LendingClub Corporation

Good day and welcome to the London Club Q121 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question from the queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Samir Goplay, Head of Investor Relations. Please go ahead.

Thank you and good afternoon. Welcome to LendingClub's first quarter 2021 earnings conference call. Joining me today to talk about our results and recent events are Scott Sanborn, CEO, and Tom Casey, CFO. Our remarks today will include forward-looking statements that are based on our current and involve risks and uncertainties. These statements include, but are not limited to, timing and benefits from our acquisition of Radius and resulting bank charter, platform volume, and the future performance of our business and products. Our actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are described in today's press release and our most recent forms 10-K and 10-Q, each is filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements. Also during this call, we will present and discuss both GAAP and non-GAAP financial measures. A description of non-GAAP measures and reconciliation to GAAP measures are included in today's earnings release and related slide presentation. You can find both the press release and slide presentation on the investor relations section of our website at ir.lendingclub.com. And now I'd like to turn the call over to Scott.

Okay, thank you, Samir. Good afternoon, everyone, and thank you for joining us. When we last talked, I told you that with our acquisition complete, we would be evolving to a new business model, that of a digital marketplace bank. And I shared that this model would be positioned to outperform and deliver sustained growth and profit, fueled by our leadership in personal loans and our considerable strategic advantages. Accordingly, I'm happy to report that we are off to a great start to the year. Our Q1 results came in above the high end of our guidance as we accelerated origination 63% quarter on quarter and increased revenues 40% to 106 million. What's even more exciting is that our Q1 activities will deliver an additional 70 million in interest income in the quarters to come, representing a new recurring revenue stream that will continue to grow as we build our loan portfolio. This is just one clear example of the benefits of adding the digital bank. As I have said previously, personal loans will be our near-term economic driver and will pave the road to our broader future as a full-service digital bank. It is a great time to be launching a digital bank, and we are starting from a position of strength, given our ability to attract valuable, creditworthy customers at scale and to save them money through a seamless experience. In addition to our new lower funding costs, LendingClub has multiple competitive advantages, and both our Q1 results and our sustained growth over the long term will be built on how we leverage these differentiators. So our advantages include our large and loyal base of members, our data supremacy based on information on over $60 billion in loans, our tech platform that allows us to deliver a fast and frictionless experience, our marketplace model, which allows us to efficiently serve a broad range of customers, and now our digital bank, which provides structural, financial, and strategic benefits to expand customer lifetime value and to accelerate earnings growth and diversification. Let me spend a minute on each of these. First, our members. Our results demonstrate the continued benefit of having a large and loyal installed base of 3 million members. The majority of our loans in Q1 were to our existing member base, and this drove significant marketing efficiencies, but they originated at a fraction of the cost compared to loans to new members. And they also demonstrate lower credit risk. As the economic outlook has improved and with our digital bank acquisition complete, we have ramped marketing back up to deliver a 63% increase in total loan originations, which includes a 135% increase in originations to new customers. While consumer demand is currently below pre-pandemic levels and the competitive market is dynamic, we believe that we are well positioned to outpace the market's overall growth rate and to capture significant share. Our second key differentiator is our data and technology leadership. supported by 15 years of significant investment and our experience on more than $60 billion in loans. This provides us with an enormous data advantage in both originations and servicing. We take this huge data set and apply the latest analytical techniques, including neural networks and machine learning, to inform our decisions. We deploy dozens of models to drive our targeting, fraud, underwriting, pricing, servicing, and user experience and to manage outcomes for distinct customer segments. This allows us to make compelling offers to customers while providing competitive returns for platform investors. It also allows us to automate originations and efficiently grow loan volume without a proportional increase in headcount. As the economy recovers and we normalize our underwriting, we expect more than two-thirds of our loans to be automatically approved. while maintaining fraud rates in the low single-digit basis points. That's one of the lowest in the industry. Our ability to assess and manage risk and to quickly adapt to the environment is evident in the results during the pandemic. Looking at the latest performance data from DV01, LendingClub is outperforming the market in all credit segments in which we compete with delinquency rates that are over 35% better than the average. In addition to our outperformance, the asset class more broadly has validated its place in the payment hierarchy. A recently released study from TransUnion confirms our internal data that customers prioritize payment of their personal loan obligations above many others, including credit cards. These compelling results for the category in general and for LendingClub in particular are boosting loan investor demand for our assets. This is critical because even with the addition of our digital bank, the majority of our personal loans continue to be funded through our marketplace, which is our third key differentiator. Our broad range of investors allows us to serve a wide range of customers at competitive prices, which helps support our industry-leading marketing efficiency. Our final differentiator is our digital bank, where we are immediately capturing the following financial benefits. One, Funding costs are down approximately 300 basis points versus what we paid in 2020. Two, we lowered our origination costs by eliminating fees to third party banks. And three, as I already mentioned, we're building a significant new revenue stream from retained loans that will drive higher revenue per loan and accelerate our growth. We also continue to win accolades in March, CNET recognized our consumer checking account as best overall, beating out both traditional and online-only banks. And our digital bank was recognized by Cellent, the leading research firm focused on technology for financial institutions, for our innovation on PPP. In just six days, we released an offering that has cumulatively delivered over $870 million in loans that help small businesses keep more than 75,000 people employed. So, taken together, our large and loyal member base, our data and technology leadership, the marketplace itself, and of course, our digital banks create a powerful new business model. Relative to banks, we expect to grow more rapidly and be more efficient at customer acquisition compared to traditional fintechs, where we'll be higher earning and more resilient. We are on a mission to help our members manage their lending, spending, and savings, and to make it easy for them to make the smart choices with their money. In closing, I'd like to thank all the Lending Club employees who worked to get us off to such a strong start, and especially thank the team at Radius Bank, who are now Lending Clubbers and are working hard to accomplish our Zoom-based integration. With that, I'll pass it over to you, Tom.