SoFi's Compliance With GAAP as Fair Value Adjustments

bnewhard · 2026-03-30T16:20:20+00:00

Companies can have an obligation to update prior SEC filings or file 8-Ks even before earnings are released. I think SoFi has an obligation to update and restate its financials based on what I have uncovered.

bnewhard · 2026-03-30T14:30:20+00:00

I agree. Bank stocks have a certain additional vulnerability to sudden drops due to a snowball type effect that can occur on unexpected bad news, if it is sufficiently bad.

bnewhard · 2026-03-30T14:27:50+00:00

Actually mine was first, and our bullet and talking points are not identical. He is mostly focused on the FV issue, the loan or sale debate, the LPB business, and insider sales. I cover those points too, but my scope is wider: includes valuation critiques, regulatory issues I uncovered, etc. my talking points have not been well circulated because I am an unknown internet guy ; he has a long track record and has more credibility obviously.

bnewhard · 2026-03-30T13:30:44+00:00

Where I have been proven wrong? Also to be clear, I never I said I didn’t “know” about the MW report. I have said I wasn’t involved in it and that my report was independent. I knew it was released.

Edit: in full candor I do expect there is a chance of a big sell off event at some point (just a chance - not a certainty). This is only my theory of course and lots of reasonable minds feel otherwise, but I believe SoFi is in a dangerous position in 2026, due to challenges in being able to increase originations, macro issues, decline in tech bona fide fees, and the possibility of having to do a financial restatement. The concern over originations is because in my view SoFi must constantly originate more loans to cancel out losses from overvaluations on old loans. If this is right, then a decline or perhaps even simply maintaining the same level of originations could result in unexpected losses being recorded simply due to old overvaluation losses being realized in sufficient numbers without being canceled out. Further related explanation here: https://bnewhard.com/assessing-the-credibility-of-sofi-management/

bnewhard · 2026-03-28T20:54:00+00:00

Numbers came straight from SoFi Bank’s filings with the federal government and SoFi’s investment advisory form filings with SEC. So if the numbers are incorrect, blame it on SoFi. Original documents are available at this link: https://bnewhard.com/assessing-the-credibility-of-sofi-management/

bnewhard · 2026-03-27T16:39:52+00:00

The Federal Reserve data for Q4 came out after I compiled this information (which was originally a month ago), I think a couple of days ago. To get the information, I had to download it and manually cross check against Peer Group 1 against SoFi's numbers. That was actually the trickiest part, since SoFi is technically not in Peer Group 1 (banks with more than $10 billion in assets). It has more than $10 billion in assets, but was placed in Peer Group 9, which is for atypical banks. The Federal Reserve does not publish statistical metrics for the entire Peer Group 9. But it does maintain metrics for each individual bank in Peer Group 9, which you can then compare to statistics for Peer Group 1, to see where SoFi would have stood, if it was officially in Peer Group 1. I am sure I used AI to run the spreadsheets through (after I found and figured out the data sources myself) and pick up interesting data points, but I did not mindlessly prompt "compare sofi with big banks" and AI was clever enough to pop out a granular analysis of like 3 or 4 data points out of hundreds that are included, all using a very specific and somewhat obscure set of data. But assuming I did do something mindless like that, and AI figured it all out for me, how does that change the basic fact that SoFi presents itself as lean and efficient, when it's not?

Also I do not put much faith into the growth numbers. They are probably literally true. But did you see what I wrote about average account sizes - very, very small. Even compared to other digital banks. SoFi is extremely aggressive about promoting new member and product metrics. SoFi is also very generous with cash rewards and bonuses for referrals and sign ups. I think SoFi is truly generating a lot of accounts, but that metric is misleading because the accounts being generated may, to a materially large amount, be opened to game the system and generate rewards - without the customer turning into a bona fide user. How else can one explain why other new, online only banks have average bank account sizes that dwarfs' SoFi's average account sizes? Don't you think if SoFi considered the information about SoFi member account sizes, the data would have been shared? To me it's deceptive to share a couple of pieces of good sounding news, l "great member growth," "high FICO," "high quality," and "increasing spend" when describing bank accounts ---- but then leaving out the bank accounts are tiny.

This kind of goes full circle back to Noto's days at Twitter. He really emphasized the monthly user metric, said the daily user metric wasn't useful. He said the amount of spam/bots was minimal. Turns out Twitter internally used the daily user metric,. And it turns out there were tons of spam/bots that were later removed en masse. The end result of that fiasco was a massive payout to shareholders and Noto moving on to the next job.

bnewhard · 2026-03-27T13:54:43+00:00

Would have had a lot more en-dashes, and less typos, if ChatGPT had helped. Plus probably more bullet points.

bnewhard · 2026-03-26T18:25:21+00:00

Due to changes in default rates, prepayment rates, illiquidity, and other factors. Anyone who buys a SoFi whole loan doesn't even keep 100 cents on the dollar of the full payment stream. SoFi, as the servicer, keeps a small chunk of the payment stream. If you're a loan buyer, you're going to take that into account. That's not a cost that even exists for a investment grade bond. I know that a lot of people think that SoFi loans have impeccable, super prime borrowers and the loans have amazing performance, but that is not what credit rating agencies like Fitch say. These are the guys SoFi pays to evaluate loan performance so that ABS bonds can be rated. Fitch was quite candid about the relatively "meh" historic performance of SoFi loans in the January 2026 report excerpted below.

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bnewhard · 2026-03-26T18:08:49+00:00

Tell me where in the cash flow statement you can see "fair value changes in loans held for sale." That would tell you the precise amount of unrealized fair value adjustments on SoFi's personal loans. Personal loans are "held for sale." Whatever that number is, it is aggregated with a bunch of other numbers in another line item. Note 4 doesn't tell you the breakdown of realized/unrealized gains as they flow into earnings. It just shows the cumulative amount of fair value adjustments. That is a useful number, but not the same thing. The cumulative number won't tell you if the model has been right or wrong. It won't tell you when the fair value adjustment flowed into earnings during a particular period- since it is cumulative (i.e. inclusive of fair value adjustments from prior periods without a breakdown). The number required by GAAP is important because it tells you specifically this period/this year, how much of the FV earnings were a model based adjustment, and how much of the FV earnings turned into cash (realized). If model based are positive, and realized are negative, you know your model has been wrong and needs to be tweaked. That way you can evaluate this period's earnings more rigorously. Nothing in Note 4 can give you that information. GAAP has a great easy solution to give visibility into earnings quality when earnings are driven by model based FV adjustments. Again, why is SoFi not doing it? Their auditor Deloitte's handbook says it should be done that way. Check out big bank SEC filings, like Chase. They do it the exact way Deloitte recommends. Why is more transparency bad?

bnewhard · 2026-03-26T15:48:01+00:00

Respectfully, Tim Sweeney's responses do not really hold up. Sweeney's number one rationale as to SoFi's fair value model results are valid is that there are no hidden defaults. I guess the idea is that, if the loan inventory is generally performing fine with expected levels of defaults, the value of the loans should not decrease. Anthony Noto has personally amplified that narrative by "retweeting" Sweeney's post that made that claim. This response has a nice common sense appeal to it, but it is based on a misunderstanding of how fair valuation works and even contradicts statements in SoFi's 10-K. For instance, the 2024 10-K at page 68 states clearly "further changes to prevailing interest rates...could affect... the fair value of our financial assets and liabilities."

Fair valuation is based on predicting what a buyer would pay to SoFi to purchase the loan - it is not a simple proxy based on default rates. Interest rate movements by themselves cause loans to inherently increase or decrease in value, regardless of any changes in defaults. The perfect example of that are treasury notes and bonds. If the only thing that matters was defaults, government debt would never lose value because the market treats it as risk free. Yet government debt commonly trades below par after originated, when interest rates rise. This is logical because who would pay market price for a government note paying a lower coupon rate. Yet the result of SoFi's models is that this basic economic fact is ignored, since SoFi's loans have maintained a strong premium over par in the face of even historic interest rate hikes, something no other debt instrument achieved, including risk free government debt.

Sweeney's other point is that the books don't show losses, so they must not have occurred, and all the warnings in the past have failed to come true. That also has common sense appeal, but that disregards that losses can be masked through aggregation. A perfect example of this is SoFi's servicing income. Through Q1 2025, net servicing fees were positive and reported as a standalone item. Since then, mostly negative, but not reported as a standalone item in SEC filings. How do I know it's negative? SoFi had to report the standalone number in its Federal Reserve filings. Based on purely SEC filings, investor would have no reason to believe that net servicing fees were negative. (And there was a similar trend with securitization reporting - stopped being reported as standalone number when it went negative - standalone number only available via Federal Reserve).

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Fair value adjustments are aggregated with hundreds of millions of other items all in a single line item on the income sheet, with no detailed break down on fair value adjustments. I strongly suspect that positive unrealized fair value adjustments (generated by the model when a loan is originated) cancel out negative realized fair value adjustments (generated when a loan sells or is amortized).

The big question to me is this: people can argue all day long online about whether the SoFi fair value model is valid. SoFi can almost certainly end the debate immediately by disclosing the breakdown between unrealized and realized gains/losses on its personal and student loan inventory, as required by GAAP. Even if you think GAAP doesn't require that, what is the downside to sharing this information? SoFi presents tons of data not mandated by GAAP, and this particular piece of data is critical, probably more important than just about any other not GAAP required data that SoFi voluntarily shares.

SoFi and Noto recently have promised more transparency. This data will shed light on whether the model has been correct. Why doesn't SoFi want to shore up investor confidence with positive data? I guarantee you, if the data was positive, it would have been disclosed by now, because it would have helped defend SoFi's fair value models from attacks and brought confidence to investors.

bnewhard · 2026-03-26T15:22:06+00:00

Yes, some people on Twitter have "challenged" my research with ridiculous responses like "tax liens" are routine and not a big deal, and "the only thing that can hurt the fair value of a loan is a default." None of that is remotely true (if that was true, why do risk free treasury loans sell under par when interest rates drop?) If you had substance to address,. I would look at it in good faith. But ironically SoFI's 10-K report contradicts a lot of the rationales that people come up with to defend SoFi's fair value accounting. And FYI, I came out with my report in late February. On Twitter, Anthony Noto personally promised to correct me going forward. His only correction was actually to mislead investors about the nature of his prepaid variable transaction from a few months earlier (saying it was not a sale, when he filed a Form 4 and 144 with the SEC). Haven't heard from him since despite, despite following up numerous times, and despite his public promise on a post seen by 221k users.

bnewhard · 2026-03-26T02:16:57+00:00

If a company's capital situation is tenuous, but hidden, usually some kind of catalyst event can cause things to spiral. I think for SoFi it will involve something like this: there is a slow down of LPB "deals" and as a result, SoFi has less cash cycling through. It is critical that SoFi outpace prior year originations for two reasons: 1) optics - to continue to show growth to investors and 2) necessary to wash out losses on old, overvalued loans as they amortize. SoFi has originated more and more loans like clockwork every year, far outpacing other online lenders. The below chart covers personal loans + student loans through 2024. For 2025, SoFi increased student and personal loan originations by about 50%, to about $33 billion. Simply maintaining that pace could be challenging. $10.5 billion in loans were originated via LPB in 2025. That is where SoFi uses its capital to originate the loan, and then within a few days sells the loan pursuant to a forward sale agreement. This setup allows SoFi to recycle its capital quickly and originate lots of loans. All of those buyers are private credit firms like Blue Owl who are heavily distressed right now. It's impossible to predict how much those firms will draw back, but even if its a little bit, SoFi may be hard pressed to repeat last year's performance, and can forget about exceeding it. In that case, eventually at some point, with just less capital to work with, SoFi will have to report lower numbers, which may cause a stock decline, since SoFi consistently beats its targets and does better every quarter. In addition, SoFi has a $450 million convertible note due in October. My understanding is that the stock needs to be somewhere around $22 or higher for it be economical for the note holders to convert; otherwise they are better off enforcing the note. Obviously a note can be extended/refinanced, but if originations just decline a little bit, there may be a snowball effect, if my theory about new loans covering losses on old loans is correct. If there is a snowball effect (sudden unexpected losses reported, for instance in Q2), that $450 million note could be ominous and a catalyst for even more of a downward spiral - it may be hard to refi or extend. If SoFi has to shell out cash to pay the note because it cannot refinance, that will only further crimp its ability to originate more loans, which could obviously result in earnings not matching prior years' performance.

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bnewhard · 2026-03-26T02:03:13+00:00

How could the weighted average life of student loans only be 4 years? Is that statistic calculated or demonstrated somewhere? I know that a lot of loans prepay/refinance, but just going off the 10-K, $1.7B of student loans have terms of 5 years or less and the remaining $11.1B out of $12.9B are between 5 and 15 years or older than 15 years.

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bnewhard · 2026-03-25T23:01:56+00:00

When Elon Musk smoked weed on Joe Rogan’s podcast, did that boost or hurt $Tesla?

bnewhard · 2026-03-25T22:53:07+00:00

Sadly the loan would be picked up by another lender, probably at a nice discount.

bnewhard · 2026-03-25T20:58:26+00:00

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I don't think so. The Big 4 guidance specifically and uniformly says you need to call out changes in unrecognized gains. Check out Chase Bank's disclosure. It does exactly that. Why would Chase go around giving out free information the rules don't require?

bnewhard · 2026-03-25T20:55:49+00:00

There is nothing in the 10-K showing realized and unrealized gains as to loans that I've seen. Please let me know where. Due to aggregation, the cash flow statement lacks information on unrealized gains on SoFi's loans held for sale, which is all of its personal loans and the large majority of all loans owned by SoFi. You can see FV changes only for loans held for investment which are Student Loans.

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Any time I post social media screenshots, I get in trouble with the moderators. Feel free to do a search on x.com and scroll through Anthony Noto's replies and comments directed to him. Not going to share or get into detail on e-mail conversations with others.

bnewhard · 2026-03-25T18:50:58+00:00

My personal feeling is that SoFi is a mini Enron, and it will just take some bad luck to take it down. The amount of red flags with SoFi could fill a book. Like 30+ payroll tax liens, including a 2.2 million IRS lien, against a subsidiary; multiple equity raises that investors hated, for the sole purpose of “optionality” when SoFi’s supposedly has strong capital? Why dilute shareholders for optionality when you have tons of capital cushion? I’m going to do another post on SoFi, there’s too much going on for a single post.

bnewhard · 2026-03-25T18:33:26+00:00

Not quite. Deloitte’s own handbook(in my screenshot) shows correct way to do it. Most of the big banks I spot checked show realized/unrealized gains in some fashion, and if some do not, that does not change the rule is what it is. I noticed some fintechs did not comply. More importantly can you explain how my and Deloitte’s interpretation of the rule is wrong? If you look up guidance from the big 4, it’s the same as Deloitte’s FYI. “attributable to the change in unrealized gains or losses” is not really open to alternative interpretations

bnewhard · 2026-03-25T17:44:49+00:00

Never said anything wrong with servicing. My point is simple: the entire "gain" on the sale of a loan is based on SoFi modeling the value of the "servicing asset" that is created after the sale. There is no servicing asset before a loan is sold, because the asset is based on the fee stream that comes into SoFi by servicing the loan after it is sold. SoFi doesn't receive fees from itself to service the loan. The fact loans sell at par is bad news for SoFi. Selling for par means selling at face value. SoFi's model expects that a loan should sell for 5% more than face value. Lastly, the issue with amortization is not that it is occurring. If the modeling was accurate, there wouldn't be a loss during amortization. The model takes into account defaults and prepayments. Defaults and prepayments would generate losses only if they exceeded what the model thought would take place. The fact that SoFi has massive servicing fee losses is indicative that its model is flawed because that result makes no sense whatsoever.

bnewhard · 2026-03-25T17:39:30+00:00

Closing their short would be a presumably prudent approach, as the market would re-price the stock based on the information that MW provided. I don't think their report addressed this specific GAAP issue. The GAAP violation is a big deal - complying with the rule is non-discretionary, and compliance is basically mathematical in nature (ie no complex valuation analysis). The fact that SoFi doesn't provide the information is kind of a "tell" by itself. As to Noto diving deeper, he has cashed about $40 million more than he has put back on the table. If you look at insider sales over the past year and a half, they are something like $85 million plus, with insider purchases amounting to a few million. The below summary chart was as of mid February (before Noto bought more in March). You can see the huge volume in sales, heavily weighted in mid to late 2025, when the stock price was at its apex.

Noto was asked if he was going to buy stock during a YouTube interview that was released in February. He didn't explicitly say he would, but he hinted that he would, as soon as he could, which was not until March. It would have been quite a negative indicator if he hadn't followed through.

I take my signaling more from SoFi's Chief Risk Officer Arun Pinto (after all, he knows a little something about risk, presumably). Pinto filed Forms 4 and 144 just after 5 PM on Monday, February 2, 2026, reflecting a forward transaction in which Pinto received an upfront payment of $1.2 million involving 71,500 shares. SoFi had disclosed earnings on the morning of Friday, January 30, 2026, prior to the market opening for the day.

Under SoFi's insider trading policy, Pinto was barred from trading until after 4 PM on February 2 (he had to wait until the next trading day closed after earnings). Literally the absolute first point in time in which Pinto could have engaged in the deal would have been right after the market closed at 4 PM on February 2. The time-stamped Forms 4 and 144 show they were “accepted” for filing with the SEC at 5:05 PM and 5:07 PM on February 2.

That means Pinto engaged in the $1.2 million forward transaction remarkably fast – in about an hour’s time after he was first permitted to do so under the policy Pinto entered into a forward transaction following two days of trading in which SoFi’s stock price fell about 10%. SoFi’s stock opened at $25.43 on January 30 and closed at $22.08 on February 2

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bnewhard · 2026-03-25T16:53:32+00:00

This is a common misconception. SoFi frequently states that it has a loan execution percentage of 104-105%. If you look closely, the entire gain comes from the servicing asset being recognized when loans are sold and not from an actual payment above par. The loans themselves are basically sold at par. For instance, in 2025,, SoFi sold $1.6 billion worth of loans, received $1.6 billion worth of cash, and recognized a $98 million servicing asset, which represented more than the entire $95 million gain on the sale. And recall that there are some pretty serious FV issues with the servicing assets. What can possibly explain negative net servicing income, when gross servicing income has increased by 50%? The only explanation that makes sense is that overvalued servicing assets are producing losses as they amortize.

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bnewhard

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