Regulatory Requirements

9 Months Ended

Sep. 30, 2022

Regulated Operations [Abstract]

Regulatory Requirements

Regulatory Requirements

LendingClub and LC Bank are subject to comprehensive supervision, examination and enforcement, and regulation by the FRB and the Office of the Comptroller of the Currency (OCC), including generally similar capital adequacy requirements adopted by the FRB and the OCC, respectively. These requirements establish required minimum ratios for Common Equity Tier 1 (CET1) risk-based capital, Tier 1 risk-based capital, total risk-based capital and a Tier 1 leverage ratio; set risk-weighting for assets and certain other items for purposes of the risk-based capital ratios; and define what qualifies as capital for purposes of meeting the capital requirements. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company.

The minimum capital requirements under the Basel Committee on Banking Supervision standardized approach for U.S. banking organizations (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 regulators assess any particular institution’s capital adequacy based on numerous factors and may require a particular banking organization to maintain capital at levels higher than the generally applicable minimums 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%.

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

LendingClub Bank	September 30, 2022				December 31, 2021				Required Minimum plus Required CCB for Non-Leverage Ratios
	Amount		Ratio		Amount		Ratio
CET1 capital (1)	$	760.4	15.2	%	$	523.7	16.7	%	7.0	%
Tier 1 capital	$	760.4	15.2	%	$	523.7	16.7	%	8.5	%
Total capital	$	825.8	16.5	%	$	563.7	18.0	%	10.5	%
Tier 1 leverage	$	760.4	13.4	%	$	523.7	14.3	%	4.0	%
Risk-weighted assets	$	5,018.3	N/A		$	3,130.4	N/A		N/A
Quarterly adjusted average assets	$	5,692.0	N/A		$	3,667.7	N/A		N/A

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 presents the regulatory capital and ratios of the Company (in millions):

LendingClub	September 30, 2022				December 31, 2021				Required Minimum plus Required CCB for Non-Leverage Ratios
	Amount		Ratio		Amount		Ratio
CET1 capital (1)	$	953.2	18.3	%	$	710.0	21.3	%	7.0	%
Tier 1 capital	$	953.2	18.3	%	$	710.0	21.3	%	8.5	%
Total capital	$	1,033.2	19.8	%	$	767.9	23.0	%	10.5	%
Tier 1 leverage	$	953.2	15.7	%	$	710.0	16.5	%	4.0	%
Risk-weighted assets	$	5,210.2	N/A		$	3,333.2	N/A		N/A
Quarterly adjusted average assets	$	6,061.4	N/A		$	4,301.7	N/A		N/A

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.

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 delay the estimated impact of CECL on regulatory capital, resulting in a CET1 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.

The Federal Deposit Insurance Act provides for a system of “prompt corrective action” (PCA). The PCA regime provides for capitalization categories ranging from “well-capitalized” to “critically undercapitalized.” An institution’s PCA category is determined primarily by its regulatory capital ratios. The PCA requires remedial actions and imposes limitations that become increasingly stringent as its PCA capitalization category declines, including the ability to accept and/or rollover brokered deposits. At September 30, 2022 and December 31, 2021, the Company’s and LC Bank’s regulatory capital ratios exceeded the thresholds required to be regarded as well-capitalized institutions and met all capital adequacy requirements to which they are subject. There have been no events or conditions since September 30, 2022 that management believes would change the Company’s categorization.

Federal laws and regulations limit the dividends that a national bank may pay. Dividends that may be paid by a

national bank without the express approval of the OCC are limited to that bank’s retained net profits for the preceding two calendar years plus retained net profits up to the date of any dividend declaration in the current calendar year. Retained net profits, as defined by the OCC, consist of net income less dividends declared during the period. Additionally, under the OCC Operating Agreement, LC Bank is required to obtain a written determination of non-objection from the OCC before declaring any dividend. No dividends were declared by LC Bank during the first nine months of 2022 or during 2021. See “Part I – Item 1. Business – Regulation and Supervision – Broad Powers to Ensure Safety and Soundness” in our Annual Report for further discussion regarding the OCC Operating Agreement.

Federal law restricts the amount and the terms of both credit and non-credit transactions between a bank and its nonbank affiliates. These covered transactions may not exceed 10% of the bank’s capital and surplus (which for this purpose represents tier 1 and tier 2 capital, as calculated under the risk-based capital rules, plus the balance of the ACL excluded from tier 2 capital) with any single nonbank affiliate and 20% of the bank’s capital and surplus with all its nonbank affiliates. Covered transactions that are extensions of credit may require collateral to be pledged to provide added security to the bank.