Q3 2021 LendingClub Corp Earnings Call
Good afternoon, and welcome to the lending clubs third quarter 2021 earnings Conference call all participants will be in listen only mode should.
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I would now like to turn the conference over to Sameer Gokhale head of Investor Relations. Please go ahead.
Thank you and good afternoon welcome to lending club's third quarter 2021 earnings conference call. Joining me today to talk about our results and recent events are Scott Sanborn, CEO and Tom Casey CFO.
You can find the presentation accompanying our earnings release on the Investor Relations section of our website.
The call. In addition to questions from analysts we will also be answering all the questions that were submitted its duration by email.
Our remarks today will include forward looking statements that are based on our current expectations and forecasts and involve risks and uncertainties.
These statements include but are not limited to the benefits of our acquisition of radius platform volume future products and services and future business and financial performance.
Our actual results may differ materially from those operated 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 as filed with the SEC as.
As well as our subsequent filings made with the Securities and Exchange Commission, including our upcoming Form 10-Q.
Any forward looking statements that we make on this call are based on assumptions as of <unk>.
Great.
We undertake no obligation to update these statements as a result.
The new information or future events.
And now I'd like to turn the call over to Scott.
Alright, Thanks, Samir good afternoon, everyone.
Our third quarter results again make very clear the power of our digital marketplace banks to generate strong sustained performance.
We once again achieved record revenues up 20% sequentially and we nearly tripled our earnings versus the second quarter.
We delivered these results by leveraging our data advantage, our large and loyal member base and our vertically integrated business.
Okay.
With an enormous market opportunity of roughly one trillion in revolving consumer loans outstanding we have a clear path forward to further grow our personal loan business, while helping our members lower their cost of credit.
Our $3 8 million members appreciate the value, we deliver and they want to do more with us.
With our new digital banking capabilities, we can offer them.
Our advantages are considerable and difficult to replicate and we are beginning to use them to grow our adjacent auto refinance and purchase finance businesses.
When we launched back in 2007 lending club's vision was to leverage technology data and our marketplace model to transform the banking industry.
We began by bringing a traditional credit product the installment loan into the digital age by moving it online broadening access lowering costs and delivering a fast and frictionless experience borrowers all while delivering attractive risk adjusted returns for loan investors.
At its core extending credit is a data problem and that lending club, we have a data advantage we.
We use machine learning to develop and our power models across the loan lifecycle, including marketing fraud prevention credit underwriting and servicing and collections.
These models are trained on more than 150 billion cells of data and more than a decade of experience across all of our 68 billion in loans.
Our effectiveness is evidenced in our recent results are.
Our marketing expenses as a percentage of originations during Q3 were only 163 basis points. That's one of the best in the industry.
Our overall loan portfolio has 35% lower delinquency rates compared to the competitive set.
And for those vintages, most affected by Covid. The results are even more dramatic with delinquencies, 50% lower than others.
Our fraud losses for less than five basis points among the lowest in the industry.
And all of this is accomplished in a highly efficient fashion with more than 80% of our issued loans now fully automated.
All of these results are in service of the customer where we're typically lowering the cost of credit for our members by about 400 basis points versus their outstanding credit card debt.
Yeah.
The savings and seamless experience, we deliver creates loyalty already half of our members have come back to us for a second loan when they return they are rewarded with an even better experience than their first time.
Lending club is in turn rewarded with better economics, but these loans originated at a fraction of the cost compared to loans to new members and demonstrate lower credit risk.
This is the dynamic for our core products, but we can do more for our members beyond personal loans, we can offer additional products and services to them that are aligned with their needs saving them money and increasing their loyalty while also increasing the lifetime value of these relationships.
One example of this is auto loan refinancing nearly two thirds of our members currently hold an auto loan and it's usually their second highest monthly monthly debt outside of housing costs.
Given the structural inefficiencies in the used car market, we can efficiently utilize our data and technology to offer customers a better rate in just a few minutes, we typically reduce the APR for our members by more than 5%, which translates into thousands of dollars of savings over the life of loan.
We built a great product.
We have been disciplined about the investment and growth rate of the auto business. During our incubation period, we've been focused on two objectives, one building an incredible customer experience and to demonstrating a track record of performance now with the added funding benefit of our bank, we're able to generate positive unit economics and in Q3, we drove.
85% quarter over quarter growth in auto refinance origination.
While our current focus is on our members the 300 billion broader addressable market for auto refinance does provide us with a substantial long term opportunity.
Yes.
Next up is our buy now pay later purchase finance business, which is designed for planned large ticket purchases and elective medical dental and education.
We've been in this business for several years through issuing bank partnerships and are now deploying our banking capabilities to issue these loans and take better advantage of our personal lines infrastructure.
This will allow us to not only capture more of the value chain economics, but also significantly improve the member experience.
I'm trying to talk more about this business next quarter.
Going forward, you'll hear more from us every quarter about how we're leveraging our expertise and our advantages to offer our member base, our broader set of integrated financial solutions.
During the third quarter, we added more than 100000 members to our base to bring us to a total of $3 8 million.
We're creating a powerful flywheel effect that will help our loyal and remember growing base additional financial solutions that save them money, while also increasing their lifetime value to us.
This in turn helps us continue to drive strong and sustainable revenue and earnings growth, which opens up more opportunity for us to invest in customer acquisition as we offer them more reason to join the club.
As you've seen in our results this year investments and choices. We made in 2018 2019, and 2020 have been paying off not just the decision to acquire a digital bank, but the lowering of our operating costs and our strategic investments in data technology and Digitization all of which are bearing considerable fruit.
Over the next 12 to 18 months, we plan to accelerate our growth investments, particularly in infrastructure and new products, while continuing to grow our profit. We expect these investments to enhance our ability to serve our members and to drive sustainable growth to our top and bottom line over time.
I want to thank our employees for their commitment to our customers our company and our mission, we would not have been able to achieve these results without their dedication and hard work.
So with that I'll turn the call over to you Tom to take you through the financial results for the third quarter and our outlook for Q4.
Thanks Scott.
Our marketplace model is more profitable than it's ever been before.
Before I dive into the detailed results of the quarter I want to show you, how we have transformed the financial profile of the business.
As you can see on page 13 of our earnings presentation, we originated loans of $3 $1 billion. This past quarter, which is comparable to the fourth quarter of 2019.
Final quarter prior to the pandemic and before our marketplace Bank model was in place.
Now with the marketplace Bank, we generated $58 million of higher revenue and $27 million of incremental earnings compared to our prior model in the fourth quarter of 2019.
This reflects our numerous strategic decisions over the last three years, the advantages of the bank as well as our efforts to improve the efficiency of our business.
Another item I want to highlight is the impact loan retention had on the quarters results.
During the third quarter, we retained $636 million of loans or about 20% of originations in line with our 15% to 25% target.
As a reminder, growing our loan portfolio reduces reported earnings during the quarter due to deferral of net origination fees as well as upfront seasonal provisions.
You'll see on page two of our earnings press release that these two items negatively impacted our earnings by $51 $5 million in the quarter.
However, we are investing in future revenue by retaining loans, creating.
Creating a highly profitable and recurring revenue stream that enhances the sustainability of our revenue and earnings growth.
Now let me take you through the details of our financial performance for the third quarter.
At the start of 2021, we pointed out that with the addition of the digital bank our revenue would start to grow faster than originations and we saw that again this quarter.
Sequential revenue growth of 20% for the quarter, primarily reflects a 15% sequential increase in marketplace revenue and a 42% sequential increase in our recurring stream of net interest income from loans held for investment.
Let me talk a little about the increase of each of these revenue drivers separately.
We've added pages nine and 10 of our earnings presentation to help illustrate these drivers.
First you will see on page nine at the 15% decrease in marketplace revenue was in line with the growth in loan originations during the quarter as well as strong investor demand for loans.
Our recurring revenue stream from retained loans grew 42% as the mix of consumer loans increased during the quarter.
You'll see on page 10 of the earnings presentation that our average consumer loan balances grew by over 400 million to $1 $5 billion.
Average commercial and PPP loans decreased by 15% or $186 million, primarily reflecting the continued run off of PPP loans.
I should remind everyone that while the PPP loans are decreasing as expected the rollout of the bank's program was very successful it speaks to the effectiveness of its digital capabilities.
Yes.
Our bank was able to process a huge volume of applications.
First of all I think very efficiently without any operational challenges.
Average total deposits grew 7% sequentially to $2 6 billion and deposit costs remained roughly flat with the second quarter at 30 basis points.
As the mix of our consumer loans grows we expect on the interest margin will continue to expand.
On page 11, you'll see that our growing consumer loan portfolio was the primary driver of the 160 basis points increase.
Our net interest margin to seven 1%.
Provisions for credit losses increased 8% sequentially to $37 $5 million, primarily reflecting the increase in retained loans during the quarter.
Net charge offs remain low at $4 $3 million and are mostly from the legacy radius portfolio.
As the consumer portfolio starts to season, we will start to see our charge offs normalize.
Comfortable with our reserve levels as our loss provisions are intended to capture estimated life of loan charge offs upfront.
Yeah.
Now, let's turn to expenses and how we're driving positive operating leverage.
Our sequential revenue growth of 20% outpaced total non interest expense growth of 12%.
Importantly, the increase in expenses was driven almost entirely by investing in consumer acquisition, which was the big driver of origination growth in Q3.
These new customers come back to us over time and provide future revenue growth and operating efficiencies.
Repeat members typically demonstrate better credit performance and lower acquisition costs, thereby driving higher lifetime value for us.
As we continue to help our members over time their loyalty also creates attractive economics for us, which in turn helps us deliver more savings to them.
A virtuous cycle.
This is especially true given our data advantages vertically integrated model and strong member loyalty, which enabled us to capture more of the economics.
All other expenses were roughly flat with last quarter.
We're also pleased to see the operating leverage of our new business model is reflected in our core earnings results.
Net income for the quarter was $27 $2 million was up roughly three times sequentially.
We believe that our investment in the digital bank that started almost three years ago and the financial performance. We produced to date in 2021 is a great example of the power that smart investment can have on our business.
We also know that it's critical for us to continue to innovate and build upon our leadership position.
As such we want to capitalize on the powerful economics of our business model and strong capital generation to invest in three areas of the business.
First building, our consumer loan portfolio to grow and diversify our revenue.
Second investing in marketing to drive new member acquisition.
Yeah.
And three further investing in our technology and infrastructure to build new products and services for our members.
We will provide updates as we make progress on each of these initiatives over the coming quarters.
Next let's turn to our financial outlook.
Our guidance assumes continued but moderating economic growth and normal seasonality, we typically see in the fourth quarter and the first quarter of each year.
Specifically in the fourth quarter, we tend to see a decline in application volumes during the holiday season, and lower demand also persist into the first quarter as tax refunds reduce borrower demand.
Our guidance also incorporates revenue expense impact from increased investments in the three areas I just described.
Building, the portfolio marketing customers and incremental infrastructure and technology initiatives.
Specifically, our strong and sustainable year to date results.
Again allowed us to raise our guidance.
We are increasing our full year revenue guidance to a range of $796 million to $806 million up from $750 million to $780 million, implying a Q4 guidance of approximately $240 million to $250 million.
We're also raising our full year origination guidance to range of $10, one to $10 $3 billion.
Up from nine 8% to $10 2 billion.
Implying Q4 originations between two eight and $3 billion.
Finally, we're raising our full year net income guidance to a range of $9 million to $14 million versus a loss of $3 million to $13 million. This implies a net income to be in the range of $20 million to $25 million.
Again, we're very pleased with the results we're already experiencing from the transformation to a digital marketplace bank the.
The investments we've made over the last three years are clearly paying off and we look forward to delivering sustainable growth and profitability for our investors over the long term.
With that we'd like to open the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the kick.
To withdraw your question. Please press Star then two.
Our first question today comes from Henry Coffey with Wedbush.
Yes, good afternoon, and congratulations on another great quarter.
This is this is done amazing wonders for investors.
A couple of questions and then I'll I'll go back into the queue.
If you've got $65 billion worth of originations three point.
8 million customers 2.9 billion in deposits.
Can you start to give us any thoughts about how this all merges together into kind of one Neo bank you know.
Right now you have this great treasury function that can go to the bank whenever it needs assets and you have this really super profitable bank, but you know as these two sides of the equation start to play together you you've got this massive customer base, what what preliminary thoughts do you have about getting everybody.
To work together on a product and revenue front and.
What kind of cross sell opportunities are there between the bank and the club Etsy.
Et cetera.
Yeah. So thanks.
Thanks, Henry this is Scott.
So you're you are correct I think what were showing right now is a core business that we're in where we've got a leadership role provides a foundation for an extremely kind of profitable digital bank.
With with a lot of growth just inherent in the model both the.
Available market outside of us as well as our ability to have revenue and earnings outpace.
Just the share of loan origination growth.
So as you know Tom.
Tom touched on a little detail in the script. Our plan is to be taking that net income that is that we're able to generate and began investing that into future earnings growth and the future earnings growth is first and foremost continuing to build the loan portfolio.
Building the customer base, and then third adding the new products and the new products you touch on is you know we've shared some of the research before right I mean more than half of our customers are already coming back to us for for a second loan.
And we've really unlocked a great experience there for them.
Auto which were really now just leaning into we pulled it into the bank.
The lower cost of capital and the addition of the balance sheet means we've now got positive unit economics that allows us to invest in that business and grow that business.
So that that's an easy one.
We can you know.
You can see us expanding the lifetime value of the customer just through that and as we pull or the purchase finance business into the platform that is another opportunity for cross sell right, where we are getting customers today, who are in it.
The acquisition tack, there is actually through providers and nothing and so the lead in is not refinancing credit card debt, it's paying for procedures. Once we have them on board. We can do more for them. As we look ahead into next year Youre hearing us lean into credit products why that's the DNA of the company our customers are heavy users of credit.
So they want and we'd like to get more from US there, but we also see us once we get these three businesses, which are businesses, we already had coming into the bank acquisition. Once we get them into the bank can begin generating the bank benefits off of those businesses will be starting to look at other categories, including helping.
People manage their spending and their savings building on the great member rewards checking experience that we got from radius and leaning into that and then that'll that'll be what we'll probably talk a little bit more about next year right. Now we're just focused on getting these lending businesses into the bank.
Thank you and my my second question.
It is really around efficiency and I thought I would just narrow the focus in on the bank which is.
Probably at this point 30, or 40% of your earnings approximately 40% of your equity capital and I'm going to compare it to an institution that's very similar in some ways.
But it doesn't have the commercial loans you have it does at the bank has it doesn't have some of those other assets, but you know you look at discover.
That offers a wide range of consumer products, just like Youre planning on doing and you look at the bank and the bank has got a very high are we already but its efficiency ratio is around 67%.
Discovers for the first nine months of the year was I think it was 30.
6%, so lining those two up.
Is there room over time as well.
Radius becomes more and more a quote lending club consumer lender.
You know given all the efficiencies of those sorts of origination businesses can you give us some sense. If we just were to focusing on the bank.
What kind of forward shift in profitability might we see what sort of thoughts do you have about the ultimate are away of that business. How do you think the bank's efficiency ratio.
She'd be moving over time.
Hi, Tom This is Tom.
Yes, we came in at 67, and a half this quarter, which was.
Puts us in a.
Amongst them.
Some of the better banks better better financial institutions.
But if you can see the growth that we're experiencing king further.
Bring that number down and we haven't given a specific target, but you can see the and just two full quarters of ownership, we're seeing significant improvements as we as we remix the balance sheet as we continue to see fee income from our lending business.
The returns are already in the mid twenties.
We're benefiting from the the tax NOL that we chatted about another meeting.
So we think there's additional opportunity here.
Ready to give specific targets, but Scott said, we're going to be taking some of the additional margins and reinvesting them back into the business.
That gives us more confidence on our topline growth, we think the revenue growth is important in and.
Growing our membership base is important and all those things are continuing to drive ongoing repeatable earnings for the company.
The new model, we've only shown you two quarters, Oh, who will continue to keep you informed on how we're thinking about the level of profitability as we head into next year, but we feel very good about where we are and how the businesses has really recovered.
<unk>.
Nicely and keep in mind, it's not just the bank as we've tried to communicate to you is this is really multiple years of activity, we resize the organization pretty significantly over the last few years, we continue to be.
Well below our peak as far as head Count for example.
In our expense levels are much lower than they were even on a standalone basis. So youre seeing some of that come through as well, it's not just the <unk>.
Completion of the bank.
Yeah, well when you look at the bank and in the net interest margin is in the Sevens, but you know watching you know with the.
25, 30 basis point cost of funding which may.
Deposit costs could go up to 50 basis points and all of this would still be true and you're layering on more high yield consumer loans. When we look at the losses are very very low on those assets. When we look at that how that flexes. It's it won't be surprising to see that margin closer to 10% and it won't be surprising.
C.
The efficiency ratio clearly at the bank level, you know at least a third lower and the contribution from the bank side suddenly becomes very big and very dramatic sometime over the next couple of years and obviously the more help we can get in and putting pencil to those numbers the better but it looks.
It's moving in the right direction and anything specific about loan quality. The chart on delinquencies is very helpful and instructive.
Yeah.
Yeah, what I would say Henry is beginning.
We're obviously.
The industry broadly has experienced pretty pristine results. We in particular as we show and those materials are are outperforming the industry, but the thing that that I would want to make sure.
You heard that in our underwriting and our pricing and most importantly in our reserves, we're not assuming that.
That environment continues we're actually assuming in all of those things that we're doing today that we are back at pre COVID-19 levels of borrower performance. So.
The results right now are actually above what we had put into our own.
The outlook.
Well listen excellent work.
Congratulations all around and thank you.
Thanks, Eric.
Our next question comes from Giuliano Bologna with Compass point.
Oh, good afternoon, I guess, starting off one of the questions I'd be I'd be curious to pick.
We're bringing on as it were.
Looks like you guys retain call. It you know 20% of loans in this quarter, which falls right in the middle of the guidance range that you provided in the past.
Since you're generating more capital in your forecast in the past would there be any incentive to dial up belonged to retaining because youre actually building.
I'm going to drink a position now where you can actually build some capital.
The loan growth rate will start to slow as the book seasons and matures a little bit.
So is there any incentive to grow the percentage there and go towards 25 or about 20 products or to increase the size of the balance sheet faster.
Hey, Joanna just to put some numbers around your question, we do come in at 14, 1% capitals Youre absolutely right.
With the additional earnings were generating that allows us to put more capital to work.
Very pleased with the performance of the third quarter, that's why in our in our guidance I called that out specifically that that's an area for us to continue to invest in that creates more more ongoing revenue keep in mind that when we put a loan on the books, we earn about three times as much as the only alone. So there's clearly motivations to do that as a benefit of us being able to ebb and flow.
In that range of 15 to 25 and with the capital we've got to deploy.
You will probably see that over time.
And we're trying to manage too to make sure that we're keeping our capital deployed.
As efficiently as we can.
No it sounds good.
Another question, just because it's been topical across all consumer events.
That's accurate.
All companies in the sector. This quarters I'm curious, if youre seeing what youre seeing and kind of from a delinquency rate perspective, and how it's comparing from a roll rate perspective, if you are saying you know.
What kind of a shift you're seeing in 30, plus 60, plus delinquencies I realize the book is still immature. So there's a lot of velocity going through it but I'm kind of I'm, just curious what kind of data you're saying.
Sequentially there.
Yeah. So.
As I kind of touched on in my remarks, I mean, our year on year delinquencies are actually down.
Hum.
I believe in the neighborhood of about 30% quarter on quarter were flat. That's just on our kind of outstanding servicing portfolio as a whole.
But our expectations in terms of how we've underwritten priced and then when you look at the book we've taken on that on our own balance sheet. It's Neil we started building that in Q1.
Too early to have any kind of different.
Really significant need, but where we are in line with our expectations. Two ahead of our expectations there on that.
Oh I'm sorry.
Not to split it out too much further.
It's also a big impact from a servicing perspective, when you're growing the book.
The servicing book group.
Call it little under under 10%, but growth meaningful amount sequentially.
I'm curious like X growth, where are those numbers still roughly flat or up slightly it's because obviously growth is a little bit of a dampening effect when you're layering on newly originated loans into the portfolio.
So Julien we're monitoring this but individual vintages, so Scott given your composite view, but we're monitoring these vintages and so we're not seeing any kind of is averaging we feel very good about all the vintages. Since one Q2 Q3 Q are all in all in line.
So no there is no no no real stat.
Stacking issue that you would you would refer to as blending in our allowances are all still we raised our allowance is another five 5.25% this quarter, reflecting seasonal just like we did in the previous quarter.
That sounds good.
That's all going to be the only thing I was curious about was one of the strategy points was growing marketing and growing the balance sheet.
Seems to be some data out there about like.
<unk> and <unk>.
For direct mail that song.
I'd say, it's a data point.
It's perfectly accurate, but it looks like lending club stepped back on direct mail relative to a lot of peers in the sector I'm curious.
If you're seeing anything on direct mail, that's changing or is that just more of a pivot to other channels.
What might be driving a shift in your.
Marketing strategy and marketing channels.
Well I'd say that the biggest thing for US is as you know.
Last year, we kind of pulled out though.
The majority of the marketing channels are really just focused on serving our existing members who have need for credit. This year, we're stepping back in and tuning our effort kind of per channel are targeting models and response models on a per channel basis, I'd say across the board, we're pretty pleased with what we're seeing as I've said before that.
It is a competitive market, we anticipate it will continue to be a competitive market.
But we like our position a lot because we've got just more data than anyone else and we're able to capture more economics right with the addition of not only the fee revenue, but also the <unk>.
Net interest income we were able to capture more economics off of the initial loan and drive really good repeat behavior and lifetime value. So.
Where.
We are optimizing per channel or anything you see would be I wouldn't call. It indicative of any broader trend so much as us optimizing per channel.
That's great color I appreciate it and I'll jump back in the queue.
Good quarter, guys and thanks for taking my questions I guess I had two questions. One was just around the at the yield on the unsecured personal loans. It seems like the yield ticked up again about 70 basis points sequentially could you just talk about the drivers there and what led to the sequential increase and how we should think about it going forward.
His name is Tom <unk>.
What we've been doing all year as you think about what portfolio and a lot of the volume we had in the first quarter and then where we are today, where we've gotten to now $3 $1 billion and so as we opened up channels.
Now have a more representative sample of our of our entire prime portfolio, what you're just seeing is that normal evolution of the growth in the mix.
Going into pay channels as Scott mentioned recovering in some of the channels that we had exited in 2020 and now you're starting to see kind of that normalized yield portfolio coming in so it's just the normal progression of the of the average mix of.
Of our loans typically go to bank. So we're a representative sample of.
Those are the loans that we sell to banks. So that's just the evolution of the of the growth in the market instead.
Said another way, we don't expect it to change much from there. It's just at this point, having the market mix.
Got it no no actually I don't know if we talked about it so Stephen in yeah in the call, but just a reminder, what we're holding is prime consumer loan.
The loans, we sell to.
A few dozen community and regional banks customer you were talking about here is average FICO was about 715, Inc.
Income is on the low end of high income or the high end of middle somewhere in the 90 to $100000 range for individual income.
And you were talking about average loan sizes of call it.
<unk> $15000.
Main use case is.
Pay off credit cards, a pass credit card debt and then on average we're lowering the costs there for them by about 400 basis.
Understood and then just following up on the marketing side, you mentioned that it was 160 basis points of origination and if we go back to the last two prior quarters. It was running more like 130 basis points are you guys just leaning more into marketing to drive the originations growth I'm just.
That's what you're seeing around the competitive landscape and how we should think of the <unk>.
160 basis points going forward.
Yeah. So it's it's again it does if you go back a little bit further in history and you look at.
How we are managing that spend in our mix of new versus.
Let's call it repeat members were basically after.
Sort of doing the lending club equivalent of sheltering in place last year, and not really doing a lot of external marketing really ramped that up.
And our back in the mode of acquiring new customers to build the member base. So we had mentioned we added about 100000 new customers.
This quarter.
And if you if you go back and just look at our historic marketing cost as a percentage of CPI, you'll see that it was we were getting closer I think Brad one.
One 190 to two.
And given we're actually capturing more economics now than we were then that's certainly a decent way to think about.
Our willingness to invest in building.
Saving the money on the issuing banks that just example gives us more for more economics.
Great. Thanks for taking my question.
Yes.
Yeah.
If you have further questions. Please press star then one to join us.
Our next question comes from John Rowan with Janney.
Giving guys.
Hey, John Hey, just so you guys had a 7% net interest margin in the quarter I mean, I just wanted to step back is this.
Are we still looking at 7% is the right number going forward, including the provision expense I know you've kind of talked about you know what.
9% margin less 2% provision expense is that still kind of a long term target of the bank.
So the net interest margin doesn't have any impact on the provision we do expect to continue to go up as we increase the mix of consumer to commercial obviously, that's the largest growth that we have and also the highest ah.
Net interest margin. So so that is expected to go a little bit higher as we continue to remix the balance sheet with regard to the provision.
Kind of given everyone an indication that we are on seats that we are putting these reserves up on day one.
Do you have a timing issue between the.
The recognition of the provision and the interest income so we continue to accrue at about.
5.25% I think we did this quarter.
On originations that we would change so I think this is a pretty good frame I think we've done a couple of quarters ROE start to give you a frame of what what you can expect it will get you will get a little more complicated because we'll start to have some charge offs. It won't have a we'll be adding new loans, but ill be breaking those out for you. So you can see the roll forward, but right now the portfolio is.
As.
Performing very very well as we indicated and I do expect to finish margins and Chuck a little bit.
And well okay. So just back to kind of your comment what do you expect the long term charge off rate to be in the portfolio.
So the charge off rate is still going to be somewhere in the loss rate is still going to be in that somewhere it depends on the quality, obviously, but overall, it's probably going to be in the 5% to 7% range is depending on where we are in the various quality, but overall, that's kind of a little bit higher than we've given you in February but.
Consistent generally where we were we were we think long term it will be.
Okay. Thank you.
Yes.
At this time I'm showing no further questions on the line so I'd like to turn it over to Sameer to take some questions submitted from our retail investors.
Great. Thanks.
There are a couple of questions that came in through the inbox.
We can just go through a paraphrase here.
First one was.
Asking whether why we don't license our algorithm and data analytics to other banks.
Credit unions to earn service.
Yeah. So.
Interesting question, that's certainly willing to confirm we certainly have something that is a lot of interest to two banks, which is the ability to assess the credit risk and efficiently underwrite it.
And the way, we're we've chosen to work with banks.
Is that we make loans available to them.
To hold on their balance sheet. They are taking therefore, the credit risk in exchange for hunting. The income so that is 40% to 50% of our funding that way.
Turning this into a software as a service business, that's a different business.
And.
No criticism of it great great business, it's just very different our focus is on building the direct to consumer franchise really leaning into the customer base that is.
Very credit worthy high income customer who was a is a reasonably heavy user of credit.
And surrounding them with value added services, and therefore for us being able to actually own that customer relationship being able to communicate with that customer and kind of help them on their financial journey is is where we're going to be investing.
Great. Thank you and then the other question that came in was.
Whether lending club has any plans to offer other innovative Ah.
And unique customer products.
I guess short short answer is certainly yes, we touched on it on the call today like I said first priority. This year is pulling our lending products into the banking.
Infrastructure, because that both gives us cost efficiencies that gives us incremental revenue and it allows us to leverage the full power of our platform our data science platform servicing platform our payments all of the things we do to drive loan performance, but as we look into next year, we'll come back and talk about we see.
A you know a uber.
Over time, a broad range of products, helping our customers manage their lending spending and savings.
Terrific well.
With that I think we'll end the Q&A on this call. Thank you all for joining us on the earnings call. Today. If you have any follow ups. Please contact the investor relations team and we'll be able to help you out. Thank you.
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