Attached files
file | filename |
---|---|
EX-32.1 - EX-32.1 - LendingClub Corp | c12016exv32w1.htm |
EX-31.2 - EX-31.2 - LendingClub Corp | c12016exv31w2.htm |
EX-31.1 - EX-31.1 - LendingClub Corp | c12016exv31w1.htm |
EX-10.12 - EX-10.12 - LendingClub Corp | c12016exv10w12.htm |
EX-10.11 - EX-10.11 - LendingClub Corp | c12016exv10w11.htm |
EX-10.27 - EX-10.27 - LendingClub Corp | c12016exv10w27.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2010
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 333-151827
LendingClub Corporation
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
51-0605731 (I.R.S. Employer Identification No.) |
|
370 Convention Way Redwood City, California (Address of principal executive offices) |
94063 (Zip Code) |
(650) 482-5233
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Website, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of January 31, 2011, there were 8,565,011 shares of the registrants common stock
outstanding.
TABLE OF CONTENTS
Table of Contents
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve
substantial risks and uncertainties. All statements, other than statements of historical facts,
included in this Quarterly Report on Form 10-Q regarding our borrower members, credit scoring,
credit scores, our strategy, future operations, future financial position, future revenue,
projected costs, prospects, plans, objectives of management and expected market growth are
forward-looking statements. The words anticipate, believe, estimate, expect, intend,
may, plan, predict, project, will, would and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements contain these
identifying words. These forward-looking statements include, among other things, statements about:
| the status of borrower members, the ability of borrower members to repay member
loans and the plans of borrower members; |
| our ability to attract additional investor members; |
| expected rates of return and interest rates; |
| the attractiveness of our investment platform; |
| our financial performance; |
| the availability and functionality of the trading platform; |
| our ability to retain and hire competent employees and appropriately staff our
operations; |
| regulatory developments; |
| our intellectual property; and |
| our estimates regarding expenses, future revenue, capital requirements and need
for additional financing. |
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. Actual results
or events could differ materially from the plans, intentions and expectations disclosed in
forward-looking statements. We have included important factors in the Risk Factors section that
could cause actual results or events to differ materially from these forward-looking statements.
You should carefully review those factors and also the risks outlined in other documents we have
filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the
fiscal year ended March 31, 2010. In this Quarterly Report on Form 10-Q, we refer to the Member
Payment Dependent Notes that we issue to investors as the Notes, and we refer to the
corresponding member loans made to borrower members as CM Loans. 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 Quarterly Report on Form 10-Q 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 any forward-looking statements, whether as a result of new information, future
events or otherwise, except as required by law.
3
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. | Financial Statements |
LendingClub Corporation
Condensed Balance Sheets
December 31, | March 31, | |||||||
2010 | 2010 | |||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 17,264,772 | $ | 2,572,174 | ||||
Restricted cash |
862,000 | 1,352,000 | ||||||
Member loans, net of allowance for loan losses |
5,620,003 | 7,545,186 | ||||||
CM Loans, at fair value |
122,620,684 | 56,056,228 | ||||||
Other receivables |
69,443 | 52,956 | ||||||
Loan servicing rights, at fair value |
2,922 | 22,141 | ||||||
Prepaid expenses and other assets |
114,844 | 242,380 | ||||||
Property and equipment, net |
129,822 | 130,827 | ||||||
Deposits |
58,380 | 50,134 | ||||||
Total assets |
$ | 146,742,870 | $ | 68,024,026 | ||||
LIABILITIES |
||||||||
Accounts payable |
$ | 366,706 | $ | 422,690 | ||||
Accrued expenses |
1,210,274 | 831,244 | ||||||
Notes, at fair value |
122,531,924 | 56,042,064 | ||||||
Deferred revenue |
2,922 | 22,141 | ||||||
Loans payable, net of debt discount |
4,109,473 | 8,507,107 | ||||||
Total liabilities |
128,221,299 | 65,825,246 | ||||||
Commitments and contingencies (see Note 3) |
||||||||
PREFERRED STOCK |
||||||||
Preferred Stock |
52,850,391 | 28,462,446 | ||||||
Total preferred stock |
52,850,391 | 28,462,446 | ||||||
STOCKHOLDERS DEFICIT |
||||||||
Common stock |
85,650 | 85,358 | ||||||
Additional paid-in capital |
4,091,512 | 3,805,485 | ||||||
Accumulated deficit |
(38,505,982 | ) | (30,154,509 | ) | ||||
Total stockholders deficit |
(34,328,820 | ) | (26,263,666 | ) | ||||
Total liabilities, preferred stock and stockholders deficit |
$ | 146,742,870 | $ | 68,024,026 | ||||
The accompanying notes are an integral part of these condensed financial statements.
4
Table of Contents
LendingClub Corporation
Condensed Statements of Operations
(Unaudited)
Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues |
||||||||||||||||
Member loans |
||||||||||||||||
Interest income, net |
$ | 197,586 | $ | 332,305 | $ | 664,728 | $ | 1,040,760 | ||||||||
Interest expense |
(234,858 | ) | (369,158 | ) | (785,110 | ) | (1,094,602 | ) | ||||||||
Net interest loss, member loans |
(37,272 | ) | (36,853 | ) | (120,382 | ) | (53,842 | ) | ||||||||
Provision for loan losses |
(72,755 | ) | (176,376 | ) | (346,475 | ) | (1,170,880 | ) | ||||||||
Net interest loss after provision for loan losses |
(110,027 | ) | (213,229 | ) | (466,857 | ) | (1,224,722 | ) | ||||||||
CM Loans and Notes, fair value |
||||||||||||||||
Interest income, CM Loans, net |
2,398,446 | 469,532 | 5,753,895 | 684,110 | ||||||||||||
Interest income/(expense), Notes, net |
(794,214 | ) | 273,778 | (1,268,738 | ) | 587,858 | ||||||||||
Net interest income, CM Loans and Notes, fair value |
1,604,232 | 743,310 | 4,485,157 | 1,271,968 | ||||||||||||
Amortization of loan servicing rights |
4,024 | 7,003 | 15,172 | 21,973 | ||||||||||||
Other revenue |
89,758 | 13,675 | 243,875 | 30,346 | ||||||||||||
Total revenue |
1,587,987 | 550,759 | 4,277,347 | 99,565 | ||||||||||||
Operating expenses |
||||||||||||||||
Sales, marketing and customer service |
3,058,648 | 1,620,151 | 8,433,373 | 4,242,351 | ||||||||||||
Engineering |
514,377 | 442,433 | 1,512,946 | 1,310,687 | ||||||||||||
General and administrative |
902,311 | 612,887 | 2,682,501 | 2,345,321 | ||||||||||||
Total operating expenses |
4,475,336 | 2,675,471 | 12,628,820 | 7,898,359 | ||||||||||||
Net loss |
(2,887,349 | ) | (2,124,712 | ) | (8,351,473 | ) | (7,798,794 | ) | ||||||||
Net loss attributable to common stockholders |
$ | (2,887,349 | ) | $ | (2,124,712 | ) | $ | (8,351,473 | ) | $ | (7,798,794 | ) | ||||
Basic and diluted net loss per share |
$ | (0.34 | ) | $ | (0.25 | ) | $ | (0.98 | ) | $ | (0.94 | ) | ||||
Weighted-average shares of common stock used in
computing basic and diluted net loss per share |
8,565,011 | 8,419,466 | 8,562,777 | 8,297,515 |
The accompanying notes are an integral part of these condensed financial statements.
5
Table of Contents
LendingClub Corporation
Condensed Statements of Cash Flows
(Unaudited)
For the Nine months Ended December 31, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities |
||||||||
Net loss |
$ | (8,351,473 | ) | $ | (7,798,794 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities |
||||||||
Depreciation |
57,263 | 51,646 | ||||||
Non-cash interest expense |
6,387,718 | 2,343,149 | ||||||
Non-cash interest income |
(6,160,177 | ) | (2,123,281 | ) | ||||
Stock based compensation expense |
277,633 | 113,660 | ||||||
Change in fair value of loan servicing rights |
19,219 | 26,983 | ||||||
Interest capitalized on loans |
118,486 | 38,043 | ||||||
Provision for loan losses |
346,475 | 1,170,880 | ||||||
Changes in operating assets and liabilities |
||||||||
Other receivables |
(16,487 | ) | 22,456 | |||||
Deposits |
(8,246 | ) | 93,198 | |||||
Prepaid expenses and other assets |
127,536 | (197,022 | ) | |||||
Accounts payable |
(55,984 | ) | (252,934 | ) | ||||
Accrued expenses |
379,030 | 232,843 | ||||||
Deferred revenue |
(19,219 | ) | (26,983 | ) | ||||
Net cash used in operating activities |
(6,898,226 | ) | (6,306,156 | ) | ||||
Cash flows from investing activities |
||||||||
Member loans originated |
(4,139,600 | ) | (5,116,625 | ) | ||||
Origination of CM Loans held at fair value |
(98,703,900 | ) | (38,460,025 | ) | ||||
Repayment of member loans originated |
4,047,632 | 4,194,244 | ||||||
Repayment of CM Loans held at fair value |
27,522,184 | 5,411,031 | ||||||
Change in restricted cash |
490,000 | (800,000 | ) | |||||
Purchase of property and equipment |
(56,258 | ) | (44,104 | ) | ||||
Net cash used in investing activities |
(70,839,942 | ) | (34,815,479 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of loans payable |
| 4,200,000 | ||||||
Proceeds from issuance of Notes held at fair value |
103,049,550 | 39,024,105 | ||||||
Payments on loans payable |
(4,615,114 | ) | (3,966,424 | ) | ||||
Payments on Notes held at fair value |
(30,399,513 | ) | (5,421,076 | ) | ||||
Proceeds from issuance of Series C convertible preferred stock, net of issuance costs |
24,387,945 | | ||||||
Proceeds from issuance of common stock |
7,898 | 16,895 | ||||||
Net cash provided by financing activities |
92,430,766 | 33,853,500 | ||||||
Net increase (decrease) in cash and cash equivalents |
14,692,598 | (7,268,135 | ) | |||||
Cash and cash equivalents beginning of period |
2,572,174 | 11,998,541 | ||||||
Cash and cash equivalents end of period |
$ | 17,264,772 | $ | 4,730,406 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid for interest |
$ | 7,996,546 | $ | 2,410,657 | ||||
Supplemental disclosure of non-cash investing
and financing activities: |
||||||||
Issuance of Series B convertible preferred stock warrants in exchange for term loan
agreement |
$ | | $ | 184,860 | ||||
Reclassification of member loans to CM Loans held at fair value |
$ | 1,552,190 | $ | 564,080 |
The accompanying notes are an integral part of these condensed financial statements.
6
Table of Contents
LENDINGCLUB CORPORATION
Notes to Condensed Financial Statements
(Unaudited)
(Unaudited)
1. Basis of Presentation
The condensed balance sheet as of December 31, 2010, the condensed statements of operations
for the three and nine months ended December 31, 2010 and 2009, respectively, and the condensed
statements of cash flows for the nine months ended December 31, 2010 and 2009, respectively, have
been prepared by LendingClub Corporation, or Lending Club, and are unaudited. In the opinion of
management, all necessary adjustments (which include only normal recurring adjustments) have been
made for a fair presentation of interim results. Interim results are not necessarily indicative of
the results for a full fiscal year. The condensed balance sheet as of March 31, 2010 has been
derived from the audited financial statements at that date.
Certain information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States have been
condensed or omitted. These condensed financial statements should be read in conjunction with the
audited financial statements and notes included in our Annual Report on Form 10-K for the year
ended March 31, 2010.
2. Summary of Significant Accounting Policies
Liquidity
We have incurred operating losses since our inception. For the three months ended December 31,
2010 and 2009, we incurred net losses of $2,887,349 and $2,124,712, respectively. For the nine
months ended December 31, 2010 and 2009, we incurred net losses of $8,351,473 and $7,798,794,
respectively. For the nine months ended December 31, 2010 and 2009, we had negative cash flows
from operations of $6,898,226 and $6,306,156, respectively. Additionally, we have an accumulated
deficit of $38,505,982 and a total stockholders deficit of $34,328,820 as of December 31, 2010.
Since our inception, we have financed our operations through debt and equity financing from
various sources. We are dependent upon raising additional capital or seeking additional debt
financing to fund our current operating plans. Failure to obtain sufficient debt and equity
financing and, ultimately, to achieve profitable operations and positive cash flows from operations
could adversely affect our ability to achieve our business objectives and continue as a going
concern. Further, there can be no assurance as to the availability or terms upon which any required
financing and capital might be available, if at all.
During the nine months ended December 31, 2010, we issued 15,621,609 shares of Series C
convertible preferred stock for aggregate cash consideration of $24,489,996. In connection with
our private placement of Series C convertible preferred stock, we incurred transaction expenses,
recorded as an offset to gross proceeds, of $102,051.
Use of estimates
The preparation of financial statements and related disclosures in conformity with accounting
principles generally accepted in the United States requires our management to make judgments and
estimates that affect the amounts reported in our financial statements and accompanying notes. We
base our estimates on historical experience and on various other factors we believe to be
reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities. Actual results may differ from these estimates.
Cash and cash equivalents
Cash and cash equivalents include various deposits with financial institutions in checking and
short-term money market accounts. We consider all highly liquid investments with original maturity
dates of three months or less to be cash equivalents.
7
Table of Contents
Restricted cash
At December 31, 2010, and March 31, 2010, restricted cash consisted primarily of funds held in
escrow in certificates of deposit or money market accounts at the banks associated with the loan
facilities described in Note 6 Loans Payable, and by our operating banks as security for
transactions on our platform.
Member loans held for investment
We fund member loans ourselves from time to time to ensure a sufficient level of funding for
borrower members. The majority of funds for such loans were obtained through our borrowings under
loan facilities with various entities (see Note 6 Loans Payable). As of December 31,
2010 and March 31, 2010, we had funded an aggregate total of $23,829,175 and $19,689,575,
respectively, of member loans to borrower members. These member loans are classified as held for
investment based on managements intent and ability to hold such member loans for the foreseeable
future or to maturity. Member loans held for investment are carried at amortized cost reduced by a
valuation allowance for estimated credit losses incurred as of the balance sheet date. A member
loans cost includes its unpaid principal balance along with unearned income, comprised of fees
charged to borrower members offset by incremental direct costs for loans originated by us. Unearned
income is amortized ratably over the member loans contractual life using the effective interest
method.
Allowance for loan losses
We may incur losses in connection with member loans we hold for investment if the borrower
members fail to pay their monthly scheduled loan payments. We provide for incurred losses on these
loans with an allowance for loan losses in accordance with the Financial Accounting Standards Board
Accounting Standards Codification (FASB ASC) 310-10-35 guidance on the subsequent measurement of
receivables and FASB ASC 450 guidance on accounting for contingencies. The allowance for loan
losses is a valuation allowance established to provide for estimated incurred credit losses in the
portfolio of member loans held for investment at the balance sheet date.
The allowance for loan losses is evaluated on a periodic basis by management, and represents
an estimate of potential credit losses based on a variety of factors, including the composition and
quality of the loan portfolio, loan specific information gathered through our collection efforts,
delinquency levels, probable expected losses, current and historical charge-off and loss
experience, current industry charge-off and loss experience, and general economic conditions.
Determining the adequacy of the allowance for loan losses is subjective, complex and requires
judgment by management about the effect of matters that are inherently uncertain, and actual losses
may differ from our estimates.
Our estimate of the required allowance for loan losses is developed by estimating both the
rate of default of the loans within each FICO band, a loans collection status, the borrowers FICO
score at or near the evaluation date, and the amount of probable loss in the event of a borrower
member default. Loan losses are charged against the allowance when management believes the loss is
confirmed. Quarterly, we make an initial assessment of whether a specific reserve is required on
each delinquent loan that is more than 120 days past due.
Impaired Loans
A member loan is considered impaired when, based on current information and events, it is
probable that we will be unable to collect the scheduled payments of principal and interest when
due according to the contractual terms of the current terms of the loan agreement. Once a loan is
deemed uncollectible, 100% of the net investment is charged-off. Our member loan portfolio is
comprised primarily of small groups of homogeneous, unsecured loans made to borrower members, which
loans are evaluated for impairment at least quarterly based on their payment status and information
gathered through our collection efforts.
CM Loans and Notes held at fair value
Starting October 13, 2008, our investors have had the opportunity to buy Notes issued by us.
These Notes are special limited recourse obligations of Lending Club. Each series of Notes
corresponds to a single corresponding member loan, or CM Loan, originated through our platform. In
conjunction with this new operating structure effective as of October 13, 2008, for CM Loans and
Notes, we adopted the provisions of FASB ASC 825-10 guidance on the fair value option for financial
assets, which permits companies to choose to measure certain financial instruments and certain
other items at fair value. The standard requires that estimated unrealized gains and losses on
items for which the fair value option has been elected be reported in earnings. We applied the
provisions of FASB ASC 825-10 to the Notes and CM Loans.
8
Table of Contents
In accordance with the provisions of FASB ASC 825-10, we report the aggregate fair value of
the CM Loans and Notes as separate line items in the assets and liabilities sections of our balance
sheet using the methods and disclosures related to fair value accounting that are described in FASB
ASC 820.
FASB ASC 820 defines fair value as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the measurement date.
Changes in fair value of the CM Loans and Notes, subject to the provisions of FASB ASC 825-10, are
recognized in earnings, and fees and costs associated with the origination or acquisition of CM
Loans are recognized as incurred rather than deferred.
We determined the fair value of the CM Loans and Notes in accordance with the fair value
hierarchy established in FASB ASC 820 which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs, which generally requires significant management
judgment, when measuring fair value. FASB ASC 820 establishes the following hierarchy for
categorizing these inputs:
Level 1
|
Quoted market prices in active markets for identical assets or liabilities; | |
Level 2
|
Significant other observable inputs (e.g. quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs) ; and | |
Level 3
|
Significant unobservable inputs. |
As observable market prices are not available for similar assets and liabilities, we believe
the CM Loans and Notes should be considered Level 3 financial instruments under FASB ASC 820. For
CM Loans and Notes, the fair value is estimated using discounted cash flow methodologies adjusted
for our expectation of both the rate of default of the CM Loans and Notes and the amount of loss in
the event of default under those CM Loans and Notes. These estimates of default are recorded as
interest expense related to our CM Loan originations and a corresponding interest income against
the Notes in the period of loan origination.
Our obligation to pay principal and interest on any Note is equal to the pro-rata portion of
the CM Loan payments, if any, we receive on the related CM Loan, net of our 1.00% service charge.
As such, the fair value of the Notes is approximately equal to the fair value of the CM Loans,
adjusted for the 1.00% service charge. Any unrealized gains or losses on the CM Loans and Notes for
which the fair value option has been elected are reported separately in earnings. The effective
interest rate associated with a Note will be less than the interest rate earned on the related CM
Loan due to the 1.00% service charge. Accordingly, as market interest rates fluctuate, the
resulting change in fair value of the fixed rate CM Loans and fixed rate Notes will not be the
same. For additional discussion on this topic, see Note 5 CM Loans and Notes Held at Fair
Value.
Revenue recognition
Revenues primarily result from interest income and transaction fees earned on member loans
(below lists the three categories of member loans) originated through our online platform.
Transaction fees include origination fees (borrower member paid) and servicing fees (investor
member paid). Together we classify interest and fees earned on member loans as interest income
(See Note 12 Net Interest Income).
Revenues related to member loan origination fees are recognized in accordance with FASB ASC
310-20 guidance on nonrefundable fees and other costs. The loan origination fee charged to each
borrower member is determined by the credit grade of that borrower members loan and as of December
31, 2010, ranged from 2.00% to 5.00% of the aggregate member loan amount. The member loan
origination fees are included in the annual percentage rate (APR) calculation provided to the
borrower member and are subtracted from the gross loan proceeds prior to disbursement of the loan
funds to the borrower member. A member loan is considered issued when we move funds on our
platform from the investor members accounts to the borrower members account, following which we
initiate an Automated Clearing House (ACH) transaction to transfer funds from our platform
accounts to the borrower members bank account.
Lender servicing fee revenue is recognized in accordance with FASB ASC 860 guidance on
transfers and servicing of financial assets. Currently, a 1.00% service charge, based on any
payments received, is charged to the investor at the time that we receive any payments from the
borrower member. The service charge is deducted from any payments received on a member loan before
the net amounts of those payments are allocated to the investors accounts.
9
Table of Contents
Our treatment of interest and fee income is determined by the category that each member loan
origination falls into, which are:
| Member Loans Funded directly by Third Party Member Member loans originated
through our platform and sold to third party investor members through April 7, 2008. |
| Member Loans Funded by Notes, known as CM Loans CM Loans originated on or
after October 13, 2008 and funded by Notes. |
| Member Loans Funded by Lending Club Member loans we funded ourselves,
irrespective of when originated. |
Member Loans Funded Directly by Third Party Members
These member loans are considered to have been sold to the investor members, whereby we
assigned promissory notes directly to investor members. As such, we recognize only origination fee
and servicing fee revenue on these member loans and do not provide an allowance for loan losses. We
recognize a servicing asset and corresponding servicing liability as a result of this sale in
accordance with FASB ASC 860, and amortize the asset into income as payments are received on the
member loans.
At December 31, 2010 and March 31, 2010, gross future expected servicing fees related to these
member loans was estimated to be $2,922 and $22,141, respectively, net of estimated future loan
losses that would impair the value of this asset, which losses were estimated using those methods
described in Allowance for loan losses in this footnote above. We have insufficient
history to predict prepayments. However we believe that, based on our competitive interest rates,
borrower members are unlikely to prepay their member loans in any great volume. For many borrower
members, the main reason for securing a member loan with us is to provide needed cash flow at more
attractive interest rates than could be obtained from other sources.
Further, because the earnings process is deemed to be complete at the time these member loans
were transferred to the investors, and because there is no recourse to us in the event of default
by the borrower member, we recognized 100% of the origination fee as revenue at the time the member
loan was transferred to the purchaser and included the fee in interest income.
Member Loans, known as CM Loans
Investor members are no longer able to directly purchase member loans. Rather, as described
above, each CM Loan is recorded as a note receivable funded by us, while Notes, which are special
limited recourse obligations of Lending Club corresponding to those CM Loans, are recorded as Notes
issued by us to investors. After we receive payments of principal and interest on the CM Loans, we
in turn make principal and interest payments on the Notes. These principal payments reduce the
carrying value of both the CM Loans and Notes. If we do not receive a payment on the CM Loan, we
are not obligated to and will not make any payments on the corresponding Notes. We account for the
CM Loans and Notes under the provisions of FASB ASC 825 as described above.
We do not directly record servicing fee revenue from these CM Loans, but rather recognize
interest income on our CM Loans related to these member loans based on the full amount of the loan
payment at the stated interest rate to the borrower member without regard to the servicing fee. We
then record interest expense on the corresponding Note based on the post-service fee payment we
make to our investor members, which results in an interest expense on these Notes which is lower
than that for the CM Loans. Origination fees on these CM Loans are recognized upon origination and
included in interest income.
In accordance with FASB ASC 825, we include the estimated amount of unrealized gains or losses
included in earnings during the period attributable to changes in instrument-specific credit risk
and how the estimated unrealized gains or losses attributed to changes in instrument-specific
credit risk were determined. As such, we do not record a specific loan loss allowance related to
CM Loans and Notes in which we have elected the fair value option. Rather, we estimate the fair
value of CM Loans and Notes using discounted cash flow methodologies and make credit risk related
adjustments for both the rate of default of the CM Loans and Notes and the amount of loss in the
event of default using methodologies similar to those used for member loans we have funded
ourselves. At origination and at each reporting period, we recognize as interest expense an amount
equal to our estimated loan losses for the CM Loans, and interest income in an amount equal to our
estimated loan losses on these Notes. As the CM Loans are amortizing at slightly higher interest
rates than the Notes, due to the impact of the servicing fee, the amount of interest expense
related to estimated loan losses on the CM Loans will always be slightly higher than the estimated
interest income from loan losses on the Notes. Our net interest income related to these CM Loans
and Notes is further described in Note 12 Net Interest Income.
10
Table of Contents
Member Loans Funded by Lending Club
Since inception of the Company up through December 31, 2010, we have funded and retained
approximately $23.8 million of member loans originated through the platform. When a member loan
has been funded in whole or in part by us, we retain the portion of the borrower members monthly
loan payment that corresponds to the percentage of the member loan that we have funded. In these
cases, we record interest income on these member loans.
Origination fees from member loans funded by us are offset by our direct loan origination
costs. The net amount is initially deferred and subsequently amortized ratably over the term of the
member loan as an adjustment to yield, and is reported in the accompanying statements of operations
as interest income. As of December 31, 2010 and March 31, 2010, we had net unamortized deferred
loan origination costs/(revenue) of ($67,103) and $51,383, respectively (see Note 4 Member
Loans). These deferred loan origination revenues or costs will be amortized monthly as interest
income or expense through the remaining life of the related member loans.
Concentrations of credit risk
Financial instruments that potentially subject us to significant concentrations of credit
risk, consist principally of cash, cash equivalents, restricted cash, member loans, and CM Loans
held at fair value. We hold our cash, cash equivalents and restricted cash in accounts at
high-credit quality financial institutions. We are exposed to credit risk in the event of default
by these institutions to the extent the amount recorded on the balance sheet periodically exceeds
the FDIC insured amounts. We perform credit evaluations of our borrower members financial
condition and do not allow borrower members to have more than two member loans outstanding at any
one time. We do not require collateral for member loans, but we maintain allowances for potential
credit losses, as described above. Potential credit risk to Lending Club from CM loans is
mitigated by the corresponding Notes.
Stock-based compensation
We apply FASB ASC 718 guidance regarding the stock-based compensation to account for
equity awards made to employees. FASB ASC 718 requires all share-based payments made to employees,
including grants of employee stock options, restricted stock and employee stock purchase rights, to
be recognized in the financial statements based on their respective grant date fair values, and
does not allow the previously permitted pro forma disclosure-only method as an alternative to
financial statement recognition. FASB ASC 718 also requires the benefits of tax deductions in
excess of recognized compensation cost to be reported as a financing cash flow, rather than as an
operating cash flow as required under previous literature.
FASB ASC 718 requires companies to estimate the fair value of share-based payment awards
on the date of grant using an option-pricing model. The value of the portion of the award that is
ultimately expected to vest is recognized as expense ratably over the requisite service periods. We
have estimated the fair value of each award as of the date of grant using the Black-Scholes option
pricing model. The Black-Scholes option pricing model considers, among other factors, the expected
life of the award and the expected volatility of our stock price.
FASB ASC 718 also requires forfeitures to be estimated at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ from initial estimates.
Stock-based compensation expense is recorded net of estimated forfeitures, such that expense is
recorded only for those stock-based awards that are expected to vest. Share-based awards
issued to non-employees are accounted for in accordance with provisions of FASB ASC 718 and FASB
ASC 505-50 guidance on equity based payment to non-employees.
New accounting pronouncements
In July 2010, the FASB issued Standards Update (ASU) No. 2010-20, Receivables (Topic 310):
Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.
The ASU requires further disaggregated disclosures that improve financial statement users
understanding of: 1) the nature of an entitys credit risk associated with its financing
receivables and 2) the entitys assessment of that risk in estimating its allowance for credit
losses as well as changes in the allowance and the reasons for those changes. For public entities,
the new and amended disclosures as of the end of a reporting period are effective for interim and
annual reporting periods ending on or after December 15, 2010. The disclosures about activity that
occurs during a reporting period are effective for interim and annual reporting periods beginning
on or after December 15, 2010. For nonpublic entities, the disclosures are effective for annual
reporting periods ending on or after December 15, 2011. Since we only file financial
statements with the SEC and do not meet any of the following conditions as listed below, we are
considered a nonpublic entity with respect to determination of the effective date of ASU 2010-20:
| Its debt or equity securities, including securities quoted only locally or regionally,
trade in a public market either on stock exchange (domestic or foreign) or in an
over-the-counter market. |
11
Table of Contents
| It is a conduit bond obligor for conduit debt securities that are traded in a public
market (a domestic or foreign stock exchange or an over-the-counter market, including local
or regional markets). |
| It files with a regulatory agency in preparation for the sale of any class of debt or
equity securities in a public market. |
| It is controlled by an entity covered by any of the preceding criteria. |
Thus, we are required to adopt the provisions of ASU 2010-20 for the first annual reporting
period ending on or after December 15, 2011. The adoption of this standard is not expected to have
a material effect on the Companys result of operations or financial position but it will require
expansion of the Companys future disclosures.
3. Net Loss Attributable to Common Stockholders
We compute net loss per share in accordance with FASB ASC 260. Under FASB ASC 260, basic net
loss per share is computed by dividing net loss attributable to common stockholders by the weighted
average number of common shares outstanding for the period and excludes the effects of any
potentially dilutive securities. Diluted earnings per share, if presented, would include the
dilution that would occur upon the exercise or conversion of all potentially dilutive securities
into common stock using the treasury stock and/or if converted methods, as applicable.
The following table details the computation of the net loss per share (unaudited):
Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net loss |
$ | (2,887,349 | ) | $ | (2,124,712 | ) | $ | (8,351,473 | ) | $ | (7,798,794 | ) | ||||
Weighted-average common
shares outstanding, basic
and diluted |
8,565,011 | 8,419,446 | 8,562,777 | 8,297,515 | ||||||||||||
Net loss per common share: |
||||||||||||||||
Basic and diluted |
$ | (0.34 | ) | $ | (0.25 | ) | $ | (0.98 | ) | $ | (0.94 | ) |
Due to the losses for each of the periods presented in the table below, the following
potentially dilutive shares are excluded from the basic and diluted net loss per share calculation
as including such shares in the calculation would be anti-dilutive.
Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
(Unaudited) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Excluded Securities: |
||||||||||||||||
Weighted-average Series A convertible
preferred stock |
15,740,285 | 15,740,285 | 15,740,285 | 15,740,285 | ||||||||||||
Weighted-average Series B convertible
preferred stock |
16,036,346 | 16,036,346 | 16,036,346 | 16,036,346 | ||||||||||||
Weighted-average Series C convertible
preferred stock |
15,621,609 | | 14,883,133 | | ||||||||||||
Weighted-average restricted stock
options
issued to employees |
5,290,175 | 2,626,118 | 4,842,221 | 2,687,619 | ||||||||||||
Weighted-average warrants and
contingent shares outstanding |
1,750.633 | 1,818,637 | 1,748,565 | 1,852,197 | ||||||||||||
Total common stock equivalents excluded
from diluted net loss per share |
54,439,048 | 36,221,386 | 53,250,550 | 36,316,447 | ||||||||||||
12
Table of Contents
4. Member Loans
Member loans funded by us and held for investment are as follows:
As of December 31, | ||||||||
2010 | As of March 31, | |||||||
(unaudited) | 2010 | |||||||
Member loans, net of chargeoffs |
$ | 6,149,956 | $ | 8,275,561 | ||||
Deferred origination costs/(revenue), net |
(67,103 | ) | 51,383 | |||||
Net loans |
6,082,853 | 8,326,944 | ||||||
Allowance for loan losses |
(462,850 | ) | (781,758 | ) | ||||
Member loans, net |
$ | 5,620,003 | $ | 7,545,186 | ||||
Ratio of allowance for loan
losses to net loans |
7.61 | % | 9.39 | % |
As of December 31, 2010, we had identified and fully reserved $63,106 on 18 loans, and our
aggregate allowance for loan losses was $462,850. As of March 31, 2010, we had identified and
fully reserved $144,312 on 29 loans. For the three months ended December 31, 2010, we charged off
a total of 58 loans with an aggregate principal balance of $158,008, while during the three months
ended December 31, 2009, we charged off a total of 179 loans with an aggregate principal balance of
$890,557. For the nine months ended December 31, 2010, we charged off a total of 193 loans with an
aggregate principal balance of $665,383, while during the nine months ended December 31, 2009, we
charged off a total of 265 loans with an aggregate principal balance of $1,399,998.
Changes in the allowance for loan losses, and the composition of the allowance for loan losses
were as follows (unaudited except balance at March 31, 2010):
Balance at March 31, 2010 |
$ | 781,758 | ||
Chargeoffs |
(210,712 | ) | ||
Provision for loan losses |
182,014 | |||
Balance at June 30, 2010 |
753,060 | |||
Chargeoffs |
(296,663 | ) | ||
Provision for loan losses |
91,706 | |||
Balance at September 30, 2010 |
548,103 | |||
Chargeoffs |
(158,008 | ) | ||
Provision for loan losses |
72,755 | |||
Balance at December 31, 2010 |
$ | 462,850 | ||
We believe that the credit and interest rate risks of our member loans held for investment are
substantially similar to those of our CM Loans, which we measure at fair value (see Note 5
CM Loans and Notes at Fair Value). In fact, both of these loan categories are originated
through our lending platform, and in some instances a portion of a member loan may be funded by us,
while another portion of that same member loan will become a CM Loan funded by Notes. Further,
because of the similarity of these loan categories, our methodology for recording realized and
unrealized gains on our CM Loans is substantially similar to the methodologies we use to measure
our provision for loan loss allowances and chargeoffs on our member loans held for investment,
funded by us (see Note 2 Summary of Significant Accounting Policies, Revenue Recognition,
Member Loans Originated as CM Loans). Based on these similarities, we therefore believe that
the fair value of our member loans held for investment is equivalent to their carrying value.
Of the $4,139,600 of member loans held for investment that we originated during the nine
months ended December 31, 2010, we reclassified $1,552,190 to CM Loans held at fair value upon the
sale to investor members of a like amount of Notes to which those member loans corresponded. The
Notes were sold for an amount equal to the par value of the corresponding member loans, and
therefore no gain or loss was recorded on the sale of the Notes or transfer of the member loans
held for investment to CM Loans held at fair value.
13
Table of Contents
Of the $5,263,525 of member loans held for investment that we originated during the year ended
March 31, 2010, we reclassified $564,080 to CM Loans held at fair value upon the sale to investor
members of a like amount of Notes to which those member loans corresponded. The Notes were sold
for an amount equal to the par value of the corresponding member loans, and therefore no gain or
loss was recorded on the sale of the Notes or transfer of the member loans held for investment to
CM Loans held at fair value.
5. CM Loans and Notes Held at Fair Value
At December 31, 2010, we had the following assets and liabilities measured at fair value on a
recurring basis (unaudited):
Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Fair Value | |||||||||||||
Assets |
||||||||||||||||
CM Loans |
| | $ | 122,620,684 | $ | 122,620,684 | ||||||||||
Liabilities |
||||||||||||||||
Notes |
| | $ | 122,531,924 | $ | 122,531,924 |
Both observable and unobservable inputs may be used to determine the fair value of positions
that we have classified within the Level 3 category. As a result, the realized and unrealized gains
and losses for assets and liabilities within the Level 3 category presented in the tables below may
include changes in fair value that were attributable to both observable and unobservable inputs.
The following table presents additional information about Level 3 assets and liabilities measured
at fair value on a recurring basis for the nine months ended December 31, 2010 (unaudited except
balances at March 31, 2010):
CM Loans | Notes | |||||||
Fair value at March 31, 2010 |
$ | 56,056,228 | $ | 56,042,064 | ||||
Originations |
28,619,475 | 28,619,475 | ||||||
Principal repayments |
(6,589,223 | ) | (6,605,776 | ) | ||||
Outstanding principal |
78,086,480 | 78,055,763 | ||||||
Realized and unrealized gains/(losses) included in earnings |
(1,664,305 | ) | (1,662,808 | ) | ||||
Fair value at June 30, 2010 |
76,422,175 | 76,392,955 | ||||||
Originations |
34,939,450 | 35,003,325 | ||||||
Reclassifications |
38,829 | | ||||||
Principal repayments |
(9,265,823 | ) | (9,307,026 | ) | ||||
Outstanding principal |
102,134,631 | 102,089,254 | ||||||
Realized and unrealized gains/(losses) included in earnings |
(2,151,393 | ) | (2,151,017 | ) | ||||
Fair value at September 30, 2010 |
99,983,238 | 99,938,237 | ||||||
Originations |
35,144,975 | 39,426,750 | ||||||
Reclassifications |
1,513,361 | | ||||||
Principal repayments |
(11,670,104 | ) | (14,457,319 | ) | ||||
Outstanding principal |
124,971,470 | 124,907,668 | ||||||
Realized and unrealized gains/(losses) included in earnings |
(2,350,786 | ) | (2,375,744 | ) | ||||
Fair value at December 31, 2010 |
$ | 122,620,684 | $ | 122,531,924 | ||||
The majority of realized and unrealized gains/(losses) included in earnings are attributable
to changes in instrument-specific credit risk and are reported on the Interest income, CM Loans,
net and Interest income/(expense), Notes, net line items. The majority of total realized and
unrealized gains/(losses) were related to Level 3 instruments held at December 31, 2010.
At December 31, 2010, we had 80 CM Loans representing $594,426 of outstanding CM Loan
principal, $220,987 of CM Loan fair value, and $220,619 of Notes principal fair value which were 90
days or more delinquent. At December 31, 2010, we had 54 CM Loans representing $274,719 of
outstanding CM Loan principal, $40,102 of CM Loan fair value and $40,012 of Notes principal fair
value which were on non-accrual status. See Note 4 for discussion for Reclassifications.
14
Table of Contents
6. Loans Payable
Loans payable consist of the following:
As of December 31, | ||||||||
2010 | As of March 31, | |||||||
(unaudited) | 2010 | |||||||
Growth capital term loan |
$ | 1,422,429 | $ | 2,912,421 | ||||
Unamortized discount on growth capital term loan |
(47,696 | ) | (90,260 | ) | ||||
Financing term loan |
1,786,647 | 3,600,082 | ||||||
Unamortized discount on financing term loan |
(57,997 | ) | (150,595 | ) | ||||
Private placement notes |
1,054,144 | 2,365,830 | ||||||
Unamortized discount on private placement notes |
(48,054 | ) | (130,371 | ) | ||||
Total loans payable, net of debt discount |
$ | 4,109,473 | $ | 8,507,107 | ||||
At December 31, 2010, future maturities due on all loans payable were as follows (unaudited):
Year ending March 31, | ||||
2011 |
$ | 1,292,030 | ||
2012 |
2,601,694 | |||
2013 |
369,495 | |||
4,263,219 | ||||
Less amount representing debt discount |
(153,746 | ) | ||
Total loans payable |
$ | 4,109,473 | ||
Growth capital term loan- October 2007
In October 2007, we entered into a loan and security agreement with a Silicon Valley Bank, or
SVB, that allowed for borrowings of up to $3,000,000 for working capital needs. In October 2008,
we amended the agreement to increase available borrowing to $4,000,000. The loan is secured by
substantially all of our assets except our intellectual property rights, payments received on our
CM Loans, and certain deposit accounts. Borrowings bear interest at a fixed rate of 8.5% per
annum. Each advance is repayable in 36 equal monthly installments of principal and interest
commencing the first day of the month following the advance. The growth capital term loan also
requires us to maintain a certificate of deposit with the bank of $150,000 until repayment. This
amount is included in restricted cash in the accompanying balance sheets. In December 2008, we
drew down the remaining $1,000,000 of availability under this line. At December 31, 2010, no
amounts were available for future financing under this agreement.
In connection with the growth capital term loan and its subsequent amendments, we issued fully
exercisable warrants to purchase 164,320 shares of Series A convertible preferred stock at an
exercise price of $1.065 per share, for which we recorded debt discounts of $105,913 upon issuance.
Amortization of the debt discounts recorded for this loan, as amended, were $9,507 and $16,529 in
the three months ended December 31, 2010 and 2009, respectively, and $42,564 and $47,018 in the
nine months ended December 31, 2010 and 2009, respectively, and were recorded as interest expense.
Effective August 3, 2009, we amended and restated the growth capital term loan as further
described in this footnote below.
Financing term loan February 2008
In February 2008, we entered into a loan and security agreement with Gold Hill Venture Lending
03, LP, or Gold Hill, that provided for financing of up to $5,000,000 to be lent out to borrower
members funded by us. The financing term loan was available for advances through June 30, 2008, but
was subsequently amended in October 2008 to allow availability through December 31, 2008. The
interest rate is fixed at 10.0% per annum. The agreement requires that proceeds received from
borrower member payments on member loans funded by us be used to pay down the financing term loan.
The financing term loan is secured by substantially all of our assets except our intellectual
property rights, payments received on the CM Loans, and certain deposit accounts. The financing
term loan requires us to maintain a certificate of deposit with a bank of $250,000 until repayment.
This amount is included in restricted cash in the accompanying balance sheets. At December 31,
2010, no amounts were available for future financing under this agreement.
In connection with this loan agreement, we issued fully exercisable warrants to purchase an
aggregate of 328,637 shares of Series A convertible preferred stock at a price of $1.065 per share
and recorded total debt discounts of $277,962 upon issuance. Amortization of the debt discounts
recorded for this loan were $30,866 and $30,866 in the three months ended December 31, 2010 and
2009, respectively, and $92,598 and $90,031 in the nine months ended December 31, 2010 and
2009, respectively, and were recorded as interest expense.
15
Table of Contents
Effective August 3, 2009, we amended and restated the financing term loan as further described
in this footnote below.
Term loan May 2009
In May 2009, we entered into another secured loan facility, the May 2009 term loan, with SVB
and Gold Hill as co-lenders, and amended the growth capital term loan and financing term loan to
accommodate the new borrowing. The May 2009 term loan allowed us to borrow up to an additional
$4,000,000 at an interest rate of 10.0% per annum. We also paid a commitment fee of $20,000 and
$9,850 of the lenders expenses in connection with the facility. The borrowings were used to fund
member loans. The borrowings are secured by a blanket lien on substantially all of our assets,
except our intellectual property rights, certain deposit accounts and payments received on CM
Loans. Additionally, the May 2009 term loan was secured with a certificate of deposit in the
amount of $300,000 until repayment. This amount is included in restricted cash in the accompanying
balance sheets. The lenders also received the right to invest up to $500,000 each in our next
round of equity financing on the same terms offered to other investors. On a monthly basis, we
also agreed to maintain a minimum collateral ratio calculated as (i) the sum of the certificate of
deposit collateral and the outstanding balance of member loans funded with the borrowing which are
current in their payment status to (ii) the outstanding balance under the loan facility. In the
event that the minimum collateral ratio is less than the minimum allowed under the agreement, we
must increase the certificate of deposit to meet the minimum collateral ratio. At December 31,
2010, no amounts were available for future financing under this agreement.
In connection with this loan facility, we issued fully exercisable warrants to purchase an
aggregate of 187,090 shares of Series B convertible preferred stock at a price of $0.7483 per share
and recorded total debt discounts of $184,860. Amortizations of those debt discounts are included
in the amortizations of debt discounts presented above for the growth capital term loan and the
financing term loan.
Effective August 3, 2009, we amended and restated the financing term loan as further described
in this footnote below.
Amended and restated term loan August 2009
Effective August 3, 2009, we consolidated the May 2009 term loan, the Growth capital term
loan, and the Financing term loan into two loan agreements by executing an amended and restated
growth capital term loan and an amended and restated financing term loan. As a result of the
consolidation, borrowings under the May 2009 term loan were split equally between and consolidated
under the amended and restated growth capital term loan and an amended and restated financing term
loan. The terms of these two remaining amended and restated agreements are substantially the same
as those of the three prior agreements, including that the borrowings continue to be secured by a
blanket lien on substantially all of our assets, except for our intellectual property rights,
certain deposit accounts, and payments we receive on the CM Loans. Additionally, the amended and
restated agreements continue to require that Lending Club maintain combined certificates of deposit
in the amount of $700,000 as collateral until repayment. Further, under the amended and restated
agreements, we agreed to maintain the same minimum collateral ratio as established in the May 2009
term loan. At December 31, 2010, we do not have any remaining capacity under these agreements as
we have fully drawn down the entire $13,000,000 of combined availability under the amended and
restated growth capital term loan and an amended and restated financing term loan. As of December
31, 2010, our outstanding balance under these agreements, net of debt discounts, totaled
$3,103,383.
Private placement notes
During the year ended March 31, 2009, we entered into a series of loan and security agreements
with accredited investors providing for loans evidenced by private placement notes totaling
$4,707,964. Each private placement notes is repayable over three years and bears interest at the
rate of 12% per annum. In June and July 2009, we issued an additional $200,000 of private placement
notes which bear interest at the rate of 8% per annum. We used the proceeds of these private
placement notes to fund member loans. In connection with origination of these private placement
notes, we issued fully exercisable warrants to purchase an aggregate of 514,817 shares of Series A
convertible preferred stock (see Note 8 Preferred Stock). Upon issuance of the warrants,
we recorded a debt discount of $329,271, and amortization of the debt discount was recorded as
interest expense of $27,439 for each of the three months ended December 31, 2010 and 2009, and
$82,318 for each of the nine months ended December 31, 2010 and 2009.
16
Table of Contents
7. Related Party Transactions
Of the private placement notes described in Note 6 Loans Payable, $450,000 of
original principal was invested by related parties on terms identical to those given to the other
private placement note investors. At December 31, 2010 and March 31, 2010, the outstanding
principal balance of these notes was $93,562 and $213,579, respectively.
8. Preferred Stock
Convertible preferred stock
In March 2009, we filed an Amended and Restated Certificate of Incorporation with the State of
Delaware, which increased the total number of shares which we are authorized to issue from
49,500,000 shares to 83,200,000 shares, 50,000,000 of which are designated as common stock, and
33,200,000 of which are designated as preferred stock.
In July 2009, we filed an Amended and Restated Certificate of Incorporation with the State of
Delaware, which increased the total number of shares which we are authorized to issue from
83,200,000 shares to 83,600,000 shares, 50,000,000 of which are designated as common stock, and
33,600,000 of which are designated as preferred stock.
In April 2010, we filed an Amended and Restated Certificate of Incorporation with the State of
Delaware, which increased the total number of shares which we are authorized to issue from
83,600,000 shares to 117,116,801 shares, 68,000,000 of which are designated as common stock,
17,006,275 of which are designated as Series A Preferred Stock, 16,410,526 of which are designated
as Series B Preferred Stock, and 15,700,000 of which are designated as Series C Preferred Stock.
A complete description of the rights, preferences, privileges and restrictions of our common
stock and the Series A, Series B, and Series C convertible preferred stock is included in the
Amended and Restated Certificate of Incorporation, as amended. The outstanding shares of
convertible preferred stock are not redeemable. None of our convertible preferred stock is
considered permanent equity based on the guidance of SEC Accounting Series Release No. 268,
Presentation in Financial Statements of Redeemable Preferred Stocks. The significant terms of
outstanding Series A, Series B, and Series C convertible preferred stock are as follows:
Conversion Each share of convertible preferred stock is convertible, at the option of the
holder, initially, into one share of common stock (subject to adjustments for events of dilution).
Each share of convertible preferred stock will each automatically be converted upon the earlier of
(i) the closing of an underwritten public offering of our common stock with aggregate gross
proceeds that are at least $30,000,000 or (ii) the consent of the holders of a 65% majority of
outstanding shares of convertible preferred stock, voting together as a single class, on an
as-converted to common stock basis. The Companys preferred stock agreements contain certain
anti-dilution provisions, whereby if the Company issues additional shares of capital stock for an
effective price lower than the conversion price for a series of preferred stock immediately prior
to such issue, then the existing conversion price of such series of preferred stock will be
reduced. The Company determined that while its convertible preferred stock contains certain
anti-dilution features, the conversion feature embedded within its convertible preferred stock does
not require bifurcation under the guidance of FASB ASC 815, Derivatives and Hedging Activities.
Liquidation preference Upon any liquidation, winding up or dissolution of us, whether
voluntary or involuntary (a Liquidation Event), before any distribution or payment shall be made
to the holders of any common stock, the holders of convertible preferred stock shall, on a pari
passu basis, be entitled to receive by reason of their ownership of such stock, an amount per share
of Series A convertible preferred stock equal to $1.065 (as adjusted for stock splits
recapitalizations and the like) plus all declared and unpaid dividends (the Series A Preferred
Liquidation Preference), an amount per share of Series B convertible preferred stock equal to
$0.7483 (as adjusted for stock splits recapitalizations and the like) plus all declared and unpaid
dividends (the Series B Preferred Liquidation Preference) and an amount per share of Series C
convertible preferred stock equal to $1.5677 (as adjusted for stock splits recapitalizations and
the like). However, if upon any such Liquidation Event, the assets of ours shall be insufficient
to make payment in full to all holders of convertible preferred stock of their respective
liquidation preferences, then the entire assets of ours legally available for distribution shall be
distributed with equal priority between the holders of based upon the amounts such series was to
receive. Any excess assets, after payment in full of the liquidation preferences to the convertible
preferred stockholders, are then allocated to the holders of common and preferred stockholders,
pro-rata, on an as-if-converted to common stock basis.
Dividends If and when declared by the Board of Directors, the holders of Series A, Series
B, and Series C convertible preferred stock, on a pari passu basis, will be entitled to receive
non-cumulative dividends at a rate of 6% per annum in preference to any dividends on common stock
(subject to adjustment for certain events). The holders of Series A, Series B, and Series C
convertible
preferred stock are also entitled to receive with common stockholders, on an as-if-converted
basis, any additional dividends issued by us.
17
Table of Contents
Voting rights Generally, preferred stockholders have one vote for each share of common
stock that would be issuable upon conversion of preferred stock. Voting as a separate class, and on
an as-if-converted to common stock basis, the Series A convertible preferred stockholders are
entitled to elect two members of the Board of Directors and the holders of Series B convertible
preferred stockholders are entitled to elect one member of the Board of Directors. The Series C
convertible preferred stockholders are not entitled to elect a member of the Board of Directors.
The holders of common stock, voting as a separate class, are entitled to elect one member of the
Board of Directors. The remaining directors are elected by the preferred stockholders and common
stockholders voting together as a single class on an as-if-converted to common stock basis.
9. Stockholders Deficit
Common stock
As of December 31, 2010, we have reserved shares of common stock for future issuance as
follows (unaudited):
Convertible preferred stock, Series A |
15,740,285 | |||
Convertible preferred stock, Series B |
16,036,346 | |||
Convertible preferred stock, Series C |
15,621,609 | |||
Options to purchase common stock |
5,254,499 | |||
Options available for future issuance |
3,688,268 | |||
Convertible preferred Series A stock warrants |
1,265,990 | |||
Convertible preferred Series B stock warrants |
374,180 | |||
Common stock warrants |
110,463 | |||
Total common stock reserved for future issuance |
58,091,640 | |||
During the three and nine months ended December 31, 2010 we issued zero and 29,250 shares of
common stock, respectively in exchange for proceeds of $0 and $7,898, respectively upon the
exercise of employee stock options.
In June 2010, in connection with the issuance of Notes, we issued fully exercisable warrants
to purchase 6,463 shares of common stock at $1.5677 per share. The warrants may be exercised at any
time on or before June 2020. The fair value of these warrants was estimated to be $788 using the
Black-Scholes option pricing model with the following assumptions: a volatility of 46.31%, a
contractual life of 10 years, no dividend yield and a risk-free interest rate of 3.05%. The entire
warrant value of $788 was expensed as interest expense in the three months ended June 30, 2010.
10. Stock-Based Compensation
Under our 2007 Stock Incentive Plan, or the Option Plan, we may grant options to purchase
shares of common stock to employees, executives, directors and consultants at exercise prices not
less than the fair market value at date of grant for incentive stock options and not less than 85%
of the fair market value at the date of grant for non-statutory options. An aggregate of 9,096,778
shares have been authorized for issuance under the Option Plan. These options generally expire ten
years from the date of grant and generally vest 25% twelve months from the date of grant, and
ratably over the next 12 quarters thereafter.
The Option Plan allows for employees to early exercise options. If an employees employment is
terminated prior to fully vesting in options that have been early exercised, we may repurchase the
common stock associated with unvested options at the original exercise price. As of December 31,
2010, none of the option holders have chosen to early exercise.
18
Table of Contents
We used the Black-Scholes option pricing model for estimating the fair value of stock options
granted with the following assumptions for the nine months ended December 31, 201 and the three and
nine months ended December 31, 2009 (unaudited). There were no stock options granted during the
three months ended December 31, 2010.
Three Months Ended | Nine Months Ended | ||||||||||
December 31, | December 31, | ||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||
Expected dividend yield |
| 0% | 0% | 0% | |||||||
Expected volatility |
| 59.4% 61.5% | 46.65% | 53.8% 61.5% | |||||||
Risk-free interest rates |
| 2.72% 3.60% | 2.45% | 2.72% 3.60% | |||||||
Expected life |
| 6.00 10.00 years | 6.08 years | 5.92 10.00 years |
We have elected to use the calculated-value method under FASB ASC 718 to calculate the
volatility assumption for three and nine months ended December 31, 2010 and 2009. The expected
life represents the period of time that stock options are expected to be outstanding, giving
consideration to the contractual terms of the awards, vesting schedules and expectations of future
exercise patterns and post-vesting employee termination behavior. Given our limited operating
history, the simplified method was applied to calculate the expected term. The risk-free interest
rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards
in effect at the time of grant. We have paid no cash dividends and do not anticipate paying any
cash dividends in the foreseeable future and therefore used an expected dividend yield of zero in
our option-pricing models.
Options activity under the Option Plan is summarized as follows (unaudited except balances at
March 31, 2010):
Options Outstanding | ||||||||||||||||
Weighted | Weighted | |||||||||||||||
Average | Average | |||||||||||||||
Shares | Exercise | Remaining | ||||||||||||||
Available | Number | Price per | Contractual | |||||||||||||
for Grant | of Shares | Share | Life (Years) | |||||||||||||
Balances at March 31, 2010 |
3,484,739 | 2,938,500 | $ | 0.25 | ||||||||||||
Additional Shares Authorized |
2,548,778 | |||||||||||||||
Options Granted |
(2,535,000 | ) | 2,535,000 | 0.41 | ||||||||||||
Options Exercised |
| (29,250 | ) | 0.27 | ||||||||||||
Options Cancelled |
189,751 | (189,751 | ) | 0.27 | ||||||||||||
Balances at December 31, 2010 |
3,688,268 | 5,254,499 | $ | 0.33 | 8.52 | |||||||||||
Exercisable at December 31, 2010 |
1,661,390 | $ | 0.26 | 7.42 | ||||||||||||
Vested and expected to vest at December 31, 2010 |
4,805,360 | $ | 0.32 | 8.47 |
A summary by exercise price of outstanding options, vested options, and options vested and
expected to vest at December 31, 2010, is as follows (unaudited):
Weighted Average Remaining | ||||||||||||||||
Number of Options | Contractual Life of | Number of Options Vested | ||||||||||||||
Exercise Price | Outstanding | Outstanding Options (Years) | Number of Options Vested | and Expected to Vest | ||||||||||||
$0.23 |
1,313,249 | 8.61 | 511,624 | 1,213,046 | ||||||||||||
$0.27 |
1,446,250 | 6.89 | 1,149,766 | 1,409,189 | ||||||||||||
$0.41 |
2,495,000 | 9.41 | | 2,183,125 | ||||||||||||
5,254,499 | 1,661,390 | 4,805,360 |
19
Table of Contents
The following table presents details of stock-based compensation expenses by
functional line item for the periods indicated (unaudited):
Three Months Ended | Nine Months Ended | |||||||||||||||
December 31, | December 31 | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Sales, marketing and customer service |
$ | 38,349 | $ | 9,536 | $ | 99,113 | $ | 29,896 | ||||||||
Engineering |
14,313 | 15,173 | 44,673 | 43,093 | ||||||||||||
General and administrative |
51,347 | 13,715 | 133,847 | 40,671 | ||||||||||||
104,009 | 38,424 | 277,633 | 113,660 | |||||||||||||
Less stock-based compensation expense for non-employees |
(1,462 | ) | (1,416 | ) | (4,377 | ) | (4,247 | ) | ||||||||
Total employee stock-based compensation expense |
$ | 102,547 | $ | 37,008 | $ | 273,256 | $ | 109,413 | ||||||||
No income tax benefit has been recognized relating to stock-based compensation expense and no
tax benefits have been realized from exercised stock options.
We granted zero and 571,500 stock options with a weighted average grant date fair value of $0
and $0.14, respectively, during the three months ended December 31, 2010 and 2009. During the nine
months ended December 31, 2010 and 2009, we granted stock options to purchase 2,535,000 and
2,195,978 shares, respectively, of common stock with a weighted average grant date fair value of
$0.20 and $0.13, respectively, per share. As of December 31, 2010, total unrecognized compensation
cost was $405,349. These costs are expected to be recognized through October 2014.
11. Income Taxes
As part of the process of preparing our financial statements, we are required to estimate our
income taxes in each of the jurisdictions in which we operate. This process involves determining
our income tax expense or benefit together with calculating the deferred income tax expense or
benefit related to temporary differences resulting from differing treatment of items, such as
deferred revenue or deductibility of certain intangible assets, for tax and accounting purposes.
These differences result in deferred tax assets and liabilities, which are included within the
accompanying balance sheet. We must then assess the likelihood that the deferred tax assets will be
recovered through the generation of future taxable income.
As of December 31, 2010, we continued to have a full valuation allowance against our net
deferred tax assets. We believe it is more likely than not that all of our deferred tax assets will
not be realized. For the three months ended December 31, 2010, we were in a loss position. We did
not have any foreign operations and therefore did not record any tax provisions during the period.
We adopted the provisions of FASB ASC 740 on April 1, 2007. FASB ASC 740 clarifies the
accounting for uncertainty in tax positions and requires that companies recognize in their
financial statements the largest amount of a tax position that is more-likely-than-not to be
sustained upon audit, based on the technical merits of the position. The adoption of FASB ASC 740
did not affect our financial condition, results of operations or cash flows for the fiscal year
ended March 31, 2010.
We file income tax returns in the U.S. federal jurisdiction and California jurisdictions. Our
tax years for 2006 and forward are subject to examination by the U.S. and California tax
authorities as the statutes of limitation remain open.
Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as
a component of income tax expense. As of the date of adoption of FASB ASC 740, we did not have any
unrecognized tax benefits and associated accrued interest or penalties nor was any interest expense
or penalties recognized during the fiscal year ended March 31, 2010.
12. Net Interest Income
Revenues primarily result from interest income and transaction fees. Transaction fees include
borrower paid origination fees and investor paid service fees. Interest income is accrued and
recorded in the accompanying statements of operations as collected. We classify interest and fees
earned on our member loans, CM Loans and Notes together as interest income in these financial
statements.
20
Table of Contents
The following table summarizes net interest income (expense) as follows (unaudited):
Three Months Ended | Nine Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Interest income: |
||||||||||||||||
Member loans Funded by LC |
$ | 187,605 | $ | 329,423 | $ | 637,945 | $ | 1,016,809 | ||||||||
CM Loans at fair value Funded by Notes |
||||||||||||||||
Interest and fees earned on CM Loans |
4,749,488 | 1,582,662 | 11,922,370 | 2,807,892 | ||||||||||||
Credit risk related adjustment (interest expense) |
(2,351,042 | ) | (1,113,130 | ) | (6,168,475 | ) | (2,123,782 | ) | ||||||||
Cash and cash equivalents |
9,981 | 2,882 | 26,783 | 23,951 | ||||||||||||
Total interest income |
$ | 2,596,032 | $ | 801,837 | $ | 6,418,623 | $ | 1,724,870 | ||||||||
Interest expense: |
||||||||||||||||
Notes, fair value |
||||||||||||||||
Interest and fees expensed on Notes |
$ | 3,140,018 | $ | 839,090 | $ | 7,428,915 | $ | 1,535,422 | ||||||||
Credit risk related adjustment (interest income) |
(2,345,804 | ) | (1,112,868 | ) | (6,160,177 | ) | (2,123,280 | ) | ||||||||
Loans payable |
167,046 | 294,324 | 567,630 | 875,236 | ||||||||||||
Amortization of debt discount on Loans |
67,812 | 74,834 | 217,480 | 219,366 | ||||||||||||
Total interest expense |
$ | 1,029,072 | $ | 95,380 | $ | 2,053,848 | $ | 506,744 | ||||||||
A reconciliation of the table above to our Condensed Statements of Operations is as follows
(unaudited):
Per table above: |
||||||||||||||||
Total interest income |
$ | 2,596,032 | $ | 801,837 | $ | 6,418,623 | $ | 1,724,870 | ||||||||
Total interest expense |
(1,029,072 | ) | (95,380 | ) | (2,053,848 | ) | (506,744 | ) | ||||||||
$ | 1,566,960 | $ | 706,457 | $ | 4,364,775 | $ | 1,218,126 | |||||||||
Per Condensed Statements of Operations: |
||||||||||||||||
Net interest income (loss), Member loans |
$ | (37,272 | ) | $ | (36,853 | ) | $ | (120,382 | ) | $ | (53,842 | ) | ||||
Net interest income (loss), CM Loans
and Notes, fair value |
1,604,232 | 743,310 | 4,485,157 | 1,271,968 | ||||||||||||
$ | 1,566,960 | $ | 706,457 | $ | 4,364,775 | $ | 1,218,126 | |||||||||
13. Commitments and Contingencies
Operating leases
We lease our principal administrative office under a two year operating lease, and satellite
offices in Connecticut and New York each under one year lease agreements, certain service
facilities, and some of our office equipment. Facilities rental expense was $71,008 and $36,275
for the three months ended December 31, 2010 and 2009, respectively, and $175,743 and $109,977 for
the nine months ended December 31, 2010 and 2009, respectively.
21
Table of Contents
Securities law compliance
From May 2007 through April 2008, we sold approximately $7.4 million of member loans to
investor members who were unaffiliated with us through our platform whereby we assigned promissory
notes directly to investor members. We did not register the offer and sale of the promissory notes
offered and sold through our platform under the Securities Act of 1933 or under the registration or
qualification provisions of the state securities laws. Our management believes that the question of
whether or not the operation of our platform involved an offer or sale of a security involved a
complicated factual and legal analysis that was uncertain. If the sales of promissory notes offered
through our platform were viewed as a securities offering, we would have failed to comply with the
registration and qualification requirements of federal and state law, and investor members who hold
these promissory notes may be entitled to rescission of unpaid principal, plus statutory interest.
Generally, the federal statute of limitations for noncompliance with the requirement to register
securities under the Securities Act of 1933 is one year from the violation. The statute of
limitations periods under state securities laws for sales of unregistered securities may extend for
a longer period of time, and certain state securities laws empower state officials to seek
restitution or rescission remedies for purchasers of unregistered securities. We have received
inquiries from a number of states in respect of these prior sales of loans; neither the SEC nor any
state, however, has taken or threatened administrative action or litigation over such loan sales.
Our decision to restructure our operations and cease sales of promissory notes offered through
the platform effective April 7, 2008 limited this contingent liability so that it only relates to
the period from the launch of our platform in May 2007 until April 7, 2008, the termination of
sales under our prior operating structure.
We have not recorded an accrued loss contingency under FASB ASC 450 in connection with this
contingent liability. Accounting for loss contingencies pursuant to FASB ASC 450 involves the
existence of a condition, situation or set of circumstances involving uncertainty as to possible
loss that will ultimately be resolved when one or more future event(s) occur or fail to occur.
Additionally, accounting for a loss contingency requires management to assess each event as
probable, reasonably possible or remote. Probable is defined as the future event or events are
likely to occur. Reasonably possible is defined as the chance of the future event or events
occurring is more than remote but less than probable, while remote is defined as the chance of the
future event or events occurring is slight. An estimated loss in connection with a loss contingency
shall be recorded by a charge to current operations if both of the following conditions are met:
first, the amount can be reasonably estimated; and second, the information available prior to
issuance of the financial statements indicates that it is probable that a liability has been
incurred at the date of the financial statements. We have assessed the contingent liability related
to prior sales of member loans on the platform in accordance with FASB ASC 450 and have determined
that the occurrence of the contingency is reasonably possible. In accordance with FASB ASC 450, we
have estimated the range of loss as of December 31, 2010 as between $0 and $0.36 million, which is,
as of December 31, 2010, the aggregate outstanding principal balance of member loans sold to
persons unaffiliated with us from inception through April 7, 2008. In making this assessment, we
considered our view, described above, that analyzing whether or not the operation of our platform
involved an offer or sale of a security involved a complicated factual and legal analysis that
was uncertain. In addition, we considered our belief that investor members have received what they
expected to receive in the transactions under our prior operating structure. Generally, the
performance of the outstanding member loans had, in our view, delivered to investor members the
benefits they expected to receive in using our platform.
Due to the legal uncertainty regarding the sales of promissory notes offered through our
platform under our prior operating structure as described above, we decided to restructure our
operations to resolve such uncertainty. We began our implementation of this decision on April 7,
2008, when we ceased offering investor members the opportunity to make purchases on our platform,
ceased accepting new investor member registrations and ceased allowing new funding commitments from
existing investor members. We then filed the registration statement (the Registration Statement)
with the SEC to register the issuance and sale of Notes under our new operating structure. We
resumed accepting new investor members and allowing transactions with investor members starting
October 13, 2008, after the date the Registration Statement became effective.
The change in the operation of our platform, as well as our adoption of new accounting
pronouncements, had a significant impact on our financial statements and results of operations for
periods following the effective date of the Registration Statement. Because the Notes are a novel
financing structure, we will continue to evaluate the impact the changes this shift in our
operations will have on our financial condition, results of operations and cash flows.
We adopted the provisions of FASB ASC 820 and FASB ASC 825. FASB ASC 825 permits companies to
choose to measure certain financial instruments and certain other items at fair value. FASB ASC 825
requires that unrealized gains and losses on items for which the fair value option has been elected
be reported in earnings. We applied the provisions of FASB ASC 825 to the CM Loans and Notes issued
under our prospectus, but did not apply the provisions of FASB ASC 825 to prior member loans which
were sold to our investor members.
14. Subsequent Events
Subsequent to December 31, 2010, and through the date of issuance of these financial
statements, no events have occurred which would require disclosure as a subsequent event.
22
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
In addition to historical information, this quarterly report contains forward-looking statements
that involve risks and uncertainties that could cause actual results to differ materially from
those projected. Factors that might cause or contribute to such differences include, but are not
limited to, those discussed in the following Managements Discussion and Analysis of Financial
Condition and Results of Operations as well as in Part II Item 1A Risk Factors. Actual results
could differ materially. Important factors that could cause actual results to differ materially
include, but are not limited to; the level of demand for our products and services; the intensity
of competition; our ability to effectively expand and improve internal infrastructure; and adverse
financial, customer and employee consequences that might result to us if litigation were to be
initiated and resolved in an adverse manner to us. For a more detailed discussion of the risks
relating to our business, readers should refer to Part II Item 1A found later in this report
entitled Risk Factors, as well as the Risk Factors section of the prospectus for the Notes
dated January 7, 2011 and filed with the SEC, as may be amended or supplemented from time to time.
Readers are cautioned not to place undue reliance on the forward-looking statements, including
statements regarding our expectations, beliefs, intentions or strategies regarding the future,
which speak only as of the date of this quarterly report. We assume no obligation to update these
forward-looking statements.
Overview
We are an on-line financial platform. We allow qualified borrower members to obtain loans
(which we refer to as member loans) with interest rates that they find attractive. Since October
13, 2008, investors have had the opportunity to purchase Member Payment Dependent Notes (which we
refer to as the Notes) issued by us, with each series of Notes corresponding to an individual
member loan originated on our platform (which we refer to as corresponding member loans or CM
Loans). The Notes are dependent for payment on CM Loans and offer interest rates and credit
characteristics that the investors find attractive. From the launch of our platform in May 2007
until April 7, 2008, we did not offer Notes on our platform. Instead, our platform allowed investor
members to purchase assignments of unsecured member loans directly. Since November 2007, we have
also funded member loans ourselves, which we refer to as member loans based on our intent and
ability to hold the loans for the foreseeable future or to maturity.
All member loans are unsecured obligations of individual borrower members with fixed interest
rates and three-year or five-year maturities. The member loan requests are posted on our website,
funded by WebBank, an FDIC-insured, state-chartered industrial bank organized under the laws of the
state of Utah, at closing and immediately sold to us upon closing. As a part of operating our
platform, we verify the identity of members, obtain borrower members credit characteristics from a
consumer reporting agency such as TransUnion, Experian or Equifax and screen borrower members for
eligibility to participate in the platform and facilitate the posting of member loan requests. We
service member loans on an ongoing basis.
We were incorporated in Delaware in October 2006, and in May 2007, began operations as an
application on Facebook.com. In August 2007, we conducted a venture capital financing round and
expanded our operations with the launch of our public website, www.lendingclub.com. As of December
31, 2010, our platform has facilitated approximately 20,814 member loans since our launch in May
2007.
We have been operating since December 2007 pursuant to an agreement with WebBank. WebBank
serves as the lender for all member loans originated through our platform. Our agreement with
WebBank has enabled us to make our platform available to borrower members on a uniform basis
nationwide, except that as of October 31, 2010, we do not offer member loans in Idaho, Iowa,
Indiana, Maine, Mississippi, Nebraska, North Carolina, North Dakota and Tennessee. We pay WebBank a
monthly service fee based on the amount of loan proceeds disbursed by WebBank in each month,
subject to a minimum monthly fee.
23
Table of Contents
We have a limited operating history and have incurred net losses since our inception. Our net
loss was $2,887,349 and $8,351,473, respectively, for the three and nine months ended December 31,
2010. We earn revenues from processing fees charged to members, primarily a borrower member
origination fee and an investor service fee. We also earn interest income on member loans that we
fund ourselves. At this stage of our development, we have funded our operations primarily with
proceeds from our venture capital financings, our credit facilities and debt and equity issuances,
which are described below under Liquidity and Capital Resources. We also relied on our credit
facilities and debt issuances to borrow funds, which we used to fund member loans ourselves. Our
borrowing capacity under our credit facilities is currently zero. Over time, we expect that
the number of borrower and investor members and the volume of member loans originated through our
platform will increase, and that we will generate increased revenue from borrower origination fees
and investor service charges.
Our operating plan allows for a continuation of the current strategy of raising capital
through debt and equity financings to finance our operations until we reach profitability and
become cash-flow positive, which we do not expect to occur within the next twelve months. Our
operating plan calls for significant investments in website development, security, loan scoring,
loan processing and marketing before we reach profitability.
During the year ended March 31, 2010, we raised $4,200,000 through the issuance of notes
payable in connection with our May 2009 term loan and our private placement notes. In April 2010,
subsequent to our March 31, 2010 year end, we issued 15,621,609 shares of Series C convertible
preferred stock for aggregate cash consideration of $24,489,996. In connection with our private
placement of Series C convertible preferred stock, we incurred transaction expenses, recorded as an
offset to gross proceeds, of $102,051.
Significant Accounting Policies and Estimates
The preparation of our financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States requires us to make judgments,
assumptions, and estimates that affect the amounts reported in our financial statements and
accompanying notes. We believe that the judgments, assumptions and estimates upon which we rely are
reasonable based upon information available to us at the time that these judgments, assumptions and
estimates are made. However, any differences between these judgments, assumptions and estimates and
actual results could have a material impact on our statement of operations and financial condition.
The accounting policies that reflect our most significant judgments, assumptions and estimates and
which we believe are critical in understanding and evaluating our reported financial results
include: (1) revenue recognition; (2) fair value; (3) allowance for loan losses; and (4)
share-based compensation. There have been no material changes to any of our significant accounting
policies and critical accounting estimates since March 31, 2010.
24
Table of Contents
Results of Operations
Revenues
Our business model consists primarily of charging transaction fees to both borrower members
and investor members for the loans originated through our lending platform. During the nine months
ended December 31, 2010 and 2009, we originated $102,843,500 and $43,576,650 of loans,
respectively, on our lending platform, an increase of 136%. The borrower member pays a fee to us
for providing the services of arranging the member loan and the investor member pays a fee to us
for managing the payments on the member loans and maintaining account portfolios. We also generate
revenue from interest earned on our member loans held for investment.
Three Months Ended | Nine Months Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Interest income: |
||||||||||||||||
Member loans |
$ | 187,605 | $ | 329,423 | $ | 637,945 | $ | 1,016,809 | ||||||||
CM Loans, fair value |
||||||||||||||||
Interest and fees earned on CM Loans |
4,749,488 | 1,582,662 | 11,922,370 | 2,807,892 | ||||||||||||
Credit risk related adjustment
(interest expense) |
(2,351,042 | ) | (1,113,130 | ) | (6,168,475 | ) | (2,123,782 | ) | ||||||||
Cash and cash equivalents |
9,981 | 2,882 | 26,783 | 23,951 | ||||||||||||
Total interest income |
$ | 2,596,032 | $ | 801,837 | $ | 6,418,623 | $ | 1,724,870 | ||||||||
Interest expense: |
||||||||||||||||
Notes, fair value |
||||||||||||||||
Interest and fees expensed on Notes |
$ | 3,140,018 | $ | 839,090 | $ | 7,428,915 | $ | 1,535,422 | ||||||||
Credit risk related adjustment
(interest income) |
(2,345,804 | ) | (1,112,868 | ) | (6,160,177 | ) | (2,123,280 | ) | ||||||||
Loans payable |
167,046 | 294,324 | 567,630 | 875,236 | ||||||||||||
Amortization of debt discount on Loans |
67,812 | 74,834 | 217,480 | 219,366 | ||||||||||||
Total interest expense |
$ | 1,029,072 | $ | 95,380 | $ | 2,053,848 | $ | 506,744 | ||||||||
Net interest income |
$ | 1,566,960 | $ | 706,457 | $ | 4,364,775 | $ | 1,218,126 | ||||||||
Interest Income
The following table presents our quarterly interest income sources in both absolute dollars
and as a percentage of interest income (in thousands):
For the Quarter Ended | ||||||||||||||||||||||||||||||||
Interest | March 31, | June 30, | September 30, | December 31, | ||||||||||||||||||||||||||||
Income | 2009 | 2009 | 2009 | 2009 | ||||||||||||||||||||||||||||
Source | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
Borrower origination fees and interest
earned on member loans held for
investment |
284 | 62 | 316 | 65 | 371 | 49 | 371 | 49 | ||||||||||||||||||||||||
Borrower origination fees and interest
earned on CM Loans, net of interest
expense on the related Notes. |
166 | 36 | 155 | 32 | 374 | 50 | 374 | 50 | ||||||||||||||||||||||||
Interest earned on cash and investments |
8 | 2 | 17 | 3 | 4 | 1 | 4 | 1 | ||||||||||||||||||||||||
Total Interest Income |
458 | 100 | 488 | 100 | 749 | 100 | 749 | 100 | ||||||||||||||||||||||||
25
Table of Contents
For the Quarter Ended | ||||||||||||||||||||||||||||||||
Interest | March 31, | June 30, | September 30, | December 31, | ||||||||||||||||||||||||||||
Income | 2009 | 2010 | 2010 | 2010 | ||||||||||||||||||||||||||||
Source | $ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||||||
Borrower origination fees and interest
earned on member loans held for
investment |
272 | 22 | 227 | 15 | 224 | 12 | 188 | 10 | ||||||||||||||||||||||||
Borrower origination fees and interest
earned on CM Loans, net of interest
expense on the related Notes. |
991 | 78 | 1,249 | 85 | 1,632 | 87 | 1,604 | 89 | ||||||||||||||||||||||||
Interest earned on cash and investments |
4 | 0 | 6 | 0 | 10 | 1 | 10 | 1 | ||||||||||||||||||||||||
Total Interest Income |
1,267 | 100 | 1,482 | 100 | 1,866 | 100 | 1,802 | 100 | ||||||||||||||||||||||||
Borrower Origination Fees
Our borrower members pay a one-time fee to us for arranging a member loan. This fee is
determined by the loan grade of the member loan.
From June 17, 2008 to November 24, 2008, our origination fees ranged from 0.75% to 3.00% of
the aggregate principal amount of the member loan, as set forth below:
Loan | ||||||||||||||||||||||||||||
Grade | A | B | C | D | E | F | G | |||||||||||||||||||||
Fee |
0.75 | % | 1.50 | % | 2.00 | % | 2.50 | % | 2.75 | % | 3.00 | % | 3.00 | % |
Beginning November 25, 2008, our origination fees increased ranging from 0.75% to 3.50% of the
aggregate principal amount of the member loan, as set forth below:
Loan | ||||||||||||||||||||||||||||
Grade | A | B | C | D | E | F | G | |||||||||||||||||||||
Fee |
0.75 | % | 2.50 | % | 3.00 | % | 3.50 | % | 3.50 | % | 3.50 | % | 3.50 | % |
Beginning July 30, 2009, our origination fees increased, ranging from 1.25% to 3.75% of the
aggregate principal amount of the member loan, as set forth below:
Loan | ||||||||||||||||||||||||||||
Grade | A | B | C | D | E | F | G | |||||||||||||||||||||
Fee |
1.25 | % | 3.25 | % | 3.75 | % | 3.75 | % | 3.75 | % | 3.75 | % | 3.75 | % |
Beginning November 9, 2009, our origination fees increased, ranging from 1.25% to 4.50% of the
aggregate principal amount of the member loan, as set forth below:
Loan | ||||||||||||||||||||||||||||
Grade | A | B | C | D | E | F | G | |||||||||||||||||||||
Fee |
1.25% - 2.25 | % | 3.75 | % | 4.50 | % | 4.50 | % | 4.50 | % | 4.50 | % | 4.50 | % |
Beginning January 20, 2010, our origination fees increased, ranging from 2.25% to 4.50% of the
aggregate principal amount of the member loan, as set forth below:
Loan | ||||||||||||||||||||||||||||
Grade | A | B | C | D | E | F | G | |||||||||||||||||||||
Fee |
2.25 | % | 3.75 | % | 4.50 | % | 4.50 | % | 4.50 | % | 4.50 | % | 4.50 | % |
26
Table of Contents
Beginning May 24, 2010, our origination fees increased, ranging from 2.25% to 4.50% of the
aggregate principal amount of the member loan, as set forth below:
Loan | ||||||||||||||||||||||||||||
Grade | A | B | C | D | E | F | G | |||||||||||||||||||||
Fee |
2.25 | % | 4.25 | % | 4.50 | % | 4.50 | % | 4.50 | % | 4.50 | % | 4.50 | % |
Beginning August 2, 2010, our origination fees for five year loans increased, ranging from
2.75% to 5.00% of the aggregate principal amount of the member loan, as set forth below:
Loan | ||||||||||||||||||||||||||||
Grade | A | B | C | D | E | F | G | |||||||||||||||||||||
Fee |
2.75 | % | 4.75 | % | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % |
Beginning October 5, 2010, our origination fees for three and five year loans changed, and
ranged from 2.25% to 4.50% of the aggregate principal amount of the member loan, as set forth
below:
Loan | ||||||||||||||||||||||||||||
Grade | A | B | C | D | E | F | G | |||||||||||||||||||||
Fee |
2.25 | % | 4.25 | % | 4.50 | % | 4.50 | % | 4.50 | % | 4.50 | % | 4.50 | % |
Beginning October 15, 2010, our origination fees for three and five year loans changed, and
ranged from 2.00% to 5.00% of the aggregate principal amount of the member loan, as set forth
below:
Loan | ||||||||||||||||||||||||||||
Grade | A | B | C | D | E | F | G | |||||||||||||||||||||
Fee |
2.00 | % | 4.00 | % | 4.50 | % | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % |
Beginning January 7, 2011, our origination fees for three year loans changed, and ranged from
2.00% to 5.00% of the aggregate principal amount of the member loan, as set forth below:
Loan | ||||||||||||||||||||||||||||||||
Grade | A1-A2 | A3-A5 | B | C | D | E | F | G | ||||||||||||||||||||||||
Fee |
2.00 | % | 3.00 | % | 4.00 | % | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % |
Beginning January 7, 2011, our origination fees for five year loans changed, and ranged from
3.00% to 5.00% of the aggregate principal amount of the member loan, as set forth below:
Loan | ||||||||||||||||||||||||||||
Grade | A | B | C | D | E | F | G | |||||||||||||||||||||
Fee |
3.00 | % | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % |
The borrower origination fee is included in the APR calculation provided to the borrower
member and is deducted from the gross loan proceeds prior to disbursement of funds to the borrower
member. We do not receive a borrower origination fee if a member loan request does not close.
Borrower Origination Fees Earned on Member Loans Funded by Lending Club
We compute borrower origination fees for member loans that we fund ourselves by subtracting
the average costs of originating a member loan from the aggregate fee charged to the borrower
member for the member loan. We initially defer this net amount and subsequently amortize the
balance over the servicing period of the member loan, which is currently 36 months for each funded
member loan.
27
Table of Contents
Interest Earned on Member Loans Funded by Lending Club
Between April 7, 2008 and October 13, 2008, while we sought to register the offering of the
Notes, we funded the platform ourselves and generated interest income through investment in member
loans held for investment. Subsequent to the effectiveness of our registration statement related
to our Notes, we have continued to periodically fund some of these member loans. However, as we
have increased our marketing and awareness efforts, the ratio of member loans funded by Lending
Club to CM Loans that we originate each quarter has diminished. As such, during the nine months
ended December 31, 2010, we funded $4,139,600 of member loans while our investor members funded
$98,703,900 of member loans, while during the nine months ended December 31, 2009, we funded
$5,116,625 of member loans while our investor members funded $38,460,026 of member loans.
When payments are received on member loans funded by Lending Club, the interest portion paid
by our borrower members and the amortization of the origination fees, net of costs of origination,
are recorded as interest income. Interest rates on these member loans, excluding amortization of
net origination fees, range from 5.42% to 21.64% per annum as of December 31, 2010. During the
three months ended December 31, 2010 and 2009, we recorded interest income on the member loans we
funded of $187,605 and $371,267, respectively. Comparatively, during the nine months ended
December 31, 2010 and 2009, we recorded interest income on the member loans we funded of $637,945
and $687,386, respectively.
Borrower Origination Fees and Interest Earned on CM Loans Net of Interest Expense on the
Related Notes
Beginning October 13, 2008, we began recording interest income, including borrower origination
fees, from CM Loans and corresponding interest expense from the Notes. Interest income from the CM
Loans includes origination fees on these member loans which are recognized in the period
originated. During the three months ended December 31, 2010, we recorded interest income from CM
Loans of $4,749,488, including $1,399,568 of origination fees. Under FASB ASC 825 guidance
regarding the fair value option for accounting for financial assets, for the three months ended
December 31, 2010, this interest income was offset by credit risk related adjustments on CM Loans
of $2,351,042, a non-cash interest expense. Conversely, for the Notes, we recorded interest
expense of $3,140,018 for the three months ended December 31, 2010, and offset this interest
expense by credit risk related adjustments (non-cash interest income) on Notes of $2,345,804 during
that same period. Comparatively, during the nine months ended December 31, 2010, we recorded
interest income from CM Loans of $11,922,370, including $4,027,238 of origination fees. For the
nine months ended December 31, 2010, this interest income was offset by credit risk related
adjustments on CM Loans of $6,168,475, a non-cash interest expense. Conversely, for the Notes, we
recorded interest expense of $7,428,915 for the nine months ended December 31, 2010, and offset
this interest expense by credit risk related adjustments (non-cash interest income) on Notes of
$6,160,177 during that same period.
During the three months ended December 31, 2009, we recorded interest income from CM Loans of
$808,974, including $694,243 related to origination fees. This interest income was offset by
credit risk related adjustments on CM Loans of $755,384, a non-cash interest expense. Conversely,
for the Notes, we recorded interest expense of $435,316 during the three months ended December 31,
2009 and offset this interest expense by credit risk related adjustments (non-cash interest income)
on Notes of $755,222 during that same period. Comparatively, during the nine months ended December
31, 2009, we recorded interest income from CM Loans of $1,225,230, including $1,184,201 of
origination fees. For the nine months ended December 31, 2009, this interest income was offset by
credit risk related adjustments on CM Loans of $1,010,652, a non-cash interest expense.
Conversely, for the Notes, we recorded interest expense of $696,332 for the nine months ended
December 31, 2009, and offset this interest expense by credit risk related adjustments (non-cash
interest income) on Notes of $1,010,413 during that same period. Over time, we expect that
revenues and expenses related to CM Loans and Notes will increase as we grow our platform.
28
Table of Contents
Interest Earned on Cash and Investments
Interest income from cash and cash equivalents is recorded as it is earned. For the three and
nine months ended December 31, 2010, we recorded $9,981 and $26,783, respectively, of interest
income earned on cash and cash equivalents. Comparatively, for three and nine months ended
December 31, 2009, we recorded $4,479 and $21,069, respectively in interest income earned on cash
and cash equivalents. The differences in interest income are a function of the cash on hand and
the declining interest rate climate during the relevant periods. We do not expect interest income
from cash and cash equivalents to be a significant part of our future revenue.
Interest Expense on Loans Payable
Interest expense, other than that described above with regard to Notes, consists primarily of
cash and non-cash interest on loans payable. For the three months ended December 31, 2010 and 2009,
we paid cash interest of $167,046 and $313,823, respectively, for interest due on our loans
payable. For the three months ended December 31, 2010 and 2009, we also recorded $67,812 and
$74,834, respectively, for non-cash interest expense related to debt discounts due to warrants on
our loans payable. Comparatively, for the nine months ended December 31, 2010 and 2009, we paid
cash interest of $567,630 and $580,911, respectively, for interest due on our loans payable. For
the nine months ended December 31, 2010 and 2009, we also recorded $217,480 and $144,533,
respectively, for non-cash interest expense related to debt discounts due to warrants on our loans
payable.
As we have no additional capacity under our various loans payable agreements, we expect
interest expense on our loans payable continue to decrease over the next year as we repay these
loans.
Provision for Loan Losses
The allowance for loan losses, which management evaluates on a periodic basis, represents an
estimate of potential credit losses inherent in our portfolio of member loans that we funded
ourselves, in whole or in part, and hold for investment and is based on a variety of factors,
including the composition and quality of the loan portfolio, loan specific information gathered
through our collection efforts, delinquency levels, probable expected losses, current and
historical charge-off and loss experience, current industry charge-off and loss experience, and
general economic conditions. Determining the adequacy of the allowance for loan losses is
subjective, complex, and requires judgment by management about the effect of matters that are
inherently uncertain (see Note 2 Significant Accounting Policies, Allowance for loan losses).
Moreover, in light of our limited operating history, we do not yet have significant historical
experience unique to our own base of borrowers and underwriting criteria with which to help
estimate expected losses on our portfolio. In the three and nine months ended December 31, 2010,
we recorded a provision for loan losses of $72,755 and $346,475, respectively, against our member
loans funded by us. Comparatively, for the three and nine months ended December 31, 2009, we
recorded a provision for loan losses of $176,376 and $1,170,880, respectively, against our member
loans held for investment.
Amortization of loan servicing rights
We charge investor members an ongoing service fee in respect of member loans and Notes that
they have purchased through our platform. The service fee offsets the costs we incur in servicing
member loans, including managing payments from borrower members, payments to investor members and
maintaining account portfolios. This service fee is equal to 1.00% of all amounts paid by us to an
investor member in respect of a member loan, excluding certain fees retained by investors. The
service fee is deducted from any payments on a member loan before the net amounts of those payments
are allocated to the investor members Lending Club accounts.
For member loans purchased by third parties prior to the registration of our Notes, we
recognized a servicing asset and corresponding servicing liability in accordance with FASB ASC 860.
We then amortize the servicing fee asset into income as payments are received on these member
loans (see Note 2 Summary of Significant Accounting Policies, Revenue recognition, Third
party purchased member loans). During the three and nine months ended December 31, 2010, we
recognized $4,024 and $15,172, respectively, of such income. Comparatively, during the three and
nine months ended December 31, 2009, we recognized $7,003 and $21,973, respectively of such income.
Because following the registration of the Notes, investor members no longer directly purchase
member loans, the amount of income from amortization of loan servicing rights will continue to
diminish until the underlying member loans are fully discharged. The balance of loan servicing
rights at December 31, 2010 and March 31, 2010, was $2,922 and $22,141, respectively, on
outstanding loan balances held by third parties of $355,264 and $1,857,555 respectively.
29
Table of Contents
Operating Expenses:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
December 31, | % | December 31, | % | |||||||||||||||||||||
2010 | 2009 | change | 2010 | 2009 | change | |||||||||||||||||||
Sales, marketing, and
customer service |
$ | 3,058,648 | $ | 1,620,151 | 89 | % | $ | 8,433,373 | $ | 4,242,351 | 99 | % | ||||||||||||
Engineering |
514,377 | 442,433 | 16 | % | 1,512,946 | 1,310,687 | 15 | % | ||||||||||||||||
General and administrative |
902,311 | 612,887 | 47 | % | 2,682,501 | 2,345,321 | 14 | % | ||||||||||||||||
Total operating expenses |
$ | 4,475,336 | $ | 2,675,471 | $ | 12,628,820 | $ | 7,898,359 | ||||||||||||||||
Sales, Marketing and Customer Service Expense
Sales, marketing and customer service expense consists primarily of salaries, benefits and
stock-based compensation expense related to sales, marketing, customer service and credit
personnel, costs of marketing campaigns and costs of borrower underwriting such as credit scoring
and screening. Sales, marketing and customer service expenses for the three months ended December
31, 2010 and 2009, were $3,058,648 and $1,620,151, respectively, an increase of approximately 89%.
Comparatively, sales, marketing and customer service expenses for the nine months ended December
31, 2010 and 2009, were $8,433,373 and $4,242,351, respectively, an increase of approximately 99%.
The increase in expenses in this category during the three and nine months ended December 31, 2010
in comparison to the three and nine months ended December 31, 2009 was primarily due to increased
personnel expenses which grew by $537,775 and $1,787,139, respectively, and increased marketing
programs aimed at acquiring new investors and borrowers which grew by $726,928 and $2,089,238,
respectively, and increased costs for borrower underwriting services, such as credit reporting,
which grew by $207,593 and $498,192, respectively.
Engineering Expense
Engineering expense consists primarily of salaries, benefits and stock-based compensation
expense of personnel, and the cost of subcontractors who work on the development and maintenance of
our platform and software enhancements that run our platform. Engineering expense for the three
months ended December 31, 2010 and 2009, was $514,377 and $442,433, respectively, an increase of
16%. Comparatively, engineering expense for the nine months ended December 31, 2010 and 2009, was
$1,512,946 and $1,310,687, respectively, an increase of 15%. The increase for the three and nine
months ended December 31, 2010 versus the same three and nine months ended December 31, 2009, was
primarily due to increased staffing costs, including contract labor and expensed equipment.
General and Administrative Expense
General and administrative expense consists primarily of salaries, benefits and stock-based
compensation expense related to general and administrative personnel, professional fees primarily
related to legal and accounting fees, facilities expenses and the related overhead, and expenses
related to platform fraud prevention and remediation. General and administrative expense for the
three months ended December 31, 2010 and 2009, was $902,311 and $612,887, respectively, an increase
of approximately 47%. The increase was primarily the result of higher expenses for personnel costs
of $251,084, and facilities costs of $39,628. These costs were offset however by a drop in outside
legal expenses of $56,793, as we relied more heavily on in-house counsel during the three months
ended December 31, 2010, in comparison to the three months ended December 31, 2009.
Comparatively, general and administrative expense for the nine months ended December 31, 2010
and 2009, was $2,682,501 and $2,345,321, respectively, an increase of approximately 14%. The
increase was primarily the result of higher expenses for personnel costs of $537,521, and
facilities costs of $100,746. These costs were offset however by a drop in outside legal and
accounting expenses of $470,328, as we relied more heavily in-house counsel during the nine months
ended December 31, 2010, in comparison to the nine months ended December 31, 2009. We expect that
general and administrative expenses will decrease as a percentage of overall operating expenses as
we grow our marketing and sales efforts in greater proportion than our general and administrative
expenses.
30
Table of Contents
Liquidity and Capital Resources
Nine Months Ended December 31, | ||||||||||||
2010 | 2009 | Change | ||||||||||
Cash flows from: |
||||||||||||
Operating Activities |
$ | (6,898,226 | ) | $ | (6,306,156 | ) | $ | (592,070 | ) | |||
Investing Activities |
(70,839,942 | ) | (34,815,479 | ) | (36,024,463 | ) | ||||||
Add back/(subtract): |
||||||||||||
Origination of CM Loans, fair value |
98,703,900 | 38,460,025 | 60,243,875 | |||||||||
Repayment of CM Loans, fair value |
(27,522,184 | ) | (5,411,031 | ) | (22,111,153 | ) | ||||||
Investing Activities after excluding
activity related to CM Loans, fair
value |
341,774 | (1,766,485 | ) | 2,108,259 | ||||||||
Financing Activities |
92,430,766 | 33,853,500 | 58,577,266 | |||||||||
Add back/(subtract): |
||||||||||||
Origination of Notes, fair value |
(103,049,550 | ) | (39,024,105 | ) | (64,025,445 | ) | ||||||
Repayment of Notes, fair value |
24,387,945 | 5,421,076 | 18,966,869 | |||||||||
Financing Activities after excluding
activity related to Notes, fair value |
$ | 13,769,161 | $ | 250,471 | $ | 13,518,690 | ||||||
Net cash used in operating activities increased to $6,898,226 for the nine months ended
December 31, 2010, from $6,306,156 in the nine months ended December 31, 2009. Non-cash charges
that most significantly offset our net loss of $8,351,473 in the nine months ended December 31,
2010 were: $346,475 of allowances for loan losses on member loans held for investment, $6,160,177
of non-cash interest income due to credit risk related adjustments on our Notes, and $6,387,718 of
non-cash interest expense related to our CM Loans and debt discounts due to warrants issued for our
loans payable. Similarly, non-cash charges that most significantly offset our net loss of
$7,798,794 in the nine months ended December 31, 2009 were: $1,170,880 of provisions for loan
losses on member loans funded by us, non-cash interest expense of $2,343,149, non-cash interest
income due to credit risk related adjustments on our Notes of $2,123,281.
Net cash used in investing activities for the nine months ended December 31, 2010 and 2009,
was $70,839,942 and $34,815,479, respectively. However, after excluding activity related to the
Notes, which is mostly offset by corresponding activity related to the CM Loans reflected in our
cash flow from financing activities, the remaining amounts for the nine months ended December 31,
2010 and 2009, were $341,774 of cash generated and $1,766,485 of cash used, respectively. These
remaining amounts in both periods were primarily activities related to borrower repayments of our
member loans held for investment and changes in restricted cash. During the nine months ended
December 31, 2010, repayments of member loans funded by us exceeded our originations of these same
loans, while in the nine months ended December 31, 2009, our originations of member loans held for
investment exceeded the repayments from those loans as we invested the proceeds of the May 2009
term loan and proceeds from our private placement notes. As to changes in restricted cash, during
the nine months ended December 31, 2010, one of our platform service providers released $500,000 of
restricted cash that we had previously provided as security for certain ACH services they provide
to us, while during the nine months ended December 31, 2009, restricted cash increased by $800,000
related to certificates of deposit pledged as security for our May 2009 term financing and
additional security required by our platform operating banks as loan and transaction volume
increased.
Net cash used in financing activities for the nine months ended December 31, 2010 and 2009,
were $92,430,766 and $33,853,500 respectively. However, after excluding activity related to the
Notes, which is mostly offset by corresponding activity related to our CM Loans reflected in our
cash flows from investing activities, the remaining amounts of cash used for the nine months ended
December 31, 2010 and 2009, were $19,780,729 and $250,471, respectively. Cash provided by
financing activities, after excluding activity related to the Notes, consisted primarily of excess
of proceeds from the issuance of our Series C Preferred Stock over the repayment of loans payable
in the nine months ended December 31, 2010, and, in the nine months ended December 31, 2009, the
excess of the proceeds from our May 2009 term loan over repayment of notes payable.
31
Table of Contents
In May 2009, we entered into a new secured loan facility, or the May 2009 term loan, with SVB,
and Gold Hill, and amended, respectively, their prior growth capital term loan and financing term
loan to accommodate new borrowing. The May 2009 term loan allowed us to borrow up to $4,000,000 at
an interest rate of 10.0% per annum. The borrowings were used to fund member loans. The
borrowings are secured by a blanket lien on substantially all of our assets, except our
intellectual property rights, certain deposit accounts, and payments received on CM Loans.
Additionally, the May 2009 term loan was secured with a certificate of deposit in the amount of
$300,000 until repayment. This amount is included in restricted cash in the accompanying balance
sheets. On a monthly basis, we also agreed to maintain a minimum collateral ratio calculated as
(i) the sum of the certificate of deposit collateral and the outstanding balance of member loans
funded with the borrowing which are current in their payment status to (ii) the outstanding balance
under the loan facility. In the event that the minimum collateral ratio is less than the minimum
allowed under the agreement, we must increase the certificate of deposit to meet the minimum
collateral ratio. In connection with this loan facility, we issued a fully exercisable warrant to
purchase 187,090 shares of Series B convertible preferred stock with an exercise price of $0.7483
per share to SVB, and we issued a fully exercisable warrant to purchase 187,090 shares of Series B
convertible preferred stock with an exercise price of $0.7483 per share to Gold Hill.
Effective August 3, 2009, we consolidated the May 2009 term loan, the growth capital term
loan, and the financing term loan into two loan agreements by executing an amended and restated
growth capital term loan and an amended and restated financing term loan. As a result of the
consolidation, borrowings under the May 2009 term loan were split equally between and consolidated
under the amended and restated growth capital term loan and an amended and restated financing term
loan. The terms of these two remaining amended and restated agreements are substantially the same
as those of the three prior agreements, including that the borrowings continue to be secured by a
blanket lien on substantially all of our assets, except for our intellectual property rights,
certain deposit accounts, and payments we receive on the CM Loans. Additionally, the amended and
restated agreements continue to require that Lending Club maintain combined certificates of deposit
in the amount of $700,000 as collateral until repayment. Further, under the amended and restated
agreements, we agreed to maintain the same minimum collateral ratio as established in the May 2009
term loan. As of December 31, 2010, we do not have any remaining capacity under these agreements
as we had fully drawn down the entire $13,000,000 of combined availability under the amended and
restated growth capital term loan and an amended and restated financing term loan. As of December
31, 2010, our outstanding balance net of debt discount under these agreements totaled $4,109,473.
During the nine months ended December 31, 2009, we issued an additional $200,000 of private
placement notes, repayable over three years and bearing interest at the rate of 8% per annum. We
used the proceeds of the private placement notes to fund member loans on the platform.
We used the proceeds from borrowings under the amended and restated agreements and the private
placement notes primarily to fund member loans ourselves to ensure a sufficient level of funding
for borrowing requests. From April 7, 2008 until October 13, 2008 all member loans funded on the
platform were funded and held by us. Through our participation in funding loans ourselves on the
platform, as of December 31, 2010, we had funded and retained approximately $23.8 million in member
loans.
In April 2010, we issued 15,621,609 shares of Series C convertible preferred stock for
aggregate cash consideration of $24,489,996. In connection with our private placement of Series C
convertible preferred stock, we incurred transaction expenses, recorded as an offset to gross
proceeds of $102,051. The shares are convertible into shares of our common stock, par value $0.01
per share, on a one-for-one basis, as adjusted from time to time pursuant to the anti-dilution
provisions of our certificate of incorporation.
We have incurred losses since our inception and we expect we will continue to incur losses for
the foreseeable future as we grow our platform. We require cash to meet our operating expenses and
for capital expenditures and principal and interest payments on our debt, as well as to continue to
fund member loans on the platform we will hold for investment. To date, we have funded our cash
requirements with proceeds from our debt issuances and the sale of equity securities. At December
31, 2010, we had $17,264,772 in unrestricted cash and cash equivalents. We primarily invest our
cash in short-term interest bearing money market funds.
We do not have any committed external source of funds. To the extent our capital resources are
insufficient to meet our future capital requirements, we will need to finance our cash needs
through public or private equity offerings or debt financings. Additional equity or debt financing
may not be available on acceptable terms, if at all.
Income Taxes
We incurred no tax provision for the three months ended December 31, 2010. Given our history
of operating losses, it is difficult to accurately forecast how results will be affected by the
realization, if any, of net operating loss carry forwards.
Financial Accounting Standards Board Accounting Standards Codification Topic 740, Income
Taxes, provides for the recognition of deferred tax assets if realization of such assets is more
likely than not. Based upon the weight of available evidence,
which includes our historical operating performance and the reported cumulative net losses in
all prior years, we have provided a full valuation allowance against our net deferred tax assets.
32
Table of Contents
Off-Balance Sheet Arrangements
We do not engage in any off-balance sheet financing activities. We do not have any interest in
entities referred to as variable interest entities, which include special purpose entities and
other structured finance entities.
Additional Information about the Lending Club Platform
Historical Information about Our Borrower Members and Outstanding Loans:
In regards to the following historical information, prior performance is no guarantee of
future results or outcomes.
For purposes of the following information and tables, we have excluded from the data all
previously issued loans that would not meet the current credit policy. To review the information
and tables that include this data, please see the information and
tables starting on page 40.
As of December 31, 2010, LendingClub had facilitated 18,073 member loans with an average
original principal amount of $9,890 and an aggregate original principal amount of $178,741,275, out
of which 1,749 member loans with an aggregate original principal amount of $16,157,350, or 9.04%
had prepaid. Including loans which were fully repaid, 16,668 loans representing $164,608,325 of
original principal amount had been through at least one billing cycle as of December 31, 2010.
Of the $164,608,325 of original principal balance at December 31, 2010 that had been through
at least one billing cycle, $4,127,582 of outstanding principal balance less interest and fees
received, or 2.51%, was either in default or has charged off. The defaulted loans and charged off
loans were comprised of 577 member loans, of which 407 loans representing $2,864,650 in outstanding
principal balance less interest and fees received, were defaults and charge offs due to
delinquency, while the remaining 170 loans were loans in which the borrower member filed for a
Chapter 7 bankruptcy seeking liquidation. A member loan is considered defaulted when at least one
payment is more than 120 days late.
Of remaining loans that had been through at least one billing cycle as of December 31, 2010,
$110,378,158 of principal remained outstanding of which 97.25% was current, 0.40% was 16 to 30 days
late, and 2.35% was between 31 and 120 days late. During the three months ended December 31, 2010,
of the 11,082 member loans which were not delinquent prior to the start of the quarter, 241 member
loans became delinquent for some amount of time during the quarter, excluding those that entered
the 0 15 day grace period. Of those loans which became delinquent for more than 15 days during
the quarter, we charged late fees totaling $2,519 on 127 loans and received late fees of $934 on 41
loans.
The following table presents aggregated information about borrower members and their loans for
the period from May 24, 2007 to December 31, 2010, grouped by the loan grade assigned by us:
Average Total | ||||||||||||||||
Number of | Average Interest | Average Annual | Funded | |||||||||||||
Loan Grade | Borrowers | Rate | Percentage Rate | Commitment | ||||||||||||
A1 |
186 | 6.31 | % | 7.52 | % | 5,334 | ||||||||||
A2 |
523 | 6.73 | % | 7.90 | % | 5,445 | ||||||||||
A3 |
900 | 7.23 | % | 8.38 | % | 6,771 | ||||||||||
A4 |
1165 | 7.83 | % | 8.99 | % | 7,845 | ||||||||||
A5 |
1557 | 8.19 | % | 9.38 | % | 9,131 | ||||||||||
B1 |
876 | 10.17 | % | 12.56 | % | 9,397 | ||||||||||
B2 |
975 | 10.53 | % | 12.89 | % | 10,506 |
33
Table of Contents
Average Total | ||||||||||||||||
Number of | Average Interest | Average Annual | Funded | |||||||||||||
Loan Grade | Borrowers | Rate | Percentage Rate | Commitment | ||||||||||||
B3 |
1084 | 10.90 | % | 13.24 | % | 11,132 | ||||||||||
B4 |
1230 | 11.22 | % | 13.53 | % | 10,691 | ||||||||||
B5 |
1305 | 11.58 | % | 13.92 | % | 10,290 | ||||||||||
C1 |
992 | 12.59 | % | 15.18 | % | 9,853 | ||||||||||
C2 |
957 | 13.02 | % | 15.66 | % | 9,778 | ||||||||||
C3 |
888 | 13.37 | % | 16.01 | % | 9,763 | ||||||||||
C4 |
689 | 13.53 | % | 16.22 | % | 9,599 | ||||||||||
C5 |
644 | 13.93 | % | 16.64 | % | 8,960 | ||||||||||
D1 |
525 | 14.29 | % | 17.25 | % | 10,173 | ||||||||||
D2 |
644 | 14.70 | % | 17.45 | % | 10,446 | ||||||||||
D3 |
564 | 15.09 | % | 17.83 | % | 11,244 | ||||||||||
D4 |
441 | 15.40 | % | 18.12 | % | 11,437 | ||||||||||
D5 |
358 | 15.83 | % | 18.55 | % | 11,772 | ||||||||||
E1 |
322 | 16.12 | % | 18.83 | % | 11,510 | ||||||||||
E2 |
263 | 16.42 | % | 19.02 | % | 12,130 | ||||||||||
E3 |
211 | 16.82 | % | 19.43 | % | 12,111 | ||||||||||
E4 |
176 | 17.17 | % | 19.67 | % | 13,537 | ||||||||||
E5 |
150 | 17.55 | % | 20.20 | % | 13,086 | ||||||||||
F1 |
98 | 17.92 | % | 20.53 | % | 13,892 | ||||||||||
F2 |
94 | 18.16 | % | 20.66 | % | 13,580 | ||||||||||
F3 |
59 | 18.62 | % | 21.25 | % | 14,500 | ||||||||||
F4 |
54 | 18.91 | % | 21.65 | % | 13,143 | ||||||||||
F5 |
28 | 19.21 | % | 21.94 | % | 14,771 | ||||||||||
G1 |
29 | 19.73 | % | 22.47 | % | 16,914 | ||||||||||
G2 |
28 | 20.17 | % | 22.93 | % | 18,317 | ||||||||||
G3 |
16 | 20.65 | % | 23.27 | % | 17,553 | ||||||||||
G4 |
28 | 20.92 | % | 23.61 | % | 19,059 | ||||||||||
G5 |
14 | 20.92 | % | 23.75 | % | 17,623 |
34
Table of Contents
The following table presents aggregated information for the period from May 24, 2007 to
December 31, 2010, self-reported by borrower members at the time of their loan applications,
grouped by the loan grade assigned by us. We do not independently verify this information:
Percentage of | ||||||||||||||||
Borrowers Stating | Average Job | Average Debt | ||||||||||||||
They Own Their | Tenure in | Average Annual | to Income | |||||||||||||
Loan Grade | Own Homes | Months | Gross Income | Ratio (1) | ||||||||||||
A1 |
72.04 | % | 71 | 62,813 | 8.66 | % | ||||||||||
A2 |
66.73 | % | 65 | 67,720 | 9.81 | % | ||||||||||
A3 |
62.22 | % | 68 | 72,136 | 10.20 | % | ||||||||||
A4 |
57.68 | % | 64 | 65,430 | 11.19 | % | ||||||||||
A5 |
56.52 | % | 63 | 70,817 | 11.76 | % | ||||||||||
B1 |
49.54 | % | 59 | 67,161 | 11.91 | % | ||||||||||
B2 |
49.33 | % | 62 | 73,854 | 11.96 | % | ||||||||||
B3 |
52.40 | % | 67 | 75,469 | 12.51 | % | ||||||||||
B4 |
49.84 | % | 59 | 70,836 | 13.04 | % | ||||||||||
B5 |
48.20 | % | 57 | 66,530 | 13.10 | % | ||||||||||
C1 |
45.46 | % | 59 | 73,937 | 12.95 | % | ||||||||||
C2 |
43.99 | % | 58 | 64,849 | 13.16 | % | ||||||||||
C3 |
45.95 | % | 58 | 66,698 | 13.23 | % | ||||||||||
C4 |
44.56 | % | 64 | 66,561 | 14.14 | % | ||||||||||
C5 |
38.82 | % | 57 | 66,601 | 13.41 | % | ||||||||||
D1 |
39.24 | % | 57 | 64,184 | 13.22 | % | ||||||||||
D2 |
43.94 | % | 65 | 71,447 | 13.55 | % | ||||||||||
D3 |
46.28 | % | 63 | 70,474 | 13.44 | % | ||||||||||
D4 |
40.82 | % | 59 | 72,240 | 13.32 | % | ||||||||||
D5 |
44.69 | % | 60 | 70,595 | 13.71 | % | ||||||||||
E1 |
44.10 | % | 57 | 68,243 | 13.61 | % | ||||||||||
E2 |
44.49 | % | 54 | 69,992 | 14.17 | % | ||||||||||
E3 |
44.55 | % | 55 | 71,667 | 12.58 | % | ||||||||||
E4 |
52.27 | % | 58 | 75,145 | 13.36 | % |
35
Table of Contents
Percentage of | ||||||||||||||||
Borrowers Stating | Average Job | Average Debt | ||||||||||||||
They Own Their | Tenure in | Average Annual | to Income | |||||||||||||
Loan Grade | Own Homes | Months | Gross Income | Ratio (1) | ||||||||||||
E5 |
50.67 | % | 69 | 87,064 | 13.18 | % | ||||||||||
F1 |
54.08 | % | 65 | 85,300 | 13.52 | % | ||||||||||
F2 |
51.06 | % | 71 | 81,740 | 13.98 | % | ||||||||||
F3 |
38.98 | % | 59 | 75,383 | 14.37 | % | ||||||||||
F4 |
44.44 | % | 57 | 81,100 | 13.10 | % | ||||||||||
F5 |
64.29 | % | 58 | 79,932 | 13.19 | % | ||||||||||
G1 |
62.07 | % | 61 | 66,069 | 11.27 | % | ||||||||||
G2 |
60.71 | % | 76 | 85,837 | 15.26 | % | ||||||||||
G3 |
43.75 | % | 70 | 71,696 | 17.43 | % | ||||||||||
G4 |
60.71 | % | 68 | 99,191 | 12.28 | % | ||||||||||
G5 |
35.71 | % | 75 | 101,371 | 13.68 | % |
(1) | Average debt to income ratio, excluding mortgage debt, calculated by us based on (i)
the debt reported by a consumer reporting agency, and (ii) the income reported by the
borrower member. |
The following table presents aggregated information for the period from May 24, 2007 to
December 31, 2010, reported by a consumer reporting agency about our borrower members at the time
of their loan applications, grouped by the loan grade assigned by us. As used in this table,
Delinquencies in Last Two Years means the number of 30+ days past-due incidences of delinquency
in the borrower members credit file for the past two years. We do not independently verify this
information. All figures other than loan grade are agency reported:
Average | ||||||||||||||||||||||||||||||||
Number of | ||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Inquiries | Average | Average | ||||||||||||||||||||||||||
Open | Total | Revolving | Revolving | in the Last | Delinquencies | Time Since | ||||||||||||||||||||||||||
Loan | Average | Credit | Credit | Credit | Line | Twelve | in Last | Last | ||||||||||||||||||||||||
Grade | FICO | Lines | Lines | Balances | Utilization | Months | Two Years | Delinquency | ||||||||||||||||||||||||
A1 |
781 | 9 | 24 | 9,064 | 17.12 | % | 1 | 0 | 24 | |||||||||||||||||||||||
A2 |
772 | 10 | 25 | 8,811 | 17.77 | % | 1 | 0 | 33 | |||||||||||||||||||||||
A3 |
766 | 9 | 23 | 10,107 | 22.32 | % | 1 | 0 | 33 | |||||||||||||||||||||||
A4 |
755 | 10 | 24 | 11,095 | 26.79 | % | 1 | 0 | 38 | |||||||||||||||||||||||
A5 |
746 | 10 | 23 | 12,784 | 31.80 | % | 1 | 0 | 39 | |||||||||||||||||||||||
B1 |
739 | 9 | 22 | 11,969 | 37.49 | % | 1 | 0 | 34 | |||||||||||||||||||||||
B2 |
736 | 9 | 22 | 12,988 | 38.83 | % | 1 | 0 | 37 | |||||||||||||||||||||||
B3 |
730 | 9 | 22 | 14,543 | 41.09 | % | 1 | 0 | 36 |
36
Table of Contents
Average | ||||||||||||||||||||||||||||||||
Number of | ||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Inquiries | Average | Average | ||||||||||||||||||||||||||
Open | Total | Revolving | Revolving | in the Last | Delinquencies | Time Since | ||||||||||||||||||||||||||
Loan | Average | Credit | Credit | Credit | Line | Twelve | in Last | Last | ||||||||||||||||||||||||
Grade | FICO | Lines | Lines | Balances | Utilization | Months | Two Years | Delinquency | ||||||||||||||||||||||||
B4 |
721 | 9 | 22 | 14,484 | 44.70 | % | 1 | 0 | 36 | |||||||||||||||||||||||
B5 |
713 | 9 | 21 | 13,933 | 48.82 | % | 1 | 0 | 36 | |||||||||||||||||||||||
C1 |
706 | 9 | 20 | 13,520 | 54.28 | % | 1 | 0 | 35 | |||||||||||||||||||||||
C2 |
702 | 9 | 20 | 12,918 | 55.70 | % | 1 | 0 | 37 | |||||||||||||||||||||||
C3 |
697 | 9 | 20 | 13,902 | 55.58 | % | 1 | 0 | 36 | |||||||||||||||||||||||
C4 |
691 | 9 | 21 | 14,499 | 60.01 | % | 1 | 0 | 33 | |||||||||||||||||||||||
C5 |
686 | 9 | 19 | 13,089 | 60.92 | % | 1 | 0 | 31 | |||||||||||||||||||||||
D1 |
683 | 9 | 20 | 12,894 | 60.87 | % | 1 | 0 | 33 | |||||||||||||||||||||||
D2 |
686 | 9 | 21 | 13,620 | 61.16 | % | 1 | 0 | 33 | |||||||||||||||||||||||
D3 |
685 | 9 | 20 | 14,453 | 62.67 | % | 1 | 0 | 32 | |||||||||||||||||||||||
D4 |
683 | 9 | 20 | 13,631 | 64.59 | % | 1 | 0 | 36 | |||||||||||||||||||||||
D5 |
684 | 9 | 21 | 15,785 | 64.28 | % | 1 | 0 | 35 | |||||||||||||||||||||||
E1 |
680 | 9 | 20 | 13,737 | 67.38 | % | 1 | 0 | 34 | |||||||||||||||||||||||
E2 |
681 | 9 | 21 | 14,662 | 69.58 | % | 1 | 0 | 37 | |||||||||||||||||||||||
E3 |
678 | 9 | 20 | 14,791 | 70.71 | % | 1 | 0 | 29 | |||||||||||||||||||||||
E4 |
678 | 9 | 21 | 17,044 | 68.27 | % | 1 | 0 | 34 | |||||||||||||||||||||||
E5 |
676 | 10 | 22 | 15,055 | 67.11 | % | 1 | 0 | 30 | |||||||||||||||||||||||
F1 |
676 | 10 | 22 | 19,875 | 69.92 | % | 1 | 0 | 37 | |||||||||||||||||||||||
F2 |
674 | 9 | 22 | 18,179 | 73.82 | % | 1 | 0 | 35 | |||||||||||||||||||||||
F3 |
673 | 10 | 23 | 15,019 | 73.10 | % | 1 | 0 | 30 | |||||||||||||||||||||||
F4 |
670 | 9 | 23 | 13,575 | 70.73 | % | 1 | 0 | 35 | |||||||||||||||||||||||
F5 |
674 | 9 | 23 | 22,554 | 76.70 | % | 1 | 0 | 32 | |||||||||||||||||||||||
G1 |
675 | 8 | 18 | 13,649 | 61.43 | % | 1 | 0 | 36 | |||||||||||||||||||||||
G2 |
670 | 11 | 23 | 20,474 | 79.23 | % | 1 | 0 | 41 | |||||||||||||||||||||||
G3 |
667 | 10 | 25 | 16,702 | 84.26 | % | 1 | 0 | 30 | |||||||||||||||||||||||
G4 |
671 | 11 | 23 | 22,208 | 72.81 | % | 1 | 1 | 29 | |||||||||||||||||||||||
G5 |
668 | 11 | 26 | 28,159 | 78.69 | % | 1 | 0 | 36 |
37
Table of Contents
The following table presents additional aggregated information for the period from May 24,
2007 to December 31, 2010, about delinquencies, default and borrower prepayments, grouped by the
loan grade assigned by us. The interest rate, default and delinquency information presented in the
table includes data only for member loans that had been issued for more than 45 days as of December
31, 2010, and therefore have been through at least one billing cycle. With respect to late member
loans, the following table shows the entire amount of the principal remaining due, not just that
particular payment. The third and fifth columns show the late member loan amounts as a percentage
of member loans issued for more than 45 days. Member loans are placed on nonaccrual status and
considered as defaulted when they become 120 days late. The data presented in the table below comes
from a set of member loans that have been outstanding, on average, for approximately twelve months.
Because of our limited operating history, the data in the following table regarding loss
experience may not be representative of the loss experience that will develop over time as
additional member loans are originated through our platform and the member loans already originated
through our platform have longer payment histories. In addition, because of our limited operating
history, the data in the following table regarding prepayments may not be representative of the
prepayments we expect over time as additional member loans are originated through our platform and
the member loans already originated through our platform have longer payment histories.
15-30 | 30+ | Total | Number | |||||||||||||||||||||||||||||||||||||
Days | 15-30 | Days | 30+ | Number | Of | |||||||||||||||||||||||||||||||||||
Loan | Late | Days | Late | Days Late | Default | Default | Of | Loans | Prepaid | Prepaid | ||||||||||||||||||||||||||||||
Grade | ($) | Late (%) | ($) | (%) | ($) | (%) | Loans | Prepaid | ($) | (%) | ||||||||||||||||||||||||||||||
A1 |
3,797 | 0.72 | % | 21,067 | 4.00 | % | 6,013 | 0.83 | % | 128 | 23 | 57,150 | 5.76 | % | ||||||||||||||||||||||||||
A2 |
548 | 0.04 | % | | 0.00 | % | 11,314 | 0.52 | % | 373 | 69 | 281,050 | 9.87 | % | ||||||||||||||||||||||||||
A3 |
3,461 | 0.10 | % | 26,059 | 0.76 | % | 35,752 | 0.68 | % | 704 | 104 | 586,850 | 9.63 | % | ||||||||||||||||||||||||||
A4 |
10,221 | 0.19 | % | 18,045 | 0.33 | % | 43,408 | 0.53 | % | 920 | 139 | 999,650 | 10.94 | % | ||||||||||||||||||||||||||
A5 |
11,036 | 0.12 | % | 61,023 | 0.68 | % | 142,627 | 1.08 | % | 1,295 | 156 | 1,315,325 | 9.25 | % | ||||||||||||||||||||||||||
B1 |
| 0.00 | % | 91,076 | 1.76 | % | 136,752 | 1.77 | % | 718 | 103 | 816,125 | 9.91 | % | ||||||||||||||||||||||||||
B2 |
8,780 | 0.15 | % | 67,638 | 1.14 | % | 243,525 | 2.52 | % | 791 | 115 | 1,312,600 | 12.81 | % | ||||||||||||||||||||||||||
B3 |
34,444 | 0.47 | % | 259,744 | 3.57 | % | 258,535 | 2.27 | % | 906 | 104 | 1,347,000 | 11.16 | % | ||||||||||||||||||||||||||
B4 |
5,848 | 0.07 | % | 164,824 | 2.02 | % | 198,086 | 1.64 | % | 1,010 | 117 | 1,264,000 | 9.61 | % | ||||||||||||||||||||||||||
B5 |
54,535 | 0.61 | % | 201,390 | 2.25 | % | 303,452 | 2.39 | % | 1,097 | 119 | 1,053,500 | 7.85 | % | ||||||||||||||||||||||||||
C1 |
36,300 | 0.60 | % | 115,367 | 1.92 | % | 270,576 | 2.93 | % | 831 | 108 | 989,975 | 10.13 | % | ||||||||||||||||||||||||||
C2 |
13,832 | 0.23 | % | 120,733 | 2.00 | % | 250,812 | 2.83 | % | 819 | 79 | 734,875 | 7.85 | % | ||||||||||||||||||||||||||
C3 |
6,396 | 0.12 | % | 205,418 | 3.76 | % | 200,489 | 2.44 | % | 747 | 92 | 879,225 | 10.14 | % | ||||||||||||||||||||||||||
C4 |
32,047 | 0.89 | % | 66,236 | 1.83 | % | 210,462 | 3.43 | % | 562 | 72 | 695,300 | 10.51 | % | ||||||||||||||||||||||||||
C5 |
24,062 | 0.78 | % | 72,415 | 2.34 | % | 262,458 | 5.01 | % | 529 | 60 | 559,500 | 9.70 | % | ||||||||||||||||||||||||||
D1 |
44,854 | 1.48 | % | 137,791 | 4.55 | % | 244,990 | 4.84 | % | 451 | 48 | 483,125 | 9.05 | % | ||||||||||||||||||||||||||
D2 |
3,602 | 0.08 | % | 105,091 | 2.46 | % | 178,095 | 2.86 | % | 554 | 48 | 522,000 | 7.76 | % | ||||||||||||||||||||||||||
D3 |
44,027 | 1.11 | % | 111,417 | 2.81 | % | 212,721 | 3.66 | % | 479 | 38 | 436,550 | 6.88 | % | ||||||||||||||||||||||||||
D4 |
4,462 | 0.14 | % | 75,517 | 2.32 | % | 220,726 | 4.67 | % | 387 | 28 | 284,400 | 5.64 | % | ||||||||||||||||||||||||||
D5 |
30,771 | 1.08 | % | 151,490 | 5.29 | % | 78,020 | 2.01 | % | 306 | 25 | 232,975 | 5.53 | % |
38
Table of Contents
15-30 | 30+ | Total | Number | |||||||||||||||||||||||||||||||||||||
Days | 15-30 | Days | 30+ | Number | Of | |||||||||||||||||||||||||||||||||||
Loan | Late | Days | Late | Days Late | Default | Default | Of | Loans | Prepaid | Prepaid | ||||||||||||||||||||||||||||||
Grade | ($) | Late (%) | ($) | (%) | ($) | (%) | Loans | Prepaid | ($) | (%) | ||||||||||||||||||||||||||||||
E1 |
14,498 | 0.63 | % | 97,631 | 4.21 | % | 79,045 | 2.36 | % | 267 | 26 | 308,600 | 8.33 | % | ||||||||||||||||||||||||||
E2 |
| 0.00 | % | 60,118 | 2.80 | % | 67,413 | 2.30 | % | 228 | 16 | 171,700 | 5.38 | % | ||||||||||||||||||||||||||
E3 |
| 0.00 | % | 70,789 | 4.25 | % | 75,845 | 3.32 | % | 181 | 7 | 110,075 | 4.31 | % | ||||||||||||||||||||||||||
E4 |
| 0.00 | % | 53,591 | 3.65 | % | 103,869 | 4.92 | % | 145 | 15 | 221,125 | 9.28 | % | ||||||||||||||||||||||||||
E5 |
18,600 | 1.43 | % | 70,088 | 5.38 | % | 58,040 | 3.38 | % | 124 | 10 | 120,550 | 6.14 | % | ||||||||||||||||||||||||||
F1 |
| 0.00 | % | 89,923 | 8.96 | % | 14,989 | 1.17 | % | 84 | 8 | 91,975 | 6.76 | % | ||||||||||||||||||||||||||
F2 |
5,398 | 0.70 | % | 12,358 | 1.60 | % | 67,325 | 6.12 | % | 76 | 6 | 64,925 | 5.09 | % | ||||||||||||||||||||||||||
F3 |
| 0.00 | % | | 0.00 | % | 23,726 | 3.48 | % | 43 | 3 | 67,000 | 7.83 | % | ||||||||||||||||||||||||||
F4 |
| 0.00 | % | | 0.00 | % | 53,152 | 7.95 | % | 46 | 5 | 46,950 | 6.62 | % | ||||||||||||||||||||||||||
F5 |
| 0.00 | % | 35,188 | 13.09 | % | 14,780 | 4.05 | % | 24 | 1 | 19,400 | 4.69 | % | ||||||||||||||||||||||||||
G1 |
12,950 | 4.18 | % | 22,938 | 7.41 | % | | 0.00 | % | 23 | 4 | 70,000 | 14.27 | % | ||||||||||||||||||||||||||
G2 |
| 0.00 | % | 7,598 | 2.14 | % | 12,905 | 3.17 | % | 23 | 0 | 0 | 0.00 | % | ||||||||||||||||||||||||||
G3 |
| 0.00 | % | | 0.00 | % | 21,371 | 8.87 | % | 14 | 0 | 0 | 0.00 | % | ||||||||||||||||||||||||||
G4 |
20,724 | 5.88 | % | | 0.00 | % | | 0.00 | % | 22 | 0 | 0 | 0.00 | % | ||||||||||||||||||||||||||
G5 |
| 0.00 | % | | 0.00 | % | 26,309 | 11.06 | % | 12 | 1 | 13,875 | 5.62 | % |
The following table presents aggregated information for the period from May 24, 2007 to
December 31, 2010 on the results of our collection efforts for all corresponding member loans that
became more than 30 days past due at any time, grouped by credit grade. For purposes of this
analysis, we have excluded the 20 loans that we repurchased due to identity fraud.
Gross | Aggregate | |||||||||||||||||||||||||||
Amount | Principal | |||||||||||||||||||||||||||
Collected | Number of | Balance of | Gross | |||||||||||||||||||||||||
Number | Aggregate | on | Loans | Loans | Amount | |||||||||||||||||||||||
of Loans | Amount Sent | Accounts | Charged-Off | Charged-Off | Recovered | |||||||||||||||||||||||
in | to | Sent to | Due to | Due to | on Loans | |||||||||||||||||||||||
Collection | Origination | Collections | Collections | Delinquency | Delinquency | Charged- | ||||||||||||||||||||||
Grade | (1) | Amount (1) | (1) | (2) | (3) | (3) | Off (4) | |||||||||||||||||||||
A |
105 | 692,750 | 99,811 | 45,629 | 34 | 304,987 | 5,206 | |||||||||||||||||||||
B |
271 | 2,683,200 | 420,781 | 193,494 | 94 | 1,469,610 | 8,812 | |||||||||||||||||||||
C |
302 | 2,597,900 | 477,919 | 226,499 | 117 | 1,341,687 | 6,853 | |||||||||||||||||||||
D |
198 | 2,122,950 | 423,548 | 181,743 | 87 | 1,261,421 | 5,483 | |||||||||||||||||||||
E |
92 | 1,164,525 | 195,192 | 84,123 | 35 | 679,453 | 2,152 | |||||||||||||||||||||
F |
32 | 485,975 | 99,697 | 47,761 | 13 | 266,379 | 2,085 | |||||||||||||||||||||
G |
8 | 117,600 | 21,258 | 9,002 | 4 | 80,726 | | |||||||||||||||||||||
Total |
1,008 | 9,864,900 | 1,738,206 | 788,251 | 384 | 5,404,263 | 30,591 |
1) | Represents accounts 31 to 120 days past due. |
|
2) | Represents the gross amounts collected on corresponding member loans while such
accounts were in collection during the 31-120 days past-due period. This amount does not
represent payments received after an account has been sent to collection, cured and
returned to current status. Of this amount, investors received $780,369 (99%). The
remainder was fees to us of $7,883 (1%). The amounts retained by us are reflected as loan
servicing fees in our consolidated financial statements. |
39
Table of Contents
3) | Represents accounts that have been delinquent for 120 days at which time the account is
charged-off. Any money recovered after 120 days is no longer included as amounts collected
on accounts sent to collection. |
|
4) | Represents the gross amounts we received on charged-off accounts after the accounts
were charged-offe.g., a dollar received on an account 121 days past due. |
For purposes of the following information and tables, the data includes all loans issued since
May 24, 2007.
As of December 31, 2010, LendingClub had facilitated 20,814 member loans with an average
original principal amount of $9,750 and an aggregate original principal amount of $202,932,500, out
of which 2,330 member loans with an aggregate original principal amount of which $20,639,100, or
10.17% had prepaid. Including loans which were fully repaid, 19,331 loans representing
$188,169,725 of original principal amount had been through at least one billing cycle as of
December 31, 2010.
Of the $188,169,725 of original principal balance at December 31, 2010 that had been through
at least one billing cycle, $6,560,858 of outstanding principal balance less interest and fees
received, or 3.49%, was either in default or has charged off. The defaulted loans and charged off
loans were comprised of 990 member loans, of which 720 loans representing $4,566,636 in outstanding
principal balance less interest and fees received, were defaults and charge offs due to
delinquency, while the remaining 270 loans were loans in which the borrower member filed for a
Chapter 7 bankruptcy seeking liquidation. A member loan is considered defaulted when at least one
payment is more than 120 days late.
Of remaining loans that had been through at least one billing cycle as of December 31, 2010,
$120,633,116 of principal remained outstanding of which 96.84% was current, 0.43% was 16 to 30 days
late, and 2.73% was between 31 and 120 days late. During the three months ended December 31, 2010,
of the 12,528 member loans which were not delinquent prior to the start of the quarter, 317 member
loans became delinquent for some amount of time during the quarter, excluding those that entered
the 0 15 day grace period. Of those loans which became delinquent for more than 15 days during
the quarter, we charged late fees totaling $3,156 on 163 loans and received late fees of $1,226 on
55 loans.
40
Table of Contents
The following table presents aggregated information about borrower members and their loans for
the period from May 24, 2007 to December 31, 2010, grouped by the loan grade assigned by us:
Average Total | ||||||||||||||||
Number of | Average Interest | Average Annual | Funded | |||||||||||||
Loan Grade | Borrowers | Rate | Percentage Rate | Commitment | ||||||||||||
A1 |
189 | 6.33 | % | 7.53 | % | 5,313 | ||||||||||
A2 |
535 | 6.75 | % | 7.91 | % | 5,438 | ||||||||||
A3 |
913 | 7.24 | % | 8.38 | % | 6,748 | ||||||||||
A4 |
1184 | 7.84 | % | 8.99 | % | 7,798 | ||||||||||
A5 |
1608 | 8.20 | % | 9.38 | % | 9,042 | ||||||||||
B1 |
928 | 10.15 | % | 12.51 | % | 9,241 | ||||||||||
B2 |
1030 | 10.52 | % | 12.86 | % | 10,369 | ||||||||||
B3 |
1157 | 10.88 | % | 13.20 | % | 10,976 | ||||||||||
B4 |
1306 | 11.21 | % | 13.50 | % | 10,585 | ||||||||||
B5 |
1403 | 11.56 | % | 13.88 | % | 10,179 | ||||||||||
C1 |
1114 | 12.54 | % | 15.12 | % | 9,790 | ||||||||||
C2 |
1100 | 12.95 | % | 15.56 | % | 9,672 | ||||||||||
C3 |
1017 | 13.30 | % | 15.91 | % | 9,661 | ||||||||||
C4 |
821 | 13.47 | % | 16.11 | % | 9,463 | ||||||||||
C5 |
746 | 13.86 | % | 16.50 | % | 8,871 | ||||||||||
D1 |
647 | 14.20 | % | 17.06 | % | 9,941 | ||||||||||
D2 |
776 | 14.64 | % | 17.38 | % | 10,076 | ||||||||||
D3 |
708 | 14.96 | % | 17.64 | % | 10,627 | ||||||||||
D4 |
595 | 15.20 | % | 17.80 | % | 10,564 | ||||||||||
D5 |
494 | 15.58 | % | 18.19 | % | 10,776 | ||||||||||
E1 |
436 | 15.87 | % | 18.44 | % | 10,475 | ||||||||||
E2 |
395 | 16.05 | % | 18.47 | % | 10,818 | ||||||||||
E3 |
322 | 16.41 | % | 18.82 | % | 10,587 | ||||||||||
E4 |
273 | 16.66 | % | 18.96 | % | 11,786 | ||||||||||
E5 |
229 | 17.10 | % | 19.52 | % | 11,651 | ||||||||||
F1 |
161 | 17.34 | % | 19.70 | % | 12,728 | ||||||||||
F2 |
150 | 17.74 | % | 20.11 | % | 12,959 | ||||||||||
F3 |
108 | 18.02 | % | 20.41 | % | 13,037 | ||||||||||
F4 |
96 | 18.38 | % | 20.83 | % | 12,554 | ||||||||||
F5 |
64 | 18.53 | % | 20.95 | % | 13,405 | ||||||||||
G1 |
65 | 18.96 | % | 21.28 | % | 13,778 | ||||||||||
G2 |
57 | 19.42 | % | 21.79 | % | 13,868 | ||||||||||
G3 |
46 | 19.56 | % | 21.87 | % | 13,661 | ||||||||||
G4 |
71 | 19.59 | % | 21.77 | % | 15,967 | ||||||||||
G5 |
70 | 19.75 | % | 21.97 | % | 11,969 |
41
Table of Contents
The following table presents aggregated information for the period from May 24, 2007 to
December 31, 2010, self-reported by borrower members at the time of their loan applications,
grouped by the loan grade assigned by us. We do not independently verify this information:
Percentage of | ||||||||||||||||
Borrowers | ||||||||||||||||
Stating They | Average Job | Average Debt | ||||||||||||||
Own Their Own | Tenure in | Average Annual | to Income | |||||||||||||
Loan Grade | Homes | Months | Gross Income | Ratio (1) | ||||||||||||
A1 |
71.43 | % | 74 | 63,112 | 8.64 | % | ||||||||||
A2 |
66.54 | % | 65 | 67,893 | 9.76 | % | ||||||||||
A3 |
62.10 | % | 68 | 72,173 | 10.18 | % | ||||||||||
A4 |
57.69 | % | 63 | 65,526 | 11.18 | % | ||||||||||
A5 |
56.84 | % | 62 | 70,800 | 11.80 | % | ||||||||||
B1 |
49.78 | % | 59 | 67,456 | 11.92 | % | ||||||||||
B2 |
50.19 | % | 62 | 74,296 | 11.94 | % | ||||||||||
B3 |
52.12 | % | 67 | 76,162 | 12.47 | % | ||||||||||
B4 |
50.69 | % | 59 | 71,054 | 13.08 | % | ||||||||||
B5 |
48.97 | % | 58 | 66,957 | 12.93 | % | ||||||||||
C1 |
47.22 | % | 59 | 73,568 | 12.90 | % | ||||||||||
C2 |
44.73 | % | 57 | 66,140 | 13.06 | % | ||||||||||
C3 |
46.71 | % | 57 | 67,193 | 13.28 | % | ||||||||||
C4 |
46.04 | % | 61 | 67,066 | 14.10 | % | ||||||||||
C5 |
40.48 | % | 57 | 67,055 | 13.35 | % | ||||||||||
D1 |
41.58 | % | 59 | 65,160 | 13.33 | % | ||||||||||
D2 |
44.85 | % | 65 | 70,865 | 13.77 | % | ||||||||||
D3 |
47.74 | % | 62 | 70,065 | 13.59 | % | ||||||||||
D4 |
41.85 | % | 58 | 68,740 | 13.36 | % |
42
Table of Contents
Percentage of | ||||||||||||||||
Borrowers | ||||||||||||||||
Stating They | Average Job | Average Debt | ||||||||||||||
Own Their Own | Tenure in | Average Annual | to Income | |||||||||||||
Loan Grade | Homes | Months | Gross Income | Ratio (1) | ||||||||||||
D5 |
46.96 | % | 58 | 70,031 | 13.58 | % | ||||||||||
E1 |
45.64 | % | 56 | 67,644 | 13.47 | % | ||||||||||
E2 |
44.81 | % | 54 | 67,441 | 14.15 | % | ||||||||||
E3 |
48.76 | % | 58 | 68,342 | 13.59 | % | ||||||||||
E4 |
51.65 | % | 63 | 70,784 | 13.87 | % | ||||||||||
E5 |
48.47 | % | 60 | 80,638 | 13.92 | % | ||||||||||
F1 |
52.17 | % | 62 | 74,951 | 14.71 | % | ||||||||||
F2 |
48.00 | % | 67 | 80,606 | 14.94 | % | ||||||||||
F3 |
44.44 | % | 66 | 77,897 | 16.21 | % | ||||||||||
F4 |
44.79 | % | 63 | 73,028 | 15.10 | % | ||||||||||
F5 |
54.69 | % | 68 | 97,757 | 13.87 | % | ||||||||||
G1 |
55.38 | % | 49 | 62,616 | 16.40 | % | ||||||||||
G2 |
61.40 | % | 70 | 90,748 | 17.02 | % | ||||||||||
G3 |
47.83 | % | 68 | 78,014 | 17.41 | % | ||||||||||
G4 |
54.93 | % | 62 | 100,087 | 14.94 | % | ||||||||||
G5 |
61.43 | % | 67 | 110,901 | 17.28 | % |
(1) | Average debt to income ratio, excluding mortgage debt, calculated by us based on (i)
the debt reported by a consumer reporting agency, and (ii) the income reported by the
borrower member. |
|
(2) |
The following table presents aggregated information for the period from May 24, 2007 to
December 31, 2010, reported by a consumer reporting agency about our borrower members at the time
of their loan applications, grouped by the loan grade assigned by us. As used in this table,
Delinquencies in Last Two Years means the number of 30+ days past-due incidences of delinquency
in the borrower members credit file for the past two years. We do not independently verify this
information. All figures other than loan grade are agency reported:
Average | ||||||||||||||||||||||||||||||||
Number of | ||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Inquiries | Average | Average | ||||||||||||||||||||||||||
Open | Total | Revolving | Revolving | in the Last | Delinquencies | Time Since | ||||||||||||||||||||||||||
Average | Credit | Credit | Credit | Line | Twelve | in Last | Last | |||||||||||||||||||||||||
Loan Grade | FICO | Lines | Lines | Balances | Utilization | Months | Two Years | Delinquency | ||||||||||||||||||||||||
A1 |
781 | 9 | 24 | 9,796 | 17.20 | % | 1 | 0 | 23 | |||||||||||||||||||||||
A2 |
772 | 10 | 25 | 9,860 | 17.84 | % | 1 | 0 | 32 | |||||||||||||||||||||||
A3 |
766 | 9 | 23 | 10,677 | 22.23 | % | 1 | 0 | 34 | |||||||||||||||||||||||
A4 |
755 | 9 | 23 | 12,104 | 26.78 | % | 1 | 0 | 38 | |||||||||||||||||||||||
A5 |
746 | 10 | 23 | 14,051 | 31.97 | % | 1 | 0 | 38 | |||||||||||||||||||||||
B1 |
738 | 9 | 22 | 13,173 | 37.53 | % | 1 | 0 | 33 |
43
Table of Contents
Average | ||||||||||||||||||||||||||||||||
Number of | ||||||||||||||||||||||||||||||||
Average | Average | Average | Average | Inquiries | Average | Average | ||||||||||||||||||||||||||
Open | Total | Revolving | Revolving | in the Last | Delinquencies | Time Since | ||||||||||||||||||||||||||
Average | Credit | Credit | Credit | Line | Twelve | in Last | Last | |||||||||||||||||||||||||
Loan Grade | FICO | Lines | Lines | Balances | Utilization | Months | Two Years | Delinquency | ||||||||||||||||||||||||
B2 |
735 | 9 | 22 | 14,773 | 38.59 | % | 1 | 0 | 36 | |||||||||||||||||||||||
B3 |
730 | 9 | 22 | 16,333 | 40.96 | % | 1 | 0 | 35 | |||||||||||||||||||||||
B4 |
721 | 9 | 22 | 16,045 | 44.67 | % | 1 | 0 | 35 | |||||||||||||||||||||||
B5 |
713 | 9 | 21 | 15,373 | 48.52 | % | 1 | 0 | 35 | |||||||||||||||||||||||
C1 |
705 | 9 | 21 | 15,719 | 53.40 | % | 1 | 0 | 34 | |||||||||||||||||||||||
C2 |
701 | 9 | 20 | 14,413 | 54.26 | % | 1 | 0 | 35 | |||||||||||||||||||||||
C3 |
697 | 9 | 21 | 16,156 | 54.68 | % | 1 | 0 | 35 | |||||||||||||||||||||||
C4 |
691 | 9 | 21 | 15,846 | 58.12 | % | 2 | 0 | 32 | |||||||||||||||||||||||
C5 |
687 | 9 | 19 | 13,651 | 59.00 | % | 1 | 0 | 31 | |||||||||||||||||||||||
D1 |
684 | 9 | 20 | 16,915 | 59.69 | % | 2 | 0 | 32 | |||||||||||||||||||||||
D2 |
686 | 9 | 21 | 16,179 | 59.25 | % | 2 | 0 | 33 | |||||||||||||||||||||||
D3 |
684 | 9 | 21 | 16,688 | 61.06 | % | 2 | 0 | 33 | |||||||||||||||||||||||
D4 |
682 | 9 | 20 | 14,712 | 61.95 | % | 2 | 0 | 33 | |||||||||||||||||||||||
D5 |
682 | 9 | 21 | 17,521 | 62.54 | % | 2 | 0 | 34 | |||||||||||||||||||||||
E1 |
679 | 9 | 20 | 13,814 | 64.22 | % | 2 | 0 | 33 | |||||||||||||||||||||||
E2 |
677 | 10 | 21 | 16,359 | 66.76 | % | 2 | 0 | 32 | |||||||||||||||||||||||
E3 |
674 | 9 | 20 | 16,826 | 67.21 | % | 2 | 0 | 28 | |||||||||||||||||||||||
E4 |
674 | 9 | 21 | 17,831 | 66.16 | % | 3 | 0 | 31 | |||||||||||||||||||||||
E5 |
673 | 10 | 22 | 16,199 | 64.96 | % | 2 | 0 | 26 | |||||||||||||||||||||||
F1 |
674 | 10 | 23 | 20,315 | 66.47 | % | 2 | 0 | 31 | |||||||||||||||||||||||
F2 |
672 | 10 | 22 | 20,409 | 70.42 | % | 3 | 0 | 31 | |||||||||||||||||||||||
F3 |
672 | 11 | 24 | 19,168 | 68.59 | % | 2 | 0 | 28 | |||||||||||||||||||||||
F4 |
671 | 10 | 23 | 18,112 | 68.85 | % | 3 | 0 | 28 | |||||||||||||||||||||||
F5 |
668 | 11 | 25 | 25,929 | 73.42 | % | 3 | 0 | 27 | |||||||||||||||||||||||
G1 |
672 | 10 | 21 | 15,398 | 64.70 | % | 3 | 0 | 31 | |||||||||||||||||||||||
G2 |
667 | 12 | 25 | 25,042 | 71.04 | % | 3 | 0 | 31 | |||||||||||||||||||||||
G3 |
666 | 12 | 25 | 16,739 | 68.69 | % | 3 | 0 | 24 | |||||||||||||||||||||||
G4 |
662 | 12 | 27 | 31,163 | 68.20 | % | 2 | 0 | 26 | |||||||||||||||||||||||
G5 |
661 | 13 | 31 | 48,110 | 68.57 | % | 4 | 0 | 25 |
44
Table of Contents
The following table presents additional aggregated information for the period from May 24,
2007 to December 31, 2010, about delinquencies, default and borrower prepayments, grouped by the
loan grade assigned by us. The interest rate, default and delinquency information presented in the
table includes data only for member loans that had been issued for more than 45 days as of December
31, 2010, and therefore have been through at least one billing cycle. With respect to late member
loans, the following table shows the entire amount of the principal remaining due, not just that
particular payment. The third and fifth columns show the late member loan amounts as a percentage
of member loans issued for more than 45 days. Member loans are placed on nonaccrual status and
considered as defaulted when they become 120 days late. The data presented in the table below comes
from a set of member loans that have been outstanding, on average, for approximately twelve months.
Because of our limited operating history, the data in the following table regarding loss
experience may not be representative of the loss experience that will develop over time as
additional member loans are originated through our platform and the member loans already originated
through our platform have longer payment histories. In addition, because of our limited operating
history, the data in the following table regarding prepayments may not be representative of the
prepayments we expect over time as additional member loans are originated through our platform and
the member loans already originated through our platform have longer payment histories.
15-30 | ||||||||||||||||||||||||||||||||||||||||
Days | 15-30 | 30+ | 30+ | Total | Number | |||||||||||||||||||||||||||||||||||
Late | Days Late | Days Late | Days Late | Default | Default | Number | Of Loans | Prepaid | Prepaid | |||||||||||||||||||||||||||||||
Loan Grade | ($) | (%) | ($) | (%) | ($) | (%) | Of Loans | Prepaid | ($) | (%) | ||||||||||||||||||||||||||||||
A1 |
3,797 | 0.71 | % | 21,067 | 3.96 | % | 6,013 | 0.81 | % | 129 | 25 | 60,150 | 5.99 | % | ||||||||||||||||||||||||||
A2 |
548 | 0.04 | % | | 0.00 | % | 12,197 | 0.54 | % | 378 | 76 | 303,500 | 10.43 | % | ||||||||||||||||||||||||||
A3 |
3,461 | 0.10 | % | 26,059 | 0.75 | % | 35,752 | 0.67 | % | 709 | 112 | 622,550 | 10.10 | % | ||||||||||||||||||||||||||
A4 |
10,221 | 0.18 | % | 18,045 | 0.33 | % | 43,408 | 0.52 | % | 928 | 150 | 1,044,800 | 11.32 | % | ||||||||||||||||||||||||||
A5 |
11,036 | 0.12 | % | 62,903 | 0.69 | % | 151,100 | 1.12 | % | 1,333 | 168 | 1,367,925 | 9.41 | % | ||||||||||||||||||||||||||
B1 |
| 0.00 | % | 91,076 | 1.70 | % | 164,731 | 2.05 | % | 759 | 113 | 881,725 | 10.28 | % | ||||||||||||||||||||||||||
B2 |
8,780 | 0.14 | % | 73,986 | 1.20 | % | 260,849 | 2.58 | % | 837 | 124 | 1,374,400 | 12.87 | % | ||||||||||||||||||||||||||
B3 |
34,444 | 0.45 | % | 265,608 | 3.48 | % | 295,214 | 2.46 | % | 961 | 120 | 1,440,125 | 11.34 | % | ||||||||||||||||||||||||||
B4 |
5,848 | 0.07 | % | 219,692 | 2.59 | % | 252,169 | 1.98 | % | 1,071 | 130 | 1,373,650 | 9.94 | % | ||||||||||||||||||||||||||
B5 |
54,535 | 0.58 | % | 207,320 | 2.21 | % | 371,138 | 2.74 | % | 1,171 | 142 | 1,243,600 | 8.71 | % | ||||||||||||||||||||||||||
C1 |
37,667 | 0.58 | % | 161,934 | 2.49 | % | 318,434 | 3.08 | % | 922 | 135 | 1,258,450 | 11.54 | % | ||||||||||||||||||||||||||
C2 |
13,832 | 0.21 | % | 129,953 | 1.97 | % | 347,389 | 3.44 | % | 927 | 105 | 957,625 | 9.00 | % | ||||||||||||||||||||||||||
C3 |
10,765 | 0.18 | % | 245,528 | 4.07 | % | 313,051 | 3.36 | % | 849 | 116 | 1,058,475 | 10.77 | % | ||||||||||||||||||||||||||
C4 |
34,904 | 0.85 | % | 105,273 | 2.57 | % | 339,425 | 4.69 | % | 662 | 99 | 936,150 | 12.05 | % | ||||||||||||||||||||||||||
C5 |
27,637 | 0.81 | % | 102,555 | 2.99 | % | 373,100 | 6.16 | % | 613 | 74 | 649,550 | 9.82 | % | ||||||||||||||||||||||||||
D1 |
44,854 | 1.27 | % | 195,391 | 5.53 | % | 344,488 | 5.61 | % | 548 | 71 | 643,800 | 10.01 | % | ||||||||||||||||||||||||||
D2 |
17,167 | 0.35 | % | 162,805 | 3.33 | % | 255,209 | 3.49 | % | 665 | 69 | 679,100 | 8.69 | % | ||||||||||||||||||||||||||
D3 |
44,027 | 0.98 | % | 167,741 | 3.74 | % | 320,202 | 4.63 | % | 592 | 60 | 593,325 | 7.89 | % | ||||||||||||||||||||||||||
D4 |
5,878 | 0.16 | % | 97,063 | 2.58 | % | 382,973 | 6.47 | % | 507 | 56 | 459,400 | 7.31 | % | ||||||||||||||||||||||||||
D5 |
38,987 | 1.16 | % | 173,514 | 5.14 | % | 201,226 | 4.05 | % | 411 | 52 | 390,275 | 7.33 | % | ||||||||||||||||||||||||||
E1 |
28,730 | 1.06 | % | 114,657 | 4.24 | % | 158,173 | 3.77 | % | 353 | 51 | 476,625 | 10.44 | % | ||||||||||||||||||||||||||
E2 |
| 0.00 | % | 88,420 | 3.48 | % | 214,965 | 5.39 | % | 322 | 49 | 435,525 | 10.19 | % |
45
Table of Contents
15-30 | ||||||||||||||||||||||||||||||||||||||||
Days | 15-30 | 30+ | 30+ | Total | Number | |||||||||||||||||||||||||||||||||||
Late | Days Late | Days Late | Days Late | Default | Default | Number | Of Loans | Prepaid | Prepaid | |||||||||||||||||||||||||||||||
Loan Grade | ($) | (%) | ($) | (%) | ($) | (%) | Of Loans | Prepaid | ($) | (%) | ||||||||||||||||||||||||||||||
E3 |
| 0.00 | % | 94,651 | 4.75 | % | 112,911 | 3.64 | % | 260 | 32 | 322,650 | 9.46 | % | ||||||||||||||||||||||||||
E4 |
11,305 | 0.64 | % | 76,625 | 4.36 | % | 208,682 | 7.09 | % | 216 | 40 | 435,875 | 13.55 | % | ||||||||||||||||||||||||||
E5 |
18,600 | 1.22 | % | 72,610 | 4.77 | % | 92,134 | 3.80 | % | 175 | 38 | 389,675 | 14.60 | % | ||||||||||||||||||||||||||
F1 |
| 0.00 | % | 104,370 | 8.39 | % | 113,758 | 5.90 | % | 128 | 25 | 235,525 | 11.49 | % | ||||||||||||||||||||||||||
F2 |
8,723 | 0.88 | % | 25,395 | 2.55 | % | 176,530 | 9.99 | % | 119 | 19 | 173,125 | 8.91 | % | ||||||||||||||||||||||||||
F3 |
| 0.00 | % | 9,622 | 1.40 | % | 124,480 | 10.08 | % | 79 | 16 | 196,125 | 13.93 | % | ||||||||||||||||||||||||||
F4 |
| 0.00 | % | 22,650 | 3.55 | % | 151,434 | 13.35 | % | 78 | 12 | 119,225 | 9.89 | % | ||||||||||||||||||||||||||
F5 |
| 0.00 | % | 57,171 | 12.64 | % | 56,651 | 7.00 | % | 51 | 10 | 110,200 | 12.84 | % | ||||||||||||||||||||||||||
G1 |
12,950 | 2.85 | % | 27,802 | 6.11 | % | 42,911 | 5.11 | % | 52 | 10 | 142,300 | 15.89 | % | ||||||||||||||||||||||||||
G2 |
| 0.00 | % | 42,169 | 8.58 | % | 55,559 | 8.12 | % | 47 | 5 | 17,000 | 2.15 | % | ||||||||||||||||||||||||||
G3 |
| 0.00 | % | 2,389 | 0.68 | % | 49,514 | 8.41 | % | 36 | 8 | 84,500 | 13.45 | % | ||||||||||||||||||||||||||
G4 |
20,724 | 4.29 | % | 3,055 | 0.63 | % | 111,365 | 11.54 | % | 57 | 7 | 81,150 | 7.16 | % | ||||||||||||||||||||||||||
G5 |
9,065 | 2.53 | % | 19,802 | 5.53 | % | 103,724 | 13.00 | % | 56 | 11 | 81,025 | 9.67 | % |
The following table presents aggregated information for the period from May 24, 2007 to
December 31, 2010 on the results of our collection efforts for all corresponding member loans that
became more than 30 days past due at any time, grouped by credit grade. For purposes of this
analysis, we have excluded the 20 loans that we repurchased due to identity fraud.
Gross | Aggregate | |||||||||||||||||||||||||||
Amount | Principal | |||||||||||||||||||||||||||
Collected | Number of | Balance of | Gross | |||||||||||||||||||||||||
Number | Aggregate | on | Loans | Loans | Amount | |||||||||||||||||||||||
of Loans | Amount Sent | Accounts | Charged-Off | Charged-Off | Recovered | |||||||||||||||||||||||
in | to | Sent to | Due to | Due to | on Loans | |||||||||||||||||||||||
Collection | Origination | Collections | Collections | Delinquency | Delinquency | Charged- | ||||||||||||||||||||||
Grade | (1) | Amount (1) | (1) | (2) | (3) | (3) | Off (4) | |||||||||||||||||||||
A |
123 | 759,100 | 103,371 | 45,870 | 38 | 310,402 | 5,422 | |||||||||||||||||||||
B |
329 | 3,084,725 | 491,159 | 224,542 | 121 | 1,636,036 | 13,324 | |||||||||||||||||||||
C |
423 | 3,642,150 | 655,518 | 308,599 | 174 | 1,825,955 | 9,813 | |||||||||||||||||||||
D |
341 | 3,188,825 | 591,832 | 232,537 | 163 | 1,857,939 | 6,592 | |||||||||||||||||||||
E |
226 | 2,157,925 | 397,579 | 182,395 | 105 | 1,075,570 | 20,468 | |||||||||||||||||||||
F |
100 | 1,263,425 | 249,844 | 106,957 | 52 | 636,258 | 13,024 | |||||||||||||||||||||
G |
73 | 832,000 | 179,513 | 87,656 | 36 | 336,723 | 350 | |||||||||||||||||||||
Total |
1,615 | 14,928,150 | 2,668,817 | 1,188,556 | 689 | 7,678,883 | 68,993 |
1) | Represents accounts 31 to 120 days past due. |
46
Table of Contents
2) | Represents the gross amounts collected on corresponding member loans while such
accounts were in collection during the 31-120 days past-due period. This amount does not
represent payments received after an account has been sent to collection, cured and
returned to current status. Of this amount, investors received $1,176,670 (99%). The
remainder was fees to us of $11,886 (1%). The amounts retained by us are reflected as loan
servicing fees in our consolidated financial statements. |
|
3) | Represents accounts that have been delinquent for 120 days at which time the account is
charged-off. Any money recovered after 120 days is no longer included as amounts collected
on accounts sent to collection. |
|
4) | Represents the gross amounts we received on charged-off accounts after the accounts
were charged-offe.g., a dollar received on an account 121 days past due. |
47
Table of Contents
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable for smaller reporting companies.
Item 4. | Controls and Procedures |
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SECs rules and forms and that such information
is accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, we recognize that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and we are required to apply our judgment in evaluating
the cost-benefit relationship of possible controls and procedures.
As required by Exchange Act Rule 13a-15(b), we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the fiscal quarter covered by this report. Based on the
foregoing, our Chief Executive Officer and Chief Financial Officer, have concluded that our
disclosure controls and procedures were effective at the reasonable assurance level.
There has been no change in our internal control over financial reporting during our most
recent fiscal quarter that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. | Legal Proceedings |
There were no material changes to report.
Item 1A. | Risk Factors |
The discussion in this Quarterly Report on Form 10-Q should be read together with the risk
factors contained in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the
fiscal year ended March 31, 2010 and the prospectus for the Notes dated October 15, 2010. These
risk factors describe various risks and uncertainties. These risks and uncertainties have the
potential to affect our business, financial condition, results of operations, cash flows,
strategies or prospects in a material and adverse manner. In addition, these risks could have a
material adverse effect on the value of the Notes you purchase and could cause you to lose all or
part of your initial purchase price or future principal and interest payments you expect to
receive.
In addition, you should consider the following:
We have incurred net losses in the past and expect to incur net losses in the future. If we
become insolvent or bankrupt, you may lose your investment.
We have incurred net losses in the past and we expect to incur net losses in the future. As of
December 31, 2010, our accumulated deficit was $38.5 million and our total stockholders deficit
was $34.3 million. Our net loss for the nine months ended December 31, 2010 and 2009, was $8.4 and
$7.8 million, respectively. We have not been profitable since our inception, and we may not become
profitable. In addition, we expect our operating expenses to increase in the future as we expand
our operations. If our operating expenses exceed our expectations, our financial performance could
be adversely affected. If our revenue does not grow to offset these increased expenses, we may
never become profitable. In future periods, we may not have any revenue growth, or our revenue
could decline. Our failure to become profitable could impair the operations of our platform by
limiting our access to working capital to operate the platform. If we were to become insolvent or
bankrupt, an event of default would occur under the terms of the Notes, and you may lose your
investment.
48
Table of Contents
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
On October 13, 2008, we commenced a public offering of up to $600,000,000 in principal amount
of the Notes pursuant to the Registration Statement (Registration Statement No. 333-151827). The
offering is a continuous offering and remains ongoing. The Registration Statement was declared
effective by the SEC on October 10, 2008. From October 13, 2008 to December 31, 2010, we sold
$174,597,500 in principal amount of Notes at 100% of their principal amount. The Notes were offered
only through our website, and there were no underwriters or underwriting discounts. In connection
with the offering, we incurred estimated expenses of approximately $4,481,653, none of which were
paid by us to our directors, officers, persons owning 10% or more of any class of our equity
securities or affiliates. As set forth in the prospectus for the offering, we are using the
proceeds of each series of Notes to fund a corresponding member loan (CM Loan) through the Lending
Club platform designated by the lender members purchasing such series of Notes. None of the
proceeds from the Notes are paid by us to our directors, officers, persons owning 10% or more of
any class of our equity securities or affiliates.
Item 3. | Defaults Upon Senior Securities |
None.
Item 5. | Other Information |
None.
Item 6. | Exhibits |
See Exhibit Index.
49
Table of Contents
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 |
||||
By: | /s/ Renaud Laplanche | |||
Name: | Renaud Laplanche | |||
Title: | Chief Executive Officer (principal executive officer) |
|||
By: | /s/ Carrie Dolan | |||
Name: | Carrie Dolan | |||
Title: | Chief Financial Officer (principal financial officer and principal accounting officer) |
Dated: February 14, 2011
50
Table of Contents
EXHIBIT INDEX
Exhibit No. | Description | |||
10.11 | * | Amended
and Restated Loan Sale Agreement, dated as of November 9, 2010, by and
between WebBank and Lending Club Corporation. |
||
10.12 | * | Amended and Restated Loan Account Program Agreement, dated as of November 9, 2010, by and
between WebBank and Lending Club Corporation. |
||
10.27 | Backup and Successor Servicing Agreement, dated September 15, 2008, by and between Portfolio
Financial Servicing Company and Lending Club Corporation. |
|||
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
|||
31.2 | Certification of Chief Financial Officer, Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
|||
32.1 | Certification of Chief Executive Officer and Chief Financial Officer, Pursuant to Section 906
of Sarbanes-Oxley Act of 2002 |
* | Confidential Treatment Requested |
51