LendingClub, fueled by increase in loans, posts surprise profit

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

The San Francisco-based company still expects to report small full-year losses in part due to merger-related costs earlier this year. But executives said second-quarter profit of $ 9.37 million, down sharply from a loss of $ 47.1 million in the previous quarter, and said they plan to build on the momentum in the previous quarter. second semester.

Loan volumes skyrocketed about a year after LendingClub intentionally recalled them.

“We have far exceeded our expectations,” CEO Scott Sanborn told analysts on Wednesday. “Overall, the actions we took when we re-entered the market produced better results in a faster time frame than expected. “

CEO Scott Sanborn led LendingClub on its recent acquisition of Radius Bancorp. The San Francisco-based company is now touting itself as the nation’s leading digital marketplace bank.

Analysts also seemed surprised. “Let me be a little rambunctious here. It’s unbelievable, ”said Henry Coffey, analyst at Wedbush Securities, during the earnings call. The company’s stock jumped nearly 54% in Thursday’s noon trading to $ 25.06.

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

After that acquisition closed in February, the company reversed much of that tightening and reopened the loan tap, and in the meantime refined its underwriting and marketing processes, Sanborn said.

These moves helped push loan origins to $ 2.7 billion, shattering LendingClub’s earlier forecast that its loan origination would reach $ 1.9 billion at most.

The results helped improve the company’s direction for investors, with the company saying it expects annual losses of $ 3 million to $ 13 million, a substantial decrease from its previous projection of losses of up to 167 million. millions of dollars.

LendingClub, which has long operated an online platform where borrowers are matched with lenders, is now touting itself as the country’s leading digital market bank.

As part of the acquisition, LendingClub plans to own around 15-25% of the loans it has issued on its books, allowing the company to earn more interest. It plans to sell the remainder of its loans through its online marketplace, where the company collects origination fees.

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

The rise in interest income “could signal the start of an improved earnings trajectory for the company,” Credit Suisse analyst Stephen Ju wrote in a note to clients.


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