LendingClub Corporation

Good afternoon. Thank you for attending today's Lending Club fourth quarter 2022 earnings conference call. My name is Megan, and I'll 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. I would now like to pass the conference over to our host, Samir Gulati with Lending Club. Please go ahead.

Thank you and good afternoon. Welcome to Lending Club's fourth quarter and full year 2022 earnings conference call. Joining me today to talk about our results and recent events are Scott Sanborn, CEO, and Drula Ben, 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 uncertainty. 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, loan, 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 as 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. Our remarks also include non-GAAP measures relating to our performance, including tangible book value for common share and pre-provision net revenue. We believe these non-GAAP measures provide useful supplemental information. You can find more information on our use of non-GAAP measures and a reconciliation to the most directly comparable GAAP measures in the presentation accompanying our earnings release. And now I'd like to turn the call over to Scott.

All right. Thanks, Samir. Welcome, everyone. We closed out 2022 with solid results. Both revenue and earnings were near the high end of our guidance range, and importantly, we took action to position the company well to navigate current headwinds. The power of our evolving model is evident in our numbers. Our growing stream of net interest income offset the anticipated decline in marketplace revenue and enabled us to deliver total revenue in line with fourth quarter of 2021, despite a decline in loan originations. For the full year, we generated 45% revenue growth and a record $290 million in net income, or $146 million after you exclude tax benefits from the release of our valuation allowance. We invested our strong marketplace earnings back into our balance sheet, doubling the size of our held for investment loan portfolio, which allowed us to more than double our net interest income. These results begin to provide a sense of the power of this business over the long term. Our goal, when the environment stabilizes, is to continue to grow the bank balance sheet and the corresponding interest income revenue stream with marketplace revenue acting as a capital-light earnings complement as well as a compelling membership growth driver. To reach this destination, we first need to navigate through the current environment, and we have plans to do just that. While it's unclear where exactly the Fed and the U.S. economy would land, we remain focused on what we can control and are positioning ourselves to best manage through the uncertainty. Our focus is on three key areas. One, continuing to prudently manage credit quality through the cycle. Two, preserving profitability and maintaining a strong balance sheet. And three, being practical and focused in our product and technology investments. So starting with credit. where we will remain laser focused on managing credit risk for both our marketplace investors and ourselves. A note, the loans we hold on our balance sheet representing prime and high prime customers are continuing to perform well, as you'll see on pages 16 and 17 in our presentation. For loans sold through the marketplace, we are pursuing quality over quantity. As we have spoken about for several quarters, The rate environment is putting pressure on marketplace volumes as the relative value we can provide is compressed until we can reprice our loans to reflect the dramatic increase in cost of funds for especially our non-bank investors. In this higher rate, lower volume environment, we have both the responsibility and the opportunity to be selective on credit. Our delinquencies have outperformed industry averages, but we need to remain vigilant and proactive. We anticipated and have seen pressure on our members, most notably in near prime and especially among those consumers with lower incomes. We are also seeing a dynamic pace of change in areas like savings rates and prepayments videos. A core strength for Lending Club is our ability to use our data advantage and our technology infrastructure to quickly adapt to emerging signals. Accordingly, we were proactive to begin tightening early in 2022 and have continued to tighten our underwriting throughout the year. For reference, our fourth quarter near prime volumes are down more than 50% from their peak. Longer term, the opportunity to grow personal loans remains significant. With credit card balances building at an over 20% average APR, even more consumers will benefit by refinancing their high cost credit card debt into a fixed rate installment loan. And as interest rates stabilize and the U.S. economy regains its footing, we expect our marketplace volumes to rebound. Our second key objective is to maintain profitability and a strong balance sheet. We recently announced the difficult decision to streamline our operations to better align our expense base to our outlook. We also bolstered our net interest income by acquiring a large portfolio of seasoned high-quality loans from one of our marketplace investors. In the near term, we expect marketplace revenue to be under pressure until the Fed slows or ideally stops with rate hikes. At the same time, we plan to maintain a stable interest income revenue stream by keeping the balance sheet at roughly its current size. Our final area of focus is to continue to prudently invest in the core product and technology capabilities that will create more value for our four and a half million members. While we remain committed to our long-term vision, we are slowing down the pace of our investment. And our intent in 2023 is to put the building blocks in place that will support future growth opportunities as we come out of the current environment. Certainly we will remain mindful of the macro economy and we'll continue to adjust the pace of our investment as needed. So I'm going to turn it over to Drew now to walk you through the detailed financial results in our outlook.