Happen Bank ties 26% credit growth to home improvement loans

• Key insight: Happen Bank, the entity formerly known as LendingClub, reported strong results its first quarter under its new name.
• Expert quote: “We are four months into the rebrand [and] searches for Happen Bank are already more than two times those for LendingClub.” —Scott Sanborn, CEO, Happen Bank

Happen Bank, formerly known as LendingClub before completing a rebrand earlier this year, ended its first quarter under its new name.

Processing Content

“This was our first full quarter operating as Happen Bank, and the early response has been terrific,” CEO Scott Sanborn said during the company’s after-market earnings call on Wednesday. “We are four months into the rebrand [and] searches for Happen Bank are already more than two times those for LendingClub.”

Happen Bank’s earnings hit multiple records this quarter, according to the company. Pretax income rose 34% year over year to $76.8 million and diluted earnings per share, or EPS, increased 35% year over year to $0.50, matching last quarter’s EPS results. The company raised its full-year EPS outlook to between $1.87 and $1.92 from the previous expected range of $1.80 to $1.90.

Part of that income line was from another sequential adjustment to the company’s provision for credit losses. This quarter, the provision line was reported as a benefit of approximately $16 million for the company, continuing a trend of positive provision adjustments that Happen Bank started earlier in the year.

“We expect credit performance to remain solid in the fourth quarter, and we anticipate a further provision benefit of $5 million to $10 million,” Happen Bank Chief Financial Officer Andrew LaBenne said in the earnings call.

Deposits grew by 22% year over year to $11.5 billion and loan originations climbed 26% to $3.34 billion, driven by personal loans and the company’s entry into the home improvement market. Sanborn told investors that the response to the company’s new home improvement loan products has been “really strong.”

“Customers have so much equity in their homes and are sort of stuck, given that the vast majority of mortgages are now below six when rates for new mortgages are in the sevens,” Sanborn said. “People are deciding, ‘I am staying put, so I might as well make this place what I want it to be.’ We can help with affordable payments and financing.”

Happen Bank is also on track to launch a home equity line of credit, or HELOC, offering in the second half of next year, Sanborn said. “Consumers are tapping roughly $21 trillion in home equity to consolidate debt and make home improvements, two areas where we already have experience,” he said.

Happen Bank’s lending products were partially affected by the Federal Reserve’s interest rate hike earlier this year. Higher rates led to about $20 million of markdowns in the third quarter due to higher funding costs. 

According to the bank, however, the markdowns were offset by the bank’s hedging program, which was increased from $1.5 billion to $2.5 billion to manage rate risk. The hedges led to a $15 million gain, LaBenne said in the earnings call. “We plan to expand our hedging program as we grow to manage our interest rate risk profile. Our goal is to protect revenue generated by the balance sheet through interest rate cycles within prescribed limits.”

A Citizens analyst research note called the bank’s hedging activities “a positive dynamic.” 

“We believe that the company’s funding model is more complex and resilient versus competitors, primarily fintechs,” the note read. “Rate hikes are providing Happen with a competitive advantage as fintech competitors struggle to re-price personal loans. With at least one more rate hike expected by the Street this year, we see this margin pressure on near-prime fintech competitors continuing.”

Happen Bank’s rebrand, undergone partially to include “bank” in the company’s name, concluded a multiyear process which began when it received an OCC bank charter through buying Radius Bancorp and its subsidiary, Radius Bank, for $185 million back in 2020. The company officially became a bank in February 2021 once the acquisition was complete.

Sanborn described Happen’s current competitive position as a “six-year head start” in comparison to other fintechs applying for bank charters over the past 18 months.

“We see all of the fintechs pursuing bank charters as validating the idea that we pursued six years ago,” Sanborn said. “When we became a bank, we had to be operationally ready out of the gate. With the conditional approvals today, most of these banks are not yet operating as banks. They should be hitting the market throughout the course of next year, [and] we feel very ready to compete.”

Sanborn also told investors that Happen Bank is preparing to work with external AI agents in the near future, as other large banks are blocking agents from accessing customer accounts or rewriting their terms and conditions to place liability for agent activity on the consumer.

“AI agents are coming to banking,” he said. “We believe that we stand to benefit, and we plan to be ready. When consumer trust, permission and liability issues are sufficiently resolved, that value proposition will remain and we are making the investments now to be both highly visible and responsibly accessible to agents when the time comes.”