LendingClub posted first-quarter earnings results Tuesday (May 5) that showed a high single-digit percentage decline in loan originations as consumers held back, investors shied away from debt markets and an unprecedented set of headwinds tied to the coronavirus hit the firm’s revenues.
The pact to buy Radius Bank remains on track, with closing targeted within the next 12 months, said executives on an earnings call Tuesday. The company is well positioned to capture demand that lies on the other side of the pandemic and recession, they added.
In terms of headline data, loan originations of $2.5 billion, were down 8 percent year over year.
Net revenues slid 31 percent year over year to $120.2 million, missing consensus estimates by more than $54 million. The adjusted net loss of 44 cents was leagues worse than the 7 percent loss that had been expected.
Drilling down into results, management said that the economic situation — marked by 30 million individuals filing for unemployment — had brought borrowers of as much as 11 percent of the company’s personal loan book to enroll in LendingClub’s Skip-a-Pay payment deferral plan.
In comments that shed some light on the members applying for deferred payments, CEO Scott Sanborn and Chief Financial Officer Tom Casey said that 93 of those enrolled were in fact current upon enrollment, indicating that they were proactive in managing payments before those payments became a problem.
Supplemental materials from the company show that 78 percent of those enrolled in the program have never been delinquent with LendingClub; 76 percent have had no tradeline delinquencies within the past two years.
Casey remarked on the call that bank investors and retail investors had pulled back, examining their own liquidity and financial positions. Against that backdrop, and with some granular detail into quarterly loan originations, standard personal loans were down by more than 10.5 percent, at $1.7 billion, and down by more than 15 percent from the fourth quarter of 2019. Custom personal loans, which include loans to near prime and super prime borrowers, were down 2.3 percent year over year to $572 million, and down nearly 30 percent from the fourth quarter.
The firm has taken steps to reduce operating expenses by a quarterly run rate of as much as $70 million, including staff reductions. As previously reported late last month, LendingClub has said it would cut 30 percent of its workforce.
Management said on the earnings call that the liquidity profile of the company is strong enough to help weather a variety of stresses. Net liquidity, according to the company, stands at $550 million at the end of the first quarter.
There also remain ample cash flows from the servicing activity and the existing loan portfolio to cover operating cash expenses — even under a scenario where no new loans are originated.
And, executives added, borrowers’ profiles are relatively stronger in this current economic storm than they were during the Great Recession. Supplemental material from the firm shows that the average FICO score as of April 20 was 723, where borrowers had an average income of more than $109,000 annually.
That compares favorably with an average FICO score in 2019 of 708 and an average income of a bit more than $93,000. In addition, the average payment-to-income ratio stood at 5.4 percent, better than the 6.1 percent seen last year. In essence, management said on the call, the consumer’s balance sheet is stronger.
In at least some echoes of the last recession, demand to take on loans (and extend them) will come back against a macro environment where there will be stability in unemployment claims, successful graduation rates from deferral and hardship plans, and a tightening of credit spreads.
Yet, said the CFO, there are no expectations for a “V-shaped” recovery. Looking ahead, management has said that it expects loan origination volumes to be down 90 percent over the near term.
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