Q1 2025 LendingClub Corp Earnings Call
[music].
Good afternoon. Thank you for attending today's lending club first quarter 'twenty five earnings conference call all lines will be muted during the presentation portion of the call with an opportunity for your questions and interest at the end.
You'd like to queue for a question on today's call you can do so by dialing star one on your telephone keypad.
Artem: I'll now hand, the call over to Artem <unk> head of Investor Relations to begin you May proceed.
Speaker Change: Thank you and good afternoon welcome to lending club's first quarter 2025 earnings conference call. Joining me today to talk about our results are Scott Sanborn, CEO and drew <unk> CFO you can find the presentation accompanying our earnings release on the Investor Relations section of our website.
Speaker Change: 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.
Speaker Change: Our remarks today will include forward looking statements, including with respect to our competitive advantages that strategy macroeconomic conditions lot from volume and pricing future products and services and future business and financial performance. Our actual results may differ materially from those contemplated by these forward looking statements.
Speaker Change: Factors that could cause these results to differ materially are described in today's press release and earnings presentation.
Speaker Change: 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.
Speaker Change: Our remarks also include non-GAAP measures relating to our performance, including tangible book value per common share pre provision net revenue and return on tangible common equity.
Speaker Change: 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 Sanborn: Thank you art and welcome everyone. We delivered a strong start to the year, we generated $2 billion in loan volume a 21% increase over last year, reflecting continued demand from borrowers and loan buyers and positive initial results from our marketing channel expansion.
Scott Sanborn: We've now crossed 100 billion in lifetime loan originations with over 40% of that realized in the past five years.
Scott Sanborn: Total net revenue grew 20% to $218 million and pre provision net revenue grew 52% year over year to $74 million.
Scott Sanborn: This financial outperformance came from both parts of our business and our marketplace. We further improved loan sales pricing. Thanks to our consistent and continued credit outperformance unique structures and ongoing purchases by banks.
Scott Sanborn: In our own bank, we continue to grow our average interest earning assets and are now benefiting from lower deposit costs. Thanks to the success of our new level up savings product combined with the more favorable rate environment.
Scott Sanborn: Beyond the strength of these results. We also secured an investment grade rating from Fitch for our first rated certificate deal closing a $100 million transaction with a top insurance company we.
Scott Sanborn: We acquired the intellectual property and select talent behind cushion and AI powered spending intelligence App that will further enhance our mobile experience and feature set.
Scott Sanborn: And we took advantage of depressed San Francisco real estate prices and our bank balance sheet to invest in the new headquarters at a fraction of their pre pandemic costs.
Scott Sanborn: This was another strong quarter, where we grew executed well and made meaningful progress against our vision.
Scott Sanborn: Let's get into the details starting with credit we saw outstanding performance in our portfolio with year over year delinquency and charge off rates significantly improving.
Scott Sanborn: We've remained disciplined on underwriting with a credit box significantly tighter than pre COVID-19 and a continued focus on higher quality borrowers.
Scott Sanborn: We are of course carefully monitoring the macro environment and we increased our qualitative provision this quarter to be prepared for a scenario where unemployment rates increased to five 3%.
Scott Sanborn: Our track record on credit through multiple environments, our status as a profitable nationally regulated bank that has the largest holder of our own loans, along with our ability to deliver innovative loan investment structures, all continue to drive investor demand.
Scott Sanborn: This has translated to a fifth straight quarter of improved loan sales pricing, which were up over 200 basis points year over year.
Scott Sanborn: Restructured certificates program, which has crossed 5 billion since launch has clear benefits for private credit managers. These benefits helped support higher loan sales pricing, while providing lending club with a risk remote security without the need for seasonal provisioning, we closed multiple new certificate transactions in April at stable prices.
Scott Sanborn: And we maintain a pipeline of additional interest from new buyers.
Scott Sanborn: In Q1, we built on the success of the program by obtaining an investment grade rating from Fitch for our first rated structured certificate deal. The rating supports higher loan sales prices with lending club continuing to earn origination and servicing fees.
Scott Sanborn: This first transaction closed with a top insurance company unlocking access to the industries more than eight trillion in assets.
Scott Sanborn: Bank purchases in the first quarter remained consistent and we continue to develop a pipeline of new buyers in search of a return to historic bank participation levels.
Scott Sanborn: As we move through this period of broader economic uncertainty, we are uniquely positioned to leverage our many tools along with our status as a preferred counterparty to deliver profitable originations through a combination of marketplace sales and our own balance sheet capacity.
Scott Sanborn: I'll now turn to how we are growing in this environment.
Scott Sanborn: And while the personal loan can be used for more than that consolidation. There is a historically large credit card refinance opportunity that we are especially focused on penetrating.
Scott Sanborn: Through a combination of product and experience innovation and marketing were making great progress against our strategy with compelling proof points that it's working.
Scott Sanborn: We have begun testing our way back into a number of marketing channels to accelerate our growth.
Scott Sanborn: Initial results are in line with our expectations and we plan to continue to optimize and expand over the coming quarters.
Scott Sanborn: New members, we acquire have an amazing experience, we save the money improve their credit score and simplify their financial life through a seamless process that requires no human intervention, 86% of the time, it's no surprise that our NPS score for this experience is an extremely high 81 points and that age.
Scott Sanborn: 3% of our members say they want to do more with us.
Scott Sanborn: It's where our mobile outcomes into play where we're not only reducing servicing costs, but also increasing interaction and issuance our debt IQ offering still early in its evolution is already driving nearly 60% higher logins for those enrolled what's more enrolled members are driving a 30% increase in loan issues.
Scott Sanborn: <unk>.
Scott Sanborn: We're currently working on new debt IQ features to drive wider adoption deeper engagement and even more issuance that includes incorporating the car tracking in payments technology, we acquired with Talley at the end of last year.
Scott Sanborn: Next up will be to incorporate the AI powered spending intelligence functionality, we gained through the acquisition of the intellectual property behind cushion and <unk>.
Scott Sanborn: That helped members track bills payments and subscriptions.
Scott Sanborn: We're also continuing to improve and differentiate our core personal loan offering and functionality. For example, we launched top up last year to allow our members to easily refinance their existing lending club loan and add an additional balance to it.
Scott Sanborn: We've now enhance the product to allow members to top up their non lending club launch, making it easy to refinance out from the competition.
Scott Sanborn: So as you can hear we have multiple tools to drive continued efficient growth.
Scott Sanborn: While we don't have a crystal ball and we acknowledge the uncertainty around the environment. We are confident that lending club is fundamentally strong and well positioned to deliver value to customers loan investors and shareholders alike. Thanks to a historically large addressable market our balance sheet at scale generating attractive returns.
Scott Sanborn: Our strong capital and liquidity position, leading credit performance enabled by our distinct data advantage and technology platform.
And our reputation as a partner of choice in our asset class and an incredibly talented team dedicated to delivering real value to our more than 5 million members.
Drew: With that I'll turn it over to you drew for more details on the results and on our outlook.
Drew: Thanks Scott.
Speaker Change: As Scott mentioned, we were above our guidance on both key measures and credit performed exceptionally well.
Speaker Change: Importantly, we added reserves on a qualitative basis to account for heightened macroeconomic uncertainty, which manifested at the end of the quarter specifically.
Speaker Change: Specifically, we increased our provision by $8 5 million and decrease the fair value of our extended seasoning portfolio.
Speaker Change: $2 6 million both pre tax.
Speaker Change: These adjustments. The net result would have been nearly $20 million of net income instead of the $11 $7 million that we reported.
Speaker Change: We believe it prudent to increase reserves in the face of macroeconomic uncertainty, but having said that the underlying momentum of the business is strong and expected to continue in the second quarter.
Speaker Change: So with that additional context, let's go into the detailed results.
Speaker Change: We originated nearly $2 billion in the quarter, which was a 21% increase year over year.
Speaker Change: Originations were driven by the successful execution of our paid marketing initiatives, new product enhancements and strong demand for our loans.
Speaker Change: If you turn to page 12 of our earnings presentation, you can see the originations breakdown across the four funding programs.
Speaker Change: Improving marketplace economics continue to enable us to reinvest and retain more of our high yielding held for investment loans.
Speaker Change: We also increased retention in our extended seasoning portfolio given the success of that program to date and expect to direct more volume into this portfolio as we move through the year.
Speaker Change: In the second quarter, we expect to retain roughly half of our total originations between the held for investment and extended seasoning programs.
Speaker Change: As shown on page 13 total revenue for the quarter was $218 million up 20% from the same quarter of the prior year.
Speaker Change: Now, let's dig into the two components of revenue.
Speaker Change: First noninterest income was $68 million in the quarter up 17% over the same quarter of the prior year.
Speaker Change: This increase was driven by better loan sales pricing, which has improved in each of the last five quarters.
Speaker Change: This improvement was partially offset by higher loan prepayments impacting the servicing asset value at.
Speaker Change: And the previously mentioned impact of qualitative factors impacting the net fair value adjustments line.
Speaker Change: Now, let's move on to net interest income, which was $150 million in the quarter, which is an all time high and up 22% over the same quarter last year.
Speaker Change: The increase was primarily driven by continued growth in our balance sheet and further optimization of our funding costs with the introduction of level of savings.
Speaker Change: And the removal of our highest cost legacy deposit relationship in the fourth quarter.
Speaker Change: Growing this source of recurring revenue has been a primary focus and we are pleased with the progress thus far.
Speaker Change: On Slide 14, you can see our net interest margin moved up to 6%.
Speaker Change: As we indicated last quarter. The main driver of the incremental improvement was reduced deposit funding costs as well as the lower mix of cash and interest earning assets.
Speaker Change: We believe net interest margin will remain around this level until the fed takes further actions.
Speaker Change: I want to take a moment to provide additional perspective on how the impact of credit flows through the various parts of the income statement for loans held for investment under seasonal.
Speaker Change: Loans held for sale under fair value.
Speaker Change: In both cases, the average yield in the NIM table excludes credit losses in the case of held for investment loans. These losses are captured in the provision using the seasonal methodology.
Speaker Change: For held for sale loans, the losses come through net fair value adjustments, which reduced noninterest income.
Speaker Change: For this quarter loans held for sale at fair value were yielding 12, 5% representing only the coupon on these loans versus our discount rate of seven 4%, which is the current expected yield of this portfolio net of credit losses.
Speaker Change: These credit losses, and other adjustments appear as a reduction in the net fair value adjustments line within noninterest income.
Speaker Change: As we grow our extended seasoning portfolio this will become more impactful to our financials.
Speaker Change: Now, let's turn to page 15 of our presentation, which covers noninterest expense.
Speaker Change: Noninterest expense was $144 million in the quarter up 9% compared to the prior year.
Speaker Change: <unk> half of which was driven by our investment in marketing.
Speaker Change: Expenses came in approximately $4 million under our expectations due to several items, including slower hiring.
Speaker Change: Higher deferred marketing expense and other onetime items for.
Speaker Change: For Q2, this spend will catch up and we expect to see another increase in marketing expense.
Speaker Change: We have created significant operating leverage as demonstrated with comparing the 20% revenue growth to the 9% increase in expenses over the past year.
Speaker Change: Taken together pre provision net revenue or revenue less expenses was $74 million for the quarter up 52% from the same quarter last year and came in above our guidance range of $60 million to $70 million.
Speaker Change: Now, let's turn to provision on page 16 provision for credit losses was $58 million during the quarter compared to $32 million in the same quarter of the prior year.
Speaker Change: The increase was primarily due to higher day, one seasonal as we more than doubled retention for held for investment loans to $675 million.
Speaker Change: As I mentioned earlier the provision was also higher as we increased our economic qualitative allowance for losses.
Speaker Change: We estimate our allowance corresponds to an assumed five 3% peak unemployment rate, which gives us additional reserves if the economy enters the down cycle.
Speaker Change: You can see this impact clearly on slide 17, as the 2024 vintage has the highest lifetime loss estimate solely due to higher levels of qualitative reserves due to the longer remaining life of the vintage you.
Speaker Change: You can also see that the earlier vintages have stable credit performance relative to the estimates we provided last quarter.
Speaker Change: For the entire portfolio credit continues to perform well as evidenced by the net charge off ratio for our held for investment loan portfolio of four 8% in the quarter down from six 9% in the same quarter last year.
Speaker Change: For the consumer portion of the portfolio. The net charge off ratio was four 7% down from eight 1% in the same quarter last year.
Speaker Change: For the quarter EPS was <unk> <unk> per share and tangible book value per share was $11 22.
Speaker Change: Now, let's move on to guidance, we are executing well and are coming into the quarter with a lot of momentum.
Speaker Change: For the second quarter, we anticipate originations of two 1% to $2 3 billion.
Speaker Change: Up 16% to 27% year on year.
Speaker Change: We are continuing our push into paid marketing channels as we enter the seasonally favorable second and third quarters.
Speaker Change: We expect <unk> in the range of $70 million to $80 million in the second quarter up 27% to 46% year over year.
Speaker Change: We are expecting revenue growth from higher volumes and stronger net interest income with.
Speaker Change: With expenses rising from investments in our product roadmap marketing channel expansion.
Speaker Change: And our people to support continued growth.
Speaker Change: Looking ahead to the fourth quarter and excluding any deterioration in macroeconomic conditions.
Speaker Change: The underlying business momentum also has us on track to achieve our fourth quarter originations and our OTC targets.
Speaker Change: With that we'd like to open it up for Q&A.
Speaker Change: Absolutely we will now open the line for questions if you'd like to queue for a question at this time. Please style star one on your telephone keypad.
Speaker Change: If for any reason you would like to remove that question. Please I'll start too.
Speaker Change: Again to ask a question it is star one.
Speaker Change: The first question is from the line of Bill Ryan with Seaport Research partners.
Speaker Change: Line is now open.
Speaker Change: Thank you and good afternoon, I'll start off with a high level question and then one a little bit more on a micro basis, but.
Speaker Change: If you could maybe give us an update obviously a lot has changed over the course of the quarter and into early April.
Speaker Change: You kind of give us an update on what investor demand looks like in local pricing.
Speaker Change: In the marketplace looks like today.
Speaker Change: Yeah, Hey, Bill.
Speaker Change: I'll start maybe drew feel free to come over the top I mean as much noise as there is in the broader environment, which we certainly acknowledge coming into April I.
Speaker Change: I would say.
Speaker Change: We feel good in our currently our outlook is we're holding tight on pricing we are staying disciplined on our structure.
Speaker Change: Staying disciplined on credit so as we mentioned in the call.
Speaker Change: The transactions that we had planned for April one off according to plan and went off at the right price.
Speaker Change: Credits continuing to look very very good.
Speaker Change: As you can see in some of the data that we released.
Speaker Change: And we are continuing to have a pipeline of new buyers. So that that we're adding to the list. We've got interest in the rated product that.
Speaker Change: That we released as well as additional banks.
Speaker Change: Coming into the pipeline so.
Certainly.
Speaker Change: <unk> the.
Speaker Change: Securitization markets, we've seen some volatility.
Speaker Change: We have set ourselves up to not be exposed to that kind of whipsaw in with the types of arrangements, we have and the structure that we've got in place I certainly think the sentiment to the extent that it stays durable will eventually be a collection of investors' outlook, but right now I mean, it changes kind of day to day.
Speaker Change: And.
Speaker Change: The way we are set up we're not feeling that as of this moment. So we feel we feel good about our ability to hit that increased origination number into to maintain prices.
Speaker Change: Give the caveat that yes.
Speaker Change: Unless some giant headline comes out that really changes everybody's view of that trajectory.
Speaker Change: So far so good.
Speaker Change: Okay. Thanks for that color and just second question on the PDP and our guide for Q2, it was $70 million to $80 million a little bit below consensus of <unk> 83.
Speaker Change: And if I kind of reading between the lines of what you said during the call. It sounds like Thats stepping up the investment in marketing kind of in preparation of building up your volume and but it also sounds like there could be an offset on the provision line as far as EPS goes.
Speaker Change: Yes, I think I think you have it mostly right on the <unk> guide, we're expecting revenue to increase we're also on the expense side going to invest in.
Speaker Change: Continuing to grow marketing channels, we'll have some of that higher tech spend that we've been waiting for and people investment come through as well in Q2 that we've been talking about so those are those are all factored into the guide.
Speaker Change: The provision line I mean credit right now looks looks great I think we are.
Speaker Change: <unk> net to continue at least in the near term and unless the environment really shifts.
Speaker Change: What we'll be looking at as qualitative factors at the end of Q2, but we made a big adjustment at the end of the Q1.
Speaker Change: Do you incorporate that so we'll have to see how the end of Q2 plays out on that dimension, but.
Speaker Change: The quantitative factors of our provision, meaning our own credit look really good.
Speaker Change: Okay. Thanks for taking my questions.
Speaker Change: Thank you.
Speaker Change: Next question is from the lineup Giuliano Bologna with Compass point. Your line is now open.
Speaker Change: Alright.
Speaker Change: Congrats on one of their own success.
Speaker Change: From quarter.
Speaker Change: One thing I'd be curious.
Speaker Change: And with respect to long.
Speaker Change: If you look at the guidance for <unk>.
Speaker Change: Origination volume.
Speaker Change: Yes, partly.
Speaker Change: Increasing.
Speaker Change: The increase in cash flow.
Predict based on Boeing.
Speaker Change: Thanks for the last quarter.
Speaker Change: You can kind of pretty close to what you are buying for <unk> run rate or at least before two thresholds in terms of two points of a billion plus.
Speaker Change: So I'm curious when you look at that maybe yes.
Speaker Change: How should we think about the trajectory as you are continuing to ramp up marketing spend so it seems like counts.
Speaker Change: One of the very good trajectory relative to the <unk> guide and outlook.
Speaker Change: And.
Speaker Change: So that puts and takes and obviously considerations of the macro uncertainty.
Speaker Change: Yes, I think Thats right Giuliano I mean, we what we said when we were kicking off the year as we know these channels work.
Speaker Change: But we haven't been in them and we got to rebuild our full dataset and that means.
<unk> for several quarters, they will not be efficient because we are really by design.
Speaker Change: Casting a broad net to rebuild their response models.
Speaker Change: We're off to a good start we know the market is there we know the needs there.
Speaker Change: As he indicated I mean, if you look at our Q1 results. If we hadn't taken that qualitative we would've been over 6% of our OTC at $2 billion in originations and the top end of our guide for Q2, we are getting to the bottom end of Q4. So we certainly feel good about that trajectory.
Speaker Change: Yes, I think.
Speaker Change: Question is what does the environment look like.
Speaker Change: When we get to that place, we feel like we're set up pretty well given buyer demand balance sheet capacity Tam early performance of the marketing vehicles product roadmap I mean, I could go on I would say.
Speaker Change: And a good environment I would say, we feel like we've really we.
Speaker Change: We'd really be set up to crush it in a tougher environment I think we're still poised to deliver.
Speaker Change: That's very helpful.
Speaker Change: I'm sorry.
Speaker Change: To start running the numbers there was inventory counts.
Speaker Change: During the quarter of 680%.
Speaker Change: ROTC kind of adjusting for those.
Speaker Change: Those other items this quarter.
Speaker Change: That's obviously.
Speaker Change: Much closer to your 8% plus goal for <unk>.
Speaker Change: First when you think about like the marketing expense is there a rough sense of kind of like how.
Speaker Change: How much do you kind of pull forward, the marketing growth or grow their spending growth in any given period.
Speaker Change: Or is that market.
Speaker Change: Market driven in terms of.
Speaker Change: How fast you can ramp up the marketing spend.
Speaker Change: Well I think if you if you just looked at this quarter most of the increase in marketing spend happened at the end of the quarter and so we're as Scott said that marketing spend that incremental marketing spend is less efficient than where it will target of being longer term as we're learning and improving the models the same dynamic.
Speaker Change: It will happen again in Q2, which is in our guide that originations will go up we will spend more marketing still developing the channels and then I think somewhere between Q3 and Q4, we're getting closer to optimize or more much more optimized on that spend of that origination volume.
Speaker Change: Note that even litigation.
Speaker Change: Let less efficient Giuliano, we're obviously looking taking a longer arc.
Speaker Change: We're coming off of historically low acquisition costs, because we have been optimized to that over the more recent time period.
Speaker Change: Even the these new channels less efficient and I'd say, we still feel good about the overall.
Speaker Change: The unit economics are still acceptable.
Speaker Change: To us in the current environment. So I think we see we're pleased with the initial results and we see upside from here.
Speaker Change: That's very helpful.
Speaker Change: Only one question and hopefully not get the hint anything but.
Speaker Change: I'm curious on the bank side.
Speaker Change: If youre seeing any interest from banks.
Speaker Change: In terms of growth.
Speaker Change: So often backfires.
Speaker Change: Weighs against Euro.
Speaker Change: There is significant demand from a lot of them are noncore borrowers out there.
Speaker Change: Okay balances.
Speaker Change: Despite our recent growth trajectory.
Speaker Change: Yes, I mean, the bank buyers, who we had in place in Q4 remained in Q1, and we're expecting them to continue by through the rest of the year on unabated.
Speaker Change: I think very positive we had a couple of new bank buyers enter into.
Speaker Change: The.
Speaker Change: Into the pipeline for for potential future acquisition, we're still talking to other banks to come in as well I would say certainly probably the tariff announcement.
Speaker Change: If everyone some pause to rethink things, but but we think the bank buyers will continue to come in as we go through the year and go forward.
But I'd say those buyers as we've said in the past.
Speaker Change: Giuliano just repeat what we said in the past.
Speaker Change: The good thing about those buyers is once they're in they're pretty solid barring a sale of the institution.
Speaker Change: A regional banking crisis.
Speaker Change: Getting them in takes time, and it's very hard to predict exactly when so we feel good about the pipeline and the content of the conversations it's harder for us to predict the timing I think we've shared.
Speaker Change: The banks that have rejoined the platform some took significantly longer than expected and some happened a lot faster than expected. So just a little hard to club based on their internal processes.
Speaker Change: Hello, Okay, Alright appreciate it.
Speaker Change: How about for you here.
Speaker Change: Great.
Speaker Change: Thank you. The next question is from Vincent <unk> with <unk>. Your line is now open.
Speaker Change: Hey, good afternoon. Thanks for taking my questions first one actually kind of a follow up on the guidance.
Speaker Change: On both the PPR.
Speaker Change: Origination volume, but.
Speaker Change: You've kind of been consistently beating your loan origination volume in Europe, and our guidance like with the first quarter and it seems like Youre. Your discussions have been more positive and we're going to kind of.
Speaker Change: Rollout some of the marketing spend and incremental growth for the second quarter, and which should benefit the rest of the year. So just when I look at the origination guidance. It does seem pretty conservative and so I'm wondering sort of what youre building in in terms of the conservatism weather macro or other things and if that if we were to have the same trends that we.
Speaker Change: Now, so say benign environment, where could those numbers be so kind of wanted to understand what the.
Speaker Change: The conservatism that is in your origination guidance. Thank you.
Speaker Change: Yes.
Speaker Change: I wouldn't call our originations guidance for Q2 conservative.
Speaker Change: Q1, GAAP, yes, we beat but.
Speaker Change: Overall percentage basis versus the total.
Speaker Change: I wouldn't call it an a bounds it so I think we gave a broader range in Q2 than we gave in Q1.
Speaker Change: Given that some of these vehicles are newer and really knowing what the response rate will be take rate offer rate or loan size. All of that is a bit more in question, we gave a bit of a broader range, but I wouldn't.
Speaker Change: Call. The overall growth rate too conservative on <unk>, maybe you can just talk about what drives us to the top of the range versus the bottom of the range in the quarter.
Speaker Change: On PPE and are at least from the revenue side.
Speaker Change: Top end of the range is really going to be driven by hitting the high end of the origination guidance and pricing.
Speaker Change: <unk> to come in stable, which we expect to happen.
Speaker Change: I think some of the factors that could put it to the lower end of the range would be obviously originations come in a bit lower in the range and also if there was some reason to take qualitative factors again.
Speaker Change: Two consideration at the end of Q2 now what we're expecting right now but.
Speaker Change: Certainly there is still uncertainty in the environment as we go through Q2.
Speaker Change: Okay understood and then on the.
Speaker Change: On the pricing.
Speaker Change: So you spoke about your first rated structured securities sale to an insurance company could.
Speaker Change: Could you.
Speaker Change: Kind of give a flavor for how much better the pricing is and how much demand there is for that.
Speaker Change: Yes, we had we.
Speaker Change: Definitely had a price improvement as we as we went through as we did that transaction I think was about 30 basis points on the first transaction and there is there is definitely demand for the product from insurance, we're working on getting another transaction out there right now I think the capital market's settling down a little.
Speaker Change: It would also be helpful to completing another one of those transactions, but I think as we look to end of this quarter or into Q3, I think we'll have some success on getting more of those transactions out the door.
Speaker Change: I think 30 to 50 basis points price above the standard slick is probably about right.
Speaker Change: Alright.
Speaker Change: We expect.
Speaker Change: Okay and then.
Speaker Change: Great and then sorry.
Speaker Change: Last one for me just.
Speaker Change: If you could talk about.
Speaker Change: Your capital levels, and if you sort of if you can remind us what your.
Speaker Change: Where you'd like your capital levels to be and your appetite for share repurchases, particularly.
Speaker Change: With the stock trading below your book value. Thank you.
Speaker Change: Yes, so the capital levels continue to remain strong we haven't put out target capital levels, but certainly we have room within our existing capital and liquidity to keep growing the balance sheet.
Speaker Change: Well above the levels, we're at today, and we will look and we're holding that capital.
Speaker Change: To be able to do that going forward in the future I think for share repurchase.
Speaker Change: It's certainly an option that is available to us we have.
Speaker Change: We have not obviously done it to this point.
We would like to keep the capital for growth, but it will continue to remain in the consideration set.
Speaker Change: Okay got it helpful. Thank you.
Speaker Change: Thank you very much.
Speaker Change: Thank you. The next question is from Tim Switzer with <unk>. Your line is now open.
Speaker Change: Hey, good afternoon. Thank you for taking my questions.
Speaker Change: Hey, Tim.
Speaker Change: Okay.
Speaker Change: I was looking for.
Speaker Change: Quick clarification on.
Speaker Change: The increase in the loan reserve I know a lot of it was qualitative then you guys pick up.
Speaker Change: Unemployment rate in your scenario is it fair for us to assume I think so given your comments is it fair for us to assume this captures the macro uncertainty that we've seen post March 31.
Speaker Change: And assuming trends don't worsen from today.
Speaker Change: There shouldn't be another touch up on the reserve or anything like that.
Speaker Change: Yes, so it does.
Speaker Change: Very end of the quarter when we made this decision based actually.
Speaker Change: Right.
Speaker Change: The Liberation day announcements were happening made the decision that we needed to up the qualitative factors.
Speaker Change: It does include.
Speaker Change: For.
Speaker Change: Lack of a better term I'll call. It the uncertainty created by Liberation day.
Speaker Change: If all stayed very stable at the end of Q2.
Speaker Change: We would look to the external forecast that we leveraged Moody's like many other banks and we'd look to their scenarios and then we would make a judgment on do we need to incorporate more uncertainty or do we have the captured already so I think if things remained stable. It's hard for me to a 100% say, we wouldnt incorporate more but we would we would look.
Speaker Change: At the scenarios and if they are stable.
Speaker Change: Maybe not.
Speaker Change: Okay got you and.
Speaker Change: Sorry, if I missed this earlier in the call that you are servicing fees were a bit lower this quarter was that primarily due to the prepayments you guys mentioned or are there other kind of like one timers in there and should we expect it to get back to kind of that $18 million to $20 million run rate.
Speaker Change: Yes prepayments were the biggest factor there. So you should see some rebound in those levels as we get back into.
Speaker Change: Q2.
Speaker Change: Okay, Great and the last question I had is.
Speaker Change: Your outlook for lower deposit cost, obviously pretty good trends in Q1, but I believe partially driven by the exit of that larger.
Speaker Change: Customer you guys have but what are the expectations going forward.
Speaker Change: Yes, I think that was what you saw from Q4 to Q1 was.
Speaker Change: Big step improvement that we were expecting to see which drove the NIM up to 6%, which we were very.
Speaker Change: Happy with I think without the fed making any more moves we probably won't see as dramatic of a change in our funding costs going forward any improvement would be.
Speaker Change: Incremental in the near term, but we do think net interest margin probably remains around these these levels, maybe maybe a little bit better as we go through the next several quarters.
Speaker Change: A couple of things happening right. We had we exited our higher cost deposit relationship. We also with the launch of level up had the ability to re price on our side.
Speaker Change: So we have a pretty good lever that allowed us to both grow balances while also reducing the cost, but I agree with drew that at this point given that we're planning to continue to grow the balance sheet.
Drew: Further down movement is more likely dependent on the macro environment and what the fed does.
Speaker Change: Got it very helpful. Thank you guys.
Speaker Change: Thank you.
Speaker Change: If you'd like to ask a question please dial star one.
Speaker Change: The next question is from the line of Crispin Love with Piper Sandler Your line is now open.
Crispin Love: Thank you good afternoon I appreciate you taking my questions.
Speaker Change: First on loan demand can you just discuss how loan demand has been from consumers. So far in the second quarter amid the recent volatility have you noticed any different types of behavior as it been pretty similar to what you've seen recently.
Crispin Love: Well we.
Crispin Love: Q2.
Sorry, Q1 is generally a slower season Q4, and Q1 are generally slower seasons.
Crispin Love: Q2, we typically have a pickup in seasonality. So you would've expected changing nothing you would expected us to modestly tick up in originations quarter over quarter, the larger tick up as.
Speaker Change: More due to the product and marketing initiatives.
Crispin Love: I would say I think.
When we think about how our consumer and how our product will respond in various economic environments. I'd say the use case is pretty solid and intact regardless.
Crispin Love: Meaning.
Crispin Love: In general people when you get in front of them and say.
Crispin Love: Youre doing this you should do this other thing instead it takes two minutes. It saves you money it improves your FICO score.
Crispin Love: People respond when they are getting nervous about the outlook that can actually drive more response, because people say right. Just like we're seeing if you look at some of the broader external data outside US you see people pulling back a little bit from discretionary spend you see people savings rates starting to tick up.
Crispin Love: Let's say, we are certainly seeing some as I mentioned stronger response to some of these new outreach is then.
Crispin Love: What we thought for an out of the gate attempt. So I'd say on balance the signs are pretty positive there.
Speaker Change: Great. Thanks, that's all.
Crispin Love: Really helpful.
Speaker Change: Last question for me you called out the structure to typical of a transaction with a major insurance company can you discuss the insurance opportunity broadly as being a buyer of loans over time.
Crispin Love: What that could.
Crispin Love: Looks like over the intermediate and long determined how big do you think that opportunity could be over the next few quarters or even years.
Crispin Love: I think the opportunity is massive in the insurance market and if you think about a lot of the transactions that we're doing today with asset managers private credit a big pool of the money that they are managing as insurance money and so while we continue to plan to work with those.
Crispin Love: <unk>. There is also an opportunity to go direct to insurance with this product as well and having the rated product sure different insurance companies are looking for different ways to put capital to use but generally they need that rating they need that rate of product to get the most efficient capital treatment for a decent for.
Crispin Love: <unk> part of the.
Crispin Love: Funds that theyre looking to invest so having this product unlocks that market for us which is.
Crispin Love: Great great potential I'd say the one.
Crispin Love: The thing that we need to consider when we're doing these transactions is with the unrated structure certificate, we have really enjoyed taking that senior security on balance sheet.
Crispin Love: Due to the risk weighting.
Crispin Love: The yield and how it.
Enhances our balance sheet, if we sell the rated product, we're not getting that senior security, so theres going to be a balance between those two structures whole loans and all the other methods that we have to sell.
Crispin Love: Sell loans into the market I think another way to think about it is.
Crispin Love: We can sell whole loans to banks, because thats the form they prefer it in and we're typically getting the best price, we can sell certificates to their private credit guys, where we keep the senior note.
Crispin Love: That's a price below that the insurance sales price the rate of deal is in between the two.
Crispin Love: But you are selling the whole loan and not taking the certificate. So it's sort of youre getting a better price, but youre not holding the a note. So its basically another tool to have in the toolkit I'd say, if we see more success with banks, we may do on balance slightly less of this if we see less success with banks, we might do slightly more of it.
Crispin Love: Great. Thank you I appreciate the detailed color there.
Speaker Change: Thank you there are no further questions in queue as a final reminder to star one if you'd like to ask a question.
Speaker Change: There are no further questions I'd now like to turn it back to the lending club team for some questions submitted via E Mail.
Speaker Change: Alright, Thanks, Joe So Scott Andrew we do have a couple of question here that was submitted by one of our retail investors. The question is so in the decision to buy a building how did you think about using that capital versus using it for something else like a share buyback for example, yes.
Speaker Change: Sure I'll take that one.
Speaker Change: For us this decision to buy a building in San Francisco made all the sense in the world the amount of capital we use or we would use to renew our current lease is about the same as the amount of capital we would use to buy the building on the balance sheet. So you can think about that is about less than $10 million of leverage capital on.
Speaker Change: The balance sheet to purchase the building for $74 $5 million, so a pretty efficient use of capital and even under our conservative assumptions the impact on net income of us to own versus lease is about the same and we have upside in terms of rental income and depreciation on the asset over time so.
Speaker Change: For Us we think we think it makes a lot of financial sense, and we're very excited to be owners.
Speaker Change: Alright, great. Thank you I think we've covered all other questions. So with that I will wrap up our first quarter earnings conference call. Thanks for joining us today and if you have any questions. Please email us at IR at <unk> Dot com. Thank you.
Speaker Change: That concludes today's conference call. Thank you for your participation you may now disconnect your lines.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yeah.