LendingClub now has a bank charter, but it will likely take a while for its transition from online lender to full-service digital bank to yield profits.
The San Francisco company said Wednesday that it expects to report a net loss of at least $175 million this year, mostly related to accounting issues, but also due to roughly $20 million in one-time costs tied to its acquisition of Radius Bancorp.
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During the company’s fourth-quarter earnings call Wednesday, LendingClub executives declined to offer guidance on when the $1.9 billion-asset firm will achieve profitability. LendingClub reported net losses totaling more than $300 million between 2018 and 2020, including $26.7 million in the final quarter of last year.
Still, company executives provided an upbeat long-term forecast for LendingClub Bank, which they described as the nation’s first digital marketplace bank and which they promised to grow quickly.
They noted that U.S. consumers increasingly prefer to transact online, particularly in light of the pandemic. “It’s really hard to imagine a better time to be launching a digital bank,” CEO Scott Sanborn said.
Sanborn pointed to research that found 81% of the firm’s existing customers are interested in a checking account from LendingClub. Consumers who borrow from LendingClub are often refinancing more expensive credit card debt debt into a personal loan. LendingClub plans to offer more banking products to those existing customers.
“They’re some of retail banking’s most profitable customers. It’s just working out better for the banks than it is for them,” Sanborn said.
LendingClub’s new business plan combines elements of traditional banking with aspects of its earlier marketplace lending model, in which the company matched borrowers with lenders and collected origination fees.
Under the new model, LendingClub Bank plans to retain 15% to 25% of the loans originated on the company’s online platform, with the remaining 75% to 85% to be sold in the marketplace.
Loans that are held by LendingClub Bank will carry certain upfront accounting costs. But over a two-year period, they will yield better economics than the loans sold into the marketplace, the company said.
With the Radius acquisition, LendingClub added a $2 billion online deposit franchise, and the company said Wednesday that it anticipates lowering its funding costs by about $30 million for every $1 billion in deposits. LendingClub also expects to eliminate the fees that it previously paid to banks to originate its loans; those fees have averaged roughly $20 million per year.
In 2021, LendingClub is forecasting a 45% year-over-year increase in loan originations and a 55% year-over-year climb in revenue. The company’s revenues plunged in 2020 as the pandemic-induced recession took a big bite out of new loans.
“Our goal here is to build a high-growth, high-profit machine that is driving really sustainable growth over a multiyear period,” Sanborn said.
