LendingClub(LC) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company's financial statements for the period ended June 30, 2024, show an increase in total assets to $9.6 billion, driven by growth in securities and deposits, while net revenue decreased to $187.2 million for the quarter, though net income increased to $14.9 million due to reduced credit loss provisions Condensed Consolidated Balance Sheets As of June 30, 2024, total assets increased to $9.59 billion from $8.83 billion at year-end 2023, primarily driven by a significant rise in securities available for sale to $2.81 billion and total deposits to $8.10 billion, while loans and leases held for investment, net, decreased to $4.00 billion Balance Sheet Items | Balance Sheet Items | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total cash and cash equivalents | $938,119 | $1,252,504 | | Securities available for sale | $2,814,383 | $1,620,262 | | Loans and leases held for investment, net | $3,999,482 | $4,539,915 | | Total assets | $9,586,050 | $8,827,463 | | Total deposits | $8,095,328 | $7,333,486 | | Total liabilities | $8,298,105 | $7,575,641 | | Total equity | $1,287,945 | $1,251,822 | Condensed Consolidated Statements of Income For Q2 2024, net income increased 47% to $14.9 million despite a 19% decrease in total net revenue to $187.2 million, largely due to a 47% reduction in the provision for credit losses and a 12% decrease in non-interest expenses, resulting in diluted EPS of $0.13 Three Months Ended June 30 | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Total net revenue | $187,241 | $232,470 | -19.5% | | Provision for credit losses | $35,561 | $66,595 | -46.6% | | Total non-interest expense | $132,258 | $151,079 | -12.5% | | Net income | $14,903 | $10,110 | +47.4% | | Diluted EPS | $0.13 | $0.09 | +44.4% | Six Months Ended June 30 | Metric | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Total net revenue | $367,929 | $478,164 | -23.1% | | Provision for credit losses | $67,488 | $137,179 | -50.8% | | Net income | $27,153 | $23,776 | +14.2% | | Diluted EPS | $0.24 | $0.22 | +9.1% | Notes to Condensed Consolidated Financial Statements The notes provide detailed disclosures on significant accounting policies and financial statement line items, including a breakdown of marketplace revenue, composition and credit quality of loan and securities portfolios, an increase in total deposits, and confirmation of regulatory capital compliance Management's Discussion and Analysis of Financial Condition and Results of Operations Management reports sustained GAAP profitability despite challenges from the interest rate environment and economic volatility, which have adversely impacted marketplace loan demand and pricing, with profitability supported by strong credit performance, expense discipline, and a 47% YoY decrease in the provision for credit losses - The company has maintained GAAP profitability despite adverse impacts from the interest rate environment and economic volatility on investor demand and pricing for marketplace loans[252] - Total assets grew 15% YoY to $9.6 billion, and total deposits grew 18% YoY to $8.1 billion, with FDIC-insured deposits representing approximately 87% of the total[258] Key Financial Metrics | Metric | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Loan Originations | $1.81B | $1.65B | $2.01B | | Total Net Revenue | $187.2M | $180.7M | $232.5M | | Net Income | $14.9M | $12.3M | $10.1M | | Diluted EPS | $0.13 | $0.11 | $0.09 | Results of Operations In Q2 2024, total net revenue decreased 19% YoY to $187.2 million, driven by a 32% decline in Marketplace Revenue, while a 47% reduction in Provision for Credit Losses and a 12% drop in Non-Interest Expense led to a 47% YoY increase in Net Income to $14.9 million Q2 2024 vs Q2 2023 Performance Drivers | Component | Q2 2024 vs Q2 2023 Change | Key Driver(s) | | :--- | :--- | :--- | | Marketplace Revenue | ▼ 32% | Lower marketplace loan volume and lower loan sale prices | | Net Interest Income | ▼ 12% | Shift in asset mix from loans to securities and higher deposit funding costs | | Provision for Credit Losses | ▼ 47% | Lower volume of originated loans retained as HFI | | Non-Interest Expense | ▼ 12% | Decreased compensation and benefits from workforce reductions in 2023 | Capital Management The company actively manages its capital to meet regulatory requirements and support business initiatives, with both LendingClub Corporation and LC Bank maintaining capital ratios well above the minimums required by the Basel III framework as of June 30, 2024 LendingClub Corporation Capital Ratios | Ratio (LendingClub Corporation) | June 30, 2024 | Required Minimum + CCB | | :--- | :--- | :--- | | CET1 Capital Ratio | 17.9% | 7.0% | | Tier 1 Capital Ratio | 17.9% | 8.5% | | Total Capital Ratio | 19.2% | 10.5% | | Tier 1 Leverage Ratio | 12.1% | 4.0% | Liquidity The company manages liquidity to meet both expected and contingent cash flow obligations, with primary sources for LC Bank including its deposit base, cash, and available borrowing capacity from the FHLB and FRB Discount Window, which management believes are sufficient for the next twelve months - Capital expenditures for 2024 are expected to be approximately $50 million, primarily for the development and support of the online lending marketplace platform[366] LC Bank Liquidity Sources | LC Bank Liquidity Sources | June 30, 2024 (in thousands) | | :--- | :--- | | Cash and cash equivalents | $917,693 | | Liquid securities available for sale | $366,724 | | Total available borrowing capacity | $2,995,451 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, which affects net interest income, with a sensitivity analysis showing that a hypothetical 100 basis point increase in interest rates would decrease projected net interest income by 3.5% over the next twelve months, while a 100 basis point decrease would increase it by 1.4% Projected Change in Net Interest Income | Instantaneous Change in Interest Rates | Projected Change in Net Interest Income (Next 12 Months) | | :--- | :--- | | + 200 basis points | (7.3)% | | + 100 basis points | (3.5)% | | – 100 basis points | 1.4% | | – 200 basis points | 2.4% | Controls and Procedures As of June 30, 2024, the company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective at a reasonable assurance level, with no material changes to the company's internal control over financial reporting during the second quarter of 2024 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period[382] - No material changes in internal control over financial reporting occurred during the second quarter of 2024[383] PART II. OTHER INFORMATION Legal Proceedings The company is subject to various claims and regulatory matters arising in the ordinary course of business, with a detailed discussion provided in Note 18 of the financial statements - For a comprehensive discussion of legal proceedings, the company refers to Note 18 in Part I, Item 1 of this report[384] Risk Factors The company states that the risk factors disclosed in its Annual Report on Form 10-K remain current in all material respects and could adversely affect its business, financial condition, and operating results - The Risk Factors section from the company's Annual Report remains current in all material respects[385] Other Information This section discloses that CEO Scott Sanborn entered into a Rule 10b5-1 trading plan in May 2024 to sell up to 119,000 shares, and on July 30, 2024, the company filed an Eighth Amended and Restated Certificate of Incorporation to limit the personal liability of certain officers as permitted by Delaware law - CEO Scott Sanborn adopted a Rule 10b5-1 trading plan in May 2024 to sell up to 119,000 shares, representing his first sale of company stock in eight years as CEO, outside of tax-related obligations[388][389] - The company filed an Eighth Amended and Restated Certificate of Incorporation to limit the liability of certain officers, effective July 30, 2024[390]