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LendingClub (LC) Beats on Q4 Earnings, to Buy Radius Bank

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LendingClub Corporation’s LC fourth-quarter 2019 adjusted earnings of 8 cents per share surpassed the Zacks Consensus Estimate of 5 cents. Also, the bottom line reflects improvement from loss of 5 cents in the prior-year quarter.

Results reflect rise in revenues and lower expenses. Further, the quarter witnessed higher loan originations volume. Decline in loan balance was a concern.

After taking into consideration non-recurring items, consolidated net income was $0.2 million or breakeven per share against net loss of $13.4 million or 16 cents per share in the year-ago quarter.

In 2019, it reported adjusted earnings of 2 cents per share against loss per share of 38 cents in 2018. Consolidated net loss was $30.7 million or 35 cents per share compared with $128.2 million or $1.52 per share in the prior year.

Revenues Improve, Costs Fall

Total net revenues in the reported quarter grew 4% year over year to $188.5 million. This upside was driven by higher volume of loan originations. However, the figure lagged the Zacks Consensus Estimate of $197.9 million.

In 2019, total net revenues were $758.6 million, up 9%.

Total operating expenses were $188.1 million, down 3% year over year. This decline was largely due to lower origination and servicing costs, and other general and administrative expenses.

Adjusted EBITDA was $39 million, up 37%.

In the December quarter, loan originations were $3.1 billion, up 7% year over year.

As of Dec 31, 2019, cash and cash equivalents were $243.8 million compared with $373 million on Dec 31, 2018. Loans held for investment at fair value were $1.08 billion, down from Dec 31, 2018 level of $1.88 billion.

Total stockholders’ equity was $900.2 million, up from $869.2 million recorded as of Dec 31, 2018.

Deal to Acquire Radius Bank

In an unprecedented move, LendingClub announced an agreement to acquire Boston, MA-based online bank – Radius Bank – for $185 million. Thus, it became the first fintech firm to buy a bank. Founded in 1987, Radius Bank has more than $14 billion in assets.

The stock-cum-cash deal, subject to regulatory approval and other customary closing conditions, is expected to be completed in the next 12-15 months.

Scott Sanborn, CEO of LendingClub, said, “This is a transformational transaction that allows us to reimagine banking in a way that is free from legacy practices and systems and where the success of LendingClub is aligned with the success of our customers. By combining with Radius, we will create a category-defining experience for our members that will dramatically enhance the resilience and earnings trajectory of our business.”

The combined company is expected to be significantly accretive with a cash payback of the purchase price premium and all costs within two years. Further, benefits are projected to materialize immediately upon closing.

Guidance

Concurrent with the results, management provided guidance for the first quarter and full-year 2020.

First-Quarter 2020 (seasonally slower period)
 

  • Total net revenues of $170-$180 million
  • Adjusted EBITDA of $25-$30 million
  • Both GAAP and adjusted net income (loss) of ($5)-$0 million


Full-Year 2020
 

  • Total net revenues of $790-$820 million.
  • Adjusted EBITDA of $150-$170 million.
  • Both GAAP and adjusted net income of $17-$37 million.


Bottom Line

LendingClub’s revenue growth is backed by strong loan originations. Further, the planned acquisition of Radius Bank is likely to further support profitability. However, declining loan balance is a headwind. Further, the company’s exposure to numerous legal hassles might keep expenses elevated in the near term.

LendingClub Corporation Price, Consensus and EPS Surprise

 

LendingClub Corporation Price, Consensus and EPS Surprise

LendingClub Corporation price-consensus-eps-surprise-chart | LendingClub Corporation Quote

LendingClub currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Dates of Other Finance Stocks

Hercules Capital Inc HTGC, FS KKR Capital Corp. FSK and Capitala Finance Corp. are scheduled to announce results on Feb 20, Feb 28 and Mar 2, respectively.

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