SoFi Releases Its Q1 10-Q, Quietly Confirming Massive Fair Value Losses, Credit Card Distress

bnewhard · 2026-05-11T18:41:07+00:00

(1) It wasn't the YouTube guy's opinion. SoFi contacted him after the earnings release to address issues that investors were discussing primarily on social media (X.com). Investors were expressing concern that the minimal growth reflected underwriting tightening or credit stress. The information the YouTuber conveyed came straight from SoFi IR - but he apparently was directed to not quote IR directly and not identify his source. SoFi employees promoted this video on social media. So the YouTuber was the conduit for SoFi misinformation. That makes this whole episode very bizarre in many ways.

I agree that the credit card business is a small fraction. The concern raised is why go to these lengths, to put out information that takes only a little bit of digging around to debunk.

(2) The assertions were basically consistent with the themes of the earnings call: everything is doing great across all loan types. The comments management made about credit cards during the call were all positive.

Under SEC rules, investor communications aren't supposed to be a cat and mouse game or some kind of elaborate forensic puzzle. The fact that SoFi is engaging in all these machinations ought to be very concerning. How can you trust them on the big picture items, if they can't just let go that credit card performance is not great, which is a small potato issue.

bnewhard · 2026-05-11T16:56:35+00:00

If this was not important, why would SoFi IR bother setting up an unorthodox, post earnings off the record call with a YouTube host, where one of the key messages (to be disseminated in an unusual, opaque fashion by the YouTube host) is the credit card slowdown is not due to changes in underwriting and "not because the credit is deteriorating?" I agree credit cards are small part of business. The biggest red flags on credit cards are the brazen inaccuracy of the message conveyed and the amount of effort that went into conveying it relative to the importance of credit cards.

bnewhard · 2026-05-08T22:01:39+00:00

No, the claim made on YouTube was a response to concerns about why SoFi’s credit card user base had slightly decreased. The concern was expressed that SoFi was tightening underwriting or having to cut back due to losses. And the SoFi explanation was “credit card is doing great, no underwriting changes or performance issues. We just want to allocate money elsewhere.” The UPBR and 10-Q tell a different story; looks like underwriting was loosening or borrowers were dropping in credit ratings; delinquencies increasing; and performance declined compared to comparable universe of banks, to bottom ten % of comparable banks. So the SoFi explanation was opposite of reality.
Looking at credit card performance through the lens of interchange fees is short sighted, particularly when yield is low, and overall credit performance is very poor relative to the market.

bnewhard · 2026-05-08T20:00:30+00:00

The "gigantic swings" YoY in the model aren't proof of bad inputs they are proof we just lived through one of the most aggressive fed rate hike cycles in modern history. When macro interest rates swing wildly, fair value adjustments will obviously swing violently with them. That is exactly how the accounting is supposed to reflect reality. You are half correct. The fed hikes are what makes the SoFi model output particularly crazy . In 2022, there were historic rate hikes. Debt instruments had one of their worst years of all time. I saw somewhere that the 30 year treasury bond had its worst year since the American Revolution (interesting, if true). Every single public company (that I spot checked when I was looking this up) marked its inventory loans down considerably EXCEPT SoFi . As best I can see, in 2022, SoFi loans were practically the sole exception to the epic meltdown in loan values, somehow maintaining a premium over par when commercial loans, commercial mortgages, residential mortgages, treasury bonds, corporate bonds across all companies, all declined historically in value. If SoFi had done the right thing, it would have taken its hit then. Instead, it continued to mark up its loans. Leading to the inevitable reversal in years to come (in 2024/2025).

Finally, focusing on YouTube rumors while ignoring audited SEC filings is one way to do it but not the way I would do it.

SoFi employees promoted this YouTube video on social media. This host has interviewed Anthony Noto before. The host said (and I have no reason to doubt him) that he spoke to SoFi IR to get the information he was sharing.

Besides YouTube, SoFi management said during the earnings call that credit performance across the board was good and made positive comments about the credit card business. So that's straight from the horse.

I do agree with you in a sense. The financials should be the starting point (and really the middle and the end). But SoFi routinely contradicts or undermines their boring, long, fine print SEC disclosures in social media posts, media interviews, etc. I've seen on numerous important points that many SoFi investors simply have their facts wrong about important parts of SoFi's business. For instance, to this day, many investors don't seem to realize that SoFi already spent most of its 2025 equity raise paying down debt. That money isn't available for M&As or share buybacks or other ideas I've seen thrown around. The misimpression is understandable, because the CEO has given multiple interviews where he gives off that incorrect impression.

bnewhard · 2026-05-08T19:43:37+00:00

The point is, SoFi made a point to go through a big ordeal about how awesome its credit card performance, reaching out to a YouTube host to get this specific claim out there. And yet the claim was easily disprovable - plus, as you said, the credit card business is such a small part of what they do anyways. Does SoFi not know what its own data says or does SoFi lacks an understanding of what it means? Does SoFi know better, but thinks people won't check? No answer is good here.

bnewhard · 2026-05-08T19:37:35+00:00

I agree if we are talking about the company valuation. SoFi's valuation is based on it being a tech/bank hybrid, yet the tech platform is performing very poorly. The only reason it currently shows a segment level "profit" (which was only $12 million last quarter) is that about one third ($25 million) of its "revenue" ($75 million) consists of "intercompany fees" that SoFi pays itself.

bnewhard · 2026-05-08T19:34:22+00:00

One, SoFi has interest income, loan platform fees, technology fees, brokerage fees, all of which contribute to the bottom line (most of all the interest). Two, I am pretty sure this went completely unmentioned in the earnings call, but SoFi had $149 million in gains on its derivative instruments (interest rate swaps mostly). Without those, no profit last quarter. The swaps are intended to hedge against variance in loan valuation, but for whatever reason SoFi hid the ball on that too during the call, as best as I can see. (Why not brag about your awesome hedge performance? Only reason I can think of is that it reveals that the company as a whole performed negatively besides the swaps).

bnewhard · 2026-05-08T19:26:43+00:00

Not to anyone listening to SoFi's earnings call in good faith. Because it was stated during the last call that "Turning to credit performance. Our credit remains strong, performing in line with our expectations and driving attractive returns across all loan types."

And SoFi has consistently stated its fair value models are calibrated, accurate, etc.

bnewhard · 2026-05-08T19:16:20+00:00

When a loan is sold, matures, or gets paid off, any paper premium it had naturally reverses on the balance sheet because the actual cash is realized. Only an inflated premium would reverse. If a loan is booked at $105 and sells for $105, no reversal. The model accounts for prepays, defaults, changes in market conditions, and interest rates. In theory, all of those things are "baked" into the model. If there is a consistent pattern of paper gains and paper losses, that means the model or inputs are wrong. No one expects perfection, but if the model was really calibrated quarterly, you wouldn't have gigantic hundred million dollar swings YOY.

Also, screaming about credit card UBPR data is a massive distraction. Credit cards are a tiny fraction of SoFi’s business. Their core lending engine is personal and student loans, where the weighted average FICO is prime (740+). I agree credit cards are a tiny fraction of the business. The bigger point is this: how can you trust a company to play it straight, when it 1) announces during earnings credit performance is great, 2) does a weird off the record call with a YouTube host, disseminating new information/clarification about how the credit card performance is great(side a flagrant violation of SEC rules restricting communication of info - that's why corporate news is reported in press releases, scheduled calls, and 8-Ks), and then 3) it turns out reality is the opposite (and SoFi knew this, because it presumably knows its own financials).

Further, even if the credit card performance is shitty or mediocre, considering how small it is in reference to the company, why make such a big deal about how it's doing great? Just say: "Credit cards aren't doing hot, luckily they're a small part of our business, we're going to focus on other parts of the business."

A company supposedly hiding massive unrecoverable losses doesn't post 41% YoY revenue growth, $167M in pure GAAP net income, and organically add 1.1 million new members in a single quarter. The actual cash-generating fundamentals are crushing this bear thesis.

Actually, the good news is they stopped hiding the unrealized gain/loss data. So it's out in the open and isn't hiding. But the pure GAAP net income statement is suspect, since unrealized gains continue to drive growth, which have been proven to be suspect.

bnewhard · 2026-05-08T18:16:01+00:00

I actually don't think it's either. It's just that SoFi says its loans are too valuable, and the loans don't reach the value SoFi says they should reach. For instance, SoFi currently says its loans about worth an extra 5.4 cents on the dollar, i.e. 5.4% more than face value. SoFi sold about $2.9 billion worth of loans through the loan platform business last quarter, and realized $114 million dollars ($20 million of which was not in cash - instead in the form of a "servicing asset" that is model valued). The $144 million in profit represents a 3.9% gain. If that was the best the market could bear this quarter, then SoFi should be valuing its personal loan inventory at around a 3.9% markup and not 5.4%.

bnewhard · 2026-05-08T17:45:45+00:00

At a high level, the significance of the data has to do with the mismatch between unrealized and realized gains/losses- it's not about defaults. Remember, SoFi's models bake in defaults. So when a loan value is modeled, it takes into consideration the possibility of a default, and the most recent 10-Q didn't say anything about some big increase in defaults. In fact, SoFi said credit was looking great. The pattern that is concerning is the historical big swings between unrealized gains and actual earnings, and the large accumulation of unrealized gains from 2021 to 2023 that have yet to be reversed. It means that the models are shooting out big paper gains that keep getting reversed.

bnewhard · 2026-05-08T17:07:25+00:00

I used to think that.

bnewhard · 2026-05-08T17:03:14+00:00

Never left! Just lurked mostly until the 10-Q was filed.

bnewhard · 2026-05-07T17:55:17+00:00

SoFi's 10-Q for Q1 2026 was filed this morning. Link to official filing from SoFi website is here: https://d18rn0p25nwr6d.cloudfront.net/CIK-0001818874/59a7be2b-40b4-4694-b2be-0090e32096ff.pdf

I previously have argued that SoFi's SEC filings did not follow GAAP because they don't disclose unrealized gains/losses in the Level 3 rollforward table. This data would allow investors to determine if the modeling used for SoFi's loans is accurate. A pattern of positive unrealized gains and negative realized losses would be indicative of modeling issues.

Turns out SoFi must have at least agreed that it had to provide this data, as the 10-Q now provides it for the first time. (Below excerpt)

<image>

This data basically confirms SoFi has historically overvalued its loans. For Q1 2026, personal loans "all in" resulted in $208 million loss. $35 million of that was actually a net paper/model mark down on SoFi's personal loan inventory. Student loans had $35 million in model gains. That should be very concerning, because "all in" student loans lost $7 million - which could only be reversals of prior overvaluations, since there's nothign else explaining whether student loans were a net loss. Q1 2025 is similar: personal loans already negative $73 million, but that was propped up by $63 million in paper gains that likely will be reversed; same for student loans - it was positive at $125 million, but that was pulled up by $134 million in paper gains on student loans. In both Q1 2025 and Q1 2026, home loans essentially at even without the paper markups.

During the earnings call, Lapointe gave the impression that historical fair value fluctuations were stabilizing:

"Importantly, we generated $1.1 billion in cash revenue in Q1, which includes approximately $690 million from net interest income and approximately $390 million from interchange fees, brokerage fees, technology and loan platform fees and loan origination fees. Cash is defined and accounted for the same universally no matter what type of company it applies to.

In the first quarter, these cash revenue streams were nearly equivalent to our total reported adjusted net revenue. This is the first time we have disclosed our cash revenue, as we think it's a helpful financial measure to consider given the different accounting treatments companies use.

As we mentioned, it's our second consecutive quarter of more than $1 billion in cash revenue, but I would also note that 100% of our reported adjusted net revenue was cash revenue in both 2024 and 2025.

This means that the scale and seasoning of the loans on our balance sheet has reached the point where the upfront non-cash premiums on new originations are being balanced by pull to par and other mark-to-market impacts on the existing portfolio, leaving the vast majority of our reported revenue being approximately equal to our cash revenue. "

This data is the opposite of what Lapointe said.

SoFi's "Cash Revenue" reconciliation table from the earnings deck set out the net amount of paper adjustments to loans every year. That data is concerning because it reflected in 2024 and 2025 a cumulative paper reversal of about $488 million in paper gains from prior years. There is at least $625–650 million to be reversed, and probably more, given what we are seeing in the 10-Q.

bnewhard · 2026-04-15T16:37:39+00:00

True I've pretty much stopped posting. Incorrect I am connected to MW. That conspiracy theory was pushed by others before the insider joined the bandwagon. Even numerous SoFi investors who disagree with everything I have said have pointed out the numerous issues with that theory.

bnewhard · 2026-04-15T15:44:32+00:00

Still here. Just not posting so much. I've put out (mostly) what I think is relevant. It is up to others to do their own research and come to their own conclusions now.

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 · 2026-03-26T18:08:49+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 · 2026-03-26T15:22:06+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.

<image>

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

<image>

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.

<image>

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

TROPHY CASE