LendingClub Q1 2025 Earnings Report

LendingClub EPS Results

• Actual EPS: $0.10
• Consensus EPS: $0.10
• Beat/Miss: Met Expectations
• One Year Ago EPS: $0.11

LendingClub Revenue Results

• Actual Revenue: $217.71 million
• Expected Revenue: $213.71 million
• Beat/Miss: Beat by +$4.00 million
• YoY Revenue Growth: +21,670.00%

LendingClub Announcement Details

• Quarter: Q1 2025
• Date: 4/29/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, April 29, 2025
• Conference Call Time: 5:00PM ET

LendingClub (NYSE:LC) (NYSE: LC) is a financial technology company and bank that operates a digital lending marketplace. Through its online platform, the company connects consumers seeking credit with sources of funding and provides technology designed to simplify the borrowing and financial management process.

The company offers personal loans for purposes such as debt consolidation, home improvement and major purchases. LendingClub also provides auto refinancing and deposit products, including savings and checking accounts, through its bank. Its services are delivered primarily through digital channels, with an emphasis on online applications, automated underwriting and data-driven credit decisions.

Founded in 2006 as a peer-to-peer lending platform, LendingClub became a bank holding company after acquiring Radius Bancorp in 2020. The acquisition enabled the company to operate LendingClub Bank, a federally chartered national bank, and expanded its ability to fund loans with customer deposits. LendingClub primarily serves consumers and businesses in the United States. Scott Sanborn has served as the company's chief executive officer since 2016.

LendingClub Q1 2025 Earnings Call Transcript

Key Takeaways

• LendingClub delivered a strong first quarter with $2 billion in loan originations (up 21% year-over-year), total net revenue of $218 million (+20%), and pre-provision net revenue of $74 million (+52%).
• Credit performance continued to outpace peers, with delinquency and charge-off rates significantly improving year-over-year under a disciplined underwriting approach and a tighter credit box.
• Provision for credit losses rose to $58 million (from $32 million a year ago) due to higher day-one CECL reserves and a qualitative allowance for a potential 5.3% unemployment scenario, which reduced reported net income.
• The company secured an investment-grade Fitch rating on its first rated structured certificate deal ($100 million), which should support higher loan sales pricing and unlock access to insurance-sector capital.
• LendingClub is making strategic investments—including acquiring Cushion’s AI-powered spending intelligence IP and purchasing a new San Francisco headquarters at a discount—to enhance its mobile experience and achieve long-term cost savings.

Presentation

[Operator]

Good afternoon. Thank you for attending today's LendingClub First Quarter 2025 earnings conference call. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you'd like to queue for a question on today's call, you can do so by dialing star one on your telephone keypad. I'll now hand the call over to Artem Nalivayko, Head of Investor Relations, to begin. You may proceed.

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

Thank you and good afternoon. Welcome to LendingClub's First Quarter 2025 earnings conference call. Joining me today to talk about our results are Scott Sanborn, CEO, and Drew LaBenne, CFO. You can find the presentation accompanying our earnings release 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 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.

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

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 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. I would like to turn the call over to Scott.

[Scott Sanborn, CEO at LendingClub]

Thank you, Artem. Welcome, everyone. We delivered a strong start to the year. We generated $2 billion in loan volume, a 21% increase over last year, reflecting continued demand from borrowers and loan buyers, and positive initial results from our marketing channel expansion. We've now crossed $100 billion in lifetime loan originations, with over 40% of that realized in the past five years. Total net revenue grew 20% to $218 million, and pre-provision net revenue grew 52% year over year to $74 million. This financial outperformance came from both parts of our business. In our marketplace, we further improved loan sales pricing thanks to our consistent and continued credit outperformance, unique structures, and ongoing purchases by banks.

[Scott Sanborn, CEO at LendingClub]

In our own bank, we continue to grow our average interest-earning assets and are now benefiting from lower deposit costs thanks to the success of our new Level Up savings product, combined with the more favorable rate environment. Beyond the strength of these results, we also secured an investment-grade rating from Fitch for our first rated certificate deal, closing a $100 million transaction with a top insurance company. We acquired the intellectual property and select talent behind Cushion, an AI-powered spending intelligence app that will further enhance our mobile experience and feature set. We took advantage of depressed San Francisco real estate prices and our bank balance sheet to invest in a new headquarters at a fraction of the pre-pandemic cost. This was another strong quarter where we grew, executed well, and made meaningful progress against our vision. Let's get into the details, starting with credit.

[Scott Sanborn, CEO at LendingClub]

We saw outstanding performance in our portfolio, with year-over-year delinquency and charge-off rates significantly improving. We've remained disciplined on underwriting, with a credit box significantly tighter than Pre-COVID and a continued focus on higher-quality borrowers. We are, of course, carefully monitoring the macro environment, and we increased our qualitative provision this quarter to be prepared for a scenario where unemployment rates increase to 5.3%. Our track record on credit through multiple environments, our status as a profitable nationally regulated bank that is the largest holder of our own loans, along with our ability to deliver innovative loan investment structures, all continue to drive investor demand. This has translated to a fifth straight quarter of improved loan sales pricing, which were up over 200 basis points year over year. Our structured certificates program, which has crossed $5 billion since launch, has clear benefits for private credit managers.

[Scott Sanborn, CEO at LendingClub]

These benefits help support higher loan sales pricing while providing LendingClub with a risk-remote security without the need for CECL provisioning. We closed multiple new certificate transactions in April at stable prices, and we maintain a pipeline of additional interest from new buyers. In Q1, we built on the success of the program by obtaining an investment-grade rating from Fitch for our first rated structured certificate deal. The rating supports higher loan sales prices, with LendingClub continuing to earn origination and servicing fees. This first transaction closed with a top insurance company, unlocking access to the industry's more than $8 trillion in assets. Bank purchases in the first quarter remain consistent, and we continue to develop a pipeline of new buyers in search of a return to historic bank participation levels.

[Scott Sanborn, CEO at LendingClub]

As we move through this period of broader economic uncertainty, we are uniquely positioned to leverage our many tools, along with our status as a preferred counterparty, to deliver profitable originations through a combination of marketplace sales and our own balance sheet capacity. I will now turn to how we are growing in this environment. While a personal loan can be used for more than debt consolidation, there is a historically large credit card refinance opportunity that we are especially focused on penetrating. Through a combination of product and experience innovation and marketing, we are making great progress against our strategy with compelling proof points that it is working. We have begun testing our way back into a number of marketing channels to accelerate our growth. Initial results are in line with our expectations, and we plan to continue to optimize and expand over the coming quarters.

[Scott Sanborn, CEO at LendingClub]

New members we acquire have an amazing experience. We save them money, improve their credit score, and simplify their financial life through a seamless process that requires no human intervention 86% of the time. It's no surprise that our MPS score for this experience is an extremely high 81 points and that 83% of our members say they want to do more with us. That's where our mobile app comes into play, where we're not only reducing servicing costs but also increasing interaction and issuance. Our DebtIQ offering, still early in its evolution, is already driving nearly 60% higher logins for those enrolled. What's more, enrolled members are driving a 30% increase in loan issuance. We're currently working on new DebtIQ features to drive wider adoption, deeper engagement, and even more issuance.

[Scott Sanborn, CEO at LendingClub]

That includes incorporating the card tracking and payments technology we acquired with Tally at the end of last year. Next up will be to incorporate the AI-powered spending intelligence functionality we gained through the acquisition of the intellectual property behind Cushion, an app that helps members track bills, payments, and subscriptions. We're also continuing to improve and differentiate our core personal loan offering and functionality. For example, we launched Top Up last year to allow our members to easily refinance their existing LendingClub loan and add an additional balance to it. We've now enhanced the product to allow members to top up their non-LendingClub loans, making it easy to refinance out from the competition. As you can hear, we have multiple tools to drive continued efficient growth.

[Scott Sanborn, CEO at LendingClub]

While we don't have a crystal ball and we acknowledge the uncertainty around the environment, we are confident that LendingClub is fundamentally strong and well-positioned to deliver value to customers, loan investors, and shareholders alike, thanks to a historically large addressable market, a balance sheet at scale generating attractive returns, a strong capital and liquidity position, leading credit performance enabled by our distinct data advantage and technology platform, and a reputation as a partner of choice in our asset class, and an incredibly talented team dedicated to delivering real value to our more than 5 million members. With that, I'll turn it over to you, Drew, for more details on the results and on our outlook.

[Drew LaBenne, CFO at LendingClub]

Thanks, Scott. As Scott mentioned, we were above our guidance on both key measures and credit performed exceptionally well. Importantly, we added reserves on a qualitative basis to account for heightened macroeconomic uncertainty, which manifested at the end of the quarter. Specifically, we increased our provision by $8.5 million and decreased the fair value of our extended seasoning portfolio by $2.6 million, both pre-tax. Without these adjustments, the net result would have been nearly $20 million of net income instead of the $11.7 million that we reported. We believe it prudent to increase reserves in the face of macroeconomic uncertainty. Having said that, the underlying momentum of the business is strong and expected to continue in the second quarter. With that additional context, let's go into the detailed results. We originated nearly $2 billion in the quarter, which was a 21% increase year over year.

[Drew LaBenne, CFO at LendingClub]

Originations were driven by the successful execution of our paid marketing initiatives, new product enhancements, and strong demand for our loans. If you turn to page 12 of our earnings presentation, you can see the originations breakdown across the four funding programs. Improving marketplace economics continued to enable us to reinvest and retain more of our high-yielding held-for-investment loans. We also increased retention in our extended seasoning portfolio, given the success of that program to date, and expect to direct more volume into this portfolio as we move through the year. In the second quarter, we expect to retain roughly half of our total originations between the held-for-investment and extended seasoning programs. As shown on page 13, total revenue for the quarter was $218 million, up 20% from the same quarter of the prior year. Now, let's dig into the two components of revenue.

[Drew LaBenne, CFO at LendingClub]

First, non-interest income was $68 million in the quarter, up 17% over the same quarter of the prior year. This increase was driven by better loan sales pricing, which has improved in each of the last five quarters. This improvement was partially offset by higher loan prepayments impacting the servicing asset value and the previously mentioned impact of qualitative factors impacting the net fair value adjustments line. Now, let's move on to net interest income, which was $150 million in the quarter, which is an all-time high and up 22% over the same quarter last year. The increase was primarily driven by continued growth in our balance sheet and further optimization of our funding costs with the introduction of Level Up savings and the removal of our highest-cost legacy deposit relationship in the fourth quarter.

[Drew LaBenne, CFO at LendingClub]

Growing this source of recurring revenue has been a primary focus, and we are pleased with the progress thus far. On slide 14, you can see our net interest margin moved up to 6%. As we indicated last quarter, the main driver of the incremental improvement was reduced deposit funding costs, as well as a lower mix of cash and interest-earning assets. We believe net interest margin will remain around this level until the Fed takes further actions. I want to take a moment to provide additional perspective on how the impact of credit flows through the various parts of the income statement for loans held for investment under CECL and loans held for sale under fair value. In both cases, the average yield in the NIM table excludes credit losses. In the case of held-for-investment loans, these losses are captured in the provision using the CECL methodology.

[Drew LaBenne, CFO at LendingClub]

For held-for-sale loans, the losses come through net fair value adjustments, which reduce non-interest income. For this quarter, loans held for sale at fair value were yielding 12.05%, representing only the coupon on these loans, versus our discount rate of 7.4%, which is the current expected yield of this portfolio net of credit losses. These credit losses and other adjustments appear as a reduction in the net fair value adjustments line within non-interest income. As we grow our extended seasoning portfolio, this will become more impactful to our financials. Now, let's turn to page 15 of our presentation, which covers non-interest expense. Non-interest expense was $144 million in the quarter, up 9% compared to the prior year, almost half of which was driven by our investment in marketing.

[Drew LaBenne, CFO at LendingClub]

Expenses came in approximately $4 million under our expectations due to several items, including slower hiring, higher deferred marketing expense, and other one-time items. For Q2, this trend will catch up, and we expect to see another increase in marketing expense. We have created significant operating leverage, as demonstrated when comparing the 20% revenue growth to the 9% increase in expenses over the past year. Taken together, pre-provision net revenue, or revenue less expenses, was $74 million for the quarter, up 52% from the same quarter last year, and came in above our guidance range of $60 million-$70 million. Now, let's turn to provision on page 16. Provision for credit losses was $58 million during the quarter, compared to $32 million in the same quarter of the prior year.

[Drew LaBenne, CFO at LendingClub]

The increase was primarily due to higher day-one CECL, as we more than doubled retention for held-for-investment loans to $675 million. As I mentioned earlier, the provision was also higher as we increased our economic qualitative allowance for losses. We estimate our allowance corresponds to an assumed 5.3% peak unemployment rate, which gives us additional reserves if the economy enters a down cycle. You can see this impact clearly on slide 17, as the 2024 vintage has the highest lifetime loss estimate solely due to higher levels of qualitative reserves due to the longer remaining life of the vintage. You can also see that the earlier vintages have stable credit performance relative to the estimates we provided last quarter.

[Drew LaBenne, CFO at LendingClub]

For the entire portfolio, credit continues to perform well, as evidenced by the net charge-off ratio for our held-for-investment loan portfolio of 4.8% in the quarter, down from 6.9% in the same quarter last year. For the consumer portion of the portfolio, the net charge-off ratio was 4.7%, down from 8.1% in the same quarter last year. For the quarter, EPS was $0.10 per share, and tangible book value per share was $11.22. Now, let's move on to guidance. We are executing well and are coming into the quarter with a lot of momentum. For the second quarter, we anticipate originations of $2.1 billion-$2.3 billion, up 16%-27% year on year. We are continuing our push in the paid marketing channels as we enter the seasonally favorable second and third quarters.

[Drew LaBenne, CFO at LendingClub]

We expect PPNR in the range of $70-$80 million in the second quarter, up 27%-46% year over year. We are expecting revenue growth from higher volumes and stronger net interest income, with expenses rising from investments in our product roadmap, marketing channel expansion, and our people to support continued growth. Looking ahead to the fourth quarter and excluding any deterioration in macroeconomic conditions, the underlying business momentum also has us on track to achieve our fourth quarter originations and our ROTCE targets. With that, we'd like to open it up for Q&A.

[Operator]

Absolutely.

[Operator]

We will now open the line for questions. If you'd like to queue for a question at this time, please dial star one on your telephone keypad. If for any reason you would like to remove that question, please dial star two. Again, to ask a question, it is star one. The first question is from the line of Will Ryan with Seaport Research Partners. Will, your line is now open.

[William Ryan, Senior Analyst at Seaport Research Partners]

Thank you and good afternoon. I'll start off with a high-level question and then one a little bit more on a micro basis. If you could maybe give us an update, obviously a lot's changed over the course of the quarter and into early April. Could you kind of give us an update on what investor demand looks like and what the pricing in the marketplace looks like today?

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

Yeah. Hey, Will. I'll start. Maybe Drew, feel free to come over the top. I mean, as much noise as there is in the broader environment, which we certainly acknowledge coming into April, I would say we feel good. Currently, our outlook is we're holding tight on pricing. We're staying disciplined on our structure, staying disciplined on credit. As we mentioned in the call, the transactions that we had planned for April went off according to plan and went off at the right price. Our credits are continuing to look very, very good, as you can see in some of the data that we released. We are continuing to have a pipeline of new buyers that we're adding to the list. We've got interest in the rated product that we released, as well as additional banks coming into the pipeline.

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

Certainly, reminder, the securitization markets, we've seen some volatility. We have set ourselves up to not be exposed to that kind of whipsawing with the types of arrangements we have and the structures we've got in place. I certainly think the sentiment, to the extent that it stays durable, will eventually be a reflection of investors' outlook. Right now, I mean, it changes kind of day to day. The way we're set up, we're not feeling that as of this moment. We feel good about our ability to hit that increased origination number and to maintain prices. I'll give the caveat that, yeah, unless some giant headline comes out that really changes everybody's view of the trajectory. So far, so good.

[William Ryan, Senior Analyst at Seaport Research Partners]

Okay. Thanks for that, color. Just second question on the PPNR guide for Q2, it was $70 million-$80 million, a little bit below consensus of $83 million. If I'm kind of reading between the lines of what you said during the call, it sounds like that's stepping up the investment in marketing kind of in preparation of building up your volume. It also sounds like there could be an offset on the provision line as far as EPS goes.

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

Yeah. I think you have it mostly right on the PP&R guide. We're expecting revenue to increase. We're also, on the expense side, going to invest in continuing to grow marketing channels. We'll have some of that higher tech spend that we've been waiting for and people investment come through as well in Q2 that we've been talking about. Those are all factored into the guide. The provision line, I mean, credit right now looks great. I think we're expecting that to continue, at least in the near term, unless the environment really shifts. What we'll be looking at is qualitative factors at the end of Q2, but we made a big adjustment at the end of Q1 to incorporate that. We'll have to see how the end of Q2 plays out on that dimension.

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

The quantitative factors of our provision, meaning our own credit, look really good.

[William Ryan, Senior Analyst at Seaport Research Partners]

Okay. Thanks for taking my questions.

[Operator]

Thank you. The next question is from the line of Giuliano Bologna with Compass Point. Your line is now open.

[Giuliano Bologna, Managing Director at Compass Point]

Yeah. Good afternoon. Congrats on another successful quarter. One thing I'd be curious about digging into and kind of getting your perspective on is, if you look at the guidance for Q2 on origination volume, yeah, it's arguably increasing faster than I had predicted based on where things were last quarter. It's already been kind of pretty close to what you're kind of implying for the Q4 run rate or at least the Q4 threshold in terms of $2.3 million plus. Yeah. I'm curious, when you look at that, I mean, how should we think about the trajectory as you're continuing to ramp up marketing spend? It seems like it's putting you on a very good trajectory relative to the Q4 guidance outlook. I'm curious to say puts and takes and obviously considerations of the macro uncertainty.

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

Yeah. I think that's right, Giuliano. I mean, what we said when we were kicking off the year is we know these channels work, but we haven't been in them. We got to rebuild our full data set. That means for several quarters, they will not be efficient because we are really, by design, casting a broad net to rebuild the response models. We're off to a good start. We know the market's there. We know the need's there. As you indicated, I mean, if you look at our Q1 results, if we hadn't taken that qualitative, we would have been over a 6% ROTCE at $2 billion in originations. The top end of our guide for Q2, we are getting to the bottom end of Q4. We certainly feel good about that trajectory.

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

I think the question is, what does the environment look like when we get to that place? We feel like we're set up pretty well given buyer demand, balance sheet capacity, TAM, early performance of the marketing vehicles, product roadmap. I mean, I could go on. I'd say in a good environment, I would say we feel like we'd really be set up to crush it. In a tougher environment, I think we're still poised to deliver.

[William Ryan, Senior Analyst at Seaport Research Partners]

That's very helpful. Yeah, I was kind of, yeah, when I was kind of running the numbers, I was getting to like 6.25%-6.3%, ROTCE kind of adjusted for those other items this quarter. That's obviously moving much closer to your 8% plus goal for Q4. I'm curious when you think about the marketing spend, is there a rough sense of kind of like how much you kind of pull forward the marketing growth or the spending growth in any given period? Or is it a little bit more, yeah, market-driven in terms of how fast you ramp up that marketing spend?

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

I think if you just look at this quarter, most of the increase in marketing spend happened at the end of the quarter. As Scott said, that marketing spend, that incremental marketing spend is less efficient than where we'll target it being longer term as we're learning and improving the models. The same dynamic will happen again in Q2, which is in our guide that originations will go up, we'll spend more marketing still developing the channels. I think somewhere between Q3 and Q4, we're getting closer to optimized or much more optimized on that spend and that origination volume.

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

I'd note that even if you say it's less efficient, Giuliano, we're obviously looking, taking a longer arc. We're coming off of historically low acquisition costs because we've been optimized to that over the more recent time period. Even these new channels, less efficient, I'd say we still feel good about the overall. The unit economics are still acceptable to us in the current environment. I think we see we're pleased with the initial results and we see upside from here. That's very helpful. I appreciate it. Maybe one question, hopefully not duplicating anything, but I'm curious on the bank side, if you're seeing continued interest from banks and then in terms of growth potential from bank buyers and then how that weighs against the significant demand from a lot of non-bank buyers out there.

[William Ryan, Senior Analyst at Seaport Research Partners]

How do you kind of balance this priority from a growth perspective?

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

Yeah. I mean, the bank buyers who we had in place in Q4 remained in Q1 and we're expecting them to continue buying through the rest of the year unabated. That is, I think, very positive. We had a couple of new bank buyers enter into the pipelines for potential future acquisition. We're still talking to other banks to come in as well. I'd say certainly probably the tariff announcement gave everyone some pause to rethink things, but we think the bank buyers will continue to come in as we go through the year and go forward. I'd say those buyers, as we've said in the past, Giuliano, just repeat what we said in the past. The good thing about those buyers is once they're in, they're pretty solid barring a sale of the institution or a regional banking crisis.

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

Getting them in takes time and it's very hard to predict exactly when. We feel good about the pipeline and the content of the conversations. It's harder for us to predict the timing. I think we've shared the banks that have rejoined the platform, some took significantly longer than expected and some happened a lot faster than expected. It's just a little hard to club it based on their internal processes.

[William Ryan, Senior Analyst at Seaport Research Partners]

That's great. I appreciate it. I will jump back into Q.

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

Great.

[Operator]

Thank you. The next question is from Vincent Caintic with BTIG. Your line is now open.

[Vincent Caintic, Managing Director at BTIG]

Hey, good afternoon. Thanks for taking my questions. First one, actually kind of a follow-up on the guidance on both the PP&R and the origination volume. You have kind of been consistently beating your loan origination volume and your PP&R guidance with the first quarter. It seems like your discussions have been more positive and we are going to kind of roll out some of the marketing spend and incremental growth for the second quarter, which would benefit the rest of the year. Just when I look at the origination guidance, it does seem pretty conservative. I am wondering sort of what you are building in in terms of the conservatism, whether macro or other things. If we were to have the same trends that we have now, say a benign environment, where could those numbers be?

[Vincent Caintic, Managing Director at BTIG]

Kind of wanting to understand what the conservatism that is in your origination guidance. Thank you.

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

Yeah. I guess I wouldn't call our originations guidance for Q2 conservative. Q1, yeah, we beat, but on an overall percentage basis versus the total, I wouldn't call it out of bounds. I think we gave a broader range in Q2 than we gave in Q1, given that some of these vehicles are newer and really knowing what the response rate will be, take rate, offer rate, loan size, all of that is a bit more in question. We gave a bit of a broader range, but I wouldn't call the overall growth rate too conservative. On PP&R, maybe Drew, you can just talk about what drives us to the top of the range versus the bottom of the range in the quarter. Yeah.

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

On PPNR, at least on the revenue side, top end of the range is really going to be driven by hitting the high end of the origination guidance and pricing continuing to come in stable, which we expect to happen. I think some of the factors that could put it to the lower end of the range would be obviously originations come in a bit lower in the range. Also, if there was some reason to take qualitative factors again into consideration at the end of Q2. Not what we're expecting right now, but certainly there's still uncertainty in the environment as we go through Q2.

[Vincent Caintic, Managing Director at BTIG]

Okay. Understood. On the pricing, you spoke about your first rated structured security sale to an insurance company. Could you kind of give a flavor for how much better the pricing is and how much demand there is for that?

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

Yeah. We definitely had a price improvement as we went through, as we did that transaction. I think it was about 30 basis points on the first transaction. There is definitely demand for the product from insurance. We are working on getting another transaction out there right now. I think the capital markets settling down a little bit would also be helpful to completing another one of those transactions. I think as we look to end of this quarter or into Q3, I think we will have some success on getting more of those transactions out the door.

[William Ryan, Senior Analyst at Seaport Research Partners]

I think 30-50 basis points price above the standard slick is probably about right to expect.

[Vincent Caintic, Managing Director at BTIG]

Okay. Great. Sorry, last one for me. Just if you could talk about your capital levels and if you sort of, if you can remind us where you'd like your capital levels to be and your appetite for share repurchases, particularly with the stock trading below your book value. Thank you.

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

Yeah. The capital levels continue to remain strong. We haven't put out target capital levels, but certainly we have room within our existing capital and liquidity to keep growing the balance sheet well above the levels we're at today. We're holding that capital to be able to do that going forward in the future. I think for share repurchase, it's certainly an option that is available to us. We have not obviously done it to this point. We would like to keep the capital for growth, but it will continue to remain in the consideration set.

[Vincent Caintic, Managing Director at BTIG]

Okay. Got it. Helpful. Thank you very much.

[Operator]

Thank you. The next question is from Tim Switzer with KBW. Your line is now open.

[Tim Switzer, VP of Equity Research at KBW]

Hey, good afternoon. Thank you for taking my questions.

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

Hey, Tim.

[Tim Switzer, VP of Equity Research at KBW]

I was looking for just a quick clarification on the increase in the loan reserve. I know a lot of it was qualitative and you guys took up the unemployment rate in your scenario. Is it fair for us to assume, and I think I'll give you your comments, is it fair for us to assume this captures the macro uncertainty that we've seen post-March 31st? Assuming trends don't worsen from today, there shouldn't be another catch-up in the reserve or anything like that.

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

Yeah. It was very end of the quarter when we made this decision based, actually kind of right as the Liberation Day announcements were happening, made the decision that we needed to up the qualitative factors. It does include the, for lack of a better term, I'll call it the uncertainty created by Liberation Day. If all stayed very stable at the end of Q2, we would look to the external forecast that we leverage Moody's like many other banks and we'd look to their scenarios and then we'd make a judgment on do we need to incorporate more uncertainty or do we have it captured already? I think if things remain stable, it's hard for me to 100% say we wouldn't incorporate more, but we would look at the scenarios and if they're stable, maybe not.

[Tim Switzer, VP of Equity Research at KBW]

Okay. Gotcha. Sorry if I missed this earlier in the call, but your servicing fees were a bit lower this quarter. Was that primarily due to the prepayments you guys mentioned or are there other kind of like one-timers in there and should we expect it to get back to kind of that $18 million-$20 million run rate?

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

Yeah. Prepayments were the biggest factor there. You should see some rebound in those levels as we get back into Q2.

[Tim Switzer, VP of Equity Research at KBW]

Okay. Great. The last question I have is your outlook for lower deposit costs. Obviously, pretty good trends in Q1, but I believe partially driven by the exit of that larger customer you guys have. What are the expectations going forward?

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

Yeah. I think that was what you saw from Q4 to Q1 was the big step improvement that we were expecting to see, which drove the NIM up to 6%, which we were very happy with. I think without the Fed making any more moves, we probably won't see as dramatic of a change in our funding costs going forward. Any improvement would be a bit incremental in the near term. We do think net interest margin probably remains around these levels, maybe a little bit better as we go through the next several quarters.

[Tim Switzer, VP of Equity Research at KBW]

Yeah. There's a couple of things happening, right? We exited a higher cost deposit relationship. We also, with the launch of Level Up, had the ability to reprice on our side. We have a pretty good lever that allowed us to both grow balances while also reducing the cost. I agree with Drew that at this point, given that we're planning to continue to grow the balance sheet, further down movement is more likely dependent on the macro environment and what the Fed does. Got it. Very helpful. Thank you, guys.

[Operator]

Thank you. Again, if you'd like to ask a question, please dial star one. The next question is from the line of Crispin Love with Piper Sandler. Your line is now open.

[Crispin Love, Director of Equity Research at Piper Sandler]

Thank you. Good afternoon. Appreciate you taking my questions. First, on loan demand, can you just discuss how loan demand has been from consumers so far in the second quarter amid the recent volatility? Have you noticed any different types of behavior or has it been pretty similar to what you've seen recently?

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

Q2 and sorry, Q1 is generally a slower season. Q4 and Q1 are generally slower seasons. Q2, we typically have a pickup in seasonality. You would have expected, changing nothing, you would expect us to modestly tick up in originations quarter over quarter. The larger tick up is more due to the product and marketing initiatives. I would say, I think when we think about how our consumer and how our product will respond in various economic environments, I'd say the use case is pretty solid and intact regardless. Meaning, in general, people, when you get in front of them and say, "You're doing this, you should do this other thing instead. It takes two minutes. It saves you money. It improves your FICO score." People respond. When they are getting nervous about the outlook, that can actually drive more response because people say, "Hey." Right?

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

Just like we're seeing, if you look at some of the broader external data outside us, you see people pulling back a little bit from discretionary spend. You see people, savings rates starting to tick up. I'd say we're certainly seeing some, as I mentioned, stronger response to some of these new outreaches than what we thought for an out-of-the-gate attempt. I'd say on balance, the signs are pretty positive there.

[Crispin Love, Director of Equity Research at Piper Sandler]

Great. I think that's all really helpful. Last question for me. You called out the structured certificate transaction with a major insurance company. Can you discuss the insurance opportunity broadly as being a buyer of loans over time, what that could look like over the intermediate or long term, and how big you think that opportunity could be over the next few quarters or even years?

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

I mean, I think the opportunity is massive in the insurance market. If you think about a lot of the transactions that we're doing today with Asset Managers Private Credit, a big pool of the money that they're managing is insurance money. While we continue to plan to work with those partners, there's also an opportunity to go direct to insurance with this product as well. Having the rated product, different insurance companies are looking for different ways to put capital to use. Generally, they need that rating. They need that rated product to get the most efficient capital treatment for a substantial part of the funds that they're looking to invest. Having this product unlocks that market for us, which is great potential.

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

I'd say the one thing that we need to consider when we're doing these transactions is with the unrated structured certificate, we have really enjoyed taking that senior security on balance sheet. It's due to the risk weighting, the yield, and how it enhances our balance sheet. If we sell the rated product, we are not getting that senior security. There is going to be a balance between those two structures, whole loans, and all the other methods that we have to sell loans into the marketplace.

[Crispin Love, Director of Equity Research at Piper Sandler]

Yeah. I think another way to think about it is we can sell whole loans to banks because that's the form they prefer it in, and we're typically getting the best price. We can sell certificates to the private credit guys where we keep the senior note. That's a price below that. The insurance sales price, the rated deal is in between the two, but you are selling the whole loan and not taking the certificate. You are getting a better price, but you're not holding the A note. It's basically another tool to have in the toolkit. I'd say if we see more success with banks, we may do on balance slightly less of this. If we see less success with banks, we might do slightly more of it.

[Crispin Love, Director of Equity Research at Piper Sandler]

Great. Thank you. I appreciate the details, color there.

[Operator]

Thank you. There are no further questions in queue. As a final reminder, it is star one if you'd like to ask a question. There are no further questions. I'd now like to turn it back to the LendingClub team for some questions submitted via email.

[William Ryan, Senior Analyst at Seaport Research Partners]

All right. Thanks, Joel. Scott and Drew, we do have a couple of questions here that were submitted by one of our retail investors. The question is, in the decision to buy a building, how did you think about using that capital versus using it for something else like a share buyback, for example?

[Artem Nalivayko, VP and Head of Investor Relations at LendingClub]

Yeah. Sure. I'll take that one. For us, this decision to buy a building in San Francisco made all the sense in the world. The amount of capital we used or we would use to renew our current lease is about the same as the amount of capital we would use to buy the building on the balance sheet. You can think about that as about less than $10 million of leverage capital on the balance sheet to purchase the building for $74.5 million. A pretty efficient use of capital. Even under conservative assumptions, the impact on net income of us to own versus lease is about the same. We have upside in terms of rental income and appreciation on the asset over time. For us, we think it makes a lot of financial sense, and we're very excited to be owners.

[William Ryan, Senior Analyst at Seaport Research Partners]

All right. Great. Thank you. I think we've covered all other questions. With that, we'll wrap up our first quarter earnings conference call. Thanks for joining us today. If you have any questions, please email us at ir@lendingclub.com. Thank you.

[Scott Sanborn, CEO at LendingClub]

That concludes today's conference call. Thank you for your participation. You may now disconnect your lines.

Participants

Executives

• Artem Nalivayko, VP and Head of Investor Relations
• Scott Sanborn, CEO
• Drew LaBenne, CFO

Analysts

• William Ryan, Senior Analyst at Seaport Research Partners
• Giuliano Bologna, Managing Director at Compass Point
• Vincent Caintic, Managing Director at BTIG
• Tim Switzer, VP of Equity Research at KBW
• Crispin Love, Director of Equity Research at Piper Sandler