LendingClub Corporation

Hello, everyone. Thank you for attending today's Lending Club Third Quarter 2023 Earnings Conference Call. My name is Sierra, 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 Neloveco, Vice President of Finance.

Thank you and good afternoon. Welcome to LendingClub's third quarter earnings conference call. Joining me today to talk about our results are Scott Sanborn, CEO, and Drew Levin, 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, including with respect 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 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 presentation. Any forward-looking statements that we make on this call are based on current expectations and assumptions 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-provisioned net revenue. You can find more information on our use of non-GAAP measures and a reconciliation to the most directly comparable GAAP measures in today's earnings release and presentation. And now, I'd like to turn the call over to Scott.

All right. Thanks, Artem. Welcome, everyone. We delivered another profitable quarter thanks to disciplined execution and proactive efforts to appropriately position the company in what remains a dynamic environment. Our $1.5 billion in originations was in line with our expectations. Total revenue for the quarter was $201 million, and pre-provision net revenue, which is revenue less non-provision expenses, was $73 million. which was well above the high end of our guidance and aided by a couple of non-recurring items, which Drew will explain. The quarter's results were further supported by our ongoing expense management efforts and our difficult recent decision to align staffing to current market conditions should position us to stay resilient going forward. I want to begin by providing context on the current operating environment, which remains challenging, particularly on the investor side of our marketplace. Following the banking turmoil that emerged earlier this year, bank investors, which historically comprised 50% of our marketplace, have temporarily moved to the sidelines as they focus on fortifying capital and liquidity levels. While we continue to have productive discussions and the appeal of our high-yield, short-duration assets is clearer now more than ever, banks are currently focused on right-sizing their balance sheets, and their capacity to invest is likely to remain restricted in the near term. In anticipation of this shift in marketplace dynamics, we have been leaning into our bank capability to build unique new structures to better serve asset managers and Lending Club in today's environment. In Q2, we launched our structured certificates program, 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 to a marketplace buyer at a predetermined price. This effectively provides low-friction, low-cost financing for the buyer. And in exchange, Lending Club earns an attractive yield with remote credit risk and without upfront CECL provisioning. As a bank, this is something we are uniquely positioned to deliver for marketplace investors. Interest in the program is strong and growing, which is a testament to the strength of our credit, given we're selling residuals in a market where residual sales are few and far between. We more than doubled the program in Q3 from Q2 and expect to roughly double it again to as much as a billion dollars in Q4. In total, we now have close to $2 billion of signed orders for over the next six months. Not only are structured certificates helping us to attract new investors, they're also helping us make efficient use of capital and reposition the balance sheet to capture low-risk interest income off of the senior note. Another advantage of our bank, is our ability to hold in-season loans for investors, earning interest income for Lending Club while increasing the certainty around future credit performance for the buyer, which is especially important in this environment. We're receiving interest from investors in the program and originated $250 million in Q3 to replenish the $200 million in loans sold earlier in the quarter. Now let's turn to credit. We remain focused on prime originations with near prime representing an immaterial portion of our total Q3 issuance and of our retained portfolio. We've adapted our underwriting standards to the inflationary environment, which has resulted in consistent credit performance on newer vintages. Inflationary pressures are visible in vintages originated before we began tightening, and we therefore increased our provision based on observed trends and our outlook. I note that return on equity on all vintages remains north of 20%. Our expected lifetime losses remain within the range we previously communicated, and better than our competitive set based on available industry data. Looking forward, a historic refinance opportunity awaits us. Credit card balances have grown to 1.3 trillion, and average credit card interest rates are now above 21%. Thanks to foundational investments we've made over the past several years, along with our proven ability to scale quickly, we are well positioned to meet massive consumer demand as conditions normalize. We've been making steady progress on key initiatives that will provide powerful, differentiated solutions and enhance our value proposition to both new and existing members. Before the end of this year, we will have accomplished the following, included loan servicing into our banking mobile app, to provide a seamless member experience across lending, spending, and savings. That's harder than it sounds. In fact, many banks have instead opted to create multiple apps serving specific product verticals. With our mobile-first multi-product platform in place, we will have a single powerful engagement vehicle for offering new solutions to our members. We'll also be testing the first generation of a line of credit products that allows approved members to easily sweep accumulated credit card balances into fully amortizing payment plans. This paves the way for a revolving line of credit product in future years and builds on the proven performance we've seen from repeat members. And we will launch the first phase of a comprehensive debt monitoring and management experience. While in early development, this will ultimately give members a way to track, prioritize, and optimize debt payments, especially credit card payments, which will be of significant value to Lending Club members. Taken together, these innovations will further drive member engagement and satisfaction, which in turn should translate to better credit outcomes and a higher lifetime value. Our business is evolving and we're changing our focus from building a strong mobile banking foundation to focusing on multi-product member engagement. To lead that effort, I'm happy to announce that we've hired Mark Elliott as Chief Customer Officer with experience at JPMorgan Chase and CapOne, where he led digital banking efforts Mark brings a unique background in strategy, marketing, and customer focus, especially in retail banking, as well as a proven ability to coordinate these areas to fuel growth. I'm looking forward to his leadership as we march forward. I want to close by thanking Lending Club's employees for their continued dedication through what has been a trying few quarters. Lending Clubbers are demonstrating their resilience, And I have no doubt they'll be ready, willing, and able to accelerate when the opportunity presents itself. With that, I'll turn it over to Drew.