LC - NYSE

Good afternoon. Thank you for attending today's LendingClub Q2 2025 Earnings Conference Call. My name is Tamia, and I will be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to your host, Artem Nalivayko, Head of Investor Relations. You may proceed.

Thank you, and good afternoon. Welcome to LendingClub's Second Quarter 2025 Earnings Conference Call. Joining me today to talk about our results are Scott Sanborn, CEO; 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 e-mail. Our remarks today will include forward-looking statements, including with respect to our competitive advantages and strategy, macroeconomic conditions, platform 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. Factors that could cause these results to differ materially are described in today's press release and earnings presentation. Any forward-looking statements that we make on this call are based on current expectations and assumptions, and we undertake no obligation to update these statements as a result of new information or future events. 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. You could find more information on our use of the 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.

Thank you, Artem. Welcome, everyone. We had a fantastic quarter, delivering 32% year-on-year growth in originations and 33% growth in revenue. We more than doubled our earnings, generating $38 million in GAAP net income compared to $15 million last year. And as a result, we achieved an ROTCE of nearly 12%, well north of the 8% target we set at the beginning of the year and delivered well ahead of schedule. Beyond the strength of our financial performance, we continue to outperform on prime credit, sustaining our 40% improvement versus the competitive set. We extended our forward flow agreement with Blue Owl for up to $3.4 billion of new originations. We closed our first transaction with BlackRock, enabled by our recently launched Fitch rated structured certificate program, and we introduced LevelUp Checking, a first of its kind checking product offering cash back rewards for on-time loan payments. Let me hit on a few of the highlights of our performance across the business. I'll start with originations volume. We said we were going to drive growth through marketing and product innovation, and we did just that generating meaningful originations growth, both sequentially and year-on-year, while realizing better-than-expected marketing efficiency as we return to channels, including direct mail and online advertising. We also delivered strong credit performance, thanks to our vast data sets, advanced models and decades of experience. We're not only consistently beating our competition, but we're also beating our own expectations. And while we continue to closely monitor the macro environment, our data is demonstrating the effectiveness of our underwriting and the resilience of our borrower base. Our consistent credit performance and status as a provider of choice continues to generate strong loan investor demand, which over time leads to higher loan sales prices and increased marketplace revenue. We just announced the extension of our funding partnership with Blue Owl for up to $3.4 billion in structured certificate transactions over 2 years with up to $600 million closing within the next several months. And last quarter, we launched our Fitch rated structured certificate program to enable improved loan sales prices by attracting lower cost pools of capital, including insurance. We successfully closed the first of these transactions with a top global insurance company in Q1, and I'm happy to announce today that we recently completed an inaugural $100 million transaction with funds and accounts managed by BlackRock, and we hope to partner with them on more transactions like this in the future. Now I want to spend some time talking about our innovation efforts built on our mobile-first platform, each designed to more regularly engage our members and build multiproduct relationships. That's because engaged multiproduct members have better credit outcomes and higher lifetime value. We launched LevelUp Savings last year, offering a higher rate to depositors who make a regular habit of savings. To date, we've reached $2.7 billion in LevelUp Savings deposits with almost 80% of those accounts meeting the threshold to earn the highest rate. It's also driving engagement with these members logging in 30% more often than those with our prior savings product. Now LevelUp Savings was designed specifically for savers who have cash to put to work. And even so, we're finding that over 10% of new accounts are being opened by our borrowers who are coming to us for loans, which is indicative of their desire to engage more deeply with us. Building on the success of LevelUp Savings, we recently launched LevelUp Checking specifically for our borrowers, along with paying 1% interest on qualifying balances, it has 2 key features. First is 1% unlimited cash back on everyday purchases like gas and groceries. Here, we're rewarding our members for using money that they have versus money that they borrow thereby incenting good financial behavior. Second, and this is unique to us. We're offering 2% cash back for on-time personal loan payments from a LevelUp Checking account. We're rewarding borrowers for their financial discipline while allowing us to benefit from a stickier relationship. While it's still early, the initial results are encouraging, we're now opening 6x more checking accounts per day than prior to launch with nearly 60% of these accounts being opened by borrowers. Next up on our product road map is an enhanced version of DebtIQ, which will move beyond credit monitoring to include card- linking, in-app payments and automated payment strategies. DebtIQ will give our members transparency and control over their debt in an easy-to-use command center. We're currently in beta testing in a limited fashion as we work towards a broader rollout later this fall. In closing, this quarter marks an inflection point in both our strategic and our financial trajectory, where the work we've been doing over the past several years is translating into tangible results for both our members and our shareholders. I'm energized by the momentum we have going into the back half of the year and the many opportunities in front of us. I want to close by thanking the LendingClub team for their continued outstanding work and focus. And with that, I'll hand it over to you, Drew.

Thanks, Scott. This quarter marks my 3-year anniversary at LendingClub, and this has been the most exceptional quarter yet. Let's walk through the details of our results. We originated $2.4 billion in loans in the quarter, which was a 32% increase year-over-year. The increase in originations was driven by the successful execution of our paid marketing initiatives and new product enhancements. If you turn to Page 12 of our earnings presentation, you can see the originations broken down across the 4 funding channels. We increased the dollars retained in both our held for investment and extended seasoning portfolios. Given the demand for seasoned loans, we expect to direct more volume into the extended seasoning portfolio as we move through the second half of the year. As shown on Page 13, total revenue for the quarter was $248 million, up 33% from the same quarter of the prior year. As a reminder, our business has 2 primary revenue streams. First, we have the capital-light Marketplace business that generates fee-based revenue through loan sales to funding partners. The Marketplace business is highly scalable, capital-efficient and allows us to serve more borrowers across the credit spectrum while generating in-period revenue. The Marketplace business represents the vast majority of our noninterest income. Second, we have net interest income from loans held on the balance sheet. These loans generate a strong recurring revenue stream funded by customer deposits and our own capital. We generate approximately 3x the earnings over the life of the loans for those held to maturity compared to selling through the marketplace. Since the bank acquisition in 2021, we have quadrupled the size of the balance sheet, which is now almost $11 billion in total assets. Taken together, these 2 revenue streams complement each other. The highly scalable nature of the marketplace enables rapid growth during periods of strong demand in the capital markets, and the bank balance sheet provides a durable recurring revenue stream to sustain the business through all economic cycles. Now let's dig into these 2 components of revenue. First, noninterest income was $94 million in the quarter, up 60% over the same quarter of the prior year. This increase was driven by more originations sold through the marketplace and improved loan sales pricing. Marketplace investors continue to value our best-in-class credit performance and the resulting attractive asset yields. As Scott discussed, our outlook on credit performance continues to improve and the mark on the held-for-sale portfolio improved by approximately $11 million. Looking ahead, we are very pleased with the trajectory of the Marketplace business and look forward to building on the momentum as we move through the balance of the year. Now let's move on to net interest income, which was $154 million in the quarter, up 20% over the same quarter last year. This is another all-time high for us as we continue to grow and optimize our balance sheet. In addition to the strong balance sheet and revenue growth, net interest margin improved again to 6.1%. Margin continues to expand as we are repricing our deposit portfolios in response to previous Fed cuts. To date, our repricing beta on deposits has been nearly 100%. We expect the balance sheet to continue growing and net interest margin to maintain around current levels until the Fed cuts interest rates further. Now please turn to Page 15 of our presentation, which covers noninterest expense. Noninterest expense was $155 million in the quarter, up 17% compared to the prior year. As we foreshadowed last quarter, the largest driver of expense growth was marketing spend, which was up 26% compared to the prior year, enabling a 32% growth in originations. We are harnessing the power of our marketplace bank model to deliver significant operating leverage with revenue growth of 33%, outpacing expense growth by nearly 2:1 over the past year. Taken together, pre-provision net revenue or revenue less expenses was $94 million for the quarter, up 70% from the same quarter last year and above our guidance range of $70 million to $80 million. To summarize the earlier comments, the large improvement over the high end of our range was driven by stronger-than-forecasted originations and an improvement in fair value marks of approximately $11 million related to credit outperformance, which may not repeat in future quarters. Now let's turn to provision on Page 16. In the quarter, we more than doubled retention of held-for-investment loans versus last year. Despite that, provision for credit losses was only up modestly to $40 million compared to $36 million in the same quarter of the prior year. The increase in provision from higher retention was largely offset by better-than-expected credit performance. Across all vintages, stronger credit performance resulted in a provision benefit to our pretax income for the quarter of approximately $9 million. You can see evidence of the credit improvement on Slide 17, as the lifetime loss expectation for the 2024 vintage came down. As a reminder, the 2024 vintage carries higher qualitative reserves compared to the previous vintages, given its longer remaining life. Excluding those qualitative reserves, the 2024 vintage is expected to have lower losses than the previous vintages. It's also worth noting, we did not make any material adjustments to our qualitative reserves in our allowance this quarter. The net charge-off ratio for our held-for-investment loan portfolio improved further to 3% in the quarter, down from 6.2% in the same quarter last year. The net charge-off rate for the quarter is unusually low as it benefited not only from improving credit performance but also from dynamics around the timing of recoveries and the age of the portfolio. We, therefore, expect net charge-off rates to move modestly upward from these low levels as the more recent vintages season. All of these dynamics have already been provisioned for on a discounted basis and are reflected in our allowance. Now let's move to taxes. Taxes in the quarter were $15.8 million or 29% of pretax income. The higher effective tax rate this quarter was due to a change in California tax law, which will lead to a lower statutory rate in the future, but had the impact of reducing our deferred tax assets by $2.3 million. The good news is while we will have some variability in our effective tax rate from quarter-to-quarter, our long-term statutory tax rate expectation is now reduced to 25.5% from 27%. The combination of originations growth, credit outperformance, strong marketplace demand and margin expansion drove an exceptional quarter. Net income came in at $38 million, up 156% compared to the same quarter last year. This translated to a diluted EPS of $0.33 per share and tangible book value per share of $11.53. This quarter represents a step function improvement in our financial performance that we expect to continue. We are executing well and are coming into the second half of the year with significant momentum. For the third quarter, we anticipate growing originations to $2.5 billion to $2.6 billion, up 31% to 36% compared to the same period last year. We are continuing our push in the paid marketing acquisition, and we have seen early success, and we'll look to build further on the growth coming out of the second quarter. We expect PPNR in the range of $90 million to $100 million, up 37% to 53% compared to the same period last year. The growth was driven by higher marketplace volumes, stable loan pricing and growing net interest income. This also factors in expenses arising from investments in our product road map and marketing channel expansion to support continued growth. We are pleased to have already exceeded the $2.3 billion originations target and the 8% ROTCE Q4 exit rate target we set at the beginning of the year. To that point, we are increasing our ROTCE target to a range of 10% to 11.5% for the third quarter, reflecting top line momentum translating to bottom line earnings for our shareholders. In the fourth quarter, we typically have some seasonal headwinds to origination volumes. Despite that, we expect overall results to be similar to our third quarter guidance. With that, we'd like to open it up for Q&A.

[Operator Instructions] The first question comes from Bill Ryan with Seaport Research Partners.

I normally obviously don't say congratulations, but you guys have really held the line on credit the last couple of years, and it's obviously paying dividends right now. First question I have is about competition, it's coming up a little bit more frequently given you've seen very high volumes come out of the private or the personal lenders, a lot of capital being allocated to the sector. There are some new products being introduced, one of your competitors talked about an interest-only product, at least for a few months when they take out the loan. Personally, I've gotten offers from Bread Financial for a personal loan, and more recently, one name, which I have to say, I kind of picked that one a little bit personal. But if you could kind of maybe give us some idea of what you're seeing on the competitive front, any obstacles into the future, any risk that you're seeing out there?

Yes. First, thanks, Bill, for the shout-out on credit. That's something that you don't really get credit for short term. It plays out over the long term. And I think we're seeing that in the results now, both what's coming off the balance sheet, but also the partners that we're bringing on board and the price that we are selling at. On the competitive front, I think, again, you can see in our results, we grew volume 32% year-on-year, 20% quarter-on-quarter, and we actually maintained marketing efficiency, even though we were going back into channels for which we do not have optimized efforts, response models, creative, anything else. So I would say we feel -- that was a long-winded way of saying, we feel very good about our ability to compete. We know how to compete in this space. We have all of the variety of product and experience constructs and, let's call it, funnel conversion mechanisms that we think pull through the customers that we want. And we've got an infrastructure that allows us to make sure we're getting who we want. So we had anticipated, I think we signaled that we were expecting a competitive environment. We have -- this space has always been competitive, and there are always new entrants coming in on a very regular basis. They routinely come in strong and then end up pulling back over time as they see that it's very hard to build a bureau inference model and kind of step into the space and get the returns you were expecting because there's a lot going on under the cover. So I'd say we are not seeing at this point anything that has us concerned about our ability to compete and our ability to maintain the kind of growth that we're demonstrating.

Okay. And just a follow-up question on the marketing efficiency. Obviously, everybody has been building higher marketing costs into their models, came in a bit better than I think what a lot of people had expected this quarter when you measure marketing as a percentage of marketplace originations and even total originations. But could you give us some sense of what -- how we should think about modeling that going forward from current levels?

Yes. I mean it's -- you should expect it still to go up as we've been signaling it, obviously, did go up a bit this quarter. But what else you should expect to go up are originations. So I think our marketing efficiency probably won't be quite at these levels as we go forward and grow volumes. But I think we've had a good initial start to our expansion here and looking forward to doing more of it.

Yes. A little color is we leaned more heavily into reaching current members through some of the new channels and got really strong response there as we ramp up the prospecting efforts. We are maintaining our roughly 50-50 new versus repeat. So about half of our business comes from prior customers. We're maintaining that as we lean into the new channels, but we're seeing strong response from those new channels from our prior customers.

The next question comes from Crispin Love from Piper Sandler.

First, on credit quality, definitely a very strong quarter, improving metrics, a lower provision following the qualitative adjustment last quarter. So can you share your thoughts as you sit today? Are you seeing similar trends versus 3 months ago on the last call, but just a better macro environment compared to that volatility early in the quarter? And then secondly and relatedly, would you expect any impacts from the end of the student loan moratorium?

Yes. So thanks for the question, Crispin. The -- I'd say, one -- at the end of last quarter, we were seeing strong credit performance from consumers there as well in terms of the quantitative measures, and that has just continued to improve as we've gone through Q2. Really, the increase in provision at the end of Q1 was what we call the qualitative provision, which was really just looking forward at the economic signals and Liberation Day and reserving more for that. So it really didn't have anything to do with the core performance we are seeing in the consumer portfolio. Obviously, as we've ended this quarter, it feels like things have settled down quite a bit. We didn't materially change the qualitative reserves. But what we did do is take through the benefits of stronger consumer performance. And then the other question is...

Yes. So on the student loan side, I think we've talked about this before Crispin, we proactively reduced our exposure to the student loan population. I think more than a year in advance of student loan repayments resuming and also put a bunch of programs in place to both monitor it and also be able to service the needs of those customers. We're actually not -- we have seen really no change since the resumption of payments. And I think the next step will be the potential for wage garnishment. But we're -- the percent of our population that is paying our loans, that is obligated to pay student loans, but that isn't paying student loans, you're talking like 1%. And we're not seeing any difference in performance from that population right now at all. So we feel pretty good about that.

Perfect. That definitely makes guidance in the credit side. And then just on the guidance and the ROTCE targets guiding to double- digit ROTCE in the third quarter. And then as you said on the call, you were previously expecting a greater than 8% in 4Q. But I don't believe you have any 4Q targets out there. Would -- as we look forward, would you expect to maintain that double-digit ROTCE target in -- from 4Q and beyond? Or just any -- or are there any other puts and takes as you look out a couple of quarters?

Yes. No, that's our expectation. I sort of softly said it in my remark. So we expect -- when I said the financial momentum to continue, we'd expect to be at similar levels as Q3 in terms of ROTCE in Q4. And we'll obviously give a more official guide as we're entering the fourth quarter.

The next question comes from Vincent Caintic with BTIG.

First question, kind of the philosophy around your guidance. So you've had really good performance over the past couple of quarters, handily beating your guidance for those past couple of quarters. And I guess, to your point, for instance, beating the fourth quarter guidance for volumes already in the second quarter. I'm sort of wondering maybe first, what's changed where you were able to beat that so handily. And then when you think about your third quarter volume -- origination volume guidance, are you assuming say, a worse macro environment? Just trying to kind of understand if there's any conservatism backed into that? And then for your PPNR side of the guidance, guidance is basically flat for PPNR in the third quarter versus second quarter. You've highlighted some things, you had the $11 million fair value marks and provision benefit of $9 million. You also talked about in the press release the marketing expense increase, not sure if you can provide what that number would be in terms of PPRN impact. But also wanted to understand any conservatism baked into that.

Maybe I'll -- Drew, I'll let you take that. But just a comment up front, Vincent. Just a refresher when we came into the year, what we had telegraphed was that we expected to resume, let's call it, more ambitious growth starting in Q2, because that's when seasonality turns in our favor. And that's when we expected our loan sales prices to afford the kind of unit economics that would allow us to invest in those growth channels. And so when we gave Q1 guidance, which was more or less in line with Q4, the reason we gave a Q4 number was basically to just say, "Hey, we expect the trajectory to be up from here, while Q4 to Q1 is more in line. We expect throughout the course of the year to be growing volumes and importantly, profitable growth, expanding bottom line, ROTCE. That's why we put a number out there, the number out there that we did, and then the only other piece was, obviously, while it's been great to see things sort of settle down, there's a lot of very dynamic forecasts in the beginning of the year, both around the rate environment, inflation, unemployment. And so consuming all of those changes, which were fairly dramatic swings quarter-to-quarter, which, as you know, we are -- in our space, we're the only one that sort of absorbs the impact of that in real time. And so we were sort of making sure we could absorb that kind of volatility and the outlook we gave.

Yes. And just to add to that, I think if you put yourself back at the end of Q1 when we were giving the Q2 guide, Liberation Day just happened, I think all of us speaking broadly were unsure -- more unsure what the future was going to look like. It obviously resolved itself midway through the quarter, I'll call it, and that certainly helped results come in on the upper side. But even if you take the one- timers there, we were a little bit ahead of the PPNR guide. So there's probably always going to be some level of one-timers that we're going to need to adjust for, given the nature of the business. But this is the first quarter we've actually given a next quarter ROTCE guide. So obviously, I think we're feeling that the visibility into the next quarter is improving versus where we've been over the past 1.5 years. And so hope to provide more of that visibility in the future. [ And then you also had a... ]

[indiscernible] question on the marketing dollars.

Yes. And I think marketing dollars probably without totally guiding to the number, probably the increase next quarter, similar to slightly higher than the increase you saw this quarter.

Okay. Great. That is super helpful. And thank you for that context. I really appreciate it. And I guess related to the ROTCE comments, so that's super helpful, and it's nice to see that the guide up. And I guess within the context of your CET1 ratio being at 17.5%, I mean it's a pretty high number. And I imagine if you were to normalize that CET1 ratio, your ROTCE guide would be even higher. So I'm just kind of wondering how you're thinking about that 17.5%. And if you were to deploy that capital towards anything like what would you think -- what's your priorities? And what's sort of the time frame around that?

Yes. If you reflect on the time since we've been a bank, we're about a little over 4 years in. We've [Technical Difficulty] the balance sheet over that 4 years. So it's been pretty substantial growth over that time. We're looking to continue a high level of growth with the balance sheet and with the business, and we want the capital to be able to do that. We're very conscious of the dilution that we create for shareholders, and we've been able to not raise common at all over those 4 years. And I think we're very proud of how we've grown tangible book value per share for shareholders, and we're going to look to continue to do that and use the capital we have for that growth versus having to go back out and raise more capital in a dilutive fashion.

Okay. Okay. Maybe sneaking in one more. I guess to that point, when you think about the incremental loan that you're putting on and the returns on that, I guess you do have a slide on that, but that's sort of a high teens or 20% ROTCE for every incremental loan you're putting on?

No, the marginal ROTCEs on our personal loans have been kind of 25% to 30% range for several quarters. And our other businesses perform at similar levels. So we think the marginal returns that we're putting on the balance sheet are very attractive for shareholders.

The following question comes from Kyle Joseph with Stephens.

Congrats on a good quarter. I just want to get your thoughts on kind of the competitive environment and how you envision that influencing your mix of originations, whether HFI or vice versa. Obviously, there's a lot of capital out there and that makes the marketplace loans attractive, but I think one of the big competitive advantages for you guys is your bank and ability to balance sheet those. So just kind of how you're thinking about the world, how you're thinking about the mix in terms of originations going forward?

Yes. I mean, listen, we look to be -- the world we are trying to get to is where our originations are growing at a level that we are growing the balance sheet with pace and we are fulfilling the demand in the marketplace where we're getting in-period economics as well. And we think the combination of those 2 together is going to generate a very attractive return for investors off the base balance sheet, the banking business and the marketplace business is going to be what takes those returns to higher levels from an industry comparison standpoint. So we obviously need to keep growing originations to be able to do both. And I'd say, investor demand is very high right now. And so we're going to look to both feed the balance sheet for growth and feed the investor community that is asking for more loans.

The next question comes from David Scharf with Citizens Capital Markets.

A question on just the demand side of the marketplace in terms of the consumer. Obviously, originations were outstanding, and it sounds like marketing efficiencies as well. I'm wondering, do you have any sense in maybe some historical context as well, do you have any sense whether prime card borrowers are becoming more willing to engage with you or respond to marketing, the more that there are headlines around rate cuts that are muddled? I'm just curious if historically, if those prime borrowers do not feel like there's any daylight towards getting more conviction on rate cuts, then they're definitely more willing to pull the trigger on refinancing?

Yes. I mean -- so I guess hard to connect the direct driver. What I would say most broadly is the need and the TAM is the largest it's ever been. The obstacle to that has generally been awareness, not only awareness of refi as an option, but most importantly, awareness of what their actual credit card bills are. And meaning, right, we've released research that says half of all consumers don't know the APR on their cards and of the half that say they do, half are wrong. And so people really -- and so what we routinely see is when we present an offer of say, 14% when we reach out to the customer who didn't take it and say, why didn't you take it? They say that was too high. And then we'll say, "Well, what do you think your credit card interest rate is?" And they're like, I don't know, 8% or 9% and then you walk them through how to go find it and they find out it's 21% and you can hear their jaw hitting the desk, right? So the real obstacle is letting people -- having people really understand and if any of you on the call haven't done this, go try to find your credit card APR, right now and see how easy that is for you. So the obstacles [ letting -- getting that out there. ] And you've got to see which page on your 14-page statement it's on, hint, it's not at the top or the bottom, it's somewhere in the middle. And so that's, for us -- once we get that first breakthrough with consumers, that's why we see this strong repeat behavior and the fact that we make it much, much easier the second time around and you get a better product construct, you get a better rate. But that's the driver behind DebtIQ, which is the ability for us to show people, you're holding $8,000 on this card, you are paying 21%, this is how much that's going to cost you an interest. If you do this instead, you're going to get a much better deal. So we think overcoming that awareness obstacle is probably the biggest opportunity we've got, and that's the driver behind DebtIQ.

Got it. No, that's helpful, clearly top of funnel is very strong. One quick follow-up on the charge-off rate. I didn't quite catch. I thought you had mentioned 1 or 2 factors that may have kind of artificially depressed it this quarter. I'm not sure if it was the timing of recoveries or the sale of charge-offs. Can you just kind of repeat the factors?

Yes. It really has to do with the timing of the vintages, both the old ones and the new ones. So right now, we're having a higher level of recoveries coming through from the older vintages that had previously had charge-offs come through. So the recovery line this quarter is -- and I think for the past couple of quarters has been higher than we might expect going forward. But on top of that, we've been putting more loans in HFI, which means our HFI portfolio is a bit younger, and the younger your portfolio in total, the lower your charge-off rate is going to be. And as it ages, it will go back up. So it's sort of the natural dynamics of the personal loan portfolio. Something very important to look at as you're kind of comparing charge-off rates across the industry.

Yes. And I think the other piece there, those are the artificial things. Obviously, the organic trend is positive. So those are on top of it. And that's one of the reasons we put those annual vintage disclosures out there, so you can see what have we reserved for and what has happened, right? And so you'll see most notably, our most recent 2024 vintage, you'll see our reserve coming down because of the observed performance.

The next question comes from Reggie Smith with JPMorgan.

I'm curious, I know you mentioned last quarter that you were going to lean into direct mail and online ads. I was curious if you can frame how your mix of applicants have changed? Like what proportion of your incoming applications are coming from these channels now? It sounds like you haven't optimized it fully. But kind of where can that go? And then how should we think about those channels changing your conversion, your quality of borrower, APRs? Any way to kind of frame out or directionally point us in the direction of how that will play out on the income statement and in your approvals?

Yes. So, I guess, starting with the -- it was a significant driver of the quarter-on-quarter growth in addition to just continued product experience, innovation. We are still early innings because we'll be optimizing response models, targeting, creative, pricing, all of that in the channel. And our growth there is deliberate for the reasons you just indicated. We have an understanding of the performance differentials by channel and how to price and underwrite for that. But that data is always evolving. So we're deliberate as we book. In terms of the impact to the P&L, I mean, I guess, the way to think about it is we run on average, 50-50 new versus repeat as we ramp up new, we'll tend to ramp up repeat. I think we had a slightly higher percentage of new this quarter, right, given some of the new channels we were picking up. But the bigger -- a driver on the P&L is the relative efficiency of the new channels, which will be less as we get started and then we'll converge as we get better at them. And then the other piece will be how much of it we hold, of course, which allows us to change how we recognize the acquisition cost. So that will be the other driver of the -- on the efficiency side, not the total dollars.

Got it. That makes sense. And then what can you share about demand, interest appetite from whole loan buyers and might -- it sound like possibly the shift to this new channel may make whole loan buyers more interested in buying loans? Am I thinking about that correctly? Or how can you frame that potential there?

I mean I'd say the demand for the asset is pretty strong, right? We've had several years of really strong performance and really outperformance as we come into this year and that's what you're seeing reflected in some of the announcements we made. And as Drew talked about, I mean, what we're balancing is delivering the in-period returns, which we get to book and recognize that right away versus what do we got a 10-point swing or so versus when we put it on the balance sheet, the other way, right? So we're balancing the higher lifetime earnings of holding the loan and the more resilient income of holding the loan against the -- hey, let's make, hay while the sun is shining or whatever that...

I think you got it right.

Okay. And tap the market. So we're balancing that and would like to continue to grow both because what we're aware of is the balance sheet, as we've seen over the last few years, our ability to stay profitable through times when the capital markets were a bit more volatile is a key differentiator.

Congratulations on the quarter, guys.

The following comes from Tim Switzer with KBW.

I wanted to follow up on some of your guys' comments about the new deposit programs you guys have put in place, the new deposit accounts. So what's the kind of like incremental funding improvement that gives you 100 basis point kind of basis there. And then as the Fed begins to cut rates, does that spread widen?

So in terms of that, one, the -- making sure the strategic driver of this product is actually less funding than it is engagement with the borrowers. We know we're already very good at once someone has -- they come to LendingClub because we offer a compelling savings opportunity, and they stay because we make it so easy to do business with us, and it gets easier over time. We're already pretty good at that. What we believe and industry data would support is having the checking relationship is just going to increase that reengagement with us, increase that lifetime value, because instead of getting a loan, paying it off and then a few years later, having a baby or moving or whatever, getting married and needing a loan again, you're kind of interacting with us the whole time. And we can see what's happening in your financial life and with LevelUp Checking and DebtIQ, we can actually see what's happening both on your income as well as on your debt and provide that opportunity for you. So the driver is really what we think will be higher lifetime value, higher cross-sell of additional products, less on funding. That said, the blended cost of this product will be fairly materially below, right, what we're paying on the high-yield savings accounts, even though the rewards compared to the rest of the market are pretty compelling. There will be a higher cost for active PL borrowers who are getting the cash back reward on their PL account. But I think roughly 1/3 of the borrowers who signed up for the account are prior LendingClub borrowers. So they don't even have an active loan. It's a bit of an indication of how much they like the brand and the experience that they're signing up just to have the banking experience with us.

Yes. Tim, to sort of summarize the financial aspects of it. I don't -- we don't see it in the near term at least being a major driver of lowering interest expense or funding costs on the balance sheet. But it has all the other benefits, Scott was talking about in longer term, there is probably potential there.

Okay. That's helpful. And as for your guidance for a more flat NIM, assuming no rate cuts, what kind of benefit do you think we would see if we do get 1 or 2 rate cuts in the back half of the year. And with these new products you're bringing in, like is 100% beta sustainable for a few more quarters? Just curious your thoughts on that.

Well, if the Fed doesn't move, then 100% beta is...

Really easy. We got that.

We're already there, right? I think the incremental moves that the Fed may do, we still have a growth posture for our deposit franchise. And so we're going to be thoughtful in terms of lowering rates and making sure we're getting the deposit growth that we need to get to grow the balance sheet. So that may mean that the next 25 bps, we're not going down 25 basis points. But we're going to manage it more -- it should move down with the Fed, but probably not 100% beta.

And keep in mind, the other benefit we will get will be depending on the reason the Fed moves down and how that changes the outlook, but if we see movements in the 2-year curve, which is an important metric for loan buyers, we should get that in -- through in sales price improvements.

I'd now like to turn it back to the LendingClub team to answer a few questions submitted by retail investors.

Thanks, Tamia. So Scott and Drew, we do have a couple of questions here that were submitted by some of our retail investors. The first question, given all the innovation over the last couple of years in some of your acquisitions, you've talked about a rebrand in the past. Any updates for us there?

Yes. So we agree that as we put more products into the market like DebtIQ and LevelUp Checking, a name that gives us broader permission than LendingClub since lending is in the name would be very helpful. And we are actually doing that work this year. We've brought in agency on board or doing the research and the development of that this year. And in terms of timing, that will be -- it will likely be next year coinciding with our opening up of LevelUp Checking. Right now, LevelUp Checking is only available to our existing members. DebtIQ is only going to be available to our existing members while we stand it up and optimize the experience. As we enter next year, that will be -- those will be open market products. And we think having a new brand umbrella over the top could be very beneficial over the medium term to take advantage of that. So stay tuned.

Thank you. You answered the second question, which is an update on the mobile-first multi-platform offering, but any additional insights there?

Yes. So we've talked about the fact that for an institution our size, what's very unique is we completely control our mobile stack. We are now -- this is not a white label service where we file tickets to make changes. We can completely customize this for our customers and our product set and our use case, and what that means is we can create more seamless experiences. So we're live on that platform. It's what Checking was introduced on, it's what LevelUp Savings was introduced on, and what we haven't talked about, but those of you on the call who are using the products would experience, if your CD expires at a traditional bank and you would like to roll that over into a savings account, what that requires at a traditional institution is paperwork, opening a new account, sometimes mailing something in. At LendingClub, that's a few clicks. So we're -- that multiproduct experience is already on the, let's call it, the deposit side already very much in play, and we're benefiting from that in terms of our balance retention rates, CD rollover rates and all of that. With LevelUp Checking, you're starting to see us cross that divide where there's interplay between checking and lending. And so you're going to get an extra reward if you have a loan with us, right? And what that will enable is you'll be able to deposit your loan in your LendingClub checking account, get instant access to your funds. And so -- yes, so it's live, it's working, and we're just now starting to click the products in place, and our first goal was to make the core products that drive our business work, that's happening now. And the next goal is to add this engagement layer on it that keeps people coming back. And then the third step will be to introduce new products into that ecosystem and make them work seamlessly with the products I just talked about.

All right. Perfect. That's all the questions we had. So thank you. With that, we'll wrap up our second quarter earnings conference call. Thanks for joining us today. And if you have any questions, please e-mail us at [email protected].