LendingClub Q2 2025 Earnings Report

LendingClub EPS Results

• Actual EPS: $0.33
• Consensus EPS: $0.15
• Beat/Miss: Beat by +$0.18
• One Year Ago EPS: $0.13

LendingClub Revenue Results

• Actual Revenue: $248.44 million
• Expected Revenue: $227.04 million
• Beat/Miss: Beat by +$21.40 million
• YoY Revenue Growth: +14.10%

LendingClub Announcement Details

• Quarter: Q2 2025
• Date: 7/29/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, July 29, 2025
• Conference Call Time: 5:00PM ET

LendingClub (NYSE:LC), operates as a bank holding company, that provides range of financial products and services in the United States. It offers deposit products, including savings accounts, checking accounts, and certificates of deposit. The company also provides loan products, such as consumer loans comprising unsecured personal loans, secured auto refinance loans, and patient and education finance loans; and commercial loans, including small business loans. In addition, it operates an online lending marketplace platform. The company was incorporated in 2006 and is headquartered in San Francisco, California.

LendingClub Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Delivered 32% year-on-year origination growth and 33% revenue growth, lifting GAAP net income to $38 M and ROTCE to nearly 12%, surpassing the 8% target.
• Positive Sentiment: Sustained a 40% credit performance improvement versus peers, cut net charge-offs to 3% (from 6.2% YoY) and realized a $9 M pre-tax provision benefit.
• Positive Sentiment: Extended the Blue Owl forward-flow agreement up to $3.4 B and completed an inaugural $100 M Fitch-rated certificate deal with BlackRock, boosting funding capacity and loan pricing.
• Positive Sentiment: Launched LevelUp Checking—offering 1% interest, 1% cash back and 2% rewards on on-time loan payments—and grew LevelUp Savings deposits to $2.7 B, driving deeper customer engagement.
• Positive Sentiment: Raised Q3 guidance to $2.5–$2.6 B in originations (+31–36% YoY), PPNR of $90–$100 M (+37–53%), and ROTCE of 10–11.5%, with Q4 results expected to mirror Q3 momentum.

Presentation

[Operator]

Good afternoon. Thank you for attending today's LendingClub Q2 twenty twenty five Earnings Conference Call. My name is Tamiya, and I will be your moderator for today's call. 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 your host, Artem Malavico, Head of Investor Relations. You may proceed.

[Artem Nalivayko, VP - Head of FP&A & IR at LendingClub]

Thank you, and good afternoon. Welcome to LendingClub's second quarter twenty twenty five earnings conference call. Joining me today to talk about our results are Scott Sanborn, CEO and Drew LeBenn, 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 e mail.

[Artem Nalivayko, VP - Head of FP&A & IR at LendingClub]

Our remarks today will include forward looking statements, including with respect to our competitive advantages and strategy, macroeconomic conditions, platform volume and pricing, 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 earnings 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 per common share, pre provision net revenue and return on tangible common equity.

[Artem Nalivayko, VP - Head of FP&A & IR at LendingClub]

You can find more information on our use of the 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.

[Scott Sanborn, CEO at LendingClub]

Thank you, Artem. Welcome, everyone. We had a fantastic quarter delivering 32% year on year growth in originations and 33% growth in revenue. We more than doubled our earnings generating 38,000,000 in GAAP net income compared to 15,000,000 last year. And as a result, we achieved an ROTCE of nearly 12%, well north of the 8% target we set at the beginning of the year and delivered well ahead of schedule.

[Scott Sanborn, CEO at LendingClub]

Beyond the strength of our financial performance, we continue to outperform on prime credit, sustaining our 40% improvement versus the competitive set. We extended our forward flow agreement with Blue Owl for up to $3,400,000,000 of new originations. We closed our first transaction with BlackRock enabled by our recently launched Fitch rated structure certificate program, and we introduced LevelUp checking, a first of its kind checking product offering cash back rewards for on time loan payments. Let me hit on a few of the highlights of our performance across the business. I'll start with originations volume.

[Scott Sanborn, CEO at LendingClub]

We said we were going to drive growth through marketing and product innovation, and we did just that, generating meaningful originations growth both sequentially and year on year while realizing better than expected marketing efficiency as we return to channels including direct mail and online advertising. We also delivered strong credit performance, thanks to our vast datasets, advanced models, and decades of experience. We're not only consistently beating our competition, but we're also beating our own expectations. And while we continue to closely monitor the macro environment, our data is demonstrating the effectiveness of our underwriting and the resilience of our borrower base. Our consistent credit performance and status as a provider of choice continues to generate strong loan investor demand, which over time leads to higher loan sales prices and increased marketplace revenue.

[Scott Sanborn, CEO at LendingClub]

We just announced the extension of our funding partnership with Blue Owl for up to 3,400,000,000.0 in structured certificate transactions over two years, with up to 600,000,000 closing within the next several months. And last quarter, we launched our Fitch rated structured certificate program to enable improved loan sales prices by attracting lower cost pools of capital, including insurance. We successfully closed the first of these transactions with a top global insurance company in q one, and I'm happy to announce today that we recently completed an inaugural $100,000,000 transaction with funds and accounts managed by BlackRock, and we hope to partner with them on more transactions like this in the future. Now I wanna spend some time talking about our innovation efforts built on our mobile first platform, each designed to more regularly engage our members and build multiproduct relationships. That's because engaged multiproduct members have better credit outcomes and higher lifetime value.

[Scott Sanborn, CEO at LendingClub]

We launched LevelUp savings last year, offering a higher rate to depositors who make a regular habit of savings. To date, we've reached 2,700,000,000.0 in LevelUp savings deposits with almost 80% of those accounts meeting the threshold to earn the highest rate. It's also driving engagement with these members logging in 30% more often than those with our prior savings product. Now LevelUp savings was designed specifically for savers who have cash to put to work. And even so, we're finding that over 10% of new accounts are being opened by our borrowers who are coming to us for loans, which is indicative of their desire to engage more deeply with us.

[Scott Sanborn, CEO at LendingClub]

Building on the success of LevelUp savings, we recently launched LevelUp checking specifically for our borrowers. Along with paying 1% interest on qualifying balances, it has two key features. First is 1% unlimited cashback on everyday purchases like gas and groceries. Here, we're rewarding our members for using money that they have versus money that they borrow, thereby incenting good financial behavior. Second, and this is unique to us, we're offering 2% cashback for on time personal loan payments from a level up checking account.

[Scott Sanborn, CEO at LendingClub]

We're rewarding borrowers for their financial discipline while allowing us to benefit from a stickier relationship. While it's still early, the initial results are encouraging. We're now opening six times more checking accounts per day than prior to launch, with nearly 60% of these accounts being opened by borrowers. Next up on our product road map is an enhanced version of Debt IQ, which will move beyond credit monitoring to include card linking, in app payments, and automated payment strategies. DebtIQ will give our members transparency and control over their debt in an easy to use command center.

[Scott Sanborn, CEO at LendingClub]

We're currently in beta testing in a limited fashion as we work towards a broader rollout later this fall. In closing, this quarter marks an inflection point in both our strategic and our financial trajectory, where the work we've been doing over the past several years is translating into tangible results for both our members and our shareholders. I'm energized by the momentum we have going into the back half of the year and the many opportunities in front of us. I wanna close by thanking the LendingClub team for their continued outstanding work and focus. And with that, I'll hand it over to you, Drew.

[Drew LaBenne, CFO at LendingClub]

Thanks, Scott. This quarter marks my three year anniversary at LendingClub, and this has been the most exceptional quarter yet. Let's walk through the details of our results. We originated $2,400,000,000 in loans in the quarter, which was a 32% increase year over year. The increase in originations was driven by the successful execution of our paid marketing initiatives and new product enhancements.

[Drew LaBenne, CFO at LendingClub]

If you turn to Page 12 of our earnings presentation, you can see the originations broken down across the four funding channels. We increased the dollars retained in both our held for investment and extended seasoning portfolios. Given the demand for seasoned loans, we expect to direct more volume into the extended seasoning portfolio as we move through the second half of the year. As shown on Page 13, total revenue for the quarter was $248,000,000 up 33% from the same quarter of the prior year. As a reminder, our business has two primary revenue streams.

[Drew LaBenne, CFO at LendingClub]

First, we have the capital light marketplace business that generates fee based revenue through loan sales to funding partners. The marketplace business is highly scalable, capital efficient and allows us to serve more borrowers across the credit spectrum while generating in period revenue. The marketplace business represents the vast majority of our non interest income. Second, we have net interest income from loans held on the balance sheet. These loans generate a strong recurring revenue stream funded by customer deposits and our own capital.

[Drew LaBenne, CFO at LendingClub]

We generate approximately three times the earnings over the life of the loans for those held to maturity compared to selling through the marketplace. Since the bank acquisition in 2021, we have quadrupled the size of the balance sheet, which is now almost $11,000,000,000 in total assets. Taken together, these two revenue streams complement each other. The highly scalable nature of the marketplace enables rapid growth during periods of strong demand in the capital markets and the bank balance sheet provides a durable recurring revenue stream to sustain the business through all economic cycles. Now let's dig into these two components of revenue.

[Drew LaBenne, CFO at LendingClub]

First, non interest income was $94,000,000 in the quarter, up 60% over the same quarter of the prior year. This increase was driven by more originations sold through the marketplace and improved loan sales pricing. Marketplace investors continued to value our best in class credit performance and the resulting attractive asset yields. As Scott discussed, our outlook on credit performance continues to improve and the mark on the held for sale portfolio improved by approximately $11,000,000 Looking ahead, we are very pleased with the trajectory of the marketplace business and look forward to building on the momentum as we move through the balance of the year. Now let's move on to net interest income, which was $154,000,000 in the quarter, up 20% over the same quarter last year.

[Drew LaBenne, CFO at LendingClub]

This is another all time high for us as we continue to grow and optimize our balance sheet. In addition to the strong balance sheet and revenue growth, net interest margin improved again to 6.1%. Margin continues to expand as we are repricing our deposit portfolios in response to previous Fed cuts. To date, our repricing beta on deposits has been nearly 100%. We expect the balance sheet to continue growing and net interest margin to maintain around current levels until the Fed cuts interest rates further.

[Drew LaBenne, CFO at LendingClub]

Now please turn to Page 15 of our presentation, which covers non interest expense. Non interest expense was $155,000,000 in the quarter, up 17% compared to the prior year. As we foreshadowed last quarter, the largest driver of expense growth was marketing spend, which was up 26% compared to the prior year, enabling a 32% growth in originations. We are harnessing the power of our marketplace bank model to deliver significant operating leverage with revenue growth of 33% outpacing expense growth by nearly two:one over the past year. Taken together, pre provision net revenue or revenue less expenses was $94,000,000 for the quarter, up 70% from the same quarter last year and above our guidance range of $70,000,000 to $80,000,000 To summarize the earlier comments, the large improvement over the high end of our range was driven by stronger than forecasted originations and an improvement in fair value marks of approximately $11,000,000 related to credit outperformance, which may not repeat in future quarters.

[Drew LaBenne, CFO at LendingClub]

Now let's turn to provision on Page 16. In the quarter, we more than doubled retention of held for investment loans versus last year. Despite that, provision for credit losses was only up modestly to $40,000,000 compared to $36,000,000 in the same quarter of the prior year. The increase in provision from higher retention was largely offset by better than expected credit performance. Across all vintages, stronger credit performance resulted in a provision benefit to our pretax income for the quarter of approximately $9,000,000 You can see evidence of the credit improvement on Slide 17 as the lifetime loss expectation for the 2024 vintage came down.

[Drew LaBenne, CFO at LendingClub]

As a reminder, the 2024 vintage carries higher qualitative reserves compared to the previous vintages given its longer remaining life. Excluding those qualitative reserves, the 2024 vintage is expected to have lower losses than the previous vintages. It is also worth noting we did not make any material adjustments to our qualitative reserves in our allowance this quarter. The net charge off ratio for our held for investment loan portfolio improved further to 3% in the quarter, down from 6.2% in the same quarter last year. The net charge off rate for the quarter is unusually low as it benefited not only from improving credit performance, but also from dynamics around the timing of recoveries and the age of the portfolio.

[Drew LaBenne, CFO at LendingClub]

We therefore expect net charge off rates rates to move modestly upward from these low levels as the more recent vintages season. All of these dynamics have already been provisioned for on a discounted basis and are reflected in our allowance. Now let's move to taxes. Taxes in the quarter were $15,800,000 or 29% of pretax income. A higher effective tax rate this quarter was due to a change in California tax law, which will lead to a lower statutory rate in the future, but had the impact of reducing our deferred tax assets by $2,300,000 The good news is while we will have some variability in our effective tax rate from quarter to quarter, our long term statutory tax rate expectation is now reduced to 25.5% from 27%.

[Drew LaBenne, CFO at LendingClub]

The combination of originations growth, credit outperformance, strong marketplace demand and margin expansion drove an exceptional quarter. Net income came in at $38,000,000 up 156 compared to the same quarter last year. This translated to diluted EPS of $0.33 per share and tangible book value per share of $11.53 This quarter represents a step function improvement in our financial performance expect to continue. We are executing well and are coming into the second half of the year with significant momentum. For the third quarter, we anticipate growing originations to 2,500,000,000.0 to $2,600,000,000 up 31% to 36% compared to the same period last year.

[Drew LaBenne, CFO at LendingClub]

We are continuing our push in the paid marketing acquisition and we've seen early success and will look to build further on the growth coming out of the second quarter. We expect PPNR in the range of 90,000,000 to $100,000,000 up 37% to 53% compared to the same period last year. The growth is driven by higher marketplace volumes, stable loan pricing and growing net interest income. This also factors in expenses rising from investments in our product roadmap and marketing channel expansion to support continued growth. We are pleased to have already exceeded the $2,300,000,000 originations target and the 8% ROTCE Q4 exit rate target we set at the beginning of the year.

[Drew LaBenne, CFO at LendingClub]

To that point, we are increasing our ROTCE target to a range of 10% to 11.5% for the third quarter, reflecting top line momentum translating to bottom line earnings for our shareholders. In the fourth quarter, we typically have some seasonal headwinds to origination volumes. Despite that, we expect overall results to be similar to our third quarter guidance. With that, we'd like to open it up for Q and A.

[Operator]

Thank you. We will now begin the question and answer session. The first question comes from Bill Ryan with Seaport Research Partners. You may proceed.

[William Ryan, Senior Analyst at Seaport Research Partners]

Good afternoon, and thanks for taking my questions. I normally, obviously, don't say congratulations, but you guys have really helped the line on credit the last couple of years, and it's obviously paying dividends right now. First question I have is about competition. It's coming up a little bit more frequently given you've seen very high volumes come out of the private or the personal lenders, a lot of capital being allocated to the sector. There are some new products being introduced.

[William Ryan, Senior Analyst at Seaport Research Partners]

One of your competitors talked about an interest only product, at least for a few months, when they take out the loan. Personally, I've gotten offers from GREN Financial for a personal loan and more recently, OneName, which I have to say I kind of took that one a little bit personal. But if you could kind of maybe give us some idea of what you're seeing on the competitive front, Any obstacles into the future? Any risks that you're seeing out there?

[Scott Sanborn, CEO at LendingClub]

Yes. First, thanks, Bill, for the shout out on credit. That's something that you don't really get credit for short term. It plays out over the long term, and I think, you know, we're we're seeing that in the results now, both what's coming off the balance sheet, but also the the partners that we're bringing on board and and the price that we are selling at. You know, on the competitive front, I I think, again, you can see in our results, we grew volume 32% year on year, 20% quarter on quarter, and we actually maintained marketing efficiency even though we were going back into channels for which we do not have optimized efforts, response models, creative, anything else.

[Scott Sanborn, CEO at LendingClub]

So I would say we feel that was a long winded way of saying we feel very good about our ability to compete. We know how to compete in this space. We have, you know, all of the variety of product and experience constructs and, let's call it, funnel conversion mechanisms that we think pull through the customers that we want. And we've got an infrastructure that allows us to make sure we're getting who we want. So, you know, we had anticipated I think we signaled that we, you know, we're expecting a competitive environment.

[Scott Sanborn, CEO at LendingClub]

We have you know, this space has always been competitive, and there are always new entrants coming in, you know, on a very regular basis. They routinely, you know, come in strong and then end up pulling back over time as they see that, you know, it's very hard to build a bureau inference model and, you know, kinda step into the space and get the returns you were you were expecting because there's a lot going on under the cover. So I'd say, you know, we are not seeing, at this point, anything that has us concerned about our ability to compete and our ability to maintain the kind of growth that that we're demonstrating.

[William Ryan, Senior Analyst at Seaport Research Partners]

Okay. Thanks for that. And just a follow-up question on the marketing efficiency. Obviously, everybody's been building higher marketing costs into their models, came in a bit better than I think what a lot of people had expected this quarter when you measure marketing as a percentage of marketplace originations and even total originations. But could you give us some sense of what how we should think about modeling that going forward from current levels?

[Drew LaBenne, CFO at LendingClub]

Yes. I mean, it's you should expect it still to go up as we've been signaling. It obviously they go up a bit this quarter, but, what else would you should expect to go up our originations? So, I think our marketing efficiency probably won't be quite at these levels as we go forward and grow volumes, but I think we've had a a good initial start to our expansion here and, you know, looking forward to doing more of it.

[Scott Sanborn, CEO at LendingClub]

Yeah. A little color is, you know, we leaned more heavily into reaching current members through some of the new channels, and got really strong response there as we ramp up the prospecting efforts. We are maintaining our roughly fifty fifty new versus repeat. So about half of our business comes from prior customers. We're maintaining that as we lean into the new channels, but we're seeing strong response from those new channels from our prior customers.

[William Ryan, Senior Analyst at Seaport Research Partners]

Okay. Thanks again for taking my questions.

[Operator]

Thank you. The next question comes from Crispin Love with Piper Sandler. You may proceed.

[Crispin Love, Director - Equity Research at Piper Sandler Companies]

Thanks. Good afternoon. First on credit quality, definitely a very strong quarter improving metrics, a lower provision following the qualitative adjustment last quarter. So can you share your thoughts as you sit today? Are you seeing similar trends versus three months ago on the last call, but just a better macro environment compared to that volatility early in the quarter?

[Crispin Love, Director - Equity Research at Piper Sandler Companies]

And then secondly and relatedly, would you expect any impacts from the end of the student loan moratorium?

[Drew LaBenne, CFO at LendingClub]

Yes. So thanks for the question, Crispin. I'd say, one, you know, the end of last quarter, we were we were seeing strong credit performance from consumers there as well in terms of, you know, the quantitative measures, and that that has just continued to improve as we've gone through q two. Really, the increase in provision at the end of q one was, you know, what we call the qualitative provision, which was really just looking forward at the economic signals and liberation day and reserving more for that. So it it really didn't have anything to do with the core performance we are seeing in the consumer portfolio.

[Drew LaBenne, CFO at LendingClub]

Obviously, as we've ended this quarter, it feels like things have settled down quite a bit. We didn't materially change the qualitative reserves, but what we did do is take through the benefits of stronger consumer performance. And then the other question

[Scott Sanborn, CEO at LendingClub]

So on the student loan side, I think we've talked about this before, Kristen. We proactively reduced our exposure to the student loan population, I think, more than a year in advance of student loan repayments resuming and also put a bunch of programs in place to to both monitor it and also be able to service the needs of those customers. We're actually not we have seen really no change since the resumption of payments, and I think, you know, the next step will be the potential for for wage garnishment. But we're you know, the percent of our population that is paying our loans, that is obligated to pay student loans, but that isn't paying student loans, you're talking, like, 1%. And we're not seeing any difference in performance from that population, right now at all. So we feel feel pretty good about that.

[Crispin Love, Director - Equity Research at Piper Sandler Companies]

Perfect. That definitely makes sense on the credit side. And then just on the guidance and the ROTCE targets guiding to double digit ROTCE in the third quarter. And then as you said in the call, you were previously expecting the greater than 8% in 4Q. But I don't believe you have any 4Q targets out there.

[Crispin Love, Director - Equity Research at Piper Sandler Companies]

As we look forward, would you expect to maintain that double digit ROTC target 4Q and beyond? Just any or are there any other puts and takes as you look out a couple of quarters?

[Drew LaBenne, CFO at LendingClub]

Yes. No, that's our expectation. I sort of softly said it in my remarks, but we expect when I said the financial momentum to continue, we'd expect to be at similar levels as Q3 in terms of ROTC in Q4. We'll obviously give a more official guide as we're entering the fourth quarter.

[Crispin Love, Director - Equity Research at Piper Sandler Companies]

Thank you and appreciate taking my questions. Great quarter.

[Operator]

Thank you.

[Drew LaBenne, CFO at LendingClub]

Thanks.

[Operator]

The next question comes from Vincent Caintic with BTIG. You may proceed.

[Vincent Caintic, MD & Finance Analyst at BTIG]

Hey, good afternoon. Thanks for taking my questions. First question, kind of the philosophy around your guidance. So you've had really good performance over the past couple of quarters, handily beating your guidance for those past couple of quarters. And I guess to your point, for instance, beating the fourth quarter guidance for volumes already in the second quarter, I'm sort of wondering maybe first what's changed where you were able to beat that so handily?

[Vincent Caintic, MD & Finance Analyst at BTIG]

And then when you think about your third quarter volume origination volume guidance, are you assuming, say, a worse macro environment? Just trying to kind of understand if there's any conservatism baked into that. And then for your PPNR side of the guidance, guidance is basically flat for PPNR in the third quarter versus second quarter. You've highlighted some things. You have the $11,000,000 fair value marks and provision benefit of 9,000,000 You also talked about, in the press releases, the marketing expense increase.

[Vincent Caintic, MD & Finance Analyst at BTIG]

Not sure if you can provide what that number would be in terms of PPR and impact, but also wanting to understand any conservatism baked into that.

[Scott Sanborn, CEO at LendingClub]

Maybe I'll Drew, I'll let you take that. But just a comment upfront, Vincent. Just a refresher when we came into the year, what we had telegraphed was that we expected to resume, you know, let's call it more ambitious growth starting in q two because that's when seasonality turns in our favor, and that's when we expected our loan sales prices to afford the kind of unit economics that would allow us to invest in those growth channels. And so when we gave q one guidance, which was more or less in line with q four, the reason we gave a q four number was basically to just say, hey. What, we expect the trajectory to be up from here while q four to q one is more in line.

[Scott Sanborn, CEO at LendingClub]

We expect throughout the course of the year to be growing volumes and, importantly, profitable growth, expanding bottom line ROTCE. That's why we we put a number out there, the number out there that we did. And then, you know, the only other, piece was, obviously, while it's been great to see things sort of settle down, You know, there's a lot of very dynamic forecasts, in the beginning of the year, around the rate environment, inflation, unemployment. And so consuming all of those changes, which were fairly dramatic swings quarter to quarter, which, as you know, come you know, we are in our space, we're the only one that sort of absorbs the impact of that in real time. And so we were sort of making sure we could absorb that kind of volatility in the outlook we gave.

[Drew LaBenne, CFO at LendingClub]

Yeah. And just just to just add to that, I think if you put yourself back at the end of q one when we were giving the q two guide, and liberation date just happened, I I think all all of us speaking broadly were unsure more unsure what the future was going to look like. It obviously resolved itself, you know, midway through the quarter, I'll call it, and and that that certainly helped results come in on the upper side. But even if you if you take the one timers there, we were a little bit ahead of the PPNR guys. So, there's probably always gonna be some level of one timers that we're gonna need to adjust for given the nature of the business. But this is the first quarter we've actually given, you know, a next quarter ROTCE guide. So, obviously, I think we're feeling that the visibility into the next quarter is improving versus where we've been over the past year and a half, and so hope to provide more of that visibility in the future.

[Vincent Caintic, MD & Finance Analyst at BTIG]

Then you I had a question on the marketing dollars. Yeah.

[Drew LaBenne, CFO at LendingClub]

And I think marketing dollars, you know, probably without, you know, totally guiding to the number, probably the increase next quarter similar to slightly higher than the increase you saw this quarter.

[Vincent Caintic, MD & Finance Analyst at BTIG]

Okay. Great. That is super helpful. Thank you, and thank you for that context. I really appreciate it.

[Vincent Caintic, MD & Finance Analyst at BTIG]

And I guess related to the ROTC comments, so that's super helpful, it's nice to see that the guide, the guide up. And I guess within the context of your CET1 ratio being at 17.5%, I mean, it's pretty high number. And I imagine if you were to to normalize that CET1 ratio, your ROTCE guide would be even higher. So I'm just kind of wondering how you're thinking about that 17.5%. And if you were to deploy that capital towards anything, like, what would you think, you know, what's your priorities and what's sort of the time frame around that? Thank you.

[Drew LaBenne, CFO at LendingClub]

Yeah. You know, if you if you reflect on the time since we've been a bank, we're about little over four years in. We've to the balance sheet over that four years. So it's been pretty substantial growth over that time. You know, we're looking to continue a high level of growth, with the balance sheet and with the business, and we want the capital to be able to do that.

[Drew LaBenne, CFO at LendingClub]

You know, we're we're very conscious of, the dilution that we create for shareholders, and we've been able to not raise common at all over those four years. And, you know, I think we're very proud of how we've grown tangible book value per share for shareholders, and we're gonna look to continue to do that and use the capital we have for that growth versus having to go back out and raise more capital in that dilutive fashion.

[Vincent Caintic, MD & Finance Analyst at BTIG]

Okay. Great. Maybe, sneak in one more. I guess, to that point, when you think about the, the incremental loan that you're putting on and the and the returns on that, I guess you do have a side on that, but that's so that's sort of a high teens or 20% ROTCE for every incremental loan you're putting on?

[Drew LaBenne, CFO at LendingClub]

Yeah. The marginal ROTCEs on our personal loans, you know, have been kind of 25% to 30% range for for several quarters, and our other businesses perform at similar levels. So we think the marginal returns that we're, you know, putting on the balance sheet are very attractive for shareholders.

[Vincent Caintic, MD & Finance Analyst at BTIG]

Perfect. Very helpful, clarification. Thank you.

[Operator]

Thank you. The following question comes from Kyle Joseph with Stephens. You may proceed.

[Kyle Joseph, Managing Director at Stephens Inc]

Hey, good afternoon. Thanks for taking my questions. Congrats on a good quarter. I just want to get your thoughts on kind of the competitive environment and how you envision that influencing your mix of originations, whether HFI or vice versa. You know, obviously, there's a lot there's a lot of capital out there, and that makes the marketplace loans attractive.

[Kyle Joseph, Managing Director at Stephens Inc]

But, you know, I I think one of the big competitor competitive advantages for you guys is your bank and ability to balance sheet those. So just kinda, you know, how you're thinking about the world, how you're thinking about, the mix in terms of originations going forward.

[Drew LaBenne, CFO at LendingClub]

Yeah. I mean, so we're we'd love to be the world we are trying to get to is where our originations are growing at a level that we are growing the balance sheet with pace, and we are fulfilling the demand in the marketplace where we're getting in period economics as well. And we think the combination of those two together is gonna generate a very attractive return for investors off the base balance sheet, the banking business. And the marketplace business is gonna be what takes those returns to, higher levels from an industry comparison standpoint. So we obviously need to keep growing originations to be able to do both, I'd say investor demand is very high right now.

[Drew LaBenne, CFO at LendingClub]

And so we're gonna look to both feed the balance sheet for growth and feed the investor community that, is is asking for more loans.

[Kyle Joseph, Managing Director at Stephens Inc]

Got it. Thanks very much for taking my question.

[Operator]

Thank you. The next question comes from David Scharf with Citizens Capital Markets. You may proceed.

[David Scharf, Analyst at Citizens Capital Markets and Advisory]

Hi, good afternoon. Thanks for taking mine as well. Hey, a question on just the demand side of the marketplace in terms of the consumer. Obviously, originations were out outstanding and it sounds like marketing efficiencies as well. I'm wondering, do you have any sense in maybe some historical context as well, do you have any sense whether prime card borrowers are becoming more willing to engage with you or respond to marketing, the more that there are headlines around rate cuts that are muddled?

[David Scharf, Analyst at Citizens Capital Markets and Advisory]

I'm just curious if historically, if those prime borrowers do not feel like there's any daylight towards getting more conviction on rate cuts then they're definitely more willing to pull the trigger on refinancing.

[Scott Sanborn, CEO at LendingClub]

Yes. Mean so I guess the hard to connect the the direct driver. What I would say most broadly is the need and the TAM is the largest it's ever been. The the obstacle to that has generally been awareness, not only awareness of refi as an option, but most importantly, awareness of what their actual credit card bills are. And meaning right?

[Scott Sanborn, CEO at LendingClub]

We we've released research that says half of all consumers don't know the APR on their cards, and of the half that say they do, half are wrong. And so people really and so what we routinely see is when we present an offer of, say, 14%, when we reach out to the customer who didn't take it and say, why didn't you take it? They say that was too high. And then we'll say, well, what do you think your credit card interest rate is? And they're like, I don't know.

[Scott Sanborn, CEO at LendingClub]

Eight or 9%? And then you walk them through how to go find it, and they find out it's 21%. And you can hear the their jaw hitting the desk. Right? So the real obstacle is letting people having people really understand.

[Scott Sanborn, CEO at LendingClub]

And and if any of you on the call haven't done this, go try to find your credit card APR right now and see how easy that is for you. So the obstacle is letting getting that out there. Yeah. And you got and you gotta see which page on your 14 page statement it's on. Hint, it's not at the top or the bottom.

[Scott Sanborn, CEO at LendingClub]

It's somewhere in the middle. And so that's you know, for us, once we get that first breakthrough with consumers, that's why we see this strong repeat behavior and the fact that we make it much, much easier the second time around, and you get a better product construct, you get a better rate. But that's the driver behind that IQ, which is the ability for us to show people you're holding $8 on this card. You are paying 21%. This is how much that's gonna cost you an interest.

[Scott Sanborn, CEO at LendingClub]

If you do this instead, you're gonna get a much better deal. So, you know, we think overcoming that awareness obstacle is probably the biggest opportunity we've got, and that's the driver behind Dead IQ.

[David Scharf, Analyst at Citizens Capital Markets and Advisory]

Got it. No. That that that's helpful. Clearly, of funnel is is very strong. Hey.

[David Scharf, Analyst at Citizens Capital Markets and Advisory]

One quick follow-up on the charge off rate. I didn't quite catch. I thought you had mentioned, you know, one or two factors that may have kind of, artificially depressed it this quarter? I'm not sure if it was the timing of recoveries or the sale of charge offs. Can you just kind of repeat the factors?

[Drew LaBenne, CFO at LendingClub]

Yes. It really has to do with the timing of the vintages, both the old ones and the new ones. So right now, we're having a higher level of recoveries coming through from the older vintages that had previously had charge offs come through. So the recovery line, you know, this quarter is in in, you know, I think for the past couple quarters has been higher than we might expect going forward. But on top of that, we've been putting more loans in the HFI, which means our our HFI portfolio is a bit younger.

[Drew LaBenne, CFO at LendingClub]

And the younger your portfolio, in total, the lower your charge off rate is going to be. And as it ages, it will go back up. So it's sort of the natural dynamics of the personal loan portfolio. Something very important to look at, you know, as you're kinda comparing charge off rates across the industry.

[Scott Sanborn, CEO at LendingClub]

Yeah. And I and I think the other piece there those are the artificial things. Obviously, the organic trend is positive. Yes. Yes.

[Scott Sanborn, CEO at LendingClub]

So those are on top of it. And, you know, that's one of the reasons we put those the annual vintage disclosures out there so you can see what have we reserved for and what what has happened. Right? And so you'll see, most notably, our most recent, the 2024 vintage, you'll see our, reserve coming down because of the observed performance.

[David Scharf, Analyst at Citizens Capital Markets and Advisory]

Perfect. Thanks so much.

[Scott Sanborn, CEO at LendingClub]

Thank

[Operator]

you. The next question comes from Reggie Smith with JPMorgan. You may proceed.

[Reggie Smith, ED - Equity Research at JP Morgan]

Hey, good evening. Thanks for taking the question. I'm just curious, I know you mentioned last quarter that you were going to lean into direct mail and online ads. I was curious if you can frame how your mix of applicants have changed, like what proportion of your incoming applications are coming from these new channels now? It sounds like you haven't optimized it fully, but kind of where can that go?

[Reggie Smith, ED - Equity Research at JP Morgan]

And then how should we think about those channels changing your conversion, your quality of borrower, APRs? Any way to kind of frame out or, direction point us in in in the direction of how that will play out on the, income statement and and and in your approval?

[Scott Sanborn, CEO at LendingClub]

Yeah. So I guess starting with the, it was a significant driver of the quarter on quarter growth in addition to just, you know, continued product experience innovation. We are still early innings, because we'll be optimizing response models, targeting, creative, pricing, all of that in the channel. And our growth there is deliberate for the reasons you just indicated. You know, we we have an understanding of the performance differentials by channel and how to price an underwrite for that, but, you know, that that data is always evolving, so we're deliberate as we book.

[Scott Sanborn, CEO at LendingClub]

In terms of the impact to the p and l, I mean, I guess, the way to think about it is we run on average fifty fifty new versus repeat. As we ramp up new, we'll tend to ramp up repeat. I think we, we had slightly higher percentage of new this quarter, right, given some of the new channels we were, picking up. But the bigger, you know, a driver on the p and l is the relative efficiency of the new channels, which will be less as we get started, and then, you know, we'll converge as we get better at them. And then the other piece will be how much of it we hold, of course, you know, which allows us to change how we recognize the acquisition cost.

[Scott Sanborn, CEO at LendingClub]

So that'll be the other driver of the on the efficiency side, not the total dollars.

[Reggie Smith, ED - Equity Research at JP Morgan]

Got it. That makes sense. And and then, what do you share about, you know, demand interest appetite from whole loan buyers and might, you know, it sounds like possibly a shift to this new channel may, make whole loan buyers more more interested in buying loans. Is that am I thinking about that correctly? Or, you know, how can how can you reframe that potential there?

[Scott Sanborn, CEO at LendingClub]

I mean, I'd say the demand for the asset is is pretty strong. Right? We've had several years of really strong performance and, you know, really outperformance as we we come into this year. And, you know, that's what you're seeing reflected in some of the announcements we made. And as as Drew talked about, I mean, what we're balancing is delivering the end period returns, which we get to book and recognize that right away versus, you know, what do we got, a 10 swing or so versus we when we put it on the balance sheet, the other way.

[Scott Sanborn, CEO at LendingClub]

Right? So we're we're balancing the, you know, the higher lifetime earnings of holding the loan and the more resilient income of holding the loan against the, hey. You know, let's make, hey while the sun is shining or whatever that whatever I think you got it right. Yeah. Okay.

[Scott Sanborn, CEO at LendingClub]

And tap the market. So we're balancing that, and, you know, we'd like to continue to grow both because what we're aware of is the balance sheet. As we've seen over the last few years, our ability to stay profitable through times when the capital markets were a bit more volatile, is a key differentiator.

[Reggie Smith, ED - Equity Research at JP Morgan]

Sure. That sounds good. Congratulations on the quarter, guys.

[Scott Sanborn, CEO at LendingClub]

Thank you.

[Operator]

Thank you.

[Operator]

The following comes from Tim Switzer with KBW. You may proceed.

[Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)]

Hey, good afternoon. Thanks for taking my question. I wanted to follow-up on some of your guys' comments about the new deposit programs you guys have put in place to new deposit accounts. What's the kind of like incremental funding improvement that gives you on a basis point, kind of basis there? And then as the Fed begins to cut rates, you know, does that spread widen?

[Scott Sanborn, CEO at LendingClub]

So in terms of the one, the, making sure that the strategic driver of this product is actually less funding than it is engagement with the borrowers. We know we're already very good at once someone has you know, they come to LendingClub because we offer a compelling savings opportunity, and they stay because we make it so easy to do business with us, and it gets easier over time. We're already pretty good at that. What we believe, and industry data would support, is having the checking relationship is just gonna increase that reengagement with us, increase that lifetime value because instead of, you know, getting a loan, paying it off, and then a few years later, you know, having a baby or moving or whatever, getting married and needing a loan again, you're kinda interacting with us the whole time. And we can see what's happening in your financial life.

[Scott Sanborn, CEO at LendingClub]

And with LevelUp checking and DebtIQ, we can actually see what's happening both on your income as well as on your debt and provide that opportunity for you. So the driver is really what we think will be higher lifetime value, higher cross sell of additional products, less on funding. That said, the blended cost of this product will be fairly materially below, right, what we're paying on the high yield savings accounts Yeah. Even though the rewards compared to the rest of the market are pretty compelling. Yeah.

[Scott Sanborn, CEO at LendingClub]

There'll be a higher cost for active PL borrowers who are getting the cashback reward on their PL account. But, you know, I think roughly a third of the borrowers who signed up for the account are prior LendingClub borrowers. So they don't even have an active loan. It's a bit of an indication of how much they like the brand, and the experience that they're signing up just to to have the banking experience with us.

[Drew LaBenne, CFO at LendingClub]

Yeah. Tim, to to sort of summarize the financial aspects of it, I I don't we don't see it in the near term at least being a, you know, major driver of lowering interest expense or funding costs on the balance sheet, you know, but but I it has all the other benefits Scott was talking about in longer term. You know, there there is probably potential there.

[Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)]

Okay. That's helpful. And as for your guidance for, you know, a more flat NIM, assuming no rate cuts, what what kind of benefit do you think we would see if we do get one or two rate cuts in the back half of the year? And with these new products you're bringing in, like, is 100% beta sustainable for a few more quarters? Just curious your thoughts on that.

[Drew LaBenne, CFO at LendingClub]

Well, if if if the Fed doesn't move, then a 100% beta is you know, we're we're

[Scott Sanborn, CEO at LendingClub]

It's really easy. We we got that. We're already

[Drew LaBenne, CFO at LendingClub]

there. Right?

[Drew LaBenne, CFO at LendingClub]

I think the the incremental moves that the Fed may do, you know, we we still have a growth posture for our, deposit franchise. And so we're gonna be thoughtful in terms of lowering rates and making sure we're getting the deposit growth that we we need to get to grow the balance sheet. So that that may mean that, you know, the next 25 bits, we're not going down 25 basis points. But we're we're gonna manage it more it it should move down with the fed, but probably not a 100% beta.

[Scott Sanborn, CEO at LendingClub]

And if you keep in mind, the other benefit we will get will be, depending on the reason the Fed moves down and how that changes the outlook. But if we see movements in the the two year curve, which is an important metric for loan buyers, we should get that in through in sales price improvements. Yep. Correct.

[Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)]

Okay. Got it. That was great color. Thank you, guys.

[Operator]

Thank you. I'd now like to turn it back to the LendingClub team to answer a few questions submitted by retail investors.

[Artem Nalivayko, VP - Head of FP&A & IR at LendingClub]

Alright. Thanks, Tamiya. So Scott and Drew, we do have a couple questions here that were submitted by some of our retail investors. The first question, given all the innovation over the last couple of years since and some of your acquisitions, you know, you've talked about a rebrand in the past. Any any updates for us there?

[Scott Sanborn, CEO at LendingClub]

Yeah. So, we agree that as we put more products into the market, like DeadIQ and LevelUp checking, you know, a name that gives us broader permission than LendingClub since lending is in the name would be very helpful. And, we are actually doing that work this year. We've brought an agency on board or doing the research and the development of that this year. And, you know, in terms of timing, that will be it'll, you know, likely be next year coinciding with our opening up of LevelUp checking.

[Scott Sanborn, CEO at LendingClub]

Right now, LevelUp checking is only available to our existing members. Dead IQ is only gonna be available to our existing members, while we stand it up and optimize the experience. As we enter next year, that will be those will be open market products, and we think having a new brand umbrella over the top could be very beneficial, over over the medium term to take advantage of that. So, stay tuned.

[Artem Nalivayko, VP - Head of FP&A & IR at LendingClub]

So I think you you answered the second question, which is an update on the mobile first multi platform, offering, but any additional insights there?

[Scott Sanborn, CEO at LendingClub]

Yeah. So we we've talked about the fact that for for an institution our size, what's very unique is we completely control our mobile stack. We are not this is not a white label service where we file tickets to make changes. We can completely customize this for our customers and our product set and our use case. And what that means is we can create more seamless experiences.

[Scott Sanborn, CEO at LendingClub]

So we're we're live on that platform. It's what, you know, checking was introduced on us, what level of savings was introduced on. And what we haven't talked about, but those of you on the call who are using the products would experience, if your CD expires at a traditional bank and you would like to roll that over into a savings account, what that requires, at a traditional institution is paperwork, opening a new account, sometimes mailing something in. At LendingClub, that's a few clicks. So we're multiproduct experience is already on the, let's call it, the the deposit side, already very much in play.

[Scott Sanborn, CEO at LendingClub]

We're benefiting from that in terms of our balance retention rates, the rollover rates, and all all of that. With level up checking, you're starting to see us cross that divide where there's interplay between checking and lending. And so you're gonna get an extra reward if you have a loan with us. Right? And, you know, what that'll enable is, you know, you'll be able to deposit your loan into your LendingClub checking account, get instant access to your funds.

[Scott Sanborn, CEO at LendingClub]

And so yeah. So it's live. It's working, and we're just now starting to click the products in place. And, you know, our our first first goal is to make the core products that drive our business work. That's happening now.

[Scott Sanborn, CEO at LendingClub]

And the next goal is to add this engagement layer on it that keeps people coming back. And then the third step will be to introduce new products into that ecosystem and make them work seamlessly with, the products I just talked about.

[Artem Nalivayko, VP - Head of FP&A & IR at LendingClub]

Alright. Perfect. That's all the questions we had. So thank you. With that, we'll wrap up our second quarter earnings conference call.

[Artem Nalivayko, VP - Head of FP&A & IR at LendingClub]

Thanks for joining us today. And if you have any questions, please email us at irlendingplus dot com.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.

Participants

Executives

• Artem Nalivayko, VP - Head of FP&A & IR
• Scott Sanborn, CEO
• Drew LaBenne, CFO

Analysts

• William Ryan, Senior Analyst at Seaport Research Partners
• Crispin Love, Director - Equity Research at Piper Sandler Companies
• Vincent Caintic, MD & Finance Analyst at BTIG
• Kyle Joseph, Managing Director at Stephens Inc
• David Scharf, Analyst at Citizens Capital Markets and Advisory
• Reggie Smith, ED - Equity Research at JP Morgan
• Tim Switzer, Vice President at Keefe, Bruyette & Woods (KBW)