Happen Bank reported a 34% year-over-year increase in pretax profit to $76.8 million and a 26% rise in loan originations to $3.34 billion in its first full quarter under its new name. Growth was driven mainly by personal loans and the launch of home improvement financing. The bank also raised its full-year earnings-per-share guidance and said it plans to expand interest-rate hedging as funding costs shift.
Record profit lifts full-year EPS guidance
Formerly known as LendingClub, Happen Bank completed its rebranding earlier this year. CEO Scott Sanborn said on the company’s earnings call Wednesday after the market close that this was its first full quarter operating under the Happen Bank name. About four months after the change, online searches for Happen Bank had exceeded those for LendingClub by more than two times, he said.
The bank said several performance measures reached records during the quarter. Diluted earnings per share rose 35% year over year to $0.50, unchanged from the previous quarter. Happen Bank raised its full-year EPS outlook to $1.87-$1.92 from $1.80-$1.90.
A provision for credit losses also added to quarterly profit. The bank recorded the provision as a benefit of about $16 million, extending a trend of positive provision adjustments this year. CFO Andrew LaBenne said the company expects credit performance to remain steady in the fourth quarter and anticipates a further $5 million to $10 million benefit from provisions.
Deposits grow as home improvement loans lift originations
Deposits increased 22% year over year to $11.5 billion. Loan originations reached $3.34 billion, up 26%, with personal loans and the bank’s entry into home improvement financing providing the main momentum. Sanborn said customer response to the new home improvement loan product had been “very strong.”
Many consumers have built up home equity but are choosing to stay in their current homes and renovate rather than move, Sanborn said. Existing mortgage rates are relatively low, while rates on a new mortgage would be higher. Happen Bank aims to serve that demand with financing and repayment options customers can afford.
The bank also plans to introduce home equity lines of credit (HELOCs) in the second half of next year. Sanborn said consumers are using about $21 trillion in home equity for debt consolidation and home improvements, two areas that align with the company’s existing experience. The product would extend Happen Bank’s lending further into loans secured by residential property.
Hedging gains offset some funding-cost pressure
Federal Reserve rate hikes earlier this year affected Happen Bank’s lending business. Higher funding costs led the company to record an impairment of about $20 million in the third quarter. The bank expanded its interest-rate hedges from $1.5 billion to $2.5 billion, generating about $15 million in gains and offsetting part of the impact.
LaBenne said the bank plans to continue expanding its hedging program as the business grows, managing interest-rate risk on its balance sheet and protecting balance-sheet income through the rate cycle within established limits. A Citizens analyst note described the hedging program as a positive and said Happen Bank’s funding model was more resilient than those of some fintech competitors. It also noted that higher rates could put pressure on fintech companies that rely on personal loans to reprice their funding.
Bank operating experience and AI plans
The rebrand also reflects the company’s shift from fintech to a licensed bank. LendingClub acquired Radius Bancorp and its subsidiary Radius Bank for $185 million in 2020. The deal closed in February 2021, when LendingClub formally became a bank. Sanborn described the experience as giving Happen Bank a “six-year head start” over other fintech companies seeking bank charters and said it was ready to compete.
On the prospect of AI agents entering banking, Sanborn said the company is preparing for future work with external AI agents. He said such agents could create value for banking once questions around consumer trust, authorization and accountability are adequately addressed. Happen Bank is investing now so it can connect to those services in a visible and responsible way when the time comes. The bank has not set a launch timeline.