LendingClub Corporation

Good afternoon, everyone. Thank you for attending today's Lending Club first quarter 2023 earnings call. My name is Ciara, and I will be your moderator today. 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, press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Autumn Naliveko, Vice President of Finance at Lending Club. Please proceed.

Thank you and good afternoon. Welcome to LendingClub's first quarter earnings conference call. Join me today to talk about our results and recent events from Scott Sanborn, CEO, and Jule 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'll also be answering some of the questions that were submitted for consideration via email. Our remarks today 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 loan and financial performance our actual results may differ materially from those contemplated by these forward-looking statements factors that could cause these results different materially are described in today's press release in our most recent form 10k as filed with the sec as well as our subsequent filings made with the Securities and Exchange Commission, including our upcoming Form 10Q. 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 per common share and pre-provisioned 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, Artem. Welcome, everyone. Despite a turbulent quarter for the banking sector, we delivered against our financial targets, and we strengthened our financial position. Our results demonstrate the advantages of our digital bank business model, the flexibility of our technology platform, and the ability of our team to execute. Originations came in at $2.3 billion for the quarter, with loans sold through the marketplace in line with our expectations, and retained loans coming in ahead of our plan as we invested incremental earnings to grow our held for investment portfolio by 5%. We've more than tripled the size of the bank since our acquisition two years ago, demonstrating the rapid pace of our evolution. Pre-provision net revenue, essentially revenue minus operating expenses, came in at $88 million, thanks to both higher revenue and effective expense management, driven by the cost actions which we took last quarter. Given the recent banking turmoil, I want to take a minute to highlight how we stand apart. We've added slide 8 in the presentation to demonstrate. Our liquidity and capital positions remain strong and well above regulatory minimums. We grew deposits by 13% and are now holding $1.6 billion in cash, with 86% of our deposits fully FDIC insured. That's well above the bank industry average of roughly 50%. We now have over $4 billion in additional borrowing capacity, and we hold minimum long-duration securities. a mark-to-market impact representing less than three percent of our total equity versus the industry average of approximately 15 percent furthermore our health for investment loan portfolio is primarily comprised of short duration personal loans that currently have a fair value in excess of the carrying value turning to credit our health for investment portfolio continues to perform in line with our expectations demonstrating our prudent underwriting cycle-tested data advantage and resilient base of high-income, high FICO members. We moved early to tighten credit last year, and we are continuing to evolve our underwriting to reflect post-pandemic, post-inflationary signals. We have a massive data advantage gained from more than $85 billion in loans issued over the past 15 years, and combined with a flexible technology platform that allows us to rapidly implement changes. The result of our early actions and our ongoing management is evident in our delinquencies remaining in line with our expectations and below industry averages. As we highlighted last quarter, we are focused on quality over quantity. Borrower demand remains strong, and while banks remain active, fintech competitors have pulled back slightly, giving us even more latitude to be discerning about who we approve while also being efficient with our marketing. We're executing well on the factors we can control, and the business is performing as anticipated. Macro factors are, however, putting continued pressure on demand for marketplace loans and the corresponding marketplace revenue line. The rate-driven increase in marketplace investors' cost of capital has not abated. We are continuing to raise rates on the portfolio by deliberately testing our way into increased coupons for borrowers without causing adverse selection. In addition to the rate environment, the recent events in banking will have an impact on liquidity, especially for banks, and it's causing the broader economic outlook to become more bearish. Neither of these items will be constructive for marketplace demand in the near term. To get in front of this, we are pursuing using our capabilities as a bank to generate returns for Lending Club, support access to loans for borrowers, and enable marketplace loan investors to achieve their targeted returns. One new example is structured certificates, which is essentially a two-tier private securitization in which Lending Club retains the senior note and sells the residual certificate on a pool of loans at a predetermined price to a predetermined marketplace buyer, effectively providing built-in finance. Both parties in the transaction benefit. Lending Club earns an attractive yield with remote credit risk while at the same time earning fee income without upfront CECL provisioning. And marketplace loan buyers earn strong levered returns with low friction financing on a liquid security. We successfully settled our first certificate just last week with an asset manager. Structured certificates are one example of how our bank capabilities put us in a unique position to benefit our members, our marketplace loan buyers, and our business. While near-term pressure on marketplace revenue is expected to persist, the environment will eventually improve. and we plan to be ready when it does. With credit card balances and interest rates at record highs, our opportunity has never been greater. Over 4.7 million high-income, creditworthy Americans have already chosen us to help them access credit and find savings. We've spent the past several years investing in new capabilities in data and technology, servicing, customer care, much more to strengthen the foundation on which we've built our successful lending franchise. With our banks, We've expanded our product set to include award-winning checking and savings products. And these provide new cost-effective member acquisition channels and new opportunities for value generation for both our members and for Lending Club. We continue to build on our success and are currently investing in how to make our products work together in seamless and innovative ways to unlock additional value for our members and our shareholders. As we witnessed during the pandemic, capital inflows accelerate very quickly when the market sentiment turns positive, and we will be ready to capture the opportunity ahead. So with that, I'll turn it over to Drew.