Securitizations and Variable Interest Entities

9 Months Ended

Sep. 30, 2021

Transfers and Servicing [Abstract]

Securitization and Variable Interest Entities

Securitizations and Variable Interest Entities

VIE Assets and Liabilities

The following tables provide the classifications of assets and liabilities on the Company’s Condensed Consolidated Balance Sheets for its transactions with consolidated and unconsolidated VIEs at September 30, 2021 and December 31, 2020. Additionally, the assets and liabilities in the table below exclude intercompany balances that eliminate in consolidation:

September 30, 2021	Consolidated VIEs		Unconsolidated VIEs		Total
Assets
Restricted cash	$	14,827	$	—	$	14,827
Securities available for sale at fair value	—		73,694		73,694
Loans held for sale at fair value	55,172		—		55,172
Retail and certificate loans held for investment at fair value	15,388		—		15,388
Other loans held for investment at fair value	27,033		—		27,033
Other assets	649		19,732		20,381
Total assets	$	113,069	$	93,426	$	206,495
Liabilities
Retail notes, certificates and secured borrowings at fair value	$	15,388	$	—	$	15,388
Payable on Structured Program borrowings	89,252		—		89,252
Other liabilities	284		—		284
Total liabilities	104,924		—		104,924
Total net assets	$	8,145	$	93,426	$	101,571

December 31, 2020	Consolidated VIEs		Unconsolidated VIEs		Total
Assets
Restricted cash	$	15,983	$	—	$	15,983
Securities available for sale at fair value	—		142,026		142,026
Loans held for sale at fair value	98,190		—		98,190
Retail and certificate loans held for investment at fair value	52,620		—		52,620
Other loans held for investment at fair value	50,102		—		50,102
Other assets	1,270		32,865		34,135
Total assets	$	218,165	$	174,891	$	393,056
Liabilities
Retail notes, certificates and secured borrowings at fair value	$	52,620	$	—	$	52,620
Payable on Structured Program borrowings	152,808		—		152,808
Other liabilities	729		—		729
Total liabilities	206,157		—		206,157
Total net assets	$	12,008	$	174,891	$	186,899

Consolidated VIEs

The Company consolidates VIEs when it is deemed to be the primary beneficiary. See “Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 1. Summary of Significant Accounting Policies” in the Annual Report for additional information.

LC Trust

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

Consolidated Trusts

The Company established trusts to facilitate the sale of loans and issuance of senior and subordinated securities. If the Company is the primary beneficiary of the trust, it is a consolidated VIE and will reflect senior and subordinated securities held by third parties within “Payable on Structured Program borrowings” in the Company’s Condensed Consolidated Balance Sheets. If subsequently the Company is not the primary beneficiary of the trust, the Company will deconsolidate the VIE. See “Note 13. Short-term Borrowings and Long-term Debt” for additional information.

Warehouse Credit Facilities

Prior to the acquisition of Radius, the Company established certain entities (deemed to be VIEs) to enter into warehouse credit facilities for the purpose of purchasing loans from LendingClub. In the fourth quarter of 2020, the Company fully repaid and terminated its credit facilities.

The following tables present a summary of financial assets and liabilities from the Company’s involvement with consolidated VIEs at September 30, 2021 and December 31, 2020:

September 30, 2021	Assets		Liabilities		Net Assets
LC Trust	$	17,953	$	(15,505)	$	2,448
Consolidated trusts	95,116		(89,419)		5,697
Total consolidated VIEs	$	113,069	$	(104,924)	$	8,145

December 31, 2020	Assets		Liabilities		Net Assets
LC Trust	$	55,447	$	(53,068)	$	2,379
Consolidated trusts	162,460		(153,089)		9,371
Warehouse credit facility	258		—		258
Total consolidated VIEs	$	218,165	$	(206,157)	$	12,008

The creditors of the VIEs above have no recourse to the general credit of the Company as the primary beneficiary of the VIEs and the liabilities of the VIEs can only be settled by the respective VIE’s assets.

Unconsolidated VIEs

The Company’s transactions with unconsolidated VIEs include asset-backed securitizations, Certificate Program transactions and loan sale transactions of unsecured personal loans. The Company has various forms of involvement

with VIEs, including servicing of loans and holding senior or subordinated residual interests in the VIEs. The accounting for these transactions is based on a primary beneficiary analysis to determine whether the underlying VIEs should be consolidated. If the VIEs are not consolidated and the transfer of the loans from the Company to the VIE meets sale accounting criteria, then the Company will recognize a gain or loss on sales of loans. The Company considers continued involvement in an unconsolidated VIE insignificant if it is the sponsor and servicer and does not hold other significant variable interests. In these instances, the Company’s involvement with the VIE is in the role as an agent and without significant participation in the economics of the VIE. The Company enters into separate servicing agreements with the VIEs and holds at least 5% of the beneficial interests issued by the VIEs to comply with regulatory risk retention rules. The beneficial interests retained by the Company consist of senior securities and subordinated securities and are accounted for as securities available for sale. In connection with these transactions, we make certain customary representations, warranties and covenants. See “Part II – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 1. Summary of Significant Accounting Policies” in the Annual Report for additional information.

Investment Fund

The Company has an equity investment in a private fund (Investment Fund) that participates in a family of funds with other unrelated third parties. This family of funds purchases assets from third parties unrelated to the Company and historically purchased whole loans and interests in loans from the Company. As of September 30, 2021, the Company had an ownership interest of approximately 21% in the Investment Fund. The Company’s investment is deemed to be a variable interest in the Investment Fund because the Company shares in the expected returns and losses of the Investment Fund. The Company has requested a full redemption of its investment in the Investment Fund. At September 30, 2021, the Company’s investment was $7.7 million, which is recognized in “Other assets” on the Company’s Condensed Consolidated Balance Sheets.

The following tables summarize unconsolidated VIEs with which the Company has significant continuing involvement, but is not the primary beneficiary at September 30, 2021 and December 31, 2020:

September 30, 2021			Carrying Value
	Total VIE Assets		Securities Available for Sale		Other Assets		Net Assets
Unconsolidated Trusts	$	763,992	$	31,253	$	5,517	$	36,770
Certificate Program	929,742		42,441		6,490		48,931
Investment Fund	37,533		—		7,725		7,725
Total unconsolidated VIEs	$	1,731,267	$	73,694	$	19,732	$	93,426

September 30, 2021	Maximum Exposure to Loss
	Securities Available for Sale		Other Assets		Net Assets
Unconsolidated Trusts	$	31,253	$	5,517	$	36,770
Certificate Program	42,441		6,490		48,931
Investment Fund	—		7,725		7,725
Total unconsolidated VIEs	$	73,694	$	19,732	$	93,426

December 31, 2020			Carrying Value
	Total VIE Assets		Securities Available for Sale		Other Assets		Net Assets
Unconsolidated Trusts	$	1,267,611	$	57,511	$	9,654	$	67,165
Certificate Program	1,931,429		84,515		15,436		99,951
Investment Fund	34,376		—		7,775		7,775
Total unconsolidated VIEs	$	3,233,416	$	142,026	$	32,865	$	174,891

December 31, 2020	Maximum Exposure to Loss
	Securities Available for Sale		Other Assets		Total Exposure
Unconsolidated Trusts	$	57,511	$	9,654	$	67,165
Certificate Program	84,515		15,436		99,951
Investment Fund	—		7,775		7,775
Total unconsolidated VIEs	$	142,026	$	32,865	$	174,891

“Total VIE Assets” represents the remaining principal balance of loans held by unconsolidated VIEs with respect to Unconsolidated Trusts, Certificate Program transactions, and the net assets held by the Investment Fund using the most current information available. “Securities Available for Sale” and “Other Assets” are the balances in the Company’s Condensed Consolidated Balance Sheets related to its involvement with the unconsolidated VIEs. “Other Assets” includes the Company’s servicing assets and servicing receivables and the Company’s equity investment with respect to the Investment Fund. “Total Exposure” refers to the Company’s maximum exposure to loss from its involvement with unconsolidated VIEs. It represents estimated loss that would be incurred under severe, hypothetical circumstances, for which the Company believes the possibility is extremely remote, such as where the value of interests and any associated collateral declines to zero. Accordingly, this required disclosure is not an indication of expected losses.

The following tables summarize activity related to the Unconsolidated Trusts and Certificate Program trusts, with the transfers accounted for as a sale on the Company’s financial statements for the third quarters and first nine months of 2021 and 2020:

Three Months Ended September 30,	2021				2020
	Unconsolidated Trusts		Unconsolidated Certificate Program Trusts		Unconsolidated Trusts		Unconsolidated Certificate Program Trusts
Principal derecognized from loans securitized or sold (1)	$	—	$	—	$	—	$	233,852
Net gains recognized from loans securitized or sold	$	—	$	—	$	—	$	1,563
Cash proceeds from servicing and other administrative fees on loans securitized or sold	$	2,021	$	3,131	$	4,176	$	6,697
Cash proceeds for interest received on senior securities and subordinated securities	$	377	$	598	$	983	$	1,847

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

Nine Months Ended September 30,	2021				2020
	Unconsolidated Trusts		Unconsolidated Certificate Program Trusts		Unconsolidated Trusts		Unconsolidated Certificate Program Trusts
Principal derecognized from loans securitized or sold (1)	$	—	$	—	$	255,203	$	871,489
Net gains (losses) recognized from loans securitized or sold	$	—	$	—	$	(20)	$	7,159
Fair value of asset-backed senior and subordinated securities, and CLUB Certificate asset-backed securities retained upon settlement (2)	$	—	$	—	$	12,707	$	31,423
Cash proceeds from loans securitized or sold	$	—	$	—	$	237,764	$	598,515
Cash proceeds from servicing and other administrative fees on loans securitized or sold	$	7,546	$	12,054	$	14,118	$	20,919
Cash proceeds for interest received on senior securities and subordinated securities	$	2,198	$	4,388	$	3,792	$	6,740

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

(2)    For Structured Program transactions, the Company retained asset-backed senior securities of $23.0 million, CLUB Certificate asset-backed securities of $18.3 million, and asset-backed subordinated securities of $2.9 million for the first nine months of 2020. The Company did not retain asset-backed securities related to Structured Program transactions during the first nine months of 2021.

Off-Balance Sheet Loans

Off-balance sheet loans pursuant to unconsolidated VIE’s primarily relate to Structured Program transactions for which the Company has some form of continuing involvement, including as servicer. For loans related to Structured Program transactions where servicing is the only form of continuing involvement, the Company would only experience a loss if it was required to repurchase a loan due to a breach in representations and warranties associated with its loan sale or servicing contracts.

As of September 30, 2021, the aggregate unpaid principal balance of the off-balance sheet loans related to Structured Program transactions was $1.7 billion, of which $42.4 million was attributable to off-balance sheet loans that were 31 days or more past due. As of December 31, 2020, the aggregate unpaid principal balance of the off-balance sheet loans related to Structured Program transactions was $3.2 billion, of which $94.8 million was attributable to off-balance sheet loans that were 31 days or more past due.

Retained Interests from Unconsolidated VIEs

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

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