Q4 2022 LendingClub Corp Earnings Call
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Excuse me, ladies and gentlemen, thank you for your patience the call will begin momentarily again. Thank you for your patience the call will begin momentarily.
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Good afternoon. Thank you for attending todays lending club fourth quarter 2022 earnings conference call. My name is Mckinsey there'll be your moderator for today's call all.
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
I would now like to pass the conference over to our host Sameer Gulati with lending club. Please go ahead.
Thank you and good afternoon, welcome to lending club's fourth quarter and full year 2022 earnings conference call. Joining me today to talk about our results and recent events are Scott Sanborn, CEO and drew <unk> CFO .
You can find the presentation accompanying our earnings release on the Investor Relations section of our website.
On the call. In addition to questions from analysts we will also be answering some of the questions that were submitted for consideration 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 our competitive advantages and strategy.
Macro economic conditions and outlook platform volume due to the products and services and future business and financial performance.
<unk> 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 10-Q as filed with SEC as well as our subsequent filings made with the Securities and Exchange Commission, including our upcoming Form 10-K.
Any forward looking statements that we make on this call are based on assumptions as of today and undertake no obligation to update these statements as a result of new information or future events.
Our remarks also include non-GAAP measures relating to our performance, including tangible book value per common share and pre provision net revenue. We believe these non-GAAP measures provide useful supplemental information you.
You can find more information on our use of non-GAAP measures and a reconciliation to most directly comparable GAAP measures in the presentation accompanying our earnings release and now I would like to turn the call over to Scott.
Alright, Thanks, Samir welcome everyone.
We closed out 2022 with solid results both revenue and earnings were near the high end of our guidance range and importantly, we took action to position the company well to navigate current headwinds.
The power of our evolving model is evident in our numbers are growing stream of net interest income offset the anticipated decline in marketplace revenue and enabled us to deliver total revenue in line with fourth quarter of 2021, despite a decline in loan originations.
For the full year, we generated 45% revenue growth and a record $290 million and net income or $146 million. After you exclude tax benefits from the release of our valuation allowance.
We invested our strong marketplace earnings back into our balance sheet doubling the size of our held for investment loan portfolio, which allowed us to more than double our net interest income.
These results begin to provide a sense of the power of this business over the long term.
Our goal when the environment stabilizes is to continue to grow the bank balance sheet and the corresponding interest income revenue stream with marketplace revenue acting as a capital light earnings complement as well as a compelling membership growth driver.
To reach this destination, we first need to navigate through the current environment.
We have plans to do just that.
Well, it's unclear where exactly the fed and the U S economy land, we remain focused on what we can control and are positioning ourselves to best manage through the uncertainty.
Our focus is on three key areas.
One continuing to prudently manage credit quality through the cycle.
To preserving profitability and maintaining a strong balance sheet and three being practical and focused in our product and technology investments.
So starting with credit.
Where we will remain laser focused on managing credit risk for both our marketplace investors and ourselves.
I know the loans, we hold on our balance sheet, representing prime and high prime customers are continuing to perform well as youll see on pages 16, and 17 in our presentation.
For loans sold through the marketplace, we are pursuing quality over quantity as.
As we have spoken about for several quarters the rate environment is putting pressure on marketplace volume as the relative value. We can provide is compressed until we can reprice our loans to reflect the dramatic increase in cost of funds for especially our non bank investors.
And this higher rate lower volume environment.
Both the responsibility and the opportunity to be selective on credit.
Our delinquencies have outperformed industry averages, but we need to remain vigilant and proactive.
We anticipated and have seen pressure on our members' most notably in near Prime and especially among those consumers with lower incomes.
We are also seeing a dynamic pace of change in areas like savings rates and prepayment speeds.
A core strength for lending club is our ability to use our data advantage and our technology infrastructure to quickly adapt to emerging signal.
Accordingly, we were proactive to begin tightening.
Early in 2022 and have continued to tighten our underwriting throughout the year.
For reference our fourth quarter near Prime volumes are down more than 50% from their peak.
Longer term the opportunity to grow personal loans remains significant with credit card balances building at an over 20% average APR, even more consumers will benefit by refinancing their high cost of credit card debt into a fixed rate installment loan.
And as interest rates stabilized in the U S economy regains its footing, we expect our marketplace volumes to rebound.
Our second key objective is to maintain profitability and a strong balance sheet, we recently announced the difficult decision to streamline our operations to better align our expense base to our outlook.
We also bolstered our net interest income by acquiring a large portfolio of seasoned high quality loans from one of our marketplace investors.
In the near term, we expect marketplace revenue to be under pressure until the fed slows or ideally stops with rate hikes.
At the same time, we plan to maintain a stable interest income revenue stream by keeping the balance sheet at roughly its current size.
Our final area of focus is to continue to prudently invest in the core product and technology capabilities that will create more value for our $4 5 million members.
While we remain committed to our long term vision, we are slowing down the pace of our investments and our.
Intent in 2023 is to put the building blocks in place that will support future growth opportunities as we come out of the current environment.
Certainly we will remain mindful of the macro economy, and we'll continue to adjust the pace of our investment is needed.
So I'm going to turn it over to drew now to walk you through the detailed financial results and our outlook.
Thanks, Scott and Hello, everyone.
Let me take you through our financials in greater detail, starting with originations and our balance sheet originations for the quarter were $2 5 billion compared to $3 $1 billion in the prior year and $3 5 billion in the third quarter of 2022.
As Scott discussed earlier originations were impacted by a combination of higher interest rates curtailing investor demand for loan purchases.
And our continued discipline in underwriting to maintain strong credit quality.
As we deploy capital to retain more of our highly profitable personal loss, we showed significant growth in the balance sheet compared to the previous quarter and over the course of 2022.
Total assets increased 63% year over year to $8 billion in Q4.
With their help for investment loan portfolio up 104% over the same period, primarily due to growth in personal loans.
We also grew deposits, 104% year over year now that we have scaled the online banking platform that we acquired.
Since the closing of the radius acquisition in the first quarter of 2021, we have grown the bank from $2 $7 billion in assets to $7 6 billion in assets, which is a compounded annual growth rate of over 70% and firmly highlights the benefits of bringing lending club's strength of loan originations together with dish.
Little banking Bob.
Earlier, Scott mentioned the portfolio we acquired in December .
We are accounting for the portfolio under the fair value option as the short remaining duration.
High credit quality when the volatility around its expected performance.
We expect this portfolio to generate very attractive returns and have broken it out separately in the net interest margin table in our earnings materials.
Now on to revenue.
Total revenue was essentially flat year over year as net interest income growth of 63% was offset by a 29% decline in noninterest income.
Revenue decreased sequentially by $42 million, reflecting lower origination sold through the marketplace and the price on those sales.
Our decision to increase loan retention in 2022 has enhanced the resiliency of our franchise during a more difficult environment for the marketplace.
Net interest margin increased to seven 8% from seven 6% in the prior year period.
Due to an increase in the proportion of higher yielding consumer loans on the balance sheet.
As expected we saw sequential drop from eight 3% in the third quarter of 2022, primarily due to the current lag between our ability to pass along higher interest rates on new personal loans relative to the repricing of online deposits.
We expect the net interest margin to decline again in the first quarter of 2023 as these trends continue and for the pressure to abate should defense slow rate increases stop them altogether.
Total non interest expense for the quarter improved $8 million compared to the same quarter in 2021.
And was a reduction of $6 million from the previous quarter.
Compensation and benefits expense included $4 4 million severance charges from the previously announced expense reduction plan.
Marketing efficiency was better than expected given the use of more efficient channels and lower competitive pressure.
Marketing expenses improved by $11 million compared to the third quarter, primarily reflecting lower origination volume.
Our consolidated efficiency ratio moved to 68, 5% from 61% in the third quarter as revenues decreased sequentially.
As Scott discussed the reduction in staff was a difficult decision, but necessary given the more challenging near term outlook.
The reductions will generate $25 million to $30 million of annual run rate savings in compensation of benefits.
Savings came primarily from an improved efficiency in our management structure.
The slowdown in some strategic initiatives.
And ceasing originations in two commercial businesses commercial real estate and equipment finance that we acquired from radius.
We will take the remaining severance charge of $1 3 million.
In the first quarter.
Slide 15 shows the pre provision net revenue for <unk> and the net income for the quarter along with other metrics.
In 2023, we will move to <unk> as the key metric, which provides a better gauge on income statement performance.
<unk> is a useful measure for evaluating the underlying performance of our company without the quarterly volatility caused by credit loss provisioning.
For the fourth quarter, we had PNR of $82 7 million, which increased 12% compared to the same quarter in 2021.
We remain pleased with the performance of credit in our portfolio.
Our provision for credit losses was $62 million $21 million lower than the previous quarter, primarily due to a decrease in the dollar amount of loan originations held out balance sheet.
Our allowance coverage ratio, excluding PPP loans increased to six 6% from six 4% in the previous quarter due to the effect of ongoing recognition of provision expense for discounted lifetime losses at origination.
In the fourth quarter, our tax rate again benefited from a reversal of our remaining valuation allowance as well as R&D tax credits.
For the quarter, we had a tax benefit of $2 4 million.
As we enter 2023, we expect less volatility in taxes and the tax rate is expected to be approximately 28%.
But other factors such as share price movement will continue to impact our reported tax rate going forward on a quarter to quarter basis.
Yes.
Tangible book value per common share grew 35% year over year to $10 <unk> per share at the end of the fourth quarter.
We have maintained strong capital ratios on top of a significant allowance for credit losses.
This positions us to better navigate through the current environment and provide the ability to strategically deploy capital as opportunities arise now. Please turn to page 16, where we have provided you with an update to the 30 plus day delinquencies of our prime personal loan servicing portfolio as.
As well as our held for investment personal loan portfolio.
You will see that credit quality of the prime servicing portfolio continues to normalize as the portfolio seasons that new origination growth slows in the marketplace.
The same effect is also true of our own HFC portfolio.
We expect this trend will continue given the lowered level of originations in the near term.
Given that change in growth trends is it seasoning are creating comparability issues with historical data we are not planning to provide this slide in the future.
On the next page we have provided more detailed disclosure on our loss expectations, which we believe provides a cleaner view of performance.
So on slide 17, you can see credit performance of personal loans on our balance sheet by vintage.
We expect a lifetime loss with a 2021 and 2022 vintages to be up two 8% and eight 7% respectively.
The estimate for both vintages include qualitative provisions for the uncertain economic environment.
The 2021 vintage delivered very strong credit performance given the effect of government stimulus during the pandemic.
The 2022 vintage reflects a move to a higher quality mix of credit, but also a normalization of credit trends.
We expect annualized net credit losses to be approximately 5% over the late 2022 vintage but that could vary if economic conditions deteriorate significantly.
For each vintage we are providing the breakout of how much in charge offs have been realized as of the end of 2022.
How much of future losses have already been reserved for in our allowance for credit losses, and how much remaining provision we estimate we will take through the income statement, which mainly represents the day, one seasonal discounting coming through the provision expense over time.
If we look at the net interest margin and factor in variable expenses in annualized credit losses, We expect post tax Levered returns in the low to mid 30% range. These returns are the reason we plan to invest our available earnings growing our balance sheet now, let's move to guidance and how we're thinking about 2023.
Given the broader macroeconomic uncertainty we are moving to quarterly guidance.
For the first quarter origination outlook is one nine to $2 2 billion, reflecting prudent underwriting and the rate driven pressure on marketplace demands.
We plan to maintain the size of our <unk> balance sheet.
Therefore, we expect to retain 30% to 40% of our loan originations for the quarter.
For marketplace originations, we sell we expect unit economics in line with the fourth quarter.
We plan to maintain positive net income levels and invest in period to earnings into loan retention to support future earnings.
As we reinvest our capital we will maintain a disciplined approach to underwriting drive credit performance and required returns.
<unk> thousand 23, we want to maintain flexibility to grow the balance sheet, when we generate excess earnings available for investment.
The impact of the day, one seasonal charge on longer attach it to have a significant impact on earnings.
With this in mind, we have evolved our focus to pre provision net revenue.
Which is a more relevant guidance metric for financial services companies using seasonal accounting.
Our outlook using PPE NR is $55 million to $70 million for the first quarter.
With that let me turn it back to Scott for closing comments. Thank.
Thank you drew.
Clearly the multiple economic variables that are at play here have affected our near term outlook, but I do believe we've positioned the company well.
And that we have strategic and structural advantages that will help us outperform over time.
As we finish off the year I just wanted to take a step back to recap the progress we've made since we acquired the bank in.
In two years, we have completely transformed the financial profile of the business, we've more than doubled the balance sheet cut tens of millions and issuance costs added a new recurring revenue stream that represents almost half of our quarterly revenue and we've significantly grown our equity. These strong fundamentals will help us manage through what will ultimately.
<unk> be temporary headwinds as interest rates stabilize and credit card balances and apr's remain at or near record highs. We believe that our core business of credit card refinancing will be well positioned to quickly resume growth and drive marketplace revenue.
With that I wanted to say a sincere thanks to all of my fellow lending Clubbers.
Both those who are with us today, and those who we recently had to say goodbye to for their contributions to our company and to our customers.
That's it thanks again for your time and I'll open it up for questions.
Thank you.
If you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove a question. Please press star followed by two.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question. Please.
I will pause here briefly ask questions are registered.
Our first question comes from the line of Bill Ryan with Seaport Research. Your line is now open.
Thanks for taking my question.
Starting with kind of the guidance I was looking at Ed you had <unk> $55 million to $70 million and you look at it.
With your originations of $1 90 to $2 two you take a midpoint.
Reserve on the consumer portfolio was I believe provision was eight 8% of retained origination so assuming that math it looks like you might be breakeven plus or minus in Q1. So.
So is the eight 8% correct is that kind of a good number to use or to or was there something incremental in the provision and kind of tie in with that the expenses.
The <unk>.
<unk> that you took to reduce the fixed cost and then you've got a 50% variable cost structure.
How long before the cost reduction start to kick in is there any of it really in the Q1 guidance or is that kind of role spillover more into Q2.
Yeah, great. Thanks, Bill for the question. So let me start with the provision question first so you are correct on that ratio keep in mind that the components that go into the provision or the day one seasonal.
The accretion of the discount we have on day, one and then other qualitative factors as well and so one thing about that accretion of the discount is it really hits more heavily in the first and second quarter. After origination. So if you look back at our origination trends. This.
Quarter had a higher amount of that back book accretion coming in as we look forward to Q1 I don't want to talk about the ratio was much but if you think about it in terms of dollar amounts.
Remixing to higher quality credit, we should probably have less accretion just because of the recent trends and originations and so right now we would expect that provision to actually come down quarter over quarter, but obviously as I. Just said, it's a very volatile measures. So there are a lot of different outcomes that are possible on the provision line.
Any given quarter.
Second.
Expenses, so on the 50% variable cost.
Sorry, just one other thing to add Bill is.
The other important.
Part of the message we want to make sure you hear is.
Our intention is to maintain the balance sheet given the details we've shared on the attractiveness.
Of the loans, we're planning to continue to add to the extent that we've got.
<unk> earnings.
We would put those into the balance sheet. That's one of the other reasons why we're not guiding to that there is both the volatility in our provision and also just the intent to be.
Be able to continue to grow the balance sheet should the earnings credits and in Q1 I should have added just back on the provision as well in Q1 as we are going to higher quality loans that we expect that sort of the upfront charge will be lower and the higher quality loans that we're putting on the balance sheet would also which also benefits the provision.
On expenses the vast majority of the savings that annualized savings that we reported are fixed cost. There is some portion less than 10% which is variable cost.
That reduction, but then the biggest reduction youll see in our variable cost base as originations comes down is marketing and you've obviously already seen that come down each quarter as originations have also declined but in terms of the timing of those expenses come through.
<unk>.
Alright.
The savings that we're getting from the reduction in force those will come through in Q1. So we will get almost the full impact of those except for the remaining severance charges.
Mentioned and then there is there is a little bit of variable costs that may still come down over time, that's a little more lagged.
Reductions in from the reductions in originations, but I wouldn't call that meaningful compared to the $25 million to $30 million that were cited in the overall reductions.
Okay. Thank you.
Thank you.
Our next question comes from the line of David <unk> with Wedbush Securities.
Your line is now open.
Hi, Thanks for taking the questions I wanted to follow up on that question about the provision.
I would imagine that with with the loan portfolio essentially being flat that the provision going forward would basically be the loss content of the loans with minimal reserve building since you wouldn't since the loan portfolio isn't growing you don't have to necessarily set aside additional.
Reserves that have already been taken so to speak so I would think it would essentially the provision would match the net charge offs in the quarter is that the right way to think of it that you are.
Basically you don't have to reserve much with a flat loan portfolio.
No that's that's not quite correct because.
In order to keep <unk> flat loan portfolio, we need to keep originating loans to offset the run off in those newer loans those new loans. We originate are going to have a day, one seasonal charge that we need to take as well and then you will still have accretion that occurs on the back book, but as I said, that's more loaded too.
Through the first couple that's more frontloaded to the first couple of quarters after origination, but theres still a tail on that as well.
Yes.
I see okay, and then shifting over to you mentioned about kind of reinvesting.
Capital to grow the balance sheet is so is the right way to think of your kind of comfort level on capital ratios is where they ended in the fourth quarter is there any other kind of constrained on.
Growing the balance sheet, because when I look at your deposit growth over the past several quarters <unk> had <unk>.
Significant success in garnering deposits. So could you talk about what's constraining your balance sheet growth.
Sure Yes.
Think about the the ingredients that go into growing the balance sheet.
I'd say capital.
Liquidity.
Earnings right and the third one is maybe maybe debatable, but not really for us with our with the guidance, we're giving so we still have capital to grow our tier one leverage was 12, 5% and we're generating capital each.
Each quarter, we had.
Sorry that was at the bank level of 12, 5% and liquidity, we have ample liquidity and the online deposit space has been.
Is large enough to continue to fund our growth for the foreseeable future no concerns there, but that up we want to grow the balance sheet and originate more loans to the balance sheet that means more seasonal charge that we take which goes against profitability. So as much as we have the goal of remaining profitable on a net income basis every quarter.
We do still need to balance against that we just haven't used that as the guidance, we're giving you any longer so that gives us more flexibility.
Got it and then the last one for me on on Slide 17, you mentioned about your net credit loss rate of approximately 5% can you talk about how this 5% how that compares to what your kind of long term expectation was for these Vince.
And on a go forward basis.
Yes.
Yeah. So.
If you if you look at that page you can see 'twenty, one and 'twenty two 'twenty one given that you still had some of the stimulus benefits from the pandemic.
Better.
Arguably better than our expectation in 2022 was marginally below you put the two together and we're pretty much on expectation across those two vintages in total which is roughly in line with what our expectation is for.
The year end.
And I would just add in 2022 vintage, meaning maybe marginally less than we expected, but still highly accretive in terms of value created for shareholders by putting it on the balance sheet.
He says it's performing thus far.
Okay.
Got it thanks very much.
Okay.
Thank you.
The next question comes from the line of Giuliano Bologna with Thunder Compass point.
Your line is now open.
Okay.
Thank you for taking my questions. So starting.
Starting off one thing I'd be curious about.
Thinking about how pricing is evolving.
I'm kind of thinking about the marketplace.
You seem to have talked about in previous quarters is that there is kind of a couple of month lag on pricing.
And now that we're kind of getting closer to.
At least a slowdown in that trajectory.
Hopefully very soon.
And then to the hike cycle.
Is that really what do you think will drive a return to volume as pricing catches up once that happens.
On the marketplace and just in general for the platform as a whole.
And then when I think about the pricing that youre getting it looks like pricing was still a little bit lower in <unk>.
As we go forward as pricing moved up.
Going back to the commentary last quarter, where you were saying that <unk> bin.
The only pricing higher on your own different loan categories.
During the quarter I'm curious if we should think about the yield starting to increase on new originations versus the current HFC book.
The basis.
I'll start.
I'll see if I can remember all the questions that were in there if I missed one let me know.
So.
The step back the rate driven pressure is the biggest driver of the volume reduction or especially the non bank investors, who have seen their cost of capital really significantly increase.
That's that's where we're seeing the pressure in those buyers are primarily the non buyers of the non prime and the lower prime.
And so we are both.
Curtailing volume there.
Due to that rate driven pressure.
And.
Having two until we can get the price up sure. Some economics in that same space, where now as last quarter.
Including us the percentage of loans sold the bank says we ought to be in the seventy's of percent. So.
Really really shifted to the bank buyers right now.
Have continued to move prices up we mentioned.
Testing at all times price points across all of our risk cells.
And we think it's important in an environment that is in and of itself is stable and making sure we maintain take rates and understand the profile of the borrowers coming through.
We are being deliberate about that so we move prices up another.
The 40 basis points or so over the quarter.
And we're going to continue to push on that so we would expect as the fed slows down again ideally stops.
There is a lag.
As mentioned before fed.
The fed moves and credit cards move then the market moves and we move.
And in.
And so we would expect it has that pressure abates.
There is the opportunity for the marketplace too.
Begin to.
Reignite and as we've shown as recently as last year, the marketplace can rebound pretty quickly.
Yes that all assumes that the credit environment the unemployment environment is.
All it.
And so obviously that is that is a factor that I'm sure. It's certainly on our mind.
In the minds of our investors that's one of the reasons why we're continuing our focus on being proactive and prudent.
And I'll just jump in Giuliano, but just on the edge.
<unk> portfolio.
Look at the NIM table.
Consumer loans went from $13 five two in Q3 13, one six in Q4, the vast majority of that decline was actually.
The deferred the deferred items fees and expense.
I mean, the yield coming down from that because prepayments have slowed as expected. So I think in terms of the actual coupon pricing coming into the book.
Back book is mostly run its course now and that pressure.
Is abating.
Thanks, a lot.
Going from there, but when I look at that table and the build up to five of the 30% to 36% marginal.
Ro.
<unk> originations.
Youre looking at.
Any kind of implied NIM of 10.1%.
Great.
I would say is we're using brokered Cds.
That's the benchmark for your cost of capital it looks like that's currently in the 4% ZIP code at the moment and your high yield 4%.
In a moment.
Does that kind of imply you think youre going to get on the incremental loans, you know somewhere in the 14%, 14% for a higher yield.
On the loan portfolio and does that kind of thinking more about <unk> or is that something that you think it will blend for the full year.
Yes, I think you can get them at.
Mostly right, it's actually little better because growth broke the proxy the brokered proxy we are using is closer to five.
For it so we're not using our actual high yield savings were saying if we go out Max use a matched duration brokered CD, we're applying that right now so we're taking sort of the interest rate risk.
And out of the equation here.
Yes.
So it's a very old principally we're going back to.
Go ahead sorry.
You got it right.
Sounds good.
One thing I want to bring up with maybe just kind of a clarifying question.
You guys were talking about the balance sheet relatively flat and then maybe potentially growing a little bit somewhere earnings and capital shake out I'm assuming.
You mean that inclusive of the acquired portfolio.
Our reserves. So there is still mixing into more of a portfolio with seasonal reserves as you kind of replace the runoff in our portfolio. This year.
Good way of thinking of it.
Yes, yes, that's correct. We don't we've had we've had great balance sheet growth, we're clearly going to be slowing down in the near term, but we don't want to lose ground that includes replacing the runoff of that portfolio.
It's good that you called that out because that portfolio given that it's already fairly season is going to run off pretty quickly and so the Big addition that will pay down more quickly than our and our new originations.
That's great. Thank you for answering my questions and I'll jump back in the queue.
Thank you.
Our next question comes from the line of John Rowan with Janney Montgomery. Your line is now open.
Good afternoon, just I want to make sure I understood your answer to the prior question correct the flat loan portfolio.
That includes the.
The acquired portfolio as well or is that.
On an average basis would.
Assets in <unk> look higher than the fourth quarter, obviously, given the timing of the deal.
Yes.
On loans that it should because we only had one month of as I'm sure you are picking up we only had one month ago.
Average balances for that quarter. So we will get a full quarters worth in Q1 now the portfolio runoff quick.
It won't be.
About $900 million, we ended the year at so it will come down from there over the course of Q1.
Okay, and then just you mentioned, obviously bank demand in the marketplace and I'm just I'm wondering if.
When U S Bank acquired.
Made the acquisition and then turned around and sold the portfolio was.
The predecessor bought those from the marketplace, where they are a big component of your bank demand I'm just curious if.
That change indicate that there'll be any difference in where they are big client does that make a material impact in.
Bank demand going forward, assuming youre not theyre not in the market anymore.
So.
That was a $1 billion portfolio it represents a large clients.
We're a long very long term significant partner of ours, but when the acquisition was announced.
The intended acquisition was announced we did work with them to begin reducing their overall participation in the mix and anticipation that the new owner may not continue the relationship. So I won't say that there was no impact but.
Their purchases drew down and we work to draw them down materially between when the deal was announced and when it was approved.
Okay alright, thank you.
Thank you.
Our next question comes from the line of Michael Perito with K B W.
Your line is now open.
Hey, good afternoon, guys. Thanks for taking my questions.
I wanted to.
I wanted to ask on the Opex side, maybe a question for you drew so if we look at the fourth quarter you were about $180 million I think that included about $4 million of the <unk>.
Structuring charges, so maybe call. It 176, I mean is it.
Because there's kind of two components right.
If you annualize that and then you take out the 25 to 30, but you guys still sounds like Youre investing so I'm, assuming there's going to be some growth on that just the question is how much I was wondering if you can give maybe some some thoughts around that I'm, assuming it's going to be a lot less than what we saw last year.
But but not nothing and just was hoping for some more context there.
Yeah. So so marketing I think you probably understand that trend and marketing, it's just going to tied largely to bulk but some rate differences right. The reason, we specifically talked about comp and Ben and gave I think a pretty precise number.
<unk>.
Somewhat precise ranges. So that you could you could you and all the investors can do the math on it but you should take that $88 million you should subtract out the one time charge and then apply the run rate savings that we're going to get just don't forget we have a little more severance to taking Q1, all the other line items I mean, theres some puts and takes there.
But we're not expecting dramatic changes, we are going to be working we'll be working to be efficient.
And spend where we need to make.
Make some investments, but there is a little bit of drag will give for example, our depreciation and amortization because new projects will come into production, but nothing that should I think majorly Altair youre modeling from where we're at today.
Okay. That's helpful.
Yeah no. It is thanks for that and then just.
Yeah, I guess kind of a big picture question, Scott I mean, obviously, it's a tough environment to just to make kind of definitive statements, but I.
I guess, one element that is kind of coming to my mind here as I think of other banks.
Coverage universe diversity can often help and obviously you guys are are pretty heavily tied to the personal lending asset class, which is obviously what you do so well, but just curious what your kind of high level thoughts around that or I mean does it make sense longer term to diversify the business more I mean, just kind of more of a philosophical question, but just curious how you think about it.
Yes.
We are certainly thinking about this.
A couple of phases that we'll be pursuing in parallel, but some will reach fruition more quickly one is transitioning the model as we've talked about from a 100% marketplace revenue too.
Where we are now call. It $50 50 interest income at the marketplace to do more on balance more of the revenue coming off the balance sheet because it is it is there.
More resilient income stream than the marketplace revenue.
The marketplace has real value in a capital light way to grow we can serve customers, we wouldnt serve with the bank balance sheet, but.
As we're seeing it is less resilient in the face of market shocks like yesterday. So that's one part of the transition that we are eager to continue.
And I think last year shows you that.
The power when that is working together and.
You can think for yourself as the balance sheet gets bigger and you maintain the marketplace, we think that'll be pretty powerful as an earnings generator and then the second piece, which we are committed to but our slowing down this year is really.
Finding other ways, we can help our consumers and we know it's a very valuable consumer they are strong credit high income.
Like us and so we are eager to do more for them.
That is our that is our plan to ship this year.
Getting new credit products off the ground and services off the ground is that takes a bit of time and it requires investments that will be we are slowing it down but we are not stopping here.
Yes, okay.
And then just one last one for me I want make sure I heard this correctly did you guys say that the commercial lending team from the stay over from the radius Bank was kind of.
No longer with you guys and so therefore, if so we'd be safe to assume that the commercial balances will kind of run down to nothing from this point forward or did I misinterpret that.
So there are three pieces to commercial there.
G G L ECS VA lending commercial real estate and equipment finance.
So the <unk> business, which.
It is closer in what we do in terms of those small but those are smaller businesses that are closer to the consumer. It's also a variable rate product that has similar dynamics where.
There is a robust market should you choose to sell it but you can also OLED. So I would say that we are.
That piece that government guaranteed lending piece, we are continuing to grow.
But commercial real estate and equipment finance.
<unk>.
In this environment.
Not as attractive returns for for the Bancorp for shareholders. So we arent originating new loans. There. So yes over time, you could expect those balances to go down or are they paid on a more slowly than.
That was really my follow up maybe for drew just whats the amortization there because it's correct to assume that those will be replaced with more profitable personal loans, if you're keeping the balance sheet flat correct.
And I think we will grow.
SBA government guaranteed lending business faster that is part of our attention as well.
Okay.
Run off slower NPL, but they are also less predictable rate.
We may have customers, who decide to refinance or diversify their banking relationships, but we're expecting it to be slower over the course of 'twenty three.
Okay.
Perfect. Thank you guys.
Okay.
Okay.
Thank you.
There are no additional questions waiting at this time, so I'll pass the conference back over to Samir.
Thanks, Nathan So we do have a question from one of our retail investors.
And the question is with credit card rates and balances at all time highs how do you see this affecting your business.
Yes, I mean, we tried to touch on that.
Prepared remarks I think.
We believe there is a very very material opportunity for us on the other side.
Which is the.
The balances are massive and these things that are acting as headwinds for us now.
Should turn into a tailwind switches investor cost of capital will come down based on forward expectations.
Credit card the fed will not have moved yet credit cards will not have moved yet and we will be able to offer real value to our loan buyers and we will be able to offer.
Even more compelling value to our borrowers in.
It is our intention to be in a position to take advantage of that opportunity.
And use the earnings that that generates really.
Continue our.
Evolution, we talked about earlier, which is.
Growing the bank balance sheet and diversifying our overall set of products and services, we offer our borrowers.
Great.
Thank you all for joining us for the earnings call and if you have any follow up questions. Please contact investor relations. Thank you.
That concludes the lending club fourth quarter 2022 earnings conference call. Thank you for your participation have a wonderful evening.
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