LENDINGCLUB CORPORATION (Tabular Amounts in Thousands, Except Share and. Per Share Data and Ratios, or
as Noted)Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes that appear in this Quarterly Report on Form 10-Q (Report). In addition to historical condensed 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 elsewhere in this Report, and in "Part I - Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 (Annual Report) as modified by "Part II - Item 1A. Risk Factors" in this Report. The forward-looking statements included in this Report are made only as of the date hereof. 51 --------------------------------------------------------------------------------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)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 (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
•Loan originations: Total loan originations for the second quarter of 2022 were$3.8 billion , increasing 19% sequentially and 41% year-over-year. The increase was primarily driven by the growth in unsecured personal loan origination volume.
•Loan originations held for investment (HFI) were
•Loan originations HFI as a percentage of total loan originations was 27% for both the second and first quarters of 2022 and 20% for the second quarter of 2021. 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 for the second quarter of 2022 was$330.1 million , improving 14% sequentially and 61% year-over-year. The increase was due to the growth in marketplace revenue and increased net interest income. •Marketplace revenue: Marketplace revenue for the second quarter of 2022 was$206.4 million , improving 15% sequentially and 36% year-over-year. The increase reflects growth in marketplace originations and investor demand. •Net interest income: Net interest income for the second quarter of 2022 was$116.2 million , improving 17% sequentially and 153% year-over-year. The increase was primarily due to an increase in unsecured personal loans retained in current and prior periods as HFI. •Provision for credit losses: Provision for credit losses for the second quarter of 2022 was$70.6 million , increasing 34% sequentially and 104% year-over-year. The increase was primarily due to growth in loans HFI. •Total non-interest expense: Total non-interest expense for the second quarter of 2022 was$209.4 million , increasing 10% sequentially and 31% year-over-year. The increase was primarily driven by an increase in variable marketing expenses based on higher origination volume. •Net income: Net income for the second quarter of 2022 was$182.1 million , increasing by$141.2 million sequentially and$172.7 million year-over-year. Net income for the second quarter of 2022 included a$135.3 million tax benefit due to the reversal of the majority our valuation allowance against our deferred tax assets.
•Net income excluding income tax benefit: Net income excluding income tax
benefit for the second quarter of 2022 was
52
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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)
•Pre-tax, pre-provision income: Pre-tax, pre-provision income for the second
quarter of 2022 was $120.7 million , increasing by $22.3 million sequentially and
$76.4 million year-over-year, consistent with revenue growth and improved
operating efficiency.
•Loans and leases held for investment: Loans and leases held for investment, net
of allowance for loan and lease losses, were
•Deposits: Total deposits at
The above summary should be read in conjunction with this 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."
53
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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)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:
Three Months Ended Six Months Ended June 30,
June 30, March 31, June 30,
2022 2022 2021 2022 2021
Non-interest income $ 213,832 $ 189,857 $ 158,476 $ 403,689 $ 245,810
Net interest income 116,226 99,680 45,905 215,906 64,411
Total net revenue 330,058 289,537 204,381 619,595 310,221
Non-interest expense 209,386 191,204 160,139 400,590 294,391
Pre-tax, pre-provision income 120,672 98,333 44,242 219,005 15,830
Provision for credit losses 70,566 52,509 34,634 123,075 56,127
Income (Loss) before income tax
benefit (expense) 50,106 45,824 9,608 95,930 (40,297)
Income tax benefit (expense) 131,954 (4,988) (237) 126,966 2,584
Net income (loss) 182,060 40,836 9,371 222,896 (37,713)
Income tax benefit from release of tax
valuation allowance 135,300 - - 135,300 -
Net income (loss) excluding income tax
benefit (1) $ 46,760 $ 40,836 $ 9,371 $ 87,596 $ (37,713)
Basic EPS $ 1.77 $ 0.40 $ 0.10 $ 2.13 $ (0.39)
Diluted EPS $ 1.73 $ 0.39 $ 0.09 $ 2.13 $ (0.39)
Diluted EPS impact of income tax
benefit from release of tax valuation
allowance $ 1.28 - - $ 1.28 -
Diluted EPS excluding income tax
benefit (1) $ 0.45 $ 0.39 $ 0.09 $ 0.85 $ (0.39) LendingClub Bank Performance Metrics:
Efficiency ratio (2) 60.5 % 63.6 % 69.0 % 61.9 % 78.4 % Return on average equity (ROE) 21.5 % 22.5 % 34.7 % 11.0 % 4.1 % Return on average total assets (ROA) 3.0 % 3.1 % 4.7 % 1.5 % 0.6 % LendingClub Bank Capital Ratios: CET1 1 Capital Ratio 16.7 % 16.0 % 18.7 % 16.7 % 18.7 % Tier 1 Leverage Ratio 13.4 % 13.2 % 13.5 % 13.4 % 13.5 %
Consolidated LendingClub Corporation Performance Metrics: Net interest margin
8.5 % 8.3 % 4.7 % 8.4 % 3.8 %
Efficiency ratio (2) 63.4 % 66.0 % 78.4 % 64.7 % 94.9 %
Return on average equity (ROE) 33.8 % 18.7 % 5.0 % 24.4 % N/A
Return on average total assets (ROA) 5.5 % 3.1 % 0.8 % 4.0 % N/A
Marketing as a % of loan originations 1.6 % 1.7 % 1.3 % 1.7 % 1.3 %
Loan Originations (in millions):
Marketplace loans $ 2,819 $ 2,360 $ 2,182 $ 5,180 $ 3,320
Loan originations held for investment 1,021 856 541 1,877 885
Total loan originations $ 3,840 $ 3,217 $ 2,722 $ 7,057 $ 4,206
Loan originations held for investment
as % of total loan originations 27 % 27 % 20 % 27 % 21 %
AUM (in millions) (3) $ 14,783 $ 13,341 $ 10,741 $ 14,783 $ 10,741
N/A - Not applicable
(1) The second quarter and first half of 2022 includes an income tax benefit of
$135.3 million due to the release of our deferred tax asset valuation allowance.
See "Non-GAAP Financial Measures" for additional information.
54
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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)
(2) Calculated as the ratio of non-interest expense to total net revenue.
(3) 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 the Three Months Ended
June 30, March 31, June 30,
2022 2022 2021
Balance Sheet Data: Loans and leases held for investment, net, excluding PPP loans
$ 3,692,667 $ 3,049,325 $ 1,791,492 PPP loans$ 118,794 $ 184,986 $ 507,553 Total loans and leases held for investment, net$ 3,811,461 $ 3,234,311 $ 2,299,045 Total assets$ 6,186,765 $ 5,574,425 $ 4,370,101 Total deposits$ 4,527,672 $ 3,977,477 $ 2,539,704 Total liabilities$ 5,107,648 $ 4,686,991 $ 3,607,742 Total equity$ 1,079,117 $ 887,434 $ 762,359 Allowance Ratios: ALLL to total loans and leases held for investment 6.0 % 5.5 % 3.0 %
ALLL to total loans and leases held for investment, excluding PPP loans
6.2 % 5.8 % 3.8 %
ALLL to consumer loans and leases held for investment 6.9 %
6.6 % 4.3 %
ALLL to commercial loans and leases held for
investment 2.0 % 1.8 % 1.5 %
ALLL to commercial loans and leases held for
investment, excluding PPP loans 2.3 % 2.3 % 2.8 %
55
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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
The following table sets forth the Condensed Consolidated Statements of Income (Income Statement) data for each of the periods presented:
Three Months Ended Change (%)
Q2 2022 Q2 2022
June 30, March 31, June 30, vs vs
2022 2022 2021 Q2 2021 Q1 2022
Non-interest income:
Marketplace revenue $ 206,384 $ 179,966 $ 151,735 36 % 15 %
Other non-interest income 7,448 9,891 6,741 10 % (25) %
Total non-interest income 213,832 189,857 158,476 35 % 13 %
Interest income:
Interest on loans held for sale 7,130 7,450 8,694 (18) % (4) %
Interest and fees on loans and leases
held for investment 108,911 91,442 39,068 179 % 19 %
Interest on retail and certificate loans
held for investment at fair value 5,091 6,969 16,014 (68) % (27) %
Interest on other loans held for
investment at fair value 631 593 1,222 (48) % 6 %
Interest on securities available for
sale 4,426 4,511 2,539 74 % (2) %
Other 2,279 688 190 N/M 231 %
Total interest income 128,468 111,653 67,727 90 % 15 %
Interest expense:
Interest on deposits 6,078 3,438 1,699 258 % 77 %
Interest on short-term borrowings 417 435 1,003 (58) % (4) %
Interest on retail notes, certificates
and secured borrowings 5,091 6,969 16,014 (68) % (27) %
Interest on Structured Program
borrowings 360 764 2,668 (87) % (53) %
Interest on other long-term debt 296 367 438 (32) % (19) %
Total interest expense 12,242 11,973 21,822 (44) % 2 %
Net interest income 116,226 99,680 45,905 153 % 17 %
Total net revenue 330,058 289,537 204,381 61 % 14 %
Provision for credit losses 70,566 52,509 34,634 104 % 34 %
Non-interest expense:
Compensation and benefits 85,103 81,610 71,925 18 % 4 %
Marketing 61,497 55,080 35,107 75 % 12 %
Equipment and software 12,461 11,046 9,281 34 % 13 %
Occupancy 6,209 6,019 6,157 1 % 3 %
Depreciation and amortization 10,557 11,039 11,508 (8) % (4) %
Professional services 16,138 12,406 11,520 40 % 30 %
Other non-interest expense 17,421 14,004 14,641 19 % 24 %
Total non-interest expense 209,386 191,204 160,139 31 % 10 %
Income before income tax benefit
(expense) 50,106 45,824 9,608 422 % 9 %
Income tax benefit (expense) 131,954 (4,988) (237) N/M N/M
Net income $ 182,060 $ 40,836 $ 9,371 N/M N/M
56
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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)
Six Months Ended June 30,
2022 2021 Change (%)
Non-interest income:
Marketplace revenue $ 386,350 $ 233,462 65 %
Other non-interest income 17,339 12,348 40 %
Total non-interest income 403,689 245,810 64 %
Interest income:
Interest on loans held for sale 14,580 13,851 5 %
Interest and fees on loans and leases held for
investment 200,353 54,369 269 %
Interest on retail and certificate loans held for
investment at fair value 12,060 36,276 (67) %
Interest on other loans held for investment at fair value
1,224 2,701 (55) %
Interest on securities available for sale 8,937 4,774 87 %
Other 2,967 346 N/M
Total interest income 240,121 112,317 114 %
Interest expense:
Interest on deposits 9,516 2,713 251 %
Interest on short-term borrowings 852 2,267 (62) %
Interest on retail notes, certificates and secured borrowings
12,060 36,276 (67) %
Interest on Structured Program borrowings 1,124 5,876 (81) %
Interest on other long-term debt 663 774 (14) %
Total interest expense 24,215 47,906 (49) %
Net interest income 215,906 64,411 235 %
Total net revenue 619,595 310,221 100 %
Provision for credit losses 123,075 56,127 119 %
Non-interest expense:
Compensation and benefits 166,713 136,345 22 %
Marketing 116,577 54,652 113 %
Equipment and software 23,507 17,174 37 %
Occupancy 12,228 13,057 (6) %
Depreciation and amortization 21,596 23,274 (7) %
Professional services 28,544 23,123 23 %
Other non-interest expense 31,425 26,766 17 %
Total non-interest expense 400,590 294,391 36 %
Income (Loss) before income tax benefit 95,930 (40,297) N/M
Income tax benefit 126,966 2,584 N/M
Net income (loss) $ 222,896 $ (37,713) N/M
The analysis below is presented for the following periods: Second quarter of
2022 compared to the first quarter of 2022 (sequential), second quarter of 2022
compared to the second quarter of 2021 (year-over-year) and the first half of
2022 compared to the first half of 2021 (six months-over-six months). As a
result of the timing of the Company's acquisition of Radius on February 1, 2021 ,
our results of operations discussed below for the six month period ended June
30, 2021 only reflect the revenue and expenses generated by LendingClub Bank for
five months of such period.
57
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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)
Marketplace Revenue
Marketplace revenue consists of the following:
Three Months Ended Change (%)
Q2 2022 Q2 2022
June 30, March 31, June 30, vs vs
2022 2022 2021 Q2 2021 Q1 2022
Origination fees $ 149,252 $ 122,093 $ 113,802 31 % 22 %
Servicing fees 18,166 18,514 22,714 (20) % (2) %
Gain on sales of loans 29,319 24,110 19,317 52 % 22 %
Net fair value adjustments 9,647 15,249 (4,098) N/M (37) %
Total marketplace revenue
36 % 15 %
Six Months Ended June 30,
2022 2021 Change (%)
Origination fees $ 271,345 $ 169,361 60 %
Servicing fees 36,680 45,880 (20) %
Gain on sales of loans 53,429 27,640 93 %
Net fair value adjustments 24,896 (9,419) N/M
Total marketplace revenue$ 386,350 $ 233,462
65 %
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: Three Months Ended Six Months Ended June 30, March 31, June 30, 2022 2022 2021 June 30, 2022 June 30, 2021 Marketplace loans$ 2,819,263 $ 2,360,238 $
2,181,620
1,021,110 856,312 540,823 1,877,422 885,237
Total loan originations
Origination fees were
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)
Origination fees were
Origination fees were$271.3 million and$169.4 million for the first halves of 2022 and 2021, respectively, an increase of 60%. The increase was due to higher origination volume of marketplace loans. Loan origination volume of marketplace loans increased to$5.2 billion for the first half of 2022 compared to$3.3 billion for the first half of 2021, an increase of 56%.
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.
Three Months Ended Change (%)
Q2 2022 Q2 2022
June 30, March 31, June 30, vs vs
2022 2022 2021 Q2 2021 Q1 2022
AUM (in millions):
Loans sold $ 11,382 $ 10,475 $ 9,289 23 % 9 %
Loans held by LendingClub Bank 3,258 2,669 917 255 % 22 %
Retail notes, certificates and
secured borrowings 127 175 414 (69) % (27) %
Other loans invested in by the
Company 16 22 121 (87) % (27) %
Total $ 14,783 $ 13,341 $ 10,741 38 % 11 %
In addition to the loans serviced on our marketplace platform, we earned
servicing fee revenue on
Servicing fees remained relatively flat at$18.2 million and$18.5 million for the second and first quarters of 2022, respectively. This was primarily due to a higher principal balance of loans serviced, offset by changes in the fair value of our servicing asset. Servicing fees were$18.2 million and$22.7 million for the second quarters of 2022 and 2021, respectively, a decrease of 20%. The decrease in revenue was primarily due to changes in the fair value of our servicing asset, partially offset by a higher principal balance of loans serviced. Servicing fees were$36.7 million and$45.9 million for the first halves of 2022 and 2021, respectively, a decrease of 20%. The decrease in revenue was primarily due to changes in the fair value of our servicing asset, partially offset by a higher principal balance of loans serviced. 59 --------------------------------------------------------------------------------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)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. Additionally, we recognize transaction costs, if any, as a loss on sale of loans.
Gain on sales of loans was
Gain on sales of loans was
Gain on sales of loans was$53.4 million and$27.6 million for the first halves of 2022 and 2021, respectively, an increase of 93%. The increase was primarily due to an increase in the volume of marketplace loans sold.
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.
Net fair value adjustments were$9.6 million and$15.2 million for the second and first quarters of 2022, respectively, a decrease of$5.6 million . The decrease was primarily due to lower loan sale prices, partially offset by an increase in the volume of marketplace loans sold. Net fair value adjustments were$9.6 million and$(4.1) million for the second quarters of 2022 and 2021, respectively, an increase of$13.7 million . The increase was primarily due to higher loan sale prices and an increase in the volume of marketplace loans sold. Net fair value adjustments were$24.9 million and$(9.4) million for the first halves of 2022 and 2021, respectively, an increase of$34.3 million . The increase was primarily due to higher loan sale prices and an increase in the volume of marketplace loans sold. 60 --------------------------------------------------------------------------------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 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 table below
illustrates the composition of other non-interest income for each period
presented:
Three Months Ended Change (%)
Q2 2022 Q2 2022
June 30, March 31, June 30, vs vs
2022 2022 2021 Q2 2021 Q1 2022
Referral revenue $ 4,025 $ 3,691 $ 2,762 46 % 9 %
Realized gains on sales of
securities available for sale and
other investments - 36 148 (100) % (100) %
Other 3,423 6,164 3,831 (11) % (44) %
Other non-interest income $ 7,448 $ 9,891 $ 6,741 10 % (25) %
Six Months Ended June 30,
2022 2021 Change (%)
Referral revenue $ 7,716 $ 5,356 44 %
Realized gains (losses) on sales of securities
available for sale and other investments 36 (96) (138) %
Other 9,587 7,088 35 %
Other non-interest income $ 17,339 $ 12,348 40 %
61
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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 tables below present net interest income information corresponding to interest-earning assets and interest-bearing funding sources on a consolidated basis for the Company.
Consolidated LendingClub Corporation (1)
Three Months Ended Three Months Ended Three Months Ended
June 30, 2022 March 31, 2022 June 30, 2021
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 (2)
Cash, cash equivalents,
restricted cash and other $ 1,023,192 $ 2,279 0.89 % $ 892,921 $ 688 0.31 % $ 642,182 $ 190 0.12 %
Securities available for
sale at fair value 409,327 4,426 4.32 % 325,155 4,511 5.55 % 273,956 2,539 3.71 %
Loans held for sale 156,503 7,130 18.22 % 255,139 7,450 11.68 % 243,445 8,694 14.29 %
Loans and leases held for
investment:
Unsecured personal loans 2,692,148 95,529 14.19 % 2,060,323 78,376 15.22 % 511,787 19,499 15.24 %
Secured consumer loans 268,091 2,351 3.51 % 232,235 2,275 3.92 % 532,426 5,173 3.89 %
Commercial loans and leases 644,002 8,732 5.42 % 620,660 7,588 4.89 % 623,735 9,062 5.81 %
PPP loans 149,454 2,299 6.15 % 222,517 3,203 5.76 % 615,942 5,334 3.46 %
Loans and leases held for
investment 3,753,695 108,911 11.61 % 3,135,735 91,442 11.66 % 2,283,890 39,068 6.84 %
Retail and certificate loans
held for investment at fair
value 144,613 5,091 14.08 % 198,813 6,969 14.02 % 448,822 16,014 14.27 %
Other loans held for
investment at fair value 16,991 631 14.85 % 18,523 593 12.80 % 38,662 1,222 12.64 %
Total interest-earning
assets 5,504,321 128,468 9.34 % 4,826,286 111,653 9.25 % 3,930,957 67,727 6.89 %
Cash and due from banks and
restricted cash 75,517 92,683 144,897
Allowance for loan and lease losses (202,904) (163,631) (51,109) Other non-interest earning assets 490,412 486,363 447,826 Total assets$ 5,867,346 $ 5,241,701 $ 4,472,571 Interest-bearing liabilities Interest-bearing deposits: Checking and money market accounts$ 2,463,710 $ 2,664 0.43%$ 2,240,450 $ 1,724 0.31 %$ 2,071,112 $ 1,618 0.31 % Savings accounts and certificates of deposit 1,555,607 3,414 0.88% 1,071,133 1,714 0.64 % 301,939 81 0.11 % Interest-bearing deposits 4,019,317 6,078 0.61% 3,311,583 3,438 0.42 % 2,373,051 1,699 0.29 % Short-term borrowings 10,874 417 15.35% 20,371 435 8.56 % 79,511 1,003 5.05 % Advances from PPPLF 151,278 135 0.36% 234,872 206 0.35 % 312,168 272 0.35 % Retail notes, certificates and secured borrowings 144,613 5,091 14.08 % 198,813 6,969 14.02 % 449,057 16,014 14.27 % Structured Program borrowings 18,439 360 7.81 % 42,026 764 7.29 % 121,738 2,668 8.77 % Other long-term debt 15,357 161 4.20 % 15,421 161 4.19 % 16,404 166 4.05 % Total interest-bearing liabilities 4,359,878 12,242 1.12 % 3,823,086 11,973 1.25 % 3,351,929 21,822 2.61 % 62
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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)
Consolidated LendingClub Corporation (1)
Three Months Ended Three Months Ended Three Months Ended
June 30, 2022 March 31, 2022 June 30, 2021
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
Non-interest bearing
deposits 292,750 227,337 92,588
Other liabilities 261,796 319,241 276,723
Total liabilities $ 4,914,424 $ 4,369,664 $ 3,721,240
Total equity $ 952,922 $ 872,037 $ 751,331
Total liabilities and
equity $ 5,867,346 $ 5,241,701 $ 4,472,571
Interest rate spread 8.21 % 8.00 % 4.29 %
Net interest income and
net interest margin $ 116,226 8.45 % $ 99,680 8.26 % $ 45,905 4.67 %
(1) Consolidated presentation reflects intercompany eliminations. (2) Nonaccrual loans and any related income are included in their respective loan categories.
An analysis of the sequential and year-to-year changes in the categories of interest revenue and interest expense resulting from changes in volume and rate is as follows:
Three
Months Ended
Compared to
Three
Months Ended
Increase (Decrease) Due to Change in:
Average
Volume(1) Average Rate(1) Total
Interest-earning assets
Cash, cash equivalents, restricted cash and other $ 114 $ 1,477 $ 1,591
Securities available for sale at fair value 1,030 (1,115) (85)
Loans held for sale (3,539) 3,219 (320)
Loans and leases held for investment 17,932 (463) 17,469
Retail and certificate loans held for investment at fair value
(1,909) 31 (1,878)
Other loans held for investment at fair value (52) 90 38
Total increase in interest income on interest-earning assets
$ 13,576 $ 3,239$ 16,815 Interest-bearing liabilities Checking and money market accounts $ 186 $ 754$ 940 Savings accounts and certificates of deposit 933 767 1,700 Interest-bearing deposits 1,119 1,521 2,640 Short-term borrowings (263) 245 (18) Advances from PPPLF (73) 2 (71) Retail notes, certificates and secured borrowings (1,909) 31 (1,878) Structured Program borrowings (455) 51 (404) Total increase (decrease) in interest expense on interest-bearing liabilities$ (1,581)
$ 1,850
Increase in net interest income$ 15,157
$ 1,389
(1) Volume and rate changes have been allocated on a consistent basis using the respective percentage changes in average balances and average rates.
63
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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)
Three Months Ended June 30, 2022
Compared to
Three Months Ended June 30, 2021 Increase (Decrease) Due to Change in:
Average Volume(1) Average Rate(1) Total
Interest-earning assets
Cash, cash equivalents, restricted cash and other $ 174 $ 1,915 $ 2,089
Securities available for sale at fair value 1,411 476 1,887
Loans held for sale (3,586) 2,022 (1,564)
Loans and leases held for investment 33,550 36,293 69,843
Retail and certificate loans held for investment at fair value
(10,713) (210) (10,923)
Other loans held for investment at fair value (776) 185 (591)
Total increase in interest income on interest-earning assets
$ 20,060 $ 40,681$ 60,741 Interest-bearing liabilities Checking and money market accounts $ 346 $ 700$ 1,046 Savings accounts and certificates of deposit 1,222 2,111 3,333 Interest-bearing deposits 1,568 2,811 4,379 Short-term borrowings (1,392) 806 (586) Advances from PPPLF (142) 5 (137) Retail notes, certificates and secured borrowings (10,713) (210) (10,923) Structured Program borrowings (2,044) (264) (2,308) Other long-term debt (11) 6 (5)
Total decrease in interest expense on interest-bearing liabilities
$ (12,734)
$ 3,154
Increase in net interest income$ 32,794
$ 37,527
(1) Volume and rate changes have been allocated on a consistent basis using the respective percentage changes in average balances and average rates.
64
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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)
Consolidated LendingClub Corporation (1)
Six Months Ended June 30,
2022 2021
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
Interest-earning assets (2)
Cash, cash equivalents, restricted cash and
other $ 958,057 $ 2,967 0.62 % $ 760,361 $ 346 0.09 %
Securities available for sale at fair value 367,241 8,937 4.87 % 311,204 4,774 3.07 %
Loans held for sale 205,821 14,580 14.17 % 229,384 13,851 12.08 %
Loans and leases held for investment:
Unsecured personal loans 2,376,236 173,905 14.64 % 368,275 22,891 14.92 %
Secured consumer loans 250,163 4,626 3.70 % 528,089 8,388 3.81 %
Commercial loans and leases 632,331 16,320 5.16 % 616,561 14,181 5.52 %
PPP loans 185,986 5,502 5.92 % 618,046 8,909 3.46 %
Loans and leases held for investment 3,444,716 200,353 11.63 % 2,130,971 54,369 6.12 %
Retail and certificate loans held for
investment at fair value 171,713 12,060 14.05 % 511,144 36,276 14.19 %
Other loans held for investment at fair
value 17,757 1,224 13.78 % 42,416 2,701 12.74 %
Total interest-earning assets 5,165,305 240,121 9.30 % 3,985,480 112,317 6.18 %
Cash and due from banks and restricted cash 84,100 140,196
Allowance for loan and lease losses (183,268) (42,808)
Other non-interest earning assets 488,387 390,741
Total assets $ 5,554,524 $ 4,473,609
Interest-bearing liabilities
Interest-bearing deposits:
Checking and money market accounts $ 2,352,080 $ 4,388 0.37 % $ 1,939,015 $ 2,531 0.26 %
Savings accounts and certificates of deposit 1,313,370 5,128 0.78 % 310,538 182 0.12 %
Interest-bearing deposits 3,665,450 9,516 0.52 % 2,249,553 2,713 0.29 %
Short-term borrowings 15,622 852 10.91 % 89,196 2,267 5.08 %
Advances from PPPLF 193,075 341 0.35 % 349,071 505 0.35 %
Retail notes, certificates and secured
borrowings 171,713 12,060 14.05 % 511,624 36,276 14.19 %
Structured Program borrowings 30,233 1,124 7.43 % 132,391 5,876 8.88 %
Other long-term debt 15,390 322 4.19 % 17,291 269 3.11 %
Total interest-bearing liabilities 4,091,483 24,215 1.18 % 3,349,126 47,906 2.90 %
Non-interest bearing deposits 260,043 100,597
Other liabilities 290,518 284,905
Total liabilities $ 4,642,044 $ 3,734,628
Total equity $ 912,480 $ 738,981
Total liabilities and equity $ 5,554,524 $ 4,473,609
Interest rate spread 8.11 % 3.28 %
Net interest income and net interest margin $ 215,906 8.36 % $ 64,411 3.83 %
(1) Consolidated presentation reflects intercompany eliminations. (2) Nonaccrual loans and any related income are included in their respective loan categories.
65
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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 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 of expected cash flows. The net present value
from the DCF approach is then compared to the amortized cost basis of the loans
and leases to derive expected credit losses. The provision for credit losses
includes the credit loss expense for HFI loans and leases, 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:
Three Months Ended Six Months Ended June 30,
June 30, March 31, June 30,
2022 2022 2021 2022 2021
Credit loss expense for Radius loans
at acquisition $ - $ - $ - $ - $ 6,929
Credit loss expense for loans and
leases held for investment 70,053 52,228 34,976 122,281 51,600
Credit loss (reversal of) expense for
unfunded lending commitments 513 281 (20) 794 390
Total credit loss expense 70,566 52,509 34,956 123,075 58,919
Reversal of credit loss expense on
securities available for sale - - (322) - (2,792)
Total provision for credit losses
The provision for credit losses was$70.6 million and$52.5 million for the second and first quarters of 2022, respectively. The increase was primarily due to growth in the volume of loans HFI. Total volume of loans HFI was$1.0 billion and$856.3 million for the second and first quarters of 2022, respectively. The provision for credit losses was$70.6 million and$34.6 million for the second quarters of 2022 and 2021, respectively. The increase was primarily due to growth in the volume of loans HFI. Total volume of loans HFI was$1.0 billion and$540.8 million for the second quarters of 2022 and 2021, respectively. The provision for credit losses was$123.1 million and$56.1 million for the first halves of 2022 and 2021, respectively. The increase was primarily due to growth in the volume of loans HFI. Total volume of loans HFI was$1.9 billion and$885.2 million for the first halves of 2022 and 2021, respectively. 66 --------------------------------------------------------------------------------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 activity in the ACL was as follows:
Three Months Ended Six Months Ended June 30,
June 30, March 31, June 30,
2022 2022 2021 2022 2021
Allowance for loan and lease losses,
beginning of period $ 187,985 $ 144,389
70,053 52,228 34,976 122,281 58,529
Initial allowance for purchased credit
deteriorated (PCD) loans acquired during
the period (1) - - - - 12,440
Charge-offs (15,852) (9,089) (246) (24,941) (246)
Recoveries 1,074 457 219 1,531 358
Allowance for loan and lease losses, end
of period $ 243,260 $ 187,985 Reserve for unfunded lending commitments, beginning of period$ 1,512 $ 1,231
513 281 (20) 794 390
Reserve for unfunded lending commitments,
end of period (2) $ 2,025 $ 1,512 (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. 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. The net impact to the allowance for PCD assets on the acquisition date was$12.4 million . (2) Relates to$132.6 million ,$109.5 million and$107.5 million of unfunded commitments as ofJune 30, 2022 ,March 31, 2022 andJune 30, 2021 , respectively. Three Months Ended Six Months Ended June 30, June 30, March 31, June 30, 2022 2022 2021 2022 2021 Ratio of allowance for loan and lease losses to total loans and leases held for investment 6.00 % 5.49 % 3.00 % 6.00 % 3.00 % Ratio of allowance for loan and lease losses to total loans and leases held for investment, excluding PPP loans 6.18 % 5.81 % 3.82 % 6.18 % 3.82 % Average loans and leases held for investment$ 3,753,695 $ 3,135,735 $ 2,283,890 $ 3,444,716 $ 2,130,971 Ratio of net charge-offs to average loans and leases held for investment 0.39 % 0.28 % 0.00 % 0.68 % 0.01 % 67
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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)
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. The following table presents nonaccrual loans and leases
as of the periods presented (1):
June 30, 2022 December 31, 2021
Unsecured personal $ 5,597 $ 1,676
Residential mortgages 772 1,373
Secured consumer 2,325 3,011
Total nonaccrual consumer loans held for investment 8,694 6,060
Equipment finance 321 603
Commercial real estate 907 989
Commercial and industrial 12,911 2,333
Total nonaccrual commercial loans and leases held for 14,139 3,925
investment
Total nonaccrual loans and leases held for investment $ 22,833
$ 9,985
(1) Excluding PPP loans, there were no loans that were 90 days or more past due
and accruing as of both
As ofJune 30, 2022 , nonaccrual loans and leases represented 0.56% of total loans and leases HFI, or 0.58% of total loans and leases HFI excluding PPP loans. As ofDecember 31, 2021 , nonaccrual loans and leases represented 0.34% of total loans and leases HFI, or 0.38% of total loans and leases HFI excluding PPP loans. For additional information on the allowance for expected credit losses and nonaccrual loans and leases, see "Notes to Consolidated Financial Statements - Note 1. Summary of Significant Accounting Policies" of our Annual Report and "Note 5. Loans and Leases Held for Investment, Net of Allowance For Loan and Lease Losses" in this Report. 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)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 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 legal and accounting
fees.
Three Months Ended Change (%)
Q2 2022 Q2 2022
June 30, March 31, June 30, vs vs
2022 2022 2021 Q2 2021 Q1 2022
Non-interest expense:
Compensation and benefits $ 85,103 $ 81,610 $ 71,925 18 % 4 %
Marketing 61,497 55,080 35,107 75 % 12 %
Equipment and software 12,461 11,046 9,281 34 % 13 %
Occupancy 6,209 6,019 6,157 1 % 3 %
Depreciation and amortization 10,557 11,039 11,508 (8) % (4) %
Professional services 16,138 12,406 11,520 40 % 30 %
Other non-interest expense 17,421 14,004 14,641 19 % 24 %
Total non-interest expense $ 209,386 $ 191,204 $ 160,139 31 % 10 %
Six Months Ended June 30,
2022 2021 Change (%)
Non-interest expense:
Compensation and benefits $ 166,713 $ 136,345 22 %
Marketing 116,577 54,652 113 %
Equipment and software 23,507 17,174 37 %
Occupancy 12,228 13,057 (6) %
Depreciation and amortization 21,596 23,274 (7) %
Professional services 28,544 23,123 23 %
Other non-interest expense 31,425 26,766 17 %
Total non-interest expense $ 400,590 $ 294,391 36 %
Compensation and benefits expense was $85.1 million and $81.6 million for the
second and first quarters of 2022, respectively, an increase of 4%. The increase
was primarily due to an increase in headcount.
Compensation and benefits expense was $85.1 million and $71.9 million for the
second quarters of 2022 and 2021, respectively, an increase of 18%. The increase
was primarily due to an increase in headcount.
Compensation and benefits expense was $166.7 million and $136.3 million for the
first halves of 2022 and 2021, respectively, an increase of 22%. The increase
was primarily due to an increase in headcount.
Marketing expense was $61.5 million and $55.1 million for the second and first
quarters of 2022, respectively, an increase of 12%. The increase was primarily
due to an increase in variable marketing expenses based on higher origination
volume and an increase in deposits, partially offset by the deferral of
applicable marketing expenses for HFI loans.
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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)
Marketing expense was $61.5 million and $35.1 million for the second quarters of
2022 and 2021, respectively, an increase of 75%. The increase was primarily due
to an increase in variable marketing expenses based on higher origination volume
and an increase in deposits, partially offset by the deferral of applicable
marketing expenses for HFI loans.
Marketing expense was $116.6 million and $54.7 million for the first halves of
2022 and 2021, respectively, an increase of 113%. The increase was primarily due
to an increase in variable marketing expenses based on higher origination volume
and an increase in deposits, partially offset by the deferral of applicable
marketing expenses for HFI loans.
Equipment and software expense was
Equipment and software expense was$12.5 million and$9.3 million for the second quarters of 2022 and 2021, respectively, an increase of 34%. The increase was primarily due to an increase in hosting fees and subscription costs.
Equipment and software expense was
Occupancy expense was
Occupancy expense was
Depreciation and amortization expense remained relatively flat at
Depreciation and amortization expense was$10.6 million and$11.5 million for the second quarters of 2022 and 2021, respectively, a decrease of 8%. The decrease was primarily due to an increase in fully depreciated assets, partially offset by an increase in the amortization of intangible assets resulting from the Acquisition. Depreciation and amortization expense was$21.6 million and$23.3 million for the first halves of 2022 and 2021, respectively, a decrease of 7%. The decrease was primarily due to an increase in fully depreciated assets, partially offset by an increase in the amortization of intangible assets resulting from the Acquisition.
Professional services were
Professional services were
Professional services were$28.5 million and$23.1 million for the first halves of 2022 and 2021, respectively, and increase of 23%. The increase was primarily due to an increase in consulting fees. 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)Income Taxes
For the second quarter and first half of 2022, we recorded an income tax benefit of$132.0 million and$127.0 million , respectively. The income tax benefit for the first half of 2022 was primarily due to the release of a$135.3 million valuation allowance against our deferred tax assets, partially offset by a$3.3 million state income tax expense. For the second quarter and first half of 2021, the Company recorded an income tax benefit (expense) of$(0.2) million and$2.6 million , respectively. The income tax benefit for the first half of 2021 was primarily related to changes in the deferred tax asset valuation allowance resulting from a deferred tax liability assumed with the Acquisition. 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 during the second quarter of 2022. As ofJune 30, 2022 , we maintained a valuation allowance of$69.9 million related to NOLs and tax credit carryforwards, of which certain NOLs' tax benefit will be realized through our effective tax rate during the remainder of 2022. The realization and timing of any remaining state NOLs and tax credit carryforwards is uncertain and may expire before being utilized. We expect that our effective tax rate in 2023 will approximate our statutory tax rate of 28%. 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. 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)Financial information for the segments is presented in the following table:
LendingClub
LendingClub Corporation Intercompany
Bank (Parent only) Eliminations Consolidated Total
Three Months Ended June 30, Three Months Ended June 30, Three Months Ended June 30,
Three Months Ended
2022 2021 2022 2021 2022 2021 2022 2021
Non-interest income:
Marketplace revenue $ 191,087 $ 128,714 $
11,167
$ 206,384 $ 151,735 Other non-interest income 20,041 28,340 3,914 4,281 (16,507) (25,880) 7,448 6,741 Total non-interest income 211,128 157,054 15,081 27,302 (12,377) (25,880) 213,832 158,476 Interest income: Interest income 120,152 45,325 8,316 22,402 - - 128,468 67,727 Interest expense (6,213) (1,972) (6,029) (19,850) - - (12,242) (21,822) Net interest income 113,939 43,353 2,287 2,552 - - 116,226 45,905 Total net revenue 325,067 200,407 17,368 29,854 (12,377) (25,880) 330,058 204,381 (Provision for) reversal of credit losses (70,566) (34,956) - 322 - - (70,566) (34,634) Non-interest expense (196,636) (138,182) (25,127) (47,837) 12,377 25,880 (209,386) (160,139) Income (Loss) before income tax benefit (expense) 57,865 27,269 (7,759) (17,661) - - 50,106 9,608 Income tax benefit (expense) (17,318) 12,513 85,864 8,922 63,408 (21,672) 131,954 (237) Net income (loss)$ 40,547 $ 39,782 $ 78,105 $ (8,739) $ 63,408 $ (21,672) $ 182,060 $ 9,371 72
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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)
LendingClub
LendingClub Corporation Intercompany
Bank (Parent only) Eliminations Consolidated Total
Six Months Five Months Six Months Five Months
Ended June 30, Ended June 30, Six Months Ended June 30, Ended June 30, Ended June 30,
Six Months Ended
2022 2021 2022 2021 2022 2021 2022 2021
Non-interest income:
Marketplace revenue $ 355,922 $ 164,776 $
26,298
$ 386,350 $ 233,462 Other non-interest income 39,539 48,040 8,137 8,379 (30,337) (44,071) 17,339 12,348 Total non-interest income 395,461 212,816 34,435 77,065 (26,207) (44,071) 403,689 245,810 Interest income: Interest income 219,975 62,823 20,146 49,494 - - 240,121 112,317 Interest expense (9,857) (3,219) (14,358) (44,687) - - (24,215) (47,906) Net interest income 210,118 59,604 5,788 4,807 - - 215,906 64,411 Total net revenue 605,579 272,420 40,223 81,872 (26,207) (44,071) 619,595 310,221 (Provision for) reversal of credit losses (123,075) (58,919) - 2,792 - - (123,075) (56,127) Non-interest expense (375,095) (213,681) (51,702) (124,781) 26,207 44,071 (400,590) (294,391) Income (Loss) before income tax benefit (expense) 107,409 (180) (11,479) (40,117) - - 95,930 (40,297) Income tax benefit (expense) (29,673) 12,536 103,591 11,214 53,048 (21,166) 126,966 2,584 Net income (loss)$ 77,736 $ 12,356 $ 92,112 $ (28,903) $ 53,048 $ (21,166) $ 222,896 $ (37,713) 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, an analysis of the Company's results of operations and material trends for the second quarter and first half of 2022 compared to the second quarter and first half of 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: Net
Income (Loss) Excluding Income Tax Benefit and Diluted EPS Excluding Income Tax
Benefit. Our non-GAAP measures do have limitations as analytical tools and
should not be considered in isolation or as a substitute for an analysis of our
results under GAAP.
We believe these non-GAAP 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 Net Income (Loss) Excluding Income Tax Benefit and Diluted EPS
Excluding Income Tax Benefit are important measures because they directly
reflect the financial performance of our business operations. Net Income (Loss)
Excluding Income Tax Benefit adjusts for the release of a deferred tax asset
valuation allowance in the
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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)
second quarter of 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.
For a reconciliation of such measures to the nearest GAAP measures, see "Overview - Financial Highlights."
Supervision and Regulatory Environment
We are regularly subject to claims, individual and class action lawsuits, and lawsuits alleging regulatory violations. Further, 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 . The number and significance of these claims, lawsuits, exams, investigations, inquiries, requests and proceedings have been increasing in part because our products and services have been increasing in scope and complexity and in part because we have become 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.
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. 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 theBoard of Governors of theFederal Reserve System (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.
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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)
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" in
our 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 manage 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 requirements under theU.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 theU.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 andLC Bank (untilFebruary 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" in our Annual Report and "Notes to Condensed Consolidated Financial Statements - Note 18. Regulatory Requirements" in this Report for additional information. The following table summarizesLC Bank's regulatory capital amounts and ratios (in millions): June 30, 2022 December 31, 2021 Required Minimum plus Required CCB for LendingClub Bank Amount Ratio Amount Ratio Non-Leverage Ratios CET1 capital (1)$ 710.1 16.7 %$ 523.7 16.7 % 7.0 % Tier 1 capital$ 710.1 16.7 %$ 523.7 16.7 % 8.5 % Total capital$ 765.2 18.0 %$ 563.7 18.0 % 10.5 % Tier 1 leverage$ 710.1 13.4 %$ 523.7 14.3 % 4.0 % Risk-weighted assets$ 4,247.3 N/A$ 3,130.4 N/A N/A Quarterly adjusted average assets$ 5,289.7 N/A$ 3,667.7 N/A N/A
N/A - Not applicable
(1) Consists of common stockholders' equity as defined under
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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)
The following table presents the regulatory capital and ratios of the Company
(in millions):
June 30, 2022 December 31, 2021 Required Minimum plus
Required CCB for
LendingClub Amount Ratio Amount Ratio Non-Leverage Ratios
CET1 capital (1) $ 894.9 20.0 % $ 710.0 21.3 % 7.0 %
Tier 1 capital $ 894.9 20.0 % $ 710.0 21.3 % 8.5 %
Total capital $ 964.9 21.6 % $ 767.9 23.0 % 10.5 %
Tier 1 leverage $ 894.9 16.2 % $ 710.0 16.5 % 4.0 %
Risk-weighted assets $ 4,463.5 N/A $ 3,333.2 N/A N/A
Quarterly adjusted average assets $ 5,532.5 N/A $ 4,301.7 N/A N/A
N/A - Not applicable
(1) Consists of common stockholders' equity as defined under
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 delay the estimated impact of CECL on regulatory capital, resulting in a CET1 capital benefit of$35 million atDecember 31, 2021 . This benefit is phased out over a three-year transition period that commenced onJanuary 1, 2022 at a rate of 25% each year throughJanuary 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 wholesale 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 theFederal 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 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$37.4 million , or 6.2% of total net revenue, and$13.2 million , or 4.8% of total net revenue, for the first halves of 2022 and 2021, respectively. Capital expenditures in 2022 are expected to be approximately$65 million , primarily related to costs associated with the continued development and support of our online lending marketplace platform, including regulatory compliance costs. 76 --------------------------------------------------------------------------------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)
As of June 30, 2022 and December 31, 2021 , cash and cash equivalents at LC Bank
were $1.0 billion and $659.9 million , respectively, reflecting the continued
growth in LC Bank deposits during the first half of 2022. Outstanding PPPLF
borrowings were $123.4 million and $271.9 million at June 30, 2022 and
December 31, 2021 , respectively, and are collateralized by PPP loans originated
by the Company. In addition, LC Bank has available Federal Home Loan Bank of Des
Moines secured borrowing capacity totaling $321.0 million and $173.4 million at
June 30, 2022 and December 31, 2021 , respectively. As of June 30, 2022 and
December 31, 2021 , LC Bank also has secured borrowing capacity available under
the FRB Discount Window totaling $181.3 million and $75.2 million , respectively.
LendingClub Holding Company Liquidity
The primary source of liquidity at the holding company is$95.8 million and$88.3 million in cash and cash equivalents as ofJune 30, 2022 andDecember 31, 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.
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 1. Financial Statements - Condensed 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.
Our net interest income is affected by changes in the level of interest rates, the relationship between rates, the impact of interest rate fluctuations on asset prepayments, and the level and composition of deposits and liabilities.
Interest Rate SensitivityLendingClub Bank Loans HFI atLC Bank are funded primarily through our deposit base, and the majority of loans onLC Bank's balance sheet, at any point in time, are retained in the HFI portfolio and accounted for at amortized cost. As a result, the primary component of interest rate risk on our financial instruments atLC Bank arises from the impact of 77 --------------------------------------------------------------------------------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)fluctuations in loan and deposit rates on our net interest income. Therefore, we measure this sensitivity by assessing the impact of hypothetical changes in interest rates on our net interest income results.
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 as of
200 basis point increase (3.1) % 100 basis point decrease 0.0 % The impact of these hypothetical interest rate changes are not significant toLC Bank's net interest income. In a hypothetical 100 basis point interest rate reduction, lower deposit costs are offset by decreased asset yields over the next twelve months, resulting in a neutral impact to net interest income.
For additional details regarding maturities of loans and leases HFI, see "Part II - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk" in our Annual Report.
For the weighted-average yields on our AFS securities portfolio, see "Notes to Condensed Consolidated Financial Statements - Note 4. Securities Available for Sale."LendingClub Holding Company 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 at fair value 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 of
Critical Accounting Estimates
Certain of the Company's accounting policies that involve a higher degree of
judgment and complexity are discussed in "Part II - Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Critical Accounting Estimates" in our Annual Report. There have been no
significant changes to these critical accounting estimates during the first half
of 2022.
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LENDINGCLUB CORPORATION © Edgar Online, source
