LendingClub Corp - Quarter Report: 2020 September (Form 10-Q)

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 September 30, 2020

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 October 30, 2020, there were 91,501,794 shares of the registrant’s common stock and common stock equivalents outstanding; of which (i) 78,232,694 shares represent the shares of common stock outstanding and (ii) 13,269,100 shares represent the number of shares of common stock automatically issuable upon transfer of the outstanding 132,691 shares of registrant’s Mandatorily Convertible Non-Voting Preferred Stock, Series A (Series A Preferred Stock).

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	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	62
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	109
Item 4.	Controls and Procedures	112

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	113
Item 1A.	Risk Factors	113
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	114
Item 3.	Defaults Upon Senior Securities	114
Item 4.	Mine Safety Disclosures	114
Item 5.	Other Information	115
Item 6.	Exhibits	116
Signatures		117

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 loan sale transactions under LendingClub’s Structured Program, including sponsoring asset-backed securities transactions and Certificate Program transactions, where certain accredited investors and qualified institutional buyers have the opportunity to invest in senior and subordinated securities backed by a pool of unsecured personal whole loans.


•	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 facilitated the origination of education and patient finance loans by third-party issuing banks. All assets of Springstone have been transferred to LendingClub and Springstone is expected to be dissolved.

Forward-Looking Statements

This Quarterly Report on Form 10-Q (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 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, expected market growth and our ability to obtain a bank charter and the impact on our business. 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:


•	the impact of COVID-19;


•	our ability to effectuate and the effectiveness of certain strategy initiatives in light of COVID-19;


•	the ability of our responses to mitigate adverse impacts, including on loan performance, arising in connection with COVID-19;


•	our ability to successfully navigate the current economic climate;


•	our ability to sustain the business under adverse circumstances;


•	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;


•	platform volume, pricing and balance;


•	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 and a bank charter;


•	our ability and timing to satisfy the closing conditions for the acquisition of Radius Bancorp, Inc. (including obtaining regulatory approval);


•	the impact on the business from obtaining or adding bank functionality and a bank charter;


•	our ability to resolve pending governmental inquiries and private litigation, and the terms of such resolution(s);


•	the use of our own capital to purchase loans;

LENDINGCLUB CORPORATION

•

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 Structured Program transactions, which include sponsoring asset-backed securitization transactions and Certificate Program 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;


•	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;


•	our ability to successfully relocate people and services;


•	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 “Risk Factors” section of this Report and our Annual Report on Form 10-K for the year ended December 31, 2019, 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)



	September 30, 2020			December 31, 2019
Assets
Cash and cash equivalents	$	445,180		$	243,779
Restricted cash ⁽¹⁾	98,787			243,343
Securities available for sale (includes $205,997 and $271,173 at amortized cost, $17,542 and $0 in allowance for credit losses, and $127,376 and $174,849 pledged as collateral at fair value, respectively)	187,375			270,927
Loans held for investment at fair value ⁽¹⁾	708,274			1,079,315
Loans held for investment by the Company at fair value ⁽¹⁾	59,099			43,693
Loans held for sale by the Company at fair value ⁽¹⁾	180,801			722,355
Accrued interest receivable ⁽¹⁾	6,865			12,857
Property, equipment and software, net	101,045			114,370
Operating lease assets	76,226			93,485
Intangible assets, net	12,180			14,549
Other assets ⁽¹⁾	103,625			143,668
Total assets	$	1,979,457		$	2,982,341
Liabilities and Equity
Accounts payable	$	3,382		$	10,855
Accrued interest payable ⁽¹⁾	5,829			9,260
Operating lease liabilities	98,204			112,344
Accrued expenses and other liabilities ⁽¹⁾	100,916			142,636
Payable to investors	35,068			97,530
Notes, certificates and secured borrowings at fair value ⁽¹⁾	708,597			1,081,466
Payable to Structured Program note and certificate holders at fair value ⁽¹⁾	173,410			40,610
Credit facilities and securities sold under repurchase agreements ⁽¹⁾	120,159			587,453
Total liabilities	1,245,565			2,082,154
Equity
Series A Preferred stock, $0.01 par value; 1,200,000 shares authorized; 149,904 and 0 shares issued, respectively; 149,904 and 0 shares outstanding, respectively	1			—
Common stock, $0.01 par value; 180,000,000 shares authorized; 76,511,394 and 89,218,797 shares issued, respectively; 76,511,394 and 88,757,406 shares outstanding, respectively	765			892
Additional paid-in capital	1,493,839			1,467,882
Accumulated deficit	(759,559		)	(548,472		)
Treasury stock, at cost; 0 and 461,391 shares, respectively	—			(19,550		)
Accumulated other comprehensive loss	(1,154		)	(565		)
Total equity	733,892			900,187
Total liabilities and equity	$	1,979,457		$	2,982,341


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

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.



	September 30, 2020		December 31, 2019
Assets of consolidated VIEs, included in total assets above
Restricted cash	$	18,113	$	30,046
Loans held for investment at fair value	74,487		197,842
Loans held for investment by the Company at fair value	57,756		40,251
Loans held for sale by the Company at fair value	138,557		551,455
Accrued interest receivable	1,768		4,431
Other assets	161		1,359
Total assets of consolidated variable interest entities	$	290,842	$	825,384
Liabilities of consolidated VIEs, included in total liabilities above
Accrued interest payable	$	1,008	$	3,185
Accrued expenses and other liabilities	181		244
Notes, certificates and secured borrowings at fair value	74,487		197,842
Payable to Structured Program note and certificate holders at fair value	173,410		40,610
Credit facilities and securities sold under repurchase agreements	18,500		387,251
Total liabilities of consolidated variable interest entities	$	267,586	$	629,132

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 September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net revenue:

Transaction fees	$	24,372		$	161,205		$	164,489		$	448,809

Interest income	46,773			77,820			176,744			270,554
Interest expense	(32,440		)	(55,060		)	(114,447		)	(197,336		)
Net fair value adjustments	(696		)	(31,628		)	(108,812		)	(102,331		)
Net interest income and fair value adjustments	13,637			(8,868		)	(46,515		)	(29,113		)
Investor fees	25,850			30,271			86,924			94,274
Gain on sales of loans	7,739			18,305			23,724			47,343
Net investor revenue	47,226			39,708			64,133			112,504

Other revenue	3,115			3,983			10,166			8,808

Total net revenue	74,713			204,896			238,788			570,121
Operating expenses:
Sales and marketing	7,201			76,255			65,708			212,201
Origination and servicing	15,595			27,996			54,419			81,200
Engineering and product development	31,984			41,455			109,861			127,300
Other general and administrative	54,332			59,485			169,438			180,685
Total operating expenses	109,112			205,191			399,426			601,386
Loss before income tax expense	(34,399		)	(295		)	(160,638		)	(31,265		)
Income tax expense (benefit)	(74		)	97			245			(341		)
Consolidated net loss	(34,325		)	(392		)	(160,883		)	(30,924		)
Less: Income (Loss) attributable to noncontrolling interests	—			(9		)	—			55
LendingClub net loss	$	(34,325	)	$	(383	)	$	(160,883	)	$	(30,979	)


Net loss per share attributable to common stockholders – Basic and Diluted ⁽¹⁾	$	(0.38	)	$	0.00		$	(2.35	)	$	(0.36	)
Weighted-average common shares – Basic and Diluted ⁽¹⁾	73,566,385			87,588,495			76,781,157			86,849,388
Net income (loss) per share attributable to preferred stockholders – Basic and Diluted ⁽¹⁾	$	(0.38	)	$	0.00		$	1.46		$	0.00
Weighted-average common shares, as converted – Basic and Diluted ⁽¹⁾	17,335,485			—			13,174,545			—


⁽¹⁾	See “Notes to Condensed Consolidated Financial Statements – Note 4. Net Income (Loss) Per Share” and “Note 14. Stockholders' Equity” 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 September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
LendingClub net loss	$	(34,325	)	$	(383	)	$	(160,883	)	$	(30,979	)
Other comprehensive income (loss), before tax:
Net unrealized gain (loss) on securities available for sale	6,502			(823		)	(834		)	788
Other comprehensive income (loss), before tax	6,502			(823		)	(834		)	788
Income tax effect	74			(130		)	(245		)	308
Other comprehensive income (loss), net of tax	6,428			(693		)	(589		)	480
Less: Other comprehensive loss attributable to noncontrolling interests	—			(39		)	—			(22		)
LendingClub other comprehensive income (loss), net of tax	6,428			(654		)	(589		)	502
LendingClub comprehensive loss	(27,897		)	(1,037		)	(161,472		)	(30,477		)
Comprehensive loss attributable to noncontrolling interests	—			(39		)	—			(22		)
Total comprehensive loss	$	(27,897	)	$	(1,076	)	$	(161,472	)	$	(30,499	)

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
	Preferred Stock					Common Stock					Additional Paid-in Capital			Treasury Stock					Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total LendingClub Stockholders’ Equity			Noncontrolling Interests		Total Equity
	Shares		Amount			Shares		Amount			Additional Paid-in Capital			Shares		Amount			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total LendingClub Stockholders’ Equity			Noncontrolling Interests		Total Equity
Balance at June 30, 2020	195,627		$	2		70,938,835		$	709		$	1,478,247		—		$	—		$	(7,582	)	$	(725,234	)	$	746,142		$	—	$	746,142
Stock-based compensation	—		—			—		—			16,281			—		—			—			—			16,281			—		16,281
Net issuances under equity incentive plans, net of tax⁽¹⁾	—		—			1,000,259		10			(644		)	—		—			—			—			(634		)	—		(634		)
Net issuances of preferred stock in exchange for common stock	(45,723	)	(1		)	4,572,300		46			(45		)	—		—			—			—			—			—		—
Net unrealized gain (loss) on securities available for sale, net of tax	—		—			—		—			—			—		—			6,428			—			6,428			—		6,428
Net loss	—		—			—		—			—			—		—			—			(34,325		)	(34,325		)	—		(34,325		)
Balance at September 30, 2020	149,904		$	1		76,511,394		$	765		$	1,493,839		—		$	—		$	(1,154	)	$	(759,559	)	$	733,892		$	—	$	733,892

						LendingClub Corporation Stockholders
	Preferred Stock					Common Stock					Additional Paid-in Capital			Treasury Stock					Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total LendingClub Stockholders’ Equity			Noncontrolling Interests		Total Equity
	Shares		Amount			Shares		Amount			Additional Paid-in Capital			Shares		Amount			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total LendingClub Stockholders’ Equity			Noncontrolling Interests		Total Equity
Balance at December 31, 2019	—		$	—		88,757,406		$	892		$	1,467,882		461,391		$	(19,550	)	$	(565	)	$	(548,472	)	$	900,187		$	—	$	900,187
Stock-based compensation	—		—			—		—			51,492			—		—			—			—			51,492			—		51,492
Net issuances under equity incentive plans, net of tax⁽¹⁾	—		—			2,744,469		27			(6,067		)	5,658		(71		)	—			—			(6,111		)	—		(6,111		)
Net issuances of preferred stock in exchange for common stock⁽²⁾	149,904		1			(14,990,481	)	(150		)	149			—		—			—			(50,204		)	(50,204		)	—		(50,204		)
Retirement of treasury stock	—		—			—		(4		)	(19,617		)	(467,049	)	19,621			—			—			—			—		—
Net unrealized gain (loss) on securities available for sale, net of tax	—		—			—		—			—			—		—			(589		)	—			(589		)	—		(589		)
Net loss	—		—			—		—			—			—		—			—			(160,883		)	(160,883		)	—		(160,883		)
Balance at September 30, 2020	149,904		$	1		76,511,394		$	765		$	1,493,839		—		$	—		$	(1,154	)	$	(759,559	)	$	733,892		$	—	$	733,892


⁽¹⁾	Includes shares that were transferred to the Company to satisfy payment of all or a portion of the exercise price in connection with the exercise of stock options.


⁽²⁾	Includes a payment of $50.2 million that was recorded as a deemed dividend within accumulated deficit related to the beneficial conversion feature of the Series A Preferred Stock issued on March 20, 2020, which would convert into common stock upon a sale by the preferred stockholder to a third party. See “Note 14. Stockholders' Equity” for additional information.

LENDINGCLUB CORPORATION

Condensed Consolidated Statements of Changes in Equity

(In Thousands, Except Share Data)

(Unaudited)



				LendingClub Corporation Stockholders
	Preferred Stock			Common Stock			Additional Paid-in Capital			Treasury Stock				Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total LendingClub Stockholders’ Equity			Noncontrolling Interests			Total Equity
	Shares	Amount		Shares	Amount		Additional Paid-in Capital			Shares	Amount			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total LendingClub Stockholders’ Equity			Noncontrolling Interests			Total Equity
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
Stock-based compensation	—	—		—	—		19,491			—	—			—			—			19,491			—			19,491
Net issuances under equity incentive plans, net of tax ⁽¹⁾	—	—		972,576	10		(4,149		)	3,894	(53		)	—			—			(4,192		)	—			(4,192		)
Net unrealized gain on securities available for sale, net of tax	—	—		—	—		—			—	—			(654		)	—			(654		)	(37		)	(691		)
Dividends paid and return of capital to noncontrolling interests	—	—		—	—		—			—	—			—			—			—			(650		)	(650		)
Net loss	—	—		—	—		—			—	—			—			(383		)	(383		)	(9		)	(392		)
Balance at September 30, 2019	—	$	—	88,132,589	$	886	$	1,454,586		460,434	$	(19,538	)	$	659		$	(548,706	)	$	887,887		$	—		$	887,887

				LendingClub Corporation Stockholders
	Preferred Stock			Common Stock			Additional Paid-in Capital			Treasury Stock				Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total LendingClub Stockholders’ Equity			Noncontrolling Interests			Total Equity
	Shares	Amount		Shares	Amount		Additional Paid-in Capital			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	—	—		—	—		61,878			—	—			—			—			61,878			—			61,878
Net issuances under equity incentive plans, net of tax ⁽¹⁾	—	—		2,040,492	20		(15,094		)	3,894	(53		)	—			—			(15,127		)	—			(15,127		)
ESPP purchase shares	—	—		163,970	2		2,410			—	—			—			—			2,412			—			2,412
Net unrealized gain on securities available for sale, net of tax	—	—		—	—		—			—	—			502			—			502			(20		)	482
Dividends paid and return of capital to noncontrolling interests	—	—		—	—		—			—	—			—			—			—			(1,815		)	(1,815		)
Net loss	—	—		—	—		—			—	—			—			(30,979		)	(30,979		)	55			(30,924		)
Balance at September 30, 2019	—	$	—	88,132,589	$	886	$	1,454,586		460,434	$	(19,538	)	$	659		$	(548,706	)	$	887,887		$	—		$	887,887


⁽¹⁾	Includes shares purchased by the Company in lieu of issuing fractional shares in connection with a 1-for-5 reverse stock split effective July 5, 2019 and shares that were transferred to the Company to satisfy payment of all or a portion of the exercise price in connection with the exercise of stock options.

See Notes to Condensed Consolidated Financial Statements.

LENDINGCLUB CORPORATION

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)



	Nine Months Ended September 30,
	2020			2019
Cash Flows from Operating Activities:
Consolidated net loss	$	(160,883	)	$	(30,924	)
Adjustments to reconcile consolidated net loss to net cash provided by (used for) operating activities:
Net fair value adjustments	108,812			102,331
Change in fair value of loan servicing assets and liabilities	48,040			39,882
Stock-based compensation, net	47,455			56,898
Depreciation and amortization	41,832			44,034
Gain on sales of loans	(23,724		)	(47,343		)
Other, net	9,582			14,649
Purchase of loans held for sale	(2,192,059		)	(5,282,100		)
Principal payments received on loans held for sale	204,561			193,850
Proceeds from whole loan sales and Structured Program transactions, net of underwriting fees and costs	2,363,280			4,795,151
Net change in operating assets and liabilities:
Accrued interest receivable, net	(5,278		)	(9,536		)
Other assets	42,769			12,167
Accounts payable	(7,363		)	6,998
Accrued interest payable	(3,431		)	(8,654		)
Accrued expenses and other liabilities	(42,847		)	(12,134		)
Change in payable to investors ⁽¹⁾	(65,789		)	(35,957		)
Net cash provided by (used for) operating activities	364,957			(160,688		)
Cash Flows from Investing Activities:
Purchases of loans	(237,403		)	(522,564		)
Principal payments received on loans	550,448			950,607
Proceeds from recoveries and sales of charged-off loans	33,795			42,239
Purchases of securities available for sale	(53,536		)	(116,753		)
Proceeds from sales, maturities, redemptions and paydowns of securities available for sale	79,986			110,884
Proceeds from paydowns of asset-backed securities related to Structured Program transactions	101,584			64,056
Other investing activities	300			194
Purchases of property, equipment and software, net	(24,583		)	(38,977		)
Net cash provided by investing activities	450,591			489,686
Cash Flows from Financing Activities:
Proceeds from issuance of notes and certificates	237,283			522,249
Repayments of secured borrowings	(14,997		)	(47,930		)
Principal payments on and retirements of notes and certificates	(532,534		)	(916,983		)
Payments on notes, certificates, and secured borrowings from recoveries/sales of related charged-off loans	(33,310		)	(42,634		)
Principal payments on securitization notes	(51,635		)	(56,707		)
Proceeds from issuance of notes and certificates from Structured Program transactions	186,190			—

LENDINGCLUB CORPORATION

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)



	Nine Months Ended September 30,
	2020			2019
Proceeds from credit facilities and securities sold under repurchase agreements	1,105,051			1,851,738
Principal payments on credit facilities and securities sold under repurchase agreements	(1,572,569		)	(1,801,600		)
Payment for debt issuance costs	(264		)	(1,356		)
Deemed dividend paid to preferred stockholder	(50,204		)	—
Other financing activities	(31,714		)	(4,747		)
Net cash used for financing activities	(758,703		)	(497,970		)
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	$	56,845		$	(168,972	)
Cash, Cash Equivalents and Restricted Cash, Beginning of Period	$	487,122		$	644,058
Cash, Cash Equivalents and Restricted Cash, End of Period	$	543,967		$	475,086
Supplemental Cash Flow Information:
Cash paid for interest	$	115,639		$	206,332
Cash paid for operating leases included in the measurement of lease liabilities	$	12,086		$	12,568
Non-cash investing activity:
Net securities retained from Structured Program transactions	$	43,458		$	136,053
Accruals for property, equipment and software	$	1,260		$	3,299
Non-cash investing and financing activity:
Transfer of whole loans to redeem certificates	$	17,414		$	122,330
Non-cash financing activity:
Exchange of common stock for preferred stock	$	207,244		$	—
Derecognition of payable to securitization note and residual certificate holders held in consolidated VIE	$	—		$	200,881


⁽¹⁾	Change in payable to investors was previously presented as cash flows from financing activities. Prior period amounts have been reclassified to conform to the current period presentation.

The following presents cash, cash equivalents and restricted cash by category within the Condensed Consolidated Balance Sheets:



	September 30, 2020		December 31, 2019
Cash and cash equivalents	$	445,180	$	243,779
Restricted cash	98,787		243,343
Total cash, cash equivalents and restricted cash	$	543,967	$	487,122

See Notes to Condensed Consolidated Financial Statements.

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 borrowing agreements with certain lenders for secured credit facilities. Additionally, LendingClub has established various entities to facilitate loan sale transactions, including sponsoring asset-backed securitization transactions and Certificate Program transactions (collectively referred to as Structured Program transactions), where certain accredited investors and qualified institutional buyers have the opportunity to invest in senior and subordinated securities backed by a pool of unsecured personal whole loans. Certificate Program transactions include CLUB Certificate and Levered Certificate transactions. LC Trust I (the LC 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 LC 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 facilitated education and patient finance loans originated by third-party issuing banks. All assets of Springstone have been transferred to LendingClub and Springstone is expected to be dissolved.

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, in the opinion of management, 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. These estimates and assumptions are inherently subjective in nature and actual results may differ from these estimates and assumptions, and the differences could be material. Results reported in interim periods are not necessarily indicative of results for the full year or any other interim period. Certain 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, 2019 (Annual Report) filed on February 19, 2020.

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, 2020, except as noted below.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

Securities Available for Sale

Debt securities that the Company might not hold until maturity are classified as securities available for sale. In structured program transactions that meet the applicable criteria to be accounted for as a sale, the Company retains certain asset-backed securities including subordinated residual interests and CLUB Certificates, which are classified as securities available for sale. On January 1, 2020, the entity adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (CECL) for securities available for sale. Asset-backed securities where the expected cash flows are significantly lower than that of the contractual future cash flows are considered to be purchased with credit deterioration (PCD). The discounted differential in expected and contractual cash flows is included with the purchase price of the asset to determine amortized cost of the security with an equal and offsetting valuation allowance for credit losses. Securities available for sale are recorded at fair value and unrealized gains and losses are reported, net of taxes, in “Accumulated other comprehensive income (loss)” included in Equity in the Company’s Consolidated Balance Sheets, unless management determines that the security is impaired due to a deterioration in expected cash flows, in which case the unrealized loss is recognized in earnings within “Net fair value adjustments” as a valuation allowance for credit losses (with the implementation of CECL) or other-than-temporary impairment (prior to the implementation of CECL) in the Company’s Condensed Consolidated Statements of Operations.

Management evaluates whether debt securities available for sale with unrealized losses are impaired on a quarterly basis. If the Company intends to sell the security, or if it is more likely than not that it will be required to sell the security before recovery, an impairment is recognized in earnings equal to the entire difference between the amortized cost basis and fair value of the debt security. However, even if the Company does not expect to sell a debt security it must evaluate if a deterioration in cash flows exists.

Accrued Interest Receivable on Loans

The Company does not record an allowance for credit losses on accrued interest receivable. The Company places loans on non-accrual status at 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 income as of such date. The Company accrues interest income on loans on short term hardship programs using the effective interest rate method.

Net Income (Loss) Per Share

Basic net income (loss) per share (Basic EPS) attributable to common stockholders is computed by dividing net income (loss) attributable to LendingClub by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share (Diluted EPS) is computed by dividing net income (loss) attributable to LendingClub by the weighted-average number of common shares outstanding during the period, adjusted for the effects of dilutive issuances of shares of common stock, which include incremental shares issued for outstanding RSUs, PBRSUs, and stock options. PBRSUs are included in dilutive shares to the extent the pre-established performance targets have been or are estimated to be satisfied as of the reporting date. The dilutive potential common shares are computed using the treasury stock method. The effects of outstanding RSUs, PBRSUs, and stock options are excluded from the computation of Diluted EPS in periods in which the effect would be antidilutive. For periods with more than one class of common shares, the Company computes Basic and Diluted EPS using the two-class method, which is an allocation of net income (loss) among the holders of each class of common shares. The Series A Preferred Stock is considered a separate class of common share for purposes of calculating net income (loss) per share because it participates in earnings similar to common stock and does not receive any significant preferences over the common stock.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

Beneficial Conversion Feature

The Company accounts for the beneficial conversion feature (BCF) on its Series A Preferred Stock in accordance with ASC 470-20, Debt with Conversion and Other Options. The Company accretes the BCF discount from the date of issuance to the earliest conversion date, which was March 20, 2020. All of the BCF discount was accreted and recognized as a deemed dividend in “Accumulated deficit” on the Company’s Condensed Consolidated Balance Sheets. See “Note 14. Stockholders' Equity” for additional information.

Adoption of New Accounting Standards

The Company adopted the following accounting standards during the nine month period ended September 30, 2020:

On January 1, 2020, the entity adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. For loans accounted for at amortized cost, 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. As the Company has elected the fair value option for loans and loans accounted for at fair value through net income are outside the scope of Topic 326, there is no impact on the Company’s loan portfolios.

For debt securities available for sale, Topic 326 requires 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. Upon adoption, the amendments in Topic 326 are recognized through a cumulative-effect adjustment to retained earnings, except for debt securities with prior other-than-temporary impairment whereby Topic 326 is applied prospectively.

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. As a result, the amortized cost basis remains the same before and after the effective date of ASC 326. The effective interest rate on these debt securities was not changed. Amounts previously recognized in accumulated other comprehensive income as of January 1, 2020 relating to improvements in cashflows expected to be collected are accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows after January 1, 2020 are recorded in earnings when received.

Additionally, the Company adopted ASC 326 using the prospective transition approach for PCD financial assets. The Company did not have any previously classified assets as purchased credit impaired (PCI) under ASC 310-30. In accordance with this standard, management did not reevaluate for PCD upon transition.

Adoption of Topic 326 did not have an impact on the Company’s financial position, results of operations, and cash flows. The Company did not record a cumulative effect adjustment to retained earnings. The Company included the disclosures required by ASU 2016-13 in “Note 5. Securities Available for Sale.”

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 became effective on January 1, 2020 and did not have a material impact on the Company’s related disclosures.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

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 became effective on January 1, 2020 and the Company adopted the standard using the prospective approach. The Company has reviewed existing cloud computing arrangements and determined which ones are service contracts. Implementation costs that are not from internal developers related to service contracts that satisfy the criteria for capitalization under ASC 350-40 will be presented with “Other assets” on the Company’s Consolidated Balance Sheets, amortization expense will be presented in the same line on the income statement as the fees for the associated hosted service on the Company’s Consolidated Statements of Operations, and the cash flows will be presented consistent with the presentation of cash flows for the fees related to the hosted service, generally as cash flows from operations, on the Company’s Consolidated Statements of Cash Flows. Adoption of the standard did not have a material impact on the Company’s financial position, results of operations, cash flows, or disclosures.

New Accounting Standards Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is part of the FASB’s initiative to reduce complexity in accounting standards. The proposed ASU eliminates certain exceptions to the general principles of ASC 740, Income Taxes, and simplifies income tax accounting in several areas. The standard is effective for fiscal periods beginning after December 15, 2020 with early adoption permitted. The Company is evaluating the impact this ASU will have on its financial position, results of operations, cash flows, and disclosures, but does not expect such adoption to have a material impact.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which, if certain criteria are met, provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform. These transactions include contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity. The provisions of the new standard may be adopted as of the beginning of the reporting period when the election is made until December 31, 2022. The Company is evaluating the impact this ASU will have on its financial position, results of operations, cash flows, and disclosures. The Company has not elected an adoption date.

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity including convertible instruments and contracts on an entity’s own equity. The guidance allows for either full or modified retrospective adoption for fiscal periods beginning after December 15, 2021 with early adoption permitted for fiscal periods beginning after December 15, 2020. The Company is evaluating the impact this ASU will have on its financial position, results of operations, cash flows, and disclosures.

3. Revenue from Contracts with Customers

The Company’s revenue from contracts with customers includes transaction fees and referral fees. Referral fees are presented as a component of “Other revenue” in the Condensed Consolidated Statements of Operations.

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 present the Company’s revenue from contracts with customers, disaggregated by revenue source for services transferred over time, for the third quarters and first nine months of 2020 and 2019:



	Three Months Ended September 30,
	2020		2019
Transaction fees	$	24,372	$	161,205
Referral fees	1,264		1,596
Total revenue from contracts with customers	$	25,636	$	162,801



	Nine Months Ended September 30,
	2020		2019
Transaction fees	$	164,489	$	448,809
Referral fees	3,503		3,619
Total revenue from contracts with customers	$	167,992	$	452,428

The Company recognizes transaction and referral fees at each distinct instance after the Company satisfies its performance obligations. The Company had no bad debt expense for the third quarters and first nine months of 2020 and 2019. Because revenue is recognized at the same time that payments are received, the Company had no contract assets, contract liabilities, or deferred contract costs recorded as of both September 30, 2020 and December 31, 2019. 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 quarters and first nine months of 2020 and 2019. For additional detail on the Company’s accounting policy regarding revenue recognition, see “Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 2. Summary of Significant Accounting Policies” in the Company’s Annual Report.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

4. Net Income (Loss) Per Share

The following tables detail the computation of the Company’s basic and diluted net income (loss) per share of common stock and Series A Preferred Stock:



Three Months Ended September 30,	2020						2019
	Common Stock			Preferred Stock⁽¹⁾⁽²⁾			Common Stock
Net loss attributable to stockholders	$	(27,779	)	$	(6,546	)	$	(383	)
Weighted-average common shares – Basic and Diluted ⁽²⁾	73,566,385			17,335,485			87,588,495
Net loss per share attributable to stockholders – Basic and Diluted ⁽²⁾	$	(0.38	)	$	(0.38	)	$	0.00

Nine Months Ended September 30,	2020						2019
	Common Stock			Preferred Stock⁽¹⁾⁽²⁾			Common Stock
Allocation of undistributed LendingClub net loss	$	(129,968	)	$	(30,915	)	$	(30,979	)
Deemed dividend	(50,204		)	50,204			—
Net income (loss) attributable to stockholders	$	(180,172	)	$	19,289		$	(30,979	)
Weighted-average common shares – Basic and Diluted ⁽²⁾	76,781,157			13,174,545			86,849,388
Net income (loss) per share attributable to stockholders – Basic and Diluted ⁽²⁾	$	(2.35	)	$	1.46		$	(0.36	)


⁽¹⁾	Presented on an as-converted basis.


⁽²⁾	See “Note 2. Summary of Significant Accounting Policies” and “Note 14. Stockholders' Equity” for additional information.

In February 2020, the Company entered into an exchange agreement with its largest stockholder, Shanda Asset Management Holdings Limited and its affiliates (Shanda), pursuant to which, on March 20, 2020, Shanda exchanged all of 19,562,881 shares of LendingClub common stock, par value of $0.01 per share, held by it for (i) 195,628 newly issued shares of mandatorily convertible, non-voting, LendingClub preferred stock, series A (Series A Preferred Stock), par value of $0.01 per share, and (ii) a one-time cash payment of $50.2 million. The Series A Preferred Stock is considered a separate class of common shares for purposes of calculating net income (loss) per share because it participates in earnings similar to common stock and does not receive any significant preferences over the common stock. See “Note 14. Stockholders' Equity,” for additional information. During the period that included the Company’s preferred stock, Basic and Diluted EPS were computed using the two-class method, which is a net income (loss) allocation that determines EPS for each class of common stock according to dividends declared and participation rights in undistributed income (loss).

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

The following table summarizes the weighted-average common stock that were excluded from the Company’s diluted net income (loss) per share computation because their effect would have been anti-dilutive for the periods presented:



	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Preferred stock	17,335,485	—	13,174,545	—
Stock options	160,382	484,032	228,066	489,657
RSUs and PBRSUs	761,077	229,456	184,832	176,131
Total	18,256,944	713,488	13,587,443	665,788

5. Securities Available for Sale

The Company’s Structured Program transactions include (i) asset-backed securitization transactions and (ii) Certificate Program transactions. Certificate Program transactions include CLUB Certificate and Levered Certificate transactions.

In connection with asset-backed securitizations, the Company is the sponsor and establishes trusts to ultimately purchase the unsecured personal loans from the Company and/or third-party whole loan investors. Securities issued from our asset-backed securitizations are senior or subordinated based on the waterfall criteria of loan payments to each security class. The subordinated residual interests issued from these transactions are first to absorb credit losses in accordance with the waterfall criteria. 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 trusts. The asset-backed securitization senior securities and subordinated residual interests retained by the Company are presented as “Asset-backed senior securities” and “Asset-backed subordinated securities,” respectively, in the securities available for sale tables below.

In addition, the Company sponsors the sale of unsecured personal loans through the issuance of certificate securities under our Certificate Program. The certificate securities are collateralized by loans transferred to a series of a master trust and trade in the over-the-counter market with a CUSIP. 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 Certificate Program trusts. The CLUB Certificate issued securities are pass-through securities of which each owner has an undivided and equal interest in the underlying loans of each transaction. The Levered Certificate issued securities include senior and subordinated securities based on the waterfall criteria of loan payments to each security class. The subordinated securities issued from these transactions are first to absorb credit losses in accordance with the waterfall criteria. The CLUB Certificate issued securities retained by the Company are presented as “CLUB Certificate asset-backed securities” in the securities available for sale tables below.

The Levered Certificate issued senior and subordinated securities retained by the Company are presented in aggregate with securities from asset-backed securitizations as “Asset-backed senior securities” and “Asset-backed subordinated securities,” respectively, in the tables below. The “Other asset-backed securities” caption in the tables below primarily includes investment-grade rated bonds that are collateralized by automobile loan receivables.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

The amortized cost, gross unrealized gains and losses, allowance for credit losses, and fair value of securities available for sale as of September 30, 2020 and December 31, 2019, were as follows:



September 30, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Allowance for Credit Losses			Fair Value
Asset-backed senior securities ⁽¹⁾⁽²⁾	$	84,589	$	20	$	(590	)	$	—		$	84,019
CLUB Certificate asset-backed securities ⁽¹⁾	71,487		288		(1,569		)	(4,500		)	65,706
Asset-backed subordinated securities ⁽¹⁾	30,289		1,126		(377		)	(13,042		)	17,996
Commercial paper	6,999		—		—			—			6,999
Corporate debt securities	6,637		14		—			—			6,651
Other asset-backed securities	3,796		8		—			—			3,804
Certificates of deposit	2,200		—		—			—			2,200
Total securities available for sale	$	205,997	$	1,456	$	(2,536	)	$	(17,542	)	$	187,375



December 31, 2019	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Asset-backed senior securities ⁽¹⁾⁽²⁾	$	108,780	$	597	$	(38	)	$	109,339
CLUB Certificate asset-backed securities ⁽¹⁾	90,728		41		(1,063		)	89,706
Asset-backed subordinated securities ⁽¹⁾	20,888		423		(221		)	21,090
Corporate debt securities	14,333		11		(1		)	14,343
Certificates of deposit	13,100		—		—			13,100
Other asset-backed securities	12,075		6		(1		)	12,080
Commercial paper	9,274		—		—			9,274
U.S. agency securities	1,995		—		—			1,995
Total securities available for sale	$	271,173	$	1,078	$	(1,324	)	$	270,927

⁽¹⁾

As of September 30, 2020 and December 31, 2019, $151.4 million and $219.0 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 I – Item 1A. Risk Factors – Risk retention rules may increase our compliance costs, impair our liquidity and otherwise adversely affect our operating results” in the Annual Report.).


⁽²⁾	As of September 30, 2020, and December 31, 2019, includes $127.4 million and $174.8 million, respectively, of securities pledged as collateral at fair value.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

A summary of securities available for sale with unrealized losses for which an allowance for credit losses has not been recorded as of September 30, 2020 and December 31, 2019, aggregated by period of continuous unrealized loss, is as follows:



	Less than 12 months					12 months or longer					Total
September 30, 2020	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Asset-backed securities related to Structured Program transactions	$	78,556	$	(2,394	)	$	4,178	$	(142	)	$	82,734	$	(2,536	)
Corporate debt securities	1,301		—			—		—			1,301		—
Other asset-backed securities	204		—			—		—			204		—
Total securities with unrealized losses ⁽¹⁾	$	80,061	$	(2,394	)	$	4,178	$	(142	)	$	84,239	$	(2,536	)


	Less than 12 months					12 months or longer					Total
December 31, 2019	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Asset-backed securities related to Structured Program transactions	$	91,350	$	(1,287	)	$	1,875	$	(35	)	$	93,225	$	(1,322	)
Corporate debt securities	4,613		(1		)	—		—			4,613		(1		)
Other asset-backed securities	3,062		(1		)	—		—			3,062		(1		)
Total securities with unrealized losses ⁽¹⁾	$	99,025	$	(1,289	)	$	1,875	$	(35	)	$	100,900	$	(1,324	)


⁽¹⁾	The number of investment positions with unrealized losses at September 30, 2020 and December 31, 2019 totaled 94 and 70, respectively.

The Company recorded an allowance for credit loss on those securities where there was a deterioration in future estimated cash flows. The Company also recorded unrealized losses on securities with fair value price reductions due to higher liquidity premiums observed due to the market dislocation related to COVID-19. The Company deemed it not necessary to record unrealized losses as an allowance for credit loss for certain securities due to the nature of those securities and their investment grade quality.

During the third quarter and first nine months of 2020, the Company recognized $(3.7) million and $3.8 million in credit recovery and loss expense, respectively. During the third quarter and first nine months of 2019, the Company recognized $1.2 million and $2.5 million in other-than-temporary impairment charges, respectively, on its asset-backed securities related to Structured Program transactions. 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 2019 for which a portion of the impairment was previously recognized in other comprehensive income.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

The following table presents the activity in the allowance for credit losses for securities available for sale, by major security type, for the third quarter and first nine months of 2020:



Allowance for Credit Losses	CLUB Certificate asset-backed securities			Asset-backed subordinated securities			Total
Beginning balance as of June 30, 2020	$	(6,587	)	$	(8,984	)	$	(15,571	)
Provision for credit loss expense	2,087			1,582			3,669
Allowance arising from PCD financial assets	—			(5,640		)	(5,640		)
Ending balance as of September 30, 2020	$	(4,500	)	$	(13,042	)	$	(17,542	)

Allowance for Credit Losses	CLUB Certificate asset-backed securities			Asset-backed subordinated securities			Total
Beginning balance as of January 1, 2020	$	—		$	—		$	—
Provision for credit loss expense	(546		)	(3,254		)	(3,800		)
Allowance arising from PCD financial assets	(3,954		)	(9,788		)	(13,742		)
Ending balance as of September 30, 2020	$	(4,500	)	$	(13,042	)	$	(17,542	)

Securities available for sale purchased with credit deterioration during the third quarter and first nine months of 2020 were as follows:



	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
Purchase price of PCD securities at acquisition	$	446	$	25,915
Allowance for credit losses on PCD securities at acquisition	5,640		13,742
Par value of acquired PCD securities at acquisition	$	6,086	$	39,657

The contractual maturities of securities available for sale at September 30, 2020, were as follows:



	Amortized Cost		Fair Value
Within 1 year:
Commercial paper	$	6,999	$	6,999
Corporate debt securities	6,637		6,651
Certificates of deposit	2,200		2,200
Other asset-backed securities	1,930		1,930
Total	17,766		17,780
After 1 year through 5 years:
Other asset-backed securities	1,866		1,874
Total	1,866		1,874
Asset-backed securities related to Structured Program transactions	186,365		167,721
Total securities available for sale	$	205,997	$	187,375

During the third quarter and first nine months of 2020, the Company and Consumer Loan Underlying Bond Depositor LLC (Depositor), a subsidiary of the Company, sold a combined $0.2 billion and $1.3 billion, respectively, in asset-backed securities related to Structured Program transactions. During the third quarter and first nine months of 2019, the Company and Consumer Loan Underlying Bond Depositor LLC (Depositor), a subsidiary

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

of the Company, sold a combined $1.2 billion and $3.2 billion, respectively, in asset-backed securities related to Structured Program transactions. There were no realized gains or losses related to such sales. For further information, see “Note 7. Securitizations and Variable Interest Entities.” Proceeds and gross realized gains and losses from other sales of securities available for sale were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020			2019
Proceeds	$	—	$	4,019	$	2,396		$	10,419
Gross realized gains	$	—	$	8	$	3		$	8
Gross realized losses	$	—	$	—	$	(4	)	$	—

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 issues member payment dependent notes and the LC Trust issues certificates as a means to allow investors to invest in the corresponding loans. At September 30, 2020 and December 31, 2019, 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, 2020			December 31, 2019			September 30, 2020			December 31, 2019
Aggregate principal balance outstanding	$	756,570		$	1,148,888		$	756,570		$	1,148,888
Net fair value adjustments	(48,296		)	(69,573		)	(47,973		)	(67,422		)
Fair value	$	708,274		$	1,079,315		$	708,597		$	1,081,466

At September 30, 2020 and December 31, 2019, a fair value of $2.8 million and $18.0 million included in “Loans Held for Investment at fair value” was pledged as collateral for secured borrowings, respectively.

The following table provides the balances of notes, certificates and secured borrowings at fair value at the end of the periods indicated:



	September 30, 2020		December 31, 2019
Notes	$	631,169	$	863,488
Certificates	74,487		197,842
Secured borrowings	2,941		20,136
Total notes, certificates and secured borrowings	$	708,597	$	1,081,466

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

Loans Invested in by the Company

At September 30, 2020 and December 31, 2019, loans invested in by the Company for which there were no associated notes, certificates or secured borrowings (with the exception of $170.0 million and $40.3 million in loans at fair value in consolidated trusts as of September 30, 2020 and December 31, 2019, respectively) were as follows:



	Loans Invested in by the Company
	Loans Held for Investment						Loans Held for Sale						Total
	September 30, 2020			December 31, 2019			September 30, 2020			December 31, 2019			September 30, 2020			December 31, 2019
Aggregate principal balance outstanding	$	66,232		$	47,042		$	202,749		$	747,394		$	268,981		$	794,436
Net fair value adjustments	(7,133		)	(3,349		)	(21,948		)	(25,039		)	(29,081		)	(28,388		)
Fair value	$	59,099		$	43,693		$	180,801		$	722,355		$	239,900		$	766,048

The net fair value adjustments of $(29.1) million and $(28.4) million represent net unrealized losses recorded in earnings on loans invested in by the Company at September 30, 2020 and December 31, 2019, respectively. Total fair value adjustments recorded in earnings on loans invested in by the Company of $4.3 million and $(100.3) million during the third quarter and first nine months of 2020, respectively, and $(32.4) million and $(100.1) million during the third quarter and first nine months of 2019, 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 2020 was $12.4 million and $54.3 million, respectively. Net interest income earned on loans invested in by the Company during the third quarter and first nine months of 2019 was $17.7 million and $59.3 million, respectively.

The Company used its own capital to purchase $28.0 million loans and sold $442.7 million in loans during the third quarter of 2020 which were all sold to whole loan investors. The fair value of loans invested in by the Company was $239.9 million at September 30, 2020 which included $170.0 million related to Structured Program transactions that were consolidated and a related payable to Structured Program note and certificate holders at fair value of $173.4 million as of September 30, 2020. See “Note 7. Securitizations and Variable Interest Entities” and “Note 13. Debt” for further discussion on the Company’s consolidated trusts and “Note 8. Fair Value of Assets and Liabilities” for a fair value rollforward of loans invested in by the Company for the third quarters and first nine months of 2020 and 2019.

At September 30, 2020 and December 31, 2019, loans with a fair value of $26.3 million and $551.5 million included in “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.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

Loans that were 90 days or more past due (including non-accrual loans) were as follows:



	September 30, 2020			December 31, 2019
Loans held for investment:
Outstanding principal balance	$	4,140		$	10,755
Net fair value adjustments	(3,432		)	(9,663		)
Fair value	$	708		$	1,092
Number of loans (not in thousands)	788			1,428

Loans invested in by the Company:
Outstanding principal balance	$	2,116		$	2,315
Net fair value adjustments	(1,808		)	(2,016		)
Fair value	$	308		$	299
Number of loans (not in thousands)	180			338

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 following tables provide the classifications of assets and liabilities on the Company’s Condensed Consolidated Balance Sheets for its transactions with consolidated and unconsolidated VIEs at September 30, 2020 and December 31, 2019. Additionally, the assets and liabilities in the table below exclude intercompany balances that eliminate in consolidation:



September 30, 2020	Consolidated VIEs		Unconsolidated VIEs		Total
Assets
Restricted cash	$	18,113	$	—	$	18,113
Securities available for sale at fair value	—		167,721		167,721
Loans held for investment at fair value	74,487		—		74,487
Loans held for investment by the Company at fair value	57,756		—		57,756
Loans held for sale by the Company at fair value	138,557		—		138,557
Accrued interest receivable	1,768		92		1,860
Other assets	161		38,403		38,564
Total assets	$	290,842	$	206,216	$	497,058
Liabilities
Accrued interest payable	$	1,008	$	—	$	1,008
Accrued expenses and other liabilities	181		—		181
Notes, certificates and secured borrowings at fair value	74,487		—		74,487
Payable to Structured Program note and certificate holders at fair value	173,410		—		173,410
Credit facilities and securities sold under repurchase agreements	18,500		—		18,500
Total liabilities	267,586		—		267,586
Total net assets	$	23,256	$	206,216	$	229,472

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, 2019	Consolidated VIEs		Unconsolidated VIEs		Total
Assets
Restricted cash	$	30,046	$	—	$	30,046
Securities available for sale at fair value	—		220,135		220,135
Loans held for investment at fair value	197,842		—		197,842
Loans held for investment by the Company at fair value	40,251		—		40,251
Loans held for sale by the Company at fair value	551,455		—		551,455
Accrued interest receivable	4,431		877		5,308
Other assets	1,359		52,098		53,457
Total assets	$	825,384	$	273,110	$	1,098,494
Liabilities
Accrued interest payable	$	3,185	$	—	$	3,185
Accrued expenses and other liabilities	244		—		244
Notes, certificates and secured borrowings at fair value	197,842		—		197,842
Payable to Structured Program note and certificate holders at fair value	40,610		—		40,610
Credit facilities and securities sold under repurchase agreements	387,251		—		387,251
Total liabilities	629,132		—		629,132
Total net assets	$	196,252	$	273,110	$	469,362

Consolidated VIEs

The Company consolidates VIEs when it is deemed to be the primary beneficiary. See “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 additional information.

LC Trust

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

Consolidated Trusts

The Company establishes trusts to facilitate the sale of loans and issuance of senior and subordinated securities. If the Company is the primary beneficiary of the trust, it is a consolidated VIE and will reflect senior and subordinated securities held by third parties as a “Payable to Structured Program note and certificate holders at fair value” in the Company’s Condensed Consolidated Balance Sheets. If subsequently the Company is not the primary beneficiary of the trust, the Company will deconsolidate the VIE. See “Note 13. Debt” for additional information.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

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 “Note 13. Debt” for additional information.

The following tables present a summary of financial assets and liabilities from the Company’s involvement with consolidated VIEs at September 30, 2020 and December 31, 2019:



September 30, 2020	Assets		Liabilities			Net Assets
LC Trust	$	77,496	$	(75,166	)	$	2,330
Consolidated trusts	184,341		(173,726		)	10,615
Warehouse credit facilities	29,005		(18,694		)	10,311
Total consolidated VIEs	$	290,842	$	(267,586	)	$	23,256



December 31, 2019	Assets		Liabilities			Net Assets
LC Trust	$	201,696	$	(199,520	)	$	2,176
Consolidated trusts	43,300		(40,687		)	2,613
Warehouse credit facilities	580,388		(388,925		)	191,463
Total consolidated VIEs	$	825,384	$	(629,132	)	$	196,252

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 asset-backed securitizations, Certificate Program transactions and loan sale transactions of unsecured personal loans. The Company has various forms of involvement with VIEs, including servicing of loans and holding senior or subordinated residual interests in the VIEs. The accounting for these transactions is based on a primary beneficiary analysis to determine whether the underlying VIEs should be consolidated. If the VIEs are not consolidated and the transfer of the loans from the Company to the VIE meets sale accounting criteria, then the Company will recognize a gain or loss on sales of loans. The Company considers continued involvement in an unconsolidated VIE insignificant if it is the sponsor and servicer and 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. The Company enters into separate servicing agreements with the VIEs and holds at least 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 securities and are accounted for as securities available for sale. In connection with these transactions, we make certain customary representations, warranties and covenants. See “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 additional information.

Investment Fund

The Company has an equity investment in a private fund (Investment Fund) that participates in a family of funds with other unrelated third parties. This family of funds purchases assets from third parties unrelated to the Company and historically purchased whole loans and interests in loans from the Company. As of September 30, 2020, the Company had an ownership interest of approximately 23% 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

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

losses of the Investment Fund. The Company has requested a full redemption of our investment in the Investment Fund. At September 30, 2020, the Company’s investment was $7.8 million, which is recognized in “Other assets” on the Company’s Condensed Consolidated Balance Sheets.

The following tables summarize unconsolidated VIEs with which the Company has significant continuing involvement, but is not the primary beneficiary at September 30, 2020 and December 31, 2019:



September 30, 2020			Carrying Value
	Total VIE Assets		Securities Available for Sale		Accrued Interest Receivable		Other Assets		Net Assets
Unconsolidated Trusts	$	1,502,665	$	67,415	$	51	$	11,774	$	79,240
Certificate Program	2,315,354		100,306		41		18,854		119,201
Investment Fund	34,376		—		—		7,775		7,775
Total unconsolidated VIEs	$	3,852,395	$	167,721	$	92	$	38,403	$	206,216



September 30, 2020	Maximum Exposure to Loss
	Securities Available for Sale		Accrued Interest Receivable		Other Assets		Total Exposure
Unconsolidated Trusts	$	67,415	$	51	$	11,774	$	79,240
Certificate Program	100,306		41		18,854		119,201
Investment Fund	—		—		7,775		7,775
Total unconsolidated VIEs	$	167,721	$	92	$	38,403	$	206,216



December 31, 2019			Carrying Value
	Total VIE Assets		Securities Available for Sale		Accrued Interest Receivable		Other Assets		Net Assets
Unconsolidated Trusts	$	1,909,219	$	93,881	$	362	$	18,768	$	113,011
Certificate Program	2,585,957		126,254		515		25,588		152,357
Investment Fund	34,170		—		—		7,742		7,742
Total unconsolidated VIEs	$	4,529,346	$	220,135	$	877	$	52,098	$	273,110



December 31, 2019	Maximum Exposure to Loss
	Securities Available for Sale		Accrued Interest Receivable		Other Assets		Total Exposure
Unconsolidated Trusts	$	93,881	$	362	$	18,768	$	113,011
Certificate Program	126,254		515		25,588		152,357
Investment Fund	—		—		7,742		7,742
Total unconsolidated VIEs	$	220,135	$	877	$	52,098	$	273,110

“Total VIE Assets” represents the remaining principal balance of loans held by unconsolidated VIEs with respect to Unconsolidated Trusts, Certificate Program transactions, and the net assets held by the Investment Fund using the most current information available. “Securities Available for Sale,” “Accrued Interest Receivable,” and “Other Assets” are the balances in the Company’s Condensed Consolidated Balance Sheets related to its involvement with

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

the unconsolidated VIEs. “Other Assets” includes the Company’s servicing assets and servicing receivables and the Company’s equity investment with respect to the Investment Fund. “Total Exposure” refers to the Company’s maximum exposure to loss from its involvement with unconsolidated VIEs. It represents estimated loss that would be incurred under severe, hypothetical circumstances, for which the Company believes the possibility is extremely remote, such as where the value of interests and any associated collateral declines to zero. Accordingly, this required disclosure is not an indication of expected losses.

The following tables summarize activity related to the Unconsolidated Trusts and Certificate Program trusts, with the transfers accounted for as a sale on the Company’s condensed consolidated financial statements for the third quarters and first nine months of 2020 and 2019:



Three Months Ended September 30,	2020				2019
	Unconsolidated Trusts		Unconsolidated Certificate Program Trusts		Unconsolidated Trusts		Unconsolidated Certificate Program Trusts
Principal derecognized from loans securitized or sold ⁽¹⁾	$	—	$	233,852	$	328,173	$	772,734
Net gains (losses) recognized from loans securitized or sold	$	—	$	1,563	$	360	$	9,174
Fair value of asset-backed senior and subordinated securities, and CLUB Certificate asset-backed securities retained upon settlement ⁽²⁾	$	—	$	—	$	15,464	$	37,803
Cash proceeds from loans securitized or sold	$	—	$	—	$	298,099	$	659,755
Cash proceeds from servicing and other administrative fees on loans securitized or sold	$	4,176	$	6,697	$	4,545	$	4,802
Cash proceeds for interest received on senior securities and subordinated securities	$	983	$	1,847	$	1,283	$	2,045


⁽¹⁾	Includes non-cash purchase and sale of loans requested by investors to facilitate a Structured Program transaction during the third quarter of 2020.


⁽²⁾	For Structured Program transactions, the Company retained asset-backed senior securities of $21.8 million, CLUB Certificate asset-backed securities of $27.1 million, and asset-backed subordinated securities of $4.3 million for the third quarter of 2019.

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,	2020					2019
	Unconsolidated Trusts			Unconsolidated Certificate Program Trusts		Unconsolidated Trusts		Unconsolidated Certificate Program Trusts
Principal derecognized from loans securitized or sold ⁽¹⁾	$	255,203		$	871,489	$	1,180,048	$	1,797,174
Net gains (losses) recognized from loans securitized or sold	$	(20	)	$	7,159	$	4,114	$	20,641
Fair value of asset-backed senior and subordinated securities, and CLUB Certificate asset-backed securities retained upon settlement ⁽²⁾	$	12,707		$	31,423	$	57,379	$	88,371
Cash proceeds from loans securitized or sold	$	237,764		$	598,515	$	864,949	$	1,629,967
Cash proceeds from servicing and other administrative fees on loans securitized or sold	$	14,118		$	20,919	$	12,324	$	11,396
Cash proceeds for interest received on senior securities and subordinated securities	$	3,792		$	6,740	$	3,917	$	5,280


⁽¹⁾	Includes non-cash purchase and sale of loans requested by investors to facilitate a Structured Program transaction during the third quarter of 2020.


⁽²⁾	For Structured Program transactions, the Company retained asset-backed senior securities of $23.0 million and $60.0 million, CLUB Certificate asset-backed securities of $18.3 million and $77.7 million, and asset-backed subordinated securities of $2.9 million and $8.1 million for the first nine months of 2020 and 2019, respectively.

Off-Balance Sheet Loans

Off-balance sheet loans primarily relate to Structured Program transactions for which the Company has some form of continuing involvement, including as servicer. Delinquent loans are comprised of loans 31 days or more past due, including non-accrual loans. Loans to eligible borrowers participating in Skip-a-Pay are not considered delinquent during the commensurate period the loan is extended. For loans related to Structured Program transactions where servicing is the only form of continuing involvement, the Company would only experience a loss if it was required to repurchase a loan due to a breach in representations and warranties associated with its loan sale or servicing contracts.

As of September 30, 2020, the aggregate unpaid principal balance of the off-balance sheet loans pursuant to Structured Program transactions was $3.8 billion, of which $102.7 million was attributable to off-balance sheet loans that were 31 days or more past due. As of December 31, 2019, the aggregate unpaid principal balance of the off-balance sheet loans pursuant to Structured Program transactions was $4.4 billion, of which $145.6 million was attributable to off-balance sheet loans that were 31 days or more past due.

Retained Interests from Unconsolidated VIEs

The Company and other investors in the subordinated interests issued by trusts and Certificate Program trusts have rights to cash flows only after the investors holding the senior securities issued by the trusts have first received their contractual cash flows. The investors and the trusts have no direct recourse to the Company’s assets, and holders of the securities issued by the trusts can look only to the assets of the securitization trusts that issued their securities for payment. The beneficial interests held by the Company are subject principally to the credit and prepayment risk stemming from the underlying unsecured personal whole loans.

See “Note 8. Fair Value of Assets and Liabilities” for additional information on the fair value sensitivity of asset-backed securities related to Structured Program transactions.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

8. Fair Value of Assets and Liabilities

For a description of the fair value hierarchy and the Company’s fair value methodologies, see “Part II – Item 8. Financial Statements and Supplementary Data – Note 2. Summary of Significant Accounting Policies” in the Annual Report. The Company records certain assets and liabilities at fair value as listed in the following tables.

Financial Instruments, Assets and Liabilities Recorded at Fair Value

The following tables present the fair value hierarchy for assets and liabilities measured at fair value at September 30, 2020 and December 31, 2019:



September 30, 2020	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Balance at Fair Value
Assets:
Loans held for investment	$	—	$	—	$	708,274	$	708,274
Loans held for investment by the Company	—		—		59,099		59,099
Loans held for sale by the Company	—		—		180,801		180,801
Securities available for sale:
Asset-backed senior securities and subordinated securities	—		84,020		17,995		102,015
CLUB Certificate asset-backed securities	—		—		65,706		65,706
Commercial paper	—		6,999		—		6,999
Corporate debt securities	—		6,651		—		6,651
Other asset-backed securities	—		3,804		—		3,804
Certificates of deposit	—		2,200		—		2,200
Total securities available for sale	—		103,674		83,701		187,375
Servicing assets	—		—		59,538		59,538
Total assets	$	—	$	103,674	$	1,091,413	$	1,195,087

Liabilities:
Notes, certificates and secured borrowings	$	—	$	—	$	708,597	$	708,597
Payable to Structured Program note and certificate holders	—		—		173,410		173,410
Deferred revenue	—		—		4,154		4,154
Loan trailing fee liability	—		—		8,258		8,258
Total liabilities	$	—	$	—	$	894,419	$	894,419

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, 2019	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Balance at Fair Value
Assets:
Loans held for investment	$	—	$	—	$	1,079,315	$	1,079,315
Loans held for investment by the Company	—		—		43,693		43,693
Loans held for sale by the Company	—		—		722,355		722,355
Securities available for sale:
Asset-backed senior securities and subordinated securities	—		109,339		21,090		130,429
CLUB Certificate asset-backed securities	—		—		89,706		89,706
Corporate debt securities	—		14,343		—		14,343
Certificates of deposit	—		13,100		—		13,100
Other asset-backed securities	—		12,080		—		12,080
Commercial paper	—		9,274		—		9,274
U.S. agency securities	—		1,995		—		1,995
Total securities available for sale	—		160,131		110,796		270,927
Servicing assets	—		—		89,680		89,680
Total assets	$	—	$	160,131	$	2,045,839	$	2,205,970

Liabilities:
Notes, certificates and secured borrowings	$	—	$	—	$	1,081,466	$	1,081,466
Payable to Structured Program note and certificate holders	—		—		40,610		40,610
Loan trailing fee liability	—		—		11,099		11,099
Total liabilities	$	—	$	—	$	1,133,175	$	1,133,175

As presented in the tables above, the Company has elected the fair value option for certain liabilities. Changes in the fair value of these financial liabilities caused by a change in the Company’s risk are reported in other comprehensive income (OCI). For the third quarter and first nine months of 2020, the amount reported in OCI is zero because these financial liabilities are either payable only upon receipt of cash flows from underlying loans or secured by cash collateral.

Financial instruments are categorized in the valuation hierarchy based on the significance of unobservable factors in the overall fair value measurement. Since the Company’s loans held for investment and related notes, certificates, and secured borrowings, loans held for sale, loan servicing rights, asset-backed securities related to Structured Program transactions, and loan trailing fee liability do not trade in an active market with readily observable prices, the Company uses significant unobservable inputs to measure the fair value of these assets and liabilities. These fair value estimates may also include observable, actively quoted components derived from external sources. As a result, changes in fair value for assets and liabilities within the Level 2 or Level 3 categories may include changes in fair value that were attributable to observable and unobservable inputs, respectively. The Company primarily uses a discounted cash flow model to estimate the fair value of Level 3 instruments based on the present value of estimated future cash flows. This model uses inputs that are inherently judgmental and reflect our best estimates of the assumptions a market participant would use to calculate fair value. Due to changes in the availability of market observable inputs, the Company transferred $517 thousand of asset-backed securities related to Structured Program

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

transactions out of Level 3 during the first nine months of 2020. The Company did not transfer any other assets or liabilities in or out of Level 3 during the first nine months of 2020 or year ended December 31, 2019.

Fair valuation adjustments are recorded through earnings related to Level 3 instruments for the third quarters and first nine months of 2020 and 2019. Certain unobservable inputs may (in isolation) have either a directionally consistent or opposite impact on the fair value of the financial instrument for a given change in that input. When multiple inputs are used within the valuation techniques, a change in one input in a certain direction may be offset by an opposite change from another input.

Loans Held for Investment, Notes, Certificates and Secured Borrowings

Significant Unobservable Inputs

The following table presents quantitative information about the significant unobservable inputs used for the Company’s Level 3 fair value measurements for loans held for investment, notes, certificates and secured

borrowings at September 30, 2020 and December 31, 2019:



	Loans Held for Investment, Notes, Certificates and Secured Borrowings
	September 30, 2020						December 31, 2019
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted- Average
Discount rates	7.7	%	15.1	%	9.6	%	6.0	%	12.0	%	7.9	%
Net cumulative expected loss rates⁽¹⁾	4.3	%	28.0	%	11.7	%	3.6	%	34.9	%	11.9	%
Cumulative expected prepayment rates ⁽¹⁾	27.6	%	35.6	%	30.7	%	28.7	%	38.6	%	31.7	%


⁽¹⁾	Expressed as a percentage of the original principal balance of the loan, note, certificate or secured borrowing.

Significant Recurring Level 3 Fair Value Input Sensitivity

At September 30, 2020 and December 31, 2019, the discounted cash flow methodology used to estimate the note, certificate and secured borrowings’ fair values used the same projected net cash flows as their related loans. As demonstrated by the following tables, the fair value adjustments for loans held for investment and loans held for sale were largely offset by the corresponding fair value adjustments due to the payment dependent design of the notes, certificates and secured borrowings.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

Fair Value Reconciliation

The following tables present additional information about Level 3 loans held for investment, loans held for sale, and notes, certificates and secured borrowings measured at fair value on a recurring basis for the third quarters and first nine months of 2020 and 2019:



	Loans Held for Investment									Loans Held for Sale									Notes, Certificates and Secured Borrowings
	Outstanding Principal Balance			Valuation Adjustment			Fair Value			Outstanding Principal Balance			Valuation Adjustment			Fair Value			Outstanding Principal Balance			Valuation Adjustment			Fair Value
Balance at June 30, 2020	$	851,476		$	(66,248	)	$	785,228		$	—		$	—		$	—		$	851,476		$	(65,548	)	$	785,928
Purchases	77,389			—			77,389			492,440			(24,533		)	467,907			—			—			—
Transfers (to) from loans held for investment and/or loans held for sale	(324		)	—			(324		)	—			—			—			—			—			—
Issuances	—			—			—			—			—			—			77,389			—			77,389
Sales	—			—			—			(492,440		)	29,902			(462,538		)	—			—			—
Principal payments and retirements	(159,753		)	—			(159,753		)	—			—			—			(160,077		)	—			(160,077		)
Charge-offs, net of recoveries	(12,218		)	2,049			(10,169		)	—			—			—			(12,218		)	1,358			(10,860		)
Change in fair value recorded in earnings	—			15,903			15,903			—			(5,369		)	(5,369		)	—			16,217			16,217
Balance at September 30, 2020	$	756,570		$	(48,296	)	$	708,274		$	—		$	—		$	—		$	756,570		$	(47,973	)	$	708,597

	Loans Held for Investment									Loans Held for Sale									Notes, Certificates and Secured Borrowings
	Outstanding Principal Balance			Valuation Adjustment			Fair Value			Outstanding Principal Balance			Valuation Adjustment			Fair Value			Outstanding Principal Balance			Valuation Adjustment			Fair Value
Balance at June 30, 2019	$	1,605,257		$	(92,273	)	$	1,512,984		$	—		$	—		$	—		$	1,605,257		$	(87,306	)	$	1,517,951
Purchases	162,402			—			162,402			697,833			(9,080		)	688,753			—			—			—
Transfers (to) from loans held for investment and/or loans held for sale	(122,515		)	—			(122,515		)	122,330			—			122,330			—			—			—
Issuances	—			—			—			—			—			—			162,402			—			162,402
Sales	—			—			—			(820,163		)	8,814			(811,349		)	—			—			—
Principal payments and retirements	(286,106		)	—			(286,106		)	—			—			—			(408,621		)	—			(408,621		)
Charge-offs, net of recoveries	(42,433		)	29,029			(13,404		)	—			—			—			(42,433		)	27,347			(15,086		)
Change in fair value recorded in earnings	—			(15,882		)	(15,882		)	—			266			266			—			(15,688		)	(15,688		)
Balance at September 30, 2019	$	1,316,605		$	(79,126	)	$	1,237,479		$	—		$	—		$	—		$	1,316,605		$	(75,647	)	$	1,240,958

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 Investment									Loans Held for Sale									Notes, Certificates and Secured Borrowings
	Outstanding Principal Balance			Valuation Adjustment			Fair Value			Outstanding Principal Balance			Valuation Adjustment			Fair Value			Outstanding Principal Balance			Valuation Adjustment			Fair Value
Balance at December 31, 2019	$	1,148,888		$	(69,573	)	$	1,079,315		$	—		$	—		$	—		$	1,148,888		$	(67,422	)	$	1,081,466
Purchases	237,283			—			237,283			1,015,028			(27,456		)	987,572			—			—			—
Transfers (to) from loans held for investment and/or loans held for sale	(17,903		)	—			(17,903		)	17,413			—			17,413			—			—			—
Issuances	—			—			—			—			—			—			237,283			—			237,283
Sales	—			—			—			(1,032,441		)	33,365			(999,076		)	—			—			—
Principal payments and retirements	(547,042		)	—			(547,042		)	—			—			—			(564,945		)	—			(564,945		)
Charge-offs, net of recoveries	(64,656		)	33,562			(31,094		)	—			—			—			(64,656		)	31,345			(33,311		)
Change in fair value recorded in earnings	—			(12,285		)	(12,285		)	—			(5,909		)	(5,909		)	—			(11,896		)	(11,896		)
Balance at September 30, 2020	$	756,570		$	(48,296	)	$	708,274		$	—		$	—		$	—		$	756,570		$	(47,973	)	$	708,597

	Loans Held for Investment									Loans Held for Sale									Notes, Certificates and Secured Borrowings
	Outstanding Principal Balance			Valuation Adjustment			Fair Value			Outstanding Principal Balance			Valuation Adjustment			Fair Value			Outstanding Principal Balance			Valuation Adjustment			Fair Value
Balance at December 31, 2018	$	2,013,438		$	(130,187	)	$	1,883,251		$	—		$	—		$	—		$	2,033,258		$	(127,383	)	$	1,905,875
Purchases	522,248			(21		)	522,227			1,812,984			(9,548		)	1,803,436			—			—			—
Transfers (to) from loans held for investment and/or loans held for sale	(122,967		)	—			(122,967		)	122,330			—			122,330			—			—			—
Issuances	—			—			—			—			—			—			522,248			—			522,248
Sales	—			—			—			(1,935,314		)	8,034			(1,927,280		)	—			—			—
Principal payments and retirements	(944,469		)	—			(944,469		)	—			—			—			(1,087,256		)	14			(1,087,242		)
Charge-offs, net of recoveries	(151,645		)	110,705			(40,940		)	—			—			—			(151,645		)	109,012			(42,633		)
Change in fair value recorded in earnings	—			(59,623		)	(59,623		)	—			1,514			1,514			—			(57,290		)	(57,290		)
Balance at September 30, 2019	$	1,316,605		$	(79,126	)	$	1,237,479		$	—		$	—		$	—		$	1,316,605		$	(75,647	)	$	1,240,958

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

Loans Invested in by the Company

Significant Unobservable Inputs

The following table presents quantitative information about the significant unobservable inputs used for the Company’s Level 3 fair value measurements for loans invested in by the Company at September 30, 2020 and December 31, 2019:



	Loans Invested in by the Company
	September 30, 2020						December 31, 2019
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted- Average
Discount rates	9.7	%	13.3	%	10.0	%	6.0	%	11.5	%	7.8	%
Net cumulative expected loss rates⁽¹⁾	5.0	%	27.0	%	10.3	%	3.6	%	36.6	%	10.9	%
Cumulative expected prepayment rates ⁽¹⁾	27.6	%	39.7	%	30.8	%	27.3	%	41.0	%	31.6	%


⁽¹⁾	Expressed as a percentage of the original principal balance of the loan.

Significant Recurring Level 3 Fair Value Input Sensitivity

The fair value sensitivity of loans invested in by the Company to adverse changes in key assumptions as of September 30, 2020 and December 31, 2019, are as follows:



	September 30, 2020			December 31, 2019
Fair value of loans invested in by the Company	$	239,900		$	766,048
Expected weighted-average life (in years)	1.2			1.5
Discount rates
100 basis point increase	$	(2,564	)	$	(9,806	)
200 basis point increase	$	(5,083	)	$	(19,410	)
Expected credit loss rates on underlying loans
10% adverse change	$	(2,938	)	$	(9,558	)
20% adverse change	$	(5,937	)	$	(19,136	)
Expected prepayment rates
10% adverse change	$	(694	)	$	(2,429	)
20% adverse change	$	(1,401	)	$	(4,740	)

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

Fair Value Reconciliation

The following tables present additional information about Level 3 loans invested in by the Company measured at fair value on a recurring basis for the third quarters and first nine months of 2020 and 2019:



	Loans Held for Investment by the Company									Loans Held for Sale by the Company									Total Loans Invested in by the Company
	Outstanding Principal Balance			Valuation Adjustment			Fair Value			Outstanding Principal Balance			Valuation Adjustment			Fair Value			Outstanding Principal Balance			Valuation Adjustment			Fair Value
Balance at June 30, 2020	$	75,159		$	(9,602	)	$	65,557		$	668,262		$	(81,169	)	$	587,093		$	743,421		$	(90,771	)	$	652,650
Purchases	201			(189		)	12			27,756			(6		)	27,750			27,957			(195		)	27,762
Transfers (to) from loans held for investment and/or loans held for sale	(155		)	—			(155		)	479			—			479			324			—			324
Sales	—			—			—			(442,744		)	51,220			(391,524		)	(442,744		)	51,220			(391,524		)
Principal payments and retirements	(8,205		)	—			(8,205		)	(44,439		)	—			(44,439		)	(52,644		)	—			(52,644		)
Charge-offs, net of recoveries	(768		)	245			(523		)	(6,565		)	6,148			(417		)	(7,333		)	6,393			(940		)
Change in fair value recorded in earnings	—			2,413			2,413			—			1,859			1,859			—			4,272			4,272
Balance at September 30, 2020	$	66,232		$	(7,133	)	$	59,099		$	202,749		$	(21,948	)	$	180,801		$	268,981		$	(29,081	)	$	239,900


	Loans Held for Investment by the Company									Loans Held for Sale by the Company									Total Loans Invested in by the Company
	Outstanding Principal Balance			Valuation Adjustment			Fair Value			Outstanding Principal Balance			Valuation Adjustment			Fair Value			Outstanding Principal Balance			Valuation Adjustment			Fair Value
Balance at June 30, 2019	$	6,550		$	(1,523	)	$	5,027		$	457,787		$	(22,704	)	$	435,083		$	464,337		$	(24,227	)	$	440,110
Purchases	791			(632		)	159			1,531,916			—			1,531,916			1,532,707			(632		)	1,532,075
Transfers (to) from loans held for investment and/or loans held for sale	304			—			304			(119		)	—			(119		)	185			—			185
Sales	—			—			—			(1,181,739		)	24,093			(1,157,646		)	(1,181,739		)	24,093			(1,157,646		)
Principal payments and retirements	(840		)	—			(840		)	(65,814		)	—			(65,814		)	(66,654		)	—			(66,654		)
Charge-offs, net of recoveries	(1,209		)	697			(512		)	(6,680		)	5,922			(758		)	(7,889		)	6,619			(1,270		)
Change in fair value recorded in earnings	—			73			73			—			(32,492		)	(32,492		)	—			(32,419		)	(32,419		)
Balance at September 30, 2019	$	5,596		$	(1,385	)	$	4,211		$	735,351		$	(25,181	)	$	710,170		$	740,947		$	(26,566	)	$	714,381

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 Investment by the Company									Loans Held for Sale by the Company									Total Loans Invested in by the Company
	Outstanding Principal Balance			Valuation Adjustment			Fair Value			Outstanding Principal Balance			Valuation Adjustment			Fair Value			Outstanding Principal Balance			Valuation Adjustment			Fair Value
Balance at December 31, 2019	$	47,042		$	(3,349	)	$	43,693		$	747,394		$	(25,039	)	$	722,355		$	794,436		$	(28,388	)	$	766,048
Purchases	1,314			(1,194		)	120			1,430,213			(6		)	1,430,207			1,431,527			(1,200		)	1,430,327
Transfers (to) from loans held for investment and/or loans held for sale	43,170			—			43,170			(42,680		)	—			(42,680		)	490			—			490
Sales	—			—			—			(1,726,678		)	82,076			(1,644,602		)	(1,726,678		)	82,076			(1,644,602		)
Principal payments and retirements	(21,838		)	—			(21,838		)	(186,130		)				(186,130		)	(207,968		)	—			(207,968		)
Charge-offs, net of recoveries	(3,456		)	756			(2,700		)	(19,370		)	17,945			(1,425		)	(22,826		)	18,701			(4,125		)
Change in fair value recorded in earnings	—			(3,346		)	(3,346		)	—			(96,924		)	(96,924		)	—			(100,270		)	(100,270		)
Balance at September 30, 2020	$	66,232		$	(7,133	)	$	59,099		$	202,749		$	(21,948	)	$	180,801		$	268,981		$	(29,081	)	$	239,900


	Loans Held for Investment by the Company									Loans Held for Sale by the Company									Total Loans Invested in by the Company
	Outstanding Principal Balance			Valuation Adjustment			Fair Value			Outstanding Principal Balance			Valuation Adjustment			Fair Value			Outstanding Principal Balance			Valuation Adjustment			Fair Value
Balance at December 31, 2018	$	3,518		$	(935	)	$	2,583		$	869,715		$	(29,694	)	$	840,021		$	873,233		$	(30,629	)	$	842,604
Purchases	1,961			(1,626		)	335			3,564,467			—			3,564,467			3,566,428			(1,626		)	3,564,802
Transfers (to) from loans held for investment and/or loans held for sale	5,254			(1,471		)	3,783			(4,617		)	1,471			(3,146		)	637			—			637
Sales	—			—			—			(3,477,485		)	86,387			(3,391,098		)	(3,477,485		)	86,387			(3,391,098		)
Principal payments and retirements	(2,295		)	—			(2,295		)	(197,692		)	—			(197,692		)	(199,987		)	—			(199,987		)
Charge-offs, net of recoveries	(2,842		)	1,544			(1,298		)	(19,037		)	17,885			(1,152		)	(21,879		)	19,429			(2,450		)
Change in fair value recorded in earnings	—			1,103			1,103			—			(101,230		)	(101,230		)	—			(100,127		)	(100,127		)
Balance at September 30, 2019	$	5,596		$	(1,385	)	$	4,211		$	735,351		$	(25,181	)	$	710,170		$	740,947		$	(26,566	)	$	714,381

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

Asset-Backed Securities Related to Structured Program Transactions

Significant Unobservable Inputs

The following table presents quantitative information about the significant unobservable inputs used for the Company’s Level 3 fair value measurements for asset-backed securities related to Structured Program transactions at September 30, 2020 and December 31, 2019:



	Asset-Backed Securities Related to Structured Program Transactions
	September 30, 2020						December 31, 2019
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted- Average
Discount rates	2.2	%	24.4	%	8.4	%	3.4	%	20.7	%	8.8	%
Net cumulative expected loss rates⁽¹⁾	5.3	%	29.8	%	18.6	%	4.5	%	37.9	%	19.2	%
Cumulative expected prepayment rates ⁽¹⁾	6.3	%	31.0	%	25.3	%	17.3	%	35.1	%	29.4	%


⁽¹⁾	Expressed as a percentage of the outstanding collateral balance.

Significant Recurring Fair Value Input Sensitivity

The following tables present adverse changes to the fair value sensitivity of Level 2 and Level 3 asset-backed securities related to Structured Program transactions to changes in key assumptions at September 30, 2020 and December 31, 2019:



	September 30, 2020
	Asset-Backed Securities Related to Structured Program Transactions
	Senior Securities			Subordinated Securities			CLUB Certificates
Fair value of interests held	$	84,019		$	17,996		$	65,706
Expected weighted-average life (in years)	0.9			1.5			1.0
Discount rates
100 basis point increase	$	(729	)	$	(179	)	$	(550	)
200 basis point increase	$	(1,437	)	$	(385	)	$	(1,088	)
Expected credit loss rates on underlying loans
10% adverse change	$	—		$	(1,958	)	$	(2,004	)
20% adverse change	$	—		$	(3,968	)	$	(4,035	)
Expected prepayment rates
10% adverse change	$	—		$	(776	)	$	(792	)
20% adverse change	$	—		$	(1,612	)	$	(1,597	)

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, 2019
	Asset-Backed Securities Related to Structured Program Transactions
	Senior Securities			Subordinated Securities			CLUB Certificates
Fair value of interests held	$	109,339		$	21,090		$	89,706
Expected weighted-average life (in years)	1.1			1.4			1.1
Discount rates
100 basis point increase	$	(1,050	)	$	(300	)	$	(823	)
200 basis point increase	$	(2,076	)	$	(513	)	$	(1,627	)
Expected credit loss rates on underlying loans
10% adverse change	$	—		$	(2,162	)	$	(2,163	)
20% adverse change	$	—		$	(4,273	)	$	(4,311	)
Expected prepayment rates
10% adverse change	$	—		$	(814	)	$	(654	)
20% adverse change	$	—		$	(1,495	)	$	(1,279	)

Fair Value Reconciliation

The following table presents additional information about Level 3 asset-backed securities related to Structured Program transactions measured at fair value on a recurring basis for the third quarters and first nine months of 2020 and 2019:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Fair value at beginning of period	$	95,590		$	95,821		$	110,796		$	60,279
Additions	446			31,597			26,458			85,944
Redemptions	(426		)	(8,861		)	(802		)	(8,861		)
Transfers	(517		)	—			(517		)	—
Cash received	(20,297		)	(13,385		)	(54,371		)	(31,791		)
Change in unrealized gain (loss)	3,413			(768		)	288			140
Accrued interest	1,823			—			5,649			—
Provision for credit loss expense	3,669			—			(3,800		)	—
Other-than-temporary impairment	—			(1,175		)	—			(2,482		)
Fair value at end of period	$	83,701		$	103,229		$	83,701		$	103,229

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

Servicing Assets

Significant Unobservable Inputs

The following table presents quantitative information about the significant unobservable inputs used for the Company’s Level 3 fair value measurements for servicing assets at September 30, 2020 and December 31, 2019:



	Servicing Assets
	September 30, 2020						December 31, 2019
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted- Average
Discount rates	4.8	%	16.4	%	10.0	%	2.9	%	14.8	%	8.6	%
Net cumulative expected loss rates⁽¹⁾	4.5	%	27.2	%	12.8	%	3.7	%	36.1	%	12.4	%
Cumulative expected prepayment rates ⁽¹⁾	27.5	%	35.2	%	31.3	%	27.5	%	41.8	%	32.5	%
Total market servicing rates (% per annum on outstanding principal balance) ⁽²⁾	0.62	%	0.62	%	0.62	%	0.66	%	0.66	%	0.66	%


⁽¹⁾	Expressed as a percentage of the original principal balance of the loan.


⁽²⁾	Includes collection fees estimated to be paid to a hypothetical third-party servicer.

Significant Recurring Level 3 Fair Value Input Sensitivity

The Company’s selection of the most representative market servicing rates for servicing assets is inherently judgmental. The Company reviews third-party servicing rates for its loans, loans in similar credit sectors, and market servicing benchmarking analyses provided by third-party valuation firms, when available. The table below shows the impact on the estimated fair value of servicing assets, calculated using different market servicing rate assumptions as of September 30, 2020 and December 31, 2019:



	Servicing Assets
	September 30, 2020			December 31, 2019
Weighted-average market servicing rate assumptions	0.62		%	0.66		%
Change in fair value from:
Servicing rate increase by 0.10%	$	(7,993	)	$	(13,978	)
Servicing rate decrease by 0.10%	$	7,994		$	13,979

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

The following table presents the fair value sensitivity of servicing assets to adverse changes in key assumptions as of September 30, 2020 and December 31, 2019:



	Servicing Assets
	September 30, 2020			December 31, 2019
Fair value of Servicing Assets	$	59,538		$	89,680
Discount rates
100 basis point increase	$	(481	)	$	(680	)
200 basis point increase	$	(962	)	$	(1,360	)
Expected loss rates
10% adverse change	$	(285	)	$	(582	)
20% adverse change	$	(570	)	$	(1,165	)
Expected prepayment rates
10% adverse change	$	(2,246	)	$	(2,962	)
20% adverse change	$	(4,492	)	$	(5,924	)

Fair Value Reconciliation

The following table presents additional information about Level 3 servicing assets measured at fair value on a recurring basis for the third quarters and first nine months of 2020 and 2019:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Fair value at beginning of period	$	65,515		$	78,714		$	89,680		$	64,006
Issuances ⁽¹⁾	7,783			21,042			27,119			55,588
Change in fair value, included in investor fees	(13,376		)	(16,849		)	(48,046		)	(39,954		)
Other net changes included in deferred revenue	(384		)	343			(9,215		)	3,610
Fair value at end of period	$	59,538		$	83,250		$	59,538		$	83,250


⁽¹⁾	Represents the gains or losses on sales of the related loans.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

Loan Trailing Fee Liability

Significant Unobservable Inputs

The following table presents quantitative information about the significant unobservable inputs used for the Company’s Level 3 fair value measurements for loan trailing fee liability at September 30, 2020 and December 31, 2019:



	Loan Trailing Fee Liability
	September 30, 2020						December 31, 2019
	Minimum		Maximum		Weighted- Average		Minimum		Maximum		Weighted- Average
Discount rates	4.8	%	16.4	%	10.6	%	2.9	%	14.8	%	9.3	%
Net cumulative expected loss rates ⁽¹⁾	4.6	%	27.2	%	14.8	%	3.7	%	36.0	%	14.4	%
Cumulative expected prepayment rates ⁽¹⁾	27.5	%	38.9	%	31.7	%	28.5	%	41.7	%	33.0	%


⁽¹⁾	Expressed as a percentage of the original principal balance of the loan.

Significant Recurring Level 3 Fair Value Input Sensitivity

The fair value sensitivity of the loan trailing fee liability to adverse changes in key assumptions would not result in a material impact on the Company’s financial position.

Fair Value Reconciliation

The following table presents additional information about Level 3 loan trailing fee liability measured at fair value on a recurring basis for the third quarters and first nine months of 2020 and 2019:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Fair value at beginning of period	$	9,213		$	10,224		$	11,099		$	10,010
Issuances	356			2,152			2,322			5,552
Cash payment of Loan Trailing Fee	(1,829		)	(2,015		)	(5,726		)	(5,920		)
Change in fair value, included in Origination and Servicing	518			222			563			941
Fair value at end of period	$	8,258		$	10,583		$	8,258		$	10,583

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

Financial Instruments, Assets, and Liabilities Not Recorded at Fair Value

The following tables present the fair value hierarchy for financial instruments, assets, and liabilities not recorded at fair value at September 30, 2020 and December 31, 2019:



September 30, 2020	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Balance at Fair Value
Assets:
Cash and cash equivalents ⁽¹⁾	$	445,180	$	—	$	445,180	$	—	$	445,180
Restricted cash ⁽¹⁾	98,787		—		98,787		—		98,787
Servicer reserve receivable	30		—		30		—		30
Deposits	892		—		892		—		892
Total assets	$	544,889	$	—	$	544,889	$	—	$	544,889
Liabilities:
Accrued expenses and other liabilities	$	15,552	$	—	$	—	$	15,552	$	15,552
Accounts payable	3,382		—		3,382		—		3,382
Payables to investors	35,068		—		35,068		—		35,068
Credit facilities and securities sold under repurchase agreements	120,159		—		54,954		65,205		120,159
Total liabilities	$	174,161	$	—	$	93,404	$	80,757	$	174,161


⁽¹⁾	Carrying amount approximates fair value due to the short maturity of these financial instruments.



December 31, 2019	Carrying Amount		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Balance at Fair Value
Assets:
Cash and cash equivalents ⁽¹⁾	$	243,779	$	—	$	243,779	$	—	$	243,779
Restricted cash ⁽¹⁾	243,343		—		243,343		—		243,343
Servicer reserve receivable	73		—		73		—		73
Deposits	953		—		953		—		953
Total assets	$	488,148	$	—	$	488,148	$	—	$	488,148
Liabilities:
Accrued expenses and other liabilities	$	24,899	$	—	$	—	$	24,899	$	24,899
Accounts payable	10,855		—		10,855		—		10,855
Payables to investors	97,530		—		97,530		—		97,530
Credit facilities and securities sold under repurchase agreements	587,453		—		77,143		510,310		587,453
Total liabilities	$	720,737	$	—	$	185,528	$	535,209	$	720,737


⁽¹⁾	Carrying amount approximates fair value due to the short maturity of these financial instruments.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

9. Property, Equipment and Software, Net

Property, equipment and software, net, consist of the following:



	September 30, 2020			December 31, 2019
Internally developed software ⁽¹⁾	$	116,378		$	117,510
Leasehold improvements	35,053			39,315
Computer equipment	27,034			26,669
Purchased software	17,926			11,846
Furniture and fixtures	8,203			9,406
Construction in progress	3,084			4,937
Total property, equipment and software	207,678			209,683
Accumulated depreciation and amortization	(106,633		)	(95,313		)
Total property, equipment and software, net	$	101,045		$	114,370


⁽¹⁾	Includes $14.5 million and $21.3 million of development in progress as of September 30, 2020 and December 31, 2019, respectively.

Depreciation and amortization expense on property, equipment and software was $11.4 million and $34.8 million for the third quarter and first nine months of 2020, respectively. Depreciation and amortization expense on property, equipment and software was $12.8 million and $38.8 million for the third quarter and first nine months of 2019, respectively. The Company recorded impairment expense on its leasehold improvements and furniture and fixtures of $0.4 million and $1.9 million for the third quarter and first nine months of 2020, respectively. There was no impairment expense for the Company’s leasehold improvements and furniture and fixtures in the third quarter and first nine months of 2019. The Company recorded impairment expense on its internally developed software of $0.2 million and $4.7 million for the third quarter and first nine months of 2020, respectively. The Company recorded impairment expense on its internally developed software of $0.2 million and $2.5 million for the third quarter and first nine months of 2019, respectively. The Company records impairment expense on its leasehold improvements and furniture and fixtures and its internally developed software in “Other general and administrative” and “Engineering and product development” expense, respectively, in the Condensed Consolidated Statements of Operations.

10. Other Assets

Other assets consist of the following:



	September 30, 2020		December 31, 2019
Loan servicing assets, at fair value ⁽¹⁾	$	59,538	$	89,680
Accounts receivable	11,359		19,017
Prepaid expenses	11,893		14,862
Other investments	8,275		8,242
Deferred financing costs	87		1,484
Other	12,473		10,383
Total other assets	$	103,625	$	143,668


⁽¹⁾	As of September 30, 2020 and December 31, 2019, loans underlying loan servicing rights had a total outstanding principal balance of $11.2 billion and $14.1 billion, respectively.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

11. Intangible Assets

Intangible assets, net of accumulated amortization, was $12.2 million and $14.5 million at September 30, 2020 and December 31, 2019, respectively. Amortization expense associated with intangible assets for the third quarter and first nine months of 2020 was $0.8 million and $2.4 million, respectively. Amortization expense associated with intangible assets for the third quarter and first nine months of 2019 was $0.8 million and $2.7 million, respectively. There was no impairment loss for the third quarters and first nine months of 2020 and 2019.

12. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following:



	September 30, 2020		December 31, 2019
Transaction fee refund reserve	$	16,207	$	25,541
Contingent liabilities ⁽¹⁾	22,342		16,000
Accrued expenses	12,873		36,797
Accrued compensation	22,629		30,484
Loan trailing fee liability, at fair value	8,258		11,099
Deferred revenue	4,313		13,688
Other	14,294		9,027
Total accrued expenses and other liabilities	$	100,916	$	142,636


⁽¹⁾	See “Note 18. Commitments and Contingencies” for further information.

13. Debt

Credit Facilities and Securities Sold Under Repurchase Agreements

The Company may enter into arrangements in the ordinary course of business pursuant to which the Company can incur indebtedness. Below is a description of certain of these arrangements:

Warehouse Credit Facilities

Through wholly-owned subsidiaries, the Company entered into secured warehouse credit facilities (Warehouse Facility or Facilities), to finance the Company’s personal loans and auto refinance loans and to pay fees and expenses related to the applicable facilities. Each subsidiary entered into a credit agreement and security agreement with a commercial bank as administrative agent and a national banking association as collateral trustee and paying agent. The creditors of the Warehouse Facilities have no recourse to the general credit of the Company.

As of September 30, 2020, the Company had two Warehouse Facilities used to finance personal loans. One Warehouse Facility has a borrowing capacity of $100.0 million on a revolving basis and has a “Commitment Termination Date” of December 2020, at which point the Company’s ability to borrow new funds under the respective facility ends. A contractual interest rate increase with respect to borrowed amounts outstanding that is expected to occur on the Commitment Termination Date has been deferred until March 31, 2021. The borrowing capacity under this facility steps down to $50.0 million on November 16, 2020, and the maximum advance rate against the borrowing base steps down to 50% at March 31, 2021 (with a further 50% reduction for loans that have

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

been in the Warehouse Facility for more than 210 days). At December 31, 2020, if not terminated, amended, extended, or replaced, any outstanding debt would be repaid as an amortizing term loan (based on principal repayments of the financed personal loans) until the facility’s maturity date of December 2021. As of September 30, 2020, the Company had an outstanding balance of $18.5 million borrowed from this Warehouse Facility. The Company fully paid the outstanding balance in October 2020.

The second Warehouse Facility with a borrowing capacity of $250.0 million and a Commitment Termination Date in October 2020 was fully paid as of September 30, 2020, was subsequently terminated and will not be renewed.

A previously existing Warehouse Facility to finance auto refinance loans with a contractual maturity in June 2021 was fully paid as of September 30, 2020 and was terminated.

Borrowings under these facilities bear interest at an annual benchmark rate of LIBOR (London Inter-bank Offered Rate) or at an alternative commercial paper rate (which is either (i) the per annum rate equivalent to the weighted-average of the per annum rates at which all commercial paper notes were issued by certain lenders to fund advances or maintain loans, or (ii) the daily weighted-average of LIBOR, as set forth in the applicable credit agreement), plus a spread ranging from 1.75% to 2.10%. Interest is payable monthly. Borrowings may be prepaid without penalty. In addition, the Warehouse Facilities require payment of a monthly unused commitment fee ranging from 0.375% to 0.875% per annum on the average undrawn portion available.

The Warehouse Facilities contain certain covenants. As of September 30, 2020, the Company was in material compliance with all applicable covenants under the respective credit agreements.

As of September 30, 2020 and December 31, 2019, the Company had $18.5 million and $387.3 million in aggregate debt outstanding under the Warehouse Facilities, with collateral consisting of loans at fair value of $26.3 million and $551.5 million included in “Loans held for sale by the Company at fair value,” respectively, and restricted cash of $2.2 million and $25.1 million included in the Condensed Consolidated Balance Sheets, respectively.

Revolving Credit Facility

In December 2015, the Company entered into a credit and guaranty agreement and a pledge and security agreement with several lenders and a financial services company, as collateral agent, for an aggregate $120.0 million secured revolving credit facility (Revolving Facility).

The Company may borrow under the Revolving Facility until December 17, 2020. Repayment of any outstanding proceeds are payable on December 17, 2020, and may be prepaid without penalty.

Borrowings under the Revolving Facility bear interest, at the Company’s option, at an annual rate of LIBOR plus a spread of 1.75% to 2.00%, which is fixed for a Company-selected interest period of one, two, three, six or twelve months, or at an alternative base rate (which is tied to either the prime rate, federal funds effective rate plus 0.50%, or the adjusted eurocurrency rate plus 1.00%, as defined in the credit agreement) plus a spread of 0.75% to 1.00%. Base rate borrowings may be prepaid at any time without penalty, however pre-payment of LIBOR-based borrowings before the end of the selected interest period may result in the Company incurring expense to compensate the lenders for their funding costs through the end of the interest period. Interest is payable quarterly. Additionally, the Company is required to pay a quarterly commitment fee to the lenders of between 0.25% and 0.375% per annum, depending on the Company’s total net leverage ratio, on the average undrawn portion available under the Revolving Facility.

The Revolving Facility contains certain covenants. As of September 30, 2020, the Company was in material compliance with all applicable covenants in the credit and guaranty agreement.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

The Company had no debt outstanding under the Revolving Facility as of September 30, 2020 and $60.0 million in debt outstanding as of December 31, 2019.

Repurchase Agreements

The Company has entered into repurchase agreements pursuant to which the Company sold securities (subject to an obligation to repurchase such securities at a specified future date and price) in exchange for cash, primarily to finance securities retained from the Company’s Structured Program transactions. In certain cases, the Company is subject to margin calls based on the fair value of the securities to be repurchased. As of September 30, 2020 and December 31, 2019, the Company had $101.7 million and $140.2 million in aggregate debt outstanding under its repurchase agreements, respectively, of which, at September 30, 2020, $39.0 million had contractual repurchase dates ranging from October 2020 to March 2028 and $62.7 million is subject to a repurchase date in October 2020, which was subsequently replaced with a new repurchase facility having a repurchase date in September 2022 and no margin call provisions. The contractual repurchase dates correspond to either a set repurchase schedule or to the maturity dates of the underlying securities, which have a remaining weighted-average estimated life from 0.9 to 1.5 years. The repurchase agreements bear interest at a rate that is based on a benchmark of the three-month LIBOR rate or the weighted-average interest rate of the securities sold plus a spread of 0.65% to 2.50%. Securities sold are included in “Credit facilities and securities sold under repurchase agreements” on the Condensed Consolidated Balance Sheets. As of September 30, 2020 and December 31, 2019, the Company had $127.4 million and $174.8 million, respectively, of underlying assets sold under repurchase agreements.

Payable to Structured Program Note and Certificate Holders

The Company consolidates certain sponsored Structured Program transactions through master trusts consisting of $244.4 million in unsecured personal whole loans in aggregate. The trusts sold certificate participations and securities to third-party investors in an amount equal to approximately 95% of the loans for $228.7 million in net proceeds. The remaining certificate participations, securities, and residual interests were retained by the Company. The Company is the primary beneficiary of the trusts, which are consolidated. As of September 30, 2020 and December 31, 2019, the certificate participations and securities held by third-party investors of $173.4 million and $40.6 million are included in “Payable to Structured Program note and certificate holders at fair value” in the Condensed Consolidated Balance Sheets and were secured by loans held for investment and loans held for sale by the Company at fair value of $170.0 million and $40.3 million and restricted cash of $13.5 million and $2.9 million included in the Condensed Consolidated Balance Sheets, respectively.

14. Stockholders’ Equity

Preferred Stock

The Company authorized 10,000,000 shares of preferred stock with a par value of $0.01 per share. In February 2020, the Company filed Certificates of Designations with the Secretary of State of Delaware to designate, of the total authorized shares of preferred stock, 1,200,000 shares of Series A Preferred Stock and 600,000 shares of Series B Preferred Stock. As of September 30, 2020, there were 149,904 shares of Series A Preferred Stock outstanding and no shares of Series B Preferred Stock outstanding.

Each share of Series A Preferred Stock will automatically convert into 100 shares of LendingClub common stock upon a permissible transfer to an unaffiliated third party (subject to adjustment and the other terms described in its respective Certificate of Designations), provided that upon such conversion, the holder, together with its affiliates, will not own or control, in the aggregate, more than 9.9% of the Company’s outstanding common stock. A permissible transfer is a transfer (a) to the Company; (b) in a widespread public distribution; (c) in which no one

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

transferee (or group of associated transferees) would receive 2% or more of any class of the Company’s voting securities then outstanding (including pursuant to a related series of such transfers); or (d) to a transferee that would control more than 50% of the Company voting securities (not including voting securities such person is acquiring from the transferor). The shares of Series A Preferred Stock have no voting rights, except as otherwise required by the General Corporation Law of the State of Delaware.

The Series A Preferred Stock ranks pari passu with the common stock, and junior to any other series of preferred stock that is issued by the Company with respect to rights upon liquidation, winding up and dissolution and as to rights to dividends, provided, however, that in case of a liquidation, winding up or dissolution the Series A Preferred Stock has a right to receive $0.01 per share before any payment is made to the holders of LendingClub common stock, and will thereafter participate on a pari passu basis with the common stock.

The Series B Preferred Stock, if issued, will (a) be nonredeemable; (b) have a minimum preferential quarterly dividend of $0.001 per share or any higher per share dividend declared on LendingClub common stock; (c) in the event of a liquidation be entitled to receive a preferred liquidation payment equal to $0.001 per share plus the per share amount paid in respect of a share of LendingClub common stock; (d) will have one vote, voting together with LendingClub common stock; and (e) in the event of any merger, consolidation or other transaction in which shares of LendingClub common stock are exchanged, will be entitled to receive the per share amount paid in respect of each share of LendingClub common stock. The rights of holders of the Series B Preferred Stock with respect to dividends, liquidation and voting, and in the event of mergers and consolidations, are protected by customary antidilution provisions. There are no issued Series B Preferred Stock.

Issuance of Series A Preferred Stock in Exchange for Common Stock

In February 2020, the Company and Radius Bancorp, Inc. (Radius) entered into an Agreement and Plan of Merger (Merger Agreement), by and among the Company, a wholly owned-subsidiary of the Company, and Radius, pursuant to which the Company will acquire Radius and thereby acquire its wholly-owned subsidiary, Radius Bank (the Merger). In connection with the Merger and in order to facilitate compliance with federal banking regulations by Shanda, in February 2020, the Company also entered into a Share Exchange Agreement (the Exchange Agreement) pursuant to which Shanda exchanged all of its shares of the Company’s common stock (with voting rights), or 19,562,881 shares, for Series A Preferred Stock, or 195,628 shares, and a one-time cash payment of $50.2 million. The Exchange Agreement imposes certain restrictions and obligations on Shanda so as to ensure that its ownership of LendingClub securities and activities will not impede LendingClub’s ability to obtain the necessary bank regulatory approvals.

On the date of the Exchange Agreement, the effective conversion price for the Series A Preferred Stock was less than the fair value of the common stock, resulting in a beneficial conversion feature that the Company recognized as a deemed dividend to the preferred stockholders and, accordingly, an adjustment to net loss to arrive at net loss attributable to common stockholders. As a result, the Company recorded the deemed dividend of $50.2 million within accumulated deficit for the quarter ended March 31, 2020. There were no other deemed dividends recorded during the first nine months of 2020.

Shareholder Protection Agreement

In February 2020, the board of directors of the Company adopted a Temporary Bank Charter Protection Agreement (Protection Agreement) and simultaneously declared a dividend of one right for each outstanding share of LendingClub common stock (each such right, a “Common Right”) and one right for each outstanding share of Series A Preferred Stock (each such right, a “Series A Preferred Right” and, together with the Common Rights, the “Rights”) to stockholders of record at the close of business on March 19, 2020. The Protection Agreement provides for the dilution of any person or group of persons that acquires: (i) 25% or more equity interest in the Company, or

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

(ii) 10.0% or more of any class of the Company’s voting securities. The Rights shall be issued between March 19, 2020 and the earlier of the Merger or 18 months. Each Common Right entitles the registered holder to purchase one one-thousandth of a share (a “Unit”) of Series B Preferred Stock, at a purchase price of $48.00 per Unit. Each Series A Preferred Right entitles the registered holder to purchase one share of Series A Preferred Stock, at a purchase price of $4,800.00 per share. The Protection Agreement is effective from February 18, 2020 (Effective Date) through the earlier of the closing of the Merger or the 18 month anniversary of the Effective Date.

Retirement of treasury stock

In the first quarter 2020, we retired 467,049 shares, or $19.6 million, of common stock previously held as treasury shares. The Company also retired the 19,562,881 shares of common stock acquired from Shanda as part of the Exchange Agreement. These retirements reduced the number of issued shares of common stock by that same amount. Under the applicable state law, these shares resume the status of authorized and unissued shares upon retirement. Since the repurchase price was lower than the original issuance price, the excess of share repurchase price over par value was recorded to additional paid-in capital.

15. Employee Incentive Plans

The Company’s 2014 Equity Incentive Plan (EIP) provides for granting awards, including restricted stock units (RSUs), performance-based restricted stock units (PBRSUs) and stock options to employees, officers and directors.

Stock-based Compensation

Stock-based compensation expense was as follows for the periods presented:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
RSUs and PBRSUs	$	14,986	$	17,543	$	46,667	$	54,587
Stock options	136		552		788		1,827
ESPP	—		—		—		484
Total stock-based compensation expense	$	15,122	$	18,095	$	47,455	$	56,898

The following table presents the Company’s stock-based compensation expense recorded in the Condensed Consolidated Statements of Operations:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Sales and marketing	$	880	$	1,505	$	3,274	$	4,616
Origination and servicing	721		852		2,079		2,622
Engineering and product development	3,295		4,737		10,578		15,443
Other general and administrative	10,226		11,001		31,524		34,217
Total stock-based compensation expense	$	15,122	$	18,095	$	47,455	$	56,898

The Company capitalized $1.2 million and $4.0 million of stock-based compensation expense associated with developing software for internal use during the third quarter and first nine months of 2020, respectively. The Company capitalized $1.4 million and $5.0 million of stock-based compensation expense associated with developing software for internal use during the third quarter and first nine months of 2019, respectively.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

Restricted Stock Units

The following table summarizes the activities for the Company’s RSUs during the first nine months of 2020:



	Number of Units		Weighted- Average Grant Date Fair Value
Unvested at December 31, 2019	9,597,404		$	16.78
Granted	10,622,273		$	9.34
Vested	(3,121,385	)	$	16.18
Forfeited/expired	(4,758,401	)	$	13.71
Unvested at September 30, 2020	12,339,891		$	11.72

During the first nine months of 2020, the Company granted 10,622,273 RSUs with an aggregate fair value of $99.3 million.

As of September 30, 2020, there was $136.1 million of unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over the next 2.9 years.

Performance-based Restricted Stock Units

PBRSUs are equity awards that are earned, and eligible for time-based vesting, based upon the achievement of certain pre-established performance metrics over a specific performance period. Depending on the level of achievement of the pre-established performance targets, the PBRSUs earned and eligible for time-based vesting can range from 0% to 200% of the target amount. PBRSUs granted under the Company’s EIP generally have a one-year performance period with the earned shares, if any, vesting over an additional approximately two-year period. Over the performance period, the number of PBRSUs that may be earned and the related stock-based compensation expense that is recognized is adjusted upward or downward based upon the probability of achieving the pre-established performance metrics.

The following table summarizes the activities for the Company’s PBRSUs during the first nine months of 2020:



	Number of Units		Weighted- Average Grant Date Fair Value
Unvested at December 31, 2019	471,589		$	16.94
Granted	1,424,438		$	4.67
Vested	(142,940	)	$	17.59
Forfeited/expired ⁽¹⁾	(272,760	)	$	13.85
Unvested at September 30, 2020	1,480,327		$	5.60


⁽¹⁾	Primarily relates to the portion of PBRSUs granted in 2018 and 2019 that were unearned as a result of not achieving certain pre-established performance metrics during the performance period.

For the third quarter and first nine months of 2020, the Company recognized $0.7 million and $1.8 million in stock-based compensation expense related to PBRSUs, respectively. For the third quarter and first nine months of 2019,

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

the Company recognized $1.0 million and $3.5 million in stock-based compensation expense related to PBRSUs, respectively.

As of September 30, 2020, there was $6.3 million of unrecognized compensation cost related to unvested PBRSUs, which is expected to be recognized over the next 2.4 years.

Employee Stock Purchase Plan

In connection with the Company’s cost structure simplification efforts, future purchases through the Company’s employee stock purchase plan (ESPP) were suspended effective upon the completion of the most recent offering period on May 10, 2019.

16. Income Taxes

For the third quarter and first nine months of 2020, the Company recorded an income tax benefit of $74 thousand and an income tax expense of $245 thousand, respectively. This is primarily attributable to the tax effects of other comprehensive income associated with the Company’s available for sale portfolio. For the third quarter and first nine months of 2019, the Company recorded an income tax expense of $97 thousand and an income tax benefit of $341 thousand, respectively. This is primarily attributable to the tax effects of other comprehensive income associated with the Company’s available for sale portfolio.

The Company continues to recognize a full valuation allowance against net deferred tax assets. This determination was based on the assessment of the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets.

17. Leases

The Company has operating leases for its headquarters in San Francisco, California, as well as additional office space for its origination and servicing operations in the Salt Lake City area, Utah, and Westborough, Massachusetts. As of September 30, 2020, the lease agreements have remaining lease terms ranging from approximately one year to nine years. Some of the lease agreements include options to extend the lease term for up to an additional fifteen years. In addition, the Company is the sublessor of a portion of its office space in San Francisco, with lease terms of one year to two years. As of September 30, 2020, the Company pledged $0.8 million of cash and $5.5 million in letters of credit as security deposits in connection with its lease agreements.

The Company entered into lease amendments during the second quarter of 2020 due to COVID-19. The Company has elected to remeasure the lease liability using the original discount rate with an adjustment to the ROU Asset by the amount of the remeasurement. This accounting policy election did not have a material impact to the Company’s financial position, results of operations, cash flows, or disclosures.

The Company reviewed operating lease ROU assets for impairment. In June 2020, the Company terminated one of its operating leases resulting in a reduction in the operating lease liability of $6.1 million and a corresponding reduction in the operating lease asset of $5.3 million. For the third quarter and first nine months of 2020, the Company recognized impairment expense of $0.9 million and $3.6 million, net, respectively, for several of its operating lease assets, included in Other general and administrative expense on the Company’s Condensed Consolidated Statement of Operations. No impairment expense was recorded in the third quarter and first nine months of 2019.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

Balance sheet information as of September 30, 2020 related to leases was as follows:



ROU Assets and Lease Liabilities	September 30, 2020
Operating lease assets	$	76,226
Operating lease liabilities ⁽¹⁾	$	98,204


⁽¹⁾	The difference between operating lease assets and operating lease liabilities is the unamortized balance of deferred rent, which prior to January 1, 2019, was included as a separate liability within “Accrued expenses and other liabilities.”

Components of net lease costs for the third quarters and first nine months of 2020 and 2019 were as follows:



		Three Months Ended September 30,						Nine Months Ended September 30,
Net Lease Costs	Income Statement Classification	2020			2019			2020			2019
Operating lease costs ⁽¹⁾	Other general and administrative expense	$	(4,140	)	$	(4,617	)	$	(13,333	)	$	(14,788	)
Sublease revenue	Other revenue	1,538			1,175			4,609			3,198
Net lease costs		$	(2,602	)	$	(3,442	)	$	(8,724	)	$	(11,590	)


⁽¹⁾	Includes variable lease costs of $0.4 million and $0.4 million for the third quarters of 2020 and 2019, respectively. Includes variable lease costs of $1.1 million and $1.2 million for the first nine months of 2020 and 2019, respectively.

Supplemental cash flow information related to the Company’s operating leases for the third quarters of 2020 and 2019 was as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Non-cash operating activity:
Leased assets obtained in exchange for new and amended operating lease liabilities ⁽¹⁾	$	—	$	—	$	84	$	15,277


⁽¹⁾	Represents non-cash activity and, accordingly, is not reflected in the Condensed Consolidated Statements of Cash Flows. Amount includes noncash remeasurements of the operating lease right-of-use asset.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

The Company’s future minimum undiscounted lease payments under operating leases and anticipated sublease revenue as of September 30, 2020 were as follows:



	Operating Lease Payments		Sublease Revenue			Net
Remainder of 2020	$	4,696	$	(1,965	)	$	2,731
2021	19,271		(6,767		)	12,504
2022	14,134		(2,918		)	11,216
2023	10,761		—			10,761
2024	11,072		—			11,072
Thereafter	68,383		—			68,383
Total lease payments⁽¹⁾	$	128,317	$	(11,650	)	$	116,667
Discount effect	30,113
Present value of future minimum lease payments	$	98,204

⁽¹⁾

As of September 30, 2020, the Company entered into an additional operating lease which has not yet commenced and is therefore not part of the table above nor included in the lease right-of-use asset and liability. This lease will commence when the Company obtains possession of the underlying asset, which is expected to be on January 1, 2021. The lease term is 8.25 years and has an undiscounted future rent payment of approximately $8.6 million.

The weighted-average remaining lease term and discount rate used in the calculation of the Company’s operating lease assets and liabilities were as follows:



Lease Term and Discount Rate	September 30, 2020
Weighted-average remaining lease term (in years)	9.09
Weighted-average discount rate	5.76	%

18. Commitments and Contingencies

Operating Lease Commitments

For discussion regarding the Company’s operating lease commitments, see “Note 17. Leases.”

Loan Purchase Obligation

Under the Company’s loan account program with WebBank, which serves as the Company’s primary issuing bank for loans facilitated through the Company’s platform, WebBank retains ownership of the loans it originates for two business days after origination. As part of this arrangement, the Company is committed to purchase any loans that have been fully approved at par plus accrued interest, at the conclusion of the two business days. As of September 30, 2020 and December 31, 2019, the Company was committed to purchase loans with an outstanding principal balance of $8.5 million and $91.3 million at par, respectively.

Loan Repurchase Obligations

The Company is generally required to repurchase loans or interests therein in the event of identity theft or certain other types of fraud on the part of the borrower or education and patient service providers. The Company may also

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

repurchase loans or interests therein in connection with certain customer accommodations. In connection with certain whole loan and Certificate Program sales, as well as to facilitate access to securitization markets, the Company has agreed to repurchase loans if representations and warranties made with respect to such loans are breached under certain circumstances. 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. The Company believes such provisions are customary and consistent with institutional loan and securitization market standards.

In addition to and distinct from the repurchase obligations described in the preceding paragraph, the Company performs certain administrative functions for a variety of retail and institutional investors, including executing, without discretion, loan investments as directed by the investor. To the extent loans do not meet the investor’s investment criteria at the time of issuance, or are transferred to the investor as a result of a system error by the Company, the Company repurchases such loans or interests therein at par.

As a result of the loan repurchase obligations described above, the Company repurchased $2.8 million and $4.2 million in loans or interests therein during the first nine months of 2020 and 2019, respectively.

Purchase Commitments

As required by applicable regulations, the Company must make firm offers of credit with respect to prescreened direct mail it sends out to prospective applicants provided such applicants continue to meet the credit worthiness criteria which were used to screen them at the time of their application and the application is completed prior to the offer’s stated expiration date. If such loans are accepted by the applicants but not otherwise funded by investors on the platform, the Company is required to facilitate funding for the loans directly with its issuing bank partners at minimum amounts, which are generally below the requested loan amount. The Company was required to purchase approximately $414 thousand of such loans during the third quarter of 2020. During the month of October 2020, none of these loans were required to be purchased by the Company.

In addition, if neither the Company nor Springstone can arrange for other investors to invest in or purchase loans that the Company or Springstone facilitates and that are originated by an issuing bank partner but do not meet the credit criteria for purchase by the issuing bank partner, the Company and Springstone are contractually committed to purchase these loans. As of both September 30, 2020 and December 31, 2019, the Company had a $9.0 million deposit in a bank account to secure potential future purchases of these loans, if necessary. The funds are recorded as restricted cash on the Company’s Condensed Consolidated Balance Sheets. During the first nine months of 2020, the Company was required to purchase $28.9 million of loans facilitated by Springstone. These purchased loans are held on the Company’s Condensed Consolidated Balance Sheets and have a fair value of $4.5 million and $45.7 million as of September 30, 2020 and December 31, 2019, respectively. The Company believes it will be required to purchase certain loans facilitated by the Company during the remainder of 2020 as it seeks to arrange for other investors to invest in or purchase these loans.

Acquisition-related Commitments

On February 18, 2020, the Company and Radius entered into an Agreement and Plan of Merger (as previously discussed in “Note 14. Stockholders' Equity”), in a cash and stock transaction valued at $185 million, subject to certain purchase price and expense adjustments of up to $22 million. The Company has entered into acquisition-related agreements, which include contingent fees of approximately $3 million as of September 30, 2020, due upon closing of the transaction.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

Legal

The Company is subject to various claims brought in a litigation or regulatory context. These matters include lawsuits and federal regulatory litigation, including but not limited to putative class action lawsuits, derivative lawsuits, and litigation with the FTC. In addition, the Company continues to cooperate in federal and state regulatory examinations, investigations, and actions relating to the Company’s business practices and licensing, and is a party to a number of routine litigation matters arising in the ordinary course of business. The majority of these claims and proceedings relate to or arise from alleged state or federal law and regulatory violations, or are alleged commercial disputes or consumer complaints. The Company accrues for costs related to contingencies when a loss from such claims is probable and the amount of loss can be reasonably estimated. In determining whether a loss from a claim is probable and the loss can be reasonably estimated, the Company reviews and evaluates its litigation and regulatory matters on at least a quarterly basis in light of potentially relevant factual and legal developments. If the Company determines an unfavorable outcome is not probable or the amount of loss cannot be reasonably estimated, the Company does not accrue for a potential litigation loss. In those situations, the Company discloses an estimate or range of the reasonably possible losses, if such estimates can be made. Except as otherwise specifically noted below, at this time, the Company does not believe that it is possible to estimate the reasonably possible losses or a range of reasonably possible losses related to the matters described below.

FTC Lawsuit

In 2016, the Company received a formal request for information from the Federal Trade Commission (FTC). The FTC commenced an investigation concerning certain of the Company’s policies and practices and related legal compliance.

On April 25, 2018, the FTC filed a complaint in the Northern District of California (FTC v. LendingClub Corporation, No. 3:18-cv-02454) alleging causes of action for violations of the FTC Act, including claims of deception in connection with disclosures related to the origination fee associated with loans available through the Company’s platform, and in connection with communications relating to the likelihood of loan approval during the application process, and a claim of unfairness relating to certain unauthorized charges to borrowers’ bank accounts. The FTC’s complaint also alleged a violation of the Gramm-Leach-Bliley Act regarding the Company’s practices in delivering its privacy notice. In June 2018, the Company brought a motion to dismiss the FTC’s complaint, which was heard on September 13, 2018. In an order dated October 3, 2018, the Court denied the motion in part and granted the motion in part, providing the FTC with leave to amend its pleadings. On October 22, 2018, the FTC filed an amended complaint which reasserted the same causes of action from the original complaint. On November 13, 2018, the Company filed an answer to the amended complaint. The FTC subsequently filed a motion seeking to strike certain affirmative defenses pled in the answer and the Company filed an opposition to the motion. On April 29, 2019, the Court issued a ruling denying the FTC’s motion in part and granting it in part and allowing the Company to replead certain of the affirmative defenses that were the subject of the FTC’s motion. The Company filed an amended answer in the case on May 29, 2019. The discovery period in the case is closed. On February 27, 2020, both the Company and the FTC filed various motions with the Court, including motions to exclude expert testimony and motions for summary judgment as to some or all of the claims in the case. The FTC also filed a motion for partial judgment on the pleadings in the case. These motions were heard by the Court on April 27, 2020.

On June 1, 2020, the Court issued an order granting in part and denying in part both the Company’s and the FTC’s motions for summary judgment. The Court also denied the motions to exclude expert testimony and granted in part and denied in part the FTC’s motion for partial judgment on the pleadings. The FTC’s Gramm-Leach-Bliley Act claim has been dismissed from the case, but issues relating to the FTC’s three other claims will need to be tried. On July 30, 2020, the Company filed a motion to stay the litigation pending the U.S. Supreme Court’s decisions in two cases (F.T.C. v. Credit Bureau Center and AMG Capital Management, LLC v. F.T.C.) that raise the issue whether the FTC is entitled to seek monetary relief under Section 13(b) of the FTC Act. On August 20, 2020, the Court issued

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

an order granting the Company’s motion to stay proceedings in the case until the U.S. Supreme Court issues its decision in the Credit Bureau Center and AMG Capital Management cases. As a result of this order, the trial that was scheduled for October 19, 2020 will need to be rescheduled at a later date following the Supreme Court’s ruling. The Company denies, and will continue to vigorously defend against, the claims remaining in this case. Notwithstanding the Company’s vigorous defense, the Company and the FTC have participated in voluntary settlement conferences and may engage in additional settlement discussions. No assurances can be given as to the timing, outcome or consequences of this matter.

Class Action Lawsuits Following Announcement of FTC Litigation

In May 2018, following the announcement of the FTC’s litigation against the Company, putative shareholder class action litigation was filed in the U.S. District Court of the Northern District of California (Veal v. LendingClub Corporation et.al., No. 5:18-cv-02599) against the Company and certain of its current and former officers and directors alleging violations of federal securities laws in connection with the Company’s description of fees and compliance with federal privacy law in securities filings. The Court appointed lead plaintiffs and lead counsel for the litigation in November 2018. On January 7, 2019, the lead plaintiffs filed a consolidated amended class action complaint which asserts the same causes of action as the original complaint and adds additional allegations. On March 8, 2019, the Company and the individual defendants in the case filed motions to dismiss the consolidated amended class action complaint. A hearing on these motions was held on September 26, 2019. On November 4, 2019, the Court issued a written order granting defendants’ motions to dismiss with leave to amend. Plaintiff filed a Second Amended Complaint on December 19, 2019, which modifies and adds certain allegations and drops one of the former officer defendants as a defendant in the case, but otherwise advances the same causes of action. Defendants filed a motion to dismiss the Second Amended Complaint on January 28, 2020. The Court heard argument on this motion on April 30, 2020. On June 12, 2020, the Court issued an order granting defendants’ motion without leave to amend, in part, and with leave to amend, in part. On July 27, 2020, the lead plaintiffs filed a notice with the Court indicating their intention not to file a Third Amended Complaint in this case and requesting that the Court enter judgment. The Court entered judgment and dismissed all claims in the case the same day. The lead plaintiffs have appealed the judgment to the U.S. Court of Appeals for the Ninth Circuit. The timing of a ruling in the appeal is uncertain. The Company denies and will vigorously defend against the allegations in the case. No assurances can be given as to the timing, outcome or consequences of this matter.

In July 2019, a putative class action lawsuit was filed against the Company in federal court in the State of New York (Shron v. LendingClub Corp., 1:19-cv-06718) alleging various claims including fraud, unjust enrichment, breach of contract, and violations of the federal Truth-in-Lending Act and New York General Business Law sections 349 and 350, et seq., based on allegations, among others, that the Company made misleading or inadequate statements or omissions in relation to the total cost and origination fee associated with loans available through the Company’s platform. The plaintiff seeks to represent classes of similarly situated individuals in the lawsuit. The Company filed a motion to compel arbitration of plaintiff’s claims on an individual basis. The Court denied that motion on July 13, 2020. The Company has filed a notice of appeal with respect to the Court’s decision. The parties have reached a tentative settlement to resolve this litigation the terms of which are not material to the Company’s financial position or results of operations. The Company denies and will vigorously defend against the allegations in the case in the event this litigation continues for any reason. No assurances can be given as to the timing, outcome or consequences of this matter.

Derivative Lawsuits Following FTC Litigation

In July 2018, a putative shareholder derivative action was filed in the U.S. District Court for the Northern District of California (Baron v. Sanborn, et al. No. 3:18-cv-04391) against certain of the Company’s current and former officers and directors and naming the Company as a nominal defendant. This action is based on allegations that the individuals breached their fiduciary duties to the Company and violated federal securities laws by, among other

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

things, permitting the actions alleged in the FTC litigation and the description of fees and other practices in the Company’s securities filings. In January 2019, a second putative shareholder derivative action was filed in the U.S. District Court for the Northern District of California (Cheekatamarla v. Sanborn, et al., No. 3:19-cv-00563) against certain of the Company’s current officers and directors and naming the Company as a nominal defendant. Like the Baron action, this action is based on allegations that the individuals breached their fiduciary duties to the Company and violated federal securities laws by, among other things, permitting the actions alleged in the FTC litigation and the description of fees and other practices in the Company’s securities filings. Pursuant to a stipulation by the parties in both of these derivative cases, the Court consolidated the two cases and stayed the consolidated action pending further developments in Veal. In September 2019, co-lead counsel for plaintiffs in the consolidated action filed a notice and proposed order to lift the temporary stay and the Court issued an order lifting the stay. Subsequent to this order, the case was reassigned and the new Court issued an order staying the consolidated action pending resolution of the Veal action. On July 27, 2020, the Court issued an order lifting the stay in the consolidated action in light of the Court’s entry of judgment in the Veal action. On August 11, 2020, pursuant to a stipulation by the parties to the case, the Court issued an order approving the voluntary dismissal of the Baron and Cheekatamarla actions without prejudice. As a result, these actions are no longer pending.

In August 2019, a putative shareholder derivative action was filed in the Court of Chancery for the State of Delaware (Fisher v. Sanborn, et al., Case No. 2019-0631) against certain of the Company’s current and former officers and directors and naming the Company as a nominal defendant. This lawsuit advances allegations similar to those in the consolidated Baron/Cheekatamarla actions and the Veal action discussed above and accuses the individual defendants of breaching their fiduciary duties by failing to adequately monitor the Company and prevent it from engaging in the purported regulatory violations alleged by the FTC and by causing the Company to make allegedly false and misleading public statements (as alleged in the Veal action). The lawsuit also alleges that certain of the individual defendants breached their fiduciary duties by selling Company shares while in possession of material, non-public information. On October 11, 2019, the Company and the individual defendants filed a motion to dismiss the complaint. In November 2019, rather than oppose defendants’ motion to dismiss, the plaintiff filed an amended complaint. That same month, the Company and the individual defendants named in the amended complaint filed a motion to dismiss that amended complaint. On January 17, 2020, rather than oppose defendants’ motion to dismiss, the plaintiff filed a second amended complaint. On January 24, 2020, defendants filed a motion to strike the second amended complaint as improper. The Court denied the defendants’ motion to strike and allowed the plaintiff to advance the second amended complaint as the operative complaint in the case. The defendants have filed a motion to dismiss the second amended complaint which was heard by the Court on July 2, 2020. It is unclear when the Court will issue a ruling on the motion. No assurances can be given as to the timing, outcome or consequences of this matter.

Regulatory Investigation by the State of Massachusetts

In June 2018, the Company received a civil investigative demand from the office of the Attorney General of the State of Massachusetts. The investigation related to the advertisement, provision and servicing of personal loans to Massachusetts’ consumers facilitated by the Company, including the Company’s compliance with the Massachusetts Small Loan Law and the Small Loan Rate Order promulgated under it. The Company cooperated with the investigation and finalized an Assurance of Discontinuance in January 2020 with the Attorney General’s Office to resolve the investigation, the terms of which are not material to the Company’s financial position or results of operations.

In December 2019, the Massachusetts Division of Banks raised concerns pertaining to the Company’s compliance with the Massachusetts Small Loan Law similar to those the Massachusetts Attorney General’s Office raised during its investigation of the Company. No assurances can be given as to the timing, outcome or consequences of this matter; however, it could result in claims or actions against the Company, including litigation, regulatory enforcement actions, injunctions, monetary damages, restitution, fines or penalties, impact our licenses in

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

Massachusetts, or require us to change our business practices or expend operational resources, all of which could result in a material loss or otherwise harm our business.

Regulatory Examinations and Actions Relating to the Company’s Business Practices and Licensing

The Company has been subject to periodic inquiries and enforcement actions brought by federal and state regulatory agencies relating to the Company’s business practices, the required licenses to operate its business, and its manner of operating in accordance with the requirements of its licenses. In the past, the Company has successfully resolved inquiries in a manner that was not material to its results of financial operations in any period and that did not materially limit the Company’s ability to conduct its business.

The Company has had discussions with the Colorado Department of Law (CDL) concerning the licenses required for the Company’s servicing operations and the structure of its offerings in the State of Colorado. The Company has also had discussions with the CDL about entering into a terminable agreement with the CDL to, among other things: (i) toll the statutes of limitations on any action the CDL might bring against the Company based on the rates and charges on loans the Company facilitates and (ii) refrain from facilitating certain loans to borrowers located in Colorado available for investment by certain investors. No assurances can be given as to the timing, outcome or consequences of this matter. However, given the settlement in cases between the Colorado Administrator of the Uniform Consumer Credit Code and the Colorado Attorney General and each of Avant, Inc. and Marlette Funding, the Company is taking steps to ensure that its operations in Colorado conform to the 36% APR safe harbor set forth in the settlement.

The Company is routinely subject to examination for compliance with applicable laws and regulations in the states in which it is licensed. As of the date of this Report, the Company is subject to examination by the New York Department of Financial Services (NYDFS) and other regulators. The Company periodically has discussions with various regulatory agencies regarding its business model and has engaged in similar discussions with the NYDFS. During the course of such discussions with the NYDFS, which remain ongoing, the Company decided to voluntarily comply with certain rules and regulations of the NYDFS. No assurances can be given as to the timing, outcome or consequences of this matter or others if or as they arise.

Putative Class Actions

In February 2020, a putative class action lawsuit was filed against the Company in the U.S. District Court for the Northern District of California (Erceg v. LendingClub Corporation, No. 3:20-cv-01153). The lawsuit alleges violations of California and Massachusetts law based on allegations that LendingClub recorded a call with plaintiff without notifying him that it would be recorded. Plaintiff seeks to represent a purported class of similarly situated individuals who had phone calls recorded by LendingClub without their knowledge and consent. LendingClub filed a motion to dismiss certain of plaintiff’s claims, strike nationwide class allegations, and, alternatively, to stay the litigation. Rather than oppose that motion, plaintiff filed an amended complaint. The Company again filed a motion to stay, or alternatively to dismiss certain of the claims in the amended complaint and to strike nationwide class allegations. That motion was heard by the Court on July 9, 2020. On July 28, 2020, the Court entered an order granting the Company’s motion to stay Plaintiff’s California claims pending a decision by the California Supreme Court in a case involving the California Invasion of Privacy Act, dismissing with prejudice Plaintiff’s claim under Massachusetts law, and denying the Company’s motion to strike Plaintiff’s nationwide class allegations. No assurances can be given as to the timing, outcome or consequences of this matter.

In July 2020, a putative class action lawsuit was filed against the Company in the U.S. District Court for the Southern District of New York (Sosa v. LendingClub Corporation, No. 1:20-cv-05256). The lawsuit alleges violations of the Americans with Disabilities Act and various state law claims based on allegations that the plaintiff, who alleges he is visually-impaired, encountered access barriers in visiting LendingClub’s website that denied the

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

plaintiff the full enjoyment of the services of the website. The plaintiff seeks to represent a class of similarly situated individuals in the lawsuit and seeks monetary, injunctive, and declaratory relief, among other relief. In September 2020, LendingClub filed an answer to plaintiff’s complaint denying liability in the case. This case is in its early stages. No assurances can be given as to the timing, outcome or consequences of this matter.

California Private Attorneys General Lawsuit

In September 2018, a putative action under the California Private Attorney General Act was brought against the Company in the California Superior Court (Brott v. LendingClub Corporation, et al., CGC-18-570047) alleging violations of the California Labor Code. The complaint by a former employee alleges that the Company improperly failed to pay certain hourly employees for all wages owed, pay the correct rate of pay including overtime, and provide accurate wage statements. The lawsuit alleges that the plaintiff and aggrieved employees are entitled to recover civil penalties under the California Labor Code. On January 11, 2019, the Company filed a petition to compel arbitration of the plaintiff’s claims and stay the litigation pending a ruling on the motion and arbitration of the matter. Pursuant to the parties’ stipulation, in March 2019, the Court issued an order staying the lawsuit pending the parties’ participation in a mediation in September 2019. The parties have reached a resolution of this matter, the terms of which are not material to the Company’s financial position or results of operations. The resolution will require court approval. The parties have finalized a written settlement agreement and will seek the Court’s approval of the negotiated resolution. A hearing before the Court is scheduled for November 18, 2020, where it is expected that the Court will consider the settlement.

Certain Financial Considerations Relating to Litigation and Investigations

With respect to the matters discussed above, the Company had $22.3 million and $16.0 million in accrued contingent liabilities at September 30, 2020 and December 31, 2019, respectively.

In addition to the foregoing, the Company is subject to, and may continue to be subject to, legal proceedings and regulatory actions in the ordinary course of business. No assurance can be given as to the timing, outcome or consequences of any of these matters.

19. Restructuring Costs

On April 20, 2020, the Company approved a restructuring plan to address the impact of COVID-19 on the Company’s business. The restructuring plan was completed on April 21, 2020 and resulted in a reduction of approximately 30% of the Company’s workforce. During the third quarter the Company recorded $0.8 million in restructuring costs within operating expenses, which was comprised of $(0.5) million in compensation costs related to changes in estimates from the second quarter of 2020, $1.3 million in related non-cash lease expenses and impairment, and no impairment of internally developed software. During the first nine months of 2020, the Company recorded $17.8 million in restructuring costs within operating expenses. which was comprised of $8.0 million in compensation costs, $5.6 million in related non-cash lease expenses and impairment, and $4.2 million in impairment of internally developed software. No such costs were recorded in the third quarter and first nine months of 2019. Of the $8.0 million in compensation costs expensed, $7.9 million was paid out during the second and third quarters of 2020, resulting in a restructuring liability of $0.1 million, included in “Accrued expenses and other liabilities” on the Condensed Consolidated Balance Sheet, as of September 30, 2020.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

The following table presents the restructuring costs for the third quarter and first nine months of 2020 recorded in the Company’s Condensed Consolidated Statements of Operations:



	Three Months Ended September 30, 2020			Nine Months Ended September 30, 2020
Sales and marketing	$	(108	)	$	1,271
Origination and servicing	(113		)	793
Engineering and product development	(227		)	7,245
Other general and administrative	1,201			8,480
Total	$	753		$	17,789

20. Segment Reporting

The Company defines operating segments to be components of the Company for which discrete financial information is evaluated regularly by the Company’s executive management committee as chief operating decision maker (CODM). For purposes of allocating resources and evaluating financial performance, the Company’s CODM reviews financial information by loan product types of personal, education and patient finance, and auto. These product types are individually reviewed as operating segments but are aggregated to represent one reportable segment because the education and patient finance and auto loan product types are immaterial both individually and in the aggregate. In the second quarter of 2019, the Company sold certain assets relating to its small business operating segment and announced that it will connect applicants looking for a small business loan with strategic partners and earn referral fees, instead of facilitating these loans on its platform.

All of the Company’s revenue is generated in the United States. No individual borrower or investor accounted for 10% or more of consolidated net revenue for any of the periods presented.

21. Related Party Transactions

Related party transactions must be reviewed and approved by the Audit Committee of the Company’s board of directors when not conducted in the ordinary course of business subject to the standard terms of the Company’s lending marketplace or certificate investment program. Any material amendment or modification to an existing related party transaction is also subject to the review and approval of the Audit Committee. Related party transactions may include any transaction between entities under common control or with a related person that has occurred since the beginning of the Company’s latest fiscal year or is currently proposed. The Company has defined related persons as members of the board of directors, executive officers, principal owners of the Company’s outstanding stock and any immediate family members of each such related person, as well as any other person or entity with significant influence over the Company’s management or operations.

Several of the Company’s executive officers and directors (including immediate family members) have made deposits and withdrawals to their investor accounts and purchased loans or interests therein. The Company believes all such transactions by related persons were made in the ordinary course of business and were transacted on terms and conditions that were not more favorable than those obtained by similarly situated third-party investors.

In February 2020, the Company entered into an exchange agreement with its largest stockholder, Shanda, pursuant to which, in March 2020, Shanda exchanged all of 19,562,881 shares of LendingClub common stock held by it for (i) 195,628 newly issued shares of mandatorily convertible, non-voting, LendingClub preferred stock, series A, both with a par value of $0.01 per share, and (ii) a one-time cash payment of $50.2 million. See “Note 14. Stockholders' Equity,” for additional information.

LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and Per Share Amounts, Ratios, or as Noted)

(Unaudited)

As of September 30, 2020, the Company had a $7.8 million investment and an approximate 23% ownership interest in an Investment Fund, a private fund that participates in a family of funds with other unrelated third parties. This family of funds purchases assets from third parties unrelated to the Company and historically purchased whole loans and interests in loans from the Company. The Company has requested a full redemption of our investment in the Investment Fund. The Company’s investment in the Investment Fund is recorded in “Other assets” on the Company’s Condensed Consolidated Balance Sheets.

During the first nine months of 2019, the family of funds purchased $77 thousand of whole loans. The family of funds did not purchase whole loans during the first nine months of 2020. During the first nine months of 2020 and 2019, the Company earned $52 thousand and $74 thousand in investor fees from this family of funds, and paid interest of $140 thousand and $684 thousand on the funds’ interests in whole loans, respectively. The Company believes that the investor fees charged were on terms and conditions that were not more favorable than those obtained by other third-party investors. The Investment Fund provides audited financial statements annually and periodic investment statements throughout each calendar year on a delayed basis, which are used by the Company to evaluate performance and recoverability of our investment.

22. Subsequent Events

The Company has evaluated the impact of events that have occurred subsequent to September 30, 2020, through the date the condensed consolidated financial statements were filed with the SEC. Based on this evaluation, other than as recorded or disclosed within these condensed consolidated financial statements and related notes, the Company has determined no additional subsequent events were required to be recognized or disclosed.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes that appear in this Quarterly Report on Form 10-Q (Report). In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Report, and in “Part I – Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (Annual Report) as modified by “Item 1A. Risk Factors” in this Report. The forward-looking statements included in this Report are made only as of the date hereof.

Overview

LendingClub was incorporated in Delaware on October 2, 2006, and is the leading marketplace of unsecured personal loans in the United States. We operate the leading online lending marketplace platform that connects borrowers and investors. LendingClub provides tools that help Americans save money on their path to financial health through lower borrowing costs and a seamless, technology-driven user experience. Investors provide capital to enable the funding of loans in exchange for earning competitive risk adjusted returns. Our marketplace enables efficient credit decisioning, pricing, servicing and support operations. We operate fully online with no traditional branch infrastructure. Our vision is to expand our marketplace model and support it with a bank charter, which we believe will be both strategically and financially accretive to the Company.

We generate revenue primarily from transaction fees from our lending marketplace’s role in marketing to customers, accepting and decisioning applications for our bank partners to enable loan originations, investor fees that include servicing fees from investors for various services, including servicing and collection efforts, gains on sales of loans sold, net interest income and fair value adjustments from loans invested in by the Company and held on our balance sheet.

The transaction fees we receive from our issuing bank partner in connection with our lending marketplace’s role in facilitating loan originations for unsecured personal loans and auto refinance loans range from 0% to 6% of the initial principal amount of the loan. In addition, for education and patient finance loans, we collect fees from issuing banks and from the related education and patient service providers.

Net interest income and fair value adjustments reflect earned interest income and assumed principal and interest rate risk on loans during the period that we own the loans. When we use our own capital to invest in loans, we earn interest income and record fair value adjustments attributable to changes in actual and expected credit and prepayment performance, or any difference between sale price and carrying value.

Investor fees paid to us vary based on investment channel and compensate us for the costs we incur in servicing loans, including managing payments from borrowers, collections, payments to investors, maintaining investors’ account portfolios, providing information and issuing monthly statements. Whole loan purchasers pay a monthly weighted-average fee of up to 0.9% per annum and Structured Program investors pay a monthly fee of up to 1%, which is generally based on the month-end principal balance of loans serviced by us.

Gain (Loss) on sales of loans connected to loan sale transactions are recognized based on the level to which the contractual loan servicing fee is above or below an estimated market rate loan servicing fee. Additionally, we recognize transactions costs as a loss on sale of loans.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Historically, personal loan volume on our platform is generally lower in the first quarter of the year, primarily due to seasonality of borrower behavior. Additionally, in the fourth quarter of the year, we typically observe fluctuations in marketing effectiveness and borrower behavior due to the holidays, which can impact volume. Historically, these seasonal trends contributed to fluctuations in our operating results and operating cash flow. However, these trends may not be reflected in the current year in light of the impact of COVID-19.

Loans facilitated through our lending marketplace are funded by the sale of whole loans to banks and other institutional investors, the sale of whole loans facilitated through Structured Programs (which we have temporarily ceased), the issuance of notes to our self-directed retail investors, or funded directly by the Company with its own capital. We use our capital to fund the purchase of loans for our Structured Program transactions, to support marketplace equilibrium when a matching third-party investor is not available at time of origination, to reflect changes in market value through loan pricing, to test new product offerings, and to make accommodations to customers. The Company’s Structured Program transactions include (i) asset-backed securitization transactions and (ii) Certificate Program transactions. Certificate Program transactions include CLUB Certificate and Levered Certificate transactions.

In connection with asset-backed securitizations, the Company is the sponsor and establishes trusts to ultimately purchase the loans from the Company and/or third-party whole loan investors. Securities issued from our asset-backed securitizations are senior or subordinated based on the waterfall criteria of loan payments to each security class. The subordinated residual interests issued from these transactions are first to absorb credit losses in accordance with the waterfall criteria. The loans are transferred into a trust such that the loans are legally isolated from the creditors of the Company and are not available to satisfy obligations of the Company. These loans can only be used to settle obligations of the underlying trusts. As the sponsor for securitization transactions, the Company manages the completion of the transaction.

In addition, the Company sponsors the sale of loans through the issuance of certificate securities under our Certificate Program. The Certificate securities are collateralized by loans transferred to a series of a master trust and trade in the over-the-counter market with a CUSIP. We believe the sale of certificates results in more liquidity and demand for our unsecured personal loans. The loans are transferred into a trust such that the loans are legally isolated from the creditors of the Company and are not available to satisfy the obligations of the Company. These loans can only be used to settle obligations of the underlying Certificate Program trusts. The CLUB Certificate issued securities are pass-through securities of which each owner has an undivided and equal interest in the underlying loans of each transaction. The Levered Certificate issued securities includes senior and subordinated securities based on the waterfall criteria of loan payments to each security class. The subordinated securities issued from these transactions are first to absorb credit losses in accordance with the waterfall criteria.

Current Economic and Business Environment

Our online lending marketplace platform seeks to adapt to changing marketplace conditions and platform investor return expectations. To that end, LendingClub monitors a variety of economic, credit and competitive indicators to propose changes to issuing banks’ credit policies and interest rates.

In response to the impact of COVID-19, we have undertaken a number of measures intended to help both sides of our marketplace navigate the current environment by providing flexibility for our members and protecting returns for our investors. To provide flexibility to our members, we launched a number of hardship/forbearance plans (Payment Plans), including Skip-a-Pay and interest-only plans, and waived late fees for an extended period of time. To help protect investor returns, we tightened underwriting including increased income verification requirements and increased interest rates on new loans, added capacity to help borrowers over the phone and launched self-service options online for borrowers looking for help.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

In light of COVID-19 and our pending acquisition of Radius Bancorp, Inc. (Radius), we also undertook a number of measures intended to enhance our ability to navigate the current economic climate and better position the Company post-acquisition by preserving liquidity. These measures included restructuring and repositioning the Company with a workforce reduction in the second quarter of 2020 and ceasing the purchasing of loans for Structured Program transactions. In addition, the Company deleveraged its balance sheet by executing bulk loan sales of approximately $410 million (borrower principal balance) in the third quarter of 2020, which resulted in an increase in our cash and cash equivalents after paying down $276.0 million on our related warehouse credit facilities and $70.0 million on our revolving credit facility. The deleveraging of our balance sheet and the retention of cash will impact future earnings due to lower net interest income compared to prior quarters. We continue to believe that we have adequate liquidity and capital to navigate through the current environment. Cash and cash equivalents held by the Company was $445.2 million as of September 30, 2020, an increase of $106.8 million from June 30, 2020.

In connection with and in furtherance of our pending acquisition of Radius, LendingClub has been in regular contact with federal banking regulators and, on September 25, 2020, filed an FR Y-3 application with the Federal Reserve to become a bank holding company. Further, as LendingClub progresses in its objective to become a full-spectrum fintech marketplace bank, it has been evaluating its current and future product suite and has started development of new products aimed to better serve its customers. As part of this strategic initiative, as previously disclosed in the Current Report on Form 8-K filed on October 7, 2020, LendingClub will cease offering and selling Member Payment Dependent Notes (Retail Notes) on or around December 31, 2020.

We believe that our response to help members during COVID-19 has partially mitigated the adverse impact of the weak economic environment on loan performance, which has enabled us to begin to re-attract platform investors and resume growth in origination volume. We will continue to evaluate and refine our credit models and the other operational aspects of our marketplace to prudently optimize the performance of our business and balance supply and demand on the platform.

Investor: Since the onset of COVID-19 in the latter portion of the first quarter of 2020, there has been a reduction in investor demand on our platform reflecting market dislocation for unsecured personal loans, driven in part by uncertainty around consumer credit performance and increased liquidity constraints for certain of our investors. In response, since the second quarter of 2020, the Company has structured incentives to secure the funding commitments of our investors. Origination volume for the third quarter of 2020 was $584.1 million, an increase of 79% from the second quarter of 2020. The reduction in investor demand, the cessation of purchasing loans by the Company for Structured Program transactions and efforts to balance the platform to preserve liquidity have had a direct impact on the reduction in loan originations and transaction fees earned by the Company from our issuing banks and have furthered investor concentration to a limited number of purchasers that are continuing to purchase loans (but at lower volumes relative to historical purchasing activity). As more data on how our loans are performing during COVID-19, including the performance of loans originated during COVID-19, becomes available to platform investors, we are beginning to see more platform investors return to the platform with a reduction in structured incentives and anticipate platform volume will increase from the levels observed in the third quarter of 2020, barring further economic deterioration.

Borrower: With respect to existing borrowers, the Company is offering Payment Plans to provide relief to those impacted by COVID-19 through deferrals of loan payments. As previously disclosed, we offer eligible borrowers the opportunity to skip monthly payments in two-month increments through our Skip-a-Pay program. We also launched an interest-only hardship plan and continue to launch or plan to launch additional Payment Plans. Borrowers participating in Skip-a-Pay have the terms of their existing loan extended for a commensurate period, which impacts the duration and payment date for any member payment dependent note related to participating loans. Further, an investor's internal rate of return on such notes may also be impacted. As the current regulatory environment for loan forgiveness or waivers of missed payments evolves, our programs, which address these topics, may evolve over time as well.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Borrower behavior in the aggregate has been strong, and among those enrolled in Payment Plans has been encouraging and reflects the desire for borrowers to remain current on their loan payments:

•

Total loan borrower performance is strong as of September 30, 2020. Repayment rates remain at pre-COVID-19 levels, and delinquency and roll rates (the percentage of borrowers who progress into later delinquency stages) are lower than historical averages. Newer vintages are displaying better credit performance compared to pre-COVID-19 vintages and lower enrollment rates into our Skip-a-Pay program.

•

Performance among those borrowers enrolled in hardship plans is encouraging. Approximately 13% of borrowers have enrolled in a Payment Plan at some point during the life of their loan. Of those who have ever enrolled in a Payment Plan, 10% have paid their loan in full, 67% are making regular payments, 13% are on the same or another Payment Plan (with 10% making partial payments and 3% on a payment deferral program, which approximates 2% of the total loans on the platform), and 10% are either delinquent or have charged-off. Since the launch of the interest-only Payment Plan, the majority of borrowers either enrolling in a first payment plan or a subsequent payment plan are choosing the interest-only option, reflecting borrowers’ engagement and proactive steps to stay on track.

Restructuring: On April 21, 2020, the Company disclosed a restructuring plan to address the impact of COVID-19 on the Company’s business by repositioning the Company’s expense base to better reflect the reduction in loan volume and better position the Company for profitability and achieving its strategic goals when the economy and business stabilizes. The restructuring plan included workforce reductions affecting approximately 460 employees. The Company recorded restructuring costs of approximately $17 million and $0.8 million in the second and third quarters of 2020, respectively, which included severance and other personnel-related expenses, lease-related expenses and software impairment. The impact of the reduction in workforce is estimated to lower our ongoing quarterly cash compensation expense by approximately $17 million and stock-based compensation expense by approximately $4 million.

Liquidity: As of September 30, 2020, our balance sheet included cash and cash equivalents of $445.2 million, securities available for sale of $187.4 million (which included $127.4 million of securities pledged as collateral) and loans held for sale by the Company at fair value of $180.8 million (which included $26.3 million of loans at fair value pledged as collateral). The loans held for sale by the Company of $180.8 million also included $106.1 million held by consolidated Structured Program transactions where the risk of any loss is held by third parties. See “Liquidity and Capital Resources” for additional information.

Estimates: Our balance sheet and income statement are sensitive to estimates of future borrower credit loss and prepayment expectations and investor liquidity premiums for our assets (including unsecured personal loans and securities backed by unsecured personal loans). We rely on a variety of data points to forecast what volume of loans to facilitate for borrowers, and the volume and method of purchase of investments in those loans by individuals and institutions. These forecasts require significant management judgment by the Company due to an unprecedented level of unemployment, wide range of market estimates, the uncertain impact or availability of government stimulus response and overall market dislocation due to COVID-19. Using these forecasts, as well as estimates with respect to credit losses and prepayment rates, the Company updated its estimates resulting in an improvement in its credit loss outlook.

Loan Origination Update:

In the third quarter of 2020, our marketplace facilitated $584.1 million of loan originations, of which $478.8 million was issued through whole loan sales, $27.6 million was purchased or pending purchase by the Company, and $77.8 million was issued through member payment dependent notes. Loans held by the Company at quarter end are

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

available loan inventory for future Structured Program transactions and whole loan sales, excluding loans held by the Company as a result of consolidated trusts.

The following table shows the loan origination volume issued, loans purchased or pending purchase by the Company, and the available loan inventory as of the end of each period set forth below (in millions):



	September 30, 2020			June 30, 2020			March 31, 2020
Loan originations	$	584.1		$	325.8		$	2,521.5
Loans purchased or pending purchase by the Company during the quarter	$	27.6		$	18.9		$	1,302.4
LendingClub inventory ⁽¹⁾	$	9.0		$	15.0		$	510.8
LendingClub inventory as a percentage of loan originations ⁽¹⁾	2		%	5		%	20		%


⁽¹⁾	LendingClub inventory reflects loans purchased or pending purchase by the Company during the period, excluding loans held by the Company through consolidated trusts, if applicable, and not yet sold as of the period end.

Loan inventory purchased by LendingClub was 2% of total loan originations during the third quarter of 2020. This decrease since the first quarter of 2020 was due to lower volumes of loans purchased by LendingClub due to the impacts of COVID-19.

Because of timing differences between changes in market interest rates, interest rates on loans, credit performance and investor yield expectations, there may be a difference between the actual yield on a loan and the yield required by an investor on a loan. This allows us to adjust the effective yield on a loan through its sale price, thereby maintaining marketplace equilibrium. Any discount to par will result in negative fair value adjustments.

Radius Acquisition:

On February 18, 2020, the Company and Radius entered into an Agreement and Plan of Merger (Merger Agreement), by and among the Company, a wholly owned-subsidiary of the Company, and Radius, pursuant to which the Company will acquire Radius and thereby acquire its wholly-owned subsidiary, Radius Bank (the Merger). The Company believes that acquiring Radius and operating with a national bank charter will enhance LendingClub’s ability to serve its members, grow its market opportunity, increase and diversify revenue and earnings, and provide both funding resilience and regulatory clarity. The Merger will be accounted for as a business combination. The purchase price will be allocated to the assets acquired and liabilities assumed based on their fair values at the acquisition date. As previously disclosed, the Company expects the Merger to close no later than 15 months after the signing of the Merger Agreement, subject to regulatory approval and other customary closing conditions. Since the signing of the Merger Agreement, the Company has been highly engaged with regulators, preparing and making the appropriate governmental filings, and progressing towards closing.

In order to facilitate compliance with federal banking regulations, on March 20, 2020, the Company’s largest stockholder, Shanda Asset Management Holdings Limited and its affiliates (Shanda), exchanged all shares of the Company’s common stock held by it for newly issued non-voting convertible preferred stock, series A (the Exchange). In connection with the Exchange, the Company provided Shanda certain registration rights and paid Shanda a one-time cash payment of approximately $50.2 million, which is recorded as a deemed dividend in stockholders’ equity. To deter future ownership positions in the Company’s securities in excess of thresholds set forth by the Federal Reserve under the Bank Holding Company Act, on February 18, 2020, the Company adopted a Temporary Bank Charter Protection Agreement (the Charter Protection Agreement) which provides for the dilution of any person or group of persons that acquires: (i) 25% or more equity interest in the Company, or (ii) 10% or more of any class of the Company’s voting securities. The Charter Protection Agreement will automatically expire on the earlier of the closing of the Merger or 18 months after its adoption.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Factors That Can Affect Revenue

As an operator of a lending marketplace, we work to match the supply of loans facilitated through our platform and demand from investors while also growing the overall volume of originations and correspondingly revenue at a pace commensurate with proper planning, compliance, risk management, user experience, and operational controls that work to optimize the quality of the customer experience, customer satisfaction and long-term growth. In addition, we have been increasingly utilizing our balance sheet to support Structured Program transactions, manage marketplace equilibrium, hold loans for testing new or existing loan products and repurchase loans that did not meet an investor’s criteria. In most instances, we subsequently sell those loans, recognizing a gain or loss on their sale.

Loan supply, which is partly driven by borrower-related activities within our business, combined with investor demand to purchase loans on our platform as well as our own loan purchases, can affect our revenue in any particular period. These drivers collectively affect transaction fees, investor fees earned by us related to these transactions, interest income, fair value adjustments and other revenue related to loans held on balance sheet, including the performance of such loans. As these drivers can be affected by a variety of factors, both in and out of our control, revenues may fluctuate from period to period. Factors that can affect these drivers and ultimately revenue and its timing include:


•	the duration and impact of COVID-19;


•	the impact of government stimulus programs;


•	our ability to navigate adverse economic circumstances;


•	investor demand for our loans;


•	availability or the timing of the deployment of investment capital by investors;


•	loan performance and return on investment;


•	platform volume, pricing and balance;


•	operational decisions and changes to effectuate strategy initiatives;


•	market confidence in our data, controls, and processes;


•	announcements and terms of resolution of governmental inquiries or private litigation;


•	our ability to obtain or add bank functionality and a bank charter, through the acquisition of Radius or otherwise;


•	the impact on the business from obtaining or adding bank functionality and bank charter;


•	the mix of borrower products and corresponding transaction fees;


•	regulatory or market factors which limit products on our platform or loan interest rates borrowers can pay;


•	the availability and amount of new capital from pooled investment vehicles and managed accounts that typically deploy their capital at the start of a period;


•	the amount of purchase limitations we can impose on larger investors as a way to maintain investor balance and fairness;


•	the attractiveness of alternative opportunities for borrowers or investors, through changes in interest rates, transaction fees, terms, or risk profile;


•	the responsiveness of applicants to our marketing efforts;


•	expenditures on marketing initiatives in a period;


•	the sufficiency of operational staff to process any manual portion of the loan applications in a timely manner;


•	the responsiveness of borrowers to satisfy additional income or employment verification requirements related to their application;


•	borrower withdrawal rates;


•	the percentage distribution of loans between the whole and fractional loan platforms;


•	platform system performance;

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)


•	seasonality in demand for our platform and services, which is generally lowest in the first quarter and also impacts the fourth quarter;


•	determination to hold loans for purposes of subsequently distributing the loans through sale or Structured Program transactions;


•	changes in the credit performance of loans or market interest rates;


•	the success of our models to predict borrower risk levels and related investor demand; and


•	other factors.

At any point in time we have loan applications in various stages from initial application through issuance. Depending upon the timing and impact of the factors described above, loans may not be issued by the issuing banks who originate loans facilitated through our marketplace in the same period in which the corresponding application was originally made, resulting in a portion of that subsequent period’s revenue being earned from loan applications that were initiated in the immediately prior period. Consistent with our revenue recognition accounting policy under GAAP, we do not recognize the transaction fee revenue associated with a loan until the loan is issued by the issuing bank and the proceeds are delivered to the borrower. Our transaction fees are generally paid by the issuing bank (which collects an origination fee from the borrower), or in the case of education and patient finance loans, may also be paid by the medical or education service provider, and are accordingly independent of who is investing in a loan or how a loan is invested in.

Key Operating and Financial Metrics

We regularly review several metrics to evaluate our business, measure our performance, identify trends, formulate financial projections and make strategic decisions. The following presents our key operating and financial metrics:



	Three Months Ended									Nine Months Ended September 30,
	September 30, 2020			June 30, 2020			September 30, 2019			2020			2019
Loan originations	$	584,127		$	325,765		$	3,349,613		$	3,431,389		$	9,206,964
Sales and marketing expense as a percent of loan originations	1.23		%	2.68		%	2.28		%	1.91		%	2.30		%
Net revenue	$	74,713		$	43,869		$	204,896		$	238,788		$	570,121
Consolidated net loss	$	(34,325	)	$	(78,471	)	$	(392	)	$	(160,883	)	$	(30,924	)
Diluted EPS attributable to common stockholders ⁽¹⁾	$	(0.38	)	$	(0.87	)	$	0.00		$	(2.35	)	$	(0.36	)
Contribution ⁽²⁾	$	53,384		$	21,395		$	105,789		$	126,681		$	291,033
Contribution margin ⁽²⁾	71.5		%	48.8		%	51.6		%	53.1		%	51.0		%
Adjusted EBITDA ⁽²⁾	$	4,313		$	(27,619	)	$	40,021		$	(31,137	)	$	95,791
Adjusted EBITDA margin ⁽²⁾	5.8		%	(63.0		)%	19.5		%	(13.0		)%	16.8		%
Adjusted net income (loss) ⁽²⁾	$	(23,079	)	$	(54,252	)	$	7,951		$	(116,482	)	$	(4,799	)
Adjusted EPS ⁽¹⁾⁽²⁾	$	(0.25	)	$	(0.60	)	$	0.09		$	(1.29	)	$	(0.06	)


⁽¹⁾	See “Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 4. Net Income (Loss) Per Share” and “Note 14. Stockholders' Equity” for additional information.


⁽²⁾	Represents non-GAAP financial measures. For more information regarding these measures and a reconciliation of these measures to the most comparable GAAP measures, see “Non-GAAP Financial Measures” below.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Loan Originations

We classify the loans facilitated by our platform into three major loan products: standard program personal loans, custom program personal loans and other loans. The majority of the loans facilitated through our platform are standard program personal loans that represent loans made to prime borrowers that are available to institutional investors, private investors and public investors (in the form of member payment dependent notes). Custom program personal loans include all other personal loans to borrowers who are not eligible for our standard program, including loans primarily made to near-prime and super-prime borrowers, and are available only to private investors. Other loans are comprised of education and patient finance loans, auto refinance loans, and small business loans. In the second quarter of 2019, the Company announced that it will connect applicants looking for a small business loan with strategic partners and earn referral fees, instead of facilitating these loans on its platform.

Loan origination volume and weighted-average transaction fees (as a percent of origination balance) by major loan products are as follows:



	Three Months Ended
	September 30, 2020				June 30, 2020				September 30, 2019
(in millions, except percentages)	Origination Volume		Weighted- Average Transaction Fee		Origination Volume		Weighted- Average Transaction Fee		Origination Volume		Weighted- Average Transaction Fee
Personal loans – standard program	$	398.2	4.45	%	$	221.6	1.28	%	$	2,343.2	5.00	%
Personal loans – custom program	44.0		3.35	%	9.4		N/M		820.6		4.68	%
Total personal loans	442.2		4.34	%	231.0		0.21	%	3,163.8		4.92	%
Other loans	141.9		3.64	%	94.8		3.58	%	185.8		3.01	%
Total	$	584.1	4.17	%	$	325.8	1.19	%	$	3,349.6	4.81	%

					Nine Months Ended
					September 30, 2020				September 30, 2019
(in millions, except percentages)					Origination Volume		Weighted-Average Transaction Fee		Origination Volume		Weighted-Average Transaction Fee
Personal loans – standard program					$	2,390.8	5.06	%	$	6,445.9	5.04	%
Personal loans – custom program					625.9		5.00	%	2,156.2		4.74	%
Total personal loans					3,016.7		5.05	%	8,602.1		4.96	%
Other loans					414.7		2.95	%	604.9		3.63	%
Total					$	3,431.4	4.79	%	$	9,207.0	4.87	%

N/M – Not meaningful

The decrease in the total weighted-average transaction fee during the third quarter of 2020 compared to the third quarter of 2019 was primarily driven by structured incentives to secure the funding commitments of certain investors.

The increase in the total weighted-average transaction fee during the third quarter of 2020 compared to the second quarter of 2020 was primarily driven by an increase in transaction fee revenue as a result of a decrease in estimated transaction fee liabilities owed to borrowers due to higher prepayment estimates in the second quarter of 2020.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Personal loan origination volume for our standard loan program by loan grade was as follows (in millions):



	Three Months Ended												Nine Months Ended September 30,
(in millions)	September 30, 2020				June 30, 2020				September 30, 2019				2020				2019
Personal loan originations by loan grade – standard loan program:	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
A	$	214.4	54	%	$	105.7	48	%	$	757.4	32	%	$	940.1	39	%	$	2,071.3	32	%
B	114.0		29	%	74.5		34	%	738.3		32	%	733.1		31	%	1,963.6		30	%
C	69.8		17	%	38.4		17	%	523.3		22	%	465.5		19	%	1,485.0		23	%
D	—		—	%	3.0		1	%	324.2		14	%	252.1		11	%	875.8		14	%
E	—		—	%	—		—	%	—		—	%	—		—	%	50.0		1	%
F	—		—	%	—		—	%	—		—	%	—		—	%	0.2		—	%
Total	$	398.2	100	%	$	221.6	100	%	$	2,343.2	100	%	$	2,390.8	100	%	$	6,445.9	100	%

Credit and pricing policy changes made by the Company during 2019 and into 2020 resulted in a change in the mix of personal loan origination volume from higher risk grades D through F to lower risk A through C grades. These changes broadly focused on tightening credit to shift overall platform mix towards lower risk and higher credit quality borrowers.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Results of Operations

The following tables set forth the Condensed Consolidated Statements of Operations data for each of the periods presented:



	Three Months Ended									Change (%)
	September 30, 2020			June 30, 2020			September 30, 2019			Q3 2020 vs Q3 2019		Q3 2020 vs Q2 2020
Net revenue:

Transaction fees	$	24,372		$	3,874		$	161,205		(85	)%	N/M

Interest income	46,773			60,560			77,820			(40	)%	(23	)%
Interest expense	(32,440		)	(37,766		)	(55,060		)	(41	)%	(14	)%
Net fair value adjustments	(696		)	(6,378		)	(31,628		)	(98	)%	(89	)%
Net interest income and fair value adjustments	13,637			16,416			(8,868		)	N/M		(17	)%
Investor fees	25,850			19,315			30,271			(15	)%	34	%
Gain on sales of loans	7,739			1,724			18,305			(58	)%	N/M
Net investor revenue	47,226			37,455			39,708			19	%	26	%

Other revenue	3,115			2,540			3,983			(22	)%	23	%

Total net revenue	74,713			43,869			204,896			(64	)%	70	%
Operating expenses: ⁽¹⁾
Sales and marketing	7,201			8,723			76,255			(91	)%	(17	)%
Origination and servicing	15,595			17,830			27,996			(44	)%	(13	)%
Engineering and product development	31,984			39,167			41,455			(23	)%	(18	)%
Other general and administrative	54,332			56,620			59,485			(9	)%	(4	)%
Total operating expenses	109,112			122,340			205,191			(47	)%	(11	)%
Loss before income tax expense	(34,399		)	(78,471		)	(295		)	N/M		(56	)%
Income tax expense (benefit)	(74		)	—			97			(176	)%	N/M
Consolidated net loss	$	(34,325	)	$	(78,471	)	$	(392	)	N/M		(56	)%
Less: Income (Loss) attributable to noncontrolling interests	—			—			(9		)	(100	)%	—	%
LendingClub net loss	$	(34,325	)	$	(78,471	)	$	(383	)	N/M		(56	)%
N/M – Not meaningful
⁽¹⁾Includes stock-based compensation expense as follows:
	Three Months Ended									Change (%)
	September 30, 2020			June 30, 2020			September 30, 2019			Q3 2020 vs Q3 2019		Q3 2020 vs Q2 2020
Sales and marketing	$	880		$	731		$	1,505		(42	)%	20	%
Origination and servicing	721			722			852			(15	)%	—	%
Engineering and product development	3,295			2,668			4,737			(30	)%	24	%
Other general and administrative	10,226			10,083			11,001			(7	)%	1	%
Total stock-based compensation expense	$	15,122		$	14,204		$	18,095		(16	)%	6	%

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)



	Nine Months Ended September 30,
	2020			2019			Change (%)
Net revenue:

Transaction fees	$	164,489		$	448,809		(63	)%

Interest income	176,744			270,554			(35	)%
Interest expense	(114,447		)	(197,336		)	(42	)%
Net fair value adjustments	(108,812		)	(102,331		)	6	%
Net interest income and fair value adjustments	(46,515		)	(29,113		)	60	%
Investor fees	86,924			94,274			(8	)%
Gain on sales of loans	23,724			47,343			(50	)%
Net investor revenue	64,133			112,504			(43	)%

Other revenue	10,166			8,808			15	%

Total net revenue	238,788			570,121			(58	)%
Operating expenses: ⁽¹⁾
Sales and marketing	65,708			212,201			(69	)%
Origination and servicing	54,419			81,200			(33	)%
Engineering and product development	109,861			127,300			(14	)%
Other general and administrative	169,438			180,685			(6	)%
Total operating expenses	399,426			601,386			(34	)%
Loss before income tax expense	(160,638		)	(31,265		)	N/M
Income tax expense (benefit)	245			(341		)	(172	)%
Consolidated net loss	$	(160,883	)	$	(30,924	)	N/M
Less: Income (Loss) attributable to noncontrolling interests	—			55			(100	)%
LendingClub net loss	$	(160,883	)	$	(30,979	)	N/M
N/M – Not meaningful
⁽¹⁾Includes stock-based compensation expense as follows:
	Nine Months Ended September 30,
	2020			2019			Change (%)
Sales and marketing	$	3,274		$	4,616		(29	)%
Origination and servicing	2,079			2,622			(21	)%
Engineering and product development	10,578			15,443			(32	)%
Other general and administrative	31,524			34,217			(8	)%
Total stock-based compensation expense	$	47,455		$	56,898		(17	)%

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Total Net Revenue



	Three Months Ended									Change (%)
	September 30, 2020			June 30, 2020			September 30, 2019			Q3 2020 vs Q3 2019		Q3 2020 vs Q2 2020
Net revenue:

Transaction fees	$	24,372		$	3,874		$	161,205		(85	)%	N/M

Interest income	46,773			60,560			77,820			(40	)%	(23	)%
Interest expense	(32,440		)	(37,766		)	(55,060		)	(41	)%	(14	)%
Net fair value adjustments	(696		)	(6,378		)	(31,628		)	(98	)%	(89	)%
Net interest income and fair value adjustments	13,637			16,416			(8,868		)	N/M		(17	)%
Investor fees	25,850			19,315			30,271			(15	)%	34	%
Gain on sales of loans	7,739			1,724			18,305			(58	)%	N/M
Net investor revenue	47,226			37,455			39,708			19	%	26	%

Other revenue	3,115			2,540			3,983			(22	)%	23	%

Total net revenue	$	74,713		$	43,869		$	204,896		(64	)%	70	%



	Nine Months Ended September 30,
	2020			2019			Change (%)
Net revenue:

Transaction fees	$	164,489		$	448,809		(63	)%

Interest income	176,744			270,554			(35	)%
Interest expense	(114,447		)	(197,336		)	(42	)%
Net fair value adjustments	(108,812		)	(102,331		)	6	%
Net interest income and fair value adjustments	(46,515		)	(29,113		)	60	%
Investor fees	86,924			94,274			(8	)%
Gain on sales of loans	23,724			47,343			(50	)%
Net investor revenue	64,133			112,504			(43	)%

Other revenue	10,166			8,808			15	%

Total net revenue	$	238,788		$	570,121		(58	)%

N/M – Not meaningful

The analysis below is presented for the following periods: Third quarter of 2020 compared to the third quarter of 2019 (Quarter Over Quarter), third quarter of 2020 compared to the second quarter of 2020 (Sequential), and the first nine months of 2020 compared to the first nine months of 2019 (Nine Months Over Nine Months).

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Transaction Fees

Transaction fees are fees paid by issuing banks or education and patient service providers to us for the work we perform in facilitating the origination of loans by our issuing bank partners. With respect to all unsecured personal loans and auto refinance loans for which WebBank acts as the issuing bank, we record transaction fee revenue net of program fees paid to WebBank. The fees on these loans are based upon the terms of the loan, including grade, rate, term, channel and other factors. As of September 30, 2020, these fees ranged from 0% to 6% of the initial principal amount of a loan.

Transaction fees were $24.4 million and $161.2 million for the third quarters of 2020 and 2019, respectively, a decrease of 85%. The decrease was primarily due to a decrease in origination volume. Loans facilitated through our lending marketplace decreased to $584.1 million for the third quarter of 2020 compared to $3.3 billion for the third quarter of 2019, a decrease of 83%. The weighted-average transaction fee as a percent of origination balance was 4.17% for the third quarter of 2020 compared to 4.81% for the third quarter of 2019. This decrease was primarily driven by structured incentives to secure the funding commitments of certain investors.

Transaction fees were $24.4 million and $3.9 million for the third and second quarters of 2020, respectively. The increase was primarily due to an increase in origination volume and higher transaction fee liabilities recorded in the second quarter of 2020. Loans facilitated through our lending marketplace increased to $584.1 million for the third quarter of 2020 compared to $325.8 million in the second quarter of 2020, an increase of 79%. The weighted-average transaction fee as a percent of origination balance increased to 4.17% for the third quarter of 2020 compared to 1.19% for the second quarter of 2020. The weighted-average transaction fee during the second quarter of 2020 was impacted by higher estimated transaction fee liabilities owed to borrowers due to higher prepayment estimates as prepayments rebounded faster than expected to a more normalized pre-COVID-19 level, which caused a decrease to transaction fees. The prepayment estimate for the third quarter remained relatively flat from the previous quarter.

Transaction fees were $164.5 million and $448.8 million for the first nine months of 2020 and 2019, respectively, a decrease of 63%. The decrease was primarily due to a decrease in origination volume. Loans facilitated through our lending marketplace decreased to $3.4 billion for the first nine months of 2020 compared to $9.2 billion for the first nine months of 2019, a decrease of 63%. The weighted-average transaction fee as a percent of origination balance remained relatively flat at 4.79% and 4.87% for the first nine months of 2020 and 2019, respectively.

In October 2020, we recognized approximately $1.9 million in transaction fee revenue associated with the issuance of loans for which the loan application process had commenced prior to the end of the third quarter of 2020. In October 2019, we recognized approximately $5.1 million in transaction fee revenue associated with the issuance of loans in which the loan application process had commenced prior to the end of the third quarter of 2019.

Net Interest Income and Fair Value Adjustments

Loans Invested in by the Company: In light of COVID-19 and our pending acquisition of Radius, the Company temporarily ceased purchasing loans to support Structured Program transactions. We earn interest income and assume principal and interest rate risk on loans during the period we own the loans. We have financed a portion of loan purchases with draws on our credit facilities and the associated interest expense reduces net interest income. In the third quarter of 2020, we sold approximately $443 million of loans (which included $410 million of loans sold in bulk sales) and we used loan sale proceeds to pay-down and reduce our credit facilities. As we have reduced our loan portfolio and related credit facilities through these sale efforts, we expect to have reduced interest income, interest expense and fair value adjustments in the future.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Fair value adjustments on loans invested in by the Company are generally negative due to interest cash flow receipts and if there are expected increases and any acceleration in the timing of expected charge-offs and prepayments. As we continue to use our own capital to invest in loans for strategic business purposes, we expect the net negative fair value adjustments on loans to fluctuate due to the impact of current economic conditions, discounts offered to meet yield expectations of our loan investors and the holding period of the loans.

Loans, Notes, Certificates and Secured Borrowings: We do not assume principal or interest rate risk on loans facilitated through our lending marketplace that are funded by notes, certificates and certain secured borrowings because loan balances, interest rates and maturities are matched and offset by an equal balance of notes, certificates or secured borrowings with the exact same interest rates and maturities. The changes in fair value of loans, notes, certificates and secured borrowings are shown on our Condensed Consolidated Statements of Operations on a net basis. Due to the payment dependent feature of the notes, certificates and secured borrowings, fair value adjustments on loans funded with notes, certificates and secured borrowings result in no net effect on our earnings, except for changes in fair value of any applicable credit support agreements related to secured borrowings.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

The following tables provide additional detail related to net interest income and fair value adjustments for assets invested in by the Company, assets with equal and offsetting liabilities, and total interest income, interest expense and net fair value adjustments:



	Three Months Ended									Change (%)
	September 30, 2020			June 30, 2020			September 30, 2019			Q3 2020 vs Q3 2019		Q3 2020 vs Q2 2020
Loans invested in by the Company, securities available for sale, cash, cash equivalents and restricted cash, and debt:
Interest income:
Loans held for investment and held for sale by the Company at fair value	$	16,864		$	27,361		$	24,441		(31	)%	(38	)%
Securities available for sale	2,754			3,397			4,033			(32	)%	(19	)%
Cash, cash equivalents and restricted cash	38			102			1,523			(98	)%	(63	)%
Total	19,656			30,860			29,997			(34	)%	(36	)%
Interest expense:
Credit facilities and securities sold under repurchase agreements	(3,316		)	(5,850		)	(7,046		)	(53	)%	(43	)%
Securitization notes and certificates	(2,007		)	(2,216		)	(191		)	N/M		(9	)%
Total	(5,323		)	(8,066		)	(7,237		)	(26	)%	(34	)%
Net interest income	14,333			22,794			22,760			(37	)%	(37	)%
Net fair value adjustments	(696		)	(6,378		)	(31,628		)	(98	)%	(89	)%
Net interest income and fair value adjustments	$	13,637		$	16,416		$	(8,868	)	N/M		(17	)%

Loans, notes, certificates and secured borrowings:
Interest income:
Loans held for investment at fair value	$	27,117		$	29,700		$	47,823		(43	)%	(9	)%
Interest expense:
Notes, certificates and secured borrowings	(27,117		)	(29,700		)	(47,823		)	(43	)%	(9	)%
Net interest income	$	—		$	—		$	—		—	%	—	%

Total net interest income and fair value adjustments:
Interest income	$	46,773		$	60,560		$	77,820		(40	)%	(23	)%
Interest expense	(32,440		)	(37,766		)	(55,060		)	(41	)%	(14	)%
Net fair value adjustments	(696		)	(6,378		)	(31,628		)	(98	)%	(89	)%
Net interest income and fair value adjustments	$	13,637		$	16,416		$	(8,868	)	N/M		(17	)%

N/M – Not meaningful

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)



	Nine Months Ended September 30,
	2020			2019			Change (%)
Loans invested in by the Company, securities available for sale, cash, cash equivalents and restricted cash, and debt:
Interest income:
Loans held for investment and held for sale by the Company at fair value	$	73,600		$	81,455		(10	)%
Securities available for sale	9,930			10,604			(6	)%
Cash, cash equivalents and restricted cash	1,021			4,967			(79	)%
Total	84,551			97,026			(13	)%
Interest expense:
Credit facilities and securities sold under repurchase agreements	(16,704		)	(19,691		)	(15	)%
Securitization notes and certificates	(5,550		)	(4,117		)	35	%
Total	(22,254		)	(23,808		)	(7	)%
Net interest income	62,297			73,218			(15	)%
Net fair value adjustments	(108,812		)	(102,331		)	6	%
Net interest income and fair value adjustments	$	(46,515	)	$	(29,113	)	60	%

Loans, notes, certificates and secured borrowings:
Interest income:
Loans held for investment at fair value	$	92,193		$	173,528		(47	)%
Interest expense:
Notes, certificates and secured borrowings	(92,193		)	(173,528		)	(47	)%
Net interest income	$	—		$	—		—	%

Total net interest income and fair value adjustments:
Interest income	$	176,744		$	270,554		(35	%)
Interest expense	(114,447		)	(197,336		)	(42	%)
Net fair value adjustments	(108,812		)	(102,331		)	6	%
Net interest income and fair value adjustments	$	(46,515	)	$	(29,113	)	60	%

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

The following tables provide the outstanding average balances, which are key drivers of interest income and interest expense in the periods presented:



	Outstanding Average Balances for Three Months Ended						Change (%)
	September 30, 2020		June 30, 2020		September 30, 2019		Q3 2020 vs Q3 2019		Q3 2020 vs Q2 2020
Cash, cash equivalents and restricted cash	$	522,919	$	458,850	$	474,023	10	%	14	%
Loans held for investment by the Company	$	70,611	$	79,464	$	6,095	N/M		(11	)%
Loans held for sale by the Company	$	425,351	$	773,513	$	659,877	(36	)%	(45	)%
Securities available for sale	$	203,246	$	232,405	$	236,724	(14	)%	(13	)%
Credit facilities and securities sold under repurchase agreements	$	303,889	$	582,967	$	472,411	(36	)%	(48	)%
Securitization notes and certificates	$	183,122	$	197,851	$	4,224	N/M		(7	)%
Loans held for investment	$	801,418	$	920,083	$	1,458,732	(45	)%	(13	)%
Notes, certificates and secured borrowings	$	801,418	$	920,115	$	1,458,732	(45	)%	(13	)%



	Outstanding Average Balances for Nine Months Ended September 30,
	2020		2019		Change (%)
Cash, cash equivalents and restricted cash	$	488,233	$	520,495	(6	)%
Loans held for investment by the Company	$	70,453	$	6,102	N/M
Loans held for sale by the Company	$	647,790	$	717,797	(10	)%
Securities available for sale	$	236,736	$	209,010	13	%
Credit facilities and securities sold under repurchase agreements	$	483,645	$	419,268	15	%
Securitization notes and certificates	$	163,472	$	122,709	33	%
Loans held for investment	$	931,145	$	1,685,684	(45	)%
Notes, certificates and secured borrowings	$	931,128	$	1,689,072	(45	)%

N/M – Not meaningful

Interest income associated with loans invested in by the Company, securities available for sale, and cash, cash equivalents and restricted cash was $19.7 million and $30.0 million for the third quarters of 2020 and 2019, respectively, a decrease of 34%. The decrease was primarily due to a decrease in the average outstanding balance of loans invested in by the Company, which included sales of $443 million in the third quarter of 2020, and a decrease in interest rates for cash and cash equivalents.

Interest income associated with loans invested in by the Company, securities available for sale, and cash, cash equivalents and restricted cash was $19.7 million and $30.9 million for the third and second quarters of 2020, respectively, a decrease of 36%. The decrease was primarily due to a decrease in the average outstanding balance of loans invested in by the Company, which included sales of $443 million in the third quarter of 2020.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Interest income associated with loans invested in by the Company, securities available for sale, and cash, cash equivalents and restricted cash was $84.6 million and $97.0 million for the first nine months of 2020 and 2019, respectively, a decrease of 13%. The decrease was primarily due to a decrease in the average outstanding balance of loans invested in by the Company and a decrease in interest rates for cash and cash equivalents.

Interest expense associated with credit facilities, securities sold under repurchase agreements and securitization notes and certificates was $5.3 million and $7.2 million for the third quarters of 2020 and 2019, respectively, a decrease of 26%. The decrease was primarily due to a decrease in the average outstanding balance of credit facilities and securities sold under repurchase agreements.

Interest expense associated with credit facilities, securities sold under repurchase agreements and securitization notes and certificates was $5.3 million and $8.1 million for the third and second quarters of 2020, respectively, a decrease of 34%. The decrease was primarily due to a decrease in the average outstanding balance of credit facilities and securities sold under repurchase agreements.

Interest expense associated with credit facilities, securities sold under repurchase agreements and securitization notes and certificates was $22.3 million and $23.8 million for the first nine months of 2020 and 2019, respectively, a decrease of 7%. The decrease was primarily due to a reduction in interest rates, partially offset by an increase in the average outstanding balance of credit facilities and securities sold under repurchase agreements.

Net fair value adjustments were $(0.7) million and $(31.6) million for the third quarters of 2020 and 2019, respectively, a decrease of 98%. The decrease was primarily due to a decrease in loans purchased by the Company.

Net fair value adjustments were $(0.7) million and $(6.4) million for the third and second quarters of 2020, respectively, a decrease of 89%. The decrease was primarily the result of insignificant fair value adjustments in the third quarter of 2020 on the loan portfolio held on the balance sheet at June 30, 2020.

Net fair value adjustments were $(108.8) million and $(102.3) million for the first nine months of 2020 and 2019, respectively, an increase of 6%. The increase was primarily due to fair value adjustments recorded in the first quarter of 2020 due to COVID-19, which included an increase in estimated expected credit losses, offset by a decrease in fair value adjustments due to a decrease in loans purchased by the Company.

Interest income from loans held for investment and the offsetting interest expense from notes, certificates and secured borrowings were both $27.1 million and $47.8 million for the third quarters of 2020 and 2019, respectively, a decrease of 43%. The decrease was primarily due to a decrease in the average outstanding balances of loans held for investment and notes, certificates and secured borrowings.

Interest income from loans held for investment and the offsetting interest expense from notes, certificates and secured borrowings were both $27.1 million and $29.7 million for the third and second quarters of 2020, respectively, a decrease of 9%. The decrease was primarily due to a decrease in the average outstanding balances of loans held for investment and notes, certificates and secured borrowings.

Interest income from loans held for investment and the offsetting interest expense from notes, certificates and secured borrowings were both $92.2 million and $173.5 million for the first nine months of 2020 and 2019, respectively, a decrease of 47%. The decrease was primarily due to a decrease in the average outstanding balances of loans held for investment and notes, certificates and secured borrowings.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Investor Fees

The tables below illustrate the composition of investor fees and the outstanding principal balance of loans serviced, which is a key driver of investor fees, by the method in which the loans were financed for each period presented:



	Three Months Ended						Change (%)
	September 30, 2020		June 30, 2020		September 30, 2019		Q3 2020 vs Q3 2019		Q3 2020 vs Q2 2020
Investor Fees:
Whole loans sold	$	22,191	$	15,607	$	24,318	(9	)%	42	%
Notes, certificates and secured borrowings	3,659		3,708		5,953		(39	)%	(1	)%
Total	$	25,850	$	19,315	$	30,271	(15	)%	34	%

Outstanding Principal Balance of Loans Serviced On Our Platform(in millions)⁽¹⁾:
Whole loans sold	$	11,249	$	12,421	$	13,509	(17	)%	(9	)%
Notes, certificates and secured borrowings	756		851		1,317		(43	)%	(11	)%
Total excluding loans invested in by the Company	$	12,005	$	13,272	$	14,826	(19	)%	(10	)%
Loans invested in by the Company	262		690		696		(62	)%	(62	)%
Total	$	12,267	$	13,962	$	15,522	(21	)%	(12	)%



	Nine Months Ended September 30,
	2020		2019		Change (%)
Investor Fees:
Whole loans sold	$	74,653	$	74,829	—	%
Notes, certificates and secured borrowings	12,271		19,445		(37	)%
Total	$	86,924	$	94,274	(8	)%

Outstanding Principal Balance of Loans Serviced On Our Platform(in millions)⁽¹⁾:
Whole loans sold	$	11,249	$	13,509	(17	)%
Notes, certificates and secured borrowings	756		1,317		(43	)%
Total excluding loans invested in by the Company	$	12,005	$	14,826	(19	)%
Loans invested in by the Company	262		696		(62	)%
Total	$	12,267	$	15,522	(21	)%


⁽¹⁾	As of the end of each respective period.

The Company receives fees to compensate us for the costs we incur in servicing a loan, including managing payments from borrowers, collections, payments to investors, maintaining investors’ account portfolios, providing information, and issuing monthly statements. The amount of investor fee revenue earned is predominantly affected by the servicing rates paid by investors, the outstanding principal balance of loans and the amount of principal and interest collected from borrowers and remitted to investors.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Investor fee revenue related to whole loans sold also includes the change in fair value of our servicing assets and liabilities associated with the loans. Servicing rights are recorded as either an asset or liability in “Gain on sales of loans” in the Company’s Condensed Consolidated Statements of Operations.

Investor fees – whole loans sold: Investor fee revenue related to the servicing of whole loans sold was $22.2 million and $24.3 million for the third quarters of 2020 and 2019, respectively, a decrease of 9%. The decrease was primarily due to a lower principal balance of whole loans serviced.

Investor fee revenue related to the servicing of whole loans sold was $22.2 million and $15.6 million for the third and second quarters of 2020, respectively, an increase of 42%. The increase was primarily due to negative fair value adjustments of our servicing asset in the second quarter of 2020 as a result of higher prepayment estimates, partially offset by a lower principal balance of whole loans serviced in the third quarter of 2020.

Investor fee revenue related to the servicing of whole loans sold remained relatively flat at $74.7 million and $74.8 million for the first nine months of 2020 and 2019, respectively. The decrease in revenue resulting from a lower principal balance of loans serviced was substantially offset by an increase from higher average contractual servicing fees.

Investor fees – notes, certificates and secured borrowings: Investor fee revenue related to the servicing of loans underlying notes, certificates and secured borrowings was $3.7 million and $6.0 million for the third quarters of 2020 and 2019, respectively, a decrease of 39%. The decrease was primarily due to a lower principal balance of loans serviced and decreases in charged-off loan sales and delinquent loan collections.

Investor fee revenue related to the servicing of loans underlying notes, certificates and secured borrowings remained flat at $3.7 million for both the third and second quarters of 2020.

Investor fee revenue related to the servicing of loans underlying notes, certificates and secured borrowings was $12.3 million and $19.4 million for the first nine months of 2020 and 2019, respectively, a decrease of 37%. The decrease was primarily due to a lower principal balance of loans serviced and decreases in charged-off loan sales and delinquent loan collections.

Gain (Loss) on Sales of Loans

In connection with loan sales and Structured Program transactions, in addition to investor fees earned with respect to the corresponding loan, we recognize a gain or loss on the sale of that loan based on the level to which the contractual loan servicing fee is above or below an estimated market rate loan servicing fee. Additionally, we recognize transaction costs as a loss on sale of loans. We sold approximately $410 million in bulk sales during the third quarter, reducing our loan portfolio held for sale.

Gain on sales of loans was $7.7 million and $18.3 million for the third quarters of 2020 and 2019, respectively, a decrease of 58%. The decrease was primarily due to a decrease in the volume of loans sold that resulted in lower gains on sales of loans.

Gain on sales of loans was $7.7 million and $1.7 million for the third and second quarters of 2020. The increase was primarily due to an increase in the volume of loans sold that resulted in higher gains on sales of loans.

Gain on sales of loans was $23.7 million and $47.3 million for the first nine months of 2020 and 2019, respectively, a decrease of 50%. The decrease was primarily due to a decrease in the volume of loans sold that resulted in lower gains on sales of loans.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Other Revenue

Other revenue primarily consists of sublease revenue from our sublet office space in San Francisco, California, and referral revenue that relates to fees earned from third-party companies when customers referred by us consider or purchase products or services from such third-party companies. The tables below illustrate the composition of other revenue for each period presented:



	Three Months Ended						Change (%)
	September 30, 2020		June 30, 2020		September 30, 2019		Q3 2020 vs Q3 2019			Q3 2020 vs Q2 2020
Sublease revenue	$	1,538	$	1,537	$	1,175	31		%	—	%
Referral revenue	1,264		625		1,596		(21		)%	102	%
Other	313		378		1,212		(74		)%	(17	)%
Other revenue	$	3,115	$	2,540	$	3,983	(22		)%	23	%


					Nine Months Ended September 30,
					2020		2019			Change (%)
Sublease revenue					$	4,609	$	3,198		44	%
Referral revenue					3,503		3,619			(3	)%
Other					2,054		1,991			3	%
Other revenue					$	10,166	$	8,808		15	%

Operating Expenses

Our operating expenses consist of sales and marketing, origination and servicing, engineering and product development and other general and administrative expenses, as described below.

Sales and Marketing: Sales and marketing expense consists primarily of borrower and investor acquisition efforts, including costs attributable to marketing and selling the loans facilitated through the platform we operate. This includes costs of building general brand awareness, and salaries, benefits and stock-based compensation expense related to our sales and marketing team.

Origination and Servicing: Origination and servicing expense consists primarily of salaries, benefits and stock-based compensation expense and vendor costs attributable to activities that most directly relate to facilitating the origination of loans and servicing loans for borrowers and investors. These costs relate to the credit, collections, customer support and payment processing teams and related vendors.

Engineering and Product Development: Engineering and product development expense consists primarily of salaries, benefits and stock-based compensation expense for our engineering and product management teams, information security and technology risk teams, and the cost of contractors who work on the development and maintenance of our platform. Engineering and product development expense also includes non-capitalized hardware and software costs and depreciation, amortization and impairment of technology assets.

Other General and Administrative: Other general and administrative expense consists primarily of salaries, benefits and stock-based compensation expense for our accounting, finance, legal, risk, compliance, human resources and facilities teams, professional services fees and facilities expense.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)



	Three Months Ended						Change (%)
	September 30, 2020		June 30, 2020		September 30, 2019		Q3 2020 vs Q3 2019			Q3 2020 vs Q2 2020
Sales and marketing	$	7,201	$	8,723	$	76,255	(91		)%	(17	)%
Origination and servicing	15,595		17,830		27,996		(44		)%	(13	)%
Engineering and product development	31,984		39,167		41,455		(23		)%	(18	)%
Other general and administrative	54,332		56,620		59,485		(9		)%	(4	)%
Total operating expenses	$	109,112	$	122,340	$	205,191	(47		)%	(11	)%

					Nine Months Ended September 30,
					2020		2019			Change (%)
Sales and marketing					$	65,708	$	212,201		(69	)%
Origination and servicing					54,419		81,200			(33	)%
Engineering and product development					109,861		127,300			(14	)%
Other general and administrative					169,438		180,685			(6	)%
Total operating expenses					$	399,426	$	601,386		(34	)%

Sales and marketing: Sales and marketing expense was $7.2 million and $76.3 million for the third quarters of 2020 and 2019, respectively, a decrease of 91%. The decrease was primarily due to a decrease in variable marketing expenses based on lower origination volume and a decrease in personnel-related expenses for full-time employees due to lower headcount as a result of a workforce reduction in the second quarter of 2020. Sales and marketing expense as a percent of loan originations decreased to 1.23% in the third quarter of 2020 from 2.28% in the third quarter of 2019 as a result of a decrease in origination volume in our higher-cost marketing channels.

Sales and marketing expense was $7.2 million and $8.7 million for the third and second quarters of 2020, respectively, a decrease of 17%. The decrease was primarily due to a decrease in personnel-related expenses for full-time employees due to lower headcount and restructuring costs in the second quarter of 2020 as a result of a workforce reduction. Sales and marketing expense as a percent of loan originations decreased to 1.23% in the third quarter of 2020 from 1.97% in the second quarter of 2020 as a result of an increase in origination volume on a relatively fixed expense base.

Sales and marketing expense was $65.7 million and $212.2 million for the first nine months of 2020 and 2019, respectively, a decrease of 69%. The decrease was primarily due to a decrease in variable marketing expenses based on lower origination volume and a decrease in personnel-related expenses for full-time employees due to lower headcount as a result of a workforce reduction in the second quarter of 2020. Sales and marketing expense as a percent of loan originations decreased to 1.91% in the first nine months of 2020 from 2.30% in the first nine months of 2019 as a result of a decrease in loan origination volume in our higher-cost marketing channels.

Origination and servicing: Origination and servicing expense was $15.6 million and $28.0 million for the third quarters of 2020 and 2019, respectively, a decrease of 44%. The decrease was primarily due to decreases in third party credit expenses as a result of lower origination volume and personnel-related expenses for full-time employees due to lower headcount as a result of a workforce reduction in the second quarter of 2020.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Origination and servicing expense was $15.6 million and $17.8 million for the third and second quarters of 2020, respectively, a decrease of 13%. The decrease was primarily due to decreases in personnel-related expenses and restructuring costs from a workforce reduction in the second quarter of 2020.

Origination and servicing expense was $54.4 million and $81.2 million for the first nine months of 2020 and 2019, respectively, a decrease of 33%. The decrease was primarily due to a decrease in personnel-related expenses for full-time employees due to lower headcount as a result of a workforce reduction in the second quarter of 2020, reduction in outsourced workforce in third quarter of 2020, and third party credit expenses as a result of lower origination volume.

Engineering and product development: Engineering and product development expense was $32.0 million and $41.5 million for the third quarters of 2020 and 2019, respectively, a decrease of 23%. The decrease was primarily due to a decrease in personnel-related expenses for full-time employees due to lower headcount as a result of a workforce reduction in the second quarter of 2020.

We capitalized $5.3 million and $8.0 million in software development costs for the third quarters of 2020 and 2019, respectively.

Engineering and product development expense was $32.0 million and $39.2 million for the third and second quarters of 2020, respectively, a decrease of 18%. The decrease was primarily due to a decrease in personnel-related expenses and restructuring costs from a workforce reduction in the second quarter of 2020 and a decrease in impairment expense.

We capitalized $5.3 million and $6.5 million in software development costs for the third and second quarters of 2020, respectively.

Engineering and product development expense was $109.9 million and $127.3 million for the first nine months of 2020 and 2019, respectively, a decrease of 14%. The decrease was primarily due to a decrease in personnel-related expenses for full-time employees due to lower headcount as a result of a workforce reduction in the second quarter of 2020 and lower depreciation expense, partially offset by an increase in restructuring costs relating to the workforce reduction.

We capitalized $22.4 million and $27.7 million in software development costs for the first nine months of 2020 and 2019, respectively.

Other general and administrative expense: Other general and administrative expense was $54.3 million and $59.5 million for the third quarters of 2020 and 2019, respectively, a decrease of 9%. The decrease was primarily due to decreases in personnel-related expenses for full-time employees due to lower headcount as a result of a workforce reduction in the second quarter of 2020, partially offset by an increase in expenses related to the acquisition of Radius.

Other general and administrative expense was $54.3 million and $56.6 million for the third and second quarters of 2020, respectively, a decrease of 4%. The decrease was primarily due to decreases in restructuring costs as a result of a workforce reduction in the second quarter of 2020, partially offset by expenses related to the acquisition of Radius.

Other general and administrative expense was $169.4 million and $180.7 million for the first nine months of 2020 and 2019, respectively, a decrease of 6%. The decrease was primarily due to decreases in personnel-related expenses for full-time employees due to lower headcount as a result of a workforce reduction in the second quarter of 2020 and lower professional services and facilities expense, partially offset by increases in restructuring costs

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

related to the workforce reduction, expenses related to the acquisition of Radius, and additional accrued contingent liabilities.

Income Taxes

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law to provide certain relief as a result of COVID-19. As of September 30, 2020, the Company has determined that neither the CARES Act nor changes to income tax laws or regulations in other jurisdictions have a significant impact on our effective tax rate.

We continue to recognize a full valuation allowance against net deferred tax assets. This determination was based on the assessment of the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances.

Non-GAAP Financial Measures and Supplemental Financial Information

We use certain non-GAAP financial measures in evaluating our operating results. We believe that Contribution, Contribution Margin, Adjusted Net Income (Loss), Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Earnings (Loss) Per Share (Adjusted EPS) and Net Cash and Other Financial Assets help identify trends in our core business results and allow for greater transparency with respect to key metrics used by our management in its decision making.

Our non-GAAP measures have limitations as analytical tools and you should not consider them in isolation. These non-GAAP measures should not be viewed as substitutes for, or superior to, net income (loss) as prepared in accordance with GAAP. In evaluating these non-GAAP measures, you should be aware that in the future we will incur expenses similar to the adjustments in this presentation. There are a number of limitations related to the use of these non-GAAP financial measures versus their most directly comparable GAAP measures, which include the following:


•	Other companies, including companies in our industry, may calculate these measures differently, which may reduce their usefulness as a comparative measure.


•	Although depreciation, impairment and amortization are non-cash charges, the assets being depreciated, impaired and amortized may have to be replaced in the future and Adjusted EBITDA and Adjusted EBITDA Margin do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements.


•	These measures do not reflect tax payments that may represent a reduction in cash available to us.

Contribution and Contribution Margin

Contribution is a non-GAAP financial measure that is calculated as net revenue less “Sales and marketing” and “Origination and servicing” expenses on the Company’s Condensed Consolidated Statements of Operations,

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

adjusted to exclude cost structure simplification, restructuring costs, other items (related to one-time expenses resulting from COVID-19) and non-cash stock-based compensation expenses within these captions and income or loss attributable to noncontrolling interests. These costs represent the costs that are most directly related to generating such revenue. The adjustment for cost structure simplification expense relates to a review of our cost structure and a number of expense initiatives underway, including the establishment of a site in the Salt Lake City area. The expense includes incremental and excess personnel-related expenses associated with establishing our Salt Lake City area site and external advisory fees. The adjustment for restructuring costs included severance and other personnel-related expenses, lease-related expenses and software impairment related to the impact of COVID-19 on the Company’s business. Contribution margin is a non-GAAP financial measure calculated by dividing Contribution by total net revenue.

Contribution and Contribution Margin are measures of overall direct product profitability that our management and board of directors find useful, and believe investors may find useful, in understanding the relationship between costs most directly associated with revenue generating activities and the related revenue, and remaining amount available to support our costs of engineering and product development and other general and administrative expense to evaluate our operating performance and trends. While we believe Contribution and Contribution Margin are useful for the reasons above, they are not an overall measure of our profitability, as they exclude engineering and product development and other general and administrative expenses that are required to run our business. Factors that affect our Contribution and Contribution Margin include revenue mix, variable marketing expenses and origination and servicing expenses.

The following table shows the calculation of Contribution and Contribution Margin:



	Three Months Ended									Nine Months Ended
	September 30, 2020			June 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
Total net revenue	$	74,713		$	43,869		$	204,896		$	238,788		$	570,121
Sales and marketing expense	7,201			8,723			76,255			65,708			212,201
Origination and servicing expense	15,595			17,830			27,996			54,419			81,200
Total direct expenses	22,796			26,553			104,251			120,127			293,401
Cost structure simplification expense ⁽¹⁾	—			—			2,778			175			7,130
Restructuring costs ⁽²⁾	(142		)	2,285			—			2,143			—
Other items⁽²⁾	8			341			—			349			—
Stock-based compensation ⁽²⁾	1,601			1,453			2,357			5,353			7,238
Income attributable to noncontrolling interests	—			—			9			—			(55		)
Contribution	$	53,384		$	21,395		$	105,789		$	126,681		$	291,033
Contribution margin	71.5		%	48.8		%	51.6		%	53.1		%	51.0		%


⁽¹⁾	Contribution excludes the portion of personnel-related expense associated with establishing a site in the Salt Lake City area that is included in the “Sales and marketing” and “Origination and servicing” expense categories.


⁽²⁾	Contribution excludes the portion of expenses included in the “Sales and marketing” and “Origination and servicing” expense categories.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

The following table presents a reconciliation of LendingClub net loss to Contribution for each of the periods indicated:



	Three Months Ended									Nine Months Ended
	September 30, 2020			June 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
LendingClub net loss	$	(34,325	)	$	(78,471	)	$	(383	)	$	(160,883	)	$	(30,979	)
Engineering and product development expense	31,984			39,167			41,455			109,861			127,300
Other general and administrative expense	54,332			56,620			59,485			169,438			180,685
Cost structure simplification expense ⁽¹⁾	—			—			2,778			175			7,130
Restructuring costs ⁽²⁾	(142		)	2,285			—			2,143			—
Other items⁽²⁾	8			341			—			349			—
Stock-based compensation expense ⁽²⁾	1,601			1,453			2,357			5,353			7,238
Income tax expense (benefit)	(74		)	—			97			245			(341		)
Contribution	$	53,384		$	21,395		$	105,789		$	126,681		$	291,033
Total net revenue	$	74,713		$	43,869		$	204,896		$	238,788		$	570,121
Contribution margin	71.5		%	48.8		%	51.6		%	53.1		%	51.0		%


⁽¹⁾	Contribution excludes the portion of personnel-related expenses associated with establishing a site in the Salt Lake City area that are included in the “Sales and marketing” and “Origination and servicing” expense categories.


⁽²⁾	Contribution excludes the portion of expenses included in the “Sales and marketing” and “Origination and servicing” expense categories.

Adjusted Net Income (Loss), Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted Net Income (Loss) is a non-GAAP financial measure defined as net income (loss) attributable to LendingClub adjusted to exclude certain items that are either non-recurring, do not contribute directly to management’s evaluation of its operating results, or non-cash items, such as (1) expenses related to our cost structure simplification as discussed above, (2) goodwill impairment, (3) legal, regulatory and other expense related to legacy issues, (4) acquisition and related expenses, (5) restructuring costs and (6) other items (consisting of certain non-legacy litigation and/or regulatory settlement expenses, gains on disposal of certain assets, and expenses resulting from COVID-19), net of tax. Legacy items are generally those expenses that arose from the decisions of legacy management prior to the board review initiated in 2016 and resulted in the resignation of our former CEO, including legal and other costs associated with ongoing regulatory and government investigations, indemnification obligations, litigation, and termination of certain legacy contracts. In the second quarter of 2020, we added an adjustment to Adjusted Net Income (Loss) for “Restructuring costs” to adjust for severance and other personnel-related expenses, lease-related expenses and software impairment related to the impact of COVID-19 on the Company’s business. In the fourth quarter of 2019, we added an adjustment to Adjusted Net Income (Loss) for “Acquisition and related expenses” to adjust for costs related to the acquisition of Radius. In the second quarter of 2019, we added an adjustment to Adjusted Net Income (Loss) and Adjusted EBITDA for “Other items” to adjust for expenses or gains that are not part of our core operating results. We believe Adjusted Net Income (Loss) is an important measure because it directly reflects the financial performance of our business.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Adjusted EBITDA is a non-GAAP financial measure defined as net income (loss) attributable to LendingClub adjusted to exclude certain items that are either non-recurring, do not contribute directly to management's evaluation of its operating results, or non-cash items, such as (1) cost structure simplification expense, (2) goodwill impairment, (3) legal, regulatory and other expense related to legacy issues, (4) acquisition and related expenses, (5) restructuring costs, (6) other items, as discussed above, (7) depreciation, impairment and amortization expense, (8) stock-based compensation expense and (9) income tax expense (benefit).

We believe that Adjusted EBITDA is an important measure of operating performance because it allows management, investors and our board to evaluate and compare our core operating results, including our return on capital and operating efficiencies, from period to period. Additionally, we utilize Adjusted EBITDA as an input into the Company’s calculation of the annual bonus plan. Adjusted EBITDA Margin is a non-GAAP financial measure calculated by dividing Adjusted EBITDA by total net revenue.

The following table presents a reconciliation of LendingClub net loss to Adjusted Net Loss and Adjusted EBITDA for each of the periods indicated:



	Three Months Ended									Nine Months Ended
	September 30, 2020			June 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
LendingClub net loss	$	(34,325	)	$	(78,471	)	$	(383	)	$	(160,883	)	$	(30,979	)
Cost structure simplification expense ⁽¹⁾	—			—			3,443			228			9,649
Legal, regulatory and other expense related to legacy issues⁽²⁾	6,120			4,354			4,142			14,950			15,078
Acquisition and related expenses⁽³⁾	4,373			456			—			8,440			—
Restructuring costs ⁽⁴⁾	753			17,036			—			17,789			—
Other items ⁽⁵⁾	—			2,373			749			2,994			1,453
Adjusted net loss	(23,079		)	(54,252		)	7,951			(116,482		)	(4,799		)
Depreciation and impairment expense:
Engineering and product development	10,198			10,177			11,464			30,798			36,675
Other general and administrative	1,394			1,480			1,569			4,477			4,707
Amortization of intangible assets	752			772			845			2,370			2,651
Stock-based compensation expense	15,122			14,204			18,095			47,455			56,898
Income tax expense (benefit)	(74		)	—			97			245			(341		)
Adjusted EBITDA	$	4,313		$	(27,619	)	$	40,021		$	(31,137	)	$	95,791
Total net revenue	$	74,713		$	43,869		$	204,896		$	238,788		$	570,121
Adjusted EBITDA margin	5.8		%	(63.0		)%	19.5		%	(13.0		)%	16.8		%

⁽¹⁾

Includes personnel-related expenses associated with establishing a site in the Salt Lake City area. These expenses are included in “Sales and marketing,” “Origination and servicing,” “Engineering and product development” and “Other general and administrative” expense on the Company’s Condensed Consolidated Statements of Operations. In the first half of 2019, also includes external advisory fees which are included in “Other general and administrative” expense on the Company’s Condensed Consolidated Statements of Operations.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

⁽²⁾

Consists of legacy legal expenses, which are included in “Other general and administrative” expense on the Company’s Condensed Consolidated Statements of Operations and expense related to the dissolution of certain private funds managed by LCAM, which is included in “Net fair value adjustments” on the Company’s Condensed Consolidated Statements of Operations. For the first nine months of 2019, also includes expense related to the termination of a legacy contract, which is included in “Other general and administrative” expense on the Company’s Condensed Consolidated Statements of Operations.


⁽³⁾	Represents costs related to the acquisition of Radius.

⁽⁴⁾Includes severance and other personnel-related expenses, lease-related expenses and software impairment related to the impact of COVID-19 on the Company’s business.

⁽⁵⁾

In the second quarter and first nine months of 2020, includes expenses related to certain non-legacy litigation and regulatory matters, which are included in “Other general and administrative” expense on the Company’s Condensed Consolidated Statements of Operations, and one-time expenses resulting from COVID-19, which are included in “Sales and marketing,” “Origination and servicing,” “Engineering and product development” and “Other general and administrative” expense on the Company’s Condensed Consolidated Statements of Operations. In 2019, includes expenses related to certain non-legacy litigation and regulatory matters. The first nine months of 2019 also include a gain on sale of our small business operating segment. Both of these are included in “Other general and administrative” expense on the Company’s Condensed Consolidated Statements of Operations.

Adjusted EPS

Adjusted EPS is a non-GAAP financial measure calculated by dividing Adjusted Net Income (Loss) attributable to both common and preferred stockholders by the weighted-average diluted common and preferred shares outstanding. We believe that Adjusted EPS is an important measure because it directly reflects the core operating results of our business on a per share basis, which analysts have informed us provides a useful comparison from period to period without unusual or non-recurring items.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

The following table presents a calculation of Adjusted EPS for each of the periods indicated:



	Three Months Ended								Nine Months Ended
	September 30, 2020			June 30, 2020			September 30, 2019		September 30, 2020			September 30, 2019
	Common and Preferred Stock ⁽¹⁾⁽²⁾			Common and Preferred Stock ⁽¹⁾⁽²⁾			Common Stock		Common and Preferred Stock ⁽¹⁾⁽²⁾			Common Stock
Adjusted net loss attributable to stockholders	$	(23,079	)	$	(54,252	)	$	7,951	$	(116,482	)	(4,799		)

Weighted-average shares – diluted⁽³⁾	90,901,870			89,866,880			87,588,495		89,955,702			86,849,388
Weighted-average other dilutive equity awards	—			—			—		—			—
Non-GAAP diluted shares ⁽³⁾	90,901,870			89,866,880			87,588,495		89,955,702			86,849,388

Adjusted EPS – diluted⁽³⁾	$	(0.25	)	$	(0.60	)	$	0.09	$	(1.29	)	$	(0.06	)


⁽¹⁾	Presented on an as-converted basis, as the preferred stock is considered common shares because it participates in earnings similar to common stock and does not receive any significant preferences over the common stock.


⁽²⁾	See “Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 4. Net Income (Loss) Per Share” and “Note 14. Stockholders' Equity” for additional information.


⁽³⁾	Beginning in the first quarter of 2020, includes the total weighted-average shares outstanding of both common and preferred stock on an as-converted basis.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Supplemental Financial Information

The following table is provided to delineate between the assets and liabilities belonging to our member payment dependent self-directed retail program (Retail Program) note holders and certain VIEs that we are required to consolidate in accordance with GAAP. Such assets are not legally ours and the associated liabilities are payable only from the cash flows generated by those assets (i.e. Pass-throughs). As such, these debt holders do not have a secured interest in any other assets of LendingClub. We believe this is a useful measure because it illustrates the overall financial stability and operating leverage of the Company.



	September 30, 2020								December 31, 2019
	Retail Program ⁽¹⁾		Consolidated VIEs ⁽²⁾⁽⁴⁾		All Other LendingClub ⁽³⁾		Condensed Consolidated Balance Sheet		Retail Program ⁽¹⁾		Consolidated VIEs ⁽²⁾⁽⁴⁾		All Other LendingClub ⁽³⁾		Condensed Consolidated Balance Sheet
Assets
Cash and cash equivalents	$	—	$	—	$	445,180	$	445,180	$	—	$	—	$	243,779	$	243,779
Restricted cash	—		13,465		85,322		98,787		—		2,894		240,449		243,343
Securities available for sale	—		—		187,375		187,375		—		—		270,927		270,927
Loans held for investment at fair value	633,787		74,487		—		708,274		881,473		197,842		—		1,079,315
Loans held for investment by the Company at fair value⁽⁴⁾	—		53,336		5,763		59,099		—		37,638		6,055		43,693
Loans held for sale by the Company at fair value ⁽⁴⁾	—		106,086		74,715		180,801		—		—		722,355		722,355
Accrued interest receivable	4,483		1,499		883		6,865		5,930		1,815		5,112		12,857
Property, equipment and software, net	—		—		101,045		101,045		—		—		114,370		114,370
Operating lease assets	—		—		76,226		76,226		—		—		93,485		93,485
Intangible assets, net	—		—		12,180		12,180		—		—		14,549		14,549
Other assets	—		—		103,625		103,625		—		—		143,668		143,668
Total assets	$	638,270	$	248,873	$	1,092,314	$	1,979,457	$	887,403	$	240,189	$	1,854,749	$	2,982,341
Liabilities and Equity
Accounts payable	$	—	$	—	$	3,382	$	3,382	$	—	$	—	$	10,855	$	10,855
Accrued interest payable	4,483		976		370		5,829		5,930		1,737		1,593		9,260
Operating lease liabilities	—		—		98,204		98,204		—		—		112,344		112,344
Accrued expenses and other liabilities	—		—		100,916		100,916		—		—		142,636		142,636
Payable to investors	—		—		35,068		35,068		—		—		97,530		97,530
Notes, certificates and secured borrowings at fair value	633,787		74,487		323		708,597		881,473		197,842		2,151		1,081,466
Payable to Structured Program note and certificate holders at fair value⁽⁴⁾	—		173,410		—		173,410		—		40,610		—		40,610
Credit facilities and securities sold under repurchase agreements	—		—		120,159		120,159		—		—		587,453		587,453
Total liabilities	638,270		248,873		358,422		1,245,565		887,403		240,189		954,562		2,082,154
Total equity	—		—		733,892		733,892		—		—		900,187		900,187
Total liabilities and equity	$	638,270	$	248,873	$	1,092,314	$	1,979,457	$	887,403	$	240,189	$	1,854,749	$	2,982,341

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

⁽¹⁾ Represents loans held for investment at fair value that are funded directly by our Retail Program notes. The liabilities are only payable from the cash flows generated by the associated assets. We do not assume principal or interest rate risk on loans facilitated through our lending marketplace that are funded by our Retail Program because loan balances, interest rates and maturities are matched and offset by an equal balance of notes with the exact same interest rates and maturities. We do not retain any economic interests from our Retail Program. Interest expense on Retail Program notes of $77.2 million and $116.2 million was equally matched and offset by interest income from the related loans of $77.2 million and $116.2 million for the first nine months of 2020 and 2019, respectively, resulting in no net effect on our Net interest income and fair value adjustments.

⁽²⁾ Represents assets and equal and offsetting liabilities of certain VIEs that we are required to consolidate in accordance with GAAP, but which are not legally ours. The liabilities are only payable from the cash flows generated by the associated assets. The creditors of the VIEs have no recourse to the general credit of the Company. Interest expense on these liabilities owned by third parties of $97.8 million and net fair value adjustments of $8.6 million for the first nine months of 2020 were equally matched and offset by interest income on the loans of $106.4 million, resulting in no net effect on our Net interest income and fair value adjustments. Interest expense on these liabilities owned by third parties of $61.5 million and net fair value adjustments of $12.7 million for the first nine months of 2019 were equally matched and offset by interest income on the loans of $74.2 million, resulting in no net effect on our Net interest income and fair value adjustments. Economic interests held by LendingClub, including retained interests, residuals and equity of the VIEs, are reflected in “Loans held for sale by the Company at fair value,” “Loans held for investment by the Company at fair value” and “Restricted cash,” respectively, within the “All Other LendingClub” column.

⁽³⁾ Represents all other assets and liabilities of LendingClub, other than those related to our Retail Program and certain consolidated VIEs, but includes any economic interests held by LendingClub, including retained interests, residuals and equity of those consolidated VIEs.

⁽⁴⁾

The Company has sponsored Structured Program transactions that have been consolidated, resulting in an increase to “Loans held for investment by the Company at fair value,” “Loans held for sale by the Company at fair value” and the related “Payable to Structured Program note and certificate holders at fair value.” See “Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 13. Debt” for additional information.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Net Cash and Other Financial Assets

The following table provides additional detail related to components of our Net Cash and Other Financial Assets. We believe Net Cash and Other Financial Assets is a useful measure because it illustrates the overall financial stability and operating leverage of the Company. This measure is calculated as cash and certain other assets and liabilities, including loans and securities available for sale, which are partially secured and offset by related credit facilities, and working capital.



	September 30, 2020			June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019
Cash and cash equivalents ⁽¹⁾	$	445,180		$	338,394		$	294,345		$	243,779		$	199,950
Restricted cash committed for loan purchases ⁽²⁾	308			290			4,572			68,001			84,536
Securities available for sale	187,375			221,930			256,554			270,927			246,559
Loans held for investment by the Company at fair value⁽³⁾	59,099			65,557			71,003			43,693			4,211
Loans held for sale by the Company at fair value ⁽³⁾	180,801			587,093			741,704			722,355			710,170
Payable to Structured Program note and certificate holders at fair value ⁽³⁾	(173,410		)	(193,034		)	(206,092		)	(40,610		)	—
Credit facilities and securities sold under repurchase agreements	(120,159		)	(480,079		)	(621,020		)	(587,453		)	(509,107		)
Other assets and liabilities ⁽²⁾	363			23,916			61,107			(6,226		)	(31,795		)
Net cash and other financial assets ⁽⁴⁾	$	579,557		$	564,067		$	602,173		$	714,466		$	704,524


⁽¹⁾	Variations in cash and cash equivalents are primarily due to variations in the amount and timing of loan purchases invested in by the Company.

⁽²⁾

In the fourth quarter of 2019, we added a new line item called “Other assets and liabilities” which is a total of “Accrued interest receivable,” “Other assets,” “Accounts payable,” “Accrued interest payable” and “Accrued expenses and other liabilities,” included on our Consolidated Balance Sheets. This line item represents certain assets and liabilities that impact working capital and are affected by timing differences between revenue and expense recognition and related cash activity. In the third quarter of 2019, we added a new line item called “Restricted cash committed for loan purchases,” which represents cash and cash equivalents that are transferred to restricted cash for loans that are pending purchase by the Company. We believe this is a more complete representation of the Company’s net cash and other financial assets position as of each period presented in the table above. Prior period amounts have been reclassified to conform to the current period presentation.

⁽³⁾


⁽⁴⁾	Comparable GAAP measure cannot be provided as not practicable.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Investments in Quarterly Originations by Investment Channel and Investor Concentration

Our investment channels consist of (1) Banks, which are deposit taking institutions or their affiliates, (2) self-directed retail investors, (3) Managed accounts and Other institutional investors, which primarily include other non-bank investors, dedicated third-party funds, and public and private funds managed by third-party asset managers, and (4) LendingClub inventory, which includes loan originations purchased by the Company during the period and not yet sold as of the period end.

The following table shows the percentage of loan origination volume issued in the period and purchased or pending purchase by each investment channel as of the end of each period presented:



	September 30, 2020		June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019
Investor Type:
Banks	41	%	68	%	43	%	32	%	38	%
Managed accounts	44	%	10	%	16	%	17	%	15	%
Self-directed retail investors	13	%	17	%	4	%	3	%	4	%
LendingClub inventory ⁽¹⁾	2	%	5	%	20	%	23	%	23	%
Other institutional investors	—	%	—	%	17	%	25	%	20	%
Total	100	%	100	%	100	%	100	%	100	%


⁽¹⁾	LendingClub inventory reflects loans purchased or pending purchase by the Company during the period, excluding loans held by the Company through consolidated trusts, if applicable, and not yet sold as of the period end.

The loan origination volume decrease in the third quarter of 2020 compared to third quarter of 2019 was driven by lower investor demand for loans across our platform due to the impact of COVID-19. This reduction in investor demand resulted in a higher mix of purchases by bank and managed account investors in the third quarter of 2020. In addition, in response to COVID-19 and the related capital market dislocation and planning for the acquisition of Radius, the Company significantly reduced using its own capital to fund the purchase of loans for Structured Program transactions.

As LendingClub progresses in its objective to become a full-spectrum fintech marketplace bank, it has been evaluating its current and future product suite and has started development of new products aimed to better serve its customers. As part of this strategic initiative, as previously disclosed in the Current Report on Form 8-K filed on October 7, 2020, LendingClub will cease offering and selling Member Payment Dependent Notes (Retail Notes) to self-directed retail investors on or around December 31, 2020.

The following table provides the percentage of loans invested in by the ten largest external investors and by the largest single investor during each of the previous five quarters (by dollars invested):



	September 30, 2020		June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019
Percentage of loans invested in by ten largest investors	83	%	77	%	56	%	51	%	55	%
Percentage of loans invested in by largest single investor	23	%	22	%	21	%	19	%	29	%

The composition of the top ten investors may vary from period to period. During the third quarter of 2020, the percentage of loans invested in by the Company’s ten largest investors increased as a result of a decrease in loan origination volume and an increase in the mix of loans purchased on our platform by bank and managed account

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

investors. Due to COVID-19 there has been a reduction in investor demand on our platform reflecting market dislocation for unsecured personal loans. The reduction in investor demand has furthered investor concentration to a limited number of purchasers that are continuing to purchase loans but are currently doing so at lower volumes relative to historical purchasing activity.

Effectiveness of Scoring Models

Our ability to attract borrowers and investors to our lending marketplace is significantly dependent on our platform’s ability to effectively evaluate a borrower’s credit profile.

Our online lending marketplace platform’s credit decisioning and scoring models are evaluated on a regular basis and the additional data on loan history experience, borrower behavior and prepayment trends that we accumulate are leveraged to continually improve our underwriting models. We believe we have the experience to effectively evaluate a borrower’s creditworthiness and likelihood of default. If our lending marketplace’s credit decisioning and scoring models ultimately prove to be ineffective or fail to appropriately account for a decline in future macroeconomic environment, investors may experience higher than expected losses.

Our current underwriting model leverages a number of custom attributes developed by LendingClub. We work with our primary issuing bank partner to modify their credit and pricing policies, leveraging insights on current market conditions and recent vintage performance.

The charts provided below display the historical lifetime cumulative net charge-off rates (expressed as a percent of original loan balances) through September 30, 2020, by booking year, for all standard program loans and 36-month or 60-month terms for each of the years shown. The charts display lifetime cumulative net charge-off rates using months on book for each annual vintage presented. Each annual vintage’s lifetime cumulative net charge-offs vary based on the maturity of each loan’s month on book. In the third quarter and first nine months of 2020, standard program loans accounted for 68% and 70%, respectively, of all loan origination volume.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Loan Portfolio Information and Credit Metrics

Fair Value and Delinquencies

For loans held for investment that are backed by notes, certificates and secured borrowings on our Condensed Consolidated Balance Sheets, the outstanding principal balance, fair value and percentage of loans that are delinquent, by loan product, are as follows:



	September 30, 2020						December 31, 2019
(in millions, except percentages)	Outstanding Principal Balance		Fair Value ⁽¹⁾		Delinquent Loans ⁽¹⁾		Outstanding Principal Balance		Fair Value ⁽¹⁾		Delinquent Loans ⁽¹⁾
Personal loans – standard program	$	756.0	93.6	%	1.8	%	$	1,144.8	93.9	%	3.1	%
Personal loans – custom program	0.6		98.4		2.4		4.1		94.8		5.7
Total	$	756.6	93.6	%	1.8	%	$	1,148.9	93.9	%	3.1	%


⁽¹⁾	Expressed as a percent of outstanding principal balance.

For loans invested in directly by the Company for which there were no associated notes, certificates or secured borrowings, the outstanding principal balance, fair value and percentage of loans that are delinquent, by loan product, are as follows:



	September 30, 2020						December 31, 2019
(in millions, except percentages)	Outstanding Principal Balance ⁽²⁾		Fair Value ⁽³⁾		Delinquent Loans ⁽³⁾		Outstanding Principal Balance ⁽²⁾		Fair Value ⁽³⁾		Delinquent Loans ⁽³⁾
Personal loans – standard program	$	246.3	89.9	%	2.6	%	$	597.9	96.5	%	0.8	%
Personal loans – custom program	9.7		85.9		7.2		92.8		98.1		0.4
Other loans ⁽¹⁾	12.9		78.2		23.0		103.7		94.7		3.9
Total	$	268.9	89.2	%	3.8	%	$	794.4	96.4	%	1.2	%


⁽¹⁾	Components of other loans are less than 10% of the outstanding principal balance if presented individually.


⁽²⁾	Includes both loans held for investment and loans held for sale.


⁽³⁾	Expressed as a percent of outstanding principal balance.

Decreases in the fair value of total loans invested in by the Company as a percent of outstanding principal balance from December 31, 2019 to September 30, 2020 were primarily due to changes in market conditions, including an increase in estimated expected credit losses and an increase in liquidity premium due to market dislocation relating to COVID-19. In addition, loans to eligible borrowers participating in Skip-a-Pay are not considered delinquent during the commensurate period the loan is extended.

Net Annualized Charge-Off Rates

The following tables show annualized net charge-off rates, which are a measure of the performance of the loans facilitated by our platform. In contrast to the graphs above, these tables show the annualized charged-off balance of loans in a specific period as a percentage of the average outstanding balance for such period.

Net annualized charge-off rates are affected by the average age and grade distribution of the loans outstanding for a given quarter and the credit performance of those loans. Additionally, in any particular quarter the portfolios include loans from past vintages that were originated under prior credit underwriting parameters, and thus do not reflect the current credit underwriting parameters used to originate new loans.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

The annualized net charge-off rates for personal loans for both standard and custom programs in total for the last five quarters were as follows:



Total Platform ⁽¹⁾	September 30, 2020		June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019
Personal Loans – Standard Program:
Annualized net charge-off rate	3.9	%	6.5	%	6.4	%	7.0	%	6.4	%
Weighted-average age in months	16.8		15.0		12.9		12.5		12.3

Personal Loans – Custom Program:
Annualized net charge-off rate	6.4	%	11.4	%	10.6	%	11.5	%	10.9	%
Weighted-average age in months	14.8		12.5		10.1		9.4		9.3


⁽¹⁾	Total platform comprises all loans facilitated through our lending marketplace, including whole loans sold and loans financed by notes, certificates and secured borrowings, but excluding education and patient finance loans, auto refinance loans and small business loans.

The annualized net charge-off rate in the third quarter of 2020 compared to the third quarter of 2019 and the second quarter of 2020 decreased for the standard personal loan program and custom loan program. The decrease in the annualized net charge-off rates for both the standard and custom personal loan programs primarily reflects the effect of Payment Plans to provide relief to those impacted by COVID-19 and improved performance from customers who have never taken a hardship plan.

The increase in the weighted-average age in months in the third quarter of 2020 compared to the third quarter of 2019 and the second quarter of 2020 for both the standard and custom personal loan programs is primarily due to lower origination volume and the aging of the existing platform portfolio.

The annualized net charge-off rates for personal loans for both standard and custom programs for loans retained on our Condensed Consolidated Balance Sheets for the last five quarters were as follows:



Loans Retained on Balance Sheet ⁽¹⁾	September 30, 2020		June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019
Personal Loans – Standard Program:
Annualized net charge-off rate	1.5	%	4.3	%	4.7	%	7.1	%	6.8	%
Weighted-average age in months	15.6		12.8		11.0		12.4		12.7

Personal Loans – Custom Program:
Annualized net charge-off rate	3.4	%	5.6	%	(2.6	)%	1.6	%	2.5	%
Weighted-average age in months	8.6		6.4		4.7		3.9		6.9


⁽¹⁾	Loans retained on balance sheet include loans invested in by the Company as well as loans held for investment that are funded directly by member payment dependent notes related to our Retail Program and certificates.

The decrease in annualized net charge-off rates for the standard personal loan program in the third quarter of 2020 compared to the third quarter of 2019 and the second quarter of 2020 for the loans retained on our Condensed Consolidated Balance Sheets primarily reflects a greater decrease in actual net charge-offs proportionate to the decrease in outstanding loan balances. The decrease in actual net charge-offs primarily reflects the effect of Payment Plans to provide relief to those impacted by COVID-19 and improved performance from customers who have never taken a hardship plan.

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Regulatory Environment

We are regularly subject to claims, individual and class action lawsuits, lawsuits alleging regulatory violations, government (including state agencies) and regulatory exams, investigations, inquiries or requests, and other proceedings. The number and significance of these claims, lawsuits, exams, investigations, inquiries, requests and proceedings have increased in part because our business has expanded in scope and geographic reach, and our products and services have increased in complexity. For example, we have experienced, are currently and will likely continue to be subject to and experience exams from state regulators and our legal, compliance and other costs related to such proceedings may elevate from current levels. See “Part I – Item 1. Business – Regulatory and Compliance Framework,” “Part I – Item 1A. Risk Factors – Risks Related to Our Business and Regulation,” including the risk factors titled “We are regularly subject to litigation, and government and regulatory investigations, inquiries and requests,” “If the loans facilitated through our lending marketplace were found to violate a state’s usury laws, and/or we were found to be the true lender (as opposed to our issuing bank(s)), we may have to alter our business model and our business could be harmed” and “The regulatory framework for our business is evolving and uncertain as federal and state governments consider new laws to regulate online lending marketplaces such as ours. New laws and regulations, including uncertainty as to how the actions of any federal or state regulator could impact our business or that of our issuing bank(s)” in our Annual Report for more information, additional discussion and disclosure, including the potential adverse outcomes and consequences from such proceedings.

Bank Partnership Model

There has been (and may continue to be) an increase in inquiries, regulatory proceedings, including exams by state regulators, and litigation challenging or raising issues relating to, among other things, the application of state usury rates and lending arrangements where a bank or other third party has made a loan and then sells and assigns it to an entity that is engaged in assisting with the origination or servicing of a loan.

For example, in January 2017, the Colorado Administrator (Administrator) of the Uniform Consumer Credit Code (UCCC) filed suit against Avant, Inc., a company that operates an online consumer loan platform. The Administrator asserts that loans to Colorado residents facilitated through Avant’s platform were required to comply with Colorado laws regarding interest rates and fees, and that those laws were not preempted by federal laws that apply to loans originated by WebBank, the federally regulated issuing bank who originates loans through Avant’s platform, as well as through our platform. Although Avant removed its case to federal court in March 2017, the United States District Court for the District of Colorado issued an order in March 2018 remanding the case to the District Court for the City and County of Denver. In March 2018, the United States District Court for the District of Colorado also issued an order dismissing a parallel case brought by WebBank that sought a declaratory judgment regarding the applicability of preemption to Colorado usury laws and permanent injunctions against the Administrator that would prevent the Administrator from enforcing Colorado usury laws against WebBank and certain parties associated with loans originated by it. Avant thereafter filed a Motion to Dismiss in District Court for the State of Colorado and WebBank moved to intervene in the case. In August 2018, the Court granted WebBank’s motion but denied Avant’s motion. In November 2018, the Administrator added as defendants certain securitization trusts that had acquired Avant loans. The Administrator sought a penalty of ten times the amount of the “excess” finance charges. In June 2020, the court in a similar case against Marlette Funding issued an order holding that non-bank loan purchasers could not charge interest rates in excess of the UCCC’s caps, that the bank originating the loans could not “export” the interest rate it could permissibly charge to non-banks, and that the UCCC is not preempted by Section 27 of the Federal Deposit Insurance Act, 12 U.S.C. § 1831(d)(a). In August 2020, the UCCC Administrator and the Colorado Attorney General entered into a settlement to resolve the cases against Avant and Marlette Funding. The settlement creates a safe harbor subject to certain requirements that would allow the defendant banks in the cases (WebBank and Cross River Bank) and their fintech partners to continue their programs offering closed-

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

end consumer loans with APRs no higher than 36% to Colorado consumers. The Company is taking steps to ensure that its operations in Colorado conform to the 36% APR safe harbor set forth in the settlement.

As another example, in June 2019, certain Capital One and Chase credit card holders filed putative class actions in U.S. District Court in New York against certain non-bank Capital One and Chase special purpose entities and trusts, and the trustees thereof, that purchased and/or played a role in facilitating the securitization of Capital One and Chase credit card receivables. The plaintiffs allege that the preemption of New York usury laws by the National Bank Act (NBA) ceased once the credit card receivables were purchased and securitized by or via the non-bank defendants and therefore any interest being charged on the securitized receivables in excess of New York’s usury limits violates New York law. The plaintiffs seek to recoup the allegedly excessive interest payments and an order requiring the defendants to cease their allegedly wrongful conduct, among other relief. The plaintiffs in these lawsuits aim to leverage the Second Circuit’s decision in Madden v. Midland Funding, LLC that interpreted the scope of federal preemption under the NBA and held that a non-bank debt collector that purchased a loan originated by a national bank was not entitled to the benefits of federal preemption of claims of usury. In September 2020, the courts presiding over these cases issued orders dismissing the cases on the basis that the National Bank Act preempts the plaintiffs’ claims in the cases. Notices of appeal have been filed in both cases.

In September 2019, the OCC and the FDIC filed an amicus brief in U.S. District Court in Colorado supporting a bankruptcy court’s rejection of the Madden case in a case before it. In re Rent-Rite Super Kegs West Ltd., Case No. 1:19-cv-015520-REB (D. Colo.), Dkt.11. In addition, in late 2019 the OCC issued a proposed rulemaking to amend its regulations to clarify that interest on a loan that is lawful under federal law for national banks and federal savings associations remains lawful upon the sale, assignment or other transfer of the loan. The FDIC issued a similar proposal that is applicable to FDIC insured state-chartered banks. Various comments to the proposed rules were submitted from a variety of companies and other regulators. Both the OCC and FDIC issued their final rules in May and June 2020, respectively. In July 2020, the OCC proposed a rule that would determine when a national bank or federal savings association (bank) makes a loan and is the “true lender” in the context of a partnership between a bank and a third party. The proposed rule would specify that a bank makes a loan and is the “true lender” if, as of the date of origination, it is named as the lender in the loan agreement or funds the loan. In October 2020, the OCC issued its final rule. It is unclear what impact the position of these various regulators or the rules they have promulgated or proposed will have in existing or future litigation or regulatory proceedings involving arguments of federal preemption of state usury laws.

In addition, a bill was passed in late 2017 by the House of Representatives that could clarify that any loan originated by a national bank would be entitled to the benefits of federal preemption on claims of usury provided that certain criteria are met. However, the bill was never passed by the Senate and we do not know whether this bill will be reintroduced in the current Congress or, if it is, whether it will pass or, if it does pass, what its final terms will be or its potential impact on our business.

Although we believe that our program is factually distinguishable from the Madden case, an extension of the application of the Second Circuit's decision, either within or outside the states in the Second Circuit, could challenge the federal preemption of state laws setting interest rate limitations for loans made by issuing bank partners in those states.

State Inquiries and Licensing

There has been (and may continue to be) an increase in inquiries and regulatory proceedings, including exams by state regulators, with respect to licensing requirements. In most states we believe, because of our issuing bank model, we are exempt from or satisfy relevant licensing requirements with respect to the origination of loans we facilitate. However, as needed, we have endeavored to apply for and obtain the appropriate licenses.

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LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

The Company has had discussions with the Colorado Department of Law (CDL) concerning the licenses required for the Company’s servicing operations and the structure of its offerings in the State of Colorado. While we believe that our program with WebBank has been structured in accordance with governing federal law, the Administrator of the Colorado Uniform Consumer Credit Code (UCCC) has identified alleged “exceptions” to our compliance with provisions of the Colorado UCCC, including with respect to permitted rates and charges. We believe that our model differs in important respects from Avant’s business model as alleged in the litigation involving Avant in Colorado, which has been settled as discussed above. We have also had discussions with the CDL about entering into a terminable agreement with the CDL to, among other things: (i) toll the statutes of limitations on any action the CDL might bring against the Company based on the rates and charges on loans the Company facilitates and (ii) refrain from facilitating certain loans to borrowers located in Colorado available for investment by certain investors. No assurances can be given as to the timing, outcome or consequences of this matter. As discussed above, the Company is taking steps to ensure that its operations in Colorado conform to the safe harbor outlined in the settlement the UCCC Administrator and the Colorado Attorney General reached in the Avant/Marlette Funding litigations.

We are routinely subject to examination for compliance with applicable laws and regulations in the states in which we are licensed. As of the date of this Report, we are subject to examination by the New York Department of Financial Services (NYDFS) and regulators in other states. These exams could include the application of state usury rates and lending arrangements where a bank or other third party has made a loan and then sells and assigns it to an entity that is engaged in assisting with the origination or servicing of a loan. For example, in July 2018, the NYDFS issued an Online Lending Report (Lending Report). The Lending Report included, among other things, an analysis of the online lenders operating in New York including their methods of operations, lending practices, interest rates and costs, products offered and complaints and investigations relating to online lenders. The Lending Report also included information and recommendations regarding protecting New York’s markets and consumers. Although the Lending Report noted that the rapid growth of online lending demonstrates there is value to new technologies that allow financial institutions to connect with borrowers in new ways, it noted that in many cases an online lender is the “true lender” and that lending in New York, whether through banks, credit unions or online lenders, should be subject to applicable usury limits. We periodically have discussions with various regulatory agencies regarding our business model and have engaged in similar discussions with the NYDFS, Colorado and Massachusetts. During the course of such discussions we decided to voluntarily comply with certain rules and regulations. No assurances can be given as to the timing, outcome or consequences of these matters.

The Company has undertaken a review of its portfolio of licenses and has had discussions with regulators in Texas, Arizona, New York, Florida and North Dakota concerning the registrations required for the Company’s issuance of retail notes to investors in these states and has applied for registrations in these states to facilitate these operations. The Company has also had discussions with certain of these regulators to resolve concerns regarding the Company’s historical licensing/registration status in connection with retail notes issued and has reached resolutions with Texas, Arizona and North Dakota to resolve their concerns, the outcome of which is not material to the Company’s operations or financial position. The Company is not able to predict with certainty the timing, outcome, or consequence of discussions with the remaining states, including in relation to whether and how any concerns those states have will be resolved. Discussions with these remaining states could result in fines or other penalties, which are not expected to have a material adverse impact on the Company’s operations or results of operations. As of the date of this Report, the Company has also successfully obtained registrations in Arizona, North Dakota, Texas and New York, which permit it to issue retail notes to investors in these states. As previously disclosed in the Current Report on Form 8-K filed on October 7, 2020, the Company will cease offering and selling Member Payment Dependent Notes (Retail Notes) on or around December 31, 2020. Accordingly, on such date, the Company will no longer require these licenses and therefore is no longer actively seeking to obtain registration in Florida.

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LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Regulatory Actions Taken in Relation to COVID-19

Regulators and government officials at the federal government level and in states across the country have issued orders, passed laws or otherwise issued guidance in connection with COVID-19. Some of these orders and laws place restrictions on debt collection activity, all or certain types of communications with delinquent borrowers or others, require that borrowers be allowed to defer payments on outstanding debt, govern credit reporting and the use of credit reporting, and place certain restrictions and requirements on operations in the workplace. We have taken steps to monitor regulatory developments relating to COVID-19 and to comply with orders and laws applicable to our business. Given the ongoing nature of the pandemic, it is possible that additional orders, laws, or regulatory guidance may still be issued. The Company is not able to predict the extent of the impact on its business from any regulatory activity relating to or resulting from COVID-19.

Consequences

If we are found to not have complied with applicable laws, regulations or requirements, we could: (i) lose one or more of our licenses or authorizations, (ii) become subject to a consent order or administrative enforcement action, (iii) face lawsuits (including class action lawsuits), sanctions or penalties, (iv) be in breach of certain contracts, which may void or cancel such contracts, (v) decide or be compelled to modify or suspend certain of our business practices (including limiting the maximum interest rate on certain loans facilitated through our platform and/or refraining from making certain loans available for investment by certain investors), (vi) be unable to execute on certain Company initiatives such as the acquisition of Radius, or (vii) be required to obtain a license in such jurisdiction, which may have an adverse effect on our ability to continue to facilitate loans through our lending marketplace, perform our servicing obligations or make our lending marketplace available to borrowers in particular states; any of which may harm our business.

See “Part I – Item 1. Business – Regulatory and Compliance Framework” and “Part I – Item 1A. Risk Factors – Risks Related to Our Business and Regulation” in our Annual Report for further discussion regarding our regulatory environment.

Liquidity and Capital Resources

Liquidity

Our short-term liquidity needs generally relate to our working capital requirements, including the purchase of loans invested in by the Company. Our liquidity needs are generally met through cash generated from the operations of facilitating loan originations, servicing fee revenue, proceeds from the sales of loans (both as whole loan sales and through Structured Program transactions), principal and interest received on loans invested in by the Company, use of existing cash and cash equivalents, and draws on our credit facilities. Currently, the Company has ceased purchasing loans for Structured Program transactions due to its prioritization of cash accumulation for the acquisition and further-capitalization of Radius, as well as ongoing market dislocation related to COVID-19. In addition, we are facilitating lower volumes of loan originations impacting transaction fee revenue and offering short-term loan modifications to borrowers which may impact servicing fee revenue.

We continue to prepare for the acquisition of Radius and closing the transaction to realize the significant value that we believe this acquisition will create for the Company. It is our intent to capitalize Radius exclusively with cash. In the third quarter, we reduced funding activities in preparation for the funding activities to take place within the bank which included:


•	Approximately $410 million (borrower principal balance) in bulk loan sales;


•	The full paydown of $70.0 million of the revolving credit facility to zero at September 30, 2020; and

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LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)


•	The paydown of $276.0 million of Warehouse Facilities to $18.5 million at September 30, 2020 and to zero in October 2020.

As of September 30, 2020, our balance sheet includes $445.2 million in cash and cash equivalents, securities available for sale of $187.4 million (which included $127.4 million of securities pledged as collateral) and loans held for sale by the Company at fair value of $180.8 million (which included $26.3 million of loans pledged at fair value as collateral). The loans held for sale by the Company of $180.8 million includes $106.1 million held by consolidated Structured Program transactions where the risk of loss is primarily held by third parties.

The Company is closely monitoring its liquidity and requirements under remaining credit facilities and repurchase agreements. Our credit facilities are secured by unsecured personal loans, and the lenders of our warehouse credit facilities and the payable to Structured Program note and certificate holders do not have recourse to the Company. Our repurchase agreements are secured by securities available for sale. We have completed work with our lender counterparties to amend commitment termination dates, maturity dates and maintenance agreement provisions, including the following:

•

A repurchase agreement with a daily rolling evergreen 45-day maturity structure for $62.7 million (which included pledged securities with a fair value of $83.5 million) that had a contractual repurchase date in October 2020 as of September 30, 2020 was terminated in October 2020 and replaced with a new repurchase facility having a repurchase date in September 2022 and no margin call provisions; and

•

Monitoring of Commitment Termination Dates for our Warehouse Facilities with an outstanding balance of $18.5 million at September 30, 2020 (secured by unsecured personal loans with a fair value of $26.3 million) with associated Commitment Termination Dates of December 2020. Any remaining outstanding drawn balances on the Commitment Termination Date would be paid down as principal payments are received on the underlying loans securing the Warehouse Facilities through to the maturity date in December 2021. The Company fully paid the outstanding balance in October 2020.

See “Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements –Note 13. Debt” for further information.

We have used our own capital and available credit facilities to purchase loans for future Structured Program transactions, but all such use of capital has been suspended beginning in second quarter of 2020. During the first nine months of 2020, the Company facilitated $3.4 billion of loans on our marketplace. We used our own capital to purchase $1.4 billion in loans, and $2.0 billion in loans were issued that were contemporaneously funded by loan sales and by the issuance of notes and certificates. The Company sold $1.7 billion in loans (of which $830.6 million was sold through Structured Program transactions and $896.1 million was sold to whole loan investors). As of September 30, 2020, the fair value of loans invested in by the Company was $239.9 million, of which $26.3 million were pledged as collateral under our credit facilities. Given the member payment dependent structure of the notes, certificates and secured borrowings, principal and interest payments on notes, certificates and secured borrowings are paid only when received from borrowers on the corresponding retained loans, resulting in no material impact to our liquidity.

We may use our cash, cash equivalents and securities available for sale as additional sources of liquidity. Cash, cash equivalents and securities available for sale were $632.6 million (which included $127.4 million of securities pledged as collateral) and $514.7 million (which included $174.8 million of securities pledged as collateral) as of September 30, 2020 and December 31, 2019, respectively. Our cash and cash equivalents of $445.2 million as of September 30, 2020 are primarily held in institutional money market funds, interest-bearing deposit accounts at investment grade financial institutions, certificates of deposit, and commercial paper. Our securities available for sale of $187.4 million (which included $127.4 million of securities pledged as collateral) as of September 30, 2020 consist of asset-backed securities related to our Structured Program transactions, corporate debt securities,

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LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

commercial paper, other asset-backed securities, and certificates of deposit. Changes in the balance of cash and cash equivalents are generally a result of timing related to working capital requirements, purchase or sale of loans and securities available for sale, changes in debt outstanding under our credit facilities, and changes in restricted cash and other investments. Changes in the balance of securities available for sale are generally a result of activity related to our Structured Program transactions and fair value adjustments, which includes a valuation allowance for credit losses recorded in “Net fair value adjustments” on the Company’s Condensed Consolidated Statements of Operations and unrealized gains and losses recorded in “Other comprehensive income (loss)” on the Company’s Condensed Consolidated Statements of Comprehensive Income (Loss). Future cash requirements include certain contingent liabilities, including litigations and ongoing regulatory and government investigations primarily related to outstanding legacy issues. As of September 30, 2020 and December 31, 2019, we had $22.3 million and $16.0 million in accrued contingent liabilities, respectively, but actual cash payments may vary if outcomes of legal actions or settlements are different. See “Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 18. Commitments and Contingencies” for further information.

On February 18, 2020, the Company and Radius entered into a Merger Agreement for a cash and stock transaction valued at $185 million (of which $138.75 million is in cash), subject to certain purchase price and expense adjustments of up to $22 million. The closing of the merger is subject to regulatory approval and other customary closing conditions, which the Company anticipates can be completed within 12 to 15 months of the agreement date, as well as customary transaction costs. Additionally, in connection with the Share Exchange Agreement, the Company provided Shanda a one-time cash payment of approximately $50.2 million.

We believe, based on our projections, that our cash on hand, securities available for sale, available funds from our Warehouse Facilities and repurchase agreements (as amended and extended), and cash flow from operations are sufficient to meet our liquidity needs for the next twelve months. Although we believe we have adequate sources of liquidity for the next 12 months, our business and liquidity position may be adversely impacted by a number of factors, including the impact of COVID-19, the success of our operations, and the credit and economic environment and outlook.

104

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

The following table sets forth certain cash flow information for the periods presented:



	Nine Months Ended September 30,
Condensed Cash Flow Information:	2020			2019
Cash provided by (used for) loan operating activities	$	375,782		$	(293,099	)
Cash provided by (used for) all other operating activities	(10,825		)	132,411
Net cash provided by (used for) operating activities⁽¹⁾⁽³⁾	$	364,957		$	(160,688	)

Cash provided by loan investing activities ⁽²⁾	$	346,840		$	470,282
Cash provided by all other investing activities	103,751			19,404
Net cash provided by investing activities	$	450,591		$	489,686

Cash used for note, certificate and secured borrowings financing ⁽²⁾	$	(343,558	)	$	(485,298	)
Cash used for issuance of securitization notes and residual certificates, credit facilities and securities sold under repurchase agreements	(332,963		)	(6,569		)
Cash used for all other financing activities	(82,182		)	(6,103		)
Net cash used for financing activities	$	(758,703	)	$	(497,970	)
Net increase (decrease) in cash, cash equivalents and restricted cash	$	56,845		$	(168,972	)


⁽¹⁾	Cash provided by (used for) operating activities primarily includes the purchase and sale of loans held for sale by the Company.

⁽²⁾

Cash provided by loan investing activities includes the purchase of and repayment of loans held for investment. Cash used for note, certificate and secured borrowings financing activities includes the issuance of notes, certificates and secured borrowings to investors and the repayment of those notes, certificates and secured borrowings. These amounts generally correspond to and offset each other.


⁽³⁾	Change in payable to investors was previously presented as cash flows from financing activities. Prior period amounts have been reclassified to conform to the current period presentation.

Operating Activities. Net cash provided by (used for) operating activities was $365.0 million and $(160.7) million during the first nine months of 2020 and 2019, respectively. Net cash provided by (used for) operating activities primarily relates to proceeds from sales of loans held for sale offset by the purchase of loans held for sale. The timing of the purchases and sales of loans held for sale can vary between periods and can therefore impact the amount of cash provided by or used for operating activities. In periods where we accumulate loans held for sale that are sold in a subsequent period, cash flow from operating activities will be negatively affected.

Investing Activities. Net cash provided by investing activities was $450.6 million and $489.7 million during the first nine months of 2020 and 2019, respectively. Net cash provided by loan investing activities was primarily driven by purchases of loans held for investment (under our retail program and issuance of notes) and principal receipts on those loans. Net cash provided by all other investing activities was primarily driven by purchases of securities available for sale and purchases of property, equipment and software, offset by proceeds from securities available for sale.

Financing Activities. Net cash used for financing activities was $(758.7) million and $(498.0) million during the first nine months of 2020 and 2019, respectively. Net cash used for financing activities was primarily driven by principal payments on and retirements of notes and certificates and principal payments on our credit facilities, and a $50.2 million deemed dividend paid on preferred stock, offset by proceeds from our credit facilities, the issuance of notes and certificates, and proceeds from securities sold under repurchase agreements.

105

LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

Capital Resources

Net capital expenditures were $24.6 million, or 10.3% of total net revenue, and $39.0 million, or 6.8% of total net revenue, for the first nine months of 2020 and 2019, respectively. Capital expenditures generally consist of internally developed software, leasehold improvements and computer equipment. Capital expenditures in 2020 are expected to be approximately $29.3 million, primarily related to costs associated with the continued development and support of our online lending marketplace platform. The current outlook reflects reduced engineering headcount levels and reduced development spend on growth initiatives for the year as part of the Company’s broader expense cutting actions.

Off-Balance Sheet Arrangements

At both September 30, 2020 and December 31, 2019, a total of $5.5 million in standby letters of credit were outstanding related to certain financial covenants required for our leased facilities. To date, no amounts have been drawn against the letters of credit, which renew annually and expire at various dates through July 2026.

In the ordinary course of business, we engage in other activities that are not reflected on our Condensed Consolidated Balance Sheets, generally referred to as off-balance sheet arrangements. These activities involve our Structured Program transactions with unconsolidated variable interest entities including Company-sponsored securitizations and Certificate Program transactions. These transactions are used frequently by the Company to provide a source of liquidity to finance our business and to diversify our investor base. The Company retains at least 5% of securities and residual interests from these transactions and enters into a servicing arrangement with the unconsolidated variable interest entity. We are exposed to market risk in the securitization market. We provide additional information regarding transactions with unconsolidated variable interest entities in “Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 7. Securitizations and Variable Interest Entities.”

Contingencies

For a comprehensive discussion of contingencies as of September 30, 2020, see “Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 18. Commitments and Contingencies.”

Contractual Obligations

Our principal commitments consist of obligations under our loan funding operation with WebBank and in connection with direct marketing efforts, long-term debt obligations related to our credit facilities and securities sold under repurchase agreements, operating leases for office space and contractual commitments for other support services. There have been no material changes to the Company’s contractual obligations disclosed in the Company’s Annual Report, except as noted below.

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LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

The following table summarizes our contractual obligations under our loan funding operation with WebBank and our long-term debt obligations related to our credit facilities and securities sold under repurchase agreements as of September 30, 2020, and the timing and effect that such commitments are expected to have on our liquidity and capital requirements in future periods:



	Less than 1 Year		1 to 3 Years		3 to 5 Years		More than 5 Years		Total
Long-term debt obligations ⁽¹⁾	$	68,029	$	18,500	$	—	$	33,630	$	120,159
Operating lease obligations ⁽²⁾	19,230		26,916		22,306		59,865		128,317
WebBank loan purchase obligation	8,488		—		—		—		8,488
Total contractual obligations	$	95,747	$	45,416	$	22,306	$	93,495	$	256,964


⁽¹⁾	Amounts based on contractual maturity dates. The amount presented in the “More than 5 Years” column above represents the Company’s long-term debt obligations under certain repurchase agreements, which are paid down based on cash flows received from the underlying securities sold. The Company expects these long-term debt obligations to be satisfied within three years.


⁽²⁾	In the second quarter, the Company terminated one lease, reducing the operating lease obligations by $9.3 million.

For a discussion of the Company’s long-term debt obligations as of September 30, 2020, see “Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 13. Debt and Note 17. Leases.”

Critical Accounting Estimates

Certain of the Company’s accounting policies that involve a higher degree of judgment and complexity are discussed in “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” in the Annual Report. There have been no significant changes to these critical accounting estimates during the first nine months of 2020, except as noted below.

Fair Value of Asset-backed Securities related to Structured Program Transactions

We classify asset-backed securities related to Structured Program transactions as securities available for sale. These securities are recorded at fair value and unrealized gains and losses are reported, net of taxes, in “Accumulated other comprehensive income (loss)” in the Company’s Consolidated Balance Sheets unless management determines that a security is impaired due to a deterioration in expected cash flows, in which case the unrealized loss is recognized in earnings as a valuation allowance for credit losses.

We estimate fair value based on the price of transactions for similar instruments if available. If market observable prices are not available, we use a discounted cash flow model to estimate fair value based on the present value of estimated future cash flows. This model uses inputs that are both observable and not observable and reflect our best estimates of the assumptions a market participant would use to calculate fair value. The following describes the primary inputs that require significant judgment:

Expected loss rates – Expected loss rates are estimates of the principal payments that will not be repaid over the life of loans backing the security. Expected loss rates are adjusted to reflect the expected principal recoveries on charged-off loans. Expected loss rates are primarily based on the historical performance of the loans facilitated on our platform but also incorporate discretionary adjustments based on our expectations of future credit performance.

Prepayments – Prepayments are estimates of the amount of principal payments that will occur before they are contractually required during the life of loans backing the security. Prepayments reduce the projected principal balances, interest payments and expected time loans are outstanding. Prepayment expectations are primarily based

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LENDINGCLUB CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Tabular Amounts in Thousands, Except Share and Per Share Data and Ratios, or as Noted)

on the historical performance of the loans facilitated on our platform but also incorporate discretionary adjustments based on our expectations of future loan performance.

Discount rates – The discount rates for asset-backed securities reflect our estimates of the rates of return that investors would require when investing in financial instruments with similar risk and return characteristics. The primary source of discount rate observations is the rate of return implied by sales of asset-backed securities associated.

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LENDINGCLUB CORPORATION

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in market discount rates and servicing rates, interest rates and credit performance of loans. We are exposed to market risk directly through loans and securities held on our balance sheet, access to the securitization markets, investor demand for our loans, current and future debt under our credit facilities, and our servicing assets. We have experienced significant dislocation in the capital markets due to COVID-19. We significantly reduced the purchasing of loans for Structured Program transactions. See the “Part I. Financial Information – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Current Economic and Business Environment” section for additional information.

Market Rate Sensitivity

Market rate sensitivity refers to the risk of loss to future earnings, values or future cash flows that may result from changes in market discount rates and servicing rates.

Loans Invested in by the Company. As of September 30, 2020 and December 31, 2019, we were exposed to market rate risk on $239.9 million and $766.0 million of loans invested in by the Company at fair value, respectively, which have fixed interest rates. The fair values of loans are estimated using a discounted cash flow methodology, where the discount rate represents an estimate of the required rate of return by market participants. The discount rates for our loans may change due to expected loan performance or changes in the expected returns of similar financial instruments available in the market. Any realized or unrealized losses from market rate changes on loans invested in by the Company are recorded in earnings.

The Company’s continued facilitation of loan originations depends on an active liquid market, third-party investor demand for loans and successful Structured Program transactions and loan sales. The Company could respond to disruptions in ongoing investor demand due to changes in yield expectations, availability and yield of alternative investments, and liquidity in capital markets with reductions in origination facilitations or sales of loans at discounts, thereby negatively impacting revenue.

The following table presents the impact to the fair value of loans invested in by the Company due to a hypothetical change in discount rates as of September 30, 2020 and December 31, 2019:



	Loans Invested in by the Company
	September 30, 2020			December 31, 2019
Fair value	$	239,900		$	766,048
Discount rates
100 basis point increase	$	(2,564	)	$	(9,806	)
100 basis point decrease	$	2,611		$	10,014

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LENDINGCLUB CORPORATION

Servicing Assets. As of September 30, 2020 and December 31, 2019, we were exposed to market servicing rate risk on $59.5 million and $89.7 million of servicing assets, respectively. Our selection of the most representative market servicing rates is inherently judgmental. The following table presents the impact to the fair value of servicing assets due to a hypothetical change in the weighted-average market servicing rate assumption as of September 30, 2020 and December 31, 2019:



	Servicing Assets
	September 30, 2020			December 31, 2019
Fair value	$	59,538		$	89,680
Weighted-average market servicing rate assumption	0.62		%	0.66		%
Change in fair value from:
Servicing rate increase by 10 basis points	$	(7,993	)	$	(13,978	)
Servicing rate decrease by 10 basis points	$	7,994		$	13,979

The following table presents the impact to the fair value of servicing assets due to a hypothetical change in the expected prepayment rates as of September 30, 2020 and December 31, 2019:



	Servicing Assets
	September 30, 2020			December 31, 2019
Fair value	$	59,538		$	89,680
Expected prepayment rates
10 percent increase	$	(2,246	)	$	(2,962	)
10 percent decrease	$	2,246		$	2,962

Interest Rate Sensitivity

The fair values of certain of our assets and liabilities are sensitive to changes in interest rates. Fixed rates may adversely affect market value due to a rise in interest rates, while floating rates may produce less income than expected if interest rates fall. The impact of changes in interest rates would be reduced by the fact that increases or decreases in fair values of assets would be partially offset by corresponding changes in fair values of liabilities.

Loans Invested in by the Company. As of September 30, 2020 and December 31, 2019, we were exposed to interest rate risk on $239.9 million and $766.0 million of loans invested in by the Company at fair value, respectively, which have fixed interest rates. Any realized or unrealized losses from interest rate changes are recorded in earnings. The following table presents the impact to the fair value of loans invested in by the Company due to a hypothetical change in interest rates as of September 30, 2020 and December 31, 2019:



	Loans Invested in by the Company
	September 30, 2020			December 31, 2019
Fair value	$	239,900		$	766,048
Interest rates
100 basis point increase	$	(2,564	)	$	(9,806	)
100 basis point decrease	$	2,611		$	10,014

Securities Available for Sale. As of September 30, 2020 and December 31, 2019, we were exposed to interest rate risk on $187.4 million and $270.9 million of securities available for sale, respectively, including $167.7 million and $220.1 million, respectively, of asset-backed securities related to Structured Program transactions and $19.7 million

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and $50.8 million, respectively, of corporate debt, certificates of deposit, other asset-backed securities, commercial paper and other securities, respectively. To manage this risk, we limit and monitor maturities, credit ratings, performance of loans underlying Structured Program transactions and concentrations within the investment portfolio. Any unrealized gains or losses resulting from such interest rate changes would only be recorded in earnings if we sold the securities prior to maturity or if the securities were considered other-than-temporarily impaired.

The following table presents the impact to the fair value of securities available for sale due to a hypothetical change in interest rates as of September 30, 2020 and December 31, 2019:



	Securities Available for Sale
	September 30, 2020			December 31, 2019
Fair value	$	187,375		$	270,927
Interest rates
100 basis point increase	$	(1,447	)	$	(2,313	)
100 basis point decrease	$	1,477		$	2,301

Credit Facilities and Securities Sold Under Repurchase Agreements. As of September 30, 2020 and December 31, 2019, we were exposed to interest rate risk on $18.5 million and $387.3 million of funding under the Personal Loan and Auto Loan Warehouse Credit Facilities, $0.0 million and $60.0 million of funding under the Revolving Facility, and $101.7 million and $140.2 million of funding under our repurchase agreements, respectively. Future funding activities may increase our exposure to interest rate risk, as the interest rates payable on such funding are generally tied to LIBOR.

The following table presents the impact to the annualized interest expense related to our credit facilities and securities sold under repurchase agreements due to a hypothetical change in the one-month LIBOR rate as of September 30, 2020 and December 31, 2019:



	Credit Facilities and Securities Sold Under Repurchase Agreements
	September 30, 2020			December 31, 2019
Carrying value	$	120,159		$	587,453
One-month LIBOR
100 basis point increase	$	1,202		$	5,875
100 basis point decrease	$	(1,202	)	$	(5,875	)

Cash and Cash Equivalents. As of September 30, 2020 and December 31, 2019, we had cash and cash equivalents of $445.2 million and $243.8 million, respectively. These amounts were held primarily in interest-bearing deposits at investment grade financial institutions, institutional money market funds, certificates of deposit, and commercial paper, which are short-term. Due to their short-term nature, we do not believe we have material exposure to changes in the fair value of these liquid investments as a result of changes in interest rates.

Credit Performance Sensitivity

Credit performance sensitivity refers to the risk of loss arising from default when borrowers are unable or unwilling to meet their financial obligations. We invest in loans and asset-backed securities (including residual interests) related to Structured Program transactions. The performance of these loans and asset-backed securities is dependent on the credit performance of loans facilitated by us. To manage this risk, we monitor borrower payment performance and how it may impact the valuation of our investments. The valuation of these investments is based

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on a discounted cash flow analysis and includes Level 3 assumptions. Any unrealized losses on asset-backed securities (including residual interests) are evaluated for other-than-temporary impairment and any impairment is recorded in earnings. All other unrealized gains and losses are recorded in the Company’s Condensed Consolidated Statements of Comprehensive Income (Loss).

Loans Invested in by the Company. As of September 30, 2020 and December 31, 2019, we were exposed to credit performance risk on $239.9 million and $766.0 million of loans invested in by the Company at fair value, respectively, which have fixed interest rates. The following table presents the impact to the fair value of loans invested in by the Company due to a hypothetical change in credit loss rates as of September 30, 2020 and December 31, 2019:



	Loans Invested in by the Company
	September 30, 2020			December 31, 2019
Fair value	$	239,900		$	766,048
Credit loss rates
10 percent increase	$	(2,938	)	$	(9,558	)
10 percent decrease	$	2,858		$	9,469

Asset-backed Securities Related to Structured Program Transactions. As of September 30, 2020 and December 31, 2019, we were exposed to credit performance risk on $167.7 million and $220.1 million of asset-backed securities related to Structured Program transactions, respectively, including securities pledged as collateral. The following table presents the impact to the fair value of asset-backed securities related to Structured Program transactions due to a hypothetical change in credit loss rates as of September 30, 2020 and December 31, 2019:



	Asset-backed Securities Related to Structured Program Transactions
	September 30, 2020			December 31, 2019
Fair value	$	167,721		$	220,135
Credit loss rates
10 percent increase	$	(3,961	)	$	(4,326	)
10 percent decrease	$	3,855		$	4,285

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management evaluated, with the participation of the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2020. In designing and evaluating its disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance, not absolute assurance, of achieving the desired control objectives, and is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures as of September 30, 2020, were designed and functioned effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities and Exchange Act of 1934, as amended, is (i) recorded, processed, summarized, and reported within the time periods specified in the

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SEC’s rules and forms, and (ii) accumulated and communicated to management, including the principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the third quarter of 2020, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to COVID-19.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For a comprehensive discussion of legal proceedings, see “Part I. Financial Information – Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements – Note 18. Commitments and Contingencies – Legal,” which is incorporated herein by reference.

Item 1A. Risk Factors

The risks described in “Part I – Item 1A. Risk Factors,” in our Annual Report, could materially and adversely affect our business, financial condition, operating results and prospects, and the trading price of our common stock could decline. While we believe the risks and uncertainties described therein include all material risks currently known by us, it is possible that these may not be the only ones we face. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. The Risk Factors section of the Annual Report remains current in all material respects, with the exception of the below.

Our business has been and will likely continue to be negatively impacted by the COVID-19 pandemic.

The COVID-19 pandemic and the mitigation efforts by governments to attempt to control its spread, including the closure of non-essential businesses and shelter in place orders, have resulted in an unprecedented reduction in economic activity and significant dislocation on consumers, businesses, capital markets and the broader economy. In particular, the impact of COVID-19 on the finances of our borrowers has been profound as many have been, and will likely continue to be, impacted by unemployment, reduced earnings and/or elevated economic disruption and insecurity.

In response to the impact of COVID-19, the Company has undertaken a number of initiatives to support its borrowers, protect investor returns, and preserve capital and liquidity. For example, we have added customer support capacity and instituted new payment and hardship plans, adjusted our credit and underwriting processes and standards, and undertaken a number of measures that aim to balance the platform without further use of the Company’s balance sheet. We will continue to actively monitor the situation, assess possible implications to our business and take appropriate actions in an effort to mitigate the adverse consequences of COVID-19. However, there can be no assurances that the initiatives taken by the Company will be sufficient or successful.

There are no comparable recent events to accurately predict the effect COVID-19 may have, and, as a result, its ultimate impact is highly uncertain and subject to change. As of the date of this Report, COVID-19 has had, and may continue to have, a number of adverse effects on our business and results of operations, including the following:


•	Negative pressure on overall platform returns, including as a result of increased credit risk of borrowers (including elevated delinquencies and charge-off rates) and the implementation of forbearance plans;

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•	Materially decreased platform investor demand for our products and an inability for many platform investors to secure funding or financing arrangements;


•	Materially decreased borrower demand for certain of our products, including our patient finance loans which provide financing for elective medical and dental procedures;


•	Reduced borrower approval rates, including as a result of credit and other adjustments that aim to protect investor returns;


•	Reduced platform volume due, including as a result of efforts to balance the platform, resulting in materially reduced revenues;


•	An inability to offer our structured products due to the impact of COVID-19 on the capital markets; and


•	Impeded liquidity and negative fair-value adjustments with respect to assets held on our balance sheet.

Further, our compliance with measures to contain the spread of or otherwise related to COVID-19 has impacted our day-to-day operations and could disrupt our business and operations, as well as that of our key vendors and counterparties, for an indefinite period of time. To keep our employees safe and secure, we have temporarily closed our physical work spaces, instituted additional paid leave policies and leveraged technology to enable remote working. The disruptions caused by COVID-19 may result in inefficiencies and delays in product development, marketing, operations and customer service efforts that we cannot fully mitigate. Further, especially given our reduction in workforce by approximately 460 employees due to COVID-19, employee attrition or unavailability (for health reasons or otherwise) may adversely impact our operations and ability to execute on company initiatives and strategy.

The extent to which COVID-19 will continue to negatively impact our business and results of operations will depend on future developments which are highly uncertain and cannot be accurately predicted, including the duration of the pandemic, actions taken to treat or control the spread of COVID-19, any re-emergence of COVID-19 or related diseases, and the intermediate and longer-term impact on consumers, businesses and the broader economy. For example, COVID-19 raises the possibility of an extended global economic downturn, which could affect the performance of and demand for our products and services and adversely impact our business and results of operations even after the pandemic is contained.

The COVID-19 pandemic, and its impact, may also have the effect of heightening many of the other risks described in “Item 1A. Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2019 (Annual Report), such as our ability to consummate the acquisition of Radius Bancorp, Inc., managing our liquidity, growing platform volume and our exposure to litigation, and government and regulatory investigations, inquiries and requests.

As disclosed in “Item 1A. Risk Factors” in our Annual Report, public health issues could have a material adverse impact on our business, financial condition and results of operations. Consistent with such disclosures, any one or a combination of the factors identified above could have a material adverse impact on our business, financial condition and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

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Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit Index

The exhibits noted in the accompanying Exhibit Index are filed or incorporated by reference as a part of this Report and such Exhibit Index is incorporated herein by reference.



		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X
101.INS	XBRL Instance Document‡					X
101.SCH	XBRL Taxonomy Extension Schema Document					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase					X
101.LAB	XBRL Taxonomy Extension Label Linkbase					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase					X
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


‡	The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




		LENDINGCLUB CORPORATION
		(Registrant)

Date:	November 5, 2020	/s/ SCOTT SANBORN
		Scott Sanborn
		Chief Executive Officer

Date:	November 5, 2020	/s/ THOMAS W. CASEY
		Thomas W. Casey
		Chief Financial Officer

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