The online consumer lender LendingClub is leaning more heavily on its own bank charter — and its relationships with other banks — as various buyers of its loans turn more cautious on the U.S. economy.
The San Francisco-based company, which refinances credit card debt into fixed-rate loans, says it continues to see strong borrower demand as Americans pay more to service their card debt.
What’s less strong is the demand from asset managers and other investors, whose operating costs have jumped due to rising interest rates. These investors don’t want to buy as many of the loans LendingClub is making.
That’s where banks, credit unions and LendingClub’s own bank — which the company
“In a bear market, we can lean on the funding stability and advantages of a bank to drive resiliency and profitability,” LendingClub CEO Scott Sanborn told analysts on Wednesday. He likened the shift to a car slowing down as it heads into a corner, though he said the company is “retaining momentum and accelerating as we come out of it.”
LendingClub’s bank kept nearly 27% of the loans the company made during the second quarter on its balance sheet, above the 20%-25% range it had targeted. That increase will give the company a larger recurring revenue stream from interest on loans, and fewer one-time payments from loan buyers.
Many deposit-taking institutions are continuing to buy LendingClub’s loans at the same pace or an even higher one, Chief Financial Officer Tom Casey said.
That resiliency is helping keep overall demand in the company’s loan marketplace relatively strong even as demand from other investors is “modulating,” said Casey.
During the second quarter, a one-time tax-related boost caused LendingClub’s net income to jump to $182.1 million, up from around $9.4 million in the year-ago quarter. Excluding the impact of the tax benefit, net income still rose by nearly 400%, increasing to $46.8 million from $9.4 million in the year-ago quarter.
Overall, the company reported a “strong quarter that beat our and consensus expectations,” Wedbush Securities analyst David Chiaverini wrote in a note to clients.
The key downside was the company’s commentary that demand for loans has “waned by certain buyers” in LendingClub’s marketplace, Chiaverini wrote. Weaker buyer demand implies the company may have to make fewer loans in the second half of the year despite strong borrower demand, he wrote.
LendingClub’s stock sank around 10% by mid-afternoon Thursday after the company reported its earnings late Wednesday.
The “silver lining” for LendingClub, according to Chiaverini, is that the company’s “business model provides it with a ‘safety valve’ in the form of utilizing the balance sheet to retain and grow loans without complete reliance on third-party credit investors.”
The downside of a larger reliance on third-party investors is evident in the
The online consumer lender touts its AI-based underwriting models as a key strength, but analysts say larger-than-expected losses on some of its loans are contributing to funding pressures.
Upstart focuses more than LendingClub on consumers with nonprime credit scores, and overdue payments on its loans have ticked up faster than expected.
Earlier this month, Upstart said its loan marketplace was “funding constrained.” It attributed much of the pullback to growing worries about a recession, which have “put banks and capital markets on cautious footing.”
LendingClub also announced Wednesday that Casey is retiring as CFO, and will be replaced in September by Drew LaBenne.
LaBenne was most recently CFO of the cryptocurrency company Bakkt. He previously held the same position at New York-based Amalgamated Bank, in JPMorgan Chase’s business banking division and in the retail banking unit at Capital One Financial.
