Release Date: July 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- LendingClub Corp (LC, Financial) reported a 10% sequential increase in originations, reaching $1.8 billion.
- Pre-provision net revenue grew by 13% to $55 million, and GAAP net income increased by 21% to nearly $15 million.
- The company continues to outperform its competitors with 40% better delinquency rates across all core segments.
- LendingClub's structured certificate program crossed $3 billion in lifetime originations, providing an attractive alternative to warehouse lines or securitization.
- The company has successfully lowered the operational cost to originate a personal loan by one-third over the past year.
Negative Points
- Despite improvements, loan sales pricing is still down more than 300 basis points compared to three years ago.
- The company anticipates a step-up in expenses in the third quarter related to continued volume growth and higher depreciation.
- Provision for credit losses increased to $36 million, driven by higher day one CECL provision and a $5.3 million reserve on a downgraded office loan.
- LendingClub's net interest margin is expected to be flat to slightly down in the third quarter.
- The company is still facing challenges in reengaging banks to purchase loans, with expectations for bank participation more likely in Q4.
Q & A Highlights
Q: Can you provide an update on loan sales and pricing improvements?
A: Andrew LaBenne, CFO: We saw a 20 basis point improvement in loan sales pricing quarter-over-quarter. Marketplace sales increased by $110 million, although whole loan sales were down by $50 million. We also agreed to sell $80 million from our extended seasoning portfolio, closing in July, which brings us up $130 million quarter-over-quarter in total loan sales.
Q: What is the status of discussions with banks regarding purchasing loans, and when might we see them return to the marketplace?
A: Scott Sanborn, CEO: We have a strong pipeline of interest from banks, but significant rate reductions are needed for them to return to previous levels. We expect some banks to re-enter the market in Q4, although Q3 is possible. The timing depends on internal processes.
Q: How are new programs like Top-up and Clean Sweep performing, and are they contributing to volume growth?
A: Scott Sanborn, CEO: These initiatives are driving growth at efficient acquisition costs. While relatively small in the overall scheme, they are significant in driving growth. Both programs are ahead of expectations in customer response and satisfaction rates, with Clean Sweep being a revolving line of credit and Top-up aligning with repeat loan underwriting.
Q: How is the macro environment affecting consumer engagement and loan demand, especially with rising credit card rates?
A: Scott Sanborn, CEO: Many consumers are unaware of their credit card interest rates, which have increased significantly. Our loans offer substantial savings compared to credit cards, and we see strong demand due to high credit card balances. We aim to educate consumers about these savings opportunities.
Q: What are the constraints on increasing origination volumes, and how does loan pricing impact this?
A: Andrew LaBenne, CFO: The primary constraint is loan sales pricing, which is still down over 300 basis points from three years ago. We focus on driving up returns for investors by maintaining low delinquencies and broadening our buyer base. As prices improve, we can open more marketing channels.
Q: How are prime and near-prime borrowers performing, and have you seen any macro inflection points?
A: Scott Sanborn, CEO: We see stable to improving performance across all segments, with lower FICO bands showing the most recovery. Consumers have adjusted to the environment, and our underwriting remains conservative to deliver strong returns.
Q: How might potential Fed rate cuts impact loan pricing and gain on sale margins?
A: Scott Sanborn, CEO: Rate cuts would benefit us by reducing deposit costs and improving investor pricing. This would enhance returns and allow us to unlock more marketing channels, driving growth.
Q: What is the optimal mix of funding options, and how does this relate to your leverage ratio?
A: Andrew LaBenne, CFO: We optimize funding based on economic conditions, with structured certificates providing valuable returns. We aim to increase held-for-investment loans for long-term returns while maintaining marketplace capacity. Our leverage ratio will evolve based on stress testing and balance sheet targets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
