Lending Club 1Q16 Earnings Call Notes

LendingClub’s (LC) Management on Q1 2016 Results

Hans Morris

Let me explain who I am and why I’m here

“So let me start out by explaining who I am and why I am on the call this morning. So, as James said, I’m Hans Morris, and I’ve been on the LendingClub Board of Directors since February 2013. And I served both on the Audit Committee and I’m Chairman of the Risk Committee. On Thursday, last week, I was named to the newly created role of Executive Chairman.
So as you saw in the release, the Board accepted the resignations of Renaud Laplanche on Friday. And we are truly and very clearly saddened by his departure

Certain non-conforming loans were made to a single investor

“certain non-confirming loans that were made to a single accredited institutional investor, totaling $22 million of near-prime loans, that was $15 million in March and $7 million in April. The loans in question were sold in contravention of the investors’ expressed instructions as to a non-credit and non-pricing element. And certain personnel, apparently who are aware that the sales did not meet its investors’ criteria. So in early April 2016, LendingClub repurchased these loans at par and we subsequently resold them at par to another investor. We also discovered during the investigation that a Senior Managers of LendingClub made a change in the application dates of approximately $3 million of these loans and that was also internally discovered and promptly remediated. “

Pockets of softness revolved around a group of the population with high indebtedness

“Yes, as indicated, the pockets really revolved around a group of the population that had high indebtedness at the time they took out the loan showed a propensity to continue to build debt thereafter and also at the time of the loan had low credit scores.”

Investor softness has continued into April

“As the quarter progressed, first quarter, the level of investor softness there has carried somewhat into April. But, at that stage, kind of commenting further around where we think that softness will go relative to what have been kind of trend, pre-announcement of our news today, that’s really what gives us pause, to kind of give more guidance on what will happen in the future.”

Carrie Dolan

$6B of assets on balance sheet

“ as of March 31st, total balance sheet assets reached $5.9 billion, of this $4.7 billion is in loans, $868 million is in cash and securities available for sale and the remaining $364 million is in other assets. During the quarter, LendingClub repurchased $19.4 million of our common shares in the open market or 2.3 million shares and has $131 million remaining under its authorization.”

Scott Sanborn

Saw some credit underperformance in lower graded credit

“So let me start with a few comments on credit, we do provide a comprehensive set of credit and performance data monthly on our website. This quarter, we included in our earnings presentation some summary of recent data on slide 9. The data illustrates stable performance for grades A through C, which represents 75% of our standard program loan volume. For grades D through G, as we have previously shared, we have identified pockets of underperformance, which have been addressed through the following combination of pricing and policy changes.
First, from December 2015 to April 2016, the platform increased interest rates for grades D through G by a weighted average of 220 basis points in order to improved risk adjusted returns for investors. And second, the platform credit policy was tightened to eliminate about 15% of under-performing segments from these grades. These population segments were mainly characterized by high indebtedness and increased propensity to accumulate debt and lower credit scores.“

Through the first quarter we experienced some level of investor softness

“Relative to the credit, just to clarify, there we have – as we’ve shared, previously there has been pockets of credit issues that we’ve made adjustments on relative to investor funding and looking at balance sheet of loans, I mean we – again, to Scott’s point, we have up to kind of the result of this news then through the quarter, through the first quarter had experienced some level of investor softness. We had a number of ways to adjust the resiliency of using banks and the retail side. As we go in now and try to assess the impact with this news today, we’ll continue to adjust. We absolutely love the marketplace model and certainly there may be times where, in limited situations, we’ll have used the balance sheet for customer accommodations or temporary dislocations in funding, but we still feel very committed around maintaining the marketplace model to connect investors and borrowers on both sides.”