LendingClub Corporation (NYSE:LC) Q4 2023 Earnings Conference Call January 30, 2023 5:00 PM ET Company Participants Artem Nalivayko - Head of IR Scott Sanborn - CEO Drew LaBenne - CFO Conference Call Participants Brad Capuzzi - Piper Sandler Giuliano Bologna - Compass Point Bill Ryan - Seaport Research Partners Reggie Smith - JPMorgan David Chiaverini - Wedbush Securities Michael Perito - KBW Operator Hello, everyone. Thank you for attending today's LendingClub Fourth Quarter 2023 Earnings Conference Call. ...

LendingClub (LC) reported $185.61 million in revenue for the quarter ended December 2023, representing a year-over-year decline of 29.4%. EPS of $0.09 for the same period compares to $0.19 a year ago.The reported revenue compares to the Zacks Consensus Estimate of $180.68 million, representing a surprise of +2.73%. The company delivered an EPS surprise of +350.00%, with the consensus EPS estimate being $0.02.While investors scrutinize revenue and earnings changes year-over-year and how they compare with Wal ...

Company Performance - LendingClub reported quarterly earnings of $0.09 per share, exceeding the Zacks Consensus Estimate of $0.02 per share, but down from $0.19 per share a year ago, representing an earnings surprise of 350% [1] - The company posted revenues of $185.61 million for the quarter ended December 2023, surpassing the Zacks Consensus Estimate by 2.73%, but down from $262.71 million year-over-year [1] - Over the last four quarters, LendingClub has consistently surpassed consensus EPS and revenue estimates [1] Future Outlook - The immediate price movement of LendingClub's stock will largely depend on management's commentary during the earnings call [2] - Current consensus EPS estimate for the upcoming quarter is $0.03 on revenues of $184.33 million, and for the current fiscal year, it is $0.35 on revenues of $768.15 million [4] - The estimate revisions trend for LendingClub is mixed, resulting in a Zacks Rank 3 (Hold), indicating expected performance in line with the market [4] Industry Context - The Financial - Miscellaneous Services industry, to which LendingClub belongs, is currently in the bottom 33% of over 250 Zacks industries, which may impact stock performance [5] - Jackson Financial, another company in the same industry, is expected to report quarterly earnings of $3.53 per share, reflecting a year-over-year decline of 37.6%, with revenues anticipated to be $1.64 billion, up 530.2% from the previous year [5][6]

Core Viewpoint - LendingClub's business model has faced significant challenges due to rising interest rates and the regional banking crisis, but there are signs of potential recovery as regulatory capital requirements are expected to change in February 2024, allowing for greater growth capacity and possible share buybacks [1][2][14]. Regulatory Capital Position - LendingClub operates under a more restrictive regulatory capital regime compared to most banks, with commitments to maintain higher capital ratios until February 2024, including a CET1 risk-based capital ratio of 11.0% and a Tier 1 leverage ratio of 11.0% [3][4]. - Upon expiration of the current agreement in February 2024, LendingClub will revert to minimum capital requirements, significantly increasing its capacity to grow its balance sheet [5]. Structured Certificates - To adapt to challenging market conditions, LendingClub has introduced a Structured Certificates program, which involves private two-tier securitizations of packaged personal loans, allowing the company to take on less risk while providing attractive returns for asset managers [6][7]. - As of Q3, LendingClub has closed approximately $2 billion in Structured Certificates, with expectations for increased demand in Q4 due to declining yields on U.S. treasury bills [7][8]. Buybacks - LendingClub is currently trading at a significant discount to its tangible book value, making share buybacks an attractive option post-February 2024 when restrictions from the Radius acquisition agreement are expected to be lifted [11][13]. - The CFO indicated that share buybacks could become a compelling action for management and the board after the current restrictions are removed [13][14]. Final Thoughts - The shift from riskier personal loans to lower-risk Structured Certificates is likely to alleviate capital constraints, positively impacting LendingClub's business model and investment thesis [14]. - Key indicators to monitor in the upcoming Q4 earnings include signs of recovery in the marketplace and growth rates in the Structured Certificates program [14].

Financial Performance - Total net revenue for Q3 2023 decreased by $31.6 million, or 14% sequentially, and $104.1 million, or 34% year over year [243]. - Net income for Q3 2023 decreased by $5.1 million, or 50% sequentially, and $38.2 million, or 88% year over year [246]. - Total net revenue for Q3 2023 was $200.8 million, a decrease of 13.6% from $232.5 million in Q2 2023 and a decrease of 34.1% from $304.9 million in Q3 2022 [253]. - Net income for Q3 2023 was $5.0 million, down 50.5% from $10.1 million in Q2 2023 and down 88.4% from $43.2 million in Q3 2022 [253]. - Total non-interest income for Q3 2023 was $63,844, down 26% sequentially and 65% year-over-year [260]. - Total non-interest income for Q3 2023 was $56.222 million, down from $178.744 million in Q3 2022, reflecting a decline of 68.4% [325]. - For the first nine months of 2023, net income was $28.784 million, down from $266.094 million in the same period of 2022, a decline of 89.2% [328]. - Total net revenue for the first nine months of 2023 was $679.013 million, compared to $924.508 million in the first nine months of 2022, a decrease of 26.6% [328]. Loan Originations - Loan originations for Q3 2023 decreased by $502.4 million, or 25% sequentially, and $2.0 billion, or 57% year over year, primarily due to a decrease in unsecured personal loan origination volume [242]. - Total loan originations in Q3 2023 were $1.5 billion, a decrease of 25.0% from $2.0 billion in Q2 2023 and a decrease of 57.5% from $3.5 billion in Q3 2022 [253]. - Total loan originations for the nine months ended September 30, 2023, were $5,806,299, a decrease of 45% compared to the same period in 2022 [269]. - Loan origination volume for marketplace loans was $1.2 billion in Q3 2023, down 13% from $1.4 billion in Q2 2023 and down 50% from $2.4 billion in Q3 2022, due to lower investor demand amid rising interest rates [270]. Assets and Deposits - Total cash and cash equivalents as of September 30, 2023, increased by $103.8 million, or 9% sequentially, and $354.9 million, or 37% year over year [247]. - Total assets as of September 30, 2023, increased by $129.8 million, or 2% sequentially, and $1.7 billion, or 25% year over year [248]. - Total deposits as of September 30, 2023, increased by $156.7 million, or 2% sequentially, and $1.9 billion, or 37% year over year [248]. - Total assets as of September 30, 2023, were $8.5 billion, an increase from $8.3 billion as of June 30, 2023, and an increase from $6.8 billion as of September 30, 2022 [256]. - Total deposits increased to $7.0 billion as of September 30, 2023, compared to $6.8 billion as of June 30, 2023, and $5.1 billion as of September 30, 2022 [256]. Cost Management - The company implemented a cost reduction plan in October 2023, reducing its workforce by 172 employees, or 14%, expected to save approximately $30 to $35 million annually [241]. - Total non-interest expense for Q3 2023 was $128,035, down 15% from Q2 2023 and 31% from Q3 2022 [260]. - Compensation and benefits expense decreased by $13.1 million, or 18%, sequentially for Q3 2023, and by $26.4 million, or 31%, year-over-year [311]. - Marketing expenses decreased by $4.4 million, or 18%, sequentially for Q3 2023, and by $26.5 million, or 58%, year-over-year [313]. Credit Losses and Provisions - Provision for credit losses for Q3 2023 decreased by $2.1 million, or 3% sequentially, and $18.3 million, or 22% year over year [245]. - The provision for credit losses for the third quarter of 2023 was $64.5 million, a decrease of 22% compared to $82.7 million in the third quarter of 2022, primarily due to lower loan origination volumes [300]. - Total provision for credit losses for the nine months ended September 30, 2023, was $201.7 million, a decrease of 2% from $205.8 million in the same period of 2022 [300]. - Net charge-offs for Q3 2023 were $68.8 million, an increase from $59.9 million in Q2 2023 and significantly higher than $22.7 million in Q3 2022 [256]. Interest Income and Margins - Net interest margin for Q3 2023 was 6.9%, down from 7.1% in Q2 2023 and 8.3% in Q3 2022 [243]. - Total interest income for Q3 2023 was $207,412, a decrease of 3% from Q2 2023 but an increase of 45% from Q3 2022 [260]. - Net interest income for Q3 2023 was $137,005, down 7% from Q2 2023 but up 11% from Q3 2022 [260]. - The interest rate spread narrowed to 6.28% from 6.48% in the previous quarter, indicating pressure on net interest margins [287]. - The average yield for unsecured personal loans was 13.35%, slightly up from 13.33% in the previous quarter, while the year-over-year yield decreased due to a shift towards higher credit quality loans [288]. Regulatory and Economic Environment - The company has been subject to increasing regulatory scrutiny since its acquisition, impacting its operational scope and compliance requirements [338]. - The company is committed to maintaining capital levels above the minimum ratios prescribed under the U.S. Basel III capital framework to support its business initiatives [344]. - The company anticipates capital expenditures of approximately $60 million in 2023, primarily for the development of its online lending marketplace platform [352]. - Elevated inflation and interest rates may lead to increased borrower defaults and reduced investor participation on the marketplace bank platform [374]. - The company has begun adjusting its underwriting standards in anticipation of the potential impact of the Student Loan Payment Resumption [376].

Financial Data and Key Metrics Changes - Total revenue for Q3 2023 was $201 million, down from $232 million in the prior quarter and $305 million in the same quarter of the previous year [18] - Pre-provisioned net revenue (PPNR) was $73 million, compared to $81 million in the prior quarter and $119 million in Q3 2022 [17] - Net interest income was $137 million, down from $147 million in the prior quarter and up from $124 million in the same quarter of the previous year [19] - Non-interest income was $64 million, down from $86 million in the prior quarter and $181 million in the same quarter of the previous year [18] - Provision for credit losses was $64 million, compared to $67 million in the prior quarter and $83 million in Q3 2022 [23] - Net interest margin was 6.9%, down from 7.1% in the prior quarter and 8.3% in the prior year [20] Business Line Data and Key Metrics Changes - Originations were $1.5 billion, down from $2 billion in the prior quarter and $3.5 billion in Q3 2022 [16] - Approximately $500 million of originations were whole loans for the marketplace, primarily sold to asset managers [16] - The structured certificates program originated $450 million, showing strong demand [16] - Non-interest expense was $128 million, down from $151 million in the prior quarter and $186 million in the same quarter last year [21] Market Data and Key Metrics Changes - The company noted a significant reduction in bank investor participation, which historically comprised 50% of the marketplace [6] - The average sales price for loans sold was low-96s, indicating a 4-point discount [38] - The company has close to $2 billion of signed orders for structured certificates over the next six months [9] Company Strategy and Development Direction - The company is focusing on adapting its underwriting standards to the inflationary environment and maintaining prime originations [10] - A new structured certificates program was launched to attract asset managers and provide low-cost financing [7] - The company plans to enhance its mobile app to integrate loan servicing, spending, and savings [12] - The hiring of a Chief Customer Officer aims to improve marketing and customer engagement [14] Management's Comments on Operating Environment and Future Outlook - The operating environment remains challenging, particularly on the investor side, due to banking turmoil earlier in the year [6] - Management expects a modest increase in originations for Q4, with a range of $1.5 billion to $1.7 billion [27] - The company anticipates PPNR to range from $35 million to $45 million for Q4 [27] - Management expressed confidence in the company's ability to remain profitable and preserve shareholder capital while investing in new capabilities [28] Other Important Information - The company has a strong capital position with a Tier 1 leverage ratio of 13.2% and a CET1 capital ratio of 16.9% [26] - Total assets increased to $8.5 billion, reflecting a shift towards more securities from structured certificates [25] - The company has $1.3 billion in cash on hand and substantial unused borrowing capacity of approximately $3.8 billion [26] Q&A Session Questions and Answers Question: What is the dollar amount of the additional true-up for the held for investment portfolio? - The additional provision taken on the back book was about $20 million between the two vintages [31] Question: Is there irrational pricing by competitors affecting volume? - The dominant issue is the investor supply of capital, with competition in lower FICO bands lessening [34] Question: What percent of par were loans sold at in Q3? - The average sales price was low-96s, indicating a 4-point discount [38] Question: What is the outlook for marketing expenses? - Marketing expenses are expected to remain consistent with current levels, assuming the same marketing efficiency [46] Question: Can you clarify the structured certificate program's buyers? - The buyers include both existing partners and new partners, with significant capital to deploy [73]

Third Quarter 2023 Results Disclaimer Some of the statements in this presentation, including statements regarding our competitive advantages, macroeconomic and business outlook, participation in the SLCLC program, loan and financial performance, are “forward-looking statements.” The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “predict,” “project,” “will,” “would” and similar expressions may identify forward-looking statements, although not all forward-looking sta ...

[PART I. FINANCIAL INFORMATION](index=7&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) The company's financial statements for the period ended June 30, 2023, show a significant decrease in net income to $10.1 million in Q2 2023 from $182.1 million in Q2 2022, primarily due to a large one-time tax benefit in the prior year and lower marketplace revenue in the current period. Total assets grew to $8.34 billion from $7.98 billion at year-end 2022, driven by an increase in loans held for investment, while total deposits also increased to $6.84 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total cash and cash equivalents | $1,203,924 | $1,057,030 | | Loans and leases held for investment, net | $5,178,186 | $4,705,302 | | **Total assets** | **$8,342,506** | **$7,979,747** | | Total deposits | $6,843,535 | $6,392,553 | | **Total liabilities** | **$7,136,983** | **$6,815,453** | | **Total equity** | **$1,205,523** | **$1,164,294** | Condensed Consolidated Income Statement Highlights (in thousands, except EPS) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total net revenue | $232,470 | $330,058 | $478,164 | $619,595 | | Provision for credit losses | $66,595 | $70,566 | $137,179 | $123,075 | | **Net income** | **$10,110** | **$182,060** | **$23,776** | **$222,896** | | **Diluted EPS** | **$0.09** | **$1.73** | **$0.22** | **$2.13** | Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $23,135 | $231,955 | | Net cash used for investing activities | ($257,898) | ($982,127) | | Net cash provided by financing activities | $348,995 | $1,088,818 | | **Net Increase in Cash** | **$114,232** | **$338,646** | [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's accounting policies, revenue composition, loan portfolio quality, fair value measurements, and regulatory capital. Key highlights include a significant drop in marketplace revenue due to lower origination fees and adverse fair value adjustments. The loan portfolio grew, with the allowance for credit losses at 6.4% of loans held for investment. The company remains well-capitalized, with a CET1 ratio of 16.1%, well above regulatory requirements Marketplace Revenue Breakdown (in thousands) | Component | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Origination fees | $70,989 | $149,252 | $141,532 | $271,345 | | Servicing fees | $22,015 | $18,166 | $48,395 | $36,680 | | Gain on sales of loans | $13,221 | $29,319 | $27,346 | $53,429 | | Net fair value adjustments | ($23,442) | $9,647 | ($38,856) | $24,896 | | **Total marketplace revenue** | **$82,783** | **$206,384** | **$178,417** | **$386,350** | - As of June 30, 2023, the allowance for loan and lease losses (ALLL) was **$355.2 million**, representing **6.4%** of the total **$5.53 billion** in loans and leases held for investment. This is slightly down from **6.5%** at year-end 2022[70](index=70&type=chunk)[71](index=71&type=chunk) - Total nonaccrual loans and leases increased to **$51.4 million** (**0.9%** of total HFI loans) as of June 30, 2023, up from **$34.8 million** (**0.7%** of total HFI loans) at the end of 2022[95](index=95&type=chunk)[96](index=96&type=chunk) Regulatory Capital Ratios (LendingClub Corporation) | Ratio | June 30, 2023 | Required Minimum + CCB | | :--- | :--- | :--- | | CET1 capital ratio | 16.1% | 7.0% | | Tier 1 capital ratio | 16.1% | 8.5% | | Total capital ratio | 17.4% | 10.5% | | Tier 1 leverage ratio | 12.4% | 4.0% | - During the first half of 2023, one marketplace bank investor accounted for **14%** of the company's total net revenue, indicating a degree of revenue concentration[207](index=207&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=52&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the challenging Q2 2023 results to the adverse interest rate environment and economic volatility, which has dampened marketplace loan investor demand and pricing. Total net revenue decreased 30% year-over-year to $232.5 million, driven by a 60% drop in marketplace revenue. This was partially offset by a 26% increase in net interest income from a larger portfolio of loans held for investment. The company has responded by managing expenses prudently, evidenced by a 28% year-over-year decrease in non-interest expenses, and maintains strong liquidity and capital levels - The challenging economic environment, particularly the interest rate climate and economic volatility, is adversely affecting the business by reducing investor demand and pricing for marketplace loans[223](index=223&type=chunk) Key Performance Metrics - Q2 2023 vs. Q2 2022 | Metric | Q2 2023 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Loan Originations | $2.0B | $3.8B | (48)% | | Total Net Revenue | $232.5M | $330.1M | (30)% | | Marketplace Revenue | $82.8M | $206.4M | (60)% | | Net Interest Income | $146.7M | $116.2M | +26% | | Net Income | $10.1M | $182.1M | (94)% | - Net interest margin decreased to **7.1%** in Q2 2023 from **8.5%** in Q2 2022, primarily due to higher interest rates paid on deposits. Management expects this pressure on net interest margin to continue through 2023[224](index=224&type=chunk)[272](index=272&type=chunk) - The company implemented a cost reduction and reorganization plan in January 2023, which contributed to a **28%** year-over-year decrease in total non-interest expense, driven by lower headcount and reduced marketing spend[225](index=225&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=84&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk. A sensitivity analysis indicates that a hypothetical 100 basis point increase in interest rates would decrease projected net interest income by 4.4% over the next twelve months, while a 100 basis point decrease would increase it by 2.7%. This reflects the liability-sensitive nature of the balance sheet, where deposit costs reprice faster than the fixed-rate loan portfolio Net Interest Income Sensitivity to Interest Rate Changes | Instantaneous Change in Interest Rates | Impact on Projected 12-Month NII (as of June 30, 2023) | | :--- | :--- | | + 200 basis points | (9.1)% | | + 100 basis points | (4.4)% | | – 100 basis points | 2.7% | | – 200 basis points | 5.1% | - The company's net interest income is projected to decrease in a rising rate environment because higher rates on interest-bearing deposits are only partially offset by higher rates on new loans and investments. The fixed-rate nature of the majority of the existing loan portfolio limits immediate asset repricing[345](index=345&type=chunk) [Controls and Procedures](index=84&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of June 30, 2023. They concluded that these controls were effective in providing reasonable assurance that information required to be disclosed is recorded, processed, and reported in a timely manner. No material changes to internal control over financial reporting occurred during the second quarter of 2023 - The CEO and CFO concluded that as of June 30, 2023, the company's disclosure controls and procedures were effective at a reasonable assurance level[354](index=354&type=chunk) - There were no changes in the company's internal control over financial reporting during the second quarter of 2023 that have materially affected, or are reasonably likely to materially affect, these controls[355](index=355&type=chunk) [PART II. OTHER INFORMATION](index=84&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=84&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various claims, lawsuits, and regulatory proceedings arising in the ordinary course of business. For a detailed discussion, the report refers to Note 17 of the financial statements - For a comprehensive discussion of legal proceedings, the company refers to Note 17 in Part I, Item 1 of the financial statements[356](index=356&type=chunk) [Risk Factors](index=84&type=section&id=Item%201A.%20Risk%20Factors) The company highlights the significant risk posed by the current economic environment, including elevated inflation, rising interest rates, and a potential recession. These factors could increase borrower defaults, reduce investor demand for loans, and compress net interest margins. A specific new risk identified is the resumption of Federal student loan payments, which is expected to begin by September 2023 and could impact the repayment ability of approximately 20% of its borrowers by outstanding principal balance - The current economic environment, characterized by high inflation and rising interest rates, poses a significant risk to the business by potentially increasing borrower defaults, reducing platform investor demand, and increasing funding costs[357](index=357&type=chunk)[360](index=360&type=chunk) - The resumption of Federal student loan payments, expected by September 2023, is a key risk. The company estimates that borrowers with federal student loans account for approximately **20%** of the current outstanding unpaid principal balance of its loans[361](index=361&type=chunk)[362](index=362&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=86&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None[364](index=364&type=chunk) [Other Information](index=86&type=section&id=Item%205.%20Other%20Information) During the second quarter of 2023, none of the company's directors or executive officers adopted or terminated a Rule 10b5-1 trading plan or any non-Rule 10b5-1 trading arrangement - No directors or executive officers adopted or terminated Rule 10b5-1 trading plans during the second quarter of 2023[365](index=365&type=chunk) [Exhibits](index=87&type=section&id=Item%206.%20Exhibits) This section provides an index of all exhibits filed with or incorporated by reference into the Form 10-Q report, including certifications by the CEO and CFO and XBRL data files - The Exhibit Index lists documents filed as part of the report, including the 2014 Equity Incentive Plan (as amended), CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906, and XBRL interactive data files[368](index=368&type=chunk)

LendingClub Corporation (NYSE:LC) Q2 2023 Earnings Conference Call July 26, 2023 5:00 PM ET Company Participants Artem Nalivayko - Vice President of Finance Scott Sanborn - Chief Executive Officer Drew LaBenne - Chief Financial Officer Conference Call Participants Bill Ryan - Seaport Research Partners Reggie Smith - JPMorgan Alexander Villalobos - Jefferies Giuliano Bologna - Compass Point Tim Switzer - KBW Operator Hello, everyone. Thank you for attending today's LendingClub's Second Quarter Earnings Confe ...

Second Quarter 2023 Results Disclaimer Some of the statements in this presentation, including statements regarding our competitive advantages, macroeconomic and business outlook, loan and financial performance, are “forward-looking statements.” The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “predict,” “project,” “will,” “would” and similar expressions may identify forward-looking statements, although not all forward-looking statements contain these identifying w ...