SoFi Technologies Inc

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 clients, competition and industry trends, general economic conditions and our ability to optimize our national bank charter. The key factors affecting our operating results are discussed in our Annual Report on Form 10-K for the year ended December 31, 2023, with notable updates provided herein.

Industry Trends and General Economic Conditions

The Federal Reserve decreased the benchmark interest rate in September and November 2024, and additional rate cuts are anticipated by the market through 2025, although the timing of such cuts remains uncertain. We have continued to see strong demand for our deposits as a result of our competitive interest rate offering and access to expanded FDIC insurance coverage through a network of participating banks in our Insured Deposit Program. High or 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, interest rates were to rise unexpectedly or too quickly, or macroeconomic conditions deteriorate or do not improve, it could have a negative impact on the overall economy and result in increased unemployment, which could adversely impact our results of operations. In addition to benchmark interest rate considerations, economic and market volatility may adversely impact our liquidity, results of operations and financial condition. Our increased personal loan annualized charge-off rate year over year was reflective of our expectation of credit metrics to revert over time to more normalized levels, but remains healthy, while our lower credit card annualized charge-off rate was reflective of improvement in credit card delinquency rates. Negative changes to macroeconomic conditions may result in decreased demand for our products, increased operating costs and negatively impact our results of operations.

Fair Value of Loans

We measure our personal loans, student loans and home loans at fair value. Our fair value adjustments on loans impact our consolidated results of operations and include adjustments related to loans originated during the period, loans held at the balance sheet date, as well as gains (losses) on loans sold or repurchased during the period. Fair value adjustments made in each reporting period are impacted by factors such as, among others, interest rates, weighted average coupon, credit spreads, actual and estimated losses, prepayment speeds, duration and previous loan sale execution on similar loans. In determining our fair value assumptions, we incorporate recent data impacting the capital markets, as well as factors specific to us. Changes in these factors, either positive or negative, can have a material impact on our results of operations.

The following table summarizes the significant inputs to the fair value model for personal and student loans:

(1)Represents the average coupon rate on loans held on balance sheet, weighted by unpaid principal balance outstanding at the balance sheet date.

As of the third quarter of 2024 relative to the second quarter of 2024, we observed the following trends:

•The weighted average conditional prepayment rates on personal loans and student loans decreased by 10 bps and 35 bps, respectively. Decreases reflect the impacts of observed decreases in prepayments during the third quarter.

•The weighted average discount rates on personal loans and student loans decreased by 97 bps and 45 bps, respectively. For personal loans, our discount rate assumptions decreased in the third quarter due to benchmark rates declining by 113 bps, partially offset by spreads widening by 16 bps. For student loans, our discount rate assumptions decreased in the third quarter due to benchmark rates declining by 87 bps, partially offset by spreads widening by 42 bps. Spread changes are indicated by asset-backed security and secondary bond markets.

•Annualized net charge-off rates on personal loans in the third quarter of 2024 were 3.5%, which remained lower than the assumed weighted average default rates in our fair value model of 4.5%. Personal loan charge-offs during the second and third quarters of 2024 were impacted by delinquent loan sales of $69.4 million and $81.0 million, respectively, of aggregate unpaid principal balance. Annualized net charge-off rates on student loans in the third quarter of 2024 of 0.7% were consistent with the assumed weighted average default rates in our fair value model. Our fair value assumption for annual default rate incorporates fair value markdowns on loans beginning when they are 10 days or more delinquent, with additional markdowns at 30 days, 60 days and 90 days past due.

The combination of these and other factors resulted in fair value gains recognized on our personal and student loans portfolios, during the third quarter of 2024.

Student Loan Relief

In June 2023, Congress passed the Fiscal Responsibility Act of 2023 which, among other things, ended the suspension of principal and interest payments on federally-held student loans pursuant to the CARES Act passed in 2020, which became effective 60 days after June 30, 2023, and prohibits the Secretary of Education from implementing any extension of any executive action or rule pursuant to the CARES Act. Following the end of the federal student loan payment moratorium on August 30, 2023, President Biden indicated that, between October 1, 2023 and September 30, 2024, he would allow federal loan borrowers to not be considered delinquent if they miss a payment and that the U.S. Department of Education will not refer borrowers who fail to pay their student loan bills to credit agencies. Additionally, President Biden has announced multiple relief measures for federal student loan borrowers, despite legal challenges at the Supreme Court to certain of President Biden’s student loan forgiveness proposals. For example, the Biden Administration announced on July 14, 2023 that $39 billion in federal student loan debt would be eliminated to remedy mistakes of loan servicers, and that other student loan holders will have their loans adjusted. In the fall and winter of 2023, the Biden Administration estimated that it would cancel more than $132 billion of student debt for more than three million borrowers and continue to pursue debt forgiveness strategies including through the Saving on a Valuable Education (“SAVE”) Plan which offers forgiveness after as few as 10 years of payments for borrowers who originally took out $12,000 or less for college. In February 2024, the Biden Administration announced that it will automatically discharge $1.2 billion in loans for nearly 153,000 eligible borrowers under the SAVE Plan. In March, July, and October 2024, the Biden Administration announced the approval of a cumulative $11.5 billion in additional student loan debt relief through the U.S. Department of Education’s Public Service Loan Forgiveness program (“PSLF”). In April 2024, the U.S. Department of Education issued a notice of proposed rulemaking to include targeted student loan debt forgiveness to certain borrowers, including provisions under the Higher Education Act of 1965, as amended, that would provide relief for eligible borrowers of runaway interest, forgiveness of outstanding debt related to loans which entered repayment at least 20 years ago, and additional provisions to facilitate relief related to income-driven repayment plans.

While we expect we may continue to see an increase in student loan refinancing volume as borrowers may look to refinance at a lower rate as interest rates decline or, given the high interest rate environment compared to recent historical periods, may look to extend the loan term, the timing and impact to our student loan refinancing product will largely depend on expectations regarding the impact of the change in the U.S. presidential administration, the interest rate environment, how competitive our student loan refinancing products are compared to our competitors and macroeconomic factors.