LendingClub Corporation

Good afternoon. Thank you for attending today's Lending Club 2Q 24 earnings conference call. My name is Jayla and I'll be a moderator for today. 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, Autumn Nalizeko, Head of Investor Relations. Autumn, you may proceed.

Thank you and good afternoon. Welcome to LendingClub's second quarter earnings conference call. Joining me today to talk about our results are Scott Sanborn, CEO, and Drew Laben, 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, 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 included non-GAAP measures relating to our performance, including tangible book value per common share, pre-provision net revenue, and risk-adjusted 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. Thank you, Artem. Welcome, everyone. I'm pleased to report that we had a strong quarter of growth, with originations climbing 10% sequentially to $1.8 billion, pre-provision net revenue growing 13% to $55 million, and gap net income growing 21% to nearly $15 million, all while sustaining our industry outperformance on credit, growing our balance sheet by nearly 9% year-to-date, and continuing to innovate on a truly differentiated experience for our growing member base. We have calibrated the business to the current operating environment and have achieved a solid foundation from which to efficiently grow. Strong credit performance is key to that growth. supporting higher marketplace loan sales prices, and maximizing risk-adjusted revenue from the balance sheet. Accordingly, it's worth highlighting that we continue to consistently outperform our competitive set with 40% better delinquency rates across all core segments we serve. Our outperformance is due to several proprietary advantages, including dozens of custom models, visibility into millions of repayment events across varying economic environments, a team that brings decades of human experience and intelligence to interpreting signals and trends, and an asset class and underwriting technology platform that allows us to rapidly respond to changing macro conditions. We're seeing strong returns with stable or improving credit losses across all vintages. And within our held for investment portfolio, delinquencies and charge-offs are trending lower, as expected, as our portfolio ages. For marketplace investors, our strong credit stewardship combined with our bank-enabled innovation is reinforcing our reputation as a partner of choice. That's driving heightened demand, which is supporting an increase in origination and incremental improvements in loan sales pricing. Our structured certificate program continues to provide buyers with an attractive alternative to warehouse lines or securitizations. And by holding the A note, we generate fee revenue and capital efficient risk remote interest income without an upfront CECL charge. This past quarter, we crossed $3 billion in lifetime originations through the program with a solid pipeline of forward interest. We're also meeting investor demand through our extended seasoning program, which provides us with interest income until we sell the loans. We executed over 80 million in seasoned loan sales this past quarter with prices above our carrying value. Going forward, We plan to continue driving loan prices up by maintaining strong credit performance, continuing to innovate on products and structures that meet evolving investor needs, and reengaging banks where we continue to have productive discussions in anticipation of sales beginning in the back half of this year. Obviously, we also stand to benefit from improvements in loan sales pricing and deposit costs should the rate environment turn in our favor in line with current expectations. With strong credit performance and growing marketplace investor demand, we're well positioned to resume growth and help more customers pay off their credit card balances, which stand at historically high levels priced at historically high rates. We've already delivered real value for our 5 million members. These are highly sought after customers who tend to be high FICO and high income, but also high users of debt. They are digitally savvy and eager to take steps to improve their financial outcomes. And our personal loans are a tool they turn to for the tangible value we provide, with over 80% saying our products help them keep more of what they earn, and nearly 90% saying that Lending Club has helped them successfully manage their overall debt burden. Strategically, we plan to use our industry-leading capabilities to efficiently acquire more of these customers, use our mobile app to engage them and keep them coming back, and leverage our product innovation engine to build a lifetime lending relationship that serves their needs. Our Q2 results illustrate the promise of this strategy. We grew originations 10% this past quarter while maintaining flat unit acquisition costs, which are already at industry-leading levels. When loan sales pricing improves more materially, we'll be able to restart our inactive marketing channels to drive incremental originations growth. We're also benefiting from investments in efficiency elsewhere in the organization. Within servicing operations, for example, we've upgraded our systems, increased automation, and implemented digital servicing tools. As a result, we've lowered the operational cost to originate a personal loan by one third in the past year. Our mobile app provides a powerful platform for engaging members after acquisition. Following a limited release earlier in the year, We began marketing the app for personal loan customers more broadly this quarter, leading to a doubling of first-time downloads at the end of the quarter and a roughly 20% month-over-month increase in app users in June. With self-service functionality in the first phase of our comprehensive debt monitoring and management solution embedded in the app, mobile users are finding more reasons to engage with us. In fact, they're logging in about 20% to 25% more often than web-only users, providing a growing, active, and engaged audience for communicating new offers and services. We're also seeing early signs of success in the app's ability to drive positive payment outcomes and to reengage inactive members. As members engage with us more frequently, we can do more for them and build what we call a lifetime lending relationship. Today, about half of our members return for a second loan through an expedited process. And this repeat behavior is important for several reasons. First, they return to us at near zero acquisition costs. Second, their credit performance is up to 20% better than new borrowers with a similar profile. Third, they have high satisfaction rates. In fact, our NPS score for repeat members grows after their second loan and keeps climbing as the relationship builds. And fourth, their growing satisfaction leads 83% of our members to want to do more with us which we're happy to accommodate. Doing more starts with meeting more of their lending needs through innovations like Top Up, which allow existing members to obtain additional funds while maintaining one monthly payment. Early results are promising with strong response and take rates and a 93% satisfaction rate, which exceeds that of our flagship personal loan product. Clean Sweep, our new line of credit product that allows members to easily refinance newly accumulated debt and pay it back in installment plans is equally promising, with early results above expectations and satisfaction at 90%. Products like these, which are uniquely enabled by our bank, not only meet new use cases, but they form the basis of a lifetime lending relationship that can keep our members coming back. To enable us to offer these products to the right customer at the right time, we recently launched a preapproval platform. We're already seeing benefits from the platform with higher offer and response rates and improved credit profiles. This pre-approval infrastructure can be extended outside of Lending Club, and we see it as another potential opportunity for Originations growth over the longer term. To test this thesis, we're currently piloting the solution with a partner. Before I turn it over to Drew, I'll conclude by saying that the company is well positioned for continued success. The historically rapid increase in rates and the resulting downstream impacts on the financial services sector has made for an extremely difficult operating environment these past two years. I'm incredibly proud of how the Lending Club team has risen to the challenge. As this quarter's results show, we have calibrated the business to this new environment and further streamlined and focused our operations, all of which will deliver outsized benefits as conditions improve. With a historic opportunity in front of us, I look forward to building on our momentum in the quarters ahead. With that, I'll turn it over to you, Drew.