On August 8th, 2016, Lending Club released their 2nd quarter earnings results as well as presented their quarterly earnings call. Here are a few of the highlights:
- Management changes – CFO Carrie Dolan has resigned to pursue a new opportunity. Tim Mayopoulos, President and CEO of Fannie Mae, has joined the board.
- Net operating loss – Lending Club posted a net loss of roughly $81M in Q2, larger than most forecasts.
- Origination volumes fell less than anticipated – While origination was expected to be lower, total volumes were down only 29% from the prior quarter.
Carrie Dolan has been a successful CFO for many years for Lending Club and will be missed. However, this was not entirely unforeseen. Ms. Dolan had requested to step aside at the start of this year, but the CEO and board asked her to stay on to help after the events of May 9th. While strong management is key to Lending Club’s survival, it is left in strong hands with an able team and they will surely bring in a seasoned replacement.
Separately, the addition of another brand name independent director to the board is again an endorsement of Lending Club’s potential. Mr. Mayopoulos sits on top of one of the largest asset classes in the world and within a highly regulated industry. He also has both financial and legal experience in the financial services industry.
Finally, most relevant to the investor side of the business, Lending Club announced they have hired a new Head of Institutional Investors. While unnamed, many are excited to meet this new counterpart. He follows on the heels of Patrick Dunne’s hiring as Chief Capital Officer. Mr. Dunne comes from BlackRock’s iShares, where he was Managing Director and Head of Global Markets & Investments.
The $81M quarterly loss was driven by non-recurring charges, including a $35M goodwill writedown related to last year’s acquisition of Springstone. Lending Club also took one-off charges this quarter related to legal expenses from several inquiries, as well as severance packages related to laying off 179 employees. Top line revenue was lower as a percentage of quarterly originations due to roughly $14M in incentives that Lending Club offered to large purchasers of loans this quarter, which they do not expect to continue.
Lending Club resumed offering forward quarterly guidance. Revenue and originations are expected to be flat QoQ in Q3. Lending Club is guiding towards a quarterly loss of $15-30M in Q3. Lending Club stock was flat on Tuesday August 9th after the market digested the updated earnings and guidance numbers.
Overall loan origination was down 29% from $2.75B in Q1 to $1.96M in Q2. Both the near prime (custom) and in policy (standard) loan programs shrunk by roughly the same amount. Lending Club pointed out that banks were the first buyers to suspend purchases of loans post-May 9th, and have been the slowest investor category to return. Individual investors continued buying loans roughly unabated, while managed accounts and other institutional lenders such as third party funds have been gradually returning.
The following chart shows total Lending Club in policy loan issuance by month. These are loans to borrowers with 660+ FICO scores, available to fund via their public program. While total issuance was down in Q2, the drop-off post-May 9th was not as drastic as many expected.