LendingClub Corp Q2 FY2024 earnings call

• Strong quarter of growth with originations up 10% sequentially, pre-provision net revenue up 13%, and GAAP net income up 21%. • Consistent credit outperformance with 40% better delinquency rates across core segments due to proprietary advantages like custom models and underwriting technology. • Product innovations including top-up (allowing existing members to obtain additional funds with one monthly payment) and Clean Sweep (a new line of credit product for refinancing debt) with strong early results. • Mobile app engagement growth with doubling of first-time downloads and 20% month-over-month increase in app users in June, featuring self-service functionality for debt monitoring and management. • Repeat member behavior with about half of members returning for a second loan at near-zero acquisition costs and better credit performance than new borrowers.

Originations climbed 10% sequentially to $1.8 billion. Pre-provision net revenue grew 13% to $55 million. GAAP net income grew 21% to nearly $15 million. The structured certificate program accounted for $885 million of originations. Originations were also composed of $270 million sold through the marketplace, $320 million accumulated for the held-for-sale extended seasoning program, and $335 million retained in the held-for-investment portfolio. The structured certificate program contributed significantly to originations, making up a substantial portion of the total $1.8 billion in originations.

• For the third quarter, anticipate originations growing to a range of $1.8 billion to $1.9 billion. • Increase PPNR guidance range to $40 million to $50 million. • Plan to continue to deliver positive net income in the third quarter, though not at the level seen in the first half of 2024, as reinvestment in the balance sheet continues for stronger returns in 2025.

• Macro-economic uncertainty could impact consumer willingness to take on more debt and affect origination volumes. • Potential impact on loan pricing if bank buyers re-entering the market in the fourth quarter do not materialize as expected or if their entry affects fair value marks. • Credit risk if consumer health deteriorates, which could impact delinquency and charge-off rates.

Q: About loan sales, where are the loan book marked and loan sales standing?

A: Drew LaBenne said there was about a 20 basis point quarter-over-quarter improvement in price. Whole loan sales were $50 million lower, but structured certificate sales were $100 million higher, netting $50 million up. Also, agreed to sell another $80 million out of the extended seasoning held-for-sale portfolio that closed in July, and sold a small amount of A notes just above current carry.

Q: Progress with banks returning to buy loans in the marketplace?

A: Scott Sanborn said pipeline is strong, but bank diligence takes time. Timing is likely back half of the year, more likely Q4, but possible in Q3.

Q: Consumer engagement and educating customers about savings from loans?

A: Scott Sanborn said the focus is on pushing up loan sales pricing to unlock more marketing channels. Part of the plan is to use data and app functionality to educate consumers about their credit card rates and the savings from LendingClub loans.

Q: Binding constraints for more meaningful volume increases?

A: Drew LaBenne said the key constraint is loan pricing, with prices still down more than 300 basis points from three years ago, which fuels the ability to open marketing channels. Improving credit performance to get investors to pay more and bringing in more buyers are ways to increase volume.

Q: Impact of bank buyers on fair value marks and marketplace originations?

A: Drew LaBenne said bank buyers coming in could create upward pressure on prices and fair value marks, but LendingClub doesn't mark the book at the highest price. Their entry would be constructive but not immediately cause large movements in fair value marks.

Q: Loan performance trends and expectations?

A: Drew LaBenne said net charge-off dollars improved more than expected, and dollar charge-offs are expected to continue improving, though the charge-off rate may be more modest.

Q: Expense expectations?

A: Drew LaBenne said there was a $5 million benefit in the quarter relative to expectations, and there will be a step up in expenses in Q3 related to volume growth and higher depreciation from completed initiatives, but not all on the depreciation line.