LendingClub Corporation (LC) Q1 2022 Earnings Report, Transcript and Summary

Good afternoon. Thank you for attending today’s LendingClub 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. [Operator Instructions] I would now like to pass the conference over to Sameer Gokhale, the Head of Investor Relations with LendingClub. Please go ahead.

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 via 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 advantage 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 our most recent forms 10-K as filed with the SEC, as well as our subsequent filings made with the Securities and Exchange Commission, including our upcoming Form 10-Q. Any forward-looking statements that we make on this 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.

All right. Thank you, Sameer. Good afternoon, everyone. Thanks for joining us. I am happy to report that LendingClub has delivered another outstanding quarter. In Q1 we generated record results, driven by a 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 a high quality loans we are 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 delinquencies gradually normalize in this unfolding environment. Our marketplace model and credit insights allow us to efficiently serve a broad range of credit profiles we are primarily focused on prime loans as they have proven to be more resilient. Historically, newer prime loans comprise about 15% to 20% of our total originations and they contribute a similar percentage to our marketplace revenue. We are 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 for 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 are closely monitoring data from our portfolio, our membership base, 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 a $100,000 to be particularly resilient. They are overall in great shape, strong balance sheets that did not disproportionately benefit from stimulus packages and are therefore not overly affected by their spending. 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 consumer’s may face. Our industry meeting and highly efficient marketing engines helped us more than double originations year-over-year and grow 5% sequentially despite seasonal downward pressure as 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 returned 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 3 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 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 flow and should continue to be a good source of revenue and credit quality diversification. Our thriving credit marketplace let’s just say, yes, more borrowers across the credit spectrum, driving marketing efficiency, while we maintain a prudent approach to underwrite. 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 map 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 have 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 execute 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 investment, 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 are 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 originations 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 have 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 multiyear revenue and earnings growth. Expanding our technology leadership in the quarter, we hired Balaji Thiagarajan 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 those 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, balanced by a recognition that conditions could change in the back half of the year. I know we feel very good about how we are 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 for investors. I want to thank our LendingClub 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 faces. With that, I will turn it over to Tom for his comments.

Thanks, Scott, and hello, everyone. Today I will be talking about our financial results and will 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 reported record results in the first quarter, with revenues increasing 10% sequentially and more than doubling every 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 grew 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 will switch it to slide 11 to 13. You can see sequential revenue growth primarily reflected in the increase in both marketplace revenue and our returns to interest income. Marketplace revenue grew 6% to $180 million and loan origination grew 5%, with our growth investments from Q4 paying off and we continue to leverage benefits for our large member base, data and testing average. Recurring net interest income also contributed to grow $100 million in the quarter, a 20% increase reflecting both the growth in our health and investment portfolio, as well as an increase in mix of consumer loans that generates higher yield. HFI portfolio, excluding PPP loans, grew 23% sequentially in the midst 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 7 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 earned about 3 times more on loans retained compared to loans sold. So while retaining loans reduces our revenue and earrings 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. Moreover, 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 will see on page 14 of our presentation that in Q1 our net interest margin increased to 8.6% to 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 to higher quality [inaudible] loans. In Q1 we also grew deposits 27% sequentially to $4 billion, which helps fund our growing consumer loan portfolio. This increased reflected growth primarily in high yield savings accounts, resulting in an increase in our overall average deposit cost to 42 basis points from 38 basis points in the prior quarter and with the borrowing curve projected rate to be up about 225 basis points, we expect rates of deposit 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 reassessment of balance sheet combined with short duration of a product should also allow us to reposition relatively quickly, although it could take a few quarters for our business to adjust the changing market conditions. With regard to credit quality, we remain key performance of our portfolio and I point you to page 15, which shows that 30-plus date liquidity rates on our total portfolio, including solid loans, remains low, delinquency 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, CECL provisions for retail 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 loans remained very strong, but we had a modest debt recovery during the quarter. Now let’s turn to expense and I would point you to page 16. We maintain tight control of our expenses as we continue to grow revenues faster than expected. Expenses grew 42% year-over-year, despite the increase of our 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%, driven by loan origination growth and the increased mix of new customers. Total managed expense benefited from a $5 million reduction related to bank integration costs incurred in the fourth quarter. On an adjusted basis, total expenses were up approximately $8 million or 4%. As integration costs have rolled off, we are 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, 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 like to point you to page nine, where you can see the fundamental shift our business model has had on our margin. On a similar origination level we delivered over $100 million incremental revenue and over $40 million higher GAAP net income when compared to our pre-pandemic pure marketplace model. This is a profound shift in our business and not only prudent with 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 the capital and our outlook on taxes. We exited Q1 with a strong balance sheet and our CET ratio remains very strong at 16%. We grew tangible book value to $792 million at the end of Q1 from $752 million at end of 2021. And the book value excludes our net deferred tax assets of approximately $210 million, comprised of $140 million federal and $70 million of state deferred tax assets. We continue to maintain a full valuation allowance on these tax assets. However, as we continue to achieve record results, our forecast of profitability will result in a release of that reserve. While timing of the amount is uncertain when release it will be a material tax benefit recorded through income statement that will increase our tangible book value. We do not expect to pay federal cash tax this year, although our effective rate for GAAP reporting will increase to approaching 27% in the year following the reserve release. I now point you page 10 to highlight a new metric we are introducing to help communicate our underlying performance and growth, pre-tax, pre-provision income. As you saw this quarter, we retained 27% of our loan originations and it had a meaningful impact on our reported results as we deferred the recognition of the origination fee and recognized the upfront non-cash fees to 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 an 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 of the taxes I mentioned earlier. So for the quarter, our pre-tax pre-provision income was $98 million, up $24 million or 33% sequentially, which highlights a certain trajectory of our new business model. Now I would 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. This year we are 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 million to $45 million, an increase of 327% to 380% year-over-year. For the year we are updating our origination guidance to $13 million to $13.5 million, compared to a prior expectation of approximately $13 million. We are also increasing our revenue outlook by $50 million to $1.15 billion to $1.25 billion, with increases in GAAP income by $50 million, with a new range of $145 million to $165 million. All the guidance for Q2 and full year results do not factor any potential benefit from the release or 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 to make them, 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.

Certainly. [Operator Instructions] The first question is from the line of David Chiaverini with Wedbush Securities. Please proceed.

Hi. Thanks. I wanted to start on loan demand and loan pricing, but first on loan demand. I am curious as to your thoughts. So you clearly raised the guidance for the full year. I was curious about how the second quarter is trending thus far granted we are only a few weeks in. But I am 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?

Hey. This is Scott. Yeah. We were, I guess, first earning cut on the bigger macro side and big driver that came 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 this accessibility and the low cost, they are coming back to other use cases. But that’s that first driver revolving balances, as you have probably seen, have been growing last couple of quarters at a pretty fresh collapse and unsecured balances are back at pre-pandemic levels, so that overall that’s pretty constructive for loan demand for unsecured credit. So that’s one and then, I’d say, on top of that, we just feel really good in how we are executing just number of initiatives across product, marketing, credit and the rest, that group is driving strong demand. And in terms of the outlook, I guess, I try to lay it out in the prepared remarks, a lot of momentum in Q1. We typically see Q1 actually shrink be down 4% or 5% versus Q4 and it actually came up. So that’s, that’s part of it now. And we do see that momentum continuing into the second quarter. I think and that’s really reflected in our guide. I think, we are acknowledging that how the back half of the year plays out and what that transition period looks like is as we adjust to the new data environment is, I think, we are acknowledging a bit more range there. So the guide really reflects Q1 momentum continuing into Q2.

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 in 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 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 in the dynamic around gain on sale?

Yeah. I will start with loan demand and maybe Tom you can talk about pricing. So, overall, we are continuing to see very strong demand. As we have mentioned in past calls, our credit has really outperformed the competitive set over the 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 sidelines. We are actually continuing to add investors to the platform and see pretty strong demand overall, anxiety about the rate environment and the broader macro trends of spending. Tom, do you want to talk a little bit about coupon drivers?

Yeah. So, David, on the coupons, as I said in my prepared remarks, it’s pretty much down and if you look at our NIM page -- on page 10 of the earnings release, we actually brought unsecured personal loans down on yields from 50.66% down to 50.22%. This reflects, as I said in my comments, our effort to grow higher quality loans, David, remixing our assets to the most high quality or higher quality than we had in the previous quarters, a very good opportunity that we have given our low cost deposits and you will continue to see us move to higher quality loans probably throughout the year. It’s an attractive area for us as we work across all this [inaudible]. And as far as loan pricing and -- has been very strong. I think, Scott mentioned, we have great demand on our project from our loan from our investors and had a great quarter. And obviously, as we have said in our prepared remarks, interest rates will allow us to impact that a little bit, but feel very good about where we are in the quarter and as we head into second quarter.

Great. Thanks very much.

Thank you, Mr. Chiaverini. The next question is from the line of Giuliano Bologna with Compass Point. Please proceed.

Well, first of all, congratulations on a great quarter and continue to provide the earnings power and growth plan for the bank. Is one of the first questions I was curious about was when we think about marketing expenses last quarter, because it knocked out about 195 basis points to 200 basis points for the full year, you guys obviously came in much lower 172 basis points. I am curious, the first part of it is whether we should continue to think about marketing expenses in a similar zip code called 1.94%, 1.95% to 2% of volume or if the outperformance this quarter was better -- a better yield on your marketing expenses, because if you kind of unwind some of the asset performance you have been closer to that range in terms of if you took down some of the excess volume versus where most of those probably remodeling the first quarter?

Yeah. Thanks, Giuliano. So we still feel good about the target that we did, that 1.9% to 2% range. One of the things that is impacting this quarter’s reported results is, I called out on my comment that, we retain 27% of our originations. So what hit the marketing line is slightly impacted because you defer those related expenses. So it is a little bit of a geography and income statement. So we still feel good, we feel great about our marketing efficiency. We are going to continue to drive our marketing and got us 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 are losing opportunities. We don’t want to be too wide where we are not being as efficient in line to be. So 1.92% is still a big number, allows us to do the things we need to do, the testing you need to do and also, as Scott said, we had a very good quarter, volumes were higher than we had expected. So that’s -- that obviously helps efficiency as well.

Okay. Perfect. Is it -- then have to touch a little bit. If I go back to sort of, you guys, obviously, you serve the auto refi product and also some of the medical and health panel related type loans in the past. I am curious if there is any sense of the magnitude? I realize that the base is smaller and they are growing quickly and kind of what the characteristics of those loans look like from kind of more of a yield and capital efficiency perspective?

Yeah. So I think that your question was about the other loans beyond personal loans. You are right, they do grow nicely and with regard to auto loans, obviously, unsecured products on your car loan returns there and the spreads are obviously very, very different. But we want to have a breadth of products to offer to our customers. It’s all not about individual pricing of auto loan. It’s about relationship. It’s about the multi-product relationship we have with our customers and the credit benefit that we get from having multiple relationships with customers. So while we look at it on a straight interest rate returns also much broader lifetime value that we are focused on. With regard to the purchase finance business, very similar characteristics of the secured personal and unsecured products as well, very similar customer set and very similar returns on equity.

That sounds good. And one last one, I am curious just from a, well, I guess, I realize I am not asking a specific timing question, but more so from a mechanical perspective. When you think about just reversing the valuation allowance on the -- of the deferred tax asset, is that something that’s re-measured at any given point time or is it only annually? And the reason why I asked that is, obviously, if I just annualize your current run rate from an earnings in the first quarter, which I realize is below where you intend to be for the full year, you burn out the entire deferred tax assets and just over four years. So, got curious from a modeling perspective if we, from my perspective, if you kind of look at the annual or 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.

Yeah. It’s a good question. It’s just facts and circumstances that is the ongoing assessment in particular one part of the year. The companies do release these reserves in different times throughout the year. What I commented 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 what will be released, it is clear and clear on a trajectory that would indicate that the disaster is recoverable now and we will 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 a net operating loss that have been able to be deducted. We obviously saved cash for many, many years, as you indicated and so the effective rate will go up and the cash flow will still be saved because of the offset that we get on the roll forward there well. So feel very good about our technology, but this creates complexity, while we 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 metric, so you can start to look at a more smoother profile taking out -- taking away some of the complexity that the tax change will result in when we are adopting.

That’s great. Well, thank you for taking my questions and congrats on great quarter.

Thank you, Mr. Bologna. The next question is from the line of Bill Ryan with The Seaport Research Partners. Please proceed.

Thanks and good afternoon. Couple of questions. One is kind of I’d say encompassing, but you are having 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. Looking forward, 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 suggest it could go eventually above that, but if you could talk a little bit about the dynamics of the margin going forward? And I will 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 have kind of indicated and you alluded to it early 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.

Yeah. So first on the margins, we are in a very unique situation, Bill, in that. We still have not fully invested the portfolio. We have been investing in the portfolio since we started a year ago and you are seeing this increase being the mix of consumer -- unsecured consumer loans that did not reset now, we have more room to go and we are generating more capital and our funding is good. And so what you have is this rate versus mix dynamic going on. So the fact that we are able to continue to mix the portfolio really does reduce 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. We sold the loans in the first quarter, which also allowed us to remix that portfolio. So those are some of the dynamics around the margin. On prepayments, really not much changed 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 summarize it, we have been very, very pleased with the long-term relationships that you have with these investors. We have obviously are highly connected with them to make sure that we are delivering very, very good risk adjusted returns and that they do not depended on capital markets and other investors maybe and that allows us to continue to deliver them those good returns and this has been subject to the gyrations in the capital markets. So I 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.

So I will just -- I will talk a little bit on the investor base. If you think about pre-pandemic and pre-bank versus today, we have really thought about making a fairly deliberate shift, wanting 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 are 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 have also kind of pivoted our mix of loan investors to those that are not overly reliant on that as a funding vehicle. So you can think if you look at our mix today, it’s one more investor 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 LP is behind typically relatively low leverage and with their mandate, if you will, our investment mandate is investing in the asset class. So we feel really good about this mix that we have got and the level of demand that we have from that. And as I mentioned in the prepared remarks, we are actually continuing that with the investors.

Okay. Thanks for taking my question.

Thank you, Mr. Ryan. The next question is from the line of John Rowan with Janney. Please proceed.

Good afternoon guys. Just to go…

Hi, John.

… back to the tax issue. When you release the DTA and there’s a benefit to equity. What -- do you guys have penciled out, hat the impact to capital ratios are, and if so, does that give you more confidence to grow the bank?

Yeah. It’s a great question, John, it is a complicated one. So everyone knows that in the release of the reserve our deferred tax assets 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, but John and it’s something that is subject to some additional work based on timing and level of release. But, look, I have called out the federal, the states is a complicated calculation, but there will be some benefit to the regulatory capital. However, that will be up to holding company and not in the bank. So we will increase our total available capital, but that 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 and once that occurs.

Okay. Thank you very much.

Thank you, Mr. Rowan. The next question is from the line of Stephen Kwok with KBW. Please proceed.

Congrats on the good quarter and thanks for taking my question. Just given the broader macro uncertainty, could you talk about what you are seeing around the health of your customer base and then also specific trends that you are monitoring?

Yeah. So we feel quite good about the customer we are focused on. First, I -- we mentioned this before, but I’d reiterate, consistent focus, right? Our growth is coming from the same high quality customer that we have been serving for 15 years and $70 plus billion worth of loans. Came into the pandemic with strong balance sheets, low debt-to-income coverage ratio -- strong coverage ratios, all the rest. We did not overly benefit from government stimulus, and therefore, are not overly feeling its withdrawal. And as you can see, in the industry overall, I think, both due to the pandemic driven reality, as well as personal choices, really delevered quite a bit. So and you combine that with the low unemployment and just the profile, right, average FICO 727 average income of our book product is $113,000 or so. It’s just very solid consumer. As I mentioned on the call, a couple of things I’d 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 an underwritten to those pre-pandemic levels. A reminder that our -- 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 months, seven months in. The other thing I’d note is, we have got all kinds of, let’s call it, early warning monitoring things that we are 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 destructive. And then the final is, there’s also just being proactive about what our expectations are and we are looking at, we are 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 kinds of things that we are not waiting to respond to data, we are responding to our own kind of expectations about what’s happening. So, yeah, overall, feel good about our book, feel good about our portfolio is performing and we are being prudent both in where we are focusing, we are focusing on more shifting slightly more upmarket and we are proactively tightening in expectations of the potential for a more adverse environment later in the year.

Right. Got it. And just given the dynamic interest rate environment that we are 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 any -- if you are seeing anything there?

I mean, I think, as indicated in an earlier comment I made, I mean, we are 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 are our loan buyers. Now, that said, of course, there is anxiety on the part of the broader market around the rate and pace at which prices go up. There is an expectation that we will have to re-price our loans to match funding costs for investors. We talked about this, I think, in the last call, which is that, since our -- the market that we are going after is credit cards, credit cards replacement time, we will be able to pass that cost increase on to borrowers. But 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. Kwok. Now we would like to turn it over to Sameer Gokhale to answer some questions submitted by retail investors. Please proceed.

Great. Thank you. well, we actually just have one question and that was from a retail investor asking if the Board has considered diverting cash from building up the company’s loan portfolio to opportunistically repurchasing LendingClub stock, some of the question of investing in the portfolio versus the share buyback?

Yeah. At this point, we still see incredibly compelling use of our capital to grow the balance sheet and invest in the future. At this point, the Board has not made a decision to deploy capital into buyback program and we will consider all things going forward. But at this point, we have no buyback program in place and does not contemplating given the opportunity we have to grow our core businesses.

Great. Well, thanks, Tom and thank you all for joining us for our earnings call. If you have any follow up questions, please contact our Investor Relations. Thank you.

Thanks, everyone.

Thanks.

That concludes today’s call. Thank you for your participation. You may now disconnect your lines.