LendingClub Corporation (NYSE:LC) Q1 2024 Earnings Call Transcript

LendingClub Corporation (NYSE:LC) Q1 2024 Earnings Call Transcript April 30, 2024

LendingClub Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon. Thank you for attending the LendingClub First Quarter 2024 Earnings Conference Call. My name is Jayla and I will be your moderator today. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. I would now like to pass the conference over to our host the Head of Investor Relations, Artem Nalivayko.

Artem Nalivayko: Thank you, and good afternoon. Welcome to LendingClub’s first quarter 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 our Investor Relations section of our website. On the call, in addition to the questions from analysts, we will also be answering some of the questions that were submitted for consideration via email. Our remarks today will include forward-looking statements including with respect to our competitive advantages and strategy, macroeconomic conditions and outlook, platform volume, future products and services, and future business and financial performance. Our actual results may differ materially from those contemplated by these forward-looking statements.

Factors that could cause these results to differ materially are described in today’s press release and presentation. Any forward-looking statements that we make on this call are based on current expectation 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 pre-provision net revenue. 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. And now, I’d like to turn the call over to Scott.

Scott Sanborn: All right. Thank you, Artem. Welcome, everybody. We kicked off the year with another solid quarter, and we’re pleased with how well we’re executing against the factors we can control, derisking the business while also advancing our strategy and setting the stage for future growth. Our operating discipline, credit outperformance, and continued innovation are resulting in a sustainable operating rhythm that has us well-positioned to outperform as conditions improve. Let’s start with our loan volumes. Total originations for the quarter came in just above $1.6 billion, which was in line with the prior quarter despite typical adverse seasonality. Pre-provisioned net revenue of $48 million came in above the high end of our range, thanks to strong execution combined with temporary benefits in both expenses and loan sales prices.

Importantly, we delivered net income of $12 million, marking 12 straight quarters of GAAP profitability since we became a bank, a notable feat given the turbulent macro environment over the last two years. In February, we successfully exited the three-year operating agreement required of us as a new bank, a milestone in our evolution that gives us more flexibility in how we manage the business. Our management priority is currently deploying our excess capital to build the balance sheet and bolster our net interest income, which we believe is the best way to drive durable shareholder value in a higher for loan growth environment. For example, this past quarter we grew the balance sheet by $415 million, adding new originations in the form of whole loans and securities and a repurchase of a portfolio of previously sold LendingClub loans.

These actions to increase the balance sheet will support a return to growth and net interest income going forward. Now turning to credit, where we continue to demonstrate our leadership, you’ll see on Page 9 of our earnings presentation that we’ve delivered our 13th consecutive quarter of material outperformance versus our competitive stat across all core customer segments that we serve. This outperformance reflects our vast data advantage derived from over $90 billion in issued loans, our flexible technology platform that allows us to rapidly respond to changing market dynamics, and the efforts of our highly seasoned team with the human intelligence to look ahead and beyond the models. Our sustained credit performance gives us confidence in our ability to increase shareholder value through a sustained, elevated interest rate environment, and it firmly reinforces our position as the partner of choice for marketplace investors.

Turning to the marketplace where asset manager demand for our structured certificate program remains strong. We sold over $785 million of new issuance through the program this quarter, generating fee revenue and capital efficient risk remote interest income without an upfront CECL charge. Beyond asset managers conversations with select banks are gaining momentum. Depending on the rate environment, we are cautiously optimistic that we’ll see engagement beginning in the back half of this year, which should help drive up pricing and corresponding marketplace revenue. Given the consistent demand that we’re seeing from asset managers and the momentum that’s building with banks, we are increasing our held for sale portfolio, which provides interest income near-term and the potential for sales at higher gains down the road.

Stepping back as credit card balances and average APRs hit new highs, our TAM has never been larger and our value to consumers has never been more compelling. Refinancing credit card debt through a LendingClub loan provides substantial savings and has been shown to increase a borrower’s credit score by an average of 48 points. And we make it easy with new borrowers able to apply in a matter of minutes and existing members able to redeem a pre-approved offer in a few clicks. For LendingClub, these borrowers delivered strong credit performance, high marketing efficiency and a powerful opportunity to engage and reward them over time. Given the historic refinance opportunity in front of us, we’re focused on coiling the spring to enable accelerated growth when conditions permit.

We’re building on our 15 plus years of industry leadership and further elevating and differentiating our offering through several initiatives that include, an increasingly robust set of credit monitoring and management tools that provides members with visibility into their credit profile, current debt and the cost of that debt, all of which serves to highlight the personal loan value proposition. With just the credit profile portion of the functionality live, we’re seeing enrolled members visiting us close to 50% more often than those who haven’t. With these positive early results, we’re excited about the broader debt monitoring portion of the experience that’s currently live and testing with a select group of members in advance of a broader release later this year.

A second initiative is a turnkey embedded finance integration that enables digital delivery of personalized, prescreened loan offers via advertising. We are testing this functionality on our own site where we’re seeing substantial lifts in response and approval rates from high quality borrowers, and we hope to offer the integration to select partners as we exit the year. We’re also iterating on unique to LendingClub member products such as Top-up and CleanSweep that offer members a powerful benefit to staying engaged with us. Top-up allows members to easily add incremental funds to their existing loan balance while maintaining a single payment within their budget. We’re currently testing our way into the program and we’re seeing materially higher response rates and issuance volumes.

CleanSweep is a revolving line of credit that gives existing members a way to easily sweep new credit card balances into a fixed payment plan, allowing them to get the card rewards they love while saving on interest if they need to carry a balance. CleanSweep provides a compelling, easy to access experience that is unique to LendingClub and drives ongoing engagement. It’s also the first step towards offering other revolving use cases down the road. While we have an extensive learning agenda here, early results again show extremely positive response and take rates. These and other new initiatives are helping us deliver on our promise to relentlessly advantage our members by delivering financial solutions that are smart, simple and rewarding.

The positive early results help us offset our typical seasonality in Q1, and we expect them to deliver nearly $0.5 billion in new high quality issuance this year. Equally importantly, these initiatives further differentiate LendingClub’s offering in the market and set the stage for longer-term growth. In closing, I’m incredibly proud of what we’ve been able to accomplish through this environment, including delivering consistent GAAP profitability, remaining strong stewards of credit, rapidly innovating to meet investor needs, innovating on new tools, features and experiences to deliver value for our members, and successfully exiting our operating agreement. We’re now reaching a sustainable baseline from which we can expect to grow originations, our balance sheet, and our member base.

We will do so modestly if the current rate conditions persist with a more pronounced acceleration as the Fed’s interest rate policy eases. I’ll again thank the entire LendingClub team for their continued innovation and dedication to our mission. Thanks to their hard work, we’re well-positioned to capture the incredible opportunity in front of us. With that, I’ll turn it over to Drew.

Drew LaBenne: Thanks, Scott, and hello everyone. Let me walk through the details of our first quarter results starting with originations. As Scott mentioned, we originated over $1.6 billion in line with the prior quarter and the high end of our guidance. Last quarter, we added Page 10 to our earnings presentation to illustrate the relative economics of the four primary programs we have at our disposal to sell or retain loan originations. Whole loan and structured certificate sales allow us to take more upfront economics and operate in a capital like manner without credit risk, whereas loans that we hold or season on balance sheet provide the strongest returns. On Page 11, you can see the origination volumes of the four programs.

The issuance in the quarter was once again led by our very successful structured certificate program, which was approximately $785 million of the originations in the quarter. We also sold $320 million of whole loans through the marketplace, accumulated $255 million in to held for sale for our extended seasoning program to meet future marketplace investor demand for season loans, and we retained $285 million in our held for investment portfolio. This quarter, you saw us increase the amount of whole loans retained on our balance sheet between the held for investment and extended seasoning programs, which represented 32% of total originations, up from 17% in the prior quarter. We plan to maintain these higher levels of whole loan retention to offset the maturation of our existing portfolio, keeping our total loan portfolio essentially flat through the remainder of the year.

Importantly, the total balance sheet will continue to grow as we add structured certificate securities throughout the year. Now, let’s move on to pre-provisioned net revenue or PPNR. PPNR was $48 million for the quarter and came in above our guidance range due to temporary outperformance on expenses as well as rate driven improvements in marketplace economics. Let’s move into the two components of PPNR, starting with revenue, where you can see the detail on Page 12 of our earnings presentation. Total revenue for the quarter was $181 million compared to $186 million in the prior quarter. Let me break revenue down into the two components, starting with non-interest income. Non-interest income was $58 million in the quarter, up from $54 million in the prior quarter.

The improvement was primarily driven by better marketplace loan pricing as we saw continued strong demand combined with lower interest rates in the period. The pricing benefit was partially offset by lower origination fees as we retain more loans in our held for investment portfolio where the origination fee is deferred over the life of the loan. Now, on to net interest income, which was $123 million in the quarter, compared to $131 million in the prior quarter. The change in net interest income was primarily due to the continued shift towards putting structured certificate securities on the balance sheet, which have no provision due to the risk remote nature of the VA note security, but come with a lower asset yield. This is the third quarter since we start the shift in balance sheet composition and going forward we should see modest improvements in net interest income with further benefits when the Fed begins to lower interest rates.

As Scott noted, we purchased $235 million LendingClub issued loan portfolio from a marketplace investor at the end of the quarter, which we accounted for under fair value and funded it with short-term Federal Home Loan Bank advances that have been repaid as of this call. As you have seen us do in the past, we will be opportunistic about secondary portfolio purchases of LendingClub issue paper. We see this as a way to quickly deploy excess capital and earn attractive returns while providing liquidity for our marketplace investors. Risk adjusted revenue, which is net revenue less provision, increased to $149 million this quarter from $144 million in the prior quarter, which was the result of the lower provision as we continued growing the structured certificate and extended seasoning programs.

We introduced this metric last quarter as we believe it illustrates the lower risk nature of the assets we have been using to grow the balance sheet. The continued evolution on the asset side of the balance sheet has had the expected impact on net interest margin. On Slide 13, you can see that our net interest margin was 5.8% in the quarter, compared to 6.4% in the prior quarter. We expect the rate of net interest margin decline to moderate going forward from what we’ve experienced in recent quarters assuming the Fed has done increasing rates. Now, please turn to Slide 14, of our earnings presentation, which refers to the second component of PPNR non-interest expense. Non-interest expense was $132 million in the quarter compared to $130 million in the prior quarter.

While we will continue to remain disciplined on expenses, we do expect a step up in variable spend to support growth as well as higher depreciation from some of the recently completed technology builds you heard Scott discuss earlier. Now, let’s turn to provision. On Page 15, you will see provision for credit losses was $32 million for the quarter compared to $42 million in the prior quarter. The sequential decline was a result of lower incremental provision on older vintages partially offset by higher day one CECL provision from the higher retained loans in the period. As we indicated last quarter, we believe delinquencies and net charge-offs on our held for investment portfolio have peaked and are beginning to decline as the portfolio ages past the point of peak dollar net charge-offs.

Delinquencies also benefited from seasonal impacts and to a lesser extent, temporary hardship plans tailored to the inflationary environment. On Page 16, we have updated our lifetime loss expectations for each of our annual vintages. We are seeing stable performance in line with the expectations we provided last quarter and the marginal ROEs remain very strong across the vintages. As a reminder, we have applied a higher qualitative reserve to the 2023 vintage given the longer remaining life compared to the more seasoned vintages. And on Page 17, we have included the illustrative example of the credit lifecycle of a single hypothetical vintage. We noted on our last call that the dollar charge-offs peak at approximately 1.5 years. Our health or investment portfolio is now 16.5 months old and we saw that net charge-offs were stable sequentially as we expected.

Going forward, we expect dollar net charge-offs to begin to decline as the portfolio continues to season. As a reminder, our in-period net charge-off rate will continue to increase as the portfolio ages, but on lower outstanding balances. We have already taken an upfront CECL provision for future net charge-offs on a discounted basis, which is reflected in the portfolio allowance. Due to this timing dynamic, we continue to expect lower in-period CECL provisions compared to dollar net charge-offs in the coming quarters, and our in-period net charge-off rate will continue to increase as the portfolio ages, but on lower outstanding balances. This is in line with our previous expectations as our portfolio ages. Now, let’s move to taxes. Taxes in the quarter were $4.3 million, or 26% of pre-tax income.

As I’ve mentioned before, we will have some variability in the effective tax rate from quarter-to-quarter, but our long-term tax rate expectation is 27%. That brings us to net income. Net income for the quarter was $12 million, or $0.11 per share and our tangible book value per common share increased to $10.61. As Scott mentioned, this marks our 12th consecutive quarter of profitability. Now, let’s move on to guidance. For the second quarter, we anticipate stepping up originations to a range of $1.6 billion to $1.8 billion, given the success we’re seeing from our recent initiatives that are driving efficient, creditworthy borrower acquisition. Our PPNR guidance range of $30 million to $40 million reflects the forecasted originations growth and related variable expense offset by the revenue impacts on sales price from interest rates moving higher in Q2 and the expense growth from strategic initiatives I discussed earlier.

And we plan to continue to deliver positive net income in the second quarter, though not at the level seen in Q1, which benefited from the one-time items I discussed earlier. As we look beyond Q2 to the back half of the year, there are a few trends I would like to call out. As Scott mentioned, we are seeing positive early performance on our new product and marketing initiatives, which we expect to drive incremental originations throughout the year. We expect to be able to maintain PPNR in the back half of the year, in line with our Q2 guidance with modestly increasing revenue offsetting the increase in expenses related to volume growth. While it’s looking less likely that we will get significant rate relief in 2024, any potential reductions would be an accelerant to growing revenue.

With that, we’ll open it up for Q&A.

See also Top 20 Tech Companies in Silicon Valley and 11 Best EV Charging Stocks To Invest In.

Q&A Session

Operator: We will now begin our question-and-answer session. [Operator Instructions]. Our first question comes from Giuliano Bologna with the company Compass Point. Giuliano, your line is now open.

Giuliano Bologna: Congratulations on a great quarter. The first thing I was curious about asking you is roughly speaking, what kind of improvement did you see on the marketplace? Obviously, the margins improved and pricing improved. I’m curious where the yield kind of moved versus last quarter and what that kind of implies for the discount rate and the fair value marks.

Drew LaBenne: Yes. Hey, Giuliano, it’s Drew. Thanks for the question. Yes. So in Q1, we did see price increase, and that was a combination of the interest rate environment being helpful as rates came down for most of Q1. And we also saw, I think, well, in the market, we saw credit spreads tighten as well, which really makes its way through to how asset managers think about the price they pay for the structured certificates and for a loan. So both of those things were helpful to pricing, and we definitely saw a lift there. With the discount rate, as a reminder, the discount rate for us is a result of the prices that we’re receiving on the loan. So the discount rate went down from 9% to 8.5% in the quarter. Now, I would say as we go into Q2, I think everyone obviously knows what has happened with the yield curve and rates in particular in the one-and-a-half, two-year points, which are most important to us, that moved up pretty materially.

So that’s going to be somewhat of a headwind on price as we go into Q2, and that’s factored into our guidance already as well.

Giuliano Bologna: That’s very helpful. And then thinking about the extended seasoning program. Yes. You had an earlier than expected sale last quarter. You had building balances. It seems like you implied that there was an opportunity to continue to kind of grow those balances in anticipation of more demand in the back half of the year. I’m just curious how to think about how far you would be willing to take the extended seasoning balances over there into the back half of the year.

Scott Sanborn: Yes. Hey, Giuliano, I’ll start, and maybe Drew, you can talk about the balance sheet management, but this program started as a result of investor interest over last summer. Frankly, the demand we’ve had till now has been strong enough that we’re not building the portfolio at the rate we’d like to because we’re getting bids as we’re building. The fact that we’re building it right now is a bit of a sign of our confidence, which is being reinforced by both the credit performance we shared today, but also what we’re hearing from investors, right, is that we’re look — people are looking to us for longer-term commitments. We’re seeing really consistent, strong demand from asset managers, and as we mentioned in the call, we’re cautiously optimistic.

While we don’t expect banks en masse to be back where they were kind of pre-Q1 of last year, we are certainly seeing building momentum with a group of, I’d call them idiosyncratic institutions that have got capital to deploy. And in general, people are looking to start with a portfolio of some size. And so that’s what’s giving us the confidence to begin accumulating for that.

Drew LaBenne: Yes. The only thing I would add Giuliano is that transaction we did in Q1, it’s worth noting that we actually executed that through the structured certificate program. So I think there’s also the opportunity to combine the structured certificates with the extended seasoning in terms of how we execute transactions in the future. Not exclusively, but on a case-to-case basis.

Scott Sanborn: In terms of total size, I don’t think we’re giving a destination there, Giuliano, but we’ll be measured. This will be informed by stress testing and liquidity management and all those pieces. So it’ll be measured. It’ll be part of the mix.

Drew LaBenne: Yes. And just as a reminder Giuliano, last thing, I promise, we put those loans on the books at a discount, which I think is important because as we’re holding them and seasoning them as they are — as we’re getting principal payback before we sell, we’re getting that payback at par. So that results after we take the initial discount, putting it on the books, it results in higher yield while we’re holding up the balance sheet.

Giuliano Bologna: That’s very helpful then. Just like one, hopefully very quick one. I think I didn’t hear you guys very well when you mentioned the size of the portfolio that you repurchased of your existing LendingClub loans. I’m not sure if it was $235 million or $285 million. Just wanted to confirm.

Drew LaBenne: $230 million — $235 million. Yes. $235 million.

Giuliano Bologna: Thank you so much for that. That’s perfect. Thank you so much, and congrats on a great quarter, and it’s good to see great progress. I’ll jump back in the queue now.

Scott Sanborn: Yes, great. Thank you.

Drew LaBenne: Thank you.

Operator: Our next question comes from Bill Ryan with the company Seaport Research Partners. Bill, your line is now open.

Bill Ryan: Thanks, and good afternoon. We’re going to follow-up on your comments about some of the idiosyncratic banks that are kind of touching the waters here about buying some of your loans. Historically, they have paid higher premiums relative to asset managers. And I’m wondering if you could maybe tell us how far along you are in these discussions. And is the pricing opportunity looking opportunistic relative to what you’ve been seeing from asset managers in recent periods?

Scott Sanborn: So in terms of how far along we are — we mentioned we’re optimistic that we would see some activity and engagement here in the back half of this year. Banks onboarding cycle is typically longer than an asset manager, given the requirements for them on third-party oversight, and indeed, due to the cost of capital advantages, they typically come at a higher price than asset managers, and we anticipate that in this case as well.

Bill Ryan: Okay. That’s definitely good news. And kind of follow-up on credit, looking at it is also a positive that you kind of held your cumulative loss expectations on the 2022, but more importantly, 2023 vintage constant. Looking at the slide deck, it looks like you’re assuming maybe a 7.8% cumulative loss rate on the newer vintages that you’re doing right now. Is that kind of the correct way to look at the slides and what gives you the confidence of the lower cumulative loss rate expectations and so at the newer loans you’re making?

Drew LaBenne: Yes. Bill, I think you’re maybe referring to the illustrative example that had the 7.8% and yes, we’re not — we haven’t given any information yet on the new vintages that we’re building in HFI. So I would truly look at that slide as illustrative, and I think we’re really trying to use it to focus more on the timing of an aging portfolio and how the charge-off trends and NCO rates or net charge-off rates materialize over the course of that. But I would say, I would add the 2024 vintage, I mean, we feel very good about the credit we’re originating and seeing great stable performance as Scott mentioned in the prepared remarks.

Bill Ryan: Okay. Fair enough. And then one last quick one on, one of the credit card companies had mentioned that they’re reducing credit lines on borrowers that consolidate their debt, obviously preventing them from potentially reloading. Have you seen any increased incidents of that or has it been pretty stable relative to the past?

Scott Sanborn: Yes. Now, ours is pretty stable, Bill. No change in trends there. As we mentioned on the call that use case, because we know what the use of proceeds, right? Unlike a home improvement use case or some of the others, because we know the use of proceeds, we’ve seen pretty predictable credit performance there and are leaning in. And in terms of post loan behavior, we’re not seeing any significant changes there. But makes that true across the Board, as you can see in, you’re looking what we shared on Slide 9 of the earnings presentation is month on book nine delinquencies and hardships. And what you’re seeing is, across the Board, pretty stable rates of delinquency — able to improving delinquencies across all FICO bands. I’d say the same thing, by the way, is true for the last couple of years in prepayments.

Operator: Thank you, Bill. Our next question comes from David Chiaverini, the company Wedbush Securities. David, your line is now open.

David Chiaverini: Hi, thanks. So I had a follow-up on the credit buyer demand question. So you mentioned about the structured certificate program. Demand is strong. Extended seasoning demand is strong. Curious about credit to buyer demand for regular whole loans. Are you seeing any change in the appetite there?

Drew LaBenne: No, not — not really. I mean, probably one thing to think about is once we introduce the structured certificate program for certain asset managers, they are often getting what they wanted to get out of a whole loan purchase with more efficient execution. So I wouldn’t bifurcate — I wouldn’t totally bifurcate those two buckets in your thinking about demand, right? So some of the whole loan demand has pulled into structure certificates because of the advantage of that structure.

David Chiaverini: Great. Thanks for that. And on the secondary portfolio purchase, the $235 million, how much of a discount, if any, were you able to purchase those?

Drew LaBenne: Well, maybe I’ll just go straight to the yield that we put on there. So we expect those to yield about 12.65 when they come on, which is just a little bit less than where I think that other portfolio is at that’s been obviously paying down over the past year. So pretty healthy yield that we’re getting from the purchase.

David Chiaverini: Great. And then last one for me is on shifting to capital management. You alluded to in February, exiting the operating agreement with regulators, is the priority organic growth from here, or are you considering any other contemplated actions on the capital front?

Scott Sanborn: Yes. I mean, as we said in the prepared remarks, I mean, the good news here is we’ve got optionality now, we’ve got more flexibility. I think we’re consistently going to be looking and evaluating all options. The priority is certainly building the balance sheet for sustained profitable growth, especially now given the higher for longer environment, right? What’s really driving the business is the fact that since we acquired the bank, we’ve tripled the balance sheet and grown net interest income from about $20 million a quarter when we acquired the bank to the majority of our revenue now $120 million a quarter. So until we get a bit more clarity on the outlook, it’s our view that’s really focused on sustained profitable growth, which we know can come through investing in the balance sheet as sort of the first priority, but continuing to look at all options.

Operator: Thank you, David. Our next question comes from John Hecht with the company Jefferies. John, your line is now open.

John Hecht: Afternoon, guys. Thanks very much for taking my questions. I’m just — I think Drew, I think you commented on Q2, but I’m wondering what you guys just assuming a higher for longer environment but stable interest rates and then maybe drop it in the latter part of the year. How do we think about the fair value marks on the loans sold in the cadence throughout the year? And is there different channels that are paying different amounts to you guys at this point?

Drew LaBenne: Yes. I mean, the largest driver of the fair value market is going to be through the structured certificate program because that’s where the majority of sales are happening. So — and again, pricing on that generally goes off the two year point, 1.5 to 2-year point. So as I was saying previously, obviously as we came into Q1, there were expectations that the Fed was going to cut and cut soon. Those points on the curve came down pretty nicely, snapped back pretty much the end of Q1, and have gone up from there. So that’s going to have an impact on pricing in the near-term and that’s included in our guide, in our PPNR guide. So we are assuming this high rate environment. And then I think as we talked about earlier, if we stay in this environment for a sustained period of time, we can operate in this environment.

I mean, the pricing will be a bit thinner on the structured certificates in a higher rate environment, but we believe we can operate profitably going forward.

Scott Sanborn: Yes. And in terms of pricing on the fair value portfolio, obviously a big driver now that is outside of our control is the rate environment. The one that’s inside of our control is credit. And so one of the things that’s been pressuring prices has been uncertainty about the broader macro outlook, uncertainty on the health of the consumer, future credit losses, trajectory of unemployment. So as we post quarter-after-quarter of consistent results here, and then you add in seasoning, where you hold loans for, call it seven, eight, nine months, you really have a low range of potential outcomes. You get a lot of certainty in the credit outlook. So some of that stressing of future losses goes away. So that’s a piece that we can actually control and that would somewhat offset at least part of the rate volatility.

John Hecht: Okay. And then you mentioned a couple of new programs to drive incremental growth, like the embedded finance program. What kind of partners will you look to, kind of add-on to that program to drive some growth?

Scott Sanborn: Yes. Hey, just one other thing, I’ll answer, just one other thing on the portfolio sales, just one of the other things we’ve seen and one of the things that’s driving the purchase demand is some of our partners capital deployment needs can be lumpy, right? So they’ve got capital they need to deploy. Our ability to present a season pool. We can’t actually get better execution on that than the normal flow programs because there’s a moment in time need. So that’s just another thing that’s playing into our conviction to build this, because we’ve seen it multiple times now. So, yes, on the new program you mentioned, so again, just to explain what it is, it’s basically a simple way to think about it is like the process you use to run an offline program, say direct mail, where you’re pulling a list, pulling credit, qualifying people, mailing them offers, and kind of this batch-based process, we’re making it more real time and bringing it online, right?

So the way to think about it is as opposed to emailing people and saying, hey, we have an offer for you, come visit us and redeem it. As we build these engagement platforms, we mentioned we put our app into the market for loan buyers and we’re seeing, but still without marketing, as we optimize that program, we’re seeing 15,000 downloads a month coming at us. And those people we’re seeing visit us more often. We’re adding this credit and debt monitoring. We expect that to drive higher visitation. Our banking experience will drive higher visitations. As we get higher visitation, we’re moving to the ability of, when you come to us, we should be able to present to you right there in the moment, a pre-approved offer and then export that. So the partners, the experience will vary depending on the partner, but the basic idea would be, let’s call it for an existing use case where we have a purchase finance business.

To the extent that, some of these partners of ours have a client list of people who are debating certain procedures, we can go to them and say, hey, we can pre-qualify your list. You can actually invite people in and tell them that they’re pre-approved for an offer. There’s also partners who are in the third-party credit monitoring and management space where we could effectively deliver a remote offer on their site, right? So think about the people out there that are helping people manage their credit profiles. That would be another use case.

John Hecht: And will those be loans you retain or will they be — the mix will be consistent with what you originate right now?

Scott Sanborn: Yes. You can just think about it as another source of qualified traffic. And the point I tried to make on the call, but it bears repeating is what we’re seeing here is versus a broad-based, non-qualified outreach, a targeted outreach where you’re saying you are pre-approved, we actually get higher loan volume because the response is so much higher. When you tell someone you’re approved and we also get a better credit profile through. So we’re continuing to optimize our efforts and our focus is continuing to drive credit performance and this is a way for us to actually get better credit quality through at strong volumes to help drive that performance.

Operator: Thank you, John. Our next question comes from Brad Capuzzi with the company Piper Sandler. Brad, your line is now open.

Brad Capuzzi: Thanks for taking my question. If you’re asked on the quarter, I know you mentioned during prepared remarks uptick in expenses from higher volume. Are you able to give a range for the second quarter and the impact of seasonality on different expense items? And then just your outlook for the remainder of the year between generating better operating leverage versus investment/growth in the company?

Drew LaBenne: Yes. So the uptick in Q2 is going to be driven by higher volume, which is think of that as marketing spend and some variable spend, and then we’re going to have an uptick in expense ex-marketing, which the biggest driver there is going to is forecasted to be depreciation on some of the new projects that we completed along with some other expenses. Once we have that uptick in Q2, we are expecting expenses ex-marketing to be relatively flat from that Q2 level for the rest of the year. So think of it as one-time uptick and then flattening non-marketing expense. Marketing and variable expense will move with volumes.

Scott Sanborn: And we’re expecting marketing; we’re expecting to be able to retain the efficiency levels that you saw from us in Q1, just slightly more volume.

Drew LaBenne: Yes. So if you take it to the rest of the year without giving explicit full year guidance, we give the PPNR range for Q2. And we expect we can hold that as we go through the year and obviously we’re going to work to do better than that where opportunity presents.