Q2 2023 LendingClub Corporation Earnings Call
[music].
Okay.
Hello, everyone.
Thank you for attending today's lending club's second quarter earnings conference call.
My name is Sierra and I will be your moderator for today.
All lines will be muted during the presentation portion of the call with an opportunity for question and answers around it.
If you'd like to ask a question press star one on your telephone keypad.
I would now like to pass the conference over to Artem <unk>, Vice President of Finance with lending club. Please.
Please proceed.
Thank you and good afternoon, welcome to lending club's second quarter earnings Conference call. Joining me today to talk about our results and recent events are Scott Sanborn CEO , Andrew I've been CFO .
You can find the presentation accompanying our earnings release on the Investor Relations section of our website on the call. In addition to the questions from analysts. We will also be answering some of the questions that were submitted for consideration via 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 macroeconomic conditions and outlook platform volume future products and services and future business loan.
And financial performance, 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 are more.
Recent Form 10-K as filed with the SEC 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 today and we undertake no obligation to update these statements as a result of new information or future.
You bet.
Our remarks today 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 can find more information on our use of non-GAAP measures and a reconciliation to the most directly comparable GAAP measures in the presentation accompanying our earnings release.
Now I'd like to turn the call over to Scott.
Alright, Thanks, Arnaud welcome everyone.
We delivered solid results in the quarter, thanks to disciplined execution and by continuing to leverage the strategic advantages of our marketplace Bank model.
The quarter's 2 billion in originations was in line with our guidance, reflecting planned lower balance sheet retention too.
Total revenue was $232 million and pre provision net revenue, which is revenue less noninterest expenses was $81 million, which was exceeding the high end of our guidance range and made possible by continued marketing and operating expense efficiency.
As a result, we delivered our ninth straight quarter of profitability.
Now let me provide some context on the current operating dynamics.
The bank portion of our business is demonstrating its resilience with net interest income stable quarter over quarter.
However, we are facing what we believe to be temporary headwinds in the marketplace, which is resulting in pressure on our outlook for noninterest income.
First as we signaled last quarter and as is evident and regional bank earnings reported thus far.
<unk> are currently moving to the sidelines as they address their capital and liquidity concerns and their pullback will have an impact on our near term origination volume.
And while we continue to have productive discussions with our bank partners and though the appeal of our high yield short duration asset is more clear now than ever thanks capacity to invest is for now likely to remain restricted.
And second to strengthen their capital position as banks are selling loan portfolios at deep discounts that is adding significant supply to a market that's already saturated with investment options.
On the positive side asset managers are raising capital and they are stepping in to buy however, they are seeking higher yields to offset their higher cost of capital and this is putting pressure on loan sales pricing.
We don't believe that this market dynamic is sustainable and in the meantime, we're leaning into our bank advantages to create new profitable structures to support marketplace volumes.
I mentioned, our structured loans certificate program last quarter, which is essentially a two tier private securitization and with lending club retains the senior note and sell the residual certificate on a pool of loans to a marketplace buyer at a predetermined price.
This effectively provides low friction low cost financing for the buyer and in exchange lending club earns an attractive yield with remote credit risk and without upfront seasonal provisioning.
So as a bank. This is something we are uniquely positioned to deliver for our marketplace investors. We've had good initial reception to the program and we have a solid pipeline of forward interest.
Another advantage of our bank is our ability to hold and seasoned loans for investors, earning interest income for lending club, while increasing the certainty around future credit performance for the buyer, which is especially important in this environment.
We recently sold $200 million of seasoned loans at a gain and we are receiving interest from investors to broaden the program.
I should also note that to deliver the returns required by loan investors in this rate environment. We are continuing to raise coupons. We've now priced in the majority of the fed rate increases for near Prime originations, where we generally compete with nonbank lenders are pricing on our prime portfolio, where we generally compete with banks is now up roughly two.
165 basis points.
Being deliberate and disciplined here to avoid adverse selection and we're continuing to test our way out on pricing.
Now, let's turn to credit where our data advantage from over 85 billion and loans are flexible infrastructure and our seasoned team has enabled us to continue delivering losses below the competition.
And while we're pleased with our credit outperformance and the strong returns we're generating in our held for investment portfolio delinquencies are modestly above our expectations on vintages booked before the prolonged inflation fully manifested in before we evolved our underwriting strategies and models. The actions. We have taken since then have resulted in consistent credit performance.
<unk> and we will continue to read the signals and adapt to maintain strong credit for loan investors and for ourselves.
Looking ahead federal student loan payments are set to resume this fall after a multiyear hiatus and while we're carefully preparing ourselves and our members for this new financial reality.
Currently believe that any impacts of the portfolio will be muted and that's given 12 months on ramp period. The government is providing the many reduced payment options available proactive credit actions, we've taken to reduce exposure to what we believe are the higher risk segments of this population.
Even so we are taking additional steps to make sure. Our members stay on track and that includes educational outreach to ensure that student loan debt or understand the size and timing of coming payments. They are aware of the reduced payment options available to them from the government and if needed of Costa.
Some hardship plans on their lending club loan if they need to bridge a gap as.
As we demonstrated during Covid a high touch proactive approach to helping our members can result in lower delinquency rates and increased loyalty.
Our long term ambition remains growing our member base and surrounding them with products and services that help them keep more of what they earn and earn more on what they safe. We have continued to innovate and starting over the next six months, we plan to test and launch an integrated mobile app that combines lending spending and savings into <unk>.
<unk> experience that monitoring and management tools fully integrated into this mobile experience, allowing members to easily view their deaths and prioritize and optimize their payments to reduce costs and are preapproved installment line of credit that allows existing members to seamlessly sweep any new credit balances into alone at a fixed rate.
Importantly, this last feature will be built on a new revolving platform that we'll be able to eventually support additional new products.
So as I said earlier, the environment will continue to challenge our ability to drive meaningful growth for at least the remainder of 2023, but we do believe this period of temporary resulting from a confluence of macro events that won't persist over the long term and we remain prepared to accelerate when the environment stabilizes and we see the fall.
King.
Fed stops raising interest rates and ideally begins to lower them.
Banks have repositioned their capital and liquidity levels, enabling a return to the marketplace.
<unk> the current oversupply of investment options has subsided as.
As the partner of choice in this asset class, we expect to be a primary beneficiary of a return to more normal market conditions and.
And we believe that we are well positioned to capture a historic opportunity to refinance record high credit card balances at record high rates.
Until that happens, we're leveraging the benefits of a marketplace bank business model to maintain near term profitability bolster our long term resiliency and create a more differentiated member experience.
As always I want to thank the lending club employees for their continued hard work and commitment to building towards our bigger future and with that I'll turn it over to you Joe.
Thanks, Scott and Hello, everyone. Let me walk you through the details of the results I'll start with originations in the second quarter.
Originations were $2 billion.
Compared to $2 3 billion in the prior quarter and $3 8 billion in the second quarter of 2022.
Of the $2 billion in originations marketplace sold loans were $1 4 billion.
Up 67 million compared to the previous quarter.
As Scott mentioned, we have had early success in facilitating marketplace sales through the structured certificates, we issued approximately $180 million in the quarter, which helped drive growth in marketplace sales.
Loan retention came back within our expected, 30% to 40% range to $657 million down from $1 billion in the first quarter as we normalized retention levels in line with our available earnings.
Okay.
Now, let's move on to pre provision net revenue or P. PNR.
<unk> was $81 million for the quarter compared to $88 million in the prior quarter and $121 million in the second quarter of 2022.
The outperformance compared to our guidance was driven by a $3 million revenue gain.
Pending portfolio sale that was completed in early July and a $6 million sequential improvement in expenses, primarily due to our previous streamlining of operations as well as proactive expense management and marketing and other areas.
As Scott mentioned, we are seeing increasing investor demand for personal loans that have been season.
And we are originating a portfolio of approximately $250 million in loans for this purpose in the third quarter.
These wells will come on the books at fair value with discount that approximates our observed whole loan sale prices.
Total revenue for the quarter was $232 million.
Compared to $246 million in the prior quarter and $330 million in the same quarter of the prior year.
Let's dig into the two components of our revenue.
Can find revenue detail starting on page nine of our earnings presentation.
First net interest income was $147 million flat.
<unk> and up 26% over the prior year.
Net interest margin was seven 1% compared to seven 5% in the prior quarter and eight 5% in the prior year.
The change was primarily due to higher average cash balances as well as increased cost of interest bearing deposits, which was partially offset by higher yield on unsecured consumer loans.
Marketplace revenue was $83 million in the quarter compared to $96 million in the prior quarter and $206 million in the same quarter of the prior year.
The change in marketplace revenue was primarily due to lower loan pricing as.
As well as a nonrecurring 9 million dollar benefit in the first quarter.
Now please turn to page 13 of our earnings presentation, where I'll discuss expenses.
Noninterest expense of $151 million in the quarter compared favorably to $157 million in the prior quarter and $209 million in the same quarter last year.
The sequential reduction was primarily due to lower variable expenses in marketing and operations.
Comp and benefits also improved as a result of slowing our pace of hiring across the company.
Our expense run rate fully reflects the $30 million annual cost savings target, we had communicated at the beginning of the year in which we are on track to exceed.
Now, let's turn to provision.
Provision for credit losses was $67 million for the quarter compared to $71 million in both the prior quarter and the second quarter of 2022.
The sequential decrease was primarily the result of lower day, one seasonal due to fewer loans retained in the quarter, partially offset by more accretion on a larger back book of loans and an increase in reserves on the 2021 and 2022 vintage.
As you will see on page 15 of our earnings presentation. We have modestly increased our range of estimates for the expected net lifetime loss rates on the 2021 and 2022 vintage.
Which reflects the impacts of inflationary pressure on borrowers.
While it is still early to judge the ultimate performance of the 2023 vintage.
Our initial observations are that it is now showing stable performance benefiting from the tightened underwriting we've implemented over the last several quarters.
On page 16, we have updated our marginal return on equity personal loans to a range of 25% to 30%.
To reflect the lower net interest margin due to higher funding cost and higher quality mix.
In addition, we thought it would be helpful to share the marginal returns on our structured certificates.
Which generate a marshal our or we have approximately 20% and using our current balance sheet leverage.
It is also important to note that the risk weighting on these securities is 20%, which means that these returns are even more attractive on a risk adjusted basis.
Now, let's move to taxes.
Taxes in the quarter were $4 7 million or 32% of pre tax income.
As I mentioned in the last quarter, we will have some variability in the effective rate from quarter to quarter.
Our effective tax rate is 27% year to date, we continue to expect that to be in line with our long term tax rate.
Now, let me touch on the balance sheet, a few things to note here total assets were $8 $3 billion for the quarter compared to $8 8 billion.
At the end of the previous quarter.
The decrease was primarily due to lower cash balances as a result of the planned maturity of brokered deposits.
Our securities portfolio grew to $524 million in the quarter the.
The increase of $143 million, primarily reflects growth in our structured certificate program.
As I mentioned earlier, we retained the senior tranche of the security and hold it on our balance sheet and.
In addition to the senior tranche, we also hold a 5% whole loans security as required by Don for.
You will see the securities portfolio continuing to grow as the program scales.
Loans held for sale at fair value were $250 million at the end of the quarter as we moved approximately $200 million in held for investment loans into held for sale for the transaction that was completed in early July which I spoke to earlier.
Okay.
As I mentioned, we are seeing increased demand for these types of seasoned loans. We are planning on growing this program and completing more transactions in the future.
Our consolidated capital levels remained strong with 12, 4% tier one leverage and 16, 1% CET one.
Our available liquidity remains healthy with $1 $2 billion of cash on hand, and 85% of our deposits are insured.
Additionally, we continue to maintain substantial amounts of unused borrowing capacity at both the federal home loan Bank and Federal Reserve Bank with a total of approximately $4 billion at June 30.
Now, let's move to our guidance for the third quarter.
As Scott mentioned, we expect bank demand to be constricted with marketplace volume going primarily to asset managers at lower prices. This is informing our outlook.
For the third quarter, we expect originations between one four and $1 7 billion.
And we expect <unk> to range from $40 million to $50 million, which includes up to $10 million of one time benefits related to recouping volume based purchase incentives from the bank Investor Channel.
It is our objective to remain profitable for the quarter on a GAAP basis by continuing to execute with discipline on expenses.
And reducing our held for investment loan retention.
Our guidance for the quarter assumes 30% to 40% balance sheet retention.
Which includes both held for investment and held for sale originations.
Putting it altogether, we are planning to maintain the size of our balance sheet third quarter through a combination of held for investment whole loans growing the structured certificates program and.
And held for sale extended seasoning.
Held for investment loans will reflect the upfront seasonal provisioning, while structured certificates and held for sale loans will be under fair value accounting.
We continue to diversify our balance sheet through these new structures and programs, which will enable us to earn attractive recurring revenue via interest income while also helping to facilitate marketplace sales.
We believe that a recovery in the marketplace will take longer than initially expected given the continued pressure on banks and aggressively priced secondary loan sales.
While we're not giving fourth quarter guidance at this time, we expect these pressures to continue at least through the remainder of the year, but regardless of the market conditions, we have a resilient business and we will remain focused on profitability versus growth.
As we look further ahead there is a massive opportunity in front of US we are well positioned to accelerate quickly as conditions improve and in the meantime, we will continue to execute with discipline innovate on our offerings and leverage our strategic advantages as a bank to evolve the marketplace.
With that we'll open it up for Q&A.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
To remove your question press Star followed by two.
And if youre using a speakerphone today please.
Please remember to pick up your handset before asking a question.
Our first question comes from Bill Ryan with Seaport Research partners.
Please proceed.
Good afternoon, Thanks for taking my questions.
First question is just on your origination volume I mean kind of looking at it you are within guidance this last quarter.
And looking at it year over year.
It seems like Youre, either tightening up on credit again, right now because the volume gains that you're getting relative to a year ago.
Looks like it's going to be a little bit softer on a year over year comp basis or are you just kind of originating based on what you see the investor demand is right now and then what you can put on the balance sheet.
Yes.
Bill This is Scott.
Yes, it's really the latter.
Which is basically with the impact of bank purchases.
As we mentioned in the prepared remarks, it's really we're originating for the available investor demand economics that we find acceptable.
So it's not a it's not a credit story. We are of course, continuing is always to manage credit, but origination volumes really targeted to demand at the prices that we're willing to take.
Okay and a follow up question just on the NIM.
Alright.
Yes, yes, just stating stating the obvious.
Right now is enormous I mean, we.
On it in the remarks, but.
Credit card interest rates have moved up yet again, they're currently at 27, just the highest they've ever been and it's over a trillion dollars in assets. There. So we are this is not about borrower demand.
Okay, and just a follow up on the NIM outlook.
You guided last quarter that it would be down talking about this structure certificates.
Buildup of liquidity on the balance sheet.
It's sort of looking forward are we getting close to a bottom here or do you see potentially.
Potentially a little bit.
The margin compression from here.
Yeah, Hey, Bill.
First of all exactly correct on the decrease from Q1 NIM from Q1 to Q2 about half of that decrease was the buildup in cash going forward. We'll continue to have I think more modest pressure on NIM downward for a quarter or two but I would say it does depend on.
If the fed does anything else in the future.
Kind of the competitive nature of the.
Deposit market and if that involves in any way.
But I think those two things remain stable then I think we're close to the bottom on on NIM, a little bit further to go.
Okay.
Thanks.
Our next question comes from Reggie Smith with Jpmorgan. Please proceed.
Good evening and thanks for taking the question.
Yes.
Follow up to Bill's question earlier.
So it sounds like you're like you said, the volume or rather the demand for loans.
Hi, and just kind of looking across the landscape it feels as though most.
Personal loan issue was it kind of pulling back now and so my question is.
With that dynamic.
Why arent, you able or maybe you are able to charge more either APR or origination fee like what's the sensitivity because it would seem that with the smaller.
Origination basis, you'd probably squeeze in pricing now what am I missing there.
Yeah, Hey, Rajiv so tried to touch on this.
It really depends on what segment of the market you are talking about so in let's call. It the near Prime portion of the portfolio, where the competition is non bank lenders that includes fintech, but also a specialty finance companies, whose cost of funds is moving in lock step with the forward curve, we are able to <unk>.
The Python and indeed, we've done that already so the pricing on our near Prime portfolio.
Portfolio that where if we don't hold that but the stuff. We're issuing is actually pretty close to the amount that the fed has already moved but in the prime space. We've moved up credit quality given the environment, we're in and given the outlook. We have moved most of our origination up market.
For what we hold but also what we sell because thats, where the investor interested highest right now there we're competing with banks.
Right and so.
You can think about our ability to move price corresponding somewhat to banks datas on their deposit right banks are moving as they are realizing their own cost of funding going up that lags right and so pricing we're always in the market testing in a variety of price points, but we are monitoring that through the door population.
Make sure we understand what we're getting and that the population is stable.
And so we are moving as we can as we see take rates stabilized at higher price points and population stabilized we move but because we are competing with banks. There that's just at a different rate.
Okay, I understand I understand.
If I could sneak one more.
Hmm.
One more question.
<unk>.
Did you guys did.
Suggest or indicate that the decline in kind of marketplace yield.
I think you said it was a $9 million.
Non recurring benefit in the first quarter that explain most of that debt.
Ticked down a year marketplace revenues as a percentage of marketplace volume.
Well I'll, let drew answer this specific on the nine but while he is getting its head around that I'd say broadly as youre thinking about the marketplace over the course of the last year.
What we're seeing pressure on as loan pricing and so the driver of that is cost of funding.
In this environment.
Especially the asset managers their cost of funding is going up on the forward curve, where the fed is expected to go that.
That is putting pressure on their cost of funding that puts pressure on their yield requirements.
Which gets reflected in the marketplace price what.
We're seeing what we mentioned that we think is temporary but we are seeing right. Now is in addition to that kind of relative need for higher yield offset higher cost of funding. There is also just a glut of paper in the market right now.
I'm sure you're seeing the same stuff, we are which is what.
We've got one of our former competitor shopping a $4 $5 billion portfolio of loans, you've got the portfolios coming off of the failed institutions from earlier this year there in the market.
And then you have got any number of regional banks that are trying to clean up their balance sheets. So theres solar loans, RV law and auto loan portfolios. Although the markets are not all in our space, but asset managers have got a lot to choose from right now.
And yes, good news capital forming.
Rising to the knee, but I'd say bad news at least temporarily with all with this amount of supply. There's further pressure on price. So that was partially reflected in Q2 and in our outlook for Q3, we're expecting that pressure to actually continue and in fact increase because the bank buyers with the lower cost of capital are able to pay a higher <unk>.
Price and the asset managers the bank buyers are constricted. So at least some of that volume is being swapped.
With with kind of lower price buyers if you will.
That was that was a general question I know drew do you got.
I forgot what Richard was no I'm just kidding.
Yes in terms of the decline in marketplace revenue rich for Q1 and Q2. So the $9 million is part of the answer and it is a reminder, that was because of slower prepayments that were seeing in the portfolio, causing a upward valuation in the servicing asset that was the primary reason for that but on top of that we are.
We're getting lower pricing on loan sales. So that's the other impact in marketplace revenue this quarter and as we indicated from the comments, we expect that pricing pressure will increase as we get into Q3, which is included in our guidance.
Yeah.
Got it.
And I guess.
You kind of alluded to it in your presentation, but even with that.
I guess youre pre provision profit estimate for the quarter next quarter, you still expect to remain GAAP at least GAAP neutral from a <unk>.
Any perspective, yes, we're targeting we're targeting being profitable.
On a GAAP basis for Q3.
Perfect. Thank you.
Our next question comes from Alexander <unk> with Jefferies. Please proceed.
Sure.
Thanks, guys for taking my question.
I just wanted to get a little more sense on the credit side saw net charge offs at four 4%.
Give us kind of like prospect for the next few quarters and also the ATRA Paulo April I was at 614% like are you guys thinking it might tick up a little bit and then stick around that you know that range or just to get a sense of how we should think about that thank you.
Yes, So just let me start off again by.
Reminding everyone how seasonal work so sort of would see so for US we are reserving for the discounted lifetime losses day, one so what so as we're seeing the charge off rate go up we've already anticipated that in terms of the reserve and the ACL that.
We've taken our balance sheet provisions on up to that point, So and then the way that the personal loan product works as it closed an amortizing product.
Over the life of each vintage as principals going down we will see the charge off rate go up so part of the phenomenon that is part of what we're seeing right now with charge offs, increasing its just the average age of the portfolio increasing as.
One is the 'twenty one 'twenty two vintages are obviously aging, but on top of that as we're slowing down originations in the 'twenty three vintage the average age of that portfolio is going to get even older in subsequent quarters. So we'd expect that charge off rates to keep to keep going up but we factored in.
In India, our provisioning and our ACO.
Perfect yen normalization everyone's going through that total I understand.
And then.
I saw that you guys.
Did really well on the opex side controlling expenses.
Also wanted to get a sense, if we should kind of think about the same.
Same level of Opex for the next few quarters.
Just to get a sense on the expense side as well thanks.
Yes, sure probably the main expense that you could expect to have next quarter as marketing just because that's a variable expense tied to originations. It does depend on how much we put on balance sheet versus sell but there should be a little bit of a benefit there and then other operating expenses there might be a little bit of benefit, but we have now.
Now realize most of the run rate benefit from the actions we took at the beginning of Q1.
Okay.
Awesome, Thanks, guys and congrats on the quarter.
Thanks.
Our next question comes from Guiliano Blackman with Compass point.
Please proceed.
Right.
Okay.
I'd be curious.
Having this back to the structured notes.
In the near term, it's probably somewhat dilutive because you're getting a lower yield on those and obviously as you can kind of wherever the most I don't have a benefit but I'm curious if you have a sense of how much of.
On the balance sheet, you'd like to pivot into those structured search.
Especially if it gets.
Overtime, and how fast that could happen.
Yeah.
Yes, so I don't think we have a target yet that we want to put out there, but let me say a few things about the program I think I mentioned in the prepared remarks, we did $180 million this quarter with our first fire. We are we have several other we have a lot of interest and we have several other buyers that are that are very close so I think.
In the next quarter that volume will increase and we will have multiple buyers is our expectation. So we will use more of the balance sheet for this product going forward, where we're obviously conscious that it creates some NIM dilution, but I think over time as we can.
As we think about our targets for capital.
This obviously gives us some latitude to maneuver given the lower risk weight.
The risk remote nature of the security.
Yeah.
That makes sense and then.
Yes.
Just thinking about.
Funding cost it looks like a high yield savings pricing came up 25%.
A couple of weeks.
Yes.
A good trajectory for where it was.
Savings and Cds will go <unk>.
Or should we be.
At this time.
Great.
Uh huh.
Pulling through into the portfolio.
Yes. It was it's a little hard to predict we have.
Given that.
Our balance sheet growth slowed or actually slightly decreased in Q2, and we're planning on being roughly flat for the rest of the year at least that's our current outlook, we don't need to be as aggressive on deposit pricing in terms of where we sit in the tables. It doesn't mean, we can be uncompetitive, either though so we will need.
To stay.
Somewhat competitive to keep what we have and show a small amount of growth, but I think we are easing.
We're moving down a bit in the rate tables being a little less aggressive on price and hopefully that can translate into it already has translated into somewhat slower deposit pricing recently hopefully that can.
Can it continue.
That's very helpful and just like the jumping over too far ahead.
Future, but thinking about this restructure its efficacy.
Yes.
You have any sense of.
Or are there some discussion last quarter about being able to sell those maybe recognized gains.
Yes.
On behalf of the risks the risk retention keeping.
I'd be curious to know what you need to see happen before you start going down that trajectory or would it have to be growing the balance sheet. Some more from here.
As a way to make.
Yeah, sorry, so you mean selling selling the portion that we're holding on the balance sheet right now.
Thats correct Thats true yes.
So listen I think I think that's definitely an option for the future.
The rate environment does it does impact.
What impact the price if we were actually out there selling them right now so.
So if the fed is near done and the new vintages, we put on that it may make sense to sell those and free up space to do more volume on balance sheet, we'll evaluate them.
When it happens when it happens, but we are actively engaging in that yeah.
But I think we'll have a lot of flexibility how to manage that in the future.
Okay, well. Thank you for taking my questions and I will jump back in the queue.
Thank you.
Our next question comes from Tim Switzer with K B W.
Please proceed.
Hey, good evening, a monitor Mike appreciate it thanks for taking my question.
Yes.
The first one.
I was wondering real quick on you guys had mentioned about the pricing pressure from shifting from the bank purchasers to the asset managers and it looks like the gain on sale margin in the marketplace went from about five 5% to five 2%, which is kind of the low that you've reported historically can you help us kind of quantify or games.
Idea of how much lower that could go.
Yes.
We think that next quarter, we'll probably take the steepest drop and rather than quote that you may be I think our.
Gain on sale prices were expecting to drop probably approximately 200 basis points.
So I think they will directly translate from the five two downward.
So thats going to be that's going to be a pretty.
Going to be a decent sized hit in terms of the gain on sale that we're getting on those loans as we pivot to asset managers, but thats also factored into our guidance for Q3.
Yeah, and I'd add as we mentioned in the prepared remarks.
It.
We are still quite.
Quite actively engaged with bank buyers both are long term partners, but also new.
New partners, who are looking to join the program, both banks and credit unions.
Our.
Based on the tenor of those conversations, though I'd say, they're all in internal management mode.
For now and so that's why we talked about we certainly anticipate a return to the platform, but not until they've got some of their own.
Issues addressed.
Okay.
Makes sense and then on the NII side of things.
If you're holding the balance sheet flat I guess that implies a little bit lower on an average basis compared to Q2.
Can you kind of give us an idea of how NII should trend over the rest of the year is it down in Q3, but then maybe flat in Q4.
Yes, I think it's.
A couple of things so one the decline in average assets in Q3 is largely going to be.
The cash impact that we spoke about core so and then the $200 million in loans. We sold we will have some impact as well. So Q3, we'll have a I think a modest dip with the recovery back in Q4 in terms of net interest income at least the way we see it right now depend.
It depended on what the fed does and other factors.
Okay. That's helpful. That's all for me. Thank you.
Thank you for your questions.
There are no questions waiting at this time so as a reminder, it is star one to ask a question.
Okay.
There are no further questions waiting so I would like to turn the call over to art and elevate go for answers any questions submitted by E Mail.
Thanks Tahira.
So Scott drew we do have a few questions here for you that worse than the email by our shareholders.
So the first question here is has lending club looked into launching any new products or something like that.
Better credit card for your members.
Uh huh.
So I touched on is very very briefly on the call.
We are.
In the next quarter in Q3 going to be launching.
On a new revolving platform.
The first use case of the revolving platform is going to be.
Enabling an installment and line of credit for existing customers who.
Who build back up credit card balances or for whom we didn't pay off all of their credit card balances in the first go and they've demonstrated good payment and we can go after the rest that will be in combination with <unk>.
Debt management and monitoring dashboard that we're working on to help you see that that'll be the first use case. The robust platform. We also have our purchase finance business that currently has a revolving product that we partner forward to distribute thought that we could capture more economics by taking that over.
Long term or.
99% of our customers have credit cards, we know what kind of cars. They have we know what they use them for so that's certainly something when conditions allow.
We would be interested in exploring and we think that our customers would be open to it.
Great. Thank you.
Second question is would you consider signing any funding agreements our forward flow agreements and announcing these publicly to drive further origination growth.
Sure I'll take that one.
First first thing I'd note is we signed agreements all the time with our with our potential or with our loan buyers and.
And oftentimes when we sign those agreements there is financial incentives attached to them.
If a buyer continues making purchases all the way through the agreement there'll be some type of rebate and as you can see from our Q3 guidance.
It is possible that one of those rebates can come back to us in fact.
The bank buyers a couple of bank by our stop stop their purchasing so we like to structure deals that way to have a longer term flow, but also have some financial incentives within them in terms of.
Structuring something with long term committed capital.
I think first of all those difficult though.
Those agreements are difficult.
And in this environment theyre going to be very expensive to set up as well and you never have 100% certainty that they would be fulfilled in a much more difficult environment. So we're not sure now is the right time to lock in an extended agreement of economics that.
Might be unattractive to us and our shareholders alright, great. Thanks Tara.
So with that we'll wrap up our second quarter earnings conference call. Thanks for joining us and if you have any questions. Please feel free to email us at IR at <unk> Dot com.
That will conclude today's conference call. Thank.
Thank you all for your participation you may now disconnect your line.