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Business Acquisition
 12 Months Ended
Dec. 31, 2021
Business Combination and Asset Acquisition [Abstract]  
Business Acquisition Business Acquisition
On February 1, 2021, the Company completed the Acquisition. Upon closing, LendingClub acquired all outstanding voting equity interests of Radius in exchange for total consideration as follows:
Cash paid$140,256 
Fair value of common stock issued (1)
40,808 
Consideration related to share-based payments (2)
5,742 
Total consideration paid$186,806 
(1)    Calculated using the closing stock price of $10.85 on January 29, 2021, the most recent trading day preceding the Acquisition, multiplied by 3,761,114 shares issued pursuant to the Plan of Merger.
(2)    In connection with the Acquisition, LendingClub agreed to convert equity awards held by Radius employees into cash and LendingClub awards pursuant to the Plan of Merger.

The Acquisition was accounted for as a purchase business combination. Accordingly, the assets acquired and liabilities assumed are presented at their fair values determined as of the Acquisition date. Determining fair value of identifiable assets, particularly intangibles, loans (including PCD loans), and liabilities acquired and assumed based on DCF analysis or other valuation techniques requires management to make estimates that are highly subjective in nature based on available information. The fair value of acquired loans was based on a DCF methodology using contractual cash flows adjusted for key cash flow assumptions such as prepayment rate, default rate, loss severity rate, discount rate and market pricing.

The following table presents an allocation of the total consideration paid to the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed:
Assets acquired:
Cash and due from banks$18,184 
Interest-bearing deposits in banks650,052 
Total cash and cash equivalents668,236 
Securities available for sale at fair value259,037 
Loans and leases held for investment1,589,054 
Allowance for loan and lease losses(12,440)
Loans and leases held for investment, net1,576,614 
Property, equipment and software1,926 
Goodwill75,717 
Other assets86,482 
Total assets2,668,012 
Liabilities assumed:
Non-interest bearing deposits146,187 
Interest-bearing deposits1,862,272 
Total deposits2,008,459 
Short-term borrowings9,870 
Advances from PPPLF420,962 
Other long-term debt18,630 
Other liabilities23,285 
Total liabilities2,481,206 
Total consideration paid$186,806 
The purchase price exceeded the estimated fair value of the tangible and identifiable intangible assets acquired and liabilities assumed and, as a result of the purchase allocation, the Company recorded goodwill of $75.7 million, which is not deductible for tax purposes. The goodwill recognized is attributable primarily to strategic and financial benefits of the Acquisition, including increased resiliency with access to stable, low-cost deposit funding replacing higher-cost and more volatile third-party warehouse funding; increased and more stable revenue driven by increased net interest income from loans HFI; expense benefits by capturing the fees that were historically paid to the Company’s third-party issuing banks; and the ability to attract new members and deepen relationships with existing members through the addition of banking services.

The carrying amounts of cash, AFS securities, short-term borrowings, advances from PPPLF, and certain other assets and liabilities were determined to be a reasonable estimate of the fair value of such items. The following is a description of the methods used to determine the fair values of significant assets and liabilities.

Securities available for sale: The Company acquired a debt securities portfolio containing U.S. agency residential mortgage-backed securities, municipal securities, U.S. agency securities, commercial mortgage-backed securities and other asset-backed securities. The Acquisition date fair value of the securities was based on third-party dealer quotes which reflect exit prices pursuant to the guidance on fair value measurement.

Loans and leases held for investment: Fair values for loans and leases were primarily based on a discounted cash flow methodology that considered contractual terms, credit loss expectations, market interest rates, and other market factors such as liquidity from the perspective of a market participant. Loan portfolios were pooled together according to similar characteristics such as product type, lien position, risk grade, credit deterioration status, FICO score, and collateral type. Loan pools were treated in the aggregate when applying various valuation techniques. The contractual terms, default rates, loss given default rates, loss severity and recovery lag, and prepayment rates were the key assumptions embedded into the estimated cash flow valuation. These assumptions were informed by internal data on loan characteristics, historical loss experience, and current and forecasted economic conditions. The discount rates used are based on current market rates for new originations of comparable loans and include adjustments for liquidity. All of the merged loans were marked to fair value as of the Acquisition date and, therefore, there was no carryover of the ACL that had previously been recorded by Radius. Immediately following the Acquisition, the Company recorded an ACL on non-PCD loans of $6.9 million through an increase to the provision for credit losses. The initial ACL for PCD loans of $12.4 million was recorded through an adjustment to the amortized cost basis of the loans.

Core deposit intangible: This intangible asset represents the value of the relationships with certain deposit clients and is included in “Other assets” on the Balance Sheet. The fair value was estimated based on an after-tax cost savings method of the income approach. Under this method, fair value is equal to the present value of the after-tax cost savings or differential cash flows generated by the acquired deposit base. Cost savings is defined as the difference between the effective cost of funds on deposits and the cost of an equal amount of funds from an alternative source. Deposits were pooled by product type and channel. The discount rates used for Core Deposit Intangible (CDI) assets are based on current market participant rates. The CDI is being amortized over 10 years based upon the estimated economic benefits received.

Other Investments: The fair value of an investment in a private entity that was sold after the Acquisition was determined based upon the price expected to be received in the subsequent sale. This investment was included in “Other assets” on the Balance Sheet.

Interest-bearing deposits: In determining the fair value of certificates of deposit, the cash flows of the contractual interest payments during the specific period of the certificates of deposit and scheduled principal payout were discounted to present value at market-based interest rates.

Subordinated debt: The fair value of subordinated debt was determined by using a DCF method using a market participant discount rate for similar instruments. Subordinated debt is included in “Other long-term debt” on the Balance Sheet.
The Company incurred approximately $16 million of expenses, primarily included in “Professional services” on the Income Statement, in connection with the Acquisition.

The table below presents certain unaudited pro forma financial information for illustrative purposes only, for the years ended December 31, 2021 and 2020, as if the Acquisition took place on January 1, 2020. The pro forma information combines the historical results of Radius with the Company’s, adjusting for the estimated impact of certain fair value adjustments for the respective periods. The pro forma information does not reflect changes to the provision for credit losses resulting from recording loan assets as fair value, cost savings, or business synergies. As a result, actual amounts would have differed from the unaudited pro forma information presented and the differences could be significant.
Year Ended December 31,20212020
Total net revenue$825,701 $392,377 
Consolidated net income (loss)$11,644 $(190,120)

For the year ended December 31, 2021, total net revenue of $73.6 million from the Acquisition is included on the Income Statement.
Summary of Reclassification Adjustments

The classification of the items presented by the Company in its consolidated financial statements under GAAP has been adjusted to align with the presentation requirements under Article 9 of the SEC’s Regulation S-X for bank holding companies. The presentation shown below is reflective of what is used by the combined company under GAAP.

As of December 31, 2020
LendingClub Historical PresentationReclassification AdjustmentsLendingClub Reclassified Amounts
Assets
Cash and cash equivalents$524,963 $(524,963)$— 
Cash and due from banks— 5,197 5,197 
Interest bearing deposits in banks— 519,766 519,766 
Total cash and cash equivalents— 524,963 524,963 
Restricted cash103,522 — 103,522 
Securities available for sale at fair value142,226 — 142,226 
Loans held for investment at fair value636,686 (636,686)— 
Loans held for investment by the Company at fair value49,954 (49,954)— 
Loans held for sale by the Company at fair value121,902 (121,902)— 
Loans held for sale at fair value— 121,902 121,902 
Retail and certificate loans held for investment at fair value— 636,686 636,686 
Other loans held for investment at fair value— 49,954 49,954 
Accrued interest receivable5,205 (5,205)— 
Property, equipment and software, net96,641 — 96,641 
Operating lease assets74,037 (74,037)— 
Intangible assets, net11,427 (11,427)— 
Other assets96,730 90,669 187,399 
Total assets$1,863,293 $— $1,863,293 
Liabilities and Equity
Accounts payable$3,698 $(3,698)$— 
Accrued interest payable4,572 (4,572)— 
Operating lease liabilities94,538 (94,538)— 
Accrued expenses and other liabilities101,457 (101,457)— 
Payable to investors40,286 (40,286)— 
Credit facilities and securities sold under repurchase agreements104,989 (104,989)— 
Short-term borrowings— 104,989 104,989 
Retail notes, certificates and secured borrowings at fair value636,774 — 636,774 
Payable on Structured Program borrowings152,808 — 152,808 
Other liabilities— 244,551 244,551 
Total liabilities1,139,122 — 1,139,122 
Equity
Common stock881 — 881 
Additional paid-in capital1,508,020 — 1,508,020 
Accumulated deficit(786,214)— (786,214)
Accumulated other comprehensive income1,484 — 1,484 
Total equity724,171 — 724,171 
Total liabilities and equity$1,863,293 $— $1,863,293 
Year Ended December 31, 2020
LendingClub Historical PresentationReclassification AdjustmentsLendingClub Reclassified Amounts
Net Revenue
Transaction fees$207,640 $(207,640)$— 
Interest income209,694 (209,694)— 
Interest expense(141,503)141,503 — 
Net fair value adjustments(117,247)117,247 — 
Net interest income and fair value adjustments(49,056)49,056 — 
Investor fees111,864 (111,864)— 
Gain on sales of loans30,812 (30,812)— 
Net investor revenue93,620 (93,620)— 
Other revenue13,442 (13,442)— 
Total net revenue314,702 (314,702)— 
Non-interest income
Marketplace revenue (1)
— 245,314 245,314 
Other non-interest income— 13,442 13,442 
Total non-interest income— 258,756 258,756 
Interest income
Interest on loans held for sale— 72,876 72,876 
Interest on retail and certificate loans held for investment at fair value— 115,952 115,952 
Interest on other loans held for investment at fair value— 7,688 7,688 
Interest on securities available for sale— 12,125 12,125 
Other interest income— 1,053 1,053 
Total interest income— 209,694 209,694 
Interest expense
Interest on short-term borrowings— 17,837 17,837 
Interest on retail notes, certificates and secured borrowings— 115,952 115,952 
Interest on Structured Program borrowings— 16,204 16,204 
Interest on other long-term debt— 373 373 
Total interest expense (2)
— 150,366 150,366 
Net interest income— 59,328 59,328 
Total net revenue (3)
— 318,084 318,084 
Provision for credit losses (3)
— 3,382 3,382 
Operating expenses
Sales and marketing79,055 (79,055)— 
Origination and servicing71,193 (71,193)— 
Engineering and product development139,050 (139,050)— 
Other general and administrative213,021 (213,021)— 
Total operating expenses502,319 (502,319)— 
Non-interest expense
Compensation and benefits— 252,517 252,517 
Marketing— 51,518 51,518 
Equipment and software— 26,842 26,842 
Occupancy— 27,870 27,870 
Depreciation and amortization— 54,030 54,030 
Professional services— 41,780 41,780 
Other non-interest expense— 47,762 47,762 
Total non-interest expense— 502,319 502,319 
Loss before income tax expense(187,617)— (187,617)
Income tax benefit(79)— (79)
Consolidated net loss$(187,538)$— $(187,538)
(1)    See “Note 3. Marketplace Revenue” for additional detail.
(2)    The increase in total interest expense relates to valuation adjustments on Structured Program borrowings reclassified from net fair value adjustments to interest expense.
(3)    The increase in total net revenue from the historical presentation relates to credit valuation adjustments on AFS securities reclassified from net fair value adjustments to provision for credit losses.
Year Ended December 31, 2019
LendingClub Historical PresentationReclassification AdjustmentsLendingClub Reclassified Amounts
Net Revenue
Transaction fees$598,760 $(598,760)$— 
Interest income345,345 (345,345)— 
Interest expense(246,587)246,587 — 
Net fair value adjustments(144,990)144,990 — 
Net interest income and fair value adjustments(46,232)46,232 — 
Investor fees124,532 (124,532)— 
Gain on sales of loans67,716 (67,716)— 
Net investor revenue146,016 (146,016)— 
Other revenue13,831 (13,831)— 
Total net revenue758,607 (758,607)— 
Non-interest income
Marketplace revenue (1)
— 646,735 646,735 
Other non-interest income— 13,831 13,831 
Total non-interest income— 660,566 660,566 
Interest income
Interest on loans held for sale— 109,493 109,493 
Interest on retail and certificate loans held for investment at fair value— 214,395 214,395 
Interest on other loans held for investment at fair value— 1,104 1,104 
Interest on securities available for sale— 14,351 14,351 
Other interest income— 6,002 6,002 
Total interest income— 345,345 345,345 
Interest expense
Interest on short-term borrowings— 26,826 26,826 
Interest on retail notes, certificates and secured borrowings— 214,395 214,395 
Interest on Structured Program borrowings— 5,070 5,070 
Interest on other long-term debt— 1,013 1,013 
Total interest expense (2)
— 247,304 247,304 
Net interest income— 98,041 98,041 
Total net revenue— 758,607 758,607 
Provision for credit losses— — — 
Operating expenses
Sales and marketing279,423 (279,423)— 
Origination and servicing103,403 (103,403)— 
Engineering and product development168,380 (168,380)— 
Other general and administrative238,292 (238,292)— 
Total operating expenses789,498 (789,498)— 
Non-interest expense
Compensation and benefits— 333,628 333,628 
Marketing— 235,337 235,337 
Equipment and software— 24,927 24,927 
Occupancy— 29,367 29,367 
Depreciation and amortization— 59,152 59,152 
Professional services— 43,010 43,010 
Other non-interest expense— 64,077 64,077 
Total non-interest expense— 789,498 789,498 
Loss before income tax expense(30,891)— (30,891)
Income tax benefit(201)— (201)
Consolidated net loss(30,690)— (30,690)
Less: Income attributable to noncontrolling interests55 — 55 
LendingClub net loss$(30,745)$— $(30,745)
(1)    See “Note 3. Marketplace Revenue” for additional detail.
(2)    The increase in total interest expense relates to valuation adjustments on Structured Program borrowings reclassified from net fair value adjustments to interest expense.