LendingClub (LC) Q1 2026 Earnings Transcript

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Date

April 27, 2026, 5 p.m. ET

Call participants

• Chief Executive Officer — Scott Sanborn
• Chief Financial Officer — Andrew LaBenne
• Head of Investor Relations — Artem Nalivayko

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Takeaways

• Loan Originations -- $2.7 billion, representing 31% growth; exceeded the high end of guidance.
• Net Interest Income -- $176 million, up 18%; reached an all-time high, driven by a larger interest-earning asset portfolio and funding cost optimization.
• Noninterest Income -- $76 million, up 12% year over year, but declined sequentially as a result of the transition to fair value option accounting; the sequential reduction was offset by a lower provision for credit losses.
• Risk-Adjusted Revenue -- $252 million, up 58%, as lower provision for credit losses amplified revenue growth under new accounting standards.
• Net Interest Margin -- 6.3%, a 30 basis point sequential increase, primarily due to lower interest expense and revised yield recognition methodologies, but expected to trend back to approximately 6% as the year progresses.
• Pretax Income -- $67 million, more than quadrupled year over year, establishing a new record for the company.
• Diluted Earnings per Share -- $0.44, surpassing the upper end of guidance and representing over 4x growth versus the prior year.
• Pretax Profit Margin -- 27%, an all-time high, attributed to effective operating leverage.
• Return on Tangible Common Equity -- 14.5%, in line with near-term targets.
• Tangible Book Value per Share -- $12.49, showing tangible equity accretion.
• Total Assets -- $11.9 billion, 14% higher than the prior year.
• Total Deposits -- $10.2 billion, up 14%, with diversified growth across product offerings.
• Net Charge-Off Ratio -- 3.5% across the held-for-investment portfolio, down from 6.1%, noting that this now includes both fair value and CECL portfolios in all reported periods.
• Provision for Credit Losses -- Less than $1 million, attributed to accounting methodology change and favorable credit performance.
• Expense Growth -- Total expenses were $185 million, a 28% increase, mainly from higher marketing spend and the impact of immediate expense recognition under fair value accounting; the $10 million sequential marketing increase included a $7 million non-cash component from the accounting change.
• Compensation and Benefits Expense -- Increased 12%, reflecting headcount growth for new verticals and core expansion.
• Share Repurchases -- $38 million utilized since inception of the $100 million program, reducing diluted share count by 1.5 million shares sequentially.
• Guidance for Q2 2026 -- Loan originations expected between $3.0 billion and $3.1 billion (23%-27% growth); diluted EPS outlook of $0.40-$0.45.
• Full-Year Guidance -- Originations between $11.6 billion and $12.6 billion; diluted EPS of $1.65-$1.80, targeting 13%-15% return on tangible common equity.
• Major Purchase Finance -- Achieved a third consecutive quarter of record issuance, reflecting ongoing growth in this vertical.
• New Home Improvement Loans -- Launched through inaugural partnership with Wisetack, targeting a $0.5 trillion addressable market and supported by rapid partner onboarding capability.
• Checking Account Growth -- 6x increase in checking account openings compared to previous product iteration, with 60% of openings from borrowers.
• AI Automation -- Over 90% of loan issuance now fully automated; application submission time reduced by nearly 60%; realized record low production cost per issued personal loan.
• Marketplace Loan Demand -- Consistently oversubscribed across channels, with average loan sale prices increasing in 8 of the last 9 quarters.

Summary

LendingClub (NYSE:LC) reported record-high pretax profitability, substantial earnings growth, and 31% origination expansion driven by strong loan demand and disciplined credit performance. Management introduced the upcoming “Happen Bank” rebrand for broader strategic positioning and noted positive early results from the new home improvement loans vertical, launched in partnership with Wisetack and enabled by the Mosaic code base. The company's AI-enabled automation initiatives are measurably improving operational efficiency, including a sharp reduction in loan origination times, while maintaining consistently low delinquency and charge-off rates. Management reaffirmed its full-year guidance, addressing headwinds from the absence of anticipated Fed rate cuts and expense increases tied to marketing and rebranding. Liquidity, capital strength, and active share repurchases provide additional balance sheet flexibility and shareholder returns.

• Management stated, “we remain oversubscribed with an ability to sell more loans than we are generating.”
• CEO Scott Sanborn emphasized that average loan sales prices improved for “8 of the last 9 quarters.”
• The company disclosed, “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.”
• New AI initiatives have produced “record low production cost per issued personal loan in the first quarter,” according to Sanborn.
• Home improvement loans, launched in April, are supported by rapid technology integration, and management cited “strong interest from additional partners.”
• The increased mix of longer-duration loans and higher market benchmark rates raised fair value discount rates and sequentially reduced noninterest income.
• Chief Financial Officer Andrew LaBenne stated, “all the deals that we priced in Q1 were priced before the Iran war,” and warned market participants that “if no change to rates from here, we would expect prices to come down solely because of the changes in benchmarks.”
• The company utilized $38 million of its $100 million share repurchase authorization, shrinking average diluted shares outstanding by 1.5 million quarter over quarter.
• Average savings among borrowers who paid off their loans reached approximately $19,000, aligning closely with initial average credit card debt levels among customers.
• Management committed to maintain “full year guidance with the assumption of a stable consumer and rate environment,” despite revising its forecast to zero Fed rate cuts in 2026 versus earlier expectations for 75 basis points in cuts.

Industry glossary

• CECL: Current Expected Credit Loss accounting standard, requiring immediate recognition of expected loan losses.
• Fair Value Option: Accounting treatment recognizing changes in asset values (such as loans) at market value through earnings, impacting revenue and provision recognition.
• HFI: “Held For Investment” — loan portfolio intended to be retained on the balance sheet, not immediately sold.
• Major Purchase Finance: Lending product targeting high-ticket, purpose-driven consumer purchases (e.g., medical, fertility, home improvement) at the point of sale.
• Marketplace Loan Sales: The origination and sale of loans to third-party investors, rather than retention on the balance sheet.
• MDR: Merchant Discount Rate — fee collected by a lender or payment provider from merchants for processing transactions.
• Tangible Common Equity: Common equity capital less intangible assets and goodwill, used to assess core capital strength.

Full Conference Call Transcript

Scott Sanborn: 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.

Andrew LaBenne: 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: [Operator Instructions] Your first question comes from the line of Tim Switzer with KBW.

Timothy Switzer: 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?

Scott Sanborn: 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.

Timothy Switzer: 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?

Scott Sanborn: 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.

Andrew LaBenne: 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. .

Timothy Switzer: 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? .

Scott Sanborn: 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'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.

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

William Ryan: 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?

Andrew LaBenne: 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.

William Ryan: 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?

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

William Ryan: Correct.

Andrew LaBenne: 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.

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

Vincent Caintic: 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.

Andrew LaBenne: 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.

Vincent Caintic: 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.

Andrew LaBenne: 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.

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

Kyle Joseph: 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?

Andrew LaBenne: 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.

Kyle Joseph: 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?

Andrew LaBenne: 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.

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

David Scharf: 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?

Andrew LaBenne: 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.

David Scharf: 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?

Scott Sanborn: 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.

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

Giuliano Anderes-Bologna: 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?

Scott Sanborn: 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.

Giuliano Anderes-Bologna: 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.

Andrew LaBenne: 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.

Giuliano Anderes-Bologna: 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?

Andrew LaBenne: 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.

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

Crispin Love: 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.

Andrew LaBenne: 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. .

Crispin Love: 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.

Scott Sanborn: 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.

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

Artem Nalivayko: 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?

Scott Sanborn: 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.

Artem Nalivayko: 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.

Scott Sanborn: 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.

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

Scott Sanborn: 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.

Artem Nalivayko: 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.

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

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