SoFi Technologies, Inc.
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 the 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.
Business Overview
We are a member-centric, one-stop shop for financial services that allows members to borrow, save, spend, invest and protect their money. We refer to our customers as "members", as defined under "Key Business Metrics". Our mission is to help our members achieve financial independence in order to realize their ambitions. We were founded in 2011 and have developed a suite of financial products that offers the speed, selection, content and convenience that only an integrated digital platform can provide. Everything we do today is geared toward helping our members "Get Your Money Right" and we strive to innovate and build ways for our members to achieve this goal.
In order to help achieve our mission, we offer personal loans, student loans and home loans and related servicing. We also offer a variety of financial services products, such as SoFi Checking and Savings, SoFi Credit Card, SoFi Invest and SoFi Relay, that provide more daily interactions with our members, and we offer products and capabilities, such as SoFi At Work, that are designed to appeal to enterprises. We continued to expand our platform capabilities for enterprises through: (i) our acquisition of Galileo in 2020, which provides technology platform services to financial and non-financial institutions and which has allowed us to vertically integrate across more of our financial services, and (ii) the Technisys Merger in the first quarter of 2022, through which we expanded our technology platform services to include a cloud-native, customizable, extensible core technology as well as access to a broader international market. We believe that these expansions will deepen our participation in the entire technology ecosystem powering digital financial services.
See Item 1. "Business-Our Reportable Segments" for a discussion of our segments and their corresponding products. The discussion below focuses on the ways in which our key products and services within each reportable segment generate revenues and/or incur expenses for the Company.
Business Highlights
We achieved record results for our company for the year ended December 31, 2022, including record total net revenue of $1.6 billion, representing an increase of 60% over total net revenue in 2021. We realized strong momentum in member and product growth and cross-buy adds, reflecting the benefits of our broad product suite and Financial Services Productivity Loop strategy. We added approximately 1.8 million new members during 2022, with over 5.2 million total members as of December 31, 2022, a 51% year-over-year increase. We also added approximately 2.7 million new products, with nearly 7.9 million total products as of December 31, 2022, a 53% year-over-year increase.
Lending segment contribution profit of $664.0 million for the year ended December 31, 2022, at a margin of 58%, increased 66% over 2021, which had a contribution margin of 54%. Additionally, average net interest margin of 5.40% in 2022 was higher compared to 3.95% in 2021. Growth in net interest income was driven by an increase in both average interest-earning assets and average yields, slightly offset by an increase in the cost of interest-bearing liabilities. Origination volume increased 3% year over year, primarily driven by demand for personal loans and despite continued headwinds in the student and home loan businesses.
Technology Platform segment contribution profit of $76.5 million for the year ended December 31, 2022 increased 19% over 2021, primarily driven by a 31% increase in total accounts at Galileo as well as contribution from the addition of Technisys, as discussed below.
Within Financial Services, larger contribution loss of $(199.4) million in 2022 compared to $(134.9) million in 2021 was primarily driven by continued growth in credit loss reserves related to SoFi Credit Card. Financial Services segment total net revenue of $167.7 million for the year ended December 31, 2022 increased 189% over 2021, primarily driven by 60% year-
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TABLE OF CONTENTS
over-year product growth. We achieved strong growth in deposits, ending the year with $7.3 billion of deposits, allowing us to further diversify our sources of funding.
We closed our acquisitions of Golden Pacific (through which we obtained a national bank charter) and Technisys during 2022. Our bank charter is enabling new flexibility that we expect to be even more valuable in light of the ongoing challenging macroeconomic environment. Deposits had strong contribution from direct deposit members and a high quality median FICO score. Our deposit funding also increases our flexibility to capture additional net interest margin and optimize returns. Our Tier 1 capital ratio, as calculated under the Basel III Standardized Approach, was 20.3% as of December 31, 2022. See Note 21 to the Notes to Consolidated Financial Statements for additional information. Our acquisition of Technisys allows us to vertically integrate with Galileo and to expand our technology platform services to a broader international market.
Lending Segment
Net interest income, which we define as the difference between the earned interest income and interest expense to finance loans, is a key component of the profitability of our Lending segment. In the first quarter of 2022, we implemented a funds transfer pricing ("FTP") framework to attribute net interest income to our business segments based on their usage and/or provision of funding, under which Lending segment net interest income represents the difference between interest income earned on our loans and an FTP charge for the segment's use of funds to originate loans, which can fluctuate based on changes in interest rates, funding curves, the composition of our balance sheet and the availability of capital. See Note 20 to the Notes to Consolidated Financial Statements for additional information on the FTP framework.
Technology Platform Segment
We earn technology products and solutions fees for providing an integrated platform as a service for financial and non-financial institutions. Many of our Technology Platform segment contracts are multi-year contracts. In certain of our contracts, we provide for a variety of integrated platform services, which vary by client and are either non-cancellable or cancellable with a substantive payment. Pricing structures under these contracts are typically volume-based, or a combination of activity and volume-based, and payment terms are predominantly monthly in arrears. Some of these contracts contain minimum monthly payments with agreed upon monthly service levels and may contain penalties if service levels are not met. We also earn subscription and service fees for providing software licenses and associated services, including implementation and maintenance. We charge a recurring subscription fee for the software license and related maintenance services. Other software-related services are billed on a periodic basis as the services are provided. Certain arrangements for software and related services contain a provision for a fixed upfront payment.
Financial Services Segment
We earn revenues in connection with our Financial Services segment primarily in the following ways:
•Net interest income: Net interest income is a key component of the profitability of our Financial Services segment as it relates to our SoFi Checking and Savings and SoFi Credit Card products. Net interest income on SoFi Checking and Savings is based on interest income determined using our FTP framework, which was implemented in the first quarter of 2022, net of interest expense based on the interest rate offered to our members on their deposits. Net interest income on SoFi Credit Card is based on the contractual interest included in credit card agreements, net of interest expense as determined using the FTP framework. See Note 20 to the Notes to Consolidated Financial Statements for additional information on the FTP framework.
•Referral fees: Through strategic partnerships, we earn a specified referral fee in connection with referral activity we facilitate through our platform. Referral fees are paid to us by third-party partners that offer services to end users who do not use one of our product offerings, but who were referred to the partners through our platform. Beginning in the third quarter of 2021, we entered into a referral arrangement whereby we earn referral fulfillment fees for providing pre-qualified borrower referrals to a third-party partner who separately contracts with a loan originator. Our referral fee is calculated as either a fixed price per successful referral or a percentage of the transaction volume between the enterprise partners and referred consumers.
•Brokerage fees: We earn brokerage fees primarily from our share lending and payment for order flow arrangements related to our SoFi Invest product, and digital assets activity. In our share lending arrangements and payment for order flow arrangements, we benefit through a negotiated multi-year revenue sharing arrangement, since our members' brokerage activity drives the share lending and payment for order flow volume. In our digital assets arrangements, our fee is calculated as a negotiated percentage of the transaction volume.
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•Interchange fees: We earn interchange fees from our SoFi-branded debit cards and our SoFi Credit Card product, which are reduced by fees payable to card associations and our fulfillment partners. These fees are remitted by merchants and represent a percentage of the underlying transaction value processed through a payment network. We arrange for performance by a card association and the bank issuer to enable certain aspects of the SoFi-branded transaction card process. We enter into contracts with both parties that establish the shared economics of SoFi-branded transaction cards. As we continue to transition our cash management accounts to SoFi Checking and Savings accounts held at SoFi Bank, we expect to decrease certain fees payable to third parties over time.
Non-GAAP Financial Measures
Our management and Board of Directors use adjusted net revenue and adjusted EBITDA, which are non-GAAP financial measures, to evaluate our operating performance, formulate business plans, help better assess our overall liquidity position and make strategic decisions, including those relating to operating expenses and the allocation of internal resources. Accordingly, we believe that adjusted net revenue and adjusted EBITDA provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors.
Adjusted Net Revenue
Adjusted net revenue is defined as total net revenue, adjusted to exclude the fair value changes in servicing rights and residual interests classified as debt due to valuation inputs and assumptions changes, which relate only to our Lending segment. We adjust total net revenue to exclude these items, as they are non-cash charges that are not realized during the period, and therefore positive or negative changes do not impact the cash available to fund our operations. This measure helps provide our management with an understanding of the net revenue available to finance our operations and helps management better decide on the proper expenses to authorize for each of our operating segments, to ultimately help achieve target contribution profit margins. Therefore, the measure of adjusted net revenue serves as both the starting point for how we think about the liquidity generated from our operations and also the starting point for our annual financial planning, the latter of which focuses on the cash we expect to generate from our operating segments to help fund the current year's strategic objectives. Adjusted net revenue has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for, the analysis of other GAAP financial measures, such as total net revenue. The primary limitation of adjusted net revenue is its lack of comparability to other companies that do not utilize this measure or that use a similar measure that is defined in a different manner.
Total Net Revenue and Adjusted Net Revenue
In Thousands
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We reconcile adjusted net revenue to total net revenue, the most directly comparable GAAP measure, for the annual periods presented below:
Year Ended December 31,
($ in thousands)202220212020
Total net revenue$1,573,535 $984,872 $565,532
Servicing rights - change in valuation inputs or assumptions(1)
(39,651)2,651 17,459
Residual interests classified as debt - change in valuation inputs or assumptions(2)
6,608 22,802 38,216
Adjusted net revenue $1,540,492 $1,010,325 $621,207
(1)Reflects changes in fair value inputs and assumptions on servicing rights, including conditional prepayment, default rates and discount rates. These assumptions are highly sensitive to market interest rate changes and are not indicative of our performance or results of operations. Moreover, these non-cash charges are unrealized during the period and, therefore, have no impact on our cash flows from operations. As such, these positive and negative changes are adjusted out of total net revenue to provide management and financial users with better visibility into the net revenue available to finance our operations and our overall performance.
(2)Reflects changes in fair value inputs and assumptions on residual interests classified as debt, including conditional prepayment, default rates and discount rates. When third parties finance our consolidated securitization variable interest entities ("VIEs") by purchasing residual interests, we receive proceeds at the time of the closing of the securitization and, thereafter, pass along contractual cash flows to the residual interest owner. These residual debt obligations are measured at fair value on a recurring basis, but they have no impact on our initial financing proceeds, our future obligations to the residual interest owner (because future residual interest claims are limited to contractual securitization collateral cash flows), or the general operations of our business. As such, these positive and negative non-cash changes in fair value attributable to assumption changes are adjusted out of total net revenue to provide management and financial users with better visibility into the net revenue available to finance our operations.
We reconcile adjusted net revenue to total net revenue, the most directly comparable GAAP measure, for the quarterly periods presented below:
Quarter Ended
($ in thousands)December 31, 2022September 30, 2022June 30, 2022March 31, 2022December 31,2021September 30,2021June 30,2021March 31,2021
Total net revenue$456,679 $423,985 $362,527 $330,344 $285,608 $272,006 $231,274 $195,984
Servicing rights - change in valuation inputs or assumptions(1)
(12,791)(6,182)(9,098)(11,580)(9,273)(409)224 12,109
Residual interests classified as debt - change in valuation inputs or assumptions(2)
(470)1,453 2,662 2,963 3,541 5,593 5,717 7,951
Adjusted net revenue
$443,418 $419,256 $356,091 $321,727 $279,876 $277,190 $237,215 $216,044
(1)See footnote (1) to the table above.
(2)See footnote (2) to the table above.
The reconciling items to determine our non-GAAP measure of adjusted net revenue are applicable only to the Lending segment. The table below presents adjusted net revenue for the Lending segment:
Year Ended December 31,
($ in thousands)202220212020
Total net revenue - Lending
$1,139,991 $738,323 $480,866
Servicing rights - change in valuation inputs or assumptions(1)
(39,651)2,651 17,459
Residual interests classified as debt - change in valuation inputs or assumptions(2)
6,608 22,802 38,216
Adjusted net revenue - Lending
$1,106,948 $763,776 $536,541
(1)See footnote (1) to the table above.
(2)See footnote (2) to the table above.
Adjusted EBITDA
Adjusted EBITDA is defined as net income (loss), adjusted to exclude, as applicable: (i) corporate borrowing-based interest expense (our adjusted EBITDA measure is not adjusted for warehouse or securitization-based interest expense, nor deposit interest expense and finance lease liability interest expense, as these are not direct operating expenses), (ii) income tax expense (benefit), (iii) depreciation and amortization, (iv) share-based expense (inclusive of equity-based payments to non-employees), (v) impairment expense (inclusive of goodwill impairment and property, equipment and software abandonments),
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(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 effects 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.
Net Loss and Adjusted EBITDA
In Thousands
We reconcile adjusted EBITDA to net loss, the most directly comparable GAAP measure, for the annual periods presented below:
Year Ended December 31,
($ in thousands)202220212020
Net loss $(320,407)$(483,937)$(224,053)
Non-GAAP adjustments:
Interest expense - corporate borrowings(1)
18,438 10,345 27,974
Income tax expense (benefit)(2)
1,686 2,760 (104,468)
Depreciation and amortization(3)
151,360 101,568 69,832
Share-based expense305,994 239,371 100,778
Transaction-related expense(4)
19,318 27,333 9,161
Fair value changes in warrant liabilities(5)
Servicing rights - change in valuation inputs or assumptions(6)
(39,651)2,651 17,459
Residual interests classified as debt - change in valuation inputs or assumptions(7)
6,608 22,802 38,216
Total adjustments463,753 514,158 179,477
Adjusted EBITDA
$143,346 $30,221 $(44,576)
(1)Our adjusted EBITDA measure adjusts for corporate borrowing-based interest expense, as these expenses are a function of our capital structure. Corporate borrowing-based interest expense primarily included: (i) interest on our revolving credit facility, (ii) for 2022 and 2021, the amortization of debt discount and debt issuance costs on our convertible notes, and (iii) for 2021 and 2020, interest on the seller note issued in connection with our acquisition of Galileo. Revolving credit facility interest expense in 2022 increased due to higher interest rates relative to the prior years on identical outstanding debt.
(2)Our income tax expense position in 2022 was primarily attributable to tax expense at SoFi Lending Corp and SoFi Bank due to profitability in state jurisdictions where separate filings are required and recognition of expense from Technisys in certain Latin American countries where separate returns are filed. The expense was partially offset by deferred tax benefits from the amortization of intangible assets acquired in the Technisys Merger. Our income tax expense position in 2021 was primarily attributable to 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
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liabilities resulting from intangible assets acquired from Galileo in May 2020. See Note 17 to the Notes to Consolidated Financial Statements for additional information.
(3)Depreciation and amortization expense in 2022 increased compared to 2021 primarily in connection with our recent acquisitions and growth in our software balance, partially offset by the acceleration of core banking infrastructure amortization during the 2021 period. The increase in 2021 compared to 2020 was primarily in connection with our 2020 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.
(4)Transaction-related expenses in 2022 primarily included financial advisory and professional services costs associated with our acquisition of Technisys and an exploratory process. Transaction-related expenses in 2021 included the special payment to the holders of Series 1 Redeemable Preferred Stock in conjunction with the Business Combination and financial advisory and professional costs associated with our then-pending acquisitions of Golden Pacific and Technisys. During 2020, transaction-related expenses included financial advisory and professional services costs associated with our acquisitions of Galileo and 8 Limited.
(5)Our adjusted EBITDA measure excludes the non-cash fair value changes in warrants accounted for as liabilities, which were measured at fair value through earnings. The amount in 2020, as well as a portion of 2021, related to changes in the fair value of Series H warrants issued by Social Finance 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 outstanding SoFi Technologies warrants were either exercised during the fourth quarter of 2021 or redeemed on December 6, 2021.
(6)Reflects changes in fair value inputs and assumptions, including market servicing costs, conditional prepayment, default rates and discount rates. This non-cash change is unrealized during the period and, therefore, has no impact on our cash flows from operations. As such, these positive and negative changes in fair value attributable to assumption changes are adjusted out of net loss to provide management and financial users with better visibility into the earnings available to finance our operations.
(7)Reflects changes in fair value inputs and assumptions, including conditional prepayment, default rates and discount rates. When third parties finance our consolidated VIEs through purchasing residual interests, we receive proceeds at the time of the securitization close and, thereafter, pass along contractual cash flows to the residual interest owner. These obligations are measured at fair value on a recurring basis, which has no impact on our initial financing proceeds, our future obligations to the residual interest owner (because future residual interest claims are limited to contractual securitization collateral cash flows), or the general operations of our business. As such, these positive and negative non-cash changes in fair value attributable to assumption changes are adjusted out of net loss to provide management and financial users with better visibility into the earnings available to finance our operations.
We reconcile adjusted EBITDA to net loss, the most directly comparable GAAP measure, for the quarterly periods presented below:
Quarter Ended
($ in thousands)December 31, 2022September 30, 2022June 30, 2022March 31, 2022December 31, 2021September 30, 2021June 30, 2021March 31, 2021
Net loss $(40,006)$(74,209)$(95,835)$(110,357)$(111,012)$(30,047)$(165,314)$(177,564)
Non-GAAP adjustments:
Interest expense - corporate borrowings7,069 5,270 3,450 2,649 2,593 1,366 1,378 5,008
Income tax expense (benefit)1,057 (242)119 752 1,558 181 (78)1,099
Depreciation and amortization42,353 40,253 38,056 30,698 26,527 24,075 24,989 25,977
Share-based expense70,976 77,855 80,142 77,021 77,082 72,681 52,154 37,454
Transaction-related expense1,872 100 808 16,538 2,753 1,221 21,181 2,178
Fair value changes in warrant liabilities- - - - 10,824 (64,405)70,989 89,920
Servicing rights - change in valuation inputs or assumptions(12,791)(6,182)(9,098)(11,580)(9,273)(409)224 12,109
Residual interests classified as debt - change in valuation inputs or assumptions(470)1,453 2,662 2,963 3,541 5,593 5,717 7,951
Total adjustments110,066 118,507 116,139 119,041 115,605 40,303 176,554 181,696
Adjusted EBITDA $70,060 $44,298 $20,304 $8,684 $4,593 $10,256 $11,240 $4,132
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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 31,2022 vs. 20212021 vs. 2020
202220212020# Change% Change# Change% Change
Members5,222,533 3,460,298 1,850,871 1,762,235 51 %1,609,427 87 %
Total Products7,894,636 5,173,197 2,523,555 2,721,439 53 %2,649,642 105 %
Total Products - Lending segment1,340,597 1,078,952 917,645 261,645 24 %161,307 18 %
Total Products - Financial Services segment6,554,039 4,094,245 1,605,910 2,459,794 60 %2,488,335 155 %
Total Accounts - Technology Platform segment130,704,351 99,660,657 59,735,210 31,043,694 31 %39,925,447 67 %
See "Summary Results by Segment" for additional metrics we review at the segment level.
Members
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. Our members have continuous access to our certified financial planners ("CFPs"), our career advice services, our member events, our content, educational material, news, and our tools and calculators, which are provided at no cost to the member. Additionally, our mobile app and website have a member home feed that is personalized and delivers content to a member about what they must do that day in their financial life, what they should consider doing that day in their financial life, and what they can do that day in their financial life.
Once someone becomes a member, they are always considered a member unless they violate our terms of service. We adjust our total number of members in the event a member is removed in accordance with our terms of service. This could occur for a variety of reasons-including fraud or pursuant to certain legal processes-and, as our terms of service evolve together with our business practices, product offerings and applicable regulations, our grounds for removing members from our total member count could change. The determination that a member should be removed in accordance with our terms of service is subject to an evaluation process, following the completion, and based on the results, of which, relevant members and their associated products are removed from our total member count in the period in which such evaluation process concludes. However, depending on the length of the evaluation process, that removal may not take place in the same period in which the member was added to our member count or the same period in which the circumstances leading to their removal occurred. For this reason, our total member count may not yet reflect adjustments that may be made once ongoing evaluation processes, if any, conclude.
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.
Since our inception through December 31, 2022, we have served approximately 5.2 million members who have used approximately 7.9 million products on the SoFi platform.
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Members
In Thousands
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. 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.
In our Lending segment, total products refers to the number of personal loans, student loans and home 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 (presented inclusive of cash management accounts and SoFi Checking and Savings accounts held at SoFi Bank), SoFi Invest accounts, SoFi Credit Card accounts (including accounts with a zero dollar balance at the reporting date), referred loans (which are originated by a third-party partner to which we provide pre-qualified borrower referrals), SoFi At Work accounts and SoFi Relay accounts (with either credit score monitoring enabled or external linked accounts) that have been opened through our platform through the reporting date. Our SoFi Invest service is composed of three products: active investing accounts, robo-advisory accounts and digital assets accounts. Our members can select any one or combination of the three types of SoFi Invest products. If a member has multiple SoFi Invest products of the same account type, such as two active investing accounts, that is counted as a single product. However, if a member has multiple SoFi Invest products across account types, such as one active investing account and one robo-advisory account, those separate account types are considered separate products. In the event a member is removed in accordance with our terms of service, as discussed under "Members" above, the member's associated products are also removed.
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Products
In Thousands
Total lending products were composed of the following:
December 31,2022 vs. 20212021 vs. 2020
Lending Products202220212020Variance% Change
Variance% Change
Personal loans837,462 610,348 501,045 227,114 37 %109,303 22 %
Student loans477,132 445,569 402,623 31,563 7 %42,946 11 %
Home loans26,003 23,035 13,977 2,968 13 %9,058 65 %
Total lending products
1,340,597 1,078,952 917,645 261,645 24 %161,307 18 %
Total financial services products were composed of the following:
December 31,2022 vs. 20212021 vs. 2020
Financial Services Products202220212020Variance% Change
Variance% Change
Money(1)
2,195,402 1,436,955 645,502 758,447 53 %791,453 123 %
Invest2,158,864 1,595,143 531,541 563,721 35 %1,063,602 200 %
Credit Card171,425 91,216 6,445 80,209 88 %84,771 n/m
Referred loans(2)
40,980 7,659 - 33,321 435 %7,659 n/m
Relay1,921,986 930,181 408,735 991,805 107 %521,446 128 %
At Work65,382 33,091 13,687 32,291 98 %19,404 142 %
Total financial services products
6,554,039 4,094,245 1,605,910 2,459,794 60 %2,488,335 155 %
(1) Includes SoFi Checking and Savings accounts held at SoFi Bank in 2022, and cash management accounts.
(2) Limited to loans wherein we provide third party fulfillment services.
Technology Platform Total Accounts
In our Technology Platform segment, total accounts refers to the number of open accounts at Galileo as of the reporting date. We include intercompany 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 20 to the Notes to Consolidated Financial Statements, which includes intercompany revenue. Intercompany revenue is eliminated in consolidation. Total accounts is a primary indicator of the accounts dependent upon our technology platform to use virtual card products, virtual wallets, make peer-to-peer and bank-to-bank transfers, receive early paychecks, separate savings from spending balances, make debit transactions and rely upon real-time authorizations, all of which result in revenues for the Technology Platform segment. We do not measure total accounts for the Technisys products and solutions, as the revenue model is not primarily dependent upon being a fully integrated, stand-ready service.
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December 31,
2022 vs. 2021% Change2021 vs. 2020% Change
202220212020
Total accounts130,704,351 99,660,657 59,735,210 31 %67 %
Key Factors Affecting Operating Results
Our future operating results and cash flows are dependent upon a number of opportunities, challenges and other factors, including our loan origination volume, financial services products and member activity on our platform, growth in technology platform customers, competition and industry trends, general economic conditions and our ability to optimize our national bank charter.
Origination Volume
Our Lending segment is our largest segment, comprising 72%, 75% and 85% of total net revenue during the years ended December 31, 2022, 2021 and 2020, respectively. We are dependent upon the addition of new members and new activity from existing members within our Lending segment to generate origination volume, which we believe is a contributor to Lending segment net revenue. We believe we have a high-quality loan portfolio, as indicated by our Lending segment weighted average origination FICO score of 752 during the year ended December 31, 2022. See "Industry Trends and General Economic Conditions" for the impact of specific economic factors 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 product adoption by existing members, leading to enhanced profitability for each additional product by lowering overall member acquisition costs.
Galileo Account Growth
Galileo primarily provides technology platform services to financial and non-financial institutions, which enabled 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.
Industry Trends and General Economic Conditions
Our results of operations have historically been relatively resilient to economic downturns but in the future may be impacted by the relative strength of the overall economy and its effect on unemployment, asset markets and consumer spending. As general economic conditions improve or deteriorate, the amount of consumer disposable income tends to fluctuate, which in turn impacts consumer spending levels and the willingness of consumers to take out loans to finance purchases or invest in financial assets. Specific economic factors, such as interest rate levels, changes in monetary and related policies, unemployment rates, market volatility, consumer confidence and changing expectations for inflation and deflation, also influence consumer spending, saving, investing and borrowing patterns.
The Federal Reserve increased the benchmark interest rate throughout 2022 (and has continued to do so to date in 2023), largely in response to increasing inflation, record low unemployment and strong consumer demand. In a rising interest
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rate environment, and operating under a bank charter, we have been able to offer more competitive interest rates to our members on their deposits, which we believe has resulted in increased demand for our deposits. However, rising interest rates have unfavorably impacted and could continue to unfavorably impact demand for refinancing loan products. In addition, if the Federal Reserve does not effectively curb inflation or interest rates rise unexpectedly or too quickly or macroeconomic conditions do not improve, it could have a negative impact on the overall economy and, resultantly, increase unemployment, which could adversely impact our results of operations. In 2022, we saw elevated credit spreads across capital markets and changes in consumer credit, which may continue in 2023. Negative changes to macroeconomic conditions may result in decreased demand for our products, increased operating costs and negatively impact our results of operations.
Student Loan Relief
As a result of certain national measures taken to counteract the economic impact of the COVID-19 pandemic, such as the CARES Act passed during 2020 and subsequent extensions, principal and interest payments on federally-held student loans were suspended, which in turn lowered the propensity for borrowers to refinance into SoFi student loans relative to pre-COVID levels. Additionally, in 2022, President Biden announced relief measures for federal student loan borrowers, subject to income caps, including up to $20,000 in debt cancellation for Pell Grant recipients, and up to $10,000 in debt cancellation for non-Pell Grant recipients, as well as certain changes to income-driven repayment plans. Legal challenges to the relief measures are undergoing a review by the U.S. Supreme Court, with arguments recently heard on February 28, 2023 and a decision expected by mid-2023. Borrowers will not receive any forgiveness nor can additional borrowers apply for forgiveness until a decision is issued. In response, President Biden announced an additional extension of the federal student loan payment moratorium until 60 days after the litigation is fully resolved or 60 days after June 30, 2023, whichever happens first. While the eventual number of applicants under President Biden's program and the impact of legal challenges to the program remain unknown, we expect to have decreased demand for our student loan refinancing products until the litigation is resolved, which would likely have an adverse impact on our results of operations and overall business.
SoFi Bank
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 Note 2 to the Notes to Consolidated Financial Statements for additional information on 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.
See Part I, Item 1. "Company Overview-SoFi Bank" for a discussion of the key expected financial benefits to us of operating a national bank. See Part I, Item 1A. "Risk Factors" for discussion of certain potential risks related to being a bank holding company.
Key Components of Results of Operations
Net Interest Income
Net interest income primarily reflects the excess of interest income earned on our loans over the interest expense incurred to fund such loans. Net interest income is impacted by loan origination volume, the level of securitization activity, the amount of time we hold loans on our consolidated balance sheet and the volume of member deposits, as well as prevailing interest rates, which impact the rates we receive on our loans and securitization-related investments in bonds and residual interest positions, and the rates we incur from our funding sources including our warehouse facilities, securitization debt and member deposits at SoFi Bank. We also incur interest expense related to our revolving credit facility, as well as on our convertible notes issued in October 2021 in the form of amortization of debt issuance costs and original issue discount.
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 from contracts with customers, which primarily relates to our technology products and solutions revenues and has grown due to our recent acquisitions and the growth and expansion of our financial services offerings, and (vi) gains and losses on non-securitization investments.
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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 categories based on department-level headcounts. We generally expect these expenses to increase in absolute dollars as our business continues to grow. Lastly, noninterest expense includes the provision for credit losses, which primarily relates to our credit card product.
Directly Attributable Expenses
As presented within "Summary Results by Segment", in our determination of the contribution profit (loss) for our reportable segments, we allocate certain expenses that are directly attributable to the 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.
Consolidated Results of Operations
The following table sets forth selected consolidated statements of income data:
Year ended December 31,2022 vs. 2021
2021 vs. 2020
($ in thousands)
202220212020$ Change% Change$ Change% Change
Net interest income$584,096 $252,244 $177,931 $331,852 132 %$74,313 42 %
Total noninterest income989,439 732,628 387,601 256,811 35 %345,027 89 %
Total net revenue1,573,535 984,872 565,532 588,663 60 %419,340 74 %
Total noninterest expense1,892,256 1,466,049 894,053 426,207 29 %571,996 64 %
Loss before income taxes(318,721)(481,177)(328,521)162,456 (34)%(152,656)46 %
Income tax (expense) benefit(1,686)(2,760)104,468 1,074 (39)%(107,228)n/m
Net loss $(320,407)$(483,937)$(224,053)$163,530 (34)%$(259,884)116 %
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Net Interest Income
The table below presents balance and interest information for each major category of interest-earning assets and interest-bearing liabilities, along with net interest income and net interest margin.
Average Balances and Net Interest Earnings Analysis
Year Ended December 31,
202220212020
($ in thousands)Average Balances(1)
Interest Income/ExpenseAverage RateAverage Balances(1)
Interest Income/ExpenseAverage RateAverage Balances(1)
Interest Income/ExpenseAverage Rate
Assets
Interest-earning assets:
Interest-bearing deposits with banks$1,122,364 $10,841 0.97 %$706,640 $646 0.09 %$731,694 $3,481 0.48 %
Investment securities494,005 12,542 2.54 495,444 14,355 2.90 623,248 24,031 3.86
Loans(2)
9,200,023 749,071 8.14 5,179,729 337,862 6.52 4,783,512 330,353 6.91
Related party receivables- - - 2,767 211 7.63 13,649 3,189 23.36
Total interest-earning assets10,816,392 772,454 7.14 %6,384,580 353,074 5.53 %6,152,103 361,054 5.87 %
Total noninterest-earning assets2,812,054 1,933,759 1,537,708
Total assets
$13,628,446 $8,318,339 $7,689,811
Liabilities, Temporary Equity and Permanent Equity
Interest-bearing liabilities:
Demand deposits$1,336,006 $21,814 1.63 %$- $- - %$- $- - %
Savings deposits1,403,750 31,045 2.21 - - - - - -
Time deposits281,633 6,934 2.46 - - - - - -
Total interest-bearing deposits3,021,389 59,793 1.98 - - - - - -
Warehouse facilities2,378,935 71,717 3.01 2,043,085 29,596 1.45 2,246,715 51,983 2.31
Securitization debt593,824 22,507 3.79 931,476 35,576 3.82 1,853,542 66,110 3.57
Other debt(3)
1,575,027 30,618 1.94 773,159 27,458 3.55 481,120 52,352 10.88
Total debt4,547,786 124,842 2.75 3,747,720 92,630 2.47 4,581,377 170,445 3.72
Residual interests classified as debt57,510 3,723 6.47 106,990 8,200 7.66 172,828 12,678 7.34
Total interest-bearing liabilities7,626,685 188,358 2.47 %3,854,710 100,830 2.62 %4,754,205 183,123 3.85 %
Total noninterest-bearing liabilities657,314 602,994 368,138
Total liabilities$8,283,999 $4,457,704 $5,122,343
Total temporary equity320,374 1,637,173 2,934,581
Total permanent equity5,024,073 2,223,462 (367,113)
Total liabilities, temporary equity and permanent equity$13,628,446 $8,318,339 $7,689,811
Net interest income(4)
$584,096 $252,244 $177,931
Net interest margin(5)
5.40 %3.95 %2.89 %
(1)Average balances were calculated on thirteen-month ending balances and include accrued interest.
(2)Interest income on loans measured at amortized cost includes amortization of deferred loan fees, net of deferred loan costs, which were not material for the years presented.
(3)Interest expense on other debt primarily includes debt issuance and discount expense, as well as interest expense on the revolving credit facility and seller note, as applicable.
(4)Net interest income is calculated as the excess of total interest income on interest-earning assets over total interest expense on interest-bearing liabilities.
(5)Net interest margin is calculated as net interest income divided by total average interest-earning assets.
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Analysis of Changes in Net Interest Income
The following table presents year-over-year changes in net interest income and the extent to which the variance is attributable to changes in the volume of our interest-earning assets and interest-bearing liabilities or changes in the interest rates related to these assets and liabilities:
2022 vs. 2021
2021 vs. 2020
Increase (Decrease) Due to Change in(1):
Increase (Decrease) Due to Change in(1):
($ in thousands)VolumeRateTotal VarianceVolumeRateTotal Variance
Interest income:
Interest-bearing deposits with banks$4,016 $6,179 $10,195 $(23)$(2,812)$(2,835)
Investment securities(37)(1,776)(1,813)(3,703)(5,973)(9,676)
Loans327,335 83,874 411,209 25,844 (18,335)7,509
Related party receivables- (211)(211)(830)(2,148)(2,978)
Total interest income $331,314 $88,066 $419,380 $21,288 $(29,268)$(7,980)
Interest expense:
Interest-bearing deposits$59,793 $- $59,793 $- $- $-
Debt21,963 10,249 32,212 (20,605)(57,210)(77,815)
Residual interests classified as debt(3,203)(1,274)(4,477)(5,046)568 (4,478)
Total interest expense $78,553 $8,975 $87,528 $(25,651)$(56,642)$(82,293)
Net interest income
$252,761 $79,091 $331,852 $46,939 $27,374 $74,313
(1)We calculate the change in interest income and interest expense separately for each item. Volume and rate changes have been allocated on a consistent basis using the respective percentage changes in average balances and average rates.
2022 vs. 2021. Net interest income increased by $331.9 million, or 132%, during the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by higher interest income from non-securitization personal and student loans, which were primarily a function of increases in average balances, higher personal loan origination volume and longer loan holding periods. This increase was partially offset by interest expense on deposits at SoFi Bank during 2022, and lower interest income from consolidated personal and student loan securitizations, which were impacted by decreases in average balances primarily attributable to payment activity and the absence of additions to our consolidated securitization loan balances.
Net interest margin increased by 145 basis points during the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily driven by higher interest-earning assets at higher average yields, particularly related to non-securitization loans, partially offset by higher interest rates paid on warehouse facilities and interest-bearing deposits used to fund our loan originations.
2021 vs. 2020. Net interest income increased by $74.3 million, or 42%, during the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily driven by: (i) lower interest expense associated with lower average securitization and warehouse debt balances, as well as lower reference rates and lower warehouse facility interest rate spreads, (ii) lower securitizations interest income, which was primarily attributable to decreases in residual investment interest income and asset-backed bonds due primarily to decreases in average securitization investment balances, (iii) lower interest income from consolidated personal and student loan securitizations, which were impacted by declines in average balances attributable to payment activity and deconsolidation activity in 2020. This increase was partially offset by higher interest income on non-securitization personal and student loans, which were primarily a function of increases in average balances, higher personal loan origination volume and longer loan holding periods for student loans.
Net interest margin increased by 106 basis points during the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily driven by decreases in the average balances of warehouse facilities and securitization debt, lower reference rates and warehouse facility interest rate spreads in 2021 compared to 2020, as well as the impact of the seller note issued in 2020 in connection with the acquisition of Galileo and repaid in early 2021.
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Loan Maturity Schedule
The following table presents the maturities of our loan portfolio, as well as the separate presentation of the total amount of loans in each loan category that are due after one year that have variable rates and fixed rates:
As of December 31, 2022(1)
($ in thousands)Within 1 yearAfter 1 year through 5 yearsAfter 5 years through 15 yearsAfter 15 yearsTotal
Loan Portfolio:
Personal loans$114,774 $6,986,879 $1,181,747 $- $8,283,400
Student loans7,271 738,481 3,093,250 955,515 4,794,517
Home loans- - 5,729 71,976 77,705
Credit card(2)
243,959 - - - 243,959
Commercial and consumer banking1,922 6,452 14,625 77,148 100,147
Total loans$367,926 $7,731,812 $4,295,351 $1,104,639 $13,499,728
Loans with variable rates:
Personal loans$9,574 $- $- $9,574
Student loans41,696 92,465 4,616 138,777
Home loans- - - -
Commercial and consumer banking4,498 9,277 72,122 85,897
Total loans$55,768 $101,742 $76,738 $234,248
Loans with fixed rates:
Personal loans$6,977,305 $1,181,747 $- $8,159,052
Student loans696,785 3,000,785 950,899 4,648,469
Home loans- 5,729 71,976 77,705
Commercial and consumer banking1,954 5,348 5,026 12,328
Total loans$7,676,044 $4,193,609 $1,027,901 $12,897,554
(1)Maturities presented are based upon the contractual terms of the loans. Amounts represent unpaid principal balance of loans outstanding at period end.
(2)Due to the revolving nature of credit cards, we report all of our credit card balances as due within one year.
Noninterest Income and Net Revenue
The following table presents the components of our total noninterest income, as well as total net revenue:
Year Ended December 31,2022 vs. 2021
2021 vs. 2020
($ in thousands)
202220212020$ Change% Change$ Change% Change
Loan origination and sales$605,403 $497,626 $371,323 $107,777 22 %$126,303 34 %
Securitizations(40,031)(14,862)(70,251)(25,169)169 %55,389 (79)%
Servicing43,547 (2,281)(19,426)45,828 n/m17,145 (88)%
Technology products and solutions304,901 191,847 90,128 113,054 59 %101,719 113 %
Other75,619 60,298 15,827 15,321 25 %44,471 281 %
Total noninterest income
$989,439 $732,628 $387,601 $256,811 35 %$345,027 89 %
Total net revenue
$1,573,535 $984,872 $565,532 $588,663 60 %$419,340 74 %
2022 vs. 2021. Total noninterest income increased by $256.8 million, or 35%, for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by loan hedging activities due to higher interest rates in 2022, partially offset by lower income related to in period originations, loan sale execution and fair value adjustments on loans, as well as higher loan write offs. The increase was also attributable to growth in technology products and solutions fees driven by account growth and increased activity among our existing integrated technology solutions clients combined with revenue contribution from the Technisys Merger in 2022.
2021 vs. 2020. Total noninterest income increased by $345.0 million, or 89%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily driven by loan hedging activities and higher income related to in period originations, loan sale execution and fair value adjustments on loans. The increase was also attributable to growth in
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technology products and solutions fees driven by increased activity among integrated technology solutions clients combined with a full year of revenue contribution from Galileo in 2021, which we acquired in May 2020.
Noninterest Expense
The following table presents the components of our total noninterest expense:
Year Ended December 31,2022 vs. 2021
2021 vs. 2020
($ in thousands)
202220212020$ Change% Change$ Change% Change
Technology and product development$405,257 $276,087 $201,199 $129,170 47 %$74,888 37 %
Sales and marketing617,823 426,875 276,577 190,948 45 %150,298 54 %
Cost of operations313,226 256,980 178,896 56,246 22 %78,084 44 %
General and administrative501,618 498,534 237,381 3,084 1 %261,153 110 %
Provision for credit losses54,332 7,573 - 46,759 617 %7,573 n/m
Total noninterest expense
$1,892,256 $1,466,049 $894,053 $426,207 29 %$571,996 64 %
2022 vs. 2021. Total noninterest expense increased by $426.2 million, or 29%, for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily driven by: (i) higher employee compensation and benefits (inclusive of an increase in share-based compensation expense), a portion of which was attributable to the Technisys Merger and the remainder of which was related to increased personnel to support our growth in 2022, (ii) increases in advertising expenditures and utilization of lead generation channels, (iii) an increase in the provision for credit losses, which reflected higher average credit card balances combined with elevated credit card loss rates during 2022, (iv) an increase in amortization of intangible assets due to acquired intangible assets in the Technisys Merger, and (v) an increase in purchased and internally-developed software amortization, reflective of continued investments in technology.
2021 vs. 2020. Total noninterest expense increased by $572.0 million, or 64%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily driven by: (i) higher employee compensation and benefits (inclusive of an increase in share-based compensation expense), which was related to increased personnel to support our growth, higher average compensation in 2021 and the effect of new awards at increased share prices, (ii) increases in advertising expenditures, direct customer promotional expenditures and utilization of lead generation channels, (iii) an increase in expenditures related to fair value changes in warrant liabilities, with the increase in fair value changes on Series H redeemable preferred stock exceeding the decrease related to the SoFi Technologies warrants assumed in the Business Combination, (iv) an increase related to the special payment made to the Series 1 preferred stockholders in 2021 associated with the Business Combination, (v) an increase in amortization expense on intangible assets, primarily associated with intangible assets acquired during the second quarter of 2020, (vi) an increase in software licenses, tools and subscriptions and other related fees, (vii) an increase in product fulfillment costs, primarily related to payment processing network association fees associated with increased activity on our technology platform, and (viii) the establishment of the provision for credit losses on our credit card product.
Provision for Credit Losses
Analysis of Allowance for Credit Losses
Allowance for Credit Losses Ratios
The following table presents the ratio of allowance for credit losses to total loans outstanding that are held for investment and measured at amortized cost:
December 31,
($ in thousands)20222021
Allowance for credit losses to total loans outstanding
Allowance for credit losses
$40,788 $7,037
Total loans held for investment outstanding(1)
$344,106 $121,590
Ratio(2)
11.85 %5.79 %
(1)Total loans outstanding excludes accrued interest.
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(2)The increase in the ratio was attributable to credit cards and was reflective of both an increase in the average balance and an increase in our estimate of expected future credit losses.
We omitted the credit ratios associated with nonaccrual loans, as the balance of nonaccrual loans was immaterial.
Allocation of Allowance for Credit Losses
The following table presents the allocation of the allowance for credit losses and the percentage of loans outstanding by category to total loans outstanding that are measured at amortized cost:
December 31, 2022December 31, 2021
($ in thousands)Allowance for credit lossesPercent of loans to total loans(1)
Allowance for credit lossesPercent of loans to total loans(1)
Credit card
$39,110 71 %$7,037 100 %
Commercial and consumer banking1,678 29 %- - %
Total$40,788 100 %$7,037 100 %
(1)Loans outstanding balances used in the calculation exclude accrued interest.
Analysis of Charge-offs
The following tables present information regarding average loans outstanding, net charge-offs and the annualized ratio of net charge-offs to average loans outstanding:
Year Ended December 31,
202220212020
($ in thousands)Average Loans(1)
Net Charge-offsRatioAverage Loans(1)
Net Charge-offsRatioAverage Loans(1)
Net Charge-offsRatio
Personal loans$4,767,708 $88,511 1.86 %$1,968,297 $19,398 0.99 %$1,834,893 $41,987 2.29 %
Student loans4,059,001 12,677 0.31 2,964,404 9,399 0.32 2,819,187 2,507 0.09
Home loans132,663 - - 197,452 - - 125,714 - -
Credit card(2)
167,290 20,957 12.53 47,533 2,048 4.31 407 - -
Commercial and consumer banking73,361 7 0.01 2,043 - - 3,311 - -
Total loans$9,200,023 $122,152 1.33 %$5,179,729 $30,845 0.60 %$4,783,512 $44,494 0.93 %
(1)Average balances were calculated on thirteen-month ending balances and include accrued interest.
(2)The increase in the net charge-off rate associated with credit card was primarily related to our maturing portfolio, as the product was launched in the second half of 2020 and balances charge off after 180 days of delinquency.
2022 vs. 2021. The provision for credit losses increased by $46.8 million, which primarily reflected higher average credit card balances combined with elevated credit card loss rates during 2022.
Income Taxes
For the years ended December 31, 2022, 2021 and 2020, we recorded income tax (expense) benefit of $(1.7) million, $(2.8) million, and $104.5 million, respectively. Our income tax expense position in 2022 was primarily attributable to tax expense at SoFi Lending Corp. and SoFi Bank due to profitability in state jurisdictions where separate filings are required and recognition of expense from Technisys in certain Latin American countries where separate returns are filed. The expense was partially offset by deferred tax benefits from the amortization of intangible assets acquired in the Technisys Merger. The significant change in our income tax positions for the years ended December 31, 2022 and 2021 relative to 2020 was primarily due to a partial release of our valuation allowance in the second quarter of 2020 in connection with deferred tax liabilities resulting from intangible assets acquired from Galileo in May 2020, which decreased the valuation allowance by $99.8 million.
Summary Results by Segment
Contribution profit (loss) is the primary measure of segment-level profit and loss that, along with our key business metrics, is used by management to evaluate our business, measure our performance, identify trends and make strategic decisions. Contribution profit (loss) is defined as total net revenue for each reportable segment less expenses directly
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attributable to the reportable segment and, in the case of our Lending segment, adjusted for fair value adjustments attributable to assumption changes associated with our servicing rights and residual interests classified as debt. See the sections entitled "Consolidated Results of Operations", "Summary Results by Segment" and "Non-GAAP Financial Measures" for discussion and analysis of these key financial measures.
Lending Segment
In the table below, we present certain metrics related to our Lending segment:
December 31,2022 vs. 2021
2021 vs. 2020
Metric
202220212020Change% ChangeChange% Change
Total products (number, as of period end)1,340,597 1,078,952 917,645 261,645 24 %161,307 18 %
Origination volume ($ in thousands, during period)
Personal loans$9,773,705 $5,386,934 $2,580,757 $4,386,771 81 %$2,806,177 109 %
Student loans2,245,499 4,293,526 4,928,880 (2,048,027)(48)%(635,354)(13)%
Home loans966,177 2,978,222 2,183,521 (2,012,045)(68)%794,701 36 %
Total$12,985,381 $12,658,682 $9,693,158 $326,699 3 %$2,965,524 31 %
Loans with a balance (number, as of period end)(1)
753,043 603,201 598,682 149,842 25 %4,519 1 %
Average loan balance ($, as of period end)(1)
Personal loans$24,917 $22,820 $21,789 $2,097 9 %$1,031 5 %
Student loans(2)
46,585 50,549 54,319 (3,964)(8)%(3,770)(7)%
Home loans285,152 286,991 291,382 (1,839)(1)%(4,391)(2)%
(1)Loans with a balance and average loan balance include loans on our balance sheet and transferred loans with which we have a continuing involvement through our servicing agreements.
(2)In-school loans carry a lower average balance than student loan refinancing products.
Total Products
Total products in our Lending segment is a subset of our total products metric. See "Key Business Metrics" for further discussion of this measure as it relates to our Lending segment.
Origination Volume
We refer to the aggregate dollar amount of loans originated through our platform in a given period as origination volume. Origination volume is an indicator of the size and health of our Lending segment and an indicator (together with the relevant loan characteristics, such as interest rate and prepayment and default expectations) of revenues and profitability. Changes in origination volume are driven by the addition of new members and existing members, the latter of which at times will either refinance into a new SoFi loan or secure an additional, concurrent loan, as well as macroeconomic factors impacting consumer spending and borrowing behavior. Since the profitability of the Lending segment is largely correlated with origination volume, management relies on origination volume trends to assess the need for external financing to support the Financial Services segment and the expense budgets for unallocated expenses.
Personal Loans. During the year ended December 31, 2022, personal loan origination volume increased significantly relative to 2021, primarily due to increased demand driven by expanded marketing efforts and increased demand for debt consolidation products in a rising interest rate environment. This was combined with a positive impact from increased loan application approval rates within our existing credit parameters that were implemented during the second half of 2021 and maintained through mid-2022, with slight credit tightening implemented in the second half of 2022.
Personal loan origination volume increased significantly during the year ended December 31, 2021 compared to 2020, primarily due to the improved economic outlook and consumer confidence levels throughout 2021, as there was lower consumer spending behavior during the earlier stages of the COVID-19 pandemic, which we believe decreased the overall demand for debt consolidation loans. Origination volume in 2021 also benefited from the increased loan application approval rate implemented during the second half of 2021.
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Student Loans. During the year ended December 31, 2022, student loan origination volume decreased significantly relative to 2021, as demand for student loan refinancing products continued to be unfavorably impacted by the ongoing suspension of principal and interest payments on federally-held student loans and the expectation of debt cancellation for certain federal student loan borrowers, combined with a rising interest rate environment in 2022. See "Key Factors Affecting Operating Results-Student Loan Relief" for additional discussion of student loans.
Student loan origination volume decreased during the year ended December 31, 2021 compared to 2020, primarily due to the suspension of principal and interest payments on federally-held student loans.
Home Loans. During the year ended December 31, 2022, home loan origination volume decreased significantly relative to 2021 due to continued rising interest rates relative to 2021 levels, which tends to lower demand for home loans overall and shift demand from refinance originations to purchase originations, the latter of which is a more competitive landscape. Although purchase originations have historically represented a smaller percentage of our home loan originations, our mix has shifted toward more purchase originations in the second half of 2022.
Home loan origination volume increased during the year ended December 31, 2021 compared 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.
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.
In the table below, we present additional information related to our lending products:
Year Ended December 31,
202220212020
Overall weighted average origination FICO752 761 768
Personal Loans
Weighted average origination FICO747 754 764
Weighted average interest rate earned(1)
11.82 %10.64 %10.51 %
Interest income recognized ($ in thousands)
$551,458 $202,706 $192,450
Sales of loans ($ in thousands)$2,911,491 $4,290,424 $1,531,057
Student Loans
Weighted average origination FICO773 774 773
Weighted average interest rate earned(1)
4.27 %4.44 %4.91 %
Interest income recognized ($ in thousands)
$170,550 $127,496 $134,917
Sales of loans ($ in thousands)$877,920 $2,854,778 $4,534,286
Home Loans
Weighted average origination FICO749 755 764
Weighted average interest rate earned(1)
3.42 %1.96 %2.24 %
Interest income recognized ($ in thousands)
$4,714 $3,778 $2,731
Sales of loans ($ in thousands)$1,094,981 $2,935,038 $2,102,101
(1)Weighted average interest rate earned represents annualized interest income recognized divided by the average of the thirteen-month unpaid principal balances of loans outstanding during the period, which are impacted by the timing and extent of loan sales and purchases.
Lending Segment Results of Operations
The following table presents the measure of contribution profit for the Lending segment. The information is derived from our internal financial reporting used for corporate management purposes. In the first quarter of 2022, we implemented an
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FTP framework to attribute net interest income to our business segments based on their usage and/or provision of funding, as further discussed below.
Year Ended December 31,2022 vs. 2021
2021 vs. 2020
($ in thousands)
202220212020$ Change% Change$ Change% Change
Net interest income$531,480 $258,102 $199,345 $273,378 106 %$58,757 29 %
Noninterest income608,511 480,221 281,521 128,290 27 %198,700 71 %
Total net revenue1,139,991 738,323 480,866 401,668 54 %257,457 54 %
Servicing rights - change in valuation inputs or assumptions(1)
(39,651)2,651 17,459 (42,302)n/m(14,808)(85)%
Residual interests classified as debt - change in valuation inputs or assumptions(2)
6,608 22,802 38,216 (16,194)(71)%(15,414)(40)%
Directly attributable expenses(3)
(442,945)(364,169)(294,812)(78,776)22 %(69,357)24 %
Contribution profit$664,003 $399,607 $241,729 $264,396 66 %$157,878 65 %
Adjusted net revenue(4)
$1,106,948 $763,776 $536,541 $343,172 45 %$227,235 42 %
(1)Reflects changes in fair value inputs and assumptions, including market servicing costs, conditional prepayment, default rates and discount rates. This non-cash change, which is recorded within noninterest income in the 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, 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.
(4)Adjusted net revenue is a non-GAAP financial measure. For information regarding our use and definition of this measure and for a reconciliation to the most directly comparable U.S. GAAP measure, total net revenue, see "Non-GAAP Financial Measures" herein.
Net interest income
2022 vs. 2021. Net interest income in our Lending segment increased by $273.4 million, or 106%, for the year ended December 31, 2022 compared to 2021, which was primarily attributable to non-securitization loans. Higher interest income on non-securitization personal loans and student loans was primarily a function of increases in aggregate average balances of $2.8 billion (185%) and $1.3 billion (62%), respectively. The personal loan average balance increase was primarily attributable to higher origination volume and purchase activity combined with a higher weighted average interest rate earned on whole loans and longer loan holding periods. The student loan average balance increase was primarily attributable to longer loan holding periods, partially offset by a lower weighted average interest rate earned on whole loans. Interest expense associated with funding our lending activities, which was determined using an FTP framework in 2022 and was based on actual interest expense on our use of securitizations and warehouse facilities in 2021, increased by $115.6 million, or 128%, year over year, primarily due to the sharp increase in benchmark rates.
2021 vs. 2020. Net interest income in our Lending segment increased by $58.8 million, or 29%, for the year ended December 31, 2021 compared to 2020, which was primarily attributable to: (i) lower interest expense associated with lower average securitization and warehouse debt balances of 50% and 9%, respectively, as well as lower reference rates and lower warehouse facility interest rate spreads, (ii) lower securitizations interest income, which was primarily attributable to decreases in residual investment interest income and asset-backed bonds due primarily to decreases in average securitization investment balances, (iii) lower interest income from consolidated personal and student loan securitizations, which were impacted by decreases in average balances of 60% and 39%, respectively, attributable to payment activity and deconsolidation activity in 2020, and (iv) partially offset by higher interest income on non-securitization personal and student loans, which were primarily a function of increases in aggregate average balances of 77% and 36%, respectively, higher personal loan origination volume and longer loan holding periods for student loans.
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Noninterest income
Changes in noninterest income in the Lending segment are primarily driven by loan origination and sales activity, servicing income and securitizations income.
Loan Origination and Sales
The following table presents the components of noninterest income-loan origination and sales:
Year Ended December 31,2022 vs. 2021
2021 vs. 2020
($ in thousands)202220212020$ Change% Change$ Change% Change
In period originations, loan sale execution and fair value adjustments(1)
$347,772 $455,163 $406,261 $(107,391)(24)%$48,902 12 %
Economic derivative hedges of loan fair values354,834 49,090 (54,829)305,744 623 %103,919 n/m
Other derivative instruments(2)
(11,032)(2,742)14,530 (8,290)302 %(17,272)n/m
Home loan origination fees7,452 14,452 11,576 (7,000)(48)%2,876 25 %
Loan write-off expense - whole loans(3)
(95,843)(17,440)(5,873)(78,403)450 %(11,567)197 %
Loan repurchase (expense) benefit(4)
4,460 (3,117)(342)7,577 n/m(2,775)811 %
Other(2,470)2,220 - (4,690)n/m2,220 n/m
Loan origination and sales noninterest income
$605,173 $497,626 $371,323 $107,547 22 %$126,303 34 %
(1)Includes fair value adjustments on loans originated during the period, fair value adjustments of loans held at the balance sheet date, as well as gains (losses) on loans sold during the period. Fair value adjustments are impacted by interest rates, weighted average coupon, credit spreads and loss estimates, prepayment speeds, duration and previous loan sale execution on similar loans.
(2)Includes IRLCs, interest rate caps and purchase price earn-out.
(3)For the years ended December 31, 2022, 2021 and 2020, includes gross write-offs of $119.9 million, $27.6 million and $17.1 million, respectively. Total recoveries were $24.1 million, $10.1 million and $11.2 million, respectively, of which $9.5 million, $2.8 million and $3.6 million, respectively, were captured via loan sales to a third-party collection agency.
(4)Represents the (expense) benefit associated with our estimated loan repurchase obligation. See Note 18 to the Notes to Consolidated Financial Statements for additional information.
Servicing
We own the master servicing on all of the servicing rights that we retain and, in each case, recognize the gross servicing rate applicable to each serviced loan. Sub-servicers are utilized for all serviced student loans and home loans, which represents a cost to SoFi, but these arrangements do not impact our calculation of the weighted average basis points earned for each loan type serviced. Further, there is no impact on servicing income due to forbearance and moratoriums on certain debt collection activities, and there are no waivers of late fees. The table below presents information related to our loan servicing activities:
Year Ended December 31,2022 vs. 2021
2021 vs. 2020
($ in thousands)202220212020$ Change% Change$ Change% Change
Servicing income recognized
Personal loans$35,653 $34,093 $42,646 $1,560 5 %$(8,553)(20)%
Student loans36,256 46,519 50,491 (10,263)(22)%(3,972)(8)%
Home loans12,965 8,975 4,651 3,990 44 %4,324 93 %
Servicing rights fair value change
Personal loans$(4,245)$2,677 $(24,809)$(6,922)n/m$27,486 n/m
Student loans(24,058)(10,634)(37,945)(13,424)126 %27,311 (72)%
Home loans9,898 26,619 10,733 (16,721)(63)%15,886 148 %
2022 vs. 2021. Noninterest income in our Lending segment increased by $128.3 million, or 27%, for the year ended December 31, 2022 compared to 2021, which was primarily driven by higher loan origination and sales income of $107.5 million and higher servicing income of $45.6 million, partially offset by lower securitizations income of $25.2 million.
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The increase in loan origination and sales income was primarily driven by: (i) gains on student loan and personal loan interest rate swap positions primarily driven by higher interest rates in 2022, (ii) fair value gains on personal loan originations in the year, partially offset by fair value losses on student loan and home loan originations in the year, each correlated with origination volume, and (iii) gains on home loan pipeline hedges due to decreases in the underlying hedge price index. This increase was partially offset by: (i) lower fair value marks on loans held on balance sheet at period end (including in period originations) across all loan products, primarily driven by deterioration in general market conditions, (ii) lower execution prices on sales activity across all loan products, due to both volume and price factors, and (iii) higher loan write offs, primarily driven by higher average personal loan balances and elevated charge off rates in 2022.
The increase in servicing income was primarily related to favorable changes in valuation inputs and assumptions for student loans, which was primarily attributable to decreased prepayment rate assumptions during 2022 compared to increased assumptions during 2021, partially offset by increased discount rate assumptions during 2022.
The decrease in securitizations income was primarily due to: (i) a decrease in securitization loan fair market value changes, principally due to increases in market interest rates, and (ii) a decline in securitization bond fair values that were impacted by the interest rate volatility during the 2022 period. The decrease was partially offset by gains in the 2022 period on our economic hedges of securitization investments and favorable changes in residual debt fair value adjustments.
2021 vs. 2020. Noninterest income in our Lending segment increased by $198.7 million, or 71%, for the year ended December 31, 2021 compared to 2020, which was primarily driven by higher loan origination and sales income of $126.3 million, improvement in securitizations income of $55.4 million and higher servicing income of $17.1 million.
The increase in loan origination and sales income was primarily driven by: (i) gains on student loan and personal loan interest rate swap positions primarily driven by higher interest rates in 2021, (ii) gains on home loan pipeline hedges due to decreases in the underlying hedge price index, (iii) fair value gains on personal loan and home loan originations, partially offset by fair value losses on student loan originations, each correlated with origination volume, and (iv) higher execution prices on sales activity for personal loans, as volume factors exceeded lower prices. The increase was partially offset by: (i) lower execution prices on sales activity related to student loans and home loans, (ii) a decrease in home loan IRLCs, and (iii) the absence of a gain on a credit default swap that occurred in 2020.
The improvement in securitizations income was primarily due to: (i) an increase in securitization loan fair market value changes, principally due to the significantly improved economic environment during 2021 relative to 2020, (ii) a reduction in securitization loan write-offs 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, and (iii) the absence of losses from deconsolidations that occurred in 2020. The improvement was partially offset by unfavorable changes in residual debt and securitization bond fair value adjustments.
The increase in servicing income was primarily related to favorable changes in valuation inputs and assumptions, primarily attributable to: (i) a lower rate of increase in prepayment rate assumptions during 2021 compared to 2020, and (ii) a decreased discount rate assumption for home loans, as market trends demonstrated stronger demand for the home loan servicing asset class during 2021.
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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 31,2022 vs. 2021
2021 vs. 2020
($ in thousands)202220212020$ Change% Change$ Change% Change
Direct advertising$178,263 $126,367 $102,562 $51,896 41 %$23,805 23 %
Compensation and benefits103,996 88,137 82,592 15,859 18 %5,545 7 %
Lead generation87,716 55,170 24,603 32,546 59 %30,567 124 %
Loan origination and servicing costs41,535 56,242 41,733 (14,707)(26)%14,509 35 %
Professional services6,649 5,663 7,139 986 17 %(1,476)(21)%
Other(1)
24,786 32,590 36,183 (7,804)(24)%(3,593)(10)%
Directly attributable expenses$442,945 $364,169 $294,812 $78,776 22 %$69,357 24 %
(1)Other expenses primarily include loan marketing expenses, member promotional expenses, tools and subscriptions, travel and occupancy-related costs, and third-party loan fraud (net of related insurance recoveries).
2022 vs. 2021. Lending segment directly attributable expenses increased by $78.8 million, or 22%, for the year ended December 31, 2022 compared to 2021, primarily due to: (i) an increase in direct advertising primarily related to direct mail, search engine and social network advertising, partially offset by declines in television advertisement; (ii) increasing utilization of lead generation channels primarily associated with increased personal loan origination volume in 2022; (iii) an increase in allocated compensation and related benefits, which primarily reflected increases in headcount allocated to the Lending segment and increased average compensation in 2022, partially offset by decreases in home loan commissions attributable to decreases in home loan originations; and (iv) a decrease in loan origination and servicing costs, which were largely attributable to decreases in home loan origination costs, partially offset by increases in personal loan origination costs, each of which was correlated with origination volumes.
2021 vs. 2020. Lending segment directly attributable expenses increased by $69.4 million, or 24%, for the year ended December 31, 2021 compared to 2020, primarily due to: (i) increasing utilization of lead generation channels associated with increased personal loan origination volume in 2021, which was partially offset by lower student loan origination volume through lead generation channels; (ii) an increase in direct advertising primarily related to search engine, television, social media and digital advertising expenditures, partially offset by a decline in direct mail marketing expenditures; and (iii) an increase in loan origination and servicing costs, which supported our growth in origination volume, primarily in home loans.
Technology Platform Segment
In the table below, we present the total accounts metric related to Galileo within our Technology Platform segment:
December 31,2022 vs. 2021
2021 vs. 2020
202220212020Change% ChangeChange% Change
Total accounts130,704,351 99,660,657 59,735,210 31,043,694 31 %39,925,447 67 %
See "Key Business Metrics" for further discussion of this measure as it relates to our Technology Platform segment.
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Technology Platform Segment Results of Operations
The following table presents the measure of contribution profit for the Technology Platform segment. The information is derived from our internal financial reporting used for corporate management purposes. Refer to Note 20 in the Notes to Consolidated Financial Statements for further information regarding Technology Platform segment performance.
Year Ended December 31,2022 vs. 2021
2021 vs. 2020
($ in thousands)202220212020$ Change% Change$ Change% Change
Net interest expense$- $(29)$(107)$29 (100)%$78 (73)%
Noninterest income315,133 194,915 96,423 120,218 62 %98,492 102 %
Total net revenue
315,133 194,886 96,316 120,247 62 %98,570 102 %
Directly attributable expenses(238,620)(130,439)(42,427)(108,181)83 %(88,012)207 %
Contribution profit $76,513 $64,447 $53,889 $12,066 19 %$10,558 20 %
Noninterest income
Noninterest income in our Technology Platform segment increased by $120.2 million, or 62%, for the year ended December 31, 2022 compared to 2021, of which $69.2 million was attributable to revenue contribution from the Technisys Merger in 2022. The remaining increase was primarily attributable to growth in technology products and solutions fees driven by account growth and increased activity among our existing integrated technology solutions clients. Noninterest income included $7.6 million and $1.9 million of intercompany revenue for the years ended December 31, 2022 and 2021, respectively.
Directly attributable expenses
The directly attributable expenses allocated to the Technology Platform segment that were used in the determination of the segment's contribution profit were as follows:
Year Ended December 31,2022 vs. 2021
2021 vs. 2020
($ in thousands)202220212020$ Change% Change$ Change% Change
Compensation and benefits$143,843 $68,277 $19,168 $75,566 111 %$49,109 256 %
Product fulfillment39,237 31,492 12,913 7,745 25 %18,579 144 %
Tools and subscriptions21,745 9,544 4,243 12,201 128 %5,301 125 %
Professional services11,460 6,037 1,694 5,423 90 %4,343 256 %
Other(1)
22,335 15,089 4,409 7,246 48 %10,680 242 %
Directly attributable expenses$238,620 $130,439 $42,427 $108,181 83 %$88,012 207 %
(1)Other expenses are primarily related to advertising and marketing, travel and occupancy-related costs, data center and capitalized software development costs.
2022 vs. 2021. Technology Platform segment directly attributable expenses increased by $108.2 million, or 83%, for the year ended December 31, 2022 compared to 2021, primarily due to: (i) an increase in compensation and benefits expense, which was correlated with an increase in personnel to support segment growth and of which Technisys compensation and benefits contributed $53.0 million during 2022; and (ii) an increase in tools and subscriptions costs related to headcount increases and internal technology initiatives to support the growth of the platform, along with the inclusion of Technisys in our 2022 results.
2021 vs. 2020. Technology Platform segment directly attributable expenses increased by $88.0 million, or 207%, for the year ended December 31, 2021 compared to 2020 (which were partially impacted by the timing of our acquisition of Galileo in the second quarter of 2020 compared to full results in 2021), primarily due to: (i) an increase in compensation and benefits expense, which was correlated with an increase in personnel to support segment growth, as well as an increase in average compensation in 2021; and (ii) an increase in product fulfillment costs, primarily related to payment processing network association fees associated with increased activity on the platform.
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Financial Services Segment
In the table below, we present the total products metric related to our Financial Services segment:
December 31,2022 vs. 2021
2021 vs. 2020
Metric
202220212020Change% ChangeChange% Change
Total products (number, as of period end)6,554,039 4,094,245 1,605,910 2,459,794 60 %2,488,335 155 %
Total products in our Financial Services segment is a subset of our total products metric. See "Key Business Metrics" for a further discussion of this measure as it relates to our Financial Services segment.
Financial Services Segment Results of Operations
The following table presents the measure of contribution loss for the Financial Services segment. The information is derived from our internal financial reporting used for corporate management purposes. During the first quarter of 2022, we implemented an FTP framework to attribute net interest income to our business segments based on their usage and/or provision of funding, as further discussed below.
Year Ended December 31,2022 vs. 2021
2021 vs. 2020
($ in thousands)
202220212020$ Change% Change$ Change% Change
Net interest income(1)
$92,574 $3,765 $484 $88,809 n/m$3,281 678 %
Noninterest income75,102 54,313 11,386 20,789 38 %42,927 377 %
Total net revenue
167,676 58,078 11,870 109,598 189 %46,208 389 %
Directly attributable expenses(367,102)(192,996)(143,966)(174,106)90 %(49,030)34 %
Contribution loss
$(199,426)$(134,918)$(132,096)$(64,508)48 %$(2,822)2 %
(1)Net interest income and, thereby, total net revenue and contribution loss for our Financial Services segment reported for the year ended December 31, 2022 reflects the implementation of an FTP framework, under which Financial Services segment net interest income reflects the difference between an FTP credit for the segment's provision of deposits as a source of funding and an FTP charge for the segment's use of funds related to credit cards. For the comparative periods ended December 31, 2021 and 2020, our Financial Services segment net interest income was nominal, as it did not have deposits and the credit card product was nascent. If we had applied our current FTP framework during the comparative periods, the Financial Services segment net interest income would not have materially changed.
Net interest income
2022 vs. 2021. Net interest income in our Financial Services segment increased by $88.8 million for the year ended December 31, 2022 compared to 2021, which was primarily attributable to net interest income earned on our deposits, which includes interest income based on our FTP framework (which eliminates in consolidation) and interest expense to members, and corresponds with the level of deposits at SoFi Bank. In addition, net interest income earned on our credit cards increased primarily due to growth in the average balance.
Uninsured Deposits
As of December 31, 2022, the amount of uninsured deposits totaled $615.9 million. We did not have any deposits as of December 31, 2021. The following table presents uninsured time deposits by remaining time to maturity:
($ in thousands)December 31, 2022
Uninsured Time Deposits
3 months or less$860
Over 3 months through 6 months6,726
Over 6 months through 12 months11,669
Over 12 months1,587
Total
$20,842
Noninterest income
2022 vs. 2021. Noninterest income in our Financial Services segment increased by $20.8 million, or 38%, for the year ended December 31, 2022 compared to 2021, primarily due to growth in referral fulfillment activity, as we continue to drive volume to our partners and an increase in interchange fees, which coincided with increased credit card and debit card
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transactions. The increase was partially offset by a decrease in brokerage-related fees, which was primarily attributable to decreased digital assets trading volume on our platform during 2022.
2021 vs. 2020. Noninterest income in our Financial Services segment increased by $42.9 million, or 377%, for the year ended December 31, 2021 compared to 2020, primarily due to: (i) an increase in brokerage-related fees, which coincided with higher digital assets trading volume on our platform during 2021; (ii) an increase in referral fees, which was primarily attributable to growth in our partner relationships and related activity, as we continue to onboard new partners and help drive volume to these partners, as well as an increase associated with a referral fulfillment arrangement we entered in the third quarter of 2021; and (iii) an increase in interchange fees, which coincided with increased credit card and debit card transactions.
Directly attributable expenses
The directly attributable expenses allocated to the Financial Services segment that were used in the determination of the segment's contribution loss were as follows:
Year Ended December 31,2022 vs. 2021
2021 vs. 2020
($ in thousands)202220212020$ Change% Change$ Change% Change
Compensation and benefits$110,288 $81,176 $81,354 $29,112 36 %$(178)- %
Provision for credit losses54,332 7,573 - 46,759 617 %7,573 n/m
Member incentives45,923 19,544 9,100 26,379 135 %10,444 115 %
Direct advertising36,660 19,051 8,083 17,609 92 %10,968 136 %
Product fulfillment33,713 23,638 10,459 10,075 43 %13,179 126 %
Lead generation30,418 10,308 2,352 20,110 195 %7,956 338 %
Professional services4,590 3,832 5,853 758 20 %(2,021)(35)%
Intercompany technology platform expenses4,600 1,863 686 2,737 147 %1,177 172 %
Other(1)
46,578 26,011 26,079 20,567 79 %(68)- %
Directly attributable expenses$367,102 $192,996 $143,966 $174,106 90 %$49,030 34 %
(1)Other expenses primarily include tools and subscriptions, operational product losses, third party fraud expense, travel and occupancy-related costs, and marketing expenses.
2022 vs. 2021. Financial Services directly attributable expenses increased by $174.1 million, or 90%, for the year ended December 31, 2022 compared to 2021, primarily due to: (i) an increase related to our provision for credit losses, which was primarily related to increases in the provision for credit cards due to higher average credit card balances combined with elevated credit card loss rates during 2022; (ii) an increase in compensation and benefits expense, which reflected our ongoing prioritization of growth in the Financial Services segment that required additional staffing, as well as increased average compensation in 2022; (iii) an increase in direct member incentives utilized to drive adoption and usage of our Financial Services products, the most significant of which was SoFi Checking and Savings; (iv) an increase related to utilization of lead generation channels during 2022, primarily related to SoFi Checking and Savings; and (v) an increase in direct advertising costs primarily driven by an increase in search engine and social network marketing primarily related to the continued promotion of SoFi Checking and Savings.
2021 vs. 2020. Financial Services directly attributable expenses increased by $49.0 million, or 34%, for the year ended December 31, 2021 compared to 2020, primarily due to: (i) an increase in product fulfillment costs related to SoFi Invest and SoFi Money, which included such activities as operating our cash management sweep program, brokerage expenses and debit card fulfillment services, and is also inclusive of the impact of our 8 Limited acquisition on a full year of operations during 2021. We also had additional costs related to credit card fulfillment in 2021; (ii) an increase in direct advertising costs primarily driven by an increase in social media and search engine marketing related to the continued promotion of, and growth in, our Financial Services products; (iii) an increase in direct member incentives utilized to drive adoption and usage of primarily SoFi Money and SoFi Invest; (iv) an increase related to lead generation, primarily related to SoFi Invest; and (v) an increase in our provision for credit losses on credit cards, which launched during the third quarter of 2020.
Corporate/Other Non-Reportable Segment
Non-segment operations are classified as Corporate/Other, which includes net revenues associated with corporate functions, non-recurring gains and losses from non-securitization investment activities and interest income and realized gains and losses associated with investments in available-for-sale ("AFS") debt securities, all of which are not directly related to a reportable segment. For the year ended December 31, 2022, net interest expense within Corporate/Other also reflects the
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financial impact of our capital management activities within the treasury function, which reflects the residual impact from FTP charges and FTP credits allocated to our reportable segments under our FTP framework. The following table presents the measure of total net revenue for Corporate/Other:
Year Ended December 31,2022 vs. 2021
2021 vs. 2020
($ in thousands)
202220212020$ Change% Change$ Change% Change
Net interest expense$(39,958)$(9,594)$(21,791)$(30,364)316 %$12,197 (56)%
Noninterest income (loss)(9,307)3,179 (1,729)(12,486)n/m4,908 n/m
Total net loss
$(49,265)$(6,415)$(23,520)$(42,850)668 %$17,105 (73)%
Reconciliation of Directly Attributable Expenses
The following table reconciles directly attributable expenses allocated to our reportable segments to total noninterest expense in the consolidated statements of operations and comprehensive income (loss):
Year Ended December 31,
($ in thousands)202220212020
Reportable segments directly attributable expenses$(1,048,667)$(687,604)$(481,205)
Intercompany expenses7,604 1,863 686
Expenses not allocated to segments:
Share-based compensation expense(305,994)(239,011)(99,870)
Employee-related costs(1)
(184,764)(143,847)(114,599)
Depreciation and amortization expense(151,360)(101,568)(69,832)
Fair value changes in warrant liabilities- (107,328)(20,525)
Special payment(2)
Other corporate and unallocated expenses(3)
(209,075)(167,373)(108,708)
Total noninterest expense$(1,892,256)$(1,466,049)$(894,053)
(1)Includes compensation, benefits, recruiting, certain occupancy-related costs and various travel costs of executive management, certain technology groups and general and administrative functions that are not directly attributable to the reportable segments.
(2)Represents a special payment to the Series 1 preferred stockholders in connection with the Business Combination in the second quarter of 2021. See Note 13 to the Notes to Consolidated Financial Statements for additional information.
(3)Represents corporate overhead costs that are not allocated to reportable segments, which primarily includes corporate marketing and advertising costs, tools and subscription costs, professional services costs, corporate and FDIC insurance costs and transaction-related expenses.
Liquidity and Capital Resources
Liquidity
We strive to maintain access to diverse funding sources and ample liquidity to fund our operating requirements, to pursue strategic growth initiatives and to meet our legal and regulatory requirements. Our principal sources of liquidity are our cash and cash equivalents, including cash from operations, and investments in other highly liquid assets.
We maintain a Capital and Asset Liability Management policy ("CALM") that outlines specific requirements relating to the oversight of SoFi Technologies, Inc. (and its subsidiaries) capital planning, financial planning and forecasting, liquidity risk management, contingency funding planning, interest rate risk management, cash management and financial operations, among other activities. Oversight of these activities is the responsibility of our Asset Liability Committee (the "ALCO"). The ALCO is comprised of a cross-functional leadership team that is responsible for managing our use of capital, liquidity, sources and uses of funding, and sensitivities to various market risks, by identifying key risks and exposures, monitoring them appropriately, establishing tolerances and limits, and mitigating risks where appropriate, to ensure the Company has the ability to meet its obligations.
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The following table summarizes our on-balance sheet liquidity:
December 31,
($ in thousands)20222021
Cash and cash equivalents$1,421,907 $494,711
Investments in available-for-sale debt securities195,438 194,907
Available liquidity$1,617,345 $689,618
We believe our existing balance sheet liquidity will be sufficient to cover net losses, meet our existing working capital and capital expenditure needs, as well as our planned growth for at least the next 12 months.
Sources of Funding
Our primary funding sources include SoFi Bank deposits, warehouse funding, common and preferred equity capital, convertible debt, corporate revolving credit facility, securitizations, and other financings.
Deposits
We commenced offering deposit accounts (SoFi Checking and Savings accounts) to our members through SoFi Bank in the first quarter of 2022. We also source brokered and non-brokered wholesale deposits, which include certificates of deposit. As of December 31, 2022, time deposit balances due in less than one year totaled $966.6 million. We did not have any deposits as of December 31, 2021.
Borrowing Capacity
The following table summarizes our available capacity on our borrowings:
December 31, 2022December 31, 2021
($ in thousands)Available CapacityMaturityAvailable CapacityMaturity
Warehouse facilities(1)
$5,341,025 January 2023 - January 2032$5,627,623 January 2022 - January 2030
Revolving credit facility74,000 September 202374,000 September 2023
Total available capacity $5,415,025 $5,701,623
(1)Includes personal loan, student loan, credit card and risk retention warehouse facilities. For risk retention facilities, we only include capacity amounts wherein we can pledge additional asset-backed bonds and residual investments as of the date indicated.
Uses of Funding
Our primary uses of funds include loan originations, the losses generated by our Financial Services segment, and investments in our business, such as technology and product investments and sales and marketing initiatives. Our capital expenditures have historically been less significant relative to our operating and financing cash flows, and we expect this trend to continue for the foreseeable future.
As of December 31, 2022, we had debt obligations, common stock and redeemable preferred stock outstanding.
Borrowings
Our borrowings primarily included our loan and risk retention warehouse facilities, asset-backed securitization debt, revolving credit facility and convertible notes, as defined below. 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. The amount owed and outstanding on our loan warehouse facilities fluctuates significantly based on our origination volume, sales volume, the amount of time we strategically hold loans on our balance sheet, and the amount of loans being self-funded with cash.
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. 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. See
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Note 12 to the Notes to Consolidated Financial Statements for additional information on the conversion, settlement and redemption terms of the Convertible Notes. Additionally, if special interest or additional interest is incurred on the Convertible Notes, it could require an additional use of cash.
In connection with the issuance of the Convertible Notes, we entered into privately negotiated Capped Call Transactions with certain financial institutions, which are expected to generally reduce the potential dilutive effect on the common stock upon any conversion of the notes and/or offset any cash payments we are required to make in excess of the principal amount of the converted notes, as the case may be. Refer to Note 13 for additional information on the Capped Call Transactions.
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 to pay related expenses and for general corporate purposes.
Covenants
We have various affirmative and negative financial covenants, as well as non-financial covenants, related to our warehouse debt and revolving credit facility, as well as our Series 1 Redeemable Preferred Stock. Additionally, we have compliance requirements associated with our Convertible Notes, and certain provisions of the arrangement could change in the event of a "Make-Whole Fundamental Change", as defined in the indenture.
The availability of funds under our warehouse facilities and revolving credit facility is subject to, among other conditions, our continued compliance with the covenants. These financial covenants include, but are not limited to, maintaining: (i) a certain minimum tangible net worth, (ii) minimum cash and cash equivalents, and (iii) a maximum leverage ratio of total debt to tangible net worth. A breach of these covenants can result in an event of default under these facilities and allows the lenders to pursue certain remedies. Our subsidiaries are restricted in the amount that can be distributed to SoFi only to the extent that such distributions would cause the financial covenants to not be met.
In addition, pursuant to our amended and restated agreement related to our Series 1 Redeemable Preferred Stock, we are subject to the following financial covenants:
•Tangible net worth to total debt ratio requirement, which excludes our warehouse, risk retention and securitization related debt;
•Tangible net worth to Series 1 Redeemable Preferred Stock ratio requirement; and
•Minimum excess equity requirements, where the measure of equity includes permanent equity and SoFi Technologies Redeemable Preferred Stock (exclusive of Series 1 Redeemable Preferred Stock), as applicable.
We were in compliance with all covenants as of December 31, 2022.
Capital Management
SoFi Technologies, a bank holding company, and SoFi Bank, a nationally chartered association, are required to comply with regulatory capital rules issued by the Federal Reserve and other U.S. banking regulators, including the OCC and FDIC. Shortly after we closed the Bank Merger, we allocated $750 million in capital to SoFi Bank and may contribute more capital as SoFi Bank continues to grow. We are required to manage our capital position to maintain sufficient capital to satisfy these regulatory rules and support our business activities, including the requirement to maintain minimum regulatory capital ratios in accordance with the Basel Committee on Banking Supervision standardized approach for U.S. banking organizations (U.S. Basel III). If the Federal Reserve finds that we are not "well-capitalized" or "well-managed", we would be required to take remedial action to comply with all applicable capital and management requirements, which may contain additional limitations or conditions relating to our activities.
The requirements establish required minimum ratios for Common Equity Tier 1 ("CET1") risk-based capital, Tier 1 risk-based capital, total risk-based capital and a Tier 1 leverage ratio; set risk-weighting for assets and certain other items for purposes of the risk-based capital ratios; and define what qualifies as capital for purposes of meeting the capital requirements. As of December 31, 2022, our regulatory capital ratios exceeded the thresholds required to be regarded as a well-capitalized institution, and meet all capital adequacy requirements to which we are subject. There have been no events or conditions since December 31, 2022 that management believes would change the categorization. See Note 21 to the Notes to Consolidated Financial Statements for the risk- and leverage-based capital ratios and amounts for SoFi Bank and SoFi Technologies.
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Cash Requirements from Known Contractual Obligations and Other Commitments
The following table summarizes our cash requirements from known contractual obligations and other commitments as of December 31, 2022:
Payments Due by Period
($ in thousands)TotalLess than 1 Year1 - 3 Years3 - 5 YearsMore than 5 Years
Warehouse debt(1)
$3,068,968 $1,608,410 $1,418,403 $42,155 $-
Revolving credit facility(2)
505,520 505,520 - - -
Convertible Notes(3)
1,200,000 - - 1,200,000 -
Operating lease obligations147,320 25,120 42,899 34,383 44,918
Finance lease obligations18,083 964 2,006 2,121 12,992
LA Stadium Complex naming rights(4)
547,185 26,943 52,894 59,505 407,843
Purchase commitment(5)
56,804 20,616 36,188 - -
Total contractual obligations(6)
$5,543,880 $2,187,573 $1,552,390 $1,338,164 $465,753
(1)The amounts reported exclude future interest expense, other than interest accrued as of December 31, 2022, 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 12 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, 2022 through its maturity. See Note 12 to the Notes to Consolidated Financial Statements for additional information on our revolving credit facility.
(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, 2022, all payments associated with the planned retail district, which is currently expected to commence during 2023, 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 9 to the Notes to Consolidated Financial Statements for additional information on our leases.
(5)Relates to a four-year purchase commitment entered into during 2021 for cloud computing services with a total of $80 million to be incurred through the term, of which $20.5 million was incurred through December 31, 2022. See Note 18 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 18 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 17 to the Notes to Consolidated Financial Statements for additional information on income taxes and unrecognized tax benefits.
Guarantees
We may require liquidity resources associated with our guarantee arrangements. As a component of our loan sale agreements, we make certain representations to third parties that purchased our previously held loans. We have a three-year obligation to GSEs on loans that we sell to GSEs, to repurchase any originated loans that do not meet certain GSE guidelines, and we are required to pay the full initial purchase price back to the GSEs. In addition, we make standard representations and warranties related to personal, student and home loan transfers, as well as limited credit-related repurchase guarantees on certain such transfers. If realized, any of the repurchases would require the use of cash. See Note 18 to the Notes to Consolidated Financial Statements for further information on these and other guarantee obligations. We believe we have adequate liquidity to meet these expected obligations.
Factors Affecting Liquidity
We are currently dependent on the success of our lending business. The primary drivers of operating cash flows related to our Lending segment are origination volume, the holding period of our loans, loan sale execution and the timing of loan repayments. Our ability to access whole loan buyers, to sell our loans on favorable terms, to maintain adequate warehouse capacity at favorable terms, to access new SoFi bank deposits and grow existing bank deposits and to strategically manage our continuing financial interest in securitization-related transfers is critical to our growth strategy and our ability to have adequate
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liquidity to fund our balance sheet. Our ability to attract and maintain bank deposits can be impacted by, among other things, general economic conditions, competition from other financial services firms, idiosyncratic events and the interest rates we offer, which can impact our liquidity from deposits. Additionally, there is no guarantee that we will be able to execute on our strategy as it relates to the timing and pricing of securitization-related transfers. Therefore, we may hold securitization interests for longer than planned or be forced to liquidate at suboptimal prices. Securitization transfers are also negatively impacted during recessionary periods, wherein purchasers may be more risk averse.
Our cash flows from operations have also been impacted by material net losses. If our current net losses continue for the foreseeable future, we may raise additional capital in the form of equity or debt, which may not be at favorable terms when compared to previous financing transactions.
Further, future uncertainties around the demand for our personal loans, home loans and around the student loan refinance market in general, including as a result of worsening macroeconomic conditions, should be considered when assessing our future liquidity and solvency prospects. In the future, our loan origination volume and our resulting loan balances, and any positive cash flows thereof, could also be lower based on strategic decisions to tighten our credit standards.
In addition to our ability to pledge unencumbered loans against available warehouse capacity, we have relationships with whole loan buyers who have historically demonstrated strong demand for our loans. Securitization markets can also generate additional liquidity; however, financing through the securitization market could result in worse execution as compared to whole loans sales depending on market conditions and, in certain cases, we are required to maintain a minimum investment due to securitization risk retention rules.
Additionally, our securitization transactions require us to maintain a continuing financial interest in the form of securitization investments when we deconsolidate the SPE or in consolidation of the SPE when we have a significant financial interest. In either instance, the continuing financial interest requires us to maintain capital in the SPE that would otherwise be available to us if we had sold loans through a different channel.
As it relates to our securitization debt, the maturity of the notes issued by the various trusts occurs upon either the maturity of the loan collateral or full payment of the loan collateral held in the trusts, the timing of which cannot be reasonably estimated. Our own liquidity resources are not required to make any contractual payments on our securitization borrowings.
Our long-term liquidity strategy includes continuing to grow our SoFi bank deposit base, maintaining adequate warehouse capacity, maintaining corporate debt and other sources of financing, as well as effectively managing the capital raised through debt and equity transactions. Although our goal is to increase our cash flow from operations, there can be no assurance that our future operating plans will lead to improved operating cash flows.
The FDIA and FDIC regulations generally limit the ability of an insured depository institution to accept, renew or roll over any brokered deposit unless the institution's capital category is "well capitalized" or, with the FDIC's approval, "adequately capitalized." See Part I, Item 1. "Government Supervision and Regulation-Brokered Deposits" for additional information. As of December 31, 2022, our regulatory capital ratios exceeded the thresholds required to be regarded as a well-capitalized institution, and meet all capital adequacy requirements to which we are subject.
On August 16, 2022, the Inflation Reduction Act (the "IRA"), was signed into law. The IRA enacted a 15% corporate book minimum tax and a 1% excise tax on stock repurchases effective after December 31, 2022. The IRA is not expected to have a material impact on our operations or cash flows for the foreseeable future.
Cash Flow and Liquidity Analysis
The following table provides a summary of cash flow data:
Year Ended December 31,
($ in thousands)202220212020
Net cash used in operating activities$(7,255,858)$(1,350,217)$(479,336)
Net cash (used in) provided by investing activities(106,333)110,193 258,949
Net cash provided by financing activities8,439,485 684,987 853,754
Cash Flows from Operating Activities
For the year ended December 31, 2022, net cash used in operating activities of $7.3 billion stemmed from a net loss of $320.4 million and an unfavorable change in our operating assets net of operating liabilities of $7.5 billion, partially offset by a
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positive adjustment for non-cash items of $560.1 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 $13.0 billion during the year and also purchased loans of $2.5 billion. These cash uses were largely offset by principal payments on loans of $3.1 billion and proceeds from loan sales of $4.9 billion.
For the year ended December 31, 2021, net cash used in operating activities of $1.4 billion stemmed from a net loss of $483.9 million and an unfavorable change in our operating assets net of operating liabilities of $1.3 billion, partially offset by a positive adjustment for non-cash items of $479.0 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 $13.0 billion during the year and also purchased loans of $451.0 million. These cash uses were offset by principal payments on loans 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 and an unfavorable change in our operating assets net of operating liabilities of $397.3 million, partially offset by a positive adjustment for non-cash items of $142.0 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 $9.7 billion during the year and also purchased loans of $690.2 million. These cash uses were largely offset by principal payments on loans of $1.9 billion and proceeds from loan sales of $8.0 billion.
Cash Flows from Investing Activities
For the year ended December 31, 2022, net cash used in investing activities of $106.3 million was primarily attributable to proceeds of $118.8 million from our securitization investments and the aggregate net cash acquired from the Technisys Merger and Bank Merger of $58.5 million. These sources were more than offset by net cash uses of $173.7 million related to loan activities, primarily driven by credit cards, $93.2 million for purchases of property, equipment and software, which primarily included internally-developed software and purchased software, as well as $10.5 million related to costs incurred in the development and enhancement of software to be sold, leased or marketed.
For the year ended December 31, 2021, net cash provided by investing activities of $110.2 million 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 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 of $258.9 million 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.
Cash Flows from Financing Activities
For the year ended December 31, 2022, net cash provided by financing activities of $8.4 billion was primarily attributable to net cash sources from our SoFi Bank deposits of $7.2 billion. Additionally, our proceeds from debt financing activities of $0.4 billion exceeded our debt repayments of $0.5 billion, which were primarily 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. Finally, we paid redeemable preferred stock dividends of $40.4 million and taxes related to RSU vesting of $9.0 million.
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 $1.2 billion of proceeds from debt financing activities related to our lending activities and issuance of our Convertible Notes. These debt proceeds were more than offset by $0.9 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 reflective of our recurring debt warehouse facility activity. We also received proceeds from warrant exercises of $95.0 million. We paid taxes related to RSU vesting of
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$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. Finally, we paid $282.9 million to repurchase redeemable common and preferred stock.
For the year ended December 31, 2020, net cash provided by financing activities was $853.8 million. We received $0.5 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. These debt proceeds were partially offset by $1.1 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. 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.
Other Arrangements
We enter into arrangements in which we originate loans, establish an SPE and transfer loans to the SPE, which has historically served as an important source of liquidity. We also retain the servicing rights of the underlying loans and hold additional interests in the SPE. When an SPE is determined not to be a VIE or when an SPE is determined to be a VIE but we are not the primary beneficiary, the SPE is not consolidated. In addition, a significant change to the pertinent rights of other parties or our pertinent rights, or a significant change to the ranges of possible financial performance outcomes used in our assessment of the variability of cash flows due to us, could impact the determination of whether or not a VIE is consolidated. VIE consolidation and deconsolidation may lead to increased volatility in our financial results and impact period-over-period comparability. See Note 1 to the Notes to Consolidated Financial Statements for our VIE consolidation policy.
Historically, we have established personal loan trusts and student loan trusts that were created and designed to transfer credit and interest rate risk associated with the underlying loans through the issuance of collateralized notes and residual certificates. We hold a variable interest in the trusts through our ownership of collateralized notes in the form of asset-backed bonds and residual certificates in the trusts. The residual certificates absorb variability and represent the equity ownership interest in the equity portion of the personal loan trusts and student loan trusts.
We are also the servicer for all trusts in which we hold a financial interest. Although we have the power as servicer to perform the activities that most impact the economic performance of the VIE, we do not hold a significant financial interest in the trusts and, therefore, we are not the primary beneficiary. Further, we do not provide financial support beyond our initial equity investment, and our maximum exposure to loss as a result of our involvement with nonconsolidated VIEs is limited to our investment. For a more detailed discussion of nonconsolidated VIEs, including related activity during the year, see Note 7 to the Notes to Consolidated Financial Statements.
Financial Condition Summary
Changes in the composition and balance of our assets and liabilities as of December 31, 2022 compared to December 31, 2021 were principally attributed to the following:
•an increase of $1.1 billion 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 in loans held for sale of $7.6 billion, which was primarily related to personal loans;
•an increase in goodwill of $724.5 million and an increase in intangible assets of $157.6 million, which were attributable to our two acquisitions during the first quarter of 2022. See Note 2 and Note 8 to the Notes to Consolidated Financial Statements for additional information;
•a decrease in securitization investments of $173.4 million, of which $118.8 million was related to cash receipts. There were no securitization investments made during 2022;
•an increase in deposits of $7.3 billion, which was attributable to our launch of SoFi Bank during the first quarter of 2022 and primarily included savings and demand deposits; and
•an increase of $1.4 billion in gross warehouse and risk retention facility debt to support our originations during the current period, which reflected the net impact of $10.7 billion of cash borrowings and $9.3 billion of cash repayments.
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
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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.
Fair Value
Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We use a three-level fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis in periods subsequent to their initial measurement. The hierarchy requires us to use observable inputs when available and to minimize the use of unobservable inputs when determining fair value. The three levels are defined as follows:
•Level 1 - Quoted prices in active markets for identical assets or liabilities, accessible by us at the measurement date.
•Level 2 - Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or observable inputs other than quoted prices.
•Level 3 - Unobservable inputs for assets or liabilities for which there is little or no market data, which requires us to develop our own assumptions. These unobservable assumptions reflect estimates of inputs that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models, or similar techniques, which incorporate management's own estimates of assumptions that market participants would use in pricing the asset or liability.
A financial instrument's categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Instruments are categorized in Level 3 of the fair value hierarchy based on the significance of unobservable factors in the overall fair value measurement. Our involvement with VIEs and origination of personal loans, student loans and home loans results in Level 2 and Level 3 assumptions having a material impact on our consolidated financial statements, as further discussed below. A third-party valuation specialist performs a valuation of these Level 2 and Level 3 financial instruments on a monthly basis with quarterly oversight by a Valuation Working Group established by the Company that comprises leaders across finance, capital markets and accounting.
Loans
We elected the fair value option to measure our personal loans, student loans and home loans, as we believe that fair value best reflects the expected economic performance of the loans, as well as our intentions given our primary gain-on-sale origination model. Loans do not trade in an active market with readily observable prices. We classify these loans as Level 3 because the valuations utilize significant unobservable inputs.
We determine the fair value of our loans using a discounted cash flow ("DCF") calculation, which is a form of the income approach, while also considering market data as it becomes available. In applying the DCF methodology, we estimate the future cash flows of each loan portfolio using key loan metrics, such as term, vintage, coupon rate, coupon type and current balance, among others. The significant assumptions used in the valuation model include conditional prepayment rate, annual default rate and discount rate. The conditional prepayment rate represents the monthly annualized proportion of the principal of a pool of loans that is assumed to be paid off prematurely in each period. The annual default rate represents the annualized rate of borrowers who do not make loan payments on time. The conditional prepayment and annual default rate assumptions are determined using company-specific historical loan performance curves. The discount rate represents the weighted average rate at which the expected cash flows are discounted to arrive at the net present value of the loans. The discount rate is determined based on company-specific factors and market observations, including the federal funds rate, our weighted average coupon rate and expected duration of the assets, the last of which is also impacted by expected prepayment rates. We also consider the volume and terms of recent whole loan sales and securitization market pricing factors, as applicable, as indicators of loan fair values.
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Securitizations
Loans in consolidated VIEs remain on our consolidated balance sheet and are measured at fair value using Level 3 inputs in a manner consistent with our non-securitization loans. 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 classify the residual interests classified as debt as Level 3 due to the reliance on significant unobservable valuation inputs. 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. These risk retention interests in nonconsolidated VIEs are referred to as securitization investments.
We determine the fair value of our residual interests classified as debt and our securitization investments using a DCF calculation, while also considering market data as it becomes available. In applying the DCF methodology, we estimate the future collateral cash flows using key securitization portfolio metrics, such as contractual payments and delinquency profile, among others. The significant assumptions used in the valuation model include conditional prepayment rate, annual default rate and discount rate. The conditional prepayment and annual default rate assumptions are determined using observed prepayment and default performance. The discount rate is determined based on market observations, such as secondary trading information, newly closed deals, benchmark rates and spread index, among others.
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. 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, 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.
Management uses significant judgment to determine the fair value of intangible assets. For developed technology, management applies the Multi-Period Excess Earnings Method, which is a form of the income approach, for which the significant assumptions generally include expected earnings attributable to the asset (including an assumed technology migration curve), contributory asset charges and an assumed discount rate. For customer-related intangibles, management applies the With and Without Method, which is a form of the income approach, for which the significant assumptions generally include estimated annual revenues and net cash flows (including revenue ramp-up periods and customer attrition rates), and an assumed discount rate. For trade names, trademark and domain names, management applies the Relief from Royalty Method, which is a form of the income approach, for which the significant assumptions generally include expected earnings attributable to the asset, the probability of use of the asset, the royalty rate and an assumed discount rate. The assumed discount rates across the valuation methods reflect the risk of the asset relative to the overall risk of the acquired business. Definite-lived intangible assets are straight-line amortized over their useful lives and reviewed for impairment annually and whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. During the year ended December 31, 2022, we did not recognize any impairment of definite-lived intangible assets.
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 our consolidated financial results beginning on the respective acquisition date.
During the measurement period, which may be up to one year from the acquisition date, we 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).
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SoFi Technologies, Inc.
Goodwill
Goodwill represents the fair value of an acquired business in excess of the fair value of the identified net assets acquired. As of December 31, 2022, we had goodwill of $1.6 billion, of which $724.5 million was recognized during the year in connection with business combinations.
Goodwill is tested for impairment at the reporting unit level annually or whenever indicators of impairment exist. Impairment of goodwill is the condition that exists when the carrying amount of a reporting unit that includes goodwill exceeds its fair value. We may assess goodwill for impairment initially using a qualitative approach, referred to as "step zero", to determine whether conditions exist to indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If management concludes, based on its assessment of relevant events, facts and circumstances that it is more likely than not that a reporting unit's carrying value is greater than its fair value, then a quantitative analysis will be performed to determine if there is any impairment. We may alternatively elect to initially perform a quantitative assessment and bypass the qualitative assessment.
A goodwill impairment loss is recognized for the amount that the carrying amount of a reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. Therefore, if the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired. Our reporting units for our goodwill impairment analysis represent components of our business at one level below our operating segments.
We performed the step zero assessment for two of our reporting units to which goodwill was allocated during the year in connection with business combinations. In performing this assessment, we evaluated factors such as macroeconomic conditions, industry and market conditions, cost factors, the overall financial performance of the reporting unit, and events specific to the reporting unit. Management concluded that, for each reporting unit, it was not more likely than not that the fair value of the reporting unit was less than its carrying amount. Therefore, we did not perform a quantitative assessment for these reporting units.
For each of our remaining reporting units, we performed a quantitative impairment assessment. Determining the fair value of a reporting unit requires the use of estimates and the exercise of significant judgment, which is inherently subjective in nature. For our quantitative goodwill impairment testing, we calculate the carrying amount of each reporting unit using a DCF calculation, which is a form of the income approach, or a combination of DCF and a market multiples calculation, which is a form of the market approach. In applying the DCF methodology, we estimate the future cash flows of each reporting unit using a multi-year forecast, and a terminal value calculated using a long-term growth rate that was informed based on our industry, analyst reports of a public company peer set, current and expected future economic conditions, and management expectations. The discount rates used to discount these future cash flows were determined using a capital asset pricing model based on the market value of equity of a public company peer set, adjusted for risk characteristics and expectations specific to the reporting unit. The discount rates used for our reporting units in our 2022 impairment analysis ranged from 15% to 20%, and we applied a terminal year long-term growth rate of 3.5% to all reporting units. In applying the market multiples methodology, we selected a company peer set based of competitors, publicly traded companies and reviews of analysts' reports, public filings and industry research. In selecting the revenue and EBITDA multiples and determining the fair value, we consider the size, growth, profitability and risk profile of the reporting unit relative to the peer set.
Based on our 2022 impairment analysis, the estimated fair values of each of our reporting units were in excess of their carrying amounts. Therefore, we did not recognize any goodwill impairment during the year ended December 31, 2022.
Assumptions used in estimating the fair value of a reporting unit are highly judgmental and inherently uncertain. A change in the economic conditions of a reporting unit, such as declines in business performance from industry or macroeconomic trends or from company-specific factors, such as changes in our strategy, adverse impacts to deposit growth trends, losses of significant customers, decreases in revenue, increases in expenses, deterioration of market conditions, declines in long-term growth expectations, adverse impacts of regulatory or legislative changes or increases in the estimated cost of capital, including if these conditions are merely forecasted to occur in future periods, could cause the estimated fair values of our reporting units to decline in the future, and increase the risk of a goodwill impairment in a future period.
See Note 8 to the Notes to Consolidated Financial Statements for additional disclosures related to goodwill.
Recent Accounting Standards Issued, But Not Yet Adopted
See Note 1 to the Notes to Consolidated Financial Statements.