Good afternoon, everyone. Thank you for attending today’s LendingClub’s First Quarter 2023 Earnings Call. My name is Sierra and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.

[Operator Instructions] I would now like to pass the conference over to our host Artem Nalivayko, Vice President of Finance at LendingClub. Please proceed..

Thank you, and good afternoon. Welcome to LendingClub’s first quarter earnings conference call. Joining me today to talk about our results and recent events are Scott Sanborn, CEO; and Drew 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 that are based on current expectations and forecasts, and involve risks and uncertainties.

These statements include, but are not limited to our competitive advantages and strategy, macroeconomic conditions and outlook, platform volume, future products and services and future business loan and financial performance. Our actual results may differ materially from those contemplated by these forward-looking statements.

Factors that could cause these results to differ materially are described in today’s press release and our most recent Forms 10-K as filed with the SEC, as well as our subsequent filings made with the Securities and Exchange Commission, including our upcoming Form 10-Q.

Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements, as a result of new information or future events. Our remarks also include non-GAAP measures relating to our performance, including tangible book value per common share and pre-provision net revenue.

We believe these non-GAAP measures provide useful supplemental information. You can find more information on our use of non-GAAP measures and a reconciliation to the most directly comparable GAAP measures in the presentation accompanying our earnings release. And now, I’d like to turn the call over to Scott..

All right. Thanks, Artem. Welcome everyone. Despite a turbulent quarter for the banking sector, we delivered against our financial targets and we strengthened our financial position. Our results demonstrate the advantages of our digital bank business model, flexibility of our technology platform and the ability of our team to execute.

Originations came in at $2.3 billion for the quarter, with loans sold through the marketplace in line with our expectations, and retained loans coming in ahead of our plan, as we invested incremental earnings to grow our held-for-investment portfolio by 5%.

I’d note, we have more than tripled the size of the bank since our acquisition two years ago, demonstrating the rapid pace of our evolution.

Pre-provision net revenue, essentially revenue minus operating expenses, came in at $88 million, thanks to both higher revenue and effective expense management, driven by the cost actions which we took last quarter. Given the recent banking turmoil, I want to take a minute to highlight how we stand apart.

We’ve added slide 8 in the presentation to demonstrate. Our liquidity and capital positions remain strong and well above regulatory minimums. We grew deposits by 13% and are now holding $1.6 billion in cash with 86% of our deposits fully FDIC insured. That’s well above the bank industry average of roughly 50%.

We now have over $4 billion in additional borrowing capacity, and we hold minimum loan duration securities with a mark to market impact representing less than 3% of our total equity versus the industry average of approximately 15%.

Furthermore, our held for investment loan portfolio is primarily comprised of short duration personal loans that currently have a fair value in excess of the carrying value.

Turning to credit, our held for investment portfolio continues to perform in line with our expectations, demonstrating our prudent underwriting cycle-tested data advantage and resilient base of high income high FICO members.

We moved early to tighten credit last year, and we are continuing to evolve our underwriting to reflect post-pandemic, post-inflationary signals. We have a massive data advantage gained from more than $85 billion in loans issued over the past 15 years, and combined with a flexible technology platform that allows us to rapidly implement changes.

The result of our early actions and our ongoing management is evident in our delinquencies remaining in line with our expectations and below industry averages. As we highlighted last quarter, we are focused on quality over quantity.

Borrower demand remains strong; and while banks remain active, fintech competitors have pulled back slightly, giving us even more latitude to be discerning about who we approve while also being efficient with our marketing spend. We’re executing well on the factors we can control and the business is performing as anticipated.

But macro factors are, however, putting continued pressure on demand for marketplace loans and the corresponding marketplace revenue line. The rate driven increase in marketplace investors cost of capital has not abated.

We are continuing to raise rates on the portfolio by deliberately testing our way into increased coupons for borrowers without causing adverse selection. In addition to the rate environment, the recent events in banking will have an impact on liquidity, especially for banks, and it’s causing the broader economic outlook to become more bearish.

Neither of these items will be constructive for marketplace demand in the near term. To get in front of this, we are pursuing using our capabilities as a bank to generate returns for LendingClub, support access to loans for borrowers, and enable marketplace loan investors to achieve their targeted returns.

One new example is structured certificates, which is essentially a two-tier private securitization in which LendingClub retains the senior note and sells the residual certificate on a pool of loans at a predetermined price to a predetermined marketplace buyer, effectively providing built-in finance. Both parties in the transaction benefit.

LendingClub earns an attractive yield with remote credit risk, while at the same time earning fee income without upfront CECL provisioning, and marketplace loan buyers earn strong levered returns with low friction financing on a liquid security. We successfully settled our first certificate just last week with an asset manager.

Structured certificates are one example of how our bank capabilities put us in a unique position to benefit our members, our marketplace loan buyers, and our business. While near term pressure on marketplace revenue is expected to persist, the environment will eventually improve, and we plan to be ready when it does.

With credit card balances and interest rates at record highs, our opportunity has never been greater. Over 4.7 million high income credit worthy Americans have already chosen us to help them access credit and find savings.

We’ve spent the past several years investing in new capabilities in data and technology, servicing, customer care much more to strengthen the foundation on which we’ve built our successful lending franchise.

For the banks, we’ve expanded our products set to include award-winning checking and savings products, and these provide new cost effective member acquisition channels and new opportunities for value generation for both our members and for LendingClub.

We continue to build on our success and are currently investing in how to make our products work together in seamless and innovative ways to unlock additional value for our members and our shareholders.

As we witnessed during the pandemic, capital inflows accelerate very quickly when the market sentiment turns positive, and we will be ready to capture the opportunity ahead. So with that, I’ll turn it over to Drew..

Thanks, Scott, and hello, everyone. I’m going to start by diving deeper into our performance during the first quarter. Let’s start with originations. Originations for the quarter were $2.3 billion compared to $2.5 billion in the prior quarter.

As we have been discussing, marketplace demand for our originations was impacted by the current interest rate environment and its implications for cost of capital for our loan buyers.

We continue to raise coupons, and we have now passed along approximately 250 basis points on originations in prime and even more in near prime as we continue to test and monitor the competitive environment for opportunities to further increase pricing, while avoiding negative selection.

In terms of our retained volume during the quarter, we were able to retain $1 billion of consumer loans above the high end of our 30% to 40% target range. Pre-provision net revenue was $88 million for the quarter compared to $83 million in the prior quarter and $98 million in the first quarter of 2022.

The outperformance compared to our guidance was driven by two items. First, the sequential increase in PPNR included $9 million in higher revenue driven primarily by lower pre-payments, increasing the value of the servicing asset and other factors.

The slowdown of prepayments was driven by a lack of rate-based incentive for our customers to refinance out of their existing personal loan. We do not expect these benefits to repeat at this magnitude. Second, we are seeing the benefit of lower operating expenses due to the reduction in force announced in January.

We are also making improvements in marketing efficiency by optimizing for our lower cost channels and deferring additional marketing spend due to higher loan retention levels. Total revenue for the quarter was $246 million compared to $263 million in the prior quarter and $290 million in the same quarter in the prior year.

Let’s dig into the two components of our revenue. First, net interest income grew 8% sequentially and 47% over the prior year to $147 million. Combined with our servicing fee revenue, 70% of total revenue is now recurring, and this has been critical as marketplace volume remains under pressure.

Our net interest margin was 7.5% compared to 7.8% in the prior quarter and 8.3% in the prior year. The change was due to increased cost of deposit funding as well as maintaining higher liquidity levels in the quarter.

The additional liquidity was raised late in the first quarter, so it will create more downward pressure on net interest margin in Q2, but the impact on net interest income will be minimal. Marketplace sold loan volume was $1.3 billion in the quarter compared to $1.8 billion in the prior quarter and $2.4 billion in the same quarter of the prior year.

Marketplace revenue was $96 million in the quarter, compared to $123 million in the prior quarter and $180 million in the same quarter of the prior year.

As Scott mentioned in his remarks, the recent turmoil in the banking sector will not be constructive to demand and we expect heightened cautiousness, especially from our bank partners as the implications on the economy are yet to be fully understood. To that point, we expect reduced bank demand for our loans in the second half of the year.

We are starting to see asset managers become more active in the states, as the yield on our originated loans and their cost of capital have been coming more in line, and we are exploring new opportunities to better serve these investors.

As Scott mentioned, we just completed our first structured loan certificate transaction last week and we expect to complete more during the second quarter. The result of these transactions is that we will drive originations corresponding fee revenue, while generating high-quality securities, which we intend to hold in our investment portfolio.

Participants earn strong levered returns with these subordinated certificates, benefiting from the upfront financing at the time of the purchase. The security from the first trade will yield approximately 7% and have substantial loss coverage of over 2 times the expected losses at origination.

We will start to report these securities in our investment portfolio in the second quarter. The program will start at a modest pace with the opportunity to originate higher volumes through the year. Now, please turn to page 14 of the earnings presentation, where I’ll discuss expenses.

Non-interest expenses were down to $157 million in the quarter, compared to $180 million in the prior quarter and $191 million in the same quarter last year. The decrease was primarily the result of the difficult aforementioned actions we took in January.

These results put us well on our way to achieving the $25 million to $30 million annual cost savings target we had indicated last quarter, and given the difficult environment, we will continue to show discipline on expenses for the remainder of the year. Now, let’s turn to provision.

Provision for credit losses was $71 million for the quarter compared to $62 million in the prior quarter and $53 million in the same quarter a year ago. The sequential increase was primarily the result of the $1 billion of consumer loans retained in the quarter for our held-for-investment portfolio.

As you will see on page 16 of our earnings presentation, credit is performing in line with our expectations, including the expected increase in charge-offs as the portfolio seasons. Our lifetime loss expectations remain unchanged from the prior quarter.

Page 17 shows our expectations around the attractiveness of the marginal returns on the 2023 vintage, which also remained unchanged from the previous earnings call. Taxes for the quarter were $4.1 million, reflecting a more normalized tax rate now that we have fully released our federal deferred tax valuation allowance.

There were some timing differences that resulted in an effective tax rate of 23%, which was lower than anticipated. We continue to expect an effective tax rate of approximately 27% going forward, but it can vary from quarter-to-quarter. Now, let’s move to guidance.

As a reminder, given the broader macroeconomic uncertainty, we have moved to quarterly guidance. For the second quarter, we expect originations between $1.9 billion and $2.1 billion. And we do expect pressure on marketplace pricing as a result of the headwinds previously discussed.

The combination of the volume and price declines will bring PPNR to a range of $60 million to $70 million, excluding any one time items. And we plan to remain profitable for the quarter.

Entering the year, we saw the possibility of a tale of two halves with continued macroeconomic headwinds in the first half and the possibility of a recovery in the back half of the year.

With the recent turmoil in the banking sector, we now believe that a recovery in the marketplace will be further out than that and we expect more price volume pressure on marketplace revenue. Regardless of the market conditions we have a resilient business and we’ll remain focused on profitability versus growth for the remainder of the year.

Finally, we took action to mitigate share count dilution from our equity compensation program by using holding company cash to cover tax withholdings on vesting shares. We plan to maintain this program throughout 2023.

As we look ahead, we see a massive opportunity ahead of us and believe we are better positioned than anyone else in the industry to capture it. We’ll continue to leverage our strong financial standing to maximize value for our borrowers, loan investors and shareholders. Scott, back to you..

Okay. Thanks Drew. A few key points I’d like to make in closing. The environment remains challenging, but we do have an experienced team that has successfully navigated greater challenges than this and we’ve got a business model that gives us a variety of options to navigate through.

Our foundation is strong, got a growing deposit base and ample capital and liquidity to not only manage through the current environment, but also invest in future capabilities. We continue to be a provider of choice for our marketplace investors and we’re developing new tools to keep them engaged. The current headwinds will in time become tailwinds.

With today’s historically high credit card balances and interest rates, the opportunity in front of us is significant. Finally, we believe that remaining clear-eyed and prudent today, while continuing to build for tomorrow, is the best way to create shareholder value and serve our members.

I want to thank our Board, including our two newest members, our management team, and our broader employee base for their continued dedication and commitment to our ambitious future..

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

Good afternoon. Thanks for taking my questions. First one I have is just on the margin, 7.5% in the quarter. And I think, you had indicated it would come down this quarter and then possibly start to rebound a little bit, but obviously with the added liquidity, it’s going to be pressured into the second quarter as well.

But if you take out the liquidity, you look at your personal loan yields, I think they’re flat quarter over quarter, like 13.15%.

What is the rate on new originations coming on the books and essentially would it be accretive to the NIM stripping out the excess liquidity? And following along that, how might these structured certificates impact the net interest margin as well?.

Yes. Great. Hey, Bill. Good to hear from you. Yes. I think you have it right. The NIM came down as expected, but 7.5%, still pretty happy with that. And the added liquidity build we did will put pressure on, but also, we did raise deposit -- deposit prices at the end of this quarter as well, just as added assurance for continuing to grow liquidity.

So, I think if you strip out that excess liquidity, it’s a little difficult to nail it down this early, but there probably still is a little more pressure that we have on NIM adjusting for the liquidity. The structured LC -- LC, as I mentioned, will come on -- the senior security will come on at 7%.

So, that is a bit dilutive to the yield we’re getting on total interest earning assets right now, so that will pull it down. But again, we’re starting that program small, so I think at least in Q2, I wouldn’t expect that to have a dramatic impact..

Okay. And just one follow-up on the provision for loan losses, specifically on the personal loans.

Is there any way you could isolate for us the discount accretion versus, call it the upfront on the retained originations?.

I mean, we don’t break that out, but I’ll say that the majority of the provision in the quarter was from day one, so more than 50%. And then, the other pieces came in as we expected in terms of provision..

Our next question comes from David Chiaverini with Wedbush Securities..

I wanted to follow up on the structured certificates. I was curious, so you mentioned about the 7% yield that you’re getting. You also mentioned about fee income economics related to it.

Can you discuss what those economics look like on the fee income side?.

Yes. So, it’ll ultimately depend on where we end up pricing the entire deal. But, we would be able to take a fee upfront just like we would with any other loan that we originate, but we would discount that fee in revenue based on the price of the total structure as it goes out.

So -- and I would expect as we’re getting this program going, the fee income that we get on the small amounts we’re doing as we’re ramping, will probably be thinner than we’re used to seeing. But over time I think we’ll be able to work that pricing up..

So, effectively as opposed to deferring the fee, the origination fee, we get to recognize it..

We get to recognize. It’s just like we would on a....

Got it. Helpful. And I imagine that this will entice more credit buyers to work with you since you guys will be providing some leverage directly.

To what extent could this lead to incremental originations for LendingClub? And I’m assuming that the small amount that you’re expecting here in the second quarter is already included in the guidance, or could it be incremental to the guidance you’ve provided?.

Yes. We’re -- I’ll start. It’s Drew.

We are starting small, it is included in the outlook, but the point we’re trying to make in the prepared remarks is, given the continued headlines in banking and conversations we’re having with our partners, we’re anticipating -- we’re seeing the asset management capital beginning to green shoots there, right? That’s beginning to reform.

We had -- when this whole rate environment started, we had anticipated they would be the most impacted and the fastest impacted and they were. As that rate environment stabilizes, we get coupons up. We are seeing some green shoots there.

Given what we anticipate to be banks now potentially needing to really focus on their capital and liquidity and most likely be pulling back, we are viewing this as a way to help those asset managers participate in the asset class.

And indeed, the first one we’ve structured is with a long time buyer who was temporarily sidelined and we are able to step in -- and we are obviously really effective a counterparty. We only extend the financing at the moment they need it. We don’t need to do diligence on the asset. We are very comfortable with it.

So, we are seeing this as a way, more likely than -- I think over time as incremental volume growth. But I’d say, near-term, it’s more likely enabling asset managers to pick up some of the volume from what’s currently being dominated by banks..

Yes. And I would just add as well. I think, we -- not that we are marking it, but I think we would see interest in the senior security as well. So, I think over time we could play both sides of this more actively. There is a lot of interest right now, but as we said, we are taking it slow. And I think over time we will expand..

And then the last one for me on credit buyer demand. You mentioned about post SVB and Signature Bank going down that some of the appetite from banks is pulling back.

Can you talk about if the bank appetite is pulling back more than the non-bank appetite, or are they both pulling back equally, can you discuss that?.

Yes. So, I think we always have buyers that are coming in and going to the sidelines.

So, what we are seeing in our conversations right now is that the banks are signaling -- not all banks, some banks are signaling that they’ll probably be pulling back, and that’s going to lead to, we believe, a drop in their participation in the second half of the year. And they were better economics for us than the asset manager.

So, we are seeing some banks that are actually coming in and buying more as well, but net-net, it should be a slowdown in bank originations. On the asset managers, I think there is a lot of interest picking up. I would say, it’s not picking up at the prices we would like to see right now. So over time, I think that will correct itself.

But for, call it, the second half of the year, we think we are going to see continued pressure on price as a mix of buyers shifts..

Very helpful. Thank you..

Our next question comes from Reggie Smith with JP Morgan. Please proceed..

Good evening, guys. Thanks for taking my question. I was hoping you guys could, I guess, provide some qualitative commentary on the trends you are seeing and kind of application volume, maybe your approval rate, and some color around characteristics of your newer borrowers with a FICO score income. And I have a follow-up. Thanks..

Hey Reggie, this is Scott. Great to have you pick up coverage. So the trends -- we covered this slightly. The trends are strong. We added the slide in our presentation materials where you can just see the balance growth and the interest rate that consumers are paying, both of which are the driver of appetite. So that’s strong.

The actual competitive environment we’re seeing is favorable. Banks -- anyone playing at the top of the spectrum, which is primarily banks and credit unions, they’ve remained active.

But the fintech marketplaces and any of the non-bank lenders, even if they’re balance sheet lender have the same cost of capital issues that we talked about with asset managers, we’re seeing them pulling back. So just in general borrowers have less options right now.

So the net-net of that is the kind of take rates, what we call take rates, which is borrowers accepting loans from us, has stayed stable, even as we’ve raised coupons. And that’s important because we’re being very, very careful to make sure that we are getting the borrower through the door that we expect, despite all the change in the environment.

In terms of what we’re booking, we’ve really been moving up credit starting over a year ago, and that has continued.

If you look at our HFI portfolio, what we’re looking at -- of the new stuff we’re putting on, FICO isn’t a driver of our pricing and scoring, but just as a kind of an objective benchmark, something around 730 for the new stuff we’re putting on our balance sheet.

And in general, the part of our business that was near prime, let’s call, that used to be that 600 to 660 range that used to be 15% to 20% of our business. That shrank in Q1. That was 10-ish percent of the business. And so, we’ve reduced. So, we’ve moved up credit in terms of our approval rates.

I would say buyers have also moved up credit given the outlook on the economy. It’s one of the advantages of the fact that we are at a full spectrum and kind of go where the opportunity is. But that’s kind of what we’re seeing overall. So, I’d say the borrower conditions are quite favorable.

The lender loan purchaser, as we mentioned are -- we think are temporarily going to be pressured.

Although, one other thing I’d note, which remiss to put in the prepared remarks is, given some of the drivers of the issues in banks right now, which is long-dated assets going underwater, we believe the other side of this, there’s going to be more interest in a short duration, high-yielding asset like what we’ve produced.

So I think the opportunity on the other side of kind of a more, let’s call it, on -- once the environment stabilizes, going to be good on both sides..

Yes. And if I could sneak two more in.

On the deposit side, obviously great growth this quarter, are there any levers you guys can pull and is there any interest in pulling these levers too, to potentially slow that down just to kind of protect then not let deposits get I guess too out of control or wrote too much? And then my follow-up question on the structured notes, I think you mentioned like a 7% yield.

Is there a way to structure those in a way that the yields to you guys is higher and maybe take on a little more risk, or would that somehow strip CECL requirements or things like that? Like, how did you think about and arrive at 7% versus potentially playing around with a higher mixed banking?.

Yes. Okay. Let me take deposits first. So, one point I want to make is the growth in deposits, we’re still having a positive carry from a net interest income standpoint or call it, roughly neutral. So, we’re not losing revenue in terms of that deposit growth that’s coming in. But as you noted, it is compressing NIM, which I view that as more temporary.

I’m less worried about it. And with cash on hand we can over time migrate that to higher yielding assets than just cash as well. We will slow down growth based on the outlook we provided in the second half of the year, which means our deposit growth will slow down as well, and we’ll manage that through marketing. We’ll manage that through pricing.

We also have still brokered CDs that we’ll roll off over the course of this year. The majority of those brokered CDs were related to the Union Bank purchase that we did in Q4. So, there are some other levers to manage that throughout the year.

On structuring the senior note -- the senior security in the levered certificate -- levered loan certificate, we definitely need to make sure that we are have enough coverage in terms of loss protection that we don’t trigger any CECL requirements. So that is a consideration.

We also work with the buyers to think about what level of subordination they want to have or they want to give us in terms of the structure to get the effective yield that they want to get. So, I think that yield can move around.

It’s always a negotiation with the person who’s buying the residual in terms of how we structure that and what yields in returns that we all get through the deal. So, that’s a long way of saying it will change deal by deal as we negotiate the terms..

Our next question comes from Giuliano Bologna with Compass..

Congratulations on a great quarter. And one thing I’d be curious about is when you think about the newly originated yields, obviously, you shifted at higher end credit quality this quarter, so that kind of impacts things. But you -- in the presentation, you highlight that you should be inflecting.

I’m curious about the outlook that -- around the ‘23 originations worked from last quarter that was implying blended closer to 16% yields for ‘23, retained loans.

Is that still what you’re thinking and how should we think about that inflection from a kind of a reported perspective?.

Yes. I mean, I think, if you -- this is obviously a great quarter for the unsecured consumer loan yield at the portfolio level. It’s the first time in a while we’ve flattened out and we do expect that to start trending upwards. So, we will be mixing in some higher coupon to move that up.

It will be a gradual pace of increase, especially, because I think while we hold -- while we held $1 billion this quarter, we’ll probably hold a bit less next quarter and probably in the second half of the year as well. So that migration will be a little more pace as we go through -- as we go through the remainder of the year. But we’re happy.

We’ve been talking about the decline is ending and increase is starting, we’re finally there. So, I think that’s helpful..

Reminder, it’s not just the pricing, right? Prepayments are also in that number..

Yes. Prepayments, the accretion of the deferred fee in there as well was very stable from Q4 to Q1. So, that can still move around on us in either direction depending on how the world evolves. But for now, that was a stable factor this quarter as well..

That’s very helpful. Then thinking about, you obviously raised some additional liquidity and had impressive deposit growth. I’d be curious how long you think -- when you look at how the outlook for the year -- going into the year -- you weren’t really necessarily calling for much growth in assets.

But I’d be curious, how you feel -- how you’re thinking about holding excess liquidity and how long you’d like to hold that excess liquidity this year or if you’d like to hold it into next year when you get a little bit more growth and kind of grow into that deposit franchising interest?.

Yes. I think just to play out how the first quarter went, we were over earning versus what we expected in the quarter. So, we put a bit more loan growth on the balance sheet, right, which is why we were over the -- high end of the 40% guide.

Obviously, as we got into mid-March and the bank failures happened, we focused very much on making sure we just had excess liquidity, given the uncertainty and also to show the market what a great position we are in. I don’t know that we are done with all the turmoil in the banking industry, I hope we are but we’re not sure.

So we are going to hold on to some liquidity for a period of time. But the thing that is new for us as well is, this is the first time we have pledged our personal loans to the discount window at the Fed. So, we’ve never touched that, but it’s a contingent liquidity option of size -- a massive size, $3.5 billion that we did not have before.

So that in some ways gives us a little more latitude to navigate on liquidity in the future..

That’s great. Congrats on a great quarter, and thanks for answering my questions. And I’ll jump back in the queue. Thank you..

Our next question comes from Tim Switzer with KBW. Please proceed..

Hey. Good afternoon. I’m on for Mike Perito. Thanks for taking my question. I had another kind of follow-up on the discussion you guys had on some of the banks pulling back and possibly some asset managers starting to become a little more interested.

Do you have what originations were in Q2? Because if we look at -- I mean, usually it’s seasonally higher in the second quarter. And so, if we get what originations were -- sorry, in March.

I’m curious, like, did you already see a downturn in March once we started to get some of that banking turmoil?.

No. I mean -- I think our remarks were more -- if you just go back to what was the driver of Q1 origination levels being above our guide was actually us retaining more. The marketplace volume came in, in line with our expectations. Our partners, these are -- we work with them on a longer process.

So if we look at Q2, the guide we’re giving is based on agreements that we kind of already have in place. We are really signaling post that is what our expectation is.

The banks tend to move a little bit more slowly, right? And so they are going through meetings with their asset liability committee and their treasury teams and their Board and it’s more us anticipating where we think this is going, based on what’s happening outside of us right now..

And I think while Q1 is seasonally slower for us, I think the normal seasonality is dwarf by the impact of the fed raising rates than historic rates banking crisis. So I think we are just looking -- I would just suggest for at least for this year, just looking through the seasonality in terms of trends..

Yes. I think that’s right. Again, the borrower demand is not the constraint..

Yes. Correct..

Right. Yes.

And I was thinking if we look at what normal seasonality is, the difference there between what you are expecting is the impact from banks pulling back, right? With some of the asset managers starting to get a little more interested and if the Fed really does hike one more time and stop here, is there any way you can quantify the magnitude of their demand or the volume that -- the marketplace volume we’ll be able to get from that, maybe by the end of the year? And how much of the bank pullback you’ll be able to replace with that?.

Yes. I mean, -- so I’ll give you the kind of experiential view, but then more grounded in what do we think is happening this year. I mean, you can look at our results coming out of COVID.

We added $1 billion to the marketplace in a single quarter, right? So this cap -- when I say capital can reform very, very quickly in this space, you don’t have to look very far in our recent past to see that happen. It is our view right now though that we’re not anticipating that in the near term.

And that’s really because we -- rates has been what’s been driving some of the dislocation over, let’s call it, the past 12 months. I think right now you got rates, you got liquidity, and there’s just an overall more bearish outlook. I think people are more uncertain about where the economy is going.

And there’s just a general kind of risk off in the market that -- you don’t have to look at us, just look at the way ABS transactions are going off. People aren’t able to sell the residuals.

So, it’s our view that until -- rates need to stabilize, that is a condition and ideally come down, but the other is just a little bit more clarity on where are we going in the economy, before we see really big change. But again, when that change happens, it can happen very, very quickly.

And you can see -- if you look at, it’s from a lower base than where we are today, but we put on quarterly growth rates, I think, 50%, 60% quarter-on-quarter for multiple quarters in a row. So, it’s there. And again, when the marketplace recovers, our earnings also recover. So, we can grow the balance sheet.

So we get it’s -- that’s where you get the flywheel effect. Just a question of when we see that kick in..

And the last question I had was -- when you guys disclose this workforce reduction, you estimated it would save about $25 million to $30 million of annual expense. But if we just do a quick look at how much comp costs went down, it was about $15 million, quarter-over-quarter.

So is there maybe -- are these annual savings maybe better than that?.

Yes. So, remember, we had a one timer in Q4 of little over $4 million in severance. So I would -- we suggested you should adjust for that number when thinking about the base that we’re going to save off of. Even with that, we -- in Q1, we outperformed that on an annualized basis.

There will be some costs that creep into comp and bend over the course of a year normal friction costs. I would say though we’re on track to be above the high end of that by a bit. So, and as we look into Q2, I think our expenses as we see it right now, ex marketing will be relatively flat from what we know right now..

There are no questions leading at this time. So now I would like to pass the conference back over to the LendingClub team to answer any questions submitted via email..

Thank you, Sierra. So Scott and Drew, we have a few questions here for you that were submitted by our retail investors. So, here’s the first question. You have a big line item for capitalized software costs for the year.

What is that going towards and are there any new products coming on the horizon?.

So, look, as a branchless bank, as a digital bank, we’re not putting our dollars into bricks, mortars, and the staff to run them. We are putting them into technology. If you look at just over the past couple of years, we acquired a bank that had capabilities, but it was not a bank built to scale to the level we’ve scaled it.

So, launching the high yield savings product with the ability to onboard, I think last quarter alone we brought in 24,000 new high yield savings customers. We’ve grown deposits 80%. That’s an investment.

As I mentioned in the prepared remarks, we’ve put in servicing capabilities, customer contact capabilities, new model development, deployment, and hosting capabilities. And looking forward, we are still working on a mobile app that integrates lending together with spending and savings. So that’s what it’s going towards.

And taking a big step back and just looking at LendingClub versus call it the more digitally enabled peers, I’d say, and we feel like we’re running a pretty tight shop. If you look at metrics around whatever revenue per employee or any of those other line items, I think we’re pretty productive there..

All right, great. Thank you. And here’s the second question.

What value has been created in your mind to the acquisition of the bank two years ago?.

I would say, this was clearly the right decision at the right time for the company. I mean, since we acquired the bank, we’ve tripled the size of the balance sheet. That’s helped us deliver more than $300 million in earnings since we acquired the bank.

As you can see in this quarter’s results, the majority of our income is now coming off of the bank balance sheet. That’s helped us grow tangible book value from little over $8 at the end of 2020 to 20%, 25%, 26%. We’re over 10 and -- almost 10.25 right now. So, we feel the bank has delivered significant value.

And again, the opportunity, when the environment stabilizes, still to come is even more significant..

Thank you. With that, we’re going to wrap up our first quarter earnings conference call. Thank you for joining us, and if you have any questions, please email us at ir@lendingclub.com. Thank you..

That concludes the LendingClub’s first quarter 2023 earnings call. Thank you all for your participation. You may now disconnect your line..