LendingClub Corp (LC) 2022 Q1 法說會逐字稿

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. (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 Lending Club'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 e-mail.

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 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 Form 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 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.

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 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 delinquencies gradually normalized in this unfolding environment, while our marketplace model and credit insights allow us to efficiently serve a broad range of credit profiles were primarily focused on prime bars as they've proven to be more resilient. Historically, near-prime looks comprise about 15% to 20% of our total originations, 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, a strong balance sheet 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 to 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 5 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 3x 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 flow 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 as market optimize 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 is 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 3 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 for 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've been investing to further expand our considerable data advantages and build out our digital banking capabilities. These investments form the foundation for our multiproduct 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 both incredible business and customer outcomes. He is 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 disciplined, and we'll moderate the levels 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 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 cost 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 LendingClub employees for helping us achieve these remarkable results and for working together mostly remotely over the last 2 years to cocreate 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'll turn it over to Tom for his comments.

Thanks, Scott, and hello, everyone. Today, I'll be talking about our financial results, and we'll be referencing several slides from our presentation during my prepared remarks, so you may want to have that handy. So let's get started.

As Scott mentioned, we reported 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.

Now 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 returns to move interest income. Marketplace revenue grew 6% to $180 million on loan originations or 5% with our growth investments from Q4 paying off, and we continue to leverage benefits from our large member base, data and testing efforts.

Recurring net interest income also contributed to grow $100 million in the quarter, a 20% increase, reflecting both the growth in our held for investment portfolio as well as an increase in mix of consumer loans that generate higher yields. The HFI portfolio, excluding 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 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 earn about 3x 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. 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'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 our unsecured consumer loans were down 44 basis points sequentially to 15.22%, reflecting our strategy to shift our overall mix towards higher-quality type 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-yield savings account, 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 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 remixing of 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'd point you to Page 15, which shows the 30-plus day delinquency rates on our total prime portfolio, including sold 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 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 continue to grow revenue faster than expected. Expenses grew 42% year-over-year, reflecting increased marketing expenses as we grew our revenues by 174%. Expenses were up 3% or 2% sequentially, primarily reflecting a $5 million increase in marketing expense, which were up 9% due by loan origination growth and the increased mix of new customers. Total noninterest 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're operating at a higher level of efficiency. With revenue up 10% and expenses up 2%, our efficiency ratio improved to 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 9, 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 GAAP net 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 CTE ratio remains very strong at 16%. We grew tangible book value to $792 million at the end of Q1 from $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-deferred tax assets. We continue to maintain a full valuation allowance on this 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 interest 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 [decrease] to approximately 27% in the year following the reserve release.

I'd now point you to Page 10 to highlight a new metric we're introducing to help communicate our underlying performance and growth: pretax pre-provision income. As you saw in this quarter, we retained 27% of our loan originations, and it had a meaningful impact on our reported results as we defer the recognition of the origination fees and recognize the upfront noncash CECL 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 of the tax reserve I mentioned earlier. So for the quarter, our pretax pre-provision income was $98 million, up $24 million or 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 million to $45 million, an increase of 327% to 380% year-over-year. For the year, we're updating our origination guidance to $13 billion 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 GAAP net income by $15 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 for 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 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.

(Operator Instructions) The first question is from the line of David Chiaverini with Wedbush Securities.

Wanted to start on loan demand and loan pricing. But first on loan demand, 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're only 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.

This is Scott. Yes, we were -- I guess, first, starting kind of on the bigger macro side and a 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 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're executing just a number of initiatives across product, marketing, credit and the rest that is driving strong demand. And in terms of the outlook, I guess we try tried 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 we actually came up. So that's a 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 rate environment is we're acknowledging a bit more range there, so the guide really reflects Q1 momentum continuing into Q2.

Got it. 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 and the dynamic around gain on sale?

Yes. I'll start with kind of loan demand. And Tom, maybe you can talk about pricing. So overall, we're continuing to see very strong demand. As we've 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 sideline. We're actually continuing to add investors to the platform and see pretty strong demand overall.

Anxiety about the rate environment and the broader macro (inaudible). Tom, do you want to talk a little bit about coupon drivers?

Yes. So David, on the coupons, as I said in my prepared remarks, coupon was down. If you look at our NIM page on Page 10 of the earnings release, we actually brought unsecured personal loans down on yields from 15.66% down to 15.22%. 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. The 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 had.

And as far as loan pricing and -- has been very strong. I think, as Scott mentioned, we've 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 we feel very good about where we are in the quarter and as we head in the second quarter.

The next question is from the line of Giuliano Bologna with Compass Point.

Well, first of all, congratulations on a great quarter and then continue to prove out the earnings power and growth potential to the bank. One of my first question 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, call it, 172 basis points. I'm curious, the first part of it is whether we should continue to think about marketing sense in a similar ZIP code, call it, 1.95% to 2% of volume or if the outperformance this quarter was a better yield on your marketing expenses because if you have to unwind some of the excess performance, you would have been closer to that range in terms of -- if you took down some of the excess volume versus where most of us probably were modeling the first quarter.

Yes. Thanks, Giuliano. So we still feel good about the target we gave in that 1.9% to 2% range. One of the things that is impacting this quarter's reported results, as I called out in my comments, that we retained 27% of our originations. So what hits the marketing line is slightly impacted because we defer those related expenses. So it is a little bit of a 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 it as efficient as we can. But we feel very, very good about it, 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 like to be. So 1.9% to 2% is still a good number, allows us to do the things we need to do, to do the testing we need to do. And also, as Scott said, we had a very good quarter. Volumes were higher than we had expected. So that obviously helps the efficiency as well.

That sounds good. Then change the topic a little bit. If I go back historically, you guys, obviously, you serve auto refi products and also some of the (inaudible) and kind of (inaudible) type loans in the past. I'm curious if there's any sense of the magnitude. I realize that the base is smaller, and then they're growing quickly. And kind of what the characteristics of those loans look like from kind of more yield and capital efficiency perspective.

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 to auto loans, obviously, that's secured products and the return on -- returns there and 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 auto loans. It's about the relationship. It's about the multiproduct 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 returns also much broader lifetime value that we're focused on. With regard to the purchase finance business, very similar characteristics as the unsecured personal loans and unsecured product as well, very similar customer set and very similar returns on equity.

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 potentially reversing the valuation allowance on the -- of the deferred tax asset. Is that something that can be measured at any given point in time? Or is it only annually? And the reason I ask that is, obviously, if I just annualize your current run rate from an earnings perspective 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 asset in just over 4 years. So kind of curious, just from a modeling perspective, if we -- from my perspective, if you test -- if the test is annual or 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 diversion to the way that most of us are modeling the tax rate for next year.

Yes. It's a good question. It is in fact circumstance-based. It is ongoing assessment of that, in particular, one part of the year. Companies do release these reserves at different times throughout the year. What I commented on my section is that the pace of our growth is obviously making us think about this more currently. And while we can't particularly [tell] exactly when it will be released, we're clearly on a trajectory that would indicate that this asset is recoverable now, and we will make the appropriate adjustments.

The reason we wanted to call out the impact on the tax rate, it's just a very complicated switch from having net operating losses that haven't been able to be deducted. We obviously save cash for many, many years, as you indicated, and so the effective rate will go up, but the cash will still be saved because of the offset that we get on the roll forward of the NOL. So we feel very, very good about our tax decision, but those rating complexity, wanting 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 pretax pre-provision metric, so you can start to look at a more smoother profile, taking away some of the complexity that the tax change will result when we adopt it.

That's great. Congrats on a great quarter.

The next question is from the line of Bill Ryan with Seaport Research Partners.

A couple of questions. One is kind of -- not saying say encompassing, but you're 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? And 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've 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.

Yes. So first on the margin. We are in a very unique situation, Bill, in that we still have 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, about 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. So 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 invest it and also remixing the balance sheet. We sold the (inaudible) in the first quarter, which also allows us to remix that portfolio. 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, that we have 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 dependent on the capital markets as other investors may be, and that allows us to continue to deliver them those good returns without -- this will be 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 going strong. Our investor base is a real benefit and strategic advantage.

So I'll just -- I'll talk a little bit on the investor base. So you think about pre-pandemic and pre-bank versus today, we've really thought about making a fairly deliberate shift. One thing that's changed, obviously, our own bank balance sheet is in the mix. Well, 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 that -- about half of the funding comes from banks, including us. There are asset managers. And in the asset manager side, there's -- a lot of these are individual vehicles that are really dedicated to funding marketplace loans of an individual LPs behind that, right, typically a relatively low leverage. And their mandate, if you will, our investment mandate is investing in the asset cost. 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 [help] the investors.

The next question is from the line of John Rowan with Janney.

Just to go back to the tax issue, when you released the DTA and there's a benefit to equity, what -- 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?

Yes, it's a great question, John. It is a complicated one. So everyone knows that in the release of the reserve deferred tax assets on your books that was not recognized previously, obviously your tangible book value goes up, which is great, and your capital will go up. It may not go up dollar for dollar, John, and it's something that is subject to some additional work based on timing and level of release. But I called out the federal, the state, it's a complicated calculation, but there will be some benefit to the regulatory capital. However, that will be up to the holding company and not at the bank. So we will increase our total available capital but would 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 (inaudible)

The next question is from the line of Steven Kwok with KBW.

Congrats on the good quarter. 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?

Yes. So we feel quite good about the customer we're focused on. First, we mentioned this before, but I'd reiterate, consistent focus, right? Our growth is coming from the same high-quality customer that we've been serving for 15 years and $70-plus billion worth of loans. Came into the pandemic with strong balance sheet, low debt-to-income coverage -- strong coverage ratios, all the [reps] did not overly benefit from government stimulus and therefore are not overly feeling its withdrawal. And as we can see in the industry overall, I think both due to pandemic-driven reality as well as personal choices really delevered quite a bit. And you combine that with the low unemployment and just the profile, right? Average FICO is 727. Average income of our book, about $113,000 or so. It's a very solid consumer.

As I mentioned on the call, a couple of 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. 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, 6, 7 months in.

The other thing I'd note is we've got all kinds of, I'll call it, 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 looking at -- 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.

Got it. 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 instead of buying the paper. Curious to see if you're seeing anything there.

Well, I mean, as indicated in an earlier comment I made, I mean, we're seeing continued momentum from Q1 to Q2, and that -- both in terms of consumer interest in the products and response to our initiatives as well as 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 reprice 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're going after is credit cards, credit cards repriced with prime, we will be able to pass this cost increase onto borrowers, but we'll be thoughtful about the pace at which we do that based on how the overall market is moving.

Now we'd like to turn it over to Sameer Gokhale to answer some questions submitted by our retail investors. Please proceed.

Great. Thank you. Well, we actually just had 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 lending of stock, so really a question of investing in the portfolio versus share buyback.

At this point, we still see incredible 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 a buyback program, and we'll consider all things going forward. But at this point, we have no buyback program in place and not contemplating, given the opportunity we have to grow our core business.

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

Thanks, everyone.

Thanks.

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