LendingClub’s latest results, in the words of CEO Scott Sanborn, tell a story of “two halves” of 2022 as interest rates continue to soar:
The first half was marked by strong investor demand for the company’s loans, which boosted marketplace revenue. The second half of the year is and will be marked by a “rapidly changing rate environment temporarily affecting investor demand for loans”.
And yet there’s also a silver lining, as – perhaps unsurprisingly – consumers are also clamoring to park their money in higher-yielding savings accounts.
Deposits grew 80% year-on-year to $5.1 billion, with the 2021 acquisition of the only fully integrated digital bank Radius. The company noted that its deposit accounts offer an APY of 3.12%.
LendingClub is now navigating an environment where market volumes (the majority of creations) have been impacted by higher funding costs for some of the company’s investors, linked in part to interest rates. Market issuance of $2.4 billion was down just over 14% from the second quarter, and total lending of $3.5 billion was down 8% over the same period (up 14% year-on-year).
Investors sent the stock down 9% after hours. Midterm revenue guidance of about $260 million would represent a decline of more than 14% from the third quarter.
credit card debt consolidation
But, according to Sanborn’s commentary on the call, the fundamentals and allure of access to lower-cost credit are still in place:
“The majority of our members come to us to consolidate their credit card debt and the impact of the first few federal rate hikes is showing up in their credit card bills with rates and card balances at record lows and with further increases on the horizon,” he said. investors, adding that “our fixed rate and fixed principal loans continue to be a very attractive way for consumers to save money.”
In the loan portfolio, according to the supplements, the average FICO was 718 for the management portfolio, with an average income of more than $112,000 per year. And amid that strong profile, management said on the call, the company has increased the amount of loans withheld to $1.2 million. Although LendingClub expects to provide a higher return by passing rate increases on to borrowers (still lower than credit card debt), a change that takes time.
Management’s commentary on the call noted that there has been no widespread stress on credit performance, and overdue payments of more than 30 days still remain below pre-pandemic levels and less than 2%.
Inflation is impacting some borrowers at the bottom of the corporate credit scale – notably near-prime loans, at around 10% of personal loans, and according to call comments, underwriting is tightening for this cohort.
Looking ahead, Sanborn said, 2023 will be “a year in two halves but in the opposite direction.” The first half will see a continued rise in interest rates, and the second half will see credit card balances at record highs – and rates may not stop climbing. This, he said, will help drive increased demand for what he called LendingClub’s “very compelling offering.”
We are always looking for partnership opportunities with innovators and disruptors.