LendingClub reported results that showed flat net interest income, but pressure on loan origination volumes — a trend that is likely to persist over at least the short term, per management commentary.
Presentation materials and the earnings release show that loan originations in the most recent quarter were $2 billion, down 13% from the first quarter and down 47% from a year ago.
CEO Scott Sanborn noted on the conference call with analysts that the $2 billion in originations was in line with guidance, as it reflected lower retention of those loans on the balance sheet.
And with some discussion of the banking operations — acquired when the company closed its acquisition of Radius at the beginning of 2021 — that business, Sanborn said, “is demonstrating its resilience with net interest income stable quarter over quarter. However, we are facing what we believe to be temporary headwinds in the marketplace, which is resulting in pressure on our outlook for noninterest income.”
Banks, he said, are “moving to the sidelines” as they address capital and liquidity concerns, and the pullback is having an impact on LendingClub’s loan origination volumes.
Banks are selling loan portfolios at deep discounts, which in turn is adding supply into a saturated market.
“This is putting pressure on loan sales pricing,” said Sanborn, who added, “We don’t believe that this market dynamic is sustainable, and in the meantime, we’re leaning into our bank advantages to create new profitable structures to support marketplace volumes.” There’s been strong initial reception for its structured loan certificate program, he said.
“The environment will continue to challenge our ability to drive meaningful growth for at least the remainder of 2023,” Sanborn said.
Turning to credit, he said that delinquencies are “modestly above expectations” on loans made before the current inflationary environment settled in. The resumption of student loan payments, he said, will have a muted impact on results. The earnings materials showed that net charge-offs on the 2021 vintage of personal loans stood at 5.4% as of the June quarter, where that percentage had been 4.6% in the March quarter.
Shares sank 5% in after hours trading on Wednesday.
In looking ahead, the company will be testing and launching an integrated mobile app that combines lending, spending and savings activity into what Sanborn termed “a single experience.”
Users can also monitor their debt and prioritize payments to manage costs. There will also be a preapproved installment line of credit that allows existing members to seamlessly sweep any new credit balances into a loan at a fixed rate, per Sanborn’s commentary.
LendingClub, he said, is poised to benefit as consumers seek to refinance credit card balances, which are now at record highs, with record high interest rates.
CFO Drew LaBenne said on the call that net interest income was $147 million flat sequentially and up 26% over the prior year. Marketplace revenue was $83 million in the quarter compared to $96 million in the prior quarter and $206 million in the same quarter last year. Originations in the third, current quarter, he said, should range from $1.4 billion to $1.7 billion.
Asked on the call about the loan originations, Sanborn said that “We’re originating for the available investor demand at economics that we find acceptable.”
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