10-Q 1 q31610q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
  
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
Commission File Number: 001-36771
 
LendingClub Corporation
(Exact name of registrant as specified in its charter)

Delaware
51-0605731
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
71 Stevenson Street, Suite 300, San Francisco, CA 94105
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (415) 632-5600
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x

Accelerated filer
¨

 
 
 
 
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
Smaller reporting company
¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  x
As of October 31, 2016, there were 394,289,150 shares of the registrant’s common stock outstanding.



LENDINGCLUB CORPORATION
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Except as the context requires otherwise, as used herein, “Lending Club,” “Company,” “we,” “us,” and “our,” refer to LendingClub Corporation, a Delaware corporation, and, where appropriate, its three subsidiaries:

LC Advisors, LLC (LCA), a wholly-owned, registered investment advisor with the Securities and Exchange Commission (SEC) that acts as the general partner for certain private funds and as advisor to separately managed accounts.
Springstone Financial, LLC (Springstone), a wholly-owned company that facilitates education and patient finance loans.
RV MP Fund GP, LLC, a wholly-owned subsidiary of LCA that acts as the general partner for a private fund, while LCA acts as the investment manager of this private fund.

LC Trust I (the Trust) is an independent Delaware business trust that acquires loans from the Company and holds them for the sole benefit of certain investors that have purchased a trust certificate (Certificate) issued by the Trust and that are related to specific underlying loans for the benefit of the investor.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 29A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this Quarterly Report on Form 10-Q (Report) regarding borrowers, credit scoring, our strategy, future operations, expected losses, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “appear,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “will,” or similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

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

the status of borrowers, the ability of borrowers to repay loans and the plans of borrowers;
our ability to maintain investor confidence in the operation of our platform;
the likelihood of investors to continue to, directly or indirectly, invest through our platform;
our ability to secure additional sources of investor commitments for our platform;
ability to secure additional investors without incentives to participate on the platform;
interest rates and origination fees on loans charged by issuing banks;
expected rates of return for investors;
the effectiveness of our platform’s credit scoring models;
commitments or investments in loans to support: contractual obligations, such as to Springstone’s issuing bank for Pool B loans or repurchase obligations, regulatory commitments, such as direct mail, short-term marketplace equilibrium, the testing or initial launch of alternative loan terms, programs or channels that we do not have sufficient performance data on, or customer accommodations;
transaction fee or other revenue we expect to recognize after loans are issued by our issuing bank partners;
our financial condition and performance, including the impact that management’s estimates have on our financial performance and the relationship between the interim period and full year results;
capital expenditures;
the impact of new accounting standards;
investor, borrower, platform and loan performance-related factors that may affect our revenue;
the potential adoption rates and returns related to new products and services;
the potential impact of macro-economic developments that could impact borrower and investor behavior;
our ability to develop and maintain effective internal controls, and to remediate a material weakness in our internal controls;
our ability to recruit and retain quality employees to support future growth in light of past events;
our compliance with applicable local, state and Federal laws;

1


our compliance with applicable regulations and regulatory developments or court decisions affecting our marketplace; and
other risk factors listed from time to time in reports we file with the SEC.

We caution you that the foregoing list may not contain all of the forward-looking statements in this Report. We may not actually achieve the plans, intentions or expectations disclosed in forward-looking statements, and you should not place undue reliance on forward-looking statements. We have included important factors in the cautionary statements included in this Report, particularly in “Part II Other Information Item 1A Risk Factors” in this Report and the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2015, that could, among other things, cause actual results or events to differ materially from forward-looking statements contained in this Report. Forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

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


2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LENDINGCLUB CORPORATION
Condensed Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
 
September 30, 
 2016
 
December 31, 
 2015
Assets
 
 
 
Cash and cash equivalents
$
520,767

 
$
623,531

Restricted cash
139,455

 
80,733

Securities available for sale
278,949

 
297,211

Loans at fair value (includes $2,675,002 and $3,022,001 from consolidated trust, respectively)
4,411,626

 
4,556,081

Loans held for sale
14,744

 

Accrued interest receivable (includes $24,741 and $24,477 from consolidated trust, respectively)
40,801

 
38,081

Property, equipment and software, net
82,556

 
55,930

Intangible assets, net
27,373

 
30,971

Goodwill
35,633

 
72,683

Other assets
55,833

 
38,413

Total assets
$
5,607,737

 
$
5,793,634

Liabilities and Stockholders Equity
 
 
 
Accounts payable
$
7,651

 
$
5,542

Accrued interest payable (includes $27,597 and $26,719 from consolidated trust, respectively)
44,080

 
40,244

Accrued expenses and other liabilities
78,177

 
61,243

Payable to investors
81,376

 
73,162

Notes and certificates at fair value (includes $2,691,022 and $3,034,586 from consolidated trust, respectively)
4,419,911

 
4,571,583

Total liabilities
4,631,195

 
4,751,774

Stockholders’ Equity
 
 
 
Common stock, $0.01 par value; 900,000,000 shares authorized at both September 30, 2016 and December 31, 2015; 394,158,313 and 379,716,630 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively
3,964

 
3,797

Additional paid-in capital
1,194,637

 
1,127,952

Accumulated deficit
(201,917
)
 
(88,218
)
Treasury stock, at cost; 2,282,700 and 0 shares at September 30, 2016 and December 31, 2015, respectively
(19,485
)
 

Accumulated other comprehensive loss
(657
)
 
(1,671
)
Total stockholders’ equity
976,542

 
1,041,860

Total liabilities and stockholders’ equity
$
5,607,737

 
$
5,793,634


See Notes to Condensed Consolidated Financial Statements.

3


LENDINGCLUB CORPORATION
Condensed Consolidated Statements of Operations
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)

 
Three Months Ended  
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
Operating revenue:
 
 
 
 
 
 
 
Transaction fees
$
100,813

 
$
100,420

 
$
321,926

 
$
258,553

Servicing fees
16,513

 
8,999

 
45,058

 
20,870

Management fees
1,964

 
2,900

 
8,562

 
7,663

Other revenue (expense)
(6,681
)
 
2,743

 
(9,281
)
 
5,140

Total operating revenue
112,609

 
115,062

 
366,265

 
292,226

Net interest income:

 
 
 
 
 
 
Total interest income
171,868

 
145,833

 
529,432

 
389,831

Total interest expense
(169,444
)
 
(144,659
)
 
(523,723
)
 
(387,666
)
Net interest income
2,424

 
1,174

 
5,709

 
2,165

Fair value adjustments - loans, loans held for sale, notes and certificates
(477
)
 
40

 
(1,684
)
 
34

Net interest income and fair value adjustments
1,947

 
1,214

 
4,025

 
2,199

Total net revenue
114,556

 
116,276

 
370,290

 
294,425

Operating expenses: (1)
 
 
 
 
 
 
 
Sales and marketing
44,901

 
44,018

 
161,213

 
117,989

Origination and servicing
16,332

 
16,732

 
56,464

 
43,639

Engineering and product development
29,428

 
21,063

 
82,835

 
53,175

Other general and administrative
58,940

 
32,280

 
150,432

 
86,937

Goodwill impairment
1,650

 

 
37,050

 

Total operating expenses
151,251

 
114,093

 
487,994

 
301,740

Income (loss) before income tax expense
(36,695
)
 
2,183

 
(117,704
)
 
(7,315
)
Income tax (benefit) expense
(209
)
 
1,233

 
(4,004
)
 
2,249

Net income (loss)
$
(36,486
)
 
$
950

 
$
(113,700
)
 
$
(9,564
)
Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
(0.09
)
 
$
0.00

 
$
(0.30
)
 
$
(0.03
)
Diluted
$
(0.09
)
 
$
0.00

 
$
(0.30
)
 
$
(0.03
)
Weighted-average common shares - Basic
391,453,316

 
375,982,120

 
385,037,334

 
373,605,274

Weighted-average common shares - Diluted
391,453,316

 
401,934,880

 
385,037,334

 
373,605,274

(1) 
Prior period amounts have been reclassified to conform to the current period presentation. See “Note 1 – Basis of Presentation” for additional information.

See Notes to Condensed Consolidated Financial Statements.


4


LENDINGCLUB CORPORATION
Condensed Consolidated Statements of Comprehensive Loss
(In Thousands)
(Unaudited)






 
Three Months Ended  
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
Net income (loss)
$
(36,486
)
 
$
950

 
$
(113,700
)
 
$
(9,564
)
Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
Change in net unrealized gain (loss) on securities available for sale
111

 
(341
)
 
1,710

 
(1,172
)
Other comprehensive income (loss), before tax
111

 
(341
)
 
1,710

 
(1,172
)
Income tax effect
46

 

 
696

 

Other comprehensive income (loss), net of tax
65

 
(341
)
 
1,014

 
(1,172
)
Comprehensive income (loss)
$
(36,421
)
 
$
609

 
$
(112,686
)
 
$
(10,736
)

See Notes to Condensed Consolidated Financial Statements.

5


LENDINGCLUB CORPORATION
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)

 
Nine Months Ended 
 September 30,
 
2016
 
2015
Cash Flows from Operating Activities:
 
 
 
Net loss
$
(113,700
)
 
$
(9,564
)
Adjustments to reconcile net loss to net cash (used for) provided by operating activities:
 
 
 
Net fair value adjustments of loans, notes and certificates
1,684

 
(33
)
Change in fair value of loan servicing liabilities
(3,028
)
 
(3,919
)
Change in fair value of loan servicing assets
7,092

 
2,467

Stock-based compensation, net
46,434

 
37,558

Excess tax benefit from share-based awards
62

 

Goodwill impairment charge
37,050

 

Depreciation and amortization
21,374

 
15,525

Loss (gain) on sales of loans
(10,531
)
 
(2,136
)
Other, net
3,618

 
42

Purchase of whole loans to be sold
(3,653,191
)
 
(2,338,346
)
Proceeds from sales of whole loans
3,635,330

 
2,338,346

Net change in operating assets and liabilities:
 
 
 
Accrued interest receivable
(2,720
)
 
(12,282
)
Other assets
(1,570
)
 
(6,341
)
Due from related parties
120

 
(139
)
Accounts payable
1,888

 
(3,071
)
Accrued interest payable
3,835

 
12,893

Accrued expenses and other liabilities
18,507

 
22,350

Net cash (used for) provided by operating activities
(7,746
)
 
53,350

Cash Flows from Investing Activities:
 
 
 
Purchases of loans
(2,086,228
)
 
(2,736,698
)
Principal payments received on loans
1,783,763

 
1,280,005

Proceeds from recoveries and sales of charged-off loans
27,451

 
13,729

Proceeds from sale of loans repurchased
22,274

 

Purchases of securities available for sale
(40,123
)
 
(402,832
)
Proceeds from maturities, redemptions and paydowns of securities available for sale
59,735

 
63,198

Investment in Cirrix Capital
(10,000
)
 

Net change in restricted cash
(58,722
)
 
(112,453
)
Purchases of property, equipment and software, net
(39,044
)
 
(25,867
)
Net cash used for investing activities
(340,894
)
 
(1,920,918
)
Cash Flows from Financing Activities:
 
 
 
Change in payable to investors
8,214

 
112,139

Proceeds from issuances of notes and certificates
2,041,746

 
2,736,667


6


LENDINGCLUB CORPORATION
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)

 
Nine Months Ended 
 September 30,
 
2016
 
2015
Proceeds from secured borrowings
22,274

 

Repayments of secured borrowings
(22,274
)
 

Principal payments on notes and certificates
(1,770,779
)
 
(1,268,622
)
Payments on notes and certificates from recoveries/sales of related charged-off loans
(26,871
)
 
(13,654
)
Repurchases of common stock
(19,485
)
 

Proceeds from stock option exercises and other
10,580

 
7,680

Proceeds from issuance of common stock for ESPP
2,516

 
2,694

Excess tax benefit from share-based awards
(62
)
 

Other financing activities
17

 
90

Net cash provided by financing activities
245,876

 
1,576,994

Net (Decrease) Increase in Cash and Cash Equivalents
(102,764
)
 
(290,574
)
Cash and Cash Equivalents, Beginning of Period
623,531

 
869,780

Cash and Cash Equivalents, End of Period
$
520,767

 
$
579,206

Supplemental Cash Flow Information:
 
 
 
Cash paid for interest
$
519,690

 
$
374,760

Non-cash investing activity:
 
 
 
Accruals for property, equipment and software
$
2,610

 
$
3,466


See Notes to Condensed Consolidated Financial Statements.


7


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




1. Basis of Presentation

LendingClub Corporation (Lending Club) is an online marketplace connecting borrowers and investors. LC Advisors, LLC (LCA), is a registered investment advisor with the Securities and Exchange Commission (SEC) and wholly-owned subsidiary of Lending Club that acts as the general partner for certain private funds and advisor to separately managed accounts (SMAs) and a fund of which its wholly-owned subsidiary RV MP Fund GP, LLC, is the general partner. Springstone Financial, LLC (Springstone), is a wholly-owned subsidiary of Lending Club that facilitates education and patient finance loans. LC Trust I (the Trust) is an independent Delaware business trust that acquires loans from Lending Club and holds them for the sole benefit of certain investors that have purchased a trust certificate (Certificate) issued by the Trust and that are related to specific underlying loans for the benefit of the investor.

Although the Company's overall business model remains premised on the Company not using its balance sheet and not assuming credit risk for loans facilitated through our marketplace, the Company may use its capital to support contractual obligations (Pool B loans and repurchase obligations), regulatory commitments (direct mail), short-term marketplace equilibrium, customer accommodations, or other needs. The Company's use of its capital on the platform from time to time has been, and will be, on terms that are substantially similar to other investors. Additionally, the Company may use its capital to invest in loans associated with the testing or initial launch of new or alternative loan terms, programs or channels to establish a track record of performance prior to facilitating third-party investments in these loans.

With the announcement of the initial results of the internal board review on May 9, 2016 and additional findings disclosed on June 28, 2016, many investors paused or reduced their investment activity. The Company has been focused on working with these investors to resume their investment activity and on bringing new investors to the platform. During the second quarter of 2016 and the third quarter of 2016 through August 31, 2016 the Company offered incentives to investors in exchange for investment activity. The Company ended these incentives in August of 2016 and did not offer these incentives to investors for investments in loans in the month of September 2016. Additionally, the Company did not have to use a material amount of its own capital to purchase loans in the third quarter of 2016. The Company may enter into strategic arrangements, for example, agreements that involve larger or more long-term forms of committed capital. On November 7, 2016 the Company announced a new addition to the Company’s investor capital mix through an arrangement with a subsidiary of the National Bank of Canada which has approved up to $1.3 billion to be deployed on the Lending Club platform. Subject to certain terms and conditions, the first $325 million has been committed to be deployed on the platform over the next three months.  

The failure of the Company to attract investor capital may result in the Company using a greater amount of its own capital to purchase loans on the platform compared to prior periods, or reduce origination volume which could have material adverse impacts on the Company's business, financial condition (including its liquidity), results of operations or ability to sustain and grow loan volume.

The Company believes, based on its projections and ability to reduce loan volume if needed, that its cash on hand, funds available from its line of credit, and its cash flow from operations are sufficient to meet its liquidity needs for the next twelve months.

The accompanying unaudited condensed consolidated financial statements include Lending Club, its subsidiaries (collectively referred to as the Company, we, or us) and the Trust. All intercompany balances and transactions have been eliminated. These condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) for interim financial information 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

8


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



accompanying financial statements. These condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the periods presented. These adjustments are of a normal recurring nature. Actual results may differ from those estimates, and results reported in the interim periods are not necessarily indicative of the results for the full year or any other interim period.

In the fourth quarter of 2015, the Company disaggregated the expense previously reported as “General and administrative” into “Engineering and product development” and “Other general and administrative” expense. Additionally, the Company reclassified certain operating expenses between “Sales and marketing,” “Origination and servicing,” “Engineering and product development” and “Other general and administrative” expense to align such classification and presentation with how the Company currently manages the operations and these expenses. These changes had no impact to “Total operating expenses.” Prior period amounts have been reclassified to conform to the current presentation.

The accompanying interim condensed consolidated financial statements and these related notes should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (Annual Report) and Form 10-K/A filed on May 17, 2016. The Company's significant accounting policies are included in “Note 2 – Summary of Significant Accounting Policies.

2. Summary of Significant Accounting Policies

The Company's significant accounting policies are discussed in “Part II – Item 8 – Financial Statements and Supplementary Data – Note 2 – Summary of Significant Accounting Policies” in the Annual Report. There have been no significant changes to these significant accounting policies for the nine month period ended September 30, 2016, except as noted below.

Transaction Fee Revenue

Transaction fees are paid by issuing banks or patient service providers to Lending Club for the work Lending Club performs through its platform and Springstone’s platform in facilitating loans for its issuing bank partners. These fees are recognized as a component of operating revenue at the time of loan issuance. Factors affecting the amount of fees paid to the issuing bank by the borrower and from the bank to the Company include initial loan amount, term, credit quality, and other factors.

Commencing with the origination fee increase announced in March 2016, in the event a borrower prepays a loan in full before maturity, the Company assumes the issuing bank partner's obligation under Utah law to refund the pro-rated amount of the fee received by the bank in excess of 5%. Additionally, the Company may provide refunds to patient finance borrowers when the borrower cancels the loan under certain conditions. Since Lending Club can estimate refunds based on loan cancellation or prepayment experience, the Company records transaction fee revenue net of estimated refunds at the time of loan issuance.

Restricted Cash

Restricted cash consists primarily of checking, money market and certificate of deposit accounts that are: (i) pledged to or held in escrow by the Company’s correspondent banks as security for transactions processed on or related to Lending Club’s platform or activities by certain investors; (ii) pledged through a credit support agreement with a certificate holder; (iii) held in a Rabbi Trust through a grantor trust agreement to satisfy obligations to participants under the Company’s 2016 Cash Retention Bonus Plan (“Cash Retention Plan”). See “Note 13 – Employee Incentive and Retirement Plans” for additional information, or (iv) received from investors but not yet applied to their accounts on the platform and transferred to segregated bank accounts that hold investors’ funds.

9


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




Investor cash balances (excluding transactions-in-process) are held in segregated bank or custodial accounts and are not commingled with the Company’s monies or held on the Company’s condensed consolidated balance sheet.

Loans Held for Sale

Loans held by the Company with the intent to sell are reflected on the balance sheet as loans held for sale. Loans held for sale are accounted for at fair value. The Company’s fair value methodology for the measurement of loans held for sale is consistent with that of loans not classified as held for sale. The fair valuation methodology considers projected prepayments and uses the historical actual defaults, losses and recoveries on our loans to project future losses and net cash flows on loans. The fair value adjustments related to loans held for sale are recorded in the period of the fair value changes.

Consolidation of Variable Interest Entities

A variable interest entity (VIE) is a legal entity that does not have sufficient equity at risk to finance its own operations, whose equity holders do not have the power to direct the activities most significantly affecting the economic outcome of those activities, or whose equity holders do not share proportionately in the losses or receive the residual returns of the entity. The determination of whether an entity is a VIE requires a significant amount of judgment. When the Company has a controlling financial interest in a VIE, it must consolidate the results of the VIE’s operations into its condensed consolidated financial statements. A controlling financial interest exists if the Company has both the power to direct the VIE’s activities that most significantly affect the VIE’s economic performance (power) and the obligation to absorb losses or receive benefits that could be potentially significant to the VIE (economics).

LC Trust I

The Company has determined that the Trust is a VIE and that the Company has a controlling financial interest in the Trust and therefore must consolidate the Trust in its condensed consolidated financial statements. The Company established the Trust in February 2011 and funded it with a nominal residual investment. The Company is the only residual investor in the Trust. The purpose of the Trust is to acquire and hold loans for the benefit of investors who have invested in certificates issued by the Trust. The Trust conducts no other business other than purchasing and retaining loans or portions thereof for the benefit of the investment funds and their underlying limited partners. The Trust holds loans, none of which are financed by the Company. The cash flows from the loans held by the Trust are used to repay obligations under the certificates. The Trust’s assets and liabilities were reflected in the Company's condensed consolidated financial statements at September 30, 2016 and December 31, 2015.

In connection with the formation of the investment funds, it was determined that in order to achieve success in raising investment capital, the assets to be invested in by the investment funds must be held by an entity that was separate and distinct from the Company (i.e. bankruptcy remote) in order to reduce this risk and uncertainty. In the event of the Company's insolvency, it is anticipated that the assets of the Trust would not become part of the bankruptcy estate, but that outcome is uncertain.

The Company's capital contributions, which are the only equity investments in the Trust, are insufficient to allow the Trust to finance the purchase of a significant amount of loans without the issuance of certificates to investors. Therefore, the Trust’s capitalization level qualifies the Trust as a VIE. The Company has a financial interest in the Trust because of its right to returns related to servicing fee revenue from the Trust, its right to reimbursement for expenses, and its obligation to repurchase loans from the Trust in certain instances. Additionally, the Company performs or directs activities that significantly affect the Trust’s economic performance through or by (i) operation of the platform that enables borrowers to apply for loans purchased by the Trust; (ii) credit underwriting and

10


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



servicing of loans purchased by the Trust; (iii) LCA's selection of the loans that are purchased by the Trust on behalf of advised Certificate holders; and (iv) LCA’s role to source investors that ultimately purchase limited partnership interests in a fund or Certificates, both of which supply the funds for the Trust to purchase loans. Collectively, the activities described above allow the Company to fund more loans than would be the case without the existence of the Trust, to collect the related loan transaction fees and for LCA to collect the management fees on the investors’ capital used to purchase certificates. Accordingly, the Company is deemed to have power to direct activities most significant to the Trust and economic interest in the activities because of loan funding and transaction and management fees. Therefore, the Company concluded that it is the primary beneficiary of the Trust and consolidated the Trust’s operations in its condensed consolidated financial statements.

Investment In Cirrix Capital

On April 1, 2016, the Company closed its $10.0 million investment, for an approximate ownership interest of 15% in Cirrix Capital (Investment Fund), a holding company to a family of funds that purchases loans and interests in loans from the Company. Per the partnership agreement, the family of funds can invest up to 20% of their assets outside of whole loans and interests in whole loans facilitated by the Company. At September 30, 2016, 100% of the family of funds' assets were comprised of whole loans and interests in loans facilitated by Lending Club's platform. At the time the Company made its investment, the Company's then Chief Executive Officer (former CEO) and a board member (together, the Related Party Investors) also had limited partnership interests in the Investment Fund that resulted in an aggregate ownership of approximately 29% in the Investment Fund by the Related Party Investors and the Company. As of September 30, 2016, the Company and a board member had an aggregate ownership interest of approximately 27% in the Investment Fund.

The Company's investment is deemed to be a variable interest in the Investment Fund because of the limited partnership interest shares in the expected returns and losses of the Investment Fund. The expected returns and losses of the Investment Fund result from the net returns of the family of funds owned by the Investment Fund, which are derived from interest income earned from loans and interests in whole loans that are purchased by the family of funds, which are owned by the Investment Fund. Such loans and interests in loans were facilitated by the Company. Additionally, the Investment Fund is considered a VIE.

The Investment Fund passes along credit risk to the limited partners. The Company did not design the Investment Fund’s investment strategy and cannot require the Investment Fund to purchase loans. Additionally, the Company reviewed whether it collectively, with the board member's investment, had power to control the Investment Fund and concluded that it did not based on the unilateral ability of the general partner to exercise power over the limited partnership and the inability of the limited partners to remove the general partner. The Company is not the primary beneficiary of the Investment Fund because the Company does not have the power to direct the activities that most significantly affect the Investment Fund’s economic performance. As a result, the Company does not consolidate the operations of the Investment Fund in the financial statements of the Company. The Company accounts for this investment under the equity method of accounting, which approximates its maximum exposure to loss as a result of its involvement in the Investment Fund. At September 30, 2016, the Company's investment was $10.1 million, which was recorded in other assets in the condensed consolidated balance sheet. See “Note 17 – Related Party Transactions” for additional information.

Separately, the Company is subject to a credit support agreement that requires it to pledge and restrict cash in support of its contingent obligation to reimburse the Investment Fund for net credit losses on loans underlying the interests in whole loans that are in excess of a specified, aggregate net loss threshold. This credit support agreement is deemed to be a variable interest in the Investment Fund because it exposes the Company to potential credit losses on the underlying interests in loans purchased by the Investment Fund. The board member and the Company are excluded from receiving any benefits, if provided, from this credit support agreement. As of September 30, 2016, the Company has not been required to nor does it anticipate recording losses under this agreement. The Company's

11


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



maximum exposure to loss under this credit support agreement was limited to $6.0 million and $34.4 million at September 30, 2016 and December 31, 2015, respectively.

LCA Managed or Advised Private Funds

In conjunction with the adoption of a new accounting standard that amends accounting for consolidations effective January 1, 2016, the Company reviewed its relationship with the private funds managed or advised by LCA and concluded that it does not have a variable interest in the private funds. As of September 30, 2016, the Company does not hold any investments in the private funds. Certain of the Company's related parties have investments in the private funds, as discussed in “Note 17 – Related Party Transactions.” The Company charges the limited partners in the private funds a management fee based on their account balance at month end for services performed as the general manager, including fund administration, and audit, accounting and tax preparation services. Accordingly, the Company's fee arrangements contain only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated at arm’s length. These fees are solely compensation for services provided and are commensurate with the level of effort required to provide those services. The Company does not have any other interests in the private funds and therefore does not have a variable interest in the private funds.

Management regularly reviews and reconsiders its previous conclusions regarding whether it holds a variable interest in potential VIEs, the status of an entity as a VIE, and whether the Company is required to consolidate such VIEs in the condensed consolidated financial statements.

Loan Servicing Rights

As a result of the nature of servicing rights on the sale of loans, the Company is a variable interest holder in certain entities that purchase these loans. For all of these entities, the Company either does not have the power to direct the activities that most significantly affect the VIE's economic performance or does not have a potentially significant economic interest in the VIE. In no case is the Company the primary beneficiary, and as a result, these entities are not consolidated in the Company's condensed consolidated financial statements.

Loan Trailing Fee Liability

In February 2016, the Company revised the agreement with its primary issuing bank to include an additional program fee (Loan Trailing Fee). The Loan Trailing Fee is dependent on the amount and timing of principal and interest payments made by borrowers of the underlying loans, and gives the issuing bank an ongoing financial interest in the performance of the loans it originates. This fee is paid by the Company to the issuing bank partner over the term of the respective loans and is a function of the principal and interest payments. In the event that principal and interest payments are not made, the Company is not required to make this Loan Trailing Fee payment. The Loan Trailing Fee is recorded at fair value with the initial establishment, and any changes, of this liability are netted against transaction fees on the Company's condensed consolidated statement of operations. The fair value of the Loan Trailing Fee represents the present value of the expected monthly Loan Trailing Fee, which considers assumptions of expected prepayment rates and future credit losses.

Debt

The Company has elected to record certain costs directly related to its secured revolving credit facility as an asset included in other assets on the Company’s condensed consolidated balance sheets. These costs are amortized as interest expense over the contractual term of the secured revolving credit facility. Additionally, in instances where the Company transfers loans to investors that do not meet sale criteria for accounting purposes, such loan sales are accounted for as secured borrowings.


12


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



Adoption of New Accounting Standard

In February 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-02 Consolidation (Topic 810): Amendments to the Consolidation Analysis, which was effective January 1, 2016. The guidance changes what an investor must consider in determining whether it is required to consolidate an entity in which it holds an interest. The adoption of this guidance did not have an impact on the Company's financial position, results of operations, earnings per share (EPS) or cash flows.

New Accounting Standards Not Yet Adopted

In August 2016, the FASB issued ASU 2016-15 Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments, which will be effective January 1, 2018, and amends the existing accounting standards for the statement of cash flows. The amendments provide guidance on the following eight cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and, separately identifiable cash flows and application of the predominance principle. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the timing and impact of these amendments on its cash flows.
In June 2016, the FASB amended guidance related to impairment of financial instruments as part of ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which will be effective January 1, 2020. The guidance replaces the incurred loss impairment methodology with an expected credit loss model for which a company recognizes an allowance based on the estimate of expected credit loss. The Company is currently evaluating the impact of this new guidance on its financial position, results of operations, EPS and cash flows.

In March 2016, the FASB issued ASU 2016-09 Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which will be effective January 1, 2017. The guidance simplifies the accounting for share-based payments related to the income tax consequences of share-based awards, the classification of awards in a company's financial statements, and estimating forfeitures of awards. The Company is currently evaluating the impact of this new guidance on its financial position, results of operations, EPS and cash flows.

In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842) that amended guidance related to the lease accounting, which will be effective January 1, 2019. The guidance requires an entity to recognize a right-of-use asset and lease liability for most lease arrangements. The standard also requires additional disclosures related to lease arrangements. The Company is currently evaluating the impact of this new guidance on its financial position, results of operations, EPS, and cash flows.
In January 2016, the FASB issued ASU 2016-01 Financial Instruments - Overall (Subtopic: 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which will be effective January 1, 2018. The amendment changes the accounting for equity investments, changes disclosure requirements related to instruments at amortized cost and fair value, and clarifies how entities should evaluate deferred tax assets for securities classified as available for sale. The Company is currently evaluating the impact of this new guidance on its financial position, results of operations, EPS, and cash flows.
In August 2014, the FASB issued ASU 2014-15 Presentation of Financial Statements - Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management to assess a company’s ability to continue as a going concern for each annual and interim reporting

13


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



period, and disclose in its financial statements whether there is substantial doubt about the company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The new standard applies to all companies and is effective for the annual period ending after December 15, 2016, and all annual and interim periods thereafter. The Company does not believe adoption of this accounting standard will have a material effect on its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09 Revenue from Contracts with Customers (Topic 606), which will be effective January 1, 2018. The guidance clarifies that revenue from contracts with customers should be recognized in a manner that depicts both the likelihood of payment and the timing of the related transfer of goods or performance of services. In March 2016, the FASB issued an amendment (ASU 2016-08) to the new revenue recognition guidance clarifying how to determine if an entity is a principal or agent in a transaction. In April (ASU 2016-10) and May (ASU 2016-12) of 2016, the FASB further amended the guidance to include performance obligation identification, licensing implementation, collectability assessment and other presentation and transition clarifications. The effective date and transition requirements for this amendment is the same as those for the new revenue guidance. The Company is currently evaluating the impact of this new guidance on its financial position, results of operations, EPS and cash flows.

3. Net Income (Loss) Per Share and Net Income (Loss) Attributable to Common Stockholders

The following table details the computation of the Company's basic and diluted net income (loss) per share:
 
 
Three Months Ended  
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2016
 
2015
 
2016
 
2015
Net income (loss)
 
$
(36,486
)
 
$
950

 
$
(113,700
)
 
$
(9,564
)
Weighted average common shares - Basic
 
391,453,316

 
375,982,120

 
385,037,334

 
373,605,274

Weighted average common shares - Diluted
 
391,453,316

 
401,934,880

 
385,037,334

 
373,605,274

Net income (loss) per share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.09
)
 
$

 
$
(0.30
)
 
$
(0.03
)
Diluted
 
$
(0.09
)
 
$

 
$
(0.30
)
 
$
(0.03
)



14


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



4. Securities Available for Sale

The amortized cost, gross unrealized gains and losses, and fair value of securities available for sale as of September 30, 2016 and December 31, 2015, were as follows:
September 30, 2016
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Corporate debt securities
$
190,008

 
$
128

 
$
(112
)
 
$
190,024

Asset-backed securities
31,480

 
21

 
(2
)
 
31,499

U.S. agency securities
19,603

 
17

 

 
19,620

Certificates of deposit
17,502

 

 

 
17,502

Commercial paper
10,007

 

 

 
10,007

U.S. Treasury securities
2,492

 
22

 

 
2,514

Other securities
7,818

 

 
(35
)
 
7,783

Total securities available for sale
$
278,910

 
$
188

 
$
(149
)
 
$
278,949

 
 
 
 
 
 
 
 
December 31, 2015
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Corporate debt securities
$
217,243

 
$
2

 
$
(1,494
)
 
$
215,751

Asset-backed securities
54,543

 

 
(134
)
 
54,409

U.S. agency securities
16,602

 
1

 
(25
)
 
16,578

U.S. Treasury securities
3,489

 

 
(4
)
 
3,485

Other securities
7,005

 

 
(17
)
 
6,988

Total securities available for sale
$
298,882

 
$
3

 
$
(1,674
)
 
$
297,211



15


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



A summary of securities available for sale with unrealized losses as of September 30, 2016 and December 31, 2015, aggregated by period of continuous unrealized loss, is as follows:
 
Less than
12 months
 
12 months
or longer
 
Total
September 30, 2016
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Corporate debt securities
$
64,078

 
$
(54
)
 
$
34,921

 
$
(58
)
 
$
98,999

 
$
(112
)
Asset-backed securities
2,270

 
(1
)
 
2,648

 
(1
)
 
4,918

 
(2
)
Other securities
3,816

 
(1
)
 
3,968

 
(34
)
 
7,784

 
(35
)
Total securities with unrealized losses(1)
$
70,164

 
$
(56
)
 
$
41,537

 
$
(93
)
 
$
111,701

 
$
(149
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than
12 months
 
12 months
or longer
 
Total
December 31, 2015
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Corporate debt securities
$
212,018

 
$
(1,494
)
 
$

 
$

 
$
212,018

 
$
(1,494
)
Asset-backed securities
54,409

 
(134
)
 

 

 
54,409

 
(134
)
U.S. agency securities
14,578

 
(25
)
 

 

 
14,578

 
(25
)
U.S. Treasury securities
3,485

 
(4
)
 

 

 
3,485

 
(4
)
Other securities
6,988

 
(17
)
 

 

 
6,988

 
(17
)
Total securities with unrealized losses(1)
$
291,478

 
$
(1,674
)
 
$

 
$

 
$
291,478

 
$
(1,674
)
(1) 
The number of investment positions with unrealized losses at September 30, 2016 and December 31, 2015 totaled 63 and 141, respectively.

There were no impairment charges recognized during the first nine months of 2016 and 2015.

The contractual maturities of securities available for sale at September 30, 2016, were as follows:
 
Within
1 year
After 1 year
through
5 years
After 5 years
through
10 years
After
10 years
Total
Corporate debt securities
$
67,134

$
122,890

$

$

$
190,024

Asset-backed securities
7,424

24,075



31,499

U.S. agency securities
14,609

5,011



19,620

Certificates of deposit
17,502




17,502

Commercial paper
10,007




10,007

U.S. Treasury securities

2,514



2,514

Other securities
3,816

3,967



7,783

Total fair value
$
120,492

$
158,457

$

$

$
278,949

Total amortized cost
$
120,515

$
158,395

$

$

$
278,910


There were no sales of securities available for sale during the first nine months of 2016. Proceeds from the sales of securities available for sale during the first nine months of 2015 were $63.2 million resulting in an immaterial net gain.


16


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



5. Loans, Loans Held For Sale, Notes and Certificates, and Loan Servicing Rights

Loans, Loans Held For Sale, Notes and Certificates

The Company sells loans and issues notes and the Trust issues certificates as a means to allow investors to invest in the associated loans. At September 30, 2016 and December 31, 2015, loans, notes and certificates measured at fair value on a recurring basis were as follows:
 
Loans
 
Notes and Certificates
September 30, 
 2016
 
December 31, 
 2015
 
September 30, 
 2016
 
December 31, 
 2015
Aggregate principal balance outstanding
$
4,677,055

 
$
4,681,671

 
$
4,684,038

 
$
4,697,169

Net fair value adjustments
(265,429
)
 
(125,590
)
 
(264,127
)
 
(125,586
)
Fair value
$
4,411,626

 
$
4,556,081

 
$
4,419,911

 
$
4,571,583

Original term
12 - 84 months
 
12 - 60 months

 
 
 
 
Interest rates (fixed)
3.54% - 31.89%
 
4.99% - 29.90%
 
 
 
 
Maturity dates
≤ June 2023
 
≤ December 2020

 
 
 
 

Loans invested in by the Company for which there was no associated note or certificate, had an aggregate principal balance outstanding of $34.2 million and a fair value of $33.0 million at September 30, 2016.

At September 30, 2016 the aggregate principal balance outstanding and fair value of the Company’s loans held for sale were $14.9 million and $14.7 million, respectively.

The Company places all loans for all loan products that are contractually past due by 120 days or more on non-accrual status. At September 30, 2016 and December 31, 2015, loans that were 90 days or more past due (including non-accrual loans) were as follows:
 
September 30, 2016
 
December 31, 2015
 
> 90 days
past due
 
Non-accrual loans
 
> 90 days
past due
 
Non-accrual loans
Outstanding principal balance
$
42,643

 
$
6,362

 
$
30,094

 
$
4,513

Net fair value adjustments
(35,019
)
 
(5,192
)
 
(25,312
)
 
(3,722
)
Fair value
$
7,624

 
$
1,170

 
$
4,782

 
$
791

# of loans (not in thousands)
3,620

 
562

 
2,606

 
382


For all standard and custom personal loan products, the Company's charge-off policy is to charge off loans after 120 days and no later than 150 days past due, or earlier in the event of notification of borrower bankruptcy.

Loan Servicing Rights

At September 30, 2016, loans underlying loan servicing rights had a total outstanding principal balance of $6.24 billion, original terms between 12 and 84 months, monthly payments with interest rates ranging from 2.99% to 33.15% and maturity dates through May 2023. At December 31, 2015, loans underlying loan servicing rights had a total outstanding principal balance of $4.29 billion, original terms between 3 and 84 months, monthly payments with interest rates ranging from 2.99% to 33.15% and maturity dates through December 2022.



17


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



6. Fair Value of Assets and Liabilities

The Company records certain assets and liabilities at fair value as listed in the following tables.

Financial Instruments Recorded at Fair Value

The following tables present the fair value hierarchy for assets and liabilities measured at fair value:
September 30, 2016
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
 
Balance at
Fair Value
Assets:
 
 
 
 
 
 
 
Loans
$

 
$

 
$
4,411,626

 
$
4,411,626

Loans held for sale

 

 
14,744

 
14,744

Securities available for sale:
 
 
 
 
 
 
 
Corporate debt securities

 
190,024

 

 
190,024

Asset-backed securities

 
31,499

 

 
31,499

U.S. agency securities

 
19,620

 

 
19,620

Certificates of deposit

 
17,502

 

 
17,502

Commercial paper

 
10,007

 

 
10,007

U.S. Treasury securities

 
2,514

 

 
2,514

Other securities

 
7,783

 

 
7,783

Total securities available for sale

 
278,949

 

 
278,949

Servicing assets

 

 
16,255

 
16,255

Total assets
$

 
$
278,949

 
$
4,442,625

 
$
4,721,574

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Notes and certificates
$

 
$

 
$
4,419,911

 
$
4,419,911

Servicing liabilities

 

 
3,397

 
3,397

Loan Trailing Fee liability

 

 
3,724

 
3,724

Total liabilities
$

 
$

 
$
4,427,032

 
$
4,427,032



18


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



December 31, 2015
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
 
Balance at
Fair Value
Assets:
 
 
 
 
 
 
 
Loans
$

 
$

 
$
4,556,081

 
$
4,556,081

Securities available for sale:
 
 
 
 
 
 
 
Corporate debt securities

 
215,751

 

 
215,751

Asset-backed securities

 
54,409

 

 
54,409

U.S. agency securities

 
16,578

 

 
16,578

U.S. Treasury securities

 
3,485

 

 
3,485

Other securities

 
6,988

 

 
6,988

Total securities available for sale

 
297,211

 

 
297,211

Servicing assets

 

 
10,250

 
10,250

Total assets
$

 
$
297,211

 
$
4,566,331

 
$
4,863,542

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Notes and certificates
$

 
$

 
$
4,571,583

 
$
4,571,583

Servicing liabilities

 

 
3,973

 
3,973

Total liabilities
$

 
$

 
$
4,575,556

 
$
4,575,556


As the Company's loans and related notes and certificates, loans held for sale, loan servicing rights, and Loan Trailing Fee liability 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. Financial instruments are categorized in the valuation hierarchy based on the significance of unobservable factors in the overall fair value measurement. 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 both observable and unobservable inputs. The Company did not transfer any assets or liabilities in or out of Level 3 during the first nine months of 2016 or the year ended December 31, 2015.


19


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



Significant Unobservable Inputs

The following tables present quantitative information about the significant unobservable inputs used for the Company's Level 3 fair value measurements at September 30, 2016 and December 31, 2015:

 
 
September 30, 2016
 
 
Loans, Notes and Certificates (4)
 
Servicing Asset/Liability
 
Loan Trailing Fee Liability
 
 
Minimum
 
Maximum
 
Weighted
Average
 
Minimum
 
Maximum
 
Weighted
Average
 
Minimum
 
Maximum
 
Weighted
Average
Discount rates
 
0.7
%
 
16.5
%
 
7.4
%
 
2.2
%
 
15.9
%
 
7.9
%
 
2.2
%
 
15.9
%
 
7.7
%
Net cumulative expected loss rates (1)
 
0.3
%
 
32.6
%
 
13.9
%
 
0.3
%
 
32.6
%
 
12.2
%
 
0.3
%
 
32.6
%
 
12.9
%
Cumulative expected prepayment rates (1)
 
8.0
%
 
39.9
%
 
30.8
%
 
8.0
%
 
39.9
%
 
30.8
%
 
8.0
%
 
39.9
%
 
30.4
%
Total market servicing rates (% per annum on outstanding principal balance) (2)
 
N/A

 
N/A

 
N/A

 
0.63
%
 
0.90
%
 
0.63
%
 
N/A

 
N/A

 
N/A

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
 
 
Loans, Notes and Certificates (4)
 
Servicing Asset/Liability
 
Loan Trailing Fee Liability
 
 
Minimum
 
Maximum
 
Weighted
Average
 
Minimum
 
Maximum
 
Weighted
Average
 
Minimum
 
Maximum
 
Weighted
Average
Discount rates
 
2.9
%
 
17.5
%
 
9.0
%
 
3.5
%
 
16.3
%
 
9.4
%
 
N/A

 
N/A

 
N/A

Net cumulative expected loss rates (1)
 
0.3
%
 
22.0
%
 
9.9
%
 
0.3
%
 
22.0
%
 
8.8
%
 
N/A

 
N/A

 
N/A

Cumulative expected prepayment rates (1)
 
23.4
%
 
36.4
%
 
30.8
%
 
8.0
%
 
36.4
%
 
30.5
%
 
N/A

 
N/A

 
N/A

Total market servicing rates (% per annum on outstanding principal balance) (3)
 
N/A

 
N/A

 
N/A

 
0.50
%
 
0.75
%
 
0.50
%
 
N/A

 
N/A

 
N/A

N/A Not applicable
(1)  
Expressed as a percentage of the original principal balance of the loan, note or certificate.
(2)  
Includes collection fees estimated to be paid to a hypothetical third-party servicer.
(3)  
Excludes collection fees that would be passed on to a hypothetical third-party servicer. As of December 31, 2015, the market rate for collection fees was assumed to be 7 basis points for a weighted-average total market servicing rate of 57 basis points.
(4)  
Includes loans held for sale.

At September 30, 2016 and December 31, 2015, the discounted cash flow methodology used to estimate the notes and certificates' fair values used the same projected net cash flows as their related loans. As demonstrated by the following tables below, the fair value adjustments for loans were largely offset by the fair value adjustments of the notes and certificates due to the payment dependent design of the notes and certificates and because the principal balances of the loans were very close to the combined principal balances of the notes and certificates.

The following tables present additional information about Level 3 loans, loans held for sale, notes and certificates measured at fair value on a recurring basis for the third quarters and first nine months of 2016 and 2015:

20


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



 
 
Loans
 
Notes and Certificates
 
 
Outstanding Principal Balance
 
Valuation Adjustment
 
Fair Value
 
Outstanding Principal Balance
 
Valuation Adjustment
 
Fair Value
Beginning balance at June 30, 2016
 
$
4,765,258

 
$
(341,087
)
 
$
4,424,171

 
$
4,755,846

 
$
(339,961
)
 
$
4,415,885

Purchases of loans
 
1,740,531

 

 
1,740,531

 

 

 

Issuances of notes and certificates
 

 

 

 
641,242

 

 
641,242

Whole loan sales
 
(1,095,717
)
 

 
(1,095,717
)
 

 

 

Principal payments
 
(605,595
)
 

 
(605,595
)
 
(601,234
)
 

 
(601,234
)
Charge-offs
 
(112,517
)
 
112,517

 

 
(111,816
)
 
111,816

 

Recoveries
 

 
(10,517
)
 
(10,517
)
 

 
(9,955
)
 
(9,955
)
Change in fair value recorded in earnings
 

 
(26,503
)
 
(26,503
)
 

 
(26,027
)
 
(26,027
)
Ending balance at September 30, 2016
 
$
4,691,960

 
$
(265,590
)
 
$
4,426,370

 
$
4,684,038

 
$
(264,127
)
 
$
4,419,911

Loans held for sale at September 30, 2016
 
$
14,905

 
$
(161
)
 
$
14,744

 
 
 
 
 
 
Loans at fair value at September 30, 2016
 
$
4,677,055

 
$
(265,429
)
 
$
4,411,626

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
Notes and Certificates
 
 
Outstanding Principal Balance
 
Valuation Adjustment
 
Fair Value
 
Outstanding Principal Balance
 
Valuation Adjustment
 
Fair Value
Beginning balance at June 30, 2015
 
$
3,694,823

 
$
(57,440
)
 
$
3,637,383

 
$
3,717,556

 
$
(57,432
)
 
$
3,660,124

Purchases of loans
 
1,946,455

 

 
1,946,455

 

 

 

Issuances of notes and certificates
 

 

 

 
991,926

 

 
991,926

Whole loan sales
 
(954,770
)
 

 
(954,770
)
 

 

 

Principal payments
 
(481,701
)
 

 
(481,701
)
 
(478,189
)
 

 
(478,189
)
Charge-offs
 
(55,365
)
 
55,365

 

 
(55,346
)
 
55,346

 

Recoveries
 

 
(5,919
)
 
(5,919
)
 

 
(5,867
)
 
(5,867
)
Change in fair value recorded in earnings
 

 
(72,474
)
 
(72,474
)
 

 
(72,513
)
 
(72,513
)
Ending balance at September 30, 2015
 
$
4,149,442

 
$
(80,468
)
 
$
4,068,974

 
$
4,175,947

 
$
(80,466
)
 
$
4,095,481

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans
 
Notes and Certificates
 
 
Outstanding Principal Balance
 
Valuation Adjustment
 
Fair Value
 
Outstanding Principal Balance
 
Valuation Adjustment
 
Fair Value
Beginning balance at December 31, 2015
 
$
4,681,671

 
$
(125,590
)
 
$
4,556,081

 
$
4,697,169

 
$
(125,586
)
 
$
4,571,583

Purchases of loans
 
5,739,419

 

 
5,739,419

 

 

 

Issuances of notes and certificates
 

 

 

 
2,041,746

 

 
2,041,746

Whole loan sales
 
(3,657,604
)
 

 
(3,657,604
)
 

 

 

Principal payments
 
(1,786,623
)
 

 
(1,786,623
)
 
(1,770,779
)
 

 
(1,770,779
)
Charge-offs
 
(284,903
)
 
284,903

 

 
(284,098
)
 
284,098

 

Recoveries
 

 
(27,451
)
 
(27,451
)
 

 
(26,871
)
 
(26,871
)
Change in fair value recorded in earnings
 

 
(397,452
)
 
(397,452
)
 

 
(395,768
)
 
(395,768
)
Ending balance at September 30, 2016
 
$
4,691,960

 
$
(265,590
)
 
$
4,426,370

 
$
4,684,038

 
$
(264,127
)
 
$
4,419,911

Loans held for sale at September 30, 2016
 
$
14,905

 
$
(161
)
 
$
14,744

 
 
 
 
 
 
Loans at fair value at September 30, 2016
 
$
4,677,055

 
$
(265,429
)
 
$
4,411,626

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

21


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



 
 
Loans
 
Notes and Certificates
 
 
Outstanding Principal Balance
 
Valuation Adjustment
 
Fair Value
 
Outstanding Principal Balance
 
Valuation Adjustment
 
Fair Value
Beginning balance at December 31, 2014
 
$
2,836,729

 
$
(38,224
)
 
$
2,798,505

 
$
2,851,837

 
$
(38,219
)
 
$
2,813,618

Purchases of loans
 
5,075,044

 

 
5,075,044

 

 

 

Issuances of notes and certificates
 

 

 

 
2,736,667

 

 
2,736,667

Whole loan sales
 
(2,338,346
)
 

 
(2,338,346
)
 

 

 

Principal payments
 
(1,280,005
)
 

 
(1,280,005
)
 
(1,268,622
)
 

 
(1,268,622
)
Charge-offs
 
(143,980
)
 
143,980

 

 
(143,935
)
 
143,935

 

Recoveries
 

 
(13,729
)
 
(13,729
)
 

 
(13,653
)
 
(13,653
)
Change in fair value recorded in earnings
 

 
(172,495
)
 
(172,495
)
 

 
(172,529
)
 
(172,529
)
Ending balance at September 30, 2015
 
$
4,149,442

 
$
(80,468
)
 
$
4,068,974

 
$
4,175,947

 
$
(80,466
)
 
$
4,095,481


The following tables present additional information about Level 3 servicing assets and liabilities measured at fair value on a recurring basis for the third quarters and first nine months of 2016 and 2015:
 
 
Three Months Ended September 30, 2016
 
Three Months Ended September 30, 2015
 
 
Servicing Assets
 
Servicing Liabilities
 
Servicing Assets
 
Servicing Liabilities
Fair value at beginning of period
 
$
16,126

 
$
3,412

 
$
5,225

 
$
4,831

Issuances (1)
 
3,009

 
712

 
3,092

 
1,402

Change in fair value, included in servicing fees
 
(2,429
)
 
(727
)
 
(1,436
)
 
(1,839
)
Other net changes included in deferred revenue
 
(451
)
 

 
368

 

Fair value at end of period
 
$
16,255

 
$
3,397

 
$
7,249

 
$
4,394

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended 
 September 30, 2016
 
Nine Months Ended 
 September 30, 2015
 
 
Servicing Assets
 
Servicing Liabilities
 
Servicing Assets
 
Servicing Liabilities
Fair value at beginning of period
 
$
10,250

 
$
3,973

 
$
2,181

 
$
3,973

Issuances (1)
 
12,984

 
2,452

 
6,476

 
4,340

Change in fair value, included in servicing fees
 
(7,092
)
 
(3,028
)
 
(2,467
)
 
(3,919
)
Other net changes included in deferred revenue
 
113

 

 
1,059

 

Fair value at end of period
 
$
16,255

 
$
3,397

 
$
7,249

 
$
4,394

(1) 
Represents the offsets to the gains or losses on sales of the related loans, recorded in other revenue.


22


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



The following table presents additional information about Level 3 Loan Trailing Fee liability measured at fair value on a recurring basis for the third quarter and first nine months of 2016:
 
Three Months Ended September 30, 2016
 
Nine Months Ended September 30, 2016
Fair value at beginning of period
$
2,324

 
$

Issuances
1,682

 
4,180

Cash payment of Loan Trailing Fee
(395
)
 
(585
)
Change in fair value, included in origination and servicing
113

 
129

Fair value at end of period
$
3,724

 
$
3,724


Significant Recurring Level 3 Fair Value Asset and Liabil