LendingClub Corporation

Good afternoon. Thank you for attending today's Lending Club first quarter 2022 earnings conference call. My name is Hannah and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to Samir Gokhale, the head of investor relations with Lending Club. Please go ahead.

Thank you and good afternoon. Welcome to LendingClub's first quarter 2022 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 by 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 advantages and strategy, macroeconomic conditions and outlook, platform volume, future products and services, and future business and financial performance. Our actual results may differ maturely from those compensated by these forward-looking statements. Factors that could cause these results to differ maturely are Securities and Exchange Commission, including our upcoming form 10-Q. Any forward-looking statements that we make on the 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. Thank you, Sameer. Good afternoon, everyone. Thanks for joining us. I am happy to report that Lending Club has delivered another outstanding quarter. In Q1, we generated record results driven by strong execution against our key strategic advantages, our sizable proprietary data set, our large and loyal membership base, and our transformed and enhanced digital marketplace bank model. Revenues increased 10% sequentially and have more than doubled since last year. And we generated record profitability. Importantly, Despite some of the environmental volatility we saw in Q1, this is the fifth consecutive quarter of strong outperformance, and we feel great about it. Combining our scalable marketplace revenue with recurring interest income from the high-quality loans we're holding on our balance sheet provides significant earnings power and resiliency. While we recognize the broader macro uncertainty, we believe our strategic and structural advantages will enable us to continue to outperform. We remain pleased with our credit quality and are maintaining discipline in our underwriting. This is particularly important as delinquency is gradually normalized in this unfolding environment. While our marketplace model and credit insights allow us to efficiently serve a broad range of credit profiles, we're primarily focused on prime borrowers as they've proven to be more resilient. Historically, near-prime loans comprise about 15 to 20% of our total origination, and they contribute a similar percentage to our marketplace revenue. We're currently running at the bottom end of that range, and we expect to remain there until the economic outlook becomes clearer. Reminder, these loans are generally not held in the bank's portfolio, but are sold through the marketplace. What is in the bank's consumer loan portfolio are primarily prime loans with an average FICO of 727 generating stable recurring revenue. This portfolio, funded by low-cost deposits, delivered 34% of our total revenue for the quarter. When you include investor servicing fees, our recurring revenue is now 41% of our total. As always, we're closely monitoring data from our portfolio, our membership base, the economy, and our marketplace to optimize our response to developing conditions. Notably, our credit models informed by over 15 years of experience are continuing to evolve as we incorporate new data from the billions of dollars of loans we originate and service every quarter. History would indicate that inflation typically does not correlate with the performance of unsecured loans. and we expect our customers who have an average income of more than $100,000 to be particularly resilient. They're overall in great shape, strong balance sheets that did not disproportionately benefit from stimulus packages and are therefore not overly affected by their ending. However, given the potential unprecedented speed and magnitude of rising rates, we continue to proactively tighten underwriting on the margin stay ahead of pressures that consumers may face. Our industry-leading and highly efficient marketing engine helped us more than double originations year over year and grow 5% sequentially despite seasonal downward pressures we normally see in Q1. We crossed 4 million members this quarter, another milestone and a huge competitive advantage. Our origination mix is now back to our historical range of 50% new and 50% existing members. Importantly, approximately half of our new members return to us within five years. Not only do these repeat members have very low acquisition costs, but they also demonstrate substantially better credit performance. As a result, we estimate that these repeat members have three times the lifetime value of first-time borrowers. And we expect these economics to improve as we expand our offering and increase member engagement as a full-service bank. This is a very powerful competitive advantage that should continue to grow as we offer new products to our member base and expand the reach of our current ones. In the consumer business, along with further growth in personal loans, we plan to continue growing auto refi and purchase finance loans. Although their growth rate will be higher, their relative contribution to earnings will remain small in comparison to personal loans. Outside of consumer, we expect to grow commercial loans, excluding PPP, modestly. These commercial loans are largely secured by collateral or cash flows and should continue to be a good source of revenue and credit quality diversification. Our thriving credit marketplace lets us say yes to more borrowers across the credit spectrum. driving marketing efficiency while we maintain a prudent approach to underwriting. The attractive returns on our loans are driving strong demand from our marketplace investors, where we continue to add new loan buyers, such that the number and diversity of loan purchasers is now well above pre-pandemic levels. And innovations like LCX, which allow us to match supply and demand in real time at market-optimized prices with fully automated transaction settlement demonstrates the continued evolution of our marketplace advantage and our technology and innovation leadership. As seen in our consistent outperformance, the investments we've made over the past several years are showing strong returns. The bank acquisition has paid for itself within just a year. Our continually refreshed credit models are delivering compelling returns, even in a dynamic environment. Automation like that enabled by LCX is allowing us to more efficiently and effectively than ever before. Our investments in servicing are delivering record customer satisfaction scores while also protecting returns. And ongoing investments in our technology and data foundation will allow us to meet the opportunities of tomorrow and offer new and enhanced products tailored to our customers' needs. With our powerful and transformed business firing on all cylinders, we continue to prudently invest for future growth. As I said last quarter, there's three key areas of investments, loan retention, marketing, and technology. So starting with loan retention, our financial transformation is in part being driven by the new recurring revenue stream coming from the high-quality loans we're holding on our balance sheet. As such, investing in the continued growth of that revenue stream is extremely important as it builds long-term income, admittedly, at the expense of short-term results. Second investment area is marketing. we have a highly efficient marketing engine that allows us to grow origination and to build our member base. So you can expect us to continue to acquire new members while seeking to expand overall lifetime value. And finally, we've been investing to further expand our considerable data advantages and build out our digital banking capabilities. These investments form the foundation for our multi-product digital first bank, powered by business intelligence, with a scalable infrastructure that will deliver strong multi-year revenue and earnings growth. Expanding our technology leadership in the quarter, we hired Balaji Tejajara as our new CTO. Balaji has extensive experience in direct-to-consumer technology organizations such as Uber, Google, and Microsoft that leverage big data, machine learning, mobile technologies, and cloud computing to deliver on both incredible business and customer outcomes. He's perfectly suited to lead the technology organization as we not only invest in our future, but build it. Of course, while we remain committed to the above-mentioned investments, we will maintain discipline and will moderate the level if conditions dictate. Looking ahead, we are raising guidance on revenue, earnings, and loan originations for the full year. This reflects our positive momentum from Q1 continuing into Q2, balance, by recognition that conditions could change in the back half of the year. I note we feel very good about how we're positioned to navigate through potential changes. We have strong earnings, robust levels of capital and liquidity, significant strategic and structural advantages, and a well-executing team. That said, this is a dynamic environment. We will need to process the impact of rate changes and be thoughtful about the speed and degree to which we pass increased funding costs to borrowers, ensuring we continue to deliver real value to our members while also continuing to deliver strong yields to our investors. I want to thank our Lending Club employees for helping us achieve these remarkable results and for working together, mostly remotely, over the last two years to co-create our ambitious future. Many are now returning to the office for part of the week, And it's been great to see everyone and to meet some new cases. With that, I'll turn it over to Tom for his comments.