Happen Inc Stock

Good day, and thank you for standing by. Welcome to the Happen Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

Please be advised that today's conference will be recorded. I will now hand the conference over to your first speaker today, Artem Nalivayko, Head of Investor Relations. Please go ahead.

Thank you, and good afternoon. Welcome to Happen Inc.'s Second Quarter 2026 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 e-mail or through the Say Technologies platform.

Our remarks today will include forward-looking statements, including with respect to our competitive advantages, demand for our loans and marketplace products and future business and financial performance. Our actual results may differ materially from those contemplated by these forward-looking statements.

Factors that could cause these results to differ materially are described in today's press release and earnings presentation. 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 and return on tangible common equity. You can find more information on our use of non-GAAP measures and a reconciliation to the most directly comparable GAAP measures in today's earnings release and presentation. Please note all financial comparisons in today's prepared remarks are to the prior year period unless otherwise noted.

Finally, this quarter, we've included a new Meet Happen presentation with our materials. This provides a way for our investors and media to learn who we are, why we're different and the opportunity that lies ahead of us. We will make this presentation available on our website going forward.

And now I'd like to turn the call over to Scott.

All right. Thanks, Artem. Welcome, everyone. We delivered another standout quarter, growing loan originations 29% year-over-year to $3.1 billion, delivering record pretax income of $76 million and increasing return on tangible common equity to nearly 16%. We're growing and growing profitably despite the adverse rate environment. Our core business is firing on all cylinders, and we're making great progress against the strategy and initiatives we shared at Investor Day last fall.

We officially launched the Happen Bank brand to properly reflect the role we play in consumers' financial lives. We're continuing to expand and optimize our marketing channels and improve our product experience, allowing us to deliver efficient growth.

We're maintaining our leading credit performance, which is supporting strong growth in net interest income and marketplace loan sales. We're delivering valuable, high engagement products like our award-winning level of checking and savings accounts that our members love.

We're successfully ramping our entry into the compelling home improvement financing market, and we're finding new ways to deploy AI to accelerate productivity, identify cost savings and enhance the customer experience. We launched the Happen Bank brand to better reflect the business we have become and why we exist to clear the way for people going places.

Our brand is centered around our customer, the motivated middle who are high FICO, high income, digitally savvy consumers actively managing their financial lives. They are active users of credit, who are looking for products that deliver reliable value, are easy to understand and effortless to use, products that clear the way for what's next and help them make it happen.

We deliver on that promise by making it easy for our members to access low-cost credit, saving them an average of 700 basis points in interest compared to their credit cards and by rewarding them for their savings by paying a rate that's more than 10x the national average. That's the kind of value that creates lifetime loyalty.

Feedback on the new brand from members, prospects, partners and employees is enthusiastic because it speaks both to our broad ambitions and to our promise while also forging a distinct identity in the market. We look forward to sustaining this momentum and building deeper brand awareness and affinity among the motivated middles.

Turning now to credit where we continue to outperform our competitive set by over 40%, thanks to our proprietary models informed by 2 decades on unsecured lending, a technology platform that allows for rapid testing and deployment and a seasoned team of experts who understand how to anticipate, interpret and react to changes in this dynamic macro environment. Our focus on underwriting discipline as we grow is a meaningful contributor to our strong financial performance. Sustained credit outperformance has furthered our reputation as a counterparty of choice and has translated to durable loan investor demand.

Marketplace volume grew 20% year-over-year with strong participation across all programs. Existing investors buying in scale, new investors coming on board and average loan sales prices holding firm when adjusted for benchmark rates.

In Q2, we began underwriting and issuing our first home improvement levels. With high mortgage rates and aging housing stock pushing more consumers towards renovation over relocation, this represents another compelling opportunity to leverage our lending expertise to win in a category where consumers are spending over $500 billion annually.

The loans are to homeowners with high FICO scores and high income. Given this customer profile, combined with our leading credit expertise, we expect to generate returns similar to our personal loan portfolio. Market response has been positive and originations are ramping in line with our expectations.

We've launched a second distribution partnership, and we have a strong pipeline of interest from additional partners. While most consumers come to us for seamless access to low-cost credit, they are increasingly adopting our banking products as well. We designed LevelUp Checking specifically for our borrowers, offering 2% cash back for on-time loan payments from their account.

In Q2, we quadrupled the number of accounts we opened year-over-year with borrowers making up over half of all new accounts. What's more, borrowers who have a level of LevelUp Checking account are more engaged, logging in over 5x more often per month than those without a deposit account, giving us more opportunities to deepen the relationship.

Borrowers also represent 20% of new LevelUp Savings accounts opened year-to-date. While initial balances are small, once they have paid off their loan, they are growing their accounts to an average of $16,000 to $18,000. Think about that. They came to us with roughly $20,000 in credit card debt and now have nearly that same amount in savings. You can imagine the kind of affinity these customers have for the bank that help them make that happen.

As we build new solutions for our members, I've been pleased with the progress we're making on using AI to work more efficiently and effectively. We have put the infrastructure, training, controls and governance in place to enable safe model agnostic connectivity to our internal tools and data.

Approximately 90% of our employees are regularly leveraging this infrastructure to accelerate productivity, improve problem solving and find efficiencies. It's fundamentally changing the way our teams accomplish everything from the mundane like drafting e-mails or creating presentations to more complex tasks like building and evaluating financial models, conducting compliance reviews, developing marketing campaigns and dramatically reducing the time it takes to onboard new partners.

In some cases, the results have been profound. In engineering, the team is using AI to both develop code and assess its quality, leading to an acceleration in the velocity of our code releases. Within our call center, we delivered another record quarter of cost efficiency with 10% fewer staff year-on-year despite growing loan volumes by nearly 30%.

Our new AI member service agent, Penny, is successfully resolving 30% more calls than our legacy system leading to faster response times, higher customer satisfaction and reduce costs. AI servicing tools have contributed to a 65% reduction in after-call work and a 10% reduction in average call time, allowing associates more time to spend delivering meaningful experiences and reducing the rate of staffing growth.

And thanks to the use of AI to monitor 100% of our call volume, we have greater visibility into areas of member friction, allowing us to address and eliminate the drivers of calls. We are still in the early innings, and we expect to unlock even greater benefits as both the models and our applications evolve.

In closing, we feel great about the momentum in our business. Our new brand is taking hold. We're executing well and we're continuing to innovate, all of which is translating to compelling financial results. Before I turn it over to Drew, I want to thank the Happen Bank team for successfully launching our new brand while continuing to deliver for our members and shareholders. Our talented team has made it happen yet again, and I'm proud to say that we've been recognized as a USA TODAY Top Workplace for the fourth year in a row.

With that, I'll turn it over to you, Drew.

Thanks, Scott, and good afternoon, everyone. We're very pleased with our execution throughout the first half of 2026 where strong originations growth and pristine credit performance have more than offset the unexpected change in interest rates.

Now let's get into the details. Turning to Page 4 of our earnings presentation. Loan originations grew by 29% to over $3.1 billion, above the high end of our guidance range. Our business lines delivered strong growth supported by the compelling experience and value we deliver for our members. Our industry-leading credit performance remains a key differentiator where we have continued our outperformance across 5 years of quarterly vintages. As a result, we continue to sell loans without credit enhancements or loss protection.

Now let's turn to revenue on Page 5. Net interest income increased 16% to $179 million, another all-time high, supported by a larger portfolio of interest-earning assets and continued funding cost optimization.

Noninterest income was $84 million, up 10% sequentially and down 11% year-over-year. The year-over-year comparison is affected by our switch to fair value in 2026. As a reminder, noninterest income now immediately recognizes the loan origination fees, which were previously deferred under CECL and now have a positive benefit to in-period revenue.

However, the more significant impact with the move to fair value option is the deduction of credit performance through fair value adjustments, which would have previously been captured as provision expense under CECL.

Diving into the results. Origination fees in the quarter were $164 million, up 87% year-over-year, driven by higher volumes and the immediate recognition of origination fees under fair value accounting. Total fair value markdowns were $121 million compared to $89 million in the first quarter due to three factors: first, higher origination volumes in the quarter mean higher fair value markdowns.

Second, continued growth in the average balance of loans carried at fair value. As a reminder, the larger balances require an additional fair value markdowns to achieve a constant revenue yield equal to the discount rate.

Third, benchmark rates moved 35 basis points higher during the quarter, which lowered sales prices and caused larger day 1 fair value adjustments. The higher benchmark rates were partially offset by spreads tightening 10 basis points at the end of the quarter.

The combined impacts increased the discount rate for our held-for-sale portfolio 23 basis points to 7.5%, and our held-for-investment portfolio discount rate increased by 13 basis points to 7.1%. The increase of the held-for-investment discount rate was lower due to the mix of newly retained loans in the portfolio.

In total, revenue grew 6% to $263 million. Another useful way to evaluate performance under the accounting transition is risk-adjusted revenue or revenue less provision for credit losses, which grew 31% year-over-year to $274 million due to the revenue growth we just discussed and the net provision benefit this quarter.

Now turning to net interest margin on Page 7. The net interest margin was 6.1%, flat year-over-year as lower asset yields were offset by lower funding costs. Now let's move on to credit, where performance remains excellent. Provision for credit losses was a benefit of approximately $11 million, reflecting strong observed and projected credit performance on the portfolio under CECL.

We expect this credit performance to continue in the second half and currently are forecasting another provision benefit in Q3, but at lower levels in Q2. Our net charge-off ratio for the total held for investment portfolio improved to 3.2% compared to 3.8% in the prior year, driven by continued strength in credit performance as well as portfolio growth dynamics.

As our portfolio matures, these charge-off ratios will increase to target levels. It is important to note that these charge-offs and delinquency metrics include all held for investment loans on the balance sheet, inclusive of both fair value and CECL portfolios for all reported periods.

We're continuing to improve profitability while investing in critical initiatives to drive future growth. These include developing new marketing channels, further supporting our rebrand efforts in building out our new home improvement vertical.

Turning to Page 8. Total expenses were $198 million, up 28% year-over-year. The majority of the increase was due to higher marketing spend, reflecting our continued investment in paid acquisition channels to drive originations growth. Marketing spend increased approximately $7 million sequentially, consistent with our higher origination volumes.

While marketing as a percentage of originations improved sequentially to 2% due to better performance in our more efficient marketing channels. Compensation and benefits expense was up 10% year-over-year, reflecting head count growth to support new business verticals and continued expansion in our core businesses. We have remained thoughtful about hiring as we continue on our growth trajectory.

As a point of reference, the last time we achieved these origination levels, our employee base was 27% larger than it is today. Putting it all together, our pretax profit margin reached a new high of 28.8%, reflecting a strong pull-through of revenue growth to the bottom line. We're encouraged by the step-up in profitability and our investment in future growth initiatives while growing profit margins.

Pretax income was $76 million, up 40% compared to a year ago and reflects a new high watermark for the company. Diluted earnings per share was $0.50, above the high end of our guidance range and up 52% from the prior year.

Our return on tangible common equity was 15.9% and our tangible book value per share increased to $12.89. Turning to the balance sheet. Total assets grew to $12.5 billion, up 16% year-over-year. We ended the quarter with $10.8 billion in deposits, which was an increase of 18% compared to the prior year, and we continue to see healthy deposit trends across our product offerings.

Our balance sheet remains a competitive strength, allowing us to generate recurring revenue through retained loans while maintaining flexibility to scale marketplace volumes as an additional growth lever. We have also evolved our hedging program over the last few years. The program is meant to protect revenue and earnings across interest rate cycles, while minimizing short-term volatility.

At the end of the quarter, we had $2.1 billion of notional balances using a combination of caps and interest rate swaps. And we expect to continue scaling the program in line with the size and composition of our balance sheet.

We ended the quarter well capitalized with strong liquidity and positioned to fund future growth. I'd also like to provide a brief update on the share repurchase and acquisition program. Since inception and through the second quarter, we have utilized $50 million to purchase approximately 3 million shares and held our diluted share count flat compared to the previous quarter and share count is down since the end of 2025.

Now let's turn to our outlook. We finished the first half of 2026 with significant momentum. We are tracking to the high end of our annual return on tangible common equity guidance that we laid out at Investor Day despite absorbing approximately 75 basis points of rate pressure year-to-date from increasing benchmark rates.

Our outperformance to date gives us confidence to update our full year targets. For the full year, we are increasing the lower end of our originations guidance and the updated range is $12.2 billion to $12.6 billion, and we are raising our diluted earnings per share target range to $1.80 to $1.90.

For the third quarter, we expect to deliver loan originations of $3.2 billion to $3.35 billion, although we have slightly widened the range to account for the brand transition and operational complexity that goes with the change of this magnitude.

On earnings for Q3, we expect to deliver diluted earnings per share of $0.43 to $0.48. We're pleased with our execution, our strategy is working, and we remain encouraged by the underlying fundamentals of the business.

One final call out before we move to Q&A. This will be Artem's last earnings call as our Head of Investor Relations. We can't thank him enough for all the incredible work he has done over the last several years. He is ready for a new challenge and is moving into an internally facing finance role as the CFO of our business lines. Sam Houston will be taking over as our Head of Investor Relations. Sam has been playing a critical leadership role within the finance organization at Happen Bank for more than a decade. We are excited to have him take on this new role.

With that, we'll open it up for Q&A.

[Operator Instructions]

And our first question comes from the line of Bill Ryan of Seaport Research Partners.

First question is on the origination mix. Obviously, you've had some new product launches here in the past couple of quarters. Home improvement, major purchase. And if you could maybe give us some idea what they're contributing to your year-over-year growth in volume and maybe how the personal loan core product is doing?

Bill, it's Scott. So as Drew mentioned on the call, I mean, all of our consumer businesses are growing and contributing to that year-on-year growth, home improvement is really, at this point, so nascent. As we mentioned on the call, we're pleased with the trajectory. It's in line with what we expected.

But given that we just got live with the first partnership, as you can imagine, we don't just sort of open the fire hose out of the gate until we're sure everything is working properly. We're getting the profile we expect and all that and just added a second partner as we exited the quarter and expect to add more.

So there, it's really next year that we'd expect to see the step up in growth as this year, we put all the infrastructure in place and get all the partnerships signed in time for next year's seasonal pickup. And then as I mentioned, all the other consumer businesses are all growing quite nicely.

Okay. And just one follow-up, a little bit more technical. But on the day 1 fair value adjustment, it was 2.1% of originations in Q1. It was about 2.5% in Q2. And I know we're only kind of 3 weeks, 4 weeks into the current quarter, but kind of where things stand today, do the fair value marks going forward on originations look fairly stable? Or do you think it's going to move a little bit from where it is right now?

Bill, it's Drew. Yes, if you look at where benchmarks are quarter-to-date, benchmarks are up another depending on what day you look at, like 15 to 20 basis points. And so that does have some impact on the day 1 marks that come through. We've accounted for that in our guidance using today's rates to set the guidance going forward. So if rates don't move, we'd expect a little pricing pressure and therefore, come through the marks, but we've accounted for that.

And I'd say the other thing -- the other thing I'd just note on price is, we don't give the prices, but if you hold -- if you would account for benchmark change over the course of Q2, adjusting for that, our prices were stable throughout the quarter. So I think the underlying fundamentals of investor demand is very strong. I don't think it is -- I know it is it's very strong. What you're seeing is just the adjustment for the benchmark rates.

Our next question comes from the line of Giuliano Bologna of Compass Point.

Congrats on another impressive and successful quarter. When I look at the asset side of the balance sheet for a second, I'm curious, there's a bit of step down in the HFI yields for the HFI book at fair value. I'm curious if how we should think about kind of the betas of that going forward from here? And just thinking about the trajectory of that or if there's been a change in new loan yields. And then along with that, is there any -- should we expect any changes as you scale major purchase finance and home improvement?

Yes. So thanks for the question, Giuliano. A couple of things on the yield on the HFI fair value portfolio. So one, if you remember last quarter, we had an upward adjustment, which was due to the purchase portfolios and aligning how we did fair value through that. That portfolio, higher yielding, but is continuing to run off. So that means that we are going to see yields come down a little bit more as we go through the next quarters.

And then for the overall asset yield as well, the move from CECL to fair value does mean we're giving up a little bit of yield on top line asset yield as we make that transition as well. So we'll have a little bit of, I guess, downdraft from both of those factors.

As far as home improvement, you can think about home improvement, the economics are very similar to PL. It's higher FICO and higher income in terms of the customer that we're serving there. And so the yields are a little bit lower, but the loss -- expected loss content is also lower.

So that means when you're looking at the NIM table, you'll probably see a little bit lower yield as those come on, but should make up for that in the overall economics when considering the loss rates.

That's very helpful. And then thinking on the hedging side, is there a rough sense of how hedged you want the balance sheet to be from like a coverage perspective? And are you roughly where you want to be from a coverage perspective going forward? Or should we expect that to dial higher over time?

We are roughly where we want to be based on the current balance sheet size. So as we grow the balance sheet, we're going to grow the notional on the hedges -- and as I just said, we use swaps and caps to do that. And we're also considering sort of where the market pricing is at any given time when it's time for us to add notional in terms of which product which type of hedge that we put into place.

And the other thing I'd say is the goal of the hedging program is really to protect ongoing revenue. It's not necessarily there to entirely offset the fair value marks in any given quarter, given that's really timing as far as the fair value mark is going through the balance sheet. But it does provide that additional benefit in any given quarter.

And our next question comes from the line of David Scharf from Citizens Capital Markets.

Maybe just circling back to originations, maybe a follow-up to Bill's question. But a little higher level. You laid out some pretty formidable annual origination growth targets back at the Investor Day for the medium term. And it looks like every quarter since then, you've been exceeding your forecast. And can you provide any additional color on just what you're seeing out there demand-wise?

Is it a case of just conservative guidance that's fine, but I'm wondering if -- is part of it just leaning into the additional marketing channels? Or is there something in terms of a particular consumer cohort that might be ramping up application volumes. Just any color on ultimately what's driving this kind of upside?

Yes, maybe I'll start. So the guide we gave at Investor Day was to maintain 20% to 30% growth in originations sort of over the medium term. So to your point, we're coming in at just at the high end of that so far since that date. The -- a couple of the drivers that Drew mentioned a little bit in his script.

So one was during that high rate inflationary environment, we had pulled back on a lot of marketing channels and spinning those back up, repopulating our models, rebuilding the creative library, getting all the targeting models back a little. We were very certain that the channels work but exact time to effectiveness and at scale was a bit more of a question.

And as you saw in these results, we actually delivered at the high end of the range while also actually improving modestly on marketing efficiency quarter-over-quarter. So that was certainly a real driver. And it's not just marketing. There's -- as you all know, we were constantly iterating on the product experience as well, how we present the offers, what offers we present, how we guide people through the process, how we pull them through with our marketing and our other efforts. And we saw a nice boost in our ability, especially to get our repeat customers back through the process in the second quarter.

What it's not coming from and just emphasizing is any real change in our credit posture. So as strong as the performance has continued to be and stable as it's continued to be, we feel great about that, but we are maintaining real discipline there and are not looking to use that as a lever to drive growth.

Got it. That's helpful. And maybe just as a follow-up, and you may have just partially answered it, but is part of the credit outperformance coming from an increase in the repeat borrower mix? It sounded like you are starting to see more success in attract...

I'd call that you are correct that repeat customers come at a dramatically lower cost and they do perform better. That is a true statement. That said, I'd say the range. On average, we shoot for roughly a 50-50 on a monthly basis of new versus repeat.

And so when I say outperformance, you can think of just a couple of points versus maybe a prior quarter, it's not a massive swing. We're always going to be, I'd call it, in that 47 to 53, one way or the other, depending on what's happening in a given quarter. So it's not a not a major driver, and we -- just to maintain that flywheel, we really target that mix.

Our next question comes from the line of Vincent Caintic from BTIG.

First one, back to the marketplace and investor appetite. So I was just wondering if you could maybe talk about the conversations you're having with investors, particularly given market expectations that Fed rates are going to be climbing. How is demand has -- and has the mix of the loans that they're interested in changed maybe in terms of higher quality or anything like that?

And then relatedly, how should we think about the mix going forward of what stays on the balance sheet held for investment versus what goes in the marketplace?

Yes. Great. Well, I'd say, first of all, investor demand is as healthy as it's been over the last extended period of time. So investors are very interested in the asset class. We are holding up our promise here and delivering the returns that we tell them they're going to deliver. And there is more appetite -- more investor appetite than we're able to fill at this point while also hitting our balance sheet goals.

So very encouraged with the marketplace side. Obviously, as benchmarks are going up, as I mentioned on the call, we adjust price -- sales price for the benchmarks. And that's just how the market works, basically, especially on the private credit and asset manager side and the structured certificates.

There hasn't been -- I don't think there's been a large change in kind of mix that people are looking for, it's across the spectrum from prime to near prime, and all cohorts are performing well. As far as what we put on our balance sheet, we are only selling personal loans through the marketplace. So home improvement is going entirely to our balance sheet. Auto is going entirely to our balance sheet, major purchase finance. And we tend to -- as a bank, we tend to hold higher quality paper on balance sheet versus the full spectrum that we sell through the marketplace.

Okay. Great. That's super helpful. And then wanting to switch gears, focusing on expenses and kind of the marketing you're expecting. So we've saw the nice improvement in terms of the originations on the different products launching home improvement and so forth. What should we sort of expect in the second half of the year? Or is there kind of more going forward as you're making investments in marketing?

Does it kind of seasonally I think in the past like kind of tailing off in the fourth quarter and first quarter? Just if you can give us help on how to think about expenses and investments for the rest of the year and into next year.

Yes, sure. I think there will still be some increase in marketing spend as we go through the year. We -- we'll have a little bit more brand spend in Q3 as well, which all that is factored into the guidance, obviously. And then we have the normal seasonality that you would expect for Q3 -- Q2 and Q3 are strongest from a seasonal perspective, Q4 and Q1 have more headwind due to seasonality.

We also, though, have other initiatives that are launching at the same time, Home improvement is the one, obviously, we've been talking about the most. And so growth there as we go through the back half of the year should help to offset some of the seasonality we would normally experience in other parts of the business.

Our next question from the line of Crispin Love of Piper Sandler.

Just first on credit. Net charge-offs improved again. Credit commentary seems pretty positive, it has been for some time. But can you just talk a little bit about expectations here? Have recent quarters been outperforming your expectations?

And I believe in the past, you've discussed net charge-offs normalizing to 5% or so long term. So just curious in the current outlook, if that's changed at all on what you might expect for normalized levels that you see look out over the long term?

Yes. Well, I'd say, first of all, we're -- we always expect our credit is going to perform well. I think it's even exceeding our expectations and that's evidenced, obviously, by the charge-off rates going down and the provision release that we had in the quarter.

So that was great and that helps, obviously, future performance as well as we go forward. As far as -- we are benefiting from the portfolio growing, which has a denominator effect that helps keep the charge-off rate probably lower than the longer-term targets that would be 4.5% to 5% in the personal loan space.

I think some of where that entire portfolio ends up will depend on our longer-term mix as well. How much does home improvement contribute, how much does auto contribute those have lower charge-off rates than the personal loan business. So there probably will be some mix factor as those businesses get larger as well.

Great. I appreciate that. And then can you just discuss what the guidance implies for 2026 for the net interest margin outlook? And then -- and does the guide imply any rate hikes? Or is it more kind of stable rates for the back half of the year?

Yes. Let me take the rates first. So for the -- I think of the two components of rates that are important to us. One is we call it benchmarks, but it's sort of the -- around the 2-year point of the treasury curve, which is really setting our fair value marks in our loan sale pricing. And then you have the Fed funds rate, which is more influential in the deposit pricing.

So benchmarks to your point, have been moving around pretty rapidly. We think in anticipation that the Fed may hike as we go through the year, we are assuming today's benchmark rates going forward. There's enough volatility in there that we don't know, obviously, where they're going to come.

The Fed fund rate, especially for '26, is less impactful. If we get a hike at the end of the year, that's not going to have a very large impact on our guidance just because of the lag in deposit pricing the fact that we've actually held our rates pretty competitively, I think, gives us some room to maneuver in the back half of the year with whatever the Fed may throw at us within reason.

As far as net interest margin, we will have some -- as I think I was answering in a earlier question, the asset yields will be moving down still as we go through the year, partially because of that transition from CECL to fair value and some of the legacy purchase portfolio is running off as well. So that number will probably move down towards 6% as we go into Q3 and somewhere around there in Q4.

And our next question comes from the line of Kyle Joseph of Stephens.

Just a quick one, Drew. Talking about your '26 guidance, if you can give us a little help just in terms of how you're thinking about the provision and the fair value marks impacting that just as we adjust our models for the new accounting?

Yes. Yes, sure. On the provision, for Q3, I think I said it in the earlier comments there, we are expecting a positive provision or a release again in Q3, not as large as what we just saw in Q2. But I would note there's a fair amount of variance in terms of that estimate even at this point as we're talking about Q3. So I might be a little off on that estimate as we get the actual results.

And in Q4, we would expect to be pretty benign on the provision line as well. And then fair value marks, right now, we're staring at 15 to 20 basis points of benchmark increases thus far for Q3. And so as we get further into the quarter, we'd have a little more certainty. We'll watch the benchmarks in terms of how they're affecting price. But the guidance we've given you right now is assuming those benchmarks are relatively stable for the rest of the year.

And our next question comes from the line of [indiscernible] of Jefferies.

This is Joanna under John Hecht's line. Maybe one more question on the -- how to think about provisions line going forward. How much of the third quarter will be a function of the CECL book shrinking versus credit improving? And with that, does the growth in the new customers' profile change that and how we should think about that in medium term?

Sure. Yes. Well, the easy answer on the last part is we are not originating any more loans under CECL. So the provision line is -- the new originations have zero impact on the provision line going forward. Everything we're dealing with now is really just back book. And so if the CECL portfolio ran off exactly as we expected, and the economic factors went exactly as we expected. You'd have a very small number in the provision line of a build, not a release because of the discounting.

What we're seeing happening right now is obviously credit is outperforming our expectations. And the economic factors are not needed at this point. So both of those things are causing this release.

For Q3, we're already almost a month in, we think those factors will continue through Q3. For Q4, we expect it to be, as I said, pretty benign. So that number, it should be another release in Q3 and probably close to zero in Q4 but subject to change based on how the world evolves.

Got it. And just a follow-up on profile of the new customers that you're acquiring? Is there anything to note when it comes to the customer behavior, credit profile or anything that you would like to note?

No, no. Stable credit box. Obviously, the different programs we mentioned, home improvement coming in with a higher FICO than our average personal loan and higher income, but that's so small. It doesn't really skew the overall portfolio.

Small for now.

Small for now.

Our next question comes from the line of Timothy Switzer of KBW.

I have a follow-up on Giuliano asking about the hedging program. Can you remind us -- do you have a hedging program in place for all the loans that are marked at fair value? And then do you have any on the amortized cost portfolio?

Tim, we don't separate the hedging program into any one particular asset. We look at the duration -- sorry, the duration of the assets -- total assets and liabilities on the balance sheet. And look at our exposure of the net of that, and we hedge that exposure over time. Now what we also have done at the beginning of this year with the move to fair value is we used to have our hedges under hedge accounting treatment, which means you would not mark them to market every quarter. Since it moved to fair value, we have moved our hedges to away from that, including the existing ones so that now they will be marked to fair value every quarter.

And what that does is that provides some offset to the loan marks that are happening through the fair value portfolio. But I'll restate it. The goal is not to perfectly hedge the fair value marks on the assets, it's an added benefit of the hedging program.

Okay. Okay. And then if we look at your origination guide, it looks like some modest growth in Q3, which I think is in line with normal seasonality. But then a further pickup in Q4, at least flat, and that seems a little bit in contrast to the seasonal headwind you typically see. So could you maybe discuss what's driving that?

Well, I'd say, one, for Q3, there's a little bit of the rebrand effect that we're going through right now. And so the Q3 number is giving us some range to navigate what was a very large brand transition for us, a very successful brand transition. And then Q4 is the normalization of that, but also some of the other businesses beginning to kick in more contribution as we go.

Meaning like the home improvement, major purchase finance?

Yes and small business.

Okay. And then if I could get one more, just looking a little bit further out, is there a target at all for balance sheet size or loans outstanding over the next year?

Well, what I would do is point you to Investor Day, right, where we put a target out there for balance sheet size over the medium term. And so we haven't been completely specific on what medium term is. But I think if you look at our balance sheet growth that we've achieved thus far and you extrapolate that compound that out over a few years, you'll get to kind of the target balance sheet that we put out there. So I think the levels you're seeing today in balance sheet growth are probably very similar in the future.

Now I'll turn it over to Artem Nalivayko for additional questions.

All right. Thank you, Marvin. So Scott and Drew, as always, we've got a few questions here that were submitted by our retail investors via Say Technologies and e-mail.

First question, many fintech peers have built brands through things like podcasts, YouTube, social media. Does the new Happen Bank brand plan to invest in a similar organic content strategy? And what role do you expect organic marketing to play in long-term customer acquisitions?

Yes. So one of the key drivers of the rebrand was to really properly reflect all the products we have available, what we stand for, for customers, and it does provide the opportunity for us to move beyond the, let's call it, the direct response, blocking and tackling channels that have been a core driver of the business to date.

So absolutely is the plan for us to move as they say, kind of up funnel into broader awareness driving tactics and preference driving tactics once we get through the block and tackling of the transition, as Drew mentioned, there's a major, major change, thousands of touch points, e-mails, mobile app pages, partner integrations, retiring a brand that's been in market for 20 years.

So we got to get through that, which will be -- really, we expect to get through the majority of that this quarter. And that then opens up the opportunity for us to start experimenting with other channels, which we would hope to do could be as early as the end of this year or beginning of next year, we'll start leaning into that opportunity.

All right. Thanks, Scott. Second question is around capital. So with the company now demonstrating sustained profitability, solid balance sheet, how does the Board and the management team prioritize the deployment of any excess capital? And should shareholders expect any shareholder-friendly initiatives such as a dividend in the future?

Yes. Great. Well, we have a continuous dialogue with our -- with management -- Scott, myself and the rest of the management team and the Board of Directors on the appropriate use of capital and excess capital going forward. And our goal continues to be to invest in growing the balance sheet and putting our -- the originations, which have very high marginal ROEs onto the balance sheet and grow the company.

When we have excess capital available as we determined we did at the end of last year, we initiated a stock acquisition share repurchase program, if you will, of $100 million in November of last year. We've executed $50 million of that. So we are redeploying excess capital back to shareholders.

Thanks, Drew. Last question is around product. So does Happen Bank have plans to introduce any new lending solutions such as buy now pay later, for example, or any other innovative new services in the future?

Yes. So we're very pleased with the velocity of product releases we've had over the last couple of years. If you think we launched LevelUp Savings, LevelUp Checking, DebtIQ, home improvement. And I continue to emphasize, we're not done with the home improvement build. There's multiple products we need to make available in that market as well as capabilities to really, really tap the market and fit the needs of both the contractors and partners as well as the end users. But we're not -- we're clearly not stopping there over time is to lean into all the places we can help provide value, drive down the cost of credit for our customers.

So next on the agenda will be home equity lending. It's just a natural fit because the #1 and #2 uses of home equity loans are home improvement and debt consolidation. And those are two businesses we're already in today. So that will be kind of next up, think about really more next year, we'll be thinking about that.

Right. Perfect. That's all the questions we had. So with that, we'll wrap up our second quarter 2026 earnings conference call. Thank you all for joining us today. And if you have any questions, please reach out to [email protected].

Ladies and gentlemen, thank you for joining us, and welcome to the LendingClub Q1 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Artem Nalivayko, Head of Investor Relations. Please go ahead.

Thank you, and good afternoon. Welcome to LendingClub's First Quarter 2026 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 e-mail or through the Say Technologies platform.

Our remarks today will include forward-looking statements, including with respect to our competitive advantages, demand for our loans and marketplace products for 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 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.

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

All right. Thank you, Artem. Welcome, everyone. We had a great start to 2026, delivering 31% year-on-year growth in originations to $2.7 billion, while achieving record pretax earnings of $67 million and a return on tangible common equity of 14.5%. We're not just growing, we're growing profitably. In addition to the strong financial results, we're also delivering our key strategic priorities, including expanding into the new home improvement vertical, driving AI-enabled operating efficiency and introducing the upcoming rebrand to Happen Bank. Our new brand better reflects what we have become and why we exist to clear the way for people going places.

Happen Bank is centered around our members who we call the motivated middle, millions of high FICO, high income consumers who are digitally savvy, value conscious and focused on making progress. They are active users of credit and are looking for products that deliver reliable value, are easy to understand and are effortless to use, products that clear the way for what's next and help them make it happen. That's exactly what we're designed to do, and it's why we've been successful in attracting and retaining this desirable audience.

Feedback from members, prospects, partners and employees has been enthusiastic because the brand speaks not only to our broad ambitions but also to our promise. Beyond that, it also signals a clear visual and emotional differentiation from tired conventional banking norms. The motivated middle used credit intentionally as a strategic tool to achieve meaningful life goals, and they're just as intentional and disciplined in how they pay it back.

Our focus on this customer supported by our advanced underwriting models and enormous data advantage has allowed us to sustain more than 40% credit outperformance relative to our competition for more than 5 years. That translates to meaningful value for our members and compelling returns for our marketplace investors. These strong returns are supporting growth in our marketplace with new buyers coming on board across all of our sales channels.

Despite the noise in the environment, we remain oversubscribed with an ability to sell more loans than we are generating. And average loan sales prices improved further in the quarter as it has in 8 of the last 9 quarters. Our strong funding and proven ability to underwrite loans through a seamless experience is extensible to other categories where the motivated middle is able to make responsible use of credit.

Through our major purchase finance business, we're increasingly present with them at the point of decision, whether they're getting braces for their kids or trying to start a family with fertility treatments, we provide seamless embedded financing supported by our proprietary underwriting to generate affordable payment options for the member and immediate funding to the provider.

That model has proven successful in driving meaningful growth with strong credit outcomes. In fact, major purchase finance delivered its third consecutive quarter of record issuance. We're now bringing our powerful capabilities to bear in the $0.5 trillion home improvement market, where we believe we have a clear right to win. As of this month, we started underwriting and issuing home improvement loans through our inaugural partnership with Wisetack, an embedded platform that reaches over 40,000 contractors.

The benefits are clear. Homeowners get instant offers in real-time approvals that allow them to make their projects happen, and contractors get timely funding and better close rates, especially on larger projects. Home improvement represents a powerful new opportunity to attract, delight and engage the motivated middle in moments that matter and allows our members to use credit responsibly to add value to their home.

Beyond Wisetack, we're seeing strong interest from additional partners, which gives us confidence in the category's growth over time. As we add new partners, the Mosaic code base we acquired last year will allow us to deliver our proprietary capabilities through rapid onboarding, integration and management of direct relationships with contractors and partners. Our lending business delivers meaningful value to the motivated middle, an average 700 basis point savings on credit card refinancing and average $2,500 lifetime savings on auto refinancing and affordable point-of-sale financing for life's major purchases.

Our deposit offerings deliver similar value. Our award-winning level of checking and savings accounts are designed to align positive financial outcomes for members with positive financial outcomes for LendingClub, a win-win dynamic that's all too uncommon in traditional banking. For example, level up checking rewards borrowers with 2% cash back for on-time loan payments, encouraging good financial behavior and benefiting credit performance.

We've seen a 6x increase in checking account openings over our prior product with 60% of those accounts coming from borrowers. We're also seeing a tenant year-over-year growth in the number of loan payments coming from LendingClub checking account. Our level of savings account rewards ongoing savings behavior with a higher rate. It might surprise you to know that nearly 1 in 4 of these accounts are being opened by borrowers. Furthermore, for borrowers who have paid off their loan, they've built an average savings of about $19,000, which represents tremendous financial progress for members who originally came to us with roughly that same amount in credit card debt.

You can see how our lending and banking products work together in a system aligned by design to deliver more value for both members and our business. Now let me turn to how we're leveraging AI for improvements in both efficiency and customer experience and the tangible benefits we're already seeing.

Over 90% of loan issuance is now fully automated, requiring no human intervention. We have reduced the time needed to submit a debt consolidation application by nearly 60%, we delivered record low production cost per issued personal loan in the first quarter. We have numerous AI initiatives underway across the organization and our pace of AI-enabled change is accelerating and we expect that to result in continuing improvements in both experience and operating efficiency.

In close, our year is off to an outstanding start. We're delivering strong growth and profitability, continuing to outperform on credit, expanding into new markets and preparing to launch a brand that reflects the true scale of our ambition. At the same time, we remain mindful of the broader environment. Our emphasis on disciplined underwriting, responsible growth and focused and efficient execution positions us well to navigate uncertainty while continuing to deliver for our members and shareholders.

Before turning it over to Drew, I want to thank the LendingClub team for making it happen. It's an exciting time to be at the company with a new brand on the way, an incredible new headquarters building in San Francisco and a lot of momentum in the business. Employees are buzzing, and we're seeing that excitement reflected in our results. Okay. Over to you, Drew.

Thanks, Scott, and good afternoon, everyone. 2026 is certainly off to a dynamic start. Let's get into the details of our first quarter. .

Turning to Page 11 of our earnings presentation. Loan originations grew by 31% to $2.7 billion, above the high end of our guidance range. All of our consumer businesses showed strong growth, supported by the compelling experience and value we deliver. Our industry-leading credit performance remains a key differentiator where we have continued our outperformance across 5 years of quarterly vintages. This is a key reason we were able to sell loans without any need to provide credit enhancements or loss protection.

Now let's turn to revenue on Page 12. Net interest income increased 18% to $176 million, another all-time high, supported by a larger portfolio of interest-earning assets and continued funding cost optimization. Turning to noninterest income.

As a reminder, with our move to fair value option for all newly originated held for investment loans, noninterest income now includes the loan origination fees, which were previously deferred under CECL and have a positive benefit to revenue. Conversely, the impact of loan sales prices in credit now reduces noninterest income in the fair value adjustments line.

Impacts from credit previously would have been captured as provision expense under CECL. As we previewed last quarter, total fair value adjustments were approximately double fourth quarter 2025 levels driven by 4 factors. First, more volume receiving a day 1 fair value adjustment as we transition 100% of all newly held for investment originations to fair value option at the start of the year. Second, a greater mix of longer duration major purchase finance loans, which carry a higher discount rate and therefore, a higher day 1 fair value adjustment.

Third, larger date to fair value adjustments, driven by a higher average balance of loans carried under fair value during the quarter. Lastly, the higher benchmark rates observed later in the quarter also increased fair value adjustments which were not expected when we provided our outlook in January. These higher benchmark rates increased the discount rate on our held-for-sale portfolio to 7.3% from 7.1% at year-end.

For the held for investment portfolio, the discount rate was 7%, reflecting the specific product composition of that portfolio. With all this in mind, noninterest income was $76 million, up 12% year-over-year and down sequentially due to the move to fair value option despite marketplace sales prices improving and solid credit performance. The sequential reduction was more than offset by lower provision, which I will cover later.

A useful way to evaluate revenue performance under this accounting transition is risk-adjusted revenue or revenue less provision for credit losses which grew 58% to $252 million due to the revenue growth I just described and the materially lower provision for credit losses under fair value options. For net interest margin on Page 14, I will refer to the sequential changes which provide better context on the quarter. The net interest margin expanded to 6.3%, up 30 basis points over the prior quarter primarily driven by 2 factors: first, lower interest expense contributed approximately 20 basis points, reflecting a 13 basis point benefit from lower deposit costs plus an additional 7 basis points from a lower day count this quarter.

Second, we aligned our interest income recognition on the previously purchased held for investment fair value portfolio to the same methodology as the newly originated loans under fair value. Previously, credit impact was coming through the average yield and will now come through fair value adjustments. This benefit was approximately 14 basis points of net interest margin and explains the sequential yield increase in our loans held for investment at fair value.

With the market now predicting no additional fed rate cuts this year, we expect our net interest margin on a go-forward basis to return to around 6% as we progress through 2026. Now let's move on to credit where performance remains excellent.

As Scott mentioned, we continue to outperform the industry with delinquency rates well below our competitive set. Provision for credit losses was less than $1 million, reflecting the impact of our move to fair value option accounting for newly originated held for investment loans, combined with strong credit performance on the remaining legacy portfolio under CECL accounting.

Our net charge-off ratio for the total held for investment portfolio improved meaningfully to 3.5%, down from 6.1% driven by continued strong performance as well as portfolio aging dynamics, which will normalize over time. It is important to note that these charge-offs and delinquency metrics now include all held for investment loans on the balance sheet, inclusive of both fair value and CECL portfolios for all reported periods. We're continuing to improve the profitability of the company, and that is allowing us to invest in critical initiatives to drive future growth.

These include developing new marketing channels, supporting the rebrand and building out home improvement. Overall, expenses on Page 15 were $185 million, up 28% year-over-year. The majority of the increase was due to higher marketing spend reflecting both our continued investment in paid acquisition channels to drive originations growth as well as the impact of fair value option under which marketing expense for held for investment loans is now fully recognized at origination rather than deferred and amortized. Of the $10 million sequential increase in marketing spend, the impact of the accounting change was approximately $7 million.

Compensation and benefits expense was up 12% year-over-year, reelecting headcount growth to support new business verticals, including home improvement and continued expansion in our core businesses. Other noninterest expense also increased 13% year-over-year. Our pretax profit margin reached a new high of 27%, reflecting a strong pull-through of revenue growth to the bottom line. We're excited about our step-up in profitability and our capacity to reinvest in the future growth initiatives while growing profit margin.

Overall, pretax net income was $67 million, which more than quadrupled compared to a year ago and reflects a new high watermark for the company. Diluted earnings per share was $0.44 above the high end of our guidance range and more than quadrupled from the prior year. Our return on tangible common equity was 14.5% and our tangible book value per share increased to $12.49.

Turning to the balance sheet. Total assets grew to $11.9 billion, up 14% year-over-year. We ended the quarter at $10.2 billion in deposits, which was also an increase of 14% compared to the prior year, and we continue to see healthy deposit trends across our product offerings. Our balance sheet remains a competitive strength, allowing us to generate recurring revenue through retained loans while maintaining the flexibility to scale marketplace volume as loan investor demand grows. We ended the quarter well capitalized with strong liquidity and positioned to fund future growth.

I'd also like to provide a brief update on the $100 million share repurchase and acquisition program we announced at our Investor Day in November. Since inception and through the first quarter, we have utilized $38 million and reduced our average diluted share count by 1.5 million shares compared to the previous quarter.

Now let's turn to our outlook. We entered 2026 with a tremendous amount of momentum. Even considering the new rate outlook, our outperformance to date gives us confidence to maintain our full year guidance with the assumption of a stable consumer and rate environment. As a reminder, we were assuming 75 basis points in cuts when we entered the year, which was a tailwind for both loan sales prices and net interest margin, which we no longer expect to benefit from.

For the full year, we continue to expect originations of $11.6 billion to $12.6 billion and diluted EPS of $1.65 to $1.80 consistent with the 13% to 15% near-term return on tangible common equity target we shared at Investor Day. For Q2 2026, we expect to deliver loan originations of $3.0 billion to $3.1 billion, representing 23% to 27% year-over-year growth.

On earnings for Q2 2026, we expect to deliver diluted earnings per share of $0.40 to $0.45. We're pleased with our execution. Our strategy is working, and we remain encouraged by the underlying fundamentals of the business. With that, we'll open it up for Q&A.

[Operator Instructions]

Your first question comes from the line of Tim Switzer with KBW.

So the first one I have is, on the announcement you guys had along with earnings about launching the home improvement loans. And your comment in there -- I know you guys have started in April, but your comment about there's additional interest from other potential partners, a significant amount. Could you maybe talk about like how large these partners are relative to Wisetack and like how quickly do you think these opportunities could be realized?

Yes. So as we mentioned, post our announcement, we have gotten quite a bit of inbound interest. I'd say there is a desire in the market for a combination of a stable bank balance sheet because there were certainly some experiences by some partners during the rate and inflation cycle that they lost funding partners.

So stable bank balance sheet, combined with the flexibility of a fintech to pursue deeper integrations as well as maybe customize the product for the specific use cases and delivery channels. So we've been pleased with that. Getting the first deal live is obviously the biggest tech builds and now that those kind of pipes are laid, I'd say, implementing additional partnerships, we're anticipating will be roughly less than half the work of what we had to do to get here.

I think in terms of on sizing, we haven't given any guide outside of the broader guide we gave at Investor Day of how much we think major purchase finance will contribute over the medium term. What I would say, it's is a pretty seasonal business. So we're in -- Q2 and Q3 are the big season. So it's our push internally to at least try to get a couple of these live going into Q3, so we can really learn, right? Does the product we're starting with is are applying our models to the category. But over time, we need not only the distribution but also the product features and constructs to really fully penetrate this market, things like the ability to make multiple disbursements over time or to multiple parties, the ability to have a promotional product, all of that.

So I'd say the bigger contribution will really be next year. This year will be kind of laying the pipes, get them opened up and making sure we have the right product and experience for those partners to really be ready for the key period next year.

Got it. Okay. Yes, that was interesting, Scott. And then [ switching ] subjects here a little bit, looking at the marketing expense outlook, how should we think about that as you go over the course of the year? I know it's a little seasonal, but how should we think about it, I guess, as a percent of originations year-over-year? How does that change? And then are you able to put quantify at all expectations in terms of how much the rebrand and the investments associated with that and the marketing and all that will cost this year. Maybe to help us just give an idea of how some of that could fall off in '27?

Yes. So I'll start with the rebrand. We haven't broken it out separately, but what we did say and is in our outlook is there are several investments we're making this year to really lay the foundation for future growth. Obviously, the engineering and business team we're carrying on home improvement is one, which we've got to get the volume coming in to offset that. And the second is the rebrand this year, the costs around the rebrand, we'll call them primarily sort of operational in nature. We've got thousands of e-mails and call center scripts and web pages and mobile app and all of that needs to be repurpose together with some communication to the consumer.

I know, Drew, you want to take kind of the broader question on marketing efficiency for the year.

Yes. Outside of the rebrand spend, marketing should ramp roughly with volume as we go up. And as a reminder, Q2 and Q3, at least in our core personal loan business, are the strongest quarters seasonally speaking. So as you saw in our guide, we expect volume to increase and marketing to increase at similar ratio to what we're spending today. .

Great. Okay. All right. That's good to hear. And then last one for me. In terms of like the credit outlook, I know it's a little early, but have you guys seen any change in customer behavior since Iran war started and you start to see oil prices creep up? .

No. We haven't seen anything in leading indicators with the customer, again, that we're underwriting reminder we moved up credit back in '22 and are maintaining that discipline right now. That's not to say it doesn't require active management, meaning we're not static. We're always evolving and optimizing, but no broad-based kind of leading indicators we're seeing, as you can see in all the data that we're putting out there today, the consumer underwriting is continuing to look great. But acknowledge your point, which is we're still early, how long does this persist? And what what's the kind of blast radius outside of oil prices? And how might that affect the broader inflationary cycle and impact on consumers is something that we'll be carefully watching.

Your next question comes from the line of Bill Ryan with Seaport Research Partners. [Operator Instructions]

First question, I want to go back to some comments you talked about loan sales pricing improving in the first quarter. And obviously, there was a lot of action in the private credit markets during the quarter. So if you can maybe talk about that over the course of the quarter. What was the trend? Did it end a little bit better than it began the quarter at? How did it vary at all? And then what did the mix of buyers? Did that change at all during the course of the quarter?

Yes. So Bill, what I'd say just overall is that there's been a lot of noise out there, but loan buyers have been very steady as we've gone through time. So private credit, insurance ramping up. We've definitely seen stability there, and we expect to see stability as we go into Q2 as well in terms of the amount of loans and the demand -- the 1 point I'd make on price is that all the deals that we priced in Q1 were priced before the Iran war.

And so since benchmarks have moved up since then, if no change to rates from here, we would expect prices to come down solely because of the changes in benchmarks, the 1.5-year, 2-year [ point on ] treasury. And that's factored into our guidance for Q2 and for the full year as well.

Okay. And following up on that, the retained versus sale mix, how should we be thinking about it going forward? I think obviously, you retained a bit more this quarter relative to, I think, what consensus expectations were. Is that something you're going to kind of manage with the earnings outlook that you provided?

Yes. I think when you're looking at retained -- you're just talking about HFI retention versus the extended seasoning portfolio, right?

Correct.

Yes, correct. So we will put more into HFI similar to the amounts and probably a little bit increasing to what we did this quarter. Pure marketplace sales, excluding extended seasoning also increased by a small amount from Q4 to Q1. And so as we're growing issuance, we're going to look to increase both of those buckets going forward.

And your next question comes from the line of Vincent Caintic with BTIG.

Going back to maybe the questions about guidance. So if I look at guidance for the second quarter and the full year, it kind of implies that earnings power remains relatively flat each quarter for the rest of this year. I was wondering if you could help us out maybe talking about that in more detail, maybe about the components of earnings growth. Like should we -- is that primarily the expense ramp-up that we should be expecting kind of with the rebrand and everything? Or is -- or if you could maybe talk about revenues or so forth as that's rolling through.

Yes. Great. Well, listen, I think, obviously, Q1, we had some really strong results out of the gate. Some of that was aided by very solid consumer credit on the back book as well. As we go into the rest of the year, what we're looking at right now is we had come into the year assuming we were going to have 3 Fed cuts. We now assume we are going to have 0 for the remainder of the year.

And obviously, that can change based on world events based on the new Fed chair, a lot of other things, but our assumption going forward is no Fed cuts. And so that's a headwind to revenue that we have to fight through. And we're -- on the flip side, we're seeing very solid unit economics in terms of what we're originating going forward, which is helping to offset that headwind. Having said all that, we're going to continue making investments in all the things we talked about in the prepared remarks.

And we're only one quarter in. We still feel pretty good about the range we put out there for EPS for the full year.

Okay. Got it. And then switching gears, maybe you could talk about your share repurchase and the right capital level. So it's nice to see the share repurchase to start this quarter. if you could talk about, is this the sort of pace we should be expecting and remind us what your target levels for capital are.

Yes. Great. No, I think -- well, this is actually our second quarter of repurchasing now -- I guess it was our first full quarter of repurchasing, but we've been in it since after Investor Day in November. And so listen, we love picking up shares at an attractive price, and we'll evaluate that going forward with the Board each quarter in terms of how we deploy capital.

As far as target capital levels, we haven't put anything out there. But obviously, we've said the amount of share buyback, sort of the amount of capacity we have for the share buyback, which we view as excess capital. So we still have room in the ratios from where they're at today. The other thing I'd note is that there's some new capital rules under discussion and an NPR with the regulators that we'll see if they're passed as is. And if they are, we probably don't assume they really go into effect until 2027. But 2 of those rule changes, one, the risk weighting on consumer assets and 2 the risk weighting on senior securities are both very beneficial to our capital levels going forward. And if passed as proposed, those would free up $100 million plus of rent cap in the future, which is nothing to sneeze at.

And your next question comes from the line of Kyle Joseph with Stephens.

Just wanted to follow up on the originations, as we think about some of the new products, I know you mentioned that there's an impact on the fair value mark because of some of the larger loans. But just thinking about any other impacts as the product shift primarily focused on gain on sale margins? Like what are the margins on HELOC. How do those compare to kind of the personal loan side? And how should we think about that impacting the model?

Yes. Yes. So duration is a factor, right? If you're having an upfront mark or upfront discount on a 1-year duration versus a 3-year duration, you're roughly going to be 3x as much in terms of the mark that you're taking on that loan. So duration matters. I'd say also product structure matters as well in terms of the marks, right? If I have a product that has a larger MDR, but a lower coupon such as we could potentially see in home improvement, you're going to see that MDR come through the origination fee.

but you're going to see the mark on that coupon -- on that loan with the coupon come through a fair value. So there's different dynamics for the different products and mix will certainly play a factor as well in terms of how those marks evolve in the portfolio over time.

Got it. Very helpful. And then just a quick follow-up on the NIM. I know you guys talked about some tailwinds this quarter from the transition to fair value, but kind of hovering back towards that 6%. But do you still get the uplift if we're looking at it on a year-over-year basis, just trying to kind of triangulate where you're telling us NIM should be trending over the next few quarters?

Yes. Well, the first thing top line to take away from the comments is if the Fed is on pause for [indiscernible] rates going forward, we will trend down towards 6% throughout the year based on what we know today. What's happening year-over-year is, first of all, a very positive benefit in terms of deposit funding cost. how we responded to fed cuts and how that's flown through the total interest-bearing deposits and liability line, 31 basis point improvement year-over-year on that. And then the one-timer on the loans HFI at fair value, that 12.62% yield, we will -- that effect will continue, but that portfolio with the legacy portfolio is shrinking. So that benefit will come down over time. That's all factored into the move back down to 6, all else being equal.

And your next question comes from the line of David Scharf with Citizens Capital Markets.

Just a couple more to add here. First off, I just want to make sure on the fair value mark, going forward, obviously, you highlighted higher benchmarks is going to be a little bit of a headwind versus the 3 rate cut assumption prior. But on the flip side, is there any -- was there any change to the actual credit related fair value mark? Obviously, the amortized cost portfolio outperformed on provision notably. And just trying to get a sense how we should think about potential positive marks just on credit going forward within the net change in fair value line?

Yes. I'd sum it up as all credit is looking good. The back book which is really the legacy CECL portfolio is where we saw the most outperformance, the newer vintages, which are a little bit of CECL portfolio, but mostly the fair value portfolio.

It's still early days on those and credit looks good, but it -- it takes about 6 to 7 months on book before we get more firm read on the vintage in total. But in the quarter, yes, there was no substantial moves.

Got it. No, no, that's helpful color. And then just lastly, on marketing and marketing channels, you've talked about expanding investment in more channels. You highlighted it back in the Investor Day. I hate to toss around the buzz phrase of the week of the month of the quarter. But could you talk a little bit about how you're thinking about agenetic either commerce or lending and specifically, whether the company how it's approaching investments with AI-type search versus traditional?

And specifically, I was just typing in how do I get a $10,000 personal loan and it just gives you the typical Google paid search listing of whoever shows up, then I said what's the best $10,000 loan for me and it did the typical [ NERDWallet ] shows up. But going forward, when somebody types in, a year from now, what's the best $15,000 personal loan for me into either Chat or Claude, can you talk us through either some of the risks or opportunities you see in terms of these AI engines making more qualitative assessments and not just traditional search assessments?

Yes. So it's a great question. And while it is a buzzword, it is also -- that does not take away from the fact that the changes underway are very real, and we are pursuing them, as I mentioned in the prepared remarks, across really all departments and all aspects of the company. Specific to marketing, I would say we feel, on balance, pretty well positioned there because if you think about our value proposition, our big obstacle is inertia, right?

It is not the direct people we're competing with, it's all the consumers who aren't taking action. Like why would you leave your money in a money center bank account when we're going to pay you 400x more? And why would you carry a balance on a credit card when we're going to save you 700 basis points, right? So inertia is really the thing we're trying to overcome. So if the agents evolve not only to replace Google search, but potentially to act on behalf of consumers, we think we're a net beneficiary.

But you're right, it is as a percentage of web traffic right now, it is quite small. That said, it is high intent. And so as that percentage grows, we need to be there for it. All of the protocols are not established exactly what the -- as I'm sure you know, there are many, many, many firms that are engineering themselves around how to optimize for Google's ever-changing algorithm that same thing will be true for agentic search, and we are going to be going after that the same way we will sort of core organic search and think we're set to benefit.

Right now, that means likely increasing the amount of content we produce to get out there. We're already in the site. We're obviously in the places you mentioned. We're in NerdWallet Best Of, I think, on both sides of our balance sheet. So we're already there. But we need to be getting some of our content out on our own to help with that. So we'll be -- we're pushing behind that throughout this year. That's definitely on our plan.

And your next question comes from the line of Giuliano Bologna with Compass Point. [Operator Instructions]

Congratulations on the great results. I think I'd be curious about, and I realize you've touched on marketing, but I'm curious when you think about reopening the marketing channels that were previously dormant and seeing the yield kind of improve over time in those channels, I'm curious where you think you are in that kind of evolution of reopening dormant channels? And how much more room there is to continue pushing those channels and to continue expanding into those channels and getting -- improving your marketing efficiency?

Yes. Thanks, Giuliano. So I would say we are exactly on track. We've completely rebuilt the team. We have overhauled the technology infrastructure, the data, tracking attribution. And as I think I shared before, kind of marching in order of fastest path to revenue based on how quickly out of the gate will get to success. So for something like direct mail, we're on the X version of the response models creative. That's like a core part of the program.

Paid search is, I'd say, up and humming and we're still in the development mode for things like digital and connected TV and testing our way into those. But I'd say that we still feel like there's a decent amount of upside in front of us in all of those channels. What I'd also say is we're feeling good about our product initiatives and product road map. I touched on the call that we're seeing strong conversion rate and great customer feedback and how we're continuing to evolve the product experience to really streamline it, make it much, much easier.

The lower friction process is just pulling more people through the door, and the people we want to have, we're continuing to optimize in this environment, especially with some concerns about inflation for having control over the use of proceeds of the loan, not opting for cash, but paying off cards, paying a contractor, paying a dentist, paying a fertility doctor as opposed to just depositing money into the accounts. So our ability to make those experiences faster and easier, I think, is benefiting us as well.

That's very helpful. And as a slightly different question, you've obviously pushed some growth in the held-for-sale or [indiscernible] book. Is there any expectation around starting to sell down that book or keeping it flat versus growing going forward? And along the same lines, I'm curious how you think about balance sheet growth in '26.

Yes. So definitely expect to sell out of that portfolio. And in fact, we sold $200 million out in early April to a bank that took advantage of the CECL accounting change that we had been discussing for a while. So that was a good win to -- we thought that would be a lever for banks. That was our first and hopefully more to come down the road, although I'll remind everyone, it's a process to get the banks in. So in summary, yes, Giuliano, we plan to sell out of that portfolio. I think we'll try to keep it roughly around a similar size to make sure we have inventory going forward, but it won't be -- most of the production that we keep on balance sheet will either go into HFI or it will come back on as [ A notes ] from the structured certificate sales. Now in terms of balance sheet growth, I think we're -- Correct, we're tracking right now to where we expected to be. We obviously put some growth goals out for the medium term at Investor Day and I don't see any reason why we're off track from those medium-term goals.

That's very helpful. And then maybe just 1 quick final one. I'm curious, obviously, with the transition to fair value. Is there much thought or kind of desire to increase interest rate hedging? And I'm just curious what your objective is there and how you're thinking about that?

Yes. We actually did some moves on hedging this quarter and in fact, we did all -- almost all of them before rates went up with the Iran War. So that was good timing. A few of -- we now have $2 billion out in notional split between caps and swaps. And we also [ dedesignated ] our swaps, so we are under hedge accounting treatment to be mark-to-market as well. So that helps with the quarterly volatility, but really that's not what we're solving for, what we're solving for is to hedge our economic risk on the balance sheet, meaning we're hedging to keep our NIM as constant as we can at different rate environments.

And your next question comes from Crispin Love with Piper Sandler.

Just on credit, net charge-offs improved in the quarter and your credit commentary seems positive and it has been for some time. But can you just discuss some of your expectations here and just recent performance -- recent quarters has been outperforming our expectations. And then I believe you've discussed in the past that net charge-offs may normalize to the 5% or so range. So curious on the current outlook and if that's changed at all in the current environment.

Yes. What I'd say, generally speaking, as you saw it in the back -- the CECL back book, our charge-offs are coming in better than we expected. I note we're seasonally in the best part of the year as well in Q1 and then Q2 with tax season. So that certainly helps the metrics. And as I said in the commentary, as we've been adding to the portfolio, there is some timing on the age of the portfolio that's beneficial. So I do think, over time, we will move back up towards 5%. It will take probably through the rest of this year. And it also just depends on how we -- how and what pace we add to the balance sheet. .

Great. Appreciate that. And then just on AI and AI-powered automation. You were definitely early here, but I'm curious on how you're hiring and hiring needs have changed or shifted due to AI? What skill sets are you looking for most to drive the -- drive the AI at the company forward, types of people, kind of certain skill sets that you're adding or able to pull back from. I'm just curious on your philosophy here and if anything has changed, then just on the broader efficiencies you can gain.

Yes. I mean there's -- definitely, there are certain roles that are evolving quite materially. I mean, just giving a simple one because it's easy to wrap your head around would be the old way you did QA in a call center was you sampled a few calls against the checklist. The new way you do QA is AI listens to every single call, scores every single call. You know exactly why everybody called. And so the job becomes much more analytical and also much more incumbent on them not to give individual coaching, but to actually identify real customer bottlenecks and friction points.

So we're actually -- there are places where near term, it creates more work in order to create less work down the road. I'd say, within places like engineering and in some of our other key areas like compliance or audit, what we're finding is it isn't so much the new talent. I mean things are changing so quickly. Assuming you're going to hire somebody who is great at applying AI to function X, but they don't know the company, they don't know our systems, they don't know our tools. What we're finding is it's more effective to identify the internal champion and kind of create capacity for them. So backfill them, if you will, so that they've got the ability to focus more on how to apply it in our environment. So we're certainly doing more of that across the company.

There are no further questions at this time. I will now turn the call back to Artem Nalivayko, for a few additional questions.

All right. Thank you, Kevin. So Scott and Drew, we have a few additional questions here that were submitted by retail investors via the Say technologies and email. The first question is on originations. So the question is, when do you plan to get back to your historical peak originations levels?

Yes. Well, we expect to get beyond our historical -- I would point you, if you haven't had a chance to see it to our IR website to look at the Investor Day materials, where we lay out a medium-term target of getting to $20 billion in annual originations, together with kind of a waterfall byproduct and initiative of how we expect to get there. So I'd say we're on our way, and we're on our way while really maintaining this credit outperformance, which we think is critical both for us and our balance sheet, but also for the marketplace buyers.

Okay. Great. Second one, you've touched on a little bit already, which is the product road map. Any additional insights beyond home improvement that you wanted to share.

Yes. So as I mentioned on the call, we're live in home improvement. We're not done. I mean we'll never be done anywhere. We're always innovating and optimizing and exploring new ideas. But there's still quite a bit to do even on the product front there to get the right set of products to meet the individual needs.

So that will really tie up a good part of our energy this year. Beyond that, you can imagine we are -- this line of business will attract a certain type of motivated middle and that's homeowners. Right now slightly less than half of our customers are homeowners coming through home improvement, there will be more given that we'll be increasing the percentage of homeowners having products that speak to homeowners, things like mortgage and HELOC will make sense for us.

We plan over time to be a credit-centric bank that offers consumer lending, consumer credit products across the spectrum. That one is the logical next step. We've already started doing some testing there and have been very, very pleased with the consumer response but we're staging our investments. So that will be something we'll likely talk about once we get home improvement really up and humming.

Okay. And the last question, any appetite for acquisitions this year and next...?

So we are always looking and connecting with the market on ways to accelerate our road map and better serve the customer that we serve. We've looked at really quite a bit over the last 12 months. We are staying disciplined on price. It's got to -- the economics have to make sense for shareholders and for the company. You've seen the transactions that we have executed Mosaic, [ Cushion AI ], Tally, have all been companies that we talked to prior to -- not all many cases prior to them achieving difficulty in us being able to acquire them, I think, at favorable prices. So I'd say we're always looking. We're open to accelerating the road map, but it's got to make financial sense.

great. Thank you. So with that, we'll wrap up our first quarter 2026 earnings conference call. Thank you for joining us today. And if you have any questions, please e-mail us at ir.lendingclub.com.

This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for joining us, and welcome to the LendingClub Q4 2025 Earnings Conference Call. [Operator Instructions]

I will now hand the conference over to Artem Nalivayko, Head of Investor Relations. Please go ahead.

Thank you, and good afternoon. Welcome to LendingClub's Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining me today to talk about our results are Scott Sanborn, CEO; and Drew LaBenne Ben, 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 or through the Say Technologies platform.

Our remarks today will include forward-looking statements, including with respect to our competitive advantages, demand for our loans and marketplace products and future business and financial performance. Our actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are described in today's press release and earnings presentation. 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. Finally, please note all financial comparisons in today's prepared remarks are to the prior year period, unless otherwise noted.

And now I'd like to turn the call over to Scott.

All right. Thank you, Artem. Welcome, everyone. We had a strong close to what was one of the best years in LendingClub's history. Our results are validating our strategy and demonstrating our commitment to deliver a combination of growth, profitability and shareholder returns.

In the quarter, we grew originations 40% year-on-year to $2.6 billion, with all product lines contributing to the growth. We also more than tripled return on tangible common equity to almost 12%. For the full year, we grew originations by 33% to nearly $10 billion and more than doubled earnings per share, and we are looking forward to building on our success.

Our substantial originations growth was driven by continued product innovation and marketing expansion, while also supported by improved marketplace pricing and sustained credit outperformance. Our discipline, combined with our advanced underwriting capabilities delivered 40% to 50% better credit performance versus our competitive set, and we're seeing stable performance and consistency in our borrowers' behavior.

Strong credit performance continues to support loan investor demand with marketplace revenue increasing 36% year-on-year, driven by higher marketplace volumes and loan sales pricing improving back towards our historical range.

We introduced a rated structured certificate product in 2025 designed to meet the needs of insurance capital. Insurance investors have a cost of funds and a risk appetite similar to banks, and so growth in this segment should further support the marketplace. In Q4, we initiated our first direct forward flow agreement with a top U.S. insurance company, which is a nice addition to the previously announced agreements with BlackRock and Blue Owl.

Investors remain selective about who they choose as partners. Our depth of credit data, performance history and stability as a bank positions LendingClub as a counterparty of choice.

Turning to our bank. Our balance sheet is continuing to grow with our loan portfolio driving net interest income up 14% year-over-year. Our funding is supported by our award-winning deposit products that deliver real value to customers while also driving ongoing engagement with LendingClub, supporting efficient revenue growth over the long term.

LevelUp Savings, which rewards good savings behavior, is growing by double digits and driving 20% to 30% more log-ins per month than our legacy savings product. Personal loan borrowers account for over 15% of new accounts and borrowers who have paid off their loans are using the product to build a financial cushion, accumulating average balances of over $15,000.

Our more recently launched LevelUp Checking is also growing by double digits, with 60% of new accounts coming from personal loan borrowers, 84% of whom say they are now more likely to consider a LendingClub loan in the future. This virtuous cycle is exactly how our engagement model is designed to work.

Importantly, we entered 2026 in a great position with multiple competitive strengths. First is our unmatched underwriting advantage enabled by proprietary models and informed by over 150 billion cells of data. Second are our products that attract members for life by delivering instant meaningful value.

Third are our experiences that keep members coming back. Fourth is our agile, scalable technology foundation, which is engineered for innovation. And fifth is our digital marketplace bank business model that combines the speed of a fintech and the resiliency of a bank, the best of both worlds.

These competitive strengths are driving success in our core personal loan debt consolidation use case and have application far beyond, opening additional vectors for growth. Our significant advantages in funding reliability, underwriting and user experience are allowing us to win over the competition and expand our major purchase finance business.

Building on this momentum, last quarter, we shared our planned entry into the $0.5 trillion home improvement financing market, an industry that aligns well with our capabilities. With our acquisition of foundational technology, hiring of leadership and key talent and our first distribution partnership signed, we are well positioned for growth over the medium term. We are currently integrating the acquired code base and remain on track to launch the partnership midyear.

Our announced entry has also generated substantial inbound interest from additional partners, presenting potential opportunities to strengthen our trajectory. We're excited about the year ahead and expect our marketing investments to continue scaling, credit performance to remain best-in-class and operating discipline and AI-driven efficiencies to help expand margins. We're also excited to launch our new brand later in the year to better reflect the scale of our ambition.

Before I turn it over to Drew, I want to take a moment to thank Hans Morris, who will be stepping down from our Board in March after 13 years of extraordinary contributions. Hans has been instrumental to me and to LendingClub from early investor to long-serving Board Chair and his impact on the company is difficult to overstate. I am deeply grateful for his leadership and support. We are very fortunate that Tim Mayopoulos, who's been a high-impact member of the LendingClub Board for nearly a decade and who brings extensive experience in banking and fintech will be assuming the role of Chairman.

With that, Drew, I'll turn it over to you.

Thanks, Scott, and good afternoon, everyone. Scott already covered the high-level results that made 2025 a fantastic year. So let's get into the details of our fourth quarter. Turning to Page 10 of our earnings presentation. Loan originations grew by 40% to $2.6 billion. Borrower demand remains strong as the value we are providing continues to be compelling. Loan investor demand also remained strong as marketplace loan sales prices continued to increase in the quarter.

Our credit performance sets us apart from our competitive set and is one of the reasons we have been able to sell these loans without any need to provide credit enhancements. Leveraging one of the benefits of being a bank, we grew our held for sale extended seasoning portfolio to $1.8 billion, consistent with our strategy to expand our balance sheet, while maintaining an inventory of seasoned loans for our marketplace buyers. We also retained nearly $500 million of loans in our held for investment portfolio.

Now let's turn to the 2 components of revenue on Page 11. Noninterest income grew 38% to $103 million, benefiting from higher marketplace sales volumes, improved loan sales prices and continued strong credit performance. Net interest income increased 14% to $163 million, another all-time high, supported by a larger portfolio of interest-earning assets and continued funding cost optimization.

Turning now to Page 12. Our net interest margin came in at 6%, up 56 basis points over the prior year. I'll note, we retained higher cash balances to enable accelerated growth in 2026, which resulted in a sequential decline in net interest margin. If cash balances have been flat, net interest margin would have been 17 basis points higher and nearly flat to the prior quarter. We expect the deployment of this liquidity to be supportive of net interest margin as we grow the loan portfolio, in line with what we shared at Investor Day.

On balance sheet funding, we ended the quarter at $9.8 billion in deposits, which was an increase of 8% compared to the prior year, and we continue to see healthy deposit trends across our product offerings.

Turning to expenses on Page 13. Noninterest expense was $169 million, up 19% year-over-year. The majority of the sequential and year-over-year rise was due to planned higher marketing spend as we continue to invest in paid channels to unlock future growth.

Now let's move on to credit where performance remains excellent. We continue to outperform the industry with delinquency and charge-off metrics well below our competitive set. Provision for credit losses was $47 million, reflecting disciplined underwriting and stable consumer credit performance. I'd note this quarter, a higher percentage of our held for investment loans were from our major purchase finance business, which is a longer duration asset and therefore, carries a higher day 1 provision.

In terms of net charge-off ratio, we experienced strong performance across all our vintages, and we were down 80 basis points over the prior year. As we discussed on the last call, we saw the expected sequential increase as more recent vintages mature.

On Page 14, our expectation for lifetime losses on our held for investment portfolio under CECL are also stable to improving across all annual vintages, including 2025, which contains a higher level of qualitative reserves. Going forward, given the stability of these metrics and our move to fair value option for all new loan originations, we are no longer going to be updating this slide on a quarterly basis.

Turning to the balance sheet. Total assets grew to $11.6 billion, up 9% year-over-year. Our balance sheet remains a competitive strength, allowing us to generate recurring revenue through retained loans while maintaining the flexibility to scale up marketplace volume as loan investor demand grows. We ended the quarter well capitalized with strong liquidity and position to fund future growth.

I'd like to provide a brief update on the $100 million share repurchase and acquisition program we announced in November. In Q4, we deployed approximately $12 million at an average share price of $17.65 and expect to continue to deploy additional excess capital through the program to support our shareholders.

Moving to Page 15. Net income before taxes of $50 million more than quadrupled compared to a year ago. Taxes for the quarter were $8.5 million, reflecting an effective tax rate of 16.9% and included a nonrecurring benefit from research and development tax credits. There were also some beneficial changes to California and Massachusetts tax law in the quarter. As a result, we expect a normalized effective tax rate of approximately 24% going forward with some potential for variability due to the valuation of stock grants and other factors.

All of this translated to diluted earnings per share of $0.35 and tangible book value per share of $12.30. Our ROTCE of 11.9% came in above the high end of our guidance range. For the full year, we earned $136 million with diluted earnings per share of $1.16 and ROTCE of 10.2%.

Now let's turn to our outlook. Looking ahead, we remain encouraged by the underlying fundamentals of our business, and our guidance assumes a healthy economy with stable macroeconomic conditions throughout the year. Before I get into the guide, I'd like to spend a few minutes on our move to fair value option. As we discussed at Investor Day, this change is about simplifying our financials by better aligning the timing of revenue recognition and losses and creating a consistent accounting framework across our marketplace and bank businesses.

As you can see on Page 18, over time, we expect this to result in a higher rate of return on invested capital by removing the front-loaded CECL impact we currently experience as we grow held for investment loans. We recognize that many of you have questions around how this change flows through the financials. So we've added a new section to this earnings presentation to walk through the mechanics in detail. This includes how fair value is established at origination, how revenue and credit flow through the P&L after day 1, and how fair value adjustments will show up in noninterest income.

To make this tangible, Page 21 provides an illustrative single vintage example showing both day 1 and day 2 economics, and Page 22 shows the select financial measures of our current fair value portfolio over the last 2 quarters.

As onetime support to help with first quarter modeling, we are also providing estimates for both fair value adjustments and credit provisioning. We expect total fair value adjustments in the first quarter to be roughly double fourth quarter 2025 levels due to 3 factors.

First, there is more volume receiving a day 1 fair value adjustment as we are transitioning 100% of all new held for investment originations to fair value option. Second, loans from the major purchase finance business have a longer duration and a higher discount rate, which will mean a higher day 1 fair value adjustment.

Third, day 2 fair value adjustments will also be larger due to a higher average balance of loans carried under fair value during the quarter. Separately, moving to fair value option means there will be no day 1 provision for loan losses on new originations. We will still have CECL expense from the remaining legacy portfolio, which we currently estimate at approximately $10 million for the quarter, subject to quarterly variability.

Further, we will no longer defer loan origination fee revenue nor marketing expense for held for investment loans, which means both line items should increase from Q4 2025 to Q1 2026, independent of any changes in origination volume.

For Q1 2026, we expect to deliver loan originations of $2.55 billion to $2.65 billion, representing 28% to 33% year-over-year growth with additional investments in marketing to fuel 2026 growth. For the full year 2026, we expect originations of $11.6 billion to $12.6 billion, up 21% to 31% year-over-year. On earnings for Q1 2026, we expect to deliver diluted earnings per share of $0.34 to $0.39, a 240% to 290% increase year-over-year. For the full year 2026, we expect to deliver $1.65 to $1.80 earnings per share, consistent with the 13% to 15% near-term ROTCE target we shared at Investor Day and up 42% to 55% year-over-year.

With that, we'll open it up for Q&A.

[Operator Instructions] And your first question comes from the line of Tim Switzer with KBW.

So the first one I have is on the expense trajectory here. There was a little bit of an increase across several line items this quarter. The comp line was flattish, but then marketing was up quite a bit. Equipment went higher. Other expenses seemed a little bit elevated. Is this kind of just some weird one-offs? Or is this indicative of a little bit higher investment costs you guys are putting in the company right now as you look to ramp up?

Yes. So I'd say, first of all, I think marketing spend was the obvious one that increased quarter-over-quarter. That was I think the vast majority of the increase. And as we signaled last quarter and Investor Day, we're continuing to invest in ramping our marketing channels, improving our capabilities, improving our modeling. And really, a lot of this investment is to help 2026 performance. And so you can probably expect us to continue more of that as we go forward into Q1 as well.

The other expenses, I'd say, were largely noise in the quarter for the most part, even having an Investor Day costs a little bit of money. So you got to factor that in. But in all seriousness, I think as we go into Q1, other investments we'll expect to make would be ramping up our investment in people for the growth in the home improvement business. And then as we're looking to do the rebrand in the first half of 2026, there will be some expenses related to that as well. and all of that is included in the guide.

I'd say investment, just to be clear, investment in the first half of '26 roll out back half of '26.

Okay. So you're saying the investment cost should start to moderate into the second half of the year?

I'd say when we're through the transition, that's right. So we're not being specific on the timing of that yet, but we're obviously starting to work now.

Okay. And your comment on marketing, like is the marketing required for targeted originations, is that higher than what you were maybe previously expecting? Or like what's the efficiency looking like so far?

A reminder, if you just go back and what we talked about at Investor Day. So one, all of our product categories were growing last year, and we're expecting future growth this year. Not all of them are marketing driven in terms of their originations. So the SBA program and our purchase finance, those are driven by different dynamics as same with home improvement.

But specific to PL, there's really 3 areas that we're pushing on for growth. One is product innovation. We talked about how top-up has successfully driven increases in take rate and higher originations. We have more ideas in the pipeline around the product innovation. There's funnel efficiency. As magic as our experience feels, there is still evolution possible to make it faster and more frictionless, and that will be a growth driver.

And then the third is marketing. And there, we shared we're still -- there are certain things that are quite robust, and I'd say close to very mature like our partnership program, and I think we're getting there on direct mail, and we're well on our way with paid search, but there are other areas that we're still quite early innings at having the right data models, the right attribution and that's paid social display, connected TV.

And I would say those are future growth vectors for us. They're one of many drivers of origination growth. And I think we gave at Investor Day that over the medium term, we think there's a couple of billion dollars' worth of originations to come from those added channels. What you're seeing us do now is normally for -- Tim, you've been following the business for a while. We normally don't push on new initiatives like this in Q4 and Q1. We usually wait until Q2 and Q3 because they are seasonally just a lot more forgiving and favorable.

But given the momentum in the business, we're pulling those in Q4 and Q1, which means they are going to be test programs and I would call this R&D spend, they're always less efficient because it's a learning agenda as opposed to a volume agenda. We're not driving much volume through it, but we are spending dollars. It will be even less efficient when we pull them into less seasonably favorable quarters because response rates and all that are lower. But we think the trade-off is worth it because it sets us up for sustained growth later in the year and in the years beyond.

Okay. Got it. That was all really helpful. One last question and then I'll jump back in the queue. At the Investor Day, your slide deck kind of indicated you're looking for a lower efficiency rate over time relative to '25, I think closer to the 55% to 60% range. But given all the -- like 2026 is kind of a transition year, the accounting is changing a little bit. Is the efficiency ratio moving up in '26 and then it starts to move back down as we get past the impact of the accounting and you guys start to get better scale?

That's -- yes, you're precisely right. So if you think about this transition from CECL to fair value, early in '26 or now basically in this first quarter, there's a bit of a tailwind that's created. And we're using some of that tailwind to do these investments that we were just talking about, right, reinvesting because once that tailwind fades, we want to make sure we continue to have momentum in growth, top line and bottom line going forward.

So we're using first part of the year to make those investments to accelerate the back half of the year. Once you get through 2026, that comparison point that impacts efficiency ratio in PPNR basically is gone and then your year-over-year comps will normalize at that point. But what's really important to note is you have these dynamics going on. But what we're getting is more pull-through by making this move, right? So even though you're having some of these impacts on revenue and expenses, what you're pulling through to the bottom line because of the offset in provision is higher.

And your next question comes from the line of Vincent Caintic with BTIG.

Thanks for all the detail on the accounting change. So I do want to focus on that very helpful slide with Slide 21. So are these key drivers sort of the discount rate, 7%, is that sort of what we should be thinking about going forward? I think in the prepared remarks, you kind of talked a bit about the large -- the major purchase finance and other things having higher discount rates and higher duration. So as you launch new products, I'm wondering how these assumptions will evolve. And if you could give us like how we should think about the duration of these other products and the discount rates of these other products and coupons as well, that would be very helpful.

Yes. Great. I mean there's only a certain level of detail we're going to give just for competitive reasons, but it's a great question. And first thing I'd say is just -- it's right on there, but this is illustrative of one vintage coming in. So the 7.3% discount rate in this illustration, we're actually at 7.1% discount rate for the quarter. So we're a little lower than this illustration.

But how that discount rate will move if everything else remains equal, it will depend on the mix of loans that we're putting into fair value. And so some of the businesses like major purchase finance that have longer duration and the less developed secondary market or marketplace are going to have a higher discount rate, not necessarily all of that is true for home improvement, where there's a very developed secondary market and marketplace, but it also is longer duration.

So net-net, you'll have some offsetting effects on an asset class like that. But over time, it's going to depend on what the mix within our held for sale portfolio looks like, but you can expect that we're probably adding more diversification of those other product types coming into the portfolio.

That's helpful. And then I guess, relatedly, now that the accounting is sort of making the market -- the held for investment loans look similar to the marketplace loans, at least from your income statement and balance sheet now, like your thoughts on the mix between what you will sell, what you'll maybe season and then sell versus what you would retain on the balance sheet?

Yes. Yes, interesting, and I'm glad you asked because there's another point I want to make as well. So we will continue to have an inventory of held-for-sale loans. As we've said before, we found that program to be very helpful to onboard new investors and to make opportunistic sales and maybe better prices than we would otherwise get.

There's actually one new development in CECL accounting this quarter, which could be beneficial, not for us, but for potential bank buyers. So I think one of the reasons that the bank pipeline has been slow to evolve is banks having to take that upfront CECL charge and sometimes it's difficult to get over that hump before you start building a portfolio of purchase LendingClub loans.

Under the new CECL guidance, if you buy loans seasoned more than 90 days, you no longer have that upfront impact as you would if you were originating loans or buying newly originated loans. So I'm not saying this is an immediate unlock in the bank pipeline is about to explode open. But I think net-net, it will be a positive for bank investors that are considering purchasing from us. So for all the reasons I mentioned before and for that reason, we'll continue to hold a held for sale portfolio available for sale.

Yes. Do you want to talk a little bit about the other part of the question, which was now that they look the same in-period aspirations for balance sheet growth, we gave some targets at Investor Day.

Yes. I mean, I think in terms of balance sheet growth and aspirations, nothing has changed from Investor Day regarding that. As far as our mix going forward in terms of structured certificate securities, and I'll just call it whole loans, which would be loans held for investment and loans held for sale, we'd say that, that distribution that we're at today probably roughly holds as we go forward in terms of our forecast.

And your next question comes from John Hecht of Jefferies.

Can you guys hear me?

Yes.

I just -- one question I have is just on the fair value adjustment. You give the discount rate. Is there some way we can take that and decipher what the kind of annualized loss rate might be, I guess, in your primary product?

I don't know that you can exactly get to that. What we are going to do next -- starting next year is we'll update our disclosures to include the charge-off, much like we do today just for the CECL portfolio. We'll start to do that for the CECL -- the runoff CECL portfolio and the held for sale portfolio combined. But currently, under our platform mix, we're still in that 4.5% to 5% loss rate estimate on an ANCL basis. And then as we add new products, we think they have similar profiles. But obviously, we might move around our mix that could have some minor adjustments to those numbers.

Okay. But the general tenor of the credit is consistent with what you've been underwriting for the last several quarters?

Yes. No major pivot.

Yes. If you just think about, John, what we're doing is we're taking the capabilities, but I think we've demonstrated that we're quite good at appropriately assessing the risk, pricing the risk and delivering value through the cycle from -- all the way through servicing. We're just applying it to different categories, but it is the same core skill set. So different channels have slightly different SKUs, but the overall return profile, coupons and all that are pretty similar. Like purchase finance, as an example, has a higher average FICO score, but the actual ROEs on that, we expect to be similar and in line. And home improvement obviously has homeowners SKUs heavily homeowners and slightly higher coupon.

Okay. And then just so I'm clear, the revenue yield on the loans is going to be more akin to the discount rate -- so the net interest margin will be reflective of that lower yield, but the offset from the upfront fair value mark is bigger than that. Is that an accurate description?

The coupon in the NIM -- in the net interest margin table will be higher than the discount rate, where the offset will be -- is in those fair value adjustments downward. So what you need to do is take the component of interest income, offset with the component -- the fair value adjustments from noninterest income, and that will get you the revenue yield equal to the discount rate.

Okay. And then from that, you also subtract charge-offs in the fair value marks. Is that correct?

Those are included in those adjustments.

Okay. And then final question is, it seems like a fairly good environment from the perspective of relatively stable credit. I think the macro expectations are reasonably constructive too. And then there's a lot of capital in the markets. Maybe could you guys describe your thoughts on the operating market and the competitive environment within your subset of products?

Well, I'll start with the marketplace and Scott can cover the credit dynamics and competition. The marketplace is very healthy. There is a -- as you said, there is a lot of capital out there to be deployed, very active environment. We're the insurance capital that we're now starting to sell loans to and having more conversations, we think has been a great addition to our marketplace customers that we are working with now. And as I mentioned, the -- this change in CECL accounting hopefully can give a little more tailwind to opening up some more banks as well.

Yes. And on the competitive front, John, I'd say, I think we say this almost every call, this is a competitive market. It has always been a competitive market. Who we are competing with at any point in the cycle changes. This past quarter, we had a fairly aggressive, ambitious, reasonably new entrants kind of pull out of the market similar to Marcus' arrival with much fanfare and then retraction. So we have that, but that's offset by some of the direct fintech competition who are on balance being more aggressive given the availability of marketplace capital.

So I'd say no real change in our view of how that's affecting what we do. We feel very good about our ability to compete. We've shared multiple times statistics, not only on the credit side, but also on our pull-through rate in our marketing and how we're able to convert the customers we want. So -- but we're just going to be very selective. And we agree. We're -- as you can see in our materials, our credit looks very stable, and that's because we're maintaining our discipline. It's not clear that we're seeing that across the full industry. So we'll be watching that.

And your next question comes from Kyle Joseph of Stephens. [Operator Instructions]

Sorry about that. You guys hear me all right?

Yes.

Sorry about that. Anyway, yes, kind of piggybacking on John's question on macro, just looking at your DQ curves on Slide 9. Anything you'd say about kind of the K-shaped economy and how you're thinking about 2026. We've been reading a lot about elevated tax refunds. But yes, just kind of a little bit deeper dive in terms of macro and how you're thinking about things.

Yes. So I think most important thing is post the inflationary period a few years ago, we did move upmarket, upmarket in terms of income, upmarket in terms of FICO. And as you can see there, we're seeing stable results. The customer we serve who we call the motivated middle, we think, represent a lot of TAM for us both immediately today, but also over time as we evolve the use cases and credit products we serve at. On tax refunds, we are expecting, right, or it is expected, it's not us, that this will be a larger-than-usual year, that can have a positive effect on payment and a temporarily downward effect on loan demand, but all of that's factored into our guide.

I got it. And then not asking you guys to speculate any more than we can, but I think it would be a little bit remiss if we didn't address the potential rate cap, obviously, given kind of your core product is on credit card refi, but just kind of want to get your initial thoughts and how you guys are thinking about everything that's out there.

Yes. I mean, obviously, there's not a lot of specifics on what -- how this could actually take shape and what it could do. And I think there's, at the moment, not a lot of confidence that at least as initially articulated anything like that would come through. Our view is there is an affordable alternative to credit cards available today, no government action required, and that's LendingClub. And we're already saving people 700 basis points off of the cards and no price control is needed.

And your next question comes from David Scharf of Citizens Capital Markets.

Most have been addressed. So a couple of things I just wanted to ask if you could clarify. One, actually just very near term, on the Q1 origination outlook, did I hear you correctly that the guide kind of factors in a larger-than-normal refund season in paydown cycle?

Well, what I'd say is I think that's pretty difficult to factor in with any degree of specificity. But our experience has been that larger-than-normal refund seasons, as I said, kind of flow through our business, as I indicated, which is customer payment rates are higher. So you see good DQ trends, but you can see maybe a different demand for credit temporarily. I wouldn't expect anything significant, but obviously, that will be difficult to really predict, and we're not going to give intra-quarter guidance, and hard to measure the impact of that together with any other broader macro events going on. So we're very confident that we've got a lot of tools in the toolkit to deliver the outlook that we provided.

Got it. Got it. Fair enough. And then just digging back to the fair value assumptions. It sounds like on the next quarter Q1 call, we'll get kind of the obviously, current period losses and charge-off rate embedded in that change in fair value line. Is it -- I think John may have asked this, but is it fair to assume that embedded in your earnings guidance is sort of a flattish year-over-year loss rate in that fair value mark? Or is there anything about the asset mix? There have been so many references to larger purchase longer duration loans. Does -- are there any nuances that might kind of raise the loss rate purely due to the asset mix?

No, I don't think so. I mean I think we're obviously assuming a stable environment as we go through the year. We will have an increase in duration because as our purchase finance -- major purchase finance business is growing and doing well and home improvement will come on. So duration will go up. But in terms of the ANCLs, I'm not expecting a major shift in that. Now I think if you look at the net charge-off rate, there's seasonality, there's vintages seasoning in there. There's a lot of portfolio mix. But in terms of the annual loss rates, we're not assuming a major change in those numbers.

Got it. And regarding the vintages, obviously, this is -- we're laying to rest the slide where you give the sort of components of provisioning and reserving for amortized cost accounting. Is there a way to translate that sort of most recent vintage macro layer, that 1%, 1.5% kind of conservative upfront provisioning. Does that translate into certain number of basis points of discount on a day 1 fair value mark going forward?

Well, under fair value, we're not explicitly layering in qualitative reserves as we do under CECL. So it's a difference in methodology. Now if we see more stress coming through the portfolio, we may have -- we may take that through the fair value marks in some manner. But we're not going to speculate on what's going to happen 2 years from now to the economy in terms of how we reserve, which I think has been personally one of the most frustrating parts of CECL accounting.

Yes. No, fair enough. I think you're seventh company we cover that's adopted the fair value option.

And your next question comes from Giuliano Bologna of Compass Point. [Operator Instructions]

Congrats on another good quarter, and I appreciate all the new detail on the fair value disclosures. When I -- one thing that -- I don't know if it's come up yet, but there wouldn't -- under fair value, there shouldn't be any more deferrals when it comes to marketing expenses. Is there a rough way to think about where your marketing expenses would be as a percentage of volume in the fourth quarter and third quarter, for example, just to get a rough sense of what your marketing costs would have translated to on a pro forma basis?

Yes. I mean I think it would have been higher. Obviously, we haven't disclosed the number. I mean, I think the -- obviously, the offset to that is also higher origination fees or origination fees are no longer deferred and net-net, we're a net beneficiary of those 2 dynamics happening together, right? So I think if you're thinking about the marketing spend deferral, then you probably got to think about the origination fee deferral as well.

Got it. Yes. And obviously, the net impact is positive. So that's significantly positive. When I think about the outlook for volumes for the -- or at least in the guide for the year, it implies, especially after 1Q that you'd kind of reaccelerate from a volume perspective, that it'll probably be flat to up slightly in the first quarter, but then you'd see a pretty good reacceleration in volumes to hit kind of the midpoint of the origination volume guidance. Is that a good way to think of it that you should have a good step up in 2Q, 3Q?

That's correct. Yes. That's exactly right. And there's -- part of that is our normal seasonality, but obviously, we're -- we believe we're going to have more benefits beyond that from the newer business lines that we're launching and the investments in scaling marketing paying off.

And next in the queue is Tim Switzer of KBW.

One of the follow-ups I have is just on AI. How -- I know you guys are using that quite a bit in the back office, but what areas that are a little bit more forward-facing that is helping you with either growth or maybe getting a little bit better pricing or demand? I know you guys had like the Cushion acquisition a few years ago. And I think you've mentioned it's helped speed up the doc verification process as applications come through. But just wondering if you guys could update us on that.

Yes. So I'd say, at this point, there's probably not a department in the company that is untouched in some way. I think we have over 60 initiatives underway across the company. And you're right, they range from operations efficiency, guiding agents on next best action, taking sort of diverting customer contacts whatsoever to compliance, marketing material generation, audit testing and generation. Obviously, heavy, heavy, heavy use in the engineering group for code development and streamlining our QA efforts.

On the growth side, you've hit a couple of areas that we're really focused on. There's obviously longer pole in the tent, marketing and credit, continued evolution of our efforts there, which we won't talk about too much because we view that as part of our secret sauce. But then within the customer experience, the Cushion acquisition, including the team is really -- we will be evolving the DebtIQ experience to bring more intelligence to evaluating people's transactions and history and helping recommend actions to customers that improve their financial position.

So -- and the one you mentioned we put into test in Q4 and are expanding across the board is for the rare cases where we do need to require some kind of documentation that we can't get electronically using AI to both assess whether the documents are what we ask for, whether or not they are real and not fraudulent and then to extract that information, populate models and render a decision is all improving or reducing the friction in the funnel and improving our pull-through. So there's just a ton of things happening across the company.

Okay. Got it. And the last question I have, it's a difficult one, but you guys -- the guide for this year is the 13% to 15% near-term ROTCE guide you gave, can you kind of help us map out how we get to the 18% to 20% medium-term target over time? Like with this fair value accounting, is it a gradual steady build quarter-over-quarter as you guys continue to scale up? Or is there a point -- and I know it can -- this is very dependent on the pace of originations and the seasoning of the portfolio. But is there a point where maybe the ROTCE increase starts to slow down as the portfolio gets larger and that day 2 impact on the fair value gets larger? Or am I thinking about that a little bit wrong?

I think -- no, I mean, I think it will be our goal would be a steady increase up towards those medium-term targets. The dynamics of moving from CECL to fair value, I will say by the time we're entering 2027, they are largely -- they should largely be behind us. And from there, we're continuing growth through all the steps we laid out at Investor Day, mainly growing originations, growing margin, expecting a little help from the Fed, obviously, but that's not the biggest component of it.

Growing originations, growing the balance sheet, both are going to be accretive to the bottom line.

Yes. I guess another way to think about it is the impact to profitability is relatively steady as long as you continue to grow the balance sheet at 25%. So like if you're growing it with say, $4 billion of loans or if you're growing it at $7 billion of loans, that doesn't impact the profitability as long as you're still growing at a similar level. Is that the right way to think about it?

Yes. I mean the only growth headwind that we used to have was CECL, right? And so with that gone, the growth, we should have positive operating leverage from growth or maybe I should say, positive pull-through now from growth as we grow over these next 3 years. So -- but the keys are really grow the business lines we have, the expansion in home improvement, growing originations, growing the balance sheet and then pulling it through to net income.

There are no further questions online. I will now turn the call back to Artem Nalivayko for retail investor questions.

All right. Thank you, Kevin. So Scott and Drew, we have a couple of questions here that were submitted by our retail investors via Say Technologies and e-mail. So the first question is on the rebrand. The question is, once the name change has been made, what are the marketing plans that you have in place?

Yes. So just a reminder, what's the intent of the rebrand. The initial LendingClub brand really was tied to our pioneering model of peer-to-peer lending, which is obviously no longer part of the model. We're now a bank. We don't just do lending. We've launched multiple consumer-facing savings products, and checking, of which the name LendingClub on your debit card is quite strange.

So the rebrand is really meant to capture the broader ambition of the company, what we do for our customers beyond just lending. So plan is to do that later this year. Our first focus, there could be a question of like what are we doing between now and then? We are mapping out the literally thousands of touch points we have with our customers across e-mail, mobile app, third-party sites and call center and all the rest and making sure that we've got everything captured, make sure our equity translates from the old brand to the new brand. And then, yes, we will be putting some weight behind the new brand.

I wouldn't expect -- we're not going to go from being a highly data-driven, efficient curve-oriented direct response marketer to getting stadium rights in 2026. So you're not going to see a big step change in how we think about marketing. But this is absolutely the beginning of us moving further up the funnel, if you will, as our offering to consumers broadens and what we stand for broadens, the marketing tactics we can use can also get more broad. And so we do expect over time that you'll be seeing us beyond these direct response channels, just won't be immediate.

Great. So the second question, I saw a recent press release on a partnership with a company called Wonder. Can you please elaborate on that?

Yes. So if you recall in Investor Day, we talked about how we're taking our capabilities in unsecured consumer and which is applied -- our largest use case is debt consolidation, credit card refi, but those same capabilities apply to any way you can use a personal loan, which is to finance any large purchase. We've been seeing really great traction there. We think there's a real -- we feel a real need in the space, which is we've got the resilient, stable funding of a bank, but we've got the customer experience and the speed and the interaction model of a fintech. So we've been gaining distribution and growing that business.

Our kind of core verticals that we're in today, elective medical, dental, teeth implants, fertility, tutoring, a few others. And we're expanding into others, ophthalmology, wellness, and we're testing some purchase verticals. So that's what that is. These are all -- these and other things, which -- some of which get announced and some of which we're just doing as part of our testing are all meant to assess consumer demand in incremental verticals that will diversify our use case, diversify our acquisition channels and provide future vectors for growth. So excited about it, seeing very solid traction in the business overall and are excited to keep growing it.

Perfect. And last question, just in terms of increasing shareholder value in the long term, how does leadership intend to drive shareholder value?

All right. Well, always a great question, and thank you, a retail investor for that. I'd say the number -- rather than me explaining it all again on this call, I'd say the #1 thing investors should do is go watch our Investor Day that we did in November, because I think there is a lot of time dedicated to going through the strategy and how we expect it to evolve over the next several years.

But citing what we accomplished in 2025, a lot of which we already covered on the call, for the full year, we grew originations 33%. We grew revenue 27% and we grew diluted EPS by 158% year-over-year. So I think 2025 was a great year. And if you look at our guide for 2026, we're looking to obviously improve upon performance again as we go into this year. And then finally, we announced the share repurchase and acquisition program of $100 million, which we think is also beneficial to shareholders now and in the future.

All right. Thanks, Drew. All right. So with that, we'll wrap up our fourth quarter and full year 2025 earnings conference call. Thank you all for joining us today. And if you have any questions, please e-mail us at [email protected]. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.

Welcome, everyone. Please welcome Artem Nalivayko, Lending Club's Head of Investor Relations.

All right. Thank you, [ Dan]. All right. Good morning, everyone. For those of you here in person and those joining us virtually, thank you for attending LendingClub's 2025 Investor Day.

My name is Artem Nalivayko, and I'm the Head of Investor Relations here at Lending Club. We've got a great program lined up for you today and this is actually our first Investor Day since becoming a bank. So we have a lot to share. But we also want to hear from you. So you have the program behind me. There will be several opportunities for you to ask any questions that you may have. We'll have a short Q&A session before lunch and a longer session planned for the end of the day.

Before we jump in, I want to cover off on a few legal disclosures. Our program includes forward-looking statements, including with respect to our competitive advantages, strategy and future business and financial performance. Our actual results may differ as described in our filings with the Securities and Exchange Commission. We undertake no obligation to update these statements as a result of new information or future events.

Further, our program also includes non-GAAP measures. 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 presentation materials, which have been posted to our IR website. With that, I'd like to turn it over to our CEO, Scott Sanborn.

All right. Good morning, everyone. Thank you for making the time today. We know all of your time is very, very valuable. So we plan to make this worth your while.

I'm Scott Sanborn. I'm the CEO and I joined the company 15 years ago, you can't tell, I know. But it was a little more than an idea. I have been there through dramatic growth, a successful IPO, the acquisition of the bank [ charter], and I can tell you, I have never been more excited about the company's future than I am today. And I know that when you leave, you're going to be as bullish as I am and as we are about the future for LendingClub.

The first point I want to make is that we are a radically different company today than we were even just a few years ago. The acquisition of the bank [ charter ] has unlocked our strategic potential and we are pursuing a very, very valuable audience and engaging them in a lifetime of lending and banking. We have a clear, compelling and winning strategy, very simple.

Step one, acquire our customers through lending. That's our best-in-breed capability where we go after -- we deliver seamless access to low-cost credit and moments that really matter for our customers. And we click them into an engagement experience that keeps them coming back to us, provides insight into their daily lives. It incentivizes good financial behavior, and it also provides insight to us into their financial condition so that we can see when we have an opportunity to deliver additional products and services to them.

This strategy is already working. And that's because it's based on our competitive advantages, which are very, very compelling and very difficult to replicate. Our first is our unmatched advantage in underwriting. This company was founded on the idea that lending is a data problem. And we built a modern platform that takes advantage of the latest techniques in machine learning and artificial intelligence.

We've fed it with data from over $100 billion worth loans over close to 2 decades through multiple cycles and environments, and it's overseen by an incredibly capable team and it's delivering superior results for us across every single step of the credit cycle.

So our Head of Credit strategy, Kiran Aware is going to join us, and he's going to give you all a look under the hood. We apply that underwriting experience to our products. And these products attract members for life. We go after areas of lending where there are structural inefficiencies and unnecessary friction for customers, and we deliver a magic experience that helps them borrow better and move forward and accomplish their financial goals.

These experiences are so good. Our customers come back to us. So that's already happening. But we can do more for them. We can do more with more products and we can do it more often. And that's by delivering experiences that keep our members coming back. Our Chief Customer Officer, Mark Elliot, is going to join us, and he's going to share our engagement experiences.

And then our final piece is what is this built on? It's built on our technology platform. We were founded as a tech company, we remain a tech company today, and we've built a proprietary platform where we fully own the experience stack, it allows us to test, iterate, rapidly deploy unique experiences for our customers. And this is housed within our unique business model, which delivers the best of both worlds. We've got the speed, the innovation, the reach of the fintech with the stability and the resiliency of a bank.

We excel in generating a high-yield asset. We combine that with our low operating cost model that allows us to deliver enormous value for our borrowers, value for our loan buyers and value for our shareholders. And we also have the ability to optimize between the balance sheet and the marketplace based on market conditions. So Drew is going to come up, talk a little bit about business model. He's going to be joined by a panel of our investors, who will talk a little bit about what they appreciate about LendingClub and about the asset class.

So clear strategy, compelling competitive advantages, when you add it all up, the math is very, very simple, and the path is clear for us to deliver sustainable growth and outsized shareholder returns. So our CFO, Drew LaBenne, is going to join us and share both our near term and our medium-term targets. And then you'll be able to see why you can be as bullish on LendingClub as we are.

So I want to talk a little bit about the customer that we base our strategy on. So what you see here is the U.S. census divided by income. And just applying common sense to this chart, you would say, those people on the left, lower income, they have less access to credit, less ability to access credit. And those people on the right, over $200,000 in annual income, they have less need for credit because they can pay cash for most things.

So logically, you would think LendingClub would over-index in the middle, and that is true. So this green line shows our issuance this year. And what you see is versus the U.S. census, we dramatically over-index to these customers between $50,000 and $200,000 in income. We call them the motivated middle.

They represent about 32% of the U.S. population. They are goal oriented. So they make deliberate responsible use of credit to accomplish their goals. They are digitally capable. They go online to research their options, they're value conscious, and they're willing to engage in new relationships to achieve that value and help them accomplish their financial goals. Their FICO score is slightly better, but pretty in line with U.S. average, very solid, 719.

But where they stand out is their income. It is higher than average. So it's individual income of $121,000 versus the average of $75, 000 for the U.S. What that higher income means is they have higher access to credit. So even though they're only 32% of the U.S. population, they're nearly half of the nonmortgage credit wallet.

And when you look at them, this -- the first column there shows what percentage of these consumer credit products our customers hold and then how that indexes to the U.S. population. So they're far overindex for every form of consumer credit versus the U.S. population. And the size of that credit and the size of those loans is actually larger as well in everything but mortgages.

So this is a hugely attractive customer base for a credit-centric digital bank and banks are serving them very poorly. I said they go online to find value. And that's because banking is no longer a place you go, it's something you do. It used to be that you chose your bank based on proximity. And because of that, banks did not need to earn your loyalty.

They just needed to be conveniently located. They relied on that branch location to bring you in. They offered you a lower rate on savings than you could get elsewhere. They charge you a higher rate on the loan than you could get elsewhere, and consumers didn't change behavior. That paradigm has shifted dramatically. This is just over the last 5, 6 years, you can see a dramatic shift to mobile. So after decades in which branches were the deciding factor and branch-based factors were the deciding factor and what people chose for banking it has shifted to the utility of the mobile app.

And that's where LendingClub really shines. We have a highly automated model where we officially generate our assets and deliver compelling value to customers. So for those people that value the utility of an online experience, they go online, looking for value they find us.

So first is unsecured credit. The dominant way people access unsecured credit is credit cards. The average rate on a card that is carrying a balance today is 23%. That's outrageous. It's nearly double what it was 20 years ago.

LendingClub offers consumers access to unsecured credit, 700 basis points less than that, 30% savings on [indiscernible] credit card. And again, that's due to both structural inefficiencies with credit cards that are supporting rewards programs and supporting people who aren't carrying balances as well as our efficiency and our underwriting which you're going to hear more about today.

So that's for people looking to borrow money, what about people who are saving money. Well, at the large money center banks, you get a basis point on their savings accounts. Unless you have $1 million at which point you can get 2.5%, 250 basis points.

LendingClub, no minimum balance required. All you need to do is engage in ongoing savings behavior, it gets 420 basis points. So 420x what you're going to get on your savings. So that's a better deal. So they go online looking for a better deal, and it's very easy to shop for solutions. There's just a few websites people go to when they're comparing bank offerings, loan offerings.

Each one is slightly different in terms of how they prioritize their offers from their listing partners. How important is the rate? How important is the experience, how important is your ad budget, how important are the features you have in your product. We optimize our offering for each of these different partners and it's working.

We are winning and we are getting the customers we want. An example is that a leading loan aggregation site when our offer is shown side-by-side with the competitor offers, we convert 50% more customers than the competition. And so it's not just rate that drives success. It's also our experience.

So a new customer to LendingClub, somebody we've never seen before, takes the less than 5 minutes to complete an application for repeat customers, you'll see later today, significantly faster than that. 90% of these loans are fully automated, straight-through processing. That delivers real value to the customer and that you can see that in our Net Promoter Score, which is near twice what you would get as a typical bank.

And that leaves our members wanting to do more with us. 83% say they want to do more with us. And they are doing more with us. This is a real member story that I want to share because it really exhibits how customers borrow better from us, move forward in their lives, come back and borrow again. And I want to say this is before we had an engagement strategy before we had a bank balance sheet.

Raymond came to us in 2015, he had a medical expense that he decided to take out a personal loan for instead of putting on this credit card. FICO score, not so great, but strong income, came back 4 years later to consolidate his credit card debt. Look at the improvement in his credit score, its income also went up, came back 4 years later than that and refinanced an auto loan with us. FICO Score almost perfect income all the way up at the top.

So we spent $200 to acquire Raymond and he generated $2,500 in revenue for the company. So that's for us. What about for Raymond? Raymond saved thousands of dollars, thousands of dollars by using these products. And you would think if he values this experience, and he's coming back over and over again, he likely values the payment, making the payment and staying current on this credit high up in his priority list and you would be correct.

This is a recent study that just came out from FICO. I said that personal loan borrowers are 64% more likely to pay their personal loan before their credit card 64%. This is not the first time a study like this has been released. Several of the bureaus have released similar studies. We also see this in our own data. So customers really value their ability to access credit. Go back to that chart, this motivated middle. They are using credit to deliberately move their lives forward to get things done and to power their choices, and they come with high intent to pay.

So I've laid out the strategy and engage the motivated middle, click them into an engagement experience and add other products and services. I'm going to turn it over to the team to get into the details of how we execute against these competitive advantages and they're going to provide concrete evidence, a lot of new information we'll share today that this strategy is working. So the first step is our unmatched advantage in underwriting. I'm going to turn it over to Kiran Aware, who's our Head of Credit strategy.

Thank you, Scott. I joined LendingClub in 2021. Before that, I have nearly 2 decades of experience in managing consumer credit across multiple large financial institutions such as HSBC, Capital One and Wells Fargo. During that tenure, I had opportunity to manage multiple credit cycles across different broad range of customer segments. I joined LendingClub because I believe advancement in machine learning as well as modern distributed computing, provide a strong foundation for a smarter credit framework.

Scott already mentioned, lending is a data problem. That's exactly why here at LendingClub, we have built a credit system that is rich in data, technology forward and driven by experience. We have nearly 2 decades of experience in underwriting consumer loans across multiple cycles, and that has given us a significant data advantage.

We have built one of the richest and most powerful data sets in the consumer lending space. We have decisioned over 100 million applications that provides how borrowers have evolved over time. We have validated about $1.6 trillion in loan demand that enables precision in credit distribution. And we leverage more than 150 million data serves across different payment patterns, credit bureau history, cash flow behaviors, fraud signals.

All this depth in the data paired with years of applied learning, use LendingClub a structural advantage. And it's not just about data. It's about how we use this data across the entire life cycle, from underwriting, fraud, all the way to collections. This advantage translates into 3 clear proof points.

First, our superior underwriting delivers 40% lower delinquencies than our competitive set. Second, we have one of the lowest fraud loss rate in the industry, driven by our AI power fraud defense system. Third, we have consistently delivered 25% better recovery rate than our competition through our smart collections. These trends add up to our end-to-end credit advantage, delivering superior loan economics.

Let's start with underwriting. That is the foundation of how we manage risk and create value. With nearly 2 decades of experience, we have developed one of the most advanced and customized machine learning ecosystem in the consumer lending space.

Now you hear a lot of people talk about AI, and that term gets used very, very loose. When it comes to banking and underwriting specifically, the real work house, the predictive science behind AI is machine learning, which is what we really have an edge in and we have been refining it for years. So let me give you a quick peek inside our box.

We have over 60 tailored production models that are powering our decisions across underwriting, pricing, fraud, collections, marketing. We have more than 250 custom decision strategies that are finally tuned to customer segments, acquisition channels, loan usage, loan size and so on. And underneath it all, we have nearly 3,000, yes, 3,000 engineered customer attributes that goes far beyond what a FICO score can ever capture, behaviors like cash flow, digital engagement and much more.

When you put all that together, it gives us an ability to distinguish borrowers that may look very similar to a FICO score, but they behave very differently. Let's bring that to life with a very simple and a real example. We have 2 borrowers, borrower A and borrower B, very similar FICO income and credit card balances.

To the traditional model, those 2 borrowers look very identical. They will be approved with more or less very similar price. However, their behaviors and their underlying risks are very different. Our custom attributes and models, they don't rely on a single snapshot in time. They look at trajectory. They look at how borrowers' behavior have evolved over time before they apply for the loan.

As you can see in this chart, borrower A is a debt consolidator and deleverage. Borrower B is a debt sprinter. He is rapidly accumulating debt. This behavior won't be differentiated by a traditional model. But our machine learning platform does, and it acts upon those insights. We approved borrower A and that borrower has successfully paid off our loan. We rejected borrower B that borrower was approved by our competitor and charged off in 6 months.

Let's benchmark ourselves to one of the well-recognized industry standard FICO. In this chart, we have taken an applicant pool score with FICO and ran the population from lower risk on the left to the higher risk on the right. We took exact same population and score with our proprietary model. And what you clearly see is our model significantly outperforms FICO. In fact, it is 12x better than 5.

The model is able to identify very accurately high-risk borrowers, prevent those losses and give better investor returns. Additionally, it is able to identify more high-quality borrowers give them better pricing and lower their cost of credit. There's another way to look at the power of our model.

In this chart, we are going to compare LendingClub's underwriting to that based on traditional FICO-based model. FICO-based model hits a given default rate after approving 30% of the applications, whereas LendingClub's model, with this richer data and machine learning precision approves up to 72% of the application before reaching the same level of default rate. That is that is 2.4x more approvals within the same level of credit risk. This is a massive growth advantage, more addressable customers, more revenues, all within the same credit risk appetite.

Beyond the model, success requires ability to read signals in real time and adapt quickly. Macroeconomic conditions are constantly evolving, and that requires constant testing for credit optimization. Our balance sheet enables and gives us an ability to test, learn and innovate quickly.

We run 200-plus tests at any given point in time, we draw insights from 500-plus weekly experiments. This high-frequency testing enables a refinement for our models and strategies based on real-world outcomes. We have a very flexible platform where we can implement all these tests. Just this year, we have implemented 250 changes to refine and optimize our credit outcomes. And in fact, when things were challenging during the inflationary period, we have executed over 630 changes to manage our credit performance.

Behind all these changes is experience. We have more than 300 years of experience on our team that allows forward-looking risk assessment and disciplined credit risk management. For example, post-COVID, where no model was built for, a lot of the lenders kept relying on inflated scores. Our experienced team was able to see beyond the models. They were able to extract the signals from the stimulus distortions, took the right actions and protected the investor returns. This prudent approach and ability to look beyond models is part of [indiscernible], and the proof is in the numbers.

What you see on the chart is the credit performance comparison from Fitch and you can see LendingClub has consistently outperformed the competition. In fact, we have consistently delivered 40% lower delinquency rates than our competition. And don't just take my word for it, the federal [indiscernible] of Philadelphia independently concluded that LendingClub rating system is far superior to the traditional measures of credit risk when predicting likelihood of [ default]. This level of extent -- this level of external validation is very, very rare, and it further reinforces our credit strength.

Let's turn to fraud, when someone is trying to game our system. We have one of the lowest fraud rate in the industry, and that has been the case for years now. Our AI back fraud detection models, analyzes more than 400 signals from identity, device, financial behavior, network attributes and make a decision in less than 1 second, combined with 20-plus third-party integrations, this ecosystem creates a defense layer that is fast, accurate and dynamic.

Let me give you some examples on this slide. First, we detect multiple logins and countered IP flagging potential synthetic rings. Second, we are able to spot geo dislocation when an address is in Texas, but the login is from Florida. Third, we are able to detect new and suspicious e-mail address patterns to domain age, history and digital activity.

The results are very clear, near 0 fraud, strong customer trust and superior loan economics. Even with the superior underwriting and near 0 fraud, some borrowers do face life events. And when they do face life events, they'd like you to fall behind their payments. We have invested over $50 million in building a modern, smart AI-assisted collections platform that helps them when they need it. It is built on 3 pillars.

First, our proprietary early detection system. Our machine learning behavior score analyzes the changing patterns and profile of the consumers and segments them to a right collection strategy when they're likely to miss a payment. That enables us to intervene sooner and smarter. This precision drives 10% of outperformance against the competition in early stage roll rates.

Second, our customer-centric engagement. We engage customers through omnichannel outreach to self-service tools. We also have empathy [ later ] hardship options for them when they need it. This customer-centric engagement helps us resolve 40% of delinquencies through self-service. And guess what? That's lower cost to collect with a better customer experience.

Third, leading recoveries. We have diversified post charge-off recoveries that we optimize across multiple channels, such as debt sales, agency partnerships and settlement. This approach has consistently delivered 25% better recovery rate against the competition. When you put all these investments together, it creates a best-in-class collection platform. that delivers consistently sustainable, resilient, profitable portfolio performance.

So to close, LendingClub's credit expertise is built on nearly 2 decades of data advantage, enhanced by machine learning and AI and guided by our years of experience. Simply put, LendingClub's great advantage is proven, durable and nearly impossible to replicate. With that, I will turn it over to Steve to talk about our product and experiences. Our unmatched care advantage is deeply and rooted in these products and experiences.

Good morning, everyone. I'm Steve Mattics. I am Chief Lending Officer at LendingClub, and I've been with the organization for almost exactly 6 months now. I joined from U.S. Bank, where I led their credit and debit business, which served over 15 million consumers and small businesses.

And the reason I joined LendingClub is because it was quite apparent that we all had all the ingredients, the conviction and ambition to drive outsized growth in the short, medium and long term. And I stand in front of you 6 months in, even more excited than the day I joined because it's that we're already on our way in that road map, and I hope to share quite a bit of that with you today.

But first, we have a short video where we can hear directly from 2 of our members, how lending products help them move their lives forward and which is the thesis of my discussion, which is products that attract members for life. So let's start the video.

[Presentation]

So that's a great video that shows an example of smart borrowers borrowing better. We've crafted purpose-built products to allow customers to borrow better and take charge of their financial freedom their lives forward. And as a result, our members develop an emotional connection with LendingClub.

Our customers come to with conviction. They don't borrow to spend, they borrow to move their lives forward. And we intend to be there for every smart borrowing they have the start borrowing need that they have, whether it's consolidating debt, lowering a monthly payment, funding an important life choice and more. And when the customers do move, they come back again and again.

Remember, Raymond came to us with a need to pay off a loan. I think he came back 4 years later, consolidated debt, improved and then came to us again 4 years after that to open an auto refinance loan to save even more. That's part of embedded growth engine where customers come to us to borrow better, they move forward and borrow better again, and you'll see more of that moving forward.

So let's start with our core personal loan business, the business scaled on debt consolidation. So U.S. consumers are currently carrying about $1.2 trillion of revolving debt. That's an all-time high or near it. And Scott mentioned earlier that debt is at an average rate of about 23% and also near an all-time high.

So we leaned into this problem and created a simple solution for customers, an installment loan with an affordable fixed monthly payment at a lower rate, so customers save money. And this has been our entry point for many of our customers, 82% of customers come to us primarily for debt consolidation. And when they do, they see immediate, measurable value.

Scott mentioned earlier, customers, on average, save 700 basis points on their APRs when they consolidate a loan with us. And even more, customers see a 3-point average improvement in their FICO score within just a few months of opening their loan with us. That is borrowing better.

It's all backed by a seamless digital experience. Customers can apply in minutes, get approved in seconds and get funded in hours. There's no jargon, no hidden fees. And for customers to come back for a repeat loan, they get our fastest and best experience to prefilled, you know me application that takes literally seconds and it works. 50% of our annual issuance comes from repeat borrowers. And better, 88% of those repeat borrowers come to us directly that drives massive efficiency in our customer acquisition costs. And when customers do come back for repeat loans, they don't just come back once, we saw with Raymond.

On average, they come back between 3 and 4 times. That's our embedded growth engine. So we've been driving strong recent growth in our personal loan business, and we're confident in our ability to drive meaningful growth in the short and medium term.

So I'm going to talk to you about 3 key areas of focus and investment that we're confident going to drive that growth. The first is our application funnel, driving efficiency in our application funnel. We're constantly optimizing the application. We're removing fields, or streamlining the flows, optimizing the experience, removing friction wherever we can.

Think of this as a dynamic experience based on the customer's profile. If we know more about you, we'll ask a little less, if we know less about you, we'll ask more. And it's important for us to focus here because we take in about 1 million applications a month, so small changes make big impacts.

Let me give you a great example of something we've done recently. So we recently started embedding AI assistance into our document verification process. Now you heard Scott earlier say that 90% of our loans are straight through processed, but there are times that we need to ask for additional information.

For example, a self-employed borrower where we have to verify their income or a recent mover where their address doesn't match what's on the credit bureau. We ask for that information and then verify it. And these AI assisted flows have greatly reduced the time it requires to verify those documents.

What used to take over a day to now we can do in minutes and seconds. And that speed and ease drives real throughput. Based on the pilot we're running right now that we're about to roll out, we're confident we're going to drive 9,000 incremental loans annually from that change and we're constantly doing these experiments. We've already done 125 of these optimizations or experiments this year, and we anticipate doing many more than that in 2026 to drive growth.

Second big area of focus for growth is channel expansion, primarily expanding our marketing channels. We spend a fraction of what our competition does in paid marketing. And there are several key marketing channels that we're just not activated in at the moment. So we've been focusing this year on growing our partnerships.

We've started maturing direct mail and just in the last month or so, we've been investing heavily in experimentation on paid digital marketing, particularly paid social and paid search. We know these channels work, both from recent, not too distant experience at LendingClub as well as those of us who worked with other companies and seen the efficacy of these paid digital channels.

Our path of travel after experimentation, optimization and refinement is to activate all of these channels. And with our high confidence in seeing these work so well, we're quite sure we're going to be able to drive $2 billion of incremental annualized issuance from these channels by activating them.

Third area of focus is product innovation. Let me give you a great example of a recent innovation that's driven real value for customers and for LendingClub, our top-up loan product. So the 4 customers would be paying their loan with us and they would have an additional need a new expense or something else that they would need to consolidate that on.

And before they have to apply for a second loan, that comes with all the complexity of having a second payment, different tenures, managing all of that and with our top-up loan product, we solve that problem. Customers can now that old one into a new loan. They can bring in their additional needs as well as cash and customers absolutely love it. 93% customer satisfaction rate out of the gate.

And from a standing start after launching it last year, we've grown that to $1 billion exit rate coming out of this year and growing. We have -- this is also a great example of our opportunity to test products on our balance sheet and refine them, optimize them and really take the thoughtful approach before rolling them out.

This is just one example of many. We have several of these in our road map right now that we're anticipating launching next year to drive additional growth. So let's put it all together for personal loans. So total issuance, personal loans and everything else is about $10 billion right now on an annual basis. We are confident that we're going to grow our personal loan -- core personal loan business by $5 billion to $8 billion over the medium term for all the reasons I described, funnel efficiency, expanding our marketing channels as well as product innovation, not to mention that embedded growth engine of repeat borrowers.

So now let's talk about our product that leverages all of our core advantages, underwriting products, experiences, tech, our platform to save customers even more money. And that's our auto refinance business. Auto refinance is a huge market, almost $0.5 trillion. And these are customers that are burdened by structural inefficiencies that results in them paying more for their loan than they should.

Great example of that is dealer markups that are up to 250 basis points of additional APR that customers end up paying. We've got a simple solution for this, an easy application, digital application that takes customers literally minutes to fill out, and we take care of the rest. And when they do, they save real money.

On average, our auto refi customers save $2,400 over the life of their loan. And when they move forward like that, they want to do more with us. Our auto refinance customers, we see almost 60% of them have applied for a personal loan. So it's another great example of the member flywheel. It's our embedded growth engine, borrow better, move forward, borrow better again.

So we've shown a couple of great examples of how effective our model is in a direct-to-consumer model. I want to talk about a place where we're showing how well the model travels in a [ B2B, B2C ] distribution model as well. Again, we want to be there wherever a customer has a smart borrowing need and major purchase financing is one of those great opportunities.

So what is major purchase financing that's smart borrowing for life's important choices. This is embedded point-of-sale financing for things like elective medical, elective dental fertility treatments, education and tutoring and select high-ticket retail. So massive market, $200 billion of spend annually.

These are expenses that customers shouldn't or typically don't want to postpone and when customers are faced with one of these expenses, these life choices and they want financing, they want a couple of things. They want fast approvals. They want affordable payments from a trusted brand. And the providers in this space, they want high approval rates, they want reliable real-time funding, they want higher conversions.

Let me give you a great example of how we're already establishing an advantage in this space, backed by the great underwriting the advanced underwriting that Kiran discussed. We recently did a head-to-head test against one of the largest lenders in the space, one of the largest competitors said a new plant dental provider. And when we compare our underwriting to their underwriting, we won 80% of the time. We won 2 different ways. One way we won was by approving customers that competitors did not. And then the other way we won is even when we approve the same customer, the customer chose our offer way more than they did the competitors.

That's a real advantage for our partners. That's more yeses and that's more revenue in their pocket. It's all backed by a seamless digital experience for both customers and providers. customers can apply on their mobile phone, they can get approved in seconds, and they know exactly how much to budget for that procedure before their appointment. And providers get status of every single one of their -- the loans that are in process, and an analytics suite to help them run their business better, not to mention fast, real-time funding via our API suite.

These experiences are deeply embedded in the partner's ecosystem to remove friction and increase switching costs? So we've been growing this business strongly. We're going to exit 2025 at a $1 billion run rate on this business. We've already scaled elective dental. We're scaling elective medical, moving forward on education, tutoring, we just launched ophthalmology and wellness practices, and we've been piloting select high ticket retail as well.

And given our success in this B2B2C space, we're excited to share our entry into the next natural adjacency, leveraging all of our advantages. That's home improvement financing. Home improvement financing is a huge market, $0.5 trillion in annual spend. And this is growing and even more important now given that given the aging housing stock and the customers are staying in their houses quite a bit longer than they used to, market is fragmented, capital-constrained lenders, suboptimal underwriting, lackluster experiences. And we already have many of the capabilities to be successful here from our major purchase finance business.

We have the underwriting or have the experience in large ticket loans. We have the B2B2C customer management capabilities, and we have the reliable funding needed in this space. We do have to build a couple of new capabilities, specifically vertical-specific technology, contractor specific technology as well as home improvement distribution to go to market.

But we're jump-starting our entry. We've got 2 announcements today that both relate to those 2 capability that we need to build to win here. The first is that we acquired the code and select engineering talent from the former fintech lender [ Mosaic]. [ Mosaic ] has built a fantastic contractor centric digital platform that is purpose-built for the home improvement space. And by buying this technology as well as the team to run it, massively accelerates our capabilities and our time to market much faster than it would be to build it ourselves.

The other announcement is we've -- we're entering a strategic distribution partnership with [ Vista]. [indiscernible] is a fast-growing lender in the home improvement space. They have deep integrations with software vendors and service platforms that serves a network of about 40,000 contractors across the U.S. This is a multiphase fascinated partnership that's going to culminate with us underwriting high-ticket loans on behalf of [ stack ] and book those customers of LendingClub members on our platform. This is a win-win for [ iStack], they get to have immediate success in the high-ticket project space. And for us, it gives us entry and distribution almost immediately.

So let's put it all together. We're anticipating doubling our originations over the medium term versus where we are today. I already mentioned the $5 billion to $8 billion of core personal loan growth that we're highly confident in. In addition to that, we're anticipating growing our major purchase finance, which includes the home improvement entry that I just mentioned by $2 billion to $3 billion over where we are today as well as an additional $1 billion of growth coming from our secured products including the auto refinance. So all in all, $18 billion to $22 billion of our loan growth.

So to recap, we are where smart borrowers borrow better. We want to be everywhere our customers have smart borrowing needs. We prove the model of debt consolidation, shown that the model travels in major purchase finance and home improvements are next natural scalable adjacency. It's a huge, huge opportunity for us, $2.5 trillion of addressable spend. And it's all amplified by our embedded growth engine where customers borrow better, move forward and they borrow better again.

Thank you for your time. I'm now going to turn it over to Mark Elliot, our Chief Customer Officer, who's going to talk about our third core advantage, which is experiences that keep members coming back.

Thank you, Steve. It's a pleasure to be here with you today. My name is Mark Elliot. I'm our Chief Customer Officer. I've been here about 2 years after spending about 20 years in consumer banking, mostly at larger institutions like Capital One and JPMorgan Chase. And one of the main reasons I joined is for a long time I've had a really deep belief that banking remains broken for most Americans.

And what I saw in LendingClub was a company that had both the foundational elements and the scale to make a real difference in people's lives. You've actually seen the impact we can have on people's lives today. You've seen real examples of how much money we're saving our borrowers. You've also seen how easy we make it.

But one of the challenges that we've seen over the last few years is that our loans are episodic by nature, especially when you consider that when somebody sets up alone, the vast majority of them set up auto pay, they have a fixed payment date and a fixed payment amount. There weren't a lot of reasons for them to come back. So a few years ago, our borrowers might interact with us only a few times over the life of their loan.

But they told us time and time again, they wanted to do more with us. So we asked ourselves, imagine what we can do if we actually intentionally engage our members as a lifelong partner. And engagement really matters because what we have found is that those who are engaging more often with us are much more likely to go down that lifelong lending relationship lending path that Steve shared with you.

We ask our members, what are the kind of things expected from us? What would they like to see from us that would incent them to do more. And the answer was pretty clear. They want convenience, insights and value. If we can deliver these things to them, they're more likely to come back to us for their future borrowing needs will be top of mind. And that matters because again, repeat issuance is one of the core drivers of issuance, lower cost and better credit outcomes. Let me actually bring the financial impact of this to life for you for a second.

Single loan borrowers are very profitable for us, and Drew is going to share more later about the core personal loan economics. But once again, I'm going to remind you about Raymond, that borrower who came back to us several times for different needs over the course of many years.

When our members do more with us, the impact is not linear. It's actually exponential. Borrowers who get 2 loans from us, we see 2.6x the lifetime value, again, driven by that lower marketing cost and better credit performance. But the real magic is with those lifelong borrowers who borrow more than twice from us, we see that number jump to 6.5x the index lifetime value.

In order to continue to accelerate this, -- we've delivered a set of intentional engagement experiences to drive this flywheel. Custom designed for the motivated middle who are not getting their needs met by traditional banks. Increasingly, we are top of mind when they have a need we can address and not an episodic lending relationship. As Scott started the day, it all starts with mobile banking. Mobile banking is increasingly the core element of consumers' financial engagement.

And as a reminder, a few short years ago, there weren't a lot of reasons for people to engage with us regularly. In fact, 2 years ago, only 25% of our borrowers would log in, in a given month. But our members told us they were demanding a better banking experience. They wanted us to meet them where they are. It's a dentist office, when they're meeting with a contractor to talk about home improvements and yes, of course, in their pockets. They wanted us to deliver this convenience on their terms.

So we built a custom banking and lending mobile app to deliver for them, and we started encouraging our members to use it as part of the loan experience. And there's also far been impactful. In 2 short years, we've seen that number digitally active monthly customers jump to about 42% of our borrowers. And those who are logging in are logging in 50% more often.

It's not just enough to have a mobile app. You have to deliver a great experience, and we're delivering. In both the Apple App Store and Google Play, we have great ratings and reviews, and this is something we monitor very closely, and we actually take a lot of the feedback to continue to improve and make the app even better. Increasingly, this is also a critical decision criteria that consumers weigh when they're considering a brand they haven't used before.

This investment we made in convenience is already paying off, and I'm going to start showing you how it's paying off with issuance. By making it incredibly easy for our borrowers to apply for another loan, we're seeing that they're embracing the app for their borrowing needs.

So if you go back to the first 3 quarters of -- if you go back to the first 3 quarters of 2024, we saw about $66 million of issuance directly in our app. Same time period this year, that number jumps to over $360 million. And just to give you a sense of how quickly this is growing and while we do see some seasonality in our issuance trends, our September app issuance when we annualize it is over $700 million.

For members considering alone, the app delivers a convenience and easy experience for them and for us, it gives us full control over that experience. We can decide what offers we want to deliver to them, when and how. We have seen those using the app are more likely to do more with us. This allows us to continue to scale that repeat issuance, while we invest in new channels for growth.

Of course, we've also spent a lot of time developing and improving the app for servicing. And as we've done that, we've seen a 20% decline in calls from our members who are digitally active. This not only reduces our cost, but more importantly, delivers a great experience to them as well. We're now delivering everyday convenience. So it's one of those core drivers I talked about earlier around engagement.

And so with that in place, we're now focusing on some of the other elements around insights and value. And for us, Insights is going to start with our core lending proposition and a product we call DebtIQ. DebtIQ delivers free debt and credit insights to our members, helping them after they get their loan with us, but also importantly, giving them a reason to come back. I'm going to share a little bit more about the impact we're seeing from DebtIQ in a second.

On the deposit side, we have level of savings, a product that delivers a great everyday value to members, but importantly delivers even more value if they save each and every month. One of the things Scott talked about is we really want to be a brand that encourages our members to go down the right financial path and exhibit good financial behaviors.

And with level of savings, we're rewarding them for that. And then [ level up ] checking. This is our first deposit product designed from scratch explicitly for our borrowers. We'll offer 2% cash back for on-time loan payments, again, incenting the right financial behaviors and 1% cash back on essential debit purchases like gas, groceries and drug store. Again, encouraging the spend money they have for everyday spend, not necessarily use a credit card and potentially use money that they would have to borrow.

So how are these products working? Well, I'll start with DebtIQ. DebtIQ addresses a very specific problem that we've seen for the motivated middle, a lack of transparency and control over their debt. They often have multiple cards, all with different interest rates, which are nearly impossible for them to find, different due dates and different payment amounts.

We did research with our members, and we found that they were resorting to spreadsheets or Post-Its to try to keep track of it all. DebtIQ brings all of that information in the palm of their hands, at their fingertips, giving them convenient control center for keeping track of it all and, importantly, insights in an ongoing way, real time into their debt and interest rates that they're paying.

The response so far has been amazing. We've seen a 65% year-over-year increase in our active DebtIQ users. And again, now that there's a reason for them to come back, a 50% increase in the login rate for our members using DebtIQ. When they log in more often and they come back and they're keeping track of their debt and credit, they're more likely to do more with us. In fact, we see 20% of our repeat loans are coming from our DebtIQ users. This is a tool our members love and, of course, it keeps us top of mind for them.

On the deposit side, in August of 2024, we launched LevelUp Savings. Our primary goal with LevelUp Savings was to fund the continued growth in our balance sheet, and we've actually been very successful. This product has reached nearly $3 billion to date. We've also won awards, including one from Money Magazine for Best High-Yield Savings Account in 2025 and the same award from Motley Fool in 2025 as well. I'm also actually very excited to announce that this morning, Motley Fool announced we won this award again for the second year in a row for LevelUp Savings, Best High-Yield Savings Account.

But what's been really interesting is not necessarily just the issuance of the awards; it's been the response from our borrowers. We leveraged the exact same convenient experience Steve talked about when they get [ on their ] loan from us and made it just as easy for them to open up a savings account with us. And as we've done that, what we've seen recently is 13% of our level of savings accounts are coming from our borrowers. Two-thirds of them are saving that $250 a month and getting that LevelUp Savings rate. We're delivering value to them, reinforcing that brand story about encouraging positive financial behaviors and, of course, building long-term loyalty to LendingClub.

And what I'm really excited about is that moment when a borrower is either about to pay off their loan or has just paid off their loan. Perhaps at that moment, they don't have another borrowing need. Rather than say goodbye, we now have the opportunity to encourage them to take some of that monthly budgeted loan payment and turn it into savings here with us, and they can do it in a few clicks.

For our borrowers who have opened up a LevelUp Savings account, we've seen their engagement rate triple. They're logging in 3 times as often. And just to reinforce a point Scott made earlier about the attractiveness of the motivated middle, we're winning our borrower savings dollars from other banks. And as we're doing that, we're seeing our current and former borrowers grow these savings accounts to over $10,000 on average.

But what we're really excited about is our new product LevelUp Checking launched in June of this year: again, our first checking product designed from scratch for our borrowers. It's getting noticed in the market, including with a glowing review from Bank Rate. And even early days, it's already delivering results. We've seen a 7x increase in our daily check account openings since launch.

Again, we designed this product for our borrowers, and it's resonating with them. 60% of our new checking accounts are coming from current and former borrowers. This is very much by design and exactly what we were hoping to see. And in this short time, 8% of our borrowers who've opened up a LevelUp Checking account have also opened up another loan.

I mentioned earlier that delivering value is one of the core tenets to drive long-term engagement. And this product is delivering: value for our members and for LendingClub. We're tracking to deliver about $200 in annualized cash back to our borrowers using this product across both their loan rewards and their debit cash back.

We've also seen a 400% growth in the number of loan payments being made to us directly from a LendingClub deposit account since launch. This gives us more data and insights on their income, on their spend, and through the value we're delivering to our members, more engagement and brand loyalty. And as a reminder, customers are only rewarded for on-time loan payments. It's good for them. And of course, it's good for us and our loan investors.

We actually reached out to our customers who opened this product and asked them what they thought about it. And the answer is they love it. 84% of the customers we surveyed said this product makes them more likely to consider LendingClub for any lending needs they might have in the future. I'm not going to read the quotes on the page, but it's really clear that the value we're delivering resonates with our members. And this will only accelerate the lifetime lending flywheel Steve talked about earlier.

So if you take all the things I shared today, how can this transform our model over time? Well, it's actually pretty dramatic. When we look at members whose relationship spans a loan, DebtIQ and LevelUp Checking, the impact is nothing short of transformational. Now as a reminder, I started this presentation sharing that fewer than half of our typical borrowers might log in and engage with us in a given month. But for our members who have a loan, DebtIQ and LevelUp Checking, that number jumps to over 90%. This population has grown by 6x since we launched LevelUp Checking this year.

We're driving a profound step change from a quarterly to a monthly and now more than weekly relationship with our members by intentionally delivering convenience, insights and value to them. Lukasz is going to share more later about how these products come together in a great experience for our members.

And as we expand into new verticals, this competitive moat we're building is only going to grow larger. The engagement model combined with the product expansion that Steve shared will turbocharge our embedded growth engine as we scale purchase finance, auto refinance, home improvement and more. Every engagement moment is an opportunity for us to clear the way for the motivated middle and help them move forward.

Scott started the day sharing how we're a very different company than we were just a few years ago. And that's certainly true with our engagement model. Our engagement model is driving results. It's built on [ proved ] success driving lifelong lending relationships with our members. And it's built on elements that aren't easily replicated, a loyal member base that wants to do more with us, an app custom-built for the motivated middle across banking and lending, and products and experiences intentionally designed to deliver value and drive engagement.

Lukasz is going to share more about how our technology drives this competitive advantage and enables these great experiences for our members. But first, I'd like to call the morning presenters up for Q&A.

Okay. So happy to take any questions. I think Artem back there has got a microphone, so just raise your hand. I know some of you have read ahead. But in fairness, we'd like to keep questions on the materials from the second half of the day for the Q&A session then. So ideally just keep it limited to what we presented this morning. .

Crispin Love, Piper Sandler. So just first on just home improvement, definitely an interesting opportunity. Can you discuss how you expect to leverage your current personal loan members or past members? You talked a lot about repeat borrower. So is there a meaningful cross-sell opportunity there? And then what percent of your current LendingClub borrowers are homeowners today?

Yes. So I'll start just on the customer. So our customers are kind of, average likelihood to own a home, roughly half of them own a home. The personal loan, as you all can imagine, you can use it for anything, and that includes home improvement projects. We do see that behavior today. It's not an experience we've leaned into. We haven't marketed it as much as we have the debt consolidation just because that particular use case is so easy to market and the need is so big.

Here what we're doing is embedding it into kind of where that decision is made, which is at the point of purchase. I think the big thing for us is we're already in this major purchase space delivering services through other providers. And because we're able to read the data that we're getting on this massive direct-to-consumer business and just apply that data and those -- the experience we've built to this model, we're just seeing an ability to really, really win, which is what's given us conviction in the home improvement space.

I don't know, Steve, if anything you'd add there?

Yes. Just to reiterate, not so much cross-sell to the existing member base, but embedding at that moment that matters, right, with the contractor or software vendor or another platform. However, we do -- we're incredibly optimistic about the fact that we bring members on via those new distribution points, that we will be able to effectively cross-sell other products, primarily loans, leveraging the engagement strategies that Mark talked about.

Reggie Smith with JPMorgan. I would love to dig into your underwriting capabilities a little bit more. Just thinking about what's the source of your, I guess, data advantage in underwriting. Is it checking account banking data? Is it more granular FICO data? So I was hoping you could talk about that.

And then as I think about what's driving incremental improvements in your model, is it more data or is it like better computational power?

And then finally, you had a slide, and I've seen it before, where you show, I guess, delinquencies at 9 months. And the way I've always thought about personal loan lending is that there's personal aspect of credit quality and then the macro kind of takes over. And I'm guessing at 9 months maybe is when the macro takes over. Maybe talk about what you saw in the first 9 months and then kind of what impacts performance after that? A lot there.

That's 3 questions, right? So maybe -- do you want to take the first 2?

I can start with what data really drives the decisions. So it's not just one data set. We have complementing data sets beyond bureaus. We constantly look at the trade line information for the consumers. We mine our own attributes. I think I said more than 3,000 attributes are engineered in-house, which are trade line attributes, if you look at debt patterns, how they have changed their behaviors over time. So all of that feeds into the model. So it's not a static evaluation, it constantly evolves because life is changing, environment is dynamic. So we need to constantly look at this evolving signals to say what should be the next signal that we should embed in our underwriting. So it is a very constant evaluation.

And there's also, right, Kiran, Reggie, that we've got our own data. We've been collecting people's e-mail addresses for 18 years. We know if that e-mail address is associated with an employer, and if that's an employer that we verified. Okay, that's a piece of -- you said you work at UPS, your e-mail address is UPS and you are responding via that e-mail. That is a source of information. People have applied with us for all this time telling us this is what they earn. And okay, you say you're a driver for UPS and you earn $250,000. Well, that doesn't square with our own data that we've seen over the years.

So it isn't just third-party data. We also have our own -- how long is it taking you to complete an application. There's a lot that goes in that we are collecting and observing ourselves.

And I guess model improvements and then talking about the shift between, I guess, idiosyncratic risk of the consumer versus the macro and like when that shift occurs and...

Yes. So the 9 months is really more about -- these are short-duration loans and it's hard to get a clear signal month on book. You can't even charge off a month on book too, right? You need to be -- the loan needs to be delinquent longer. So 9 months is basically saying, at that point, we have a very good understanding. There's a high correlation to how they're doing at that point and how the entire vintage is going to perform. So that's why we picked the 9 months.

If you looked at it at 12 or 6, you'd see the same separation of us with others. Nine months is just kind of the test point where we can say confidently we pretty much know exactly how this is going to go, barring macroeconomic, exogenous kind of shock. So you could see a divergence if, for example, COVID hit. But the 9 months is just to say, hey, this data is very stable at this point and we have a good view.

This is Giuliano Bologna from Compass Point. Maybe digging into the home improvement topic a little bit more. The primary use case for personal loans is credit card refi, but there's also a chunk of your originations that are going to go to home improvement already. I'm curious how much data can you gather from that universe that you already have that's already electing or saying, this is for home improvement in the first case? And how much does that help inform what you're doing in the actual home improvement vertical? And how much can you increase the loan size when you actually pivot that way?

So we have been operating at higher loan size in our major purchase finance businesses. And that does provide a lot of information in terms of how those loans came, who these borrowers are and how that actually translates. So I think we think that experience is very much aligned to what the needs and how the consumer behaves for the large ticket.

Yes. And I'd say, Giuliano, it's less -- so as I think Kiran talked about before, we have decision strategies overlaid on top of these models that reflect loan use case, the channel we're getting them through. So I would actually say it's less extrapolating from a direct-to-consumer who came to us and said, "I want to use it for home improvement," but we don't actually know that that's -- right? There's a little information asymmetry there. Are they actually using it for home improvement? Versus in the actual channel where the loan is being delivered by a service provider.

So what we've seen in our purchase finance business is controlling the use of proceeds, just like we do with credit card refi. You say you want to pay off your credit card debt? Great. Here are your credit cards. Click which ones you're paying off, right? And if you don't click them, you're not getting the loan that you want because we're going to raise the rate, we're going to do more verification.

Same thing is true in these purchase finance channels where there's an inherent positive bias there, like I would say the last thing you do before you go bankrupt is not a fertility treatment for $25,000, right? You're -- so there's value in the channel and in the distribution. So we're more extrapolating from that than we are the direct-to-consumer business. But we are applying more broadly all of our data and our models that we've built on the direct-to-consumer business and then tuning them for these channels.

That sounds good. Maybe a question that -- in terms of some of the references in the -- what you're saying in the presentation, in the deck. There's a lot of [indiscernible] near term and medium term. When you think about near term and medium term [indiscernible]?

You didn't get that part about the back half of the day, which is also when hard questions get directed to Drew. Yes, we'll come back to that at the end of the day.

It's David Scharf at Citizens Capital Markets. I just wanted to stay focused on home improvement, just to better understand the asset class. Well, number one, is this -- generally, it's unsecured lending, I imagine. But help me out. I know I evilly think of everybody with a HELOC, and if I want to do something. Is this competing with bank HELOCs in terms of kind of who you're marketing to? To the effect that half of your borrowers already are homeowners, I assume a lot of them have home equity line of credits and -- so a little bit on just kind of who you're competing against and then also the secondary market or I guess the funding channels, third parties that typically fund home improvement loans besides banks on balance sheet?

Yes. So HELOC can be used for home improvement. Obviously, the big difference is taking out a HELOC loan takes you a very long time and requires a lot of paper work. And even today, our customers that use the loan for home improvement, in our research, would say, why did you do this instead of do a HELOC? And they said, "Because you gave me the loan instantly. And it's not that big a loan, like maybe I'll roll it into a HELOC later. But right now, I just want my pool." And so that's what we hear from consumers.

You are correct that over time HELOC would be a more efficient, lower cost means for them to take on that debt. So when we talk about over a longer term what kind of products could we be offering to this customer base that's using us, that certainly would make sense in the mix. But the dominant use case in the space today from lenders that are active in the space is actually unsecured credit. For that reason. You can do stage funding, instant approval and the credit is quite good.

There is a -- we didn't really get into the results, but the unit economics in our purchase finance space are as good or better as the direct-to-consumer in terms of -- I think the credit is probably, what, another 20 points higher FICO or so?

Yes. And it stays resilient through the cycles. Because of the closed-end nature of the use case, it stays more resilient than your regular [indiscernible].

Tim Switzer, KBW. Can you discuss your market share of the personal lending market today, and what's assumed in your new medium-term outlook for origination growth? It seems like the pie is getting a lot bigger with credit card debt at all-time highs. But also a lot of your peers are kind of reaccelerating their marketing efforts to [indiscernible] the opportunity to grow your share.

Yes. So our share is, I'd say, for much of our history, we operate at about a 10% market share. And when the inflationary cycle hit, I think we were quite public, we were not rewarded for this statement, but we said, hey, we are seeing worrying leading indicators in our borrower behavior, and we are going to pull back and we are going to cede market share because we don't like the looks of what's happening. And so that market share shrank to, call it, mid-single digits.

And if you look at just stepping back and say, what do you need to believe for us to hit the growth targets we have? I joined the company in 2010. The industry has grown at a CAGR of about 14%. So it's been one of the faster-growing categories of credit. And our market share is below what we would historically go at. So even if you assumed us returning to, say, our historic, call it, 10% market share with a modest market growth in the single digits, then you could achieve these numbers.

Kyle Joseph with Stephens. Thanks for having us today. I wanted to dig into credit a little bit. Scott, in terms of your introductory remarks, just maybe a naive question, but why is the consumer so much more likely to repay a personal loan above card?

Yes. So it's a great question. And as I said, people find it hard to believe, we were saying, look, our data is showing this, our data is showing this, we can see it. And then, as I mentioned, over the years, there have been multiple bureau studies [ that do that ]. But I think there's a lot there. One is you heard -- it's hard to express -- the reason we presented that video is if you read the reviews on LendingClub and you see what people say, there is an emotional attachment to like, "Hey, you guys were there when I was deciding to do something important," like I said, a fertility treatment or a home improvement project or getting married, starting a business in that case. So there's a real emotional attachment and a desire to be able to access that credit.

I think what you see with cards is our consumers will have an average of 5 cards. They will look at that and say, "Hey, I can pay this 1 loan, I can pay the 5 cards." We think what they're doing is sort of prioritizing where they want to be able to access credit in the future. So they might not pay a couple of cards and keep one current, and then continue to pay their personal run.

Got it. And then just following up on the slide where you highlight delinquency outperformance kind of across FICO bands, just wondering how that performs through cycles. Do you see a greater variance when things are bad, good or kind of cycle agnostic?

I think it's agnostic. So we see it consistent.

What I'd say is -- and I think we've said publicly, Drew and I, multiple times, we don't expect this separation to continue. We're sort of confounded as to -- that it has continued this long. We expected the -- we have multiple times in our history zigged when others have zagged. Kiran talked about the importance of layering the human intelligence on top of the models and the data. So when COVID hit, we pursued a very different servicing strategy than the rest of the market. We put our plans online. We said, hey, we can't -- how do we know who's being affected? We just got to be there for them and help them get through.

It resulted in us having much higher hardships than the rest of the market. Again, we got criticized for that. Fast forward a year later, we had much lower delinquencies and charge-offs because we bridged our customers through that.

Student loan payments were coming, we said, hey, we know those payments are going to resume. Let's start thinking about who might be under stress when those payments are required. And let's start maybe segmenting or separating those people out and being a little stricter with our underwriting there, so that we're in front of this. We didn't wait for the delinquencies to manifest and then adjust our model.

So I do think part of the ongoing separation has just been that, us kind of staying in front of the evolving environment.

Vincent Caintic, BTIG. Thanks for all the information about the growth. So I wanted to focus on that, the different products specifically. If you could talk about the economics of the different products, so how we should think about customer acquisition costs, are they different between the 2, the risk-adjusted margins and the capital usage of each of the different products? And then secondly, the investments you need to get to those great growth rates that you illustrated. You talked about acquiring Mosaic's technology as well as Wisetack partnership, anything else that you need to do?

I didn't hear the second part. Yes. So the first part was just the economics. So the unsecured, as I think I mentioned, across direct-to-consumer purchase finance, the unit economics are quite similar. In fact, maybe slightly stronger in the major purchase, purchase finance space, but very, very similar.

And auto is obviously different, although compared to what you're used to in auto, just to make sure everybody understands what we're doing there. The majority of cars are actually bought preowned, used cars. That's the market we're going after. We are not competing with dealer-supported financing. These are people who bought a used car, the dealer added a markup -- first of all, they might not have gone to the lender that had the best rate. They might have gone to a lender that they got a kickback or a volume-based incentive, and then they added on a markup.

And the dealer was underwriting at point of origination where, let's call it the motivation is a little mismatch, you really, really, really want that car. What we're doing is saying, let's just wait 6 months. Are they making their payment? Great. What happens if I lower their payment? That's probably a net positive for credit. So while the economics are not as strong as a personal loan, they're still very robust.

And then the question was just a little bit more about the partnership with Wisetack and the Mosaic platform.

Yes. So I mean, the Mosaic platform, as I said, it gives us instant -- almost instant ability to develop the contractor specific tech, both contractor and consumer-facing, in that B2B2C environment. We have most of it with a major purchase finance business, but you just need to add an extra to be purpose-built for the home improvement market.

And then like I mentioned, Wisetack is a distribution partnership. It helps us get distribution very, very quickly, and it's a win-win outcome. So we couldn't be more excited to partner with such a great company.

Yes. So there's a few ways you can go. You can actually go to the individual [ practice ] to compare this to our other purchase finance business. We had thousands of individual dentists that use us and offer financing for, again, big-ticket items. This is not a cavity. These are things like full mouth, teeth replacement, those kind of things. But we can go to the individual dentist or we can partner with a corporate provider in the space.

Same thing is true in home improvement. You can partner with a corporate provider, you can go to the individuals. It does require -- the level of oversight and management required on that base is higher, and so -- and also there's some product structural items that are a little bit different. So this accelerates that.

And in the case of Wisetack, it's basically somebody who's already gone out, done integrations with partners and providers, corporate providers, has signed up individual contractors, has vetted them and is working with them. And we're just saying, hey, they're currently capped at smaller loan sizes. They're a nonbank. We are providing the ability to do bigger ticket purchases. And as Kiran said, we've been doing that for quite some time successfully.

So we're comfortable with our models and our underwriting there. And a nice side note, they are a former LendingClubbers who started the company. So the circle is around.

All right. Thank you for the great questions. We're going to take a break, until 10:45.

[Break]

We're going to get started here in just a few minutes. So if you can start coming back to your seats. Thank you.

Okay. We're going to get started again. I'd like you to please welcome our Chief Technology Officer, Lukasz Strozek.

Thank you, Dan. I'm delighted to be here with you today. I've been working in technology for over 20 years, most notably at Bridgewater and SoFi, so I'm well-steeped in fintech. I joined LendingClub 1.5 years ago, attracted to its technology platform that's been engineered for innovation.

You heard Scott say that LendingClub is at its heart a technology company. Well, all these amazing things that we've shared with you today are enabled by our talented engineering team working hand-in-hand with the business.

Since our founding, we've invested heavily in our technology capabilities, with over 500 LendingClubbers dedicated to innovation. We're combining superior innovation skills of our Bay Area-based engineering team with 24-hour coverage of a distributed workforce. We secured 46 patents, with more underway.

Our advantage starts with us owning our tech stack. When it comes to customer experience, owning the full technology stack is something that only a handful of larger banks are able to do. You heard that at LendingClub, data powers everything. And so our stack starts with data infrastructure and support for machine learning and AI. On top of that, our proprietary systems for decisioning and servicing. We also extend best-in-class financial course to suit our needs. Our stack includes a digital experience platform optimized for mobile as well as our technology for customer acquisition and partner integration APIs.

And all the LendingClub products, whether it's lending, deposits, DebtIQ leverage this full stack. And this matters because we can be responsive to our customers, offering them a differentiated experience rather than an off-the-shelf app that most banks provide. We can focus on the needs of our core customer segment and not depend on vendors who have to cater to a mass audience.

Speed is another benefit. We're not slowed down by third-party release schedules. We can ship software fast, and our results are impressive. We do 25 complex releases every year.

Steve highlighted the partners to whom we extend financing. Us owning our stack allows us to create custom experiences for them in no time. Take, for example, a medical provider whose customers we offer loans to. In just 4 weeks, we've been able to build a custom credit solution for them and integrate it deeply into their ecosystem. And this ability to embed custom experiences into our partner flows creates stickiness for our solutions and it's a strong competitive advantage.

Our team is able to deal with unprecedented complexity. Let's take a look at our decisioning platform. We've integrated it with 36 different data sources. It's processing over 240 million transactions every year with sub-1 second latency. Even more importantly, we've engineered it for efficiency. We've architected our system so that credit analysts can fully self-serve the changes, eliminating engineering bottlenecks. This is particularly critical in a dynamic macro environment like the one we've experienced recently, and Kiran alluded to that. Our technology gave our credit team the ability to respond rapidly. They end up making over 630 changes over that time period without engineering's involvement, which comes out to a little over 1 day.

We built our technology platform to be modular, extensible and scalable. This way, we can meet the demands for today while being able to grow and offer new products tomorrow. Of course, we're cloud-based, taking advantage of the scalability and reliability behind the world's most popular services, cutting-edge infrastructure and tooling.

The best example of our platform's extensibility are the number of successful technology acquisitions. Narmi gave us a head start in building our mobile experience. Tally jump-started our development of DebtIQ. Cushion gave us AI capabilities, which we're able to build into DebtIQ. And Mosaic is allowing us to quickly enter the home improvement space.

This is a competitive advantage for us. Each of these technologies would take years to build. Instead, we're able to integrate each of these acquired technologies in around 6 months. And unlike other banks that rely on expensive full acquisitions, our path is both faster and much more cost efficient. Technologies such as Mosaic allows us to offer flexible integrations with our partners. And Steve covered Wisetack, which is an example of a partner that's able to leverage this flexibility.

Our technology story is a story of continued efficiency. Over the last 3 years, with technology, AI and process improvements, we've lowered our loan operating costs by 26%. We've been using neural networks in our models and natural language processing in our call center for years. But it's really with generative and agentic AI that we've seen an explosion in internal uses of AI at LendingClub. Just in the last 5 months, we've developed over 60 AI use cases throughout the whole company.

Naturally, our engineers use AI in the day-to-day extensively. But in addition to efficiency gains, we're also seeing tangible business benefits of using AI, and Steve talked about that earlier. Whether it's higher conversion due to faster document approval or more repeat borrowers due to satisfaction with a more efficient customer support.

The technology we own, our extensible platform and the focus on our core customer all come together in an end-to-end application experience. And so I'd like to give you a view into the experience we've been creating.

In the demo that you'll see, Olivia has a personal loan with us and has recently opened a LevelUp Checking account. She logs into the app several times a week for banking and to get insights into her finances. Let's take a look.

[Presentation]

This is Olivia's homepage. It shows a dashboard of all our LendingClub accounts across lending and banking. Here we market additional products to her with a few clicks to apply. Our Rewards Tracker reminds her of the value she's getting from her relationship with LendingClub, including cash-back from her loan payments.

And here's DebtIQ. Olivia linked her credit cards to see that she has a total of $11,000 in credit card debt at 22.5% interest. With LendingClub, she can see that she can do much better. Our members want to be able to see all their credit cards in one place. With DebtIQ, no more spreadsheets and sticky notes. We're pulling Olivia's full and real-time card data. This unique feature gives her an accurate view of her debt, and LendingClub gets additional insights to inform our underwriting and marketing strategy.

DebtIQ data allows us to identify opportunities to save Olivia money. Our members are often surprised at how much they are paying in credit card interest. And with DebtIQ, this information is at their fingertips.

Olivia decides to check out our offer. We leverage card data to make a direct payment of credit card balances [indiscernible]. Olivia qualifies for a little extra cash. With intelligence around offer data, we can present choices that best balance interest rate and duration. Olivia chooses the offer that's within her budget.

Members can direct funds right into the LendingClub checking account for 2% cash-back on their loan payments. Olivia gets the additional cash deposited to her checking account. Here is her new loan and her credit card balances are gone. Thanks to our technology, we've packaged 3 complex products into a single intuitive experience for Olivia.

Our technology is just one part of our advantage. And the other is our marketplace model. And so let me hand it over to our CFO, Drew LaBenne, to talk about that.

Great. Thanks, Lukasz. That was an awesome demo. I love it every time I see it. So I'm Drew LaBenne, Chief Financial Officer. It's great to see so many familiar faces in the audience and a few new ones as well.

A little bit about my background. I spent my first 20 years in larger financial institutions, mainly Capital One, where I was the CFO of the Retail Bank and the CFO of the Commercial Bank. And then I've spent the last 10 years at smaller public companies, fintechs and banks as the Chief Financial Officer as well.

When I started talking to Scott about the opportunity at LendingClub, I was struck by the similarities between where LendingClub was then in my time at Capital One back in the early 2000s. Back at Capital One, we were at a point where we had a very high-yielding consumer asset and we were quickly growing the digital bank. The combination of that high-yielding asset with a rapidly growing digital bank created amazing returns and a growth engine for the future. And that's exactly what we're doing here today at LendingClub. So it's a very exciting time to be an employee and, hopefully, to be an investor.

So the marketplace and the bank together is a more powerful model than each one separately. The marketplace is a powerful capital-light growth engine able to generate high returns in period. And when conditions are favorable, we can scale it rapidly. The bank balance sheet is available for putting assets on balance sheet, growing resilient returns now and in the future. Together, we can generate higher growth and returns compared to a traditional bank, and with greater financial resilience than a marketplace alone.

The model for success is pretty simple for us, and it comes down to 2 key variables -- 2 key metrics. First, originations, pretty intuitive, net asset yield, which I'll get into a little bit more.

So you've heard a lot about originations today, and Steve talked about the growth vectors available to us. But again, to hit the major drivers on originations, first, a very large addressable market in the personal loan space, and then new verticals that we're opening up for growth in the future, namely home improvement.

Second of all, at the beginning of this year, we started to scale back marketing, making investment in our marketing channels, reopening those channels and redeveloping our models. We're seeing the improvements now in originations, and we're just getting started with more investment and more growth to come.

Third, product and funnel innovation is really a way of life at LendingClub, and you heard Lukasz talk about our significant capabilities in the space and what we're driving in the future. Ultimately, we're trying to generate more lifetime lending and more value out of our borrowers.

So what do we do with all these originations? We take these originations and we optimize where we're going to put them, whether it's on the balance sheet or the marketplace. And we do this optimization consistently. It's not a static model. So as we go through the quarter, as we go through the year, we're optimizing how many loans we put on balance sheet, how many loans we're selling through the marketplace based on market conditions.

The loan originations that we're putting on balance sheet help grow total assets at a very attractive net interest margin and generate strong noninterest income that's resilient through the cycle. The originations we sell through the marketplace generate strong day 1 revenue and show up in our marketplace revenue through noninterest income, and also generate that capital-light in-period returns that I probably talked about 2 or 3 times already today.

The second key metric is net asset yield. And again, as I said, probably requires a little bit more explanation. You see, not all originations are created equal. It takes time, effort and experience to generate an exceptional asset yield. It starts with our borrowers who, as we discussed before, are usually revolving with high credit card APRs and we're able to save them 700 basis points or more on the interest that they're paying on those revolving credit card [ balances ]. We then acquire the customer, service the customer, and of course, we have some credit costs that we need to reserve for. And we end up generating about a 9.5% asset yield on our prime consumer originations. Very strong.

So how strong is that asset yield? I want to put it in context for everyone. So what we're showing here is our asset yield compared to other consumer asset classes in the market today. And so on the right, you can see that 9.5% asset yield and how it compares to other products like HELOCs, auto loans, first-lien, second-lien mortgages. It's near the top of the stack. The only one higher is really credit cards, which is where we're helping consumers refinance out of.

If you take those asset yields and you duration-adjust them against a risk-free benchmark, the performance is even better, with LendingClub personal loans generating 200 to 400 basis points more in net asset yield than most other asset classes. What that does is it creates an asset class that is ideal for putting on a bank balance sheet but also provides attractive returns for private credit, insurance, other loan buyers that are looking to invest their customers' capital.

So let me go a little bit more into the economics of unsecured consumer lending. So again, starting with that 16% APR that we're giving to customers, which is a combination of the coupon and the origination fee. The cost that we incurred to produce that are: first, about a 1.5% annualized cost of acquisition and servicing. And then on top of that, about a 5% annualized net credit loss. The net result is that 9.5% asset yield.

Now the reason I give you this level of detail here in the middle is because the acquisition and servicing and the credit losses, we believe we are best-in-class in that space. And that's what we spent the morning talking about. How do we excel in all of these areas? Just to give a little more finer point to it, for every 10 basis point improvement in net asset yield, we get $20 million more in annual revenue. So this performance matters, and this is a key part of where we outcompete the competition.

So what do we do with those -- with this asset yield when we put it on balance sheet? We take that 9.5% net asset yield. We fund it with our balance sheet, deposits, capital. It's about a 3.5% cost of funds all in for us right now, resulting in net economics on the bank balance sheet.

What the bank has allowed us to do is keep these loans and keep all the economics for ourselves. So it probably sounds a little bit greedy, but when you're selling loans, you're splitting it with another party. So keeping these loans provides more economics for us. Obviously, it requires capital, liquidity, very strong bank balance sheet management, all of those capabilities we've built over the past 4 years.

So you might be saying, why are you selling anything? I would get asked that sometimes. Why sell anything? Why not keep it all for yourself? So the answer is, having a marketplace makes us a better bank for a number of reasons.

So first of all, it allows us to expand our credit appetite. That 9.5% net asset yield that I was just talking about is in the prime consumer space. And that's primarily where we use our balance sheet. Almost all loans that we put on balance sheet are prime. This allows us to go into near prime and other areas, originate more loans, get more efficient on our marketing spend, more efficient on our servicing.

Second, scalable funding source. So we are -- the marketplace allows us to be unconstrained or less constrained in terms of the capital and liquidity on the balance sheet. When times are good and the consumer is performing well as they are today, we have the ability to scale up very rapidly, beyond the capacity of our balance sheet even, and sell more loans into the marketplace.

Third, we're creating more lifetime members. So whether we put those loans on balance sheet or we sell them, we are still retaining the customer. We're servicing the customer, we have the relationship, it allows us to create lifetime lending relationships and hopefully have that customer come back again and again.

And then finally, I think maybe I've said it 3 times now, it's capital light, right? So we can generate strong in-period earnings, which just helps the bottom line quarter after quarter.

But being a bank also helps us to be a better marketplace. So first, we're a trusted counterparty. We're regulated by the Fed. We're regulated by the OCC. We have significant adult oversight in our activities and how we operate. And it's made us a better originator, it's made us a better bank.

Second, we have aligned incentives. So as Scott likes to say, we eat our own cooking. What that really means is we are the largest holder of LendingClub loans. So we care deeply about the credit we're originating and the net asset yield we're creating. That shows up in our performance and it shows up in the performance of our loan buyers.

Third, we have a low cost of capital. It may not be totally intuitive. But if you think about it, using our balance sheet to facilitate loan sales has been a major win for us over the past few years. And I'll point directly to the great success of our Structured Certificate Program where, in 2 years -- in 2 years, we've done $7 billion in originations. So it's been transformative in terms of helping us to facilitate more loans for our partners at better prices for us and better economics for them.

Finally, testing and innovation. Before we were a bank, if we were going to test a new loan program or we're going to test different terms or even a new product, we would have to test that and sell it to our partners, without a track record of performance. And so what that would usually mean is we would have to take lower prices or we'd have to offer performance guarantees, things of that nature to get the buyer comfortable.

With our own balance sheet to be able to test and innovate, we can take those programs on balance sheet, watch the performance, build a track record and then go sell the loans, which is, again, a win-win for us and for the loan buyers.

So you're probably a little tired now hearing me talk about how great our model is, so what I'm going to do now is I'm going to ask the General Manager of our Marketplace, Clarke Roberts, to come up and run a panel with some of our most important loan buyers.

All right. Thanks, Drew. I'm Clarke Roberts. And as our General Manager, I'm proud to be here and excited to be here with our esteemed partners. It has been my goal to elevate the Marketplace to be the partner of choice for top institutions, who bring scale, flexibility and they enable us to say yes to more members. As a result, our Marketplace revenue is up 75% year-over-year.

So let's dive in and hear from them on why LendingClub is valuable to their business.

All right. Matt, let's start with you, and thanks for being here and representing Liberty Bank and really our bank segment overall. As a bank, what problem or challenges were you facing before choosing us?

I think you just saw it, explained very well. As a bank, I think most community banks, mutual banks, Liberty Bank is under $10 billion in assets. If you look at our balance sheet, most of it was commercial and consumer, but the consumer chunk was, most of it, residential mortgage loans. And as you just saw, it's a pretty low net asset yield, right, around 2%.

So at the time we partnered, we had a decent amount of capital, looking to deploy that. We started purchasing loans, and we've been very happy. Obviously, it's improved. For me, pound for pound, it's probably one of the best asset classes we have on our balance sheet. And I think that was problem number one.

Problem number two for us is really, longer term, thinking about how do we solve this for our customers. Because customers were coming into our branches or coming online and going to our competitors. And partnering with LendingClub has given us the ability to learn about the asset class, test it internally, get some experience with it and then essentially build our own product going forward.

Yes. And that's a lot about what we're hearing from other banks as well. Thank you for that.

Jon, thanks for being here and representing BlackRock. What initially drew you to explore joining our Marketplace? And what did you like about us as a partner?

Yes. That's a great question, Clarke. Part of the challenge that I have in my job is trying to uncover new opportunities and ways that we can partner with lenders. And so we spend a fair amount of time on due diligence and meeting with lenders really across the whole space. In my world, there are roughly about 40 different verticals. LendingClub is one of those verticals.

When we started the engagement, I think what really resonated for us was kind of the thoughtfulness and the knowledge of the capital markets team. And no surprise, we asked the same, just like you guys, we asked the same questions to different investors, to lenders. And from time to time, we get different answers.

And so for us, it really -- the thoughtful way that they articulated the strategy, how they underwrite and think about credit, really fueled our engagement, and led us down the path, probably say, after, I don't know, how many months, to where we are today where we're very active, involved with the Marketplace.

Yes. Thank you for that. And Ivan, thanks for joining and representing Blue Owl. How would you rank the most important factors to you when seeking out a new partner?

Yes. So just a quick backdrop for -- we've been doing this for 20 years. I started a business called Atalaya. We sold that business to Blue Owl. Now we're the Alternative Credit business for Blue Owl. And we did it pre-GFC, post-GFC, we bought it nonperforming, performing, we -- many different flavors of ice cream, if you will, in terms of consumer and specialty finance and other asset classes. So we've seen the evolution pre-LendingClub before it existed and obviously up until today, which is a radically different business. And we continue to do a lot with a lot of different counterparties today. We finance or buy assets from, roughly speaking, 50 different platforms. And so just to give you a sense of perspective, and obviously, we're proud to be a meaningful partner to LendingClub in terms of agreeing to buy billions of dollars of loans and hopefully there will be more to come.

So with all that said, I think we really look at it in the most simple way and say, what do we really care about? Alignment of incentives. That was a slide. There's a lot of people who say, these are great, how about you take them? Obviously, that doesn't work particularly well.

But pre-LendingClub, having a balance sheet of any consequence, it's a very challenging thing. You can structure around it. You can do deferrals of economics, you can do guarantees or other things. But having somebody who's going to stand up and essentially eat exactly what you're eating side-by-side with you is critically important. So alignment of incentives financially is one.

Another one is really predictable. So we'd actually prefer somebody to have lower but predictable returns than volatile returns. It might be really great sometimes and less so good sometimes because, again, we can probably analyze that better and finance that better.

And then finally, I think the one important part that's maybe even less obvious is shared, let's call it, like a cognitive alignment. What that really means is a common understanding of, hey, if Drew says the loans are going to make a 9, and we roughly think it's going to be a little lower, that's a shared perspective. If Drew tells me he's going to make a 12 and we think he's going to make a 7, that's going to end into divorce at some point. We might be able to structure around that in a temporary fashion that might be a trade, but that's not a setup for a long-term success.

So I think having that third item is probably the hardest to see from your perspective, is that not everyone has that. Some people might say, you know what, I'm going to make it up to you. I don't really care that we have a difference of opinion. That matters way more than I think people probably appreciate.

Yes. And that alignment is something that comes up with a lot of our partners. So thanks for sharing that. Maybe, Matt, going back to you really quickly. Were there any specific aspects that stood out to you in partnering with LendingClub?

I think for us, just the ease, obviously, as a bank, we're ultimately responsible for what goes on, obviously, on our balance sheet. But handing over a complete package to our operational risk management, our Chief Risk Officer, very easy. model risk management, operations, compliance, everything from complaints to servicing. And I think most importantly, just the credit risk management.

I've been -- our bank have been really happy with how that's been managed. I would say it's been better than -- it's been exceeding our expectations in terms of what we've been getting on our balance sheet and the losses that we originally expected. But I would say the easiest way to answer is just the ease. It was very quick. any document that our compliance team needed, our risk team needed, I just -- it was there, handed it right over, and we were up and running very quickly.

That's great. Okay. Let's pivot now to the product fit and experience. Since becoming a bank, we relaunched our capital markets program about 2 years ago. And we've executed over $7 billion in that time. We've partnered with Fitch. We brought them on as a major rating agency, and we launched lender, our new program that caters to insurance capital.

So maybe, John, starting with you, BlackRock can purchase a variety of securities and whole loans Tell us about your experience buying LendingClub structured products such as lender? And how do you decide on which product you're going to purchase?

That's a great question. Global fixed income, where we work is quite large. And I think what's not really well known is the diversity of the clients that we manage money for. It spans a wide spectrum. In fact, it spans just about every type of fixed income investor you could possibly imagine. And so really, the challenge for me and my team is really come up with creative expressions that we think are thoughtful from a risk and return perspective. And the thing that we love about partnering with LendingClub is they're agnostic about how they want to deliver products to us as long as they're delivering the credit that we want.

And so it's that flexibility and that scalability that really resonates, I think, really well with us. And you talk about the lender platform. Lender is optimized for our insurance clients. It works really well. The structured certificates also work across a wide range of clients in global fixed income. And then even being able to engage in bulk sales of loans or forward flow, we have places to go there as well. And so again, we like the alignment of risks. And I think any investor sitting up here will highlight that. That's super important. But we also like the flexibility, the scalability and the ability to kind of connect with them in areas that really make a lot of sense for us.

Yes. Thank you for that. Ivan, why are consumer loans such a good fit for your investment strategy?

Sure. I think that we found over a long history of doing this that the LendingClub loans are reasonable. They're almost the Goldilocks in the sense that they're in the middle. They're not long and they're not too short. You make enough, call it, P&L from each individual tranche or vintage. And you can stick it in the case of our various pockets of capital into lots of different structures. You could have it in an opportunity fund depending upon which flavor you like. You could have that in something that's generating more income-like strategy or income-like returns for maybe our interval fund or other products.

And then to John's point, you can also -- now that the scale and effectively the ratings and others have come along, you can also use that for insurance capital. And because it's not as digestible on average for the average insurance company who might not understand the underlying nuances, we can deliver value to our clients. I'm sure John likewise in terms of understanding that -- bringing that understanding to their less sophisticated insurance clients. So I think the reason why we like it is it's an attractive yield, of course, from a risk-adjusted basis. But because of the nature of it, we can put it in different places. That makes it an interesting repeat opportunity for us.

One of the key things that we speak to investors about is that we are trying to do more with the partners with whom we think are excellent. And what that means is we want to do new products, we want to do existing products. We want to figure out how to use different forms of our investor capital to be a good partner for LendingClub because that means that we're going to also be a better partner for them and that mutual respect, that mutual flywheel work better for both of us.

Yes. Thank you. And maybe, Matt, focusing on the experience, our history actually goes back nearly 10 years when you were with another bank who is also buying loans from LendingClub. How have you seen us navigate changes in the environment since that time?

It's a significant maturation process that I've witnessed over the last 10 years. It's pretty remarkable. And I'm thinking primarily just from a risk management framework perspective. Initially, at my prior bank, the losses in some cases were higher than expected. And again, I'm going back 10 years. But I think it's been definitely a lot more predictable and just hearing from Karen and others, the credit risk management is top-notch. There's -- and I think Scott even talked about it, just the data that you all have is unmatched. I was just going to comment, though, just briefly something that John and Ivan said, for us, it is the scalability. That's huge.

We have our own personal program, but the weighted average, it's 1.5 years. It's never going to be enough for us to originate on our own. So there's always a place for purchases on our balance sheet. And Ivan Goldilocks was exactly what I was thinking in terms of this asset class, especially if you're keeping yourself to the higher credit, which is what we're doing, you can still get a pretty good yield and relatively low losses, which we've come to appreciate. But just very briefly, I mean, what I've witnessed is just a huge maturation of the risk management framework over the last 10 years, even over the last 3 years.

Yes. And I appreciate you sticking with us through all those times. All right. So our final set of questions here, getting into the outlook. Everybody is talking about the greater economic outlook and general liquidity trends. And would love to hear from each of you how you feel about this asset as you're looking forward. So Ivan, congratulations on the successful launch of your interval fund. Let's start with you.

I think it's a question, of course, we get often from investors. I've been doing my own version of this. Maybe there's somebody in the audience that are asking me about all the narratives around the headlines today. We'll save those for the coffee break. But I think the punchline that we always use is we don't have a monolithic answer to we always -- we like the consumer, we don't like the consumer. In other words, it's like me asking you all, do you like stocks? The answer is I like some stocks, but I don't like all of them, and I'm going to pick this one and that one and maybe not that one. And so we would say we have a fundamental view that it's pretty good. It's probably going to get worse over the intermediate period.

We're not investing on that basis. We're really investing on the basis of -- we like the people who originate these loans, these types of loans because of the way they source it, because the way structure it. And look, ultimately, that's our alpha, if you will, is selecting who's good at originating those, not saying we have a macro call that rates are going up or rates are going down or the consumer is really weak or not. I think that we often or at least investors perceive us to, for example, have a view and consumer credit is like going to get dramatically weaker or dramatically better. I think we look and say, no, no, this is always parts of the ecosystem that are attractive. There are some people who are clearly better at it.

We're going to try to partner with the better partners. And more importantly, we're going to be a stable partner for them. But ultimately, we would hope that they also change their underwriting when the world gets worse. And in fact, -- if you look back at our history with some of the people that we do the most with, we saw people in '22 change their underwriting dramatically every month because if you underwrote a loan at the beginning of '22 and look backwards, looked very different from middle of the year. And I use that example mostly to highlight that there is no monolithic answer that we like consumer credit in one period of time and we hate it in others.

There's always flavors of it to do with the right partners. And so at some level, I'd say the answer is it doesn't matter. Of course, it matters. It makes it a little bit easier, a little bit harder. But I think by virtue of being partnered with the right people that we are going to get the right assets and they're going to have the right partners who are going to be stable, repeatable, reliable counterparts when they need it.

All right. Matt, going back to you from a bank perspective. What trends are -- how are you looking at this asset as you look...

Well, I always think about it from the lens of the consumer and the consumer health. And so I always -- I'm always challenged probably like many people like you are. The headline is debts are all-time highs, debts are going up quickly. Delinquencies are up. But if you look at it, delinquencies are still below historical averages. But one of the most important metrics that I always look at is percentage of disposable income that consumers are spending on debt service. And it's still well below historical standards.

I think leading up to the Great Recession, it was somewhere around 17% or 18%. And I think today, it's below 12%. And I'm pretty sure that number is below where it was even pre-COVID. So the health of the consumer, we feel -- obviously, there are some potential weaknesses, but we're feeling okay about -- I think for us and most banks, it's just liquidity and deposits moving forward, right? How do we manage that.

Okay. John, LendingClub recently issued a press release that outlined our $1 billion MOU. How has that been received on your side? And how are you thinking about this asset as you look forward?

Yes. So look, the real benefit for us by issuing that press release was to just raise awareness and raise awareness with -- internally with our own clients. And I think literally the next day or actually that afternoon, we received several inbound inquiries from clients saying, "Hey, wow, this is really interesting. Can you show us how you can deliver the marketplace to us?" And we found that really resonated really well.

There's a lot of noise out there, and we felt that this provided a little bit of clarity in terms of how we're thinking about Lending Club, how we're thinking about opportunities in the market and how we want to deliver that durable alpha to our clients.

All right. All right, Matt, we're going to save the last question for you here. What advice would you give other banks who are considering buying this asset?

Buy, buy before you try. I think so many banks have tried to get into this space, and I did at a couple of different banks, and it's very easy to fail fast from a fraud perspective and credit perspective. By buying, getting the experience, I think, just helps for us, especially just an executive management team, a Board, a risk team, just and myself included, right, not a whole lot of experience with the asset class, but by buying, you get the experience, you see the losses come in. But more importantly, you see the risk-adjusted return. And so I always say, buy and it's okay to go slow, right, have a small portfolio, and that's the beauty of the partnership is the ability to scale it up.

Before you try, I like that. What a wonderful way to end this portion. And so just an announcement for kind of what's going to follow. We're having a slight schedule change. So I'm going to welcome Drew back up here to talk about our financial framework. And then we'll open up for Q&A, and Scott will take us with his final thoughts to close this out for the day. So in the meantime, I really just want to thank our panelists for really an engaging discussion, and we'll turn it over to Drew.

All right. Well, not yet. That was great. So first of all, I just learned something, buy before you try, like I am going to use that. I love that. I love that. Thank you, Matthew. All right. So we -- good news travels fast. And so we're speeding up our agenda or we're moving a little bit forward here. We're going to do most things before lunch. We pride ourselves on flexibility. So I'm going to talk about where the model can take us. So first of all, we've already unlocked the power of the marketplace bank model. And so I think as probably most of you know, we acquired Radius Bank in early 2021.

When we acquired Radius, it was $2.7 billion in assets. Today, after just over 4 years, we have $11 billion in assets. So that is 4x or quadrupling the growth of the bank in about as many years, really strong performance. This next stat actually surprised me a little bit when I first looked at it. We also looked at tangible book value per share growth over that same period. So when we bought the bank, $6.50, today, $11.95. That's a 14% compounded annual growth rate over that same time period. So I'll put that in a little more industry context in a few slides, but I think very strong performance since we acquired the bank.

We still have multiple levers to continue improving returns, and I'll get into each one of these in a second. But in summary, balance sheet growth primarily coming from higher originations, continued marketplace expansion from the performance we've already seen and then continuing our track record of generating operating leverage on higher revenue. So first, doubling originations today versus the medium term. Steve already took you through this slide. But what we're seeing today is a pretty constructive macroeconomic environment despite all the noise that's out there.

Unemployment still remains low. Inflation is pretty benign. The Fed is still lowering rates, I think. They just did, hopefully some more. And the yield curve is getting back into a more normalized shape. These are all very constructive for us to continue our originations growth into the future into the medium term. So as we discussed, we're at about $10 billion in annual originations today. We think the core personal loan business can drive another $5 billion to $8 billion in annual originations over the medium term. Now to put that in context, the largest player in the space right now is doing $30 billion annualized. So there is a lot of room for growth and some room for market share improvement as well.

Second, we talked about more about market -- major purchase finance, which is probably the first time you've heard some of these details. We expect that to be an outsized growth vector for us, particularly with the entry into home improvement. And we think over the medium term, we can generate $2 billion to $3 billion in incremental originations annually. Now to put that one in context as well, the largest originator in the home improvement space is doing $7 billion annually right now. So we think we have a great opportunity to get into that space, use our capabilities and excel.

And then finally, our secured businesses, we expect to contribute another $1 billion in annual originations over the medium term. And that's our auto refinance business and our small business business, which is really an SBA business as well. So we see great opportunity, and we expect that all adds up to $18 billion to $22 billion in annual originations over the medium term. So let's talk about what that does for the balance sheet.

So if you -- again, going back to what we just spoke about, since we acquired the bank in early 2021, we went from $2.7 billion to $11 billion, $8.3 billion in growth. Over the medium term, we expect to do it again. We think with that originations forecast and the profile of our bank, we can get the bank size up to $20 billion over the medium term. we're not sacrificing margin when we do that. If you look back at where we were when the Fed was at peak rates, our net interest margin was 5.4%. Since the Fed has dropped rates about 125 basis points, we've moved up our net interest margin to 6.2%. We think as the Fed achieves a more neutral rate of 3% or lower, we can get to 6.5% plus in net interest margin. So that's great growth for a bank balance sheet at exceptional net interest margin.

On to the marketplace. So if we go back a couple of years, the marketplace was probably at its most pivotal point when the Fed had just done their historic rate increase up to 5.5%. Consumers were dealing with inflation and we had an inverted yield curve, sorry. At that point, our marketplace revenue margin was 2.8%. Since the environment has normalized and the Fed has started lowering rates, we've expanded that margin by 180 basis points to 4.6%. At the same time, we've moved our quarterly marketplace originations up from $1.2 billion to $2 billion as of this most recent quarter.

As we go forward over the medium term, under very similar economic conditions as we are today with the Fed moving rates down to 3%, we think we'll be able to continue expanding Marketplace margin by close to 100 to 150 basis points. At the same time, we expect our marketplace sales to increase from $2 billion today to a range of $2.5 billion to $3 billion, eclipsing the previous high watermark for marketplace sales. And then finally, expenses. This management team has shown a lot of operating discipline over the past several years. We've been growing originations, growing the balance sheet, growing revenue. But at the same time, we've pretty much continuously improved our efficiency ratio over that time, down to 61% this most recent quarter.

We're going to continue to make smart investments as we go into the future, including the build-out of home improvement, obviously, more marketing spend to grow originations, rebranding, which we'll talk about more in the future and other tech and other innovations. With those investments, we believe we will still be able to improve efficiency ratio and generate operating leverage over the medium term. So investing for growth and getting more efficient.

And then finally, we're going to simplify our financials. I often get -- Scott and I often get asked, you're -- you've been under fair value, you've been under CECL. Wouldn't it be easier to just align under one. And we agree. So we are going to move to fair value starting with new originations in Q1 of 2026. There are several benefits to making this move, but probably the 2 biggest ones are we will have better alignment of revenue recognition with loss -- with the timing of losses, and we'll be able to create consistency across the bank and the marketplace in terms of our financial reporting.

Now the graph on the right, which I won't dive into too much, just shows the cumulative timing of earnings under both accounting methods. And the really most important thing to take away is at the end of the day, it's all the same. But the timing is different. Under CECL, you take this large reserve upfront for losses that you haven't incurred and you defer revenue you have earned over fair value, we still book our loans at a discount day 1, but we get that revenue faster, more in line with the timing of losses. So net-net, for a company with our growth aspirations, fair value makes more sense to align across the business. So what does it all add up to? So return on tangible common equity is a metric that we spend a tremendous amount of time talking about amongst the management team and amongst the Board. And we've made a lot of progress over the last several years in terms of improving.

In Q2 and Q3, our ROTCE was 12% and 13%, respectively. As we look forward, we see a number of drivers for improvement. So breaking it down, the balance sheet growth and the NIM expansion that I talked about first, we expect to generate 3% to 4% incremental return on tangible common equity over the medium term. The marketplace originations growth and margin improvement, we expect to generate 1% to 2% incremental ROTCE growth. And then operating leverage, which is continuing to make investments, but operating with discipline as we grow, we expect to generate another 1% to 2% in ROTCE expansion. Adding it all up, that takes us to 18% to 20% ROTCE over the medium term. Now obviously, this is all -- we need the economy to continue doing what it's doing. We expect the Fed to lower rates a little bit, but we believe this is highly achievable in the conditions we're experiencing today.

So just summarizing it all between near term and long term. First of all, near term, we're going to build on our position of strength. We expect to see originations continuing to grow 20% to 30% year-over-year, and we expect to drive ROTCE up to 13% to 15% in the near term. Over the medium term, more of the same with some of the other growth factors that we discussed, we expect to achieve sustainable, responsible growth, continue that 20% to 30% originations growth over the medium term and get our return on tangible common equity up to 18% to 20%. So we're executing, we're scaling, and we're well positioned for growth.

All right. So why invest now? Let's talk about it. So one, pulling back up on that slide, I promised to show again our compounded annual growth rate of 14% on tangible book value per share. We wanted to put that into some industry context. So what we've done here is we've shown Pier 1 and Pier 2, no name spaces, but they are 2 large competitors in the personal loan space. And we've looked at their performance on this key metric over the same time period. Pier 1 set 11% compounded annual growth rate over the same period, pretty good. It's not 14%, but it's pretty good.

Pier 2 has actually decreased their tangible book value per share over this same period. not as good. And then if you compare our performance to a traditional bank over that same time period, we estimate that they generated about a 10% growth in tangible book value per share, including capital distributions and dividends, et cetera. So we think very strong performance, whether you're looking at a fintech, fintech bank or a traditional bank peer.

So let's talk about what types of multiples that's garnered for us in the market today. We're looking at really 3 key measures here. The 2026 consensus revenue multiple, today's price of tangible book value, it's actually not today's. I think it's October 31, and a lot has changed over the past couple of days. So it's a day or 2 old. And then the consensus estimates for price to earnings in 2026. Us compared to our peers shows that we have a lot of room for potential improvement, and we think that the value is pretty compelling.

So with that, a big reveal that you probably already know. We're becoming a buyer. So we announced $100 million stock repurchase and acquisition program today, which we'll begin executing on later this week. Most importantly, with all the forward projections that we've shown you, our internal rate of capital generation is enough to sustain the growth that we've put out there. Today, we stand with excess capital, and so we're going to deploy it.

So with that, I'm going to have Scott come on stage. And Giuliano, I'm not going to tell you what near term means.

All right. We'll open it up for Q&A. So I think that everybody was pretty pleased to see the 18% to 20% ROTCE. Can you talk us a little bit more through how you're thinking about rightsized capital levels versus peers?

Yes. So we obviously didn't put out any target capital ratios today, but I want to talk a little bit about how we think about our internal targets for capital. So what we're really driving that off of is our internal stress testing. We're looking at our balance sheet now. We're looking at our balance sheet in the future, and we're running stress testing on that balance sheet now and balance sheet in the future, and we're determining how much capital we need to hold, much like the bigger banks do the CCAR scenario.

Based on that, we set our internal levels of capital. Now as balance sheet composition may change in the future, we may adjust those targets as well and where we want them to be. Given we have excess capital today, which we've now said we're going to deploy and we have capital available for growth, the internal targets are lower than where we're sitting today even with the share repurchase. But over time, they'll continue to adjust as we adjust the balance sheet.

No, the other question I was going to ask was going to be on repayment rates. We've been hearing a lot about with rates lower, there's been elevated prepayments from the consumer in various parts of the FICO bands. Can you just talk about how you think about that and how that translates to balance sheet growth and overall returns?

Yes. So I think we said on the last earnings call, we've seen prepayment rates tick back up. They are within the range of historical norms. I'd say the only -- we've been doing this a long time. These rates are usually operate in a pretty narrow band. The only time we saw that really diverge was COVID, where they -- when the stimulus came and they surged much higher and then inflation when people got really tight and they dropped below our normal threshold.

So I would say, as you would expect, as rates come down, consumers can save money, so there's an opportunity to refinance. So that's happening, but it's happening within historical rates. And I'd say on balance, we stand to be a net winner. The top-up product we talked about is a great example of a way for us not only to provide a service to our own customers, but also to offer, hey, top up your Pier 1 loan, right, and do it with LendingClub.

It's probably also safe to say when we look across the industry compared to competitors, our prepay rates are fair amount lower, and some of that just has to do with the upfront structuring of the product.

That's right.

Crispin Love, Piper Sandler. First, just going to fair value accounting, can you discuss some of the key determinants there in going that route, some pros versus cons and then expectations for provisioning as you move through '26 and '27 with the changes?

Yes. I mean I think, honestly, one of the biggest pros is being able to explain to investors one type of loan accounting versus 2. And so it's no disrespect to the audience, but it often gets lost between CECL versus fair value and how are these things changing. And our back book is going to stay under CECL for a while. So we're still going to have that dynamic. But moving everything to fair value allows us to more clearly articulate what's happening with the portfolio from an accounting perspective. And I would just note this since you've given me the opportunity to talk about it.

We've been under both methodologies for a while. There's -- both are appropriate. Losses show up the same way, whether it's CECL or fair value. So we're not changing anything we've done in our fair value portfolio. Our discount rate was, I think, 7.6% this past quarter. Nothing in this change would change that. We're still booking loans at a slight discount when we put them on the balance sheet. The only thing that's going to change that is improving loan prices. So the core methodologies that we've been using remain the same.

I'd say the other thing I think that is helpful is that our public competition is under fair value. So it also makes our results more directly comparable to others.

Go ahead, Bill.

Bill Ryan, Seaport Research Partners. A couple of questions. First, on the fair value accounting. Obviously, there's some upsides to it. The downside is increased volatility depending on how credit performance and capital markets are doing and interest rates. And I assume there was some discussion about that volatility that it can increase some of the dynamics in the income statement. Could you kind of talk about the internal discussions that you had about the volatility when adopting fair value accounting? And then I have one follow-up question.

Yes, absolutely. So I'd say let's talk about credit first. Between fair value and CECL, there actually isn't any material credit difference. If we see a degradation or improvement in performance, whether it's CECL or fair value, we're going to take that through both accounting methodologies. So credit-wise, we're not creating any more volatility than already existed. Fair value marks, so for example, which would be caused by interest rates or benchmark spreads or prices, there will be some more volatility there. We plan to enhance our hedging methodologies that we have today.

So you will see incremental sophistication in how we hedge as we go into 2026. And then capital levels, think of -- you want to have the appropriate amount of loss absorbing capital, whether that's in your allowance or that's in your base capital ratios. And so under fair value, that changes and that you need to hold a little more capital under stress for a loan under fair value than you do under CECL. So we're going to end up with the same amount of protective capital at the end of the day. It will just end up being in a different place.

And one follow-up question. Last quarter, you kind of talked about credit normalization. The credit has been trending much better than you expected. Over what kind of time frame should investors expect that the credit to normalize? Because I know personal loans have a very rapid turnover.

Yes. I think you're referring to the net charge-off rate that we reported in Q2 and Q3, which was about, I think, 3% for the overall portfolio. That -- as I said on both calls, that is lower than we expect to be at run rate because of the seasoning of the vintages and some of the recovery trends that were happening. So a more normalized charge-off rate for our consumer loan portfolio would be 4.5% to 5%. And so I think it will -- I was wrong last quarter, it actually went down and I expected it to go up slightly, but it should normalize back up over several quarters.

Tim Switzer at KBW. A follow-up on the fair value accounting stuff. What were your discussions like with regulators regarding the change? And do they indicate any kind of preference in terms of which method is used? And will it change how they look at your reported capital levels?

Yes. I mean I'm not going to go into kind of our regulatory conversations, but obviously, they're aware that we're making the change. They're aware that one of our other banking competitors is on that model. And I think it's perfectly acceptable. And in many ways, fair value is a more transparent accounting model than CECL. So I don't think there's any issue there. What I think they'll always want to be sure of is we have the appropriate amount of capital, whether it's in our core capital levels or it's in our allowance. And stress testing is really how we get to that, and we share that, obviously, with our regulators on an ongoing basis.

Got it. And now that we have your medium-term ROTCE target, what does that ROE look like at different points of the cycle? There's still some cyclical elements of the business model with the capital markets and consumer credit exposure. So I'm curious, what does that look like maybe in a trough year? And what could that look like in a peak year?

Yes. I mean I think as we grow the balance sheet, this has been one of the key strategic reasons for getting a bank. As we grow the balance sheet, we're going to create more resilient recurring revenue in the form of net interest margin. Marketplace is awesome. It also has volatility to it, and we know that. So the goal would be that we can get that recurring revenue to a spot where we're returning -- we're providing a return to investors at the lower end of the cycle that is still at or close to the cost of capital that's been provided to us. When it's humming, we should be doing much, much better than that.

If I get one more. You just mentioned the 4.5%, 5% loss rate you kind of expect for your consumer products broadly. Does that differ at all from your traditional personal loan versus your purchase finance loans? And do you have to change the underwriting you do for those 2 products?

Well, I'll probably let Scott take the underwriting. But I think the product itself has a lot of similarities. It is a longer duration product, right? And so we were talking about this last quarter with our CECL provision. Since it's longer duration, if you were under CECL, the upfront charge you would take even for the same type of loss content would be higher because of the longer duration, which is also part of why fair value maybe makes sense for where we're going. But net, I think the content is pretty similar.

The performance of the asset is quite similar. We're -- as I mentioned, we're applying all the learnings we get apply to the space and then the strategies that we layer on top of those are tuned to the use case and the channel. But it's quite similar, just tend to be larger, tend to be longer duration.

JP, go ahead.

Just on that last point you made, Drew, about the greater ballast from the recurring revenue. Is there a desired mix that we should think about in terms of terminal levels of how much you hold and how much you sell? I know it's implicit maybe in some of the numbers you gave, but where are you trying to get to?

Yes. I don't know that we have a terminal level to put out there. What I -- I get that question a lot. What I always say is we want to keep originations growing responsibly at a pace that we can feed all of our key marketplace investors like the ones who are just on stage today and hit kind of that 15% to 20% growth rate on the balance sheet I'll say, over the medium term, but for the foreseeable future. At some point, if that starts to slow down, we'll have to make a little bit of tougher decisions on how we allocate. But I foresee us always having an active marketplace with key investors and still being able to use the balance sheet for growth.

Sorry, if this has been covered. Reggie Smith from JPMorgan. Did you guys define medium term? I wasn't sure if I missed that. Okay. My second question, is there a way to contextualize or frame the impact the accounting change is having on your ROTCE? I was excited to see the increase of the guide higher anyway, and it feels like there may be more juice there with the accounting change. And then finally, thinking about discount rate assumptions, there are a lot of them across these lenders. Like how do you arrive at that? And maybe talk about the factors that could cause that to change and why yours may be higher than someone else's?

Yes. That's a lot there. Where do we start? Why don't we start backwards just on the discount rate, right? So the way we determine the discount rate is really through loan sales prices. And I'd probably break it up into a few different components. One is structured certificates is a great example, right, where someone is buying the residual or the bottom piece of the stack and then we have a senior security on top, right? It's very observable what the spread is for senior securities, right? It could be 150 basis points, 300 basis points depending on the market, and we've obviously been coming down.

And then there's what is the residual return that the investor is targeting. And so we can break that discount rate into 2 pieces and say, how much is -- what's the required return on the risk, what's the required return on the senior and then watch how those things move to the discount rate. But when you -- it's obviously not up there anymore. But when you look at all the different asset classes and the net asset yield that were up there, there should be a logical sequencing of assets, right?

A senior security should never trade at a discount rate -- or spread or discount rate that's tighter than an unsecured consumer loan, right? If that sequencing isn't making sense, then there's other questions to be answered, I think.

The same question was contribution, if any, of accounting change to the ROTCE targets.

Yes. I think in the near term, there are certainly some benefits that come out of that, right? Longer term, we -- or medium term, I should say, using the appropriate language. Medium term, it's -- there's a little bit of benefit, but you're getting closer to steady state at that point where the 2 accounting methodologies really start to converge and it ends up being less meaningful to those ROTCE targets.

For what it's worth, I mean, I feel like you guys were racing with a way you vest on in this kind of levels of playing field versus your competitors moving to fair value. So I think it's cool.

[ Yona ] from Jefferies. So looking at your past acquisitions, most recently, Mosaic, it seems like you've been really investing in the engineering front and then building up that platform so that you can grow, but not necessarily -- what kind of thoughts and discussion have gone into deciding on choosing that route versus directing volume or asset growth? And how do you see that differ as you're thinking about capital growth or these new verticals that you're looking to expand?

Yes, I'll start with this. The increased rate cycle has been very challenging for the nonbank lenders, right? The same way you saw our marketplace margin compress, but that was offset by having the balance sheet. So it's given us the opportunity to look at a lot of companies that were having difficulty kind of navigating through the environment that could be accretive to our strategy and to our road map.

The challenge has consistently been expectations of value. And so what we've found ourselves here is that as we look at ways to diversify our acquisition channels to diversify the use cases by applying what we're good at to additional use cases, and to enhance our engagement strategy by adding features and capabilities to our platform. We've just been able to find on multiple occasions, really, really solid technology for companies that couldn't make it through, right? So we're basically able to acquire the tech that in some cases, in the case of Tally, a lot of money went into developing that over many, many years.

We're able to pick it up for very, very good value. And as you heard from Lucas, we've got the ability to integrate it within 6 months and significantly accelerate our road map. So we -- I wouldn't call that our exclusive path. It's just so happened that under these market conditions, we've been able to identify repeated opportunities for ourselves to kind of accelerate our strategic road map.

Yes. And I'd say if there's one thing to tie together with that as well is Lukas covering the technology organization and the capabilities, that is a huge defensive moat to what we do, right? We've invested so much in technology, in the funnel technology, the originations technology. A lender can't come in and just replicate that and be ready to go. That has really a big part of what has driven our outperformance versus the industry.

Yes. And to maybe sort of put some dimension around those 4 acquisitions, we're talking about in total for all 4 of those acquisitions, you're looking at $20 million, $25 million taken together. So the relative expense of that versus the benefit we've gotten to drive our business is an enormous value.

Yes. The other thing I'd say is, I think you said it right. We've looked at a lot of M&A, and we haven't found a spot beyond the bank and the ones we've discussed where we felt like we could generate enough shareholder value or fast enough return for shareholders to justify the transaction. Having said that, we'll always keep looking. We've been very disciplined. But also our capital stack is extremely simple. It is just common.

So there are other levers out there beyond going out to raise more common to do a deal. There's no sub debt, no preferred, no convert, nothing. So I think we have a lot of flexibility in the capital stack if we ever chose to use it.

Kyle Joseph with Stephens. One more for you guys. Just appreciated the marketplace panel, but I was hoping to get some more color, call it, a capital markets update in terms of investor demand and kind of how you're thinking about the mix shift of marketplace sales and forward flows versus securitizations. Obviously, it's a positive that you expect your marketplace revenue margin to increase, but weighing that with, call it, recent pickup in volatility.

Yes. Maybe I'll start and say, the -- we are focused on quality, durable partnerships. We look to deeply understand what our partners' needs are, what they're trying to get done and set ourselves up to deliver against that. over the medium term. So we are not ourselves engaging in public market securitizations, but we are doing flow arrangements as you've heard us announce several.

I'd say what we've been most pleased with is this lender product that has been deliberately structured to attract insurance capital in terms of how the payment flows come through and with the rating attached. And there, the demand has been really, really strong. But I'd say across the whole platform, I'd say we're not constrained by the investor supply of capital.

Correct.

[indiscernible] There's no real issues in investors' minds. It's been around for a while. But I'm curious about how you're thinking about disclosure because right now, on your -- those that you are accounting for in fair value, it's kind of -- it's not apparent on the P&L. It's sort of a contra item in your marketplace revenue.

So really 2 disclosure questions. One, come January 1, '26, whenever, will you pretty much have a line item within net revenue that says change in fair value like everyone else does? And then secondly, to take it even further, there's typically 2 components. There's the current period losses and then there's the mark-to-market change. And so that you don't have to dig through schedules kind of what's really in that fair value line?

Yes. So I'd say, one, just to give ourselves a little credit, I think we've been recognized at least by some, maybe many to have some of the best disclosures on credit performance in the industry. And we take a lot of pride at that. We have 1 or 2 slides we joke about that this is like the most expensive slide that has ever been made at LendingClub because we put so much thought into some of these things.

And we're going to continue that, right? And we realize that when we get into -- I don't know if it will be January 1, we get into Q1 results for 2026, we are going to adjust some of the disclosures, and we're having that conversation now. We wanted to be very apparent how -- especially since we'll still have some CECL portfolios, how CECL plus fair value are performing on key measures, probably more in the MD&A than anywhere else and then the earnings release.

So I won't give you more than that now because we're under construction, but we realize the need and we'll address it.

Vincent Caintic, BTIG. First, thanks for this presentation. I think the details both -- and it was great to get to see the buyer's perspective and actually Lucas' perspective on the technology. I did want to focus on that. The -- so the product set is great. You're able to make the consumer kind of see very quickly how much money they can save and then make the process quick to get the LendingClub loan to pay off the debt.

I think one of the key questions as it have been around for a while is to actually make the customer aware to start, to make them aware that there is a LendingClub that once they get the app, they'll be able to do this whole process in 5 minutes and then you'll be able to access the TAM because it seems like the customer is very much in the money to do this. why hasn't there been that much growth in the past since -- they've been in the money.

So if you could talk about that, that would be great. And then if maybe where your product is relative to the rest of the competition.

Yes. So you are correct that once -- and I think that you saw in the data that Mark shared that as the user uses and clicks into more of our experiences, they become even more tightly engaged with us. They learn more, we learn more. Why haven't we grown that faster? If you think about our period post bank acquisition, job #1 was taking over issuance through our own bank charter, growing originations, building the online funding gathering, the ability to take deposits at scale.

The bank we purchased was great, but it was not designed to attract billions of dollars of digital-only applications. So a lot of our early efforts were around that and applying our industry-leading fraud to the deposit side, all of those pieces. So we really only in the last 2 years, started to assemble this engagement framework and put it into the market. And we've been balancing our investment in that with delivering returns.

Drew shared the unprecedented increase in rates put a pinch on marketplace margins. That pinch meant our capacity to invest and get these products out into the hands of our consumers and put marketing dollars behind it for those consumers has been constrained. That is quickly changing, as you can see in our results over the last couple of years.

That's why as we talk about next year, we're saying, hey, we are going to put more muscle behind this, and we're going to be really advertising, marketing this broader experience. It's one of the drivers, as Drew talked about, for us moving towards a rebrand next year to just get broader permission, right, inherent in the name that we do more than just lending. We do the full digital banking suite for our customers.

This is Giuliano Bologna from Compass Point. Maybe shifting gears away from a lot of discussion on accounting and assets. But you've obviously rolled out a lot of technology and also some new products on the deposit side and the funding side. But when we think about that, I'm curious when you think about potential cost of capital savings opportunities as you roll out more checking products, the adoption increases, and even as you get more adoption and kind of cross interest from borrowers also having greater exposure to your deposit accounts, is there any opportunity for a better deposit beta or slightly less competitive pricing from a market perspective?

Yes. I'd say it's a great question. It's early days. We have not factored that into how we think about the outlook. In fact, we thought if they had a lot of savings, they wouldn't need to borrow. So this won't be a great source of savings. So we've been -- that's why we shared the data. It's the first time we've put that out that, hey, 13% of our savings accounts are coming from borrowers and the average balance is $10,000, that's great. And we're really just getting started with all that.

And same thing would be true with the checking experience is -- as we look to open that up to the broader market and evaluate that, we have the opportunity to acquire new to LendingClub through that checking experience, right? It provides yet another product to be marketing that can bring people in and bring them into our lending ecosystem. And I'd say it's too early to say, but we're very encouraged by the initial data we're seeing there.

Yes. And I'd say on deposit betas, I mean, the checking account, in particular, the goal isn't to become a primary funding source. It's become a primary relationship source, right? And so it doesn't mean that over time, it couldn't accumulate to a spot where it's meaningful. I wouldn't bake that in. In terms of betas, just having done deposit portfolios for a long time, and Mark can jump in if he feels like I get it wrong.

But it's -- you often are able to improve your betas incrementally as you go through cycles, right? But during a cycle, you usually are at where you're at. And you can often choose your rate or you can choose your deposit growth, but choosing both is very, very difficult. You need to remain competitive and make sure you're hitting your growth targets as well.

I will say, though, we've been pretty pleased. Level Up was -- our first savings product was, I'd call it, a vanilla high-yield savings account, Level up where you get the rate boost for engaging in good behavior. We shared the market response to that. It's won a bunch of awards. Consumers love it. We have been encouraged as well by the stickiness of those deposits and the behavior we're seeing on the way down in the rate cycle, right?

There's something about -- somebody wrote an article that said, "I love LendingClub because it's forced me to treat my savings like a bill. right? I got to pay it every month. I don't want to put $250 in and you see that they're logging in 3 times a month, right, checking am I getting the level up rate, what's going on? So we've been encouraged by that.

If there are no other questions, Scott has a quick -- some closing remarks.

Okay. So on the last thing between you all and lunch. I just want to do a quick recap. I appreciate everybody making the time today. So repeating, one, I hope you've seen today through the new data that we've released, the product suite we've released, more insight into the strategy and our competitive advantages. We are a radically different company. The strategy is very, very clear. It is very compelling. It is working very well, and we're just getting started.

We have 5 key competitive advantages that are very difficult to replicate. You actually heard one of our banking partners say, "Hey, it's kind of like yoga, it looks easy until you try it, right? It's very difficult. If you think you can go to a bureau and build an inference model and compete with LendingClub and unsecured lending, you are going to be very, very surprised. And many, many banks have tried and very many big banks have tried, including some base here in New York, and that's because of these 5 key advantages.

And all of this comes together in what we believe is sustainable growth at expanding margins. The math is simple, path is clear. So I appreciate everybody's time and attention today. Lunch is waiting for you outside. So happy to catch up one-on-one out there. Thank you.

And that concludes LendingClub's Investor Day.

Ladies and gentlemen, thank you for joining us, and welcome to the LendingClub Q3 2025 Earnings Conference Call.

[Operator Instructions]

I will now hand the conference over to Artem Nalivayko, Head of Investor Relations. Please go ahead.

Thank you, and good afternoon. Welcome to LendingClub's Third Quarter 2025 Earnings Conference Call. Joining me today to talk about our results are Scott Sanborn, CEO; 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, demand for our loans and marketplace products and future business and financial performance.

Our actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are described in today's press release and earnings presentation. Any forward-looking statements that we make on this call are based on current expectations and assumptions, and we undertake no obligation to update these statements as a result of new information or future events.

Our remarks also include non-GAAP measures related to our performance, including tangible book value per common share, pre-provision net revenue and return on tangible common equity. You can find more information on our use of non-GAAP measures and a reconciliation to the most directly comparable GAAP measures in today's earnings release and presentation.

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

Thank you, Artem. Welcome, everybody. We delivered another outstanding quarter with 37% growth in originations, 32% growth in revenue and a near tripling of diluted earnings per share. Innovative products and experiences, compelling value propositions, a 5 million strong member base, consistent outperformance on credit and a resilient balance sheet are all coming together to deliver sustainable, profitable growth.

I'm excited to share more on our vision and our many competitive advantages at our upcoming Investor Day in 2 weeks. So I'll keep it brief today. Quarterly originations of $2.62 billion came in above the top end of our guidance, reflecting strong demand from both consumers and loan investors, our increased marketing efforts and the power of our winning value proposition and customer experiences.

With competitive loan rates enabled by our sophisticated credit models and a fast, frictionless process, we continue to be very successful at attracting our target customers. In fact, when our loan offers are made side-by-side in a leading loan comparison site, we closed 50% more customers on average than the competition.

We continue to be disciplined in our underwriting. Our asset yield remains strong and our borrower base continues to perform well. In fact, we're delivering our originations growth while also demonstrating roughly 40% outperformance on credit versus our competitor set.

Consistent strong credit performance on a high-yielding asset class has allowed us to confidently build our balance sheet, which now stands at over $11 billion, delivering a durable, resilient revenue stream that nonbanks can't replicate. In fact, this quarter, we generated our highest ever net interest income of $158 million, enabled by a growing balance sheet and expanding net interest margin.

Our loan marketplace is also thriving with our reputation for strong credit performance and innovative solutions attracting marketplace investors at improving loan sales prices. We grew marketplace revenue by 75% to our highest level in 3 years and had our best quarter ever for structured certificate sales totaling over $1 billion.

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

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

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

We launched LevelUp Checking in June of this year as the first-of-its-kind banking product, designed specifically for our borrowers. Members are responding positively with a 7x increase in account openings over our prior checking product.

In a recent survey, 84% of respondents said they were more likely to consider a LendingClub loan given the offer of 2% cash back for on-time payments through LevelUp Checking. And what's really encouraging is that nearly 60% of new accounts being opened are being opened by borrowers.

Our efforts are driving a nearly 50% increase in monthly app log-ins from our borrowers. And with that engagement, an increasing portion of our repeat loan issuance is now coming through the app. That's proof that these investments are enabling lower cost acquisition from repeat members, keeping pace with our new member growth as we continue to ramp our marketing efforts.

We'll share more examples at Investor Day of how our intentional product design, coupled with an engaging mobile experience are creating a flywheel to increase lifetime value. Before I turn it over to Drew, I want to thank all LendingClubers for their incredible execution and dedication to improving banking for our more than 5 million members.

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

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

For the third quarter, we generated improved results across all key measures, including originations, revenue, profitability and returns. Total originations grew 37% year-over-year to over $2.6 billion, reflecting the impact of our growth initiatives scaling of our paid marketing channels and continued expansion of loan investors on our marketplace platform.

Revenue grew 32% to $266 million, driven by higher marketplace volume, improved loan sales prices and expanding net interest income. Pre-provision net revenue or revenue less expenses grew 58% to $104 million, reflecting the scalability of our model.

The net impact of all these items is that we nearly tripled both diluted earnings per share and return on tangible common equity to $0.37 per share and 13.2%, respectively. The business is firing on all cylinders, demonstrating the earnings power of our digital marketplace bank model.

Now let's turn to Page 12 of our earnings presentation, where we will go further into originations growth. We delivered our highest level of originations in 3 years. Borrower demand remains strong as the value we are providing in the core use case of refinancing credit card debt continues to be compelling.

Loan investor demand also remains strong with marketplace buyers looking to increase orders and prices steadily improving. Demand for our structured certificate program continues to grow as we added the rated product, attracting new insurance capital. In addition to $1.4 billion of new issuance sold, we also sold $250 million of seasoned loans out of the extended seasoning portfolio, which included a rated transaction supported by insurance capital.

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

Leveraging one of the benefits of being a bank, we grew our held-for-sale extended seasoning portfolio to over $1.2 billion, consistent with our strategy to grow our balance sheet while maintaining an inventory of seasoned loans for our marketplace buyers. Finally, we retained nearly $600 million on our balance sheet in Q3 in our held-for-investment portfolio.

Now let's turn to the 2 components of revenue on Page 13. Noninterest income grew 75% to $108 million, benefiting from higher marketplace sales volumes, improved loan sales prices, continued strong credit performance and lower benchmark rates.

The fair value adjustment of our held-for-sale portfolio benefited by approximately $5 million in the quarter from lower benchmark rates. Net interest income increased to $158 million, another all-time high, supported by a larger portfolio of interest-earning assets and continued funding cost optimization.

The growth in this important recurring revenue stream is expected to continue into the future as we leverage our available capital and liquidity to further grow the balance sheet.

If you turn to Page 14, you will see our net interest margin improved to 6.2%. We continue to see healthy deposit trends and total deposits ended the quarter at $9.4 billion, a slight decrease from last year. The change was primarily attributable to a $600 million decrease in broker deposits, which was mostly offset by an increase in relationship deposits.

LevelUp Savings remains a powerful franchise driver, approaching $3 billion in balances and representing the majority of our deposit growth this year. We are maintaining a disciplined approach to deposit pricing while providing meaningful value for our customers.

Turning to expenses on Page 15. Noninterest expense was $163 million, up 19% year-over-year. As we signaled last quarter, the majority of the sequential increase was driven by marketing spend as we continue to scale, test and optimize our origination channels to support continued growth in 2026.

We continue to generate strong operating leverage on our growing revenue and our efficiency ratio approached all-time best in the quarter. Let's move on to credit, where performance remains excellent. We continue to outperform the industry with delinquency and charge-off metrics in line with or better than our expectations. Provision for credit losses was $46 million, reflecting disciplined underwriting, stable consumer credit performance and portfolio mix.

Our net charge-off ratio improved modestly again this quarter to 2.9%, and we continue to see strong performance across our vintages. I would highlight that the net charge-off ratio also continues to benefit from the more recent vintages we've added to the balance sheet. We expect the charge-off ratio to revert upwards to more normalized levels as these vintages mature. These anticipated dynamics are already factored into our provision.

On Page 16, you will see that our expectation for lifetime losses are also stable to improving across all vintages.

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

We ended the quarter well capitalized with strong liquidity and positioned to fund future growth without raising additional capital.

Moving to Page 17. You can see that pretax income of $57 million more than tripled compared to a year ago and hit a record high for the company. Taxes for the quarter were $13 million, reflecting an effective tax rate of 22.6%. We continue to expect a normalized effective tax rate of 25.5%, but we may have some variability in this line due to the timing of stock grants and other factors.

Putting it all together, net income came in at $44 million and diluted earnings per share were $0.37, which nearly tripled compared to a year ago. Importantly, our return on tangible common equity of 13.2% showed continued improvement and came in above the high end of our guidance range, and our tangible book value per share now sits at $11.95.

As we look ahead, the business enters the fourth quarter with significant momentum. Loan investor demand remains strong. Loan sales pricing continues to trend higher, and our product and marketing initiatives are driving high-quality volume growth.

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

Our outlook for pre-provision net revenue is $90 million to $100 million, up 21% to 35%, respectively. Our outlook assumes 2 interest rate cuts in Q4 and includes increased investment in marketing to test channel expansion, which will support originations growth in future quarters.

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

With that, we'll open it up for Q&A.

[Operator Instructions]

Your first question comes from the line of Bill Ryan with Seaport Research Partners.

So first question, I just want to ask about the disposition plans looking into the future between your various channels, structured certificate, whole loans and extended seasoning and what your plans are to continue to grow to be held for investment portfolio on the balance sheet. It looks like there's a little bit of mix shift the last couple of quarters, dialing back on the whole loan sales, focusing on the other two. And if you could also kind of maybe talk about the economics of what you're seeing between the various disposition channels.

Yes. Great. Bill, thanks for the question. So for HFI for Q4, it's kind of steady as she goes in terms of what we plan each quarter. So we're targeting roughly $500 million in HFI, and that sort of just depends on how the quarter evolves, sometimes that's a little higher or a little lower. I'd say generally, it's been a little higher in the past couple of quarters.

The other programs are roughly in line with where we've been for the past couple of quarters. We see demand for structured certificates being constant. We're seeing good pickup in the rated product as well. And we -- as I mentioned, we sold one of those out of extended seasoning this quarter, a rated deal that is. So demand is strong and still there. And with issuance being targeted to be roughly the same kind of the mix and disposition should also be roughly the same.

I guess just, Bill, to make sure you're tracking, you probably are that not all of these sales are equal. And historically, whole loan sales to banks would come at a different price than, say, whole loan sales to an asset manager.

As the insurance-rated transactions have been coming in, those prices, as we mentioned in the script, are really approaching bank prices now. And in those cases, we're generally not retaining the A notes. So effectively, it is a whole loan sale, and it's coming at a higher price. So it's really -- the mix is based on where we're getting best execution and we are looking to develop certain channels. So that's a channel we're developing, and it's going in the direction we like, which is building demand and higher prices there.

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

No, we haven't. I'd say -- as we say every quarter, this has always been a competitive space. In our case, our growth is coming off of a low, and it's coming off of a low that's been informed not just by tighter credit underwriting, which we're maintaining the discipline there, but also because we just pulled back on marketing.

So our ability to grow is -- if you still look at where you can see volume levels, you'll see we're still running below historical levels of spend and volume in a TAM that's larger than it ever was. So we're not seeing -- the space is competitive. It's no more competitive than it was last quarter or the quarter before.

As usual, we see a mix in who we're competing with in different environments. So when the interest rate environment shifted, we were competing more with banks and less with fintechs. I'd say now we're competing a bit more with fintechs and a little bit less with some of the banks. But it doesn't -- it's not changing, certainly not affecting our underwriting standards.

And we are absolutely in this for the long game. And as you know, we're eating our own cooking here. So we are looking to make sure we are delivering the returns for ourselves as well as for our loan buyers. And we don't view the way we get rewarded long term is by posting a temporary jump in growth through short-term decision-making on credit.

Our next question comes from the line of Tim Switzer with KBW.

My first one is, can you explain what drove the higher loss on the net fair value adjustment? And I think you mentioned earlier on the call that pricing seems to be holding up on loan sales. So just curious what drove that adjustment line.

Yes. So keep in mind, we had a positive fair value adjustment in Q2 that I believe was about $9 million in the quarter, and we had $5 million this quarter. So positive adjustments in both quarters, but it was larger in Q2 than it was in Q3. And so that's a big part of the delta right there.

As we said, prices moved up a little bit. So it's not price that's driving that. The other piece is as we have a larger extended seasoning portfolio, there is natural roll down that happens, and that comes through that net fair value adjustment line. So that's also a little bit of the change that we're seeing quarter-over-quarter. It's just a larger portfolio.

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

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

Yes, I would appreciate that. We can do it offline. And then can you also walk us through the loan reserve dynamics a bit this quarter because it went up quite a bit. But if we look at your Slide 16, that indicates lower loss expectations for those legacy vintages. And you obviously didn't grow the HFI book a whole lot. So just curious on what was that reserve going up for, I guess?

Yes. So 2 factors. Again, last quarter, there was a one-timer that we called out in the provision line because we had a re-estimation of the lifetime losses, and that caused a positive benefit in the provision line. And so I think that's about $11 million, right? Yes. $11 million last quarter that credit was great again this quarter, but we didn't do a step change in the reserve on the previous vintages. So that's one factor.

The other is just as we're growing some of our businesses, like, for example, our purchase finance business into HFI, the duration is a little longer, so it has a little higher upfront CECL charge, but also fantastic economics on balance sheet. And so those are the 2 main drivers.

Got you. And one last one real quick. Can you explain what drove the increase in diluted shares in the period went up a little bit, but not nearly as much as the diluted share count. And sorry if you said this earlier on the call.

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

Your next question comes from the line of Giuliano Bologna.

Giuliano, I think you're on mute, too.

We can come back to Giuliano. We'll move on to Vincent Caintic of BTIG.

Great. Can you hear me?

Yes.

Yes, having some technical issues. I have a feeling, maybe others are as well. But yes, first question, kind of a follow-up on that funding side. And I want to ask it kind of the demand for your marketplace loans, the certificates and the seasoned portfolio. It's great to see that there's so much demand.

And I think a lot of -- there's been a lot of investor questions over the past month where we've seen some other companies have some issues, some bankruptcies and so forth. And so there's been some concerns broadly about institutional investor appetite for fintech-originated loans.

So it looks like your demand is great. And I was wondering if you can maybe talk about kind of the broad industry and if you're seeing any differentiation and if maybe that's a competitive advantage of your funding vehicles and mechanisms versus the rest of the industry?

Yes. So thanks for the question, Vincent. A lot there. So I'd say, first of all, the comments I'm going to make are really just focused on our asset class and our industry, so not auto securitizations or any of the other things that are going on. But we just actually -- our team was just at a conference yesterday talking to current investors and potential investors.

And I'd say the appetite is still very strong. I don't think there's any fade on the appetite at all for the various vehicles that are out there, whether it's a structured product, the rated product or whole loans out of extended seasoning. So demand is definitely there. I think track record matters. So the demand is there for us.

I think it's certainly there for other issuers as well. But I'd say on the margin that issuers are also being maybe slightly more cautious on who they're partnering with, and we're hearing that. And we've been the partner of choice for years and I think continue to be.

So I think that plays to our advantage. Obviously, we're always watching the ABS markets to see if there's any major disruption there and haven't seen much. Certainly, there's been a little noise, as you indicated over the past couple of weeks. But summary, demand remains good. Prices are strong. So we're feeling good going into the fourth quarter.

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

That's super helpful. And actually kind of related to the volatility we've been hearing over the past month, just in broader consumer credit. Just wondering if you could talk about your credit performance and what you're seeing. So it was great to see charge-offs 2.9% this quarter, that's great.

I'm just wondering if you're noticing maybe not in the loans that you -- that are on your balance sheet already, but as you get applications, maybe has the quality of that changed? Are you noticing maybe any themes in terms of delinquency evolution like maybe with lower credit tiers? Or anything -- any comments you might be seeing with that relative to past trend?

Yes. No, I mean, I'd say for us, a reminder, we remain very, very restrictive compared to pre-COVID, and that is even more so the case in sort of the lower credit area.

So I acknowledge there's definitely been a decent amount of press about the bifurcated economy and where certain subsets of consumers could be struggling. But in our portfolio, given how we're underwriting today, I mean, just for example, there's talk about consumers, who are in less than $50,000 a year. I think that represents 5% of our originations right now.

So very, very small. Same thing with student loans. As you know, we've restricted underwriting to that group. So the percent of people that are delinquent on a student loan and current on us is now measured in basis points and is shrinking. So we, on our book, aren't seeing anything more than the normal kind of variability that you adapt and continue to manage to, which we -- our platform is set up and our team is set up to do that quite well.

So no kind of broad themes despite, again, we're reading the same thing you are, but we're not seeing it in our book. And I think that's based on how we're underwriting.

Great. And maybe I'll sneak one more in, and this might end up having to be for the investor meeting. I want to leave some meat on there. But your CET1 of 18% is very healthy. I'm just wondering how much is too much.

Yes. We'll see you in November. In all seriousness, I think a little bit on that is, again, we're -- we do have what we would say is some excess capital and our plan is to use that for growing the balance sheet as we ramp up originations. And if we have enough capital to satisfy that primary goal and more than enough after that, then I think we'll consider other options.

Great. See you on November 5.

Our next question comes from Giuliano Bologna from Compass Point.

Congratulations on a great quarter. It's great to see continued great results. When I look forward, I mean, there's obviously a tremendous amount of demand through the marketplace, whether it's structured certificates or whole loan sales. I'm curious in a sense, how much more do you think you'd want to grow that versus grow the kind of overall HFI pie because the outlook is, call it, 45% between HFI and extended seasoning, which is a pretty healthy amount, and it looks like that could keep growing balances.

But just trying to think about how you think about the balance going forward because you have a lot of dry powder, a lot of liquidity and a lot of capital to kind of keep pushing. So I'm curious how you think about how much you'd be willing to push both sides there.

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

So our goal is to be able to do both. And then if we're not quite there on total originations, and it's a bit of a balancing act, right? We still want to see healthy growth on the balance sheet, but we originate loans that are better off in the marketplace on the balance sheet, and we're going to sell those.

And we have long-term investors that we want to keep our relationship with. And so we're going to make sure we're able to allocate to them as well. So always a bit of a balancing act while we're still ramping originations and goal is we have enough originations to feed both sides.

That's very helpful. One thing I'm curious about, when I look at your marketing spend as a percentage of volume, it came up a little bit, but it's still much lower than I would have expected, given that you're pushing some new marketing channels. I mean I'm calculating at [indiscernible]. You obviously highlighted that you're going to push a little bit more harder on the marketing side in 4Q in anticipation of growth in '26.

It looks like -- I mean, HFI was down, so there should be a little bit less of a benefit from more capitalization or amortization of that through -- on HFI. But it seems like that's continued to be very efficient from a percentage of volume perspective. I'm just curious how I should think about that going forward over the next few quarters.

Yes. So as I mentioned, I think we excitedly, I'd say, we still see a lot of opportunity there, right? We are coming from a place of reasonably low activity into a market that I think is pretty attractive in terms of the value proposition to the consumer and the experience we've got. Our efforts are working well. We are still -- I mean, we're only 2 quarters into restarting direct mail as an example. We're on the third version of our response model.

We will be on our fourth as we exit the year, building the creative optimization library, optimizing the experience and then take that across some of the other channels like digital and all the rest. So we still have a lot of opportunity in front of us.

I think what you're also seeing in Q3 is not just the performance of those channels being positive, but also some of our other efforts. I touched on it in my prepared remarks, that our other -- we are growing -- we delivered 37% growth year-on-year. That was both in new and in repeat. Marketing over-indexes to driving new, but repeat is coming at a much lower -- much lower cost.

So our ability to scale that at an equivalent pace, we're still at 50-50 despite the big jump in year-on-year marketing spend. We're still roughly 50-50 with new versus repeat. So both of those efforts are working, the external marketing efforts and then the efforts to drive repeat and lifetime value from our customers.

That's very helpful. I appreciate it and congrats on the performance and looking forward to seeing you guys in a couple of weeks.

And your next question comes from Reggie Smith of JPMorgan.

I wanted to follow up on the last question. So kind of thinking about marketing, obviously, it costs less to reengage a previous customer. I guess thinking about that expense ratio, the 1.5% that we see on the income statement, my sense is that it's not evenly distributed and that maybe your incremental or your marginal loan is a little bit more.

Help me understand, I guess, how inefficient that is? Or where is the marginal cost to underwrite a loan and then maybe frame that against what you could sell one for? Like my sense and my gut is that despite the fact that your marketing channels are not optimized, that is still -- there's still room there to kind of go almost as though you're leaving money on the table, possibly, not in a bad way, but just thinking about the opportunity there.

So maybe talk a little bit about what the marginal cost to acquire a new loan is and then maybe frame that against what you can sell these loans for. It looks like origination of your marketplace ratio is about 5%. So there seems to be a lot of room there. But anything you could share there would be great.

Yes. So you're certainly thinking about it the right way. We're underwriting to a marginal cost of acquisition that reflects the lifetime value of the customer and part of this -- and what we are very, very focused on is profitable, sustainable growth, right?

We're not looking to just post inefficient volume that we can't rinse and repeat and drive further. So as we push into these new channels, we'll find that efficient frontier and then we work to basically bring it in, right, by improving our targeting models, improving our creative and response rates, improving our pull-through on the experience and the conversion rate on the experience, so that we can then go deeper and push harder in those channels.

So I think you're right that we have more room to go, but it is very mathematically and/or scientifically backed, right? It's -- we've got a very good handle on what we can expect to get from our customers. Now that -- that number is going up, right? As we -- and we'll share a little bit more information on this.

But as we get better and better, these repeat customers are not only lower cost to acquire, they're also lower credit loss. And by the way, if we get you back once, it's likely we're going to get you back 3 or 4x. So there really is a real long-term benefit here that will drive up the lifetime value, which will drive up our ability to pay up at acquisition, but we're building towards it, and we're building towards it incrementally every quarter.

That makes sense. And if I could sneak one more in. I'd love to hear more about the BlackRock program and the insurance sales channel. If I'm thinking about that right, I guess, this is a way for kind of civilians to get exposure to these types of notes. Like how is the liquidity there for the consumer?

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

Yes. So a couple of things there. One, this is not direct-to-consumer sales that's happening. This is really in the BlackRock example, I think they have many different ways that they may represent other clients where they're managing money to purchase this program. So I wouldn't want to box it into just one use case for them. But it's not a direct or indirect-to-consumer investors that's happening in any way. I think the insurance pool is extremely deep.

And so these are insurance companies who are taking premiums for various insurance policies and investing that money. And so it's a massive pool. It is -- as Scott was saying, usually, the price is not quite as good as banks, but generally, it's still a very low cost of capital. And so we think we can make progress in terms of growing that channel and helping our overall average price that we're selling loans at as well.

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

So there are -- there is capital in our loan book today that is provided by individuals. It's usually coming through funds that are managed by RIAs at some of the wealth managers and hedge funds and all the rest.

So there is private individual investor capital coming in to purchase the asset, so that's one. Going direct-to-consumer retail would be going back to our original model. And if you recall, it is doable, but then the loans become securities, which comes with a lot of overhead and disclosure requirements.

And we have been able to operate a much better business without that because we're -- what I mean by that is we are required to announce when we make pricing changes. We're required to announce when we make credit changes. We had all of our competition downloading our publicly available data and using it to compete against us because we had to tell them what we were doing.

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

I was thinking about how I would love to pick up some yield versus when I get in my savings account. So I think it's something there, I don't know.

[Operator Instructions]

Our next question comes from Kyle Joseph of Stephens.

You guys have touched on this a bit, but just looking at Slide 10 and kind of the delinquency trends amongst FICO bands. Obviously, at least amongst the competitor set, you saw a pretty big increase on the lower band there. Just give us a sense for how that impacts your originations and investor demand and where you're seeing kind of the best bang for your buck across the FICO band score?

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

What we're always looking at is what does the application profile look like coming at us? Is it shifting? Is it shifting in a way we like or we don't like. So when you see an uptick like that, it's generally going to result in somebody else pulling back. We don't know is that 1 platform, 2, 3, like hard for us to say.

But what we'll be monitoring and adapting to is making sure we continue to get a consistent through-the-door population and that we want because that may provide some opportunity, it might provide some risk, and that's part of what our day job is.

Helpful. And then just one follow-up for me. You talked a lot about marketing expenses today, but just -- and I imagine you'll cover this at the Investor Day as well. But just a sense for the operating leverage you have on the remaining expense items?

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

I will now turn the call to Artem for some questions via e-mail.

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

Yes. So first, thanks to all the retail investors for submitting. I understand from Artem that we got quite a few this quarter, so that's great. As we talked about on the call, not all originations are created equal. Our focus is on profitable, sustainable originations growth.

And I think 37% growth in originations to a level that's really getting close to our highest over the last several years is also coming with record high pretax net income and also coming with outperformance on credit by roughly 40%.

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

Perfect. Second question, you talked a little bit about potential rebrand coming up. Any updates on the status?

Yes. I'm only talking about it because you all keep asking. But I would say, yes, we are -- we've done quite a bit of work this year, and we're in the final stages of, let's call it, the research and development phase and landing on where we want to take it, very excited about it.

We're now entering the planning and execution phase, which we're going to be pretty deliberate about as it won't surprise anyone on this call. We built up equity in this brand after almost 20 years. We think a new brand will give us a broader permission set with our customer base and kind of create new opportunities for us, but we got to make sure we don't lose the tens of thousands of positive reviews and awards and our conversion rate that we finally honed across all these channels.

And so lots of work to do. So when will it be out in the ether will be probably middle-ish of next year. Don't hold me to that date exactly, but we're doing the planning phase to make sure we know exactly what we're going to get and can support it with the marketing that it's going to need to be successful.

All right. Perfect. And last question, any updates on the product road map or launching any new products?

Yes. So obviously, this year, as we've been getting back to growth, we've also been expanding our ambitions on the product mix. We talked about LevelUp Checking on the call today. LevelUp Savings has been a big driver, which I think Drew talked about DebtIQ this year.

So there is absolutely more to come. That's part of the reason we're going to be investing in a new brand. What I'd say is stay tuned for Investor Day, where we'll talk a little bit more about some opportunities we're going to be pursuing in the years to come.

All right. Perfect. Thanks, Scott. All right. So thank you, everyone. With that, we'll wrap up our Third Quarter Earnings Conference Call. Thanks again for joining us today. And if you have any questions, please e-mail us at [email protected].