The clearest evidence of LendingClub’s new incarnation into a full-scale digital bank can be measured not merely in another jump in personal loan volume, but what happened (pun intended) after borrowers arrived.
Happen Bank ended the quarter with $10.8 billion in deposits, up 18% from a year earlier, as it pushed its LevelUp checking and savings products deeper into its existing borrower base. The strategy gives Happen another way to monetize the customers it already spends money to acquire, while deposits provide funding for a growing balance sheet.
CEO Scott Sanborn said on the July 27 conference call with analysts that the number of LevelUp checking accounts opened during the quarter quadrupled from a year earlier, and borrowers accounted for more than half of new accounts.
Those customers also behave differently once they add a banking relationship.
“Borrowers who have a LevelUp checking account are more engaged, logging in over five times more often per month than those without a deposit account,” Sanborn said during the call.
The savings side offers another window into that cross-selling opportunity. Borrowers represented 20% of new LevelUp savings accounts opened year to date. Sanborn said balances initially tend to be small, but after borrowers repay their loans, those savings balances grow to an average of $16,000 to $18,000.
Lending remains the front door, but checking and savings can extend the customer relationship beyond the life of a personal loan.
Originations Grow Without Looser Credit
CFO Drew LaBenne noted on the call that total loan originations increased 29% year over year to more than $3.1 billion, exceeding the high end of Happen’s guidance.
Management said Monday that Happen has restarted marketing channels it pulled back during the high-rate, inflationary environment and has continued adjusting how offers are presented and customers move through the application process. The company also saw improvement in bringing repeat customers back.
“What it’s not coming from,” Sanborn said of the company’s growth, is “any real change in our credit posture.”
The net charge-off ratio on the held-for-investment portfolio improved to 3.2% from 3.8% a year earlier, although LaBenne cautioned that charge-offs should rise toward target levels as the portfolio matures. The company expects another credit-loss provision benefit in the third quarter, but smaller than in Q2.
Happen is also broadening its digital product set. Home improvement lending launched during the quarter and remains small, with management expecting a more meaningful contribution next year. Happen has launched two distribution partnerships and said additional partners are in the pipeline. Sanborn also identified home equity lending as a future expansion area, complementing the company’s existing debt-consolidation and home-improvement businesses.
Digital investment is extending into operations. Happen said more than 90% of employees regularly use its AI infrastructure. Its AI member-service agent, Penny, is resolving 30% more calls than the system it replaced, while other AI servicing tools have reduced after-call work by 65% and average call time by 10%.
Total revenue rose 6% to $263 million. Management now expects full-year originations of $12.2 billion to $12.6 billion, compared with its previous $11.6 billion to $12.6 billion range.
Shares were up 5% in after-hours trading on Tuesday. LaBenne said management expects the balance sheet growth already underway to continue: “The levels you’re seeing today in balance sheet growth are probably very similar in the future,” he said.
