LendingClub, fueled by surge in loans, posts surprise profit

A bigger-than-expected jump in loan originations helped LendingClub turn a profit in its first full quarter after acquiring a bank, surprising both company executives and analysts.

The San Francisco company is still expecting to report slight full-year losses partly due to merger-related costs earlier this year. But executives reported a profit of $9.37 million in the second quarter, a big swing from a $47.1 million loss the prior quarter, and said they expect to continue the momentum in the second half of the year.

Loan volumes soared roughly a year after LendingClub intentionally dialed them back.

“We significantly outperformed our expectations,” CEO Scott Sanborn told analysts on Wednesday. “Across the board, the actions we took as we reentered the market drove better results on a faster timeline than we had anticipated.”

CEO Scott Sanborn led LendingClub through its recent acquisition of Radius Bancorp. The San Francisco company now bills itself as the nation’s first digital marketplace bank.

Analysts seemed surprised as well. “Let me be a little exuberant here. This is amazing,” said Henry Coffey, a Wedbush Securities analyst, during the earnings call. The company’s stock jumped nearly 54% in midday trading Thursday to $25.06.

LendingClub, which specializes in installment loans to consumers who are looking to refinance credit card debt, tightened its loan approval criteria around the start of the COVID-19 pandemic. For much of the next year, the company focused on preserving capital and preparing for its acquisition of Radius Bancorp.

After that acquisition closed in February, the firm reversed much of that tightening and reopened the lending spigot, and in the meantime sharpened its underwriting and marketing processes, Sanborn said.

Those moves helped lead to a jump in loan originations to $2.7 billion, smashing LendingClub’s earlier guidance that its loan originations would rise to at most $1.9 billion.

The results helped lead to improvements in the company’s guidance for investors, with the company saying it expects full-year losses of $3 million to $13 million, a substantial decrease from its earlier projection of up to $167 million in losses.

LendingClub, which has long operated an online platform where borrowers get matched with lenders, now bills itself as the nation’s first digital marketplace bank.

As part of the acquisition, LendingClub plans to hold some 15% to 25% of the loans it originates on its books, letting the company earn more interest income. It plans to sell the remainder of its loans through its online marketplace, where the company earns origination fees.

The company’s net interest income jumped to $45.9 million in the quarter, up from $18.5 million in the first quarter of the year. LendingClub Bank’s net interest margin rose to 5.51%, up from 3.3% in the first quarter.

The rise in interest income “could imply the beginnings of an enhanced earnings trajectory for the business,” Credit Suisse analyst Stephen Ju wrote in a note to clients.

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