Q4 2023 LendingClub Corp Earnings Call

Ladies and gentlemen, please remain holding the conference call will begin momentarily.

Again, please remain holding the conference call will begin momentarily.

[music].

Hello, everyone.

Speaker Change: Thank you for attending today's lending club's fourth quarter 2023 earnings conference call.

Sierra: My name is Sierra and I will be your moderator today.

Sierra: All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.

Sierra: If you would like to ask a question press star one on your telephone keypad.

Sierra: I would now like to pass the conference over to our host Adam <unk> head of Investor Relations.

Adam: Thank you and good afternoon, welcome to lending club's fourth quarter and full year 2023 earnings conference call. Joining me today to talk about our results are Scott Sanborn CEO.

Adam: And drew <unk> CFO.

Find the presentation accompanying our earnings release on the Investor Relations section of our website.

Adam: On the call. In addition to questions from analysts we will also be answering some of the questions that were submitted for consideration email.

Adam: Our remarks today will include forward looking statements, including with respect to our competitive advantages and strategy macroeconomic conditions and outlook platform volume future products and services and future business and financial performance. Our actual results may differ materially from those contemplated by these forward looking statements factors.

Adam: That could cause these results to differ materially are described in today's press release and presentation.

Adam: Any forward looking statements that we make on this call are based on current expectations and assumptions and we 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 share pre provision net.

Adam: Revenue and risk adjusted revenue.

Adam: You can find more information on our use of non-GAAP measures and a reconciliation to the most directly comparable GAAP measures in today's earnings release and presentation and now I'd like to turn the call over to Scott.

Scott C. Sanborn: Alright, Thank you Artem welcome everyone.

Scott C. Sanborn: We're pleased with how we closed out the year delivering an 8% increase in originations quarter on quarter supported by a 21% increase in marketplace loans.

Scott C. Sanborn: This growth in originations, which is our first since the fed began rapidly increasing rates.

Scott C. Sanborn: It is driven by marketplace demand for our new structured certificates program.

Scott C. Sanborn: These results are a clear indication that our strategy is working and that we're finding equilibrium in this current high rate environment.

Scott C. Sanborn: Pre provision net revenue was 56 million thanks to disciplined expense management and importantly, we delivered another quarter of profitability doubling net income quarter over quarter to $10 million.

Turning to credit on page eight of our earnings presentation, you'll see that we've delivered three years of lower delinquencies compared to our competitive set.

Scott C. Sanborn: Note. The most recent data point shows roughly 40% lower delinquencies across all prime FICO segments, which is key to us delivering strong returns for ourselves and our marketplace investors.

Scott C. Sanborn: These results are a testament to the talent of our team the capabilities of our platform and our strong data advantage derived from over 90 billion in originations issued through multiple credit environments over the past 16 years.

Our current originations are focused on prime consumers with loans coming onto our balance sheet, having a weighted average FICO of around $7 50.

Scott C. Sanborn: Stepping back we are only a few days away from celebrating the third anniversary of acquiring our National Bank charter.

Sierra: Ladies and gentlemen, please remain holding. Your conference call will begin momentarily. Again, please remain holding. Your conference call will begin momentarily. Hello, everyone. Thank you for attending today's Lending Club Fourth Quarter 2023 Earnings Conference. My name is Sierra, and I will be your moderator.

Scott C. Sanborn: We have worked diligently to address and satisfy the requirements of the operating agreement we entered into as a new bank.

And we believe we're well positioned to move forward, which will be an important milestone in our evolution and maturation.

Scott C. Sanborn: Since acquiring the bank, we have fundamentally transformed our business and financial profile.

Scott C. Sanborn: We took over the origination of our own loans introduced and scaled a full set of award winning banking services evolved our mobile Technology Foundation introduced new bank enabled structures to enhance the marketplace Bill.

Scott C. Sanborn: <unk> built a resilient balance sheet and corresponding income stream and have remained durably profitable.

Scott C. Sanborn: For perspective in the last three years, we have tripled the size of our balance sheet to almost $9 billion at year end.

Scott C. Sanborn: Nearly quadrupled our deposit base to $7 4 billion at year end with 87% of those deposits fully FDIC insured.

Sierra: All lines will be muted during the presentation portion of the call. Open opportunity for questions and answers at: If you would like to ask a question, press star 1 on your telephone. I would now like to pass the conference over to our Adam Naloveko, Head of Investor Relations. Thank you and good afternoon.

Scott C. Sanborn: More than tripled quarterly net interest income are recurring and resilient revenue stream and.

Scott C. Sanborn: And nearly doubled our tangible book value per share to $10.54 as.

Scott C. Sanborn: As we exited the year.

Adam Naloveko: Welcome to LendingClub's fourth quarter and full year 2023 earnings conference call. Joining me today to talk about our results are Scott Sanborn, CEO, and Drew Labenne, CFO. You can find the presentation accompanying our earnings release in 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 via email.

Scott C. Sanborn: We have also made progress towards a differentiated multi product mobile first membership experience.

Following the radius acquisition, we began building the systems and technical infrastructure necessary to take deposits at scale and support our national digital platform.

Scott C. Sanborn: A process that took some time, but enabled us to build our balance sheet sustained profitability and enable future mobile experiences.

Adam Naloveko: Our remarks today will include forward-looking statements, including with respect to our competitive advantages and strategies, macroeconomic conditions and outlook, platform volume, future products and services, and future business and financial performance. Our actual results may differ materially from those contemplated by these four with. Factors that could cause these results to differ materially are described in today's press release and presentation. Any forward-looking statements that we make on this call are based on current expectations and assumptions. And we undertake no obligation to update these statements as a result of new information or future events.

In December we introduced mobile loan servicing through the App, giving our borrowers the ability to make payments view progress change due dates and more.

While we are in beta and have not yet promoted the existence of the app to our loan customers, 20% of our visits from recent personal loan customers are coming through the app.

Scott C. Sanborn: These users are visiting us at a higher frequency, which bodes well for driving future engagement.

Scott C. Sanborn: We have also launched the first phase of what will ultimately be a comprehensive debt monitoring and management tool.

Adam Naloveko: Our remarks also include non-GAAP measures relating to our performance, including tangible book value per share, pre-provisioned net revenue, and risk-adjusted revenue. You can find more information on our use of non-GAAP measures and a reconciliation to the most directly comparable GAAP measures in today's earnings release and presentation. Now, I'd like to turn the call over to Scott. All right. Thank you, Artem.

Scott C. Sanborn: In early stages. This will ultimately give members a way to track prioritize and optimize debt payments using new information and tools.

Scott C. Sanborn: While the recent reduction in force has us proceeding with application development at a more measured pace than we'd like we continue to make progress and we'll provide updates as appropriate.

Scott C. Sanborn: At the same time, we've been preparing our personal loans franchise to meet the historic refinance opportunity ahead by further improving and differentiating lending club with two experiences unique to us.

Scott C. Sanborn: Welcome, everyone. We're pleased with how we closed out the year, delivering an 8% increase in originations quarter on quarter, supported by a 21% increase in marketplace loans. This growth in originations, which is our first since the Fed began rapidly increasing rates, was driven by marketplace demand for our new structured certificates program. These results are a clear indication that our strategy is working and that we're finding equilibrium in this current high-rate environment. Pre-provision net revenue was $56 million, thanks to disciplined expense management.

Scott C. Sanborn: We're currently testing and reading credit performance on the first generation of our line of credit product that allows approved members to easily sweep accumulated credit card balances and to fully amortizing payment plans, we will be gaining important insights that will benefit us in developing future revolving products down the road.

Scott C. Sanborn: We also recently launched the option for qualified members to top up and existing personal loan for example to manage newly accumulated debt.

Scott C. Sanborn: And importantly, we delivered another quarter of profitability, doubling that income quarter over quarter to $10 million. Turning to credit, on page eight of our earnings presentation, you'll see that we've delivered three years of lower delinquencies compared to our competitors. Of note, the most recent data point shows roughly 40% lower delinquencies across all prime FICO segments, which is key to us delivering strong returns for ourselves and our marketplace investors. These results are a testament to the talent of our team, the capabilities of our platform, and our strong data advantage derived from over 90 billion in originations issued through multiple credit environments over the past 16 years. Our current originations are focused on prime consumers, with loans coming onto our balance sheet having a weighted average FICO of around 7%. Stepping back, we're only a few days away from celebrating the third anniversary of acquiring our National Bank Charter.

Scott C. Sanborn: Members can easily secure additional funds, while maintaining one single payment and lending club earns an origination fee on the incremental loan amount.

Scott C. Sanborn: Together. These efforts are further differentiating our personal loans franchise, and creating a powerful entry point into a broader lending club offerings.

Scott C. Sanborn: In closing I am proud of how we continue to effectively execute in a challenging environment we.

Scott C. Sanborn: We are quickly and successfully innovating to meet evolving opportunities. We continue to outperform on credit and we remained consistently profitable importantly, we also continued to produce real value for our members saving them on their cost of credit improving their credit profile and helping them earn more on what they say.

Scott C. Sanborn: For that I want to thank our employees, who have remained focused and innovative throughout a turbulent year I look forward to working together in the year ahead to capture the historic opportunity in front of us.

Speaker Change: And with that I'll turn it over to Youtube.

Youtube: Thanks, Scott and Hello, everyone I'll walk you through the details of our results in the fourth quarter, starting with the originations.

Scott C. Sanborn: We have worked diligently to address and satisfy the requirements of the operating agreement we entered into as a new bank, and we believe we're well positioned to move forward, which will be an important milestone in our evolution and maturation. Since acquiring the bank, we have fundamentally transformed our business and financial programs. We took over the origination of our own loans, introduced and scaled a full set of award-winning banking services, evolved our mobile technology foundation, introduced new bank-enabled structures to enhance the marketplace, built a resilient balance sheet and corresponding income stream, and have remained durably profitable. For perspective, in the last three years, we have tripled the size of our balance sheet to almost $9 billion at year-end, nearly quadrupled our deposit We have also made progress towards a differentiated multi-product, mobile-first membership experience. Following the RADIUS acquisition, we began building the systems and technical infrastructure necessary to take deposits at scale and support a national digital platform.

Youtube: We originated over $1 6 billion compared to $1 5 billion in the prior quarter and $2 5 billion in the fourth quarter of 2022.

Youtube: As Scott discussed our quarterly increase in originations was on the back of our very successful structured certificate program, which was approximately $1 billion of the total originations in the quarter.

Youtube: We also sold $350 million of whole loans sold through the marketplace.

Youtube: On our balance sheet, we accumulated a $100 billion into held for sale for our extended seasoning program to meet future investor demand for season loans.

We retained $200 million in our held for investment portfolio.

Youtube: We've added new slide on page 10 of our presentation to illustrate the relative economics of the four primary programs, we have at our disposal to sell or retain loans.

Youtube: Being a marketplace bank and having these disposition channels allows us to balance in period earnings with lifetime value.

We will flex between these programs, depending on the market environment and our capital allocation goals.

Youtube: Whole loan sales and structured certificates allow us to take more upfront economics and operate in a capital light manner, which is credit risk remote it comes without required upfront credit reserves.

Youtube: Loans that we hold on our balance sheet provides the strongest lifetime returns.

Youtube: Cause P&L and capital impacts upfront.

Scott C. Sanborn: A process that took some time, but enabled us to build our balance sheet, sustain profitability, and enable future mobile experiences. In December, we introduced mobile loan servicing through the app, giving our borrowers the ability to make payments, view progress, change due dates, and more. However, we are in beta and have not yet promoted the existence of the app to our lone customers.

Youtube: On page 11 of the earnings presentation, you will see the mix of the assets, we put on balance sheet from the programs on the prior page.

Youtube: In Q4, we further remix the balance sheet towards structured certificates given the strong in period economics investor interest in the program.

Youtube: In Q1, we plan to continue adding the senior security from the structured program to our balance sheet.

Youtube: And also increase the amount of whole loans, we retained through both HSI and extended seasoning.

Scott C. Sanborn: Twenty percent of our visits from recent personal loan customers are coming through the app, and these users are visiting us at a higher rate, which bodes well for driving future engagement. We have also launched the first phase of what will ultimately be a comprehensive debt monitoring and management platform. While in the early stages, this will ultimately give members a way to track, prioritize, and optimize debt payments using new information and tools. While the recent reduction in force has us proceeding with application development at a more measured pace than we'd like, we continue to make progress and will provide updates as appropriate.

Youtube: Extended seasoning allows us to add whole loans to the balance sheet and earn a strong yield while seasoning for investors with the goal of generating higher sales prices over time.

Youtube: While we're just beginning to build up inventory. The program has been off to a great start as a reminder, we completed the sale of approximately $200 million in the third quarter and have just completed another $100 million transaction.

Youtube: We sold extended seasoning loans into our structured certificate program for the first time with the sale price above our carrying value.

Youtube: As we continue to grow and remix the balance sheet, we expect to achieve stability in net interest income, albeit at a lower net interest margin.

Scott C. Sanborn: At the same time, we've been preparing our personal loans franchise to meet the historic refinance opportunity ahead by further improving and differentiating LendingClub with two experiences unique to us. We're currently testing and reading credit performance on the first generation of a line of credit product that allows approved members to easily sweep accumulated credit card balances into fully amortizing payments, and we will be gaining important insight that will benefit us in developing future revolving products down the road. We have also recently launched the option for qualified members to top up an existing personal loan, for example, to manage newly accumulated debt. Members can easily secure additional funds while maintaining one single payment, and Lending Club earns an origination fee on the incremental loan amount.

Youtube: On Slide 12, you can see that our net interest margin was six 4% compared to six 9% in the prior quarter and seven 8% in the prior year.

This change reflects the combination of our growth in securities from the structured certificate program and higher funding costs as we grow our deposit balances in the period.

Youtube: We have recently increased the rate on our high yield savings deposit product as we plan to continue balance sheet expansion in 2024.

Youtube: Youll savings is our most effective outlet to do so while also retaining more flexibility to reprice those deposits should the fed start to lower rates.

Overall, we expect a larger balance sheet to offset lower margins as we move through the year and keep net interest income relatively stable in 2024 with upside should the fed start to ease.

Scott C. Sanborn: Together, these efforts are further differentiating our personal loans franchise and creating a powerful entry point into our broader lending club offering. In closing, I'm proud of how we continue to effectively execute in a challenging environment. We are quickly and successfully innovating to meet evolving opportunities.

Youtube: Now, let's move on to pre provision net revenue or <unk>.

<unk> was $56 billion for the quarter, which came in stronger than we expected largely due to outperformance on expenses let's.

Youtube: Let's jump into the two components of PPE and are starting with revenue where you can see the detail on page 13 of our presentation.

Scott C. Sanborn: We continue to outperform on credit, and we remain consistently profitable. Importantly, we also continue to produce real value for our members, saving them on their cost of credit, improving their credit profile, and helping them earn more on what they save. For that, I want to thank our employees who have remained focused and innovative throughout a turbulent year. I look forward to working together in the year ahead to capture the historic opportunity in front of me. And with that, I'll turn it over to you. Thanks, Scott. And hello everyone.

Total revenue for the quarter was $186 million compared to $201 million in the prior quarter and $263 million in the same quarter of the prior year.

Speaker Change: Let me break revenue down into the two components, starting with non interest income.

Speaker Change: Noninterest income was $54 million in the quarter down from $64 million in the prior quarter.

Speaker Change: The change in noninterest income was primarily driven by the non recurrence of a $10 million third quarter revenue benefit that I mentioned last quarter.

Drew Labenne: I'll walk you through the details of our results in the fourth quarter, starting with origination. We originated over $1.6 billion compared to $1.5 billion in the prior quarter and $2.5 billion in the fourth quarter of 2020. As Scott discussed, our quarterly increase in originations was on the back of our very successful Structured Certificate Program, which was approximately $1 billion of the total originations in the quarter. We also sold $350 million of whole loans sold through the marketplace.

Speaker Change: There are some other moving pieces that includes higher sold loan volumes generating higher transaction fees offset by a $5 million decrease quarter over quarter and the value of our servicing asset primarily due to higher quality loan mix.

Speaker Change: And slightly lower loan sales prices due to a mix shift away from banks, partially offset by higher pricing to asset managers.

Speaker Change: On to net interest income, which was $131 million in the quarter compared to $137 million in the prior quarter and $135 million in the same quarter of the prior year.

Drew Labenne: On our balance sheet, we accumulated $100 million in health care assets for sale for our extended seasoning program to meet future investor demand for season loans, and we retain $200 million in our health care investment portfolio. We've added a new slide on page 10 of our presentation to illustrate the relative economics of the four primary programs we have at our disposal to sell or retain loans. Being a marketplace bank and having these disposition channels allows us to balance in-period earnings with lifetime value. We will flex between these programs depending on the market environment and our capital allocation goals. Whole Loan Sales and Structured Certificates allow us to take more upfront economic risk and operate in the Capitol Light. This is a presentation on how to use credit risk remote and comes without a required upfront credit reserve. Loans that we hold on the balance sheet provide the strongest lifetime return.

Speaker Change: The change in net interest income was primarily driven by the shift towards a lower risk securities portfolio in Q4.

Speaker Change: Which has a correspondingly lower net interest margin.

Speaker Change: At the bottom of the page you will notice we are highlighting risk adjusted revenue this quarter.

Speaker Change: Risk adjusted revenue as total revenue less provision for credit losses.

Speaker Change: This measure increased from $136 million in the prior quarter to $144 million. This quarter, which was the result of lower day, one seasonal provision and a growing structured certificate program.

Speaker Change: We believe this is a useful metric that illustrates the lower risk nature of the assets put on the balance sheet this quarter.

Speaker Change: Now please turn to slide 14 of our earnings presentation, which refers to the second component of PPA in our noninterest expense, which is what drove our outperformance for the quarter.

Drew Labenne: It also caused P&L and capital impacts, though. On page 11 of the earnings presentation, you will see the mix of the assets we put on the balance sheet from the programs on the prior page. In Q4, we further remixed the balance sheet towards structured certificates given the strong in-period economics. Best are interested in the program. In Q1, we plan to continue adding the senior security from the structured program to our balance sheet and also increase the amount of whole loans we retain through both HFI and extended seasoning. Extended seasoning allows us to add whole loaves to the balance and earn a strong yield while seasoning for investors with the goal of generating higher sales prices over time.

Speaker Change: Noninterest expense was $130 million in the quarter compared to $128 million in the prior quarter.

Speaker Change: $180 million in the same quarter last year.

Speaker Change: Last quarter, we provided guidance on non interest expense, excluding marketing of $115 million to $120 million.

Results came in better than we expected at $107 million as a result of expense discipline on staffing and other third party expenses.

Marketing remains very efficient with total spend of $23 million compared.

Speaker Change: Compared to $20 million in the previous quarter, primarily driven by higher origination volumes and deposit growth in this period.

Drew Labenne: While we're just beginning to build up inventory, the program has been off to a great start. As a reminder, we completed a sale of approximately $200 million in the third quarter and have just completed another $100 million transaction, where we sold extended seasoning loans into our structured certificate program for the first time with the sale price above our carrying amount as we continue to grow and remix the ballad. We expect to achieve stability in net interest income, albeit at a lower net interest margin. On slide 12, you can see that our net interest margin was 6.4% compared to 6.9% in the prior quarter and 7.8% in the prior year. This change reflects the combination of our growth in securities from the Structured Certificate Program and higher funding costs as we grow our deposit balances during the period. We have recently increased the rate on our high-yield savings deposit product as we plan to continue balance sheet expansion in 2024. I yield savings is our most effective outlet to do so, while also retaining more flexibility to reprice those deposits should the Fed start to lower rates.

Speaker Change: Now, let's turn to provision.

Speaker Change: On page 15, you will see provision for credit losses was $42 million for the quarter compared to $64 million in the prior quarter and.

$62 million in the fourth quarter of 2022.

Speaker Change: The sequential change was the result of lower day, one seasonal due to fewer held for investment loans retained in the quarter and lower incremental provision on older vintages.

Speaker Change: On page 16 of our earnings presentation, we have added our lifetime loss expectations for the 2023 vintage.

Speaker Change: We're seeing stable early months delinquency performance.

However, given its longer remaining life and the potential for economic uncertainty, we've applied a higher qualitative reserve to the 2023 vintage if.

Speaker Change: If we normalized for qualitative reserves, the 2023 vintage would show lower lifetime loss estimates compared to 2022.

Speaker Change: The marginal ROE remains strong for all vintages.

Speaker Change: On the bottom of page 16, we show the allowance for future net charge offs by vintage.

Speaker Change: In an effort to improve the disclosure we're now showing this loss coverage, excluding the recovery asset.

Drew Labenne: Overall, we expect a larger balance sheet to offset lower margins as we move through the year and keep net interest income relatively stable in 2024 with upside should the Fed start hiking. Now, let's move on to Pre-Provisioned Net Revenue, or PP&R. PPNR was $56 billion for the quarter, which came in stronger than we expected, largely due to outperformance on a Let's jump into the two components of PPNR, starting with revenue, where you can see the detail on page 13 of our presentation. Total revenue for the quarter was $186 million compared to $201 million in the prior quarter and $263 million in the same quarter of the previous year.

Speaker Change: The recovery asset is the present value of future recoveries on previously charged off loans and not related to loss coverage on outstanding balances.

Speaker Change: This is netted against the allowance on the face of the balance sheet.

Speaker Change: Page 17, we have added an illustrative example of the credit lifecycle of a single hypothetical vintage.

Speaker Change: It is important to note that the dollar charge offs peak at approximately 18 months after the vintages issued.

Speaker Change: For reference our held for investment portfolio is approximately 15 months old.

Given the age of our HFC portfolio and how underlying vintages.

Sure. We expect dollar net charge offs peak on our portfolio in the coming quarters and to begin to decline from there.

Drew Labenne: Let me break revenue down into the two components, starting with non-interest income. Non-interest income was $54 million in the quarter, down from $64 million in the prior quarter. Change in Non-Interest Income was primarily driven by the non-recurrence of the $10 million third quarter revenue benefit that I mentioned last quarter. There are some other moving pieces that include higher sold loan volumes generating higher transaction volumes, offset by a $5 million decrease quarter over quarter in the value of our servicing asset primarily due to higher quality loans and slightly lower loan sales price due to a mixed shift away from banks, partially offset by higher pricing assets. Onto net interest income, which was $131 million in the quarter compared to $137 million in the prior quarter and $135 million in the same quarter of the prior year. The change in net interest income was primarily driven by the shift toward a lower risk securities portfolio in Q4, which has a correspondingly lower net interest margin.

Speaker Change: As a reminder, we have already taken it upfront seasonal provision for future net charge offs on a discounted basis, which is reflected in our portfolio allowance.

Speaker Change: Due to this timing dynamic we expect to lower in period seasonal provisions compared to net dollar charge offs in the coming quarters.

Speaker Change: In period net charge off rate will continue to increase as the portfolio ages, but on lower outstanding balances.

These trends May also reverse if we increase the HFF loan retention, which has the impact of decreasing the average age of the portfolio.

Speaker Change: Now, let's move to taxes taxes in the quarter were $3 5 million or 26% of pre tax income as I've mentioned before we will have some variability in the effective tax rate from quarter to quarter.

For the year, our effective tax rate was 28, 7% roughly in line with our long term expectation of 27%.

Speaker Change: Now, let's move on to guidance.

For the first quarter, we anticipate holding originations roughly in line with Q4 and a range of one five to $1 7 billion.

Speaker Change: At similar loan sale pricing.

Drew Labenne: At the bottom of the page, you will notice we are highlighting risk-adjusted revenue this quarter. Risk-adjusted revenue is total revenue less provision for credit. This measure increased from $136 million in the prior quarter to $144 million this quarter, which was the result of lower day one Cecil provisions and a growing structured certificate program. We believe this is a useful metric that illustrates the lower risk nature of the assets put on the balance sheet this quarter. Now, please turn to slide 14 of our earnings presentation, which refers to the second component of PPNR, non-interest, which drove our outperformance for the quarter. Non-interest expense was $130 million in the quarter compared to $128 million in the prior quarter.

Speaker Change: We expect <unk> to range from $30 million to $40 million.

Speaker Change: Reflecting the growth in repositioning of our balance sheet to lower risk structured certificates, resulting in lower net interest income.

Speaker Change: With the corresponding lower provision for loan losses, we plan to continue to deliver to deliver positive net income for the quarter.

Speaker Change: Beyond Q1, and until the rate environment improves materially we expect originations revenue and PPA in order to stabilize at or near the range is given in our Q1 earnings guidance of course. This also assumes that the economy remains on stable footing throughout 2024.

Speaker Change: As we showed earlier in the presentation, our balance sheet remains strong with ample liquidity and capital to allow for growth in 2024.

Speaker Change: Given the strong marginally ROE that we generate through our loan production, we will continually look to deploy this liquidity capital and any excess earnings into retaining production to improve future returns for shareholders.

Drew Labenne: $180 million in the same quarter last year. Last quarter, we provided guidance on non-interest expense, excluding marketing, of $115 million to $120 million. Results came in better than we expected at $107 million as a result of expense discipline on staffing and other third-party expenses. Marketing remains very efficient with a total spend of $23 million compared to $20 million in the previous quarter, primarily driven by higher origination volumes and deposit growth in this period.

Speaker Change: With that we'll open it up for Q&A.

Speaker Change: If you'd like to ask a question. Please press star followed by one on your telephone keypad.

Speaker Change: To remove your question press Star followed by Kim.

Speaker Change: And if you are using a speakerphone. Please pick up your handset before asking a question.

Drew Labenne: Now let's turn to provision. On page 15, you'll see provision for credit losses was $42 million for the quarter compared to $64 million in the prior quarter. $62 million in the fourth quarter of 2020.

Speaker Change: Our first question today comes from Brad <unk> with Piper Sandler.

Brad: Please proceed.

Brad: Hi team.

Brad: Just kind of wanted to touch on I know you.

Growing the structure significant program just kind of your thoughts between holding on standing wanted and then this program.

Drew Labenne: The sequential change was the result of lower day one CECL due to fewer health care investment loans retained in the quarter and lower incremental provision on older, On Page 16 of our earnings presentation, we have added our lifetime loss expectations for the 2023 vintage. We're seeing stable early month delinquency performance. However, given its longer remaining life,

Brad: Especially with the capacity to hold more loans on balance sheet.

Brad: Your retention ratio has come down considerably over the past year.

Brad: Do you think there's potential maybe to start holding more loans and it could be potentially more strategic longer term and I know the dynamic that plays out with that.

Brad: <unk>, so provisioning, but kind of wanted to hear your thoughts there.

Drew Labenne: We have applied a higher qualitative reserve to the 2023 venture. If we normalized for qualitative reserves, the 2023 vintage would show lower lifetime loss estimates compared to the 2023. However, the marginal ROEs remain strong for all.

Brad: Hey, Brad it's true. Thanks for the question I would say, yes, we do plan on holding a higher percentage of our originations in whole loan form either through <unk> or through extended seasoning. If you look at page 11 of the presentation, we indicated that.

Speaker Change: In our softly for Q1, saying that we expect our mix of structured certificate AA notes going on the balance sheet to be about 60% in whole loans to be about 40%.

Drew Labenne: On the bottom of page 16, we show the allowance for future net charge-offs by... In an effort to improve the disclosure, we are now showing this loss coverage excluding the recovery asset. The recovery asset is the present value of future recoveries on previously charged-off loans and not related to lost coverage on the Outstanding Balance. This is vetted against the allowance on the face of the law.

Speaker Change: So that is a that is a focus for us to get back to <unk>.

Speaker Change: The increase holds of whole loans on the balance sheet.

Got it.

Thank you and then just one follow up.

Drew Labenne: And on page 17, we have added an illustrative example of the credit lifecycle of a single hypothetical. It is important to note that the dollar charge-offs peak at approximately 18 months after the vintage is issued. For reference, our Held for Investment portfolio is approximately 15 months old. Given the age of our HFI portfolio and how underlying vintages, we expect dollar net charge-offs to peak on our portfolio in the coming quarters and begin to decline from there. As a reminder, we have already taken an upfront CECL provision for future net charge-offs on a discounted basis, which is reflected in our portfolio alignment. Due to this timing dynamic, we expect lower in-period CECL provisions compared to net dollar charge-offs in the coming quarters. And our in-period net charge-off rate will continue to increase as the portfolio ages, but on lower outstanding balances. These trends may also reverse if we increase HFI loan retention, which has the impact of decreasing the average age of the portfolio. Now let's move to text. Taxes in the quarter were $3.5 million, or 26% of pre-tax income.

Speaker Change: Is there your CET one ratio is now at 17, 9%.

Speaker Change: You guys, probably around 11% is there any thoughts on potentially redeploying this capital.

Speaker Change: Yes, so I think the 11% you were you referencing that was our tier one leverage ratio constraint under the operating agreement and CET, one approaching 18% of consolidated basis. So, yes, we have ample capital and liquidity for growth in the future and I think we will.

Speaker Change: We will use that capital definitely to grow the balance sheet going forward.

Speaker Change: Awesome. Thank you for taking the question.

Okay.

Speaker Change: Our next question comes from Giuliano Bologna with Compass point please.

Giuliano Bologna: Please proceed.

Giuliano Bologna: Congrats on the results this quarter one thing I was curious about was thinking about.

Giuliano Bologna: Your ability to expand the extended season going on going forward.

Giuliano Bologna: So it's quite tough to predict but I'd be curious to know how much visibility you have over the next few quarters around demand and kind of where you think that could go.

Drew Labenne: As I've mentioned before, we will have some variability in the effective tax rate from quarter to quarter. For the year, our effective tax rate was 28.7%, roughly in line with our long-term expectation of 27%. Now let's move on to guidance. For the first quarter, we anticipate holding Originations roughly in line with Q4 in a range of $1.5 to $1.7 billion at similar loan sale prices. We expect PPNR to range from $30 to $40 million, reflecting the growth and repositioning of our balance sheet to lower-risk, structured certificates, resulting in a lower net interest rate. With the corresponding lower provision for loan losses, we plan to continue to deliver positive net income for the quarter. Beyond Q1, and until the rate environment improves materially, we expect originations, revenue, and PPNR to stabilize at or near the ranges given in our Q1 earnings guide.

Speaker Change: Yes, I mean, I think the extended season program, which we just started about a quarter ago now off to a great success. As we mentioned we sold $200 million out of that early on and then we sold another $100 million, which closed in January that went directly into a structured certificate program that was the first time.

Speaker Change: We actually had a combination of the two programs and I think that encourages us quite a bit that we should be seasoning more loans and keeping more inventory available for sale either whole loan or through the structure Certificate program. So thats. So long way of saying we're bullish on the program within reason and we will definitely be growing it.

Speaker Change: Over the coming quarters.

Speaker Change: Okay.

Speaker Change: That's very helpful.

Speaker Change: I think the operating agreement.

Speaker Change: Expires next month, if I'm not mistaken.

If there is any thought process around being a lot more strategic with your capital.

Speaker Change: Youre trading at a discount to tangible book value and you have it.

Drew Labenne: Of course, this also assumes that the economy remains on stable footing throughout 2020. As we showed earlier in the presentation, our balance sheet remains strong with ample liquidity and capital to allow for growth in 2020, given the strong marginal lead ROEs that we generate through our loan production. We will continually look to deploy this liquidity, capital, and any excess earnings into retaining production to improve future returns for shareholders. 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 one if you are using a speaker.

Speaker Change: Yes.

Speaker Change: Fairly robust capital there at this point I'm curious, how you think about <unk>.

Speaker Change: Deploying capital outside of that.

Speaker Change: Our capital return or any other initiatives.

Speaker Change: Yes, Hey, Giuliano, it's Scott so.

Scott C. Sanborn: The three year term is actually coming up on Friday.

Scott C. Sanborn: And as I've mentioned in the prepared remarks, we we feel we've done everything we can to position the company well and meet our obligations under that so assuming we exit which again is at the discretion of the regulators in.

Scott C. Sanborn: We will share that news.

Scott C. Sanborn: When and if we get it that does allow us to think a little bit differently about capital both leverage ratios as opposed to being dictated upfront would be the results of our own stress tests.

Operator: Please pick up your handset before asking your question. Our first question today comes from Brad Capuzzi with Piper Family. Pay-per-view. Hi team.

Scott C. Sanborn: As well as other ways to deploy capital so it'll give us some new tools in the toolkit.

Brad Berning: Just kind of wanted to touch on, I know you're growing the Structured Certificate Program. Just kind of your thoughts between holding loans, selling loans, and then this program, especially with the capacity to hold more loans on the balance sheet. You know, your retention ratio has come down considerably over the past year. Do you think there's potential maybe to start holding more loans, and it could be potentially more strategic longer term? And I know the dynamic that plays out with day one TESOL provisioning, but I kind of wanted to just hear your thoughts there. Hey, Brad, it's true.

Scott C. Sanborn: Which we look forward to engaging on and discussing with the board.

Speaker Change: That's very helpful.

Speaker Change: Hopefully I'm not asking something that came up in the prepared remarks.

Speaker Change: Roughly where they are shopping season loans are being marked or get a sense of kind of.

Speaker Change: What the discount rate is or the implied yield on the execution side.

Speaker Change: Sure.

Speaker Change: Good trend.

Speaker Change: Yes, so loans that are in the extended seasoning program at the end of the quarter were at 90 675 in terms of price so a little higher than where we were last quarter, where I think we're at 96, 5% last quarter. So some slight improvement that was based on the execution the price of execution on this $100 million that we sold.

Drew Labenne: Thanks for the question. I'd say yes, we do plan on holding a higher percentage of our originations in whole loan form, either through HFI or through extended seasoning. If you look at page 11 of the presentation, we indicated that in our softly for Q1, saying that we expect our mix of structured certificates and A notes going on the balance sheet to be about 60% and whole loans to be about 40%. So, that is a focus for us to get back to increase hold some whole loans on the balance. Gotcha. Thank you. And then just one follow-up. Is there, you know? Your CT1 ratio is now at 17.9%.

Speaker Change: And then sorry, what was the second part of the question.

Speaker Change: The discount rate discount rate discount rate, we're using is 9% which is down from nine 6% in Q3.

Speaker Change: Yes.

Speaker Change: That's very helpful. Thank you very much and I will jump back in the queue.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Our next question today comes from Bill Ryan with Seaport Research Partners. Please proceed.

Bill Ryan: Hi, good afternoon. Thanks for taking my questions first just kind of following up a little bit more detail.

The trend in the fair value marks on your loans sold if I have it correct. It looks like it was about minus 370 593, 8% this quarter little bit worse than last quarter, but obviously the dynamics are changing interest rates are.

Drew Labenne: I believe you guys targeted around 11%. Are there any thoughts on potentially redeploying this capital? Yeah, so I think the 11% you're referencing was our tier one leverage ratio constraint under the operating agreement. And yes, CEP1 is approaching 18% of consolidated basis. So yeah, we have ample capital and liquidity for growth in the future. And yeah, I think we will definitely use that capital to grow the balance sheet going forward. Awesome. Thank you for taking the time to answer the question. Our next question comes from Giuliano Bologna at Compass Point.

Bill Ryan: A declining or a benchmark interest rates and I think you've fully priced in in terms of your yields.

Bill Ryan: Are you starting to see some alleviation in that that the fair value marks might actually start getting better from here.

Bill Ryan: Okay.

Speaker Change: Hey, Bill.

Speaker Change: Prices in the fourth quarter came in in line with our expectations and under the covers.

Speaker Change: It's hard to see in that surface number but under the covers what's happening is we are getting a recovery in the asset manager pricing together with the move down in the forward curve, but that's being offset by mix shift to more asset managers.

Giuliano Bologna: Please proceed. Congratulations on the results this quarter. One thing I was curious about was your ability to expand the extended season program going forward. I realize it's quite tough to predict, but I'd be curious, you know, how much visibility you have over the next few quarters around demand and, you know, kind of where you think that could go. Yeah, I mean, I think the Extended Seasoning Program, which we just started about a quarter ago now, is off to great success.

Speaker Change: From banks, who typically pay the higher price. So that's sort of what we saw under the covers in Q4.

Speaker Change: Further movement from here I'd say, we expect the mix to be pretty stable to a further movement from here is likely going to be due to.

Speaker Change: External factors, which would either be.

Further movement and the forward curve that which could be both up or down or people, taking a more optimistic or pessimistic view on the outlook in terms of how they're stressing credit losses and returns, but otherwise those things being equal we feel like.

Drew Labenne: As we mentioned, we sold $200 million out of that early on, and then we sold another $100 million, which closed in January, that went directly into a Structured Certificate Program. That was the first time we actually had a combination of the two programs, and I think that encourages us quite a bit that we should be seasoning more loans and keeping more inventory available for sale, either whole loan or through the Structured Certificate Program. So that's a long way of saying we're bullish on the program within reason, and we'll definitely be growing it over the coming quarter. That's very helpful.

Speaker Change: We're at a predictable place there.

Speaker Change: Okay, and just my follow up on the provision $42 million approximately for the quarter.

Speaker Change: Going back to Q3, I believe there was a $10 million adjustment for 2021 10 million for 2022.

Speaker Change: Looking at it there is obviously some adjustments in the current quarter it looks like.

Speaker Change: But I think you've kind of articulated they were a little bit lower than what they were last period, but was there something for 2023 as well based on your prepared remarks.

Scott C. Sanborn: Then, you know, I think, you know, the operating agreement expires next month, if I'm not mistaken. I'd be curious if there's any thought process around being a little more strategic with your capital, because you're trading a discounted sample book value. And you have a fairly robust capital base at this point. I'm curious how you think about, you know, deploying capital outside of, you know, for capital return or any other initiative. Yeah, hey, Giuliano, it's Scott.

Speaker Change: A little a little bit of true up in 'twenty, three as well as we were coming out of the quarter, but I would say pretty modest across the quarters and where we ended up at 23 vintage on page 16, We obviously gave the lifetime loss, our current estimate of lifetime losses, which.

Speaker Change: I'll just say it again, it's when you look at the 22 did you see eight nine when you look at the 23 vintage you also see a nine but there is a lot more qualitative.

Speaker Change: That is contained in the 'twenty three vintage given it has a longer remaining life in the 'twenty two vintage.

Scott C. Sanborn: So our three-year term is actually coming up on Friday, and as I mentioned in the prepared remarks, we feel we've done everything we can to position the company well and meet our obligations under that. So assuming we exit, which again is at the discretion of the regulators, and, and, you know, we'll, we'll share that news when, when, and if we get it, that does allow us to think a little bit differently about capital both leverage ratios, as opposed to being dictated up front, would be the results of our own stress test, as well as other ways to deploy capital. So it'll give us some new tools That's very helpful.

Speaker Change: Okay. Thanks for taking my questions.

Speaker Change: Our next question comes from Reggie Smith with Jpmorgan. Please proceed.

Reginald Lawrence Smith: Hey, guys. Thanks for taking the question I.

Reginald Lawrence Smith: I guess kind of follow up on the last point.

Reginald Lawrence Smith: Yeah.

I was curious how the 23 vintage has performed.

Reginald Lawrence Smith: Yes.

To date, and how does that compare to kind of 'twenty two is it better.

Reginald Lawrence Smith: Or is it sounds like you've factored in a little heavier.

Reginald Lawrence Smith: Kind of a macro overlay and so I'm just curious.

You are actually seeing better.

Reginald Lawrence Smith: Performance, thus far and you just kind of yeah correct Nate.

Drew Labenne: Maybe one last one, and hopefully I'm not asking something that came up in the prepared remarks. I'm curious, roughly, where the expanded season loans are being marked, or what the discount rate is, or the implied yield on the execution side is in the forecourt, and where that could trend. Yeah, so loans that are in the extended seasoning program, at the end of the quarter, we're at $96.75 in terms of price. So a little higher than where we were last quarter, where I think we were at $96.5 last quarter. So some slight improvement that was based on the execution, the price of execution on this $100 million that we sold. And then, sorry, what was the second part?

Reginald Lawrence Smith: Looking ahead.

Nate: Yes, so Roger you can at least see one of the new.

Slides, we put together in the materials I think it's page eight.

Nate: Give the view into the nine month on book at which point, we have a pretty good sense of how a vintage is going to perform and gives you. The quarterly view of all of our vintages. So what you see is we're seeing kind of stable.

Nate: Uh huh.

Nate: Performance at one time book nine, but the 'twenty three vintage is coming with a with a higher coupon.

Nate: So overall, we feel pretty good about that and as drew just mentioned, we expect the kind of model output. If you would ask qualitative overlay for the 23 vintage would have a lower lifetime loss, but we do have qualitative reserves on top of that given theres just more time left to go and there is more uncertainty.

Drew Labenne: The discount rate we're using is 9%, which is down from 9.6% in Q3. That's very helpful. Thank you so very much, and I'll jump back into the queue.

Nate: We can debate, where unemployment is going but it's likely not staying where it is today. So that's kind of factored into those reserves.

Speaker Change: And then if I can sneak two more in.

Speaker Change: Just.

Speaker Change: Where losses came in I guess versus your own internal expectations for the quarter and then.

Giuliano Bologna: Our next question today comes from Bill Ryan with Seaport Research. Please. Hi, good afternoon.

Bill Ryan: Thanks for taking my questions. First, just kind of following up on a little bit more detail. The trend in the fair value marks on your loans sold, you know, if I have it correct, it looked like it was about minus 3.75 minus 3.8% this quarter, a little bit worse than last quarter. But obviously, the dynamics are changing. Interest rates are, you know, declining or benchmark interest rates. And I think you have fully priced in, in terms of your yield. Are you starting to see some alleviation in that, that the fair value marks might actually start getting better for you? Yeah, hey, Bill. You know, prices in the fourth quarter came in line with our expectations. And under the covers, it's hard to see in that surface number.

Speaker Change: A follow up to I think you guys talked about two different programs like our sweet program for us.

Speaker Change: I'll now take a top up.

Speaker Change: How soon could those be rolled out and what that is.

Mike: Mike in terms of.

Mike: I guess appetite for those products.

Mike: Okay, Yes, I'll, maybe take the first first one which is a top up.

Mike: So that is I'll explain again the feature it's basically we have as we've stated before roughly half of our volume comes from.

Mike: Repeat members.

Mike: A subset of those team members have paid off their first loan and are back for a second and some maybe we initially approved for a certain amount they took less or since they got their first loan.

Mike: Had some life event happened whatever it is and need additional capital that and kind of prior to this feature called top up that would effectively be a second loan with a second payment date.

Drew Labenne: But under the covers, what's happening is we are getting a recovery in asset manager pricing, together with a move down in the forward curve. But that's being offset by a move to more asset managers away from banks who, you know, typically pay the higher price. So that's sort of what we saw under the covers in Q4. You know, further movement from here, I'd say we expect the mix to be pretty stable. So further movement from here is likely going to be due to external factors, which would either be, you know, further movement in the forward curve, which could be both up or down, or, you know, people taking a more optimistic or pessimistic view on the outlook in terms of how they're stressing credit losses and returns. But otherwise, those things being equal, we feel like we're at a predictable place there.

Mike: And different pricing across the two loans all the rest. So all of this is to the consumer it just feels like it feels almost like I'm drawing down on the same line I keep one loan one payment date.

Mike: <unk> have a single rate.

Mike: So that's live now, we're basically kind of testing and working our way through the experience but.

Speaker Change: We know this is a feature that people are going to appreciate.

Speaker Change: Because we know how they use the product so we expect that this.

Speaker Change: We will be kind of an important value add on the to the kind of mix today.

Speaker Change: It comes at a similar kind of profile and all that for us.

Speaker Change: But for the customer there is a real convenience benefit here.

Speaker Change: One clean sweep that is effectively it will behave to the consumer like an installment line what's different about it is they know the offer as they are waiting for them. So as we're moving to as we mentioned on the call more mobile engagement and more interaction and the ability to kind of if you fast forward for.

Drew Labenne: Okay, and just one follow-up on the provision $42 million for the quarter. You know, going back to Q3, I believe there was a $10 million adjustment for 2021, and $10 million for 2022. You know, looking at it, there's obviously some adjustments in the current quarter, it looks like. But I think you kind of articulated that they were a little bit lower than what they were last period. But was there something for 2023 as well, based on your prepared remarks? A little bit of a true up in 23 as well as we were coming out of the quarter, but I would say pretty modest across the quarters and where we ended up. And on the 23 vintage, on page 16, we obviously gave the lifetime loss, our current estimate of the lifetime losses, which I'll just say it again. It's when you look at the 22 vintage, you see 8-9. When you look at the 23rd vintage, you also see 8-9.

Speaker Change: US call it.

Speaker Change: Towards the end of this year when we were able to show you here is your credit card debt. It looks like you've built some up you've got an open offer you waiting to sweep that credit card balance into what will feel like an installment loan that's how all those things will come together.

Speaker Change: So right now we're just again, it's a <unk>.

Speaker Change: Evolving platform, that's new to us so that was a big lift to put that in and the credit will work differently. Because it's an open line that's permanently available. So we're going to be running at a pretty low volumes for most of this year.

Speaker Change: To get ready to so that when the integrated experiences available. This will be part of that full experience and this revolve product has other our ability to work in a revolve platform will have other future product applications for us.

Drew Labenne: But there is a lot more qualitative that is contained in the 23 vintage, given it has a longer remaining life than the 22 vintage. Okay, thanks for taking my question. Our next question comes from Reggie Smith with J.P. Morgan.

Speaker Change: Hey, Reggie you'd also asked about losses and how they came in at the beginning and net charge offs came in pretty much where we expected them to come in in the period. We did have a little more provision on some of the earlier vintages as we discussed but the charge offs are pretty much where we expected them.

Reginald Lawrence Smith: Das, thank you for taking the question. I guess, kind of follow up on the last point, um, I'm just curious how the 23 vintage has performed, I guess, to date, and how that compares to the 22? Is it better, worse?

Alright, Thank you guys.

Speaker Change: Our next question comes from David <unk> with Wedbush Securities. Please.

David: Please proceed.

Scott C. Sanborn: It sounds like you factored in a little heavier, kind of a macro overlay, and so I was just curious if you've actually seen better. Performance thus far, and you just kind of care credit looking ahead. Yeah, Reggie, you can at least see one of the new slides we put together in the materials, I think it's page eight, gives a view into the nine months on book, at which point, you know, we have a pretty good sense of how a vintage is going to perform and gives you the quarterly view of all of our vintages. So what you see is we're seeing kind of stable, you know, performance at month on book nine, but the 23 vintage is coming with a higher.

David: Hi, Thanks for taking the question. So the first one I think I heard you say that the first quarter.

David: Guidance is representative of what to expect for the remainder of the year I guess first can you confirm that and then the follow up is does that contemplate relief on the capital ratio front.

David: Yes.

David: David.

Speaker Change: We meant by that comment was that the first quarter guidance.

Speaker Change: We believe we can maintain roughly those same ranges going through the rest of the year. If the environment doesn't change right no negative economic backdrop no changes in the interest rate environment. So it's more of a we believe we've stabilized from here, where <unk> and originations.

Scott C. Sanborn: So, overall, we feel pretty good about that, and as Drew just mentioned, we expect the kind of model output, if you would, the X qualitative overlay for the 23 vintage would have a lower lifetime loss, but we do have qualitative reserves on top of that, given, you know, there's just more time left to go, and there's more uncertainty. We can debate where unemployment is going, but it's likely not staying where it is today, And then, if I could sneak two more in, one showing just where losses came in, I guess, versus your own internal expectations for the quarter. And then...

Speaker Change: <unk> should be without some of the other.

Speaker Change: Other external factors that could benefit us for harm us in one direction or the other so I wouldn't take it as full year guidance. It's more of just a Q1 levels are sustainable going forward without any major changes.

Speaker Change: Got it so it could be a benefit if you do get relief on the capital front.

Speaker Change: And then on the on the capital front, yes, yes, I think the if we exit the operating agreement then we will have more latitude to dictate where our capital levels should run at.

Speaker Change: I wouldn't expect us to come sprinting out of the gate in a wild fashion, but certainly the constraints that were there before are not the constraints now.

Scott C. Sanborn: I think you guys talked about two different programs, like a suite program for personal loans and like a top-up. Like, how soon could those be rolled out, and what does that look like? I guess the appetite for those products. Yeah, I'll maybe take the first one, which is the top-up.

Speaker Change: Got it and then I'll ask similar question on the interest rate backdrop, if we do get say six fed cuts versus a couple of fed cuts in one environment does lending club performed better in.

Scott C. Sanborn: So that is, I'll explain the features again. Basically, we have, as we've stated before, roughly half of our volume comes from repeat members. A subset of those members have paid off their first loan and are back for a second, and some, you know, maybe we initially approved for a certain amount; they took less, or since they got their first loan, they, you know, had some life event happen, whatever it is, and need additional capital. That, and kind of prior to this feature called top up, that would effectively be a second loan with a second payment date, you know, and So all this is, is to the consumer, it just feels like, it feels almost like I'm drawing down on the same line. I keep one loan, one payment date, and have a single rate. So we, that's live now, you know, we're basically kind of testing and working our way through the experience.

Speaker Change: Yes.

Speaker Change: Let me start so there is.

Speaker Change: A couple of ways to think about the impact of rates on the business and there is a couple of different rates that impact us. So first is the forward curve the expectation of future rates when that moves pricing to asset managers moves right. Because they are funding costs come down. So you saw we saw that in Q4, we got a little upward.

Drift in Q1 as well.

Speaker Change: So.

Speaker Change: Expectations of rates coming down we'll move asset manager prices up now at the levels that we're talking about right now.

Speaker Change: That's kind of a modest tailwind.

Speaker Change: The other thing that happened.

Speaker Change: The other rate and change that affects the business at the fed actually moving which.

Speaker Change: Should affect our cost of funds.

Speaker Change: Now depending on again how.

Speaker Change: A 25 basis point move, especially given that we are growing the balance sheet and needing to actually add deposits isn't going to we're likely going to lag that but a material move as long as it's not coming with.

Scott C. Sanborn: But we know this is a feature that people are going to appreciate because we know how they use the product. So we expect that this will be kind of an important value add to the mix today. It comes at a similar kind of profile and all that for us, but for the customer, there's a real convenience benefit here. On CleanSweep, that is, effectively, it will behave for the consumer like an installment line. What's different about it is that they know the offer is there waiting for them.

Speaker Change: Some.

Speaker Change: Downside on the employment outlook.

Speaker Change: Would be good REIT, a move downward of size would be something we'd pick up you'd see that in our NIM and also a meaningful move down I think would create more capacity from banks, which could create a bit of a step change in pricing right, which is if we can bring back at scale that fundamentally higher.

Speaker Change: Price to better buyer.

Four for the same assets that would be potential for a step change.

Scott C. Sanborn: So as we're moving to, as we mentioned on the call, more mobile engagement and more interaction, the ability to kind of, you know, if you fast forward for us, call it, you know, towards the end of this year, when we're able to show you, here's your credit card debt. Looks like you've built some up. You've got an open offer for you waiting to sweep that credit card balance into what will feel like an installment loan. That's how all those things will come together.

Speaker Change: That's how I would think about it small changes and expectations will be modest tailwind in prices more meaningful changes in the fed actually moving would affect NIM and potentially the buyer base for bigger bigger changes in prices.

Great. Thanks for that and last one for me is on expenses.

Scott C. Sanborn: So right now, we're just, again, it's a revolving platform that's new to us. So that was a big lift to put that in, and, you know, the credit will work differently because it's an open line that's permanently available. So we're going to be running that at pretty low volumes for most of this year to get ready to, you know, so that when the integrated experience is available, this will be part of that full experience, and this revolve product has other uses, you know, our ability to work in our revolve platform, we'll have other future product applications for us. Hey, Reggie, you also asked about losses and how they came in at the beginning, and net charge-offs You know, we did have a little more provision on some of the earlier vintages, as we discussed, but the charge-offs are pretty much where we expected them. Perfect. Thank you, guys.

Speaker Change: You had and you alluded to it earlier about how you gave the.

Speaker Change: Expense guide, excluding marketing for the fourth quarter and maybe I missed it in your prepared remarks, but are you.

Speaker Change: To give a range for the first quarter as to kind of parameters on the expense front.

Speaker Change: Yes, I think we will probably see slight.

Speaker Change: Seasonal increases in expenses.

Speaker Change: Very modest as we go into Q1 in the first half of 2004.

Speaker Change: Thanks very much.

Speaker Change: Yeah.

Speaker Change: Our next question today comes from Michael Perito with <unk>.

Michael Perito: Please proceed.

Michael Perito: Hey, good afternoon, guys. Thanks.

Michael Perito: I only kind of question I have left is just.

Michael Perito: What kind of leading off Dovetailing off that expense question just.

Michael Perito: I appreciate the kind of I know, it's not guide through but the kind of financial outlook for the remainder of the year just trying to think about if the revenue environment does improve.

Michael Perito: Where does the expenses kind of follow on on that because Scott in your prepared remarks, I mean, you mentioned it a couple of places how youre investing maybe not the pace as you once were but just trying to figure out kind of what what how those two will be linked moving forward I mean, obviously I'm sure you guys want to be generating some operating leverage, but I imagine a better revenue.

David John Chiaverini: Our next question comes from David Chiaverini with Woodbush Security. Please proceed. Hi, thanks for taking the question. So the first one, I think I heard you say that the first quarter guidance is representative of what to expect for the remainder of the year. Um, first, can you confirm that?

Drew Labenne: And then the follow-up question is, you know, does that contemplate relief on the capital ratio front? Yeah, so David, what we meant by that comment was the first quarter guidance. We believe we can maintain roughly those same ranges going through the rest of the year if the environment doesn't change, right? No negative economic backdrop, no changes in the interest rate environment.

Michael Perito: The environment, there is a better pace of investment as well so just to comment there.

Yes, I think.

First priority is going to be building up the balance sheet side as we've talked about before we were on a transition from primarily fee based model towards shifting towards more revenue coming off the balance sheet that was interrupted or the pace of that was interrupted when the rate environment suddenly shifted we'd like to get back to that.

Drew Labenne: So it's more of a, you know, we believe we've stabilized from here where PP&R and originations should be without some of the other external factors that could benefit us or harm us in one direction or the other. So I wouldn't take it as full-year guidance. It's more of just a Q1 level that is sustainable going forward without any major changes. Okay.

Michael Perito: Because that builds a more resilient predictable business, so that that's going to be priority number one.

Michael Perito: As I think we mentioned before that as difficult as some of those personnel decisions are theres, a certain amount of just leaner operating discipline and realignment of the org that we will be holding on to.

Drew Labenne: So there could be a benefit if you do get relief on the capital. Oh, and then on the capital front, yes, I think if we exit the operating agreement, then we will have more latitude to dictate where our capital levels should run at. I wouldn't I wouldn't expect us to come sprinting out of the gate in a wild fashion.

Michael Perito: We have also we are we are also in the process of shifting some of our developments to lower cost locations.

Michael Perito: <unk> will be a place we can grow from at a lower cost than what we've historically had but if you think about our investments I'd say first and foremost is going to be the balance sheet.

Drew Labenne: But certainly, the constraints that were there before are not the constraints anymore. Got it. And I'll ask a similar question on the interest rate backdrop. If we do get, say, six Fed cuts versus a couple Fed cuts, in what environment does LendingClub, you know, perform better? Yeah, let me start.

Michael Perito: And then when it comes to the development and the product roadmap. It is going to be we're going to look to do that at a lower cost than what we've done in the past.

Speaker Change: That's helpful. Scott and then just.

Speaker Change: I wanted to make sure I heard something right and just ask you. If you guys said it and I can just check the transcript.

Scott C. Sanborn: So there are a couple ways to think about the impact of rates on the business, and there are a couple different rates that impact us. So first is the forward curve, the expectation of future rates. When that moves, pricing to asset managers moves, right, because their funding costs come down. So we saw that in Q4.

Speaker Change: The discount rate on the personal loans I think you mentioned went down to 9% from $9 six was that.

Speaker Change: Driven by execution of recent transactions or were there other kind of rate changes.

Speaker Change: So again, if you're repeating yourself I apologize, but if you can just spend a second on that as well that would be great.

Speaker Change: Yes.

Speaker Change: It's a bit of a combination of the two but I would say, mostly driven by the rate environment right. So the.

Scott C. Sanborn: We got a little upward drift in Q1 as well, so expectations of rates coming down will move asset manager prices up. Now, at the levels that we're talking about right now, that's kind of a modest tailwind.

Speaker Change: To your point, which is probably the closest point to where we would we would indexes our base rate.

Speaker Change: It was down pretty meaningfully meaningfully from Q3 and Q4 net drove most of the discount rate.

Speaker Change: Decrease.

Scott C. Sanborn: The other rate change that affects the business is the Fed actually moving, which should affect our cost of funds. Now, depending on, again, a 25 basis point move, especially given that we're growing the balance sheet and needing to actually add deposits, we're likely going to lag that. But a material move, as long as it's not coming with some downside on the employment outlook, would be good, right? A move downward in size would be something we'd pick up. You'd see that in our NIM.

Speaker Change: Helpful. Thank you.

Speaker Change: Thank you all for your questions.

Speaker Change: There are no questions waiting at this time, so I'll pass the conference back over to Arnold.

Arnold: Alright. Thank you Sarah So we think it will typically take email questions at this point in the call, but I believe we've already addressed the questions that have been submitted in our prepared remarks and in the Q&A.

Arnold: So with that we will wrap up our fourth quarter and full year 2023 earnings conference call. Thank you all for joining and if you have any questions. Please feel free to email IR at lending club Dot com. Thank you. Thank you.

Scott C. Sanborn: And also, a meaningful move down, I think, would create more capacity from banks, which could create a bit of a step change in pricing, right? Which is, if we can bring back at scale that fundamentally higher priced, better buyer for the same assets, that would be a potential step change. So that's how I would think about it. Small changes in expectations will be a modest tailwind for prices. More meaningful changes in the Fed actually moving would affect NIM and potentially the buyer base for bigger changes in prices.

Arnold: That will conclude today's conference call. Thank.

Speaker Change: Thank you all for your participation you may now disconnect your lines.

Arnold: Okay.

Arnold: That will conclude today's conference call.

David John Chiaverini: Great, thanks for that. And the last one for me is on expenses. You had, and you alluded to it earlier about how you gave the expense guide excluding marketing for the fourth quarter. And maybe I'm missing your prepared remarks, but are you able to give a range for the first quarter as to the kind of parameters on the expense front? Yeah, I think we'll probably see slight, you know, seasonal increases in expenses, but very modest as we go into Q1 in the first half of 2014. Thanks very much.

Michael Perrito: Our next question today comes from Michael Perrito with KBW. Please proceed. Hey, good afternoon, guys.

Michael Perrito: Thanks. The only kind of question I have left is just kind of leading off, dovetailing off that expense question. Just, you know, as the...

Scott C. Sanborn: I appreciate the kind of, I know it's not Guy Drew, but the kind of financial outlook for the remainder of the year, just trying to think about if the revenue environment does improve, you know, where do the expenses kind of follow on that? Because, Guy, in your prepared remarks, you mentioned in a couple of places how, you know, you're investing, maybe not at the pace as you once were, but just trying to figure out kind of what, how those two will be linked moving forward. I mean, obviously, I'm sure you guys want to be generating some operating leverage, but I imagine in a better revenue environment, there would be a better pace of investment as well. So just a comment there.

Scott C. Sanborn: Yeah, I mean, I think the first priority is going to be building up the balance sheet, right? As we've talked about before, we were on a transition from a primarily fee-based model towards shifting towards more revenue coming off the balance sheet. That was interrupted, or the pace of that was interrupted when the rate environment suddenly shifted. We'd like to get back to that because that builds a more resilient, predictable business. So that's going to be priority number one.

Scott C. Sanborn: As I think we mentioned before, as difficult as some of those personnel decisions are, there's a certain amount of just leaner operating discipline and realignment of the org that we will be holding on to. We are also in the process of shifting some of our development to lower-cost locations, which will be a place we can grow from at a lower cost than what we've historically had. But if you think about our investments, I'd say first and foremost that it's going to be the balance sheet.

Scott C. Sanborn: And then when it comes to development and the product roadmap, we're going to look to do that at a lower cost than we've done in the past. That's helpful, Scott. Thanks. And then I just wanted to make sure I heard something right. And just ask if and if you guys said it, and Drew, I can just check the transcript, but the discount rate on the personal loans, I think you mentioned it went down to 9% from 9.6. Was that driven by the execution of recent transactions? Or were there other kinds of rate changes?

Michael Perrito: Again, if you're repeating yourself, I apologize. But if you can just spend a second on that, as well, that would be great. Yeah, it's a bit of a combination of the two, but I would say mostly driven by the rate environment, right?

Drew Labenne: So, the, you know, the two-year point, which is probably the closest point to where, you know, we would index as our base rate, is down pretty mean, meaningfully from Q3 to Q4, and that drove most of the discount rate decreases. Helpful. Thank you. Thank you all for your questions. There are no questions waiting at this time, so I'll pass the conference back over to Amna Lake. All right, thank you, Sierra. So we typically take email questions at this point in the call, but I believe we've already addressed the questions that have been submitted in our prepared remarks and in the Q&A. So with that, we will wrap up our fourth order and full year 2023 earnings conference call. Thank you all for joining us. And if you have any questions, please feel free to email us at iratlendingclub.com. Thank you. Thank you. That will conclude today's conference call. Thank you all for your participation. You may now disconnect your line. That will conclude today's conference call.