LENDINGCLUB CORPORATION The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes that appear in this Annual Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and in this Annual Report, particularly in "Part I - Item 1A. Risk Factors."
Overview
LendingClub is America's leading digital marketplace bank. The Company was founded in 2006 and brought a traditional credit product - the installment loan - into the digital age by leveraging technology, data science, and a unique marketplace model. In doing so, we became one of the largest providers of unsecured personal loans inthe United States . InFebruary 2021 ,LendingClub completed the acquisition of an award-winning digital bank, Radius, becoming a bank holding company and formingLC Bank as its wholly-owned subsidiary. We operate the vast majority of our business throughLC Bank , as a lender and originator of loans and as a regulated bank inthe United States .
Executive Summary
We delivered the following results demonstrating the benefits of our evolution into a marketplace bank in the face of a less favorable economic environment. Our recurring revenue growth offset the recent reduction in investor demand for marketplace loans in the second half of 2022, which was impacted adversely given the rapidly rising interest rate environment. We expect this reduction in investor demand to continue until interest rates stabilize. At the end of 2022, we acquired a$1.05 billion outstanding principal loan portfolio that is expected to generate additional net interest income in 2023. In addition, inJanuary 2023 we implemented a cost reduction and reorganization plan, reducing our workforce by 225 employees, or 14%, to more closely align our operations to reduced marketplace revenue. We anticipate the workforce reductions will result in annualized run-rate savings in compensation and benefits of approximately$25 to$30 million in 2023. •Loan originations: Loan originations increased$2.7 billion , or 26%, for the year endedDecember 31, 2022 compared to the same period in 2021. The increase was primarily driven by the growth in unsecured personal loan origination volume.
•Loan originations held for investment (HFI) at amortized cost increased
•Loan originations HFI at amortized cost as a percentage of total loan originations was 28%, increasing from 22% in the prior year. The percentage of loan originations HFI in any period is dependent on many factors, including quarterly loan origination volume, risk-adjusted returns, liquidity and general regulatory capital considerations.
•Total net revenue: Total net revenue increased
•Marketplace revenue: Marketplace revenue increased$105.0 million , or 18%, for the year endedDecember 31, 2022 compared to the same period in 2021. The increase was in line with loan origination volume growth, partially offset by the recent reduction in investor demand for marketplace loans, which was impacted adversely given the rapidly rising interest rate environment, as well as tighter underwriting standards implemented by the Company in the second half of 2022.
•Net interest income: Net interest income increased
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LENDINGCLUB CORPORATION Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)increase in unsecured personal loans retained in current and prior periods as HFI, partially offset by an increase in interest expense on deposits due to higher interest rates.
•Net interest margin: Net interest margin was 8.2%, increasing from 5.6% in the prior year, primarily reflecting a greater mix of personal loans which generate a higher yield than the rest of the loans HFI, partially offset by higher interest rates on deposits. •Provision for credit losses: Provision for credit losses increased$128.5 million , or 93%, for the year endedDecember 31, 2022 compared to the same period in 2021. The increase was primarily due to growth in loans HFI at amortized cost, discounting effect of the NPV allowance on prior loan vintages and additional qualitative allowance reflecting a less favorable economic outlook. •Total non-interest expense: Total non-interest expense increased$105.5 million , or 16%, for the year endedDecember 31, 2022 compared to the same period in 2021. The increase was primarily driven by an increase in compensation and benefits expenses primarily due to an increase in headcount as well as an increase in variable marketing expenses based on higher origination volume. •Net income: Net income increased$271.1 million for the year endedDecember 31, 2022 compared to the same period in 2021. Net income for the year endedDecember 31, 2022 included a$143.5 million income tax benefit related to the reversal of our valuation allowance against our deferred tax assets.
•Net income excluding income tax benefit: Net income excluding income tax
benefit (related to the reversal of our valuation allowance against our deferred
tax assets) increased
•Diluted EPS: Diluted EPS was
•Pre-provision net revenue: Pre-provision net revenue increased$263.2 million , or 167%, for the year endedDecember 31, 2022 compared to the same period in 2021, reflecting revenue growth combined with improved operating efficiency. •Total assets: Total assets as ofDecember 31, 2022 increased$3.1 billion , or 63%, compared to the prior year, primarily reflecting growth in loans held for investment, including the acquisition of a$1.05 billion outstanding principal loan portfolio at the end of 2022. •Deposits: Total deposits as ofDecember 31, 2022 increased$3.3 billion , or 104%, compared to the prior year, primarily reflecting growth in online savings deposits. •Total equity: Total equity as ofDecember 31, 2022 increased$314.1 million , or 37%, compared to the prior year, primarily reflecting net income generated over the period and the deferred tax asset valuation allowance reversal. The above summary should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations in its entirety. For additional discussion related to our operating segments, see "Segment Information." 52 --------------------------------------------------------------------------------LENDINGCLUB CORPORATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)Financial Highlights
We regularly review several metrics to evaluate our business, measure our performance, identify trends, formulate financial projections and make strategic decisions. The following presents our select financial metrics for the periods presented: As Of and For The Year Ended December 31, 2022 2021 2020 Non-interest income$ 712,391 $ 605,799 $ 258,756 Net interest income 474,825 212,831 59,328 Total net revenue 1,187,216 818,630 318,084 Non-interest expense 766,853 661,386 502,319 Pre-provision net revenue (1) 420,363 157,244 (184,235) Provision for credit losses 267,326 138,800 3,382 Income (Loss) before income tax benefit 153,037 18,444 (187,617) Income tax benefit 136,648 136 79 Net income (loss)$ 289,685 $ 18,580 $ (187,538) Income tax benefit from release of tax valuation allowance 143,495 - -
Net income (loss) excluding income tax benefit(1)(2)
Basic EPS - common stockholders$ 2.80 $ 0.19 $ (2.07) Diluted EPS - common stockholders$ 2.79
Diluted EPS excluding income tax benefit(1)(2)$ 1.41
LendingClub Corporation Performance Metrics: Net interest margin 8.2 % 5.6 % 3.0 % Efficiency ratio(3) 64.6 % 80.8 % N/A Return on average equity (ROE) 28.4 % 2.4 % N/A Return on average total assets (ROA) 4.7 % 0.4 % N/A Marketing as a % of loan originations 1.5 % 1.5 % 1.2 % LendingClub Corporation Capital Metrics: Common equity tier 1 capital ratio 15.8 % 21.3 % N/A Tier 1 leverage ratio 14.1 % 16.5 % N/A Book value per common share$ 10.93 $ 8.41 $ 8.22 Tangible book value per common share(1)$ 10.06
Loan Originations (in millions)(4): Marketplace loans$ 9,389 $ 8,099 $ 4,343 Loan originations held for investment 3,731 2,282 - Total loan originations$ 13,121
28 % 22 % - %
Servicing Portfolio AUM (in millions)(5):
Total servicing portfolio $ 16,157 $ 12,463 $ 11,002
Loans serviced for others $ 10,819 $ 10,124 $ 10,139
N/A - Not applicable
(1) Represents a non-GAAP financial measure. See "Non-GAAP Financial Measures" for additional information.
(2) Excludes an income tax benefit of
(3) Calculated as the ratio of non-interest expense to total net revenue.
(4) Includes unsecured personal loans and auto loans only.
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LENDINGCLUB CORPORATION Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)
(5) Assets under management (AUM) reflects loans serviced on our platform,
which includes outstanding balances of unsecured personal loans, auto refinance
loans and education and patient finance loans serviced for others and retained
for investment by the Company.
As of December 31, 2022 2021
Balance Sheet Data: Loans and leases held for investment at amortized cost, net, excluding PPP loans
$ 4,638,331 $ 2,486,440 PPP loans 66,971 268,297
Total loans and leases held for investment at amortized cost, net (1)
$ 4,705,302 $ 2,754,737 Loans held for investment at fair value$ 925,938 $ 21,240 Total loans and leases held for investment$ 5,631,240 $ 2,775,977 Total assets$ 7,979,747 $ 4,900,319 Total deposits$ 6,392,553 $ 3,135,788 Total liabilities$ 6,815,453 $ 4,050,077 Total equity$ 1,164,294 $ 850,242
(1) Excludes loans held for investment at fair value, which primarily consists of a loan portfolio that was acquired at the end of 2022.
The asset quality metrics presented in the following table are for loans and leases held for investment at amortized cost and do not reflect loans held for investment at fair value: As of and for the year ended December 31, 2022 2021 ALLL to total loans and leases held for investment 6.5 % 5.0 %
ALLL to total loans and leases held for investment, excluding PPP loans
6.6 % 5.5 %
ALLL to consumer loans and leases held for investment 7.3 % 6.4 %
ALLL to commercial loans and leases held for investment 2.0 % 1.8 %
ALLL to commercial loans and leases held for investment,
excluding PPP loans 2.2 % 2.6 %
Net charge-offs $ 83,216 $ 9,002
Net charge-off ratio(1) 2.1 % 0.5 %
(1) Calculated as net charge-offs divided by average outstanding loans and leases HFI at amortized cost during the period, excluding PPP loans.
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LENDINGCLUB CORPORATION Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)Results of Operations
This section of this Form 10-K generally discusses 2022 and 2021 items and year-over-year comparisons between 2022 and 2021. For discussion related to 2020 items and year-over-year comparisons between 2021 and 2020, see "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report on Form 10-K for the year endedDecember 31, 2021 . The following table sets forth the Income Statement data for each of the periods presented: Year Ended December 31, 2022 2021 2020 Non-interest income: Marketplace revenue$ 683,626 $ 578,580 $ 245,314 Other non-interest income 28,765 27,219 13,442 Total non-interest income 712,391 605,799 258,756 Interest income: Interest on loans held for sale 26,183 29,540 72,876 Interest and fees on loans and leases held for investment 465,450 188,977 - Interest on loans held for investment at fair value 12,877 4,436 7,688 Interest on retail and certificate loans held for investment at fair value 18,135 57,684 115,952 Interest on securities available for sale 16,116 11,025 12,125 Other interest income 18,579 1,170 1,053 Total interest income 557,340 292,832 209,694 Interest expense: Interest on deposits 60,451 7,228 - Interest on short-term borrowings 1,002 3,677 17,837
Interest on retail notes, certificates and secured borrowings
18,135 57,684 115,952
Interest on Structured Program borrowings 1,508 9,638 16,204
Interest on other long-term debt 1,419 1,774 373
Total interest expense 82,515 80,001 150,366
Net interest income 474,825 212,831 59,328
Total net revenue 1,187,216 818,630 318,084
Provision for credit losses 267,326 138,800 3,382
Non-interest expense:
Compensation and benefits 339,397 288,390 252,517
Marketing 197,747 156,142 51,518
Equipment and software 49,198 39,490 26,842
Occupancy 21,977 24,249 27,870
Depreciation and amortization 43,831 44,285 54,030
Professional services 50,516 47,572 41,780
Other non-interest expense 64,187 61,258 47,762
Total non-interest expense 766,853 661,386 502,319
Income (Loss) before income tax benefit 153,037 18,444 (187,617)
Income tax benefit 136,648 136 79
Net income (loss) $ 289,685 $ 18,580 $ (187,538)
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LENDINGCLUB CORPORATION Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)Marketplace Revenue
Marketplace revenue consists of the following:
Year Ended December 31, 2022 2021 Change ($) Change (%) Origination fees$ 499,179 $ 416,839 $ 82,340 20 % Servicing fees 80,609 87,639 (7,030) (8) % Gain on sales of loans 95,335 70,116 25,219 36 % Net fair value adjustments 8,503 3,986 4,517 113 % Total marketplace revenue$ 683,626 $ 578,580 $ 105,046 18 % Year Ended December 31, 2021 2020 Change ($) Change (%) Origination fees$ 416,839 $ 207,640 $ 209,199 101 % Servicing fees 87,639 111,864 (24,225) (22) % Gain on sales of loans 70,116 30,812 39,304 128 % Net fair value adjustments 3,986 (105,002) 108,988 N/M Total marketplace revenue$ 578,580 $ 245,314 $ 333,266 136 % We elected to account for HFS loans under the fair value option. With the election of the fair value option, origination fees, net fair value adjustments prior to sale of the loans, and servicing asset gains on the sales of the loans, are reported as separate components of "Marketplace revenue."
Origination Fees
Origination fees recorded as a component of marketplace revenue are primarily fees earned related to originating and issuing unsecured personal loans that are held for sale. In addition, origination fees include transaction fees that were paid to us by issuing bank partners or education and patient service providers for the work performed in facilitating the origination of loans by the issuing banks. Following the Acquisition,LC Bank became the originator and lender for all unsecured personal and auto refinance loans and the majority of education and patient finance loans. The following table presents loan origination volume during each of the periods set forth below: 2022 2021 vs. 2021 vs. 2020 Year Ended December 31, 2022 2021 2020 Change (%) Change (%) Marketplace loans$ 9,389,445 $ 8,099,109 $ 4,343,411 16 % 86 % Loan originations held for investment 3,731,057 2,282,206 - 63 % N/A Total loan originations (1)$ 13,120,502 $ 10,381,315 $ 4,343,411 26 % 139 % N/A - Not applicable (1) Includes unsecured personal loans and auto loans only. Origination fees were$499.2 million and$416.8 million for the years endedDecember 31, 2022 and 2021, respectively, an increase of 20%. The increase was due to higher origination volume of marketplace loans, partially offset by a reduction in investor demand for marketplace loans in the second half of 2022 that was impacted adversely by the rapidly rising interest rate environment. 56 -------------------------------------------------------------------------------- LENDINGCLUB CORPORATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)Servicing Fees
We receive servicing fees to compensate us for servicing loans on behalf of investors, including managing payments from borrowers, collections and payments to those investors. Servicing fee revenue related to loans sold also includes the change in fair value of servicing assets associated with the loans. The table below illustrates AUM serviced on our platform by the method in which the loans were financed as of the end of each period presented. Loans sold and subsequently serviced on behalf of the investor represent a key driver of our servicing fee revenue. As of December 31, 2022 2021 Change ($) Change (%) AUM (in millions): Loans sold$ 10,819 $ 10,124 $ 695 7 % Loans held by LendingClub Bank 5,263 2,026 3,237 160 % Retail notes, certificates and secured borrowings 59 238 (179) (75) % Other loans invested in by the Company 16 75 (59) (79) % Total$ 16,157 $ 12,463 $ 3,694 30 % As of December 31, 2021 2020 Change ($) Change (%) AUM (in millions): Loans sold$ 10,124 $ 10,139 $ (15) - % Loans held by LendingClub Bank 2,026 -$ 2,026 N/M Retail notes, certificates and secured borrowings 238 680$ (442) (65) % Other loans invested in by the Company 75 183 (108) (59) % Total$ 12,463 $ 11,002 $ 1,461 13 %
In addition to the loans serviced on our marketplace platform, we earned
servicing fee revenue on
Servicing fees were$80.6 million and$87.6 million for the years endedDecember 31, 2022 and 2021, respectively, a decrease of 8%. The decrease was primarily due to higher fair value amortization of our servicing asset resulting from a larger asset balance, as well as a servicing asset write-off related to the acquisition of a$1.05 billion outstanding principal loan portfolio in the fourth quarter of 2022, partially offset by an increase in the fair value of the servicing asset based on higher expected servicing fee revenue.
Gain on Sales of Loans
In connection with loan sales, we recognize a gain or loss on the sale of loans based on the level to which the contractual servicing fee is above or below an estimated market rate of servicing at the time of sale. Additionally, we recognize transaction costs, if any, as a loss on sale of loans. Gain on sales of loans was$95.3 million and$70.1 million for the years endedDecember 31, 2022 and 2021, respectively, an increase of 36%. The increase was primarily due to an increase in the volume of marketplace loans sold and an increase in expected servicing fee revenue.
Net Fair Value Adjustments
We record fair value adjustments on loans that are recorded at fair value, including gains or losses from sale prices in excess of or less than the loan principal amount sold.
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LENDINGCLUB CORPORATION Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)
Net fair value adjustments were $8.5 million and $4.0 million for the years
ended December 31, 2022 and 2021, respectively, an increase of $4.5 million . The
increase was primarily due to higher loan sale prices and an increase in the
volume of marketplace loans sold.
Other Non-interest Income
Other non-interest income primarily consists of referral revenue that relates to fees earned from third-party companies when customers referred by us consider or purchase products or services from such third-party companies. The tables below illustrate the composition of other non-interest income for each period presented: Year Ended December 31, 2022 2021 Change ($) Change (%) Referral revenue$ 12,942 $ 14,234 $ (1,292) (9) % Realized losses on sales of securities available for sale and other investments - (93) 93 N/M Other 15,823 13,078 2,745 21 % Other non-interest income$ 28,765 $ 27,219 $ 1,546 6 % Year Ended December 31, 2021 2020 Change ($) Change (%) Referral revenue$ 14,234 $ 5,011 $ 9,223 184 % Realized gains (losses) on sales of securities available for sale and other investments (93) 11 (104) N/M Other 13,078 8,420 4,658 55 % Other non-interest income$ 27,219 $ 13,442 $ 13,777 102 % 58
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LENDINGCLUB CORPORATION Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)Net Interest Income
The table below presents net interest income information corresponding to interest-earning assets and interest-bearing funding sources on a consolidated basis for the Company. The average yield/rate is calculated by dividing the period-end interest income/expense by the average balance.
Year Ended December 31,
2022 2021 2020
Interest Interest Interest
Average Income/ Average Yield/ Average Income/ Average Yield/ Average Income/ Average Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
Interest-earning assets (1)
Cash, cash equivalents,
restricted cash and other $ 987,833 $ 18,579 1.88 % $ 754,920 $ 1,170 0.16 % $ 395,734 $ 1,053 0.27 %
Securities available for
sale at fair value 370,277 16,116 4.35 % 288,545 11,025 3.82 % 217,189 12,125 5.58 %
Loans held for sale 162,760 26,183 16.09 % 218,349 29,540 13.53 % 489,750 72,876 14.88 %
Loans and leases held for
investment at amortized
cost:
Unsecured personal loans (2) 2,967,410 410,222 13.82 % 863,266 122,807 15.52 % - - - %
Secured consumer loans 301,023 11,093 3.69 % 485,195 17,105 3.85 % - - - %
Commercial loans and leases 669,907 36,167 5.40 % 617,483 30,731 5.43 % - - - %
PPP loans 138,575 7,968 5.75 % 487,435 18,334 4.10 % - - - %
Loans and leases held for
investment at amortized cost 4,076,915 465,450 11.42 % 2,453,379 188,977 8.40 % - - - %
Loans held for investment at
fair value 91,057 12,877 14.14 % 34,938 4,436 12.70 % 60,093 7,688 12.79 %
Total loans and leases held
for investment 4,167,972 478,327 11.48 % 2,488,317 193,413 7.77 % 60,093 7,688 12.79 %
Retail and certificate loans
held for investment at fair
value 128,047 18,135 14.16 % 406,406 57,684 14.19 % 815,255 115,952 14.20 %
Total interest-earning
assets 5,816,889 557,340 9.58 % 4,156,537 292,832 7.46 % 1,978,021 209,694 10.59 %
Cash and due from banks and
restricted cash 72,764 112,012 114,105
Allowance for loan and lease losses (234,532) (77,223) - Other non-interest earning assets 547,388 426,323 339,746 Total assets$ 6,202,509 $ 4,617,649 $ 2,431,872 Interest-bearing liabilities Interest-bearing deposits: Checking and money market accounts 2,205,691 16,464 0.75 %$ 2,071,640 $ 5,954 0.31 % $ - $ - - % Savings accounts and certificates of deposit 2,123,037 43,987 2.07 % 383,447 1,274 0.36 % - - - % Interest-bearing deposits (2) 4,328,728 60,451 1.40 % 2,455,087 7,228 0.32 % - - - % Short-term borrowings 10,437 1,002 9.60 % 68,032 3,677 5.40 % 387,958 17,837 4.60 % Advances from PPPLF 141,528 503 0.36 % 365,976 1,183 0.35 % - - - % Retail notes, certificates and secured borrowings 128,047 18,135 14.16 % 407,471 57,684 14.16 % 816,010 115,952 14.21 % Structured Program borrowings 20,962 1,508 7.19 % 110,579 9,638 8.72 % 162,688 16,204 9.96 % 59
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LENDINGCLUB CORPORATION Management's Discussion and Analysis of Financial Condition and Results of
Operations
(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)
Year Ended December 31,
2022 2021 2020
Interest Interest Interest
Average Income/ Average Yield/ Average Income/ Average Yield/ Average Income/ Average Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
Other long-term debt 15,219 916 6.02 % 16,355 591 3.61 % 6,824 373 5.47 %
Total interest-bearing
liabilities 4,644,921 82,515 1.78 % 3,423,500 80,001 2.36 % 1,373,480 150,366 10.95 %
Non-interest bearing deposits 264,099 126,982 -
Other liabilities 274,209 289,163 272,164
Total liabilities $ 5,183,229 $ 3,839,645 $ 1,645,644 Total equity$ 1,019,280 $ 778,004 $ 786,228 Total liabilities and equity$ 6,202,509 $ 4,617,649 $ 2,431,872 Interest rate spread 7.80 % 5.10 % (0.36) % Net interest income and net interest margin$ 474,825 8.16 %$ 212,831 5.56 %$ 59,328 3.00 %
(1) Nonaccrual loans and any related income are included in their respective loan categories.
(2) The average yield/rate for unsecured consumer loans decreased in 2022
compared to 2021 due to a shift in the mix toward higher credit quality loans.
The average yield/rate for interest-bearing deposits increased due to a higher
federal funds rate and an increasing concentration of online deposits. We expect
continued pressure on net interest margin to continue during 2023.
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LENDINGCLUB CORPORATION Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)An analysis of the year-to-year changes in the categories of interest income and interest expense resulting from changes in volume and rate is as follows:
2022 Compared to 2021 2021 Compared to 2020
Increase (Decrease) Increase (Decrease)
Due to Change in: Due to Change in:
Average Average Average Average
Volume(1) Rate(1) Total Volume(1) Rate(1) Total
Interest-earning assets
Cash, cash equivalents, restricted cash and
other $ 470 $ 16,939 $
17,409
5,091 3,342 (4,442) (1,100)
Loans held for sale (8,336) 4,979 (3,357) (37,233) (6,103) (43,336)
Loans and leases held for investment at
amortized cost 286,205 (9,732) 276,473 188,977 - 188,977
Loans held for investment at fair value 7,883 558 8,441 (3,195) (57) (3,252)
Retail and certificate loans held for
investment at fair value (39,422) (127) (39,549) (58,194) (74) (58,268)
Total increase (decrease) in interest income
on interest-earning assets $ 250,214 $ 14,294 $
264,508
$ 472 $ 10,038 $ 10,510 $ 5,954 $ -$ 5,954 Savings accounts and certificates of deposit 20,965 21,748 42,713 1,274 - 1,274 Interest-bearing deposits 21,437 31,786 53,223 7,228 - 7,228 Short-term borrowings (4,374) 1,699 (2,675) (16,837) 2,677 (14,160) Advances from PPPLF (691) 11 (680) 1,183 - 1,183 Retail notes, certificates and secured borrowings (39,573) 24 (39,549) (57,838) (430) (58,268) Structured Program borrowings (6,689) (1,441) (8,130) (4,723) (1,843) (6,566) Other long-term debt (44) 369 325 379 (161) 218 Total increase (decrease) in interest expense on interest-bearing liabilities$ (29,934) $ 32,448 $
2,514
Increase (decrease) in net interest income
(1) Volume and rate changes have been allocated on a consistent basis using the respective percentage changes in average balances and average rates.
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LENDINGCLUB CORPORATION Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)Provision for Credit Losses
The allowance for loan and lease losses (ALLL) for lifetime expected losses under CECL on HFI loans and leases at amortized cost is initially recognized as "Provision for credit losses" at the time of origination. The ALLL is estimated using a discounted cash flow (DCF) approach, where effective interest rates are used to calculate the net present value (NPV) of expected cash flows. The effective interest rates are calculated based on the periodic interest income received from the loan's contractual cash flows and the net investment in the loan, which includes deferred origination fees and costs, to provide a constant rate of return over the loan term. The NPV from the DCF approach is then compared to the amortized cost basis of the loans and leases to derive expected credit losses. Under the DCF approach, the provision for credit losses in subsequent periods includes a credit loss expense relating to the discounting effect due to the passage of time after the initial recognition of ALLL on originated HFI loans at amortized cost. The provision for credit losses includes the credit loss expense for HFI loans and leases at amortized cost, available for sale (AFS) securities and unfunded lending commitments. The table below illustrates the composition of the provision for credit losses for each period presented: Year Ended December 31, 2022 2021 2020
Credit loss expense for Radius loans at acquisition $ - $
6,929 $ - Credit loss expense for loans and leases held for investment 266,679 134,022 - Credit loss expense for unfunded lending commitments 647 1,231 - Total credit loss expense 267,326 142,182 -
(Reversal of) Impairment on securities available for sale
- (3,382) 3,382
Total provision for credit losses $ 267,326 $
138,800
The provision for credit losses increased$128.5 million , or 93%, for the year endedDecember 31, 2022 compared to the same period in 2021. The increase was primarily due to growth in the volume of loans HFI at amortized cost and the related initial provision for credit losses, discounting effect of the NPV allowance on prior loan vintages and additional qualitative allowance reflecting a less favorable economic outlook.
The activity in the allowance for credit losses (ACL) was as follows:
Year Ended December 31, 2022 2021
Allowance for loan and lease losses, beginning of period
$ -
Credit loss expense for loans and leases held for investment 266,679 140,951
Initial allowance for purchased credit deteriorated (PCD) loans
acquired during the period(1) - 12,440
Charge-offs (87,473) (10,452)
Recoveries 4,257 1,450
Allowance for loan and lease losses, end of period $ 327,852
Reserve for unfunded lending commitments, beginning of period
$ -
Credit loss expense for unfunded lending commitments 647 1,231
Reserve for unfunded lending commitments, end of period (2)
(1) For acquired PCD loans, an ACL of$30.4 million was required with a corresponding increase to the amortized cost basis as of the acquisition date during the year endedDecember 31, 2021 . 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, an ACL of$18.0 million included as part of the grossed-up loan balance at acquisition was immediately written-off during the year endedDecember 31, 2021 . The net impact to the allowance for PCD assets on the acquisition date was$12.4 million . (2) Relates to$138.0 million and$110.8 million of unfunded commitments as ofDecember 31, 2022 and 2021, respectively. 62 --------------------------------------------------------------------------------LENDINGCLUB CORPORATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations
(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)
Year Ended December 31, 2022 2021Ratio of allowance for loan and lease losses to total loans and leases held for investment at amortized cost
6.5 % 5.0 %
Ratio of allowance for loan and lease losses to total loans and leases held for investment at amortized cost, excluding PPP loans
6.6 % 5.5 %
Average loans and leases held for investment at amortized
cost, excluding PPP loans $ 3,938,340 $ 1,965,944
Net charge-off ratio(1) 2.1 % 0.5 %
(1) Calculated as annualized net charge-offs divided by average outstanding loans and leases held for investment during the period, excluding PPP loans.
Loans and leases are generally placed on nonaccrual status when contractually
past due 90 days or more, or earlier if management believes that the probability
of collection does not warrant further accrual. Unsecured personal loans are
charged-off no later than 120 days past due. The following table presents
nonaccrual loans and leases (1):
December 31, 2022 December 31, 2021
Total nonaccrual loans and leases held for investment $ 34,827 $ 9,985
Ratio of total nonaccrual loans and leases held for 0.7 % 0.3 %
investment to total loans and leases held for investment Ratio of total nonaccrual loans and leases held for
0.7 % 0.4 %
investment to total loans and leases held for
investment, excluding PPP loans
(1) Excluding PPP loans, there were no loans that were 90 days or more past due
and accruing as of both
For additional information on the ACL and nonaccrual loans and leases, see "Notes to Consolidated Financial Statements - Note 1. Summary of Significant Accounting Policies" and "Note 6. Loans and Leases Held for Investment at Amortized Cost, Net of Allowance For Loan and Lease Losses."
63
--------------------------------------------------------------------------------
LENDINGCLUB CORPORATION Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)Non-interest Expense
Non-interest expense primarily consists of (i) compensation and benefits, which include salaries and wages, benefits and stock-based compensation expense, (ii) marketing, which includes costs attributable to borrower and deposit customer acquisition efforts and building general brand awareness, (iii) equipment and software, (iv) occupancy, which includes rent expense and all other costs related to occupying our office spaces, (v) depreciation and amortization and (vi) professional services, which primarily consist of consulting fees. Year Ended December 31, 2022 2021 Change ($) Change (%) Non-interest expense: Compensation and benefits$ 339,397 $ 288,390 $ 51,007 18 % Marketing 197,747 156,142 41,605 27 % Equipment and software 49,198 39,490 9,708 25 % Occupancy 21,977 24,249 (2,272) (9) % Depreciation and amortization 43,831 44,285 (454) (1) % Professional services 50,516 47,572 2,944 6 % Other non-interest expense 64,187 61,258 2,929 5 % Total non-interest expense$ 766,853 $ 661,386 $ 105,467 16 % Year Ended December 31, 2021 2020 Change ($) Change (%) Non-interest expense: Compensation and benefits$ 288,390 $ 252,517 $ 35,873 14 % Marketing 156,142 51,518 104,624 203 % Equipment and software 39,490 26,842 12,648 47 % Occupancy 24,249 27,870 (3,621) (13) % Depreciation and amortization 44,285 54,030 (9,745) (18) % Professional services 47,572 41,780 5,792 14 % Other non-interest expense 61,258 47,762 13,496 28 % Total non-interest expense$ 661,386 $ 502,319 $ 159,067 32 % Compensation and benefits expense increased$51.0 million , or 18%, for the year endedDecember 31, 2022 compared to the same period in 2021. The increase was primarily due to an increase in headcount.
Marketing expense increased
Equipment and software expense increased
Occupancy expense was
Depreciation and amortization expense remained relatively flat for the year
ended
Professional services expense increased
64
--------------------------------------------------------------------------------
LENDINGCLUB CORPORATION Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)
Other non-interest expense increased
Income Taxes
For the year endedDecember 31, 2022 , we recorded an income tax benefit of$136.6 million primarily due to the release of a$175.6 million valuation allowance against our deferred tax assets, of which$143.5 million is primarily based on our reassessment of the realizability of our deferred tax assets. For the year endedDecember 31, 2021 , we recorded an income tax benefit of$136 thousand primarily related to a tax benefit associated with the Acquisition, partially offset by income tax expense for state jurisdictions that limit net operating loss carryforward utilization. For the year endedDecember 31, 2020 , we recorded an income tax benefit of$79 thousand primarily attributable to current state income taxes. We have evaluated both positive and negative evidence when assessing the recoverability of our net deferred tax assets. Several factors were considered, which primarily included our business model transition and resulting increase in profitability and the expectation of continued profitability. These factors resulted in the release of the majority of our valuation allowance against our deferred tax assets. Changes to deferred tax asset valuation allowances and liabilities related to uncertain tax positions are recorded as current period income tax expense or benefit. As ofDecember 31, 2022 , we maintained a valuation allowance of$47.7 million related to state NOLs and tax credit carryforwards. The realization and timing of these state NOLs and tax credit carryforwards, based on the allocation of taxable income to the Parent, is uncertain and may expire before being utilized. We expect that our statutory tax rate in 2023 will approximate 27%. Income taxes are recorded on a separate entity basis whereby each operating segment determines income tax expense or benefit as if it filed a separate tax return. Differences between separate entity and consolidated tax returns are eliminated upon consolidation.
Segment Information
The Company defines operating segments to be components of the Company for which discrete financial information is evaluated regularly by the Company's Chief Executive Officer and Chief Financial Officer to allocate resources and evaluate financial performance. This information is reviewed according to the legal organizational structure of the Company's operations with products and services presented separately for the parent bank holding company and its wholly-owned subsidiary,LC Bank .LendingClub Bank The LC Bank operating segment represents the national bank legal entity and reflects post-Acquisition operating activities. This segment provides a full complement of financial products and solutions, including loans, leases and deposits. It originates loans to individuals and businesses, retains loans for investment, sells loans to investors and manages relationships with deposit holders.
TheLendingClub Corporation (Parent only) operating segment represents the holding company legal entity and predominately reflects the operations of the Company prior to the Acquisition. This activity includes, but is not limited to, servicing fee revenue for loans serviced prior to the Acquisition, and interest income and interest expense related to the Retail Program and Structured Program transactions. 65 --------------------------------------------------------------------------------LENDINGCLUB CORPORATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)Financial information for the segments is presented in the following table:
LendingClub
LendingClub Corporation Intercompany
Bank (Parent only) Eliminations Consolidated Total
Eleven Months Eleven Months
Year Ended Ended December Year Ended Ended December
December 31, 31, Year Ended December 31, December 31, 31,
Year Ended
2022 2021 2022 2021 2022 2021 2022 2021
Non-interest
income:
Marketplace revenue
$ 115,759 $ 24,859 $ -$ 683,626 $ 578,580 Other non-interest income 85,208 94,953 15,628 16,718 (72,071) (84,452) 28,765 27,219 Total non-interest income 695,744 557,774 63,859 132,477 (47,212) (84,452) 712,391 605,799 Interest income: Interest income 526,471 210,739 30,869 82,093 - - 557,340 292,832 Interest expense (60,954) (8,412) (21,561) (71,589) - - (82,515) (80,001) Net interest income 465,517 202,327 9,308 10,504 - - 474,825 212,831 Total net revenue 1,161,261 760,101 73,167 142,981 (47,212) (84,452) 1,187,216 818,630 (Provision for) reversal of credit losses (267,326) (142,182) - 3,382 - - (267,326) (138,800) Non-interest expense (724,304) (547,799) (89,761) (198,039) 47,212 84,452 (766,853) (661,386) Income (Loss) before income tax benefit (expense) 169,631 70,120 (16,594) (51,676) - - 153,037 18,444 Income tax benefit (expense) (42,354) 9,171 125,954 44,013 53,048 (53,048) 136,648 136
Net income (loss)
$ (7,663) $ 53,048 $ (53,048) $ 289,685 $ 18,580
Capital
expenditures
-$ 1,811 $ - $ -$ 69,481 $ 34,413 Depreciation and amortization$ 16,489 $ 4,569 $ 27,342 $ 39,716 $ - $ -$ 43,831 $ 44,285 The Company integrated the Acquisition into its reportable segments in the first quarter of 2021. As the Company's reportable segments are based on legal organizational structure andLC Bank was formed upon the Acquisition, the results of operations for the year endedDecember 31, 2020 , is provided on a consolidated basis in the Company's Income Statement. Additionally, an analysis of the Company's results of operations and material trends for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 is provided on a consolidated basis in "Results of Operations."
Non-GAAP Financial Measures
To supplement our financial statements, which are prepared and presented in
accordance with GAAP, we use the following non-GAAP financial measures:
Pre-Provision Net Revenue, Net Income (Loss) Excluding Income Tax Benefit,
Diluted EPS Excluding Income Tax Benefit, and Tangible Book Value (TBV) Per
Common Share. Our non-GAAP financial measures do have limitations as analytical
tools and you should not consider them in isolation or as a substitute for an
analysis of our results under GAAP.
66
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LENDINGCLUB CORPORATION Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)
We believe these non-GAAP financial measures provide management and investors
with useful supplemental information about the financial performance of our
business, enable comparison of financial results between periods where certain
items may vary independent of business performance, and enable comparison of our
financial results with other public companies.
We believe Pre-Provision Net Revenue, Net Income (Loss) Excluding Income Tax
Benefit and Diluted EPS Excluding Income Tax Benefit are important measures
because they reflect the underlying financial performance of our business
operations. Pre-Provision Net Revenue is a non-GAAP financial measure calculated
by subtracting the provision for credit losses and income tax benefit/expense
from net income. Net Income (Loss) Excluding Income Tax Benefit adjusts for the
release of a deferred tax asset valuation allowance in 2022. Diluted EPS
Excluding Income Tax Benefit is a non-GAAP financial measure calculated by
dividing Net Income (Loss) Excluding Income Tax Benefit by the weighted-average
diluted common shares outstanding.
We believe TBV Per Common Share is an important measure used to evaluate the
Company's use of equity. TBV Per Common Share is a non-GAAP financial measure
representing the book value of common equity reduced by goodwill and intangible
assets, divided by ending number of common shares issued and outstanding.
The following tables provide a reconciliation of Pre-Provision Net Revenue (PPNR) to the nearest GAAP measure:
For the year ended December 31, 2022 2021
2020
GAAP Net income (loss)$ 289,685 $ 18,580 $
(187,538)
Less: Provision for credit losses (267,326) (138,800) (3,382) Less: Income tax benefit 136,648 136 79 Pre-provision net revenue$ 420,363 $ 157,244 $ (184,235) For the year ended December 31, 2022 2021 2020 Non-interest income$ 712,391 $ 605,799 $ 258,756 Net interest income 474,825 212,831 59,328 Total net revenue 1,187,216 818,630 318,084 Non-interest expense (766,853) (661,386) (502,319) Pre-provision net revenue 420,363 157,244 (184,235) Provision for credit losses (267,326) (138,800) (3,382)
Income (Loss) before income tax benefit 153,037 18,444
(187,617) Income tax benefit 136,648 136 79 GAAP Net income (loss)$ 289,685 $ 18,580 $ (187,538) 67
--------------------------------------------------------------------------------
LENDINGCLUB CORPORATION Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)
The following table provides a reconciliation of Net Income (Loss) Excluding
Income Tax Benefit and Diluted EPS Excluding Income Tax Benefit to the nearest
GAAP measures:
As of and For The Year Ended December 31, 2022 2021 2020
GAAP Net income (loss)
143,495 - -
Net income (loss) excluding income tax benefit GAAP Diluted EPS - common stockholders$ 2.79 $ 0.18 $ (2.07) (A) Income tax benefit from release of tax valuation allowance$ 143,495 N/A N/A (B) Weighted-average common shares - Diluted 104,001,288 N/A N/A (A/B) Diluted EPS impact of income tax benefit$ 1.38 N/A N/A Diluted EPS excluding income tax benefit$ 1.41 $ 0.18 $ (2.07) N/A - Not applicable The following table provides a reconciliation of TBV Per Common Share to the nearest GAAP measure: As of December 31, 2022 2021 2020 GAAP common equity$ 1,164,294 $ 850,242 $ 724,171 Less: Goodwill (75,717) (75,717) - Less: Intangible assets (16,334) (21,181) (11,427) Tangible common equity$ 1,072,243 $ 753,344 $ 712,744 Book value per common share GAAP common equity$ 1,164,294 $ 850,242 $ 724,171 Common shares issued and outstanding 106,546,995 101,043,924
88,149,510
Book value per common share$ 10.93 $ 8.41
Tangible book value per common share Tangible common equity$ 1,072,243 $ 753,344 $ 712,744 Common shares issued and outstanding 106,546,995 101,043,924
88,149,510
Tangible book value per common share
Supervision and Regulatory Environment
We are subject to periodic exams, investigations, inquiries or requests, enforcement actions and other proceedings from federal and state regulatory agencies, including the federal banking regulators that directly regulate the Company and/orLC Bank . Further, we are subject to claims, individual and class action lawsuits, and lawsuits alleging regulatory violations. The number and/or significance of these exams, investigations, inquiries, requests, proceedings, claims and lawsuits have been increasing since the Acquisition in part because our products and services increased in scope and in part because we became a bank holding company operating a national bank. Although historically the Company has generally resolved these matters in a manner that was not materially adverse to its financial results or business operations, no assurance can be given as to the timing, outcome or consequences of any of these matters in the future. 68 --------------------------------------------------------------------------------LENDINGCLUB CORPORATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)Regulatory Actions Taken in Relation to COVID-19
Regulators and government officials at the federal government level and in states across the country have issued orders, passed laws or otherwise issued guidance in connection with COVID-19. Some of these orders and laws have placed restrictions on debt collection activity, all or certain types of communications with delinquent borrowers or others, required that borrowers be allowed to defer payments on outstanding debt, governed credit reporting and the use of credit reporting, and placed certain restrictions and requirements on operations in the workplace. We have taken steps to monitor regulatory developments relating to COVID-19 and to comply with orders and laws applicable to our business. Although many of the orders, laws or guidance related to COVID-19 have since reverted, given the ongoing nature of the pandemic, it is possible that additional orders, laws, or regulatory guidance may still be issued. We are not able to predict the extent of the impact on our business from any regulatory activity relating to or resulting from COVID-19.
Federal Banking Regulator Supervision
Since the Acquisition, we are subject to supervision, regulation, examination and enforcement by multiple federal banking regulatory bodies. Specifically, as a bank holding company, the Company is subject to ongoing and comprehensive supervision, regulation, examination and enforcement by the FRB. Further, as a national bank,LC Bank is subject to ongoing and comprehensive supervision, regulation, examination and enforcement by the OCC. Accordingly, we have been and continue to invest in regulatory compliance and be subject to certain parameters, obligations and/or limitations set forth by the banking regulations and regulators with respect to the operation of our business.
Consequences
If we are found to not have complied with applicable laws, regulations or requirements, we could: (i) lose one or more of our licenses or authorizations, (ii) become subject to a consent order or administrative enforcement action, (iii) face lawsuits (including class action lawsuits), sanctions, penalties, or other monetary losses due to judgments, orders, or settlements, (iv) be in breach of certain contracts, which may void or cancel such contracts, (v) decide or be compelled to modify or suspend certain of our business practices, (vi) be unable to execute on certain Company initiatives, or (vii) be required to obtain a license in such jurisdiction, which may have an adverse effect on our ability to operate and/or evolve our lending marketplace and other products and/or services; any of which may harm our business or financial results. See "Part I - Item 1. Business - Regulation and Supervision," "Part I - Item 1A. Risk Factors - Risks Related to Regulation, Supervision and Compliance," and "Part I - Item 1A. Risk Factors - Risks Related to Operating Our Business" of this Annual Report for further discussion regarding our supervision and regulatory environment.
Capital Management
The prudent management of capital is fundamental to the successful achievement of our business initiatives. We actively review capital through a process that continuously assesses and monitors the Company's overall capital adequacy. Our objective is to maintain capital at an amount commensurate with our risk profile and risk tolerance objectives, and to meet both regulatory and market expectations. The formation ofLC Bank as a nationally chartered association and the organization of the Company as a bank holding company subjects us to various capital adequacy guidelines issued by the OCC and the FRB, including the requirement to maintain regulatory capital ratios in accordance with theBasel Committee on Banking Supervision standardized approach forU.S. banking organizations (U.S. Basel III). As aU.S. Basel III standardized approach institution, we selected the one-time election to opt-out of the requirements to include all the components of accumulated other comprehensive income included in common stockholder's equity. The minimum capital 69 --------------------------------------------------------------------------------LENDINGCLUB CORPORATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)
requirements under the U.S. Basel III capital framework are: a CET1 risk-based
capital ratio of 4.5%, a Tier 1 risk-based capital ratio of 6.0%, a total
risk-based capital ratio of 8.0%, and a Tier 1 leverage ratio of 4.0%.
Additionally, a Capital Conservation Buffer (CCB) of 2.5% must be maintained
above the minimum risk-based capital requirements in order to avoid certain
limitations on capital distributions, stock repurchases, and certain
discretionary bonus payments. In addition to these guidelines, the banking
regulators may require a banking organization to maintain capital at levels
higher than the minimum ratios prescribed under the U.S. Basel III capital
framework. In this regard, and unless otherwise directed by the FRB and the OCC,
we have made commitments for the Company and LC Bank (until February 2024 ) to
maintain a CET1 risk-based capital ratio of 11.0%, a Tier 1 risk-based capital
ratio above 11.0%, a total risk-based capital ratio above 13.0%, and a Tier 1
leverage ratio of 11.0%. See "Part I - Item 1. Business - Regulation and
Supervision - Regulatory Capital Requirements and Prompt Corrective Action" and
"Item 8. Financial Statements and Supplementary Data - Notes to Consolidated
Financial Statements - Note 20. Regulatory Requirements" of this Annual Report
for additional information.
The following table summarizes the Company's regulatory capital amounts (in
millions) and ratios:
December 31, 2022 December 31, 2021 Required Minimum plus
Required CCB for
LendingClub Amount Ratio Amount Ratio Non-Leverage Ratios
CET1 capital (1) $ 1,005.8 15.8 % $ 710.0 21.3 % 7.0 %
Tier 1 capital $ 1,005.8 15.8 % $ 710.0 21.3 % 8.5 %
Total capital $ 1,088.1 17.1 % $ 767.9 23.0 % 10.5 %
Tier 1 leverage $ 1,005.8 14.1 % $ 710.0 16.5 % 4.0 %
Risk-weighted assets $ 6,360.7 N/A $ 3,333.2 N/A N/A
Quarterly adjusted average assets $ 7,119.0 N/A $ 4,301.7 N/A N/A
N/A - Not applicable
(1) Consists of common stockholders' equity as defined under U.S. GAAP and
certain adjustments made in accordance with regulatory capital guidelines,
including the addition of the CECL transitional benefit and deductions for
goodwill and other intangible assets.
The following table summarizes LC Bank's regulatory capital amounts (in
millions) and ratios:
December 31, 2022 December 31, 2021 Required Minimum plus
Required CCB for
LendingClub Bank Amount Ratio Amount Ratio Non-Leverage Ratios
CET1 capital (1) $ 852.2 13.8 % $ 523.7 16.7 % 7.0 %
Tier 1 capital $ 852.2 13.8 % $ 523.7 16.7 % 8.5 %
Total capital $ 932.4 15.1 % $ 563.7 18.0 % 10.5 %
Tier 1 leverage $ 852.2 12.5 % $ 523.7 14.3 % 4.0 %
Risk-weighted assets $ 6,194.0 N/A $ 3,130.4 N/A N/A
Quarterly adjusted average assets $ 6,795.2 N/A $ 3,667.7 N/A N/A
N/A - Not applicable
(1) Consists of common stockholders' equity as defined under U.S. GAAP and
certain adjustments made in accordance with regulatory capital guidelines,
including the addition of the CECL transitional benefit and deductions for
goodwill and other intangible assets.
The higher risk-based capital ratios for the Company reflect generally lower
risk-weights for assets held by
In response to the COVID-19 pandemic, the FRB, OCC, andFDIC adopted a final rule related to the regulatory capital treatment of the allowance for credit losses under CECL. As permitted by the rule, the Company elected to 70 --------------------------------------------------------------------------------LENDINGCLUB CORPORATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)
delay the estimated impact of CECL on regulatory capital resulting in a capital
benefit of $35 million at December 31, 2021 . This benefit is phased out over a
three-year transition period that commenced on January 1, 2022 at a rate of 25%
each year through January 1, 2025 .
Liquidity
We manage liquidity to meet our cash flow and collateral obligations in a timely manner at a reasonable cost. We must maintain operating liquidity to meet our expected daily and forecasted cash flow requirements, as well as contingent liquidity to meet unexpected funding requirements. As our primary business atLC Bank involves taking deposits and originating loans, a key role of liquidity management is to ensure that customers have timely access to funds from deposits and for loans. Liquidity management also involves maintaining sufficient liquidity to repay borrowings, pay operating expenses and support extraordinary funding requirements when necessary.
LendingClub Bank Liquidity
The primary sources ofLC Bank short-term liquidity include cash, unencumbered AFS debt securities, and unused borrowing capacity with theFRB and Federal Home Loan Bank (FHLB). Additionally, customer deposits provideLC Bank with a significant source of relatively low-cost funds. The primary uses ofLC Bank liquidity include the funding/acquisition of loans and securities purchases; withdrawals, maturities and the payment of interest on deposits; compensation and benefits expense; taxes; capital expenditures, including internally developed software, leasehold improvements and computer equipment; and costs associated with the continued development and support of our online lending marketplace platform. Net capital expenditures were$69.5 million , or 6% of total net revenue and$32.6 million , or 4% of total net revenue, for the years endedDecember 31, 2022 and 2021, respectively. Capital expenditures in 2023 are expected to be approximately$60 million , primarily related to costs associated with the continued development and support of our online lending marketplace platform, including regulatory compliance costs. As ofDecember 31, 2022 and 2021, cash and cash equivalents atLC Bank were$1.0 billion and$659.9 million and deposits were$6.4 billion and$3.2 billion , respectively. Outstanding PPPLF borrowings were$64.2 million and$271.9 million atDecember 31, 2022 and 2021, respectively, and are collateralized by PPP loans originated by the Company. In addition,LC Bank has available FHLB ofDes Moines secured borrowing capacity totaling$414.5 million and$173.4 million as ofDecember 31, 2022 and 2021, respectively.LC Bank also has secured borrowing capacity available under the FRB Discount Window totaling$191.0 million and$75.2 million as ofDecember 31, 2022 and 2021, respectively.
LendingClub Holding Company Liquidity
The primary source of liquidity at the holding company is$56.5 million and$88.3 million in cash and cash equivalents as ofDecember 31, 2022 and 2021, respectively. Additionally, the holding company has the ability to access the capital markets through additional registrations and public equity offerings. Uses of cash at the holding company include the routine cash flow requirements as a bank holding company, such as interest and expenses (including those associated with our office leases), the needs ofLC Bank for additional equity and, as required, its need for debt financing and support for extraordinary funding requirements when necessary. 71 --------------------------------------------------------------------------------LENDINGCLUB CORPORATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)Factors Impacting Liquidity
The Company's liquidity could be adversely impacted by deteriorating financial and market conditions, the inability or unwillingness of a creditor to provide funding, an idiosyncratic event (e.g., a major loss, causing a perceived or actual deterioration in its financial condition), an adverse systemic event (e.g., default or bankruptcy of a significant capital markets participant), or others. We believe, based on our projections, that our cash on hand, AFS securities, available funds, and cash flow from operations are sufficient to meet our liquidity needs for the next twelve months, as well as beyond the next twelve months. See "Item 8. Financial Statements and Supplementary Data - Consolidated Statements of Cash Flows" for additional detail regarding our cash flows.
Market Risk
Market risk represents the risk of potential losses arising from changes in interest rates, foreign exchange rates, equity prices, commodity prices, and/or other relevant market rates or prices. The primary market risk to which we are exposed is interest rate risk. Interest rate risk arises from financial instruments including loans, securities and borrowings, all entered into for purposes other than trading. Interest Rate SensitivityLendingClub Bank Our net interest income is affected by changes in the level of interest rates, the impact of interest rate fluctuations on asset prepayments, and the level and composition of deposits and liabilities, among other factors. Loans HFI atLC Bank are funded primarily through our deposit base. The majority of loans HFI are fixed-rate instruments over the term of the loans. As a result, the primary component of interest rate risk on our financial instruments atLC Bank arises from the impact of fluctuations in loan and deposit rates on our net interest income. Therefore, we use a sensitivity analysis to assess the impact of hypothetical changes in interest rates on our net interest income results. The outcome of the analysis is influenced by a variety of assumptions, including the maturity profile and prepayment level of our unsecured consumer loans and expected consumer responses to changes in rates paid on non-maturity deposit products. Our assumptions are periodically calibrated to observed data and/or expected outcomes.
The following table presents the change in projected net interest income for the next twelve months due to a hypothetical instantaneous parallel change in interest rates relative to current rates:
December 31, 2022 December 31, 2021
Instantaneous Change in Interest Rates:
+ 200 basis points (6.9) % (0.8) %
+ 100 basis points (3.3) % (0.2) %
- 100 basis points 1.9 % (0.2) %
- 200 basis points 3.5 % N/M
As illustrated in the table above, net interest income is projected to decrease
over the next twelve months during rising interest rate environments primarily
as a result of higher rates paid on interest-bearing deposits, partially offset
by higher rates earned on new loans, investment purchases, and cash and cash
equivalents. Conversely, net interest income is projected to increase over the
next twelve months during hypothetical declining interest rate environments. The
increase in sensitivity as of December 31, 2022 relative to the prior year is
primarily due to the
72
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LENDINGCLUB CORPORATIONManagement's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)composition of our loans and deposits. Furthermore, during fluctuating interest rate environments, the increased sensitivity of repricing interest-bearing deposits is more impactful than that of repricing fixed rate loans.
Although we believe that these measurements provide an estimate of our interest rate sensitivity, they do not account for potential changes in credit quality, balance sheet mix, size of our balance sheet, or other business developments that could affect net income. Actual results could differ materially from the estimated outcomes of our simulations.
Maturities
The following table presents the maturities of loans and leases held for
investment at amortized cost and at fair value as of
Due After
Due in Due After 5 Years
1 Year or 1 Year Through Through December 31,
Less 5 Years 15 Years 2022
Unsecured personal $ 53,516 $ 4,627,585 $ 91,983 $ 4,773,084
Residential mortgages 1,202 7,780 190,619 199,601
Secured consumer 32 113,679 80,923 194,634
Total consumer loans held for investment 54,750 4,749,044 363,525 5,167,319
Equipment finance 5,052 117,154 38,113 160,319
Commercial real estate 28,284 80,115 265,102 373,501
Commercial and industrial 7,703 88,964 142,059 238,726
Total commercial loans and leases held for
investment 41,039 286,233 445,274 772,546
Total loans and leases held for investment
$ - $ 4,969,142 $ 407,096 $ 5,376,238
Loans and leases due after one year at
variable interest rates $ - $ 66,135 $ 401,703 $ 467,838
For the contractual maturities and weighted-average yields on the Company's AFS
securities portfolio, see "Notes to Consolidated Financial Statements - Note 5.
Securities Available for Sale."
At the holding company level, we continue to measure interest rate sensitivity by evaluating the change in fair value of certain assets and liabilities due to a hypothetical change in interest rates. Principal payments on our loans HFI continue to reduce the outstanding balance of this portfolio, and, as a result, the fair value impact from changes in interest rates continues to diminish. Contingencies For a comprehensive discussion of contingencies as ofDecember 31, 2022 , see "Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 19. Commitments and Contingencies."
Critical Accounting Estimates
Our significant accounting policies are described in "Item 8. Financial
Statements and Supplementary Data - Notes to Consolidated Financial Statements -
Note 1. Summary of Significant Accounting Policies." We consider certain of
these policies to be critical accounting policies as they require significant
management judgments, assumptions and estimates which we believe are critical in
understanding and evaluating our reported financial results. These
73
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LENDINGCLUB CORPORATION Management's Discussion and Analysis of Financial Condition and Results of
Operations(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as
Noted)judgments, estimates and assumptions are inherently subjective and actual results may materially differ from these estimates and assumptions.
Allowance for Loan and Lease Losses
Under the CECL model, we reserve for expected credit losses on our loan and
lease portfolio when loans are initially recorded as HFI at amortized cost
through the ALLL by using a DCF approach to calculate the NPV of expected cash
flows. Loans accounted for under the fair value option do not have an ALLL.
Changes in the credit risk profile of our loans and leases result in changes in
"Provision for credit losses," on the Income Statement with a resulting change,
net of charge-offs and recoveries, in the ACL balance. The majority of our ALLL
relates to unsecured personal loans.
The ALLL represents our estimate of expected lifetime credit losses over the
contractual life of the loan portfolio. Our determination of the ALLL is based
on regular and periodic evaluation of the loan portfolio considering a number of
relevant underlying factors, including key assumptions and evaluation of
quantitative and qualitative information from internal and external sources.
Estimates of expected future loan losses are determined by using statistical
models and management's judgement. The models are designed to forecast
probability and timing of default, loss rate exposure at default, recovery
expectations, and timing and amount of estimated prepayments by correlating
certain macroeconomic unemployment forecast data to historical experience. Our
statistical models, applied at the portfolio level to pools of loans with
similar risk characteristics, produce expected cash flows, which are then
discounted at the effective interest rate to derive the NPV. The difference
between the NPV and the amortized cost determines the ALLL. The effective
interest rate is calculated based on the periodic interest income received from
the loan's contractual cash flows, which includes deferred origination fees and
costs, to provide a constant rate of return over the contractual loan term.
Under the DCF approach, the provision for credit losses includes credit loss
expense in subsequent periods relating to the discounting effect due to the
passage of time after the initial recognition of ALLL on originated HFI loans at
amortized cost.
Our qualitative allowance is primarily based on macroeconomic unemployment
forecast information provided by an external third-party economist,
incorporating management's judgement, and is included in the estimation of
expected future expected credit losses. In addition, the qualitative allowance
includes adjustments in circumstances where the statistical model output is
inconsistent with management's expectations relating to economic conditions and
expected credit losses. Management may make adjustments as the assumptions in
the underlying analyses change to reflect an estimate of expected lifetime loan
losses and prepayments at the reporting date, based on the best information
available at that time.
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LENDINGCLUB CORPORATION Item 7A. Quantitative and Qualitative Disclosures About Market Risk
For a comprehensive discussion regarding quantitative and qualitative disclosures about market risk, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk."
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements ofLendingClub Corporation Report of Independent Registered Public Accounting Firm 76 Consolidated Balance Sheets 77 Consolidated Statements of Income (Loss) 78 Consolidated Statements of Comprehensive Income (Loss) 80 Consolidated Statements of Changes in Equity 81 Consolidated Statements of Cash Flows 82 Notes to Consolidated Financial Statements 84 75
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets ofLendingClub Corporation and subsidiaries (the "Company") as ofDecember 31, 2022 and 2021, the related consolidated statements of income (loss), comprehensive income (loss), changes in stockholders' equity, and cash flows, for each of the three years in the period endedDecember 31, 2022 , and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period endedDecember 31, 2022 , in conformity with accounting principles generally accepted inthe United States of America . We have also audited, in accordance with the standards of thePublic Company Accounting Oversight Board (United States ) (PCAOB), the Company's internal control over financial reporting as ofDecember 31, 2022 , based on criteria established in Internal Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of theTreadway Commission and our report datedFebruary 9, 2023 , expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 1) Allowance for loans and lease losses - Consumer Loans - Refer to "Note 6. Loans and Leases Held for Investment at Amortized Cost, Net of Allowance for Loan and Lease Losses" to the consolidated financial statements
Critical Audit Matter Description
The allowance for credit losses includes the allowance for loan and lease losses (ALLL) on consumer loans, which represents the Company's estimate of expected lifetime credit losses over the contractual life of the loan portfolio. As ofDecember 31, 2022 , the ALLL balance relating to consumer loans is$312 million . The majority of the ALLL relates to the unsecured personal loans class of financing receivables within the consumer loan portfolio. The determination of the ALLL is based on the Company's periodic evaluation of performance of the consumer loan portfolio considering a number of underlying factors, including key assumptions and quantitative and qualitative information. The estimate of expected future loan losses is determined using statistical models and management's judgement. Expected credit losses are statistically modeled using a discounted cash flow approach and known and estimated data based on current probability and timing of defaults, loss rate and recovery exposure at default, timing and amount of estimated prepayments, and relevant risk characteristics to estimate the shortfall in contractual cash flows for each loan pool over the remaining life of the loans. Qualitative adjustments to the modeled estimate of expected credit losses are also considered to address certain identified elements that are not directly captured by the statistical model. The qualitative allowance is primarily based on a macroeconomic unemployment forecast provided by an external third-party economist, which also incorporates management's judgement. In addition, the qualitative allowance includes adjustments in circumstances where the statistical model output is inconsistent with management's expectations related to economic conditions and expected credit losses. Given the size of the unsecured personal loan portfolio and the subjective nature of estimating the ALLL, including management's expectations related to macro-economic conditions and expected losses, auditing the ALLL involved a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the models and assumptions used by management to estimate the allowance for loan losses relating to the unsecured personal loan portfolio, included the following, among others: •We tested the effectiveness of the controls over the (i) selection of the statistical model methodology, (ii) development, execution, and monitoring of the statistical models, (iii) determination of the qualitative adjustment, and (iv) overall calculation and disclosure of the ALLL.
•We evaluated the reasonableness of aggregation of the current loan data and historical loan data established by the Company and its appropriateness in supporting the Company's estimate.
•We assessed the reasonableness of qualitative adjustments as considered by the Company based on loan portfolio, market conditions and significant assumptions including macro-economic adjustments, in context of applicable financial reporting framework.
•We evaluated the appropriateness of the Company's accounting policies and methodologies involved in the application of the applicable accounting standards.
•We involved our credit specialists to assist us in evaluating the selection of the statistical model methodology utilized by the Company in estimation for loan losses, including key assumptions, the execution of the statistical models, and the reasonableness of judgments related to the qualitative adjustments. /s/DELOITTE & TOUCHE LLP San Francisco, California February 9, 2023
We have served as the Company's auditor since 2013.
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LENDINGCLUB CORPORATION
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
December 31, 2022 2021
Assets
Cash and due from banks $ 23,125 $ 35,670
Interest-bearing deposits in banks 1,033,905 651,456
Total cash and cash equivalents 1,057,030 687,126
Restricted cash (1) 67,454 76,460
Securities available for sale at fair value (
345,702 263,530
Loans held for sale (includes
110,400 391,248
Loans and leases held for investment 5,033,154 2,899,126
Allowance for loan and lease losses (327,852) (144,389)
Loans and leases held for investment, net 4,705,302 2,754,737
Loans held for investment at fair value (1)(2) 925,938 21,240
Retail and certificate loans held for investment at fair value (1) 55,425
229,719
Property, equipment and software, net 136,473 97,996
Goodwill 75,717 75,717
Other assets (1) 500,306 302,546
Total assets $ 7,979,747 $ 4,900,319
Liabilities and Equity
Deposits:
Interest-bearing $ 6,158,560 $ 2,919,203
Noninterest-bearing 233,993 216,585
Total deposits 6,392,553 3,135,788
Short-term borrowings 2,619 27,780
Advances from Paycheck Protection Program Liquidity Facility (PPPLF)
64,154 271,933
Retail notes, certificates and secured borrowings at fair value (1)
55,425 229,719
Payable on Structured Program borrowings (1) 8,085 65,451
Other long-term debt - 15,455
Other liabilities (1) 292,617 303,951
Total liabilities 6,815,453 4,050,077
Equity
Series A Preferred stock,
- -
Common stock,
1,065 1,010
Additional paid-in capital 1,628,590 1,559,616
Accumulated deficit (427,745) (717,430)
Accumulated other comprehensive income (loss) (37,616) 7,046
Total equity 1,164,294 850,242
Total liabilities and equity $
7,979,747
(1) Includes amounts in consolidated variable interest entities (VIEs). See "Notes to Consolidated Financial Statements - Note 7. Securitizations and Variable Interest Entities."
(2) Consists primarily of a loan portfolio that was acquired at the end of 2022. See "Note 8. Fair Value of Assets and Liabilities."
See Notes to Consolidated Financial Statements.
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LENDINGCLUB CORPORATION
Consolidated Statements of Income (Loss)
(In Thousands, Except Share and Per Share Amounts)Year Ended December 31, 2022 2021 2020 Non-interest income: Marketplace revenue$ 683,626 $ 578,580 $ 245,314 Other non-interest income 28,765 27,219 13,442 Total non-interest income 712,391 605,799 258,756 Interest income: Interest on loans held for sale 26,183 29,540 72,876 Interest and fees on loans and leases held for investment 465,450 188,977 - Interest on loans held for investment at fair value 12,877 4,436 7,688 Interest on retail and certificate loans held for investment at fair value 18,135 57,684 115,952 Interest on securities available for sale 16,116 11,025 12,125 Other interest income 18,579 1,170 1,053 Total interest income 557,340 292,832 209,694 Interest expense: Interest on deposits 60,451 7,228 - Interest on short-term borrowings 1,002 3,677 17,837
Interest on retail notes, certificates and secured borrowings
18,135 57,684 115,952
Interest on Structured Program borrowings 1,508 9,638 16,204
Interest on other long-term debt 1,419 1,774 373
Total interest expense 82,515 80,001 150,366
Net interest income 474,825 212,831 59,328
Total net revenue 1,187,216 818,630 318,084
Provision for credit losses 267,326 138,800 3,382
Non-interest expense:
Compensation and benefits 339,397 288,390 252,517
Marketing 197,747 156,142 51,518
Equipment and software 49,198 39,490 26,842
Occupancy 21,977 24,249 27,870
Depreciation and amortization 43,831 44,285 54,030
Professional services 50,516 47,572 41,780
Other non-interest expense 64,187 61,258 47,762
Total non-interest expense 766,853 661,386 502,319
Income (Loss) before income tax benefit 153,037 18,444 (187,617)
Income tax benefit 136,648 136 79
Net income (loss) $ 289,685 $ 18,580 $ (187,538)
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LENDINGCLUB CORPORATION
Consolidated Statements of Income (Loss) (Continued)
(In Thousands, Except Share and Per Share Amounts)
Year Ended December 31, 2022 2021 2020
Net income (loss) per share: (1)
Net income (loss) $ 289,685 $ 18,580 $ (187,538)
Basic EPS - common stockholders $ 2.80 $ 0.19 $ (2.07)
Diluted EPS - common stockholders $ 2.79 $ 0.18 $ (2.07)
Weighted-average common shares - Basic 103,547,305 97,486,754 77,934,302
Weighted-average common shares - Diluted 104,001,288 102,147,353 77,934,302
Basic EPS - preferred stockholders $ 0.00 $ 0.19 $ (2.07)
Diluted EPS - preferred stockholders $ 0.00 $ 0.00 $ (2.07)
Weighted-average common shares, as converted - Basic - 653,118 12,505,393
Weighted-average common shares, as converted - Diluted - - 12,505,393
(1) See "Notes to Consolidated Financial Statements - Note 4. Net Income (Loss) Per Share" for additional information.
See Notes to Consolidated Financial Statements.
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LENDINGCLUB CORPORATION
Consolidated Statements of Comprehensive Income (Loss)
(In Thousands)
Year Ended December 31, 2022 2021 2020
Net income (loss) $ 289,685 $ 18,580 $ (187,538)
Other comprehensive income (loss), before tax:
Net unrealized gain (loss) on securities available for
sale (61,326) 5,562 2,044
Other comprehensive income (loss), before tax (61,326) 5,562 2,044
Income tax effect 16,664 - 5
Other comprehensive income (loss), net of tax (44,662) 5,562 2,049
Total comprehensive income (loss) $ 245,023 See Notes to Consolidated Financial Statements.
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LENDINGCLUB CORPORATION
Consolidated Statements of Changes in Equity
(In Thousands, Except Share Data)
Preferred Stock Common Stock Additional Treasury Stock(1) Accumulated Other
Paid-in Comprehensive Income Accumulated Total
Shares Amount Shares Amount Capital Shares Amount (Loss) Deficit Equity
Balance at December 31, 2019 - $ - 88,757,406 $ 892 $ 1,467,882 461,391 $ (19,550) $ (565) $ (548,472) $ 900,187
Stock-based compensation - - - - 66,626 - - - - 66,626
Net issuances under equity
incentive plans, net of tax - - 3,692,185 36 (6,914) 5,658 (71) - - (6,949)
Issuance of preferred stock in exchange for common stock(2) 43,000 - (4,300,081) (43) (50,161) - - - -
(50,204)
Retirement of treasury stock - - - (4) (19,617) (467,049) 19,621 - -
-
Net unrealized gain on securities available for sale, net of tax - - - - - - - 2,049 - 2,049 Net loss - - - - - - - - (187,538) (187,538) Balance atDecember 31, 2020 43,000 $ - 88,149,510$ 881 $ 1,457,816 - $ - $ 1,484$ (736,010) $ 724,171 Stock-based compensation - - - - 69,762 - - - - 69,762 Net issuances under equity incentive plans, net of tax - - 4,833,300 48 (9,343) 4,251 (92) - -
(9,387)
Net issuances of stock related to acquisition (3) - - 3,761,114 38 41,424 - - - -
41,462
Exchange of preferred stock for common stock (43,000) - 4,300,000 43 (43) - - - -
-
Retirement of treasury stock - - - - - (4,251) 92 - -
92
Net unrealized gain on securities available for sale, net of tax - - - - - - - 5,562 - 5,562 Net income - - - - - - - - 18,580 18,580 Balance atDecember 31, 2021 - $ - 101,043,924$ 1,010 $ 1,559,616 - $ - $ 7,046$ (717,430) $ 850,242 Stock-based compensation - - - - 73,717 - - - -
73,717
Net issuances under equity incentive plans, net of tax - - 5,503,071 55 (4,645) 7,751 (98) - -
(4,688)
Retirement of treasury stock - - - - (98) (7,751) 98 - -
-
Net unrealized loss on securities available for sale, net of tax - - - - - - - (44,662) - (44,662) Net income - - - - - - - - 289,685 289,685 Balance atDecember 31, 2022 - $ - 106,546,995$ 1,065 $ 1,628,590 - $ - $ (37,616)$ (427,745) $ 1,164,294 (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) Includes a payment of$50.2 million that was originally recorded as a deemed dividend within Accumulated Deficit, related to the beneficial conversion feature of the Series A Preferred Stock issued during the first quarter of 2020. Upon the full retrospective adoption of Accounting Standards Update (ASU) 2020-06 during the first quarter of 2022, the deemed dividend was reclassified from Accumulated Deficit toAdditional Paid-in Capital . See "Notes to Consolidated Financial Statements - Note 1. Summary of Significant Accounting Policies and Note 4. Net Income (Loss) Per Share." (3) Stock issued as part of the consideration paid related to the Acquisition. See "Notes to Consolidated Financial Statements - Note 2. Business Acquisition."
See Notes to Consolidated Financial Statements.
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LENDINGCLUB CORPORATION
Consolidated Statements of Cash Flows
(In Thousands)
Year Ended December 31, 2022 2021 2020
Cash Flows from Operating Activities:
Consolidated net income (loss) $ 289,685 $ 18,580 $ (187,538)
Adjustments to reconcile consolidated net income (loss)
to net cash provided by operating activities:
Net fair value adjustments (8,503) (3,986) 105,002
Provision for credit losses 267,326 138,800 3,382
Change in fair value of loan servicing assets 73,229 54,108 58,730
Accretion of loan deferred fees and costs(1) (86,138) (41,319) -
Stock-based compensation, net 66,362 66,759 61,533
Depreciation and amortization(1) 43,831 44,285 54,030
Gain on sales of loans (95,335) (70,116) (30,812)
Income tax benefit from release of tax valuation
allowance (143,495) - -
Other, net(1) (1,828) 11,263 15,002
Net change to loans held for sale 8,032 4,856 435,245
Net change in operating assets and liabilities:
Other assets (16,762) (9,733) 34,483
Other liabilities (20,836) 26,372 (131,026)
Net cash provided by operating activities 375,568 239,869 418,031
Cash Flows from Investing Activities:
Acquisition of company - (145,344) -
Cash received from acquisition - 668,236 -
Net change in loans and leases (2,771,293) (1,517,132) 7,151
Net decrease in retail and certificate loans 171,853 437,870 411,428
Purchases of securities available for sale (222,534) (100,474) (53,736)
Proceeds from sales of securities available for sale - 106,192 6,217
Proceeds from maturities and paydowns of securities available for sale
86,078 143,402 225,458
Purchases of property, equipment and software, net (69,481) (34,413) (31,147)
Other investing activities (4,423) (12,747) 400
Net cash (used for) provided by investing activities (2,809,800)
(454,410) 565,771
Cash Flows from Financing Activities:
Net change in demand deposits and savings accounts 3,256,501 1,126,659 -
Proceeds from PPPLF - 325,194 -
Repayment on PPPLF (207,779) (474,223) -
Proceeds from issuance of retail notes and certificates - - 314,995
Principal payments on retail notes and certificates (182,260)
(438,032) (729,405)
Principal payments on Structured Program borrowings (21,423)
(90,187) (73,710)
Proceeds from issuance of notes and certificates from Structured Program transactions
- - 186,190
Principal payments on short-term borrowings (25,581) (87,640) (1,662,199)
Principal payments on long-term debt (15,300) (2,834) (14,419)
Proceeds from short-term borrowings - - 1,195,261
Deemed dividend paid to preferred stockholder - - (50,204)
Other financing activities (9,028) (9,295) (8,948)
Net cash provided by (used for) financing activities 2,795,130
349,642 (842,439)
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LENDINGCLUB CORPORATION
Consolidated Statements of Cash Flows (Continued)
(In Thousands)
Year Ended December 31, 2022 2021 2020
Net Increase in Cash, Cash Equivalents and Restricted Cash
360,898 135,101 141,363
Cash, Cash Equivalents and Restricted Cash, Beginning of Period
763,586 628,485 487,122
Cash, Cash Equivalents and Restricted Cash, End of Period
$ 1,124,484
Supplemental Cash Flow Information: Cash paid for interest$ 79,732 $ 77,334 $ 143,840 Cash paid for operating leases included in the measurement of lease liabilities$ 15,540 $ 20,546 $ 16,679 Cash paid for taxes$ 14,462 $ 4,799 $ 3 Non-cash investing activity(2): Loans and leases held for investment transferred to loans held for sale $ -$ 402,960 $ - Net securities retained from Structured Program transactions $ -
$ -
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: Derecognition of payable to securitization note and residual certificate holders held in consolidated VIE$ 36,072 $ - $ - Exchange of common stock for preferred stock $ -
$ -
(1) Prior period amounts have been reclassified to conform to the current period presentation. (2) See "Notes to Consolidated Financial Statements - Note 8. Fair Value of Assets and Liabilities" for other non-cash investing activity.
The following presents cash, cash equivalents and restricted cash by category within the Balance Sheet:
2022 2021
Cash and cash equivalents $ 1,057,030 $ 687,126
Restricted cash 67,454 76,460
Total cash, cash equivalents and restricted cash $
1,124,484
See Notes to Consolidated Financial Statements.
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)1. Summary of Significant Accounting Policies
Basis of Presentation
OnFebruary 1, 2021 ,LendingClub Corporation (LendingClub ) completed the acquisition ofRadius Bancorp, Inc. (Radius), wherebyLendingClub became a bank holding company and formedLendingClub Bank , National Association (LC Bank ) as its wholly-owned subsidiary. The Company operates the vast majority of its business throughLC Bank , as a lender and originator of loans and as a regulated bank inthe United States . All intercompany balances and transactions have been eliminated in consolidation. These consolidated financial statements have been prepared in conformity with accounting principles generally accepted inthe United States of America (GAAP) and, in the opinion of management, contain all adjustments, including 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. Certain prior period amounts in the consolidated financial statements and accompanying notes have been reclassified to conform to the current period presentation.
Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents have original maturities of three months or less and include cash on hand, cash items in transit, and amounts due from or held with other depository institutions, primarily with theFederal Reserve Bank (FRB).
Restricted Cash
Cash items held with other depository institutions in which the ability to withdraw funds is restricted by contractual provisions is classified as restricted cash. Such amounts include: (i) cash pledged as security related toLendingClub's issuing bank activities and transactions with certain investors; and (ii) cash received from borrowers on loans owned and not yet distributed to investors. Securities Debt securities purchased and asset-backed securities retained from the sale of loans are classified as available for sale (AFS) securities. AFS securities represent investment securities with readily determinable fair values that the Company: (i) does not hold for trading purposes and (ii) does not have the positive intent and ability to hold to maturity. AFS securities are measured at fair value, with unrealized gains and losses reported in "Accumulated other comprehensive income" within the equity section of the Balance Sheet. The amount reported in "Accumulated other comprehensive income" is net of any valuation allowance and applicable income taxes. Management evaluates whether debt AFS securities with unrealized losses are impaired on a quarterly basis. For any security that has declined in fair value below its amortized cost basis, the Company recognizes an impairment loss in current period earnings if management has the intent to sell the security or if it is more likely than not it will be required to sell the security before recovery of its amortized cost basis. The assessment of impairment also considers whether the decline in fair value below the security's amortized cost basis is attributable to credit-related factors. If credit-related factors exist, credit-related impairment has occurred regardless of the Company's intent to hold the security until it recovers. The credit-related portion of impairment is recognized as provision for credit loss expense in earnings with a corresponding valuation allowance for AFS securities on the Balance Sheet, to the extent the allowance does not reduce the value of the security below its fair value. 84 --------------------------------------------------------------------------------LENDINGCLUB CORPORATION Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
AFS securities where the expected cash flows are significantly lower than that
of the contractual future cash flows at the time of acquisition are considered
to be purchased with credit deterioration (PCD). The discounted differential in
expected and contractual cash flows is included with the purchase price of the
asset to determine amortized cost of the security with an equal and offsetting
valuation allowance for credit losses.
Equity securities that do not have readily determinable fair values are
generally recorded at cost adjusted for impairment, if any. These securities
include FRB stock and Federal Home Loan Bank (FHLB) stock and are reported as
"Nonmarketable equity investments" in "Other assets" on the Balance Sheet.
Loans and Leases
The Company initially classifies loans and leases as either held for sale (HFS) or held for investment (HFI) based on management's assessment of its 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. In order to reclassify loans to HFS, management must have the intent to sell the loans and the ability to reasonably identify the specific loans to be sold.
HFI loans at amortized cost
HFI loans, with the exception of HFI loans accounted for under the fair value option, are measured at historical cost and reported at their outstanding principal balances net of any charge-offs, unamortized deferred fees and costs on originated loans, and for purchased loans, net of any unamortized premiums and discounts. Leases are recorded at the discounted amounts of lease payments receivable plus the estimated residual value of the leased asset, net of unearned income and unamortized deferred fees and costs. Lease payments receivable reflect contractual lease payments adjusted for renewal or termination options that the Company believes the customer is reasonably certain to exercise. Unearned income, deferred fees and costs, and discounts and premiums are accreted and amortized to interest income over the contractual life of the loan using its effective interest rate. In certain circumstances, the Company may transfer loans from HFI to HFS. At the time of transfer, these loans are valued at the lower of amortized cost or fair value.
HFI loans at fair value
HFI loans are measured at fair value if the Company elects the fair value option. The Company may elect the fair value option for certain HFI loans, which could include loans purchased by the Company. Interest income is recorded under the effective interest method which considers any purchase premium or discounts. In addition, purchase related discounts absorb credit losses. Retail and certificate loans and the related notes and certificates are measured at fair value. Due to the payment dependent feature of the notes and certificates, changes in the fair value of the notes and certificates are offset by changes in the fair values of related loans, resulting in no net effect on the Company's earnings. HFS loans at fair value Loans initially classified as HFS are reported at their fair value with the Company's election of the fair value option. Origination fees and costs for HFS loans are recognized in earnings at the time of loan origination and are not deferred. Origination fees are recognized in earnings within "Marketplace revenue" on the Consolidated Statements of Income (Income Statement). Changes in the fair value are recorded in "Net fair value adjustments" included in "Marketplace revenue" on the Income Statement.
Accrued Interest Income and Non-Accrual Policy
Interest income is accrued as earned. The accrual of interest income is discontinued, and the loan or lease is placed on nonaccrual status at 90 days past due or when reasonable doubt exists as to timely collection. Past due status is
85
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
based on the contractual terms of the loan or lease. When a loan or lease is
placed on nonaccrual status, all income previously accrued but not collected is
reversed against the current period's interest income. The Company has a
nonaccrual policy which results in the timely reversal of past-due accrued
interest, and it does not record an allowance for credit losses (ACL) on accrued
interest receivable. However, we record an ACL on accrued interest receivable
for past due unsecured personal loans that are less than 90 days past due.
Interest collections on nonaccrual loans and leases for which the ultimate
collectability of principal is uncertain are applied as principal reductions;
otherwise, such collections are credited to income when received. 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. For loans held for investment measured
at fair value, we record interest income over the term of the underlying loans
using the effective interest method which considers any purchase discount or
premiums.
Allowance for Credit Losses
The ACL represents management's estimate of expected credit losses in the loan
and lease portfolio, excluding loans accounted for under the fair value option.
The ACL 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 ACL
is estimated using a discounted cash flow (DCF) approach where effective
interest rates are used to calculate the net present value of expected cash
flows. The effective interest rate is calculated based on the periodic interest
income received from the loan's contractual cash flows and the net investment in
the loan, which includes deferred origination fees and costs, to provide a
constant rate of return over the term.
The Company evaluates its estimate of expected credit losses each reporting
period and records any additions or reductions to the allowance on the Income
Statement as "Provision for credit losses." Amounts determined to be
uncollectible are charged-off to the allowance. Estimates of expected credit
losses include expected recoveries of amounts previously charged-off and amounts
expected to be charged-off. If amounts previously charged off are subsequently
expected to be collected, the Company may recognize a negative allowance, which
is limited to the amount that was previously charged off.
Under applicable accounting guidance, for reporting purposes, the loan and lease
portfolio is categorized by portfolio segment. A portfolio segment is defined as
the level at which an entity develops and documents a systematic methodology to
determine the ACL. The Company's two portfolio segments are consumer and
commercial. The Company further disaggregates its portfolio segments into
various classes of financing receivables based on their underlying risk
characteristics. The classes within the consumer portfolio segment are unsecured
consumer, secured consumer and residential mortgages. The classes within the
commercial portfolio segment are commercial and industrial, commercial real
estate, and equipment finance.
The ACL is measured on a collective basis when loans share similar risk
characteristics. Relevant risk characteristics for the consumer portfolio
include product type, risk rating, loan term, and monthly vintage. Relevant risk
characteristics for the commercial portfolio include product type, risk rating
and PCD status. Loans measured on a collective basis generally have an ACL
comprised of a quantitative, or modeled, component that is supplemented by a
framework of qualitative factors, as discussed below.
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 expected
credit losses on an individual, rather than on a collective basis. Loans
evaluated on an individual basis generally have an ACL that is measured in
reference to any collateral securing the loan and/or expected cash flows which
are specific to the borrower.
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)Allowance Calculation Methodology
The Company generally estimates expected credit losses over the contractual term of its loans. The contractual term is adjusted for estimated 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 and timing of default, loss rate and recovery exposure at default, timing and amount of estimated prepayments, timing and amount of expected draws (for unfunded lending commitments), and relevant risk characteristics. Certain of the Company's commercial portfolios have limited internal historical loss data and use external credit loss information, including historical charge-off and balance data for peer banking institutions. The Company obtains historical and forecast macroeconomic information to inform its view of the long-term condition of the economy. Forward-looking macroeconomic factors considered in the Company's consumer model include, unemployment rate, unemployment insurance claims, gross domestic product (GDP), housing prices, and retail sales. Forward-looking macroeconomic factors are incorporated into the Company's commercial model 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 quantitative, or modeled, portion of ACL is estimated using a DCF approach. The Company's statistical models produce expected cash flows, which are then discounted at the effective interest rate to derive net present value. The effective interest rate is calculated based on the periodic interest income received from the loan's contractual cash flows and the net investment in the loan, which includes deferred origination fees and costs, to provide a constant rate of return over the contractual loan term. This net present value is then compared to the amortized cost basis to derive the initial expected credit losses. Under the DCF approach, the provision for credit losses includes credit loss expense in subsequent periods relating to the discounting effect due to the passage of time after the initial recognition of ACL on originated HFI loans at amortized cost. 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 statistically modeled expected credit loss. The Company also obtains forecast macroeconomic information to inform its view of the long-term condition of the economy. These factors may include the impact of the non-modeled macroeconomic outlook, forecast unemployment rate and insurance claims, risk rating downgrades, changes in credit policies, problem loan trends, identification of new risks not incorporated into the modeling framework, credit concentrations, changes in underwriting and other external factors.
Zero Credit Loss Expectation Exception
The Company has a zero loss expectation when the loans and securities available for sale, or portions thereof, are issued or guaranteed by certainU.S. government entities or agencies, as those entities or agencies have a long history of no defaults and the highest credit ratings issued by rating agencies. Loans held for investment and securities available for sale, or portions thereof, which meet this criterion do not have an ACL. 87 --------------------------------------------------------------------------------LENDINGCLUB CORPORATION Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)Reserve for Unfunded Lending Commitments
The ACL includes an estimate for expected credit losses on off-balance sheet 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 in "Other liabilities" on the Balance Sheet.
Individually Assessed Loans
Loans that do not share similar risk characteristics with other financial assets, including those whose terms have been modified in a TDR and collateral-dependent loans, are individually assessed for purposes of measuring expected credit losses using the DCF approach.
For loans that are determined to be collateral dependent, the ACL is determined based on the fair value of the collateral. Loans are considered collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be substantially satisfied through sale or operation of the collateral. For such loans, the ACL 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, modifications or 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 the acquisition of PCD assets does not impact net income. Changes in estimates of expected credit losses after acquisition are recognized through the provision for credit losses. 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" on the Income Statement.
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. Unsecured personal loans are charged-off when a
borrower is (i) contractually 120 days past due or (ii) two payments past due
and has filed for bankruptcy or is deceased.
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 ACL 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
88
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
by the acquired 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.
Servicing Assets
Servicing assets are capitalized as separate assets when loans are sold and servicing is retained. The Company records servicing assets at their estimated fair values. Servicing asset fair value is based on the excess of the contractual servicing fee over an estimated market servicing rate. When servicing assets are recognized from the sale of loans originated by the Company, the fair value of the servicing asset is included as a component of the gain or loss on the loan sale and reported within "Marketplace revenue" on the Income Statement. Subsequent changes in fair value are reported within "Servicing fees" in "Marketplace revenue" during the period in which the changes occur. Servicing assets are reported in "Other assets" on the Balance Sheet.
Fair Value of Assets and Liabilities
Fair value is defined as the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date. Fair value is based on an exit price notion that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Certain of the Company's assets and liabilities are recorded at fair value and measured on either a recurring or nonrecurring basis. Assets and liabilities that are recorded at fair value on a recurring basis require a fair value measurement at each reporting period.
The fair value hierarchy includes a three-level hierarchy that assigns the highest priority to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs.
Level 1 - Quoted market prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included in Level 1 that are observable for
the asset or liability either directly or indirectly.
Level 3 - Unobservable inputs.
Unobservable inputs require greater judgment in measuring fair value. In
instances where there is limited or no observable market data, fair value
measurements for assets and liabilities are based primarily upon the Company's
own estimates, and the measurements reflect information and assumptions that
management believes a market participant would use in pricing the asset or
liability.
Property, Equipment and Software, net
Property, equipment and software are carried at cost less accumulated depreciation and amortization. The Company uses the straight-line method of depreciation and amortization. Estimated useful lives range from three years to five years for furniture and fixtures, computer equipment, and software. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life. Internally developed software is capitalized when preliminary development efforts are successfully completed and it is probable that the project will be completed, and the software will be used as intended. Capitalized costs consist of salaries and compensation costs for employees, fees paid to third-party consultants who are directly involved in development efforts, and costs incurred for upgrades and enhancements to add functionality of the software. Other costs are expensed as incurred.
The Company evaluates impairments of its property, equipment and software whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the asset is not recoverable,
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
measurement of an impairment loss is based on the fair value of the asset. When
an impairment loss is recognized, the carrying amount of the asset is reduced to
its estimated fair value.
Goodwill is recorded when the purchase price of an acquired business exceeds the fair value of the net assets acquired.Goodwill is assigned to the Company's reporting units at the acquisition date according to the expected economic benefits that the acquired business will provide to the reporting unit. A reporting unit is a business operating segment or a component of a business operating segment. The Company identifies its reporting units based on how the operating segments and reporting units are managed. Accordingly, the Company allocated goodwill to theLC Bank operating segment. The goodwill of each reporting unit is tested for impairment annually or more frequently in certain circumstances. The Company's annual impairment testing is performed in the fourth quarter of each calendar year. Impairment exists when 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. The Company can elect to either qualitatively assess goodwill for impairment, or bypass the qualitative test and proceed directly to a quantitative test. If the Company performs a qualitative assessment of goodwill to test for impairment and concludes it is more likely than not that the estimated fair value of a reporting unit is greater than its carrying value, a quantitative test is not required. However, if we determine it is more likely than not that a reporting unit's fair value is less than its carrying amount, a quantitative assessment is performed to determine if goodwill impairment exists. Under the quantitative impairment assessment, the fair values of the Company's reporting units are determined using a combination of income and market-based approaches. Other intangible assets with determinable lives are recorded at their fair value upon completion of a business acquisition or certain other transactions, and generally represent the value of customer contracts or relationships. Such assets 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. Other intangible assets are reviewed for impairment quarterly and when events or changes in circumstances indicate that their carrying amount may not be recoverable. The Company does not have indefinite-lived intangible assets other than goodwill. Intangible assets are reported in "Other assets" on the Balance Sheet. Loss Contingencies Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities in "Other liabilities" on the Balance Sheet. Associated legal expense is recorded in "Other non-interest expense" for the losses associated with the securities class action lawsuits, as described in "Note 19. Commitments and Contingencies," on the Income Statement. Such liabilities and associated expenses are recorded when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. The Company will also disclose a range of exposure to incremental loss when such amounts can be estimated and are reasonably possible to occur in future periods. In estimating the Company's exposure to loss contingencies, if an amount within the estimated range of loss is the best estimate, that amount will be accrued. However, if there is no amount within the estimated range of loss that is the best estimate, the Company will accrue the minimum amount within the range, and disclose the amount up to the high end of the range as an exposure to incremental loss, if such amount is considered reasonably possible. Such estimates are based on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability and records an adjustment to its estimate in the period in which the adjustment is probable and an amount or range can be reasonably estimated. The determination of an expected contingent liability and associated litigation expense requires the Company to make assumptions related to the outcome of these matters. Due to the inherent uncertainties of loss contingencies, the Company's estimates may be different than the actual outcomes. Legal fees, including legal fees associated with 90 --------------------------------------------------------------------------------LENDINGCLUB CORPORATION Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)loss contingencies, are recognized as incurred and included in "Professional services" expense on the Income Statement.
Stock-based Compensation
Stock-based compensation includes expense primarily associated with restricted stock units (RSUs) and performance-based restricted stock units (PBRSUs), as well as expense associated with stock issued related to acquisitions. Stock-based compensation expense is based on the grant date fair value of the award. The cost is generally recognized over the vesting period on a straight-line basis. Forfeitures are recognized as incurred.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. In making such a determination, the Company considers the available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not expected to be realized. If the Company determines that it is able to realize its deferred tax assets in the future in excess of the net recorded amount, the Company decreases the deferred tax asset valuation allowance, which reduces the provision for income taxes. Uncertain tax positions are recognized only when the Company believes it is more likely than not that the tax position will be upheld on examination by the taxing authorities based on the merits of the position. The Company recognizes interest and penalties, if any, related to uncertain tax positions in "Income tax expense (benefit)" on the Income Statement.
Net Income (Loss) Per Share
Basic net income (loss) per share (Basic EPS) attributable to common stockholders is computed by dividing net income (loss) attributable toLendingClub by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share (Diluted EPS) is computed by dividing net income (loss) attributable toLendingClub by the weighted-average number of common shares outstanding during the period, adjusted for the effects of dilutive issuances of shares of common stock, which predominantly include incremental shares issued for outstanding RSUs, PBRSUs, and stock options. PBRSUs are included in dilutive shares to the extent the pre-established performance targets have been or are estimated to be satisfied as of the reporting date. The dilutive potential common shares are computed using the treasury stock method. The effects of outstanding RSUs, PBRSUs, and stock options are excluded from the computation of Diluted EPS in periods in which the effect would be antidilutive. For periods with more than one class of common shares, the Company computes Basic and Diluted EPS using the two-class method, which is an allocation of net income (loss) among the holders of each class of common shares.
Beneficial Conversion Feature
The Company accounted for the beneficial conversion feature (BCF) on its Series A Preferred Stock in accordance with ASC 470-20, Debt with Conversion and Other Options. The Company accreted the BCF discount from the date of issuance to the earliest conversion date, which wasMarch 20, 2020 . All of the BCF discount was accreted 91 --------------------------------------------------------------------------------LENDINGCLUB CORPORATION Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
and initially recognized as a deemed dividend in "Accumulated deficit" on the
Balance Sheet. On January 1, 2022 , the Company adopted ASU 2020-06 under the
full retrospective approach. As a result of the adoption, the deemed dividend
was reclassified from "Accumulated Deficit" to "Additional Paid-in Capital ." See
"Adoption of New Accounting Standards" of this Note for additional information.
Consolidation of Variable Interest Entities
A VIE is a legal entity that has either a total equity investment that is insufficient to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest. The Company's variable interest arises from contractual, ownership or other monetary interests in the entity, which change with fluctuations in the fair value of the entity's net assets. A VIE is consolidated by its primary beneficiary, the party that has both the power to direct the activities that most significantly impact the VIE's economic performance, and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The Company consolidates a VIE when it is deemed to be the primary beneficiary. The Company assesses whether or not it is the primary beneficiary of a VIE on an ongoing basis.
Transfers of Financial Assets
The Company accounts for transfers of financial assets as sales when it has
surrendered control over the transferred assets. Control is generally considered
to have been surrendered when the transferred assets have been legally isolated
from the Company, the transferee has the right to pledge or exchange the assets
without any significant constraints, and the Company has not entered into a
repurchase agreement, does not hold unconditional call options and has not
written put options on the transferred assets. In assessing whether control has
been surrendered, the Company considers whether the transferee would be a
consolidated affiliate and the impact of all arrangements or agreements made
contemporaneously with, or in contemplation of the transfer, even if they were
not entered into at the time of transfer. The Company measures gain or loss on
sale of financial assets as the net proceeds received on the sale less the
carrying amount of the loans sold. The net proceeds of the sale represent the
fair value of any assets obtained or liabilities incurred as part of the
transaction, including, but not limited to servicing assets, retained
securities, and recourse obligations.
Transfers of financial assets that do not qualify for sale accounting are
reported as secured borrowings. Accordingly, the related assets remain on the
Company's Balance Sheet and continue to be reported and accounted for as if the
transfer had not occurred. Cash proceeds from these transfers are reported as
liabilities, with related interest expense recognized over the life of the
related assets.
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)Adoption of New Accounting Standards
The Company did not adopt any new accounting standards during the year ended
InAugust 2020 , theFinancial Accounting Standards Board (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 with characteristics of liabilities and equity including convertible instruments and contracts on an entity's own equity. The guidance allows for either full or modified retrospective adoption for fiscal periods beginning afterDecember 15, 2021 . The Company adopted this ASU onJanuary 1, 2022 under the full retrospective approach. As a result of the adoption, the deemed dividend recorded in the first quarter of 2020 related to the beneficial conversion feature of the convertible Series A Preferred Stock, was reclassified from Accumulated Deficit toAdditional Paid-in Capital within Equity, as shown in the following table: Additional Accumulated Year Ended December 31, 2020 Paid-in Capital Deficit
Issuance of preferred stock in exchange for common stock, as originally reported
$ 43 $ (50,204)
Adoption of ASU 2020-06 (50,204) 50,204
Issuance of preferred stock in exchange for common stock, as
adjusted $ (50,161) $ -
In addition, since the beneficial conversion feature is no longer recorded as a
deemed dividend, the allocation of net income (loss) attributable to
stockholders and the related Basic and Diluted net income (loss) per share (EPS)
has been adjusted, as shown in the following table:
Year Ended December 31, 2020 Common Stock Preferred Stock
Net income (loss) attributable to stockholders, as originally reported
$ (204,868) $ 17,330 Adoption of ASU 2020-06 43,262 (43,262) Net loss attributable to stockholders, as adjusted $
(161,606)
Basic and Diluted EPS, as originally reported$ (2.63) $ 1.39 Adoption of ASU 2020-06 0.56 (3.46) Basic and Diluted EPS, as adjusted $
(2.07) $ (2.07)
The adoption of this ASU did not impact the Company's financial position and
cash flows for the year ended
New Accounting Standards Not Yet Adopted
The FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which, if certain criteria are met, provide optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform. These transactions include, but are not limited to, contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity. The provisions of this topic are elective and may be applied prospectively as of the beginning of the reporting period when the election is made throughDecember 31, 2024 . The Company has plans to adopt this standard and concluded it does not have a material impact to the financial statements.
In
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
(TDRs) for creditors that have adopted the Current Expected Credit Losses (CECL)
model and amends the guidance on "vintage disclosures" to require disclosure of
current period gross write-offs by year of origination. The ASU also updates the
requirements related to accounting for credit losses under Accounting Standards
Codification 326 and adds enhanced disclosures for creditors with respect to
loan refinancings and restructurings for borrowers experiencing financial
difficulty. The provisions of this standard are effective for fiscal years
beginning after December 15, 2022 , including interim periods within those fiscal
years, with early adoption permitted. The Company plans to adopt this standard
prospectively on January 1, 2023 and does not expect it to have a material
impact to the financial statements.
2. Business Acquisition
On
Cash paid$ 140,256 Fair value of common stock issued (1) 40,808
Consideration related to share-based payments (2) 5,742 Total consideration paid
$ 186,806
(1) Calculated using the closing stock price of
(2) In connection with the Acquisition,LendingClub agreed to convert equity awards held by Radius employees into cash andLendingClub awards pursuant to the Plan of Merger. The Acquisition was accounted for as a purchase business combination. Accordingly, the assets acquired and liabilities assumed are presented at their fair values determined as of the Acquisition date. Determining fair value of identifiable assets, particularly intangibles, loans (including PCD loans), and liabilities acquired and assumed based on DCF analysis or other valuation techniques required management to make estimates that are highly subjective in nature based on available information. 94 --------------------------------------------------------------------------------LENDINGCLUB CORPORATION Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
The following table presents an allocation of the total consideration paid to
the fair value of the identifiable tangible and intangible assets acquired and
liabilities assumed:
Assets acquired:
Cash and due from banks $ 18,184
Interest-bearing deposits in banks 650,052
Total cash and cash equivalents 668,236
Securities available for sale at fair value 259,037 Loans and leases held for investment
1,589,054
Allowance for loan and lease losses (12,440)
Loans and leases held for investment, net 1,576,614 Property, equipment and software
1,926
Goodwill 75,717
Other assets 86,482
Total assets 2,668,012
Liabilities assumed:
Non-interest bearing deposits 146,187
Interest-bearing deposits 1,862,272
Total deposits 2,008,459
Short-term borrowings 9,870
Advances from PPPLF 420,962
Other long-term debt 18,630
Other liabilities 23,285
Total liabilities 2,481,206
Total consideration paid $ 186,806
The table below presents certain unaudited pro forma financial information for
illustrative purposes only, for the years ended December 31, 2021 and 2020, as
if the Acquisition took place on January 1, 2020 . The pro forma information
combines the historical results of Radius with the Company's, adjusting for the
estimated impact of certain fair value adjustments for the respective periods.
The pro forma information does not reflect changes to the provision for credit
losses resulting from recording loan assets as fair value, cost savings, or
business synergies. As a result, actual amounts would have differed from the
unaudited pro forma information presented and the differences could be
significant.
Year Ended December 31, 2021 2020
Total net revenue $ 825,701 $ 392,377
Net income (loss) $ 11,644 $ (190,120) For the year ended
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)3. Marketplace Revenue
Marketplace revenue consists of (i) origination fees, (ii) servicing fees, (iii) gain (loss) on sales of loans and (iv) net fair value adjustments, as described below.
Origination Fees: Origination fees are primarily fees earned related to originating and issuing unsecured personal loans that are held for sale.
Servicing Fees: The Company receives servicing fees to compensate it for servicing loans on behalf of investors, including managing payments and collections from borrowers and payments to those investors. The amount of servicing fee revenue earned is predominantly affected by the servicing rates paid by investors and the outstanding principal balance of loans serviced for investors. Servicing fee revenue related to loans sold also includes the associated change in the fair value of servicing assets. Gain (Loss) on Sales of Loans: In connection with loan sales the Company recognizes a gain or loss on the sale of loans based on the level to which the contractual servicing fee is above or below an estimated market rate of servicing. Additionally, the Company recognizes transaction costs, if any, as a loss on sale of loans. Net Fair Value Adjustments: The Company records fair value adjustments on loans that are recorded at fair value, including gains or losses from sale prices in excess of or less than the loan principal amount sold. The following table presents components of marketplace revenue for the periods presented: Year Ended December 31, 2022 2021 2020 Origination fees$ 499,179 $ 416,839 $ 207,640 Servicing fees 80,609 87,639 111,864 Gain on sales of loans 95,335 70,116 30,812 Net fair value adjustments 8,503 3,986 (105,002) Total marketplace revenue$ 683,626 $ 578,580 $ 245,314 96
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)4. Net Income (Loss) Per Share
The following table details the computation of the Company's Basic and Diluted EPS of common stock and Series A Preferred Stock:
Year Ended December 31, 2022 2021 2020(1)
Preferred Preferred
Common Stock Common Stock Stock(2) Common Stock Stock(2)
Basic EPS:
Net income (loss) attributable to
stockholders $ 289,685 $
18,456
97,486,754 653,118 77,934,302 12,505,393 Basic EPS$ 2.80 $ 0.19 $ 0.19 $ (2.07) $ (2.07) Diluted EPS: Net income (loss) attributable to stockholders$ 289,685 $
18,580 $ -
102,147,353 - 77,934,302 12,505,393 Diluted EPS$ 2.79 $ 0.18 $ 0.00 $ (2.07) $ (2.07)
(1) Reflects the full retrospective adoption of Accounting Standards Update (ASU) 2020-06. See "Note 1. Summary of Significant Accounting Policies" for additional information.
(2) Presented on an as-converted basis.
InFebruary 2020 , the Company entered into an exchange agreement with its largest stockholder,Shanda Asset Management Holdings Limited and its affiliates (Shanda), pursuant to which, onMarch 20, 2020 , Shanda exchanged all of 19,562,881 shares ofLendingClub common stock, par value of$0.01 per share, held by it for (i) 195,628 newly issued shares of mandatorily convertible, non-voting, Series A Preferred Stock, par value of$0.01 per share, and (ii) a one-time cash payment of$50.2 million . The Series A Preferred Stock is considered a separate class of common shares for purposes of calculating EPS because it participates in earnings similar to common stock and does not receive any significant preferences over the common stock. As a result of the preferred stock outstanding during 2020 and the first quarter of 2021, Basic and Diluted EPS were computed using the two-class method, which is a net income (loss) allocation that determines EPS for each class of common stock according to dividends declared and participation rights in undistributed income (loss). Shanda sold the remainder of its preferred stock during the first quarter of 2021 and, therefore, there were no shares of preferred stock outstanding as ofMarch 31, 2021 . There were no weighted-average common shares that were excluded from the Company's Diluted EPS computation for the years endedDecember 31, 2022 and 2021. The following table summarizes the weighted-average common shares that were excluded from the Company's Diluted EPS computation because their effect would have been anti-dilutive for the year endedDecember 31, 2020 : Preferred stock
12,505,393
Restricted stock units (RSUs) and Performance-based RSUs (PBRSUs) 299,747
Stock options 221,949
Total 13,027,089
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)5. Securities Available for Sale
The amortized cost, gross unrealized gains and losses, and fair value of AFS
securities were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 2022 Cost Gains Losses Value
U.S. agency residential mortgage-backed
securities $ 255,675 $ - $ (41,248) $ 214,427
U.S. agency securities 90,447 - (16,053) 74,394
Commercial mortgage-backed securities 26,988 - (4,470) 22,518
Other asset-backed securities 14,959 29 (785) 14,203
Asset-backed senior securities 5,248 - - 5,248
Asset-backed subordinated securities 2,020 5,587 - 7,607
CLUB Certificate asset-backed securities 1,054 3,808 - 4,862
Municipal securities 3,277 - (834) 2,443
Total securities available for sale (1) $ 399,668 $ 9,424 $ (63,390) $ 345,702
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 2021 Cost Gains Losses Value
U.S. agency residential mortgage-backed
securities $ 125,985 $ - $ (2,286) $ 123,699
Asset-backed senior securities 28,057 72 - 28,129
U.S. agency securities 26,902 1 (731) 26,172
Other asset-backed securities 26,112 151 (130) 26,133
Commercial mortgage-backed securities 26,649 1 (552) 26,098
CLUB Certificate asset-backed securities 15,049 3,236 - 18,285
Asset-backed subordinated securities 4,119 7,643 - 11,762
Municipal securities 3,297 - (45) 3,252
Total securities available for sale (1)
(1) As of
98
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
A summary of AFS securities with unrealized losses for which a credit valuation
allowance has not been recorded aggregated by period of continuous unrealized
loss, is as follows:
Less than 12 months
12 months or longer Total
Fair Unrealized Fair Unrealized Fair Unrealized
December 31, 2022 Value Losses Value Losses Value Losses
U.S. agency securities 50,352 (7,213) 24,042 (8,840) 74,394 (16,053) Commercial mortgage-backed securities 2,441 (229) 20,077 (4,241) 22,518 (4,470) Other asset-backed securities 4,086 (73) 6,945 (712) 11,031 (785) Municipal securities - - 2,443 (834) 2,443 (834) Total securities with unrealized losses$ 168,722 $ (23,346)
Less than 12 months
12 months or longer Total
Fair Unrealized Fair Unrealized Fair Unrealized
December 31, 2021 Value Losses Value Losses Value Losses
24,175 (731) - - 24,175 (731)
Other asset-backed securities 13,224 (130) - - 13,224 (130)
Commercial mortgage-backed
securities 25,927 (552) - - 25,927 (552)
Municipal securities 3,252 (45) - - 3,252 (45)
Total securities with unrealized
losses $ 190,246 $ (3,744) $ - $ - $ 190,246 $ (3,744)
At December 31, 2022 , the majority of the Company's AFS investment portfolio was
comprised of U.S. agency-backed securities. Management considers these
securities to be of the highest credit quality and rating given the guarantee of
principal and interest by certain U.S. government agencies. The remaining
securities in an unrealized loss position in the Company's AFS investment
portfolio at December 31, 2022 , were rated investment grade. Substantially all
of these unrealized losses in the AFS investment portfolio were caused by
interest rate increases. The Company does not intend to sell the investment
portfolio, and it is not more likely than not that it will be required to sell
any investment before recovery of its amortized cost basis. For a description of
management's quarterly evaluation of AFS securities in an unrealized loss
position, see "Note 1. Summary of Significant Accounting Policies."
There was no activity in the allowance for AFS securities during 2022. The following tables present the activity in the credit valuation allowance for AFS securities, by major security type, during 2021 and 2020:
CLUB Certificate Asset-backed
asset-backed subordinated
Credit Valuation Allowance securities securities Total
Beginning balance as of December 31, 2020 $ (4,190) $ (14,546) $ (18,736)
Reversal of credit loss expense 236 3,146 3,382
Reversal of allowance arising from PCD
financial assets 3,954 11,400 15,354
Ending balance as of December 31, 2021 $ - $ - $ -
99
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
CLUB Certificate Asset-backed
asset-backed subordinated
Credit Valuation Allowance securities securities Total
Beginning balance as of January 1, 2020 $ - $ - $ -
Provision for credit loss expense (236) (3,146) (3,382)
Allowance arising from PCD financial assets (3,954) (11,400) (15,354)
Ending balance as of December 31, 2020 $ (4,190) $
(14,546)
There were no AFS securities purchased with credit deterioration during the
years ended
Year Ended
2020
Purchase price of PCD securities at acquisition $ 27,034 Credit valuation allowance on PCD securities at acquisition 15,354 Par value of acquired PCD securities at acquisition $ 42,388
The contractual maturities of AFS securities were as follows:
Weighted-
average
December 31, 2022 Amortized Cost Fair Value Yield(1)
Due after 1 year through 5 years:
U.S. agency securities $ 9,000 $ 8,642
Commercial mortgage-backed securities 1,035
917
Total due after 1 year through 5 years 10,035 9,559 3.33 % Due after 5 years through 10 years:U.S. agency residential mortgage-backed securities $ 6,232 $
5,818
Other asset-backed securities 566
571
Commercial mortgage-backed securities 2,853 2,374 U.S. agency securities 12,847 11,235 Municipal securities 624 535 Total due after 5 years through 10 years 23,122 20,533 2.69 % Due after 10 years:U.S. agency residential mortgage-backed securities 249,443
208,609
Other asset-backed securities 14,393
13,632
Commercial mortgage-backed securities 23,100 19,227 U.S. agency securities 68,600 54,517 Municipal securities 2,653 1,908 Total due after 10 years 358,189 297,893 2.47 % Asset-backed securities related to Structured Program transactions 8,322 17,717 83.81 % Total securities available for sale$ 399,668 $ 345,702 5.47 %
(1) The weighted-average yield is computed using the amortized cost at
100
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)There were no sales of AFS securities during 2022. Proceeds and gross realized gains and losses from AFS securities during 2021 and 2020 were as follows:
Year Ended December 31, 2021 2020
Proceeds $ 106,192 $ 6,217
Gross realized gains $ 708 $ 14
Gross realized losses $ (952) $ (3) 6. Loans and Leases Held for Investment at Amortized Cost, Net of Allowance for Loan and Lease Losses
LendingClub records certain loans and leases HFI at amortized cost, whereas certain HFI and all HFS loans are recorded at fair value with the Company's election of the fair value option. Accrued interest receivable is excluded from the amortized cost basis of loans and leases HFI and is reported within "Other assets" on the Balance Sheet. Net accrued interest receivable related to loans and leases HFI at amortized cost was$27.9 million and$15.6 million as ofDecember 31, 2022 and 2021, respectively.
Loans and Leases Held for Investment at Amortized Cost
The Company defines its loans and leases HFI portfolio segments as (i) consumer and (ii) commercial. The following table presents the components of each portfolio segment by class of financing receivable:
December 31, 2022 December 31, 2021
Unsecured personal $ 3,866,373 $ 1,804,578
Residential mortgages 199,601 151,362
Secured consumer 194,634 65,976
Total consumer loans held for investment 4,260,608 2,021,916
Equipment finance (1) 160,319 149,155
Commercial real estate 373,501 310,399
Commercial and industrial (2) 238,726 417,656
Total commercial loans and leases held for investment 772,546 877,210
Total loans and leases held for investment 5,033,154 2,899,126
Allowance for loan and lease losses (327,852) (144,389)
Loans and leases held for investment, net (3)
$ 2,754,737 (1) Comprised of sales-type leases for equipment. See "Note 18. Leases" for additional information. (2) Includes$67.0 million and$268.3 million of pledged loans under the Paycheck Protection Program (PPP), as ofDecember 31, 2022 and 2021, respectively. (3) As ofDecember 31, 2022 and 2021, the Company had$283.6 million and$149.2 million in loans pledged as collateral under the FRB Discount Window, respectively. In addition, as ofDecember 31, 2022 , the Company had$156.2 million in loans pledged to the FHLB ofDes Moines . There were no loans pledged to FHLB ofDes Moines as ofDecember 31, 2021 . 101 -------------------------------------------------------------------------------- LENDINGCLUB CORPORATION Notes to Consolidated Financial Statements (Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted) Allowance Ratios December 31, 2022 Gross ALLL Net (1)
Total consumer loans held for investment
$ 3,948,119 7.3 % Total commercial loans and leases held for investment (2) 772,546 15,363 757,183 2.0 %
Total loans and leases held for investment (2)
$ 4,705,302 6.5 % Allowance Ratios December 31, 2021 Gross ALLL Net (1)
Total consumer loans held for investment
$ 1,893,104 6.4 % Total commercial loans and leases held for investment (2) 877,210 15,577 861,633 1.8 %
Total loans and leases held for investment (2) 2,899,126
$ 2,754,737 5.0 % (1) Calculated as the ratio of ALLL to loans and leases HFI at amortized cost. (2) As ofDecember 31, 2022 , excluding the$67.0 million of PPP loans, the ALLL represented 2.2% of commercial loans and leases HFI and 6.6% of total loans and leases HFI at amortized cost. As ofDecember 31, 2021 , excluding the$268.3 million of PPP loans, the ALLL represented 2.6% of commercial loans and leases HFI and 5.5% of total loans and leases HFI at amortized cost. PPP loans are guaranteed by theSmall Business Administration (SBA) and, therefore, the Company determined no ACL is required on these loans.
The activity in the ACL by portfolio segment was as follows:
Year Ended December 31, 2022 2021
Consumer Commercial Total Consumer Commercial Total
Allowance for loan and lease
losses, beginning of period $ 128,812 $ 15,577 $ 144,389 $ - $ - $ -
Credit loss expense for loans and
leases held for investment (1) 265,359 1,320 266,679 136,789 4,162 140,951
Initial allowance for PCD loans
acquired during the period (2) - - - 603 11,837 12,440
Charge-offs (3) (85,247) (2,226) (87,473) (8,789) (1,663) (10,452)
Recoveries 3,565 692 4,257 209 1,241 1,450
Allowance for loan and lease
losses, end of period $ 312,489 $ 15,363 $ 327,852 $ 128,812 $ 15,577 $ 144,389
Reserve for unfunded lending
commitments, beginning of period $ - $ 1,231 $ 1,231 $ - $ - $ - Credit loss expense for unfunded lending commitments
18 629 647 - 1,231 1,231
Reserve for unfunded lending
commitments, end of period (4) $ 18 $ 1,860 $
1,878 $ -
(1) Includes$6.9 million of credit loss expense for Radius loans at Acquisition for the year endedDecember 31, 2021 . (2) For acquired PCD loans, an ACL of$30.4 million was required with a corresponding increase to the amortized cost basis as of the acquisition date during the year endedDecember 31, 2021 . 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, an ACL of$18.0 million included as part of the grossed-up loan balance at Acquisition was immediately written-off during the year endedDecember 31, 2021 . The net impact to the allowance for PCD assets on the acquisition date was$12.4 million . (3) Unsecured personal loans are charged-off when a borrower is (i) contractually 120 days past due or (ii) two payments past due and has filed for bankruptcy or is deceased. 102 --------------------------------------------------------------------------------LENDINGCLUB CORPORATION Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
(4) Relates to
Consumer Lending Credit Quality Indicators
The Company evaluates the credit quality of its consumer loan portfolio based on the aging status of the loan and by payment activity. Loan delinquency reporting is based upon borrower payment activity relative to the contractual terms of the loan. The following tables present the classes of financing receivables within the consumer portfolio segment by credit quality indicator based on delinquency status and origination year:December 31, 2022 Term
Loans and Leases by Origination Year
2022 2021 2020 2019 2018 Prior Total
Unsecured personal
Current $ 2,835,460 $ 977,224 $ - $ - $ - $ - $ 3,812,684
30-59 days past due 11,149 9,867 - - - - 21,016
60-89 days past due 7,785 8,633 - - - - 16,418
90 or more days past due 6,813 9,442 - - - - 16,255
Total unsecured personal 2,861,207 1,005,166 - - - -
3,866,373
Residential mortgages Current 49,721 58,353 31,465 21,683 4,546 33,248 199,016 30-59 days past due - - - - - - - 60-89 days past due - - - - - 254 254 90 or more days past due - - - - - 331 331 Total residential mortgages 49,721 58,353 31,465 21,683 4,546 33,833 199,601 Secured consumer Current 151,725 38,076 - 2,543 - - 192,344 30-59 days past due 1,017 703 - - - - 1,720 60-89 days past due 235 147 - - - -
382
90 or more days past due 116 72 - - - -
188
Total secured consumer 153,093 38,998 - 2,543 - -
194,634
Total consumer loans held for investment$ 3,064,021 $ 1,102,517 $ 31,465 $ 24,226 $ 4,546 $ 33,833 $ 4,260,608 December 31, 2021 Term Loans and
Leases by Origination Year
Within
Revolving
2021 2020 2019 2018 2017 Prior Period TotalUnsecured personal Current$ 1,796,678 $ - $ - $ - $ - $ - $ -$ 1,796,678 30-59 days past due 3,624 - - - - - - 3,624 60-89 days past due 2,600 - - - - - - 2,600 90 or more days past due 1,676 - - - - - - 1,676 Total unsecured personal 1,804,578 - - - - - - 1,804,578 Residential mortgages Current 36,732 37,620 26,798 7,277 2,682 37,685 1,265 150,059 30-59 days past due - - - - - 142 - 142 60-89 days past due - - - - 92 - - 92 90 or more days past due - - - - 251 818 - 1,069 Total residential mortgages 36,732 37,620 26,798 7,277 3,025 38,645 1,265 151,362 Secured consumer Current 62,731 - - - - - 10 62,741 30-59 days past due 171 - - - - - - 171 60-89 days past due 53 - - - - - - 53 90 or more days past due - - - 2,629 382 - - 3,011 Total secured consumer 62,955 - - 2,629 382 - 10 65,976 Total consumer loans held for investment$ 1,904,265 $ 37,620 $
26,798$ 9,906 $ 3,407 $ 38,645 $ 1,275 $ 2,021,916 103
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)Commercial Lending Credit Quality Indicators
The Company evaluates the credit quality of its commercial loan portfolio based on regulatory risk ratings. The Company categorizes loans and leases into risk ratings based on relevant information about the quality and realizable value of collateral, if any, and the ability of borrowers to service their debts, such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans and leases individually by classifying the loans and leases based on their associated credit risk and performs this analysis whenever credit is extended, renewed or modified, or when an observable event occurs indicating a potential decline in credit quality, and no less than annually for large balance loans. Risk rating classifications consist of the following:
Pass - Loans and leases that the Company believes will fully repay in accordance with the contractual loan terms.
Special Mention - Loans and leases with a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the Company's credit position at some future date.
Substandard - Loans and leases that are inadequately protected by the current sound worth and paying capacity of the obligator or of the collateral pledged, if any. Loans and leases so classified have a well-defined weakness or weaknesses that jeopardize the repayment and liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Normal payment from the borrower is in jeopardy, although loss of principal, while still possible, is not imminent. Doubtful - Loans and leases that have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.
Loss - Loans and leases that are considered uncollectible and of little value.
104
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)The following tables present the classes of financing receivables within the commercial portfolio segment by risk rating and origination year:
December 31, 2022 Term
Loans and Leases by Origination Year
2022 2021 2020 2019 2018 Prior Total
Equipment finance
Pass $ 59,227 $ 38,218 $ 25,014 $ 15,785 $ 11,880 $ 3,444 $ 153,568
Special mention - 2,094 - 3,759 - - 5,853
Substandard - - 859 - 39 - 898
Doubtful - - - - - - -
Loss - - - - - - -
Total equipment finance 59,227 40,312 25,873 19,544 11,919 3,444 160,319
Commercial real estate
Pass 100,602 53,445 47,497 52,834 35,992 60,976 351,346
Special mention - - 8,415 260 1,237 405 10,317
Substandard - - - 643 2,404 8,215 11,262
Doubtful - - - - - - -
Loss - - - - - 576 576
Total commercial real estate 100,602 53,445 55,912 53,737 39,633 70,172 373,501
Commercial and industrial
Pass 61,076 99,264 24,726 13,866 5,174 10,831 214,937
Special mention - - - 483 163 455 1,101
Substandard - 9,361 4,529 3,623 797 2,820 21,130
Doubtful - - - - - 286 286
Loss - - - - 1 1,271 1,272
Total commercial and
industrial (1) 61,076 108,625 29,255 17,972 6,135 15,663 238,726
Total commercial loans and
leases held for investment $ 220,905 $ 202,382 $ 111,040 $ 91,253 $ 57,687 $ 89,279 $ 772,546
(1) Includes $67.0 million of PPP loans.
105
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
December 31, 2021 Term Loans and Leases by Origination Year
Within Revolving
2021 2020 2019 2018 2017 Prior Period Total
Equipment finance
Pass $ 52,440 $ 35,398 $ 26,918 $ 15,457 $ 6,184 $ 8,814 $ - $ 145,211
Special mention 1,531 - 1,810 - - - - 3,341
Substandard - - - 603 - - - 603
Doubtful - - - - - - - -
Loss - - - - - - - -
Total equipment
finance 53,971 35,398 28,728 16,060 6,184 8,814 - 149,155
Commercial real
estate
Pass 55,613 55,202 54,460 39,981 22,366 57,235 - 284,857
Special mention - 8,397 - 1,366 1,018 7,242 - 18,023
Substandard - - 277 2,496 - 4,179 - 6,952
Doubtful - - - - - - - -
Loss - - - - - 567 - 567
Total commercial
real estate 55,613 63,599 54,737 43,843 23,384 69,223 - 310,399
Commercial and industrial
Pass 241,368 108,574 24,106 7,874 14,756 8,058 599 405,335
Special mention - - 2,207 463 1,467 40 - 4,177
Substandard - 1,122 862 1,858 1,525 1,571 87 7,025
Doubtful - - - - - - - -
Loss - - - 52 4 1,063 - 1,119
Total commercial
and industrial (1) 241,368 109,696 27,175 10,247 17,752 10,732 686 417,656
Total commercial
loans and leases
held for investment $ 350,952 $ 208,693 $ 110,640 $ 70,150 $ 47,320 $ 88,769 $ 686 $ 877,210 (1) Includes
The following tables present an analysis of the past due loans and leases HFI at amortized cost within the commercial portfolio segment:
30-59 60-89 90 or More Total Days
December 31, 2022 Days Days Days Past Due
Equipment finance $ 3,172 $ - $ 859 $ 4,031
Commercial real estate - 102 - 102
Commercial and industrial (1) - - 1,643 1,643
Total commercial loans and leases held for
investment $ 3,172 $ 102 $ 2,502 $ 5,776
30-59 60-89 90 or More Total Days
December 31, 2021 Days Days Days Past Due
Equipment finance $ - $ - $ - $ -
Commercial real estate 104 - 609 713
Commercial and industrial (1) - - 1,410 1,410
Total commercial loans and leases held for
investment $ 104 $ - $ 2,019 $ 2,123
(1) Past due PPP loans are excluded from the tables.
Nonaccrual Assets
Nonaccrual loans and leases are those for which accrual of interest has been
suspended. Loans and leases are generally placed on nonaccrual status when
contractually past due 90 days or more, or earlier if management believes that
the probability of collection does not warrant further accrual, and are
charged-off no later than 120 days past due.
106
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)The following table presents nonaccrual loans and leases:
Year Ended December 31, 2022 2021
Nonaccrual with no Nonaccrual with no
Nonaccrual(1) related ACL(2) Nonaccrual(1) related ACL(2)
Unsecured personal $ 16,255 $ - $ 1,676 $ -
Residential mortgages 331 331 1,373 1,373
Secured consumer 188 - 3,011 3,011
Total nonaccrual consumer loans held 16,774 331 6,060 4,384
for investment
Equipment finance 898 39 603 -
Commercial real estate 1,018 1,018 989 989
Commercial and industrial 16,137 1,229 2,333 1,061
Total nonaccrual commercial loans and
leases held for investment 18,053 2,286 3,925 2,050
Total nonaccrual loans and leases held
for investment $ 34,827 $
2,617
(1) Excluding PPP loans, there were no loans and leases that were 90 days or
more past due and accruing as of both
Year Ended December 31, 2022 2021
Nonaccrual Nonaccrual Ratios(1) Nonaccrual Nonaccrual Ratios(1)
Total nonaccrual consumer loans held
for investment $ 16,774 0.4 % $ 6,060 0.3 %
Total nonaccrual commercial loans and
leases held for investment 18,053 2.3 % 3,925 0.4 %
Total nonaccrual loans and leases held
for investment (2) $ 34,827 0.7 % $ 9,985 0.3 %
(1) Calculated as the ratio of nonaccruing loans and leases to loans and
leases HFI at amortized cost.
(2) Nonaccruing loans and leases represented 0.7% and 0.4% of total loans and
leases HFI at amortized cost, excluding PPP loans, as of December 31, 2022 and
2021, respectively.
Collateral-Dependent Assets
Certain loans on non-accrual status and certain TDR loans may be considered collateral-dependent loans if the borrower is experiencing financial difficulty and repayment of the loan is expected to be substantially through sale or operation of the collateral. Expected credit losses for the Company's collateral-dependent loans are calculated as the difference between the amortized cost basis and the fair value of the underlying collateral less costs to sell, if applicable.
Purchased Financial Assets with Credit Deterioration
Acquired loans are recorded at their fair value, which may result in the
recognition of a discount or premium. In addition, the purchase price of PCD
loans is grossed-up upon acquisition for the initial estimate of ACL. Subsequent
changes to the ACLs are recorded as additions to or reversals of credit losses
on the Income Statement.
107
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)There were no acquired PCD loans during 2022. Acquired PCD loans during 2021 were as follows:
Purchase price$ 337,118 Allowance for credit losses (1) 30,378
Discount attributable to other factors 12,204 Par value
$ 379,700 (1) For acquired PCD loans, an ACL of$30.4 million was required with a corresponding increase to the amortized cost basis as of the acquisition date during the year endedDecember 31, 2021 . 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, an ACL of$18.0 million included as part of the grossed-up loan balance at acquisition was immediately written-off during the year endedDecember 31, 2021 . The net impact to the allowance for PCD assets on the acquisition date was$12.4 million .
7. Securitizations and Variable Interest Entities
For additional information regarding the consolidation of VIEs, see "Note 1. Summary of Significant Accounting Policies."
VIE Assets and Liabilities
The following tables provide the classifications of assets and liabilities on the Balance Sheet for the Company's transactions with consolidated and unconsolidated VIEs. The Company's transactions with unconsolidated VIEs include Structured Program transactions. The Company has various forms of involvement with VIEs, including servicing of loans and holding senior or subordinated residual interests in the VIEs. Additionally, the assets and liabilities in the tables below exclude intercompany balances that eliminate in consolidation: December 31, 2022 Consolidated VIEs Unconsolidated VIEs Total Assets Restricted cash $ 8,048 $ -$ 8,048 Securities available for sale at fair value - 17,717 17,717 Loans held for investment at fair value 3,994 - 3,994 Retail and certificate loans held for investment at fair value 1,946 - 1,946 Other assets 206 10,464 10,670 Total assets $ 14,194 $ 28,181$ 42,375 Liabilities Retail notes, certificates and secured borrowings at fair value $ 1,946 $ -$ 1,946 Payable on Structured Program borrowings 8,085 - 8,085 Other liabilities 29 - 29 Total liabilities 10,060 - 10,060 Total net assets $ 4,134 $ 28,181$ 32,315 108
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
December 31, 2021 Consolidated VIEs Unconsolidated VIEs Total
Assets
Restricted cash $ 13,462 $ - $ 13,462
Securities available for sale at fair value - 58,177 58,177
Loans held for sale at fair value 41,734 - 41,734
Loans held for investment at fair value 20,929 - 20,929
Retail and certificate loans held for investment
at fair value 10,281 - 10,281
Other assets 584 17,156 17,740
Total assets $ 86,990 $ 75,333 $ 162,323
Liabilities
Retail notes, certificates and secured borrowings
at fair value $ 10,281 $ - $ 10,281
Payable on Structured Program borrowings 65,451 - 65,451
Other liabilities 467 - 467
Total liabilities 76,199 - 76,199
Total net assets $ 10,791 $ 75,333 $ 86,124
The remaining principal balance of loans held by unconsolidated VIEs was
$457.8 million and $1.4 billion as of December 31, 2022 and 2021, respectively.
For unconsolidated VIEs, "Total net assets" indicates the Company's maximum
exposure to loss, however, the balance continues to decline due to the ongoing
paydown of loan balances from prior Structured Program transactions. Maximum
exposure represents estimated loss that would be incurred under severe,
hypothetical circumstances, for which the Company believes the possibility is
extremely remote, such as where the value of interests and any associated
collateral declines to zero. Accordingly, this required disclosure is not an
indication of expected losses.
The following table summarizes activity related to the Unconsolidated Trusts and
Certificate Program trusts, with the transfers accounted for as a sale on the
Company's financial statements:
Year Ended December 31, 2022 2021 2020
Principal derecognized from loans securitized
or sold $ 41,023 $ - $ 1,226,941
Net gains recognized from loans securitized or
sold $ 259 $ - $ 7,877
Fair value of asset-backed senior and
subordinated securities, and CLUB Certificate
asset-backed securities retained upon
settlement $ 2,180 $ - $ 48,543
Cash proceeds $ 15,903 $ 32,722 $ 893,774
Proceeds from sale of securities by
consolidated VIE $ 5,320 $ - $ -
The Company and other investors in the subordinated interests issued by
unconsolidated trusts and Certificate Program trusts have rights to cash flows
only after the investors holding the senior securities issued by the trusts have
first received their contractual cash flows. The investors and the trusts have
no direct recourse to the Company's assets, and holders of the securities issued
by the trusts can look only to the assets of the securitization trusts that
issued their securities for payment. The beneficial interests held by the
Company are subject principally to the credit and prepayment risk stemming from
the underlying unsecured personal loans.
Off-Balance Sheet Loans
Off-balance sheet loans pursuant to unconsolidated VIE's primarily relate to Structured Program transactions for which the Company has some form of continuing involvement, including as servicer.
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Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
As of December 31, 2022 , the aggregate unpaid principal balance of the
off-balance sheet loans related to Structured Program transactions was
$433.5 million , of which $14.8 million was attributable to off-balance sheet
loans that were 31 days or more past due. As of December 31, 2021 , the aggregate
unpaid principal balance of the off-balance sheet loans related to Structured
Program transactions was $1.3 billion , of which $35.0 million was attributable
to off-balance sheet loans that were 31 days or more past due. For such loans,
the Company would only experience a loss if it was required to repurchase a loan
due to a breach in representations and warranties associated with its loan sale
or servicing contracts.
8. Fair Value of Assets and Liabilities
For a description of the fair value hierarchy and the Company's fair value methodologies, see "Note 1. Summary of Significant Accounting Policies." The Company records certain assets and liabilities at fair value as listed in the following tables.
Financial Instruments, Assets and Liabilities Recorded at Fair Value
The following tables present the fair value hierarchy for assets and liabilities
measured at fair value:
Balance at
December 31, 2022 Level 1 Inputs Level 2 Inputs Level 3 Inputs Fair Value
Assets:
Loans held for sale at fair value $ - $
-
- - 925,938 925,938
Retail and certificate loans held for
investment at fair value - - 55,425 55,425
Securities available for sale:
U.S. agency residential mortgage-backed
securities - 214,427 - 214,427
U.S. agency securities - 74,394 - 74,394
Commercial mortgage-backed securities - 22,518 - 22,518
Other asset-backed securities - 14,203 - 14,203
Asset-backed senior securities and
subordinated securities - 5,248 7,607 12,855
CLUB Certificate asset-backed securities - - 4,862 4,862
Municipal securities - 2,443 - 2,443
Total securities available for sale - 333,233 12,469 345,702
Servicing assets - - 84,308 84,308
Other assets - - 5,099 5,099
Total assets $ - $ 333,233 $ 1,193,639 $ 1,526,872
Liabilities:
Retail notes, certificates and secured
borrowings $ - $ - $ 55,425 $ 55,425 Payable on Structured Program borrowings
- - 8,085 8,085
Other liabilities - - 8,583 8,583
Total liabilities $ - $ - $ 72,093 $ 72,093
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Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
Balance at Fair
December 31, 2021 Level 1 Inputs Level 2 Inputs Level 3 Inputs Value
Assets:
Loans held for sale at fair value $ - $
- $ 142,370 $ 142,370 Loans held for investment at fair value
- - 21,240 21,240
Retail and certificate loans held for
investment at fair value - - 229,719 229,719
Securities available for sale:
U.S. agency residential mortgage-backed
securities - 123,699 - 123,699
Asset-backed senior securities and
subordinated securities - 28,129 11,762 39,891
U.S. agency securities - 26,172 - 26,172
Other asset-backed securities - 26,133 - 26,133
Commercial mortgage-backed securities - 26,098 - 26,098
CLUB Certificate asset-backed securities - - 18,285 18,285
Municipal securities - 3,252 - 3,252
Total securities available for sale - 233,483 30,047 263,530
Servicing assets - - 67,726 67,726
Other assets - 2,812 3,312 6,124
Total assets $ - $ 236,295 $ 494,414 $ 730,709
Liabilities:
Retail notes, certificates and secured
borrowings $ - $ - $ 229,719 $ 229,719 Payable on Structured Program borrowings
- - 65,451 65,451
Other liabilities - - 12,911 12,911
Total liabilities $ - $ - $ 308,081 $ 308,081
Financial instruments are categorized in the valuation hierarchy based on the
significance of observable or unobservable factors in the overall fair value
measurement. For the financial instruments listed in the tables above that do
not trade in an active market with readily observable prices, the Company uses
significant unobservable inputs to measure the fair value of these assets and
liabilities. These fair value estimates may also include observable, actively
quoted components derived from external sources. As a result, changes in fair
value for assets and liabilities within the Level 2 or Level 3 categories may
include changes in fair value that were attributable to observable and
unobservable inputs, respectively. The Company primarily uses a discounted cash
flow model to estimate the fair value of Level 3 instruments based on the
present value of estimated future cash flows. This model uses inputs that are
inherently judgmental and reflect the Company's best estimates of the
assumptions a market participant would use to calculate fair value. The Company
did not transfer any assets or liabilities in or out of Level 3 during the years
ended December 31, 2022 and 2021.
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)Loans Held for Sale at Fair Value
As of both December 31, 2022 and 2021, the majority of loans HFS were sold shortly after origination and at committed prices. Therefore, the Company is generally not exposed to fair value fluctuations to the committed prices as a result of adverse changes in key assumptions.
Fair Value Reconciliation
The following table presents additional information about Level 3 loans HFS at fair value on a recurring basis: Balance at December 31, 2020 $ 121,902 Originations and purchases 7,506,066 Sales (7,381,509) Principal payments (103,028) Fair value adjustments recorded in earnings (1,061) Balance at December 31, 2021 $ 142,370 Originations and purchases 9,045,701 Sales (9,039,892) Principal payments (31,253) Transfers(1) (11,907) Fair value adjustments recorded in earnings 5,381 Balance at December 31, 2022 $ 110,400 (1) Represents non-cash activity.
Loans Held for Investment at Fair Value
Loans HFI at fair value consist primarily of a $1.05 billion outstanding principal loan portfolio that was acquired at the end of 2022. Due to the short remaining duration of the acquired loan portfolio, the Company has elected to account for the HFI loan portfolio under the fair value option. Prior year comparative disclosures related to significant unobservable inputs and fair value sensitivities for loans HFI are not presented below as the comparability between periods would not be meaningful given that the current period consists primarily of the aforementioned acquired loan portfolio.
Significant Unobservable Inputs
The following table presents quantitative information about the significant unobservable inputs used for the Company's Level 3 loans HFI at fair value:
December 31, 2022
Weighted-
Minimum Maximum Average
Discount rates 8.8 % 17.1 % 12.7 %
Net cumulative expected loss rates (1) 2.1 % 9.8 % 5.7 %
Cumulative expected prepayment rates (1) 26.2 % 35.3 % 30.8 %
(1) Expressed as a percentage of the acquired principal balance of the loan.
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Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)Significant Recurring Level 3 Fair Value Input Sensitivity
The sensitivity of loans HFI at fair value to adverse changes in key assumptions are as follows:
December 31, 2022
Loans held for investment at fair value $ 925,938
Expected weighted-average life (in years) 0.9
Discount rates:
100 basis point increase $ (7,471)
200 basis point increase $ (14,830)
Expected credit loss rates on underlying loans:
10% increase $ (5,574)
20% increase $ (11,307)
Expected prepayment rates:
10% increase $ (4,311)
20% increase $ (7,480)
Fair Value Reconciliation
The following table presents additional information about Level 3 loans HFI at fair value on a recurring basis:
Balance at December 31, 2020 $ 49,954 Purchases 104 Principal payments (31,164) Fair value adjustments recorded in earnings 2,346 Balance at December 31, 2021 $ 21,240 Purchases 954,086 Principal payments (74,393) Transfers(1) 22,294 Interest income and fair value adjustments recorded in earnings 2,711 Balance at December 31, 2022 $ 925,938 (1) Represents non-cash activity.
Retail and Certificate Loans and Related Notes, Certificates and Secured Borrowings
The Company does not assume principal or interest rate risk on loans that were
funded by its member payment-dependent self-directed retail program (Retail
Program) because loan balances, interest rates and maturities are matched and
offset by an equal balance of notes with the exact same interest rates and
maturities. At December 31, 2022 and 2021, the DCF methodology used to estimate
the retail note, certificate and secured borrowings' fair values used the same
projected net cash flows as their related loans. Therefore, the fair value
adjustments for retail loans held for investment were largely offset by the
corresponding fair value adjustments due to the payment-dependent design of the
retail notes, certificates and secured borrowings.
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Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
Servicing Assets
Significant Unobservable Inputs
The following table presents quantitative information about the significant unobservable inputs used for the Company's Level 3 fair value measurements for servicing assets related to loans sold to investors:
December 31, 2022 December 31, 2021
Weighted-
Minimum Maximum Average Minimum Maximum Weighted-Average
Discount rates 7.5 % 16.4 % 10.1 % 7.5 % 16.4 % 10.0 %
Net cumulative expected loss rates (1) 2.1 % 36.7 % 15.6 % 2.4 % 26.4 % 10.2 %
Cumulative expected prepayment rates (1) 15.8 % 47.2 % 35.9 % 32.1 % 45.9 % 38.4 %
Total market servicing rates (% per annum on outstanding principal balance) (2) 0.62 % 0.62 % 0.62 % 0.62 % 0.62 % 0.62 %
(1) Expressed as a percentage of the original principal balance of the loan. (2) Includes collection fees estimated to be paid to a hypothetical third-party servicer.
Significant Recurring Level 3 Fair Value Input Sensitivity
The Company's selection of the most representative market servicing rates for
servicing assets is inherently judgmental. The Company reviews third-party
servicing rates for its loans, loans in similar credit sectors, and market
servicing benchmarking analyses provided by third-party valuation firms, when
available. The table below shows the impact on the estimated fair value of
servicing assets, calculated using different market servicing rate assumptions:
December 31, 2022 December 31, 2021
Weighted-average market servicing rate assumptions 0.62 % 0.62 %
Change in fair value from:
Servicing rate increase by 0.10% $ (10,505) $ (9,495)
Servicing rate decrease by 0.10% $ 10,505 $ 9,495
The following table presents the fair value of servicing assets to adverse changes in key assumptions:
December 31, 2022 December 31, 2021
Fair value of Servicing Assets $ 84,308 $ 67,726
Discount rates:
100 basis point increase $ (726) $ (558)
200 basis point increase $ (1,451) $ (1,115)
Expected loss rates:
10% increase $ (1,037) $ (693)
20% increase $ (2,074) $ (1,386)
Expected prepayment rates:
10% increase $ (1,994) $ (2,401)
20% increase $ (3,989) $ (4,802)
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Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)Fair Value Reconciliation
The following table presents additional information about Level 3 servicing assets measured at fair value on a recurring basis:
Fair value at December 31, 2020 $ 56,347
Issuances (1) 69,075
Change in fair value, included in Marketplace Revenue (56,561)
Other net changes included in Deferred Revenue (1,135)
Fair value at December 31, 2021 $ 67,726
Issuances (1) 93,352
Change in fair value, included in Marketplace Revenue (73,229)
Other net changes included in Deferred Revenue (3,541)
Fair value at December 31, 2022 $ 84,308
(1) Represents the gains or losses on sales of the related loans.
Financial Instruments, Assets, and Liabilities Not Recorded at Fair Value
The following tables present the fair value hierarchy for financial instruments, assets, and liabilities not recorded at fair value:
Level 2 Balance at
December 31, 2022 Carrying Amount Level 1 Inputs Inputs Level 3 Inputs Fair Value
Assets:
Loans and leases held for
investment, net $ 4,705,302 $ - $ - $ 4,941,825 $ 4,941,825
Other assets 36,646 - 35,300 1,397 36,697
Total assets $ 4,741,948 $ - $ 35,300 $ 4,943,222 $ 4,978,522
Liabilities:
Deposits (1) $ 860,808 $ - $ - $ 860,808 $ 860,808
Short-term borrowings 2,619 - 2,619 - 2,619
Advances from PPPLF 64,154 - - 64,154 64,154
Other liabilities 62,247 - 30,311 31,936 62,247
Total liabilities $ 989,828 $ - $ 32,930 $ 956,898 $ 989,828
(1) Excludes deposit liabilities with no defined or contractual maturities.
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Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
Level 2 Balance at
December 31, 2021 Carrying Amount Level 1 Inputs Inputs Level 3 Inputs Fair Value
Assets:
Loans held for sale $ 248,878 $ - $ - $ 251,101 $ 251,101
Loans and leases held for
investment, net 2,754,737 - - 2,964,691 2,964,691
Other assets 18,274 - 15,630 2,644 18,274
Total assets $ 3,021,889 $ - $ 15,630 $ 3,218,436 $ 3,234,066
Liabilities:
Deposits (1) $ 68,405 $ - $ - $ 68,405 $ 68,405
Short-term borrowings 27,780 - 17,595 10,185 27,780
Advances from PPPLF 271,933 - - 271,933 271,933
Other long-term debt 15,455 - - 15,455 15,455
Other liabilities 51,655 - 22,187 29,468 51,655
Total liabilities $ 435,228 $ - $ 39,782 $ 395,446 $ 435,228
(1) Excludes deposit liabilities with no defined or contractual maturities.
9. Property, Equipment and Software, Net
Property, equipment and software, net, consist of the following:
December 31, 2022 2021 Software (1) $ 174,360 $ 121,102 Leasehold improvements 31,214 37,347 Computer equipment 27,410 29,598 Furniture and fixtures 6,088 8,346
Total property, equipment and software 239,072 196,393 Accumulated depreciation and amortization (102,599) (98,397) Total property, equipment and software, net $ 136,473 $ 97,996
(1) Includes $43.7 million and $14.7 million of development in progress for internally-developed software and $3.0 million and $2.5 million of development in progress to customize purchased software as of December 31, 2022 and 2021, respectively. Depreciation and amortization expense on property, equipment and software was $39.0 million, $38.2 million and $45.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.
The Company records the above expenses in "Depreciation and amortization" expense on the Income Statement.
10.
The Company'sGoodwill balance was $75.7 million as of both December 31, 2022 and 2021. The Company did not record any goodwill impairment expense during the years ended December 31, 2022 and 2021.Goodwill is not amortized, but is subject to annual impairment tests that are performed in the fourth quarter of each calendar year. For additional detail, see "Note 1. Summary of Significant Accounting Policies." 116 --------------------------------------------------------------------------------LENDINGCLUB CORPORATION Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)Intangible Assets
Intangible assets consist of customer relationships. Intangible assets, net of accumulated amortization, are included in "Other assets" on the Balance Sheet. The gross and net carrying values and accumulated amortization were as follows: December 31, 2022 2021
Gross carrying value $ 54,500 $ 54,500 Accumulated amortization (38,166) (33,319) Net carrying value $ 16,334 $ 21,181
The customer relationship intangible assets are amortized on an accelerated basis from ten to fourteen years. Amortization expense associated with intangible assets for the years ended December 31, 2022, 2021 and 2020 was $4.8 million, $5.2 million and $3.1 million, respectively. There was no impairment loss for the years ended December 31, 2022, 2021 and 2020.
The expected future amortization expense for intangible assets as of December 31, 2022, is as follows:
2023 $ 4,198 2024 3,549 2025 2,901 2026 2,252 2027 1,603 Thereafter 1,831 Total $ 16,334 11. Other Assets
Other assets consist of the following:
December 31, 2022 2021
Deferred tax asset, net (1) $ 173,687 $ - Servicing assets (2)
85,654 70,370
Operating lease assets 63,872 77,316
Nonmarketable equity investments 38,320 31,726
Intangible assets, net (3) 16,334 21,181
Other 122,439 101,953
Total other assets $ 500,306 $ 302,546
(1) See "Note 17. Income Taxes" for additional detail.
(2) Loans underlying servicing assets had a total outstanding principal balance of $11.0 billion and $10.3 billion as of December 31, 2022 and 2021, respectively. (3) See "Note 10.Goodwill and Intangible Assets" for additional detail. 117 --------------------------------------------------------------------------------LENDINGCLUB CORPORATION Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)12. Deposits
Deposits consist of the following:
December 31, 2022 2021
Interest-bearing deposits: Savings and money market accounts $ 3,616,657 $ 856,989 Checking accounts
1,681,095 1,993,809
Certificates of deposit 860,808 68,405
Total $ 6,158,560 $ 2,919,203
Noninterest-bearing deposits 233,993 216,585
Total deposits $ 6,392,553 $ 3,135,788
Total certificates of deposit at December 31, 2022 are scheduled to mature as
follows:
2023 $ 759,374
2024 81,415
2025 9,886
2026 946
2027 9,187
Total certificates of deposit $ 860,808
The following table presents the amount of certificates of deposit with denominations exceeding theFederal Deposit Insurance Corporation (FDIC) limit of $250 thousand, segregated by time remaining until maturity, as of December 31, 2022: Over 3 months Over 6 months Three months or through through Over less 6 months 12 months 12 months Total
Certificates of deposit $ 3,075 $ 807 $ 6,798 $ 4,331 $ 15,011
13. Short-term Borrowings and Long-term Debt
Short-term Borrowings:
The following table summarizes the Company's short-term borrowings, as of the dates indicated: December 31, 2022 2021 Repurchase agreements: Aggregate debt outstanding $ 2,619 $ 27,780 Interest rates (1) 6.30%-7.23% 3.12%-6.72% Pledged collateral $ 2,812 $ 50,519
(1) Fixed or based on a benchmark of the weighted-average interest rate of the securities sold plus a spread.
The Company entered into repurchase agreements pursuant to which the Company
sold securities (subject to an obligation to repurchase such securities at a
specified future date and price) in exchange for cash. The aggregate debt
outstanding under the Company's repurchase agreements is amortized over time
through regular principal and interest payments collected from the pledged
securities. At December 31, 2022, the Company's repurchase agreements have
contractual repurchase dates ranging from January 2026 to March 2028. These
contractual
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Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)repurchase dates correspond to the maturity dates of the underlying securities, which have a remaining weighted-average estimated life of less than one year.
Long-term Debt:
The following table summarizes the Company's long-term debt, as of the dates indicated: December 31, 2022 2021 Advances from PPPLF (1): Aggregate debt outstanding $ 64,154 $ 271,933 Interest rate (fixed) 0.35 % 0.35 % Pledged collateral $ 66,971 $ 268,297 Other long-term debt (2): Aggregate debt outstanding $ - $ 15,300 Interest rate - 6.50 % Pledged collateral $ - $ -
Retail notes, certificates and secured borrowings (3): Aggregate debt outstanding
$ 55,425 $ 229,719
Payable on Structured Program borrowings (4): Aggregate debt outstanding $ 8,085 $ 65,451 Pledged collateral $ 9,708 $ 73,855 (1) Collateralized by SBA PPP loans originated by the Company. The maturity date of the PPPLF borrowings matches the maturity date of the SBA PPP loans. When loans are forgiven by the SBA, the corresponding PPPLF advance is paid by the Company. (2) Consists of subordinated notes which were fully redeemed at par plus accrued unpaid interest in December 2022 by the Company. (3) The Company does not assume principal or interest rate risk on loans that were funded by Retail Notes because loan balances, interest rates and maturities were matched and offset by an equal balance of notes with the exact same interest rates and maturities. As of December 31, 2020,LendingClub ceased offering and selling Retail Notes. The total balance of outstanding Retail Notes will continue to decline as underlying borrower payments are made. (4) Consists of certificate participations and securities of certain consolidated VIEs held by third-party investors and secured by "Loans held for investment at fair value" and "Loans held for sale" totaling $4.0 million and $62.7 million and restricted cash of $5.7 million and $11.2 million as of December 31, 2022 and 2021, respectively.
14. Other Liabilities
Other liabilities consist of the following:
December 31, 2022 2021
Accounts payable and accrued expenses $ 98,173 $ 100,972 Operating lease liabilities
77,291 91,588
Payable to investors (1) 30,311 22,187
Other 86,842 89,204
Total other liabilities $ 292,617 $ 303,951
(1) Represents principal and interest on loans collected by the Company and pending disbursement to investors.
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Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)15. Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) represents other cumulative gains and losses that are not reflected in earnings. The components of other comprehensive income (loss) were as follows:
Year Ended December 31,
2022
Before Tax Tax Effect Net of Tax Change in net unrealized loss on securities available for sale
$ (61,326) $ 16,664 $ (44,662)
Other comprehensive loss $ (61,326) $ 16,664 $ (44,662)
Year Ended December 31, 2021
Before Tax Tax Effect Net of Tax
Change in net unrealized gain on securities available
for sale $ 5,562 $ - $ 5,562
Other comprehensive income $ 5,562 $ - $ 5,562
Year Ended December 31, 2020
Before Tax Tax Effect Net of Tax
Change in net unrealized gain on securities available
for sale $ 2,044 $ 5 $ 2,049
Other comprehensive income $ 2,044 $ 5 $ 2,049
Accumulated other comprehensive income (loss) balances were as follows:
Total
Accumulated Other
Comprehensive Income (Loss)
Balance at December 31, 2020 $ 1,484
Change in net unrealized gain on securities available for sale
5,562
Balance at December 31, 2021 $
7,046
Change in net unrealized loss on securities available for sale
(44,662)
Balance at December 31, 2022 $
(37,616)
16. Employee Incentive Plans
The Company's equity incentive plans provide for granting awards, including RSUs, PBRSUs, cash awards and stock options to employees, officers and directors.
Common Stock Reserved for Future Issuance
Shares of common stock reserved for future issuance was as follows:
December 31, 2022 2021
Available for future RSU, PBRSU and stock option grants 17,473,925 15,172,055
Unvested RSUs, PBRSUs and stock options outstanding 11,676,962 13,029,414
Available for ESPP 6,302,187 5,161,860
Total reserved for future issuance 35,453,074 33,363,329
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Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)Stock-based Compensation
Stock-based compensation expense was as follows for the periods presented:
Year Ended December 31, 2022 2021 2020 RSUs and PBRSUs $ 66,316 $ 66,552 $ 60,745 Stock options 46 599 788
Total stock-based compensation expense $ 66,362 $ 67,151 $ 61,533
The Company capitalized $8.0 million, $4.4 million and $5.1 million of stock-based compensation expense associated with developing software for internal use during the years ended December 31, 2022, 2021 and 2020, respectively.
Restricted Stock Units
The following table summarizes the activities for the Company's RSUs:
Weighted-
Average
Number Grant Date
of Units Fair Value
Unvested at December 31, 2021 9,703,751 $ 12.44 Granted
5,532,101 $ 14.03
Vested (4,997,560) $ 12.85
Forfeited/expired (1,565,666) $ 13.78
Unvested at December 31, 2022 8,672,626 $ 12.94
During the year ended December 31, 2022, the Company granted 5,532,101 RSUs with an aggregate fair value of $77.6 million.
As of December 31, 2022, there was $99.1 million of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over the next 1.8 years.
Performance-based Restricted Stock Units
PBRSUs are restricted stock unit awards that are earned and eligible for vesting
(if applicable) based upon the achievement of certain pre-established
performance metrics over a specific performance period. The Company's
outstanding PBRSU awards have a multi-year market-based performance metric with
no additional time-based vesting for any earned shares. For PBRSU awards with
market-based metrics, the compensation expense of the award is fixed at the time
of grant (incorporating the probability of achieving the market-based metrics)
and expensed over the performance period.
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Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)The following table summarizes the activities for the Company's PBRSUs:
Weighted-
Average
Number Grant Date
of Units Fair Value
Unvested at December 31, 2021 1,771,869 $ 9.72 Granted
743,074 $ 8.83
Vested (760,045) $ 5.48
Unvested at December 31, 2022 1,754,898 $ 11.19
During the year ended December 31, 2022, the Company granted 743,074 PBRSUs with an aggregate fair value of $6.6 million.
As of December 31, 2022, there was $7.8 million of unrecognized compensation
cost related to unvested PBRSUs, which is expected to be recognized over the
next 1.1 years.
Stock Options
The following table summarizes the activities for the Company's stock options:
Weighted-Average Aggregate
Exercise Weighted-Average Intrinsic
Number of Price Per Remaining Value (1)
Options Share Contractual Life (in years) (in thousands)
Outstanding at December 31, 2021 1,553,807 $ 32.12
Exercised (244,821) $ 3.52
Forfeited/Expired (59,535) $ 44.99
Outstanding at December 31, 2022 1,249,451 $ 37.11 1.8 $ 142
Exercisable at December 31, 2022 1,249,451 $ 37.11 1.8 $
142
(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the Company's closing stock price of $8.80 as reported on the New York Stock Exchange on December 30, 2022. The aggregate intrinsic value of options exercised was $1.7 million, $5.1 million and $1.8 million for the years ended December 31, 2022, 2021 and 2020, respectively. The total fair value of stock options vested for the years ended December 31, 2022, 2021 and 2020 was $0.3 million, $0.3 million and $1.0 million, respectively.
As of December 31, 2022, there was no unrecognized compensation cost related to outstanding stock options.
There were no stock options granted during the years ended December 31, 2022, 2021 and 2020.
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Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)17. Income Taxes
Income tax benefit consisted of the following for the periods shown below:
Year Ended December 31, 2022 2021 2020
Current:
Federal $ - $ - $ 1
State (20,812) (3,541) 78
Total current tax (expense) benefit $ (20,812) $ (3,541) $ 79
Deferred:
Federal $ 121,520 $ 2,066 $ -
State 35,940 1,611 -
Total deferred benefit $ 157,460 $ 3,677 $ -
Income tax benefit $ 136,648 $ 136 $ 79
Income tax benefit for the year ended December 31, 2022 was primarily due to the
release of a $175.6 million valuation allowance against the Company's deferred
tax assets, of which $143.5 million is primarily based on the Company's
reassessment of realizability of its deferred tax assets. Income tax benefit for
the year ended December 31, 2021 was primarily related to a tax benefit
associated with the Acquisition, partially offset by income tax expense for
state jurisdictions that limit net operating loss carryforward utilization.
Income tax benefit for the year ended December 31, 2020 was primarily
attributable to current state income taxes.
A reconciliation of the income taxes expected at the statutory federal income tax rate and income tax benefit is as follows:
Year Ended December 31, 2022 2021
2020
Statutory federal tax (expense) benefit $ (32,140) $ (3,873) $ 39,399 State tax, net of federal tax benefit 11,951 (1,524)
81
Stock-based compensation tax benefit (expense) 271 11,839
(8,044)
Research and development tax credits 10,907 4,354
994
Change in valuation allowance 154,081 (7,867)
(29,728)
Change in unrecognized tax benefit (3,438) (2,177) (497)
Non-deductible expenses (4,737) (742) (2,278)
Other (247) 126 152
Income tax benefit $ 136,648 $ 136 $ 79
123
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
The significant components of the Company's deferred tax assets and liabilities
were:
December 31, 2022 2021
Deferred tax assets:
Net operating loss (NOL) carryforwards $ 64,288 $ 144,510
Allowance for loan and lease losses 89,718 41,170
Stock-based compensation 10,121 11,721
Unrealized loss on AFS securities 17,214 -
Deferred compensation 12,690 493
Reserves and accruals 13,474 12,558
Operating lease liabilities 20,999 25,807
Goodwill 12,267 14,737
Tax credit carryforwards 26,913 19,339
Other 4,249 3,492
Total deferred tax assets 271,933 273,827
Valuation allowance (47,721) (223,367)Deferred tax assets - net of valuation allowance $ 224,212 $ 50,460
Deferred tax liabilities: Internally developed software $ (11,687) $ (17,431) Servicing assets (2,634) (2,452) Operating lease assets (17,353) (21,614) Leases (15,694) (6,961) Intangible assets - (440) Other (3,157) (1,562) Total deferred tax liabilities $ (50,525) $ (50,460) Deferred tax asset - net $ 173,687 $ - The Company has evaluated both positive and negative evidence when assessing the recoverability of its net deferred tax assets. Several factors were considered, which primarily included the Company's business model transition and resulting increase in profitability and the expectation of continued profitability. These factors resulted in the release of the majority of the Company's valuation allowance against its deferred tax assets during the second quarter of 2022. As of December 31, 2022 and 2021, the valuation allowance was $47.7 million and $223.4 million, respectively. The valuation allowance of $47.7 million as of December 31, 2022 is related to state NOLs and tax credit carryforwards. The realization and timing of these state NOLs and tax credit carryforwards, based on the allocation of taxable income to the Parent, is uncertain and may expire before being utilized. As of December 31, 2022, the Company had federal and state NOL carryforwards (prior to the application of statutory tax rates) of approximately $103.9 million and $540.8 million, respectively. Federal and state NOLs of approximately $103.9 million and $22.3 million, respectively, carry forward indefinitely and a majority of the remainder of state NOLs start expiring in 2026. Additionally, as of December 31, 2022, the Company had federal and state research and development credit carryforwards of $32.6 million and $15.2 million, respectively. The federal research credit carryforwards will expire beginning in 2026 and the state research credits may be carried forward indefinitely.
In general, a corporation's ability to utilize its NOL and research and development credit carryforwards may be substantially limited due to the ownership change limitations as required by Section 382 and 383 of the Internal Revenue Code of 1986, as amended, as well as similar state provisions. The federal and state Section 382 and 383
124
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
limitations may limit the use of a portion of the Company's domestic NOL and tax
credit carryforwards. Further, a portion of the carryforwards may expire before
being applied to reduce future income tax liabilities.
A reconciliation of the beginning and ending balance of total unrecognized tax
benefits is as follows:
Year Ended December 31, 2022 2021 2020
Beginning balance $ 22,512 $ 17,626 $ 15,998
Gross increase for tax positions related to prior
years 2,488 1,272 -
Gross increase for tax positions related to the
current year 2,850 3,614 1,628
Ending balance $ 27,850 $ 22,512 $ 17,626
As of December 31, 2022, $17.4 million of unrecognized tax benefits, if
recognized, would impact the Company's effective tax rate. As of December 31,
2022, the Company accrued interest and penalties related to unrecognized tax
benefits of $0.2 million. The Company does not expect any significant increases
or decreases to its unrecognized benefits within the next twelve months.
The Company files income tax returns in the United States and various state
jurisdictions. As of December 31, 2022, the Company's federal tax returns for
2018 and earlier, and state tax returns for 2017 and earlier were no longer
subject to examination by the taxing authorities. However, tax periods closed in
a prior period may be subject to audit and re-examination by tax authorities for
which tax carryforwards are utilized in subsequent years.
The Inflation Reduction Act of 2022 (IRA) was signed into law in August 2022.
The IRA contains a number of tax-related provisions effective for tax years
beginning after December 31, 2022, including a 15% minimum corporate income tax
on certain large corporations. The Company is evaluating the provisions of the
IRA, but does not expect it to have a material impact on its financial
statements.
18. Leases
Lessor Arrangements
The Company has lessor arrangements which consist of sales-type leases for
equipment (Equipment Finance). Such arrangements may include options to renew or
to purchase the leased equipment at the end of the lease term. For the years
ended December 31, 2022 and 2021, interest earned on Equipment Finance was
$10.2 million and $10.8 million, respectively, and is included in "Interest and
fees on loans and leases held for investment" on the Income Statement.
The components of Equipment Finance assets are as follows:
December 31, 2022 2021
Lease receivables $ 137,969 $ 122,927
Unguaranteed residual asset values 39,262 36,837
Unearned income (17,786) (10,989)
Deferred fees 874 380
Total $ 160,319 $ 149,155
125
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)Future minimum lease payments based on maturity of the Company's lessor arrangements as of December 31, 2022 were as follows:
2023 $ 47,585 2024 39,929 2025 27,655 2026 17,176 2027 8,171 Thereafter 5,624 Total lease payments $ 146,140 Discount effect (8,171)
Present value of future minimum lease payments $ 137,969
Lessee Arrangements
The Company has operating leases for its headquarters inSan Francisco, California , as well as additional office space in theSalt Lake City, Utah , andBoston, Massachusetts areas. As of December 31, 2022, the lease agreements have remaining lease terms ranging from approximately one year to eight years. Some of the lease agreements include options to extend the lease term for up to an additional fifteen years. The Company was the sublessor of a portion of its office space inSan Francisco for which lease terms have expired as of June 30, 2022. As of December 31, 2022, the Company pledged $0.4 million of cash and $3.9 million in letters of credit as security deposits in connection with its lease agreements.
Balance sheet information related to leases was as follows:
Right-of-Use Assets and Lease Balance Sheet Liabilities Classification December 31, 2022 December 31, 2021 Operating lease assets Other assets $ 63,872 $ 77,316 Operating lease liabilities (1) Other liabilities $ 77,291 $ 91,588
(1) The difference between operating lease assets and operating lease liabilities is the unamortized balance of deferred rent.
Components of net lease costs were as follows:
Year Ended December 31,
Net Lease Costs Income Statement Classification 2022 2021 2020
Operating lease costs
(1) Occupancy $ (15,189) $ (18,773) $ (17,346)
Sublease revenue Other non-interest income 2,847 6,149 6,146
Net lease costs $ (12,342) $ (12,624) $ (11,200)
(1) Includes variable lease costs of $1.1 million, $1.3 million and $1.5 million for the years ended December 31, 2022, 2021 and 2020, respectively.
126
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
Supplemental cash flow information related to the Company's operating leases was
as follows:
Year Ended December 31, 2022 2021 2020
Non-cash operating activity:
Leased assets obtained or adjusted in exchange for
new, amended and modified operating lease
liabilities (1) $ (3,650) $ 12,914 $ 84
(1) Represents non-cash activity and, accordingly, is not reflected on the Consolidated Statements of Cash Flows. Amount includes non-cash remeasurements of the operating lease right-of-use (ROU) asset.
The Company's future minimum undiscounted lease payments under operating leases as of December 31, 2022 were as follows:
Operating Lease
Payments
2023 $ 12,798
2024 13,054
2025 13,184
2026 12,570
2027 12,261
Thereafter 31,484
Total lease payments $ 95,351
Discount effect 18,060Present value of future minimum lease payments $ 77,291
The weighted-average remaining lease term and discount rate used in the calculation of the Company's operating lease assets and liabilities were as follows:
Lease Term and Discount Rate December 31, 2022 Weighted-average remaining lease term (in years) 7.43 Weighted-average discount rate 5.40 %
19. Commitments and Contingencies
Operating Lease Commitments
For discussion regarding the Company's operating lease commitments, see "Note 18. Leases."
Loan Repurchase Obligations
The Company is generally required to repurchase loans or interests therein in
the event of identity theft or certain other types of fraud on the part of the
borrower or education and patient service providers. The Company may also
repurchase loans or interests therein in connection with certain customer
accommodations. In connection with certain loan sales, the Company agreed to
repurchase loans if representations and warranties made with respect to such
loans were breached under certain circumstances. The Company believes such
provisions are customary and consistent with institutional loan and
securitization market standards.
127
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)Unfunded Loan Commitments
As of December 31, 2022 and 2021, the contractual amount of unfunded loan commitments was $138.0 million and $110.8 million, respectively. See "Note 6. Loans and Leases Held for Investment at Amortized Cost, Net of Allowance For Loan and Lease Losses" for additional detail related to the reserve for unfunded lending commitments. Legal The Company is subject to various claims brought in a litigation or regulatory context. These matters include lawsuits, including but not limited to, putative class action lawsuits and routine litigation matters arising in the ordinary course of business. In addition, the Company, and its business practices and compliance with licensing and other regulatory requirements, is subject to periodic exams, investigations, inquiries or requests, enforcement actions and other proceedings from federal and state regulatory agencies, including from the federal banking regulators that directly regulate the Company and/or LC Bank. The majority of these claims and proceedings relate to or arise from alleged state or federal law and regulatory violations, or are alleged commercial disputes or consumer complaints. The Company accrues for costs related to contingencies when a loss from such claims is probable and the amount of loss can be reasonably estimated. In determining whether a loss from a claim is probable and the loss can be reasonably estimated, the Company reviews and evaluates its litigation and regulatory matters on at least a quarterly basis in light of potentially relevant factual and legal developments. If the Company determines an unfavorable outcome is not probable or the amount of loss cannot be reasonably estimated, the Company does not accrue for a potential litigation loss. In those situations, the Company discloses an estimate or range of the reasonably possible losses, if such estimates can be made. Except as otherwise specifically noted below, at this time, the Company does not believe that it is possible to estimate the reasonably possible losses or a range of reasonably possible losses related to the matters described below.
Regulatory Examinations and Actions Relating to the Company's Business Practices, Licensing and Compliance with Applicable Laws
The Company is and has been subject to periodic inquiries, exams and enforcement actions brought by federal and state regulatory agencies relating to the Company's business practices, the required licenses to operate its business, and operating in compliance with applicable laws, including the requirements of its licenses and the regulatory framework applicable to its business. The Company periodically has discussions with various regulatory agencies regarding its business model and has engaged in similar discussions with the New York Department of Financial Services (NYDFS). During the course of such discussions with the NYDFS, the Company decided to voluntarily comply with certain rules and regulations of the NYDFS while it was not a bank holding company operating a national bank. Post-acquisition, the Company has returned itsNew York state license to the NYDFS. In the past, the Company has successfully resolved such matters in a manner that was not material to its results of financial operations in any period and that did not materially limit the Company's ability to conduct its business. However, no assurances can be given as to the timing, outcome or consequences of these matters or other similar matters if or as they arise.
20. Regulatory Requirements
LendingClub and LC Bank are subject to comprehensive supervision, examination and enforcement, and regulation by the FRB and the Office of the Comptroller of the Currency (OCC), including generally similar capital adequacy requirements adopted by the FRB and the OCC, respectively. These requirements establish required minimum ratios for Common Equity Tier 1 (CET1) risk-based capital, Tier 1 risk-based capital, total risk-based capital and a Tier 1 128 --------------------------------------------------------------------------------LENDINGCLUB CORPORATION Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
leverage ratio; set risk-weighting for assets and certain other items for
purposes of the risk-based capital ratios; and define what qualifies as capital
for purposes of meeting the capital requirements. Failure to meet minimum
capital requirements can result in certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company.
The minimum capital requirements under the Basel Committee on Banking
Supervision standardized approach for U.S. banking organizations (U.S. Basel
III) capital framework are: a CET1 risk-based capital ratio of 4.5%, a Tier 1
risk-based capital ratio of 6.0%, a total risk-based capital ratio of 8.0%, and
a Tier 1 leverage ratio of 4.0%. Additionally, a Capital Conservation Buffer
(CCB) of 2.5% must be maintained above the minimum risk-based capital
requirements in order to avoid certain limitations on capital distributions,
stock repurchases, and certain discretionary bonus payments. In addition to
these guidelines, the regulators assess any particular institution's capital
adequacy based on numerous factors and may require a particular banking
organization to maintain capital at levels higher than the generally applicable
minimums prescribed under the U.S. Basel III capital framework. In this regard,
and unless otherwise directed by the FRB and the OCC, we have made commitments
for the Company and LC Bank (until February 2024) to maintain a CET1 risk-based
capital ratio of 11.0%, a Tier 1 risk-based capital ratio above 11.0%, a total
risk-based capital ratio above 13.0%, and a Tier 1 leverage ratio of 11.0%.
The following table summarizes the Company's regulatory capital amounts (in
millions) and ratios:
December 31, 2022 December 31, 2021 Required Minimum plus
Required CCB for
LendingClub Amount Ratio Amount Ratio Non-Leverage Ratios
CET1 capital (1) $ 1,005.8 15.8 % $ 710.0 21.3 % 7.0 %
Tier 1 capital $ 1,005.8 15.8 % $ 710.0 21.3 % 8.5 %
Total capital $ 1,088.1 17.1 % $ 767.9 23.0 % 10.5 %
Tier 1 leverage $ 1,005.8 14.1 % $ 710.0 16.5 % 4.0 %
Risk-weighted assets $ 6,360.7 N/A $ 3,333.2 N/A N/A
Quarterly adjusted average assets $ 7,119.0 N/A $ 4,301.7 N/A N/A
N/A - Not applicable
(1) Consists of common stockholders' equity as defined under U.S. GAAP and
certain adjustments made in accordance with regulatory capital guidelines,
including the addition of the CECL transitional benefit and deductions for
goodwill and other intangible assets.
The following table summarizes LC Bank's regulatory capital amounts (in
millions) and ratios:
December 31, 2022 December 31, 2021 Required Minimum plus
Required CCB for
LendingClub Bank Amount Ratio Amount Ratio Non-Leverage Ratios
CET1 capital (1) $ 852.2 13.8 % $ 523.7 16.7 % 7.0 %
Tier 1 capital $ 852.2 13.8 % $ 523.7 16.7 % 8.5 %
Total capital $ 932.4 15.1 % $ 563.7 18.0 % 10.5 %
Tier 1 leverage $ 852.2 12.5 % $ 523.7 14.3 % 4.0 %
Risk-weighted assets $ 6,194.0 N/A $ 3,130.4 N/A N/A
Quarterly adjusted average assets $ 6,795.2 N/A $ 3,667.7 N/A N/A
N/A - Not applicable
(1) Consists of common stockholders' equity as defined under U.S. GAAP and
certain adjustments made in accordance with regulatory capital guidelines,
including the addition of the CECL transitional benefit and deductions for
goodwill and other intangible assets.
129
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
In response to the COVID-19 pandemic, the FRB, OCC, and FDIC adopted a final
rule related to the regulatory capital treatment of the allowance for credit
losses under CECL. As permitted by the rule, the Company elected to delay the
estimated impact of CECL on regulatory capital resulting in a CET1 capital
benefit of $35 million at December 31, 2021. This benefit is phased out over a
three-year transition period that commenced on January 1, 2022 at a rate of 25%
each year through January 1, 2025.
The Federal Deposit Insurance Act provides for a system of "prompt corrective
action" (PCA). The PCA regime provides for capitalization categories ranging
from "well-capitalized" to "critically undercapitalized." An institution's PCA
category is determined primarily by its regulatory capital ratios. The PCA
requires remedial actions and imposes limitations that become increasingly
stringent as its PCA capitalization category declines, including the ability to
accept and/or rollover brokered deposits. At December 31, 2022 and 2021, the
Company's and LC Bank's regulatory capital ratios exceeded the thresholds
required to be regarded as well-capitalized institutions and met all capital
adequacy requirements to which they are subject. There have been no events or
conditions since December 31, 2022 that management believes would change the
Company's categorization.
Federal laws and regulations limit the dividends that a national bank may pay.
Dividends that may be paid by a national bank without the express approval of
the OCC are limited to that bank's retained net profits for the preceding two
calendar years plus retained net profits up to the date of any dividend
declaration in the current calendar year. Retained net profits, as defined by
the OCC, consist of net income less dividends declared during the period.
Additionally, under the OCC Operating Agreement, LC Bank is required to obtain a
written determination of non-objection from the OCC before declaring any
dividend. No dividends were declared by LC Bank in 2022 or 2021. See "Part I -
Item 1. Business - Regulation and Supervision - Broad Powers to Ensure Safety
and Soundness" of this Annual Report for further discussion regarding the OCC
Operating Agreement.
Federal law restricts the amount and the terms of both credit and non-credit
transactions between a bank and its nonbank affiliates. These covered
transactions may not exceed 10% of the bank's capital and surplus (which for
this purpose represents tier 1 and tier 2 capital, as calculated under the
risk-based capital rules, plus the balance of the ACL excluded from tier 2
capital) with any single nonbank affiliate and 20% of the bank's capital and
surplus with all its nonbank affiliates. Covered transactions that are
extensions of credit may require collateral to be pledged to provide added
security to the bank.
21. Other Non-interest Income and Other Non-interest Expense
Other non-interest income consists of the following:
Year Ended December 31, 2022 2021 2020 Referral revenue $ 12,942
$ 14,234 $ 5,011 Realized gains (losses) on sales of securities available for sale and other investments
- (93) 11
Other 15,823 13,078 8,420
Total other non-interest income $ 28,765 $ 27,219 $ 13,442
Other non-interest expense consists of the following:
Year Ended December 31, 2022 2021 2020 Consumer credit services $ 20,672 $ 16,214 $ 13,229 Other 43,515 45,044 34,533
Total other non-interest expense $ 64,187 $ 61,258 $ 47,762
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)22. Segment Reporting
The Company defines operating segments to be components of the Company for which discrete financial information is evaluated regularly by the Company's Chief Executive Officer and Chief Financial Officer to allocate resources and evaluate financial performance. This information is reviewed according to the legal organizational structure of the Company's operations with products and services presented separately for the parent bank holding company and its wholly-owned subsidiary, LC Bank. Income taxes are recorded on a separate entity basis whereby each operating segment determines income tax expense or benefit as if it filed a separate tax return. Differences between separate entity and consolidated tax returns are eliminated upon consolidation.
LendingClub Bank
The LC Bank operating segment represents the national bank legal entity and reflects post-Acquisition operating activities. This segment provides a full complement of financial products and solutions, including loans, leases and deposits. It originates loans to individuals and businesses, retains loans for investment, sells loans to investors and manages relationships with deposit holders. All of the Company's revenue is generated inthe United States . No individual borrower or investor accounted for 10% or more of consolidated net revenue for any of the periods presented.
TheLendingClub Corporation (Parent only) operating segment represents the holding company legal entity and predominately reflects the operations of the Company prior to the Acquisition. This activity includes, but is not limited to, servicing fee revenue for loans serviced prior to the Acquisition, and interest income and interest expense related to the Retail Program and Structured Program transactions. 131 --------------------------------------------------------------------------------LENDINGCLUB CORPORATION Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
Financial information for the segments is presented in the following tables:
LendingClub
LendingClub Corporation Intercompany
Bank (Parent only) Eliminations Consolidated Total
Eleven Months Eleven Months
Year Ended Ended December Year Ended Ended December
December 31, 31, Year Ended December 31, December 31, 31, Year Ended December 31,
2022 2021 2022 2021 2022 2021 2022 2021
Non-interest
income:Marketplace revenue $ 610,536 $ 462,821 $ 48,231
$ 115,759 $ 24,859 $ - $ 683,626 $ 578,580
Other non-interest
income 85,208 94,953 15,628 16,718 (72,071) (84,452) 28,765 27,219
Total non-interest
income 695,744 557,774 63,859 132,477 (47,212) (84,452) 712,391 605,799
Interest income:
Interest income 526,471 210,739 30,869 82,093 - - 557,340 292,832
Interest expense (60,954) (8,412) (21,561) (71,589) - - (82,515) (80,001)
Net interest income 465,517 202,327 9,308 10,504 - - 474,825 212,831
Total net revenue 1,161,261 760,101 73,167 142,981 (47,212) (84,452) 1,187,216 818,630
(Provision for)
reversal of credit
losses (267,326) (142,182) - 3,382 - - (267,326) (138,800)
Non-interest
expense (724,304) (547,799) (89,761) (198,039) 47,212 84,452 (766,853) (661,386)
Income (Loss)
before income tax
benefit (expense) 169,631 70,120 (16,594) (51,676) - - 153,037 18,444
Income tax benefit
(expense) (42,354) 9,171 125,954 44,013 53,048 (53,048) 136,648 136
Net income (loss) $ 127,277 $ 79,291 $ 109,360
$ (7,663) $ 53,048 $ (53,048) $ 289,685 $ 18,580
Capital
expenditures $ 69,481 $ 32,602 $
- $ 1,811 $ - $ - $ 69,481 $ 34,413 Depreciation and amortization $ 16,489 $ 4,569 $ 27,342 $ 39,716 $ - $ - $ 43,831 $ 44,285
The Company integrated the Acquisition into its reportable segments in the first quarter of 2021. As the Company's reportable segments are based on legal organizational structure and LC Bank was formed upon the Acquisition, the Company's results of operations for the year ended December 31, 2020 are provided on a consolidated basis in the Company's Income Statement.
132
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
LendingClub Corporation Intercompany
LendingClub Bank (Parent only) Eliminations Consolidated Total
December 31, December 31, December 31, December 31, December
31, December 31, December 31,
2022 2021 December 31, 2022 2021 2022 2021 2022 2021
Assets
Total cash and cash
equivalents $ 1,020,874 $ 659,919 $ 56,475 $ 88,268 $ (20,319) $ (61,061) $ 1,057,030 $ 687,126
Restricted cash - - 75,409 76,540 (7,955) (80) 67,454 76,460
Securities available
for sale at fair value 329,287 205,730 16,415 57,800 - - 345,702 263,530
Loans held for sale 110,400 335,449 - 55,799 - - 110,400 391,248
Loans and leases held
for investment, net 4,705,302 2,754,737 - - - - 4,705,302 2,754,737
Loans held for
investment at fair
value 906,711 -
19,227 21,240 - - 925,938 21,240
Retail and certificate
loans held for
investment at fair
value - - 55,425 229,719 - - 55,425 229,719
Property, equipment and
software, net 102,274 36,424 34,199 61,572 - - 136,473 97,996
Investment in
subsidiary - - 755,319 557,577 (755,319) (557,577) - -
Goodwill 75,717 75,717 - - - - 75,717 75,717
Other assets 339,341 254,075 173,851 168,042 (12,886) (119,571) 500,306 302,546
Total assets 7,589,906 4,322,051 1,186,320 1,316,557 (796,479) (738,289) 7,979,747 4,900,319
Liabilities and Equity
Total deposits 6,420,827 3,196,929 - - (28,274) (61,141) 6,392,553 3,135,788
Short-term borrowings - 165 2,619 27,615 - -
2,619 27,780
Advances from PPPLF 64,154 271,933 - - - - 64,154 271,933
Retail notes,
certificates and
secured borrowings at
fair value - -
55,425 229,719 - - 55,425 229,719
Payable on Structured
Program borrowings - - 8,085 65,451 - - 8,085 65,451
Other long-term debt - - - 15,455 - - - 15,455
Other liabilities 189,185 218,775 116,318 150,727 (12,886) (65,551) 292,617 303,951
Total liabilities 6,674,166 3,687,802 182,447 488,967 (41,160) (126,692) 6,815,453 4,050,077
Total equity 915,740 634,249 1,003,873 827,590 (755,319) (611,597) 1,164,294 850,242
Total liabilities and
equity $ 7,589,906 $ 4,322,051 $ 1,186,320 $ 1,316,557 $ (796,479) $ (738,289)
$ 7,979,747 $ 4,900,319
133
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
23.
Upon the Acquisition in 2021, the Company became a bank holding company and formed LC Bank. Prior to the Acquisition, the consolidated financial results of the Company were theLendingClub Corporation (Parent Company) financial results. See "Item 8. Financial Statements and Supplementary Data - Consolidated Financial Statements ofLendingClub Corporation " for the 2020 comparative results. Investment in the LC Bank subsidiary is accounted for by the Parent Company using the equity method for this presentation. Results of operations of the Parent Company's bank subsidiary is therefore classified in the Parent Company's investment in subsidiary account. VIEs in which the Parent Company is the primary beneficiary are included in the Parent Company-only financial statements. Statements of Income (Loss) Year Ended December 31, 2022 2021 Non-interest income: Marketplace revenue $ 48,231 $ 115,759 Other non-interest income 15,628 16,718 Total non-interest income 63,859 132,477 Interest income: Interest on loans held for sale at fair value 1,390 11,025 Interest on loans held for investment at fair value 2,875 4,436
Interest on retail and certificate loans held for investment at fair value
18,135 57,684
Interest on securities available for sale 7,608 8,922
Other interest income 861 26
Total interest income 30,869 82,093
Interest expense:
Interest on short-term borrowings 1,002 3,676
Interest on retail notes, certificates and secured borrowings 18,135
57,684
Interest on Structured Program borrowings 1,508 9,638
Interest on other long-term debt 916 591
Total interest expense 21,561 71,589
Net interest income 9,308 10,504
Total net revenue 73,167 142,981
Reversal of credit losses - (3,382)
Non-interest expense:
Compensation and benefits 7,770 31,010
Marketing 188 5,460
Equipment and software 194 2,459
Occupancy 13,346 17,751
Depreciation and amortization 27,342 39,716
Professional services 523 14,666
Other non-interest expense 40,398 86,977
Total non-interest expense 89,761 198,039
Loss before income tax benefit (16,594) (51,676)
Income tax benefit 125,954 44,013
Income (Loss) before undistributed earnings of subsidiary 109,360
(7,663)
Equity in undistributed earnings of subsidiary 127,277 79,291
Net income $ 236,637 $ 71,628
134
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)In accordance with federal laws and regulations, dividends paid by LC Bank to the Company are subject to certain restrictions. See "Note 20. Regulatory Requirements" for more information.
Statements of Comprehensive Income (Loss)
Year Ended December 31, 2022
2021
Net income $ 236,637 $ 71,628 Other comprehensive income (loss), net of tax: Net unrealized gain (loss) on securities available for sale (1,556)
9,153
Equity in other comprehensive loss of subsidiary (43,528)
(2,619)
Other comprehensive income (loss), net of tax (45,084) 6,534 Total comprehensive income $ 191,553 $ 78,162 Balance Sheets December 31, 2022 2021 Assets Cash and due from banks $ 34,119 $ 58,284 Interest-bearing deposits in banks 22,356 29,984 Total cash and cash equivalents 56,475 88,268 Restricted cash 75,409 76,540
Securities available for sale at fair value ($8,322 and $47,225 at amortized cost, respectively)
16,415 57,800
Loans held for sale at fair value - 55,799
Loans held for investment at fair value 19,227 21,240
Retail and certificate loans held for investment at fair value 55,425
229,719
Property, equipment and software, net 34,199 61,572
Investment in subsidiary 923,618 634,249
Other assets 165,973 168,042
Total assets $ 1,346,741 $ 1,393,229
Liabilities and Equity
Short-term borrowings 2,619 27,615
Retail notes, certificates and secured borrowings at fair value 55,425
229,719
Payable on Structured Program borrowings 8,085 65,451
Other long-term debt - 15,455
Other liabilities 116,318 150,727
Total liabilities 182,447 488,967
EquitySeries A Preferred stock, $0.01 par value; 1,200,000 shares authorized; 0 shares issued and outstanding
- -
Common stock, $0.01 par value; 180,000,000 shares authorized; 106,546,995 and 101,043,924 shares issued and outstanding, respectively
1,065 1,010
Additional paid-in capital (1) 1,628,590 1,559,616
Accumulated deficit (1) (427,745) (664,382)
Accumulated other comprehensive income (loss) (37,616) 8,018
Total equity 1,164,294 904,262
Total liabilities and equity $ 1,346,741 $ 1,393,229
(1) Prior period amounts have been reclassified to reflect the full retrospective adoption of ASU 2020-06. See "Note 1. Summary of Significant Accounting Policies" for additional information.
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LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as
Noted)
Statements of Cash Flows
Year Ended December 31, 2022 2021
Cash Flows from Operating Activities:
Parent company net income $ 236,637 $ 71,628
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed earnings of subsidiary (127,277) (79,291)
Income tax benefit (125,954) (44,013)
Net fair value adjustments (5,929) (5,936)
Reversal of credit losses - (3,382)
Change in fair value of loan servicing assets 33,840 37,138
Stock-based compensation, net 6,310 14,506
Depreciation and amortization (1) 27,342 39,716
Gain on sales of loans - (3,372)
Other, net (1) 16 9,326
Net change to loans held for sale 31,658 90,609
Net change in operating assets and liabilities:
Other assets 42,219 (29,556)
Other liabilities (38,258) (95,737)
Net cash provided by operating activities 80,604 1,636
Cash Flows from Investing Activities:
Acquisition of company - (145,344)
Payments for investments in and advances to subsidiary (50,000)
(250,001)
Cash received from acquisition - 658 Purchase of servicing asset investment (59,880) - Proceeds from servicing asset investment 24,564 - Net change in loans and leases 4,443 1,360 Net decrease in retail and certificate loans 171,853 437,870
Proceeds from maturities and paydowns of securities available for sale
46,548 103,258
Purchases of property, equipment and software, net - (1,811)
Other investing activities 2,370 8,146
Net cash provided by investing activities 139,898 154,136
Cash Flows from Financing Activities:
Principal payments on retail notes and certificates (182,260)
(438,032)
Principal payments on Structured Program borrowings (21,423) (90,187) Principal payments on short-term borrowings (25,415) (81,935) Principal payments on long term debt (15,300) - Other financing activities (9,028) (9,295) Net cash used for financing activities (253,426)
(619,449)
(463,677)
Cash, Cash Equivalents and Restricted Cash, Beginning of Period
164,808 628,485
Cash, Cash Equivalents and Restricted Cash, End of Period $ 131,884
$ 164,808
(1) Prior period amounts have been reclassified to conform to the current period presentation.
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LENDINGCLUB CORPORATION © Edgar Online, source
