Q3 2025 LendingClub Corp Earnings Call

Speaker #1: Ladies and gentlemen , thank you for joining us . And welcome to the LendingClub Q3 2025 Earnings Conference call . After today's prepared remarks , we will host a question and answer session .

Operator: Ladies and gentlemen, thank you for joining us, and welcome to the LendingClub Q3 2025 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed into today's call, please press *9 to raise your hand, *6 to unmute. I will now hand the conference over to Artem Nalivayko, Head of Investor Relations. Please go ahead.

Speaker #1: If you would like to ask a question , please raise your hand if you have dialed in to today's call , please press star nine to raise your hand .

Speaker #1: Star six to unmute . I will now hand the conference over to Artem Nalivayko , Head of Investor Relations . Please go ahead .

Speaker #2: Thank you, and good afternoon. Welcome to LendingClub's third quarter 2025 earnings conference call. Joining me today to talk about our results are Scott Sanborn, CEO, and Andrew LaBenne, CFO.

Artem Nalivayko: Thank you and good afternoon. Welcome to LendingClub's third quarter 2025 earnings conference call. Joining me today to talk about our results are Scott Sanborn, CEO, and Andrew LaBenne, CFO. You can find the presentation accompanying our earnings release on the Investor Relations section of our website. On the call, in addition to questions from analysts, we will also be answering some of the questions that were submitted for consideration via email. Our remarks today will include forward-looking statements, including with respect to our competitive advantages, demand for our loans and marketplace products, and future business and financial performance. Our actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are described in today's press release and earnings presentation.

Speaker #2: You can find the presentation accompanying our earnings release on the Investor Relations section of our website . On the call , in addition to questions from analysts , we will also be answering some of the questions that were submitted for consideration via email .

Speaker #2: Our remarks today will include forward looking statements , including with respect to our competitive advantages , demand for our loans , and marketplace products , and future business and financial performance .

Speaker #2: Our actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are described in today's press release and earnings presentation.

Speaker #2: 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 .

Artem Nalivayko: 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 related to our performance, including tangible book value per common share, pre-provision net revenue, and return on tangible common equity. 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. Please note all financial comparisons in today's prepared remarks are to the prior year-end period unless otherwise noted. I'd like to turn the call over to Scott.

Speaker #2: Our remarks also include non-GAAP measures related to our performance , including tangible book value per common share , Pre-provision net revenue and return on tangible common equity .

Speaker #2: You can find more information on our use of non-GAAP measures in a reconciliation to the most directly comparable GAAP measures in today's earnings release and presentation .

Speaker #2: Finally , please note all financial comparisons in today's prepared remarks are to the prior year end period , unless otherwise noted . And now , I'd like to turn the call over to Scott .

Speaker #3: Thank you . Artem . Welcome , everybody . We delivered another outstanding quarter with 37% growth in originations , 32% growth in revenue and a near tripling of diluted earnings per share .

Scott Sanborn: Thank you, Artem. Welcome, everybody. We delivered another outstanding quarter with 37% growth in originations, 32% growth in revenue, and a near tripling of diluted earnings per share. Innovative products and experiences, compelling value propositions, a 5 million strong member base, consistent outperformance on credit, and a resilient balance sheet are all coming together to deliver sustainable, profitable growth. I'm excited to share more on our vision and our many competitive advantages at our upcoming Investor Day in two weeks, so I'll keep it brief today. Quarterly originations of $2.62 billion came in above the top end of our guidance, reflecting strong demand from both consumers and loan investors, our increased marketing efforts, and the power of our winning value proposition in customer experiences. With competitive loan rates enabled by our sophisticated credit models and a fast, frictionless process, we continue to be very successful at attracting our target customers.

Speaker #3: Innovative products and experiences, compelling value propositions of a 5 million strong member base, consistent outperformance on credit, and a resilient balance sheet are all coming together to deliver sustainable, profitable growth.

Speaker #3: I'm excited to share more on our vision and our many competitive advantages at our upcoming Investor Day . In two weeks . So I'll keep it brief today .

Speaker #3: Quarterly originations of $2.62 billion came in above the top end of our guidance, reflecting strong demand from both consumers and loan investors.

Speaker #3: Our increased marketing efforts and the power of our winning value proposition in customer experiences with competitive loan rates enabled by our sophisticated credit models and a fast , frictionless process , we continue to be very successful at attracting our target customers .

Speaker #3: In fact , when our loan offers are made side by side in a leading loan comparison site , we close 50% more customers on average than the competition we continue to be disciplined in our underwriting , our asset yield remains strong and our borrower base continues to perform well .

Scott Sanborn: In fact, when our loan offers are made side by side in a leading loan comparison site, we close 50% more customers on average than the competition. We continue to be disciplined in our underwriting. Our asset yield remains strong, and our borrower base continues to perform well. In fact, we're delivering our originations growth while also demonstrating roughly 40% outperformance on credit versus our competitor set. Consistent, strong credit performance on a high-yielding asset class has allowed us to confidently build our balance sheet, which now stands at over $11 billion, delivering a durable, resilient revenue stream that non-banks can't replicate. In fact, this quarter we generated our highest ever net interest income of $158 million, enabled by a growing balance sheet and expanding net interest margin.

Speaker #3: In fact , we're delivering our originations growth while also demonstrating roughly 40% outperformance on credit versus our competitor set consistent , strong credit performance on a high yielding asset class has allowed us to confidently build our balance sheet , which now stands at over 11 billion , delivering a durable , resilient revenue stream that Non-banks can't replicate .

Speaker #3: In fact, this quarter we generated our highest ever net interest income of $158 million, enabled by a growing balance sheet and expanding net interest margin.

Speaker #3: Our loan marketplace is also thriving, with our reputation for strong credit performance and innovative solutions attracting marketplace investors and improving loan sales prices.

Scott Sanborn: Our loan marketplace is also thriving, with our reputation for strong credit performance and innovative solutions attracting marketplace investors and improving loan sales prices. We grew marketplace revenue by 75% to our highest level in three years and had our best quarter ever for structured certificate sales, totaling over $1 billion. We also secured earlier in the quarter a memorandum of understanding by which funds and accounts managed by BlackRock would purchase up to $1 billion through LendingClub's marketplace programs through 2026. What's more, our new rated product, specifically designed to attract insurance capital, is capturing strong interest, which should help us continue to improve loan sales prices and further boost marketplace revenue. As excited as I am about our financial performance, I'm equally excited about what we're seeing in member engagement and behavior.

Speaker #3: We grew marketplace revenue by 75% to our highest level in three years and had our best quarter ever for structured certificate sales totaling over 1 billion .

Speaker #3: We also secured, earlier in the quarter, a memorandum of understanding by which funds and accounts managed by BlackRock would purchase up to $1 billion through LendingClub's marketplace programs through 2026.

Speaker #3: What's more , our new rated product specifically designed to attract insurance capital , is capturing strong interest , which should help us continue to improve loan sales , prices and further boost marketplace revenue .

Speaker #3: As excited as I am about our financial performance , I'm equally excited about what we're seeing in member engagement and behavior . Our mobile app , combined with high engagement products and experiences like level up checking and IQ , are successfully encouraging members to visit us more often and are driving new product adoption .

Scott Sanborn: Our mobile app, combined with high engagement products and experiences like Level Up Checking and DebtIQ, are successfully encouraging members to visit us more often and are driving new product adoption. We launched Level Up Checking in June of this year as the first of its kind banking product designed specifically for our borrowers. Members are responding positively with a 7x increase in account openings over our prior checking product. In a recent survey, 84% of respondents said they were more likely to consider a LendingClub loan given the offer of 2% cashback for on-time payments through Level Up Checking. What's really encouraging is that nearly 60% of new accounts being opened are being opened by borrowers. Our efforts are driving a nearly 50% increase in monthly app logins from our borrowers, and with that engagement, an increasing portion of our repeat loan issuance is now coming through the app.

Speaker #3: We launched Level Up , checking in June of this year as the first of its kind banking product designed specifically for our borrowers .

Speaker #3: Members are responding positively with A7X increase in account openings over our prior checking product . In a recent survey , 84% of respondents said they were more likely to consider a lending Club loan given the offer of 2% cash back for on time payments through level up checking .

Speaker #3: And what's really encouraging is that nearly 60% of new accounts being opened are being opened by borrowers . Our efforts are driving a nearly 50% increase in monthly app logins from our borrowers .

Speaker #3: And with that engagement , an increasing portion of our repeat loan issuance is now coming through the app . That's proof that these investments are enabling lower cost acquisition from repeat members , keeping pace with our new member growth as we continue to ramp our marketing efforts .

Scott Sanborn: That's proof that these investments are enabling lower cost acquisition from repeat members, keeping pace with our new member growth as we continue to ramp our marketing efforts. We'll share more examples at Investor Day of how our intentional product design, coupled with an engaging mobile experience, are creating a flywheel to increase lifetime value. Before I turn it over to Drew, I want to thank all LendingClubbers for their incredible execution and dedication to improving banking for our more than 5 million members. Their efforts are paying off, and I look forward to building on our momentum. With that, I'll turn it over to you, Drew.

Speaker #3: We'll share more examples at Investor Day of how our intentional product design, coupled with an engaging mobile experience, are creating a flywheel to increase lifetime value.

Speaker #3: Before I turn it over to drew , I want to thank all Lending Clubs for their incredible execution and dedication to improving banking for our more than 5 million members .

Speaker #3: Their efforts are paying off and I look forward to building on our momentum . With that . I'll turn it over to you , drew .

Speaker #4: Thanks , Scott , and good afternoon , everyone . We delivered another outstanding quarter extending the momentum we built throughout the first half of the year .

Andrew LaBenne: Thanks, Scott, and good afternoon, everyone. We delivered another outstanding quarter, extending the momentum we built throughout the first half of the year. For the third quarter, we generated improved results across all key measures, including originations, revenue, profitability, and returns. Total originations grew 37% year over year to over $2.6 billion, reflecting the impact of our growth initiatives, scaling of our paid marketing channels, and continued expansion of loan investors on our marketplace platform. Revenue grew 32% to $266 million, driven by higher marketplace volume, improved loan sales prices, and expanding net interest income. Pre-provision net revenue, or revenue less expenses, grew 58% to $104 million, reflecting the scalability of our model. The net impact of all these items is that we nearly tripled both diluted earnings per share and return on tangible common equity to $0.37 per share and 13.2% respectively.

Speaker #4: For the third quarter , we generated improved results across all key measures , including originations , revenue , profitability and returns . Total originations grew 37% year over year to over $2.6 billion , reflecting the impact of our growth initiatives .

Speaker #4: Scaling of our paid marketing channels and continued expansion of loan investors on our marketplace platform . Revenue grew 32% to $266 million , driven by higher marketplace volume , improved loan sales prices , and expanding net interest income .

Speaker #4: Pre-provision net revenue or revenue less expenses grew 58% to $104 million , reflecting the scalability of our model . The net impact of all these items is that we nearly tripled both diluted earnings per share and return on tangible common equity to $0.37 per share and 13.2% , respectively .

Speaker #4: The business is firing on all cylinders , demonstrating the earnings power of our digital marketplace bank model . Now let's turn to page 12 of our earnings presentation , where we will go further into originations growth .

Andrew LaBenne: The business is firing on all cylinders, demonstrating the earnings power of our digital marketplace bank model. Now let's turn to page 12 of our earnings presentation, where we will go further into originations growth. We delivered our highest level of originations in three years. Borrower demand remains strong, as the value we are providing in the core use case of refinancing credit card debt continues to be compelling. Loan investor demand also remains strong, with marketplace buyers looking to increase orders and prices steadily improving. Demand for our structured certificates program continues to grow as we added the rated product, attracting new insurance capital. In addition to $1.4 billion of new issuance sold, we also sold $250 million of seasoned loans out of the extended seasoning portfolio, which included a rated transaction supported by insurance capital.

Speaker #4: We delivered our highest level of originations in three years . Borrower demand remained strong as the value we are providing in the core use case of refinancing credit card debt continues to be compelling .

Speaker #4: Loan investor demand also remains strong , with marketplace buyers looking to increase orders and prices steadily improving demand for our structured certificate program continues to grow as we added the rate of product , attracting new insurance capital in addition to $1.4 billion of new issuance sold .

Speaker #4: We also sold $250 million of seasoned loans out of the extended seasoning portfolio , which included a rated transaction supported by Insurance Capital .

Speaker #4: Our consistently strong credit performance sets us apart from the competition , and is one of the reasons we have been able to sell all of these loans without any need to provide credit enhancements .

Andrew LaBenne: Our consistently strong credit performance sets us apart from the competition and is one of the reasons we have been able to sell all of these loans without any need to provide credit enhancements. Leveraging one of the benefits of being a bank, we grew our held-for-sale extended seasoning portfolio to over $1.2 billion, consistent with our strategy to grow our balance sheet while maintaining an inventory of seasoned loans for our marketplace buyers. Finally, we retained nearly $600 million on our balance sheet in Q3 in our held-for-investment portfolio. Now let's turn to the two components of revenue on page 13. Non-interest income grew 75% to $108 million, benefiting from higher marketplace sales volumes, improved loan sales prices, continued strong credit performance, and lower benchmark rates. The fair value adjustment of our held-for-sale portfolio benefited by approximately $5 million in the quarter from lower benchmark rates.

Speaker #4: Leveraging one of the benefits of being a bank . We grew our held for sale extended seasoning portfolio to over $1.2 billion , consistent with our strategy to grow our balance sheet while maintaining an inventory of seasoned loans for our marketplace buyers .

Speaker #4: Finally , we retained nearly $600 million on our balance sheet in Q3 . In are held for investment portfolio . Now let's turn to the two components of revenue on page 13 .

Speaker #4: Non-interest income grew 75% to $108 million , benefiting from higher marketplace sales volumes , improved loan sales prices , continued strong credit performance and lower benchmark rates .

Speaker #4: The fair value adjustment of our held for sale portfolio benefited by approximately $5 million in the quarter from lower benchmark rates . Net interest income increased to $158 million .

Andrew LaBenne: Net interest income increased to $158 million, another all-time high, supported by a larger portfolio of interest-earning assets and continued funding cost optimization. The growth in this important recurring revenue stream is expected to continue into the future as we leverage our available capital and liquidity to further grow the balance sheet. If you turn to page 14, you will see our net interest margin improved to 6.2%. We continue to see healthy deposit trends, and total deposits ended the quarter at $9.4 billion, a slight decrease from last year. The change was primarily attributable to a $600 million decrease in broker deposits, which was mostly offset by an increase in relationship deposits. Level Up Savings remains a powerful franchise driver, approaching $3 billion in balances and representing the majority of our deposit growth this year.

Speaker #4: Another all time high , supported by a larger portfolio of interest earning assets and continued funding cost optimization . The growth in this important recurring revenue stream is expected to continue into the future , as we leverage our capital and liquidity to further grow the balance sheet .

Speaker #4: If you turn to page 14 , you will see our net interest margin improved to 6.2% . We continue to see healthy deposit trends and total deposits ended the quarter at $9.4 billion .

Speaker #4: A slight decrease from last year . The change was primarily attributable to a $600 million decrease in brokered deposits , which was mostly offset by an increase in relationship deposits level of savings remains a powerful franchise driver , approaching $3 billion in balances in representing the majority of our deposit growth this year .

Speaker #4: We are maintaining a disciplined approach to deposit pricing while providing meaningful value for our customers . Turning to expenses on page 15 , non-interest expense was $163 million , up 19% year over year .

Andrew LaBenne: We are maintaining a disciplined approach to deposit pricing while providing meaningful value for our customers. Turning to expenses on page 15, non-interest expense was $163 million, up 19% year over year. As we signaled last quarter, the majority of the sequential increase was driven by marketing spend as we continue to scale, test, and optimize our origination channels to support continued growth in 2026. We continue to generate strong operating leverage on our growing revenue, and our efficiency ratio approached all-time best in the quarter. Let's move on to credit, where performance remains excellent. We continue to outperform the industry with delinquency and charge-off metrics in line with or better than our expectations. Provision for credit losses was $46 million, reflecting disciplined underwriting, stable consumer credit performance, and portfolio mix.

Speaker #4: As we signaled last quarter , the majority of the sequential increase was driven by marketing spend . As we continue to scale , test and optimize our origination channels to support continued growth in 2026 , we continue to generate strong operating leverage on our growing revenue and our efficiency ratio .

Speaker #4: Approached all time best in the quarter . Let's move on to credit where performance remains excellent . We continue to outperform the industry with delinquency and charge off metrics in line with or better than our expectations .

Speaker #4: Provision for credit losses was $46 million , reflecting disciplined underwriting , stable consumer credit performance and portfolio mix . Our net charge off ratio improved modestly .

Andrew LaBenne: Our net charge-off ratio improved modestly again this quarter to 2.9%, and we continue to see strong performance across our vintages. I would highlight that the net charge-off ratio also continues to benefit from the more recent vintages we've added to the balance sheet. We expect the charge-off ratio to revert upwards to more normalized levels as these vintages mature. These anticipated dynamics are already factored into our provision. On page 16, you will see that our expectation for lifetime losses are also stable to improving across all vintages. Turning to the balance sheet, total assets grew to $11.1 billion, up 3% compared to the prior quarter. Our balance sheet remains a competitive strength, allowing us to generate recurring revenue through retained loans while maintaining the flexibility to scale marketplace volume as loan investor demand grows.

Speaker #4: Again this 1:45 point 9% , and we continue to see strong performance across our vintages . I would highlight that the net charge off ratio also continues to benefit from the more recent vintages .

Speaker #4: We've added to the balance sheet . We expect the charge off ratio to revert upwards to more normalized levels as these vintages mature .

Speaker #4: These anticipated dynamics are already factored into our provision. On page 16, you will see that our expectation for lifetime losses is also stable to improving across all vintages.

Speaker #4: Turning to the balance sheet , total assets grew to $11.1 billion , up 3% compared to the prior quarter . Our balance sheet remains a competitive strength , allowing us to generate recurring revenue through retained loans while maintaining the flexibility to scale marketplace volume as loan investor demand grows .

Speaker #4: We ended the quarter well capitalized with strong liquidity and positioned to fund future growth without raising additional capital . Moving to page 17 , you can see that pre-tax income of $57 million more than tripled compared to a year ago , and hit a record high for the company .

Andrew LaBenne: We ended the quarter well-capitalized with strong liquidity and positioned to fund future growth without raising additional capital. Moving to page 17, you can see that pre-tax income of $57 million more than tripled compared to a year ago and hit a record high for the company. Taxes for the quarter were $13 million, reflecting an effective tax rate of 22.6%. We continue to expect a normalized effective tax rate of 25.5%, but we may have some variability in this line due to the timing of stock grants and other factors. Putting it all together, net income came in at $44 million, and diluted earnings per share were $0.37, which nearly tripled compared to a year ago.

Speaker #4: Taxes for the quarter were $13 million , reflecting an effective tax rate of 22.6% . We continue to expect a normalized effective tax rate of 25.5% , but we may have some variability in this line due to the timing of stock grants and other factors .

Speaker #4: Putting it all together , net income came in at $44 million and diluted earnings per share were $0.37 , which nearly tripled compared to a year ago .

Speaker #4: Importantly, our return on tangible common equity of 13.2% showed continued improvement and came in above the high end of our guidance range.

Andrew LaBenne: Importantly, our return on tangible common equity of 13.2% showed continued improvement and came in above the high end of our guidance range, and our tangible book value per share now sits at $11.95. As we look ahead, the business enters the fourth quarter with significant momentum. Loan investor demand remains strong, loan sales pricing continues to trend higher, and our product and marketing initiatives are driving high-quality volume growth. As a reminder, in Q4, we typically see negative seasonality on originations due to the holiday season. With that in mind, we expect to deliver originations of $2.5 to $2.6 billion, up 35% to 41% year over year, respectively. Our outlook for pre-provision net revenue is $90 to $100 million, up 21% to 35% respectively.

Speaker #4: And our tangible book value per share now sits at $11.95 . As we look ahead , the business enters the fourth quarter with significant momentum .

Speaker #4: Loan investor demand remained strong . Loan sales pricing continues to trend higher , and our product and marketing initiatives are driving high quality volume growth .

Speaker #4: As a reminder , in Q4 , we typically see negative seasonality on originations due to the holiday season . With that in mind , we expect to deliver originations of 2.5 to $2.6 billion , up 35 to 41% year over year , respectively .

Speaker #4: Our outlook for Pre-provision net revenue is 90 to $100 million , up 21 to 35% , respectively . Our outlook assumes two interest rate cuts in Q4 and includes increased investment in marketing to test channel expansion , which will support originations growth in future quarters .

Andrew LaBenne: Our outlook assumes two interest rate cuts in Q4 and includes increased investment in marketing to test channel expansion, which will support originations growth in future quarters. We expect to deliver an ROTC in the range of 10% to 11.5%, more than triple year over year. We will provide additional details on our strategic and financial framework at our Investor Day on November 5th, where we hope you will join us. With that, we'll open it up for Q&A.

Speaker #4: We expect to deliver an ROTC in the range of 10% to 11.5%, more than triple year over year. We will provide additional details on our strategic and financial framework at our Investor Day on November 5th, where we hope you will join us.

Speaker #4: With that, we'll open it up for Q&A.

Speaker #1: We will now begin the question and answer session . A reminder that if you would like to ask a question , please raise your hand .

Operator: We will now begin the question and answer session. A reminder that if you would like to ask a question, please raise your hand now. If you have dialed into today's call, please press *9 to raise your hand and *6 to unmute. Please stand by while we compile the Q&A roster. Your first question comes from the line of William Haraway Ryan with Seaport Research Partners. Your line is open. Please go ahead.

Speaker #1: Now . And if you have dialed in to today's call , please press star nine to raise your hand and star six to unmute .

Speaker #1: Please stand by while we compile the Q&A roster . Your first question comes from the line of Bill Ryan with Seaport Research Partners .

Speaker #1: Your line is open . Please go ahead .

Speaker #2: Well , I think you're on mute .

Artem Nalivayko: Bill, I think you're on mute.

Speaker #5: Got it . Thanks . So first question , just want to ask about the disposition plans . Looking into the future between your various channels .

[Analyst 1]: Got it. Thanks. First question, I just want to ask about the disposition plans looking into the future between your various channels, structured certificates, whole loans, and extended seasoning, and what your plans are to continue to grow the held-for-investment portfolio and the balance sheet. Looks like there's a little bit of a mix shift the last couple of quarters, dialing back on the whole loan sales, focusing on the other two. If you could also maybe talk about the economics of what you're seeing between the various disposition channels.

Speaker #5: Structured certificate , whole loans and extended seasoning and what your plans are to continue to grow the held for investment portfolio and the balance sheet .

Speaker #5: Looks like there's a little bit of mix shift . The last couple of quarters . Dialing back on the whole loan sales , focusing on the other two .

Speaker #5: And if you could also kind of maybe talk about the economics of what you're seeing between the various disposition channels .

Speaker #4: Yeah . Great . Hey , Bill , thanks for the question . So , you know , for for Q4 , it's kind of steady as she goes in terms of what we plan each quarter .

Andrew LaBenne: Yeah, great. Hey, Bill. Thanks for the question. For held for investment for Q4, it's kind of steady as she goes in terms of what we plan each quarter. We're targeting roughly $500 million in held for investment, and that sort of just depends on how the quarter evolves. Sometimes that's a little higher or a little lower. I'd say generally it's been a little higher the past couple of quarters. The other programs are roughly in line with where we've been for the past couple of quarters. We see demand for structured certificates being constant. We're seeing good pickup in the rated product as well. As I mentioned, we sold one of those out of extended seasoning this quarter, a rated deal, that is. Demand is strong and still there.

Speaker #4: So we're targeting , you roughly 500 million in Hffi and that sort of just depends on how the quarter evolves . Sometimes that's a little higher or a little lower .

Speaker #4: I'd say generally it's been a little higher the past couple of quarters . The other programs are are roughly in line with where we've been for the past couple quarters .

Speaker #4: We see demand for structured certificates being constant . You know , we're seeing good pickup in the rated product as well . And we as I mentioned , we we sold one of those out of extended seasoning this quarter , a rated deal .

Speaker #4: That is so demand is demand is strong and still there . And with issuance being targeted to be roughly the same kind of the mix and disposition should also be roughly the same .

Andrew LaBenne: With issuance being targeted to be roughly the same, kind of the mix and disposition should also be roughly the same.

Speaker #3: I guess just Bill , to make sure you're tracking you probably are . That , you know , not all of these sales are equal in in historically whole loan sales to banks would come at a different price and say , hold on sales to to an asset manager as the insurance rated transactions have been coming in , those prices , as we mentioned in the script , are really approaching bank prices now .

Scott Sanborn: I guess just, Bill, to make sure you're tracking, you probably are that, you know, not all of these sales are equal. Historically, whole loan sales to banks would come at a different price than, say, whole loan sales to an asset manager. As the insurance-rated transactions have been coming in, those prices, as we mentioned in the script, are really approaching bank prices now. In those cases, we're generally not retaining the A note. Effectively, it is a whole loan sale, and it's coming at a higher price. It's really the mix is based on where we're getting best execution. We are looking to develop certain channels. That's a channel we're developing, and it's going in the direction we like, which is building demand and higher prices there.

Speaker #3: And in those cases , we're generally not retaining the A note . So effectively it is a whole loan sale and it's coming at a higher price .

Speaker #3: So it's really the mix is based on where we're getting best execution as and you know , we are looking to develop certain channels .

Speaker #3: So that's a channel we're developing . And it's going in the direction we like , which is building demand . And higher prices .

Speaker #3: There .

Speaker #5: Okay . Thanks Scott . And just one big picture follow up if you can maybe kind of touch on the competitive state of the market .

[Analyst 1]: Okay, thanks, Scott. Just one big-picture follow-up. If you can maybe kind of touch on the competitive state of the market, origination volumes have increased quite a bit across the board. You've heard about some companies maybe have opened up their credit boxes a little bit, some with product structure, if you will. Fixed-income investors allocating more capital to the sector. If you could kind of give us an overview of, have you seen any pressure on your underwriting standards at all?

Speaker #5: I mean , origination volumes have increased quite a bit across the board . You've heard about some companies maybe have opened up their credit boxes a little bit , some with with product structure , if you will , fixed income investors allocating more capital to sector .

Speaker #5: I mean , if you can kind of give us an overview of , of have you seen any pressure on your underwriting standards at all ?

Speaker #3: No . We haven't . I'd say , you know , as we say , every quarter , this has always been a competitive space in our case .

Scott Sanborn: No, we haven't. I'd say, you know, as we say every quarter, this has always been a competitive space. In our case, our growth is coming off of a low, and it's coming off of a low that's been informed not just by tighter credit underwriting, which, you know, we're maintaining the discipline there, but also because we just pulled back on marketing. Our ability to grow is, you know, if you still look at, you know, where you can see volume levels, you'll see we're still running below historical levels of spend and volume in a TAM that's larger than it ever was. We're not seeing the space as competitive. It's no more competitive than it was last quarter or the quarter before. As usual, we see a mix in who we're competing with in different environments.

Speaker #3: Our growth is coming off of a low and it's coming off of a low that's been informed , not not just by tighter credit underwriting , which , you know , we're maintaining the discipline there , but also because we just pulled back on marketing .

Speaker #3: So our ability to grow is if you still look at , you know , where you can see volume levels , you'll see we're still running below historical levels of of spend and volume in a Tam that's larger than it ever was .

Speaker #3: So we're not seeing the space is competitive . It's no more competitive than it was last quarter or the quarter before . As usual , we see a mix in who we're competing with in different environments .

Speaker #3: So when the interest rate environment shifted , we were competing more with banks and less with fintechs . I'd say now we're competing a bit more with fintechs and a little bit less with some of the banks , but that doesn't it's not changing , certainly not affecting our underwriting standards .

Scott Sanborn: When the interest rate environment shifted, we were competing more with banks and less with fintechs. I'd say now we're competing a bit more with fintechs and a little bit less with some of the banks. It doesn't, it's not changing, certainly not affecting our underwriting standards. We are absolutely in this for the long game. As you know, we're eating our own cooking here. We are looking to make sure we are delivering the returns for ourselves as well as for our loan buyers. We don't view the way we get rewarded long-term as by posting a temporary jump in growth through short-term decision-making on credit.

Speaker #3: And , you know , we're we are absolutely in this for the long game . And as you know , we're we're eating our own cooking here .

Speaker #3: So we are we are looking to make sure we are delivering the returns for ourselves as well as for our loan buyers . And we don't view the way we get rewarded long term is by posting a temporary jump in growth through short term decision making on credit .

Speaker #5: Okay , thanks for taking my questions .

[Analyst 1]: Okay, thanks for taking my questions.

Speaker #1: Our next question comes from the line of Tim Switzer with KBW. Tim, your line is open. Please go ahead.

Operator: Our next question comes from the line of Timothy Jeffrey Switzer with Keefe, Bruyette & Woods. Tim, your line is open. Please go ahead.

Speaker #6: Hey. Good afternoon. Thanks for taking my questions. My first one is: Can you explain what drove the higher loss on net for value adjustment?

Timothy Jeffrey Switzer: Hey, good afternoon. Thanks for taking my questions. My first one is, can you explain what drove the higher loss in that net fair value adjustment? I think you mentioned earlier on the call that pricing seems to be holding up on loan sales. Just curious what drove that adjustment line.

Speaker #6: And you know , I think you mentioned earlier on the call that pricing seems to be holding up on loan sales . So just curious what drove that adjustment line .

Speaker #4: Yeah. So, I keep in mind we had a positive fair value adjustment in Q2 that I believe was about $9 million in the quarter.

Andrew LaBenne: Yeah, so keep in mind we had a positive fair value adjustment in Q2 that I believe was about $9 million in the quarter, and we had $5 million this quarter. Positive adjustments in both quarters, but it was larger in Q2 than it was in Q3. That's a big part of the delta right there. As we said, prices moved up a little bit, so it's not price that's driving that. The other piece is, as we have a larger extended seasoning portfolio, there is natural roll-down that happens, and that comes through that net fair value adjustment line. That's also a little bit of the change that we're seeing quarter over quarter. It's just a larger portfolio.

Speaker #4: And we had $5 million this quarter. So, positive adjustments in both quarters, but it was larger in Q2 than it was in Q3.

Speaker #4: And so that's a that's a big part of the delta right there . You know , as I as we said , prices moved up a little bit .

Speaker #4: So it's not price that's driving that. The other piece is, as we have a larger extended seasoning portfolio, there is natural roll down that happens.

Speaker #4: And that comes through that net fair value adjustment line . So that's also a little bit of the change that we're seeing quarter over quarter .

Speaker #4: It's just a larger portfolio.

Speaker #6: Got you . Is there a good way for us to be able to model the impact of the extended seasoning portfolio ?

Timothy Jeffrey Switzer: Got you. Is there a good way for us to be able to model the impact of the extended seasoning portfolio?

Speaker #4: It's probably a little complicated to get into the details on this call, but we can follow up with you afterwards.

Andrew LaBenne: There is. It's probably a little complicated to get into the details on this call, but we can follow up with you afterwards.

Speaker #6: And yeah , just appreciate that we can do it offline . Yeah . And then can you also walk us through the loan reserve dynamics a bit this quarter because it went up quite a bit .

Timothy Jeffrey Switzer: Yeah, great to hear that. We can do it offline. Yeah. Can you also walk us through the loan reserve dynamics a bit this quarter? It went up quite a bit, but if we look at your slide 16, that indicates lower loss expectations for those legacy vintages. I guess, and you obviously didn't grow the held for investment book a whole lot. I'm just curious on what was that reserve going up for, I guess?

Speaker #6: But if we look at your slide 16 that indicates lower loss expectations for those legacy vintages . And you obviously didn't grow the book a whole lot .

Speaker #6: So just curious on , you know , what was that reserve going up for I guess .

Speaker #4: Yeah . So so two factors . Again last quarter there was a one timer that we called out in the provision line because we had a , a ay re-estimation of the lifetime losses .

Andrew LaBenne: Yeah, so two factors. Last quarter, there was a one-timer that we called out in the provision line because we had a re-estimation of the lifetime losses, and that caused a positive benefit in the provision line. I think that's about $11 million, right, Artem? Yeah, $11 million last quarter. Credit was great again this quarter, but we didn't do a step change in the reserve on the previous vintages. That's one factor. The other is just as we're growing some of our businesses, like for example, our purchase finance business into held for investment loans, the duration is a little longer, so it has a little higher upfront CECL charge, but also fantastic economics on balance sheet. Those are the two main drivers.

Speaker #4: And that caused a positive benefit in the provision line . And so I think that's about 11 million , right . Yeah . 11 million last quarter that , you know , credit was great .

Speaker #4: Again this quarter . But we didn't do a step change in the reserve on the previous vintages . So that's one factor . The other is just as we're growing some of our businesses like for example , our purchase finance business into the durations a little longer .

Speaker #4: So it has a little higher upfront seasonal charge , but also fantastic economics on balance sheet . And so those are the two main drivers .

Speaker #6: Gotcha . Thank you . And one last one real quick . Can you explain what what drove the increase in diluted shares . And period went up a little bit , but not nearly as much as diluted share count .

Timothy Jeffrey Switzer: Gotcha. Thank you. One last one real quick. Can you explain what drove the increase in diluted shares? End of period went up a little bit, but not nearly as much as the diluted share count. Sorry if you said this earlier on the call.

Speaker #6: Sorry if you said this earlier on the call .

Speaker #4: Yeah . No I think share price is probably the biggest factor . Right . If you just do the Treasury , if you just think of the Treasury stock method on the diluted shares , the higher the share price , the more dilution you effectively get on the outstanding .

Andrew LaBenne: Yeah, no, I think share price is probably the biggest factor, right? If you just do the treasury, if you just think of the treasury stock method on the diluted shares, the higher the share price, the more dilution you effectively get on the outstanding grants that have been issued. There was no step change in terms of the vehicles that caused diluted share count.

Speaker #4: Grants that have been issued . So there wasn't there was no step change in terms of kind of the , you know , the vehicles that cause diluted share count .

Speaker #4: .

Speaker #6: Got you . All right . Thank you .

Timothy Jeffrey Switzer: Got you. All right, thank you.

Speaker #1: Thank you . Your next question comes from the line of Giuliano Bologna . Your line is open . Please go ahead . Giuliano , your line is open .

Operator: Thank you. Your next question comes from the line of Giuliano Bologna. Your line is open. Please go ahead.

Speaker #1: Please go ahead .

Speaker #2: Giuliano, I think you're on mute.

Artem Nalivayko: Giuliano, I think you're on mute too.

Speaker #1: Okay . We can come back to Giuliano . We'll move on to Vincent . Caintic of Btig . Your line is open . Please go ahead .

Operator: Okay, we can come back to Giuliano. We'll move on to Vincent Albert Caintic of BTIG. Your line is open. Please go ahead.

Speaker #4: Hi . Great . Can you hear me ?

Vincent Albert Caintic: Hi, great. Can you hear me?

Speaker #3: Yes , yes .

Timothy Jeffrey Switzer: Yes.

Vincent Albert Caintic: Yes, having some tech issues, I have a feeling maybe others are as well. Thank you for taking my questions. First question, kind of a follow-up on that funding side. I want to ask about the demand for your marketplace loans, the structured certificates, and the seasoning portfolio. It's great to see that there's so much demand. I think there's been a lot of investor questions over the past month where we've seen some other companies have some issues, some bankruptcies, and so forth. There's been some concerns broadly about institutional investor appetite for fintech-originated loans. It looks like your demand is great. I was wondering if you can maybe talk about the broad industry and if you're seeing any differentiation and if maybe that's a competitive advantage of your funding vehicles and mechanisms versus the rest of the industry. Thank you.

Speaker #7: Having some tech issues . I have a feeling maybe others are as well . But . Yeah . So thank you for taking my questions .

Speaker #7: First question , kind of a follow up on that . That funding side . And I want to ask it kind of the demand for , you know , your your marketplace loans just certificates and and the seasoned portfolio .

Speaker #7: It's great to see that there's so much demand . And , you know , I think a lot of there's been a lot of investor questions over the past month where we've seen some other companies have some issues , some bankruptcies and so forth .

Speaker #7: And so there's been some concerns broadly about institutional investor appetite for fintech originated loans . So it looks like your demand is great .

Speaker #7: And I was wondering if you could maybe talk about kind of the broad industry . And if you're seeing any , any differentiation and if maybe that's a competitive advantage of your funding vehicles and mechanisms versus the rest of the industry .

Speaker #7: Thank you .

Speaker #4: Yeah . So there's . Thanks for the question , Vincent , a lot there . So I'd say first of all the comments I'm going to make are really just focused on our asset class and our industry .

Andrew LaBenne: Yeah, thanks for the question, Vincent. A lot there. I'd say first of all, the comments I'm going to make are really just focused on our asset class and our industry, not, you know, auto securitizations or any of the other things that are going on. Our team was just at a conference yesterday talking to loan current investors and potential investors. I'd say the appetite is still very strong. I don't think there's any fade on the appetite at all for the various vehicles that are out there, whether it's a structured product, a rated product, or whole loans out of extended seasoning. Demand is definitely there. I think track record matters. The demand is there for us. I think it's certainly there for other issuers as well. I'd say on the margin that issuers are also being maybe slightly more cautious on who they're partnering with.

Speaker #4: So not , you know , auto securitizations or any of the other things that are that are going on . But , you know , we just actually our team was just at a conference yesterday talking to , you know , loan current investors in potential investors .

Speaker #4: And I'd say the appetite is still very strong. I don't think there's any fade on the appetite at all for the various vehicles that are out there, whether it's a structured product, the rated product, or hold out of extended seasoning.

Speaker #4: So demand demand is definitely there . I think track record matters . So the demand is there for us . I think it's certainly there for other issuers as well .

Speaker #4: But but I'd say on the margin that issuers are also being maybe slightly more cautious on who they're partnering with . And we're hearing that and we've been the partner of choice for years .

Andrew LaBenne: We're hearing that. We've been the partner of choice for years and I think continue to be. I think that plays to our advantage. Obviously, we're always watching the ABS markets to see if there's any major disruption there. Haven't seen much. Certainly, there's been a little noise, as you indicated, over the past couple of weeks. In summary, demand remains good. Prices are strong. We're feeling good going into the fourth quarter.

Speaker #4: And I think continue to be . So I think that that plays to our advantage . Obviously , we're always watching the ABS markets to see if there's any , you know , major disruption there .

Speaker #4: And haven't seen much . Certainly there's been a little noise , as you indicated over the past couple of weeks , but summary demand remains good .

Speaker #4: Prices are strong, so we’re feeling good going into the fourth quarter.

Speaker #7: Okay . Great . Thank you . That's very helpful . And I guess also oh .

Vincent Albert Caintic: Okay, great. Thank you. That's very helpful. I guess this will also really.

Andrew LaBenne: One thing, just a little added color is we're certainly hearing that some capital providers are further narrowing their selection of who they're working with. We remain in the wallet and remain a really primary and important partner there, but certainly hearing some chatter of that.

Speaker #3: One thing, just a little added color, is we're certainly hearing that some capital providers are further narrowing their selection of who they're working with.

Speaker #3: But you know, it's hard for us to kind of, you know, we remain in the wallet and remain a really primary and important partner there. But certainly, we're hearing some chatter about that.

Speaker #7: Okay , great . That's super helpful . Thank you . And actually kind of related to , you know , the the volatility we've been hearing over the past month just in broader consumer credit , just wondering if you could talk about , you know , your your credit performance and what you're seeing .

Vincent Albert Caintic: Okay, great. That's super helpful. Thank you. Actually, kind of related to the volatility we've been hearing over the past month, just in broader consumer credit. Just wondering if you could talk about your credit performance and what you're seeing. It was great to see charge-offs at 2.9% this quarter. That's great. I'm just wondering if you're noticing, maybe not in the loans that are on your balance sheet already, but as you get applications, maybe has the quality of that changed? Are you noticing any themes in terms of delinquency evolution, like maybe with lower credit tiers or anything, any comments you might be seeing with that relative to past trend?

Speaker #7: So it was great to see charge offs 2.9% this quarter . That's great . I'm just wondering if you're noticing maybe not in the loans that you're you're that are on your balance sheet already .

Speaker #7: But as you get applications , you know , maybe has the quality of that change , are you noticing maybe any themes in terms of delinquency , evolution , like maybe with lower credit tiers or anything , any comments you might be seeing with that relative to past trend ?

Speaker #3: Yeah . No , I mean , I'd say for us , you know , reminder we remain very , very restrictive compared to , you know , pre-COVID .

Scott Sanborn: Yeah, no, I mean, I'd say for us, you know, reminder, we remain very, very restrictive compared to, you know, pre-COVID. That is even more so the case in sort of the lower credit area. I acknowledge there's definitely been a decent amount of press about a bifurcated economy and, you know, where certain subsets of consumers could be struggling. In our portfolio, given how we're underwriting today, I mean, just for an example, there's talk about consumers who earn less than $50,000 a year. I think that represents 5% of our originations right now, so very, very small. Same thing with student loans. As you know, we've restricted underwriting to that group. The percent of people that are delinquent on a student loan incurring on us is now measured in basis points and is shrinking.

Speaker #3: And that is even more so the case in sort of the lower credit area . So like acknowledge , there's definitely been a decent amount of press about a bifurcated economy .

Speaker #3: And you know , where , you know , certain subsets of consumers could be struggling . But , you know , in our portfolio , given how we're underwriting today , I mean , just for an example , there's talk about , you know , consumers earning less than 50 K a year .

Speaker #3: I think that represents 5% of our originations right now . So very , very small . Same thing with student loans . As you know , we restricted underwriting to that group .

Speaker #3: So the percent of people that are , you know , delinquent on a student loan and current on us is , is , you now measured in basis points and is shrinking .

Speaker #3: So we on our book aren't seeing anything more than the normal kind of , you know , variability that you adapt and continue to manage to which we're , you know , our platform is set up and our team is set up to do that quite well .

Scott Sanborn: On our book, we aren't seeing anything more than the normal kind of variability that you adapt and continue to manage to, which our platform is set up and our team is set up to do that quite well. No kind of broad themes. Despite, again, we're reading the same thing you are, we're not seeing it in our book. I think that's based on how we're underwriting.

Speaker #3: So no , you know , no kind of broad themes despite again , we're reading the same thing . You are . But we're not seeing it in our book .

Speaker #3: And I think that's based on how our underwriting.

Speaker #7: Great. Thanks. And maybe I'll sneak one more in, and this might end up having to be for the investor meeting.

Vincent Albert Caintic: Great, thanks. Maybe I'll sneak one more in. This might end up having to be for the investor meeting. We want to leave some meat on there. Your CET1 of 18% is very healthy. I'm just wondering how much is too much. Thank you.

Speaker #7: We want to leave some meat on there, but your seat one of 18% is very healthy. I'm just wondering how much is too much.

Speaker #7: Thank you .

Speaker #4: Yeah , well , we'll see you in November .

Andrew LaBenne: Yeah, see you in November.

Speaker #7: Sounds good . All right . Thanks , guys . I appreciate it . See you then .

Vincent Albert Caintic: Sounds good. All right, thanks, guys. I appreciate it. See you then.

Speaker #4: In all in all seriousness , I think , you know a little bit on that is again , we're we do have what we would say is some excess capital and , you know , our plan is to use that for growing the balance sheet as we ramp up originations .

Andrew LaBenne: In all seriousness, I think a little bit on that is, again, we do have what we would say is some excess capital. Our plan is to use that for growing the balance sheet as we ramp up originations. If we have enough capital to satisfy that primary goal and more than enough after that, then I think we'll consider other options.

Speaker #4: And if we have enough capital to satisfy that primary goal and more more than enough after that than I think we'll consider other options .

Speaker #7: Okay , great . And see you in November 5th . Thanks so much . Thanks .

Vincent Albert Caintic: Great. See you November 5th. Thanks very much.

Speaker #1: Okay. Thank you. Our next question comes from Giuliano Bologna from Compass Point. Your line is now open.

Operator: Okay, thank you. Our next question comes from Giuliano Bologna from Compass Point. Your line is now open.

Speaker #8: Sounds good. Hopefully, you guys can hear me now. I got the unmute notification this time. Congratulations on a great quarter.

Giuliano Bologna: Sounds good. Hopefully you guys can hear me now. I got the unmute notification this time. Congratulations on a great quarter. It's great to see the continued great results. When I look forward, there's obviously a tremendous amount of demand through the marketplace, whether it's structured certificates or whole loan sales. I'm curious in a sense, how much more do you think you'd want to grow that versus grow the kind of overall held for investment pie? The outlook is called 45% between held for investment and extended seasoning, which is a pretty healthy amount. It looks like that could keep growing balances. I'm just trying to think about how you think about the balance going forward because you have a lot of dry powder, a lot of liquidity, and a lot of capital to kind of keep pushing.

Speaker #8: It's great to see the continued great results . When I look forward . I mean , there's obviously a tremendous amount of demand , you know , through the marketplace , whether it's structured certificates or whole loan sales .

Speaker #8: You know , I'm curious in a sense , you know , how much more do you think you'd want to grow that versus grow the kind of overall hphe pie because , you know , the outlook is called 45% between hphe and extended seasoning , which is a pretty healthy amount .

Speaker #8: And it looks like that could , you know , keep growing balances . But just trying to think about , you know , how you think about the balance going forward because you have a lot of dry powder , a lot of liquidity and a lot of capital to kind of keep pushing .

Speaker #8: So I'm curious how you think about , you know , how much you'd be willing to , you know , push both sides there .

Giuliano Bologna: I'm curious how you think about how much you'd be willing to push both sides there.

Speaker #4: Yeah , yeah . And we'll get into this more at Investor Day . So but to give you an answer now for , for Q4 , the or even longer term , I mean the end goal is to grow originations enough that we can feed our all of our desires to grow the balance sheet and we can feed all the investors in the marketplace that are paying the appropriate price for for the loans .

Andrew LaBenne: Yeah, yeah. We'll get into this more at Investor Day, but to give you an answer now for Q4, or even longer term, the end goal is to grow originations enough that we can feed all of our desires to grow the balance sheet and we can feed all the investors in the marketplace that are paying the appropriate price for the loans we're originating. Our goal is to be able to do both. If we're not quite there on total originations, then it's a bit of a balancing act, right? We still want to see healthy growth on the balance sheet. We originate loans that are better off in the marketplace than the balance sheet, and we're going to sell those. We have long-term investors that we want to keep our relationship with, and we're going to make sure we're able to allocate to them as well.

Speaker #4: We're originating . So our goal is to be able to do both . And then , you know , if we're not quite there on total originations , then it's a bit of a balancing act , right ?

Speaker #4: We still want to see healthy growth on the balance sheet , but we originate loans that are better off in the marketplace than the balance sheet .

Speaker #4: And we're going to sell those . And we have long term investors that we want to keep our relationship with . And so we're going to make sure we're able to allocate to them as well .

Speaker #4: So you know always a bit of a balancing act while we're still ramping originations . And goal is we have enough originations to feed both sides .

Andrew LaBenne: It's always a bit of a balancing act while we're still ramping originations. End goal is we have enough originations to feed both sides.

Speaker #8: That's very helpful . One thing I'm curious about when I look at your marketing spend as a percentage of volume , it , you know , came up a little bit , but it's still , you know , much lower than I would have expected .

Giuliano Bologna: That's very helpful. One thing I'm curious about, when I look at your marketing spend as a percentage of volume, it came up a little bit, but it's still much lower than I would have expected, given that you're pushing some new marketing channels. I'm calculating it at 1.55%, 1.553%. You obviously highlighted that you're going to push a little bit more harder on the marketing side in Q4 in anticipation of growth in 2026. It looks like HFI was down, so there should be a little bit less of a benefit from more capitalization or amortization of that through on HFI. It seems like that's continued to be very efficient from a percentage of volume perspective. I'm just curious how I should think about that going forward over the next few quarters.

Speaker #8: Know , given that you're pushing some new marketing channels . I mean , I'm calculating , you know , 1.55% , 1.553% , you know , you obviously , you know , highlighted that you're going to push a little bit more harder on the marketing side in four .

Speaker #8: Q you know , in anticipation of growth in 26 , you know , it looks like , you know , I mean , he was down .

Speaker #8: So there should be , you know , a little bit less of a benefit from more , you know , capitalization or amortization of that through , you know , on Hphe .

Speaker #8: But it seems like that's , you know , continued to be very efficient . You know , from a percentage of volume perspective .

Speaker #8: I'm just curious , you know , how I should think about that , you know , going over , going forward over the next few quarters .

Speaker #3: Yeah . So as I mentioned , I think we , you know , excitedly , I'd say we still see a lot of opportunity there , right ?

Scott Sanborn: Yeah, as I mentioned, I think we, you know, excitedly, I'd say we still see a lot of opportunity there, right? We are coming from a place of reasonably low activity into a market that I think is pretty attractive in terms of the value proposition to the consumer and the experience we've got. Our efforts are working well. We are still, I mean, we're only two quarters into restarting direct mail as an example. We're on the third version of our response model. We will be on our fourth as we exit the year, building the creative optimization library, optimizing the experience, and then take that across some of the other channels like digital and all the rest. We still have a lot of opportunity in front of us.

Speaker #3: We are we are coming from a place of reasonably low activity into a market that I think is a pretty attractive in terms of the value proposition to the consumer and the experience .

Speaker #3: We've got , you know , it's our efforts are working well . We are still I mean , we're only two quarters into restarting direct mail as an example .

Speaker #3: We're on the third version of our response model . We will be on our fourth as we exit the year . You know , building the creative optimization library , optimizing the experience , and then take that across some of the other channels like digital and all the rest .

Speaker #3: So we still have a lot of opportunity in front of us . I think what you're also seeing in Q3 is not just the performance of those channels being positive , but also some of our other efforts .

Scott Sanborn: I think what you're also seeing in Q3 is not just the performance of those channels being positive, but also some of our other efforts. I touched on it in my prepared remarks that our other, we are growing, you know, we delivered 37% growth year on year. That was both in new and in repeat, marketing over indexes to driving new. Repeat is coming at a much lower, much lower cost. Our ability to scale that at an equivalent pace, we're still at 50/50. Despite the big jump in year-on-year marketing spend, we're still, you know, roughly 50/50 with new versus repeat. Both of those efforts are working, the external marketing efforts, and then the efforts to drive repeat and lifetime value from our customers.

Speaker #3: I touched on it in my prepared remarks that our other we are growing . You know , we delivered 37% growth year on year .

Speaker #3: That was both in new and in repeat marketing. Overindexes to driving new, but repeat is coming at a much lower, much lower cost.

Speaker #3: So our ability to scale that at an equivalent pace, we're still at 50/50 despite the big jump in year-on-year marketing spend.

Speaker #3: We're still we're still , you know , roughly 5050 with new versus repeat . So both both of those efforts are working . The external marketing efforts .

Speaker #3: And the efforts to drive repeat and lifetime value from our our customers .

Speaker #8: That's very , very helpful . I appreciate it . And yeah , congrats on the continued performance . I'm looking forward to seeing you guys in a couple of weeks .

Giuliano Bologna: That's very, very helpful. I appreciate it. I appreciate the continued performance. I'm looking forward to seeing you guys in a couple of weeks.

Speaker #3: Great . Thanks , Giuliano .

Scott Sanborn: Great. Thanks, Giuliano.

Speaker #1: Thank you and your next question comes from Reggie Smith of J.P. Morgan . Your line is open . Please go ahead . Reggie , your line is open .

Operator: Thank you. Your next question comes from Reginald Lawrence Smith of JPMorgan Chase & Co. Your line is open. Please go ahead. Reginald, your line is open.

Speaker #3: You're on mute, Reggie.

Scott Sanborn: You're on mute, Reggie.

Speaker #9: There we go . Can you hear me now ? Yes , I'm sorry . I wanted to follow up on the on the last question .

Andrew LaBenne: There we go. Can you hear me now?

Scott Sanborn: Yes.

Andrew LaBenne: I'm sorry. I wanted to follow up on the last question. Kind of thinking about marketing, obviously, it costs less to re-engage a previous customer. I guess thinking about that expense ratio, the 1.5 that we see on the income statement, my sense is that it's not evenly distributed and that maybe your incremental or your marginal loan is a little bit more. Help me understand how inefficient that is or where's the marginal cost to underwrite a loan and then maybe frame that against what you could sell one for. My sense and my gut is that despite the fact that your marketing channels are not optimized, there's still room there to kind of go, almost as though you're leaving money on the table, possibly. Not in a bad way, just thinking about the opportunity there.

Speaker #9: So , you know , kind of thinking about marketing , you know , obviously it costs less to to re-engage a previous customer .

Speaker #9: I guess thinking about that expense ratio , you know , the 1.5 that we see on the income statement , my sense is that it's not evenly distributed and that , you know , maybe you're incremental or your your marginal loan is a little bit more help me understand , I guess , how inefficient that is .

Speaker #9: Or where is the marginal cost to underwrite a loan . And then maybe frame that against what you could sell one for , like my , my sense and my gut is that despite the fact that that your marketing channels are not optimized , that it's still there's still room there to kind of kind of go almost as though you're leaving money on the table , possibly not in a bad way , but just just thinking about the opportunity there .

Speaker #9: So maybe talk a little bit about what the marginal cost to acquire a new loan is , and then maybe frame that against , you know what , you can sell these loans for .

Andrew LaBenne: Maybe talk a little bit about what the marginal cost to acquire a new loan is and then maybe frame that against what you can sell these loans for. Looks like origination to your marketplace ratio is about 5%. There seems to be a lot of room there. Anything you could share there would be great. Thank you.

Speaker #9: It looks like the origination of your marketplace ratio is about 5%. So there seems to be a lot of room there. Anything you can share would be great.

Speaker #9: Thank you .

Speaker #3: Yeah . So you're you're certainly thinking about it the right way . We're underwriting to a marginal cost of acquisition that reflects the lifetime value of the customer .

Scott Sanborn: Yeah, you're certainly thinking about it the right way. We're underwriting to a marginal cost of acquisition that reflects the lifetime value of the customer. The part of this process, and what we are very, very focused on, is profitable, sustainable growth, right? We're not looking to just post inefficient volume that we can't rinse and repeat and drive further. As we push into these new channels, we'll find that efficient frontier. We work to basically bring it in by improving our targeting models, improving our creative and response rates, improving our pull-through on the experience, and the conversion rate on the experience so that we can then go deeper and push harder in those channels. I think you're right that we have more room to go, but it is very mathematically and/or scientifically backed, right?

Speaker #3: And . You know , the part of this process , you know , and what we are very , very focused on is profitable , sustainable growth .

Speaker #3: Right . We're not looking to just post a inefficient volume that we can't rinse and repeat and drive further . So as we push into these new channels , we're , we're we'll find that efficient frontier .

Speaker #3: And then we work to basically bring it in right by improving our targeting models , improving our creative and response rates , improving our pull through on the experience and the conversion rate on the experience , so that we can then go deeper and push harder in those channels .

Speaker #3: So I think you're right that we have more room to go , but it is it is very mathematically and or scientifically backed .

Speaker #3: Right ? It's we've got a very good handle on what we can expect to get from our customers . Now that that number is going up , right as we and we'll share a little bit more information on this .

Scott Sanborn: We've got a very good handle on what we can expect to get from our customers. Now that number is going up, right? As we, and we'll share a little bit more information on this, but as we get better and better, these repeat customers are not only lower cost to acquire, they're also lower credit loss. Oh, by the way, if we get you back once, it's likely we're going to get you back three or four times. There really is a real long-term benefit here that will drive up the lifetime value, which will drive up our ability to pay up at acquisition, but we're building towards it and we're building towards it incrementally every quarter.

Speaker #3: But as we get better and better, you know, these repeat customers are not only lower cost to acquire, they're also lower credit loss.

Speaker #3: And, oh, by the way, if we get you back once, it's likely we're going to get you back three or four times.

Speaker #3: So you know , there really is a real long term benefit here that will drive up the lifetime value , which will drive up our ability to pay up at acquisition .

Speaker #3: But we're building towards it, and we're building towards it incrementally every quarter.

Speaker #9: That makes sense. If I could sneak one more in, I'd love to hear more about the Black Rock program and the insurance sales channel.

[Analyst 1]: That makes sense. If I could sneak one more in, I'd love to hear more about the BlackRock program and the insurance sales channel. If I'm thinking about that right, I guess this is a way for kind of civilians to get exposure to these types of notes. How's the liquidity there for the consumer? Are they able to sell that stuff back? How does that kind of work? On the insurance side, do you think we'll get to a point where you're announcing a committed number from the insurance channel like you do for private credit today? Thank you.

Speaker #9: If I'm thinking about that right, I guess this is a way for kind of civilians to get exposure to these types of notes. How's liquidity?

Speaker #9: That liquidity there for the consumer ? Are they able to sell that stuff back ? Like how does that kind of work ? And then on the insurance side , like , do you think we'll get to a point where you're announcing , you know , a committed number from from the insurance channel like you do for , you know , kind of private credit today ?

Speaker #9: Thank you .

Speaker #4: Yeah . So , so a couple of things . One , this is not this is not direct to consumer sales . That's happening .

Andrew LaBenne: Yeah, a couple of things there. One, this is not direct-to-consumer sales that's happening. This is really, in the BlackRock example, I think they have many different ways that they may represent other clients where they're managing money to purchase this program. I wouldn't want to box it into just one use case for them. It's not a direct or indirect-to-consumer investors that's happening in any way. I think the insurance pool is extremely deep. These are insurance companies that are taking premiums for various insurance policies and investing that money. It's a massive pool. As Scott was saying, usually the price is not quite as good as banks, but generally, it's still a very low cost of capital. We think we can make progress in terms of growing that channel and helping our overall average price that we're selling loans at as well.

Speaker #4: This is really in the BlackRock example. I think they have many different ways that they may represent other clients, where they're managing money to purchase this program.

Speaker #4: So I wouldn't want to box it into just one use case for them . But it's not a direct or indirect to consumer investors .

Speaker #4: That's that's happening in any way . The I think the insurance pool is extremely deep . And so the these are insurance companies that are taking premiums for various insurance policies and investing that money .

Speaker #4: And so , you know , it's it's it's a massive pool . It is , as Scott was saying , it usually the price is not quite as good as banks , but generally it's still a very low cost of capital .

Speaker #4: And so we think we can make progress in terms of growing that channel and helping our overall average price that we're selling loans at, as well.

Speaker #9: And I guess on the direct to consumer point , is that possible ? I could maybe not with Blackrock , but is that like a channel that one day be a thing or are there things that prevent that regulatory wise that would prevent that or make that difficult ?

[Analyst 1]: On the direct-to-consumer point, is that possible? I could maybe not with BlackRock, but is that like a channel that one day could be a thing? Are there things that prevent that regulatory-wise that would prevent that or make that difficult?

Speaker #3: So there is capital in our loan book today that is provided by individuals. It's usually coming through funds that are managed by RIAs at some of the wealth managers.

Scott Sanborn: There is capital in our loan book today that is provided by individuals. It's usually coming through funds that are managed by RIAs, that's some of the wealth managers and, you know, hedge funds and all the rest. There is private individual investor capital coming in to purchase the asset. That's one. Going direct-to-consumer retail would be, you know, going back to our original model. If you recall, you know, it is doable, then the loans become securities, which comes with a lot of overhead and disclosure requirements. We have been able to operate a much better business without that because what I mean by that is we are required to announce when we make pricing changes. We're required to announce when we make credit changes.

Speaker #3: And hedge funds and all the rest. So there is private individual investor capital coming in to purchase the asset. So that's one. Going direct to consumer retail would be going back to our original model.

Speaker #3: And if you recall , it is doable . The then the loans become securities which comes with a lot of overhead and disclosure requirements .

Speaker #3: And we we have been able to operate a much better business without that because we're able . What I mean by that is we are required to announce when we make pricing changes , we're required to announce , we make credit changes .

Speaker #3: We had all of our competition downloading our publicly available data and using it to compete against us because we had to tell them what we were doing.

Scott Sanborn: We had all of our competition downloading our publicly available data and using it to compete against us because we had to tell them what we were doing. It's not something I would gladly go back to in that old structure. Certainly, high net worth individual through funds is a source of capital today.

Speaker #3: So it's not something I would gladly go back to in that old , in that old structure , but certainly high net worth individual through funds is is a source of capital today .

Speaker #9: I was thinking about how I would love to pick up some yield versus what I get in my savings account now. So, I think there's something there.

[Analyst 1]: I was thinking about how I would love to pick up some yield versus what I get in my savings account now. I think that's something there. I don't know.

Speaker #9: I don't know .

Speaker #3: Yeah, we can hook you.

Scott Sanborn: Yeah, we can hook you up.

Speaker #9: Up . Yeah . Thanks a lot . Listen , great quarter guys . We'll talk soon .

[Analyst 1]: Thanks a lot. Great quarter, guys. We'll talk soon.

Speaker #3: Thanks .

Scott Sanborn: Thanks.

Speaker #10: Thanks .

Andrew LaBenne: Thanks.

Speaker #1: Thank you . And a reminder that if you'd like to ask a question , please raise your hand if you have dialed in to today's call , press star nine to raise your hand .

Operator: Thank you. A reminder that if you'd like to ask a question, please raise your hand. If you have dialed into today's call, press *9 to raise your hand, *6 to unmute. Our next question comes from Kyle Joseph of Stephens Inc. Your line is open. Please go ahead.

Speaker #1: Star six to unmute. Our next question comes from Kyle Joseph of Stephens. Your line is open. Please go ahead.

Speaker #11: Hey . Good afternoon . Thanks for taking my questions . You guys have touched on this a bit , but just looking at looking at slide ten and kind of the delinquency trends amongst Fico bands , obviously at least amongst the competitor set , you saw a pretty big increase the lower band there .

[Analyst 1]: Hey, good afternoon. Thanks for taking my questions. You guys have touched on this a bit, but just looking at slide 10 and kind of the delinquency trends amongst FICO bands, obviously, at least amongst the competitor set, you saw a pretty big increase on the lower band there. Just give us a sense for how that impacts your originations and investor demand, and where you're seeing kind of the best bang for your buck in terms across the FICO band score.

Speaker #11: Just give us a sense for how you're how that impacts your originations and investor demand . And you know , where you're seeing kind of the best bang for your buck across the Fico band score .

Speaker #3: Yeah . So that doesn't directly affect us . As I touched on before , you know , we're certainly hearing some chatter about maybe people consolidating with a smaller handful of originators that have shown themselves to have more stable and predictable performance .

Scott Sanborn: Yeah, so that doesn't directly affect us. As I touched on before, we're certainly hearing some chatter about maybe people consolidating with a smaller handful of originators that have shown themselves to have more stable and predictable performance. What we're always looking at is what does the application profile look like coming at us? Is it shifting? Is it shifting in a way we like or we don't like? When you see an uptick like that, it's generally going to result in somebody else pulling back. We don't know. Is that one platform, two, three, like hard for us to say. What we'll be monitoring and adapting to is making sure we continue to get a consistent through-the-door population that we want. That might provide some opportunity, it might provide some risk, and that's part of what our day job is.

Speaker #3: What, you know, we're always looking at is what does the application profile look like coming at us? Is it shifting?

Speaker #3: Is it shifting ? In a way we like or we don't like ? So , you know , when you see an uptick like that , it's generally going to result in somebody else pulling back .

Speaker #3: We don't know . Is that one platform two , three like hard for us to say . But what we'll be monitoring and adapting to is making sure we continue to get a consistent through the door population , and that that we want because that may provide some opportunity .

Speaker #3: It might provide some risk, and that's part of, you know, what our day job is.

Speaker #11: Got it helpful . And then just one follow up for me talked a lot about marketing expenses today . But just , you know , in imagine you'll cover this at the Investor Day as well .

[Analyst 1]: Got it. Helpful. Just one follow-up for me. You talked a lot about marketing expenses today, but just, you know, and imagine you'll cover this at the Investor Day as well, but just, you know, a sense for the operating leverage you have on the remaining expense items.

Speaker #11: But just, you know, a sense for the operating leverage you have on the remaining expense items.

Speaker #10: Yeah . We .

Andrew LaBenne: Yeah, we think it's pretty significant. We will get into it more in Investor Day. I think you can already see it happening right now in terms of the revenue growth we've produced year over year compared to expenses. It's certainly not to say that other expenses won't go up as we grow the company, but I think marketing is where you'll see the most variable cost as we scale up.

Speaker #4: So we think it's pretty significant. We will get into it more in Investor Day. I think you can already see it happening right now in terms of the revenue growth we've produced year over year compared to expenses. It's certainly not to say that other expenses won't go up as we grow the company.

Speaker #4: But I think marketing is where you'll see the most variable cost as as we scale up .

Speaker #11: Got it . That's it for me . Thanks very much for taking my questions .

[Analyst 1]: Got it. That's it for me. Thanks very much for taking my questions.

Speaker #12: Great .

Andrew LaBenne: Great.

Speaker #1: Thank you for your questions. I will now turn the call to Artem for some questions via email.

Operator: Thank you for your questions. I will now turn the call to Artem Nalivayko for some questions via email.

Speaker #2: All right . Thanks , Kevin . So , Scott and Drew , we've got a couple questions here that were submitted by our retail investors .

Vincent Albert Caintic: All right. Thanks, Kevin. Scott and Drew, we've got a couple of questions here that were submitted by our retail investors. First question is, we noticed a difference in origination growth rate across issuers and originators. To what do you attribute the differences in growth?

Speaker #2: First question is we noticed a difference in origination growth rate across issuers and originators. You know, to what do you attribute the differences in growth?

Speaker #3: Yeah. So first, thanks to all the retail investors for submitting. I understand from Autumn that we got quite a few this quarter.

Scott Sanborn: Yeah, so first, thanks to all the retail investors for submitting. I understand from Artem that we got quite a few this quarter, so that's great. As we talked about on the call, not all originations are created equal. Our focus is on profitable, sustainable originations growth. I think 37% growth in originations to a level that's really getting close to our highest over the last several years is also coming with record high pre-tax net income and also coming with outperformance on credit by roughly 40%. We're not just looking at one number, which is dollars originated year on year. We're looking at a combined balance of what we think makes for a sustainable, profitable business.

Speaker #3: So that's great . You know , as we talked about on the call , not not all originations are created equal . Our focus is on profitable sustainable originations growth .

Speaker #3: And you know, I think 37% growth in originations to a level that's, you know, really getting close to our highest over the last several years is also coming with record high pre-tax net income and also coming with outperformance on credit by roughly 40%.

Speaker #3: So it's we're not just looking at one number , which is dollars originated year on year . We're looking at a combined balance of what we think makes for a sustainable , profitable business .

Speaker #2: Perfect. All right. Second question. You talked a little bit about a potential rebrand coming up. Any updates on the status?

Vincent Albert Caintic: Perfect. All right. Second question, you talked a little bit about potential rebrand coming up. Any updates on the status?

Speaker #3: Yeah , I'm only talking about it because you all keep asking . But I would say yes , we are . We are .

Scott Sanborn: I'm only talking about it because you all keep asking. I would say, yes, we are, we've done quite a bit of work this year, and we're in the final stages of the, let's call it, the research and development phase and landing on where we want to take it. Very excited about it. We're now entering the planning and execution phase, which we're going to be pretty deliberate about, as it won't surprise anyone on this call. We built up equity in this brand after almost 20 years. We think a new brand will give us a broader permission set with our customer base and kind of create new opportunities for us. We have to make sure we don't lose the tens of thousands of positive reviews and awards and our conversion rate that we finally honed across all these channels. Lots of work to do.

Speaker #3: We've done quite a bit of work this year, and we're in the final stages of the, let's call it, the research and development phase and landing on, you know, where we want to take it.

Speaker #3: It's very exciting about it. We're now entering the planning and execution phase, which we're going to be pretty deliberate about, as it won't surprise anyone on this call.

Speaker #3: We've built up equity in this brand after almost 20 years . We think a new brand will give us a broader permission set with our customer base and and kind of create new opportunities for us , but we've got to make sure we don't lose the , you know , tens of thousands of positive reviews and awards .

Speaker #3: And our conversion rate that we finally honed across all these channels . And so lots of work to do . So when will it be , you know , out in the ether will be probably middle ish of next year .

Scott Sanborn: When will it be out in the ether? We'll be probably middle-ish of next year. Don't hold me to that date exactly, but we're doing the planning phase to make sure we know exactly what we're going to get and can support it with the marketing oomph that it's going to need to be successful.

Speaker #3: Don't hold me to that date . Exactly . But we're doing the planning phase to make sure we know exactly what we're going to get .

Speaker #3: And can support it with the marketing oomph that it's going to need to be successful .

Speaker #2: All right. Perfect. And last question: Any updates on the product roadmap or launching any new products?

Vincent Albert Caintic: All right, perfect. Last question. Any updates on the product roadmap or launching any new products?

Speaker #3: Yeah . So obviously this year as we've been getting back to growth , we've also been , you expanding our ambitions on the product mix .

Scott Sanborn: Yeah, obviously this year, as we've been getting back to growth, we've also been expanding our ambitions on the product mix. We talked about Level Up Checking on the call today. Level Up Savings has been a big driver, which I think Drew talked about, DebtIQ this year. There is absolutely more to come. That's part of the reason we're going to be investing in a new brand. What I'd say is, stay tuned for Investor Day where we'll talk a little bit more about some opportunities we're going to be pursuing in the years to come.

Speaker #3: We talked about level-up checking on the call today and level-up savings. It's been a big driver, which I think Drew talked about with Debt IQ this year.

Speaker #3: So there is absolutely more to come . That's part of the reason we're we're going to be investing in a new brand . What I'd say is , you know , stay tuned for Investor Day .

Speaker #3: We'll talk a little bit more about some opportunities we're going to be pursuing in the years to come.

Speaker #2: All right . Perfect . Thanks , Scott . All right . So thank you everyone . With that we'll wrap up our third quarter earnings conference call .

Vincent Albert Caintic: All right, perfect. Thanks, Scott. All right, thank you, everyone. With that, we'll wrap up our third quarter earnings conference call. Thanks again for joining us today. If you have any questions, please email us at ir@lendingclub.com.

Speaker #2: Thanks again for joining us today . And if you have any questions please email us at IR at LendingClub . Com . .

Operator: This concludes today's call.