Q2 2023 LendingClub Corp Earnings Call
Participants
Andrew LaBenne; CFO; LendingClub Corporation
Artem Nalivayko
Scott C. Sanborn; CEO & Director; LendingClub Corporation
Alexander Villalobos
Giuliano Jude Anderes Bologna; Research Analyst; Compass Point Research & Trading, LLC, Research Division
Reginald Lawrence Smith; Computer Services & IT Consulting Analyst; JPMorgan Chase & Co, Research Division
Timothy Jeffrey Switzer; Research Analyst; Keefe, Bruyette, & Woods, Inc., Research Division
William Haraway Ryan; Senior Analyst; Seaport Research Partners
Presentation
Operator
Hello, everyone. Thank you for attending today's LendingClub second quarter earnings conference call. My name is Sierra, and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers around the end. (Operator Instructions) I would now like to pass the conference over to Artem Nalivayko, Vice President of Finance with LendingClub. Please proceed.
Artem Nalivayko
Thank you, and good afternoon. Welcome to LendingClub's Second Quarter 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 the questions from analysts, we will also be answering some of the questions that were submitted for consideration via e-mail. Our remarks today will include forward-looking statements that are based on our current expectations and forecasts and involve risks and uncertainties. These statements include, but are not limited to, our competitive advantages and strategy, macroeconomic conditions and outlook, platform volume, future products and services, and future business, loan, 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 or future events.
Our remarks today also include non-GAAP measures relating to our performance, including tangible book value per common share and pre-provision net revenue. 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 C. Sanborn
All right. Thanks, Artem. Welcome, everyone. We delivered solid results in the quarter, thanks to disciplined execution and by continuing to leverage the strategic advantages of our marketplace bank model. The quarter's $2 billion in originations was in line with our guidance, reflecting planned lower balance sheet retention.
Total revenue was $232 million, and pre-provision net revenue, which is revenue less noninterest expenses, was $81 million, which was exceeding the high end of our guidance range and made possible by continued marketing and operating expense efficiency. As a result, we delivered our ninth straight quarter of profitability.
Now let me provide some context on the current operating dynamic. The bank portion of our business is demonstrating its resilience, with net interest income stable quarter-over-quarter. However, we are facing what we believe to be temporary headwinds in the marketplace, which is resulting in pressure on our outlook for noninterest income.
First, as we signaled last quarter and as is evidenced in regional bank earnings reported thus far, banks are currently moving to the sidelines as they address their capital and liquidity concerns. And their pullback will have an impact on our near-term origination volume. And while we continue to have productive discussions with our bank partners and though the appeal of our high-yield short-duration asset is more clear now than ever, the bank's capacity to invest is for now likely to remain restricted.
And second, to strengthen their capital position, banks are selling loan portfolios at deep discounts. That's adding significant supply to a market that's already saturated with investment options. On the positive side, asset managers are raising capital, and they are stepping in to buy. However, they're seeking higher yields to offset their higher cost of capital, and this is putting pressure on loan sales pricing. We don't believe that this market dynamic is sustainable, and in the meantime, we're leaning into our bank advantages to create new profitable structures to support marketplace volumes.
I mentioned our structured loan certificate program last quarter, which is essentially a 2-tier private securitization in which LendingClub retains the senior note and sells the residual certificate on a pool of loans to a marketplace buyer at a predetermined price. This effectively provides low-friction, low-cost financing for the buyer. And in exchange, LendingClub earns an attractive yield with remote credit risk and without upfront CECL provisioning. As a bank, this is something we are uniquely positioned to deliver for our marketplace investors. We've had good initial reception to the program, and we have a solid pipeline of forward interest.
Another advantage of our bank is our ability to hold and season loans for investors, earning interest income for LendingClub, while increasing the certainty around future credit performance for the buyer, which is especially important in this environment. We recently sold $200 million of seasoned loans at a gain, and we are receiving interest from investors to broaden the program. I should also note that to deliver the returns required by loan investors in this rate environment, we are continuing to raise coupons. We've now priced in the majority of the Fed rate increases for near-prime originations where we generally compete with nonbank lenders. A pricing on our prime portfolio where we generally compete with banks is now up roughly 265 basis points. We're being deliberate and disciplined here to avoid adverse selection, and we're continuing to test our way up on pricing.
Now let's turn to credit, where our data advantage from over $85 billion in loans, our flexible infrastructure, and our seasoned team has enabled us to continue delivering losses below the competition. And while we're pleased with our credit outperformance and the strong returns we're generating in our held-for-investment portfolio, delinquencies are modestly above our expectations on vintages booked before the prolonged inflation fully manifested and before we evolved our underwriting strategies and models. The actions we have taken since then have resulted in consistent credit performance, and we'll continue to read the signals and adapt to maintain strong credit for loan investors and for ourselves.
Looking ahead, federal student loan payments are set to resume this fall after a multiyear hiatus. And while we're carefully preparing ourselves and our members for this new financial reality, we currently believe that any impact to the portfolio will be muted. And that's given a 12-month on-ramp period the government is providing, the many reduced payment options available, proactive credit actions we've taken to reduce exposure to what we believe are the higher risk segments of this population. Even so, we are taking additional steps to make sure our members stay on track, and that includes educational outreach to ensure that student loan debtors understand the size and timing of coming payments, they're aware of the reduced payment options available to them from the government, and if needed, of custom hardship plans on their LendingClub loan if they need to bridge a gap.
As we demonstrated during COVID, a high-touch proactive approach to helping our members can result in lower delinquency rates and increased loyalty.
Our long-term ambition remains growing our member base and surrounding them with products and services to help them keep more of what they earn and earn more on what they save. We have continued to innovate. And starting over the next 6 months, we plan to test and launch an integrated mobile app that combines lending, spending and savings into a single experience, a debt monitoring and management tools fully integrated into this mobile experience, allowing members to easily view their debts and prioritize and optimize their payments to reduce cost, and a preapproved installment line of credit that allows existing members to seamlessly sweep any new credit balances into a loan at a fixed rate. Importantly, this last feature will be built on a new revolving platform that will be able to eventually support additional new products.
As I said earlier, the environment will continue to challenge our ability to drive meaningful growth for at least the remainder of 2023, but we do believe this period is temporary resulting from a confluence of macro events that won't persist over the long term. And we remain prepared to accelerate when the environment stabilizes and we see the following. The Fed stops raising interest rates and ideally begins to lower them. Banks have repositioned their capital and liquidity levels, enabling their return to the marketplace. And/or the current oversupply of investment options has subsided. As the partner of choice in this asset class, we expect to be a primary beneficiary of a return to more normal market conditions and we believe that we are well positioned to capture historic opportunity to refinance record high credit card balances at record high rates. Until that happens, we're leveraging the benefits of our Marketplace Bank business model to maintain near-term profitability, bolster our long-term resiliency, and create a more differentiated member experience.
As always, I want to thank the LendingClub employees for their continued hard work and commitment to building towards our bigger future. And with that, I'll turn it over to you, Drew.
Andrew LaBenne
Thanks, Scott, and hello, everyone. Let me walk you through the details of the results. I'll start with originations in the second quarter. Originations were $2 billion compared to $2.3 billion in the prior quarter and $3.8 billion in the second quarter of 2022. Of the $2 billion in originations, Marketplace sold loans were $1.4 billion, up $67 million compared to the previous quarter. As Scott mentioned, we've had early success in facilitating Marketplace sales through the structured certificates. We issued approximately $180 million in the quarter, which helped drive growth in Marketplace sales.
Loan retention came back within our expected 30% to 40% range to $657 million, down from $1 billion in the first quarter as we normalized retention levels in line with our available earnings.
Now let's move on to pre-provision net revenue or PPNR. PPNR was $81 million for the quarter compared to $88 million in the prior quarter and $121 million in the second quarter of 2022. The outperformance compared to our guidance was driven by a $3 million revenue gain from a pending portfolio sale that was completed in early July and a $6 million sequential improvement in expenses, primarily due to our previous streamlining of operations as well as proactive expense management in marketing and other areas.
As Scott mentioned, we are seeing increasing investor demand for personal loans that have been seasoned, and we are originating a portfolio of approximately $250 million in loans for this purpose in the third quarter. These loans will come on the books at fair value with a discount that approximates our observed whole loan sale prices.
Total revenue for the quarter was $232 million compared to $246 million in the prior quarter and $330 million in the same quarter of the prior year. Let's dig into the 2 components of our revenue. You can find revenue detail starting on Page 9 of our earnings presentation.
First, net interest income was $147 million, flat sequentially and up 26% over the prior year. Our net interest margin was 7.1% compared to 7.5% in the prior quarter and 8.5% in the prior year. The change was primarily due to higher average cash balances as well as increased cost of interest-bearing deposits, which was partially offset by a higher yield on unsecured consumer loans.
Marketplace revenue was $83 million in the quarter compared to $96 million in the prior quarter and $206 million in the same quarter of the prior year. The change in marketplace revenue was primarily due to lower loan pricing as well as a nonrecurring $9 million benefit in the first quarter.
Now please turn to Page 13 of our earnings presentation, where I'll discuss expenses. Noninterest expense of $151 million in the quarter compared favorably to $157 million in the prior quarter and $209 million in the same quarter last year. The sequential reduction was primarily due to lower variable expenses in marketing and operations. Comp and benefits also improved as a result of slowing our pace of hiring across the company. Our expense run rate fully reflects the $30 million annual cost savings target we had communicated at the beginning of the year and which we are on track to exceed.
Now let's turn to provision. Provision for credit losses was $67 million for the quarter compared to $71 million in both the prior quarter and the second quarter of 2022. The sequential decrease was primarily the result of lower day 1 CECL due to fewer loans retained in the quarter, partially offset by more accretion on a larger back book of loans and an increase in reserves on the 2021 and 2022 vintage.
As you will see on Page 15 of our earnings presentation, we have modestly increased our range of estimates for the expected net lifetime loss rates on the 2021 and 2022 vintage, which reflects the impacts of inflationary pressure on borrowers. While it's still early to judge the ultimate performance of the 2023 vintage, our initial observations are that it is now showing stable performance, benefiting from the tightened underwriting we've implemented over the last several quarters.
On Page 16, we have updated our marginal return on equity of personal loans to a range of 25% to 30% to reflect the lower net interest margin due to higher funding costs and higher quality mix. In addition, we thought it would be helpful to share the marginal returns on our structured certificates, which generate a marginal ROE of approximately 20% when using our current balance sheet leverage. It is also important to note that the risk weighting on these securities is 20%, which means that these returns are even more attractive on a risk-adjusted basis.
Now let's move to taxes. Taxes in the quarter were $4.7 million or 32% of pretax income. As I mentioned in the last quarter, we will have some variability in the effective rate from quarter-to-quarter. Our effective tax rate is 27% year-to-date, and we continue to expect that to be in line with our long-term tax rate.
Now let me touch on the balance sheet. A few things to note here. Total assets were $8.3 billion for the quarter compared to $8.8 billion at the end of the previous quarter. The decrease was primarily due to lower cash balances as a result of the planned maturity of broker deposits. Our securities portfolio grew to $524 million in the quarter. The increase of $143 million primarily reflects growth in our structured certificate program. As I mentioned earlier, we retained the senior tranche of the security and hold it on our balance sheet. In addition to the senior tranche, we also hold a 5% whole loan security as required by Dodd-Frank. You will see the securities portfolio continuing to grow as the program scales.
Loans held for sale at fair value were $250 million at the end of the quarter as we moved approximately $200 million in held for investment loans into held for sale for the transaction that was completed in early July, which I spoke to earlier. As I mentioned, we are seeing increased demand for these types of seasoned loans. We are planning on growing this program and completing more transactions in the future.
Our consolidated capital levels remained strong with 12.4% Tier 1 leverage and 16.1% CET1. Our available liquidity remains healthy with $1.2 billion of cash on hand and 85% of our deposits are insured. Additionally, we continue to maintain substantial amounts of unused borrowing capacity at both the Federal Home Loan Bank and Federal Reserve Bank, with a total of approximately $4 billion at June 30.
Now let's move to our guidance for the third quarter. As Scott mentioned, we expect bank demand to be constricted with marketplace volume going primarily to asset managers at lower prices. This is informing our outlook. For the third quarter, we expect originations between $1.4 billion and $1.7 billion, and we expect PPNR to range from $40 million to $50 million, which includes up to $10 million of onetime benefit related to recouping volume-based purchase incentives from the bank investor channel. It is our objective to remain profitable for the quarter on a GAAP basis by continuing to execute with discipline on expenses and reducing our held for investment loan retention.
Our guidance for the quarter assumes 30% to 40% balance sheet retention, which includes both held for investment and held for sale originations. Putting it all together, we are planning to maintain the size of our balance sheet in the third quarter through a combination of held for investment whole loans, growing the structured certificates program, and held for sale extended seasoning. Held for investment loans will reflect the upfront CECL provisioning of structured certificates and held-for-sale loans will be under fair value account. We continue to diversify our balance sheet through these new structures and programs, which will enable us to earn attractive recurring revenue via interest income while also helping to facilitate Marketplace sales.
We believe that a recovery in the marketplace will take longer than initially expected given the continued pressure on banks and aggressively priced secondary loan sales. While we're not giving fourth quarter guidance at this time, we expect these pressures to continue at least for the remainder of the year. But regardless of the market conditions, we have a resilient business, and we will remain focused on profitability versus growth.
As we look further ahead, there is a massive opportunity in front of us. We are well positioned to accelerate quickly as conditions improve. And in the meantime, we will continue to execute with discipline, innovate on our offerings, and leverage our strategic advantages as a bank to evolve the marketplace. With that, we'll open it up for Q&A.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from Bill Ryan with Seaport Research Partners.
William Haraway Ryan
First question is just on your origination volume. I mean kind of looking at it, you were within guidance this last quarter. And looking at it year-over-year, it just seems like you're either tightening up on credit again right now because the volume range that you're giving relative to a year ago looks like it's going to be a little bit softer on a year-over-year comp basis. Or are you just kind of originating based on what you see the investor demand is right now and then what you can put on the balance sheet?
Scott C. Sanborn
Hey Bill, this is Scott. Yes, it's really the latter, which is basically with the impact of bank purchases, as we mentioned in the prepared remarks, it's really we're originating for the available investor demand economics that we find acceptable. It's not a credit story. We are, of course, continuing as always to manage credit, but origination volumes really targeted to demand at the prices that we're willing to take.
William Haraway Ryan
Okay. And a follow-up question just on the NIM --
Scott C. Sanborn
Sorry, Bill -- just stating the obvious, the TAM right now is enormous. I mean, we touched on it in the remarks, but credit card interest rates have moved up yet again. They're currently at 20.7%, which is the highest they've ever been, and there's over $1 trillion in assets there. We are -- this is not about borrower demand.
William Haraway Ryan
Okay. And just a follow-up on the NIM outlook. You guided last quarter that it would be down, talking about the structured certificates, a buildup of liquidity on the balance sheet. Sort of looking forward, are we getting close to a bottom here, or do you see potentially a little bit further margin compression from here?
Andrew LaBenne
Bill, it's Drew. First of all, exactly correct on the decrease from Q1 in NIM from Q1 to Q2. About half of that decrease was the buildup in cash. Going forward, we'll continue to have I think more modest pressure on NIM downward for a quarter or 2. But I would say it does depend on if the Fed does anything else in the future and kind of the competitive nature of the deposit market and if that evolves in any way. But I think we're -- if those 2 things remain stable, then I think we're close to the bottom on NIM, a little bit further to go.
Operator
Our next question comes from Reggie Smith with JPMorgan.
Reginald Lawrence Smith
I guess a follow-up to Bill's question earlier. It sounds like, like you said, the volume or rather the demand for loans is still high. And just kind of looking across the landscape, it feels as though most personal loan issuers are kind of pulling back now. And so my question is, with that dynamic, why aren't you able, or maybe you are, able to charge more either APR or origination fee? Like what's the sensitivity? Because it would seem that with a smaller origination basis, you could probably squeeze some pricing out. What am I missing there?
Scott C. Sanborn
Yes. Hey, Reggie. We tried to touch on this. It really depends on what segment of the market you're talking about. In let's call it the near prime portion of the portfolio where the competition is nonbank lenders, that includes fintechs but also specialty finance companies whose cost of funds is moving in lockstep with the forward curve, we are able to pass the price on. And indeed, we've done that already. The pricing on our near prime portfolio that we're -- we don't hold that, but the stuff we're issuing is actually pretty close to the amount that the Fed has already moved. But in the prime space, we've moved up credit quality given the environment we're in and given the outlook. We've moved most of our origination upmarket, both for what we hold, but also what we sell, because that's where the investor interest is highest right now. There we're competing with banks, right? You can think about our ability to move price corresponding somewhat to bank betas on their deposit, right? Banks are moving as they're realizing their own cost of funding going up. That lags, right? Pricing, we're always in the market testing in a variety of price points. But we are monitoring that through the door of population to make sure we understand what we're getting and that the population is stable. We are moving as we can. As we see take rates stabilized at higher price points and populations stabilize, we move. But because we're competing with banks there, that's just at a different rate.
Reginald Lawrence Smith
Got it. Okay. I understand. I understand. If I could sneak one more -- one more question in -- did you guys suggest or indicate that the decline in kind of marketplace yield -- I think you said it was a $9 million nonrecurring benefit in the first quarter. Does that explain most of that tick down in your marketplace revenues as a percentage of marketplace volume?
Scott C. Sanborn
Well, I'll let Drew answer the specific on the $9 million, but while he's getting his head around that, I'd say broadly, as you're thinking about the marketplace over the course of the last year, what we're seeing pressure on is loan pricing. The driver of that is cost of funding. In this environment, especially the asset managers, their cost of funding is going up on the forward curve, so where the Fed is expected to go. That is putting pressure on their cost of funding. That puts pressure on their yield requirements, which gets reflected in the marketplace price. What we're seeing, what we mentioned that we think is temporary but we are seeing right now is, in addition to that kind of relative need for higher yield to offset higher cost of funding, there's also just a glut of paper in the market right now. I mean I'm sure you're seeing the same stuff we are, which is we've got one of our former competitors shopping a $4.5 billion portfolio of loans. You've got the portfolios coming off of the failed institutions from earlier this year that are in the market. And then you've got any number of regional banks that are trying to clean up their balance sheet, so their solar loans, RV loans, auto loan portfolios, all in the market. So not all in our space, but asset managers have got a lot to choose from right now. And yet good news, capital is forming and is rising to the need. But I'd say bad news, at least temporarily, with this amount of supply, there's further pressure on price. That was partially reflected in Q2. And in our outlook for Q3, we're expecting that pressure to actually continue and in fact increase, because the bank buyers with the lower cost of capital are able to pay a higher price than the asset managers. The bank buyers are constricted, so at least some of that volume is being swapped with kind of lower priced buyers, if you will. But that was the general question. I don't know, Drew, have you got a --
Andrew LaBenne
Yes, I forget what Reggie was asking. No, I'm just kidding. In terms of the decline in Marketplace revenue, Reggie, Q1 to Q2. The $9 million is part of the answer. And as a reminder, that was because of slower prepayments that we are seeing in the portfolio causing an upward valuation in the servicing asset. That was the primary reason for that. But on top of that, we're getting lower pricing on loan sales, so that's the other impact in marketplace revenue this quarter. And as we indicated from the comments, we expect that pricing pressure will increase as we get into Q3, which is included in our guidance.
Reginald Lawrence Smith
Got it. And I guess it's -- you kind of alluded to it in your presentation, but even with that, I guess your pre-provision profit estimate for the quarter, next quarter, you still expect to remain GAAP, at least GAAP neutral from an earnings perspective?
Andrew LaBenne
Yes. Yes, we're targeting being profitable on a GAAP basis for Q3.
Operator
Our next question comes from Alexander Villalobos with Jefferies.
Alexander Villalobos
Just wanted to get a little more sense on the credit side. Saw net charge-offs at 4.4%. Just give us kind of like prospects for the next few quarters. And also, the ALLL. ALLL was at 6.4%. Like are you guys thinking it might tick up a little bit and then stick around that range? Or just to get a sense of how we should think about that. Thank you.
Scott C. Sanborn
Yes. Just let me start off again by just reminding everyone how CECL works. With CECL, for us, we are reserving for the discounted lifetime losses day 1. As we're seeing the charge-off rate go up, we've already anticipated that in terms of the reserve in the ACL that we've taken on balance sheet through provisions up to that point. And then the way that the personal loan product works as a closed-end amortizing product is, over the life of each vintage, as principle is going down, we will see the charge-off rate go up. Part of the phenomenon or part of what we're seeing right now with charge-offs increasing is just the average age of the portfolio increasing as, one, as the '21 and '22 vintages are obviously aging. But on top of that, as we're slowing down originations in the '23 vintage, the average age of that portfolio is going to get even older in subsequent quarters. Wouldn't expect that charge-off rate to keep going up, but we factor that into our provisioning in our ACL.
Alexander Villalobos
Perfect. Again, normalization, everyone is going through that. Totally understand. And then I saw you guys did really well on the OpEx side controlling expenses. Just also wanted to get a sense if we should kind of think about the same level of OpEx for the next few quarters, just to get a sense on the expense side as well. Thanks.
Scott C. Sanborn
Yes, sure. Probably the main expense that you could expect to move next quarter is marketing just because that's a variable expense tied to originations. It does depend how much we put on balance sheet versus sell, but there should be a little bit of a benefit there. And then other operating expenses, there might be a little bit of benefit, but we've now realized most of the run rate benefit from the actions we took at the beginning of Q1.
Operator
Our next question comes from Guiliano Bologna with Compass Point.
Giuliano Jude Anderes Bologna
I'd be curious, going back to the structure for a second, just in the near term, it's probably somewhat NIM dilutive because you're getting a lower yield on those. And obviously, as you can kind of lever them up, they'll have a benefit. But I'm curious if you have a sense of how much of the balance sheet you'd like to pivot into those structured certificates over time and how fast that could happen.
Scott C. Sanborn
Yes. I don't think we have a target yet that we want to put out there, but let me say a few things about the program. I think I mentioned in the prepared remarks, we did $180 million this quarter with our first buyer. We are -- we have several other -- we have a lot of interest, and we have several other buyers that are very close. I think in the next quarter, that volume will increase and we'll have multiple buyers is our expectation. We will use more of the balance sheet for this product going forward. We're obviously conscious that it creates some NIM dilution. But I think over time, as we think about our targets for capital, this obviously gives us some latitude to maneuver given the lower risk weight and the risk remote nature of the security.
Giuliano Jude Anderes Bologna
That makes sense. And then just thinking about funding costs, it looks like high-end savings pricing came up 25 or 20 basis points in the last couple of weeks. Do you think that's a good trajectory for where at least the savings in CDs will go in 3Q? Or should we be anticipating more being obviously with some rate hikes rolling through into the portfolio?
Scott C. Sanborn
Yes. Listen, it's a little hard to predict. We have -- given that our balance sheet growth slowed or actually slightly decreased in Q2, and we're planning on being roughly flat for the rest of the year, at least that's our current outlook, we don't need to be as aggressive on deposit pricing in terms of where we sit in the tables. It doesn't mean we can be uncompetitive either though. We will need to stay somewhat competitive to keep what we have and show a small amount of growth. But I think we're easing -- we're moving down a bit in the rate tables being a little less aggressive on price, and hopefully that can translate into -- it already has translated into somewhat slower deposit pricing recently. Hopefully, that can continue.
Giuliano Jude Anderes Bologna
That's very helpful. And this might be jumping a little bit too far ahead into the future, but thinking about the structured loan certificates, do you have any sense of -- or there was some discussion last quarter about being able to sell those, maybe recognize some gains on account of the risk retention piece. Do you think -- I'd be curious what you need to see happen before you start going down that trajectory. Or would it have to be growing the balance sheet some more from here? If there is a way to make the balance sheet more efficient?
Scott C. Sanborn
Yes, sorry, so you mean selling the A-note portion that we're holding on the balance sheet right now?
Giuliano Jude Anderes Bologna
That's right.
Scott C. Sanborn
Yes. Listen, I think that's definitely an option for the future. The rate environment does impact, I think would impact the price if we were actually out there selling them right now. If the Fed is near done, then the new vintages we put on, it may make sense to sell those and free up space to do more volume on balance sheet. We'll evaluate that when it happens, or if when it happens. But we aren't actively engaging in that yet, but I think we'll have a lot of flexibility how to manage that in the future.
Operator
Our next question comes from Tim Switzer with KBW.
Timothy Jeffrey Switzer
I'm on for Mike Perito. My first one, I have one real quick on you guys have mentioned about the pricing pressure from shifting from the bank purchasers to the asset managers. And it looks like the gain on sale margin in the marketplace went from about 5.5% to 5.2%, which is kind of the low that you've reported historically. Can you help us kind of quantify or give us an idea of how much lower that could go?
Scott C. Sanborn
Yes. I mean it's -- we think that next quarter, we'll probably take the steepest drop. And rather than quote that to you maybe, I think our gain on sale prices, we're expecting to drop probably approximately 200 basis points. I think that would directly translate from the 5.2% downward. That's going to be a pretty -- that's going to be a decent size hit in terms of the gain on sale that we're getting on those loans as we pivot to asset managers. But that's also factored into our guidance for Q3.
Andrew LaBenne
Yes, and I'd add, as we mentioned in the prepared remarks, we are still quite actively engaged with bank buyers, both our long-term partners, but also new partners who are looking to join the program, both banks and credit unions are. Based on the tenor of those conversations though, I'd say they're all in internal management mode for now. And so that's why we talked about we certainly anticipate a return to the platform, but not until they've got some of their own issues addressed.
Timothy Jeffrey Switzer
Okay. Yes, that makes sense. And then on the NII side of things, if you're holding the balance sheet flat, I guess that implies a little bit lower on an average basis compared to Q2. Can you kind of give us an idea of how NII should trend over the rest of the year? Is it down in Q3, but then maybe flat in Q4?
Scott C. Sanborn
Yes. I think it's a couple of things. One, the decline in average assets in Q3 is largely going to be from the cash impact that we spoke about before. And then the $200 million in loans we sold will have some impact as well. Q3 will have I think a modest dip with the recovery back in Q4 in terms of net interest income, at least the way we see it right now, dependent on what the Fed does and other factors.
Operator
Thank you for your questions. There are no questions waiting at this time, so as a reminder, it is *1 to ask a question. There are no further questions waiting, so I would like to turn the call over to Artem Nalivayko for answers and questions submitted by e-mail.
Artem Nalivayko
Thanks, Sierra. Scott and Drew, we do have a few questions here for you that were emailed by our shareholders. The first question here is, has LendingClub looked into launching any new products with something like a better credit card for your members?
Scott C. Sanborn
I touched on this very, very briefly on the call. We are, in the next quarter, in Q3, going to be launching on a new revolving platform. The first use case of the revolving platform is going to be enabling an installment line of credit for existing customers who build back up credit card balances or for whom we didn't pay off all their credit card balances in the first go, and they've demonstrated good payment, and we can go after the rest. That will be in combination with this debt management and monitoring dashboard that we're working on to help them see that. That will be the first use case of the REVOLVE platform. We also have our purchase finance business that currently has a revolving product that we partner for to distribute that, that we could capture more economics by taking that over. Long term, 99% of our customers have credit cards. We know what kind of cards they have, we know what they use them for, so that's certainly something when conditions allow that we would be interested in exploring and we think that our customers would be open to.
Artem Nalivayko
Great. Thank you. And the second question is, would you consider signing any funding agreements or forward flow agreements and announcing these publicly to drive further origination growth?
Andrew LaBenne
Yes, sure. I'll take that one. Yes, I mean, first thing I'd note is, we sign agreements all the time with our potential, or with our loan buyers. And oftentimes, when we sign those agreements, there's exponential incentives attached to them where if a buyer continues making purchases all the way through the agreement, there will be some type of rebate. And as you can see from our Q3 guidance, it's possible that one of those rebates is going to come back to us if in fact one of the bank buyers, a couple of bank buyers stop their purchasing. We like to structure deals that way that have a longer-term flow but also have some financial incentives within them. In terms of structuring something with long-term committed capital, I think first of all, those difficult -- those agreements are difficult. And in this environment, they're going to be very expensive to set up as well. And you never have 100% certainty that they would be fulfilled in a much more difficult environment. We're not sure now is the right time to lock in an extended agreement at economics that might be unattractive to us and our shareholders.
Artem Nalivayko
All right. Great. Thanks, Drew. With that, we'll wrap up our second quarter earnings conference call. Thanks for joining us. And if you have any questions, please feel free to e-mail us at ir@lendingClub.com.
Operator
That will conclude today's conference call. Thank you all for your participation. You may now disconnect your lines.
