) of revenues and profitability. Changes in origination volume are driven by the addition of new members and existing members, the latter of which at times will either refinance into a new SoFi loan or secure an additional, concurrent loan, as well as macroeconomic factors impacting consumer spending and borrowing behavior. Since the profitability of the Lending segment is largely correlated with origination volume, management relies on origination volume trends to assess the need for external financing to support the Financial Services segment and the expense budgets for unallocated expenses.
During the year ended December 31, 2021, home loan origination volume increased relative to 2020 due to an increase in our loan application approval rate and operational efficiencies gained through scale of the platform, which were tempered by rising U.S. treasury rates relative to the 2020 levels, which tends to lower demand for home loans overall and shift demand from refinance originations to purchase originations, the latter of which is a more competitive landscape. Home loan origination volume increased significantly during the year ended December 31, 2020 compared to 2019 in part due to a full period of origination activity in 2020 compared to a partial period in 2019, as we relaunched our home loan product in the first quarter of 2019. The increase was also attributable to increased demand for home loan products in 2020 following the Federal Reserve's actions to reduce interest rates to near-zero benchmark levels amid the COVID-19 pandemic.
During the year ended December 31, 2021, personal loan origination volume increased significantly relative to 2020, primarily due to the improved economic outlook and consumer confidence levels throughout 2021 relative to 2020, as there was lower consumer spending behavior during the earlier stages of the COVID-19 pandemic, which we believe decreased the
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overall demand for debt consolidation loans (which is one of the primary stated purposes for our personal loan originations). We also increased our loan application approval rate during the second half of 2021, which was correlated with a reopening of our personal loan credit eligibility. Personal loan origination volume decreased during the year ended December 31, 2020 relative to 2019 primarily due to the combination of our efforts to further tighten our underwriting and credit policies to mitigate our credit risk exposure during the economic downturn and lower consumer spending behavior during the COVID-19 pandemic, which we believe decreased the overall demand for debt consolidation loans, despite us lowering the average coupon rate during 2020.
During the year ended December 31, 2021, student loan origination volume decreased relative to 2020, as demand for student loan refinancing products continued to be unfavorably impacted by the automatic suspension of principal and interest payments on federally-held student loans enacted through the CARES Act in March 2020 that was extended by executive action most recently until May 2022. During the year ended December 31, 2020, demand for our student loan refinancing products decreased relative to 2019, primarily due to the CARES Act suspensions. Although the in-school loan product, which we launched in the third quarter of 2019, had a modest impact on the full year 2019, we increased our origination volume during each of 2020 and 2021.
Loans with a Balance and Average Loan Balance
Loans with a balance refers to the number of loans that have a balance greater than zero dollars as of the reporting date. Loans with a balance allows management to better understand the unit economics of acquiring a loan in relation to the lifetime value of that loan. Average loan balance is defined as the total unpaid principal balance of the loans divided by loans with a balance within the respective loan product category as of the reporting date. Average loan balance tends to fluctuate based on the pace of loan originations relative to loan repayments and the initial loan origination size.
Lending Segment Results of Operations
The following table presents the measure of contribution profit for the Lending segment for the years indicated. The information is derived from our internal financial reporting used for corporate management purposes. Refer to Note 18 to the Notes to Consolidated Financial Statements for more information regarding Lending segment performance.
Year Ended December 31,
2021 vs. 2020
% Change
2020 vs. 2019
% Change
($ in thousands)
202120202019
Net revenue
Net interest income$258,102 $199,345 $325,589 29 %(39)%
Noninterest income480,221 281,521 108,712 71 %159 %
Total net revenue738,323 480,866 434,301 54 %11 %
Servicing rights - change in valuation inputs or assumptions(1)
2,651 17,459 (8,487)(85)%(306)%
Residual interests classified as debt - change in valuation inputs or assumptions(2)
22,802 38,216 17,157 (40)%123 %
Directly attributable expenses(3)
(364,169)(294,812)(350,511)24 %(16)%
Contribution profit$399,607 $241,729 $92,460 65 %161 %
(1)Reflects changes in fair value inputs and assumptions, including market servicing costs, conditional prepayment and default rates and discount rates. This non-cash change, which is recorded within noninterest income in the consolidated statements of operations and comprehensive income (loss) is unrealized during the period and, therefore, has no impact on our cash flows from operations. As such, the changes in fair value attributable to assumption changes are adjusted to provide management and financial users with better visibility into the cash flows available to finance our operations.
(2)Reflects changes in fair value inputs and assumptions, including conditional prepayment and default rates and discount rates. When third parties finance our consolidated VIEs through purchasing residual interests, we receive proceeds at the time of the securitization close and, thereafter, pass along contractual cash flows to the residual interest owner. These obligations are measured at fair value on a recurring basis, with fair value changes recorded within noninterest income in the consolidated statements of operations and comprehensive income (loss). The fair value change attributable to assumption changes has no impact on our initial financing proceeds, our future obligations to the residual interest owner (because future residual interest claims are limited to contractual securitization collateral cash flows), or the general operations of our business. As such, this non-cash change in fair value is adjusted to provide management and financial users with better visibility into the cash flows available to finance our operations.
(3)For a disaggregation of the directly attributable expenses allocated to the Lending segment in each of the years presented, see "Directly Attributable Expenses" below.
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Lending Segment - Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Net interest income
Net interest income in our Lending segment increased by $58.8 million, or 29%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, due to the following:
Loans Interest Income. Loans interest income increased by $3.7 million, or 1%. See "Results of Operations-Interest Income-Loans" within the section "Year Ended December 31, 2021 Compared to Year Ended December 31, 2020" for information on the primary drivers of the variance related to our personal loans, student loans and home loans.
Securitizations Interest Income. Securitizations interest income decreased by $9.9 million, or 41%. See "Results of Operations-Interest Income-Securitizations" within the section "Year Ended December 31, 2021 Compared to Year Ended December 31, 2020" for information on the primary drivers of the variance.
Securitizations and Warehouses Interest Expense. Interest expense related to securitizations and warehouses decreased by $65.0 million, or 42%, due to:
•a decline in securitization debt interest expense (exclusive of debt issuance and discount amortization) of $30.5 million;
•a decline in warehouse debt interest expense (exclusive of debt issuance amortization) of $22.5 million;
•a decline in residual interests classified as debt interest expense of $4.5 million; and
•a decline in debt issuance cost interest expense of $7.5 million.
See "Results of Operations-Interest Expense-Securitizations and Warehouses" within the section "Year Ended December 31, 2021 Compared to Year Ended December 31, 2020" for information on the primary drivers of the variances.
Noninterest income
Noninterest income in our Lending segment increased by $198.7 million, or 71%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, due to the following:
Loan Origination and Sales. Loan origination and sales increased by $126.3 million, or 34%. See "Results of Operations-Noninterest Income and Net Revenue-Loan Origination and Sales" within the section "Year Ended December 31, 2021 Compared to Year Ended December 31, 2020" for information on the primary drivers of the variance.
Securitizations. Securitizations income improved by $55.4 million, or 79%. See "Results of Operations-Noninterest Income and Net Revenue-Securitizations" within the section "Year Ended December 31, 2021 Compared to Year Ended December 31, 2020" for information on the primary drivers of the variance.
Servicing. Servicing income increased by $17.1 million, or 88%. See "Results of Operations-Noninterest Income and Net Revenue-Servicing" within the section "Year Ended December 31, 2021 Compared to Year Ended December 31, 2020" for information on the primary drivers of the variance.
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Directly attributable expenses
The directly attributable expenses allocated to the Lending segment that were used in the determination of the segment's contribution profit were as follows:
Year Ended December 31,
($ in thousands)20212020$ Change% Change
Direct advertising$126,367 $102,562 $23,805 23 %
Compensation and benefits88,137 82,592 5,545 7 %
Loan origination and servicing costs56,242 41,733 14,509 35 %
Lead generation55,170 24,603 30,567 124 %
Unused warehouse line fees12,938 14,113 (1,175)(8)%
Professional services5,663 7,139 (1,476)(21)%
Other(1)
19,652 22,070 (2,418)(11)%
Directly attributable expenses$364,169 $294,812 $69,357 24 %
(1)Other expenses primarily include loan marketing expenses, member promotional expenses, tools and subscriptions and occupancy-related costs.
Lending segment directly attributable expenses for the year ended December 31, 2021 increased by $69.4 million, or 24%, compared to the year ended December 31, 2020, primarily due to:
•an increase of $23.8 million in direct advertising related to an increase in search engine, television, social media and digital advertising expenditures, and offset by a decline in direct mail marketing expenditures;
•an increase of $5.5 million in allocated compensation and related benefits, which correlated with increased overall headcount at the Company during the period and average compensation per employee in 2021, but was partially mitigated by a decline in the percentage of time allocated per employee to the Lending segment during 2021;
•an increase of $14.5 million in loan origination and servicing costs, which supported our growth in origination volume year over year, primarily in home loans;
•an increase of $30.6 million due to increasing utilization of lead generation channels associated with increased personal loan origination volume in 2021, which was partially offset by lower student loan origination volume through lead generation channels;
•a decrease of $1.2 million in unused warehouse line fees due to higher average committed warehouse line usage and lower unused fee rates;
•a decrease of $1.5 million in professional services costs primarily related to a decrease in the use of our third-party consultants for our operations and technology teams, partially offset by an increase in advisory services; and
•a decrease of $2.4 million in other expenses, primarily related to decreases in occupancy-related costs, which was primarily driven by a decrease in the percentage of time allocated to the Lending segment in 2021.
Lending Segment - Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Net interest income
Net interest income in our Lending segment for the year ended December 31, 2020 decreased by $126.2 million, or 39%, compared to the year ended December 31, 2019 due to the following:
Loans Interest Income. Loans interest income decreased by $240.1 million, or 42%. See "Results of Operations-Interest Income-Loans" within the section "Year Ended December 31, 2020 Compared to Year Ended December 31, 2019" for information on the primary drivers of the variance.
Securitizations Interest Income. Securitizations interest income increased by $0.9 million, or 4%. See "Results of Operations-Interest Income-Securitizations" within the section "Year Ended December 31, 2020 Compared to Year Ended December 31, 2019" for information on the primary drivers of the variance.
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Securitizations and Warehouses Interest Expense. Interest expense related to securitizations and warehouses decreased by $112.9 million, or 42%, due to:
•a decline in securitization debt interest expense (exclusive of debt issuance and discount amortization) of $66.7 million;
•a decline in warehouse debt interest expense (exclusive of debt issuance amortization) of $28.9 million;
•a decline in residual interests classified as debt interest expense of $17.9 million; and
•an offsetting increase in debt issuance cost interest expense of $0.6 million.
See "Results of Operations-Interest Expense-Securitizations and Warehouses" within the section "Year Ended December 31, 2020 Compared to Year Ended December 31, 2019" for information on the primary drivers of the variances.
Noninterest income
Noninterest income in our Lending segment for the year ended December 31, 2020 increased by $172.8 million, or 159%, compared to the year ended December 31, 2019 due to the following:
Loan Origination and Sales. Loan origination and sales increased by $72.1 million, or 24%. See "Results of Operations-Noninterest Income and Net Revenue-Loan Origination and Sales" within the section "Year Ended December 31, 2020 Compared to Year Ended December 31, 2019" for information on the primary drivers of the variance.
Securitizations. Securitizations income increased by $128.9 million, or 65%. See "Results of Operations-Noninterest Income and Net Revenue-Securitizations" within the section "Year Ended December 31, 2020 Compared to Year Ended December 31, 2019" for information on the primary drivers of the variance.
Servicing. Servicing income decreased by $27.9 million, or 329%. See "Results of Operations-Noninterest Income and Net Revenue-Servicing" within the section "Year Ended December 31, 2020 Compared to Year Ended December 31, 2019" for information on the primary drivers of the variance.
Directly attributable expenses
The directly attributable expenses allocated to the Lending segment that were used in the determination of the segment's contribution profit were as follows:
Year Ended December 31,
($ in thousands)20202019$ Change% Change
Direct advertising$102,562 $124,479 $(21,917)(18)%
Compensation and benefits82,592 126,710 (44,118)(35)%
Loan origination and servicing costs41,733 25,505 16,228 64 %
Lead generation24,603 30,255 (5,652)(19)%
Unused warehouse line fees14,113 8,073 6,040 75 %
Professional services7,139 8,080 (941)(12)%
Other(1)
22,070 27,409 (5,339)(19)%
Directly attributable expenses$294,812 $350,511 $(55,699)(16)%
(1)Other expenses primarily include recruiting fees, as well as loan marketing expenses, tools and subscriptions and occupancy-related costs.
Lending segment directly attributable expenses for the year ended December 31, 2020 decreased by $55.7 million, or 16%, compared to the year ended December 31, 2019 primarily due to:
•a decrease of $21.9 million in direct advertising related to an intentional reduction in advertising spend during the early stages of the COVID-19 pandemic;
•a decrease of $44.1 million in allocated employee compensation and related benefits primarily driven by less direct time allocated to the Lending segment by the technology and product and operations teams related to an increased emphasis on non-lending initiatives in 2020;
•a decrease of $5.7 million in lead generation costs related to lower origination volume through our lead generation channels;
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•a decrease of $0.9 million in professional services costs;
•a decrease of $5.3 million in other expenses, primarily related to decreases in occupancy-related costs;
•an increase of $16.2 million in loan origination and servicing costs driven primarily by volume increases in our home loan product; and
•an increase of $6.0 million in unused warehouse line fees correlated with an increase in warehouse facility capacity year over year.
Technology Platform Segment
In the table below, we present a metric that is exclusive to Galileo within our Technology Platform segment:
December 31,
2021 vs. 2020% Change2020 vs. 2019% Change
202120202019
Total accounts99,660,657 59,735,210 - 67 %n/m
In our Technology Platform segment, total accounts refers to the number of open accounts at Galileo as of the reporting date. Beginning in the fourth quarter of 2021, we included SoFi accounts on the Galileo platform-as-a-service in our total accounts metric to better align with the Technology Platform segment revenue reported in Note 18 to the Notes to Consolidated Financial Statements. Intercompany revenue is eliminated in consolidation. We recast the total accounts as of December 31, 2020 to conform to the current year presentation. No information is reported prior to our acquisition of Galileo on May 14, 2020. Total accounts is a primary indicator of the amount of accounts that are dependent upon Galileo's technology platform to use virtual card products, virtual wallets, make peer-to-peer and bank-to-bank transfers, receive early paychecks, separate savings from spending balances and rely upon real-time authorizations, all of which result in technology platform fees for the Technology Platform segment.
Technology Platform Segment Results of Operations
The following table presents the measure of contribution profit for the Technology Platform segment for the years indicated. The information is derived from our internal financial reporting used for corporate management purposes. Refer to Note 18 in the Notes to Consolidated Financial Statements for further information regarding Technology Platform segment performance.
Year Ended December 31,
2021 vs. 2020 % Change
($ in thousands)202120202019(1)
Net revenue
Net interest income (loss)$(29)$(107)$- (73)%
Noninterest income194,915 96,423 795 102 %
Total net revenue
194,886 96,316 795 102 %
Directly attributable expenses(2)
(130,439)(42,427)- 207 %
Contribution profit $64,447 $53,889 $795 20 %
(1)A comparison of the year ended December 31, 2020 to the year ended December 31, 2019 for the Technology Platform segment was not meaningful.
(2)For a disaggregation of the directly attributable expenses allocated to the Technology Platform segment in each of the years presented, see "Directly Attributable Expenses" below.
Technology Platform Segment - Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Noninterest income
Noninterest income in our Technology Platform segment increased by $98.5 million, or 102%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, due to the following:
Technology Platform Fees. Technology platform fees increased by $101.7 million, or 113%, excluding an increase in intercompany Technology platform fees of $1.2 million. See "Results of Operations-Noninterest Income and Net Revenue-Technology Platform Fees" under the section "Year Ended December 31, 2021 Compared to Year Ended December 31, 2020" for information on the primary drivers of the variance.
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Other. Other income decreased by $4.4 million, or 79%, which was primarily related to equity method investment income during 2020 that did not recur, as our Apex equity method investment was called in the first quarter of 2021.
Directly attributable expenses
The directly attributable expenses allocated to the Technology Platform segment, which are related to the operations of Galileo, that were used in the determination of the segment's contribution profit were as follows:
Year Ended December 31,
($ in thousands)
20212020$ Change
% Change
Compensation and benefits$68,277 $19,168 $49,109 256 %
Product fulfillment31,492 12,913 18,579 144 %
Professional services6,037 1,694 4,343 256 %
Tools and subscriptions9,544 4,243 5,301 125 %
Other(1)
15,089 4,409 10,680 242 %
Directly attributable expenses$130,439 $42,427 $88,012 207 %
(1)Other expenses are primarily related to marketing, occupancy-related costs, bad debt and data center expenses and other costs associated with the operation of our technology platform-as-a-service.
The increase in Technology Platform directly attributable expenses for the year ended December 31, 2021 compared to the year ended December 31, 2020 in each of the expense categories was partially impacted by the timing of our acquisition of Galileo during the second quarter of 2020 compared to full year results in 2021. The increase was also primarily driven by the following:
•an increase of $49.1 million in compensation and benefits expense, which was correlated with an increase in Galileo and other allocated personnel to support segment growth, as well as an increase in average compensation during 2021;
•an increase of $18.6 million in product fulfillment costs, primarily related to payment processing network association fees associated with increased activity on the platform. These fees grew by 130% during 2021 compared to 2020, which correlated with growth of 113% in technology platform fees;
•an increase of $4.3 million in professional services costs related to third-party technology and product consulting for technology infrastructure support;
•an increase of $5.3 million in tools and subscriptions related to headcount increases and internal technology initiatives to support the growth of the platform; and
•an increase of $10.7 million in other expenses, which was primarily related to (i) data center expenses, which correlated with the growth in accounts on the Galileo platform, (ii) bad debt expense, which correlated with growing contract assets from increasing technology platform revenue, and (iii) occupancy-related costs.
Technology Platform Segment - Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Noninterest income
Total net revenue of $96.3 million during the year ended December 31, 2020 was primarily related to our acquisition of Galileo in May 2020, which earns revenues from contracts with customers in accordance with ASC 606. The Technology Platform total net revenue primarily consisted of technology platform fees at Galileo. During the year ended December 31, 2019, total net revenue was comprised of our investment in Apex, from which we earned income under the equity method of accounting. Total net revenue contributed by Apex equity method income increased by $3.6 million year over year, and represented $4.4 million of the total net revenue balance for 2020. Our Apex equity method income during 2020 included an impairment charge of $4.3 million that resulted from measuring the carrying value of the investment as of December 31, 2020 equal to the payment we received in January 2021 upon the seller of our equity interest exercising its call rights on our investment in Apex.
Directly attributable expenses
For the year ended December 31, 2020, the directly attributable expenses allocated to the Technology Platform segment were related to the operations of Galileo. Refer to the corresponding table above for the partial period expenses during
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- There were no directly attributable expenses allocated to the Technology Platform segment during the year ended December 31, 2019.
Financial Services Segment
In the table below, we present a key metric related to our Financial Services segment:
December 31,
2021 vs. 2020 % Change2020 vs. 2019 % Change
Metric
202120202019
Total products (number, as of period end)4,094,245 1,605,910 387,357 155 %315 %
Total products in our Financial Services segment is a subset of our total products metric that refers to the number of SoFi Money accounts, SoFi Invest accounts, SoFi Credit Card accounts (including accounts with a zero dollar balance at the reporting date), SoFi At Work accounts and SoFi Relay accounts (with either credit score monitoring enabled or external linked accounts) that have been opened through our platform since our inception through the reporting date. See "Key Business Metrics" for further discussion of this measure as it relates to our Financial Services segment.
Financial Services Segment Results of Operations
The following table presents the measure of contribution loss for the Financial Services segment for the years indicated. The information is derived from our internal financial reporting used for corporate management purposes. Refer to Note 18 to the Notes to Consolidated Financial Statements for further information regarding Financial Services segment performance.
Year Ended December 31,
2021 vs. 2020
% Change
2020 vs. 2019
% Change
($ in thousands)
202120202019
Net revenue
Net interest income$3,765 $484 $614 678 %(21)%
Noninterest income54,313 11,386 3,318 377 %243 %
Total net revenue
58,078 11,870 3,932 389 %202 %
Directly attributable expenses(1)
(192,996)(143,966)(122,732)34 %17 %
Contribution loss
$(134,918)$(132,096)$(118,800)2 %11 %
(1)For a disaggregation of the directly attributable expenses allocated to the Financial Services segment in each of the years presented, see "Directly Attributable Expenses" below.
Financial Services Segment - Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Net interest income
Net interest income in our Financial Services segment increased by $3.3 million, or 678%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, which was primarily attributable to net interest income on credit card loans, which launched during the third quarter of 2020.
Noninterest income
Noninterest income in our Financial Services segment increased by $42.9 million, or 377%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to the following:
•increases in brokerage-related fees of $19.3 million, which coincided with increases in digital assets trading volume on our platform during 2021, and payment network fees of $8.2 million, which coincided with increased credit card and debit card transaction volume;
•an increase of $2.7 million in enterprise service fees, which primarily consisted of advisory service fees;
•an increase associated with equity capital markets services of $2.6 million, consisting of underwriting fees and dealer fees, which arrangements commenced in 2021; and
•an increase in referral fees of $9.9 million, which was primarily attributable to growth in our partner relationships and related activity, as we continue to onboard new partners and help drive volume to these partners, as well as an increase associated with a referral fulfillment arrangement we entered in the third quarter of 2021.
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Directly attributable expenses
The directly attributable expenses allocated to the Financial Services segment that were used in the determination of the segment's contribution loss were as follows:
Year Ended December 31,
($ in thousands)20212020$ Change% Change
Compensation and benefits$81,176 $81,354 $(178)- %
Product fulfillment23,638 10,459 13,179 126 %
Member incentives19,544 9,100 10,444 115 %
Direct advertising19,051 8,083 10,968 136 %
Lead generation10,308 2,352 7,956 338 %
Professional services3,832 5,853 (2,021)(35)%
Intercompany technology platform expenses1,863 686 1,177 172 %
Provision for credit losses7,573 - 7,573 n/m
Other(1)
26,011 26,079 (68)- %
Directly attributable expenses$192,996 $143,966 $49,030 34 %
(1)Other expenses primarily include tools and subscriptions, SoFi Money, SoFi Invest and SoFi Credit Card account write-offs and occupancy-related and marketing-related expenses.
Financial Services directly attributable expenses for the year ended December 31, 2021 increased by $49.0 million, or 34%, compared to the year ended December 31, 2020, primarily due to the following:
•an increase of $13.2 million in product fulfillment costs related to SoFi Invest and SoFi Money, which included such activities as operating our cash management sweep program, brokerage expenses and debit card fulfillment services, and is also inclusive of the impact of our 8 Limited acquisition on a full year of operations during 2021. In addition, corresponding with the launch of our credit card product during the third quarter of 2020, we had additional costs related to credit card fulfillment, which had a more significant impact in 2021;
•an increase of $10.4 million primarily related to direct member incentives for our SoFi Money and SoFi Invest products;
•an increase of $11.0 million in direct advertising costs, which was primarily related to increased social media and search engine marketing costs. All marketing initiatives were primarily related to the continued promotion of, and growth in, our Financial Services products;
•an increase of $8.0 million in lead generation costs related to increased activity through this channel, which was predominantly associated with SoFi Invest;
•an increase of $1.2 million in intercompany technology platform expenses related to higher volume of technology platform services provided to SoFi by Galileo;
•an increase of $7.6 million related to our provision for credit losses on our credit card product, which launched during the third quarter of 2020 and, therefore, did not have meaningful activity during 2020; and
•a decrease of $2.0 million in professional services costs, which was primarily related to reduced third-party consulting for SoFi Money.
Financial Services Segment - Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Net interest income
Net interest income in our Financial Services segment for the year ended December 31, 2020 decreased by $0.1 million, or 21%, compared to the year ended December 31, 2019 due to interest rate decreases during 2020, which resulted in lower net interest income earned on our SoFi Money account balances.
Noninterest income
Noninterest income in our Financial Services segment for the year ended December 31, 2020 increased by $8.1 million, or 243%, compared to the year ended December 31, 2019, which was primarily due to a $2.2 million increase in referral fees, a $3.4 million increase in brokerage-related fees, and a $1.8 million increase in payment network fees. The
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brokerage fees and payment network fees earned during 2020 were collectively bolstered by our acquisition of 8 Limited and increased member activity in both the SoFi Invest and SoFi Money products. The referral fee increase was primarily attributable to our material referral-related revenue relationships launched during the third quarter of 2019; therefore, 2019 is not fully comparable to 2020.
Directly attributable expenses
The directly attributable expenses allocated to the Financial Services segment that were used in the determination of the segment's contribution loss were as follows:
Year Ended December 31,
($ in thousands)20202019$ Change% Change
Compensation and benefits$81,354 $52,977 $28,377 54 %
Product fulfillment10,459 11,554 (1,095)(9)%
Member incentives9,100 8,894 206 2 %
Direct advertising8,083 23,038 (14,955)(65)%
Lead generation2,352 743 1,609 217 %
Professional services5,853 10,290 (4,437)(43)%
Intercompany technology platform expenses686 - 686 n/m
Other(1)
26,079 15,236 10,843 71 %
Directly attributable expenses$143,966 $122,732 $21,234 17 %
(1)Other expenses primarily include tools and subscriptions, SoFi Money and SoFi Invest account write-offs and occupancy-related and marketing-related expenses.
Financial Services directly attributable expenses for the year ended December 31, 2020 increased by $21.2 million, or 17%, compared to the year ended December 31, 2019 primarily due to the following:
•an increase in employee compensation and related benefits of $28.4 million, which dovetailed with the continued infrastructure, technology and support investments we made in our SoFi Money and SoFi Invest products during 2020;
•an increase of $0.2 million related to direct member incentives, which was reflective of relatively stable costs relative to our initial year costs for SoFi Money and SoFi Invest;
•an increase of $1.6 million in lead generation costs related to higher origination volume through our lead generation channels;
•an increase of $0.7 million in intercompany technology platform fees, related to technology platform services provided to SoFi by Galileo during our initial year of acquisition, which was 2020;
•an increase of $10.8 million in other expenses primarily related to write offs of SoFi Money accounts and tools and subscription costs;
•a decrease of $1.1 million in product fulfillment costs related to SoFi Invest and SoFi Money, which included such activities as operating our cash management sweep program, brokerage expenses and debit card fulfillment services. The net decrease in 2020 is primarily attributable to nonrecurring expenses incurred in 2019 due to the launch of the SoFi Money product, which was partially offset by increased fulfillment costs in 2020 driven by the growth of the SoFi Money and SoFi Invest products;
•a decrease of $15.0 million in direct advertising costs, such as social media and search engine advertising costs, which was primarily related to a strategic decision to spend less on marketing during the early stages of the COVID-19 pandemic; and
•a decrease of $4.4 million in professional services costs as a result of nonrecurring costs incurred in 2019 to support the launch of the SoFi Money and SoFi Invest products.
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Reconciliation of Directly Attributable Expenses
The following table reconciles directly attributable expenses allocated to our reportable segments to total noninterest expense in the consolidated statements of operations and comprehensive income (loss) for the years indicated:
Year Ended December 31,
202120202019
Reportable segments directly attributable expenses$(687,604)$(481,205)$(473,243)
Intercompany technology platform expenses1,863 686 -
Expenses not allocated to segments:
Share-based expense(1)
(239,011)(99,870)(60,936)
Depreciation and amortization expense(101,568)(69,832)(15,955)
Fair value changes in warrant liabilities(107,328)(20,525)2,834
Employee-related costs(2)
(143,847)(114,599)(53,080)
Special payment(3)
(21,181)- -
Other corporate and unallocated expenses(4)
(167,373)(108,708)(81,878)
Total noninterest expense$(1,466,049)$(894,053)$(682,258)
(1)Includes share-based compensation expense and equity-based payments to non-employees.
(2)Includes compensation, benefits, recruiting, certain occupancy-related costs and various travel costs of executive management, certain technology groups and general and administrative functions that are not directly attributable to the reportable segments.
(3)Represents a special payment to the Series 1 preferred stockholders in connection with the Business Combination. See Note 11 to the Notes to Consolidated Financial Statements for additional information.
(4)Includes corporate overhead costs that are not allocated to reportable segments, such as brand advertising and corporate marketing costs, certain tools and subscription costs, and professional services costs.
Liquidity and Capital Resources
We require substantial liquidity to fund our current operating requirements, which primarily include loan originations and the losses generated by our Financial Services segment. We expect these requirements to increase as we pursue our strategic growth goals. Historically, our Lending cash flow variability has related to loan origination volume, our available funding sources and utilization of our warehouse facilities. Moreover, given our continued growth initiatives, we have seen variability in financing cash flows due to the timing and extent of common stock and redeemable preferred stock raises, redemptions, and additional uses and repayments of debt, and our convertible notes issuance. During February 2021, we paid off the seller note issued in 2020 in connection with our acquisition of Galileo, inclusive of all outstanding interest payable, for a total payment of $269.9 million. Remaining operating cash flow variability is largely related to our investments in our business, such as technology and product investments and sales and marketing initiatives, as well as our operating lease facilities. Our capital expenditures have historically been less significant relative to our operating and financing cash flows, and we expect this trend to continue for the foreseeable future. During the year ended December 31, 2021, we received significant liquidity from the Business Combination and the sale, in connection with the Business Combination, of 122,500,000 shares of SCH common stock at $10.00 per share (which automatically converted into shares of SoFi Technologies common stock) (the "PIPE Investment") during the second quarter, as well as from our issuance of $1.2 billion aggregate principal amount of convertible senior notes in the fourth quarter, as further discussed herein.
To continue to achieve our liquidity objectives, we analyze and monitor liquidity needs and strive to maintain excess liquidity and access to diverse funding sources. We define our liquidity risk as the risk that we will not be able to:
•Originate loans at our current pace, or at all;
•Sell our loans at favorable prices, or at all;
•Meet our minimum capital requirements as a bank holding company and a national banking association;
•Meet our contractual obligations as they become due;
•Increase or extend the maturity of our revolving credit facility capacity;
•Satisfy our obligation to repay the convertible notes if they do not convert into common stock before maturity;
•Meet margin requirements associated with hedging or financing agreements;
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•Fund continued operating losses in our business, especially if such operating losses continue at the current level for an extended period of time; or
•Make future investments in the necessary technological and operating infrastructure to support our business.
During the years ended December 31, 2021, 2020 and 2019, we generated negative cash flows from operations. The primary driver of operating cash flows related to our Lending segment are origination volume, the holding period of our loans, loan sale execution and, to a lesser extent, the timing of loan repayments. We either fund our loan originations entirely using our own capital, through proceeds from securitization transactions, or receive an advance rate from our various warehouse facilities to finance the majority of the loan amount. Our cash flows from operations were also impacted by material net losses in each of the years presented. The net losses were primarily driven by our technology and product investments and sales and marketing initiatives, which benefit each of our reportable segments. Our practice of not charging account or trading fees on the majority of our products within the Financial Services segment could result in sustained negative cash flows generated from the Financial Services segment in the short and long term. If our current net losses continue for the foreseeable future, we may raise additional capital in the form of equity or debt, which may not be at favorable terms when compared to previous financing transactions.
We have also utilized our revolving credit facility capacity to fund current liquidity needs in the normal course of business, such as general corporate activities. Our revolving credit facility had remaining capacity of $74.0 million as of December 31, 2021, of which $6.0 million was not available for general borrowing purposes because it was utilized to secure the uncollateralized portion of certain letters of credit issued to secure certain of our operating lease obligations. As of December 31, 2021, the remaining $3.1 million of the $9.1 million letters of credit outstanding was collateralized by cash deposits with the banking institution, which were presented within restricted cash and restricted cash equivalents in the consolidated balance sheets.
Our warehouse facility and securitization debt is secured by a continuing lien on, and security interest in, the loans financed by the proceeds.
Our operating lease obligations consist of our leases of real property from third parties under non-cancellable operating lease agreements, which primarily include the leases of office space, as well as our rights to certain suites and event space within SoFi Stadium, which commenced in the third quarter of 2020 and the latter of which we apply the short-term lease exemption practical expedient and do not capitalize the lease obligation. Our finance lease obligations consist of our rights to certain physical signage within SoFi Stadium, which commenced in the third quarter of 2020. Additionally, our securitization transactions require us to maintain a continuing financial interest in the form of securitization investments when we deconsolidate the special-purpose entity ("SPE") or in consolidation of the SPE when we have a significant financial interest. In either instance, the continuing financial interest requires us to maintain capital in the SPE that would otherwise be available to us if we had sold loans through a different channel.
We are currently dependent on the success of our Lending segment. Our ability to access whole loan buyers, to sell our loans on favorable terms, to maintain adequate warehouse capacity at favorable terms, and to strategically manage our continuing financial interest in securitization-related transfers is critical to our growth strategy and our ability to have adequate liquidity to fund our balance sheet. There is no guarantee that we will be able to execute on our strategy as it relates to the timing and pricing of securitization-related transfers. Therefore, we may hold securitization interests for longer than planned or be forced to liquidate at suboptimal prices. Securitization transfers are also negatively impacted during recessionary periods, wherein purchasers may be more risk averse.
Further, future uncertainties around the demand for our personal loans and around the student loan refinance market in general should be considered when assessing our future liquidity and solvency prospects. Through the CARES Act that passed during 2020 in response to the COVID-19 pandemic and subsequent extensions, principal and interest payments on federally-held student loans were suspended most recently until May 2022, which in turn lowered the propensity for borrowers to refinance into SoFi student loans relative to pre-COVID levels. To the extent that additional measures, such as student loan forgiveness, are implemented, it may negatively impact our future student loan origination volume. In addition, we have previously altered our credit strategy to defend against adverse credit consequences during recessionary periods, as we did following the outbreak of COVID-19, although those elevated credit eligibility requirements for personal loans were adapted during the first half of 2021 through phases of reopening following our metric-driven, return-to-normalcy action plan. In the future, our loan origination volume and our resulting loan balances, and any positive cash flows thereof, could be lower based on strategic decisions to tighten our credit standards. See "Key Factors Affecting Operating Results-Industry Trends and General Economic Conditions" and "Business Overview-COVID-19 Pandemic" for discussions of the impact of certain measures taken in response to the COVID-19 pandemic on our loan origination volumes and uncertainties that exist with respect to future operations in light of the ongoing pandemic.
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Our material commitments requiring, or potentially requiring, the use of cash in future periods are primarily composed of:
•warehouse facility borrowings, which primarily carry variable interest rates, and have terms expiring through January 2030. See Note 10 to the Notes to Consolidated Financial Statements for additional key terms;
•revolving credit facility borrowings, which includes principal balance and variable interest, assuming (i) such interest remains unchanged, (ii) the borrowings are held to maturity, and (iii) interest is incurred at the rate for standard withdrawals in effect as of December 31, 2021. See Note 10 for additional information;
•convertible senior notes, which do not bear regular interest, and will mature in October 2026 unless earlier repurchased, redeemed or converted. See "Borrowings" below for additional information;
•operating lease obligations, primarily composed of leases of office premises with terms expiring from 2022 through 2031, as well as operating leases associated with SoFi Stadium, which expire in 2040;
•finance lease obligations, composed of our rights to certain physical signage within SoFi Stadium, which expire in 2040;
•the remaining commitment arising out of our agreement (which does not include the foregoing operating lease and finance lease obligations, but includes certain payments for which we are applying the short-term lease exemption) for the naming and sponsorship rights to SoFi Stadium, which pertain primarily to sponsorship and advertising opportunities related to the stadium itself, as well as the surrounding performance venue and planned retail district. See Note 16 to the Notes to Consolidated Financial Statements for additional information on our SoFi Stadium arrangement, including a contingent matter associated with SoFi Stadium payments; and
•the remaining commitment related to a four-year cloud computing services arrangement that we executed in the fourth quarter of 2021. See Note 16 to the Notes to Consolidated Financial Statements for additional information.
As it relates to our securitization debt, the maturity of the notes issued by the various trusts occurs upon either the maturity of the loan collateral or full payment of the loan collateral held in the trusts, the timing of which cannot be reasonably estimated. Our own liquidity resources are not required to make any contractual payments on our securitization borrowings.
We may require liquidity resources associated with our guarantee arrangements. We have a three-year obligation to FNMA on loans that we sell to FNMA, to repurchase any originated loans that do not meet FNMA guidelines, and we are required to pay the full initial purchase price back to FNMA. In addition, we make standard representations and warranties related to other student, personal and non-FNMA home loan transfers, as well as limited credit-related repurchase guarantees on certain such transfers. If realized, any of the repurchases would require the use of cash. See "Off-Balance Sheet Arrangements", as well as Note 1 and Note 16 to the Notes to Consolidated Financial Statements for further information on our guarantee obligations. We believe we have adequate liquidity to meet these expected obligations.
Our long-term liquidity strategy includes maintaining adequate warehouse capacity, corporate debt and other sources of financing, as well as effectively managing the capital raised through debt and equity transactions. Although our goal is to increase our cash flow from operations, there can be no assurance that our future operating plans will lead to improved operating cash flows.
We had unrestricted cash and cash equivalents of $494.7 million and $872.6 million as of December 31, 2021 and 2020, respectively. We believe our existing cash and cash equivalents balance, investments in AFS debt securities, available capacity under our revolving credit facility (and expected extensions or replacements of the facility), together with additional warehouses or other financing we expect to be able to obtain at reasonable terms and cash proceeds received from the Business Combination, will be sufficient to cover net losses, meet our existing working capital and capital expenditure needs, as well as our planned growth for at least the next 12 months. Our non-securitization loans also represent a key source of liquidity for us, and should be considered in assessing our overall liquidity. We have relationships with whole loan buyers who we believe we will be able to continue to rely on to generate near-term liquidity. Securitization markets can also generate additional liquidity, albeit to a lesser extent, as it involves accessing a much less liquid securitization residual investment market, and in certain cases we are required to maintain a minimum investment due to securitization risk retention rules.
We received gross cash consideration from the Business Combination of $764.8 million, from which we made payments totaling $27.0 million during the year ended December 31, 2021 for costs directly attributable to the issuance of common stock in connection with the Business Combination. Additionally, we used a portion of the funds for the repurchase of certain redeemable common stock from a shareholder for $150.0 million and for a special payment to Series 1 preferred stockholders for $21.2 million in accordance with the Agreement. In addition, we received gross cash consideration of $1.225
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billion from the PIPE Investment. The remaining net cash proceeds were utilized by the Company to help fund future strategic and capital needs, including repayment of $1.5 billion of loan warehouse facility debt in June 2021.
In October 2021, we closed on the issuance of $1.2 billion aggregate principal amount of convertible senior notes, from which we received net proceeds of $1.176 billion, after deducting the initial purchasers' discount. See "Borrowings" below for additional information.
In November 2021, we announced that we would redeem all outstanding SoFi Technologies warrants that remained outstanding on December 6, 2021 (the "Redemption Date") for a redemption price of $0.10 per warrant. The Warrants were exercisable by the holders thereof until the Redemption Date to purchase fully paid and non-assessable shares of common stock underlying such warrants. As a result of warrant exercises, we issued 15,193,668 shares of common stock and received cash proceeds of $95.0 million. At the end of the redemption period, we paid an immaterial amount to redeem unexercised SoFi Technologies warrants, which when combined with the warrant exercises, eliminated our SoFi Technologies warrants liability as of December 31, 2021. See Note 9 to the Notes to Consolidated Financial Statements for additional information.
In February 2022, we acquired Golden Pacific, after which we became a bank holding company and Golden Pacific Bank began operating as SoFi Bank. Shortly after the acquisition closed, we allocated $750 million in capital to SoFi Bank to pursue our national digital business plan. Golden Pacific Bank's community bank business will continue to operate as a division of SoFi Bank.
Borrowings
Our borrowings as of December 31, 2021 primarily include our loan and risk retention warehouse facilities, asset-backed securitization debt, revolving credit facility and convertible notes. A detailed description of each of our borrowing arrangements is included in Note 10 to the Notes to Consolidated Financial Statements.
The amount of financing actually advanced on each individual loan under our loan warehouse facilities, as determined by agreed-upon advance rates, may be less than the stated advance rate depending, in part, on changes in underlying loan characteristics of the loans securing the financings. Each of our loan warehouse facilities allows the lender providing the funds to evaluate the market value of the loans that are serving as collateral for the borrowings or advances being made. As it relates to our current risk retention warehouse facilities, if the lender determines that the value of the collateral has decreased, the lender can require us to provide additional collateral or reduce the amount outstanding with respect to those loans (e.g., initiate a margin call). Our inability or unwillingness to satisfy the request could result in the termination of the facilities and possible default under our other loan funding facilities. In addition, a large unanticipated margin call could have a material adverse effect on our liquidity.
The amount owed and outstanding on our loan warehouse facilities fluctuates significantly based on our origination volume, sales volume, the amount of time it takes us to sell our loans, and the amount of loans being self-funded with cash. We may, from time to time, use surplus cash to self-fund a portion of our loan originations and risk retention in the case of securitization transfers.
We have various affirmative and negative financial covenants, as well as non-financial covenants, related to our warehouse debt and revolving credit facility, as well as our Series 1 preferred stock. Additionally, we have compliance requirements associated with our convertible notes, and certain provisions of the arrangement could change in the event of a "Make-Whole Fundamental Change", as defined in the indenture.
The availability of funds under our warehouse facilities and revolving credit facility is subject to, among other conditions, our continued compliance with the covenants. These financial covenants include, but are not limited to, maintaining: (i) a certain minimum tangible net worth, (ii) minimum cash and cash equivalents, and (iii) a maximum leverage ratio of total debt to tangible net worth. A breach of these covenants can result in an event of default under these facilities and allows the lenders to pursue certain remedies. Our subsidiaries are restricted in the amount that can be distributed to SoFi only to the extent that such distributions would cause the financial covenants to not be met.
In addition, pursuant to our amended and restated Series 1 redeemable preferred stock agreement, we are subject to the following financial covenants:
•Tangible net worth to total debt ratio requirement, which excludes our warehouse, risk retention and securitization related debt;
•Tangible net worth to Series 1 redeemable preferred stock ratio requirement; and
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•Minimum excess equity requirements, where the measure of equity includes permanent equity and redeemable preferred stock (exclusive of Series 1 redeemable preferred stock), as applicable.
We were in compliance with all covenants.
In October 2021, we closed on the issuance of $1.2 billion aggregate principal amount of convertible senior notes (the "Convertible Notes"), which do not bear regular interest, will mature in October 2026 (unless earlier repurchased, redeemed or converted) and will be convertible by the noteholders beginning in April 2026 under certain circumstances. We will settle conversions by paying or delivering, at our election, cash, shares of our common stock or a combination of cash and shares of our common stock, based on the applicable conversion rate(s). The Convertible Notes will be redeemable, in whole or in part, at our option at any time, and from time to time, beginning in October 2024 at a cash redemption price equal to the principal amount of the notes to be redeemed, plus accrued interest, if any. The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a "Make-Whole Fundamental Change" (as defined in the indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time. In addition, calling any note for redemption will also constitute a Make-Whole Fundamental Change with respect to that note, in which case the conversion rate applicable to the conversion of that note will be increased in certain circumstances if it is converted after it is called for redemption. Therefore, redemption events and conversion events (to the extent we elect to cash settle) could require a material use of cash at the time of the event.
Additionally, the Convertible Notes may incur special interest in the event of default, or additional interest if the Company has not satisfied certain reporting conditions or the Convertible Notes are not otherwise freely tradable, as such term is defined in the indenture. If special interest or additional interest is incurred on the Convertible Notes, it could require an additional use of cash.
In connection with the pricing of the Convertible Notes and with the exercise by the initial purchasers of their option to purchase additional notes, which option was exercised, we entered into privately negotiated capped call transactions with certain financial institutions (the "Capped Call Transactions"). The Capped Call Transactions are expected to generally reduce the potential dilutive effect on the common stock upon any conversion of the notes and/or offset any cash payments we are required to make in excess of the principal amount of the converted notes, as the case may be.
The net proceeds from the convertible debt issuance were $1.176 billion. We used $113.8 million of the net proceeds to fund the cost of entering into the Capped Call Transactions. We allotted the remainder of the net proceeds (i) to pay related expenses and (ii) for general corporate purposes. See Note 10 to the Notes to Consolidated Financial Statements for additional information.
Cash Requirements from Known Contractual Obligations and Other Commitments
The following table summarizes our cash requirements from known contractual obligations and other commitments as of December 31, 2021:
Payments Due by Period
($ in thousands)TotalLess than 1 Year1 - 3 Years3 - 5 YearsMore than 5 Years
Warehouse debt(1)
$1,641,253 $329,840 $1,205,589 $39,269 $66,555
Revolving credit facility(2)
495,336 5,377 489,959 - -
Convertible Notes(3)
1,200,000 - - 1,200,000 -
Operating lease obligations167,395 22,287 44,286 39,874 60,948
Finance lease obligations19,042 959 1,932 2,098 14,053
LA Stadium Complex naming rights(4)
540,345 22,890 46,073 54,900 416,482
Purchase commitment(5)
76,430 19,938 39,876 16,616 -
Total contractual obligations(6)
$4,139,801 $401,291 $1,827,715 $1,352,757 $558,038
(1)The amounts reported exclude future interest expense, other than interest accrued as of December 31, 2021, as it is difficult to predict the amount of interest we will incur due to the variability of the utilization of our warehouse debt and timing of collateral cash flows. As such, only principal commitments and the aforementioned accrued interest are included herein. See Note 10 to the Notes to Consolidated Financial Statements for additional information on our warehouse debt.
(2)Includes principal balance and variable interest on our revolving credit facility. The estimated interest payments assume that our borrowings under the revolving credit facility (i) remain unchanged, (ii) are held to maturity, and (iii) incur interest at the rate for standard withdrawals in effect as of December 31, 2021 through its maturity. See Note 10 to the Notes to Consolidated Financial Statements for additional information on our revolving credit facility.
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(3)The Convertible Notes will mature on October 15, 2026, unless earlier repurchased, redeemed or converted. See "Borrowings" for additional information on these provisions.
(4)The contractual obligations associated with the operating lease and finance lease components of the Naming and Sponsorship Agreement with the LA Stadium and Entertainment District are reported in the corresponding lines and are, therefore, excluded from amounts reported in this line. As of December 31, 2021, all payments associated with the planned retail district, which is currently expected to commence no earlier than 2022, are attributed to non-lease components. We do not expect the agreement to contain a material lease component, although the evaluation remains ongoing. See Note 16 to the Notes to Consolidated Financial Statements for additional information on our leases and on a contingent matter associated with SoFi Stadium payments.
(5)Relates to a four-year purchase commitment for cloud computing services with a total of $80 million to be incurred through the term, of which $3.6 million was already incurred in 2021. See Note 16 to the Notes to Consolidated Financial Statements for additional information.
(6)Contractual obligations exclude residual interests classified as debt that result from transfers of assets that are accounted for as secured financings. Similarly, contractual obligations exclude securitization debt, as the maturity of the notes issued by the various trusts occurs upon either the maturity of the loan collateral or full payment of the loan collateral held in the trusts, the timing of which cannot be reasonably estimated. Additionally, our own liquidity resources are not required to make any contractual payments on these borrowings, except in limited instances associated with our guarantee arrangements. Our maturity date represents the legal maturity of the last class of maturing notes. See Note 16 to the Notes to Consolidated Financial Statements for further discussion of our guarantees. Finally, contractual obligations exclude the impact of uncertain tax positions, as we are not able to reasonably estimate the timing of such future cash flows. See Note 14 to the Notes to Consolidated Financial Statements for additional information on income taxes and unrecognized tax benefits.
Cash Flow and Liquidity Analysis
The following table provides a summary of cash flow data:
Year Ended December 31,
($ in thousands)202120202019
Net cash used in operating activities$(1,350,217)$(479,336)$(54,733)
Net cash provided by investing activities110,193 258,949 114,868
Net cash provided by financing activities684,987 853,754 93,077
Cash Flows from Operating Activities
For the year ended December 31, 2021, net cash used in operating activities was $1.4 billion, which stemmed from a net loss of $483.9 million that had a positive adjustment for non-cash items of $479.0 million, and an unfavorable change in our operating assets net of operating liabilities of $1.3 billion. The change in operating assets net of operating liabilities was primarily a result of our loan origination and sales activities. We originated loans of $13.0 billion during the year and also purchased loans of $451.0 million, the latter of which were primarily related to securitization clean-up calls (purchases we elect to make when the risk retention period has sunset). These cash uses were offset by principal payments of $2.2 billion and proceeds from loan sales of $10.0 billion.
For the year ended December 31, 2020, net cash used in operating activities was $479.3 million, which stemmed from a net loss of $224.1 million that had a positive adjustment for non-cash items of $142.0 million, and an unfavorable change in our operating assets net of operating liabilities of $397.3 million. The change in operating assets net of operating liabilities was primarily a result of our loan origination and sales activities. We originated loans of $9.7 billion during the year and also purchased loans of $690.2 million, of which $606.3 million related to strategic loan purchases we made during the year, wherein we believed we could earn net interest income prior to selling the loan for a subsequent gain. These cash uses were largely offset by principal payments from members of $1.9 billion and proceeds from loan sales of $8.0 billion.
For the year ended December 31, 2019, net cash used in operating activities was $54.7 million, which stemmed from a net loss of $239.7 million that had a positive adjustment for non-cash items of $114.9 million, and a favorable change in operating assets net of operating liabilities of $70.0 million. The change in operating assets net of operating liabilities was primarily a result of our loan origination and sales activities. We originated loans of $11.2 billion during the period and also purchased certain loans of $47.3 million, the majority of which were related to securitization clean-up calls. Furthermore, we also purchased loans of $331.6 million to provide additional loan collateral for securitizations that we sponsored during 2019. These cash uses were offset by principal payments from members of $2.5 billion and proceeds from loan sales of $9.1 billion.
Cash Flows from Investing Activities
For the year ended December 31, 2021, net cash provided by investing activities was $110.2 million, which was primarily attributable to proceeds of $107.5 million from the call on our Apex equity method investment and $16.7 million from repayment of the outstanding principal balance on its related party notes, as well as proceeds of $247.1 million from our securitization investments. These cash proceeds were partially offset by $246.4 million of investments made in AFS debt securities, reduced by proceeds of $57.5 million from sales and maturities of these investments. Additionally, we made an
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equity method investment of $20.0 million during the third quarter of 2021. Lastly, we used cash of $52.3 million for purchases of property, equipment and software, which primarily included internally-developed software, purchased software, and furniture and fixtures.
For the year ended December 31, 2020, net cash provided by investing activities was $258.9 million, which was primarily attributable to proceeds from our securitization investments of $322.7 million, partially offset by our acquisition activities during the year, which resulted in a net use of cash of $32.4 million. Moreover, we extended additional financing to Apex during the year, which required a use of cash of $7.6 million. Lastly, we used $24.5 million for purchases of property, equipment and software.
For the year ended December 31, 2019, net cash provided by investing activities was $114.9 million, primarily resulting from $165.1 million in proceeds from our securitization investments, partially offset by $37.6 million in purchases of property, equipment and software. In 2019, we made significant leasehold improvement capital expenditures at our corporate headquarters in San Francisco, California. Lastly, we made our first loan to Apex during 2019, which required a use of cash of $9.1 million.
Cash Flows from Financing Activities
For the year ended December 31, 2021, net cash provided by financing activities was $685.0 million. We received proceeds from the Business Combination and PIPE Investment of $2.0 billion, and paid costs directly related to the Business Combination and PIPE Investment of $27.0 million. We received $9.5 billion of proceeds from debt financing activities related to our lending activities and issuance of convertible notes. These debt proceeds were more than offset by $10.4 billion of debt repayments, of which $9.5 billion were related to our warehouse facilities and $250 million were related to repayment of the seller note. We also had capped call purchases of $113.8 million in connection with the issuance of our Convertible Notes. Our payments of debt issuance costs were in the normal course of business and were primarily reflective of our recurring debt warehouse facility activity, which involves securing new warehouse facilities and extending existing warehouse facilities. We also received proceeds from warrant exercises of $95.0 million. We paid taxes related to RSU vesting of $42.6 million, as well as redeemable preferred stock dividends of $40.4 million. We also received $25.2 million of proceeds from common stock option exercises during the period. Finally, we paid $282.9 million to repurchase redeemable common and preferred stock, and $0.5 million to repurchase common stock during the year.
For the year ended December 31, 2020, net cash provided by financing activities was $853.8 million. We received $10.2 billion of proceeds from debt financing activities, which were primarily attributable to our lending activities and included a $325.0 million draw on our revolving credit facility during the year. These debt proceeds were partially offset by $9.7 billion of debt repayments, $8.6 billion of which were related to our warehouse facilities. Our payments of debt issuance costs were in the normal course of business and reflective of our recurring debt warehouse facility activity, which involves securing new warehouse facilities and extending existing warehouse facilities. We also generated cash of $369.8 million from a common stock issuance in the fourth quarter of 2020. We paid Series 1 redeemable preferred stock dividends of $40.5 million and taxes related to RSU vesting of $31.3 million. These uses were offset by principal repayments of $43.5 million related to our stockholder note receivable, which was fully paid off as of December 31, 2020.
For the year ended December 31, 2019, net cash provided by financing activities was $93.1 million. Our financing activities were primarily driven by proceeds from debt issuances of $12.5 billion, more than offset by principal payments on debt of $12.8 billion. In addition, we generated cash from preferred stock issuances of $573.8 million, gross of issuance costs of $2.4 million. The debt issuance and payment activity was related to our revolving credit facility, warehouse financing facilities, residual interests classified as debt and securitization debt. In May 2019, we issued 26,438,798 shares of Series H and 3,234,000 shares of Series 1 redeemable preferred stock for combined net proceeds of $536.6 million. In October 2019, we issued an additional 4,273,651 shares of Series H preferred stock for proceeds of $34.8 million. In 2019, we paid $23.9 million in dividends on the Series 1 redeemable preferred stock. Additionally, we issued a note receivable to a stockholder, which resulted in a net cash outflow of $43.5 million. Finally, we paid taxes in connection with RSU vesting of $21.4 million.
Other Arrangements
We enter into arrangements in which we originate loans, establish an SPE and transfer loans to the SPE, which has historically served as an important source of liquidity. We also retain the servicing rights of the underlying loans and hold additional interests in the SPE. When an SPE is determined not to be a VIE or when an SPE is determined to be a VIE but we are not the primary beneficiary, the SPE is not consolidated. In addition, a significant change to the pertinent rights of other parties or our pertinent rights, or a significant change to the ranges of possible financial performance outcomes used in our assessment of the variability of cash flows due to us, could impact the determination of whether or not a VIE is consolidated.
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VIE consolidation and deconsolidation may lead to increased volatility in our financial results and impact period-over-period comparability. See Note 1 to the Notes to Consolidated Financial Statements for our VIE consolidation policy.
We established personal loan trusts and student loan trusts that were created and designed to transfer credit and interest rate risk associated with the underlying loans through the issuance of collateralized notes and residual certificates. We hold a variable interest in the trusts through our ownership of collateralized notes in the form of asset-backed bonds and residual certificates in the trusts. The residual certificates absorb variability and represent the equity ownership interest in the equity portion of the personal loan trusts and student loan trusts.
We are also the servicer for all trusts in which we hold a financial interest. Although we have the power as servicer to perform the activities that most impact the economic performance of the VIE, we do not hold a significant financial interest in the trusts and, therefore, we are not the primary beneficiary. Further, we do not provide financial support beyond our initial equity investment, and our maximum exposure to loss as a result of our involvement with nonconsolidated VIEs is limited to our investment. For a more detailed discussion of nonconsolidated VIEs, including activity in relation to the establishment of trusts, the aggregate outstanding values of variable interests and the deconsolidation of VIEs, see Note 6 to the Notes to Consolidated Financial Statements.
As a component of our loan sale agreements, we make certain representations to third parties that purchased our previously held loans, which includes FNMA repurchase requirements, general representations and warranties and credit-related repurchase requirements, all of which are standard in nature and, therefore, do not constrain our ability to recognize a sale for accounting purposes. Pursuant to ASC 460, Guarantees, we establish a loan repurchase liability, which is based on historical experience and any current developments which would make it probable that we would buy back loans previously sold to third parties at the historical sales price. Our credit-related repurchase requirements are assessed for loss under ASC 326, Financial Instruments-Credit Losses. During the year ended December 31, 2021, we made repurchases of $8.8 million associated with these arrangements. As of December 31, 2021, we accrued liabilities of $7.4 million related to our estimated repurchase obligation.
Financial Condition Summary
December 31, 2021 compared to December 31, 2020
Changes in the composition and balance of our assets and liabilities as of December 31, 2021 compared to December 31, 2020 were principally attributed to the following:
•a decrease of $555.0 million in cash and cash equivalents and restricted cash and restricted cash equivalents. See "Cash Flow and Liquidity Analysis" for further discussion of our cash flow activity;
•an increase of $194.9 million in investments in AFS debt securities, which we began purchasing during the third quarter of 2021;
•an increase in loans of $1.2 billion, primarily stemming from originations and purchases of $13.5 billion, offset by principal payments and sales of $12.3 billion;
•a decrease in equity method investments of $87.8 million, primarily from Apex calling our investment, which resulted in cash proceeds of $107.5 million, offset by a $20.0 million new equity method investment during the third quarter of 2021;
•a decrease in securitization investments of $122.2 million, primarily from collections outpacing new securitization investments in nonconsolidated personal and student loan VIEs;
•a decrease in intangible assets of $70.5 million, primarily due to the amortization of developed technology and customer-related intangible assets acquired in the second quarter of 2020;
•a decrease in related party notes receivable of $17.9 million, as Apex repaid their outstanding loans;
•a decrease of $1.2 billion in gross warehouse facility debt, which was primarily enabled by proceeds received from the Business Combination and PIPE Investment;
•an increase of $1.2 billion related to our issuance of Convertible Notes in the fourth quarter of 2021;
•a decrease of $250.0 million in liabilities related to the settlement in February 2021 of the Galileo seller note;
•a decrease of $595.5 million in liabilities related to gross securitization debt, which was settled with proceeds from related collateral repayments;
•a decrease in warrant liabilities of $40.0 million related to the reclassification of the Series H warrants to permanent equity classification in conjunction with the Business Combination; and
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•a decrease of $133.4 million in liabilities related to the exercise of our call option rights in December 2020, for which the payable outstanding at December 31, 2020 was paid in January 2021.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. In preparing our consolidated financial statements, we make judgments, estimates and assumptions that affect reported amounts of assets and liabilities, as well as revenues and expenses. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. The results involve judgments about the carrying values of assets and liabilities not readily apparent from other sources. Actual results could differ materially from these estimates under different assumptions or conditions. We regularly evaluate our estimates, assumptions and judgments, particularly those that include the most difficult, subjective or complex judgments and are often about matters that are inherently uncertain. See Note 1 to the Notes to Consolidated Financial Statements for a summary of our significant accounting policies. The most significant judgments, estimates and assumptions relate to the critical accounting policies, which are discussed in detail below. We evaluate our critical accounting policies and estimates on an ongoing basis and update them as necessary based on changes in market conditions or factors specific to us.
Share-Based Compensation
We have offered stock options, RSUs and PSUs to employees and non-employees. We measure and recognize compensation expense for all share-based awards made to employees based on estimated fair values on the date of grant. The compensation expense is recognized on a straight-line basis over the requisite service period for time-based awards with only service conditions. Share-based awards with performance conditions are expensed under the accelerated attribution method based on each vesting tranche. We recognize forfeitures as incurred and, therefore, reverse previously recognized share-based compensation expense at the time of forfeiture. We use the Black-Scholes Option Pricing Model (the "Black-Scholes Model") to estimate the fair value of stock options. RSUs are measured based on the fair values of our underlying common stock on the dates of grant. We estimate the grant-date fair values of PSUs utilizing a Monte Carlo simulation model.
Stock Options
The Black-Scholes Model requires the use of subjective assumptions, including the risk-free interest rate, expected term, expected stock price volatility and dividend yield. The risk-free interest rate assumption was based upon observed interest rates for constant maturity U.S. Treasury securities consistent with the expected term of our stock options. The expected term represents the period of time the stock options are expected to be outstanding and was based on the simplified method. Under the simplified method, the expected term of a stock option is presumed to be the midpoint between the vesting date and the end of the contractual term. Management used the simplified method for stock option grants during the year ended December 31, 2020 due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected term of the stock options. Expected volatility was based on historical volatility for publicly-traded stock of comparable companies over the estimated expected life of the stock options. In identifying comparable companies, we considered factors such as industry, stage of life cycle and size. We assumed no dividend yield because we do not expect to pay dividends in the near future, which is consistent with our history of not paying dividends. Stock option valuations also depend on the valuation of our common stock on the date of grant, as discussed below.
During the year ended December 31, 2020, our Board of Directors granted a total of 217,275 stock options. No stock options were granted during 2021 and 2019; therefore, a stock option valuation was not necessary. The inputs used for estimating the fair value of stock options granted during the year ended December 31, 2020 are disclosed in Note 13 to the Notes to Consolidated Financial Statements.
The following table summarizes the inputs used for estimating the fair value of stock options granted during the year ended December 31, 2020:
InputYear Ended December 31, 2020
Risk-free interest rate0.3% - 1.4%
Expected term (years)5.5 - 6.0
Expected volatility36.5% - 42.5%
Fair value of common stock$6.43 - $6.95
Dividend yield-%
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Restricted Stock Units
During the years ended December 31, 2021, 2020 and 2019, our Board of Directors granted a total of 27,481,638, 35,965,456 and 15,922,648 RSUs, respectively, at weighted average share prices of $16.92, $7.79 and $6.47, respectively. The RSU share prices were based on the prevailing fair value of our common stock at the time of each share-based grant. See below for a discussion of our common stock valuation process during the period wherein we started to pursue a public market transaction.
Common Stock Valuations
Prior to us contemplating a public market transaction, due to the absence of an active market for our common stock, the fair value of our common stock, which was used as an input into the valuation of both our stock options and RSUs granted, was determined by our Board of Directors based on a third-party valuation and input from our management. The valuation of our common stock was performed by independent valuation specialists when the Board of Directors believed an event had occurred that would significantly impact the value of our common stock, which was at least on an annual basis, but had been more frequent during the years ended December 31, 2020 and 2019. The valuation specialists applied valuation techniques and methods that conformed to generally accepted valuation practices and standards established by the American Society of Appraisers in accordance with Uniform Standards of Professional Appraisal Practice. The valuation methodologies and techniques utilized were also consistent with guidance issued by the American Institute of Certified Public Accountants in its Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, 2013. They used a number of objective and subjective factors, including:
•prices at which our common and preferred stock had been bought and sold in third-party, arms-length, non-employee based transactions;
•our capital structure and the prices at which we issued our preferred stock and the relative rights and characteristics of the preferred stock as compared to those of our common stock;
•our results of operations, financial position and our future business plans, which included financial forecasts and budgets;
•capital market data on interest rates, yields and rates of return for various investments;
•the material risks related to our business and the state of the development of our target markets;
•the market performance of publicly-traded companies in comparable market sectors;
•external market conditions affecting comparable market sectors;
•the degree of marketability for our common stock, including contractual restrictions on transfer of the units; and
•the likelihood of achieving a liquidity event for our preferred and common stockholders, given prevailing market conditions.
During the third quarter of 2020, once we made intentional progress toward pursuing a public market transaction, we began applying the probability-weighted expected return method ("PWERM") to determine the fair value of our common stock. The probability weightings assigned to certain potential exit scenarios were based on management's expected near-term and long-term funding requirements and assessment of the most attractive liquidation possibilities at the time of the valuation. During this process, we assigned probability weightings to "go public" event scenarios and a "stay private" scenario, wherein the enterprise valuation was based on either estimated exit valuations determined from conversations held with external parties or was based on public company comparable net book value multiples at the time of our valuation, respectively. In addition, our "stay private" scenario valuation approach continued to rely on a guideline public company multiples analysis with an option pricing model to determine the amount of aggregate equity value allocated to our common stock. The valuations from 2019 through the third quarter of 2020 also applied discounts for lack of marketability ranging from 16% to 25% to reflect the fact that there was no market mechanism to sell our common stock and, as such, the common stock option and RSU holders would need to wait for a liquidity event to facilitate the sale of their equity awards. In addition, there were contractual transfer restrictions placed on common stock in the event that we remained a private company.
During the fourth quarter of 2020, we valued our common stock on a monthly basis. A common stock transaction that closed in December 2020 at a price of $10.57 per common share, which was of substantial size and in close proximity to the Business Combination, served as the key input for the fair value of our common stock for grants made during the fourth quarter of 2020. We decreased the assumed discount for lack of marketability throughout the fourth quarter of 2020, corresponding with our decreased time to liquidity assumption throughout the quarter, as we became more certain about the possibility of entering into the Business Combination over time, and ultimately assumed no discount for lack of marketability for the month of December 2020.
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For the period from January 7, 2021, the date on which we executed the Agreement, through May 28, 2021, the date the Business Combination closed, we determined the fair value of our common stock based on the observable daily closing price of SCH stock (ticker symbol "IPOE") multiplied by the exchange ratio in effect for such transaction date. For periods subsequent to June 1, 2021, we determined the value of our common stock based on the observable daily closing price of SoFi Technologies stock (ticker symbol "SOFI").
Application of these approaches and methodologies involves the use of estimates, judgment and assumptions that are highly complex and subjective, such as those regarding our expected operations, market multiples, the selection of comparable public companies, and the probability of and timing associated with possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of our common stock.
Performance Stock Units
In the second and third quarters of 2021, we granted performance stock units ("PSUs"), which are restricted common stock awards that vest upon the satisfaction of both service-based and performance-based conditions. The service-based condition for the PSUs generally is satisfied contemporaneously with the performance-based conditions. The performance-based conditions generally are satisfied upon achieving specified performance goals, such as the volume-weighted average closing price of our stock over a 90-trading day period ("Target Hurdles") and maintaining certain minimum standards applicable to bank holding companies. We record share-based compensation expense for PSUs using the accelerated attribution method for each vesting tranche over the respective derived service period, and only if performance-based conditions are considered probable to be satisfied. We determine the grant-date fair value of PSUs utilizing a Monte Carlo simulation model, which relies on certain key assumptions, including expected stock price volatility, risk-free rate, dividend yield and the closing stock price at grant date. We estimated the volatility of common stock on the date of grant based on the historical volatility of comparable publicly-traded companies. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant. Finally, we assumed no dividend yield, as we have not historically paid, nor do we anticipate paying in the near future, dividends on our common stock.
During the year ended December 31, 2021, our Board of Directors granted a total of 23,141,462 PSUs, which had a weighted average grant date fair value of $9.50.
See Note 13 to the Notes to Consolidated Financial Statements for information about share-based compensation expense related to stock options, RSUs and PSUs reflected in our consolidated statements of operations and comprehensive income (loss).
Consolidation of Variable Interest Entities
We enter into arrangements in which we originate loans, establish a special purpose entity ("SPE"), and transfer the loans to the SPE. We retain the servicing rights of those loans and hold additional interests in the SPE. We evaluate each such arrangement to determine whether we have a variable interest. If we determine that we have a variable interest in an SPE, we then determine whether the SPE is a VIE. If the SPE is a VIE, we assess whether we are the primary beneficiary of the VIE. To determine if we are the primary beneficiary, we identify the most significant activities and determine who has the power over those activities, and who absorbs the variability in the economics of the VIE.
We periodically reassess our involvement with each VIE in which we have a variable interest. We monitor matters related to our ability to control economic performance, such as management of the SPE and its underlying loans, contractual changes in the services provided, the extent of our ownership, and the rights of third parties to terminate us as the VIE servicer. In addition, we monitor the financial performance of each VIE for indications that we may or may not have the right to absorb benefits or the obligation to absorb losses associated with variability in the financial performance of the VIE that could potentially be significant to that VIE, which we define as a variable interest of greater than 10%.
A significant change to our or other parties' pertinent rights, or a significant change to the ranges of possible financial performance outcomes used in our assessment of the variability of cash flows due to us, could impact the determination of whether or not a VIE should be consolidated in future periods. VIE consolidation and deconsolidation may lead to increased volatility in our financial results and impact period-over-period comparability. Our maximum exposure to loss as a result of our involvement with consolidated VIEs is limited to our investment, which is eliminated in consolidation. There are no liquidity arrangements, guarantees or other commitments by third parties that may affect the fair value or risk of our variable interests in consolidated VIEs.
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Fair Value
Our involvement with VIEs and origination of student loans, personal loans and home loans, which we measure at fair value on a recurring basis, results in Level 2 and Level 3 assumptions having a material impact on our consolidated financial statements.
Loans do not trade in an active market with readily observable prices. We determine the fair value of our loans using a discounted cash flow methodology, while also considering market data as it becomes available. We classify loans as Level 3 because the valuations utilize significant unobservable inputs.
When we consolidate VIEs, the loans remain on our consolidated balance sheet and are measured at fair value using Level 3 inputs. Moreover, third-party residual claims on these loans are measured at fair value on a recurring basis and are presented as residual interests classified as debt in our consolidated balance sheet. We record subsequent fair value measurement changes in the period in which the change occurs within noninterest income-securitizations in our consolidated statements of operations and comprehensive income (loss). We determine the fair value of our residual interests classified as debt using a discounted cash flow methodology, while also considering market data as it becomes available.
Consistent with ASC 325-40, Investments - Other - Beneficial Interests in Securitized Financial Assets, we recognize interest expense related to the residual interests classified as debt over the expected life using the effective yield method, which is effectively a reclassification between noninterest income and interest income for the portion of the overall fair value change attributable to interest expense. 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. We classify the residual interests classified as debt as Level 3 due to the reliance on significant unobservable valuation inputs.
When we do not consolidate VIEs, we generally hold risk retention interests, which we refer to as securitization investments. In Company-sponsored securitization transactions that meet the applicable criteria to be accounted for as a sale, we retain certain asset-backed bonds, which are measured at fair value on a recurring basis using Level 2 inputs, and residual investments, which are measured at fair value on a recurring basis using Level 3 inputs. Gains and losses related to our securitization investments are reported within noninterest income-securitizations in our consolidated statements of operations and comprehensive income (loss). We determine the fair value of our securitization investments using a discounted cash flow methodology, while also considering market data as it becomes available.
For our loans, residual interests classified as debt and securitization investments, the fair value estimates are impacted by assumptions regarding credit performance, prepayments and discount rates. See "Quantitative and Qualitative Disclosures about Market Risk" for discussion of the sensitivity of our financial instruments measured at fair value to changes in various market risks.
Business Combinations
We account for acquisitions of entities or asset groups that qualify as businesses using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Purchase consideration is allocated to the tangible and intangible assets acquired and liabilities assumed based on the estimated fair values as of the acquisition date, which are measured in accordance with the principles outlined in ASC 820, Fair Value Measurement, and which are typically determined in consultation with an independent appraiser.
The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature. The judgments made in the determination of the estimated fair value assigned to the assets acquired and liabilities assumed, as well as the estimated useful life of each asset and the duration of each liability, could significantly impact the consolidated financial statements in periods after the acquisition, such as through depreciation and amortization expense. Assumptions for the developed technology generally include expected earnings attributable to the asset (including an assumed technology migration curve and contributory asset charges) and an assumed discount rate. Assumptions for the customer-related intangibles generally include estimated annual revenues and net cash flows (including revenue ramp-up periods and customer attrition rates) and an assumed discount rate. Assumptions for the trade names, trademark and domain names generally include expected earnings attributable to the asset, the probability of use of the asset, the royalty rate and an assumed discount rate.
The excess of the total purchase consideration over the fair value of the identified net assets acquired is recognized as goodwill. Acquisition-related costs are expensed as incurred. The results of operations for each acquisition are included in the Company's consolidated financial results beginning on the respective acquisition date.
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During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the allocation of purchase consideration and to the fair values of assets acquired and liabilities assumed to the extent that additional information becomes available. After this period, any subsequent adjustments are recorded in the consolidated statements of operations and comprehensive income (loss).
Recent Accounting Standards Issued, But Not Yet Adopted
See Note 1 to the Notes to Consolidated Financial Statements.