Q4 2023 LendingClub Corp Earnings Call
Participants
Artem Nalivayko; Head, IR; LendingClub Corp
Scott Sanborn; CEO; LendingClub Corp
Drew LaBenne; CFO; LendingClub Corp
Brad Capuzzi; Piper Sandler; Piper Sandler
Giuliano Bologna; Analyst; Compass Point
Bill Ryan; Analyst; Seaport
Reginald Smith; Analyst; JPMorgan
David Chiaverini; Analyst; Wedbush
Michael Perito; Analyst; KBW
Presentation
Operator
Hello, everyone. Thank you for attending today's LendingClub fourth-quarter 2023 earnings conference call. My name is Sierra, and I will be your moderator today. (Operator Instructions)
I would like to pass the conference over to our host, Artem Nalivayko, Head of Investor Relations.
Artem Nalivayko
Thank you and good afternoon. Welcome to loan growth Fourth Quarter and Full Year 2023 earnings conference call. Joining me today to talk about our results are Scott Sanborn, CEO, and Drew events, CFO. You can find the presentation accompanying our earnings release on the Investor Relations section of our website on the call.
In addition to questions from analysts, we will also be answering some of the questions that were submitted for consideration via email. Our remarks today will include forward-looking statements, including with respect to our competitive advantages and strategy, macroeconomic conditions 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 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 share, pre-provision net revenue and risk adjusted 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, and welcome, everyone. We're pleased with how we closed out the year, delivering an 8% increase in originations quarter on quarter, supported by a 21% increase in marketplace loans. This growth in originations, which is our first since the Fed began rapidly increasing rates was driven by marketplace demand for our new structured Certificates program. These results are a clear indication that our strategy is working and that we're finding equilibrium in this current high rate environment.
Pre-provision net revenue was $56 million, thanks to disciplined expense management. And importantly, we delivered another quarter of profitability, doubling net income quarter over quarter to $10 million.
Turning to credit on page 8 of our earnings presentation, you'll see that we've delivered three years of lower delinquencies compared to our competitive set of note, the most recent data point shows roughly 40% lower delinquencies across all prime focus segments, which is key to us delivering strong returns for ourselves and our marketplace investors. These results are a testament to the talent of our team, the capabilities of our platform and our strong data advantage derived from over $90 billion in originations issued through multiple credit environments over the past 16 years. Our current originations are focused on prime consumers with loans coming onto our balance sheet. Having a weighted average FICO of around seven 50. Stepping back for only a few days away from celebrating the third anniversary of acquiring our national bank charter, we have worked diligently to address and satisfy the requirements of the operating agreement we entered into as a new bank, and we believe we're well positioned to move forward, which will be an important milestone in our evolution and maturation. Since acquiring the bank, we have fundamentally transformed our business and financial profile. We took over the origination of our own loans introduced and scaled a full set of award-winning banking services evolved. Our mobile technology foundation, introduce new bank enabled structures to enhance the marketplace, built a resilient balance sheet and corresponding income stream and have remained durably profitable For perspective, in the last three years, we have tripled the size of our balance sheet to almost 9 billion at year end, nearly quadrupled our deposit base to $7.4 billion at year end, with 87% of those deposits fully FDIC-insured more than tripled quarterly net interest income, our recurring and resilient revenue stream and nearly doubled our tangible book value per share to $10.54. As we exited the year, we have also made progress towards a differentiated, multiproduct, mobile-first membership experience. Following the Radius acquisition, we began building the systems and technical infrastructure necessary to take deposits at scale and support a national digital platform, a process that took some time but enabled us to build our balance sheet, sustained profitability and enable future mobile experiences. In December, we introduced mobile loan servicing through the app, giving our borrowers the ability to make payments due progress change due dates and more while we are in beta and have not yet promoted the existence of the app to our loan customers, 20% of our visits from recent personal loan customers are coming through the app. And these users are visiting us at a higher frequency, which bodes well for driving future engagement. We have also launched the first phase of what will ultimately be a comprehensive debt monitoring and management tool fall in early stages. This will ultimately give members a way to track, prioritize and optimize debt payments using new information and tools. While the recent reduction in force has us proceeding with application development at a more measured pace than we'd like. We continue to make progress, and we'll provide updates as appropriate at the same time, we've been preparing our personal loans franchise to meet the historic refinance opportunity ahead by further improving and differentiating LendingClub with two experiences unique to us. We're currently testing and reading credit performance on the first generation of a line of credit product that allows approved members to easily sweep accumulated credit card balances into fully amortizing payment plans. We'll be gaining important insight that will benefit us in developing future and revolving products down the road.
We also recently launched the option for qualified members to top-up an existing personal loan, for example, to manage newly accumulated debt members can easily secure additional funds while maintaining one single payment and Lending Club earns an origination fee on the incremental loan amounts. Together, these efforts are further differentiating our personal loans franchise and creating a powerful entry point into our broader Lending Club offerings.
In closing, I'm proud of how we continue to effectively execute in a challenging environment we are quickly and successfully innovating to meet evolving opportunities. We continue to outperform on credit and we remain consistently profitable. Importantly, we also continue to produce real value for our members saving them on their cost of credit, improving their credit profile and helping them earn more on what they save for that.
I want to thank our employees. We've remained focused and innovative throughout a turbulent year. I look forward to working together in the year ahead to capture the historic opportunity in front of us.
Drew LaBenne
Hello, everyone. I'll walk you through the details of our results in the fourth quarter. Starting with originations, we originated over 1.6 billion compared to $1.5 billion in the prior quarter and $2.5 billion in the fourth quarter of 2022. As Scott discussed, our quarterly increase in originations was on the back of our very successful structured certificate program, which was approximately 1 billion of the total originations in the quarter. We also sold 350 million of whole loans sold through the marketplace. On our balance sheet, we accumulated $100 million into held for sale for our extended seasoning program to meet future investor demand for seasoned loans. And we retained $200 million in our held-for-investment portfolio. We've added a new slide on page 10 of our presentation to illustrate the relative economics of the four primary programs we have at our disposal to sell or retain loans being a marketplace bank and having these disposition channels allows us to balance in-period earnings with lifetime value. We will flex between these programs depending on the market environment and our capital allocation goals, whole loan sales and structured certificates allows to take more upfront economics and operate in a capital-light manner, which is credit risk remote and comes without required upfront credit reserves, loans that we hold on balance sheet, provide the strongest lifetime returns, but also cause P&L and capital impacts upfront.
On page 11 of the earnings presentation, you will see the mix of the assets we put on balance sheet from the programs on the prior page. In Q4, we further remix the balance sheet towards structured certificates, given the strong in-period economics and investor interest in the program in Q1, we plan to continue adding the senior security from the structured program to our balance sheet and also increased the amount of whole loans we retained through both HFI and extended season. Extended seasoning allows us to add whole loans to the balance sheet and earn a strong yield while seasoning for investors with the goal of generating higher sales prices over time. While we're just beginning to build up inventory, the program has been off to a great start. As a reminder, we completed a sale of approximately $200 million in the third quarter and have just completed another $100 million transaction where we sold extended seasoning loans through into our structured certificate program for the first time with the sale price above our carrying value. As we continue to grow and remix the balance sheet, we expect to achieve stability in net interest income, albeit at a lower net interest margin.
On Slide 12, you can see that our net interest margin was 6.4% compared to 6.9% in the prior quarter and 7.8% in the prior year. This change reflects the combination of our growth in this in securities from the structured certificate program and higher funding costs as we grow our deposit balances in the period. We have recently increased the rate on our high-yield savings deposit product as we plan to continue balance sheet expansion in 2024. High-yield savings is our most effective element to do so while also retaining more flexibility to reprice those deposits, should the Fed start to lower. Overall, we expect a larger balance sheet to offset lower margins as we move through the year and keep net interest income relatively stable in 2024 with upside should the Fed start to ease.
Now let's move on to pre-provision net revenue or PPNR. Ppnr was $56 billion for the quarter, which came in stronger than we expected, largely due to outperformance on expenses.
So let's jump into the two components of PPNR starting with revenue where you can see the detail on page 13 of our presentation. Total revenue for the quarter was $186 million compared to 201 million in the prior quarter and 263 million in the same quarter of the prior year.
Let me break revenue down into the two components starting with noninterest income. Noninterest income was 54 million in the quarter, down from 64 million in the prior quarter. The change in noninterest income was primarily driven by the non-recurrence of the $10 million third quarter revenue benefit that I mentioned last quarter. There are some other moving pieces that includes higher sold loan volumes, generating higher transaction fees, offset by a CAD5 million decrease quarter over quarter in the value of our servicing assets, primarily due to higher quality loan mix and slightly lower loan sales prices due to a mix shift away from banks, partially offset by higher pricing asset managers on to net interest income, which was $131 million in the quarter compared to $137 million in the prior quarter and $135 million in the same quarter of the prior year. The change in net interest income was primarily driven by the shift towards a lower risk securities portfolio in Q4, which has a correspondingly lower net interest margin.
At the bottom of the page, you will notice we are highlighting risk-adjusted revenue this quarter, risk-adjusted revenue is total revenue less provision for credit losses. This measure increased from 136 million in the prior quarter to $144 million this quarter, which was the result of lower day one CECL provision and a growing structured certificate program. We believe this is a useful metric that illustrates the lower risk nature of the assets put on the balance sheet this quarter.
Now please turn to Slide 14 of our earnings presentation, which refers to the second component of PPNR noninterest expense, which is what drove our outperformance for the quarter.
Noninterest expense was 130 million in the quarter compared to 128 million in the prior quarter and $180 million in the same quarter last year. Last quarter, we provided guidance on noninterest expense, excluding marketing of 115 million to $120 million for adults came in better than we expected at $107 million as a result of expense discipline on staffing and other third party expenses. Marketing remains very efficient with total spend of 23 million compared to 20 million in the previous quarter, primarily driven by higher origination volumes and deposit growth in this period.
Now let's turn to provision on Page 15. You'll see provision for credit losses was $42 million for the quarter compared to $64 million in the prior quarter and $62 million in the fourth quarter of 2022. The sequential change was the result of lower day one CECL due to fewer held-for-investment loans retained in the quarter and lower incremental provision on older vintages.
On page 16 of our earnings presentation, we have added our lifetime loss expectations for the 2023 vintage. We're seeing stable early month delinquency performance. However, given its longer remaining life and the potential for economic uncertainty, we have applied a higher qualitative reserve to the 2023 vintage. If we normalize for qualitative reserves, the 2023 vintage would show lower lifetime loss estimates compared to 2022. Marginal ROEs remain strong for all vintages.
On the bottom of page 16, we show the allowance for future net charge-offs by vintage. In an effort to improve the disclosure, we are now showing this loss coverage excluding the recovery asset, the recovery asset is the present value of future recovery previously charged-off loans and not related to loss coverage on outstanding balances. This is netted against the allowance on the face of the balance sheet on page 17, we have added an illustrative example of the credit lifecycle of a single hypothetical vintage is important to note that the dollar charge-offs peak at approximately 18 months after the vintages issue. For reference, our held for investment portfolio is approximately 15 months old. Given the age of our HFI portfolio and how our underlying vintages mature. We expect net charge-offs to peak on our portfolio in the coming quarters, it'll begin to decline from there. As a reminder, we have already taken it upfront CECL provision for future net charge-offs on a discounted basis, which is reflected in our portfolio allowance. Due to this timing dynamic, we expect to lower in-period seasonal provisions compared to net charge-offs in the coming quarters in our in-period net charge-off rate will continue to increase as the portfolio ages, but on lower outstanding balances. These trends may also reverse if we increase HFI loan retention, which has the impact of decreasing the average age of the portfolio.
Now let's move to taxes. Taxes in the quarter were 3.5 billion or 26% of pretax income. As I mentioned before, we will have some variability in the effective tax rate from quarter to quarter. For the year, our effective tax rate was 28.7%, roughly in line with our long-term expectation of 27%.
Now let's move on to guidance. For the first quarter. We anticipate holding originations roughly in line with Q4 in a range of 1.5 to 1.7 billion and similar loan sale pricing, we expect PPNR to range from 30 to 40 million, reflecting the growth and repositioning of our balance sheet to lower risk structured certificates, resulting in lower net interest income. With the corresponding lower provision for loan losses, we plan to continue deliver to deliver positive net income for the quarter beyond Q1 and until the rate environment improves materially. We expect originations revenue and PPNR to stabilize at or near the ranges given in our Q1 earnings guidance. Of course, this also assumes that the economy remains on stable footing throughout 2024. As we showed earlier in the presentation, our balance sheet remains strong with ample liquidity and capital to allow for growth in 2024. Given the strong marginal lead ROEs that we generate through our loan production, we will continually look to deploy this liquidity capital and any excess earnings into retaining production to improve future returns for shareholders.
With that, we'll open it up for Q&A.
Question and Answer Session
Operator
(Operator Instructions) Brad Capuzzi, Piper Sandler.
Brad Capuzzi
Sorry, again, I'm just kind of wanted to touch on. I know you're growing the structure certificate program. Just kind of your thoughts again, holding loans segmented and then this program, especially with the capacity to hold more loans on balance sheet and your retention ratio has come down considerably over the past year. And do you think there's potential maybe to start holding more loans and it could be potentially more strategic longer term. And I know the dynamic that plays out with a day one CECL provisioning, but kind of wanted to hear your thoughts there?
Scott Sanborn
Yes. Brett, it's Drew. Thanks for the question. I'd say, yes, it we do plan on holding a higher percentage of our originations in whole loan form either through HFI or through extended seasoning.
If you look at page 11 of the presentation, we indicated that in our softly for Q1, saying that we expect our mix of structured certificate A. notes going on the balance sheet to be about 60% and whole loans to be about 40%. So that is a that is a focus for us to get back to increase holds of whole loans on the balance sheet.
Brad Capuzzi
Got it. Thank you. And then just one follow-up on there. Your CET1 ratio is now at 17.9%. I believe you guys are around 11%. Is there any thoughts on potentially redeploying this capital?
Scott Sanborn
Yes. So I think the 11% you are referencing that was our Tier one leverage ratio constraint under the operating agreement and get CET1 pro down 18% on a consolidated basis. So yes, we have ample capital and liquidity for growth in the future. And yes, I think we will use that capital definitely to grow the balance sheet going forward.
Brad Capuzzi
Austin, thanks for taking the question.
Operator
Giuliano Bologna, Compass Point.
Giuliano Bologna
Well, congrats on the results this quarter. One thing I was curious about was thinking about your ability to expand these tendencies and growing going forward after I realize it's tough to predict. But I'd be curious now how much visibility you have over the next few quarters around demand? And just kind of where do you think that could go?
Scott Sanborn
Yes. I mean, I think the extended seasoning program, which we just started about a quarter ago now is off to a great success. As we mentioned, we sold 200 million out of that early on. And then we sold another $100 million, which closed in January that went directly into a structured certificate programs. That was the first time we actually had a combination of the two programs that I think that encourages us quite a bit that we should be seasoning more loans and keeping more inventory available for sale either hold our own or through the structured certificate program. So that's So long way of saying we are we are bullish on the program within reason and it will definitely be growing it over the coming quarters.
Giuliano Bologna
That's very helpful. But then you I think you have the operating agreement income expires next month from. And I'd be curious if there's any thought process around being a little more strategic working out your capital because you're trading at a discount to tangible book value and you you have a.
Yes, yes, fairly robust capital at this point. I'm curious how you think about you deploying capital outside of the room for capital return or any other initiatives?
Yes.
Scott Sanborn
Hey, Giuliano. This is Scott. So on our the three year term is actually coming up on Friday. And as I mentioned in the prepared remarks, we feel we've done everything we can to position the company well and meet our obligations under that. So assuming we exit, which again, is at the discretion of the regulators, and we'll share that news when when and if we get it, that does allow us to think a little bit differently about capital, both leverage ratios as opposed to being dictated upfront would be the results of our own stress tests as well as other ways to deploy capital. So it'll give us some new tools in the toolkit, which we look forward to engaging on and discussing with the Board.
Giuliano Bologna
That's very helpful. And then maybe one last one. And hopefully, I'm not asking something that came up my prepared remarks, I'm curious roughly where station and loans are being marked or gives us about what the discount rate is or the implied yield on the execution side and yet were and where that could trend?
Yes.
Scott Sanborn
So loans that are in the extend to the program at the end of the quarter were at 96 seven five in terms of price. So a little higher than where we were last quarter, where they were 96, five last quarter. So some slight improvement that was based on the execution, the price of execution on the 100 million that we sold them and then services like permission by the discount rate discount rate discount rate we're using is 9%, which is down from 9.6% in Q3.
Giuliano Bologna
That's very helpful. Thank you so very much and I'll jump back in the queue.
Operator
Bill Ryan, Seaport Research Partners.
Bill Ryan
Hi, good afternoon. Thanks for taking my questions. First, just kind of following up a little bit more detail. The trend in the fair value marks on your loan sold, if I have it correct, it looked like it was about minus 3.75, minus 3.8% this quarter, a little bit worse than last quarter, but obviously the dynamics are changing. Interest rates are declining or benchmark interest rates. And I think you fully priced in in terms of your yields, are you starting to see some alleviation in that that the fair value marks might actually start getting better from here?
Scott Sanborn
Yes, Haendel of prices in the fourth quarter came in in line with our expectations. And under the covers, it's hard to see in that surface number. But under the covers what's happening is we are getting a recovery in the asset manager pricing and together with the move down in the forward curve. But that's being offset by mix shift to more asset managers away from banks who have typically paid a higher price. So that's sort of what we saw under the covers in Q4 from a further movement from here, I'd say we expect the mix to be pretty stable. So further movement from here is likely going to be due to external factors, which would either be and further movement in the forward curve that which could be both up or down or people taking a more optimistic or pessimistic view on the outlook in terms of how they're stressing credit losses and returns. But otherwise, I those those things being equal, we feel like we're at a point where we're at a predictable place there.
Bill Ryan
Okay. And just my follow-up on the provision, $42 million approximately for the quarter. Going back to q three, I believe there was a 10 million adjustment for 2021, 10 million for 2022. I'm looking at it. There's obviously some adjustments in the current quarter. It looks like, but you've I think you've kind of articulated they were a little bit lower than what they were last period, but was there something for 2023 as well based on your prepared remarks, a little bit of drop in 23 as well as we are coming out of the quarter.
Scott Sanborn
But I would say pretty modest across the quarters and where we ended up at the 23 vintage.
On page 16, we obviously gave the lifetime loss, our current estimate of lifetime losses, which I'll just say again, it's when you look at the 22 VGCA. nine. When you look at the 23 vintage, you also see a nine, but there is a lot more qualitative that is contained in the 23 vintage, given it has a longer remaining life than the 22 vintage.
Okay.
Bill Ryan
Thanks for taking my questions.
Operator
Reggie Smith, JPMorgan.
Reginald Smith
Congratulations again, the question, I guess kind of follow-up on the last point. I'm just curious how the 23 vintage has performed, I guess, today and how does that compare to kind of 22, either better or worse. It sounds like you factored in a little heavier on kind of a macro overlay. And so I'm just curious if you're actually seeing better performance thus far and you just kind of CareCredit looking ahead.
Yes.
Scott Sanborn
So Randy, you can at least see where a lot of the new slides we put together and the material thing is, Page 8 gives a view into the nine month on book, at which point, you know, we have a pretty good sense of how a vintage is going to perform and gives you the quarterly view of all of our vintages. So what you see is we're seeing kind of stable a picking up of a performance element on book nine, but the 23 vintages coming with a with a higher coupon. So overall, we feel pretty good about that. As Drew just mentioned, we expect the kind of model output, if you would ex qualitative overlay for the 23 vintage would have a lower lifetime loss because we do have qualitative reserves on top of that, given there's just more time left to go and there's more uncertainty. We can debate where unemployment is going, but it's a likely not staying where it is today. So that's kind of factored into those reserves.
And then if I could sneak two more in one, just on where losses came in, I guess versus your own internal expectations for the quarter. And then a follow-up to I think you guys talked about two different programs like a suite program for personal loans and like a top-up. Like how soon could those be rolled out? And would that look like in terms of and I guess appetite for those products?
Reginald Smith
Okay.
Drew LaBenne
I'll maybe take the first first one, which is a top-up of. So that is explained again, the feature is basically we have as we've stated before, roughly half of our volume comes from a repeat members. A subset of those members have paid off their first loan or back for a second and some maybe we initially approved for a certain amount they took less for since they got their first loan. They've had some life event happen, whatever it is and need additional capital that in kind of prior to this feature called top-up that would effectively be a second loan with a second payment date, you know, and the different pricing across the two loans, all the rest. So all this is to the consumer. It just feels like it feels almost like I'm drawing down on the same line. I keep one loan, one payment date. I have a single rate. So we that's live now. We're basically kind of testing and working our way through the experience. But we we know this is a feature that people are going to appreciate because we know how to use the product. So we expect that this it will be kind of an important value add on to the kind of mix today comes at a similar kind of profile and all that for us, but for the customer and there's a real convenience benefit here on clean suite that is effectively it will behave to the consumer like an installment line. What's different about it is they know the offer as they're waiting for them. So as we're moving to, as we mentioned on the call, more mobile engagement and more interaction. The ability to kind of if you fast forward for us, call it towards the end of this year when we're able to show you, here's your credit card debt looks like you've built some up, you've got an open offer for you waiting suite that credit card balance into what will feel like an installment loan that's how all those things will come together. So right now, we're just, again, it's a revolving platform that that's new to us. So that was a big lift to put that in and the credit will work differently because it's an open line that's permanently available. So we're going to be running that at pretty low volumes for most of this year to get ready to go so that when the integrated experience is available, this will be part of that full experience. And this revolve product has other via our ability to work and will in our REVOLVE platform will have other future product applications for us.
Scott Sanborn
That's a Reg. You'd also asked about losses and how they came in at the beginning. And it had net charge-offs came in pretty much where we expected them to come in the period. We did have a little more provision on some of the earlier vintages as we discussed, but the charge-offs are pretty much where we expected them.
Reginald Smith
Thank you.
Operator
David Chiaverini, Wedbush Securities.
David Chiaverini
Hi, thanks for taking the questions. So the first one, I think I heard you say that the first quarter guidance is representative of what to expect for the remainder of the year. I guess first, can you confirm that? And then the follow-up is does that contemplate relief on the capital ratio front and.
Scott Sanborn
Yes, so David, what we meant by that comment was the first quarter guidance. We believe we can maintain roughly those same ranges going through the rest of the year if the environment doesn't change, right?
No negative economic backdrop, no changes in the interest rate environment. So it's more of a we believe we've stabilized from here where PPNR in originations should be without some of the other other external factors that could benefit us for harm us in one direction or the other so I wouldn't take it as full year guidance. It's more of just a Q1 levels are sustainable going forward without any major changes.
David Chiaverini
Got it. So that it could be a benefit if you do get relief on the capital front.
Scott Sanborn
But and then on the on the capital front, the yes, I think the if we exit the operating agreement, then we will have more latitude to dictate where our capital levels should run at that one. I wouldn't expect us to come sprinting out of the gate in a wild fashion, but certainly the constraints that were there before are not the constraints now.
Got it.
David Chiaverini
And I'll ask a similar question on the interest rate backdrop. If we do get, say six Fed cuts versus a couple of Fed cuts in what environment does LendingClub perform better at?
Scott Sanborn
Yes, maybe let me start. So there's a there's a couple of ways to think about the impact of rates on the business. And there's a couple of different rates that impact us. So versus the forward curve, the expectation of future rates when that moves pricing to asset managers moves, right, because their funding costs come down. So you saw we saw that in Q4. We got a little upward drift in Q1 as well. Also expectations of rates coming down will move asset manager prices up now at the levels that we're talking about right now that that's a kind of a modest tailwind on the other.
And then the other rate in change that affects the business, is the Fed actually moving, which you know, should affect our cost of funds from now, depending on again, how a 25 basis point move especially given that we are growing the balance sheet and needing to actually add deposits isn't going to we're likely going to lag that. But a material move as long as it's not coming with, you know, some a downside on the employment outlook would be good, right? A move downward of size would be something we'd pick up. You'd see that in our NAM and also a meaningful move down. I think what create more capacity from banks, which could create a bit of a step change in pricing, right, which is if we can bring back at scale that fundamentally higher priced a better buyer on a four for the same assets that would be potential for a step change. So that that's how I would think about it, small changes in expectations will be modest tailwind in prices, more meaningful changes in the Fed actually moving would affect NAM and potentially the buyer base for vigor, bigger changes in prices.
David Chiaverini
Great. Thanks for that. And last one for me is on expenses you had and you alluded to it earlier about how you gave the expense guide excluding marketing for the fourth quarter and maybe I missed it in your prepared remarks, but are you able to give a range for the first quarter as to kind of parameters on the expense front?
Scott Sanborn
Yes, I think we'll probably see slight seasonal increases in expenses, but very modest as we go into Q1 and the first half of 24.
David Chiaverini
Thanks very much.
Operator
Michael Perito, KBW.
Michael Perito
Good afternoon, guys. The only question I have left is just the kind of leading of dovetailing off that expense question and just USD, he appreciated the kind of I know it's not guide ruble, but the kind of financial outlook for the remainder of the year. Just trying to think about it, the revenue environment does improve. We're do the expenses kind of follow on on that?
This is Scott, in your prepared remarks. I mean, you mentioned a couple of places how you're investing maybe not the pace as you once were, but just trying to figure out kind of what how those two will be linked moving forward.
I mean, obviously, I'm sure you guys want to be generating some some operating leverage. But and I imagine in a better revenue environment, there's a better pace of investment as well.
So just to comment there yes.
Scott Sanborn
I mean, I think the first priority is going to be building up the balance sheet, right? As we've talked about before, we were on a transition from primarily fee-based model towards shifting towards more revenue coming off the balance sheet that was interrupted or the pace of that was interrupted when the rate environment suddenly shifted, we'd like to get back to that because that builds a more resilient, predictable business. So that that's going to be priority number one on as I think we mentioned before that as difficult as some of those personnel decisions are there's a certain amount of risk, leaner operating discipline and realignment of the work that we will be holding onto them. We have also we are we are also in the process of shifting some of our developments to lower-cost locations, which will be a place we can grow from at a lower cost than what we've historically had. But if you think about our investments, I'd say first and foremost is going to be the balance sheet. And then when it comes to the development and the product roadmap, it's going to be we're going to look to do that at a lower cost than what we've done in the past.
Michael Perito
That's helpful, Scott. Thanks. And I just wanted to make sure I heard something.
Right.
And just ask if you guys said it and I can just check transcript, but the discount rate on the personal loans, I think you mentioned it went down to 9% from 9.6. Was that driven by execution of recent transactions that were there other kind of rate changes? Just again, if you're repeating yourself, I apologize. But if you could just spend a second on that as well?
That would be great.
Scott Sanborn
It's a bit of a combination of the two, but I would say mostly driven by the rate environment, right? So the two year point, which is probably the closest point to where we would we would index as our base rate was down pretty meaningfully meaningfully from Q3 and Q4 and that drove most of the discount rate.
It decreased.
Michael Perito
Helpful. Thank you.
Operator
Thank you all for your questions. There are no questions waiting at this time. So I'll pass the conference back over to Artem Nalivayko here as we move through the we'll take e-mail questions at this point on the call, but I believe we've already addressed the questions that have been submitted in our prepared remarks and in Q&A.
So with that, we will wrap up our fourth quarter and full year 2023 earnings conference call. Thank you.
All for joining. And if you have any questions, please feel free to e-mail ir at LendingClub.com. Thank you.
Thank you.
That will conclude today's conference call.
Scott Sanborn
Thank you all for your participation. You may now disconnect your lines.
