LendingClub Corporation

Good afternoon and welcome to the Lending Club's third quarter 2021 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 touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Samir Gokhale, Head of Investor Relations. Please go ahead.

Thank you and good afternoon. Welcome to LendingClub's third quarter 2021 earnings conference call. Joining me today to talk about our results and recent events are Scott Sanborn, CEO, and Tom Casey, CFO. You can find the presentation accompanying our earnings release On the call, in addition to questions from analysts, we will also be answering some of the questions that were submitted for consideration via email. Our remarks today will include forward-looking statements that are based on our current expectations and forecasts and involve risks and uncertainties. These statements include but are not limited to the benefits of our acquisition of Radius, platform volume, future products and 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 as filed with the SEC, as well as our subsequent filings made with the Securities and Exchange Commission, including our upcoming Form 10-Q. 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 as a result of new information or future events. And now, I'd like to turn the call over to Scott. All right, thanks, Samir.

Good afternoon, everyone. Our third quarter results again make very clear the power of our digital marketplace banks to generate strong, sustained performance. We once again achieved record revenues, up 20% sequentially, and we nearly tripled our earnings versus the second quarter. We delivered these results by leveraging our data advantage, our large and loyal member base, and our vertically integrated business model. With an enormous market opportunity of roughly $1 trillion and revolving consumer loans outstanding, we have a clear path forward to further grow our personal loan business while helping our members lower their cost of credit. Our 3.8 million members appreciate the value we deliver, and they want to do more with us. With our new digital banking capabilities, we can offer more. Our advantages are considerable and difficult to replicate. and we are beginning to use them to grow our adjacent auto refinance and purchase finance businesses. When we launched back in 2007, LendingClub's vision was to leverage technology, data, and our marketplace model to transform the banking industry. We began by bringing a traditional credit product, the installment loan, into the digital age by moving it online, broadening access, lowering costs, and delivering a fast and frictionless experience for borrowers all while delivering attractive risk-adjusted returns for loan investors. At its core, extending credit is a data problem, and at Lending Club, we have a data advantage. We use machine learning to develop and or power models across the loan lifecycle, including marketing, fraud prevention, credit underwriting, and servicing and collections. These models are trained on more than 150 billion cells of data and more than a decade of experience across over 68 billion in loans. Our effectiveness is evident in our recent results. Our marketing expenses at the percentage of originations during Q3 were only 163 basis points. That's one of the best in the industry. Our overall loan portfolio has 35% lower delinquency rates compared to the competitive set. And for those vintages most affected by COVID, the results are even more dramatic with delinquencies 50% lower than others. Our fraud losses are less than five basis points, among the lowest in the industry. And all of this is accomplished in a highly efficient fashion, with more than 80% of our issued loans now fully automated. All of these results are in service of the customer, where we're typically lowering the cost of credit for our members by about 400 basis points versus their outstanding credit card debt. The savings and seamless experience we deliver creates loyalty. Already half of our members have come back to us for a second loan. When they return, they're rewarded with an even better experience than their first time. Lending Club is in turn rewarded with better economics, that these loans originate at a fraction of the cost compared to loans to new members and demonstrate lower credit risk. This is the dynamic for our core product, but we can do more for our members beyond personal loans. We can offer additional products and services to them that are aligned with their needs, saving them money and increasing their loyalty while also increasing the lifetime value of these relationships. One example of this is auto loan refinancing. Nearly two-thirds of our members currently hold an auto loan, and it's usually their second highest monthly debt outside of housing costs. Given the structural inefficiencies in the used car market, we can efficiently utilize our data and technology to offer customers a better rate in just a few minutes. We typically reduce the APR for our members by more than 5%, which translates into thousands of dollars of savings over the life of a loan. We've built a great product, but have been disciplined about the investment and growth rate of the auto business. During our incubation period, we've been focused on two objectives. One, building an incredible customer experience, and two, demonstrating a track record of performance. Now, with the added funding benefit of our bank, we're able to generate positive unit economics. And in Q3, we drove 85% quarter-over-quarter growth in auto refinance originations. While our current focus is on our members, the $300 billion broader addressable market for auto refinance does provide us with a substantial long-term opportunity. Next up is our Buy Now, Pay Later purchase finance business, which is designed for planned large-ticket purchases, and elective medical, dental, and education. We've been in this business for several years through issuing bank partnerships and are now deploying our banking capabilities to issue these loans and take better advantage of our personal loans infrastructure. This will allow us to not only capture more of the value chain economics, but also significantly improve the member experience. I'll plan to talk more about this business next quarter. Going forward, you'll hear more from us every quarter about how we're leveraging our expertise and our advantages to offer our member base a broader set of integrated financial solutions. During the third quarter, we added more than 100,000 members to our base to bring us to a total of 3.8 million. We're creating a powerful flywheel effect that will help our loyal and member growing base with additional financial solutions that save them money while also increasing their lifetime value to us. This in turn helps us continue to drive strong and sustainable revenue and earnings growth, which opens up more opportunity for us to invest in customer acquisition as we offer them more reasons to join the club. As you've seen in our results this year, the investments and choices we made in 2018, 2019, and 2020 have been paying off. Not just the decision to acquire a digital bank, but the lowering of our operating costs and our strategic investments in data, technology, and digitization all of which are bearing considerable fruit. Over the next 12 to 18 months, we plan to accelerate our growth investments, particularly in infrastructure and new products, while continuing to grow our profit. We expect these investments to enhance our ability to serve our members and to drive sustainable growth to our top and bottom line over time. I want to thank our employees for their commitment to our customers, our company, and our mission. We would not have been able to achieve these results without their dedication and hard work. So with that, I'll turn the call over to you, Tom, to take you through the financial results for the third quarter and our outlook for Q4.