SoFi Technologies Inc

Our consolidated financial statements have been prepared in accordance with GAAP. In preparing our consolidated financial statements, we make judgments, estimates and assumptions that affect reported amounts of assets and liabilities, as well as revenues and expenses. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. The results involve judgments about the carrying values of assets and liabilities not readily apparent from other sources. Actual results could differ materially from these estimates under different assumptions or conditions. We regularly evaluate our estimates, assumptions and judgments, particularly those that include the most difficult, subjective or complex judgments which are often about matters that are inherently uncertain. The most significant judgments, estimates and assumptions relate to the critical accounting estimates, 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. See Note 1. Organization, Summary of Significant Accounting Policies and New Accounting Standards to the Notes to Consolidated Financial Statements for a summary of our significant accounting policies.

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. We utilize third-party valuation specialists to perform 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. Home loans classified as Level 2 have observable pricing sources utilized by management. Personal loans, student loans and home loans which do not trade in an active market with readily observable prices are classified as Level 3 because the valuations utilize significant unobservable inputs.

We determine the fair value of our loans using a 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 underlying benchmark rates, 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.

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 asresidual 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.

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, 2024, we had goodwill of $1.4 billion.

Goodwill is tested for impairment at the reporting unit level at least annually, with a recurring testing date of October 1, 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 based on qualitative considerations, referred to as “step zero”, to determine whether conditions exist that 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, referred to as step one, 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. Quantitative goodwill impairment assessments require a significant amount of management judgment, and a meaningful change in the forecasted future revenues and cash flows, the discount rate, and the determination of market multiples used in testing goodwill for impairment could result in a material impact on the Company’s results of operations and financial position.

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.

As of the annual impairment testing date of October 1, 2024, the Company performed a quantitative assessment for its Galileo and Technisys reporting units. Management calculated the fair value amount of the Galileo and Technisys reporting units using an evenly weighted combination of a DCF calculation, which is a form of the income approach, and a market multiples calculation, which is a form of the market approach.

The discount rates used for the Galileo and Technisys reporting units in our annual quantitative assessment were 13.2% and 19.7%, respectively. The higher discount rate at Technisys was primarily driven by macroeconomic factors in Latin America, specifically the highly inflationary economic environment in Argentina. Additionally, management applied a terminal year long-term growth rate of 4.0% to both reporting units.

As a result of this assessment, the fair value of the Galileo and Technisys reporting units were determined to be above their respective carrying values, though not substantially, which resulted in no impairment at October 1, 2024.

If the discount rate applied to the estimated cash flows was increased or decreased by 50 basis points, the fair value of the Galileo and Technisys reporting units would decrease or increase by approximately 7% and 5%, respectively. Similarly, if the long-term growth rate was increased or decreased by 50 basis points, the fair value of the Galileo and Technisys reporting units would increase or decrease by approximately 3% and 2%, respectively.

As of December 31, 2024 the amount of goodwill assigned to Galileo and Technisys was $816.0 million and $522.6 million, respectively.

For each of our other reporting units, the Company performed a qualitative “step zero” analysis as of its annual impairment testing date of October 1, 2024. The Company evaluated events and circumstances since the last assessment date to determine if it was more likely than not that the fair value of the reporting units were less than their respective carrying amounts. The factors evaluated included an assessment of macroeconomic conditions, industry and market conditions, key financial metrics, overall financial performance of the reporting unit, or any other specific events or changes. As a result of this assessment, the fair value of these reporting units was determined to be above their respective carrying values which resulted in no impairment loss as of October 1, 2024.

For all of our reporting units, management continued to monitor events and circumstances after October 1 annual testing date and through December 31, 2024, concluding that it was not more-likely-than-not that the fair value of any of our reporting units was below its respective carrying value as of December 31, 2024.

Management cannot predict the occurrence of certain events or changes in circumstances that might adversely affect the value of goodwill. We continue to monitor the aforementioned conditions, general macroeconomic deterioration, including the interest rate environment, inflationary pressures, and the potential for a prolonged economic downturn or recession, as well as other factors, including those listed in "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors" in Part I, Item 1A of this Annual Report. Further persistence of the aforementioned conditions and these other factors could result in additional impairment charges in future periods.

See Note 8. Goodwill and Intangible Assets to the Notes to Consolidated Financial Statements for additional disclosures related to goodwill.

Valuation Allowance on Deferred Tax Assets

Determining our deferred tax assets, including any related valuation allowance, and assessing their realizability, requires significant judgements and assumptions. To the extent that our judgements and assumptions materially change, or if actual circumstances differ materially from those in the assumptions, our financial statements could be materially impacted, by the recognition of deferred tax expense and increases to our valuation allowance.

We recognize deferred tax assets for the expected future tax benefits of temporary differences between the financial reporting and tax basis of assets, as well as for net operating loss and tax credit carryforwards. Deferred tax assets are measured using tax rates that are expected to apply to taxable income for the years in which those assets are expected to be realized. A significant portion of the Company’s deferred tax assets relate to U.S. federal and state jurisdictions.

In connection with recording deferred taxes, management assesses the likelihood that deferred tax assets are more likely than not to be realized. A valuation allowance is recorded if, in management’s judgment, it is determined that it is not more-likely-than-not that all or some portion of the deferred tax asset will be realized. We evaluate our deferred tax assets quarterly to determine whether adjustments to our valuation allowance are appropriate in light of changes in facts and circumstances.

Management reviews all evidence, both positive and negative, to determine whether it is more likely than not that our deferred tax assets are realizable. Examples of positive or negative evidence include cumulative income, projections of future profitability, future reversal of deferred tax liabilities, history of U.S. federal and material state tax attributes expiring unused, as well as tax planning strategies. Management defines cumulative income as the most recent three years of pre-tax income adjusted for certain non-recurring, non-taxable, or non-deductible transactions. Generally, the weight we give to any particular factor is dependent upon the degree to which it can be objectively verified. As a result, we give greater weight to the recent cumulative income of a relevant jurisdiction than other more subjective factors.

During the fourth quarter of 2024, based on this assessment, management concluded that cumulative income combined with projections of future profitability provided substantial positive evidence that outweighs the negative evidence to support the realization of certain of the Company's deferred tax assets, primarily related to U.S. and certain state jurisdictions. As a result, during the fourth quarter of 2024, the Company released $258.4 million of its valuation allowance. We continue to maintain a valuation allowance of $30.7 million in certain state and foreign jurisdictions where sufficient positive evidence does not exist to support the realizability of deferred tax assets. Management will continue to assess the need for a valuation allowance in future periods.

See Note 17. Income Taxes to the Notes to Consolidated Financial Statements for additional disclosures related to income taxes.