LendingClub Corporation (NYSE:LC) Q2 2023 Earnings Call Transcript

Reggie Smith: Got it. And I guess it’s — you kind of alluded to it in your presentation, but even with that, I guess, your pre-provision profit estimate for the quarter — next quarter, you still expect to remain GAAP — at least GAAP neutral from an earnings perspective?

Drew LaBenne: Yes. We’re targeting being profitable on a GAAP basis for Q3.

Reggie Smith: Perfect. Thank you.

Operator: Our next question comes from Alexander Villalobos with Jefferies. Please proceed.

Alexander Villalobos: Thanks, guys, for taking my question. Just wanted to get a little more sense on the credit side. Saw net charge offs at 4.4%. Just give us kind of like prospects for the next few quarters? And also the ALLL was at 6.4%. Like, are you guys thinking it might tick up a little bit and then stick around that range? Or — just to get a sense of how we should think about that. Thank you.

Drew LaBenne: Yes. So, just let me start off again by just reminding everyone how CECL works. So with CECL, for us, we are reserving for the discounted lifetime losses day one. So what — so as we’re seeing the charge off rate go up, we’ve already anticipated that in terms of the reserve in the ACL that we’ve taken on balance sheets or provision up to that point. So — and then the way that the personal loan product works as it closed an amortizing product is, over the life of each vintage, as principles going down, we will see the charge off rate go up. So part of the phenomenon that is — or part of what we’re seeing right now with charge offs increasing, it’s just the average age of the portfolio increasing as, one, as the ’21 and ’22 vintages are obviously aging, but on top of that, as we’re slowing down originations in the ’23 vintage, the average age of that portfolio is going to get even older in subsequent quarters.

So, would expect that charge off rate to keep going up, but we factor that into our provisioning in our ACL.

Alexander Villalobos: Perfect. Again, normalization, everyone’s going through that. I totally understand. And then I saw you guys did really well on the OpEx side, controlling expenses. Just also wanted to get a sense if we should kind of think about the same level of OpEx for the next few quarters? Just to get a sense on the expense side as well. Thanks.

Drew LaBenne: Yes, sure. Probably the main expense that you could expect to move next quarter is marketing, just because that’s a variable expense tied to originations. It does depend how much we put on balance sheet versus sell, but there should be a little bit of a benefit there. And then, other operating expenses, there might be a little bit of benefit, but we’ve now realized most of the run rate benefit from the actions we took at the beginning of Q1.

Alexander Villalobos: Okay. Awesome. Thanks, guys, and congrats on the quarter.

Scott Sanborn: Thanks, Alex.

Operator: Our next question comes from Giuliano Bologna with Compass Point. Please proceed.

Giuliano Bologna: I’d be curious, going back to the structured notes, so if I can. In the near term, it’s probably somewhat dilutive because you’re getting a lower yield on those. And, obviously, as you can kind of lever them up, that will have a benefit. But I’m curious if you have a sense of how much of the balance sheet you’d like to pivot into those structured certificates over time and how fast that could happen.