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spk02: Good afternoon. Thank you for attending today's Lending Club first quarter 2022 earnings conference call. My name is Hannah and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to Samir Gokhale, the head of investor relations with Lending Club. Please go ahead.
spk05: Thank you and good afternoon. Welcome to LendingClub's first quarter 2022 earnings conference call. Joining me today to talk about our results and recent events are Scott Sanborn, CEO, and Tom Casey, 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 by email. Our remarks today will include forward-looking statements that are based on our current expectations and forecasts and involve risks and uncertainties. These statements include, but are not limited 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 maturely from those compensated by these forward-looking statements. Factors that could cause these results to differ maturely are Securities and Exchange Commission, including our upcoming form 10-Q. Any forward-looking statements that we make on the call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. And now I'd like to turn the call over to Scott.
spk07: All right. Thank you, Sameer. Good afternoon, everyone. Thanks for joining us. I am happy to report that Lending Club has delivered another outstanding quarter. In Q1, we generated record results driven by strong execution against our key strategic advantages, our sizable proprietary data set, our large and loyal membership base, and our transformed and enhanced digital marketplace bank model. Revenues increased 10% sequentially and have more than doubled since last year. And we generated record profitability. Importantly, Despite some of the environmental volatility we saw in Q1, this is the fifth consecutive quarter of strong outperformance, and we feel great about it. Combining our scalable marketplace revenue with recurring interest income from the high-quality loans we're holding on our balance sheet provides significant earnings power and resiliency. While we recognize the broader macro uncertainty, we believe our strategic and structural advantages will enable us to continue to outperform. We remain pleased with our credit quality and are maintaining discipline in our underwriting. This is particularly important as delinquency is gradually normalized in this unfolding environment. While our marketplace model and credit insights allow us to efficiently serve a broad range of credit profiles, we're primarily focused on prime borrowers as they've proven to be more resilient. Historically, near-prime loans comprise about 15 to 20% of our total origination, and they contribute a similar percentage to our marketplace revenue. We're currently running at the bottom end of that range, and we expect to remain there until the economic outlook becomes clearer. Reminder, these loans are generally not held in the bank's portfolio, but are sold through the marketplace. What is in the bank's consumer loan portfolio are primarily prime loans with an average FICO of 727 generating stable recurring revenue. This portfolio, funded by low-cost deposits, delivered 34% of our total revenue for the quarter. When you include investor servicing fees, our recurring revenue is now 41% of our total. As always, we're closely monitoring data from our portfolio, our membership base, the economy, and our marketplace to optimize our response to developing conditions. Notably, our credit models informed by over 15 years of experience are continuing to evolve as we incorporate new data from the billions of dollars of loans we originate and service every quarter. History would indicate that inflation typically does not correlate with the performance of unsecured loans. and we expect our customers who have an average income of more than $100,000 to be particularly resilient. They're overall in great shape, strong balance sheets that did not disproportionately benefit from stimulus packages and are therefore not overly affected by their ending. However, given the potential unprecedented speed and magnitude of rising rates, we continue to proactively tighten underwriting on the margin stay ahead of pressures that consumers may face. Our industry-leading and highly efficient marketing engine helped us more than double originations year over year and grow 5% sequentially despite seasonal downward pressures we normally see in Q1. We crossed 4 million members this quarter, another milestone and a huge competitive advantage. Our origination mix is now back to our historical range of 50% new and 50% existing members. Importantly, approximately half of our new members return to us within five years. Not only do these repeat members have very low acquisition costs, but they also demonstrate substantially better credit performance. As a result, we estimate that these repeat members have three times the lifetime value of first-time borrowers. And we expect these economics to improve as we expand our offering and increase member engagement as a full-service bank. This is a very powerful competitive advantage that should continue to grow as we offer new products to our member base and expand the reach of our current ones. In the consumer business, along with further growth in personal loans, we plan to continue growing auto refi and purchase finance loans. Although their growth rate will be higher, their relative contribution to earnings will remain small in comparison to personal loans. Outside of consumer, we expect to grow commercial loans, excluding PPP, modestly. These commercial loans are largely secured by collateral or cash flows and should continue to be a good source of revenue and credit quality diversification. Our thriving credit marketplace lets us say yes to more borrowers across the credit spectrum. driving marketing efficiency while we maintain a prudent approach to underwriting. The attractive returns on our loans are driving strong demand from our marketplace investors, where we continue to add new loan buyers, such that the number and diversity of loan purchasers is now well above pre-pandemic levels. And innovations like LCX, which allow us to match supply and demand in real time at market-optimized prices with fully automated transaction settlement demonstrates the continued evolution of our marketplace advantage and our technology and innovation leadership. As seen in our consistent outperformance, the investments we've made over the past several years are showing strong returns. The bank acquisition has paid for itself within just a year. Our continually refreshed credit models are delivering compelling returns, even in a dynamic environment. Automation like that enabled by LCX is allowing us to more efficiently and effectively than ever before. Our investments in servicing are delivering record customer satisfaction scores while also protecting returns. And ongoing investments in our technology and data foundation will allow us to meet the opportunities of tomorrow and offer new and enhanced products tailored to our customers' needs. With our powerful and transformed business firing on all cylinders, we continue to prudently invest for future growth. As I said last quarter, there's three key areas of investments, loan retention, marketing, and technology. So starting with loan retention, our financial transformation is in part being driven by the new recurring revenue stream coming from the high-quality loans we're holding on our balance sheet. As such, investing in the continued growth of that revenue stream is extremely important as it builds long-term income, admittedly, at the expense of short-term results. Second investment area is marketing. we have a highly efficient marketing engine that allows us to grow origination and to build our member base. So you can expect us to continue to acquire new members while seeking to expand overall lifetime value. And finally, we've been investing to further expand our considerable data advantages and build out our digital banking capabilities. These investments form the foundation for our multi-product digital first bank, powered by business intelligence, with a scalable infrastructure that will deliver strong multi-year revenue and earnings growth. Expanding our technology leadership in the quarter, we hired Balaji Tejajara as our new CTO. Balaji has extensive experience in direct-to-consumer technology organizations such as Uber, Google, and Microsoft that leverage big data, machine learning, mobile technologies, and cloud computing to deliver on both incredible business and customer outcomes. He's perfectly suited to lead the technology organization as we not only invest in our future, but build it. Of course, while we remain committed to the above-mentioned investments, we will maintain discipline and will moderate the level if conditions dictate. Looking ahead, we are raising guidance on revenue, earnings, and loan originations for the full year. This reflects our positive momentum from Q1 continuing into Q2, balance, by recognition that conditions could change in the back half of the year. I note we feel very good about how we're positioned to navigate through potential changes. We have strong earnings, robust levels of capital and liquidity, significant strategic and structural advantages, and a well-executing team. That said, this is a dynamic environment. We will need to process the impact of rate changes and be thoughtful about the speed and degree to which we pass increased funding costs to borrowers, ensuring we continue to deliver real value to our members while also continuing to deliver strong yields to our investors. I want to thank our Lending Club employees for helping us achieve these remarkable results and for working together, mostly remotely, over the last two years to co-create our ambitious future. Many are now returning to the office for part of the week, And it's been great to see everyone and to meet some new cases. With that, I'll turn it over to Tom for his comments.
spk06: Thanks, Scott. Hello, everyone. Today I'll be talking about our financial results and we'll be referencing several slides from our presentation during our prepared remarks. So you may want to have that handy. So let's get started. As Scott mentioned, we recorded record results for the first quarter with revenues increasing 10% sequentially and more than doubling year over year to $290 million. Net income increased to $41 million, up 40% sequentially, and nearly $90 million year-over-year. Our revenues and net income were very strong during the quarter as we had great execution across the business, driving strong in-period results while continuing to invest in the future. I'll point you to slide 11 to 13. You can see sequential revenue growth primarily reflected in the increase in both marketplace revenue and our recurring stream of interest income. Marketplace revenue grew 6% to $180 million on loan regulations, or 5%, with our growth investments from Q4 paying off, and we continue to leverage benefits from our large member-based data and testing efforts. Recurring and interest income also contributed to growth, $100 million in the quarter, a 20% increase reflecting both the growth in our health investment portfolio, as well as an increase in mix of consumer loans that generate higher yields. The HFI portfolio, including PPP loans grew 23% sequentially and the mix of personal loans increased to 69% of HFI portfolio from 62% at the end of 2021. During the quarter, we retained 27% or $856 million of new consumer loan originations, which is seven points or $212 million above the midpoint of the 15 to 25% range we shared with you previously. As we said in the past, we earn about three times more on loans retained compared to loans sold. So while retaining loans reduces our revenue and earnings in a given quarter, it is an excellent return on equity and provides a very attractive recurring stream of interest income. Importantly, with our excess capital and strong earnings, we now expect to retain approximately 20% to 25% of originations for the remainder of the year. If we outperform in any given quarter, like we did this quarter, we may choose to go above this targeted range, given the attractive ROI on these loans. You'll see on page 14 of our presentation that in Q1, our net interest margin increased to 8.6% from 8.3% in the prior quarter and 3.3% a year earlier, primarily reflecting a higher mix of consumer loans. Yields on unsecured consumer loans were down 44 basis points sequentially to 15.22%, reflecting our strategy to shift our overall mix towards higher quality private loans. In Q1, we also grew deposits 27% sequentially to $4 billion, which helps fund our growing consumer loan portfolio. This increase reflected growth primarily in high-deal savings accounts, resulting in an increase in our overall average deposit costs to 42 basis points from 38 basis points in the prior quarter. And with the forward curve predicting rates to be up about 225 basis points, we expect rates on deposits to increase throughout the year. We also anticipate higher interest rates to impact our marketplace revenue, as loan funding costs for investors will increase. As part of our growth plan, we have deliberately targeted investors with lower leverage and exposure to capital markets, which should mitigate the impact of rising rates on investor demand. The ongoing reaction to the balance sheet, combined with short duration of our product, should also allow us to reposition relatively quickly, although it could take a few quarters for our business to adjust to the changing market conditions. With regard to credit quality, we remain pleased with the performance of our portfolio, and I point you to page 15, which shows that 30-plus-day delinquency rates on our total prime portfolio, including sold loans, remains low. The liquidity rates on our retained HFI portfolio over the last year are below that of the total prime book, and we expect them to increase in line with our expectations as the portfolio seasons over time. For the quarter, seasonal provisions for retained loans was $52.5 million, and total charge-offs were approximately $9 million. At the end of the first quarter, our allowance for credit loan losses as a percentage of HFI for our consumer loan portfolio increased to 6.6% from 6.4%. Commercial credit quality also remained very strong, so we had a modest net recovery during the quarter. Now let's turn to expenses, and I would point you to page 16. We maintained tight control of our expenses as we continued to grow revenue faster than expected. Expenses grew 42% year over year, increased marketing expenses as we grew our revenues by 174%. Expenses were up 3% or 2% sequentially, primarily reflecting $5 million increase in marketing expenses, which were up 9% due to my loan origination growth and the increased mix of new customers. Total non-issue expense benefited from a $5 million reduction related to bank integration costs incurred in the fourth quarter. On an adjusted basis, As integration costs have rolled off, we're operating at a higher level of efficiency. With revenue up 10% and expenses up 2%, our efficiency ratio improved 66% from 72% in the prior quarter. We would expect Q2 to be in a similar range, and while our ambition is to continue to drive that number down over time, the macroeconomic environment may put some pressure on that in the back half of the year. More importantly, I'd like to point you to page nine where you can see the fundamental shift our business model has had on our margins. On a similar origination level, we delivered over $100 million incremental revenue and over $40 million higher gap than income when compared to our pre-pandemic pure marketplace model. This is a profound shift in our business that not only improves our financial performance, but also increases our resiliency and provides us with a new set of tools to manage a dynamic operating environment. Now let's move on to capital and our outlook on taxes. We exited Q1 with a strong balance sheet, and our CT ratio remains very strong at 16%. We grew tangible book value to $792 million at the end of Q1 and $752 million at the end of 2021. Tangible book value excludes our net deferred tax asset of approximately $210 million. comprised of $140 million of federal and $70 million of state-preferred tax assets. We continue to maintain a full valuation allowance on this tax asset. However, as we continue to achieve record results, our forecasted profitability will result in a release of that reserve. While timing and amount is uncertain, when released, it will be a material tax benefit recorded through the income statement and will increase our tangible book value. We do not expect to pay federal cash taxes this year, although our effective rate for GAAP reporting will increase to approximately 27% in the year following the reserve release. I now point you to page 10 to highlight a new metric we're introducing to help communicate our underlying performance and growth, pre-tax, pre-provision income. As you saw in this quarter, we've retained 27% of our loan originations, and it had a meaningful impact on our reported results as we defer the recognition of the origination fee and recognize the upfront non-cash CESA provision. And as we continue to grow our loan portfolio, this will continue to impact our reported results. Importantly, we believe this metric to be a good indicator of our underlying growth rate as it will not be impacted by the percentage of loans we hold in any given quarter, nor the changes in our effective tax rate as a result of the release for the tax reserve I mentioned earlier. So for the quarter, our pre-tax, pre-permitted income was $98 million, up $24 million, worth 33% sequentially, which highlights the terrific trajectory of our new business model. Now I'd like to talk about our forward guidance and how we are thinking about the rest of the year. Overall, our results continue to highlight the power of our business model in a relatively steady state. Our guidance includes our Q1 outperformance and updated expectations for Q2, while carefully considering the increased uncertainty around the environment for the back half of this year. For the year, we're raising our revenue, earnings, and origination outlook. For Q2, we expect to grow revenues to $295 million to $305 million, an increase of 44% to 49% year over year. We expect net income of $40 to $45 million, an increase of 327% to 380% year over year. For the year, we're updating our origination guidance to $13 to $13.5 billion, compared to our prior expectation of approximately $13 billion. We're also increasing our revenue outlook by $50 million to $1.15 billion, to $1.25 billion, with increases in gap net income by $15 million, with a new range of $145 million to $165 million. All the guidance for Q2 and O0 results do not factor any potential benefit from the release of the valuation allowance, and we continue to expect the effective tax rate to be approximately 10% in 2022. We are off to a terrific start. Our new enhanced model provides us with a great deal of momentum and we will respond appropriately as business conditions change and expect to outperform the industry. With that, let me turn the call over to the operator for questions.
spk02: If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question is from the line of David Chivarini with Wedbush Securities. Please proceed.
spk08: Hi, thanks. I wanted to start on loan demand and loan pricing, but first on loan demand. Curious as to your thoughts, so you clearly, you know, raised the guidance for the full year. I was curious about how the second quarter is trending thus far, granted we're only, you know, a few weeks in. But I'm curious, seeing some of the industry data points, it looks like it might be trailing off a little bit, but curious as to your thoughts there.
spk07: Hey, this is Scott. Yeah, we were, you know, I guess first starting kind of on the bigger macro side and big driver of TAM for us. is obviously credit card balances. That's the primary use case that we target. And the secondary driver is as people become more familiar with the accessibility and the low cost, they're coming back to other use cases. But that first driver, revolving balances, as you've probably seen, have been growing the last couple of quarters at a pretty brisk clip. And unsecured balances are back at pre-pandemic levels. So overall, that's you know, pretty constructive for loan demand for unsecured credit. So that's one. And then I'd say, you know, on top of that, we just feel really good in how we're executing. Just number of initiatives across product, marketing, credit, and the rest that is driving strong demand. And in terms of the outlook, you know, I guess I'd try to lay it out in the prepared remarks, you know, A lot of momentum in Q1. We typically see Q1 actually shrink, be down 4% or 5% versus Q4, and we actually came up. So that's positive. And we do see that momentum continuing into the second quarter, I think, and that's really reflected in our guide. I think we're acknowledging that how the back half of the year plays out and what that transition period looks like as we adjust to the new grade environment is you know, we're acknowledging a bit more, you know, a bit more range there. So the guide really reflects Q1 momentum continuing into Q2.
spk08: Got it. Thanks for that. And then shifting over to loan pricing, it looks like the pricing, at least on looking at the average balance sheet and the press release, it looks like the average yield on the unsecured loans came down in the first quarter versus the fourth quarter, which was a a little surprising given the interest rate backdrop. Could you talk about that as well as clearly the gain-on-sale margin held in there pretty strongly for you guys in the first quarter? Could you talk about loan pricing and the dynamic around gain-on-sale?
spk07: Yeah, I'll start with kind of loan demand and then we'll talk about pricing. So overall, we're continuing to see very strong demand, as you mentioned in past calls. Our credit has really outperformed the competitive set over these last couple of years. And when you take that, you combine it with our status as a directly supervised financial institution, I think that has also brought some investors off the sideline. We're actually continuing to add investors to the platform and see pretty strong demand overall. you know, anxiety about the freight environment and the broader macro trying to solve this pandemic. Tom, you want to talk a little bit about coupon drivers?
spk06: Yeah. So, David, on the coupons, I said in my prepared remarks, if you look at our NIM page on page 10 of the earnings release, we actually brought unsecured personal loans down on This reflects, as I said in my comments, our effort to go to higher quality loans, David, remixing our assets to the most high quality or higher quality than we had in the previous quarters. It's a very unique opportunity that we have given our low-cost deposits, and you'll continue to see us move to higher quality loans probably throughout the year. It's an attractive area for us given the low-cost deposits we've had. And as far as loan pricing and has been very strong, I think as Scott mentioned, we got great demand on our project from our loans from our investors and had a great quarter. And obviously, as we said in our prepared remarks, interest rates will obviously impact that a little bit, but feel very good about where we are in the quarter and as we head into the second quarter.
spk08: Great. Thanks very much.
spk02: Thank you, Mr. Chiaverini. The next question is from the line of Giuliano Bologna with Compass Point. Please proceed.
spk03: Well, first of all, congratulations on a great quarter. Continue to prove out the earnings power and growth potential of the bank. One of my first questions I was curious about was when we think about marketing expenses, last quarter, what you guys have mapped out was about 195 to 200 basis points for the full year. You guys obviously came in much lower, called it 172 basis points. I'm curious, the first part of it is whether we should continue to think about marketing expenses in a similar zip code called 191.95 to 2% of volume, or if the outperformance this quarter was a better yield on your marketing expenses because if you had a unwind some of the excess performance, you would have been closer to that range in terms of, you know, if you took down some of the excess volume versus where most of us probably were modeling the first quarter.
spk06: Yeah, thanks, Julian. So, we still feel good about the target we gave, you know, with that 1.9 to 2 range. One of the things that is impacting this quarter's reported results is, I called out in my comment that we retained 27% of our originations. So, impacted because we defer those related expenses. So it is a little bit of geography in the income statement. So we still feel good. We feel great about our marketing efficiency. We're going to continue to drive our marketing and drive as efficient as we can, but we feel very, very good about our position, and we feel that's a good range. We don't want to be too thin where we're losing opportunities. We don't want to be too wide where we're not being as efficient as we'd like to be. 192 is still a good number. It allows us to do the things we need to do, do the testing we need to do. And also, you know, as Scott said, we had a very good quarter. Lines were higher than we expected. So that obviously helps the efficiency as well.
spk03: That sounds good. Then to change the topic a little bit, if I go back historically, you guys obviously used to originate the auto prefab products and also somebody left medical and kind of find out their later type loans in the past. I'm curious if there's any sense of the magnitude. I realize that the base is smaller and they're growing quickly. And kind of what the characteristics of those loans look like from kind of more of a yield and capital efficiency perspective.
spk06: Yes. So I think that your question was about the other loans beyond personal loans. You're right. They do grow nicely. And with regard The spreads are obviously very, very different. But we want to have a breadth of products that we can offer to our customers. It's not about the individual pricing of an auto loan. It's about the relationship. It's about the multi-product relationship we have with our customers and the credit benefit we get from having multiple relationships with the customer. So while we look at it on a straight interest rate return, it's also much broader lifetime value that we're focused on. With regard to the purchase finance business, very similar characteristics as the unsecured personal and unsecured product as well. Very similar customer set and very similar returns on equity.
spk03: That sounds good. Then one last one. I'm curious just from a – well, I guess I realize I'm not asking a specific timing question, but more so from a mechanical perspective when you think about guess you're reversing the valuation allowance of the deferred tax asset. Is that something that's remeasured at any given point in time, or is it only annually? And the reason why I ask that is obviously if I just annualized your current run rate from an earnings estimate in the first quarter, which I realize is below where you intend to be for the full year, you'd earn out the entire deferred tax in just over four years. So kind of curious just from a modeling perspective, from my perspective, if the test is annual or if it could happen at any point in the year, in part because when we think about the street as a whole, I think there's some divergence in the way that most of us are modeling the tax rate for next year.
spk06: Yeah, it's a good question. It is facts and circumstance based. It is an ongoing assessment. It's not in particular one part of the year. Companies do release these reserves at different times throughout the year. What I comment in my section is that the pace of our growth is obviously making us think about this more currently. And while we can't predict exactly when it will be released, we're clear on a trajectory that would indicate that this asset is recoverable now and we would make the appropriate adjustments. The reason we wanted to call out the impact on the tax rate is just a very complicated switch from having net operating losses that haven't been able to be deducted. We obviously saved cash for many, many years, as you indicated. And so the effective rate will go up, but the cash will still be deducted. saved because of the offset that we get on the roll forward of the NOL. So I feel very, very good about our tax division, but it does create some complexity. Wanted to get it into the market so that folks could understand where the normalized earnings would be. And that's why we also put in the pre-tax, pre-provision metrics so you can start to look at a more smoother profile, taking
spk03: That's great. Well, thank you for taking my questions and congrats on a great quarter.
spk02: Thank you, Mr. Bologna. The next question is from the line of Bill Ryan with Seaport Research Partners. Please proceed.
spk04: Thanks and good afternoon. A couple of questions. One's kind of, I'd say encompassing, but You know, you're having a nice margin expansion in the quarter. A lot of components to it. There's yields, there's deposit costs, there's prepayments, which looks like they may have slowed a little bit in the quarter. You know, looking forward, you know, where do we go here from the margin? On last quarter, I think you talked at about 16%, but you kind of just look at the mix of loans and what's happening. It suggests it could go eventually above that, but if you could talk a little bit about the dynamics of the margin going forward. And I'll go ahead and ask my follow-up question, which is just on the nature of your loan buyers in the marketplace. And I know our discussions in the past, you kind of indicated, and you alluded to it earlier in the call, that a lot of your buyers or most of your buyers are not securitizers. But if you can maybe provide a little more granular aspect to that. Thanks.
spk06: Yeah, so first on the margin, you know, we were in a very unique situation, Bill, in that we still had not fully – invested in the portfolio. We've been investing in the portfolio since we started a year ago, and you're seeing us increase the mix of unsecured consumer loans. That's 69% now. We have more room to go as we're generating more capital, and our funding is good. And so what you have is this rate versus mix dynamic going on. The fact that we're able to continue to mix the portfolio really does use some of the impact of higher rates and also allows us to even go to higher quality credit, even giving up some of the additional yield. Still very, very strong net interest margins notwithstanding the changes in the environment. So we are definitely benefiting from not fully invested and also remixing the balance sheet. So those are some of the dynamics around the margin. On prepayments, really not much change yet. We do expect some prepayments to modulate throughout the year, but not much in the first quarter. No really significant impact on the yield. As far as loan buyers, as you kind of summarized it, we've been very, very pleased with the long-term relationships that we've had with these investors. We obviously are highly connected with them to make sure that we're delivering very, very good risk-adjusted returns and that they're not as dependent on the capital markets as other investors may be. And that allows us to continue to deliver them those good returns without this being subject to the gyrations in the capital markets. So we feel very good about that. We haven't done a securitization ourselves. Our funding base is quite strong. Our investor base is a real benefit and strategic advantage.
spk07: I'll talk a little bit on the investor base. If you think about pre-pandemic and pre-bank versus today, we've really gone about making a fairly deliberate shift. One thing to change, obviously, our own bank balance sheet is in the mix. That does change the dynamic, both in terms of our ability to set price, but also the confidence that it gives our loan buyers that we're being disciplined about credit. The other thing that's changed is that we ourselves made use of the capital markets as a funding mechanism. We no longer do that. And we've also kind of pivoted our mix of loan investors to those that are not overly reliant on that as funding vehicles. So you can think, if you look at our mix today, it's both more investors that we had, our individual levels of concentration are lower, and they represent a group that is not reliant on capital markets for their funding. So there are banks. About half of the funding comes from banks, including us. There are asset managers and then the asset manager play. There's a lot of these individual vehicles that are really dedicated to funding marketplace loans, often individual LPs behind that, typically relatively low leverage. And their mandate, if you will, their investment mandate is investing in the asset class. So we feel really good about this mix that we've got and the level of demand that we have from them. And as I mentioned in the prepared remarks, we're actually continuing to add new investors.
spk04: Okay, thanks for taking my question.
spk02: Thank you, Mr. Ryan. The next question is from the line of John Rowan with Jamie. Please proceed.
spk01: Good afternoon, guys. Just to go back to the tax issue, when you released the DTA and there's a benefit to equity, do you guys have penciled out what the impact to capital ratios are? And if so, does that give you more confidence to grow the bank?
spk06: Yeah, it's a great question, John. It is a complicated one, so everyone knows that... In the release of the reserve tax asset on your books that was not recognized previously, obviously your tangible value goes up, which is great, and your capital will go up. It may not go up dollar for dollar, John, and that's something that is subject to some additional work based on timing and level of release, but I call it out the Fed the regulatory capital. However, that will be at the holding company and not in the bank. So we will increase our total available capital, but it will be at the holding company and not at the bank. So obviously we have some work to do to normalize our capital where it is, but this is a net capital add once it occurs.
spk01: Okay. Thank you very much.
spk02: Thank you, Mr. Rowland. The next question is from the line of Stephen Fox with KBW. Please proceed.
spk09: Congrats on the good quarter, and thanks for taking my question. Just given the broader macro uncertainty, could you talk about what you're seeing around the health of your customer base and then also specific trends that you're monitoring?
spk07: Yeah. So, you know, we feel quite good about the We mentioned this before, but I'd reiterate, consistent focus. Our growth is coming from the same high-quality customer that we've been circling for 15 years and $70-plus billion worth of loans. Came into the pandemic with strong balance sheets, low debt-to-income coverage, strong coverage ratios, all the rest. did not overly benefit from government stimulus and therefore are not overly feeling its withdrawal. And, you know, as you can see in the industry overall, I think both due to pandemic-driven reality as well as personal choices, you know, really delevered quite a bit. So, and you combine that with the low unemployment And just the profile, right? Average FICO is 727. Average income of our book is about $113,000 or so. It's a very solid consumer. As I mentioned on the call, a couple things I'll just maybe go a little deeper on. Performance of our loan book continues to be strong. And delinquencies remain below pre-pandemic levels, which is we have priced and underwritten to those pre-pandemic levels. A reminder that this is a very short duration loan, so we can get a read on performance quite quickly. You start to see what's happening, let's call it six, seven months in. The other thing I'd note is we've got all kinds of early warning monitoring things that we're looking at. rate at which people are pausing auto payments or switching bank accounts, these kinds of things that give us an early indicator as to stresses. And then the final is there's also just being proactive about what our expectations are. And we're factoring into our underwriting right now already that cost of living will be going up, that student loan payments could be resuming. So those are the kind of things that we're not waiting to respond to data. We're responding to our own kind of expectations about what's happening. So again, overall, feel good about our book. Feel good about how our portfolio is performing. And we are being prudent both in where we're focusing. We're focusing on more shifting slightly more upmarket. And we're proactively tightening in expectations of a potential for a more adverse environment. later in the year.
spk09: Got it. And just given the dynamic interest rate environment that we're in, are you seeing any change in appetite, whether it's on the consumer side or from the institutions that are buying the paper? Curious to see if you're seeing anything there.
spk07: I mean, I think as indicated in an earlier comment I made, I mean, we're seeing continued momentum from Q1 to Q2. And that is both in terms of consumer interest in the product and response to our initiatives as well as our loan buyers. Now, that said, of course, there is anxiety on the part of, you know, the broader market around the rate and pace at which prices go up. There's an expectation that we will have to reprice our loans to match funding costs for investors. We talked about this, I think, in the last call, which is that since the market that we're going after is credit cards, credit cards repriced is fine. We will be able to pass this cost increase on to borrowers.
spk02: uh but you know we will be thoughtful about the pace at which we do that based on how the overall market is moving got it thanks for taking my questions thank you mr clock now we'd like to turn it over to samir go clay to answer some questions submitted by our retail investors please proceed great thank you well we actually just had one question and that was uh from a retail investor asking
spk05: If the board has considered diverting cash from building up the company's loan portfolio to opportunistically repurchasing LendingClub stock, it's really a question of investing in the portfolio versus share buyback.
spk06: At this point, we still see an incredible propelling use of our capital to grow the balance sheet and invest in the future.
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