Will Block disclose Borrow loss rates above 3% in Q4 2025 earnings or the FY2025 10-K?

The resolution criteria has a crucial asymmetry: it resolves NO both if loss rates are at/below 3% AND if Block simply doesn't disclose a specific number. Block has consistently used qualitative 'below 3% target' language rather than reporting exact loss rates. There are two barriers to YES: (1) actual loss rates must exceed 3%, and (2) Block must choose to disclose specific figures. Even if credit quality deteriorated, management has every incentive to maintain vague 'below target' framing. The 24% ANM provides substantial cushion -- at 24% ANM with the current fee structure, loss rates would need to significantly exceed 3% before management would feel compelled to change disclosure language. The 10-K requires provisioning disclosures but Block can report consumer lending losses in aggregate without isolating Borrow-specific loss rates.

The key analytical question is whether +134% origination growth has produced cohort deterioration fast enough to breach 3% by Q4 2025. The committee found no vintage data to assess this, rating it E1 evidence. However, several factors suggest the threshold could be tested: (1) rapid origination growth historically precedes credit deterioration as underwriting loosens to sustain volume, (2) the expansion from 5M to 6M monthly actives in 6 months suggests lower-credit-quality borrowers are being added at the margin, (3) the committee explicitly flagged the 'late-cycle lending euphoria' framing. However, the resolution path requires not just a breach but DISCLOSURE of the breach. Block's 10-K will contain credit loss disclosures but likely aggregated across all consumer lending products. Even if Borrow loss rates crossed 3%, the filing might not isolate them. I weight 25-30% chance rates actually exceeded 3% but only 60% conditional probability that Block would specifically disclose this, yielding ~18%.

The Opus Sonnet debate about 'late-cycle lending euphoria' vs 'moderate-high risk with short-duration mitigant' is directly relevant. The short-duration nature of paycheck-advance lending (typically 1-4 week duration) means loss rates respond quickly to underwriting changes -- management can tighten rapidly if losses approach 3%. The ANM at 24% vs 20% target gives 400bps of headroom, implying management has room to absorb higher losses before it becomes a narrative problem. The FDIC nationwide approval in Q1 2025 suggests the regulatory apparatus reviewed loss data and found it acceptable. Against this: the committee's E1 rating means we genuinely don't know. I'm assigning LOW confidence because the E1 evidence quality means my estimate could be significantly wrong in either direction. The dual barrier of breach-plus-disclosure keeps the probability below 20%.

This market has a structural tilt toward NO. The resolution criteria resolves NO in two scenarios: (1) loss rates at/below 3%, or (2) Block doesn't disclose specific figures. Block has been deliberately vague with 'below target' language for quarters. Even if Borrow loss rates crept above 3%, Block could maintain qualitative disclosure and technically resolve this NO. The only scenario for YES is if a 10-K filing requirement forces specific product-level credit metrics, or if losses are so obviously elevated that analysts force the issue on the earnings call. Given the 24% ANM cushion and management's track record of vague credit disclosure, NO is the strong base case.

I'm going to push back on the consensus view. The 10-K is a different beast than quarterly earnings calls. SEC disclosure requirements for financial companies with lending portfolios require credit loss provisioning detail. Square Financial Services has FDIC reporting obligations. The FY2025 10-K will contain Notes to Financial Statements with allowance for credit losses, charge-off rates, and delinquency statistics. While Block may aggregate across products, the sheer size of Borrow at $22B annualized makes it material enough that auditors may require product-level disclosure. If loss rates are above 3%, the 10-K is where they'd surface -- not the earnings call. I'm at 22% because the 10-K creates genuine disclosure risk that the qualitative earnings call framing can't avoid.

The base rate for a company voluntarily disclosing negative credit metrics is low. Block has had multiple quarters to disclose specific loss rates and has chosen qualitative language. The committee found this opacity CONCERNING but the market question asks whether Block WILL disclose, not whether loss rates ARE above 3%. Management's incentive structure strongly favors maintaining the 'below target' narrative. The most likely Q4 earnings scenario: management says 'loss rates remain within our target parameters' or similar hedged language. The 10-K filing may contain aggregate credit loss data but Block structures its segments to avoid isolating Borrow-specific metrics. Probability sits in the 15-17% range.

Two barriers to YES: rates must exceed 3% AND Block must disclose them. Block uses qualitative language and has incentive to continue. 24% ANM gives cushion. Even the committee rated this E1 evidence precisely because specific figures aren't disclosed. Resolution asymmetry strongly favors NO.

134% origination growth is genuinely risky for credit quality, but short-duration lending and 24% ANM provide buffers. The real question is disclosure, not actual rates. 10-K has stricter requirements than earnings calls, which nudges probability slightly higher. But Block can aggregate across lending products. Probability low but not negligible.

Companies don't voluntarily disclose when key metrics breach negative thresholds. Block has built a narrative around 'below target' loss rates. Even if rates exceeded 3%, management would likely reframe rather than give specific numbers. The resolution criteria effectively requires either forced disclosure or management honesty about a negative trend. Both are unlikely near-term.