LendingClub Corporation

Good day and welcome to LendingClub's fourth quarter and full year 2021 earnings conference call. All participants will be in a 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 a touch-tone 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 Golclay, Head of Investor Relations. Please go ahead, sir.

Thank you and good afternoon. Welcome to Lending Club's fourth quarter and full year 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 Investor Relations section of our website. 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 our competitive advantage in strategy, macroeconomic conditions, platform volume, future products and services, and future business and financial performance. 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, as well as our subsequent filings made with the Securities and Exchange Commission, including our upcoming Form 10-K. 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, and thank you for joining us. We closed out 2021 in the strongest position in our history. Despite the typical seasonal Q4 headwinds, we delivered record results well above expectations while maintaining our discipline and our focus on prime consumers. Q4 caps a transformative year for Lending Club as we successfully executed the strategy we laid out back in February. achieving several milestones, including, one, creating America's first digital marketplace bank, allowing us to combine the growth and innovation of a fintech with the profit and resiliency of a bank. Two, generating record revenue and profitability as we leveraged our data and member-based advantages to return to scale and market leadership. And three, transforming and strengthening the economics of our business by continuing our focus on operating efficiency and benefiting from our bank capabilities, which includes adding a recurring and resilient revenue stream in the form of net interest income. We more than doubled our revenue for the full year while notching records in each of the last two quarters while significantly increasing our earnings power. And we're just getting started. We plan to deliver another record year in 2022, delivering strong and sustainable levels of originations, revenue, and earnings while continuing to invest in our business to generate sustained growth in the years to come. Our target for the year is to deliver 40% revenue growth at the midpoint and an additional 120 million in earnings. And we believe our core capabilities and strategic advantages will allow us to successfully navigate environmental factors such as the virus, competitive activity, credit normalization and rising interest rates. As we enter 2022, we expect consumer demand to build as credit card balances recover towards their pre-pandemic levels, increasing our total addressable market. If the country were to enter another variant-driven lockdown, consumer spending could be temporarily constrained, but we do not believe our average member will be overly impacted for an extended period. While we expect the market to remain competitive, we're comfortable that our significant advantages will enable us to efficiently generate revenue at some of the lowest acquisition costs in the industry, particularly given our large and loyal member base. Also, with the addition of the bank, we're now able to increase our pace of testing and innovation while also increasing the lifetime value of our customers, allowing us to further penetrate the market and capture more value. Now, with respect to credit underwriting, we will maintain our consistent focus on our core membership, prime customers with an average annual income of roughly $100,000. Following a recent period of historically low delinquencies, we expect vintages beginning in the second half of 2021 to return to pre-COVID levels and have underwritten, priced, and reserved accordingly. The initial data we are seeing for early delinquencies for Q3 and Q4 provide support for our assumptions. I've long said credit is a data problem. And with 150 billion cells of data captured on more than 70 billion in loans over 15 years through multiple credit and interest rate cycles, we have created a competitive advantage that is difficult to replicate. And our continued investment in our data infrastructure is allowing us to lean into this advantage. Lastly, it's worth touching on the general expectation of rising rates. I'd note we've been through a rising rate environment before and have a grounded view of expectations based on our experience. I'll break it down into three buckets, impact to our borrowers, impact to loan investors, and impact to lending club. For borrowers coming to us to refinance credit card debt, rising rates should not negatively impact demand. In fact, since cards are pegged to a floating rate, an increase in APR could actually stimulate them to look for value in alternative options like lending clubs. And with strong balance sheets and low unemployment levels, we don't expect rising rates to create significant payment stress for our core customers. For loan investors, the short duration of our asset allows us to reprice quickly and maintain attractive risk-adjusted returns. I'd remind everyone, most of our marketplace loans are sold to banks. where we anticipate funding costs to rise more slowly given the significant deposits they already have on hand. And finally, for Lending Club, we expect the impact of rising rates in 2022 to be muted. We anticipate that any increase in cost of funds on new deposits used to fund our balance sheet growth will be more than offset by the increased mix of high yield and consumer loans. So summing it all up, we feel good about our position, and we expect to deliver strong results this year given our competitive advantages, operating momentum, and large addressable market. We're a leader in a small group of fintechs who have a bank chart. We have a proven track record of generating strong returns in our investments. And now, with the attractive economics of our marketplace bank model, this is the right time to further invest to deliver durable and even stronger earnings growth. Our investments in 2022 will be focused on three areas. One, building our on-balance sheet loan portfolio by holding 15% to 25% of personal loan originations to drive sustained recurring revenue at high ROEs. We also plan to begin holding a portion of the loans generated in our purchase finance business. In Q4, we integrated this operation onto our common platform to leverage our data and servicing capabilities. We are now expecting to generate similar returns to our core unsecured lending business, but with differentiated acquisition channels that skew towards even higher prime customers. Holding loans in our balance sheet generates three times the earnings of selling loans, and the investment is accretive within 12 months. Our second investment area is in marketing and product experience to increase the percentage of loans from new customers back to approximately 50% to further penetrate our market opportunity and to increase the lifetime value as they become repeat members for loans and eventually other products. Our third area of investment is in infrastructure to further integrate banking data and to move forward as a mobile-first, cloud-based digital bank. This is where the consumer is headed, and it's where we must continue to meet their expectations. Consumers want financial services that are seamless on their terms, and they want personalized and predictive tools and information so that they can make better and faster decisions. Our marketplace bank already delivers against these needs, and we're building a next generation set of capabilities to meet future demand. Before I turn it over to Tom to discuss the financial results in detail, I'd like to give a huge shout out to our highly engaged and resilient employee base of Lending Clovers. Thank you all for a great year, and I can't wait to tackle 2022 together. We are well positioned to thrive. All right, Tom, over to you.