LendingClub Corporation (NYSE:LC) Q2 2022 Results Conference Call July 27, 2022 5:00 PM ET
Company Participants
Sameer Gokhale – Head, Investor Relations
Scott Sanborn – Chief Executive Officer
Tom Casey – Chief Financial Officer
Conference Call Participants
Bill Ryan – Seaport Research
David Chiaverini – Wedbush Securities
Michael Perito – KBW
Giuliano Bologna – Compass Point
Operator
Good afternoon. Thank you for attending the LendingClub Corp Second Quarter 2022 Earnings Call. My name is Matt and I will be your moderator for today’s call. [Operator Instructions]
I would now like to pass the conference over to our host Sameer Gokhale, Head of Investor Relations for LendingClub. Sameer, please go ahead.
Sameer Gokhale
Thank you, and good afternoon. Welcome to LendingClub second 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 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 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.
Scott Sanborn
Thanks, Sameer. Good afternoon, everyone. I am pleased to report another quarter of record revenue, earnings and loan volume, all exceeding our guidance. Tom will give you the details shortly, but let me share a few highlights.
Revenue grew 61% year on year, outpacing originations growth of 41%, and demonstrating the power of our combined marketplace and portfolio revenue streams. And our net income, excluding a onetime tax benefit quadrupled year over year. Our digital marketplace bank model is proving to be resilient and we are reiterating our guidance for the full-year. We’re very pleased with our results in the first half, but as we noted last quarter, the macro environment is shifting. The fed has become more hawkish in their battle with inflation, which has implications for our business and for the economy overall.
In the face of these changes, we are confident that we have positioned the company well to capitalize when we see quality growth opportunities, while remaining mindful and prudent with respect to risks.
So, let me talk about what we’re seeing and what we expect across the marketplace in terms of borrower demand, credit performance, and investor demand? Credit card balances are now back above pre pandemic levels, and credit card rates are rising. This is driving strong borrower demand for personal loans. Accordingly, we grew loan volume by 19% order of reporter while simultaneously increasing our marketing efficiency. We expect borrower demand to remain strong in Q3 and come down in Q4 due to typical seasonality.
Switching to credit, which we highlight in our presentation on pages 16 and 17. Our loans are currently performing very well on both an absolute and relative basis. And our most recent season vintages, including those from the back half of 2021 are continuing to perform above expectations with delinquencies below pre pandemic levels and better than industry averages.
As a reminder, we are primarily focused on time borrowers who’ve proven to be more resilient through economic cycles. Our core consumer has an average income of 112,000 and a FICO score of 7.21. We further believe there is an element of positive selection in our member base. As they have made a conscious decision to strengthen their financial position by refinancing out of higher cost debt. Continued strong performance in credit is an important foundation, as we move to talk about investor marketplace demand.
Last quarter, we spent a lot of time discussing our loan allocation strategy, and our decision to deliberately partner with loan investors who would be less exposed to rising rates. Our record high loan volume in Q2 is evidence of the success of our strategy in action. That said, the rapid pace of interest rate movements with another increase announced just today is putting pressure on the entire investment community as it drives up the cost of capital and corresponding yielded requirements.
I’d like to remind every one of the transition period that we need to go through as rates rise. For certain investors, their funding costs will move based on the forward curve, meaning where the fed is expected to go. These investors are seeking more yield to cover their increased costs. We will eventually be able to pass price increases onto the borrowers who will see their cost of credit move as the prime rate moves.
However, there is a lag between the timing of these price movements. So we need to bridge the gap and we do have tools to do so. First are the coupons to borrowers. We are continuously testing and implementing increased price points to drive up yields to investors, while making sure we maintain expected credit quality. We’ve made a series of price increases already, and we plan to continue to do so through the back half of the year. A second tool to increase investor returns is credit adjustments, where we’re leveraging the strong borrower demand to trim lower returning segments, especially in near prime to drive up asset returns.
So as we make coupon changes and optimize credit, we’ll be using our proprietary loan auction platform LCX to read the clearing price and moderate loan volume to match investor demand at the yield we can expect to consistently deliver. We have the most experience of any personal loan provider in delivering loan investor returns. And we’re using that expertise in this environment. So this should give you a sense of how we’re managing our marketplace. Let me talk a little bit about how we’re managing our business.
As a reminder, roughly 50% of our total expenses are variable in nature with marketing being the largest one. Our marketing spend is strongly correlated to origination volumes, allowing us to adjust expense levels based on market conditions. Furthermore, we have the advantage of a large and loyal member base of more than 4 million members who deliver stronger credit performance than new customers and come at a lower acquisition cost. As we evaluate marketplace demand in the back half of the year, we will calibrate total marketing spend and the percentage of our volume coming from our existing member base.
In terms of fixed expenses, we are moderating our rate of hiring until we have a better view of the long-term environment. We remain committed to delivering our committed to delivering our strategic roadmap, but believe it’s prudent to adjust the pace at which we get there. One area where we will continue to invest is in growing our balance sheet. This is important, as we want to continue to increase the amount of recurring revenue generated from our HFI portfolio. While we understand that this impacts our in quarter revenue and earnings, it is the right decision for the business long-term.
We have been talking about the best of both worlds and the self-reinforcing flywheel of our transform business model for a few quarters. And while we can not control or predict the macro economy, we are leveraging our enhanced set of tools to control what we can control. In a bull market, we can leverage the capitalized advantages of our pure FinTech to seize market share. And in a bear market, we can lean on the funding stability and advantages of a bank to drive resiliency and profitability.
In today’s environment, we are leaning more towards the bank model, being conservative on credit and using our low cost deposit funding to hold more loans for investment and drive recurring revenue. As the economy improves, we’ll be ready to lean into our FinTech advantage, dialing up the marketplace to drive scale capture market share.
To use an analogy, we are reducing our speed heading into the corner, but we are planning on retaining momentum and accelerating as we come out of it, to carry out our bold ambitions, to create a next generation, multi-product digital first bank that will deliver a new banking experience for our members and strong multi-year revenue and earnings growth for our shareholders.
I’d like to thank the team of Lending Clubbers for their continued dedication and for helping us deliver these great results. Now let me turn over to Tom for his comments.
Tom Casey
Thanks Scott. And good afternoon, everyone. Now that Scott took you through our thinking about the second half of the year, I’ll be reviewing our financial results for the second quarter and then turn to our outlook for the rest of the year.
I’ll be referencing some slides in our earnings presentation. So, please have them handy. As Scott mentioned, we reported record revenue of $330 million, which was up 61% year-over-year, on origination growth of 41%. And if you please turn to Page 15 of our earnings presentation, you’ll see a reported net income of $182 million, included a $135 million benefit from the release of our valuation allowance on deferred tax assets. Excluding the tax benefit, net income reached another record of $47 million in the quarter, which was 4x greater than a year ago. Our strong earnings reflected growth in both marketplace revenue and increased interest income revenue, as we retain more loans and drove a substantial improvement in our operating efficiency.
Now let’s turn to Page 11 and let’s talk about our Marketplace business. Marketplace revenue group 36% year-over-year, driven by 29% growth in the volume of loans sold through the marketplace. On the next page, you can see our recurring revenue stream of interest income for our portfolio increased 179% year-over-year, as average balances grew through 64% or up 116% when excluding PPP loans.
During the quarter, we retained nearly 27% of consumer loan originations, which was above our targeted range of 20% to 25%. Similar to Q1 we again deliberately chose to reinvest earnings and excess capital into retaining more originations as these loans generate significantly more earnings over time compared to loans sold through the marketplace.
On pace 13, you will see that the net interest margin increased to 8.7% from 5.5% a year earlier. For the quarter, net interest margin increased 9 basis points, reflecting a higher mix of unsecured consumer loans, offset by growth in high yield savings. Average deposits increase 79% year over year, helping support strong growth in our health investment portfolio. The cost of interest bearing deposits increase to 61 basis points from 29 basis points a year earlier, reflecting both their broader increase in market rates as well as our growth in high yield savings balances.
The advantage of having access to stable deposit funding has become even more apparent as interest rates have risen rapidly in a short period of time. We believe that our access to deposit funding is a significant competitive advantage that has enabled us to become more resilient, more profitable, and positions us to continue helping our members improve their financial health.
Credit quality remained good. We can see that on page 16, 30 plus day delinquency rates on our entire servicing portfolio remain below pre COVID levels. As we look at loans held for investment, we’re also seeing better than expected performance. The weighted average FICO score for retained personal loans was 730, reflecting the continued focus on prime credit profile of our borrowers.
As you can see on the chart, the portfolio reflects the maturation and seasoning of the portfolio combined with the expected normalization of the latencies. As you turn to the next page, we’ve highlighted the performance of our Q3 2021 vintage to demonstrate the exceptional performance compared to the industry.
Turning to credit costs for the quarter. The provision for credit losses increased to $71 million from $35 million in the second quarter of 2021. This primarily reflects the cease supervision on $1 billion of retained loans of 89% year over year, and incretion on retain loans from prior quarters.
Now let’s move on to expenses. We saw continued positive operating leverage sequentially with revenue up 14% and expenses up only 10%. I would point out on Slide 14 that highlights the continued improvement in our efficiency ratio. This quarter, we came in at 63% driving another three points of improvement, reflecting revenue growth, increased marketing efficiency and slower growth and fixed expenses. So when you combine our strong revenue growth with our improved operating efficiency, we delivered $47 million in net income, even after excluding the tax benefits in the quarter.
Now turning to balance sheet, our capitals position at 16.7% CET1 at the bank remained strong and we grew consolidated tangible book value by over $300 million year over year, primarily reflecting earnings over the period and the release of the deferred tax asset valuation allowance this quarter. The impact on the tax benefit increased our tangible of book value by $152 million and regulatory capital by approximately 85 million. The timing of the recognition of the deferred tax asset was due to our strong financial performance and forecast for continued profitability with our marketplace model.
The additional capital generated by the release of the DTA allow us provides opportunities for us to strategically deploy capital in the second half of the year. And it wants to remind everyone that our effective rate for the remainder of the year is expected to be in the 10% range, and starting in January, 2023, our effective rate will be normalized to approximately 28%.
Now let’s turn to our outlook for the year. We are maintaining our guidance of revenues of $1.15 billion to $1.25 billion and earnings of $145 million to $165 million, excluding the tax benefit in the second quarter. And we’re also maintaining our originations guidance for the year of $13 billion to $13.5 billion.
In the first half of 2022, we earned $620 million in revenue and $88 million in net income, excluding the tax benefit. We feel great about our outperformance in the first half and our positioned well to navigate the back half. Before I get into the third quarter guide, I want to call out that the second half will be impacted by three things. One, the transition period’s got referenced where marketplace volume will be temporarily moderated to match investor demand during this time of rapid change in interest rates.
We’ve already begun to increase borrow coupons, and we’re doing it in a thoughtful and deliberate fashion to ensure we tightly manage credit performance. Two, you’ll see us continue to prioritize growth in our held for investment portfolio and deploy some of the additional capital from the tax benefit into our high-quality prime held for investment portfolio. Our incremenet revenue and earnings will reflect this investment. However, this investment sets us up for next year and the years ahead. And three, we will continue to actively manage our expense base.
With that as a backdrop, we expect year-over-year revenue growth of 14% to 22% in 3Q or $280 million to $300 million. And we expect net income to be between $30 million and $40 million. So as you can see today, we’re leaning more towards the bank-like part of our model being more conservative on credit and using our low cost deposit funding to grow where net interest income, because we’re already at scale our model has a high percentage of variable costs, giving us operational leverage in multiple environments.
And in closing, we’re managing this business for the long term and have a strong business model that will help us navigate through this uncertain environment.
Scott Sanborn
All right, thanks Tom. Before we turn it over to questions, I did want to share some bittersweet news. As you may have seen together with our earnings announcement today, we shared that our CFO, Tom Casey is planning to retire. Tom has had a long and distinguished career in finance capped by his journey here at LendingClub, overseeing our transformation into the profitable marketplace bank you have in front of you today. And in fact, it’s partly because of the great financial footing we’re on that Tom is comfortable that now is the right time for him to retire.
I’d add that during the six years we’ve been together, Tom has done so much for the company overseeing our return to scale. Built an incredible team, helped oversee our transformation into a marketplace bank with the acquisition of Radius modernized our systems and reporting and helped shape and deliver on the company strategy. So he’s been an exceptional leader, partner, strategist, and cheerleader. So his impact on me and the company can’t be overstated.
The great news is we found a fantastic hire Andrew LaBenne. Hopefully you’ve all seen his background in the press release, suffice it to say he comes extremely highly recommended with fantastic experience. That’s many well respected organizations, and we think he’s got the right combination of experience to lead us in our next chapter. He’s also a great guy, looking forward to introducing all of you to him once he officially takes over on September 1st.
Further note that we plan an extended transition, I’ll have benefit of 2 CFOs, at least Tom in a support capacity as we exit the year. Anything to add, Tom?
Tom Casey
Thanks, Scott. It has truly been an honor to be part of this incredible journey. This last six years, I was drawn to LendingClub by both its mission and its potential. It it’s really been one of the highlights of my career to help a company with so much potential truly coming to its own. We’re better set than arrow to help we’re better set than to help our 4 million and growing member base succeed.
We have also transformed this business financially. LendingClub is 15 years old, but we’re just at the beginning of our most exciting chapter. And, I truly believe that LC is positioned to win as an advocate for consumers looking to find savings and pay less on their debt and also deliver strong returns to our shareholders many, many years to come.
With that let’s open it up for questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] The first question is from the line of Bill Ryan with Seaport Research. Your line is now open.
Bill Ryan
Thanks and good afternoon, and wanted to extend a congrats, Tom, for your retirement. So wanted to go — wanted to talk a little bit about this transition period. You talked about it on the Q1 call. When we spoke in June, you kind of brought it up. How should we expect that to play out? You discussed it in terms of its impact on volume in the second half of the year. But what are some of the aspect, other aspects in the P&L that we might expect? Is it kind of the take rate, maybe a little bit less on the margin on your retained loans? And then secondly, related to that, what is kind of the benchmark that we are looking at in terms of peak rates that investors use as their benchmark for their pricing and loan rates that they are looking for? Thanks.
Tom Casey
Okay. So couple of couple things in there, Bill. Let me kind of break them down. You’re right. We have been talking about this for a while and rates have even moved more than we thought, even just last time we chatted about it. So the Fed is moving quickly. And then basically what we are saying is, as Scott mentioned in prepared remarks that forward curve is moving faster than what we think is prudent to move coupons. So we are being very, very deliberate. There’s a — we’re moving with speed, but we are being very deliberate to make sure that we don’t make credit mistakes along the way.
Having said that, as far as the impact on the rest of the income statement, what you’re starting to see is, the balance sheet and income statement working together. This quarter, we are very encouraged to see our marketing expense go down, because there is a lot of demand and we are able to select among the best borrowers and therefore deliver the best credit we can in this environment.
So you can see that our efficiency is improving, and we would expect that to continue in this type of transitional period. Obviously, we mentioned also we are working on other fixed expenses. We already have delayed some hiring to be reflective of the current environment.
As far as the details, keep in mind that all investors are not the same. We have a number of banks on our platform that are not subject to the same level of market rate changes. Deposit rates have not moved very much at all. And so, they are continuing to buy at similar levels that they were there before. In fact, some have actually increased their order book, as coupons are moving and their ability to get a higher risk adjusted returns.
We don’t have a lot of folks that use the ABS market at all. And so, they’re not dealing with that high cost of liquidity risk that you are seeing others have to deal with. And so, overall though, there is a higher cost of funding, as the Fed is moving, the forward curve has moved in sympathy of that ahead of the Fed moving. And so, each investor’s got a slightly different set of circumstances that you’re dealing with and we’re working closely with them to manage through this transition, but we think it’s transitory. We know that this — that will eventually either slow down or stop and they even someday maybe have to go back down. So there is a strength in the model to be able to work our way through it.
And then finally, I want to highlight what I said in my prepared marks. We also want to continue to grow the balance sheet. So, with slightly lower volumes, you may see our percentage of retention go up, but we want to continue to deploy our capital to grow the future or earnings of the business and continue to increase that recurring revenue stream. We had 41% this quarter. We’d like to see that number continue to grow.
Bill Ryan
And just kind of related to that, when interest rates do kind of hit their peak, what’s kind of the lag, is it two months, three months that you kind of anticipate before it fully catches up a little bit longer than that, just based on your history?
Tom Casey
Well, I don’t think we’ve had history where we’ve moving at 75 basis with each fed move, but I think that clearly there’s a period of time where we will catch up. I think — it’s a little premature to think about exactly when that would happen, but we are prepared for that. That’s not something that will be a shock to us.
Scott Sanborn
And we can talk a little bit about bill where we are today, right? Before today, the prime rate had moved about 150 basis points. Credit cards have already moved 130. So if you look at the average credit card rates, they’ve already absorbed most of that up through today’s fed move. And so as credit cards move, we can move and still provide the exact same value to our consumer, so we were providing before. So that’s…
Tom Casey
And in a fixed rate.
Scott Sanborn
Yeah, into a lower fix rate environment. So that gives you a sense of kind of pretty much all of the major issuers had moved as of today to adjust to the, the prior Fed moves.
Operator
The next question is for the line of David Chiaverini with Wedbush Securities.
David Chiaverini
Starting off with the valuation allowance, the reversal of it, and how that adds to your capital base. How much more capacity does this give you to retain loans? Over the past few quarters, you’ve retained 25%, 27%. Could we see 30% to 35% retained with this additional capital?
Tom Casey
So, I think, a couple things, what’s happened inside the reserve release is that when we came into the acquisition of Radius, we had a very large net operating loss, since that time, we were generating quite a bit of taxable income. And so the net operating loss has actually come down and we’ve actually created more deferred tax timing differences, but still a deferred tax asset.
So with the — with this release, we’re releasing the reserve on the deferred tax assets in total, the deferred tax asset had two pieces, the NOL and the timing difference. And so we do get capital benefit of about $85 million in the quarter. And that will continue to increase as the NOL continues to burn off and it translates into a timing difference. So we feel like we’ve got additional capital available for us.
As far as increasing the percentages, we’ve given a guide of 20 to 25, we think that’s we’ve been able to go above that, but I’ll be really clear. It’s about capital deployment. If we have the capital, we will deploy it. We are also though, are balancing against the profitability. We want to be both a growth company as well as a profitable company. And you can see that we’re very, very happy with the first half. And we’re looking forward to the second half still being profitable.
Now we need the both, we need the earnings and we need the capital to be able to deploy, but we’d make no mistake. We want to continue to increase the percentage of retention that we can in order to increase the amount of recurring revenue we have off the balance sheet. We think that’s a competitive advantage and the faster we can increase that the better. And it’s about trade-offs and managing both the revenue growth, the earnings growth and the balance sheet growth, all those together.
David Chiaverini
Got it. That makes sense. And then shifting to the implied lower originations in the third quarter, it sounds like it’s more of a marketplace demand issue versus a consumer loan demand issue. And if that’s the case of consumer loan demand is still strong, I’m assuming that it will enable you to be more selective with your underwriting and that credit quality could maintain this really strong clip, even if we do head into a recession next year.
Scott Sanborn
Yes. That’s right. We are seeing, and you see it in the results, very strong borrower response rates, very strong borrower take rates. And as I talked about in my prepared remarks, we are leveraging that in addition to moving on coupons as credit cards rates move, we’re also being selective with our credit to get more yield to investors by really kind of top grading the overall base we’re pulling through. And we’re able to do that while still seeing improvements in our efficiency in the marketing. So that is working in our favor.
David Chiaverini
And then the last one for me is just on the deposit growth, which was very strong in the quarter, once again. And you mentioned about the high yield savings product being a key driver there. Can you talk about the outlook and the competitiveness of your rate versus others? And if we can expect to continue to see strong deposit growth here?
Tom Casey
Yes, thanks. So we did have another good quarter deposits were up about $500 million, $600 million. We’ve been running at with quite a bit of cash in the first half of the year, over a billion dollars highlighted a couple things. We did start participating in the high yield saving market where we’re continuing to do that. Even with that higher cost of funding growth we’re still seeing very, very attractive NIM. This quarter actually NIM expanded to 8.7%, and that’s really benefiting from the remix of our consumer loans.
As far as going forward, I don’t think we’ll see the same level of the deposit growth in 3Q. We did prefund some of our deposit expectations for the year in the first half. We also are deemphasizing some of the banking as a service deposits that we announced last year. And so some of that will be coming off in the third quarter. And we had some unique situations with one of our union pension plans that had a large deposits. So expect the same level of growth in 3Q as we saw in 2Q.
We continue to see great opportunity to fund and we’ll continue to see a remix of our deposits going forward, but we feel very good about our position.
Operator
Thank you for your question. The next question is from the line of Michael Perito with KBW. Your line is now open.
Michael Perito
Hey guys. Good afternoon. Thanks for taking my questions. I wanted to start just on the credit outlook. We kind of have this interesting dynamic going on currently, and I’m sure you guys are seeing something similar where you have many of the banks and credit card companies commenting on kind of the good health of the consumer. But you have some of the other, like retailers, like Walmart commenting about seeing some cracks. And I have just kind of a two part question. I guess one, what’s your view kind of the health of your customer today?
And then secondly, you guys have been at this for quite a while with this unsecured personal lending product. I was wondering if you could maybe just remind us of some of your historical perspective in terms of, where your customers kind of rank this credit relative to maybe other costs they might have such as housing or cars or things of that nature, what your experience has been in terms of like credit priority, with your customer base? I know many of which are repeat customers. Some color on those items would be great.
Scott Sanborn
I’ll start. So, core consumer, we are continuing to see as very strong, both the leading and the lagging indicators. Overall delinquency levels, as I mentioned, are well below pre-pandemic and our expectations. And other aspects such as prepayment levels remain elevated, which indicates they still have some cushion. Their bank balances are stable. So we feel quite good about the health of our core customer, again, higher income customer. So they are able to handle a little bit more of the overall inflationary pressure in the market.
Now, we do have the benefit of seeing a broad range of customers, right? And so, while that’s our core customer and represents all that we are holding on the balance sheet, as we have indicated before, about 15% of our issuance is to near prime. And there, overall, we feel good about the performance, but what — if you pick up the magnifying glass and look, where you can see signs of payment stress would be where you would expect lower income, higher risk customers who are feeling it at the gas pump. They’re feeling it at the grocery store. And so that’s why our ability to really make changes to who we are offering loans to right now to kind of select the right part of the base is how we are managing that to drive the returns for investors.
In terms of your question on payment hierarchy, both our data and independent data [TU] did a study within the last couple of years, puts personal loans in the payment hierarchy, right around or slightly above actually credit cards. And so, we do believe we have got a positive select with our customer base in that. They come to us because they are looking to improve their financial condition. And as we have shared in the past, this is something they view and they call themselves members in the club. They do come back over time. And so, they do value the relationship. And so that’s where it falls.
But, the way I just call out for those of you on the call who are familiar with how cards work, it’s hard to compare cards and PL apples-to-apples just because there is different dynamics of portfolio. Just as an example cards about half of the balances are transactors, right? So, when you look at overall portfolio delinquency levels, they look artificially lower because half of the people pay them off every month. But when you actually look at delinquencies on people, carrying a balance are actually higher than person loans. So, we can go into that offline, if that’s interesting for you.
Michael Perito
No, that’s helpful perspective. Certainly it’s an interesting time for the consumer. So, I thank you for, for sharing that. Secondly, I wanted to ask just on the, variable marketing cost. I think historically, at one time or another, you guys have talked about that being in the 1.9% to 2% range of originations, over a period of time, it seems like there’s been a few quarters now where you guys have been running below that. I’m just curious, is there anything to read into that or are you guys seeing better kind of — word of mouth referral and lower and just less need for marketing to drive origination growth? Or is that something that just can jump around, and we’re just in a period here where it’s been a little bit lower on a relative basis?
Tom Casey
Yeah, I think we’ve been running pretty efficiently — really for referral quite some time, but really start to show itself with the bank. I’d say that when we came into the year, we told you we were going to invest in three things, right? Told you we were going to invest in new members growing balance sheet and our tech roadmap. And while we continue to be very, very pleased with our new member growth, what Scott said earlier, the demand and the fact that we’re being very selective is driving efficiency in the marketing. It’s just — that’s the model. So we are benefiting from that, but it gives us a competitive advantage if we wanted to reach for additional growth.
But, we’ve been now sitting at 16, 17 for the last four quarters, we gave the guide of about 192. We knew that we would have some additional deposit marketing, for example. But obviously, we’re pleased — we’re always trying to drive better results, but we think that right now this is feeling like the right level. Maybe we’ll see a little more, but in other parts of the cycle, maybe we’ll see us investing more, but this is best-in-class by far. And so if we want to dial up marketing or dial down marketing depending on the environment, that’s — we think that’s a real competitive advantage for us.
Michael Perito
And then just lastly for me, just on to follow-up on the deposit question and I apologize if I missed this, but do you guys have any kind of new or updated thoughts or stats around kind of customers that are utilizing your deposits? Are you seeing a lot of overlap between many of your lending customers at this time? Or is it still bringing in new faces to the cloud? How are you guys kind of viewing some of the successes you’ve had there as that portfolio has grown?
Tom Casey
Yeah, not much to report there, and I think we’ve shared with you that this is one of the areas that we want to focus on, which is connecting folks that are borrowing from us with their primary checking account. We have been in industrializing the, the acquisition of radius and getting their pipes to be able to handle the scale. And that’s something that we look forward to talking about in the future. But it is something that we think is an opportunity for us to further engage with our members as they all have checking accounts and savings accounts. And we think we can provide them with very attractive services and give them a fair rate on their money. And I think that’s a — that’s up where we’re going.
Scott Sanborn
But the high yield savings we’re getting right now, that’s really open market. Our core customer, we are enthusiastic and have a clear sense of what banking services would be value add to get specifically from LendingClub. But they’re not going to be a big source of deposits, right? They’re — if their individual checking and savings balances are in the single digit thousands. So where we’re going right now for funding is the open market.
Michael Perito
Got it. Great. Scott, Tom. Appreciate it. Helpful. And Tom, I know we haven’t overlapped for long, but good luck and congratulations on your retirement.
Operator
Thank you for your question. The next question is from the line of Giuliano Bologna.
Giuliano Bologna
Thank you. I guess from a first perspective, I’m curious if you’re seeing any changes in buyer demand on the marketplace, and if that’s shifted your buy box in the sense of what you’re taking on your balance sheet, if that’s or if that’s impacted you, what happened this quarter where you kind dialed up attention. And then along the same lines or similar topic, I’m curious if the change in yield I would get it from a balance sheet perspective came down into the — to about 14.2% was based almost a 100 basis points on a personal loan yield. If I looked at the presentation, the coupons down 50 basis points for the portfolio, I’m curious, what’s driving that move, or if there is anything impacted that in the quarter.
Tom Casey
Yes. A couple things. Clearly, the buyer demand is modulating like I said, folks that are not subject to changes in funding have different points of view than others that are more significant…
Scott Sanborn
I’m sorry, Tom, and that plays out kind of on the credit spectrum. Meaning banks credit unions are less sensitive to the rate funding environment than call it an asset manager and so therefore where as we met indicated kind of that bank — the bank paper demand is relatively strong because it’s less influenced by the current environment.
Tom Casey
Yes, that’s right. And I think the other thing that we’re also seeing is that with our ability to generate our own deposits allows us to go to hire quality credit as well. And so you’re seeing that with lowered — lower yields in our consumer portfolio, I mentioned that last quarter, you’re seeing it again this quarter. You’re going to see it again next quarter, because our ability to put on high quality loans in this environment are very attractive risk adjusted returns. So that’s what you’re seeing.
Our ability to support our members, our ability to actually go up in the quality spectrum in this environment is really the result of all the work we’ve done to become the marketplace bank we are today. And that’s a real competitive advantage for us. So our ability to create mix of product for investors that have different yields thresholds that’s part of the real benefit of the marketplace and our full spectrum offering. And we’re working very hard to meet the risk adjusted returns that our investors are seeking.
Giuliano Bologna
That’s very helpful. And on a bit of a different topic, obviously have the detail on balance sheet. There will be some dangers, and I want to make sure I heard you correctly during prepared remarks. It sounds like what you were saying was the tax rates could remain roughly stable versus where it’s been recently until the end of the year. And then it’s going to move higher in 2023. I think you said somewhere in, like, I may have this wrong, 10% to 12% or somewhere in that zip code for the balance of the year, and then jumping up higher. Is that the right way to think about it or I think we…
Tom Casey
I want to be crystal clear for everybody, the effective rate in the second half of 2022 will be approximately 10%. And the result of that deferred tax asset reserve we released will result in the effective rate for 2023, January 1st of 28%. So, that is obviously a big, big increase in our tangible book value, but it does increase our effective rate. Now, I don’t believe we will be paying taxes for quite some time, but the accounting convention will decrease our effective rate.
Giuliano Bologna
That’s uh, perfect. That’s very helpful. I wanted make sure I got that right, because it’s something can move numbers around for a firm amount if you get the tax a little different there. Then when you think about retention, is there kind of an upper boundary in the near-term around the percentage of originations that you’d be willing to retain from a percentage perspective? Or is there any kind of — do you have any sense of like how high you’d be willing to go if volumes came down a bit, or if it’s more, really more capital driven? How much you are willing to retain?
Tom Casey
I think you got to look at the notional dollar. The percentage itself is interesting, but it does vary based upon the seasonality of the individual quarter. This quarter we did $1 billion on $3.6 billion. So just around 26%, 27%. So, we feel like that was obviously just in coincidence, it’s the same number percentage last quarter, but we grew 20%. So, I really would focus on the notional.
And from a notional dollar perspective, that’s going to be driven by the amount of capital, the earnings to be able to handle the provision for CECL, funding levels as well. And so, all those things have to be considered. And we have been giving you I think consistently, we are motivated to hold more loans because they earn more, they earn 3x as much money. So, we see this as a great opportunity in this market to continue to build the balance sheet. Our ability to go to higher quality loans, still get risk adjusted returns that are very attractive, support our member base and position us for predictable, resilient earnings in 2023. We think that’s a pretty good profile for the back half year. You’ll see us continue to do that.
Operator
Thank you for your question. There are currently no further questions registered. [Operator Instructions]
Sameer Gokhale
So while we wait for any additional questions in the queue, we just have a question, one question from a retail investor, who is asking about sort of the comparative environment with companies such as upstart, the pre-announce negative results and then contrasting it with LendingClub results for the second quarter, and why that — it looks like there is a divergence between negative results from some companies and positive results from LendingClub. So, what’s driving that? And can you talk about, what’s going on in the environment comparatively?
Scott Sanborn
So I think I’d just highlight a couple of unique aspects of our business. One is obviously the bank charter, which is both a vertical integration of the model and gives us a whole different income stream and interest income, that’s a big contributor to the results. The second is, our focus is on a prime base, and within the prime base on the marketplace side, as we talked about last quarter, we’ve quite deliberately built up an investor base that we believe will be less sensitive to the rising rate environment. And so, you kind of see that in our Q2 results, the ability to deliver the loan growth.
Now, those are — and the third thing is we’re continuing to see right now very strong credit performance. And so that builds investor confidence, especially at a time where there’s some increasing anxiety about the direction of the economy. So —
Tom Casey
I think those — I think the only thing I would add is the scale with our 4 million members that drives a lot of flywheel on the marketing. Board members pays for members, and allows us to really differentiate on the marketing side. And frankly, our members perform better, so — on a credit side as well. So we are building up that member base, is really have been 15 years in the making and one that we continue to prioritize, focus on that relationship we have with every —
Sameer Gokhale
Well, it seems like we don’t have any more questions in the queue, so thank you all for joining us on today’s earnings call. And if you have any more questions free to reach out to the Investor Relations team. Thank you.
Operator
That concludes the LendingClub second quarter 2022 earnings call. Thank you for your participation. You may now disconnect your lines.
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