Quantitative and Qualitative Disclosures About Market Risk
−Removed: In the normal course of business, we are subject to a variety of market-related risks which can affect our operations and profitability.
+Added: In the normal course of business, we are subject to a variety of market-related risks that can affect our operations and profitability.
We broadly define these areas of risk as interest rate risk, credit risk, market risk and counterparty risk.
Historically, substantially all of our revenue and operating expenses were denominated in United States dollars.
−Removed: As a result of our acquisitions in the second quarter of 2020, as well as our anticipated acquisition of Technisys in February 2022, which are further discussed in Note 2 to the Notes to Consolidated Financial Statements, we may in the future be subject to increasing foreign currency exchange rate risk.
+Added: We may in the future be subject to increasing foreign currency exchange rate risk with our recent acquisition of a foreign company.
Foreign currency exchange rate risk is the risk that our financial position or results of operations could be positively or negatively impacted by fluctuations in exchange rates.
−Removed: Exchange rate risk was not a material risk for the Company during any of the periods presented.
+Added: Exchange rate risk was not a material risk for us during the years presented.
Interest Rate Risk
−Removed: We are subject to interest rate risk associated with our consolidated loans, securitization investments (including residual investments and asset-backed bonds), servicing rights, variable-rate debt and our investments in AFS debt securities.
−Removed: Our loan portfolio consists of personal loans, student loans and home loans, which are carried at fair value on a recurring basis, and credit cards, which are measured at amortized cost.
−Removed: The loans with variable interest rates are exposed to interest rate volatility, which impacts the amount of interest income we recognize in our consolidated statements of operations and comprehensive income (loss).
+Added: We are subject to interest rate risk associated with our loans, securitization investments (including residual investments and asset-backed bonds), servicing rights, variable-rate debt, deposit accounts and investments in AFS debt securities.
+Added: Our loans with variable interest rates are exposed to interest rate volatility, which impacts the amount of recognized interest income.
Our securitization residual investments are carried at fair value, which is subject to changes in market value by virtue of the impact of interest rates on the market yield of the residual investments.
1 unchanged sentence
That is, as interest rates rise, bond values and earnings fall and vice versa.
−Removed: Lastly, we are subject to interest rate risk on our variable-rate warehouse facilities and our revolving credit facility.
+Added: Additionally, we are subject to interest rate risk on our variable-rate warehouse facilities and our revolving credit facility.
+Added: Market interest rates may also drive the interest we offer to members on their deposits.
Future funding activities may increase our exposure to interest rate risk, as the interest rates payable on such funding may be tied to SOFR or another representative alternative reference rate.
−Removed: These arrangements are also subject to the reference rate reform guidance, which is further discussed in Note 1 to the Notes to Consolidated Financial Statements.
−Removed: Interest rate risk also occurs in periods where changes in short-term interest rates result in loans being originated with terms that provide a smaller interest rate spread above the financing terms of our warehouse facilities, which can negatively impact our realized net interest income.
+Added: Interest rate risk also occurs in periods where changes in short-term interest rates result in loans being originated with terms that provide a smaller interest rate spread above the financing terms of our warehouse facilities or above the interest rate we offer on deposits, which can negatively impact our realized net interest income.
The following table summarizes the potential effect on earnings over the next 12 months and the potential effect on the fair values of assets and liabilities recorded on our consolidated balance sheet as of December 31, 2022, based upon a sensitivity analysis performed by management assuming an immediate hypothetical increase and decrease in market interest rates of 100 basis points.
−Removed: The fair value and earnings sensitivities are applied only to financial assets and liabilities that existed at the balance sheet date, which included loans measured at fair value, securitization investments, servicing rights, investments in AFS debt securities, credit cards and certain variable rate debt as of December 31, 2021.
+Added: The fair value and earnings sensitivities are applied only to financial assets and liabilities that existed at the balance sheet date, which included loans, securitization investments, servicing rights, investments in AFS debt securities, deposit liabilities and certain variable rate debt as of December 31, 2022.
For loans and investments in AFS debt securities, interest rates impact both the fair value change and interest income, although the impact on interest income from AFS debt securities was immaterial.
1 unchanged sentence
The sensitivity impact on interest income from credit cards was performed on the revolving portion of our credit card portfolio at year end and reflects the impact from changes in interest rates, while holding all other factors constant.
−Removed: For debt, the sensitivity impact on interest expense was performed only on our variable-rate debt, which is not measured at fair value on a recurring basis and, therefore, only reflects the hypothetical impact on interest expense.
−Removed: Additionally, the amounts are gross of debt issuance costs and discounts or premiums.
+Added: For debt, the sensitivity impact on interest expense was performed only on our variable-rate debt and the amounts are gross of debt issuance costs and discounts or premiums.
December 31, 2022
10 unchanged sentences
For loans that were repurchased or not sold in the secondary market, we are subject to credit risk to the extent a borrower defaults and we are not able to fully recover the principal balance.
−Removed: We believe that this risk is mitigated through the implementation of stringent underwriting standards, strong fraud detection tools and technology designed to comply with applicable laws and our standards.
+Added: We believe that this risk is mitigated through the implementation of stringent underwriting standards, strong fraud detection tools and technology designed to comply
+Added: SoFi Technologies, Inc.
+Added: T ABLE OF CONTENTS
+Added: with applicable laws and our standards.
In addition, we believe that this risk is mitigated through the quality of our loan portfolio.
−Removed: The Lending segment weighted average origination FICO during the year ended December 31, 2021 was 761.
The following table summarizes the potential effect on earnings over the next 12 months and the potential effect on the fair values of our loans for which we elected the fair value option and residual investments recorded on our consolidated balance sheet as of December 31, 2022 based on upon a sensitivity analysis performed by management assuming an immediate hypothetical change in credit loss rates by a rate of 10%.
−Removed: The fair value and earnings sensitivities are applied only to financial assets that existed at the balance sheet date, which included loans measured at fair value, credit card loans, investments in AFS debt securities (which had an immaterial impact from credit risk) and residual investments as of December 31, 2021.
+Added: The fair value and earnings sensitivities are applied only to financial assets that existed at the balance sheet date, which included loans, investments in AFS debt securities (which had an immaterial impact from credit risk) and residual investments as of December 31, 2022.
Asset-backed bonds are excluded because they are not expected to absorb the losses of the VIE based on the extent of overcollateralization and expected credit losses of the VIE.
7 unchanged sentences
Income (loss) before income taxes (65,467) 65,467
−Removed: We are exposed to the risk of loss to future earnings, values or future cash flows that may result from changes in market discount rates.
−Removed: We are exposed to such market risk directly through our investments in AFS debt securities, loans, servicing rights and securitization investments held on our consolidated balance sheet, all of which are measured at fair value on a recurring basis.
+Added: We are exposed to the risk of loss to future earnings, values or future cash flows that may result from changes in market discount rates or overall market conditions.
+Added: We are exposed to such market risk directly through our investments in AFS debt securities, loans, servicing rights and securitization investments held on our consolidated balance sheets, all of which are measured at fair value on a recurring basis.
Investments in AFS debt securities are valued utilizing quoted prices in actively traded markets or rely upon observable inputs other than quoted prices, dealer quotes in markets that are not active and implied pricing derived from new issuances of similar securities.
2 unchanged sentences
For our servicing rights, the discount rate is commensurate with the risk of the servicing asset cash flow, which varies based on the characteristics of the serviced loan portfolio.
+Added: We are also exposed to market risk through our investments in equity securities, which are either measured at fair value using the net asset value practical expedient or which may have positive or negative adjustments that impact our results of operations resulting from observable price changes based on current market conditions.
December 31, 2022
6 unchanged sentences
Counterparty Risk
−Removed: We are subject to risk that arises from our debt warehouse facilities, interest rate risk hedging activities and capped call options on our common stock.
+Added: We are subject to risk that arises from our debt warehouse facilities, interest rate risk hedging activities, third-party custodians, and capped call options on our common stock.
These activities generally involve an exchange of obligations with unaffiliated lenders or other individuals or entities, referred to in such transactions as “counterparties”.
−Removed: If a counterparty were to default, we could potentially be exposed to financial loss if such counterparty were unable to meet its obligations to us.
−Removed: We manage this risk by selecting only counterparties that we believe to be financially strong, spreading the risk among many such counterparties, placing contractual limits on the amount of dependence on any single counterparty, and entering into netting agreements with the counterparties as appropriate.
+Added: If a counterparty was to default, we could potentially be exposed to reputational damage and financial loss if such counterparty was unable to meet its obligations to us.
+Added: We manage this risk by selecting only counterparties that we believe to be financially strong, spreading the risk among multiple such counterparties, placing contractual limits on the amount of dependence on any single counterparty, and entering into netting agreements with the counterparties, as appropriate.
In accordance with Treasury Market Practices Group’s recommendation, we execute Securities Industry and Financial Markets Association trading agreements with all material trading partners.
1 unchanged sentence
Such margin requirements limit our overall counterparty exposure.
−Removed: The master netting agreements contain a legal right to offset amounts due to and from the same counterparty.
−Removed: Derivative assets in the consolidated balance sheets represent derivative contracts in a gain position net of loss positions with the same counterparty and, therefore, also represent our maximum counterparty credit risk.
+Added: The master netting agreements contain a legal right to offset amounts due to and from the same
+Added: SoFi Technologies, Inc.
+Added: T ABLE OF CONTENTS
+Added: counterparty.
+Added: Derivative assets represent derivative contracts in a gain position net of loss positions with the same counterparty and, therefore, also represent our maximum counterparty credit risk.
We incurred no losses due to nonperformance by any of our counterparties during the year ended December 31, 2022.
3 unchanged sentences
As of December 31, 2022, we had total borrowing capacity under loan warehouse facilities of $8.4 billion, of which $3.1 billion was utilized.
−Removed: Refer to Note 10 to the Notes to Consolidated Financial Statements for a listing of our loan warehouse facilities.
−Removed: In the case of our call options on our common stock (referred to herein as the “Capped Call Transactions”), if the Capped Call Counterparties, which are financial institutions and initial purchasers of our senior convertible notes issued in the fourth quarter of 2021, are unable to meet their obligations under the contract, we may not be able to mitigate the dilutive effect on our common stock upon conversions of our Convertible Notes or offset any potential cash payments we may be required to make in excess of the principal amount of converted Convertible Notes.
−Removed: Refer to Note 1 and Note 10 to the Notes to Consolidated Financial Statements for additional information on our Capped Call Transactions.
+Added: Refer to Note 12 to the Notes to Consolidated Financial Statements for additional information regarding our loan warehouse facilities.
+Added: In the case of our Capped Call Transactions, if the Capped Call Counterparties, which are financial institutions and initial purchasers of our Convertible Notes, are unable to meet their obligations under the contract, we may not be able to mitigate the dilutive effect on our common stock upon conversions of our Convertible Notes or offset any potential cash payments we may be required to make in excess of the principal amount of converted Convertible Notes.
+Added: Refer to Note 13 to the Notes to Consolidated Financial Statements for additional information on our Capped Call Transactions.
+Added: We are also subject to counterparty risk associated with our use of third-party custodians to safeguard digital assets on behalf of our members.
+Added: Refer to Note 1 to the Notes to Consolidated Financial Statements under the section entitled “Summary of Significant Accounting Policies—Safeguarding Asset and Liability” and to Part I, Item 1A.
+Added: “Risk Factors” under “ Regulatory, Tax and Other Legal Risks ” for additional information on our counterparty risk as it relates to our digital assets product offering.
+Added: SoFi Technologies, Inc.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.