LendingClub exceeded its own guidance on loan originations and a measure of revenue in the second quarter, the company announced Tuesday. Executives attributed the company's results to recently launched consumer loan products, stable-to-improving credit losses across all loan ages, and a new type of private security it has been offering to institutional investors and asset managers.
The company had issued guidance last quarter that it expected to have $1.6 billion to $1.8 billion in loan originations. Its actual results were just over $1.8 billion. Likewise, LendingClub said it expected to make between $30M and $40M in pre-provision net revenue (PPNR); its actual was $55M.
While technically a surprise, it was the sixth consecutive quarter during which LendingClub has beaten its own guidance on PPNR. Also for a sixth consecutive quarter, the company beat analyst projections of earnings per share (EPS) derived from generally accepted accounting principles (GAAP) and GAAP net income, as tracked by S&P Capital IQ.
Compared to the mean projection of $4.25M in GAAP net income derived from 10 analyst estimates, LendingClub had $14.90M in the second quarter.
Similarly, the mean projection for GAAP EPS was $0.04; the actual was $0.13 for the quarter. Analysts from Jefferies, JPMorgan, and Wedbush each individually noted LendingClub's outperformance on EPS and moved their price targets upward.
"All told, it was a well executed quarter that left little to nitpick," JPMorgan analysts wrote in a client note.
Analysts largely attributed the results to the following points:
- Higher-than-expected net interest income: Wedbush had forecasted a net interest margin of 5.68%; LendingClub delivered 5.75% in the second quarter.
- Lower operating expenses: LendingClub has reduced the cost of originating a personal loan by one-third over the past year, according to CEO Scott Sanborn.
- Improvements on charge-offs: The total dollar amount of loans LendingClub has written off as uncollectible (so-called notional net charge-offs) declined 17% from the previous quarter. LendingClub executives expect this total uncollectible debt to trend lower in the coming quarters. JPMorgan analysts said they view this as a telling metric.
According to Sanborn, LendingClub's performance this quarter came thanks to proprietary advantages — custom models, data on repayment events, rapid response capabilities to changing macro conditions, and its underwriting platform — but he also pointed to new consumer loan initiatives and strong demand from marketplace investors.
One example of a recently launched consumer loan that helped LendingClub is TopUp loans, which allow existing borrowers to obtain additional funds while maintaining a single monthly payment.
CEO Scott Sanborn said it's unclear when demand from banks to buy the fintech's loans will return.
"Early results are promising, with strong response and take rates and a 93% satisfaction rate, which exceeds that of our flagship personal loan product," Sanborn said of the TopUp program during a Tuesday earnings call.
One example of a product driving demand from marketplace investors is the
The structured certificate program is a two-tranche securitization in which LendingClub retains one tranche — the low-risk part of the bundle — and marketplace investors can purchase the high-risk parts. LendingClub gets fee revenue and interest income while offloading risk to speculators, who benefit from more flexibility and efficiency than they would get from similar securities elsewhere. In June, the program
Wedbush noted that, although interest in the program dipped in the first quarter, it rebounded in the second quarter, which indeed drove an increase in loan originations.
On the consumer side, LendingClub began broadly marketing its app for personal loan customers this quarter, following a limited release earlier in the year. And, the final development Sanborn discussed Tuesday was LendingClub's new preapproval platform it is currently piloting with a partner, which he did not name.
Update (3:37 p.m.): This story was updated to add analyst insights.
