Q3 2022 LendingClub Corp Earnings Call
Thank you for standing by today's call is going to be starting in a few minutes time.
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Thank you for joining I would like to welcome you to the lending club to third quarter 2022 earnings Conference call.
My name is breaker and I'll be your event specialist operating today's event.
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Thank you and good afternoon, welcome to lending club's third quarter of 2022 earnings Conference call. Joining me today to talk about our results and recent events are Scott Sanborn CEO , Andrew Rubin 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 who will also be answering some of the questions that were submitted for consideration by email.
Our remarks today will include forward looking statements 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.
This performance our actual results may differ materially from those obligated by these forward 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 ACC as well as our subsequent filings made with the Securities and Exchange Commission.
During 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, new information or future events. Our remarks also include non-GAAP measures, leading poor performance, including tangible book value per common share.
Believe these non-GAAP measures provide useful supplemental information.
Can find more information on our use of non-GAAP measures and a reconciliation to the most directly comparable GAAP measures in the presentation accompanying our earnings release and now I'd like to turn the call over to Scott.
Thanks, Samir Hello, and welcome everyone. Our solid third quarter results demonstrate the effectiveness of our efforts and the resilience of our marketplace Bank business model as we continue to leverage our enhanced set of tools to control what we can in the current environment.
We produced year over year revenue and earnings per share growth of 24% and 58% respectively, driven by strong growth in recurring interest income and improved operating efficiency.
As I shared on our last two calls this will be a year or two has the first half featuring strong investor loan demand boosting originations and corresponding marketplace revenue on top of our growing net interest income revenue stream in the back half with more tempered loan volumes in marketplace revenue due to the rapidly changing.
Rate environment temporarily affecting loan investor demand.
A quick reminder, about how we expect this to play out in the marketplace certain loan investors cost of capital is based on forward interest rate expectations as expectations go up their cost of capital goes up and so does their yield requirement.
That's because we're competing mainly against credit cards, which while they are pegged to floating rates and are moving higher they only do so after the fed takes action and even then typically lag the fed's moves by one or two billing cycles.
It's only when the consumer sees and experiences the impact of those increases that we can move rates without losing competitive advantage or causing adverse selection.
We also consider other market factors to ensure that changing pricing will not create credit volatility.
So during this transition period, the benefits of our bank capabilities could not be more clear our strong earnings profile enabled us to increase the amount of loans, we retained to a record $1 2 billion.
This allows us to help more borrowers while further building our recurring revenue stream.
Combined with servicing fees almost half of our total revenue is now recurring.
This will contribute to our efforts to mitigate marketplace revenue pressure until interest rates any environment stabilize or at least the pace of change slows.
On the borrower side demand remains strong the majority of our members come to us to consolidate credit card debt and the impact of the earliest fed rate hikes are showing up in their credit card bills.
With card rates and balances at record highs and with additional increases on the horizon are fixed rate closed end loans continue to be a highly attractive way for consumers to save money.
Our prime members have high income and high FICO scores with balance sheets that remained healthy throughout the pandemic.
And that combined with our prudent approach to underwriting has meant that we haven't seen broad based or systemic stress in our credit performance. Our focus remains solely on the higher prime segments for held for investment portfolio.
Slide 16 in our prepared materials show the delinquency rates on our prime loans remain below pre pandemic levels and are continuing to normalize and our held for investment portfolio is also performing with delinquency is remaining within projected levels as the portfolio grows and matures.
However, as we told you last quarter, we are seeing inflation driven pressure in certain segments at the lower end of the credit spectrum and we've taken disciplined steps to address these pockets through tightened underwriting.
This includes most notably near Prime loans, which now make up 10% to 12% a personal loan originations down from prior quarters.
Until there's clarity on the economic outlook and a more stable interest rate environment. We're focused on controlling what we can and using our full suite of tools to manage.
First we will maintain our disciplined approach to underwriting and pricing.
We will remain good stewards of credit not reaching for growth or compromising our standards.
We have long standing relationships with many of our marketplace investors, who rely on our market, leading data analytics, our discipline and our judgment to deliver attractive risk adjusted returns.
And as the largest holder of our loans protecting investor returns continues to be Paramount.
Second we will continue to lean into the strategic advantages of our digital first bank and invest in retaining prime loans to generate recurring revenue independent of new loan volume. This is a key advantage for us supported by our strong balance sheet and over 5 billion and bank deposits.
Third as you saw this quarter, we will remain focused on managing expenses prudently and we have a number of variable expense levers, we can pull if needed.
We remain committed to our multi product vision, which we believe will drive substantial future shareholder value and we are continuing to make investments to build that future.
We are however, moderating the pace of these investments in the near term to reflect the environment.
If you remember I used to car analogy last quarter, when I said that we're reducing our speed heading into the curve. So that we can accelerate coming out of it.
We are in the curve right now, but as we look further down the track I would note that some of the negative dynamics in todays market will point to future opportunities, most notably record high credit card balances at record high interest rates should be a boon to our core refinance business.
Our marketplace revenue has a proven ability to quickly rebound as our rapid return to record volumes following the pandemic pullback in the case.
When combining the scalability of our marketplace with the resiliency of our digital first bank. We believe we can deliver long term value for our shareholders.
I'd like to thank our team of lending Clubbers for their continued dedication and partnership and helping us deliver a solid third quarter.
And with that let me welcome one of our newest lending Clubbers drove <unk> to his first earnings call.
Drew joined US three months ago, and officially took over as CFO on September one.
He brings a wealth of banking experience from capital one and JP Morgan and is uniquely qualified to help lead lending club going forward.
He is also just generally a great guy so over to you.
Thanks, Scott first of all I would like to thank Tom for his significant contributions to the company over the years and for helping ensure a smooth CFO transition for me here at lending club.
I am excited to be here and look forward to meeting all of you.
Let me first start by talking about year over year performance of the company, which highlights the growing impact that the strategic investments in our bank is having on our earnings.
And then I'll turn to our sequential results to discuss some of the recent trends we are seeing.
We reported solid results compared to our performance year earlier total assets increased 43% year over year to $6 8 billion with our held for investment loan portfolio up 73%, primarily due to growth in personal loans.
We also generated strong growth in deposits, which were up 80% year over year.
Total revenue grew 24% year over year, driven by growth in net interest income, which reflects growth in loans held for investment.
Our recurring revenue stream of net interest income was up 89% year over year consistent with growth in loans held for investment and an increase in our consolidated net interest margin to eight 3% from six 3% a year ago.
This expansion in net interest margin, primarily reflects the increased mix of personal loans, which generated a significantly higher yield compared to the rest of our loan portfolio.
Marketplace revenue was essentially flat year over year on similar volumes of sold loans.
Noninterest expense increased 4% year over year, primarily reflecting higher compensation and benefits expense consistent with investments to support growth over the period.
This was partially offset by improved marketing efficiency with marketing expense decreasing 9% year over year.
Our consolidated efficiency ratio improved to 61% from 73% in the third quarter a year earlier as we benefited from growth in recurring revenue.
Crude marketing efficiencies and prudently managing non marketing expenses.
Although our year over year trends reflect strong growth sequential trends clearly reflected the impact of the higher interest rate environment as Scott mentioned earlier.
Origination volumes at $3 5 billion were down 8% sequentially, reflecting lower investor demand and our efforts to tighten credit and increase investor returns.
Revenues also decreased 8% sequentially with marketplace revenue down 16% roughly consistent with the lower volume of loans sold through the marketplace.
As Scott indicated this was the area most impacted by the rapid change in interest rates the.
The impact on marketplace revenue was partially offset by strong growth in net interest income, which increased 6% sequentially as our retained loan portfolio continued to grow.
During the quarter, we decided to increase the percentage of originations retained to 33% from 27% in the second quarter as we utilized our strong balance sheet to reinvest earnings and support more members, while driving future net interest income.
Total loans held for investment increased 18% sequentially to $4 8 billion.
Primarily reflecting growth in personal loans.
The impact of increasing retention to 33% compared to the high end of our targeted 20%, 25% range reduced pre tax income by approximately $12 million in the third quarter due to upfront seasonal provisioning requirements.
Our third quarter favorability in marketing efficiency, and our tax recovery allowed us to retain loans above our range.
We'll deliver on our financial targets.
This is an important tool that we can flex up or down depending on the environment.
Our consolidated net interest margin was eight 3% compared to eight 5% in the second quarter, reflecting a heavier mix of high quality prime personal loans with lower coupons as well as an increase in the cost of interest bearing deposits.
End of period interest bearing deposits were up 14% sequentially to $4 9 billion.
Funding strong growth in our loan portfolio.
The average rate on deposits rose 135 basis points from 61 basis points in the second quarter broadly following a rise in market interest rates.
Despite the increase in deposit rates, the higher yield on our consumer loans compared to other asset classes allows us to fund new loans at attractive spreads.
Our provision for credit losses was $83 million.
Which was up from the previous quarter due to an increase in loan growth and the inclusion of qualitative reserves, reflecting increased economic uncertainty.
Our allowance coverage ratio, excluding PPP loans increased to six 4%, primarily reflecting the continued mix shift in our loan portfolio allowance accretion on prior loan vintages and qualitative reserves.
Total noninterest.
Interest expense decreased 11% sequentially, reflecting our proactive efforts to prudently manage expenses and a less favorable environment.
Importantly, the sequential improvement in marketing efficiency was due to a few temporary items and we expect to revert towards previous levels in the fourth quarter.
This combined with the expected marketplace revenue pressure will impact the efficiency ratio in the fourth quarter.
While we still expect to pursue opportunities to reinvest for long term growth. We will also continue to remain disciplined with expenses.
In the third quarter, our tax rate benefited from a further recovery in the valuation allowance.
$5 million and R&D tax credits.
As I said earlier, we took the opportunity to reinvest the tax benefit into increased loan retention.
The tax rate will continue to remain low and getting Q4, but we continue to expect a 28% tax rate for 2020.
Our capital ratios remained strong with a consolidated CET one ratio of 18, 3%.
And a tier one leverage ratio of 15, 7%.
Tangible book value per common share grew 38% year over year to $9 78 per share at the end of the third quarter.
We have maintained strong capital ratios on top of a significant allowance for credit losses positioning us to better navigate through this more uncertain environment, while giving us the ability to strategically deploy capital as opportunities arise.
Now, let's move to the guidance and how we're thinking about the fourth quarter.
We expect the rate environment to continue to pressure our marketplace business. In addition to our normal seasonal pressures.
We do have significant levers to manage through this including of course, adjusting our rate of loan retention, where we can mitigate the impact of seasonal provision.
With that in mind.
For the full year, we are tightening our guidance range for revenue and net inkjet.
We expect revenue of 1.18 to $1, one 9 billion.
And net income of $280 million to $290 million.
This means that for the fourth quarter, we expect revenue of $255 million to $265 million.
And net income of 15% to $25 million.
When we consider the significant change environment during the second half of the year.
We are pleased that we had anticipated in some of the challenges and we are well positioned to be able to deliver results within our previously communicated annual guidance range.
With that let me turn it back over to Scott for his closing comments.
Thanks drew.
So clearly the rising rate environment has colored our near term outlook.
Before we turn it over to questions I, just wanted to take a step back and look at what we've achieved in the last 18 months.
As well as touch on what we believe lies in front of us.
Since we bought the bank, we have completely transformed the financial profile of this business, we've more than doubled the balance sheet, we've got tens of millions and issuance costs and we've added a new recurring revenue stream that now represents almost half of our quarterly revenue and we've significantly grown our equity.
These strong fundamentals will help us manage through the headwinds.
In other areas. This year, we expect to bring in close to 400000, new borrower members. We've made significant progress on our technology roadmap and.
And we have received multiple external recognition and awards for the strength of the culture of the company and for the value of the products, we're providing to our members.
As interest rates stabilize with credit card balances and rates at or near record highs. We believe that our core business of credit card refinancing will be well positioned to quickly resume growth and drive marketplace revenue.
We will continue to grow our bank franchise and drive towards our ambitious future to create a next generation multi product digital first bank that will deliver an integrated borrowing spending and savings experience for our members and strong multi year revenue and earnings growth for our shareholders.
So with that I will turn it over to take questions.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
If you change your mind any time, please press star T to remove your question.
And please standby for a moment, while we owe to safety.
The first question, we have on the phone lines comes from.
David <unk> from Wedbush.
Please go ahead when you're ready.
Thanks for taking the question so.
This quarter, you guys retained a little bit more on the balance sheet, given the difficult market environment, but that's a very nice lever for you guys to have now at 33% how should we think about the level of retention going forward.
And maybe I'll start David and then towards the future.
David actually the bigger driver of the retention in the quarter was the earnings capacity that we had I think.
We've given everybody a range that's what we use in our planning of 20% to 25%, but we said look were intended to be at the top end of that range.
We can afford it and deliver it.
The outlook that we communicated so with the tax benefit we got in the quarter, we basically just reinvested that into the loans to your point.
So maybe.
Because it's the right. It's the right way to manage the business for the long term and I won't talk about the outlook yeah as far as the outlook every time, we're setting the outlook, we're using that stated range of 20% to 25% to base our outlook on but again as Scott said as we see.
If we see opportunities to invest more to retain more thing will choose to do that.
Okay.
Got it thanks and on the loan yields it looks like the loan yields were down.
Modest Lee sequentially as opposed to heading up in a rising rate environment can you talk about that a little bit as well as the net interest margin outlook.
Yes, so first of all if we look at total interest, earning assets were actually up 30 basis points I think youre, probably looking at the.
The unsecured personal loans, which were down sequentially. So theres a few yields on those down sequentially. So I think theres a few factors going on there.
First is we are remixing the portfolio to a lower risk profile in terms of what we're putting on the balance sheet.
Also we are seeing some increase in.
Our slowdown in prepayment speeds, which is impacting yields.
And.
Okay.
The third is that the remix of the high quality has a different fee structure as those fees.
Amortized then it's a different profile.
Yes.
Yes go ahead.
The high yield savings that we're putting on the balance sheet.
And just to be clear because I understand.
The question is coming from to be clear, we are moving rates right. At this point. The fed has moved 300 credit cards have moved roughly 250, we've moved as of today roughly 200.
No.
We are this is proceeding as we had indicated we thought it would which is the fed moves and the cards move and then we move so youre seeing that play out.
Yes.
And in terms of the deposit rates just following on that that NIM conversation.
How competitive is the deposit.
Great outlook and the growth was very strong and just curious if you guys are confident about being able to generate that level of deposit growth going forward to support funding. These loans that you are retaining.
Yes, I think the high yield savings market is a very large tam and I think as much as much as we are still.
Higher up on the rate tables will be able to generate the deposit growth that we need to we did have another benefit this quarter versus what we expect if there is one.
Set a large depositor that was expected to move out in Q3, that's going to move out in Q4, so that may slow our deposit growth a little bit going into Q4, but we think the full capacity is there that we need to be able to grow the balance sheet.
Thanks very much.
Okay.
Thank you David.
Next question comes from the line of Bill Ryan with Seaport.
Research Partners. Your line is open now.
Thanks, and good afternoon.
First question just on the marketing side of the equation. Obviously, you noted it dropped pretty significantly when you measure it against our loan originations that you said there were certain kind of like implied onetime factors.
Looking back there was also the retention factor of loans impacting that number.
The mix of existing versus new and I was wondering if you could kind of.
Tell us where you think it is going and correlate it with those kind of three factors. If you will a mix of new versus existing customers.
Tension of loans on the balance sheet et cetera. Thanks.
Yes, so I'll just give you the context builder.
We talked about temporary what drew just brought up is one of them we held onto some pretty sizable deposits that we knew were going to be and had to leave the building we held on to them longer. So we saved on deposit costs. There. We also had some kind of one off campaigns and then we had the benefit of retention I would say if you look going forward, we would expect to be back.
At the same historical range, we guided to.
Have been delivering in the prior quarters and go back to our priorities for the year. When we started the year, we said priority one invest in the balance sheet priority to invest in new members.
And priority three start building towards our multiyear product future.
Those are in orders of priority. We are ahead of the game on one we've been successful at really building the balance sheet I would say we are on the slightly ahead of target on too.
And three is the one where we've moderated our investments more recently, but as we look ahead specific to the marketing line I'd say, we'd expect to go back to those traditional levels and we will be targeting that same.
Our plan right now is to the extent we can.
We've got the capacity to do it we will continue to acquire new customers, because they've got a pretty strong and pretty immediate payback. So but do you anticipate still being in that 50 50 range.
Q4.
Okay, and just one follow up on the provision you kind of noted that.
There is an element of you kind of put an overlay and to incorporate a more adverse scenario. Yet you are putting on higher quality loans could you maybe give us the break a part of the provision between the new originations.
Versus the qualitative overlay embedded in the $82 7 million.
Yeah. Good question, we haven't historically given that break out so I'll give you a few points on where we're at provision right. Now so first of all the majority of it really comes from two things. It comes from the new loans that we're putting on the balance sheet.
As you noted that will change based on the mix. That's the level that will change based on the mix that we put on and then we have accretion of the back book back book grows we're going to have more accretion coming through the provision line.
And then we have which is a smaller part of the provision is the economic overlays, which are really driven by.
Number of different inputs, we certainly look at the Moody's data and all of the scenarios that we're putting out there.
Look at unemployment rate, but maybe a little different than others. We also look at.
Unemployment insurance claims as more of the former driver that helps inform our qualitative reserves as well. So so we are watching we're adding qualitative reserves as we have been throughout the year.
And we're reserving at the appropriate levels.
Okay. Thank you.
Thank you.
We now have.
Good morning.
Whenever there from Compass point. Please go ahead when you're ready.
Great.
Our starting point.
Going back to a similar topic, but just came up.
Obviously, they are moving pricing.
Throughout the third quarter it looks like the average yield on the portfolio came down 10 basis points. When looking at the presentation is there a general sense of what the newly originated yields it looks like on a rolling basis.
Where that is on a relative basis compare to.
The aggregate portfolio or what you're originating during Q just to get a sense of where yields my approach.
Pro forma gross.
Yes, so there's a few things going on there. The first is the remix which we discussed so as we're going to higher quality loans.
We'll have an impact on the yield that we're putting on the balance sheet. So thats one the second as Scott said as we started to put price we've started to increase pricing on new loans in Q3, we've actually just put in some more pricing increases in Q4, so that will start to come through the yields.
No.
Except for the adjustments I just talked about in terms of the profile of what we're putting on so we should over time start to see more of those increases come through in terms of the yield you are seeing in the NIM table, but I think the remix will continue for a bit longer as well and sort of mitigate that impact.
Yes.
Got it.
On the provision expense or is there something roughly speaking what the provision rate was for.
How long ago, you were adding this quarter.
How that's moved compared to previous quarters of excluding the step up.
Well I guess it was already on the balance sheet.
Yes, it's Tony and I will just talk about P out here. So just just a reminder, on our <unk> portfolio of everything we're putting on our balance sheet is fine.
So we have been using.
Since the pandemic, we've been using a seasonal curve or a lifetime loss curve that is based on results pre pandemic. We are not yet seeing we are not yet at levels post pandemic that matched pre pandemic levels. So we're actually holding a bit more in reserves.
Adjusted for the risk profile. So net net we're still provisioning at the same rate on the <unk> reserve for day, one for the portfolio were putting on the changes Youre seeing are the other factor is the mix that we're putting on the back book accretion and.
Qualitative.
That makes that makes sense.
That does.
Yes.
After my initial modeling because I think.
What I've been trying to work out in some ways is what's broken down someone's there of course with multiple drivers volume through the coming down retention growing up provisioning can be moving around in the next quarter.
Is there a general sense of can you figure out marketing expense I'm, assuming that should be pretty good at El Dorado basis.
Given the fact, there is less competition out there at the moment.
Gerald.
Yes, Youre, probably youre marketing expenses as a percentage of volume point of view.
Similar to where you were in the third quarter.
Well, Joe marketing expense marketing expense as a percent of volume we had a very nice quarter in Q3, and we're going to move back up to where we were before so that again that doesn't factor is that Scott talked about there's a little bit of seasonality, we had lowered deposit marketing because of the slower runoff than expected and we just had some higher.
<unk> on a few.
Marketing efforts that we don't expect to repeat so I would look back at the ratio of historically.
Why is that going and I guess to your point, there was kind of a bit of a sudden pullback early on in the third quarter and competition, but that's that's resume there.
From what we can see overall the market has pulled back.
Lending clubs more than holding its own in share market likely went up in the third quarter, we don't know that for sure because the data doesn't come up for a while.
But but we don't expect competition remember that the Fintech competitive set is a little bit of an originator die right. They do not have half of their revenue coming off of our balance sheet. So they've got to keep originating so we wouldn't expect the competitive.
Dynamic to be significantly altered over the near term.
That's great. Thank you. That's my question is going to put them back in the queue.
Your next question comes from Michael Perito with <unk>. Please go ahead, when you're ready.
Okay.
Hey, good afternoon, guys. Thanks for taking my questions.
Hey, Michael.
Wanted to I wanted to follow up on that last line of questioning there. So I'm trying to do some quick math here as you guys are kind of walking through everything and in looking at the guide and it seems like.
Ballpark, you guys are kind of implying at origination.
Figure next quarter, and maybe like the two and a half maybe slightly higher billion.
Range and so I'm just curious even if that number is not exactly right and you guys don't want to comment just that stepped down sequentially I mean, you've kind of alluded to it sounds like it's more you guys.
Maybe pulling back a little on credit and then anything kind of market slower market driven I, just wanted to confirm or or just get a little bit more color there.
Yeah. So.
If you recall when we kicked off the year, we gave it in origination guide and we said given that we feel this is going to be a year of two halves, we do not want to be chasing originations because the job number one is to be good stewards of credit I'd say, if we look at the total year. We think we're solidly going to deliver on that guide that we gave you towards the upper end.
Of the range.
The dynamic in volumes is not credit, it's really the rate environment, putting pressure on investor returns, that's really the big driver, which is you know as.
I was just saying on the prior comment.
For us we're not.
We want our investors to get the returns they need but theres no benefit to us in selling loans below a certain threshold. So we're basically making the loans we can profitably make.
And that meet the needs of our investors and it's really that not not credit.
The credit stuff is really as we talked about.
Really pockets outside of the Prime book.
Got it thanks for clarifying that makes sense and then.
You know kind of Dovetailing off that if we think about the.
The net interest margin given the current kind of consensus forecast that's out there I mean is it is it fair to think that there is probably some some more pressure near term just as some of those asset repricing and deposit beta dynamics play out and then hopefully some stabilization when.
Fed stabilizes itself is that a fair kind of high level way to think about it or is there any other dynamics we should consider.
I think you nailed it thats exactly what I would've said deposits move first a repricing takes some time and as the yield curve flattens the fed.
Finishes there Theyre heights than we should get to a more normal environment, where where we get the pricing will end up between the assets and the liabilities.
And just any any thoughts about where that like normalized NIM could be just you know I mean, because you guys are starting to hold some some higher FICO stuff on the balance sheet I imagine.
From a bottomline profitability standpoint that looks.
Better because the credit culture, lower but the the NIM on those incrementally might be a little lower I mean are you like high.
High 7% range do you think you'd keep it above 8% just any general thoughts that you're willing to share at this time or or is it.
This country many variables.
Yes, I think theres a lot of I think theres a lot of variables I think in the near term there's going to be some pressure downwards in let's call. It just the next quarter for now.
Think longer term, let's wait until we're talking about 2023 before before we give that.
The other thing worth noting is obviously as we're growing our deposit base at a at a healthy clip here and were out in the market with high rates to do that there's.
Theres, obviously, a little growth map in those deposit costs as well that we're absorbing through the mill.
Got it Okay, and then just just lastly and to.
An unfair question, Scott, but I'm gonna try it anyway.
As we think out to next year.
Obviously, there's a wide range of outcomes, but if we assume that the kind of the moody consensus forecast is accurate and and.
In which case unemployment, but marginally the fed stabilizes in the four and a half plus or minus range I mean, it sounds like.
The kind of the foundational elements of what drives your origination business in terms of credit card debt and the willingness to chip.
Walking into a lower rate is still very high and it has a lot of velocity. So I mean is it fair to think that if that outlook as close to accurate that that there should be room for you guys to do.
Pretty healthy origination business next year.
Well, obviously I'll start with that direct debt yet too early to give you. The answer will obviously be back in January with an outlook for the year, but if it.
As a as a broad statement.
We said this year was going to be a year or two halves.
Based on all of the current outlook and expectations Moody's fed all the rest next year will be a year of two halves in the opposite direction right first half.
We will be continue with the elevated rate environment.
Okay.
We mentioned, we're going to credit card rates are at a record high in credit card balances are back near their record highs and rates have not finished moving we are going to have a very very large tam and a very compelling.
Offer and in the Investor dynamics with the <unk>.
Yes terminal rate curve continues on the downward slope all of these dynamics work in the opposite direction right and it should be very good for the business, but as you said if it back right.
So we have to just more data to watch and more to see around what the fed does than where rates go and and how the job market is holding very very strong. So that's great, but we have to see where it all goes before we can really.
<unk> determined the exact timing of that.
The rebound.
Makes sense I appreciate all the color guys. Thank you for taking my questions.
Thank you.
Thank you.
We now have been confronted with Stephens. Please go ahead when you're ready.
Hey, Thanks for taking my questions first one just to drill down on the net interest margin discussion again.
If you could maybe talk about the so understanding the unsecured consumer loan yield went up.
Because your mix shifted to higher quality loans, just wanted to get a sense of your appetite for going further.
Further into higher quality loans for it moving further up market and what could that imply for yield and then if I think about the funding cost side of that discussion.
You have a healthy deposit.
Platform are there other forms of funding that maybe might also make sense to them too.
Consider it as part of the the bank funding structure as your held for investment is growing.
Yes, so first of all I think in terms of the mix in terms of higher quality borrowers.
And on that journey for several quarters now so.
That bleeding into the portfolio causes some pressure on NIM, but it is not a change but I don't want to imply there was a change in us even going further upmarket in terms of high quality at least not now because we like what we see and we like the profile of what we're putting on the balance sheet at this time.
On the.
Deposits. So obviously high yield savings is an incredible growth engine for us I think we've been very successful in the market right. Now over time. We also have we also have a portfolio of commercial deposits. There are different avenues, where we can go out and also raised deposit funding.
Not as flexible or as rapid.
But but it's their longer term to be able to maybe provide a lower cost of funding profile to the bank and then obviously, we have the more traditional channels, which can.
It can be rate effective from time to time brokered Cds that <unk> borrowings et cetera, we really haven't tapped those and any heavy way theyre just available liquidity is needed for us to tap into.
Okay, Thanks for that and just.
A follow up question just to talk about the marketplace again, so I appreciate the discussion on the consumer side, so the penetration rate 300 basis points.
Card is raising or whatever it is 250 and you're able to pricing two hundreds right now I guess in terms of the marketplace and those those marketplace investors how do they how quickly do they react and how.
What are the discussions youre, having in terms of they have appetite.
They want to wait until rates start moving over just kind of any help you can have on the sensitivity.
Maybe when that that would pick up again, thank you.
Yeah, Yeah. So.
I'll go back to.
Hum.
Coming into this we feel like we've set ourselves up with.
The right mix of investors, who would be less exposed to the you know theres a as we talked about last time, there's a range of sand.
Let's call it a vulnerability or sensitivity to the rising rate environment, and we've tried to position our investor mix to be less sensitive.
One of the drivers of the fact that our volume on a relative basis is holding up so well. In addition to the fact that our performance is also holding up very well on a relative basis.
And the the conversations with investors.
We've talked about this.
Okay.
The people we work with.
These arent trades right. These are long term relationships. They are in this space.
They have you know if you're a bank they set their capital allocations at the beginning of the year.
And.
So these are you know.
These are pretty durable relationships. So there is not so much the wait and see so much as the relative appetite.
Depending on the yield profile can go up or down and then keep in mind that you know.
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They are relatively less sensitive, but they're not they're not insensitive. So even the bank buyers, which now represent a higher percentage of our mix than let's say when we came into the year because they are less sensitive funding costs are going up for banks to and so.
So it's really the conversation is around what is the targeted yield we we try to we try to understand that for each of our investors what is their cost of capital we try to understand that too and we view it as our job to help deliver against their required return profile.
And in.
In the event we can.
Can't that's when somebody who might need to go away, but having low cost investors, who are relatively less sensitive to that how.
How are continuing to navigate.
Okay, Great. That's very helpful. Thank you.
Thank you I would like to turn the call back over to Smith for an online questions.
Great. Thank you we do have a question from a retail investor which is with the recent market volatility.
Lending club been able to capitalize on opportunities in the market such as buying back loans from distressed sellers.
So.
Short answer is no.
Sure.
The slightly longer answer is we are big believers in the quality of lending clubs paper and we are the largest holder of lending club loans and if there were clients who had liquidity issues.
We are would certainly be open and willing to.
Take a look at that and support them and increase the balance sheet.
Great. Thanks, Scott well those are all the questions. We have for today. Thank you all for joining our call and if you have any additional questions feel free to reach out to the Investor relations. Thank you.
Okay.
Thank you for joining today's call.
Please have a lovely day you may now disconnect your line.
Yes.
Okay.
Yeah.