The AI Credit Engine Trading at... Book Value?
Why LendingClub’s data-hungry loan bot is an overlooked bargain
Executive Summary
Model Portfolio Action: Long LC US 01/16/26 C15 (January 2026 $15 call) at 0.25% portfolio weight.
Rationale: We use these options for an asymmetric bet. If a deep recession hits the thesis dies but our loss is fixed at the premium, while a re-rating lets the options deliver several times that outlay.
LendingClub ($LC) is a profitable digital bank that already puts artificial-intelligence underwriting to work at scale, $2 billion of loans last quarter, up 21%, yet trades for roughly its tangible book value. Wall Street still groups LC with slow regional lenders, ignoring the fact that its credit models digest 100 billion-plus data cells harvested over 15 years and are now being super-charged by small “AI talent” tuck-ins (Tally’s card-payoff engine, Cushion’s subscription-tracking bot). The result: better credit, cheaper funding, richer margins, and a business that can grow like a fintech while funding itself like a bank. As those metrics compound, and as investors look for “second-derivative” AI plays, the stock should re-rate toward its peers, we estimate ~100% upside to about $22 in the next twelve months. Downside risk is somewhat cushioned by a 17.8% CET1 capital ratio and the fact the shares already sit near book.
What Matters:
• AI underwriting that already earns money: LC’s machine-learning models approve or decline in seconds using the industry’s deepest consumer-loan dataset. That data edge just showed up in the numbers: consumer net charge-offs dropped from 8.1% to 4.7% YoY while peers still trend higher. Better losses let LC raise its whole-loan sale prices by 200bp for five straight quarters, pure margin the market barely notices.
• Cheap deposits, fat spreads: Thanks to a 2021 bank charter, LC funds its own loans with 87% FDIC-insured retail deposits. Net-interest margin printed 6%, top-decile in U.S. banking, because LevelUp savings accounts replaced expensive brokered deposits. Every rate cut the Fed delivers should widen that spread before deposits fully re-price.
• Growth is back, and it’s profitable: Management throttled marketing in 2023 to ride out macro jitters; they reopened the spigot late last year, and Q1 2025 already showed $218 million in revenue (+20%) and $74 million pre-provision profit (+52%). Guidance points to another originations jump this summer. Expenses grew only 9%. That is operating leverage writ large.
• Product flywheel creates optionality: Most personal-loan outfits touch a borrower once. LC now layers a mobile app, DebtIQ coaching, Top-Up refis, and soon Cushion’s AI subscription-killer on top. Borrowers who activate those tools log in 60% more often and take 30% more repeat loans, a no-brainer way to lower acquisition costs and raise lifetime value.
Why It’s an Indirect AI Play
Data scale few can match: Banks hold data but lack model agility; fintechs have models but tiny history. LC owns both, 15 years of labelled outcomes and cloud-native ML infrastructure.
AI economics visible today: The credit-loss gap vs. peers isn’t theoretical; it drops straight to the bottom line through higher sale prices and lower charge-offs.
Newly acquired AI micro-teams plug in fast: Instead of chasing splashy billion-dollar LLM deals, LC buys high-talent, low-price codebases (Tally, Cushion) and turns them into features inside a regulated bank app, zero platform risk, all data synergy.
Investors still want safe AI exposure: After last year’s run-up in GPU vendors and model labs, PMs are hunting “picks-and-shovels” AI winners that also throw off cash. LC fits that bill better than any consumer lender on the board.
Catalysts to Watch
Q2 & Q3 prints: Spring and summer are peak refinancing seasons; LC guides $2.1–$2.3 billion in originations for Q2, leaving room to surprise.
Insurance money flows: Fitch just rated LC’s first structured-loan certificate. Insurance portfolios (≈$8 trn) seek that yield with NAIC-friendly ratings.
Rate cycle: First 25bp Fed cut boosts deposit-loan spread before LevelUp savings re-price downward.
8%+ ROE proof-point: Management targets that by Q4; if delivered, value investors may rerate the equity.
Key Risks
Spreads Compress: If deposit costs jump faster than loan yields, the 6% margin fades.
Competitive Over-funding: A rival could subsidize rates to gain share; so far, LC’s charter keeps its funding cheaper than venture-backed peers.
Regulatory Surprise: New APR caps or OCC actions would hurt.
Conclusion
LendingClub is the rare financial stock where AI isn’t a press-release garnish, it’s already embedded in underwriting, already improving economics, and already profitable. The market just hasn’t bothered to look.
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