LendingClub reported double-digit loan origination growth in the third quarter, outpaced by a jump over the same period for application. Management pointed to tightening credit standards even as rising rates helped boost results, trends that are likely to continue.
Overall, the company reported a top line that was up nearly 20 percent to $184.6 million, beating consensus by about $2.6 million. Adjusted earnings were 3 cents per share, unchanged from last year and beating the Street by one penny.
The company said it had loan originations of $2.9 billion, which represented a record in terms of quarterly originations and which was up 18 percent year on year.
That growth was outpaced by a record number of applications, up 30 percent year on year, as LendingClub looks to spur “awareness” of the benefits of fixed-rate lending in an era where interest rates are on the rise.
Management also stated that the CLUB Certificate Program — defined as whole loan transactions structured as tradable pass-through securities — is nearing the $1 billion mark, after having been launched less than a year ago, in December of 2017.
Drilling down a bit into supplemental materials provided by the company, the originations mix defined by funding source showed relatively less reliance on banks, at 38 percent of the tally compared to 42 percent last year, while managed accounts and “other institutional” sources grew. In terms of the loan segments themselves, personal loans (of the standard type) were just over $2 billion, up from $1.8 billion, while custom loans — defined as those near prime, super prime and “testing” programs — stood at $621 million, compared to $447 million.
CEO Scott Sanborn said that results benefited partly as the firm was and has been able to serve broad range of investors across the company’s platform, marked by varying cost of capital and risk appetites. Data-driven efforts aided by technology have been able to match the best cost of capital to the right borrowers, he said, and in the aforementioned 39 percent growth in the custom loan activity, he said that local community and regional banks are looking for higher quality borrowers.
“At the other end of the yield spectrum rising rates are encouraging fixed income investors to seek out the high yield short duration assets in our near prime program,” said the CEO. “This is evidenced in the phenomenal growth of our CLUB certificate program.”
In addition, he said that borrowers are attracted to the platform as they can find savings “versus their credit cards where interest rates have risen to their highest levels in a decade.”
He also said that the company had tightened credit on its standard program by 17 percent to reduce charge-off rates. “We’ve raised interest rates across our credit spectrum by between 49 and 114 basis points,” Sanborn said on the earnings call.
Process improvements have meant that the company has been able to approve the majority of loans within a 24-hour window, he said.
The company noted again that it had settled issues tied to the well-publicized May 2016 scandal over former CEO Renaud Laplanche and former CFO Carrie Dolan’s actions involving marketplace ending — where loans were sold that did not meet investors’ standards. The legal landscape included class-action lawsuits, and investigations by the Justice Department and the Securities and Exchange Commission. CEO Sanborn stated that that engagement with the Federal Trade Commission remains ongoing.
Looking ahead, the company narrowed net revenue guidance to $688 million to $698 million, which brackets consensus of $695 million.
During the question-and-answer session, management pointed to the recently-announced partnership with Intuit as delivering data-driven credit services to Turbo Tax users. The information contained in tax documents has what he termed “a high degree of overlap with information you need to apply for loans … so you can seamlessly ingest that information to determine an application” even as LendingClub learns from that data (in terms of customer experience and risk management) at the same time.
“The kind of place where we would expect this information to be useful would be the growing number of gig economy workers that do not have the same kind of W-2 income stream that most Americans have had,” said Sanborn.