Q2 2020 LendingClub Corp Earnings Call
[music].
Good afternoon, and welcome to lending club second quarter 2020 earnings Conference call.
Participants will be in listen only mode.
Assistance. Please take note conference specialist both personal sparking followed by zero. After todays presentation will be an opportunity to ask question. Please note that this event is being recorded I would now like to turn the call from to look to submit Gopro. Please go ahead.
Thank you and good afternoon, welcome to Lendingclub second quarter 2020 earnings conference call joining.
Joining me today to talk about results and recent events or Scott Sanborn, CEO and Tom Casey CFO.
Our remarks today will include forward looking statements that are based on current expectations and forecast and involve risks and uncertainties.
These statements include but are not limited to the impact of Corbett 19, our ability to navigate the current economic environment.
You can benefits of our pending acquisition radius I phone volume and the future performance so far business in products.
Our actual results may differ materially from those contemplated by these forward looking statements.
Factors that could cause these results to differ materially are described in today's press release and our most recent forms 10-K and 10-Q each is filed with the S.P.C. as well as our subsequent filings made with the Securities and Exchange Commission, including our upcoming form 10-Q.
Any forward looking statements we make on this call are based on assumptions as of today and we undertake no obligation to update these statements. As a result, you went from Asian or future, but.
Also during this call we will present in discussing both GAAP and non-GAAP financial measures a description of non-GAAP measures reconciliation to GAAP measures are included in todays earnings press release invaded slide presentation.
The press release and accompanying presentation are available to the Investor Relations section of our website and I are lending club Dot com.
Now I'd like to turn the call over to Scott Scott.
Alright, Thank you Samir and thank you everyone for joining us I hope everyone is staying healthy.
Earlier today, we reported our financial results for the second quarter, which were primarily driven by the significant decline in origination volume that we had anticipated.
Well it is clearly a challenging in an uncertain environment. We are successfully managing our liquidity we feel good about how we've positioned the company to ride this out.
We do believe that Q2 represents the trough in terms of loan investor demand and our reported financial results.
Furthermore, we believed that this recession is allowing us to demonstrate the resilience of our asset class.
Our membership base and the strength of our digital underwriting and servicing capabilities.
Well there is certainly a long road ahead.
Q3 gets underway, we are seeing the early signs of green shoots with recent sales of multiple loan portfolios at or above their carrying value.
In five of our top 10 investors now back on the platform purchasing new issuance, albeit modest levels.
With a gradual resumption of investor activity, and our restructuring and associated costs behind us we are appropriately sized to preserve our cash while maintaining the capacity to rebound when it appears prudent to do so.
We believe we have positioned ourselves well to navigate an extended period of uncertainty until we close the bank acquisition.
Once the acquisition of radius is complete will become a leading digital bank with a demonstrated track record of effective underwriting through a very steep downturn.
Now the clean balance sheet to assist in our recovery.
Okay. So before I dive into the details on the quarter I wanted to take a step back and talk about the economic environment, which is obviously unsettled.
Unemployment rates remain high states are pausing and even reversing their plans for reopening and the level and timing for future government stimulus is still to be determined.
Having said that there are some factors that have helped mitigate the virus is economic impact on U.S. consumers.
So first versus 2008 consumer balance sheets were relatively strong coming into this downturn with lower debt levels in relation to their assets.
Second the size and speed of government stimulus is unprecedented and has helped them whether that's difficult environment.
And third consumers seem to be behaving prudently, reducing spending accumulating saving and working hard to stay on track with they'll bills.
Against this backdrop I shared in May how we're directing our activities. According to five guiding principles as we stabilized the business to address the effects of the corner.
These same principles remain in place as we transition out of defense mode begin the recovery and make progress towards our top priority of becoming the first U.S. intact to acquire a buck.
So since the beginning of the pandemic or number one priority has been to keep our employees safe.
They have remained safe I'm pleased to say as well as engaged and productive and delivering for our customers.
Given how well, it's working and the continued uncertainty around school openings childcare availability and the path for the virus. We have told all employees that they'll be able to work remotely through at least the end of this year.
So I'll move on to our second priority, which is to deliver investor returns.
We know the market has been questioning the ability of the personal loan asset to hold up in a recession.
Oh, and we now believe we're in a position to begin to answer that question positively.
So overall, we expect based on what we're seeing that our most recent pre cope advantage as that's those it'll be most impacted by the virus economy will deliver a return of roughly 3%.
That's below our pre cobot expectations. We are pleased with this result, and it supports our view that consumers value their relationship lending club and are prioritizing their loan payments accordingly.
These estimates of performance are based on what we're seeing in the portfolio, including the trajectory of L.C. numbers on payment deferral class.
I'll point, you to slide nine on the Investor presentation, where the good news is you can see from our peak in May the number of loans deferring payments has dropped from 12% that was our peak down to 5%.
And two thirds of borrowers coming off deferral plans are now paying and fall.
And for the minority borrowers who have indicated ongoing hardship. Most are now choosing to make a partial payments through an interest only plan we introduced in Q2.
So we see this isn't an encouraging sign both for borrowers who are taking steps to stay on track as well as investors who are receiving these payments.
Also and as the second graph on slide nine of the Investor presentation indicates or the vast majority of our members who are not enrolled in any hardship programs, they're performing even better and they will create cobot.
So all in all this is an encouraging current read on performance for our servicing portfolio.
Well, let's talk about new loans as we discussed last quarter, new originations are significantly different from Q1.
Higher income higher FICO lower payment to income ratios.
Importantly, our new loans are heavily focused on our existing 3 million members those who have demonstrated successful past payment history with lending.
This because loans to existing members have exhibited significantly lower losses than loans for new members with similar credit profiles and they also come at a much lower cost of acquisition.
So our ability to leverage this data and these relationships is the key competitive asset for lending club and will help us deliver our targeted 5% hierarchy for investors.
[noise] Oh the returns are that we are expecting to deliver it slowly bringing investors back to the platform, albeit at a reduced volume, but the first wants to return being those with their own strong views on credit that includes companies, who build businesses and credit models focused on marketplace investing.
We expect all of our investors to be closely watching the performance of new vintages to our higher quality member base manifest over the next few months.
We anticipate that this future book will provide attractive risk adjusted returns for a broad range of investors, including for lending club as we become a bank and by alone on the same basis as our card platform investors.
I'll be on personal loans, all make a quick note the auto loans continue to surpass yield and loss expectations of investors.
Despite the economic environment, and our patient finance business is recovering very well origination volume there is now getting close to pre kobin levels.
So so that's it for delivering investor returns I'm going to move onto our third priority, which was preserving liquidity.
Oh, Tom will talk in more detail about this what I'll say is now that we've re sized our expense base. We are well positioned here. Our current focus is on increasing our strong cash position to maximize flexibility and prepare for the acquisition in capitalization at the back and accordingly, we've taken steps to convert loans on our balance sheet cash with sales of.
100 million in June with more balance sheet sales to come this quarter Q3 to prepare us for our next priority, which is staying on track for radio.
So our team is working hard working hard towards becoming a back not too much to add today beyond saying that I want to thank the regulators for working with us so collaboratively and effectively even as we have all moved to this virtual environment.
Oh I'm more excited than ever about this transformative acquisition today's environment is a stark reminder of the benefits of access to stable deposit funding.
Of course in addition to the funding the attractive financial economics, the resiliency and the regulatory clarity that the acquisition will provide it will also enable us to create a category defining experience for our members and help us help them achieve financial success.
So that brings me to our final priority, which is to support our members.
During this crisis, we have remained focused on helping members navigate this difficult period, no matter, where they are in their financial journeys. We recently rolled out multiple ways to help those most affected including new hardship plan new ways to pay through self service options on the web and by phone and many other innovations.
We also launched our new member centre in May which provides a variety of tools and resources help members managed their finances more effectively.
Document Lee half a million members visit this member centric every month and this speaks to how much our members want to repay their LC loans as well as to their overall engagement with lending club.
I'll note that well personal loans have become more mainstream since the last recession.
There are still some lessons to take from 2008 Transunion released the study last week.
Showing the personal loan repayments performed as well as credit cards during the great recession, and our internal data for the current crisis supports this assertion.
Our payment rates reflect the ability of our team and our platform to adapt to a rapidly changing environment in support of our borrowers.
I've listened in on many member calls those looking for help stay current on their payments and it's been extremely gratifying to hear how our lending care call Center associates are able to support in reassure our members and provide a range of payment solutions tough times or when brands Bill the strongest relationships with their customers.
And we believe her work to help our members. During this time will pay dividends when we can offer them, an even broader array of products. After we've come a back.
I speak for the whole company when I say that we can't wait to bring this reimagine banking experience to like far members.
Okay with that I'd like to handed over to Tom.
Thank you Scott before I get into the details for the core I'd like to provide a high level you know.
Results for the quarter, largely reflected the impact of significantly lower origination volumes, which we had anticipated.
This contrasts with our first quarter results were origination volumes were closer to our historical levels are reflected significant fair value marks on our loans and securities.
The economic outlook deteriorated in credit spreads widen.
Well the second quarter, we opportunistically sold loans from our balance sheet, indicating some improvement in the market compared to Q1.
Our origination volumes have come off the bottom with July volumes doubling from or low point in may.
Investors about is through their liquidity issues have seen the recent performance of lending club loans.
As Scott mentioned earlier, we have prioritize generating higher levels of liquidity.
And intend to capitalize Reddys bank with cash.
Our estimated net liquidity position remained strong at $554 million and increased slightly from Q1.
Our expenses also decreased significantly as we took decisive action during the quarter to better align or expenses with revenue.
Looking ahead with strong love the liquidity high levels of cash and significantly reduce cash expenses.
We believe are well positioned to successfully navigate through this challenging environment.
And acquire and capitalize radius bag.
So, let's turn to the financials.
For Q2, we reported GAAP net loss of 87 cents per common share and adjusted net loss of 60 cents per share.
Quarter's results primarily reflect the net 147 million dollar decrease in revenue compared to the second quarter 2018.
Offset partly by an $86 million reduction in expenses.
The reduction in revenue was primarily the result of your decline in transaction fees as originations decreased by 90%.
Inline with our call last quarter.
Does actually fees decreased to 4 million from 152 million in the second quarter of 2019 as origination volumes decreased to 326 million from 3.1 billion in the quarter a year ago.
Well loan origination volumes were down in line with our expectations, we're seeing some recovery and our Q3 trajectory of volume is between $500 million to $600 million.
Last quarter I shared with you that loan prepayment rates significantly decreased as consumers conserve cash.
And we saw an increase in consumers seeking hardship plans.
In the second quarter, we saw a rapid recovery in the prepayment rates back to pre Kobe levels, indicating borrowers have resumed their historical personal loan payment patterns.
For the quarter the recovery in prepayment rates at two impacts.
One.
We issue a pro rata refund of the transaction fee for borrowers who pre pay their loan balances early and hold the reserve based on prepayment estimates.
So when prepayment speeds go up we increased our reserve liability.
And to prepayment speeds are input into the valuation over servicing asset.
Which is derived as the present value of the future cash flows from or servicing in collection portfolio.
So what prepayment speeds go up projected cash flows come down.
Taken together these two items impacting revenue for the quarter by the negative $19 million.
Now, let's turn to net interest income and net fair value adjustments.
As I mentioned in my opening remarks, we did not see additional credit marks this quarter.
That's fair value adjustments for the quarter were negative 6 million compared to negative 102 million last quarter.
The negative 6 million fair value adjustment in the second quarter, primarily reflected three things.
First negative 8.5 million dollar fair value adjustment related to the natural decline in present value future cash flows loans on our books offset by $22.8 billion and interest income we generated in the quarter.
Second.
$6 million positive fair value adjustment related to loan sales from our balance sheet above carrying value.
Would it be premiums have tightened.
And third.
The remaining negative $3.5 million was primarily related to the pricing discounts we've been using just to incentivize our loan investors to return to the platform.
And then just round the out other revenue decreased $2.5 billion as a referral revenues declined due to lower volumes.
Now, let's turn to our expenses.
As we said we've said our top priority to navigate this downturn has been to preserve our liquidity.
What our first initiatives was to re size or expense base to reflect lower revenues as we position ourselves for a rebound.
We announced significant restructuring actions during the quarter to reduce both our fixed and variable costs.
Altogether. This drove a 55% decline in our operating expenses year over year or reduction of $86 million for the quarter.
As a reminder, the impacted areas were primarily those folks on discretionary opportunities and new business initiatives, where we are less focused at this time given the economic outlook.
We did incur a $17 million of restructuring expenses in the quarter, primarily related to the reduction in our workforce.
The cash impact of these expenses is reflected in our cash position at the ended the quarter.
Our variable costs alone decreased by almost $69 million.
Year over year, primarily reflecting a reduction paid marketing expenses as well as savings in our operations area.
This included the impact of causing paid marketing in Q2, and focusing new originations on our large existing borrower base.
As Scott mentioned in his comments marketing to our existing members has the dual benefit.
Low acquisition costs.
And better credit performance.
Now despite the rapid deterioration in the economic environment and the decline in our revenues, we were able to keep our Q2 contribution margin relatively healthy at about 49%.
Parents of 52% a year ago.
This reflects the flexibility inherent in our business model with ability to dial back our variable expenses very quickly.
While our scale install base of over 3 million members still enables us to produce volumes at very low marketing costs.
This will help us maintain the efficiency of our marketing expenses, even as originations ramp back up.
Now compared to the second quarter 2019 are fixed technology, and Gionee expenses decreased by over $17 million as we've reduced head count and third party spend.
Pause growth projects and conserve cash.
In addition, our senior employees the leadership team and members of the board agreed to based pay reductions of 20% to 30%. In addition to 30% reduction in our headcount we announced last quarter.
These actions were painful but necessary step to both streamline our operations and appropriately aligned our expenses given topline headwinds in the near term.
We expect our fixed expense run rate to benefit by over $20 million in Q3, when compared to last year.
Reflecting a full quarter run rate benefit of our cost reductions.
Now taken all together these actions enabled us to re size or operating expense base with our revenue.
With $554 million of estimated net liquidity, we are positioned well not only to weather. The storm. The also execute against our number one strategic objective of completing the acquisition.
Beginning a new chapter for our business.
Now, let me turn for a moment to our balance sheet.
Over the last four years at the company, we have focused the business on maintaining prudent liquidity and strong balance sheet in case, we ever faced a challenging period.
It is the one property in today.
With $554 million of estimate that liquidity, we're fortunate to have entered this environment from position of strength.
And I was our volumes of revenues recover we will continue to prudently manage our balance sheet liquidity.
To be more specific we've taken a number of actions with this objective in mind.
As I mentioned earlier, we recycler expense base in a limited the use of our balance sheet to support new originations through structured programs.
Well this will have some negative impact on our short term results.
Right prioritizing liquidity over increasing short term revenue and earnings has been a strategic management decision as we prepare for our business for the acquisition capitalization Brady's Bank.
The management team and the board determined that locking in the certainty in confidence that comes with a strong cash position.
As we prepare for the acquisition is imperative.
Especially given the volatile operating environment. We're currently in.
I didn't notice on page six of the Investor presentation, we've been steadily increasing our cash cash equivalent position, which is up to $338 million.
We've been able to do this by dramatically reduce your expense base and focusing the business and our cash flows.
And we have opportunistically been selling loans held our balance sheet to increase our cash position.
We've been able to sell most loans above our carrying value and we plan to continue with this strategy to put ourselves in the strongest possible liquidity position.
As we reduce the loans held on our balance sheet. We are also reducing our debt facilities, including the warehouse lines associated with those loans.
We recently renegotiated one of our existing warehouse lines for more favorable terms.
And also pay down $40 million of the $110 million revolving debt facility, while growing our cash position.
In July.
We've made several additional loan sales further increasing our cash and cash equivalent position at the end of the month.
Now looking ahead to the second half in 2020, I wanted to share some thoughts before I pass it back to Scott.
As I said, we've been able to significant re size our cost base to reduce the casper and position us to maintain strong liquidity, while maintaining core competencies to return to growth.
We've been able to sell a significant portion of our loans held for sale at prices at or above are carrying values, adding to our cash and liquidity.
We continue to engage with regulators are working hard towards the acquisition radius International banking charter.
And while there's still a lot of uncertainty.
We have seen some early signs of recovery.
Our borrowers have demonstrated resiliency and we expect to deliver positive investor returns.
Mostly low volumes of more than doubled from the recent bottom in the second quarter and five out of our top 10 investors have resumed purchasing.
Our loyal existing customer base allows us to maintain low marketing costs, while growing volumes and maintaining prudent credit standards.
And the bar profiles of our new originations have improved significantly, including higher average incomes and FICO scores.
If the last great recession was any indication we firmly believe that our borrowers can continue to restructure the balance sheets by refinancing out of higher costs credit card debt and expect investor demand for our loans to be strong as the economy recovers.
With the acquisition radius and the possibility that come with a national Bank charter will be able to help members to a much greater extent, while maintaining prudent underwriting and increasing our operating efficiency even further.
With that overview of our financial results, let me turn it back over to Scott for his comments.
Alright, Thanks, Todd just a couple of quick comments before we go to questions.
So the second quarter's results they were in line with our expectations significant drop in revenue driven by the drop in originations and while we remain cautious on the near term outlook.
We are seeing signs of recovery and we're pleased with how our loan underperforming we've maintained our liquidity and increase our cash position in the quarter as we prepare for the bank acquisition that will drive the next chapter of the company's growth.
And lastly on behalf of the management team and the board I.
Just like to take a minute to think the lending club employees. They have been working tirelessly to support our borrowers are investors and each other in the face of countless hours of zoom calls.
And they have demonstrated an incredible ability to adapt and evolve with purpose. So I am deeply grateful for that and with this team and their commitment I am confident that we are positioned to weather the current environment and take advantage of new opportunities when they arise.
So with that I will turn it back over to use Samir to open up for cheap today.
Thank you Scott or before we open it up to question to the Kurds, who do others. We ask that you limit yourselves to one question and a follow up and returned to the Q. If you have additional questions.
Operator, please open the call up for acuity.
We'll now begin the question and answers the question to ask a question you May Press Star then one on your Touchtone phone, if you're going to know speakerphone. Please pick up your handset be suppressing the keys to withdraw your question. Please press Star then to at this time, we will pause momentarily.
Thomas I'm bought roster.
My first question is from Eric Wasserstrom from he'll be yes.
Go ahead much.
Thank you can you hear me okay.
Yep.
Sure.
Thank you.
Couple of questions. Please the first is.
Uh huh.
Thanks for that.
For me.
On the deferrals and how that's trending.
It's Tom can can you give us.
I think much to Uh huh.
About.
Dependable that's been mentioned on boss curve.
What's embedded in terms of loss experience and that by that.
And our.
Hey, Eric you were a little hard this year, you broke up quite a bit, but oh, well well given answer that I think covers it covers dataquest's yeah. The I think you're asking what are some of the assumptions embedded in our projections. So I'll start top feel free to add which as you know look we are.
First just important thing to note.
Or is that you know our our members or.
You know if you look back at what we historically you should pre cobot, we're talking about people, whose individually income is in the 90000 plus dollar range. So just overall impact of this recession, which is as you know as much has been reported it disproportionately impacting lower income people. So overall, we feel like the borrower base we came.
Into this web given the last two years of tightening I was in a good spot.
And as we look forward I you know we have two different pieces. We're looking at one is the performance of the backbone pre cobot and the other is the performance of the new origination. We've we've done tops down bottoms up lots of ways of looking at that and we have a we believed to be pretty.
Conservative assumptions about overall stress on the portfolio. So first if you look at the hardship plans.
Well, we anticipate it is what we modeled after with how people performed on hardship plants coming out of Hurricanes.
And what we're seeing is they're performing significantly better than that right or with the majority people rolling back to full payment.
And even though that are expressing additional hardship.
Opting oh, well most of them for actually partial payment and so we're not expecting those people who roll back to full payment form like like they would have pre covert. So we are modeling additional stress on that population because they've kind of raised their hand, and said that they are more vulnerable setting is true for the population which is.
You know most of our book, which is a borrowers who have never gone into the hardship plan they are performing better than ever significantly better than they were pretty co. But you can see that in our public delinquency numbers. We did not assume that that holds all so in our in our outlook, we're actually assuming they go bass pro forming like.
I would on average or create pre cobot. So we feel like you know we were being you.
Obviously, it's an uncertain environment there is still a lot yet to calm, but we have put in some pretty conservative assumptions that the only other thing I'd add when I when I talk about that servicing portfolio. Eric is that he keep in mind how quickly this portfolio pays down right within a year post issuance you've got.
Close to half of your principal back so the longer these results hold the more quickly we are paying down the rest can reducing risk. So that's the that's the back book when you talk about new issue and.
No. We we're looking out as we indicated we're focused on our existing members. We know they performed better we have additional data on them a week ago, we're doing 100% virtually verification of income and employment.
And have a tighter credit box. So we the profile looks quite good and the you know it's still too early to say how is credit right because you're only a few months and that's something that we're definitely going to see that'll start and well get a six month read come Q4, but the early data it looks very very good.
But I would emphasize it's probably data.
Huh.
Thank you for that and [noise].
And can I just ask one follow up Tom on the on your your funding condition. Currently yeah. Thanks for the update on the on the renewables is there anything.
Like outstanding like in process of being a renewed or coming due in the near term with respect to your remaining warehouse or other debt facilities.
Oh no Eric in your you regard ballooning, but I think the question is where he was or warehouse lines in any additional renegotiations.
As I mentioned, we did we negotiated a warehouse line keep my warehouse lines or use for our structure programs and so the fact, we paused them, we don't need a lot of those warehouse line.
For the current loans, we have there in warehouses and we're managing that as Scott indicated an I did as well that my commentaries we are selling loans from the balance sheet that are held for sale and correspondingly paying down those warehouse lines.
So we didnt modify one.
One warehouse line.
In the quarter, we're actually in July.
And more importantly, we actually pay down the revolver by $40 million. So we feel very good about our our our liquidity profile I'm imagining that over the quarter and that really feel that still we're in good shape again, emphasizing yeah. The cash burn is pretty very very low.
Okay and allows us to really navigate our way through but to the environment.
Great. Thanks very much.
Our next question is from Steven Rats from Morgan Stanley.
Right great.
Great. Thanks can you hear me.
Yep Yep, Okay perfect. Thanks for taking the questions guys and I appreciate all the color you're able to provide maybe if we could just start off on some of the comment I think you made at the end there Scott about a world where we are now relative to the ended the quarter I think we ended the quarter sort of down in the 90% range and it sounded like it doubled off that bottom I just wanted to make sure I and.
Mr that properly does that imply were sort of in the down 70% to 80% also lets call. It normal 2019 levels on originations.
Yeah I. This is Tom I indicated in mine or my prepared remarks, we think run a trajectory of about five to 600 million dollar volume from the third quarter. So clearly you're absolutely right below is we're probably in the April may timeframe June was better than that May in July better yet again.
Oh, so we saw nice doubling but it was off pretty low amount frankly, and so oh, we wanted to provide some context on where we think the corner will be so 500 to 600 million is where where we think that's a that's going to come out again, we're managing a tightening underwriting a working with a number by.
Over 10 investors to a two.
Back to recovery mode, as we navigate our way through this.
Yeah, just data think Oh, what we are looking to right now is just keep our finger on the pulse of credits a while we look for the returns of these new post cobot vintages to manifest.
Because we think as those results come back and that will correspond with.
Investors being able to really kind of see see what can happen because six months a data start to be able to confidently you know put your finger on what you think that full a though the full vintage is gonna format.
Right. That's that's very helpful. Maybe if I could squeeze in one follow up on a separate subjects with radius I heard the commentary about.
Keeping in dialogue with regulators and then getting their help in terms of figuring out what it needed to close it I guess I'm just curious following up on them. Prior threat of comments you guys have made about the shifting goals that you're looking to deliver around showing them you have the processes and risk management initiatives in place obviously, Tom with all the the areas you outlined.
I'm showing up cash I'm wondering is that generally in line officially with kind of where where the goalpost Saar from the regulator side and then separately as you've gone through the Diligencing on on the radio steel or what additional areas of investment might be required to build out of product suite to serve the deposit side.
The other balance sheet.
Yeah. So a couple of things I think you know we feel very good about where we are with the regulatory process and and inline with the.
You know our risk management process season profile.
Let me get a lot of work during the quarter to too.
Stabilizing and improve our liquidity profile and so we wanted to share that with you. Obviously, that's always consistent with the regulatory outlook. So that's a.
In line.
You'd as far as the investments that are being made with the its radius keep in mind that we have a lot of infrastructure already that new building our cost base already reflects a lot of that we are spending some dollars to get bank ready.
And and finalizing our our application.
As far as this this acquisition goes this is really a one plus 1.3, where we provide.
Great lending capability and they've got a terrific.
Deposit products and so there's really a opportunity for us to bring both these together.
Interest to our stress so yeah, there'll be some cost associated with integration and things like that but I don't see a at this time, a a massive lift on the on investments for deposit products or lending products, we already have those in place.
It's kind of you want to share anything else, but that's that's that's a that's Michaels no Gulf South Africa.
That's great I appreciate it and glad to hear Bill unhealthy.
Our next question is some heath Terry from care.
Go ahead.
Great. Thank you.
It's just wondering if you could kind of give us a sense of the of the loans that you you don't have sort of taken or the you you did sort of sell out of the out of the loan book this quarter versus the ones that you decided to maintain retain is there a difference in the profile just in terms of grade duration profile of the of the bar works.
That we should be thinking about and then also to the extent that people are clearly in need of financing in this in this environment I'm understanding that you have very good reason to want to tighten tighten their standards is there a way to you to monetize that you know that traffic that you're getting that demand that you're.
With that you're seeing in some way I'm just to the benefit of the of the company and I've got just one kind of housekeeping question at the end.
Yes, so oh in terms of the loan portfolio starting there we went to the market first with some of our higher yielding or a borrowers and that's because that's where the capital was kinda quickest to recover we got good response from maps and.
Have moved to more of a core part of our prime portfolio or I think we went out with an initial pool and we're very pleased with the results. We got and ended up or you know ended up selling or I'd say more than we had initially anticipated because we're pleased with the amount of interest there there were a oversupply.
Right.
So we felt very good about where we had marked them at the end of Oh really I actually got all it back them Arts, frankly, I'm actually liquidity premiums actually have tightened.
Overall things of have started to to be a little bit more liquid and so we were able to to sell those loans.
As we indicated that carrier, but so I feel pretty good about you're moving that from the load into cash during the quarter and that actually into the third quarter as well, yeah, what and when it comes to a the demand in the market keep in mind as we as we said exiting Q1, we virtually turned off the paid marketing it so real.
Okay that demand, where you know of course, there's always some organic tremendous demand regenerating coming coming from all member base, which is why we think it's important to serve the able to serve them from a a brand perspective, which is why that's where our focus is well we do think as we look at head and again as our investors get their arms around there on capital issues.
That we'll be able to make use of or some other tools or that we had been investing and such as if you remember our select plus program, which allows investors to deploy their own credit models against the application pool.
And Ah L.C. acts, which allows investors to at least apply their own a view on credit detailed credit criteria against applications as they call man on the primary market. So those weren't a big focus in Q2, but we expect probably as we enter Q4 those will be.
The tools that we will start to deploy it based on you know like I said investors kind of getting their legs under them understanding their own.
Capital issues and situations and being able to reposition themselves for a resumption and he just to get some numbers on their you obviously originations down 90. So it was marketing so we're not a disproportionately spending on marketing that we that we feel like we need to monetize further.
Clearly, we think as we move towards the bank and being able to engage our members as well as the marketing funnel in future, that's really where we see the opportunity a two to extend their relationship but right now where we are we feel like or the ability to reposition our expense base as fast as we have is an indicator.
Patients just so agile the model is and how fast we are able to to recycle the the marketing dollars and costs.
Yeah, No certainly certainly makes sense.
And then just to follow up on the transaction Sea Ray Refunds reserve that you talked about earlier do you expect that that will continue to go up over the next couple of quarters as prepayment levels continue to improve and you know are you seeing those sort of those same sort of trends into into Q3, mostly just trying to understand what the.
Impact on GAAP revenues kind of going to be and if we should expect sort of similar trends to Q2 going forward.
Yeah, you know I think we.
The first quarter, we definitely saw prepayment slow and frankly, we were you know we're seeing a lot of a a lot of a heart. Your plans you really really cashing data real time, if you will but they're all back to historical levels. So we don't expect it to further increase.
As far as Oh, the prepayment levels.
What we're encouraged by that.
Personal loan payment profile is getting back to normal so while a while we're seeing a you know trends of incoming call in that 30% type of prepayment that's actually good for the credit on the product, we have slightly or some variability on the liability, but I don't expect that kind of area.
Early in the in the future I don't see prepayments for example, celebrating significantly from here I think we just saw a lot of a lot of Oh gyration between one she went to chew and now we're seeing you back to normal.
So so yeah. It's just as you think about going forward.
Oh.
Either.
A couple thoughts and things that will be moving right, what's what's evolving well lots and lots as I, just think moving but couple of things to be evolving will be interest income are coming in as we sell loans on our portfolio that'll obviously be coming down the servicing book Tom mentioned, you know, we'll continue to pay down.
Overtime and the next pieces as Tom also mentioned and as we ramp back up volume, we are supporting that volume with pricing with investors. We think there's a benefit to get our investors back engaged with the platform participating but until we think the performance of these new vintages fully manifests we don't.
I think pricing is going to get back to where it was pretty Kobe. That's also.
ER further kind of exacerbated by the fact that there was a lot of portfolios in the market right now that are hitting that are available for a first al Pat.
A more distressed prices.
Great. Thank you both.
Again, if you have a question. Please press Star then one.
Our next question is from better Ryan from Compass point I had a good afternoon. Thanks for taking my questions.
First just want to kind of go back on the regulator question as it relates the acquisition.
You know she can maybe give us a little bit more granular color on what their specifically you know looking at 10, and you're working with them on and or just any any type of color that you have.
On that matter, including maybe the FTC a lawsuit.
And then second.
If you could just quickly remind us what the amount of capital that you expect to inject into the bank a what's the acquisition is closed thanks.
So you know I understand a the request for more detail obviously the conversations we're having with the regulators it's got to stay between us and the regulators what what I can tell you is as you know the timeline that that we laid out we feel good that we are.
On track to to hit that that so we have remained very closely engaged with the regulators and we've been very productive. It moves. So we have not been set back by the move to virtual Oh and the process I think that's that's broadly speaking a good thing and as you can hear in our actions.
We are taking steps to prepare for that long term strategy by positioning ourselves.
Went with cash.
In terms of the FTC.
The I'd say the real uptick there is are you all might remember a the trial date is set for October.
We have requested a stay a given that's a the Supreme Court is going to be hearing a case that is challenging the fccs ability to seek and monetary damages and the extent to which those monetary damages.
Can be so we are requesting a stay of the trial until after that case its hurt.
And there's more comments on that in the 10-Q.
Okay, and just the amount of capital that you're yes. So.
Sorry, obviously, yes, sorry bill.
Obviously preliminary at this point as far as the dollars, but I think you see our actions today.
Of accelerating the conversion of loans into cash consistent with the capitalized the bank we have not a communicated a specific number until until we're further along at this point. Okay. So we'll be updating you as we have more information is fun.
Okay. Thank you.
This concludes our question and answer session.
I'd now like to turn the conference back over to Samir got play for closing remarks.
Great. Thank you operator, and thank you all for joining US today. If you have any questions. Please contact investor relations and we will be happy to assist you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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