LendingClub’s Digital Bank Deposits Soar 80% as Interest Rates Rise 

LendingClub’s latest results, in the words of CEO Scott Sanborn, tell a story of “two halves” of 2022 as interest rates continue to soar:

The first half was marked by strong demand by investors for the company’s loans, driving marketplace revenue. The second half is and will be marked by a “rapidly changing rate environment temporarily affecting investor loan demand.”

And yet there’s a silver lining, too as — perhaps no surprise — consumers are also clamoring to park their money in higher yielding savings accounts.

Deposits increased 80% year on year to $5.1 billion, with the 2021 acquisition of the digital only Radius bank fully integrated. The company noted that its deposit accounts offer a 3.12% APY.

LendingClub now navigates an environment where marketplace volumes (the majority of originations)were impacted by higher funding costs for some of the company’s investors, tied in part to interest rates. The $2.4 billion in marketplace originations was lower by a bit more than 14% from the second quarter, and total loans of $3.5 billion were lower by 8% over the same period (up 14% year on year).

Investors sent the stock down after hours by 9%. Revenue guidance of around $260 million at the midpoint would represent a more than 14% decline from the third quarter.

Consolidating Credit Card Debt

But, per commentary from Sanborn on the call, the fundamentals and the appeals of accessing lower-cost credit are still in place:

“The majority of our members come to us to consolidate credit card debt and the impact of the earliest fed rate hikes are showing up in their credit card bills with card rates and balances at record highs and with additional increases on the horizon,” he told investors, adding that “our fixed-rate, closed end loans continue to be a highly attractive way for consumers to save money.”

Within the loan book, according to the supplementals, the average FICO stood at 718 for the servicing portfolio, with average income of more than $112,000 annually. And amid that strong profile, management said on the call, the company has increased the amount of loans retained to $1.2 million. Though LendingClub expects to deliver higher yield by passing on increases in rates to borrowers (still lower than credit card debt), a shift that takes time.

Management commentary on the call noted that there has not been broad based stress on credit performance, and 30+ day delinquencies still remain below pre-pandemic levels and below 2%.

Inflation is impacting some borrowers at the lower end of the firm’s credit spectrum — notably near-prime loans, at about 10% of personal loan originations, and per commentary on the call, there’s tightened underwriting for that cohort.

Looking ahead, Sanborn said, 2023 will be “a year of two halves but in the opposite direction.” The first half will see continued elevation in interest rates, and the second half will see credit card balances at record highs — and rates may not finish moving higher. That will, he said, help spur increased demand for what he called LendingClub’s “very compelling offer.”