Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-54752

LendingClub Corporation

(Exact name of registrant as specified in its charter)

Delaware 51-0605731 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 71 Stevenson St., Suite 300 San Francisco, California 94105 (Address of principal executive offices) (Zip Code)

(415) 632-5600

(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of September 30, 2014, there were 60,921,190 shares of the registrants common stock outstanding.

LENDINGCLUB CORPORATION

TABLE OF CONTENTS

Except as the context requires otherwise, as used herein, Lending Club, LC, the Company, we, us, and our, refer to LendingClub Corporation and its wholly owned subsidiaries; Springstone Financial, LLC (Springstone) and LC Advisors, LLC, (LCA). Trust refers to LC Trust I, an independent Delaware business trust that acquires loans through the Lending Club marketplace and holds the loans for the sole benefit of certain investors that purchase certificates issued by the Trust and that are related to the underlying loans.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (Report) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (Securities Act), as amended, and Section 21E of the Securities Exchange Act of 1934 (Exchange Act), as amended, that involve substantial risks and uncertainties. Those sections of the Securities Act and Exchange Act provide a safe harbor for forward-looking statements to encourage companies to provide prospective information about their financial performance so long as they provide meaningful, cautionary statements identifying important factors that could cause actual results to differ significantly from projected results.

All statements, other than statements of historical facts, included in this Report regarding borrowers, credit scoring, Fair Isaac Corporation (FICO) or other credit scores, our strategy, future operations, expected losses, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The words anticipate, believe, continue, could, estimate, expect, intend, may, plan, predict, project, will, would or similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:

 our ability to attract potential borrowers to our marketplace;

 the degree to which potential borrowers apply for, are approved for and actually borrow via a loan;

 the status of borrowers, the ability of borrowers to repay loans and the plans of borrowers;

 interest rates and origination fees on loans charged by the issuing bank;

 our ability to service loans and our ability, or the ability of third-party collection agents, to pursue collection of delinquent and defaulted loans;

 our ability to retain WebBank and other third-party banking institutions as the issuer of loans facilitated by our marketplace;

 our ability to attract and retain investors to the marketplace, to our funds, to separately managed accounts (SMAs) or to purchase loans;

 our ability to successfully integrate our recent acquisition of Springstone;

 our ability to expand the number of providers that use the products provided through Springstone;

 the available functionality of a secondary market trading program for notes;

 expected rates of return provided to investors;

 our financial condition and performance, including our ability to remain cash flow positive;

 our ability to retain and hire employees and appropriately staff our operations;

 our ability to prevent security breaches, disruptions in service or comparable events that could compromise the personally identifiable or confidential information held in our data systems, reduce the attractiveness of the marketplace or adversely impact our ability to service loans;

 our ability to prevent and detect identity theft;

 our ability to develop and maintain effective internal controls;

 our compliance with applicable local, state and federal laws, including the Investment Advisors Act of 1940, the Investment Company Act of 1940 and other laws; and

 our compliance with applicable regulations and regulatory developments regarding our marketplace.

We may not actually achieve the plans, intentions or expectations disclosed in forward-looking statements, and you should not place undue reliance on forward-looking statements. We have included important factors in the cautionary statements included in this Report, including the Risk Factors section of our Annual Report on Form 10-K, for a description of certain risks that could, among other things, cause actual results or events to differ materially from forward-looking statements contained in this Report. Forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

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You should read this Report carefully and completely and with the understanding that actual future results may be materially different from what we expect. We do not assume any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by law.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LendingClub Corporation

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share amounts)

September 30, 2014 December 31, 2013 ASSETS Cash and cash equivalents $ 82,674 $ 49,299 Restricted cash 25,221 12,208 Loans at fair value (includes $1,580,656 and $1,158,302 from consolidated Trust at September 30, 2014 and December 31, 2013, respectively) 2,533,671 1,829,042 Accrued interest receivable (includes $13,849 and $10,061 from consolidated Trust at September 30, 2014 and December 31, 2013, respectively) 22,348 15,975 Property, equipment and software, net 23,686 12,595 Intangible assets, net 37,690  Goodwill 72,592  Other assets 16,521 23,921 Due from related parties 443 355 Total Assets $ 2,814,846 $ 1,943,395 LIABILITIES Accounts payable $ 3,354 $ 4,524 Accrued interest payable (includes $15,939 and $11,176 from consolidated Trust at September 30, 2014 and December 31, 2013, respectively) 25,723 17,741 Accrued expenses and other liabilities 26,004 9,128 Payable to investors 17,366 3,918 Notes and certificates, at fair value (includes $1,580,656 and $1,158,302 from consolidated Trust at September 30, 2014 and December 31, 2013, respectively) 2,551,640 1,839,990 Term loan 49,219  Total Liabilities 2,673,306 1,875,301 Commitments and contingencies (see Note 17 ) STOCKHOLDERS EQUITY Preferred stock $ 177,300 $ 103,244 Common stock, $0.01 par value; 372,000,000 and 360,000,000 shares authorized at September 30, 2014 and December 31, 2013, respectively; 60,921,190 and 54,986,640 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively 609 138 Additional paid-in capital 37,817 15,041 Accumulated deficit (74,186 ) (50,329 ) Total Stockholders Equity 141,540 68,094 Total Liabilities and Stockholders Equity $ 2,814,846 $ 1,943,395

The accompanying notes are an integral part of these condensed consolidated financial statements.

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LendingClub Corporation

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share amounts)

Three Months Ended

September 30, Nine Months Ended

September 30, 2014 2013 2014 2013 Operating revenue Transaction fees $ 52,622 $ 25,239 $ 133,835 $ 55,214 Servicing fees 3,053 888 6,301 2,485 Management fees 1,608 869 4,163 2,083 Other revenue (expense) (745 ) 409 (438 ) 4,708 Total operating revenue 56,538 27,405 143,861 64,490 Net interest income (expense): Total interest income 94,038 51,386 252,298 124,771 Total interest expense (94,460 ) (51,370 ) (253,054 ) (124,727 ) Net interest income (expense) (422 ) 16 (756 ) 44 Fair value adjustments, loans (33,809 ) (15,613 ) (84,963 ) (37,877 ) Fair value adjustments, notes and certificates 33,757 15,607 84,865 37,848 Net interest income (expense) after fair value adjustments (474 ) 10 (854 ) 15 Total net revenue 56,064 27,415 143,007 64,505 Operating expenses: Sales and marketing 21,001 10,460 60,808 26,577 Origination and servicing 10,167 4,996 26,135 11,044 General and administrative 31,848 9,331 78,862 22,434 Total operating expenses 63,016 24,787 165,805 60,055 Income (loss) before income taxes (6,952 ) 2,628 (22,798 ) 4,450 Income tax expense (benefit) 419 (85 ) 1,059  Net income (loss) $ (7,371 ) $ 2,713 $ (23,857 ) $ 4,450 Basic net income (loss) per share attributable to common stockholders $ (0.12 ) $  $ (0.41 ) $  Diluted net income (loss) per share attributable to common stockholders $ (0.12 ) $  $ (0.41 ) $  Weighted-average shares of common stock used in computing basic net income (loss) per share 59,844,394 53,312,412 57,958,838 50,457,948 Weighted-average shares of common stock used in computing diluted net income (loss) per share 59,844,394 80,001,460 57,958,838 79,153,912

The accompanying notes are an integral part of these condensed consolidated financial statements.

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LendingClub Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

Nine Months Ended September 30, 2014 2013 Cash flows from operating activities: Net (loss) income $ (23,857 ) $ 4,450 Adjustments to reconcile net income to net cash provided by operating activities: Fair value adjustments of loans, notes and certificates, net 99 29 Change in loan servicing liability carried at fair value 2,776 731 Change in loan servicing asset carried at fair value (986 ) (153 ) Stock-based compensation and warrant expense, net 25,889 3,345 Depreciation and amortization 6,620 907 Loss (gain) on sales of loans at fair value 2,110 (3,862 ) Other, net 238  Loss on disposal of property, equipment and software 212  Purchase of whole loans held for sale (1,096,592 ) (246,571 ) Proceeds from sales of whole loans held for sale 1,094,482 250,433 Net change in operating assets and liabilities excluding the effects of the acquisition: Accrued interest receivable (6,373 ) (7,280 ) Other assets 13,184 (153 ) Due from related parties (88 ) (197 ) Accounts payable (1,107 ) 1,120 Accrued interest payable 7,982 7,871 Accrued expenses and other liabilities 10,806 5,532 Net cash provided by operating activities 35,395 16,202 Cash flows from investing activities: Purchase of loans at fair value (1,534,276 ) (1,115,774 ) Principal payments of loans at fair value 739,505 341,256 Proceeds from recoveries and sales of charged-off loans at fair value 5,178 1,180 Payments for business acquisition, net of cash acquired (109,464 )  Net change in restricted cash (11,432 ) (1,264 ) Purchase of property, equipment and software (14,989 ) (7,736 ) Net cash used in investing activities (925,478 ) (782,338 ) Cash flows from financing activities: Net change in payable to investors 12,933 (1,593 ) Proceeds from issuance of notes and certificates 1,534,010 1,115,694 Principal payments on notes and certificates (732,342 ) (339,048 ) Payments on notes and certificates from recoveries and sales of related charged off loans at fair value (5,153 ) (1,139 ) Proceeds from term loan, net of debt discount 49,813  Payment for debt issuance costs (1,192 )  Principal payment on term loan (625 )  Prepaid offering costs (1,887 )  Proceeds from issuance of Series F convertible preferred stock, net of issuance costs 64,803  Proceeds from stock options exercised 2,997 1,531 Proceeds from exercise of warrants to acquire common stock 101 326 Net cash provided by financing activities 923,458 775,771 Net increase in cash and cash equivalents 33,375 9,635 Cash and cash equivalents, beginning of period 49,299 52,551 Cash and cash equivalents, end of period $ 82,674 $ 62,186 Supplemental disclosure of cash flow information: Cash paid for interest $ 244,531 $ 116,746 Non-cash investing activity - accruals for property, equipment and software $ 1,132 $  Non-cash financing activitiy - accruals for prepaid offering costs $ 1,053 $  Non-cash financing activitiy - exercise of common stock warrants $ 86 $ 137 Non-cash investing and financing activity - issuance of Series F convertible preferred stock for business acquisition $ 2,762 $ 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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LENDINGCLUB CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The condensed consolidated financial statements as of September 30, 2014 and December 31, 2013 and for the three and nine months ended September 30, 2014 and 2013, respectively have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

We did not have any items of other comprehensive income (loss) during any of the periods presented in the condensed consolidated financial statements as of and for the three and nine months ended September 30, 2014 and 2013, respectively.

In our opinion, all necessary adjustments (including those of a normal recurring nature) have been made for a fair presentation of the financial position, results of operations, and cash flows for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results for the full fiscal year. The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2013.

The preparation of our condensed consolidated financial statements and related disclosures in conformity with GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other factors we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of certain assets and liabilities. These judgments, estimates and assumptions are inherently subjective in nature and actual results may differ from these estimates and assumptions, and the differences could be material.

Certain prior period amounts have been reclassified to conform to the current presentation. These reclassifications had no impact on previously reported results of consolidated operations.

On April 15, 2014, a 2 for 1 equity stock split approved by our Board of Directors became effective, in which each outstanding share of each series or class of equity capital stock was split into two outstanding shares of such series or class of equity capital stock. Additionally, another 2 for 1 equity stock split became effective on September 5, 2014, in which each outstanding share of each series or class of equity capital stock was split into two outstanding shares of such series or class of equity capital stock. All share and per share data has been adjusted to reflect these stock splits. The par value of each of the outstanding shares remains the same at $0.01.

On April 17, 2014, we acquired all the outstanding limited liability company interests of Springstone. Our condensed consolidated financial statements include Springstones results of operations and financial position from this date (see Note 9  Springstone Acquisition ).

2. Summary of Significant Accounting Policies

Our significant accounting policies are included in Note 2  Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the year ended December 31, 2013. There have been no changes to these accounting policies during the first nine months of 2014 except for our initial application of the acquisition method in accounting for a business combination, the accounting for intangible assets, including goodwill and the accounting for servicing assets and liabilities, as described below.

Goodwill and Intangible Assets

Goodwill represents the fair value of acquired businesses in excess of the aggregate fair value of the identified net assets acquired. Goodwill is not amortized but is tested for impairment annually or whenever indications of impairment exist. Our annual impairment testing date is April 1. We can elect to qualitatively assess goodwill for impairment if it is more likely than not that the fair value of a reporting unit (defined as business for which financial information is available and reviewed regularly by management) exceeds its carrying value. A qualitative assessment may consider macroeconomic and other industry-specific factors, such as trends in short-term and long-term interest rates and the ability to access capital, or company specific factors such as market capitalization in excess of net assets, trends in revenue generating activities and merger or acquisition activity.

If we elect to bypass qualitatively assessing goodwill, or it is not more likely than not that the fair value of a reporting unit exceeds its carrying value, management will estimate the fair values of our reporting units and compare them to their carrying values. The estimated fair values of the reporting units will be established using an income approach based on a discounted cash flow model or a market approach which compares each reporting unit to comparable companies in their respective industries.

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Intangible assets are amortized over their useful lives in a manner that best reflects their economic benefit. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We do not have any indefinite-lived intangible assets.

Servicing Asset/Liability

We record servicing assets and liabilities at their estimated fair values when we sell whole loans to unrelated third-party whole loan buyers or when the servicing contract commences. The gain or loss on a loan sale is recorded in Other Revenue while the component of the gain or loss that is based on the degree to which the contractual loan servicing fee is above or below an estimated market rate loan servicing fee is recorded as an offset in servicing assets or liabilities. Servicing assets and liabilities are recorded in Other Assets and Accrued Expenses and Other Liabilities, respectively, on the condensed consolidated balance sheets. Over the life of the loan, changes in the estimated fair value of servicing assets and liabilities are reported in Servicing Fees on the condensed consolidated statement of operations in the period in which the changes occur.

We use a discounted cash flow model to estimate the fair value of the loan servicing asset or liability which considers the contractual servicing fee revenue we earn on the loans, estimated market rate servicing fee to service such loans, the current principal balances of the loans and projected servicing revenues over the remaining terms of the loans.

Impact of New Accounting Standards

In May, 2014, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board issued Accounting Standards Update (ASU) 2014-09 Revenue from Contracts with Customers which provides a single comprehensive revenue recognition model for all contracts with customers. The standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. This ASU is effective for annual reporting periods beginning after December 15, 2016 for public entities. Early adoption is not permitted. We are currently evaluating the impact of the new update on our condensed consolidated financial statements.

In August, 2014, FASB issued ASU 2014-13 Consolidation (Topic 810)Measuring the Financial Assets and The Financial Liabilities of a Consolidated Collateralized Financing Entity to amend the existing standards. This ASU provides an alternative to current fair value measurement guidance to an entity that consolidates a collateralized financing entity (CFE) that has elected the fair value option for the financial assets and financial liabilities. If elected, the entity could measure both the financial assets and the financial liabilities of the CFE by using the fair value of the financial assets or financial liabilities, whichever is more observable. The election would effectively eliminate any measurement difference previously reflected in earnings and attributed to the reporting entity in the condensed consolidated statements of operations. The guidance is effective for annual reporting periods beginning after December 15, 2015, and interim periods within those annual periods. Early adoption is permitted as of the beginning of an annual period. We are currently evaluating the impact of the new update on our condensed consolidated financial statements.

3. Net Income (Loss) Per Share and Net Income (Loss) Attributable to Common Stockholders

Basic net income (loss) per share (EPS) is the amount of net income (loss) available to each share of common stock outstanding during the reporting period. Diluted EPS is the amount of net income (loss) available to each share of common stock outstanding during the reporting period adjusted to include the effect of potentially dilutive common shares. Potentially dilutive common shares include incremental shares to be issued assuming the exercise of stock options, convertible preferred stock and warrants. Potentially dilutive common shares are excluded from the computation of dilutive EPS in periods in which the effect would be antidilutive.

We calculate both basic and diluted EPS using the two-class method. The two-class method allocates net income that otherwise would have been available to common shareholders to holders of participating securities. We consider all series of our convertible preferred stock to be participating securities due to their non-cumulative dividend rights. As such, net income allocated to these participating securities, which include participation rights in undistributed earnings (see Note 13  Stockholders Equity ), is subtracted from net income to determine total undistributed net income to be allocated to common stockholders. All participating securities are excluded from basic weighted-average common shares outstanding.

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The following table details the computation of the basic and diluted net income (loss) per share (in thousands, except share and per share data):

Three Months Ended

September 30, Nine Months Ended

September 30, 2014 2013 2014 2013 Net (loss) income $ (7,371 ) $ 2,713 $ (23,857 ) $ 4,450 Less: Net income allocated to participating securities (1)  (2,713 )  (4,450 ) Net income (loss) available to common shareholders after required adjustments for the calculation of basic and diluted earnings per common share $ (7,371 ) $  $ (23,857 ) $  Basic weighted average common shares outstanding 59,844,394 53,312,412 57,958,838 50,457,948 Weighted average effect of dilutive securities: Stock Options  25,930,812  27,170,816 Warrants  758,236  1,525,148 Diluted weighted average common shares outstanding 59,844,394 80,001,460 57,958,838 79,153,912 Net income (loss) per common share: Basic $ (0.12 ) $  $ (0.41 ) $  Diluted $ (0.12 ) $  $ (0.41 ) $ 

(1) In a period with net income, both earnings and dividends (if any) are allocated to participating securities. In a period with a net loss, only declared dividends (if any) are allocated to participating securities.

4. Loans, Notes and Certificates, and Loan Servicing Rights

Loans, Notes and Certificates

Our marketplace is where borrowers and investors engage in transactions relating to standard or custom program loans. Standard program loans are unsecured, fixed rate, three or five year personal loans in amounts ranging from $1,000 to $35,000 made to borrowers meeting strict credit criteria, including a FICO score of at least 660. Custom program loans are generally new offerings and loans that do not meet the requirements of the standard program and/or loans with longer maturities that we believe to be attractive to most investors. Currently, custom program loans include small business, education and patient finance loans. Small business loans are unsecured and fixed rate loans in amounts ranging from $15,000 to $100,000, with various maturities between one and five years. Education and patient finance loans are issued in amounts ranging from $499 to $40,000 and various maturities between six and 72 months.

Investors can invest in loans that are offered through our marketplace. We issue notes and the Trust issues certificates.

At September 30, 2014 and December 31, 2013, loans and notes and certificates (in thousands) were:

Loans Notes and Certificates September 30,

2014 December 31,

2013 September 30,

2014 December 31,

2013 Aggregate principal balance outstanding $ 2,566,477 $ 1,849,042 $ 2,584,441 $ 1,859,982 Fair value adjustments (32,806 ) (20,000 ) (32,801 ) (19,992 ) Fair Value $ 2,533,671 $ 1,829,042 $ 2,551,640 $ 1,839,990

Loans facilitated by Springstone are originated, owned and serviced by the issuing banks and are therefore not recorded on our condensed consolidated balance sheet nor are the loans cash flows recorded on our condensed consolidated statement of cash flows.

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At September 30, 2014, outstanding loans underlying notes and certificates had original maturities between 12 months and 60 months and are paid monthly with fixed interest rates ranging from 5.42% to 29.90% and various maturity dates through September 2019. At December 31, 2013, outstanding loans underlying notes and certificates had original terms of 36 months or 60 months, were paid monthly with fixed interest rates ranging from 5.42% to 26.06% and had various maturity dates through December 2018.

At September 30, 2014, we had 1,304 loans that were 90 days or more past due (which includes non-accrual loans discussed below) or the borrower has filed for bankruptcy or is deceased; these loans had a total outstanding principal balance of $15.2 million, aggregate adverse fair value adjustments totaling $13.8 million and an aggregate fair value of $1.4 million. At December 31, 2013, we had 989 loans that were 90 days or more past due (which includes non-accrual loans discussed below) or the borrower has filed for bankruptcy or is deceased; these loans had a total outstanding principal balance of $10.2 million, aggregate adverse fair value adjustments totaling $9.1 million and an aggregate fair value of $1.1 million.

We place loans on non-accrual status once they are 120 days past due. At September 30, 2014, we had 51 loans that were over 120 days past due and classified as non-accrual loans, which had a total outstanding principal balance of $0.5 million, aggregate adverse fair value adjustments totaling $0.4 million and an aggregate fair value of $0.1 million. At December 31, 2013, we had 111 loans that were over 120 days past due and classified as non-accrual loans, which had a total outstanding principal balance of $1.1 million, aggregate adverse fair value adjustments totaling $0.9 million and an aggregate fair value of $0.2 million.

Loan Servicing Rights

We record servicing assets and liabilities at their estimated fair values when we sell whole loans to unrelated third-party whole loan buyers or when the servicing contract commences.

At September 30, 2014, loans underlying loan servicing rights had a total principal balance of $1.37 billion, original terms between 12 and 60 months and are paid monthly with fixed interest rates ranging from 5.90% to 33.15% and various maturity dates through September, 2019. At December 31, 2013, loans underlying loan servicing rights had a total principal balance of $0.41 billion, original terms between 36 months and 60 months and are paid monthly with fixed interest rates ranging from 6.00% to 26.06% and various maturity dates through December, 2018.

5. Fair Value of Financial Instruments Measured at Fair Value

We use fair value measurements to record fair value adjustments to loans, loan servicing rights, notes and certificates that are recorded at fair value on a recurring basis. The fair values of loans, loan servicing rights, notes and certificates are determined using a discounted cash flow methodology utilizing market participant assumptions as discussed in Valuation Method section below.

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As our loans and related notes and certificates, and loan servicing rights do not trade in an active market with readily observable prices, we use significant unobservable inputs to measure the fair value of these assets and liabilities. Accordingly, we classify them as Level 3 as follows (in thousands):

Level 1 Inputs Level 2 Inputs Level 3 Inputs Total September 30, 2014 Assets Loans $  $  $ 2,533,671 $ 2,533,671 Servicing asset   1,520 1,520 Total Assets $  $  $ 2,535,191 $ 2,535,191 Liabilities Notes and certificates $  $  $ 2,551,640 $ 2,551,640 Servicing liability   3,712 3,712 Total Liabilities $  $  $ 2,555,352 $ 2,555,352 December 31, 2013 Assets Loans $  $  $ 1,829,042 $ 1,829,042 Servicing asset   534 534 Total Assets $  $  $ 1,829,576 $ 1,829,576 Liabilities Notes and certificates $  $  $ 1,839,990 $ 1,839,990 Servicing liability   936 936 Total Liabilities $  $  $ 1,840,926 $ 1,840,926

Financial instruments are categorized in the Level 3 valuation hierarchy based on the significance of unobservable factors in the overall fair value measurement. Our fair value approach for Level 3 instruments primarily uses unobservable inputs, but may also include observable, actively quoted components derived from external sources. As a result, the realized and unrealized gains and losses for assets and liabilities within the Level 3 category presented in the tables below may include changes in fair value that were attributable to both observable and unobservable inputs.

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Significant Unobservable Inputs

The following table presents quantitative information about the significant unobservable inputs used for our Level 3 fair value measurements at September 30, 2014 and December 31, 2013:

September 30, 2014 Range of Inputs Unobservable Input Minimum Maximum Weighted

Average Loans, notes & certificates and servicing asset/liability Discount rate 5.2 % 23.6 % 10.6 % Loans, notes & certificates and servicing asset/liability Net cumulative expected loss 0.3 % 21.8 % 9.7 % Servicing asset/liability Market servicing rate (% per annum on loan balance) 0.5 % 0.7 % 0.5 % December 31, 2013 Range of Inputs Unobservable Input Minimum Maximum Weighted

Average Loans, notes & certificates and servicing asset/liability Discount rate 5.9 % 15.9 % 10.2 % Loans, notes & certificates and servicing asset/liability Net cumulative expected loss 2.1 % 23.7 % 10.1 % Servicing asset/liability Market servicing rate (% per annum on loan balance) 0.4 % 0.4 % 0.4 %

Valuation Method

The valuation technique used for our Level 3 assets and liabilities is described below.

Loans, Notes and Certificates

Discounted cash flow  The discounted cash flow valuation techniques generally consist of developing an estimate of future cash flows that are expected to occur over the life of a financial instrument and then discounting those cash flows at a rate of return that results in the fair value amount.

Significant unobservable inputs presented in the table above are those we consider significant to the estimated fair values of the Level 3 assets and liabilities. We consider unobservable inputs to be significant, if by their exclusion, the estimated fair value of the Level 3 asset or liability would be impacted by a significant percentage change, or based on qualitative factors such as the nature of the instrument and significance of the unobservable inputs relative to other inputs used within the valuation. The following is a description of the significant unobservable inputs provided in the table.

Discount rate  The discount rate is a rate of return used to discount future expected cash flows to arrive at a present value, which represents the fair value of the loans, notes and certificates. The discount rates for the projected net cash flows of loans are our estimates of the rates of return that investors in unsecured consumer credit obligations would require when investing in the various credit grades of loans. The discount rates for the projected net cash flows of the notes and certificates are our estimates of the rates of return, including risk premiums (if significant) that investors in unsecured consumer credit obligations would require when investing in notes issued by us and certificates issued by the Trust with cash flows dependent on specific grades of loans. Discount rates for existing loans, notes and certificates are adjusted to reflect the time value of money. A risk premium component is implicitly included in the discount rates to reflect the amount of compensation market participants require due to the uncertainty inherent in the instruments cash flows resulting from risks such as credit and liquidity.

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Net cumulative expected loss  The net cumulative expected loss is an estimate of the net cumulative principal payments that will not be repaid over the entire life of a loan, note or certificate, expressed as a percentage of the original principal amount of the loan, note or certificate. The estimated net cumulative loss is the sum of the net losses estimated to occur each month of the life of a new loan, note or certificate. Therefore, the total net losses estimated to occur over the remaining maturity of existing loans, notes and certificates are less than the estimated net cumulative losses of comparable new loans, notes and certificates. A given months estimated net losses are a function of two variables:

(i) estimated default rate, which is an estimate of the probability of not collecting the remaining contractual principal amounts owed and,

(ii) estimated net loss severity, which is the percentage of contractual principal cash flows lost in the event of a default, net of the average net recovery, expected to be received on a defaulted loan, note or certificate.

The majority of fair value adjustments included in earnings is attributable to changes in estimated instrument-specific future credit losses. All fair valuation adjustments were related to Level 3 instruments for the nine months ended September 30, 2014 and 2013. A specific loan that is projected to have higher future default losses than previously estimated has lower expected future cash flows over its remaining life, which reduces its estimated fair value. Conversely, a specific loan that is projected to have lower future default losses than previously estimated has increased expected future cash flows over its remaining life, which increases its fair value. Because the payments to holders of notes and certificates depend on the payments received on loans, a reduction or increase of the expected future payments on loans will decrease or increase the estimated fair values of the related notes and certificates. Expected losses and actual charge-offs on loans are offset to the extent that the loans are financed by notes and certificates that effectively absorb the related loan losses.

Our and the Trusts obligation to pay principal and interest on any note or certificate, as applicable, is equal to the pro-rata portion of the payments, if any, received on the related loan subject to applicable fees. The gross effective interest rate associated with notes or certificates is the same as the interest rate paid on the underlying loan. At September 30, 2014, the discounted cash flow methodology used to estimate the notes and certificates fair values uses the same projected net cash flows as their related loans.

The fair value adjustments for loans were largely offset by the fair value adjustments of the notes and certificates due to the member payment dependent design of the notes and certificates and because the principal balances of the loans were very close to the combined principal balances of the notes and certificates.

The following tables present additional information about Level 3 loans, notes and certificates measured at fair value on a recurring basis for the three and nine months ended September 30, 2014 and September 30, 2013 (in thousands):

Three Months Ended Three Months Ended September 30, 2014 September 30, 2013 Loans Notes and

Certificates Loans Notes and

Certificates Fair value at June 30, $ 2,326,202 $ 2,336,595 $ 1,237,468 $ 1,242,668 Purchases of loans 994,497  567,181  Issuances of notes and certificates  532,034  435,489 Whole loan sales (462,523 )  (131,669 )  Principal payments (288,102 ) (280,643 ) (140,156 ) (139,049 ) Recoveries from sale and collection of charged-off loans (2,594 ) (2,589 ) (535 ) (526 ) Carrying value before fair value adjustments 2,567,480 2,585,397 1,532,289 1,538,582 Fair value adjustments, included in earnings (33,809 ) (33,757 ) (15,613 ) (15,607 ) Fair value at September 30, $ 2,533,671 $ 2,551,640 $ 1,516,676 $ 1,522,975

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Nine Months Ended Nine Months Ended September 30, 2014 September 30, 2013 Loans Notes and

Certificates Loans Notes and

Certificates Fair value at December 31, $ 1,829,042 $ 1,839,990 $ 781,215 $ 785,316 Purchases of loans 2,628,758  1,366,207  Issuances of notes and certificates  1,534,011  1,115,694 Whole loan sales (1,094,482 )  (250,433 )  Principal payments (739,506 ) (732,343 ) (341,256 ) (339,048 ) Recoveries from sale and collection of charged-off loans (5,178 ) (5,153 ) (1,180 ) (1,139 ) Carrying value before fair value adjustments 2,618,634 2,636,505 1,554,553 1,560,823 Fair value adjustments, included in earnings (84,963 ) (84,865 ) (37,877 ) (37,848 ) Fair value at September 30, $ 2,533,671 $ 2,551,640 $ 1,516,676 $ 1,522,975

Loan Servicing Rights

Discounted cash flow  The discounted cash flow valuation techniques generally consist of developing an estimate of future cash flows that are expected to occur over the life of a financial instrument and then discounting those cash flows at a rate of return that results in the fair value amount.

Significant unobservable inputs presented in the table above are those we consider significant to the estimated fair values of the Level 3 assets and liabilities. We consider unobservable inputs to be significant, if by their exclusion, the estimated fair value of the Level 3 asset or liability would be impacted by a significant percentage change, or based on qualitative factors such as the nature of the instrument and significance of the unobservable inputs relative to other inputs used within the valuation. The following is a description of the significant unobservable inputs provided in the table.

Market servicing rate  We estimate adequate servicing compensation rates of what a market participant would earn to service the loans that we sell to, or that are acquired by, third parties. We estimated these market servicing rates based on observable market rates for other loan types in the industry, adjusted for the unique loan attributes that are present in the loans we sell and service (i.e., unsecured fixed rate fully amortizing loans, ACH loan payments, intermediate terms, prime credit grades and sizes) and a market servicing benchmarking analysis performed by an independent valuation firm.

Discount rate  The discount rate is a rate of return used to discount future expected cash flows to arrive at a present value, which represents the fair value of the loan servicing rights. The discount rates for the projected net cash flows of loan servicing rights are our estimates of the rates of return that investors in servicing rights for unsecured consumer credit obligations would require for the various credit grades of the underlying loans. Discount rates for servicing rights on existing loans are adjusted to reflect the time value of money. A risk premium component is implicitly included in the discount rates to reflect the amount of compensation market participants require due to the uncertainty inherent in the instruments cash flows resulting from risks such as credit and liquidity.

Net cumulative expected loss  The net cumulative expected loss is an estimate of the net cumulative principal payments that will not be repaid over the entire life of a loan expressed as a percentage of the original principal amount of the loan. The assumption regarding net cumulative losses reduces the projected balances and expected terms of the loans, which are used to project future servicing revenues. The estimated net cumulative loss is the sum of the net losses estimated to occur each month of the life of a new loan. A given months estimated net losses are a function of two variables:

(i) estimated default rate, which is an estimate of the probability of not collecting the remaining contractual principal amounts owed and,

(ii) estimated net loss severity, which is the percentage of contractual principal cash flows lost in the event of a default, net of the average net recovery, expected to be received on a defaulted loan.

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The following tables present additional information about Level 3 servicing assets and liabilities measured at fair value on a recurring basis for the three and nine months ended September 30, 2014 and September 30, 2013 (in thousands):

Three Months Ended Three Months Ended September 30, 2014 September 30, 2013 Servicing

Assets Servicing

Liabilities Servicing

Assets Servicing

Liabilities Fair value at June 30, $ 1,034 $ 2,736 $ 7 $ 455 Additions 727 1,810 146 374 Changes in fair value due to: Realization of expected cash flows (270 ) (715 ) 1 (98 ) Changes in market inputs or assumptions used in the valuation model 29 (119 )  Fair value at September 30, $ 1,520 $ 3,712 $ 154 $ 731

Nine Months Ended Nine Months Ended September 30, 2014 September 30, 2013 Servicing

Assets Servicing

Liabilities Servicing

Assets Servicing

Liabilities Fair value at December 31, $ 534 $ 936 $  $  Additions 1,885 3,464 153 899 Changes in fair value due to: Realization of expected cash flows (555 ) (1,275 ) 1 (168 ) Changes in market inputs or assumptions used in the valuation model (344 ) 587   Fair value at September 30, $ 1,520 $ 3,712 $ 154 $ 731

Significant Recurring Level 3 Fair Value Asset and Liability Input Sensitivity

Changes in the unobservable inputs discussed above may have a significant impact on fair value. Certain of these unobservable inputs will (in isolation) have a directionally consistent impact on the fair value of the instrument for a given change in that input. Alternatively, the fair value of the instrument may move in an opposite direction for a given change in another input.

For example, increases in the discount rate and net cumulative expected loss rate each will reduce the estimated fair value of loans, notes and certificates. For loan servicing rights, an increase in the discount rate, net cumulative expected loss rate, or market servicing rate will reduce the fair value of the loan servicing rights. When multiple inputs are used within the valuation technique of a loan, loan servicing rights, note or certificate, a change in one input in a certain direction may be offset by an opposite change in another input.

6. Fair Value of Financial Instruments Not Measured at Fair Value on a Recurring Basis

The following are descriptions of the valuation methodologies used for estimating the fair value of financial instruments not recorded at fair value on a recurring basis in the condensed consolidated balance sheet; these financial instruments are carried at historical cost or amortized cost in the condensed consolidated balance sheets.

 Short-term financial assets: Short-term financial assets include cash and cash equivalents, restricted cash, and accrued interest receivable. These assets are carried at historical cost. The carrying amount approximates fair value due to the short term nature of the financial instruments.

 Short-term financial liabilities: Short-term financial liabilities include accounts payable, accrued interest payable, and payables to investors. These liabilities are carried at historical cost. The carrying amount approximates fair value due to the short term nature of the financial instruments.

 Term Loan: Based on the frequent interest reset features of the term loan, we consider the carrying value of the term loan to approximate its fair value as of September 30, 2014.

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7. Property, Equipment and Software, net

Property, equipment and software consist of the following (in thousands):

September 30, 2014 December 31, 2013 Internally developed software $ 12,364 $ 4,188 Computer equipment 7,610 4,019 Leasehold improvements 4,488 2,700 Purchased software 2,829 913 Furniture and fixtures 2,244 836 Construction in progress 126 1,978 Other  26 Total property, equipment and software 29,661 14,660 Accumulated depreciation and amortization (5,975 ) (2,065 ) Property, equipment and software, net $ 23,686 $ 12,595

Depreciation and amortization expense on property, equipment and software for the three months ended September 30, 2014 and 2013 was $1.8 million and $0.3 million, respectively. Depreciation and amortization expense on property, equipment and software for the nine months ended September 30, 2014 and 2013 was $4.1 million and $0.9 million, respectively.

8. Other Assets

Other assets consist of the following (in thousands):

September 30, 2014 December 31, 2013 Prepaid expenses $ 3,777 $ 3,546 Prepaid compensation 2,988  Prepaid offering cost 2,940  Accounts receivable 2,538 439 Loan servicing assets at fair value 1,520 534 Debt issuance costs, net 993  Receivable from investors 740 18,116 Deposits 354 193 Tenant improvement receivable  504 Other 671 589 Total other assets $ 16,521 $ 23,921

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9. Springstone Acquisition

On April 17, 2014, we acquired all of the outstanding limited liability company interests of Springstone (the Acquisition). As a result of the closing of the Acquisition, Springstone became our wholly owned subsidiary.

Springstone facilitates education and patient finance loans through a network of providers utilizing two issuing banks. Each of Springstones issuing banks originates, holds and services the loans they issue. Springstone earns fee revenue from providers for facilitating loans to their customers. The acquisition of Springstone expands the services we offer to both borrowers and will expand services we offer to lenders/investors. We have included the financial results of Springstone in the condensed consolidated financial statements from the date of acquisition.

Under the terms of the purchase agreement, the sellers received at the closing an aggregate of $113 million in cash and $25 million worth of shares of our Series F convertible preferred stock. In connection with the acquisition, we also paid $2.4 million for transaction costs incurred by Springstone. For accounting purposes, the purchase price was $111.8 million, which was comprised of $109.0 million in cash and shares of Series F convertible preferred stock with an aggregate value of $2.8 million. To secure the retention of certain key employees, a total of $25.6 million comprised of $22.1 million of shares of Series F convertible preferred stock (Escrow Shares) and $3.5 million of cash were placed in a third-party escrow, and are subject to certain vesting and forfeiture conditions applicable to these employees continuing employment over a three-year period from the closing. These amounts will be accounted for as a compensation arrangement and expensed over the three-year vesting period. Additionally, $19.0 million of the cash consideration and certain Escrow Shares were placed in a third-party escrow for 15 months from the closing date to secure, in part, the indemnification obligations of the sellers under the purchase agreement.

The cash portion of the consideration was funded by a combination of cash from us and proceeds from a debt financing and Series F convertible preferred stock financing (see Note 12  Term Loan and Note 13  Stockholders Equity ).

We have completed the allocation of the purchase price to acquired assets and liabilities with the exception of finalizing the determination of certain contingent liabilities and the finalization of any deferred tax asset or liability as of the acquisition date. The preliminary purchase price allocation as of the acquisition date is as follows (in thousands):

Fair Value Assets: Cash $ 2,256 Restricted cash 1,581 Property, equipment and software 366 Other assets 599 Identified intangible assets 40,200 Goodwill 72,592 Liabilities: Accounts payable 239 Accrued expenses and other liabilities 5,536 Total purchase consideration $ 111,819

The goodwill balance is primarily attributed to expected operational synergies, the combined workforce, and the future development initiatives of the combined workforce. Goodwill is expected to be deductible for U.S. income tax purposes.

The amounts of net revenue and earnings (losses) of Springstone included in our condensed consolidated statement of operations from the acquisition date of April 17, 2014 to September 30, 2014 were $10.4 million and $(4.4) million, respectively. The amounts of revenue and earnings (losses) of Springstone included in our condensed consolidated statement of operations for the three months ended September 30, 2014 were $5.7 million and $(2.7) million, respectively. We recorded acquisition-related expenses of $8 thousand and $2.3 million for the three and nine months ended September 30, 2014, respectively, which is included in general and administrative expense.

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The following pro forma financial information summarizes the combined results of operations for us and Springstone, as though the companies were combined as of January 1, 2013. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have resulted had the acquisition occurred as of January 1, 2013, nor is it indicative of future operating results. The pro forma results presented below include interest expense on the debt financing, amortization of acquired intangible assets, compensation expense related to the post-acquisition compensation arrangements entered into with the continuing employees, and tax expense (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30, 2014 2013 2014 2013 Total net revenue $ 56,074 $ 31,437 $ 148,317 $ 75,891 Net loss (1) $ (5,947 ) $ (843 ) $ (21,403 ) $ (15,623 ) Basic net loss per share attributable to common stockholders $ (0.10 ) $ (0.02 ) $ (0.37 ) $ (0.31 ) Diluted net loss per share attributable to common stockholders $ (0.10 ) $ (0.02 ) $ (0.37 ) $ (0.31 )

(1) Net loss for the nine months ended September 30, 2013 includes $8.6 million of one-time acquistion-related costs and compensation expenses.

10. Goodwill and Other Intangible Assets

Goodwill

Goodwill consisted of the following (in thousands):

Balance at December 31, 2013 $  Acquisition of Springstone 72,592 Balance at September 30, 2014 $ 72,592

There was no impairment of goodwill during the nine months ended September 30, 2014. During the third quarter of 2014, we recorded an immaterial amount of adjustment to goodwill for the finalization of the net working capital balance and a revenue refund liability as of the acquisition date.

Intangible Assets

Intangible assets as of September 30, 2014 are as follows (in thousands):

September 30, 2014 Gross

Carrying Value Accumulated

Amortization Net

Carrying Value Remaining

Useful Life

(In Years) Customer relationships $ 39,500 $ (2,382 ) $ 37,118 13.5 Technology 400 (60 ) 340 2.5 Brand name 300 (68 ) 232 1.5 Total intangible assets subject to amortization $ 40,200 $ (2,510 ) $ 37,690 13.3

The customer relationship intangible assets are being amortized on an accelerated basis over a 14 year period. The technology and brand name intangible assets are being amortized on a straight line basis over three and two years, respectively. Amortization expense associated with intangible assets for the three and nine months ended September 30, 2014 was $1.4 million and $2.5 million, respectively.

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The expected future amortization expense for intangible assets as of September 30, 2014 is as follows (in thousands):

Remainder of 2014 $ 1,388 2015 5,287 2016 4,801 2017 4,287 2018 3,872 Thereafter 18,055 Total $ 37,690

11. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following (in thousands):

September 30, 2014 December 31, 2013 Accrued compensation $ 8,902 $ 5,243 Accrued service fees 7,128 2,057 Loan servicing liability at fair value 3,712 936 Contingent liabilities 1,875  Deferred rent 1,045 653 Deferred tax liability 1,004  Transaction fee refund reserve 682  Deferred revenue 472  Early stock option exercise liability 450  Other accrued expenses 734 239 Total accrued expenses and other liabilities $ 26,004 $ 9,128

12. Term Loan

In connection with the acquisition of Springstone, we entered into a Credit and Guaranty Agreement with several lenders on April 16, 2014, under which the lenders made a $50.0 million term loan to us. In connection with our entry into the credit agreement, we entered into a pledge and security agreement with Morgan Stanley Senior Funding, Inc. as collateral agent.

The term loan matures on April 16, 2017 and requires principal payments of $312,500 per quarter plus interest, with the remaining then unpaid principal amount payable at maturity. The term loan can be prepaid at any time without premium or penalty, subject to a minimum prepayment of $1.0 million. The term loan is required to be prepaid in certain circumstances, including upon sales of assets other than loans and upon the issuance of debt (other than notes and certificates) or redeemable capital stock.

Borrowings under the term loan bear interest, which at our option may be either (i) a floating base rate tied to an underlying index plus an additional 1.25% per annum or (ii) a Eurocurrency rate (for an interest period of one, two, three or six months) plus an additional 2.25% per annum (a Eurocurrency Rate Loan). If a Eurocurrency Rate Loan is selected, customary breakage costs are payable in the case of any prepayment on a date other than the last day of an interest period. The term loan was originally tied to the prime rate but was subsequently converted to a Eurocurrency Rate Loan. The weighted average interest rate on the Term Loan was 2.57% and 2.65% for the three and nine months ended September 30, 2014, respectively.

The term loan is also guaranteed by Springstone and LCA and is secured by a first priority lien and security interest in substantially all of our and our subsidiaries assets, not otherwise pledged or restricted, subject to certain exceptions.

The credit agreement and pledge and security agreement contain certain affirmative and negative covenants applicable to us and our subsidiaries. These covenants include restrictions on our ability to make certain restricted payments, including restrictions on our ability to pay dividends, incur additional indebtedness, place liens on assets, merge or consolidate, make investments and enter into certain transactions with our affiliates. The credit agreement also requires us to maintain a maximum total leverage ratio (as defined in the credit agreement) of less than 5.50:1 initially, and decreasing to 3.50:1 after September 30, 2015 (on a consolidated basis). The total leverage ratio as of September 30, 2014 was 2.25:1.

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As of September 30, 2014, the carrying value of the term loan was $49.2 million. At September 30, 2014, the current portion of the term loan was $1.2 million and the noncurrent portion of the outstanding balance was $48.0 million. We did not have a term loan outstanding balance at December 31, 2013.

In connection with the term loan, we capitalized $1.2 million of debt issuance costs. As of September 30, 2014, the net balance of debt issuance costs was $1.0 million. Interest expense on the term loan, including amortization of debt issuance cost, was $0.1 million and $0.2 million during the three and nine months ended September 30, 2014, respectively. We did not have interest expense on the term loan for the three and nine months ended September 30, 2013.

Future principal payments on the term loan are payable as follows (in thousands):

Remainder of 2014 $ 312 2015 1,250 2016 1,250 2017 46,563 Total principal payments 49,375 Unamortized discount, net (156 ) Total $ 49,219

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13. Stockholders Equity

Convertible Preferred Stock (in thousands, except share amounts)

Preferred stock is issuable in series, and our Board of Directors is authorized to determine the rights, preferences and terms of each series. The following table provides details regarding each series of preferred stock authorized by our Board of Directors. The outstanding shares of convertible preferred stock are not mandatorily redeemable. A description of the preferred stock including conversion, liquidation preference, dividends and voting rights are included in Note 9  Stockholders Equity in our Annual Report on Form 10-K for the year ended December 31, 2013, with the exception of Series F convertible preferred stock which is described below.

September 30,

2014 December 31,

2013 Preferred stock, $0.01 par value; 250,614,174 and 246,470,064 total shares authorized at September 30, 2014 and December 31, 2013, respectively: Series A convertible preferred stock, 67,651,596 and 68,025,100 shares designated at September 30, 2014 and December 31, 2013, respectively; 66,422,077 and 66,100,344 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively; aggregate liquidation preference of $17,685 and $17,599 at September 30, 2014 and December 31, 2013, respectively. $ 17,487 $ 17,402 Series B convertible preferred stock, 65,577,300 and 65,642,104 shares designated at September 30, 2014 and December 31, 2013, respectively; 65,577,300 shares issued and outstanding at September 30, 2014 and December 31, 2013; aggregate liquidation preference of $12,268 at September 30, 2014 and December 31, 2013. 12,164 12,164 Series C convertible preferred stock, 62,486,436 shares designated at September 30, 2014 and December 31, 2013; 62,486,436 shares issued and outstanding at September 30, 2014 and December 31, 2013; aggregate liquidation preference of $24,490 at September 30, 2014 and December 31, 2013. 24,388 24,388 Series D convertible preferred stock, 36,030,712 shares designated at September 30, 2014 and December 31, 2013; 36,030,712 shares issued and outstanding at September 30, 2014 and December 31, 2013; aggregate liquidation preference of $32,044 at September 30, 2014 and December 31, 2013. 31,943 31,943 Series E convertible preferred stock, 10,000,000 and 14,285,712 shares designated at September 30, 2014 and December 31, 2013, respectively; 10,000,000 shares issued and outstanding at September 30, 2014 and December 31, 2013; aggregate liquidation preference of $17,500 at September 30, 2014 and December 31, 2013. 17,347 17,347 Series F convertible preferred stock, 8,868,130 shares designated at September 30, 2014; 8,834,486 shares issued and outstanding at September 30, 2014; aggregate liquidation preference of $89,858 at September 30, 2014. 89,661  Subtotal $ 192,990 $ 103,244 Unamortized compensation associated with Series F convertible preferred stock (15,690 )  Total preferred stock $ 177,300 $ 103,244

In connection with the Acquisition, we sold an aggregate of 6,390,556 shares of our Series F convertible preferred stock, par value $0.01 per share (the Financing Shares) for aggregate gross proceeds of approximately $65.0 million, pursuant to a Series F Preferred Stock Purchase Agreement. We sold the Financing Shares pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended; all investors in the Preferred Stock Financing were accredited investors (as defined under Rule 501 of Regulation D) and we made no general solicitation for the sale of the Financing Shares. The Financing Shares are convertible into common stock, par value $0.01 per share, on a one-for-one basis, as adjusted from time to time pursuant to the anti-dilution provisions of our Restated Certificate of Incorporation.

In connection with the sale of Series F convertible preferred stock in April 2014, we filed a Restated Certificate of Incorporation with the State of Delaware, which increased the total number of shares that we were authorized to issue from 606,470,064 shares to 622,614,174, 372,000,000 shares of which were designated as common stock and 250,614,174 shares of which were designated as preferred stock. Of the total shares of preferred stock, 67,651,596 shares were designated as Series A convertible preferred stock, 65,577,300 shares were designated as Series B convertible preferred stock, 62,486,436 shares were designated as Series C convertible preferred stock, 36,030,712 shares were designated as Series D convertible preferred stock, 10,000,000 shares were designated as Series E convertible preferred stock and 8,868,130 were designated as Series F convertible preferred stock.

As part of the Acquisition, the sellers received shares of our Series F convertible preferred stock having an aggregate value of $25 million (the Share Consideration). $22.1 million of the Share Consideration is subject to certain vesting and forfeiture conditions over a three-year period for key continuing employees. This is accounted for as a compensation arrangement and expensed over the three-year vesting period. For the three and nine months ended September 30, 2014, we recognized $3.5 million and $6.4 million, respectively, of compensation expense which is reported in general and administrative expenses related to this arrangement.

At September 30, 2014, we had 1,189,392 shares of outstanding convertible preferred Series A stock warrants, which shares of preferred stock have been reserved for future issuance. The convertible preferred Series A stock warrants are fully exercisable with exercise prices of $0.2663 per share and expire in 2018.

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Common Stock

At September 30, 2014, we had shares of common stock authorized and reserved for future issuance as follows:

Options to purchase common stock 54,587,814 Options available for future issuance 3,359,320 Common stock warrants 625,988 Total common stock authorized and reserved for future issuance 58,573,122

An aggregate of 372,000,000 shares of common stock have been authorized for issuance. During the nine months ended September 30, 2014, 5,638,830 stock options were exercised in exchange for proceeds of $3.0 million. During the nine months ended September 30, 2014, we issued 295,720 common shares for proceeds of $0.1 million upon the exercise of common stock warrants. Common stock warrants are fully exercisable with exercise prices of $0.01 to $0.3919 per share and expire in 2021.

14. Stock-Based Compensation and Other Employee Benefit Plans

Stock-Based Compensation Expense

Total stock-based compensation expense recorded for stock options, warrants, and our consideration of Escrow Shares related to the Acquisition in the three and nine months ended September 30, 2014 and 2013 is summarized as follows (in thousands):

Three Months Ended Nine Months Ended September 30, September 30, 2014 2013 2014 2013 Stock-Based Compensation Expense: Sales and marketing $ 912 $ 506 $ 5,029 $ 767 Origination and servicing 599 105 1,427 170 General and administrative: Engineering and product development 1,492 519 3,487 1,019 Other 7,534 741 15,946 1,390 Total stock-based compensation expense $ 10,537 $ 1,871 $ 25,889 $ 3,346

Included in stock-based compensation for the nine months ended September 30, 2014 was $3.0 million of expense for the accelerated vesting of stock options for a terminated employee that was accounted for as a stock option modification. There was no accelerated vesting during the three months ended September 30, 2014 or the nine months ended September 30, 2013.

We capitalized $0.6 million and $1.2 million of stock-based compensation expense associated with the cost for developing software for internal use during the three and nine months ended September 30, 2014, respectively. We did not capitalize any of the stock-based compensation expense for the three and nine months ended September 30, 2013.

Stock Incentive Plan

As of September 30, 2014, total unrecognized compensation expense was $97.8 million and this expense is expected to be recognized over the next 3.6 years. The total intrinsic values of options exercised for the nine months ended September 30, 2014 and 2013 were $40.4 million and $11.1 million, respectively. The total fair value of shares vested for the nine months ended September 30, 2014 and 2013 were $14.7 million and $3.2 million, respectively.

For the nine months ended September 30, 2014, we granted service-based stock options to purchase 18,511,572 shares of common stock with a weighted average exercise price of $5.91 per share, a weighted average grant date fair value of $4.37 per share and an aggregate estimated fair value of approximately $81.0 million.

For the nine months ended September 30, 2013, we granted service-based stock options to purchase 6,267,000 shares of common stock with a weighted average exercise price of $1.46 per share, a weighted average grant date fair value of $2.24 per share and a total estimated fair value of approximately $21.9 million.

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We used the Black-Scholes option pricing model with the following assumptions to estimate the fair value of stock options granted during the periods indicated:

Three Months Ended September 30, Nine Months Ended September 30, 2014 2013 2014 2013 Assumed forfeiture rate (annual %) 5.0 % N/A (1) 5.0 % 5.0 % Expected dividend yield 0.0 % N/A (1) 0.0 % 0.0 % Weighted average assumed stock price volatility 50.5 % N/A (1) 54.0 % 63.5 % Weighted average risk-free rate 1.9 % N/A (1) 1.9 % 1.1 % Weighted average expected life (years) 6.25 N/A (1) 6.38 6.25

(1) We did not grant any stock options during the third quarter of 2013.

Option activity under the Option Plan for the nine months ended September 30, 2014 is summarized as follows:

Options Outstanding Number of

Shares Weighted-

Average

Exercise Price

Per Share Weighted-Average

Remaining

Contractual Life

(in years) Aggregate Intrinsic

Value Outstanding at December 31, 2013 43,314,728 $ 0.94 Options Granted 18,511,572 $ 5.91 Options Exercised (5,638,830 ) $ 0.53 Options Forfeited/Expired (1,599,656 ) $ 2.41 Outstanding at September 30, 2014 54,587,814 $ 2.63 8.16 $ 480,704,398 Vested and expected to vest at September 30, 2014 51,863,779 $ 2.53 8.11 $ 466,380,050 Exercisable at September 30, 2014 20,138,530 $ 0.58 6.84 $ 218,438,183

401(k) Plan

We maintain a 401(k) defined contribution plan that covers substantially all of our employees. Participants may elect to contribute a portion of their annual compensation up to the maximum limit allowed by federal tax law. In the second quarter of 2014, management approved an employer 401(k) match of up to 3% of an employees eligible compensation with a maximum annual match of $5,000 per employee. For fiscal year 2014, the 401(k) match will be retroactively applied to employees eligible contributions from January 1, 2014. The total 401(k) match expense for the three and nine months ended September 30, 2014 was $0.3 million and $0.6 million, respectively.

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15. Income Taxes

For the three and nine months ended September 30, 2014, we recorded $0.4 million and $1.1 million of income tax expense, respectively. The $1.1 million of income tax expense relates to the amortization of tax deductible goodwill from the Acquisition which gives rise to an indefinite-lived deferred tax liability. There was no income tax benefit recorded on the pre-tax loss due to an increase in the deferred tax asset valuation allowance. We recorded no income tax expense for the nine month period ended September 30, 2013 because the corporate income tax liabilities due on our taxable income were offset by usage of prior years net operating losses and tax credit carryforwards.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. On the basis of this evaluation, a full valuation allowance has been recorded to recognize only deferred tax assets that are more likely than not to be realized.

At December 31, 2013, we had federal and state net operating loss (NOL) carry forwards of approximately $43.9 million and $40.7 million, respectively, to offset future taxable income. These federal and state net operating loss carry forwards will begin expiring in 2027 and 2016, respectively. Additionally, at December 31, 2013, we had federal and state research and development (R&D) tax credit carry forwards of approximately $0.6 million and $0.5 million, respectively. The federal credit carry forwards will begin expiring in 2016 and the state credits may be carried forward indefinitely.

In general, a corporations ability to utilize its NOL and R&D carryforwards may be substantially limited due to ownership changes that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended, as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively.

Due to the nature of the unrecognized tax benefits and the existence of tax attributes, we have not accrued any interest or penalties associated with unrecognized tax benefits in the condensed consolidated statement of operations nor have we recognized a liability in the condensed consolidated balance sheet.

We do not believe the total amount of unrecognized tax benefit as of September 30, 2014, will increase or decrease significantly in the next twelve months.

16. Related Party Transactions

Several of our executive officers and directors (including their immediate family members) have opened investor accounts with us, made deposits and withdrawals to their accounts and purchased notes and certificates. All note and certificate purchases made by related parties were transacted on terms and conditions that were not more favorable than those obtained by other investors.

The following table summarizes deposits and withdrawals made by related parties whose transactions totaled $120,000 or more for the nine months ended September 30, 2014 and 2013 (in thousands):

Nine Months Ended September 30, 2014 Related Party Role Deposits Withdrawals Daniel Ciporin Director $ 500 $ 63 John J. Mack Director 950 69 Larry Summers Director 200  Total $ 1,650 $ 132 Nine Months Ended September 30, 2013 Related Party Role Deposits Withdrawals Daniel Ciporin Director $ 600 $ 109 Jeffrey Crowe Director 400  John J. Mack Director 405 239 Larry Summers Director 363  Total $ 1,768 $ 348

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17. Commitments and Contingencies

Operating Lease Commitments

Corporate Headquarters . We have several operating lease agreements for space at 71 Stevenson Street in San Francisco, California, where our corporate headquarters is located. On August 12, 2014, we amended one of our lease agreements to lease additional office space. The majority of the additional space is expected to commence in the third quarter of 2015. These leases expire on June 30, 2022. On October 1, 2014, we entered into a single master lease agreement for our Corporate Headquarters that superseded all other existing lease agreements for the space. Under this lease agreement, we generally have an option to extend the leases for five years.

Other Real Estate.

We also have an operating lease agreement for space in Westborough, Massachusetts where Springstone is headquartered. On September 15, 2014, we amended our lease agreement to lease additional office space. This lease expires on January 31, 2020 with a renewal option that would extend the lease for five years.

Total facilities rental expense for the three and nine months ended September 30, 2014 was $1.0 million and $2.5 million, respectively. Total facilities rental expense for the three and nine months ended September 30, 2013 was $0.5 million and $1.3 million, respectively. As part of these lease agreements, we currently have pledged $0.2 million of cash and arranged for a $0.2 million letter of credit as security deposits.

Loan Funding Commitments

For loans listed on the platform as a result of direct marketing efforts, we have committed to invest in such loans if investors do not provide funding for all or a portion of such loans. At September 30, 2014, there were 722 such loans on the platform with an unfunded balance of $9.0 million. All of these loans were fully funded by investors by October 8, 2014.

In connection with transitional activities related to the Acquisition, in June 2014 we entered into a contingent loan purchase agreement with an issuing bank that originates loans facilitated by Springstone and a third-party investor that has agreed to purchase certain of those loans from such bank (Contingent Loan Purchase Commitment). The Contingent Loan Purchase Commitment provides that we will purchase such loans from the bank if the third-party investor defaults on its loan purchase obligations to the bank through December 31, 2014. The Contingent Loan Purchase Commitment limits the aggregate amount of such loan originations from inception of the Contingent Loan Purchase Commitment through December 31, 2014 to a maximum of $5.0 million. As of September 30, 2014, the amount remaining under the overall limit on the cumulative amount of such loan originations through December 31, 2014 was $2.2 million. We were not required to purchase any such loans pursuant to the Contingent Loan Purchase Commitment during the quarter ended September 30, 2014. We do not expect we will be required to purchase any such loans under the Contingent Loan Purchase Commitment through its expiration on December 31, 2014.

Credit Support Agreement

We are subject to a credit support agreement with a Certificate investor. The credit support agreement requires us to pledge and restrict cash in support of this contingent obligation to reimburse the investor for cumulative credit losses on loans underlying the investors Certificate, that are in excess of a specified, aggregate cumulative loss threshold. The amount of cash to be pledged varies based on the investors Certificate purchase volume and cannot exceed $5.0 million. As of September 30, 2014, cash of $3.4 million was pledged and restricted to support this contingent obligation. The amount pledged and restricted to support this contingent obligation has not changed since July 31, 2013.

As of September 30, 2014, the cumulative credit losses pertaining to the investors Certificate have not exceeded the specified threshold, nor are future cumulative credit losses expected to exceed the specified threshold, and thus no liability has been recorded. If losses related to the credit support agreement are later determined to be probable to occur and are reasonably estimable, results of operations could be affected in the period in which such losses are recorded.

Legal

In the second quarter of 2014, we offered to settle a dispute with a consultant that previously performed work for us. The dispute arose over how much compensation for the work performed was to be provided in cash and in equity and as to equity what valuations were to be used. In the third quarter of 2014, we amended our offer to the claimant for 120,000 shares of our common stock and cash consideration of $215,000. Subsequent to September 30, 2014, this offer was further amended to 80,000 shares of our common stock, an option to purchase 40,000 shares of our common stock, and cash consideration of $215,000.

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During the second quarter of 2014, we also received notice from the California Employment Development Department (EDD) that it had commenced an examination of our records concerning the employment relationship of certain individuals who performed services for us from 2011 through 2014. Based on the EDDs determination, certain of these individuals should have been classified as employees with appropriate tax withholding and employer related taxes incurred and paid. The EDD has completed its examination and issued a Final Notice of Assessment, which serves as the EDDs official notice of its determination relating to this matter. We intend to pay the assessment during the fourth quarter of 2014 and have recorded a liability for this payment as of September 30, 2014.

Additionally, we settled a claim, which arose in a prior quarter by a former employee who had asserted a claim of wrongful termination.

In connection with these matters, we recorded an additional net charge to operations of $0.2 million during the third quarter of 2014. As of September 30, 2014, the accrued liability for these matters was $1.9 million. This aggregate amount represents the probable estimate of tax and settlement liabilities. As settlements have been agreed upon, for the matters indicated above, during the quarter or subsequent to the quarter-end, we do not believe the ultimate liability for such matters will be significantly different from the accrued aggregate liability at September 30, 2014.

We received a Civil Investigative Demand from the Consumer Financial Protection Bureau (CFPB) dated June 5, 2014 related to the operations of Springstone. The purpose of the investigation is to determine whether Springstone is engaging in unlawful acts or practices in connection with the marketing, issuance, and servicing of loans for healthcare related financing. As of September 30, 2014, we had provided all of the documents requested by the CFPB. We are continuing to evaluate this matter. As of September 30, 2014, there are no probable or estimable losses related to this matter.

In addition to the foregoing, we may be subject to legal proceedings and regulatory actions in the ordinary course of business. We do not anticipate that the ultimate liability, if any, arising out of any such matter will have a material effect on our financial condition, results of operations or cash flows.

18. Subsequent Event

On October 17, 2014, we entered into a lease agreement to lease additional office space at our corporate headquarters. The lease agreement commences in the fourth quarter of 2014 with a lease term of 4.5 years and an option to extend the leases for five years. The annual lease payments for this additional lease are approximately $1.2 million.

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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this Report. In addition to historical information, this Report contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the following Managements Discussion and Analysis of Financial Condition and Results of Operations as well as in Part II Item 1A, Risk Factors. Actual results could differ materially. Important factors that could cause actual results to differ materially include, but are not limited to; the level of demand for our products and services; the intensity of competition; our ability to effectively expand and improve internal infrastructure; maintenance of positive cash flows from operations, and adverse financial, customer and employee consequences that might result if litigation were to be initiated and resolved in an adverse manner to us. Readers are cautioned not to place undue reliance on the forward-looking statements, including statements regarding our expectations, beliefs, intentions or strategies regarding the future, which speak only as of the date of this Report. We assume no obligation to update these forward-looking statements.

Overview

Lending Club is the worlds largest online marketplace connecting borrowers and investors. We believe a technology-powered marketplace is a more efficient mechanism to allocate capital between borrowers and investors than the traditional banking system. Consumers and small business owners borrow through Lending Club to lower the cost of their credit and enjoy a better experience than traditional bank lending. Investors use Lending Club to earn attractive risk-adjusted returns from an asset class that has historically been closed to individual investors and only available on a limited basis to institutional investors. Our mission is to transform the banking system to make credit more affordable and investing more rewarding.

Since beginning operations in 2007, our marketplace has facilitated over $6 billion in loans with nearly $1.2 billion of loans facilitated during the third quarter of 2014. We believe the attractiveness of our online marketplace will continue to grow to the extent the number of participants and investments enabled through our marketplace increases. We refer to this as a network effect.

Our trusted brand, scale and network effect drives significant borrowing and investing activity on our marketplace. We generate revenue from transaction fees from our marketplaces role in matching borrowers with investors to enable loan originations, servicing fees from investors and management fees for investment funds and other managed accounts. We do not assume credit risk or use our own capital to invest in loans facilitated by our marketplace, except in limited circumstances and in amounts that are not material. The capital to invest in the loans enabled through our marketplace comes directly from investors. Our proprietary technology automates key aspects of our operations, including the borrower application process, data gathering, credit decisioning and scoring, loan funding, investing and servicing, regulatory compliance and fraud detection. We operate with a lower cost structure than traditional banks due to our innovative model, online delivery and process automation, without the physical branches, legacy technology or high overhead associated with the traditional banking system.

Our marketplace is where borrowers and investors engage in transactions relating to standard or custom program loans. Standard program loans are unsecured, fixed rate, three or five year personal loans in amounts ranging from $1,000 to $35,000 made to borrowers meeting strict credit criteria, including a FICO score of at least 660. Custom program loans are generally new offerings and loans that do not meet the requirements of the standard program and/or loans with longer maturities that we believe to be attractive to most investors. Currently, custom program loans include small business and education and patient finance loans. Small business loans are fixed rate loans in amounts ranging from $15,000 to $100,000, with various maturities between one and five years. Education and patient finance loans are issued in amounts ranging from $499 to $40,000 with various maturities between six and 72 months. Standard program loans are visible through our public website and can be invested in through notes. Separately, qualified investors may also invest in standard program loans in private transactions not facilitated through our website. Custom program loans are only invested in through private transactions with qualified investors and cannot be invested in through notes.

The transaction fees we receive from issuing banks in connection with our marketplaces role in enabling loan originations range from 1% to 6% of the initial principal amount of the loan as of September 30, 2014. In addition, for education and patient finance loans, transaction fees may exceed 6% as they include fees earned from issuing banks and service providers. Servicing fees paid to us vary based along investment channels. Note investors pay us a servicing fee equal to 1% of each payment amount received from the borrower; whole loan purchasers pay a servicing fee that ranges up to 1.3% per year of the month-end principal balance of sold loans outstanding; and certificate holders generally pay a management fee typically ranging from 0.7% to 1.2% of the assets under management.

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Loans to qualified borrowers are originated by our issuing banks. Investors can invest in loans that are offered through our marketplace in one or all of the following channels:

 Notes. Pursuant to an effective shelf registration statement, investors who meet the applicable financial suitability requirements and have completed our investor account opening process may purchase unsecured, borrower payment dependent notes issued by us that correspond to payments received on an underlying standard program loan selected by the investor.

 Certificates and Funds. Accredited investors and qualified purchasers who have established a relationship with LC Advisors, LLC (LCA), a registered investment advisor and our wholly owned subsidiary, can purchase trust certificates or interests in limited partnerships that purchase trust certificates. The Trust certificates are settled with cash flows from underlying standard or custom program loans in a manner similar to the notes. These loans may be standard program or custom program loans.

 Whole Loan Purchases. Certain institutional investors, such as banks, seek to hold the actual loan on their balance sheet. To meet this need, we sell entire standard or custom program loans to investors. In connection with these sales, the investor owns all right, title and interest in each loan. For regulatory purposes, the investor also has access to the underlying borrower information, but is prohibited from contacting or marketing to the borrower in any manner and agrees to hold such borrower information in compliance with all applicable privacy laws. We continue to service these loans after they are sold and can only be removed as the servicer in limited circumstances.

Our note channel consists of the notes that we issue. When an investor registers, the investor enters into an investor agreement with us that governs the investors purchases of notes. Our investor services team provides customer support to these investors.

Our certificate channel consists of funds and accounts managed by LCA Certificate investors typically seek to invest larger amounts as compared to the average note investor and desire a more hands off approach to investing. Certificates are sold in private transactions between LC and the Trust to investors who have an established relationship with LCA. The Trust acquires and holds these loans for the sole benefit of certificate investors. Investors in certificates generally pay an asset-based management fee instead of the cash flow-based servicing fee paid by investors in notes.

LCA manages several funds that purchase certificates. Each fund provides a passive investment strategy around target loan grade and term allocation, such as 36-month 60% A and 40% B loans, and allows investors to more easily deploy large investment amounts and reinvest payments of principal and investment returns. LCA also manages separately managed accounts (SMAs). Investors who utilize SMAs often have investment criteria that differ from the LCA funds investment strategies and desire more control over their investment strategies.

Our whole loan channel consists of the whole loans that we or our issuing banks sell in their entirety to investors. Under the whole loan purchase agreements, we establish the investors accounts and set out the procedures for the purchase of loans, including any purchase amount limitations, which we control in our discretion. We and the purchaser also make limited representations and warranties and agree to indemnify each other for breaches of the purchase agreement. The purchaser also agrees to simultaneously enter into a servicing agreement with us acting as servicer. Our institutional group is the primary point of contact for whole loan purchasers throughout the life cycle of the relationship, from sourcing and establishing the relationship, negotiating the purchase and servicing agreement and managing the ongoing relationship.

For all investment channels, we agree to repurchase loans in cases of confirmed identity theft.

Stock Split

On April 15, 2014, a 2 for 1 equity stock split approved by our Board of Directors became effective, in which each outstanding share of each series or class of equity capital stock was split into two outstanding shares of such series or class of equity capital stock. Additionally, another 2 for 1 equity stock split became effective on September 5, 2014, in which each outstanding share of each series or class of equity capital stock was split into two outstanding shares of such series or class of equity capital stock. All share and per share data has been adjusted to reflect these stock splits. The par value of each of the outstanding shares remains the same at $0.01.

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Springstone Acquisition

In April, 2014, we acquired all of the outstanding limited liability company interests of Springstone, a company that facilitates education and patient finance loans through two issuing banks. For its role in loan facilitation, Springstone earns transaction fees paid by the issuing bank or service provider at the time of origination, which averaged approximately 5.0% of the initial loan balance as of September 30, 2014. Currently, Springstone does not earn any servicing fees, as loans are originated, retained and serviced by the respective issuing bank. We currently intend to continue to have these loans funded and serviced through existing issuing banks while we develop plans to integrate these loans into our standard program over time.

Key Operating and Financial Metrics

We regularly review a number of metrics to evaluate our business, measure our performance, identify trends, formulate financial projections and make strategic decisions.

The following table includes key operating and financial data (in thousands except percentages):

Three Months Ended

September 30, Nine Months Ended

September 30, 2014 2013 2014 2013 Loan originations $ 1,165,226 $ 567,142 $ 2,962,520 $ 1,366,253 Contribution (1) $ 26,881 $ 12,560 $ 63,374 $ 27,806 Contribution margin (1) 47.5 % 45.8 % 44.1 % 43.1 % Adjusted EBITDA (1) $ 7,517 $ 4,927 $ 13,384 $ 8,713 Adjusted EBITDA margin (1) 13.3 % 18.0 % 9.3 % 13.5 %

(1) Contribution, contribution margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures. For more information regarding our use of these measures and a reconciliation of these measures to the most comparable GAAP measure, see Non-GAAP Financial Measures.

Loan Originations

Loans to qualified borrowers are originated by our issuing bank partners. We generate revenue from transaction fees from our role in matching borrowers with investors to enable loans originations. We believe loan originations are a key indicator of the adoption rate of our marketplace, growth of our brand, scale of our business, strength of our network effect, economic competitiveness of our products and future growth. Total loan originations include loans acquired by us, which are either retained by us and financed primarily by notes and certificates or sold to unrelated third parties, and other loan originations by our issuing bank partners that we facilitated, but did not participate as a purchaser of the loan. Loan originations have increased significantly over time due to the increased awareness of our brand, our high borrower and investor satisfaction rates, the effectiveness of our borrower acquisition channels, a strong track record of loan performance and the expansion of our capital sources. Factors that could affect loan originations include the interest rate and economic environment, the competitiveness of our products, the success of our operational efforts to balance investor and borrower demands, any limitations on the ability of our issuing banks to originate loans, our ability to develop new products or enhance existing products for borrowers and investors, the success of our sales and marketing initiatives and the success of borrower and investor acquisition and retention.

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Non-GAAP Financial Measures

Our non-GAAP measures 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. There are a number of limitations related to the use of these non-GAAP financial measures versus their nearest GAAP equivalents. Contribution, contribution margin, adjusted EBITDA and adjusted EBITDA margin should not be viewed as substitutes for, or superior to, net income (loss) as prepared in accordance with GAAP. Other companies, including companies in our industry, may calculate these measures differently, which may reduce their usefulness as a comparative measure. Contribution, contribution margin, adjusted EBITDA and adjusted EBITDA margin do not consider the potentially dilutive impact of stock-based compensation. Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and adjusted EBITDA and adjusted EBITDA margin do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements. Adjusted EBITDA and adjusted EBITDA margin do not reflect tax payments that may represent a reduction in cash available to us.

In evaluating contribution, contribution margin, adjusted EBITDA and adjusted EBITDA margin, you should be aware that in the future we will incur expenses similar to the adjustments in this presentation.

Contribution and Contribution Margin

Contribution is a non-GAAP financial measure that we calculate as net income (loss), excluding net interest income (expense) and other adjustments, general and administrative expense, stock-based compensation, and income tax expense (benefit). Contribution margin is calculated as contribution divided by total operating revenue. Contribution and contribution margin are measures used by our management and board of directors to understand and evaluate our core operating performance and trends. Contribution and contribution margin have varied from period to period and have generally increased over time. Factors that affect our contribution and contribution margin include revenue mix, variable marketing expenses and origination and servicing expenses.

Net (loss) income is the most comparable GAAP measure to contribution. The following table presents a reconciliation of net (loss) income to contribution for each of the periods indicated (in thousands except percentages):

Three Months Ended

September 30, Nine Months Ended

September 30, 2014 2013 2014 2013 Reconciliation of Net Income (Loss) to Contribution: Net income (loss) $ (7,371 ) $ 2,713 $ (23,857 ) $ 4,450 Net interest expense (income) and other adjustments 474 (10 ) 854 (15 ) General and administration expense 31,848 9,331 78,862 22,434 Stock-based compensation (1) 1,511 611 6,456 937 Income tax expense (benefit) 419 (85 ) 1,059  Contribution $ 26,881 $ 12,560 $ 63,374 $ 27,806 Total operating revenue $ 56,538 $ 27,405 $ 143,861 $ 64,490 Contribution margin 47.5 % 45.8 % 44.1 % 43.1 %

(1) Consists of stock-based compensation expense not included in general and administrative expense as follows:

Three Months Ended

September 30, Nine Months Ended

September 30, 2014 2013 2014 2013 Stock-based compensation expense: Sales and marketing $ 912 $ 506 $ 5,029 $ 767 Origination and servicing 599 105 1,427 170 Total $ 1,511 $ 611 $ 6,456 $ 937

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Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA is a non-GAAP financial measure that we calculate as net income (loss), excluding net interest income (expense) and other adjustments, acquisition and related expense, depreciation and amortization, amortization of intangible assets, stock-based compensation expense and income tax expense (benefit). Adjusted EBITDA margin is calculated as adjusted EBITDA divided by total operating revenue. Adjusted EBITDA is a measure used by our management and board of directors to understand and evaluate our core operating performance and trends. Adjusted EBITDA has generally improved over time due to our increased revenue and efficiencies in the scale of our operations.

Net (loss) income is the most comparable GAAP measure to Adjusted EBITDA. The following table presents a reconciliation of net (loss) income to Adjusted EBITDA for each of the periods indicated (in thousands except percentages):

Three Months Ended

September 30, Nine Months Ended

September 30, 2014 2013 2014 2013 Reconciliation of Adjusted EBITDA: Net income (loss) $ (7,371 ) $ 2,713 $ (23,857 ) $ 4,450 Net interest expense (income) and other adjustments 474 (10 ) 854 (15 ) Acquisition and other related expenses 301  2,819  D