LendingClub (NYSE:LC) stock has been on a tear this year, rising some 60% year-to-date, including a 10% jump on Thursday after the company released exceptional third quarter earnings.
The online bank and lender generated $201.9 million in revenue in the third quarter, up about 1% year over year and ahead of estimates.
Net income rose 190% from $5 million to $14.5 million, or 13 cents per share. This crushed estimates of 7 cents per share.
This small cap fintech has some catalysts that could continue to drive further gains. Trading at almost $15 per share, it is one of the best options among fintech stocks under $20 per share right now.
Bucking the trends
While many nonbank fintech lenders have struggled under the weight of high interest rates eating into interest income, LendingClub has largely been able to navigate these challenges.
One of the key advantages that LendingClub has is that it actually has a banking license, from its acquisition of Radius Bank in 2021. As a licensed bank, it is allowed to take deposits and make loans without using third party banks, unlike most of its competitors.
The problem for many of LendingClub’s nonbank competitors is that the high interest rate environment caused banking partners to pull back from their platforms, as the high rates made the loans less profitable. But because LendingClub has its own deposit and lending franchise, it was able to remain profitable during this period. It has also been more efficient, streamlining expenses.
These trends were evident in the third quarter, as LendingClub had $1.9 billion in loan originations, up 27% year over year and 6% from the previous quarter. That resulted in $140 million in net interest income, up 2% year over year and 9% from the previous quarter. Total assets increased 30% to $11 billion, with $6 billion in loans on the balance sheet, up 8% year over year. Loan totals were boosted by the acquisition of $1.3 billion in LendingClub issued loans.
The fintech also saw an increase in activity on its lending platform, where it uses third party partner banks to make loans. From this business, it generated noninterest fee income for each loan that is executed.
Noninterest income rose 5% from the previous quarter to $61.6 million but was still down 3% year over year. However, loan origination fees were up 17% from the third quarter of 2023.
LendingClub CEO Scott Sanborn cited the return of bank buyers to the LendingClub marketplace.
“We had a standout quarter, with credit outperformance and the return of bank buyers driving improved loan sales pricing, our capital strategy delivering a 25% larger balance sheet year to date, and strong financial performance translating to a meaningful improvement in book value per common share over the past 12 months,” Sanborn said.
Why LendingClub should continue to prosper
The primary reason that LendingClub saw an increase in loan originations and fee income through its online lending marketplace is the Fed’s decision to lower interest rates.
The September 18 decision to drop interest rates by 50 basis points had an impact in boosting lending activity. As rates continue to drop over the next two years, or longer, LendingClub should see lending activity increase, from its own loan originations, as well as from its third party LendingClub marketplace.
In the fourth quarter, LendingClub anticipates $1.8 billion to $1.9 billion in loan originations, which would be on par with Q3, and $60 million to $70 million in pre-provision net revenue, which would be in line with Q3 at the midpoint. But these numbers should continue to improve in 2025 as rates drop further.
Analysts are mostly bullish on the stock, with a consensus strong buy rating. Several analysts raised their price targets after Thursday’s earnings.
Trading at 18 times forward earnings, LendingClub stock looks attractive from a valuation standpoint. However, the huge jump on Thursday (19% earlier in the day) is somewhat unexpected and gives a little pause in jumping in right now. But once things settle down a bit, this is one of the best small cap fintech stocks you can buy under $20 per share.