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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
Commission File Number: 001-36771
 
LendingClub Corporation
(Exact name of registrant as specified in its charter)
Delaware51-0605731
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
595 Market Street, Suite 200,
San Francisco,CA94105
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (415632-5600
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, par value $0.01 per shareLCNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No  
As of April 30, 2021, there were 97,228,126 shares of the registrant’s common stock outstanding.



LENDINGCLUB CORPORATION
TABLE OF CONTENTS




LENDINGCLUB CORPORATION

Except as the context requires otherwise, as used herein, “LendingClub,” “Company,” “we,” “us,” and “our,” refer to LendingClub Corporation, a Delaware corporation, and, where appropriate, its consolidated subsidiaries and consolidated variable interest entities (VIEs), including:

LendingClub Bank, National Association (the Bank)
Various entities established to facilitate loan sale transactions under LendingClub’s Structured Program, including sponsoring asset-backed securities transactions and Certificate Program transactions, where certain accredited investors and qualified institutional buyers have the opportunity to invest in senior and subordinated securities backed by a pool of unsecured personal whole loans.
LC Trust I (the LC Trust), an independent Delaware business trust that acquires loans from LendingClub and holds them for the sole benefit of certain investors that have purchased trust certificates issued by the LC Trust and that are related to specific underlying loans for the benefit of the investor.

Forward-Looking Statements

This Quarterly Report on Form 10-Q (Report) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements in this Report include, without limitation, statements regarding borrowers, credit scoring, our strategy, future operations, expected losses, future financial position, future revenue, projected costs, prospects, plans, objectives of management, expected market growth and the impact on our business. You can identify these forward-looking statements by words such as “anticipate,” “appear,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “future,” “intend,” “may,” “opportunity,” “plan,” “predict,” “project,” “should,” “strategy,” “target,” “will,” “would,” or similar expressions.

These forward-looking statements include, among other things, statements about:

our ability to integrate the Bank and the timing and ability to realize the expected financial and strategic benefits of the acquisition;
our ability, following our acquisition of the Bank, to attract new members, to expand our product offerings, to improve revenue and generate recurring earnings, to capture expense benefits, to increase resiliency, and to enhance regulatory clarity;
our ability to address stricter or heightened regulatory or supervisory requirements and expectations;
our compliance with applicable local, state and Federal laws, regulations and regulatory developments or court decisions affecting our business;
the impact of COVID-19 and our ability to effectuate and the effectiveness of certain operational and strategy initiatives in light of COVID-19;
our ability to successfully navigate the current economic climate;
our ability to sustain the business under adverse circumstances;
the effects of natural disasters, public health crises, acts of war or terrorism and other external events on our customers and business;
the impact of changes in laws or the regulatory or supervisory environment, including as a result of legislation, regulation, policies or changes in government officials or other personnel;
the impact of changes in monetary, fiscal, or trade laws or policies, including as a result of actions by governmental agencies, central banks, or supranational authorities;
the impact of new accounting standards or policies, including the Current Expected Credit Loss (CECL) standard;
results of examinations of us by regulatory authorities and the possibility that any such regulatory authority may, among other things, limit our business activities, increase our allowance for loan losses, increase our capital levels, or affect our ability to borrow funds or maintain or increase deposits;
our ability to maintain an enterprise risk management framework that is effective in mitigating risk;
1


LENDINGCLUB CORPORATION

our ability to effectively manage capital or liquidity to support our evolving business or operational needs, while remaining compliant with regulatory or supervisory requirements and appropriate risk-management standards;
our ability to attract and retain loan borrowers;
our ability to develop and maintain a strong core deposit base or other low cost funding sources necessary to fund our activities;
the impact of changes in consumer spending, borrowing and saving habits;
the impact of the continuation of or changes in the short-term and long-term interest rate environment;
the ability of borrowers to repay loans and the plans of borrowers;
our ability to maintain investor confidence in the operation of our platform;
our ability to retain existing and secure new or additional sources of investor commitments for our platform;
the performance of our loan products and expected rates of return for investors;
platform volume, pricing and balance;
the effectiveness of our platform’s credit scoring models;
our ability to innovate and the adoption and success of new products and services;
the adequacy of our corporate governance, risk-management framework, compliance programs;
the impact of and our ability to resolve pending litigation and governmental inquiries and investigations;
the use of our own capital to purchase loans, the impact of holding loans on and our ability to sell loans off our balance sheet;
our financial condition and performance, including the impact that management’s estimates have on our financial performance and the relationship between the interim period and full year results;
our ability, and that of third-party vendors, to maintain service and quality expectations;
capital expenditures;
our compliance with contractual obligations or restrictions;
the potential impact of macro-economic developments, including recessions or other adverse circumstances;
our ability to develop and maintain effective internal controls;
our ability to recruit and retain quality employees to support current operations and future growth;
changes in the effectiveness and reliability of our information technology and computer systems, including the impact of any security or privacy breach; the impact of expense initiatives and our ability to control our cost structure;
our ability to manage and repay our indebtedness; and
other risk factors listed from time to time in reports we file with the SEC.

We caution you that the foregoing list may not contain all of the forward-looking statements in this Report. We may not actually achieve the plans, intentions or expectations disclosed in forward-looking statements, and you should not place undue reliance on forward-looking statements. We have included important factors in the “Risk Factors” section of this Report and our Annual Report on Form 10-K for the year ended December 31, 2020, as well as in our condensed consolidated financial statements, related notes, and other information appearing elsewhere in this Report and our other filings with the Securities and Exchange Commission, that could, among other things, cause actual results or events to differ materially from forward-looking statements contained in this Report. Forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

You should read this Report carefully and completely and with the understanding that actual future results may be materially different from what we expect. We do not assume any obligation to update or revise any forward-looking statements, whether as a result of new information, actual results, future events or otherwise, other than as required by law.

2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
LENDINGCLUB CORPORATION
Condensed Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
March 31, 2021December 31, 2020
Assets (1)
Cash and due from banks$34,261 $5,197 
Interest-bearing deposits in banks797,539 519,766 
Total cash and cash equivalents831,800 524,963 
Restricted cash (2)
139,080 103,522 
Securities available for sale at fair value (includes $273,331 and $159,164 at amortized cost, respectively)
274,419 142,226 
Loans held for sale at fair value (2)
166,623 121,902 
Loans and leases held for investment2,115,432  
Allowance for loan and lease losses(36,132) 
Loans and leases held for investment, net2,079,300  
Retail and certificate loans held for investment at fair value (2)
507,157 636,686 
Other loans held for investment at fair value (2)
42,485 49,954 
Property, equipment and software, net95,313 96,641 
Goodwill75,717  
Other assets (2)
279,195 187,399 
Total assets$4,491,089 $1,863,293 
Liabilities and Equity (1)
Deposits:
Interest-bearing2,229,827  
Noninterest-bearing143,610  
Total deposits2,373,437  
Short-term borrowings90,091 104,989 
Advances from Paycheck Protection Program Liquidity Facility (PPPLF)370,086  
Retail notes, certificates and secured borrowings at fair value (2)
507,203 636,774 
Payable on Structured Program borrowings (2)
133,499 152,808 
Other long-term debt18,572  
Other liabilities (2)
265,066 244,551 
Total liabilities3,757,954 1,139,122 
Equity
Series A Preferred stock, $0.01 par value; 1,200,000 shares authorized; 0 and 43,000 shares issued and outstanding, respectively
  
Common stock, $0.01 par value; 180,000,000 shares authorized; 97,228,126 and 88,149,510 shares issued and outstanding, respectively
972 881 
Additional paid-in capital
1,563,865 1,508,020 
Accumulated deficit(833,298)(786,214)
Treasury stock, at cost; 4,251 and 0 shares, respectively
(92) 
Accumulated other comprehensive income1,688 1,484 
Total equity733,135 724,171 
Total liabilities and equity$4,491,089 $1,863,293 
(1)    Prior period amounts have been reclassified to conform to the current period presentation. See “Notes to Condensed Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies” for additional information.
(2)    Includes amounts in consolidated variable interest entities (VIEs) presented separately in the table below.
3


The following table presents the assets and liabilities of consolidated VIEs, which are included in the Condensed Consolidated Balance Sheets above. The assets in the table below may only be used to settle obligations of consolidated VIEs and are in excess of those obligations. Additionally, the assets and liabilities in the table below include third-party assets and liabilities of consolidated VIEs only and exclude intercompany balances that eliminate in consolidation.
March 31, 2021December 31, 2020
Assets of consolidated VIEs, included in total assets above
Restricted cash$17,536 $15,983 
Loans held for sale at fair value83,926 98,190 
 Retail and certificate loans held for investment at fair value 36,277 52,620 
Other loans held for investment at fair value42,261 50,102 
Other assets 936 1,270 
Total assets of consolidated variable interest entities$180,936 $218,165 
Liabilities of consolidated VIEs, included in total liabilities above
Retail notes, certificates and secured borrowings at fair value$36,277 $52,620 
Payable on Structured Program borrowings133,499 152,808 
Other liabilities522 729 
Total liabilities of consolidated variable interest entities$170,298 $206,157 

See Notes to Condensed Consolidated Financial Statements.
4


LENDINGCLUB CORPORATION
Condensed Consolidated Statements of Operations
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
Three Months Ended
March 31,
 20212020
Non-interest income (1):
Marketplace revenue$81,727 $102,477 
Other non-interest income5,607 4,511 
Total non-interest income87,334 106,988 
Interest income (1):
Interest on loans held for sale5,157 27,376 
Interest and fees on loans and leases held for investment15,301  
Interest on retail and certificate loans held for investment at fair value20,262 35,376 
Interest on other loans held for investment at fair value1,479 1,999 
Interest on securities available for sale2,235 3,779 
Other interest income156 881 
Total interest income44,590 69,411 
Interest expense (1):
Interest on deposits1,014  
Interest on short-term borrowings1,264 7,398 
Interest on retail notes, certificates and secured borrowings20,262 35,376 
Interest on Structured Program borrowings3,208 2,299 
Interest on other long-term debt336 140 
Total interest expense26,084 45,213 
Net interest income (1)
18,506 24,198 
Total net revenue (1)
105,840 131,186 
Provision for credit losses (1)
21,493 10,980 
Non-interest expense (1):
Compensation and benefits64,420 75,545 
Marketing19,545 39,081 
Equipment and software7,893 6,490 
Occupancy6,900 6,813 
Depreciation and amortization11,766 12,873 
Professional services11,603 14,141 
Other non-interest expense12,125 13,031 
Total non-interest expense134,252 167,974 
Loss before income tax expense(49,905)(47,768)
Income tax expense (benefit)(2,821)319 
Consolidated net loss$(47,084)$(48,087)
Net loss per share attributable to common stockholders – Basic and Diluted (2)
$(0.49)$(1.10)
Weighted-average common shares – Basic and Diluted (2)
92,666,169 86,505,560 
Net income (loss) per share attributable to preferred stockholders – Basic and Diluted (2)
$(0.49)$18.36 
Weighted-average common shares, as converted – Basic and Diluted (2)
2,648,758 2,579,710 
(1)    Prior period amounts have been reclassified to conform to the current period presentation. See “Notes to Condensed Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies” for additional information.
(2)    See “Notes to Condensed Consolidated Financial StatementsNote 4. Net Income (Loss) Per Share” for additional information.

See Notes to Condensed Consolidated Financial Statements.
5


LENDINGCLUB CORPORATION
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
20212020
Consolidated net loss$(47,084)$(48,087)
Other comprehensive income (loss), before tax:
Net unrealized gain (loss) on securities available for sale
204 (20,681)
Other comprehensive income (loss), before tax204 (20,681)
Income tax effect
 (319)
Other comprehensive income (loss), net of tax204 (20,362)
Total comprehensive loss$(46,880)$(68,449)

See Notes to Condensed Consolidated Financial Statements.
6


LENDINGCLUB CORPORATION
Condensed Consolidated Statements of Changes in Equity
(In Thousands, Except Share Data)
(Unaudited)
 Preferred StockCommon StockAdditional
Paid-in
Capital
Treasury StockAccumulated Other Comprehensive Income (Loss)Accumulated
Deficit
Total
Equity
 SharesAmountSharesAmountSharesAmount
Balance at
December 31, 2020
43,000 $ 88,149,510 $881 $1,508,020  $ $1,484 $(786,214)$724,171 
Stock-based compensation— — — — 15,765 — — — — 15,765 
Net issuances under equity incentive plans, net of tax (1)
— — 1,017,502 10 (1,301)4,251 (92)— — (1,383)
Net issuances of stock related to
  acquisition (2)
  3,761,114 38 41,424 — — — — 41,462 
Exchange of preferred stock for common stock (3)
(43,000)— 4,300,000 43 (43)  — — — 
Net unrealized gain on securities available for sale, net of tax— — — — — — — 204 — 204 
Net loss— — — — — — — — (47,084)(47,084)
Balance at
March 31, 2021
 $ 97,228,126 $972 $1,563,865 4,251 $(92)$1,688 $(833,298)$733,135 
 Preferred StockCommon StockAdditional
Paid-in
Capital
Treasury StockAccumulated Other Comprehensive Income (Loss)Accumulated
Deficit
Total
Equity
 SharesAmountSharesAmountSharesAmount
Balance at
December 31, 2019
 $ 88,757,406 $892 $1,467,882 461,391 $(19,550)$(565)$(548,472)$900,187 
Stock-based compensation— — — — 19,699 — — — — 19,699 
Net issuances under equity incentive plans, net of tax (1)
— — 674,689 7 (4,623)5,658 (71)— — (4,687)
Net issuances of preferred stock in exchange for common stock (3)
195,628 2 (19,562,881)(196)194 — — — (50,204)(50,204)
Retirement of treasury stock— — — (4)(19,617)(467,049)19,621 — — — 
Net unrealized loss on securities available for sale, net of tax— — — — — — — (20,362)— (20,362)
Net loss— — — — — — — — (48,087)(48,087)
Balance at
March 31, 2020
195,628 $2 69,869,214 $699 $1,463,535  $ $(20,927)$(646,763)$796,546 
(1)    Includes shares that were transferred to the Company to satisfy payment of all or a portion of the exercise price in connection with the exercise of stock options.
(2)    Stock issued as part of the consideration paid related to the acquisition of Radius. See “Note 2. Business Acquisition.
(3)    Includes a payment of $50.2 million that was recorded as a deemed dividend within accumulated deficit related to the beneficial conversion feature of the Series A Preferred Stock issued on March 20, 2020, which would convert into common stock upon a sale by the preferred stockholder to a third party.

See Notes to Condensed Consolidated Financial Statements.

7


LENDINGCLUB CORPORATION
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
 20212020
Cash Flows from Operating Activities: (1)
Consolidated net loss$(47,084)$(48,087)
Adjustments to reconcile consolidated net loss to net cash used for operating activities:
Net fair value adjustments5,321 89,786 
Provision for credit losses21,493 10,980 
Change in fair value of loan servicing assets11,837 9,608 
Stock-based compensation, net14,801 18,129 
Depreciation, amortization, and accretion11,450 13,730 
Gain on sales of loans(8,323)(14,261)
Other, net2,548 1,455 
Net change to loans held for sale(42,786)(191,496)
Net change in operating assets and liabilities:
Other assets(10,290)(4,918)
Other liabilities(10,333)(101,373)
Net cash used for operating activities(51,366)(216,447)
Cash Flows from Investing Activities: (1)
Acquisition of company(145,344) 
Cash received from acquisition668,236  
Net increase in loans and leases(502,387)(101,852)
Net decrease in retail and certificate loans138,288 228,057 
Purchases of securities available for sale(9,911)(34,909)
Proceeds from sales of securities available for sale106,192 2,396 
Proceeds from maturities and paydowns of securities available for sale34,239 61,038 
Purchases of property, equipment and software, net
(6,365)(11,435)
Other investing activities4,960 100 
Net cash provided by investing activities287,908 143,395 
Cash Flows from Financing Activities: (1)
Net change in demand deposits and savings accounts343,787  
Principal payments on advances from PPPLF(50,876) 
Proceeds from issuance of retail notes and certificates 104,620 
Net decrease in retail notes and certificates(138,376)(229,002)
Principal payments on Structured Program borrowings(22,391)(6,911)
Proceeds from issuance of notes and certificates from Structured Program transactions
 186,190 
Proceeds from short-term borrowings 979,539 
Principal payments on short-term borrowings(24,908)(946,038)
Deemed dividend paid to preferred stockholder
 (50,204)
Other financing activities
(1,383)(18,672)
Net cash provided by financing activities105,853 19,522 
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash$342,395 $(53,530)
8


LENDINGCLUB CORPORATION
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
 20212020
Cash, Cash Equivalents and Restricted Cash, Beginning of Period$628,485 $487,122 
Cash, Cash Equivalents and Restricted Cash, End of Period$970,880 $433,592 
Supplemental Cash Flow Information:
Cash paid for interest$22,645 $43,559 
Cash paid for operating leases included in the measurement of lease liabilities
$4,291 $4,383 
Non-cash investing activity:
Net securities retained from Structured Program transactions$ $44,260 
Accruals for property, equipment and software$ $2,439 
Non-cash investing and financing activity:
Transfer of whole loans to redeem certificates$ $17,414 
Net issuances of stock related to acquisition$41,462 $ 
Non-cash financing activity:
Exchange of common stock for preferred stock$ $207,244 
(1)    Prior period amounts have been reclassified to conform to the current period presentation. See “Notes to Condensed Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies” for additional information.

The following presents cash, cash equivalents and restricted cash by category within the Condensed Consolidated Balance Sheets:
 March 31, 2021December 31, 2020
Cash and cash equivalents$831,800 $524,963 
Restricted cash139,080 103,522 
Total cash, cash equivalents and restricted cash
$970,880 $628,485 

See Notes to Condensed Consolidated Financial Statements.
9


LENDINGCLUB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
(Unaudited)


1. Summary of Significant Accounting Policies

Basis of Presentation

LendingClub Corporation (LendingClub) was founded in 2006 to transform the banking industry by leveraging technology, data science and a marketplace model. LendingClub started by bringing a traditional credit product, the installment loan, into the digital age and became the largest provider of unsecured personal loans in the United States. On February 1, 2021, LendingClub completed the acquisition of Radius Bancorp, Inc. (Radius), whereby LendingClub became a bank holding company and formed LendingClub Bank, National Association (the Bank) as its wholly-owned subsidiary, through which it now operates the vast majority of its business. With the acquisition, LendingClub combined the complementary strengths of its digital lending capabilities with an award-winning digital bank.

The accompanying unaudited condensed consolidated financial statements include LendingClub, its subsidiaries (collectively referred to as the Company, we, or us) and consolidated variable interest entities (VIEs). All intercompany balances and transactions have been eliminated. These condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and, in the opinion of management, contain all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the results and financial position for the periods presented. These accounting principles require management to make certain estimates and assumptions that affect the amounts in the accompanying financial statements. These estimates and assumptions are inherently subjective in nature and actual results may differ from these estimates and assumptions, and the differences could be material. Results reported in interim periods are not necessarily indicative of results for the full year or any other interim period.

The acquisition significantly changed the presentation of the Company’s financial statements, which are now structured according to the presentation requirements for bank holding companies under Article 9 of the SEC’s Regulation S-X. Prior period amounts in the financial statements and related footnotes have been reclassified to conform to the current period presentation. See “Note 2. Business Acquisition” for detail illustrating the reclassification adjustments made to align with the current presentation.

The accompanying interim condensed consolidated financial statements and these related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (Annual Report) filed on March 11, 2021.

Significant Accounting Policies

The Company’s significant accounting policies are discussed in “Part II – Item 8 – Financial Statements and Supplementary Data – Note 2. Summary of Significant Accounting Policies” in the Annual Report. There have been no changes to these significant accounting policies for the three month period ended March 31, 2021, except as noted below.

Loans and Leases

The Company initially classifies loans and leases as either loans held for sale or loans held for investment based on management’s assessment of the Company’s intent and ability to hold the loans for the foreseeable future or until maturity. Management’s intent and ability with respect to certain loans may change from time to time depending on a number of factors, for example economic, liquidity, and capital conditions. In order to reclassify loans to held for sale, management must have the intent to sell the loans and reasonably identify the specific loans to be sold.

10


LENDINGCLUB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
(Unaudited)

Loans classified as held for investment are reported at their amortized cost basis, which includes the principal amount outstanding, net of unamortized deferred fees and costs on originated loans, unamortized premiums and discounts on purchased loans, unless the fair value option was elected, in which case those loans are carried at fair value. Leases are reported at their net investment in the lease which includes the gross lease receivable and residual value, net of unearned income, unamortized deferred fees and costs on originated leases, and unamortized premiums and discounts on purchased leases. Deferred origination fees and costs, and premiums and discounts on purchased loans, are amortized over the contractual life of the related loan and leases as interest income using the effective interest method. Accrued interest receivable on loans and leases is included in “Other assets” on the Company’s Condensed Consolidated Balance Sheets.

For loans and leases held for investment at amortized cost, accrued interest income is calculated based on the contractual interest rate of the loan and recorded as interest income as earned. The accrual of interest and amortization of net deferred origination costs and fees is discontinued and the loan or lease is placed on nonaccrual status when the collectability of principal, interest or lease receivable is uncertain or payments of principal, interest or lease receivables have become past due 90 days or more. Past due status is based on the contractual terms. When a loan or lease held for investment is placed on nonaccrual status, all income previously accrued but not collected is reversed against the current period’s income. Because the Company has a nonaccrual policy which results in the timely reversal of past-due accrued interest, it does not record an allowance for expected credit losses on accrued interest receivable. Interest received on nonaccrual loans and leases is either applied against the principal balance or reported as income depending on management’s judgment as to the collectability of principal. Nonaccrual loans and leases are returned to accrual status when there no longer exists concern over collectability, the borrower has demonstrated, over time, both the intent and ability to repay and the loan or lease has been brought current and future payments are reasonably assured.
The Company has elected the fair value option for loans originated and held for sale. Changes in the fair value of loans held for sale are recorded in “Marketplace revenue” in the Condensed Consolidated Statements of Operations in the period of the fair value changes. Origination fees are recognized in earnings within “Marketplace revenue” in the Condensed Consolidated Statements of Operations when received from the borrower at the time of origination. Accrued interest income on loans held for sale is calculated based on the contractual interest rate of the loan and recorded as interest income as earned. The Company places loans held for sale on nonaccrual status at 90 days past due. When a loan held for sale is placed on nonaccrual status, the Company stops accruing interest and reverses all accrued but unpaid interest as of such date. The Company charges off loans held for sale no later than 120 days past due.

Allowance for Expected Credit Losses

The allowance for expected credit losses for loans and leases, and reserve for unfunded lending commitments (collectively the allowance for expected credit losses (ACL)), are valuation reserves that represent the Company’s best estimate of expected credit losses (ECL) on the Company’s assets measured at amortized cost and unfunded lending commitments. The allowance for expected credit losses is measured based on a lifetime expected loss model, which does not require a loss event to occur before a credit loss is recognized. Under the lifetime expected credit loss model, the Company estimates the allowance based on relevant available information related to past events, current conditions, and reasonable and supportable forecasts of future economic conditions.

The Company evaluates its estimate of expected credit losses each reporting period and records any additions to the allowance on the Condensed Consolidated Statements of Operations as a provision for credit losses. Any write-offs of amounts determined to be uncollectible are charged to the allowance. Estimates of expected credit losses include expected recoveries of amounts previously written-off and expected to be written-off. There could be instances where including expected recoveries of previously written-off loans in the estimate of expected credit losses may result in a negative allowance.
11


LENDINGCLUB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
(Unaudited)


The allowance for expected credit losses is measured on a collective basis when loans share similar risk characteristics. Relevant risk characteristics for the consumer portfolio include product type, loan term, and monthly vintage. Relevant risk characteristics for the commercial portfolio include product type and purchased credit deteriorated (PCD) status. Loans measured on a collective basis generally have an allowance for expected credit losses which are made up of a quantitative, or modeled, component, and a qualitative component.

The Company will continue to monitor its loan pools on an ongoing basis and adjust accordingly as the risk characteristics of the financial assets may change over time. If a given financial asset does not share similar risk characteristics with other financial assets, the Company shall measure ECL on an individual, rather than on a collective basis. Loans measured on an individual basis generally have an allowance for expected credit losses which is measured in reference to any collateral securing the loan and/or expected cash flows which are specific to the borrower.

Allowance Calculation Methodology

The Company generally estimates ECL over the contractual term of its loans. The contractual term is adjusted for expected prepayments when appropriate. Expected renewals and extensions do not adjust the contractual term unless the extension or renewal option is through a troubled debt restructuring (TDR) that is reasonably expected to occur or represents an unconditionally cancellable option held by the borrower.

The quantitative, or modeled, component of the ACL is primarily based on statistical models that use known or estimated data as of the balance sheet date and forecasted data over the reasonable and supportable period. Known and estimated data include current probability of default, loss given default and exposure at default, timing and amount of expected prepayments, timing and amount of expected draws (for unfunded lending commitments), and relevant risk characteristics. Certain of the Company’s portfolios have limited historical loss data available internally. For these portfolios, the Company uses external credit loss information from the FDIC Call Report and Small Business Administration (SBA) data, which includes historical charge-off and balance data for peer banking institutions.

The Company obtains historical macroeconomic data dating back to 2004 from the St. Louis Federal Reserve Economic Database (FRED) and Moody’s Analytics to inform its view of the long-term condition of the economy. Forward-looking macroeconomic factors considered in the Company’s statistical models include Gross Domestic Product (GDP), unemployment rate, housing prices, and retail sales. Forward-looking macroeconomic factors are incorporated into the Company’s models for a two-year reasonable and supportable economic forecast period followed by a one-year reversion period during which expected credit losses are expected to revert back on a straight-line basis to historical losses unadjusted for economic conditions. The reasonable and supportable economic forecast period and reversion methodology are accounting estimates which may change in future periods as a result of changes to the current macroeconomic environment.

The Company’s statistical models produce expected cash flows, which are then discounted at the effective interest rate to derive net present value. This net present value is then compared to the amortized cost basis to derive the expected credit losses. As a result, the quantitative, or modeled, portion of ACL is estimated using a discounted cash flow (DCF) approach.

The Company also considers the need for qualitative adjustments to the modeled estimate of expected credit losses. For this purpose, the Company established a qualitative factor framework to periodically assess qualitative adjustments to address certain identified elements that are not directly captured by the expected credit loss models. These factors may include the impact of risk rating downgrades, changes in credit policies, problem loan trends,
12


LENDINGCLUB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
(Unaudited)

identification of new risks not incorporated into the modeling framework, credit concentrations, changes in lending management and other external factors.

Zero Credit Loss Expectation Exception

The Company has a zero loss expectation when the loans, or portions thereof, are issued or guaranteed by certain U.S. government entities or agencies, and those entities or agencies have a long history of no defaults and the highest credit ratings issued by rating agencies. Loans held for investment which meet this criterion do not have an allowance for expected credit losses.

Reserve for Unfunded Lending Commitments

The Company also estimates expected credit losses associated with off-balance sheet commitments such as commitments to extend credit and unused lines of credit. The Company estimates these expected credit losses for the unfunded portion of the commitments that are not unconditionally cancellable depending on the likelihood that funding will occur. The reserve for unfunded lending commitments is reported as a liability within “Other liabilities” on the Company’s Condensed Consolidated Balance Sheets.

Individually Assessed Loans

Loans whose terms have been modified in a troubled debt restructuring (TDR) and collateral-dependent financial assets are individually assessed for purposes of measuring expected credit losses. The allowance for expected credit losses on loans modified in a TDR is calculated using the discounted cash flow approach and is recorded as the difference between the amortized cost basis and the expected future cash flows. For purposes of discounting, the Company uses the original effective interest rate of the TDR loan.

For loans that are determined to be collateral dependent, the allowance for expected credit losses is determined using the fair value of the collateral method. Loans are considered collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be substantially through sale or operation of the collateral. For such loans, the allowance is calculated as the difference between the amortized cost basis and the fair value of the underlying collateral less costs to sell, if applicable.

Purchased Credit Deteriorated Assets

PCD assets are acquired financial assets (or groups of financial assets with similar risk characteristics) that as of the date of acquisition have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by an acquirer’s assessment. The Company considers indicators such as loan rating, FICO score, days past due status, nonaccrual status, TDR status, charge-off status, bankruptcy, purchased credit impaired (PCI) status from prior acquisition, COVID-19 modification or industry risk rating to determine whether an acquired asset meets the definition of PCD.

PCD assets are recorded on the acquisition date at their purchase price plus any related initial ACL, which results in a “gross-up” of the asset’s initial amortized cost basis. Recognition of the initial ACL upon acquisition for PCD assets does not impact net income. Subsequent to the acquisition date, any changes in the ACL are recorded through the provision for credit losses on the income statement. Acquired non-PCD assets are accounted for in a manner similar to originated financial assets, whereby any initial ACL is recorded through the provision for credit losses in the income statement.

13


LENDINGCLUB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
(Unaudited)

Radius Acquisition

In connection with the Radius acquisition, the Company was required to record an allowance for non-PCD assets with a corresponding increase to the provision for credit losses. For acquired PCD loans, an allowance was required with a corresponding increase to the amortized cost basis as of the acquisition date. For PCD loans where all or a portion of the loan balance had been previously written-off, or would be subject to write-off under the Company’s charge-off policy, the CECL allowance included as part of the grossed-up loan balance at acquisition was immediately written-off, resulting in a zero period-end allowance balance and no impact on the ACL rollforward. See “Note 2. Business Acquisition” for additional detail.

Charge-Offs

Charge-offs are recorded when the Company determines that a loan balance is uncollectible or a loss-confirming event has occurred. Loss confirming events usually involve the receipt of specific adverse information about the borrower and may include borrower delinquency status, bankruptcy, foreclosure, or receipt of an asset valuation indicating a shortfall between the value of the collateral and the book value of the loan when that collateral asset is the sole source of repayment. A full or partial charge-off reduces the amortized cost basis of the loan and the related ACL.

For acquired PCD loans where all or a portion of the loan balance had been charged off prior to acquisition, and for which active collection efforts are still underway, the CECL allowance included as part of the grossed-up loan balance at acquisition is immediately charged off if required by the Company’s existing charge off policy. Additionally, the Company is required to consider its existing policies in determining whether to charge off any financial assets, regardless of whether a charge-off was recorded by the predecessor company. The initial ACL recognized on PCD assets includes the gross-up of the loan balance reduced by immediate charge-offs for loans previously charged off by the predecessor company or which meet the Company’s charge-off policy on the date of acquisition. Charge-offs against the allowance related to such acquired PCD loans do not result in an income statement impact. See “Note 6. Loans and Leases Held for Investment, Net of Allowance For Loan and Lease Losses” for additional detail.

Business Combinations

The Company accounts for business combinations using the acquisition method. The accounts of an acquired entity are included as of the date of acquisition, and any excess of purchase price over the fair value of the net assets acquired is capitalized as goodwill. See Note 2. Business Acquisition” for further discussion of the acquisition of Radius and its impact on the Company’s consolidated financial statements.

Goodwill and Other Intangible Assets

Goodwill is the purchase consideration of an acquired business in excess of the aggregate fair value of the identified net assets acquired. The Company allocates goodwill to the reporting unit(s) (generally defined as an operating segment or one level below an operating segment for which financial information is available and reviewed regularly by management) that are expected to benefit from the synergies of the business combination.

The goodwill of each reporting unit is reviewed for impairment annually or whenever events or circumstances indicate that it is more likely than not that the estimated fair value of a reporting unit is below its carrying value. Our annual impairment testing is completed in the fourth quarter. Impairment exists whenever the carrying value of goodwill exceeds its estimated fair value. Adverse changes in impairment indicators such as lower than forecast financial performance, increased competition, increased regulatory oversight, or unplanned changes in operations could result in impairment.
14


LENDINGCLUB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)
(Unaudited)


Intangible assets with a defined life are amortized over their useful lives in a manner that best reflects their economic benefit, which may include straight-line or accelerated methods of amortization. Intangible assets are reviewed for impairment quarterly and whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable and its carrying amount exceeds its fair value. The Company does not have indefinite-lived intangible assets other than goodwill.

Adoption of New Accounting Standards

The Company did not adopt any new accounting standards during the three month period ended March 31, 2021.

New Accounting Standards Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which, if certain criteria are met, provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform. These transactions include contract modifications, hedging relationships, and the sale or transfer of debt securities classified as held-to-maturity. The provisions of the new standard may be adopted as of the beginning of the reporting period when the election is made until December 31, 2022. The Company is evaluating the impact this ASU will have on its financial position, results of operations, cash flows, and disclosures. The Company has not elected an adoption date.

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments wit