# Happen, Inc. (LC) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Happen, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1409970/000140997023000012/lc-20221231.htm
Accession: 0001409970-23-000012
Filing date: 2023-02-09
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/LC/
All MD&A years: /company/LC/mda/
Previous year: /company/LC/mda/fy2021/ (FY 2021)
Next year: /company/LC/mda/fy2023/ (FY 2023)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes that appear in this Annual Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and in this Annual Report, particularly in “Part I – Item 1A. Risk Factors.”

Overview

LendingClub is America’s leading digital marketplace bank. The Company was founded in 2006 and brought a traditional credit product – the installment loan – into the digital age by leveraging technology, data science, and a unique marketplace model. In doing so, we became one of the largest providers of unsecured personal loans in the United States. In February 2021, LendingClub completed the acquisition of an award-winning digital bank, Radius, becoming a bank holding company and forming LC Bank as its wholly-owned subsidiary. We operate the vast majority of our business through LC Bank, as a lender and originator of loans and as a regulated bank in the United States.

Executive Summary

We delivered the following results demonstrating the benefits of our evolution into a marketplace bank in the face of a less favorable economic environment. Our recurring revenue growth offset the recent reduction in investor demand for marketplace loans in the second half of 2022, which was impacted adversely given the rapidly rising interest rate environment. We expect this reduction in investor demand to continue until interest rates stabilize. At the end of 2022, we acquired a $1.05 billion outstanding principal loan portfolio that is expected to generate additional net interest income in 2023. In addition, in January 2023 we implemented a cost reduction and reorganization plan, reducing our workforce by 225 employees, or 14%, to more closely align our operations to reduced marketplace revenue. We anticipate the workforce reductions will result in annualized run-rate savings in compensation and benefits of approximately $25 to $30 million in 2023.

•Loan originations: Loan originations increased $2.7 billion, or 26%, for the year ended December 31, 2022 compared to the same period in 2021. The increase was primarily driven by the growth in unsecured personal loan origination volume.

◦Loan originations held for investment (HFI) at amortized cost increased $1.4 billion, or 63%, for the year ended December 31, 2022 compared to the prior year.

◦Loan originations HFI at amortized cost as a percentage of total loan originations was 28%, increasing from 22% in the prior year. The percentage of loan originations HFI in any period is dependent on many factors, including quarterly loan origination volume, risk-adjusted returns, liquidity and general regulatory capital considerations.

•Total net revenue: Total net revenue increased $368.6 million, or 45%, for the year ended December 31, 2022 compared to the same period in 2021.

◦Marketplace revenue: Marketplace revenue increased $105.0 million, or 18%, for the year ended December 31, 2022 compared to the same period in 2021. The increase was in line with loan origination volume growth, partially offset by the recent reduction in investor demand for marketplace loans, which was impacted adversely given the rapidly rising interest rate environment, as well as tighter underwriting standards implemented by the Company in the second half of 2022.

◦Net interest income: Net interest income increased $262.0 million, or 123%, for the year ended December 31, 2022 compared to the same period in 2021. The increase was primarily driven by an

51

LENDINGCLUB CORPORATION

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

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

increase in unsecured personal loans retained in current and prior periods as HFI, partially offset by an increase in interest expense on deposits due to higher interest rates.

◦Net interest margin: Net interest margin was 8.2%, increasing from 5.6% in the prior year, primarily reflecting a greater mix of personal loans which generate a higher yield than the rest of the loans HFI, partially offset by higher interest rates on deposits.

•Provision for credit losses: Provision for credit losses increased $128.5 million, or 93%, for the year ended December 31, 2022 compared to the same period in 2021. The increase was primarily due to growth in loans HFI at amortized cost, discounting effect of the NPV allowance on prior loan vintages and additional qualitative allowance reflecting a less favorable economic outlook.

•Total non-interest expense: Total non-interest expense increased $105.5 million, or 16%, for the year ended December 31, 2022 compared to the same period in 2021. The increase was primarily driven by an increase in compensation and benefits expenses primarily due to an increase in headcount as well as an increase in variable marketing expenses based on higher origination volume.

•Net income: Net income increased $271.1 million for the year ended December 31, 2022 compared to the same period in 2021. Net income for the year ended December 31, 2022 included a $143.5 million income tax benefit related to the reversal of our valuation allowance against our deferred tax assets.

•Net income excluding income tax benefit: Net income excluding income tax benefit (related to the reversal of our valuation allowance against our deferred tax assets) increased $127.6 million for the year ended December 31, 2022 compared to the same period in 2021.

•Diluted EPS: Diluted EPS was $2.79 for the year ended December 31, 2022, increasing from $0.18 in the prior year. Diluted EPS for the year ended December 31, 2022 included a $1.38 per share benefit from the deferred tax valuation allowance reversal, as well as revenue growth and improved operating efficiency.

•Pre-provision net revenue: Pre-provision net revenue increased $263.2 million, or 167%, for the year ended December 31, 2022 compared to the same period in 2021, reflecting revenue growth combined with improved operating efficiency.

•Total assets: Total assets as of December 31, 2022 increased $3.1 billion, or 63%, compared to the prior year, primarily reflecting growth in loans held for investment, including the acquisition of a $1.05 billion outstanding principal loan portfolio at the end of 2022.

•Deposits: Total deposits as of December 31, 2022 increased $3.3 billion, or 104%, compared to the prior year, primarily reflecting growth in online savings deposits.

•Total equity: Total equity as of December 31, 2022 increased $314.1 million, or 37%, compared to the prior year, primarily reflecting net income generated over the period and the deferred tax asset valuation allowance reversal.

The above summary should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations in its entirety. For additional discussion related to our operating segments, see “Segment Information.”

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LENDINGCLUB CORPORATION

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

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

Financial Highlights

We regularly review several metrics to evaluate our business, measure our performance, identify trends, formulate financial projections and make strategic decisions. The following presents our select financial metrics for the periods presented:

[[GREPCENT_TABLE]]
[["As Of and For The Year Ended December 31,","2022","","2021","","2020"],["Non-interest income","$","712,391","","","$","605,799","","","$","258,756"],["Net interest income","474,825","","","212,831","","","59,328"],["Total net revenue","1,187,216","","","818,630","","","318,084"],["Non-interest expense","766,853","","","661,386","","","502,319"],["Pre-provision net revenue (1)","420,363","","","157,244","","","(184,235)"],["Provision for credit losses","267,326","","","138,800","","","3,382"],["Income (Loss) before income tax benefit","153,037","","","18,444","","","(187,617)"],["Income tax benefit","136,648","","","136","","","79"],["Net income (loss)","$","289,685","","","$","18,580","","","$","(187,538)"],["Income tax benefit from release of tax valuation allowance","143,495","","","\u2014","","","\u2014"],["Net income (loss) excluding income tax benefit(1)(2)","$","146,190","","","$","18,580","","","$","(187,538)"],["Basic EPS \u2013 common stockholders","$","2.80","","","$","0.19","","","$","(2.07)"],["Diluted EPS \u2013 common stockholders","$","2.79","","","$","0.18","","","$","(2.07)"],["Diluted EPS excluding income tax benefit(1)(2)","$","1.41","","","$","0.18","","","$","(2.07)"],["LendingClub Corporation Performance Metrics:"],["Net interest margin","8.2","%","","5.6","%","","3.0","%"],["Efficiency ratio(3)","64.6","%","","80.8","%","","N/A"],["Return on average equity (ROE)","28.4","%","","2.4","%","","N/A"],["Return on average total assets (ROA)","4.7","%","","0.4","%","","N/A"],["Marketing as a % of loan originations","1.5","%","","1.5","%","","1.2","%"],["LendingClub Corporation Capital Metrics:"],["Common equity tier 1 capital ratio","15.8","%","","21.3","%","","N/A"],["Tier 1 leverage ratio","14.1","%","","16.5","%","","N/A"],["Book value per common share","$","10.93","","","$","8.41","","","$","8.22"],["Tangible book value per common share(1)","$","10.06","","","$","7.46","","","$","8.09"],["Loan Originations (in millions)(4):"],["Marketplace loans","$","9,389","","","$","8,099","","","$","4,343"],["Loan originations held for investment","3,731","","","2,282","","","\u2014"],["Total loan originations","$","13,121","","","$","10,381","","","$","4,343"],["Loan originations held for investment as a % of total loan originations","28","%","","22","%","","\u2014","%"],["Servicing Portfolio AUM (in millions)(5):"],["Total servicing portfolio","$","16,157","","","$","12,463","","","$","11,002"],["Loans serviced for others","$","10,819","","","$","10,124","","","$","10,139"]]
[[/GREPCENT_TABLE]]

N/A – Not applicable

(1)    Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” for additional information.

(2)    Excludes an income tax benefit of $143.5 million for the year ended December 31, 2022 due to the release of a deferred tax asset valuation allowance.

(3)    Calculated as the ratio of non-interest expense to total net revenue.

(4)    Includes unsecured personal loans and auto loans only.

53

LENDINGCLUB CORPORATION

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

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

(5)    Assets under management (AUM) reflects loans serviced on our platform, which includes outstanding balances of unsecured personal loans, auto refinance loans and education and patient finance loans serviced for others and retained for investment by the Company.

[[GREPCENT_TABLE]]
[["As of December 31,","2022","","2021"],["Balance Sheet Data:"],["Loans and leases held for investment at amortized cost, net, excluding PPP loans","$","4,638,331","","","$","2,486,440"],["PPP loans","66,971","","","268,297"],["Total loans and leases held for investment at amortized cost, net (1)","$","4,705,302","","","$","2,754,737"],["Loans held for investment at fair value","$","925,938","","","$","21,240"],["Total loans and leases held for investment","$","5,631,240","","","$","2,775,977"],["Total assets","$","7,979,747","","","$","4,900,319"],["Total deposits","$","6,392,553","","","$","3,135,788"],["Total liabilities","$","6,815,453","","","$","4,050,077"],["Total equity","$","1,164,294","","","$","850,242"]]
[[/GREPCENT_TABLE]]

(1)    Excludes loans held for investment at fair value, which primarily consists of a loan portfolio that was acquired at the end of 2022.

The asset quality metrics presented in the following table are for loans and leases held for investment at amortized cost and do not reflect loans held for investment at fair value:

[[GREPCENT_TABLE]]
[["As of and for the year ended December 31,","2022","","2021"],["ALLL to total loans and leases held for investment","6.5","%","","5.0","%"],["ALLL to total loans and leases held for investment, excluding PPP loans","6.6","%","","5.5","%"],["ALLL to consumer loans and leases held for investment","7.3","%","","6.4","%"],["ALLL to commercial loans and leases held for investment","2.0","%","","1.8","%"],["ALLL to commercial loans and leases held for investment, excluding PPP loans","2.2","%","","2.6","%"],["Net charge-offs","$","83,216","","","$","9,002"],["Net charge-off ratio(1)","2.1","%","","0.5","%"]]
[[/GREPCENT_TABLE]]

(1)    Calculated as net charge-offs divided by average outstanding loans and leases HFI at amortized cost during the period, excluding PPP loans.

54

LENDINGCLUB CORPORATION

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

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

Results of Operations

This section of this Form 10-K generally discusses 2022 and 2021 items and year-over-year comparisons between 2022 and 2021. For discussion related to 2020 items and year-over-year comparisons between 2021 and 2020, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report on Form 10-K for the year ended December 31, 2021.

The following table sets forth the Income Statement data for each of the periods presented:

[[GREPCENT_TABLE]]
[["Year Ended December 31,","2022","","2021","","2020"],["Non-interest income:"],["Marketplace revenue","$","683,626","","","$","578,580","","","$","245,314"],["Other non-interest income","28,765","","","27,219","","","13,442"],["Total non-interest income","712,391","","","605,799","","","258,756"],["Interest income:"],["Interest on loans held for sale","26,183","","","29,540","","","72,876"],["Interest and fees on loans and leases held for investment","465,450","","","188,977","","","\u2014"],["Interest on loans held for investment at fair value","12,877","","","4,436","","","7,688"],["Interest on retail and certificate loans held for investment at fair value","18,135","","","57,684","","","115,952"],["Interest on securities available for sale","16,116","","","11,025","","","12,125"],["Other interest income","18,579","","","1,170","","","1,053"],["Total interest income","557,340","","","292,832","","","209,694"],["Interest expense:"],["Interest on deposits","60,451","","","7,228","","","\u2014"],["Interest on short-term borrowings","1,002","","","3,677","","","17,837"],["Interest on retail notes, certificates and secured borrowings","18,135","","","57,684","","","115,952"],["Interest on Structured Program borrowings","1,508","","","9,638","","","16,204"],["Interest on other long-term debt","1,419","","","1,774","","","373"],["Total interest expense","82,515","","","80,001","","","150,366"],["Net interest income","474,825","","","212,831","","","59,328"],["Total net revenue","1,187,216","","","818,630","","","318,084"],["Provision for credit losses","267,326","","","138,800","","","3,382"],["Non-interest expense:"],["Compensation and benefits","339,397","","","288,390","","","252,517"],["Marketing","197,747","","","156,142","","","51,518"],["Equipment and software","49,198","","","39,490","","","26,842"],["Occupancy","21,977","","","24,249","","","27,870"],["Depreciation and amortization","43,831","","","44,285","","","54,030"],["Professional services","50,516","","","47,572","","","41,780"],["Other non-interest expense","64,187","","","61,258","","","47,762"],["Total non-interest expense","766,853","","","661,386","","","502,319"],["Income (Loss) before income tax benefit","153,037","","","18,444","","","(187,617)"],["Income tax benefit","136,648","","","136","","","79"],["Net income (loss)","$","289,685","","","$","18,580","","","$","(187,538)"]]
[[/GREPCENT_TABLE]]

55

LENDINGCLUB CORPORATION

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

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

Marketplace Revenue

Marketplace revenue consists of the following:

[[GREPCENT_TABLE]]
[["Year Ended December 31,","2022","","2021","","","","Change ($)","","Change (%)"],["Origination fees","$","499,179","","","$","416,839","","","","","$","82,340","","","20","%"],["Servicing fees","80,609","","","87,639","","","","","(7,030)","","","(8)","%"],["Gain on sales of loans","95,335","","","70,116","","","","","25,219","","","36","%"],["Net fair value adjustments","8,503","","","3,986","","","","","4,517","","","113","%"],["Total marketplace revenue","$","683,626","","","$","578,580","","","","","$","105,046","","","18","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Year Ended December 31,","2021","","2020","","","","Change ($)","","Change (%)"],["Origination fees","$","416,839","","","$","207,640","","","","","$","209,199","","","101","%"],["Servicing fees","87,639","","","111,864","","","","","(24,225)","","","(22)","%"],["Gain on sales of loans","70,116","","","30,812","","","","","39,304","","","128","%"],["Net fair value adjustments","3,986","","","(105,002)","","","","","108,988","","","N/M"],["Total marketplace revenue","$","578,580","","","$","245,314","","","","","$","333,266","","","136","%"]]
[[/GREPCENT_TABLE]]

We elected to account for HFS loans under the fair value option. With the election of the fair value option, origination fees, net fair value adjustments prior to sale of the loans, and servicing asset gains on the sales of the loans, are reported as separate components of “Marketplace revenue.”

Origination Fees

Origination fees recorded as a component of marketplace revenue are primarily fees earned related to originating and issuing unsecured personal loans that are held for sale. In addition, origination fees include transaction fees that were paid to us by issuing bank partners or education and patient service providers for the work performed in facilitating the origination of loans by the issuing banks. Following the Acquisition, LC Bank became the originator and lender for all unsecured personal and auto refinance loans and the majority of education and patient finance loans.

The following table presents loan origination volume during each of the periods set forth below:

[[GREPCENT_TABLE]]
[["Year Ended December 31,","2022","","2021","","2020","","2022 vs. 2021 Change (%)","","2021 vs. 2020 Change (%)"],["Marketplace loans","$","9,389,445","","","$","8,099,109","","","$","4,343,411","","","16","%","","86","%"],["Loan originations held for investment","3,731,057","","","2,282,206","","","\u2014","","","63","%","","N/A"],["Total loan originations (1)","$","13,120,502","","","$","10,381,315","","","$","4,343,411","","","26","%","","139","%"]]
[[/GREPCENT_TABLE]]

N/A – Not applicable

(1)    Includes unsecured personal loans and auto loans only.

Origination fees were $499.2 million and $416.8 million for the years ended December 31, 2022 and 2021, respectively, an increase of 20%. The increase was due to higher origination volume of marketplace loans, partially offset by a reduction in investor demand for marketplace loans in the second half of 2022 that was impacted adversely by the rapidly rising interest rate environment.

56

LENDINGCLUB CORPORATION

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

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

Servicing Fees

We receive servicing fees to compensate us for servicing loans on behalf of investors, including managing payments from borrowers, collections and payments to those investors. Servicing fee revenue related to loans sold also includes the change in fair value of servicing assets associated with the loans.

The table below illustrates AUM serviced on our platform by the method in which the loans were financed as of the end of each period presented. Loans sold and subsequently serviced on behalf of the investor represent a key driver of our servicing fee revenue.     

[[GREPCENT_TABLE]]
[["As of December 31,","2022","","2021","","Change ($)","","","","Change (%)"],["AUM (in millions):"],["Loans sold","$","10,819","","","$","10,124","","","$","695","","","","","7","%"],["Loans held by LendingClub Bank","5,263","","","2,026","","","3,237","","","","","160","%"],["Retail notes, certificates and secured borrowings","59","","","238","","","(179)","","","","","(75)","%"],["Other loans invested in by the Company","16","","","75","","","(59)","","","","","(79)","%"],["Total","$","16,157","","","$","12,463","","","$","3,694","","","","","30","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["As of December 31,","2021","","2020","","Change ($)","","","","Change (%)"],["AUM (in millions):"],["Loans sold","$","10,124","","","$","10,139","","","$","(15)","","","","","\u2014","%"],["Loans held by LendingClub Bank","2,026","","","\u2014","","","$","2,026","","","","","N/M"],["Retail notes, certificates and secured borrowings","238","","","680","","","$","(442)","","","","","(65)","%"],["Other loans invested in by the Company","75","","","183","","","(108)","","","","","(59)","%"],["Total","$","12,463","","","$","11,002","","","$","1,461","","","","","13","%"]]
[[/GREPCENT_TABLE]]

In addition to the loans serviced on our marketplace platform, we earned servicing fee revenue on $167.0 million and $214.0 million in outstanding principal balance of commercial loans sold as of December 31, 2022 and 2021, respectively.

Servicing fees were $80.6 million and $87.6 million for the years ended December 31, 2022 and 2021, respectively, a decrease of 8%. The decrease was primarily due to higher fair value amortization of our servicing asset resulting from a larger asset balance, as well as a servicing asset write-off related to the acquisition of a $1.05 billion outstanding principal loan portfolio in the fourth quarter of 2022, partially offset by an increase in the fair value of the servicing asset based on higher expected servicing fee revenue.

Gain on Sales of Loans

In connection with loan sales, we recognize a gain or loss on the sale of loans based on the level to which the contractual servicing fee is above or below an estimated market rate of servicing at the time of sale. Additionally, we recognize transaction costs, if any, as a loss on sale of loans.

Gain on sales of loans was $95.3 million and $70.1 million for the years ended December 31, 2022 and 2021, respectively, an increase of 36%. The increase was primarily due to an increase in the volume of marketplace loans sold and an increase in expected servicing fee revenue.

Net Fair Value Adjustments

We record fair value adjustments on loans that are recorded at fair value, including gains or losses from sale prices in excess of or less than the loan principal amount sold.

57

LENDINGCLUB CORPORATION

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

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

Net fair value adjustments were $8.5 million and $4.0 million for the years ended December 31, 2022 and 2021, respectively, an increase of $4.5 million. The increase was primarily due to higher loan sale prices and an increase in the volume of marketplace loans sold.

Other Non-interest Income

Other non-interest income primarily consists of referral revenue that relates to fees earned from third-party companies when customers referred by us consider or purchase products or services from such third-party companies. The tables below illustrate the composition of other non-interest income for each period presented:

[[GREPCENT_TABLE]]
[["Year Ended December 31,","2022","","2021","","","","Change ($)","","Change (%)"],["Referral revenue","$","12,942","","","$","14,234","","","","","$","(1,292)","","","(9)","%"],["Realized losses on sales of securities available for sale and other investments","\u2014","","","(93)","","","","","93","","","N/M"],["Other","15,823","","","13,078","","","","","2,745","","","21","%"],["Other non-interest income","$","28,765","","","$","27,219","","","","","$","1,546","","","6","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Year Ended December 31,","2021","","2020","","Change ($)","","Change (%)"],["Referral revenue","$","14,234","","","$","5,011","","","$","9,223","","","184","%"],["Realized gains (losses) on sales of securities available for sale and other investments","(93)","","","11","","","(104)","","","N/M"],["Other","13,078","","","8,420","","","4,658","","","55","%"],["Other non-interest income","$","27,219","","","$","13,442","","","$","13,777","","","102","%"]]
[[/GREPCENT_TABLE]]

58

LENDINGCLUB CORPORATION

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

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

Net Interest Income

The table below presents net interest income information corresponding to interest-earning assets and interest-bearing funding sources on a consolidated basis for the Company. The average yield/rate is calculated by dividing the period-end interest income/expense by the average balance.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","2020"],["","Average Balance","","Interest Income/ Expense","","Average Yield/ Rate","","Average Balance","","Interest Income/ Expense","","Average Yield/ Rate","","Average Balance","","Interest Income/ Expense","","Average Yield/ Rate"],["Interest-earning assets (1)"],["Cash, cash equivalents, restricted cash and other","$","987,833","","","$","18,579","","","1.88","%","","$","754,920","","","$","1,170","","","0.16","%","","$","395,734","","","$","1,053","","","0.27","%"],["Securities available for sale at fair value","370,277","","","16,116","","","4.35","%","","288,545","","","11,025","","","3.82","%","","217,189","","","12,125","","","5.58","%"],["Loans held for sale","162,760","","","26,183","","","16.09","%","","218,349","","","29,540","","","13.53","%","","489,750","","","72,876","","","14.88","%"],["Loans and leases held for investment at amortized cost:"],["Unsecured personal loans (2)","2,967,410","","","410,222","","","13.82","%","","863,266","","","122,807","","","15.52","%","","\u2014","","","\u2014","","","\u2014","%"],["Secured consumer loans","301,023","","","11,093","","","3.69","%","","485,195","","","17,105","","","3.85","%","","\u2014","","","\u2014","","","\u2014","%"],["Commercial loans and leases","669,907","","","36,167","","","5.40","%","","617,483","","","30,731","","","5.43","%","","\u2014","","","\u2014","","","\u2014","%"],["PPP loans","138,575","","","7,968","","","5.75","%","","487,435","","","18,334","","","4.10","%","","\u2014","","","\u2014","","","\u2014","%"],["Loans and leases held for investment at amortized cost","4,076,915","","","465,450","","","11.42","%","","2,453,379","","","188,977","","","8.40","%","","\u2014","","","\u2014","","","\u2014","%"],["Loans held for investment at fair value","91,057","","","12,877","","","14.14","%","","34,938","","","4,436","","","12.70","%","","60,093","","","7,688","","","12.79","%"],["Total loans and leases held for investment","4,167,972","","","478,327","","","11.48","%","","2,488,317","","","193,413","","","7.77","%","","60,093","","","7,688","","","12.79","%"],["Retail and certificate loans held for investment at fair value","128,047","","","18,135","","","14.16","%","","406,406","","","57,684","","","14.19","%","","815,255","","","115,952","","","14.20","%"],["Total interest-earning assets","5,816,889","","","557,340","","","9.58","%","","4,156,537","","","292,832","","","7.46","%","","1,978,021","","","209,694","","","10.59","%"],["Cash and due from banks and restricted cash","72,764","","","","","","","112,012","","","","","","","114,105"],["Allowance for loan and lease losses","(234,532)","","","","","","","(77,223)","","","","","","","\u2014"],["Other non-interest earning assets","547,388","","","","","","","426,323","","","","","","","339,746"],["Total assets","$","6,202,509","","","","","","","$","4,617,649","","","","","","","$","2,431,872"],["Interest-bearing liabilities"],["Interest-bearing deposits:"],["Checking and money market accounts","2,205,691","","","16,464","","","0.75","%","","$","2,071,640","","","$","5,954","","","0.31","%","","$","\u2014","","","$","\u2014","","","\u2014","%"],["Savings accounts and certificates of deposit","2,123,037","","","43,987","","","2.07","%","","383,447","","","1,274","","","0.36","%","","\u2014","","","\u2014","","","\u2014","%"],["Interest-bearing deposits (2)","4,328,728","","","60,451","","","1.40","%","","2,455,087","","","7,228","","","0.32","%","","\u2014","","","\u2014","","","\u2014","%"],["Short-term borrowings","10,437","","","1,002","","","9.60","%","","68,032","","","3,677","","","5.40","%","","387,958","","","17,837","","","4.60","%"],["Advances from PPPLF","141,528","","","503","","","0.36","%","","365,976","","","1,183","","","0.35","%","","\u2014","","","\u2014","","","\u2014","%"],["Retail notes, certificates and secured borrowings","128,047","","","18,135","","","14.16","%","","407,471","","","57,684","","","14.16","%","","816,010","","","115,952","","","14.21","%"],["Structured Program borrowings","20,962","","","1,508","","","7.19","%","","110,579","","","9,638","","","8.72","%","","162,688","","","16,204","","","9.96","%"]]
[[/GREPCENT_TABLE]]

59

LENDINGCLUB CORPORATION

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

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022","","2021","","2020"],["","Average Balance","","Interest Income/ Expense","","Average Yield/ Rate","","Average Balance","","Interest Income/ Expense","","Average Yield/ Rate","","Average Balance","","Interest Income/ Expense","","Average Yield/ Rate"],["Other long-term debt","15,219","","","916","","","6.02","%","","16,355","","","591","","","3.61","%","","6,824","","","373","","","5.47","%"],["Total interest-bearing liabilities","4,644,921","","","82,515","","","1.78","%","","3,423,500","","","80,001","","","2.36","%","","1,373,480","","","150,366","","","10.95","%"],["Non-interest bearing deposits","264,099","","","","","","","126,982","","","","","","","\u2014"],["Other liabilities","274,209","","","","","","","289,163","","","","","","","272,164"],["Total liabilities","$","5,183,229","","","","","","","$","3,839,645","","","","","","","$","1,645,644"],["Total equity","$","1,019,280","","","","","","","$","778,004","","","","","","","$","786,228"],["Total liabilities and equity","$","6,202,509","","","","","","","$","4,617,649","","","","","","","$","2,431,872"],["Interest rate spread","","","","","7.80","%","","","","","","5.10","%","","","","","","(0.36)","%"],["Net interest income and net interest margin","","","$","474,825","","","8.16","%","","","","$","212,831","","","5.56","%","","","","$","59,328","","","3.00","%"]]
[[/GREPCENT_TABLE]]

(1)    Nonaccrual loans and any related income are included in their respective loan categories.

(2)    The average yield/rate for unsecured consumer loans decreased in 2022 compared to 2021 due to a shift in the mix toward higher credit quality loans. The average yield/rate for interest-bearing deposits increased due to a higher federal funds rate and an increasing concentration of online deposits. We expect continued pressure on net interest margin to continue during 2023.

60

LENDINGCLUB CORPORATION

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

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

An analysis of the year-to-year changes in the categories of interest income and interest expense resulting from changes in volume and rate is as follows:

[[GREPCENT_TABLE]]
[["","2022 Compared to 2021","","2021 Compared to 2020"],["","Increase (Decrease) Due to Change in:","","Increase (Decrease) Due to Change in:"],["","Average Volume(1)","Average Rate(1)","Total","","Average Volume(1)","Average Rate(1)","Total"],["Interest-earning assets"],["Cash, cash equivalents, restricted cash and other","$","470","","$","16,939","","$","17,409","","","$","682","","$","(565)","","$","117"],["Securities available for sale at fair value","3,414","","1,677","","5,091","","","3,342","","(4,442)","","(1,100)"],["Loans held for sale","(8,336)","","4,979","","(3,357)","","","(37,233)","","(6,103)","","(43,336)"],["Loans and leases held for investment at amortized cost","286,205","","(9,732)","","276,473","","","188,977","","\u2014","","188,977"],["Loans held for investment at fair value","7,883","","558","","8,441","","","(3,195)","","(57)","","(3,252)"],["Retail and certificate loans held for investment at fair value","(39,422)","","(127)","","(39,549)","","","(58,194)","","(74)","","(58,268)"],["Total increase (decrease) in interest income on interest-earning assets","$","250,214","","$","14,294","","$","264,508","","","$","94,379","","$","(11,241)","","$","83,138"],["Interest-bearing liabilities"],["Checking and money market accounts","$","472","","$","10,038","","$","10,510","","","$","5,954","","$","\u2014","","$","5,954"],["Savings accounts and certificates of deposit","20,965","","21,748","","42,713","","","1,274","","\u2014","","1,274"],["Interest-bearing deposits","21,437","","31,786","","53,223","","","7,228","","\u2014","","7,228"],["Short-term borrowings","(4,374)","","1,699","","(2,675)","","","(16,837)","","2,677","","(14,160)"],["Advances from PPPLF","(691)","","11","","(680)","","","1,183","","\u2014","","1,183"],["Retail notes, certificates and secured borrowings","(39,573)","","24","","(39,549)","","","(57,838)","","(430)","","(58,268)"],["Structured Program borrowings","(6,689)","","(1,441)","","(8,130)","","","(4,723)","","(1,843)","","(6,566)"],["Other long-term debt","(44)","","369","","325","","","379","","(161)","","218"],["Total increase (decrease) in interest expense on interest-bearing liabilities","$","(29,934)","","$","32,448","","$","2,514","","","$","(70,608)","","$","243","","$","(70,365)"],["Increase (decrease) in net interest income","$","280,148","","$","(18,154)","","$","261,994","","","$","164,987","","$","(11,484)","","$","153,503"]]
[[/GREPCENT_TABLE]]

(1)     Volume and rate changes have been allocated on a consistent basis using the respective percentage changes in average balances and average rates.

61

LENDINGCLUB CORPORATION

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

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

Provision for Credit Losses

The allowance for loan and lease losses (ALLL) for lifetime expected losses under CECL on HFI loans and leases at amortized cost is initially recognized as “Provision for credit losses” at the time of origination. The ALLL is estimated using a discounted cash flow (DCF) approach, where effective interest rates are used to calculate the net present value (NPV) of expected cash flows. The effective interest rates are calculated based on the periodic interest income received from the loan’s contractual cash flows and the net investment in the loan, which includes deferred origination fees and costs, to provide a constant rate of return over the loan term. The NPV from the DCF approach is then compared to the amortized cost basis of the loans and leases to derive expected credit losses. Under the DCF approach, the provision for credit losses in subsequent periods includes a credit loss expense relating to the discounting effect due to the passage of time after the initial recognition of ALLL on originated HFI loans at amortized cost.

The provision for credit losses includes the credit loss expense for HFI loans and leases at amortized cost, available for sale (AFS) securities and unfunded lending commitments. The table below illustrates the composition of the provision for credit losses for each period presented:

[[GREPCENT_TABLE]]
[["Year Ended December 31,","2022","","2021","","2020"],["Credit loss expense for Radius loans at acquisition","$","\u2014","","","$","6,929","","","$","\u2014"],["Credit loss expense for loans and leases held for investment","266,679","","","134,022","","","\u2014"],["Credit loss expense for unfunded lending commitments","647","","","1,231","","","\u2014"],["Total credit loss expense","267,326","","","142,182","","","\u2014"],["(Reversal of) Impairment on securities available for sale","\u2014","","","(3,382)","","","3,382"],["Total provision for credit losses","$","267,326","","","$","138,800","","","$","3,382"]]
[[/GREPCENT_TABLE]]

The provision for credit losses increased $128.5 million, or 93%, for the year ended December 31, 2022 compared to the same period in 2021. The increase was primarily due to growth in the volume of loans HFI at amortized cost and the related initial provision for credit losses, discounting effect of the NPV allowance on prior loan vintages and additional qualitative allowance reflecting a less favorable economic outlook.

The activity in the allowance for credit losses (ACL) was as follows:

[[GREPCENT_TABLE]]
[["Year Ended December 31,","2022","","2021"],["Allowance for loan and lease losses, beginning of period","$","144,389","","","$","\u2014"],["Credit loss expense for loans and leases held for investment","266,679","","","140,951"],["Initial allowance for purchased credit deteriorated (PCD) loans acquired during the period(1)","\u2014","","","12,440"],["Charge-offs","(87,473)","","","(10,452)"],["Recoveries","4,257","","","1,450"],["Allowance for loan and lease losses, end of period","$","327,852","","","$","144,389"],["Reserve for unfunded lending commitments, beginning of period","$","1,231","","","$","\u2014"],["Credit loss expense for unfunded lending commitments","647","","","1,231"],["Reserve for unfunded lending commitments, end of period (2)","$","1,878","","","$","1,231"]]
[[/GREPCENT_TABLE]]

(1)    For acquired PCD loans, an ACL of $30.4 million was required with a corresponding increase to the amortized cost basis as of the acquisition date during the year ended December 31, 2021. For PCD loans where all or a portion of the loan balance had been previously written-off, or would be subject to write-off under the Company’s charge-off policy, an ACL of $18.0 million included as part of the grossed-up loan balance at acquisition was immediately written-off during the year ended December 31, 2021. The net impact to the allowance for PCD assets on the acquisition date was $12.4 million.

(2)    Relates to $138.0 million and $110.8 million of unfunded commitments as of December 31, 2022 and 2021, respectively.

62

LENDINGCLUB CORPORATION

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

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

[[GREPCENT_TABLE]]
[["Year Ended December 31,","2022","","2021"],["Ratio of allowance for loan and lease losses to total loans and leases held for investment at amortized cost","6.5","%","","5.0","%"],["Ratio of allowance for loan and lease losses to total loans and leases held for investment at amortized cost, excluding PPP loans","6.6","%","","5.5","%"],["Average loans and leases held for investment at amortized cost, excluding PPP loans","$","3,938,340","","","$","1,965,944"],["Net charge-off ratio(1)","2.1","%","","0.5","%"]]
[[/GREPCENT_TABLE]]

(1)    Calculated as annualized net charge-offs divided by average outstanding loans and leases held for investment during the period, excluding PPP loans.

Loans and leases are generally placed on nonaccrual status when contractually past due 90 days or more, or earlier if management believes that the probability of collection does not warrant further accrual. Unsecured personal loans are charged-off no later than 120 days past due. The following table presents nonaccrual loans and leases (1):

[[GREPCENT_TABLE]]
[["","December 31, 2022","","December 31, 2021"],["Total nonaccrual loans and leases held for investment","$","34,827","","","$","9,985"],["Ratio of total nonaccrual loans and leases held for investment to total loans and leases held for investment","0.7","%","","0.3","%"],["Ratio of total nonaccrual loans and leases held for investment to total loans and leases held for investment, excluding PPP loans","0.7","%","","0.4","%"]]
[[/GREPCENT_TABLE]]

(1)    Excluding PPP loans, there were no loans that were 90 days or more past due and accruing as of both December 31, 2022 and 2021.

For additional information on the ACL and nonaccrual loans and leases, see “Notes to Consolidated Financial Statements – Note 1. Summary of Significant Accounting Policies” and “Note 6. Loans and Leases Held for Investment at Amortized Cost, Net of Allowance For Loan and Lease Losses.”

63

LENDINGCLUB CORPORATION

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

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

Non-interest Expense

Non-interest expense primarily consists of (i) compensation and benefits, which include salaries and wages, benefits and stock-based compensation expense, (ii) marketing, which includes costs attributable to borrower and deposit customer acquisition efforts and building general brand awareness, (iii) equipment and software, (iv) occupancy, which includes rent expense and all other costs related to occupying our office spaces, (v) depreciation and amortization and (vi) professional services, which primarily consist of consulting fees.

[[GREPCENT_TABLE]]
[["Year Ended December 31,","2022","","2021","","Change ($)","","Change (%)"],["Non-interest expense:"],["Compensation and benefits","$","339,397","","","$","288,390","","","$","51,007","","","18","%"],["Marketing","197,747","","","156,142","","","41,605","","","27","%"],["Equipment and software","49,198","","","39,490","","","9,708","","","25","%"],["Occupancy","21,977","","","24,249","","","(2,272)","","","(9)","%"],["Depreciation and amortization","43,831","","","44,285","","","(454)","","","(1)","%"],["Professional services","50,516","","","47,572","","","2,944","","","6","%"],["Other non-interest expense","64,187","","","61,258","","","2,929","","","5","%"],["Total non-interest expense","$","766,853","","","$","661,386","","","$","105,467","","","16","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["Year Ended December 31,","2021","","2020","","Change ($)","","Change (%)"],["Non-interest expense:"],["Compensation and benefits","$","288,390","","","$","252,517","","","$","35,873","","","14","%"],["Marketing","156,142","","","51,518","","","104,624","","","203","%"],["Equipment and software","39,490","","","26,842","","","12,648","","","47","%"],["Occupancy","24,249","","","27,870","","","(3,621)","","","(13)","%"],["Depreciation and amortization","44,285","","","54,030","","","(9,745)","","","(18)","%"],["Professional services","47,572","","","41,780","","","5,792","","","14","%"],["Other non-interest expense","61,258","","","47,762","","","13,496","","","28","%"],["Total non-interest expense","$","661,386","","","$","502,319","","","$","159,067","","","32","%"]]
[[/GREPCENT_TABLE]]

Compensation and benefits expense increased $51.0 million, or 18%, for the year ended December 31, 2022 compared to the same period in 2021. The increase was primarily due to an increase in headcount.

Marketing expense increased $41.6 million, or 27%, for the year ended December 31, 2022 compared to the same period in 2021. The increase was primarily due to an increase in variable marketing expenses based on higher origination volume, partially offset by the deferral of applicable marketing expenses for HFI loans.

Equipment and software expense increased $9.7 million, or 25%, for the year ended December 31, 2022 compared to the same period in 2021. The increase was primarily due to an increase in hosting fees and subscription costs.

Occupancy expense was $22.0 million and $24.2 million for the years ended December 31, 2022 and 2021, respectively.

Depreciation and amortization expense remained relatively flat for the year ended December 31, 2022 compared to the same period in 2021.

Professional services expense increased $2.9 million, or 6%, for the year ended December 31, 2022 compared to the same period in 2021. The increase was primarily due to an increase in consulting fees.

64

LENDINGCLUB CORPORATION

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

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

Other non-interest expense increased $2.9 million, or 5%, for the year ended December 31, 2022 compared to the same period in 2021. The increase was primarily due to an increase in consumer credit services.

Income Taxes

For the year ended December 31, 2022, we recorded an income tax benefit of $136.6 million primarily due to the release of a $175.6 million valuation allowance against our deferred tax assets, of which $143.5 million is primarily based on our reassessment of the realizability of our deferred tax assets. For the year ended December 31, 2021, we recorded an income tax benefit of $136 thousand primarily related to a tax benefit associated with the Acquisition, partially offset by income tax expense for state jurisdictions that limit net operating loss carryforward utilization. For the year ended December 31, 2020, we recorded an income tax benefit of $79 thousand primarily attributable to current state income taxes.

We have evaluated both positive and negative evidence when assessing the recoverability of our net deferred tax assets. Several factors were considered, which primarily included our business model transition and resulting increase in profitability and the expectation of continued profitability. These factors resulted in the release of the majority of our valuation allowance against our deferred tax assets. Changes to deferred tax asset valuation allowances and liabilities related to uncertain tax positions are recorded as current period income tax expense or benefit.

As of December 31, 2022, we maintained a valuation allowance of $47.7 million related to state NOLs and tax credit carryforwards. The realization and timing of these state NOLs and tax credit carryforwards, based on the allocation of taxable income to the Parent, is uncertain and may expire before being utilized. We expect that our statutory tax rate in 2023 will approximate 27%.

Income taxes are recorded on a separate entity basis whereby each operating segment determines income tax expense or benefit as if it filed a separate tax return. Differences between separate entity and consolidated tax returns are eliminated upon consolidation.

Segment Information

The Company defines operating segments to be components of the Company for which discrete financial information is evaluated regularly by the Company’s Chief Executive Officer and Chief Financial Officer to allocate resources and evaluate financial performance. This information is reviewed according to the legal organizational structure of the Company’s operations with products and services presented separately for the parent bank holding company and its wholly-owned subsidiary, LC Bank.

LendingClub Bank

The LC Bank operating segment represents the national bank legal entity and reflects post-Acquisition operating activities. This segment provides a full complement of financial products and solutions, including loans, leases and deposits. It originates loans to individuals and businesses, retains loans for investment, sells loans to investors and manages relationships with deposit holders.

LendingClub Corporation (Parent Only)

The LendingClub Corporation (Parent only) operating segment represents the holding company legal entity and predominately reflects the operations of the Company prior to the Acquisition. This activity includes, but is not limited to, servicing fee revenue for loans serviced prior to the Acquisition, and interest income and interest expense related to the Retail Program and Structured Program transactions.

65

LENDINGCLUB CORPORATION

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

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

Financial information for the segments is presented in the following table:

[[GREPCENT_TABLE]]
[["","LendingClub Bank","","LendingClub Corporation (Parent only)","","Intercompany Eliminations","","Consolidated Total"],["","Year Ended December 31,","","Eleven Months Ended December 31,","","Year Ended December 31,","","Year Ended December 31,","Eleven Months Ended December 31,","","Year Ended December 31,"],["","2022","","2021","","2022","","2021","","2022","2021","","2022","","2021"],["Non-interest income:"],["Marketplace revenue","$","610,536","","","$","462,821","","","$","48,231","","","$","115,759","","","$","24,859","","$","\u2014","","","$","683,626","","","$","578,580"],["Other non-interest income","85,208","","","94,953","","","15,628","","","16,718","","","(72,071)","","(84,452)","","","28,765","","","27,219"],["Total non-interest income","695,744","","","557,774","","","63,859","","","132,477","","","(47,212)","","(84,452)","","","712,391","","","605,799"],["Interest income:"],["Interest income","526,471","","","210,739","","","30,869","","","82,093","","","\u2014","","\u2014","","","557,340","","","292,832"],["Interest expense","(60,954)","","","(8,412)","","","(21,561)","","","(71,589)","","","\u2014","","\u2014","","","(82,515)","","","(80,001)"],["Net interest income","465,517","","","202,327","","","9,308","","","10,504","","","\u2014","","\u2014","","","474,825","","","212,831"],["Total net revenue","1,161,261","","","760,101","","","73,167","","","142,981","","","(47,212)","","(84,452)","","","1,187,216","","","818,630"],["(Provision for) reversal of credit losses","(267,326)","","","(142,182)","","","\u2014","","","3,382","","","\u2014","","\u2014","","","(267,326)","","","(138,800)"],["Non-interest expense","(724,304)","","","(547,799)","","","(89,761)","","","(198,039)","","","47,212","","84,452","","","(766,853)","","","(661,386)"],["Income (Loss) before income tax benefit (expense)","169,631","","","70,120","","","(16,594)","","","(51,676)","","","\u2014","","\u2014","","","153,037","","","18,444"],["Income tax benefit (expense)","(42,354)","","","9,171","","","125,954","","","44,013","","","53,048","","(53,048)","","","136,648","","","136"],["Net income (loss)","$","127,277","","","$","79,291","","","$","109,360","","","$","(7,663)","","","$","53,048","","$","(53,048)","","","$","289,685","","","$","18,580"],["Capital expenditures","$","69,481","","","$","32,602","","","$","\u2014","","","$","1,811","","","$","\u2014","","$","\u2014","","","$","69,481","","","$","34,413"],["Depreciation and amortization","$","16,489","","","$","4,569","","","$","27,342","","","$","39,716","","","$","\u2014","","$","\u2014","","","$","43,831","","","$","44,285"]]
[[/GREPCENT_TABLE]]

The Company integrated the Acquisition into its reportable segments in the first quarter of 2021. As the Company’s reportable segments are based on legal organizational structure and LC Bank was formed upon the Acquisition, the results of operations for the year ended December 31, 2020, is provided on a consolidated basis in the Company’s Income Statement. Additionally, an analysis of the Company’s results of operations and material trends for the year ended December 31, 2022 compared to the year ended December 31, 2021 is provided on a consolidated basis in “Results of Operations.”

Non-GAAP Financial Measures

To supplement our financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: Pre-Provision Net Revenue, Net Income (Loss) Excluding Income Tax Benefit, Diluted EPS Excluding Income Tax Benefit, and Tangible Book Value (TBV) Per Common Share. Our non-GAAP financial measures do have limitations as analytical tools and you should not consider them in isolation or as a substitute for an analysis of our results under GAAP.

66

LENDINGCLUB CORPORATION

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

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

We believe these non-GAAP financial measures provide management and investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and enable comparison of our financial results with other public companies.

We believe Pre-Provision Net Revenue, Net Income (Loss) Excluding Income Tax Benefit and Diluted EPS Excluding Income Tax Benefit are important measures because they reflect the underlying financial performance of our business operations. Pre-Provision Net Revenue is a non-GAAP financial measure calculated by subtracting the provision for credit losses and income tax benefit/expense from net income. Net Income (Loss) Excluding Income Tax Benefit adjusts for the release of a deferred tax asset valuation allowance in 2022. Diluted EPS Excluding Income Tax Benefit is a non-GAAP financial measure calculated by dividing Net Income (Loss) Excluding Income Tax Benefit by the weighted-average diluted common shares outstanding.

We believe TBV Per Common Share is an important measure used to evaluate the Company’s use of equity. TBV Per Common Share is a non-GAAP financial measure representing the book value of common equity reduced by goodwill and intangible assets, divided by ending number of common shares issued and outstanding.

The following tables provide a reconciliation of Pre-Provision Net Revenue (PPNR) to the nearest GAAP measure:

[[GREPCENT_TABLE]]
[["For the year ended December 31,","2022","","2021","","2020"],["GAAP Net income (loss)","$","289,685","","","$","18,580","","","$","(187,538)"],["Less: Provision for credit losses","(267,326)","","","(138,800)","","","(3,382)"],["Less: Income tax benefit","136,648","","","136","","","79"],["Pre-provision net revenue","$","420,363","","","$","157,244","","","$","(184,235)"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["For the year ended December 31,","2022","","2021","","2020"],["Non-interest income","$","712,391","","","$","605,799","","","$","258,756"],["Net interest income","474,825","","","212,831","","","59,328"],["Total net revenue","1,187,216","","","818,630","","","318,084"],["Non-interest expense","(766,853)","","","(661,386)","","","(502,319)"],["Pre-provision net revenue","420,363","","","157,244","","","(184,235)"],["Provision for credit losses","(267,326)","","","(138,800)","","","(3,382)"],["Income (Loss) before income tax benefit","153,037","","","18,444","","","(187,617)"],["Income tax benefit","136,648","","","136","","","79"],["GAAP Net income (loss)","$","289,685","","","$","18,580","","","$","(187,538)"]]
[[/GREPCENT_TABLE]]

67

LENDINGCLUB CORPORATION

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

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

The following table provides a reconciliation of Net Income (Loss) Excluding Income Tax Benefit and Diluted EPS Excluding Income Tax Benefit to the nearest GAAP measures:

[[GREPCENT_TABLE]]
[["As of and For The Year Ended December 31,","2022","","2021","","2020"],["GAAP Net income (loss)","$","289,685","","","$","18,580","","","$","(187,538)"],["Income tax benefit from release of tax valuation allowance","143,495","","","\u2014","","","\u2014"],["Net income (loss) excluding income tax benefit","$","146,190","","","$","18,580","","","$","(187,538)"],["GAAP Diluted EPS \u2013 common stockholders","$","2.79","","","$","0.18","","","$","(2.07)"],["(A)","Income tax benefit from release of tax valuation allowance","$","143,495","","","N/A","","N/A"],["(B)","Weighted-average common shares \u2013 Diluted","104,001,288","","","N/A","","N/A"],["(A/B)","Diluted EPS impact of income tax benefit","$","1.38","","","N/A","","N/A"],["Diluted EPS excluding income tax benefit","$","1.41","","","$","0.18","","","$","(2.07)"]]
[[/GREPCENT_TABLE]]

N/A – Not applicable

The following table provides a reconciliation of TBV Per Common Share to the nearest GAAP measure:

[[GREPCENT_TABLE]]
[["As of December 31,","2022","","2021","","","","2020"],["GAAP common equity","$","1,164,294","","","$","850,242","","","","","$","724,171"],["Less: Goodwill","(75,717)","","","(75,717)","","","","","\u2014"],["Less: Intangible assets","(16,334)","","","(21,181)","","","","","(11,427)"],["Tangible common equity","$","1,072,243","","","$","753,344","","","","","$","712,744"],["Book value per common share"],["GAAP common equity","$","1,164,294","","","$","850,242","","","","","$","724,171"],["Common shares issued and outstanding","106,546,995","","","101,043,924","","","","","88,149,510"],["Book value per common share","$","10.93","","","$","8.41","","","","","$","8.22"],["Tangible book value per common share"],["Tangible common equity","$","1,072,243","","","$","753,344","","","","","$","712,744"],["Common shares issued and outstanding","106,546,995","","","101,043,924","","","","","88,149,510"],["Tangible book value per common share","$","10.06","","","$","7.46","","","","","$","8.09"]]
[[/GREPCENT_TABLE]]

Supervision and Regulatory Environment

We are subject to periodic exams, investigations, inquiries or requests, enforcement actions and other proceedings from federal and state regulatory agencies, including the federal banking regulators that directly regulate the Company and/or LC Bank. Further, we are subject to claims, individual and class action lawsuits, and lawsuits alleging regulatory violations. The number and/or significance of these exams, investigations, inquiries, requests, proceedings, claims and lawsuits have been increasing since the Acquisition in part because our products and services increased in scope and in part because we became a bank holding company operating a national bank. Although historically the Company has generally resolved these matters in a manner that was not materially adverse to its financial results or business operations, no assurance can be given as to the timing, outcome or consequences of any of these matters in the future.

68

LENDINGCLUB CORPORATION

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

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

Regulatory Actions Taken in Relation to COVID-19

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

Federal Banking Regulator Supervision

Since the Acquisition, we are subject to supervision, regulation, examination and enforcement by multiple federal banking regulatory bodies. Specifically, as a bank holding company, the Company is subject to ongoing and comprehensive supervision, regulation, examination and enforcement by the FRB. Further, as a national bank, LC Bank is subject to ongoing and comprehensive supervision, regulation, examination and enforcement by the OCC. Accordingly, we have been and continue to invest in regulatory compliance and be subject to certain parameters, obligations and/or limitations set forth by the banking regulations and regulators with respect to the operation of our business.

Consequences

If we are found to not have complied with applicable laws, regulations or requirements, we could: (i) lose one or more of our licenses or authorizations, (ii) become subject to a consent order or administrative enforcement action, (iii) face lawsuits (including class action lawsuits), sanctions, penalties, or other monetary losses due to judgments, orders, or settlements, (iv) be in breach of certain contracts, which may void or cancel such contracts, (v) decide or be compelled to modify or suspend certain of our business practices, (vi) be unable to execute on certain Company initiatives, or (vii) be required to obtain a license in such jurisdiction, which may have an adverse effect on our ability to operate and/or evolve our lending marketplace and other products and/or services; any of which may harm our business or financial results.

See “Part I – Item 1. Business – Regulation and Supervision,” “Part I – Item 1A. Risk Factors – Risks Related to Regulation, Supervision and Compliance,” and “Part I – Item 1A. Risk Factors – Risks Related to Operating Our Business” of this Annual Report for further discussion regarding our supervision and regulatory environment.

Capital Management

The prudent management of capital is fundamental to the successful achievement of our business initiatives. We actively review capital through a process that continuously assesses and monitors the Company’s overall capital adequacy. Our objective is to maintain capital at an amount commensurate with our risk profile and risk tolerance objectives, and to meet both regulatory and market expectations.

The formation of LC Bank as a nationally chartered association and the organization of the Company as a bank holding company subjects us to various capital adequacy guidelines issued by the OCC and the FRB, including the requirement to maintain regulatory capital ratios in accordance with the Basel Committee on Banking Supervision standardized approach for U.S. banking organizations (U.S. Basel III). As a U.S. Basel III standardized approach institution, we selected the one-time election to opt-out of the requirements to include all the components of accumulated other comprehensive income included in common stockholder’s equity. The minimum capital

69

LENDINGCLUB CORPORATION

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

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

requirements under the U.S. Basel III capital framework are: a CET1 risk-based capital ratio of 4.5%, a Tier 1 risk-based capital ratio of 6.0%, a total risk-based capital ratio of 8.0%, and a Tier 1 leverage ratio of 4.0%. Additionally, a Capital Conservation Buffer (CCB) of 2.5% must be maintained above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases, and certain discretionary bonus payments. In addition to these guidelines, the banking regulators may require a banking organization to maintain capital at levels higher than the minimum ratios prescribed under the U.S. Basel III capital framework. In this regard, and unless otherwise directed by the FRB and the OCC, we have made commitments for the Company and LC Bank (until February 2024) to maintain a CET1 risk-based capital ratio of 11.0%, a Tier 1 risk-based capital ratio above 11.0%, a total risk-based capital ratio above 13.0%, and a Tier 1 leverage ratio of 11.0%. See “Part I – Item 1. Business – Regulation and Supervision – Regulatory Capital Requirements and Prompt Corrective Action” and “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 20. Regulatory Requirements” of this Annual Report for additional information.

The following table summarizes the Company’s regulatory capital amounts (in millions) and ratios:

[[GREPCENT_TABLE]]
[["","December 31, 2022","","December 31, 2021","","Required Minimum plus Required CCB for Non-Leverage Ratios"],["LendingClub","Amount","","Ratio","","Amount","","Ratio"],["CET1 capital (1)","$","1,005.8","","","15.8","%","","$","710.0","","","21.3","%","","7.0","%"],["Tier 1 capital","$","1,005.8","","","15.8","%","","$","710.0","","","21.3","%","","8.5","%"],["Total capital","$","1,088.1","","","17.1","%","","$","767.9","","","23.0","%","","10.5","%"],["Tier 1 leverage","$","1,005.8","","","14.1","%","","$","710.0","","","16.5","%","","4.0","%"],["Risk-weighted assets","$","6,360.7","","","N/A","","$","3,333.2","","","N/A","","N/A"],["Quarterly adjusted average assets","$","7,119.0","","","N/A","","$","4,301.7","","","N/A","","N/A"]]
[[/GREPCENT_TABLE]]

N/A – Not applicable

(1)     Consists of common stockholders’ equity as defined under U.S. GAAP and certain adjustments made in accordance with regulatory capital guidelines, including the addition of the CECL transitional benefit and deductions for goodwill and other intangible assets.

The following table summarizes LC Bank’s regulatory capital amounts (in millions) and ratios:

[[GREPCENT_TABLE]]
[["","December 31, 2022","","December 31, 2021","","Required Minimum plus Required CCB forNon-Leverage Ratios"],["LendingClub Bank","Amount","","Ratio","","Amount","","Ratio"],["CET1 capital (1)","$","852.2","","","13.8","%","","$","523.7","","","16.7","%","","7.0","%"],["Tier 1 capital","$","852.2","","","13.8","%","","$","523.7","","","16.7","%","","8.5","%"],["Total capital","$","932.4","","","15.1","%","","$","563.7","","","18.0","%","","10.5","%"],["Tier 1 leverage","$","852.2","","","12.5","%","","$","523.7","","","14.3","%","","4.0","%"],["Risk-weighted assets","$","6,194.0","","","N/A","","$","3,130.4","","","N/A","","N/A"],["Quarterly adjusted average assets","$","6,795.2","","","N/A","","$","3,667.7","","","N/A","","N/A"]]
[[/GREPCENT_TABLE]]

N/A – Not applicable

(1)     Consists of common stockholders’ equity as defined under U.S. GAAP and certain adjustments made in accordance with regulatory capital guidelines, including the addition of the CECL transitional benefit and deductions for goodwill and other intangible assets.

The higher risk-based capital ratios for the Company reflect generally lower risk-weights for assets held by LendingClub Corporation as compared with LC Bank.

In response to the COVID-19 pandemic, the FRB, OCC, and FDIC adopted a final rule related to the regulatory capital treatment of the allowance for credit losses under CECL. As permitted by the rule, the Company elected to

70

LENDINGCLUB CORPORATION

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

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

delay the estimated impact of CECL on regulatory capital resulting in a capital benefit of $35 million at December 31, 2021. This benefit is phased out over a three-year transition period that commenced on January 1, 2022 at a rate of 25% each year through January 1, 2025.

Liquidity

We manage liquidity to meet our cash flow and collateral obligations in a timely manner at a reasonable cost. We must maintain operating liquidity to meet our expected daily and forecasted cash flow requirements, as well as contingent liquidity to meet unexpected funding requirements.

As our primary business at LC Bank involves taking deposits and originating loans, a key role of liquidity management is to ensure that customers have timely access to funds from deposits and for loans. Liquidity management also involves maintaining sufficient liquidity to repay borrowings, pay operating expenses and support extraordinary funding requirements when necessary.

LendingClub Bank Liquidity

The primary sources of LC Bank short-term liquidity include cash, unencumbered AFS debt securities, and unused borrowing capacity with the FRB and Federal Home Loan Bank (FHLB). Additionally, customer deposits provide LC Bank with a significant source of relatively low-cost funds. The primary uses of LC Bank liquidity include the funding/acquisition of loans and securities purchases; withdrawals, maturities and the payment of interest on deposits; compensation and benefits expense; taxes; capital expenditures, including internally developed software, leasehold improvements and computer equipment; and costs associated with the continued development and support of our online lending marketplace platform.

Net capital expenditures were $69.5 million, or 6% of total net revenue and $32.6 million, or 4% of total net revenue, for the years ended December 31, 2022 and 2021, respectively. Capital expenditures in 2023 are expected to be approximately $60 million, primarily related to costs associated with the continued development and support of our online lending marketplace platform, including regulatory compliance costs.

As of December 31, 2022 and 2021, cash and cash equivalents at LC Bank were $1.0 billion and $659.9 million and deposits were $6.4 billion and $3.2 billion, respectively. Outstanding PPPLF borrowings were $64.2 million and $271.9 million at December 31, 2022 and 2021, respectively, and are collateralized by PPP loans originated by the Company. In addition, LC Bank has available FHLB of Des Moines secured borrowing capacity totaling $414.5 million and $173.4 million as of December 31, 2022 and 2021, respectively. LC Bank also has secured borrowing capacity available under the FRB Discount Window totaling $191.0 million and $75.2 million as of December 31, 2022 and 2021, respectively.

LendingClub Holding Company Liquidity

The primary source of liquidity at the holding company is $56.5 million and $88.3 million in cash and cash equivalents as of December 31, 2022 and 2021, respectively. Additionally, the holding company has the ability to access the capital markets through additional registrations and public equity offerings.

Uses of cash at the holding company include the routine cash flow requirements as a bank holding company, such as interest and expenses (including those associated with our office leases), the needs of LC Bank for additional equity and, as required, its need for debt financing and support for extraordinary funding requirements when necessary.

71

LENDINGCLUB CORPORATION

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

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

Factors Impacting Liquidity

The Company’s liquidity could be adversely impacted by deteriorating financial and market conditions, the inability or unwillingness of a creditor to provide funding, an idiosyncratic event (e.g., a major loss, causing a perceived or actual deterioration in its financial condition), an adverse systemic event (e.g., default or bankruptcy of a significant capital markets participant), or others.

We believe, based on our projections, that our cash on hand, AFS securities, available funds, and cash flow from operations are sufficient to meet our liquidity needs for the next twelve months, as well as beyond the next twelve months. See “Item 8. Financial Statements and Supplementary Data – Consolidated Statements of Cash Flows” for additional detail regarding our cash flows.

Market Risk

Market risk represents the risk of potential losses arising from changes in interest rates, foreign exchange rates, equity prices, commodity prices, and/or other relevant market rates or prices. The primary market risk to which we are exposed is interest rate risk. Interest rate risk arises from financial instruments including loans, securities and borrowings, all entered into for purposes other than trading.

Interest Rate Sensitivity

LendingClub Bank

Our net interest income is affected by changes in the level of interest rates, the impact of interest rate fluctuations on asset prepayments, and the level and composition of deposits and liabilities, among other factors.

Loans HFI at LC Bank are funded primarily through our deposit base. The majority of loans HFI are fixed-rate instruments over the term of the loans. As a result, the primary component of interest rate risk on our financial instruments at LC Bank arises from the impact of fluctuations in loan and deposit rates on our net interest income. Therefore, we use a sensitivity analysis to assess the impact of hypothetical changes in interest rates on our net interest income results. The outcome of the analysis is influenced by a variety of assumptions, including the maturity profile and prepayment level of our unsecured consumer loans and expected consumer responses to changes in rates paid on non-maturity deposit products. Our assumptions are periodically calibrated to observed data and/or expected outcomes.

The following table presents the change in projected net interest income for the next twelve months due to a hypothetical instantaneous parallel change in interest rates relative to current rates:

[[GREPCENT_TABLE]]
[["","December 31, 2022","","December 31, 2021"],["Instantaneous Change in Interest Rates:"],["+ 200 basis points","(6.9)","%","","(0.8)","%"],["+ 100 basis points","(3.3)","%","","(0.2)","%"],["- 100 basis points","1.9","%","","(0.2)","%"],["- 200 basis points","3.5","%","","N/M"]]
[[/GREPCENT_TABLE]]

As illustrated in the table above, net interest income is projected to decrease over the next twelve months during rising interest rate environments primarily as a result of higher rates paid on interest-bearing deposits, partially offset by higher rates earned on new loans, investment purchases, and cash and cash equivalents. Conversely, net interest income is projected to increase over the next twelve months during hypothetical declining interest rate environments. The increase in sensitivity as of December 31, 2022 relative to the prior year is primarily due to the

72

LENDINGCLUB CORPORATION

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

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

composition of our loans and deposits. Furthermore, during fluctuating interest rate environments, the increased sensitivity of repricing interest-bearing deposits is more impactful than that of repricing fixed rate loans.

Although we believe that these measurements provide an estimate of our interest rate sensitivity, they do not account for potential changes in credit quality, balance sheet mix, size of our balance sheet, or other business developments that could affect net income. Actual results could differ materially from the estimated outcomes of our simulations.

Maturities

The following table presents the maturities of loans and leases held for investment at amortized cost and at fair value as of December 31, 2022:

[[GREPCENT_TABLE]]
[["","Due in 1 Year or Less","","Due After 1 Year Through 5 Years","","Due After 5 Years Through 15 Years","","December 31, 2022"],["Unsecured personal","$","53,516","","","$","4,627,585","","","$","91,983","","","$","4,773,084"],["Residential mortgages","1,202","","","7,780","","","190,619","","","199,601"],["Secured consumer","32","","","113,679","","","80,923","","","194,634"],["Total consumer loans held for investment","54,750","","","4,749,044","","","363,525","","","5,167,319"],["Equipment finance","5,052","","","117,154","","","38,113","","","160,319"],["Commercial real estate","28,284","","","80,115","","","265,102","","","373,501"],["Commercial and industrial","7,703","","","88,964","","","142,059","","","238,726"],["Total commercial loans and leases held for investment","41,039","","","286,233","","","445,274","","","772,546"],["Total loans and leases held for investment","$","95,789","","","$","5,035,277","","","$","808,799","","","$","5,939,865"],["Loans and leases due after one year at fixed interest rates","$","\u2014","","","$","4,969,142","","","$","407,096","","","$","5,376,238"],["Loans and leases due after one year at variable interest rates","$","\u2014","","","$","66,135","","","$","401,703","","","$","467,838"]]
[[/GREPCENT_TABLE]]

For the contractual maturities and weighted-average yields on the Company’s AFS securities portfolio, see “Notes to Consolidated Financial Statements – Note 5. Securities Available for Sale.”

LendingClub Holding Company

At the holding company level, we continue to measure interest rate sensitivity by evaluating the change in fair value of certain assets and liabilities due to a hypothetical change in interest rates. Principal payments on our loans HFI continue to reduce the outstanding balance of this portfolio, and, as a result, the fair value impact from changes in interest rates continues to diminish.

Contingencies

For a comprehensive discussion of contingencies as of December 31, 2022, see “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 19. Commitments and Contingencies.”

Critical Accounting Estimates

Our significant accounting policies are described in “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 1. Summary of Significant Accounting Policies.” We consider certain of these policies to be critical accounting policies as they require significant management judgments, assumptions and estimates which we believe are critical in understanding and evaluating our reported financial results. These

73

LENDINGCLUB CORPORATION

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

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

judgments, estimates and assumptions are inherently subjective and actual results may materially differ from these estimates and assumptions.

Allowance for Loan and Lease Losses

Under the CECL model, we reserve for expected credit losses on our loan and lease portfolio when loans are initially recorded as HFI at amortized cost through the ALLL by using a DCF approach to calculate the NPV of expected cash flows. Loans accounted for under the fair value option do not have an ALLL. Changes in the credit risk profile of our loans and leases result in changes in “Provision for credit losses,” on the Income Statement with a resulting change, net of charge-offs and recoveries, in the ACL balance. The majority of our ALLL relates to unsecured personal loans.

The ALLL represents our estimate of expected lifetime credit losses over the contractual life of the loan portfolio. Our determination of the ALLL is based on regular and periodic evaluation of the loan portfolio considering a number of relevant underlying factors, including key assumptions and evaluation of quantitative and qualitative information from internal and external sources. Estimates of expected future loan losses are determined by using statistical models and management’s judgement. The models are designed to forecast probability and timing of default, loss rate exposure at default, recovery expectations, and timing and amount of estimated prepayments by correlating certain macroeconomic unemployment forecast data to historical experience. Our statistical models, applied at the portfolio level to pools of loans with similar risk characteristics, produce expected cash flows, which are then discounted at the effective interest rate to derive the NPV. The difference between the NPV and the amortized cost determines the ALLL. The effective interest rate is calculated based on the periodic interest income received from the loan’s contractual cash flows, which includes deferred origination fees and costs, to provide a constant rate of return over the contractual loan term. Under the DCF approach, the provision for credit losses includes credit loss expense in subsequent periods relating to the discounting effect due to the passage of time after the initial recognition of ALLL on originated HFI loans at amortized cost.

Our qualitative allowance is primarily based on macroeconomic unemployment forecast information provided by an external third-party economist, incorporating management’s judgement, and is included in the estimation of expected future expected credit losses. In addition, the qualitative allowance includes adjustments in circumstances where the statistical model output is inconsistent with management’s expectations relating to economic conditions and expected credit losses. Management may make adjustments as the assumptions in the underlying analyses change to reflect an estimate of expected lifetime loan losses and prepayments at the reporting date, based on the best information available at that time.

74

LENDINGCLUB CORPORATION