0001409970-18-001371.txt : 20181107 0001409970-18-001371.hdr.sgml : 20181107 20181107163333 ACCESSION NUMBER: 0001409970-18-001371 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 94 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181107 DATE AS OF CHANGE: 20181107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LendingClub Corp CENTRAL INDEX KEY: 0001409970 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-36771 FILM NUMBER: 181166809 BUSINESS ADDRESS: STREET 1: 71 STEVENSON ST. STREET 2: SUITE 1000 CITY: SAN FRANCISCO STATE: CA ZIP: 94115 BUSINESS PHONE: 415-632-5666 MAIL ADDRESS: STREET 1: 71 STEVENSON ST. STREET 2: SUITE 1000 CITY: SAN FRANCISCO STATE: CA ZIP: 94115 10-Q 1 q31810q.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, 2018
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 1000, 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer
 
x
Accelerated filer
¨
Non-accelerated filer
 
¨
Smaller reporting company
¨
Emerging growth company
 
¨
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  x
As of October 31, 2018, there were 426,208,997 shares of the registrant’s common stock outstanding.



LENDINGCLUB CORPORATION
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



LENDINGCLUB CORPORATION


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

Various wholly-owned Delaware limited liability companies established to enter into warehouse credit agreements with certain lenders for secured credit facilities.
Various entities established to facilitate LendingClub-sponsored asset-backed securities transactions, including transactions where certain accredited investors and qualified institutional buyers have the opportunity to invest in a pool of unsecured personal whole loans in a certificated form (CLUB Certificates).
LC Trust I (the Trust), an independent Delaware business trust that acquires loans from LendingClub and holds them for the sole benefit of certain investors that have purchased trust certificates issued by the Trust and that are related to specific underlying loans for the benefit of the investor.
Springstone Financial, LLC (Springstone), a wholly-owned Delaware limited liability company that facilitates the origination of education and patient finance loans by third-party issuing banks.
LendingClub Asset Management, LLC (LCAM), 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 and funds of which LCAM’s wholly-owned subsidiaries are the general partners.

Forward-Looking Statements

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

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

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 new or additional sources of investor commitments for our platform;
expected rates of return for investors;
the effectiveness of our platform’s credit scoring models;
the use of our own capital to purchase loans;
maintaining liquidity and capital availability to support purchase of loans, contractual commitments and obligations (including repurchase obligations or other commitments to purchase loans), regulatory obligations to fund loans, and general strategic directives (such as with respect to product testing or supporting our Company-sponsored securitizations and CLUB Certificate transactions), and to support marketplace equilibrium across our platform;
the impact of holding loans on and our ability to sell loans off our balance sheet;
transaction fees or other revenue we expect to recognize after loans are issued by the issuing banks who originate loans facilitated through our platform;
interest income on our loans invested in by the Company and the negative fair value adjustments on associated loans;
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;

1


LENDINGCLUB CORPORATION


interest rate risk and credit performance associated with the outstanding principal balance of loans and other securities and their impact to investor returns and demand for our products;
the impact of new accounting standards;
the impact of pending litigation and regulatory investigations and inquiries;
our compliance with applicable local, state and Federal laws, regulations and regulatory developments or court decisions affecting our business;
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 the credit performance of our loans, notes, certificates and secured borrowings, and influence borrower and investor behavior;
our ability to develop and maintain effective internal controls;
our ability to recruit and retain quality employees to support current operations and future growth;
the impact of expense initiatives;
our ability to manage and repay our indebtedness; and
other risk factors listed from time to time in reports we file with the SEC.

We caution you that the foregoing list may not contain all of the forward-looking statements in this Report. We may not actually achieve the plans, intentions or expectations disclosed in forward-looking statements, and you should not place undue reliance on forward-looking statements. We have included important factors in the cautionary statements included in this Report and the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2017, 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, 
 2018
 
December 31, 
 2017
Assets
 
 
 
Cash and cash equivalents (1)
$
348,018

 
$
401,719

Restricted cash (1)
203,258

 
242,570

Securities available for sale (includes $24,748 and $0 pledged as collateral at fair value, respectively)
165,442

 
117,573

Loans held for investment at fair value (1) 
2,133,829

 
2,932,325

Loans held for investment by the Company at fair value (1)
12,198

 
361,230

Loans held for sale by the Company at fair value (1)
459,283

 
235,825

Accrued interest receivable (1)
24,546

 
33,822

Property, equipment and software, net
110,510

 
101,933

Intangible assets, net
18,988

 
21,923

Goodwill

 
35,633

Other assets (1)
113,896

 
156,278

Total assets
$
3,589,968

 
$
4,640,831

Liabilities and Equity
 
 
 
Accounts payable
$
8,778

 
$
9,401

Accrued interest payable (1)
22,050

 
32,992

Accrued expenses and other liabilities (1)
136,629

 
228,380

Payable to investors
96,767

 
143,310

Notes, certificates and secured borrowings at fair value (1)
2,152,316

 
2,954,768

Payable to securitization note and residual certificate holders (includes $1,479 at fair value as of December 31, 2017) (1)

 
312,123

Credit facilities and securities sold under repurchase agreements (1)
305,336

 
32,100

Total liabilities
2,721,876

 
3,713,074

Equity
 
 
 
Common stock, $0.01 par value; 900,000,000 shares authorized; 428,434,596 and 419,756,546 shares issued, respectively; 426,151,896 and 417,473,846 shares outstanding, respectively
4,284

 
4,198

Additional paid-in capital
1,384,933

 
1,327,206

Accumulated deficit
(504,265
)
 
(389,419
)
Treasury stock, at cost; 2,282,700 shares
(19,485
)
 
(19,485
)
Accumulated other comprehensive income (loss)
172

 
(5
)
Total LendingClub stockholders’ equity
865,639

 
922,495

Noncontrolling interests
2,453

 
5,262

Total equity
868,092

 
927,757

Total liabilities and equity
$
3,589,968

 
$
4,640,831

(1) 
Includes amounts in consolidated variable interest entities (VIEs) presented separately in the table below.


3


The following table presents the assets and liabilities of consolidated variable interest entities (VIEs), which are included in the Condensed Consolidated Balance Sheets above. The assets in the table below may only be used to settle obligations of consolidated VIEs and are in excess of those obligations. Additionally, the assets and liabilities in the table below include third-party assets and liabilities of consolidated VIEs only and exclude intercompany balances that eliminate in consolidation. See Notes to Condensed Consolidated Financial StatementsNote 7. Securitizations and Variable Interest Entities for additional information.
 
September 30, 
 2018
 
December 31, 
 2017
Assets of consolidated VIEs, included in total assets above
 
 
 
Cash and cash equivalents
$

 
$

Restricted cash
31,855

 
34,370

Loans held for investment at fair value
770,901

 
1,202,260

Loans held for investment by the Company at fair value

 
350,699

Loans held for sale by the Company at fair value
307,828

 
60,812

Accrued interest receivable
9,596

 
15,602

Other assets
2,456

 
6,324

Total assets of consolidated variable interest entities
$
1,122,636

 
$
1,670,067

Liabilities of consolidated VIEs, included in total liabilities above
 
 
 
Accrued interest payable
$
8,804

 
$
14,789

Accrued expenses and other liabilities
1,214

 
52

Notes, certificates and secured borrowings at fair value
776,403

 
1,210,349

Payable to securitization note and residual certificate holders

 
312,123

Credit facilities and securities sold under repurchase agreements
185,752

 
32,100

Total liabilities of consolidated variable interest entities
$
972,173

 
$
1,569,413


See Notes to Condensed Consolidated Financial Statements.

4


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

 
Three Months Ended  
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Net revenue:
 
 
 
 
 
 
 
Transaction fees
$
137,781

 
$
121,905

 
$
384,889

 
$
327,911

Investor fees
29,169

 
20,499

 
84,464

 
62,795

Gain on sales of loans (1)
10,919

 
6,680

 
35,470

 
13,017

Other revenue (1)
1,458

 
1,375

 
4,382

 
5,070

Net interest income and fair value adjustments:
 
 
 
 
 
 
 
Interest income
115,514

 
151,532

 
381,292

 
469,788

Interest expense
(90,642
)
 
(139,681
)
 
(302,383
)
 
(448,628
)
Net fair value adjustments (1)
(19,554
)
 
(8,280
)
 
(74,823
)
 
(11,868
)
Net interest income and fair value adjustments (1)
5,318

 
3,571

 
4,086

 
9,292

Total net revenue
184,645

 
154,030

 
513,291

 
418,085

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
73,601

 
59,570

 
200,164

 
169,735

Origination and servicing
25,431

 
21,321

 
73,669

 
63,044

Engineering and product development
41,216

 
32,860

 
115,703

 
104,338

Other general and administrative
57,446

 
46,925

 
167,338

 
142,994

Goodwill impairment

 

 
35,633

 

Class action and regulatory litigation expense
9,738

 

 
35,500

 

Total operating expenses
207,432

 
160,676

 
628,007

 
480,111

Loss before income tax expense
(22,787
)
 
(6,646
)
 
(114,716
)
 
(62,026
)
Income tax (benefit) expense
(38
)
 
13

 
25

 
(79
)
Consolidated net loss
(22,749
)
 
(6,659
)
 
(114,741
)
 
(61,947
)
Less: Income (Loss) attributable to noncontrolling interests
55

 
(129
)
 
105

 
(119
)
LendingClub net loss
$
(22,804
)
 
$
(6,530
)
 
$
(114,846
)
 
$
(61,828
)
Net loss per share attributable to LendingClub:
 
 
 
 
 
 
 
Basic
$
(0.05
)
 
$
(0.02
)
 
$
(0.27
)
 
$
(0.15
)
Diluted
$
(0.05
)
 
$
(0.02
)
 
$
(0.27
)
 
$
(0.15
)
Weighted-average common shares - Basic
424,359,142

 
412,778,995

 
421,306,508

 
406,633,850

Weighted-average common shares - Diluted
424,359,142

 
412,778,995

 
421,306,508

 
406,633,850

(1) 
Prior period amounts have been reclassified to conform to the current period presentation. See “Notes to Condensed Consolidated Financial StatementsNote 1. Basis of Presentation” for additional information.

See Notes to Condensed Consolidated Financial Statements.


5


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

 
Three Months Ended  
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
LendingClub net loss
$
(22,804
)
 
$
(6,530
)
 
$
(114,846
)
 
$
(61,828
)
Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
Net unrealized gain (loss) on securities available for sale
677

 
4

 
286

 
289

Other comprehensive income (loss), before tax
677

 
4

 
286

 
289

Income tax effect
70

 

 
50

 
114

Other comprehensive income (loss), net of tax
607

 
4

 
236

 
175

Less: Other comprehensive income (loss) attributable to noncontrolling interests
42


(3
)
 
59

 
(3
)
LendingClub other comprehensive income (loss), net of tax
565


7

 
177

 
178

LendingClub comprehensive income (loss)
(22,239
)

(6,523
)
 
(114,669
)
 
(61,650
)
Comprehensive income (loss) attributable to noncontrolling interests
42


(3
)
 
59

 
(3
)
Total comprehensive income (loss)
$
(22,197
)

$
(6,526
)
 
$
(114,610
)
 
$
(61,653
)

See Notes to Condensed Consolidated Financial Statements.

6


LENDINGCLUB CORPORATION
Condensed Consolidated Statements of Changes in Equity
(In Thousands, Except Share Data)
(Unaudited)

 
LendingClub Corporation Stockholders
 
 
 
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Accumulated
Deficit
 
Total LendingClub Stockholders’ Equity
 
Non-controlling interest
 
Total
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
Balance at December 31, 2017
417,473,846

 
$
4,198

 
$
1,327,206

 
2,282,700

 
$
(19,485
)
 
$
(5
)
 
$
(389,419
)
 
$
922,495

 
$
5,262

 
$
927,757

Stock-based compensation and related tax effects

 

 
64,441

 

 

 

 

 
64,441

 

 
64,441

Issuances under equity incentive plans, net of tax
7,740,443

 
77

 
(9,478
)
 

 

 

 

 
(9,401
)
 

 
(9,401
)
ESPP purchase shares
937,607

 
9

 
2,764

 

 

 

 

 
2,773

 

 
2,773

Net unrealized gain on available for sale securities, net of tax

 

 

 

 

 
177

 

 
177

 
58

 
235

Dividends paid and return of capital to noncontrolling interests

 

 

 

 

 

 

 

 
(2,972
)
 
(2,972
)
Net loss

 

 

 

 

 

 
(114,846
)
 
(114,846
)
 
105

 
(114,741
)
Balance at September 30, 2018
426,151,896

 
$
4,284

 
$
1,384,933

 
2,282,700

 
$
(19,485
)
 
$
172

 
$
(504,265
)
 
$
865,639

 
$
2,453

 
$
868,092


 
LendingClub Corporation Stockholders
 
 
 
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Treasury Stock
 
Accumulated Other Comprehensive Income (Loss)
 
Accumulated
Deficit
 
Total LendingClub Stockholders’ Equity
 
Non-controlling interest
 
Total
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
Balance at December 31, 2016
397,979,772

 
$
4,003

 
$
1,226,206

 
2,282,700

 
$
(19,485
)
 
$
(767
)
 
$
(234,187
)
 
$
975,770

 
$

 
$
975,770

Stock-based compensation and related tax effects

 

 
63,475

 

 

 

 
(1,397
)
 
62,078

 

 
62,078

Issuances under equity incentive plans, net of tax
16,211,773

 
162

 
14,072

 

 

 

 

 
14,234

 

 
14,234

ESPP purchase shares
565,701

 
5

 
2,851

 

 

 

 

 
2,856

 

 
2,856

Net unrealized gain (loss) on available for sale securities, net of tax

 

 

 

 

 
178

 

 
178

 
(3
)
 
175

Contribution of interests in consolidated VIE

 

 

 

 

 

 

 

 
7,722

 
7,722

Dividends paid and return of capital to noncontrolling interests

 

 

 

 

 

 

 

 
(1,037
)
 
(1,037
)
Net loss

 

 

 

 

 

 
(61,828
)
 
(61,828
)
 
(119
)
 
(61,947
)
Balance at September 30, 2017
414,757,246

 
$
4,170

 
$
1,306,604

 
2,282,700

 
$
(19,485
)
 
$
(589
)
 
$
(297,412
)
 
$
993,288

 
$
6,563

 
$
999,851


See Notes to Condensed Consolidated Financial Statements.


7


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

 
Nine Months Ended 
 September 30,
 
2018
 
2017
Cash Flows from Operating Activities:
 
 
 
Consolidated net loss
$
(114,741
)
 
$
(61,947
)
Adjustments to reconcile consolidated net loss to net cash used for operating activities:
 
 
 
Net fair value adjustments
74,823

 
11,868

Change in fair value of loan servicing liabilities
(677
)
 
(1,947
)
Change in fair value of loan servicing assets
22,253

 
16,083

Stock-based compensation, net
57,369

 
54,692

Goodwill impairment charge
35,633

 

Depreciation and amortization
39,927

 
32,405

(Gain) Loss on sales of loans
(39,493
)
 
(25,306
)
Other, net
3,794

 
1,588

Purchase of loans held for sale
(5,431,011
)
 
(4,240,099
)
Principal payments received on loans held for sale
160,623

 
24,860

Proceeds from sales of whole loans
3,748,498

 
3,955,878

Purchase of loans held for sale by consolidated VIE
(270,770
)
 
(491,414
)
Proceeds from sale of securities by consolidated VIE, net of underwriting fees and costs
1,505,887

 
569,443

Net change in operating assets and liabilities:
 
 
 
Accrued interest receivable, net
(2,010
)
 
4,174

Other assets
62,739

 
(13,663
)
Accounts payable
(883
)
 
(3,810
)
Accrued interest payable
(10,563
)
 
(5,596
)
Accrued expenses and other liabilities
(103,561
)
 
11,963

Net cash used for operating activities
(262,163
)
 
(160,828
)
Cash Flows from Investing Activities:
 
 
 
Purchases of loans
(778,931
)
 
(1,407,664
)
Principal payments received on loans
1,379,712

 
1,863,338

Proceeds from recoveries and sales of charged-off loans
49,463

 
34,808

Proceeds from sales of whole loans

 
2,118

Purchases of securities available for sale
(104,063
)
 
(90,174
)
Proceeds from sales, maturities, redemptions and paydowns of securities available for sale
118,965

 
191,504

Proceeds from paydowns of asset-backed securities related to Company-sponsored securitizations and CLUB Certificate transactions
31,557

 
2,268

Other investing activities
1,511

 

Purchases of property, equipment and software, net
(37,881
)
 
(31,751
)
Net cash provided by investing activities
660,333

 
564,447


8


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

 
Nine Months Ended 
 September 30,
 
2018
 
2017
Cash Flows from Financing Activities:
 
 
 
Change in payable to investors
(52,959
)
 
(31,991
)
Proceeds from issuance of notes and certificates
775,441

 
1,389,999

Repayments of secured borrowings
(116,065
)
 

Principal payments on and retirements of notes and certificates
(1,261,918
)
 
(1,863,041
)
Payments on notes and certificates from recoveries/sales of related charged-off loans
(48,858
)
 
(34,550
)
Principal payments on securitization notes
(45,709
)
 

Proceeds from credit facilities and securities sold under repurchase agreements
1,493,305

 

Principal payments on credit facilities and securities sold under repurchase agreements
(1,219,529
)
 

Payment for debt issuance costs
(1,600
)
 

Proceeds from issuances under equity incentive plans, net of tax
1,921

 
14,265

Proceeds from issuance of common stock for ESPP
2,773

 
2,856

Net cash outflow from deconsolidation of VIE
(15,013
)
 

Purchase of noncontrolling interests in consolidated VIE

 
(6,307
)
Return of capital to noncontrolling interests in consolidated VIE
(2,712
)
 
(999
)
Dividends paid to noncontrolling interests in consolidated VIE
(260
)
 
(38
)
Net cash used for financing activities
(491,183
)
 
(529,806
)
Net Decrease in Cash, Cash Equivalents and Restricted Cash
(93,013
)
 
(126,187
)
Cash, Cash Equivalents and Restricted Cash, Beginning of Period
644,289

 
693,412

Cash, Cash Equivalents and Restricted Cash, End of Period
$
551,276

 
$
567,225

Supplemental Cash Flow Information:
 
 
 
Cash paid for interest
$
309,641

 
$
454,026

Non-cash investing activity:
 
 
 
Accruals for property, equipment and software
$
1,657

 
$
1,360

Beneficial interests retained from securitization and CLUB Certificate transactions
$
82,939

 
$
36,065

Non-cash financing activity:
 
 
 
Noncontrolling interests’ contribution of beneficial interests in consolidated VIE
$

 
$
7,722

Derecognition of payable to securitization note and residual certificate holders held in consolidated VIE
$
269,151

 
$



9


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

The following presents cash, cash equivalents and restricted cash by category within the Condensed Consolidated Balance Sheets:
 
September 30, 
 2018
 
December 31, 
 2017
Cash and cash equivalents
$
348,018

 
$
401,719

Restricted cash
203,258

 
242,570

Total cash, cash equivalents and restricted cash
$
551,276

 
$
644,289


See Notes to Condensed Consolidated Financial Statements.

10


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 (LendingClub) operates an online lending marketplace platform that connects borrowers and investors. Various wholly-owned subsidiaries of LendingClub have been established to enter into warehouse credit agreements with certain lenders for secured credit facilities. Additionally, LendingClub has established various entities in connection with its role as the sponsor of asset-backed securities transactions, which include transactions that provide accredited investors and qualified institutional buyers the opportunity to invest in a pool of unsecured personal whole loans in a certificated form (CLUB Certificates). Company-sponsored securitizations and CLUB Certificate transactions are collectively referred to as “structured program transactions.” LC Trust I (the Trust) is an independent Delaware business trust that acquires loans from LendingClub and holds them for the sole benefit of certain investors that have purchased trust certificates issued by the Trust that are related to specific underlying loans for the benefit of the investor. Springstone Financial, LLC (Springstone), is a wholly-owned subsidiary of LendingClub that facilitates the origination of education and patient finance loans by third-party issuing banks. LendingClub Asset Management, LLC (LCAM), is a registered investment advisor with the Securities and Exchange Commission (SEC) and wholly-owned subsidiary of LendingClub that acts as the general partner for certain private funds. Additionally, LCAM is an advisor to separately managed accounts (SMAs) and funds of which LCAM’s wholly-owned subsidiaries are the general partners.

The accompanying unaudited condensed consolidated financial statements include LendingClub, its subsidiaries (collectively referred to as the Company, we, or us) and consolidated variable interest entities (VIEs). Noncontrolling interests are reported as a separate component of consolidated equity from the equity attributable to LendingClub’s stockholders for all periods presented. All intercompany balances and transactions have been eliminated. These condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and contain all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the results and financial position for the periods presented. These accounting principles require management to make certain estimates and assumptions that affect the amounts in the accompanying financial statements. 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 2017, the Company separately reported “Gain (Loss) on sales of loans” and “Net fair value adjustments” from “Other revenue (expense)” in the Company’s Consolidated Statements of Operations. “Net fair value adjustments” was also revised to include other-than-temporary impairment charges on subordinated residual certificates held as a result of Company-sponsored securitization transactions, which were previously included in “Other revenue.” These changes had no impact on “Total net revenue.” Prior period amounts have been reclassified to conform to the current period presentation.

The Company presents loans under a number of different captions to align the assets to their associated liabilities, if any. “Loans held for investment at fair value” are loans which are related to the Company’s retail notes, certificates and secured borrowings program. The Company is not exposed to market risk, interest rate risk or credit risk on these loans and all loan cash flows flow directly to the retail note, certificate and secured borrowing owners. The associated liability for this loan category is included in the caption “Notes, certificates and secured borrowings at fair value.” Loans included in “Loans held for investment by the Company at fair value” and “Loans held for sale by the Company at fair value” are loans which the Company has purchased and from which the Company earns interest income and records net fair value adjustments in earnings for changes in the valuation of loans.

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, 2017 (Annual Report) filed on February 22, 2018.


11


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



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 changes to these significant accounting policies for the nine month period ended September 30, 2018, except as noted below.

Accrued Interest

Accrued interest income on loans is calculated based on the contractual interest rate of the loan and recorded as interest income as earned. Loans are placed on non-accrual status upon reaching 90 days past due. When a loan is placed on non-accrual status, the Company stops accruing interest and reverses all accrued but unpaid interest as of such date. Accrued interest payable on notes, certificates and secured borrowings is also reduced when the corresponding loan is placed on non-accrual status, due to the payment dependent structure of the notes, certificates and secured borrowings.

Revenue Recognition

Transaction Fees: Transaction fees are considered revenue from contracts with customers. The Company receives transaction fees for the performance obligation of providing loan application processing and loan facilitation services for the issuing banks and education and patient service providers. Transaction fee contracts contain a single performance obligation, which consists of a series of distinct services that are substantially the same with the same pattern of transfer to customers.

Transaction fees are based on the initial principal amount of the loans facilitated by the Company and paid by the issuing banks and education and patient service providers each time a loan is issued by the issuing banks. Transaction fees to which the Company expects to be entitled are variable consideration because loan volume originated over the contractual term is not known at the contract’s inception. The transaction fee is determined each time a loan is issued based on that loan’s initial principal amount. The Company pays WebBank a loan trailing fee as consideration payable to customers (the issuing banks and education and patient service providers). The loan trailing fee liability is recorded in “Accrued expenses and other liabilities” on the Company’s Condensed Consolidated Balance Sheets. See “Loan Trailing Fee Liability” in “Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 2. Summary of Significant Accounting Policies” in the Annual Report for further discussion. Additionally, the Company assumes the issuing bank’s obligation under Utah law to refund the pro-rated amount of the transaction fee in excess of 5% in the event the borrower prepays the loan in full before maturity. Additionally, the Company may provide refunds to borrowers when the borrower cancels the loan under certain conditions. The Company estimates refunds based on historical information. Transaction fees are reduced by estimated trailing fees and refunds.

Because the contract contains a single performance obligation, the entire transaction fee is allocated to the single performance obligation, which is satisfied at the time a loan facilitated by the Company is issued by the issuing bank. Because revenue is recognized at the same time that payments are received, there are no associated contract assets, contract liabilities, or accounts receivable.

The Company pays sales incentives to certain employees to promote the platform and certain programs. These costs do not qualify as deferred contract costs and are expensed as incurred because they are not incremental costs of obtaining a contract with a customer.

Investor Fees: Note investors, certain certificate holders and whole loan purchasers typically pay LendingClub a servicing fee on each payment received from a borrower or on the investors’ month-end principal balance of loans

12


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



serviced. The servicing fee compensates the Company for managing payments from borrowers and payments to investors and maintaining investors’ platform accounts. The Company records servicing fees when received as a component of “Investor fees” in the Consolidated Statements of Operations. Servicing fees can be, and have been, modified or waived at management’s discretion. Investor fees also include the change in fair value of loan servicing assets and liabilities.

Investor fees related to investment funds and separately managed accounts (SMAs) are revenue from contracts with customers. The Company receives the fees in exchange for the performance obligation of providing a series of distinct investment management services that are satisfied over time. The fees are payable monthly in arrears based on the month-end capital account or asset balance, but the fees can be, and have been, modified or waived at the discretion of LCAM. Investor fees related to investment funds and SMAs are recognized at the end of each month.

Other Revenue: Other revenue primarily consists of referral fee revenue. Referral fees are revenue from contracts with customers. The Company refers prospective borrowers to third-party consumer loan providers after the prospective borrower applies for a loan through LendingClub’s platform but is denied credit. Referral contracts contain a single performance obligation, which consists of a series of distinct referral services that are satisfied over time. The Company recognizes referral fees for each distinct instance of referral service when the Company is entitled to receive payment, either at the time the referral is made or when the prospective borrower enters into a successful loan agreement with the third-party consumer loan provider, pursuant to the terms of the applicable referral agreement.

Adoption of New Accounting Standards

The Company adopted the following accounting standards during the nine month period ended September 30, 2018:

Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606): Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. The Company adopted Topic 606 on January 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. For contracts that were modified before the effective date, the Company reflected the aggregate effect of all modifications when identifying performance obligations and allocating transaction price in accordance with practical expedient ASC 606-10-65-1-(f)-4. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

The adoption of Topic 606 did not change (1) the timing and pattern of revenue recognition for revenue streams in the scope of Topic 606, which includes transaction fees, management fees, and referral revenue, (2) the presentation of revenue as gross versus net, or (3) the amount of contract assets, contract liabilities, and deferred contract costs. Therefore, the adoption of Topic 606 had no impact on the Company’s financial position, results of operations, equity or cash flows as of the adoption date or for the nine month period ended September 30, 2018. The Company has included the disclosures required by Topic 606 in “Note 3. Revenue from Contracts with Customers.”

ASU 2016-01 Financial Instruments – Overall (Subtopic: 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which amends 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 guidance also requires an entity to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability under the fair value option. The Company adopted ASU 2016-01 on January 1, 2018. The adoption did not impact the Company’s

13


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



financial position, results of operations, or cash flows. The Company has included the disclosures required by ASU 2016-01 in “Note 8. Fair Value of Assets and Liabilities.

ASU 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses diversity in practice in how certain cash receipts and payments are presented and classified in the statements of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The Company adopted ASU 2016-15 on January 1, 2018 and applied it retrospectively to all periods presented in the Consolidated Statements of Cash Flows. The adoption did not impact the Condensed Consolidated Statements of Cash Flows.

ASU 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash, which addresses the diversity in the classification and presentation of changes in restricted cash in the statements of cash flows, by requiring entities to combine the changes in cash and cash equivalents and restricted cash in one line. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash in the statements of cash flows. The Company adopted ASU 2016-18 on January 1, 2018 and applied it retrospectively to all periods presented in the Consolidated Statements of Cash Flows. Upon adoption, changes in restricted cash, which had previously been presented as investing activities, are now included within beginning and ending cash, cash equivalents and restricted cash in our Condensed Consolidated Statements of Cash Flows.

ASU 2017-09 Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. The Company prospectively adopted ASU 2017-09 on January 1, 2018. The adoption did not have an impact on the Company’s financial position, results of operations, cash flows or related disclosures.

ASU 2018-02 Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies the option to reclassify stranded tax effects caused by the newly-enacted Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. The ASU will be effective January 1, 2019 with early adoption permitted. The Company early adopted ASU 2018-02 on January 1, 2018. The adoption did not have a material impact on the Company’s financial position, results of operations, cash flows or related disclosures.

New Accounting Standards Not Yet Adopted

Updates to the new accounting standards not yet adopted as disclosed in the Annual Report and recently issued are as follows:

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 accounts for its loans at fair value through net income, which is outside the scope of Topic 326. For available for sale debt securities, the guidance will require recognition of expected credit losses by recognizing an allowance for credit losses when the fair value of the security is below amortized cost and the recognition of this allowance is limited to the difference between the security’s amortized cost basis and fair value. The Company is evaluating the impact this ASU will have on its financial position, results of operations, and cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to record on their balance sheets a lease liability for the obligation to make lease payments and a right-of-use (ROU) asset for the right to use the underlying asset for the lease term. The Company has elected to not recognize lease liabilities and ROU assets for leases with terms of 12 months or less. ASU 2016-02 requires a modified retrospective transition

14


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



approach. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842), Targeted Improvements, which allows for an additional optional transition method where comparative periods presented in the financial statements in the period of adoption will not be restated and instead those periods will be presented under existing guidance in accordance with ASC 840, Leases. The ASUs are effective January 1, 2019, with early adoption permitted. We will adopt ASC 842 in the first quarter of 2019 and have elected to not restate prior periods and will present the cumulative effect of applying the new standard within the opening balance of retained earnings on January 1, 2019. The Company has completed the first phase of the lease implementation project which includes scoping, contract review, and determining policy elections. We are in the process of completing quantification of the standard, assessment of implementation controls, and documentation of the new ASC 842 accounting policy. The Company is continuing to evaluate the impact of this guidance on its financial position, results of operations, cash flows and related disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements by removing, modifying, or adding certain disclosures. The ASU eliminates such disclosures as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and valuation processes for Level 3 fair value measurements. The ASU adds new disclosure requirements for Level 3 measurements. The new guidance is effective January 1, 2020 and permits early adoption of either the entire standard or only the provisions that eliminate or modify the requirements. The Company is evaluating the impact this ASU will have on its disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software - (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires a customer in a hosting arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as
assets or expense as incurred. The standard is effective January 1, 2020, with early adoption permitted. The amendments in this ASU can be applied either retrospectively or prospectively to all implementation costs after the date of adoption. The Company is evaluating the impact this ASU will have on its financial position, results of operations, and cash flows.

3. Revenue from Contracts with Customers

The Company’s revenue from contracts with customers includes transaction fees, investor fees related to investment funds and SMAs, and referral fees. Management fees related to investment funds and SMAs are presented as a component of “Investor fees” and referral fees are presented as a component of “Other revenue” in the Condensed Consolidated Statements of Operations.

The following tables present the Company’s revenue from contracts with customers, disaggregated by revenue source for the third quarter and first nine months of 2018:
 
Three Months Ended September 30, 2018
 
Timing of Revenue Recognition
 
 
Services Transferred at a Point of Time
 
Services Transferred Over Time
 
 
 
Transaction fees
$
137,781

 
$

 
$
137,781

Investor fees - Funds and SMAs
26

 

 
26

Referral fees
1,065

 

 
1,065

Total Revenue from Contracts with Customers
$
138,872

 
$

 
$
138,872



15


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



 
Nine Months Ended September 30, 2018
 
Timing of Revenue Recognition
 
 
Services Transferred at a Point of Time
 
Services Transferred Over Time
 
 
 
Transaction fees
$
384,889

 
$

 
$
384,889

Investor fees - Funds and SMAs
104

 

 
104

Referral fees
2,815

 

 
2,815

Total Revenue from Contracts with Customers
$
387,808

 
$

 
$
387,808


Revenues are recognized when control of the promised services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. For additional detail on the Company’s accounting policy regarding revenue recognition, see “Note 2. Summary of Significant Accounting Policies” above.

The Company recognizes transaction fees at the time it receives such fees, therefore, no accounts receivable is recorded for transaction fees. Management fees and referral fees are received after the Company satisfies its performance obligation. As of September 30, 2018, accounts receivable from these fees were $0.6 million. The Company had no bad debt expense for the third quarter and first nine months of 2018. The Company had no contract assets, contract liabilities, or deferred contract costs recorded as of September 30, 2018. Additionally, the Company did not recognize any revenue from performance obligations related to prior periods (for example, due to changes in transaction price) for the third quarter and first nine months of 2018.

4. Net Loss Per Share

The following table details the computation of the Company’s basic and diluted net loss per share:
 
 
Three Months Ended  
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2018
 
2017
 
2018
 
2017
LendingClub net loss
 
$
(22,804
)
 
$
(6,530
)
 
$
(114,846
)
 
$
(61,828
)
Weighted-average common shares - Basic
 
424,359,142

 
412,778,995

 
421,306,508

 
406,633,850

Weighted-average common shares - Diluted
 
424,359,142

 
412,778,995

 
421,306,508

 
406,633,850

Net loss per share attributable to LendingClub:
 
 
 
 
 
 
 
 
Basic
 
$
(0.05
)
 
$
(0.02
)
 
$
(0.27
)
 
$
(0.15
)
Diluted
 
$
(0.05
)
 
$
(0.02
)
 
$
(0.27
)
 
$
(0.15
)


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. Securities Available for Sale

The amortized cost, gross unrealized gains and losses, and fair value of securities available for sale as of September 30, 2018 and December 31, 2017, were as follows:
September 30, 2018
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Securitized asset-backed senior securities (1)(2)
$
67,058

 
$
55

 
$
(58
)
 
$
67,055

CLUB Certificate asset-backed securities (1)
29,004

 
152

 
(110
)
 
29,046

Certificates of deposit
22,446

 

 

 
22,446

Securitized asset-backed subordinated residual certificates (1)
13,302

 
291

 
(15
)
 
13,578

Asset-backed securities
12,037

 

 
(1
)
 
12,036

Corporate debt securities
11,690

 
3

 
(3
)
 
11,690

Commercial paper
9,093

 

 

 
9,093

Other securities
498

 

 

 
498

Total securities available for sale
$
165,128

 
$
501

 
$
(187
)
 
$
165,442

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Securitized asset-backed senior securities (1)
$
36,953

 
$
73

 
$
(6
)
 
$
37,020

Certificates of deposit
24,758

 

 

 
24,758

Corporate debt securities
16,268

 
1

 
(11
)
 
16,258

Asset-backed securities
14,843

 
1

 
(1
)
 
14,843

Commercial paper
14,665

 

 

 
14,665

Securitized asset-backed subordinated residual certificates (1)
8,262

 

 
(26
)
 
8,236

CLUB Certificate asset-backed securities (1)
1,796

 
11

 
(14
)
 
1,793

Total securities available for sale
$
117,545

 
$
86

 
$
(58
)
 
$
117,573

(1) 
As of September 30, 2018, and December 31, 2017, $108.0 million and $45.3 million, respectively, of the asset-backed securities related to structured program transactions at fair value are subject to restrictions on transfer pursuant to the Company's obligations as a “sponsor” under the U.S. Risk Retention Rules (as more fully described in “Part II. Other Information – Item 1A. Risk Factors – Risk retention rules and recent developments in our business may increase our compliance costs, impair our liquidity and otherwise adversely affect our operating results” in the Annual Report).
(2) 
Includes $24.7 million of securities pledged as collateral at fair value. See Note 13. Debt for further information.

The senior securities and the subordinated residual certificates related to Company-sponsored securitization transactions and the retained portion of any CLUB Certificates are accounted for as securities available for sale, as described in Note 7. Securitizations and Variable Interest Entities.” The senior securities are valued using prices obtained from third-party pricing services (Level 2 of the fair value hierarchy), as described in the Annual Report (Note 2. Summary of Significant Accounting Policies). The subordinated residual certificates and retained portions of the CLUB Certificates are valued using discounted cash flow models that incorporate contractual

17


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



payment terms and estimated discount rates, credit losses, and prepayment rates (Level 3 of the fair value hierarchy).

A summary of securities available for sale with unrealized losses as of September 30, 2018, and December 31, 2017, aggregated by period of continuous unrealized loss, is as follows:
 
Less than
12 months
 
12 months
or longer
 
Total
September 30, 2018
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Asset-backed securities related to structured program transactions (1)
$
44,930

 
$
(183
)
 
$

 
$

 
$
44,930

 
$
(183
)
Asset-backed securities
5,796

 
(1
)
 

 

 
5,796

 
(1
)
Corporate debt securities
3,386

 
(3
)
 

 

 
3,386

 
(3
)
Other securities
498

 

 

 

 
498

 

Total securities with unrealized losses (2)
$
54,610

 
$
(187
)
 
$

 
$

 
$
54,610

 
$
(187
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than
12 months
 
12 months
or longer
 
Total
December 31, 2017
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Asset-backed securities related to structured program transactions
$
26,534

 
$
(46
)
 
$

 
$

 
$
26,534

 
$
(46
)
Corporate debt securities
14,368

 
(11
)
 

 

 
14,368

 
(11
)
Asset-backed securities
4,401

 
(1
)
 

 

 
4,401

 
(1
)
Total securities with unrealized losses (2)
$
45,303

 
$
(58
)
 
$

 
$

 
$
45,303

 
$
(58
)
(1) 
Includes $24.7 million of securities pledged as collateral at fair value. See Note 13. Debt for further information.
(2) 
The number of investment positions with unrealized losses at September 30, 2018 and December 31, 2017 totaled 34 and 24, respectively.

During the third quarter and first nine months of 2018, the Company recognized $0.2 million and $2.3 million, respectively, in other-than-temporary impairment charges on its subordinated residual certificates held as a result of its Company-sponsored securitization transactions and on the retained portions of any CLUB Certificates. There were no credit losses recognized into earnings for other-than-temporarily impaired securities held by the Company during the third quarter and first nine months of 2018 for which a portion of the impairment was previously recognized in other comprehensive income. During the third quarter and first nine months of 2017, the Company recognized $505 thousand in other-than-temporary impairment charges on its subordinated residual certificates held as a result of its Company-sponsored securitization transactions.


18


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



The contractual maturities of securities available for sale at September 30, 2018, were as follows:
 
Fair Value
 
Amortized Cost
Within 1 year:
 
 
 
Certificates of deposit
$
22,446

 
$
22,446

Corporate debt securities
11,690

 
11,690

Asset-backed securities
10,536

 
10,537

Commercial paper
9,093

 
9,093

Other securities
498

 
498

Total
$
54,263

 
$
54,264

After 1 year through 5 years:
 
 
 
Asset-backed securities
$
1,500

 
$
1,500

Total
$
1,500

 
$
1,500

Asset-backed securities related to structured program transactions (1)
$
109,679

 
$
109,364

Total securities available for sale
$
165,442

 
$
165,128

(1) 
Includes $24.7 million of securities pledged as collateral at fair value. See Note 13. Debt for further information.

During the third quarter and first nine months of 2018, the Company and Consumer Loan Underlying Bond Depositor LLC (Depositor), a subsidiary of the Company, sold a combined $576.7 million and $1.5 billion, respectively, in asset-backed securities related to structured program transactions. During the third quarter and first nine months of 2017, the Company’s Depositor and a majority-owned affiliate (MOA) of the Company sold a combined $313.2 million and $578.6 million, respectively, in asset-backed securities related to Company-sponsored securitization transactions. There were no realized gains or losses related to such sales. For further information, see “Note 7. Securitizations and Variable Interest Entities.” Proceeds from other sales of securities available for sale during the first nine months of 2018 were $0.5 million resulting in an immaterial loss. There were no other sales of securities available for sale during the first nine months of 2017.

6. Loans Held for Investment, Loans Held for Sale, Notes, Certificates and Secured Borrowings

Loans Held for Investment, Notes, Certificates and Secured Borrowings

The Company sells loans and issues notes and the Trust issues certificates as a means to allow investors to invest in the corresponding loans. At September 30, 2018 and December 31, 2017, loans held for investment, notes, certificates and secured borrowings measured at fair value on a recurring basis were as follows:
 
Loans Held for Investment
 
Notes, Certificates and Secured Borrowings
September 30, 
 2018
 
December 31, 
 2017
 
September 30, 
 2018
 
December 31, 
 2017
Aggregate principal balance outstanding
$
2,284,844

 
$
3,141,391

 
$
2,300,659

 
$
3,161,080

Net fair value adjustments
(151,015
)
 
(209,066
)
 
(148,343
)
 
(206,312
)
Fair value
$
2,133,829

 
$
2,932,325

 
$
2,152,316

 
$
2,954,768


At September 30, 2018, $108.0 million of the aggregate principal balance outstanding and a fair value of $101.9 million included in “Loans held for investment” were pledged as collateral for secured borrowings. At December 31, 2017, $242.7 million of the aggregate principal balance outstanding and a fair value of $228.1 million

19


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



included in “Loans held for investment” were pledged as collateral for secured borrowings. See Note 14. Secured Borrowings for additional information.

The following table provides the balance of notes, certificates and secured borrowings at fair value at the end of the periods indicated:
 
September 30, 
 2018
 
December 31, 
 2017
Notes
$
1,270,359

 
$
1,512,052

Certificates
776,404

 
1,210,349

Secured borrowings
105,553

 
232,367

Total notes, certificates and secured borrowings
$
2,152,316

 
$
2,954,768


Loans Invested in by the Company

At September 30, 2018 and December 31, 2017, loans invested in by the Company for which there were no associated notes, certificates or secured borrowings were as follows:
 
Loans Invested in by the Company
 
Loans Held for Investment
 
Loans Held for Sale
 
Total
September 30, 
 2018
 
December 31, 
 2017
 
September 30, 
 2018
 
December 31, 
 2017
 
September 30, 
 2018
 
December 31, 
 2017
Aggregate principal balance outstanding
$
13,296

 
$
371,379

 
$
479,316

 
$
242,273

 
$
492,612

 
$
613,652

Net fair value adjustments
(1,098
)
 
(10,149
)
 
(20,033
)
 
(6,448
)
 
(21,131
)
 
(16,597
)
Fair value
$
12,198

 
$
361,230

 
$
459,283

 
$
235,825

 
$
471,481

 
$
597,055


The net fair value adjustments of $(21.1) million and $(16.6) million represent net unrealized losses recorded in earnings on loans invested in by the Company at September 30, 2018 and December 31, 2017, respectively. Total fair value adjustments recorded in earnings on loans invested in by the Company of $(20.5) million and $(75.5) million during the third quarter and first nine months of 2018, respectively, include net realized losses and changes in net unrealized losses. Net interest income earned on loans invested in by the Company during the third quarter and first nine months of 2018 was $22.1 million and $71.6 million, respectively.

The Company used its own capital to purchase $1.2 billion in loans during the third quarter of 2018 and sold $1.2 billion in loans during the third quarter of 2018, of which $608.4 million was securitized through Company-sponsored securitization transactions or sold to series trusts in connection with the issuance of CLUB Certificates and $585.6 million was sold to whole loan investors. The aggregate principal balance outstanding of loans invested in by the Company was $492.6 million at September 30, 2018, of which $479.3 million was held for sale primarily for future anticipated securitization and CLUB Certificate initiatives, and sales to whole loan investors. See Note 8. Fair Value of Assets and Liabilitiesfor a fair value rollforward of loans invested in by the Company for the third quarters and first nine months of 2018 and 2017.

At September 30, 2018 and December 31, 2017, $0 and $359.4 million of the aggregate principal balance outstanding included in “Loans held for investment by the Company at fair value” was pledged as collateral for payables to securitization note and residual certificate holders, respectively. Additionally, at September 30, 2018 and December 31, 2017, $318.4 million and $62.1 million of the aggregate principal balance outstanding included in

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 held for sale by the Company at fair value” was pledged as collateral for the Company’s warehouse credit facilities, respectively. See Note 13. Debt for additional information related to these debt obligations.

Loans that were 90 days or more past due (including non-accrual loans) were as follows:
 
September 30, 2018
 
December 31, 2017
 
> 90 days
past due and non-accrual loans (1)
 
> 90 days
past due
 
Non-accrual loans (1)
Loans held for investment and loans held for sale:
 
 
 
 
 
Outstanding principal balance
$
23,217

 
$
36,588

 
$
3,289

Net fair value adjustments
(19,015
)
 
(30,071
)
 
(2,675
)
Fair value
$
4,202

 
$
6,517

 
$
614

Number of loans (not in thousands)
2,572

 
3,779

 
591

 
 
 
 
 
 
Loans invested in by the Company:
 
 
 
 
 
Outstanding principal balance
$
2,451

 
$
1,015

 
$
122

Net fair value adjustments
(2,039
)
 
(861
)
 
(107
)
Fair value
$
412

 
$
154

 
$
15

Number of loans (not in thousands)
372

 
257

 
34

(1) 
Beginning in the first quarter of 2018, loans are placed on non-accrual status upon reaching 90 days past due. Prior to the first quarter of 2018, loans were placed on non-accrual status upon reaching 120 days past due. The effect of this change in estimate is immaterial. See “Note 2. Summary of Significant Accounting Policies” for additional information on the Company’s “Accrued Interest” accounting policy.


21


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



7. Securitizations and Variable Interest Entities

VIE Assets and Liabilities

The Company has segregated its involvement with VIEs between consolidated VIEs and unconsolidated VIEs. The following tables provide the classifications of assets and liabilities on the Company’s Condensed Consolidated Balance Sheets for its transactions with VIEs at September 30, 2018 and December 31, 2017:
September 30, 2018
Consolidated VIEs
 
Unconsolidated VIEs
 
Total
Assets
 
 
 
 
 
Restricted cash
$
31,855

 
$

 
$
31,855

Securities available for sale at fair value

 
109,679

 
109,679

Loans held for investment at fair value
770,901

 

 
770,901

Loans held for sale by Company at fair value
307,828

 

 
307,828

Accrued interest receivable
9,596

 
1,053

 
10,649

Other assets
2,456

 
27,867

 
30,323

Total assets
$
1,122,636

 
$
138,599

 
$
1,261,235

Liabilities
 
 
 
 
 
Accrued interest payable
$
8,804

 
$

 
$
8,804

Accrued expenses and other liabilities
1,214

 

 
1,214

Notes, certificates and secured borrowings at fair value
776,403

 

 
776,403

Credit facilities and securities sold under repurchase agreements
185,752

 
24,584

 
210,336

Total liabilities
972,173

 
24,584

 
996,757

Total net assets
$
150,463

 
$
114,015

 
$
264,478



22


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, 2017
Consolidated VIEs
 
Unconsolidated VIEs
 
Total
Assets
 
 
 
 
 
Restricted cash
$
34,370

 
$

 
$
34,370

Securities available for sale at fair value

 
47,049

 
47,049

Loans held for investment at fair value
1,202,260

 

 
1,202,260

Loans held for investment by the Company at fair value
350,699

 

 
350,699

Loans held for sale by Company at fair value
60,812

 

 
60,812

Accrued interest receivable
15,602

 
407

 
16,009

Other assets
6,324

 
15,779

 
22,103

Total assets
$
1,670,067

 
$
63,235

 
$
1,733,302

Liabilities
 
 
 
 
 
Accrued interest payable
$
14,789

 
$

 
$
14,789

Accrued expenses and other liabilities
52

 
300

 
352

Notes, certificates and secured borrowings at fair value
1,210,349

 

 
1,210,349

Payable to securitization note and residual certificate holders
312,123

 

 
312,123

Payable to revolving credit facilities
32,100

 

 
32,100

Total liabilities
1,569,413

 
300

 
1,569,713

Total net assets
$
100,654

 
$
62,935

 
$
163,589


Consolidated VIEs

The Company consolidates VIEs when it is deemed to be the primary beneficiary. The primary beneficiary is the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. In evaluating whether the Company is the primary beneficiary, the Company evaluates its economic interests in the entity. A consolidation analysis can generally be performed qualitatively, however if it is not readily apparent that the Company is not the primary beneficiary, a quantitative analysis may also be performed. See “Part II – Item 8 – Financial Statements and Supplementary Data – Note 2. Summary of Significant Accounting Policies in the Annual Report for additional information.

LC Trust I Certificates

The Company established the Trust for the purpose of acquiring and holding loans for the sole benefit of certain investors that have purchased trust certificates issued by the Trust. The Company is obligated to ensure that the Trust meets minimum capital requirements with respect to funding the administrative activities and maintaining the operations of the Trust.

Consolidated Securitizations

The Company previously consolidated a self-sponsored securitization trust, and therefore no gain or loss on sale of loans was recognized from the securitization transaction at the time the transaction was consummated. In May 2018, the Company sold a portion of the residual certificates of the self-sponsored securitization trust and no longer holds a significant variable interest in the securitization trust. As a result, the Company deconsolidated the securitization trust and recognized a $1.8 million gain on deconsolidation, which was recorded in “Gain on sales of loans” in the

23


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



Company’s Condensed Consolidated Statements of Operations during the second quarter of 2018. The Company retained 5% of the beneficial interests issued by the securitization trust, which are classified as securities available for sale. Additionally, the Company’s continued involvement includes loan servicing responsibilities for which it receives servicing fees over the life of the underlying loans.

CLUB Certificates

In May 2018, the Company acquired two previously sold CLUB Certificates, and as a result consolidated the two corresponding series trusts whose underlying loans were subsequently contributed to a Company-sponsored securitization. The Company recognized a $0.5 million loss on consolidation, primarily due to the derecognition of the related servicing asset. The loss on derecognition of the servicing asset was recorded in “Investor fees” in the Company’s Condensed Consolidated Statements of Operations during the second quarter of 2018. The Company redeemed the CLUB Certificates, received the underlying loans, and dissolved the two series trusts prior to the end of the second quarter of 2018.

Warehouse Credit Facilities

The Company established certain entities (deemed to be VIEs) to enter into warehouse credit facilities for the purpose of purchasing loans from LendingClub. See “Part II - Item 8 - Financial Statements and Supplementary Data - Note 13. Debt in the Annual Report for additional information.

The following table presents a summary of financial assets and liabilities from the Company’s involvement with consolidated VIEs at September 30, 2018 and December 31, 2017:
September 30, 2018
Assets
 
Liabilities
 
Net Assets
Trust certificates
$
790,736

 
$
(785,338
)
 
$
5,398

Warehouse credit facilities
331,900

 
(186,835
)
 
145,065

Total consolidated VIEs
$
1,122,636

 
$
(972,173
)
 
$
150,463


December 31, 2017
Assets
 
Liabilities
 
Net Assets
Trust certificates
$
1,226,957

 
$
(1,224,473
)
 
$
2,484

Securitizations
375,607

 
(312,832
)
 
62,775

Warehouse credit facility
67,503

 
(32,108
)
 
35,395

Total consolidated VIEs
$
1,670,067

 
$
(1,569,413
)
 
$
100,654


The creditors of the VIEs above have no recourse to the general credit of the Company as the primary beneficiary of the VIEs and the liabilities of the VIEs can only be settled by the respective VIE’s assets.

Unconsolidated VIEs

The Company’s transactions with unconsolidated VIEs include securitizations of unsecured personal whole loans, CLUB Certificate transactions, and sales of whole loans to VIEs. The Company has various forms of involvement with VIEs, including servicing of loans and holding senior or subordinated interests in the VIEs. The Company considers continued involvement in an unconsolidated VIE insignificant if it is the sponsor and servicer but does not hold other significant variable interests. In these instances, the Company’s involvement with the VIE is in the role as an agent and without significant participation in the economics of the VIE. In connection with these securitizations, as well as our whole loan sales and CLUB Certificate transactions, we made certain customary

24


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



representations, warranties and covenants. See “Part II - Item 8 -Financial Statements and Supplementary Data - Note 2. Summary of Significant Accounting Policies” in the Annual Report for additional information.

Unconsolidated Securitizations

The Company sponsors securitizations of unsecured personal whole loans through issuances of asset-backed securities, which are collateralized by unsecured personal whole loans that are contributed by the Company and third parties. In connection with these securitizations, the Company established VIEs to purchase the loans from the Company and third-party whole loan investors and simultaneously transferred the loans to a securitization trust with the transfer accounted for as a sale of financial assets. The assets are transferred into a trust such that the assets are legally isolated from the creditors of the Company and are not available to satisfy obligations of the Company. These assets can only be used to settle obligations of the underlying securitization trusts.

The Company enters into separate servicing agreements with the VIEs and holds 5% of the beneficial interests issued by the VIEs to comply with regulatory risk retention rules. The beneficial interests retained by the Company consist of senior securities and subordinated residual certificates and are accounted for as securities available for sale. In the case of certain securitization transactions, the Company has also agreed to repurchase or substitute loans for which a borrower fails to make the first payment due under a loan.

CLUB Certificates

The Company sponsors the sale of unsecured personal whole loans funded through the issuance of pass-through securities called CLUB Certificates, which are collateralized by loans transferred to the issuing VIE. The CLUB Certificate is an instrument that trades in the over-the-counter market with a CUSIP. The CLUB Certificate transaction typically involves the transfer of unsecured personal whole loans to a series trust with the transfer accounted for as a sale. In addition, the Company enters into a servicing agreement with each applicable series trust and holds 5% of the beneficial interests issued by the series trust to comply with regulatory risk retention rules. The portion of the CLUB Certificates retained by the Company are accounted for as securities available for sale. Additionally, the Company’s continued involvement includes loan servicing responsibilities for which it receives servicing fees over the life of the underlying loans.

Investment Fund

The Company has an equity investment in a holding company (Investment Fund) that participates in a family of funds with other unrelated third parties that purchases loans and interest in loans from the Company. As of September 30, 2018, the Company had an ownership interest of approximately 24% in the Investment Fund. The Company’s investment is deemed to be a variable interest in the Investment Fund because the Company shares in the expected returns and losses of the Investment Fund. At September 30, 2018, the Company’s investment was $8.5 million, which is recognized in “Other assets” on the Company’s Condensed Consolidated Balance Sheets.


25


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 tables summarize unconsolidated VIEs with which the Company has significant continuing involvement, but is not the primary beneficiary at September 30, 2018 and December 31, 2017:
September 30, 2018
 
Carrying Value
 
Total VIE Assets
 
Securities Available for Sale
 
Accrued Interest Receivable
 
Other Assets
 
Accrued Expenses and Other Liabilities
 
Securities Sold Under Repurchase Agreements
 
Net Assets
Securitizations
$
1,603,675

 
$
80,632

 
$
912

 
$
14,114

 
$

 
$
(24,584
)
 
$
71,074

CLUB Certificates
577,608

 
29,047

 
141

 
5,268

 

 

 
34,456

Investment Fund
35,901

 

 

 
8,485

 

 

 
8,485

Total unconsolidated VIEs
$
2,217,184

 
$
109,679

 
$
1,053

 
$
27,867

 
$

 
$
(24,584
)
 
$
114,015


September 30, 2018
Maximum Exposure to Loss
 
Securities Available for Sale
 
Accrued Interest Receivable
 
Other Assets
 
Accrued Expenses and Other Liabilities
 
Securities Sold Under Repurchase Agreements
 
Total Exposure
Securitizations
$
80,632

 
$
912

 
$
14,114

 
$

 
$

 
$
95,658

CLUB Certificates
29,047

 
141

 
5,268