SoFi’s full fiscal 2023 is now in the books. I like to take accountability for my predictions and see what I got wrong, what I got right, and what I learned, and that’s the purpose of this post. I’ll start by covering my predictions compared with actual results
During 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. The primary objective of the FTP framework is to transfer interest rate risk from the business segments by providing matched duration of funding of assets and liabilities to allocate interest income and interest expense to each segment. Therefore, the financial impact, management and reporting of interest rate risk is centralized in Corporate/Other, where it is monitored and managed. Under the FTP framework, treasury provides a funds credit for sources of funds, such as deposits, and a funds charge for the use of funds, such as loan originations and credit card. The process for determining FTP credits and charges is based on a number of factors and assumptions, including prevailing market interest rates, the expected duration of interest-earning and interest-bearing assets and liabilities, contingent risks and behaviors, and our broader funding profile. As the durations of assets and liabilities are typically not perfectly matched, the residual impact of the FTP framework is reflected within Corporate/Other. We regularly assess the assumptions, methodologies and reporting classifications used for segment reporting, which may result in further refinements or changes to the framework in future periods. The application of the FTP framework impacts the measure of net interest income and, thereby, total net revenue and contribution profit (loss) for our Lending and Financial Services segments, as well as the total net revenue of Corporate/Other, but has no impact on our consolidated results of operations
The FTP has been in place for almost 2 years now and during that entire time Corporate revenue has been negative, so there isn't a reason I can think of that it would flip positive this quarter.
But I'd think FTP is dynamic based on multiple moving parts (assets, liabilities, spreads).
What are the components of FTP?
The 3 components of Funds Transfer Pricing are the asset spread, liability spread, and residual spread.
The asset spread (credit spread) is the net interest margin earned by funds users, generated by assets such as loans, investments, and fixed assets that receive an FTP charge.
The liability spread (deposit spread) is the net interest margin earned by funds providers on products that provide funding for the institution such as savings, checking, CDs, and institution borrowings that receive an FTP credit.
The residual spread is the margin that your Treasury/Funds Management group earns by ensuring adequate liquidity and managing interest rate risk exposure and other risks.
Great write up as always! Thank you for your time and effort on these and for always giving a balanced perspective!
FTP Credits? For the corporate revenue.
During 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. The primary objective of the FTP framework is to transfer interest rate risk from the business segments by providing matched duration of funding of assets and liabilities to allocate interest income and interest expense to each segment. Therefore, the financial impact, management and reporting of interest rate risk is centralized in Corporate/Other, where it is monitored and managed. Under the FTP framework, treasury provides a funds credit for sources of funds, such as deposits, and a funds charge for the use of funds, such as loan originations and credit card. The process for determining FTP credits and charges is based on a number of factors and assumptions, including prevailing market interest rates, the expected duration of interest-earning and interest-bearing assets and liabilities, contingent risks and behaviors, and our broader funding profile. As the durations of assets and liabilities are typically not perfectly matched, the residual impact of the FTP framework is reflected within Corporate/Other. We regularly assess the assumptions, methodologies and reporting classifications used for segment reporting, which may result in further refinements or changes to the framework in future periods. The application of the FTP framework impacts the measure of net interest income and, thereby, total net revenue and contribution profit (loss) for our Lending and Financial Services segments, as well as the total net revenue of Corporate/Other, but has no impact on our consolidated results of operations
The FTP has been in place for almost 2 years now and during that entire time Corporate revenue has been negative, so there isn't a reason I can think of that it would flip positive this quarter.
But I'd think FTP is dynamic based on multiple moving parts (assets, liabilities, spreads).
What are the components of FTP?
The 3 components of Funds Transfer Pricing are the asset spread, liability spread, and residual spread.
The asset spread (credit spread) is the net interest margin earned by funds users, generated by assets such as loans, investments, and fixed assets that receive an FTP charge.
The liability spread (deposit spread) is the net interest margin earned by funds providers on products that provide funding for the institution such as savings, checking, CDs, and institution borrowings that receive an FTP credit.
The residual spread is the margin that your Treasury/Funds Management group earns by ensuring adequate liquidity and managing interest rate risk exposure and other risks.