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LendingClub eyes 3Q profit, looks to reopen credit spigot

LendingClub, after recording outsize losses over the last few years, said Tuesday that its cost-cutting plans are ahead of schedule and that it expects to record a small profit in the third quarter.

The San Francisco company also announced that it is starting a program that will allow sophisticated investors to purchase loans made to borrowers whose applications would have previously been rejected.

LendingClub reported a loss of $10.6 million in the second quarter, an improvement over its $60.9 million loss a year earlier. In the third quarter, the company projects that it will break even or report a profit of as much as $5 million.


In an effort to improve its margins, LendingClub has been outsourcing work and moving jobs out of high-cost San Francisco.

“We’re very encouraged by our progress,” Chief Financial Officer Tom Casey said during the company’s earnings call. He cited average salary savings of 25% for employees based at the firm’s new offices in Lehi, Utah.

While the company continues to cut costs, it is also looking to expand its lending operations. Loan originations of $3.1 billion in the second quarter were up 11% from a year earlier. Net revenue climbed by 8% to $190.8 million.

LendingClub operates an online marketplace that matches consumers, many of whom are seeking to refinance credit card debt at a lower interest rate, with investors. The investors bear the risk that the borrowers will default. LendingClub generates revenue both from origination fees and from servicing the loans.

LendingClub CEO Scott Sanborn said Tuesday that after the company tightened its lending criteria over the last year, some investors communicated that they wanted to purchase loans that were being rejected.

LendingClub has an interest in approving more borrowers who apply for its loans because the company does not carry the credit risk. Moreover, LendingClub has already borne the marketing costs that brought the applicants who were ultimately rejected to its website.

Sanborn said that loans in the new program will not all go to borrowers with low credit scores. “It really is addressing customers across the credit spectrum,” he said.

Sanborn also said Tuesday that LendingClub is now one step closer to applying for a bank charter.

Back in May, Sanborn said that having a bank charter would enable the company to improve its margins and offer more products and services, but he did not commit to pursuing that path.

On Tuesday’s call, he said that LendingClub has now progressed to the next phase of its planning with respect to obtaining a bank charter. “We do believe that this is accretive to the long-term business,” he said.

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