Thank you for joining. I would like to welcome you all to the LendingClub Third Quarter 2022 Earnings Conference Call. My name is Britta and I'll be your event specialist operating today's event. After the speakers' remarks, you'll have the opportunity to ask a question. [Operator Instructions]

I would now like to hand the call over to the host of today, Sameer Gokhale, Head of Investor Relations to begin. So, Sameer, please go ahead when you are ready.

Sameer Gokhale - Head of Investor Relations

Thank you and good afternoon. Welcome to LendingClub's third quarter 2022 earnings conference call. Joining me today to talk about our results and recent events are Scott Sanborn, CEO; and Drew LaBenne, 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 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 this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information for future events.

Our remarks also include non-GAAP measures relating to our performance including tangible book value per common share. We believe these non-GAAP measures provide useful supplemental information. You 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.

Scott Sanborn - Chief Executive Officer

Thanks, Sameer. 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 continued 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 and recurring interest income and improved operating efficiency.

Importantly, we continued to grow our held-for-investment portfolio of high-quality prime loans, building a durable future revenue stream that is demonstrating continued strong performance. As I shared on our last two calls, this will be a year of two halves; the first half featuring strong investor loan demand boosting originations and corresponding marketplace revenue on top of our growing net interest income revenue stream; and the back half with more tempered loan volumes and marketplace revenue due to the rapidly changing rate environment temporarily affecting loan investor demand.

With the pace and scale of rate changes now more significant than prior expectations, the anticipated dynamic is more material. 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 requirements. Expectations for the terminal Fed funds rate have gone up another 140 basis points just since July, putting meaningful pressure on funding costs, and therefore, on return requirements.

We do expect to be able to deliver more yield to investors by passing on an increase in rates to borrowers, but we need to do it over time. 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 and the 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, our fixed-rate, closed-end loans continue to be a highly attractive way for consumers to save money.

Our prime members have high incomes 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 our held-for-investment portfolio.

Slide 16 in our prepared materials show that 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 delinquencies 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% of 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'll maintain our disciplined approach to underwriting and pricing, and we'll remain good stewards of credit not reaching for growth or compromising on our standards. We have longstanding 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 in 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 multiproduct 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 a 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 today's 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 indicates. 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 LendingClubbers for their continued dedication and partnership and helping us deliver a solid third quarter. And with that, let me welcome one of our newest LendingClubbers, Drew LaBenne, to his first earnings call. Drew joined us three months ago and officially took over as CFO on September 1st. He brings a wealth of banking experience from Capital One and JPMorgan and is uniquely qualified to help lead LendingClub going forward. He's also just generally a great guy. So over to you, Drew.

Drew LaBenne - Chief Financial Officer

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 LendingClub. I'm 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 investment in our bank is having on our earnings power, 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 a year earlier. Total assets increased 43% year-over-year to $6.8 billion with our held-for-investment loan portfolio of 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 the consolidated net interest margin to 8.3% from 6.3% a year ago. This expansion in net interest margin primarily reflects the increased mix of personal loans, which generate 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. Total non-interest 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 61% from 73% in the third quarter a year earlier, as we benefited from growth in recurring revenue, improved marketing efficiencies, and prudently managing non-marketing expenses.

Although our year-over-year trends reflected strong growth, sequential trends clearly reflected the impact of the higher interest rate environment Scott mentioned earlier. Origination volumes of $3.5 billion were down 8% sequentially, reflecting lower investor demand in 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 impact on marketplace revenue was partially offset by strong growth in net interest income, which increased 6% sequentially, as our routine 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% to 25% range reduced pretax income by approximately $12 million in the third quarter due to upfront CECL provisioning requirements. Our third quarter favorability and marketing efficiency and our tax recovery allowed us to retain loans above our range and still deliver on our financial terms. This is an important tool that we can flex up or down depending on the environment.

Our consolidated net interest margin was 8.3% compared to 8.5% 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 a 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 6.4%, primarily reflecting the continued mix shift in our loan portfolio, allowance accretion on prior loan vintages, and qualitative reserves.

Total non-interest expense decreased a 11% sequentially, reflecting our proactive efforts to prudently manage expenses in the 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 of $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 again in Q4, but we continue to expect a 28% tax rate for 2023. Our capital ratios remained strong with the consolidated CET1 ratio of 18.3% and the Tier 1 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. However, 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 CECL provision.

With that in mind, for the full year, we are tightening our guidance range for revenue and net income. We expect revenue of $1.18 billion to $1.19 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 million to $25 million. When we consider the significant changed environment during the second half of the year, we are pleased that we had anticipated 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.

Scott Sanborn - Chief Executive Officer

Thanks, Drew. So, clearly, the rising rate environment has colored our near-term outlook. But before we turn it over to questions, I just want 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 cut tens of millions in 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 400,000 new borrower members. We've made significant progress on our technology road map, and we've 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, multiproduct, digital-first bank that will deliver an integrated borrowing, spending and savings experience for our members and strong multiyear revenue and earnings growth for our shareholders.

So with that, I will turn it over to take questions.

Question & Answers

Operator

Thank you. [Operator Instructions] And please standby for a moment while we order today's queue. The first question we have on the phone lines comes from David Chiaverini from Wedbush. Please go ahead when you are ready.

David Chiaverini - Wedbush Securities - Analyst

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?

Scott Sanborn - Chief Executive Officer

Hey, and maybe I'll start, David…

David Chiaverini - Wedbush Securities - Analyst

Sure, sure.

Scott Sanborn - Chief Executive Officer

…and then toss it to you Drew. Hey David, actually the bigger driver of the retention in the quarter was the earnings capacity that we had. I think we've - we've given everybody a range that's what we used in our planning of 20% to 25%, but we said look we are intended to be at the top end of that range, if we can afford it and deliver 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 to - to maybe because it's the right - it's the right way to manage the business for the long term. And Drew, do you want to talk about the outlook?

Drew LaBenne - Chief Financial Officer

Yeah, as far as the outlook, every time we are 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, then we'll choose to do that.

David Chiaverini - Wedbush Securities - Analyst

Got it. Thanks. And on the loan yields, it looks like the loan yields were down modestly 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?

Scott Sanborn - Chief Executive Officer

Yeah, so first - so first of all, if we look at total interest-earning assets, we're actually up 30 basis points. I think you're probably looking at the, you know, in particular, the unsecured personal loans, which were down sequentially. There's a few yield and those are down sequentially. So I think there's a few factors going on. The first is we're 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 prepayment speeds, which is impacting yields. And the third is that the remix to the high quality has a different fee structure as those fees amortize and it's a different profile.

Drew LaBenne - Chief Financial Officer

Yeah. And then, yeah…

Scott Sanborn - Chief Executive Officer

Yeah, go ahead, Drew.

Drew LaBenne - Chief Financial Officer

Yeah, I'd say. And then on the funding side, obviously, that the cost of funding or the interest-bearing deposits is up, which is just reflecting the high yield savings that we're putting on the balance sheet.

Scott Sanborn - Chief Executive Officer

And just to - to be clear to understand where 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 moved as of today, roughly 200. So we are - this is proceeding as we had indicated we thought it would, which if the Fed moves, then the cards move and then we move, so you're seeing that play out.

David Chiaverini - Wedbush Securities - Analyst

And in terms of the deposit rates, just following on that NIM conversation, how competitive is the deposit rate outlook and the growth was very strong. I'm 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're retaining.

Drew LaBenne - Chief Financial Officer

Yeah, I think the high yield savings market is - is a very large TAM and I think as much - as much as we are still higher up on the rate tables, we will be able to generate the deposit growth that we need to. We did have another benefit this quarter versus what we expected. There is - there is one set of 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.

David Chiaverini - Wedbush Securities - Analyst

Thanks very much.

Operator

Thank you, David. Your next question comes from the line of Bill Ryan with Seaport Research Partners. Your line is open, Bill.

Bill Ryan - Seaport Research Partners - Analyst

Thanks and good afternoon. And first question, just on the marketing side equation, obviously, you noted it dropped pretty significantly when you measured against loan originations that you said there were certain kind of like implied onetime factors. And 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 correlated with those kind of three factors, if you will, a mix of new versus existing customers, retention of loans on the balance sheet, et cetera. Thanks.

Scott Sanborn - Chief Executive Officer

Yeah, so I'll - I'll just give you the - the context over - we talked about temporary, what Drew just brought up is one of them, we held on to some pretty sizable deposits that we knew were going to be and had to leave the building, we held onto them longer so we saved on deposit costs there. We also had some kind of one-off campaigns and then we have the benefit of retention. I'd say, if you look going forward, we would expect to be back at the same historical range we've guided to and 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 two, invest in new members; and priority three, start building towards our - our multi-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'd say we are on the slightly ahead of target on two 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'll be targeting that same, our plan right now is to the extent we can - we got the capacity to do it. We'll continue to acquire new customers because they've got a pretty strong and pretty immediate payback. So we'd anticipate still being in that 50/50 range in Q4.

Bill Ryan - Seaport Research Partners - Analyst

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 in to incorporate a more adverse scenario, yet, you're putting on higher-quality loans. Could you maybe give us the - break-apart of the provision between the new originations versus the qualitative overlay embedded in the $82.7 million?

Drew LaBenne - Chief Financial Officer

Yeah, good question, Bill. We haven't historically given that breakout. 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, which as you noted that will change based on the mix, the level that will change based on the mix that we put on. And then we have accretion of the back book. So as the back book grows, we're going 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 a number of different inputs. We certainly look at the Moody's data and all the scenarios that we're putting out there. We look at unemployment rate or maybe a little different than others. We also look at unemployment insurance claims as more of the forward 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.

Bill Ryan - Seaport Research Partners - Analyst

Okay, thank you.

Operator

Thank you. We now have Giuliano Bologna from Compass Point. Please go ahead when you are ready.

Giuliano Bologna - Compass Point - Analyst

Hey. I guess, just from a starting point, just going back to a similar topic that just came up. You guys have obviously been moving pricing throughout the third quarter. It looks like the average yield on the retained portfolio came down 10 basis points when looking at the presentation. Is there a general sense of what the newly originated yield looks like on a relative basis and kind of where that - where that is on a relative basis compared to either the aggregate portfolio or what you were originating during 3Q, just to get a sense of where yields might push on the personal loan side during 4Q?

Drew LaBenne - Chief Financial Officer

Yeah, yeah, 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 that - that will have an impact on the yield that we're putting on the balance sheet, so that's one. The second, as Scott said is, we've started to put price - we've started to increase pricing on new PL loans in Q3, we've actually just put in some more pricing increases in Q4. So that will start to come through the yield, if - you know, except for these adjustments I just talked in terms of the profile and 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're seeing in the NIM table, but I think the remix will continue for a bit longer as well and sort of mitigate that impact.

Giuliano Bologna - Compass Point - Analyst

Got it. Got it. And that makes sense. And then thinking about on the provision income side, is there something, roughly speaking, with the provision rate was for higher loans that you're adding this quarter? And how that's moved compared to previous quarters, excluding the step-up on - on the legacy yields - on the loans already on the balance sheet?

Scott Sanborn - Chief Executive Officer

Yeah. So you know, just talking about PL here, so just a reminder on our PL portfolio, everything we're putting on balance sheet is prime and so we have been using - since the pandemic, we've been using a CECL curve or a lifetime loss curve that is based on results pre-pandemic. We are not yet seeing - we're not yet at levels post-pandemic that match pre-pandemic levels, so we're actually holding a bit more in reserves. We adjusted for the risk profile, so net-net, we're still provisioning at the same rate on the base CECL reserve for day one for the portfolio we're putting on. The - the changes you're seeing are the other factors. The mix that we're putting on the back book accretion and the qualitative. Does that make - does that sense?

Giuliano Bologna - Compass Point - Analyst

That does. And in my initial modeling, I think that - what I've been trying to work out in some ways is - what's working in some ways there are obviously multiple drivers, volumes could be coming down, and retention fee going up, yeah, provisioning moving around into next quarter. Is there a general sense when you think about [indecipherable] sense, I'm assuming that should be pretty muted on a relative basis given the fact there's less competition out there at the moment. Is that a good assumption as to the general mix, you know, probably, your marketing expenses as a percentage of volume might be similar to where you were in the third quarter?

Drew LaBenne - Chief Financial Officer

Well, now, marketing expense - marketing expense as a percent of volume, we had a very nice quarter in Q3. We're going move back up to where we look for. So that, again, those are the factors that Scott talked about, so there's a little bit of seasonality we had, lower deposit marketing because of the slower run-off than expected and we just had some higher performance on a few marketing efforts that we don't expect to repeat. So I would look back at the ratio historically, and apply that going forward.

Scott Sanborn - Chief Executive Officer

And I guess to your point, there was a kind of a bit of a sudden pull back early on in the third quarter in competition that that's, you know, that's resumed, let's say, our - from what we can see overall the market has pulled back. LendingClub is more than holding its own and share market likely went up in the third quarter, we don't know that for sure because the data doesn't come out for a while, but - but we don't expect competition. Remember the FinTech competitive set is a little bit of an originator dye, right. They do not have half of their revenue coming up of the 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.

Giuliano Bologna - Compass Point - Analyst

That's right. Thank you for answering my questions. And I'll come back in the queue.

Operator

Your next question comes from Michael Perito with KBW. Please go ahead when you are ready.

Michael Perito - KBW - Analyst

Hey. Good afternoon, guys. Thanks for taking my questions.

Drew LaBenne - Chief Financial Officer

Hey, Michael.

Michael Perito - KBW - Analyst

And I 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 looking at the guidance, it seems like, ballpark, you guys are kind of implying an origination figure next quarter and maybe like the $2.5 billion, maybe slightly higher billion range, and so I'm just curious, you know, even if that number is not exactly right, and you guys don't want to comment, just that step down sequentially, I mean you kind of alluded to, it sounds like it's more, you guys maybe pulling back a little on credit than - than anything kind of market slow or market driven. I just want to confirm or just get a little bit more color there?

Drew LaBenne - Chief Financial Officer

Yeah. So if you recall when we kicked off the year we gave an originations guidance. 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 1 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 we - 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 there is - there is no benefit to us in selling loans below a certain threshold, right. 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 credit. The credit stuff is really as we talked about pretty [Technical Difficulties] really pockets outside of the prime book.

Michael Perito - KBW - Analyst

Got it. Thanks for clarifying. That makes sense. And then kind of dovetailing off that if we think about the net interest margin given the current kind of consensus rate forecast that's - that's out there, I mean, is it - is it fair to think that there's probably some more pressure near term just as some of those asset repricing and deposit beta dynamics play out, and then hopefully, some stabilization when the 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?

Drew LaBenne - Chief Financial Officer

I think you nailed it, that's exactly what I would have said, deposits move first, repricing takes some time, and as the yield curve flattens, the Fed finishes their - their hikes, then we should get to a more normal environment, where - where we get the pricing lined up between the assets and the liabilities.

Michael Perito - KBW - Analyst

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 higher FICO stuff on the balance sheet, I imagine from a bottom line profitability standpoint that - that looks better because the credit costs are lower, but the NIM on those incrementally might be a little lower, I mean you like high 7% range. Do you think you could keep it above 8%? Just any general thoughts that you're willing to share at this time or is it just kind of too many variables?

Drew LaBenne - Chief Financial Officer

Yeah, I think there's a lot of - I think there's a lot of variables. And I think in the near term there's going to be some pressure downwards, and let's call it, just the next quarter for now. And I think longer term, let's wait till we're talking about 2023 before - before we give that. I think the other thing worth noting is obviously as we're growing our deposit base at a healthy clip here and we're on the market with high rates to do that. There's obviously a little growth math in those deposit costs as well that we're absorbing through the NIM.

Michael Perito - KBW - Analyst

Got it. Perfect. And then just - just lastly and to - an unfair question, Scott, but I'm going to try it anyway, just 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's consensus forecast is accurate, and in which case unemployment is up, but marginally the Fed stabilizes in the 4.5% 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 block it 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 is close to accurate that there should be room for you guys to do a pretty healthy origination business next year?

Scott Sanborn - Chief Executive Officer

Well, obviously, I'll start with that direct debt, yet, too early to give you the answer. We'll obviously be back in January with an outlook for the year, but if, you know, as a - as a broad statement, we said this year was going to be a year of two halves, based on all the current outlooks and expectations, Moody's, Fed, all the rest, next year will be a year of two halves in the opposite direction, right. First half will be - continue at the elevated rate environment and back half as we mentioned, we're going to - credit card rates are at a record high, 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 in a very compelling offer and the investor dynamics, with the rate - 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 it, if, if, if - that's right, so we have to just - more data to watch and more to see around what the Fed does than where rates go and how the job market is holding very, very strong, so it's great, but we have to see where it all goes before we can really determine the exact timing of that rebound.

Michael Perito - KBW - Analyst

It makes sense. And I appreciate all the color, guys. Thank you for taking my questions.

Scott Sanborn - Chief Executive Officer

Thank you.

Operator

Thank you. We now have Vincent Caintic of Stephens. Please go ahead when you're ready.

Vincent Caintic - Stephens - Analyst

Hey, thanks for taking my questions. First one just to drill down on the net interest margin discussion again. And if you could maybe talk about the, sort of understanding the unsecured consumer loan yields went up because you - your mix shifted to higher-quality loans. Just wanted to get a sense of your appetite for going further - further into higher-quality loans, moving further up market and what could that imply for yield? And then if I think about the funding cost side of that NIM discussion, you have healthy deposit platform. Are there other forms of funding that maybe might also make sense to consider as part of the bank funding structure as your held for investment is growing?

Scott Sanborn - Chief Executive Officer

Yeah. So first of all, I think in terms of the - the mix in terms of higher-quality borrowers, we've been on that journey for several quarters now. So that leading into the portfolio causes some pressure on NIM, but it's not a change - but I don't want to imply there is a change in us even going further up market 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 a - we also have a portfolio of commercial deposits. There are different avenues where we can go out and also raise deposit funding. It's probably not as flexible or as rapid, but - but it's there 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 be rate effective from time-to-time, brokered CDs, FHLB borrowings, et cetera. We really haven't tapped those in any heavy way. They're just available liquidity as needed for us to tap it.

Vincent Caintic - Stephens - Analyst

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 if the Fed's raising 300 basis points and card is raising in the rate of 215 basis points, are we able to price in 200s, right now. I guess, in terms of the marketplace and those marketplace investors, how do they - how quickly do they react and how - what are the discussions you're having in terms of - they have appetite, but they - they want to wait until rates start moving or just kind of any help you can have on the sensitivity and maybe when that - that would pick up again? Thank you.

Drew LaBenne - Chief Financial Officer

Yeah, yeah, so I'll go back to coming into this, we feel like we've set ourselves up with the right mix of investors who would be less exposed to that, there is a - as we talked about last time, there's a range of set, let's call it, vulnerability or sensitivity to the rising rate environment and we've tried to position our investor mix to be less sensitive. That's one of the drivers of the fact that our volume on - 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 - on a relative basis. And the conversation with investors, as we've talked about, these - the people we work with are - these aren't trades, right, these are long-term relationships. They are in this space. They have - if you're a bank, they set their capital allocations at the beginning of the year, and so these are - these are pretty durable relationships. So there's not so much to wait and see so much as the relative appetite, depending on the yield profile, it can go up or down.

And then keep in mind that they're 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 and let's say when we came into the year because they are less sensitive, funding costs are going up for banks too. And so - so it's really - the conversation is around what is the targeted yield. We try to - yeah, 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 the event, we can't, that's when somebody might need to go away, but having low-cost investors who are relatively less sensitive to this are continuing to navigate.

Vincent Caintic - Stephens - Analyst

Okay, great. That's very helpful. Thank you.

Operator

Thank you. I would like turn the call back over to Sameer for the online questions.

Sameer Gokhale - Head of Investor Relations

Great. Thank you. We do have a question from a retail investor, which is, with the recent market volatility has LendingClub been able to capitalize on opportunities in the market such as buying back loans from distressed sellers?

Drew LaBenne - Chief Financial Officer

So the short answer is no, there - but the slightly longer answer is we are big believers in the quality of LendingClub's paper and we are the largest holder of LendingClub loans and if there were clients who had liquidity issues we are - would certainly be open and willing to - to take a look at that and support them and increase the balance sheet.

Sameer Gokhale - Head of Investor Relations

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 team. Thank you.

Operator

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LENDINGCLUB CORP

Q3 2022

Earnings Transcript

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