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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2025-02-24 compared with 2024-02-27 · 61 added, 25 removed, 61 unchanged (59% of the section changed)

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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.

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.

We are also exposed to market risk through our investments in equity securities, which we elect to measure using the measurement alternative method of accounting and therefore may have positive or negative adjustments that impact our results of operations resulting from observable price changes based on current market conditions.

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.

We utilize simulations to evaluate changes in net interest income under multiple interest rate scenarios relative to the baseline forecast.

The sensitivity is defined as the changes in net interest income relative to the baseline forecast.

The following table summarizes the potential effect on net interest income and fair value of interest rate sensitive financial assets and liabilities recorded on our consolidated balance sheet as of December 31, 2023, based upon a sensitivity analysis performed by management assuming a hypothetical, immediate and parallel increase and decrease in market interest rates of 100 basis points.

The net interest income sensitivities are applied to our 12 month forecast, which incorporates market expectations of interest rates, contractual cash flows, repricing characteristics, and our projected business activity, including deposit forecasts as a key assumption.

Our consolidated balance sheet is liability sensitive, given liabilities reprice faster than assets, resulting in higher net interest income in decreasing interest rate scenarios.

The fair value sensitivities are applied only to

We manage and mitigate these risks using interest rate derivative hedges, our investment portfolio, and broader asset liability management activities.

Our Corporate Treasury group, under the supervision of our ALCO and Board Risk Management committees, centrally manages our interest rate risk.

Our ALCO includes leadership from Treasury, Finance, Independent Risk Management, and Business Units.

ALCO is responsible for identifying key risks and exposures, establishing tolerances and limits, monitoring them appropriately, and managing these risks.

Risk management activities are conducted under the oversight of respective Board Risk Management committees.

Our primary metrics for the measurement and monitoring of interest rate risk (IRR) on a company-wide basis include Net Interest Income (NII) and fair value sensitivity.

Additionally, we utilize Economic Value of Equity (EVE) as a longer term metric of interest rate risk.

These interest rate risk metrics are calculated for a wide range of interest rate scenarios, and risk appetite limits have been established.

The interest rate risk exposures and historical trends against risk limit scenarios are reported to our ALCO and EBRC.

The NII risk metric measures the change in net interest income under an interest rate shock relative to the forecasted baseline scenario over a 12 month horizon.

Our baseline forecast takes into consideration the current balance sheet, projections of future business activity, and the market expectations of benchmark interest rates.

The NII metric is driven by key modeling assumptions for both assets and liabilities.

For assets, key assumptions include prepayment speeds, new lending origination volumes, and new lending origination pricing.

For liabilities, key assumptions include forecasted deposit balances and deposit pricing betas.

Fair value sensitivities measure the interest rate sensitivity of balance sheet assets recorded at fair value which primarily consists of loans and securitization investments.

Servicing rights and AFS securities in the investment portfolio are also measured as fair value sensitivities.

The fair value sensitivity reflects the change in asset price due to an interest rate shock to the underlying benchmark discount rate.

Key assumptions for the fair value sensitivity include conditional prepayment rates, annual default rates, and discount rates.

Please refer to the Level 3 Significant Inputs in Note 15.

Fair Value Measurements to the Notes to Consolidated Financial Statements for more details on these assumptions.

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interest rate sensitive financial assets that existed at the balance sheet date, which included loans, securitization investments, servicing rights and investments in AFS debt securities as of December 31, 2023.

Impact if Interest Rates:

($ in thousands)

Increase 100 Basis Points

Decrease 100 Basis Points

Fair value $ (409,956) $ 438,486

The following tables summarize the potential effect on (i) net interest income;

and (ii) the change in fair value of interest rate sensitive financial assets recorded on our consolidated balance sheet, based upon a sensitivity analysis performed by management assuming a hypothetical, immediate and parallel increase and decrease in market interest rates of 100 and 200 basis points.

While a relevant measure of our interest rate exposure, this sensitivity analysis does not represent a forecast of our net interest income.

Net Interest Income (Expense)

December 31, 2024 December 31, 2023

Basis point change scenario

$ (140,315) $ (80,484)

(62,415) (33,942)

-100 53,730 42,855

-200 99,763 81,436

Change in Fair Value

December 31, 2024 December 31, 2023

Basis point change scenario

$ (1,102,784) $ (802,857)

(562,526) (409,956)

-100 591,349 438,486

-200 1,209,383 896,011

Our consolidated balance sheet is liability sensitive, given that liabilities are expected to reprice faster than assets resulting in higher net interest income in decreasing interest rate scenarios.

The period over period change in sensitivity reflected in the tables above are attributed to changes in balance sheet composition and asset-liability management activities.

In addition to our net interest income and fair value sensitivity analysis above, we also utilize EVE as a longer term measure of interest rate risk.

EVE is a point-in-time analysis of the sensitivity of the current balance sheet and off-balance sheet assets and liabilities that incorporates all cash flows over their estimated remaining lives.

Due to this longer forecast, EVE only uses the current balance sheet and does not include assumptions related to future activities.

Key modeling assumptions in the EVE metric include asset prepayment speeds, deposit pricing beta, and deposit decay rates.

The scenarios, methodologies and assumptions used in the IRR framework are periodically evaluated and enhanced in response to changes in the market environment, changes in our balance sheet composition, enhancements in our modeling and other factors.

The identification and testing of key assumptions are influenced by market conditions and management views of key risks.

IRR measurement across interest rate scenarios is driven by key modeling assumptions that influence the calculated exposures.

Calibration of key assumptions is based upon a combination of factors including historical experience and management judgment.

Key modeling assumptions are subject to periodic review and validation.

In addition, sensitivity testing is performed on key assumptions by increasing and decreasing the modeling inputs relative to the base value and then comparing the resulting impact to the IRR exposure.

Sensitivity testing is periodically reported to ALCO.

We are subject to credit risk, which is the risk of default that results from a borrower’s inability or unwillingness to make contractually required loan payments or declines in home loan collateral values.

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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, 2024 based on upon a sensitivity analysis performed by management assuming an immediate hypothetical change in credit loss rates by a rate of 10%.

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, 2023.

The fair value and earnings sensitivities are applied only to financial

SoFi Technologies, Inc.

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, 2024.

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.

Alternatively, residual investments are subject to credit exposure, and by design this is the portion of the SPE that is expected to absorb the losses of the VIE.

The carrying value and earnings sensitivities are applied only to financial assets that existed at the balance sheet date, which included loans at amortized cost, for which we have recorded an allowance as of December 31, 2024.

Impact if Credit Loss Rates:

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We incurred no losses due to nonperformance by any of our counterparties during the year ended December 31, 2024.

As of December 31, 2023, gross derivative asset and liability positions subject to master netting arrangements were $2.2 million and $6.0 million, respectively.

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As of December 31, 2024, gross derivative asset and liability positions subject to master netting arrangements were $289.0 million and less than $1 million, respectively.

In the case of our loan warehouse facilities, we are subject to risk if the counterparty chooses not to renew a borrowing agreement and we are unable to obtain financing to originate loans.

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Debt to the Notes to Consolidated Financial Statements for additional information regarding our loan warehouse facilities.

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 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.

In the case of our call options on our common stock, 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.

Refer to Note 13.

Equity to the Notes to Consolidated Financial Statements for additional information on our capped call transactions.

We are also subject to counterparty risk associated with our use of third-party custodians to safeguard digital assets on behalf of our members.

Refer to Note 1.

Organization, Summary of Significant Accounting Policies and New Accounting Standards 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.

“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.

Operational Risk

Operational risk is the risk of loss arising from inadequate or failed internal processes, controls, people (e.g., human error or misconduct) or systems (e.g., technology problems), business continuity or external events (e.g., natural disasters), compliance, reputational, regulatory, or legal matters and includes those risks as they relate directly to us, fraud losses attributed to applications and any associated fines and monetary penalties as a result, transaction processing, or employees, as well as to third parties with whom we contract or otherwise do business.

Operational risk is the risk of loss arising from inadequate or failed internal processes, controls, people (e.g., human error or misconduct) or systems (e.g., technology problems), business continuity or external events (e.g., natural disasters), compliance, reputational, regulatory, cybersecurity or legal matters and includes those risks as they relate directly to us, fraud losses attributed to applications and any associated fines and monetary penalties as a result, transaction processing, or employees, as well as to third parties with whom we contract or otherwise do business.

We rely on third-party computer systems and third-party providers to support and carry out certain functions on our platform, which are themselves susceptible to operational risk or which may rely on subcontractors to provide services to us that face similar risks.

Any interruption in services or deterioration in the quality of the service or performance of such third-party systems or providers could be disruptive to our business and adversely affect our results of operations and the perception of the reliability of our networks and services and the quality of our brand.

Any interruption in

SoFi Technologies, Inc.

services or deterioration in the quality of the service or performance of such third-party systems or providers could be disruptive to our business and adversely affect our results of operations and the perception of the reliability of our networks and services and the quality of our brand.

In addition, we may be subjected to member complaints, fines, subpoenas, civil investigative demands, litigation, disputes, regulatory investigations and other similar actions.

We strive to manage operational risk, including operational risk associated with our reliance on third-party systems, through contractual provisions, our system design, and a robust third-party risk management process, which includes establishing policies and procedures to accomplish timely and efficient processing, obtaining periodic internal control attestations from management, conducting internal process Risk Control Self-Assessments and audit reviews to evaluate the effectiveness of internal controls.

With respect to cybersecurity risk, which can also translate to financial and reputational risk, our technology and cybersecurity teams rely on a layered system of preventive and detective technologies, controls, and policies to detect, mitigate, and contain cybersecurity threats.

In addition, our cybersecurity team, and the third-party consultants they engage, regularly assess our cybersecurity risks and mitigation efforts.

Our operational risk, and the amount we invest in risk management, may increase as we introduce new products and product features, and as new threat actors and evolving threat vectors, such as account takeover tactics, increase and become more sophisticated.

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What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk