Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM	10-Q



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

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.)



	595 Market Street, Suite 200,
	San Francisco,	CA	94105
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (415) 632-5600

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, par value $0.01 per share	LC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.			☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 31, 2019, there were 87,169,359 shares of the registrant’s common stock outstanding.

LENDINGCLUB CORPORATION

TABLE OF CONTENTS




PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Income (Loss)	6
	Condensed Consolidated Statements of Changes in Equity	7
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements	12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	58
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	98
Item 4.	Controls and Procedures	101

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	101
Item 1A.	Risk Factors	101
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	102
Item 3.	Defaults Upon Senior Securities	102
Item 4.	Mine Safety Disclosures	102
Item 5.	Other Information	102
Item 6.	Exhibits	103
Signatures		104

LENDINGCLUB CORPORATION

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


•	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 LC Trust), an independent Delaware business trust that acquires loans from LendingClub and holds them for the sole benefit of certain investors that have purchased trust certificates issued by the LC Trust and that are related to specific underlying loans for the benefit of the investor.


•	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.

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,” “forecast,” “future,” “intend,” “may,” “opportunity,” “plan,” “predict,” “project,” “should,” “strategy,” “target,” “will,” “would,” or similar expressions.

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


•	our ability to attract and retain 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 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;


•	our ability to innovate and the success of new product initiatives;


•	our ability to obtain or add bank functionality;


•	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;


•	our ability, and that of third-party vendors, to maintain service and quality expectations;


•	capital expenditures;

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;


•	our compliance with contractual obligations or restrictions;


•	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;


•	the effectiveness of our cost structure simplification efforts and ability to control our cost structure;


•	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 and review of our cost structure;


•	our ability to manage and repay our indebtedness; and


•	other risk factors listed from time to time in reports we file with the SEC.

We caution you that the foregoing list may not contain all of the forward-looking statements in this Report. We may not actually achieve the plans, intentions or expectations disclosed in forward-looking statements, and you should not place undue reliance on forward-looking statements. We have included important factors in the “Risk Factors” section of this Report and our Annual Report on Form 10-K for the year ended December 31, 2018, as well as in our condensed consolidated financial statements, related notes, and other information appearing elsewhere in this Report and our other filings with the Securities and Exchange Commission, that could, among other things, cause actual results or events to differ materially from forward-looking statements contained in this Report. Forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LENDINGCLUB CORPORATION

Condensed Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Amounts)

(Unaudited)



	June 30, 2019			December 31, 2018
Assets
Cash and cash equivalents	$	334,713		$	372,974
Restricted cash ⁽¹⁾	166,034			271,084
Securities available for sale (includes $53,007 and $53,611 pledged as collateral at fair value, respectively)	220,449			170,469
Loans held for investment at fair value ⁽¹⁾	1,512,984			1,883,251
Loans held for investment by the Company at fair value ⁽¹⁾	5,027			2,583
Loans held for sale by the Company at fair value ⁽¹⁾	435,083			840,021
Accrued interest receivable ⁽¹⁾	17,545			22,255
Property, equipment and software, net	119,553			113,875
Intangible assets, net	16,242			18,048
Other assets ⁽¹⁾	239,276			124,967
Total assets	$	3,066,906		$	3,819,527
Liabilities and Equity
Accounts payable	$	8,677		$	7,104
Accrued interest payable ⁽¹⁾	14,561			19,241
Accrued expenses and other liabilities ⁽¹⁾	262,844			152,118
Payable to investors	64,126			149,052
Notes, certificates and secured borrowings at fair value ⁽¹⁾	1,517,951			1,905,875
Payable to securitization note holders ⁽¹⁾	—			256,354
Credit facilities and securities sold under repurchase agreements ⁽¹⁾	324,426			458,802
Total liabilities	2,192,585			2,948,546
Equity
Common stock, $0.01 par value; 180,000,000 shares authorized; 87,616,553 and 86,384,667 shares issued, respectively; 87,160,013 and 85,928,127 shares outstanding, respectively ⁽²⁾	876			864
Additional paid-in capital⁽²⁾	1,439,244			1,405,392
Accumulated deficit	(548,323		)	(517,727		)
Treasury stock, at cost; 456,540 shares⁽²⁾	(19,485		)	(19,485		)
Accumulated other comprehensive income	1,313			157
Total LendingClub stockholders’ equity	873,625			869,201
Noncontrolling interests	696			1,780
Total equity	874,321			870,981
Total liabilities and equity	$	3,066,906		$	3,819,527


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


⁽²⁾	All share information and balances have been retroactively adjusted to reflect a reverse stock split. See “Note 4. Net Loss Per Share” for additional information.

The following table presents the assets and liabilities of consolidated VIEs, which are included in the Condensed Consolidated Balance Sheets above. The assets in the table below may only be used to settle obligations of consolidated VIEs and are in excess of those obligations. Additionally, the assets and liabilities in the table below include third-party assets and liabilities of consolidated VIEs only and exclude intercompany balances that eliminate in consolidation.



	June 30, 2019		December 31, 2018
Assets of consolidated VIEs, included in total assets above
Restricted cash	$	35,646	$	43,918
Loans held for investment at fair value	441,856		642,094
Loans held for sale by the Company at fair value	292,834		739,216
Accrued interest receivable	6,418		10,438
Other assets	2,591		2,498
Total assets of consolidated variable interest entities	$	779,345	$	1,438,164
Liabilities of consolidated VIEs, included in total liabilities above
Accrued interest payable	$	5,883	$	7,594
Accrued expenses and other liabilities	269		1,627
Notes, certificates and secured borrowings at fair value	441,856		648,908
Payable to securitization note holders	—		256,354
Credit facilities and securities sold under repurchase agreements	199,397		306,790
Total liabilities of consolidated variable interest entities	$	647,405	$	1,221,273

See Notes to Condensed Consolidated Financial Statements.

LENDINGCLUB CORPORATION

Condensed Consolidated Statements of Operations

(In Thousands, Except Share and Per Share Amounts)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net revenue:

Transaction fees	$	152,207		$	135,926		$	287,604		$	247,108

Interest income	92,562			127,760			192,734			265,778
Interest expense	(66,916		)	(100,898		)	(142,276		)	(211,741		)
Net fair value adjustments	(35,974		)	(26,556		)	(70,703		)	(55,269		)
Net interest income and fair value adjustments	(10,328		)	306			(20,245		)	(1,232		)
Investor fees	32,272			27,400			64,003			55,295
Gain on sales of loans	13,886			11,880			29,038			24,551
Net investor revenue ⁽¹⁾	35,830			39,586			72,796			78,614

Other revenue	2,770			1,467			4,825			2,924

Total net revenue	190,807			176,979			365,225			328,646
Operating expenses:
Sales and marketing	69,323			69,046			135,946			126,563
Origination and servicing	24,931			25,593			53,204			48,238
Engineering and product development	43,299			37,650			85,845			74,487
Other general and administrative	64,324			57,583			121,200			109,892
Goodwill impairment	—			35,633			—			35,633
Class action and regulatory litigation expense	—			12,262			—			25,762
Total operating expenses	201,877			237,767			396,195			420,575
Loss before income tax expense	(11,070		)	(60,788		)	(30,970		)	(91,929		)
Income tax (benefit) expense	(438		)	24			(438		)	63
Consolidated net loss	(10,632		)	(60,812		)	(30,532		)	(91,992		)
Less: Income attributable to noncontrolling interests	29			49			64			50
LendingClub net loss	$	(10,661	)	$	(60,861	)	$	(30,596	)	$	(92,042	)
Net loss per share attributable to LendingClub: ⁽²⁾
Basic	$	(0.12	)	$	(0.72	)	$	(0.35	)	$	(1.10	)
Diluted	$	(0.12	)	$	(0.72	)	$	(0.35	)	$	(1.10	)
Weighted-average common shares – Basic ⁽²⁾	86,719,049			84,238,897			86,429,892			83,950,978
Weighted-average common shares – Diluted ⁽²⁾	86,719,049			84,238,897			86,429,892			83,950,978


⁽¹⁾	See “Notes to Condensed Consolidated Financial Statements – Note 1. Basis of Presentation” for additional information.


⁽²⁾	All share and per share information has been retroactively adjusted to reflect a reverse stock split. See “Note 4. Net Loss Per Share” for additional information.

See Notes to Condensed Consolidated Financial Statements.

LENDINGCLUB CORPORATION

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In Thousands)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
LendingClub net loss	$	(10,661	)	$	(60,861	)	$	(30,596	)	$	(92,042	)
Other comprehensive income (loss), before tax:
Net unrealized gain (loss) on securities available for sale	1,543			(413		)	1,611			(391		)
Other comprehensive income (loss), before tax	1,543			(413		)	1,611			(391		)
Income tax effect	438			(1		)	438			(20		)
Other comprehensive income (loss), net of tax	1,105			(412		)	1,173			(371		)
Less: Other comprehensive income (loss) attributable to noncontrolling interests	17			26			17			17
LendingClub other comprehensive income (loss), net of tax	1,088			(438		)	1,156			(388		)
LendingClub comprehensive income (loss)	(9,573		)	(61,299		)	(29,440		)	(92,430		)
Comprehensive income (loss) attributable to noncontrolling interests	17			26			17			17
Total comprehensive income (loss)	$	(9,556	)	$	(61,273	)	$	(29,423	)	$	(92,413	)

See Notes to Condensed Consolidated Financial Statements.

LENDINGCLUB CORPORATION

Condensed Consolidated Statements of Changes in Equity

(In Thousands, Except Share Data)

(Unaudited)



	LendingClub Corporation Stockholders
	Common Stock⁽¹⁾			Additional Paid-in Capital⁽¹⁾			Treasury Stock				Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit			Total LendingClub Stockholders’ Equity			Noncontrolling Interests			Total Equity
	Shares	Amount		Additional Paid-in Capital⁽¹⁾			Shares	Amount			Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit			Total LendingClub Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance at March 31, 2019	86,384,050	$	868	$	1,420,838		456,540	$	(19,485	)	$	225	$	(537,662	)	$	864,784		$	1,090		$	865,874
Stock-based compensation	—	—		22,274			—	—			—		—			22,274			—			22,274
Issuances under equity incentive plans, net of tax	611,993	6		(6,278		)	—	—			—		—			(6,272		)	—			(6,272		)
Employee stock purchase plan (ESPP) purchase shares	163,970	2		2,410			—	—			—		—			2,412			—			2,412
Net unrealized gain on securities available for sale, net of tax	—	—		—			—	—			1,088		—			1,088			17			1,105
Dividends paid and return of capital to noncontrolling interests	—	—		—			—	—			—		—			—			(440		)	(440		)
Net loss	—	—		—			—	—			—		(10,661		)	(10,661		)	29			(10,632		)
Balance at June 30, 2019	87,160,013	$	876	$	1,439,244		456,540	$	(19,485	)	$	1,313	$	(548,323	)	$	873,625		$	696		$	874,321

	LendingClub Corporation Stockholders
	Common Stock⁽¹⁾			Additional Paid-in Capital⁽¹⁾			Treasury Stock				Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit			Total LendingClub Stockholders’ Equity			Noncontrolling Interests			Total Equity
	Shares	Amount		Additional Paid-in Capital⁽¹⁾			Shares	Amount			Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit			Total LendingClub Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance at December 31, 2018	85,928,127	$	864	$	1,405,392		456,540	$	(19,485	)	$	157	$	(517,727	)	$	869,201		$	1,780		$	870,981
Stock-based compensation	—	—		42,387			—	—			—		—			42,387			—			42,387
Issuances under equity incentive plans, net of tax	1,067,916	10		(10,945		)	—	—			—		—			(10,935		)	—			(10,935		)
ESPP purchase shares	163,970	2		2,410			—	—			—		—			2,412			—			2,412
Net unrealized gain on securities available for sale, net of tax	—	—		—			—	—			1,156		—			1,156			17			1,173
Dividends paid and return of capital to noncontrolling interests	—	—		—			—	—			—		—			—			(1,165		)	(1,165		)
Net loss	—	—		—			—	—			—		(30,596		)	(30,596		)	64			(30,532		)
Balance at June 30, 2019	87,160,013	$	876	$	1,439,244		456,540	$	(19,485	)	$	1,313	$	(548,323	)	$	873,625		$	696		$	874,321


⁽¹⁾	All share information and balances have been retroactively adjusted to reflect a reverse stock split. See “Note 4. Net Loss Per Share” for additional information.

LENDINGCLUB CORPORATION

Condensed Consolidated Statements of Changes in Equity

(In Thousands, Except Share Data)

(Unaudited)



	LendingClub Corporation Stockholders
	Common Stock⁽¹⁾			Additional Paid-in Capital⁽¹⁾		Treasury Stock				Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit			Total LendingClub Stockholders’ Equity		Noncontrolling Interests		Total Equity
	Shares	Amount		Additional Paid-in Capital⁽¹⁾		Shares	Amount			Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit			Total LendingClub Stockholders’ Equity		Noncontrolling Interests		Total Equity
Balance at March 31, 2018	83,921,526	$	844	$	1,350,145	456,540	$	(19,485	)	$	45	$	(420,600	)	$	910,949	$	4,171	$	915,120
Stock-based compensation	—	—		22,511		—