On UPST’s earnings call and presentation management presented the retained loss share on its recent loan sale as having a value of $51.7 million, which strangely was presented “undiscounted.” When compared to the max loss from the “co-investment” of $40.2 million, it sounds like the value rose in the time since the transaction was booked. Not so. According to UPST 2Q23 10-Q, the discounted value of this asset is $28.7 million, and UPST booked an almost $2 million loss on the asset through earnings.
Despite this straightforward presentation in the Q, Robert Henry Wildhack received a puzzling answer when he asked the following question:

“Just another question about the committed capital co-investment. I do appreciate the detail in the slides there. How are changes to that reflected in the income statement? And does that mean that there’s a plus $11.5 million impact in the second quarter from the markup over the $40.2 million?” [note that Robert had jumped to the conclusion that the presentation led him to think]

UPST 2Q23 Earnings Transcript

But this is the answer he received from Sanjay Datta:

“Hey, Rob. So the short answer is no. That impact is not in the P&L. I wish it were that simple. The reality is we’ve done a couple of different deals and contractually they all have their nuances. I think the result of that is that they’re all being accounted for [it]sic in slightly different ways. Some of it is showing up in the balance sheet as a beneficial interest. Some of it is showing up on the balance sheet under our restricted assets. Some of it is being fair valued. Some of it is being carried at cost. So I think the difficulty of trying to pull all those different accounting treatments together and create a clear picture is the reason why we’re just going to put it on 1 slide for you. But the short answer to your ultimate question is, no, it’s not really hitting the P&L in a way where fair value is being recognized in the net interest income line.”

UPST 2Q23 Earnings Transcript

There does not appear to be, however, any ambiguity in the 10-Q that the $40.2 million “co-investment” discussed on slide 20 of the earnings deck is the same $40.2 million being accounted for on page 22 of the 10-Q. The fair value of this “co-investment” (discounted at a rate of 14% [see page 30 of the 10-Q] is about $20 million, and has declined in value, which hit earnings $2 million.