UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 2011
or
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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)
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Delaware
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51-0605731 |
(State or other jurisdiction
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(I.R.S. Employer |
of incorporation or organization)
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Identification No.) |
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71 Stevenson, Suite 300 |
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San Francisco, California
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94105 |
(Address of principal executive offices)
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(Zip Code) |
(415) 632-5600
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
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Name of Each Exchange on Which Registered |
None
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None |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
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 Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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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 May 31, 2011, there were 8,615,323 shares of the registrants common stock outstanding.
LENDINGCLUB CORPORATION
TABLE OF CONTENTS
Except as the context requires otherwise, as used herein, LendingClub, we, us, our,
and the Company refer to LendingClub Corporation, LC Advisors, LLC, a wholly owned subsidiary of
LendingClub and LC Trust, a Delaware business trust. LendingClub is a registered trademark of
LendingClub Corporation in the United States.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements that involve substantial
risks and uncertainties. All statements, other than statements of historical facts, included in
this Annual Report on Form 10-K regarding LendingClub borrower members, credit scoring, FICO
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:
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the status of borrower members, the ability of borrower members to repay member loans
and the plans of borrower members; |
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expected rates of return and interest rates; |
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our ability to attract additional investors; |
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the attractiveness of our lending platform; |
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our financial performance; |
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the availability and functionality of the trading platform; |
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our ability to retain and hire competent employees and appropriately staff our
operations; |
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regulatory developments; |
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our intellectual property; our estimates regarding expenses, future revenue, capital
requirements and needs for additional financing; and |
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changes in the regulatory environment. |
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 cautionary statements
included in this Form 10-K, particularly in the Risk Factors section, that could cause actual
results or events to differ materially from forward-looking statements contained in this report.
In this Annual Report on Form 10-K, 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 corresponding member loans or 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 Annual Report on Form 10-K 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.
1
PART I
ABOUT THE LOAN PLATFORM
Overview
LendingClub is an online financial platform that enables its borrower members to borrow money
and investors to purchase Notes, the proceeds of which fund loans made to individual borrower
members. We were incorporated in Delaware in October 2006, and in May 2007, began operations as an
application on Facebook.com. In August 2007, we expanded our operations with the launch of our
public website, www.lendingclub.com. As of March 31, 2011, our platform has facilitated
approximately 24,940 member loans since our launch in May 2007.
We allow qualified borrower members to obtain loans with interest rates that they find
attractive as compared to traditional sources of consumer credit, such as credit cards. Since
October 13, 2008, investors have had the opportunity to purchase Notes issued by us for a
designated corresponding member loan or CM Loan. 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. We also from time to time, fund member loans ourselves, which we refer to as member
loans.
We aim to operate an efficient platform so we may offer interest rates to borrower members
that are lower than the rates they could obtain through credit cards or traditional banks, and
offer interest rates to investors on Notes that investors find attractive. Our lending platform
operates online only. Our registration, processing and payment systems are automated and
electronic. We encourage the use of electronic payments as the preferred means to disburse member
loan proceeds and remit cash payments on outstanding member loans. We have no physical branches,
no deposit-taking and interest payment activities.
We generate revenue by charging borrower members loan origination fees and by charging
investors ongoing servicing charges related to the Notes they have purchased. We also earn
interest on member loans to the extent that we fund those member loans ourselves. As of March 31,
2011, we had facilitated the issuance of $248.9 million in loans. As of March 31, 2011, investors
had funded approximately $231.0 million of this $248.9 million total, and LendingClub had funded
the remaining amount. As of March 31, 2011, all loans originated through the LendingClub platform
had three or five year terms. All loans currently originated through the LendingClub platform have
original principal amounts between $1,000 and $35,000. As of March 31, 2011, the average aggregate
LendingClub loan to a borrower member was approximately $10,000.
We have been operating since December 2007 pursuant to an agreement with WebBank, an
FDIC-insured, state-chartered industrial bank organized under the laws of the state of Utah.
Webbank serves as the initial true creditor for all loans originated through our platform. Our
agreement with WebBank has enabled us to make our platform available to borrower members on a
uniform basis. As of March 31, 2011, we do not offer member loans in Idaho, Iowa, Indiana, Maine,
Mississippi, Nebraska, 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.
As of March 31, 2011, we are not dependent on any single party for a material amount of our
revenue.
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 and immediately sold to us upon closing. As 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.
2
Borrower members who use our platform must identify their intended use of member loan proceeds
in their initial loan request. As of March 31, 2011, among funded member loans (all of which were
unsecured), borrower members identified their intended use of loan proceeds as follows:
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refinancing high-interest loans and credit card debt (approximately 55%); |
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significant expenses and purchases, such as home improvements or medical expenses
(approximately 25%); |
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financing their home-based or small businesses (approximately 6%); and |
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all other purposes (approximately 14%). |
We do not verify or monitor a borrower members actual use of funds following the funding of a
member loan.
In October 2010, we formed a subsidiary, LC Advisors, LLC, a California limited liability
company (LCA), which is wholly-owned by LendingClub. LCA has registered with the SEC as an
investment advisor and also acts as the general partner to two private investment funds for
accredited investors with differing investment strategies. In connection with the funds, we formed
a Delaware business trust to act as a bankruptcy remote entity for holding certain assets of the
funds separate and apart from the assets of LendingClub. LendingClub and the trust have entered
into a servicing agreement whereby LendingClub services the loans acquired by the trust in a manner
identical to other loans and earns a servicing fee equal to 40 basis points. LCA commenced
operations after January 1, 2011.
We started offering the funds in March 2011 through a private placement. As of March 31,
2011, the funds had approximately $800,000 in assets with $4.8 million in escrow, which was
contributed to the funds on April 1, 2011. LCA earns a management fee paid by the limited partners
of the funds, which is based on the amount of assets of each fund. As of March 31, 2011, the
aggregate amount of management fees earned by LCA was not material to the operations of the
business as a whole.
We attract members to our website, www.lendingclub.com, through a variety of sources. We
drive traffic through referrals from other parties, search engine results, and online and offline
advertising. We are not dependent on any one source of traffic to our website.
The Online Lending Industry
Online lending is a new approach to consumer finance. We use an internet-based network to
connect borrowers and investors. As the provider of an investing and lending platform,
LendingClub, generally provides transactional services for the online network, including screening
borrowers for borrowing eligibility and facilitating payments. Online lending also entails
significantly lower operating costs compared to traditional banking and commercial finance
institutions because there are no physical branches and related infrastructure, no deposit-taking
and interest payment activities and extremely focused loan underwriting activities. We believe
that the interest rates offered to our borrower members through our platform are better than the
rates those borrower members would pay on outstanding credit card balances or an unsecured loan
from a traditional bank, if they were able to obtain such a loan.
LendingClub views consumer finance delivered through an online platform as an important new
market opportunity. Key drivers of online lending include the following:
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the possibility of lower interest rates for borrowers; |
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the possibility of attractive interest rates for investors; |
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the possibility for all members to help each other by participating in the platform to
their mutual benefit; |
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tightening consumer credit markets, particularly among traditional banking
institutions; and |
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growing acceptance of the internet as an efficient and convenient forum for consumer
transactions. |
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How the LendingClub Platform Operates
New Member Registration
The first step in using our platform is new member registration. New members first register as
general LendingClub members. During registration, members establish online member screen names. New
members must agree to the terms and conditions of the LendingClub website, including agreeing to
conduct transactions and receive disclosures and other communications electronically.
New members have the opportunity to register as borrowers, investors, or both. All
LendingClub borrower members:
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must be U.S. citizens or permanent residents; |
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must be at least 18 years old; |
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must have valid email accounts; |
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must have U.S. social security numbers; and |
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must have an account at a U.S. financial institution with a routing transit number. |
During registration, we verify the identity of members by comparing supplied names, social
security numbers, addresses and telephone numbers against the names, social security numbers,
addresses and telephone numbers in the records of a consumer reporting agency, as well as other
anti-fraud and identity verification databases. We also currently require each new member to supply
information about the members bank account including routing numbers, after which we transfer
between 1 and 99 cents from the bank account into the members newly created LendingClub
sub-account to verify that the bank account belongs to the member. Members must then sign in to
LendingClub and verify their bank accounts based on the amounts transferred.
During investor registration, potential investors will have their identify verified, agree to
a tax withholding statement and bank account verification, and must enter into an investor and
other agreements with LendingClub, which will govern all purchases of Notes the investor makes
through our platform. See About the Loan Platform Investor Agreement for a detailed
description of the investor agreement. Investors must also meet minimum financial suitability
requirements. See About the Loan Platform Financial Suitability Requirements.
Borrower members must also enter into a borrower membership agreement with LendingClub prior
to listing their loan. The borrower membership agreement addresses the registration and loan
request processes. In this agreement, the borrower member authorizes us to obtain a consumer
report, to use the consumer report for specific purposes, to share certain information about the
borrower member with investors, and to issue a loan to the borrower if they have received funding
of 60% or more of the listed loan amount. The borrower member also grants us a limited power of
attorney to complete on the borrower members behalf, one or more promissory notes in the amounts
and on the terms made to the borrower member by WebBank. WebBank serves as the true creditor for
all member loans originated through our platform. These agreements set forth the terms and
conditions of the member loans and allow a borrower member to withdraw from a loan request at any
time before the member loan is funded. See Item 1. Business About the Loan Platform How the
LendingClub Platform Operates New Member Registration.
Borrower members enter into a credit profile authorization and a loan agreement with WebBank.
In the credit profile authorization, the borrower member authorizes WebBank to obtain and use a
consumer report on the borrower member. The loan agreement addresses the application process and
the role of investors commitments to purchase Notes corresponding to the borrower loan. The
agreement explains that LendingClub may, but is not obligated to, agree to fund all or a portion of
a loan to the borrower member and that the borrower accepts any loan if the loan has received
funding of 60% or more of the listed loan amount. If a loan is extended to the borrower
member, the borrower member agrees to be bound by the terms of a promissory note, the form of
which is attached as an exhibit to the loan agreement. The borrower member authorizes WebBank to
debit the borrower members designated account by Automated Clearing House, or ACH, transfer for
each payment due under the promissory note. The loan agreement also describes the parties rights
in regard to arbitration. The borrower member agrees that WebBank may assign its right, title and
interest in the loan agreement and the borrower members promissory notes to others, including
LendingClub.
4
Borrower Loan Requests
Borrower members submit loan requests online through the LendingClub website. Loan requests
must be between $1,000 and $35,000. Loans from $1,000 to $11,975 are only issued with three (3)
year terms, unless the loan request comes from a partner that allows borrower members to select the
amount and term, which selections will be honored. Each loan request is an application to WebBank,
which lends to qualified borrower members and allows our platform to be available to borrower
members on a uniform basis throughout the United States, except that we do not currently offer
member loans in Idaho, Indiana, Iowa, Maine, Mississippi, Nebraska, North Dakota and Tennessee.
Currently, we allow borrower members to have up to two member loans outstanding at any one time, if
the borrower member continues to meet our credit criteria. In addition, to apply for a second
loan, the borrower member must have already made timely payments on the first member loan for at
least six months. If a borrower member applies for a second loan, we allow investors to exclude
the loan listing by choosing exclude loans already invested.
Borrower members supply a variety of unverified information that is included in the borrower
member loan listings on our website and in the posting reports and sales reports we file with the
SEC. This information includes a borrower members loan title,
description, answers to investor questions
and home ownership status. Requested information also includes a borrower members income or
employment, which may be unverified. If we verify the borrower members income or employment, we
will display an icon in the loan listing indicating that we have done so. Investors have no
ability to verify borrower member information and we do not verify a borrowers income or
employment solely at the request of an investor. See Item 1. Business About the Loan Platform
How the LendingClub Platform Operates Loan Postings and Borrower Member Information Available
on the LendingClub Website.
Minimum Credit Criteria and Underwriting
After we receive a loan request, we evaluate whether the prospective borrower member meets
Webbanks loan criteria. The Webbank credit policy provides the underwriting criteria for all loans
listed on our platform, and the credit policy may not be changed without the consent of WebBank.
Under the current credit policy, prospective borrower members must have:
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a minimum FICO score of 660 (as reported by a consumer reporting agency); |
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for borrowers with a credit score between 660-719, they will need a debt-to-income
ratio (excluding mortgage) below 25%; for borrowers with a credit score of 720 or higher,
they will need a debt-to-income ratio (excluding mortgage) below 30%; and |
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a credit report (as reported by a consumer reporting agency) without any current
delinquencies, recent bankruptcy, tax liens or non-medical related collections opened
within the last 12 months, and reflecting: |
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at least two accounts currently open; |
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for credit credits 740 and higher, no more than 8 credit inquiries on the credit
report in the past six months and for credit scores below 740, no more than 3 inquiries
on the credit report in the past six months; |
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a revolving credit balance of less than $150,000; |
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utilization of credit limit not exceeding 100%; and |
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a minimum credit history of 36 months. |
5
A FICO score is a numeric rating that ranges between 300 and 850 that rates a persons credit
risk based on past credit history and current credit situation. FICO scoring was developed by Fair
Isaac Corporation. FICO scores reflect a mathematical formula that is based on information in a
borrowers credit report, compared to information on other consumers. Consumers with higher scores
typically represent a lower risk of defaulting on their loans. There are three different FICO
scores, each with a separate name, which correspond to each of the three main U.S. consumer
reporting agencies. Equifax uses the BEACON score; Experian uses the Experian/Fair Isaac Risk
Model; and TransUnion uses the EMPIRICA score. The score from each consumer reporting agency
considers only the credit data available to that agency. Fair Isaac Corporation develops all three
FICO scores and makes the scores as consistent as possible across the three consumer reporting
agencies. Nevertheless, the three agencies sometimes have different information about a particular
borrower member, and that means the three FICO scores for that borrower member will vary by agency.
We currently obtain consumer credit information from a single consumer reporting agency, although
we may use other consumer reporting agencies in the future.
The FICO scoring model takes into account only five categories of data: historical timeliness
of bill payments; total outstanding debt and the total amount of credit the consumer has available;
length of credit history; mix of credit; and new credit applications within the last year.
Information such as: age; race; sex; job or length of employment; income; whether the consumer has
been turned down for credit or information not contained in the consumers credit report are not
taken into account in calculating a score.
From the relaunch of our platform on October 13, 2008 until March 31, 2011, only 9.79% of
individuals seeking member loans on our site (37,467 out of a total of 382,576) have met the credit
criteria required to post their loan requests on our website and subsequently received a loan. For
information about how we have changed our credit policy over time, see Item 1. Business About
LendingClub Business Prior Operation of the LendingClub Platform Our Prior Operating
Structure.
During the loan application process, we also automatically screen borrower members using the
U.S. Department of the Treasury Office of Foreign Asset Controls (OFAC) lists, as well as our
fraud detection systems. See Item 1. Business About LendingClub Business Technology
Fraud Detection.
After submission of the application, we inform potential borrowers whether they qualify to
post a loan request on our platform. For qualified borrowers we assign one of 35 loan grades
(A1-G5) which then establishes the borrowers ultimate interest rate. In our process, we first
assign an initial credit grade (A1-C5) based on the borrowers FICO score. This initial grade can
then be adjusted to reflect the application of the following modifiers, which then results in the
final credit grade for the borrower:
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number of accounts currently open; |
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number of recent credit inquiries; |
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length of credit history; |
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ratio of the loan request to certain established guidance limits; and |
Applying these grading criteria, the following factors lead to a loan request being more
likely to be designated grade A1, which is the highest unsecured loan grade: higher credit score;
lower requested loan amount; fewer credit inquiries; fewer open accounts, given a minimum of six
open accounts; utilization of credit limit between 5% and 85%; and greater length of credit history
and a three year term.
Verification of Borrower Information
Approximately 61.0% of the applicants during fiscal year 2011 had their employment or income
verified by us by requiring the borrower to submit paystubs, IRS Forms W-2 or other tax records
between the initial posting of a loan request and the issuance of a member loan.
6
We perform targeted income verification primarily in the following situations:
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if we believe there may be uncertainty about the borrower members employment or future
income. For example, the borrower member fails to state an employment or source of income;
the stability of the borrower members future income or employment status appears to be in
question (based, for example, on self-reported loan description); or a borrower member has
control over the accuracy of the information, such as being a principal of the company
providing the employment or income information; |
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if we detect conflicting or unusual information in the loan request; |
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if the loan amount is high; |
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if the borrower member is highly leveraged; |
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if we suspect the borrower member may have obligations not included in the borrower
members pre-loan or post-loan debt level, such as wage garnishment collection accounts; or |
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if we suspect a fraudulent loan request. |
We also conduct random testing. From time to time, we also randomly select listings to verify
information for the purpose of testing our policies and for statistical analysis.
If the borrower member fails to provide satisfactory information in response to an income or
employment verification inquiry, we may remove the borrower members loan listing or request
additional information from the borrower member.
We conduct income or employment verification entirely in our discretion as an additional
credit and loan screening mechanism. We believe that our ability to verify a borrower members
income may be useful in certain circumstances in screening our platform against exaggerated income
and employment representations from borrower members. Investors, however, should not rely on a
borrower members stated employment or income, except when such income or employment has been
verified as indicated on the loan details page, or on LendingClubs ability to perform income and
employment verifications. We cannot assure investors that we will continue performing income and
employment verifications. See Item 1A. Risk Factors Information supplied by borrower members
may be inaccurate or intentionally false.
Except as discussed above, borrower member information such as loan title, description, and
answers to investors questions through the Q&A process are unverified and investors should not
rely on this information. Additionally, we do not verify borrower members ability to afford a
loan the borrower member has requested.
Our participation in funding loans on the platform from time to time has had, and will
continue to have, no effect on our income or employment verification process, the selection of loan
requests verified or the frequency of income and employment verification.
Interest Rates
After a loan requests loan grade has been determined under the credit policy, an interest
rate is assigned to the loan request.
The interest rates are assigned to borrower loan grades in three steps. First, the
LendingClub base rate is determined. Second, an assumed default rate is determined that attempts to
project loan default rates. Third, the assumed default rate is used to calculate an upward
adjustment to the base rates, which we call the Adjustment for Risk and Volatility.
7
The base rates are set by the Interest Rate Committee (Committee). This group is comprised
of our Chief Executive Officer; Chief Financial Officer, Chief Risk Officer; Chief Marketing
Officer, and General Counsel. The Committees objective in setting the LendingClub base rate is to
allocate the interest rate spread that exists between the cost of credit for borrower members and
the return on bank deposits we understand are available to investors. We have selected this spread
as an appropriate starting place for our base rates for the following reasons:
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For borrower members, we believe the interest rate for unsecured consumer credit
published by the Federal Reserve reflects the average interest rate at which our borrower
members could generally obtain other financing. We believe that the difference between
that interest rate and the base rate is a relevant measure of the savings that may be
achieved by our borrower members. |
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For investors, we believe the interest rate on certificates of deposit reflects a
widely available risk-free alternative investment for our members. We believe the
difference between that interest rate and the base rate is a relevant measure of the value
that may be delivered to our members. |
By setting the initial allocation of the base rate near the middle of the spread between these
two interest rates, we believe roughly equal value may be provided to both our borrower members and
our investors. To make this initial base rate calculation, the Committee calculates the average
between the interest rate for unsecured consumer credit published by the Federal Reserve,
commercial banks; all accounts, in Federal Reserve Statistical Release G19, and the interest rate
for 6-month certificates of deposit, secondary market; monthly, published by the Federal Reserve
in Federal Reserve Statistical Release H15.
Next, the Committee may modify this initial allocation, based on the following factors:
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general economic environment, taking into account economic slowdowns or expansions; |
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the balance of supply and demand on the LendingClub platform, taking into account
whether borrowing requests exceed investor commitments or vice versa; and |
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competitive factors, taking into account the rates set by other lending platforms and
the rates set by major financial institutions. |
The Committee adjusts the base rate from time to time based on this methodology. In applying
the adjustment to the base rate, the Committee has established one base rate for all grades.
Lastly, the Committee then adjusts the base rate upward to reflect an adjustment based upon
the assumed default rate, volatility factors, investor value and other factors, which we
collectively refer to as the Adjustment for Risk and Volatility. The final interest rate is then
calculated by adding the base rate and the adjustment for risk & volatility.
Standard Terms of the Member Loans
Member loans are unsecured obligations of individual borrowers with a fixed interest rate and
a maturity of three years or five years. Member loans have an amortizing, monthly repayment
schedule and may be repaid in whole or in part at any time without prepayment penalty. In the case
of a partial prepayment, we automatically reduce the outstanding principal and the term of the loan
is effectively reduced as the monthly payment is unchanged.
Loan Postings and Borrower Member Information Available on the LendingClub Website
Once a loan request is complete and we have assigned a loan grade and interest rate to the
requested loan, the request is subsequently posted on our website and then becomes available for
viewing by investors. Investors are also then able to commit to buy Notes that will be dependent
for their payments on that member loan. Loan requests appear under screen names, not actual names.
Investors are able to view:
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the requested loan amount; |
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loan grade (determined using the process described above), interest rate and annual
percentage rate for the member loan; |
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anonymized data from the borrower members credit report, including FICO score range,
level of debt, current delinquencies, recent bankruptcies, collections, open tax liens,
open accounts, credit inquiries, utilization of credit limit and length of credit history; |
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term, three or five year; |
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the borrower members self-reported income and employer and whether that income or
employment has been verified by LendingClub; |
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the borrower members self-reported, unverified social affiliations; |
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total funding that has been committed to date to Notes that will be dependent on the
loan; |
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the number of investors committed to funding Notes that will be dependent on the loan;
and |
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the borrower members self-reported intended use of funds. |
Potential borrowers typically state the use of funds in a short sentence or clause, such as
Consolidate my credit card debt and be rid of it. We historically have not verified, and do not
plan in the future to verify or monitor, a borrower members actual use of funds.
Investors are also able to view the following information provided by borrower members, which
we typically do not verify:
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length of employment with current employer; |
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debt-to-income ratio, as calculated by us based on (i) the debt (excluding mortgage)
reported by a consumer reporting agency; and (ii) the income reported by the borrower
member, which is not verified unless we display an icon in the loan listing indicating
otherwise. |
We also post the following credit history information from the consumer reporting agency
report, and label the information as being provided by a credit bureau:
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a numerical range within which the borrower members FICO score falls; |
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the borrower members earliest credit line; |
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the borrower members number of open credit lines; |
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the borrower members total number of credit lines; |
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the borrower members revolving credit balance; |
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the borrower members revolving line utilization; |
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the number of credit inquiries received by the consumer reporting agency with regard to
the borrower member within the last six months; |
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the number of reported delinquencies in the past two years; |
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the length of time (in months) since the borrower members last reported delinquency. |
9
Although borrower members and investors are anonymous to each other, investors may ask
predefined questions on the loan listing and borrower members have the opportunity, but are not
required, to post public responses.
Loan requests remain open for up to 14 days, during which time funding commitments to purchase
Notes that will be dependent on the loans may be made by investors unless funding commitments for
Notes aggregating the loan request amount are received earlier, in which case the member loan is
funded as soon as practicable. If after the end of the 14 day listing period, a borrower members
loan request does not attract Note purchase commitments sufficient to fund at least 60% of the
listed loan amount, the borrower member ceases to be under an obligation to accept the loan,
although borrowers may still choose to accept partial funding (less than 60%) of their loan
requests or may request that their loan request be re-listed on the our platform.
How to Purchase Notes
After a loan request has been posted on our website, individual investors who have registered
with us and who reside in states in which the Notes are available for sale may commit to purchase
Notes dependent on the member loan requested by the borrower member.
Investors navigate our website as follows. Investors may browse all active loan listings.
They may also use search criteria to narrow the list of loan listings they are viewing. The
available search criteria include loan grade, borrower member credit score range, number of recent
delinquencies and loan funding status, as well as a free-search field. The free-search field
returns results based on the word entered as the search. As investors browse the loan listings,
they can click on any of the listings to view additional detail. The loan detail page includes
general information about the borrower member and the loan request that is viewable by non-members,
and more detail (including credit data) viewable only by signed-in investors. Once signed-in,
investors may select any of the displayed loan listings and add them to their order, which is
akin to a shopping basket. Investors may add as many member loans as they want to their order,
provided that the aggregate amount of their order does not exceed the funds available in their
LendingClub customer accounts. Once an investor has finished building an order, the investor may
click the check out button, review the order one more time and then click the confirmation
button to commit funds to the order. Funds committed represent binding commitments to purchase
Notes issued by us that are dependent on the chosen member loans for payment. From that point on,
the funds committed by the investor are no longer available in the investors LendingClub account
and may no longer be withdrawn or committed to other loans (unless and until loans included in the
order are not funded, in which case the corresponding funds become available to the investor
again).
A single borrower members loan request is typically funded by Notes purchased by many
different investors. Notes are available in a minimum denomination of $25, and in $25 increments
thereafter. In the event that a borrower members loan request does not attract Note purchase
commitments sufficient to funding for the member loan of at least 60% of the listed loan amount,
the borrower member ceases to be under an obligation to accept the loan, although borrowers may
still choose to accept partial funding (less than 60% and $1,000 or over) of their loan requests or
may request that their loan request be re-listed on our platform.
Portfolio Tool
In making loan purchase commitments, as of March 31, 2011, approximately 34% of investors
state that they use Portfolio Tool, our proprietary tool that creates a suggested portfolio of
Notes based upon investor provided
information such as a target weighted average interest rate or other investment criteria
selected by the investor. Investors may experiment with Portfolio Tool search results on our
website without committing to purchase Notes.
10
The following steps are involved in an investors use of Portfolio Tool:
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The investor indicates the aggregate principal amount of Notes that the investor wishes
to purchase, which we refer to as a portfolio. |
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The investor may then input preferences corresponding to LendingClub risk levels, such
as by clicking search buttons or moving a cursor along a slider. These risk levels are
calculated by applying a standard Markowitz formula. The calculation that performs
assumes an initial search result from the loan requests currently available on the
platform. |
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By using the search inputs, the investor can submit queries to present potential Notes
that match the investors search criteria (maximum debt-to-income ratio, home ownership,
previously funded loans, security interest, among others). The engine then displays a
sample portfolio for the investor. |
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The sample portfolio presented contains a list of Notes, displaying information about
requested principal amounts, interest rates and the maturity dates of each member loan on
which a Note is dependent. Self-reported social connections, if any, are also displayed.
By changing the input criteria, an investor can repeat the request for a sample portfolio
and view a new portfolio. |
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Once presented with a sample portfolio, an investor can choose to make modifications to
the sample portfolio by removing Notes, adding new Notes or changing the amount of each
Note purchased. |
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The investor then submits the desired portfolio, gets a confirmation page and selects
confirm in order to buy the portfolio or go back to make further modifications or
cancel the portfolio altogether. |
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If a loan request forming part of the portfolio is cancelled, either by LendingClub or
by the borrower member, and the member loan will not be available, investors will be
offered the opportunity to substitute a new loan request for the cancelled request. In
this event, Portfolio Tool will present investors with the option to replace the cancelled
loan request with another loan request of the same risk grade or a less risky risk grade or
that meets the other investment criteria selected by the investor. Thus, a B5 loan would be
replaced with the option to designate funding for another B5 loan and, if no B5 loan were
available, a B4 loan, and if no B4 loan were available, a B3 loan, and so forth. |
Investors may also browse loan requests or sort them using various search criteria including
interest rate, FICO score range, debt-to-income ratio (calculated as described above),
delinquencies in the last two years and percentage of the loan request already funded by Note
commitments.
Loan Funding and Treatment of Investor Member Cash Balances
An investors commitment to purchase a Note dependent on a member loan is a binding
commitment, subject only to receipt of aggregate Note purchase commitments equal to at least 60% of
the loan request amount or, if the total loan request amount is funded less than 60% of the loan
request amount, a borrower members decision to accept partial funding. In order to make Note
purchase commitments, investors must have sufficient uncommitted funds in their LendingClub
accounts. The placement of funds into an investor account is accomplished by having each investor
authorize an electronic transfer using the ACH network from the investors designated and verified
bank account to the account currently maintained by us at Wells Fargo. This account is a pooled
account titled in our name in trust for LendingClub investors, known as the ITF Account, and is a
non-interest bearing demand deposit account. In connection with the ITF account, Wells Fargo is
acting in a separate capacity from its role as trustee under the indenture governing the Notes.
Individual LendingClub members have no direct relationship with Wells Fargo. LendingClub is
the trustee for the ITF account. In addition to outlining the rights of investors, the trust
agreement provides that we disclaim any economic interest in the assets in the ITF account and also
provides that each investor disclaims any right, title or
interest in the assets of any other investor in the ITF account. No LendingClub monies are
ever commingled with the assets of investors in the ITF account.
11
Under the ITF account, we maintain sub-accounts for each of the investors on our platform to
track and report funds committed by investors to purchase Notes dependent on member loans, as well
as payments received from borrower members. These record-keeping sub-accounts are purely
administrative and reflect balances and transactions concerning the funds in the ITF account.
The ITF account is FDIC-insured on a pass through basis to the individual investors, subject
to applicable limits. This means that each individual investors balance is protected by FDIC
insurance, up to the limits established by the FDIC. Other funds the investor has on deposit with
Wells Fargo, for example, may count against any applicable FDIC insurance limits.
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Funds of an investor may stay in the ITF account indefinitely. Such funds may include: |
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funds in the investors sub-account never committed to purchase Notes; |
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funds committed to the purchase of Notes for which the underlying member loan has not
closed; or |
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payments received from us related to Notes previously purchased. |
Upon request by the investor, we will transfer investor funds in the ITF account to the
investors designated and verified bank account by ACH transfer, provided such funds are not
already committed to the future purchase of Notes.
Purchases of Notes and Loan Closings
Once an investor has decided to purchase one or more Notes that are dependent on member loans
and prefunded the investors LendingClub account with sufficient cash, we proceed with the purchase
and sale of the Notes to the investor and facilitate the closing of the corresponding member loans.
At a Note closing, when we issue a Note to an investor and register the Note on our books and
records, we transfer the principal amount of such Note from such investors sub-account under the
ITF account to a funding account maintained by WebBank. This transfer represents the payment by
the investor of the purchase price for the Note. These proceeds are designated for the funding of
the particular member loan selected by the investor. WebBank is the true creditor for all member
loans to borrower members, which allows our platform to be available on a uniform basis to borrower
members throughout the United States, except that we do not currently offer member loans in Idaho,
Indiana, Iowa, Maine, Mississippi, Nebraska, North Dakota and Tennessee. We are obligated to
maintain funds in the funding account maintained by WebBank equal to $2,000,000 or $3,000,000 if
the prior months loan total exceeds a determined amount. WebBank disburses the loan proceeds to
the borrower member who is receiving the member loan. An individual member loan generally closes
the first business day after i) we receive Note funding commitments in an aggregate amount equal to
the amount of the loan request, or ii) the end of the 14 day listing period if we receive aggregate
Note funding commitments equal to 60% or more of the amount of the loan request, or iii) when the
borrower member agrees to take a lesser amount equal to the amount of Note commitments received up
to that time.
At the closing of the borrower members loan, we execute an electronic promissory note on the
borrower members behalf for the final loan amount under a power of attorney on behalf of the
borrower member. WebBank then electronically indorses the promissory note to us and assigns the
borrower members loan agreement to us without recourse to WebBank.
The promissory note and the loan agreement contain customary agreements and covenants
requiring the borrower members to repay their member loans and acknowledging our role as servicer
for member loans. Borrowers authorize WebBank to disburse the loan proceeds by ACH transfer.
Investors know only the screen names, and do not know the actual names, of borrower members.
The actual names and mailing addresses of the borrower members are known only to us and WebBank.
We maintain custody of the electronically-executed promissory notes in electronic form on our
platform.
Borrowers pay an origination fee upon the successful closing of the member loan. WebBank
deducts the origination fee from the loan amount prior to disbursing the net amount to the borrower
member and remits the fee to us. This fee is determined by the loan grade of the loan and ranges
from 2.00% to 5.00% of the aggregate principal amount.
12
Identity Fraud Reimbursement
We reimburse investors for the unpaid principal balance of a Note that is dependent on a
member loan obtained through identity fraud. We generally recognize the occurrence of identity
fraud upon receipt of a police report regarding the identity fraud. This reimbursement for
identity fraud only provides an assurance that our borrower identity verification is accurate; in
no way is it a guarantee of a borrowers self-reported information (beyond the borrowers identity)
or a borrower members creditworthiness. We expect the incidence of identity fraud on our platform
to be low because of our identity verification process. Between October 2008 and March 31, 2011,
we have experienced twenty-two cases of confirmed identity fraud.
Post-Closing Loan Servicing and Collection
Following the purchase of Notes and the closing of the corresponding member loans, we begin
servicing the CM Loans.
We assess investors a service charge in respect of their Notes. Our service charge is equal
to an amount corresponding to 1.00% of the following amounts received by us from borrower members
in respect of each corresponding member loan (in each case excluding any payments due to us on
account of portions of the corresponding member loan, if any, funded by LendingClub itself):
Our procedures generally involve the automatic debiting of borrower bank accounts by ACH
transfer. If a borrower member chooses to pay by check, we impose a $15.00 check processing fee
per payment, subject to applicable law. We retain 100% of any check processing and other
processing fees we receive to cover our costs.
Member loan payments are transferred to a clearing account in our name where they remain for
four days. Thereafter, we make payments on the Notes by transferring the appropriate funds to the
ITF account and allocating amounts received on specific member loans to the appropriate investors
sub-account. We transfer amounts due to us for servicing and borrower loans we hold from the
clearing account to another operating account of ours. An investor may transfer uncommitted funds
out of the investors LendingClub sub-account in the ITF account by ACH to the investors
designated bank account at any time, subject to normal execution times for such transfers
(generally 2-3 days).
We disclose on our website to the relevant investors and report to consumer reporting agencies
regarding borrower members payment performance on our member loans. We have also made
arrangements for collection procedures in the event of borrower member default. When a member loan
is past due and payment has not been received, we contact the borrower member to request payment.
After a 15-day grace period, we may, in our discretion, assess a late payment fee. The amount of
the late payment fee is the greater of 5.00% of the unpaid payment amount, or $15.00, or such
lesser amount as may be provided by applicable law. This fee may be charged only once per late
payment. Amounts equal to any late payment fees we receive are paid to holders of the Notes
dependent on the relevant member loans, net of our service charge. We often choose not to assess a
late payment fee when a borrower promises to return a delinquent loan to current status and
fulfills that promise. See About the Loan Platform Historical Information about Our Borrower
Members and Outstanding Loans. We may also work with the borrower member to structure a new
payment plan in respect of the member loan without the consent of any holder of the Notes
corresponding to that member loan. Under the indenture for the Notes, we are required to use
commercially reasonable efforts to service and collect member loans, in good faith, accurately
and in accordance with industry standards customary for servicing loans such as the member loans.
13
Each time a payment request is denied due to insufficient funds in the borrowers account or
for any other reason, we may assess an unsuccessful payment fee to the borrower in an amount of
$15.00 per unsuccessful payment, or such lesser amount as may be provided by applicable law. We
retain 100% of this unsuccessful payment fee to cover our costs incurred because of the denial of
the payment.
If a member loan becomes 31 days overdue, we identify the loan on our website as Late
(31-120), and we either refer the member loan to an outside collection agent or to our in-house
collections department. Currently, we generally use our in-house collections department as a first
step when a borrower member misses a member loan payment. In the event that our initial in-house
attempts to contact a borrower member are unsuccessful, we generally refer the delinquent account
to the outside collection agent. Amounts equal to any recoveries we receive from the collection
process are payable to investors on a pro rata basis, subject to our deduction of our 1.00% service
charge and an additional collection fee. The investor is only charged the additional collection
fee if the collection agency or LendingClub are able to collect a payment.
These fees, which are a percentage of the amount recovered, are listed below:
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30% if the member loan is less than 60 days past due and no more than 90 days from the
date of origination; |
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35% in all other cases, except litigation; and |
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30%, or hourly attorneys fees, in the event of litigation, plus costs. |
Investors are able to monitor the status of collections as the status of a member loan
switches from Late (15-30 days) to Late (31-120 days) to current for example, but cannot
participate in or otherwise intervene in the collection process.
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The following table summarizes the fees that we charge and how these fees affect investors: |
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Description of Fee |
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Fee Amount |
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When Fee is Charged |
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Effect on Investors |
Service charge on Notes
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1.00% of the principal, interest and
late fees received by us from
borrower members in respect of each
corresponding member loan (in each
case excluding any payments due to
LendingClub on account of portions of
the corresponding member loan, if
any, funded by LendingClub itself)
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At the time of any payments on the Notes,
including Note payments resulting from
prepayments or partial payments on
corresponding member loans
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The service charge
will reduce the
effective yield on
the Notes below
their stated
interest rate |
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Member loan late fee
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Assessed in our discretion; if
assessed, the late fee is the greater
of 5.00% of the unpaid installment
amount, or $15.00, or such lesser
amount as may be provided by
applicable law, and may be charged
only once per late payment
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In our discretion, when a member loan is
past due and payment has not been received
after a 15-day grace period
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Amounts equal to
any late payment
fees we receive are
paid to holders of
the Notes
corresponding to
the relevant member
loan, net of our
1.00% service
charge |
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Member loan unsuccessful payment fee
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$15.00 per unsuccessful payment, or
such lesser amount as may be provided
by applicable law
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May be assessed each time a payment
request is denied, due to insufficient
funds in the borrowers account or for any
other reason
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We retain 100% of
this unsuccessful
payment fee to
cover our costs
incurred because of
the denial of the
payment |
14
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Description of Fee |
|
Fee Amount |
|
When Fee is Charged |
|
Effect on Investors |
Member loan collection fee
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Only charged after a member loan
becomes 31 days overdue if the
collection agency or LendingClub is
able to collect an overdue payment;
collection fee is a percentage of the
amount recovered:
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At the time of successful collection after
a member loan becomes 31 days overdue
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Collection fees
charged by us or a
third-party
collection agency
will reduce
payments and the
effective yield on
the related Notes;
collection fees
will be retained by
us or the
third-party
collection agency
as additional
servicing
compensation |
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30%
if the member loan is less than 60
days past due and no more than 90
days from the date of
origination; |
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35%
in all other cases, except
litigation; and |
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30%,
or hourly attorneys fees, in the
event of litigation, plus
costs |
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Check processing fee
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$15.00 per check processed for any
payments made by check
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At the time a payment by check is processed
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We retain 100% of
this check
processing fee to
cover our costs |
If a borrower member dies while a member loan is in repayment, we require the executor or
administrator of the estate to send a death certificate to us. We then file a claim against the
borrower members estate to attempt to recover the outstanding loan balance. Depending on the size
of the estate, we may not be able to recover the outstanding amount of the loan. If the estate
does not include sufficient assets to repay the outstanding member loan in full, we will treat the
unsatisfied portion of a member loan as defaulted with zero value. In addition, if a borrower
member dies near the end of the term of a member loan, it is unlikely that any further payments
will be made on the Notes corresponding to such member loan, because the time required for the
probate of the estate may extend beyond the initial maturity date and the final maturity date of
the Notes.
Our normal collection process changes in the event of a borrower member bankruptcy filing.
When we receive notice of the bankruptcy filing, as required by law, we cease all automatic monthly
payments on the member loan. We also defer any other collection activity. The status of the member
loan, which the relevant investors may view, switches to bankruptcy. We next determine what we
believe to be an appropriate approach to the members bankruptcy. If the proceeding is a Chapter 7
bankruptcy filing, seeking liquidation, we attempt to determine if the
proceeding is a no asset proceeding, based on instructions we receive from the bankruptcy
court. If the proceeding is a no asset proceeding, we take no further action and assume that no
recovery will be made on the member loan.
In all other cases, we will file a proof of claim involving the borrower member. The
decision to pursue additional relief beyond the proof of claim in any specific matter involving a
LendingClub borrower member will be entirely within our discretion and will depend upon certain
factors including:
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if the borrower member used the proceeds of a LendingClub member loan in a way other
than that which was described the borrower members loan application; |
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if the bankruptcy is a Chapter 13 proceeding, whether the proceeding was filed in good
faith and if the proposed plan reflects a best effort on the borrower members behalf;
and |
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our view of the costs and benefits to LendingClub of any proposed action. |
15
Participation in the Funding of Loans by LendingClub and Its Affiliates
From time to time, qualified loan requests on our platform are not fully committed to by
investors. To address these situations, we have funded portions of certain member loan requests.
As of March 31, 2011, we had funded approximately $17.9 million of loan requests. Although we have
no obligation to do so, we may fund portions of loan requests in the future.
Our affiliates, including our executive officers, directors and 5% stockholders, also have
funded portions of loans requests from time to time in the past, and may do so in the future. For
the twelve months ended March 31, 2011, these affiliates had funded $933,375 of new loan requests
and their outstanding principal balance was $759,610 as of March 31, 2011. For the twelve months
ended March 31, 2010, these affiliates had funded $43,975 of new loan requests and their
outstanding principal balance was $151,805 as of March 31, 2010.
Trading Platform
Investors may not transfer their Notes except through the resale trading platform operated by
FOLIOfn Investments, Inc. (FOLIOfn), an unaffiliated registered broker-dealer. This trading
platform is an internet-based trading platform on which LendingClub investors who establish a
brokerage relationship with the registered broker-dealer operating the trading platform may offer
their Notes for sale. In this section, we refer to our investors who have established such
brokerage relationships as subscribers. Only transactions involving resales of previously issued
Notes will be effected through the trading platform; the trading platform will not handle any
aspect of transactions involving the initial offer and sale of Notes by us. Subscribers may post
orders to sell their Notes on the trading platform at prices established by the subscriber. Other
subscribers will have the opportunity to view these prices, along with historical information from
the original loan posting for the member loan corresponding to the Note, an updated credit score
range of the borrower member and the payment history for the Note.
Currently, the only fees payable by subscribers in respect of the trading platform is the 1%
fee charged by the registered broker-dealer to subscribers who sell Notes. All Notes traded
through the trading platform will continue to be subject to our ongoing fees, including the ongoing
1.00% service charge.
LendingClub is not a registered national securities exchange, securities information
processor, clearing agency or broker-dealer. All securities services relating to the trading
platform are provided by FOLIOfn. Neither LendingClub nor FOLIOfn will make any recommendations
with respect to transactions on the trading platform. There is no assurance that investors will be
able to establish a brokerage relationship with the registered broker-dealer. Furthermore, we
cannot assure subscribers that they will be able to sell Notes they offer for resale through the
trading platform at the offered price or any other price nor can we offer any assurance that the
trading platform will continue to be available to subscribers. The trading platform is not
available to residents of all states. As of March 31, 2011, it has taken, an average of 5.5 days
to sell a note with an offer price at or below par.
Customer Support
We provide customer support to our borrower members and investors. For most LendingClub
members, their experience is entirely web-based. We include detailed frequently asked questions
(FAQs) on our website. We also post detailed fee information and the full text of our member
legal agreements.
We make additional customer support available to members by email and phone. Our customer
support team was located at our headquarters in Redwood City, California until May 13, 2011. Since
May 16, 2011, our customer support team has been located at our headquarters in San Francisco,
California.
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 staring on the following
page.
16
As of March 31, 2011, we had facilitated member loans with an average original principal
amount of approximately $10,000 and an aggregate original principal amount of $224,584,775. Out of
22,189 facilitated member loans, 2,625 member loans with an aggregate original principal amount of
which $24,601,550, or 10.95% had fully paid. Including loans which were fully paid, 20,256 loans
representing $202,753,050 of outstanding principal balance at March 31, 2011 had been through at
least one billing cycle.
Of the $202,753,050 of original principal balance at March 31, 2011 that had been through at
least one billing cycle, $5,195,015 of outstanding principal balance less interest and fees
received, or 2.56%, was either in default or has charged off. The defaulted loans and charged off
loans were comprised of 733 member loans, of which 526 loans representing $3,640,780 in outstanding
principal balance less interest and fees received, were defaults and charge offs due to
delinquency, while the remaining 207 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 March 31, 2011,
$132,832,400 of principal remained outstanding of which 97.52% was current, 0.22% was 16 to 30 days
late, 1.39% was between 31 and 120 days late and 0.87% were on a performing payment plan. During
the three months ended March 31, 2011, of the 13,924 member loans which were not delinquent prior
to the start of the quarter, 368 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 $2,968 on 125
loans and received late fees of $863 on 37 loans.
17
The following table presents aggregated information about borrower members and their loans for
the period from May 24, 2007 to March 31, 2011, grouped by the loan grade assigned by us:
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Number of |
|
|
Average |
|
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Average Annual |
|
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Average Total |
|
Loan Grade |
|
Borrowers |
|
|
Interest Rate |
|
|
Percentage Rate |
|
|
Funded Commitment |
|
A1 |
|
|
309 |
|
|
|
5.96 |
% |
|
|
7.23 |
% |
|
$ |
5,697 |
|
A2 |
|
|
701 |
|
|
|
6.49 |
% |
|
|
7.72 |
% |
|
|
5,933 |
|
A3 |
|
|
1,109 |
|
|
|
7.13 |
% |
|
|
8.43 |
% |
|
|
7,084 |
|
A4 |
|
|
1,517 |
|
|
|
7.67 |
% |
|
|
9.01 |
% |
|
|
8,071 |
|
A5 |
|
|
1,805 |
|
|
|
8.10 |
% |
|
|
9.39 |
% |
|
|
9,113 |
|
B1 |
|
|
1,018 |
|
|
|
10.07 |
% |
|
|
12.51 |
% |
|
|
9,312 |
|
B2 |
|
|
1,160 |
|
|
|
10.43 |
% |
|
|
12.85 |
% |
|
|
10,199 |
|
B3 |
|
|
1,433 |
|
|
|
10.75 |
% |
|
|
13.17 |
% |
|
|
10,786 |
|
B4 |
|
|
1,477 |
|
|
|
11.12 |
% |
|
|
13.49 |
% |
|
|
10,588 |
|
B5 |
|
|
1,570 |
|
|
|
11.48 |
% |
|
|
13.87 |
% |
|
|
10,440 |
|
C1 |
|
|
1,178 |
|
|
|
12.59 |
% |
|
|
15.25 |
% |
|
|
9,982 |
|
C2 |
|
|
1,129 |
|
|
|
13.01 |
% |
|
|
15.73 |
% |
|
|
10,051 |
|
C3 |
|
|
1,020 |
|
|
|
13.36 |
% |
|
|
16.05 |
% |
|
|
9,850 |
|
C4 |
|
|
800 |
|
|
|
13.55 |
% |
|
|
16.28 |
% |
|
|
9,760 |
|
C5 |
|
|
743 |
|
|
|
13.95 |
% |
|
|
16.69 |
% |
|
|
9,306 |
|
D1 |
|
|
593 |
|
|
|
14.31 |
% |
|
|
17.34 |
% |
|
|
10,425 |
|
D2 |
|
|
761 |
|
|
|
14.72 |
% |
|
|
17.50 |
% |
|
|
10,780 |
|
D3 |
|
|
681 |
|
|
|
15.11 |
% |
|
|
17.86 |
% |
|
|
11,507 |
|
D4 |
|
|
537 |
|
|
|
15.44 |
% |
|
|
18.16 |
% |
|
|
11,847 |
|
D5 |
|
|
479 |
|
|
|
15.86 |
% |
|
|
18.59 |
% |
|
|
12,575 |
|
E1 |
|
|
428 |
|
|
|
16.18 |
% |
|
|
18.90 |
% |
|
|
12,487 |
|
E2 |
|
|
341 |
|
|
|
16.49 |
% |
|
|
19.10 |
% |
|
|
12,888 |
|
E3 |
|
|
288 |
|
|
|
16.89 |
% |
|
|
19.52 |
% |
|
|
12,890 |
|
E4 |
|
|
234 |
|
|
|
17.23 |
% |
|
|
19.77 |
% |
|
|
14,549 |
|
E5 |
|
|
197 |
|
|
|
17.63 |
% |
|
|
20.30 |
% |
|
|
14,887 |
|
F1 |
|
|
153 |
|
|
|
18.03 |
% |
|
|
20.63 |
% |
|
|
15,678 |
|
F2 |
|
|
133 |
|
|
|
18.28 |
% |
|
|
20.86 |
% |
|
|
14,653 |
|
F3 |
|
|
88 |
|
|
|
18.73 |
% |
|
|
21.36 |
% |
|
|
15,501 |
|
F4 |
|
|
75 |
|
|
|
19.08 |
% |
|
|
21.77 |
% |
|
|
14,702 |
|
F5 |
|
|
57 |
|
|
|
19.46 |
% |
|
|
22.15 |
% |
|
|
18,102 |
|
G1 |
|
|
44 |
|
|
|
19.85 |
% |
|
|
22.56 |
% |
|
|
17,055 |
|
G2 |
|
|
49 |
|
|
|
20.27 |
% |
|
|
22.91 |
% |
|
|
18,664 |
|
G3 |
|
|
30 |
|
|
|
20.74 |
% |
|
|
23.33 |
% |
|
|
18,802 |
|
G4 |
|
|
33 |
|
|
|
20.96 |
% |
|
|
23.63 |
% |
|
|
19,136 |
|
G5 |
|
|
19 |
|
|
|
21.10 |
% |
|
|
23.91 |
% |
|
$ |
18,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
22,189 |
|
|
|
11.76 |
% |
|
|
14.03 |
% |
|
$ |
10,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
The following table presents aggregated information for the period from May 24, 2007 to
March 31, 2011, 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 Own Their |
|
|
Average Annual |
|
|
Average Debt to |
|
Loan Grade |
|
Own Homes |
|
|
Gross Income |
|
|
Income Ratio (1) |
|
A1 |
|
|
67.96 |
% |
|
$ |
63,998 |
|
|
|
9.70 |
% |
A2 |
|
|
64.48 |
% |
|
|
66,568 |
|
|
|
10.57 |
% |
A3 |
|
|
61.14 |
% |
|
|
70,691 |
|
|
|
10.68 |
% |
A4 |
|
|
56.03 |
% |
|
|
65,942 |
|
|
|
11.60 |
% |
A5 |
|
|
56.07 |
% |
|
|
70,511 |
|
|
|
11.93 |
% |
B1 |
|
|
51.47 |
% |
|
|
67,469 |
|
|
|
12.08 |
% |
B2 |
|
|
48.28 |
% |
|
|
71,833 |
|
|
|
12.31 |
% |
B3 |
|
|
51.22 |
% |
|
|
73,306 |
|
|
|
12.83 |
% |
B4 |
|
|
51.05 |
% |
|
|
70,680 |
|
|
|
13.23 |
% |
B5 |
|
|
49.68 |
% |
|
|
65,888 |
|
|
|
13.26 |
% |
C1 |
|
|
46.35 |
% |
|
|
72,802 |
|
|
|
13.06 |
% |
C2 |
|
|
44.73 |
% |
|
|
66,074 |
|
|
|
13.25 |
% |
C3 |
|
|
47.25 |
% |
|
|
66,393 |
|
|
|
13.22 |
% |
C4 |
|
|
45.75 |
% |
|
|
66,564 |
|
|
|
14.00 |
% |
C5 |
|
|
41.05 |
% |
|
|
67,491 |
|
|
|
13.57 |
% |
D1 |
|
|
39.46 |
% |
|
|
64,781 |
|
|
|
13.40 |
% |
D2 |
|
|
43.63 |
% |
|
|
71,031 |
|
|
|
13.55 |
% |
D3 |
|
|
46.55 |
% |
|
|
69,411 |
|
|
|
13.64 |
% |
D4 |
|
|
41.90 |
% |
|
|
71,830 |
|
|
|
13.40 |
% |
D5 |
|
|
45.51 |
% |
|
|
69,507 |
|
|
|
13.44 |
% |
E1 |
|
|
45.09 |
% |
|
|
68,871 |
|
|
|
13.73 |
% |
E2 |
|
|
47.51 |
% |
|
|
72,402 |
|
|
|
13.97 |
% |
E3 |
|
|
44.10 |
% |
|
|
71,086 |
|
|
|
13.12 |
% |
E4 |
|
|
52.99 |
% |
|
|
76,530 |
|
|
|
13.50 |
% |
E5 |
|
|
51.27 |
% |
|
|
88,194 |
|
|
|
13.81 |
% |
F1 |
|
|
54.90 |
% |
|
|
83,199 |
|
|
|
13.62 |
% |
F2 |
|
|
48.87 |
% |
|
|
79,161 |
|
|
|
13.71 |
% |
F3 |
|
|
44.32 |
% |
|
|
77,158 |
|
|
|
14.49 |
% |
F4 |
|
|
52.00 |
% |
|
|
79,410 |
|
|
|
13.57 |
% |
F5 |
|
|
64.91 |
% |
|
|
86,766 |
|
|
|
13.62 |
% |
G1 |
|
|
63.64 |
% |
|
|
67,848 |
|
|
|
11.91 |
% |
G2 |
|
|
61.22 |
% |
|
|
85,654 |
|
|
|
15.09 |
% |
G3 |
|
|
53.33 |
% |
|
|
80,690 |
|
|
|
15.71 |
% |
G4 |
|
|
60.61 |
% |
|
|
98,011 |
|
|
|
12.36 |
% |
G5 |
|
|
47.37 |
% |
|
$ |
103,005 |
|
|
|
13.18 |
% |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
50.29 |
% |
|
$ |
69,665 |
|
|
|
12.74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
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. |
19
The following table presents aggregated information for the period from May 24, 2007 to March
31, 2011, 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 the 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 |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Delinquencies |
|
|
Months Since |
|
|
|
Average |
|
|
Average Open |
|
|
Average Total |
|
|
Revolving |
|
|
Revolving Line |
|
|
Inquiries in the |
|
|
in the Last |
|
|
Last |
|
Loan Grade |
|
FICO |
|
|
Credit Lines |
|
|
Credit Lines |
|
|
Credit Balance |
|
|
Utilization |
|
|
Last Six Months |
|
|
Two Years |
|
|
Delinquency |
|
A1 |
|
|
780 |
|
|
|
9 |
|
|
|
25 |
|
|
$ |
8,425 |
|
|
|
17.83 |
% |
|
|
0 |
|
|
|
0 |
|
|
|
32 |
|
A2 |
|
|
771 |
|
|
|
10 |
|
|
|
25 |
|
|
|
8,895 |
|
|
|
18.92 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
35 |
|
A3 |
|
|
764 |
|
|
|
9 |
|
|
|
24 |
|
|
|
10,296 |
|
|
|
23.65 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
35 |
|
A4 |
|
|
752 |
|
|
|
9 |
|
|
|
23 |
|
|
|
11,648 |
|
|
|
29.40 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
39 |
|
A5 |
|
|
745 |
|
|
|
9 |
|
|
|
23 |
|
|
|
12,802 |
|
|
|
33.15 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
39 |
|
B1 |
|
|
737 |
|
|
|
9 |
|
|
|
22 |
|
|
|
12,211 |
|
|
|
38.10 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
35 |
|
B2 |
|
|
734 |
|
|
|
9 |
|
|
|
21 |
|
|
|
12,986 |
|
|
|
40.43 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
37 |
|
B3 |
|
|
728 |
|
|
|
9 |
|
|
|
22 |
|
|
|
14,420 |
|
|
|
43.18 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
36 |
|
B4 |
|
|
721 |
|
|
|
9 |
|
|
|
22 |
|
|
|
14,474 |
|
|
|
45.63 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
36 |
|
B5 |
|
|
713 |
|
|
|
9 |
|
|
|
21 |
|
|
|
13,776 |
|
|
|
49.52 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
36 |
|
C1 |
|
|
706 |
|
|
|
9 |
|
|
|
21 |
|
|
|
13,539 |
|
|
|
54.33 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
34 |
|
C2 |
|
|
702 |
|
|
|
9 |
|
|
|
20 |
|
|
|
12,992 |
|
|
|
55.71 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
37 |
|
C3 |
|
|
698 |
|
|
|
9 |
|
|
|
21 |
|
|
|
13,622 |
|
|
|
54.58 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
36 |
|
C4 |
|
|
693 |
|
|
|
9 |
|
|
|
21 |
|
|
|
14,056 |
|
|
|
58.49 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
34 |
|
C5 |
|
|
688 |
|
|
|
9 |
|
|
|
19 |
|
|
|
13,412 |
|
|
|
60.65 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
32 |
|
D1 |
|
|
684 |
|
|
|
9 |
|
|
|
20 |
|
|
|
13,124 |
|
|
|
61.44 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
33 |
|
D2 |
|
|
688 |
|
|
|
9 |
|
|
|
21 |
|
|
|
13,624 |
|
|
|
61.16 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
34 |
|
D3 |
|
|
687 |
|
|
|
9 |
|
|
|
20 |
|
|
|
14,305 |
|
|
|
62.23 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
32 |
|
D4 |
|
|
687 |
|
|
|
9 |
|
|
|
20 |
|
|
|
13,831 |
|
|
|
63.94 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
37 |
|
D5 |
|
|
689 |
|
|
|
9 |
|
|
|
21 |
|
|
|
15,085 |
|
|
|
63.08 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
35 |
|
E1 |
|
|
684 |
|
|
|
9 |
|
|
|
20 |
|
|
|
13,616 |
|
|
|
65.73 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
34 |
|
E2 |
|
|
684 |
|
|
|
9 |
|
|
|
21 |
|
|
|
15,130 |
|
|
|
67.93 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
36 |
|
E3 |
|
|
680 |
|
|
|
9 |
|
|
|
20 |
|
|
|
15,345 |
|
|
|
70.21 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
30 |
|
E4 |
|
|
681 |
|
|
|
9 |
|
|
|
22 |
|
|
|
17,125 |
|
|
|
67.93 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
34 |
|
E5 |
|
|
680 |
|
|
|
10 |
|
|
|
23 |
|
|
|
16,787 |
|
|
|
67.75 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
32 |
|
F1 |
|
|
680 |
|
|
|
10 |
|
|
|
23 |
|
|
|
18,764 |
|
|
|
67.07 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
38 |
|
F2 |
|
|
675 |
|
|
|
9 |
|
|
|
22 |
|
|
|
17,519 |
|
|
|
71.82 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
33 |
|
F3 |
|
|
675 |
|
|
|
9 |
|
|
|
23 |
|
|
|
15,758 |
|
|
|
72.03 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
32 |
|
F4 |
|
|
672 |
|
|
|
9 |
|
|
|
23 |
|
|
|
13,437 |
|
|
|
71.55 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
32 |
|
F5 |
|
|
674 |
|
|
|
10 |
|
|
|
24 |
|
|
|
20,159 |
|
|
|
72.69 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
32 |
|
G1 |
|
|
675 |
|
|
|
9 |
|
|
|
19 |
|
|
|
13,187 |
|
|
|
66.53 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
31 |
|
G2 |
|
|
670 |
|
|
|
10 |
|
|
|
22 |
|
|
|
21,178 |
|
|
|
76.86 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
33 |
|
G3 |
|
|
669 |
|
|
|
9 |
|
|
|
23 |
|
|
|
17,088 |
|
|
|
82.17 |
% |
|
|
1 |
|
|
|
1 |
|
|
|
26 |
|
G4 |
|
|
672 |
|
|
|
12 |
|
|
|
24 |
|
|
|
23,395 |
|
|
|
72.28 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
29 |
|
G5 |
|
|
668 |
|
|
|
13 |
|
|
|
28 |
|
|
$ |
26,500 |
|
|
|
78.12 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
717 |
|
|
|
9 |
|
|
|
22 |
|
|
$ |
13,310 |
|
|
|
47.56 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents additional aggregated information for the period from May
24, 2007 to March 31, 2011, about delinquencies, default and borrower paid off loans, grouped by
the loan grade assigned by us. The default and delinquency information presented in the table
includes data only for member loans that had been through at least one billing cycle as of March
31, 2011. 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 that have been through at least one
billing cycle. 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.
20
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged - |
|
|
Charged - |
|
|
Total |
|
|
Number of |
|
|
|
|
|
|
|
|
|
16-30 Days |
|
|
16-30 Days |
|
|
31+ Days |
|
|
31+ Days |
|
|
Off &/or |
|
|
Off &/or |
|
|
Number of |
|
|
Loans |
|
|
Fully Paid |
|
|
Fully Paid |
|
Loan Grade |
|
Late ($) |
|
|
Late (%) |
|
|
Late ($) |
|
|
Late (%) |
|
|
Default ($) |
|
|
Default (%) |
|
|
Loans |
|
|
Fully Paid |
|
|
($) |
|
|
(%) |
|
A1 |
|
$ |
|
|
|
|
0.00 |
% |
|
$ |
23,419 |
|
|
|
2.13 |
% |
|
$ |
6,013 |
|
|
|
0.43 |
% |
|
|
219 |
|
|
|
28 |
|
|
$ |
75,550 |
|
|
|
4.29 |
% |
A2 |
|
|
3,197 |
|
|
|
0.12 |
% |
|
|
14,326 |
|
|
|
0.54 |
% |
|
|
9,201 |
|
|
|
0.26 |
% |
|
|
524 |
|
|
|
93 |
|
|
|
396,950 |
|
|
|
9.54 |
% |
A3 |
|
|
5,460 |
|
|
|
0.11 |
% |
|
|
18,964 |
|
|
|
0.39 |
% |
|
|
38,456 |
|
|
|
0.53 |
% |
|
|
876 |
|
|
|
153 |
|
|
|
925,925 |
|
|
|
11.79 |
% |
A4 |
|
|
8,227 |
|
|
|
0.11 |
% |
|
|
10,789 |
|
|
|
0.15 |
% |
|
|
45,512 |
|
|
|
0.41 |
% |
|
|
1,159 |
|
|
|
209 |
|
|
|
1,504,550 |
|
|
|
12.29 |
% |
A5 |
|
|
5,249 |
|
|
|
0.05 |
% |
|
|
38,665 |
|
|
|
0.38 |
% |
|
|
166,892 |
|
|
|
1.08 |
% |
|
|
1,455 |
|
|
|
237 |
|
|
|
2,024,800 |
|
|
|
12.31 |
% |
B1 |
|
|
3,229 |
|
|
|
0.05 |
% |
|
|
50,907 |
|
|
|
0.86 |
% |
|
|
187,830 |
|
|
|
2.08 |
% |
|
|
806 |
|
|
|
154 |
|
|
|
1,250,950 |
|
|
|
13.20 |
% |
B2 |
|
|
17,866 |
|
|
|
0.26 |
% |
|
|
74,904 |
|
|
|
1.10 |
% |
|
|
261,048 |
|
|
|
2.35 |
% |
|
|
903 |
|
|
|
171 |
|
|
|
1,916,750 |
|
|
|
16.20 |
% |
B3 |
|
|
24,567 |
|
|
|
0.28 |
% |
|
|
132,329 |
|
|
|
1.50 |
% |
|
|
351,103 |
|
|
|
2.55 |
% |
|
|
1,086 |
|
|
|
166 |
|
|
|
2,188,625 |
|
|
|
14.16 |
% |
B4 |
|
|
51,850 |
|
|
|
0.52 |
% |
|
|
123,381 |
|
|
|
1.23 |
% |
|
|
284,978 |
|
|
|
1.95 |
% |
|
|
1,211 |
|
|
|
163 |
|
|
|
1,718,850 |
|
|
|
10.99 |
% |
B5 |
|
|
2,706 |
|
|
|
0.03 |
% |
|
|
126,987 |
|
|
|
1.20 |
% |
|
|
391,176 |
|
|
|
2.59 |
% |
|
|
1,270 |
|
|
|
177 |
|
|
|
1,640,350 |
|
|
|
10.01 |
% |
C1 |
|
|
16,168 |
|
|
|
0.23 |
% |
|
|
83,045 |
|
|
|
1.17 |
% |
|
|
301,265 |
|
|
|
2.79 |
% |
|
|
941 |
|
|
|
154 |
|
|
|
1,371,800 |
|
|
|
11.67 |
% |
C2 |
|
|
22,559 |
|
|
|
0.32 |
% |
|
|
52,971 |
|
|
|
0.75 |
% |
|
|
304,277 |
|
|
|
2.93 |
% |
|
|
921 |
|
|
|
125 |
|
|
|
1,203,175 |
|
|
|
10.60 |
% |
C3 |
|
|
20,538 |
|
|
|
0.33 |
% |
|
|
104,223 |
|
|
|
1.65 |
% |
|
|
261,974 |
|
|
|
2.77 |
% |
|
|
831 |
|
|
|
131 |
|
|
|
1,222,600 |
|
|
|
12.17 |
% |
C4 |
|
|
13,011 |
|
|
|
0.29 |
% |
|
|
81,553 |
|
|
|
1.82 |
% |
|
|
237,320 |
|
|
|
3.27 |
% |
|
|
642 |
|
|
|
107 |
|
|
|
964,375 |
|
|
|
12.35 |
% |
C5 |
|
|
|
|
|
|
0.00 |
% |
|
|
60,455 |
|
|
|
1.51 |
% |
|
|
320,491 |
|
|
|
5.07 |
% |
|
|
608 |
|
|
|
85 |
|
|
|
806,300 |
|
|
|
11.66 |
% |
D1 |
|
|
11,284 |
|
|
|
0.31 |
% |
|
|
94,616 |
|
|
|
2.58 |
% |
|
|
318,587 |
|
|
|
5.45 |
% |
|
|
486 |
|
|
|
79 |
|
|
|
875,050 |
|
|
|
14.16 |
% |
D2 |
|
|
18,326 |
|
|
|
0.36 |
% |
|
|
95,225 |
|
|
|
1.85 |
% |
|
|
213,148 |
|
|
|
2.88 |
% |
|
|
627 |
|
|
|
76 |
|
|
|
827,300 |
|
|
|
10.08 |
% |
D3 |
|
|
14,668 |
|
|
|
0.29 |
% |
|
|
103,152 |
|
|
|
2.03 |
% |
|
|
279,130 |
|
|
|
3.92 |
% |
|
|
562 |
|
|
|
60 |
|
|
|
665,925 |
|
|
|
8.50 |
% |
D4 |
|
|
4,751 |
|
|
|
0.12 |
% |
|
|
46,398 |
|
|
|
1.13 |
% |
|
|
266,957 |
|
|
|
4.71 |
% |
|
|
441 |
|
|
|
48 |
|
|
|
461,850 |
|
|
|
7.26 |
% |
D5 |
|
|
11,731 |
|
|
|
0.30 |
% |
|
|
168,654 |
|
|
|
4.30 |
% |
|
|
128,755 |
|
|
|
2.48 |
% |
|
|
379 |
|
|
|
43 |
|
|
|
423,800 |
|
|
|
7.04 |
% |
E1 |
|
|
19,423 |
|
|
|
0.58 |
% |
|
|
34,467 |
|
|
|
1.03 |
% |
|
|
131,631 |
|
|
|
2.92 |
% |
|
|
342 |
|
|
|
37 |
|
|
|
427,300 |
|
|
|
8.00 |
% |
E2 |
|
|
6,694 |
|
|
|
0.24 |
% |
|
|
61,053 |
|
|
|
2.21 |
% |
|
|
104,668 |
|
|
|
2.83 |
% |
|
|
269 |
|
|
|
28 |
|
|
|
338,375 |
|
|
|
7.70 |
% |
E3 |
|
|
|
|
|
|
0.00 |
% |
|
|
14,019 |
|
|
|
0.58 |
% |
|
|
124,478 |
|
|
|
3.97 |
% |
|
|
231 |
|
|
|
18 |
|
|
|
239,675 |
|
|
|
6.46 |
% |
E4 |
|
|
|
|
|
|
0.00 |
% |
|
|
56,981 |
|
|
|
2.59 |
% |
|
|
114,771 |
|
|
|
4.00 |
% |
|
|
181 |
|
|
|
23 |
|
|
|
313,775 |
|
|
|
9.22 |
% |
E5 |
|
|
|
|
|
|
0.00 |
% |
|
|
47,593 |
|
|
|
2.50 |
% |
|
|
80,398 |
|
|
|
3.32 |
% |
|
|
157 |
|
|
|
17 |
|
|
|
216,625 |
|
|
|
7.39 |
% |
F1 |
|
|
15,525 |
|
|
|
1.10 |
% |
|
|
60,753 |
|
|
|
4.32 |
% |
|
|
14,989 |
|
|
|
0.84 |
% |
|
|
107 |
|
|
|
15 |
|
|
|
172,175 |
|
|
|
7.18 |
% |
F2 |
|
|
|
|
|
|
0.00 |
% |
|
|
26,431 |
|
|
|
2.13 |
% |
|
|
57,284 |
|
|
|
3.60 |
% |
|
|
101 |
|
|
|
12 |
|
|
|
169,425 |
|
|
|
8.69 |
% |
F3 |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
23,726 |
|
|
|
2.11 |
% |
|
|
71 |
|
|
|
3 |
|
|
|
67,000 |
|
|
|
4.91 |
% |
F4 |
|
|
|
|
|
|
0.00 |
% |
|
|
1,505 |
|
|
|
0.24 |
% |
|
|
53,152 |
|
|
|
6.64 |
% |
|
|
55 |
|
|
|
4 |
|
|
|
44,250 |
|
|
|
4.01 |
% |
F5 |
|
|
|
|
|
|
0.00 |
% |
|
|
14,100 |
|
|
|
2.76 |
% |
|
|
35,149 |
|
|
|
5.73 |
% |
|
|
36 |
|
|
|
2 |
|
|
|
29,800 |
|
|
|
2.89 |
% |
G1 |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
20,071 |
|
|
|
3.26 |
% |
|
|
31 |
|
|
|
5 |
|
|
|
95,000 |
|
|
|
12.66 |
% |
G2 |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
12,905 |
|
|
|
2.02 |
% |
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
0.00 |
% |
G3 |
|
|
|
|
|
|
0.00 |
% |
|
|
6,242 |
|
|
|
1.54 |
% |
|
|
21,371 |
|
|
|
4.96 |
% |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
0.00 |
% |
G4 |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
0.00 |
% |
G5 |
|
$ |
|
|
|
|
0.00 |
% |
|
$ |
20,930 |
|
|
|
9.66 |
% |
|
$ |
26,309 |
|
|
|
9.47 |
% |
|
|
14 |
|
|
|
2 |
|
|
$ |
22,675 |
|
|
|
6.62 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
297,029 |
|
|
|
0.21 |
% |
|
$ |
1,849,038 |
|
|
|
1.33 |
% |
|
$ |
5,195,015 |
|
|
|
2.56 |
% |
|
|
17,631 |
|
|
|
2,625 |
|
|
$ |
24,601,550 |
|
|
|
10.95 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
The following table presents aggregated information for the period from May 24, 2007 to
March 31, 2011 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount |
|
|
|
|
|
|
Principle Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collected on |
|
|
Number of Loans |
|
|
of Loans Charged- |
|
|
Gross Amount |
|
|
|
Number of Loans |
|
|
Total Origination |
|
|
Aggregate Amount |
|
|
Accounts Sent to |
|
|
Charged-Off Due |
|
|
Off Due to |
|
|
Recovered on Loans |
|
Loan Grade |
|
In Collection (1) |
|
|
Amount (1) |
|
|
Sent to Collectons (1) |
|
|
Collections (2) |
|
|
to Delinquency (3) |
|
|
Delinquency (3) |
|
|
Charged-Off (4) |
|
A |
|
|
109 |
|
|
$ |
741,075 |
|
|
$ |
125,043 |
|
|
$ |
62,829 |
|
|
|
40 |
|
|
$ |
182,986 |
|
|
$ |
9,823 |
|
B |
|
|
308 |
|
|
|
3,124,000 |
|
|
|
545,672 |
|
|
|
260,166 |
|
|
|
123 |
|
|
|
873,371 |
|
|
|
14,651 |
|
C |
|
|
343 |
|
|
|
3,031,975 |
|
|
|
585,448 |
|
|
|
296,048 |
|
|
|
153 |
|
|
|
923,683 |
|
|
|
12,258 |
|
D |
|
|
244 |
|
|
|
2,624,575 |
|
|
|
522,050 |
|
|
|
246,148 |
|
|
|
122 |
|
|
|
860,068 |
|
|
|
13,594 |
|
E |
|
|
108 |
|
|
|
1,381,550 |
|
|
|
254,928 |
|
|
|
110,416 |
|
|
|
47 |
|
|
|
422,063 |
|
|
|
2,800 |
|
F |
|
|
37 |
|
|
|
550,275 |
|
|
|
125,469 |
|
|
|
61,665 |
|
|
|
14 |
|
|
|
128,559 |
|
|
|
2,840 |
|
G |
|
|
15 |
|
|
$ |
234,825 |
|
|
$ |
35,065 |
|
|
$ |
17,812 |
|
|
|
5 |
|
|
$ |
59,285 |
|
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,164 |
|
|
$ |
11,688,275 |
|
|
$ |
2,193,675 |
|
|
$ |
1,055,084 |
|
|
|
504 |
|
|
$ |
3,450,015 |
|
|
$ |
55,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $1,044,533 (99%). The remainder was fees to us of $10,551 (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. For this quarter, total 504 loans charged off due to delinquency, 4
of them were on a performing payment plan as of March 31, 2011. |
|
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 March 31, 2011, we have facilitated 24,940 member loans with an average original
principal amount of $9,979 and an aggregate original principal amount of $248,881,400, out of which
3,436 member loans with an aggregate original principal amount of which $31,050,575, or 12.48% had
fully paid. Including loans which were fully paid, 23,007 loans representing $227,049,675 of
original principal amount had been through at least one billing cycle as of March 31, 2011.
Of the $227,049,675 of original principal balance at March 31, 2011 that had been through at
least one billing cycle, $7,854,119 of outstanding principal balance less interest and fees
received, or 3.46%, was either in default or has charged off. The defaulted loans and charged off
loans were comprised of 1,195 member loans, of which 876 loans representing $5,522,298 in
outstanding principal balance less interest and fees received, were defaults and charge offs due to
delinquency, while the remaining 319 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 March 31, 2011,
$142,174,242 of principal remained outstanding of which 97.22% was current, 0.23% was 16 to 30 days
late, 1.54% was between 31 and 120 days late, and 1.01% were on a performing payment plan. During
the three months ended March 31, 2011, of the 15,464 member loans which were not delinquent prior
to the start of the quarter, 433 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 $3,429 on 145
loans and received late fees of $979 on 42 loans.
22
The following table presents aggregated information about borrower members and their loans for
the period from May 24, 2007 to March 31, 2011, grouped by the loan grade assigned by us:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Average |
|
|
Average Annual |
|
|
Average Total |
|
Loan Grade |
|
Borrowers |
|
|
Interest Rate |
|
|
Percentage Rate |
|
|
Funded Commitment |
|
A1 |
|
|
312 |
|
|
|
5.97 |
% |
|
|
7.24 |
% |
|
$ |
5,681 |
|
A2 |
|
|
713 |
|
|
|
6.51 |
% |
|
|
7.72 |
% |
|
|
5,919 |
|
A3 |
|
|
1,122 |
|
|
|
7.14 |
% |
|
|
8.43 |
% |
|
|
7,062 |
|
A4 |
|
|
1,536 |
|
|
|
7.68 |
% |
|
|
9.01 |
% |
|
|
8,032 |
|
A5 |
|
|
1,856 |
|
|
|
8.11 |
% |
|
|
9.39 |
% |
|
|
9,036 |
|
B1 |
|
|
1,070 |
|
|
|
10.06 |
% |
|
|
12.46 |
% |
|
|
9,181 |
|
B2 |
|
|
1,215 |
|
|
|
10.43 |
% |
|
|
12.83 |
% |
|
|
10,097 |
|
B3 |
|
|
1,506 |
|
|
|
10.75 |
% |
|
|
13.15 |
% |
|
|
10,684 |
|
B4 |
|
|
1,553 |
|
|
|
11.12 |
% |
|
|
13.46 |
% |
|
|
10,504 |
|
B5 |
|
|
1,668 |
|
|
|
11.47 |
% |
|
|
13.84 |
% |
|
|
10,337 |
|
C1 |
|
|
1,300 |
|
|
|
12.55 |
% |
|
|
15.19 |
% |
|
|
9,916 |
|
C2 |
|
|
1,272 |
|
|
|
12.95 |
% |
|
|
15.63 |
% |
|
|
9,929 |
|
C3 |
|
|
1,149 |
|
|
|
13.31 |
% |
|
|
15.95 |
% |
|
|
9,750 |
|
C4 |
|
|
932 |
|
|
|
13.50 |
% |
|
|
16.17 |
% |
|
|
9,618 |
|
C5 |
|
|
846 |
|
|
|
13.88 |
% |
|
|
16.56 |
% |
|
|
9,192 |
|
D1 |
|
|
715 |
|
|
|
14.22 |
% |
|
|
17.16 |
% |
|
|
10,171 |
|
D2 |
|
|
894 |
|
|
|
14.67 |
% |
|
|
17.43 |
% |
|
|
10,399 |
|
D3 |
|
|
825 |
|
|
|
14.99 |
% |
|
|
17.69 |
% |
|
|
10,932 |
|
D4 |
|
|
691 |
|
|
|
15.25 |
% |
|
|
17.87 |
% |
|
|
11,004 |
|
D5 |
|
|
617 |
|
|
|
15.65 |
% |
|
|
18.29 |
% |
|
|
11,592 |
|
E1 |
|
|
544 |
|
|
|
15.96 |
% |
|
|
18.57 |
% |
|
|
11,467 |
|
E2 |
|
|
473 |
|
|
|
16.16 |
% |
|
|
18.62 |
% |
|
|
11,581 |
|
E3 |
|
|
400 |
|
|
|
16.54 |
% |
|
|
19.00 |
% |
|
|
11,459 |
|
E4 |
|
|
331 |
|
|
|
16.80 |
% |
|
|
19.15 |
% |
|
|
12,809 |
|
E5 |
|
|
277 |
|
|
|
17.23 |
% |
|
|
19.69 |
% |
|
|
13,139 |
|
F1 |
|
|
216 |
|
|
|
17.56 |
% |
|
|
19.98 |
% |
|
|
14,290 |
|
F2 |
|
|
190 |
|
|
|
17.91 |
% |
|
|
20.37 |
% |
|
|
13,845 |
|
F3 |
|
|
137 |
|
|
|
18.21 |
% |
|
|
20.65 |
% |
|
|
13,989 |
|
F4 |
|
|
118 |
|
|
|
18.56 |
% |
|
|
21.03 |
% |
|
|
13,567 |
|
F5 |
|
|
93 |
|
|
|
18.90 |
% |
|
|
21.39 |
% |
|
|
15,872 |
|
G1 |
|
|
80 |
|
|
|
19.17 |
% |
|
|
21.55 |
% |
|
|
14,444 |
|
G2 |
|
|
78 |
|
|
|
19.69 |
% |
|
|
22.09 |
% |
|
|
15,283 |
|
G3 |
|
|
60 |
|
|
|
19.86 |
% |
|
|
22.23 |
% |
|
|
15,193 |
|
G4 |
|
|
76 |
|
|
|
19.70 |
% |
|
|
21.90 |
% |
|
|
16,203 |
|
G5 |
|
|
75 |
|
|
|
19.88 |
% |
|
|
22.13 |
% |
|
$ |
12,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
24,940 |
|
|
|
12.02 |
% |
|
|
14.28 |
% |
|
$ |
9,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
The following table presents aggregated information for the period from May 24, 2007 to
March 31, 2011, 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 Own Their |
|
|
Average Annual |
|
|
Average Debt to |
|
Loan Grade |
|
Own Homes |
|
|
Gross Income |
|
|
Income Ratio (1) |
|
A1 |
|
|
67.63 |
% |
|
$ |
64,168 |
|
|
|
9.68 |
% |
A2 |
|
|
64.38 |
% |
|
|
66,717 |
|
|
|
10.52 |
% |
A3 |
|
|
61.05 |
% |
|
|
70,738 |
|
|
|
10.65 |
% |
A4 |
|
|
56.05 |
% |
|
|
66,010 |
|
|
|
11.58 |
% |
A5 |
|
|
56.36 |
% |
|
|
70,505 |
|
|
|
11.97 |
% |
B1 |
|
|
51.59 |
% |
|
|
67,710 |
|
|
|
12.08 |
% |
B2 |
|
|
49.05 |
% |
|
|
72,299 |
|
|
|
12.28 |
% |
B3 |
|
|
51.06 |
% |
|
|
73,944 |
|
|
|
12.78 |
% |
B4 |
|
|
51.71 |
% |
|
|
70,871 |
|
|
|
13.25 |
% |
B5 |
|
|
50.24 |
% |
|
|
66,285 |
|
|
|
13.10 |
% |
C1 |
|
|
47.77 |
% |
|
|
72,592 |
|
|
|
13.01 |
% |
C2 |
|
|
45.28 |
% |
|
|
67,053 |
|
|
|
13.15 |
% |
C3 |
|
|
47.78 |
% |
|
|
66,866 |
|
|
|
13.27 |
% |
C4 |
|
|
46.89 |
% |
|
|
67,009 |
|
|
|
13.99 |
% |
C5 |
|
|
42.20 |
% |
|
|
67,750 |
|
|
|
13.51 |
% |
D1 |
|
|
41.54 |
% |
|
|
65,562 |
|
|
|
13.46 |
% |
D2 |
|
|
44.52 |
% |
|
|
70,542 |
|
|
|
13.73 |
% |
D3 |
|
|
47.76 |
% |
|
|
69,245 |
|
|
|
13.74 |
% |
D4 |
|
|
42.55 |
% |
|
|
68,908 |
|
|
|
13.41 |
% |
D5 |
|
|
47.00 |
% |
|
|
69,287 |
|
|
|
13.39 |
% |
E1 |
|
|
46.32 |
% |
|
|
68,468 |
|
|
|
13.61 |
% |
E2 |
|
|
46.93 |
% |
|
|
69,599 |
|
|
|
14.01 |
% |
E3 |
|
|
47.75 |
% |
|
|
68,568 |
|
|
|
13.80 |
% |
E4 |
|
|
52.27 |
% |
|
|
72,527 |
|
|
|
13.88 |
% |
E5 |
|
|
49.10 |
% |
|
|
82,332 |
|
|
|
14.20 |
% |
F1 |
|
|
53.24 |
% |
|
|
76,098 |
|
|
|
14.48 |
% |
F2 |
|
|
46.84 |
% |
|
|
79,189 |
|
|
|
14.56 |
% |
F3 |
|
|
46.72 |
% |
|
|
78,505 |
|
|
|
15.89 |
% |
F4 |
|
|
49.15 |
% |
|
|
73,214 |
|
|
|
15.02 |
% |
F5 |
|
|
58.06 |
% |
|
|
96,387 |
|
|
|
13.92 |
% |
G1 |
|
|
57.50 |
% |
|
|
64,242 |
|
|
|
15.79 |
% |
G2 |
|
|
61.54 |
% |
|
|
89,311 |
|
|
|
16.44 |
% |
G3 |
|
|
51.67 |
% |
|
|
81,037 |
|
|
|
16.55 |
% |
G4 |
|
|
55.26 |
% |
|
|
99,515 |
|
|
|
14.79 |
% |
G5 |
|
|
62.67 |
% |
|
$ |
110,680 |
|
|
|
16.91 |
% |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
50.53 |
% |
|
$ |
69,858 |
|
|
|
12.88 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
24
The following table presents aggregated information for the period from May 24, 2007 to March
31, 2011, 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 |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
Average |
|
|
Delinquencies |
|
|
Months Since |
|
|
|
Average |
|
|
Average Open |
|
|
Average Total |
|
|
Revolving |
|
|
Revolving Line |
|
|
Inquiries in the |
|
|
in the Last |
|
|
Last |
|
Loan Grade |
|
FICO |
|
|
Credit Lines |
|
|
Credit Lines |
|
|
Credit Balance |
|
|
Utilization |
|
|
Last Six Months |
|
|
Two Years |
|
|
Delinquency |
|
A1 |
|
|
780 |
|
|
|
9 |
|
|
|
24 |
|
|
$ |
8,872 |
|
|
|
17.88 |
% |
|
|
0 |
|
|
|
0 |
|
|
|
31 |
|
A2 |
|
|
771 |
|
|
|
10 |
|
|
|
25 |
|
|
|
9,680 |
|
|
|
18.96 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
34 |
|
A3 |
|
|
764 |
|
|
|
9 |
|
|
|
24 |
|
|
|
10,758 |
|
|
|
23.57 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
35 |
|
A4 |
|
|
752 |
|
|
|
9 |
|
|
|
23 |
|
|
|
12,419 |
|
|
|
29.36 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
39 |
|
A5 |
|
|
744 |
|
|
|
9 |
|
|
|
23 |
|
|
|
13,900 |
|
|
|
33.26 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
38 |
|
B1 |
|
|
737 |
|
|
|
9 |
|
|
|
22 |
|
|
|
13,243 |
|
|
|
38.11 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
34 |
|
B2 |
|
|
733 |
|
|
|
9 |
|
|
|
21 |
|
|
|
14,500 |
|
|
|
40.16 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
37 |
|
B3 |
|
|
727 |
|
|
|
9 |
|
|
|
22 |
|
|
|
15,800 |
|
|
|
42.98 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
36 |
|
B4 |
|
|
721 |
|
|
|
9 |
|
|
|
22 |
|
|
|
15,787 |
|
|
|
45.56 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
35 |
|
B5 |
|
|
713 |
|
|
|
9 |
|
|
|
21 |
|
|
|
14,996 |
|
|
|
49.23 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
35 |
|
C1 |
|
|
706 |
|
|
|
9 |
|
|
|
21 |
|
|
|
15,421 |
|
|
|
53.56 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
34 |
|
C2 |
|
|
702 |
|
|
|
9 |
|
|
|
21 |
|
|
|
14,276 |
|
|
|
54.47 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
36 |
|
C3 |
|
|
698 |
|
|
|
9 |
|
|
|
21 |
|
|
|
15,648 |
|
|
|
53.90 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
35 |
|
C4 |
|
|
693 |
|
|
|
9 |
|
|
|
21 |
|
|
|
15,304 |
|
|
|
57.03 |
% |
|
|
2 |
|
|
|
0 |
|
|
|
33 |
|
C5 |
|
|
688 |
|
|
|
9 |
|
|
|
20 |
|
|
|
13,867 |
|
|
|
58.95 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
31 |
|
D1 |
|
|
685 |
|
|
|
9 |
|
|
|
20 |
|
|
|
16,724 |
|
|
|
60.28 |
% |
|
|
2 |
|
|
|
0 |
|
|
|
32 |
|
D2 |
|
|
688 |
|
|
|
9 |
|
|
|
21 |
|
|
|
15,830 |
|
|
|
59.45 |
% |
|
|
2 |
|
|
|
0 |
|
|
|
34 |
|
D3 |
|
|
686 |
|
|
|
9 |
|
|
|
21 |
|
|
|
16,248 |
|
|
|
60.93 |
% |
|
|
2 |
|
|
|
0 |
|
|
|
33 |
|
D4 |
|
|
684 |
|
|
|
9 |
|
|
|
20 |
|
|
|
14,717 |
|
|
|
61.82 |
% |
|
|
2 |
|
|
|
0 |
|
|
|
34 |
|
D5 |
|
|
686 |
|
|
|
9 |
|
|
|
21 |
|
|
|
16,618 |
|
|
|
61.91 |
% |
|
|
2 |
|
|
|
0 |
|
|
|
34 |
|
E1 |
|
|
682 |
|
|
|
9 |
|
|
|
21 |
|
|
|
13,783 |
|
|
|
63.48 |
% |
|
|
2 |
|
|
|
0 |
|
|
|
33 |
|
E2 |
|
|
680 |
|
|
|
10 |
|
|
|
21 |
|
|
|
16,416 |
|
|
|
66.05 |
% |
|
|
2 |
|
|
|
0 |
|
|
|
32 |
|
E3 |
|
|
677 |
|
|
|
9 |
|
|
|
21 |
|
|
|
16,817 |
|
|
|
67.55 |
% |
|
|
2 |
|
|
|
0 |
|
|
|
29 |
|
E4 |
|
|
677 |
|
|
|
9 |
|
|
|
22 |
|
|
|
17,750 |
|
|
|
66.29 |
% |
|
|
2 |
|
|
|
0 |
|
|
|
31 |
|
E5 |
|
|
676 |
|
|
|
10 |
|
|
|
22 |
|
|
|
17,183 |
|
|
|
65.78 |
% |
|
|
2 |
|
|
|
0 |
|
|
|
27 |
|
F1 |
|
|
677 |
|
|
|
10 |
|
|
|
23 |
|
|
|
19,416 |
|
|
|
65.34 |
% |
|
|
2 |
|
|
|
0 |
|
|
|
33 |
|
F2 |
|
|
673 |
|
|
|
9 |
|
|
|
22 |
|
|
|
19,620 |
|
|
|
69.89 |
% |
|
|
2 |
|
|
|
0 |
|
|
|
31 |
|
F3 |
|
|
673 |
|
|
|
10 |
|
|
|
24 |
|
|
|
18,765 |
|
|
|
68.86 |
% |
|
|
2 |
|
|
|
0 |
|
|
|
30 |
|
F4 |
|
|
671 |
|
|
|
10 |
|
|
|
23 |
|
|
|
17,089 |
|
|
|
69.91 |
% |
|
|
2 |
|
|
|
0 |
|
|
|
27 |
|
F5 |
|
|
670 |
|
|
|
11 |
|
|
|
25 |
|
|
|
23,409 |
|
|
|
71.99 |
% |
|
|
2 |
|
|
|
0 |
|
|
|
28 |
|
G1 |
|
|
672 |
|
|
|
10 |
|
|
|
22 |
|
|
|
14,816 |
|
|
|
66.91 |
% |
|
|
3 |
|
|
|
0 |
|
|
|
30 |
|
G2 |
|
|
668 |
|
|
|
11 |
|
|
|
24 |
|
|
|
24,254 |
|
|
|
71.69 |
% |
|
|
2 |
|
|
|
0 |
|
|
|
29 |
|
G3 |
|
|
667 |
|
|
|
11 |
|
|
|
24 |
|
|
|
16,923 |
|
|
|
71.28 |
% |
|
|
3 |
|
|
|
0 |
|
|
|
23 |
|
G4 |
|
|
663 |
|
|
|
12 |
|
|
|
27 |
|
|
|
31,089 |
|
|
|
68.28 |
% |
|
|
2 |
|
|
|
0 |
|
|
|
26 |
|
G5 |
|
|
661 |
|
|
|
14 |
|
|
|
31 |
|
|
$ |
46,359 |
|
|
|
69.10 |
% |
|
|
4 |
|
|
|
0 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
714 |
|
|
|
9 |
|
|
|
22 |
|
|
$ |
14,880 |
|
|
|
48.14 |
% |
|
|
1 |
|
|
|
0 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents additional aggregated information for the period from May
24, 2007 to March 31, 2011, about delinquencies, default and borrower paid off loans, grouped by
the loan grade assigned by us. The 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 March 31,
2011, 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.
25
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged - |
|
|
Charged - |
|
|
Total |
|
|
Number of |
|
|
|
|
|
|
|
|
|
16-30 Days |
|
|
16-30 Days |
|
|
31+ Days |
|
|
31+ Days |
|
|
Off &/or |
|
|
Off &/or |
|
|
Number of |
|
|
Loans Fully |
|
|
Fully Paid |
|
|
Fully Paid |
|
Loan Grade |
|
Late ($) |
|
|
Late (%) |
|
|
Late ($) |
|
|
Late (%) |
|
|
Default ($) |
|
|
Default (%) |
|
|
Loans |
|
|
Paid |
|
|
($) |
|
|
(%) |
|
A1 |
|
$ |
|
|
|
|
0.00 |
% |
|
$ |
23,419 |
|
|
|
2.12 |
% |
|
$ |
6,013 |
|
|
|
0.43 |
% |
|
|
220 |
|
|
|
30 |
|
|
$ |
78,550 |
|
|
|
4.43 |
% |
A2 |
|
|
3,197 |
|
|
|
0.12 |
% |
|
|
14,326 |
|
|
|
0.54 |
% |
|
|
10,084 |
|
|
|
0.28 |
% |
|
|
529 |
|
|
|
100 |
|
|
|
419,400 |
|
|
|
9.94 |
% |
A3 |
|
|
5,460 |
|
|
|
0.11 |
% |
|
|
18,964 |
|
|
|
0.39 |
% |
|
|
38,456 |
|
|
|
0.53 |
% |
|
|
880 |
|
|
|
162 |
|
|
|
965,125 |
|
|
|
12.18 |
% |
A4 |
|
|
8,227 |
|
|
|
0.11 |
% |
|
|
10,789 |
|
|
|
0.15 |
% |
|
|
45,512 |
|
|
|
0.41 |
% |
|
|
1,167 |
|
|
|
220 |
|
|
|
1,549,700 |
|
|
|
12.56 |
% |
A5 |
|
|
5,249 |
|
|
|
0.05 |
% |
|
|
38,665 |
|
|
|
0.38 |
% |
|
|
176,996 |
|
|
|
1.12 |
% |
|
|
1,491 |
|
|
|
252 |
|
|
|
2,093,400 |
|
|
|
12.48 |
% |
B1 |
|
|
3,229 |
|
|
|
0.05 |
% |
|
|
61,591 |
|
|
|
1.01 |
% |
|
|
215,809 |
|
|
|
2.31 |
% |
|
|
844 |
|
|
|
168 |
|
|
|
1,336,800 |
|
|
|
13.61 |
% |
B2 |
|
|
17,946 |
|
|
|
0.26 |
% |
|
|
74,904 |
|
|
|
1.07 |
% |
|
|
284,002 |
|
|
|
2.46 |
% |
|
|
943 |
|
|
|
186 |
|
|
|
2,014,575 |
|
|
|
16.42 |
% |
B3 |
|
|
24,567 |
|
|
|
0.27 |
% |
|
|
132,329 |
|
|
|
1.44 |
% |
|
|
392,964 |
|
|
|
2.73 |
% |
|
|
1,140 |
|
|
|
185 |
|
|
|
2,302,650 |
|
|
|
14.31 |
% |
B4 |
|
|
51,850 |
|
|
|
0.50 |
% |
|
|
132,083 |
|
|
|
1.27 |
% |
|
|
362,798 |
|
|
|
2.37 |
% |
|
|
1,272 |
|
|
|
178 |
|
|
|
1,862,500 |
|
|
|
11.42 |
% |
B5 |
|
|
2,706 |
|
|
|
0.02 |
% |
|
|
136,747 |
|
|
|
1.24 |
% |
|
|
458,863 |
|
|
|
2.87 |
% |
|
|
1,335 |
|
|
|
210 |
|
|
|
1,898,450 |
|
|
|
11.01 |
% |
C1 |
|
|
16,552 |
|
|
|
0.22 |
% |
|
|
84,725 |
|
|
|
1.11 |
% |
|
|
351,779 |
|
|
|
2.95 |
% |
|
|
1,026 |
|
|
|
191 |
|
|
|
1,720,050 |
|
|
|
13.34 |
% |
C2 |
|
|
22,559 |
|
|
|
0.29 |
% |
|
|
59,663 |
|
|
|
0.77 |
% |
|
|
407,878 |
|
|
|
3.49 |
% |
|
|
1,023 |
|
|
|
166 |
|
|
|
1,572,575 |
|
|
|
12.45 |
% |
C3 |
|
|
22,531 |
|
|
|
0.32 |
% |
|
|
112,454 |
|
|
|
1.61 |
% |
|
|
392,645 |
|
|
|
3.71 |
% |
|
|
924 |
|
|
|
167 |
|
|
|
1,468,450 |
|
|
|
13.11 |
% |
C4 |
|
|
20,750 |
|
|
|
0.41 |
% |
|
|
98,093 |
|
|
|
1.93 |
% |
|
|
377,054 |
|
|
|
4.48 |
% |
|
|
740 |
|
|
|
141 |
|
|
|
1,263,700 |
|
|
|
14.10 |
% |
C5 |
|
|
3,306 |
|
|
|
0.07 |
% |
|
|
65,106 |
|
|
|
1.45 |
% |
|
|
442,796 |
|
|
|
6.16 |
% |
|
|
688 |
|
|
|
108 |
|
|
|
954,700 |
|
|
|
12.28 |
% |
D1 |
|
|
11,284 |
|
|
|
0.27 |
% |
|
|
102,184 |
|
|
|
2.41 |
% |
|
|
449,653 |
|
|
|
6.49 |
% |
|
|
578 |
|
|
|
109 |
|
|
|
1,093,200 |
|
|
|
15.03 |
% |
D2 |
|
|
27,059 |
|
|
|
0.47 |
% |
|
|
121,536 |
|
|
|
2.11 |
% |
|
|
329,410 |
|
|
|
3.88 |
% |
|
|
734 |
|
|
|
102 |
|
|
|
1,029,050 |
|
|
|
11.07 |
% |
D3 |
|
|
14,668 |
|
|
|
0.26 |
% |
|
|
138,508 |
|
|
|
2.43 |
% |
|
|
399,206 |
|
|
|
4.81 |
% |
|
|
668 |
|
|
|
98 |
|
|
|
964,700 |
|
|
|
10.70 |
% |
D4 |
|
|
4,751 |
|
|
|
0.10 |
% |
|
|
46,398 |
|
|
|
0.97 |
% |
|
|
434,789 |
|
|
|
6.29 |
% |
|
|
552 |
|
|
|
91 |
|
|
|
771,075 |
|
|
|
10.14 |
% |
D5 |
|
|
11,817 |
|
|
|
0.26 |
% |
|
|
184,202 |
|
|
|
4.06 |
% |
|
|
271,418 |
|
|
|
4.30 |
% |
|
|
476 |
|
|
|
84 |
|
|
|
696,550 |
|
|
|
9.74 |
% |
E1 |
|
|
30,477 |
|
|
|
0.80 |
% |
|
|
34,467 |
|
|
|
0.90 |
% |
|
|
211,097 |
|
|
|
3.90 |
% |
|
|
426 |
|
|
|
69 |
|
|
|
656,250 |
|
|
|
10.52 |
% |
E2 |
|
|
6,694 |
|
|
|
0.20 |
% |
|
|
80,908 |
|
|
|
2.46 |
% |
|
|
255,418 |
|
|
|
5.34 |
% |
|
|
357 |
|
|
|
72 |
|
|
|
692,350 |
|
|
|
12.64 |
% |
E3 |
|
|
|
|
|
|
0.00 |
% |
|
|
18,970 |
|
|
|
0.68 |
% |
|
|
173,353 |
|
|
|
4.33 |
% |
|
|
308 |
|
|
|
53 |
|
|
|
531,850 |
|
|
|
11.60 |
% |
E4 |
|
|
|
|
|
|
0.00 |
% |
|
|
71,076 |
|
|
|
2.74 |
% |
|
|
230,334 |
|
|
|
6.21 |
% |
|
|
244 |
|
|
|
57 |
|
|
|
594,925 |
|
|
|
14.03 |
% |
E5 |
|
|
|
|
|
|
0.00 |
% |
|
|
48,498 |
|
|
|
2.26 |
% |
|
|
114,860 |
|
|
|
3.67 |
% |
|
|
199 |
|
|
|
55 |
|
|
|
556,675 |
|
|
|
15.30 |
% |
F1 |
|
|
15,525 |
|
|
|
0.88 |
% |
|
|
122,904 |
|
|
|
6.99 |
% |
|
|
113,758 |
|
|
|
4.59 |
% |
|
|
143 |
|
|
|
42 |
|
|
|
416,375 |
|
|
|
13.49 |
% |
F2 |
|
|
|
|
|
|
0.00 |
% |
|
|
36,004 |
|
|
|
2.29 |
% |
|
|
166,489 |
|
|
|
7.33 |
% |
|
|
140 |
|
|
|
30 |
|
|
|
354,125 |
|
|
|
13.46 |
% |
F3 |
|
|
|
|
|
|
0.00 |
% |
|
|
36,055 |
|
|
|
2.94 |
% |
|
|
117,979 |
|
|
|
7.03 |
% |
|
|
105 |
|
|
|
18 |
|
|
|
223,925 |
|
|
|
11.68 |
% |
F4 |
|
|
|
|
|
|
0.00 |
% |
|
|
1,505 |
|
|
|
0.16 |
% |
|
|
153,597 |
|
|
|
11.82 |
% |
|
|
87 |
|
|
|
15 |
|
|
|
149,575 |
|
|
|
9.34 |
% |
F5 |
|
|
|
|
|
|
0.00 |
% |
|
|
14,100 |
|
|
|
1.92 |
% |
|
|
77,021 |
|
|
|
7.28 |
% |
|
|
62 |
|
|
|
12 |
|
|
|
136,600 |
|
|
|
9.25 |
% |
G1 |
|
|
|
|
|
|
0.00 |
% |
|
|
17,278 |
|
|
|
2.64 |
% |
|
|
64,301 |
|
|
|
6.29 |
% |
|
|
58 |
|
|
|
14 |
|
|
|
205,200 |
|
|
|
17.76 |
% |
G2 |
|
|
|
|
|
|
0.00 |
% |
|
|
9,020 |
|
|
|
1.21 |
% |
|
|
63,483 |
|
|
|
6.92 |
% |
|
|
58 |
|
|
|
8 |
|
|
|
29,050 |
|
|
|
2.44 |
% |
G3 |
|
|
|
|
|
|
0.00 |
% |
|
|
6,242 |
|
|
|
1.08 |
% |
|
|
49,514 |
|
|
|
6.36 |
% |
|
|
43 |
|
|
|
10 |
|
|
|
98,175 |
|
|
|
10.77 |
% |
G4 |
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
|
|
0.00 |
% |
|
|
111,065 |
|
|
|
9.64 |
% |
|
|
56 |
|
|
|
16 |
|
|
|
220,050 |
|
|
|
17.87 |
% |
G5 |
|
$ |
|
|
|
|
0.00 |
% |
|
$ |
33,235 |
|
|
|
6.55 |
% |
|
$ |
103,724 |
|
|
|
11.94 |
% |
|
|
55 |
|
|
|
17 |
|
|
$ |
130,250 |
|
|
|
13.95 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
330,402 |
|
|
|
0.22 |
% |
|
$ |
2,186,947 |
|
|
|
1.45 |
% |
|
$ |
7,854,119 |
|
|
|
3.46 |
% |
|
|
19,571 |
|
|
|
3,436 |
|
|
$ |
31,050,575 |
|
|
|
12.48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
The following table presents aggregated information for the period from May 24, 2007 to
March 31, 2011 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount |
|
|
|
|
|
|
Principle Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collected on |
|
|
Number of Loans |
|
|
of Loans Charged |
|
|
Gross Amount |
|
|
|
Number of Loans |
|
|
Total Origination |
|
|
Aggregate Amount |
|
|
Accounts Sent to |
|
|
Charged -Off Due |
|
|
Off Due to |
|
|
Recovered on Loans |
|
Loan Grade |
|
In Collection (1) |
|
|
Amount (1) |
|
|
Sent to Collections (1) |
|
|
Collections (2) |
|
|
to Delinquency (3) |
|
|
Delinquency (3) |
|
|
Charged-Off (4) |
|
A |
|
|
114 |
|
|
$ |
754,575 |
|
|
$ |
126,815 |
|
|
$ |
63,071 |
|
|
|
44 |
|
|
$ |
186,769 |
|
|
$ |
10,159 |
|
B |
|
|
362 |
|
|
|
3,554,700 |
|
|
|
625,900 |
|
|
|
293,623 |
|
|
|
156 |
|
|
|
1,015,997 |
|
|
|
20,458 |
|
C |
|
|
458 |
|
|
|
4,034,325 |
|
|
|
790,804 |
|
|
|
398,116 |
|
|
|
214 |
|
|
|
1,273,504 |
|
|
|
15,218 |
|
D |
|
|
380 |
|
|
|
3,671,900 |
|
|
|
713,024 |
|
|
|
309,085 |
|
|
|
209 |
|
|
|
1,346,130 |
|
|
|
15,041 |
|
E |
|
|
243 |
|
|
|
2,383,425 |
|
|
|
473,023 |
|
|
|
220,361 |
|
|
|
125 |
|
|
|
755,187 |
|
|
|
23,155 |
|
F |
|
|
108 |
|
|
|
1,430,500 |
|
|
|
295,893 |
|
|
|
133,217 |
|
|
|
60 |
|
|
|
467,287 |
|
|
|
15,665 |
|
G |
|
|
76 |
|
|
$ |
930,350 |
|
|
$ |
202,964 |
|
|
$ |
107,137 |
|
|
|
40 |
|
|
$ |
277,492 |
|
|
$ |
410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,741 |
|
|
$ |
16,759,775 |
|
|
$ |
3,228,423 |
|
|
$ |
1,524,610 |
|
|
|
848 |
|
|
$ |
5,322,365 |
|
|
$ |
100,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $1,509,363 (99%). The
remainder was fees to us of $15,246 (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. For this quarter, total 848 loans charged off due to
delinquency, 7 of them were on a performing payment plan as of March 31, 2011. |
|
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. |
ABOUT LENDINGCLUB
LendingClub is the operator of the online financial community that provides a number of
benefits to our borrower and investor members. We believe the key features of our experience are
the following:
|
|
|
Better interest rates than those available from traditional banks and credit cards; |
|
|
|
24-hour online availability to initiate a loan request; |
|
|
|
Convenient, electronic payment processing; and |
|
|
|
Amortizing, fixed rate loans, which represent a more responsible way for consumers to
borrow than revolving credit facilities. |
Business Strengths
We believe that the following business strengths differentiate us from competitors and are key
to our success:
|
|
|
Focus on high quality borrowers. Our current initial credit criteria require borrower
members to have: (i) a minimum FICO score of at least 660; (ii) a debt-to-income ratio
below 25% for borrowers with credit scores between 660-719 and for borrowers with a credit
score of 720 or higher a debt-to-income ratio below 30%, as calculated by us based on the
debt reported by a consumer reporting agency, and the income reported by the borrower
member, which is not verified unless we display an icon in the loan listing indicating
otherwise; and (iii) a credit file without any current delinquencies, recent bankruptcy,
tax liens or non-medical related collections opened within the last 12 months, and
reflecting at least two accounts currently open, no more than 8 credit inquiries in the
past six months for credit scores 740 and higher and
no more than 3 credit inquiries in the past six months for credit scores below 740,
utilization of credit limit not exceeding 100%, revolving credit of less than $150,000 and a
minimum credit history of 36 months. |
27
|
|
|
Efficient distribution channels. We acquire many of our members through online
communities, social networks and marketers in a cost-efficient way. |
|
|
|
Superior technology. We believe our Portfolio Tool technology helps investors easily
diversify their Note purchases to correlate with corresponding member loans that the
investors select as the most suitable for them, based on their needs. |
|
|
|
Management team: LendingClub has a management team with experience in broad set of areas
that are essential to the operation of our business. |
Corporate History
We were incorporated in Delaware in October 2006 under the name SocBank Corporation. We
changed our name to LendingClub Corporation in November 2006. In May 2007, we began operations as
an application on Facebook.com. In August 2007, we expanded our operations with the launch of our
public web site, www.lendingclub.com. We have been operating since December 2007 pursuant to
agreements with WebBank, an FDIC-insured, Utah state-chartered industrial bank that serves as the
lender for all loans listed on our platform.
Marketing
Our marketing efforts are designed to attract members to our website, to enroll them as
members and to close transactions with them. We employ a combination of paid and unpaid sources to
market our platform. We also invest in public relations to build our brand and visibility. We
measure website visitor-to-member conversion and test graphics and layout alternatives to improve
website conversion. We also seek to customize our website to our members needs whenever possible.
We carefully analyze visitor website usage to understand and overcome barriers to conversion. For
the year ended March 31, 2011 and 2010, we spent approximately $6.0 million and $3.6 million,
respectively, on marketing.
From time to time, we may conduct special promotions to increase the participation of existing
members on our platform or to attract new members. These promotions could include offering special
incentives for registering as a lender or a borrower, posting a loan listing, or moving money onto
our platform. These promotions may be offered to all customers for all products or could be
restricted to particular products or types of customers.
Technology
Our system hardware is located in a hosting facility located in Las Vegas, Nevada, owned and
operated by SwitchNet. The facility provides around-the-clock security personnel, video
surveillance and biometric access screening and is serviced by onsite electrical generators, fire
detection and suppression systems. The facility has multiple Tier 1 interconnects to the internet.
We also maintain a real time backup system located in Santa Clara, California and operated by
SAVVIS.
We own all of the hardware deployed in support of our platform. We continuously monitor the
performance and availability of our platform. We have a scalable infrastructure that utilizes
standard techniques such as load-balancing and redundancies.
We have developed our own cash management software to process electronic cash movements,
record book entries and calculate cash balances in our members funding accounts. We process
electronic deposits and payments by originating ACH transactions. Our software puts these
transactions in the correct ACH transaction data formats and makes book entries between individual
members accounts using a Write-Once-Read-Many (WORM) ledger system.
28
We have also executed a backup and successor servicing agreement with Portfolio Financial
Servicing Company (PFSC). Pursuant to this agreement, PFSC will prepare and then stand ready to
service the member loans. Pursuant to our agreement with PFSC, we have agreed to pay PFSC
monthly start-up preparation fees and a one-time preparation fee, and then to pay PFSC a monthly
standby fee. Upon PFSC becoming the servicer of the member loans, we will pay PFSC a one-time
declaration fee, and PFSC will be entitled to retain up to 5% of the amounts it collects as
servicer. Our agreement with PFSC ends in September 2011 and we expect to renew this agreement.
If our agreement with PFSC were to be terminated, we would seek to replace PFSC with another backup
servicer.
Scalability
Our platform is scalable. The platform is designed as a collection of many small symmetrical
servers capable of replacing each other with no strict dependency between them. This design allows
us to either scale up either by deploying one or a limited small number of our servers and
configuring them to take advantage of the machine they run on, or deploying a large number of
servers and configuring them to run on lightweight machines. Our online deployment employs a fast
load balancer as a reverse proxy for all the machines containing the actual symmetrical servers,
which allows us to intercept end-user requests and route them to the least busy server.
Data integrity and security
All data received from end users or from our business counterparties are transported in a
secure manner; for example, we only expose data or actions pages of our application in SSL mode.
We have received an SSL certificate from VeriSign. For communication with our banking
counterparties, we require a dedicated, fully authenticated connection (VPN), in addition to the
SSL encryption of the data. Data storage follows specific rules for specific cases. For example,
the most sensitive information is stored using one-way encryption, which makes it impossible to
read in the clear, while the next level of data security uses regular encryption, which requires a
key in order to decrypt the data, and for regular data, a set of access control rules have been
created to limit the visibility of the data and to protect the privacy of each user.
We utilize a state of the art network firewall technology for perimeter level threat
protection. The philosophy of least privilege is used throughout the infrastructure. In short,
each person has access to only what they must have access to do their job. The following are used
as part of our security process: centralized logging with custom real-time alerts (servers and
firewalls), host based intrusion detection, individual firewalls in addition to TCP wrappers,
system/service level monitoring, active blocking of attacks, disabled root logins, and centralized
configuration management. In addition, no two accounts use the same name on any two servers.
Fraud detection
We consider fraud detection to be of utmost importance to the successful operation of our
business. We employ a combination of proprietary technologies and commercially available licensed
technologies and solutions to prevent and detect fraud. We employ techniques such as knowledge
based authentication (KBA), out-of-band authentication and notification, behavioral analytics and
digital fingerprinting to prevent identity fraud. We use services from third-party vendors for
user identification, credit checks and OFAC compliance. In addition, we use specialized
third-party software to augment our identity fraud detection systems. In addition to our identity
fraud detection system, we also have a dedicated team which conducts additional investigations of
cases flagged for high fraud risk by verifying the income and employment data reported by borrower
members. See Item 1. Business About the Platform How the LendingClub Platform Operates
Verification of Borrower. We also enable our investors to report suspicious activity to us,
which we may then decide to evaluate further.
29
Engineering
We have made substantial investment in software and website development and we expect to
continue or increase the level of this investment as part of our strategy to continually improve
the our platform. In addition to developing new products and maintaining an active online
deployment, the engineering department also performs technical competitive analysis as well as
systematic product usability testing. As of March 31, 2011, we had an
engineering team of 6 permanent employees and 14 contractors working on designing and
implementing the ongoing releases of our platform. Our engineering expense totaled approximately
$1.9 and $1.7 million for the year ended March 31, 2011 and 2010, respectively.
Competition
The market for lending is competitive and rapidly evolving. We believe the following are the
principal competitive factors in the lending market:
|
|
|
website attractiveness; |
|
|
|
member experience, including borrower full funding rates and investor returns; |
We face competition from other online lending platforms such as Prosper Marketplace, Inc. We
also face competition from major banking institutions, credit unions, credit card issuers and other
consumer finance companies.
We may also face future competition from new companies entering our market, which may include
large, established companies, such as eBay Inc., Google Inc. and Yahoo! Inc. These companies may
have significantly greater financial, technical, marketing and other resources than we do and may
be able to devote greater resources to the development, promotion, sale and support of their
consumer lending platforms. These potential competitors may be in a stronger position to respond
quickly to new technologies and may be able to undertake more extensive marketing campaigns. These
potential competitors may have more extensive potential borrower bases than we do. In addition,
these potential competitors may have longer operating histories and greater name recognition than
we do. Moreover, if one or more of our competitors were to merge or partner with another of our
competitors or a new market entrant, the change in competitive landscape could adversely affect our
ability to compete effectively.
Intellectual Property
Our intellectual property rights are important to our business. We rely on a combination of
copyright, trade secret, trademark, and other rights, as well as confidentiality procedures and
contractual provisions to protect our proprietary technology, processes and other intellectual
property.
Although the protection afforded by copyright, trade secret, trademark and patent law, written
agreements and common law may provide some advantages, we believe that the following factors help
us to maintain a competitive advantage:
|
|
|
the technological skills of our software and website development personnel; |
|
|
|
frequent enhancements to our platform; and |
|
|
|
high levels of member satisfaction. |
30
Our competitors may develop products that are similar to our technology. We enter into
agreements with our employees, consultants and partners, and through these and other written
agreements, we attempt to control access to and distribution of our software, documentation and
other proprietary technology and information. Despite our efforts to protect our proprietary
rights, third parties may, in an authorized or unauthorized manner, attempt to use, copy or
otherwise obtain and market or distribute our intellectual property rights or technology or
otherwise develop
a product with the same functionality as our solution. Policing all unauthorized use of our
intellectual property rights is nearly impossible. Therefore, we cannot be certain that the steps
we have taken or will take in the future will prevent misappropriations of our technology or
intellectual property rights.
LendingClub is a registered trademark in the United States.
We have developed our own software and do not use software licensed to us by third parties for
processing electronic cash movements, recording book entries and calculating cash balances in
lender members accounts.
Employees
|
|
As of March 31, 2011, we employed 55 full-time employees. Of these employees: |
|
|
|
34 were in sales, marketing and customer service; |
|
|
|
6 were in engineering; and |
|
|
|
15 were in general and administration, which includes the employees who conduct our
credit, collection and treasury activities. |
None of our employees are represented by labor unions. We have not experienced any work
stoppages and believe that our relations with our employees are good.
Facilities
As of March 31, 2011, our corporate headquarters, including our principal administrative,
marketing, technical support and engineering functions, were located in Redwood City, California.
The lease was for a total of 6,400 square feet. On November 18, 2011, we notified our landlord
that we were providing the required 6 months notice to terminate the lease for our corporate
headquarters.
In April 2011, we entered into a sublease agreement for approximately 18,200 square feet of
space in San Francisco, CA for our corporate headquarters, including our principal administrative,
marketing, technical support and engineering functions. The sublease has a term of 6 years and
began on May 1, 2011. We can terminate the sublease upon 9 months notice prior to the third
anniversary of the sublease. The average annual rent for our new corporate headquarters is
approximately $42,000 and we pledged $200,000 as a security deposit. We believe that this new
facility will be adequate to meet our current needs, that we have the ability to request more space
as needed, and that suitable additional alternative spaces will be available in the future on
commercially reasonable terms.
Effective June 1, 2010, we entered into a 12 month lease for approximately 238 square feet in
Fairfield, Connecticut for use by our Chief Operating Officer. This lease may be extended for an
additional 12 month lease term if the landlord is notified no later than 60 days prior to the
leases expiration. On July 14, 2010, we entered into a month-to-month lease agreement for the
lease of 250 square feet for a New York City office. We terminated this lease and office in
October 2010. On August 8, 2010, we entered into a twelve month lease agreement for the lease of
approximately 400 square feet for a second New York office. Notice was given on this lease in May
12, 2011 and will be terminated as of August 12, 2011.
Facilities rental expense for the fiscal year ending March 31, 2011 and 2010 was $311,322 and
$235,735, respectively.
31
Legal Proceedings
We are not currently subject to any material legal proceedings. We are not aware of any
litigation matters which have had, or are expected to have, a material adverse effect on us. We
have received inquiries from a number of states in respect of the prior sales of loans under our
prior operating structure, as described below under Prior Operation of the LendingClub
Platform; neither the SEC nor any state, however, has taken or threatened administrative action or
litigation over such loan sales.
Prior Operation of the LendingClub Platform
Our Prior Operating Structure
From the launch of our platform in May 2007 until April 7, 2008, the operation of our platform
differed from the structure described elsewhere in this document, and we did not offer Notes.
Instead, our platform allowed members to purchase assignments of unsecured member loans directly.
Under this structure, members received anonymized individual promissory notes with original
principal amounts corresponding to their purchase price. Each member loan was automatically
divided from inception into separate promissory notes in amounts that matched the purchase
commitments from members for the particular member loan. At closing, WebBank indorsed the
promissory notes to us, and we assigned each promissory note to the applicable member, subject to
our loan sale and servicing agreement. Our loan sale and servicing agreement provided that we
retained the right to service the member loans. Borrower member names appeared as LendingClub
screen names on the electronically executed promissory notes. We maintained custody of the
promissory notes on behalf of members. We charged members a fee of 1.00% of all payments of
interest, principal, late fees and recoveries received in respect of the member loans. We
disclaimed any obligation to guarantee the promissory notes or support the credit risk of borrower
members.
From April 7, 2008 until October 13, 2008, we did not offer members the opportunity to make
any purchases on our platform. During this time, we also did not accept investor registrations or
allow new funding commitments from existing members. We continued to service all previously funded
member loans, and members had the ability to access their accounts, monitor their member loans, and
withdraw available funds without changes. The borrowing side of our platform was generally
unaffected during this period. Borrower members could still apply for member loans, but these
member loans were funded and held only by LendingClub. Our decision to temporarily stop accepting
member purchase commitments, effective from April 7, 2008 until October 13, 2008, slowed the ramp
up of our operations and expended liquidity as we funded member loans ourselves during this period.
In addition, our credit criteria and loan grading criteria differed over time from the credit
criteria and loan grading criteria described elsewhere in this document. During the period from
our inception until October 13, 2008, under our minimum borrower member criteria, our prospective
borrower members needed to have:
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a minimum FICO score of 640 (as reported by a consumer reporting agency); |
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a debt-to-income ratio below 30%, as calculated by LendingClub based on (i) the
borrower members debt reported by a consumer reporting agency; and (ii) the income
reported by the borrower member, which we verified for approximately 25% of loan requests
that proceeded past the initial credit check stage and were posted on our website; and |
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a credit profile (as reported by a consumer reporting agency) without any current
delinquencies, recent bankruptcy, collections or open tax liens. |
Under this former loan grading criteria, for borrower members that qualified, we assigned one
of 35 loan grades, from A1 through G5, to each loan request, based on the borrower members FICO
score, debt-to-income ratio (calculated as described above) and requested loan amount. A higher
credit score, lower debt-to-income ratio and lower requested loan amount were factors that led to a
loan request being more likely to be designated grade A1.
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Effective October 13, 2008, we changed our minimum borrower member criteria to the criteria
reflected elsewhere in this document, except that the minimum FICO score remained 640. Effective
November 25, 2008, we raised the minimum FICO score to 660.
Government Regulation
Overview
The consumer loan industry is highly regulated. LendingClub, and the member loans made
through our platform, are subject to extensive and complex rules and regulations, licensing and
examination by various federal, state and local government authorities. These authorities impose
obligations and restrictions on our activities and the member loans made through our platform. In
particular, these rules limit the fees that may be assessed on the member loans, require extensive
disclosure to, and consents from, our participants, prohibit discrimination and impose multiple
qualification and licensing obligations on platform activities. Failure to comply with these
requirements may result in, among other things, revocation of required licenses or registration,
loss of approved status, voiding of the loan contracts, class action lawsuits, administrative
enforcement actions and civil and criminal liability. While compliance with such requirements is
at times complicated by our novel business model, we believe we are in substantial compliance with
these rules and regulations. These rules and regulations are subject to continuous change,
however, and a material change could have an adverse effect on our compliance efforts and ability
to operate.
Licensing and Consumer Protection Laws
State Licensing Requirements
We hold licenses in a number of states and is otherwise authorized to conduct its activities
on a uniform basis in all other states and the District of Columbia, with the exceptions of Idaho,
Indiana, Iowa, Maine Mississippi, Nebraska, North Dakota and Tennessee. State licensing statutes
impose a variety of requirements and restrictions, including:
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recordkeeping requirements; |
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restrictions on loan origination and servicing practices, including limits on finance
charges and fees; |
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disclosure requirements; |
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examination requirements; |
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surety bond and minimum net worth requirements; |
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financial reporting requirements; |
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notification requirements for changes in principal officers, stock ownership or
corporate control; |
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restrictions on advertising; and |
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review requirements for loan forms. |
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The statutes also subject us to the supervisory and examination authority of state regulators
in certain cases.
In June 2011, we entered into a consent order with the Commonwealth of Massachusetts where we
agreed to stop making loans to Massachusetts residents that are $6,000 or less and have an annual
percentage rate greater than
12%. We expect that the total cost of the consent order will be approximately $50,000 and we
do not believe that the restriction will have a material effect on our business.
State Usury Limitations
Applicable federal law and judicial interpretations permit FDIC-insured depository
institutions, such as WebBank, to export the interest rate permitted under the laws of the state
where the bank is located, regardless of the usury limitations imposed by the state law of the
borrowers residence unless the state has chosen to opt out of the exportation regime. WebBank is
located in Utah, and Utah law does not limit the amount of interest that may be charged on loans of
the type offered through our platform. Although some states have opted out of the exportation
regime, judicial interpretations support the view that such opt outs only apply to loans made in
those states. A loan made through our platform by WebBank may be subject to state usury limits if
the loan is deemed subject to the usury laws of a state that has opted-out of the exportation
regime.
State Disclosure Requirements and Other Substantive Lending Regulations
We are subject to state laws and regulations that impose requirements related to loan
disclosures and terms, credit discrimination, credit reporting, debt collection and unfair or
deceptive business practices. Our ongoing compliance program seeks to comply with these
requirements.
Truth in Lending Act
The Truth in Lending Act (TILA), and Regulation Z, which implements it, require lenders to
provide consumers with uniform, understandable information concerning certain terms and conditions
of their loan and credit transactions. These rules apply to WebBank as the creditor for member
loans originated on our platform, but because the transactions are carried out on our hosted
website, we facilitate compliance. For closed-end credit transactions of the type provided through
our platform, these disclosures include providing the annual percentage rate, the finance charge,
the amount financed, the number of payments and the amount of the monthly payment. The creditor
must provide the disclosures before the loan is closed. TILA also regulates the advertising of
credit and gives borrowers, among other things, certain rights regarding updated disclosures and
the treatment of credit balances. Our platform provides borrowers with a TILA disclosure at the
time a borrower member posts a loan request on the platform. If the borrower members request is
not fully funded and the borrower chooses to accept a lesser amount offered, we provide an updated
TILA disclosure. We also seek to comply with TILAs disclosure requirements related to credit
advertising.
Equal Credit Opportunity Act
The federal Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating
against credit applicants on the basis of race, color, sex, age, religion, national origin, marital
status, or the fact that all or part of the applicants income derives from any public assistance
program or the fact that the applicant has in good faith exercised any right under the federal
Consumer Credit Protection Act or any applicable state law. Regulation B, which implements ECOA,
restricts creditors from requesting certain types of information from loan applicants and from
making statements that would discourage on a prohibited basis a reasonable person from making or
pursuing an application. These requirements apply both to a lender such as WebBank as well as to a
party such as LendingClub that regularly participates in a credit decision. Investors may also be
subject to the ECOA in their capacity as purchasers of Notes, if they are deemed to regularly
participate in credit decisions. In the underwriting of member loans on the platform, both WebBank
and LendingClub seek to comply with ECOAs provisions prohibiting discouragement and
discrimination. As further measures, borrowers are instructed not to provide the type of
information that creditors are not permitted to request from applicants under the ECOA and the
investor agreement requires investors to comply with the ECOA in their selection of member loans
they designate for funding. The ECOA also requires creditors to provide consumers with timely
notices of adverse action taken on credit applications. WebBank and LendingClub provide
prospective borrowers who apply for a loan through the platform but are denied credit with a joint
adverse action notice in compliance with the ECOA requirements (see also below regarding Fair
Credit Reporting Act).
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Fair Credit Reporting Act
The Federal Fair Credit Reporting Act (FCRA), administered by the Federal Trade Commission,
promotes the accuracy, fairness and privacy of information in the files of consumer reporting
agencies. FCRA requires a permissible purpose to obtain a consumer credit report, and requires
persons to report loan payment information to credit bureaus accurately. FCRA also imposes
disclosure requirements on creditors who take adverse action on credit applications based on
information contained in a credit report. Effective August 1, 2009, we must also develop and
implement an identity theft prevention program for combating identity theft. WebBank and ourselves
have a permissible purpose for obtaining credit reports on potential borrowers and also obtain
explicit consent from borrowers to obtain such reports. As the servicer for the member loans, we
accurately report member loan payment and delinquency information to consumer reporting agencies.
We provide a combined ECOA/FCRA adverse action notice to a rejected borrower on WebBanks behalf
at the time the borrower is rejected that includes the required disclosures. We have implemented
an identity theft prevention program.
Fair Debt Collection Practices Act
The Federal Fair Debt Collection Practices Act (FDCPA) provides guidelines and limitations
on the conduct of third-party debt collectors in connection with the collection of consumer debts.
The FDCPA limits certain communications with third parties, imposes notice and debt validation
requirements, and prohibits threatening, harassing or abusive conduct in the course of debt
collection. While the FDCPA applies to third-party debt collectors, debt collection laws of
certain states impose similar requirements on creditors who collect their own debts. Our
agreement with its investors prohibits investors from attempting to directly collect on the member
loans. Actual collection efforts in violation of this agreement are unlikely given that investors
do not learn the identity of borrower members. We use our internal collection team and a
professional third-party debt collection agent to collect delinquent accounts. They are required
to comply with the FDCPA and all other applicable laws in collecting delinquent accounts of our
borrower members.
Privacy and Data Security Laws
The federal Gramm-Leach-Bliley Act (GLBA) limits the disclosure of nonpublic personal
information about a consumer to nonaffiliated third parties and requires financial institutions to
disclose certain privacy policies and practices with respect to information sharing with affiliated
and nonaffiliated entities as well as to safeguard personal customer information. A number of
states have similarly enacted privacy and data security laws requiring safeguards to protect the
privacy and security of consumers personally identifiable information and to require notification
to affected customers in the event of a breach. We have a detailed privacy policy, which complies
with GLBA and is accessible from every page of our website. We maintain participants personal
information securely, and we do not sell, rent or share such information with third parties for
marketing purposes. In addition, we takes a number of measures to safeguard the personal
information of its members and protect against unauthorized access.
Servicemembers Civil Relief Act
The federal Servicemembers Civil Relief Act (SCRA) allows military members to suspend or
postpone certain civil obligations so that the military member can devote his or her full attention
to military duties. The SCRA requires we adjust the interest rate of borrowers who qualify for and
request relief. If a borrower member with an outstanding member loan is called to active military
duty and can show that such military service has materially affected the members ability to make
payments on the loan, we will reduce the interest rate on the loan to 6% for the duration of the
borrower members active duty. During this period, the investors who have purchased Notes
dependent on such member loan will not receive the difference between 6% and the loans original
interest rate. For a borrower member to obtain an interest rate reduction on a member loan due to
military service, we require the borrower member to send us a written request and a copy of the
borrower members mobilization orders. We do not take military service into account in assigning
loan grades to borrower member loan requests.
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Other Regulations
Electronic Fund Transfer Act and NACHA Rules
The federal Electronic Fund Transfer Act (EFTA), and Regulation E, which implements it,
provides guidelines and restrictions on the electronic transfer of funds from consumers bank
accounts. In addition transfers performed by ACH electronic transfers are subject to detailed
timing and notification rules and guidelines administered by the National Automated Clearinghouse
Association (NACHA). Most transfers of funds in connection with the origination and repayment of
the member loans are performed by ACH. We obtain necessary electronic authorization from members
for such transfers in compliance with such rules. Transfers of funds through the platform are
executed by Wells Fargo and conform to the EFTA, its regulations and NACHA guidelines.
Electronic Signatures in Global and National Commerce Act/Uniform Electronic Transactions Act
The federal Electronic Signatures in Global and National Commerce Act (ESIGN) and similar
state laws, particularly the Uniform Electronic Transactions Act (UETA), authorize the creation
of legally binding and enforceable agreements utilizing electronic records and signatures. ESIGN
and UETA require businesses that want to use electronic records or signatures in consumer
transactions to obtain the consumers consent to receive information electronically. When a
borrower or investor registers on the platform, we obtain his or her consent to transact business
electronically and maintains electronic records in compliance with ESIGN and UETA requirements.
Bank Secrecy Act
In cooperation with WebBank, we implement the various anti-money laundering and screening
requirements of applicable federal law. With respect to new borrower members, we apply the
customer verification program rules and screens names against the list of Specially Designated
Nationals maintained by OFAC pursuant to the USA PATRIOT Act amendments to the Bank Secrecy Act
(BSA) and its implementing regulation. We also have an anti-money laundering policy and
procedures in place to voluntarily comply with the anti-money laundering requirements of the USA
PATRIOT Act and the BSA.
New Laws and Regulations
From time to time, various types of federal and state legislation are proposed and new
regulations are introduced that could result in additional regulation of, and restrictions on, the
business of consumer lending. We cannot predict whether any such legislation or regulations will
be adopted or how this would affect our business or our important relationships with third parties.
In addition, the interpretation of existing legislation may change or may prove different than
anticipated when applied to our novel business model. Compliance with such requirements could
involve additional costs, which could have a material adverse effect on our business. As a
consequence of the extensive regulation of commercial lending in the United States, our business is
particularly susceptible to being affected by federal and state legislation and regulations that
may increase the cost of doing business.
In addition, see Risk Factors Financial regulatory reform could result in restrictions,
oversight and costs that have an adverse effect on our business regarding the risks of government
financial regulatory reform plans.
Foreign Laws and Regulations
We do not permit non-U.S. residents to register as members on the platform and does not
operate outside the United States. It is, therefore, not subject to foreign laws or regulations.
ABOUT THE FUND AND TRUST
Business Description
In October 2010, we formed a subsidiary, LC Advisors, LLC, a California limited liability
company (LCA), which is wholly-owned by LendingClub. LCA has registered with the SEC as an
investment advisor and also acts as the general partner to two private investment funds for
accredited investors with differing investment strategies. In connection with the funds, we formed
a Delaware business trust to act as a bankruptcy remote for holding certain
assets of the funds separate and apart from the assets of LendingClub. LendingClub and the
trust have entered into a servicing agreement whereby LendingClub services the loans acquired by
the trust in a manner identical to other loans and earns a servicing fee equal to 40 basis points.
LCA commenced operations after January 1, 2011.
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We started offering the funds in March 2011 through a private placement. As of March 31,
2011, the funds had approximately $800,000 in assets with $4.8 million in escrow, which was
contributed to the Funds on April 1, 2011. LCA earns a management fee paid by the limited partners
of the funds, which is based on the amount of assets of each fund. As of March 31, 2011, the
aggregate amount of management fees earned by LCA was not material to the operations of the
business as a whole.
Fund Growth
We believe that the principal driver of the funds ability to increase assets is the investment
performance track record of the borrowers originated through the LendingClub platform. We have a
historical ability to generate consistent, positive returns for our investors who purchase Notes
from our platform. We also believe that our performance history is a key point of competitive
differentiation for us.
Assets Under Management
LCAs financial results will be primarily driven by the combination of assets under management
and the investment performance of the funds. Competitive investment performance in rising markets
and preservation of fund investor capital during periods of market volatility or decline are key
determinates of the long term success of LCAs business.
The Notes involve a high degree of risk. In deciding whether to purchase Notes, you should
carefully consider the following risk factors. Any of the following 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.
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RISKS RELATING TO THE NOTES AND THE CORRESPONDING MEMBER LOANS ON WHICH THE NOTES ARE DEPENDENT
You may lose some or all of your initial purchase price for the Notes because the Notes are highly
risky and speculative. Only investors who can bear the loss of their entire purchase price should
purchase the Notes.
The Notes are highly risky and speculative because payments the Notes depend entirely on
payments to LendingClub of unsecured consumer finance obligations of individual borrowers and
contemporaneous payments on the Notes, which are special, limited obligations of LendingClub.
Notes are suitable purchases only for investors of adequate financial means. If you cannot afford
to lose all of the money you plan to invest in Notes, you should not purchase Notes. You should
not assume that a Note is appropriate for you as an investment vehicle just because it corresponds
to a loan listed on our platform or is included in a portfolio built based upon your investment
criteria through our portfolio building tool, Portfolio Tool.
Payments on each Note depend entirely on the payments, if any, we receive on the corresponding
member loan related to that Note. If a borrower member fails to make any payments on the
corresponding member loan related to your Note, you will not receive any payments on your Note.
We will make payments pro rata on a series of Notes, net of our service charge, only if we
receive the borrower members payments on the corresponding member loan and such payments clear and
therefore become available for distribution to investors. We will not pay to investors any
unsuccessful payment fees, check processing fees, collection fees we or our third-party collection
agency charge or payments due to our account of portions of the corresponding member loan, if any,
funded by LendingClub itself. If we do not receive payments on the corresponding member loan
related to your Note, you will not be entitled to any payments under the terms of the Notes, and
you will not receive any payments. The failure of a borrower member to repay a loan is not an
event of default under the terms of the Notes.
The Notes are special, limited obligations of LendingClub only and are not secured by any
collateral or guaranteed or insured by any third party.
The Notes will not represent an obligation of borrower members or any other party except
LendingClub, and are special, limited obligations of LendingClub. The Notes are not secured by any
collateral and are not guaranteed or insured by any governmental agency or instrumentality or any
third party.
Member loans are unsecured obligations and are not backed by any collateral or guaranteed or
insured by any third party, and you must rely on LendingClub and our designated third-party
collection agency to pursue collection against any borrower member.
Member loans are unsecured obligations of borrower members. They are not secured by any
collateral, not guaranteed or insured by any third party and not backed by any governmental
authority in any way. LendingClub and its designated third-party collection agency will,
therefore, be limited in their ability to collect member loans.
Moreover, unsecured member loans are obligations of borrower members to LendingClub as
assignee of the Note from WebBank, not obligations to holders of Notes. Holders of Notes will have
no recourse against borrower members and no ability to pursue borrower members to collect payments
under member loans. Holders of Notes may look only to LendingClub for payment of the Notes, and
LendingClubs obligation to pay the Notes is limited as described in this document. Furthermore,
if a borrower member fails to make any payments on the member loan corresponding to a Note, the
holder of that Note will not receive any payments on that Note. The holder of that Note will not
be able to obtain the identity of the borrower member in order to contact the borrower member about
the defaulted member loan. In addition, in the unlikely event that we receive payments on the
corresponding member loan relating to the Notes after the final maturity date, you will not receive
payments on the Notes after final maturity.
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Our lending is a new lending method and our platform has a limited operating history. Borrowers
may not view or treat their obligations to us as having the same significance as loans from
traditional lending sources, such as bank loans and borrower loans may have a higher risk of
default than loans of borrowers with similar credit
scores to other lenders.
The investment return on the Notes depends on borrowers fulfilling their payment obligations
in a timely and complete manner under the corresponding member loan. Borrowers may not view our
lending obligations originated on our platform as having the same significance as other credit
obligations arising under more traditional circumstances, such as loans from banks or other
commercial financial institutions. If a borrower neglects his or her payment obligations on a
member loan upon which payment of the corresponding Note is dependent or chooses not to repay his
or her borrower loan entirely, you may not be able to recover any portion of your investment in a
Note.
The initial maturity date and final maturity date for five year term loans is the same date.
As such, you will not receive any payments we may receive after the maturity date.
The initial maturity date of all five year term loans will not be extended to a later date, so
the initial maturity date of a five year term member loan will equal its initial maturity date.
Unlike the three year term loans, where the initial maturity date may be extended. If a five year
term loan was extended beyond five years, a portion of the interest paid would likely not be
deductible by LendingClub. As a result, if we receive any principal and interest payments from a
borrower after the maturity date of a five year term loan, we may retain 100% of these payments and
are not obligated to distribute those payments to you.
Given the fact that Lending Club is not obligated to deliver any funds received by it after
the final maturity date of a Note and is responsible for collection efforts, a conflict of interest
could exist as any delay in receiving borrower funds would result in additional money coming to
Lending Club. There is, however, a significant mitigating factor to this potential of this
conflict. Without diligent collection efforts and success, fewer potential lenders will have the
confidence to participate on the site, limiting Lending Clubs growth and long term profitability.
Borrower member credit information may be inaccurate or may not accurately reflect the borrower
members creditworthiness, which may cause you to lose part or all of the purchase price you pay
for a Note.
We obtain borrower member credit information from consumer reporting agencies, such as
TransUnion, Experian or Equifax, and assign one of 35 loan grades to loan requests, from A1 through
G5, based on the reported credit score, other information reported by the consumer reporting
agencies and the requested loan amount. A credit score or loan grade assigned to a borrower member
may not reflect that borrower members actual creditworthiness because the credit score may be
based on outdated, incomplete or inaccurate consumer reporting data, and we do not verify the
information obtained from the borrower members credit report. Additionally, there is a risk that,
following the date of the credit report that we obtain and review, a borrower member may have:
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defaulted on a pre-existing debt obligation; |
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taken on additional debt; or |
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Moreover, investors do not, and will not, have access to consolidated financial statements of
borrower members, or to other detailed financial information about borrower members.
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Information supplied by borrower members may be inaccurate or intentionally false and should
generally not be relied upon.
Borrower members supply a variety of information that is included in the borrower member loan
listings on our website and in the posting reports and sales reports we file with the SEC. We do
not verify this information, and it may be inaccurate or incomplete. For example, we do not verify
a borrower members stated social affiliations (such as educational affiliations), home ownership
status, job title, employer or tenure, and the information borrower members supply may be
inaccurate or intentionally false. Borrower members may misrepresent their intentions for the use
of loan proceeds which also may result in us not obtaining certain fees from borrower members.
Unless we
have specifically indicated otherwise in a loan listing, we do not verify a borrower members
stated income. For example, we do not verify borrower member paystubs, IRS Forms W-2, federal or
state income tax returns, bank and savings account balances, retirement account balances, letters
from employers, home ownership or rental records, car ownership records or any records related to
past bankruptcy and legal proceedings. In the limited cases in which we have selected borrower
members for income or employment verification, for the year ended March 31, 2011, approximately
64.6% of requested borrower members provided us with satisfactory responses to verify their income
or employment; approximately 13.2% of requested borrower members withdrew their applications for
loans, and approximately 22.2% of requested borrower members either failed to respond to our
request in full or provided information that failed to verify their stated information, and we
therefore removed those borrower members loan postings. The identity of borrower members is not
revealed to investors, and investors also have no ability to obtain or verify borrower member
information either before or after they purchase a Note. Potential investors may only communicate
with borrower members through LendingClub website postings, and then only on an anonymous basis.
While we may monitor website posting for appropriate content, we do not verify any information in
the postings nor do we respond to requests from investor or borrower members in any posting and any
response to the contrary should not be seen as accurate.
If you rely on false, misleading or unverified information supplied by borrower members in
deciding to purchase Notes, you may lose part or all of the purchase price you pay for a Note. Loan
posting and borrower member information available on our website will be statements made in
connection with the purchase and sale of securities, and therefore subject to Rule 10b-5 of the
Securities Exchange Act of 1934, as amended (the Exchange Act). Loan posting and borrower member
information filed in prospectus supplements will be subject to the liability provisions of the
Securities Act. In this document, we advise potential investors as to the limitations on the
reliability of this information, and an investors recourse in the event this information is false
will be extremely limited. Consequently, investors should rely on loan grade, which we determine
based on third-party credit report information, and the size of the loan request, and should not
rely on unverified information provided by borrower members.
While we take precautions to prevent borrower member identity fraud, it is possible that identity
fraud may still occur and adversely affect your ability to receive the principal and interest
payments that you expect to receive on those Notes.
We use identity checks with a third-party provider to verify each borrower members identity
and credit history. Notwithstanding our efforts, there is a risk that identity fraud may occur and
remain undetected by us. While we will repurchase Notes in limited identity fraud circumstances
involving the corresponding member loan, we are not otherwise obligated to repurchase a Note from
you for any other reason. As of March 31, 2011, we had repurchased Notes relating to twenty two
corresponding member loans in which identity fraud occurred. If we repurchase a Note based on
identity fraud involving the corresponding member loan, you will only receive an amount equal to
the outstanding principal balance of the Note.
Lending Club has the exclusive right to investigate claims of identity theft and determine, in
its sole discretion, whether verifiable identity theft has occurred. As Lending Club is the sole
entity with the ability to investigate and determine verifiable identity theft, which triggers its
repurchase obligation, a conflict of interest exists as the denial of a claim under Lending Clubs
identity theft guarantee would save us from its repurchase obligation. There are, however, three
factors that mitigate the risk of this conflict. Without the protection offered by this guarantee,
fewer potential lenders will have the confidence to participate on the site, limiting our growth
and long term profitability. In addition, our relationship with WebBank includes a requirement
and accompanying audit function to insure that claims of identity theft are thoroughly
investigated and accurately reported. Finally, California statutes include severe penalties owed
to the victim of identity theft if it is shown that a claim of identity theft was not adequately
investigated or frivolously dismissed in the event we breach any of our other representations and
warranties in the lender registration agreement pertaining to the Notes.
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Our performance data about borrower member performance on LendingClub member loans is just over
three years old. Default rates on the member loans may increase.
Due to our limited operational and origination history, we do not have significant historical
performance data regarding borrower member performance on the member loans, and we do not yet know
what the long-term loan
loss experience will be. As of March 31, 2011, for only those loans that meet our current
credit policy, our default and charged off rate on our platform was 2.88%. As of March 31, 2011,
for all loans, our default and charged off rate on our platform was 3.46%. These default rates may
increase in the future. In addition, as we do not have significant experience in making five-year
unsecured consumer loans, the default rates on these loan types is uncertain and may exceed our
current expectations. As actual loan loss experience increases on our platform, we may change how
interest rates set, and investors who have purchased Notes prior to any such changes will not
benefit from these changes.
Default rates on the member loans may increase as a result of economic conditions beyond our
control and beyond the control of borrower members.
Member loan default rates may be significantly affected by economic downturns or general
economic conditions beyond our control and beyond the control of individual borrower members. In
particular, default rates on member loans on which the Notes are dependent may increase due to
factors such as prevailing interest rates, the rate of unemployment, the level of consumer
confidence, residential real estate values, the value of the U.S. dollar, energy prices, changes in
consumer spending, the number of personal bankruptcies, disruptions in the credit markets and other
factors. The current, continued, significant downturn in the United States economy has caused
default rates on consumer loans to increase, and the downturn will likely result in increased
member loan default rates.
If payments on the corresponding member loans relating to the Notes become more than 30 days
overdue, it is likely you will not receive the full principal and interest payments that you
expect to receive on the Notes due to collection fees and other costs, and you may not recover any
of your original purchase price.
If the borrower member fails to make a required payment on a member loan within 30 days of the
due date, we will pursue reasonable collection efforts in respect of the member loan. Referral of
a delinquent member loan to a collection agency on the 31st day of its delinquency will be
considered reasonable collection efforts. If we refer a loan to a collection agency, we will have
no other obligation to attempt to collect on delinquent loans. We may also handle collection
efforts in respect of a delinquent member loan directly. If payment amounts on a delinquent member
loan are received from a borrower member more than 30 days after their due date, then we, or, if we
have referred the delinquent loan to an outside collection agency, that collection agency, will
retain a percentage of any funds recovered from such borrower member as a service fee before any
principal or interest becomes payable to you from recovered amounts in respect of Notes related to
the corresponding member loan. Collection fees range from 30% to 35% of recovered amounts.
LendingClub or the collection agency may not be able to recover some or all of the unpaid
balance of a non-performing member loan. You must rely on the collection efforts from us and the
designated collection agency, and you are not permitted to attempt to collect payments on the
member loans in any manner.
If you decide to invest through the platform and concentrate your investment in a single Note,
your entire return will depend on the performance of a single member loan.
Member loans originated through our platform have a wide range of credit grades, and we expect
that some borrower members will default on their member loans. If you decide to invest through the
platform and concentrate your investment in a single Note, your entire return will depend on the
performance of a single member loan. For example, if you plan to purchase $100 of Notes, and
choose to invest the entire $100 in a single Note instead of in four $25 Notes corresponding to the
member loans of four different borrowers, your entire $100 investment will depend on the
performance of a single member loan. Failing to diversify your investment increases the risk of
losing your entire investment due to a single borrower members default, or a small number of
borrower member defaults. Diversification, however, will not eliminate the risk that you may lose
some, or all, of the expected principal and interest payments on the Notes.
41
In the unlikely event that we receive payments on the corresponding member loans relating to the
Notes after the final maturity date, you will not receive payments on the Notes after final
maturity.
Each Note will mature on its initial maturity date of either three or five years from its
issuance date, unless any principal or interest payments in respect of the corresponding borrower
loan remain due and payable to LendingClub
upon the initial maturity date, in which case the maturity of the Note will be automatically
extended to the final maturity date. If there are any amounts under the corresponding member loan
still due and owing to LendingClub after the final maturity, LendingClub will have no further
obligation to make payments on the Notes of the series, even if LendingClub receives payments on
the corresponding member loan after the final maturity.
Given the fact that we are not obligated to deliver any funds received by us after the final
maturity date of a Note and are responsible for collection efforts, a conflict of interest could
exist as any delay in receiving borrower funds would result in additional money coming to
LendingClub. There is, however, a significant mitigating factor to this potential conflict.
Without diligent collection efforts and success, fewer potential lenders will have the confidence
to participate on the site, limiting our growth and long term profitability.
The member loans on which the Notes are dependent do not restrict borrower members from incurring
additional unsecured or secured debt, nor do they impose any financial restrictions on borrower
members during the term of the member loan, which may impair your ability to receive the full
principal and interest payments that you expect to receive on a Note.
All member loans are credit obligations of individual borrower members. If a borrower member
incurs additional debt after obtaining a member loan through our platform, the additional debt may
impair the ability of that borrower member to make payments on the borrowers member loan and your
ability to receive the principal and interest payments that you expect to receive on Notes
dependent on those loans. In addition, the additional debt may adversely affect the borrower
members creditworthiness generally, and could result in the financial distress, insolvency, or
bankruptcy of the borrower member. To the extent that the borrower member has or incurs other
indebtedness and cannot pay all of its indebtedness, the borrower member may choose to make
payments to other creditors, rather than LendingClub.
As to these member loans, to the extent borrower members incur other indebtedness that is
secured, such as mortgage, home equity or auto loans, the ability of the secured creditors to
exercise remedies against the assets of the borrower member may impair the borrower members
ability to repay the borrower loan on which your Note is dependent for payment. Since the member
loans are unsecured, borrower members may choose to repay obligations under other indebtedness
before repaying member loans originated through our platform because the borrower members have no
collateral at risk. An investor will not be made aware of any additional debt incurred by a
borrower member, or whether such debt is secured.
Member loans do not contain any cross-default or similar provisions. If borrower members default on
their debt obligations other than the member loans, the ability to collect on member loans on which
the Notes are dependent may be substantially impaired.
The member loans do not contain cross-default provisions. A cross-default provision makes a
default under certain debt of a borrower member an automatic default on other debt of that borrower
member. Because the member loans do not contain cross-default provisions, a borrower members loan
will not be placed automatically in default upon that borrower members default on any of the
borrower members other debt obligations, unless there are independent grounds for a default on the
member loan. In addition, the member loans will not be referred to a third-party collection agency
for collection because of a borrower members default on debt obligations other than the member
loans. If a borrower member defaults on debt obligations owed to a third party and continues to
satisfy payment obligations under the member loans, the third party may seize the borrowers
assets, subject to our security interest, or pursue other legal action against the borrower member
before the borrower member defaults on the member loans. Payments on Notes may be substantially
reduced if the borrower member subsequently defaults on the member loans and you may be unable to
recoup any or all of your expected principal and interest payments on those Notes.
42
Borrower members may seek the protection of debtor relief under federal bankruptcy or state
insolvency laws, which may result in the nonpayment of the Notes.
Borrower members may seek protection under federal bankruptcy law or similar laws. If a
borrower member files for bankruptcy (or becomes the subject of an involuntary petition), a stay
will go into effect that will automatically put any pending collection actions, on hold and prevent
further collection action absent bankruptcy court approval. If we receive notice that a borrower
member has filed for protection under the federal bankruptcy
laws, or has become the subject of an involuntary bankruptcy petition, we will put the
borrower members loan account into bankruptcy status. When we put a member loan into bankruptcy
status, we terminate automatic monthly Automated Clearing House (ACH) debits and do not undertake
collection activity without bankruptcy court approval. Whether any payment will ultimately be made
or received on a member loan after a bankruptcy status is declared, depends on the borrower
members particular financial situation and the determination of the court. It is possible that
the borrower members personal liability on the member loan will be discharged in bankruptcy. In
most cases involving the bankruptcy of a borrower member with an unsecured loan, unsecured
creditors, including LendingClub as holder of the member loans, will receive only a fraction of any
amount outstanding on their member loans, if anything.
Federal law entitles borrower members who enter active military service to an interest rate cap
and certain other rights that may inhibit the ability to collect on loans and reduce the amount of
interest paid on the corresponding Notes.
Federal law provides borrower members on active military service with rights that may delay or
impair our ability to collect on a borrower member loan corresponding to your Note. The Service
members Civil Relief Act requires that the interest rate on preexisting debts, such as member
loans, be set at no more than 6% while the qualified service member or reservist is on active duty.
A holder of a Note that is dependent on such a member loan will not receive the difference between
6% and the original stated interest rate for the member loan during any such period. This law also
permits courts to stay proceedings and execution of judgments against service members and
reservists on active duty, which may delay recovery on any member loans in default, and,
accordingly, payments on Notes that are dependent on these member loans. If there are any amounts
under such a member loan still due and owing to us after the final maturity of the Notes that
correspond to the member loan, we will have no further obligation to make payments on the Notes,
even if we later receive payments after the final maturity of the Notes. We do not take military
service into account in assigning loan grades to borrower member loan requests. In addition, as
part of the borrower member registration process, we do not request LendingClub borrower members to
confirm if they are a qualified service member or reservists within the meaning of the SCRA.
The death of a borrower member may substantially impair your ability to recoup the full purchase
price of Notes that are dependent on the member loan to that borrower member or to receive the
interest payments that you expect to receive on the Notes.
All borrower members are individuals. If a borrower member with outstanding obligations under
a member loan dies while the member loan is outstanding, we will generally seek to work with the
executor of the estate of the borrower member to obtain repayment of the member loan. However, the
borrower members estate may not contain sufficient assets to repay the member loan on which your
Note is dependent. In addition, if a borrower member dies near the end of the term of an unsecured
member loan, it is unlikely that any further payments will be made on the Notes corresponding to
such member loan, because the time required for the probate of the estate may extend beyond the
initial maturity date and the final maturity date of the Notes.
The LendingClub platform allows a borrower member to prepay a member loan at any time without
penalty. Borrower member loan prepayments will extinguish or limit your ability to receive
additional interest payments on a Note.
Borrower member loan prepayment occurs when a borrower member decides to pay some or all of
the principal amount on a member loan earlier than originally scheduled. A borrower member may
decide to prepay all or a portion of the remaining principal amount at any time without penalty.
In the event of a prepayment of the entire remaining unpaid principal amount of a member loan on
which the Notes are dependent, you will receive your share of such prepayment, net of our 1.00%
service fee, but further interest will not accrue after the date on which the payment is made. If
a borrower member prepays a portion of the remaining unpaid principal balance on a member loan on
which the Notes are dependent, we will reduce the outstanding principle amount and interest will
cease to accrue on the prepaid portion. The combination of the reduced principal amount and the
unchanged monthly payment, the effective term of the member loan will decline. If a borrower
member prepays a member loan in full or in part, you will not receive all of the interest payments
that you originally expected to receive on Notes that are dependent on that member loan, and you
may not be able to find a similar rate of return on another investment at the time at which the
member loan is prepaid. Prepayments are subject to our 1.00% service charge, even if the
prepayment occurs immediately after issuance of your Note. The return on the Note may
actually be negative if prepayment occurs within the first few months after issuance.
43
Prevailing interest rates may change during the term of the member loan on which your Note is
dependent. If this occurs, you may receive less value from your purchase of the Note in
comparison to other investment opportunities. Additionally, borrower members may prepay their
member loans due to changes in interest rates, and you may not be able to redeploy the amounts you
receive from prepayments in a way that offers you the return you expected to receive from the
Notes.
The member loans on which the Notes are dependent have a term of three or five years and bear
fixed, not floating, rates of interest. If prevailing interest rates increase, the interest rates
on Notes you purchase might be less than the rate of return you could earn if you invested your
purchase price in other investments. While you may still receive a return on your purchase price
for the Notes through the receipt of amounts equal to the interest portion of a borrower members
payments on the member loan, if prevailing interest rates exceed the rate of interest payable on
the member loan, the payments you receive during the term of the Note may not reflect the full
opportunity cost to you when you take into account factors such as the time value of money.
There is no prepayment penalty for borrower members who prepay their member loans. If
prevailing interest rates on consumer loans decrease, borrower members may choose to prepay their
member loans with money they borrow from other sources or other resources, and you may not receive
the interest payments on Notes dependent on those member loans that you expect to receive or be
able to find an alternative use of your money to realize a similar rate of return at the time at
which the Note is prepaid.
Investor funds in a LendingClub investor account do not earn interest.
Your LendingClub investor account represents an interest in a pooled demand deposit account
maintained by LendingClub in trust for investors (ITF account) that does not earn interest.
Investor funds committed to purchase Notes represent binding commitments, and such committed funds
may not be withdrawn from member accounts (unless and until corresponding member loans included in
the order are not funded, in which case the corresponding funds become available to the investor
again). Funds committed to purchase Notes will not earn interest in the ITF account, and interest
will not begin to accrue on a Note until the corresponding member loan has closed and the Note is
issued.
The Notes will not be listed on any securities exchange, will not be transferable except through
the Note Trading Platform by FOLIOfn, and must be held only by LendingClub investors. You should
be prepared to hold the Notes you purchase until they mature.
The Notes will not be listed on any securities exchange. All Notes must be held by
LendingClub members. The Notes will not be transferable except through the Note Trading Platform
by FOLIOfn Investments, Inc. (FOLIOfn), a registered broker-dealer. The trading platform is not
available to residents of all states. There can be no assurance that an active market for Notes
will develop on the trading platform, that there will be a buyer for any particular Notes listed
for resale on the trading platform or that the trading platform will continue to operate.
Therefore, investors must be prepared to hold their Notes to maturity.
The U.S. federal income tax consequences of an investment in the Notes are uncertain.
There are no statutory provisions, regulations, published rulings, or judicial decisions that
directly address the characterization of the Notes or instruments similar to the Notes for U.S.
federal income tax purposes. However, although the matter is not free from doubt, we intend to
treat the Notes as our indebtedness for U.S. federal income tax purposes. As a result of such
treatment, the Notes will have original issue discount, or OID, for U.S. federal income tax
purposes because payments on the Notes are dependent on payments on the corresponding member loan.
Further, a holder of a Note will be required to include the OID in income as ordinary interest
income for U.S. federal income tax purposes as it accrues (which may be in advance of interest
being paid on the Note), regardless of such holders regular method of accounting. This
characterization is not binding on the IRS, and the IRS may take contrary positions. Any differing
treatment of the Notes could significantly affect the amount, timing and character of income, gain
or loss in respect of an investment in the Notes. Accordingly, all prospective purchasers of the
Notes are advised to consult their own tax advisors regarding the U.S. federal, state, local
and non-U.S. tax consequences of the purchase and ownership of the Notes (including any possible
differing treatments of the Notes). For a discussion of the U.S. federal income tax consequences
of an investment in the Notes.
44
RISKS RELATED TO LENDINGCLUB AND THE LENDINGCLUB PLATFORM
We have a limited operating history. As an online company in the early stages of development, we
face increased risks, uncertainties, expenses and difficulties.
To be successful, the number of borrower members and LendingClub investors and the volume of
member loans originated through our platform will need to increase, which will require us to
increase our facilities, personnel and infrastructure to accommodate the greater servicing
obligations and demands on our platform. Our platform is dependent upon our website to maintain
current listings and transactions in the member loans and Notes. We must constantly add new
hardware and update our software and website, expand our customer support services and retain an
appropriate number of employees to maintain the operations of our platform, as well as to satisfy
our servicing obligations on the member loans and make payments on the Notes. If we are unable to
increase the capacity of our platform and maintain the necessary infrastructure, you may experience
delays in receipt of payments on the Notes and periodic downtime of our systems.
If we are unable to increase transaction volumes, our business and results of operations will be
affected adversely.
To succeed, we must increase transaction volumes on our platform by attracting a large number
of borrower members and investors in a cost-effective manner, many of whom have not previously
participated in an online financial community. We have experienced a high number of inquiries from
potential borrower members who do not meet our criteria for submitting a member loan request. We
have also experienced borrower member loan requests for amounts that exceed the aggregate amount of
investor purchase commitments. From time to time, we have relied on our credit facilities with
third parties to borrow funds which we used to fund member loans on the platform ourselves to
partially address the shortfall between borrower member loan requests and investor purchase
commitments. We have fully drawn down these existing facilities.
All member loans are obligations of borrower members to LendingClub, and we issue Notes to
investors who fund a corresponding member loan, or portion of the member loan, originated through
our platform. When we fund member loans ourselves on the platform, we continue to directly hold
the member loan, or portion of the member loan, we have funded and do not issue Notes corresponding
to such member loans for our own account. We expect these shortfalls to continue for the
foreseeable future, and our ability to obtain funds to help address this shortfall may be subject
to broader developments in the credit markets, which have experienced unprecedented volatility and
disruption. If we are not able to attract qualified borrower members and sufficient investor
purchase commitments, we will not be able to increase our transaction volumes. Additionally, we
rely on a variety of methods to drive traffic to our website. If we are unable to use any of our
current or future marketing initiatives or the cost of these initiatives were to significantly
increase, we may not be able to attract new members in a cost-effective manner and, as a result,
our revenue and results of operations would be affected adversely, which may impair our ability to
maintain our platform.
We may need to raise substantial additional capital to fund our operations, and if we fail to
obtain additional funding, we may be unable to continue operations.
At this early stage in our development, we have funded substantially all of our operations
with proceeds from venture capital financings, private placements and bank financings. To continue
the development of our platform, we will require substantial additional funds. For the year ended
March 31, 2011, our cash outflow to fund operations was approximately $9.7 million.
To date, we have raised $54,035,115 through equity financings. Our last equity financing was
on April 14, 2010 and we raised $24,387,945, net of issuance costs, from the sale of 15,621,609
shares of our Series C convertible Preferred Stock.
45
To meet our financing requirements in the future, we may raise funds through equity offerings,
debt financings or strategic alliances. Raising additional funds may involve agreements or
covenants that restrict our business activities and options. Additional funding may not be
available to us on favorable terms, or at all. If we are unable to obtain additional funds, we may
be forced to reduce or terminate our operations.
The market in which we participate is competitive and, if we do not compete effectively, our
operating results could be harmed.
The consumer lending market is competitive and rapidly changing. We expect competition to
persist and intensify in the future, which could harm our ability to increase volume on our
platform.
Our principal competitors include major banking institutions, credit unions, credit card
issuers and other consumer finance companies, as well as other online lending platforms.
Competition could result in reduced volumes, reduced fees or the failure of our online lending
platform to achieve or maintain more widespread market acceptance, any of which could harm our
business. In addition, in the future we may experience new competition from more established
internet companies, such as eBay Inc., Google Inc. and Yahoo! Inc., possessing large, existing
customer bases, substantial financial resources and established distribution channels. If any of
these companies or any major financial institution decided to enter the online lending business,
acquire one of our existing competitors or form a strategic alliance with one of our competitors,
our ability to compete effectively could be significantly compromised and our operating results
could be harmed.
Most of our current or potential competitors have significantly more financial, technical,
marketing and other resources than we do and may be able to devote greater resources to the
development, promotion, sale and support of their platforms and distribution channels. Our
potential competitors may also have longer operating histories, more extensive customer bases,
greater brand recognition and broader customer relationships than we have. These competitors may
be better able to develop new products, to respond quickly to new technologies and to undertake
more extensive marketing campaigns. Our industry is driven by constant innovation. If we are
unable to compete with such companies and meet the need for innovation, the demand for our platform
could stagnate or substantially decline.
If we fail to promote and maintain our brand in a cost-effective manner, we may lose market share
and our revenue may decrease.
We believe that developing and maintaining awareness of our brand in a cost-effective manner
is critical to achieving widespread acceptance of our online financial community and attracting new
members. Successful promotion of our brand will depend largely on the effectiveness of our
marketing efforts and the member experience on our platform. Historically, our efforts to build our
brand have involved significant expense, and it is likely that our future marketing efforts will
require us to incur significant additional expenses. These brand promotion activities may not
yield increased revenues and, even if they do, any revenue increases may not offset the expenses we
incur to promote our brand. If we fail to successfully promote and maintain our brand, or if we
incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may
lose our existing members to our competitors or be unable to attract new members, which would cause
our revenue to decrease and may impair our ability to maintain our platform.
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 March 31, 2011, our accumulated deficit was $41.5 million and our total stockholders deficit
was $37.3 million. Our net loss for the year ended March 31, 2011, was $11.3 million. 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.
46
Our substantial senior secured indebtedness could adversely affect our financial performance,
ability to finance future operations, and our special, limited obligations in respect of the
Notes.
We have incurred substantial senior secured indebtedness under bank credit facilities with SVB
and Gold Hill and other notes issued to other investors. The operating and financial restrictions
in these debt agreements, as well as the required debt service and repayment obligations in these
debt agreements, could adversely affect our financial performance. In addition, our ability to
borrow additional funds or otherwise finance our future operations will be limited by the existence
and terms of the debt agreements. If we are unable to repay our obligations other than the Notes
and otherwise finance our future operations, such inability will have an adverse impact on our
ability to operate our platform and service the Notes, which could adversely affect the payments
you receive on the Notes.
Our credit agreements contain restrictive covenants and other limitations that, if not
complied with, could result in a default under the credit agreements and an acceleration of our
obligations under the credit agreements. We are not certain whether we would have, or be able to
obtain, sufficient funds to make such accelerated payments, and a failure to do so could adversely
affect our ability to operate our platform and service the Notes, which could adversely affect the
payments you receive on the Notes.
We have secured our debt facilities by pledging significant assets to SVB, Gold Hill, Wells Fargo
and our other investors and we are not prohibited from incurring additional debt in the Indenture
or otherwise.
To induce our lenders to enter into credit agreements or other agreements with us, we have
pledged certain of assets to our lenders to secure our repayment obligations under these credit
agreements or other agreements, except that we have not pledged our intellectual property rights,
the ITF account, the corresponding member loan promissory notes (except in specific circumstances)
or payments we receive in respect of corresponding member loans (except in specific circumstances).
If we are unable to repay any amounts owed under these credit agreements or other agreements, we
could lose these pledged assets and be forced to discontinue our business operations. In addition,
because these obligations are secured, collectively, with a first priority lien against such
assets, we may have difficulty obtaining additional debt financing from another lender or obtaining
new debt financing on terms favorable to us, because a new lender may have to be willing to be
subordinate to our existing secured creditors.
The Notes rank effectively junior to the rights of the holders of our existing or future
secured indebtedness to the extent of the collateral for that secured indebtedness. Neither the
Notes nor our debt agreements limit or prevent our incurring future indebtedness, whether
unsecured or secured by all or a portion of our assets.
Our arrangements for backup servicing are limited. If we fail to maintain operations, you will
experience a delay and increased cost in respect of your expected principal and interest payments
on the Notes, and we may be unable to collect and process repayments from borrower members.
We have made arrangements for only limited backup servicing. If our platform were to fail or
we became insolvent, we would attempt to transfer our member loan servicing obligations to our
third party back-up servicer. There can be no assurance that this back-up servicer will be able to
adequately perform the servicing of the outstanding member loans. If this back-up servicer assumes
the servicing of the member loans, the back-up servicer will impose additional servicing fees,
reducing the amounts available for payments on the Notes. Additionally, transferring these
servicing obligations to our back-up servicer may result in delays in the processing and recovery
of information with respect to amounts owed on the member loans or, if our platform becomes
inoperable, may prevent us from servicing the member loans and making principal and interest
payments on the Notes. If our back-up servicer is not able to service the member loans
effectively, investors ability to receive principal and interest payments on their Notes may be
substantially impaired.
47
If we were to become subject to a bankruptcy or similar proceeding, the rights of the holders of
the Notes could be uncertain, and payments on the Notes may be limited and suspended or stopped.
The Notes are unsecured and holders of the Notes do not have a security interest in the
corresponding member loans or the proceeds of those corresponding member loans. The recovery, if
any, of a holder on a Note may be substantially delayed
and substantially less than the principal and interest due and to become due on the Note. Even
funds held by LendingClub in trust for the holders of Notes may potentially be at risk.
If we were to become subject to a bankruptcy or similar proceeding, the recovery, if any, of a
holder of a Note may be substantially delayed in time and may be substantially less in amount than
the principal and interest due and to become due on the Note.
A bankruptcy or similar proceeding of LendingClub may cause delays in borrower member
payments. Borrower members may delay payments to us on account of member loans because of the
uncertainties occasioned by a bankruptcy or similar proceeding of LendingClub, even if the
borrower members have no legal right to do so, and such delay would reduce, at least for a time,
the funds that might otherwise be available to pay the Notes corresponding to those member
loans.
A bankruptcy or similar proceeding of LendingClub may cause delays in payments on Notes.
The commencement of the bankruptcy or similar proceeding may, as a matter of law, prevent us
from making regular payments on the Notes, even if the funds to make such payments are
available. Because a bankruptcy or similar proceeding may take months or years to complete, the
suspension of payment may effectively reduce the value of any recovery that a holder of a Note
may receive (and no such recovery can be assured) by the time any recovery is available.
Interest accruing upon and following a bankruptcy or similar proceeding of LendingClub may
not be paid. In bankruptcy or similar proceeding of LendingClub, interest accruing on the Notes
during the preceding may not be part of the allowed claim of a holder of a Note. If the holder
of a Note receives a recovery on the Note (and no such recovery can be assured), any such
recovery may be based on, and limited to, the claim of the holder of the Note for principal and
for interest accrued up to the date of the bankruptcy or similar proceeding, but not thereafter.
Because a bankruptcy or similar proceeding may take months or years to complete, a claim based
on principal and on interest only up to the start of the bankruptcy or similar proceeding may be
substantially less than a claim based on principal and on interest through the end of the
bankruptcy or similar proceeding.
In a bankruptcy or similar proceeding of LendingClub, there may be uncertainty regarding
whether a holder of a Note has any priority right to payment from the corresponding member loan.
The Notes are unsecured and holders of the Notes do not have a security interest in the
corresponding member loans or the proceeds of those corresponding member loans. Accordingly,
the holder of a Note may be required to share the proceeds of the corresponding member loan with
any other creditor of LendingClub that has rights in those proceeds. If such sharing of
proceeds is deemed appropriate, those proceeds that are either held by us in the clearing
account at the time of the bankruptcy or similar proceeding of LendingClub, or not yet received
by us from borrower members at the time of the commencement of the bankruptcy or similar
proceeding, may be at greater risk than those proceeds that are already held by us in the in
trust for, or ITF, account at the time of the bankruptcy or similar proceeding. To the extent
that proceeds of the corresponding member loan would be shared with other creditors of
LendingClub, any secured or priority rights of such other creditors may cause the proceeds to be
distributed to such other creditors before, or ratably with, any distribution made to you on
your Note.
In a bankruptcy or similar proceeding of LendingClub, there may be uncertainty regarding
whether a holder of a Note has any right of payment from assets of LendingClub other than the
corresponding member loan. In a bankruptcy or similar proceeding of LendingClub, it is possible
that a Note could be deemed to have a right of payment only from proceeds of the corresponding
member loan and not from any other assets of LendingClub, in which case the holder of the Note
may not be entitled to share the proceeds of such other assets of LendingClub with other
creditors of LendingClub, whether or not, as described above, such other creditors would be
entitled to share in the proceeds of the member loan corresponding to the Note. Alternatively,
it is possible that a Note could be deemed to have a right of payment from both the member loan
corresponding to the Note and from some or all other assets of LendingClub, for example, based
upon the automatic acceleration of the principal obligations on the Note upon the commencement
of a bankruptcy or similar proceeding, in which case the holder of the Note may be entitled to
share the proceeds of such other assets of LendingClub with other creditors of LendingClub,
whether or not, as described above, such other creditors would be entitled to share in the
proceeds of the member loan corresponding to the Note. To the extent that proceeds of such
other assets
would be shared with other creditors of LendingClub, any secured or priority rights of such
other creditors may cause the proceeds to be distributed to such other creditors before, or
ratably with, any distribution made to you on your Note.
48
In a bankruptcy or similar proceeding of LendingClub, there may be uncertainty regarding
the rights of a holder of a Note, if any, to payment from funds in the clearing account. If a
borrower member has paid LendingClub on a member loan corresponding to a Note before a
bankruptcy or similar proceeding of LendingClub is commenced, and those funds are held in the
clearing account and have not been used by LendingClub to make payments on the Note as of the
date the bankruptcy or similar proceeding is commenced, there can be no assurance that
LendingClub will or will be able to use such funds to make payments on the Note. Other creditors
of LendingClub may be deemed to have, or actually have, rights to such funds that are equal to
or greater than the rights of the holder of the Note.
In a bankruptcy or similar proceeding of LendingClub, there may be uncertainty regarding
the rights of a holder of a Note, if any, to access funds in the ITF account. If a borrower has
paid LendingClub on a member loan corresponding to a Note before a bankruptcy or similar
proceeding of LendingClub is commenced, and those funds have been used by LendingClub to make
payments on the Note prior to the date the bankruptcy or similar proceeding is commenced, but
the payments on the Note continue to be held by LendingClub in an ITF account, there can be no
assurance that the holder of the Note will have immediate access to the funds constituting the
payment or that the funds constituting the payment will ultimately be released to the holder of
the Note. While the Trust Agreement states that funds in the ITF account are trust property and
are not intended to be property of LendingClub or subject to claims of LendingClubs creditors
generally, there can be no assurance that, if the matter were to be litigated, such litigation
would not delay or prevent the holder of a Note from accessing the portion of those funds in
which the holder has an interest.
In a bankruptcy or similar proceeding of LendingClub, there may be uncertainty regarding
the rights of a holder of a Note, if any, to the return of the purchase price of a Note if the
corresponding member loan has not been funded. If the purchase price of a Note is paid to
LendingClub and a bankruptcy or similar proceeding of LendingClub is commenced, the holder of
the Note may not be able to obtain a return of the funds constituting the purchase price, even
if the member loan corresponding to the Note has not been funded as of the date that the
bankruptcy or similar proceeding is commenced and even if the funds are held by LendingClub in
the ITF account.
In a bankruptcy or similar proceeding of LendingClub, the holder of a Note may be delayed
or prevented from enforcing LendingClubs repurchase obligations in cases of confirmed identity
fraud. In a bankruptcy or similar proceeding of LendingClub, any right of a holder of Note to
require LendingClub to repurchase the Note as a result of a confirmed identity fraud incident
may not be specifically enforced, and such holders claim for such repurchase may be treated
less favorably than a general unsecured obligation of LendingClub as described and subject to
the limitations in this Risks Related to LendingClub and the LendingClub Platform If we were
to become subject to a bankruptcy or similar proceeding section.
In a bankruptcy or similar proceeding of LendingClub, the implementation of back-up
servicing arrangements may be delayed or prevented. In a bankruptcy or similar proceeding of
LendingClub, our ability to transfer servicing obligations to our back-up servicer may be
limited and subject to the approval of the bankruptcy court or other presiding authority. The
bankruptcy process may delay or prevent the implementation of back-up servicing, which may
impair the collection of member loans to the detriment of the Notes.
We rely on third-party banks to disburse member loan proceeds and process member loan payments,
and we rely on third-party computer hardware and software. If we are unable to continue utilizing
these services, our business and ability to service the member loans on which the Notes are
dependent may be adversely affected.
We rely on a third-party bank to disburse member loan amounts. Additionally, because we are
not a bank, we cannot belong to and directly access the ACH payment network, and we must rely on an
FDIC-insured depository institution to process our transactions, including loan payments and
remittances to holders of the Notes. We currently use Wells Fargo Bank, N.A. for these purposes.
Under the ACH rules, if we experience a high rate of reversed transactions (known as
chargebacks), we may be subject to sanctions and potentially disqualified from
using the system to process payments. We also rely on computer hardware purchased and
software licensed from third parties to operate our platform. This purchased or licensed hardware
and software may not continue to be available on commercially reasonable terms, or at all If we
cannot continue to obtain such services from this institution or elsewhere, or if we cannot
transition to another processor quickly, our ability to process payments will suffer and your
ability to receive principal and interest payments on the Notes will be delayed or impaired.
49
If the security of our members confidential information stored in our systems is breached or
otherwise subjected to unauthorized access, your secure information may be stolen, our reputation
may be harmed, and we may be exposed to liability.
Our platform stores our borrower members and investors bank information and other
personally-identifiable sensitive data. Any accidental or willful security breaches or other
unauthorized access could cause your secure information to be stolen and used for criminal
purposes. Security breaches or unauthorized access to secure information could also expose us to
liability related to the loss of the information, time-consuming and expensive litigation and
negative publicity. If security measures are breached because of third-party action, employee
error, malfeasance or otherwise, or if design flaws in our software are exposed and exploited, and,
as a result, a third party or disaffected employee obtains unauthorized access to any of our
members data, our relationships with our members will be severely damaged, and we could incur
significant liability. Because techniques used to obtain unauthorized access or to sabotage
systems change frequently and generally are not recognized until they are launched against a
target, we and our third-party hosting facilities may be unable to anticipate these techniques or
to implement adequate preventative measures. In addition, many states have enacted laws requiring
companies to notify individuals of data security breaches involving their personal data. These
mandatory disclosures regarding a security breach are costly to implement and often lead to
widespread negative publicity, which may cause our members to lose confidence in the effectiveness
of our data security measures. Any security breach, whether actual or perceived, would harm our
reputation, and we could lose members.
Our ability to service the member loans or maintain accurate accounts may be adversely affected by
computer viruses, physical or electronic break-ins and similar disruptions.
The highly automated nature of the LendingClub platform may make it an attractive target and
potentially vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions. If a hacker were able to infiltrate our platform, you would be subject to an
increased risk of fraud or borrower identity theft, and may experience losses on, or delays in the
recoupment of amounts owed on, a fraudulently induced purchase of a Note. Additionally, if a
hacker were able to access our secure files, he or she might be able to gain access to your
personal information. While we have taken steps to prevent such activity from affecting our
platform, if we are unable to prevent such activity, the value in the Notes and our ability to
fulfill our servicing obligations and to maintain our platform would be adversely affected.
Any significant disruption in service on our website or in our computer systems could reduce the
attractiveness of our platform and result in a loss of members.
If a catastrophic event resulted in a platform outage and physical data loss, our ability to
perform our servicing obligations would be materially and adversely affected. The satisfactory
performance, reliability and availability of our technology and our underlying network
infrastructure are critical to our operations, level of customer service, reputation and ability to
attract new members and retain existing members. Our system hardware is hosted in a hosting
facility located in Las Vegas, Nevada, owned and operated by Switchnet. We also maintain a real
time backup system located in Santa Clara, CA owned and operated by SAVVIS Switchnet does not
guarantee that our members access to our website will be uninterrupted, error-free or secure. Our
operations depend on Switchnets ability to protect their and our systems in their facilities
against damage or interruption from natural disasters, power or telecommunications failures, air
quality, temperature, humidity and other environmental concerns, computer viruses or other attempts
to harm our systems, criminal acts and similar events. If our arrangement with Switchnet is
terminated, or there is a lapse of service or damage to Switchnet facilities, we could experience
interruptions in our service as well as delays and additional expense in arranging new facilities.
Any interruptions or delays in our service, whether as a result of Switchnet other third-party
error, our own error, natural disasters or security breaches, whether accidental or willful, could
harm our relationships with our members and our reputation. Additionally, in the event of damage
or interruption, our insurance policies may not adequately compensate us for any losses that we
may incur. Our disaster recovery plan has not been tested under actual disaster conditions,
and we may not have sufficient capacity to recover all data and services in the event of an outage
at a Switchnet facility. These factors could prevent us from processing or posting payments on the
member loans or the Notes, damage our brand and reputation, divert our employees attention, reduce
our revenue, subject us to liability and cause members to abandon our platform, any of which could
adversely affect our business, financial condition and results of operations.
50
Competition for our employees is intense, and we may not be able to attract and retain the highly
skilled employees whom we need to support our business.
Competition for highly skilled technical and financial personnel is extremely intense. We may
not be able to hire and retain these personnel at compensation levels consistent with our existing
compensation and salary structure. Many of the companies with which we compete for experienced
employees have greater resources than we have and may be able to offer more attractive terms of
employment.
In addition, we invest significant time and expense in training our employees, which increases
their value to competitors who may seek to recruit them. If we fail to retain our employees, we
could incur significant expenses in hiring and training their replacements and the quality of our
services and our ability to serve our members could diminish, resulting in a material adverse
effect on our business.
Our growth could strain our personnel resources and infrastructure, and if we are unable to
implement appropriate controls and procedures to manage our growth, we may not be able to
successfully implement our business plan.
Our growth in headcount and operations since our inception has placed, and will continue to
place, to the extent that we are able to sustain such growth, a significant strain on our
management and our administrative, operational and financial reporting infrastructure.
51
Our success will depend in part on the ability of our senior management to manage the growth
we achieve effectively. To do so, we must continue to hire, train and manage new employees as
needed. If our new hires perform poorly, or if we are unsuccessful in hiring, training, managing
and integrating these new employees, or if we are not successful in retaining our existing
employees, our business may be harmed. To manage the expected growth of our operations and
personnel, we will need to continue to improve our operational and financial controls and update
our reporting procedures and systems. The addition of new employees and the system development
that we anticipate will be necessary to manage our growth will increase our cost base, which will
make it more difficult for us to offset any future revenue shortfalls by reducing expenses in the
short term. If we fail to successfully manage our growth, we will be unable to execute our
business plan.
If we fail to retain our key personnel, we may not be able to achieve our anticipated level of
growth and our business could suffer.
Our future depends, in part, on our ability to attract and retain key personnel. Our future
also depends on the continued contributions of our executive officers and other key technical
personnel, each of whom would be difficult to replace. In particular, our Founder and Chief
Executive Officer is critical to the management of our business and operations and the development
of our strategic direction. The loss of the services of Mr. Laplanche or other executive officers
or key personnel and the process to replace any of our key personnel would involve significant time
and expense and may significantly delay or prevent the achievement of our business objectives.
It may be difficult and costly to protect our intellectual property rights, and we may not be able
to ensure their protection.
Our ability to maintain our platform and arrange member loans depends, in part, upon our
proprietary technology, including our proprietary portfolio tool builder system, Portfolio Tool.
We may be unable to protect our proprietary technology effectively, however, which would allow
competitors to duplicate our products and adversely affect our ability to compete with them. A
third party may attempt to reverse engineer or otherwise obtain and use our proprietary technology
without our consent. In addition, our platform may infringe upon claims of third-party patents, and
we may face intellectual property challenges from such other parties. We may not be successful in
defending against any such challenges or in obtaining licenses to avoid or resolve any intellectual
property disputes. Furthermore, our technology may become obsolete, and there is no guarantee that
we will be able to successfully develop, obtain or use new technologies to adapt our platform to
compete with other person-to-person lending platforms as they develop. If we cannot protect our
proprietary technology from intellectual property challenges, or if the platform becomes obsolete,
our ability to maintain the platform, arrange member loans or perform our servicing obligations on
the member loans could be adversely affected.
Purchasers of Notes will have no control over LendingClub and will not be able to influence
LendingClub corporate matters.
The Notes offered through our platform grant no equity interest in LendingClub to the
purchaser nor grant the purchaser the ability to vote on or influence our corporate decisions. As
a result, our stockholders will continue to exercise 100% voting control over all our corporate
matters, including the election of directors and approval of significant corporate transactions,
such as a merger or other sale of our company or its assets.
Neither the Notes nor the indenture restrict our ability to incur additional indebtedness.
Any additional debt we incur may increase our risk of bankruptcy, which could impair your ability
to receive the principal and interest payments you expect to receive on your Notes.
If we incur additional debt after the Notes are issued, it may adversely affect our
creditworthiness generally, and could result in the financial distress, insolvency, or bankruptcy
of LendingClub. As discussed above, the financial distress, insolvency or bankruptcy of
LendingClub could impair your ability to receive the principal and interest payments you expect to
receive on your Notes.
Events beyond our control may damage our ability to maintain adequate records, maintain our
platform or perform our servicing obligations. If such events result in a system failure, your
ability to receive principal and interest payments on the Notes would be substantially harmed.
If a catastrophic event resulted in our platform outage and physical data loss, our ability to
perform our servicing obligations would be materially and adversely affected. Such events include,
but are not limited to, fires, earthquakes, terrorist attacks, natural disasters, computer viruses
and telecommunications failures. We store back-up records in offsite facilities located in Las
Vegas, Nevada and Santa Clara, California. If our electronic data
storage and back-up storage system are affected by such events, we cannot guarantee that you would
be able to recoup your investment in the Notes.
52
RISKS RELATING TO COMPLIANCE AND REGULATION
Our platform is a novel approach to borrowing that may fail to comply with borrower protection
laws such as state usury laws, other interest rate limitations or federal and state consumer
protection laws such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair
Credit Reporting Act and the Fair Debt Collection Practices Act and their state counterparts.
Borrower members may make counterclaims regarding the enforceability of their obligations after
collection actions have commenced, or otherwise seek damages under these laws. Compliance with
such regimes is also costly and burdensome.
Our platform operates a novel program that must comply with regulatory regimes applicable to
all consumer credit transactions. The novelty of our platform means compliance with various aspect
of such laws is untested. Certain state laws generally regulate interest rates and other charges
and require certain disclosures. In addition, other state laws, public policy and general
principles of equity relating to the protection of consumers, unfair and deceptive practices and
debt collection practices may apply to the origination, servicing and collection of the member
loans. Our platform is also subject to other federal and state laws, such as:
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Federal Truth-in-Lending Act and Regulation Z promulgated thereunder, and similar state
laws, which require certain disclosures to borrower members regarding the terms of their
member loans; |
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Federal Equal Credit Opportunity Act and Regulation B promulgated thereunder, which
prohibit discrimination on the basis of age, race, color, sex, religion, marital status,
national origin, receipt of public assistance or the exercise of any right under the
Consumer Credit Protection Act, in the extension of credit; |
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Federal Fair Credit Reporting Act, which regulates the use and reporting of information
related to each borrower members credit history; and |
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Federal Fair Debt Collection Practices Act and similar state debt collection laws,
which regulate debt collection practices by debt collectors and prohibit debt collectors
from engaging in certain practices in collecting, and attempting to collect, outstanding
consumer loans. |
We may not always have been, and may not always be, in compliance with these laws. Compliance
with these requirements is also costly, time-consuming and limits our operational flexibility.
Noncompliance with laws and regulations may impair our ability to arrange or service member loans.
Failure to comply with the laws and regulatory requirements applicable to our business may,
among other things, limit our, or a collection agencys, ability to collect all or part of the
principal amount of or interest on the member loans on which the Notes are dependent for payment.
In addition, our non-compliance could subject us to damages, revocation of required licenses or
other authorities, class action lawsuits, administrative enforcement actions, and civil and
criminal liability, which may harm our business and ability to maintain our platform and may result
in borrower members rescinding their member loans.
Where applicable, we seek to comply with state small loan, loan broker, servicing and similar
statutes. Currently, we do not provide services to borrowers in Idaho, Indiana, Iowa, Maine,
Mississippi, Nebraska, North Dakota and Tennessee. In all other U.S. jurisdictions with licensing
or other requirements we believe may be applicable to make loans, we have obtained any necessary
licenses or comply with the relevant requirements. Nevertheless, if we are found to not comply
with applicable laws, we could lose one or more of our licenses or authorizations or face other
sanctions or be required to obtain a license in such jurisdiction, which may have an adverse effect
on our ability to continue to facilitate the origination of member loans through our platform,
perform our servicing obligations or make our platform available to borrower members in particular
states, which may impair your ability to receive the payments of principal and interest on the
Notes that you expect to receive.
53
We rely on our agreement with WebBank to lend to qualified borrower members on a uniform basis
throughout the United States. If our relationship with WebBank were to end, we may need to rely
on individual state lending licenses to arrange member loans.
Borrower member loan requests take the form of an application to WebBank, which currently
makes all loans to our borrower members who request loans through our platform, and allows our
platform to be available to borrowers on a uniform basis throughout the United States. If our
relationship with WebBank were to end or if WebBank were to cease operations, we may need to rely
on individual state lending licenses to originate member loans. Because we do not currently
possess state lending licenses in every U.S. state, we may be required to discontinue lending or
limit the rates of interest charged on member loans in some states. We may face increased costs
and compliance burdens if our agreement with WebBank is terminated.
Several lawsuits have sought to recharacterize certain loan marketers and other originators as
lenders. If litigation on similar theories were successful against us, borrower loans originated
through our platform could be subject to state consumer protection laws in a greater number of
states.
Several lawsuits have brought under scrutiny the association between high-interest payday
loan marketers and out-of-state banks. These lawsuits assert that payday loan marketers use
out-of-state lenders in order to evade the consumer protection laws imposed by the states where
they do business. Such litigation has sought to recharacterize the loan marketer as the lender for
purposes of state consumer protection law restrictions. Similar civil actions have been brought in
the context of gift cards. We believe that our activities are distinguishable from the activities
involved in these cases.
Additional state consumer protection laws would be applicable to the member loans originated
on our platform if we were recharacterized as a lender, and the borrower loans could be voidable or
unenforceable. In addition, we could be subject to claims by borrower members, as well as
enforcement actions by regulators. Even if we were not required to cease doing business with
residents of certain states or to change our business practices to comply with applicable laws and
regulations, we could be required to register or obtain licenses or regulatory approvals that could
impose a substantial cost on us. To date, no actions have been taken or threatened against us on
the theory that we have engaged in unauthorized lending; however, such actions could have a
material adverse effect on our business.
As internet commerce develops, federal and state governments may draft and propose new laws to
regulate internet commerce, which may negatively affect our business.
As internet commerce continues to evolve, increasing regulation by federal and state
governments becomes more likely. Our business could be negatively affected by the application of
existing laws and regulations or the enactment of new laws applicable to lending. The cost to
comply with such laws or regulations could be significant and would increase our operating
expenses, and we may be unable to pass along those costs to our members in the form of increased
fees. In addition, federal and state governmental or regulatory agencies may decide to impose
taxes on services provided over the Internet. These taxes could discourage the use of the Internet
as a means of consumer lending, which would adversely affect the viability of our platform.
Our legal compliance burdens and costs have significantly increased as a result of operating as a
public company. Our management is required to devote substantial time to compliance matters.
As a public reporting company, we face costly compliance burdens, requiring significant legal,
accounting and other expenses. Our management and other personnel devote a substantial amount of
time to SEC reporting compliance requirements. In addition, the Sarbanes-Oxley Act requires, among
other things, that we maintain effective internal control over financial reporting and disclosure
controls and procedures. In particular, for our fiscal year ending March 31, 2011, we performed
system and process evaluation and testing of our internal control over financial reporting to allow
management and our independent registered public accounting firm to report on the effectiveness of
our internal control over financial reporting, as required by Section 404A of the Sarbanes-Oxley
Act. Although through such testing we discovered no material weaknesses or significant
deficiencies in internal control at March 31, 2011, subsequent testing by us or our independent
registered public accounting firm, may reveal deficiencies in our internal control over financial
reporting that are deemed to be material weaknesses. To comply with Section 404, we may incur
substantial accounting expense, expend significant management time on compliance-related issues,
and hire additional accounting and financial staff with appropriate public company
experience and technical accounting knowledge. Moreover, if we are not able to comply with
the requirements of Section 404 in a timely manner, or if we or our independent registered public
accounting firm identify deficiencies in our internal control over financial reporting that are
deemed to be material weaknesses, we could be subject to sanctions or investigations by the SEC or
other regulatory authorities, which would require additional financial and management resources.
54
If we discover a material weaknesses in our internal control over financial reporting which we are
unable to remedy, or otherwise fail to maintain effective internal control over financial
reporting, our ability to report our financial results on a timely and accurate basis may be
adversely affected.
We are not currently required to have an audit of our internal control over financial
reporting, and our independent registered public accounting firm has not performed such an audit.
Should such a requirement arise and should we or our auditors discover a material weakness in our
internal controls, our ability to report our financial results on a timely and accurate basis may
be adversely affected.
We face a contingent liability for potential securities law violations in respect of loans sold to
our members from May 2007 until April 7, 2008. This contingent liability may impair our ability
to operate our platform and service the member loans that correspond to the Notes.
Loans sold to members through our platform from our launch in May 2007 until April 7, 2008 may
be viewed as involving an offering of securities that was not registered or qualified under federal
or state securities laws. If the sale of these loans were viewed as an unregistered offering of
securities, our members who hold these loans may be entitled to rescind their purchase and be paid
their unpaid principal amount of the loans plus statutory interest. As of March 31, 2011, the
aggregate principal balance of these loans purchased through our platform by purchasers not
affiliated with us was $1.58 million. We have not recorded an accrued loss contingency in respect
of this contingent liability, although we intend to continue to monitor the situation. Generally,
the federal statute of limitations for noncompliance with the requirement to register securities
under the Securities Act is one year from the violation. The statute of limitations periods under
state securities laws 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. If a significant number of our members sought rescission, if we
were subject to a class action securities lawsuit or if we were subject to lawsuits or
administrative actions by the SEC or states in respect of these loans, our ability to maintain our
platform and service the member loans to which the Notes correspond may be adversely affected.
If we are required to register under the Investment Company Act, our ability to conduct our
business could be materially adversely affected.
The Investment Company Act of 1940, or the Investment Company Act, contains substantive
legal requirements that regulate the manner in which investment companies are permitted to
conduct their business activities. We believe we have conducted, and we intend to continue to
conduct, our business in a manner that does not result in our company being characterized as an
investment company. If, however, we are deemed to be an investment company under the Investment
Company Act, we may be required to institute burdensome compliance requirements and our activities
may be restricted, which would materially adversely affect our business, financial condition and
results of operations. If we were deemed to be an investment company, we may also attempt to seek
exemptive relief from the SEC, which could impose significant costs and delays on our business.
Increased regulatory focus could result in additional burdens on our business.
The financial industry is becoming more highly regulated. Legislation has been introduced
recently by both U.S. and foreign governments relating to financial institutions and markets,
including alternative asset management funds that would result in increased oversight and taxation.
There has been, and may continue to be, a related increase in regulatory investigations of the
trading and other investment activities of alternative investment funds. Such investigations may
impose additional expenses by us, may require the attention of senior management and may result in
fines if any of our funds are deemed to have violated any regulations.
55
On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
Dodd-Frank Act) was signed into law. The Dodd-Frank Act imposes significant new regulations on
the U.S. financial services industry, including aspects of our business and the markets in which we
operate. The Dodd-Frank Act imposes a wide array of regulations covering, among other things: (1)
oversight and regulation of systemic market risk (including the power to liquidate certain
financial institutions); (ii) authorizes the Federal Reserve to regulate certain non-bank financial
institutions; generally prohibits insured depositary institutions and their affiliates from
conducting proprietary trading and investing in private equity funds and hedge funds; (iii) imposes
new registration, recordkeeping and reporting on private fund investment advisers; (iv) imposes
minimum equity retention requirements for issues of asset-backed securities; (v) establishes a new
bureau of consumer financial protection; and (vi) establishes new requirements and higher liability
standards on credit rating agencies.
The Dodd-Frank Act provides that non-bank financial companies may be evaluated for designation
as systemically significant financial institutions subjected to enhanced supervisory standards. If
we were to be designated as a systemically significant financial institution we would be subject to
increased costs of doing business by virtue of fees and assessments associated with such
designation as well as by virtue of increased regulatory compliance costs, all of which would be
likely to adversely affect our competitive position.
The Dodd-Frank Act also requires increased disclosure of executive compensation and provides
shareholders with the right to vote on executive compensation. In addition, the Dodd-Frank Act
empowers federal regulators to prescribe regulations or guidelines to prohibit any incentive-based
payment arrangements that the regulators determine encourage covered financial institutions to take
inappropriate risks by providing officers, employees, directors or principal shareholders with
executive compensation or that could lead to a material financial loss by such financial
institutions. Until all of the relevant regulations and guidelines have been established, we cant
predict what effect, if any, these developments may have on our business or the markets in which we
operate.
In addition, the Dodd-Frank Act empowered the SEC, which had recently adopted amendments to
the Advisers Act rules increasing the compliance obligations of registered advisers with custody of
client funds, to promulgate rules requiring registered investment advisers to take such steps to
safeguard client assets over which the adviser has custody as the DEC may prescribe.
Furthermore, the Dodd-Frank Act required the SEC to implement more expansive regulations
covering whistleblowers. The SEC proposed rules in the late 2010 in response to this requirement,
which establishes a reward program for persons who bring information to the SEC leading to a
sanction of $1 million or more against a public company for a violation of the securities law. The
SEC has yet to adopt final rules. While we cannot predict the effect of the rules, they may result
in increased regulatory inquiries or investigations by the SEC. Such inquiries or investigations
could impose significant additional expenses on us, require the attention of senior management and
result in negative publicity and harm to our reputation.
These and many other key aspects of the changes imposed by the Dodd-Frank Act will be
established by various regulatory bodies and other groups over the next several years and the
Dodd-Frank Act mandates multiple agency reports and studies (which could result in additional
legislative or regulatory action). As a result of the regulatory and other action yet to be taken,
including with respect to the definition of certain key terms in the Dodd-Frank Act, we do not know
what the final regulations under the Dodd-Frank Act will require and it is difficult to predict how
significant the Dodd-Frank Act will affect us. The Dodd-Frank Act will likely increase our
administration costs and could impose additional restrictions on our business.
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Item 1B. |
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Unresolved Staff Comments |
Not applicable.
The information set forth in Item 1 under the caption Item 1. Business About LendingClub
Facilities is incorporated herein by reference.
56
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Item 3. |
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Legal Proceedings |
The information set forth in Item 1 under the caption Item 1. Business About LendingClub
Legal Proceedings is incorporated herein by reference.
PART II
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Item 5. |
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Market for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases
of Equity Securities |
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 March 31, 2011, we sold
$70,930,975 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 $3,964,402 through April 30,
2011, 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 through our
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.
We have no publicly traded equity securities. At April 30, 2011, there were 29 holders of
record of our common stock. We have not paid cash dividends since our inception, and we do not
anticipate paying cash dividends in the foreseeable future.
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Item 6. |
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Selected Financial Data |
Not applicable for smaller reporting companies.
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Item 7. |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this Annual Report on Form 10-K. In
addition to historical information, this Annual Report on Form 10-K 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 I Item 1A, Risk
Factors. Important factors that could cause actual results to differ materially include, but are
not limited to; the level of demand for LendingClubs products and services; the intensity of
competition; LendingClubs 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 I Item 1A, Risk Factors. 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 Annual Report on Form 10-K. We assume no obligation to update these
forward-looking statements.
Overview
We are an online 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 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.
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All member loans are unsecured obligations of individual borrower members with fixed interest
rates and three-year or five-year maturities. The member loans 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 assigned to us upon closing. As a part of operating our
lending platform, we verify the identity of members, obtain borrower members credit
characteristics from consumer reporting agencies such as TransUnion, Experian or Equifax and screen
borrower members for eligibility to participate in the platform and facilitate the posting of
member loans. We also provide servicing for the 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 March
31, 2011, the lending platform has facilitated approximately 24,940 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 May 1, 2011, we do not currently offer member loans in Idaho, Iowa,
Indiana, Maine, Mississippi, Nebraska, 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.
We have a limited operating history and have incurred net losses since our inception. Our net
loss was $11,300,143 for the year ended March 31, 2011. We earn revenues from processing fees
charged to members, primarily a borrower member origination fee and an investor service charge. 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 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 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 sales, website development, security, loan
scoring, loan processing and marketing before we reach profitability.
To date, we have raised $54,035,115 through equity financings. Our last equity financing was
on April 14, 2010 and we raised $24,387,945, net of estimated issuance costs, from the sale of
15,621,609 shares of our Series C convertible Preferred Stock.
Significant Accounting Policies and Estimates
The preparation of our consolidated 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 consolidated 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 which are more fully described in Note
2 to our consolidated financial statements 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.
58
In fiscal year 2011, we had a change in accounting policy for how we account for our Stock
option Financial Accounting Standard 123R. In prior years, we used the graded method to
calculate our stock compensation expense, however in 2011 we changed our methodology by using the
straight line method. Adopting this new accounting policy did not have a material impact on the
consolidated financial statements for all periods presented. See Note 2 Summary of Significant
Accounting Policies Change in Accounting Policy in the Notes to the consolidated financial
statements for further discussion of this change in accounting policy.
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 fiscal
years ended March 31, 2011 and 2010, we originated $148,792,400 and $67,084,325 of loans (including
loans sold to third parties prior to registration of the Notes), respectively, on our lending
platform, an increase of 121.8% percent in the fiscal year ended March 31, 2011, compared to the
fiscal year ended March 31, 2010. Upon issuance of the loan, 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 we have invested in directly.
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Interest income: |
|
|
|
|
|
|
|
|
Member loans |
|
$ |
803,192 |
|
|
$ |
1,289,290 |
|
CM Loans, fair value |
|
|
|
|
|
|
|
|
Interest and fees earned on CM Loans |
|
|
17,847,614 |
|
|
|
5,101,995 |
|
Credit risk related adjustments (interest expense) |
|
|
(8,947,051 |
) |
|
|
(3,634,458 |
) |
Cash and cash equivalents |
|
|
33,139 |
|
|
|
27,559 |
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
9,736,894 |
|
|
$ |
2,784,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
Notes, fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees expensed on Notes |
|
$ |
11,159,498 |
|
|
$ |
2,837,532 |
|
Credit risk related adjustments (interest income) |
|
|
(8,932,088 |
) |
|
|
(3,633,050 |
) |
Loans payable |
|
|
702,694 |
|
|
|
1,130,229 |
|
Amortization of debt discount |
|
|
272,630 |
|
|
|
294,200 |
|
|
|
|
|
|
|
|
Net interest expense |
|
$ |
3,202,734 |
|
|
$ |
628,911 |
|
|
|
|
|
|
|
|
59
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 Quarters Ended |
|
Interest |
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
March 31, |
|
Income |
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2010 |
|
Source |
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrower origination fees and interest earned on member loans |
|
|
316 |
|
|
|
65 |
|
|
|
371 |
|
|
|
49 |
|
|
|
329 |
|
|
|
31 |
|
|
|
272 |
|
|
|
22 |
|
Borrower origination fees and interest earned on CM Loans, net of interest expense on the related Notes |
|
|
155 |
|
|
|
32 |
|
|
|
374 |
|
|
|
50 |
|
|
|
743 |
|
|
|
69 |
|
|
|
991 |
|
|
|
78 |
|
Interest earned on cash and investments |
|
|
17 |
|
|
|
3 |
|
|
|
4 |
|
|
|
1 |
|
|
|
3 |
|
|
|
0 |
|
|
|
4 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Income |
|
|
488 |
|
|
|
100 |
|
|
|
749 |
|
|
|
100 |
|
|
|
1,075 |
|
|
|
100 |
|
|
|
1,267 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarters Ended |
|
Interest |
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
March 31, |
|
Income |
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2011 |
|
Source |
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
$ |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrower origination fees and interest earned on member loans |
|
|
227 |
|
|
|
15 |
|
|
|
224 |
|
|
|
12 |
|
|
|
188 |
|
|
|
10 |
|
|
|
165 |
|
|
|
7 |
|
Borrower origination fees and interest earned on CM Loans, net of interest expense on the related Notes |
|
|
1,249 |
|
|
|
85 |
|
|
|
1,632 |
|
|
|
87 |
|
|
|
1,604 |
|
|
|
89 |
|
|
|
2,189 |
|
|
|
93 |
|
Interest earned on cash and investments |
|
|
6 |
|
|
|
0 |
|
|
|
10 |
|
|
|
1 |
|
|
|
10 |
|
|
|
1 |
|
|
|
6 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Income |
|
|
1,482 |
|
|
|
100 |
|
|
|
1,866 |
|
|
|
100 |
|
|
|
1,802 |
|
|
|
100 |
|
|
|
2,360 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
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.
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 |
% |
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 |
% |
61
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 LendingClub
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 and 60 months for each
funded member loan.
Interest Earned on Member Loans Funded by LendingClub
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 funded by LendingClub. 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 LendingClub
to CM Loans that we originate each quarter has diminished. As such, during the year ended March
31, 2011, we funded $6,457,300 of member loans, investors funded $142,335,100, while during the
year ended March 31, 2010, we funded $4,646,550 of member loans while investors funded
$62,437,775.
When payments are received on member loans funded by LendingClub, 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 March 31, 2011. During the years
ended March 31, 2011 and 2010, we recorded interest income on the member loans we funded of
$803,192 and $1,289,290, 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 year ended March 31, 2011 and 2010, we recorded interest income from CM
Loans of $17,847,614 and $5,101,995 including $5,940,149 and $2,111,456 of origination fees,
respectively. Under FASB ASC 825 guidance regarding the fair value option for accounting for
financial assets, for the year ended March 31, 2011 and 2010, this interest income was offset by
credit risk related adjustments on CM Loans of $8,947,051 and $3,634,458, respectively, a non-cash
interest expense. Conversely, for the Notes, we recorded interest expense of $11,159,498 and
$2,837,532, respectively, for the year ended March 31, 2011 and 2010 and offset this interest
expense by credit risk related adjustments (non-cash interest income) on Notes of $8,932,088 and
$3,633,050, respectively, 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.
Interest Earned on Cash and Investments
Interest income from cash and cash equivalents is recorded as it is earned. For the year
ended March 31, 2011, we recorded $33,139 of interest income earned on cash and cash equivalents.
Comparatively, for year the ended March 31, 2010, we recorded $27,559 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.
62
Interest Expense on Notes 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 years ended March 31, 2011 and 2010, we paid
cash interest of $702,694 and $1,130,229, respectively, for interest due on our loans payable. For
the years ended March 31, 2011 and 2010, we also recorded $272,630 and $294,200 , respectively, for
non-cash interest expense related to debt discounts due to warrants on our loans payable.
As we have no additional availability under our various loan payable agreements, we expect
interest expense on our loans payable 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 year ended March 31, 2011, we recorded a
provision for loan losses of $430,652 against member loans funded by us. Comparatively, for the
year ended March 31, 2010, we recorded a provision for loan losses of $1,423,075 against our member
loans funded by us.
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 holding notes in respect of a member loan, excluding certain fees retained by investors or us.
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 LendingClub 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 year ended March 31, 2011 and 2010, we recognized
$17,862 and $28,647, 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 March 31, 2011 and 2010, was $12,105 and
$22,411, respectively, on outstanding loan balances held by third parties of $68,910 and $1,857,555, respectively.
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
% change |
|
Sales, marketing and customer service |
|
$ |
11,855,890 |
|
|
$ |
6,138,798 |
|
|
|
93 |
% |
Engineering |
|
|
1,951,987 |
|
|
|
1,749,153 |
|
|
|
12 |
% |
General and administrative |
|
|
3,938,113 |
|
|
|
3,204,133 |
|
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
17,745,990 |
|
|
$ |
11,092,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
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, credit and
collections personnel, costs of marketing campaigns and costs of borrower acquisitions such as
credit scoring and screening. Sales, marketing and customer service expenses for the years ended
March 31, 2011 and 2010, were $11,855,890 and $6,138,798, respectively, an increase of
approximately 93%. The increases in spending during the fiscal year ended March 31, 2011 relative
to the fiscal year ended March 31, 2010, largely occurred in three areas: increases in personnel
related expense, increases in platform related spending such as customer credit scoring and
platform hosting costs, and increases in spending on marketing programs to attract borrowers and
increase investment activity on the platform. Spending in all three of these areas were lower for
most of the year ended March 31, 2010.
Engineering Expense
Engineering expense consists primarily of salaries, benefits and stock-based compensation
expense of engineering personnel, and the cost of subcontractors who work on the development and
maintenance of our platform and software enhancements that run our platform. Engineering expenses
for the year ended March 31, 2011 and 2010, were $1,951,987 and $1,749,153, respectively, an
increase of 12%. The increase for the year ended March 31, 2011 versus the year ended March 31,
2010, 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 expenses for the
years ended March 31, 2011 and 2010, were $3,938,113 and $3,204,133, respectively, an increase of
approximately 23%. The increase was primarily the result of higher expenses for personnel and
facilities costs. These costs were offset, however, by a drop in outside legal and accounting
expenses as we relied more heavily in-house legal counsel in 2011 as compared to 2010. We expect
that general and administrative expenses will decrease as a percentage of overall operating
expenses as we grow our sales efforts in greater proportion than our general and administrative
expenses.
64
Liquidity and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, |
|
|
|
|
Cash flows from: |
|
2011 |
|
|
2010 |
|
|
Change |
|
Operating Activities |
|
$ |
(9,504,247 |
) |
|
$ |
(8,125,658 |
) |
|
$ |
(1,612,447 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
(100,890,314 |
) |
|
|
(51,512,530 |
) |
|
|
(49,373,506 |
) |
Add back/(subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
Origination of CM Loans, fair value |
|
|
142,339,378 |
|
|
|
61,820,800 |
|
|
|
80,514,300 |
|
Repayment of CM Loans, fair value |
|
|
(42,644,778 |
) |
|
|
(10,934,102 |
) |
|
|
(31,710,676 |
) |
|
|
|
|
|
|
|
|
|
|
|
Investing Activities after removing
activity related to CM Loans, fair
value |
|
|
(1,195,714 |
) |
|
|
(625,832 |
) |
|
|
(569,882 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
121,158,044 |
|
|
|
50,211,821 |
|
|
|
70,994,779 |
|
Add back/(subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
Origination of Notes, fair value |
|
|
(150,619,450 |
) |
|
|
(62,384,880 |
) |
|
|
(88,234,570 |
) |
Repayment of Notes, fair value |
|
|
47,951,608 |
|
|
|
10,948,362 |
|
|
|
37,003,246 |
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities after removing
activity related to Notes, fair value |
|
$ |
18,490,202 |
|
|
$ |
(1,224,697 |
) |
|
$ |
19,713,455 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities increased to $9,504,247 in the year ended March 31,
2011, from $8,125,658 in the year ended March 31, 2010. Non-cash charges that most significantly
offset our net loss of $11,310,143 in the year ended March 31, 2011 were: $430,653 of allowances
for loan losses on member loans, fair value, $8,932,088 of non-cash interest income due to credit
risk related adjustments on our Notes, and $9,221,445 of non-cash interest expense primarily
related to our CM Loans. Similarly, non-cash charges that most significantly offset our net loss
of $10,255,136 in the year ended March 31, 2010 were: $1,423,075 of allowances for loan losses on
member loans, fair value, $3,633,051 of non-cash interest income due to credit risk related
adjustments on our Notes, and $3,928,661 of non-cash interest expense related to our CM Loans.
Net cash used in investing activities for the year ended March 31, 2011 and 2010, were
$100,890,314 and $51,512,530, respectively. However, after removing activity related to the Notes,
which activity was mostly offset by corresponding activity related to the CM Loans reflected in our
cash flow from financing activities, the remaining amounts used for financing activities in the
years ended March 31, 2011 and 2010, were $1,195,714 and $625,832 of cash used, respectively.
These remaining amounts in both periods were primarily activities related to borrower repayments of
our member loans and changes in restricted cash. During the year ended March 31, 2011,
originations of member loans exceeded the repayments from those loans while for the same period in
2010, repayments of member loans funded by us exceeded our originations of these same loans. As to
changes in restricted cash, during 2011, 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 same period in 2010, restricted cash increased by $900,000 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.
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.
65
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 March 31, 2011, 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 March 31,
2011, our outstanding balance net of debt discount under these agreements totaled $2.9 million.
During the year ended March 31, 2010, 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. Additionally, 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 March 31, 2010, we had funded and retained approximately $26.1 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 March 31,
2011, we had $13,335,657 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.
Assets Under Management
In October 2010, we formed a subsidiary, LC Advisors, LLC, a California limited liability
company (LCA), which is wholly-owned by LendingClub. LCA has registered with the SEC as an
investment advisor and also acts as the general partner to two private investment funds for
accredited investors with differing investment strategies. In connection with the funds, we formed
a Delaware business trust to act as a bankruptcy remote for holding certain assets of the funds.
LCA commenced operations after January 1, 2011.
We started offering the funds in March 2011 through a private placement. As of March 31,
2011, the funds had approximately $800,000 in assets with $4.8 million in escrow, which was
contributed to the funds on April 1, 2011. LCA earns a management fee paid by the limited partners
of the funds, which is based on the amount of assets of each fund. As of March 31, 2011, the
aggregate amount of management fees earned by LCA was not material to the operations of the
business as a whole.
66
Summary of Changes in Assets Under Management
The table below presents our summary of changes in assets under management for LCA.
|
|
|
|
|
|
|
Year Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
Balance beginning of period |
|
$ |
|
|
Net flows |
|
|
800,000 |
|
Appreciation (Depreciation) |
|
|
4,278 |
|
|
|
|
|
Cash in Escrow |
|
|
4,906,745 |
|
|
|
|
|
Balance end of period |
|
$ |
5,711,023 |
|
|
|
|
|
Income Taxes
We incurred no tax provision for the years ended March 31, 2011 and 2010. As of March 31,
2011 we had federal and state net operating loss carry forwards of $35,876,557 and $25,737,946,
respectively. As of March 31, 2011 and 2010, we also had federal and state research and
development tax credit carry forwards of $340,860 and $249,843, respectively.
The fiscal 2011 and 2010 tax provisions vary from the expected provision or benefit at the
U.S. federal statutory rate due to the recording of valuation allowances against our U.S. operating
loss and deferred tax assets. Given our history of operating losses and inability to achieve
profitable operations, it is difficult to accurately forecast how results will be affected by the
realization 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.
Variable Interest Entities
The determination of whether or not to consolidate a special purpose entity under U.S. GAAP
requires a significant amount of judgment concerning the degree of control over an entity by its
holders of the special purpose entity. To make these judgments, management has conducted and
analyzed, on a case by case basis, of the relationship of the holders of the variable interests to
each other, the design of the entity, the expected operations of the entity, which holder of
variable interest is most closed associated to the entity and which holder of variable interest is
the primary beneficiary required to consolidate the entity. Upon the occurrence of such events,
such as redemptions by all unaffiliated investors in any fund and modifications to fund
organization documents and investment management agreements, management reviews and reconsiders its
previous conclusion regarding the status of an entity as a variable interest entity. Upon the
adoption of amended accounting guidance applicable to variance interest entities on January 1,
2010, management reconsiders whether we are deemed to be a variable interest entity primary
beneficiary who consolidates such entity.
|
|
|
Item 7A. |
|
Quantitative and Qualitative Disclosures about Market Risk |
Not applicable for smaller reporting companies.
67
|
|
|
Item 8. |
|
Consolidated Financial Statements and Supplementary Data |
The consolidated financial statements required by this Item are included in Item 15 of this
Annual Report on Form 10-K and are presented beginning on page F-1.
|
|
|
Item 9. |
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
On April 5, 2011, Armanino McKenna L.L.P. (Armanino McKenna), the independent registered
public accounting firm of LendingClub Corporation, was dismissed by the Company; however, Armanino
McKenna remains engaged to audit the Companys fiscal year ending March 31, 2011. The Company has
engaged Grant Thornton L.L.P. (Grant Thornton) as its independent registered public accounting
firm for its fiscal year ended March 31, 2012. Our decision to dismiss Armanino McKenna and to
engage Grant Thornton was approved by the Audit Committee of the Company on April 5, 2011.
|
|
|
Item 9A. |
|
Controls and Procedures |
We establish and 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 year 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.
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of
1934.
All internal control systems, no matter how well designed, have inherent limitations including
the possibility of human error and the circumvention or overriding of controls. Further, because of
changes in conditions, the effectiveness of internal controls may vary over time. Projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate. Accordingly, even those systems determined to be effective can provide
us only with reasonable assurance with respect to financial statement preparation and presentation.
Our management, including the Chief Executive Officer and Chief Financial Officer, has
assessed the effectiveness of our internal control over financial reporting as of March 31, 2011,
following the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control Integrated Framework, and with further guidance for
internal controls for small business provided by the SECs new Interpretive Guidance in Release No.
34-55929.
Based on our assessment, management did not identify any material weaknesses or significant
deficiencies in our system of internal controls over financial reporting as of March 31, 2011.
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.
68
As a result of the enactment during 2010 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, Exemption for Non-accelerated Files, and in accordance with section 989G of the
act, we are not required to provide an attestation report of our independent registered public
accounting firm regarding internal control over financial reporting for this fiscal year or
thereafter, until such time as we are no longer eligible for the exemption set forth therein.
|
|
|
Item 9B. |
|
Other Information |
Not Applicable.
PART III
|
|
|
Item 10. |
|
Directors, Executive Officers, and Corporate Governance |
Executive Officers, Directors and Key Employees
The following table sets forth information regarding our executive officers, directors and key
employees as of May 31, 2011:
|
|
|
|
|
Name |
|
Age |
|
Position(s) |
Executive Officers and Directors: |
|
|
|
|
Renaud Laplanche |
|
40 |
|
Director and Chief Executive Officer |
John G. Donovan |
|
46 |
|
Chief Operating Officer |
Carrie L. Dolan |
|
46 |
|
Chief Financial Officer |
Jeffrey M. Crowe |
|
54 |
|
Director |
Daniel T. Ciporin |
|
53 |
|
Director |
Rebecca Lynn |
|
37 |
|
Director |
Simon Williams |
|
53 |
|
Director |
Executive Officers and Directors
Renaud Laplanche
Mr. Laplanche has served as Chief Executive Officer, Founder and Director since January 2007.
From September 1999 to June 2005, Mr. Laplanche served as the Founder & CEO of TripleHop
Technologies, a VC-backed enterprise software company, whose assets were acquired by Oracle
Corporation in June 2005. After the acquisition by Oracle, Mr. Laplanche served as Head of Product
Management, Search Technologies, for Oracle Corporation from June 2005 to October 2006. From
January 1995 to September 1999 Mr. Laplanche served as an associate at Cleary Gottlieb Steen &
Hamilton in their New York and Paris offices. Mr. Laplanche was honored with the HEC Entrepreneur
of the Year award in 2002 and won the French sailing championship twice, in 1988 and 1990. Mr.
Laplanche received a post-graduate DESS-DJCE degree (Tax and Corporate Law) from Université de
Montpellier, Montpellier, France and an M.B.A. degree from HEC Business School, Paris, France.
John G. Donovan
Mr. Donovan served as Chief Operating Officer from January 2007 until June 2011. Effective
June 20, 2011, Mr. Donovan became the EVP of Business Development. Mr. Donovan served as a member
of our board of directors from August 2007 to March 2009. From January 1988 to February 2005, Mr.
Donovan worked for MasterCard Worldwide serving in multiple Vice President positions including
Global Marketing (March 1993 to April 1998), Debit Product Development (April 1998 to April 2003)
and Credit Product Development (May 2003 to February 2005). From February 2005 to January 2007,
Mr. Donovan served as Chief Product Officer and Chief Operating Officer at E4X Inc. He was a
Financial Analyst of Corporate Finance at JP Morgan Chase from September 1987 to January 1988. Mr.
Donovan received his undergraduate degree in Management and Economics from Long Island University.
69
Carrie L. Dolan
Ms. Dolan has served as Chief Financial Officer since August 2010. Ms. Dolan brings over 20
years of public and private finance experience, most recently as Treasurer for The Charles Schwab
Corporation. Ms. Dolan has served as the Chief Financial Officer for Schwab Bank, a bank she
helped launch in 2003. Prior to Schwab, Ms. Dolan held a variety of financial positions at Chevron
Corporation in financial planning and analysis, management reporting, accounting, credit and
treasury. During her tenure, Ms. Dolan helped launch the Chevron Credit Bank,
which offered proprietary credit cards, and served on its board of directors and as its Chief
Financial Officer. Ms. Dolan holds her finance bachelors degree and her MBA degree from the Haas
School of Business at the University of California, Berkeley.
70
Jeffrey M. Crowe
Mr. Crowe has been a member of our board of directors since August 2007. Mr. Crowe was
CEO-in-residence with Norwest Venture Partners from January 2002 to December 2003, joined the firm
as a Venture Partner in January 2004 and became a General Partner in January 2005. He focuses on
seed and mid stage investments in software, internet and consumer arenas. Mr. Crowe also currently
serves on the board of deCarta, Jigsaw, Nano-Tex, Turn and Tuvox. Mr. Crowe is also actively
involved with TellAPal, Cast Iron Systems, myYearbook and Sojern. From December 1999 to April
2001, Mr. Crowe served as President, Chief Operating Officer and Director of DoveBid, Inc., a
privately held business auction firm. From May 1990 to November 1999, Mr. Crowe served as Chief
Executive Officer of Edify Corporation, a publicly traded enterprise software company. Mr. Crowe
holds an M.B.A. degree from Stanford Graduate School of Business, where he was an Arjay Miller
Scholar, and a B.A. degree in History from Dartmouth College.
Daniel T. Ciporin
Mr. Ciporin has been a member of our board of directors since August 2007. Mr. Ciporin joined
Canaan Partners in March 2007 as a Venture Partner specializing in digital media and communications
investments. From January 1999 to June 2005 Mr. Ciporin served as Chairman and Chief Executive
Officer of Shopping.com, a publicly traded online comparison shopping service. From March 2006 to
March 2007, Mr. Ciporin served as Chairman of the Internet Lab, a U.S.-Israeli incubator for
early-stage consumer internet startups. From June 1997 to January 1999, Ciporin served as Senior
Vice President of MasterCard International, where he managed global debit services. Mr. Ciporin is
also a member of the board of directors of Primedia Inc., a target media company. Mr. Ciporin is
also on the board of directors of the following private companies: OpenSky, Inc., Gemvara, Inc.,
Peer39, Inc., adap.tv Inc. and FiftyOne, Inc. Mr. Ciporin earned his A.B. degree from Princeton
Universitys Woodrow Wilson School of Public and International Affairs and his M.B.A. degree from
Yale University.
Rebecca Lynn
Ms. Lynn has been a member of our board of directors since March 2009. Ms. Lynn joined
Morgenthaler Ventures in 2007 and became a Partner of Morgenthaler Ventures in 2010. She focuses
on early-stage investments in mobile, health 2.0, internet services and financial services
companies. She also serves on the boards of OpinMind and Autonet. Ms. Lynn began her career at
Procter and Gambles corporate headquarters where she worked in international new product market
entry. She spent time in both Cincinnati and Mexico City developing new products for the market
and launching a new category in Latin America. She then joined NextCard and spent four years at
the company. At NextCard, she led product development efforts and later served as the Vice
President of Marketing. After NextCard, from 2003 to 2007, she ran her own consulting business,
Marengo Marketing, focusing on online marketing for financial services and affiliate marketing.
Ms. Lynn holds a J.D./M.B.A. degree from the Haas School of Business and U.C. Berkeley School of
Law at the University of California at Berkeley and a B.S. degree in chemical engineering from the
University of Missouri. Ms. Lynn serves on our audit committee.
Simon Williams
Mr. Williams has been a member of our board of directors since November 2010. Mr. Williams is
Chairman and CEO of Camelot Financial Capital Management a global investment group focused on
long term financial services instruments. Previously, he served as a Senior Executive at
Citigroup, Inc., holding various roles during his career, including CEO of Citibank International
Retail Bank. Prior to this, he was head of Asia Pacific Consumer Group, head of Latin America
Consumer Group and finally, Chief Risk Officer for Citigroup Global Consumer Group. He was also a
member of the Citigroup Management Committee. In addition, Mr. Williams has held senior management
roles at GE Capital, Bain & Co., and Price Waterhouse. Mr. Williams is a member of the Institute
of Chartered Accountants in England & Wales. He graduated with a degree in Mathematics from Exeter
University and holds an MBA and INSEAD in France, where he graduated with Distinction. Mr.
Williams is also the chairman of our audit committee.
71
Board of Directors Role in Risk Management
Our board of directors oversees an enterprise-wide approach to risk management, designed to
support the achievement of organizational objectives, including strategic objectives, to improve
long-term organizational performance and enhance stockholder value. Risk management includes not
only understanding our specific risks and the steps management implements to manage those risks,
but also what level of risk is acceptable and appropriate for us. Management is responsible for
establishing our business strategy, identifying and assessing the related risks and implementing
appropriate risk management practices. Our board of directors reviews our business strategy and
managements assessment of the related risk, and discusses with management the appropriate level of
risk for us. For example, the board of directors meets with management at least quarterly to
review, advise, and direct management with respect to strategic business matters.
The board of directors also oversees financial risk exposures, including monitoring the
integrity of our consolidated financial statements, internal controls over financial reporting, and
the independence of the our Independent Registered Public Accounting Firm. The board of directors
receives periodic internal controls and related assessments from our finance department and an
annual attestation report on internal control over financial reporting from our independent
registered public accounting firm. The board of directors, in fulfilling its oversight
responsibility with respect to compliance matters, meets at least quarterly with our finance
department, independent registered public accounting firm and internal or external legal counsel to
discuss risks related to our financial reporting function. In addition, the board of directors
ensures that our business is conducted with the highest standards of ethical conduct in compliance
with applicable laws and regulations by monitoring our Code of Ethics and our Whistle Blower
Hotline.
The board of directors participates in the design of compensation structures that create
incentives that encourage a level of risk-taking behavior consistent with our business strategy.
Board Leadership
Because our common stock is not listed on a national exchange, we are not required to maintain
a board of directors consisting of a majority of independent directors, or to maintain an audit,
nominating or compensation committee. We do not have a lead independent director. The board of
directors has no formal chairman and the duties are performed by our Chief Executive Officer who:
(i) works with the board of directors to schedule meetings and set meeting agendas; (ii) presides
as the chair at executive sessions of directors; (iii) serves as the principal liaison between the
board of directors and our executive officers; (iv) briefs the board on issues or concerns arising
between meetings of the board of directors, which are generally held monthly; (v) participates
actively in corporate governance; and (vi) performs such other duties as the board of directors
may, from time to time, delegate. The board of directors believes that the performance of these
duties by Mr. Laplanche provides more consistent communication and coordination throughout the
organization, which results in a more effective and efficient implementation of corporate strategy.
The board of directors further believes that this combination is important in unifying our
strategy behind a single vision. In addition, we have found that our Chief Executive Officer is
the most knowledgeable member of the board of directors regarding risks we may be facing and, is
able to facilitate the boards oversight of such risks. We believe this structure provides
consistent and effective oversight of our management and the company and is optimal for us, our
operations, stockholders, and investor members.
Code of Ethics
Our board of directors adopted a Code of Business Conduct and Ethics (the Code) that
applies to all directors and employees on May 7, 2010. The Code is designed to help directors and
employees resolve ethical issues encountered in the business environment. The Code of Ethics
covers topics such as conflicts of interest, compliance with laws, fair dealing, protecting our
property and confidentiality of our information and encourages the reporting of any behavior not
in accordance with the policy or any other areas of concern through our Whistle Blower Policy.
Director Attributes
Our goal is to assemble a board of directors that operates cohesively and works with
management in a constructive way so as to deliver long term stockholder value. We believe that our
directors possess valuable experience necessary to guide our business in the best interests of the
stockholders. Our current board of directors consists of individuals with proven records of
success in their chosen professions. They all have the highest
integrity and a keen intellect. They are collegial yet independent in their thinking, and are
committed to the hard work necessary to be informed about the lending industry, our company, and
its key constituents including borrowers, investor members, stockholders and management. Most of
our directors have strong experience in the consumer credit area, including expertise in
technology, innovation and strategy.
72
Board Composition and Election of Directors
Our board of directors currently consists of five members, all of whom were elected as
directors pursuant to the terms of a voting rights agreement entered into among certain of our
stockholders. The board composition provisions of our voting rights agreement will continue
following the date hereof. Holders of the Notes offered through our platform have no ability to
elect or influence our directors or approve significant corporate transactions, such as a merger or
other sale of our company or its assets.
There are no family relationships among any of our directors or executive officers.
Director Independence
Because our common stock is not listed on a national securities exchange, we are not required
to maintain a board consisting of a majority of independent directors or to maintain an audit
committee, nominating committee or compensation committee consisting solely of independent
directors. Our board of directors has not analyzed the independence of our directors under any
applicable stock exchange listing standards. Holders of the Notes have no ability to elect or
influence our directors.
Board Committees
Nominating Committee and Compensation Committee
We are not a listed issuer as defined under Section 10A-3 of the Exchange Act. We are,
therefore, not required to have a nominating or compensation committee comprised of independent
directors. We currently do not have a standing nominating or compensation committee and
accordingly, there are no charters for such committees. We believe that standing committees are
not necessary and the directors collectively have the requisite background, experience, and
knowledge to fulfill any limited duties and obligations that a nominating committee and a
compensation committee may have.
Audit Committee and Audit Committee Financial Expert
We are not a listed issuer as defined under Section 10A-3 of the Exchange Act.
Nevertheless, our board of directors approved the formation of an Audit Committee on November 4,
2010. The members of the Audit Committee include Simon Williams as Chair and Rebecca Lynn as
member. Mr. Williams serves as our financial expert on our Audit Committee.
The Audit Committee oversees financial risk exposures, including monitoring the integrity of
our consolidated financial statements, internal controls over financial reporting and the
independence of our Independent Registered Public Accounting Firm. The Audit Committee receives
internal control related assessments and reviews and discusses our annual and quarterly
consolidated financial statements with management. In fulfilling its oversight responsibilities
with respect to compliance matters, the Audit Committee meets at least quarterly with management,
our Independent Registered Public Accounting Firm and or internal legal counsel to discuss risks
related to our financial reporting function.
Director Compensation
During the year ended March 31, 2011, none of our directors received any compensation for
service as a member of our board of directors. From time to time, we reimburse certain of our
non-employee directors for travel and other expenses incurred in connection with attending our
board meetings.
73
Limitations on Officers and Directors Liability and Indemnification Agreements
As permitted by Delaware and California law, our amended and restated certificate of
incorporation and amended and restated bylaws contain provisions that limit or eliminate the
personal liability of our directors for breaches of duty to the corporation. Our amended and
restated certificate of incorporation and amended and restated bylaws limit the liability of
directors to the fullest extent permitted under applicable law. Delaware and California law
provide that directors of a corporation will not be personally liable for monetary damages for
breaches of their fiduciary duties as directors, except liability for:
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any breach of the directors duty of loyalty to us or our stockholders; |
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any act or omission not in good faith, believed to be contrary to the interests of the
corporation or its shareholders, involving reckless disregard for the directors duty, for
acts that involve an unexcused pattern of inattention that amounts to an abdication of
duty, or that involves intentional misconduct or knowing or culpable violation of law; |
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any unlawful payments related to dividends, unlawful stock repurchases, redemptions,
loans, guarantees or other distributions; or |
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any transaction from which the director derived an improper personal benefit. |
These limitations do not apply to liabilities arising under federal securities laws and do not
affect the availability of equitable remedies, including injunctive relief or rescission. As
permitted by Delaware and California law, our amended and restated certificate of incorporation and
bylaws also provide that:
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we will indemnify our directors and officers to the fullest extent permitted by law; |
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we may indemnify our other employees and other agents to the same extent that we
indemnify our officers and directors; and |
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we will advance expenses to our directors and officers in connection with a legal
proceeding, and may advance expenses to any employee or agent; provided, however, that such
advancement of expenses shall be made only upon receipt of an undertaking by the person to
repay all amounts advanced if it should be ultimately determined that the person was not
entitled to be indemnified. |
The indemnification provisions contained in our amended and restated certificate of
incorporation and bylaws are not exclusive.
In addition to the indemnification provided for in our amended and restated certificate of
incorporation and amended and restated bylaws, we have entered into indemnification agreements with
each of our directors and officers. The indemnification agreements require us, among other things,
to indemnify such persons for all expenses, including attorneys fees, judgments, fines and amounts
paid in settlement (if such settlement is approved in advance by LendingClub) (collectively,
Expenses), actually and reasonably incurred by such person in connection with the investigation,
defense or appeal of any proceeding to which such person may be made a party, a potential party, a
non-party witness, or otherwise by reason of: (1) any proceeding to which such person may be made a
party by reason of (i) such persons service as a director or officer of LendingClub, (ii) any
action taken by such person while acting as director, officer, employee or agent of LendingClub, or
(iii) such persons actions while serving at the request of LendingClub as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, and in any such case described above, whether or not serving in any such
capacity at the time any liability or expense is or was incurred; or (2) establishing or enforcing
a right to indemnification under the agreement.
74
Under these agreements, we are not obligated to provide indemnification: (1) on account of any
proceeding with respect to (i) remuneration paid to such person in violation of law, (ii) an
accounting, disgorgement or repayment of profits made from the purchase or sale by such person of
securities of LendingClub against such person pursuant to the provisions of Section 16(b) of the
Exchange Act, or other provisions of any federal, state or local statute or rules and regulations
thereunder, (iii) conduct that was in bad faith, knowingly fraudulent or deliberately dishonest or
constituted willful misconduct (but only to the extent of such specific determination), or
(iv) conduct that constitutes a breach of such persons duty of loyalty or resulting in any
personal profit or advantage to which such person is not legally entitled; (2) for any proceedings
or claims initiated or brought by such person not by way of defense; (3) for any amounts paid in
settlement without our written consent; or (4) if such indemnification would be in violation of any
undertaking appearing in and required by the rules and regulations promulgated under the Securities
Act, or in any registration statement filed with the SEC. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as directors and officers.
We also maintain a general liability insurance policy that covers certain liabilities of
directors and officers of our corporation arising out of claims based on acts or omissions in their
capacities as directors or officers.
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Item 11. |
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Executive Compensation |
Summary Compensation Table
The following table provides information regarding the compensation earned during the years
ended March 31, 2011 and 2010 by each of our named executive officers.
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Option |
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All Other |
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Name and Principal |
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Awards |
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Compensation |
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Position |
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Year |
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Salary ($) |
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Bonus ($) |
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($)(1) |
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($) |
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Total ($) |
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Renaud Laplanche, |
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2011 |
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220,500 |
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20,000 |
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258,720 |
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499,220 |
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Chief Executive Officer and |
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2010 |
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209,167 |
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209,167 |
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Founder (2) |
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John G. Donovan, |
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2011 |
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220,500 |
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4,500 |
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25,364 |
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250,364 |
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Chief Operating Officer (4) |
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2010 |
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210,000 |
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11,667 |
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33,350 |
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242,517 |
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Carrie Dolan, |
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2011 |
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171,875 |
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18,558 |
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190,433 |
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Chief Financial Officer (3) |
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(1) |
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Calculated in accordance with Financial Accounting Standard Board ASC 718 using
the Black-Scholes model for outstanding options to purchase shares of our common
stock. The key assumptions used in the Companys Financial Accounting Standard Board ASC
718 calculation are discussed in Note 2 of the Companys consolidated financial
statements. |
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(2) |
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Mr. Laplanche received an award of 1,320,000 stock options in the year ended March 31, 2011
with an exercise price of $0.41 per share. |
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(3) |
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Ms. Dolan joined the Company on August 16, 2010 as our Chief Financial Officer. Ms. Dolan
received an award of 666,567 stock options in the year ended March 31, 2011 with an exercise
price of $0.41 per share. |
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(4) |
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Effective June 20, 2011, Mr. Donovan became EVP of Business Development. |
We entered into an employment agreement with Mr. Laplanche, our Chief Executive Officer and
Founder and Director, in August 2007. Mr. Laplanche receives a current base salary of $220,500 per
year and is eligible to receive an annual performance bonus. Mr. Laplanche has a target bonus
opportunity of 20% of his base salary, assuming achievement of a series of mutually agreed upon
performance milestones set each fiscal year. The amount of Mr. Laplanches bonus, if any, shall be
determined by the board of directors in its sole discretion. The employment agreement also
entitles Mr. Laplanche to receive all customary and usual fringe benefits available to our
employees.
75
We entered into an employment agreement with Mr. Donovan, our Chief Operating Officer, in
December 2006. Mr. Donovan receives a current base salary of $220,500 per year. Mr. Donovans
employment agreement also provided for an initial stock option grant, as discussed below under
Outstanding Equity Awards at March 31, 2009. In August 2007, we entered into an agreement with
Mr. Donovan providing for accelerated vesting of his
outstanding stock option awards in connection with certain termination or change-in-control
events, as described below under Post-Employment Compensation.
We have granted equity awards primarily through our 2007 Stock Incentive Plan (the 2007
plan), which was adopted by our board of directors and stockholders to permit the grant of stock
options to our officers, directors, employees and consultants. The material terms of our 2007 plan
are further described under Employee Benefit Plans 2007 Stock Incentive Plan below.
Mr. Laplanche was granted 1,320,000 stock options on May 28, 2010 with an exercise price of
$0.41, which are subject to the terms and conditions of our 2007 plan as set forth below.
Ms. Dolan was granted 666,567 stock options on February 23, 2011 with an exercise price of
$0.41, which are subject to the terms and conditions of our 2007 plan as set forth below.
All stock options granted to our named executive officers are incentive stock options, to the
extent permissible under the Internal Revenue Code, as amended. All equity awards to our employees
and directors were granted at no less than the fair market value of our common stock on the date of
each award. In the absence of a public trading market for our common stock, our board of directors
has determined the fair market value of our common stock in good faith based upon consideration of
a number of relevant factors including the status of our development efforts, financial status and
market conditions. See Item 7. Managements Discussion and Analysis Significant Accounting
Policies and Estimates Stock-Based Compensation.
Option grants typically vest over four years, with one quarter of the shares subject to the
stock option vesting on the one year anniversary of the vesting commencement date and the remaining
shares vesting in equal quarterly installments thereafter over three years. All options have a
ten-year term. Additional information regarding accelerated vesting upon or following a change in
control is discussed below under Post Employment Compensation.
Outstanding Equity Awards at March 31, 2011
The following table sets forth certain information regarding outstanding equity awards granted
to our executive officers that remain outstanding as of March 31, 2011. All of the options in this
table are exercisable at any time but, if exercised, are subject to a lapsing right of repurchase
until the options are fully vested.
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Option Awards |
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Number of |
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Number of |
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Securities |
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Securities |
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Underlying |
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Underlying |
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Unexercised |
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Unexercised |
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Options (#) |
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Options (#) |
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Option |
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Option Expiration |
Name |
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Exercisable |
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Unexercisable |
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Exercise Price |
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Date |
Renaud Laplanche |
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1,320,000 |
(1) |
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$ |
0.41 |
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May 28, 2020 |
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John G. Donovan |
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416,000 |
(2) |
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$ |
0.27 |
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February 19, 2017 |
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200,000 |
(3) |
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125,000 |
(3) |
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$ |
0.27 |
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August 3, 2018 |
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Carrie L. Dolan |
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666,567 |
(4) |
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$ |
0.41 |
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February 23, 2021 |
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(1) |
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25% of these options vested on May 28, 2011, with the remainder vesting ratably
over the following 12 calendar quarters. |
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(2) |
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These options are now fully
vested following 12 calendar quarters. |
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(3) |
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25% of these options vested on July 22, 2009, with the remainder vesting ratably over
the following 12 calendar quarters. |
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25% of these options will vest on February 23, 2012, with the remainder vesting ratably
over the following 12 calendar quarters. |
76
Post-Employment Compensation
Mr. Laplanche, our Chief Executive Officer, Mr. Donovan, our Chief Operating Officer, and Ms.
Dolan, our Chief Financial Officer, are entitled to certain severance and change in control
benefits.
Mr. Laplanches employment agreement provides that in the event his employment is terminated
by LendingClub for reasons other than for cause or in the event Mr. Laplanche resigns his
employment for good reason, Mr. Laplanche will be provided a severance package with continuation of
salary and benefits and, at the discretion of the board of directors, prorated bonus to the target
level, for a period of six months after the date of termination, subject to set off in the event
Mr. Laplanche obtains other employment during such severance period. In addition, under the stock
restriction agreement entered into between Mr. Laplanche and LendingClub on August 21, 2007
(described in Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters), upon Mr. Laplanches termination for reasons other than for cause or
resignation for good reason, Mr. Laplanche is entitled to vesting acceleration of his unvested
shares of stock as to the lesser of all unvested shares of stock or 25% of the shares held by Mr.
Laplanche on the date of the agreement. Under the agreement, Mr. Laplanche is also entitled to
vesting acceleration of all of his unvested shares of stock upon his termination for reasons other
than for cause or resignation for good reason, if such termination or resignation occurs within
twelve months after the consummation of an acquisition or asset transfer event.
Under the terms of a letter agreement entered into with Mr. Donovan on August 9, 2007, if Mr.
Donovans employment is terminated without cause or if Mr. Donovan voluntarily terminates his
employment for good reason in connection with: a) sale or other disposition of all or substantially
all of our assets or b) merger, consolidation or reorganization of LendingClub in which the holders
of majority of the voting power of LendingClub prior to the merger, consolidation or reorganization
no longer hold a majority of the voting power of LendingClub subsequent to the merger,
consolidation or reorganization, then all of Mr. Donovans unvested stock options shall immediately
vest. Mr. Donovans employment agreement does not provide for continued salary or benefits for any
duration following termination of employment.
Under the terms of a letter agreement entered into with Ms. Dolan on August 16, 2010, if Ms.
Dolans employment is terminated without cause or if Ms. Dolan voluntarily terminates her
employment for good reason in connection with: a) sale or other disposition of all or substantially
all of our assets or b) merger, consolidation or reorganization of LendingClub in which the holders
of majority of the voting power of LendingClub prior to the merger, consolidation or reorganization
no longer hold a majority of the voting power of LendingClub subsequent to the merger,
consolidation or reorganization, then an acceleration of 50% of any of Ms. Dolans unvested stock
options shall immediately vest and a payment of an amount equal to 6 months of Ms. Dolans then
current base salary and applicable COBRA payments for the same period will be made.
Regardless of the manner in which a named executive officers employment terminates, the named
executive officer is entitled to receive amounts earned during his term of employment, including
salary and unused vacation pay.
77
Employee Benefit Plans
2007 Stock Incentive Plan
In February 2007, we adopted the 2007 Stock Incentive Plan. The 2007 plan will terminate upon
the earliest to occur of (i) February 2017, (ii) the date on which all shares of common stock
available for issuance under the 2007 plan have been issued as fully vested shares of common stock,
and (iii) the termination of all outstanding stock options granted pursuant to the 2007 plan. The
2007 plan provides for the grant of the following:
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incentive stock options under the federal tax laws (ISOs), which may be granted
solely to our employees, including officers; and |
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nonstatutory stock options (NSOs), stock bonus awards, and restricted stock
awards, which may be granted to our directors, consultants or employees, including
officers. |
Share Reserve. As of the date hereof, an aggregate of 9,096,778 shares of our common stock
are authorized for issuance under our 2007 plan of which 7,527,219 are outstanding, 160,573 have
been exercised, 1,849,393 have been forfeited and the remainder of 1,408,986 are available for
grant. Shares of our common stock subject to options and other stock awards that have expired
or otherwise terminate under the 2007 plan without having been exercised in full again will
become available for grant under the plan. Shares of our common stock issued under the 2007
plan may include previously unissued shares or reacquired shares bought on the market or
otherwise.
Administration. The 2007 plan is administered by our board of directors, which may in turn
delegate authority to administer the plan to a committee (the Administrator). Subject to the
terms of the 2007 plan, our board of directors or its authorized committee determines
recipients, the numbers and types of stock awards to be granted and the terms and conditions of
the stock awards, including the period of their exercisability and vesting. Subject to the
limitations set forth below, our board of directors or its authorized committee will also
determine the exercise price of options granted under the 2007 plan.
Stock Options. Stock options will be granted pursuant to stock option agreements. The
exercise price for an option cannot be less than 100% of the fair market value of the common
stock subject to the option on the date of grant. Options granted under the 2007 plan will vest
at the rate specified in the option agreement. A stock option agreement may provide for early
exercise, prior to vesting. Unvested shares of our common stock issued in connection with an
early exercise may be repurchased by us. In general, the term of stock options granted under
the 2007 plan may not exceed ten years. Unless the terms of an option holders stock option
agreement provide for earlier or later termination, if an option holders service relationship
with us, or any affiliate of ours, ceases due to disability or death, the option holder, or his
or her beneficiary, may exercise any vested options for up to 12 months, after the date the
service relationship ends, unless the terms of the stock option agreement provide for earlier
termination. If an option holders service relationship with us, or any affiliate of ours,
ceases without cause for any reason other than disability or death, the option holder may
exercise any vested options for up to three months after the date the service relationship ends,
unless the terms of the stock option agreement provide for a longer or shorter period to
exercise the option.
Acceptable forms of consideration for the purchase of our common stock under the 2007 plan,
to be determined at the discretion of our board of directors at the time of grant, include (i)
cash or (ii) the tendering of other shares of common stock or the attestation to the ownership
of shares of common stock that otherwise would be tendered to LendingClub in exchange for
LendingClubs reducing the number of shares necessary for payment in full of the option price
for the shares so purchased (provided that the shares tendered or attested to in exchange for
the shares issued under the 2007 plan may not be shares of restricted stock at the time they are
tendered or attested to), or (iii) any combination of (i) and (ii) above.
Generally, an option holder may not transfer a stock option other than by will or the laws
of descent and distribution or a domestic relations order. However, an option holder may
designate a beneficiary who may exercise the option following the option holders death.
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Limitations. The aggregate fair market value, determined at the time of grant, of shares
of our common stock with respect to ISOs that are exercisable for the first time by an option
holder during any calendar year under all of our stock plans may not exceed $100,000. The
options or portions of options that exceed this limit are treated as NSOs. No ISO may be
granted to any person who, at the time of the grant, owns or is deemed to own stock possessing
more than 10% of our total combined voting power unless the following conditions are satisfied:
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the option exercise price must be at least 110% of the fair market value of the
stock subject to the option on the date of grant; and |
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the term of any ISO award must not exceed five years from the date of grant. |
Restricted Stock Awards. Restricted stock awards will be granted pursuant to restricted
stock purchase agreements. We shall have the right to repurchase any or all of the shares of
restricted stock within such period of time and for such purchase price and upon such terms and
conditions as may be specified in the restricted stock purchase agreements. Rights to
acquire shares of our common stock under a restricted stock award are not
transferable until the end of the applicable period of restriction. The Administrator, in its
sole discretion, may impose such other restrictions on shares of restricted stock as it may deem
advisable or appropriate.
Other Stock-Based Awards. The Administrator shall have the right to grant other awards
based upon the common stock having such terms and conditions as the Administrator may determine,
including without limitation the grant of shares based upon certain conditions, the grant of
securities convertible into shares, the grant of performance units or performance shares and the
grant of stock appreciation rights.
Option Grants to Outside Directors. Options may be granted to outside directors in
accordance with the policies established from time to time by the board of directors specifying
the number of shares (if any) to be subject to each award and the time(s) at which such awards
shall be granted. All options granted to outside directors shall be NSOs and, except as
otherwise provided, shall be subject to the terms and conditions of the 2007 plan.
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|
On November 1, 2010, we appointed Mr. Simon Williams to serve as a member of the
Companys Board of Directors. In connection with his appointment, Mr. Williams was
granted an option of 299,955 shares of the Companys common stock with an exercise price
of $0.41 to vest over four years pursuant to the Companys 2007 incentive stock option
plan. |
|
|
|
On February 23, 2011 we granted to Mr. Simon Williams fully vested options for 32,000
shares of the Companys common stock with an exercise price of $0.41 pursuant to the
Companys 2007 incentive stock option plan. This option was granted to Mr. Williams in
connection with the consulting services that Camelot Financial Capital Management
provided to LendingClub in which Mr. Williams is Chairman and CEO. |
Adjustments. In the event that there is a specified type of change in our capital
structure not involving the receipt of consideration by us, such as a stock split or
stock dividend, the number of shares reserved under the 2007 plan and the maximum number and
class of shares issuable to an individual in the aggregate, and the exercise price or strike price, if
applicable, of all outstanding stock awards will be appropriately adjusted.
Dissolution or Liquidation. In the event of a proposed dissolution or liquidation of
LendingClub, the Administrator shall provide written notice to each participant at least 20 days
prior to the effective date of such proposed transaction. To the extent it has not been
previously exercised, an award will terminate immediately prior to the consummation of such
proposed action. The Administrator may specify the effect of a liquidation or dissolution on
any award of restricted stock or other award at the time of grant of such award.
79
Reorganization. Upon the occurrence of a Reorganization Event (as defined below), each
outstanding option shall be assumed or an equivalent option substituted by the successor
corporation or a parent or subsidiary of the successor corporation, except in the event that the
successor corporation does not assume the option or an equivalent option is not substituted,
then the Administrator shall notify the options holder that one of the following will occur:
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|
|
all options must be exercised (either to the extent then exercisable or, at the
discretion of the Administrator upon a change of control of LendingClub, all options
being made fully exercisable for purposes of this clause (i)) as of a specified time
prior to the Reorganization Event and will thereafter terminate immediately prior to
consummation of such Reorganization Event except to the extent exercised by the
participants prior to the consummation of such Reorganization Event; or |
|
|
|
all outstanding options will terminate upon consummation of such Reorganization Event
and each participant will receive, in exchange therefore, a cash payment equal to the
amount (if any) by which (x) the Acquisition Price (as defined in the 2007 plan)
multiplied by the number of shares of common stock subject to such outstanding options
(which may, in the Administrators discretion, be limited to options then exercisable or
include options then not exercisable), exceeds (y) the aggregate exercise price of such
options. |
For the purposes of Reorganization, the option shall be considered assumed if, following
consummation of the Reorganization Event, the option confers the right to purchase or receive, for
each share of optioned stock subject to the option immediately prior to the Reorganization Event,
the consideration (whether stock, cash, or other securities or property) received in the
Reorganization Event by holders of the common stock for each share held immediately prior to the
consummation of the Reorganization Event (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the outstanding shares). If such
consideration received in the Reorganization Event is not solely common stock of the successor
corporation or a parent or subsidiary thereof, then the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the exercise of the option
for each share of the optioned sock subject to the option to be solely common stock of the
successor corporation or a parent or subsidiary thereof equal in fair market value to the per share
consideration received by holders of common stock in the Reorganization Event, and in such case
such options shall be considered assumed for the purposes of a Reorganization.
A Reorganization Event is defined as (i) a merger or consolidation of LendingClub with or
into another entity, as a result of which all of our common stock is converted into or exchanged
for the right to receive cash, securities or other property or (ii) any exchange of all of our
common stock for cash, securities or other property pursuant to a share exchange transaction.
401(k) Plan
We maintain through our payroll and benefits service provider, a defined contribution employee
retirement plan for our employees. The plan is intended to qualify as a tax-qualified plan under
Section 401(k) of the Internal Revenue Code, as amended, so that contributions to the 401(k) plan,
and income earned on such contributions, are not taxable to participants until withdrawn or
distributed from the 401(k) plan. The 401(k) plan provides that each participant may contribute up
to 100% of his or her pre-tax compensation, up to a statutory limit, which is $16,500 for calendar
2010. Participants who are at least 50 years old can also make catch-up contributions, which in
2010 may be up to an additional $5,500 above the statutory limit. Under the 401(k) plan, each
employee is fully vested in his or her deferred salary contributions. Employee contributions are
held and invested by the plans trustee. LendingClubs 401(k) plan does not provide for matching
employee contributions.
Director Compensation
During the year ended March 31, 2011, Camelot Financial Capital Management of which Mr. Simon
Williams, a member of our board of directors, is Chairman and Chief Executive Officer, received
compensation of $36,323 from LendingClub for providing financial consulting services to the
Company.
Non-employee directors are reimbursed for reasonable travel and other expenses incurred in
connection with attending our board meetings.
80
|
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|
Item 12. |
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters |
The following table sets forth information regarding the beneficial ownership of our common
stock as of April 30, 2011, by:
|
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each of our named executive officers; |
|
|
|
each person, or group of affiliated persons, who is known by us to beneficially own
more than 5% of our common stock; and |
|
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|
all of our directors and executive officers as a group. |
Beneficial ownership is determined in accordance with the rules of the SEC. These rules
generally attribute beneficial ownership of securities to persons who possess sole or shared voting
power or investment power with respect to those securities and include shares of common stock
issuable upon the exercise of stock options that are immediately exercisable or exercisable within
60 days after April 30, 2010. Except as otherwise indicated in the footnotes to the table below,
all of the shares reflected in the table are shares of common stock and all persons listed
below have sole voting and investment power with respect to the shares beneficially owned by
them, subject to applicable community property laws. The information is not necessarily indicative
of beneficial ownership for any other purpose.
Percentage ownership calculations are based on 58,201,541 shares of common stock outstanding
as of April 30, 2011, assuming the conversion of all of our outstanding convertible preferred
stock.
In computing the number of shares of common stock beneficially owned by a person and the
percentage ownership of that person, we deemed outstanding shares of capital stock subject to
options and warrants held by that person that are currently exercisable or exercisable within 60
days of April 30, 2011. We did not deem these shares outstanding, however, for the purpose of
computing the percentage ownership of any other person. Beneficial ownership representing less
than 1% is denoted with an asterisk (*). Except as otherwise indicated in the footnotes to the
table below, addresses of named beneficial owners are in care of LendingClub, 71 Stevenson, Suite
300, San Francisco, CA 94105.
|
|
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|
|
|
Shares Beneficially Owned |
|
Name of Beneficial Owner |
|
Number |
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Officers and Directors |
|
|
|
|
|
|
|
|
Daniel Ciporin (1) |
|
|
13,498,445 |
|
|
|
23.2 |
% |
Jeffrey M. Crowe (2) |
|
|
13,277,074 |
|
|
|
22.8 |
% |
Rebecca Lynn (3) |
|
|
11,268,167 |
|
|
|
19.4 |
% |
Renaud Laplanche (4) |
|
|
4,685,000 |
|
|
|
8.0 |
% |
John G. Donovan |
|
|
553,500 |
|
|
|
* |
|
Carrie L. Dolan |
|
|
|
|
|
|
* |
|
Simon Williams (5) |
|
|
32,000 |
|
|
|
* |
|
All directors and executive officers as a group (seven persons) |
|
|
43,314,186 |
|
|
|
73.4 |
% |
|
|
|
(1) |
|
Includes (a) 209,934 shares of convertible preferred stock and warrants exercisable for
37,736 shares of Series A Preferred Stock and common stock held by Mr.
Ciporin, (b) 12,860,838 shares of convertible preferred stock and warrants exercisable for
117,371 shares of Series A Preferred Stock held by Canaan VII L.P and (c) a warrant to
purchase 9,568 shares of our common stock. Mr. Ciporin is a Venture Partner with Canaan
Partners, which is affiliated with Canaan VII L.P., and disclaims beneficial ownership of such
shares held by Canaan VII L.P. except to the extent of his pecuniary interest therein. |
|
(2) |
|
Includes 13,159,703 shares of convertible preferred stock and warrants exercisable for
117,371 shares of Series A Preferred Stock held by Norwest Venture Partners X, LP. Mr. Crowe
is a General Partner with Norwest Venture Partners, which is affiliated with Norwest Venture
Partners X, LP, and disclaims ownership of such shares held by Norwest Venture Partners X, LP
except to the extent of his pecuniary interest therein. |
81
|
|
|
(3) |
|
Includes 11,268,167 shares of convertible preferred stock held by Morgenthaler Venture
Partners IX, L.P. Ms. Lynn is a Partner of Morgenthaler Ventures, an affiliate of
Morgenthaler Venture Partners IX, L.P. Ms. Lynn disclaims beneficial ownership of such shares
held by Morgenthaler Ventures, an affiliate of Morgenthaler Venture Partners IX, L.P. except
to the extent of her pecuniary interest therein. |
|
(4) |
|
Mr. Laplanches 4,355,000 shares of common stock are subject to a stock restriction agreement
entered into between the Company and Mr. Laplanche on August 21, 2007. In accordance with
this agreement, these shares vested as to 1,088,750 shares on the date of the agreement, and
the remainder vests monthly over 36 months. As of April 30, 2011, all shares were vested.
The unvested portion is subject to a repurchase option, under which the Company has an option
to repurchase the shares in the event of Mr. Laplanches termination at a price of $0.01 per
share. Also, includes 330,000 of stock options granted to Mr. Laplanche. |
|
(5) |
|
Includes 32,000 shares of stock options granted to Mr. Williams. |
|
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|
|
|
Shares Beneficially Owned |
|
Name of Beneficial Owner |
|
Number |
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
5% Stockholders |
|
|
|
|
|
|
|
|
Norwest Venture Partners X, LP (1) |
|
|
13,277,074 |
|
|
|
22.8 |
% |
Canaan VII L.P. (2) |
|
|
13,498,445 |
|
|
|
23.2 |
% |
Morgenthaler Venture Partners IX, L.P. (3) |
|
|
11,268,167 |
|
|
|
19.4 |
% |
Foundation Capital VI, L.P. (4) |
|
|
6,665,816 |
|
|
|
11.5 |
% |
Renaud Laplanche |
|
|
4,685,000 |
|
|
|
8.0 |
% |
|
|
|
(1) |
|
Includes warrants exercisable for 117,371 shares of Series A Preferred Stock. The general
partner of Norwest Venture Partners X, LP is Genesis VC Partners X LLC. The managing members
of Genesis VC Partners X, LLC are Promod Haque and George Still. Each of these individuals
exercises shared voting and investment power over the shares held of record by Norwest Venture
Partners X, LP and disclaims beneficial ownership of such shares except to the extent of such
individuals pecuniary interest therein. The address of Norwest Venture Partners X, LP is 525
University Avenue, Suite 800, Palo Alto, CA 94301-1922. |
|
(2) |
|
Includes warrants exercisable for 117,371 shares of Series A Preferred Stock. The general
partner of Canaan VII L.P. is Canaan Partners VII LLC. The managers of Canaan Partners VII
LLC are Brenton K. Ahrens, John V. Balen, Wende S. Hutton, Maha S. Ibrahim, Deepak Kamra,
Gregory Kopchinsky, Seth A. Rudnick, Guy M. Russo and Eric A. Young. Each of these
individuals exercises shared voting and investment power over the shares held of record by
Canaan VII L.P. and disclaims beneficial ownership of such shares except to the extent of such
individuals pecuniary interest therein. The address of Canaan VII L.P. is 285 Riverside
Avenue, Suite 250, Westport, CT 06880. |
|
(3) |
|
The general partner of Morgenthaler Venture Partners IX, L.P. is Morgenthaler Management
Partners IX, LLC. The managing members of Morgenthaler Management Partners IX, LLC are
Robert C. Bellas, James W. Broderick, Ralph E. Christoffersen, Rebecca Lynn, Gary J.
Morgenthaler, Theodore A. Laufik, Gary R. Little, Robert D. Pavey and Henry A. Plain. Each
of these individuals exercises shared voting and investment power over the shares held of
record by Morgenthaler Venture Partners IX, L.P. and disclaims beneficial ownership of such
shares except to the extent of such individuals pecuniary interest therein. The address of
Morgenthaler Venture Partners IX, L.P. is 2710 Sand Hill Road, Suite 100, Menlo Park, CA
94025. |
82
|
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|
(4) |
|
William B. Elmore, Adam Grosser, Paul R. Holland, Paul G. Koontz, Michael N. Schuh, Warren M.
Weiss, Richard A. Redelfs, Ashmeet S. Sidana, and Charles P. Moldow are Managers of Foundation
Capital Management Co. VI, LLC (FCM6), which serves as the sole manager of Foundation
Capital VI, L.P. (FC6) and Foundation Capital VI Principals Fund, LLC (FC6P). FCM6
exercises sole voting and investment power over the shares owned by FC6 and FC6P. As managers
of FCM6, Messrs. Elmore, Grosser, Holland, Koontz, Schuh, Weiss, Redelfs, Sidana, and Moldow
are deemed to share voting and investment powers over the shares held by FC6 and FC6P. Each
member of the group disclaims beneficial ownership of the reported securities except to the
extent of their pecuniary interest therein. |
The following table sets forth information, as of March 31, 2011, with respect to shares of our
common stock that may be issued under our existing equity compensation plans.
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|
|
Number of shares of |
|
|
Weighted average |
|
|
Number of shares of |
|
|
|
common stock to be |
|
|
exercise price of |
|
|
common stock remaining |
|
|
|
issued upon exercise of |
|
|
outstanding |
|
|
available for future |
|
|
|
outstanding options, |
|
|
options, warrants |
|
|
issuance under equity |
|
Plan Category |
|
warrants and rights |
|
|
and rights |
|
|
compensation plans |
|
|
|
|
|
|
|
|
|
|
|
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|
Equity compensation plans approved by stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
LendingClub Corporation 2007 Stock Incentive Plan,
as amended |
|
|
7,527,219 |
|
|
$ |
0.40 |
|
|
|
1,408,986 |
|
All stockholder approved plans |
|
|
7,527,219 |
|
|
$ |
0.40 |
|
|
|
1,408,986 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
None |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
All non-stockholder approved plans |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
7,527,219 |
|
|
$ |
0.40 |
|
|
|
1,408,986 |
|
|
|
|
|
|
|
|
|
|
|
|
The information set forth in Note 12 to the Notes to Consolidated Financial Statements below
under the caption Stock-Based Compensation is incorporated herein by reference.
|
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|
Item 13. |
|
Certain Relationships and Related Transactions, and Director Independence |
Since our inception, we have engaged in the following transactions with our directors,
executive officers and holders of more than 5% of our voting securities, and affiliates and
immediate family members of our directors, executive officers and 5% stockholders. We believe that
all of the transactions described below were made on terms no less favorable to us than could have
been obtained from unaffiliated third parties.
LendingClub Platform Participation
Our Chief Executive Officer, Renaud Laplanche, purchased $435,650 in member loans through the
LendingClub platform during the period in which we allowed members to purchase assignments of
member loans directly. As of April 19, 2011, Mr. Laplanche has purchased $140,823 in Notes, net of
sales of those same Notes, and has committed $764,375 in the aggregate (including loans issued
prior to our structural change), to provide full funding for the related member loan listings and
improve the platform experience for our borrower members. In respect of the $140,823 in Notes, as
of April 19, 2011, Mr. Laplanche had received principal payments of $64,176 and interest payments
of $17,125. These Notes had an average nominal interest rate of 13.45%. Mr. Laplanches purchases
were made on terms and conditions that were not more favorable than those obtained by other
members.
83
To test the operation of the platform, Mr. Laplance and Mr. Donovan both received member loans
during the beta testing phase of our platform. Such member loans were on the same terms as the
terms generally available to other borrower members, and these member loans have already been
repaid. No director or officer of LendingClub has received a member loan since this time. Our
corporate policies now prohibit directors and executive officers from receiving member loans
through our platform.
Financing Arrangements with Directors or Executive Officers
Beginning in October 2006 through various dates during the year ended March 31, 2008, the
Company received advances from Mr. Laplanche that provided a total of $240,712 in working capital
at no interest. The Company borrowed the money in a series of draws, and the amount received from
Mr. Laplanche was $35,774 as of March 31, 2007, and all subsequent advances were repaid as of March
31, 2008. Similarly, in February 2009 Mr. Laplanche advanced a total of $195,000 to the Company
for working capital purposes at no interest. The balance was fully repaid in March 2009.
In the year ended March 31, 2009, we issued a series of promissory notes to accredited
investors that are repayable over three years and bear interest at the rate of 12% per annum. One
of our directors, Daniel T. Ciporin, purchased promissory notes in the aggregate amount of
$250,000. In consideration of his purchase of those promissory notes, Mr. Ciporin also received
warrants to purchase 28,168 shares of our convertible preferred stock.
Financing Arrangements with Significant Stockholders
In August 2007, we issued and sold to investors an aggregate of 9,637,401 shares of Series A
convertible preferred stock at a purchase price of $1.065 per share, for aggregate consideration of
$10,263,831. On September 29, 2008, we issued and sold 3,802,815 additional shares of Series A
convertible preferred stock at a purchase price of $1.065 per share, for aggregate cash
consideration of $4,050,000. In December 2008, we issued an additional 1,309,857 shares of Series
A convertible preferred stock for aggregate cash consideration of $1,395,000.
In January 2008, we issued subordinated convertible promissory notes to Norwest Venture
Partners X, LP (Norwest) and Canaan VII L.P. (Canaan), with principal sums of $500,000 each,
under the terms of a note and warrant purchase agreement. The convertible notes were subordinate
to our capital loan facility and our credit facility and bore interest at a rate of 8% per annum.
Principal and interest were due in full on the maturity date of January 24, 2010, unless an equity
financing with total proceeds of at least $3 million occurred prior to such date. If such an
equity financing occurred, the principal balance and accrued interest of the notes would
automatically convert into equity securities at the same price and under the same terms as those
offered to the other equity investors. In connection with our issuance of additional shares of
Series A convertible preferred stock on September 29, 2008, we issued 990,212 shares of Series A
convertible preferred stock in connection with the conversion of these convertible notes, which had
an outstanding principal balance of $1,000,000 and accrued interest of $54,575.
In connection with the convertible note issuances, we also issued warrants to purchase a
number of shares of our convertible preferred stock. We issued a warrant to purchase 117,371
shares of our convertible preferred stock to each of Norwest and Canaan, each with an exercise
price of $1.065 per share. The warrants will terminate in January 2015.
The warrants contain a net exercise provision under which its holder may, in lieu of payment
of the exercise price in cash, surrender the warrant and receive a net amount of shares based on
the fair market value of our common stock at the time of exercise of the warrant after deduction of
the aggregate exercise price. The warrants also provide for the same registration rights that
holders of our Series A convertible preferred stock are entitled to receive pursuant to our amended
and restated investor rights agreement, as amended. The warrants contain provisions for the
adjustment of the exercise price and the aggregate number of shares issuable upon the exercise of
the warrants in the event of stock dividends, stock splits, reorganizations, reclassifications and
consolidations.
In March 2009, we issued 16,036,346 shares of Series B convertible preferred stock for
aggregate cash consideration of $11,999,998.
84
In April 2010, we issued 15,621,609 shares of Series C convertible preferred stock for
aggregate cash consideration of $24,489,996.
The participants in these convertible preferred stock financings included the following
holders of more than 5% of our voting securities or entities affiliated with them. The following
table presents the number of shares issued to these related parties in these financings:
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|
|
|
|
|
|
|
|
|
|
|
Series A |
|
|
Series B |
|
|
Series C |
|
Participants |
|
Preferred Stock |
|
|
Preferred Stock |
|
|
Preferred Stock |
|
Norwest Venture Partners X, LP |
|
|
6,955,200 |
|
|
|
3,091,663 |
|
|
|
3,112,840 |
|
Canaan VII L.P. (1) |
|
|
6,969,284 |
|
|
|
3,046,057 |
|
|
|
3,055,431 |
|
Morgenthaler Venture Partners IX, L.P. |
|
|
|
|
|
|
9,354,536 |
|
|
|
1,913,631 |
|
Foundation Capital (2) |
|
|
|
|
|
|
|
|
|
|
6,665,816 |
|
|
|
|
(1) |
|
Includes 118,412, 45,691 and 45,831 shares of Series A, B and C convertible preferred
stock, respectively, purchased by Daniel T. Ciporin. Mr. Ciporin is a Venture Partner with
Canaan Partners, which is affiliated with Canaan VII L.P. |
|
(2) |
|
Includes 73,657 shares of Series C Convertible Preferred Stock purchase by Foundation
Capital Principals Fund. |
In connection with our Series C convertible preferred stock financing, we entered into amended
and restated investor rights, voting, and right of first refusal and co-sale agreements
containing voting rights, information
rights, rights of first refusal and registration rights, among other things, with certain
holders of our convertible preferred stock and certain holders of our common stock.
Additionally, we issued a warrant to purchase a number of shares of our common stock. We
issued a warrant to purchase 9,568 shares of our common stock to Mr. Daniel T. Ciporin with an
exercise price of $1.5677 per share. The warrant will terminate in February 2021.
Under the amended and restated voting rights agreement, certain investors in our convertible
preferred stock, including Norwest, Canaan and Morgenthaler Venture Partners IX, L.P.
(Morgenthaler) have each agreed, subject to maintaining certain ownership levels, to exercise
their voting rights so as to elect one designee of Norwest, one designee of Canaan and one designee
of Morgenthaler to our board of directors, as well as our chief executive officer. Foundation
Capital does not have the right to designate a member of our board of directors. Under the terms
of the investor rights agreement, the holders of at least 65% of the shares issuable upon
conversion of our preferred stock have the right to demand that we file up to two registration
statements so long as the aggregate amount of securities to be sold under a registration statement
is at least $10 million. These registration rights are subject to specified conditions and
limitations. In addition, if we are eligible to file a registration statement on Form S-3, holders
of the shares having registration rights have the right to demand that we file a registration
statement on Form S-3 so long as the aggregate amount of securities to be sold under the
registration statement on Form S-3 is at least $1,000,000, subject to specified exceptions and
conditions and limitations. The investor rights agreement also provides that if we register any
our shares for public sale, stockholders with registration rights will have the right to include
their shares in the registration statement, subject to specified conditions and limitations.
Indemnification Agreements
Our amended and restated certificate of incorporation provides that we will indemnify our
directors and officers to the fullest extent permitted by Delaware law. In addition, we have
entered into separate indemnification agreements with each of our directors and Renaud Laplance,
John Donovan and Carrie L. Dolan. For more information regarding these agreements, see Item 10.
Directors, Executive Officers, and Corporate Governance Limitations on Officers and Directors
Liability and Indemnification Agreements.
Director Independence
For information regarding director independence, see Item 10. Directors, Executive Officers,
Corporate Governance Director Independence.
85
Principal Accounting Fees and Services
The following table presents the aggregate fees billed (or expected to be billed) by Armanino
McKenna LLP, our independent registered public accounting firm:
|
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|
|
|
|
|
|
|
|
Year Ended |
|
|
Year Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
Audit fees (1) |
|
$ |
172,500 |
|
|
$ |
197,961 |
|
Audit-related fees |
|
|
19,250 |
|
|
|
5,350 |
|
Tax fees |
|
|
15,425 |
|
|
|
15,780 |
|
All other fees |
|
|
21,482 |
|
|
|
19,528 |
|
|
|
|
|
|
|
|
Total |
|
$ |
228,657 |
|
|
$ |
238,619 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents fees for professional services provided in connection with the audit of
our annual consolidated financial statements and review of our quarterly consolidated
financial statements, advice on accounting matters that arose during the audit and
audit services provided in connection with other statutory or regulatory filings. |
The board of directors approves all audit and non-audit services to be provided by the
independent registered public accountants. During the year ended March 31, 2011, all of the
services provided by Armanino McKenna LLP were audit services and were pre-approved by the board of
directors in accordance with this policy.
PART IV
|
|
|
Item 14. |
|
Exhibits and Financial Statement Schedule |
See Index to Consolidated Financial Statements below.
Exhibits filed as part of this Annual Report on Form 10-K are listed on the Exhibit Index
immediately preceding such exhibits, which is incorporated herein by reference.
86
LendingClub Corporation
Index to Consolidated Financial Statements
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
LendingClub Corporation
San Francisco, California
We have audited the accompanying consolidated balance sheets of LendingClub Corporation
(the Company) as of March 31, 2011 and 2010, and the related consolidated statements of
operations, preferred stock and stockholders deficit and cash flows for each of the years then
ended. These consolidated financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting. Accordingly, we express
no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management as well, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of LendingClub Corporation at March 31, 2011 and
2010, and the results of its consolidated operations and its consolidated cash flows for each of
the years then ended, in conformity with accounting principles generally accepted in the United
States of America.
ARMANINO McKENNA LLP
San Jose, California
June 29, 2011
F-2
LendingClub Corporation
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
ASSETS |
|
Cash and cash equivalents |
|
$ |
13,335,657 |
|
|
$ |
2,572,174 |
|
Restricted cash |
|
|
862,000 |
|
|
|
1,352,000 |
|
Member loans, net of allowance for loan losses |
|
|
5,253,814 |
|
|
|
7,545,186 |
|
CM Loans, at fair value |
|
|
149,971,989 |
|
|
|
56,056,228 |
|
Other receivables |
|
|
97,768 |
|
|
|
52,956 |
|
Loan servicing rights, at fair value |
|
|
12,105 |
|
|
|
22,141 |
|
Prepaid expenses and other assets |
|
|
62,846 |
|
|
|
242,380 |
|
Property and equipment, net |
|
|
214,991 |
|
|
|
130,827 |
|
Deposits |
|
|
57,756 |
|
|
|
50,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
169,868,926 |
|
|
$ |
68,024,026 |
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
259,682 |
|
|
$ |
422,690 |
|
Accrued expenses |
|
|
1,450,936 |
|
|
|
831,244 |
|
Notes, at fair value |
|
|
149,777,817 |
|
|
|
56,042,064 |
|
Deferred revenue |
|
|
536 |
|
|
|
22,141 |
|
Loans payable, net of debt discount |
|
|
2,872,586 |
|
|
|
8,507,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
154,361,557 |
|
|
|
65,825,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (see Note 5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED STOCK |
|
Preferred stock, $0.01 par value; 49,116,801 and 33,600,000
shares authorized at March 31, 2011 and 2010, respectively |
|
|
|
|
|
|
|
|
Series A convertible preferred stock, 17,006,275 and
17,100,000 shares designated at March 31, 2011 and
2010; respectively; 15,740,285 shares issued and
outstanding at March 31, 2011 and 2010; aggregate
liquidation preference of $16,763,404 at March 31, 2011
and 2010, respectively. |
|
|
16,564,708 |
|
|
|
16,564,708 |
|
Series B convertible preferred stock, 16,410,526 and
16,500,000 shares designated at March 31, 2011 and
2010, respectively; 16,036,346 shares issued and
outstanding at March 31, 2011, and 2010; aggregate
liquidation preference of $11,999,998 at March 31, 2011
and 2010, respectively. |
|
|
11,897,738 |
|
|
|
11,897,738 |
|
Series C convertible preferred stock, 15,700,000 shares
designated at March 31, 2011; 15,621,609 shares issued
and outstanding at March 31, 2011; aggregate
liquidation preference of $24,489,996 at March 31,
2011. |
|
|
24,387,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,850,391 |
|
|
|
24,462,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS DEFICIT |
|
Common stock, $0.01 par value; 68,000,000 and 50,000,000
shares authorized at March 31, 2011 and 2010, respectively;
8,571,573 and 8,535,761 shares issued and outstanding at
March 31, 2011 and 2010, respectively; |
|
|
85,716 |
|
|
|
85,358 |
|
Additional paid-in capital |
|
|
4,025,914 |
|
|
|
3,805,485 |
|
Accumulated deficit |
|
|
(41,454,652 |
) |
|
|
(30,154,509 |
) |
|
|
|
|
|
|
|
Total stockholders deficit |
|
|
(37,343,022 |
) |
|
|
(26,263,666 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, preferred stock and stockholders deficit |
|
$ |
169,868,926 |
|
|
$ |
68,024,026 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
LendingClub Corporation
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Revenues |
|
|
|
|
|
|
|
|
Member loans |
|
|
|
|
|
|
|
|
Interest income, net |
|
$ |
836,331 |
|
|
$ |
1,316,849 |
|
Interest expense |
|
|
(975,324 |
) |
|
|
(1,424,429 |
) |
|
|
|
|
|
|
|
Net interest loss, member loans |
|
|
(138,993 |
) |
|
|
(107,580 |
) |
Provision for loan losses |
|
|
(430,652 |
) |
|
|
(1,423,075 |
) |
|
|
|
|
|
|
|
Net interest loss after provision for loan losses |
|
|
(569,645 |
) |
|
|
(1,530,655 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CM Loans and Notes, fair value |
|
|
|
|
|
|
|
|
Interest income, CM Loans, net |
|
|
8,900,563 |
|
|
|
1,467,537 |
|
Interest income/(expense), Notes, net |
|
|
(2,227,410 |
) |
|
|
795,518 |
|
|
|
|
|
|
|
|
Net interest income, CM Loans and Notes, fair value |
|
|
6,673,153 |
|
|
|
2,263,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of loan servicing rights |
|
|
17,862 |
|
|
|
28,647 |
|
Other Revenue |
|
|
324,477 |
|
|
|
75,901 |
|
|
|
|
|
|
|
|
Total income from operations |
|
|
6,445,847 |
|
|
|
836,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
Sales, marketing and customer service |
|
|
11,855,890 |
|
|
|
6,138,798 |
|
Engineering |
|
|
1,951,987 |
|
|
|
1,749,153 |
|
General and administrative |
|
|
3,938,113 |
|
|
|
3,204,133 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
17,745,990 |
|
|
|
11,092,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes |
|
|
(11,300,143 |
) |
|
|
(10,255,136 |
) |
Provision for income taxes |
|
|
|
|
|
|
|
|
Net loss |
|
|
(11,300,143 |
) |
|
|
(10,255,136 |
) |
|
|
|
|
|
|
|
Net loss attributable to common stockholders |
|
$ |
(11,300,143 |
) |
|
$ |
(10,255,136 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share |
|
$ |
(1.32 |
) |
|
$ |
(1.23 |
) |
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock used in
computing basic and diluted net loss per share |
|
|
8,562,005 |
|
|
|
8,350,219 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
LendingClub Corporation
Consolidated Statements of Preferred Stock and Stockholders Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Total |
|
|
Preferred Stock |
|
|
|
Convertible Preferred Stock |
|
|
Common Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
Stockholders |
|
|
and Stockholders |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Defecit |
|
|
Deficit |
|
|
Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2009 |
|
|
31,776,631 |
|
|
$ |
28,462,446 |
|
|
|
8,220,685 |
|
|
$ |
82,207 |
|
|
$ |
3,444,301 |
|
|
$ |
(19,899,373 |
) |
|
$ |
(16,372,865 |
) |
|
$ |
12,089,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154,134 |
|
|
|
|
|
|
|
154,134 |
|
|
|
154,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series B convertible preferred stock warrants in
connection with term loan agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184,860 |
|
|
|
|
|
|
|
184,860 |
|
|
|
184,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock options upon exercise of options |
|
|
|
|
|
|
|
|
|
|
94,076 |
|
|
|
941 |
|
|
|
24,400 |
|
|
|
|
|
|
|
25,341 |
|
|
|
25,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock options upon exercise of warrants |
|
|
|
|
|
|
|
|
|
|
221,000 |
|
|
|
2,210 |
|
|
|
(2,210 |
) |
|
|
|
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,255,136 |
) |
|
|
(10,255,136 |
) |
|
|
(10,255,136 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2010 |
|
|
31,776,631 |
|
|
|
28,462,446 |
|
|
|
8,535,761 |
|
|
|
85,358 |
|
|
|
3,805,486 |
|
|
|
(30,154,509 |
) |
|
|
(26,263,665 |
) |
|
|
2,198,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210,591 |
|
|
|
|
|
|
|
210,591 |
|
|
|
210,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series C convertible preferred stock for
cash, net of issuance costs of $102,051 |
|
|
15,621,609 |
|
|
|
24,387,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,387,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series C convertible preferred stock warrants
in connection with loan agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
788 |
|
|
|
|
|
|
|
788 |
|
|
|
788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock options upon exercise of options |
|
|
|
|
|
|
|
|
|
|
35,812 |
|
|
|
358 |
|
|
|
9,050 |
|
|
|
|
|
|
|
9,409 |
|
|
|
9,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,300,143 |
) |
|
|
(11,300,143 |
) |
|
|
(11,300,143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2011 |
|
|
47,398,240 |
|
|
$ |
52,850,391 |
|
|
|
8,571,573 |
|
|
$ |
85,716 |
|
|
$ |
4,025,914 |
|
|
$ |
(41,454,652 |
) |
|
$ |
(37,343,021 |
) |
|
$ |
15,507,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
F-5
LendingClub Corporation
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(11,300,143 |
) |
|
$ |
(10,255,136 |
) |
Adjustments to reconcile net loss to net cash used in operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
78,754 |
|
|
|
71,056 |
|
Non-cash interest expense |
|
|
9,221,445 |
|
|
|
3,928,661 |
|
Non-cash interest income |
|
|
(8,932,088 |
) |
|
|
(3,633,051 |
) |
Stock based compensation expense |
|
|
210,591 |
|
|
|
154,134 |
|
Change in fair value of loan servicing rights |
|
|
10,036 |
|
|
|
33,975 |
|
Interest capitalized on loans |
|
|
214,329 |
|
|
|
50,079 |
|
Provision for loan losses |
|
|
430,652 |
|
|
|
1,423,075 |
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
Other receivables |
|
|
(44,812 |
) |
|
|
18,638 |
|
Deposits |
|
|
(7,622 |
) |
|
|
96,414 |
|
Prepaid expenses and other assets |
|
|
179,531 |
|
|
|
(178,760 |
) |
Accounts payable |
|
|
(163,008 |
) |
|
|
(207,762 |
) |
Accrued expenses |
|
|
619,693 |
|
|
|
406,995 |
|
Deferred revenue |
|
|
(21,605 |
) |
|
|
(33,976 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(9,504,247 |
) |
|
|
(8,125,658 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Member loans originated |
|
|
(6,457,300 |
) |
|
|
(5,263,525 |
) |
Origination of CM Loans held at fair value |
|
|
(142,339,378 |
) |
|
|
(61,820,800 |
) |
Repayment of member loans originated |
|
|
4,934,504 |
|
|
|
5,599,583 |
|
Repayment of CM Loans held at fair value |
|
|
42,644,778 |
|
|
|
10,934,102 |
|
Increase/Decrease in restricted cash |
|
|
490,000 |
|
|
|
(900,000 |
) |
Purchase of property and equipment |
|
|
(162,918 |
) |
|
|
(61,890 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(100,890,314 |
) |
|
|
(51,512,530 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of loan payable |
|
|
|
|
|
|
4,200,000 |
|
Proceeds from issuance of Notes held at fair value |
|
|
150,619,450 |
|
|
|
62,384,880 |
|
Payments on notes payable |
|
|
(5,907,151 |
) |
|
|
(5,450,037 |
) |
Payments on Notes held at fair value |
|
|
(47,951,608 |
) |
|
|
(10,948,362 |
) |
Proceeds from issuance of Series C convertible preferred stock, net of issuance costs |
|
|
24,387,945 |
|
|
|
|
|
Proceeds from issuance of common stock |
|
|
9,408 |
|
|
|
25,340 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
121,158,044 |
|
|
|
50,211,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
10,763,483 |
|
|
|
(9,426,367 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning of period |
|
|
2,572,174 |
|
|
|
11,998,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period |
|
$ |
13,335,657 |
|
|
$ |
2,572,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
11,862,192 |
|
|
$ |
3,967,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing
and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of member loans held for investment to CM Loans held at fair value |
|
$ |
1,616,996 |
|
|
$ |
564,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Series B convertible preferred stock warrants in exchange for term loan
agreement |
|
$ |
|
|
|
$ |
184,860 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
LENDINGCLUB CORPORATION
Notes to Consolidated Financial Statements
1. Nature of Organization and Periods Presented
Organization and Operation
LendingClub Corporation (the Company or LendingClub) is an online platform that enables
its borrower members to borrow money and investors to purchase notes, the proceeds of which fund
loans made to individual borrower members. We allow qualified borrower members to obtain loans
with interest rates that they find attractive. Since October 13, 2008, our investor members have
had the opportunity to purchase Notes issued by us for a designated corresponding member loan or
CM Loans. The Notes are dependent for payment on CM Loans and offer interest rates and credit
characteristics that the investor members 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. We also from time to
time fund member loans ourselves, which we refer to as member loans.
All member loans are unsecured obligations of individual borrower members with fixed interest
rates and three and five year maturities. The member loans are originated through 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 assigned to us upon closing. As part of operating our
platform, we verify the identity of members, obtain borrower members credit characteristics from
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.
LendingClub was incorporated in Delaware in October 2006, and in May 2007 began operations as
an application on Facebook.com. In August 2007, we expanded our operations with the launch of
our public website, www.lendingclub.com. As of March 31, 2011, our platform has facilitated 24,940
member loans since our launch in May 2007.
We have been operating since December 2007 pursuant to an agreement with WebBank, an
FDIC-insured, state chartered industrial bank organized under the laws of the State of Utah.
WebBank serves as the initial creditor for all loans originated through our platform. Our
agreement with WebBank has enabled us to make our platform available to borrower members on a
uniform basis. As of March 31, 2011, we do not offer member loans in Idaho, Indiana, Iowa, Maine,
Mississippi, Nebraska, 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.
In October 2010, we formed a subsidiary, LC Advisors, LLC, a California limited liability
company (LCA), which is wholly-owned by LendingClub. LCA has registered with the SEC as an
investment advisor and also acts as the general partner to two private investment funds for
accredited investors with differing investment strategies. In connection with the funds, we formed
a Delaware business trust to act as a bankruptcy remote entity for holding certain assets of the
funds separate and apart from the assets of LendingClub. LendingClub and the trust have entered
into a servicing agreement whereby LendingClub services the loans acquired by the trust in a manner
identical to other loans and earns a servicing fee equal to 40 basis points. LCA commenced
operations after January 1, 2011.
We started offering the funds in March 2011 through a private placement. As of March 31,
2011, the funds had approximately $800,000 in assets with $4.8 million in escrow, which was
contributed to the Funds on April 1, 2011. LCA earns a management fee paid by the limited partners
of the funds, which is based on the amount of assets of each fund. As of March 31, 2011, the
aggregate amount of management fees earned by LCA was not material to the operations of the
business as a whole.
As of March 31, 2011, the amount of trust certificates that the funds purchased from the trust
that relate to loans purchased by the trust from LendingClub was $696,950.
Periods Presented
The Companys fiscal year end is March 31. In the accompanying consolidated financial
statements and related footnotes, the fiscal year 2010 is based on the year ended March 31, 2010,
and the fiscal year 2011 is based on the year ended March 31, 2011.
F-7
Reclassifications
Certain prior period balances have been reclassified to conform to the current years
presentation. These reclassifications had no impact on previously reported results of operations
or stockholders deficit.
2. Summary of Significant Accounting Policies
Consolidation Policies
The consolidation financial statements include the accounts of the company and entities in
which it, directly or indirectly, is determined to have a controlling financial interest under the
following set of guidelines:
Variable Interest Entities (VIEs) The Company determines whether, if by design, an entity
has equity investors who lack the characteristics of a controlling financial interest or does not
have sufficient equity at risk to finance its expected activities without additional subordinated
financial support from other parties. If an entity has either of these characteristics, it is
considered a VIE and must be consolidated by its primary beneficiary. The primary beneficiary of
the funds we manage that are determined to be VIEs is the party that absorbs a majority of the VIEs
expected losses or receives a majority of the expected residual returns as a result of holding
variable interests. For other types of VIEs the primary beneficiary is the party that (i) has the
power to direct the activities of the entity that most significantly impacts the entity economic
performance; and (ii) has the obligation to absorb losses or the right to receive benefits from the
entity that could potentially be significant to the entity.
Special Purpose Entities For entities determined not to be VIEs, the Company considers
those entities in which it has an investment of greater than 50% and has control over significant
operating, financial and investing decisions of the entity. Additionally, the Company consolidates
entities in which the Company is a substantive, controlling general of the investment manager with
decision making rights. Although we only hold a residual interest in the trust, the Company has
consolidated the trusts operations and all intercompany accounts have been eliminated.
Management Fees
LCA as General Partner of the funds receives management fees. The management fee is payable
monthly, in arrears, and pro-rated on a daily basis for periods shorter than one month. The
management fee percentage ranges from 0.55% to 0.75% based upon a limited partners capital account
balance as of the end of each month.
Liquidity
We have incurred operating losses since our inception. For the years ended March 31, 2011 and
2010, we incurred net losses of $11,300,143 and $10,255,136, respectively. For the years ended
March 31, 2011 and 2010, we had negative cash flows from operations of $9,504,247 and $8,125,658,
respectively. Additionally, we have an accumulated deficit of $41,454,652 since inception and a
stockholders deficit of $37,343,022, each as of March 31, 2011.
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 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, see Note 8
Loans Payable. During the year ended March 31, 2011 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 to date.
Use of estimates
The preparation of consolidated 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 consolidated 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.
F-8
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.
Restricted cash
At March 31, 2011 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 8 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 8 Loans Payable). For the twelve months
ended March 31, 2011 and 2010, we had funded an aggregate total of $6,457,300 and $4,646,550,
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 or interest when due
according to the contractual terms of the original 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.
F-9
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.
We make an initial assessment of whether a specific reserve is required on each delinquent
loan no later than the 150th day of delinquency of that loan. As of March 31, 2011, we had
identified and fully reserved $26,297 on 14 loans. Our aggregate allowance for loan losses was
$329,885 at March 31, 2011, while as of March 31, 2010, we had identified and fully reserved
$144,312 on 29 loans, and our aggregate allowance for loan losses was $781,758. For the year ended
March 31, 2011, we charged off a total of 262 loans with an aggregate principal balance of
$882,525. For the year ended March 31, 2010, we charged off a total of 344 loans with an aggregate
principal balance of $1,752,043.
CM Loans and Notes held for investment 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 LendingClub. 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.
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.
Property and equipment
Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is
provided over the estimated useful life of each class of depreciable assets (generally three to
five years), and is computed using the straight-line method.
F-10
Long-lived assets
In accordance with FASB ASC 360, Property, Plant, and Equipment, the Company evaluates
potential impairments of its long-lived assets, whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. Events or changes in
circumstances that could result in impairment include, but are not limited to, significant
underperformance relative to historical or projected future operating results, significant changes
in the manner of use of the acquired assets or the strategy for the Companys overall business and
significant negative industry or economic trends. Impairment is recognized when the carrying amount
of an asset exceeds its fair value. At March 31, 2011 and 2010, there was no impairment.
Software and website development costs
Software and website development costs are accounted for in accordance with FASB ASC 350,
Intangibles Goodwill and Other. Accordingly, the Company expenses all costs that relate to
the planning and post implementation phases for software and website development. Costs associated
with minor enhancements and maintenance for the Companys website are expensed as incurred. Since
the software and website development costs incurred after technological feasibility has been
established have not been significant to date, and there remains uncertainty about the future
economic benefit derived from internally developed software and the website, the Company has not
capitalized any software or website development costs to date.
Advertising costs
Advertising costs are expensed as incurred. Advertising expenses included in sales, marketing
and customer service operating expenses were $1,769,508 and $753,496 for the years ended March 31,
2011 and 2010, respectively.
Revenue recognition
Revenues primarily result from interest income and transaction fees earned on 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 14 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 March
31, 2011, 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 is 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.
Servicing fee revenue is recognized in accordance with FASB ASC 860 guidance on transfers and
servicing of financial assets. Currently, a 1.00% service fee, based on any payments received, is
charged to the investor at the time that we receive any payments from the borrower member. The
service fee is deducted from any payments received on a member loan before the net amounts of those
payments are allocated to the investors accounts.
Our treatment of interest and fee revenue 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 until 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 LendingClub 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.
F-11
At March 31, 2011 and 2010, gross future expected servicing fees related to these member loans
were estimated to be $536 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.
Since 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, Funded by Notes, 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 LendingClub 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 14 Net Interest Income.
Member Loans Funded by LendingClub
Since inception of the Company up through March 31, 2011, we have funded and retained a total
of approximately $17.9 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 March 31, 2011 and 2010, we had net unamortized deferred loan origination
costs of $162,945 and $51,383, respectively (see Note 4 Member Loans). These deferred
loan origination costs will be amortized monthly as interest expense/(income) 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 LendingClub from CM Loans is mitigated
by the corresponding Notes.
F-12
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 consolidated financial statements based on their respective grant date fair
values. 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. 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.
Change in Accounting Policy
On January 1, 2011, we had a change in accounting policy for stock compensation expense
allocation method. In prior years, we used the graded method to calculate our stock compensation
expense; however, in 2011 we changed our methodology to the straight line method. This method is
preferable as it more accurately reflects the pattern of service provided by the employee. The
change was accounted for through retrospective application of the new accounting policy as of April
1, 2010. The adoption of this new accounting policy did not have a material impact on the
consolidated financial statements for periods prior to fiscal 2011. See Note 12 Stock Baesd
Compensation for further discussion of this change in accounting policy.
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 consolidated 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. |
|
|
|
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.
F-13
In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2011-02, Receivables (Topic 310): A Creditors Determination of Whether a
Restructuring Is a Troubled Debt Restructuring. The ASU clarifies which loan modifications
constitute troubled debt restructurings. It is intended to assist creditors in determining whether
a modification of the terms of a receivable meets the criteria to be considered a troubled debt
restructuring (TDR), both for purposes
of recording an impairment loss and for disclosure of a TDR. In evaluating whether a restructuring
constitutes a TDR, a creditor must separately conclude that both of the following exist: (a) the
restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties.
The amendments to ASU Topic 310, Receivables, clarify the guidance on a creditors evaluation of
whether it has granted a concession and whether a debtor is experiencing financial difficulties.
ASU No. 2011-02 is effective for interim and annual periods beginning on or after June 15, 2011,
and applies retrospectively to restructurings occurring on or after the beginning of the fiscal
year of adoption.
3. Net Loss Attributable to Common Stockholders
We compute net loss per share in accordance with FASB ASC 260 guidance on this subject. Under
FASB ASC 260, basic net loss per share is computed by dividing net loss per share available 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.
Because our convertible preferred stock and the subordinated convertible promissory notes on
an as-converted basis are deemed to be anti-dilutive, and were therefore excluded from the
computation of basic net loss per share, we have also decreased the net loss attributable to common
stockholders by the value of our amortized beneficial conversion feature.
The following table details the computation of the basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common
stockholders |
|
$ |
(11,300,143 |
) |
|
$ |
(10,255,136 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares
outstanding, basic and diluted |
|
|
8,562,005 |
|
|
|
8,350,219 |
|
Net loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(1.32 |
) |
|
$ |
(1.23 |
) |
4. Member Loans
Member loans funded by us and held for investment are as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Member loans, net of charge offs |
|
$ |
5,746,644 |
|
|
$ |
8,275,561 |
|
Deferred origination costs/(revenue), net |
|
|
(162,945 |
) |
|
|
51,383 |
|
|
|
|
|
|
|
|
Net Loans |
|
|
5,583,699 |
|
|
|
8,326,944 |
|
Allowance for loan losses |
|
|
(329,885 |
) |
|
|
(781,758 |
) |
|
|
|
|
|
|
|
Member loans, net |
|
$ |
5,253,814 |
|
|
$ |
7,545,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of allowance for loan losses
to net loans |
|
|
6.3 |
% |
|
|
10.4 |
% |
As of March 31, 2011, we had identified and fully reserved $26,297 on 14 loans, and our
aggregate allowance for loan losses was $329,885. As of March 31, 2010, we had identified and
fully reserved $144,312 on 29 loans. For the twelve months ended March 31,
2011, we charged off a total of 262 loans with an aggregate principal balance of $882,526,
while during the twelve months ended March 31, 2010, we charged off a total of 344 loans with an
aggregate principal balance of $1,752,043.
F-14
Changes in the allowance for loan losses, the composition of the allowance for loan losses and
the allowance for loan losses were as follows:
|
|
|
|
|
Balance at March 31, 2009 |
|
$ |
1,110,726 |
|
Charge offs |
|
|
(1,752,043 |
) |
Provision for loan losses |
|
|
1,423,075 |
|
|
|
|
|
Balance at March 31, 2010 |
|
|
781,758 |
|
Charge offs |
|
|
(882,525 |
) |
Provision for loan losses |
|
|
430,652 |
|
|
|
|
|
Balance at March 31, 2011 |
|
$ |
329,885 |
|
|
|
|
|
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 instruments 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 charge offs 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.
5. CM Loans and Notes Held at Fair Value
At March 31, 2011 and 2010, we had the following assets and liabilities measured at fair value on a
recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 Inputs |
|
|
Level 2 Inputs |
|
|
Level 3 Inputs |
|
|
Fair Value |
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CM Loans |
|
$ |
|
|
|
$ |
|
|
|
$ |
149,971,989 |
|
|
$ |
149,971,989 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes |
|
$ |
|
|
|
$ |
|
|
|
$ |
149,777,817 |
|
|
$ |
149,777,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CM Loans |
|
$ |
|
|
|
$ |
|
|
|
$ |
56,056,228 |
|
|
$ |
56,056,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes |
|
$ |
|
|
|
$ |
|
|
|
$ |
56,042,064 |
|
|
$ |
56,042,064 |
|
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 year ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
CM Loans |
|
|
Notes |
|
Fair value at March 31, 2009 |
|
$ |
8,239,909 |
|
|
$ |
8,238,597 |
|
Originations |
|
|
61,820,800 |
|
|
|
62,384,880 |
|
Reclassification of member loans held for investment |
|
|
564,080 |
|
|
|
|
|
|
|
|
|
|
|
|
Principal repayments |
|
|
(10,934,102 |
) |
|
|
(10,948,362 |
) |
|
|
|
|
|
|
|
Outstanding principal |
|
|
59,690,687 |
|
|
|
59,675,115 |
|
Realized and unrealized gains/(losses) included in earnings |
|
|
(3,634,459 |
) |
|
|
(3,633,051 |
) |
|
|
|
|
|
|
|
Fair value at March 31, 2010 |
|
|
56,056,228 |
|
|
|
56,042,064 |
|
Originations |
|
|
142,339,378 |
|
|
|
151,316,400 |
|
Reclassification of member loans held for investment |
|
|
1,616,996 |
|
|
|
|
|
Principal repayments |
|
|
(42,644,778 |
) |
|
|
(47,951,608 |
) |
|
|
|
|
|
|
|
Outstanding principal |
|
|
157,367,824 |
|
|
|
159,406,856 |
|
Realized and unrealized gains/(losses) included in earnings |
|
|
(7,395,835 |
) |
|
|
(9,629,039 |
) |
|
|
|
|
|
|
|
Fair value at March 31, 2011 |
|
$ |
149,971,989 |
|
|
$ |
149,777,817 |
|
|
|
|
|
|
|
|
F-15
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, Notes, net line items. The majority of total realized and unrealized
gains/(losses) were related to Level 3 instruments held at March 31, 2011.
At March 31, 2011, we had 92 CM Loans representing $706,930 of outstanding CM Loan principal,
$347,112 of CM Loan fair value, and $346,224 of Notes principal fair value which were 90 days or
more delinquent. At March 31, 2010, we had five CM Loans representing $23,650 of outstanding CM
Loan principal, $12,154 of CM Loan fair value and $12,148 of Notes principal fair value which were
90 days or more delinquent.
6. Property and Equipment
Property and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Est. Useful Life |
|
|
March 31, |
|
|
|
(Years) |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer equipment |
|
|
3 |
|
|
$ |
272,016 |
|
|
$ |
148,057 |
|
Computer software |
|
|
5 |
|
|
|
113,783 |
|
|
|
113,783 |
|
Furniture and fixtures |
|
|
5 |
|
|
|
36,410 |
|
|
|
5,996 |
|
Domain name |
|
|
5 |
|
|
|
20,952 |
|
|
|
20,952 |
|
Leasehold Improvement |
|
|
3 |
|
|
|
19,447 |
|
|
|
10,902 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
462,608 |
|
|
|
299,690 |
|
Accumulated depreciation and amortization |
|
|
|
|
|
|
(247,617 |
) |
|
|
(168,863 |
) |
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
|
|
|
$ |
214,991 |
|
|
$ |
130,827 |
|
|
|
|
|
|
|
|
|
|
|
|
7. Accrued Expenses
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Accrued professional fees |
|
$ |
847,890 |
|
|
$ |
450,590 |
|
Accrued compensation |
|
|
602,965 |
|
|
|
380,322 |
|
Accrued sales tax and filing fees |
|
|
82 |
|
|
|
332 |
|
|
|
|
|
|
|
|
Total accrued expenses |
|
$ |
1,450,937 |
|
|
$ |
831,244 |
|
|
|
|
|
|
|
|
8. Loans Payable
Loans payable consist of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Growth capital term loan |
|
$ |
1,166,268 |
|
|
$ |
2,912,421 |
|
Unamortized discount on growth capital term loan |
|
|
(38,189 |
) |
|
|
(90,260 |
) |
Financing term loan |
|
|
1,214,482 |
|
|
|
3,600,082 |
|
Unamortized discount on financing term loan |
|
|
(39,792 |
) |
|
|
(150,595 |
) |
Private placement notes |
|
|
590,432 |
|
|
|
2,365,830 |
|
Unamortized discount on notes payable |
|
|
(20,615 |
) |
|
|
(130,371 |
) |
|
|
|
|
|
|
|
Total loans payable, net of debt discount |
|
$ |
2,872,586 |
|
|
$ |
8,507,107 |
|
|
|
|
|
|
|
|
F-16
At March 31, 2011, future maturities due on all loans payable were as follows:
|
|
|
|
|
Year ending March 31, |
|
|
|
|
2012 |
|
$ |
2,601,694 |
|
2013 |
|
|
369,488 |
|
|
|
|
|
|
|
|
2,971,182 |
|
Less amount representing debt discount |
|
|
(98,596 |
) |
|
|
|
|
Total loans payable |
|
$ |
2,872,586 |
|
|
|
|
|
Growth capital term loan
In October 2007, we entered into a loan and security agreement with 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 March 31, 2011, no amounts
were available for future financing under this agreement.
In connection with this 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. Amortization
of the debt discounts recorded for this loan, as amended, was $52,071 and $63,547 in the years
ended March 31, 2011 and 2010, 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 March 31, 2011,
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. Amortization of the debt discounts recorded for
this loan were $110,803 and $120,897 in the years ended March 31, 2011 and 2010, respectively, and
was recorded as interest expense.
Effective August 3, 2009, we amended and restated the financing term loan as further described
in this footnote below.
F-17
Term loan May 2009
On May 18, 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 allows us to borrow up to $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 March 31, 2011,
no amounts were available for future financing under this agreement.
In connection with this loan facility, we issued fully exercisable warrant to purchase 187,090
shares of Series B convertible preferred stock with an exercise price of $0.7483 per share and
recorded total debt discounts of $184,860. Amortization of these debt discounts is included in the
amortization 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 March 31, 2011, 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 March 31,
2011, our outstanding balance under these agreements, net of debt discounts, totaled $2,302,769.
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 notes payable totaling $4,707,964. Each
private placement note 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 are using 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 10 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 $109,757 and $109,757 for the years ended March 31, 2011 and 2010,
respectively.
9. Related Party Transactions
Of the private placement notes described in Note 8 Loans Payable, $450,000 of
original principal was invested by related parties on terms identical to those of given to the
other private placement note investors. At March 31, 2011 and 2010, the outstanding principal
balance of these notes was $51,108 and $213,579, respectively.
On November 1, 2010, we appointed Mr. Simon Williams to serve as a member of the Companys
Board of Directors. In connection with his appointment, Mr. Williams was granted an option of
299,955 shares of the Companys common stock with an exercise price of $0.41 to vest over four
years pursuant to the Companys 2007 incentive stock option plan.
On February 23, 2011 we granted to Mr. Simon Williams an option of 32,000 shares of the
Companys common stock with an exercise price of $0.41 pursuant to the Companys 2007 incentive
stock option plan. This option was granted to Mr. Williams who is
Chairman and CEO of Camelot Financial Capital Management in connection with the consulting
services that his firm provided to LendingClub.
F-18
The Company paid to Camelot Financial Capital Management during the year ended March 31, 2011
and 2010, $39,762 and $30,000, respectively for consulting services that they provided to the
Company. Additionally, we issued a warrant to purchase 9,568 shares of our common stock to Mr.
Daniel T. Ciporin with an exercise price of $1.5677 per share. The warrant will terminate in
February 2021.
10. Preferred Stock
Convertible 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 Consolidated 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.
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.
F-19
11. Stockholders Deficit
Common stock
As of March 31, 2011, we have shares of common stock issued and outstanding for future
issuance as follows:
|
|
|
|
|
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 |
|
|
7,527,219 |
|
Options available for future issuance |
|
|
1,408,986 |
|
Convertible preferred Series A stock warrants |
|
|
1,265,990 |
|
Convertible preferred Series B stock warrants |
|
|
374,180 |
|
Common stock warrants |
|
|
265,945 |
|
|
|
|
|
Total common stock reserved for future issuance |
|
|
58,240,560 |
|
|
|
|
|
During the year ended March 31, 2011, we issued 35,812 shares of common stock in exchange for
proceeds of $9,407 upon the exercise of employee stock options. No warrants were exercised during
the year ended March 31, 2011. During the year ended March 31, 2010, we issued 94,076 shares of
common stock in exchange for proceeds of $25,341 upon the exercise of employee stock options and
221,000 shares upon the exercise of warrants for $0.
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%.
In February 2011, in connection with the issuance of Notes, we issued fully exercisable
warrants to purchase 155,482 shares of common stock at $1.5677 per share. The warrants may be
exercised at any time on or before February 2021. The fair value of these warrants was estimated
to be $19,086 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 3.49%.
12. 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 9,261,778
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.
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 March 31,
2011, none of the option holders have chosen to early exercise.
F-20
We used the Black-Scholes option pricing model for estimating the fair value of stock options
granted with the following assumptions for the year ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Expected dividend yield |
|
|
0 |
% |
|
|
0 |
% |
Expected volatility |
|
|
46.31%-46.65 |
% |
|
|
53.8%-61.5 |
% |
Risk-free interest rates |
|
|
.025%-2.45 |
% |
|
|
2.72%-3.60 |
% |
Expected life |
|
6.25-10.00 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 fiscal 2011 and 2010. 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:
|
|
|
|
|
|
|
|
|
|
|
Options Issued and Outstanding |
|
|
|
Options Issued |
|
|
Weighted Average |
|
|
|
and Outstanding |
|
|
Exercise Price |
|
Balances at March 31, 2009 |
|
|
1,878,550 |
|
|
$ |
0.27 |
|
Options Granted |
|
|
2,195,978 |
|
|
|
0.23 |
|
Options Exercised |
|
|
(94,076 |
) |
|
|
0.27 |
|
Options Cancelled |
|
|
(1,041,952 |
) |
|
|
0.24 |
|
|
|
|
|
|
|
|
Balances at March 31, 2010 |
|
|
2,938,500 |
|
|
|
0.25 |
|
Options Granted |
|
|
4,907,407 |
|
|
|
0.41 |
|
Options Exercised |
|
|
(35,812 |
) |
|
|
0.26 |
|
Options Cancelled |
|
|
(282,876 |
) |
|
|
0.24 |
|
|
|
|
|
|
|
|
Balances at March 31, 2011 |
|
|
7,527,219 |
|
|
$ |
0.40 |
|
|
|
|
|
|
|
|
Options outstanding and exercisable at March 31, 2011 were
1,852,521 at an weighted average exercise price of $0.26.
A summary by exercise price of outstanding options, vested options, and options vested and
expected to vest at March 31, 2011, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise Price and |
|
|
|
|
|
|
Weighted Average Remaining |
|
|
|
|
|
|
|
|
Weighted Average |
|
|
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 |
|
|
|
1,213,562 |
|
|
|
7.79 |
|
|
|
569,213 |
|
|
|
1,179,751 |
|
$ |
0.27 |
|
|
|
1,446,250 |
|
|
|
6.64 |
|
|
|
1,230,403 |
|
|
|
1,440,303 |
|
$ |
0.41 |
|
|
|
4,867,407 |
|
|
|
9.53 |
|
|
|
52,905 |
|
|
|
4,558,711 |
|
F-21
A summary by outstanding options, vested options and options vested and expected to vest at
March 31, 2011, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Number of |
|
|
Remaining Contractual |
|
|
Weighted Average |
|
|
|
Options |
|
|
Life (Years) |
|
|
Exercise Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
7,527,219 |
|
|
|
8.69 |
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested Options |
|
|
1,852,521 |
|
|
|
6.79 |
|
|
$ |
0.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Vested
and Expected to
Vest |
|
|
7,178,766 |
|
|
|
8.66 |
|
|
$ |
0.35 |
|
The following table presents details of stock-based compensation expenses by functional line item
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Sales, marketing and customer service |
|
$ |
56,632 |
|
|
$ |
39,960 |
|
Engineering |
|
|
64,108 |
|
|
|
58,204 |
|
General and administrative |
|
|
89,851 |
|
|
|
55,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210,591 |
|
|
|
154,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less stock-based compensation expense for
non-employees |
|
|
(39,486 |
) |
|
|
(5,663 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee stock-based compensation expense |
|
$ |
171,105 |
|
|
$ |
148,471 |
|
|
|
|
|
|
|
|
No income tax benefit has been recognized relating to stock-based compensation expense and no
tax benefits have been realized from exercised stock options.
During the years ended March 31, 2011 and 2010, we granted stock options to purchase 4,907,407
and 2,195,978 shares, respectively, of common stock with a weighted average grant date fair value
of $0.41 and $0.13, respectively, per share. As of March 31, 2011, total unrecognized compensation
cost was $903,910. The weighted average period in years over which the above amount is expected to
be recognized is 3.06 years.
On January 1, 2011, we had a change in accounting policy for stock compensation expense
allocation method. We applied this change retrospectively to April 1, 2010. In prior years, we
used the graded method to calculate our stock compensation expense, however in 2011 we elected to
change the allocation method to straight line method. This method is preferable as it more
accurately reflects the pattern of service provided by the employee. Because the effect on the
prior years was immaterial, an adjustment for prior fiscal years was not deemed necessary.
13. Income Taxes
The Company recorded no provision for income taxes in either of the years ended March 31, 2011
or 2010.
The Companys effective tax rate differs from the statutory federal rate for fiscal 2011 and
2010, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended |
|
|
For the Year Ended |
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax at federal statutory rate |
|
$ |
(3,835,868 |
) |
|
|
34.00 |
% |
|
$ |
(3,486,389 |
) |
|
|
34.00 |
% |
State, net of federal benefit |
|
|
(649,817 |
) |
|
|
5.76 |
% |
|
|
(586,153 |
) |
|
|
5.72 |
% |
Nondeductible items |
|
|
180,927 |
|
|
|
1.60 |
% |
|
|
(191,680 |
) |
|
|
1.87 |
% |
Credits |
|
|
(152,937 |
) |
|
|
1.36 |
% |
|
|
(74,307 |
) |
|
|
0.72 |
% |
Change in valuation allowance |
|
|
4,457,513 |
|
|
|
-39.51 |
% |
|
|
4,339,047 |
|
|
|
-42.32 |
% |
Change in rate |
|
|
182 |
|
|
|
0.00 |
% |
|
|
(518 |
) |
|
|
0.01 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0 |
|
|
|
0.00 |
% |
|
$ |
0 |
|
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
The significant components of the Companys deferred tax assets and liabilities as of March
31, 2011 and 2010, are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
Deferred tax assets |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
12,894 |
|
|
$ |
4,568 |
|
Net operating loss carry forwards |
|
|
14,231,414 |
|
|
|
10,225,549 |
|
Reserves and accruals |
|
|
1,455,461 |
|
|
|
1,156,319 |
|
Organizational and start-up costs |
|
|
481,316 |
|
|
|
480,785 |
|
Credits |
|
|
445,771 |
|
|
|
338,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax asset |
|
|
16,626,856 |
|
|
|
12,205,254 |
|
Valuation allowance |
|
|
(16,626,856 |
) |
|
|
(12,205,254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
|
|
|
|
|
|
Deferred tax liability |
|
|
|
|
|
|
|
|
Net deferred tax assets (liability) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Due to the uncertainty surrounding the realization of the deferred tax asset in future tax
returns, the Company has placed a full valuation allowance against its net deferred tax assets.
At March 31, 2011 and 2010, the Company had federal net operating loss carry forwards of
approximately $35,876,557 and $25,737,946, respectively, to offset future federal taxable income
and will expire commencing in 2027.
At March 31, 2011 and 2010, the Company had state net operating loss carry forwards of
$34,718,238 and $25,388,029, respectively, to offset future state taxable income and will expire
commencing in 2019.
At March 31, 2011 and 2010, the Company has federal research and development tax credit carry
forwards of $340,860 and $249,843, respectively that expire commencing in 2027.
At March 31, 2011 and 2010, the Company has state research and development tax credit carry
forwards of $384,092 and $304,344, respectively. The state tax credit may be carried indefinitely.
For federal and state purposes, a portion of the Companys net operating loss carry forwards
may be subject to limitations on annual utilization in case of a change in ownership, as defined by
federal and state tax law. The amount of such limitations, if any, has not been determined.
The Company adopted the new provisions of FASB ASC Topic 740, Income Taxes on April 1, 2007.
These new provisions clarify the accounting for uncertainty in tax positions and require that
companies recognize in their consolidated 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 did not impact the Companys financial condition, results of operations or
cash flows for fiscal 2010 or 2011.
The Companys 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 these new provisions,
the Company did not have any unrecognized tax benefits and associated accrued interest or penalties
nor was any interest expense or penalties recognized during fiscal 2011.
As of March 31, 2011, the Companys cumulative unrecognized tax benefit was approximately
$181,238 and $138,547 which was netted against deferred tax assets with a full valuation allowance
and if recognized there will be no effect on the Companys effective tax rate. The aggregate
changes in the balance of the Companys unrecognized tax benefit were as follows:
|
|
|
|
|
Balance as of March 31, 2010 |
|
$ |
138,547 |
|
Additions for tax positions related to the current year |
|
|
46,305 |
|
Reductions for tax positions related to prior years |
|
|
(3,614 |
) |
|
|
|
|
Balance as of March 31, 2011 |
|
$ |
181,238 |
|
|
|
|
|
F-23
The Company does not believe the total amount of unrecognized benefit as of March 31, 2011,
will increase or decrease significantly in the next twelve months. The Company files income tax
returns in the U.S. federal jurisdiction and California jurisdictions. The Companys tax years
for 2006 and forward are subject to examination by the U.S. and California tax authorities as the
statutes of limitation are still open.
14. Net Interest Income
Revenues primarily result from interest income and transaction fees. Transaction fees include
origination fees (borrower member paid) and investor service charges (investor paid). Interest
income is accrued and recorded in the accompanying statements of operations as collected. We
classify interest and fees earned on our member loans together as interest income in these
consolidated financial statements.
The following table summarizes net interest income (expense) as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Interest income: |
|
|
|
|
|
|
|
|
Member loans funded by LendingClub |
|
$ |
803,192 |
|
|
$ |
1,289,290 |
|
CM Loans Funded by Notes |
|
|
|
|
|
|
|
|
Interest and fees earned on CM Loans |
|
|
17,847,614 |
|
|
|
5,101,995 |
|
Credit risk related adjustment (interest expense) |
|
|
(8,947,051 |
) |
|
|
(3,634,458 |
) |
Cash and cash equivalents |
|
|
33,139 |
|
|
|
27,559 |
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
9,736,894 |
|
|
$ |
2,784,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
Notes, fair value |
|
|
|
|
|
|
|
|
Interest and fees expensed on Notes |
|
$ |
11,159,498 |
|
|
$ |
2,837,532 |
|
Credit risk related adjustment (interest income) |
|
|
(8,932,088 |
) |
|
|
(3,633,050 |
) |
Loans payable |
|
|
702,694 |
|
|
|
1,130,229 |
|
Amortization of debt discount on Loan |
|
|
272,630 |
|
|
|
294,200 |
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
3,202,734 |
|
|
$ |
628,911 |
|
|
|
|
|
|
|
|
A reconciliation of the table above to our Consolidated Statements of Operations is as follows:
|
|
|
|
|
|
|
|
|
Per table above: |
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
9,736,894 |
|
|
$ |
2,784,386 |
|
Total interest expense |
|
|
(3,202,734 |
) |
|
|
(628,911 |
) |
|
|
|
|
|
|
|
|
|
$ |
6,534,160 |
|
|
$ |
2,155,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Consolidated Statements of Operations: |
|
|
|
|
|
|
|
|
Net interest income (loss), Member loans |
|
$ |
(138,993 |
) |
|
$ |
(107,580 |
) |
Net interest income (loss), CM Loans and Notes, fair value |
|
|
6,673,153 |
|
|
|
2,263,055 |
|
|
|
|
|
|
|
|
|
|
$ |
6,534,160 |
|
|
$ |
2,155,475 |
|
|
|
|
|
|
|
|
F-24
15. Commitments and Contingencies
Operating leases
As of March 31, 2011, our corporate headquarters, including our principal administrative,
marketing, technical support and engineering functions, were located in Redwood City, California.
The lease was for 6,400 square feet with an option to acquire an additional 600 square feet on the
same terms and conditions. The lease expires on December 31, 2011 but we have an option to
terminate the lease early with a six month notice.
On November 18, 2010, we notified our landlord that we were providing the required 6 months
notice to terminate the lease for our corporate headquarters. In April 2011, we entered into a
sublease agreement for approximately 18,200 square feet of space in San Francisco, CA for our
corporate headquarters, including our principal administrative, marketing, technical support and
engineering functions. The sublease has a term of 6 years and began on May 1, 2011. We can
terminate the sublease upon 9 months notice prior to the third anniversary of the sublease. The
average annual rent for our new corporate headquarters is approximately $42,000 and we pledged
$200,000 as a security deposit. We believe that this new facility will be adequate to meet our
current needs, that we have the ability to request more space as needed, and that suitable
additional alternative spaces will be available in the future on commercially reasonable terms.
Effective June 1, 2010, we entered into a 12 month lease for approximately 238 square feet in
Fairfield, Connecticut for use by our Chief Operating Officer. This lease may be extended for an
additional 12 month lease term if the landlord is notified no later than 60 days prior to the
leases expiration. On July 14, 2010, we entered into a month-to-month lease agreement for the
lease of 250 square feet for a New York City office. We terminated this lease and office in
October 2010. On August 8, 2010, we entered into a twelve month lease agreement for the lease of
approximately 400 square feet for a second New York office. Notice was given on this lease in May
12, 2011 and will be terminated as of August 12, 2011.
Facilities rental expense for the fiscal year ending March 31, 2011 and 2010 was $311,322 and
$235,735, respectively.
The sublease for our corporate headquarters is under a long-term non-cancelable operating
leases expiring June 30, 2017, however we can terminate the sublease upon 9 months notice prior to
our third anniversary of the sublease. At March 31, 2011, the approximate minimum future
commitments payable under the non-cancelable contract for leased premises is as follows:
|
|
|
|
|
|
|
Operating Leases |
|
|
|
|
|
|
2012 |
|
$ |
455,525 |
|
|
|
|
|
|
2013 |
|
|
472,228 |
|
|
|
|
|
|
2014 |
|
|
490,449 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,418,202 |
|
|
|
|
|
16. Employee Benefit Plan
We maintain a 401(k) defined contribution plan that covers substantially all of its employees.
Participants may elect to contribute their annual compensation up to the maximum limit imposed by
federal tax law. The Company, at its discretion, may make annual matching contributions to the
plan. The Company has made no matching contributions to the plan through March 31, 2011.
17. Subsequent Events
Subsequent to March 31, and through the date immediately prior to the release of these
consolidated financial statements, the following subsequent event occurred. In April 2011, we
entered into a sublease agreement for approximately 18,200 square feet of space in San Francisco,
CA for our corporate headquarters. The sublease has a term of 6 years and began on May 1, 2011.
We can terminate the sublease upon 9 months notice prior to the third anniversary of the sublease.
Refer to Note 15 for further discussion of the sublease agreement.
F-25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
|
|
|
|
|
|
|
Date: June 29, 2011 |
|
|
|
|
|
|
|
|
|
|
|
LendingClub Corporation |
|
|
|
|
|
|
|
|
|
|
|
By: |
|
/s/ Renaud Laplanche
|
|
|
|
|
|
|
Renaud Laplanche |
|
|
|
|
|
|
Chief Executive Officer |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
/s/ Renaud Laplanche
Renaud Laplanche
|
|
Chief Executive Officer and Director (Principal
Executive Officer)
|
|
June 29, 2011 |
|
|
|
|
|
/s/ Carrie L. Dolan
Carrie L. Dolan
|
|
Chief Financial Officer (Principal
Financial Officer and
|
|
June 29, 2011 |
|
|
Principal Accounting Officer) |
|
|
|
|
|
|
|
/s/ Jeffrey M. Crowe
Jeffrey M. Crowe
|
|
Director
|
|
June 29, 2011 |
|
|
|
|
|
/s/ Daniel Ciporin
Daniel Ciporin
|
|
Director
|
|
June 29, 2011 |
|
|
|
|
|
/s/ Rebecca Lynn
Rebecca Lynn
|
|
Director
|
|
June 29, 2011 |
|
|
|
|
|
/s/ Simon Williams
Simon Williams
|
|
Director
|
|
June 29, 2011 |
87
Exhibit Index
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
|
3.1 |
|
|
Amended and Restated Certificate of Incorporation of LendingClub
Corporation, as amended (incorporated by reference to Exhibit 3.1 of the
Companys 8-K, filed April 14, 2010) |
|
|
|
|
|
|
3.2 |
|
|
Amended and Restated Bylaws of LendingClub Corporation (incorporated by
reference to Exhibit 3.2 of the Companys Annual Report on Form 10-K,
filed June 17, 2009) |
|
|
|
|
|
|
4.1 |
|
|
Form of three-year Member Payment Dependent Note (included as Exhibit A
in Exhibit 4.5) (incorporated by reference to Exhibit 4.3 of the
Companys Post-Effective Amendment No. 5, Registration No. 333-151827,
filed May 5, 2010) |
|
|
|
|
|
|
4.2 |
|
|
Form of Indenture between LendingClub Corporation and Wells Fargo Bank,
National Association (incorporated by reference to Exhibit 4.2 of the
Companys Amendment #3 to Form S-1, Registration No. 333-151827, filed
October 9, 2008) |
|
|
|
|
|
|
4.3 |
|
|
First Supplemental Indenture, dated July 10, 2009, between LendingClub
Corporation and Wells Fargo Bank, National Association (incorporated by
reference to Exhibit 4.3 of the Companys Post-Effective Amendment No.
3, Registration No. 333-151827, filed July 23, 2009) |
|
|
|
|
|
|
4.4 |
|
|
Form of Investor Agreement (incorporated by reference to Exhibit 4.4 of
the Companys Post-Effective Amendment No. 4, Registration No.
333-151827, filed January 19, 2010) |
|
|
|
|
|
|
4.5 |
|
|
Second Supplemental Indenture, dated May 5, 2010, between LendingClub
Corporation and Wells Fargo Bank, National Association (incorporated by
reference to Exhibit 4.5 of the Companys Post-Effective Amendment No.
5, Registration No. 333-151827, filed May 5, 2010) |
|
|
|
|
|
|
4.6 |
|
|
Form of five-year Member Payment Dependent Note (included as Exhibit B
in Exhibit 4.5) (incorporated by reference to Exhibit 4.5 of the
Companys Post-Effective Amendment No. 5, Registration No. 333-151827,
filed May 5, 2010) |
|
|
|
|
|
|
10.1 |
|
|
Form of Loan Agreement (incorporated by reference to Exhibit 10.1 of the
Companys Post-Effective Amendment No. 5, Registration No. 333-151827,
filed May 5, 2010) |
|
|
|
|
|
|
10.2 |
|
|
Form of Borrower Membership Agreement (incorporated by reference to
Exhibit 10.2 of the Companys Post-Effective Amendment No. 5,
Registration No. 333-151827, filed May 5, 2010) |
|
|
|
|
|
|
10.3 |
|
|
Second Amended and Restated Loan and Security Agreement, dated as of
August 3, 2009, between LendingClub Corporation and Silicon Valley Bank
(incorporated by reference to Exhibit 10.1 of the Companys Form 8-K,
filed August 11, 2009) |
|
|
|
|
|
|
10.4 |
|
|
Amended and Restated Loan and Security Agreement, dated as of August 3,
2009, between LendingClub Corporation, the Gold Hill Lenders referenced
on Exhibit A attached thereto, Gold Hill Venture Lending 03, LP, and
Silicon Valley Bank (incorporated by reference to Exhibit 10.2 of the
Companys Form 8-K, filed August 11, 2009) |
88
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
|
10.5 |
|
|
First Amendment to Amended And Restated Loan and Security Agreement,
dated April 15, 2010, by and among LendingClub Corporation, Gold Hill
Venture Lending 03, LP, and Silicon Valley Bank (incorporated by
reference to Exhibit 10.5 of the Companys Post-Effective Amendment No.
5, Registration No. 333-151827, filed May 5, 2010) |
|
|
|
|
|
|
10.6 |
|
|
First Amendment to Second Amended And Restated Loan And Security
Agreement, dated April 15, 2010, by and between Silicon Valley Bank and
LendingClub Corporation (incorporated by reference to Exhibit 10.6 of
the Companys Post-Effective Amendment No. 5, Registration No.
333-151827, filed May 5, 2010) |
|
|
|
|
|
|
10.7 |
|
|
LendingClub Corporation 2007 Stock Incentive Plan, as amended
(incorporated by reference to Exhibit 10.5 of the Companys Form S-1,
filed June 20, 2008) (incorporated by reference to Exhibit 4.3 of the
Companys Post-Effective Amendment No. 5, Registration No. 333-151827,
filed May 5, 2010) |
|
|
|
|
|
|
10.8 |
|
|
Amendment No. 3 to LendingClub Corporation 2007 Stock Incentive Plan
(incorporated by reference to Exhibit 10.8 of the Companys Annual
Report on Form 10-K, filed June 17, 2009) |
|
|
|
|
|
|
10.9 |
|
|
Form of Secured Promissory Note (incorporated by reference to Exhibit
10.6 of the Companys Form S-1 (Registration No. 333-151827), filed June
20, 2008) |
|
|
|
|
|
|
10.10 |
|
|
Form of Warrant (incorporated by reference to Exhibit 10.7 of the
Companys Form S-1, filed June 20, 2008) |
|
|
|
|
|
|
10.11 |
|
|
Loan Account Program Agreement, dated as of December 10, 2007, by and
between LendingClub Corporation and WebBank (incorporated by reference
to Exhibit 10.11 of the Companys
Form 10-K, filed June 17, 2009) |
|
|
|
|
|
|
10.12 |
|
|
Loan Sale Agreement, dated as of December 10, 2007, by and between
LendingClub Corporation and WebBank (incorporated by reference to
Exhibit 10.12 of the Companys Form 10-K, filed June 17, 2009) |
|
|
|
|
|
|
10.13 |
|
|
First Amendment to Loan Account Program Agreement, dated as of April 30,
2008, by and between LendingClub Corporation and WebBank (incorporated
by reference to Exhibit 10.13 of the Companys Form 10-K, filed June 17,
2009) |
|
|
|
|
|
|
10.14 |
|
|
Second Amendment to Loan Account Program Agreement and First Amendment
to Loan Sale Agreement, dated as of October 8, 2008, by and between
LendingClub Corporation and WebBank (incorporated by reference to
Exhibit 10.14 of the Companys Form 10-K, filed June 17, 2009) |
|
|
|
|
|
|
10.15 |
|
|
Hosting Services Agreement, dated as of October 6, 2008, between
LendingClub Corporation and FOLIOfn Investments, Inc. (incorporated by
reference to Exhibit 10.15 of the Companys
Form 10-K, filed June 17, 2009) |
|
|
|
|
|
|
10.16 |
|
|
Services Agreement, dated as of October 6, 2008, by and between
LendingClub Corporation and FOLIOfn Investments, Inc. (incorporated by
reference to Exhibit 10.16 of the Companys
Form 10-K, filed June 17, 2009) |
|
|
|
|
|
|
10.17 |
|
|
License Agreement, dated as of October 6, 2008, by and between
LendingClub Corporation and FOLIOfn Investments, Inc. (incorporated by
reference to Exhibit 10.17 of the Companys
Form 10-K, filed June 17, 2009) |
|
|
|
|
|
|
10.18 |
|
|
Series A Preferred Stock Purchase Agreement, dated as of August 21,
2007, by and among LendingClub Corporation, and each of those persons
whose names are set forth on the Schedule of Purchasers attached thereto
as Exhibit A (incorporated by reference to Exhibit 10.18 of the
Companys Form 10-K, filed June 17, 2009) |
89
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
|
|
|
10.19 |
|
|
Series B Preferred Stock Purchase Agreement, dated as of March 13, 2009,
by and among LendingClub Corporation, and each of those persons whose
names are set forth on the Schedule of Purchasers attached thereto as
Exhibit A (incorporated by reference to Exhibit 10.19 of the Companys
Form 10-K, filed June 17, 2009) |
|
|
|
|
|
|
10.20 |
|
|
Series C Preferred Stock Purchase Agreement, dated as of April 14, 2010,
by and among LendingClub Corporation, and each of those persons whose
names are set forth on the Schedule of Purchasers attached thereto as
Exhibit A (incorporated by reference to Exhibit 99.1 of the Companys
Form 8-K, filed April 14, 2010) |
|
|
|
|
|
|
10.21 |
|
|
Amended and Restated Investor Rights Agreement, dated as of April 14,
2010, by and among LendingClub Corporation and the investors listed on
Exhibit A thereto (incorporated by reference to Exhibit 99.2 of the
Companys Form 8-K, filed April 14, 2010) |
|
|
|
|
|
|
10.22 |
|
|
Amended and Restated Voting Agreement, dated as of April 14, 2010, by
and among LendingClub Corporation, those certain holders of the
Companys Common Stock listed on Exhibit A thereto, the persons and
entities listed on Exhibit B thereto, and the persons and entities
listed on Exhibit C thereto (incorporated by reference to Exhibit 99.3
of the Companys Form 8-K, filed April 14, 2010) |
|
|
|
|
|
|
10.23 |
|
|
Amended and Restated Right of First Refusal and Co-Sale Agreement, dated
as of April 14, 2010, by and among LendingClub Corporation, each of the
persons and entities listed on Exhibit A thereto, and each of the
persons listed on Exhibit B thereto (incorporated by reference to
Exhibit 99.4 of the Companys Form 8-K, filed April 14, 2010) |
|
|
|
|
|
|
10.24 |
|
|
Warrant to Purchase Stock, dated May 18, 2009, issued to Silicon Valley
Bank (incorporated by reference to Exhibit 10.2 of the Companys Form
8-K, filed May 22, 2009) |
|
|
|
|
|
|
10.25 |
|
|
Warrant to Purchase Stock, dated May 18, 2009, issued to Gold Hill
Venture Lending 03, LP (incorporated by reference to Exhibit 10.3 of the
Companys Form 8-K, filed May 22, 2009) |
|
|
|
|
|
|
10.26 |
|
|
Security Agreement: Specific Rights to Payment, dated April 15, 2010, by
and between Wells Fargo Bank, National Association and LendingClub
Corporation. (incorporated by reference to Exhibit 10.26 of the
Companys Post-Effective Amendment No. 5, Registration No. 333-151827,
filed May 5, 2010) |
|
|
|
|
|
|
14.1 |
|
|
Code of Conduct and Ethics |
|
|
|
|
|
|
16.1 |
|
|
Letter from Armanino McKenna LLP to the Securities and Exchange
Commission (incorporated by reference to Exhibit 16.1 of the Companys
Form 8-K, Filed April 11, 2011) |
|
|
|
|
|
|
18.1 |
|
|
Preferability letter from Independent Registered Public Accounting firm
|
|
|
|
|
|
|
21.1 |
|
|
List of Subsidiaries |
|
|
|
|
|
|
23.1 |
|
|
Consent of Armanino McKenna LLP |
90